Chew Ng
Professor of Accounting, Griffith Business School, Australia

Niaz Alam
Board Member, London Pensions Fund Authority/Senior Associate, Lifeworth

As 2008 drew to a close, some of the long-term implications of the financial crisis were beginning to be seen. The shift of economic power from the West to ‘the rest’, which had been chronicled or predicted for some time, appeared now to be inevitable, as Western governments took on huge debts to bail out their struggling banks and companies, and stimulate their economies with public spending. This has implications for the future terrain of corporate social responsibility (CSR) issues, concepts and practice. In this review of the final quarter of 2008, we examine some of dimensions to the underlying shifts in economic power and their implications for corporate citizenship. These shifts include the growing importance of Islamic finance and of state-owned funds as investors and owners of companies worldwide, and the increasing initiatives on corporate responsibility across Asia.

» Islamic finance

(The references are available in the pdf download and hard copy versions of this annual review, available from Lifeworth’s bookstore.)

This section can be referenced as:

Bendell, J., and N. Alam, S. Lin, C. Ng, L. Rimando, C. Veuthey, B. Wettstein (2009) The Eastern Turn in Responsible Enterprise: A Yearly Review of Corporate Responsibility from Lifeworth, Lifeworth: Manila, Philippines. (Page numbers for this section are available in the pdf download and hardcopy.)

Niaz Alam
Board Member, London Pensions Fund Authority/Senior Associate, Lifeworth

Barbara Wettstein
Research Officer, UNI Finance Global Union

Olivier de Schutter: speculation in commodity markets has contributed to hunger

Money, money, money. by mid-2008 money was certainly making the world go round, first in a spin, then a downward spiral. The financial system really unravelled in the third quarter of the year. Yet, before the credit crunch became a credit calamity, at the top of the world’s agenda was the huge inflation in the price of food, with some pointing an accusing finger at that soon-to-be-endangered species—the investment banker.

As the world saw a doubling in wheat prices and tripling in rice prices in a year, leading to food riots in over a dozen countries, Olivier De Schutter, the United Nations special rapporteur on the right to food, said that, although climate change played a part, ‘speculation in commodity markets, driven in part by investors seeking havens from slumping stocks has . . . contributed heavily to hunger by pushing food prices out of reach for tens of millions’.¹ In the last few years, regulations and advice have been changed to enable large institutional investors to buy into commodities-tracking funds, thus allowing huge sums to pour into this sector and its derivatives, such as options and futures. ‘This has been a serious factor aggravating the crisis,’ Mr De Schutter said, with some retailers and global agribusiness firms benefiting disproportionately from the price hikes.

One implication of this situation for investor responsibility is that investors need to assess more carefully the societal and longer-term economic implications of any regulatory changes they seek. Investors have been incorporating the political affairs of the corporations they invest in as part of their environmental, social and governance (ESG) assessment, but what of the political involvement of the private financial institutions themselves? Might we expect their own political influence to be consistent with the longer-term interests of the people whose money they manage? It is an issue we return to below when considering the influence of financial institutions and their former staff on the regulators.

Although clearly a topic of increasing concern and research, the food crisis had not produced a concerted response by socially responsible investment (SRI) organisations. This disparity is reflected in the varied views collated in June 2008 in an Investment Week survey of UK ethical investment analysts by Sarah Griffiths.² Gonzalo Baranda of JPMorgan Asset Management said the food crisis was in part driven by long-term trends of ‘an increasing world population and a change in consumption patterns in rapidly growing emerging markets with, for instance, an increase in the consumption of meat’, but that ‘growth in demand for heavily subsidised biofuels’ were an exacerbating factor.

Speaking to Jeffrey MacDonald of the Christian Science Monitor in August 2008,³ Lloyd Kurtz, principal at Nelson Capital Management, a private money-management firm in Palo Alto, California, said, ‘It’s hard to figure out who to blame for the food crisis. Social investment has been most influential when there was an actor that could be identified—e.g., the tobacco companies, the South African apartheid regime, etc. But the causes of the global food crisis are multifaceted . . . That’s probably why you haven’t seen a coherent response from the social-investment community.’

Joachim von Braun: capital for agricultural growth cannot come only from the public sector

One response came in June 2008 when the Interfaith Center on Corporate Responsibility launched an initiative to tackle food-related issues and propose investing guidelines for its 275 institutional investor members with projects aiming to encourage sustainable agriculture worldwide. Joachim von Braun, director-general of the International Food Policy Research Institute, a food-security think-tank in Washington, DC, also looked at what investors might do to positively help the situation. He advised that ‘The mobilization of capital for agricultural growth, especially in the small-farm economy, definitely cannot come only from the public sector. So the private sector has a very important role to play in order to mitigate and overcome the current food crisis.’ He urged social investors to shun commodity futures trading and instead provide ‘what small-farm agriculture really needs, [which] is long-term investment’. Von Braun added that ‘Ethically motivated investors should stay away from grain and oilseed-based biofuels because these biofuels by now are the cause of about one-third of the overall increase in food prices.’ In select cases, he told the Christian Science Monitor, development of certain biofuels can be justified, but ‘the large-scale investment in Europe and North America has been extremely damaging to world food security’.

The price of many foodstuffs fell back somewhat in the third quarter, but the price inflation forewarned of likely future scenarios, as climate impacts increase, groundwater and soils are depleted, industrial agriculture becomes more expensive due to peaking oil production, and global finance herds from one asset class to another. Socially responsible investors need to consider these root causes. A key factor has been that investment seeks the greatest returns without pricing in externalities such as carbon, or the risk to future generations from a food supply dependent on oil. This gives rise to situations such as in the Philippines, which went from a net exporter to the largest importer of rice in a matter of decades, as investment poured into its business process outsourcing industry, and government and industry turned their backs on domestic agriculture. Supporting the resilience of communities and economies should be a key dimension to responsible investment, with encouragement given to the government facilitation of investment to build such resilience.

Another issue highlighted by food inflation is the bubbling nature of our financial system. Most countries use a debt-money system, where money is created by private banks in the form of loans. Consequently, as Chris Martenson explained on Corporate Watchdog Radio, there is not enough money in the world to pay back all the debt. It leads to a situation where the economy must continually grow at a continuing rate, because of compound interest. This, he argues, leads to inevitable economic bubbles.⁴ Any form of bubble can cause a problem for asset owners, who lose out far more when the bubble bursts, compared to the financial services professionals, who can make a personal fortune on commissions as the bubble inflates. A bubble affecting the price of goods that are needed by disadvantaged people (think rice rather than shares in ‘buy.com’) presents a double whammy, as many people are hurt as the bubble inflates. If a bubble becomes too large, due to an inability to create units of value out of thin air (think derivatives of mortgage-backed securities) bought by people with access to sufficient credit (think ‘sufficient’ to keep the process going until they get their bonus), then you have the mother of all bubbles, which leads to a financial crisis. As institutional investors such as pension funds invest in the whole economy, they are particularly vulnerable to boom-and-bust cycles, and yet we might expect them particularly able and willing to influence the economy, as part of their duty to their policy holders. Yet, as we will see, this has not happened, and people who have saved for their whole lives are as a consequence hurt by a lack of systemic fiduciary duty shown by those meant to safeguard their future.

» From bail-outs to better capitalism

(The references are available in the pdf download and hard copy versions of this annual review, available from Lifeworth’s bookstore.)

This section can be referenced as:

Bendell, J., and N. Alam, S. Lin, C. Ng, L. Rimando, C. Veuthey, B. Wettstein (2009) The Eastern Turn in Responsible Enterprise: A Yearly Review of Corporate Responsibility from Lifeworth, Lifeworth: Manila, Philippines. (Page numbers for this section are available in the pdf download and hardcopy.)

Sandy Lin
Research Associate, Lifeworth

In June 2008, the 18th Global Summit of Women was held in Vietnam. Known informally as the ‘Davos for Women’, the Summit attracted over 900 participants from 72 countries and regions.¹ The list of sponsors for the Global Summit of Women included corporate powerhouses such as Microsoft, IBM, Pfizer and FedEx. Despite the scale of the event, the Summit did not garner international press coverage. An internet search revealed that press materials were limited to major dailies in Vietnam, Malaysia and China. The Summit aims to be a celebration of women’s achievement. In the Opening Address, Irene Navidad focused on how women have the ability to run businesses successfully. ‘41% of Rwanda’s businesses are owned by women,’ she explained. ‘The march of female entrepreneurship from agribusiness to tourism came out of the sad opportunity emerging from the genocide, which left agricultural lands, for example, in the hands of women whose husbands, sons and fathers were slaughtered. To survive, women—many of whom had no training or exposure to managing property or farms—had to take control simply in order for their families to survive. With the help of international agencies which provided training and loans to the women, Rwanda came back to life.’² This advancement of women out of adversity echoes progress made in women’s rights in Europe after World War II, as women had been depended on in factories and farms during the fighting.

