Posts Tagged ‘Corporate Social Responsibility’

English: Bluefin tuna.

English: Bluefin tuna. (Photo credit: Wikipedia)

‘Canning Paradise’ is a 90 minute documentary primarily about the commercial tuna fishing industry being established near the town of Madang in Papua New Guinea, but also more generally about the globalised economy rubbing up against traditional ways of life.

Papua New Guinea recognises traditional land ownership in its Constitution, which is fortunate for traditional villagers as they rarely have formally recognised land titles. This provision makes it difficult for the  Government to appropriate land for development. The film also explores the benefit this has had in preventing PNG from becoming a peasant economy.

The village of Madang is a little different because it was formerly a Catholic mission. A court case found that the Catholic Church owned the village’s land and its surroundings, which it on-sold to the Provincial Government in 1991. The Government has decided to open it for development by establishing a so-called Pacific Marine Industrial Zone (PMIZ). This sounds like it is an export processing zone (EPZ) but it isn’t, it’s a title only, no special laws have been passed to exempt companies in the area from normal laws, which is what happens in EPZs.

The Philippino canning company RD Tuna have set up in the area with a number of fishing vessels. Under the deal, the PNG Government receives only 2-8% of the profits in royalties, which amounts to about $50 million. The tuna ends up in one of RD Tuna’s three brands: Diana, Dolly and Dolores.

The PMIZ has numerous issues, for example its rusty vessels do not meet environmental standards which PNG does not have the resources to police effectively.

RD Tuna also mostly employs flown-in Philippino workers rather than locals. Both the company and the Government support the in-house, company-friendly union. When 500 of the Papuan workers went on strike in 2010 over low wages, wage theft and freedom of association, most of them were sooner or later terminated. It seems that the people of Madang are not destined to share in the bounty being extracted right off their shores.

‘Canning Paradise’ is a well made film: not in the sense of being slick, but in the sense of being true to its subject. It conveys the complexity of this issue in depth, resisting the temptation to propose quick solutions. The interviewees were unanimously of the view that a traditional economy has a value even if it can’t be readily expressed in dollars, but beyond that there was no sense at all of a clear way forward. I guess that’s reality: few problems are capable of having straighforward, elegant solutions like you will see proposed in a 4-minute TED talk.

The DVD is available from Ronin Films.

*Postscript: This is the 150th post on fairforall.org. The site recently received it’s 15,000th visit – thanks for your support!

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Law School

Law School (Photo credit: Tulane Public Relations)

A little over a week ago, the Australian Council of Trade Unions released recommendations for unions to improve their internal governance, primarily in the area of finances. The panel was announced at last year’s tri-ennial Congress as a response to allegations of misuse of union funds at one particular union.

It should be noted that the people involved in this incident have since been charged with fraud so there is no deficiency of regulation. The recommendations propose tightening-up of internal procedures so that it is more difficult for this kind of conduct to take place unseen.

This got me thinking again about the difference between regulatory compliance and ethics.

All laws have the effect of categorising human behaviour as acceptable or unacceptable. The problem is, the real world does not lend itself to tidy distinctions, so laws become more complicated as they define exceptions and then define exceptions to exceptions. Moreover, this process doesn’t take place in a vacuum; as soon as you proscribe one form of misconduct, another will spring up in its place. You could call this the ‘Hydra Effect’.

It’s worth asking what effect, if any, does legislative redress have on people’s sense of right and wrong?

I don’t think there is a hard and fast answer to this but can see three interpretations:

