Strategic CSR - Philanthropy

I like Fast Company magazine. I find it a bit shallow, but it is useful to get a sense of current trends in business. The article in the url below is a good example – it is a response to the sudden increase in children who now need to be schooled at home:

 

"In the midst of COVID-19, schools across the country have closed their doors, and a majority of the 50 million K-12 students are now learning from home. For many, that means logging on to laptops to teleconference teachers who take digital attendance, then accessing lessons and homework to do on their own."

 

One of the main challenges this creates, of course, is that many of those children do not have access to the hardware (or internet connection) they need to study properly:

 

"The crisis will be the great stress test of digital learning, but one failure is already known: Roughly one in five teens reported having difficulty doing their homework because of a lack of access to computers and the internet. Chicago Public School principals are begging for hardware for students, while hundreds of thousands of children in NYC are still without laptops as teaching goes virtual."

 

Given this problem, the author has a potential solution:

 

"Ten million students need computers and internet access now. So who should provide it? Three of the most valuable companies in the world, each with more than $100 billion in cash for a combined pile of over $400 billion to weather the storm. Apple, Google (Alphabet), and Microsoft. Together, they could buy every vulnerable student in America a $1,000 laptop. Actually, they could buy every vulnerable student 40 laptops, or every K-12 student eight laptops, or every single American a laptop and then some. … At the bare minimum, each company could chip in $3.3 billion dollars to outfit the 10 million low-income students with a laptop or a tablet with a keyboard. Better still, these devices would be bundled with free LTE internet access."

 

And, from the author's perspective, this was not a request, but a demand:

 

"… the big three have enough cash on hand to outfit every student in America with respectable technology to learn remotely, without depleting their generous cash reserves. And let me be clear: They should. Each of these companies is individually wealthy enough to tackle this challenge entirely on their own, or they could team up. As we face this pandemic, the three greatest American technology companies should be paying back their profits, not to stockholders on dividends, but to the consumers who stacked their profits in the first place."

 

Of course, these are complicated issues and there are other nuances I could mention, but I had three responses to this core idea that came immediately to mind:

 

First, the way the article is written suggests that the money is just sitting around or would otherwise be wasted if the companies did not 'donate' it to all these kids. Of course, that is not the case, and Apple and Google are some of the largest companies investing in R&D (as well as distributing their profits to many other stakeholders in different ways). So the money is still circulating and adding value, even if the companies do not do what the author suggests.

 

Second, the key question the article raises is, which option creates the most value (and for whom)? Should the companies donate the money to help the kids or should they reinvest it in their businesses? This is the essential question from a societal perspective. Companies are not the government and do not run the educational system. That is the responsibility of the government and you could easily argue that the government could/should buy the laptops for every kid instead of buying a few nuclear weapons (not recommending that, just saying the opportunity cost is high). The 'responsibility' of the firm is to create value for its broad set of stakeholders. If a firm has an extra $1 to spare, therefore, they should invest it in the way that creates the most value for the most stakeholders. One reason for the firms' collective success (which the author seems to suggest is a gift from society), is that they already create so much value. So, you could argue that the largest benefit gained from an extra $1 would be to reinvest it in their core business – making their products and services even better than they already are.

 

This leads me to my third point: It is no doubt that the companies would create value by making this donation, but what would their 'return' be? If a fraction of those kids or their parents became lifelong fans (and customers) or future employees, maybe that would be worthwhile. The danger, from the companies' perspective however, is that 'society' would simply pocket the gift and give the companies nothing in return. This would be a very expensive way to get a headline in the papers. I think a potential 'return' on the investment could be measured in many ways (it is not simply a matter of a direct exchange of money). Customer loyalty, for example, is an 'investment' made by the customer in the company, and the company values it and returns it to the customers in terms of express delivery, better service, etc. – in other words, capitalism at its best! :-)

 

There are many new challenges we are all facing as a result of the current pandemic and associated economic dislocation. As ever, for-profit firms are often the best answer to these challenges, but we do not need to throw out economic principles in order to access those solutions.

 

Take care

David

 

David Chandler

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

© Sage Publications, 2020

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

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

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

 

Apple, Google, and Microsoft are failing U.S. students during the COVID-19 crisis

By Mark Wilson

March 30, 2020

Fast Company Magazine

https://www.fastcompany.com/90482278/apple-google-and-microsoft-are-failing-u-s-students-during-the-covid-19-crisis

 

Strategic CSR - Shareholder democracy

Count the article in the url below as another strike against the idea of shareholder democracy here in the U.S. Specifically, the article discusses an interesting practice that I was unaware of – share lending:

 

"[Investment firms, such as BlackRock, Vanguard, and Fidelity, who commonly hold a large percentage of a listed firm's shares] loan shares through brokers and intermediaries who act for clients unknown to the original lenders. Short sellers often borrow those shares to bet against companies, paying fees to funds that supply them with those shares. Those fees get passed back to fund investors."

