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June 02, 2008

Michael Conroy on Activist Campaigns and the Certification Revolution
    by Bill Baue

SocialFunds writer Bill Baue speaks with Michael Conroy about his new book, Branded! How the �Certification Revolution� is Transforming Global Companies -- Certification�-it sounds boring and wonky. But in his new book Branded! How the �Certification Revolution� is Transforming Global Companies, Michael Conroy tells an exciting story of activists campaigning against companies--and companies responding! The two sides moved from antagonism to tense collaboration in the creation of certification schemes that solved activist concerns while preserving--and often boosting--companies' profitability.

Conroy brings a hands-on view to the story as a former program officer at the Ford Foundation and Rockefeller Brothers Fund, where he helped fund the activists NGOs as well as the resulting certification processes. He also serves as chair of TransFair USA, the Fair Trade certifying body in the US.

SocialFunds writer Bill Baue recently spoke with Conroy about the history, present, and future of the certification revolution.

Bill Baue: What background set the groundwork for the soil to be seeded for the �certification revolution�?

Michael Conroy: For probably 25 years now, civil society, consumers, and advocacy groups have been encouraging companies to be more socially and environmentally responsible. But what emerged as a movement called corporate social responsibility, or CSR, never had much grounding.

BB: You focus on how CSR transformed from a largely internal development springing from corporations into something where they are now held accountable from the outside, by external stakeholders.

MC: The big change has taken place with the emergence of relatively small but very effective advocacy groups who have discovered the sweet spot in corporations that gives them leverage to encourage--and some would say force--companies to become more accountable. Groups like Forest Ethics, Rainforest Action Network, and Global Exchange have learned that, as companies add value to their brands, they become increasingly vulnerable to campaigns that threaten those brands. And that's the starting point of the certification revolution.

BB: Branded is your title, and you define �branded� with several different connotations--what are they, and how do they tie into creating the certification revolution?

MC: Companies� brands convey something about the values associated with products, such as higher quality of life. But every dollar companies spend increasing familiarity with their brands also increases their vulnerability. So the negative side of branding is association with child labor, environmental disaster, human rights violations, leading to loss of viability, marketability, and share value.

BB: So companies become �branded� with a stigma, so to speak.

MC: Exactly. The classic example is the early campaign against Nike, which in the 1990s was found to be employing women and children under environmentally horrendous conditions in Southeast Asia. But CEO Phil Knight simply said, "We're not responsible, we don't own those companies, they're just contractors, and yeah, we tell them what we want them to do, but we have no influence over them."

In the course of two-and-a-half years--because he wouldn't pay attention to these challenges to his brand--the company lost almost half of its capitalized value and value of its brand. It also lost profitability and markets--because people increasingly associated Nike with child labor and women�s exploitation.

BB: All due to a market campaign--activists drawing attention to this.

MC: Absolutely. Activists who raised strong enough claims that the major media did independent investigations verifying those claims.

BB: Market campaigns are one of three necessary elements driving the certification revolution. What are the other two?

MC: I argue that the certification revolution is a three-legged stool. First, advocacy campaigns (or market campaigns) make companies aware of their practices. Second, the creation of certification systems that independently verify company compliance with sets of standards. And third, an internal champion within the company recognizes that certification not only protects brands, but also leads to profitability if done right.

BB: You map out three levels of certification: first-party, second-party, and third-party. Explain them and their degrees of effectiveness.

MC: First-party certification is what companies have been trying to do for a long time. They simply say, "Hey, we're good guys. Here's the code of conduct we're going to follow, and we'll let you know periodically how well we're following that code." Most consumers, and more importantly, most companies that buy from original producers, no longer consider this a credible claim. Second-party claims emerged in the 1980s and '90s, where industry says, "Ok, we've got an image problem, we'll create a set of standards and verify for ourselves and the members of our industry association and we'll tell consumers, these are good guys."

The best example is how the global chemical industry responded to the Bhopal disaster in India--when a giant Union Carbide chemical plant blew up in the 1980s--with the Responsible Care Program. But it was quickly apparent to citizens, consumers, and advocacy groups that this was not credible.

Third-party independent verification or certification systems emerged in the mid-1990s, where stand-alone groups that have nothing to do with companies negotiate a set of standards with companies and advocacy groups, and then verify that companies are fulfilling those standards. And it�s that third-party, independent status that consumers and retailers and financial markets and insurance companies are now demanding.

BB: And stakeholder input is the key--in other words, people from outside the company engage with companies to create standards instead of companies creating the standards themselves.

