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

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Thursday, October 22, 2020

Strategic CSR - CEO pay

I regularly see articles on this topic, but the article in the url below does a good job of undermining the myth that the market for CEOs (and the debate around how much they earn) is driven primarily by performance:

"'Pay for performance' has been the mantra of America Inc over the past few decades. A small circle of influential pay consultants, compensation analysts and academics has argued that American firms must pay top dollar for top candidates because they compete in a global market for talent. They argue that firms have grown more complex and bosses must know how to manage new technologies and the vagaries of globalisation. The controversial corollary is that pay should be allowed to rise ever higher because superior CEO performance is maximising shareholder returns."

This argument has certainly fared CEOs well as their salaries have risen rapidly, especially when compared to leaders in other countries:

"… the median CEO compensation at big American firms in the S&P 500 share index reached $14m last year. America's top earners made far more. Alphabet's Sundar Pichai received a cool $281m. The sums are considerably smaller across the Atlantic, where pay practices have historically been more restrained. The ten best-paid British bosses together did not make as much as Mr Pichai in 2019."

As a result, these expanding pay packets are increasingly coming under scrutiny as the concept of 'performance' is expanding:

"Such numbers were setting off alarm bells before the covid-19 crisis. Now the mass lay-offs and bleeding balance-sheets resulting from the recession have brought it into stark relief."

The cause for concern centers around the construction of executive compensation:

"The favoured measure of performance is a company's total returns, which combine share-price moves with any dividend payouts. As a consequence of a record bull market in equities after the global financial crisis of 2007-09, only brought to a halt by the covid-19 pandemic, executive pay in America shot up into the stratosphere."

Of course, the intellectual underpinnings of this compensation structure is principal/agency theory—the idea that shareholders are the owners of firms (not true, but anyway …) and that stock options effectively align their interests with those of the executives. The extension of this argument is that, if executives are able to create value for the 'owners,' they should also be rewarded. In other words, 'good' CEOs create value for shareholders, which justifies the compensation they receive. In fact, as the article does a good job of pointing out, the relationship between CEO pay and firm performance is weak, at best:

"In 2017 MSCI, a research firm, published its analysis of realised chief-executive pay between 2007 and 2016 at more than 400 big public American firms. At more than three-fifths of the firms, it showed no correlation with ten-year total returns."

This chart in the article demonstrates as well as anything that the relationship between CEO pay and firm performance is virtually nonexistent:


A common phenomenon seems to be that, when the firm performs well the CEO is more than happy to take the credit, but when the firm does badly then the weak performance was due to exogenous factors. The reverse of this can work in the CEO's favor when they benefit from stock market gains that are driven primarily by exogenous factors. For example:

"A recent paper … finds 'strong evidence' that bosses of energy firms see clear pay gains when stock valuations rise as a result of an oil-price spike which they have no way to influence."

In some cases, the discrepancy between pay and performance can be stark:

"The bosses in the top pay quartile made twelve times what those in the bottom quartile did, but produced financial returns only twice as good. The bosses in the second-lowest pay quartile made nearly three times as much as those in the bottom quartile, even though their firms' total returns were actually worse."

There is clear evidence that the practices boards of directors currently use to set CEO pay create perverse incentives and do not achieve what they are designed to achieve:

"Compensation committees often rely on advice—and political cover—from pay consultants. A recent study of 2,347 firms … finds that companies using consultants pay more. Independently, those with higher pay and more complex pay plans are also likelier to hire advisers. Most problematic is their use of pay benchmarking, which has led to the ratcheting-up of pay for all bosses."

Hopefully, boards will come to their senses and develop alternative metrics that capture the performance they aim to reward. Alternatively, why do CEOs need bonuses and incentive structures? Why not just pay them a straight salary and fire them if they do not do their job?

Take care
David

David Chandler
© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/


Pay guaranteed, performance optional
July 11, 2020
The Economist
Late Edition – Final
65

Tuesday, October 20, 2020

Strategic CSR - Planetary warming

We have long known that, even if we stop producing greenhouse gases today, the planet will continue to warm for some time. The article in the url below quantifies the extent of this causal relationship:

"Much of the international effort thus far to combat climate change has focused on cutting emissions of greenhouse gases, chief among them carbon dioxide. That is, of course, a rational approach. … But greenhouse-gas emissions do not cause an instantaneous rise in global temperatures, and neither does cutting them result in instantaneous cooling. Instead, it will take decades for today's policy efforts to result in measurable impacts on global temperature."

How many decades exactly? Researchers used hypothetical scenarios to simulate the range of possibilities:

"[The researchers] probed hypothetical futures in which emissions of nine different industrial pollutants, including carbon dioxide and methane, were either eliminated instantly or phased out at a rate of 5% each year, starting in 2020."

The results are not very encouraging:

"Running these simulations over and over again in order to get statistically reliable results suggests that cutting CO2 emissions could slow the rate of warming as early as 2033, but only if they are ended worldwide in 2020. In effect, that would mean eliminating 80% of the world's energy sources, including shutting down all fossil-fuel power stations, overnight—clearly not a realistic or desirable scenario."

More realistic scenarios understandably produced more worrying results:

"Reducing CO₂ by 5% per year, starting this year, would produce a statistically significant deviation from what temperatures would have otherwise been only in 2044. And yet, even that rate of CO2 reduction is ambitious, on a par with the 4-7% drop estimated this year as a result of the covid-19 pandemic and widespread economic shutdowns. Before this, annual emissions were creeping up. Without concerted efforts from governments, they are likely to rise again as economies reopen."

