The CSR Newsletters are a freely-available resource generated as a dynamic complement to the textbook, Strategic Corporate Social Responsibility: Sustainable Value Creation.

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Tuesday, February 28, 2017

Strategic CSR - Venmo

The article in the url below signals yet another way in which our social norms are 'changing' (if you are optimistic), 'breaking down' (if you are concerned), at the intersection of virtual reality and social media. It does so by discussing the emergence of Venmo, a digital payment service that facilitates the transfer of small amounts of money among friends:
"When a cash register rings in Silicon Valley, one often sees the person who is paying being told: 'I'll Venmo you' by their friends. The peer-to-peer payments app Venmo has fast-tracked its way to being a verb as the cashless crowd adopts it to split their bills. This easy pinging of money means people have started paying each other back for the smallest things: a burrito, a cocktail, a coffee."
The shift that is occurring as a result, according to the author, is from a more trusting society (based on multiple repeat interactions) to a more transient society (where relationships are seen as single interactions and, as a result, less valued):
"Venmo and its rivals are of course convenient when splitting the cost of large purchases: a ski chalet for the weekend or a utility bill with roommates. But they have rapidly led to the expectation that you will count dollars and cents between friends."
As the author notes, trust is the foundation of our economic system of market exchange. Money (cash, in particular) came along later as that trust began to break down:
"In his 2011 book Debt: The First 5,000 Years, anthropologist David Graeber describes how credit came before coins. … Debt was a sign of trust: you knew you would see that person again and they would behave fairly. Money was used by the military, the soldiers passing through who could not be trusted."
In other words, we are now holding each other accountable for small amounts of money that, in a more trusting society based on long-term ties, would not be tracked:
"New technologies often encourage us to do something because we can, leaving us to weigh the social consequences only after these innovations have been taken up on a massive scale. Just because it is easier to pay a friend for a $4 coffee on Venmo rather than by counting out the change, why should we? Would it not be better to wait until we can buy them a coffee or a beer at a later date? Not wiping the slate clean at the end of every date may in fact show, in Graeber's words, a desire to develop ongoing relations."
The author also shows how trust is ebbing away from many of the social interactions that used to be the foundation of what constituted friendship. In other words, the sharing economy is a sign of weaker, not stronger, relationships among people:
"When I first moved to San Francisco, I told my mother I was considering hiring someone from TaskRabbit, a service that allows people to bid to do your odd jobs, to help me hang curtains and assemble flat-pack furniture. Her reaction was: 'But isn't that what neighbours are for?' … Before Uber, it would be kind to offer to drop someone at the airport. Recently a friend was confused when he was asked to drive a classmate to the departure hall, and wondered if she'd heard the ride-hailing service could take her there."
The author concludes that we are in danger of "substituting community for convenience." Rather than concede, however, she is preparing to resist:
"Next time someone tells me: 'I'll Venmo you,' I will reply: 'I got this,' knowing I am showing my trust in my friends, as people have done for thousands of years, through the small debts that bind us."
Take care
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Real friends don't bother to sweat the small change
By Hannah Kuchler
February 9, 2017
Financial Times
Late Edition – Final