  1. It sends the message that society disapproves of the conduct and thus the law has a normative effect. This may be true in some areas -notably criminal law- but it seems a little naive to believe that law and morality could be so closely correlated in an era when the laws of the state run to thousands of pages. I once attended a defensive driving course where there was a free-for-all discussion about what were the correct road rules in certain situations – everyone was just guessing! (We know what drivers really do when faced with such ambiguous situations: they don’t consult the rule book, they simply fall back on politeness and decide who will give way using hand signals)
  2. Legislation could in some situations have the perverse effect of lowering standards. Take financial regulation for example: most people involved with finances are behaving honestly at the outset. Then, in response to the actions of a few individuals, the law steps in to set a certain benchmark. That benchmark will most likely be lower than people’s personal standards, as it sets only a minimum standard of behaviour. The normative effect of the law makes them ask themselves, ‘Why should I bother? Here is a clear signal that I don’t need to take as much care as I have been’. How many times have you heard someone say, defensively “But we were acting within the law”? Mandatory CSR targets fall into this category, e.g. carbon emissions treaties and ‘Fair Trade’ standards (see earlier post).
  3. You could attempt to sidestep this dilemma by taking a position that law-makers oughtn’t be interested at all in whether or not the law has a normative effect on people, they should simply see it in an instrumental fashion designed to bring about a particular result – or, even more cynically, see it as a way of reacting to public opinion. You might call this the ‘checks and balances’ view. Immigration laws are an example. Stock exchange rules are another: their purpose is simply to avoid certain outcomes and the moral status of human actors involved becomes irrelevant. This view has its place (see post) but if you apply it universally, you will end up ascribing unrealistic levels of responsibility to Governments, as if their mere fiat alone is sufficient to determine what people do in the real world. Or, if you admit that they can’t, then you’d have to advocate allowing individuals completely to follow their own moral lights. That is basically an optimist’s vision of the law of the jungle.

This leaves us between a rock and a hard place. Yes, laws do carry a normative effect but you can’t rely on that alone.

There was a book by Jim Collins a few years back that advocated the use of “Stop Doing” lists. The idea is that more work will always find its way to you, creating the need for an ever-lengthening “To Do” list; so, to be able to stay on top of things you need to discipline yourself to make a list of what you need to stop doing to free up the necessary time.

Legislators and pressure groups, take heed: more law isn’t always the solution. It might help, but of itself it won’t be enough to bring about the intended change.

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Deutsch: Kreuzwinkelständer der Modekette KiK

Deutsch: Kreuzwinkelständer der Modekette KiK (Photo credit: Wikipedia)

A couple of weeks ago we saw the tragic death of at least 250 Pakistani apparel workers in an unregulated factory, the worst such disaster in history.

It later emerged that this factory was supplying garments to the European market including Germany’s KiK.

It also emerged that this very factory was audited by RINA (Registro Italiano Navale Group) at the behest of New York-based Social Accountability International (SAI) just a short while before the fire occurred, and certified as meeting the SA8000 standard as a fair and safe supplier.

SA8000 is a voluntary standard promoted by SAI as a means of ensuring that suppliers are ethical. No one would suggest that it is anything but sincere but this incident makes a mockery of it.

When interviewed by Al Jazeera, SAI’s Executive Director didn’t seem particularly upset or contrite about the incident either:

True, if the deaths were anyone’s fault it was the negligent factory owners (who are now on murder charges). Plus, if you look narrowly at the auditing aspect, it’s more RINA’s fault than SAI’s as they were the people on the ground.

However it really doesn’t rescue SAI. To blame it on RINA is to use the precise defense that suppliers try to use but know they can’t get away with. Imagine if Mattel said that in 2007 when it had the toxic paint problem: “Well, hey, it’s not our supplier, it’s our supplier’s supplier doing the wrong thing, so how are we to know?” If SAI, the supposed leader, can’t monitor their own contractors, how are companies supposed to?

This tragic episode underscores the shortcomings of SA8000. You can’t manage workers’ rights in the same way that you might manage food additive levels or child restraint shock resistance, as something that can be measured and implemented but always imparted. All companies need to do is stand back and listen to what people want (like … ventilation and fire exits, let’s say). It’s not really that difficult.

Asia Monitor Resource Centre recently published a book about this very issue, titled The Reality of Corporate Social Responsibility: Case Studies on the Impact of CSR on Workers in China, South Korea, India and Indonesia. You can download the PDF on their site here: http://www.amrc.org.hk/system/files/Book%20-%20The%20Reality%20of%20CSR%20-%20AMRC.pdf It is well worth checking out.

This book is written by people at the front line thoughout developing Asia and documents how Corporate Social Responsibility (CSR) that reflects the corporate agenda is not only unhelpful to workers in the developing world but is frequently used as a strategy to prevent workers and other community groups from having their place at the table.