There are a number of reasons for this:

"The main reason for the delay, however, is that carbon dioxide emitted today will remain in the atmosphere for decades to centuries before it is reabsorbed by vegetation and the oceans. That is not true of other industrial emissions. Each molecule of methane warms the planet 84-87 times more, averaged over 20 years, than carbon dioxide, but it stays aloft for merely years instead of decades or centuries."

The main takeaway from this research is that atmospheric temperature may not be the best measure we have to indicate progress on combating climate change. The Paris Agreement, for example, contains the overall commitment to try and limit global warming to below 2 degrees centigrade. But, the research summarized here suggests that, even though we can (in theory) make great strides in reducing emissions, temperatures will continue to rise for many years to come. This makes temperature a misleading indicator of progress:

"Instead, direct measurements of the concentrations of greenhouse gases in the atmosphere may be better, as they will remove the confounding effect of natural variability. And without clever messaging, there could be a public backlash against seemingly ineffectual policies."

More immediately, however:

"… results like these underline that even as economies begin to decarbonise, governments and societies need to drastically step up efforts to adapt to the inevitable warming that lies ahead."

Take care
David

David Chandler
© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/


Delayed cool
July 11, 2020
The Economist
Late Edition – Final
65

Thursday, October 15, 2020

Strategic CSR - Blue Sparrow Coffee

A while ago (pre-COVID), a colleague was looking for new coffee shops to support and came across Blue Sparrow Coffee (BSC, https://www.bluesparrowcoffee.com/) here in Denver. He was impressed by their approach to operations (highly transparent) and, in particular, their stated policy on setting employee wages. Here is what the firm posts on its website (https://www.bluesparrowcoffee.com/transparency):

"The people of Denver have spoken, and as of January 1st 2022 the new tipped minimum wage will be $15.87 for hourly employees, and $12.85 for tipped employees. Before this was voted into law we asked our customers what they thought and 80% said they support $15 / hr. minimum wage. We then asked a follow up question asking what they would be willing to pay, 76% said they would pay .50 or more per drink in order to pay our baristas accordingly. We currently pay $10.55 / hr. or $2.47 more per hour than the tipped minimum wage along with tips that average much higher than the industry average. This is what our customers, our neighbors, and our baristas want, and we don't see any reason to wait until 2022 to give them what they want. Effective January 1st 2020 we will be paying a minimum of $12.85 per hour plus tips for all of our hourly employees. In order to fund this while still maintaining a sustainable business we have increased our prices 11%. Some items have gone up as high as .75 with the majority being around .50 and a few select items not changing."

In spite of my colleague's aversion to artificial wage minimums, he really likes the firm's approach, first consulting with their customers to see what they value and, in particular, what they say they want to see (and are willing to pay for) for the people who serve them their coffee. As he noted, "What if Amazon asked its customers this same question?  Would people be willing to pay more for Prime to give warehouse employees a better work environment and pay....I doubt it."

There is much to like about what BSC is doing here. Their website is a paragon of good intentions around what a progressive employer should look like and, as an added benefit, a commitment to transparency that ensures they share much of their deliberations with all stakeholders.

The only potential issue that I can see is that they appear to put great faith in what their customers say they will do, rather than measuring what they are actually prepared to do. Asking their customers what they are willing to pay is a dangerous way to set wage policy. Mainly because the customers will not tell the company when they leave for the competition. Maybe this case is different, but I have seen a fair amount of academic research that reveals, for example, that customers are unwilling to pay an extra 50 cents for sweatshop-free socks. So why should coffee be any different? The response of customers when asked by BSC was that they are willing to pay an extra 50 cents per cup of coffee to ensure the firm's employees are paid a higher minimum per hour. Again, these customers may be different, and perhaps the local/face-to-face interaction when purchasing the coffee makes the impact more tangible, when the customer never meets the sweatshop worker (even if their photo is attached to the product). Either way, I think it would be in Blue Sparrow's best interest to pay close attention to sales the moment they instigate the price rise.

Incidentally, it would also pay their employees to reward the company for its progressive approach to wage-setting. An increase in productivity would be the best way to offset the likely dip in sales due to the price increase.

The firm is very good at reporting wage levels on its website. What I would like to see, however, is data around revenues and customer purchase patterns before and after the wage/price increases. Communicating the direct effect of the price increase would also be a good way to ensure broader buy-in. This is important because, as the article in the url below reports, the coffee sector as a whole is expected to contract over the next five years, with most of the store failures occurring among independent coffee shops (to the beneficiary of large chains, such as Starbucks).

Take care
David

David Chandler
© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/


Say Goodbye to Your Local Coffee Shop in America's Café Shakeup
By Marvin G. Perez
October 8, 2020
Bloomberg Businessweek

Tuesday, October 13, 2020

Strategic CSR - Trees

The article in the url below is both hopeful and insightful. It covers the growth in the market for carbon offsets that, in practical terms, means the preservation of forests:

"For much of human history, the way to make money from a tree was to chop it down. Now, with companies rushing to offset their carbon emissions, there is value in leaving them standing. The good news for trees is that the going rate for intact forests has become competitive with what mills pay for logs in corners of Alaska and Appalachia, the Adirondacks and up toward Acadia. That is spurring landowners to make centurylong conservation deals with fossil-fuel companies, which help the latter comply with regulatory demands to reduce their carbon emissions."

Because of this encouraging news that the value of keeping forests intact is competitive with that earned from chopping them down, some companies are beginning to speculate that their price will increase further. As a result, more than a useful offset today, the forests become a worthwhile investment for the future:

"For now, California is the only U.S. state with a so-called cap-and-trade system that aims to reduce greenhouse gasses by making it more expensive over time for firms operating in the state to pollute. Preserving trees is rewarded with carbon-offset credits, a climate-change currency that companies can purchase and apply toward a tiny portion of their tab. But lately, big energy companies, betting that the idea will spread, are looking to preserve vast tracts of forest beyond what they need for California, as part of a burgeoning, speculative market in so-called voluntary offsets."