Monday, February 27, 2017

Strategic CSR - Lush

The article in the url below discusses the activism-based business model of the British cosmetics company, Lush:
“Lush likes to cause a stink. As well as its smelly shops and package-free produce, a large chunk of the handmade cosmetics company’s time and money is spent on political activism.”
Lush, today, is positioned in the market in a way that reminds me of The Body Shop in the 1990s. Similar to The Body Shop, Lush campaigns broadly and passionately:
“Far from carefully choosing a few business-friendly good causes, Lush has backed a plethora of controversial causes from Guantanamo prisoners, to hunt saboteurs and the anti-fracking campaign. It does this through financial donations – totalling £5m a year in 2015 - and in-store products such as the May Day bath bombs, which supported activists opposed to the badger cull. It also supports groups in favour of peaceful resistance to the Israeli occupation of Palestine.”
The key question, of course, is how many of its stakeholders (customers, employees, etc.) engage with the firm as a result of its activism and how many just like its products, or its working conditions, or whatever? If most stakeholders engage with the firm in spite of its activism, then the firm is probably wasting its money and is less efficient as a result. If most stakeholders engage with the firm because of its activism, however, then the firm is creating value for those stakeholders in a way that other firms are not. The difference speaks to the extent to which, for Lush, activism is the foundation of a successful business model, as opposed to the founder/CEO’s personal interests/values that are selfishly being imposed as a constraint on what would otherwise be a more successful cosmetics company:
“Such blatant politicisation is a tactic few other businesses in the UK seem willing to replicate. The renewable energy firm Ecotricity has produced anti-fracking films, but this makes sense for a company that benefits from consumers switching away from fossil fuels. Lush admits a lot of the campaigning it does has nothing to do with its own business.”
That is perfectly OK (and something I wish more companies would do) but, in order to be consistent with strategic CSR, it is essential that the firm is acting in accordance with its stakeholders’ collective set of values:
“None of this appears to be harming sales, which reached a record £574m in 2015, with profits of £31.3m. … ‘People don’t just want to buy something, they want to belong to something. We’re not a cult but we certainly have strong ethos and personality that’s difficult to describe. It doesn’t come directly from the founders, it comes from the organisation and it is something that you belong to. It is a company in the true sense of the word, as in a group of individuals,’ says [says Simon Constantine, head of buying at Lush and son of co-founder and boss Mark Constantine].”
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How badger bombs and politics brought Lush sales of £500m
By Tom Levitt
May 10, 2016
The Guardian

Wednesday, February 22, 2017

Strategic CSR - Walmart + crime

The article in the url below unearths an amazing problem at Walmart that I had not previously heard about (at least, not to this extent):
"Police reports from dozens of stores suggest the number of petty crimes committed on Walmart properties nationwide this year will be in the hundreds of thousands."
It is not only the amount of crime being committed, but also the type of crime, much of it very serious:
"But people dashing out the door with merchandise is the least troubling part of Walmart's crime problem. More than 200 violent crimes, including attempted kidnappings and multiple stabbings, shootings, and murders, have occurred at the nation's 4,500 Walmarts this year, or about one a day, according to an analysis of media reports."
To listen to Walmart, they are the unwilling victims of a social problem the firm is doing everything it can to solve. Anecdotal data from Oklahoma, however, suggests this might be a problem specific to Walmart—one that does not occur to the same degree, for example, at Target:
"It's not unusual for the [Tulsa Police] department to send a van to transport all the criminals [their officer] arrests at [one] Walmart. The call log on the store stretches 126 pages, documenting more than 5,000 trips over the past five years. Last year police were called to the store and three other Tulsa Walmarts just under 2,000 times. By comparison, they were called to the city's four Target stores about 300 times."
According to the article, the current situation at Walmarts across the U.S. is a direct result of short-term decisions made over the last decade and a half designed to produce immediate results in terms of profit:
"There's nothing inevitable about the level of crime at Walmart. It's the direct, if unintended, result of corporate policy. Beginning as far back as 2000, when former CEO Lee Scott took over, an aggressive cost-cutting crusade led many stores to deteriorate. The famed greeters were removed, taking away a deterrent to theft at the porous entrances and exits. Self-checkout scanners replaced many cashiers. Walmart added stores faster than it hired employees. The company has one worker for every 524 square feet of retail space, a 19 percent increase in space per employee from a decade ago. In terms of profit, all this has worked: Sales per employee in the U.S. have grown 23 percent in the past decade, to $236,804. For criminals, however, the cutbacks were like sending out a message that no one at Walmart cared, no one was watching, and no one was likely to catch you."
There are other reasons that might explain why the number of crimes being committed at Walmart stores vastly outnumber those being committed at comparable competitors. While there are some differences between the Target and Walmart stores in Tulsa, in reality, the different levels of crime boil down to Walmart's willingness to invest in employees who are present in the store:
"Target, Walmart's largest competitor, is a different kind of retail business, with mostly smaller stores that tend to be located in somewhat more affluent neighborhoods. But there are other reasons Targets have less crime. Unlike most Walmarts, they're not open 24 hours a day. Nor do they allow people to camp overnight in their parking lots, as Walmarts do. Like Walmart, Target relies heavily on video surveillance, but it employs sophisticated software that can alert the store security office when shoppers spend too much time in front of merchandise or linger for long periods outside after closing time. The biggest difference, police say, is simply that Targets have more staff visible in stores."
As with many things related to sustainability and CSR at Walmart, for all the good things the firm does, it is still difficult to be convinced that the senior executives 'get it' and are willing to expand the horizon on the firm's return on investment to the medium to long term. It is interesting that the article lays much of the blame for this short-sightedness on Walmart's board:
"The question is whether Walmart is moving as fast as it can. Its executives 'could clean it up in a matter of a year were they to be given the financial support from the board,' says Burt Flickinger, managing director of retailing consultant Strategic Resource Group. Eight of the nine nonfamily members of the Walmart board come from academia or nonretail companies, including former PepsiCo CEO Steven Reinemund and Yahoo! CEO Marissa Mayer. Three officers are members of the Walton family, including the chairman of the board, Gregory Penner, a venture capitalist who is the son-in-law of fellow board member Rob Walton, a son of Walmart founder Sam Walton. 'The board doesn't want profits to fall,' says Flickinger. 'They simply lack the retail business background to understand how important security is.'"
The business case for making this investment seems clear:
"Flickinger argues that Walmart can't afford not to invest heavily to expand its workforce if it wants cleaner, more orderly, better-performing, and ultimately safer stores. 'It pays for itself,' he says. 'To get back to that high-performing level of the late 1990s, it's going to take a lot more money.'"
Take care
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Walmart's Out-of-Control Crime Problem is Driving Police Crazy
By Shannon Pettypiece and David Voreacos
August 17, 2016
Bloomberg Businessweek

