The CSR Newsletters are a freely-available resource generated as a dynamic complement to the textbook, Strategic Corporate Social Responsibility: Sustainable Value Creation.

To sign-up to receive the CSR Newsletters regularly during the fall and spring academic semesters, e-mail author David Chandler at david.chandler@ucdenver.edu


Thursday, October 19, 2017

Strategic CSR - Airlines

The article in the url below discusses the extent to which executive compensation tied to shareholder interests distorts decision making in the airline industry. What is interesting, though, is not that this happens (it has been a feature of western capitalism for a while now), but how the degree of influence has shifted so dramatically in this particular industry in a relatively short period of time:
 
"Five years ago, American Airlines factored in on-time arrivals, lost baggage and consumer complaints to help calculate annual incentive payments for top management. Today, these bonuses are based exclusively on the company's pretax income and cost savings. … 'Fifteen years ago, airlines competed with each other over who could buy the most planes or have the most routes,' said Jamie Baker, a top airline industry analyst at JPMorgan Chase. 'Executives are just as competitive today, but it's about who can achieve an investment-grade rating first, who can be a component in the S. & P. 500, and who has better returns for investors.'"
 
The article argues that this heightened pressure results from the relatively low levels of economic growth in recent years. When growth is low, increased returns for shareholders come at the expense of the interests of other stakeholders:
 
"Mature industries — where double-digit annual profit growth is a reach in the best of times — are especially vulnerable to activist investors' demands for board seats, bigger stock repurchases and other short-term financial rewards. The pressure is especially brutal in the airline industry because the key expense, fuel, is for the most part beyond management control. Yet airline executives have largely convinced Wall Street that the bad old days of bankruptcies and fare wars are over, replaced by the kind of predictable annual profits more common among industrial companies. That's among the reasons fees have popped up in recent years for everything from checking bags to securing an assigned seat before boarding. Known on Wall Street as ancillary revenue, this stream of income is especially favored by investors because it doesn't swing sharply the way fares do."
 
What is equally interesting, however, is why the airline firms' other stakeholders allow this disproportionate transfer of capital to shareholders to continue:
 
"And so far, despite occasional bouts of air rage and frequent consumer complaints, Wall Street has been getting what it wants. United's stock has surged to more than $80 per share from $25 per share five years ago, with profit margins rising to 13.6 percent from 3.7 percent over the same period. Overall industry margins hit 16.3 percent, up from 5.2 percent in 2012."
 
The lack of resistance is placing a significant amount of pressure on the legacy carriers to follow suit or be left behind:
 
"The pressure on United, American and other giants is only going to increase with the rise of so-called ultra-low-cost carriers like Spirit, Frontier and Allegiant. In fact, American and United are rolling out a stripped-down new class called Basic Economy. Here, in exchange for the cheapest tickets, fliers can't choose their seats before checking in and are more likely to be stuck in the middle of the row. They board last and are less likely to be able to sit with companions. No carry-on luggage is permitted, forcing anyone without elite frequent-flier status to check anything larger than a backpack — for a fee."
 
Again, we have no-one to blame but ourselves for the standard of customer service we now have to endure every time we fly:
 
"'The response isn't to Wall Street. It's to customer behavior,' said Alex Dichter, a senior partner at McKinsey who works with major airlines. 'About 35 percent of customers are choosing on price, and price alone, and another 35 percent choose mostly on price.' Mr. Dichter noted that when American added two to four inches of legroom in coach in the early 2000s, 'as far as I know, the airline didn't see one bit of improvement in market share or pricing.' 'The great irony is that most C.E.O.s would love to compete on product and experience,' he added. 'It's much more fun. The problem is that customers aren't paying attention to that.'"
 
Take care
David
 
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/
 
 
Route to Air Travel Discomfort Starts on Wall Street
By Nelson D. Schwartz
May 28, 2017
The New York Times
Late Edition – Final
A1
 

Monday, October 16, 2017

Strategic CSR - Coal

For all the progress we have made in renewable energy, the article in the url below reminds us that the majority of energy produced in the world today still comes from carbon-based sources. While in some parts of the world, additional production capacity is more likely to be renewable, in other parts, fossil fuel energy is not only prevalent, it is expanding:
 
"Chinese corporations are building or planning to build more than 700 new coal plants at home and around the world, some in countries that today burn little or no coal, according to tallies compiled by Urgewald, an environmental group based in Berlin. Many of the plants are in China, but by capacity, roughly a fifth of these new coal power stations are in other countries."
 
