Archive for the ‘Corporate Social Responsibility’ Category

The Death of Alien torts ?

Monday, November 1st, 2010

  By Charles Wanguhu

The Alien Tort Claims Act was adopted in 1789 as part of the original Judiciary Act. The Alien Tort Claims Act (ATCA) allows foreign victims of human rights abuses to sue perpetrators in United States courts. In a recent development in Kiobel v. Royal Dutch Shell, the the 2nd U.S. Circuit Court of Appeals rejected outright the theory that corporations can be held liable in the United States under the Alien Tort Statute for violations of international law in foreign countries.

The doctrine was essential in holding corporation to account and one of the judges in the case Pierre Leval indicated in his opinion  that the judgment :

deals a substantial blow to international law and its undertaking to protect fundamental human rights.”

In a case in the 9th U.S. Circuit Court of Appeals  Sarei v. Rio Tinto the court appeared to sidestep the more complex legal issues by suggesting that the parties in the ten-year-old lawsuit mediate their dispute. 

The ramifications of the judgment in the 2nd circuit are yet to be felt as its decision directly conflicts with previous jurisprudence allowing claims against corporations under the Alien Tort Statute.

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Ethical investing vs. Shareholder activism

Wednesday, February 17th, 2010

By Charles Wanguhu

 

Churches are once again taking the lead in ethical investing. A short while ago I wrote about the catholic church pulling out of a fund which was found to have investments in defense, contraception and other companies contrary to the catholic faith. Consequently the Church of England has sold its £3.8 million stake in Vedanta Resources, the mining group accused of mistreating indigenous tribes in India, in protest at the London-listed company’s record on human rights. In carrying out this action the church expressed displeasure in the operations of the company and the unlikelihood of the company changing the way it runs its operations.

However one thing that sticks out in this saga is the time that it took the church to come to the decision to pull out its investment in Vedanta resources. The church had earlier claimed that it remained an investor because it was attempting to persuade Vedanta of the error of its ways.

The latter statement brings to fore the arguments against and for Ethical investments Vis a Vis Shareholder activism. One side of the argument is that by taking the action of divesting form the company the church lost its leverage against the company and ability to make a difference from within the company.

In some schools of though shareholder activism is a more effective way of changing companies operations as internal pressure(read voting rights in meetings) and directors duty to shareholders is a statutory requirement. The duty of a company to its other stakeholders is loosely defined with the exception of criminal actions.

However the flip side to the argument is that continued investment in the company increases the reputational risk of its investors. With the shareholders being intrinsically linked to the companies’ actions, the investor risks being the subject of protests against company actions and in some instances are easier targets than the companies. The reputational risk therefore is sometimes considered a greater factor when determining investments than the more idealistic shareholder activism.

The church of England has a rich history of ethical investing policy and in the case Harries v. Church Commissioners for England, [1991] Ch. 1990; [1992] 1 W.L.R. 1241 members of the church sought to ensure that commissioners handling funds of the church would not only act in financial consideration and would consider their Christian faith even if it involved a risk of financial detriment. While the case was unsuccessful in declarations sought I served to showcase an increased level of fiduciary duty of the trustees of the Church of England’s funds.

So really what is the better option?? Shareholder activism or a primary focus on Ethical investing?

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Kit Kat Goes Fair Trade In the UK

Wednesday, December 16th, 2009

By: Ainsley Brown

cocoa“Gimme a break, gimme a break, break me off a piece of that Kit Kat bar,” has taken on a new meaning in the UK as Kit Kat ‘breaks off’ some cash cocoa to farmers.

Nestlé, the Swiss makers of Kit Kat, has announced that the very tasty chocolate snack as of mid-January will become a Fair Trade product. The £ 1,060 minimum price per tonne of cocoa will target farmers in the Ivory Coast where Nestlé get most of its cocoa from. Nestlé also plans to spend £65 million over the next 10 years to improve farming communities in the Ivory Coast. Additionally, Nestlé also plans to continue its programme of giving framers cocoa plants, many of which have reach or are close to their 30 year life cycle.

