April 16th, 2008
HP CSR Report: A Triumph for Transparency (but back slides on blogging)
Ground breaking stuff in HPs latest CSR report released last week - HP becomes the first in its sector to publish details of the major players in its supply chain. Now it seems the tech sector will follow the apparel industry on supplier transparency. The apparel industry tried to resist this for some time on the grounds that opacity of the supply chain was a key competitive advantage. In the end, the need to assure consumers and other stakeholders trumped and now we see similar dynamics at play in the hardware sector. Nothing builds trust like transparency.
I suspect HP and the rest of the industry will come under further pressure to increase the scope of disclosure now this initial threshold has been crossed. HP is publishing a list of around 25% of their suppliers which make up 95% of procurement spend. It’s not clear if this is where the sustainability risk really lies since more than 75% of the suppliers are still not declared and volume of procurement dollars placed is not necessarily commensurate with risk coverage.
The GAP was reminded recently how significant brand risk can hide further down the chain with the use of authorized and, indeed, unauthorized sub contractors by suppliers. The ethical problems associated with the cassiterite trade, for example, do not feature in the HP report eventhough the rising price of this commodity and political instability in production regions poses ethical sourcing risk for the entire sector. And yet auditing the operations of manufacturing suppliers is problematic enough at the first level of supply before even thinking about going all the way back, literally, to the mine face. HP reports on the difficulty of building a risk profile for first line suppliers with multi site operations for example.
It’s difficult to tell just how much control companies really have over what goes on far down the chain and harder still to assure due diligence. HP has run an impressive audit programme since 2004 to assure supplier performance against the Electronic Industry Code of Conduct and has an unedited external assurance statement to back it up. Still, up to 50% of HP suppliers audited are out of compliance with rules on working hours, emergency preparedness and hazardous substances.
Its a tough old world out there on the global supply lines and even HP can’t wave a magic wand and banish injustice nor can they, or anyone else, vouch certain for 100% of their footprint. The main objectives of ethical supply chain management must be demonstration of due diligence & collaboration so to maximise public assurance and protect brand value. HP has moved well ahead of the competition on this score, now it’s up to consumers, including the B to B trade, to reward them for it and for peers and competitors to follow suit.
One addendum, it’s sad to see the HP’s Asia Pacific CSR blog close up shop. Rita Sully was circumspect:
Blogging was a great way to move beyond the conventional PR statements and media releases. It’s a way to expose the challenges and the ethical dilemmas people inside corporations are faced with when balancing company business goals and sustainability.
The blog did not quite turn out the way it was originally planned, which was to have far more contributions from my colleagues from around the region, as well as be a platform for ‘a conversation about CSR’. I learned that like me, many others were also anxious about sharing their experiences and views in such a public forum on a company hosted site!
This is rather a shame given HPs pioneering efforts overall on transparency. Corporate CSR programmes increasingly need web 2.0 engagement for the reasons and benefits Rita outlines. Surely not a return then to the dreaded ‘conventional PR statements’ and ‘media releases’ as the future for sustainability communications?
April 10th, 2008
What is a sustainable business anyway?
Once you penetrate some of the sustainability hype the key question at board level is this: what action are you actually prepared to take? For a problem like climate change, where there is no regulatory hurdle and action is voluntary though enlightened by self interest, what action is enough?
In my aviation days we foreswore the idea of a sustainable business but, rather, envisioned a sustainable society made up of a balanced bunch of over and under polluters. Admittedly, a convenient argument for an industry with real constraints and few viable alternatives. This is the reality of macro level emissions trading systems; they allow actors in the economy to find a natural equilibrium by setting the upper limit and allowing a market for pollution permits to evolve. Air travel, it seems, might just be the luxury society affords itself and instead turns to other actors to deliver the goods on CO2 performance.
15 years on are we seeing the same fundamental arguments played out again, this time in the tech sector? Is green efficient software code and low energy data centres really where its at? It probably is if the real motive is if energy cost reduction is the real goal but is this really the biggest opportunity to save the planet? This is a question as fundamental as Ted Levitt and the marketing myopia problem: do we want a sustainable business or a sustainable planet?
This question came rushing back at me after watching this extraordinray video from last week’s Aspen Environment Forum. In this clip, Auden Schendler of the Aspen Ski Company, arguably a business on the front line of the global climate change problem, makes a forthright case that recycling ski passes or even eliminating CO2 from his business is a complete waste of time.
