The CSR Newsletters are a freely-available resource generated as a dynamic complement to the textbook, Strategic Corporate Social Responsibility: Sustainable Value Creation.

To sign-up to receive the CSR Newsletters regularly during the fall and spring academic semesters, e-mail author David Chandler at david.chandler@ucdenver.edu


Wednesday, April 19, 2017

Strategic CSR - Progress

In evaluating the purpose of the for-profit firm in society, it is useful to occasionally remind ourselves of how far we have come. The article in the url below touches on this subject:
 
"For most of the time that our species has been around, a man in his thirties had a fair chance of being dead already; a woman, too, often through childbirth. Evading violence, hunger and the elements was a human's daily lot. Even in modern history, people were bonded to the state through conscription or to the land through serfdom. Within memory, there was one role for women (mother), one for men (provider), one permissible sexual taste (straight), and even that was consecrated within marriage."
 
A large assumption of the framework presented in Strategic CSR is that, although all sectors of society played a part, the invention of the for-profit firm (in particular, the limited liability corporation) is a large reason for these advances – what the article attributes to "material progress." The speed and extent of change is quite remarkable (when you stop to think about it) given the short period of time involved:
 
"Most people for most of history lived in small communities, had few sexual partners and could not take food or other needs for granted. My friend is just two generations removed from a similar life, and that was on English soil. Now, in a city he shares with almost 9 million others, he goes on a hundred dates a year without having to do anything more strenuous than wait for his numerous apps to make matches. Without working very hard, he has surplus income."
 
None of this, of course, excuses behavior by firms that transgresses stakeholder expectations, but it does put things in perspective and, perhaps more importantly, should be accounted for among those who seek alternatives to market capitalism. The bar that needs to be cleared is inventing a system that creates more value than the system we currently have. If that bar cannot be cleared, then a more sensible solution is to improve the system we currently have. This is the approach of Strategic CSR, based within a set of assumptions about economic exchange and human psychology that helps us understand how the current system works and how we might end up with behavior from firms we say/think we do not want.
 
A historical perspective is useful in assessing how best the for-profit firm can benefit us. To be clear, the corporation is a social construction. We can shape it in any way that we please. What is important, however, is that we remember that it is a tool, not an agent with an independent consciousness; as such, it reflects the values of those connected to it (its stakeholders).
 
Take care
David
 
 
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/
 
 
History's luckiest generation: We're getting away with it – For now
By Janan Ganesh
January 14/15, 2017
Financial Times – Life & Arts
Late Edition – Final
17
 

Tuesday, April 18, 2017

Strategic CSR - Morality

The article in the url below discusses the extent to which our personal values/morals/ethics are central to who we are as individuals:
 
"What defines who we are? Our habits? Our aesthetic tastes? Our memories? If pressed, I would answer that if there is any part of me that sits at my core, that is an essential part of who I am, then surely it must be my moral center, my deep-seated sense of right and wrong."
 
What is interesting, therefore, is to consider how that morality evolves according to context, such as when speaking a foreign language:
 
"And yet, like many other people who speak more than one language, I often have the sense that I'm a slightly different person in each of my languages—more assertive in English, more relaxed in French, more sentimental in Czech. Is it possible that, along with these differences, my moral compass also points in somewhat different directions depending on the language I'm using at the time?"
 
While we have known that morality is, to some extent, culturally specific (i.e., different behaviors are deemed to be moral/immoral in different cultures) and time-specific (i.e., different behaviors are deemed to be moral/immoral at different points in time), the article discusses how this variance exists within people as well as among them. In other words, different behaviors by the same person are considered moral/immoral depending on the culture in which the person happens to be at the time. The research summarized in the article operationalizes different cultures in terms of when the person is speaking a different language and found some interesting results:
 
"[Researchers] found that using a foreign language shifted their participants' moral verdicts. In their study, volunteers read descriptions of acts that appeared to harm no one, but that many people find morally reprehensible—for example, stories in which siblings enjoyed entirely consensual and safe sex, or someone cooked and ate his dog after it had been killed by a car. Those who read the stories in a foreign language (either English or Italian) judged these actions to be less wrong than those who read them in their native tongue."
 
