Monthly Archives: September 2007

Mirror, mirror on the wall ……..

…………………..who is the most corrupt of all?

 

Well, the annual Transparency International Corruption Percpetion Index was released today and I can reveal the top 6 least, and bottom 6 most corrupt countries in the world are:

 

TI Top 6 07 TI Bottom 6 07

This is a well respected index based on the percpetion of business people and country analysts.

 

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Governance is not Government.

I picked up a copy of Robert Reich’s new book, Supercapitalism, last week in the US. In it he argues for the banishment of CSR in favour of better regulation. He claims that the push for better corporate governance makes corporations less likely to be socially responsible. This morning I read Dennis Howlett’s post: ‘Does Governance mean a thing?

Are we at a point where the unfettered excesses of some corporate executives has created enough public disgust that will turn into punitive legislation? I doubt it.

I think both Reich’s book and Dennis’ post share a whiff of mischief.  

Reich has always argued in the past that CSR is about the externalities. Specifically he has argued CSR is about proactively identifying the externalities that pose the greatest risk to intrude into the enterprise and become much more serious internalities if left to hang. Similarly, George Soros, arguably the world’s highest value philanthropist, in his book Open Society argues that businesses should adopt CSR to the extent that doing so reduces risk and therefore improves shareholder value. But in objecting to the enterprise culture of Asda, Sainsburys, Morrisons, Tesco and Safeways Dennis seems to be confusing the role of corporate governance and the role of government.

In Supercapitalism Reich says that improved corporate governance makes businesses less socially responsible as it underlines the supremacy of shareholders over other societal stakeholders. Implicit here is that what is good for society is bad for shareholders and that CSR only constitutes philanthropy – both of which is tosh.

Our society and the dynamics of CSR can be explained within a triangulate between business, civil society and government and the battleground is over the coverage of externalities. If you don’t like the enterprise culture of Tesco then it really is an issue for the government to decide whether choice, quality, convenience and low prices are to offset the social and environmental issues associated with long supply chains and the overshadowing of local businesses. But the ambivalence about this is clear …. no one seems to be holding up their hand to vote to banish these businesses. And even if the government is actually unwilling to act, civil society is drawing strength to fill the vacuum – some are willing to operationalise solutions with business such as WWF, others hold firm on ideology. It’s a dynamic social situation and I don’t think anyone is quite clear how long or if the centre will hold. It is a topsy turvy world and strange bedfellows are emerging: in today’s FT you can read how Wal Mart is now mandating that all their suppliers report their carbon footprint. As I wrote, last week on Wal Mart, love them or hate them they are becoming a potent force for setting de facto social and environmental standards in concert with civil society even whilst government regulators snooze. What’s more they are clearly doing this in the interests of shareholder value.

I still argue that CSR & GRC is in the definite interests of shareholder value if applied intelligently towards external issues that pose risk to the sustainability of the enterprise but it does not replace the role of government. Corporate governance is not corporate government.

Can the software industry close the CSR ratings gap?

Last week the socially responsible investment community equivalent of the Oscars – the annual review of the Dow Jones Sustainability Index (DJSI) was unveiled and for the first time SAP has taken the lead in CSR performance for the software sector. It’s certainly a cause for celebration but maybe it’s more an occasion for Sekt than Cristal. Although the software industry is closing ground, it still lags the technology sector and the DJSI overall.

On the surface of it this seems counter intuitive. Surely if there is one industry naturally disposed to sustainability it ought to be the software industry. I am bias, but I can imagine no other industry that has done more to harness and multiply the human intellect for the benefit of the many. It is ubiquitous, part of every aspect of your life from sun up to sun down, always there making stuff work better, cheaper, faster with the least amount of resources. It enables and empowers both the individual and the collective. Software has been instrumental to global economic development for decades and arguably our expanding global economy and it’s connectivity could not flourish without  it. Admittedly it’s easy to overlook how software contributes to quality of life but try to imagine your life without it. Software has  also been an important enabler of civil society – how could the press, NGO’s, pressure groups and private citizens today  possibly do without software as a tool to enable them to be the much needed watchdogs over government and business? 

