Sustainability: Business Strategy Trumps Reputation
October 6, 2010
..."When it comes to companies addressing their carbon footprint," says S. Prakash Sethi, "most are good at cost-driven initiatives where there is a clear economic and public relations benefit to do it; for example to produce raw materials as efficiently as possible and improve operations minimizing impact to the environment."
Are GPO's Suppressing Safer Devices?
July 12, 2010
S. Prakash Sethi has called group purchasing organizations (GPO’s) an “undisclosed scandal in the U.S. health care industry.” Mariah Blake’s article (Dirty Medicine) in the Washington Monthly on GPO’s is a sobering “must-read” for those concerned about the future of health care in the US. She writes about the entrepreneur Thomas Shaw, who’s invented a syringe that drastically reduces the risk of bloodstream infections for patients and healthcare workers. (According to Barry Lynn, who’s also written on the issue, “each year about 6,000 medical workers come down with HIV or infectious hepatitis from such accidents, and dozens end up dead.”) Shaw’s brilliant innovation “added only a few pennies to the cost of production,” but it’s rarely used today. Blake traces the non-diffusion of this innovation to a complex set of deregulatory decisions relating to GPO’s.
Hon Hai May Raise China Wages 20% as Suicides Mount
May 28, 2010
Foxconn Employees who committed suicide may have suffered from "extreme pressure," calling into question the labor practices of manufacturers in China, S. Prakash Sethi, professor at the City University of New York's Baruch College, Zicklin School of Business, said in a Bloomberg Television interview.
Workshop: Global Regulation of Corporate Social Responsibility
April 12-13, 2010
Professor S. Prakash Sethi was the keynote speaker at CSR Research Seminar held by Norwegian University of Science and Technology (NTNU), Trondheim, Norway, April 12 - 13, 2010.
Read NTNU Newsletter - NTNU Global, right column under SICCA Feature Stories.
Toby Webb Speaks with Prakash Sethi on Corporate Accountability
Toby Webb speaks with S. Prakash Sethi, management professor at Baruch College at the City University of New York, about corporate accountability, corporate social responsibility, and the role of NGOs.
Putting the Bite on Hospitals
October 4, 2007
OTHER RELATED ARTICLE:
March 22, 2006
Dr. S. PRAKASH SETHI'S TESTIMONY
March 15, 2006
Dr. S. Prakash Sethi
University Distinguished Professor of Management and President of the International Center for Corporate Accountability, Inc. (ICCA),
Zicklin School of Business, Baruch College, the City University of New York
United States Senate
Committee on the Judiciary Subcommittee on
Antitrust, Competition Policy, and Consumer Rights
“Hospital Group Purchasing:
Are the Industry’s Reforms Sufficient to Ensure Competition?”
• The following members of ICCA’s research staff contributed to the preparation of this testimony and the full report on GPOs and are gratefully acknowledged: Ms. Olga Emelianova, Director for Project Services; Mr. Gianmarco Torterolo, Senior Research Analyst; Mr. Sandeep Hajare, Senior Research Analyst; Ms. Konstantina Kyrgidou, Research Analyst.
Good afternoon. I wish to thank you for giving me the opportunity to appear as a witness today in my capacity as University Distinguished Professor of Management and President of the International Center for Corporate Accountability, Inc. (ICCA) at Baruch College of the City University of New York. I would also like to congratulate you on your thorough work on this complex and critical healthcare issue over the last several years and on your obvious determination to ensure free competition in the medical supply marketplace.
As I understand it, my assignment today is to examine the Healthcare Group Purchasing Industry Initiative (“GPO Initiative”) and to offer my views on whether it will be sufficient to ensure competition in the healthcare supply industry. This topic has tremendous implications for the delivery of healthcare services in the United States, and I am pleased to be able to share my insights on this matter.
Let me begin by saying that I have spent a large part of my academic career of more than 30 years studying, analyzing, writing and implementing corporate and industry codes of conduct. I have published numerous articles and several books on this topic, most recently Setting Global Standards: Guidelines for Creating Codes of Conduct in Multinational Corporations, which was published in 2003.
At ICCA, a not-for-profit education-research organization based at Baruch, one of our main areas of research has been voluntary codes of conduct or principles, which are being created in increasingly large numbers by corporations and industry groups. We have undertaken numerous studies to analyze their substance and efficacy.
From 1984 to 1991, I worked closely with anti-apartheid groups and multinational corporations in implementing the Sullivan Principles in South Africa, which were aimed at promoting fair employment and eliminating apartheid. This was the most ambitious effort of its kind in my lifetime and involved over 150 U.S.-based multinational corporations. In my opinion, it also happens to be the only truly successful industry code of conduct ever implemented.