 

While this is a good source of income for the funds (particularly in times of low yield, such as these), the result is that the funds are not able to use the votes associated with the loaned shares at the focal firm's annual general meeting:

 

"Investors from hedge funds to pensions make these tradeoffs all the time. For the biggest asset managers, the decision can occur on a massive scale as these firms direct trillions of dollars for investors."

 

This is particularly interesting choice for funds such as BlackRock, that have made so much noise about forcing executive teams to respond more directly to the firm's broad set of stakeholders:

 

"While investing giants have raised their voices to prod companies to address society's most pressing problems, they sometimes decide not to control the ballots that drive change. Their choice to loan out shares in some of the heavily shorted companies breaks with many people's assumption that firms overseeing economic interests in companies will cast full votes to maximize the value of the shareholdings."

 

The funds are clearly focused on the fees associated with this lending practice, while the result can be influential in determining the outcome of shareholder ballots:

 

"Many managers typically don't retrieve shares that have been lent out unless they think their vote is worth giving up income from lending out shares. The shares they put on loan are conduits for short selling. [For example,] In the last two weeks of April, GameStop has roughly 90% of shares outstanding sold short."

 

Take care

David

 

David Chandler

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

© Sage Publications, 2020

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

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

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

 

Investing Giants Cede Full Vote Power

By Dawn Lin

June 11, 2020

The Wall Street Journal

Late Edition – Final

B1, B10

https://www.wsj.com/articles/how-investing-giants-gave-away-voting-power-ahead-of-a-shareholder-fight-11591793863

also in full, here:

https://www.morningstar.com/news/dow-jones/202006111673/investing-giants-cede-full-vote-power-wsj

 

Strategic CSR - BP (II)

This newsletter follows-on from Tuesday's newsletter about the write-downs BP and other fossil fuel companies have made recently due to lower anticipated future oil prices and the likelihood they will be unable to extract all of the oil they currently report as reserves. This second article about BP, in the url below, looks at how the company is reacting to this new reality. Specifically, it details the beginnings of a shift away from a reliance on fossil fuel driving revenues toward a business model that gives significantly more weight to renewable energy:

 

"On a webcast with analysts [BP CEO, Bernard] Looney described a transformation plan that Stuart Joyner, an analyst at the market research firm Redburn, said in a note to clients was 'major, positive, thoughtful and largely unexpected.'"

 

More specifically, the CEO was rationalizing the new competitive environment he perceives BP faces in light of the firm's commitments on future carbon emissions:

 

"Mr. Looney, though, was more specific in his investment goals, saying that he intended for BP in a decade to be investing around $5 billion a year in renewable energy like wind, solar and hydrogen, a clean-burning gas, about 10 times the current amount. BP's capital spending is likely to be about $12 billion this year."

 

Further:

 

"He said that he wanted to reduce oil and gas production by about 40 percent in that time frame. As part of the shift, BP, whose origins date back to the discovery of oil in Iran in the early 20th century, would not enter any new countries to explore for oil and would also pare back its refining by about one-third, Mr. Looney said."

 

It is the commitment to cutting oil and gas exploration and extraction that is so notable, and something that might create pressure on other energy firms to match. BP's history of commitments in this area, however, has not been forgotten. The concern is twofold – first, that the firm intends to sound more serious than it actually is and, second, that any deception will lay the foundation for future disasters, as was the case with Deepwater Horizon in 2010:

 

"BP has aspired to be a different kind of energy company before. In 2000 it adopted the slogan Beyond Petroleum, though early forays into renewable energy lost momentum after the 2010 Deepwater Horizon accident in the Gulf of Mexico."

 

In order to achieve its goals, Looney is committing BP to focus on electricity generation and invest heavily in renewable energy:

 

"By 2030 BP plans to have about 50 gigawatts of renewable generating capacity, roughly equivalent to fifteen large modern nuclear power stations."

 

Given that BP under Looney has committed to achieve "net zero" emissions only by 2050 and that "cash from oil and gas will fund investment," this shift is going to be insufficient in itself. But, it is a beginning, and BP is the first of the fossil fuel companies to even contemplate what this new reality looks like.

