Strategic CSR - SBTi

Over the summer, I don't know if you caught the backtracking by the Science Based Targets Initiative (SBTi) in terms of carbon credits. The article in the first url below summarizes the surprising policy shift:

"SBTi, whose blessing confers important credibility on corporate net zero plans, appeared to have reversed its stance on a controversial issue. The April 9 press release from its board said companies could use carbon credits to offset so-called Scope 3 emissions from their supply chains, an approach some scientists have warned could jeopardize the fight against global warming."

While staff initially thought the announcement was "a hoax," and removed it from the organization's website, they were shocked to discover it was both real and the result of a lengthy process characterized by conflict-of-interest issues among senior leaders:

"… interviews with current and former employees, as well as other people familiar with the decision, reveal how the seeds of the policy change were sown over the past year. According to them, things started to shift when SBTi went from being a collaboration of three non-governmental organizations and the United Nations to an independent entity governed by a board of trustees that included several people who want to grow the offsets market."

This is concerning because SBTi had become an important voice in the sustainability debate, having "validated the climate plans of more than 5,000 companies, from Apple Inc. to Volkswagen AG":

"SBTi's position has long been that companies should prioritize reducing emissions across their whole supply chain, and only use credits to offset the tiny amount that is impossible to cut. While some experts have lauded that rigorous approach, many corporate figures, and even some climate activists, have berated SBTi for being inflexible and acting as an impediment to helping critical funds reach developing countries."

It is refreshing to see there has been some backlash to this weakening of standards from industry. This is captured in the article in the second url below, which highlights resistance from H&M (a company not exactly known for its sustainability practices, given its role in promoting fast fashion):

"In a letter to the Science Based Targets initiative's board of trustees, Leyla Ertur, H&M's head of sustainability, said the company was concerned about the possibility of companies using carbon offsets to lower their overall carbon emissions by purchasing credits for carbon removal projects, saying that action should be taken by companies within their value chains to reduce greenhouse gas emissions."

Even better, H&M made their argument based on a foundation of the value of science:

"Ertur added that it also would represent a move away from 'a robust scientific foundation and a governance structure that allows for transparent and independent science-based standards, [which] would undermine principles that we believe are fundamental for real climate action.'"

Shortly after this story garnered headlines critical of the organization over the summer, SBTi's CEO resigned.

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (6e)

© Sage Publications, 2023

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler6e 

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The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

Carbon credit chaos

By Alastair Marsh

May 29, 2024

Bloomberg

https://www.bloomberg.com/news/articles/2024-05-29/inside-the-sbti-scope-3-scandal-how-the-group-is-rethinking-carbon-offsets

H&M Comes Out Against Carbon Offset Plan From Climate Targets Group

By Yusuf Khan

June 15, 2023

The Wall Street Journal

https://www.wsj.com/articles/h-m-comes-out-against-carbon-offset-plan-from-climate-targets-group-538c21df

 

Strategic CSR - Artwash

The article in the url below reviews an art show at MoMA, the Museum of Modern Art in New York City. Specifically, the show is titled Automania and studies the car as a piece of art; it is up until January 2022:

"In 1974 Andy Warhol bought himself a two-tone Rolls-Royce Silver Shadow — brown roof, black doors — custom-ordered from London. It didn't matter that Warhol had no driver's license. For some a car is more than a vehicle, and in 'Automania,' the Museum of Modern Art's engine-revving summer show, the automobile appears as an art object all its own."

For the art critic writing the review, however, while he can appreciate the show's artistic elements, he takes issue with its timing given the current discussion around the car and, more specifically, its fuel source:

"Of course it's the cars that are the main attraction of 'Automania.' Although, in a week when the Intergovernmental Panel on Climate Change confirmed that 'warming from anthropogenic emissions from the pre-industrial period to the present will persist for centuries to millennia,' a show devoted to the personal motorcar feels a bit like one devoted to lethal poisons."

The author's favorite car in the show (1 of only 9 cars actually on display) is the VW Beetle:

"If, however, you asked me which auto says the most about the culture of its time and ours, it's the VW Beetle, parked upstairs, where it's shown with a 1950s film reel from the assembly line. Properly called the Type 1 Sedan, the small, aerodynamic 'people's car,' designed by Ferdinand Porsche in 1938, responded to Adolf Hitler's challenge to German industry to develop an inexpensive ride for a family of four. It would become, after the war, the world's best-selling car, and a motor – quite literally – of West Germany's economic miracle."

