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8 controversies that led to the rise of ESG

1. Unilever’s Fair & Lovely controversy 

Date: 2020

For several years, a Unilever company has sold skin whitening creams under the name of ‘Fair and Lovely’ in India and other parts of Asia. The branding and advertisements of the product have been heavily criticised to be discriminatory and promote a singular ideal of beauty. The criticism peaked following the death of George Floyd in the US and the subsequent Black Lives Matter movement. As a response to this, the company rebranded the product to ‘Glow and Lovely’ and removed words such as ‘whitening’ or ‘lightening’ from their packaging and marketing materials. However, many still claim that merely changing the name of a product is not enough, to truly fight colourism, Unilever should stop selling such products altogether. 

Source: BBC

2. Enron scandal 

Date: 2001

Enron was a major US-based energy-trading business. Its 2001 bankruptcy filing was the largest in US history at that time and sparked a huge corporate scandal. The group was manipulating its use of mark-to-market accounting and SPEs to conceal major debts from investors and to create an illusion of higher current profits by logging estimated profits as actual profits. Enron reported an increase in sales from $13.3 billion to $100.8 billion between 1996-2000, when in actual fact they were losing money. Their bankruptcy meant shareholders lost $74 billion in the four years leading to 2001, and also wrought great financial havoc on employees who lost all of their pension benefits. This scandal was so hard-hitting that George Bush signed the Sarbanes-Oxley Act into law to heighten consequences for destroying, altering or fabricating financial statements and for defrauding shareholders. The Financial Accounting Standards Board also substantially raised its levels of ethical conduct. Several of Enron’s senior executives were convicted of conspiracy, insider trading, and securities fraud. 

Sources: Investopedia, Forbes, BBC

3. BBC gender pay gap controversy

Date: 2017

In 2017, the BBC published a list of all employees who earned over £150,000, as a condition of their royal charter. Of the 96 employees, 62 were men and 34 were women, and the seven highest earners were all men. This exposed endemic pay inequality at the BBC, and their China Editor, Carrie Gracie, resigned and cited this as her motivation. In the wake of this controversy six leading male BBC presenters agreed to take pay cuts and the BBC pledged to take action by looking into further male pay cuts, and increasing pay for some men and women. The corporation conducted a fair pay check reviewing the salary position of every employee against their relevant job pay range to ensure fair pay, and by 2019 had resolved almost 90% of pay queries, as well as other policy implementation. 

Sources: BBC, BBC Gender Pay Gap Report

4. GSK healthcare fraud 

Date: 2012

From the late 1990s to 2007, GlaxoSmithKline was involved in the most extensive drug fraud in US history. These fraudulent acts came to a head in 2012 when the British pharmaceutical company announced a $3 billion settlement with the US Department of Justice. The main accusations were those of keeping safety data secret, marketing antidepressants for unapproved uses in children and adolescents, misreporting of best drug prices, paying millions in kickbacks to doctors to promote off-label drug uses and incentivising salespeople to push GSK drugs. As well as agreeing to such an unprecedented settlement, GSK entered a five-year Corporate Integrity Agreement with the Department of Health and Human Services, Office of Inspector General, designed to increase accountability and transparency. GSK removed employees from certain positions and made provisions to allow the company to take back compensation from executives who didn’t adhere to company standards. They removed sales compensations as incentives to push drugs and committed to publishing payments made to healthcare professionals and organisations. 

