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Market News

 April 25, 2006
Ten Lessons for Corporations Working with Activists

 (Source: Ethical Corporation) -- Ten years ago, top executives of three major corporations, faced with a boycott by the radical group Rainforest Action Network, dedicated to destroying their corporate name, did exactly the opposite of what most corporate lawyers, PR, and crisis professionals advised them at the time: they sat down and engaged in a dialogue with the group's leaders.

Their experience, which helped give birth to a field now called "stakeholder engagement", provides lessons for both executives and activists navigating the tumultuous waters that often divide them.

Now that RAN has come of age -- its then leader, and current board president, Randy Hayes having moved on to fresh posts within local governments such as the City of Oakland and leading a new NGO entitled the International Forum on Globalization -- it seems to be an appropriate time to reassess the value of boycotts and today's moves toward negotiated corporate/NGO settlements.

Template Establishing

Among the results of that early engagement between RAN and three distinct Mitsubishi companies was a precedent-setting agreement that drove more sustainable forestry practices at 400 companies, created a new system for measuring corporate environmental and social impacts, and produced a template that has been used in a succession of odd-bedfellow alliances between capitalists and activists for the past seven years.

No laws were enacted in the process, no regulations promulgated, and no lawsuits filed. Yet the impacts of that early engagement process continue to multiply.

The first of many dominos fell when Tachi Kiuchi, then chairman and chief executive of Mitsubishi Electric America, got a handful of letters in early 1993 from elementary school students, asking him why his company was destroying the world's rainforests.

The letters puzzled him. Mitsubishi Electric had no forest holdings. It used very little paper. How could it be impacting the rainforest?

From his headquarters in Torrance, California, Kiuchi called Richard Recchia, then chief operating officer of Mitsubishi Motors' U.S. sales arm, whose headquarters was just down the street. His company, too, was the target of some sort of rainforest campaign. Protesters were locking themselves inside Mitsubishi automobiles at car shows around the country, drawing publicity for their cause.

It turned out the driving force of the actions was a San Francisco-based group: the Rainforest Action Network. According to Randy Hayes, RAN's real target was a third company, Mitsubishi Corporation, a trading company responsible for perhaps 3 percent of the world's trade in tropical timber.

RAN is a "direct action" group. Rather than advocating laws like the Sierra Club or suing companies like Natural Resources Defense Council, RAN's effectiveness comes from direct action in the social and economic marketplace.

If it can discredit the names or disrupt the business activities of target companies, it can destroy the profit in rainforest destruction. Mitsubishi Corporation was one of several companies who shared small and roughly equal portions of the tropical timber trade. But M.C. was the only one associated with a name familiar to consumers.

If RAN could target consumers of autos and electronics, perhaps those companies could exert pressure on M.C. to change its timber practices. And if they changed, maybe the rest of the industry would too.

Lesson number one: It is more effective to focus on the problem, rather than the fairness of the process.

Still, no one wanted to sit down with RAN. "The perception at the time was that RAN was too radical to deal with," Hayes says. The conventional wisdom in the PR business, codified in how-to manuals for dealing with groups like his, was to "isolate the radicals" by working with "mainstream" groups.

Eventually, however, as RAN's rhetoric increased, Recchia grew determined to meet the people behind this attack on his company. He met with Michael Marx, the head of RAN's Mitsubishi boycott. The meeting did not go well.

According to Recchia, it degenerated into an angry exchange, as both sides gathered up everything they felt was unfair about the other's actions and "got it off their chests".

Lesson number two: In your first meeting, expect each other to express pent-up frustrations. Listen and learn from the process, and do not let it discourage future meetings.

So Recchia and Kiuchi regrouped and took a different approach. They called for a meeting with Jim Brumm, general counsel for Mitsubishi Corporation, and his colleagues, to encourage them to do something about the RAN boycott and the issues it raised. To prepare, Kiuchi visited the rainforests of Borneo, Malaysia, one of the sites in RAN's campaign, and learned first hand about the issues.

Then, in the summer of 1993, Brumm, Kiuchi, Recchia and their corporate colleagues met privately for a day. They brought in two experts to advise them. One expert was with Hill & Knowlton, a PR firm with experience in public affairs crisis communication. They advised the companies that RAN was a fringe group whose radical actions were having little if any impact on the general public. Rather than acknowledging RAN directly, the companies should conduct a low-key campaign to bolster their environmental image among the media and opinion leaders.

