That Serco should wish to manage the ‘Big Society’ makes excellent business sense: by this, I don’t mean that I approve of Serco ‘running the Big Society’, but I think it makes sense for a large corporate to wish to been in participating in ethical capitalism. It would be rather disingenious if we were to show hostility to this, just because it’s Serco (effectively). In a sense, corporates are damned if they do, and damned if they don’t. New Labour cosied up to the City, and wanted to be seen as the party which embraced ‘business’ – for ‘business’, they meant the City and corporates. A wider drive, which has taken place in the USA, is how corporates can be included as worthy members of the rest of the society; in such a society, bankers would have an important rôle to play in society as wealth creators, while people in the public sector, while perhaps not contributing towards wealth, are doing worthy jobs such as nursing or teaching (and indeed are members of the Unions).

A criticism of public limited companies, such as Circle, which have been keen to be seen as embracing ‘The Big Society’ is that they appear to have antagonised relationships with the unions. The recent rift between UNISON and Hinchingbrooke Hospital is a case-in-point. That Serco is one of the major bidders of ‘The Big Society’ is a sign that Serco, whilst generating £4bn in revenue last year, thinks it can generate a shareholder dividend, while participating in something which it considers to be worthwhile (The National Citizen Service).

Ed Miliband’s formulation of ‘responsible capitalism’ is effectively corporate social responsibility (CSR). CSR is all about companies going beyond legal obligations and their own financial interests to address and manage the impact their activities have on society and the environment. Corporates often try to develop a CSR brand which embraces a much more diverse range of stakeholders. A ”good corporate citizen” is expected to address the concerns and satisfy the expectations of individuals and groups who can affect or be affected by the company‘s activities.

The move by Serco to be involved in a major ‘Big Society’ initiative, some might say, in fact makes perfect business sense.  In such a framework, the “corporate brand”, which applies a single brand across the entire company, must appeal simultaneously to these diverse stakeholder groups. A corporate brand is likely to be linked intrinsically to the identity of the company; thus it encompasses the distinct attributes and values of the company to define for what the company stands,  and relates  to what is promised and expected in identity terms.

However, this strategy has not always been successful.   Toyota received a reputation for environmental responsibility by introducing its celebrated ‘hybrid’, the Prius. However, even as Toyota enjoyed phenomenal awareness levels and positive associations, in addition to sales bumps, it suffered from increased attention to its corporate actions. Loyal Prius owners, special interest groups, and NGOs vigorously challenged Toyota’ s lobbying efforts (in cooperation with Ford and General Motors) against tougher U.S. fuel economy standards. These conflicting messages— namely, advertising that claimed “harmony between man, nature, and machine“ together with corporate actions that seemingly harmed the environment— undermined both the corporate brand and the product brands.

Such a strategy is also fraught with potential dangers from within Serco itself. For example, Serco might find that there is an increasing need to deal with stakeholders’  demands discursively. The pluralism of global cultures and values means there is no ultimate frame of reference, or ultimate “right answer”. Even honest, sincere brand-related stories can induce both positive and negative public discussion that might alter and perhaps damage the way consumers and other stakeholders perceive the brand.

It is, however, perfectly possible for Serco to make a success of its Big Society plan.   Managers of these highly visible CSR performers, such as the U.S. giants Starbucks or Timberland, face pressures associated with accountability, limited resources, and public governance; they also make more direct comparisons of the value of investing in CSR than do managers of privately owned companies.

The involvement of corporates in sponsorship of the Olympic Games in 2012 here in London has been particularly controversial.

Paralympic organisers have defended the sponsorship of the games by Atos, a private multinational company whose UK healthcare arm is responsible for delivering controversial “work capability” assessments (WCAs) for hundreds of thousands of disabled people on sickness benefit. WCAs are face to face interviews carried out by healthcare professionals employed by Atos Healthcare to assess disabled people’s entitlement to Employment and Support Allowance (ESA, a sickness benefit that has replaced the old Incapacity Benefit). Each existing recipient of Incapacity Benefit is now being assessed for eligibility for ESA, at the rate of some 11,000 people per week. WCAs have been the subject of serious criticism by all relevant stakeholders in civil society including doctors and NGOs working on behalf of disabled people.