 

Take care

David

 

David Chandler

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

© Sage Publications, 2020

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

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

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

 

After Loss, BP Vows to Diversify Beyond Oil

By Stanley Reed

August 5, 2020

The New York Times

Late Edition – Final

B4

https://www.nytimes.com/2020/08/04/business/energy-environment/bp-renewable-investment.html

 

Strategic CSR - BP (I)

This week's newsletters will focus on a couple of recent articles about BP. The first of these articles, in the url below, is interesting because, at the time, it was the first announcement I had seen by a major fossil fuel company (in this case, BP) that it is writing down a substantive amount of its oil reserves:

 

"BP sent a signal to investors … that the economic shock of the pandemic would reverberate for years, and that less gas and oil would probably be needed in the future. The London-based oil giant told shareholders the company expected to write down as much as $17.5 billion of its oil and gas holdings in its next quarterly report."

 

I think the article is important because this write-down is not merely because the firm's current reserves are worth less (due to a drop in global demand, which has caused a significant drop in the price of oil), but also because the firm fully expects to leave some of those reserves in the ground:

 

"With the write-down, which could amount to as much as 12 percent of the previous book value of the oil and gas assets, [CEO, Bernard] Looney, 49, is preparing the company for a future in which it will produce less fossil fuel than previously expected. It is likely to be the largest write-down since 2010, when the company recorded a $32 billion hit related to the Deepwater Horizon disaster in the Gulf of Mexico."

 

This is a dramatic turnaround from only a short time ago, when investors were rewarding new discoveries of oil, irrespective of the debate around climate change, with the full expectation that those reserves would be extracted:

 

"In past years, companies rushed to acquire oil and gas fields and bring the crude or natural gas to market. Now, analysts say, investors are skeptical of all but the most profitable investments in fossil fuels because it is not clear that there will be demand for them — especially as many governments strive to meet the requirements of the 2015 Paris agreement on global warming."

 

Specifically:

 

"The write-downs are being taken for two reasons. BP has cut its long-term expectations of oil and gas prices by about 30 percent, to $55 a barrel for oil, a move that reduces the value of its assets. The company is also writing off resources, in places like the Gulf of Mexico and Canada, that it has on its books but may decide not to develop over the coming decades."

 

This is essential if we are to remain within our carbon budget (see Strategic CSR – Divestment) and have any hope of preserving the planet in anything like its current livable form. And there is some evidence that this perspective is spreading through the industry, although is not shared by all firms. See here for a similar announcement by Shell, subsequently, but here for an article reporting Exxon's resistance to such a write-down of its assets.

 

Take care

David

 

David Chandler

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

© Sage Publications, 2020

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

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

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

 

BP Steps Up Preparations for a World That Wants Less Oil

By Stanley Reed

June 16, 2020

The New York Times

Late Edition – Final

B7

https://www.nytimes.com/2020/06/15/business/energy-environment/bp-oil-gas-write-down.html

 

Strategic CSR - Journalists

The article in the url below from the early quarantine days of the COVID-19 pandemic accurately captures much of what is wrong with current understandings of CSR/sustainability by companies (and the business journalists that cover them):

 

"Today, every occupant of every C-suite is trying to figure out what they're willing to throw overboard as the economic storm spawned by the pandemic is swamping their ships. Businesses that were planning to save the world are now simply saving themselves."

 

First of all, of course, "saving the world" is not what CSR/sustainability means in any kind of practical sense, firm-by-firm. Of course, there is an aggregate effect (which is yet to be net-positive), but each firm intends primarily to take care of its own operations (and, hopefully, clean up after itself).

 

Second, it is wrong to talk about corporations as "saving themselves," as if they are somehow independent from the society in which they are based. Firms and societies are one and the same, inseparable, and it is really quite ignorant to conceive of them as anything else. We do not live in a them and us world, where the corporations are the 'them' and we are the 'us.' Last time I checked, corporations are constituted by people who live in societies, are consumers, read newspapers, vote for politicians, and so on. We are all stakeholders and, together, we are all corporations.

 

Third, and most importantly, it is not possible to "throw overboard" something that is integral to a firm's business. Whether in a global lockdown or the 'normal' business cycle (whatever that now means), the goal for any organization is always the same – to create value for its broad set of stakeholders. If that is done, then the organization will thrive. If it is not done, however, or if a minority of stakeholders is privileged at the expense of the majority then, eventually, the organization will go away because it is no longer creating sufficient value for society. So, while the nature of the 'value' for stakeholders will shift, whether prompted by a global pandemic or simply the natural evolution of norms and expectations, the fact that organizations need to identify that value and create it for their stakeholders will always be the same. That is what 'responsible' behavior looks like for a corporation, whatever the age in which it is operating:

 

"When the financial crisis hit in 2008, companies again went into survival mode. … As the economy roared back, CSR became chic. Investors like BlackRock Inc. pushed for more sustainable practices. Retailers and restaurants reduced waste because customers were willing to pay for greener options."

 

The analysis is wrong, but the last sentence holds the key. It is not about trends; it is about stakeholder value creation. If sustainability is something that stakeholders value and are willing to support, then that is what firms will do and those that are best at it will be rewarded the most for their actions.

