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, October 31, 2014

Strategic CSR - Gulf of Mexico

The article in the url below reports that the dead zone, the area of the Gulf of Mexico that cannot sustain aquatic life, is now the size of Connecticut:
 
"The Gulf of Mexico's annual spring-summer 'dead zone' is the size of Connecticut -- slightly smaller now than in recent years but nowhere near the trim scientists had sought, researchers said this week."
 
The dead zone is formed by chemical run-off from agricultural pollutants (fertilizer, etc.) that finds its way into the Mississippi River and flows down into the Gulf of Mexico:
 
"The zone is formed by nutrients that wash into the Gulf's waters -- largely agriculture fertilizer and wastewater coming down the Mississippi River. These boost algae blooms that suck up the oxygen in deep water, according to NOAA and the U.S. Geological Survey. Marine life struggles to find enough oxygen to survive within the zone."
 
The map included in the article illustrates how big this problem has become:
 
 
What I find ironic is that this dead zone never generates any public interest (let alone outrage). I put this down to the fact that we cannot see the damage being done (together, of course, with the influence of the agricultural industry's lobby in Washington). In contrast, the oil spill caused by the Deepwater Horizon explosion caused great public anger. This was justified, but the dead zone is a bigger problem that, unlike Deepwater Horizon, is not getting any better.
 
Happy Halloween.
David
 
David Chandler & Bill Werther
 
Instructor Teaching and Student Study Site: http://www.sagepub.com/chandler3e/
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/
 
 
Gulf of Mexico 'dead zone' is the size of Connecticut
By Melodi Smith and Jason Hanna
August 7, 2014
CNN Tech
 

Wednesday, October 29, 2014

Strategic CSR - Samsung

The article in the url below reports Samsung's discovery of child labor violations in its supply chain and its decision to suspend one of its suppliers as a result:
 
"Samsung Electronics said on Monday that it had temporarily suspended business with a factory in southern China after allegations last week that it had illegally hired under-age workers to produce cellphone components. … In a news release, Samsung said that the authorities in China were investigating the case, and that if the under-age workers had been hired illegally, the factory could be permanently barred from working with Samsung."
 
The Risk & Compliance Journal (a daily Newsletter published by the Wall Street Journal) commented on this story, arguing that this will likely encourage other firms to investigate their supply chains and root out similar transgressions, if they exist:
 
"Samsung Electronics Co.'s admission it has child labor within its supplier network and the U.S. State Department's recent demotions of Thailand, Malaysia and Venezuela to lowest-tier status for child and forced labor problems are serving as a wake-up call to multinational companies about cleaning up their own supply chains. Failing to weed out problems in their systems could lead to their bad behavior becoming front-page news, says the head of one organization fighting to eliminate child labor. 'The hide-your-head-in-the-sand days are over,' said Diane Mull, executive director of the International Initiative on Exploitative Child Labor."
 
Two things interest me about this case: First, is that Samsung apparently knew nothing about these violations, in spite of having widely-lauded audit procedures and auditing this specific factory three times in the past year (the last time less than a month ago):
 
"The allegations were embarrassing because on June 30, Samsung released its annual global sustainability report, which noted for the second year in a row that its audits had not turned up any under-age workers in more than 130 supplier factories audited in China. The company also said that it had strict compliance procedures in place, including facial recognition software at its facilities and instructions that Samsung suppliers refrain from hiring workers younger than 18."
 
Second, I agree that events such as this constitute "a wake-up call to multinational companies about cleaning up their own supply chains," but not in the way that the WSJ sees it. I think it is just as likely that companies will learn the opposite lesson from this – that if they keep quiet the chances are they will slide under the radar, but if they "weed out these problems" they will be pilloried in the press (rather than being lauded for having investigated and identified transgressions). Given the poor record of unearthing problems like this, companies continue to be incentivized to know as little as possible about what is going on in their supply chain. At least then they can claim ignorance, rather than companies that self-report a problem, only to be accused subsequently of covering things up. In short, firms are currently discouraged from seeking complete and voluntary transparency (think BP after the Deep Horizon oil spill). There are as many people waiting to take advantage of corporate willingness to admit wrongdoing as there are people willing to encourage such behavior in the first place.
 