The explanation offered for this relative morality speaks directly to the level of effort required to speak a foreign language as opposed to a native language:
 
"According to one explanation, such judgments involve two separate and competing modes of thinking—one of these, a quick, gut-level 'feeling,' and the other, careful deliberation about the greatest good for the greatest number. When we use a foreign language, we unconsciously sink into the more deliberate mode simply because the effort of operating in our non-native language cues our cognitive system to prepare for strenuous activity."
 
Another explanation offered relies more on the relationship between language, emotions, and memory:
 
"An alternative explanation is that differences arise between native and foreign tongues because our childhood languages vibrate with greater emotional intensity than do those learned in more academic settings. As a result, moral judgments made in a foreign language are less laden with the emotional reactions that surface when we use a language learned in childhood."
 
The author's conclusion?
 
"What then, is a multilingual person's 'true' moral self? Is it my moral memories, the reverberations of emotionally charged interactions that taught me what it means to be 'good'? Or is it the reasoning I'm able to apply when free of such unconscious constraints? Or perhaps, this line of research simply illuminates what is true for all of us, regardless of how many languages we speak: that our moral compass is a combination of the earliest forces that have shaped us and the ways in which we escape them."
 
This work reminds me of research that looked at the relativity of ethical values by studying the decisions of prison parole boards before and after lunch. It seems that, if you ever find yourself before a prison parole board, they will be less likely to be lenient if they are hungry (see Strategic CSR – Ethics).
 
Take care
David
 
 
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/
 
 
How Morality Changes in a Foreign Language
By Julie Sedivy
September 14, 2016
Scientific American
 

Wednesday, April 12, 2017

Strategic CSR - United

A key to understanding the full implications of Strategic CSR is the idea that corporations reflect our values; they do not shape those values. In other words, corporations reflect the aggregated values of their collective set of stakeholders (internal and external). To put this succinctly – it is not Walmart that puts Mom & Pop stores out of business; customers do that by choosing to shop at Walmart, employees do it by choosing to work for Walmart, governments do it by providing tax breaks for Walmart, and so on. If you have a problem with Walmart, then you have a problem with American society because it is clear that American society wants Walmart. 90% of U.S. households shop at Walmart at least once a year – I don't know of any other company that consistently receives that level of societal endorsement.
 
An extension of this idea is that corporations are not the problem; they are the solution. The for-profit firm is simply a tool that we have devised to solve a specific problem – how to allocate scarce and valuable resources. There is a finite set of resources available to us. How to allocate these resources in a way that produces 'optimal' value for the majority is a problem that has challenged humanity throughout our existence. The best solution we have found to date is for-profit firms operating within a market-based, democratic form of capitalism. Once you understand firms are merely a tool, you understand that they will do what we ask of them. If we ask them to pollute the planet (as we are, at present), they will efficiently do that. Equally, if we ask them to preserve the planet, they will find the most efficient means of achieving that goal. They will do what we want them to do – they reflect our collective set of values.
 
I was thinking about this again in light of United's recent challenges. To what extent is United shaping the airline industry and to what extent is it merely giving us what we, collectively, want – cheap tickets and bare-bones service? The most recent crisis to hit United is made all the more apparent in contrast to last week's news about the airline industry's most recent performance ratings. The one headline that caught my attention there – the low budget carrier, Spirit Airlines, is currently the most profitable U.S. airline; it also has the highest rate of customer complaints. I fail to understand how that can be. If people want the absolute cheapest tickets, why would they then complain if they receive poor service, or their bags get lost, or whatever caused them to complain? If we want good service, we have to understand that there is a cost associated with that. And, if we are willing to pay for good service, we should believe that there are many entrepreneurs out there who would be more than willing to provide it to us. Clearly, when it comes to airlines, however, most of us do not want to pay for that service.
 
This brings me back to United. I don't necessarily agree with the overall tone of the article in the url below, but it is the most unique perspective I have seen in the acres of coverage on this issue. More importantly, I think it captures effectively the idea that United is merely a reflection of a broader system that we have shaped through our day-to-day decisions. In other words, while it feels satisfying to shoot the messenger, we should always remember that it is we (the firm's collective set of stakeholders) who are sending the message. In the same way that we get the politicians we deserve, we also get the companies we deserve:
 
"It is commendable and necessary to direct your outrage at this particular corporation, on this particular day, but keep the larger truth in mind: You are not mad at United Airlines; you are mad at America."
 