This will be welcomed news not only in the Ivory Coast, which supplies 43% of the world’s cocoa, but also to all players in the cocoa market, after cocoa reached a 30 year high this year. The sharp increase is the result of a combination of factors including the bloody civil war fought in the Ivory Coast between 2002- 2003, poor weather, disease, under-investment and poor management of coca cultivations.kit katkit katkit

No word on when Fair Trade Kit Kat will hit the North American markets – hopefully soon.

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The not so ethical investments

Wednesday, August 5th, 2009

By Charles Wanguhu

Financial institutions offering Ethical investment in practice exclude companies with interests in armaments, oppressive regimes, nuclear power, tobacco, vivisection, gambling, alcohol and pornography. Environmental (and ethical) investments also aim to invest in companies with positive effects on the environment. Characteristics of such companies include but are not limited to: socially responsible, environmentally conscious companies, and equal opportunity employers.

With the above in mind what recourse would an ethical investor have on discovery that their funds were being deposited in a manner that did not conform to their moral expectations.

 A roman Catholic Bank in Germany was forced to offer an apology after a newspaper discovered that it had acquired stocks in defense, tobacco and birth control companies.

Der Spiegel newspaper discovered the bank had invested 580,000 euros in British arms company BAE Systems.   The bank also invested 160,000 euros in American birth control pill maker Wyeth. The Catholic Church abhors contraception and the Pope has been vocal in re-emphasising this stance. The anti-contraception stance has been present since 1968 and the current Pope Benedict XVI has not faltered on this stance.

What remedies would an investor have: Sue for breach of contract? Report for false advertising? And in light of the latter in the event the investments were actually profitable what would the investor do with the unethical returns?

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Shell & The elephant in the room

Tuesday, June 9th, 2009


By Charles Wanguhu

A report by the Economist Intelligence Unit indicates that protecting a firm’s reputation is the most important and difficult task facing corporations. With the development of global media and communication channels, managing reputational damage is seen as crucial with events undertaken in even the remotest areas affecting the international brand of a corporation.

For Shell the stark reality of reputational damage is all too clear. After years and years of denial and expressing its innocence of the Ogoni affair (it still maintains its innocence), Shell has decided to settle a case brought against it out of court for a sum of 15.5 Million US $. The lawsuit had accused the company of colluding with Nigeria’s former military regime over the execution of Ken Saro-Wiwa and other peaceful anti-oil protesters.

Like Nike before it Shell remains in many minds as the poster child of a lack of corporate responsibility especially in big multinationals. The Saro Wiwa case is largely sited not only in commercial classrooms but across NGO conferences worldwide. Multinationals are viewed as bulldozing their way with the help of corrupt and dictatorial regimes to fulfill their interests with complete disregard to vulnerable communities.

The perception of Shell as the irresponsible corporate persists despite the fact that it has invested millions in engaging communities in areas that it works in and has increasingly taken on human rights in its business models and stakeholder engagement strategies.

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In response to the case filed Malcolm Brinded, Shell’s executive director for exploration and production, was quoted,

“While we were prepared to go to court to clear our name, we believe the right way forward is to focus on the future for Ogoni people, which is important for peace and stability in the region.”

The settlement could be seen as a magnanimous move by Shell in some quarters with some already hailing the move as groundbreaking in terms of holding corporations accountable. However when looked at broadly the settlement will be seen as a coup for Shells PR team: instead of having weeks, months or even years of a contested trial where Shells actions or lack of thereof would be once again stirred up in everyone’s mind globally, a quick settlement offers a quick escape route.

All in all $15.5Million may well be considered a bargain when factoring in legal costs, reputation risks and lost revenue. There could well have been some champagne popped at Shell HQs but am sure downstairs in the legal department the wait is on with baited breath to see whether the floodgates have been open.