 

Take care

David

 

David Chandler

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

© Sage Publications, 2020

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

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

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

 

Sustainability Is The First Thing to Go

By John D. Stoll

May 2-3, 2020

The Wall Street Journal

Late Edition – Final

B5

https://www.wsj.com/articles/sustainability-was-corporate-americas-buzzword-this-crisis-changes-that-11588352181

 

Strategic CSR - Beyond meat ...

I like the passive-aggressive nature of an advertisement by Lightlife Foods, which appeared in today's national papers here in the U.S. (NYT + WSJ, hyperlinked):

 

 

According to its website (https://lightlife.com/our-story/), Lightlife declares:

 

"We're proud of our roots. For over forty years, we've been committed to sharing our love for plant-based food and leading a balanced life. That's why you'll find our food is delicious and nutritious. Plus, we're always looking for ways to improve our food and the impact we have on the planet. We will always be open and honest with you—ask us anything."

Today's ad is an indication of that honesty and the firm's commitment to creating healthy food. Specifically, the letter is aimed directly at Lightlife's competitors, Beyond Meat (https://www.beyondmeat.com/) and Impossible Foods (https://impossiblefoods.com/). The opening salvo of the letter gives you a sense of the overall tone:

 

"Enough. Enough with the hyper-processed ingredients, GMOs, unnecessary additives and fillers, and fake blood."

 

In contrast to their portrayal of the products manufactured by the "food tech companies," Lightlife presents its own products (and governing philosophy) in a very different light:

 

"People deserve plant-based protein that is developed in a kitchen, not a lab. Our burger has only 11 ingredients. That's it – not 18 or 20. Our ingredients are clean, recognizable, and simple to pronounce. There are no fillers, GMOS, additives like synthetically produced 'soy leghemoglobin' for flavor and color. These just aren't necessary."

 

For more information on Lightlife's commitment to make a "clean break from the 'food tech' companies," see https://lightlife.com/cleanbreak/. And, for more on the firm's history of confronting Impossible Foods and Beyond Meat, see https://www.adweek.com/agencies/hollywood-fun-loving-couple-dax-shepard-kristen-bell-kids-lightlife/.

 

Take care

David

 

David Chandler

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

© Sage Publications, 2020

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

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

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

 

An Open Letter to Beyond Meat & Impossible Foods

By Dan Curtin (President, Lightlife Foods)

August 25, 2020

The Wall Street Journal

Late Edition – Final

A5

For additional commentary on the ad, see: https://vegconomist.com/marketing-and-media/lightlife-launches-campaign-against-impossible-foods-beyond-meat-enough-with-the-hyper-processed-ingredients-and-fake-blood/

 

Strategic CSR - Welcome back!

Welcome back to the Strategic CSR Newsletter! The first newsletter of the Fall semester is below. As always, your comments and ideas are welcome.

 

I am happy to report that the second edition of Sustainable Value Creation was published by Routledge earlier this month. The publisher's page for the book is here (including the option to order review copies):

 

https://www.routledge.com/Sustainable-Value-Creation-2nd-Edition/Chandler/p/book/9780367859824

 

I hope you are all doing well and managed to be somewhat productive over the summer. I don't know about you, but I am teaching in-person this semester – something that just feels very weird at the moment (trying to speak through two masks and a face shield for two-and-a-half hours certainly doesn't help). What with everything that is going on, I am looking forward to another semester of newsletters. No doubt some of them will reflect our strange new reality, but the overall goal, as much as possible, is to resume normal service.

 

If you have any questions about Sustainable Value Creation, the Newsletters, simulation (or anything else), please let me know.

 

Take care

David

 

David Chandler

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

© Sage Publications, 2020

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

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

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

 

Strategic CSR - Sustainable Value Creation

This is the last CSR Newsletter of the Spring semester. Have a great summer and I will see you in the Fall!

 

Over the summer, I am happy to announce I will have a new book published by Routledge, titled Sustainable Value Creation. The book's website was recently launched:

 

https://www.routledge.com/Sustainable-Value-Creation-2nd-Edition/Chandler/p/book/9780367859824

 

This is the second edition of a book that I had previously published as part of the UN PRME book series at Business Expert Press. It is much shorter than my Sage book and not a traditional textbook format. I use it in my Executive MBA course and find the shorter format works well. The cover is below and the TOC is below that, FYI. If anyone has any questions, please let me know.

 

 

Hope you all have a great summer.