It seems hard to believe, given our scientific awareness of the damage coal does, but coal is still the dominant energy source in many parts of the world:
 
"Overall, 1,600 coal plants are planned or under construction in 62 countries, according to Urgewald's tally, which uses data from the Global Coal Plant Tracker portal. The new plants would expand the world's coal-fired power capacity by 43 percent."
 
It is not only China, however. The article provides examples in Egypt, Pakistan, India, and other countries of how the need to develop energy capacity outweighs any professed concern about climate change:
 
"In Egypt, coal projects by Shanghai Electric and other global developers are set to bring the country's coal-fired capacity to 17,000 megawatts, from near zero, according to the Urgewald database. Pakistan's coal capacity is set to grow to 15,300 megawatts from 190. In Malawi, planned coal projects would bring its coal-fired capacity to 3,500 megawatts from zero. … The world's single largest coal-plant developer is India's National Thermal Power Corporation, which plans to build more than 38,000 megawatts of new coal capacity in India and Bangladesh."
 
And much of this expansion is being driven by western developers and investors:
 
"The AES Corporation, based in Arlington, Va., is building coal plants in India and the Philippines with a combined capacity of 1,700 megawatts. … Japan's Marubeni Corporation is involved in joint ventures for a combined 5,500 megawatts of new coal generation in Myanmar, Vietnam, Philippines and Indonesia, according to the database. Japan is also adding to its coal-fired capacity at home, to make up for an energy shortfall in the wake of the Fukushima nuclear disaster. … Western investors also continue to play a role in financing new coal plants overseas. Bonds and shares of the world's biggest coal developers, like India's National Thermal Power and Marubeni, are frequently found in the portfolios of large institutional investors and banks."
 
The consequence of all this expansion is yet another nail in the coffin of the Paris Accord:
 
"The fleet of new coal plants would make it virtually impossible to meet the goals set in the Paris climate accord, which aims to keep the increase in global temperatures from preindustrial levels below 3.6 degrees Fahrenheit."
 
Take care
David
 
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/
 
 
As Beijing Joins Climate Fight, Chinese Companies Build Coal Plants
By Hiroko Tabuchi
July 2, 2017
The New York Times
Late Edition – Final
10
 

Thursday, October 12, 2017

Strategic CSR - Robots

Following-up on an earlier Newsletter arguing that a dramatically higher minimum wage should be re-labeled "the Robot Employment Act" (Strategic CSR – Minimum wage), the article in the url below suggests that, rather than killing jobs, "robots aren't killing our jobs fast enough":
 
"From Silicon Valley to Davos, pundits have been warning that millions of individuals will be thrown out of work by the rapid advance of automation and artificial intelligence. As economic forecasts go, this idea of a robot apocalypse is certainly chilling. It's also baffling and misguided."
 
The problem, the author argues, is that too many industries are resisting the advance of atomization, which ultimately reduces overall value creation:
 
"Too many sectors, such as health care or personal services, are so resistant to automation that they are holding back the entire country's standard of living."
 
The author also argues that, if robots were increasingly replacing employees, we would expect job creation to be declining (it is increasing) and productivity to be increasing (it is decreasing):
 
"Monthly job creation has averaged 185,000 this year, more than double what the U.S. can sustain given its demographics. This has driven unemployment down to 4.4%, a 10-year low and below most estimates of 'full employment.' Growing labor shortages have boosted the typical worker's annual wage gain to more than 3% now from 2% in 2012, according to the Federal Reserve Back of Atlanta."
 
In short, the author explains these trends arise due to the shift in overall economic activity from manufacturing jobs (which are more easily automated) to services (less easily automated). In addition, whether overall productivity rises depends as much on which jobs in which sectors are being created/destroyed:
 
"Since 2007, low productivity sectors such as education, health care, social assistance, leisure and hospitality have added nearly seven million jobs. Meantime, information and finance, where value added per worker is five to 10 times higher, have cut or barely added jobs."
 
The author concludes that the solution is to push robots into more and more industries, if for no other reason than containing overall inflation levels.
 