Ultimately, whether or not there is a social sanction will determine whether such behavior is deterred. I wonder how many people chose not to purchase a Samsung phone as a result of this news story? I am guessing, not many.
 
Take care
David
 
David Chandler & Bill Werther
 
Instructor Teaching and Student Study Site: http://www.sagepub.com/chandler3e/
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/
 
 
Samsung Suspends China Supplier Over Child Labor Case
By David Barboza
July 15, 2014
The New York Times
Late Edition – Final
B7
 

Monday, October 27, 2014

Strategic CSR - Australia

The article in the url below contains a bad headline:
 
"Australia Becomes First Developed Nation to Repeal Carbon Tax."
 
This matters because Australia was "one of the first major countries outside Europe to adopt a carbon price." More importantly, however, it matters because Australia is one of the highest carbon polluting countries, per capita, in the world:
 
"Australia, the world's 12th largest economy, is one of the world's largest per capita greenhouse gas emitters due to its reliance on coal-burning power stations to power homes and industry. In 2011, daily emissions per head amounted to 49.3 kilograms (108 pounds), almost four times higher than the global average of 12.8 kilograms, and slightly ahead of the U.S. figure of 48.2 kilograms."
 
The graphic accompanying the article shows Australia's carbon emissions relative to the rest of the G20—Australia is second only to Saudi Arabia:
 
 
What is also striking is that this decision by Australia runs counter to the global trend which, although achingly inertial, is at least moving in the right direction:
 
"The World Bank in May produced a State and Trends of Carbon Pricing report counting carbon pricing programs in 40 nations and 20 regions worth a collective US$30 billion, while also singling out repeal plans in Australia as one of the biggest international threats to the rollout of similar programs elsewhere, given its example."
 
Australia is not the only carbon bad news story, unfortunately. Both Japan and Canada, for essentially similar local, short-term political considerations, have also taken significant steps away from recent public commitments to lower their emissions:
 
"Japan last year retreated on pledges to cut greenhouse emissions, blaming the shutdown of its nuclear plants in the wake of the 2011 Fukushima nuclear disaster for a decision to release 3% more greenhouse emissions by 2020 instead of a 25% cut on 1990 levels previously promised. … Canada withdrew from the Kyoto protocol in 2011, with the conservative government saying the agreement would unfairly penalize its fossil fuel-reliant economy for failing to meet a promised 6% cut."
 
In short, what was already a slow, incremental process worldwide has just became slower and further away from where we need to be.
 
Take care
David
 
David Chandler & Bill Werther
 
Instructor Teaching and Student Study Site: http://www.sagepub.com/chandler3e/
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/


Australia Becomes First Developed Nation to Repeal Carbon Tax
By Rob Taylor & Rhiannon Hoyle
July 17, 2014
The Wall Street Journal
Late Edition – Final
 

Friday, October 24, 2014

Strategic CSR - Waste

The article in the url below contains some interesting statistics regarding the extent of waste throughout the global food system:
 
"Our mission, should we choose to accept it, is first to find 175-220m hectares of additional cropland by 2030; second, to increase total food production by about 70% by 2050, mostly through improving crop yields; and third, to achieve all this without damaging the land, poisoning ourselves or impairing the health of our finite and already fragile ecosystems."
 
"This challenge is hard enough, but we also have to tackle the problem of 1.3bn tonnes of food wasted every year – roughly a third of all food produced for human consumption."
 
