Increasingly, NGOs are wielding their media muscle to exact tithes from Corporate America. Here’s how to fight back
March 15 2010 by Dale Buss
When the Rainforest Action Network got Pak 2000 in its crosshairs, events unfolded like one of those Animal Planet shows where a predator stalks its hapless quarry to a foregone conclusion. The radical environmentalist group targeted the maker of glossy shopping bags because Pak 2000’s largest shareholder and major supplier, Asia Pulp & Paper, harvests virgin trees in the rainforests of Indonesia.
RAN attacked Pak 2000 in press releases for selling the tainted bags to its chic retailer customers. Then the group confronted Gucci, H&M and other international fashion brands over the sins of their bag supplier. The activists also enlisted sympathetic media such as The Times of London, which in a September article lambasted production of the bags for “destroying millions of acres” of rainforest.
Pak 2000 CEO Claude Roessiger already had been asking Asia Pulp& Paper to sell its share of the privately held Mirror Lake, N.H.-based concern for, he said, “totally unrelated reasons.” Then RAN forced the issue, and in early January, a new private investor was able to pick up most of Pak 2000 on the cheap.
Relentless RAN had taken another huge scalp. “Our engagement focused [Pak 2000] on getting that deal done much more quickly; it became more urgent for them,” says Lafcadio Cortesi, forest-campaign director for the San Francisco-based nongovernmental organization.
Meanwhile, Roessiger has been left bitter about “irresponsible headlines,” the fickleness of his customers – and RAN. “No one has asked or appointed NGOs to do what they do,” he complains. “They just end up mau-mauing people. And even the largest companies in the world are buckling to them rather than telling them to pound sand.”
Social-justice, anti corporate NGOs indeed are riding high these days. Over the years, they have formed a highly effective network, abetted by unions, simpatico journalists and, now, by their mastery of social media and by a more regulation-minded federal government. Whether forcing Fleet Financial Group into a $350million settlement with the Neighborhood Assistance Corporation of America over “predatory loans,” or getting Sprint and Levi- Strauss to pull great apes from their TV advertisements at the insistence of People for the Ethical Treatment of Animals, NGOs’ purview now extends over all of business.
“These NGOs are driven by the need to raise money, by narcissistic egos and by the need to get publicity,” asserts Jon Entine, principal of ESG Media Metrics, a Washington, D.C. – based firm that consults with targeted companies. “But by and large it’s ideologically motivated greed, not free market greed.”
In essence, such groups are winning tributes from corporate America not unlike those that barbarian chiefs extracted from the later Roman Empire and that Mongol warlords demanded from the Han Chinese. Whether the corporate tithes come in the form of outright contributions to NGOs, arm-twisting “partnerships” or unwanted policy changes and new initiatives, CEOs are being held up. And because anti corporate groups focus on large, publicly held prey where they can wield favorable news coverage and popular opinion, it means shareholders are usually being extorted as well.
There are no reliable measurements of the overall cost of this phenomenon to major corporations, but economists say that it easily amounts to billions of dollars a year that is essentially involuntarily redirected by Fortune 500 companies alone. And clearly, this toll is rising, especially as every corporation responds to growing pressure to “green” itself because of heightened public concern over climate change.
Nowadays, environmentalist groups clearly comprise the biggest overall threat to business among NGOs. They have the longest history and claim the broadest bailiwick. Time was when only egregious corporate transgressions against the ecosphere – such as the Exxon Valdez oil spill in 1989 – drew their fire. But with the rise of global warming orthodoxy, now nearly any company risks exposure because just about every business activity leaves some sort of carbon footprint.
Don’t expect climate-change proponents to ease up, either, because of evidence against global warming or if the enthusiasm of American consumers for all things green should wane. Most major companies also remain committed to their sustainability obligations. “We’re staying the course on reducing carbon emissions,” says Robert Stoffel, senior vice president of engineering, strategy and supply chain for United Parcel Service, the Atlanta-based package purveyor. “There are business reasons, and it’s also the right thing to do.”