Of course, on the flip side, the fact that so many passengers felt outraged at the events and spread the word so quickly suggests a willingness to induce change, …. perhaps. We'll have to see if there are any lasting consequences for United. Past performance suggests we will quickly forget and move on. But, it is worth keeping in mind the next time you purchase an airline ticket. Will you demand better service and pay for it, or are we all heading towards a future filled with versions of Spirit Airlines or Ryan Air (or your lowest-cost carrier of choice)?
 
Take care
David
 
 
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/
 
 
You're Not Mad at United Airlines; You're Mad at America
By Shane Ryan
April 10, 2017
Paste Magazine
 

Tuesday, April 11, 2017

Strategic CSR - Bribery

The article in the url below about the effects of bribery on firm performance reminded me of other research I have seen before. The research summarized here states that, while bribery helps drive revenue, it does not help drive profits:
 
"[The research] by two Harvard Business School professors analysed anti-corruption data from 480 multi-national firms based on sales growth, the strength of companies' anti-corruption programs and the type of market the businesses were operating in. When companies with lower end anti-corruption programs entered high bribery markets they achieved 14.1% growth over three years, compared with 2.6 % growth for top compliance companies. But the fast growth was typically offset by other costs, the study found."
 
In other words, while bribery appears on the surface to pay dividends, it in fact stimulates other costs that end up offsetting any gains. So, while bribery drives revenue growth, it does not increase a firm's profits. The article in the second url below, however, shows that (like much academic research), this empirical reality does not necessarily change behavior:
 
"Bribery is a way of life for British companies working in emerging markets, with 85pc of managers forced to resort to it to do business, according to a new report. … [The research] claims the vast majority of UK managers operating in these markets resort to the dishonest practice on a monthly basis – often with the tacit permission of their chief executives."
 
Rather than a choice, however, the article suggests bribery is a way of conducting business in some emerging countries that cannot be avoided. As the researcher notes:
 
"'It is the managing directors and general managers in country… who are being forced to give bribes to win business. These are good people being forced to do bad things. Boards are doing worse than paying lip service to anti-corruption laws because they are using them to protect themselves while they know bribery is going on.'"
 
Take care
David
 
 
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/
 
 
Study Finds Bribery Increases Sales Not Profits
By Stephen Dockery
March 1, 2016
The Wall Street Journal
 
Bribery a way of life for companies operating in emerging markets 
By Alan Tovey
October 26, 2016
The Daily Telegraph
 

Thursday, April 6, 2017

Strategic CSR - Climate policy

The article in the url below presents some statistics that suggest the Trump administration's efforts to turn back the clock on climate change will have little effect:
 
"'You cannot stop the momentum,' said Sacha Sadan, director of corporate governance for Legal & General Investment Management. … As an example of that trend, Mr. Sadan cited LGIM's launch in November 2016, of an index fund that will rank companies based on their environmental standards. HSBC Holdings invested 1.85 billion pounds in the fund, making it the default equity fund for its employees' defined contribution pension plan. According to the Global Sustainable Investment Alliance, climate change and carbon emissions was 'the most significant overall environmental factor' for socially-minded investors in the U.S., drawing allocation of $2.15 trillion in institutional investor assets in the year ended Dec. 31, 2015. Shareholder proposals focusing on the climate risk are also getting more support, even if none got majority approval over board opposition so far. According to Proxy Monitor, an arm of the Manhattan Institute's Center for Legal Policy that tracks resolutions filed with Fortune 250 companies, 23 of the total 58 environmental-related proposals as of the end of June, 2016, got 26% of the vote, compared with 16% support in 2015 and 14% in the 2006-2015 period. Also, five environmental resolutions received at least 40% support, a record number, said Proxy Monitor."
 
These data points are reinforced by an op-ed piece by Michael Bloomberg in the article in the second url below, which argues that the momentum (and, therefore, the ability to drive change) on this issue lies at the state and city level, rather than the federal level:
 
"In both red and blue states, cities — which account for about two-thirds of the country's emissions — are taking the lead in the fight against climate change. More than 130 American cities have joined the Global Covenant of Mayors for Climate and Energy, and all are determined to see that we meet our Paris goal. Their local policies — expanding mass transit, increasing the energy efficiency of their buildings, installing electric vehicle charging stations, creating bike share programs, planting trees, to name just a few — will help ensure we do."
 