In the Asian context, CSR mostly involves activities like adopting villages for what they call a ‘holistic development’, in which they provide medical and sanitation facilities, build school and houses, and helping villagers become self-reliant by teaching them vocational and business skills. Such corporate strategies have been effectively hegemonic, providing a strong legitimacy and license for corporations to sustain the exploitation of human and natural resources. More importantly, it leads people to wrongly assume that the business houses, and not the states, are responsible for citizens’ basic rights to better education, clean water, healthcare, etc. It disciplines the un-informed poor motivating them to behave in ways that make state regulation obsolete, while leaving them at the mercy of market forces. (pp. 2-3)

Rights aren’t something that you can “give” or impart, they are something that you acknowledge. That’s the problem with CSR: it is by definition an after-thought that merely papers over an existing way of doing things without seriously challenging them.

Aftermath

SAI’s mistake was not promoting SA8000, it was disowning this catastrophic system failure. They haven’t made a peep of a suggestion that they need to re-examine their way of doing things.

SAI is funded by the companies that obtain its certification (rather like FairTrade), which leads me to think it will soldier on through the crisis, notwithstanding the harm that’s been done to its reputation.

There is more than one group operating in this space and it’s really important that they aren’t all tarred with the same brush. All up, six groups belong to the Joint Initiative on Corporate Accountability and Workers Rights.

SAI is one. Another, the Fair Labor Association (FLA), was set up during the Clinton administration. It has also been criticised for being too soft on business (they are the company auditing Foxconn).

Of the others, Fair Wear Foundation, Clean Clothes Campaign and the Workers Rights Consortium all put the promotion of union membership and worker consultation and participation front and centre and really need to be lauded for the great work they do in partnership with developing-world worker organisations.

The last, the UK-based Ethical Trading Initiative, seems to adopt a tripartite ILO-type approach which presumes unions’ involvement without pushing it too hard.

The best thing that could come out of this disaster is that FWF, CCC and WRC start getting some phone calls from companies whose motivation isn’t white-washing but who want to know that their suppliers are decent places to work in reality.

Related posts on FairForAll.org:

English: Generic brand cola can from Jewel Com...

English: Generic brand cola can from Jewel Companies (US, 12 oz., 355 ml) (Photo credit: Wikipedia)

A lot of time is spent pressuring brands over their supply chains (though not nearly enough).

People ought to challenge themselves about this: are you just picking on the brands that you see most often: the Apples, the Gaps and the Nikes of the world? What about, in the mundane world of groceries, the supermarkets’ store labels, such as Costco’s Kirkland or Wal-Mart’s Great Value? Ever wonder what conditions those goods are made under?

Perhaps now is a good time to start thinking about this, because store brands are on the march.

In Australia, the two largest retail conglomerates make no secret of their strategy of progressively expanding their store labels at the expense of intermediate producers. Controversially this has included an offer of $1 milk at Coles and $10 jeans at its stablemate Kmart, sourced directly from China.

This could mean greater transparency about producers’ working conditions, since the retailers are themselves responsible for the contract of supply, yet the issue is barely on the radar. When it comes to overseas-made store brand products I rarely if ever hear people voice concern for the people making the goods; the discourse is all about ‘buying local’.

Right now Australia’s Parliament is debating a Bill that would compel companies to reveal whether goods “Made in Australia” are merely canned or batched here or if they are truly made from 100% Australian produce. However the motivation behind the Competition and Consumer Amendment (Australian Food Labelling) Bill 2012 is not to encourage transparency, it’s to encourage local farmer’s markets by “shaming” companies that import food. The Bill’s drafters would prefer that food not be imported at all. Consequently, it contains no provisions for monitoring or reporting (and these people call themselves progressive!)

Store label goods are not intended to draw attention to themselves, and they normally do a good job of it. A rare exception was an IGLHR report published in March which detailed abuses at a Chinese-owned factory in Bangladesh. The researchers somehow uncovered that the factory’s sweaters were being procured by Australia’s Wesfarmers group (owner of Coles Supermarkets and Kmart Australia). It didn’t even break into the mainstream news.

So the more goods on shelves come in these nondescript black-and-white packages, the less we know about them. Unless retailers are forced to disclose the identity of their suppliers, or someone like the IGLHR goes digging for it, all that we have to go by is their CSR statements. These are generic blanket statements covering thousands, possibly tens of thousands of product lines, with no associated checking mechanism. Even with the best intentions in the world, that is a recipe for inaction.