Take care
David
 
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/
 
 
Robots Aren't Killing Our Jobs Fast Enough
By Greg Ip
May 11, 2017
The Wall Street Journal
Late Edition – Final
A2
or
 

Tuesday, October 10, 2017

Strategic CSR - Fake news

I am in the process of thinking through a new case for the next edition of Strategic CSR – something around the role of the media in the 21st century and the growing prevalence of fake news. I have always been interested in the role of the media in society, both reflecting the news and (in their selection of which events to report) also creating the news. More recently, I have been interested in how Facebook and Twitter have emerged as new age media companies. Their role in shaping the outcome of the last presidential election here in the U.S., as well as the massive impact they have had on human relations, social etiquette, student attention spans (!!!), and driving the news in traditional media outlets, is fascinating/frightening to watch.
 
With these evolving thoughts in mind, and in the aftermath of the devastation in Las Vegas, I noticed the article in the url below that explains how fringe groups are able to use social media to take advantage of crises to advance their agendas:
 
"When they woke up and glanced at their phones on Monday morning, Americans may have been shocked to learn that the man behind the mass shooting in Las Vegas late on Sunday was an anti-Trump liberal who liked Rachel Maddow and MoveOn.org, that the F.B.I. had already linked him to the Islamic State, and that mainstream news organizations were suppressing that he had recently converted to Islam. They were shocking, gruesome revelations. They were also entirely false — and widely spread by Google and Facebook."
 
The article reports that searches related to the shooting, in particular the name of the shooter, were generating results with false stories near the top of the list:
 
"In Google's case, trolls from 4Chan, a notoriously toxic online message board with a vocal far-right contingent, had spent the night scheming about how to pin the shooting on liberals. One of their discussion threads, in which they wrongly identified the gunman, was picked up by Google's 'top stories' module, and spent hours at the top of the site's search results for that man's name."
 
Facebook was also tricked into promoting false stories about the shooting:
 
"In Facebook's case, an official 'safety check' page for the Las Vegas shooting prominently displayed a post from a site called 'Alt-Right News.' The post incorrectly identified the shooter and described him as a Trump-hating liberal. In addition, some users saw a story on a 'trending topic' page on Facebook for the shooting that was published by Sputnik, a news agency controlled by the Russian government. The story's headline claimed, incorrectly, that the F.B.I. had linked the shooter with the 'Daesh terror group.'"
 
In both cases, the companies blamed "algorithm errors" for these mistakes. This demonstrates, of course, the extent to which algorithms now intrude into our lives, making them more convenient, but also producing unintended consequences. It also emphasizes the speed at which these groups work to take advantage of specific events, which suggests these companies are not in control of their product as much as they would like us to believe. What is more, the article argues that this is not a recent phenomenon, but something that has plagued these services for many years:
 
"But this was no one-off incident. Over the past few years, extremists, conspiracy theorists and government-backed propagandists have made a habit of swarming major news events, using search-optimized 'keyword bombs' and algorithm-friendly headlines. These organizations are skilled at reverse-engineering the ways that tech platforms parse information, and they benefit from a vast real-time amplification network that includes 4Chan and Reddit as well as Facebook, Twitter and Google. Even when these campaigns are thwarted, they often last hours or days — long enough to spread misleading information to millions of people."
 
All of this (together with the on-going Russia-related Congressional investigations) raises two important questions – one for these companies and one for the broader CSR debate. First, what kind of companies are these? If they are merely tools that others use to communicate with each other (a media platform), then they can claim that the content they convey on their sites are not their business. All they are doing is enabling communication that would take place anyway. If, however, they are media companies that are slowly taking on more of the functions of regular media companies (a media publisher), then that suddenly alters their level of responsibility for the content – something they were happy to edit when it helped produce a better product, but now something they may have to do more systematically:
 
"Facebook, for instance, previously had a team of trained news editors who chose which stories appeared in its trending topics section, a huge driver of traffic to news stories. But it disbanded the group and instituted an automated process last year, after reports surfaced that the editors were suppressing conservative news sites. The change seems to have made the problem worse — earlier this year, Facebook redesigned the trending topics section again, after complaints that hoaxes and fake news stories were showing up in users' feeds."
 
Second, an essential element of CSR is transparency and accountability, which is enabled by our ability to communicate clearly. The more free-flowing information is, the faster stories about sweatshops in SE Asia or oil spills in Nigeria can reach the stakeholders of large companies in ways that influence behavior. And it is the threat of this happening that can encourage companies to build long-lasting, trust-based stakeholder relationships. For all of this to hold true, however, it is essential that the information that is circulated is both accurate and reliable. This is where the attention turns back to Facebook, Twitter, and Google (among others). Clearly, they get this and are responding. Of course, more socially responsible companies would have done more to prevent this situation from running out of control (with such dire consequences) in the first place. The broader implications for the firms of not acting earlier are evident in the article in the second url below, which describes a discussion within the UK government as to whether Facebook and Google should be regulated as media publishers:
 
"Britain is looking at the role of Google and Facebook in the provision of news and what their wider responsibilities and legal status should be, a spokesman for Prime Minister Theresa May said on Tuesday. As more people get their news through Google and Facebook, some in the industry say the internet giants are publishers and not just platforms, meaning they should be held responsible for the content and regulated like traditional news providers."
 
