Corporate Executives See the Writing on the Wall

Corporate executives have come to accept that greater government regulation is likely. Some embrace it because they believe it is right. Others, like a boxer facing off against a punishing opponent, would rather embrace it than be socked by it.

A national survey last month of senior executives by the Chicago-based accounting firm Grant Thornton LLP, found both (1) strong support (by 72 percent of respondents) for more environmental regulation of companies, and (2) strong expectation (by 70 percent of respondents) that this regulation will happen within the next five years. More than half of the respondents, 56 percent, supported more workplace regulation (human rights and labor practices), but a smaller percentage expect it to happen. Only 35 percent believe the government should regulate companies regarding their impact on the communities in which they operate.

Of the respondents, 68 percent also expect more environmental responsibility reporting requirements in the next five years, while 35 percent believe the same will be true for social responsibility (workplace) reporting. Only 29 percent currently produce some kind of corporate responsibility report and more than half (55 percent) say they have no plans to produce such a report, despite believing such reports will in time be required!

These results suggest that corporate executives are acutely aware of the context within which they work and favor government intervention in certain areas. The views revealed by the survey may reflect the reality that environmental issues are very much in the forefront of political debate and that a consensus is building for a more active stance for the government. Jim Maurer, Managing Partner of Grant Thornton's Consumer and Industrial Products practice, says that if there is to be more regulation, most executives "want to be sitting at the table deciding what the parameters of that regulation should be."

A different survey, of UK opinion leaders, by Chatsworth Communications was reported last month by Edie as concluding that one-fourth of respondents believe companies pursue green policies to protect their reputation, with one-fifth saying these initiatives result from consumer pressure and good business sense. Only 1 percent said they believed genuine concern for the environment was the main motivation for companies becoming more environmentally friendly. Although Brits tend to be more sceptical and critical of corporations than Americans, it's clear why corporate executives on either side of the Atlantic might believe more regulation is on its way.

Pepsico's Food Opportunity

With a reorganization behind it, Purchase, NY-based Pepsico, starting in FY 08, may be able to do more with its largest single division, its Americas food operations. They account for 45 percent of the company's revenues, half again more than its beverage units in the Americas region, and is headed up by John Compton. The division has reduces the environmental impact on local communities of its Frito-Lay factories, which is terrific for the workers and the community.

Now it would be wonderful if the oligopoly power that Pepsico has, with the long reach of its vending machines into our institutions, is used to give us more choices. This is a good CSR goal and one that would benefit me personally because I am scheduled to teach from 6 to 9 pm many evenings and the vending machines all belong to Pepsico. Rarely is there time at the break to go farther than the nearest vending machine if I have not had anything to eat before class. But the vending machine offerings do not cater to professors seeking to stay away from salt, processed sugar or anything fried. How hard would it be to include raisin-and-nuts packages (what the Dutch call "student oats" and the Germans "studentenfutter" or-"student fodder")?

CSR Issues Relating to Subprime Loan Losses

As the subprime loan losses mount up, the CSR issues relate to where markets failed and what can now be done proactively by the financial sector (and government officials) to reassure the investing public. The S&L crisis of the 1980s was largely a regulatory issue, with losses confined to the S&Ls themselves and to U.S. taxpayers who paid for restoration of stability to the industry. But a substantial percentage of subprime prime loan losses seem to have been exported overseas. Subprime loans are hiding in collateralized debt obligations (CDOs) salted away in many overseas institutions. Deutsche Bank AG, Credit Suisse Group and HSBC have all recently written off substantial subprime losses. This problem is therefore not confined to the United States and the solution may need to be global. The stock prices of Barclays and the Royal Bank of Scotland have fallen sharply on rumors that they will have to take large losses, with Sanford Bernstein projecting last week that the two banks would have to write off $4.4 billion in subprime losses. Barclays today denied that it was seriously affected by subprime loan losses and its stock price recovered somewhat, along with that of RBS. But investor confidence in both Barclays and the RBS, which earlier were fighting over control over ABN Amro Holding NV (RBS's team won), remains weak, with their price-earnings multiples in the range of 6 to 7 whereas the average for European banking institutions is 10.

Basic Standards for Laggard Companies

The Ethical Corporation has a comment on laggard companies to which I would like to add my own. The focus of much CSR commentary and debate is over the leaders, who are carving out and paying for new levels of compliance with higher standards of environmental care, workplace quality, fair trade or the reporting thereon.

Activist groups tend to focus on the leading brands because the media are more interested. If you have a problem with "blood diamonds, for example, go after the leading jewelry companies. This is common sense, because the best-known brands make better headlines.

However, there is a danger in the focus remaining solely on the top brands' raising their standards or their level of enforcement even higher to respond to activists' publicity about conditions in subcontractors' facilities.

The danger is that for the bulk of the industry, there is no pressure to improve conditions.

That is why I believe there should be at least two levels of CSR performance - one to be applied to any company in the industry and a higher standard for companies that wish to be leaders.

This is the approach being taken by the Council for Responsible Jewellery Practices, which is putting pressure on companies throughout the industry ("from mining to retail") to adhere to minimum standards, while some companies are seeking to comply with higher standards in the environmental or workplace areas.

The debate has gone on too long about whether standards should be higher or lower. It seems to me that both ends of the spectrum deserve attention: (1) High-end multi-stakeholder CSR standards, with rigorous monitoring and full reporting, and (2) Basic standards enforced on the "laggards" by each industry, because it's right and because if the industry is not careful the laggards could have a major negative effect on the industry.

The scary poster for encouraging industry-wide initiatives is what happened to the fur industry.