MARKET FOCUS: CSR: beyond lip service

Paul Cordasco finds social impact becoming a bigger corporate barometer.

Paul Cordasco finds social impact becoming a bigger corporate barometer.

In November, Chiquita Brands, one of the world's largest producers and distributors of fresh and processed fruit, announced that workers in its Colombian, Guatemalan, and Honduran facilities had not received adequate safety training. Chiquita also revealed that several women in Guatemala said they had been sexually harassed at its premises, and that some workers in Panama had not been enrolled in the social security system. These voluntary disclosures and many others are available to the general public in the company's second annual Corporate Responsibility Report. The Chiquita report also listed several environmental and labor goals the company had achieved, others it was on schedule to achieve, and some that now seemed unattainable in the previously allotted time frame. "This is about being honest about what we have achieved, what we want to achieve, and where we might have come up a bit short," says Michael Mitchell, a spokesman for Chiquita. "We want to make it clear that this is not a PR exercise, at least not in the dirty sense of that phrase." Companies get candid In the past several years, there has been a movement in corporate America to become more transparent about facets of business beyond just the financials. "In the past, we'd see these reports and they wouldn't really say very much beyond a general 'Hey, we care' message from a company," says Chris Deri, SVP of Edelman's CSR group. "Now it's much more of an empirical approach. Companies are being very candid, stating goals and strategies in a very public way." The new era of transparency is part of an offshoot movement in CSR that's been dubbed "sustainability." Sustainability proponents argue that companies that are consistently indifferent to their impact on the environment and its various stakeholder - such as employees and customers - are threatening their own long-term sustainability. Chiquita's report, while bold, is not atypical. Many multinational corporations, including Dow Chemical, McDonald's, DuPont, and Ford Motor, have published similarly candid disclosures about their businesses' impact. "Companies today realize that for these reports to valuable, they must be candid," says John Paluszek, senior counsel at Ketchum. "This must be a real 'warts and all' exercise. It has to have admissions of difficulties - perhaps even failures and dilemmas - for it to be taken seriously." Perhaps the most interesting aspect of the growth in CSR reporting has been how the general media has pretty much ignored the phenomenon. But most say those looking for media kudos are missing the point. "Smart companies are not doing this for media relations purposes, but for stakeholders," says Carol Cone, CEO of Cone, a PR firm that advises companies on CSR-related issues. "We always tell our clients not to do this for media relations purposes." Indeed, seeking CSR-related publicity has proven to have pitfalls for some. In May 2000, Ford shocked many when it admitted that its most recent cash cow, the sports utility vehicle, was an environmentally unfriendly gas-guzzler that posed dangers to passengers in smaller cars. The startling admission came via the company's first ever "corporate citizenship report." The media seemed very impressed with the candor of the 98-page report, which included scathing attacks published by some of the company's harshest critics. The effort even earned Ford mild praise from environmentalists. The attention gave the company's scion chairman William Clay Ford a platform to continue to promote his budding image as a "green" executive. He seemed to welcome the attention, and was eager to explain the report's candor, which was somewhat groundbreaking at the time. "That's the risk in being transparent - it highlights things in the past that we'd rather not highlight," said Ford at the time. In its 2001 report, Ford followed up on its SUV honesty with a declaration that grappling with greenhouse gas emissions was among its greatest corporate challenges. The company was also on track to show some progress on many of its environmental initiatives. Yet when 2002 came around, Ford found itself in a very different situation. Months of discount sales to consumers via its 0% financing had buffeted the company's financials. After posting a $5 billion loss in 2001, the company's ability to devote significant resources to getting greener was significantly impaired. In May, the company announced its CSR report would be delayed two months. The Sierra Club, which had previously praised William Ford, began to publicly criticize him as an environmentalist poseur. When Ford finally released its report, it announced that its environmental initiatives would now take a back seat as the company grappled with its financial woes. The story became one of the most widely reported CSR stories of 2002. "Like any situation, expectations need to be managed," says John Clarke, managing partner at Burson-Marsteller. "And as soon as you make a public statement or put it in writing, people will hold you to it. You can't just say what people want to hear. It's a quick way to find