People focus on what they can understand. ……….. That is a distraction it’s not just that it doesn’t matter, it’s actively bad. When you focus on recycling this ski pass you’re missing the big picture. ………… Well, everything we do on the ground is irrelevant. You could take the entire emissions from the ski industry, eliminate and we would still go out of business in one hundred years.
The most important thing we ever did was file an amicus brief to the Supreme Court on Massachusetts versus EPA asking them to regulate CO2 as a pollutant.
Where this gets interesting is when Elizabeth Lowery of GM backs up Auden’s words completely and decries the distraction of internal GM people who come up with the dreaded environment ’idea of the month’. But Auden shot back and challenged that GM was likely to give in to similar ill informed demands when they come from customers rather than employees. At this point we learn that GM apparently executes a ‘combination’ of well intentioned but ill advised customer demands together with initiatives that actually contribute towards solving the problem.
In a stunning admission Lowery said:
…..certainly we have had to do some projects that maybe were not totally aligned with solving that problem because you have to do something today to keep customers happy
GM are doing some great stuff on the environment - no criticism there - but this is an important illustration of the dilemmas we face in addressing climate change with market instruments. But is Aspen Ski Company going way outside the boundaries of its core mission by filing Supreme Court briefs on a skirmish between a state and the US federal government? Is GM failing to do the right thing for the planet by compromising the efficacy of its climate initiative in deference to ill informed customer demands and thereby maximise profits. These are diametrically opposite approaches. GM it seems will accept incremental if flawed progress whilst Aspen Ski Company will sacrifice action for idealism. Which approach delivers more for the planet?
April 2nd, 2008
Edelman on Sustainability Reporting: Call in the PR Pros
It’s a conundrum every company faces when thinking about sustainability reporting - who reads this stuff anyway and do these reports actually assure anyone of anything? Sustainability reporting methodologies have grown up, for better or for worse, to ape financial reporting, replete with their own standards of assurance audit and verification.
But is there not a better way? Financial reporting methodologies are at least anchored down in regulation, they have to be completed to a certain standard or you go to jail. But if the core of sustainability management is based on voluntary action and collaborative governance then the Achilles heel is in assuring the relevant stakeholder base that the actions you take are material, legitimate, worthwhile and appropriate and not ‘greenwash’.
PR titan Edelman too has recently been exercised on similar concerns. They teamed up Boston College Centre for Corporate Citizenship, Net Impact, World Business Council for Sustainable Development to, funnily enough, reach the conclusion that better corporate communications practices are just the ticket.
But the Edelman folks seem a bit fuzzy on the role of the established quality process for reporting. In describing best practice, Edelman rattles off the Global Reporting Initiative (GRI), SA8000, ISO14000 and AA1000 and suggests that these are all somehow basically interchangeable or equivalent and that:
..a single standard used by all reporting companies does not exist. In fact, a number of different standards have been created to guide the development and evaluation of social reports. Most companies use one of the following four standards.
But each of these standards are fit for purpose in their own right and of this bunch only the GRI can be recognised as the de facto standard for sustainability reporting. SA8000 is basically a quality assurance standard for ethical sourcing, ISO14000 is a quality standard for environmental management whilst AA1000 is actually a sustainability reporting assurance standard which is something quite different from a reporting standard. In fact the GRI standard specifies the necessity for an assurance process to test the veracity of the report produced to GRI standards.
But there is some mileage in the Edelman study all the same and they rightly identify the growing dynamic of employees as key corporate sustainability influencers. Net Impact surveyed their member base of mostly graduate students and found the number one factor for employer selection was a ‘belief that your job will make a positive difference in society’. Incidentally, the Net Impact model of activism is an interesting one - they organize individuals into chapters inside your company whose mission it is to pressure internally for greater take up on sustainability. It’s all terribly viral and disruptive. But it is very innovative and it may well represent a taste of things to come as the millennial generation reaches critical mass in the workforce.
I think Edelman missed an opportunity to major, rather than tantalize on the potential for technology to reshape stakeholder engagement and sustainability reporting as we currently know it.
Many companies are moving outside traditional reporting structures and channels to engage stakeholders in a more effective, bi-lateral manner. This can be through direct stakeholder contact, new web-based CR reporting efforts, or other means that improve responsiveness to stakeholder issues and recommendations.