Sources: US Department of Justice, Forbes, Reuters, The Guardian

5. Google sexual harassment scandal 

Date: 2018

In October 2018 The New York Times revealed that Andy Rubin, creator of Android mobile software, was gifted $90 million in an exit package from Google, following sexual harassment accusations that were internally proved to be credible, and in which the victim was made to sign a non-disclosure act. This led to other revelations of senior executives who were protected following credible sexual harassment accusations either with large exit packages, or even being permitted to remain in highly compensated posts. This sparked outrage amongst employees, who staged a walkout from Google offices totalling more than 20,000 globally. In 2019, shareholders filed a lawsuit with the corporation alleging failure to prevent sexual harassment and hiding of executive misconduct. This has led to a settlement of $310 million, announced by Google on 25th September 2020, devoted to new diversity, equality and inclusion at the tech firm. This aims to restructure policy and corporate governance practices, including an end to employees’ forced arbitration and targeting policy gaps that executives were able to exploit. In all, there were over 80 updates or changes to policies regarding sexual misconduct, discrimination and retaliation cases. The settlement terms aim to not only enforce best practice at Google, but set new standards for the tech industry as a whole. 

Sources: New York Times, LA Times, Google

6. Boohoo Leicester factory scandal 

Date: 2020

Following the outbreak of the Covid-19 pandemic, Boohoo was unusual in that it was experiencing profits, rather than suffering from the economic shutdown. The fast fashion brand brought in a whole new range, selling loungewear suited to the new lockdown lifestyle. This meant relying on rapid work from their suppliers in Leicester. In the following months it emerged that garment workers in factories supplying Boohoo were forced to work with others who had contracted Covid-19, and were being paid as little as £3.50 an hour. This evident exploitation sparked an outcry leading to an independent review by Alison Levitt QC and the issue going to parliament. Now under the spotlight, Boohoo have stated their commitment to safety in their supply chains, and have committed to building the brand’s very own ‘model factory’ so that worker environments can be monitored and controlled more easily to maintain fair worker treatment. However, it is still evident that there is further to go for the fast fashion giant. 

Sources: The Independent, The Guardian, Independent Review

7. Volkswagen emissions scandal 

Date: 2015

In September 2015 the Environmental Protection Agency found that many Volkswagen cars being sold in the US had a “defeat device” in diesel engines that would detect when they were being tested and change performance in order to improve emission scores. The result was that in reality these cars were emitting nitrogen oxide pollutants up to 40 times above the limit in the US. The company later admitted to cheating on emissions tests, stating that 11 million cars were fitted with this device worldwide. In November 2015 Volkswagen admitted another emissions problem: 800,000 cars had also understated carbon dioxide levels. This has led to fines and settlements costing €31.3 billion and threw a spotlight on the climate effects of all diesel cars. Consequently, there has been a drive to reduce the number of diesel cars on the road across the industry. Volkswagen has made drastic changes to its management board and leadership. The automotive company has also committed to new competencies, particularly in e-mobility and electric vehicles through their ‘Transform 2025’ strategy, hoping to have a major role in the global move towards a zero-carbon future. 

Sources: BBC, FT, Reuters 

8. Facebook - Cambridge Analytica scandal

Date: 2018

In March 2018 The Guardian and The New York Times simultaneously published articles, in collaboration with a whistleblower, revealing Facebook users’ personal data was acquired without individual consent by Cambridge Analytica. This data was used to create psychographic profiles of subjects and tracked their locations, and was later deployed in political campaigns, including Ted Cruz and Donald Trump’s respective 2016 presidential campaigns, and Leave.EU’s Brexit campaign. Cambridge Analytica claimed they had harvested 30 million users’ data, however Facebook later confirmed that this data breach had possibly affected over 87 million users. The magnitude of the scandal led to Mark Zuckerberg, Facebook CEO, appearing before US Congress and a fine of $5 billion dollars. The US government imposed further regulations on Facebook, aimed at protecting user data in response to repeated data mismanagement, and the Honest Ads Act was introduced to the Senate by Mark Warner, to regulate campaign finance laws bringing political advertising online into line with television, radio, and print regulations. Facebook announced a new privacy strategy including a pledge to double the number of employees working on cybersecurity to 20,000 and to implement the EU’s General Data Protection Regulation in all areas of operation beyond the EU following these events. 

Sources: The Guardian, New York Times, Business Insider

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