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CSR Don'ts

In a story in Tuesday's Toronto Star newspaper, CP staff writer Julian Beltrame wrote about U.S. Steel's response to a judgement in Federal court that rejected U.S. Steel's attempt to declare a law suit launched by the Federal government unconstitutional. U.S. Steel is the American company which acquired Stelco, the Hamilton Ontario steel maker in 2007. Let me provide some background to this story, then I'll get to current events and how this story ties to CSR.

Stelco began encountering financial problems at the turn of the century. The reasons for Stelco's problems needn't concern us here but the upshot was that they were forced to seek bankruptcy protection under the CCAA (Companies' Creditors Arrangement Act). Under the act they drafted a Plan of Arrangement which was approved by the Monitor appointed by the Court. This plan was a proposal which set out how Stelco would satisfy its creditors and under the Act creditors were prevented from using any legal recourse which would otherwise be available to them. This gave Stelco time to organize its business and, due to the re-organization and an improvement in the steel market in general, Stelco was able to exit protection in March of 2006. U.S. Steel then acquired Stelco in 2007 for $1.9 B, $1.1 B in cash and the assumption of $800M of Stelco's debts. U.S. Steel acquired all of Stelco's component companies and facilities, including the main steel making facility in Hamilton Ontario and the Lake Erie works in Nanticoke Ontario.

Foreign companies who wish to acquire a Canadian company must apply to the Federal government and satisfy regulations administered by the Investment Canada Act. In Stelco's case, approval was given for the purchase based on a number of commitments undertaken by Stelco which had to do with keeping jobs in Canada and maintaining productivity levels at its Canadian plants.

U.S. Steel laid off 700 employees from the Hamilton facility in late 2008 when it closed a blast furnace. In March of 2009 U.S. Steel announced that it would temporarily shut down its Hamilton its Hamilton plant and most of the Nanticoke facility putting 2,000 employees out of work. In October of this year U.S. Steel announced the permanent closing of the Hamilton facility. They have since restored about 100 jobs due to a steel order received from Germany. Industry Minister Tony Clement felt that these acts constituted a violation of the agreement with U.S. Steel and launched a lawsuit in the Canadian courts to force U.S. Steel to pay a penalty for breaching the agreement. The Act provides for penalties of up to $10K (CAD) per day.

This brings us up to the events described in Tuesday's Star by Julian Beltrame. U.S. Steel is attempting to have the suit dismissed based on the fact that allowing the union which represents U.S. Steels Canadian workers, and a potential bidder for U.S. Steel's Nanticoke facility, Lakeside Steel, intervenor status fundamentally alters the nature of the proceedings.  Justice David Near reserved judgment after hearing arguments from both sides. This follows an attempt by U.S. Steel to have their agreement with the government voided because they claimed the Act was unconstitutional. This appeal was dismissed by the Federal Court. The government suit has been stalled to date while these various appeals have been adjudicated.

Now to connect all of the above with CSR (Corporate Social Responsibility). Although U.S. Steel does not appear to have a CSR policy as such but does have a "Code of Ethical Business Conduct" which governs every employee of U.S. Steel from the Board of Directors on down. The Code is divided into 7 principles that cover safety, the environment, and business ethics. Principle number 7 states "Conduct business with utmost integrity and only for the benefit of U.S. Steel. With the exception of principle 3 "Protect the Environment", the other principles are all focused inwardly. The fact that U.S. Steel has no formally recognized CSR policy visible to the public (I have taken this information from the U.S. Steel web site) would be the first CSR "don't". Don't think that existing codes of ethics can be substituted for a CSR policy.

Corporate Social Responsibility requires that organizations take a broader view of their responsibilities. In the past corporations viewed responsibility as flowing upwards from employees to managers, to officers, to directors, and ultimately to the shareholders. CSR requires corporations to broaden the scope of their responsibility to include the society they do business in. Any policy which does not include the communities the corporation does business in cannot qualify as a CSR policy. Policies which specifically direct employees to conduct business "only for the benefit" of the corporation run counter to the concept that the corporation has stakeholders outside of the company who must be considered. Policies directing employees to abide by the laws in the municipalities, states, provinces, and countries where they do business are no substitute for considering the welfare of those places. It seems to me such policies are redundant. Breaking the law is a criminal issue which goes beyond the scope of corporate ethics.

The second "don't" here is: don't enter into an agreement with a community or government which you know, or should know, you may not be able to honour. In U.S. Steel's case the agreement was around employment levels in the Canadian facilities and U.S. Steel argues that market fluctuations have prevented them from fulfilling that commitment. They have a valid point: steel prices are volatile. In the less than 2 year period, 2009 - 2010, prices for hot rolled steel coil have gone from a low of $474 USD per ton to a high of $754 USD per ton, a fluctuation of 59% The problem is that in the 2 year period 2002 - 2004 prices fluctuated from a low of $76.8 USD to a high of $134.6 USD which is a fluctuation of 75%! My point here is that steel prices have fluctuated since U.S. Steel came into existence in 1901 so they should have known that prices could tank after their acquisition making living up to their commitment uncomfortable for the shareholders.

There is another factor at play in this issue and that is the Buy America provisions that mean that products, including steel made in America are given preference when governments are selecting vendors. The CSR "don't" here is: don't play one stakeholder off against another when determining, or abiding by, CSR policy. U.S. Steel did not exactly play one stakeholder (the U.S. Government) off against another (the Canadian government) in this case. The Buy America policy was introduced after U.S. Steel acquired Stelco. The problem is that they do not appear to have attempted a reconciliation of their commitment to the Canadian government with their adherence to the Buy America policy. Corporations implementing CSR policies will encounter conflicting stakeholder interests. Don't play one stakeholder off against the other or support one stakeholder's interests at the expense of another's, attempt a solution which will be acceptable to both and which still allows you to make a buck. If a solution which suits all parties is not possible, choose one which does the least harm and try to get both parties to live with it. Making the attempt will at least get the issue into the open where public pressure may help bring the parties to an agreement. U.S. Steel is a large enough corporation to command attention from the 2 governments. They could have approached both U.S. and Canadian officials to attempt a solution acceptable to both governments. I suspect that didn't happen in this case because U.S. Steel believed their interests lay in satisfying the Buy America policy and did not see this as conflicting with their ethics policy.

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