Strategic CSR - Warren Buffett

I am not normally a fan of Warren Buffett as I think many of the companies he invests in (e.g., Wells Fargo, Coca-Cola, Kraft/Heinz, Dairy Queen, See's Candies, etc., etc.) and even the companies he partners with (e.g., 3G Capital) are hurting, rather than helping, society progress. I also think his investment decisions are luck as much as anything else, given his ill-judged support for CEO pay policies at Coke (that do not reflect performance), his strong support for the train company BNSF (when some 40% of rail freight in the U.S. is coal), or his aversion to investing in IT stock (he only got into Apple by mistake). All of this might somewhat explain why the WSJ recently noted that "Berkshire Hathaway Inc. has underperformed the S&P 500 for a decade … during a historic bull market." Like many executives that have run out of ideas, his main response appears to be to buy back his own firm's shares. But, that is not to say that the man has no idea what he is talking about. In the article in the url below, at least, he is on solid ground by proudly advocating in favor of capitalism:

 

"The most prominent face of capitalism — Warren Buffett, the avuncular founder of Berkshire and the fourth wealthiest person in the world, worth some $89 billion — appeared to distance himself from many of his peers, who have been apologizing for capitalism of late. 'I'm a card-carrying capitalist,' Mr. Buffett said. 'I believe we wouldn't be sitting here except for the market system,' he added, extolling the state of the economy. 'I don't think the country will go into socialism in 2020 or 2040 or 2060.'"

 

The author notes that this frank statement stands in contrast to some business leaders who profess statements on controversial issues that go with popular sentiment, only to quickly reverse their position when the spotlight has moved on:

 

"Some billionaires agonize about inequality and the education system, for example, but don't push for higher taxes on the wealthy to help pay for fixes (one of Mr. Buffett's preferred remedies). A raft of chief executives who boycotted going to Saudi Arabia after the murder of Jamal Khashoggi last year quickly returned to doing business with the kingdom when the headlines died down."

 

I am not convinced that Buffett thinks any more about the detail of advancing society than other business leaders—he is simply convinced that capitalism is the most direct way of getting there:

 

"… at his core, [Buffett] believes that the pursuit of capitalism is fundamentally moral — that it creates and produces prosperity and progress even when there are immoral actors and even when it creates inequality."

 

In this sense, he is following a strategic CSR perspective. In his investment decisions, however, he consistently veers off-track.

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (5e)

© Sage Publications, 2020

 

Instructor Teaching and Student Study Site: http://studysites.sagepub.comstudy.sagepub.com/chandler5e 

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

Warren Buffett's Case for Capitalism

By Andrew Ross Sorkin

May 6, 2019

The New York Times

Late Edition – Final

B1

https://www.nytimes.com/2019/05/05/business/warren-buffett-capitalism.html

 

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

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (4e)

© Sage Publications, 2017

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/ 

 

 

Rules Aren't Enough to Foster Ethical Behavior

By Ben DiPietro

October 4, 2017

The Wall Street Journal

https://blogs.wsj.com/riskandcompliance/2017/10/04/the-morning-risk-report-rules-arent-enough-to-foster-ethical-behavior/

 

Strategic CSR - Guns

At first glance, the article in the url below contains an interesting proposal – that the credit card companies prohibit the purchase of guns using their products:

 

"Here's an idea. What if the finance industry — credit card companies like Visa, Mastercard and American Express; credit card processors like First Data; and banks like JPMorgan Chase and Wells Fargo — were to effectively set new rules for the sales of guns in America? Collectively, they have more leverage over the gun industry than any lawmaker. And it wouldn't be hard for them to take a stand."