There was disquiet being expressed in some media that progress made in the West over the last decades on women’s rights, as economies had boomed, are falling back, and look likely to slip further due to an economic downturn. ‘So you thought the gender equality cause had come a long way in the last 30 years? Well think again. Not only is gender discrimination in the workplace alive and kicking, it’s actually getting worse,’ argued the British newspaper The Independent in May 2008. It reported on a survey of more than 100 British recruitment agencies, which revealed that 70% had been asked by clients to avoid hiring pregnant women or women of childbearing age.³ The New York Times then reported that women were being laid off faster in the economic downturn.⁴

How is the corporate social responsibility (CSR) profession addressing gender issues? New research published by the International Centre for Corporate Social Responsibility (ICCSR) found that the potential role of business as a vehicle to advance women’s issues is often overlooked in corporate responsibility work.⁵ In describing the state of CSR and gender equality in the EU, Dr Irmgard Schultz, co- founder of the Institute for Social-Ecological Research (ISOE), states: ‘the potential of CSR to promote EU policy goals for gender equality is hardly recognised by the public’.⁶ This was evident in a survey conducted by responsible enterprise consulting firm Lifeworth on ‘Women and CSR’ for this review, which invited current members of the mailing list ‘CSR Chicks’ to share their views. Sixty-four per cent of respondents, who were all female CSR practitioners, stated that their membership of the (gender-specific) network had not led them to think about the role of CSR in women’s advancement before the survey was conducted. Fifty-eight per cent reported that gender issues are ‘not a top priority’ in their organisation’s corporate responsibility efforts, 36% that it is one of the top ten priorities, and 6% that it is one of the top three priorities.

With intergovernmental organisations launching several key gender initiatives in 2008, more corporate responsibility practitioners may awaken to a gender perspective. One such initiative was the Danish government’s launch of the MDG3 Global Call for Action Campaign in the Spring, which urged for gender equality and women’s empowerment to be put higher up in the international agenda.⁷ In a symbolic gesture representing the ignition of a global resolve, they planned for more than 100 MDG3 torches to travel around the world as they are passed to representatives of governments, the private sector, civil society, individuals from North and South and international organisations.⁸ Responding to the call to ‘do something extra’, intergovernmental organisations have taken on a leading role to facilitate and strengthen advocacy on gender equality. On International Women’s Day 2008, the Organisation for Economic Cooperation and Development (OECD)’s Development Centre launched Wikigender, an internet portal that aims to foster a bottom-up dialogue on the importance of gender equality. Along with the introduction of the Gender, Institutions and Development Database to determine and analyse obstacles to women’s economic development, the OECD aims to fill in the knowledge gap about gender discrimination that is often rooted in social institutions such as norms, traditions and family law.⁹

Following the OECD’s lead, in June 2008 the International Labour Organisation (ILO) embarked on an awareness-raising campaign. Speaking about the year-long ILO Global Campaign for Gender Equality that will lead up to the ILO conference scheduled in 2009 on ‘Gender Equality at the Heart of Decent Work’, ILO Director-General Juan Somavia stated, ‘although progress is being made, gender equality is still lagging behind in the rapidly changing world of work’. Indeed, despite substantial progress in the closing of the gender pay gap, women are finding out that money and power do not go hand in hand. In the Mastercard Master Index of Women’s Advancement released in March 2008, women in the Asia-Pacific region continue to feel that they are under-represented in managerial positions.¹⁰ The survey measured women’s socioeconomic progress according to four indicators. The first two objective indicators are the ratio of female to male participation in labour force and in tertiary education based on source data from national bureau statistics. The remaining two subjective indicators measure female and male perceptions of whether they hold managerial positions and earn above-average income. Their findings that women do not have the same opportunities as men in the workplace corresponded with the ILO report on Global Employment Trends for Women 2008 released in Geneva in the same month. It revealed that, even though more women are working than ever before, they are still clustered in ‘low-productivity, low-paid and vulnerable jobs, with no social protection, basic rights nor voice at work’.¹¹ In Hong Kong in June 2008, Devi Novianti from Christian Action noted there is a particular challenge for domestic helpers, with sexual harassment being a concern. Equal Opportunities Officer Cynthia Lam emphasised that awareness-raising activities, such as training, are key.¹²

It is problematic that the gender impacts of business operations still register low on the radar of CSR programmes and priorities, given that women are disproportionately affected by social and environmental issues. A report released in April 2008 by the UN Food and Agriculture Organisation (FAO) on the gender implications of biofuels production asserts that, in light of the increase in food prices, women ‘tend to be particularly exposed to chronic and transitory food insecurity, due also to their limited access to income generating activities’.¹³ Co-author of the paper Yianna Lambrou said: ‘Unless policies are adopted in developing countries to strengthen the participation of small farmers, especially women in biofuel production by increasing their access to land, capital and technology—gender inequalities are likely to become more marked and women’s vulnerability to hunger and poverty further exacerbated.’

In high-income nations, key gender issues for business centre on women on boards and the related issue of career mentoring and grooming for leadership roles, equal opportunity and diversity management in employment, segregation in the context of male/female professions and the reconciliation of a work–life balance.¹⁴ Although women in the developed world may face different socioeconomic challenges as a result of their gender identity, common among women of the North and South is a lack of decision-making power, as well as an absence of control and access to resources such as financial credit, technology and property.

The lack of attention paid to gender issues in the corporate world was highlighted by the main CSR-relevant news-making study of the second quarter: the IBM report Global CEO Study: The Enterprise of the Future.¹⁵ Its survey of over 1,000 CEOs worldwide found that were perceiving consumer interests in the social dimension of business has become a key strategic issue. Perhaps women leaders might be involved in this strategic shift? We asked the authors, but found that they had not included a gender variable in their study. On our request they kindly ‘drove it’ into their data, to find that 5% of their surveyed CEOs are women. ‘We did not do any additional analysis using this variable, but it will for the future certainly be interesting,’ explained Dr Phaedra Kortekaas of IBM. The 5% figure and the oversight of the relevance of the variable suggest that gender mainstreaming, let alone equality, has some way to go in the corporate world.

Given the scale of the challenge, why is there a lack of gender consciousness in CSR, even though many women are personally involved as CSR practitioners? Interviews with executives led Kate Grosser and Jeremy Moon to conclude ‘a lack of civil society engagement with business about gender equality in the workplace’.¹⁶ As civil society pressure plays an important role in shaping corporate responsibility agendas, unless the efforts of the ILO, OECD and others to raise the profile of gender issues changes civil society engagement, leadership will need to come from companies. However, Judi Marshall, a leading writer on women in management, suggests that gender issues may not be raised by women business people in the context of corporate responsibility ‘because the challenges CSR might address are [seen as] more important than creating trivial gender skirmishes’.¹⁷ Indeed, gender equality often ‘disappears’ behind broader CSR preoccupations with labour rights, human rights or the environment. As a result, a gender perspective has not emerged as a key issue, or framing of issues, within CSR. ISOE’s study on the banking sector found that there is ‘an urgent need to clarify and define gender equality as an indispensable dimension of CSR’.¹⁸

Professor Marshall attributes the lack of shaping power by women in CSR to the fact that women remain at the margins of CSR leadership. She cites Vandana Shiva and the late Anita Roddick as examples of well-known women who have used raw messages to challenge gender power dynamics. Marshall asserts that their ‘discordant and confronting’ style of leadership contributes to their marginalisation as activists, vis-à-vis more ‘tempered radicals’ such as Al Gore and environmental scientist James Lovelock, who have found mainstream credibility. It is perhaps time for the CSR narrative to be shaped by a more diverse group of voices. Gender differences in leadership style leads Marshall to wonder if the white male dominance of CSR leadership is ‘simply a mirroring of dominant notions of management, business and organizational scholarship’.¹⁹ Additional reasons for this lack of a gendered engagement in CSR may be the absence of gender solidarity due to competitive attitudes both professionally and personally, and a deliberate downplaying of gender issues by female captains in industry, for personal reasons.

