The article in the url below acknowledges how, by some measures, companies today face greater scrutiny than ever before:
"Chief executives are now exposed to all that the digital, connected world can throw at them. Social media provide a torrent of feedback from customers, ranging from the quality of sausages to customers' stance on Chinese intellectual-property laws. Companies' supply chains, whether mines in the Congo or sewing factories in Bangladesh, are watched and documented by activists, who ask difficult questions about pollution and labour conditions that many firms once chose to ignore."
But, the article questions whether this is the 'right' kind of scrutiny. In many ways, firms remain opaque – held to account on superficial metrics, but not sufficiently challenged on the details of day-to-day operations:
"Yet even as those theatrical forms of scrutiny have soared, the other kind [by financial analysts] – methodical, detailed, financial and often dry – is declining. This is harder to spot than grandstanding, but is no less important. People who depend on share prices rising or falling are among the best at holding firms to account. They ask the questions that chief executives find most awkward to answer. The work required to do that can be achingly dry; the best financial analysis is rigorous to the point of rigor mortis. But some information that seeps out serves a wider purpose. An investor might demand that a company's management detail how its underfunded pension pot will impact results in the third quarter, for example."
The article attributes this decline in oversight to two main reasons – first, increased regulation has constrained what executives can or cannot say about their firm, which encourages them "to say as little as possible," especially when pressed or the issue is 'controversial.' And second, the number of the kind of analysts who usually initiate these interrogations ("sell-side analysts") "has tumbled" in recent years as multiple financial crises have highlighted the fact that "they could be prone to conflicts of interest:"
"The biggest firms still get lots of attention, for now. But firms in the FTSE 250 index of mid-sized British companies, have seen coverage dwindle to seven analysts each, down by over a fifth in a decade."
The decline of this detailed oversight (combined with the increase of more superficial 'governance') has consequences – for example, it explains how United Airlines can face a massive online backlash to its less than ideal customer service, yet deliver record profits the next quarter (see Strategic CSR – United and Strategic CSR – United Airlines). A similar story played out for Uber (see Strategic CSR – Uber). Although a large part of strategic CSR focuses on diminishing the role of shareholders in business today, it still recognizes them as an important stakeholder – one of many, but important nonetheless. Detailed oversight of finances and operations is the most important role they can play:
"While the modern firm is constantly interrogated about its conduct and ethics, it is increasingly able to keep its performance under wraps. That makes companies look responsive but in the long run could mean the economy works less well for everyone."
Take care
David
David Chandler
© Sage Publications, 2020
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One eye open, one eye shut
December 15, 2018
The Economist
Late Edition – Final
65
