5. Analysis
5.2 Strengths and weaknesses of DONG‟s code of conduct
This section focuses on exploring strengths and weaknesses of DONG‟s code of conduct in the light of the theoretical assumptions emphasised in section 4.5 combined with empirical findings.
5.2.1 Improves working conditions
The greatest strength of DONG‟s code is that it contributes to improve working conditions in the supply chain: “It is evident that we make a difference because the corrective actions we suggest are implemented [...]. This way, we know that our code of conduct has an effect – directly”
(p.109). Igor Diaz, President of Sintracarbon, confirms one of these improvements as he explains that Cerrejón is working on protective measures in relation to hazardous chemicals that DONG found in its audit in 2010 (p.153). Linna Palmqvist also believes that codes of conduct have a positive effect although she does not believe that codes alone are sufficient: “Yes, I actually believe so. However, it depends on how you work with the supplier. I don‟t think a code of conduct alone necessarily has a sufficient effect, but if you combine it with capacity building or build relations with suppliers in different ways, I believe codes of conduct can have a major part of [the effect]” (p.125). According to Heydenreich, improvements in working conditions will continue as long as DONG carries out audits: “[...] we always find something, which means that every time we make an audit, we will have a process of continuous improvements” (p.114).
Evidently, DONG‟s code is improving working conditions in the supply chain in accordance with the theory (Vogel 2005:99, 162, Locke et al. 2009:319, Jenkins 2001:28).
5.2.2 Creates a ‘race to the top’ – or compliance with national law and regulations It can be argued that poor working conditions, low wages, forcible removal of local communities, and persecution and murder of unionists (The curse...2010) have created a „race to the bottom‟ in Colombia. In Russia, poor working conditions, poor wage systems, and great health and safety risks (Hvilsom 26.12.10a,b, Hedegaard 26.12.10, Pimonov et al. 26.12.10) are also taking place. However, despite issues, it can be argued that Cerrejón and SUEK are reversing this „race‟ by implementing responsible initaitives. For instance, from 2005 to 2010 SUEK spent 190 million dollars on industry safety in the Kuzbass mine and plans to spend an additional 33 million dollars in the same mine in 2011 (Redegørelse til...06.01.11). Cerrejón has achieved different certifications, fx the ISO 14001, and better working conditions for the workers
employed directly by Cerrejón (Appendix 2). Both mine companies have agreed on corrective action plans with DONG, which will lead to further improvements (Appendix 2, Redegørelse 15.06.11). This could be ascribed to the theoretical assumption that codes souring a race to the top (Haufler 2001:29). In addition, Cerrejón is praised for being “the mine in Colombia that has made the greatest effort in relation to safety, environment, climate and dialogue with stakeholders and neighbours” (Notat 03.02.10). Heydenreich explains improvements in the supply chain with suppliers‟ increasing awareness of buyers‟ demands for social responsible behaviour of suppliers: “The corrective action plans, or the findings, [coal suppliers] have regarded them seriously because they understand that it is something that will develop” (p.110).
This indicates that suppliers also are aware that compliance with codes will provide access to developed country supply chains like O‟Rourke argues (2003:5). Linna Palmqvist confirms this tendency: “Some companies only want to collaborate with suppliers who have a minimum standard” (p.126), which DONG does, as suppliers must comply with the UN Global Compact‟s principles to conduct business with DONG (p.149). However, is Cerrejón really creating a race to the top when the company was accessary to the race to the bottom in the first place? Is Cerrejón not just mending wounds it is responsible for causing? Can Cerrejón‟s effort be regarded as social responsible behaviour when Cerrejón in fact is forced by the Colombian Supreme Court to implement improvements? (The curse...2010). Sanne Borges argues that it is strange when companies claim to undertake a voluntary responsibility to address human rights when this is already enforced by national laws and regulations (p.117). Although Cerrejón‟s efforts and initiatives seem to have spurred a race to the top, in light of Borges‟ argument, Cerrejón is not undertaking a voluntary social responsibility; but complying with requirements already enforced by law.
5.2.3 Not necessarily protecting DONG’s reputation
According to theoretical assumptions, codes protect reputation and enhance brand value (Haufler 2001:78, Locke and Romis 2010:48, Kaptein and Schwartz 2008:111, Erwin 2011:536, Vogel 2008:261, van Tulder et al. 2009:400). Heydenreich states that one of the strengths of DONG‟s code is the reduction of risks in relation to DONG‟s reputation (p.107). Nevertheless, DONG has attracted much negative public attention when being accused of not complying with its own code (The curse of coal 2010, Hvilsom 26.12.10b, Pimonov et al. 25.12.10, Hedegaard 26.12.10, Nye løfter...16.12.10). Although the code surely has contributed to DONG‟s positive CSR reputation,
the code has definitely caused harm to the reputation as well. According to PR-Barometeret 201115, DONG made the largest drop in rankings with 28 positions from 7th last year to 35th this year (1 being the best) (Boutrup 05.10.11). DONG‟s Head of Communication, Jakob Askou Bøss, ascribes the drop to criticism in the media due to DONG‟s strategy and investments (ibid).
