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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Thursday, November 15, 2018

Strategic CSR - Philanthropy

In light of the recent mid-term elections in the US, the article in the url below looks at the intersection between philanthropy and political ideology. It seems that, as with almost everything else, the population is divided on this:
"Red counties, which are overwhelmingly Republican, tend to report higher charitable contributions than Democratic-dominated blue counties, according to a new study on giving, although giving in blue counties is often bolstered by a combination of charitable donations and higher taxes. But as red or blue counties become more politically competitive, charitable giving tends to fall."
It seems that homogeneity makes us feel more secure (and, therefore, more likely to donate), while heterogeneity makes us feel less secure (and, therefore, more selfish), according to the researchers:
"'There's something about the like-mindedness where perhaps the comfort level rises,' said one of the authors of the study. …  'They feel safe redistributing their wealth voluntarily. It also matters for compulsory giving.'"
As such:
"The research raises questions about how living in a more diverse political community affects people's generosity."
One thing that appears missing from the research (but would inform the focus and findings) is the destination of the donations. If the authors' theory is true, you might also expect that homogenous states donate more nationally (i.e., more altruistic), but diverse states donate to local causes (i.e., more selfish):
"A Republican county like Madison County, Idaho, for example, is one of the most charitable in the nation, but the data does not show whether those dollars are going to local causes or to organizations out of the county or the state."
Overall, the research draws five conclusions that the article explores in greater detail:
  • "Republican-leaning counties are more charitable."

  • "Republicans give less in Democratic-leaning counties."

  • "Wealth redistribution is higher in Democratic-leaning counties."

  • "Charitable giving does not match government aid."

  • "Political competition decreases giving."

Take care
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How Political Ideology Influences Philanthropy
By Paul Sullivan
November 5, 2018
The New York Times
Late Edition – Final

Wednesday, November 7, 2018

Strategic CSR - Oil

The article in the url below would be funny if it was not so serious. Apparently, the extraction industry (i.e., the producers of oil and gas) is requesting financial assistance from the US government to help protect its assets from the effects of climate change:
"As the nation plans new defenses against the more powerful storms and higher tides expected from climate change, one project stands out: an ambitious proposal to build a nearly 60-mile 'spine' of concrete seawalls, earthen barriers, floating gates and steel levees on the Texas Gulf Coast. Like other oceanfront projects, this one would protect homes, delicate ecosystems and vital infrastructure, but it also has another priority — to shield some of the crown jewels of the petroleum industry, which is blamed for contributing to global warming and now wants the federal government to build safeguards against the consequences of it."
The project largely protects the Texas coastline, from the Louisiana border to south of Houston – an area that is:
"… home to one of the world's largest concentrations of petrochemical facilities, including most of Texas' 30 refineries, which represent 30 percent of the nation's refining capacity."
This reminds me of a Newsletter I wrote a few years ago about Rex Tillerson who, when he was CEO of Exxon, was helping to sue a fracking company to prevent it from drilling too near to his house (see Strategic CSR – Exxon). And, as you might expect, protecting such a large area is not cheap:
"Texas is seeking at least $12 billion for the full coastal spine, with nearly all of it coming from public funds."
So, even though Exxon made $20 billion in profit (that is 'profit,' not revenue) last year, and even though they were only able to generate that profit by further deteriorating the environment, they feel they do not need to contribute anything to help cope with the consequences. Needless to say, many are not onboard with this bailout:
"… the idea of taxpayers around the country paying to protect refineries worth billions, and in a state where top politicians still dispute climate change's validity, doesn't sit well with some."
And this reluctance to pay is even to protect the industry's own assets, let alone the rest of the coastline that will be equally devastated:
"Federal, state and local money is also bolstering defenses elsewhere, including on New York's Staten Island, around Atlantic City, New Jersey, and in other communities hammered by Superstorm Sandy in 2012."
And, from the commentary and quotes reported in the article, it seems like Texas politicians are just fine with that.
Take care
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Big oil asks government to protect it from climate change
By Will Weissert
August 22, 2018
The Associated Press