Carly Fiorina: downplayed gender issues

This is illustrated by the attitude of the most powerful female CEO in American history, Carly Fiorina, who was fired from her tenure at Hewlett-Packard after five and a half years on the job. In her memoir entitled Tough Choices, Fiorina describes that she did not want to talk about her gender or the glass ceiling as she felt these topics were distractions from the mission at hand and might cause alienation among the vast majority of her employees. Fiorina further states that she made a deliberate choice to downplay issues of gender in interviews with the media, as she did not want to draw attention to herself. This lack of clear leadership on women’s issues was reflected by results from the Lifeworth survey of the CSR Chicks mailing list. Only 34% of the respondents, all female CSR practitioners, answered yes to the question ‘Has the most senior woman in your organisation that you have some direct experience of, mentioned their activities to improve the organisation’s impact on women?’ Respondents considered ‘Personal Leadership from Women CSR Professionals’ to be the most important activity within CSR to advance women over the next five years, with 46.0% considering it ‘very important’.

Servane Mouazan, managing director of Ogunte, which works on women’s leadership development, told us that more women business executives need to connect with women who are serving their local communities more broadly. She said the Global Summit of Women is an example of how successful women can develop an elite view, by praising themselves for their own success and their support for women and girls in poverty. Thus a critical perspective of how their own societies, institutions and personal behaviours affect women is overlooked. This lack of critical perspective, and the kind of reticence expressed by Ms Fiorina, does not promote awareness of the nature of gender discrimination. Consequently, misunderstandings of attempts to promote diversity at work are widespread. For instance, in a paper to be presented at the Engendering Leadership conference held at the University of Western Australia, Rhonda Pyper suggested that white males can see affirmative action as about providing special privilege rather than levelling power imbalances. While Pyper was describing these change initiatives in the context of equity legislation in Canada, one wonders if the same may be said about reactions to the Equality Bill that was passed in the UK in June 2008.²⁰

The pressing need for CSR practitioners to win the ‘hearts and minds’ of middle-level management to promote gender equality is acknowledged by the ISOE banking case study, where it was found that instruments that are sensitising for gender equality (against gender stereotypes) contributed to the success of CSR initiatives adopted by one of the two banks surveyed in the study. It is only through this process of winning the ‘people’s case’ for gender equality that a change in attitudes will translate to a corresponding change in organisational behaviour. While gender issues may be less easily discussed than climate change, relying on the business case alone to carry broader normative perspectives is unwise, as the societal change desired requires a change in the emotional basis of gendered relations.

The emotional baggage surrounding gendered power relations is reflected in the varied definitions that have been used to bring meaning to the word ‘gender’, ranging from the use of gender as a concept, an ideology, a perspective, a role, a paradigm, a mechanism and a value. The confusion surrounding the use of the term brings up the question of ‘the political reasons for the disappearance of other problematics, concepts, and words (“women,” “feminism,” and “patriarchy” probably being the most significant) for which progressively but rapidly gender has been efficiently substituted’.²¹ While the use of gender as a catch-all term does not eradicate the ‘fight’ against patriarchy, male domination, power relations between the sexes and the equality/inequality between men and women, one wonders if the term ‘gender’ now holds any meaning at all, especially when the richness of detail and the sharing of meaning and experience of other concepts it embraces are now subsumed in a single word. Perhaps ‘gender’ is now a term that is used unknowingly and carelessly to ‘enable analyses that disregard patriarchal relations of domination’, with the unintended consequence that ‘gender’ is now a word to legitimise ‘the absence of any relation of domination, any system of domination, any thought of domination, of all domination’.²²

If business is to take on a more active role in women’s advancement, existing CSR instruments to promote women’s equality must be strengthened. In examining the gender practices of UK companies claiming best practice, the International Centre for Corporate Social Responsibility found that, although there has been ‘some improved reporting of performance information’ relating to gender equality, the level of reporting was still limited. Authors Kate Grosser and Jeremy Moon attribute this to ‘the fact that companies committed to gender equality perceive little advantage to reporting quality information, where market, social and governmental actors appear neither to demand nor reward it, and where media attention risks misuse and misinterpretation of data’.²³ Perhaps an improvement in gendered data collection and impact assessment will occur if the investors in companies begin to make this a priority. Despite conclusive evidence about the business case for gender equality being presented by Catalyst in reports published in 2004 and in 2008, there is limited pressure from the responsible investment community on these issues.²⁴ Providing ‘Evidence of Business Case for Gender Equality’ was the second most important activity for CSR to advance women over the next five years, according to respondents to the Lifeworth survey. The launch of the ‘Women’s Principles’ by investment firm Calvert, in partnership with the United Nations Development Fund for Women (UNIFEM) in 2004, has not yet led to a widespread focus on corporate responsibilities for empowering and investing in women worldwide.²⁵ As the asset management industry has generally been dominated by men, as are corporate boards, the discussion of women at investor relations meetings probably leaves a lot to be desired.

The conclusion must be that real change will occur if women decide to lead the agenda themselves. ‘What Rwandan women demonstrated is that in order to create change in their lives, they looked to themselves first,’ explained Irene Navidad in Hanoi. ‘That is why I say over and over to women everywhere—it is not enough to envision change, you must see yourself as the agent of change. This next century is ours, and we women are poised to demonstrate to the world that the economies of each of our countries can only flourish, as it did in Rwanda, if we are given the chance to lead. But like the Rwandan women, do not wait for leadership to come calling, remember that it’s not enough to envision change, you must see yourself as the agent of change.’²⁶

» Inspi(RED) marketing or (RED)wash?

(The references are available in the pdf download and hard copy versions of this annual review, available from Lifeworth’s bookstore.)

This section can be referenced as:

Bendell, J., and N. Alam, S. Lin, C. Ng, L. Rimando, C. Veuthey, B. Wettstein (2009) The Eastern Turn in Responsible Enterprise: A Yearly Review of Corporate Responsibility from Lifeworth, Lifeworth: Manila, Philippines.
(Page numbers for this section are available in the pdf download and hardcopy.)

Lala Rimando
Business Editor, Newsbreak magazine, The Philippines

Ms Claire Veuthey
Research Associate, Lifeworth Consulting, Switzerland

Eliot Spitzer: was timing of scandal ‘too convenient’?

Those seeking more leadership from government and judiciary on promoting corporate accountability often praised the work of Eliot Spitzer, when New York State Attorney General. He pursued matters of corporate crime and malpractice, on issues such as price fixing in the technology sector and stock price manipulation in the financial sector, costing companies billions of dollars in fines.¹ This is not a man the financial services industry would wish to have around amidst the credit crisis with its requests for unusual support from the government and federal reserve. On 10 March 2008, the New York Times reported that Spitzer was a client of a prostitution ring. Two days later, he announced his resignation as governor of New York, citing ‘private failings’.² Journalist Greg Palast suggested the timing of the news was too convenient:

While New York Governor Eliot Spitzer was paying an ‘escort’ $4,300 in a hotel room in Washington, just down the road, George Bush’s new Federal Reserve Board Chairman, Ben Bernanke, was secretly handing over $200 billion in a tryst with mortgage bank industry speculators. Both acts were wanton, wicked and lewd. But there’s a BIG difference. The Governor was using his own checkbook. Bush’s man Bernanke was using ours.³

Sex scandals have long been the downfall of politicians. They are less often the downfall of leaders in business and civil society, unless involving children. However, both the growing prominence of such leaders in society, and the widespread use of sex workers in business circles, means that such scandals are likely to arise in future. In February 2008, the role of sex in one of the biggest corruption scandals in Germany came to light.⁴ In illegal transfers that cost the company 42.5 million, VW worker representatives accepted ‘special bonuses’, such as opulent trips and extravagant nights out involving prostitutes in places such as Brazil and Korea in exchange for favourable policy votes.⁵ A former German MP, Hans-Jürgen Uhl, and the ex-CEO Ferdinand Piech may also be involved, the newspapers reported. Labour relations have been a source of national German pride, with VW in particular historically being a bastion of worker rights. But the current scandal has exposed the potential risk of close relations between executives and labour leaders. This has led to some to call for a broadening of the concept of corporate responsibility and accountability that has shaped German corporate governance for decades, with the bilateral engagement between management and unions now seen as an insufficient mechanism for socially accountable corporate governance.

This case is not unique. An oil executive was sentenced in February 2008 for awarding his favourite American prostitute a contract to pay for her services with company funds—on top of raiding company coffers for trips to massage parlours and strip clubs.⁶ The payment of sexual services were also part of the bribes paid by Chinese businessmen to government officials in the Philippines, which we discuss below. Discussions by one of the authors with business people from Geneva to Singapore suggests that corporate hospitality for clients often involves arranging sexual services, and can be facilitated by major hotel companies, through opaque or false billing records.

