Ethics Newsline®

Yve Newbold, a corporate lawyer specializing in international issues, heads the Ethical Trading Initiative, an alliance dedicated to ethical labor practices. She has just been appointed to the British Telecommunications Charities Committee. Rushworth Kidder interviewed her on October 15 at the Institute’s London office.

Kidder: As a result of September 11, what do you hope will be the benefits for the world, including Britain and America, over the next decade?

Newbold: From a corporate standpoint, which is where I’ve lived my life as a corporate lawyer [concerned with] social responsibility, I think that September 11 forced us all to take an enormously hard look at ourselves.

We’ve been learning for some time that economic imperialism just doesn’t work at ground level in developing countries. We’ve gone in with our doctrines of “no child labor,” and we’ve learned that if you have got children who are supporting stricken parents or siblings, they cannot be fired from the workforce. So we’ve learned both humility and a degree of practicality in the implementation of our codes of conduct.

I think September 11 [tells us] that corporates could go one of two ways. They could retrench — and I suspect American companies, less used to terrorist attacks than [those] in the United Kingdom, might well retrench more readily than their U.K. counterparts. [They could] bring production back into the domestic [realm], and say to themselves that they must operate within economic or political environments they understand.

Alternatively, they could take the opportunity, and I hope they will, to consider whether corporate social responsibility must now be put at the top of the corporate agenda — in spite of recession, in spite of the fact that businesses at the moment do not have the tools to understand the social and cultural environment and social impacts of their trade in developing countries. We do seem to be standing at the crossroads now.

If companies take the road of corporate social responsibility — in other words, if we can both defend capitalism and yet show it to be flexible to changing needs, if we can show that the free enterprise system will actually fit us ten years from now — then we will increasingly move to a world government and a world order, with international courts of justice not just to prosecute war criminals but [to address] the whole panoply of trade. International free trade has had an unfettered growth since the Bretton Woods Agreements [following World War II]. But there haven’t been the balancing laws that we had in our [domestic] frameworks — brakes, checks, balances, these have not been met. We need to say, “How can we create this environment where there are checks and balances, where corporates behave much more thoughtfully before they go into a country to operate?”

Kidder: What do you fear will change for the worse?

Newbold: I think a polarization by corporates — a defensive, hostile, aggressive attitude [of] retrenchment, pulling away from developing countries, bringing trade back in, to the detriment of those developing nations. Because while we don’t say that free trade will alleviate poverty, we do say that, handled sensibly, it can immeasurably add to the economic well-being of a developing nation. The risk of September 11 is that it will force corporates to turn in on themselves, to feel persecuted, to develop a siege mentality. And that would be understandable, because what has been done is a dreadful and terrible act.

Corporates are no different [from] the human population. But they are so focused, so good at setting goals and achieving them, that if they were to decide to retrench, to develop a siege mentality, I think it would be very powerful. One of the aspects that we’ve noticed in relation to corporates is what we call the conscious parallelism. They look at each other; they copy each other. Their executives are meeting at the same conference. So I think what we will see in the corporates is this unity of response.

And I think therefore it’s incumbent on organizations that are advising corporates to get to the very heart of the corporate boardroom — to go and talk to these people [who are] extremely nervous and anxious, as they sit staring [at] recession. What do they do? These are very, very difficult decisions. How do you put corporate social responsibility at the top of the agenda when half your executives are screaming that you’ve got to go out there and really kill to bring in the profits to keep the investors happy? How do you balance those? Isn’t it easy to let these difficult, complex human issues just go to one side?

Kidder: This retrenchment — can you say a little bit more about that? What will be the signs of that happening?

Newbold: Well, let me start with the supply chain, because that’s where the Ethical Trading Initiative principally operates. What we could see is that the supply chain is curtailed. Instead of going to, say, Sri Lankan housewives who make buttons in their own homes to supply to the big textile manufacturers and suppliers, we could find that the supply chain is curtailed — that perfectly acceptable, though more expensive, sources of production are found in Portugal, Spain, and countries in Latin America where economic and political systems are tried and tested and known and understood. That would not be an unworthy move for a corporate to make when it considers, as it must, the risk factors which surround its operations.

[And] will they start to look at employees? I’m pretty certain that there will be an added impetus in corporates to say, “Are we harboring terrorists in our midst?” Most major corporates are going to have to bring in a whole raft of security measures about the safety and welfare of their own employees.

So corporates have a heck of a lot on the agenda, some of it purely practical. And what will that do? If a board has to consider huge security issues around its staff, does it develop a kind of collective neurosis? There’s a great tendency to stereotype — not to see the complexity in a situation, but to say, “We’re going to pull out of the Middle East. Anything that’s got an Arab name to it, let’s come out of it.”

The other thing that bin Laden has done, which is much more insidious, is that he’s shot a very powerful arrow into the heart of the free enterprise system, which works on the basis of confidence. What the markets hate is uncertainty. We’re in a recession now, and we’ll come out of it. We’re used to those cyclical movements. But if bin Laden introduces permanent uncertainty at the heart of the free enterprise system, which he has certainly started, then what does that do to our capitalist system? How do we build back the confidence?

Kidder: What indicators are you going to be looking for, for the next few years, to tell you whether your hopes or your fears are being realized?

Newbold: I’ll be looking at signs that corporate responsibility and ethical trading are being moved down the agenda. I can often tell that, by how easy it is to get in to see the chief executive and talk about ethical trading. Some of that is purely intuition. How seriously are corporates beginning to face up to the responsibilities that September 11 has brought them? I will be watching for signs of that among my [Ethical Trading Initiative] membership, because I feel that now is the wrong time for corporates to be abandoning the tasks they were just about to set themselves on the road towards more socially responsible conduct in developing nations.

We don’t ask corporates to address the North/South divide. They cannot do that. But they need to be aware of the climate in which they operate, [and] get a holistic vision. It isn’t just about profitability or keeping investors happy. It’s about far more than that, and it’s about far more than reputation. It’s about doing the right thing, because that’s the right thing to do. They need to hear [this] message a lot more — particularly the outside directors. They must bring into the boardroom the politics of inclusion, a knowledge of poverty, a working experience of the societies in which they are active.

If I had a dream, it would be to take every single corporate director and make them live in a mud-hut village in Zimbabwe for 48 hours. I tell you, the whole corporate world would be a different place.