 

The idea is that, by prohibiting gun sales using Visa and MC, the stores would be faced with either accepting credit cards or selling guns, but could not do both. The effect, the author believes, would be to remove guns from most stores across the country:

 

"For example, Visa, which published a 71-page paper in 2016 espousing its 'corporate responsibility,' could easily change its terms of service to say that it won't do business with retailers that sell assault weapons, high-capacity magazines and bump stocks, which make semiautomatic rifles fire faster. … If Mastercard were to do the same, assault weapons would be eliminated from virtually every firearms store in America because otherwise the sellers would be cut off from the credit card system."

 

Although interesting, the logic on which this idea is based is flawed. The author uses Bitcoin as an example of the credit card companies' ability to enact the changes he is proposing:

 

"There is precedent for credit card issuers to ban the purchase of completely legal products. Just this month, JPMorgan Chase, Citigroup and Bank of America banned the use of their cards to buy Bitcoin and other cryptocurrencies. To be clear: Those three banks won't let you use your credit card to buy Bitcoin, but they will happily let you use it to buy an AR-15-style semiautomatic rifle — the same kind of gun used in mass shootings in Parkland; Newtown, Conn.; San Bernardino, Calif.; Las Vegas; and Sutherland Springs, Tex."

 

But, the primary reason Visa and MC ban Bitcoin purchases is risk mitigation. Bitcoins are a very risky investment. If I use my credit card to buy Bitcoin that then crashes in value, how am I going to repay my debt to the credit card companies? The comparison to purchasing a legal product for regular consumption is not valid (it would only be valid if the credit card companies could be sued if their cards were used to buy guns that later were used in a mass shooting, which is an interesting idea, but another story). If the credit card companies were to take the author's advice and start selecting which legal products to block, their task would never end. Tobacco kills ten times as many people in the U.S. as guns every year, should they prevent those products being bought? Alcohol is another big killer. What about cars, which kill tens of thousands of people every year in the U.S.? Or fast food, candy, or sodas, which all contribute significantly to a variety of health-related issues and premature deaths? The list is potentially endless. Blame is being misapplied here. More specifically, the burden of trying to find a solution is being conveniently shifted. This is not the credit card companies' problem to solve. It is our problem, together, as a society. If anything is to change regarding gun laws in the U.S., it is legislators that will need to take the lead, but that lead will need to come from us. If we say we support such action, then we need to vote for politicians who actually might do something about it. As Thomas Friedman puts it in the article in the second url below:

 

"… ultimately, nothing will change unless young and old who oppose the N.R.A. run for office, vote, help someone vote, register someone to vote or help fund someone's campaign — so we can threaten the same electoral pain as the National Rifle Association. … This is not about persuading people with better ideas. We tried that. It's about generating raw electoral power and pain."

 

In short, we need to follow the inspiring leadership of the Parkland, FL high school students most affected by this most recent tragedy and shame politicians into acting. They are a great example of what I would call engaged stakeholders!

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (4e)

© Sage Publications, 2017

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/


Congress Fails to Curb Guns. Could Banks?

By Andrew Ross Sorkin

February 20, 2018

The New York Times

Late Edition – Final

B1

https://www.nytimes.com/2018/02/19/business/banks-gun-sales.html

Stop Tweeting, and Get in the NRA's Face

By Thomas L. Friedman

February 21, 2018

The New York Times

Late Edition – Final

A23

https://www.nytimes.com/2018/02/20/opinion/get-out-of-facebook-and-into-the-nras-face.html

 

Strategic CSR - Double standards

An important challenge for CSR advocates is to understand why we might employ different values at home and at work:

 

"'I know I should be bothered but I just can't be,' said a colleague recently as they threw some paper towards the bin, 'it's weird really because at home we're fastidious about recycling and all that … but at work I just don't bother.' In one sentence highlighting how hard it can be to encourage employees to be as environmentally friendly in the workplace as they are in their own homes."