BP is one example of a firm that is beginning to see greater long-term potential in this natural capital beyond any immediate gains off-setting can provide. The key is their push to develop a "voluntary market" beyond their immediate off-setting needs and/or any regulatory requirement—a kind of buy-and-hold option where the forests are purchased now to be offset or traded at some point in the future:

"[BP] has already bought more than 40 million California offset credits since 2016 at a cost of hundreds of millions of dollars. Last autumn, the energy giant invested $5 million in Pennsylvania's Finite Carbon, a pioneer in the business of helping landowners create and sell credits. The investment is aimed at helping Finite hire more foresters, begin using satellites to measure biomass and drum up more credits for use in the voluntary market. BP has asked Finite to produce voluntary credits ASAP so they can be available for its own carbon ledger and to trade among other companies eager to improve their emissions math. As part of its shift into non-fossil-fuel markets, BP expects to trade offset credits the way it presently does oil and gas."

Perhaps it is not surprising to see that California is leading the way in the U.S. after the level of investment by the federal government has stalled in recent years:

"California forged ahead, setting caps on emissions, which become stricter over time, and creating a corresponding number of allowances. Refiners, fuel importers and utilities vie for the allowances at auction and turn them over to regulators to cover their emissions. … The companies have the option of covering up to 4% of their emissions with less-costly offset credits, which California issues for capturing methane from dairies and mines, destroying ozone-depleting substances and, most popularly, preserving forests."

As a result:

"About 153 million forest credits have been issued, each representing a metric ton of sequestered carbon. They limit logging on about five million U.S. acres. That's a sliver of the 740-million-odd acres of U.S. forests and woodlands that aren't already reserved, but the amount of offset-protected property is growing fast."

It is this exponential growth where the advantage lies for a company like BP, which is beginning to understand forests as an asset:

"If other governments join California and institute cap-and-trade markets ["Quebec linked its own program with California's in 2014"], voluntary offsets could shoot up in value. It could be like holding hot tech shares ahead of an overbought IPO. Like unlisted stock, voluntary credits trade infrequently and in a wide price range, lately averaging about $6. … California credits changed hands at an average of $14.15 in 2019 and were up to $15 before the coronavirus lockdown drove them lower. They have lately traded for about $13."

There are also advantages around internal carbon budgeting, which has the dual advantage of appealing to employees and also preparing companies for the day when a carbon price will be imposed and expensive:

"These days, voluntary offsets are mostly good for meeting companies' self-set carbon-reduction goals. BP is targeting carbon neutrality by 2050. Between operations and the burning of its oil-and-gas output by motorists and power plants, the British company says it is annually responsible for 415 million metric tons of carbon emissions."

Take care
David

David Chandler
© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/


Emissions Rules Turn Saving Trees into Big Business
By Ryan Dezember
August 24, 2020
The Wall Street Journal
Late Edition – Final
A1, A10

Thursday, October 8, 2020

Strategic CSR - Generation Z

The article in the url below presents an interesting take on the issue of climate change from the perspective of the generation just now entering the workforce. In particular, it highlights the difficulties oil and gas firms face in hiring sufficient numbers of graduates and their concern that this will create a "generational gap" within their employee populations. This challenge has only been enhanced by the COVID-19 recession:

"The economic crisis caused by the pandemic, combined with a growing distaste for the oil business among potential young employees, is creating a new problem for the industry. Energy giants including Chevron Corp. and BP PLC are trying to avoid creating a generational gap in their staffs—a problem they've faced in previous downturns—that could make it more difficult to tackle industry-changing competition from renewable energy and electric vehicles."

Not only is the industry having to reinvent itself in order to adapt, but it is being forced to do so within a radically transformed competitive environment:

"America's oil-and-gas industry has cut about 105,000 positions, or roughly 20% of its jobs, from March 1 through the end of June, according to Accenture. At its low in April, global oil demand was down more than 20% from a year earlier, according to the International Energy Agency. Demand has been climbing since, but it isn't expected to surpass 2019 levels until 2023, said analytics firm IHS Markit. Even by the end of the decade demand is expected to be 3.5 million to 4 million barrels a day lower than previously forecast, IHS said."

Given the damage already done by fossil fuels to the environment, along with energy companies' historical reluctance to recognize their impact, the industry is facing a bit of an image problem among the prospective employees it now needs to attract:

"… the public, especially younger people, increasingly sees the industry in a negative light. A career in oil and gas was unappealing to 44% of 20- to 35-year-olds, according to a 2017 survey by Ernst & Young LLP. An even greater portion of 16- to 19-year-olds, nearly two-thirds, held that sentiment."

Moreover, the industry has hardly been exactly 'inclusive' at the best of times:

"[In 2019] 88% of people working in oil-and-gas extraction were white, and just 22% were women."

The result is that these companies face higher hiring costs and a reduced pool of talent from which to select, but at least they are aware of the challenges they face:

"This time, Chevron plans to maintain at least some university recruiting despite being in the process of cutting up to 15% of its workforce. The company also continued its internship program virtually. Half of the class are racial or ethnic minorities and 37% are women, a more diverse group than Chevron's workforce overall. … BP made its summer internship program virtual and honored full-time offers to some 300 recent graduates, even as it cuts nearly 10,000 jobs, or 14% of its global workforce."

