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#397 - The Corporation -- Part 2: Assessing Business Impacts, 06-Jul-1994

Many of us know in our minds, or feel in our hearts, that the products
and materials we use in our daily lives are helping to destroy the
natural world and may be manufactured under working conditions that are
dubious at best. Yet we don't have the information we would need to
make ethical choices.

And the problem is growing worse. As "free trade" laws allow
corporations to move more freely across international borders,
information about the impacts of corporate activities is becoming more
difficult to get. A large corporation can affect people and the
environment in dozens of countries simultaneously. Most of these
impacts are hidden, even from the managers of the corporations involved
because they buy from suppliers or brokers who, in turn, buy from
others. The ultimate impacts remain hidden from the consumer and, too
often, from corporate managers themselves.

Take the case of Procter and Gamble, which distributes Citrus Hill
orange juice.[1] The oranges come from Florida farms and are picked
largely by itinerant workers. However, P&G neither operates the farms
nor buys directly from the farmers. Instead the oranges are purchased
from a broker who serves as a go-between and who, unlike P&G, operates
outside of public view. P&G has no direct knowledge of the
environmental or worker conditions at these farms. Yet a CBS-TV
investigative report reveals that working conditions at some of the
orange groves are little better than indentured servitude. Migrant
workers live on the farms in abysmal conditions, without even a bare
minimum of comfort, sanitation or dignity. Yet, in return for room and
board they must pay their employer an amount in excess of their
salaries! In a vicious circle, each worker becomes deeper in debt to
the landlords, some of whom refuse to return the workers' "green cards"
until the debt is paid off. The arrangement is patently illegal, as are
the living and working conditions, yet local authorities appear to wink
at the situation.

Overseas, the situation is often worse. NEWSWEEK has revealed that
Chinese prisoners, including political prisoners, are forced to
manufacture items for export, including a well-known brand of running
shoes, flashlights, and the boxes for Seagram's wine coolers. Other
journalists have asserted that clothing is manufactured for Wal-Mart in
sweat shops in Bangladesh by children as young as nine.

There is absolutely nothing remarkable about these stories; human
suffering and environmental damage are an integral part of millions of
commercial activities around the globe, activities that make possible
much of the material comfort of modern life. For the most part these
activities are conveniently ignored. The important issues of business
are cost, convenience, and market share; international commerce rarely
cares to know more than this, and turns a blind eye to horrendous
violations of human rights, worker safety, and environmental
protection.

In the case of business activities outside the U.S., our government has
no jurisdiction. Even in the case of domestic business, government
regulation has only limited effect. Experience in the United States has
demonstrated time and again that the best adjunct to government
oversight is active involvement of the public. The initial strategy for
oversight -- government watches industry --is greatly strengthened by a
more recent strategy: the public keeps an eye on government watching
industry, or confronts corporate abuses directly at the local level.

But the public cannot express concerns about problems that are
invisible. Only the social and environmental impacts that see the light
of day can be assessed by a public that cares about such things.
Information is the key to involvement; an informed citizenry is best
able to exercise responsibility for the state of the world we live in.

David Sarokin, director of the Public Data Project in Washington, D.C.,
has proposed a new vehicle for learning about the social and
environmental impacts of corporate practices. His idea is based on two
existing practices: the annual report filed by publicly held companies,
and the environmental impact statement.

Public corporations in the U.S. already prepare an annual report to
tell the public about their financial status. These reports are
designed to condense multitudes of data down to a manageable size, to
present information of value to both a lay audience and to financial
professionals, to provide uniformity of information in a very non-
uniform world, and to cover domestic as well as overseas operations.

Some economic activities must prepare environmental impact statements
to assess the consequences of proposed actions (a dam, or a highway,
for example), explore means of mitigating any serious impacts that are
identified, and examine alternative actions.

The corporate annual report, combined with the environmental impact
statement, is the ideal model for providing social and environmental
information to the public about the impacts of business, Sarokin says.

Sarokin proposes a Social Environmental Impact Statement (or SEIS),
which would be a periodic report prepared by the largest corporations
operating in the U.S., would be freely accessible to the public, and
would provide perspective on the environmental impacts of corporate
operations, as well as the social impacts on workers and communities.
These impacts would be assessed over the entire life-cycle of the
corporation's products, from the moment materials are extracted from
the earth to their ultimate disposal by the end consumer.

The key feature of the SEIS is that it casts a broad net well beyond
the activities under the corporation's direct control. The impacts
considered in the SEIS include those stemming from the multitudes of
suppliers that make a company's activities possible, as well as
considering the fate of company products after they are sold.

