Corporate responsibility is also about making sure your company controls its own brand and narrative. In 2006, at the Conference Board’s Business Ethics and Compliance Conference, a speaker from a well-known public company remarked that, for most of their corporate history, they’d assumed if they did right by their customers, that would be enough. And while this attitude is certainly admirable, it didn’t prevent outside organizations from hijacking their reputation and causing them all sorts of reputational and even legal problems. They learned the hard way that actions are not enough.

You need to tell your story “early and often,” because chances are you may not like the way others tell it. In the post-Enron age of transparency, being open about all your practices (business, governance, ethical, compliance or corporate responsibility) is not a luxury but a necessity. The activist/NGO leaders have become masters at taking a brand identity and turning it against a company.

Click on the links below to see some examples:

Example 1

Example 2

The nightmare scenario is for a dedicated group of people to organize themselves exclusively around destroying your company. And such groups do exist. The best way to counter their actions is by (1) having responsible business practices; (2) being open and honest and (3) engaging with responsible NGOs in the field of interest. And no, “responsible NGOs” is not an oxymoron. They are out there, and they can help you understand emerging concerns.

Obviously, if your actions don’t match your values, then you have a problem no amount of words can solve.

In other words – take care of your actions and your words. You’ll need both.

We understand that sophisticated companies prefer supplier engagement rather than divorce. We do too. It is hard to have leverage when you no longer wield the power of the dollar (although that, of course, is less powerful than it used to be.) To its credit, Staples tried engagement. But it didn’t work. Mark Buckley, Staples VP of environment, “decided engagement was not possible anymore.”

So they cut the cord. This is a big deal—APP, one of the world’s largest paper companies, supplied Staples with 9% of its paper supply. Yet Buckley believed that being a customer of APP was “great peril to our brand.”

Environmental and human rights activists often echo Martin Luther King in his letter from the Birmingham Jail. “For years now I have heard the word ‘Wait!’ It rings in the ears of every Negro with a piercing familiarity. This ‘Wait’ has almost always meant ‘Never.’”

To send a credible message to those scrutinizing corporate actions for responsibility, sometimes engagement must end in divorce. Staples is to be applauded for taking this step. We also trust that they have held out hope for reconciliation, should Asia Pulp & Paper embrace its environmental responsibilities. Then the ‘Wait’ combined with action will have been well worth it.

While this is the first comprehensive report of its kind by an organization like Lehman Brothers, these conclusions are hardly new. In fact, if you open the annual report of any energy company, you’re likely to see at least a short discussion of the company’s approach to climate change. (Take a look at at Edison International’s 2006 corporate annual report for an excellent example of how to address this issue. In particular, check out pages 4 and 81.)

And don’t think the regulators aren’t busy. Two environmentally focused NGOs, Ceres and Environmental Defense, along with financial officers of 10 states and New York City have asked the Securities and Exchange Commission to require companies to disclose the risks that climate change may pose to their bottom lines (New York Times news article available here, free registration required).

In addition to Federal regulation, there has been additional movement at the State level. New York’s Attorney General Andrew Cuomo has started an investigation of five energy companies to determine if they have adequately disclosed financial risks associated with climate change.

In the near term, energy companies are going to be the most directly effected by climate change regulations, but they will hardly be alone. Any organization that is a major user of energy should consider what impact predicted climate change will have – in terms of higher energy costs, new potential regulatory challenges, impacts on facilities, and even disruptions to global supply chains.

The good news is that there are significant economic opportunities for organizations that successfully manage their climate change risks. Emissions trading is a tool for addressing air pollution problems and providing economic benefits to companies that are the cleanest. And of course any reductions in energy use are savings that go directly to the bottom line.

Even those who are global warming skeptics should consider that it doesn’t seem prudent to ignore it from a business perspective. Businesses are better off managing the risks associated with climate change themselves rather than having an antagonist’s solutions imposed on them.

Contrast that attitude with a story from the October 1, 2007 New York Times “The Everyman who Exposed Tainted Toothpaste.” Eduardo Arias really is an everyman. This 51 year old lives in Panama City, Panama. He is a mid level government employee. He lives alone and does not own a car, let alone have access to newspapers or the airwaves.

