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


Wednesday, April 27, 2011

Strategic CSR - CEO Pay

The articles in the two urls below report on some important developments in executive compensation (Issues: Executive Compensation, p172), as well as progress regarding corporate governance (Issues: Corporate Governance, p161).

The first article covers new rules adopted recently by the SEC to force shareholder votes on large firms’ executive compensation plans every three years:

“… companies whose stock-market value exceeds $75 million must give shareholders the opportunity, at least once every three years, to voice their approval or disapproval of how top management is being paid.

The votes are non-binding, but the article also reports on some interesting research that reveals that these votes still affect subsequent behavior:

Ralph Walkling of the Center for Corporate Governance at Drexel University has found that voting against directors may discourage them from acting like rubber stamps. Each 1% increase in "no" votes knocks up to $222,000 off the excess compensation of the chief executive officer the next year -- and even raises the odds that the CEO will be replaced.

The second article previews a proposal by the FDIC to force large financial institutions to hold a portion of executives’ bonuses for a three year period. The firms would be expected to monitor past performance during this period and adjust the employee’s bonus depending on how that performance appears after a longer period of time has elapsed:

Under the proposal, the firms would have to review the results of trades or other business decisions tied to an employee's bonus pay over the deferral period. If losses occur, the firms would have to reduce or eliminate the delayed compensation accordingly. … The proposed rule also would instruct the boards of firms with more than $50 billion in assets to identify lower-rung employees who are capable of inflicting "material risk" on their company. The firms would have to defer a portion of bonus pay for these employees as well.

Neither rule is ground-shaking in its impact alone. Taken together, however, they indicate a subtle shift in how executives are rewarded and introduce a little more accountability to the process.

Take care
David


Instructor Teaching Site: http://www.sagepub.com/strategiccsr/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/


The Intelligent Investor: A Chance to Veto a CEO's Bonus
By Jason Zweig
808 words
29 January 2011
The Wall Street Journal
B1

U.S. Seeks To Defer Portion of Bonuses
By Victoria McGrane and Aaron Lucchetti
873 words
5 February 2011
The Wall Street Journal
B1

Monday, April 25, 2011

Strategic CSR - Earth Day

The article in the url below appeared the day before Earth Day last year, but I think it is still very relevant. The article takes a tongue-in-cheek look at how consumers are encouraged to “buy green” (i.e., consume more resources) in order to demonstrate their commitment to conserving resources!?!

With apologies to a cliché that predates the advent of Earth Day by a year, it is easy being green. Too easy. From adorable reusable shopping bags and organic clothing to hemp shower curtains (no nasty petroleum-based vinyl liner!) and "natural is now fun!" beauty products for girls, the proliferation of green products makes doing our bit for the planet a blast, since Americans can combine environmentalism with their favorite sport, shopping.

In other words, the article argues that we are being sold the story that the environment can be saved with only minimal sacrifice or changes in behavior. And, where we are encouraged to act, it is in relation to relatively inconsequential personal behavior, rather than more meaningful, system-wide change:

Of the Nature Conservancy's five recommendations for Earth Day, four—figure out your carbon footprint here, time your shower, go for a walk (!), and find a farmers’ market—involve individual behavior. Only a single suggestion, "speak up on climate change" … gets at the only kind of change that has been shown in the 40 years since the first Earth Day to make a difference.

[Note: For this year’s Earth Day, all five of The Nature Conservancy’s suggested “easy actions” focus on personal action—http://earthday.nature.org/five-things/]

And, when expectations are low, the results are uninspiring:

90 percent of Americans, Gallup found, say they recycle. And what good has it done? Some, to be sure. But we are producing 38 percent more garbage today than we were in 1970.

