Posts Tagged ‘CSR’

Escalation of Commitment

Posted: September 29, 2011 in Ethical decision-making
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Source states, "If you wish to use these ...

Ok Tedi. Image via Wikipedia

I continue to learn about human flaws that contribute to poor corporate decision-making. Here’s another: Escalation of commitment. That is the tendency, having made a decision, to stick with it in the face of mounting evidence that it was a bad call.

There is nothing new about this, it is even described in Macbeth:

I am in blood
Stepp’d in so far, that, should I wade no more,
Returning were as tedious as go o’er. (Act III, Scene 4)

The textbook example is the Vietnam War, which the United States military knew for a long time it would not win.

Escalation of Commitment was first identified in a business context in 1976 by Barry Staw.

We might be more familiar with the term ‘sunk cost fallacy‘. This is when wasteful expenditure has, over time, become factored into a budget and is simply accepted as an operating cost. However, if it were presented as a new initiative, it would not stand up to scrutiny.

So what happens when a company establishes or invests in a foreign venture and it subsequently emerges that there is some serious ethical problem?

  • Consider the Ok Tedi gold and copper mine in Papua New Guinea, formerly majority owned by BHP. In 1984 an earthquake ruined the retaining wall that was intended to restrain its heavy metal tailings from contaminating the water source downstream. The company and Papuan government decided it was not worth rebuilding it and significant harm was done to the environment and the health of some thousands of Papuans. Fifteen years later – compelled by a public relations and legal campaign – BHP decided the cost of persisting was too high. One has to wonder: Didn’t somebody in either BHP or the Papuan Government see this coming? Why would you leave yourself exposed to such a monumental risk? Escalation of commitment is the answer. Having invested millions in the venture, there was no way they were going to admit failure, turn around and leave. The government had a further reason for inaction: the mine accounted for over a quarter of the country’s export earnings. If only someone had spoken up about the havoc that was going on, or even commissioned a risk analysis, it might not have unfolded so badly.

Escalation of Commitment remains alive and well today. Examples abound: It is partly why

All of them do so in the face of reported abuses of the rights of the workers involved. Disappointing but that’s human nature. Sometimes you find companies that are highly sensitive to their image and immediately act when there is a scandal (Zara in Brazil being a case in point). Other times they can be embarassed into action. Other times, however, the spin doctors are too good and nothing much will happen unless the local workers organise themselves effectively.

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Puma gets Cambodia supplier to lift its game

Posted: August 8, 2011 in Cambodia
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North 7700 Series Half Mask Air-Purifying Resp...

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I much prefer stories like this: Problem identified, swift action, sensible company response, workers’ lot improved.

It is fiddlier but this kind of engagement creates a better result for everyone than a straightforward boycott or publicly lecturing the company.

Recently PUMA agreed that it would work to improve specific shortcomings in the Cambodian factory of its supplier Huey Yuen.

It first became apparent that there was a problem in April when over 100 of the factory’s employees were taken to hospital for fainting in a single day.

PUMA’s sourcing policy is quite clear about the company’s intention that its suppliers maintain labour standards but, as we have seen before, that is no guarantee that it happens at ground level. To the company’s credit, it was Puma who requested a full investigation, which was conducted by the monitoring group Fair Labor Association (FLA), of which Puma is a member.

The FLA in their report found numerous shortcomings that went well beyond the immediate cause of the fainting spells (poor ventilation). They found that excessive work hours and poor chemical handling/storage practices also contributed. While there, they also discovered other practices in breach of laws and standards:

  • Counting sick leave as part of annual leave
  • Not providing special leave
  • Placing workers on rolling contracts rather than making them permanent employees
  • Unexplained wage deductions
  • Many other health and safety shortcomings, e.g. insufficient supply of drinking water, no fire evacuation plan and machinery lacking protective shielding.
PUMA accepted all the findings and developed a remediation plan in conjunction with Huey Yuen that includes a process to verify its implementation. It includes an undertaking to:
  • Meet the standards in PUMA’s Code of Conduct pertaining to health and safety, forced labour, compensation, grievances and minimum work age
  • Ensure no one works more than 60 hours per week including overtime
  • Develop an OH&S management plan
  • Meet OH&S standards particularly those for handling and storage of chemicals, including provision of personal protective equipment
Bravo, PUMA!
As a result, the workers lives are improved, the company avoids legal liabilities and consumers hold the brand in higher esteem; everyone wins! Now if only everyone were as far-sighted…