Eduardo read a label on a tube of toothpaste for sale—and saw that it contained diethylene glycol. Many Panamanians had died taking cough syrup with diethylene glycol—so the ingredient and its negative connotations were well known to Mr. Arias.

But this is what is—sadly—remarkable. He bought a tube, and took it to a government health office. Who told him to go to another office. And another. He persisted. And—equally remarkably—somebody in the government office paid attention. Three days later Panama’s top health official held a news conference alerting the country—and eventually the world—of this problem.

If a working class shopper in Panama can make a difference, what does this tell the rest of us?

I laid out some thoughts on this subject in an article that was just posted on Ethical Corporation On-Line. Here's the link. Take a look, and let me know what you think.

I've attached a link to my new article, and hope you find it interesting. [http://www.ethicalcorp.com/content.asp?ContentID=4688] I'll note that the article wasn't on-line for more than a few minutes before I received an e-mail from a reader pointing out that the trigger for the damage to Duke's reputation wasn't so much the precipitating event itself (an alleged rape that may well have not happened at all) but the ham-handed way the matter has been handled by the University. This is a good point, though my article was making a slightly different point. Nevertheless, the reader's e-mail suggests the possibility of a follow-up piece that discusses how little issues can easily become major scandals simply because they were not addressed correctly when they were first identified. I suspect this has been done to death already. We'll see. Stay tuned.

A recent food industry benchmarking project completed by Ethical Leadership Group supports this conclusion. For the most part, the participating food companies that are based in the U.S. have devoted less attention to integrating these functions, though the ethics officers we spoke to for this study all indicated both an interest in, and a recognized need for greater integration.

I recently wrote a piece that appears in the current (October 2006) issue of Ethical Corporation magazine in which I address this issue in somewhat greater length. Click here to download a PDF of this article. In this article, I make the case that convergence of ethics and CR in the United States is necessary for the creation within companies of true cultures of integrity. I think this convergence is occurring, slowly but surely.

Whether you agree or disagree that greater integration is inevitable and important, it can't hurt you to think about the degree to which your own company has addressed or is addressing this issue. And it can't hurt to ask yourself whether you want to be on the front edge of these developments, or chasing them.

Frankly, what was newsworthy to me about the article wasn’t the convergence around GRI – guidelines designed to help companies report on their corporate responsibility activities pursuant to a consistent, comparable framework. Rather, what struck me was the fact that corporate responsibility reporting has become so commonplace that this study actually merited its own WSJ article. I’m not sure I would have expected to see a similar story reported in the Journal two years ago.

But where is this value found? Maybe not where you’d expect. Some companies kid themselves into believing that their shareholders are clamoring for such reports. I think it’s true that some shareholders find these reports essential; it is nevertheless probably fair to say that the majority of shareholders are not reading these materials. But other key stakeholders are. These include regulators, community groups, the ever-growing world of socially responsible investors, and even employees.

It’s this latter group that I want to focus on for a moment. While businesses often think of CR reports as vital tools for communicating with external constituents (which they are), they tend to underplay or miss entirely the value of these reports to internal constituents. And the value is not limited to employees who may read the finished product. It importantly encompasses the teams of managers and employees who gather the data, evaluate the programs, and construct the narratives that make up the guts of these reports.

In a nutshell, CR reports, and the process of creating them, are key catalysts for important dialogue and strategy around corporate responsibility activities within companies. GRI has developed some tools for constructing reports that will help external stakeholders make apples-to-apples comparisons after the reports are published. But companies considering the publication of such reports will help themselves considerably by keeping in mind the tremendous internal benefits that the creation of such reports will also produce.

