“A job for government agencies”
27/05/2007 – by D+C | E+Z
How does one tell companies that rise to the challenges of Corporate Social Responsibility from those that don’t?
Those that do must be guided by more than just the key figures typical of financial reports. Socially responsible companies also take interest in the environmental and social impacts of their operations. Companies do not exist for the sole purpose of making profits. They serve societal functions, and they should perform in ways that allow society as a whole to thrive.
Some economists argue that corporate action is social and responsible per se, because it creates employment and income, and that state and society should therefore leave companies in peace.
Well, I don’t believe that the motto “the business of the business is the business” can be upheld in our era of globalisation. According to strict business logic, capital would then only flow to where returns look most promising at any given time. No doubt, we have to take account of social and environmental consequences as well. Just consider climate change, its daunting consequences prove that today’s massive industrial use of resources is not sustainable.
But in the process of industrialisation, all countries, so far, have gradually introduced environmental and social standards. There is no empirical evidence of the much-feared “race to the bottom”.
That’s true. Where there is economic growth, a certain prosperity is created. New middle-classes emerge, and so does civil society, raising political demands and pressing businesses, which are entirely profit-minded, to address other issues too. Accordingly, it would be wrong to regard commercial success as opposed to Corporate Social Responsibility. In truth, it is a pre-condition. Without profits there is no social responsibility. Otto Group, obviously, is a profit-oriented company.
Why does Otto Group do more in terms of Corporate Social Responsibility than would be necessary from a strictly commercial viewpoint?
Dr. Michael Otto is very concerned about these matters. As a family-owned enterprise, Otto Group is not exposed to pressure from other shareholders, and can thus, from time to time, opt in favour of an environmental end rather than a short-term profit. A family business is probably less driven by short-term figures than listed companies. But we also know that acting responsibly has material benefits in the long run.
Please give some examples.
First, we earn customer confidence, and customer loyalty is a key concern for every retail business. In addition, we optimise our processes. If I look at all effects our operations have rather than only the naked financial figures, I get a better understanding of what is happening. That, in turn, helps to make better decisions, which, of course, is beneficial for the company’s long-term development.
Would Otto Group be taking account of sustainability issues in the same way if you were farther away from the consumers?
Market stimuli are relevant for all sustainability strategies. Companies need civil society to raise awareness of vital issues, thus shaping market expectations too. Nothing develops in a vacuum. It really is no surprise that organisations and businesses which are farther away from consumer demand often pay less attention to sustainability issues than do those that are closer to that market.
For many customers, what matters most is prices. You probably find it more difficult to attract that type of customer.
It would be extremely helpful for us if yet more customers took sustainability issues into account. There has been much effort to promote such thinking, by both the public and private sector. However, things did not advance as fast as we would have liked in recent years. Therefore, we commissioned a study by Trendbüro, a well established research outfit in Hamburg, to answer the following questions:
How are German attitudes towards sustainability changing?
What forces are driving that change?
How do consumers consider sustainability today, and how will they in future?
How do industries, including the retail sector, react to changing consumer attitudes?
The results were published last month. However, we are noticing some new momentum lately, and that may relate to the public debate on climate change, which finally is getting the attention it deserves. It really is high time we used resources sparingly.
Differences do not only exist between individual consumers and sectors, but also between countries. In Asia’s emerging markets, you cannot assume that employers have the same idea of workers’ rights as are prevalent in Germany.
No, indeed! Even if you’d only had a brief look around India, you’d be very naïve to believe that social standards can be enforced by a few clauses in a contract. In order to really see improvements, we have to go the extra mile, and Otto Group does. We have a Code of Conduct, and we require our business partners to prove that they are taking steps to observe these rules. Moreover, they are required to ensure that their suppliers do so too.
Who is in charge of monitoring performance?
Our suppliers commission social audits, which are carried out by independent agencies. These agencies must have accreditation from Social Accountability International (SAI), the organisation that defined the internationally recognised SA 8000 standard. The audit firms are qualified, therefore, and our suppliers prove their commitment by providing us with the audit reports.
And if you don’t get those reports, you discontinue cooperation?
Yes, it is a basic requirement of ours that partners undergo social audits. Let me clarify: our Code of Conduct is quite demanding, and our partners do not have to fulfil every single aspect right from the start. But they must demonstrate that they are serious about improving their performance and, within a year or two, we expect them to fully comply. To help our suppliers get there, we arrange specific training programmes, which, by the way, cost quite a bit of money. But that is fine with us, because we have a developmental understanding of our role. Personal contact also contributes to raising awareness. We are remarkably successful in sensitising business partners and ensuring that they treat their workers reasonably with regard to issues such as working hours and minimum wages. Of course, that does not mean that observation of our standards immediately becomes commonplace throughout the entire textile industry.
So there is still the issue of your suppliers’ suppliers meeting all criteria?
Yes, the pressure to comply must extend further upstream and we also have to look at what is happening at those stages of production, if we want change to happen.
Ultimately you have to go all the way to the cotton fields.
That’s right. If we want the whole chain to be sustainable, we cannot avoid considering raw-material production. And we actually do so for certain product lines. You may already have heard of the project “Cotton made in Africa”. In cooperation with other companies, we are forging an alliance to boost the demand for African cotton produced according to certain sustainability principles. That commodity will have a specific label, for customers to understand what they are buying. This approach will support small-scale farmers and their families in Africa. They will generate reliable incomes, making sure that their children can go to school.
Do you also use textiles manufactured in Africa?
So far, we regard Africa as a promising commodity supplier. We would like to see more levels of processing done there. In our view, however, it is still impossible to stimulate the textile industry directly through cotton production there. It would be great if we could buy yarn in Africa and not only cotton. But African companies have not reached that stage. They mainly cater to domestic markets and do not produce the quality we require. In the long term, there will be many possibilities, however. I believe that a liberalised economy driven by the private sector would be good for many African countries, the markets of which are still too strictly regulated.
You take interest in issues such as working hours and minimum wages in Asia. Are you doing the trade unions’ job in that respect?
We do not have much contact with Asian trade unions. They are often very different from German ones, their influence is often confined to a single company. Moreover, many tend to only look after the interests of high-skilled, better-placed workers, rather than worry about day-labourers or migrant workers. The plight of the very poor bothers us most, but they are hardly employed in textiles production, which requires certain skill levels. But yes, we are indeed doing someone else’s job: government bodies should be looking after these matters locally. India, for example, passed a law last year with harsh punishments for employing child labourers. However, this law is not enforced stringently. Officially, very sensible regulations concerning occupational health and safety are in force in all countries of the world. But you wouldn’t believe your eyes if you saw what is going on at many production sites. Of course, government agencies should be taking care of these matters, but they are only gradually becoming active in some places. Turkey is a promising example.
One often hears of progress in Turkey, India and even Bangladesh. But what are things like in China? The worry is widespread that textiles companies from the People’s Republic will steamroller all competitors once markets become fully liberalised.
In democracies, there is a certain sense of transparency and accordingly some societal pressure. The Chinese simply don’t allow that to happen. Accordingly, we face a more daunting challenge to safeguard our standards as western consumers want us to do. That issue will keep us busy for quite some time. But I do not believe that the Chinese textile companies will be able to greatly enhance their already strong position. The other countries you mentioned have reached good skill levels in some areas. Their particular fortes should allow them to hold their ground.
Questions by Hans Dembowski.