Take care
David
 
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/
 
 
Capitalizing on a Mass Killing to Spread Fake News Online
By Kevin Roose
October 3, 2017
The New York Times
Late Edition – Final
A19
 
Britain looking at Google, Facebook role in news: PM May's spokesman
October 10, 2017
Reuters
 

Wednesday, October 4, 2017

Strategic CSR - Rhino horns

The article in the url below explores an interesting discussion around the economics of the illegal trade in rhino horns:
 
"South Africa is in the throes of a poaching epidemic. Official figures show poachers killed 1,054 rhinos in 2016, up from just 13 in 2007. In Kruger National Park, home to the world's largest rhino population, numbers are dropping despite a fall in recorded poaching incidents. Tom Milliken of TRAFFIC, a wildlife-trade monitoring network, worries that poachers have become better at hiding the carcasses."
 
In short, given that the status quo is not working, what would be the best response? Should we institute more laws and greater enforcement of existing laws, or should we legalize the trade? On the one hand:
 
"... some argue the trade ban might actually be making the problem worse. Restricted supply pushes up prices and pulls in poachers. Private rhino-ranchers argue that if they could sell their stocks of horn, they could undercut the illegal trade. Some already chop off their rhinos' horns to make them worthless to poachers. Unlike elephant ivory, rhino horn grows back after a few years."
 
But, on the other hand:
 
"… by seeking to normalize rhino use, legislation might boost demand along with supply. Prohibitionists worry that any attempt to lower prices would both bring in more customers, leaving incentives to poach unchanged, and make it far easier to launder illegal, poached horn."
 
This is a challenging problem that brings to mind the debate around the legalization of drugs due to the failure of the 'war on drugs':
 
"But if legalization is risky, so is maintaining the ban. [Research] finds a hard-core user base of around 30% of rhino-horn users, who want the stuff regardless of the penalties. So long as doctors prescribe it demand will be difficult to eradicate."
 
South Africa has recently embarked on a step towards legalization:
 
"On March 30th South Africa's constitutional court overturned the ban on domestic trade. Now, if they have the right permit, people can trade rhino horn, but not export it."
 
The concern of NGOs is that this halfway house is "the worst of all worlds":
 
"Allowing some legal trade while the authorities are not properly enforcing the ban on illegal trade will muddy the already murky waters. Once out of the country, legal and illegal horn will be all but indistinguishable; the illegal dealers still in control of the export trade will pocket the profits; and rhinos will keep falling to the poachers' bullets."
 
Take care
David
 
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/ 
 
 
On the horns
May 6, 2017
The Economist
Late Edition – Final
69
 

Monday, October 2, 2017

Strategic CSR - Shareholder resolutions

The articles in the two urls below present different perspectives on the same issue – a proposal from the Trump administration to raise the threshold of share ownership before an individual investor can table a shareholder resolution at a firm's AGM:
 
"A proposal in the Financial Choice Act passed by the U.S. House of Representatives to increase the required threshold of stock ownership to present resolutions at annual general meetings would … [raise] the threshold to 1% of shares held for at least three years from the current rule of owning at least $2,000 in shares for one year."
 
Critics have noted the timing of the rule change, coming on the back of a successful year for such resolutions:
 
"[The proposal] may just be a backlash to the trend of large institutional investors being more active in their demands around governance, environment and social issues. … This proxy season, a record number of resolutions on disclosure over climate risks got majority support against a board recommendation, as large institutional investors such as BlackRock voted with the proponents."
 
Perhaps not surprisingly, the WSJ article is more in favor of the proposal, arguing that, at present, a minority of total shareholders submit the majority of resolutions and, in the process, use a lot of firm resources:
 
"According to the Business Roundtable, 'only three shareholders and their families were responsible for nearly 22% percent of all non-management shareholder proposals submitted to Fortune 250 companies in 2016.'"
 