Although it is not clear whether this criticism includes the criticism in relation to SUEK and Cerrejón, there can be no doubt that DONG‟s code has created reputational risks. This is probably also because stakeholder expectations of state-owned companies‟ social responsible behaviour are higher: “state-owned companies have a higher moral and ethical responsibility than other companies” (p.118).
5.2.4 Vulnerable to stakeholder attention and NGO campaigns
The theoretical assumption that codes attract stakeholder attention (Haufler 2001:27,70, Vogel 2008:268, 2005:52) applies to DONG‟s code. As soon as DanWatch‟s report “The curse of coal”
hit the media, the Ministry of Finance requested a statement on the matter which led to an extraordinary audit (Notat 03.03.10). Louise Münter published explanatory notes to the Ministry along the process and expressed to the media: “This is shocking news” and “If this information is correct, it is completely unacceptable” (Hvilsom 26.12.10a). Likewise, when confronted by Danish newspapers about the situation in the Russian coal mines, DONG‟s Executive Vice President, Niels Bergh-Hansen, stated: “These circumstances [...] don‟t live up to the requirements we wish to put forth. Therefore, I want to go back to our supplier and ask: „what is this?‟” (Pimonov et al. 26.12.10). In both cases, DONG has been pressured to publicly explain the circumstances as well as carry out extraordinary audits, which have led to corrective action plans and follow-up audits. In other words, the „name and shame‟ campaigns have been just as effective in DONG‟s reality as in theory (Vogel 2008:268, 2005:52). This also aligns with the theoretical assumption about companies being anxious to protect brand and are therefore responsive to criticism (Vogel 2005:52, van Tulder et al. 2009:400). In addition, it has provided the media with leverage to hold DONG accountable as Louise Münter on behalf of DONG has promised to narrow the gap between the requirements set forth in the code and the actual conditions like the theory argues (Vogel 2008:267, O‟Rourke‟s 2003:5, Locke et al. 2006:1).
15 Based on an analysis by Berlingske Nyhedsmagasin wherein 866 journalists assess 53 Danish companies‟ public relations based on 24 different parameters (Boutrup 05.10.11).
5.2.5 Prevents additional regulation
As a state-owned company, DONG has to live up to governmental regulation and international standards. If it does not, pressure on the government will increase. This happened in 2006, when the Minister of Finance at the time had to explain DONG‟s relationship with Drummond because the coal company was on trail for the murder of three unionists (Svar på... 24.08.06), and in June 2010, when fellow politicians demanded an explanation from the Minister of Finance about DONG‟s import of coal from Cerrejón due to DanWatch‟s report (Samrådsspørgsmål I 29.01.10), and again in December 2010, when the Minister had to explain DONG‟s import of coal from what the media called „death mines‟ in Russia (Hvilsom 26.12.10b). Consequently, in DONG‟s case, the Ministry of Finance is put under pressure by fellow politicians, the media, and NGOs everytime DONG is criticised for unethical behaviour. Hence, DONG‟s self-regulation is attractive to the government in accordance with O‟Rourke (2003:4) especially since the state owns 75 % of DONG. Also, in accordance with Vogel (2008:268), DONG can avoid additional regulation by investigating and correcting the accusations like DONG has done in these three cases. On the one side, the government could impose more regulation to show the public it takes the accusations seriously and wants to prevent further unethical behaviour. But, on the other hand, if DONG has to comply with additional regulation it will attract corporate „watchdogs‟, which will lead to more pressure and demands on the government. As stakeholders hold DONG accountable for its own code and the government has not imposed additional regulation, one could assume that DONG‟s code is viewed as a viable alternative to governemental regulation (Vogel 2008:265, 2005:170, Haufler 2001:29, Jenkins 2001:30).
