Why Corporations Fail To Do The Right Thing

The Article: Why Corporations Fail to Do the Right Thing by Christine Bader in The Atlantic.

The Text: Four years ago yesterday, the Deepwater Horizon oil rig exploded, killing 11 men and spilling thousands of barrels of oil into the Gulf. This Thursday is the first anniversary of the Rana Plaza collapse in Bangladesh, which killed more than 1,100 garment workers.

What has happened in the time since these disasters? BP was barred from drilling in U.S. deepwater—until last month. Western clothing brands are upgrading Bangladeshi factories, but the fundamentals of their business haven’t changed: Brands outsource production to factories serving multiple clients in low-wage, low-regulation countries (not just Bangladesh).

The lack of fundamental change in these industries—and others, such as financial services after the 2008 crisis—suggests disasters like these are bound to happen again.

Indeed, every corporate crisis evokes a sense of déjà vu. The Rana Plaza catastrophe bore echoes of the 1911 Triangle Shirtwaist Factory fire. The unfolding story of General Motors’ faulty ignition switches brings back 1970s memories of the Ford Pinto, whose infamously fire-prone fuel tanks went unfixed because upgrading them would have cost more than the $200,000 Ford set for a human life.

Why does the corporate world fail to learn from its tragic past? From 1999 to 2008, I worked for BP in Indonesia, China, and at the company’s London headquarters. It was my job to assess and mitigate the social and human rights risks to communities living near major BP projects, a role that existed because the executives I worked with understood that what was good for those communities was good for our business. I did innovative, progressive work bringing in experts and setting up partnerships and programs to benefit contract workers and neighbors of big BP projects in the developing world. But, obviously, I did not manage to prevent the Deepwater Horizon disaster, or the 2005 explosion of a BP refinery in Texas City that killed 15 people and injured many more.

I wanted an answer to that question, and I decided to write a book, reflecting on both my own experience and, also, documenting the experiences of my peers in other companies who similarly thought they were making progress mitigating risks to stakeholders, but then were faced with evidence to the contrary: supply chain managers in apparel companies who were sourcing at Rana Plaza; tech executives working to protect privacy but still seeing users persecuted with the data their companies collect.

Why, with this global invisible army of people working to prevent them do these disasters still happen? Why do they still happen when there are an unprecedented number of CEOs talking about corporate social responsibility (CSR)? More importantly, what does this “invisible army” need to succeed?

Here are some of the themes that emerged from my interviews and reflections:

1. People lie. More than one person I interviewed told me a story of touring a factory, doubling back on the pretense of forgetting something, and catching workers turning in their goggles or other protective gear. Factory owners will hide bad news if failing an audit means losing business. A few companies like H&M are said to have committed to multi-year contracts with suppliers, which are hoped to strengthen relationships between firms and suppliers, enabling them to address problems together, and remove incentives for suppliers to lie about conditions for fear of losing business. But in the meantime, as Jeremy Prepscius of BSR (Business for Social Responsibility), where I’m a human rights advisor, told me, “There’s always one good factory, and there’s always one that lies better than everybody else. So guess which one would have the cheaper price?”

2. People don’t talk to each other. Big organizations often operate in distinct, siloed divisions, and multi-disciplinary issues like human rights and sustainability often fall through the cracks. As director of corporate citizenship at Microsoft, Dan Bross oversees assessments that cut across multiple functions like legal and product development to identify potential risks to users. He told me, “I have a horizontal job in a vertical world.”

3. Safety and responsibility cost money—and no one gets rewarded for disasters averted. Even those companies not living explicitly by Ford’s 1970s model have to perform some sort of cost-benefit analysis. Since the work that I did for BP and that my peers do for their companies is preventative and complex, it can be hard to justify the expense of any one intervention.