"According to the FAO, the total value of lost food is $4bn per year in Africa and $4.5bn a year in India, with up to 50% of fruit and vegetables ending up as waste. In developing countries including China and Vietnam, most food is lost through poor handling, storage and spoilage in distribution. It is estimated that 45% of rice in China and 80% in Vietnam never make it to market for these reasons."
 
The article proposes a variety of technological innovations (such as food packaging, refrigeration, transportation, and the treatment of animal by-products) as containing the potential solutions to these and other related problems. Reading the article, however, it sounds like a bit of common sense wouldn't go amiss either.
 
Have a good weekend.
David
 
David Chandler & Bill Werther
 
Instructor Teaching and Student Study Site: http://www.sagepub.com/chandler3e/
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/
 
 
Tackling the food waste challenge with technology
By Wayne Visser
July 29, 2014
The Guardian
 

Wednesday, October 22, 2014

Strategic CSR - Impact investing

The article in the url below outlines a productive use for the money that U.S. corporations currently have parked offshore. And, there is a lot of it. The money is offshore because the companies want to avoid paying U.S. corporation taxes on it. As such, they are waiting for the U.S. government to grant them a tax holiday to re-patriate the funds. Although this would make some sense (the U.S. government could generate some income and the U.S. economy would benefit greatly), the article suggests these companies should not hold their collective breath:
 
"… bringing home more than $2tn in profit would cost billions in corporate taxes. So companies wait, find ways to park their funds overseas and hope for an unlikely tax holiday as their 'problem' grows. Just last year, these idle overseas amounts grew 11.8%."
 
In the meantime, the article's authors have come up with an interesting use for that money that revolves around solving one of the most pressing poverty-related problems facing a sizeable chunk of the world's population (many of whom are in India and Africa)—easy access to electricity:
 
"Most Americans take turning lights on for granted. But one in five people in the world still can't plug anything in. The World Bank estimates 1.2 billion people lack electricity all together – resulting in millions of premature deaths yearly – and many more have undependable or unaffordable electricity service."
 
The authors estimate that the amount needed to solve this problem is $50bn:
 
"… solar photovoltaic cells, batteries and LED lights have grown so cheap and durable that an 'off-grid' household – spending less than it would dole out on kerosene over two years – can harvest enough electricity to power lights and charge a cellphone for decades. In Africa, for example, companies such as Azuri Technologies and M-KOPA Solar already sell 'pay-as-you-go' electrification systems for as little as $1.50 per month. At $200 each for these systems, a total of $50bn in loans – over several years – would be enough to finance the electricity to light up the world's dark homes."
 
How feasible is this? Well, the $2 trillion in corporate assets parked offshore is more than 200 times the $50bn needed to solve the problem. In fact:
 
"Some companies have enough in overseas billions – take Apple's $138bn, GE's $110bn, Microsoft's $93bn, IBM's $52bn, Cisco's $48bn and Google's $48bn ­– that just one of them could take on the whole job singlehandedly. Another lender could jump in to finance bigger systems for households or villages, or to fund renewable replacements for the sooty biomass that 2.5 billion people now use for heating and cooking (resulting in approximately 1.5 million deaths from fumes and smoke annually)."
 
Importantly, this money would be invested (rather than donated) and the transaction could be structured as:
 
"… a giant working capital fund. … Investments would be loans, and investments in promising commercial ventures, not philanthropy, and a successful program could set margins to yield competitive returns."
 
Moreover:
 
"Unlike microfinance for individuals, working capital funds would go to companies – experienced manufacturers and vendors – that would supply the systems. With this funding, these companies could grow manufacturing, education and marketing efforts, sales and collections."
 
Of course, such an investment would have multiplier economic benefits—grow companies and industries, provide jobs and local taxation, etc., etc. It is a simple idea that would have wide-ranging positive consequences for everyone. Or, as the authors put it:
 
"All this adds up to an enormous opportunity for US multinationals to make history with bold game-changing investments that will bring a billion people into the global economy – and to profit in the process. … Which company will step up to put its cash to good use, take a big bite out of fossil fuels and light up the world?"
 