The question we consider here is not prostitution per se. Its legal status differs from country to country; a particular problem for Elliot Spitzer was that it is illegal in New York State. The moral and pragmatic arguments on how and whether to control the industry also vary. The key issues for corporate responsibility, however, concern corruption, governance, health and gender, as well as the reputational risks involved.

It is widely accepted, and defined in law, that a corporation should not be plying clients or partners with personal gifts, beyond hospitality. This stands whether the bribe consists of an object, straight cash, or a service. All resources a company disburses should be purchases linked to its core business and administrative needs or somehow connected to serving the interests of the organisation’s owners via legal means. Bribery skews the competitive market and sets an unfortunate precedent for business relations; agreements are signed and sales made for the wrong reasons. Bribery within the context of stakeholder relations, particularly when these relations constitute processes of corporate governance, give rise to particular concerns, as revealed in the VW case.

The purchase of sexual services, however, adds insult to injury with a new dimension to institutional responsibility and corporate norms of individual behaviour. Especially where sex tourism is rampant and responsible for the exploitation, trafficking and exposure to disease of millions of children and women, and generally a reflection of a dearth of economic opportunities, and poor education and welfare systems, businesses should take a particularly strong stand against their employees’ use of prostitutes’ services on the company dime. Accepting cultural arguments to excuse using sex workers for business ends is cowardly and opportunistic. Considering bars with sex workers as one might restaurants, in terms of business locales providing a service that can make potential clients feel at ease and see the company favourably, obfuscates the participation in a vicious system of exploitation and social marginalisation; and therefore cannot be equated to a lavish meal out. That line should be clearly drawn. Let’s not forget the risk of contracting and spreading disease, even if using protection: for the ‘beneficiary’, his or her partner at home, and the person providing the service. In addition, business environments that treat such sexual services as a normal way of doing business effectively discriminate against women in their own organisations, who are excluded from the bonds made and deals done in such settings. Moreover, responsible investors may be horrified to learn that what has been charged as ‘food’ at a hotel by a corporate executive was actually sex. Given the reputational risk associated with such practices if they hit the newspapers, there is also a material financial reason for investors to be concerned.

Targeted solutions to such practices are, however, hard to establish. A group of organisations including the UN World Tourism Organisation, Accor Hotels, and NGOs advocating the end of child prostitution, set up the Code of Conduct for the Protection of Children from Sexual Commercial Exploitation in Travel and Tourism in 1997, committing to take steps to help prevent the facilitation of child sexual exploitation. A vital first step is an explicit repudiation of this mode of deal-making by companies themselves, as well as a credible threat of serious sanction for individuals that do not abide by the employer’s code of conduct. The extension of such measures to address the sexist nature of much corporate hospitality is also necessary. Given the large number of women involved in corporate responsibility, it is surprising that sex on expenses, and sexist hospitality more generally, has not yet become more of an issue. Many senior female business travellers have had first-hand experience of returning to a hotel room while the men continue their night in a club. Might some greater solidarity with the women in those bars emerge?

» Olympian graft

(The references are available in the pdf download and hard copy versions of this annual review, available from Lifeworth’s bookstore.)

This section can be referenced as:

Bendell, J., and N. Alam, S. Lin, C. Ng, L. Rimando, C. Veuthey, B. Wettstein (2009) The Eastern Turn in Responsible Enterprise: A Yearly Review of Corporate Responsibility from Lifeworth, Lifeworth: Manila, Philippines.
(Page numbers for this section are available in the pdf download and hardcopy.)

Chew Ng,
Professor of Accounting, Griffith Business School, Australia

An important shift in power in the past years, now hastened by the economic crisis that began in 2008, has been away from the Western world, towards the rest of the world, including the East. That shift compounds a turning towards the East that is evident in how business impacts on society, and vice versa.  “Responsible enterprise” is commercial activity that voluntarily considers its social and environmental effects. ² The relationship between business and society is ubiquitous in relevance around the world, and so we may surmise that the ‘Eastern Turn’ in world power will be reflected in responsible enterprise issues, initiatives, and analysis.

Investigating this ‘Eastern Turn’ in responsible enterprise, we feel like the poet WB Yeats, who described the essence of Asia as its “vague immensities”. We are, after all, speaking of a region with majority of our world’s people. However we think it an important shift to chronicle, and to encourage debate about, as we believe it has implications for how we achieve a fair and sustainable world through more conscious approaches to enterprise and finance. We aim to describe some aspects of this Eastern Turn, and some implications that are beginning to appear for business, civil society and government from different directions of the compass. In doing so we intend to stimulate debate about the future of sustainable and responsible enterprise in a multi polar world.

By speaking of ‘East’ we are describing the Middle East, Asia and the Asia-Pacific region (not yet including Australia and New Zealand, due to the dominance of ‘Western culture’ in their recent history). In this introduction we briefly describe the global power shift to Asia and the importance of the region for global sustainable development and, therefore, global responsible enterprise. We note a historical Western dominance in Corporate Social Responsibility (CSR), before discussing the rise of responsible enterprise challenges within Asia, due to domestic changes, and in the world that involve Asian firms and investors. In doing so we refer to events during 2008 that highlight these challenges. Then we focus in more detail on the rise of responsible enterprise practices and initiatives within Asia. We describe how Asia has become the leader in environmental management systems and sustainability reporting. Next, we examine the extent to which business studies has analysed related issues, and find that there has been a rise in academic attention to Asia in journals dealing with aspects of responsible enterprise and finance. We then reflect on the nature of corporate responsibility issues and initiatives in different parts of Asia, and the extent to which an Asian agenda is emerging, could emerge, and what the implications could be for how that process occurs.

Our main conclusion is that diverse Asian approaches to responsible enterprise will increasingly affect business practices around the globe. We argue that not only can this development be welcomed, but it is essential to achieve a fair and sustainable world, and now is an important moment for people interested in business-society relations to engage in elaborating greater understanding about Asian approaches to responsible enterprise and finance. We call for further democratising the way the Asian responsible enterprise community of practitioners, policy makers and experts are developing their own agendas, and warn of some of the cultural challenges for professionals in both the East and West. We conclude by returning to the fundamental reflections about economic systems that the financial crisis is provoking, and suggest that key Eastern liberation leaders could offer us some insight into forms of political-economic system fit for a fair and sustainable world, as well as the way to bring them into being.

»  The Power Shift

(The references are available in the pdf download and hard copy versions of this annual review, available from Lifeworth’s bookstore.)

This section can be referenced as:

Bendell, J., and C Ng, ‘Introduction’, in J. Bendell, N. Alam, S. Lin, C. Ng, L. Rimando, C. Veuthey, B. Wettstein (2009) The Eastern Turn in Responsible Enterprise: A Yearly Review of Corporate Responsibility from Lifeworth, Lifeworth: Manila, Philippines. (Page numbers for this section are available in the pdf download and hardcopy.)

Islamic finance is a banking system that is characterised by five principles of Shari’ah or Islamic Law. These include: prohibition of interest (riba), prohibition of uncertainty and excessive speculation (gharar), prohibition of certain economic activities (including the consumption of alcohol and tobacco, gambling and pornography), share of profits or losses (musharakah), and use of asset-based financing (murabaha).³ Islamic finance is concentrated in the Middle East and South-East Asia (predominately Indonesia and Malaysia) but is spreading into North Africa and Europe. It is regulated by the Islamic Financial Services Board (IFSB), an international standard-setting body which ‘promotes and enhances the soundness and stability of the Islamic financial services industry by issuing global prudential standards and guiding principles for the industry’.⁴ In 2008 the spread of Islamic finance in Western economies was highlighted when Dublin-based maritime communications group Blue Ocean Wireless secured access to debt funding of $25 million (417 million) from Bank of London and The Middle East plc (BLME), a Shari’ah-compliant wholesale bank based in the City of London representing what ‘is thought to be the first time that an Irish company has availed of Islamic finance’⁵

French Finance Minister Christine Lagarde: wooing Islamic banks

Islamic finance accounts for approximately US$700 billion of assets and is growing at 10–30% annually, according to Moody’s Investors Service. Wall Street now offers an Islamic mutual fund and an Islamic index. The importance of the Islamic finance principles has been accepted by the UK Financial Services Authority,⁶ the World Bank and the International Monetary Fund. In December 2008, the Associated Press reported that France became the latest country to woo Islamic banks.⁷ Finance minister Ms Christine Lagarde, who believes that Western financial institutions could learn a thing or two from Islamic finance, promised to make necessary adjustments to the French regulatory framework so that Paris could become a major marketplace in Islamic finance.