Also in the recommendations section:
Use web-based reporting and other dynamic communications tools
And here we come circle to the core process of quality reporting and assurance. Simply put, a sustainability report and all the voluntary action in the world is of little value if it does not assure the stakeholder base. The basic assurance standards are based upon principles such as inclusiveness and responsiveness, and these are clear attributes of web 2.0. The application of web 2.0 is clear, not to mention the benefits of more accurate risk identification, moderation and dynamic feedback loops. Alas, we must wait perhaps for the next Edelman report to tackle this.
April 1st, 2008
Headaches in Armonk but will green lose out?
No doubt the IBM top team will be passing around the Tylenol today in Armonk as they figure out what to do next after their temporary exclusion from further contracting with the US Federal government. Sadly it is not an April fool’s joke - the US Attorney’s office for the Eastern Division of Virginia has served subpoenas seeking documents and evidence relating to IBM’s contracts with the US Environmental Protection Agency.
Reports today suggest the investigation centres around some form of alleged improper contact between IBM and EPA employees in the procurement process. According to an email from the EPA:
The action was taken by the EPA suspending official as a temporary measure while the Agency reviews concerns raised about potential activities involving an EPA procurement.
FCW reports the contract in question is an $84 million financial management system bid which IBM previously lost but has since filed a protest on the matter with the General Accounting Office.
IBM has a long history of collaboration with the EPA over many years in helping to move forward the green agenda. IBM is a charter member of the EPA’s Climate Leaders group - an initiative where leading corporations voluntarily publicly disclose their CO2 inventory and targets to the EPA. The EPA in turn provides up to 60 hours of free technical assistance to participating organisations. Under the programme IBM has pledged to reduce its CO2 by 7% to 2012. Similarly, IBM and the EPA also collaborate together in the WWF, Google and Intel led Climate Savers initiative.
These public programmes play an important role for external validation, assurance and benchmarking. In the absence of hard regulatory standards such collaboration helps businesses more effectively set reasonable targets and measure progress. Collaborative governance models like this come in many different hues and they are all critical to success in building a more effective coordinated response to the sustainability challenge from the public, private and civil society sectors. Allowing more flexibility within market place constraints to voluntarily reach targets without the chilling affect of blanket regulation is key. In turn, the experience gives agencies like the EPA a feel for what is achievable in the economy at large and so leads to better regulation when and where it becomes necessary.
But can such workaday relationships with a government agency lead to over familiarity and closer than arms length relationships? Does voluntarily engagement with any regulatory authority lead to increased risk when the church and state divide is breached? Maybe, but such collaboration is essential and in many cases the risks associated with a failure to engage with stakeholders are higher.
However, public sector contracting relationships are particularly sensitive and penalties for improprieties can be severe, clearly the governance hurdles are higher. There is even an OECD convention dedicated to raising the regulatory bar on this worldwide. And the local US Attorney’s office handling this case has highlighted it as no less than one of its four main priorities.
We are committed to investigating and prosecuting public corruption at all levels of government, wherever it may exist, and to rooting out corruption in federal procurement processes.
But the despite the obvious risks, the private and public sector must continue to work together to build collaborative governance frameworks to manage sustainability. At least on the EPA side there continues to be a clear willingness for the important work on the environment with IBM to continue no matter what. In a conversation I had with EPA Press Secretary, Jonathan Shradar he commented:
I trust that IBM as a leader in the technology sector will continue to participate in important collaborative initiatives such as the Climate Leaders Group.
March 21st, 2008
Facebook: Revolution, Weed and Philanthropy
At the risk of endlessly re boiling the cabbage on the now infamous Sarah Lacy interview of Mark Zuckerberg at SXSW, it is worth highlighting some pretty important things he had to say on Facebook & corporate philanthropy before the reporter became the bigger part of the story. The flippant style of interview was disorienting, one minute Zuckerberg is telling us how grassroots campaigners in Colombia organise on Facebook to face down the FARC revolutionary guerilla movement (who Lacy thinks represents the government) and the next Lacy is recalling meeting a ‘tired’ Zuckerberg in a Facebook conference room strewn with pizza boxes, ‘weed’ and a ‘pile of bongs’. Far out, but which story is stretched beyond credulity?