The other expert was Bill Shireman, head of Global Futures, a non-profit consultancy that had orchestrated several unusual alliances between environmental activists and major corporations.

Shireman advised the companies to take a more proactive approach, by (1) inventorying their environmental performance, (2) engaging with stakeholders to earn their trust, and (3) choosing a strategic set of actions that could both protect the environment and build their reputation.

Lesson number three: Make an inventory of your assets and liabilities. This provides the raw materials for a more strategic response to social and environmental demands.

Moving from Indirect to Direct Engagement

Engaging directly with stakeholders was complex and controversial. The companies still saw no point in direct engagements with RAN. After all, this was a self-described radical group whose founder said he wanted to "take down a multinational" -- and none of the Mitsubishi companies wanted to be the ones to take the fall.

Instead, the companies started with indirect engagements. Kiuchi hit the speaking circuit, giving a keynote address at Ecotech, a major environmental conference with a positive, pro-technology theme.

Kiuchi expected to be grilled on the rainforest issue. But while he did field some challenging questions, most participants were impressed that he had the courage to enter the "lion's den" and engage with them directly.

Meanwhile, Shireman met informally with Michael Marx and others at RAN, identifying opportunities for productive dialogue. These he reported back to the Mitsubishi companies, gradually breaking down perceptions that RAN was a uniform monolith incapable of reasoned dialogue.

Later, once both sides saw potential value in an exchange, a series of direct discussions was facilitated.

Lesson number four: If direct engagement is not acceptable at first, there are many ways to engage indirectly and informally.

For the third part of Shireman's plan -- being proactive on forest protection -- a third party was sought that would be respected both by executives and activists. So, Shireman gave a copy of Kiuchi's keynote speech to Amory Lovins, the energy efficiency guru who heads Rocky Mountain Institute.

Thinking Long-Term

Lovins and Shireman agreed that forest destruction was mostly a systems problem -- less a consequence of irresponsible corporate decisions than a system that drove companies to favour short-term over long-term thinking. What was needed was a forum to identify the systemic causes of rainforest destruction, and to provide possible solutions that would not demonise any particular company.

After lengthy planning sessions between Shireman, Lovins, and the three Mitsubishi executives, they christened two new organisations: Systems Group on Forestry, and Future 500, both to be jointly managed by RMI and Global Futures.

Systems Group would develop potential solutions to forest destruction, systemic steps companies could take to leverage their market positions to protect forests. Future 500 would convene corporate and environmental stakeholders to consider other systemic and market-based actions for sustainability, and develop tools and processes for more effective engagements among them.

The Mitsubishi companies agreed to be the first members and supporters of both.

But joint ventures between hierarchy-averse non-profits frequently break down. Soon, the marriage between RMI and Global Futures was on the rocks.

In their divorce, they each took one of the children, RMI taking charge of the Systems Group, while Global Futures inherited Future 500.

The Systems Group held three meetings but never produced a promised final report, so the part of the agreement designed to persuade Mitsubishi Corporation to implement sustainable timber harvesting practices was never officially implemented.

But the process educated corporate leaders about forestry issues, and developed relationships among the many stakeholders. In particular, through their joint participation on the Systems Group, Randy Hayes and Jim Brumm came to admire and respect one another. Their relationship would later lead to other positive initiatives.

Meanwhile, Global Futures facilitated direct discussions between all three companies and RAN.

The first meeting was exceedingly positive, with all sides finding more areas of agreement than they expected. The second meeting was mostly negative, as all sides retrenched and sought comfort in their past adversarialism. By the third meeting, realism finally began to prevail, as the companies and activists came to terms with the real-world potential for forging a common path.

Lesson number five: Engagement often veers between extremes of optimism and pessimism, before taking a realistic course.

Finding common ground

As they learned about one another as both leaders and individuals, the executives and activists found more areas of common ground. Recchia and Marx discovered a common passion for fly-fishing, for example. Their most productive meeting was a one-on-one fly fishing expedition.

As they came to understand RAN, MM and M.E. grew increasingly convinced that direct engagement could end the boycott. M.C. was unconvinced.

In a tumultuous meeting between top executives from the companies in Tokyo in the summer of 1996, the process experienced a second divorce. M.C. broke off direct discussions with RAN, and dropped out of their project partnership with M.E. and MM.

But Recchia made a bet with Brumm: that he would be able to strike a deal with RAN to end the boycott against the electronics and auto companies. If he could, Brumm pledged that he would authorise independent third party assessment of M.C.'s controversial timber operation in Alberta, Canada.

