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


Monday, March 31, 2008

Strategic CSR - Science

The article in the url below is a report from the recent annual meeting of the American Association for the Advancement of Science (Issues: Research and Development, p130; Science and Technology, p264):

“The world's leading engineers have proposed 14 "grand challenges" that would do the most to protect and enhance life during the 21st century. They range from engineering better medicines to making solar energy affordable.”

The 14 “grand challenges” on the list are intended to be realizable, rather than idealistic, and, although dominated by environmental and sustainability projects, extend to a broad range of human wellbeing:

"Meeting these challenges would be 'game changing'," said Charles Vest, NAE president. "Success with any one of them could dramatically improve life for everyone."

A list of the challenges, more details about them, and the opportunity to add your comment to the online debate about this project is available at: http://www.engineeringchallenges.org/.

Take care
Dave

Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther

Engineers set 'grand challenges' to enhance life.
By CLIVE COOKSON
471 words
16 February 2008
Financial Times
London Ed1
Page 5
http://www.ft.com/cms/s/0/604bbf88-dbed-11dc-bc82-0000779fd2ac.html
or
http://us.ft.com/ftgateway/superpage.ft?news_id=fto021520081319418510&page=1

Friday, March 28, 2008

Strategic CSR - Saatchi & Saatchi

This url (http://www.saatchi.com/worldwide/newsdetail.asp?nid=143) takes you to a website advertising an award by the advertising agency, Saatchi & Saatchi, that is grandly titled the ‘Saatchi & Saatchi Award for World Changing Ideas’ (Issues: Advertising, p151):

“The global Award is made biennially by Saatchi & Saatchi, who established the Award to recognise, celebrate and promote ideas that have the potential to change the world. The US $100,000 prize consists of US$50,000 cash and the equivalent of US$50,000 in Saatchi & Saatchi marketing consultancy. … [The judges were asked] to choose the idea they believed had the potential to provide the greatest benefit to the greatest number of people or to a group of people with a particular need.”

It is great that a firm like Saatchi makes such awards, and the ten ideas that made the final cut for consideration this year seem to be immensely innovative and socially beneficial. In addition to wanting to make the world a better place (and receive some free exposure), however, it is less clear why Saatchi is sponsoring such an event, what qualifications the “high-profile panel of judges” have to evaluate the social value of the different ideas, and whether there might be better ways for the firm to use its money.

Have a good weekend.
Dave

Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther

Thursday, March 27, 2008

Strategic CSR - SOX

The article in the url link below reports an important legal decision in the U.S. that enhances whistleblower protection under the Sarbanes-Oxley legislation. The story was considered important enough by the FT to put on its front page (Issues: Corporate Governance—Reporting, p108):

“Employees of US-listed companies who blow the whistle on fraud that took place in the US can be protected under the Sarbanes-Oxley law even if they are based beyond US shores.”

U.S. courts hade been reluctant to establish such protections before because of issues surrounding jurisdiction outside U.S. territory (Issues: Litigation, p245). The difference in this case was decided by the court to be that:

“[The plaintiff] could be protected because measures allegedly taken against her by the company were orchestrated in the US.”

Take care
Dave

Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther

Court extends Sarbox protection to whistleblowers outside US.
By JEREMY GRANT
402 words
15 February 2008
Financial Times
Asia Ed1
Page 13
http://www.ft.com/cms/s/0/5cad98a8-db32-11dc-9fdd-0000779fd2ac.html
or
http://us.ft.com/ftgateway/superpage.ft?news_id=fto021420081719578376&page=1

Wednesday, March 26, 2008

Strategic CSR - Microsoft

The article in the url link below reports on a recently announced offer from Microsoft to donate parts of its MSN software code to high schools around the world:

“The bid to attract future developers is the latest extension of Microsoft's long-running battle to keep open-source software at bay, while also fending off advances by companies like IBM and Adobe.”

Microsoft is clear that its goal is competitive—to encourage software students to learn about its technology and integrate it into their work, but there is also an implicit message of social responsibility (i.e., the firm is donating this code for the good of society). Is this social responsibility, however, or is it just common sense competitive business strategy? Is it philanthropy or is it shrewd marketing? Is Gates adding social value by helping educate the software developers of the future, or is he detracting value by squeezing open source software and limiting competition (or both)?