Zuckerberg is clearly passionate about the social utility of the self described social utility. But no, I do not think Islamic fundamentalist kids will draw back from terrorism after sharing empathy over Facebook with some teenage mall rats in the suburban US.
Zuckerberg was right on the money on how Facebook can serve the needs of Civil Society to amplify its voice and leverage power to make the pace for political change. But is this something that Zuckerberg should just let the users figure out? Maybe.
Lacy:
………since you have such a platform, are there things you are doing proactively to do good in the world to take advantage of it, as a company?
Zuckerberg:
I think what we are doing as a mission is a very important thing, helping people communicate more efficiently…..
…. when you ask about philanthropy, at this point in our development we are running the business around break even , we are not throwing off a lot of money, we are focusing on building the infrastructure where people can communicate and work on these things…
Well maybe the examples Zuckerberg gave were a bit clunky but even the celebrated Robert Scoble, despite an immersion at Davos, is at a loss to describe a social mission for web 2.0.
But where Zuckerberg is rock solid, despite Lacy’s leading question, is to insist that the business model itself can and does deliver important social benefits without Facebook having to be ‘proactive to do good in the world’. This is the path to a truly sustainable business where society does not have to rely on largesse but can depend on business owners operating a truly sustainable businesses.
Zuckerberg, despite his age and inexperience, has no problem conceiving the notion that a business can do good and do well at the same time and that it can carry out an inherent social mission as part of it’s commerical strategy. Many CEO’s three times his age with vast experience often fail to grasp this idea which Zuckerberg understands intuitively.
March 7th, 2008
The Cassiterite Crisis - How Tech Boom Fuels Human Rights Risk in Africa
A disturbing article this week in the FT reports how cassiterite sourced through the use of child and slave labour has made it into the supply chains of global electronic goods manufacturers. Cassiterite is a derivative of tin ore necessarily used in circuitry and its use has, ironically, enabled devices to become more eco friendly. But at what cost?
Prices for tin ore have soared on the London Metal Exchange from around $5,000 per tonne in 2003 to more than $19,000 today driven by the demand for consumer electronics. War torn Democratic Republic of Congo (DRC) is home to a huge concentration of tin mines and now a renegade army division has moved in to take control of some of the mines with disastrous results. I spoke with Nicholas Garrett and my former colleague, Harrison Mitchell who penned this report for the FT and they elaborated more on their investigation. According to Nicholas who visited the mines in the Walikale region of DRC:
The manner in which the artisanal miners in Bisie - some as young as twelve years old - are forced to work is a human rights disaster. Under the watch of the 85th brigade some are forced to spend up to 72 hours in narrow tunnels, some of which do not exceed 70cm in diameter. The general safety conditions are appalling, with regular accidents occurring on site.
I highly recommend checking out Mark Craemer’s site to view an extensive collection of moving images from his investigative mission to the DRC tin mines to get an idea of the plight of the artisanal miners at the sharp end of this trade. (Mark kindly gave permission to use the picture displayed here.)
To be fair, managing commodities sourced unethically out of the supply chain is exceedingly difficult. Nicholas and Harrison described the labyrinthine supply chain process in the FT piece:
Cassiterite from Bisie is bought by middlemen linked to exporters and international traders who sell the ore on to smelters that purchase on the open market. At the smelters, the tin from North Kivu is mixed with other tin, refined and sold either directly to solder manufacturers, or through international metal exchanges. Finally, tin solder is sold to manufacturers for use in the production of electronic gadgets.