So why the apparent disconnect on sustainability? I think there are two major reasons. From the outside in, without a traditional physical manufacturing supply chain and distribution system it is less obvious how to assess the sector’s overall contribution to and impact on global sustainability nor is it necessarily easy to measure progress over time. And because software leads on innovation it takes time for society to understand the implications of new technology so societal judgment remains in perpetual suspension.

From the inside out it is equally difficult to see how and where to engage and perhaps we suffer a complacency to assume the industry is on the side of the angels, delivering only solutions and not problems. That is not to say that the industry does not appreciate the impact of technology on society and there are certainly issues of real concern such as access, security and privacy well recognised. But it is more difficult in the software industry to incrementally measure progress on these issues in the way one can measure a reduced physical impact of a retailers supply chain or the rate of generation of alternative energy sources. These issues can also constitute real flip side social dilemmas such as privacy v transparency, access v security which can make easy non financial metrics just a bit more elusive.

So what to do? The industry needs to catch up with the broader corporate community, prepare CSR reports to GRI standards of non financial reporting and have them assured for materiality to societal stakeholders. How do we find out what is materially important to society? We need to come out from behind the firewall and dialgoue in a meaningful way with concerned stakeholders not just about what is important to us but also about what is important to them.  We can begin to make these connections on CSR now starting with the tools we know best in web 2.0. Hugh MacLeod has shown how easy it can be to start these conversations with his blue monster concept. How about industry vendor CSR blogs? It’s not as if we can say we don’t have the bandwidth.

I think the prevailing perception as reflected in indices such as the DJSI, fair or not, will soon change. The need to co-innovate, to collaborate and communicate in an increasingly community based industry will drive more openness, understanding, dialogue and public accountability in the software sector. The new generation of millennial workers, digital natives as they are, will not least demand this of us either as users, employees or both. The spirit of social media and web 2.0 will be a powerful force to push the software industry out of the shadows on CSR and the industry wil be all be the better for it.

 

Would you live in a Black Box?

I was really inspired by all that cool design stuff from Stuttgart over at Vendorprisey this week so I’m getting on that train for a bit. This whole topic caught my eye at Triple Pundit.

Sun Microsystems were looking for design concept for portable data centre that is also efficient to cool and is made of recylable materials. Answer: the BlackBox project – a data centre in used cargo containers. It’s certainly portable, cheap to cool and is recycled.

Blackbox

 But why stop there, why not live in one too? Treehugger is showing off some racy designs for used containers.

 

Container 2

I wonder ……….

You are the supply chain

I was inspired if only by the title of this recent Economist Free Exchange blog. I often think of supply chain as a B to B concept when, of course, the supply chain exists solely for the final link – you and me. But how much responsibility do we take for our consumption and the associated externalities when we forage for bargains? In my opinion, I think we are OK with the low prices so long as the externalities along the supply chain stay hidden. €2 for a T-shirt? Great. €10 for a camera? Even better, just don’t ask any questions.

Occasionally, reality comes crashing in and we hear the stories of sweat shops, safety & quality issues, not least recently from China. Thankfully, we have quality standards such as SA8000 to assure supply chain ethics and more and more businesses are adopting such. But what of the carbon externalities? Who should be responsible for this cost? If you look at carbon from the point of view of the nation state then indeed the statistics are damning for BRIC countries. China’s incremental annual growth in energy consumption equates to roughly the entire energy requirements for the state of California for one year. If the UK just shut down energy production right now, the diverted capacity would only keep China going for three weeks.

So what is China doing with all this energy? They are busy making stuff mostly for you and me. If you take a view of carbon accounting from the point of view of the end consumer and you allocate carbon in this manner the statistics would again clearly show that it is the developed world’s consumption that is causing the lion’s share of Green House Gas emissions.

So who should act? I felt a little humbled by an article in the September 3, FT about how the Chinese government has announced a campaign to ask citizens to reduce personal energy consumption. The campaign goes so far as to suggest that indulgence in the local tipple, baijiu, should be limited to a half litre a month in order to save 0.88 kg of carbon per person. Civil servants have been saddled with pay related eco efficiency KPI’s. It also stretches credulity to suggest that clothes might be washed only once a month. Of course this campaign is doomed, because the fact is energy in China is consumed overwhelmingly in the industrial sector by the people busy making stuff for export. Still we cannot but acknowledge that the government is at least engaged.