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THE GROWING NEED FOR EXPANDED CORPORATE REPORTING

Tuesday, June 2nd, 2009

This article is reproduces with the permission of the author and can be found on AccountancySA (South Africa´s leading Accountancy Journal).

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There is no doubt that the world we knew before the global economic meltdown will not return. The causes of the meltdown will not disappear, and lurking behind them is another set of even more fundamental issues facing humanity.

The often quoted Chinese curse – ‘may you live in interesting times’ has never been more relevant than it is today.

Humankind has enormous environmental and social challenges facing it. We can no longer ignore them. The impact of the sustainability threats is affecting business more and more each day. Not only do businesses have to adapt their strategies and their way of doing business, they also have to adapt their way of reporting. No longer is it sufficient to report only on their financial performance to shareholders and potential investors. Today companies have a range of stakeholders that have vital interests in the activities of the organisation, and they expect companies to provide a range of information about the company. Indeed, the notion of a company being a corporate citizen has become a reality in recent years, and that has highlighted responsibilities and obligations for companies. Companies operate in communities, they consume scarce resources and they produce waste. All of which impact society and, therefore, society needs information about how companies are dealing with the related responsibilities and obligations.

There are various names given to such reporting, but the two most commonly used are ‘Corporate Social Responsibility’ (CSR) reporting and ‘sustainability reporting’, which are broadly the same thing. In the past, CSR often referred to the philanthropic activities of a company and some people still see it as that, but in reality CSR reporting has become a much broader concept and an essential element of reporting, and it will no doubt become a legal requirement in the not too distant future.

There are a number of codes and reporting frameworks around, but most companies that do prepare sustainability reports use the Global Reporting Initiative (GRI) Guidelines, which may be downloaded from the GRI website at http://www.globalreporting.org/Home . A KPMG Survey[1] published in 2008 shows that 77% of reporting companies use the GRI Guidelines.

The GRI sees sustainability reporting as the practice of measuring, disclosing, and being accountable to internal and external stakeholders for organisational performance towards the goal of sustainable development.

Globally, sustainability reporting is increasing rapidly according to the KPMG Survey. It noted that over 80% of the world’s largest 250 companies (G250) now produce sustainability reports. The Survey, which covered 22 countries, revealed that a rising number of companies are producing sustainability reports. On average, 45% of the top 100 companies in the surveyed countries produce sustainability reports; Japan and the United Kingdom lead the table at 93% and 91% respectively; South Africa is some way behind at 45%, but it is one of the leaders in integrating the sustainability report into the annual report.

The recently published draft King Code says:
‘By issuing integrated sustainability reports, a company increases the trust and confidence of its stakeholders and the legitimacy of its operations. It can increase the company’s business opportunities and improve its risk management. By issuing an integrated sustainability report, internally a company evaluates its ethics, fundamental values, and governance and externally, improves the trust and confidence which stakeholders have in it.’

Whilst the GRI Guidelines are fast becoming the standard for sustainability reporting, there are many other voluntary guides and even legal requirements that are relevant to sustainability reporting. Some industries, such as the mining and chemical industries, have developed codes and guides. The Carbon Disclosure Project has developed standard disclosures relating to climate change information and particularly greenhouse gas emissions. In South Africa there is the King II Report and recently a draft King III Code was released. In addition, there are disclosure requirements in terms of the Broad-based Black Economic Empowerment legislation.

The GRI guidelines suggest that a sustainability report should provide a balanced and reasonable representation of the sustainability performance of a reporting organisation – including both positive and negative issues. However, there is always a temptation for companies to tell only the good news so that the organisation can be seen in the best light. Indeed, some companies use the sustainability report as a public relations document. This is known as ‘green washing’ and it can backfire horribly. In the US there are magazines and websites that constantly look for cases of green washing so that they can be exposed.