Take care

David

 

David Chandler

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

© Sage Publications, 2020

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

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

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

 

Sustainable Value Creation: ToC

 

Introduction:  Corporate Social Responsibility

• Defining CSR
• Measuring CSR
• Profiting from CSR
• Sustainable Value Creation
  
  
  

Principle I:  Business is social progress

• For-profit firms
• Business is ethical and moral
• Self-interest and public interest
  
  
  

Principle 2:  Shareholders do not own the firm

• Limited liability
• A legal person
• The business judgment rule
• Stakeholders, not shareholder
  
  
  

Principle 3:  Prioritizing competing stakeholder interests is difficult

• Stakeholder theory
• Prioritizing stakeholders
• A decision-making model
  
  
  

Principle 4:  CSR is a stakeholder responsibility

• Corporate social responsibility
• Corporate stakeholder responsibility
• Stakeholder democracy 
  
  
  

Principle 5:  Market-based solutions are optimal

• Imperfect markets
• Unintended consequences
• Behavioral economics
  
  
  

Principle 6:  Profit = total value

• Economic value + social value
• Profit optimization
• Production value and consumption value
  
  
  

Principle 7:  The free market is not free

• Free markets
• Externalities
• Lifecycle pricing
  
  
  

Principle 8:  Only business can save the planet

• Sustainability
• Waste
• Materialism
• Scale
  
  
  

Principle 9:  Value creation is not a choice

• Not philanthropy, but core operations
• Not caring capitalism, but market capitalism
• Not sharing value, but creating value
  
  
  

Principle I0:  The business of business is business

• Milton Friedman
• The purpose of the firm
  
  
  

Conclusion:  Sustainable Value Creation

• Defining SVC
• Enlightened management
• Final thoughts

Strategic CSR - COVID-19 (II)

As Governor of the Bank of England, from 2013-2020, Mark Carney did much to focus attention on the growing financial implications of climate change for businesses (and, by extension, governments). The article in the url below shows how he continues to use his platform (post-BofE) to advance related issues—in this case, discussing the potential economic implications of COVID-19. In particular, he touches on a debate I have long struggled with—determining where 'value' ends and 'values' begin:

 

"Value will change in the post-covid world. On one level, that's obvious: valuations in global financial markets have imploded, with many suffering their sharpest declines in decades. More fundamentally, the traditional drivers of value have been shaken, new ones will gain prominence, and there's a possibility that the gulf between what markets value and what people value will close."

 

Carney was invited to write this column by The Economist and uses the opportunity to advance an idea originally put forward by the philosopher, Michael Sandel:

 

"This points to a final, deeper issue. … in recent decades, subtly but relentlessly, we have been moving from a market economy to a market society. Increasingly, to be valued, an asset or activity has to be in a market. For example, Amazon is one of the world's most valuable companies, yet the Amazon region appears on no ledger until it is stripped of its foliage, and converted to farmland. The price of everything is becoming the value of everything."

 

Carney sees the shared commitment and sacrifice that characterized the overwhelming public response to COVID-19 as an indication that this imbalance may be shifting:

 

"This crisis could help reverse that relationship, so that public values help shape private value. When pushed, societies have prioritised health first and foremost, and then looked to deal with the economic consequences. In this crisis, we know we need to act as an interdependent community not independent individuals, so the values of economic dynamism and efficiency have been joined by those of solidarity, fairness, responsibility and compassion."

 

At a more fundamental level:

 

"All this amounts to a test of stakeholder capitalism. When it's over, companies will be judged by … how they treated their employees, suppliers and customers, by who shared and who hoarded. After the covid crisis, it's reasonable to expect people to demand improvements in the quality and coverage of social support and medical care, greater attention to be paid to managing tail risks, and more heed to be given to the advice of scientific experts."

 

Hmmm. I hope so, but we'll see. The key, of course, is the extent to which we will remember and will reward those "who shared" and punish those "who hoarded." The ultimate test, as Carney argues, is and will continue to be climate change:

 

"The great test of whether this new hierarchy of values will prevail is climate change. After all, climate change is an issue that (i) involves the entire world, from which no one will be able to self-isolate; (ii) is predicted by science to be the central risk tomorrow; and (iii) we can only address if we act in advance and in solidarity."

 

Take care

David

 

David Chandler

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

© Sage Publications, 2020

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

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

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

Putting values above valuations

By Mark Carney

April 18, 2020

The Economist

Late Edition – Final

52

https://www.economist.com/by-invitation/2020/04/16/mark-carney-on-how-the-economy-must-yield-to-human-values

 

Strategic CSR - Disney

The article in the url below says something interesting about our society. At least, it says something about Disney, the company, and the place it holds in people's minds (and hearts):

 

"At 7:30 in the morning on a recent Saturday, 14 people gathered on the 10th floor of Disney's Riviera Resort in Orlando, Fla. … These 14 adults — a mix of stay-at-home moms, young professionals without children and middle-aged parents from across the country — aren't just Disney fans. They are now considered experts."

