ethical corporation july august 2011

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July-August 2011 www.ethicalcorp.com The ethics of private equity Let the barbarians in! Sustainable Living How's Unilever doing? Class-action against Chiquita A difficult ethical balance Corporate sustainability in Switzerland On the rise?

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Page 1: Ethical corporation july august 2011

July-August 2011 www.ethicalcorp.com

The ethics of private equity Let the barbarians in!

Sustainable LivingHow's Unilever doing?

Class-action against Chiquita A difficult ethical balance

Corporate sustainability in SwitzerlandOn the rise?

ECM July_Layout 1 05/07/2011 09:58 Page 1

Page 2: Ethical corporation july august 2011

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ECM July_Layout 1 04/07/2011 15:39 Page 2

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ContentsEthical Corporation • July-August 2011 3

Contents

p7 Repercussions continue for Chiquita

p23 Swiss-style ethics

p34 A clean start for Unilever's plan?

Country briefing: Switzerland

23 Running like clockwork

25 Responding to changing businessenvironment

28 Secret society?

29 NGO home

30 Light touch authorities

31 Chemicals Health risk hysteria

Strategy and management

34 UnileverSustainable Living success?

38 Oil and gas A new contracting chain approach

42 Ray AndersonWhy innovation can be the solution

Review

45 Academic news

46 Report: Deutsche Post DHL

47 Report: BP

48 New books

49 People on the move

50 CEO interview with Laurent Abadie,Panasonic Europe

4 What’s on the web

4 Letter to the editor

5 From the editor

EthicsWatch

6 Low-cost medicine

Healthy developments

7 Chiquita

Colombian court case continues

8 Cairn Energy

Proceeding against Greenpeace

9 Revised OECD guidelines

Now for the hard part

10 Mallen BakerMaking mistakes isn’t always wrong

Briefing: private equity

12 Poachers turned gamekeepers

14 3i – engaged investment

16 KKR – active management

19 Peter KnightWe need to work together

20 CRwatch Barbie in a bind

22 China columnManufacturers staying put?

p11 Private equity's ethical development

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4

In the latest of his series View from the Middle,Advance Aid’s Howard Sharman analyses a newreport from Accenture Development Partners,which suggests that in an increasingly convergingworld, companies will play an ever-larger role insolving complex development problems.Sharman argues that ADP’s report – ConvergenceEconomy: Rethinking International Developmentin a Converging World – provides some solutionsthat can take corporate responsibility activity wellbeyond the “dabbling with doing good” thatpasses currently.

Sharman highlights some of ADP’s radicalthinking, including that shareholders could bestbe served if the companies that they own engagefully with solving development problems. Procter& Gamble, for example, has four billioncustomers already, giving it massive power andinfluence to drive change. He believes that thedrive and innovation, and financial muscle, of

big companies can indeed be harnessed to solvesome of the world’s most intractable develop-ment problems.

In an online opinion piece, the Institute ofBusiness Ethics’ Simon Webley suggests thatwhile companies have established business ethicsprogrammes, more work is required to fully integrate them into corporate culture. Sharingsome findings from a new IBE survey intobusiness ethics practices – which has beenupdated every three years since 1995 – Webleysays that in 2010 up to 80% of FTSE100 companieshad codes of ethics, up from around 60% in1995. However, surprisingly, only 60% of compa-nies in 2010 provided training in business ethicsfor all staff, a drop of 10 percentage points fromthe previous survey in 2007. Cutting back in thisway is, Webley argues, short sighted, especiallywhen you consider that the recent financial crisis

was the result of unethical behaviour.

Jane Burston from Carbon Retirement continues her regular series of comment pieces on thecarbon markets by asking what protection carbon offsetting is providing for the mostvulnerable communities. When the Clean Development Mechanism was established it was meant not only to reduce carbon emissionsbut also provide a means for sustainable development in those areas vulnerable to theimpacts of climate change. But the dominance,Burston argues, of rapidly industrialising countriesin the global carbon offset markets has led tosome critics questioning whether this aim ofsustainable development is being achieved. And, she points out, up to two-thirds of projectscurrently generating revenue from offsets are not actually contributing to a net reduction in emissions. n

What’s on the webThe new-look Ethical Corporation website always has more analysis for magazine subscribers

EthicalCorp.com Ethical Corporation • July-August 2011

SABMiller’s tax position

Andy Wales from SABMiller responds to allegations made inthe June issue

Your article [NGOs: Transparent tax reporting, Ethical Corporation June 2011] refers to allegations made about

SABMiller ’s tax practices, but offered us no opportunity to respond.

SABMiller strongly refutes the allegations made in ActionAid’sreport. We do not engage in aggressive tax planning in any part ofour operations, and the report includes a number of flawed andinaccurate assumptions.

In the 12 months to 31 March 2011, SABMiller ’s total taxcontribution in Africa (including South Africa) was approximately$2.1bn. And our contribution to the countries in which we operate ismuch greater than the taxes we contribute.

Professor Ethan Kapstein of Insead has found that our businesses in Ghana add economy-wide value (in terms ofhousehold income, tax revenues and company profits and savings)

of $117m, or 0.4% of GDP. Within that figure, total tax economy-wide contributions were

$46m, or 1.1% of Ghana’s total tax income. In addition, for everyperson that we employ in Ghana, a further 20 jobs are supported inthe economy, a total of nearly 18,000 jobs.

We believe that sustainable enterprise and employment is the bestway to alleviate poverty. Achieving this involves consideration of allthe ways that private sector investment can benefit localcommunities.

Andy WalesGroup Head of Sustainable DevelopmentSABMiller plc

Letter to the editor

Editor’s note: A revised version of the story to which Andy Wales refers is now available online. We accept that the original story lacked balance and are happy torevise and update it.

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Welcome to the July-August 2011 issue

This month we investigate the world of private equity funds.Renowned for secrecy and being ruthless asset strippers after a

quick profit, we ask if the industry’s reputation is fair. The picture,as is often the case, is not as clear as common perceptions have it.

There are instances where private equity firms can manage theirportfolio companies with good ethical and sustainable practices thatpublicly-listed companies might find more difficult. And where poorsocial or environmental records, or ethical reputation, are a problem,fixing them can be an essential part of the value creation process.

For the private equity sector, though, the focus is always on makingmoney from investments. But as sustainability is good business,encouraging such an approach is one of the improvements that savvycompany managers need to encourage. See what you think from p11.

Our country briefing this month is on Switzerland. The country’sreputation for discretion and secrecy is seemingly a little other-worldly in a business environment where companies are underever-more pressure to be transparent. But, as we show from p23, thecountry’s neutrality has meant Swiss companies have, by and large,developed with a keen sense of human rights. The presence of manyof the world’s largest development and relief agencies, with head-quarters in Switzerland, has had an albeit limited impact. But, Swissconsumers have been traditionally demanding in terms of productquality and environmental impact.

However, questions remain about the legacy of discretion. WhileSwiss banks are losing their reputation as repositories for assets ofthe world’s dictators, and many Swiss companies are genuinelycommitted to greater openness, the secrecy that local laws allowmany corporations remains a concern.

From p31 we have an investigation into dangerous chemicals.While we need to be fully aware of the potential toxic effects ofchemicals we use in everyday products and processes, much of thehysteria whipped up by an excitable media does not always agree,it seems, with the scientific facts. Is there a more sophisticated wayof approaching chemical use, which has the appropriate safe-guards, but also a more balanced view of the risks?

Leading a heavyweight strategy and management section this

month, we focus on how Unilever has progressed with its highlyambitious Sustainable Living Plan, which was launched in a blazeof publicity last November. While the company has achieved somegood early progress, questions remain about how it will encourageits supply chain and other partnersto fully engage. We’ll be keeping aclose eye on how this develops overthe coming months.

Also in strategy and managementwe have an essay from Interface-FLOR founder Ray Anderson, whodemonstrates why his description asa radical industrialist is a fitting one.And the writers of a new report fromthe International Institute for Envi-ronment and Development sharesome of the results of their investiga-tion into how to manage oil and gasindustry contracting chains.

Among the stories considered in EthicsWatch, we examine thelatest developments in the Chiquita class-action lawsuit, broughtby Colombians who blame the company for making payments toparamilitary groups in the 1990s. And elsewhere we have the usualcomment and analysis from our regular columnists and an inter-view with Panasonic Europe’s CEO Laurent Abadie.

We don’t publish in August, so will be back with our Septemberissue, which will include an in-depth investigation into the PRindustry. It will make interesting reading.

As always, don’t hesitate to contact us if you have anycomments on this or any other issue.

Ian Welsh

5From the editorEthical Corporation • July-August 2011

Contributors: Ray Anderson, Ellie Austin, Mallen Baker,

Oliver Balch, Jeni Bauser, Elaine Cohen, Jon Entine,

Paul French, Stephen Gardner, Paul Hohnen, Peter Knight,

Judy Kuszewski, Claire Manuel, Eric Marx, Ian Welsh,

Emma Wilson

Publisher: Toby [email protected]

Editor: Ian [email protected]

Contributing editors: Mallen Baker, Brendan May

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6 EthicsWatch Ethical Corporation • July-August 2011

Wal-Mart winsRetail mammoth Wal-Mart breatheda sigh of relief in June when theUnited States Supreme Court, in anarrow 5-4 vote, dismissed a classaction against it brought by 1.5million female former employees. The workers had accused Wal-Mart of gender discrimination in settingpay levels and granting promotion,arguing that female employees arepaid on average 37 cents less per hour than their male counterparts.The justices decided there was nosystematic discrimination, and thewomen should bring cases individu-ally if they felt they had beenwronged. However, a study for theNew York Times seemed to show abias in Supreme Court decisions infavour of big business, with thecurrent justices finding for companiesin 61% of cases, compared with anaverage of 42% over the perioddating back to 1953.

Holding actionA Chilean court has put on hold acontroversial project to dam two riversin the southern region of Patagonia.The project, a joint venture betweenChile’s Colbun power firm and Italy’s

Enel, would construct five hydroelectricstations on the Baker and Pascuarivers, which are considered pristineecosystems. The proposals to dam therivers have provoked massive protest inChile. The court ordered the suspensionof the project while it considersappeals against the Colbun/Enel plansfrom environmental groups and somemembers of Chile’s senate.

UK looks really offshorefor wind power All parts of the British Isles cametogether in mid-June to work onwind and wave power. Under a dealsigned in the British-Irish Council,the Republic of Ireland, the United

Analysis: low-cost vaccines

Health benefitsBy Claire Manuel

For companies prepared to cut the costs oftheir medicines for the developing world,there’s more in it than a warm glow ofdoing good

Public and private donors from around theworld have pledged more than £2.6bn to

help immunise more than a quarter of a billionchildren in developing countries by 2015.

Joining in the fun, UK prime minister DavidCameron pledged £814m at the Global Alliancefor Vaccines and Immunisation (Gavi)conference in London in June, while Bill Gatespledged £600m on behalf of the Bill & MelindaGates Foundation.

A number of drug manufacturers have alsocommitted to lowering prices on vaccinesagainst some of the major killer diseases in thedeveloping world. India-based firms SerumInstitute and Panacea Biotec have committed toprice cuts on their pentavalent vaccines, whichprotect against diphtheria, tetanus, pertussisand hepatitis B, among other illnesses.

GlaxoSmithKline has offered to provide therotavirus vaccine to Gavi at $2.50 per dose, or$5 to fully immunise a child – a 67% reductionin the current lowest available public price.Merck has also announced that it will offer itsrotavirus vaccine to Unicef at discounted prices.

Good for business Gavi’s Ariane Leroy says that, rather than beingpurely a charitable exercise, there are businessbenefits for manufacturers that wish toparticipate. Gavi strongly believes in theprinciple of lowest sustainable pricing, so that multiple manufacturers have an incentiveto develop and supply products for Gavicountries, Leroy says. “As companies thatproduce these vaccines become more efficientover time, they are able to reduce the unit costof production.”

In addition, the high volumes purchasedthrough Gavi funding enables manufacturersto benefit from economies of scale, which canfurther decrease their price offers.

Allan Pamba, director of public engagementand access initiatives at GSK, agrees. He says:

“GSK is committed to increasing access to ourmedicines and vaccines for people, no matterwhere they live. We believe this is the rightthing to do and that it will contribute to ourbusiness success in the long term.”

For GSK, it is not an act of philanthropy,Pamba says. The company is changing itsbusiness model “to enable us to make ourmedicines and vaccines as affordable as possibleto as many people as possible in developingcountries, in a sustainable manner”.

For companies such as GSK, it is essential toachieve a balance between profit-making andsustainability. “It is important to ensure wemake enough profit to be able to deliver areturn to our shareholders and to continue toinvest in R&D to discover the vaccines oftomorrow and provide jobs for our employees,while increasing access to our medicines andvaccines in the developing world,” says Pamba.This means implementing a tiered pricingstructure, with prices aligned to a country’sability to pay.

A tiered pricing model means thatcompanies can make larger profits in developedcountries. They can then re-invest in researchand development for new products. In otherwords, R&D is funded by tiered pricing fromdeveloped countries.

But safeguards are required to ensure thatlow-cost vaccines don’t find their way to theblack market. GSK’s precautionary measuresinclude monitoring for unusual sales activity,and using only trusted distributors. “This can,of course, only go so far but we believe that thepotential benefit of low-cost vaccines for peoplein developing countries outweighs the risk,”Pamba says. n

Profits fund research

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Dam wrong?

EthicsWatchCheaper medicines, Chiquita's court case, Arctic exploitation and OECD's revised guidelines

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EthicsWatch 7Ethical Corporation • July-August 2011

Kingdom, the Isle of Man and theChannel Islands will aim to get moreinterconnected so that windy days are not wasted and renewable powercan be shared. UK energy ministerCharles Hendry says the agreementwill help Ireland in particular tobecome a renewable energy exporter.“Ireland’s energy demand is onlyslightly larger than that of Yorkshireand Humberside [and] there hasbeen little incentive to exploit theresource,” he says.

Separately, Hendry hasannounced that more power compa-nies will be exempted from two UKgovernment schemes, the CarbonEmissions Reduction Target and theCommunity Energy SavingProgramme, both of which requirefirms to help their customers achieveenergy-efficiency savings. Companieswith 250,000 customers or fewer –up from 50,000 – will not have toparticipate. The extended exemptionwill help smaller suppliers “grow andencourage new players into themarket”, Hendry says.

Workers unitedA number of major Indonesiansportswear factories and the brandsthat they supply, including Adidas,Nike and Puma, signed up to anagreement in June to guaranteefreedom of association rights forworkers. The deal was brokered byIndonesian trade unions, backed bythe Play Fair campaign. It will imple-ment the Clean Clothes Campaign’sprotocol on freedom of association,which states that factory workersshould be able to form unions, and be given time and facilities toorganise their activities. The agree-ment would fill a gap becauseIndonesian law “does not cover technical implementation of freedomof association”, an Indonesian tradeunion representative says.

To become a more common sight?

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Analysis: Chiquita

Serious legal bananaskins remain By Ian Welsh, editor

Chiquita may yet lose a class action lawsuitrelated to its former operations in Colombia

The long-running saga surroundingChiquita’s former operations in Colombia

has taken a new turn. In early June a Floridajudge ruled that class action lawsuits againstthe fruits giant will be allowed to proceed.

The action has been brought by familymembers of Colombians who were killed ortortured by terrorist groups. The plaintiffsallege that payments Chiquita made to para-military groups in Colombia mean that thecompany has responsibility for the atrocitiescommitted by these groups.

Chiquita had asked the court to dismiss theclaims, stating that it had been the victim ofextortion. While the judge granted thecompany’s motion to dismiss claims fordamages related toterrorism, the plain-tiffs can continue withclaims for damagesagainst Chiquita fortorture, war crimesand crimes againsthumanity.

One thing is not indispute: the companydid make payments toColombian paramili-tary groups. ButChiquita spokesmanEd Loyd says these were made purely toprotect the company’s staff. “Throughout the1990s our employees were massacred. On oneoccasion, four were butchered in front of theircolleagues; on another 28 were murdered asthey travelled to work on a bus.”

A price worth paying?Faced with such violence, Loyd says, thecompany took the view that making paymentsdemanded by paramilitary groups was a priceit had to pay to protect employees, and beganto do so in the mid-1990s.

A change in the law in 2001 meant that thesepayments became illegal in the US, and in 2003Chiquita realised, Loyd says, that it was notable to protect its employees legally and volun-tarily disclosed the details of the payments tothe US Department of Justice. “We are the only

company ever to do so,” Loyd says. In 2004 Chiquita sold its Colombian opera-

tions at a loss. Then in 2007 the companyagreed to pay a fine of $25m for violating USanti-terrorism laws.

Marco Simons, legal director for EarthRightsInternational, a human rights and environ-mental NGO that has been closely involvedwith the Colombians bringing the actionagainst Chiquita, says “Chiquita’s extortionargument appears to be factually untrue” andthat the company “sought out and paid theparamilitaries in exchange for security”.

Simons argues that if Chiquita had indeedbeen subject to extortion then it should haveimmediately informed the authorities andthen, if it were impossible to operate withoutpaying terrorists, take steps to wind down itsColombian operations. “Duress is not adefence to complicity in murder,” he says.

Loyd counters that the company didn’twant to abandon its “people and commit-ments”, that Chiquita had wanted to workwithin the law and protect its employees.When the law changed, “it became apparent

that there was not asolution”.

The Rainforest Alliancehad been working withChiquita in Colombia andhad certified a number ofthe company’s farms.Chris Wille, RainforestAlliance’s chief of sustain-able agriculture, says that Chiquita’s farms“were paragons of goodmanagement, both envi-ronmentally and socially”.

He says that the farms were models of ethicalharmony and “islands in a sea of violence”. Willeadmits that Rainforest Alliance would not have certified Chiquita’s farms if it had beenaware that the company been breaking anyColombian laws.

So what’s next? Chiquita says it willrobustly defend the class action. “We havefaith in the justice system,” Ed Loyd says.

Simons argues that “despite Chiquita’s$25m payment to the US government, thevictims of its conduct have received nothing”.

The real losers seem to be Chiquita’s formeremployees. Whatever the rights or wrongs ofany “protection”, they had certainly beenbenefitting from the company’s progressivelabour code. The local labour unions hadstrongly lobbied the company to retain itsColombian operations in 2004. n

Sometimes it’s hard to argue

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8 Ethical Corporation • July-August 2011EthicsWatch

No Silvio liningItalians have given prime ministerSilvio Berlusconi another knock byrejecting a nuclear restart and waterprivatisation proposal. In referen-dums held side by side in June, ahuge majority of 96% voted downplans to allow more private sectorparticipation in water management,and for water prices to be set in orderto allow a guaranteed return oninvestment. Meanwhile, 94% of

voters said no to proposals thatwould have seen Italian nuclearpower stations reopened. Nuclearplants in Italy have been mothballedsince the Chernobyl catastrophe inthe 1980s. Completing a disastrousday for Berlusconi, Italians alsorejected legal immunity for govern-ment ministers.

Dole queueUS banana giant the Dole FoodCompany has agreed to settle theclaims of about 5,000 Central andSouth American agricultural workers,according to lawyers representing the plaintiffs. The workers allegedtheir health was damaged by the use in the 1970s and 1980s of thepesticide dibromochloropropane(DBCP) on Costa Rican, Honduran and Nicaraguan banana farms. If finalised, the agreement wouldbring to an end a long-running legalbattle, which has been throughvarious stages of appeal, dismissaland allegations of malpractice. Thelaw firm representing the workers,Provost Umphrey, says the details ofthe settlement are being negotiated.Other lawsuits against Dole and DowChemical, which has also been suedover DBCP, are ongoing.

Not been a good year for Silvio

Analysis: Arctic activism

High latitudes, high stakes

By Eric Marx

UK oil firm Cairn Energy is betting big onnew riches pouring forth from the Arctic,but campaigners see the venture as adangerous gamble with the environment

Following BP’s Gulf of Mexico oil spill, envi-ronmental campaigners have made Arctic

drilling a key battleground – with the westcoast of Greenland the frontline in a fight toturn public opinion against British oil and gasfirm Cairn Energy.

Twice this year Greenpeace protesters havetried to delay drilling off the Greenland coastby boarding Cairn vessels, prompting thecompany to obtain a court injunction imposingwhopping £1.76m-a-day fines.

Commentators are questioning the tactic,however, noting a history of bad publicity back-firing against extractive companies perceivedto be squashing individuals and organisationstrying to express their views. At issue is notwhether Cairn has theright to pursue a courtremedy, says Dan Litvin,of the sustainabilityconsulting companyCritical Resource.