But, this reflection causes the author to take MoMA to task for its long-standing relationship with VW:

"In a wall panel the curators mention the Beetle's 'inglorious origins,' though there is more recent VW unpleasantness this show and catalog do not discuss. Over the last decade, MoMA has enjoyed more than a million dollars in support each year from Volkswagen – a company that admitted to equipping 11 million cars with illegal software to cheat emissions testing, and then lying to investigators about the scheme."

Specifically:

"While one VW division was violating the Clean Air Act, another was putting its name on MoMA programming that would boost its civic credentials — notably 'Expo 1: New York,' at MoMA PS1, a Volkswagen-funded ecological showcase from 2013 that in retrospect looks like an egregious act of greenwashing. 'Volkswagen is das Auto, and MoMA is das Museum,' Martin Winterkorn, then its chief executive, said pithily in 2015. He is now facing criminal charges in the U.S. and Germany, though he has long contended that he was unaware of any wrongdoing."

The point, of course, resembles the criticism that has been levelled at the Sackler family (and the museums that have gratefully taken their donations) for their stewardship of Purdue Pharma (and the opioid crisis in the U.S.). The author digs deeper:

"Yet even after one of the largest corporate and environmental scandals in history, Volkswagen's American subsidiary remains MoMA's 'lead partner of education.' It supports PS1's public programming, which took place for nearly a decade in a Volkswagen-branded geodesic dome (finally retiring it in 2020). The museum has a traineeship program known as the VW Fellows, who appear in Volkswagen promotional materials and even get to visit the car plant in Wolfsburg. And Volkswagen of America underwrote the restoration of the Beetle in 'Automania,' which the museum initially acquired in 2002."

But, it is MoMA's attempt to justify its ongoing relationship with VW that pushes the author to refer to a term I had not seen before – artwashing:

"And really, this might all be so much inside-philanthropy, except that the organizers of 'Automania' explicitly discuss polluters' interest in art in the catalog and the museum's online magazine. In both, Kinchin writes about the corporate practice of 'artwashing, a by now well-established branding strategy practiced by the polluting fossil fuel industry.' The curator singles out Shell, which commissioned English artists to make posters of the bucolic English countryside; it also mentions Mobil, whose art philanthropy in the 1970s and 1980s was the subject of Hans Haacke's institutional critique, and recent demonstrations against BP's sponsorship of London museums."

It is the hypocrisy that grates the most:

"For MoMA to criticize Shell, Mobil and BP for 'artwashing,' and then to ignore the criminal polluters still supporting its own museum, takes a real brass neck."

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

At MoMA, Love of Cars Cuts Two Ways

By Jason Farago

August 13, 2021

The New York Times

Late Edition – Final

C11

https://www.nytimes.com/2021/08/12/arts/design/automania-moma-review.html

Strategic CSR - EVs

I was always aware that simple statements around the 'obvious benefits' of electrical vehicles (EVs) were obscuring a much more complex reality (where EVs are ultimately more beneficial for the environment, but not immediately so). The interactive article in the url below provides some data to support that position:

"Carmakers including General Motors Co. and Volkswagen AG are retooling their companies to make electric vehicles on the premise that their battery-powered motors are cleaner than gas-burning engines. Are EVs really better for the environment, though? A close look at all the factors shows they are—but it's a complex answer with some asterisks."

In order to answer this question, there are a number of factors that need to be taken into account:

"The environmental cost of a car includes both building it and fueling it. That means factoring in emissions associated with oil drilling and power plant smokestacks, as well as from mining metals such as nickel and cobalt that are needed for electric-car batteries."

In short, right off the production line:

"Building both a Tesla Model 3 and a Toyota RAV4 generates several tons of greenhouse gas emissions to smelt the aluminum, manufacture the components and assemble the vehicle. But building a Tesla actually generates more emissions because of the metals needed for its lithium-ion battery. Before it rolls off the assembly line, the Tesla has generated 65% more emissions than the RAV4."