Monday, February 20, 2017

Strategic CSR - Nationalism

I have been thinking about the primary cause said to have driven the two major controversial political decisions of 2016 – Brexit and Trump. In almost every account I have seen seeking to explain those decisions, it all seems to boil down to globalization. What this generally means at the local level is the failure of capitalism to spread wealth (the benefits of globalization) more evenly. The resulting inequality then drives the economic protectionism and anti-immigration that allow political movements, such as UKIP and Trump, to take advantage and secure previously unimaginable victories.
While I get this explanation, it only works if you care primarily about your country. That is, there is a belief that American workers 'lose' jobs to Chinese workers, for example. But, as an immigrant here in the US, I find that this nationalistic argument fails to resonate. To me, an American does not have any more 'right' to a job than a Chinese, Indian, South African, or anyone else anywhere in the world. The reason why a multi-national firm might close a US factory and open one in China is that the Chinese factory is more efficient. In other words, it produces a product of the same or better quality for less money. As a result, the Chinese employee gets better training, higher income, etc., etc., and the Chinese economy progresses. Similarly, the US gets to export all the jobs that do not add much value (i.e., they do not pay well) and (and this is where the story appears to break down, I guess) they re-train their citizens to do higher-skilled jobs that pay more (because they add more value) and the US economy also progresses.
I appreciate that a key element of the nationalistic argument is that politics is largely local and most democratic systems are based on geographic representation (rather than, for example, doing what is 'best' for the country or, heaven forbid, the world). I also appreciate that the rise of the robots seems to be accelerating this trend, although I can't help but think this is overblown. We have faced many technological shifts in our time and, always, the new technology has ended-up producing more work than it replaced.
To me, though, it just seems like a level-of-analysis issue. If we all thought of ourselves as citizens of the world (whatever Theresa May thinks), it would enable us to tackle problems that we do not see at present. For example, if a factory closes in California and relocates to Texas, while the workers are annoyed, it is not perceived in the same light as when a factory closes in North Carolina and opens in India. Yet, it is exactly the same economic process. It is just that our perspective is clouded by arbitrary national borders that were determined decades or centuries ago, either as a result of military might (e.g., pick your war), geographic protection (e.g., an island), or bureaucratic incompetence (e.g., the role of the UK and other colonial powers in over-riding centuries of history by drawing straight lines in the Middle East). If we could see through these clouds, we would understand that we are one world (geographic fact) before we are one nation (historical anomaly).
What is essential for CSR to move the needle, therefore, is an ability to think in terms of the group, the much larger group, and begin to suppress our extremely unhealthy current preoccupation with the narrower nation/racial/ethnic-based group. CSR is, by definition, of concern to society at large and, at a fundamental level, it prioritizes the interests of the majority over those of the minority. The issues it deals with (including economic inequality) are, at a minimum, societal-wide and, more likely, global. In other words, while it may be true that "all politics is local," CSR is global. And, until we start thinking that way, it will be hard to progress together.
Take care
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Friday, February 17, 2017