The present case concerns some of the problems with the system as experienced by people with mental health problems. Although medically trained, Atos HCPs typically have very limited knowledge of mental health. The interviews are often hurried, and rely on applicants to explain the limitations on their ability to work. The High Court yesterday granted permission to two disabled people to bring a claim for judicial review against the Secretary of State for Work and Pensions to challenge the operation of the Work Capability Assessment. Atos Healthcare, tests around 11,000 incapacity benefit claimants a week under a £100m a year contract with the Department of Work and Pensions. The company has been criticised by MPs for its “flawed” approach which has left thousands of disabled people wrongly denied benefits and has become a lightning rod for criticism of the government’s welfare reforms.

Earlier this year, a coalition of pressure groups unveiled a campaign against three controversial sponsors of the London Olympics, accusing them of using the Games to “greenwash” unethical corporate activities. The coalition – bringing together protest groups campaigning against Olympic sponsors Dow Chemical, BP and Rio Tinto – is chaired by Meredith Alexander, who quit as a commissioner of the London 2012 sustainability watchdog over Dow’s $100m (£63m) deal with the International Olympic Committee and its agreement with London organisers to fund the £7m wrap that will surround the stadium.

Dow is one of 11 international Olympic sponsors who have global marketing rights to the Games. They each pay an estimated $100 million for a four-year cycle covering a winter and summer Games. The company signed up in July 2010 so London is its first sponsorship of any Games. The Bhopal disaster was a gas leak incident in India, considered one of the world’s worst industrial catastrophes which occurred on the night of December 2–3, 1984 at the Union Carbide India Plant,Bhopal, India. A leak of methyl isocyanate gas and other chemicals from the plant resulted in the exposure of hundreds of thousands of people. The toxic substance made its way in and around the shantytowns located near the plant.  The official immediate death toll was 2,259 and the government of Madhya Pradesh has confirmed a total of 3,787 deaths related to the gas release.

Dow denies the claims, arguing it was neither the owner nor operator of Union Carbide, the plant’s owner at the time of the disaster, and that the company had divested of its Indian assets by the time Dow acquired it in 1999. Dow says the legal case was resolved in 1989 when Union Carbide settled with the Indian government for $470 million, and that all responsibility for the factory now rests with the government of the state of Madhya Pradesh, which now owns the site.In June 2010, it was reported that convictions over a gas plant leak that killed thousands of people in 1984 in the Indian city of Bhopal had been heavily criticised by campaigners. Amnesty International described the two-year sentences for eight people as “too little, too late”. The convictions are the first since the disaster at the Union Carbide plant – the world’s worst industrial accident. The eight Indians, all former plant employees, were convicted of “death by negligence”. Nityanand Jayaraman, of the International Campaign for Justice in Bhopal campaign group, has said that the punishment imposed on Union Carbide was wholly inadequate. An academic lawyer has even commented that blaming Dow for the chemical disaster might be akin to blaming Germany for World War II.

Overall, the expectations that our society has for the criminal justice system is to punish and rehabilitate individuals who commit crime. Punishment and rehabilitation are also two of the four acknowledged objectives of the criminal justice system, with deterrence and incapacitation being the others. Globally punishment has always been the primary goal to achieve when dealing with individuals who commit acts of crime.  However many argue that the lessons of Bhopal have still to be learned. With increasing regularity, similar scenarios continue to be played out around the world. Environmental disasters—both chronic and immediate—caused by irresponsible corporate practices are said to be becoming more frequent. Transnational corporations have learned to downplay damage, and to focus attention and liability on the local company in order to elude criminal and/or civil liability.The traditional approach taken by governmental enforcement agencies to deter and punish corporate crime is a multifaceted one. However, a corporation cannot be jailed, feel shame, nor possess a traditional sense of mens rea. In fact, the deterrence of corporate crime depends entirely upon the deterrence of individual employees. Over time, the criminal justice system also provided for both more severe penalties and means of investigation that the civil enforcement system did not.  The purpose of special/specific deterrence is to instill fear on the offender so that they will not commit future crime. Others argue that rehabilitation is a more permanent fix in deterring crime. Rehabilitation programs can help previous offenders to become re-integrated into the community and give them a sense of being.  Aside from the bright blue and pink surface of the hockey pitches, Dow has stepped in, in the 2012 London Olympics, to provide the wrap that adorns the outside of the main Olympic stadium after the London organisers could not find the 7 million pounds to give the finishing touch to what was a rather industrial-looking stadium.