After a few thousand miles, however, the Tesla begins to catch-up:

"The RAV4 burns gasoline, which is refined from crude oil extracted from wells around the world. At 5,000 miles, the RAV4 also needs its first motor oil change. The Tesla refills with electricity, and doesn't need motor oil changes. Generating electricity creates emissions, but the U.S. grid is getting cleaner each year, burning less coal and using more renewables and natural gas."

The study concludes that it is only after being driven for 20,600 miles that the Tesla becomes the more sustainable option:

"For every mile driven, generating the electricity for the Tesla emits 34% of the emissions associated with making and burning the gasoline consumed in the RAV4 engine. At 20,600 miles, the greenhouse gas emissions from building and driving the two cars are roughly the same. … Then the Tesla pulls ahead."

Finally, after what the article refers to as "the lifespan of a typical car," the Tesla far outshines the RAV4:

"By the time we get to 200,000 miles, ... Building and operating the RAV4 has generated 78 tons of greenhouse gases. The Model 3 has generated less than half: 36 tons. The Model 3 also comes out ahead in Consumer Reports's total cost of ownership, at $49,800 to $51,000."

 

So, according to this study, the Tesla is not only the overall better environmental option than the RAV4, but is also more cost-effective. Presumably, this comparison would be even more favorable for the Tesla if the other car was larger and heavier than a RAV4. The study also goes on to examine what would happen in four different scenarios in terms of the speed in which that transition occurs for all cars currently on U.S. roads ("more than 280 million light-duty vehicles"). Perhaps not surprisingly, the most effective results come when multiple complementary policy changes are made with the common goal of reducing our carbon footprint:

 

"No matter what kind of engines they run on, cars add to greenhouse gas emissions. But the data show that switching from gas to electric vehicles will make a huge impact. Consumers making individual choices between cars will make a difference. So will policy decisions made by governments and investments by companies as we drive into the future."

Take care

David

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

Are Electric Cars Better for the Environment?

By Russell Gold, Jessica Kuronen and Elbert Wang

March 23, 2021

The Wall Street Journal

Late Edition – Final

A8

https://www.wsj.com/graphics/are-electric-cars-really-better-for-the-environment/

 

Strategic CSR - ECOs

For my dissertation, I studied the adoption and implementation of the Ethics & Compliance Officer (ECO) position in the US. As I learned more about the ECO, I became aware of the historical evolution of the title. Firms used to have separate Ethics Officers (EO) and Compliance Officers (CO); the ECO was, among other things, an attempt to combine the two roles, but the different identities (and historically different responsibilities) were difficult to shake. As a result, when I went to ECO conferences, I kept running into sessions that debated the relative value of each role, what responsibilities fall under which 'branch' and, of course, which should be dominant within the ECO (ethics or compliance). In short, what I learned is that the compliance function is more external facing, working out the rules and what the firm has to do to comply with them, while the ethics function is more internal, putting in place the policies and practices that, ideally, avoid the need for compliance. For example, if the purpose of the Foreign Corrupt Practices Act (FCPA) is to prevent US firms from paying bribes to overseas government officials, the role of the CO is to communicate to employees what constitutes bribery, what payments are ok and what are not, etc. The role of the EO, in contrast, is to build an ethical culture within the firm so that it becomes second nature to employees that they operate ethically at all times (and do not bribe). The difference also mirrors more of a European regulatory system, which tends to be more principles-based (general guidance in terms of what needs to be done to achieve/avoid a specific outcome) and therefore relates more to the EO position, as opposed to a US regulatory system, which tends to be more rules-based (specific actions that are allowed/prohibited) and therefore relates more to the CO position. The article in the url below highlights this tension by debating the relative merits of each:

 

"Companies that rely on rules to ensure employees do what they are supposed to can find themselves on the wrong end of a reputational problem. Witness, for example, what happened to United Airlines Inc. when its employees followed the rules to forcibly remove a paid and seated passenger from a flight. United and other examples from the worlds of technology, financial services and automobiles—Uber Technologies Inc., Wells Fargo & Co., Volkswagen AG all come to mind—offer a reminder to all companies to look at their own ethics and compliance policies to make sure they reflect the messages and culture the company wants, according to ethics and compliance firm LRN."

