Talisman? A responsible corporation?

Not much was going right for Calgary oil and gas powerhouse Talisman Energy back in 2001, but an indisputable low point was when it was accused of complicity in genocide.

The charge, contained in a class action suit filed by the Presbyterian Church of Sudan, stemmed from Talisman’s decision three years earlier to acquire a stake in an oil project controlled in part by Sudan’s Khartoum-based Islamic government. The Church and others claimed that Talisman aided Khartoum in committing genocide by, among other things, allowing helicopter gunships to mount bombing raids on villages from airstrips controlled by the oil consortium.

Though the charges were later dismissed, Talisman’s Sudanese adventure sent its share price into a dive and prompted former U.S. secretary of state Madeleine Albright to send a harshly worded letter to then-foreign affairs minister Lloyd Axworthy asking Canada to put pressure on Talisman to scuttle the project. It’s an interesting history for a company that’s now being celebrated, in this very report, for being one of the 50 Most Socially Responsible Corporations operating in Canada.

For the full list of the 50 Most Socially Responsible Corporations, click here.

Another company we’re celebrating is Nike, which in the 1990s faced allegations that its products were being manufactured by child labourers in Third World sweatshops. Clothing retailer Gap—which is also on the list—faced similar pressures, and Montreal-based T-shirt maker Gildan Activewear was put on review by the Fair Labor Association in 2004 after the company fired 100 workers in a Honduran sewing plant for union organizing. Oil sands giant Suncor Energy made our list too, despite recent concern over Alberta bitumen as “dirty oil.”

Why are we touting these companies as some of the best corporate citizens operating in Canada? Simple: after wandering a public relations wilderness for a decade or more, each is now reaping the benefits of an aggressive “corporate social responsibility” (CSR) effort, an increasingly popular framework that puts a focus on how a company treats its workers, the environment and the communities where it operates. Sure, to be frank, many of these companies first adopted CSR mainly to put out a public relations fire. But none would now go back. In fact, most say that although becoming a good corporate citizen was a long, sometimes painful and often costly slog, they’re now much better companies because of it.

In Reg Manhas’s case, the fire that then-Talisman president and CEO Jim Buckee sent him to douse was burning pretty intensely. Manhas, now vice-president of corporate responsibility and government affairs at Talisman, was then a former oil patch engineer-cum-lawyer doing legal work on the commercial end of the Sudan project. When Buckee, a colourful and outspoken Brit with an Oxford Ph.D. in astrophysics, came knocking in March 2000, Manhas suddenly found himself tackling his company’s biggest headache.

The onset of the pain had first arrived two years earlier when Talisman acquired Calgary-based Arakis Energy, with its 25 per cent interest in Sudan’s Greater Nile Petroleum Operating Company. The deal triggered instant controversy, contributing to an immediate 11 per cent slump in Talisman’s share price due to worry over Sudan’s political turmoil, and Talisman shares continued to sell at a discount for the duration of its Sudan sojourn. Some non-governmental organizations (NGOs) and other activists accused the company of allowing the violent displacement of villagers around the oil concessions, as well as generating revenues that Khartoum was using to fund a civil war.

By spring 2000, a shareholder resolution sparked by these civil society activists was asking for an independently verified report on the company’s compliance with the International Code of Ethics for Canadian Business, which Talisman signed in 1999. “At that point, we did not have a corporate responsibility or government unit,” says Manhas. Buckee’s marching orders were succinct: get a CSR unit started, fast. “We created it from the ground floor,” he says.

One of Manhas’s first moves was to reach out to the very groups that had been most critical of Talisman’s dealings in East Africa—NGOs like Amnesty International, Human Rights Watch and Transparency International, as well as the Canadian and U.S. governments. If such efforts sound like Talisman was currying favour, Manhas is quick to point out that the resulting dialogue became fundamental to a new kind of soul-searching at the company. “We really had to think about, well, how do we implement the international code of ethics?” he says. “What does it mean to say we’re going to support human rights or labour rights in the context that we’re in?”

Such questions were particularly complex in this case, because Talisman didn’t directly control operations at the Greater Nile project, but as the criticism mounted, Buckee continued to insist the company was doing good work in the country, writing that “the appropriate moral response is to stay and use our corporate resources in a broad and responsible manner to encourage peace.” Meanwhile, Talisman busied itself conducting community development work, building hospitals, schools and wells, and Manhas spearheaded the company’s first corporate responsibility reports, first focusing on the Sudan, then on Talisman’s global operations.