The turmoil in global financial markets since mid-2008 has raised serious questions about prudential lending and borrowing practices, risk management and corporate governance.⁸ Added to these are two behavioural problems: greed and fear.⁹ The Secretary General of the Franco-Arab Chamber of Commerce, Dr Saleh Al Tayar, claimed that the 44.9 billion loss suffered by Société Générale SA as a result of Jerome Kerviel’s unauthorised trading could not have happened in an Islamic financial institution.¹⁰ And Mohammed Awan maintains that the global financial crisis ‘would not have occurred if Islamic principles were applied in international financial markets’.¹¹ This is because, under Shari’ah principles, one cannot ‘sell debt against debt’. In turn, greed leads to sale of dubiously rated collateralised debts. A further reason advanced is that Islamic finance principles require deals to be based on tangible assets that require tight controls over debt levels.

In relation to sukuk (bond) issues, Shari’ah rules require bondholders to be undivided partners in the underlying asset(s) that are being financed. Accordingly, the effect on Islamic financial institutions has been muted as sukuk instruments are generally held to maturity.¹² Thus, narrow yield spreads provide less occasion for speculation in secondary markets. Some proponents argue there is minimal probability of default with sukuks since issuers are able to meet payment obligations.¹³

Moody’s in its November 2008 report shows that Islamic financial institutions have been quite resilient in the current global financial crisis. As an interesting aside, no Islamic bank has acknowledged investing in Bernard Madoff’s US$50 billion fraudulent Ponzi scheme.¹⁴ The resilience of Islamic finance is summarised by Zarina Anwar¹⁵ as follows:

The development of Islamic finance in general is also important from the perspective of financial stability . . . The Shariah-based approach contains in-built checks and balances through risk- and profit-sharing structures. More critically, it demands a high level of disclosure and transparency in the financial system which is consistent with the principles of sound securities regulation as well as in compliance with Shariah requirements. This is not to say that Islamic asset markets have not been affected by the current turmoil. Indeed it has, and the value of Shariah compliant equities has declined in tandem with that of global equities. But it has been shown that Islamic finance in various segments of the market has been able to weather the storm relatively better than its conventional counterpart.

Nevertheless, the impact of an economic downturn and evaporating asset values was having an effect on Islamic financial institutions, and led to a number of events at the end of 2008 to discuss measures to mitigate those impacts. For example, on 25 October 2008, the Islamic Development Bank convened an urgent meeting to discuss the impact of the global financial crisis on the Islamic banking industry and agreed on policy initiatives to tackle the challenges and opportunities for the industry. In November 2008 in Kuala Lumpur, the IFSB and the Institute of International Finance (IIF) jointly organised a conference, entitled Enhancing the Resilience and Stability of the Islamic Financial System, to examine whether the Islamic financial system is strong enough to weather the crisis. The connectedness of global finance and the global economy means that, although principles may protect Islamic financial institutions from the extreme impacts of the financial crisis, they cannot be insulated entirely. This raises a question that has hitherto been avoided by the Islamic finance community: should they engage more assertively in international policy processes to promote their principles to non-Islamic governments and financial institutions, for mutual benefit? An affirmative would imply a reversal of a dominant assumption of recent centuries: that the ‘West’ has a version of economics that is suitable for the rest of the world, while non-Western approaches are seen as exotic, at best filling a niche, at worst being mere artefacts from pre-modern societies. That is an assumption that some non-Western communities have been complicit in maintaining, by assuming their own ways of organising are specific to their society, rather than relevant for all societies.

The rest of the world could benefit from the Islamic financial community assuming a greater role in international initiatives to achieve financial stability. That is not only because of the problems described above, but because Islamic finance recognises the deep problems associated with interest. As money enters economies as debt, being lent by banks, so interest is attached, thereby requiring organisations and people to pay back more than they originally borrow. This creates a growth imperative, as the economy must keep expanding in order that the interest is paid. That poses a problem for a world of finite resources. Interest also promotes a competitive approach to society, as people need to acquire more money than they began with, because of the interest payments. In his description of money systems, one of the originators of the euro, Bernard Lietaer, explains how interest-money therefore necessitates increasing economic inequality.¹⁶ Although many financial institutions would be wary of Islamic finance principles being seen as a blueprint for a new global financial system, as it would curtail many of their lucrative but risky activities, leaders of the ‘real economy’ could support such a view, as they would benefit from a more stable financial system. That is not to say that Islamic finance does not present areas for substantial refinement. First, the emphasis on debtors having tangible assets could restrict loans to the economically disadvantaged, such as those currently being helped through microfinance. In addition, the processes for discriminating against certain economic activities or systems of financing on the grounds of their being considered morally inappropriate would need to be refined. For instance, the sukuk market declined at one point in 2008 as a ‘Bahrain-based group of Islamic scholars decreed . . . that most bonds ran afoul of religious rules . . . Only one that complies with the edict has been issued, pushing up borrowing costs on projects including $200 billion of real-estate developments in the United Arab Emirates capital’.¹⁷ The growth of Islamic finance therefore raises challenging questions about the accountability of those who have greater power in interpreting religious texts and their contemporary spiritual implications. This highlights how an ‘Eastern turn’ in economic power is likely to present a range of novel questions for corporate responsibility.

» Sovereign wealth fund responsibility

(The references are available in the pdf download and hard copy versions of this annual review, available from Lifeworth’s bookstore.)

This section can be referenced as:

Bendell, J., and N. Alam, S. Lin, C. Ng, L. Rimando, C. Veuthey, B. Wettstein (2009) The Eastern Turn in Responsible Enterprise: A Yearly Review of Corporate Responsibility from Lifeworth, Lifeworth: Manila, Philippines. (Page numbers for this section are available in the pdf download and hardcopy.)

The Federal Reserve System (Fed)’s lax monetary policy, leading to abundant liquidity in the system, and loosening lending practices combined to cause a crisis in sub-prime mortgages in the US. What transformed this into a global financial crisis was the complex and opaque securitisation process and the shadow banking system made of off-balance-sheet vehicles, special-purpose vehicles and the like. Yet, as the crisis developed, it became clear that the whole system of highly leveraged banking had become unstable and unsustainable.

In a first plan to rescue the financial system, the US Treasury Secretary Hank Paulson and the Chairman of the Board of Governors of the Fed, Ben Bernanke, had Congress pass a vast bail-out of US financial institutions whereby the Treasury Department can buy up to $700 billion in toxic mortgage-backed securities or recapitalise the banks.⁵ This dramatic turn of events raised many questions and was widely commented upon. Were these bail-outs necessary? Should taxpayers’ money be used to bail out private companies that failed because of their excessive risk taking? What should regulators and government demand in return? In other words, who should pay the price for yesterday’s recklessness?

Robert Borosage: it would be obscene to help the predators and not those that they preyed on

That bankers were going to be bailed out, while homeowners still struggled, was galling to many. Robert Borosage, president of the Institute for America’s Future, said, ‘many homeowners were misled by predatory lenders to taking mortgages that they didn’t understand and couldn’t afford. It would be simply obscene to help the predators and not those that they preyed on.’⁶ Some also questioned the revolving door between bankers and regulators, and whether people such as Paulson, who became super-rich from working in one of the firms whose practices had helped create the crisis, should be deciding how to hand out billions to the same sector.⁷ They could point to investment firms scrambling for the oversight of all the assets that the Treasury planned to buy, so they could receive hundreds of millions of dollars in fees.⁸ News that the bankruptcy courts had released $2.5 billion to secure Lehman Brothers bonus payments, at a time when savers were still losing out, was just one example of a situation that seemed to many like a systemic abuse of power by a professional elite of regulators, judiciary and bankers.⁹

The bail-outs were defended by the fact that these financial institutions were ‘too big’ or ‘too interconnected’ to fail and that failure would have caused a systemic risk. If governments and regulators have let financial institutions become so big that they cannot be allowed to collapse, shouldn’t they be encouraging more competition and more diversity? This is at least the view of trade unions. UNI Finance Global Union, the global trade union for finance workers, has repeatedly called for a diverse finance market that includes not only private banks and insurance companies but also public banks, savings banks and insurances, cooperative banks, mutual insurance companies and foundations.¹⁰ However, this does not seem to be the view of governments and regulators who were pushing failing institutions into the arms of healthier ones (for example, the acquisition of Merrill Lynch by Bank of America in the United States or the takeover of HBOS by Lloyds TSB in the United Kingdom). As Lina Saigol, a Financial Times columnist, argued, this ‘new generation of gargantuan institutions [will have] the power to dictate the next financial boom and bust’.¹¹ With the new injection of funds from governments, many banks turned their attention to attempts at buying each other out, and thus compounding the problems associated with market domination by too few players, rather than getting back to the business of lending money to people in the business of making things for others.