These sorts of injunc-tions could make itdifficult for activists to doa lot of direct protests,Litvin says. “But themain point is there’s abigger picture herewhich is the long-termdebate about drilling inGreenland and theArctic.” He argues thatthe only thing that willsolve that is engagementand – wherever possible– taking on board thelegitimate points made by some of the activists.

One of the activists’ demands – the publica-tion of the company’s spill response plan – is alegitimate area for discourse given the distrustthat will arise if information of this sort is keptprivate, Litvin argues.

Cairn says Greenland authorities requirethe plan to be kept confidential, citing Green-

land’s Bureau of Minerals and Petroleumwebsite.

“If you did publish a response plan for theArctic, it would be immediately revealed thatthere is no way you could clean up a spill that would not result in enormous environ-mental damage,” counters Greenpeace’sCharlie Kronick.

Cairn’s response plan includes the hiring oftwo state-of-the-art drilling vessels and someof the world’s leading iceberg and ice manage-ment operators. Cairn’s Ellie Goss says theplan mirrors those of the most stringent regu-lations required of Norwegian North Seaoperators, but specifics on how Cairn wouldactually attempt a cleanup in the event of anoil spill are not available.

Cairn is thought to be paying $500,000 a dayto hire the Leiv Eiriksson, one of the largest oilplatforms in the world, and is reported to haveinvested about $1bn in drilling operations to beperformed over the next two years.

And then more drilling?The stakes could not be higher – for Cairn andthe industry as a whole. This is the first suchventure in years and if the operation provessuccessful, others will soon follow. Though a2008 US Geological Survey projects a

mammoth 52bnbarrels of oil equiva-lent, only a fraction ofthat is likely to beexploited at economi-cally viable costs.

Moreover, the BPMacondo disaster hasrightly focused atten-tion on the risks ofdeepwater drilling inthe Arctic – a regionwith extreme climatesthat make the Gulf ofMexico look like awalk in the park.

For now, at least,the time for dialogueseems over. “I did thisbecause Arctic oildrilling is one of the

defining environmental battles of our age,”said Greenpeace executive director KumiNaidoo, moments after his arrest for scalingyet another Cairn oil rig.

The action came exactly one week after the injunction, a legal move that – at least fornow – seems not to have accomplished itsobjective. n

Greenpeace’s Naidoo getting stuck in

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9EthicsWatchEthical Corporation • July-August 2011

Analysis: revised OECD guidelines

A positive stepforward

By Paul Hohnen and Ian Welsh

OECD’s new guidelines for multinationalswill prove challenging

Does the adoption of new corporate respon-sibility guidelines in June reflect a new

level of commitment by OECD governments?It certainly would seem so.

While the Guidelines for MultinationalEnterprises remain voluntary and non-bindingfor business, they contain a renewedcommitment by governments to promote themthrough their respective National ContactPoints. In addition, what OECD describes asnew and tougher processes for complaints andmediation have been put in place.

OECD commentators say there are threemain reasons why the adoption of newguidelines is significant.

First, it is a high level recognition of theresponsibility of governments to refresh andreiterate their expectations of private sectorsocial and environmental performance. Theyprovide the most comprehensive guidance on what constitutes good business practice, and are the only ones that governments have cooperated on and undertaken topromote.

Second, the revised guidelines contain anumber of new elements that reflect thechanges in the business environment since theprevious revisions in 2000. These include asection on human rights (largely reflectingwork by the UN secretary-general’s specialrepresentative John Ruggie), the need toexercise due diligence in supply chains, andreferences to reducing and reporting ongreenhouse gas emissions.

Multistakeholder input Third, the guidelines are important because theywere the product of a multi-stakeholder process,involving inputs from representatives ofgovernment, business, unions and NGOs. Giventhe difficulties some other intergovernmentalprocesses have had in recent years – look at the UN climate negotiations for example – the outcome for the OECD guidelines is mostwelcome.

OECD insiders are pleased about the

updated guidelines as good sustainable businesspractices and corporate responsibility are linkedto support for open markets. The guidelines areimportant in that they complement trade andinvestment negotiations.

Dr Roel Nieuwenkamp, managing directorfor trade policy and globalisation at the ministryof economic affairs, agriculture and innovationin the Netherlands, chaired the negotiations.He says the most important challenge forcompanies is that they “now have to work oncredible due diligence systems to identify andmanage the risks of causing or contributing toadverse impacts”. This, he argues, will requiresome serious effort.

Nieuwenkamp believes that even leadingmultinationals “in the vanguard of corporate

responsibility” are not yet ready with “goodrisk-based due diligence systems”. Beyond theleaders, he says the mainstream has a lot to do“to implement the basics of responsible supplychain management”.

The OECD Watch network has welcomedthe changes to the guidelines, but says theimplementation procedures “fall short of what is needed” to ensure that the guidelinesare effective. Rather, the updated guidelinesshould have contained “investigative powersand the ability to impose some kind of sanctionwhen the guidelines are breached”. OECDWatch says the National Contact Points willneed to commit to resolve disputes and help those adversely affected by companymisconduct.

Underlining this, Joris Oldenziel, anegotiator on behalf of OECD Watch, says he isgoing to wait and see “whether the update willmake a real difference ”. n

Transparent investmentMore than 500 capital managementcompanies and investment funds thatare signatories to the United NationsPrinciples for Responsible Invest-ment (PRI) will be required todisclose information about theirinvestment decisions, under arevision of the PRI rules. The PRI says it will consult on changes to the way it collects information fromsignatories, and will impose manda-tory disclosure of responses from 2013. At present, about 44% of investorsanswering the survey agree to publi-cation online of their responses. ThePRI is backed by the UN EnvironmentProgramme and the Global Compact,and has signatories from 45 countrieswith more than $25tn of assets undermanagement.

Soy standardBrazilian soy producer Gruppo Maggihas become the first company to begiven Round Table on ResponsibleSoy certification. The round table waslaunched in 2006, but only approvedthe principles and criteria for respon-sible soy in June 2010. Gruppo Maggioperates in Brazil’s Mato Grossoregion and produces 400,000 tonnesof soybean annually, a relativelysmall proportion of the world total.

The round table says its certificationstandard “meets the global goals ofsustainability”, but Greenpeace hascriticised it for promoting deforesta-tion, and not distinguishing betweengenetically modified and conven-tional soybeans. n

Worth celebrating?

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Soy certification conundrum

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Columnist: Mallen Baker10

Every successful endeavour isbuilt on a history of failure. That

is pretty much universally truethroughout human history. But wehave become intolerant of failure –and that is a big problem.

Prof Yotaro Hatamura at theUniversity of Tokyo is the founder,of all things, of the Association forthe Study of Failure. Rather handily,Tepco – owner of the Fukushimapower plant – is a member.

He has set up a “failure knowl-edge database” focusing on 1,175accidents and isolating whetherthey were caused by design flaws,human error, or changes in use thatarose over time. It has identifiedthat the latter element is a far morecommon factor in engineeringfailure than previously realised.

And, of course, that is the point.The reason for setting up such adatabase is the simple truth that ifyou don’t learn from failures, youwill keep failing in pretty much thesame way over and over again.

In sport, we accept failure. Everytennis player who wins one of themajor tournaments and gains entryto the sport’s elite group of topwinners only got there having losthundreds of times. And after everyloss, the good ones would look atwhy they had lost, what theyneeded to add to their game, whatthey needed to improve.

Up and coming tennis youngstersare hungry to play the best players.Sure, they might fantasise aboutcausing the big upset and rocketingto fame in one single game. But morerealistically, they know that by beingbeaten by the best players, they willlearn exactly how they need toimprove their game to achieve thatlevel themselves.

In business, and in civil society,we do not have such a culture.

Maybe it’s the news media thatis a key factor. You only have tolisten to someone like JohnHumphrys on the BBC’s Todayprogramme to see how relentlesslyfocused on finding someone toblame some journalists havebecome.

If something goes wrong onyour watch, then if you’re in chargeyou should pay for it with your job.If you’re a CEO of a globalcompany, and there’s a big accidentyou’ve got to go. Or if you get two, God forbid even three, poorquarters in a row.

Private benefitsThis is why privately run busi-nesses can, sometimes at least,provide the best model. RichardBranson has failed many times – weonly know about some of thosefailures because he has talked aboutthem in his autobiographies. But heis known principally for hissuccesses. Of course he was free tolearn from his failures and moveon. Nobody was in a position tosack him when it happened.

He still had to learn, because ifhe hadn’t then sooner or later hisbusinesses would have failed.

In the public sphere, ourresponse to failure is almost guaran-teed to breed more failure. We takea boss who has “failed” and castthem aside. The main criteria fortheir replacement is that theyshould be free from the taint offailure themselves. So by definition,we put someone in position whohasn’t learned the lessons the hardway.

You might agree with thecontention that this is wrong intheory – but I bet if we start puttingnames into the frame you will startto instinctively and intuitively come

up with reasons why those namesdeserved to go.

Tony Hayward of BP comes tomind. Andy Hornby of HBOS isanother. In another sphere, SharonShoesmith of London’s HaringeySocial Services. All of these wereleaders who were respected bytheir peers before events made itunacceptable to show them supportin public.

For me that is a key definingfeature. There are other leaderswho are well known by their peersto be arrogant, obnoxious, andblind to factors that fall outsidetheir own ego. These leaders oftenmore directly create the circum-stances for their departure becausethey demonstrate that it was theirown poor leadership that createdthe problem and they have nocapacity or humility for learningthe lessons of failure.

Step up Fred Goodwin. Say “hi”Chuck Prince. This is not aboutexcusing bad leadership. Somepeople do deserve to be kicked out.

And it’s not just about leaders –but the whole workforce. There’s aTED talk by Sir Ken Robinson oneducation, where he identifies howthe lack of fear of failure is a key partof what makes creativity possible.

But it can’t be achieved ifholding businesses to accountmeans finding new vehicles for theblame culture. n

Mallen Baker is founder of Business Respect anda contributing editor to Ethical Corporation. [email protected]

Business success

Why we need to fail more gracefully

Mallen Baker explains why companies need to be free to makemistakes for ultimate success

Learning from mistakes breeds high-flying success

In the publicsphere, ourresponse tofailure is almostguaranteed to breed morefailure

COLUMNIST:MALLEN BAKER

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Briefing: private equity

12 New sustainability champions?

14 Case study: 3i

16 Case study: KKR

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12

Fixing an ESGproblem can bepart of the valuecreation process

It wasn’t so long ago that private equity businesseswere classified by some as the “barbarians at thegate”. Rapacious capitalism at its worst, busilysnapping up much-loved high street brands andcynically stripping out everything that could not beused to bump up short-term value before selling itback into the market.Then the era of cheap debt came to a close, and

suddenly the flow of buy-outs dried up. The criticalstories did likewise. Recent protests against Black-stone Group over the collapse of elderly care homeoperator Southern Cross seemed almost nostalgic.Things have moved on considerably. The private

equity companies have begun to show some realchanges on what the sector routinely describes asESG (that’s environmental, social and governance)issues. And they have risen robustly to defend thesector’s business model against charges that it isinherently bad for society.In the wake of the financial crisis, the focus has

been on responsible investment, and the potentialfor ESG issues to become a significant factor in real-ising the value of investments. At the launch of the UN Principles for Respon-

sible Investment (PRI) in 2009 at a private equityindustry conference in London, a survey showedthat 71% of the attendees agreed that ESG factorscould affect the sale price of a company at exit. Thisreflected a considerable change in attitude over ashort period.The British Private Equity and Venture Capital

Association (BVCA), which conducted the survey,identifies a number of drivers for responsible invest-ment among its members. These include risk

management, business opportunities and growinginvestor demand, with more than 330 assetmanagers signing up to the PRI.There are many who say that, at least on the risk

management side of the equation, this is not such anew agenda for private equity.Ludo Bammens, director of corporate affairs

for KKR, says: “Environmental assessment hasalways been a part of the due diligence process. But in recent years it has become important to carrythis out in an increasingly thoughtful and profes-sional way.”

Making choicesHow much can ESG issues influence whether aprivate equity firm chooses to invest in a company?It all depends on how material those issues are towhether or not the value of the company can beincreased. Bammens says it can play a key part.Over the course of a year KKR will examine “athousand potential investment opportunities”, ofwhich only 2% will actually go forward. Thecompany’s ESG diligence team reviews all theinvestment proposals as part of a filtering process.Simon Havers, chief executive of Baird Capital

Europe, says there is a simple two-part test thatBaird will apply to a prospective investment. “First,is the company’s reputation irremediably shot?Second, is it in our capability to solve it? We wouldavoid prospects that have the wrong answer toeither of those two.”The test allows for the fact that a smart private

equity investor can use the process of fixing an ESGproblem as part of the process of value creation.

Buyouts

Have the uber-capitalists becomeagents for sustainability?By Mallen Baker

The old view of private equity investors as ruthless asset strippers is due an update

Ethical Corporation • July-August 2011

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Baird demonstrated this when it bought PaddockHoldings from its founder in 2006. Baird was inter-ested in the company because it saw that it was“operationally undermanaged”. This included apretty poor health and safety record. Paddock hadform both on non-reportable accidents (relativelyminor) of which it had significant numbers, andreportable accidents (major).During Baird’s ownership, substantial changes

were made, including putting in a more effectiveoperations director. Non-reportable accidents werecut by two-thirds. No reportable accidents tookplace during the course of Baird’s ownership.When Paddock Holdings was sold by Baird in

2010, it had shown a 2.7-fold return on investment.That would certainly have been lower had it been acompany still showing poor compliance on healthand safety. Indeed, given that the buyer wasSwedish multinational Assa Abloy – a company thatvalues its own corporate reputation – it might nothave been sold at all.Doughty Hanson focused particularly on envi-

ronmental improvements when it took overSpanish bus and transport company Avanza in 2007.

13Ethical Corporation • July-August 2011 Briefing: private equity

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Cutting accidents adds corporate value

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It carried out a review that identified a range ofimpacts related to fuel efficiency and climatechange, as well as water conservation, land impacts,and health and safety issues.Working with the management board, it devel-

oped a plan covering investment in a new, modernfleet of vehicles with much more efficient engines,better fuel management overall and reductions inwaste generation and water use.These cases demonstrate how things have moved

on from a due diligence process of screening potential

investments for deal-breaking problems, towardsrecognising how ESG issues can be a driver of value inthe portfolio businesses of private equity companies.Havers says this has become more significant in

recent years. “There is a raised level of awarenessthat attending to sustainability issues is good for theprofits of the portfolio company,” he says.Tom Rotherham, associate director private equity

for Hermes Fund Managers, agrees. He says:“General partners should be willing to considerwhether there is a value-creation angle in this, not

14 Ethical Corporation • July-August 2011Briefing: private equity

Case study – 3i’s activist approach

3i has focused on the social responsibility and environmentalagenda for a long time. Nevertheless, the issues have gainedprominence in the past few years.The company was formed just after the second world war, and

from the start it framed its mission in terms of the social value ofhelping companies to grow. It developed a strong corporateculture and set of values – to the degree that it was behaving insome ways more like a listed company (for instance, in itsreporting and disclosure) even before it eventually chose to gopublic in 1994.Patrick Dunne, 3i’s communications director, recalls this from

his arrival at the company 25 years ago. “When I joined back in1985, one of the first things I remember was being taught aboutthe values of the firm and how we do business.”Dunne believes that the company’s listed status has been a

factor. “One of the benefits of being a FTSE 100 company since1994 has been that we have learned from our peers in othersectors, particularly through membership of organisations likeBusiness in the Community, of which we were a foundingmember.”3i has an activist approach that means it is very engaged in

what responsible business practice means at every phase of theinvestment cycle. It encompasses initial fundraising, investmentdecisions, stewardship of portfolio companies once investmenthas taken place, and then the final exit.In particular, when 3i is looking at investment decisions it

explicitly builds in an assessment of corporate responsibilityissues – with an option to pull the investment if the managementteam seems unable to achieve compliance with 3i’s standards in areasonable time. That said, Dunne says that often 3i’s reputation means the

issue does not even arise. He says: “It has been a deliberate part of3i marketing to be clear about the high standards we expect incorporate responsibility and governance. It becomes self-filtering,as companies will often only approach us for investment becausethey are confident that they match up to those criteria.”Once the investment has taken place, formal portfolio reviews

take place every six months, which will include environmental,social and governance issues. The company encourages sharing lessons learnt across the

portfolio. Dunne says: “If you go through the full cycle of invest-ment we are actively engaged on being clear what responsiblepractice is. The degree of influence we have with portfolio

companies obviously varies depending on the percentage stakewe own, but we have an energetic approach to engagement andsharing best practice.”As well as engaging its portfolio companies, 3i also focuses on its

own performance as a corporate entity. It has an active carbonreduction programme for its own operations, builds environmentalconsiderations into its procurement policies, and is a foundingsponsor of the European Venture Philanthropy Association.

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Success comes from good management practices

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just risk management. If that happens, then theprivate equity community can take ownership ofthe ESG agenda rather than having it thrust uponthem. If not, some investors will conclude thatgeneral partners need regular oversight.” Generalpartners are the investment professionals whomanage a private equity firm, as opposed to invest-ment partners who don’t have an executive role.

Effective oversightBut Rotherham has a few words of caution to addabout how far the private equity owners shouldtake things. He says there is a risk that generalpartners draw the wrong conclusion and think theyneed to do all the ESG work themselves. Rather, itshould be the portfolio company managementwhere ESG is managed. “General partners just needto make sure it’s being done effectively,” saysRotherham. In other words, board effectiveness isreally the key area of focus. Simon Havers agrees, and says the main respon-

sibility for the private equity company is to makesure the governance is right. He argues that privateequity companies need to have systems in place to

make sure that ESG gets attention at the board levelof portfolio companies. If you have this, then“action will cascade down”. Others have taken more of an activist approach.

3i, for instance, has mapped out the full investmentprocess and developed a clear approach to what itexpects. 3i communications director Patrick Dunnesays: “The degree of influence we have with port-folio companies obviously varies depending on thepercentage stake we own, but we have an energeticapproach to engagement and sharing best practice.”Sharing best practice among the wider portfolio of

owned companies is also the approach practised byKKR, which has its “green portfolio”. With thesecompanies, it works to select key practices for improve-ment, establish targets and develop action plans.But all this activity around ESG issues would still,

arguably, be only window dressing if those earlycriticisms that the private equity business model issomehow inherently unsustainable were shown tobe valid. If it is really the case that the mission ofprivate equity is the enrichment of the few byloading businesses with unsustainable debt, that is aserious problem.

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The main responsibility forthe private equitycompany is tomake sure thegovernance isright

Ethical Corporation • July-August 2011 Briefing: private equity

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Page 16: Ethical corporation july august 2011

Ethical Corporation • July-August 2011Briefing: private equity16

Case study: KKR’s value-driven approach

If there is any single private equity company that could bedescribed as a sustainability leader, it is probably KKR.The company attracted attention in dramatic fashion in 2007

when it bought the Texas-based energy supplier TXU andpromptly announced that it would be scrapping all but three ofthe 11 new coal-fired power stations that had been planned,investing instead in wind power alternatives. KKR foundingpartner Henry Kravitz said at the time: “We have developed anew vision with management of how we can turn TXU into amore innovative, customer-centric, environmentally friendlycompany.”It was the moment when NGOs such as Environmental

Defence switched from being combatants to being partners. For KKR, it was still an equation about value. It hadn’t

suddenly caught tree-hugging fever. The company had acceptedthe arguments about big changes coming in how climate changewould affect energy production – at a time when few in the USwanted to hear that message.Now KKR has distinguished itself further by taking an active

management approach to a broader range of its portfolio compa-nies. It has become one of the few private equity companies toproduce an environmental, social and governance report.It also has a “green portfolio” website that details the work it

has done on a number of its companies. It provides a set of analytical tools to help portfolio companies assess and trackimprovements and use the website to report progress.To date, it estimates that the green portfolio initiative has

saved 345,000 tonnes of carbon, reduced waste by 1.2m tonnesand, most importantly from the point of view of some investors,saved $160m in costs.When the company chooses to make an investment, it

develops a 100-day plan on key goals to realise the value of theinvestment. If ESG issues are identified as being important indriving value, they are built into the planning process at this stage.For instance, according to KKR’s ESG report, the 100-day plan

for its investment in Oriental Brewery included programmes toreduce energy use and greenhouse gas emissions.One of the defining moments for KKR came when it acquired

a 50% stake in Alliance Boots. At that time, the availability ofcheap credit was seeing a number of such well-known names

falling into private ownership – and many observers werewondering whether such deals would mean an end to thosecompanies’ corporate responsibility and sustainabilityprogrammes.Richard Ellis, CSR director at Alliance Boots, says this defi-

nitely was not the case with KKR. “Before the acquisition, Ipersonally assumed there was huge scepticism in the privateequity world on this agenda. But since then, I have found that solong as you’re able to treat sustainability as a normal businessdiscipline, these are very smart people who get it.”Ellis says the move into private equity ownership has resulted

in no change to Alliance Boots’ corporate responsibilityprogrammes. KKR, he argues, sees the long-term value of soundmanagement of this area. He says: “I think the Boots example hasbeen influential, with KKR committed to sharing best practiceacross its portfolio companies.”