Links:

The difference between Compliance and Ethics

Posted: July 31, 2011 in Responsible business
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(5/11/12:) This is one of my most-read posts, so I’ve decided to re-present it in video form. If you want the text version, just scroll down.

Often ‘unethical’ and ‘illegal’ are used as if they were interchangeable. I have heard of people being called to task for ‘ethical breaches’, too. However ethics, properly understood, is not something that can be legislated or codified. Ethics is personal - it means the process of discerning what is the correct action. Law is impersonal and requires no discernment, just compliance.

People should be more careful about this, particularly activists, because it is critically different whether a company is being criticised for being unethical or for actually acting outside the law.

A company can be unethical without breaking laws. The remedy to this is either to lobby to expand the reach of the law (as frequently happens) or to call the wrongdoer to account, directly and/or indirectly via public embarassment.

The first option does come at a cost, which is to remove the discretion of the executives concerned. The counter-intuitive result, it seems, is that they become less concerned with the effect of their actions on people and more concerned with legal compliance. This seems to be the direction things have headed in the last few decades.

In the 2007 Warrane Lecture, The Place of Ethics in a Life of Business, UNSW Chancellor David Gonski described the situation as follows:

I do not believe that legislation, or for that matter codification of ethics or other standards, will assist [...]

The essence of my concept of ethics is, as Simon Longstaff [director of the St James Ethics Centre] suggests, a thinking/questioning one. To codify or legislate risks locking that into a particular time zone and risks a fall out way beyond where the legislation is designed to go.

Take, for example, the legislation in the UK directing directors of companies to have regard to the interests of all shareholders. A worthy goal but in legislating the government has, I think, removed part of the ‘Director’s Compass’ […]

In directing them to have regard to rights of suppliers they have for example embodied part of my concept of ethics (what you ought to do in dealing with people) but at the same time prevented the directors from freely considering say cancelling a contract of supply to assist other stakeholders. The fact is that legislation and codes are useful to ensure that safety standards etc are met but they are dramatically in the opposite direction to the concept of true ethical thought which requires a questioning and a concern based on humanity and relationships inherent in the individual.

He would not recommend, it seems, purely legal remedies to ethical deficiencies. The law is a blunt instrument.

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Do labour rights activists need a follow-up strategy?

Posted: June 27, 2011 in Consumer campaigns
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worker outside KYE factory

KYE worker in Houjie, Guangdong. His working conditions have not improved since media publicity about the factory's conditions over a year ago.

In a perfect world, company executives would not need to be pressured into paying living wages, they would just do it.

In a next-to perfect scenario, producer-nation labour activists and destination-nation consumers would act in concert to bring about positive change in wages and pay conditions.

There are plenty of success stories around: Last year the tantalum mining industry got a shake up with the passage of US Government regulation. Individual companies continue to sign on to the No Dirty Gold pledge. Recent campaigns directed at single companies have seen improvements at Ocean Sky, a footwear maker, Bridgestone, Nestlé and 1800FLOWERS.

However it’s a bit hit-and-miss and I have to wonder whether part of this is because the developed-world NGOs have built-in obstacles to following up.

Why it’s better to say ‘Mission Not Accomplished’

Running a successful corporate embarrassment campaign involves media attention and increased brand awareness and it is at that point that donors become interested. Could it be that the interest level is less when people hear about successful calls to action? There is no dramatic tension in need of resolution. There is no villain. It certainly doesn’t make good media. Unions have for a long time used the ‘Anger-Hope-Action’ model to obtain buy-in; that does not apply when a problem is actually fixed.

I hope this doesn’t sound too cynical. People are attracted to stories and drama, and “this problem has been fixed” just isn’t as interesting as “this is an injustice”.

