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 29, 2018

Strategic CSR - Social credit

The radio segment in the url below details China's exploration of a "social credit score" for all of its citizens:
"China is testing a new plan. Its stated aim is to make it easier for citizens to do business and help them to trust each other more. It's similar to the American credit score, but much more sweeping. It tracks far more than financial transactions and is called the Social Credit score."
To suggest this idea is "similar to the American credit score" is to understate its implications. The article explores the background to the idea in some detail:
"… a lack of trust in people and businesses has held China's economy back. So when China decided to make a centralized score, the government turned to people's behaviors to extrapolate trustworthiness from them. And you know who has lots of data on how people behave? Companies, especially big companies like Alibaba. That is China's version of Amazon. Alibaba owns one of the largest online payment systems in the country and has its own credit scoring system called Sesame Credit. So the government has been working with Alibaba in the development of people's Social Credit score."
So, in essence, the government is planning to use the company's data to track everyone's online behavior (cross-referencing payment history with purchase patterns) and develop a proxy for how trustworthy a person is:
"The way people are scored, it's not simply whether they miss a bill. It could be what they buy online. I mean, I think the example that the head of Sesame Credit publicly gave the press was, you know, if you buy nappies, you're responsible. So your score will go up. But if you're buying video games, you're lazy, so your school will go down."
Aside from the assumptions that are being made in linking purchase patterns to personality, it is the detail of what is being proposed that is striking. This is particularly so in terms of the potential consequences:
"The Social Credit system is not scheduled to be rolled out nationally until 2020, but we got a glimpse into how it might work because China is testing out versions of it in pilot cities across the country. … everyone in the city starts with a score of 1,000. … And there's a whole letter grade system behind the points. So from 960 to 1,000-plus points is an A, 850 to 955 points is a B. Eight-forty-nine to 600 is a C. And this is considered a warning level. Below that, you are a D. You're labeled an untrustworthy citizen. You can gain or lose points for all kinds of reasons. Get a DUI? That is an automatic downgrade to a B."
"And if you spread rumors online – minus 50 points."
And, what are the consequences for being labelled "an untrustworthy citizen"?
"If your Social Credit score is low, or if you end up on something called the list of untrustworthy people, you can be banned from certain kinds of travel or even subjected to public shaming. Life gets hard."
In spite of the creepy nature of all of this, there are some broad societal benefits to coercive behavior modification:
"Before the pilot program, being a pedestrian in Rongcheng was just terrifying. You basically had to hurl yourself across the street when you saw a break in traffic. But now, after the changes have happened, the cars, they will wait for you."

Additional information on this topic can be found here and the idea even has its own Wikipedia page here. Failing that, you can just ask Facebook for a printout of all the data they have on you – it kind of works the same way! :-)
Take care
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China Tests a 'Social Credit Score'
October 31, 2018
National Public Radio

Monday, November 26, 2018

Strategic CSR - AC

The editorial in the url below poses an interesting question:
"What is the single most effective way to reduce greenhouse-gas emissions?"
As was no doubt intended by the nature of the question, the answer may well surprise you:
"Go vegetarian? Replant the Amazon? Cycle to work? None of the above. The answer is: make air-conditioners radically better."
It seems there is plenty of low-hanging fruit in terms of reducing the pollutants associated with air conditioning units:
"On one calculation, replacing refrigerants that damage the atmosphere would reduce total greenhouse gases by the equivalent of 90bn tonnes of CO₂ by 2050. Making the units more energy-efficient could double that. By contrast, if half the world's population were to give up meat, it would save 66bn tonnes of CO₂. Replanting two-thirds of degraded tropical forests would save 61bn tonnes. A one-third increase in global bicycle journeys would save just 2.3bn tonnes."
The reason for this low-hanging fruit seems to be mostly because the AC industry is largely ignored in most countries—neither regulated nor sufficiently profitable to attract much attention from firms. This means, of course, that the worst pollutants have not been controlled, while the competitive pressures to innovate have also been lacking. This becomes apparent when you compare the rate of progress with products in more heavily regulated and competitive industries:
"Air-conditioning is one of the world's great overlooked industries. Automobiles and air-conditioners were invented at roughly the same time, and both have had a huge impact on where people live and work. Unlike cars, though, air-conditioners have drawn little criticism for their social impact, emissions or energy efficiency. Most hot countries do not have rules to govern their energy use."
The danger lies not only with the air conditioners that we have, however, but those that are coming in the very near future:
"In the next ten years, as many air-conditioners will be installed around the world as were put in between 1902 (when air-conditioning was invented) and 2005."
Apart from obvious solutions, like continuing to make efficiency improvements and replacing old units, the biggest suggested change in the editorial requires legislation and, therefore, political action, particularly around the coolants used in these machines:
"One category of these, hydrofluorocarbons, is over 1,000 times worse than carbon dioxide when it comes to trapping heat in the atmosphere. An international deal to phase out these pollutants, called the Kigali amendment, will come into force in 2019. Foot-draggers should ratify and implement it; America is one country that has not done so."
Take care
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Rebirth of the cool
August 25, 2018
The Economist
Late Edition – Final

Tuesday, November 20, 2018

Strategic CSR - Finland

Here's an exercise in transparency for you. The article in the url below describes how, every year on the same day in Finland, everyone's taxable income is published:
"Pamplona can boast of the running of the bulls, Rio de Janeiro has Carnival, but Helsinki is alone in observing 'National Jealousy Day,' when every Finnish citizen's taxable income is made public at 8 a.m. sharp."
This event occurs on November 1 each year:
"The annual Nov. 1 data dump is the starting gun for a countrywide game of who's up and who's down. Which tousled tech entrepreneur has sold his company? Which Instagram celebrity is, in fact, broke? Which retired executive is weaseling out of his tax liabilities?"
In spite of the potential for social conflict, many in Finland argue that there are great benefits to exposing this information for everyone in the country:
"Finland is unusual, even among the Nordic states, in turning its release of personal tax data — to comply with government transparency laws — into a public ritual of comparison. Though some complain that the tradition is an invasion of privacy, most say it has helped the country resist the trend toward growing inequality that has crept across of the rest of Europe."
In spite of the voyeuristic pleasure to peeking into the lives of the rich and famous, however, others point to the micro-level downsides of such a social comparison:
"Transparency may or may not reduce inequality, but does tend to make people less satisfied, several concluded. A study of faculty members at the University of California, where pay was made accessible online in 2008, found that lower-earning workers, after learning how their pay stacked up, were less happy in their job and more likely to look for a new one."
Nevertheless, in Finland, the event has become the largest media event of the year, where "Helsinki tabloids often assign up to half their editorial staff to cover the release of the data":
"The second-biggest news deployment of the year is for Finnish Independence Day, on December 6."
Happy Thanksgiving to those of you in the US.
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In Finland, Every Citizen's Taxable Income is Revealed
By Ellen Barry
November 2, 2018
The New York Times
Late Edition – Final

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.
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Rules Aren't Enough to Foster Ethical Behavior
By Ben DiPietro
October 4, 2017
The Wall Street Journal