One chart in the article demonstrates the dramatically cyclical nature of hiring in the industry. These cycles are correlated with the price of oil:

 

 

University departments are responding to the needs of the industry, although in a way that appears more reactive and pandering, rather than proactive and intellectually independent:

 

"Universities' petroleum-engineering departments are remaking curricula in light of demands for digitally savvy employees. LSU began requiring additional data-analytics course work last year, and it plans in the spring to introduce an elective about carbon capture and storage."

 

Ultimately, to those who support the industry, the core concern of energy companies is not so much finding enough people willing to work for them, but rather being able to generate enough open positions given the volatility in oil prices to hire all of the students looking for jobs. To some degree, while the headline driving the article is all about the values of the new generation of job seekers, the article concludes by noting that there will always be sufficient numbers of people willing to work for the higher salaries the industry provides, as long as the jobs are available to them. Or, perhaps that is what we might expect someone to say from a university department already fully committed to the industry:

 

"'There's a mentality out there that oil and gas is finished,' said Jeff Spath, who leads Texas A&M University's petroleum-engineering department, adding that there is 'a growing disdain' for the industry. Dr. Spath said he thinks a generation or two of students will still be able to build a full career in oil and gas, because fuels are widely expected to make up a large share of the global energy supply for decades. But the downturn is hitting Texas A&M's students hard. As of early August, only a third of the petroleum engineers who graduated this spring with a bachelor's degree had a job, Dr. Spath said. Some 70% of the class of 2019 had found a job by that time last year."


Take care

David


David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© Sage Publications, 2020


Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

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The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/



Oil Firms Fret Over Finding Young Workers

By Rebecca Elliott

August 19, 2020

The Wall Street Journal

Late Edition – Final

B1, B4

https://www.wsj.com/articles/oil-industry-frets-about-recruiting-its-next-generation-of-workers-11597763882


Tuesday, October 6, 2020

Strategic CSR - Big Tech

The article in the url below was prompted by the news that Exxon Mobil was being dropped from the Dow Jones Industrial Average after nearly 100 years of being on the list. This shift in the company's fortunes has been widely reported as a symptom of the oil industry's precipitous decline of late (see also Strategic CSR – Exxon):

"Less than a decade ago, Exxon Mobil was the most valuable company in the world. … Today all of Exxon is worth less than Jeff Bezos."

More specifically, the article discusses the possibility that the major IT companies, which are so dominant today, might be heading in the same direction as the tobacco companies of the past and the oil companies at present. The author presents two reasons motivating this assertion:

"First, as wild as it feels to have a handful of American technology superpowers rule the economy and the stock market and influence world events, oil superpowers like Exxon were in a similar position not very long ago. And second, while it's hard to imagine Big Tech losing relevance, most people didn't predict that demand for fossil fuels would start to wane, until it did. That's part of the sweeping changes that ushered out the era of Big Oil and started the Big Tech age."

Given the dynamic nature of the situation in which IT companies currently find themselves, are they able to adapt in a way that tobacco and seemingly oil have not been able to? The author argues there are multiple reasons to think they can:

"Apple wouldn't be the company it is today without its savvy diplomatic skills in the United States and China to advance its own business interests. Facebook is so influential that it's a tool used both against and by authoritarian governments. Google shapes how government regulators and the public think about antitrust laws. It's an imperfect comparison, but big tech companies are private empires in some of the same ways as the old Exxon."

Moreover:

"One fundamental difference is that Big Oil's fate relies on demand for a product that the companies can't control. The tech industry doesn't seem to have this essential vulnerability."

The clinching argument seems to be that, while individual companies may stumble, unlike oil, it is difficult to think that technology will become less important in our lives and the whole industry will disappear:

"[There is] a history of technology in which evolutionary changes have ruined seemingly invincible industry leaders. But while it's possible to imagine some of the individual tech powers losing relevance … it's much harder to imagine the tech industry overall growing less potent or essential."

Either way, the symbolism of the IT industry moving-in to take over from the oil industry is powerful:

"Exxon is being dropped from the Dow Jones index because of a technical change necessitated by Apple's stock getting too expensive. And Exxon's spot is being taken by a tech company: Salesforce.com."

Take care
David

David Chandler
© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/


In Time, Big Oil Faded. Will Big Tech Follow?
By Shira Ovide
August 31, 2020
The New York Times
Late Edition – Final
B5

Thursday, October 1, 2020

Strategic CSR - Personhood

Here is a great short documentary that I came across recently about a 2017 decision in New Zealand to award legal personhood to a sacred Maori river: https://youtu.be/YQZxRSzxhLI. The documentary begins with a Maori saying about the river at the center of the case, the Whanganui River (New Zealand's third longest river):

"The river flows from the mountain to the sea. I am the river and the river is me."

The narration then switches to the legal interpretation of the river's status, as determined by legislation passed by the New Zealand Parliament:

"Section 12: The river is an indivisible and living whole incorporating all its physical and metaphysical elements. … a living entity with the same legal rights as a person."

It is clear from the video that the river forms a central role in Maori culture:

"When you carry the weight of your ancestors, it is not an easy position to be in. In one sense, you feel them supporting you, the old people, those who have gone on. … [We see the river] as a living entity that carries our ancestors, it carries their memories, as a metaphor for our history. We are very much connected physically, virtually, and even our philosophies very much come from being a people of the river."