This change, Bloomberg argues, is driven more by bottom-up stakeholder demand, rather than top-down ideology:
 
"Though few people realize it, more than 250 coal plants — almost half of the total number in this country — have announced in recent years that they will close or switch to cleaner fuels. Washington isn't putting these plants out of business; the Obama administration's Clean Power Plan hasn't even gone into effect yet. They are closing because consumers are demanding energy from sources that don't poison their air and water, and because energy companies are providing cleaner and cheaper alternatives."
 
Progressive companies recognize this and are not changing plans simply to reflect the fluctuating moods of politicians in Washington:
 
"This week, many of the 81 major corporations (including Apple and Wal-Mart) that signed a pledge in 2015 to reduce their emissions reaffirmed their commitments, and Anheuser-Busch InBev announced that it aims to get 100 percent of its energy from renewable sources by 2025. (My company is pursuing the same goal.) No mandate from Washington is forcing these companies to act — just their own self-interest."
 
Take care
David
 
 
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/
 
 
The Case for Climate Rick Investing in Trump Era
By Mara Lemos Stein
March 31, 2017
By Michael R. Bloomberg
March 31, 2017
The New York Times
Late Edition – Final
A23
 

Tuesday, April 4, 2017

Strategic CSR - Cognitive dissonance

The article in the url below contains some interesting information on Americans' awareness of climate change as a problem, as well as their willingness to pay to solve that problem. It appears that, increasingly, Americans are aware that climate change is real, that it is a human-caused problem, and it is something that needs to be addressed:
 
"Americans of all political stripes are increasingly worried about climate change. This is undoubtedly good news for those advocating for robust policies to reduce carbon emissions, the main contributor to climate change."
 
Unfortunately, while awareness is growing, it appears that Americans are much less willing to pay, even a small amount, to solve the problem:
 
"This is what researchers from the Energy Policy Institute at the University of Chicago (EPIC) and the Associated Press … set out to better understand. Their nationally representative poll found that 43% of Americans were unwilling to pay an additional $1 per month in their electricity bill to combat climate change—and a large majority were unwilling to pay $10 per month. That's despite the fact that a whopping 77% said they think climate change is happening and 65% think it is a problem the government should do something about. Support plummets as the amount of the fee increases."
 
This response is out of all proportion to the threat posed by climate change, both to the group and to each household individually:
 
"This is an upside-down result. The best available science tells us that Americans should be willing to pay considerably more, because the damages from climate change are so great—including to them personally. If we use the federal government's estimate of the combined social cost of carbon pollution and apply it to the typical U.S. household's electricity consumption on today's national grid mix, the average household faces damages of almost $20 per month. Yet just 29% of respondents said they would be willing to pay at least that much."
 
So, the interesting question is how can we keep these contradictory thoughts in our heads at the same time? Humans' well-known capacity for cognitive dissonance allows us to recognize a problem as potentially existential, while at the same time not being willing to sacrifice individually for the benefit of the group. My sense is that the existential threat, even if believed, is perceived as distant, while the costs associated with preventing it are perceived as immediate. We have a collective need for short-term gratification that seems to override our longer term self-interest – there is a reason why so many of us have not saved enough for our retirement. In terms of the climate in the U.S., however, this mechanism seems disproportionately influential. While the article includes examples of different communities around the world that are willing to pay for a clean environment, the data suggests that willingness has yet to emerge in the U.S. As the author concludes:
 
"This is potentially bad news for climate policy. After all, if 43% of Americans are unwilling to pay even $1 to solve  a $20 problem, the policy landscape is likely to be challenging."
 
Take care
David
 
 
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/
 
 
Few Will Pay for Climate-Change Fight
By Sam Ori
November 14, 2016
The Wall Street Journal
Late Edition – Final
R8
 

Friday, March 31, 2017

Strategic CSR - Shareholders

Here is an interesting quote from the article in the url below:
 
“‘Shareholders are stupid and impertinent — stupid because they give their money to somebody else without any effective control over what this person is doing with it, and impertinent because they ask for a dividend as a reward for their stupidity.’ So said the banker Carl F├╝rstenberg, who ran the Berliner Handels-Gesellschaft in the late 19th and early 20th century.”
 