“Trust, but verify”

Voluntary standards are not a top priority in the companies that use them, and even less so when they are invisible to the outside world. Their priority is making money. Someone else needs to check that standards are adhered to. An academic study into the banana supply chain, conducted in 2010, concluded that the competitive pressure to drive down prices is always going to take precedence. It concluded that:

The voluntary labour initiatives in the global banana industry appear to be both driven by and in the interest of business. This is particularly so when there is no mechanism for the relevant worker representatives to monitor compliance of such initiatives (Robinson, p. 562; emphasis added)

Incidentally the opposite holds true as well. In an interview with Australia’s Inside Retail the week before last, the owner of the Gideon Shoes fairtrade shoe company, Matthew Noffs, said:

We haven’t had much support from the big name chains […] I have found the whole industry largely unsupportive (p. 4)

A lot of people like the idea of how [our product] is made but are also very scared, because as soon as you understand how things are really made and if you decide to get serious about it, it changes the way you buy (p. 5)

In other words, faced with the option of stocking a product that puts its commitment to ethical labour front and centre, retailers don’t want to touch it.

What does that tell you?

Sources:

See also:

  • The Battle of Tomato Identities: The Rise of Supermarket Own-Label in Harvey, Quilley & Beynon (2003) Exploring the Tomato: Transformation of Nature, Society and Economy, Edward Elgar Pub., Northhampton, Mass., pp. 174-200

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English: in Chicago, Illinois, USA.

English: in Chicago, Illinois, USA. (Photo credit: Wikipedia)

I’m sorry, Dave. I’m afraid I can’t do that.

-The shipboard computer HAL in 2001: A Space Odyssey

For a while, I worked in the Chicago Loop.

I’d always turn to glance at the impressive Board of Trade building with its Art Deco statue of Ceres, the god of agriculture, dominating LaSalle Street as far as Lincoln Park, at which point the street bends slightly westward.

A short walk away, on the other side of the River, lies the Chicago Mercantile Exchange. In 2007 the two merged and became one company. It’s the largest futures and commodities exchange on the planet.

The prices of oil, wheat, corn, cocoa, copper, tin, oil, tantalum … you name it … are largely set on this exchange, along with the fates of millions of primary producers around the world.

I recently learned something fascinating: the blocks around these two exchanges are starting to bristle with microwave dishes. Trading companies want to know what’s happening in the CME servers those few thousandths of a second faster than their competitors relying on copper-cable based internet connections.

Why? Because today the majority of trading is done by computers, without the input of a human being.

The computer decides to buy or sell based on algorithms, and it does it many many times faster than the guys in the mustard yellow jackets can.

Admittedly, these traders don’t exactly go around touting their moral credentials (see earlier post) but a computer can’t even pretend. Non-monetary values are invisible to it. All that triple bottom line stuff? Not in the program. E-trading programs don’t care, don’t even know that a huge spike in the price of corn is going to take food off tables around the globe.

Bad enough that people have to contend with natural disasters, but this has come about because people have willfully taken their hands off the wheel.

It’s the same story on Wall Street – a similar proportion of company stocks are traded electronically. It’s no surprise that institutional investors fail to exercise their voting rights at AGMs: the real-life people in those companies don’t even know what stocks they are holding and what they are selling. That emphasis on quarterly results at all costs, and the harmful short-term thinking that it engenders, is increasingly being done to appease these ‘robot overlords’. Worse, I don’t hear anyone out there with the stomach to seriously challenge the wisdom of this system.

Fact starts to emulate science fiction.

*Update (3 October): New York Times reports that several other jurisdictions are seeking to rein in high-speed trading. No sign on Wall Street or Chicago’s South Loop however. The article also says that 65% of U.S. stock trades that are performed by computers. Here’s the link: Beyond Wall Street, Curbs on High-Speed Trades Proceed (New York Times, 26 September 2012)

Further reading:

To Buy or Not to Buy

To Buy or Not to Buy (Photo credit: Wikipedia)

In the last month or so we’ve seen a lot of attention given to ‘Say On Pay‘ – the right of shareholders to have a say on executive pay. The fact that this is even contentious is very revealing: it is allegedly the shareholders on whose behalf the managers are acting at all times. It just brings home the reality that a small number of people maximise their own benefit whilst keeping other investors at arms length.