Sustainability reporting is not something to be taken lightly. It covers many areas on which companies have not traditionally focused and on which they certainly have not reported. In addition, many companies do not have adequate information systems to generate the necessary information, so they and end up making only vague statements, which are not helpful. A fundamental aspect of the exercise is to engage with a wide range of stakeholders to ascertain what the stakeholders see as important. Their views will not necessarily align with the views of management, since some of the areas highlighted by external stakeholders may be sensitive to the company. However, companies that deal with sensitive issues are likely to improve credibility ratings over those that ignore them or gloss over them.

The KPMG Survey suggests, ‘Understanding the way a company impacts the economic, environmental and social circumstances of its stakeholders, and vice versa, is at the heart of corporate responsibility. In order to develop a proactive, strategic approach, and a workable management and reporting system that will help change circumstances for the better for all parties, stakeholders should be part of the process. Identifying and prioritising stakeholders, and being transparent about which groups and individuals a company is engaging with, is a key part of building credibility and trust.’

Producing sustainability reports requires a great deal of planning, and an infrastructure that can generate the necessary information. It is also essential that top management is intimately involved in the process. It becomes very apparent when reading sustainability reports if a company has not embedded sustainability into its strategy and operations. In those circumstances, the report can do more harm than good.

As with any published information the credibility of the information is enhanced if it has some form of supporting assurance. The GRI guidelines outline different assurance models ranging from self-assurance to assurance by certification bodies and assurance by accountancy firms. Such assurance, however, can be costly, since the areas covered are not necessarily part of a normal audit. The KPMG Survey shows an increasing number of companies moving to an enhanced assurance model. In 2008, 70% of the G250 used accountancy firms to provide assurance.

Given the growing importance of sustainability reporting in organisations, SAICA has decided to develop a sustainability reporting course, which has been certified by the GRI. The two-day course outlines the principles of sustainability reporting and teaches participants how to go about planning for and implementing the processes to develop a sustainability report.

Chartered Accountants have been slow to embrace sustainability. This is unfortunate as it offers many business opportunities. The big danger, however, is if we do not embrace it we will rapidly lose relevance, and other professionals will usurp much of our ground. One area, amongst many, where Chartered Accountants should become involved is sustainability reporting. That is why SAICA is offering this training course.

[1] International Survey of Corporate Social Responsibility – 2008.

Graham Terry CA(SA), is the Head: Office of the Executive President, SAICA.
Published in AccountancySA – June issue – http://www.accountancysa.org.za/resources/ShowItemArticle.asp?ArticleId=1681&Issue=1076

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Corruption and Banking

Wednesday, April 29th, 2009

29th April 2009

By Charles Wanguhu

Corruption only offers two instances for regulators to step in: at the looting stage where the individuals may seek bribes, dispose of public resources or subvert funds. In an ideal world they are then charged and any monies returned. The second stage is at the laundering stage, where the monies are placed into the financial system either by depositing in a bank or placing in the capital markets. The regulators can step in and require full disclosure of means in which the wealth was acquired. The latter stage is also referred to as the recovery stage. Beyond the two instances it is usually assumed a lost cause as the actual tracing and recovery of assets is rendered almost impossible with the ease at which monies can move from jurisdiction to jurisdiction in the modern global economy.

The banker

Corruption and Banking are two intrinsically linked activities as proceeds from corruption inevitably are laundered into the financial system. In a new report Undue Diligence Global Witness, the human rights and environmental campaign group has accused some of the world’s largest banks including HSBC, Barclay’s among others of complicity or facilitation of corruption. The report available here goes on to blame the Banks action for the looting of revenues from some of the worlds poorest people and condemning them to poverty.

The Looting and Laundering (L&L) is viewed as one of the major challenges in regulation of the banking industry not only in developing countries but also the developed world. Banks have for long under the guise of secrecy laws refused to disclose their account holders and the monies held in many accounts in the many varied tax havens.

The report goes on to give examples of siblings of corrupt leaders who have been able to circumvent the sanctions placed on their parents by opening varied accounts in various capitals and used the same to launder their ill gotten wealth.