They scribbled their agreement on scrap paper, and both signed it.

Freed from M.C.'s more conservative approach, Recchia and Kiuchi asked Shireman to work toward a formal agreement with RAN. A process of shuttle diplomacy then resulted in a ten-point agreement.

Lesson number six: Do not insist on forcing together incompatible corporate partners. Keep partnerships small and focused. Competition will do the rest.

Most corporate environmental agreements equate hardship with effectiveness. If the agreement imposes significant costs on the companies, then it must be more effective than a less onerous approach.

But systemic approaches operate on the opposite assumption. By leveraging the existing assets of the companies, and their positions in the marketplace, they can generate more impact at a lower cost, or even a benefit, for companies that are proactive.

For example, if activists want to change timber harvesting practices, they might be more successful targeting timber buyers than timber sellers. Buyers often have more leverage than sellers, who claim (with some legitimacy) "the market made me do it".

With that in mind, the Mitsubishi RAN agreement leveraged the market positions of the auto and electronics companies to generate impacts far beyond the companies themselves. Hayes and Shireman hammered out the final agreement then took it back to their respective clients, who fiercely debated and ultimately ratified it.

Signed in February 1998, the agreement stipulated that both companies would:
  • Establish a procurement policy to phase out purchase of paper or timber from old growth sources by April 1998.
  • Achieve a "Factor Four" (75 percent) reduction in paper use by 1 October, 1999.
  • Phase out of all wood products of any kind by 2002.
  • Commit (for MM only) to offer "carbon offsets" tied to sales of its Montero LS; proceeds from these sales would fund forest reserves.
  • Become (for MM only) the first major car company to lobby the Clinton Administration to work toward meaningful reductions in carbon.
  • Fund forest reserves to protect natural resources and indigenous communities.

  • Establish a comprehensive system of "eco-accounting" to measure the "genuine progress" or net value created by a company, after accounting for social and environmental externalities.
The agreement was high risk for all sides. The companies had to take a chance that, if they signed up, RAN or others would not besiege them with additional demands. RAN had to demonstrate to its activist base that this agreement was worthwhile even though it did not directly require the company logging forests to change its practices. Both sides had to overcome internal factions determined to never strike an agreement with the "evil" enemy.

Lesson number seven: Once you have demonised the other side, you may have trouble rallying your supporters around an agreement. Use the demonisation card sparingly.

The most powerful portion of the agreement turned out to be the phase-out of old growth paper and timber purchases.

The step was easy and inexpensive for the Mitsubishi companies, though one timber company reportedly cancelled a contract with Mitsubishi Electric over it. But the positive effects far exceeded the costs.

Once the two Mitsubishi companies made that commitment, literally hundreds of other companies followed suit. Their combined buying power created a healthy and growing market for sustainable timber, and set the stage for several later agreements.

The other clause that spread beyond the Mitsubishi companies was the eco-accounting commitment. To implement it, the newly formed Future 500 developed a tool for M.E. and MM that consolidated together several existing systems for measuring corporate social and environmental performance.

Easy and Inexpensive

The process evolved into one now known as Global Citizenship 360, and has since been adopted by Coca-Cola, General Motors, and a dozen corporate members of The Conference Board.

The best cost-cutting clause was the 75 percent reduction in paper use. Both companies used the clause to replace paper-based processes with electronic ones, which helped reduce labour, printing, and paper costs.

But while both documented overall reductions in paper use, neither was able to prove a 75 percent reduction.

Lesson number eight: Look for, and be aware of, how sustainability initiatives can save money, drive needed change, and give competitive advantage.

The most controversial clause committed Mitsubishi Motors to be the first auto company to buy carbon credits for a line of its automobiles, to fund forest reserves operated by indigenous communities.

The company has never implemented the clause, nor has RAN ever pressed them to do so.

Some RAN leaders objected to any funding component in the agreement, because they felt it undermined the credibility of the process even if the funds did not actually go to RAN.

Others still hope the clause will eventually be followed, once the now-struggling auto company regains its financial footing.

Lesson number nine: Stakeholder agreements are often more effective and adaptive than laws and regulations. High-impact elements can be expanded, while impractical ones are set aside as all parties learn what works and what does not.

Communication techniques are key in these sorts of stakeholder engagement exercises between leaders.

In the end, the ten-point agreement was noteworthy on several levels. Not only was it among the first to be brokered between a private company and an NGO, but RAN and other groups also used it as a template for many deals to follow, says Hayes.