The whole Say On Pay issue is a red herring compared to the more important questions that shareholders ought to be able to ask, but don’t. Even though I agree it’s an abuse of privelige for executives to be skimming that much money out of companies and people only do it because they can, nonetheless I feel activists have let themselves get distracted by this issue instead of worrying about questions that affect many more people, such as: What is this company paying the rest of its workforce?

Other than regulators, shareholders are the only group to whom boards have to account for their decisions, but they don’t ask them to do anything of the sort (boards do their best to ensure it stays this way I might add). Basically we accept that executives will run companies and shareholders will give them money and hope for the best. That’s about as far as their involvement goes.

Way forward?

Ok so what about the shareholders’ proxies, the accountants and bankers? I’ve previously looked at strategies of regulation, corporations bound by charter and consumer pressure to bring corporate behaviour under control in situations where union advocacy is difficult because headquarters and production are located in different countries. From the investing angle, a concept in legal philosophy might help here: the modus vivendi.

The concept has been devised by jurist Iain Benson as a way to resolve problems with pluralism(1). It’s easier to illustrate it in the context of a political disagreement: A law in the state of Victoria requires doctors or other health professionals to assist a person who seeks an abortion regardless of their own views about the matter. To date no one has ever been prosecuted for noncompliance so there remains an uneasy stand-off. Benson uses the term modus vivendi to mean a state of affairs where two points of view are able to coexist without one needing to quash the other.

Now let’s apply this concept to investment. Institutional investors will generally move money wherever it will generate a return. In fact, in Australia, they are obligated to do this and would probably run afoul of regulations if they were to take CSR considerations into account(2) .. not that anyone does. As far as I know, no one has considered allowing financial professionals to recuse themselves from recommending investment in companies whose operations they have ethical issues with. At present, profits trump everything and anyone who thinks otherwise should go work in another industry and that is the legally-sanctioned view(!) Protecting the rights of people in the industry to follow their conscience would be a more easily attainable goal for fans of shareholder democracy.

Notes:

  1. Benson, I. T. (2010) Living Together with Disagreement: Pluralism, the Secular and the Fair Treatment of Beliefs in Canada Today, Camrose, The Chester Ronning Centre
  2. Superannuation Industry (Supervision) Act 1993 (Cth), s. 62(1)

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Revision June 2015:

In the original version of this post I used same-sex marriage as an example of the modus vivendi. The argument went as follows:

In Canada same-sex marriage is now legal yet many Canadians continue to believe that marriage should only be marriage between a man and a woman. Benson argues that the state, if it is to be truly neutral on the issue, has to accommodate them and make arrangements that do not forcibly compromise people who hold such beliefs. He says problems of pluralism only arise when one viewpoint tries to dominate everyone’s understanding of a contested matter. So, for example, civil marriage registrars should be entitled to recuse themselves from registering same-sex marriages if it is contrary to their beliefs.

On reflection, I don’t believe that is defensible as an example. A civil marriage registrar’s job is to certify that people have met the requirements for a civil marriage as defined by the state. That person’s religious views about the nature of marriage are simply not relevant to this task. The registrar is not being asked to attest that the couple before them are married in the eyes of his or her religion. If you think about it, the same people who might seek to be recused from registering same-sex marriages should already have sought this privilege with respect to second marriages (which, I’m pretty confident in saying, never happens).

I would have just tweeted this video link but it needs a little explanation.

Here is yet another example of supply chain water-muddying. I’m guessing you’ve never heard of Perfect Gem & Pearl Manufactury Company [sic]. They are a Hong Kong-based jewellery wholesaler, exporting worldwide.

This video tells the story of several employees from the company’s factory across the border in Huizhou, Guangdong, who contracted silicosis due to inadequate health and safety protections. A group of their family members travel to the company’s headquarters in 2005 to confront them about it. Their case was pursued by advocacy group China Labour Bulletin and each of the families received about US $40,000 in compensation.

Who knows how many thousands more receive no such assistance!

(If you want to skip right to it, this section of the video begins at 1:28)

Video credit: Asia Monitor Resource Centre

Story source:

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