 

Why is one behavior at home and in the family unacceptable (e.g., lying or creating waste), yet 'deception' and 'pollution' have long been a part of business practice? The list of companies where such 'unacceptable' behavior is not only sanctioned, but rewarded or incentivized, is long (e.g., Wells Fargo, VW, BP, etc.). The article in the url below presents an interesting take on this issue – unfortunately, as with many things with humans it seems, our behavior is explained by following the money:

 

"… research confirms that employees act worse at work because they don't have a financial interest (most don't even know the energy spend of their organisation), equipment is often shared so there can be a lack of responsibility and employees can't control many of the elements that could make a difference to energy and resources use, such as heating or lighting."

 

As such, solving the problem appears to rest in explicitly demonstrating a self-interest in choosing one behavior over another:

 

"A London council, for example, tackled printing by showing that if every employee used one less sheet of paper a day it saved paper equivalent to the height of a local landmark."

 

In an organization, however, in order for the individual to feel motivated to act in the best interests of the collective, there has to be a sense that everyone is in it together. Because such a culture is difficult to create and often depends on executives leading by example, there is significant variance – among firms, certainly, but even within firms:

 

"… employee environmental behaviours differ between organisation types (private versus public) and even between sites and buildings of the same organisations. Each may have its own constraints in terms of infrastructure, social norms or managerial expectations. Research has found behaviour may even vary during different times of the day or week because of employee's emotional state, job satisfaction or ability to complete work goals."

 

As with any kind of culture, it is hard to align everyone's interests in a way that persuades us there is value in thinking first of the group, rather than the individual.

 

"There is no one solution to encouraging pro-environmental behaviour, but leadership is a key issue and without managers demonstrating their commitment, staff are unlikely to follow suit. [Firms] must also understand the barriers to sustainable behaviour for employees and what might motivate them to make different choices. This can be as simple as making sure that there are enough recycling bins or setting up computer systems effectively so employees can work remotely."

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (4e)

© Sage Publications, 2017

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

 

 

'I just can't be bothered': why people are greener at home than in the office

By Victoria Wells.

May 20, 2016

The Guardian

http://www.theguardian.com/sustainable-business/2016/may/20/green-home-office-environmental-leadership

 

Strategic CSR - Ethics and compliance

The field of ethics and compliance has long been conflicted. This is demonstrated in the range of titles assigned to people responsible for ethics/compliance in organizations – are they Ethics Officers or Compliance Officers or Ethics and Compliance Officers (or any of the other myriad of titles assigned to people essentially doing the same job)? This conflict is also apparent in the name of the leading association representing these managers, which was originally the Ethics Officers Association (EOA), then it became the Ethics and Compliance Officers Association (ECOA), and now, for some reason, is called the Ethics and Compliance Initiative (ECI) – an "initiative," to me, seems much weaker than an "association."

 

But, anyway. In general, my sense is that the tail has been wagging the dog a bit. In an effort to broaden their appeal to as many managers as possible (and, therefore, maintain or increase membership), the ECI has twisted itself to reflect the morphing field, rather than standing on principle for something 'pure' and shaping the field. The article in the url below supports this argument, suggesting that the consequences of this passive approach might be causing confusion in the executive suite about the role of these essential managers (note: the SCCE is a separate organization representing ethics and compliance officers):

 

"A survey of compliance and ethics professionals by the Society of Corporate Compliance and Ethics found 50% said promoting an ethical culture is the top job for an ethics and compliance program, while 35% said it is to prevent and detect misconduct."

 

In particular:

 

"When asked what they thought management believed the top objective is, 43% said meeting regulatory requirements, while 29% said preventing and detecting misconduct. When asked what they thought the board believed, 28% said to prevent and detect misconduct."