Take care
David
 
David Chandler & Bill Werther
 
Instructor Teaching and Student Study Site: http://www.sagepub.com/chandler3e/
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/


How a single multinational corporation could light up the world
By Daniel M. Kammen and Felix Kramer
September 24, 2014
The Guardian Sustainable Business
 

Friday, October 17, 2014

Strategic CSR - Copyright

The article in the url below raises a fascinating question around the issue of copyright in the digital age – Who owns the copyright of a photo when it is taken by a monkey?
 
 
The photo above was taken in 2011 by a group of monkeys with a camera that belonged to a British photographer:
 
"The remarkably photogenic monkey won fans by capturing her own smiling image … after a group of macaques in Indonesia appropriated British wildlife photographer David Slater's equipment. The resulting image went viral — and sparked an argument between Slater, who says he owns the photo, and others who say he doesn't."

As such, this selfie raises some important questions of privacy and ownership in the internet age that the U.S. Copyright Office was asked to solve. The Office solved the problem in a round-a-bout way when it recently released an updated version of its exciting-sounding publication—the Compendium of U.S. Copyright Office Practices:
 
"Chapter 300 of the compendium's 1,222 pages … notes that 'copyright law only protects 'the fruits of intellectual labor' that 'are founded in the creative powers of the mind.''"
 
The Chapter then lists a series of examples that are not subject to copyright law:
 
• A photograph taken by a monkey.
• A mural painted by an elephant.
• A claim based on the appearance of actual animal skin.
• A claim based on driftwood that has been shaped and smoothed by the ocean.
• A claim based on cut marks, defects, and other qualities found in natural stone
• An application for a song naming the Holy Spirit as the author of the work.
 
Helpfully, in relation to the creative powers of the Holy Spirit, the U.S. Copyright Office declares that:
 
"… it's OK to claim divine inspiration for a work — you just can't claim the divinity did all the work."
 
Have a good weekend.
David
 
David Chandler & Bill Werther
 
Instructor Teaching and Student Study Site: http://www.sagepub.com/chandler3e/
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/
 
 
Who Owns a Monkey's Selfie? No-one Can, U.S. Says
By Bill Chappell
August 22, 2014
National Public Radio
 

Tuesday, October 14, 2014

Strategic CSR - What is CSR?

The article in the url below from the Financial Times demonstrates much of what remains troubling about the CSR debate:
 
"US and UK companies in the Fortune Global 500 spend $15.2bn a year on corporate social responsibility (CSR) activities, according to the first report to quantify this spending."
 
Given the descriptions provided, the only way the authors of the report could determine what spending constitutes "CSR spending" was to add up all of the figures voluntarily declared by each firm. This is problematic because the authors are forced to rely on how corporations currently think about "CSR" and, as a result, quickly fell back on a definition that equates CSR to philanthropy:
 
"In-kind donations, such as donating free drugs to health programmes or giving free software to universities, accounted for 71 per cent of the $11.95bn US spending on CSR. … In the UK, while donating goods and services in kind was the largest component of the $3.25bn CSR activity, it totalled just 46 per cent of the total. Employee volunteering and fundraising made up 34 per cent and cash contributions 20 per cent."
 
What is increasingly clear to me, however, is that all activity by the firm constitutes CSR. That is, if we define CSR as the value added by the firm. In other words, while it can be helpful to think of economic value and social value as separate constructs; in reality, they are not independent. On the contrary, they are highly correlated and are infused in the firm's decisions regarding production (e.g., Do we pollute the local river, or not? Do we hire at the minimum wage or a living wage?) and the consumer's decisions regarding consumption (e.g., Do I buy from the firm that produces domestically or the one that outsources? Do I pay the premium associated with a more environmentally-friendly product or purchase the cheaper, disposable product?). All of these production and consumption decisions contain value-laden consequences that, ultimately, determine the economic success of the firm (and the value it adds to society).
 