Moreover, media won’t run a story that amounts to “no change from what we told you before”.

An example: Xbox 360 hardware

Microsoft’s Xbox 360 handheld controllers are manufactured in a locality known as Houjie in China’s Pearl River Delta. The company, KYE Systems, is Taiwanese.

XBox 360 wired controller.

An Xbox 360 controller, manufactured by KYE Systems in Guangdong. Image via Wikipedia

In April 2010, the Institute for Global Labour & Human Rights published a report on conditions in the factory finding that the young workers from inland China were overworked.

There was a fair amount of media coverage at the time and Microsoft undertook to investigate the conditions for itself.

So what has happened? Basically nothing! Four months later a lone journalist at eWeek followed up to see if anything had been done and got a euphemistic response from Microsoft’s PR department, lacking any details (read it here).

So just one news channel has followed up the story. There’s a good chance others have made enquiries but simply decided it was no longer newsworthy.

So, no criticism of the Institute intended but, really, What next? Awareness is all well and good but surely the goal is to actually bring about improvements. I don’t have a solution. My only observation is that a big difference between this situation and the Institute’s successful campaign with Ocean Sky is that, in the latter case, they worked with a local partner.

The locals are always going to be more tenacious because when they wake up tomorrow, they have to deal with the situation, whereas end-users in the developed world don’t have to and need reminding.

Cars a risk to life and limb even before assembly

Posted: April 25, 2011 in China
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Worker's hand with missing fingers

One victim of managerial neglect

Last month the Institute for Global Labour and Human Rights (formerly NLRC) published a report, ‘Dirty Parts: Where Lost Fingers Come Cheap’, about Ford’s supply chain in China.

The report focuses on the Yuwei Plastics and Hardware Product Company in Dongguan in the Pearl River Delta, who supply plastic components used by Ford in auto manufacture in Michigan and elsewhere.

The Institute found that workers in this factory work 14 hours a day, 6 days a week for 80 cents an hour.

Furthermore there have been a string of worker injuries for which the workers have been paid similarly little compensation.

Workers receive little or no training.

They do not receive time off if they are injured – in fact they have to compensate their employer for the lost work hours! – and injured workers remain ever after at risk of being fired due to their diminished productivity.

One worker told the researchers:

Life is dull. Basically I get up at 7:30 a.m. in the morning, quickly get ready and go to the factory around 7:45 to eat breakfast and begin working at 8:00 a.m. I operated a punch press machine…I repeated the exact same operation again and again. After the morning shift, I took a nap after lunch. My job was making auto parts. On weekdays, I rarely went out in the evenings. Usually I went to get some cheap midnight snack after work, and went back to the dorm, took a shower, washed my clothes and went to bed, because by that time it was already midnight. Occasionally when it was not busy in the factory, I might go to a nearby bar on weekends to relax with friends. We went to small ones which workers could afford.

That’s a person who made your steering column speaking.

You can tell Ford to get serious about the issue by signing the associated petition for a proper enquiry into conditions at Yuwei.

Responsible investment – great, but how exactly?

Posted: April 11, 2011 in Consumer campaigns
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File depicts image from the official unveiling...

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The number of responsibly-invested adviser-managed portfolios continues to grow. They have been spurred on in recent years by surveys which have found that many of these portfolios outperform the general market and in many cases are ahead of the curve, looking favourably on companies that invest in green technology (for example) many years before it became fashionable.

I have two concerns with the way people use responsible investment. The first is philosophical the second is practical.

From a moral point of view, is it really possible to sign away one’s ethical concerns into a one-size-fits-all investment option? Or do we just have blind faith that our fund managers will have similar ideas to us about what constitutes unethical corporate practices? (or even better ideas – now there’s a thought!) I just suspect that few probing questions are asked by people who tick that box, and must admit I was the same when I signed on for my retirement fund.

The second question is, do those investment funds make any kind of meaningful impact on the way corporations are governed? That is the goal surely?