“As many as 40m students around the world who study maths or science-related subjects will eventually have access to the software, Microsoft executives estimated.”

And, is this story so different from the recent story in which McDonald’s (Issues: Wages, p204; Special Cases of CSR: Fast-Food Industry, p283; McDonald’s, p295 and p305) was forced to withdraw its sponsorship of school report cards due to consumer concerns over advertising to children? Maybe I am becoming too skeptical, but my sense is that Microsoft is wrapping an effective business strategy in clever CSR marketing.

Take care
Dave

Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther

Gates woos schools with free software.
By RICHARD WATERS
430 words
19 February 2008
Financial Times
London Ed2
Page 25
http://www.ft.com/cms/s/0/6202f720-de7b-11dc-9de3-0000779fd2ac.html

Tuesday, March 25, 2008

Strategic CSR - Followership

Reading the review of the recently published book “Followership,” by Barbara Kellerman, in the url below made me think about the firm/stakeholder relationship in regard to CSR:

“As the author explains: "Bad leaders . . . cannot possibly do what they do without bad followers. They depend on them absolutely."”

Replace “leaders” for “firms” and “followers” for “stakeholders” and I think the same message applies within a CSR context. The book asks:

“… why we follow leaders with whom we find fault. … "The answer is self-interest. We calculate that the benefits of following outweigh those of not following; and we calculate that the cost of resisting is higher than the cost of going along."”

Firms can benefit from adopting a proactive stance regarding CSR, but, in general, most firms respond best to the needs and demands of their stakeholders. Firms that are deemed to be ignoring CSR can only continue to do so, therefore, as long as they are supported sufficiently by their stakeholders (their customers, in particular). Too often, CSR activists criticize firms for following their self-interest, but fail to criticize stakeholders for not demanding more of firms and being unwilling to leverage what influence they have over firms to ensure their expectations are met—to act as “activists” or “diehards” in Kellerman’s typology.

As a society, we will get socially responsible firms once we demonstrate that that is what we want and are willing to pay for.

Take care
Dave

Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther

A debate for all good leaders to follow.
By STEFAN STERN
705 words
14 February 2008
Financial Times
London Ed1
Page 14
http://www.ft.com/cms/s/0/3e8c6526-daa0-11dc-9bb9-0000779fd2ac.html

Monday, March 24, 2008

Strategic CSR - 100 Best Corporate Citizens List

The press release in the url below presents some interesting insights into the latest CRO Magazine (previously Business Ethics Magazine) list of “100 Best Corporate Citizens” (http://www.thecro.com/node/615), which has been published annually since 2000 (Issues: Auditing CSR, p94):

“The list's methodology for 2008 includes two significant updates. First, CRO changed rating agencies, switching from KLD Analytics to IW Financial. In contrast with KLD's interview-and-questionnaire-based method, IW Financial bases rankings solely on publicly-available data and uses its set of patented technologies to do the analysis. Second, the 2008 100 Best Corporate Citizens rankings are limited to the Russell 1000 …. In previous years, the rankings also included the Domini 400 companies, which include many mid-cap and small-cap firms, and resulted in a perceived bias in favor of the lower-cap enterprises.”

Another change in publishers, combined with the change in source data, appear to have moved the 100 Best list in a very positive direction, even though the churn makes it hard to compare across years and some controversial picks remain:

“Unchanged is the controversy surrounding the list, which inevitably accompanies any attempt to rank corporate social responsibility. Questions have already arisen about the inclusion of Monsanto (over child labor in India), Coca-Cola (over ground-water depletion), and Dow (over its Union Carbide legacy in Bhopal.)”

The CRO press release announcing the release of the list can be accessed at: http://www.csrwire.com/News/11126.html

Take care
Dave

Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther


CSRwire Weekly News Alert
Latest Corporate Social Responsibility News - Change is a Constant for CRO’s 100 Best Corporate Citizens List
Mutual Funds Targeted by Investors Against Genocide Stay Off List
http://www.csrwire.com/News/11215.html

Friday, March 21, 2008

Strategic CSR - Is CSR dead?

The article in the url link below responds to a recent report on CSR by the EU with the provocative title “Corporate responsibility is not quite dead”:

“Many will regard the [European] Commission's endorsement as a sure sign that CSR's time has past. Its report, written by academics from Insead and other European business schools, certainly contains a fair amount of nonsense, including the "finding" that managers become more socially responsible if they meditate.”