It is all very Monty Python-esque: Come on everybody, let’s form a committee to consider setting-up a commission to make recommendations to compose the serious questions we need to address if we are to contemplate some type of action that should maybe move us in the right direction:

The problem with the emphasis on changing individual behavior is this: it makes too many of us believe we have done our part. … By believing that green shopping—or even recycling, turning down the thermostat, or carpooling—is enough, we consent to the continuation of the same societal practices that got us into this mess. Compared with the scale of the disaster, changing individual behavior is pathetically inadequate.

In other words, the more things change, the more they stay the same, while we dig ourselves in deeper.

Take care
David


Instructor Teaching Site: http://www.sagepub.com/strategiccsr/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/


On the 40th Anniversary of Earth Day, Let’s ... Go Shopping!
Buying green and changing personal behavior won't save the planet.
Newsweek
Apr 21, 2010

Friday, April 22, 2011

Strategic CSR - China

This week, I leave you with a stunning quote from the article in the url below that I saw repeated in a few media outlets recently. I have not been able to verify the facts with source data, but the quote seems feasible to me, even intuitive, which perhaps is as instructive as the quote is shocking:

If you want to know what's wrong with America and why record numbers of Americans are telling the pollsters that they're fed up, just take a look at how we trade with China. Our major import is nearly $50 billion of computer equipment while our major export is about $8 billion of waste paper and scrap metal. Yes, that's right. We're swapping garbage for computers with China -- and lots of other countries as well.

The U.S.’s largest export to China is “$8 billion of waste paper and scrap metal,” while its largest import is “$50 billion of computer equipment.”

Certainly food for thought!

Have a good weekend.
David


Instructor Teaching Site: http://www.sagepub.com/strategiccsr/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/


America Needs a New Globalization Game
Clyde Prestowitz
April 29, 2011
The Huffington Post

Wednesday, April 20, 2011

Strategic CSR - BP and Halliburton


Here are two articles (one year on from the Deepwater Horizon explosion and oil spill in the Gulf of Mexico) that gave me pause for thought.

The title of the article in the first url below speaks for itself:

A year after the Gulf disaster, BP is looking strong, hopes to resume drilling

The article details how BP has managed successfully to recover from the intense criticism and scrutiny it received in the weeks and months after the rig explosion and massive oil spill last year:

It's hard to tell that just a year ago BP was reeling from financial havoc and an American public out for blood. The oil giant at the center of one of the world's biggest environmental crises is making strong profits again, its stock has largely rebounded, and it is paying dividends to shareholders once more. It is also pursuing new ventures from the Arctic to India. It is even angling to explore again in the deep waters of the Gulf of Mexico, where it holds more leases than any competitor.

The article in the second url below explains how Halliburton, a central player in the Gulf disaster, “remains largely unscathed” in spite of its prominent role:

Aside from BP, the primary owner of the blown-out Macondo well, no company has faced more criticism for the deadly explosion and resulting oil spill than Halliburton. One of several service providers on the Deepwater Horizon drilling rig, it designed the failed cement seal that experts believe allowed explosive gas to flow into the well and reach the doomed rig. Halliburton doesn't deny the seal failed, but argues BP should have run tests that would have revealed the problem.

In other words, “Yes, we screwed up, but it is really BP’s fault for not catching our mistake”!! In 2010, Halliburton’s profit rose 60% to $1.8 billion and profits for the first three months of 2011 “more than doubled to $511 million from $206 million. Revenue rose 40% to $5.3 billion.

While any firm should be given the opportunity to recover from a major crisis and repair its reputation, what is striking about both BP and Halliburton is how many CSR transgressions they have been associated with over the last decade. With BP, it is the oil refinery explosion in Texas, the Arctic oil spill, and a generally horrendous environmental and safety record compared to its main competitors, such as Exxon. With Halliburton, it is allegations of bribery overseas, corruption at home, and very large payments to settle asbestos-related claims. In spite of all this, on top of both firms’ central role in causing the largest environmental disaster ever to occur in the U.S., they remain strong, successful companies that continue to operate with active stakeholder (investors, employees, customers, and government) support:

The first deep-water permit issued after the Obama administration lifted a post-spill drilling ban went to Noble Energy Inc. for work on a well off the coast of Louisiana. BP is not the operator but it has a 46 percent stake in the well. BP also bought out Shell's 25 percent interest in two Gulf fields in December, making BP the sole owner of both.