Strategic CSR - Uber

The article in the url below raises an interesting question:
"What if Uber kills off public transport instead of cars?"
While this may not be a very pressing concern in most U.S. cities, where public transport is generally less well-developed; in Europe, public transport is central to most city life:
"The perceived wisdom is that Uber has disrupted taxis and that private automobiles are next, but what if we've misread what is happening in our cities? Traditional thinking would suggest that UberPool, which allows users to split the cost of trips with other Uber riders heading in the same direction, will always be inferior to public transport. Sitting in the backseat of a Prius may be more comfortable than standing on a crowded bus or train, continues this reasoning, but carpooling can't substitute for mass transit at rush hours without massively increasing congestion."
Rather than simply offering an alternative method of transportation for those who can afford it, the aggressive pricing on Uber Pool appears aimed directly at public transportation – seemingly with the goal of eventually replacing it:
"This is wrong. In the last six months, Uber has begun offering shared rides for as little as $1 (81p), introduced optimised pickup points that algorithmically recreate bus stops, and started testing semi-autonomous vehicles it hopes will solve its increasingly contentious labour issues."
A standard economic answer to this problem would be that Uber will only succeed in replacing public transportation if it ultimately adds more value than buses and trains. If it is cheaper (shared costs), more comfortable (no standing), and more convenient (picks you up at your house), then it may indeed add more value. The danger, I guess, is if Uber follows the pattern it has demonstrated with its drivers (see Strategic CSR – Gig economy and also here), where it offers financial incentives to sign-up, but then decreases those benefits slowly over time. The equivalent with public transportation is if it is initially much cheaper to use Uber, but becomes more expensive once government has cut the relevant funding.
Have a good weekend
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What if Uber kills off public transport rather than cars?
By Greg Lindsay
January 13, 2017
The Guardian

Tuesday, February 14, 2017

Strategic CSR - Nordstrom

The article in the url below describes how nervous companies in the U.S. are at the moment. CEOs and executives in prominent companies (and also some pretty obscure ones) apparently dread drawing the wrath of the Twitter monster. The example given was Nordstrom (a high-end department store), which was boycotted by customers when it stocked Ivanka's line of clothing and jewelry, and then boycotted again (by a different set of customers) when it removed the brand:
"These days, a shirt is not always just a shirt, and a store is not always just a store. Handbags, dresses and other ordinary items — and where they are bought — have become politicized, turning shopping decisions into acts of protest for the millions of people in pro- and anti-President Trump camps. Under Armour, L.L. Bean, T.J. Maxx and many other companies have already been pulled into a sort of ideological tug of war. But perhaps no retailer has been in the hot seat like Nordstrom."
The article's angle was that companies cannot win in this new reality:
"The sharp reaction before and after Nordstrom's decision — made quietly, with no announcement — highlights the tightrope companies must walk in this hyper-politicized environment. 'Companies are nervous,' said Andrew Gilman, chief executive of the crisis communications firm CommCore Consulting Group. 'I know several companies that have war rooms set up.' 'They have playbooks on what to do if there is a product recall or if the C.E.O. has a heart attack,' he added. 'Now they have a different chapter on how to deal with a tweet from the president.' Many retailers and brands would clearly prefer to fly below the political radar and stay away from the outrage on Twitter and Facebook."
My take on this, however, is that companies are feeling nervous mostly because they are being forced to take a position on issues. In other words, they are having to inject values into their business decisions in a way that makes them uncomfortable because they might make the 'wrong' decision and be blamed for doing so. CEO accountability – what a wonderful concept! The story unfolding around Under Armour is a great example of the fine line executives are being forced to walk:
"The athletic-gear maker Under Armour also encountered the perils this week, when its chief executive, Kevin Plank, called Mr. Trump a 'real asset' for the country. Within hours, the hashtag #boycottunderarmour emerged on social media."
I think this is great. Business is a force for economic, social, and moral change, even if executives try and pretend otherwise. Granted, it is just a bit more blatant at the moment because the atmosphere is so charged and the issues so contentious. The more companies take a stand, however, and I am thinking about companies on both sides of any debate (think Patagonia on the environment, but also Chick-fil-A on religion in the workplace), then the more the market can begin to help solve some of our most intractable problems. If stakeholders are aware of companies' positions on these issues, then they can choose which ones to support and the chance for progress is increased. In all likelihood, taking a stand on an issue that is of concern for stakeholders will be good for business. At a minimum, there is evidence (according to the article in the second url below) to suggest that firms are worrying too much about the consequences of being caught on the wrong side of Donald:
"The Financial Times has crunched data on 30 cases in which companies have been targeted by that @realDonaldTrump account. The sample size is small and the data only start on January 1. However, this limited analysis shows that Mr Trump's tweets have had surprisingly little effect on share prices so far, irrespective of the media hullabaloo."
Take care
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In the Era of Trump, Shopping is Political
By Julie Creswell and Rachel Abrams
February 11, 2017
The New York Times
Late Edition – Final
The corporate benefits of a Trump tweet
By Gillian Tett
February 10, 2017
The Financial Times
Late Edition – Final