While many corporate backers of the Olympics hope for the very best, Dow Chemical is taking a decidedly hard-nosed approach to its sponsorship in the face of criticism over its links with the Bhopal disaster. “This is an investment, not a sponsorship,” George Hamilton, the Dow executive in charge of its Olympic operations told Reuters in an interview as he rejected the Bhopal criticism as “inappropriate”. Other corporate sponsors include Coca Cola and McDonalds who also have extensive records in corporate social responsibility.

I am getting sick-and-tired of how many ‘experienced’ Labour bloggers, wonk-types and other politicos have no business nous. Please, when you’re reporting it, be aware that this is not a political idea which has come out of nowhere. It is a fundamental concept on all of the major corporate websites, including corporate law firms, called ‘corporate social responsibility’, explaining how corporates should have due respect for people, planet, and profit. For Greens, there’s an emphasis on the environment, for the Conservatives shareholder dividend (including A4e and G4s); but for us, even though we’ve been educated to be ashamed of them, the workers, you know the people who keep the education and health service alive – the Unions, the largest democratic movement in this country (as Owen Jones recently described in his set piece speech for NetrootsUK 2012). It’s really important that politicians who are involved in creating law understand what is going on in the outside world, particularly since many of them have no other experience, save for being a SPAD or other professional type. I should then like to defer discussion of this to Prof Michael Porter, at Harvard. He is saying exactly the same thing as Ed Miliband’s ‘responsible capitalism’ formulation. For people who do not understand the value of the workers in the organisation, or the value of the customers, often ignored in the public sector or in utility companies, this video is well worth watching.

A senior business professional in the US, Michael Hopkins, describes the situation well:

“A heady mix of greed, overconfidence and the use of poor business models that showed up flawed strategies caused the global financial collapse of one year ago.Banks and other financial institutions are once again in the news for paying huge bonuses on the backs of taxpayers’ bail outs.Is the merry go round of greed, overconfidence and flawed strategies about to spin again?”

Here is an extract from Polly Toynbee’s absolutely brilliant (in my humble view) op. of it:

“Miliband owns this turf: he earned it with his conference speech, considering the contempt from Cameron’s press and Blairites fearing he’d fatally broken the New Labour formula. Now he says he is breaking with that Labour past, and Cameron’s present. There is nothing anti-business about cleansing cheats, asset-strippers and vultures from honest savings and good business enterprise: Cameron has been forced to agree.

How has this change happened? UK Uncut‘s pithy demonstrations at TopShop and Vodafone graphically exposed tax avoidance. The Guardian’s Tax Gap series on companies avoiding £25bn tax through havens and loopholes provided facts. Occupy captured a public anger that conventional politics ignored. The High Pay Commission, set up by the left-leaning thinktank Compass, proved hugely influential, as did Will Hutton’s report on high pay in the public sector, blaming City contamination. London Citizens galvanised communities. Avaaz and 38 Degrees with their petitions raised the decibels. Drip, drip, drip, the ice thaws, and the outlandish becomes conventional when working with the grain of public opinion.

Miliband’s message today is important. Social democratic values are more vital in hard times when there is no money. How you share diminished resources matters more than how you share a growing cake. Labour always said cuts were inevitable, and now there is less money since Osborne stifled growth and added to the deficit. Hard choices for how we tax and spend need social democratic priorities: we are not all in it together when I get un-means-tested winter fuel payments, free travel and heavy pension tax relief with no perceptible cuts.”

Meanwhile, Michael E. Porter is the Bishop William Lawrence University Professor at Harvard Business School. As here, a university professorship is the highest professional recognition that can be awarded to a Harvard faculty member. Porter is a leading authority on company strategy, the competitiveness of nations and regions, and strategic approaches to societal problems, Professor Porter’s work is widely recognized in governments, corporations, non-profits, and academic circles across the globe. A sought after teacher, he also chairs Harvard Business School’s program for newly appointed CEOs of multibillion dollar corporations.

Based on the work of Porter and others, Hopkins concludes, “Moreover, the collapse of firms such as Enron, Lehman Brothers, and (now largely in public hands) General Motors who all suffered from poor strategic models shows that new business strategy models are essential. And, as argued here, a key message is that CSR is becoming a, if not, the core of business activity.It is fast becoming acknowledged that a strategic stakeholder model of engagement with the business environment means that the potential for avoiding disasters and increasing success and innovation can be increased.CSR is obviously not a panacea for all ills but more and more companies are seeing that it can enhance their competitive advantage.”

I am prepared to bet a huge amount of money that Ed’s speech for the Labour Conference in 2011 will be seen in retrospect as one of the most important political speeches of a generation in my lifetime.

Source: Harvard website.