 

While a rules-based system is more specific and, in some cases, easier to enforce, it also encourages behavior that is inflexible or seeks to bend the rules or find ways around them once they are clearly understood. A principles-based approach, on the other hand, promotes flexibility in search of the ultimate goal (which is emphasized), rather than the means of achieving it (which is not):

 

"Smart companies understand that foisting a series of rules upon workers won't necessarily result in employees acting more ethically or engaging in less misconduct, said Susan Divers, a senior adviser at LRN. Better for them to structure their ethics and compliance programs to get employees to consider the ethical implications of the decisions they make before they make them, and to take actions that lead to a stronger workplace culture and improved company performance, she said. … While a company needs rules and regulations, Ms. Divers said they don't really work as a motivator or as a guide for how to behave. "Most companies' policies are a nightmare, they're almost impossible to understand if you are not a lawyer," she said. "Most don't say, 'We would like you to always behave ethically, in the right manner, even if it is not mandated by law.'"

 

In short, the article is arguing for a greater emphasis on the 'E' in the ECO position.

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (4e)

© Sage Publications, 2017

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/ 

 

 

Rules Aren't Enough to Foster Ethical Behavior

By Ben DiPietro

October 4, 2017

The Wall Street Journal

https://blogs.wsj.com/riskandcompliance/2017/10/04/the-morning-risk-report-rules-arent-enough-to-foster-ethical-behavior/

 

Strategic CSR - Double standards

An important challenge for CSR advocates is to understand why we might employ different values at home and at work:

 

"'I know I should be bothered but I just can't be,' said a colleague recently as they threw some paper towards the bin, 'it's weird really because at home we're fastidious about recycling and all that … but at work I just don't bother.' In one sentence highlighting how hard it can be to encourage employees to be as environmentally friendly in the workplace as they are in their own homes."

 

Why is one behavior at home and in the family unacceptable (e.g., lying or creating waste), yet 'deception' and 'pollution' have long been a part of business practice? The list of companies where such 'unacceptable' behavior is not only sanctioned, but rewarded or incentivized, is long (e.g., Wells Fargo, VW, BP, etc.). The article in the url below presents an interesting take on this issue – unfortunately, as with many things with humans it seems, our behavior is explained by following the money:

 

"… research confirms that employees act worse at work because they don't have a financial interest (most don't even know the energy spend of their organisation), equipment is often shared so there can be a lack of responsibility and employees can't control many of the elements that could make a difference to energy and resources use, such as heating or lighting."

 

As such, solving the problem appears to rest in explicitly demonstrating a self-interest in choosing one behavior over another:

 

"A London council, for example, tackled printing by showing that if every employee used one less sheet of paper a day it saved paper equivalent to the height of a local landmark."

 

In an organization, however, in order for the individual to feel motivated to act in the best interests of the collective, there has to be a sense that everyone is in it together. Because such a culture is difficult to create and often depends on executives leading by example, there is significant variance – among firms, certainly, but even within firms:

 

"… employee environmental behaviours differ between organisation types (private versus public) and even between sites and buildings of the same organisations. Each may have its own constraints in terms of infrastructure, social norms or managerial expectations. Research has found behaviour may even vary during different times of the day or week because of employee's emotional state, job satisfaction or ability to complete work goals."

 

As with any kind of culture, it is hard to align everyone's interests in a way that persuades us there is value in thinking first of the group, rather than the individual.

 

"There is no one solution to encouraging pro-environmental behaviour, but leadership is a key issue and without managers demonstrating their commitment, staff are unlikely to follow suit. [Firms] must also understand the barriers to sustainable behaviour for employees and what might motivate them to make different choices. This can be as simple as making sure that there are enough recycling bins or setting up computer systems effectively so employees can work remotely."

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (4e)

© Sage Publications, 2017

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

 

 

'I just can't be bothered': why people are greener at home than in the office

By Victoria Wells.

May 20, 2016

The Guardian

http://www.theguardian.com/sustainable-business/2016/may/20/green-home-office-environmental-leadership

 

Strategic CSR - Ethics and compliance

The field of ethics and compliance has long been conflicted. This is demonstrated in the range of titles assigned to people responsible for ethics/compliance in organizations – are they Ethics Officers or Compliance Officers or Ethics and Compliance Officers (or any of the other myriad of titles assigned to people essentially doing the same job)? This conflict is also apparent in the name of the leading association representing these managers, which was originally the Ethics Officers Association (EOA), then it became the Ethics and Compliance Officers Association (ECOA), and now, for some reason, is called the Ethics and Compliance Initiative (ECI) – an "initiative," to me, seems much weaker than an "association."