Monday, February 13, 2017

Strategic CSR - Silicon Valley

The article in the url below discusses the recent intervention by the information technology industry in the debate in the U.S. about immigration. In particular, the article demonstrates how important immigration is to IT firms, judging by the large number of well-known founders, CEOs, and senior executives who are foreign-born:
"Attracting hyper-brainy people from around the world is at the heart of the tech business model. Mr Brin was born in Moscow, Mr Pichai in Tamil Nadu and Satya Nadella, the head of Microsoft, in Hyderabad. The biological father of the late Steve Jobs was a Syrian who moved to America, a journey that as of this week would be impossible. Half of all the American startups that are worth more than $1bn were founded by migrants. Many of the engineers at tech firms were born abroad, too. In Cupertino, a posh suburb in Silicon Valley, half the population is foreign-born."
These executives are intervening on the side of more open immigration, therefore, because it is good for their business (and, by extension, good for the U.S. economy). What is interesting about the article, however, is not that the IT industry is being vocal in its opposition to efforts to limit immigration, but that the industry is so selective about which issues it chooses to protest. By taking such a high-profile stand now, therefore, the article suggests the industry risks exposing its hypocrisy:
"For decades tech bosses have pushed a convenient doublespeak to explain their firms' rise. Their dazzling products are the creations of their leaders. The resulting fortunes are these visionaries' just reward. But the economic and social consequences of the industry's output, not all of them good, are no one's responsibility. Instead, the industry argues, they are the result of unavoidable shifts in technology, in turn responding to society's broad demands. This logic has allowed tech firms to avoid responsibility for the stolen or bilious content that they publish and for the jobs that their algorithms help eliminate—to say nothing of their own oligopolistic market shares. Silicon Valley boasts of its own might and shrugs at its own impotence both at once."
The article goes on to note the various recent issues, other than immigration, where the industry has been slower to take action – such as, job losses (due to outsourcing and technological progress), fake news (enabled by social media), and income inequality (driven by pay disparities), and so on. In reality, the article concludes, the 'holier-than-thou' approach of the IT industry on the issue of immigration is merely dressed-up self-interest that is used selectively to advance goals that are, ultimately, very narrow:
"Often [tech firms] define virtue as what they judge to be in their business interests. Last year, Mr Cook dismissed a demand by the European Union to pay more tax as 'political crap.' In December Apple agreed to a state request to ban the New York Times's app in China, where the firm makes just over a fifth of its sales. Mr Zuckerberg fits the same pattern: he says he wants to give away 99% of his fortune and that he believes in the ideal of free expression, but his firm paid a tax rate of just 6% over the past half-decade, and he has toadied up to China's censors, too. Oligopolistic, hubristic and ruthless to its core, Silicon Valley is no beacon of moral leadership."
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Silicon Valiant
By Schumpeter
February 4, 2017
The Economist
Late Edition – Final

Wednesday, February 8, 2017

Strategic CSR - CEO Pay (II)

Continuing with this week's focus on CEO pay, the article in the url below reports progress in the UK with pay ratio disclosures that were designed to reduce the huge discrepancies between the pay at the top and the pay of the firm's median employee. Unfortunately, as with many laws motivated by good intentions, the results have not matched the design:

"CEO pay and its reflection of firm performance has been a preoccupation of U.K. policy makers for a while, and since 2002 companies have had to produce a directors' compensation report for shareholder vote, albeit a non-binding one. A few shareholder revolts later, executive pay became subject to a binding vote at least every three years from 2013, and the disclosure details were enhanced to provide more transparency for investors."
Given the complexity of the problem, there are plenty of loopholes in which to jump through:
"But the law stops short of requiring the publication of a ratio between the pay of top executives and average employee. 'Unfortunately, instead of disclosing this simple ratio, the final disclosure policy only mandates the disclosure of relative changes in pay, and the definition of pay doesn't include equity-based incentive compensation,' said Jenny Chu, university lecturer in the Finance and Accounting group at the Cambridge Judge Business School. Firms also can determine which group will be used in the calculation of change in employee pay, and companies tend to 'engage in more opportunistic reporting for the sake of reputation management rather than fundamental change in disclosure transparency.'"
The result has been little, if any, change:
"The study found that CEO-employee pay ratio at FTSE 100 companies 'barely budged' to 122.37 in 2014 from about 123 in the previous two years."
The key, as always in shaping firm behavior, is stakeholder pressure. Corporations are social constructions that are designed to advance social progress. As such, they reflect our collective set of values. To the extent that stakeholders are willing to hold firms to account, behavior is much more likely to be shaped in the way intended:
"Increased disclosure in and of itself won't result in changes to remuneration or design, but pressure from investors and shareholders or from other interested parties such as customers or potential recruits could do so, said Melissa Reid, an associate at law firm Cleary Gottlieb Steen & Hamilton LLP. 'I don't think that having an additional ratio would significantly, if at all, change pay structures, it would just be [an] additional compliance burden,' she said. But if shareholders' advisory bodies, for instance, advocate for ratios of a particular level to affect how votes on pay are exercised that could have a bigger impact, she said."
Stakeholders (in this case the shareholders) have the potential to deliver the results they say they want. If this pressure does not arise, then other stakeholders will either have to work out how to pressure the firm more directly (e.g., more effectively designed legislation) or they can pressure shareholders to demand the change from firms (e.g., increased demand for socially responsible investing products). If no stakeholders apply any pressure, of course, then the firm will continue to carry on as always (and would be correct to do so).
Note: Reported on the same day as the article below:

"Bosses of the largest 100 British companies saw their pay increase more than 10 percent to 5.48 million pounds ($7.2 million) last year, 140 times the average wage of their employees." (see
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CEO-Employee Pay Ratio Disclosure no Panacea
By Mara Lemos Stein
August 9, 2016
The Wall Street Journal

Tuesday, February 7, 2017

Strategic CSR - CEO pay (I)

This week's Newsletters focus on the contentious issue of CEO pay. To start us off, the article in the url below doesn't pull its punches in terms of the composition of CEO pay (i.e., performance-related), a practice that continues in spite of all the evidence that it is ineffective (in theory and practice), both in terms of motivating the CEO and improving the firm's performance:
"Verizon's purchase of Yahoo! for $4.83 billion, while an interesting exercise in combining content, networks and mobile services, highlights the broken norms for paying executives of U.S. corporations. The short version is that issuing and repricing of stock options compensates executives for bull markets rather than their own performance."
The purchase of Yahoo! by Verizon last summer is presented as simply the latest example of the corrupt process that generates massive (and often undeserved) compensation:
"When the deal is complete, Yahoo Chief Executive Officer Marissa Mayer will walk away with more than $200 million for doing little more than keeping the seat warm for the past four years."
The research is pretty clear on this issue:
"Research has shown that external influences account for the majority of a given company's share price. A rule of thumb is that the company itself is only responsible for about a third of its price movement. The market gets credit for about 40 percent, while the performance of the company's industry drives another 30 percent."
That doesn't leave much variance for the CEO to claim credit for, even though they persist in doing so:
"There are of course exceptions. Apple's incredible share run-up on the iPod, iPhone and iPad is hard to match. But most companies' share price gains and losses largely reflect things beyond the control of the company or its executives. … The counterargument is that you want a steady hand on the tiller when a storm strikes. I don't disagree, but I am suggesting that paying that steady hand for achieving a market-based performance is foolishness plain and simple."
Of course, the author is not arguing that all CEOs are equally good (or bad), but that the measures used to track their 'performance' (usually stock price via options) are flawed:
"Share price isn't a very precise way of compensating for value delivered. Indeed, share price may be one of the worst ways to judge an executive's performance. It rewards executives for positive events beyond their control, and doesn't do an effective job of measuring the impact of management on a company's overall performance."
In contrast, there are more effective (although harder to measure) metrics that are known:
"If shareholders are compensating CEOs and the rest of the management team for how well they are managing the company, then there should be some metrics that are easy to agree upon on advance. All of them can be readily identified and tracked versus peers. Consider these five things on a relative basis to the business's competitors:
1. Changes in revenue and earnings
2. Return on invested capital
3. Development of long-term strategy
4. Execution of current strategy
5. Innovation and intellectual-property development."
The alternative, of course, is to continue doing what we have been doing for several decades which, as the article in the second url summarizes, has produced counter-productive outcomes:
"The best-paid CEOs tend to run some of the worst-performing companies and vice versa—even when pay and performance are measured over the course of many years."
To see what this looks like when graphed, see:
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CEOs are Paid Fortunes Just to be Average
By Barry Ritholtz
July 25, 2016
Bloomberg Businessweek
Best-Paid CEOs Run Some of the Worst-Performing Companies
By Theo Francis
July 25, 2016
The Wall Street Journal
Late Edition – Final