Microsoft’s response on this issue was quoted in the FT article:
we don’t have visibility into the activities of commodity suppliers participating at the beginning of the hardware supply chain
Hitachi:
will review levels of compliance amongst its primary suppliers with these guidelines and ensure that business practice standards are met by all companies operating within the supply chain
Samsung:
Samsung said that it had now requested that its component providers investigate their suppliers of tin and stated that it is working closely with the Electronics Industry Code of Conduct Extractive Work Group to find the best solution to the problems of sourcing from countries such as Congo
Pioneer:
takes any alleged breach of the code of conduct seriously and will investigate further
I reached out to the joint industry initiatives looking at this issue GESI (Global E Sustainability Initiative) and the EICC (Electronic Industry Code of Conduct) and clearly this is an issue of concern now under detailed and considered review. A study of the social and environmental responsibilities for industry sourcing from the extractive sector is underway and will report next month. The group has recently consulted with human rights NGOs, trade unions and others on the best way to tackle this issue and I am told the group is making good progress:
Our research is expected to be complete at the end of April but we have seen enough data that we’re hoping to begin to determine our next steps
The easy thing here would be for the industry run away from the problem and source elsewhere. But actually, the economic might of the global IT industry could make a real difference through exertion of collective downward pressure on the supply chain. I spoke to others involved in the reform process in DRC for a view on this and according to Peter Eigen, Chairman of the Extractive Industries Transparency Initiative (EITI), a global initiative advocating transparent revenue flows in producer countries:
Pulling out of DRCongo would be the wrong approach. Instead, the global electronics industry has to acknowledge its responsibility, and start to conduct proper due diligence when sourcing their mineral inputs as well as proactively to support the general reform process in the DRCongo.
So there you have it - inextricable proof that we live in a truly connected economy both for better and for worse and when it come to sustainability, environmental issues are nearly always closely linked to human rights. Cassiterite is an issue of industry concern that will continue to be on the radar screen for some time with the ethical supply chain risk rising proportionately with international tin ore prices.
(Disclosure: I am employed by SAP and SAP together with the German government has offered technical assistance towards supporting enablement of the EITI process)
March 6th, 2008
Tech Sector Takes a Kicking in Ethics Ranking
Quite honestly it is hard to take too, too seriously sustainability ratings such as the CRO 100 Best Corporate Citizens of 2008 but they are kind of fun to pull apart none the less. Predictably these rankings generate a fair degree of false humility from the ascendant and gnashing and wailing from the descendant. Says the CRO’s Dennis Schaal:
This list—CRO’s 100 Best Corporate Citizens 2008—matters. If you think for a minute that it doesn’t, then get on the phone or sit upright at your computer to listen to or read some of the phone calls and e-mails CRO magazine received from irate companies that found themselves MIA from the list or lower in the rankings than they would have liked.
Oh the humanity!
Emotions are bound to be running particularly high this year with a seemingly unstable methodology generating a staggeringly wild rate of churn of 79% and the tech sector has taken a real drubbing as a result. Microsoft, Google, AMD, Autodesk, Salesforce.com, Dell and Adobe amongst others all find themselves thrown out of the CRO virtuous 100. But Intel, IBM, Sun and Cisco endure the shakeup with Intel coming in at number one.
Maine based IW Financial presided over the analysis for the CRO list. In 2008, CRO—in partnership with IW Financial, a Portland, Maine, research and consulting firm that did much of the heavy lifting—tweaked the methodology to emphasize the corporate responsibility efforts of large, impactful corporations in eight categories: Climate Change, Employee Relations, Environment, Financial, Governance, Human Rights, Lobbying and Philanthropy. In so doing, we added, renamed, combined or dropped other categories, and gave Climate Change and other issues related to Environment the greatest weight because of their acute importance.
Sadly the CRO listing only evaluates US headquartered firms so we are getting a rather US centric view on the global corporate sustainability agenda. This is unfortunate because certainly both the markets and the issues at hand are truly global so why not the ranking?
What I find a little confusing about all of this is CRO / IW Financial only in December published a top 10 by industry list for US headquartered firms and for the software industry this included Adobe (#1), Oracle (#2) & Microsoft (#9) and yet none of these firms feature in the CRO Top 100 just published. Still, I think Intel’s top ranking is well deserved - do check out the Intel CSR blog here to learn more about what they do well.
I think CRO just maybe on to something here and certainly a shift in the methodology to weigh more heavily towards climate change, policy and performance is a good thing. But to get a more meaningful result CRO / IW Financial also need to consider product and relative operational impact in the equation. And yet for 2008 they have actually dropped the product dimension which was previously factored in. Maybe this explains why the 2008 top 100 ranking contains no less than 18 Utilities and yet not one software company whilst in 2007 we practically had the inverse. That is not to say the Utilities have not performed brilliantly, PG&E for example is doing some really great things on sustainability. But if we are to use these ratings to stimulate a discussion on actual sustainability performance then we need to focus a little more on the core business model and the materiality of sustainability risk & opportunity unique to each sector.
