[Stop-traffic] NEWS/UK: RISKY BUSINESS.

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Subject: [Stop-traffic] NEWS/UK: RISKY BUSINESS.
From: Melanie Orhant (morhant@igc.org)
Date: Mon Jan 22 2001 - 09:36:04 EST


31Dec00 UK: RISKY BUSINESS.
One of the most important assets a company has is its brand and reputation.
Peter Frankental explains whysocially responsible companies represent good
investments
Recent TV documentaries focusing on slave labour in the cocoa industry and
on child labour in factories producing goods for Nike and The Gap reflect
growing public concern about the human rights impact of transnational
corporations.
The widening gap between the behaviour of companies and the expectations of
society is creating a crisis of confidence that is threatening the
reputation of some of the world's leading companies and brands. Arising
from this is a key issue for pension fund trustees to consider. To what
extent might reputational pressure lead to the undermining of a company's
capitalisation?
Charles Fombrun, professor of management at the Stern School of Business,
New York has argued that each company's reputation is "a fragile intangible
asset that complements and sometimes surpasses the value of the more
tangible material and financial assets that managers routinely worry
about". In Fombrun's view, intangible assets will provide companies with an
enduring source of competitive advantage in the future.
A recent publication by The Prince of Wales Business Leaders Forum, in
collaboration with the World Bank and the United Nations Development
Programme, commented that: "Reputation is built on a complex base of
intangible attributes such as reliability, quality, honesty, trust, social
and environmental responsibility and credibility - which span the whole
spectrum of a company's business and support activities...There is clear
evidence that a good reputation gains a company more customers, better
employees, more investors, improved access to credit, and greater
credibility with government."
The importance of reputation to a company's asset base is in part a
reflection of a more discerning and critical public. It also reflects a
relatively new phenomenon whereby many of the world's leading companies are
no longer primarily manufacturers of products but promoters of brands.
Image and perception are critical to brand success. Reputational damage can
undermine corporate brands.
The tolerance levels of consumers towards corporate malpractice are much
lower now than in the past. The vilification of UK railway franchise
operators and the furore over the mis-selling of endowment mortgages and
pension products are symptoms of a wider trend. The exponential growth in
ethical investment, albeit from a very low base, reflects growing concerns
on the part of consumers of financial products about the social and
environmental impact of companies they invest in.
There are other drivers that are changing the landscape for companies - the
movement towards greater disclosure, calls for changes to the structures of
corporate governance, challenges to corporate impunity in the legal sphere,
the integration of social considerations into trade agreements, and the
growing effectiveness of non-governmental organisations (NGOs) at exposing
malpractice.
It is only recently that human rights has become a reputational issue for
companies and the subject of coverage in the business media. Public opinion
is moving against companies benefiting from forced labour, exploitative
child labour, sweatshop conditions and other forms of abusive labour
practices. Businesses operating in zones of conflict are coming under
closer scrutiny, as are their relationships with repressive governments.
Some companies have begun to develop policy frameworks to address the human
rights context of their operations. Those that haven't will find themselves
under growing pressure to do so, not least from investors concerned about
the potential impact of reputational damage on the bottom line.
These trends pose dilemmas and challenges to pension fund trustees for
which there are no easy solutions. Amnesty International is one of several
NGOs that have begun to work with the investment community to enable them
to incorporate social and ethical considerations into their wider
investment strategies.
Peter Frankental is business group manager at Amnesty International UK
For copies of Amnesty's Human Rights Guidelines for Pension Fund Trustees,
contact Peter Frankental on 020 7417 6382 or
emailpeter.frankental@amnesty.org.uk.
Copyright Perspective Publishing 2000
For information on subscriptions, contract publishing and other Perspective
Publishing Limited services please contact us on: telephone 0207 426 0101,
fax 0207 426 0123, email perspective@lineone.net or visit our website at
perspective-publishing.co.uk.
PENSIONS AGE 12/2000
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