A specific dialogue between the producer of the documentary and the Attorney General of NZ who oversaw the passage of the legislation is instructive:

AG: "The fact of the matter is that you can't divide a river up into the bed, the water column, and the air above the river. I think you can get hung-up on these Western concepts of ownership."
Narrator: "OK, so the river's water comes from the rain, and the rain falls through farmland, and city streets, through a lot of different areas. Because, legally, the river is now indivisible, I'd imagine that everything that water touches along the way might eventually gain the same personhood."
AG: "Yes, I suppose that is right in so far as the water is part of this indivisible entity, it will flow-in, flow-out."
Narrator: "So then the larger idea would be that all of nature, in some way or another, gets spoken for."
AG: "When you think about it, why not?"

The issue of personhood appears twice in the fifth edition of Strategic CSR – in Chapter 3 in terms of defining a stakeholder (in which the Whanganui River is mentioned specifically), and in Chapters 5 and 6 in terms of the discussion around corporate personhood. The river's Wikipedia page is here: https://en.wikipedia.org/wiki/Whanganui_River

Take care
David

David Chandler
© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

Tuesday, September 29, 2020

Strategic CSR - Concrete

As the article in the url below notes, concrete is very useful. It is also highly problematic:

"The most widely used construction material on the planet, it has given us sculptural buildings, sturdy bridges and dams, parking garages and countless other structures that surround us. But concrete is also responsible for about 8 percent of global carbon emissions. If concrete were a country, it would rank third in emissions behind China and the United States."

And, given how popular and versatile concrete is, this is not a small problem:

"In the United States alone, 370 million cubic yards of concrete was produced last year, with nearly 40 percent of it going into commercial real estate, according to the National Ready Mixed Concrete Association, a trade group."

This reminds me of a fact that I saw in the Financial Times a few years ago. While the U.S. uses a large amount of concrete, it pales into comparison when compared to its use in China, which "poured more concrete between 2010 and 2013 than the U.S. did in the entire 20th century." The cement industry knows this and is trying to do something about it. Who knew, but there is a lot of innovating going on in the cement industry:

"Before climate change became a pressing issue, concrete producers sought to reduce the amount of cement in their mixes for the simple reason that it tended to be expensive, in part because of the energy-intensive heating in producing it. Decades ago, they began substituting some of the cement with cheaper fly ash, a byproduct of coal-burning plants, and slag, a byproduct of steel production. Using such materials had the added benefit of diverting them from landfills, and they were also found to improve concrete's performance. Only in recent years has concrete with fly ash and slag been promoted as a greener product. But now there's a hitch: With coal plants being retired, fly ash is not as plentiful as it once was. The decline of steel production in some parts of the country has made slag scarcer. The shortages have set off price increases for these materials, adding to the urgency of experimentation with alternative concrete mixes."

Today, rather than cost on the supply side, the innovation is being driven by the demand side – i.e., architects and developers who are under pressure from their customers to producer more environmentally sustainable buildings:

"Recycled post-consumer glass — which otherwise might be sent to landfills — is being crushed into a powder, known as ground-glass pozzolan, that can be used in place of some of the cement in concrete. The cement industry is promoting Portland-limestone cement, which reduces carbon 10 percent, according to the Portland Cement Association, a trade group. Several new ways to make concrete greener employ waste carbon dioxide."

There are a number of examples detailed in the article, but this one from Canada illustrates the level of creativity currently re-shaping the concrete industry:

"CarbonCure Technologies, a company based in Halifax, Nova Scotia, invented a process that involves shooting liquid carbon dioxide into concrete during mixing. Doing so not only keeps the greenhouse gas out of the air but also strengthens the concrete and reduces the amount of cement needed. So far, CarbonCure concrete has a net carbon reduction of only 5 to 7 percent, but the technology has already been installed at 225 plants in the United States."

Take care
David

David Chandler
© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

A Fixture of Construction Gets a Lot Greener
By Jane Margolis
August 12, 2020
The New York Times
Late Edition – Final
B7

Thursday, September 24, 2020

Strategic CSR - BRT

The article in the first url below reviews progress by signatory companies to last year's statement on stakeholder capitalism by the Business Roundtable, BRT (see Strategic CSR – Business Roundtable and Strategic CSR – Business Roundtable (II) and Strategic CSR – Business Roundtable (III)). In the original statement, "the CEOs of more than 180 major companies" pledged to broaden their purpose to focus on all stakeholders, rather than merely shareholders. The media responded very positively to this and influential voices in academia have heralded the statement as an important turning point in the evolution of the stakeholder perspective (e.g., see here). The article below, in contrast, sets out to collect data to see whether this optimism has necessarily turned out to be warranted:

"Although the Roundtable described the statement as a radical departure from shareholder primacy, observers have been debating whether it signaled a significant shift in how business operates or was a mere public-relations move."

This attempt to quantify whether each company was genuine in its intent focuses on the extent to which the decision was treated as important, internally:

"Major decisions are typically made by boards of directors. If the commitment expressed in the statement was supposed to produce major changes in how companies treat stakeholders, the boards of the companies should have been expected to approve or at least ratify it."

Specifically, they operationalized this in terms of who was the highest authority who signed-off on the decision:

"We contacted the companies whose CEOs signed the Business Roundtable statement. … Of the 48 companies that responded, only one said the decision was approved by the board of directors. The other 47 indicated that the decision to sign the statement, supposedly adopting a major change in corporate purpose, was not approved by the board of directors."

The researchers then reflect on the possible interpretation of these findings:

"What can explain a CEO's decision to join the Business Roundtable statement without board approval? Even 'imperial' CEOs tend to push major decisions through the board rather than disregard it. … The most plausible explanation for the lack of board approval is that CEOs didn't regard the statement as a commitment to make a major change in how their companies treat stakeholders. That may be because they believe their companies are already meeting the standard for taking care of stakeholders. But it still implies that they believed signing the statement wasn't a major step for their businesses."