Remind me again of the business case for CSR??

Take care
David


Instructor Teaching Site: http://www.sagepub.com/strategiccsr/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/


A year after the Gulf disaster, BP is looking strong, hopes to resume drilling
By HARRY R. WEBER
Associated Press
1357 words
18 April 2011

Halliburton Emerges From Gulf Disaster Unscathed
By Ben Casselman
1168 words
19 April 2011
The Wall Street Journal
B1

Monday, April 18, 2011

Strategic CSR - Porter & Kramer

By now, you will probably have read about Michael Porter and Mark Kramer’s latest foray into CSR—‘Creating Shared Value.’ If not, here is their front cover story of the first HBR issue of 2011, with accompanying video, humbly titled How to fix Capitalism—The Big Idea:


A pdf of the full article is available from HBR at:


Ultimately, the argument that Porter and Kramer are building (and this is now their third HBR CSR article, following on from ‘The Competitive Advantage of Corporate Philanthropy’ in 2002 and ‘Strategy & Society: The Link Between Competitive Advantage and Corporate Social Responsibility’ in 2006) is that firms should identify issues containing both economic and social goals, and then utilize their expertise to generate market-based solutions. In this way, both economic value and social value are maximized.

The reaction of the CSR community has been to point out that, while they are very welcome to join the party and can do much to push CSR up the agenda of many unpersuaded CEOs, they are late and somewhat behind the times:

http://tobiaswebb.blogspot.com/2011/01/does-michael-porter-understand.html

The idea Porter and Kramer present, as I understand it, is similar to Bill Gates and Muhammad Yunus’ work on “caring capitalism”—essentially a re-branding of the ideas behind social entrepreneurship (Issues: Social Entrepreneurship, p189). My criticism of the idea, therefore, is the same—that, while the idea sounds good in theory, in reality, the potential reach of this business model is limited. A good example is Product (RED) (Case-studies: Product (RED), p352), which is very successful as a cause-related business, but has fallen well short of the game-changing solution its founders were hoping for.

What I find funny about the new Porter/Kramer article is where they lay the blame for the current myopic view of business, without the slightest hint of irony:

In understanding the business environment, managers have focused most of their attention on the industry, or the particular business in which the firm competes. … Companies have failed to grasp the importance of the broader business environment surrounding their major operations.

Now, I wonder whose ideas and models taught widely in business schools would have encouraged managers to focus “most of their attention on the industry, or the particular business in which the firm competes”……..???

What we argue in Strategic CSR is that firms should focus on identifying problems for which there is a clear market-based solution and then deliver that solution in an efficient and socially responsible manner. The idea of CSR as an integrated component of strategy focuses on firms’ areas of expertise throughout all aspects of operations, but de-emphasizes actions that stray outside a firm’s areas of expertise for which there either may not be a market solution, or the firm is not well-suited to deliver. That is how long term shareholder value is maximized—by operating in a way that seeks to meet the needs and demands of the firm’s stakeholders, broadly defined. In other words, the focus of business remains the same; it is the way you go about it that is different with a CSR perspective.

Porter and Kramer, however, want to change the focus. As they put it in their introduction:

The purpose of the corporation must be redefined as creating shared value, not just profit per se.

In some instances, these two perspectives (caring capitalism and strategic CSR) will produce the same behavior, but the motivating force is different and this is important because it will ultimately lead to different outcomes in terms of the success or failure of the venture. For example, Starbucks should not form partnerships with shade-grown coffee farmers in Guatemala because they recognize those farmers face an uncertain future and there is an insufficient welfare net in place to support them if they go out of business (a social goal), but because Starbucks needs to secure a stable supply of high quality coffee beans and supporting these farmers in a sustainable manner is the best way to guarantee that supply (an economic goal). In other words, Starbucks should form stable and lasting partnerships with these key suppliers not because they are seeking to fill a social need, they should do it because these farmers produce a raw material that is essential to their business. As such, Starbucks is incentivized to protect that raw material in a sustainable way, rather than ruthlessly exploit it. If those Guatemalan farmers are not producing a product that is in demand (i.e., if the business logic is not there), the argument that Starbucks should get involved is difficult to make.

