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


Friday, March 30, 2012

Strategic CSR - Executive pay

Over the new year break, I read two articles about upcoming initiatives that are designed to influence excessive CEO/Executive compensation. The first article reports on planned reforms by the SEC contained within the Dodd-Frank legislation that was passed by the U.S. Congress in 2010 (http://www.sec.gov/spotlight/dodd-frank/corporategovernance.shtml):

In 2012, the SEC will require the disclosure of the ratio of CEOs’ total compensation to the median total compensation for all other company employees. The question remains whether the inevitable embarrassment will be the driver to lead CEOs to say “enough” or for directors to modify compensation awards.
Quote taken from http://theweekinethics.wordpress.com/ (blog entry—January 6, 2012)

The second article reports on plans by the UK government to extend shareholder rights to a veto over executive compensation packages. While the shareholders of UK firms can already vote on executive compensation packages, the vote is currently not binding on management (Issues: Executive Compensation; Case-study: Stock Options, p174):

[The UK Prime Minister, David Cameron] called for the end of the ‘merry-go-round’, where highly-paid bosses sit on each other's boards and approve pay awards. ‘The market for top people isn't working, it needs to be sorted out,’ he told The Sunday Telegraph. ‘Let's empower the shareholders by having a straight, shareholder vote on top paid packages.’
Quote taken from http://sg.news.yahoo.com/british-pm-vows-crackdown-executive-pay-031049336.html

Both ideas seem to be good initiatives; neither will probably make much difference. Ultimately, there is no sense among senior executives and boards of directors that there is a serious problem regarding executive compensation. More importantly, it is not something that society as a whole seems motivated to change. While there is plenty of symbolism (see above) and the odd scapegoat dragged onto the front pages of the newspapers (e.g., http://www.huffingtonpost.com/2012/01/31/fred-goodwin-ex-rbs-ceo_n_1244495.html), nothing much appears to change (e.g., http://www.independent.co.uk/news/uk/politics/business-as-usual-osborne-fails-to-bring-bank-excess-to-account-2209932.html).

Wednesday, March 28, 2012

Strategic CSR - McDonald's

How would you classify the story in the article in the url below? The article reports McDonald’s recent announcement that it will continue its sponsorship of the Olympic Games through 2020:

… a deal estimated at about $100 million per four years, or for every pair (winter and summer) of Olympic Games.

Some see this story has the height of hypocrisy:

Many critics are galled by the notion that a restaurant known for flipping fatty burgers and greasy fries is joined at the hip with one of the foremost showcases of athleticism and fitness. Numerous protests are planned for the 2012 Games.

Others see this as a successful attempt to influence incrementally the largest, most successful global fast-food company. In other words, McDonald’s is successful and will continue to serve a lot of customers. As such, if the firm can be persuaded to make its food more healthy, then a great deal of social value is added. McDonald’s (on the surface, at least) gets this:

In a statement, McDonald's president and COO Don Thompson said, ‘In keeping with McDonald's ongoing commitment to children's well-being, we will continue to communicate with kids about the importance of balanced eating and active lifestyles through our partnership with the Games.’

For London in 2012, McDonald’s is facing criticism beyond the quality of its food:

McDonald's position as the exclusive ‘meal brand’ of the games has drawn much ire across Britain for putting an American face on the food [promoted at the Olympics]. Other chains must remove their labels and/or change packaging on food sold throughout several Olympic sites, according to The Guardian, meaning the country's mix of British, Indian and other ethnic fare will go mostly unnoticed.

As much as I would like to think the author is correct, I cannot agree with the conclusion they draw regarding the value of this sponsorship for the McDonald’s brand:

Branding is a slippery thing for a company. After all, it's hard to tell if there's a direct benefit from any advertising -- on TV, for an event, or in a magazine. But one thing is clear: It's all about the brand, and if McDonald's is bringing bad press upon itself with this sponsorship, it will be a double whammy for the company. Not only is it wasting ad dollars, it is tarnishing its reputation needlessly.

Clearly, the Olympics is a valuable branding event for any firm associated it with it (whether that association makes any logical sense, or not).

Take care
David


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


McDonald's takes heat for Olympics sponsorship
Not exactly a beacon of healthful living, the fast-food giant is criticized for linking its name to athletic contests.
By Kyle Woodley
InvestorPlace (MSN.Money)
January 13, 2012

Monday, March 26, 2012

Strategic CSR - Patagonia

The article in the url below reports Patagonia’s recent decision to re-structure itself as a Benefit Corporation (http://www.bcorporation.net/). It is the first company in California to do so:

The legal status affords a company’s directors legal cover to consider environmental and social benefits over financial returns.