To reinforce the idea that any major change in focus by the statement's signatories should have been approved by the Board, the researchers checked the governance documents for each company. They found these documents are essentially unchanged and "mostly reflect a clear 'shareholder primacy' approach":

"Take the corporate governance guidelines of JPMorgan Chase, whose CEO, Jamie Dimon, chaired the Business Roundtable at the time the statement was issued. These guidelines state that 'the Board as a whole is responsible for the oversight of management on behalf of the Firm's shareholders.'"

Johnson & Johnson is another example cited:

"The corporate governance guidelines of Johnson & Johnson —whose CEO, Alex Gorsky, served as chairman of the Business Roundtable Corporate Governance Committee—indicate in clear terms that 'the business judgment of the Board must be exercised . . . in the long-term interests of our shareholders.'"

The article concludes:

"The evidence is clear: Notwithstanding statements to the contrary, corporate leaders are generally still focused on shareholder value."

While I am not sure these data are quite as definitive as the authors suggest, they are certainly not an indication that things have changed. It is still early, but these studies are beginning to emerge and I have not seen one that paints the BRT signatories in a positive light. For another, more recent example, see the article in the second url below:

"The coronavirus, its attendant economic devastation and the ongoing movement against racial injustice have collectively posed the first test of the lofty words proclaiming a kinder form of capitalism. The results have fallen short of the promise, according to a study released Tuesday and obtained in advance by The New York Times. The Business Roundtable's statement of a purpose of a corporation, released last year, was touted by prominent executives as a landmark in the evolution of corporate governance. But its signatories have done no better than other companies in protecting jobs, labor rights and workplace safety during the pandemic, while failing to distinguish themselves in pursuit of racial and gender equality, according to the study."

Take care
David

David Chandler
© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/


'Stakeholder' Capitalism Seems Mostly for Show
By Lucian Bebchuk and Roberto Tallarita
August 7, 2020
The Wall Street Journal
Late Edition – Final
A15

Stakeholder Capitalism Falters in Study
By Peter S. Goodman
September 22, 2020
The New York Times
Late Edition – Final
B1, B4

Tuesday, September 22, 2020

Strategic CSR - Climate Action 100+

As the article in the url below explains, we may well be getting somewhere (at least in terms of climate change), thanks to a stand taken recently by Climate Action 100+:

"Climate Action 100+, an initiative supported by 518 institutional investor organisations across the globe [who collectively manage 'more than US$47tn in assets'], has written to 161 fossil fuel, mining, transport and other big-emitting companies to set 30 climate measures and targets against which they will be analysed in a report to be released early next year."

 

Whether this is sufficient or happening quickly enough are both important questions, but this statement at least feels substantive. Specifically, the group is seeking public commitments to target net-zero emissions:


"It is the latest step in a campaign by climate-concerned shareholders to force business leaders to explain how their targets and strategies will help reach the goals of the 2015 Paris agreement."

 

Why these 161 companies?

 

"The targeted companies are responsible for up to 80% of global industrial greenhouse gas emissions. They include mining giant BHP, which last week promised to reduce emissions from its operations by 30% over the next decade on a path to net zero by 2050 after sustained pressure from activist shareholder groups. Others on the list include Exxon Mobil, PetroChina, BP, Royal Dutch Shell, Rio Tinto, BlueScope Steel and major Australian energy companies AGL, Santos, Woodside and Origin."


And, the demands are both specific and extensive:

"… the Climate Action steering committee lists 'indicators' on which the businesses will be measured, including whether they have strategies to reach net zero emissions by 2050 or sooner and reduce the 'scope 3' emissions released by customers using the companies' products."

The inclusion of scope 3 emissions, in particular, raises the bar for these companies to meet the group's expectations:

"Stephanie Pfeifer, chief executive of the UK-based Institutional Investors Group on Climate Change, said a step-change was urgently required, and the analysis would ensure it was clear which companies were treating climate change as a 'business-critical issue.' 'Investors will be paying particular attention to those shown to be falling short,' she said."

We will see. Being willing to hold firms to account is essential in order to ensure such actions are understood by the firms to be in their best interests.

Take care
David

David Chandler
© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/


Investors that manage US$47tn demand world's biggest polluters back plan for net-zero emissions
By Adam Morton
September 14, 2020
The Guardian

Friday, September 18, 2020

Strategic CSR - Patagonia

As the article in the url below reminds us, you have to love Yvon Chouinard:

"Patagonia's founder, Yvon Chouinard, isn't afraid to get political. The outdoor clothing and gear company has a long history of environmental activism, but as the world falls deeper and deeper into a harmful climate crisis, Chouinard feels it's imperative to call out climate deniers who hold positions of power. Bluntly."

 

How blunt exactly?

 

"In addition to providing election resources and encouraging people to vote for climate leaders, Chouinard is also making Patagonia's political stance crystal clear with the slogan, 'Vote The Assholes Out.'" 

And they are integrating the slogan into their product design. Specifically, they are adding it to some of their apparel labels:

The tags were only added to a specific line of clothing, which itself is part of the message:

"'They were added to our 2020 Men's and Women's Regenerative Organic Stand-Up Shorts because we have been standing up to climate deniers for almost as long as we've been making those shorts,' [Patagonia spokesperson Corley] Kenna wrote."

Patagonia has long promoted good democracy practices – not only encouraging its employees to surf, but also to vote (e.g., see Strategic CSR – Patagonia). Given the firm's political battles over the past 4 years or so, it is perhaps not surprising that Chouinard has had enough and is no longer just telling people to vote, but telling them which way they should vote.