OK, so no ranking is perfect, and the CRO is evolving the methodology and admittedly I do love to nit pick these things. But perhaps the most important purpose such beauty contests serve is to get us all talking and hopefully thinking a little as well. For that, thank you CRO.
March 5th, 2008
PWC On Tech Sector Going Green: Efficiency, Ambivalence and Pretty Pictures
PwC is to be congratulated at the very least for the aesthetics of their latest report: Going Green: Sustainable Growth Strategies. This is a truly handsome report with pretty brown coloured text interspersed with striking images of wind turbines, sail boats, happy children, adults playing in autumn foliage and even slightly more obscurely, a flamenco dancer. I’m gently ribbing PwC here – many of us are a little guilty of presenting the climate change crisis with utopian imagery. Although Freud might have a field day figuring it all out, the masking accurately represents the superficial, ambivalent and confused state of thinking at this tipping point. Apparently executives continue to genuinely struggle to orchestrate, within the constraints of the market, a rational response to the sustainability question.
The tech sector is no less confused with 70% of surveyed executives convinced the tech industry does little or no harm to the environment yet 61% believe it is important that their companies take action to reduce their foot print leading PwC to ask:
is the pursuit of anything green by the technology industries little more than a feel-good exercise resulting in higher costs and possibly insignificant environmental benefits?
So what is the driving all this sentiment and is the green boom sustainable? Executives expect green to be an increasingly important factor in the procurement decision. Yet 70% of tech industry executives believe that although customers say they want green products they are highly resistant to paying extra. This consumer ambivalence is taxing the wits of marketers everywhere. A spokesperson for a US based computer maker explained the conundrum:
The challenge, she says, is “to try and fathom whether this is your customer’s core belief, as is often the case with individuals, or whether it’s the desire to be perceived as environmentally conscientious, as is often the case with businesses.” It’s a subtle distinction, she says, “but it’s an important one as you’re developing product appeals and brands.
Interesting to note a separate report from PwC out last month which asserts the ‘going green’ marketing revolution got started in the blogosphere in 2006 and became a pervasive conversation by 2007. Not totally unconnected, employee sentiment is also a driving issue with grass roots green initiatives increasingly touted as the hallmark of a progressive employer. So is all this green marketing only hubris?
When it comes to brass tacks, the top business driver for going green in the tech industry is energy efficiency followed by regulatory compliance or fear of future regulatory action. The survey also shows that energy efficiency is the number one R&D priority for the industry over the next two years.
Still it is clear at least in the B2B market and there is a mandate for environmental performance in the purchase decision making process and this is especially true of public sector customers.
But tensions over who exactly should pick up external costs are never far from the surface. Peter Zeven, CEO of Philips Electronics North America commenting on mandatory take back programmes:
If you read a newspaper, you throw it in the trash. When you finish with a tire, you throw it in the trash. Why then is it the manufacturer’s full responsibility and cost if you finish with a television?
Coverage of the software sector was weak in this report and PwC missed a trick to more fully explore the role software can play. We learned about Microsoft’s Live Meeting and energy saving settings for Vista but then, inexplicably, we were treated to detail about inter campus eco friendly transport arrangements at Redmond. Laudable, but hardly material or relevant to a discussion on software solutions for climate change. Although I am bias here (see my disclosure) I was disappointed PwC did not consider the contribution enterprise software can make in this space in helping industry become more resource efficient and transparent to public stakeholders along dimesnsions from regulatory compliance through to carbon labeling and emissions trading.
My take on all this: this report shows the tech industry like everyone else buffeting in the winds of change from climate change. Sure, the tech sector may account for 3% of total CO2 although arguably that 3% is helping to make other parts of the economy more efficient through productivity gain and dematerialization. And yes, the manufacturing and services side of the tech business can do its bit to become more eco efficient. But the industry shouldn’t navel gaze too long - the other 97% of the economy needs all the innovative focus and ingenuity the tech sector can bring to bear. Consumer sentiment maybe a little flaky but over time this will certainly harden up into pervasive market demand.
The skepticism I detect in the PwC report is well placed. Similarly last week at the Economist Sustainability conference in London I sensed consensus that the euphoria around green marketing was tipping towards more realism. After the low hanging fruit have been picked, we settle into the long haul struggle to reinvent and renegotiate our economic structures and not just for eco efficiency but also other connected aspects of sustainability including human rights, economic development and transparency. This is when and where the tech sector can make its best mark for sustainability.