In particular, Benefit (or B) Corporations are required to:

1) Have a corporate purpose to create a material positive impact on society and the environment.
2) Redefine fiduciary duty to require consideration of the interests of workers, community and the environment.
3) Publicly report annually on its overall social and environmental performance using a comprehensive, credible, independent, and transparent third party standard.

California is one of seven states that has passed legislation allowing B corporations (http://socentlaw.com/tag/ben-jerrys/, while similar legislation moves forward in a number of other states http://www.benefitcorp.net/state-by-state-legislative-status):

1.  Maryland        effective Oct. 1, 2010
2.  Vermont         effective July 1, 2011
3.  New Jersey    effective March 7, 2011
4.  Virginia           effective July 1, 2011
5.  Hawaii            effective July 8, 2011
6.  California        effective Jan. 1, 2012
7.  New York      effective Feb. 10, 2012

The B corporation certification is awarded by B Lab, a nonprofit organization that acts:

“… the same way TransFair certifies Fair Trade coffee or USGBC certifies LEED buildings.

To date, B Lab has awarded Benefit Corporation certificates to 517 firms, with $2.9 billion in revenues in 60 different industries and an ambitious mission:

B Corporations are a diverse community with one unifying goal: to redefine success in business.

Rather than the end of a process, therefore, Benefit Corporation status is the starting point for firms to operate at higher standards of transparency and accountability. In order to enable this, B Lab places specific reporting requirements on firms to ensure accurate information about operations is disseminated to stakeholders:

Through a company’s public B Impact Report, anyone can access performance data about the social and environmental practices that stand behind their products. … As a result, individuals will have greater economic opportunity, society will move closer to achieving a positive environmental footprint, more people will be employed in great places to work, and we will have built stronger communities at home and across the world.

The evolution of the B Corporation reminded me of the Ben & Jerry’s case that I teach in my strategy course (Ben & Jerry’s: Preserving Mission and Brand within Unilever, 9-306-037). In particular, it reminded me of the “Ben & Jerry’s law” that was passed by the Vermont legislature in the run-up to Unilever’s acquisition of the firm in 2000. The law allowed the Boards of Vermont firms to consider factors in addition to shareholder value when deciding whether to accept a takeover offer (http://www.businessweek.com/smallbiz/content/apr2010/sb20100421_414362.htm).

More background information on this case, and broader issues related to B Corporations, can be found at: http://socentlaw.com/tag/ben-jerrys/

Friday, March 16, 2012

Strategic CSR - MBAs

The article in the url below contains an interesting fact:

According to a new study of 36 million Facebook profiles, 3,337 company founders and CEOs across all industries hold an advanced degree in engineering, while 1,016 have advanced business degrees.

This means either one of two things: First, that the room for business schools to grow in terms of providing a higher business degree to executives with professional degrees is substantial; or, second, an MBA is not nearly as important as we think it is to running a successful business.

Have a good spring break and see you a week from Monday!
David

Wednesday, March 14, 2012

Strategic CSR - Values

The article in the url below talks in detail about the idea of a Common Purpose organization. In other words, companies:

“… where employees are happy, have high energy, great morale, and speak the same organizational language? Where people know not only what the organization’s values are, but use those values as their basis for making decisions?

More specifically, the article reviews a book by Joel Kurtzman (‘Common Purpose: How Great Leaders Get Organizations to Achieve the Extraordinary’):

The book is essentially a collection of leadership stories from Kurtzman’s interviews and research that illustrate how those in charge have developed or lost common purpose in their organizations, or whose styles precluded its possibility.

For example:

Kurtzman refers often to the success of 175-year-old FM Global, a commercial insurance company, and its current chairman and CEO Shivan Subramaniam in building a common-purpose company. The company is united around the purpose that most losses are preventable. One-third of employees are engineers and the other two-thirds are trained to think like engineers. Their focus is help clients identify and mitigate risks that would impact property, product or lives.

The idea of a values-based company is powerful. Having such common purpose serves two main goals—First, it makes work meaningful for employees who are are contributing in ways that match their own values; and second, it ensures effort is maximized as the chance of people working at cross-purposes is reduced.

Similar ideas were expressed in a recent article in The Economist (http://www.economist.com/node/21530171), noting how firms, such as Walmart, are trying to instill a values-led culture firm-wide:

AS WALMART grew into the world’s largest retailer, its staff were subjected to a long list of dos and don’ts covering every aspect of their work. Now the firm has decided that its rules-based culture is too inflexible to cope with the challenges of globalisation and technological change, and is trying to instill a “values-based” culture, in which employees can be trusted to do the right thing because they know what the firm stands for.

Monday, March 12, 2012

Strategic CSR - Gibson Guitar

The article in the first url below reports on the U.S. government’s raid on Gibson Guitar in August last year:

In August federal agents raided Gibson plants in Nashville and Memphis in search of evidence that the company had illegally imported ebony and rosewood from India, to be used for fingerboards. At the main Nashville plant, two dozen agents from the U.S. Fish and Wildlife Service and the Homeland Security Dept. rushed in with guns on their hips and zip-tie cuffs dangling from their chests.