Have a good weekend
David

David Chandler
© Sage Publications, 2020

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/


Yes, Patagonia's viral 'Vote the Assholes Out' tags are real. But the slogan isn't new
By Nicole Gallucci
September 15, 2020
Mashable

Wednesday, September 16, 2020

Strategic CSR - Architects

The article in the url below raises an interesting moral question for architects, but one that I think can be applied (in different contexts) to any profession:
 
"Like many organizations in the wake of George Floyd's killing, the board of the American Institute of Architects issued a statement the other day expressing solidarity with protesters — and offering a mea culpa. 'We were wrong not to address and work to correct the built world's role in perpetuating systemic racial injustice,' the statement said. But 'we support and are committed to efforts to ensure that our profession is part of the solution.' To that end, the statement added, 'we will review our own programs' and 'ask our community to join us and hold us accountable.'"
 
That all sounds fine, on the surface. As the author of the article notes, however, there are ways the (AIA) can easily demonstrate its commitment to meaningful change:
 
"That's good to hear. So, for starters, how about stop repeating that it's OK by you for architects to design death chambers and solitary confinement cells in racially biased prisons that incarcerate and execute an overwhelmingly disproportionate percentage of African-Americans?"
 
As you can see, the author's issue is as much with the professional oversight body, the AIA, as it is with architects more broadly. I wrote about this issue in response to a 2015 column by the same author (see Strategic CSR – Architects) and it seems that nothing has changed, as of yet:
 
"Several years ago, I wrote about a petition filed with the A.I.A. by an organization called Architects/Planners/Designers for Social Responsibility. A Bay Area architect, Raphael Sperry, leads the group. The petition asked the A.I.A. to censure architects who designed death chambers and solitary confinement facilities, which, as constituted and employed in countless American prisons, often function as instruments of psychological and physical torture. As Mr. Sperry pointed out, while the death penalty is legal in the United States, the United Nations and other human rights organizations have determined that it violates human rights. The A.I.A.'s code of ethics instructs its members to 'uphold human rights in all their professional endeavors.' Last year, Pfizer, the pharmaceutical giant, became the latest among dozens of drug companies to ban the use of its products in executions; and the American Medical Association instructs doctors not to participate in execution and torture. So why not architects, too? The A.I.A. rejected the petition."

The AIA's position is that architects build and it is the owners/occupiers of the building who are responsible for how that building is subsequently used. The author of the article has got that retort extremely well covered:
 
"Do we need to run the numbers again? Between 1976 and the end of last year, there were 21 white defendants executed in this country for the deaths of African-American victims — 295 African-American defendants executed for the deaths of white victims. African-Americans constitute some 13 percent of the United States population but more than 40 percent of the death row population."
 
The AIA's intransigence against what is an exceedingly compelling argument may be the result of the current composition of architects, which is decidedly non-diverse:
 
"Fewer than 3 percent of licensed architects in the United States are African-American."
 
I don't quite see how the AIA can rebut the core argument:
 
"… death chambers and many solitary confinement cells … are extreme cases. Architects should not contribute their expertise to the most egregious aspects of a system that commits exceptional violence against African-Americans and other minorities."
 
As the author concludes:
 
"The least the American Institute of Architects can do now is agree."
 
Take care
David
 
David Chandler
© Sage Publications, 2020
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/
 

It's Time for Architects to Stand Up for Justice

By Michael Kimmelman
June 13, 2020
The New York Times
Late Edition – Final
C1, C6
 

Monday, September 14, 2020

Strategic CSR - Exxon

The article in the first url below offers some hope that investors are becoming more serious about the idea of climate change as a potential threat to business in certain industries. The focus is on Exxon's recent removal from The Dow Jones Industrial Average, which illustrates the growing weakness of the oil and gas industry:
 
"When trading begins next week, the blue-chip benchmark will include only one energy stock: Chevron Corp., which will represent just 2.1% of the price-weighted index, according to an S&P Dow Jones Indices analysis. In the broader S&P 500, the group isn't faring much better: Its weighting has shrunk to less than 2.5%, leaving energy as the least influential of the 11 represented industries. That is a dramatic fall from the end of 2011, when energy stocks accounted for 12% of the market."
 
There is historical context, too, that is specific to Exxon:
 
"Although the removal from the Dow is largely symbolic—much less money tracks the 30-stock index than follows the S&P 500—Exxon's departure has historical significance. The company is the longest-tenured member of the benchmark, having joined in 1928 as Standard Oil of New Jersey. It is also a reminder of Exxon's fall from the top echelon of American industry. As recently as 2013, Exxon was the largest U.S. company with a market value above $415 billion. It has since shrunk to less than $180 billion and has been eclipsed by the technology giants such as Apple Inc., Amazon.com Inc. and Microsoft Corp. that now drive the American economy."
 
The reaction by investors to Exxon's decline is as important as the news itself:
 
"Usually, market contrarians say a sector that is so beaten down should be ripe for bargains. But many investors remain skeptical of an energy rebound, pointing to muted expectations for global growth and spotty earnings. Energy is by far the worst-performing S&P 500 sector this year, down 40% while the index as a whole has gained 6.6%. The underperformance is nothing new: Energy was also the weakest performer in 2018 and 2019."
 
Of course, this decline partly reflects the dramatic drop in oil price in recent years (accelerated this year), but also reflects the news from oil and gas companies about large write-downs this year (see Strategic CSR – BP) that, in turn, represents a growing concern that a large part of each firm's value is based on reserves they will not be allowed to extract. As such, the headline here is Exxon, but the trend is industry-wide:
 
"Exxon shares are off 41% this year, while Chevron is down 29%. The pain is even more acute among some of the oil-field services companies and shale drillers. Schlumberger has dropped 52%, and EOG Resources Inc. has fallen 47%. Only one company in the S&P 500's energy sector, Cabot Oil & Gas Corp., is up for the year."
 