Have a good weekend
David
 
 
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/
 
 
IPOs and Shareholders
By John Plender
February 23, 2017
Financial Times
Late Edition – Final
9
 

Wednesday, March 29, 2017

Strategic CSR - Net positive

The article in the url below asks a particularly silly question and, in the process, demonstrates why The Guardian Sustainable Business unit (https://www.theguardian.com/us/sustainable-business) misses as often as it hits:
 
"Can a company ever claim to be making a better world?"
 
My starting assumption in addressing what I think is the most important question society faces ('What is the purpose of the for-profit firm?') is that all firms with ongoing operations are making a better world for at least some of their stakeholders (as those stakeholders define 'better'). Now, there is certainly a debate that can be had as to whether the net effect of specific firms is positive or negative, but it is simply ignorant to question whether there are any firms out there improving our collective standard of living. In fact, the opposite question is far more interesting -- Are there any companies that are not making a better world? Once it gets past its provocative (read 'ridiculous') title, then the article in the url below comes round to this position by discussing what "net positive" means:
 
"So, what exactly is net positive? At its core, it involves measuring a company's impacts as a result of its operations and products. The positive impacts – anything from reduced greenhouse gas emissions due to fuel-efficient vehicles to the social benefits resulting from good supply chain practices – are the company's handprint, or what a company adds to the world. A footprint is what it takes away."
 
Putting aside the issue that this only discusses sustainability metrics (rather than all operations); conceptually, I think this is fine, although it is hard to know what it adds to the long-standing CSR debate (other than another label). Clearly, one of the central challenges to the progress of CSR is measurement – how do we measure something so complex that it encompasses everything done by all firms across all industries? And, as the article notes, it does not help when firms start issuing their own indices to suit their own purposes, as is often the case with sustainability:
 
"When you walk the aisles of your favourite shop you are bombarded with labels attempting to explain why this product is so much better than those others. It can be overwhelming, and it's neither a new problem nor one that's getting better; there are currently at least 465 different eco-labels in use around the globe according to the EcoLabel Index."
 
This is an extremely complex issue and deserves our full attention, but we need to be starting the debate from common points based on a fundamental understanding of economic theory and human psychology. It is therefore important that companies, such as Dell, are beginning to tackle this:
 
"In 2013, Dell announced its aim to make its overall positive impacts 10 times greater than its negative impacts by 2020. It has attempted to do this with a net positive assessment of the impacts of its programme that helps employees work from home. … Calculating this [impact], however, required a level of expertise and effort that would be daunting to most companies. And it could be just as hard, if not impossible, to communicate such complexity on product packaging."
 
Unfortunately, these efforts are not well-served by journalists seeking to provoke using shallow headlines because, clearly, although we have made great strides, we still have much further to go:
 
"In the meantime, all that's left to be worked out in calculating net positive, is well just about everything. … Its partners in the new project will need to develop methodologies for specific areas like water and greenhouse gases as well as guidance for companies that want to set net positive goals. And because every company will need to address different social and environmental impacts to reach net positive, members will be casting a wide net in their approaches."
 
Take care
David
 
 
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/
 
 
Can a company ever claim to be making a better world?
By Matthew Wheeland
August 24, 2016
The Guardian
 

Sunday, March 26, 2017

Strategic CSR - Oil

Now that Exxon has vocally expressed its support for a carbon tax (see Strategic CSR – Exxon), it seems that the rest of the oil and gas industry is falling over itself to help tackle climate change. The article in the url below, for example, announces an effort by ten companies (including Saudi Aramco, Shell, and BP, but not Exxon and Chevron), who have committed a total of $1bn in a "decade-long plan to fight climate change":
 
"The 10 companies unveiled their plan … as the Paris climate agreement came into force, underlining growing energy industry concerns that the deal will spur governments to force the sector to capture or pay more for the planet-warming carbon emissions it produces. 'Don't worry, we've got it,' BP chief executive, Bob Dudley, said in London, explaining the $1bn investment would add to efforts each company was already making 'on the transition to a lower emissions world.'"
 
In other words, this sudden enlightened perspective is essentially being driven by the desire to avoid government regulation; it is also self-serving in that it involves investment in ways to burn oil more 'sustainably,' rather than discover alternatives to oil for our energy needs:
 
"The 10 companies, which also include France's Total, Norway's Statoil and CNPC of China, said they would initially focus their spending on measures such as carbon capture and storage systems, which trap CO2 emissions and store them deep under the ground or sea. Their $1bn will not be targeted at technologies that pose a direct competitive threat to their businesses, including renewable power or energy storage."
 