The legal basis for the raid was the Lacey Act:

“… a 100-year-old conservation law that regulated the trade of game and wild birds before being amended in 2008 to include wood and plant products. Under the revised law, importers need to ensure that they and everyone along their supply chain comply with domestic and foreign laws regarding timber. In this case, Gibson had run afoul of India’s laws prohibiting the export of any unfinished wood products; the shipment included 1,250 slabs of rough-cut timber.

More specifically, the article highlights the issue of how responsible a firm should be for its extended supply chain:

Importers of timber were now required to name every species of wood they used and were held accountable for the lawfulness of every logger, middleman, and wood manufacturer along the supply chain. … The Lacey Act is credited with bringing greater transparency to the timber trade and with helping to reduce the amount of illegal logging.

Like many laws, the Lacey Act contains good intentions, imperfect implementation, and unintended consequences. In Gibson’s case, however, the government acted decisively. As a result of the legislation, Gibson is being held responsible for the actions of its many suppliers in Madagascar, India, and the other countries from which the firm imports the rare hardwoods it uses to make its guitars.

My question: How reasonable is this? Is it the U.S. government’s role to impose its values in policing firms in India and Madagascar, or is that the responsibility of the governments of those countries? More generally, how reasonable is it to expect Gibson to monitor all aspects of operations of independent companies in foreign countries? What if Gibson is deceived by those firms? And, does it matter whether consumers care about these issues?

Lots of questions and not many answers from what has been publicly disclosed about the case to date. There are some indications, however, that perhaps Gibson’s claim of ignorance is not as plausible or defensible as first appeared:

Malagasy rosewood and ebony are considered the Beluga caviar of tone woods, and the hope was that guitar makers would motivate growers and loggers there to operate legitimately. … Every company but Gibson, however, decided not to do business in Madagascar, finding the trade too risky. Gibson ended up importing ebony from a logger named Roger Thunam in northeast Madagascar who had recently been arrested for illegally trading in precious woods. … In 2009 a team from the Environmental Investigation Agency, an independent group committed to exposing environmental crime, posed as timber buyers in Madagascar and found illicit logging there rampant. Thunam was dealing in obviously illegal wood. … the criminal nature of the Malagasy timber trade was so openly discussed and widespread that it wasn’t even necessary to go undercover to observe it—there were hundreds of loggers cutting away in the national park, with a steady flotilla of tree-filled rafts and trucks emerging from the forest.

Friday, March 9, 2012

Strategic CSR - Luxury

Is the article in the url below an example of the over-regulation that leads to stifling, inefficient government, or is it an example of effective ‘nudge’ policies implemented by a government more focused on social responsibility than we give it credit?

Ever since 1992, the American showerhead has been legally constrained from delivering more than 2.5 gallons of water per minute, thanks to a federal law designed to conserve natural resources.

What rights do consumers have to purchase resource intensive products, even if we assume that the full costs associated with producing that product (i.e., including all externalities) are incorporated into its purchase price (a very big assumption)?

Then, in 2010, the Department of Energy revised its requirements to say that all sprays, nozzles and openings above an individual's head are considered to be one showerhead, and all of its combined openings were not permitted to exceed the 2.5-gallon-a-minute maximum.

On the other hand, what role should the government play in micro-managing our lives, given the blunt tools its uses to decide where to draw the lines, as well as the biased and corrupt process by which it does it (due to the role of money in determining which lines at which times)? As someone of European decent living in the U.S., I find myself torn between valuing a strong, benevolent government that can shape a progressive society in theory, but also recognizing the inefficiency and unintended outcomes associated with top-down directives in reality:

The 2010 revision affects luxury showerheads, such as the Raindance Imperial 600 AIR, which has a 24-inch spray face and once retailed for more than $5,000. The fixture, and others like it, can emit 12 gallons of water per minute, greatly exceeding regulations. To show that it meant business, the Department of Energy fined four showerhead manufacturers almost $200,000 for noncompliance in May 2010.

That being said, while there are many who feel that the environmental movement is unlikely to make headway with an argument focused on lowering living standards, it does not seem that limiting ourselves to only one showerhead per shower is exactly the ultimate sacrifice!

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/


Banned luxury items

Laws designed to protect endangered species, the environment or even consumers mean that some aspects of the high life are now out of reach.
By Daniel Bukszpan
CNBC.com

Wednesday, March 7, 2012

Strategic CSR - John Lewis

The article in the url below focuses on the arguments in favor and against employee-owned firms (Issues: Employee Relations, p168). In particular, it focuses on John Lewis, a well-known UK department store founded in 1928:

It is owned by its 76,500 workers—or, to be more precise, an independent trust holds all the shares and allots staff an annual bonus.