Ultimately, although for-profit firms can help with the first perspective (caring capitalism), they are much better suited to the second perspective (market capitalism). Ideally, it is the role of effective governmental and nonprofit sectors to focus on those areas that the market ignores or cannot solve. In contrast, Porter and Kramer argue that social goals should be considered equally with economic goals and firms should then utilize their market-based skills and expertise to solve that problem—In other words, that they should become less like for-profit firms and more like social entrepreneurs, government agencies, or nonprofit organizations. While well-intentioned, I believe that this is not an effective plan for “how to fix capitalism” and, instead, is a misunderstanding of the value of for-profit firms in our society (and of the role that a CSR perspective brings in maximizing that value). As argued in the article in the url below:

In her 2009 book SuperCorp, … Rosabeth Moss Kanter warned of the pitfalls for companies that make "social commitments that do not have an economic logic that sustains the enterprise by attracting resources". More companies are learning to reap commercial benefits from strategies that have a wider social value. That's great. But the basic job of coaxing capitalism in the right direction is the same as it always has been: find ways to harness society's needs to companies' self-interest and hope the two stay together.

Take care
David


Instructor Teaching Site: http://www.sagepub.com/strategiccsr/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/


Society and the right kind of capitalism
Hill, Andrew
724 words
22 February 2011
Financial Times
London Ed1
14
or

Friday, April 15, 2011

Strategic CSR - Pharmaceuticals

I always find it fascinating that the pharmaceutical industry has such a bad reputation (Issues: Patents, p252). How is it that firms that specialize in producing drugs that save lives, reduce human misery and suffering, and increase longevity and general wellbeing can be criticized from so many quarters for their lack of social responsibility?

Why is it that:

There is a special duty when you are selling medicine as opposed to pantyhose or hubcaps,”

but also that:

On the one hand, we don't like it that markets are harsh and unjust, … But on the other hand, it's the power of the market that creates the therapies in the first place”?

The article in the url below goes some way to redressing this disconnect by outlining some of the good work being done by pharmaceutical firms and many of the challenges that prevent more rapid progress. Two aspects of the story jumped out at me: First, how much is being done and how far the industry has progressed toward responding to its critics. For example:

Efforts to deliver cures to the world's poorest regions range from new research initiatives to Big Pharma donations of medicine. Last November, the World Health Organization unveiled an alliance with six firms that pledged to donate drugs for neglected tropical diseases. … Among the contributions was an unlimited supply of leprosy treatments from Novartis, and up to 200 million tablets a year from Johnson & Johnson to combat intestinal worms in children. … GlaxoSmithKline is sharing more than 800 of its patents with other companies working to find treatments for neglected tropical diseases. The company has also cut prices for more than a dozen drugs sold in the least developed countries -- such as Rwanda, Ethiopia and Cambodia -- to no more than 25% of the developed-world price. The treatments cover conditions that include asthma, malaria and hepatitis B.

And, second, the prominent role of the Bill & Melinda Gates Foundation, which is mentioned in multiple examples in the article as partnering with specific firms to make a significant impact:

Many such programs are modeled after alliances between drug companies, governments and non-profit organizations that have expanded affordable access to HIV/AIDS treatments in poor countries. Perhaps the most ambitious effort has been in Botswana, which in 2001 joined forces with Merck and the Bill & Melinda Gates Foundation to bring drugs to the impoverished African nation. Now 90% of Botswana's HIV/AIDS patients receive treatment, says Merck, compared with just 5% when the program began.