5.2.6 Calls for enhanced government responsibility
Denmark, Colombia and Russia have ratified ILO conventions on labour and human rights (ILOLEX 2011), but none of the states, as far as I can tell, are taking steps to prevent, investigate, punish, or redress DONG, Cerrejón, or SUEK‟s violations of human and labour rights like recommended by Ruggie (2011:7). Especially the Danish state has a strong policy rationale for doing this: “the closer a business enterprise is to the State [...], the stronger the State‟s policy rationale becomes for ensuring that the enterprise respects human rights” (Ruggie 2011:9). On the one hand, it can be argued that the Danish government is taking steps to investigate DONG‟s social responsible behaviour in the supply chain since DONG has been requested by the Ministry of Finance to explain its business relationship with Cerrejón and
SUEK where violations of labour and human rights were revealed. However, on the other hand, this appears like an empty concern as the Ministry of Finance without protest accepts DONG‟s non-disclosure agreement with suppliers, which prevents the government, the public, and any other stakeholder from reading the audit reports (Appendix 12). The media criticises this secrecy (Er offentlighedsloven... 06.10.11) while the Minister of Finance remains as good as silent in his non-committed statement: “The Ministry of Finance has not received the audit report, but does not have any reason to doubt that the note was sufficient” (Appendix 12). The Minister was asked directly about the conditions in Cerrejón: “Does the Minister assess DONG Energy A/S to be responsible for ensuring proper working conditions in the whole supply chain, including sub-suppliers in the Cerrejón-mine?” (Svar på...07.09.10) and even here his answer was bland and non-committal: “It is expected by DONG Energy that the company‟s suppliers and sub-suppliers have a responsible behaviour, including ensuring proper working conditions” (ibid). To the question about whether or not the Minister himself found it satisfactory that DONG does not include indigenous peoples‟ rights and forcefully relocation in its code, the Minister did not give an answer to the question. Instead he stated that DONG states that indigenous peoples‟ rights are included in Colombia‟s national law (Appendix 13). Of course, as DONG‟s owner and a political and public figure, the Minister must be careful with his statements, however, as he is the Finance Minister and DONG‟s owner, he is responsible for enjoining DONG to ensure compliance with labour and human rights in the supply chain. The Minister was in other words acting contrary to Ruggie‟s Framework even though the Ministry of Finance owns 75 % of DONG and therefore is clearly „involved in or supports‟ DONG‟s business and therefore holds a greater responsibility to promote social responsible behaviour (2011:7). This supports Sanne Borges‟ argument that additional governmental regulation is preferable (p.117), especially because companies often do not go beyond legal requirements in their codes, and the requirements put forth in codes are often not complied with due to the lack of enforcement mechanisms.
5.2.7 Lack of enforcement mechanisms
One of the major weaknesses of DONG‟s code of conduct is, like Vogel argues, a lack of enforcement mechanisms as this may contribute to non-compliance with the code (2008:264). As DONG is not terminating contracts or putting forth consequences, the willingness to comply with the principles seems to be low based on the violations going on in Cerrejón, and to some extent in the Kuzbass mine. Sanne Borges argues that NGOs would prefer more regulation in
relation to CSR: “We are in particular many NGOs that would like to settle the concept of CSR where you can chose it as a voluntary add-on. We find it a bit strange that human rights that are implemented by law are regarded as a voluntary add-on [...]. We think that additional regulation on the matter would be appropriate” (p.117). Peter Thagesen emphasises on the contrary that the voluntary aspect of CSR is important:”Fundamentally, I strongly believe that the voluntary principle must be the leading element and the leading motivating factor” (p.142). These different points of views show that perceptions of CSR are subjective and related to the respondents‟
positions and role in society: Borges‟ view is normative with concern for workers‟ interest and companies‟ social obligation in society whereas Thagesen‟s view is instrumental with concern for companies‟ self-interest. Jesper Nielsen also regards the lack of enforcement mechanisms as a weakness: “Critique of the CSR invension is that companies for years have freed themselves from a legally binding responsibility. However, they claim before consumers that they have undertaken a voluntary social responsibility” (p.137). This quotation is consistent with Borges‟
perception, which can be ascribed to Nielsen‟s position in a trade union, and that he is therefore also concerned with normative values.
5.2.8 In sum
Some of the strengths and weaknesses of DONG‟s code of conduct align with theoretical assumptions while others do not. Like the theory argues, the code has led to (some) improved working conditions in the coal supply chain. It can be argued that DONG‟s code has created a race to the top in accordance with theory, as Cerrejón and SUEK have acknowledged the need for social responsible behaviour and are implementing DONG‟s corrective actions and planning further improvements. However, at the same time, the suppliers have not gone beyond code requirements and are therefore implementing improvements already required by national laws and regulations. It can also be questioned whether the code has protected DONG‟s reputation like the theory argues or rather created additional risks due to heavy negative media and NGO attention which also have caused scepticism from politicians. The lack of enforcement mechanisms is yet another weakness, in line with theory as well, as it may contribute to suppliers‟ non-compliance with DONG‟s code. Thus, non-compliance inceases demand on government to participate in ensuring social responsible behaviour.