The article notes that, in spite of the many apparent advantages of this organizational structure, its long history (“Staff share-ownership schemes emerged in America in the 1920s”), and its favored status as “a more caring, cuddly capitalism,” it has not been widely adopted beyond a few firms. This is strange, given that there appear to be economic and competitive advantages to employee ownership:

Employee-owned companies are more productive and hardier in a recession, …. [At John Lewis] Staff turnover is low; the shop beat many competitors on Christmas sales. Firms with similar structures concur: Arup, an engineering outfit, attributes its business range and “family feel” to being owned by its 10,000 employees.

The article notes, however, that in spite of higher productivity and a more dispersed ownership, there is little evidence to suggest employee-owned firms are any more socially responsible than firms with other ownership structures:

It does not prevent bad decisions: having a quarter of shares in employees’ hands did not save Lehman Brothers from bankruptcy.

Perhaps more importantly, employee ownership poses real risks to employees. While their job security is often higher, financially, their heavy investments in their own firm can easily leave them exposed:

It is rash to put a worker’s livelihood, savings and pension in one basket case; many employees lost everything when Enron, an energy-trading company, collapsed in 2001.

Ultimately, the disadvantages of employee ownership may outweigh the advantages:

Companies that are wholly-owned by their staff may face barriers to growth. Many firms need a flexible capital base to expand—one reason the partnership model in banking declined. Employee mobility promotes innovation. At base, it is unrealistic to expect many bastions of capitalism to turn their shares over to their workforce.

For a good example of a U.S., employee-owned firm, see CH2M Hill: http://www.ch2m.com/corporate/about_us/employee_ownership/default.asp

For more information about employee stock ownership plans, this site is interesting: http://www.esop.org/

Monday, March 5, 2012

Strategic CSR - Shell

The articles in the two urls below detail the ongoing litigation against Shell that was argued last week before the U.S. Supreme Court. The case was brought by members of the Ogoni people, claiming Shell’s complicity with the Nigerian government for human rights abuses committed in Nigeria during the 1990s.

Legal standing in the case before The Court rests on the application of the Alien Tort Claims Act (1789) to the issue of whether a corporation can be sued for human rights abuses committed overseas (Chapter 1: What is CSR? p11):

The answer turns on the meaning of the Alien Tort Statute, a 1789 law that allows federal courts to hear ‘any civil action by an alien for a tort only, committed in violation of the law of nations or a treaty of the United States.’ The law was largely dormant until the 1980s, when federal courts started to apply it in international human rights cases.

The Justices, during oral arguments, did not seem very convinced:

‘This case was filed by 12 Nigerian plaintiffs who alleged that respondents aided and abetted the human rights violations committed against them by the Abacha dictatorship in Nigeria,’ Justice Alito said, quoting. Then he asked: ‘What business does a case like that have in the courts of the United States? There’s no connection to the United States whatsoever.’

What I find striking about the case, however, is that The Supreme Court decided in 2004 that, under this legislation, individuals in certain situations can be held liable for their role in human rights abuses committed overseas (see Nina Totenberg’s report on this case at: http://www.npr.org/2012/02/28/147507940/human-rights-victims-seek-remedy-at-high-court):

A 2004 Supreme Court decision, Sosa v. Álvarez-Machain, left the door open to some claims under the law, as long as they involved violations of international norms with ‘definite content and acceptance among civilized nations.’

Irrespective of your position on Shell’s relationship with the Nigerian government, the last time I checked-in with The Supreme Court, the Justices considered corporations to be legal individuals. So, why is the application of a law to corporations that has been decided applies to individuals even an issue before The Court?

Could it be that corporations are individuals when it comes to the rights that status conveys (e.g., free speech), but not when it comes to the responsibilities?

Take care
David


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


Court Debates Rights Case Aimed at Corporations
By Adam Liptak
The New York Times
Late Edition – Final
A19

Bringing ‘Alien Torts’ to America
By David B. Rivkin Jr. and Lee A. Casey
The Wall Street Journal
Late Edition – Final
A15

Friday, March 2, 2012

Strategic CSR - HP

The article in the url below contains some good news for corporate governance activists (Issues: Shareholder Activism, p180):

In a major victory for activists, Hewlett-Packard Co. agreed to a step that could give investors more power to oust its board members. The Palo Alto, Calif., technology giant will give its stockholders the chance to approve so-called proxy access through a bylaw vote at its 2013 annual meeting. If the measure passes, investors who own at least 3% of H-P shares for at least three years would be allowed to nominate up to 20% of the company's directors, the company said. The vote would be binding, meaning H-P would be bound by the results.

Or, at least, the news is a qualified good:

The 3% ownership bar is a high one, however, as only four H-P shareholders own that much of the technology company, according to filings.