MC: And it's different from the outsiders saying, �These are the standards you've got to meet.� What makes certification systems effective is that companies sit down with advocacy groups and say, "What do you absolutely need?" And so they hammer out standards in very complex, tough discussions.

Once they agree to standards, they create a seal of approval or certificate or logo that goes on products that are verified continually--monitored every year and re-inspected every three to five years. So when consumers see the logo, they know the product meets a transparent set of standards and has been independently verified.

BB: Near the end of your book, you talk about perhaps the mother of all campaigns-against big-box retailers, in particular Wal-Mart. For the sake of disclosure, I wrote the Wal-Mart Sustainability Report as an outside contractor and an avowed skeptic of Wal-Mart. What were the successes and limitations of that campaign?

MC: My chapter on Wal-Mart and big-box retailers is the longest and most complicated chapter. It documents how a coalition of almost 80 groups around the country pulled together a single, multi-focused, well-coordinated campaign to get Wal-Mart to change its practices--from how it treats workers in Chinese factories to how it treats associates in stores around the country. In October 2005, largely in response to that campaign--just six months after its launch--CEO Lee Scott came out with his most profound statement on how they were going to change their practices inside Wal-Mart.

And those practices have become industry-leading changes in the reduction of energy consumption in their stores and increasing fuel efficiency in their trucks. What they're finding is that this combined pressure from many groups makes it more valuable to sell independently verified, certified products--whether it's paper or food or seafood products. Wal-Mart made one of the biggest commitments ever to Marine Stewardship Council certified fish, saying that by 2010 they want all of their ocean-caught fish to MSC-certified--and that is transforming almost every fishery in the world, raising their standards.

However, these campaigns have been least successful in improving the way Wal-Mart treats its own associates inside its stores. My book documents many changes in their practices, but they generally haven't been large or widespread enough to change the general image Wal-Mart has of not treating its workers well.

The ultimate irony is that Wal-Mart may, in the end, be capable of incorporating many more of these certified social and environmental practices into its business--and gain market strength because of it, despite the hopes of many of the advocacy groups that Wal-Mart might be crippled by having to meet these standards. It�s accelerating the rate at which Wal-Mart's competitors also enter into the purchase and resale of certified products, pushing the whole movement forward more rapidly now than at the time I wrote the book.

BB: Wal-Mart still represents a double-edged sword. Admittedly, its sustainability practices have a huge impact on moving entire industries. At the same time, activists continue to question whether the basic business model of Wal-Mart and can ever truly be sustainable. What's your projection--do you think Wal-Mart is going to transform everything toward sustainability, or is it going to hit a wall where its business model won't be able to achieve the biggest changes?

MC: That's a tough question to answer, because we're in the middle of a very complicated process where Wal-Mart is changing almost daily. Wal-Mart�s recent announcement committing to selling Fair Trade illustrates not just a double-edged sword but a multi-edged tool. TransFair USA, whose board I chair, has been working to get Wal-Mart to introduce more Fair Trade certified products. They experimented with Fair Trade coffee in their Sam's Clubs, found them very effective, and now they are selling large volumes of Fair Trade coffee in their stores around the country.

Wal-Mart�s commitment to improve working conditions and wages and income received by farmers in six countries around the world by purchasing coffee, chocolate, and other products on Fair Trade terms has strengthened the Fair Trade movement in the US. At the same time, the coalition of advocacy groups is asking Wal-Mart, "If you can do this for farmers in Brazil, why can't you do it for workers in this country?�

Whether this will ultimately transform all of Wal-Mart, which has about 50,000 products in its stores, remains to be seen. But the thinking within the coalition is that we need to celebrate every little victory in terms of Wal-Mart becoming more sustainable, and continue to put pressure on it to change even more.

BB: Stepping back, to what degree does the certification revolution show promise of transforming our economy toward sustainability?

MC: I envision the possibility of forest products and the FSC logo becoming in 20 or 30 years the label that everyone looks for and expects to ensure they didn�t fuel destruction of Indonesian or African or Brazilian rainforests. Product by product, I think we're going to find labels like this becoming ubiquitous in the market. They may not necessarily earn a price premium, but unlabeled products will be heavily discounted.

Is this enough to solve all of the social and environmental problems that consumers and industry encounter? I wouldn't claim that. But what we see, and why I call it a revolution, is that for the first time in almost a hundred years, citizens are taking back the ability to force companies to become more socially and environmentally responsible, and particularly accountable. There are consequences of not meeting the emerging standards--that retailers won't buy your products, because they run the risk of being attacked because of the social and environmental characteristics of the supply chain.

You can listen to the complete interview by Corporate Watchdog Radio host Bill Baue with Michael Conroy at the CWR website.

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