The focus on human rights is a lot like the environmental debate 20 years ago.
Ulf Karlberg is the new face of activism. Urbane and articulate, fluent in corporate-speak, the London-based head of Amnesty International's Swedish Business Group is the thorn in the paw of many a global company. Or he's the instrument to remove the thorn. It's up to you.
Karlberg has been an Amnesty member for 32 years, just a little longer than his corporate life. He was CEO of PA Consulting Group in Europe and later an executive VP at pharmaceuticals giant AstraZeneca. That earned him the street cred - the Wall Street cred - that he needed to get inside corporate boardrooms when he became a full-time, volunteer 'corporate activist' two years ago.
'The human rights movement today is exactly where the environmental movement was 20 years ago,' Karlberg says. 'Companies used to say the state should take care of the environment while management took care of shareholder value. Then asbestos and oil disasters cost shareholders billions, and international companies came to see the environment as a competitive issue. Now the same thing is happening with human rights, and it's bigger, more powerful and more challenging than the environment.'
Karlberg tells the story of Bob, an American executive in a developing country. When challenged about the treatment of sweatshop workers, Bob would say he was just doing his job, following local laws, and 'it's not a bottom-line issue'. Then a lawsuit against the company became headline news on CNN and Bob was fired, investors dumped their shares and consumers protested. 'It is a bottom-line issue,' insists Karlberg. 'Legislation is one thing, but voluntary initiatives are good for the brand and good for the company.'
Amnesty's Business Group began in the UK and now operates in 20 countries. This spring, with the Prince of Wales International Business Leaders Forum, it produced a series of maps presenting 'a human rights geography of corporate risk'. The maps show which companies are most vulnerable to the costs - including reputation cost -of human rights violations in different regions.
In the US, Amnesty recently filed its first ever shareholder resolution with ExxonMobil as the target. The Interfaith Center on Corporate Responsibility (ICCR), the AFL-CIO and SRI investors like Domini Social Investments supported Amnesty as it solicited votes from Exxon's major shareholders for the May annual meeting. David Schilling, director of the ICCR's global accountability program, says it's always been tough to get Exxon to talk. 'Finally, with this broader coalition, they sat down to discuss human rights. We're still far apart, but at least it's the beginning of a dialogue.'
In the same way the 1989 Exxon Valdez spill brought the environmental debate to a boil, recent scandals have brought human rights off Amnesty posters and into dinner table conversation.
'Just as there was a bellwether case over the environment, now we're seeing bellwether cases over human rights,' says Mil Niepold, director of policy for Verita, a non-profit organization that helps companies monitor factory conditions.
Nike and Kathy Lee Gifford were the sweatshop villains of the mid-1990s. Then, in 1999 a lawsuit hit 18 US clothing companies accused of mistreating garment workers on the island of Saipan in the West Pacific. The Gap, Wal-Mart and Sears were among the accused, and most settled at a cost of millions.
Too often, though, the response is not reconciliation and remediation, it's 'butt out'. The Gap insists its monitoring is adequate and refuses to settle over Saipan. Coca-Cola was slapped with a lawsuit in July 2001 by labor groups alleging its Latin American bottling plants used paramilitaries to suppress union activity. Coke denies responsibility because the plants are not under its direct control - a common response considering the trend toward outsourcing.
Spurred by the Coke lawsuit, the ICCR pushed for a code of conduct for suppliers and bottlers. In December Coke showed the ICCR a draft code, though it lacked much in the way of human rights policies - even basics like the UN's Universal Declaration of Human Rights. Coke made revisions and presented it at its April annual meeting, where it got around 6 percent of the vote. 'Now Coke is going to meet with the ICCR in June, hopefully to get more serious about what it can do as a global company to protect the human rights of its employees and, more importantly, what it can do in the context of its business relationships,' says Schilling.
Getting Coke to admit responsibility for its bottlers' workers is one of the ICCR's big projects for 2002. Schilling likens the case to Nike in 1995, when the company denied accountability for workers' conditions because it didn't own the factories. 'Now look where Nike is,' Schilling says admiringly. 'Is Nike responsible for the labor conditions under which its products are made? Now it says yes.'
Ironically, human rights progress is hampered by the sheer number of pressure groups: governments, NGOs, labor, consumers and investors. 'The pieces of the puzzle are all there but they're higgledy-piggledy,' Niepold says.
Even the United Nations is venturing into the corporate world with its Global Compact initiative, a pet project of Kofi Annan's which he launched at the 1999 Davos summit. Companies are invited to endorse the nine principles of the compact covering human rights, labor and the environment.
'There's no escape. Long-term sustainability and sound investment can only happen if the social climate is supportive and risks are minimized,' says Georg Kell, a senior officer in the executive office of the UN secretary general and executive head of the compact. 'At the same time, globalization and a commitment to open markets continue to be in a fragile state. Business has to make the case why business is part of the solution. There's still a lot of work to be done to get the skeletons out of the closet.'
Kell confesses the UN has a lot to learn about dealing with companies. 'Luckily not everyone here is a bureaucrat, though there are many,' he chuckles. The UN is now investing heavily in a 'learning platform', and its first internet portal, slated for a June launch, will have a forum for companies following the Global Compact. Also due out are the results of the UN's first dialogue on the role of business in zones of conflict. The results of a second initiative on business and sustainable development should be ready in time for September's World Summit on Sustainable Development in Johannesburg. At least 50 countries worldwide have their own programs based on the compact. For example, the Asian Institute of Management is creating a resource center, while Spain just launched a learning forum created around the compact. 'News is coming in on a daily basis,' Kell says.