 

These survey results reflect confusion as to whether the role of these officers is to build an ethical culture that is likely to prevent misconduct (ethics) or to comply with existing legislation that minimizes the impact of any misconduct should it occur (compliance). While it is clearly more effective for a firm to prevent misconduct, that is also the more expensive option since it involves investment across the whole organization in multiple initiatives, some of which may help prevent misconduct while others are probably unnecessary. The cheaper (and more cynical) option is to wait for misconduct to emerge and then act to minimize the fallout. While this latter approach might be cheaper in the short-term, however, the danger is that it generates much longer-term issues that can seriously threaten the organization's viability (e.g. VW, Wells Fargo, etc.). My suggestion to the ethics and compliance field, therefore, is to start shaping the field in a way that corrects misunderstandings among firms' senior ranks, rather than merely trying to reflect it.

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (4e)

© Sage Publications, 2017

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

 

 

Differing Views on Ethics & Compliance

By Ben DiPietro

July 25, 2016

The Wall Street Journal

http://blogs.wsj.com/riskandcompliance/2016/07/25/the-morning-risk-report-biometric-data-raises-privacy-stakes/

See also: http://blogs.wsj.com/riskandcompliance/2016/07/22/survey-roundup-disconnect-between-compliance-c-suite-board/

 

Strategic CSR - Financial Advisers

The research summarized in the article in the url below contains some worrying information about the financial advising industry:

 

"[Research published by] the University of Chicago and University of Minnesota found that 7 percent of financial advisers have been disciplined for misconduct that ranges from putting clients in unsuitable investments to trading on client accounts without permission. That's a troubling mark for an industry that relies on the trust of clients."

 

More worrying is that the 7% number is only an average. While the 'cleanest' companies such as Morgan Stanley and Goldman Sachs had less than 1% of their advisers who had been disciplined in this way, in some companies (which interestingly, given recent events, includes Wells Fargo) the number was above 15% and, in other companies, it was higher still:

 

"Nearly 20 percent of financial advisers at Oppenheimer & Co., with more than 2,000 advisers counted in the study, have misconduct records, according to the new paper."

 

Also disconcerting was that, although these advisers were initially punished, there did not appear to be any lasting stigma attached to their transgressions. In fact, it looks as though whatever drove them to transgress in the first place is a skillset that is in demand in this industry:

 

"Misconduct isn't left unchecked by financial firms. About half of advisers found to have committed misconduct are fired—although 44 percent of advisers who leave a job due to misconduct are hired by another firm within a year, according to the paper."

 

This is in spite of an elevated risk of future transgressions by past offenders:

 

"Many fired advisers end up moving to firms that have higher rates of misconduct than their previous employer did, and they become repeat offenders. 'Prior offenders are five times as likely to engage in new misconduct as the average financial adviser,' the study found."

 

For a list of the Top 10 and Bottom 10 companies in the industry in terms of the percentage of advisers who have been disciplined, see:

 

https://assets.bwbx.io/images/ic0hQovLHQIw/v1/-1x-1.png

 

Take care

David

 

David Chandler

Strategic Corporate Social Responsibility: Sustainable Value Creation (4e)

© Sage Publications, 2017

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler4e

Strategic CSR Simulation: http://www.strategiccsrsim.com/

The library of CSR Newsletters are archived at: https://strategiccsr-sage.blogspot.com/

 

 

It Just Got Even Harder to Trust Financial Advisers

By Suzanne Woolley

March 1, 2016

Bloomberg Businessweek

http://www.bloomberg.com/news/articles/2016-03-01/it-just-got-even-harder-to-trust-financial-advisers

 

Strategic CSR - Wells Fargo

The article in the url below focuses on an initiative at Wells Fargo to measure the happiness of its 260,000 employees. The goal is to improve the general perception of the industry on the assumption that happy employees are less likely to act in a way that damages the finance industry's (and, by extension, Wells Fargo's) reputation:

 

"At Wells Fargo, managers have dreamt up a new ratio to track alongside such banking stalwarts as provision coverage and capital adequacy. It is called the happy:grumpy ratio, and measures how many cheery staff the bank employs for every curmudgeon."