Equally, the investment is being criticized as minimal, given the revenues these companies generate, as well as the scale of the problem:
 
"Their $1bn investment over a decade is also small compared with the $348bn spent globally last year on clean energy and it pales beside the sums experts say would need to be spent on carbon capture measures to meet the Paris agreement's goals. The bill could reach $4tn between now and 2050, according to the International Energy Agency, although the global energy advisory body thinks the figure could be higher without carbon capture systems."
 
Nevertheless, the initiative does highlight the fact that, any solution to a transition away from carbon-based energy sources will require the co-operation of the oil and gas companies. There is simply too much money at stake to expect them to role-over the make way for alternative energy sources. The best way I have seen to achieve this is to somehow incentivize these companies to leave their oil reserves in the ground – in essence, to buy the oil from them before it is extracted (see Strategic CSR - Divestment). The details of how this might work, however, and how to you prevent the distorted incentives for these companies to 'discover' more oil that then remains underground, is less clear. What is clear, however, is that neither the industry nor the governments of major oil export/import countries are yet serious about tackling the problem.
 
Take care
David
 
 
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/
 
 
Big Oil in $1bn decade-long plan to fight climate change
By Pilita Clark
November 5/6, 2016
The Financial Times
Late Edition – Final
10
 

Thursday, March 23, 2017

Strategic CSR - Shareholder value

The article in the url below offers a defense of shareholder value as the orienting purpose of the firm. It is not, the author argues, that shareholder value is wrong, but it is the way it has been implemented that is at fault:
 
"The culprit is not shareholder value but rather corporate executives, investment managers and the business press who incorrectly believe that the governing objective of shareholder value is to boost a company's near-term stock price by meeting the market's quarterly earnings expectations. This misguided thinking has hijacked the good name of 'shareholder value'. Consequently, companies commonly 'talk' shareholder value but 'walk' quarterly earnings in their everyday operations."
 
Instead, the author articulates what shareholder value should look like:
 
"Let us be clear what managing for shareholder value really means. It means focusing on cash flow, not earnings. It means managing for the long-term, not the short-term. And it means that managers must take risk into account in their capital allocation decisions. Properly implemented, there is no better cure for short-termism than managing for shareholder value with its long-term orientation."
 
Further:
 
"Critics also contend that shareholder value encourages the exploitation of other stakeholders. Quite the opposite is true. Shareholder value companies recognise that their long-term success depends on a solid relationship with each of their stakeholders. Customers expect high-quality products and services at competitive prices. … Likewise, employees seek competitive remuneration and a satisfying work environment. … Companies risk their viability if any one stakeholder gets too much or too little for an extended period."
 
All of this is fine, I think, and the broad value creation process he is describing actually sounds a lot like "strategic CSR." Over the medium to long term, I agree that shareholder value can only be achieved through the creation of value for all the firm's stakeholders. The problem is that shareholder value is clearly not being implemented in the way the author advocates, which should tell him something about his underlying ideas. Whether it is simply because executive compensation plans have hijacked the focus of firms and distorted their focus on share price (which is what increases the value of stock options) or whether it is simply human nature that prevents the 'pure' implementation of shareholder value; instead of simply restating the idealistic tenets of your theory, why not just change the theory to better account for the imperfections that are clearly being identified? If shareholder value is really supposed to represent value creation for all stakeholders, then why not call it what it is – stakeholder value?
 
Take care
David
 
 
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/
 
 
What managers misunderstand about shareholder value
By Alfred Rappaport
August 15, 2016
Financial Times
Late Edition – Final
9
 

Tuesday, March 21, 2017

Strategic CSR - Nuclear

The article in the url below highlights the limits of our knowledge regarding renewable energies:
 
"The United States, and indeed the world, would do well to reconsider the promise and the limitations of its infatuation with renewable energy."
 
