China Olympics Give New Opportunity for Second Wave of Corporate Responsibility

International scrutiny of China is at an all-time high as we come closer to the 2008 Beijing Olympics. Companies with operations or supply chains in China have a choice: lead by example or risk the media spotlight being turned on you. Having just returned from China, I can assure you there is increased sensitivity on the ground to international scrutiny. Further evidence: Just last month Nike released a corporate responsibility report focused exclusively on its supply chain in China, citing the increased attention from the Beijing Olympics as the main reason for its publication.

Corporate responsibility today is moving beyond traditional concerns such as environmental impact. I am seeing companies move to ensure their supply chains – including suppliers and contractors – are free from slavery, and labor conditions meet international standards. These steps are often taken not just from a moral standpoint, but a punitive one – companies don’t want to risk litigation or tumbling share prices off the back of bad publicity. A Chinese factory that produces light bulbs for General Electric was only last month accused of making employees work 64-hour weeks and exposing them to mercury. To their credit, GE is investigating, but on the same day their stock price dropped.

Indeed, a ‘second wave’ of corporate social responsibility is emerging, as managed funds start to closely examine the ethical standing of companies they are investing in. Last week I spoke at the World Bank in Washington DC about combating human trafficking. There were plenty of business leaders present, but fund managers representing $1.3 trillion of fund equity were present too. I think that illustrates how seriously they are treating these supply chain issues.

Yet the next challenge for publicly listed companies operating in countries like China could come from a surprising direction – shareholder activism.

Traditionally shareholder activism has centered on issues of corporate governance and executive compensation. But in the US we are starting to see shareholder group’s holding companies to account and saying hang on – how we make our profit matters.

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