In contrast, most of the published research/commentary on CSR that I see still treats economic problems and social problems as separate entities (see Michael Porter's Shared Value idea as one of the more egregious examples). Again, a simple thought experiment highlights the overly-simplistic nature of this forced dichotomy. Is feeding people a social problem or an economic problem? Of course, there are hundreds of for-profit food manufacturers (not to mention the hundreds of thousands of restaurants) that produce food and distribute it widely (and efficiently) to whole populations of people. What about clothing people—a social problem or an economic problem? A visit to the mall will quickly reveal how efficiently for-profit firms have essentially eradicated the supply of clothes as a challenge for all but the most deprived societies. Or, what about providing internet access to every household in the country—economic or social? Certainly, you could make an argument that, today, a family is essentially excluded from many aspects of society if it cannot get online; yet, internet provision in most developed economies is the sole responsibility of the private sector (as it is for the food and apparel industries).
 
While the FT does some good work by promoting CSR more than most media outlets, this story demonstrates they still have a way to go to fully understanding the parameters of this important topic and, as a result, what its consequences are for business today.
 
Take care
David
 
David Chandler & Bill Werther
 
Instructor Teaching and Student Study Site: http://www.sagepub.com/chandler3e/
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/
 
 
Fortune 500 companies spend more than $15bn on corporate responsibility
By Alison Smith
October 12, 2014
Financial Times
 

Monday, October 13, 2014

Strategic CSR - The future

The article in the url below is a review of three books on climate change that struggle (to different conclusions) with the effects of this planet-wide phenomenon on our future prospects. The first book, for example, demonstrates the amazing capacity of life to adapt to wildly changing circumstances:
 
"Cliff swallows in the Great Plains are evolving to have shorter wings. This helps them to swerve more easily away from speeding cars on the interstate. … Stockholm's Central Station uses the body heat of railway travelers to warm a nearby office building. … A new water bottle, inspired by the anatomy of a beetle in the Namibian desert, condenses air moisture and refills itself."
 
The result of this perspective is it allows the author to conclude that we will be able to adapt to our changing environment, however bad things get:
 
"… there is nothing 'natural' about Earth in 2014. For more than three millenniums, human civilization has reorganized nature to suit its tastes. … It is telling that Ms. Ackerman's central image, of a young orangutan at the Toronto Zoo playing on an iPad, is seen as cute, rather than a perversion of nature. She describes the rapid rise in global temperatures as merely a 'low-grade fever' that 'won't be tragic everywhere and for every species.'"
 
In contrast to the first book's optimistic view about the future based on scientific innovation, the second book paints a different picture:
 
"It is also possible that by the end of the century, the populations of Africa and Australia will be wiped out, New York and most other coastal cities will be accessible only to scuba divers, 70 percent of all species will go extinct, a second Black Death will kill off half of Europe, 1.5 billion people will be displaced around the world, and, as soon as 2050, the United States government will declare martial law to prevent food riots. … Why has our civilization been unable to take the most basic steps to prevent a future that could include mass starvation, displacement and pestilence?"
 
This question is answered by the third book:
 
"'We have not done the things that are necessary to lower emissions because those things fundamentally conflict with deregulated capitalism, the reigning ideology for the entire period we have been struggling to find a way out of this crisis.' Or, more succinctly: 'Our economic system and our planetary system are at war.' Something's got to give, and nature, as we've learned, is not in a giving mood."
 
The possible consequences of continued inaction?
 
"By 2023, [the author of the third book] writes, we'll be lucky to restrict the ultimate rise in global temperatures to an average of four degrees Celsius, or seven Fahrenheit. Four degrees' warming, as it turns out, is the premise for the nightmarish future described by [the second book]."
 