The NGOs increasingly driving businesses’ environmental decisions come in a variety of flavors. “Market activists” such as RAN confront and besmirch corporations to generate contributions from fired-up donors. These NGOs and others also strike lucrative partnership deals to help some of the very same companies institute “sustainable practices,” such as ensuring their supply chains are green-certified. Other, less-threatening NGOs solicit funding by shaking down companies or by garnering their genuine cooperation on green initiatives.
So, once engaged by an environmental NGO, just about anything a company can do only feeds its growth. In fact, RAN’s Cortesi suggests that CEOs should go along with this reality rather than resist it. “Often they look at NGO intervention as a nuisance,” he says. “But actually, NGOs are like a bellwether for how key segments of society and a company’s markets will respond, so they have real value. And instead of saying, ‘We’re doing as much as we can,’ CEOs should be open and hear what we have to say. It’s to their advantage.”
Founded in 1986, RAN posted its first significant victory the next year by getting Burger King to cancel $35 million worth of contracts with companies that were converting Central American rainforests to cattle ranches. Since then, the group has taken on dozens of Fortune 500 companies and won agreements from many of them, including Citigroup, Home Depot and Goldman Sachs.
With a multimillion-dollar war chest, this eco-extreme organization applies pressure by launching boycotts, harassing corporate customers and suppliers, demanding negotiation of its complaints – and pulling off high-profile publicity stunts. One of the most recent: RAN hung a 15-foot banner at the Toronto headquarters of the Royal Bank of Canada last summer which said, “Please Help Us, Mrs. Nixon.com.” The wife of Royal Bank CEO Gordon Nixon is a renowned environmentalist, and RAN wanted to stop the bank’s investments in funding tar-sands development projects in Canada.
CEOs have employed a wide range of strategies for dealing with RAN. Some, like Cargill CEO Gregory Page, have tried to stonewall the NGO. The Minnetonka, Minn.-based commodities giant compiled environmental bona fides by rolling out huge sustainability initiatives in some business segments, such as soy procurement, and even reached rapprochement with another radical NGO, Greenpeace.
Yet, RAN insists that Cargill agree to an exhaustive, restrictive set of sustainability principles that would govern its supply chains for palm oil and other commodities around the world. RAN’s tactics toward that end have included unfurling a mocking banner outside the Chicago Board of Trade, turning two sailboats on Lake Minnetonka into waterborne signs critical of the company and showing up to sing “Christmas carols” at the homes of Cargill executives.
“I’ve explained to them that we can’t do what they want because each supply chain is different,” says Mark Murphy, assistant vice president of corporate affairs for Cargill, one of the world’s largest privately held companies. “But I don’t know if you can ever satisfy them.”
For decades, Weyerhaeuser has dealt with environmental activists by trying to stay ahead of any potential problems. As a result, the Federal Way, Wash.-based forest-products giant has vigorously pursued sustainability but never agreed to RAN stipulations about harvesting trees from disputed forests in Ontario.
“You have to be proactive in managing the issues around which these campaigns might form,” says Cassie Phillips, Weyerhaeuser’s vice president of sustainable forests and products. “If you’re just waiting around and all of a sudden these things happen, then you’re not behaving strategically.”
Other companies use a second type of strategy with RAN and similar NGOs: wary compromise. “Engage them, and then talk with the media and others about the fact that you’re engaging,” advises Michael Robinson, a senior vice president of Levick Strategic Communications, a Washington, D.C.-based media relations and consulting firm.
Some targeted companies, for instance, allow critical NGOs to help them implement and monitor green new practices. After criticism by RAN and other NGOs in 2004, Bank of America hired the World Resources Institute, a Washington, D.C.-based NGO, to help it map sensitive old-growth rainforests where the bank wouldn’t lend to logging projects.
Instead of saying, “We’re doing as much as we can,” CEOs should be open and hear what we have to say.
— LAFCADIO CORTESI, RAINFOREST ACTION NETWORK
But such compromises often backfire. “In a lot of cases they’re really looking for payoffs – for money to sustain their operations, which will be funneled back into raising more chaos to raise more money to create more chaos,” says Entine. “That’s the trap that companies get into.”