Wading through the attention-getting hyperbole in the front half of the article, however, leads to a more interesting discussion of when CSR is and is not business common sense and how, increasingly, it is hard to tell the two apart:

“Profit, in good times and bad, is where any discussion of companies' responsibilities should start. Without profit, there is no future for shareholders, employees or customers. But engaging with the community in the pursuit of profit has its place: indeed, it is essential. … Wal-Mart persuaded a toy supplier to reduce its packaging. This resulted in the company using 497 fewer freight containers a year and saving Dollars 2.4m. You can call that cost-cutting or you can call it sustainability.”

Have a good weekend
Dave

Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther

Corporate responsibility is not quite dead.
By MICHAEL SKAPINKER
783 words
12 February 2008
Financial Times
London Ed1
Page 15
http://www.ft.com/cms/s/0/7990a3ec-d8a9-11dc-8b22-0000779fd2ac.html

Thursday, March 20, 2008

Strategic CSR - Employee Ownership

The article in the url link below indicates the growing use of Employee Stock Ownership Plans (ESOP) in the U.S. (Issues: Employee Relations, p118):

“There are an estimated 9,650 employee-owned companies in the U.S., most small and privately owned, according to the National Center for Employee Ownership, an educational organization in Oakland, Calif.”

The article describes how the firm’s executives spread awareness about the plan among employees and encouraged them to think like owners who seek to actively add value to their investment, rather than passively process inputs into outputs. The President and CFO of the firm both attribute the firm’s recent improved performance to the success of their ESOP:

“Messrs. Reinertson and Slinger say they believe the efforts are directly responsible for a recent jump in profit, reflected in its share price. The stock was up 78% for 2006, the latest data available, due to sales growth, debt reduction and improved cash flow. Last year, employee turnover fell to less than 8%, from an annual rate of about 18% a few years ago -- an improvement executives believe is directly correlated to employees' engagement and commitment.”

Take care
Dave

Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther

Small Business Link: How to Get Workers to Think and Act Like Owners
Employee-Owned Firm Van Meter Industrial Prospered After Its Employees Were Persuaded to Take Their Company Stock Seriously
By Simona Covel
1317 words
7 February 2008
The Wall Street Journal
B6
http://online.wsj.com/article/SB120205150679938689.html

Wednesday, March 19, 2008

Strategic CSR - Fast-food Industry

The article in the url below presents an update on efforts by anti-obesity activists to force fast-food restaurants to display the calorie content of separate items on their menus in stores (Special Cases of CSR: Fast-Food Industry, p283):

“On Jan. 22, New York City voted to require that calorie information be posted on chain-restaurant menus as of Mar. 31. … From Hawaii to Massachusetts, more than a dozen state and local governments are considering putting calories front and center on menus. San Francisco will hold hearings this month, and a law passed last year in Seattle goes into effect Aug. 1.”

Unfortunately for the fast-food industry, their response has been to adopt many of the tactics and advisors who framed the tobacco industry’s response to anti-smoking legislation (Special Cases of CSR: British American Tobacco, p305; Philip Morris Companies, p307):

“Last year the New York State Restaurant Assn. challenged an earlier New York calorie-labeling law, retaining Arnold & Porter, longtime counsel to tobacco giant Philip Morris (MO).”

This response by the fast-food industry is short-sighted and contradicts information that individual firms are making available online. I am certainly no fan of McDonald’s (Issues: Wages, p204; Special Cases of CSR: McDonald’s, p295), but I was impressed by the extent of nutritional (or absence of nutrition) information McDonald’s makes available about its Happy Meals on its website (http://www.mcdonalds.com/app_controller.nutrition.categories.happymeals.index.html):

“Nutrition Information for McDonald’s Happy Meals

We provide a nutrition analysis of our kids meals to help you choose foods that best meet your child’s nutrition needs. Our goal is to provide you with the information you need to make sensible decisions about balance, variety and moderation for you and your family. You may view this information below or download a printable version. To learn more about how Happy Meals contribute to your child’s recommended daily intake for key nutrients, click here.”