Paul Hawken of Highwater Global Fund believes the answer is a resounding ‘no!’ The problem he sees is a lack of transparency from the mutual funds, who do not disclose their ratings criteria. He wishes there were more consumer bodies like America’s Consumer Reports or Australia’s Choice who could make detailed evaluations of what exactly the different responsible investment options are offering.

The good news is, one organisation is now seeking to do just this: Global Impact Investment Rating System (GIIRS) will be launching in July. As one director told Institutional Investor Magazine last week:

There’s no use in just letting companies tell their own stories, because they can always just tell the piece of the story they want, and not disclose the rest.

GIIRS is an initiative of B Labs, the same people behind B Corps which rates companies’ impact for consumers’ benefit. GIIRS evaluates companies from an investor’s point of view.

Good on them, I hope it casts some light on the murky business of evaluating what is and isn’t an ethical business practice.

Sources:

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No Dirty Gold campaign making headway

Posted: April 8, 2011 in Consumer campaigns, Natural Resources
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Looking out across the lower half of the Porge...

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“No Dirty Gold” is a project of not-for-profit group Earthworks.

Launched in 2004 it has been strikingly successful in getting jewelers and other retailers to sign on to their ‘Golden Rules’ of responsible gold mining, namely:

  1. Respect basic human rights outlined in international conventions and law
  2. Obtain the free, prior, and informed consent of affected communities.
  3. Respect workers’ rights and labor standards, including safe working conditions
  4. Ensure that operations are not located in areas of armed or militarized conflict
  5. Ensure that projects do not force communities off their lands
  6. Ensure that projects are not located in protected areas, fragile ecosystems, or other areas of high conservation or ecological value
  7. Refrain from dumping mine wastes into the ocean, rivers, lakes, or streams
  8. Ensure that projects do not contaminate water, soil, or air with sulfuric acid drainage or other toxic chemicals
  9. Cover all costs of closing down and cleaning up mine sites
  10. Fully disclose information about social and environmental effects of projects
  11. Allow independent verification of the above

Big news came a couple of weeks ago when Target USA, the nation’s third largest retailer, signed on. Way to go!

Target is the 34th major retailer to pledge support.

Jewelers of America, a national association representing over 10,000 jewelry retailers, has endorsed the campaign’s long term objectives.

No Dirty Gold is the perfect example of a responsibly-conducted labour rights campaign. They aren’t letting up either; Costco is next in their sights.

See also:

  • Dirty Gold (7 Feb 2011) – links to HRW photo essay about the effect of the Porgera Gold Mine on the local community

Action that is more than just Reaction

Posted: March 23, 2011 in Responsible business
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There are those that look at things the way they are, and ask why? … I dream of things that never were, and ask why not?

- Robert Kennedy

Thus far I have written frequently about companies failing in their responsibilities to their workforce in a very direct sense: not paying them enough to get by, or requiring excessive work hours, or failing to provide a safe workplace.

These are the easy problems to spot because their effect is so immediate. Videos, photographs and human stories will find their way out from behind factory gates.

However it is only part of the picture. To use an analogy from physics, it is like the ‘visible matter’ of the universe. There is an even larger mass of ‘dark matter’ – practices that are less than ideal but, because the ideal has never been seen, they are not perceived as a problem in need of a remedy.

One of these is structures that hinder employees themselves from acting in the best interest of the company.

Occupational Health and Safety Committees are an excellent example of employee empowerment for the good of a company. Where these function effectively, employees can raise safety concerns in their workplace without fear of reprisal. Also their concerns cannot be brushed under the carpet but are formalised and must be addressed. Yes in the short term there is a cost in some lost work hours and in purchasing equipment, however the long term benefits are there.

If a workplace does not have a Committee and a preventable accident occurs, chances are that people will see it as just one of those things that happen. Who would think to blame it on the absence of a Committee who could have identified and reduced the risk.

Whistleblowing is an even more dramatic example. Where whistleblower protections exist, companies can be saved from themselves and catastrophic problems averted. Where they don’t, disaster will unfold. People will shrug and say no one person could have prevented it, which may be true but perhaps if lines of communication were kept open it would not be.