In the current financial crisis and for the immediate future it seems that bankers continue to be the favourite pet hate and at every turn we are reminded of their pocketing a quick buck with disregard to any morals.

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UK Oil Company Accused Of Trying To Buy Witnesses

Tuesday, April 7th, 2009

By: Ainsley Brown

It is situations like these that simply go to fuel the general public distain for multinational. I guess the one positive thing that comes out of this and other similar situations is that it provides ample material for Michael Moore- esque films – just great entertainment. Despite the entertainment value of such films they often depict the dire circumstances that many people find themselves in as a result of a multinational’s operations – legal and illegal.

And this where Trafigura comes in. The London based multinational oil company stand accused of trying to buy, that is to say, trying to get some witness-claimants to change their stories about a toxic spill in the Ivory Coast. According to the Times they apparently succeeded in one case.

The lawyer for Trafigura freely admitted that their client had contact with the witnesses but argued that such contact was permitted in exceptional circumstance; which this clearly was. Mr. Justice Jack sitting in the High Court was having none of it. He granted the 31,000 Ivory Coast claimants a temporary injunction prohibiting Trafigura from having “any communications, by whatever means, with any claimant.” This was of course subject to very specific exceptions: where the claimants’ lawyer agrees; where an expert examines a claimant on the directions of the court; and where an independent translator assists the expert.

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Is tax the new area of concern for Corporate Social Responsibility?

Tuesday, March 17th, 2009

By Charles Wanguhu

In early 90’s Nike suffered a huge backlash from the revelations of child labour in use in its factories abroad there was a drive to ensure that clothing was environmentally sound. In early 2000 a push for carbon footprint labelling ensured that the consumer was conscious of the effect of their consumption habits on the climate.

In 2009 after a guardian expose there has been uproar on tax evasion by the big Corporations. The Corporations through the use of extensive webs of subsidiaries in tax havens have managed to create a near zero tax liability status in their country of operations. The guardian describes it as “the triumph of technical proficiency over social responsibility”.

It is likely to spark the age old debate about whether a corporation’s main point of existence is the creation of shareholder value. If that point of view is to be accepted the lesser tax paid to the government then assumingly a higher dividend or return is then passed on to the shareholder.

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In response, the corporates argue that in strictly legal terms they are not breaking the law or involving themselves in an illegality. In this instance should the regulator then be blamed for the tax avoidance and how can the regulator keep abreast of all new avoidance schemes when at the moment they stand at close to 200 known schemes. The corporate social responsibility debate has been largely pushed forward by the moralist argument rather than the strict legalistic interpretation of the corporate duties to society.

A corporation like all legal persons has a responsibility to pay taxes and in turn the government to provide services at an acceptable threshold. In the instance of the Johnny walker brand while the more valuable royalties earned were moved from England to Holland (which had a zero rating tax on IP rights) while the production largely remained in England. Therefore in one swoop a huge tax gap is imposed on England tax offices. The tax gap has then to be filled by the low income and small businesses who are unable to hire the services of the lawyers, accountant and consultants that dream up these schemes.

A new incentive similar to the carbon footprint labelling of food has been initiated See more at tax ticked, it in effect aims to reward good corporate citizenship.

If successful the focus will then return to all round good corporate citizenship as opposed to charitable acts which is easily negated by tax evasion.

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Glaxo Proposes Patent Pool

Monday, February 23rd, 2009

By: Ainsley Brown

The world’s second largest drug maker, GlaxoSmithKline has proposed a voluntary patent pool for drug makers. The pool is intended to kick start the development of new treatments for neglected diseases such as malaria and cholera. By proposing and making its own patents available to third party researchers, Glaxo will be providing opportunities, “that might otherwise not happen,” says its CEO Andrew Witty.

Now it will be up to the other drug makers to follow suit and expand the pool as much as possible.

Additionally, Glaxo also announced that it will invest 20% of its profits made in least developed countries towards building healthcare clinics and other infrastructure in those countries.

All around: well done Glaxo, well done.

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