 

They are experts because they had been selected and trained for part-time jobs helping holidayers plan their vacations with Disney. But, they are not only experts – these people are serious fans. Given the current shut-down of, essentially, the whole vacation industry, Disney will need fans like this when everything starts back up again:

 

"During breakfast, Mickey Mouse walked into the restaurant and most members of the group rushed to give him a hug and take photos. When Minnie Mouse arrived, others got up, complimented her dress, hugged her and asked for pictures. Group shots, selfies and posed photos were all taken. By 8:15 a.m., when Donald and Daisy Duck arrived, the panelists were too excited to contain themselves — they clapped and danced to the music as the characters put on a performance."

 

And, because there are so many fans out there, this was not an easy job to get. First, there was the training:

 

"The group had been together in Orlando since Wednesday, receiving training about how to be panelists. They learned how to ask each other for help, how to answer a question politely, how to urge someone to try something new."

 

But before that, there was the application process:

 

"They beat out more than 10,000 other applicants to become members of the 2020 Disney Parks Moms Panel, a website where people planning to go on a Disney cruise, or visit a Disney park or Disney Vacation Club in the United States, can ask questions and get responses from these experts. The company will announce the panelists on Wednesday morning. Eleven of this year's new panelists are women, three are men and two are not parents. The panel also has an additional 28 panelists returning from previous years."

 

OK, that's a little weird but, so far, so good, right? Or, maybe it gets weirder. What is interesting about this particular job is not so much what is expected of each employee, but their compensation package:

 

"The panelist position, while a Disney contractor role with an intensive application process, is not paid. In exchange for answering these questions every week, the panelists get a free stay at a Disney park or vacation club of their choice for five nights and can bring three people along. For this group, the trip is more than enough payment."

 

The idea that avid 'fans' would work for Disney for free reminded me of a Southwest case that I teach in my strategy class where the firm's passengers routinely take paid holidays from their jobs to help Southwest recruit new flight attendants. When asked why in the case, one respondent says, "Well, this is my airline, too." I am always left amazed that you just can't buy an endorsement like that. Who would do that for United, American, or Delta? And, what does it say about Southwest (and Disney for that matter) that that is the case? At some level, it has to speak to the culture the organization has created, combined with the meaningfulness that we crave in our lives. Those firms that can create significant overlap between the way we work and the way we live are doing something special:

 

"For [the] panelists, who like Dr. Chlon work full-time, working for Disney in this capacity is something of an honor. It's also an opportunity to contribute to a company that has sentimental and nostalgic meaning."

 

And that enthusiasm is conveyed through these volunteers:

 

"This is why the panelists aren't paid, according to [Leanne O'Regan, director of public relations for Disney Parks, Experiences and Products]. There is an 'authenticity of getting advice from someone who isn't being paid to give you advice,' she said. 'We want them to be honest when they answer questions.'"

 

On the other hand, however, this story also reminded me of the AoM meeting that was held a few years ago in Orlando at Disney World, and what an unmitigated disaster it was. Disney is, if nothing else, a company created by management consultants. And their attempts to get us to part with more money than we would otherwise voluntarily do was so transparent as to be insulting. Maybe it is the cynic in me, but every time someone at Disney told me to have "a wonderful Disney day," my heart sank. Clearly, however, many people out there are not management professors and simply love what it is that Disney does:

 

"This year, Disney put out the call for applications in August and kept the application portal open for one week in September. Many people apply for years before becoming panelists. Tamela Hansen, 45, finally made it onto the panel after 12 years of applying. Ms. Hansen said that she feels like she has been preparing to be a panelist for her whole life; she knew her time would eventually come. After all, she has been to Disney World from Alabama, where she grew up and currently lives, at least 100 times."

 

My question, therefore: Is Disney different from Southwest, or are they both tapping into something similar and fundamental? If so, why do I (largely) enjoy interacting with Southwest (apart from some of those annoying safety videos on YouTube), while Disney makes me feel weird?

 

Take care

David

 

David Chandler

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

© Sage Publications, 2020

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

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

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

Work for Disney without Pay? 10,000 Applied

By Tariro Mzezewa

January 19, 2020

The New York Times

Late Edition – Final

TR1, TR8

https://www.nytimes.com/2020/01/08/travel/disney-parks-moms-panel.html

 

Strategic CSR - Meat

The article in the url below raises the possibility of extending the idea of a Pigovian tax (a tax on an activity that causes a negative consequence – i.e., a sin tax) to eating meat. In other words, meat would be taxed as a 'sin' in the same way that cities and states are beginning to tax a range of products, from plastic bags (e.g., Strategic CSR - Kenya) to sugar (e.g., Strategic CSR – CSR Threshold):

 

"Meat could be a target for higher taxes given criticism of the industry's role in climate change, deforestation and animal cruelty. … The idea is still its infancy and faces a lot of opposition from farming groups, but it's emerging as a trend in Western Europe. … If taxes gain traction, it could encourage more people to switch to poultry or plant-based protein and help drive the popularity of meat substitutes."

