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Wednesday, September 19, 2012

Strategic CSR - Public companies

For the CSR project to be successful, iterative, mutually-respectful relations among the firm and its stakeholders are essential—stakeholders must be willing to hold firms to account and firms must be willing to respond to calls for behavior modification. Within this over-arching framework, one stakeholder relationship that is essential to get right is the relationship between firms and regulators. If there is imbalance, with regulations producing uncertain, oppressive, or inconsistent legal environments, firms will be encouraged to withdraw and an important source of oversight will be lost or weakened. The article in the url below suggests that this may be happening in leading developed economies:

The number of public companies has fallen dramatically over the past decade—by 38% in America since 1997 and 48% in Britain. The number of initial public offerings (IPOs) in America has declined from an average of 311 a year in 1980-2000 to 99 a year in 2001-11. Small companies, those with annual sales of less than $50m before their IPOs—have been hardest hit. In 1980-2000 an average of 165 small companies undertook IPOs in America each year. In 2001-09 that number fell to 30.

To the extent that firms and their stakeholders are disengaged, firms lack an important incentive to meet the needs and concerns of those stakeholders—in other words, to act socially responsible. These numbers suggest that the cost of going public for many firms today outweighs the benefits. And, with less oversight comes less transparency:

Public companies built the railroads of the 19th century. They filled the world with cars and televisions and computers. They brought transparency to business life and opportunities to small investors. Because public companies sell shares to the unsophisticated, policymakers are right to regulate them more tightly than other forms of corporate organisation. But not so tightly that entrepreneurs start to dread the prospect of a public listing. The public company has long been the locomotive of capitalism. Governments should not derail it.

As the article in the second url below indicates, society is worse off as a result:

Public companies produce annual reports, hold shareholder meetings and explain themselves to analysts. Private companies by comparison operate behind a veil of secrecy. The danger is that regulators are creating a corporate version of the dual labour market. By shining a spotlight on public companies, they are encouraging businesses to take refuge in the shade of the private sector.

Take care

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The library of CSR Newsletters are archived at:

The endangered public company: The rise and fall of a great invention and why it matters
May 19, 2012
The Economist

The big engine that couldn’t
May 19, 2012
The Economist