Impacts that should be considered in an SEIS, Sarokin says, include the
impacts of extracting, transporting, and transforming raw materials,
and of the production, testing, use, and disposal of consumer products.
Consideration would be given to impacts on the environment and the
health of ecosystems, as well as animal, worker, and community well
being.

Governments have no authority to influence economic activities that
take place outside their own borders. Nor do they have the authority to
directly collect information from foreign sources. But a government CAN
insist that its domestic businesses make it their business to be aware
of the consequences of their activities, and of alternatives to those
activities, and to make such information public. What the power of
government cannot directly mandate, the power of the marketplace can
bring into being. Especially at a time when the size and stature of
multinational corporations rivals that of individual countries, it is
both necessary and fair to require this kind of reporting from these
corporations.

Sarokin suggests that SEIS reports initially be required of the 250 to
300 largest U.S. corporations with total annual sales of about $4
trillion [a trillion is a million million]. As the SEIS program
matures, somewhat smaller companies could be brought into the program.

A government agency would run the program, called the SEIS Review
Board. The Board would have two responsibilities: (1) to identify
companies that have failed to submit a required SEIS; and (2) to review
SEIS reports that have been submitted. The review board would classify
SEISs into 2 categories: satisfactory and not satisfactory. A company
that earned a "satisfactory" rating would have 5 years before it had to
submit an updated SEIS. A company earning an "unsatisfactory" rating
would have one year to re-submit its report. Sarokin proposes no
penalties for a company that fails to submit a report. If public
pressure (negative publicity, shareholder dissatisfaction, consumer
response) doesn't build up to sufficient levels to bring a renegade
company into line, the program won't be worth anything anyway, Sarokin
believes. Without public involvement and concern, the SEIS would have
little point.

The driving force behind the SEIS is the casting of light on impacts
that were previously invisible. A senior official of the company would
sign the SEIS, saying, in effect, "I have reviewed the operations of my
company from top to bottom, and have identified the key social and
environmental impacts of our business, steps we are taking to mitigate
these impacts, and alternatives we have considered." This is a positive
statement of corporate awareness, which is very different from the
conventional stance, which might be summarized as, "We weren't aware
that our shoes are made by Chinese prisoners, that our toys are made by
eleven-year-old girls who dropped out of school, that our suppliers are
apartheid/unsafe/polluters/clear-cutters/dolphin-killers/baby seal-
clubbers/union busters" or whatever the state of affairs might be. The
SEIS greatly reduces the viability of the corporate explanation, "We
didn't know."

The CEO has great incentive to produce a thorough and credible SEIS.
The report will be scrutinized by company employees, stockholders,
organized labor, groups representing particular social causes, domestic
and foreign governments, and the media. Should a company employee, or a
journalist, uncover a serious impact that was omitted, it raises the
specter of the CEO being, at best, incompetent, or, at worst,
participating in a cover-up. Furthermore, the CEO has a great incentive
to go beyond merely reporting impacts to actively mitigating them. Few
companies will be willing to reveal that they contribute to the clear-
cutting of tropical rain forests, pollution of coral reefs, or the
poisoning of farm workers without taking dramatic steps to better their
practices and the practices of their suppliers and customers.

Sarokin sums up, "Business decisions have long been guided by the
invisible hand of economics, responding to prices, supplies and
consumer preferences. But the guiding hand was soulless, unaware of and
uncaring about the consequences of business activity. The SEIS creates
a new conscience in the marketplace, an invisible heart, if you will,
to insure that the hand of economics is unclenched, so that it can go
about its business with a gentle touch."

GET: David Sarokin, A PROPOSAL TO CREATE A CORPORATE SOCIAL
ENVIRONMENTAL IMPACT STATEMENT (Washington, D.C.: The Public Data
Project [3734 Appleton St., N.W., Washington, DC 20016; phone (202)
363-5856], 1994). Without direct attribution, we have quoted or
paraphrased long sections of Sarokin's report in our text. If you would
like a full copy of Sarokin's report sent electronically, e-mail your
request to: erf@igc.apc.org.

--Peter Montague

=====

[1] After going to press with the paper edition of RHWN #397, we
learned that P&G stopped distributing Citrus Hill juice in 1992.

Descriptor terms: free trade; corporations; environmental impact
statements; occupational safety and health; citrus hill; procter &
gamble; fl; china; wal-mart; bangladesh; social environmental impact
statement; consumers; consumer products; alternatives analysis; public
data project; david sarokin;