A trusted UK brand in private hands

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This version of what private equity is all about isdismissed by many practitioners as a caricature.Ludo Bammens says KKR’s ownership model

actually has a number of real pluses from the pointof view of sustainability.“First, it is a model for active ownership. We can

drive a topic effectively,” he says. “Second, it isactually more long term. We hold companies onaverage for seven years, which gives you time toreally do something. Third, we have a large port-folio of companies and that gives us the opportunityto build a community of best practice. So what’slearned – for instance – within Alliance Boots can beshared with the rest.”His message is echoed by Richard Ellis, director

of CSR for pharmacy giant Alliance Boots, viewingthe relationship through the other end of the tele-scope. “It is easier to do some of these things withprivate equity than with a plc,” he says. This meansthe company can look to the longer term anddoesn’t need to be worried about shareholder divi-dends.One former chief executive of a top plc who

subsequently moved into private equity says theequation is not a simple one. “You definitely havemore freedom to act under private equity owner-ship,” he says. For instance, companies can take ashorter term hit in order to create value in ways thatplc cannot. And as the private equity company islooking to sell the business at a profit, if it’s sitting

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Goin’ fishin’

How far can companies really push the boatout on sustainability once they join the port-folio of a private equity firm? At a time whenthe viability of fish stocks is a serious globalquestion, it seems that the answer is “all theway”.On the one hand there is Carlyle Group.

When it bought China Fishery Group – one ofthe world’s largest fishing companies, its duediligence process highlighted concerns aroundthe viability of fish stocks in the future. As aresult, it committed to a full scale review of thesustainability of the fish stocks upon which thecompany depended, and its current compli-ance with fishery quotas and other regulations. More significantly, it looked at how the

company could play its part in advancing theMarine Stewardship Council certificationprocess for relevant fisheries in its sphere ofinfluence.China Fishery has now formed a corporate

social responsibility committee, with externalfigures associated with sustainability issues asthey relate to the marine environment. Carlyle is not the only private equity firm to

face up to the challenge. When Birds Eye Iglowas bought in 2006 by Permira from previousowner Unilever, it was in difficult times. Ithailed from a non-strategic part of Unilever’sempire, and had been allowed to lose direction. It had some track record on sustainability – having been

involved in the initiation of the Marine Stewardship Council – buthad come under fire from Greenpeace for sourcing some of itscod from the Baltic, where the legality of supplies could not beassured. But perhaps closer to the top of Permira’s priorities was the

fact that the company was under-invested, losing money andlaunching 70 new products a year of which only one or twowould survive. Former Walkers marketing director Martin Glennwas installed to turn things around. That meant cutting costs,closing factories and throwing the poor quality brands overboard.What was not jettisoned, however, was the company’s

commitment to sustainability. An early commitment was toreduce the amount of cod in fish fingers, replacing it with moresustainable species such as pollock. This approach is now being

taken a lot further.Under the banner of Forever Food, Birds Eye has embarked on

an environmental programme of considerable ambition, coveringareas such as climate change, sustainable sourcing, waste, waterand packaging. Glenn says the Forever Food brand takes a long-standing commitment and seeks to give reassurance tocustomers. It has been developed in partnership with NGOsincluding WWF.Birds Eye has appointed a head of sustainability to make sure

the programme stays on track.It is likely that Birds Eye Iglo will be floated back onto the

market again in the not too distant future. Improving the sustain-ability of the product roster is something that new shareholderswill want to see. And that in itself is a sign of just how importantsuch factors have become.

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Less cod, more pollock

Ethical Corporation • July-August 2011 Briefing: private equity 17

market they find people don’t much value the socialand environmental aspects, then they won’t, either.”It will take society showing that it values the rightthings, before private equity companies will respond. How much difference did the financial crisis

make? He says there has been something of a mindsetchange. “Private equity companies now need todeliver real business improvement, not just apparentimprovement. Flipping quickly is not happening.”Tom Rotherham notes the same phenomenon,

on serious risk, then it won’t be able to do this.“Environmental risk is now a big deal,” the formerplc head says.But for all the action by some of the big names,

this former chief executive believes we are still nearthe beginning on the journey. He argues that sustain-ability is not high up the agenda for the vast majorityof the private equity industry. “They will focus onanything they see as genuinely driving financialvalue but if, at the point of floating back onto the

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and renewable energy. This will come aboutthrough smart “market spotting” rather than avalues-based conviction for “doing the right thing”.But Ludo Bammens says it has to be applied to all

sectors. “Sustainability has to be mainstreamedthrough your portfolio. It isn’t just about makingspecific investments, for instance, in clean tech,” he says.With this in mind, he sees part of KKR’s next

challenge as being to get the issues out from the soleownership of compliance teams. KKR’s aim is tointegrate ESG thinking into the sector investmentteams so it is “fully a part of their own thinking andnot something that is purely the realm of the dili-gence team”, Bammens says. But there are big questions still on the horizon.

One former senior head within a private equitycompany sounds a pretty big alarm bell. He believes that from an overall corporate respon-

sibility point of view, people are going to increasinglyask whether the societal value these businesses createis going to too few people. He expects people’s stan-dards of living will continue to decline, because “webuilt our wealth on the backs of foreign resources andlabour in a way which can no longer be done.” This will mean that the questions about the huge

incomes of a few will get tougher. Needless to say,that is one issue that private equity is not going toaddress voluntarily. n

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KKR’s aim is tointegrate ESGthinking into thesector investmentteams

Ethical Corporation • July-August 2011Briefing: private equity

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The financial crisis changed minds

highlighting that at the point when the flow of debtdried up, private equity companies started holdingon to portfolio companies longer. They increasedthe number of operational people they hired and,Rotherham believes, the focus returned to buildingbetter companies.

Operational improvements He suggests that there is “an inverse relationshipbetween the cost of debt and the amount of effortgeneral partners make on operational improve-ments in their portfolio companies. When debtreturns, it is not clear why focus won’t once againdrift away from operational improvements.”His conclusion is a sobering one. “Did we learn

the lessons of the crisis? When it comes to perma-nent change in how companies operate, the answerhas to be no.”Simon Havers believes that at least one relevant

point has been picked up. “The lessons have beenlearned that when the storms hit you need to havemade lots of friends before.” And private equitycompanies are starting to talk about stakeholders inways they hadn’t previously.So, what are the trends for the future? More

integration.There will certainly be more instances of private

equity companies putting their bets on some of thetechnologies of the future, clean tech companies

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When a 21-year-old was caughton camera peeing into a lake

near Portland, Oregon, he could nothave imagined the consequences.

Because the water is so pure, thelake feeds directly into Portland’sdrinking supply without need fortreatment. So shocked were the cityfathers that they ordered the imme-diate flushing of the 8m-gallonreservoir.

For some, this startling storydemonstrates the power of the indi-vidual to bring about change –small actions, big consequences.

Individual rather than grouppolitical action dominates whatpasses for environmental activismhere. Environmental groups haveall but abandoned a push for betterpolicies in preference for encour-aging their supporters to pursuefutile personal green efforts, aidedand abetted by marketers floggingsupposedly green goods.

People honestly believe that wewill somehow avoid climate changeby using solar-powered chargers forour iPhones, or fitting LED lightbulbs, or boycotting bottled water.A deep belief in the individualrather than group political actionhas spawned the campaigningclichés that now echo off websites,blogs and tweets. Changing theworld, one lightbulb at a time.

This country runs on politicalpatronage bought in WashingtonDC. If you want to get anythingdone you have to spend a lot oftime and money buying the favoursof politicians who write the policies.Compared with the murky politicsof the UK, the US political system isremarkably transparent and,mostly, the deepest pockets win.Industrialists spend heavily toensure the right economic climate,such as generous tax breaks and

laxer environmental regulation. The environmental movement of

the Silent Spring in the 1960s and1970s understood the power ofgroup political action. Well-organ-ised campaigners, well connected inWashington, brought about some ofthe most far-reaching environ-mental legislation ever passed, suchas the Clean Air Act, which removedlead and other nasties from the air.

But then the environmentallobby went to sleep, allowing subse-quent regimes in Washington –mostly conservative throughout thedouble Bush era – to soften envi-ronmental laws at the behest of theinfluential industrial dinosaurs.

Going backwardsThe backpedalling has taken on asurreal quality, where the Environ-mental Protection Agency – theenforcer – has been cast as a villain,restricting America’s ability tocompete with China and otherheavy polluters. Republicans aredoing their utmost to emasculatethe agency and turn back the clock.And they are succeeding. Climatechange and anything vaguely envi-ronmental has been banished fromthe political agenda.

At the same time – and probablyas a consequence – we have seen therise in the belief of the power of one.I sat through a “debate” on climatechange in the Harvard Club in NewYork City recently where the discus-sion centred on how a hotel groupwas fighting climate change byinstalling highly subsidised LEDlight bulbs.

When asked about the need forpolicy changes to encourage energyefficiency, there were nervous coughsfrom the panel. In polite society, onedoes not mention environment andpolicy in the same breath.

The belief in the political powerof individual action is built on thedeluded notion that a lot ofpersonal acts will bring about large-scale structural change. This conceitis epitomised in the notion of greenconsumerism. All you have to do isbuy enough recycled lavatorypaper and the world will turn intothe Jehovah Witness version ofheaven with gambolling lions andforever summers.

It is indisputably good thatlavatory cleaners are reformulatedand rubber gloves come with FSCapproval, but no amount of eco-labels and fair-traders are going tobring about the fundamentalchanges needed to deal with loss ofbiodiversity and climate change.

We cannot shop our way out oftrouble.

I blame those wimpy environ-mental groups that fail to leveragethe personal commitment of theirsupporters into effective politicalaction. Most environmental groupshave lost their connection to theirsupporters after growing flabby onfoundation grants, corporate spon-sorship and industry “partnerships”(another name for co-option).

Dinosaur politicians love theidea of personal rather than polit-ical action because it removesopposition and acts as an opiate forthe green masses. They know thatpersonal action has the potency ofpissing in the lake. n

Peter Knight is president of Context America. [email protected]

Effective action

We can’t save the worldone drop at a time

A misguided view of the power of the individual means effectiveenvironmental activism has been all but abandoned in the US, says Peter Knight

Columnist: Peter Knight 19

Better shopping is not the answer

In polite society,one does notmention environmentand policy inthe same breath

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CRwatchBy Jeni Bauser in New York

Barbie’s Ken puts his foot down, footwear worker rights safeguarded in Indonesia and Facebook’s challenges in China

20 CRwatch Ethical Corporation • July-August 2011

New protocol protectsfactory workers In what’s being hailed a “historic”advance, a group of Indonesian tradeunions, supplier factories and megasportswear brands including Nike,Puma and Adidas have cometogether to sign a pact that safeguardsworkers’ right to freedom of associa-tion in Indonesian factories.

A recent report by the Interna-tional Textile, Garment and LeatherWorkers’ Federation has found thatwhile most of the 18 Indonesianfactories surveyed have union repre-sentation, all have in some waystymied union activity, includingdenying space to organise, settingexceedingly high production targetsso workers have little to no time tocomplete union duties, and refusingto engage with trade union represen-tatives.

“Working conditions remain verypoor in the global garment industry,”says Jeroen Merk of the Clean ClothesCampaign. “Nearly everywhere,workers face huge barriers when theyseek to organise, while wages arefailing the ‘meeting living wage’standards.”

According to Merk, what makesthis agreement particularly significantis the leadership role assumed bythe five participating Indonesianunions.

“In contrast, most CSR approachesmarginalise the role workers play inthe attempts supposedly designed toimprove their situation,” Merk says.“The protocol … represents a much-needed move away from themanagerial, top-down approachesstill advocated by the majority ofglobal sourcing companies. Suchdirect engagement could help bringCSR programmes more into line withlocal priorities of workers.”

Other large manufacturers andbrands including Pentland and NewBalance participated in the negotia-tions, and there is hope thatmanufacturers beyond sportswearmakers and their suppliers will soon

sign the agreement.“The protocol is an achievement,

but it will require much effort fromeach party to ensure that it is trulyimplemented in the factories,” Merksays. “We will need to evaluate theimpact at a later stage.”

The agreement came out of a PlayFair meeting in 2008 with the sports-wear companies after the BeijingOlympics. Play Fair is a globalcampaign comprising internationaltrade union federations and NGOs topersuade all sportswear brands toprotect workers’ rights throughout thesupply chain.

Facebook and freedomin ChinaAs rumours abound regardingFacebook’s possible entry into China,Human Rights Watch has sent aletter to Facebook chief executiveMark Zuckerberg asking the socialnetworking giant to outline thepolicies it has or would create toprotect users’ freedom of expressionand privacy.

The letter was also prompted byrecent disquieting comments made byFacebook lobbyist Adam Conner, who

said to the Wall Street Journal: “Weare occasionally held in uncomfort-able positions because now we’reallowing too much, maybe, freespeech in countries that haven’texperienced it before.”

There has also been talk aboutFacebook partnering with the topChinese search engine Baidu.com,which HRW says heavily censorscontent.

“The entry of Facebook into China

Mattel’s Barbie sent packingBarbie is getting dumped over her packaging. Greenpeace recentlylaunched a bold viral campaign against Mattel, the world’s largest toymanufacturer and maker of Barbie, showing Ken in tears as he learns thatBarbie’s packaging purportedly includes pulp sourced from Asia Pulp &Paper. APP has repeatedly been lambasted for clearing Indonesia’s rain-forests and peat swamp forests, threatening endangered species and theenvironment.

Greenpeace had Barbie’s packaging independently tested and discov-ered the presence of MTH – mixed tropical hardwood. According toGreenpeace, there are only two pulp producers in Indonesia that use MTH,namely APP and Asia Pacific Resources International Limited, but the latterdoes not produce packaging materials in Indonesia, thus “suggesting thatAPP is the predominant producer of any packaging material with MTHcontent”.

Mattel has quickly responded to the campaign, stating that it does notcontract directly with Sinar Mas/APP. “We purchase packaging materialsfrom a variety of suppliers and it is not the normal course of business todictate where suppliers source materials,” Mattel says. “That said, we havedirected our packaging suppliers to stop sourcing pulp from Sinar Mas/APP aswe investigate the deforestation allegations.”

APP has also called on Greenpeace to reveal its scientific analysis, saying:“If the group has identified any specific illegal fibre in the products it

analysed, we want to know what it is because of our zero tolerance forillegal wood.”

Greenpeace’s campaign against Mattel is part of a larger initiative aimedat all toy manufacturers including Lego, Disney and Hasbro to stop usingrainforest-derived packaging products.

Barbie’s shame exposed

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development of sustainable communi-ties in two areas of particularrelevance: social and economic inclu-sion of people living under veryadverse conditions, and environmentalprotection,” says José Octavio Reyes,president of Coca-Cola Latin America.“This programme also contributes toour vision of ‘zero waste’ for our pack-aging, where increased use of recycledmaterials in our bottles constitutes acentral part of this vision.”

Genocide-free investment A shareholder proposal askingJPMorgan Chase to adopt agenocide-free investment policygrabbed 7.69% of the vote at a recentshareholder meeting – backing that ishigh enough for it to be added to theproxy ballot at JPMorgan Chase’s 2012annual meeting.

Proposal 10 is led by InvestorsAgainst Genocide (IAG), a citizen-led

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initiative to persuade mutual fundsand other investment firms to committo genocide-free investing.

While IAG has historicallyapproached individual mutual funds,JPMorgan Chase was considered anappropriate target for IAG’s first

shareholder proposal to a corpora-tion, “given its high public profile,the millions of consumers in its retailbanking and credit card businesses,and its very large holdings inPetroChina,” says Eric Cohen, IAG’sco-founder and chairman.

In Proposal 10 IAG points toJPMorgan’s $1.3bn worth of shares inPetroChina, which it says is interna-tionally recognised as the worstoffender in funding the Sudangovernment’s genocide in Darfur.

The bank sought to keep theproposal off the 2012 proxy ballot,stating: “While we share the propo-nents’ concern about human rightsgenerally and about genocide inparticular, we believe that the firm’sexisting policies and proceduresappropriately address these issues.”The company said it doesn’t dobusiness with companies legallyidentified as directing or contributingto violence in Sudan.

Nonetheless, the bank’s requestwas rejected by the US Securities andExchange Commission.

“We hope that the voting atJPMorgan Chase’s annual meetingwill cause JPMorgan Chase to recon-sider its opposition to adopting apolicy of avoiding investments tied togenocide,” says Cohen. “If not, wewill bring genocide-free investingforward for consideration at nextyear’s annual meeting, knowing thatoverwhelmingly, Americans, oncethey become aware, do not wanttheir pensions and family savingsconnected to genocide.” n

CRwatchEthical Corporation • July-August 2011

could be an opportunity for Chineseusers to exercise their rights online,”says Arvind Ganesan of HRW. “Butunless Facebook protects their rights,the Chinese government is likely tocensor content and try to get infor-mation on users who are critical ofthe government.”

If Facebook opts to enter theChinese market, HRW wants it tooutline clearly the human rightsprocedures it will uphold to protectusers in China and worldwide,including the terms of any possiblepartnership with Baidu, how it willprevent the Chinese government from domestically and globallycensoring the site, and how it willprotect government critics’ personalinformation.

By late June, HRW had yet toreceive a formal response fromFacebook but had a meeting sched-uled in the coming weeks.

New PPP supports LatinAmerican recyclersAn ambitious $8.4m public-privatepartnership is under way in LatinAmerica to help assimilate the fourmillion people whose livelihoodsdepend on recycling into the officialrecycling system.

The initiative is led by the Multi-lateral Investment Fund (MIF), theWater and Sanitation Division of theInter-American Development Bank(IDB), Fundación Avina, the Bill &Melinda Gates Foundation, and Coca-Cola.

According to Estrella Peinado-Varaat the IDB, despite the tremendousimpact informal collectors have on therecycling market – in some cases,reclaiming 90% of recycled consumerproduct materials – they are oftensidelined from the value chain, leavingfew socio-economic opportunities.

The Regional Initiative forInclusive Recycling will thereforeconnect recyclers, consumer productscompanies, municipalities, educatorsand civil society groups to create asystem that builds on lessons learnedfrom similar projects in developingregions, and effectively integrateinformal workers into local valuechains.

“This programme provides us withthe opportunity to contribute to the

PetroChina has questions to answerabout Darfur

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McDonald’s urged to halt advertising to kidsIn an open letter to McDonald’s chief executive Jim Skinner published inseveral American city newspapers, more than 550 healthcare professionalsand institutions challenged the fast food giant to stop marketing to children.

The ad campaign comes on the heels of significant new guidelinesproposed by the US Federal Trade Commission (FTC), which would clampdown on how food can be marketed to young people.

The petition is part of the ongoing efforts led by public interest advocacygroup Corporate Accountability International (CAI), which launched its Value(The) Meal Campaign in 2009, demanding that the entire fast food industrydiscloses detailed information about the health risks of fast food, improvethe nutritional value of their food, and pay for the mounting healthcarecosts resulting from diet-related diseases, among other things.

According to CAI, another major motivation behind health professionals’support for this campaign is McDonald’s “historic giving to health-relatedcharities to quiet criticism of its contributions to today’s public healthcrisis”.

McDonald’s has so far responded to CAI’s letter with a statement, whichreads: “We are committed to responsible advertising and take our commu-nications to children very seriously. We understand the importance of

children’s health and nutrition, and are committed to being part of thedialogue and solution.”

To no great surprise, CAI isn’t buying it. Still, despite the uphill battlebeing waged, CAI says there is still hope for corporations such as McDonald’sto change its modus operandi by improving the health of its food andcurbing advertising to kids.

Easy targets?

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Columnist: Paul French22

China column

China’s manufacturers aregoing nowhere fast

Paul French, China editor, argues that demographics and costsappear to be conspiring against China’s world-dominating manufacturing sector. But then again…

Affluence makes for more consumers

Higher paidworkers are agrowingcustomer basefor all thosegadgets they’rechurning out

COLUMNIST:

Ethical Corporation • July-August 2011

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Avery rare thing has happened –for once the Chinese govern-

ment’s own statistics agree witheveryone else’s.