In contrast, The NYT argues against the proposed rule change because it will constrain significantly the ability of shareholders to voice their concerns:
 
"One percent may not sound like much, but it can be enormous. Consider Exxon Mobil. It has 4.2 billion shares outstanding, so the 1 percent threshold would mean an investor would have to own 42 million shares, worth $3.4 billion, to be able to submit a proxy proposal. Exxon Mobil has throngs of institutional investors, but only the top seven holders would meet the threshold. And many of these institutions — such as Vanguard, BlackRock and State Street — have been unwilling to challenge company management historically, exactly what submitting a shareholder proposal involves."
 
Take care
David
 
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/
 
 
Choice Act Fuels Debate over Shareholder Proposals
By Mara Lemos Stein
June 20, 2017
The Wall Street Journal
 
Meet the Legislation Designed to Stifle Shareholders
By Gretchen Morgenson
June 18, 2017
The New York Times
Late Edition – Final
BU1
 

Friday, September 29, 2017

Strategic CSR - Paris

This quote from the article in the url below needs little explanation or accompanying commentary:
 
“There is only a 5% chance that the Earth will avoid warming by at least 2°C come the end of the century, according to new research that paints a sobering picture of the international effort to stem dangerous climate change. … The Paris accord, signed by 195 countries, commits to holding the average global temperature to ‘well below 2°C’ above pre-industrial levels and sets a more aspirational goal to limit warming to 1.5°C. This latter target is barely plausible, the new research finds, with just a 1% chance that temperatures will rise by less than 1.5°C.”
 
So, what is the new prognosis?
 
“According to the [research], there is a 90% likelihood that temperatures will rise between 2°C and 4.9°C by 2100. This would put the world in the mid-range warming scenarios mapped out by the UN’s Intergovernmental Panel on Climate Change. It negates the most optimistic outcome as well as the worst case, which would see temperatures climb nearly 6°C beyond the pre-industrial era.”
 
For a more complex (and alternative and, therefore, controversial) take on the speed at which climate change is occurring, see the article in the second url below:
 
“It may be possible for the world to emit significantly more carbon dioxide in the next few decades than was previously thought, and still keep global warming ‘well below’ a 2°C rise above pre-industrial levels, which is what the [Paris] agreement requires.”
 
Have a good weekend.
David
 
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/
 
 
Planet has just 5% chance of reaching Paris climate goal, study says
By Oliver Milman
July 31, 2017
The Guardian
 
Breathing space
September 23, 2017
The Economist
Late Edition – Final
71
 

Tuesday, September 26, 2017

Strategic CSR - Apple

The article in the url below uses the economist, Thorstein Veblen's concept of "conspicuous consumption" to discuss the release of the latest iPhone. Contrary to most goods (which decline in price over time, even while improving in quality), those goods that are seen by consumers as status symbols (so-called "Veblen goods") will tend to rise in price:
 
"Now, Apple and Samsung are testing whether the social commentator's theory on what has come to be known as the 'Veblen good' can work for one of the most common of all consumer products: the phone."
 
The article continues that, according to economic theory, this kind of price competition is more likely to happen in a mature industry. Whether the smartphone industry is mature is up for debate. Either way, the speed of the rise in price is notable when compared to previous models:
 
"The starting price of the new flagship iPhone X is about 50% more than the $650 starting price of last year's iPhone 7. The most expensive version of the iPhone X, with 256 gigabytes of storage, will cost 19% more than last year's most expensive device, the iPhone 7 Plus, with the same memory."
 
What I found interesting about the article, though, was the numbers it uses to convey the suspicion of saturation in this market:
 
"Data from IHS Markit estimates there are just under 100 smartphones per 100 people in the U.S. and about 92 smartphones per 100 people in Europe. (Many people own more than one phone.) By 2020,there will be about 84 smartphones per 100 people globally, IHS projects."
 
I think this trend has many implications for the CSR debate. For one, all the drivers of greater transparency in life today (for good and bad) will continue, if not strengthen as smartphone ownership embeds itself even more firmly around the world. The speed (and volume) at which we communicate will only increase, helping to further flood our mental inboxes with information we (for the most part) do not need. Expect to see a corresponding drop in attention spans. Most important for companies, however, they will continue to be forced to react at lightning speed to complex issues that often require greater reflection. While this matters directly in terms of product-related issues that arise, it will also include national (or global) debates that suddenly become a universal dialogue, and which CEOs have traditionally sought to avoid. The speed at which the narrative around this past weekend's NFL games evolved here in the U.S. was truly amazing to watch. I have no idea where this is taking us, but it means the need for effective stakeholder relations and responsiveness will move ever-closer to the heart of the modern corporation.
 