Industry-Based Codes of Conduct or Principles
Before looking specifically at the GPO Initiative, I’d like to offer an overview on industry codes of conduct and to discuss briefly the methodology we use at the ICCA for evaluating the substance and efficacy of codes of conduct.
Voluntary industry codes of conduct or principles can potentially play a critical role in engendering public trust in the conduct of an industry. A code of conduct is in the nature of a “private law” or a “promise voluntarily made” whereby an institution makes a public commitment to adhere to certain standards of conduct. The "private law" character of voluntary codes gives the sponsoring organizations a large measure of discretionary action. At the same time, it imposes on them the burden of ensuring that their critics and the public-at-large believe in the institutions’ performance claims. In turn, if they are to accomplish that they almost invariably have to create independent systems of performance evaluation, monitoring and verification, and public disclosure.
Extensive studies by ICCA of a large number of industry-wide codes suggest that most of these codes have failed because of the unwillingness or inability of their sponsors to create and implement meaningful codes and standards. This is not surprising, since most industry-based initiatives are created in the aftermath of unethical and illegal activities on the part of the member companies.
Industry members generally do not go beyond superficial statements of broad principles and a promise to make a good faith effort to improve their performance. Only a handful of industry codes, including those developed by the Forestry Council, electronics industry, and the toy industry, have had any impact at all on the conduct of their member companies. Conversely, oil and gas, mining and defense industries seem to have spent the most money to devise elaborate management and governance systems, but their codes have produced little improvement in the member companies’ conduct. In my view, the GPO Initiative falls in the second category.
Based on our research and field work in monitoring code compliance, we have identified eight conditions that must be met for an industry-based code to demonstrate measurable and credible compliance with the industry’s voluntary initiative.
The GPO Initiative
With that as background, I’ll now discuss the findings of our study of the GPO Industry Initiative. Over the last six months, my colleagues and I at ICCA have reviewed virtually all of the public record on the GPO issue, including Senate testimony, government and academic studies, legal proceedings, media reports, and relevant industry documents. We have evaluated the GPO Initiative against the principles I’ve just enumerated. For us, this is the customary process and a necessary precondition for drawing objective and unbiased conclusions.
From our analysis, it is apparent that GPOs play an extremely important role in the healthcare industry, one that is little understood by the general public and even many in the healthcare industry itself. The enormous size of the industry and the buying power they control would raise anti-competitive concerns under the best of circumstances -- that is, even if the marketplace were operating freely and openly. In the case of GPOs, the potential for abuse is even greater. Our detailed analysis of the public record, which is the basis for my comments, will be contained in a more comprehensive report by the ICCA to be submitted to the Subcommittee later.
This analysis strongly suggests that the current modus operandi of GPOs, doing business under the protection of the Medicare anti-kickback safe harbor, has contributed to a misallocation of a very large portion of the revenue received from vendors in the form of fees and other considerations. Like a spider’s web, GPOs engulf both the buyers and suppliers in contractual arrangements that are questionable at best. This control allows them to engage in conduct that illegally and unethically enriches the GPOs at the expense of healthcare providers, new entrants, and the public-at-large. Regrettably, the failure of this industry to address these issues in the nearly four years -- since this panel first urged them to institute a code to police themselves -- continues the pattern of resistance to change that we have seen time and again with industry codes.
In my professional opinion, the current GPO business model and legal framework has built-in structural flaws, and its financial incentives are so perverse that the GPO Initiative cannot possibly remedy this situation. Anti-competitive contractual arrangements, industry concentration, and especially the vendor-financed fee structure--- all of which arise from the Medicare anti-kickback safe harbor -- have created strong incentives for the GPOs to maximize their income, and equally strong disincentives to distribute this income to their beneficial owners, i.e. hospitals and nursing homes. Indeed, the structure of the new GPO Initiative seems to indicate that its entire purpose is to protect the industry’s anti-competitive, exclusionary system, in which the GPOs’ self-interest takes precedence over the welfare of the industry’s clients, including healthcare providers, taxpayers, and potential new entrants in the industry.
I do not believe that we can even begin to talk seriously about a GPO Initiative until we have realigned these financial incentives so that the hospitals, and not the vendors, are once again the GPOs' only clients. As long as vendors continue to pay fees to the GPOs, any attempt to create, implement and enforce a code of conduct is doomed to failure.