 

And Wells Fargo is happy to report good progress:

 

"Only five years ago happy bankers (measured by their own assessment) outnumbered the grumpy ones by 3.8 to 1; by last year there were eight times as many Pollyannas at Wells Fargo as there were miserable sods."

 

In spite of Wells Fargo's optimism, others are less sure the bank is capturing what it purports to be measuring:

 

"If what makes bankers happy is taking risks and making money, they will be even happier when they are up to no good — provided it results in lots of money falling into their laps. Furthermore, if you are the sort of person who thinks it fine to diddle your bank out of billions of dollars, you are not going to worry about giving misleading answers on a staff satisfaction survey."

 

Perhaps the task is unrealistic simply due to many humans' attitude about their work:

 

"According to a Gallup survey of 25m workers there are twice as many unhappy as happy ones in the world."

 

And surveys, even if anonymous, are notoriously difficult methods to gauge the accurate intentions/beliefs of the individuals who are being asked:

 

"… there is little point in asking employees whether they are happy or not. The answer surely depends on who is asking, on what mood the subject is in, on their temperament and on what they consider 'happy' to mean. To aggregate 260,000 unreliable answers and then treat the result as data on a par with tier one capital, is really quite frightening."

 

In contrast, the author offers three alternative metrics that she believes represent a more effective measure of whether employees are truly content (and, therefore, less likely to commit harm):

 

"The first is staff turnover. If people are more than normally unhappy, they tend to leave. … The second measure is the ratio of what the bank's hotshots get paid to what the security guard gets. We know that perceived unfairness and inequality both make people unhappy; so when this gap gets wider the culture worsens. … [The] third measure … is to monitor how many friends people have at work. All the general happiness data show a powerful correlation between the number of close friends and happiness."

 

Whether these alternative measures of 'happiness' would enable firms (and regulators) to prevent future scandals is less clear. What it would do, however, is give an effective measure of the firm's culture, which "would give prospective employees an excellent idea as to whether they would like to work there, or not."

 

Take care

David

 

David Chandler & Bill Werther

Strategic Corporate Social Responsibility: Stakeholders, Globalization, and Sustainable Value Creation (3e)

© Sage Publications, 2014

 

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/

 

 

Wells fargo's happy:grumpy ratio is no way to audit staff

By Mark Binelli

March 29, 2015

The New York Times Magazine

Late Edition – Final

36

http://www.ft.com/intl/cms/s/0/31967ba6-aacb-11e4-81bc-00144feab7de.html

 

Strategic CSR - Finance

The article in the url below reports the latest success for environmental activists campaigning against banks that finance companies involved in strip coal mining:

 

"Last week, with little fanfare, PNC Financial, the nation's seventh-largest bank, disclosed a significant strategic shift. The bank said it would no longer finance coal-mining companies that pursue mountaintop removal of coal in Appalachia, an environmentally devastating practice that has long drawn opposition."

 

It seems that PNC was one of the few remaining banks willing to finance this industry:

 

"PNC had been a holdout; Bank of America, Citigroup, Morgan Stanley, JPMorgan Chase, Wells Fargo, Credit Suisse and others had already distanced themselves from coal companies involved in mountaintop removal."

 

As such, future options for the industry are running out:

 

"GE Capital and UBS appear to be the only large financial institutions in the country still willing to lend money to companies involved in this mountaintop mining, and even they are scrutinizing such activities."

 

The article suggests that this strategy of trying to cut-off supplies of finance is more effective for campaigners instead of trying to force investors to divest from carbon energy stocks:

 

"It's one thing for large investors like the Rockefeller family or Stanford University's endowment to pull out of fossil fuel companies. The result, maybe, is a marginally lower stock price for the big oil players. But it's quite another when the nation's banks decide, independently or collectively, to effectively shut off the financing for projects that require considerable capital. It has the effect of killing the business."