Take care
David
 
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/
 
 
New iPhone Tests Economic Theory
By Josh Zumbrun and Tripp Mickle
September 18, 2017
The Wall Street Journal
Late Edition – Final
A2
 
Apologies: The NYT article in Monday's post contained an incorrect url. The correct url is: https://www.nytimes.com/2017/09/21/technology/facebook-frankenstein-sandberg-ads.html
 

Sunday, September 24, 2017

Strategic CSR - Twitter

The article in the url below demonstrates the scale of the challenges facing Twitter (and Facebook and YouTube) in trying to balance their natural inclination toward free speech with the regulatory pressure to promote social justice:
 
"In the first half of [2017], Twitter said it suspended nearly 300,000 accounts globally linked to terrorism. Of those, roughly 95 percent were identified by the company's spam-fighting automation tools."
 
"[Twitter] provided authorities with data on roughly 3,900 accounts from January to June."
 
"Twitter said about 75 percent of the blocked accounts this year were spotted before a single tweet was sent, and that 935,897 accounts had been suspended since August 2015."
 
"American authorities made 2,111 requests from Twitter from January to June, the most of the 83 countries tracked by the company. Twitter supplied information on users in 77 percent of the inquiries."
 
"Japan made 1,384 requests and the U.K. issued 606 requests. Turkish authorities continued a trend of aggressively policing Twitter, making 554 requests for account data and issuing court orders to remove 715 pieces of content."
 
"Other governments made only 38 total content-removal requests."
 
The article in the second url below reveals the true extent of the problem when you scale-up from Twitter to Facebook, and how ill-equipped these tech companies are to deal with it:
 
"Facebook was simply not built to handle problems of this magnitude. It's a technology company, not an intelligence agency or an international diplomatic corps. Its engineers are in the business of building apps and selling advertising, not determining what constitutes hate speech in Myanmar. And with two billion users, including 1.3 billion who use it every day, moving ever greater amounts of their social and political activity onto Facebook, it's possible that the company is simply too big to understand all of the harmful ways people might use its products."
 
To quantify this problem at Facebook's scale:
 
"Alex Stamos, Facebook's security chief, said last month that the company shut down more than a million user accounts every day for violating Facebook's community standards. Even if only 1 percent of Facebook's daily active users misbehaved, it would still mean 13 million rule breakers, about the number of people in Pennsylvania."
 
Take care
David
 
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/
 
 
Twitter Suspends 300,000 Accounts Tied to Terrorism in 2017
By Adam Satariano
September 19, 2017
Bloomberg Businessweek
 
Facebook's Frankenstein Moment
By Kevin Roose
September 22, 2017
The New York Times
Late Edition – Final

Wednesday, September 20, 2017

Strategic CSR - Kenya

If you think the charge you pay for a plastic bag at your local supermarket is punitive, be grateful that you don't live in Kenya:
 
"Kenya will now punish with up to four years in jail anyone making, selling or importing plastic bags, putting in place one of the world's toughest bans on the ubiquitous item that is blamed for clogging oceans and killing marine life."
 
As the article in the url below reports, the drive to ban plastic bags is spreading worldwide, and some countries are serious about it:
 
"Kenya joins more than 40 other countries including China, the Netherlands and France that have introduced taxes on bags or limited or prohibited their use."
 
The range of ways designed to curtail use is wide, but effective:
 
"In Rwanda, plastic bags are illegal, and visitors are searched at the airport. Britain introduced a 5 pence charge at stores in 2015, leading to a plunge of more than 80 percent in the use of plastic bags."
 
In Kenya, the change in behavior targeted is massive, and prior attempts to curtail use in 2007 and 2011 failed, which is why the punishments are now so extreme:
 
"Kenyan shoppers are thought to use 100 million plastic bags a year, according to the United Nations, and the new rules created some worries in the capital, Nairobi, when they were announced. … The new regulations call for a fine of $19,000 to $38,000 or a four-year jail term for those manufacturing or importing plastic bags in Kenya. Plastics used in primary industrial packaging are exempt, according to the National Environment Management Authority, although it said that the new regulation would prohibit retailers from selling garbage bags."
 