 

Such a tax has been advanced as a way to address animal welfare, as well as reduce meat consumption:

 

"In Germany, some politicians have proposed raising the sales tax on meat products to fund better livestock living conditions. A poll … showed a majority of Germans, or 56.4%, backed the measure, with more than a third calling it 'very positive' and some 82% of voters for the environmentalist Greens in favor."

 

This article coincides with another report from the IPCC recently on climate change and the land (https://www.ipcc.ch/report/srccl/), documenting the waste and damage associated with our current farming/land-use methods:

 

"The loudest argument against meat at the moment is not based on health but climate change. In a report this month, the United Nations said agriculture, forestry and other land use contributes about a quarter of greenhouse emissions."

 

In the face of the scale of the problem, a tax on red meat seems as though it will not get us all the way to there from here. The principle is important, however. If you believe that the market is the most effective means of allocating scarce and valuable resources (which I do), then sin taxes are the way to account for negative externalities in the pricing of products. Get the pricing right, and demand/supply will balance at the 'appropriate' level. In my opinion, this lifecycle pricing (together with technological innovation) is the only way we will combat climate change and have some hope of preserving a planet on which we can live.

 

Take care

David

 

David Chandler

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

© Sage Publications, 2020

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

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

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

Red Meat Could Be the Next Sin Tax After Sugar, Fitch Says

By Olivia Konotey-Ahulu

August 13, 2019

Bloomberg Businessweek

https://www.bloomberg.com/news/articles/2019-08-13/red-meat-could-be-the-next-sin-tax-after-sugar-fitch-says

 

Strategic CSR - Trees

The article in the url below demonstrates the danger of relying on carbon offsets to work our way towards carbon neutrality:

 

"Up to 90% of [11 million] saplings planted in Turkey as part of a record-breaking mass planting project may have died after just a few months, according to the country's agriculture and forestry trade union."

 

The problem comes when the people driving such projects bring their good intentions, but lack the necessary expertise:

 

"The government-backed programme broke the world record for the most trees planted in one hour in a single location, with 303,150 saplings planted in the northern Anatolian city of Çorum. The head of the union claimed, however, that 90% of the saplings his teams have inspected so far have died because of insufficient water. [A spokesperson] attributed the deaths to the saplings being planted at 'the wrong time' and 'not by experts,' as well as a lack of rainfall."

 

What would be interesting is to see how this tree planting project was accounted for at the time it was initiated. If, for example, 11m trees are expected to absorb a certain amount of carbon over their lifetimes, that amount of carbon can either be offset in one lump today or it can be amortized over the expected life of the trees. The latter method is more accurate (and honest) and should be weighted toward the end of the time period, because older, bigger trees absorb more CO2 than younger, smaller trees. Adopting this approach avoids falsely accounting for carbon that has yet to be removed from the atmosphere; it also allows for eventualities such as the trees dying and, therefore, never being able to reach their full, carbon-absorbing potential:

 

"The dispute adds to the global debate about mass tree-planting, with critics pointing out the sometimes poor survival rate of mass-planted saplings, and the use of such projects to 'greenwash' states and companies with otherwise poor environmental records."

 

If firms continue producing carbon at their current rates, then falsely accounting for carbon absorption will not make much difference. But, by planting trees that die before they get to absorb the carbon that has been 'allocated' to them, not only are we doing nothing to reduce the future damage of climate change, we are also kidding ourselves that we are making any kind of meaningful progress.

 

Take care

David

 

David Chandler

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

© Sage Publications, 2020

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

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

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

Most of 11m trees planted in Turkish project 'may be dead'

By Sami Kent

January 30, 2020

The Guardian

https://www.theguardian.com/world/2020/jan/30/most-of-11m-trees-planted-in-turkish-project-may-be-dead

 

Strategic CSR - Jeremy Grantham

Following-on from Tuesday's newsletter, the article in the url below challenges the idea that an investment fund that excludes certain industries cannot be as productive as one that has no such restriction. In particular, the article reports on research by Jeremy Grantham looking at the effect on returns of excluding specific industries from funds he created:

 

"Mr Grantham checked the data to find out whether, and how much, omitting the stocks of any industry over three decades would have hurt a hypothetical investor. He created synthetic portfolios that left out each of the ten broad stockmarket sectors and compared their returns with the market as a whole."