This year, on average, minimumwages across all of China have risenby about 20% year-on-year. Withfood prices and general living costscontinuing to soar, at least wagerises will help.

Demographics are a challengefor China. The population is gettingolder, and the available pool ofyoung workers getting smaller.According to data just released fromthe 2010 nationwide census,China’s population under 16 nowmakes up just 16.6% of the total,down from 23% in 2000. Theproportion of people aged over 60has increased from 10.4% in 2000 to13.3% in 2010.

So is this the end of China as thecentre of low cost manufacturing?Certainly some looking at thesenumbers are quick to talk aboutsouth Asia, or other parts of theAsean (Association of SoutheastAsian Nations) region with moreyouthful demographics, supplantingChina. Certainly, India has lowerwages and better demographics for amass-based low-paid workforce.

But I think India will probablynot take over from China in thisregard.

Higher wages in placeHere’s why. Only 9.5% of China’sworkforce actually receives theminimum salary these days. Mostnow get more and have done forsome time. The average manufac-turing salary is 2.6 times higherthan the minimum wage. Conse-quently many employers have gotused to paying higher wages andhave largely already factored it in.

Foxconn, a company that has

featured many times in this column,raised wages by up to 100% in 2010after the bad publicity that followeda spate of worker suicides.

In the face of this publicity, ashare price collapse of 20%, massivewage rises and increases in inputand energy costs, where is Foxconnnow, a year later? Actually, it’s notdoing too badly.

In May this year, Foxconn’sshares jumped as much as 15% inone day, their biggest daily gain inmore than a year. Why? Because ofsurging global demand for iPhones,iPads, iPods plus all the gadgetsFoxconn’s other clients – includingSony, HP, Amazon, Nokia, Motorola,Nintendo, Microsoft, Dell and Cisco– are selling to you.

And wages are the least ofChinese manufacturers’ worries. Inthe crucial technology sector,encompassing everything fromiPads to car catalytic converters,wages represent just 5% of the totalcost of goods sold, while raw materials account for more than90% of costs.

This is why so far this year you’llhave read more articles on rareearth metals in China than realwages in China over your morningmuesli. Demographics are aproblem, but right now those rareearths remain rarer than warmbodies willing to clock in for thenight shift.

The other side to all this is thatBeijing appears happy enough tosee wages rise – indeed Beijing hasto sign off on all minimum wagerises. Rising pay, and a strongerChinese currency generally, mean astrengthening domestic Chineseretail market for everything frompak choi to BMWs. More local salesreincentivise domestic manufac-turers to keep their factories local

and close to the best regional retailmarket.

India may have the demo-graphic advantage in future and apopulation set to overtake China’s,but India’s total retail sales this yearwill be, optimistically, $396bn;China’s retail sales this April alonewere, conservatively, $210bn.Nobody’s moving to India to getcloser to the customer.

Staying putChinese manufacturers may moveinland to save money on land, rentand supply chain costs but theyaren’t likely to flee to Bangladesh orVietnam when their single largestconcentration of growing sales isright at home in China. And there’sstill massive potential locally –those tech manufacturers may bepaying higher wages but they’reoperating in a market that still onlyhas 17% penetration for computersand 62% for mobile phones. Thosehigher paid workers are now agrowing customer base for all thosegadgets they’re churning out.

Admittedly China’s more rawhinterland cities, and relativelypoor countryside, are not yetbouncing along to the beats fromApple iPods or keeping fit with Wii Virtua Tennis but they arestarting to see laptops and othergadgets appear in large numbers …and that’s keeping them close tohome. n

Paul French has been based in China for morethan 20 years, and is a partner in the researchpublisher Access Asia.

COLUMNIST:PAUL FRENCH

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There is an imageof Switzerlandthat equatesneutrality withcomplacency andthe accruing ofwealth

All nations like to believe they are distinct, but theSwiss are more distinct than most. They

certainly stand out in terms of wealth, having thehighest per capita income in Europe after Luxem-bourg and oil-rich Norway.

There is even a term for Switzerland’s concept ofits own distinctiveness: Sonderfall Schweiz, or“special case”. This embraces the idea that Switzer-land is a place apart: a land of lofty mountains andclean air and water, which keeps itself separate fromthe conflicts of its neighbours, and as a consequenceis stable and unchanging.

Antoine Mach, co-founder of Swiss corporateresponsibility researchers Covalence, says the ideaof Switzerland’s specialness underpins its businessculture, and influences the Swiss approach tocorporate responsibility. The defining characteristicsare stability, neutrality and modesty.

Often, these qualities have a positive influenceon Swiss companies’ strategies, but not always.Stability, for example, means a well-regulatedbusiness environment with high environmental andworkplace-safety standards. It gives firmspredictability. Swiss companies tend to go throughfewer and less dramatic cycles of job cuts and down-sizing that their American or British counterparts,

Mach says. “This can be linked to a tradition ofstability.”

However, stability can also mean conservatismand resistance to new ideas. “For a long time wehave done it this way, so why should we do itanother way? That is something you hear quiteoften here,” Mach says.

Swiss neutrality also has pros and cons for corpo-rate thinking. From a corporate responsibility pointof view, it means there is an emphasis on humanrights and conflict resolution. The world’s best-known humanitarian agency, the Red Cross, is aSwiss invention. Its international committeefeatures a former secretary to the board of Swissfood multinational Nestlé and the current chairmanof Swiss concrete giant Holcim. A number of leadingSwiss companies donate substantial sums to the Red Cross through a corporate support group set upin 2005.

But neutrality can also mean passiveness and“business as usual while others are fighting orsuffering”, according to Mach. There is an image ofSwitzerland that equates neutrality with compla-cency and the accruing of wealth. “CSR calls foraction and engagement; it is not very compatiblewith neutrality,” Mach adds.

Overview

Precision engineered business stability

By Stephen Gardner

The Swiss approach to corporate social responsibility reflects national traditions of neutrality and discretion

25 Low tax environment28 Discreet advantage29 World’s NGO centre30 Government sets the pace

Country briefing: Switzerland

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Swiss modesty, meanwhile, causes problems whencaution and discretion develop into secrecy. Switzer-land’s ethical Achilles’ heel is its reputation as a placewhere money can be hidden with no questions asked.A cliché persists of Swiss bank vaults stuffed withNazi gold and other ill-gotten gains, though expertssay this is exaggerated in foreign eyes.

More open“Swiss banking secrecy is often misunderstood as atotal secrecy and that is not at all the case,” saysChristoph Stückelberger, director and founder ofGlobethics.net, a Swiss ethics research andnetworking group. “A lot has improved in the lastfive to 10 years. Swiss anti-money-laundering legis-lation has been strengthened [to be] one of thestrongest in the world.”

Jean-Pierre Méan, president of the Swiss chapterof the international non-profit group TransparencyInternational, agrees. “There is very little left, ifanything,” of Switzerland’s notorious bankingsecrecy, he says. The Swiss have worked to movebeyond their ingrained Calvinist belief that “moneyis good as long as you don’t show it”.

Switzerland has learned to react quickly when itsprobity is questioned. In 2009, the Organisation forEconomic Co-operation and Development placed iton a “grey list” of tax havens, a move that led to aflurry of lobbying and reform by the Swiss govern-ment. Switzerland was removed from the list aftersix months.

Swiss corporations have also learned to respondmore effectively to criticism. Antoine Mach saysSwiss modesty can be a benefit because “corporateresponsibility communication that is modest anddiscreet can be more credible”. But there is a balanceto be struck. Swiss corporations should not interpretthe Sonderfall Schweiz concept to mean that theydo not have to justify their actions.

The classic example of this was the long-runningcontroversy over Nestlé’s marketing of baby milkformula in developing countries. Nestlé wasaccused of putting profits before the health ofmothers and infants, and handled the resultingcontroversy badly. The company took “an arrogantposition”, says Mach. “They did not understand thatthey had to explain about their impact. But nowthey have understood.” n

24 Country briefing: Switzerland Ethical Corporation • July-August 2011

Switzerland factsheet

Socio-economic statistics

Population:..................7.64 million (2011 estimate)

GDP: ..........................$324.5bn (PPP 2010 estimate)

GDP per capita: ........$42,600 (PPP 2010 estimate)

Human Development Index: ....0.874 (13th / 169)

Current leadership

President of theSwiss Confederation: ........ Micheline Calmy-Rey

Type:.................................................. Federal republic

Import partners

Germany ..........................................................27.0%

Italy ..................................................................10.0%

United States......................................................9.6%

Export partners

Germany ..........................................................27.0%

United States......................................................9.1%

France ..................................................................8.6%

Focus of CSR/sustainability

1. Reporting

2. Partnerships and collaboration

3. Performance measurement

Swiss sustainability leaders most mentioned

Novartis

Nestlé

Foreign sustainability leaders most mentioned

Novo Nordisk

Ikea

Guidelines and initiatives most used

Global Reporting Initiative

ISO series

OECD Guidelines

Guideline and standards statistics

GRI reports in 2010 ........................................................50

DJSI Europe listing ..........................................................10

Global Compact participants ........................................83

UNPRI signatories ............................................................47

References:• Socio-economic statistics obtained from recent publications from the CIA Factbook and the Human

Development Index.• Corporate responsibility data obtained from a June 2011 Ethical Corporation survey. The small sample of

this survey means that the results should be regarded as an indication of trends in Switzerland and notas scientific research.

• Guideline and standards statistics obtained during June 2011 from official website of each initiative.

Corporate responsibility statistics:Ethical Corporation survey results

Switzerland haslearned to reactquickly when its probity is questioned

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Swiss companiesare not pushed too hard unless in the firing line

Switzerland is notable for its long-lived compa-nies. The Swiss seem to have gone through a

particularly energetic spell of start-ups in the mid-19th century. Nestlé’s roots go back to 1867, whilebanking giants UBS and Credit Suisse were foundedin 1854 and 1856 respectively.

While the rest of Europe was mired in politicalupheaval and even revolution, the Swiss wereestablishing Omega watches (1848), Bally shoes(1851) and lifts group Schindler (1874). Many Swisscompanies go back even further, to 1755 in the case ofluxury watch maker Vacheron Constantin, forexample.

The longevity of Swiss corporations is a testamentto the stability of their homeland. Swiss companiesalso enjoy a favourable tax regime with an effectivecorporate tax rate of 13-22%, depending on theirhome canton. Switzerland charges a federalcorporate tax rate of 8.5%, with the 26 cantons freeto charge their own top-up levy.

But Switzerland’s low-tax reputation canovershadow other favourable aspects of its businessenvironment. These include a central location withinEurope, excellent communications and otherinfrastructure, a flexible legal framework, and thepresence of an “efficient, powerful finance centre,which can ensure your global financing”, saysThomas Pletscher, head of regulatory policy at thecountry’s main business federation, Economiesuisse.

Should they want to, firms can also takeadvantage of Swiss discretion and limitedtransparency requirements.

It all adds up to an almost ideal situation from acorporate point of view. Swiss companies can grow

steadily and reap healthy financial rewards withouthaving to hand too much of it over to the state, andwithout too much government interference.Reporting requirements are lenient.

No pressureThis tends to mean that Swiss companies are notpushed too hard on corporate responsibility, unlessthey happen to find themselves in the firing line overa particular issue, as Nestlé did during the baby milkscandal. “Corporate responsibility initiatives areoften not spontaneous,” says Antoine Mach, of Swisscorporate responsibility researchers Covalence.“Negative news acts as a stimulus. Less exposedcompanies tend to do a bit less.”

Pletscher says Switzerland’s corporateresponsibility leaders, such as Nestlé and Novartis,tend to be the companies most exposed to NGOpressure. Novartis, for example, works ondevelopment issues through the NovartisFoundation for Sustainable Development. Thesecompanies “have for a long time had definedpolicies, standards and mechanisms,” Pletscher says.

Switzerland also has a number of industrialcompanies considered to be effective corporateresponsibility performers. Engineering group ABB,for example, is “very active and engaged,” accordingto Pletscher. ABB’s priorities include the reduction ofenergy and raw material consumption, and thecompany has a corporate citizenship programmeaimed at bringing electricity to remote communitiesin India and Tanzania.

The traditional watch-making industry,meanwhile is “less exposed” to accusations of poor

Corporate environment

Taxes low, standards high

By Stephen Gardner

Swiss companies are not considered to be sustainable business groundbreakers, but they respondto criticism and strive to meet the demands of Swiss consumers for high standards

Country briefing: Switzerland 25Ethical Corporation • July-August 2011

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ethical behaviour, says Pletscher. It is a sector with arelatively small environmental footprint, and it is inthe interests of the companies involved that theyhave good working conditions and employeerelations, because they need to retain their highlyskilled staff.

Not the best, not the worstCovalence publishes the EthicalQuote rating ofmultinationals. This ranks the most ethically mindedSwiss companies as Nestlé and cement makerHolcim, which are among the top 20% of mostresponsible corporations globally.

ABB comes lower down in the rankings, alongwith Novartis and fellow pharmaceutical firm Roche,insurers Swiss Re and Zurich Financial, andRichemont, the holding company for luxury brandssuch as Cartier, Dunhill, Montblanc and Piaget.Lower still, in the bottom 20%, are bankers CreditSuisse, Julius Baer and UBS, and crop scientists

Syngenta. EthicalQuote scores companies accordingto their working conditions, the impacts of theirproduction processes, their products, theiroperations, and their reputation as reflected bymedia coverage.

A similar roll-call of companies features in theDow Jones Sustainability Index, where Switzerland iswell represented compared with similarly sizedcountries. Julius Baer and Richemont do not feature,but machinery manufacturer Sulzer does.

“There is no great movement in Switzerland tolead the pack,” says Jean-Pierre Méan, president of

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Switzerland’s low-tax reputationcan overshadowother favourableaspects of itsbusiness environment

Country briefing: Switzerland Ethical Corporation • July-August 2011

Case study: Switcher

Clothing brand Switcher is often cited as one ofSwitzerland’s most progressive and responsiblecompanies. Covalence’s Antoine Mach says it is a“pioneer in monitoring working conditions alongthe supply chain”.

Robin Cornelius started the company in 1981when he was still a student at the University ofLausanne. Danièle Buonocore, a Switcher corpo-rate responsibility manager, says Cornelius“spoke about sustainability almost since the cre-ation of the company. For instance, in 1997, heappointed a CSR director and created a wholedepartment dedicated to sustainability.” In 1987he set up an alliance with Indian garment makerPrem Group. In a reversal of the usual way ofdoing things, Prem Group bought into Switcherin 2010, and now co-owns it with Cornelius.

Buonocore says the company’s aim is to“maintain a good level of working conditions inour supply chain and also to ensure full trace-ability of our products”. This is done throughextensive auditing of suppliers and the awardingof ratings on a “whale scale” (Switcher’s logo is awhale). The benchmark for audits is the Switchercode of conduct, which is based on InternationalLabour Organisation standards, but also empha-sises fair wages, fair working hours and“decency” of working conditions, for example interms of the cleanliness of the workplace.

If a supplier is found to be substandard, it willbe given either a red or orange whale. Red-whalesuppliers are those that refuse to enter into dis-cussions about making improvements, in whichcase Switcher declares itself unable to work withthem. Orange-whale suppliers, however, are notbeyond redemption, and rather than abandoningthem, Switcher works with them to improve con-ditions and practices. If this succeeds, thesupplier can be rewarded with a green (good) oryellow (excellent) whale.

Ultimately, Switcher says, the company “seeksto create a ‘smiling chain’ where all the com-pany’s partners and collaborators are happy intheir work and no one feels exploited”.

And good ethics, says Covalence

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the Swiss chapter of international campaign groupTransparency International. They are “not among thebest, but not among the worst”. However, Swisscorporations are expected to meet highenvironmental and workplace standards, comparedwith many other countries, and are in generalsticklers for keeping to the rules. They are, forexample, among the least likely companies to paybribes abroad, according to TransparencyInternational rankings.

Swiss firms must also be responsive to demandingSwiss consumers, who are proud of their Alpineenvironment and expect high ethical standards. Salesfigures for brands with ethical labels are high relativeto other markets. The Swiss spend more per personon fair trade products than any other nation, forexample.

Carine Boetsch, who oversees ethically labelled

product ranges for Swiss supermarket group Coop, says the Swiss are well educated aboutenvironmental and social issues. Coop began sellingeco-products in 1989, organic food in 1993 andorganic textiles in 1995. “Our consumers are awareabout quality and added value, so they are not thatfocused on lowest prices,” she says. “If you offerthem a wide range of products with quality andrespect for nature and humans at an acceptable price,they take it.”

Swiss consumers are also wealthy, interested inhealth and wellbeing, and educated about humanrights and other ethical issues, in part influenced bythe role played by organisations such as the RedCross in the national psyche. This, says Covalence’sAntoine Mach, means there is “space for non-material needs to be met, and maybe corporateresponsibility goes in this direction”. n

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Swiss consumersexpect high ethicalstandards

Country briefing: SwitzerlandEthical Corporation • July-August 2011

Case study: Intersport

In many ways, Intersport is a typically Swiss organisation. Incommon with institutions such as the Red Cross, it is based onpooled effort and shared benefits, having been established in the1960s by buying organisations from Austria, Belgium, Denmark,France, Germany, Italy, Netherlands, Norway, Sweden andSwitzerland. Naturally it chose central and stable Switzerland asits home. It is now the world’s largest retailer of sports brands,including its own, which are manufactured by third parties.

According to the company, its partnership-based approachprovided its first corporate responsibility headache. “The mainchallenge for the Intersport group is the fact that it is a coopera-tive organisation,” says Reidar Magnus, the firm’s seniorcorporate responsibility and supply chain manager. Each of thecompany’s units, from head office to national organisations andretailers, is run independently.

Thus “the first hurdle we met when implementing our newCR strategy in 2005 was to get a clear overview of our entiresupply chainwith all its trading partners and intermediaries, andto pinpoint the final producing destination – the factory,”Magnus says. The situation is further complicated by the dynamicnature of the fashion sector, with a rapid turnover of producers,suppliers, and even producing countries. “Keeping our vendor-management system updated with the relevant CR informationcan be a major challenge,” Magnus adds.

In building up a comprehensive picture of its supply chain,Intersport made some observations that are relevant to manycompanies. It found that factories sometimes have to cope withmultiple codes of conduct from western retailers, though oftenthese reflect similar requirements. It also takes time to convincesuppliers of the benefits of a more responsible approach tobusiness operations.

The firm uses as its benchmark the code of conduct developedby the Business Social Compliance Initiative (BSCI), theBrussels-based corporate responsibility platform for companiesmanufacturing outside their own countries, which tends toattract continental European, rather than British or NorthAmerican, members.

“Our current CSR priorities are quite clearly focused on our

commitment to the BSCI to ensure that social standards withinour supply chain are improved,” Magnus says. The company’saudits are backed up by information-exchange meetings withsuppliers and factory managers with a view to capacity building.

Intersport admits to a certain naivety when starting to imple-ment its supplier programme. “In the beginning a lot of taskswere done independently from our buyers and the product andpurchasing department,” Magnus says. “But we have learnedthat for implementing a successful CR strategy, staff on all levelsneed to be made aware of what the company’s goals are. Buyersand merchandisers must be given a key role.”

Success is a shoe-in for Intersport

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Country briefing: Switzerland28

Secrecy

Don’t ask, don’t tell

By Stephen Gardner

The stereotype of Swiss secrecy isincreasingly out of date, but somecorporate governance issues remain tobe dealt with

Switzerland’s tradition of secrecy is deep-rooted. Its reputation as a place of

discretion is mainly attributable to its banks.At times, secrecy has been an essentialbarrier between Switzerland and malignoutside forces. Switzerland’s 1934 FederalAct on Banks and Savings Banks imposed aduty of secrecy on bankers in part to protectGerman clients who at the time risked deathunder Nazi law if they held foreign capital.

But banking secrecy has also given Swissbanks a valuable competitive advantage,attracting those looking to hide their assets– and raising ethical questions. The financialsector is vital to the Swiss economy,contributing 11% of GDP, according to theSwiss Bankers Association (compared withabout 10% in the UK, and 8.5% in the US),and the Swiss government is careful toprotect its bankers.

However, Switzerland has not beenimmune to the forces of the outside world,and various events have led to change. Inthe 1990s, lawsuits filed by Jewish groupsforced Swiss banks to publish details ofdormant accounts containing the money ofHolocaust victims. The banks eventuallysettled by paying $1.25bn into a compensa-tion fund.

Swiss banks have also been stung byinformation leaking out in the past fewyears about funds deposited by foreignnationals to avoid tax in their own coun-tries. Partly in response to leaked Swissinformation, the US passed the ForeignAccount Tax Compliance Act, which from2013 will require non-US banks to reportdetails of their US clients to the AmericanInternal Revenue Service.