 

Take care

David

 

David Chandler & Bill Werther

Strategic Corporate Social Responsibility: Stakeholders, Globalization, and Sustainable Value Creation (3e)

© Sage Publications, 2014

 

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/

 

 

A New Tack in the War on Mining Mountains

By Andrew Ross Sorkin

March 10, 2015

The New York Times

Late Edition – Final

B1

http://www.nytimes.com/2015/03/10/business/dealbook/pnc-joins-banks-not-financing-mountaintop-coal-removal.html

 

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

Strategic Corporate Social Responsibility: Stakeholders, Globalization, and Sustainable Value Creation (3e)

© Sage Publications, 2014

 

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

http://dealbook.nytimes.com/2014/06/22/an-employee-dies-and-the-company-collects-the-insurance/

 

Strategic CSR - Financial Crisis

The accusation that the U.S. government has been reluctant to punish the instigators of the Financial Crisis is not as convincing as it once was. There is some evidence that they have been willing to attribute blame, as the article in the url below suggests. In particular, the article contains a graphic that lists the 10 largest settlements by banks with U.S. authorities. Notably, all ten settlements have been announced since February, 2012 and all but two of them are directly related to the Financial Crisis:

 

1. JPMorgan Chase:        $13 bn.

2. Bank of America:         $11.8 bn.

3. Bank of America:         $11.6 bn.

4. Bank of America:         $9.3 bn.

5. BNP Paribus:               $8.9 bn.

6. Wells Fargo:                $5.3 bn.

7. JPMorgan Chase:        $5.3 bn.

8. JPMorgan Chase:        $5.1 bn.

9. Bank of America:         $2.9 bn.

10. Credit Suisse:             $2.6 bn.

 

Now, whether the fines are big enough and whether individual executives should also have been punished, are separate questions that remain.

 

Have a good weekend.
David

 

David Chandler & Bill Werther

Strategic Corporate Social Responsibility: Stakeholders, Globalization, and Sustainable Value Creation (3e)

© Sage Publications, 2014

 

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/


Capital Punishment

July 5, 2014

The Economist

58

http://www.economist.com/news/finance-and-economics/21606321-frances-largest-bank-gets-fined-evading-american-sanctions-capital-punishment

 

Strategic CSR - Financial Crisis

Some quotes from the article in the url below that should be of concern to anyone hoping that we had learned from the Financial Crisis:

 

“Five years after the system was held at gunpoint by a massively interconnected and over-risked Wall Street, the country’s six biggest banks—JPMorgan Chase, Bank of America, Citigroup, Wells Fargo, Goldman Sachs, and Morgan Stanley—are now 37 percent larger than they were in the depths of the financial crisis. These institutions make more than four out of every 10 loans and tote two-thirds of the banking system’s $14.4 trillion in assets.”

 

“The total roster of U.S. banks is at all-time record low. In 1985, there were more than 18,000, compared with 6,891 now. … ‘The federal government has been keeping track of the number of banks since 1934 and this year is the very first time that the number has fallen below 7,000.’ [writes economics author and blogger Michael Snyder].”

 

“JPMorgan Chase is about the size of the entire British economy and holds 12 percent of all cash in the U.S.”

 

“Four U.S. banks now lug total derivatives exposure well north of $40 trillion, or more than the combined value of U.S. gross domestic product and the national debt.”

 

Too big to fail is not only alive and well, it is the global financial system! The graphic that accompanies the article demonstrates clearly how the banking industry has consolidated over the last two decades:

 

http://images.bwbx.io/cms/2013-12-09/1209-bank-popup-6301.jpg

 

Have a good weekend.
David

 

David Chandler & Bill Werther

Strategic Corporate Social Responsibility: Stakeholders, Globalization, and Sustainable Value Creation (3e)

© Sage Publications, 2014

 

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/

 

 

Is Wall Street Now Too Big to Care?

By Roben Farzad

December 10, 2013

Bloomberg Businessweek

http://www.businessweek.com/articles/2013-12-10/is-todays-wall-street-now-too-big-to-care