February 28th, 2008
McKinsey on Corporate Philanthropy: Mind Your Own Business
If only the Big 4 and the top consultancy firms could run on sustainability thought leadership white papers instead of free cash flow, 2008 would surely be a banner year. The latest epistle is from McKinsey who this week publish an insightful survey on corporate philanthropy.
The study unearths some revealing contradictions between strategic intention and practical action. For example, contrast the stated business goals of philanthropy with the factors taken into consideration in deciding how to focus such programmes.
The highest ranking business goals include brand and reputation enhancement at 70% and employee development at 42% and yet business goals such as managing risk, building product & market knowledge come lower down the list at 19% & 16% respectively.
And when it comes to how such social investment decisions are really weighted it turns out the highest ranking goes to CEO interests at 45% with employee and local community interests joint second at 37%. Stunning to note that brand development only weighs in at 22%, a clear contradiction between the surveyed business goals and how investment decisions are really made. Similarly, alignment with business goals only 23%, stakeholder interest 20% and, sadly, social impact a mere 19%.
So it turns out business and stakeholder interests are taking a back seat to C level pet projects, employee interests and the local community.
Not to be a total grinch here, employee engagement and local community benefits are very worthy goals whilst C level appeasement is a career necessity. But these efforts should be leveraged properly and the survey data contradictions suggest otherwise. In the age of increased corporate accountability perhaps the philanthropy efforts should be better focused on issues associated with other direct corporate stakeholders, areas of operational impact and within the legitimate sphere of influence.
Companies and consumers have long seen corporate philanthropy as a way for companies to benefit the communities where they are located—donating funds to local schools, hospitals, and orchestras, for example. In recent years, however, as society’s expectations of companies have risen2 and as many companies have begun operating in more far-flung locations, they are expected to address a growing list of needs. Companies that 20 years ago were held accountable only for direct, contractually specified, or regulated consequences of their actions today find themselves held to account for the consequences of their actions in areas as disparate as off shoring, obesity, excessive consumer debt, environmental sustainability, and the governance of resource-rich, low-income nations.
Indeed the McKinsey survey suggests that the love affair with the local community just outside the factory gates is somewhat misplaced. Referring to the segment of 20% of respondents who believe they are extremely effective at meeting social goals and stakeholder expectations McKinsey had this to say:
they, too, are much likelier to address the local community with their philanthropic efforts than the community’s importance as a stakeholder would seem to warrant.
The explanation for this is the high influence of employees over a more populist led programme. Of a ranking of the major social and political issues facing corporations respondents choose environment 46%, employee benefits 27%, privacy/data security 24%, political influence 19%, consumer demand for healthier products 19%. Yet the issues corporate philanthropy investment focuses on according to survey include education for a whopping 75%, community for 58% and economic development for 52%.
To achieve a wholly sustainable enterprise the goal must be to focus efforts above the line rather than below. Any efforts more closely linked to the core business operations not only have greater opportunity for sustainable impact long term but also enjoy greater social legitimacy given that corporations do not have unlimited democratic license to make decisions to prioritise social interventions. Below the line donations are too often tokenistic after thoughts.
NetSuite’s announcement this week of the NetSuite Giving programme is a good example of strategically focused giving. NetSuite is targeting in kind technology support towards three beneficiary categories: Registered Charities, Fair Trade/Social Enterprises and Green Start Ups /Environmental. NetSuite have not given an indication of scale but its clear how this links to the future revenue model for NetSuite. However, there is no indication of how NetSuite sees this programme playing a role towards off setting more direct social and political risk it faces.
And this is where it starts to get tricky indeed for software vendors. Is enablement the biggest responsibility the industry should satisfy not just for customers but also for broader social actors? What are the other issues the software industry needs to address? This is a question Business for Social Responsibility is helping a cross industry convening address over the coming months. Watch this space.
February 25th, 2008
Human Rights: An Inconvenient Truth
The debate on business and human rights is set to heat up this year with the 60th anniversary of the UN General Assembly resolution adopting the Universal Declaration of Human Rights (UDHR). The Beijing Olympics and a sharpened focus on the potential winners and losers in the climate change crisis is also a factor. But maybe most significant of all is the imminent release of the next installment from the UN Special Representative on Business and Human Rights, John Ruggie, in his report to the UN Human Rights Council.