 

But, anyway. In general, my sense is that the tail has been wagging the dog a bit. In an effort to broaden their appeal to as many managers as possible (and, therefore, maintain or increase membership), the ECI has twisted itself to reflect the morphing field, rather than standing on principle for something 'pure' and shaping the field. The article in the url below supports this argument, suggesting that the consequences of this passive approach might be causing confusion in the executive suite about the role of these essential managers (note: the SCCE is a separate organization representing ethics and compliance officers):

 

"A survey of compliance and ethics professionals by the Society of Corporate Compliance and Ethics found 50% said promoting an ethical culture is the top job for an ethics and compliance program, while 35% said it is to prevent and detect misconduct."

 

In particular:

 

"When asked what they thought management believed the top objective is, 43% said meeting regulatory requirements, while 29% said preventing and detecting misconduct. When asked what they thought the board believed, 28% said to prevent and detect misconduct."

 

These survey results reflect confusion as to whether the role of these officers is to build an ethical culture that is likely to prevent misconduct (ethics) or to comply with existing legislation that minimizes the impact of any misconduct should it occur (compliance). While it is clearly more effective for a firm to prevent misconduct, that is also the more expensive option since it involves investment across the whole organization in multiple initiatives, some of which may help prevent misconduct while others are probably unnecessary. The cheaper (and more cynical) option is to wait for misconduct to emerge and then act to minimize the fallout. While this latter approach might be cheaper in the short-term, however, the danger is that it generates much longer-term issues that can seriously threaten the organization's viability (e.g. VW, Wells Fargo, etc.). My suggestion to the ethics and compliance field, therefore, is to start shaping the field in a way that corrects misunderstandings among firms' senior ranks, rather than merely trying to reflect it.

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (4e)

© Sage Publications, 2017

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

 

 

Differing Views on Ethics & Compliance

By Ben DiPietro

July 25, 2016

The Wall Street Journal

http://blogs.wsj.com/riskandcompliance/2016/07/25/the-morning-risk-report-biometric-data-raises-privacy-stakes/

See also: http://blogs.wsj.com/riskandcompliance/2016/07/22/survey-roundup-disconnect-between-compliance-c-suite-board/

 

Strategic CSR - Values

The article in the url below explores the muddy waters of company values. In a somewhat sarcastic manner, it questions the value of values, both for the company that adopts them and the employees who are supposed to embody them:

 

"Maitland, the financial PR company, has just finished an audit of the values of the FTSE 100, and found that three words — integrity, respect and innovation — crop up over and over again. What a splendid trio they sound. Alas, all are duds. Integrity is particularly feeble. It makes no sense to assert integrity as a value, as no one would ever dream of asserting the reverse. Respect sounds good, but is meaningless unless it is made clear (as it never is) who is meant to be respected. Some people deserve respect; others do not. And innovation makes its way on to the list more as a wish from frumpy companies to be seen as a little groovier."

 

Apart from the fact that few employees remember what their company's values are, the author suggests that the main problem with espoused values is that they make companies sound desperate. Moreover, they expose companies to charges of hypocrisy as soon as someone in the firm breaks the values:

 

"First, self-describing is always dodgy. If someone goes out of their way to tell me they are honest or creative, I immediately conclude the reverse. Second, far from being a point of difference, values make every company look the same, as there is only a finite list of desirable corporate traits. And third, public professions are a hostage to fortune. Volkswagen must be ruing the day it made 'sustainability' a core value."

 

Further critiquing the report, the author concludes that, rather than seeking the ideal set of values, companies should abandon the search altogether:

 

"The report then questions how many values a company should have and concludes — entirely arbitrarily — that the perfect number is four. For me the ideal number is zero. Values may be important, but they are also slippery. The minute anyone tries to write them down they become trite and unhelpful."

