EMBASSY REPORT
By Jonathan Montpetit

Ottawa Pressured to Crackdown on Canada's International Bad Boys

Extractive firms behaving well in the community where they do business isn?t just an exercise in public relations. It can have a lasting effect on their bottom line when acts of vigilante justice draw attention to abuses and consumers take notice.
Last December, a medical facility in northern Ecuador owned by a Canadian mining company was torched, literally sending more than $20,000 worth of equipment up in smoke.

But the most striking aspect of the fire wasn't that it was deliberately set, or that a Canadian company was involved. It was that the arson was a community decision.

According to a local environmental group, more than 300 residents gathered the day of the fire to vote on a proposal to burn down the medical facility as a protest against the mining company's activities in the area.

The mining company, Ascendant Copper Corp. of British Columbia, disputes the environmental group's version of events. It claims opposition to the project is small, and the fire the work of a few extremists.

Still, the arson in northern Ecuador underscored the importance of good relations between a foreign company and the population where it does business. Needless to say, the prospect of locals dishing out vigilante justice in retaliation for corporate misdeeds, either real or imagined, is enough to unsettle any executive with interests abroad.

Milton Friedman may still be alive, but at least one his maxims --"the only social responsibility of business is to maximize profits" -- isn't aging as well. Corporate social responsibility, once the trendiest of boardroom buzzwords, is slowly becoming an established business practice, and a cure for the jangled nerves within Canada's international business community. And as more Canadian businesses become dependent on the resources in developing countries to drive their bottom lines, critics say it's time to entrench the idea of the well-behaved corporation.

"The cool factor is wearing off," says Jay Handelman, director of the Center for Corporate Social Responsibility at Queen's University. "Now we have to ask is this really making a difference."

A handful of recent polls certainly seem to indicate that how a company goes about its business really does matter to Canadians. A GlobeScan survey conducted last year suggested 92 per cent were more likely to buy products from companies they felt were socially and environmentally responsible. Likewise, an Ipsos Reid poll found that seven-in-10 Canadians pay attention to corporate social responsibility issues.

But despite the attention such issues have generated within Canada, companies operating outside the country's borders don't always lend the matter the same importance.

Last year, a parliamentary subcommittee looking into sustainable development expressed concern several Canadian mining companies operating abroad were failing to adhere to international human rights standards. According to the report submitted to the Standing Committee on Foreign Affairs and International Trade, certain businesses were all too willing to take advantage of porous labour and environmental laws in an effort to boost profit margins.

But Mr. Handelman insists that cutting labour costs at the sake of goodwill is a recipe for disaster. The local population is an indispensable tool for a company trying to navigate through foreign customs and geography, he says. "It can be the difference between success or failure for a company."

The management theory embodied by Mr. Friedman's maxim encourages executives to keep operating costs at a bare minimum. In this model, assets are tangible and guarded zealously from those outside the boardroom. The social responsibility school of thinking, on the other hand, asks companies to seek value in intangibles.

"We need to protect and build on the reputation of Canadian companies as a form of competitive advantage," says Andrew Frank, spokesman for Canadian Business for Social Responsibility (CBSR). "The fact is that we all live in the same world. One where human rights and environmental regulations should be the same for everyone."

CBSR joined a group of prominent Canadians and legal experts late last year lobbying the federal government to pass legislation that would hold the country's corporations more accountable for their actions outside Canada.

The letter was signed by the likes of David Suzuki and former Liberal cabinet minister Gar Knutson, among others, before being sent to then-prime minister Paul Martin. Mr. Frank is hopeful that the new government will be more willing to keep close tabs on what corporations do abroad.

"More and more companies are looking for regulatory certainty around CSR issues like human rights and climate change," he says by phone from Vancouver. "There are companies who are investing in CSR who would like to see those investments standardized across the board."

Corporations currently have a host of international standards that they can choose to abide by. Two of the most popular are the United Nations Global Compact and the Organization for Economic Co-operation and Development's Guidelines for Multinational Enterprises, both of which are supported by the Canadian government. But while each is a high-profile initiative, neither has policing mechanisms.

Mr. Handelman, who nevertheless remains skeptical about the benefits of legislation, admits that many companies seek to cash in on the clean-image craze while failing to respect the spirit behind such voluntary guidelines. "CSR is not just a cheque a company sends to some cause and then wishes good luck to it," he says.

Corporations can engage local populations by giving them important positions within the company and consulting them in the early stages of any major project, he says. Though this can be an unnerving and time-consuming process, Mr. Handelman delivers a stern warning to those contemplating a half-hearted embrace of the social responsibility ethos.

"You cannot fake authenticity," he says from his office in Kingston, Ont. "There wouldn't be much worse for a company to be exposed as inauthentic."

Whether or not the federal government decides to clamp down on Canada's miscreant corporations through legislation, pressure is mounting from elsewhere for companies to seek the moral high ground.

Alcan and Bombardier, two venerable corporations with controversial projects in the developing world, have both had their annual shareholder meetings disrupted by activists accusing company officials of irresponsible business practices. The stunts may not provoke much more than a spate of bad publicity, but shareholder activism is now harder to dismiss outright than it once was. Socially responsible investment funds (SRIs), for example, now count assets of more than $31 billion in Canada alone.

As for Ascendant, the company says since January it has been spending around $70,000 per month in northern Ecuador trying to set up a social network that will allow its mining venture to thrive. "We're still hoping the strife goes away," says Llee Chapman, the Vancouver-based company's chief financial officer.

Mr. Chapman accuses the local environment group of stirring up opposition to its project, convincing locals to distrust Ascendant's motives. To counter the group's opposition, which he says is "completely out of control," the company operates a traveling medical clinic and whenever possible hires locals, even if it's only on a part-time basis. "It's their country, it's their minerals," he says. "They deserve to be successful if at the end of the day if we manage to do something with the mine."

But he knows the company, which has also come under attack from Canadian-based NGOs for allegedly shady business dealings, has to first overcome an image problem. "We're not industrial bad guys, but it's up to us to bridge the gap."