The UN compact's nine basic principles are admirable, but what companies and investors really need is a common framework for social reporting. In fact there are dozens to choose from. The one with the broadest stakeholder support is the Global Reporting Initiative, convened in 1997 by the Coalition for Environmentally Responsible Economies (Ceres) and the United Nations Environment Program (Unep). In April an expanded version of the GRI's original 1999 guidelines was issued for comment and a final draft should be ready by July. Soon the GRI will announce a 'stakeholder council' as well as a technical advisory council to work on protocols to back up the guidelines.
The GRI's new draft has a lot more on social issues, including human rights. 'Environmental reporting had a history of testing and practice with several hundred companies worldwide doing environmental reports when we issued our first guidelines in 1999,' explains Allen White, the GRI's acting CEO. 'Social reporting is a brand new game - one that's less advanced with less consensus. With the new draft we've made good progress in some relatively unexplored and difficult terrain.'
The problem with human rights reporting is that while there are plenty of international codes and agreements based mostly on the UN's 1948 Universal Declaration of Human Rights, there are few specific indicators, as the GRI calls them. 'Even after you decide how to measure human rights issues, the next challenge is which ones to measure,' White says. 'The lens on human rights varies tremendously. It's culturally, regionally and ethnically defined. How do you build a global reporting standard? We have just begun the process.'
Already there has been feedback on the new draft from companies worried about the difficulty of tracking social issues in far-flung corners of the world. Others are concerned that information like employee retention, for example, is competitive information they can't divulge.
To date around 120 companies have declared themselves GRI-compliant, but without much scrutiny. Now the new draft says reports prepared 'in accordance with GRI' must rigorously cover all 57 core indicators. Nike is one company that found the list too long to squeeze into its hard copy report and instead published a separate GRI report online. The GRI says that's fine, as long as the short version makes clear reference to where other indicators can be found.
The US is usually a trendsetter in corporate reporting, but is it ahead of Europe in social reporting? 'No way,' says Verité's Niepold. The UK is in front in part because of the strong standards of the Ethical Trading Initiative. More impetus comes from Paul Myners' pensions reform, which is forcing pension trustees themselves to report on their social policies. France isn't far behind with a new law in February demanding social and environmental information in annual reports. Europe is also home to FTSE4Good and the Dow Jones Sustainability indexes.
Flurry of reports
Now the race is on and US firms are catching up. The last year has seen a flurry of first-time corporate responsibility reports: Chiquita in September 2001, Nike in October, Starbucks in February, McDonald's and Coke in April. And most large companies today have a senior executive with 'corporate responsibility' in their title. 'When Verité was founded in 1995, companies would send us to their PR department. Now they have whole departments tracking the supply chain,' Niepold says.
A lot of US pressure is coming from investors, and not just activists like the ICCR. The dramatic growth of socially responsible investment (SRI) is well-known. The Social Investment Forum reports a 36 percent growth of socially screened portfolios between 1999 and 2001, now totaling over $2 tn. What's new is the increased interest by mainstream institutions which in the past shrugged off social responsibility as irresponsible investing.
'Core institutional investors are increasingly paying attention to labor and human rights issues,' says Schilling at the ICCR. 'Calpers and state pension funds are tracking these issues much more closely, which indicates that they've changed their proxy voting guidelines.' He points to a May resolution to adopt global labor and human rights standards at Delphi, an auto parts company. Without even an active solicitation like the one Amnesty has been running against Exxon, the ICCR won over 22 percent of the vote. 'That's a strong vote, and at next week's meeting with Delphi we'll make a lot more progress than if we got only 3 percent,' Schilling enthuses.
Calpers, a long-time governance activist, uncharacteristically voted with its feet in February when it started pulling out of four Southeast Asian countries. The shock was that it wasn't just for financial reasons. Calpers is bailing out of Thailand, the Philippines, Malaysia and Indonesia after a review of human rights in addition to corporate governance. It employed Verité to look at issues like child labor, forced labor, freedom of association and discrimination. With its rewritten investment criteria, Calpers is the first public pension fund to venture beyond economic and governance factors.
Verité expects to get more work from public pension funds. 'People's money has been invested purely in chasing the dollar. That's an old paradigm,' says policy director Niepold. 'The SRI community is showing it can get a good return on investment while being socially responsible. Today institutions can be responsible from a fiduciary as well as a social standpoint.'
Can any company still say human rights are not its responsibility? Let the last word go to Schilling: 'The case can be made on a business basis. But it's also the right thing to do.'
The next issue of Investor Relations magazine will look at corporate responsibility reports, featuring interviews with Nike, Chiquita, Coca-Cola, adidas-Salomon and H&M
Making the link
US Business Group: www.amnesty-usa.org/business
UK Business Group: www.amnesty.org.uk/business
Sweden Business Group: www.amnesty.se/business
Geography of corporate risk
Interfaith Center on Corporate Responsibility
UN Global Compact
Global Reporting Initiative
Ethical Trading Initiative
Dow Jones Sustainability Indexes