Another issue raised by the bail-outs was that of moral hazard. Many commentators, including Financial Times columnist John Gapper, argued that the rescue of AIG ‘encourages the idea that institutions can run amok in markets and will be bailed out. Indeed, the bigger they are and the worse they have behaved, the more likely it is to happen.’¹² Other critics called these events ‘a perfect demonstration of Wall Street socialism’¹³ and the ‘socialisation of finance’.¹⁴ It is true that the financial industry seems to have understood better than any other how to privatise gains but socialise losses. After all, in 2007, Daniel Mudd, the CEO of Fannie Mae, reaped a 7% pay increase to $13.4 million while his company was losing $2.1 billion and its shares fell 33%.¹⁵

In many cases the bail-outs became part-nationalisations of the banks involved. This gave governments some additional influence over their practices, yet most politicians were cautious about what influence they would exert, and merely spoke about future executive pay. This timidity is an issue we return to in the following section, when discussing the broader implications of the financial crisis.

The irony of increasing government ownership of the banks is that taxpayers may face a double whammy of their own. Not only have they bought up bad debts, but they have bought into potentially massive legal liabilities. In a comment in The Guardian, Nick Leeson, the trader who brought down Barings Bank in 1995, said, ‘For my role in the collapse of Barings I was pursued around the world, and ended up being sentenced to six and half years in a Singaporean jail. Who is going to go after the reckless individuals responsible for the financial catastrophe? Apparently no one.’¹⁶ However, as time passed there appeared to be growing pressure to hold companies as well as individuals responsible for the global financial crisis. On 24 September 2008, regulators announced the broadening of the investigations into the collapse of the sub-prime mortgage market to include Fannie Mae, Freddie Mac, Lehman Brothers and AIG.¹⁷ In addition, many observers expected a sharp rise in shareholder lawsuits against investment banks and other financial institutions following the millions of dollars of losses they made by gambling money in asset-backed securities and the like.¹⁸ Lawsuits were emerging from Hong Kong to Paris to Reykjavik.

These actions slam the legal door after the capital horse has bolted. Rather than punishing the individuals who profited from using other people’s money to buy derivatives they did not fully understand, but knew could turn a profit in time for their next bonus, this legal action will cost the companies’ new owners, including the taxpayer. First the bankers, then the lawyers, will have bled the collective purse. As this situation becomes visible to the general public, calls for the people who made millions from speculating with their money to replenish their depleted pension funds may grow. There could be investigation into whether there was abuse of fiduciary duty by those who received large bonuses through creating, investing, rating or trading in mortgage-backed securities or credit-default swaps since the deregulation of those markets in 1999. Given the mobility of capital, such processes would require international cooperation, to freeze assets of those being investigated. If this happened, it would remind us of the words of Interface CEO Ray Anderson, who said that people like him would in future be regarded as criminals for doing things that at the time they considered normal business. Letting bankers live as millionaires, some as billionaires, from creating a crisis that has emptied the pensions funds and now the coffers of government, would sadly stand as a testament to systemic injustices of contemporary societies. However, it is unlikely that governments will want to see such a wave of litigation. As such, there may be growing calls for some form of ‘financial truth and reconciliation’ commission, to explore how this crisis developed, where fault lies, and how to repatriate some savings.

» The end of financial triumphalism

(The references are available in the pdf download and hard copy versions of this annual review, available from Lifeworth’s bookstore.)

This section can be referenced as:

Bendell, J., and N. Alam, S. Lin, C. Ng, L. Rimando, C. Veuthey, B. Wettstein (2009) The Eastern Turn in Responsible Enterprise: A Yearly Review of Corporate Responsibility from Lifeworth, Lifeworth: Manila, Philippines. (Page numbers for this section are available in the pdf download and hardcopy.)

One of the highlights for an audience yearning for the possibility of both a corporate career and a clear conscience was a plenary on Product(RED) and its contribution to the Global Fund to Fight AIDS, Tuberculosis and Malaria. Launched in 2006 by U2 singer and activist Paul Hewson (known popularly as Bono), Product(RED) is ‘a brand designed to engage business and consumer power in the fight against AIDS in Africa’. It works with the ‘world’s best brands’ to make unique (RED)-branded products and direct up to 50% of their gross profits to the Global Fund to Fight AIDS, TB and Malaria, to fund African HIV/AIDS programmes with a focus on the health of women and children. (RED) explains it ‘is not a charity or campaign’ but ‘an economic initiative that aims to deliver a sustainable flow of private sector money to the Global Fund’.²⁷ Greta Thomas told a few hundred delegates at the conference in Geneva that Product(RED) is ‘the most successful cause marketing initiative in history’, having raised over 100 million dollars for the Global Fund, through about 350 co-branded products in 60 countries.²⁸ Product partners include Converse, Gap, Motorola, Emporio Armani, Apple, Hallmark, Dell, Microsoft and American Express. (RED) reports there are currently more than 45,000 people on antiretroviral medication in Ghana, Swaziland and Rwanda owing to support from these funds.

Great stuff. So who could be complaining? Around the time of its launch, some NGOs grumbled. ‘(RED) is unlikely to raise significant amounts of money to close the funding gap of US$3 billion over 2006–7 and risks giving business a good cover story without pressing them for a more substantial contribution,’ wrote Aditi Sharma, International HIV/AIDS Campaign Coordinator with ActionAid International. But (RED) couldn’t be held responsible for the woeful response of the wider private sector at the time of the call for donations. A more worrying attack for (RED) came a year later when Advertising Age, a key magazine for that profession, published an article that argued the brands involved in (RED) had spent far more on advertising than had been raised for the global fund at that point in time. They had got their figures slightly wrong, so boss and co-owner of the company behind (RED), Bobby Shriver, slammed the article. His riposte did, however, contain evidence that the companies had spent almost twice as much on advertising than had been raised by (RED) for AIDS work at that time. The criticism must have hurt, as 15 months later Ms Thomas mentioned it from the podium, and explained that, as people are going to continue being materialistic, and businesses are going to continue to advertise, it’s worth looking to get some good out of that process. The president of (RED), Tamsin Smith, told the New York Times, ‘We’re not encouraging people to buy more, but if they’re going to buy a pair of Armani sunglasses, we’re trying to get a cut of that for a good cause,’ she said.²⁹

With people doing such ingenious, well-meaning and useful work, it can seem rather mean to pick holes. But someone has to do the unpleasant jobs. ‘Not encouraging people to buy more’? Was that really part of their pitch to Dell when asking the computer company to pay a big license fee upfront, as Dell planned a prime-time 2008 SuperBowl advertising slot in the United States for its (RED) laptop. All cause marketing, all advertising, all sponsorship, all PR is ultimately directed at encouraging people to buy from a particular company. Let us accept that and consider whether or not it is a good thing for the cause concerned that people buy more from a particular company.

Wayne Visser: putting the challenging question to (RED)

From the floor of the conference the prolific writer on responsible business Wayne Visser asked the question that was in the minds of many who work on corporate responsibility issues: how does (RED) deal with the social responsibility of its product partners? Although Dr Visser chose not to give examples of (RED)’s product partners engaging in commerce that is ultimately detrimental to the cause, he would be aware that a UN study has found that corporations may be undermining the global fight against AIDS due to the impacts of their value chains on the conditions for HIV transmission and progression, and by not seeking to address these.³⁰ For example, cobalt is a necessary component of all mobile phones. Cobalt is predominantly to be found in the Congo. A vigorous mining industry has sprung up to service this need. And mining has been key to the spread of AIDS in Africa. So we are entitled to ask about the negative impact on the fight against HIV of purchasing, for example, Motorola(RED) phones. It can be put quite bluntly: an initiative that promotes more business-as-usual in these high-risk sectors by encouraging sales is in fact exacerbating the spread of HIV/AIDS.³¹

In response to concerns about its product partners, (RED) espoused a set of principles, among which are: ‘(RED) respects its employees and asks its partners to do the same with their employees and the people who help make their products or deliver their services’ and ‘(RED) promotes HIV/AIDS workplace policies and practices’. To this end, it is working with the Global Business Coalition against HIV. In 2008 Motorola was not yet a member of this coalition; and the company’s 2007 CSR report does not mention working on HIV/AIDS workplace policies and programmes with its suppliers. In that report the auditor Verité calls for Motorola to do more on promoting awareness among its suppliers of the company’s code on various aspects of labour relations.³² So there is no evidence that Motorola has improved the impacts of its value chain to a degree that could give one confidence in a statement that one of its products is ‘Designed to Eliminate AIDS in Africa’, as its advertising claims.