Take care
David
 
David Chandler & Bill Werther
 
Instructor Teaching and Student Study Site: http://www.sagepub.com/chandler3e/
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/


Three Divergent Visions of Our Future Under Climate Change
By Nathaniel Rich
September 23, 2014
The New York Times
Late Edition – Final
D5
 

Friday, October 10, 2014

Strategic CSR - Lego

The article in the url below demonstrates the potential of stakeholder action:
 
"A 1-minute, 45-second video has ended a long-term relationship between Lego and Royal Dutch Shell. The Danish toymaker said today that it will not renew a co-promotion deal with Shell, after a Greenpeace video linking Lego with the oil company's Arctic drilling program went viral."
 
Whether or not you think Greenpeace's campaign to get Lego to break with Shell is valid, I think, is beside the point (or, at least, beside the point that I would like to make with today's Newsletter). More important is that Greenpeace was willing to act to shape the business behavior it wants to see. And, they used a particularly creative and effective tool in which to advance their goal:
 
 
Given that Lego was the target, using Lego bricks to make the video was particularly effective. Again, irrespective of whether you think their campaign was legitimate, I would like to see a world in which all stakeholders worked as diligently to effect the behavior by firms that we say we all want.
 
Have a good weekend.
David
 
David Chandler & Bill Werther
 
Instructor Teaching and Student Study Site: http://www.sagepub.com/chandler3e/
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/
 
 
Greenpeace's Arctic Drilling Video Sinks Lego's Deal With Shell
By Carol Matlack
October 9, 2014
Bloomberg Businessweek
 

Wednesday, October 8, 2014

Strategic CSR - Supply chain

What happens when pressures for higher operational standards in the West are resisted further down the supply chain?
 
"Eight times now, the European-dominated Accord on Fire and Building Safety in Bangladesh — a group of more than 150 retailers and brands — has forced the temporary closing of garment factories after its inspectors found dangerous conditions. But from the time the inspections began, tensions have been growing between the Accord and the Bangladeshi apparel industry, … And this time, as on several previous occasions, the Bangladeshi government has aligned with a garment manufacturer opposed to having its factory closed, even temporarily."
 
In the West, the collapse of the Rana Plaza building, which caused the deaths of 1,129 workers in April 2013, brought pressure to bear on large brands to improve conditions or close factories. In Bangladesh, however, worker safety cannot be separated from the economic development benefits these factories bring and, in some cases, may supersede it—both for the factory owners and for the workers that the Western brands are trying to protect:
 
"… factory closings can have immediate economic impact. Some factory owners worry about losing large and profitable orders to other companies and countries, and garment workers themselves fear losing their jobs. In one of the first closings after an Accord inspection, workers took to the streets in a raucous demonstration, protesting that their wages might not be paid."
 
What is the responsibility of firms once the possibility of an impending disaster has been identified?
 
"… in numerous cases where hazardous conditions were uncovered, the groups have confronted considerable resistance to closing a factory building altogether, and to the notion that a building should be closed as soon as possible."
 
Should they move to protect themselves by dropping suppliers that resist and moving to countries with better safety standards (causing unemployment and greater poverty in Bangladesh), or should they risk damage to their brands by staying in Bangladesh and working to improve conditions while the factories remain open? And whose responsibility is it to pay for the higher standards the Western firms are suddenly demanding?
 
"The remediation process, garment industry experts say, could lead to clashes between the Bangladeshi factory owners and the Western brands about who should pay for needed safety improvements — especially because many factory owners are expected to say they cannot afford to make the repairs."
 
Take care
David
 
David Chandler & Bill Werther
 
Instructor Teaching and Student Study Site: http://www.sagepub.com/chandler3e/
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/
 
 
Stalemate Over Safety in Bangladesh
By Steven Greenhouse and Julfikar Ali Manik
June 26, 2014
The New York Times
Late Edition – Final
B1
 

Monday, October 6, 2014

Strategic CSR - Employees

The article in the url below raises an interesting question – Can companies insure one of their most valuable assets, their employees?
 