The spotlight on tax evasion is oneconsequence of the financial crisis, duringwhich UBS in particular suffered because ofbad investments. Desperate to avoid beinglabelled as a tax haven, Switzerland hastaken steps to meet Organisation for

Economic Cooperation and Developmentstandards, and to conclude and updatetaxation agreements with many countries.

James Nason, head of internationalcommunications for the Swiss BankersAssociation, says Switzerland’s reputationfor secrecy is undeserved. “Swiss bankingsecrecy has never protected criminals and itis no obstacle whatsoever to a criminalinvestigation,” he says. “There is a lot ofmisunderstanding about Swiss bankingsecrecy.”

Client confidentialityHe adds that banks have an obligation ofconfidentiality, and “it is a criminal offencefor any banker to give confidential clientdata to an unauthorised third party.However, Swiss bank client confidentialityhas never been 100% absolute. If the Swissattorney-general or a Swiss investigatingmagistrate comes into a bank in Switzerland

wanting information in connection with acriminal investigation, then banking secrecysimply disappears.”

The largest Swiss banks, Credit Suisseand UBS, are both members of the Wolfs-berg Group, a collective of the world’slargest banks, which works to combatmoney-laundering, fraud, deposits ofcorruptly obtained funds and other ethicaland criminal risks for banks.

Olivier Dunant, an attorney-at-law withErnst & Young in Switzerland, agrees thatSwiss secrecy is a stereotype, and that the

cliché of no-questions-asked banking isoverstated. But lack of transparency persistsin some areas. Switzerland is unusual inthat it does not require private companies topublish their accounts, considering corpo-rate taxation to be a matter between thecompany and its tax office.

Switzerland also allows the ownership ofcompanies to be disguised by permittingbearer shares – shares that are not owned bya named entity or individual, but rather bywhoever happens to physically hold them.

Limitations on the need to disclose infor-mation meant that even the world’s largestcommodities trading company, Glencore,which is headquartered in Switzerland,published little information about itselfuntil its recent floatation. Glencore’s headoffices are in the small town of Baar, in thecanton of Zug, which, despite a small popu-lation of about 112,000, is home to about25,000 companies, attracted by low tax ratesand discretion.

Many Swiss companies are committed togreater openness, Dunant says. Someprivate companies “publish more in theinterests of transparency, even though thereis no obligation”. Nevertheless, he adds, thesecrecy afforded by Swiss law to non-listedcorporations “is a present concern, and itwill probably change in the future”.

Switzerland’s main business federation,Economiesuisse, includes guidance ontransparency in its code of best practice forcorporate governance, though this largelyrelates to being open about pay policies.

The slowness of some Swiss corporationsto embrace transparency is shown by thelimited adoption of the code. A “minority ofcompanies” follow the code in everyrespect, says Dunant. “I don’t think it isimplemented very widely.” n

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Shadowy reputation

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NGOs

Corporatedisconnection By Stephen Gardner

The presence of many of the world’slargest international NGOs does notnecessarily mean that Swiss companiesare more ethical than others

Switzerland is the country of non-govern-mental organisations. It is the European

home of the United Nations, and the shoreof Lake Geneva is thronged with interna-tional bodies working to make the world abetter place: the International LabourOrganisation, the International Federationof Red Cross and Red Crescent Societies andthe World Business Council for SustainableDevelopment, to name a few.

The presence of so many internationalorganisations does not necessarily mean thatthe ethical standards of Swiss companies arehigher than others, however. “It doesn’tmake any difference,” says Jean-Pierre Méan,president of Transparency International inSwitzerland. Some international bodies evenhave their own ethical problems. The worldfootball organisation Fifa, for example, withits 2010 income of $1.3bn dwarfing mostcompanies, has “very poor” governance,Méan says. “They are not seriously doinganything to fight corruption.” And Fifa’srecent well-publicised scandals bear this out.

Like some corporations, some non-profitgroups come to Switzerland because thereare tax benefits and “it’s a nice place to live”,Méan adds.

Even the presence of the UN on thedoorstep does not particularly act as astimulus for Swiss companies to raise theirethical standards. At the end of May 2011, thesupply division of the UN children’s fund,Unicef, published details of the prices it paysfor vaccines. Swiss pharmaceutical giantNovartis, which sells diphtheria, measles andtetanus vaccines, was the only Unicefsupplier that refused to disclose its prices.

Steffen Bethmann, a researcher at BaselUniversity’s Centre for Philanthropy Studies,says there tends to be a disconnect betweenSwiss NGOs and the country’s largest corpo-rations. In Switzerland, the idea persists thatphilanthropy should be strategic, and shouldbe a way to achieve competitive advantage,he says. Corporations are “sometimes reluc-tant to work with non-profits because theydon’t see the link to their own operations”.

The largest firms prefer to organise phil-anthropic activities through their ownfoundations, he adds. Nestlé providesresearch grants through its Foundation forthe Study of Problems of Nutrition in theWorld, with a particular focus on low-income countries. Roche has severalfoundations that sponsor medical research.

The Credit Suisse Foundation supportseducational projects, and has a disaster-relief fund and a “jubilee” fund, whichsupports organisations in Switzerland, suchas the Swiss Guide and Scout Movementand the Swiss Multiple Sclerosis Society.

National non-profitsAmong the most important and best knownNGOs on a national level are the Red Cross,the environmental group Pro Natura, ProSenectute, which is the Swiss equivalent ofHelp the Aged, and Pro Juventute, whichpromotes children’s rights. These are mainlyfunded by private donations, and largegovernment contributions. Donations bycompanies are “not that big”, says Bethmann.

There is more activity on a local level,with exchanges between smaller companiesand local charities, such as sports organisa-tions. Thomas Pletscher of businessfederation Economiesuisse says this is oftenfounded in Switzerland’s tradition ofcitizens carrying out “public jobs” alongsidetheir daily employment.

Such part-time roles include involve-

ment in local politics, the fire brigade andmilitary service, which all Swiss men arerequired to do. “It is a Swiss tradition thatcompanies enable their employees to partic-ipate in such activities far beyond theirdirect commercial interest,” Pletscher says.

Switzerland does have organisationsspecifically promoting corporate responsi-bility, with activities mainly directed atconsulting with companies and persuadingthem to boost their corporate responsibilityperformance. Philias is a non-profit institutebacked by public bodies such as the Swisslottery and the city of Geneva, and companiessuch as fragrance maker Firmenich, whichwon an Ethical Corporation award in May.

Philias organises Switzerland’s annualHumagora conference, which is aimed atincreasing the collaboration betweencompanies and non-profit groups. Effectivepartnerships are recognised by theHumagora prize, given this year to Swissrecruitment agents Adecco and Orif, anorganisation that helps people sufferingfrom ill-health, or disabled people, enter orre-enter the workforce. Adecco and Orifhad worked effectively to help disadvan-taged jobseekers find work, Philias says.

Steffen Bethmann highlights a relatedinitiative, Sozial Engagiert (socially engaged),a platform backed by a Zurich church foun-dation, as having national corporateresponsibility impact. This promotes corpo-rate citizenship, in particular through “socialdating”, a service to team up companies andlocal and national non-profits. Social datinghas resulted in companies helping out avariety of organisations in Switzerland, suchas business news giant Bloomberg offeringfinancial planning support to charities, andinsurer Swiss Re backing the Swiss Societyfor Muscular Dystrophy. n

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Country briefing: Switzerland30

The strategy covers 2008-11 and includesmany measures that will require a greaterdegree of sustainable behaviour from compa-nies. Some objectives could easily have beenlifted from a corporate responsibility plan, forexample increasing the proportion of renew-ables in energy consumption, minimisingmiles travelled by goods, reducing thedisparity between the salaries paid to menand women, increasing scientific research,and promoting multilingualism.

Progress reports are available via an onlinesustainable development dashboard. Thisshows that Switzerland plc is broadly makingprogress on reducing its energy intensity, andon reducing the resource intensity of Swiss

products (resources consumed per unit ofGDP fell by 15% between 1990 and 2009).Performance has been less good, however,when it comes to reducing waste, or cuttingyouth unemployment.

To cut its carbon dioxide emissions,Switzerland introduced a CO2 levy in 2008.This is charged on all imported fossil fuels,meaning the tax is shared across society,from individuals to businesses. In a noveltwist, the proceeds from companies areredistributed in a responsibility-encour-aging fashion. Firms receive paymentsbased on the number of employees theyhave, meaning that the biggest benefici-aries, according to the Swiss federal officefor the environment, are companies “that,on the one hand, make effective use of fossilfuels and use renewable energy, and on theother hand, employ many staff”.

Companies can opt out of the tax if theysign up for the Swiss emissions trading system.In doing so, they take on legally bindingemission reduction targets, and receive freecarbon allowances up to their cap. If partici-pating companies over-perform, the surpluscan be sold. However, Swiss emissions in 2008– the same year as the tax was introduced –stood at more or less the same level as 1990,according to the national sustainability dash-board.

Emphasis on standardsThe government also behaves like a corpo-ration in subscribing to internationalguidelines and standards, such as theOECD Guidelines for Multinational Enterprises, the International LabourOrganisation Declaration of PrinciplesConcerning Multinational Enterprises andSocial Policy, and the United Nations GlobalCompact. The Swiss economic affairs statesecretariat says: “It is the responsibility ofcorporate management to respect and applyinternational standards.”

But critics say the government’sapproach is superficial, and is mainlyfocused on reporting, rather than doing,good deeds. The Swiss Alliance of Develop-ment Organisations (known as Alliance Sud)said in April 2011 that the government’simplementation of the OECD guidelineswas “rather passive and minimalist”.

This followed its failure to resolve a caseinvolving the Swiss underwear manufacturerTriumph International, and workers inThailand and the Philippines, who claimed tohave been unfairly dismissed. Alliance Sudsays the Swiss authorities, instead of givingup on the case in January, should have donemore, such as organising the translation ofdocuments and facilitating meetings. n

Ethical Corporation • July-August 2011

Calmy-Rey heads a corporate-like structure

Switzerland has, in effect, a national strategy for corporate responsibility

Rules and regulation

GovernmentincorporatedBy Stephen Gardner

The Swiss authorities adopt a lighttouch attitude while setting the pace ofthe corporate responsibility agenda

The Swiss government’s approach tocorporate social responsibility bears a

remarkable resemblance to what might beexpected of a major international company.Sustainability reporting is emphasised, butthere are doubts about how deep thethinking goes.

The Swiss government has some of thecharacteristics of a major corporation.Switzerland is governed by a seven-personboard – the federal council – which makesthe decisions, while the president, Miche-line Calmy-Rey, acts as non-executive chair.The Swiss board departs from mostcompany boards, however, in that themajority of its members are women.

The government imposes no directcorporate social responsibility obligationson companies. There is no national corpo-rate responsibility strategy, and reportingobligations, especially for private compa-nies, are limited. Corporations listed on theSwiss stock exchange must publish gover-nance reports, but sustainability reportingremains voluntary. Swiss companies havethe “freedom to decide their level of engage-ment,” says Thomas Pletscher, head ofregulatory policy at the country’s mainbusiness federation, Economiesuisse.

But this does not mean that the govern-ment expects nothing of its corporations.Rather, it takes the view that if legislation isneeded to ensure the stability and sustain-ability of Swiss society, then it will legislate.“Companies are not expected to compensatefor any regulatory or institutional weaknesseson the part of the state,” according to theSwiss state secretariat for economic affairs.

Sustainability reportsSwitzerland has a sustainable developmentplan that is, in effect, a national strategy forcorporate responsibility. Unlike some corpo-rate sustainability reports, however, whichmight consider environmental and socialobjectives as add-ons, the national planspecifically regards environmental protec-tion, economic performance and “socialsolidarity” as having equal importance.

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The costs to society fromsetting policiesbased on fearrather than scienceare significant

You’re luxuriating in newly constructed digs,napping on your Barcalounger, sipping coffee

from a plastic cup, gossiping on your iPhone. Here’stoday’s quiz: What’s your biggest health danger?

Based on recent news reports, you’d think you’rein cancer alley: formaldehyde leaks from the plas-terboard walls, ceiling tiles are made without-gassing phthalates, radiation spews from yourBPA-made phone and the toxic du jour, styrene,leeches into your latte.

Yet as any cancer expert would tell you, that’s thewrong answer. By exponential degrees you are farmore likely to face serious health danger fromsitting on your derrière, which increases obesity anddramatically raises your likelihood of cancer, thanfrom the other well-publicised chemical “threats”combined. This quiz is worth considering, if only totry to put in context two recent news events.

In Germany, some 50 people have died from Ecoli poisoning and 900 others experienceddangerous reactions from what officials believewere organically grown bean sprouts. E colicontamination of organic foods is not uncommon –recall for example the death and injuries caused bybacteria-spiked Odwalla apple juice in 1996 that ledto the largest fine ever assessed by the US Food andDrug Administration and the eventual sale of thecompany. Yet journalists and activists are not clam-ouring for tighter controls of the organic industry.

Contrast that silence to the reaction whensynthetic chemicals are in the news. In June, theNational Toxicology Program (NTP), a US govern-ment agency that evaluates the potential hazards ofchemicals, listed formaldehyde as a “known human

carcinogen” and classified styrene as “reasonablyanticipated to be a human carcinogen”. What dothose classifications mean?

The venerable New York Times headlined a front-page report with Government Says Two CommonMaterials Pose Risk of Cancer – and that’s a restrainedexample of the risk-drenched headlines that haveechoed through cyberspace. Jennifer Sass, the influ-ential anti-chemical campaigner for the NaturalResources Defence Fund (NRDC), did what she couldto magnify the cacophony. “The chemical industryfought the truth, the science, and the public – but inthe end our government experts came through for us,giving the public accurate information about thehealth risks from chemicals that are commonly foundin our homes, schools, and workplaces.”

So, based on the science, Mr and Ms Consumer,should be concerned, right?

Just when you thought it wasn’t safeThat’s not what the science shows. The averageconsumer doesn’t face health dangers from thosesubstances as we normally encounter them, and thedata presented in the NTP report doesn’t suggestthat they do.

Of the two chemicals, formaldehyde is problem-atic. The report confirmed the widely known factthat when industrial workers handle it, they facecancer threats – if they are not adequately protected.No study has found serious health dangers fromexposure to formaldehyde in, for example, materialsused to build your home, although the fumes areknown to cause irritation when concentrations areunusually high.

Opinion

Scared to death

By Jon Entine

Why everything you thought about the health risks from chemicals is wrong

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So, what’s the responsible, if less than sensa-tional, take-away from the NTP study onformaldehyde? Your house is not making you sick, but tight oversight of production is prudent. Inthe US, the Occupational Health and Safety Admin-istration sets firm exposure limits to protectworkers, and similar regulations are in place inother countries.

The new classification of styrene – a chemicalthat occurs naturally and synthetically, and is usedto manufacture many plastics, latex paints, poly-esters and coatings – as a possible carcinogen set offcelebrations at the NRDC, where Sass referred to itsuse in “synthetic flavouring in ice cream andcandy”.

That’s a deliberately misleading reference to thefact that styrene is a natural component ofcinnamon as well as beef, coffee beans, peanuts,wheat, oats, strawberries and peaches. The GermanBfR, known as one of the most conservative riskassessment organisations in the world, studied thisvery issue in 2006, concluding: “Small amounts ofcinnamon have been used for thousands of years asa spice without any reports of side effects … noharmful levels of styrene have been identified in thecinnamon powder.”

The NTP underscored the scientific consensusthat studies have not found health dangers incommon consumer exposure. And while the NRDCand hundreds of websites blithely claim that“industry pressure” slowed the NTP from listingstyrene in its Report on Carcinogens, there is a beliefthat the NTP went beyond the science in its action.

The World Health Organisation and the Interna-tional Agency for Research on Cancer (IARC) lists

styrene as a “possible human carcinogen”, consid-ered by scientists to be a weak warning. Thatcategorisation means something quite differentfrom when a journalist or activist uses the term.

Degrees of riskFor science literates, the translation is that somelaboratory studies but not others found that rodentsexposed continuously to this chemical at levels 100to 1,000 times higher than what humans areexposed to developed mutations.

Are consumers in danger as the NRDC claimsand the New York Times headline implies?Researchers say no. European Union scientists, whooperate under the precautionary principle and areguided by WHO and IARC, recently reviewed theidentical studies and concluded that styrene is not ahuman carcinogen, echoing an expert panel in areport in a November 2009 issue of the Journal ofOccupational Environmental Medicine.

Even the data on worker exposure to styrene isquestionable. The two most comprehensive studiesto date, as noted in the NTP report, showed thatworkers were no more likely to contract bloodcancers than peers working in the absence of styrene.

Misrepresenting science studies and caricaturingcorporations as self-interested to the point of beingdeceptive is a timeworn tradition of “reformminded” consumer advocates. Risk – the danger ofbeing injured – depends on how much of a chemicalyou’re exposed to and for how long. When onelooks at the details of many studies, because ofsample sizes, controls or other factors, the findingsare often suggestive rather than conclusive.

Risk researchers are statistically sophisticated

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and understand this complexity, but campaignersand the media often do not appreciate the grindingprocess of science.

For example, BPA has come under relentlessattack, yet a slew of recent independent reportsdisagree – by the FDA in January 2010, theEuropean Food Safety Authority in summer 2010, a2010 special advisory committee of German toxicol-ogists and the November 2010 meeting of the WorldHealth Organisation expert review panel on BPA.These all concluded that the collective evidencefrom thousands of studies demonstrates that thesmall-scale investigative studies touted by interestgroups do not lead to the consensus that BPA posesserious danger as an endocrine disruptor.

Even regulators struggle with assessing risk.Recently, the National Academy of Sciences publiclyexcoriated the US Environmental Protection Agencyfor its methodology in assessing chemicals under itsIntegrated Risk Information System (IRIS), the EPA’sscientific position on the potential human healtheffects of exposure to more than 540 chemicals.

The NAS concluded that the EPA’s “criteria toidentify evidence for selecting and evaluatingstudies” were often flawed and misguided, conclu-sions overstated and reports not presented in alogically consistent manner – and must include amore balanced “weight of evidence” review.

Rush to the unknownThe costs to society – economically and socially –from setting policies based on fear rather thanscience are significant. It often leads to politicalpressure to slap warning labels on packages thatamount to a skull-and-cross-bones, stirring unnec-essary concerns among consumers and workers.Companies come under siege and jobs are threat-ened. Scared or confused, consumers switch toproducts made with ingredients that have beentested far less, in effect rolling the toxic dice.

This script played out in France in June. Anintense campaign targeting phthalates led somelegislators in the French parliament to pass a whole-sale ban, rejecting recommendations of the Frenchhealth minister. But while French politicians capitu-lated to fear, the Danish Environmental ProtectionAgency, one of the most aggressive regulatorybodies in the world, took a measured and nuancedapproach, distinguishing between the potentialrisks presented by different types of phthalates.

It has proposed a ban on low molecular weightphthalates widely used in children’s toys and somemedical tubing – DEHP, BBP, DBP and DIBP – whichmay accumulate in the body and where theevidence of potential danger is stronger.

Frank Jensen, chief adviser to the Danish EPA’schemical unit, noted that high molecular weightplasticisers such as DINP, DIDP and DPHP are morestable and resilient and make cost effective, qualitysubstitutes for the low ones. EU officials agree with

this distinction, but French politicians took a lesssophisticated approach.

The fear of synthetic chemicals diverts our focusand drains public funds from addressing documenteddangers. That’s underscored by a just-releasedAmerican Cancer Society report. Despite the hysteriasuggesting that modern society is being assaulted byits increased reliance on synthetics, chemical exposurerepresents “relatively small risks” and human cancerrates continue their steady decline.

Cancer caused by chemicals is mostly confined towork settings, amounting to about 4%, with pollu-tion and all other exposures adding another 2% ofcases. The increasing danger is from obesity andlack of exercise. That contributes to an estimatedone out of five cancer-related deaths.

Exaggerating risk is not prudent; it’s irrespon-sible. We don’t demand bans on coffee, whichcontains more than 1,000 chemicals, including 19known rodent carcinogens, even though highamounts of caffeine have been implicated inincreased risk of bladder and oesophagealcancer. We need a science-based approach tochemical regulation. It is safe to relax on the loungerin your new house, talk on your phone and drinkyour cup of Joe. n

Jon Entine is director of the Genetic Literacy Project at Stats at GeorgeMason University, and founder of the sustainability consultancy ESGMediaMetrics. He is author of Scared to Death: How ChemophobiaThreatens Public Health.