Monday, November 5, 2018

Strategic CSR - Earnings

It is not often that I find myself agreeing with a policy of the current administration (or, perhaps, politicians in general), but I found the announcement in the article in the url below interesting:
"President Donald Trump brought a long-simmering debate on Wall Street to the surface Friday when he prodded regulators to look into scaling back how often publicly traded companies report financial results."
Needless to say, the proposal was brought forward in a carefully considered, detailed policy document that explored the pros and cons of such a complex decision. ... I'm kidding, it was announced in less than 280 characters via Twitter:
"Trump's proposal -- released via Twitter and prompted, he said, by a recent conversation he had with PepsiCo Inc. Chief Executive Officer Indra Nooyi -- would do away with quarterly reports and move to a semi-annual system."
I am sure our motives are different, but I'll take whatever I can get. While I generally support increased (not decreased) transparency and think it is important to focus on earnings guidance rather than actual results, this instinct is conflicted with the desire to push executives to see past the interests of shareholders to operating the firm in the interests of its broader set of stakeholders. As such, any regulatory step that can lessen the knee jerk reaction of executives to operate in the interests primarily of shareholders is a step in the right direction. That is perhaps why shareholder advocates dislike it so much:
"To its detractors, it is, in the words of Hilton Capital Management's Dick Bove, 'a horrible idea.' It would be a 'major move to provide less information' at a time when investors' access to information has 'already been dramatically reduced,' Bove said."
But, as the title of the article suggests, the stimulation revitalized a long-standing debate about the benefits of such a move. Indra Nooyi sees it more as a way to harmonize European and U.S. reporting requirements:
Europe has backed away from requiring companies to file quarterly reports. The most recent data from the U.K. shows that only 57 of the companies in the benchmark FTSE 100 index were still issuing quarterly reports as of September 2017, according to the Investment Association. Japan, though, moved in the opposite direction, gradually forcing companies to shift from semi-annual to quarterly reporting during the 2000s."
Volatility is another reason advanced against this idea but, more likely, is that the market would adjust once the dust had settled:
"Investor reaction to the idea was mixed. Some said the change could help companies to invest more in their businesses rather than race to show profit gains each quarter. Others said that the prospect of fewer financial reports could exacerbate price swings around earnings or fuel insider trading."
Another good argument against is that longer gaps between material information would encourage insider trading:
"The reduction in transparency could encourage insider trading, said Robert Pozen, senior lecturer at MIT Sloan School of Management and former vice chairman of Fidelity Investments. 'You have such a long dark period where there is no information going out to the public,' Pozen said. 'You're dramatically increasing the temptation for people to trade' on inside information, he said."
The good news is that Congress would not need to pass legislation for this to happen – the SEC could change its regulations if it wants. Another thought is that, given the rise of social media and CEOs' apparent willingness to share valuable information this way, quarterly reports are becoming less and less important:
"The agency could make such a change without Congress passing legislation but that doesn't mean it will, said David Martin, an attorney who previously ran the agency unit that oversees corporate filings. But critics contend that new reporting requirements may not spur meaningful change given the deluge of company information available on social media."
Take care
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Trump Ignites Wall Street Debate With His Tweet on Earnings
By Justin Sink, Annie Massa & Benjamin Bain
August 17, 2018
Bloomberg Businessweek

Thursday, November 1, 2018

Strategic CSR - ECOs

For my dissertation, I studied the adoption and implementation of the Ethics & Compliance Officer (ECO) position in the US. As I learned more about the ECO, I became aware of the historical evolution of the title. Firms used to have separate Ethics Officers (EO) and Compliance Officers (CO); the ECO was, among other things, an attempt to combine the two roles, but the different identities (and historically different responsibilities) were difficult to shake. As a result, when I went to ECO conferences, I kept running into sessions that debated the relative value of each role, what responsibilities fall under which 'branch' and, of course, which should be dominant within the ECO (ethics or compliance). In short, what I learned is that the compliance function is more external facing, working out the rules and what the firm has to do to comply with them, while the ethics function is more internal, putting in place the policies and practices that, ideally, avoid the need for compliance. For example, if the purpose of the Foreign Corrupt Practices Act (FCPA) is to prevent US firms from paying bribes to overseas government officials, the role of the CO is to communicate to employees what constitutes bribery, what payments are ok and what are not, etc. The role of the EO, in contrast, is to build an ethical culture within the firm so that it becomes second nature to employees that they operate ethically at all times (and do not bribe). The difference also mirrors more of a European regulatory system, which tends to be more principles-based (general guidance in terms of what needs to be done to achieve/avoid a specific outcome) and therefore relates more to the EO position, as opposed to a US regulatory system, which tends to be more rules-based (specific actions that are allowed/prohibited) and therefore relates more to the CO position. The article in the url below highlights this tension by debating the relative merits of each:
"Companies that rely on rules to ensure employees do what they are supposed to can find themselves on the wrong end of a reputational problem. Witness, for example, what happened to United Airlines Inc. when its employees followed the rules to forcibly remove a paid and seated passenger from a flight. United and other examples from the worlds of technology, financial services and automobiles—Uber Technologies Inc., Wells Fargo & Co., Volkswagen AG all come to mind—offer a reminder to all companies to look at their own ethics and compliance policies to make sure they reflect the messages and culture the company wants, according to ethics and compliance firm LRN."
While a rules-based system is more specific and, in some cases, easier to enforce, it also encourages behavior that is inflexible or seeks to bend the rules or find ways around them once they are clearly understood. A principles-based approach, on the other hand, promotes flexibility in search of the ultimate goal (which is emphasized), rather than the means of achieving it (which is not):
"Smart companies understand that foisting a series of rules upon workers won't necessarily result in employees acting more ethically or engaging in less misconduct, said Susan Divers, a senior adviser at LRN. Better for them to structure their ethics and compliance programs to get employees to consider the ethical implications of the decisions they make before they make them, and to take actions that lead to a stronger workplace culture and improved company performance, she said. … While a company needs rules and regulations, Ms. Divers said they don't really work as a motivator or as a guide for how to behave. "Most companies' policies are a nightmare, they're almost impossible to understand if you are not a lawyer," she said. "Most don't say, 'We would like you to always behave ethically, in the right manner, even if it is not mandated by law.'"
In short, the article is arguing for a greater emphasis on the 'E' in the ECO position.
Take care
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Rules Aren't Enough to Foster Ethical Behavior
By Ben DiPietro
October 4, 2017
The Wall Street Journal