In particular, the issue is the reliability of renewables (e.g., solar is less productive in cloudy conditions), combined with our constrained ability to store and transfer that energy (wind energy, in particular, is difficult to transmit, meaning only windy places can generate wind energy). Although our knowledge and capabilities are improving at a rapid rate, our rush to bring renewable energy sources on-line is having repercussions throughout the network as a whole:
 
"Renewable sources are producing temporary power gluts from Australia to California, driving out other energy sources that are still necessary to maintain a stable supply of power."
 
In essence, the rapid expansion of renewable energies is a result of the success of the public policies (and subsidies) that were passed in an effort to reduce our dependence on carbon-based energy. The author suggests that these policies have been too successful. Of particular concern is the effect these constraints are having on the one renewable source that we know well:
 
"But in what may be the most worrisome development in the combat against climate change, renewables are helping to push nuclear power, the main source of zero-carbon electricity in the United States, into bankruptcy."
 
In response, the article calls for approaches that are "more subtle" than simply loading up on more and more renewable energy projects. And it is the public subsidies that are the cause of much of the trouble – a too rapid shift from known technologies to relatively unknown technologies. Although the market for nuclear energy has its own problems, its price per megawatt hour is continually being undercut either by subsidies or the failure to incorporate the full costs of an energy into the price (i.e., a carbon tax). Both forms of support distort the markets for specific energy sources:
 
"Nuclear generators' troubles highlight the unintended consequences of brute force policies to push more and more renewable energy onto the grid. These policies do more than endanger the nuclear industry. They could set back the entire effort against climate change."

California is offered as a case-in-point:
 
"As more and more solar capacity is fed onto the grid, it will displace alternatives. An extra watt from the sun costs nothing. But the sun doesn't shine equally at all times. Around noon, when it is blazing, there will be little need for energy from nuclear reactors, or even from gas or coal. At 7 p.m., when people get home from work and turn on their appliances, the sun will no longer be so hot. Ramping up alternative sources then will be indispensable. The problem is that nuclear reactors, and even gas- and coal-fired generators, can't switch themselves on and off on a dime. So what happens is that around the middle of the day those generators have to pay the grid to take their power. Unsurprisingly, this erodes nukes' profitability. It might even nudge them out of the system altogether."
 
Ultimately, the very real cost of integrating renewable energy sources into our utilities system has yet to be adequately accounted for:
 
"In Germany, where renewables have mostly replaced nuclear power, carbon emissions are rising, even as Germans pay the most expensive electricity rates in Europe. In South Australia, the all-wind strategy is taking its toll. And in California, the costs of renewables are also apparent."
 
At a minimum, it is worth making sure we know what we are getting with renewables before we shut-down the known problems of nuclear energy altogether:
 
"Displacing nuclear energy clearly makes the battle against climate change more difficult. But that is not what is most worrying. What if the world eventually discovers that renewables can't do the job alone?"
 
Once we get rid of the nuclear energy industry, we will not have the time or resources to bring it back.
 
Take care
David
 
 
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/


Embrace of Renewables Has a Hidden Cost
By Eduardo Porter
July 20, 2016
The New York Times
Late Edition – Final
B1
 

Wednesday, March 15, 2017

Strategic CSR - Perfume

The article in the url below suggests that synthetic alternatives can sometimes be more sustainable than natural products. In particular, the article focuses on the production of perfume. It makes the point that, while consumers often want 'natural' fragrances that are organic and fair trade, synthetic perfumes are significantly better for the planet:
 
"The trend toward a minimalist aesthetic in fragrance can however be more harmful than it appears, particularly when it comes to flowers. The struggle major companies face is how to sustainably produce what is inherently an unsustainable product, especially as consumers demand more and more raw materials."
 
Flowers, in particular, are a challenging product to grow for harvest:
 
"'Flowers are very resource-intensive with low yield,' explains Torsten Kulke, senior vice president of global innovation & regulatory fragrances at Symrise … . Some 500kg (1,102lbs) of a flower, he noted, usually only yields 50 grams (1.1lbs) of essence. 'Why do you want to waste hectares and hectares of productive land?'"
 
In response, companies like Symrise ("one of the 'big eight' global fragrance companies that provide the bulk of the formulas for the fine fragrance market") are working hard to deliver products to a new generation of customers who seek natural, authentic, and sustainable:
 
"In a coastal jungle in northern Madagascar, biologist Fanny Rakotoarivelo places a plastic bubble over a branch of papaya flowers. Inside, air currents run through the flowers, sucking out essential oils. The scented air that remains is funneled into another bag, which Rakotoarivelo places inside a metal briefcase. It will be flown and delivered to the German headquarters of Symrise, the second largest flavors and fragrances company in the world, where scientists will attempt to recreate the scent."
 