The debate on business and human rights so far has been polarized between those who believe only regulatory action can work and those who believe voluntary corporate action and market innovation will be more effective.
So the Human Rights Watch (HRW) release last week of their report Business On The Margins of Profit, Rights at Risk in The Global Economy is very much a curtain raiser for things to come. The main thrust of the report is an inconvenient enough truth, human rights is a pervasive responsibility for all businesses everywhere not just a fringe issue for an isolated set of circumstances. And unlike CO2, it’s not an issue that can be easily ‘offset’.
Business impacts on human rights are not limited to sectors that have received the most attention to date, in particular apparel manufacturing and the extractive industries. Rather, the activities of all types of businesses – large and small, domestic and international, public and private – in all sectors can implicate human rights. To properly combat business related human rights abuse, this broader set of actors and contexts needs to be addressed.
But don’t take it from HRW, this week Forbes Magazine also covers the issue with its report: Child Labor: Why We Can’t Kick Our Addiction.
Beyond labor rights, the HRW study also examines business impact on the right to security, economic and social rights, civil and political rights, non discrimination, indigenous peoples rights and the right to effective remedy and accountability. From the tech sector Microsoft, Yahoo!, Google and Skype come in for some criticism:
Companies such as Google, Microsoft, Yahoo! and Skype, seeking access to the lucrative Chinese market, have assisted and reinforced the Chinese government’s system of arbitrary, opaque and unaccountable political censorship.
Incidentally, in a demonstration of how business can actually exert influence to defend human rights, Jerry Yang last week wrote to Condolezza Rice asking the US State Department to approach the Chinese government in support of Shi Tao. Tao, a political dissident journalist, was arrested by the Chinese government after Yahoo! handed over his user details to the authorities upon request. Many might say this is too little too late but I think this is a good step.
But the issue of business and human rights in the main is less about the rare cases of direct complicity of business in human rights violations. The problem comes in the actions of many partners and suppliers across the value chain and the subsequent dilution of responsibility.
… in assessing the impact of business activity on human rights, it is important to focus on company ties to third parties that commit abuse as well as cases in which businesses themselves directly cause harm. Such third parties are often government agents - such as security forces – working in coordination with companies or on behalf of company interests. Other times the negative human rights impact stems from business failure to take adequate steps to prevent misconduct by employees, suppliers or others with whom it has business relationships.
In the end, Human Rights Watch does not fall squarely into the camp of voluntarism:
..even when codes of conduct or commitments to social responsibility exist they are often not adequately implemented. Additional standards and compliance mechanisms are needed.
In fact, Human Rights Watch joined a petition to John Ruggie of over 100 NGOs led last October by the International Network for Social and Cultural Rights calling on him to specify the limits of ‘self regulation’ in his final report. This petition pronounced harshly on voluntary CSR initiatives.
Due to their voluntary nature, they typically fail to ensure that the principles which they advocate are upheld in practice; even the relatively more robust multi stakeholder initiatives fall far short of what is needed to ensure compliance.
John Ruggie replied on the record to defend the voluntarism as, though hardly ideal, maybe the most viable near term option to maximize human rights defense in a global economy without globally joined up, democratic governing institutions.
It is also worth noting that when the challenge we face is imposing human rights obligations on states there is no “higher” expression of authority than international legal norms and instruments that we can turn to. Hence our options are limited. In contrast, corporations are subject to multiple sources of authority higher than themselves, including home and host states, shareholders, broader market forces, and their more informal social licenses to operate. All can and need to be mobilized in devising an effective response to business-related human rights challenges.
This is an important debate to monitor and I think everyone agrees neither total voluntarism nor total regulatory intervention alone will work but some combination of the two is required. It is the make up of the balance that is now in debate. What is already crystal clear is that we face a complex international regulatory framework made of up of hard and soft compliance obligations. Business leaders have got to be savvy enough to understand that voluntarism does not mean laissez faire and the invisible hand. Voluntarism means hard work to define and negotiate with relevant stakeholders an appropriate response to material ethical and environmental issues relating to the core business.
This will all play out over decades not months or even years but 2008 will be a defining moment in time.
James has more than 15 years of experience working on corporate sustainability issues from both the corporate and NGO campaigning perspective. See his full profile and disclosure of his industry affiliations.
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