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Strategy and management 34

As John Elkingtonputs it, Unilever’stargets are“almost insanelyambitious”

Other section content:

38 Risky business42 Ray Anderson’s good

news

Seven pillars. Fifty core commitments. Horizonsof two to 10 years. Unilever’s Sustainable Living

Plan all made for impressive reading, rather like anelection manifesto.

Politicians usually get a 100-day grace periodbefore the critics plunge in. Anglo-Dutch consumergoods giant Unilever has had six months, which isgenerous by comparison, but in sustainability terms,that’s still early days.

Its targets are far from being a doddle (see box).Some, as green guru and sometime adviser toUnilever John Elkington puts it, are “almostinsanely ambitious”. The goal of making its entireagricultural sourcing 100% sustainable by 2020 fitsthat bill. (The current figure stands at about 10%).

It remains legitimate to ask how the company isgetting on. So what does its early report card looklike?

Early winsTalk to Unilever and it will point to a number ofearly wins. Karen Hamilton, global vice-presidentfor sustainability at the company, rolls off three.

The first is PureIt, Unilever ’s water purifier.Targeted particularly at low-income consumers, theproduct has provided access to safe drinking waterfor 20 million people.

Another is renewable energy. Every singleUnilever factory in the Netherlands now runs 100%on power from renewable sources. The company isalso on course to become Canada’s largest commer-cial buyer of renewable electricity after signing a dealwith green power generator Bullfrog in April.

The third is Magnum. Unilever ’s leading ice

cream brand has linked with the Rainforest Allianceto source all its cocoa as sustainably certified.

Should the list be longer? Perhaps. But toUnilever’s credit, it has already harvested much ofthe low-hanging fruit. Over the past 15 years, forexample, it has cut its greenhouse gas emissions andwater use by 40% and 65% respectively.

Obvious wins are therefore, well, not so obvious.Take PureIt. The purifier was first launched in Indiaback in 2004. What’s new is that Unilever hasexpanded the product’s market reach, first toBangladesh and Indonesia and soon to Brazil.

Market expansion could help with some targets.Lifebuoy is one such example. This popularUnilever soap is credited with helping improve thehealth of 130 million people (thanks principally toits impact on bacterial disease reduction). Theproduct is now available in 50 countries, up from 25a few years ago.

Scaling up has a negative flipside, however. Thebigger the business, the larger its environmentalimpacts. Unilever has set itself the target ofdoubling growth, while halving its social and envi-ronmental footprint. Only new ideas and newapproaches will ensure the opposite doesn’thappen.

In short, Unilever needs to innovate. Innovationrequires many factors to be in place – not leastcreativity, incentives and investment.

Without doubt, nothing will happen without anod from the top. In chief executive Paul Polman,Unilever has a genuine sustainability champion. Atthe November 2010 launch, he made a splash withhis talk of “decoupling” growth from environmental

Unilever

No slip-ups yet By Oliver Balch

Unilever’s Sustainable Living Plan, launched in November 2010, has achieved some early wins, but the real story lies in the long-term strategy. Only by working with others does it stand anychance of success

Ethical Corporation • July-August 2011

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impact and by telling sceptical investors to put theirmoney elsewhere.

Six months on, he’s still sending the samesignals. He has since attacked European agriculturalsubsidies for keeping African farmers in povertyand criticised biofuel policies as “ill conceived”.

The message is getting through to his 174,000 orso employees. Unilever ’s recent Global People’sSurvey showed a “significant shift” in those whoclaim to be “inspired” by the company’s vision andvalues, according to Hamilton.

Polman’s comments have also served to boost thepublic profile and reputation of Unilever (thecompany recently pipped GE and Interface in asurvey on sustainable leadership by GlobeScan andSustainAbility). Both factors further incentiviseemployees, Elkington says.

“It’s encouraging for people in a company to feelthat they are part of a winning team – and, also, thatthe world is watching,” he says.

Sustainable productsThe encouragement is beginning to manifest itselfin more sustainable product offerings. A primeexample is the laundry detergent Persil Small andMighty. The product’s volume and required temper-ature have already been reduced, and nowUnilever’s marketing insists that the product can beused in a “quick wash” cycle with no drop inperformance.

Unilever employees can be found in more than100 countries. To ensure that all are on board withthe plan’s objectives, the company has sent out abest practice toolkit for all its operations. Themanual includes everything from case studies andgetting-started tips to advice on brand messagingand waste reduction techniques.

“We’re expecting all our 100 companies this yearto develop action plans of areas where they willintervene,” Hamilton explains.

Closer to home, Unilever has introduced quar-terly scorecards for its core marketing, R&D andprocurement teams. The three-monthly reportskeep track of performance against the plan’s targets.The results are reviewed by the steering teamresponsible for the plan’s implementation andreported to board level.

Unilever has other processes in place to ensureongoing momentum. A “discovery” team in its R&Dunit dedicated exclusively to sustainability solutionsis one. Obligatory sustainability criteria for all newprojects and an employee network of sustainabilitychampions are others.

Unilever does not have all the answers. Thecompany admits as much. Biodiversity is one diffi-cult area. The plan commits to help “improvebiodiversity”, yet the company has yet to devise away of measuring its own impacts.

The same goes for water. Unilever has mappedwater use related to its factories, products and

consumers, but it still has no means of assessing thevolumes that go into growing the crops that it buys.

To achieve its targets in such areas will requireoutside advice and expertise. Unilever accepts thisfact and has shown an impressive willingness to gethelp where it can.

So, on biodiversity, it’s working closely withconservation charity WWF to develop assessmentmethodologies. Likewise, on water, it has reachedout to the non-profit group Water FootprintNetwork for assistance.

“The groundbreaking scale of Unilever ’scommitments means it has big challenges ahead –challenges that it will have to work with othersoutside the company to achieve,” says Mike Tuffrey,director at consultancy firm Corporate Citizenshipand a long-term adviser to Unilever.

The company has already pioneered its fair shareof partnerships. Yet the scope and ambition of itssustainability targets are pushing it into new areasand new approaches.

Jonathon Porritt, founder of environmentalcharity Forum for the Future and a member ofUnilever’s Sustainable Living Plan’s steering team,points to the issue of non-home food waste.

Unilever has just published an extensive studyon waste in the commercial food sector, includingrestaurants. The World Menu report serves as a

35Strategy and management Ethical Corporation • July-August 2011

SustainabilityLiving Plan

Unilever’s plan containsmore than 50 concretetargets that will:

• help more than 1 billionpeople improve theirhealth and wellbeing

• halve the environmentalimpact of its products

• source 100% of its agricultural raw materialssustainably.

www.sustainable-living.unilever.com

20 million consumers now have pure water

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36 Strategy and management Ethical Corporation • July-August 2011

“baseline” from which to engage with the sector,Porritt says.

“It’s intriguing to see what [the plan] means interms of reaching out to different organisations,forming different partnerships and bringing peopletogether in a completely different way,” he adds.

Unilever is stepping up its work with its industry peers, for example. As co-lead of thesustainability working team of the business-ledConsumer Goods Forum, the company is advo-cating industry-wide standards for products linkedto deforestation.

Convincing the consumerIt’s all about gathering purchasing power, Porrittexplains. He says: “If you’ve got the top 15 bigbuyers of these commodity products – whether it’s palm oil or soya or paper and board – thenyou’ve got scale and with that scale you can exertinfluence.”

Unilever is now extending its experience involuntary initiatives, such as the Forest StewardshipCouncil and Marine Stewardship Council, to the

Future challenges: Unilever’s to-do list

Hygiene: Unilever’s PureIt water purifier has madedrinking water available to 20 million people –that leaves a further 480 million to go if itstarget is to be reached.

Nutrition: Unilever’s products provide key micronutrients.The challenge is making these products availableto the very poorest in a way that’s economicallyviable.

Greenhouse Cutting its GHG emissions will require Unilevergases: to help consumers reduce their use of hot water.

That means new products and new tools.

Water: New approaches will be needed to reduce thewater consumers use while showering, bathingand hair washing. A few ideas so far, but moremust follow.

Waste: Increasing recycling and recovery rates willnecessitate partnerships with governments,reprocessors and NGOs. Easier said than done,especially on a region by region basis.

Sustainable There are two big challenges here. (1) the 20%sourcing: of agricultural raw materials over which Unilever

exerts little purchasing power, and (2) non-agri-cultural (mainly chemical) raw materials. Gettingother big buyers on board will be crucial.

Better Supporting smallholder farming will have the livelihoods: biggest impact on the lot of the poor in devel-

oping countries. Easy enough on a one-off basis,but building in scale is where it becomes difficult.

Consumer behaviour can be hard to change

Innovationrequires manyfactors to be inplace – not least creativity,incentives andinvestment

sugar and dairy sectors. Porritt expects “a lot more”to follow.

Consumer-linked targets undoubtedly remainUnilever’s biggest challenge. Unlike producers andsuppliers, the company’s ability to influenceconsumer behaviour is limited.

Advertising, in-store campaigns and on-packinformation can effect some degree of change.Much more effective, however, is one-on-onecontact.

Lifebuoy’s handwashing programme providesan apt example. Its success is a result primarily ofcommunity demonstrations, local training andother direct interventions. These, Hamilton says, donot come cheap. And when it comes to hygiene,Unilever has set itself the target of reaching onebillion people.

Some behavioural traits are so entrenched thatnothing short of government intervention willsuffice to shift consumers. While Unilever’s firstinstinct is to find market-based solutions, it isgrowing bolder in lobbying government for change.

Showering is the classic example Unilever likes tocite. Around three-fifths (61%) of Unilever green-

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house gas emissions come from the company’s skinand hair products, of which a significant proportionis related to heated water for showers.

“We can’t reduce the [shower] temperature ortime people spend in the shower by ourselves. Itneeds to be coupled with the way governmentsoperate,” Hamilton says.

Among the policy measures that Unilever wouldlike to see are water metering and improving theinsulation of water heaters.

Pick up speed Unilever has a long way to go. It claims to be “on ajourney”. That is true. But that journey is not new.Though its plan may be new, Unilever has been inthe sustainability management game for more thana decade.

Progress has been steady over that period.Indeed, Unilever’s record outstrips most. But it willneed to speed up drastically if it is to hit its newtargets. The plan has succeeded in releasing a freshsense of urgency and purpose. All the same, the key delivery dates – 2012, 2015, 2020 – will comeround fast.

Only by teaming up with others does Unilever

stand a chance. And therein lies the true mark ofsuccess. The plan’s targets are, in a sense, a mereacademic abstraction. The real win is creating asustainable business movement that is morebuoyant, more ambitious and more mainstream.

And a challenge for Unilever will be to get indi-vidual brands to feel ownership of the SustainableLiving Plan and to communicate directly withconsumer audiences on what, for now, remainsrather a corporate level initiative. If brands do notlive and breathe the laudable corporate goal, itsimpact will surely be open to question. Other areas,such as impact on human rights and the impact ofecotoxicity should perhaps receive more attention.

Of course, coming back to John Elkington’sinitial point, Unilever have given themselves a lot to do.

Hamilton herself is under no illusions. She says:“If we achieve these targets but haven’t been part ofa bigger change, then we will have failed.”

Like a good politician, Unilever has laid out itscase. It is also leading from the front. But it willrequire some serious cajoling and diplomacy topersuade others to join it. If Unilever succeeds, itwill be in coalition, not alone. n

37Strategy and management Ethical Corporation • July-August 2011

Some behaviouraltraits are soentrenched thatnothing short of governmentintervention willsuffice to shiftconsumers

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Strategy and management 38

Major oil and gas companiescontract out tospecialised serviceproviders toincrease efficiencyand outsource risk

The recent anniversary of the Deepwater Horizontragedy revived debate around the way that oil

and gas companies manage risk. The blowout atBP’s Macondo well in the Gulf of Mexico killed 11people and spilled as much as 200m gallons of oil,the worst environmental disaster in US history.

While Deepwater Horizon was an unusualevent, it is well known that the oil and gas industrycarries social and environmental risks. Less wellknown are the challenges the industry faces as aresult of its complex contracting chains. We tend tothink of the sector in terms of a handful of brands,including BP, Shell and ExxonMobil. But about 75%of industry activities are performed by serviceproviders and their subcontractors.

Indeed, BP was not alone in attracting criticismfollowing the Gulf of Mexico spill. BP’s contractorshave also come under scrutiny, includingTransocean, the rig owner; Halliburton, which didthe cement job; and Cameron International, whichbuilt the blowout preventer. The incident high-lighted the complexity – and vulnerability – oftoday’s oil and gas contracting arrangements.

To address this complexity, the industry hasevolved performance standards and complexmanagement systems and procedures. While goodindustry practice is prevalent in many places, thereis a danger that many assume these systems areenough to avoid serious failings. DeepwaterHorizon was a wake-up call, demonstrating thatdevastating (and preventable) failures can happeneven in developed countries with high levels of civilsociety awareness and ostensibly effective regula-tory regimes.

Our report recently published by the Interna-tional Institute for Environment and Development(IIED) – Shared Value, Shared Responsibility: a newapproach to managing oil and gas contracting chains– argues that a shift in industry mindset is required.A move away from what the US national commis-sion on the Deepwater Horizon incident called a“culture of complacency” is required to manage thechallenges posed by complex chains of oil and gascontractors in increasingly risk-laden environments.

New frontiers, new risks A combination of factors has made the oil and gasoperating environment more complex than everbefore. These include the move into ever more diffi-cult, remote and challenging environments, such asdeep water, tar sands, areas of high biodiversity,areas used for traditional livelihoods, regions ofextreme poverty, and areas where governance andregulation may be weak.

Meanwhile, societies continue to look to theindustry to deliver better development prospects.Yet many oil-rich countries such as Nigeria,Venezuela, Iran, Angola and others have all failed torealise the full potential of their oil wealth. In a bidto increase control over and benefits arising from oiland gas development, governments increasingly settargets for local hiring and procurement in interna-tional projects. With low levels of technical capacityand high levels of corruption in many less devel-oped regions, this increases the challenges ofdelivering benefits simultaneously to shareholdersand local communities while also avoiding majorenvironmental damage.

Oil and gas industry

Complacency in the pipeline

By Judy Kuszewski and Emma Wilson

Oil and gas companies and their suppliers must collectively take ownership of the risks inherentin a dangerous industry

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ordinate and make consistent the expectations andpractices employed throughout a project. Yet theyare not always consistently applied acrosscontracting chains. They also tend to rely on amanagement system or a commitment to follow acertain set of principles, which may or may not besufficient to change behaviour in desired ways.

The primary tool for managing responsibilitiesand performance throughout the contracting chainremains the legal contract – and a range of proce-dures and processes that have evolved in support ofthe contract. In practice, operating companies focusprimarily on their relationship with the first-tier orlead contractor. This means that environmental andsocial performance further down the chain is oftengiven less attention.

A major disaster such as Deepwater Horizonalways shakes up the industry and its regulators,demonstrating that despite the industry insistencethat standards couldn’t be higher, there is alwaysroom for improvement – and the required improve-ment is often systemic.

Following the Gulf of Mexico spill, the USgovernment restructured its regulating body, theMinerals Management Service, in light of allega-tions of inadequate oversight (and a history ofcorrupt practices). The new Bureau of OceanEnergy Management, Regulation and Enforcementintroduced what it called “aggressive and compre-hensive” regulations. BP’s own accidentinvestigation report made 25 recommendations toavoid such a disaster happening again, with anemphasis on sharpening up its standards andincreasing oversight and assurance.

But what really changed in the industry as a

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Business hasbecome subject toa greater range of responsibilitiesenshrined innational legislation and regulatoryframeworks

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Disasters re-energise the drive for improvement

Major oil and gas companies contract out tospecialised service providers such as Halliburton,Schlumberger, Transocean and Amec as a way toincrease efficiency and outsource risk. Contractorsalso subcontract many tasks. With contractors andsubcontractors directly responsible for activities onthe ground, their success can determine a givenproject’s overall performance. They are also essen-tial to fulfilling the industry’s potential fordelivering sustainable development benefits locally.

Complex contracting chains raise a number ofquestions:• Who is responsible for ensuring that contractors

and subcontractors are properly prepared toaddress all risks, however unlikely?

• What actions must an operating company take toensure that their contractors and subcontractorsmeet their contractual requirements and that theywork to international good practice standards?

• How do you ensure high environmental and socialperformance standards are maintained, evenwhen speed and low cost of delivery are priorities?

Shared value: local content and economic benefitThe increasingly common government require-ments to hire local people and source goods andservices from local firms are known as “localcontent” obligations. The ability of a company tomeet these targets depends on the availability of asufficient number of people with the right skills todo the job, whether construction work, catering orclothing and equipment manufacture.

Specialised contractors capable of performingtechnical or resource-intensive work are increasing innumber in some oil-producing countries. However,in many regions of the world, local content targetsmay be unrealistic. Rather than maximising thenumbers of jobs created, regardless of quality,industry and governments together should seek tooptimise local content in oil and gas projects, in orderto deliver socio-economic benefits, while alsopreserving high standards of health and safety, envi-ronmental protection and societal wellbeing.

Shared responsibility: beyond the legal contractIn recent decades, business has become subject to agreater range of responsibilities enshrined innational legislation and regulatory frameworks. Inaddition, oil and gas projects are increasinglysubject to a variety of environmental, social andother performance standards. These range frominternal company standards and international stan-dards systems to voluntary codes (such as the UNGlobal Compact or Voluntary Principles for Securityand Human Rights), and obligations imposed byinternational financial institutions (including theInternational Finance Corporation, regional devel-opment banks, and the Equator Principles financialinstitutions).

These standards have potential to simplify, co-

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whole? Transocean, the world’s largest offshore rigcompany, lost nine employees in the explosion butstill awarded its executives bonuses for 2010, callingit “the best year in safety performance in ourcompany’s history”.

It’s all about incentivesThe new US regulations stipulate that an operatingcompany’s chief executive must certify that a wellhas complied with all regulations. But can a chiefexecutive’s signature guarantee that standards areupheld by everyone involved in the oil operation?Integrating good practices is not a one-off event –employees and colleagues need to be able toquestion each other, review ongoing challenges anddeliver good decisions in the moment, somethingno chief executive can deliver personally.

Issues arise when top-down enforcement of stan-dards rubs up against a contracting, reporting andbonus-giving culture that incentivises corner-cutting

when it comes to environmental and social protection.Incentives and penalties in contracts between

operating companies and contractors tend to priori-tise speed and cost of project delivery overresponsible practice. This provides a disincentive toindividuals to “blow the whistle” – and cause delays– if minor incidents happen.

In fixed-sum contracts, environmental and socialbudget lines are rarely ringfenced, so could be usedto cover other costs of project delivery.

Vital information about sustainability perform-ance, such as a company code of conduct or a10,000-page environmental impact assessmentmight be appended to contracts at the last minute,leaving contractors to constantly play catch-up.

Reporting that consists of ticking boxes inmultiple spreadsheets may or may not capture thereality of what is happening on the ground.

The false sense of security provided by complexprocedures and technology can undermine individ-uals’ preparedness for a catastrophic event,especially if state-of-the-art equipment is in place orif a risk assessment judges the event to be highlyunlikely.

Evolving responsibilitiesCompanies and their stakeholders respond to a setof responsibilities that are constantly evolving.Failure to meet any of these responsibilities comeswith significant risks, such as increased costs anddelays, increased financial liability, contractualdisputes, environmental damage, communitytension, reputational damage and, ultimately, loss ofinvestment opportunities.

Figure 1 sets out a typology of oil companyresponsibilities and their consequences. We empha-sise the importance of managerial responsibility.This refers to the efforts required to apply standardsand procedures right across the contracting chain.Managerial responsibility extends over and abovelegal requirements, more than the adoption of stan-dards and procedures on paper, and beyond simplestakeholder consultation processes. Good commu-nications, training, oversight and corporate culturemay be taken for granted in complex situationsinvolving multiple organisations and multipleresponsibilities.

Our new report offers a set of insights into whythe industry as a whole still has a lot of work to do:

Many companies and contractors lack a sense ofshared responsibility for the overall outcomes of aproject. Their legal obligations, and their customarybusiness practices, mean they tend to focus on theirindividual roles and responsibilities, and no oneowns the totality of a project’s impact.