Another of the "big eight," IFF has also pivoted to respond to the shifting demands of consumers:
 
"IFF announced its Natural Ethics program in 2013 for its vanilla grown in the Sava region, which includes development of more biosynthetic vanilla. Firmenich works with a local partner in Madagascar that helped 1,300 farming families to achieve Rainforest Alliance certification."
 
While there is always demand for the 'real thing,' the costs associated with getting it are increasingly becoming available only to a select few. The rest of us will need to get used to synthetic, at least when it comes to perfume:
 
"'Rose costs thousands of dollars,' Kulke elaborates. 'A 98% copy you can get for a fraction of the cost.' A papaya flower could not feasibly be harvested for its oil, even in its native Madagascar – the cost, monetary and environmental, would be astronomical. The real thing is, no doubt, more complex, but in this case the copy smells just as sweet."
 
Take care
David
 
 
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/
 
 
A sweeter choice: synthetic perfumes, while unpopular, are better for the planet 
By Alexandra Pechman
May 23, 2016
The Guardian
 

Monday, March 13, 2017

Strategic CSR - Trust

The article in the url below discusses the role of trust in the modern economy:
 
"One of the underrated achievements of the modern world has been to develop ways to extend the circle of trust by depersonalising it. Trust used to be a very personal thing: you would trust your friends or friends of friends. But when I withdrew €400 from a cash machine, it was not because the bank trusted me but because it could verify that my bank would repay the money. This is a cold corporate miracle."
 
Trust is essential for strangers to interact in an exchange of things of value. For example, if I buy a food item from my local supermarket, I trust it will not give me food poisoning (or worse); when I buy something on Amazon, I trust the company will send it to me; and so on. Of course, I do not base my trust purely on the goodness of strangers. Things like government regulations and NGOs provide seals of quality and there are penalties for transgressions that incentivize producers to not make me sick (or kill me). Repeat interactions are another incentive – if Amazon does not send my purchase, I am less likely to shop there again. Nevertheless, trust is a big part of our everyday experience. This becomes most obvious when it is abused, and it is surprising how infrequently that happens. Given this, the purpose of the article is to discuss whether the role of trust has changed with the emergence of online platforms that increase interactions at arm's length – specifically, the sharing economy:
 
"One example is Airbnb, which lets people stay in the homes of complete strangers, a considerable exercise of trust on both sides. We successfully used it on another stop in our Bavarian holiday. Airbnb makes personal connections but uses online reviews to keep people honest: after our stay, we reviewed our host and he reviewed us."
 
Rather than celebrate the mechanism developed to preserve trust, however, the author says this surface-level analysis of why Airbnb works misunderstands what is really going on:
 
"We're misunderstanding the reason that eBay and Airbnb work. … It's not because of the brilliance of the online reputation system but 'because most people aren't crooks', an idea any Bavarian hotelier would understand."
 
Recent research suggests, however, that, as with the everyday economy, there is a limit to the kindness of strangers that skirts the evaluation systems currently in place:
 
"When Harvard Business School researchers … conducted field experiments on Airbnb, they found that both hosts and guests were discriminating against racial minorities. Other researchers have found evidence of discrimination in places from Craigslist to carpools. New online tools are giving us the ability to treat faraway strangers as though they were neighbours — and we do, in good ways and in bad."
 
In other words, any system involving human behavior (i.e. all systems) at some level will be subject to the biases, emotions, and prejudices that define human nature. While, in the majority of cases we can limit the negative effects (because "most people aren't crooks"), we cannot rule them out completely. The author's conclusion is that the increased commercial interactions we have with individuals (as opposed to companies) as part of the sharing economy is tweaking our economic system, rather than revolutionizing it. It is not a better system, just different:
 
"Trust is sometimes given to people who do not deserve it. And it is often withheld from people who do."
 
Take care
David
 
 
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/
 
 
Trust in the age of Airbnb
By Tim Harford
August 13/14, 2016
Financial Times
Late Edition – Final
Life & Arts, 15
 

Thursday, March 9, 2017

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
 
 
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