 

The results were surprising, to say the least:

 

"[Excluding specific industries] made hardly any difference. The S&P index returned an average of 9.71% annually between 1989 and 2017; the index excluding energy stocks returned 9.74%. The range of returns, from the worst portfolio to the best, was just 0.5 percentage points."

 

So surprising, that he double-checked his results:

 

"This finding seemed like it might be a fluke. But a further check, going back to 1925, had a similar outcome. The spread between the best and worst portfolios was 0.54 percentage points; there was hardly any gap between the portfolio with energy stocks and without them. … The market, it seems, has done rather a good job over time of pricing stocks so that no broad industry group yields abnormal returns."

 

Grantham's conclusion is that, since there is no effective difference in excluding specific industries, there is no (financial) reason not to exclude oil stocks from any fund, or divest any funds of existing investments in oil stocks. On the contrary, given the risks facing the oil and gas industry in the (near) future, Grantham recommends that there might be very good reason to exclude them:

 

"Oil demand has already peaked in rich countries and, as climate fears grow and green technologies become cost-effective, it will eventually peak worldwide. But not everyone is keenly focused on this prospect. Scepticism regarding climate science is common in America. To the extent that sceptics are investors, and are betting on business as usual, at least some of the risks facing Big Oil may not be in the price. Investors might, for instance, miscalculate the speed of transition to greener energy. Advances in materials science and battery technology are making electric vehicles a cost-effective alternative to petrol-fuelled cars, Mr Grantham reckons. Other potential hazards face oil companies, including increased regulation and costly lawsuits. In other industries, such as tobacco, firms have been forced to pay up when found to have knowingly sold harmful products. He thinks the oil industry faces a similar reckoning."

 

He goes further:

 

"Is there also a moral case for disinvestment? … Bill Gates, a software mogul and philanthropist, has argued that people should not waste idealism and energy on a policy that will not cause any reduction in the use of fossil fuels. What matters are incentives set by governments: tax breaks to fund research in green energy; tax rises to discourage carbon use. But this misses the point, says Mr Grantham: 'You have to make the oil industry a pariah for bad behaviour.' Only then will politicians feel the need to act."

 

Take care

David

 

David Chandler

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

© Sage Publications, 2020

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

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

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

Inessential oils

By Buttonwood

January 11, 2020

The Economist

Late Edition – Final

61

https://www.economist.com/finance-and-economics/2020/01/09/jeremy-grantham-on-divesting-from-big-oil

 

Strategic CSR - 50th Earth Day

With a nod to tomorrow's 50th anniversary of Earth Day, the newsletters this week focus on the field of ESG/SRI investing. Today, the article in the url below offers a broad critique by the WSJ columnist (James Mackintosh) who occasionally returns to this issue. Whenever he does, I find his perspective insightful because he tends to cut through a lot of the fluff that surrounds ESG/SRI (created largely by the investing companies trying to jump on the bandwagon). This column is no exception – I find the central conundrum that he presents fascinating:

 

"Much of ESG is about what economists call externalities: things such as carbon emissions that are free to the emitter but costly to wider society. Making money from pricing externalities is a matter of identifying which ones will lead to government, consumer or worker action and which ones won't."

 

The comment may seem cynical, but I think reflects how many investors (whether professional or layperson) think and act. If so, it captures an economic reality that is missing from most CSR commentary around ESG/SRI investing. It also takes into account the inconsistent approach from politicians (and all stakeholders, broadly speaking) to public policy:

 

"Treating your workers badly might help your profits, but it is likely to backfire in the long run as they leave for other employers. Using cheap ingredients that poison your customers, even if it seems to be legal, leads to lawsuits or government crackdowns."

 

The challenge, of course, is to identify when the backlash will come (and how strong it will be):

 

"It took decades for government to act on evidence that tobacco was killing people but just a few years to move against vaping. Alcohol, meanwhile, remains a great business despite the damage it does."

 

The result is that, although the amount of capital flowing into SRI/ESG funds is increasing rapidly (even more so in the current political environment), it is not clear it is achieving the goals that are intended for it. If so, then the investment companies are arguably deceiving many who are trying to channel their investments in ways that reflect their values. As Mackintosh notes at the beginning of this column:

 

"It is hard to move in the world of investment without being bombarded by sales pitches for running money based on 'ESG,' or environmental, social and governance criteria. The trouble is that few involved seem to agree on how it works (or, more to the point, doesn't)."

 

Take care

David

 

David Chandler

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

© Sage Publications, 2020

 

Instructor Teaching and Student Study Site: https://study.sagepub.com/chandler5e 

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

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

A Socially Responsible Strategy Can be Tricky

By James Mackintosh

November 13, 2019

The Wall Street Journal

Late Edition – Final

B1

https://www.wsj.com/articles/a-users-guide-to-the-esg-confusion-11573563604