In 2003, despite Talisman’s best CSR efforts, the company decided to scrap its stake in the project altogether, citing shareholder fatigue. All was not lost, however. “The lessons learned from Sudan and the application of those lessons into our policies really put us in a leadership position on the international scale in terms of how we address issues related to human rights, transparency and community relations,” says Manhas, and it’s a lesson that influences all aspects of the company today.

Talisman is now a member of several gold-standard environmental, labour and human rights groups—the kind you have to work hard to get into. The company belongs to both the United Nations Global Compact—which gathers companies together to support human rights, labour and the environment—and the Extractive Industries Transparency Initiative—which sets international standards on the verification and publication of company payments from oil, gas and mining. It’s also the only Canadian company that’s a full participant in the Voluntary Principles on Security and Human Rights Plenary Group, a corporate responsibility elite bound together around a set of principles that guide members on safety, security and human rights.

Over the years, Talisman’s corporate responsibility approach has shifted away from the merely reactive role of heading off bad PR to become part of Talisman’s core decision-making process. Today, before investing in a foreign land—Colombia, Peru and Iraq, say, three countries where the company is currently active—Talisman evaluates the technical and economic challenges of the area, as well as local security and human rights issues. “We’re part of the process to determine if we’re going to go, and if so, how we’re going to do it,” says Manhas.

Which raises the question of whether, had the CSR team been in place in 1998, Talisman ever would have ventured into Sudan at all. Manhas resists the question, calling it “hypothetical” and noting that few companies could claim to have had CSR programs in the late 1990s. But he acknowledges that, in heading to Sudan, “one of the things we underestimated was the stakeholder perspective, not only of civil society, but also of governments—including the U.S. government.” And he cites Sudan as argument enough for Talisman’s more recent CSR focus. “There’s a very strong business case for it,” he says. “People that have been here long enough have seen the cost when things don’t go right.”

Nike, another company on this year’s Jantzi-Maclean’s list of the 50 Most Responsible Corporations, has also seen first-hand the cost when things don’t go right. Fifteen years ago, the Beaverton, Ore.-based sportswear and equipment supplier became the poster company for labour misdeeds in the developing world. Like Gap and, to a lesser extent, Canada’s Gildan Activewear, Nike’s vast network of contracted factories came under fire for imposing forced overtime, low wages, and unsafe working conditions.

At the time, Nike was a high-profile, easy-to-hit target for activist groups—its affable chairman, Phil Knight, can be seen squirming in a mid-1990s interview conducted by documentary maker Michael Moore—and the company had little experience handling such criticism. At first, the company played down the charges, promising monitoring of factories but keeping the results of that work secret. “When these issues first hit, we were unprepared and clearly didn’t deal with them as well as we could have,” says Nike spokeswoman Kate Meyers. “When you take that risk- and reputation-management approach, you’re pretty much on the defensive.”

Since then, much has changed. “Labour violations in the supply chain haven’t disappeared,” cautions Jantzi food and retail analyst Heather Lang, though they are fewer. What is different is Nike’s “willingness to assume responsibility.” That attitudinal shift has helped transform Nike’s initially reactive approach to corporate responsibility into a core part of how the company operates. In 2007, it became the first major brand to publicly disclose its entire factory base worldwide—it had guarded against doing so despite increasingly vocal requests because it feared alerting competitors to its preferred manufacturers—then issued its first country-specific report on China a year later.

After early stumbles, Canada’s Gildan adopted a similar strategy, admitting they had put restrictions on workers’ rights to freedom of association at its Honduran factory and then setting about establishing a new relationship with its labour force in that country. “It actually showed some real leadership in how it dealt with the situation,” says Lang, who notes that Gildan submitted to an externally verified remediation process, created tough supply chain management systems and engaged with its biggest critics. It’s now one of the few Canadian apparel retailers that publishes a corporate citizenship report.

Nike, however, went beyond even this, combining its sustainability principles with the way it conceives new products. Its proprietary Considered Design standard, for example, provides an index tool that helps designers identify the least wasteful and least toxic materials from the start of the design process, including a life-cycle approach to assess a shoe’s ecological footprint from cradle to grave. “We really are now using corporate responsibility as an innovation-driver within the company,” says Meyers, who adds that these best practices lower the company’s costs. “We have proven the business case over and over again that less toxic, more environmental materials and reducing waste leads to bottom-line savings.” Those efforts appear to have paid off: annual GlobeScan polling has found that the percentage of Canadians who name Nike as an irresponsible company in an open-ended question has decreased from nine per cent to two per cent over the last eight years.