Apropos of this, Nicholas Kristof authored a very thought-provoking Op-Ed piece in the New York Times on June 6. In it he extolled the virtues of sweatshops, arguing that, as bad as they are, they offer better employment opportunities, better conditions, and better financial rewards than other alternatives available to a vast array of working age people in the developing world. I'm not willing to go quite as far as Kristof in singing the praises of sweatshops. Many countries -- including China -- have failed to enforce their existing labor laws, and conditions in their factories -- while improving -- still have a long way to go. But Kristof performed a huge service by reminding us of the need to put the issue of sweatshops into perspective. A knee-jerk inclination to shut them down, whether voiced by well-meaning campus activist, union organizations, or protectionist politicians, is neither responsible nor sustainable.

Remember -- 100 years ago this country was rife with sweatshops, and many of the rights we take for granted today were barely a dream for the factory workers of that era. We, too, still have a long way to go, but we have also traveled a great distance. We should always keep this in mind as we explore new and creative ways to enable and empower workers in the developing world to do the same.

But the game is changing both for ethics professionals and for lawyers, and their role as defenders of their companies' reputations and integrity is becoming increasingly difficult. In a recent article in CNNMoney.com, senior Fortune Magazine writer Marc Gunther correctly observed that "moral liability" is a growing risk for businesses. Corporate America's Hidden Risks, CNNMoney.com (June 28, 2006)

I won't say whether I believe these developments are good or bad. My own views are irrelevant. But as a great philosopher (I'm not sure who) once sagely noted, "it is what it is," and like it or not, the issue of moral liability decidedly "is." What this means is that for better or worse, the issue is alive, it is ripe, and it is not likely to go away. Indeed, because the internet creates the potential for global flash mobs at the click of a mouse, it is hard not to conclude that moral liability risks (and opportunities) will only grow over time. One can complain about it -- many do -- but you may as well howl at the moon for all the good it will do you.

As an alternative, you can acknowledge the reality of this evolving trend, and prepare yourself to be on the forefront of dealing with it. Ethics officers and lawyers know well where their companies' risks lie, and are equally well-equipped to manage those risks in ways that minimize direct or collateral negative consequences for their clients.

The growth of moral liability presents great risks for business. But it also presents tremendous opportunities for forward looking lawyers and ethics officers to expand their professional horizons and add value to your organizations in the process. Where do you see yourself in this picture?

For more information, see the Resources page at www.ethicalleadershipgroup.com. Another excellent resource, "The Changing Landscape of Liability: A Director's Guide to Trends in Corporate Environmental, Social and Economic Liability", was published by SustainAbility, and is available here

Not so at Home Depot.

Indeed, the extraordinary Home Depot numbers speak to the increasing impact and influence of mainstream shareholder groups, including pension funds and other large institutional investors, on ethics, governance and corporate responsibility issues in corporate America. Shareholder activism is on the rise and has proven to be increasingly effective in recent years. This trend will continue. A January 2006 survey by Mercer Investment Consulting reported that roughly a quarter of 183 institutional investor respondents plan to step up their proxy voting and shareholder engagement activity over the coming two years. And in April, the heads of leading institutional investment firms from 16 countries and representing over $2 trillion in assets officially signed onto the newly launched "Principles for Responsible Investment". These principles -- initiated by the UN Secretary General and developed in conjunction with the UN Environment Programme Finance Initiative and the UN Global Compact -- are designed to provide a framework for achieving enhanced long-term investment returns by better reflecting environmental, social, corporate governance and ethics considerations.

Home Depot presents just the most recent, and most dramatic, example of this evolving trend, but it is certainly not alone. ExxonMobil has been the repeated recipient of enhanced shareholder attention, and indeed its active shareholders have recognized strength in numbers by working together on proxy campaigns involving issues of common interest and concern. Put a few institutional investors together and you can produce a healthy block of votes for or against any of a full range of issues that shareholders care about. Alan Murray commented about this trend in his June 7 column in the Wall Street Journal.

All of which is to urge wise, thoughtful business leaders to pay heed to the shareholder groups that are knocking at your doors. Take them seriously, and develop true strategies for constructive engagement. Your owners are increasingly effective and increasingly mobilized. This trend is not likely to reverse itself. Most critics of the social responsibility movement argue that shareholders are the only relevant stakeholders that management should consider in running companies. Even accepting this as true (a topic for another blog, perhaps), your shareholders are speaking. Are you listening?