Many of the fast-food companies have fought tooth and nail against the forced revelation of these kinds of details (and, maybe McDonald’s fought just as hard???), but I am not aware that all firms are as forthcoming as McDonald’s (I am assuming that this disclosure is voluntary). Their calculation, no doubt, is that the majority of consumers will not go to the trouble of finding this information and, if they do, it is only if it is advertised at the point of sale that it might deter purchases.

On the other hand, however, although you would think that fast-food restaurants have much to fear by greater transparency in this respect:

“So what if a McDonald's (MCD) menu tells customers that a large chocolate shake contains more calories than two Big Macs? Or a Quiznos menu lets a patron know that its large tuna melt weighs in at 2,090 calories—a full day's allotment for a typical adult?”

There is anecdotal evidence to suggest that a lot of consumers know full well that fast-food is unhealthy, but eat it anyway because of its other characteristics—cheap and convenient (Special Cases of CSR: McDonald’s, p305).

Take care
Dave

Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther

A Food Fight Over Calorie Counts
Public health officials want caloric content listed on menus. The restaurant business is biting back
by Michael Orey
BusinessWeek
January 31, 2008
http://www.businessweek.com/magazine/content/08_06/b4070036764931.htm

Tuesday, March 18, 2008

Strategic CSR - Recycling

The article in the url link below reports the results of an interesting social experiment:

“In 2002, Ireland passed a tax on plastic bags; customers who want them must now pay 33 cents per bag at the register.”

The tax had a dramatic and immediate impact on consumer behavior:

“Within weeks, plastic bag use dropped 94 percent. Within a year, nearly everyone had bought reusable cloth bags, keeping them in offices and in the backs of cars. Plastic bags were not outlawed, but carrying them became socially unacceptable -- on a par with wearing a fur coat or not cleaning up after one's dog.”

The article quotes the website http://reusablebags.com/ as stating that “In January almost 42 billion plastic bags were used worldwide”—that is in only one month! The Ireland experiment shows that dramatic change is possible, given the political will and the ability to approach problems innovatively:

“Today, Ireland's retailers are great promoters of taxing the bags. ''I spent many months arguing against this tax with the minister; I thought customers wouldn't accept it,'' said Senator Feargal Quinn, founder of the Superquinn chain. ''But I have become a big, big enthusiast.''”

Ireland is planning to build on the success of this scheme, seeking to extend similar taxes to influence other areas of consumer behavior:

“Ireland has moved on with the tax concept, proposing similar taxes on customers for A.T.M. receipts and chewing gum. … This year, the government plans to ban conventional light bulbs, making only low-energy, long-life fluorescent bulbs available.”

Take care
Dave

Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther

With Irish Tax, Plastic Bags Go the Way of the Snakes
By ELISABETH ROSENTHAL
1215 words
2 February 2008
The New York Times
Late Edition - Final
3
http://www.nytimes.com/2008/02/02/world/europe/02bags.html

Monday, March 17, 2008

Strategic CSR - CSR Profession

The article in the url link below by Mallen Baker (Foreword, pxiii) provides an insightful perspective on the rise of the CSR ‘profession’:

“Competent people are competent because they've learned to do something well. Generally, they are proud of the fact they do it well, and they become resistant to change precisely because change is the one thing that can threaten that competence. Does it sound familiar? Don't we now have a generation of CSR or sustainability managers that have taken the brief within their business, learned about the issues and the tools of their trade (the systems), and focused on getting good at using those tools?”

Baker is not arguing against the value of professionalization and standards so much as against the idea that such professionalization and standards are ends in themselves. Baker points out that unless this “new rigour” is part of the solution, then it is just as much a part of the problem:

“… ultimately, whilst we are professionalising corporate social responsibility, adding new impenetrable jargon and making it a place fit for experts, we are missing the real deal. This is not a specialist part of business per se, it is business as usual. … The real question is this: Just what is a company going to have to do to be successful in the fast-changing world in which we find ourselves? Whatever sector you're in, the answer to the question probably isn't the name of an Index or a quality system.”

The field of CSR needs to remain focused on the broader question of keeping business relevant in a way that maximizes long term social value, without getting tied up in securing the trappings of professionalization.

