implementing integrity: the business case for forging an ethical company and supply chain and a...

Implementing IntegrityThe Business Case for Forging an Ethical Company and Supply Chain

And a Toolkit for Tempering the Links

Sean Cumberlege

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Extractive companies devote considerable effort to conducting their business ethically as well as legally, consistent with principles of corporate

responsibility.

SOME ARE SUCCEEDING

OTHERS ARE NOT

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Minimizing social conflict and supply

chain risk starts with companies looking in, not

out.

Operating with integrity is not a luxury to aspire

to, but a financial imperative.

Social risk and supply chain risk cannot be solved

by a one size fits all approach.

Legal remedies and strategies solve

legal problems. Not social problems.

WHAT ARE OUR PRIMARY OBJECTIVES TODAY?

$

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Operating with integrity Putting into practice the business ethics and corporate responsibility principles that a company preaches and that ensure it has a social license to operate

LETS GET SOME KEY TERMS OUT OF THE WAY

Social conflictPhysical protests, legal challenges, formal opposition, NGO and media advocacy, political opposition, allegations of human rights violations, industrial/labor strikes, and forced project cancellations by host governments.

Social license to operate Refers to the acceptance or approval continually granted to an organization's operations or project by local community and other stakeholders. It reflects a perception of legitimacy.

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Conflicts as of May 1, 2016 805 WHEN

What date and what phase of operation?

WHEREWhat exact geo-location did the social conflict occur?

WHOWhich stakeholders mobilized against the company?

WHYWhat are the proximate issues underlying the social conflict?

THE DATA

Social Conflict DatasetThe dataset tracks and maps enterprise related social conflicts around the world. Enterprise related social conflicts are typically disputes between an enterprise and one or more of its stakeholders.

Extractive company conflicts 455Conflicts as of July 1, 2016950 HOW

How did the social conflict manifest itself?

WHATWhat were the consequences of the social conflict?

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All Conflicts To Date

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Social conflicts and supply chains risks do not typically originate in vacuums.

Social risk is typically a result of a number of

issues that are interrelated.

POINT 1: The Business CaseMinimizing social conflict and supply chain risk starts with companies looking in, not out:

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Social risk and supply chain risks are often a direct consequence of policy decisions that erode trust and cooperation between projects and stakeholders.

The triggers of social risk and supply chain problems are increasingly

predictable, yet very few companies use root cause analysis or similar processes

to evaluate these incidents and learn relevant lessons.

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All Conflicts To Date

10

Access to/Competition Over Land

11

Health & Safety

12

Distribution of Benefits

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Extractive companies should be doing more to gather information regarding project environments to determine which issues dominate, how this is likely to affect stakeholders, and what consequences are likely as a result of any conflict.

Companies can use insights discerned from this information to develop and

implement social risk and supply chain risk-management strategies which are

tailored for the local environment.

POINT 2: Data-Driven Discernment

Social risk and supply chain risk cannot be solved by a one size fits all approach:

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Understanding your local environment, makes it easier to minimize social and environmental impact, avoid human rights risks, and target CSR efforts towards meaningful, sustainable and impactful programs that simultaneously lower social risk.

Understanding your environment allows you to focus at the grassroots and

community level early in the planning and feasibility stage of operations in an

effort to create genuine and lasting value to local stakeholders.

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USA 120

Environmental Degradation – 61%Community Health & Safety – 21%

PERU 34

Environmental Degradation – 65%Access to / competition over land – 21%

KENYA 27

Access to / competition over land – 40%Environmental Degradation – 37%

INDIA 38

Environmental Degradation – 42%Access to / competition over land – 34%

SOUTH AFRICA 53

Distribution of Benefits – 26%Environmental Degradation – 19%

A large element of ‘acting with integrity’ means being responsive to the needs and concerns of project stakeholders. What it means to ‘act with integrity’ changes depending on who you ask.

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53 conflicts

SOUTH AFRICA

HIGH

Neighbors/local communityLocal NGOsInternational NGOsIndigenous groupsActivistsFarmers/FishermanJob seekersInformal workersLocal governmentOrganized labor

MOBILIZING STAKEHOLDERS

==========

317271056318

EXTREME

INSIGNIFICANTLOW

MEDIUM

0 0 7 10 3

53

CONSEQUENCES: PEOPLE & PROPERTY

NTDs: 2216 = less than 1 week 4 = 1-4 weeks 1 = 1-3 months

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38 conflicts

INDIA

HIGH



==========

195335124071

EXTREME

INSIGNIFICANTLOW

MEDIUM

0 0 0 1 0

53


NTDs: 10

38

8 = less than 1 week 2 = 3-6 months

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40 conflicts

AUSTRALIA

HIGH



==========

1817261090170

EXTREME

INSIGNIFICANTLOW

MEDIUM

0 0 1 0 0

53


NTDs: 9

40

8 = less than 1 week1 = 1-3 months

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Legal compliance in terms of good corporate behavior is a minimum standard.

It’s not the gold standard.

Legal compliance-based strategies are only effective when combined with a nuanced understanding of a project environment, its stakeholders, their

concerns, and conflict trigger points.

POINT 3: Implementing Integrity

Legal remedies and strategies solve legal problems. Not social problems:

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Lawyers who understand this, can add significant value to their clients and to their companies. How?

• Maintain control over voluntary compliance.

• Even with the most robust contractual protections and legal compliance

mechanisms, MNCs still face the risk of reputational and value erosion.

• Multidisciplinary nature and complexity of regulatory and public expectations within the field of sustainability, CSR,

ethics, human rights, environmentalism and community consent

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In March 2016 alone, 69 social conflicts tracked in the dataset had quantifiable total costs of US$9.3 billion.

In April 2016, 75 conflicts tracked had quantifiable total costs of US$5.5

billion.

Operating with integrity is not a luxury to aspire to, but a financial imperative:

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Large-scale mining project suffers approximately $20 million per week in losses resulting from delay.

Investors are willing to pay significantly more when it is unlikely that a mine will

encounter development obstacles due to lack of stakeholder cooperation or

uncertain political support

Henisz, et al., Spinning gold: The financial returns to stakeholder engagement, Strategic Management Journal (2013)

Davis, Rachel and Daniel M. Franks, Costs of Company-Community Conflict in the Extractive Sector, Corporate Social Responsibility Initiative, Report No. 66. Cambridge, MA: Harvard Kennedy School

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After every strategy meeting, Kevin

Planks of Under Armour asks that

his employees answer 3 simple

questions:

CONCLUSION

What did I hear?

What do I think?

What am I going to do?

THANK YOU