For a fuller explanation, you are strongly advised to refer to this blog.

Wilful Blindness: Why We Ignore the Obvious at Our Peril [Paperback]. Margaret Heffernan 

Simon Schuster [Book review.]

This book would very much interest Adrian Sanders and Tom Watson. Rupert Murdoch was famously asked, “Are you familiar with the term “wilful blindness“?”

A definition of it, as stated in Heffernan’s book on wilful blindness, is supplied by Judge Simeon Lake in summing up the ENRON case, a corporate scandal which shook America and beyond: “You may find that a defendant had knowledge of a fact if thou find that the defendant deliberately closed his eyes to what would otherwise have been obvious to him. Knowledge can be inferred if the defendant deliberately blinded himself to the existence of the fact“.

In English law, the notion of a separate corporate personality has been pervasive, and the law has grappled whether or not the company is the proper defendant. Since the seminal case in the House of Lords, Salomon v Salomon [1897]. it has been held that the body corporate has a separate legal personality. However, it is  long been established that the Courts will not allow the Salomon principle to be used as an engine of fraud, for example Gilford Motor Company Ltd v. Horne [1933]. In a different guise, the legislature here has been concerned as to whether BSkyB is a ‘fit and proper person’ to hold a broadcasting licence, but the sting in the tail here. High quality global journalism requires investment. According to a recent article in the Financial Times, US Department of Justice is also investigating whether News Corp breached the Foreign Corrupt Practices Act (FCPA). Mike Koehler, a professor specialising in FCPA cases, has apparently opined that US regulators might be asked to consider whether they turned a blind eye over alleged payments to public officials.

The idea of the body corporate having a personality capable of criminal activity, such as fraud or manslaughter, is a well established one, and provides for a compelling look at the corporate psychology. The directors have a duty to maximise the success of the company, but it is possible that there might be wilful blindness on the part of companies. This provides the most interesting narrative of Heffernan’s clever book. Heffernan considers very convincingly how the human brain can cope with conflicting views, a notion called ‘cognitive dissonance’. The term “cognitive dissonance” is used to describe a feeling of discomfort that results from holding two conflicting beliefs. Heffernan in my view has grasped the full impact of the relevance of this to the corporate psychology, and hence potentially its behaviour.  Leon Festinger proposed that the greater the discomfort, the greater the desire to reduce the dissonance of the two cognitive elements (Harmon-Jones & Mills, 1999), and dissonance theory suggests that if individuals act in ways that contradict their beliefs, then they typically will change their beliefs to align with their actions (or vice-a-versa). You can easily read between the lines to see how a successful corporate might find itself in a situation like this, in a context such as phone hacking, and insights into the allegations about phone hacking have yet to be fully explored here in the English law.

Heffernan gives countless convincing examples of ‘wilful blindness’ from corporates. For example, the book makes reference to the collapse of Lehman Brothers, where it is alleged concluded that the failed investment bank had exploited its relationship with Linklaters to green light an accounting practice that kept billions of dollars off its balance sheet. This is reported in ‘The Lawyer’ here. Heffernan argues that, ‘in the desire to boost their balance sheet, such manoeuvres wilfully blinded their organisations to their own vulnerabilities.’ However, for me Heffernan’s most interesting analysis was why wilful blindness may be a form of shortcut, or as we know it in the trade of cognitive neuroscience, ‘a cognitive heuristic’. In a nutshell, we have 1 000 000 000 000 000 neurones approximately in a giant supercomputer, and we, as humans, have never been able to work out the brain is able to form so many higher-order differential equations, and once it does so, how it solves them so accurately. Many neuroscientists like me believe that shortcuts are the only way the brain can get round this. Heffernan directly argues that CEOs use such wilful-blindness cognitive shortcuts as a mechanism, when referring to the Deepwater Horizon disaster. According to Heffernan, Manzoni, a renowned energy supremo, said, “I believe nobody knew of the level of risk at Texas City because, if they had known, we would have taken different and substantively different actions.” Heffernan comments, pretty innocently, that: “Manzoni’s argument is intriguing because he’s using a logical shortcut: assuming that there could not have been a problem because, if there had been, someone somewhere would have taken action. Since no one took action, thee problem could not have existed.”

‘Wilful blindness’ is an elegantly written book which successfully combines cognitive neuroscience and the law, within the context of international contemporary corporate management. It will also appeal to law students and corporate trainees, and may even appeal to CEOs and the people who cross-examine them in formal hearings!