Although ridding the world of plastic bags is going to be difficult (and there is a valid debate as to whether they are better or worse than paper or recycled bags), the problem is very real:
 
"Worldwide, plastic bags contribute to eight million tons of plastic that leak into the ocean every year, according to the United Nations Environment Program. 'At current rates, by 2050, there will be more plastic in the oceans than fish, wreaking havoc on marine fisheries, wildlife and tourism,' the program said in a statement when Kenya's ban was announced in March. Plastic bags can take hundreds of years to degrade, and polyethylene bags can strangle sea turtles and fill the stomachs of whales and dolphins until they die of starvation. In Kenya, livestock often graze on garbage, and bags are found in the stomachs of cows when they are slaughtered, according to the United Nations Environment Program."
 
Take care
David
 
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/
 
 
Kenya to Enforce its Ban on Selling Plastic Bags with Steep Fines and Jail Time
By Kimiko de Freytas-Tamura
August 29, 2017
The New York Times
Late Edition – Final
A4
 

Monday, September 18, 2017

Strategic CSR - Charity

In the aftermath of the devastation caused by Hurricane Harvey in Texas, local companies have been pledging donations to help with the rebuilding effort:
 
"Chevron, an energy giant with several offices in the Houston area, pledged $1 million to post-Harvey disaster relief efforts. So did Exxon Mobil and Dow Chemical, two companies with facilities hit by the storm. Companies in less regional industries also donated: Amazon offered to match $1 million in donations to the American Red Cross, while Verizon promised $10 million. Walmart, which took a front-line role in the clean-up after Hurricane Katrina, sent truckloads of emergency supplies to the affected area. In all, corporations have pledged more than $65 million to help clean up the wreckage from Harvey, according to a Wednesday morning estimate by the U.S. Chamber of Commerce."
 
This is necessary because early estimates suggest that the cleanup bill will be substantial:
 
"Hurricane Harvey may be one of the costliest natural disasters in American history, according to initial forecasts. Moody's Analytics has estimated that the storm's damage may be as much as $50 billion, though it is hard to know at such an early stage."
 
In explaining these donations (and demanding more), the article in the url below argues that local corporations have a duty to donate funds to the clean-up effort because they, themselves, had received large amounts of funds (e.g., tax relief, startup funds, etc.) previously. In other words, the article suggests these companies have an obligation to "repay" any benefits they received to conduct business in the area:
 
"As Houston recovers, its business community should feel especially compelled to help. That is partly because Houston and the surrounding area, as well as the state of Texas, have been generous to big business in recent years, showering companies with tax breaks, subsidies and other perks in an effort to keep them happy and create new jobs. Houston has benefited from the presence of large corporations, adding thousands of jobs and becoming one of the fastest-growing cities in America. But those companies have benefited, too — sometimes to the tune of hundreds of millions of dollars."
 
This is an unhelpful representation of the idea of "corporate citizenship." Although the money being donated by the companies can be described as charity, it is not correct to use the same term to describe the money those same companies received. They were not altruistic handouts, but incentives that were offered because those companies were in demand. The battle to secure a second Amazon HQ currently underway here in the U.S. will further demonstrate the lengths local governments are willing to go to attract big businesses:
 
"The donations announced for Harvey relief are generous by the standards of corporate philanthropy. Some of the donations are smaller, though, than the amounts many companies have gotten from the region's generous economic development programs."
 
I believe that companies absolutely should donate funds to help with the cleanup, but not for the reason stated in the article. It has nothing to do with 'paying back' the benefits they received in the past. Presumably, the companies have already delivered on whatever the quid-pro-quo was for them to receive those payments in the first place. Instead, corporations should donate because they have a stake in rebuilding the communities directly affected by the hurricane. They want those communities to recover as fast as possible because it will help them return to business as fast as possible. In other words, the reason for them to donate is a forward-looking argument (we have a direct stake in the future of these communities), rather than a backward-looking argument (we owe something from the past to those communities). The difference is the difference between a mainstream argument for CSR and the argument underpinning strategic CSR.
 
Take care
David
 
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/


Will Big Business Repay Houston's Generosity
By Kevin Roose
August 31, 2017
The New York Times
Late Edition – Final
B1
 

Wednesday, September 13, 2017

Strategic CSR - United (follow-up)

As a follow-up to the Newsletter I sent last semester about United's treatment of its passengers (Strategic CSR – United), the article in the first url below reinforces the idea that all the airline is doing is providing the level of service for which we are willing to pay:
 
"On Tuesday, the carrier released its first financial statement that included the period after security officers forcibly removed a 69-year-old passenger, Dr. David Dao, from a plane. The incident left him bloodied and disheveled and left United facing widespread calls for a boycott. Nearly three months later, it appears that all the public anger has not hurt the company's bottom line."
 