Creating a new competitive environment will require the repeal of the Medicare anti-kickback safe harbor provision. I might add parenthetically that this provision was a new one for me. As a patient, and as a New Yorker who thought he’d been around the block a few times, I was surprised to learn that there was an industry in this country in which the federal government has essentially continued to protect a system of monopolistic conduct long after the provision had lost any usefulness as an instrument of public policy to improve the economic efficiency of the healthcare delivery system.
Let’s now look at the six principles contained in the GPO Initiative. Even a cursory reading of these principles would make it obvious that they urge the member companies to do things that they should have been doing in the first place without the need of a new set of principles. What is missing, and what is needed, is an honest recognition of the member companies’ activities that have been found to be inappropriate.
I respectfully submit that an objective and thoughtful assessment would conclude that these principles fail to measure up, even at the very minimal level, against any of the eight criteria that I have just described. Among the most serious shortcomings of this Initiative are:
In summary, the new GPO Initiative is encumbered with a lack of specificity, non- existent performance standards, an internally controlled and self-serving governance structure, and an absence of independent external monitoring system. It is unlikely to yield any meaningful reform. Instead it would exacerbate the problem through absence of meaningful change and would further erode the credibility of its sponsors.
It is unrealistic to expect an industry to create a viable code or initiative that has been operating with a business model based on perverse financial incentives, a questionable legal structure, and federal statutes that undermine the imperatives of competitive markets. Therefore, the repeal of the safe harbor must precede any discussion of a GPO industry code of conduct or initiative.
Restoration of market-based competition would be the first step to create a healthy business model for the entire healthcare industry. While market competition can go a long way in minimizing illegal and unethical practices, it cannot completely eliminate them. This is where industry-wide codes of conduct can potentially play an important role in narrowing the gap between societal expectations and industry performance.
After Congress acts to restore market competition to this industry, I would recommend that the healthcare industry develop a code of conduct that encourages a higher level of ethical and legal conduct. Such a code would adhere to the above mentioned eight criteria for creating and implementing effective codes of conduct. I would urge that such a code not be limited to the GPOs but also include the other two groups in this equation. These are: (i) healthcare providers, i.e., hospitals and nursing homes; and, (ii) the suppliers of medical products and services. As I indicated earlier, a voluntary industry-based code faces an uphill battle under the best of circumstances and cannot possibly succeed unless all parties act in good faith and are truly committed to its success. I earnestly hope that these conditions would emerge once competition has been restored to the healthcare supply industry. This would provide a rare opportunity for the industry leaders, i.e., executives of hospitals, GPOs, and suppliers, to take the lead by creating a truly meaningful code of conduct that would be the role model for other industries.
Thank you for your attention. I would be pleased to try to answer any questions.
BROADCAST TRANSCRIPT OF PROF. S. PRAKASH SETHI'S INTERVIEW WITH NATIONAL PUBLIC RADIO
October 13, 2004
Time: 06:50 AM - 07:00 AM
Program: Marketplace Morning Report
KAI RYSSDAL, host:
Mattel is out with its first ever Social Responsibility Report. It looks at problems at its overseas plants and how the toymaker is tackling them. Mattel is not alone in turning the magnifying glass on its own production lines. Ashley Nantight(sp.) looks now on what's prompting big business to make some big changes.
ASHLEY NANTIGHT reporting:
After the sweat shop scandals of years past, companies increasingly want to be seen as socially responsible. Still, Baruch College Management professor, Prakash Sethi, says companies tend to spring into action only after some exposed transgression. He says groups of investors have been pressing corporations to come clean.
Professor PRAKASH SETHI (Baruch College):
These are the funds that attract investors who want to invest in companies that are proactive to social issues, environmental issues.
Julie Fox Gordy (sp.) directs social research at one such fund, the Calvert Group. She says companies have told her some of this pressure comes from the inside.
Ms. JULIE FOX GORDY (Calvert Group):
Their first motivation is to communicate with their own employees, their own stake holders. They want to be able to communicate about the good that they do and the problems that they face.
Asked whether we can believe what we read in these reports, Gordy says yes, but the companies might omit certain salient points.
I'm Ashley Nantight for MARKETPLACE.
For a videocassette (TV) or audiocassette (radio) of this news segment contact your nearest VMS office Material supplied by Video Monitoring Services may only be used for internal review, analysis or research. Any publication, re-broadcast or public display for profit is forbidden.
Video Monitoring Services of America, Inc.