No doubt many (if not all) of these initiatives are not widely known, however, and pharmaceutical firms will continue to score poorly in public perceptions of their social responsibility.

Have a good weekend.
David


Instructor Teaching Site: http://www.sagepub.com/strategiccsr/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/


Profits and Social Responsibility: Chastened Drug Makers Step Up Efforts to Bring Affordable Medicines to Poor Countries
February 10, 2011
Knowledge@Wharton

Wednesday, April 13, 2011

Strategic CSR - Corporate taxes

An issue that was included in the first edition of Strategic CSR (Issues: Patriotism, p258), but dropped from the second edition, focused on corporate tax avoidance. Firms can legally avoid paying taxes by, for example, incorporating offshore (a P.O. Box in a non-descript building), rather than where either their HQ or major area of operations are located. The issue discussed whether this would be a liability for firms as consumers reacted to firms’ unwillingness to contribute a ‘fair’ proportion of profits to the tax base.

The issue is real, as indicated by this recent article in the NYT (http://www.nytimes.com/2011/02/02/business/economy/02leonhardt.html) that highlights the gap between the official U.S. corporate tax of 35% and the amounts firms actually pay:

Over the last five years, on the other hand, Boeing paid a total tax rate of just 4.5 percent, according to Capital IQ. Southwest Airlines paid 6.3 percent. And the list goes on: Yahoo paid 7 percent; Prudential Financial, 7.6 percent; General Electric, 14.3 percent.

One of the reasons why this issue was dropped from the second edition is that the extent to which consumers care sufficiently about this issue to change their behavior is unclear. This may now be changing.

The issue was revived in the UK at the end of last year by the UK charity, Christian Aid (see also: http://www.ukuncut.org.uk/). The NGO launched a campaign targeting firms that were legally (but unfairly, the charity argued) avoiding paying sufficient corporate taxes in the UK. The articles in the three urls below discuss the campaign, as well as the implications for firms:

One lesson for companies is clear: tax is becoming an important source of reputational risk. … over the past decade campaigners have begun to focus on it with the same zeal as they apply to more immediately emotional issues such as the environment or child labour.

The frustration of people who see corporations earning large amounts of money, but not paying any taxes, is understandable:

It is not just that they believe companies are evading their responsibilities at a time when taxpayers face the slashing of their services. It is that it all seems so contrived. Ordinary people cannot work in Pittsburgh and pay (or not pay) tax in Bermuda, or live in Birmingham and enjoy Geneva's tax rates. Why should companies be able to do so?

In response, the articles pose thoughtful and subtle questions about exactly how much firms should be expected to pay. The answer is not as easy as it might initially appear:

In most developed societies, companies have the right – as do individuals – to arrange their affairs in such a manner as to minimise the amount of tax they pay. It is legal, even honourable. After all, a company that goes bankrupt because it paid more in tax than it needed to would be neither responsible nor competent. The maxim only holds true, however, so long as the degree to which you can minimise that liability passes some kind of intuition test about fairness. A big, prosperous corporation that makes large profits in a country and pays absolutely no tax there – well, that’s clearly not on. But then you have to ask the question – what is the socially responsible right amount of tax to pay?

Ultimately, while it is pertinent to ask “What is a fair level of tax for companies to pay?” it is also worth remembering that the emotions surrounding the tax debate (especially when firms are abiding by the law) should not overshadow the total social value firms generate:

Which do we think is going to solve poverty, companies giving governments more cash, or companies being able to thrive and create jobs? If there is an optimal balance, where is it? Is it the same in all parts of the world?

Take care
David


Instructor Teaching Site: http://www.sagepub.com/strategiccsr/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/


Corporate disclosure: The tax blame game
It’s too easy to demonise big companies that take steps to minimise their tax liabilities
By Mallen Baker
December 3, 2010
Ethical Corporation Magazine

Tax claims hit at reputation as well as the coffers
By Vanessa Houlder
1338 words
9 November 2010
Financial Times
USA Ed1
12

Companies face the people's fury over taxes
By Michael Skapinker
816 words
14 December 2010
Financial Times
Asia Ed1
11

Monday, April 11, 2011

Strategic CSR - Food

The article in the url below presents: ‘A Food Manifesto for the Future.’