In case you needed reminding, the online version of the article has the video of the forced removal embedded in the story. Not only did the video (and subsequent #boycottUnited campaign) fail to hurt the airline, however, it thrived in its aftermath:
 
"United reported a profit of $818 million in the most recent quarter, ending in June, up 39 percent compared with last year. Sales rose, too, as more customers booked flights with the carrier, amid rising demand for air service over all. In a separate report this month, United said that it had more than 71 million passengers during the first half of the year, up 4.2 percent compared with last year."
 
While I understand that there are complex issues involving the failure of anti-trust law to provide a competitive industry for domestic U.S. flights and that the price of airline fuel drives profits to some degree, the stunning results (39% growth, year-over-year) suggest we are also gluttons for punishment:
 
"The results point to an underlying principle about the airline business: Passengers, by and large, look for the most convenient and cheapest fares, not which airlines claim to offer the best service."
 
Or, as a longer discussion about seat space in the article in the second url below puts it:
 
"Faced with a choice between discomfort and higher fares, most travelers choose discomfort."

Given such results, what is the United CEO to takeaway from the experience? Should he risk his airline by providing a higher quality product and charging accordingly, or should he give passengers what they say they do not want, but what seems to be the only thing for which they are willing to pay?
 
Take care
David
 
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/
 
 
United Airlines Profit Rises Despite Boycott Threats Over Passenger Treatment
By Micah Maidenberg
July 18, 2017
The New York Times
By Justin Bachman
August 17, 2017
Bloomberg Businessweek
 

Monday, September 11, 2017

Strategic CSR - PayPal

It is difficult to understand how companies get away with presenting fictitious earnings that result from their preferred accounting measures (which, as far as I can see, are basically whatever the firm wants its numbers to be). Needless to say, the resulting earnings differ significantly from those that would be produced using GAAP principles. While firms also have to report those GAAP numbers, they are allowed to bury them and highlight their non-GAAP numbers, instead. As the article in the url below notes, this happened recently with PayPal's second-quarter financial results, which were published at the end of July:
 
"Revenues grew to $3.14 billion in the quarter that ended in June, an increase of 18 percent over the same period last year. Total payment volume of $106 billion was up 23 percent, year over year. Even better, PayPal's favored earnings-per-share measure — which it does not calculate in accordance with generally accepted accounting principles, or GAAP — came in at 46 cents per share, 3 cents more than Wall Street analysts had expected. The company has trained investors to focus on this number, rather than on the less pretty GAAP-compliant numbers most companies are judged by."
 
The main concern of the article is the amount of compensation paid as stock options, which (for some hard-to-explain reason) PayPal excludes as a cost:
 
"How could stock-based compensation — which is a company expense, after all — have helped PayPal's performance in the quarter? Simple. The company does not consider stock awards a cost when calculating its favored earnings measure. So when PayPal doles out more stock compensation than it has done historically, all else being equal, its chosen non-GAAP income growth looks better."
 
How much better, exactly?
 
"Under generally accepted accounting principles, PayPal reported operating income of $430 million in the second quarter of 2017. That was up almost 16 percent from the $371 million it produced in the same period last year. But under PayPal's alternative accounting, its non-GAAP operating income was $659 million in the June quarter, an increase of almost 25 percent from 2016. So what's to account for the added $230 million in operating income under PayPal's preferred calculation? Most of it — $192 million — was stock-based compensation PayPal dispensed to employees in the June quarter and added back to its results as calculated under GAAP."
 
How is it that investors are quite happy to accept this? It clearly presents a distorted view of the firm's performance. Perhaps it is just that people see what they want to see and some firms are favored by investors, for whatever reason:
 
"PayPal's stock has been on a tear this year, up almost 50 percent since January. At a recent $59, its shares are trading at over 40 times next year's earnings estimates. It is clearly an investor darling, providing all the more reason to dig into its numbers."
 
You might not be surprised to know that there are other stakeholders in PayPal who also stand to benefit from the practice:
 
"The company says it has three main metrics for calculating its managers' performance pay each year. One of those measures, its proxy shows, is non-GAAP net income. So, as PayPal awards more and more stock to its executives and employees, non-GAAP net income shows better growth. And the greater that growth, the more incentive pay the company awards to its top executives."
 
Take care
David
 
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/


Making PayPal's Numbers Shine
By Gretchen Morgenson
August 6, 2017
The New York Times
Late Edition – Final
BU1