Corporate social responsibility may be couched in the language of reasonableness and fairness, but in reality it is a racket that threatens many shareholders and workers.
This racket is illustrated by the RepuTex Rating System, released this week.
RepuTex says it assesses companies for governance, environmental and social impact and workplace practices, judged by 19 groups including the Wilderness Society, the Australian Shareholders Association and Standards Australia.
In part, it provides a soapbox for activists such as the Wilderness Society to blame, shame and praise corporations in a variety of areas.
The process is clothed in an appearance of independence and rigour. However, from the list of the assessors it appears they are chosen for their influence in the media and their desire to get something from corporations rather than their technical expertise. It seems inevitable that their evaluations will reflect little more than their agendas.
The strength of the process, however, is in the susceptibility of large corporations to "brandmail". Corporate reputations are highly valuable and fickle. Corporations will often appease groups that attack their reputations with conciliatory gestures to their aims, and donations. RepuTex appears to be perfectly placed to exploit this process.
Not surprisingly, Westpac comes out on top of the RepuTex rating -- as it does in most similar ratings. Westpac has come to the conclusion that, in the end, the values and wishes of activists will probably prevail and, even if they don't, they must be catered for as their influence and capacity for damage are too great to ignore. Moreover, it believes that there is money to be made from being friendly with them. Accordingly, Westpac has embraced groups such as the Wilderness Society as stakeholders.
One such example is BT Funds Management (a fully owned subsidiary of Westpac) and its actions at a recent extraordinary meeting of Tasmanian-based logging company Gunns' shareholders. The meeting was brought about by Wilderness Society activist-shareholders.
During the past 20 years, the native timber industry in Tasmania has been the subject of an intensive process of investigation and consultation through a regional forest agreement. The RFA in Tasmania was finalised in 1996 and resulted in a great reduction in native forest open to logging; a plan to phase out logging of old-growth forests and a strategy designed to shift the timber industry from native forests to private plantations.
The Wilderness Society -- a loose group of anti-logging activists -- was involved in the RFA process and achieved much of what it wanted. The community, however, decided not to ban logging of old-growth timber immediately, as demanded by the society, but to phase it out over decades to allow time and money to shift to private plantations.
As a result, Gunns has what other logging firms would die for: strong bipartisan community support; resource security guaranteed by a joint act of the federal and Tasmanian parliaments; and a union militantly onside. Indeed, the process has been a model of community consultation and sustainable development.
Unable to get traction against Gunns in Tasmania, the Wilderness Society refocused its campaign on Gunns' financial backers, including Westpac and the Commonwealth Bank. As part of this campaign, the Wilderness Society succeeded in getting an extraordinary meeting of Gunns' shareholders to vote on a proposal to immediately stop logging in old-growth areas.
The proposal was accompanied by research sponsored by the Wilderness Society that predicted the proposal, if accepted, would reduce earnings per share by "only" 11 per cent but would also increase the riskiness of Gunns' earnings profile. Gunns provided research that showed the impact would be greater.
As part of this campaign, the Wilderness Society warned that "Westpac would be judged by its success in preventing Gunns Ltd from logging old-growth forests". The Commonwealth Bank was given a similar warning.
At the extraordinary meeting, BT abstained from voting. The Commonwealth Bank voted against the motion on the grounds that it was against its shareholders' interests -- which it clearly was.
True to its word, in the RepuTex rating the Wilderness Society and other environmental judges ranked Westpac high and the Commonwealth Bank low.
After long, detailed and inclusive deliberations, the Tasmanian and federal governments decided to let old-growth logging continue for a period and on a sustainable basis. Gunns and its shareholders, acting on the decisions, invested in good faith.
However, Westpac (through BT) ignored the decision process in an effort to placate the demands of the vocal few.
The RepuTex Rating and the Gunns example highlight the fundamental flaw of corporate social responsibility, which is, in the end, just another attempt by the great and good to usurp the rights of ordinary people.
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