"Employees at The Orange County Register received an unsettling email from corporate headquarters this year. The owner of the newspaper, Freedom Communications, was writing to request workers' consent to take out life insurance policies on them."
 
The twist is that, essentially, the company planned to take out individual life insurance policies on each of its employees, which means it would be paid in the event of the employee's death. In short:
 
"… the beneficiary of each policy would not be the survivors or estate of the insured employee, but the Freedom Communications pension plan. Reporters and editors resisted, uncomfortable with the notion that the company might profit from their deaths."
 
This is a question that is facing increasing numbers of firms:
 
"Because so-called company-owned life insurance offers employers generous tax breaks, the market is enormous; hundreds of corporations have taken out policies on thousands of employees. … Aon Hewitt estimates that … about one-third of the 1,000 largest companies in the country have such policies. Industry analysts estimate that as much as 20 percent of all new life insurance is taken out by companies on their employees."
 
It is also a problem that sounds much worse, depending on how you frame it. For example, I am not sure it is fair to claim that "the company might profit from their [employees'] deaths." It seems just as accurate to say they will be compensated for the loss of an important asset, but will still need to invest and retrain in order to replace that asset. I do not think these policies are set-up to incentivize firms to go around trying to encourage the death of their employees. Nevertheless, any attempt to put a value on a human life (something actuaries at insurance companies do every day) is liable to sensationalization in today's media:
 
"But critics say it is immoral for companies to profit from the death of employees, while employees themselves do not directly benefit. And despite a law enacted in 2006 that sought to curb the practice — companies now are restricted to insuring only the highest-paid 35 percent of employees, who must give their consent — it remains a growing, opaque and legal source of corporate profit."
 
What is more enticing (from the media's perspective) is that "Banks are especially fond of the practice":
 
"JPMorgan Chase and Wells Fargo hold billions of dollars of life insurance on their books, and count it as a measure of their ability to withstand financial shocks. … Bank of America's policies have a cash surrender value of at least $17.6 billion. If Wells Fargo had to redeem its policies tomorrow, it would reap at least $12.7 billion. JPMorgan Chase would collect at least $5 billion, according to filings with the Federal Financial Institutions Examination Council."
 
Where the issues become a little more ethically complex is that the payments firms receive are tax-free and are being relied upon to fund employee pension plans:
 
"Companies and banks say earnings from the insurance policies are used to cover long-term health care, deferred compensation and pension obligations. … And because such life insurance policies receive generous tax breaks — investment returns on the policies are tax-free, as are the death benefits eventually received — they are ideal investment vehicles for companies looking to set aside money to pay for pension plans. Companies argue that if they had to finance such obligations with investments taxed at a normal rate, they would incur losses and would not be able to offer the benefits to employees."
 
Take care
David
 
David Chandler & Bill Werther
 
Instructor Teaching and Student Study Site: http://www.sagepub.com/chandler3e/
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/


An Employee Dies, and the Company Collects the Insurance
By David Gelles
June 23, 2014
The New York Times
Late Edition – Final
B1
 

Friday, October 3, 2014

Strategic CSR - CEO pay

The article in the url below provides evidence that challenges the idea that CEO compensation is tied to the performance of the firm:
 
"An analysis of compensation data publicly released by Equilar shows little correlation between CEO pay and company performance. Equilar ranked the salaries of 200 highly paid CEOs. When compared to metrics such as revenue, profitability, and stock return, the scattering of data looks pretty random, as though performance doesn't matter. The comparison makes it look as if there is zero relationship between pay and performance."
 
The graphic featured in the article demonstrates the absence of any correlation between pay and performance:
 
"Check the comparison of the ranking of the 200 CEOs Equilar looked at to their company's stock returns, as seen on the chart below. The trend line—the average of how much a CEO's ranking is affected by stock performance—shows that a CEO's income ranking is only 1 percent based on the company's stock return. That means that 99 percent of the ranking has nothing to do with performance at all. (The size and profitability of companies didn't affect the random patterns.)"
 
