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 / Fall 2005 / Issue 40(originally published by Booz & Company)


Dirty and Clean Laundry

Mr. Lydenberg’s book gives thumbnail sketches of successful CSR initiatives, such as the Coalition for Environmentally Responsible Economies (CERES), a partnership of leading U.S. investment funds, public interest groups, and companies, and its offshoot, the Global Reporting Initiative (GRI), an international institution that promotes standards for corporate reporting of the environmental, social, and economic “triple bottom line.” The author also presents compelling evidence that such standards are stimulating socially progressive and economically successful corporate actions.

As I was writing this review, two new examples of voluntary reporting surfaced — reinforcing Mr. Lydenberg’s view (and my own) that public accountability is helping to change corporate behavior. For many years Nike has been the bête noire of activists who deplored the working conditions in contract plants, mostly in Asia, where virtually all Nike products are made. Nike at first stonewalled these protests, claiming that they were bringing badly needed jobs to developing countries. The company’s 2004 “Corporate Responsibility Report” shows a complete about-face. Nike now has a strong code of conduct governing conditions in those plants, a comprehensive monitoring program, a grading system, and an internal compliance staff of 90 full-time employees who make spot-check visits. Detailed descriptions of noncompliance with Nike standards are presented in this year’s report. For example, 25 to 50 percent of recent plant audits showed workers being paid below the legal minimum.

To create this report, Nike reached out to involve a committee of outsiders, including a labor union leader, the director of accountability at CERES, a labor rights consultant in the NGO field, and other social activists. At first, the company argued against releasing the names of specific factories because, it said, it would make operations too transparent to competitors, exposing sensitive information such as new product styles or production volume. But Nike now posts on its Web site the names and addresses of 731 contractors in 52 countries. Some 625,000 employees work in these factories — including 200,000 in 124 factories in China and 84,000 in 34 plants in Vietnam. (Rival Reebok already published a list of its footwear factories on its Web site.) In introducing the Nike report, founder and chairman Phil Knight even owns up to having made “a bumpy original response” to activists, “an error for which yours truly was responsible.”

In May, General Electric — also considered a bête noire by many activists — issued the first citizenship report in its 127-year history. The report, called “Our Actions,” runs 177 pages and discloses a wealth of information about GE activities related to governance, environment, health and safety, suppliers, community relations, customers, employees, compliance, globalization, investors, products, services, and the GRI.

Here are some things we learn: GE has a global network of 300 ombudspeople to whom employees can report integrity concerns without fear of retaliation; a total of 1,338 concerns were reported in 2004, resulting in 368 disciplinary actions, including 125 dismissals. Since 2002, GE has required that its suppliers “certify their compliance” with environmental, health, safety, and labor standards through on-site visits and audits. GE has terminated about 200 suppliers who failed to correct deficiencies. GE has decided not to pursue business opportunities in Myanmar because of a “history of human rights abuses.”

It’s stunning to see Nike pay attention to the wages being paid to workers in Chinese plants, and equally stunning to see GE concerned about a repressive regime in Myanmar. But these reports are not knee-jerk responses to activists. They set new standards for corporate social reporting and new benchmarks for performance. They are pragmatic management. GE’s CEO, Jeffrey Immelt, talks about marrying “business opportunity with global need.”

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Corporate Behavior Resources: Works mentioned in this review

  1. Joel Bakan, The Corporation: The Pathological Pursuit of Profit and Power (Free Press, 2004), 240 pages, $25.00
  2. Kurt Eichenwald, Conspiracy of Fools: A True Story (Broadway Books, 2005), 768 pages, $26.00
  3. Steven Lydenberg, Corporations and the Public Interest: Guiding the Invisible Hand (Berrett-Koehler, 2005), 200 pages, $27.95
  4. Bethany McLean and Peter Elkind, The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron (Portfolio, 2003), 464 pages, $26.95
  5. James B. Stewart, DisneyWar (Simon & Schuster, 2005), 592 pages, $29.95
  6. Great Place to Work Institute Inc.: Click here.
  7. 2005 GE Corporate Citizenship Report: Click here.
  8. Nike Corporate Responsibility Report FY ’04: Click here.
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