Ms Thomas responded to Dr Visser by suggesting that when a company ‘signs up for Product(RED) it is arguably putting a great big target on its forehead for spotlighting its broader CSR activities’. This spotlight effect is yet to be seen in Motorola’s policies and programmes on HIV/AIDS. So, perhaps by writing this article we are in some way helping (RED) achieve this spotlight effect. We are happy to help, but might a more hands-on approach from (RED) more usefully consider the product partners as well as the intended beneficiaries in Africa?

The head of Private Sector Resource Mobilisation at the Global Fund, David Evans, declared from the podium that ‘(RED) involvement can be the start of a conversation with a company and in creating a deeper engagement with your cause’. He explained the Fund’s discussions with Nike—which is a (RED) partner through its ownership of Converse—about what could be done on gender issues, given the ‘feminisation’ of the AIDS epidemic. ‘Financial contributions . . . can’t be the end of a conversation; it has to be the start,’ he said.

Ms Thomas explained that (RED) encourages companies where possible to source or manufacture in Africa, in order to create employment in export industries. Some of the partners have sought to create positive relationships with African entrepreneurs as part of their (RED) commitment. Designer Giorgio Armani said, ‘as I set about designing my first collection of Emporio Armani(RED) products I wanted to create a tangible and personal connection with Africa. What better way than to incorporate the striking art of Owusu-Ankomah . . . ?’ Armani is now sourcing materials for its T-shirts from Mozambique, although no information is provided on its website or that of (RED) about the working conditions. More enterprise in low-income countries, whatever the enterprise and whatever the employment conditions, is not in itself progressive: the problems in the mining and manufacturing sectors provide a simple illustration of that. Creating decent work in sustainable enterprises must be the goal.³³ The US company GAP was more forthcoming about its aims for its (RED) products to make a positive contribution beyond the fundraising. The company has worked to ensure decent labour conditions in the factories there. Of particular relevance is its work on HIV/AIDS in the garment sector in Lesotho. It has funded the Apparel Lesotho Alliance to Fight AIDS (ALAFA), to provide HIV testing and treatment options to thousands of garment workers. GAP has also lent its expertise on dyes and yarns, thus building local capacity to enter the Western market.³⁴

Aside from questions of how much is being raised compared to the marketing spend, and whether the participating companies are doing much on the HIV/AIDS impacts of their value chains, others have raised a broader critique about consumerism. The critics say it sends a message to the public that the current economic system and its large corporations are part of the solution to social challenges such as HIV/AIDS rather than an obstacle to their abatement. A political economic analysis of the reasons why governments, communities and individuals have been unable to protect and then look after themselves adequately can raise questions about the current system of corporate globalisation. One group called Product(RE) argues that ‘simply buying an item or advertising support for a cause will not solve an epidemic . . . it takes thinking more critically and consciously about how we consume’. It launched a counter-campaign that raises funds for HIV/AIDS in Africa through the reclaiming and recycling of consumer products, branded with a (RE)D logo, which involves (RE)cycling. They argue that (RED) ‘implies that corporations, branding and consumption are a necessary and healthy part of involvement in a cause . . . [but such] marketing is not only manipulative, but damaging. It claims to erase any guilt from shopping by offering products that aim to be not only ethically neutral but activist in nature . . . “This is for the greater good”, supplants doubts about the questionable origins or future life of an object.’³⁵ Could Product(RED) be a form of (RED)wash, a corporate pretence towards social benefit, perhaps more insidious than ‘greenwash’, the pretence of environmental friendliness by business?

The company that owns the (RED) brand, Persuaders LLC, was not impressed, and its lawyers took steps against the (RE)D initiative. With that, the company is asserting that its critics should be legally accountable for any breach of copyright. However, others may question to whom the Persuaders LLC, or its owners Paul Hewson and Bobby Shriver, should be accountable to in respect of their product partners’ direct and indirect impacts on public health. Because, when pressed on the criticisms we have outlined here, (RED) spokespersons remind us, ‘we are a business, not a charity’.³⁶ As a business with a growing role in the fight against AIDS, Persuaders LLC now requires more attention to its own social responsibility. The first step is transparency. Persuaders LLC does not have a website. Its co-owners are two of the richest men in the world, one of whom wrote the disingenuous statement ‘(RED) “shareholders” are the poorest of the world’s poor’.³⁷ That sounds like a great idea. However, while it is owned by people who don’t need the money, and encourages people to buy into their brand to give money to charity, it is important to know how much income (RED) receives from the process. It does not divulge the licence fees it is paid to set up the product partnerships, what percentage of its own turnover (if any) it is taking as profit, or what levels of accountability it aspires to in operational issues such as its own overheads and salaries.

The contract between the Fund and Persuaders LLC is not public and neither are those between Persuaders and the participating companies. One person working on the project told the lead author of this review that the participating companies can pull out of the scheme if Bono is not involved in future. If the Fund’s projections are correct, then this would mean in future almost 10% of the Fund’s work would depend on the interest and health of one rock star. People and institutions change over time, for better or worse, and so systems should be ‘future-proof’. A lack of transparency means concerned people cannot check these issues.

Another concern has been raised by some NGOs about the influence of (RED), and its corporate partners, on the Global Fund. That fund is governed by rules that ensure human need, not donor interest, determines the activities it funds. However, (RED) wished to promote itself to consumers by highlighting who was benefiting, and so a compromise was reached whereby (RED) could identify itself with projects in Africa, but not further, and the connecting of a participating company to a specific project was done following careful procedures. In subsequent years further specificity has been allowed, including specific countries and types of intended beneficiary. As a result other corporate donors can now brand their philanthropy in the same way. If corporate giving increases, this could cause problems for the system of needs-driven grant-making. The influence of business interests on the strategy of (RED) is illustrated by Persuaders currently considering whether to expand their giving to Asia, so that Asian companies may be more inclined to join (RED).

There seems to be a pattern emerging in the way (RED) responds to criticism. When criticised that it is not doing enough for the social cause, it reminds people it is a business not a charity. When criticised for not being a good business, it reminds everyone of its charitable contributions. Given (RED)’s offices in London are within the PR company Freud, one might be inclined to think this double-speak is carefully conceived. However, it is more likely that it reflects unreconstructed notions of business and charity. Cause marketing maintains that dichotomy: business makes money, charity takes it, and the political economic order stays the same. That order is being eroded by corporate responsibility and social enterprise, which seek to create social benefit through core business operations. (RED) is not part of that movement. It could be. It could be a catalyst for mainstream corporate responsibility, starting by ensuring that the value chains of its product partners have the best possible workplace policies and programmes on HIV/AIDS.

The Global Fund is leading the way in tackling HIV/AIDS, tuberculosis and malaria. It has unrivalled levels of transparency on matters other than corporate engagement. The private sector, (RED) included, must respect that transparency and needs-driven governance process. The key is to keep the goal in sight. Although for (RED) ‘in the end it’s about the dollars’, the Fund’s purpose is not about raising cash, but about reducing disease; is not about spending money on grantees, but ultimately about reducing the need for people to need such charity in the first place. Unless the Fund and its private sector partners keep that in view and seek to tackle the root causes of the problems, including the way economic processes and companies are involved, then they will fail their historic mandate.

» Movement East?

(The references are available in the pdf download and hard copy versions of this annual review, available from Lifeworth’s bookstore.)

This section can be referenced as:

Bendell, J., and N. Alam, S. Lin, C. Ng, L. Rimando, C. Veuthey, B. Wettstein (2009) The Eastern Turn in Responsible Enterprise: A Yearly Review of Corporate Responsibility from Lifeworth, Lifeworth: Manila, Philippines.
(Page numbers for this section are available in the pdf download and hardcopy.)

China has been increasing its anti-corruption drive in the past years, especially in major cities, where a number of scandals and shady deals involving top officials have been exposed. Wrongdoers have been fined, given jail terms or even death sentences. Such cases included the arrest of Shanghai’s party boss, who had been a member of the Communist Party’s Politburo, the power core in China, and the execution of the former head of the national food and drug regulation body. China ratified the United Nations Anti-Corruption Convention in 2005 to curb the flight of corruption officials who abscond with public funds abroad. It even participated in the anti-corruption initiatives of the Asia-Pacific Economic Cooperation and the Organisation for Economic Cooperation and Development (OECD), although it has not yet signed the OECD Convention on Combating Bribery.

