Global Policy Forum

Mallen Baker

2002 was a year that inherited a good many rumbles from the previous year. The full implications of the corporate governance debacles of Enron and Worldcom were still working their way through the system, but awareness was high that all the rules had changed. The only thing people didn't know was just how far, or how quickly, things would go.

Individuals were called to account through the year, and many articles and enquiries opined about the long term implications for business in general, and corporate social responsibility in particular. Easy comments that Enron - which had maintained a profile of socially responsible community involvement - discredited the CSR movement gave way to a better considered understanding of the breadth of the elements that made up a responsible business.

Integrity, ethics and corporate governance had to be the complementary characteristics that supported business programmes to improve impact on society. Either without the other gave a false picture. This was a lesson that emerged from the speeches and articles of business leaders and legislators through the year.

There were echoes of other issues as well. The animal research company Huntingdon Life Sciences, which had found salvation in the arms of US investors following a protracted and often violent campaign in the UK, had its chief US backer pull out after the campaigners moved their focus to the US. The company looked as though it would disappear at the end of 2001 - brought down by the unwillingness of any of its backers to stand up to the violence and intimidation of the extremists. But in the event, the company has limped through 2002 and still survives.

Firestone was still reeling from the fall-out of the major tyre recall that had been forced upon it during the acrimonious dispute with Ford over safety performance. Although the lack of a united front clearly damaged both companies during 2001, Ford showed that its far-reaching and expensive action to initiate a wider recall helped to reinstate the consumer's trust much more quickly than its supplier - who was perceived to fight the action from beginning to end. 2002 was the year that Firestone - and its Japanese parent Bridgestone - felt the pain.

In Japan, the roll-call of corporate crises continued, with Snow Brand back in the news again, following the exposure of its Snow Brand Foods subsidiary's falsification of beef labelling to benefit from government subsidies. The crisis quickly led to a boycott of its products fuelled by widespread consumer disgust at the company's actions, and the subsidiary very quickly collapsed altogether.

Nippon Ham quickly followed, with a similar scandal, topped by Tepco which was caught out falsifying safety records at one of its nuclear power plants.

The California Public Employees' Retirement System (Calpers) caused a significant ripple with its decision to pull out of certain parts of the world where it said there were ethical concerns. Indonesia, Malaysia, the Philippines and Thailand were removed from the portfolio. Although considered to be one of the largest and most influential schemes in the US, the action was not widely emulated. Indeed, Calpers came in for quite a bit of criticism for the move.

When it came to lawsuits, one dominated the business pages through much of the year, which was the Microsoft antitrust action. In the event, the company managed to sidestep the more radical remedies pitched and to emerge relatively unscathed with all but reputation intact. Rumbles continued though, with the European Union considering action, and a strong suspicion from some of the company's corporate clients that it remained an effective monopoly.

Then there was the Saipan lawsuit, which saw Gap temporarily cast as the villain of the piece when it sought to block a number of garment companies from settling in the suit alleging sweatshop conditions in their factories. Gap disputed that the suit had any substance, and was determined to face it down. In the event, after some considerable time, the settlement was reached with the companies admitting no fault.

Silliest suit of the year was probably that brought by Exxon against Greenpeace and other campaigners for their use of the 'E$$O' satirical logo. The company claimed that the modified logo could lead to confusion with the Nazi 'SS' symbol - a contention that was given fairly short shrift.

Most far-reaching lawsuit remains the Kasky-Nike affair in California. The day after this newsletter goes out, we will hear whether the company's appeal to the Supreme Court will be heard. The potential impact of the case on companies' willingness to be transparent about their work on social responsibility is significant.

Legislators pondered whether there should be more regulation to require social responsibility - and mostly held back. The European Commission produced its thinking on CSR and signalled that it had generally accepted the argument that CSR needed to be based on voluntary action. Not everyone agreed, and France brought into being legislation to require CSR reporting. The UK saw campaigners draft a bill to do something similar there, but the government was largely unmoved.

George Bush discovered corporate responsibility post-Enron, and oversaw the creation of legislation in the US to require higher standards of corporate governance, whilst missing many of the essential messages businesses have already embraced within the CSR movement. The higher profile this brought helped to keep the issues high on the agenda and to put pressure in particular on CEOs to raise their game.

One of the early indications that the rules have changed came when discontent over executive pay exploded into the limelight, reaching into areas previously unheard of. In the US, Jack Welch - who was seen as the consummate successful performer - was vilified for the staggering size of the remuneration and benefits he continued to receive from GE - appearing to break for the first time America's conviction that the rewards for great success could have no limit. In the UK, the successful and admired Lord Browne endured a turbulent AGM where his £6m pay package came under serious attack from various quarters. Ironically, even the shine of success was tarnished by the end of the year as the company was forced to downgrade its financial forecasts several times in a row.

At least he managed to hold onto his deal. GlaxoSmithKline found itself in hot water when they proposed a huge increase for CEO Jean-Pierre Garnier. This was harder to sell as a success story, given that GSK's performance had been poor during the year. In the event, sufficient investors pitched into the outraged groundswell that the company backtracked - at least for the time being. Their argument, of course, had been that the increase brought them into line with US-based competitors. Critics attacked the benchmarking approach by which, they said, executives who all wanted to be in the upper quartile of pay pushed each others remuneration through the roof.

This was the year that Talisman Energy, having denied for some time the rumours that it was about to sell its controversial stake in the Sudan ... sold its controversial stake in the Sudan. Having produced its first CSR report in 2001 focusing specifically on why it was more socially responsible to stay, it finally gave up and went, leaving the field open - it said - for less concerned companies.

One company that had a very good year all things considered was British American Tobacco. BAT managed to confound some of its severest critics by releasing the first social and environmental report from the tobacco industry - one that more stringently followed the emerging standards than any other. The company managed to strongly challenge the notion that there can never be a socially responsible tobacco company by displaying serious intent. The mixed reviews it received showed its success - coverage would normally be universally hostile. And the inclusion of the company in the Dow Jones Sustainability Index was the icing on the cake. Needless to say, if BAT continues its progress there will be more interesting controversy to come.

Then came the Earth Summit. Ten years on from Rio the initial hopes and expectations seemed a very long way away, and we were left with a carnival of interests that managed to live down to the extremely low expectations everyone had of them. The World Business Council for Sustainable Development managed to show business to be one of the most effective players there, following a forward-looking solutions-based agenda. This was all too much for some of the NGOs, who suggested that the business presence at the summit was plain inappropriate and somehow showed that the agenda had been hijacked. However, alternatives to an approach including business around the table seemed to be in short supply.

In Africa, the most serious crisis of the moment is that of HIV/AIDS. 2002 was the year when the debacle of the pharmaceutical industry taking the South African government to court began to fade, and the new story was of companies operating in South Africa who were rising to the challenge of directly supporting their own workers in the face of a deadly epidemic. Old Mutual, AngloGold and Anglo American were all early movers who said that they would pay for antiretroviral drugs for their employees.

Within the CSR world itself, various of the main standards and guidelines were updated. At the start of the year, SA8000 underwent a revision, which brought in the addition of homeworkers to be covered under the scope of the standard. Accountability launched AA1000S - the first of an intended series of standards based on the accountability framework. The Global Reporting Initiative guidelines were updated, prompting a number of reflections both here and elsewhere as to whether it was fully on track with the challenges that social reporters face.

Overall, 2002 saw more companies reporting their CSR performance than ever before. It saw some real issues around corporate governance and integrity that have a long way to run before they're settled. And it could well in retrospect be seen as the turning point where the citizenship of companies became an indisputable requirement of a licence to operate.