This is a different way of perceiving workers rights. It is not a matter of being pushed and then pushing back. Rather it is a case of taking ownership of a situation and seeking to improve it, whether one is an employee, manager or even a shareholder.

Bleached jeans carry high health cost

Posted: March 18, 2011 in Rights around the world
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Great Stencil Bleached jeans (at She's Geeky)

Image by deb roby via Flickr

I was quite unaware of this until reading up about it for this post.

Apparently the bleached jean look is nowadays attained through a process known as sandblasting, which can create exact patterns rather than the overall pre-worn look that was created through stone-washing.

The problem is this. The key ingredient in the sand is silica. When silica becomes suspended in the air during production, it can enter the lungs and cause silicosis. The recommended maximum silica component is 1% and most U.S. factories keep it at 0.5%. However in Turkey (for example) it is as high as 80%.

Silicosis has a similar effect to tuberculosis, preventing a person from breathing. There is no known cure. And it can have an onset after as little as six months in an unfavourable environment.

What a disgrace that people could stand idly by and allow that to continue! All it would take is provision of adequate safety wear.

Clean Clothes Campaign are naming and shaming the companies that either won’t commit to a ban on the practice or have announced a change but done nothing. Their worst offender list includes Benetton, Diesel, Dolce & Gabbana and Versace.

Annoyed? Then send them a message! It’ll only take 20 seconds at most.

You can also read CCC’s full 20-page report on the issue.

CSR statements are easy; sustainable procurement is harder

Posted: February 23, 2011 in China, Responsible business
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Logo of Micro-Star International on a Radeon H...

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As Dell and HP have discovered this month, it’s a lot easier to write a CSR policy than it is to ensure that it is carried through.

Their plight is not uncommon and is the unfortunate result of treating CSR as a public relations function, focused on appearance and not on substance.

To be credible, CSR needs to be built into the operations of a business, which requires a lot of work. Employees need to feel, if they see a shortcoming, that they ‘own’ the CSR platform and are responsible for maintaining standards.

Furthermore it is not easy establishing and maintaining a credible system of supply chain monitoring to ensure that one’s CSR policies are enforced all the way down the line.

MSI is a Taiwanese manufacturer of motherboards and graphics cards. It has numerous factories including one in Shenzhen, on mainland China’s border with Hong Kong. These circuit boards find their way into Dell and HP computers, amongst others.

Between them, Dell and HP currently account for 30% of new computer sales. There’s a good chance you are reading this on one of their computers … I’m typing it on a Dell; a circuitboard from MSI’s Shenzhen factory could well be sitting inside the computer casing next to my foot.

This month the New York based advocacy centre China Labor Watch published a report identifying significant problems at this factory including:

  • Mandatory pregnancy testing
  • Mandatory overtime and unpaid hours
  • Non-processing of leave applications
  • Poor dormitory conditions (e.g. unsanitary bathrooms)
  • Restrictions on access to dormitories
  • Prohibition of all conversation
  • Workers not allowed to use restrooms during work hours
  • Wage deductions for minor noncompliances
  • Bullying and abuse

None of these are conditions that would be tolerated at Dell factories in the USA. Circuit board manufacture has been outsourced to China for cost reasons. However this is not an argument about wage costs, it’s about treatment of workers. It doesn’t cost extra to speak to somebody respectfully. Or to let them use the bathroom, for that matter.

These problems are endemic in factories in the Pearl River Delta. However, as China Labor Watch pointed out, merely accepting it flies in the face of the policies of MSI, Dell and HP.

Dell’s Code of Conduct for example includes commitments that the companydoes not tolerate discrimination, including on the grounds of pregnancy (page 3) and is committed to employee health and safety (page 4). Both Dell and HP have also committed to the Electronics Industry Citizenship Coalition (EICC) Code of Conduct, which forbids deductions from wages as a disciplinary measure.

Not good enough, guys.

Source: Dell, HP, and NEC Supplier Factory Case Study: MSI Computer (Shenzhen) Co., Ltd., China Labor Watch report, February 2011

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