In retrospect, I realize that I had so much support for community investment around the BP project I worked on in Indonesia because there were examples in the country of whopping price tags when things go wrong. Freeport-McMoran’s Grasberg copper and gold mine in the same province has seen decades of violence: People who live nearby resent the company for polluting and not employing enough local residents. Consequently, Freeport reportedly spent $28 million on its own security force there in 2010 alone. ExxonMobil’s gas plant in Aceh had to halt production for four months in 2001 because of the surrounding social unrest, which some accused the company of exacerbating; that shutdown was reported to have cost anywhere from $100 million to $350 million.

But many safety, ethics, and sustainability efforts require a leap of faith that the investment is worthwhile, much to the frustration of those who lead those efforts. One supply-chain head for a major multinational told me how angry she was when one of her company’s prestigious internal awards went to a colleague who managed a major safety disaster. “Really?” she marveled. “What about those of us who made sure we didn’t have any safety disasters?”

Ebele Okobi leads Yahoo!’s efforts to protect privacy and free expression on the internet. She told me: “A big part of what you do is prevent bad things from happening. So being good at your job means that people start thinking, ‘Do we really need this?’”

4. Few people bear witness. Sadly, if an executive doesn’t see problems firsthand, he or she is much less likely to commit resources to addressing them. Even the most numbers-driven executive can only be brought so far with a spreadsheet.

The people I interviewed see it as part of their job to bring stories of the communities their companies affect into the cocoon of corporate headquarters. Darryl Knudsen, senior advisor on business and human rights at Gap Inc., shared with me a wrenching account of his visit to a hospital in Bangladesh following a factory fire there to meet survivors and their families. “I need to be confident in representing the choices we’re making as a company, and I need to know I’m going to fight hard for the right choices,” he told me, and such encounters are how he does that. “If it gets too abstract you can get lost.”

Sean Ansett, who’s worked in supply-chain roles for numerous brands told me that he brought into a management meeting photographs of a factory in China where the company was sourcing, “and people were appalled.” He told me that the CEO and CFO followed up with him, asking for updates, and that he got a 15 percent budget increase the following year. “If this is presented in a monitoring report or a dashboard,” he said, “There’s no story behind that, no face behind the name of a factory in a province they’ve probably never been to in a town they have never been to. The image alone was enough to connect them.”

5. No one knows what corporate responsibility is. Right now we’re in a free-for-all in which “CSR” means whatever a company wants it to mean: From sending employees out in matching t-shirts to paint a wall for five hours a year, to recycling, to improving supply-chain conditions, to diversity and inclusion. This makes it difficult to have a proper conversation about what corporate responsibilities are and should be. In some respects, that’s okay: The breadth of the concept brings companies to the table to discuss their role in society. Then, as Aron Cramer, President and CEO of BSR told me, “The trick is to get them to the table, then move the table.”

In recent years human rights has emerged as a way to frame business’s responsibilities, which is a useful development: the 1948 Universal Declaration of Human Rights spells out the thirty rights and freedoms that “every organ of society” (in the language of its preamble), including governments and companies, must not violate. There is no Universal Declaration of Corporate Responsibility.

6. Consumers won’t pay more. One report showed that ensuring good working conditions would add less than one dollar to the price of a pair of blue jeans. But despite responding to surveys that they care about ethics, shoppers refuse to pay more. In one study, only half of customers chose a pair of socks marked “Good Working Conditions” even when they were the same price as an unmarked pair; only one quarter of customers paid for the socks when they cost 50 percent more.

Until the general public acknowledges the true cost of consumption, the people inside companies fighting for more responsible practices will be waging an uphill battle.

If we are to stop harm associated with business, we have to understand why people fighting the good fight inside companies fail, and what they need in order to succeed. We all have a role to play: The general public has to recognize the real costs of safety and sustainability, and define what corporate responsibility really means to us. Companies must bear witness to their impacts, improve internal communication, reduce incentives to lie, and reward prevention. The lives of workers and communities around the world—and of the planet itself—depend on it.