Minxin Pei: corruption in China is a high-return, low-risk activity

Despite this stream of high-profile efforts to align national with international anti-corruption initiatives, Minxin Pei, director of the China programme at Carnegie Endowment, a Washington-based policy study group, revealed in his report that, in reality, only a ‘small proportion’ of officials tainted by corruption are punished. He told journalists that ‘The odds of an average corrupt official going to jail are at most three out of 100, making corruption a high-return, low-risk activity.’⁸

Pei’s report, entitled ‘Corruption Threatens China’s Future’, showed that, despite the Chinese government’s more than 1,200 laws, rules and directives against corruption, implementation has been inconsistent and ineffective.⁹ Analysts explain that China, as an economy, has been undergoing profound structural change. The general lack of obedience to the law is attributed to increasing market competition and the growing domestic economic gap. After the collapse of the promised cradle-to-grave life-long protection, many citizens doubted that their hard and honest effort under the new open-market economy would be enough to provide a decent income. According to the Asia Times, business people assume that, if they have bought political backing, they can get investigations into their affairs called off and stories in the state media killed.¹⁰

In the 2007 Transparency International Corruption Perceptions Index, China ranked 73rd out of 156 countries. It was, however, a few notches higher than China’s 78th place the year before. The index tracks how business people perceive corruption in a country. China is not the worst in Asia, but it’s in the company of many much poorer countries, such as Laos.

Pei is not convinced that corruption is just a stage in China’s development. He believes rather that it is actually a failure of political reform:

The Chinese government has consistently resisted steps to further reduce the role of the state in the economy, increase judicial independence and mobilise the power of the media and civil society, even though international experience shows that only such full-fledged efforts can root out systemic corruption.¹¹

But, because of China’s one-party system, these channels don’t exist. Local Chinese party secretaries have sweeping control over the local media, legislatures and courts, breeding corruption and abuse of power.

Pei said that the direct costs of corruption, which could be as much as $86 billion each year, posed a ‘lethal threat’ to the country’s economic development. He acknowledged that corruption has not yet derailed China’s economic rise, sparked a social revolution, or deterred Western investors. ‘But it would be foolish to conclude that the Chinese system has an infinite capacity to absorb the mounting costs of corruption. Eventually, growth will falter.’¹²

Hu Jintao: corruption could destroy the Communist party

That many ordinary Chinese are concerned about corruption was highlighted just a few weeks before Hu’s speech, when the new website¹⁵ of China’s National Bureau of Corruption Prevention (NBCP) crashed soon after it was launched, ‘as Chinese people logged on in their droves to complain about corruption among the official ranks’. An NBCP official, who declined to be named, confirmed to Xinhua the breakdown had occurred because ‘the number of visitors was very large and beyond our expectations’.¹⁶ The scale of the problem indicates that firms in China will need to leapfrog the development of corporate responsibility in the West from compliance and philanthropy to become involved in promoting good governance (as ‘corporate citizenship’ means to some people).

» Foreign direct corruption

(The references are available in the pdf download and hard copy versions of this annual review, available from Lifeworth’s bookstore.)

This section can be referenced as:

Bendell, J., and N. Alam, S. Lin, C. Ng, L. Rimando, C. Veuthey, B. Wettstein (2009) The Eastern Turn in Responsible Enterprise: A Yearly Review of Corporate Responsibility from Lifeworth, Lifeworth: Manila, Philippines.
(Page numbers for this section are available in the pdf download and hardcopy.)

The power shift was symbolised in March 2008 when Indian conglomerate Tata completed its purchase of British car brands Jaguar and Land Rover.⁸ That stimulated debate about the loss of British iconic brands to the East. That acquisition was simply the latest in a trend over many years that has seen luxury car company Lotus bought by a Malaysian firm, and the luxury fashion firm Mulberry bought by a Singaporean firm, to name just two famed British brands. In sport, the purchase of Manchester City football club by a Thai businessman and former prime minister, then sale in 2008 to a member of the Royal Family from Abu Dhabi further highlighted the changing global economy.⁹ This shift also extends to technology innovations, as highlighted by the data on internet traffic. In 1999, 91% of data from Asia passed through the United States at some point on its journey. By 2008 that number had fallen to 54%.¹⁰

The financial crisis beginning in 2008 gave this power shift a further push, because at root it is a Western financial crisis, and although the ripples spread around the world, it was West financial institutions and governments who were most affected through a loss of capital and confidence (see ‘The end of financial triumphalism‘). As the BBC economics editor described it, “the credit crunch is creating a new world order in banking and finance… It’s a world in which the Chinese state, if it coordinated the investments of its cash-rich institutions, could end up owning more-or-less the entire financial system of the US and the UK.”¹¹ The implications of the financial crisis was something we paid much attention to in our analysis during 2008, in sections titled ‘The end of financial triumphalism‘, ‘Beyond the Western financial crisis‘, ‘Islamic Finance‘, and ‘Sovereign Wealth Fund Responsibility‘. The political philosopher John Gray, summed up some implications of the crisis in The Observer in September 2008:

“Here is a historic geopolitical shift, in which the balance of power in the world is being altered irrevocably… The era of American global leadership, reaching back to the Second World War, is over… The American free-market creed has self-destructed while countries that retained overall control of markets have been vindicated… In a change as far-reaching in its implications as the fall of the Soviet Union, an entire model of government and the economy has collapsed….How symbolic that Chinese astronauts take a spacewalk while the US Treasury Secretary is on his knees.”¹²

The following month Professor Gray might also have mentioned India launching their first lunar mission, to further illustrate that the shift is beyond the economic.¹³ Mark Leonard, with the European Council for Foreign Relations said in June 2008 that “it’s not just economic and military power that’s shifting from West to East. China is emerging as an intellectual power. It’s coming up with its own ideas, which are very influential, which other people are copying.” He explained to policy makers in the West that “the debate we’re having about managing China’s rise has got a mirror image in China, where they’re having an argument about how to manage the West’s decline.”¹⁴ Writing in his book before the financial crisis broke, in early 2008, Kishore Mahbubani notes that “for centuries, the Asians (Chinese, Indians, Muslims, and others) have been bystanders in world history. Now they are ready to become co-drivers.”¹⁵ The need to convene a Group of 20 of the world’s largest nations, rather than a G7 or G8, as in previous years, further highlights the historic shift.

These economic changes will also impact on development cooperation, due to the changing budgets of governments, and of civil society in general, due to the changing budgets of middle classes worldwide.¹⁶ Given the role of development cooperation and of civil society campaigning in shaping corporate responsibility agendas, this is likely to be significant for the future of responsible enterprise, something we return to below.

Another dimension to the shift is cultural. The Malaysian politician Anwar Ibrahim has often spoken of an “Asian renaissance” that is emerging in line with new economic power and cultural confidence. “By Asian renaissance we mean the revival of the arts and science under the influence of classical models based on strong moral and religious foundations; a cultural resurgence dominated by a reflowering of art and literature, architecture and music and advancements in science and technology,” he explains.¹⁷ One indicator was that throughout 2008 art critics were reporting the contemporary Chinese art as the hottest market in the art world.¹⁸ Cultural confidence pervades people’s identities and will therefore shape their assumptions and beliefs about the way enterprise should be conducted, amongst their other attitudes to life and work.

Ibrahim has noted how the shift in power has “given rise to the self-induced fear on the part of the West that its civilisation is on the verge of being overwhelmed by a horde of marauding Asians.”¹⁹ The concept of an inevitable “clash of civilisations” between the West and East has been developed by some contemporary Western philosophers.²⁰ We believe, that is a perspective arising from an ignorance of the diversity of Asian cultures and the interpolation between East and West through the ages. We also think it unhelpful in enabling the world to come together to face common global challenges such as climate change. But nor do we think the rise of Asia is something for Asians to feel pride about. Power is not in itself a source of pride; the manner of its generation and application can be. There is no pride to be had in power derived from exploitation or unsustainable processes, or if used in irresponsible ways. With new found power comes new found responsibilities, that extend beyond traditional concerns for family, ethnicity, nation or region. “Asians must not repeat the mistakes and excesses of the past inflicted upon them by multinational corporations,” asserts Anwar Ibrahim.²¹ In this review we will explore how responsibilities are evolving in the business community in Asia.

» Importance of Asia

(The references are available in the pdf download and hard copy versions of this annual review, available from Lifeworth’s bookstore.)

This section can be referenced as:

Bendell, J., and C Ng, ‘Introduction’, in J. Bendell, N. Alam, S. Lin, C. Ng, L. Rimando, C. Veuthey, B. Wettstein (2009) The Eastern Turn in Responsible Enterprise: A Yearly Review of Corporate Responsibility from Lifeworth, Lifeworth: Manila, Philippines. (Page numbers for this section are available in the pdf download and hardcopy.)