your head on the chopping block." CSR has even developed its own nomenclature. Since most reporting now deals with three areas of core interest (environmental, social, and financial performance), it is now referred to as triple-bottom-line reporting. Where CSR was once defined by community outreach and philanthropic efforts, candid reporting and demonstrable progress on sustainability initiatives is emerging as an important new benchmark for corporate reputation. Although the US continues to trail the European Union on sustainability and CSR initiatives, many feel that the reporting trend will continue to spread as US-based multinationals find the international expectations on CSR are much higher than they are at home. "Key stakeholders demand more than they used to from companies," says Clarke. "Nowadays, that is part of doing business, so don't necessarily expect a pat on the back for it." It's about more than money In recent years, a new crop of investors that evaluate companies on a triple-bottom-line basis has sprung up. These investors believe that a company's long-term viability should be linked to more than just short-term financial performance. "For us, this is about investment and what drives value to the bottom line, not some 'feel good, do good' exercise," says Tim Lankford, president of Sustainable Asset Management USA, an investment adviser that invests in companies based largely on sustainability factors. "I think companies have grown wise about how this kind of transparency helps their reputation in the marketplace." But more traditional investors are not necessarily true believers. "For the most part, many investors still require some convincing that our CSR efforts have a real return on investment," says Chiquita's Mitchell. "Our initiatives have required significant investment, and it's not always easy to point quickly to tangible results that everyone can understand." Although CSR and sustainability reporting remains something that is still largely the domain of corporate behemoths, some say corporate America will be entering a defining period in the next few years. "We see CSR a bit like customer service was in the early 1970s," says Clarke. "At that time, there were a few enlightened people who realized that if they didn't improve their customer service their business would suffer. CSR is at that stage now. You either get with the program, or you're going to disappear." --------- Kasky vs. Nike: A monkey wrench in the CSR works A recent ruling by the California Supreme Court against athletic apparel giant Nike could pose the biggest threat to CSR and sustainability reporting. Nike has long stood accused of using sweatshop-type labor overseas to manufacture its athletic gear. To rebut this criticism, Nike employed former United Nations ambassador Andrew Young to conduct an analysis of its facilities. Young subsequently produced a report that called the labor charges "largely false." Nike then embarked on a PR campaign to publicize Young's findings. Not long after, activist Marc Kasky sued Nike, claiming the study was fraudulent. California trial and appeals courts initially dismissed the suit on First Amendment grounds, ruling Nike's free-speech rights took precedence over whether its assertions were accurate. However, in a stunning reversal in July 2002, a divided California Supreme Court ruled 4-3 that Nike's efforts were not protected by the First Amendment because they should be classified as commercial speech. The court found that Nike "made representations of fact about [its] business operations for the purposes of promoting sales of its products." Nike sounded an alarmist note after the ruling, saying it will have an "extraordinary chilling effect" on corporate speech. The company later said it would no longer publicly distribute its CSR reports. While the ruling itself addressed a PR campaign orchestrated by Nike, some have suggested that the ruling is a big threat to the future of CSR reporting. They claim that if CSR reports are classified as commercial speech, companies will be less willing to produce in-depth CSR statements, which could be vulnerable to similar scrutiny. "There's no question that everyone in the CSR space is paying a great deal of attention to this," says Chris Deri, SVP of Edelman's CSR group. "A lot of companies are going to ask themselves - and rightly so - 'Why should we open ourselves up to this kind of scrutiny for just doing the right thing? Is this really worth it?'" Nike's petition for an appeal is currently before the US Supreme Court. Experts say that a Supreme Court ruling in the case could have tremendous implications for the future of CSR. "If the Supreme Court decides to take this case and the current ruling stands, it will put companies in a real bind," says Bradley Googins, executive director of The Center for Citizenship at Boston College. "On one hand, if a company will be held liable for every word it utters, it's more likely to choose not to report. However, that would also seem to put companies in another tough spot because if they pull away from reporting, they'll give the appearance of hiding and ducking. So this is going to be a very important case - no question about it."

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