Today’s FT has a remarkable feature on the greening of Wal Mart. It turns out lobbyists are now flocking to Bentonville rather than Washington to try to influence Wal Mart’s environmental supply chain standards which apparently is now a more potent force in the economy than government regulation. Voluntary compliance it seems is here to stay as an important factor for supply chain efficiency as well as risk and reputation management. According to Kert Davies of Greenpeace, USA:

‘We spend a lot energy trying to get giant corporations to move an inch and here we have the biggest corporation of them all shooting for the same targets. ……… They’re acting as we would act, .. to get full carbon accounting even before it is required by regulation.   …. I love that they just go for it’

The flip side of this is that Wal Mart may eclipse the role of government and split the environment lobby between those who believe Wal Mart’s standards are too low and illegitimate and those who are grateful for incremental progress. I am with the latter opinion. This is a remarkable turn of events and the way is clear for anyone, competitor or regulator to raise standards further beyond Wal Mart’s voluntary action.

So it seems to me the responsibility is reaching down the supply chain finally to you and I. Tesco too has promised carbon labeling. So when you go to the supermarket with your weekly budget of not just money but also a fair personal carbon allocation of the carbon we can afford to emit, what will you choose to buy?

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The Terror of Live TV

I must admit I sometimes get confused about this myself. Is it talk first then think or is it the other way around? 

 

Socially Responsible Investment

The week got off to a good start with news from Oekom, one of the most influential CSR ratings agency in Europe, that SAP has been selected for the Hanover Stock Exchange Global Challenges Index. The index is made up of only fifty constituents from a global pool of companies and the twist is that the company must not only have a prime rating but must also be doing something extra to meet big global challenges such HIV, poverty, corruption etc. For quite a few years SAP has supported anti-corruption efforts including a peer review process set up in Nigeria by Soji Apampa and supporting development of Transparency International Business Principles for Countering Bribery programme. SAP is also listed on the FTSE4Good and Dow Jones Sustainability Index.  

To be really honest, I have mixed feelings about the effectiveness of socially responsible investing alone as an agent for change. I’m still more comfortable with politicians rather than markets making social policy decisions. In the past socially responsible investing (SRI) focused maybe too much on one size fits all thresholds: do you have a code of conduct? Yes. Tick box. When activist SRI investors did engage directly they quickly found themselves at odds with the mainstream crowd. A few years ago I had lunch with the Head of Investor Relations for a well known extractive player with a great reputation for CSR. He told me of a surreal situation at an investor roundtable in NY when one SRI player tried to assert influence saying:

‘I have a €2 bn holding in your company and I am demanding a comprehensive human rights impact statement for your pipeline/plant in development’.

He said he would consider it and on to the next participant for their question:

‘I have a €50 bn holding in your company and I demand that you ignore the points raised in the previous question’.  

Today there seems to be a growing trend towards a more integrated approach of risk analysis focusing on the most material environment, social and governance (ESG) factors. I am a particular fan of the Responsible Engagament Overlay (REO) approach of F&C Asset Management headed up by Karina Litvack. This team is putting out really useful analysis. In July Goldman Sachs launch it’s GS Sustain Index and this lengthy report makes for really interesting reading. The bottom line conclusion is that generalised, unapplied CSR for CSR sake does not add shareholder value. However, if CSR means a better understanding of the material ESG factors and is applied within the context of the corporate strategy towards both risk and opportunity then it certainly does add significant value.  

I welcome this convergence between core corporate governance and social responsibility. Standards such as DJSI, FTSE4Good and Global Challenges represent screens for a small but growing part of the investment market. Their major contribution has been to educate investors and businesses and lead us towards a better understanding of broader governance, risk and compliance responsibilites. A sign of their success is the mainstreaming we are now starting to see.

Now for the light relief. Have a look at this video from the people at Triple Bottom Line. It makes a powerful point for what SRI is all about. You have been warned!  

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