 

As evidence in support of her argument, the author presents some compelling data:

 

"Seventeen of Britain's 100 biggest companies are sensible enough to have no values at all — or at least none they care to disclose on their websites. And how do they get along without them? … I asked [the FT's] statistics department to crunch some numbers for me and compare an index made up of the 17 values refuseniks with one made of 83 who are toeing the line. … Over the past 10 years the 17 valueless companies have outperformed the others in the FTSE 100 Index by about 70 per cent."

 

For the graph revealing this disparity in performance, see: http://im.ft-static.com/content/images/84f3d9fe-68ff-11e5-a57f-21b88f7d973f.img

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (4e)

© Sage Publications, 2017

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

 

 

Hands up if you can list what your company's values are

By Lucy Kellaway

October 5, 2015

Financial Times

Late Edition – Final

12

http://www.ft.com/intl/cms/s/0/d508d08e-682d-11e5-a57f-21b88f7d973f.html

 

Strategic CSR - Welcome back!

Welcome back to the Strategic CSR Newsletter! The first CSR Newsletter of the Spring semester is below. As always, your comments and ideas are welcome.

 

The article in the url below offers its take on the top eight "biggest errors, scandals, and crimes of the world of big business in 2015":

 

1. Toshiba's accounting scandal.

2. FIFA's RICO problem.

3. Goldman Sachs employee uses stolen confidential materials.

4. The dirty business of oil and gas.

5. Millions of kids' personal data hacked.

6. Exxon Mobil deliberately misleads the public about climate change.

7. Volkswagen cheats emissions tests.

8. Turing Pharmaceuticals jacks up prices.

 

I have less issue with the list so much as the ordering. It is not clear why the transgressions of a single employee at Goldman Sachs, for example, should be ranked so much higher than the organization-wide effort by VW to evade public safety regulations (and which has since been linked to "about 59 early deaths in the U.S. alone" – see BusinessWeek article here). It will also be interesting to see the extent to which specific transgressions stand the test of time. I am particularly interested to see whether the Exxon case gains any traction in the courts.

 

To see The Guardian's Top5 scandals that "defined" 2015, see here.

 

Hope you have a great semester.

David

 

David Chandler & Bill Werther

Strategic Corporate Social Responsibility: Stakeholders, Globalization, and Sustainable Value Creation (3e)

© Sage Publications, 2014

 

Instructor Teaching and Student Study Site: http://www.sagepub.com/chandler3e/

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/


The 8 Most Outrageous Business Scandals of 2015

By Will Yakowicz

December 23, 2015

Inc.

http://www.inc.com/will-yakowicz/biggest-big-business-fails-of-2015.html

 

Strategic CSR - VW

I am sure you have all been following the unfolding drama at VW. Rather than focus on the firm alone, however, the article in the url below highlights the track-record of the whole industry in terms of regulatory compliance. By any measure that most of us care about, that record is not good:

 

"Long before Volkswagen admitted to cheating on emissions tests for millions of cars worldwide, the automobile industry, Volkswagen included, had a well-known record of sidestepping regulation and even duping regulators."

 

The duplicitous behavior remains prevalent in Europe, for example:

 

"For decades, car companies found ways to rig mileage and emissions testing data. In Europe, some automakers have taped up test cars' doors and grilles to bolster their aerodynamics. Others have used 'superlubricants' to reduce friction in the car's engine to a degree that would be impossible in real-world driving conditions. Automakers have even been known to make test vehicles lighter by removing the back seats."

 

In the U.S., it has been present as long as the Environmental Protection Agency (which regulates car emissions) has existed:

 

"Cheating in the United States started as soon as governments began regulating automotive emissions in the early 1970s. In 1972, certification of Ford Motor's new cars was held up after the Environmental Protection Agency found that the company had violated rules by performing constant maintenance of its test cars, which reduced emissions but did not reflect driving conditions in the real world."

 

It seems that evading rules and regulations is standard operating practice in the industry, with any fines that result from being caught seen as an affordable cost of doing business. After the EPA found Ford guilty in 1972, for example:

 

"Ford walked away with a $7 million fine. The next year, the agency fined Volkswagen $120,000 after finding that the company had installed devices intended specifically to shut down a vehicle's pollution control systems. In 1974, Chrysler had to recall more than 800,000 cars because similar devices were found in the radiators of its cars."