330 West 42nd Street
New York, New York 10036
(212) 736-8396 (FAX)
Publication of Selected Papers presented at the International Conference, May 2004
January 26, 2004
There was widespread recognition at the conference as to the exceptionally high quality and diversity of papers presented in various sections of the conference. Further evidence is now available that reinforces the validity of earlier observation.
To date, five top tier professional/academic journals have agreed to publish selected papers from the conference in special issues of their respective publications. The first of these was published in December 2004 in Business and Society Review. Two other special issues have been completed and are to be published in the next 2-3 months. These are Journal of Business Ethics and Business Ethics Quarterly.
Papers for the remaining two journals, i.e., Transnational Corporations and Corporate Governance are currently undergoing outside reviews and revisions. We expected these to be published in the second half of 2005.
A list of articles included in the first three journals are given below. Readers are encouraged to make use of these journals through their libraries or by writing to the respective journals.
Readers should also note that we are planning our next International Conference in June 2007 with an even more ambitious agenda of presenting original research and current applications on all aspects of corporate social responsibility, environment and sustainability, and the scope of constructive interactions among corporations, civil society organizations, national and international governments, and regulatory bodies.
Individuals and institutions interested in planning and participating in the activities of the 2007 conference, please contact Olga Emelianova at oemelianova@ICCA-CorporateAccountability.org.
Regular updates about the conference will be reported on our website.
Business and Society Review
∙ Global Strategic Partnership Between MNCs and NGOs: Drivers of Change and Ethical Issues, by Carla C.J.M. Millar, Chong Ju Choi, and Philip Cheng
∙ The Effectiveness of Global Codes of Conduct: Role Models that Make Sense, by Tara J. Radin
∙ The Adoption of Voluntary Codes of Conduct in MNC's: A Three Country Comparative Study,by Krista Bondy, Dirk Matten, and Jeremy Moon
∙ Above and Beyond the Law, by Lara Blecher
∙ The Ethics Commitment Process: Sustainability Through Value-Based Ethics, by Jacquelyn B. Gates
∙ Creating Sustainable Corporate Value: A Case Study of Stakeholder Relationship Management in China,by Zhing Cai and Peter Wheale
∙ Performance Measurement for Voluntary Codes: An Opportunity and a Challenge, by Howard Harris
∙ Business Schools and Social Responsibility: A Dean's Perspective, by John Elliott
∙ Globalization's Next Frontier Principled Codes of Conduct That Bolster the Rule of Law, by William G. Parrett
∙ Socially Responsible Investing: Transforming the Role of Business in Society, by Barbara Krumsiek
Journal of Business Ethics
∙ Minding Our Business: What the US Has Done and Can Do to Ensure that Its Multinationals Act Responsibly in Foreign Markets, by Susan Aaronson
∙ Codes, Values and Justifications in the Ethical Decision-Making Process, by Richard Coughlan
∙ Transcending Transformation: Enlightening Endeavours at Tata Steel, by S. Elankumaran, Rekha Seal, and Anwar Hashmi
∙ Measuring Sustainability: A New Life-Cycle Assessment, by Caroline Gauthier
∙ The Global Compact: Selected Experiences and Reflections, by George Kell
∙ Global Business Citizenship and Voluntary Codes of Ethical Conduct, by Jeanne Logsdon and Donna Wood
∙ Managing Global Supply Chain: the Sports Footwear, Apparel and Retail Sectors, by Ivanka Mamic
∙ Corporate Governance and Institutional Transparency in Emerging Markets, by Carla Millar, Tarek Eldomiaty, Chong Ju Choi, and Brian Hilton
∙ Monitoring Compliance with International Labor Standards: How Can the Process Be Improved, and What Are the Implications for Inserting Labor Standards into the WTO? by Theodore Moran
∙ A Critical Analysis of the Accounting Industry's Voluntary Code of Conduct, by John D. Neill, O. Scott Stovall, and Darryl L. Jinkerson
∙ Corruption and Development: New Initiatives In Economic Openness and Strengthened Rule of Law, by Augustine Nwabuzor
∙ Determinants of Bribery in International Business: The Cultural and Economic Factors, by Rajib Sanyal
∙ Universal Moral Values for Corporate Codes of Ethics, by Mark Schwartz
∙ Corporate Codes of Conduct and the Value of Autonomy, by David Silver
∙ Code Integration: Alignment or Conflict? by Rory Sullivan
ETHICS ORGANIZATION LAUNCHED TO ENHANCE GLOBAL CORPORATE CITIZENSHIP
February 27, 2003
NEW YORK, PRNewswire via COMTEX- The Zicklin School of Business at Baruch College, City University of New York and the International Center for Corporate Accountability (ICCA) announce the formation of a new organization to be directed by Dr. S. Prakash Sethi, University Distinguished Professor. The model for ICCA is a highly successful Independent Monitoring Council (MIMCO) that was created by Mattel, Inc. in 1997 in affiliation with Zicklin School of Business. MIMCO was created to monitor Mattel's compliance with its worldwide code of conduct called Global Manufacturing Principles (GMP). Mattel's GMP are the cornerstone of the company's ongoing commitment to responsible manufacturing practices around the world.