Take care
Dave

Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther

Corporate social responsibility: When the competent become the enemy of the good
Many in the world of ethical business are searching for the wrong answer to the wrong question
Mallen Baker
February 25, 2008
http://www.ethicalcorp.com/content.asp?ContentID=5735

Friday, March 7, 2008

Strategic CSR - Budweiser

The press release from Budweiser (Issues: Environmental Sustainability, p171) in the url below features a survey that claims the majority of students during Spring Break engage in responsible behavior:

“… according to a new survey, conducted by The Nielsen Company on behalf of Anheuser-Busch … most college students, ages 21 and older, are acting conscientiously and responsibly during their spring breaks.”

Budweiser discussing (trying to minimize) the negative social consequences of its products reminds me of Philip Morris trying to persuade people to stop smoking (Special Cases of CSR: Philip Morris Companies, p307) and McDonald’s warning against the dangers of obesity (Special Cases of CSR: McDonald’s, p305):

“The stereotype that most college students engage in high-risk drinking and other irresponsible activities during spring break is clearly not the norm," explains Carol Clark, vice president of Corporate Social Responsibility at Anheuser-Busch, Inc. "This survey reinforces that most students are focused on making smart choices and making a difference.”

I find it all somewhat surreal, funny, and sad at the same time. Such pronouncements speak to the advance of CSR as an issue that firms must address today, but also, I think, represent an important commentary on contemporary society. They suggest that firms are able to resist or avoid stakeholder expectations and perhaps, at some level, also reveal a degree of superficiality to the CSR ‘movement.’ While firms might receive criticism at the fringes, they constitute only glancing blows, rather than serious efforts to instigate change. As a result, the effort to re-think how we live and operate as a society, and engage in a way that contributes rather than detracts, is diminished.

Have a good break!
Dave

Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther

CSRWire Press Release
Press release from: Anheuser-Busch Companies, Inc.
Getting More Than a Tan Out of Spring Break
Survey Reveals College Students Show Concern for Others, Themselves
March 4, 2008
http://www.csrwire.com/News/11279.html

Thursday, March 6, 2008

Strategic CSR - Meat

The article in the url link below details the processes associated with industrial meat production. The scale and numbers are staggering. According to the article, global meat consumption has quadrupled in the past 50 years, growing fastest in the developing world, and is expected to double again over the next 50 years. The environmental impact is equally staggering:

“These assembly-line meat factories consume enormous amounts of energy, pollute water supplies, generate significant greenhouse gases and require ever-increasing amounts of corn, soy and other grains, a dependency that has led to the destruction of vast swaths of the world's tropical rain forests.”

The article reports that:

“… an estimated 30 percent of the earth's ice-free land is directly or indirectly involved in livestock production, according to the United Nation's Food and Agriculture Organization, which also estimates that livestock production generates nearly a fifth of the world's greenhouse gases -- more than transportation.”

With rising demand comes rising prices, which are projected to have further social consequences as agricultural land is increasingly dedicated to producing cattle feed, rather than other, more calorie efficient, crops. The enormity of the environmental, health, and social consequences of producing and consuming beef on such a scale (presented in great detail in the article), however, make it clear that basic transparency and accountability are yet to make it to this subsection of the agribusiness industry:

“If price spikes don't change eating habits, perhaps the combination of deforestation, pollution, climate change, starvation, heart disease and animal cruelty will gradually encourage the simple daily act of eating more plants and fewer animals.”

Take care
Dave

Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther

Rethinking the Meat-Guzzler
By MARK BITTMAN
2231 words
27 January 2008
The New York Times
Late Edition - Final
1
http://www.nytimes.com/2008/01/27/weekinreview/27bittman.html

Tuesday, March 4, 2008

Strategic CSR - BP

The article in the url link below exposes the extent to which politics and international business are inter-twined, and how the resulting compromises encroach on the pristine social responsibility brand image firms seek to craft (Issues: Advertising, p151; Brands, p153):

“Libya has ratified a contract with BP after the UK government drafted a prisoner transfer agreement that could include the man serving a life sentence in Scotland for the Lockerbie bombing. The Dollars 900m (Euros 600m, Pounds 450m) exploration contract was part of a package of agreements arranged by Tony Blair, former UK prime minister, on a state visit to Libya last year.”