 

And so on, and so on. The article, of course, makes no mention of any car company that was put out of business as a result of its fraudulent behavior, even when people died as a result:

 

"No matter the offense, penalties have often been fleeting. Executives are not jailed; fines are manageable."

 

If you can believe it:

 

"In the United States, automakers' lobbying has ensured that the statute giving powers to the National Highway Traffic Safety Administration 'has no specific criminal penalty for selling defective or noncompliant vehicles,' says Joan Claybrook, a former administrator of the agency and a longtime advocate of auto safety."

 

Of course, the Ford Pinto stands as the poster child for "cost-benefit analysis," and nothing much has changed since. GM's recent fine of $900m for its ignition switch fiasco that resulted in the confirmed deaths of 124 people is just the latest in a long line of pathetic settlements that let everyone off-the-hook. Even though the Department of Justice found that GM knowingly sold faulty cars that were resulting in driver deaths, no individuals were held accountable as part of the settlement. It is just the most recent example of what appears to be a long-standing, soft-touch approach to regulating the industry:

 

"The universe of automotive scandals has been a broad and often tragic one, including Ford's 1978 recalls of 1.5 million Pintos after evidence emerged that its gas tanks were prone to catch fire during impacts. The Chrysler Corporation was indicted in 1987 on charges of disconnecting the odometers of 60,000 cars used by executives and then selling them as new. The Ford-Firestone scandal that started in the late 1990s was linked to 271 deaths. And more than 23 million cars have been recalled by 11 automakers over airbags made by Takata that could violently rupture in an accident."

 

The list goes on. And, in case you thought that the VW crisis is in any way less of a concern than these others, here is the opening paragraph in The Economist's lead editorial this week:

 

"Emissions of nitrogen oxides (NOx) and other nasties from cars' and lorries' exhausts cause large numbers of early deaths—perhaps 58,000 a year in America alone, one study suggests. So the scandal that has engulfed Volkswagen (VW) this week is no minor misdemeanour or victimless crime. … The damage to VW itself is immense. But the events of this week will affect other carmakers, other countries and the future of diesel itself."

 

So, I am interested in the burden of fault in all this. Who do you think is most to blame—the regulators for failing to punish firms in a way that discourages rule-breaking, or the firms themselves for taking advantage of the weak enforcement? While there is plenty of blame to go around, I think the regulators are primarily at fault. By consistently failing to punish firms in a way that lets them know rule-breaking will not be tolerated and will threaten the firm's license to operate if life is endangered, the regulators are implicitly condoning corner cutting for competitive advantage. That is the behavior they were incentivizing, so that is the behavior that resulted. Regulators have the power (and authority) to put repeat transgressors out of business—in fact, it is their duty to do so. That they don't, to me (and to the firms), signals that the behavior is ultimately acceptable to those setting the rules. Underpinning the concept of "corporate stakeholder responsibility" (an important component of Strategic CSR) is the idea that stakeholders have a responsibility to hold the firm to account. It is this accountability that underpins the idea that firms' self-interest lies in adhering to their stakeholders' wishes. If stakeholders are unwilling to enforce their values by holding firms to account, we can only blame ourselves when we do not get the behavior from companies that we say we seek. For now, stand by for this crisis to grow beyond VW:

 

"While officially stated fuel efficiency and carbon-dioxide emissions figures have steadily improved over the years, real-world tests showed no corresponding improvement, according to the European Federation for Transport and Environment, an advocacy group based in Brussels. In fact, the group's testing found that the average diesel car was producing emissions five times as high as what was permitted. Some vehicles from BMW and Opel emitted 10 times as much pollution on the road as in the lab. The difference between the lab and real-world results swelled to 40 percent last year, on average, from 8 percent in 2002, the group also found."

 

Take care

David

 

David Chandler & Bill Werther

Strategic Corporate Social Responsibility: Stakeholders, Globalization, and Sustainable Value Creation (3e)

© Sage Publications, 2014

 

Instructor Teaching and Student Study Site: http://www.sagepub.com/chandler3e/

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/

 

 

An Industry With an Outlaw Streak Against Regulation

By Danny Hakim and Hiroko Tabuchi

September 24, 2015

The New York Times

Late Edition – Final

B1

http://www.nytimes.com/2015/09/24/business/international/volkswagen-test-rigging-follows-a-long-auto-industry-pattern.html