For more detail about what the WSJ describes as Exxon's "stunning fall from grace," see the article in the second url below:
 
"Just seven years ago, Exxon was the biggest U.S. company by market capitalization. It has since lost roughly 60% of its value, with its market cap now at around $160 billion. … Analysts estimate Exxon will lose more than $1 billion this year, compared with profits of $46 billion in 2008, then a record by an American corporation. … At the heart of the problem: Exxon doubled down on oil and gas at what now looks to be the worst possible time. While rivals have begun to pivot to renewable energy, it is standing pat. Investors are fleeing and workers are grumbling about the direction of a company some see as out of touch and stubborn."
 
Take care
David
 
David Chandler
© Sage Publications, 2020
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/
 

Exxon's Removal from the Dow Highlights Decline of Oil Sector

By Karen Langley
August 26, 2020
The Wall Street Journal
Late Edition – Final
B1
 

Exxon's Bet on Oil and Gas Drags Down U.S. Titan

By Christopher M. Matthews
September 14, 2020
The Wall Street Journal
Late Edition – Final
A1

Thursday, September 10, 2020

Strategic CSR - Philanthropy

I like Fast Company magazine. I find it a bit shallow, but it is useful to get a sense of current trends in business. The article in the url below is a good example – it is a response to the sudden increase in children who now need to be schooled at home:
 
"In the midst of COVID-19, schools across the country have closed their doors, and a majority of the 50 million K-12 students are now learning from home. For many, that means logging on to laptops to teleconference teachers who take digital attendance, then accessing lessons and homework to do on their own."
 
One of the main challenges this creates, of course, is that many of those children do not have access to the hardware (or internet connection) they need to study properly:
 
"The crisis will be the great stress test of digital learning, but one failure is already known: Roughly one in five teens reported having difficulty doing their homework because of a lack of access to computers and the internet. Chicago Public School principals are begging for hardware for students, while hundreds of thousands of children in NYC are still without laptops as teaching goes virtual."
 
Given this problem, the author has a potential solution:
 
"Ten million students need computers and internet access now. So who should provide it? Three of the most valuable companies in the world, each with more than $100 billion in cash for a combined pile of over $400 billion to weather the storm. Apple, Google (Alphabet), and Microsoft. Together, they could buy every vulnerable student in America a $1,000 laptop. Actually, they could buy every vulnerable student 40 laptops, or every K-12 student eight laptops, or every single American a laptop and then some. … At the bare minimum, each company could chip in $3.3 billion dollars to outfit the 10 million low-income students with a laptop or a tablet with a keyboard. Better still, these devices would be bundled with free LTE internet access."
 
And, from the author's perspective, this was not a request, but a demand:
 
"… the big three have enough cash on hand to outfit every student in America with respectable technology to learn remotely, without depleting their generous cash reserves. And let me be clear: They should. Each of these companies is individually wealthy enough to tackle this challenge entirely on their own, or they could team up. As we face this pandemic, the three greatest American technology companies should be paying back their profits, not to stockholders on dividends, but to the consumers who stacked their profits in the first place."
 
Of course, these are complicated issues and there are other nuances I could mention, but I had three responses to this core idea that came immediately to mind:
 
First, the way the article is written suggests that the money is just sitting around or would otherwise be wasted if the companies did not 'donate' it to all these kids. Of course, that is not the case, and Apple and Google are some of the largest companies investing in R&D (as well as distributing their profits to many other stakeholders in different ways). So the money is still circulating and adding value, even if the companies do not do what the author suggests.
 
Second, the key question the article raises is, which option creates the most value (and for whom)? Should the companies donate the money to help the kids or should they reinvest it in their businesses? This is the essential question from a societal perspective. Companies are not the government and do not run the educational system. That is the responsibility of the government and you could easily argue that the government could/should buy the laptops for every kid instead of buying a few nuclear weapons (not recommending that, just saying the opportunity cost is high). The 'responsibility' of the firm is to create value for its broad set of stakeholders. If a firm has an extra $1 to spare, therefore, they should invest it in the way that creates the most value for the most stakeholders. One reason for the firms' collective success (which the author seems to suggest is a gift from society), is that they already create so much value. So, you could argue that the largest benefit gained from an extra $1 would be to reinvest it in their core business – making their products and services even better than they already are.
 
This leads me to my third point: It is no doubt that the companies would create value by making this donation, but what would their 'return' be? If a fraction of those kids or their parents became lifelong fans (and customers) or future employees, maybe that would be worthwhile. The danger, from the companies' perspective however, is that 'society' would simply pocket the gift and give the companies nothing in return. This would be a very expensive way to get a headline in the papers. I think a potential 'return' on the investment could be measured in many ways (it is not simply a matter of a direct exchange of money). Customer loyalty, for example, is an 'investment' made by the customer in the company, and the company values it and returns it to the customers in terms of express delivery, better service, etc. – in other words, capitalism at its best! :-)
 
There are many new challenges we are all facing as a result of the current pandemic and associated economic dislocation. As ever, for-profit firms are often the best answer to these challenges, but we do not need to throw out economic principles in order to access those solutions.
 
Take care
David
 
David Chandler
© Sage Publications, 2020
 
Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/
 

Apple, Google, and Microsoft are failing U.S. students during the COVID-19 crisis

By Mark Wilson
March 30, 2020
Fast Company Magazine