Major office-supply retailers move a lot of paper and have had to deal deliberately with challenges by RAN and other NGOs over their sourcing practices. OfficeMax Inc., on one hand, has resisted RAN’s demands about its foresting practices in Canada and ignored activist protests at its stores, though the Naperville, Ill., company has initiated its own sustainability efforts.
But after displaying similar resistance, archrival Staples largely acceded to work with NGOs nearly a decade ago. And, sure enough, Staples ranked No. 20 last year on Newsweek magazine’s environmental ranking of America’s 500 largest corporations, while OfficeMax didn’t show up.
Besides launching the industry’s first ecologically sensitive paper-procurement policy, Framingham, Mass.-based Staples has made it a practice to work cooperatively with environmental groups. It is a national sponsor of the Earth Force environmental education initiative, for instance. It contributes to the World Resources Institute. Staples helped found a “paper working group” in 2003 with Nike, Starbucks and other “progressive” corporations under the aegis of Metafore, a Portland, Ore.- based NGO. And it is paying the New York-based Rainforest Alliance to consult on supply-chain issues.
Staples executives declined to say how much such moves, separately or collectively, cost the company and its shareholders. “Engaging in constructive dialog and honest communication” with NGOs “is really the key,” says Mark Buckley, Staples’ vice president of environmental affairs. Yet, he asserted, “It’s critical not to abdicate your point of view just to [satisfy] an NGO or any other group.”
I’ve explained to them that we can’t do what they want because each supply chain is different. But I don’t know if you can ever satisfy them.
—MARK MURPHY, CARGILL
Of course, such acquiescence to NGOs’ demands is the third approach that many CEOs use. McDonalds gave a big boost to this kind of tactic in 1990 when it set up a partnership with the Environmental Defense Fund to reduce paper and packaging waste. And several years ago, home products chains, including Home Depot and Lowe’s, agreed with NGOs not to source lumber and other products from old-growth forests.
Philosophically, many CEOs justify such abdications as a cost of doing business. A communications executive with a major electric utility reports that the company “always has a bit of a kitty” to spend to appease the complaints of environmental NGOs – especially local ones – that arise around the construction of each new power plant. “It’s simply good business to identify and work with key local groups.”
And clearly, gaining ratification by NGOs as a greener corporate citizen can yield significant if not always tangible benefits for companies. Wal-Mart Stores, for instance, has seen much of the left ease its criticism of the giant retailer since former CEO Lee Scott in 2005 made a corporate priority of ramping up “sustainability” across Wal-Mart’s operations – and those of its suppliers.
When Kohlberg Kravis Roberts led a group that bought TXU Corp. in 2007, it heeded a demand by the Environmental Defense Fund and other critical NGOs to scotch the utility’s plans to build four of 11 new coal-fired power plants that had been planned for Texas. So thorough did their partnership become that the two parties co developed a set of environmental metrics that KKR now is applying to the rest of its portfolio companies in a thorough going manner, reaping millions of dollars in annual savings.
However, many see such arrangements as mere NGO shakedowns of targeted corporations, whatever pragmatic concerns might be involved and regardless of whether actual payouts or in-kind contributions are included. What else would you call it, for example, when Bank of America donated as much as $500,000 to The Nature Conservancy in 2006 under the rubric of a campaign to get customers to stop requesting paper versions of their bank statements?
“It’s a repugnant phenomenon, but if you are a $100 billion company, and writing a $200,000 check will delay a heartache for a couple of years, it’s something that many companies consider and do all the time,” said Eric Dezenhall, CEO of Dezenhall Resources Ltd., a Washington, D.C.- based consultant to corporations on NGO matters. “The problem is that writing these checks doesn’t lead to a cessation of hostilities.”
What’s more, agreeing to such concessions can be “one of the worst possible indictments of your company – the notion that, left to your own devices, somehow you’re going to harm people,” points out Jim McCarthy, president of Counterpoint Strategies, in Washington, D.C. A better solution? “Never let anyone stand between you and your customers with a threat,” he urges.