There is no lack of systems and processes at theindustry’s fingertips that can be used to define andenforce performance standards. Rather, goodsystems and processes are often not adequatelyimplemented. Sometimes, it borders on being a

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Incentives andpenalties incontracts tend toprioritise speedand cost overresponsiblepractice

Strategy and management Ethical Corporation • July-August 2011

Environmental and social responsibilities Risks of failure

Legal responsibilitySpecified, formallybinding, andcompliance-based;enforced by governmentregulators and contractholders

• Legal compliance • Conformity to international

standards included in investmentagreements and contracts

• Meeting local content targets • Carrying out mandatory public

consultation and social investment• Implementing adequate emergency

response procedures

• Legal sanctions,fines and penalties

• Contractualdisputes

• Court cases andassociated costsand delays

Responsibility to stakeholdersResponsiveness to theexpectations ofstakeholders for goodperformance beyondlegal and contractualcompliance

• Meeting good practice standards notincluded in national legislation orcontracts

• Transparency • Ensuring meaningful and responsive

engagement with stakeholders • Respect for and protection of the

local environmental and livelihoods• Development of beneficial and

equitable social programmes forlocal communities

• Reputationaldamage

• Loss of sociallicence to operate

• Loss of futureinvestmentopportunities

ManagerialresponsibilityEfforts applied bycontract holders downthe contracting chain to maintain highenvironmental andsocial performancethroughout

• A culture of shared risk andresponsibility

• Effective communication throughoutthe chain

• Training in technical and managerialskills and cultural awareness

• Technology transfer• Oversight and monitoring

• Loss of control overproject outcomesand impacts

• Inability to meet legalresponsibilities and responsibilitiesto stakeholders

Figure 1: Expectations, performance and consequences

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paper exercise, and much more effort should go intosupporting and ensuring contractors and subcon-tractors are able to meet expectations.

There are cultural and contextual challengesassociated with operating in diverse oil and gasregions. Sometimes these challenges hampercontractors’ ability to meet international standards,such as when local contractor markets are under-developed, or corruption is endemic, or operatingcompanies are unfamiliar with local practices.

As far as solutions go, each situation is unique,but our IIED report offers a general set of actions forcompanies to follow:• Early-stage planning and assessment are key to

success, and companies should collaborate acrossstakeholder groups to understand the localcontext and enable clear planning, as early aspossible, even before contracts are signed.

• Underdeveloped local markets are a limitingfactor. Companies should work proactively tobuild long-term capacity in local markets toservice the oil and gas sector (and broadereconomy) in the future.

• Company procurement processes can play a rolein proliferating performance standards, sharinggood practices, resisting corruption andincreasing transparency and accountability.

• Contracts themselves need to contain a balanceof incentives and penalties, to ensure that envi-ronmental and social performance are givenequal treatment alongside speed and cost ofdelivery, and to ensure that standards and expec-tations are clearly understood and contractorsare empowered to make the right decisions.

• Training and capacity building on the job willhelp improve contractors’ ability to deliver in thereal world, and to keep the focus on the overalloutcomes, rather than just on distinct and limitedtasks.

There are many good mechanisms for providingoversight and good quality communicationthroughout the contracting chain, including encour-aging contractors to do more of the front-lineengagement with stakeholders in the community.

Reporting, responsiveness and good communityliaison activities will help build trust and accounta-bility with external stakeholders.

Can the industry change?The oil and gas industry needs to foster a culture ofteamwork and shared ownership. Companies needto put the right procedures and incentives in placeto promote risk-preparedness, openness and collab-oration throughout oil and gas operations. Thereshould be less reliance on paper exercises, more onculture and communication.

International and national oil companies, leadcontractors and subcontractors will need to developtools and attitudes that support a joint approach to

project success. Project partners must support oneanother in identifying and resolving problems andchallenges, not avoiding them or deferring them toothers. An emphasis on long-term time horizonsand outcomes is critical, regardless of the timeline ofindividual activities.

There should be a common agreement toimprove industry-wide practices to increase capaci-ties and participation among local firms. This mayinclude common procurement practices, a code ofconduct or industry commitment, common auditmechanisms and other tools.

The responsibility for action does not lie onlywith the industry itself. Governments can make itdifficult or even impossible to ensure good perform-ance. National oil companies are often inadequatein their response to the environmental and socialchallenges, and impossible to influence. Under-developed local contractor markets are the result oflong-term failures of markets and society.

We need to move away from our reliance onstandards and commitments on paper to judge oilindustry performance and guide ethical investment.And civil society has a responsibility to becomemore aware of these challenges and be prepared tochallenge accepted ways of thinking.

The solutions are long term and require a lotmore research and collaboration. We hope this is thebeginning of a lively and responsible debate withgreater and deeper collaboration to come. n

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The oil and gasindustry needs tofoster a culture ofteamwork andshared ownership

Strategy and management Ethical Corporation • July-August 2011

Is there a brighter future?

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Judy Kuszewski is a UK-basedconsultant specialising in sustain-able business. Emma Wilson is asenior researcher in the Sustain-able Markets Group at theInternational Institute for Envi-ronment and Development.

Kuszewski and Wilson areauthors of the new InternationalInstitute for Environment andDevelopment report, “SharedValue, Shared Responsibility: anew approach to managing oiland gas contracting chains”.

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Essay: lessons from a radical industrialist

Every reason for hope

By Ray Anderson

Innovative thinking can provide the solutions that will revolutionise business

Icome from the private sector. My job hasalways been to find solutions and put

them into practice, beginning with my owncompany. The transformation of Interfaceis, I believe – and I hope will continue to be– a phenomenon of the first order, andprovides ultimate meaning to thecompany’s original creation.

It is a business-school case study broughtto life, and one that other businesses wouldbe smart to take a good look at. For whatcompany, what economy, what civilisationcan exist without the services provided bynature: air; water purification and distribu-tion (the hydrologic cycle); soil creation andmaintenance, thus food; energy; raw mate-rials; climate regulation; pollination; seeddispersal; nutrient cycling; an ultravioletradiation shield; flood and insect control;and net primary production, the product ofphotosynthesis?

Without any of them, provided bynature, there would be no economy in thefirst place.

Beginning at the headwaters of mypersonal journey, framed to some unknow-able extent from my earliest days growingup in tiny West Point, Georgia, to that mile-stone moment of my epiphany in 1994, Ihave come at last to a remarkable andfulfilling place: a perch more than halfwayto the summit of a mountain whose top Icould scarcely imagine when my associatesand I began this climb.

From this place, this perch, I can seeclearly what we might accomplish as weshed the kind of thinking that had us nearly,but not quite, trapped. I can spot thedangers – and there are plenty of them – butI see even more opportunities. I have seenremarkable examples of the kind of newthinking the industrial systems absolutelymust have.

I have seen a mechanical engineerdesign a new production line to manufac-ture the same product at the same rate asone he designed ten years earlier. Exceptthis time he designs it to use 93% less horsepower (one-fourteenth as much!) by usinglarge straight pipes on one level rather thansmall, curved ones that span several levels.Friction losses are cut dramatically, allowingfor small pumps rather than large ones.

Doing the job well And yes, the new production line cost lessto build than the one built 10 years earlier,and far less to operate. He has practisedwhole-system optimisation, in whichgetting the job done well has replaced justgetting the job done.

I have seen another factory engineer askhis counterpart at city hall how muchmethane gas was being produced at thelocal landfill. The city engineer checks, andhe is amazed at how much there is, and athow offensive it is to the nearby AfricanAmerican neighbourhood and the people

who live there, in what Majora Carter,founder of Sustainable Bronx, calls an envi-ronmental injustice zone.

The two engineers collaborate, and ayear later a public-private partnership isborn. The city commits $3m to capture andpipe the methane to a factory. The factorycommits $50,000 to adapt its boilers. Thetwo agree on a price for gas that is 30% lessthan natural gas. With a calculated life ofthe landfill gas project of 40 years, thattranslates into a financial value for the city(at present value) of some $35m for a $3minvestment.

As methane is drawn down, the capacityof the landfill is expanded, allowing the cityto postpone opening a new one for an esti-mated 15 years. The smell of methane that

used to blanket the adjoining neighbour-hoods? It’s gone. And the earth is sparedenough greenhouse gas emissions(methane is especially potent) to render theengineer’s factory entirely climate neutral.

And I’ve seen the marketing arm of thatfactory realise the appeal of a climate-neutral product and dub it Cool Carpet, andI have watched that product become a hugesuccess, contributing incremental sales andlifting the company’s image in ways noamount of advertising ever could.

I’ve also seen a factory manager insouthern California muse over the possi-bility of using solar photovoltaics toproduce some of his plant’s electricity. Heuncovers state and federal assistance forsuch a system, but the accountants (who are

Getting the job done well has replaced just getting thejob done

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only looking at costs) tell him it still won’t“pencil out”. That manager doesn’t give up.His sales people are sure that a productmade with the help of sunlight willgenerate new sales, and they are right.

The result? The solar-power systemconnects 120 kilowatts of peak voltage tothe California grid, and generates enoughenergy to tuft a million square yards ofSolarmade carpet, which generates incre-mental sales the accountant overlooked inhis preoccupation with costs.

I have seen a product designer, frus-trated with the lack of progress inimplementing sustainable design, plead,“Let’s do something, anything!” So his teamredesigns a product to use 4% less of itsmost expensive and energy-intensivematerial component (in this case, DuPontnylon).

The redesigned product performs well inall the usual tests, but an engineer is stillcurious. He wonders what the effect of that4% savings means upstream (in otherwords, incorporating the embodied energyexpended by the maker of that nylon). So he

asks DuPont a question DuPont has neverbeen asked before, and gets a very bignumber for an answer.

When that number is applied theoreti-cally across the entire product line, it turnsout that eliminating just 4% of the nylonused each year saves enough energy (notused by DuPont) to run the designer ’sentire factory for half a year. I have seen thatsaving grow over the years, until that theo-retical 4% reduction now stands at a real17%, and it even has a name all its own:dematerialisation through conscious design,a concept with far-reaching implications fora voracious industrial system.

Innovation that delivers I’ve seen a multidisciplinary team of engi-neers, production people, and productdesigners collaborate to find a new way toproduce patterned carpet. The old way wasto print the pattern on a plain-colouredcarpet base. But printing was very waterintensive and required harsh dyes, energyto fix the dyes, washing to remove the excess (where the dyes become chemi-

cally hazardous waste), energy-intensivedrying to remove the wash water, andchemical treatment to the wash water and dyes before they could be released intoa river.

Innovation results in a patented inven-tion, a new process that uses a computerisedtufting machine to place yarn of specificcolours precisely to form intricate patterns.

The old wet-printing machines are scrapped,the bridge burned, the investment writtenoff, and the old technology abandoned.

I have seen our people invent their wayout of a water-, chemical-, and energy-intensive problem, and into a family of newproducts that give us a proprietary edge inour marketplace rather than a competitivehandicap.

One of the first products to benefit fromthe new tufting machines has its origins inan outrageous assignment issued by ourchief designer to his design team: go outinto a forest and see how nature designs afloor covering. Looking to nature as amentor and inspiration, that team spends aday studying forest floors and streambeds.They find it to be chaotic – no two sticks, notwo stones, no two leaves, no two squarefeet are the same.

Yet there is a pleasant harmony in thedisorder. They return to their studios anddesign a carpet tile in which no two tilefaces are alike. All are similar, but none areidentical, contrary to the prevailing indus-trial paradigm that demands cookie-cutterperfection from every mass-produced item.Nature, the inspiration, is anything butuniform, but she is very effective. This newproduct is given a name, Entropy, and in ayear and a half it rises to the top of the best-seller list, faster than any other product everhas before.

I have seen another design team addressa weird challenge: how does a gecko cling toa ceiling?

The question arises in a session intendedto figure out how to completely eliminateglue from the installation of carpet tiles.Glue uses harsh, petro-derived chemicalsand can be a devilish source of an “off-gas”– a volatile organic compound – long after acarpet is installed. Not a pleasant smell, or ahealthy place to work.

Though the answer to how a geckomanages to anchor himself is found in the

Look to nature as a mentor and inspiration

How does a gecko hang on?

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most unlikely places – van der Waals forces– and is not the answer to the glue question,it gets people thinking new thoughts aboutthe problem, and a solution is found: asmall, 2.5 inch square of releasable adhesivetape is applied to the underside of tileswhere the corners meet, with the sticky sidefacing up. This way all the tiles areconnected laterally, not to the floor but toone another, and their own combinedweight keeps them anchored in place. Itaccomplishes this using the special tape on less than 2% of each tile’s undersurfaceto produce a glue-and-chemical-free instal-lation.

The bottom line? One more marketdifferentiator for the company and itsproducts, and no more glue fumes for itscustomers or workers.

New thoughtsUpside-down thinking? At Interface this hasbecome normal. I have seen first hand howall of these examples evolved naturally fromour Mission Zero drive. And they all repre-sent new thinking, important aspects ofsustainability in action on the factory floor:• Whole system optimisation: big, short,

straight, level pipes and small motors,not the opposite.

• Waste as “food”: polluting methane gasconverted to a revenue stream, an energysource, a greenhouse gas offset, CoolCarpet, a multimillion-dollar cost avoid-ance for a city, and an environmentalinjustice removed.

• In-the-round investment decisions: justi-fied by more than cost; consideringcustomers, market demand, the value ofleadership, and incremental sales asfactors in the go/no-go decision.

• Dematerialisation through consciousdesign and upstream thinking (the realleverage may be up there).

• Burn the bridges: abandoning high-impact technologies for low-impact,sustainable technologies that also yieldbetter, more innovative product designs.

• Biomimicry: using nature’s time- testedengineering to create products thatappeal to our deep appreciation of thenatural world.

• Thinking upside-down.

As I have heard environmental scientistand writer Amory Lovins say countlesstimes, “the best way to have good new ideasis just to stop having bad old ideas”.

This is sustainability in action. Seventeenyears of near total immersion in it has

provided me with these and many otherinsights. These examples of new thinkingare very definitely drawn from real life andrepresent the before-and-after views of

reality that the people of Interface haveexperienced on our transformative journey.

As big as the challenge of sustainability isfor one company like yours or mine –newer, better products and processes thathelp us in our climb toward sustainabilityrather than hold us back – a far bigger chal-lenge remains for all of society. How in theworld will we do it?

I am convinced that having a sustainablesociety for the indefinite future – whetherthat means seven generations or a thousandor more – depends totally and absolutely onthe vast ethically-driven redesign of theindustrial system about which I have written,triggered by an equally vast mind-shift.

But – and this is the hard part – that shiftmust happen one mind at a time, oneorganisation at a time, one technology at atime, one building, one company, oneuniversity curriculum, one community, oneregion, one industry at a time, one productat a time until we look around one day andsee that there is a new norm at work, andthat the entire system has been trans-formed.

I cling to an observation by Paul Paydos,an associate in our now-divested fabricsbusiness. “I have never known an ex-envi-ronmentalist. Once you get it, you cannotunget it.”

The movement is like a ratchet; it onlymoves in one direction. There’s everyreason for hope in that observation. Byreading this you have created the possibilitythat perhaps another mind will be added tothe green side of the balance sheet and theratchet will go “click”. n

Ray C Anderson is founder and chairman of flooringsmanufacturer Interface, Inc.

This essay is an excerpt from Anderson’s recentlyupdated book “Business Lessons from a Radical Industri-alist”, which was first published in 2009, by St Martin’sPress in the US.

Strategy and management 44 Ethical Corporation • July-August 2011

Release the power!

A sustainable society for theindefinite depends on the vastethically-driven redesign of the industrial system

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Business school bulletinBy Oliver Balch

Why we should sign first, the ins and outs of certifications and Indian corporate governance

Certified povertyCompanies and donors haveploughed millions of dollars intocertification schemes in recentdecades. The result can be seen in theplethora of ethical labels that now fillour supermarket shelves.

Most of these products carry a pricepremium. That’s partly becauseresponsible production incurs addi-tional costs – either because of thecertification process itself or becausecheaper, less ethical options are ruledout. But the understanding – eitherexplicit or implicit to the label – is thatsome of that cost is making life betterfor those at the bottom of the chain.

This paper challenges that notion,and in doing so issues a wake-up callto companies and consumers alike.Based on a sample of small coffeeproducers in Nicaragua, the studyargues that the relationship betweencertification and poverty reduction is“not clear cut”.

In each case, the certified small-holders received higher farm-gate pricesfor their produce. Yet the per capita netcoffee incomes were shown to be insuf-ficient to cover basic needs of allcoffee-producing households. Indeed,the findings even suggest that over a10-year period organic and organic-fairtrade farmers have become poorerrelative to conventional producers.

The reasons lie with low yields,low profitability and low efficiency. Iflabels are to avoid the charge of “certi-fying poverty”, they must concentratenot just on paying a fair price but onimproving productivity too. “Profits and poverty”, Tina Beuchelt andManfred Zeller, Journal of EcologicalEconomics Vol 70, No 7, May 2011.

Indian non-effectivedirectorsIndian businesses are going global.The country’s legislators have tried tokeep up by modernising companylaw to reflect international gover-nance standards. Corporate scandalssuch as the Satyam affair have addedmomentum to that cause. As a result,corporate responsibility has appearedon the policy agenda for the firsttime.

In 2009, the government issued“CSR guidelines” (a prelude toexpected changes to the CompaniesAct) for private-sector involvement inareas such as education, health andrural development. And the guide-lines go further, including the expresshope of corporate responsibility beingintegrated into business decisions andstakeholder interactions.

The onus, as with the parallelcorporate governance reforms, focuseson directors. Therein lies theweakness, this paper warns. Owner-ship structures in Indian firms are, ingeneral, highly concentrated. Direc-tors, as a result, just don’t have theindependence of voice or thedecision-making clout to put CSRcentre stage.

Unless legislators tackle the“majority-minority agency problem”that exists in most Indian firms, theirefforts – while well-meaning – willbe wasted. “Directors as Trustees of the Nation?”, AfraAfsharipour, Seattle University Law Review,Vol 34, No 4, 2011.

Campus newsThe Universities of California andWashington have inaugurated newchapters of the campus-based CSRgroup Net Impact.

Rhode Island-based Brown University won top spot at the Inter-national Sustainable CampusNetwork’s recent annual awardsceremony. The network promotessustainable solutions both in univer-sity infrastructure and in syllabusteaching. n

Sign upfront Academics are often blamed for taking the blindingly obvious and making it hopelessly complicated. The best ideas, however, are often like gifts:delivered in small, simple packages.

So, at last, a paper that can be boiled down to a single phrase: “Sign atthe start, not at the end.” OK, so a few words of embellishment may berequired.

Business managers sign tax returns, expense reports and a host of other self-reported documents all the time. Such statements have twodistinguishing characteristics. First, they typically invite the signatory to

confirm on the lastpage that all theinformation istruthful. Second, theyfrequently containuntruths. What, theauthors of this jointreport hypothesise, if you moved thesignature line to thetop? And there it is:the simplest idea yetfor encouraginggreater honesty.

But could some-thing so simple work?

Could telling signers to swear upfront that they will tell the truth, ratherthan that they have told the truth, really change practices?

Both field and lab experiments indicate the answer is yes. The authorsadmit the core manipulation in the theory is “trivial” (again, a refreshingadmission from the ivory towers of academia). But that is precisely thepoint. A nudge is often enough to refocus an individual’s moral compass.

This increased saliency of moral standards, in turn, can lead to increasedtruthfulness in the subsequent self-report. In contrast, when signing at theend of a form, the damage has already been done. It all comes down toobjective self-awareness, ie the point when an individual’s own conscious-ness is focused on himself or herself. The opposite – subjectiveself-awareness, when attention is focused away from the individual – iswhat allows the mental trickery to justify cheating and still maintain apositive self-image.

The researchers conducted four tests. The first and most fascinatingfocused on responses from 13,488 US automobile insurance policy holders.Each was asked to estimate their annual mileage. The incentive to lie is highas the lower the mileage (the policy holder can justifiably presume) thelower the premium.

On average, those who signed at the beginning said they would drivemore than 2,400 miles further than those who signed at the end of thedocument.

Given that about $150bn in US tax returns go unpaid every year, govern-ment stationers might be well-advised to rethink their forms. “When to Sign on the Dotted Line?”, Lisa Shu et al, Harvard Business School, WorkingPaper, May 2011.

Making the pen even mightier DA

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Label doesn't guarantee poverty reduction

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46 Review Ethical Corporation • July-August 2011

Accessibility and seamlessnavigability arebest-practicefeatures of thispresentation

Elaine Cohen is a sustainabilityconsultant and reporter atBeyond Business, and is a CSRblogger. [email protected]/enwww.csr-reporting.blogspot.com

SnapshotFollows GRI? Yes, GRI B+. Assured? Yes, limited assur-ance using ISAE 3000. Materiality analysis? NoGoals? YesTargets? Yes Stakeholder input? Yes Seeks feedback? Yes, withincentives. Key strengths? Great onlineformat and navigation. Chief weakness? Poorreporting of materiality. Pleasant surprise? Nicely navigable online presentation.

