Nine years ago, I raised an idea to Compliance Week’s founder and publisher at the time, Scott Cohen, about creating a sister publication on compliance-related coverage devoted exclusively to corporate social responsibility issues. Although we discussed the idea for several days, ultimately nothing came of it. In the end, the hesitation was that companies don’t care enough about CSR to sustain an entire publication devoted to it.
Personally, I’d like to think that’s not true. Many ethics, compliance, and risk professionals do care about CSR and acknowledge the real value that such a program, done right, brings not just to a company’s bottom-line, but its corporate values, as well. Many best-in-class companies already know that truly effective corporate responsibility isn’t about brand strategy; it’s about business strategy.
Companies that have yet to figure that out are the ones reaping the consequences of their actions, as demonstrated by the numerous CSR failures of catastrophic proportions that continue to surface:
April 2010: The Deepwater Horizon oil spill erupts—the largest history of marine oil drilling operations, resulting in 11 casualties and the continuing long-term devastation of local marine and wildlife;
November 2012: A fire engulfs a garment factory in Bangladesh, resulting in more than 100 casualties;
December 2012: Another fire engulfs a second garment factory in Bangladesh, resulting in another 112 casualties;
April 2013: A third garment factory in Bangladesh, Rana Plaza, collapses, resulting in more than 1,100 casualties in the worst disaster in the history of the garment industry;
September 2015: Volkswagen is caught cheating emissions tests in millions of vehicles, deceiving regulators and consumers, and poisoning the planet for decades to come.
If these events collectively impart any lesson at all, it’s that chief compliance officers and chief risk officers have a vital role to play in their company’s CSR program. Each one of these disasters—the Deepwater Horizon oil spill, the garment factory tragedies in Bangladesh, Volkswagen’s emissions-cheating scandal—occurred on account of red flags that went ignored for far too long.
A robust sustainability program means thinking far beyond short-term gain and more altruistically about how the company can sustain itself well into the future.
Leading up to the fires and the building collapse of the garment factories in Bangladesh, for example, global retail companies with contractors in those buildings—Walmart, J.C. Penney, Abercrombie & Fitch, and more—repeatedly had passed safety audits. Right away, such failures in oversight bring up several questions that compliance and risk personnel at other global retail companies should think seriously about:
Do you have a CSR consultant who sub-contracts audits to local inspectors? If so, what policies and procedures are in place to ensure those inspectors are qualified and that no conflicts-of-interest exist?
Does the company train and educate its factory workers—those with the greatest knowledge of daily work hazards—in how to handle and report ongoing building or plant health and safety issues?
Do human rights issues come up when discussing business decisions, such as choosing low-risk suppliers, and whether certain contracts should get extended or renewed?
BP similarly ignored numerous safety violations leading up to the oil spill, due in part to a culture that was as toxic as the disaster itself. In addition to ignoring red flags that pointed to a pending disaster for years, BP management also reportedly ignored the warnings of internal whistleblowers. In interviews with CNN, rig survivors said, “It was always understood that you could get fired if you raised safety concerns that might delay drilling. Some coworkers had been fired for speaking out.”
In 2010 Congressional testimony before the House Energy and Commerce Committee, Henry Waxman, the committee chairman, noted, “There is a complete contradiction between BP’s words and deeds. You were brought in to make safety the top priority of BP. But under your leadership, BP has taken the most extreme risks.”
Other oil and gas companies should heed this warning, given that Waxman’s testimony pointed to a systemic issue across the entire industry. “[O]ther oil companies are just as unprepared to deal with a massive spill as BP,” he said. “We are seeing in the oil industry the same corporate indifference to risk that caused the collapse on Wall Street.”
Then comes the emission-cheating scandal that plagues the auto industry, with Volkswagen as the poster child. Most recently, Audi Chief Executive Rupert Stadler this month came under yet more questioning amid fresh discoveries by the California Air Resources Board of more emissions-cheating software installed in Audi cars.
Who knew what and when is difficult to say, even now. Even if VW senior management had no knowledge of the “defeat devices” themselves, they certainly played an indirect role by setting overly ambitious goals and forcing employees to meet them, no matter the cost.
The overarching message from all of these CSR failures is that a corporate sustainability program cannot be treated as a stand-alone or one-off exercise and certainly should never be treated merely as a marketing ploy to gain an unfair advantage over competitors. A robust sustainability program means thinking far beyond short-term gain and more altruistically about how the company can sustain itself well into the future.
To do that, however, requires a cross-functional approach. It requires open and transparent decision making and the sharing of pertinent information across business units. It requires training and education of employees who know directly what’s happening at the ground-level of plants and factories. It requires open dialogue and debate that encourages the reporting of health and safety issues, encouraged and rewarded by senior management.
CSR as a global issue is not going away and, in fact, will continue to become an increasingly important issue for investors, regulators, and consumers alike. The greater the role that chief compliance and risk officers play in their company’s CSR efforts, the greater the long-term rewards for all.