Friday, February 3, 2017

Strategic CSR - Russia

The article in the url below is a great example of where we are heading at the intersection of surveillance and social media:
"Imagine a smartphone app that lets anyone take a picture of anyone and then find that person on social networks. Now stop imagining."
Apparently, that app now exists. And you'll never guess who created it:
"[Last] year, a couple of Russian programmers released an app called FindFace. It lets people take pictures of complete strangers and then almost instantly find them on social networks. See a pretty girl or guy on the street? Snap a pic, get to know them. What could go wrong?"
The article online contains a video piece by one of Businessweek's journalists who went to Russia to investigate. Amazing, but also extremely concerning, especially when you hear that one of this company's first clients was the FSB. Other police agencies around the world are also very interested.
Hope you have a good weekend
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The Russian App That Has Destroyed Privacy Forever
By Ashlee Vance
December 6, 2016
Bloomberg Businessweek

Wednesday, February 1, 2017

Strategic CSR - Natural capital

Ensuring all costs (and benefits) are included in the final price that is charged to consumers for a product is essential if we are to take full advantage of the market forces that can allocate resources so efficiently. A big challenge for this lifecycle approach, of course, is the pricing of natural capital -- assets from the natural environment that, to date, have either been free or close-to-free and, as a result, have been taken-for-granted and over-consumed. The article in the url below illuminates this challenge by attempting to value the National Parks in the US:
"According to the National Park Service (NPS), over 300 million visitors collectively spent over a trillion hours at U.S. national parks in 2015. … Attendance numbers are often provided as a crude measure of how much people like and value America's national parks. But that is only a rough proxy for determining the parks' economic value—a number that could have implications for how the parks are managed and funded. So a group of researchers recently looked into that question: How much is the NPS—the parks and the services it provides—worth to Americans?"
The challenge, of course, is to quantify this value (beyond mere public popularity):
"[The researchers] estimate that NPS parks and programs are together worth about $92 billion. They arrived at this figure by using methods similar to those that federal agencies use in analyzing proposed regulations. First, they sent a survey to about 4,000 U.S. households asking how much residents were willing to pay in additional federal income taxes in order to keep America's national parks. An estimate was then made based on the answers of the 700 households that responded, and those who didn't respond were ascribed a value of zero. The $92 billion number breaks down into $62 billion for National Park lands and $30 billion for NPS programs, which include recreational activities, efforts to protect landmarks, and educational programs."
An important takeaway from the study was that the National Parks are valued not only by those who use them, but also as an idea that shapes the nature of the country:
"Sure, people who use national parks for hiking or camping value them, but what this estimate suggests is that for those who don't use the parks, it seems that just the idea of having national parks around is attractive enough to be worth tax dollars. Additionally, … $92 billion is a conservative estimate, since those who didn't answer the survey were given zero values and a post-survey audit found that most of those who didn't respond didn't have time to fill out the survey—so it's likely not the case that the parks are worth nothing to them. Separately, the demographics of park attendance could hurt the NPS's long-term valuation given that the majority of its visitors are older white Americans, even as the U.S. becomes increasingly diverse."
The conservative approach of valuing non-responses as zero likely makes up for the gap between what respondents say they are willing to spend and what they would actually spend if they had to part with their money. At a minimum, however, the $92 billion number puts the annual budget for the parks in greater context:
"[Last year] the Obama administration [submitted] a budget of $3.1 billion for the NPS for 2017—an amount that includes a bump for restoration and upgrades."
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How Much Are America's National Parks Worth?
By Bourree Lam
July 19, 2016
The Atlantic