The same corporate citizenship principles underlying Nike’s social justice corrections can also underwrite environmental issues. On the face of it, oil sands companies don’t have much in common with athletic footwear. But innovative, CSR-driven thinking similar to Nike’s has helped Calgary-based Suncor sneak onto the Jantzi list year after year, despite its activities in Alberta’s “dirty oil” north. Indeed, Suncor’s reputation has never taken a Talisman- or Nike-style dive, thanks in large part to its early CSR enthusiasms. Jantzi, which takes a best-of-sector approach in compiling its top-50 list, singles Suncor out as ahead of its industry peers for the way it engages with the communities it deals with—including several First Nations partners in the Athabasca oil sands region—and the way it works to reduce its ecological footprint.

Suncor’s effort to reduce water consumption is a good case in point. Over the past five years, the company has reduced absolute water use by 40 per cent, and 90 per cent of the water it uses to generate steam to draw bitumen from beneath the earth’s surface is now recycled. At its delayed Voyageur project, Suncor committed to designing a facility that would use no new fresh water at all (last week’s merger with Petro-Canada may put this initiative back on the table).

Gordon Lambert, Suncor’s vice-president of sustainable development, cites exhaustive sustainability reporting as the main driver behind the initiatives. Jantzi oil and gas analyst Dayna Linley agrees. “They’re a very strong reporter of information: open, willing to engage, and they tend to balance the good with the bad,” she says. It’s an approach to corporate performance disclosure that Lambert calls the “good, bad and ugly.” If operational troubles cause a spike in greenhouse-gas emissions, Suncor makes it brutally clear, publishing, as it did in its 2008 climate change report, steeply soaring line graphs illustrating the numbers. Lambert acknowledges such disclosure “does have a cost to it—but that’s a cost of doing business. I would also premise that any dollars that we spend end up getting completely offset and more so by the benefits.”

None of this is to say that these companies are perfect. Retailers such as Gap and Nike—with their disparate constellations of manufacturing facilities worldwide—struggle, at times unsuccessfully, to manage their supply chains.

In its 2008 CSR report on China, Nike candidly acknowledged these challenges can still sometimes lead to underage labour (due to false documentation), forced overtime and failure to pay wages owed. Labour activists still decry Nike’s reliance on developing countries with weak labour rights regimes.

Talisman’s seismic and drilling operations in the Peruvian Amazon also leave it vulnerable to further human rights and environmental criticism, particularly from the area’s indigenous groups. And just this year, Alberta fined Suncor $850,000, a provincial record, in connection to two different environmental incidents—failing to put pollution control equipment at one facility and dumping untreated waste water into the Athabasca River.

At the same time, all of these companies have, through hard lessons, learned the value of good corporate citizenship. If that value is hard to measure—“it’s like an insurance policy, how do you quantify the benefits?” asks Talisman’s Manhas—CEOs risk Talisman-level crises by ignoring corporate citizenship issues. “Companies that maintain a standoffishness with regard to understanding stakeholder interests and responding to them are simply doing so at their own peril,” says Leonard Brooks, a professor of business ethics at the Rotman School of Management in Toronto. “It’s always possible to make a lot of money in the short term, but you can’t do that in the medium and longer term unless you give attention to corporate social responsibility.”

There’s perhaps no better indication of that than the changing behaviour of investors, who more and more are parking their money with firms that have clearly demonstrated CSR chops. Between 2006 and 2008, a period when markets were otherwise sluggish, assets invested in Canada according to socially responsible guidelines rose an astonishing 21 per cent, from $503 billion to $609 billion, according to the Social Investment Organization’s 2008 review.

Even today, most corporate responsibility teams are born of crisis, beginning life solving PR fiascos before settling in to curb further risk. But often, despite that initial reluctance, the change in outlook can become incorporated into a company’s very DNA—helping it choose where and how it does business. Underlying that shift from merely salvaging a brand’s reputation to recognizing CSR as a core part of making these decisions lies a recognition that good risk management, good optics, and actually doing good aren’t mutually exclusive. Which suggests an interesting parlour game: name the corporate pariah of today most likely to be lauded as a top corporate citizen a decade from now. Given the surprises on this year’s list, almost any guess is worth a wager.