In a similar fashion to the rising safety concerns in its North American operations and its involvement in tar sands oil extraction in Canada, this deal by BP demonstrates the fine line corporations walk in trying to satisfy the claims made on them by their various stakeholder groups:

“BP denied there were political reasons for the ratification of the deal being delayed. But the company has been involved in political negotiations with Tripoli before, dispatching one of its in-house advisers who was a former UK intelligence officer to negotiate the release last year of Bulgarian nurses detained in Libya.”

Take care
Dave

Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther

Libya jail swap deal clears way for BP project.
By ANDREW BOLGER and DINO MAHTANI
484 words
31 January 2008
Financial Times
London Ed1
Page 10
http://www.ft.com/cms/s/0/c19e2ae6-cf9f-11dc-854a-0000779fd2ac.html

Strategic CSR - Litigation

Multinational firms find themselves increasingly exposed at home for actions taken at all points along their global supply chain (Issues: Litigation, p245). The article in the url below describes a case brought by a UK law firm against a UK Headquartered firm on behalf of victims in a poisoning case in the Ivory Coast:

“The Ivorian case centres on an incident in 2006 in which 500 tonnes of waste was allegedly discharged from the Trafigura chartered vessel, the Probo Koala, around the lagoon city of Abidjan. The Ivorian government said the dumping caused poisoning that killed 10 people and led more than 100,000 to seek medical advice.”

The UK law firm is able to bring the action against the UK firm in London, rather than in the jurisdiction of the location of the incident (the Ivory Coast), because of recent EU legislation:

“The case highlights how a landmark European Court of Justice judgment has made it easier for groups of litigants to launch legal claims in the European courts. Mr Day says he was able to bring the case in London thanks to the 2005 European ruling, which gave any claimant an automatic right to sue in the defendant's home country.”

Rightly or wrongly, firms are increasingly being held accountable for their actions and the actions of their partners worldwide. Consequently, even if they do not feel a moral or (locally) legal obligation to do so, self-interest demands they exert greater control over their global supply chains and production processes:

“The Ivorian case may give at least a taste of what is to come if collective actions move into the European mainstream, rather than remaining the preserve of niche firms in turbulent places. Then - whether they think it fair or not - companies will potentially be on more hazardous legal terrain. As Mr Day puts it: "I would hope that in 10 years this would become the norm."”

Take care
Dave

Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther

Lawyers in a hunt for big game.
By MICHAEL PEEL
1144 words
31 January 2008
Financial Times
London Ed1
Page 14
http://search.ft.com/nonFtArticle?id=080131000067&ct=0

Monday, March 3, 2008

Strategic CSR - Investors

The article in the url link below focuses on the role of stock market traders in the recent stock market correction (Figure 1.4: The Shareholder Shift—From Investor to Speculator, p14):

“… the losses in United States markets alone are on the order of about $2.5 trillion in recent weeks. How can a loss of roughly $100 billion on subprime -- with some recoveries sure to come as property is seized and sold -- translate into a stock-market loss 25 times that size? … traders are sending stocks down by a fantastically larger amount than is warranted by a recession or the losses in subprime.”

I think the argument is overblown because it ignores an important driver of the recent stock market correction—accounting for past excesses prior to the sub-prime crisis. It also assumes highly rational behavior by traders who, the article claims, move the market at whim:

“The traders move the market any way they want, any way they think they can make money, and then they whisper a reason to journalists later in the day. Then the journalists print it or say it on television, and the amateurs believe it.”

Nevertheless, the article makes an important point regarding the perverse drivers of stock market trading—a focus on maximizing profit (via speculating) instead of an attempt to accurately price future cash flows (via investing):

“[Traders] don't act on the basis of what seems to them the real economic situation, but on what's in it for them. … I know this because I know traders. They've told me that they love to sell into fear because fear is bottomless -- you can make money selling all day, while buying eventually slows because enthusiasm has limits. The amount of money available to large professional traders is so large that they can overwhelm the market, at least for a while, anytime they want. And they like to do it when the market least expects it.”

Take care
Dave

Bill Werther & David Chandler
Strategic Corporate Social Responsibility
© Sage Publications, 2006
http://www.sagepub.com/Werther

Can Their Wish Be the Market's Command?
By BEN STEIN
1262 words
27 January 2008
The New York Times
Late Edition - Final
7
http://www.nytimes.com/2008/01/27/business/27every.html