A pledge to support "prosperous human communities, rooted in place, with adequate food, potable water, a clean environment and meaningful work" captures the unusual tenor of this agreement.

Both parties achieved their objectives. The Mitsubishi firms successfully ended the boycotts against the U.S. companies. RAN secured the ten commitments, and a template that helped shape future agreements with companies like Home Depot and Citigroup.

Over 400 companies shifted their buying toward sustainable timber, and 75 companies adopted the "360" assessment process to measure their social and environmental impacts.

But what about Mitsubishi Corporation, which was not party to any formal agreements with RAN?

"The truth is, we ended up getting what we wanted from M.C., even though we never engaged in a formal agreement with the company that was actually doing the damage to our rainforests," says Hayes.

Under the leadership of Brumm, M.C. ultimately went through an internal process to advance its approach to timber supply selection. And because of the forestry issue, Brumm started investigating other environmental concerns.

"It opened my eyes and challenged my attitude. What exactly are we doing at M.C. about the environment? We really should accept some responsibility -- at least in principle -- on how and where we cut trees," says Brumm.

M.C. ended up committing to a certification program developed by the Forestry Stewardship Council, the "gold standard" of certification programmes for sustainable wood products.

All timber and paper products from its operations are now FSC certified. There is not yet adequate supply for the firm to fill all of its orders with FSC, but that is its first product choice for customers.

And though the company does not have a formal policy, it factors in environmental concerns whenever it can, said Brumm. At present, M.C. is looking at internal systems to formalise the inclusion of environmental and social issues. M.C. is certified to ISO 14000 and produced its first Sustainability Report in 1999.

Commitment at the Top

According to Randy Hayes, one of the most enduring lessons from the experience with working with each of the Mitsubishi companies is "seeing the influence of individual people -- leaders -- in these sorts of circumstances."

The commitment of the chief executives to the success of the process was vital.

On the other hand, support for sustainability cannot stop at the executive suite. One weakness of the Mitsubishi RAN agreements was that, after the departure of Kiuchi and Recchia from their companies, support for the agreement with RAN waned.

In recent interviews, both companies seemed to revert to pre-agreement impulses to demonise RAN for targeting them in the first place.

Both companies choose their words very carefully in describing their reaction to RAN's original boycott, careful not to attribute too much to what they still regard as an unfair campaign.

At MM in 2005, after numerous restructurings and retrenchments, there is virtually no institutional memory of the 1998 deal.

"The older leaders and managers who might have understood why the agreements were made in the first place are now often gone," laments Hayes. "These are the folks who could explain to a new generation of employees why these agreements should be implemented with integrity."

Despite their reservations about the process, however, "Our dialogue with RAN raised our awareness of issues in the rainforest and RAN's role in protecting these ancient forests," acknowledged Pete Salavantis, M.E.'s vice president.

"Equally important, our discussions with RAN helped accelerate environmental sustainability initiatives already underway at Mitsubishi Electric. In many ways, our collaboration with RAN was consistent with the strong environmental management focus that is in place at Mitsubishi Electric. Several organisations have recognised Mitsubishi Electric's environmental achievements including Portfolio 21, a mutual fund that invests only in companies that have demonstrated a strong commitment to environmental sustainability."

Lesson number ten: Be sure to embed commitment to agreements as deeply within the company as possible. Do not allow agreements to be forgotten after the departure of a key executive.

But the most important commitment of both M.M. and M.E. -- using their supply chain power to influence global forestry -- leaves a legacy of having saved millions of acres and shifted the market.

Since that time, Home Depot, Lowes, Kinkos, Staples, and others have each adopted forest protection initiatives, using their particular buying power not just to reduce the economic costs linked to unsustainable old-growth forestry practices, but the social and environmental costs as well.

And the broader outcome of the process may have been to advance two trends in corporate stakeholder relations.

The first is market campaigns -- initiatives like RAN's Mitsubishi campaign, and subsequent efforts that target companies in the marketplace, often with a focus on influencing their supply chain.

The second is stakeholder engagement -- the approach Mitsubishi employed to resolve its conflict with RAN -- has since been adopted by a wide variety of companies that faced similar public affairs issues.

Hayes also sees in these changes a revitalised social change movement, with new opportunities to drive sustainable practices, even with today's lack of leadership in government. "We learned that you do not have to deal with corrupt government agencies or Congress, who are bought off by the big corporate money. We activists can go directly to the corporations to get the behaviour changes that we want."