Deutsche Post DHL’s 2010 online corporateresponsibility report is designed like a complex

logistics network navigated via a sleek online routemap. It starts with a home page overview showingpossible routes to a mass of information in a cleverlyplanned navigation hierarchy. You can start at thebeginning or go directly to what interests you.

Amply signposted, your journey is supportedwith infinite hyperlinks, in-section menus and anonline mouse-over glossary for those bits ofDeutsche Post DHL jargon that you might not beentirely familiar with.

The complete content of this report is download-able in a 246-page PDF or an at-a-glance overview of21 pages. Report assurance is indicated online oneach assured page. Accessibility and seamless navi-gability are best-practice features of thispresentation, complete with an online feedbackquestionnaire and a promise that Deutsche PostDHL will make a €5 donation to Plant-for-the-Planet for each of the first 200 fully completedquestionnaires received.

Deutsche Post DHL has 467,000 employees andoperates in 220 countries. By far the most interestingaspect of its business is how the company could useits massive infrastructure and influence to trans-form the transportation landscape across bordersand influence customers to adopt resource-efficientpractices through new business models and collabo-rative initiatives.

Deutsche Post DHL offers green services,including assistance for customers’ carbon emis-sions reporting and offsetting, carbon dashboardmaps for tracking logistics carbon efficiency, greenconsulting services for carbon reduction strategiesand a hybrid global mail service, sending docu-ments by electronic transfer for local printing.

Aside from a couple of brief examples, thecompany does not report the extent to whichgreener services are actually adopted by customers,or how Deutsche Post DHL proactively marketssustainable solutions.

More interesting is the stand that Deutsche PostDHL takes on core sector issues including the needfor greater regulation. The company says: “A compre-hensive and global political framework is especiallyimportant to encourage CO2 efficiency improvementambitions in our industry and in other sectors.”

In the EU, for example, many trucks operateempty due to restrictions on “cabotage” – vehicles

Deutsche Post DHL Corporate Responsibility Report 2010

Finding the right road

By Elaine Cohen

Deutsche Post DHL is delivering good reporting

registered in one country operating services withinanother. Deutsche Post DHL also makes the case forregulation to develop “common, international andindustry-driven standards for carbon measurement”.

With regard to the company’s direct operationalimpacts, it manages a comprehensive set ofperformance indicators within its living responsi-bility strategy. This has three main pillars: Go Green(CO2 efficiency), Go Help (disaster response andpreparedness) and Go Teach (improving educa-tional quality and equity).

Go Green has a target to improve CO2 efficiency,including transportation subcontractors’ operations,by 30% by 2020, compared with 2007 levels. Whileabsolute carbon emissions have increased every yearsince 2008 (5% more in 2010 than in 2008), DeutschePost DHL’s carbon efficiency (normalised to units ofoperation), has improved from a baseline of 100 in2007 to 88 in 2010 towards a target of 70 in 2020. Ofcourse, while the company reaches its carbon effi-ciency target, it may well be generating more carbonemissions than at any time in its history.

Help where needed Go Help is Deutsche Post DHL’s programme toaddress disaster relief, the new de rigueur corporateresponsibility platform for logistics and technologycompanies, given the frequency of major naturaltragedies that are occurring around the globe.

Deutsche Post DHL has established disasterresponse teams, which have been deployed in manycountries, providing local assistance in ensuringrelief supplies get through. DHL has even devel-oped an innovative form of waterproof packaging –“DHL Speedballs” – which can hold up to 25 kilo-grams, withstand airdrops better and stay afloatlonger than other containers. They have been usedin several relief efforts.

Overall, however, it is not easy to get to whatreally counts in this GRI B+ level report. There is nodistillation of core issues raised by stakeholdersabout different aspects of Deutsche Post DHL’sbusiness and no materiality prioritisation.

The three pillars of the company’s strategy aresurely worthwhile, but the lack of analysis of stake-holder expectations on a broader range of DeutschePost DHL impacts and performance is an omission.Apparently materiality is the road less travelled onthe Deutsche Post DHL highway to CR trans-parency in an otherwise impressive report. n

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Review 47Ethical Corporation • July-August 2011

The safety sectionis symptomatic of the report’sbiggest failing – its absence of targets

Ellie Austin is a consultant [email protected] www.econtext.co.uk

SnapshotFollows GRI? Yes to GRI A+.Assured? YesMateriality analysis? Yes Goals? NoneTargets? NoneStakeholder input? LimitedSeeks feedback? YesKey strengths? Candidcoverage given to Gulf ofMexico oil spill. Chief weakness? Absence ofclimate change strategy. Pleasant surprise? Safetyand risk management linkedto employee performanceassessment.

BP’s 2010 reporting comprises a printed Sustain-ability Review, also available as a PDF, with

additional information online including separatesustainability reviews for 10 countries in which BPoperates.

The 50-page Sustainability Review is the firstreport from BP since the Deepwater Horizon rigexploded on April 20 2010. The six main chapterscover the usual oil company subjects but this specialreport begins with an eight-page section on the Gulfof Mexico incident.

The generally candid text is complemented by thechoice of cover image of the oil slick being treated.The chapter covers the initial disaster, how BPcontained the leak, the cleanup, and the company’songoing commitment to improve the environmentaland economic state of the region.

Despite the prominence given to DeepwaterHorizon the section is undermined by seriousomissions in data. The decision not to try to estimatehow much oil was spilled in the accident is a bad one.The explanation for not doing so – “no accuratedetermination can be made or reported until furtherinformation is collected” – is unconvincing and feelslike a kick into the long grass. An estimate of 4.9mbarrels is widely quoted elsewhere.

Consequently, BP’s stated oil spills for 2010 of1.7m litres may be about two-thousandths of therealistic figure. Data tables and bar charts showingthe number and volume of oil spills holding roughlysteady from the previous year are pure fantasy.

It is left to a footnote (and some green shading) inthe data table to disclose the omission of arguably themost material data to the entire report. How theassurers, Ernst & Young, signed off on this fiendishconstruct is beyond our comprehension. Ernst &Young does note the omission in its statement butthis is a wholly inadequate method of flagging a faultthat should never have been allowed to pass.

BP rightly identifies contractor management as akey issue – 60% of hours worked are by contractors.But the single page of text on this issue lacks detailon how the company oversees suppliers and howwell it believes they are performing.

BP could learn lessons from the clothing and ITsectors. Companies such as Nike and HP have ledthis agenda, and by comparison appear to havegreater influence, understanding and engagementwith their supplier companies. At any rate they aremore transparent about the relationships and the

performance of their suppliers.In the safety section BP acknowledges that

performance is a serious concern, with fatalities inthe Gulf of Mexico and earlier in the 2005explosion at its Texas City refinery. BP’s strategicresponse is the establishment of a newindependent safety and operational risk functionand the move to include individual contributionsto safety and risk management in employeeperformance assessment.

Although this is encouraging, the safety sectionis symptomatic of the report’s biggest failing – itsabsence of targets. What happened to BP’s “zeroharm” target from earlier years? The report isentirely target-free, which, given thatsustainability is primarily a discussion of acompany’s future intentions, is a major flaw.

The section on energy future discusses the twinchallenges of meeting energy demand andtackling climate change. The text articulates thechallenges clearly but glosses over the impacts oftar sands and shale gas extraction, both of whichBP is involved in. Worse still it offers no significantleadership on climate change or strategy forreducing fossil fuel emissions to the levelsscientists have long advised.

Setbacks BP’s current abrogation of responsibility forclimate change is a far cry from former chiefexecutive John Browne’s groundbreaking speechin 1997 as he withdrew from the Global ClimateCoalition and positioned BP as the oil major thatwould work on solutions to climate change. In oneof the few external views printed in the report,Karina Litvack of F&C Management says: “If BPdoes not lead, others will, calling into question theviability of its business model.”

BP’s lack of a strategy for tackling climatechange and its phobia about targets in general givethe impression of a company with no direction,increasingly being left behind by other companieswith a clearer vision of corporate sustainability andplans for working towards it. BP’s reporting in the1990s was better than this. The company shouldgo back to the future.

As a footnote, the report apparently achieves a GRI A+ rating. This should tell you all you need to know about the challenges this standardfaces. n

BP 2010 Sustainability Review

Back to the future

By Ellie Austin

BP’s latest reporting omits targets and data

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Review48 Ethical Corporation • July-August 2011

The Sugar Barons: family,corruption, empire and war in the West Indies By Matthew ParkerHardback: 464 pages, $30ISBN: 0802717446Publisher: Walker & CoPublished: August 2011

A historical look into one of the most important andepoch-shaping commodities, this examination ofBritain’s sugar-growing dynasties offers a fascinatinghistorical insight into the changes in trade and businessculture over three centuries.

Postcolonial EconomiesBy Jane Pollard et al (eds)Hardback: £65ISBN: 1848134058Publisher: Zed BooksPublished: May 2011

Using examples drawn from everywhere from India toLatin America, this book of essays describes thetransnational flows of capital and workers and explainshow territorial borders are being made and re-made.

Handbook of Gender, Workand OrganizationBy Emma Jeanes et al (eds)Hardback: 496 pages, £85ISBN: 1444394726Published: Wiley-Blackwell Publisher: March 2011

This work of reference represents a remarkablycomplete, detailed and extensive review of the field ofgender, work and organisation. Compiled by authorsfrom eight countries and multiple disciplines, includingmanagement, sociology, political science and genderstudies.

BP and the Macondo Spill: the complete story By Colin ReadHardback: 256 pages, $40ISBN-10: 0230293581Publisher: Palgrave Macmillan Published: June 2011

A comprehensive look at all the angles of thedevastating BP oil spill of 2010, this account isinstructive both on the science behind the disaster and the management lessons to be drawn from it.

The Handbook of Communication and CorporateSocial Responsibility By Jennifer Bartlett et al (eds)Hardback: 608 pages, $199.95ISBN: 1444336347Publisher: Wiley-Blackwell Publisher: August 2011

An impressive, accessible volume that includes writingby a significant group of international scholars andpractitioners, this handbook will prove instructive to CSRpractitioners and students alike.

The Embedded Firm: corporategovernance, labor, and financecapitalismBy Cynthia Williams and Peer Zumbansen (eds)Hardback: 496 pages, $105ISBN: 1107006015Publisher: Cambridge University Press Published: August 2011

This collection of well-researched and timely essaysoffers fresh perspectives on the impact of theglobalisation of capital markets on how firms operateand their relationships with their employees.

Brandwashed: tricks companiesuse to manipulate our mindsand persuade us to buyBy Martin LindstromHardback: 288 pages, $25 ISBN: 0385531733Publisher: Crown Business Published: September 2011

Promoted as a “shocking, no-holds barred exposé”,this book pledges to reveal all the manipulative waysmarketers and advertisers tap into our most deeplyseated fears, vulnerabilities and dreams to sell us theirproducts.

The Innovator’s Manifesto:deliberate disruption for transformational growthBy Michael RaynorHardback: 240 pages, $23 ISBN: 0385531665Publisher: Random House Published: June 2011

Deloitte senior consultant Raynor, co-author of TheInnovator’s Solution, argues that disruption theory isthe only theory in business today that can accuratelypredict the success or failure of a company or product.

Some summer reading

New books

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People on the move 49Ethical Corporation • July-August 2011

People on the move

By Claire Manuel [email protected] thanks to Miriam Heale, Allen & York Recruitment

Julia King is about to joincorporate sustainabilitystrategy and communicationsconsultancy Context asmanaging director, Europe.She will assume SimonPropper’s responsibilities forrunning the UK operationwhen he moves to Los Angelesto expand Context’s existingoperations in the US. King has

30 years of corporate management experience gained inthe pharmaceutical industry, working for a range offirms, including Glaxo, Zeneca, Astra, SmithKlineBeecham and, most recently, GlaxoSmithKline.

Henderson Global Investorshas appointed Jenny Pidgeonas director of property –responsible property invest-ment (RPI). Pidgeon will beresponsible for developing andimplementing Henderson’s RPIprogramme, chairing the RPIcommittee and co-ordinatingall aspects of HendersonProperty’s sustainability

approach. Pidgeon joins from Upstream SustainabilityServices, where she worked with several leadinginvestors on their sustainability strategies and wasinvolved with industry research into the link betweensustainability and investment performance.

Ethix SRI Advisors has established a new advisorycouncil to provide strategic advice on its approach tonorm-based screening, across the spectrum of humanrights, environmental, labour and anti-corruptionissues. It will be chaired by regular contributor toEthical Corporation Dr Rory Sullivan.

The new chairman of the Church of England’s EthicalInvestment Advisory Group will be corporate lawyerJames Featherby. A recently retired partner of City lawfirm Slaughter and May, Featherby was a corporatefinance lawyer and led the firm’s corporate real estatepractice. He will succeed the present chairman, invest-ment banker John Reynolds, in January 2012.

Jenny Borden has joined the Board of Traidcraft.Borden was previously deputy director and internationaldirector of Christian Aid. She is a non-executive directorof Crown Agents, chair of the Fair Trade Advocacy office inBrussels, and a former chair of Practical Action and BOND.

BT has appointed Niall Dunne as chief sustainabilityofficer to lead the company’s climate change and sustain-

able development strategy.Dunne will coordinate allsustainability activities across BT,ensuring sustainability practicesare embedded into BT’s strategy,products and services. Dunnehas spent the past decadeleading sustainability practicesin Saatchi & Saatchi and Accen-ture and has chaired a numberof industry initiatives, includingthe sustainable consumption

project board for the World Economic Forum in 2009.

Sustainable Atlanta, a non-profit organisation focusedon sustainability policy and programmes, has hiredSuzanne Burnes as its new executive director. Previously, Burnes served as the assistant director of theGeorgia Department of Natural Resources’ sustainabilitydivision. She also spearheaded the division’s Partnershipfor a Sustainable Georgia, a voluntary business leader-ship programme.

E.ON has appointed MikeWinkel as chief executiveofficer of E.ON climate andrenewables. Winkel waspreviously deputy director-general of E.ON Russia and OGK-4, where he wasresponsible for energybusiness and optimisation.

Phillips Foods and Seafood Restaurants hasappointed Ed Rhodes to the newly created position ofvice-president for sustainability and aquaculturedevelopment. Rhodes was previously co-director ofPhillips’ aquaculture and sustainability division.

Oxford-based sustainability consultancy Best FootForward has appointed a new chief executive, JohnZafar. Zafar has a management background within theprofessional services sector.

BWise, an enterprise risk management, corporatecompliance and internal control solutions provider, hasappointed Mikko Valtonen as its business developmentdirector for sustainability and EHS. Valtonen foundedProventia Solutions Oy, a leading Scandinavian sustain-ability software and consulting company in 1999.

SH Group, an energy and technical facilities manage-ment company, has hired Nigel Larkman as director ofenergy services for the UK and Ireland. Larkman’sformer role was head of environment and sustainabilityat the National Australia Banking Group.

Paul Hilton has joined TrilliumAsset Management as a port-folio manager. Hilton has beeninvolved in sustainable andresponsible investing for morethan 15 years, working on boththe investment and sustain-ability research and advocacysides. Prior to joining Trillium,Hilton was vice-president,sustainable investment

business strategy, at Calvert Investments.

Zoë Arden has joined MSL Group to head up a newsustainability unit that will span MSL London, PublicisConsultants and SAS London. Arden was previouslydirector of communications and CSR at BT Retail. n

Appointment of the monthBeatriz Perez, currently chief marketing officer forCoca-Cola North America, will become chief sustain-ability officer of The Coca-Cola Company. In thisnew role, Perez will integrate Coca-Cola’s sustain-ability initiatives in the areas of water, climateprotection, packaging and recycling, and community

through a new global Officeof Sustainability. UnderPerez’s leadership, theoffice of sustainability willcreate and oversee Coca-Cola’s integrated globalsustainability strategy.

“We have made signifi-cant progress with oursustainability initiatives,but our current approachneeds focus and better

integration to further accelerate our system sustain-ability agenda and meet our 2020 Vision goals,” saysMuhtar Kent, chairman and chief executive officer.

Perez joined The Coca-Cola Company in 1996 asan associate brand manager and has held variousroles, including director, NASCAR; vice-president,sports and entertainment for The Coca-ColaCompany; and senior vice-president of integratedmarketing for Coca-Cola North America.

Julia King

Jenny Pidgeon

Paul Hilton

Niall Dunne

Mike Winkel

Beatriz Perez

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50

and the society we live in.

EC: If you had to pick one green “ideafor life” from Panasonic’s recent inno-vations, what would it be?

LA:Our “eco ideas” concept house inJapan is a great example. It creates,saves and stores electricity, demon-strating how we can live with virtu-ally no CO2 emissions. Electricity isgenerated through fuel cells and solarpanels, then stored in a large lithiumion battery. In addition to this, we useenergy-saving home appliances andbuilding materials that provide highinsulation in the house.

EC: Panasonic is involved in a coupleof green field “eco cities” in Japanand China. How replicable are theseelsewhere?

LA: We believe the Smart Sustain-able Town could indeed be a modelfor future sustainable urban plan-ning. These are cities in which sus-tainability is well established throughan ecosystem for all urban functions,such as travel, power creation anddistribution and housing. Their maingoal is to achieve a lifestyle that iscomfortable and sustainable at thesame time. This can also be applied tocities around the world that alreadyhave established infrastructure.

EC: Panasonic is investing heavily infuel cell generation and battery stor-age. Do you see renewables chal-lenging oil in the near term?

LA: It is obvious that the demand foroil is on the rise more than ever. Butwe see the demand for sustainableenergy increasing in the coming yearsdue to consumers globally becomingmore environmentally conscious.This is spurred on by the fact that

there are significant cost savings tobe had by decreasing consumptionof traditional energy. We are alsohappy to see governments support-ing this step-change towards greenerliving, such as the move towards re-newable energy in Germany.

EC: With demand for consumer elec-tronics set to boom in emergingeconomies, how is Panasonic address-ing the implications for e-waste?

LA: There are various challengesposed by each country and region,so we are working with stakeholdersin each society to develop efficient recycling schemes. In China, for ex-ample, Panasonic and other compa-nies have recently established a re-cycling company called PanasonicHangzhou DADI. The new recyclingcompany will collect and disassem-ble used home appliances and elec-tronics, and sell recovered materialsin compliance with Chinese rules.

EC: The environment faces somehuge problems. Japan is famous forits management theory of “continu-ous improvement”. Will this deliverthe necessary results or is a moreradical approach required?

LA: Amid a global focus on globalwarming prevention, governmentsand international organisationsaround the world are stepping uptheir efforts. Panasonic supports theseefforts from a point of view that dras-tic greenhouse gas emission reduc-tion by innovative technological de-velopment must be achieved. n

COLUMNIST:

Ethical Corporation • July-August 2011

Fast facts:PanasonicGlobal

Company name: Panasonic CorporationHeadquarters: Osaka,JapanCompany president:Fumio Ohtsubo Founded: 1918(incorporated in December 1935) Net annual sales 2010/11:$108bn Number of employees:366,937 Number of consolidatedcompanies: 634(including parent company)www.panasonic.net

Drasticgreenhouse gas emissionreduction byinnovativetechnologicaldevelopmentmust beachieved

Laurent Abadie

Laurent Abadie, chairman and chief executive, Panasonic Europe

How to obtain comfort andsustainabilityLaurent Abadie was appointed chairman and chief executive ofPanasonic Europe in April 2009. A French citizen, he was the firstnon-Japanese director to take the role. Abadie joined PanasonicFrance as managing director in 2004. By Oliver Balch

CEO interview

Ethical Corporation: Panasonic aimsto become the “number one” greeninnovation company in the elec-tronics industry by 2018. What’s themotivation behind this target?

Laurent Abadie: Panasonic wasfounded in 1918 and built on the phi-losophy that we should “contribute toprogress in society and to enrichingpeople’s lives through manufacturing”.This is still true for us today.

EC: What’s your strategy for achiev-ing this goal?

LA: We have set ourselves some mid-term targets covering two main focusareas: Green Life Innovation, wherewe promote lifestyles with virtuallyzero CO2 emissions; and Green Busi-ness Innovation, where we createand pursue green business-styles.

EC: How is senior management be-ing incentivised to contribute to-wards the 2018 goals?

LA: The remuneration and bonusesof our board directors are linked to theindividual performance as well as en-vironmental management indicatorssuch as CO2 emission reduction.

EC: At Panasonic, do you differenti-ate between the term “green” andthe term “sustainable”?

LA: The words “sustainable” and“green” have become buzz words.They actually mean two differentthings. Sustainability goes well be-yond “green” by combining thethree pillars of economy, society andenvironment. We see ecology as partof all our sustainability and CSR ef-forts since our responsibility for na-ture can’t be separated from our re-sponsibility for future generations

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