The author lists a number of straightforward, common sense reform ideas that would begin to transform the food industry in the U.S. into one that focused on the health and well-being of its citizens, rather than the profits and market-share of the agri-business giants.

Anyone doubting there is a long way to go before this happens should have a look at the documentaries Food, Inc (http://www.foodincmovie.com/) and SuperSize Me (http://www.imdb.com/title/tt0390521/), or read the article in the url below. Some highlights of the proposed reforms:

End government subsidies to processed food. We grow more corn for livestock and cars than for humans, and it's subsidized by more than $3 billion annually; most of it is processed beyond recognition. … Total agricultural subsidies in 2009 were around $16 billion.

Break up the U.S. Department of Agriculture and empower the Food and Drug Administration. … Food-related deaths are far more common than those resulting from terrorism, yet the F.D.A.'s budget is about one-fifteenth that of Homeland Security.

Mandate truth in labeling. Nearly everything labeled ''healthy'' or ''natural'' is not. It's probably too much to ask that ''vitamin water'' be called ''sugar water with vitamins,'' but that's precisely what real truth in labeling would mean.

In short:

“… food and everything surrounding it is a crucial matter of personal and public health, of national and global security. At stake is not only the health of humans but that of the earth.

Take care
David


Instructor Teaching Site: http://www.sagepub.com/strategiccsr/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/


A Food Manifesto for the Future
By MARK BITTMAN
860 words
2 February 2011
The New York Times
Late Edition - Final
23

Friday, April 8, 2011

Strategic CSR - Recyclemania

I noticed a flyer for this organization posted on campus the other day:


The website promotes a competition designed to encourage recycling by universities:

RecycleMania is a friendly competition and benchmarking tool for college and university recycling programs to promote waste reduction activities to their campus communities. Over a 10-week period, schools report recycling and trash data which are then ranked according to who collects the largest amount of recyclables per capita, the largest amount of total recyclables, the least amount of trash per capita, or have the highest recycling rate. With each week’s reports and rankings, participating schools watch how their results fluctuate against other schools and use this to rally their campus communities to reduce and recycle more.

I had not heard of it before, but the website says the first Recyclemania competition was in 2001. In 2009, the site reports that 510 schools participated in the competition, with a huge increase in recorded recycling over that period:

http://www.recyclemaniacs.org/images/graph_2008.jpg

Have a good weekend
David


Instructor Teaching Site: http://www.sagepub.com/strategiccsr/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/

Wednesday, April 6, 2011

Strategic CSR - Philanthropy

The title of the article in the url below speaks to the relative unimportance of philanthropy within the broad, over-arching framework of strategic CSR:

“‘Giving back to the community’ is the way business people often describe their philanthropy. It is an arresting phrase because it suggests that their careers have involved taking something away from the community.

The article quotes the CEO of the brewer SABMiller in response:

“… the biggest benefit a business brings to society is "the very act of running its business - paying suppliers, paying wages, paying taxes.

The difference between a firm with CSR fully integrated throughout (encompassing strategic decision making and all aspects of day-to-day operations) and a firm that ignores CSR is not whether its CEO “gives back to the community,” but the way the firm goes about “the very act of running its business.”

There is a more socially responsible way of “paying suppliers, paying wages, paying taxes” and there is a less socially responsible way of “paying suppliers, paying wages, paying taxes.” Those firms that seek to do the former and minimize instances of the latter are truly “giving back to the community.”

Take care
David


Instructor Teaching Site: http://www.sagepub.com/strategiccsr/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/


Why do business titans need to 'give back'?
By Michael Skapinker
782 words
30 November 2010
Financial Times
Asia Ed1
15
or