ICCA will absorb the activities currently performed by MIMCO and expand on them to encourage and assist other multinational corporations to create, implement and arrange independent monitoring of codes of conduct. Mattel is proud of its commitment to external and transparent auditing, previously accomplished through ICCA's predecessor, MIMCO. "The creation of ICCA is an excellent step in the development of independent monitoring and verification programs; and its broadened activities provide an opportunity for many companies to benefit from this model," says Robert Eckert, CEO of Mattel. True to its origins in MIMCO, ICCA will be a not-for-profit, independently incorporated organization. As an academically affiliated organization, ICCA will also undertake independent field research on aspects of corporate governance and accountability that normally fall outside the purview of corporate boards of directors, and engage in dialogue with a wide range of stakeholders.
"The spirit behind ICCA complements Baruch College's Center for Financial Integrity," said Baruch College President Ned Regan. "The Center for Financial Integrity sponsors research and events to increase accountability and transparency in financial reporting and corporate governance." In concurring with ICCA's mission, Dean John Elliott of Zicklin School of Business stated: "The pioneering work in business ethics and accountability that ICCA represents is in perfect harmony with the Zicklin School's commitment to forward-looking policies and an international perspective on business issues." ICCA will 1) assist companies in devising codes of conduct for their global supply chain 2) monitor compliance to these codes and 3) provide an unprecedented body of research on policies and procedures, strategies and standards that will assist large corporations, journalists, scholars and policymakers in the rapidly changing field of workers' human rights, sustainable development and discrimination based on religion, race, ethnicity and gender.
"We have gained considerable real-life experience in monitoring corporate compliance with codes of conduct," states Dr. Sethi, formerly Chairperson of MIMCO and now President of ICCA. "While there are indeed substantial problems in carrying out field audits that are both transparent and objective, we have demonstrated that these audits can indeed be successfully conducted while protecting the corporation's legitimate competitive interests and at the same time furthering the goal of fair treatment of workers in terms of wages and overtime, and ensuring that factories operate in a safe manner and are cognizant of workers health and safety conditions."
ICCA will be governed by a board of directors comprised of scholars and representatives of public interest groups with extensive knowledge and experience in developing countries in issues pertaining to children, poverty, and working conditions.
Mattel and MIMCO developed approaches to field audits that have met the test of objectivity, integrity and public trust. As Dr. Sethi observes, "The tremendous success of Mattel's independent audit and monitoring system suggests that the idea should be expanded to include other multinationals in a variety of industries who seek guidance in the crucial areas of governance and ethics." ICCA has already been approached by a number of other multinational corporations to develop international codes of conduct or to advise in other issues of corporate citizenship especially as it applies in the international arena. The second company to agree to participate in an auditing program is Freeport-McMoRan Copper and Gold, which operates one of the largest mining operations in the world in the Papua province of Indonesia. Freeport's Board put in place a Social, Employment and Human Rights Policy in 1999. Freeport and its Board now wish to audit how the Policy has been implemented and whether the Board's goals have been realized. David Lowry, Freeport's Vice President-Social and Community Affairs said of the audit process, "Just preparing for an audit has been a great help. Having outside, objective eyes looking at what you are doing, helps clarify one's vision and purpose. That the process is painful from time-to-time in no way diminishes its value."
In its inaugural year, ICCA is collaborating with Baruch's Zicklin School to hold an international conference on corporate international codes of conduct. The conference will bring together representatives from all institutional sectors with stake in improving the working and living conditions of workers, enhancing economic growth, and environmental protection in developing countries. These include: multinational corporations, trade/industry associations, UN-affiliated organizations, international and regional financial institutions, non-governmental organizations, and academic scholars engaged in cutting-edge research in issues of globalization and the role of corporations and private economic institutions in economic growth and sustainable development. The conference is tentatively scheduled to take place in March-April, 2004.
Source: The Zicklin School of Business at Baruch College, City University of New York
SICCA PRESS RELEASES
SICCA FEATURE STORIESJonathan Dee