Note, essentially, the random distribution of data points:
 
 
This argument begs a bigger question – to what extent do CEOs matter? Most of the research that I have seen is that they make a single digit percentage difference to the firm (at best). Not inconsequential, to be sure, but far from the superheroes they (and society as a whole) make themselves out to be.
 
I hope the next myth that gets challenged is that there is a market for CEOs (and, for that matter, Directors) and that Boards need to pay them as highly as they do because otherwise they will not be able to attract the talent they need to run the firm.
 
Have a good weekend
David
 
David Chandler & Bill Werther
 
Instructor Teaching and Student Study Site: http://www.sagepub.com/chandler3e/
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/
 
 
The Pay-for-Performance Myth
By Eric Chemi and Ariana Giorgi
July 22, 2014
Bloomberg BusinessWeek
 

Wednesday, October 1, 2014

Strategic CSR - Fracking

Recently, there has been a lot of media coverage emphasizing the environmental benefits of fracking, in general, and the fracking of natural gas, in particular. The article in the url below, for example, notes that, because supply of natural gas has increased exponentially, prices have dropped to the point where it makes economic sense to burn gas instead of coal, which reduces carbon emissions:
 
"Coal generation peaked in 2007 at a little over two billion megawatt hours while in 2013 it dropped to 1.58 billion, according to the Energy Information Administration. (A megawatt-hour, or 1,000 kilowatt-hours, is the amount of electricity a typical suburban house uses in a month.) Over the same time, gas generation started at 857 million megawatt-hours and ended at 1.2 billion. If all the increase in gas-fired generation replaced coal, then the switch produced savings of 113.1 million tons of carbon a year."
 
This is good. Unfortunately, these same economic principles apply to any energy source that is more expensive than gas. As such, cheap natural gas is replacing nuclear energy ("zero carbon footprint") and, more worryingly, other non-fossil fuel sources, such as wind:
 
"Wind contributes only slightly to generation capacity needs, but whenever it runs, it saves fuel, mostly natural gas, and that gas is now worth about half of what it was a decade ago."
 
In addition, one of the main products of fracking for oil is natural gas. And, in places where there are no pipelines to take the gas away, it is flared:
 
"According to the Energy Information Administration, last year the producers flared enough gas to have produced 27 million megawatt-hours. That pushed emissions up by 16.5 million tons, about 15 percent as much as the reduction in coal burning saved. And some of the natural gas escapes unburned. Its main component, methane, is a global warming gas and is far more powerful than carbon dioxide, although it does not persist quite as long in the atmosphere. … from 2007 to 2013, the increase in gas consumption added methane with a carbon dioxide equivalent of about 19 million tons."
 
The quote in the article that stuck out most for me, however, concerned the long-term effects of cheap natural gas on any hope of limiting our carbon emissions into the atmosphere:
 
"The problem, said Michael Greenstone, a professor of environmental economics at M.I.T., is that while zero-carbon technologies have advanced significantly in the last 10 years, 'over the same period, there have been practically unimaginable advances in fossil fuels.' Limiting carbon emissions will most likely mean resolving to leave cheap fossil fuels in the ground, he said. Almost nothing valuable is left undrilled or unmined, he said. 'The history of leaving $100 bills buried in the ground is really a short one,' he said."
 
Past experience suggests we are not willing to sacrifice short-term economic profit for long-term environmental security.
 
Take care
David
 
David Chandler & Bill Werther
 
Instructor Teaching and Student Study Site: http://www.sagepub.com/chandler3e/
Strategic CSR Simulation: http://www.strategiccsrsim.com/
The library of CSR Newsletters are archived at: http://strategiccsr-sage.blogspot.com/
 
 
The Potential Downside of Natural Gas
By Matthew L. Wald
June 4, 2014
The New York Times
Late Edition – Final
B3