Corporate Accountability FA10: Difference between revisions
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== The New Triple Bottom Line as described in ''People, Planet, Profit''== | == The New Triple Bottom Line as described in ''People, Planet, Profit''== | ||
In the book “People, Planet, Profits” Peter Fisk brings forth the notion that there are immense benefits for corporations who incorporate the triple bottom line of people planet and profits in their agenda. Fisk states that companies must become accountable for all the actions in which they are involved either directly or indirectly and use this to their advantage. | |||
Fisk writes, “Sustainability is inherently about trade-offs…resolving these trade-offs offers business growth and new opportunities for competitive differentiation” [5]. For example if a company can successfully establish a ‘closed-loop’ supply chain system, where the waste of one activity is used as the ingredients of another, it will vastly reduce operating expense and increase revenue while reducing the companies impact on the environment. Fisk states that “the implications are enormous if a brand can connect with a community of consumers rather than just as individuals” by either creating consumer consciousness of the brand or by helping the local community. Among the benefits of doing so are that brands (companies) can align themselves to local communities and grow quickly, they can connect with more consumers in the community and can allow customer input into the creation of specific products created for the community. Establishing a unique connection between a community and company would allow consumers to have a choice and impact on the company and for the company to promote growth in the community, as they are both intertwined. | |||
Peter Fisk asserts that a company does not need to be forced into becoming accountable for its actions. He argues that companies must adapt to the changing consumer trend of people no longer buying products only for their functionality but also for the image that the company portrays be it one of human rights abuses or one of great Corporate social responsibility initiatives. Fisk concludes the book by stating that companies will move into the direction of triple bottom lines as they begin to learn and understand the vast array of benefits that can be achieved by corporations by focusing equally on people and communities, the environment and sustainability and profits. |
Revision as of 18:32, 14 December 2010
Shortcomings of Capitalism and Corporate Accountability
Capitalism is an economic system of many contradictions. It is based on class and competition and its main goal is profit. It revolves around individual property rights, the private ownership of the means of production as well as of the products produced. It also promotes minimal government intervention and regulation. It is a system that has created wealth, progress, opportunities and is the system that has worked for most economies around the world. Conversely, the dominant members of a capitalist society, the power elite, are powerful and influential on many levels. This makes it hard to define to whom they are accountable. Corporate accountability is all the laws and regulations governing corporations regarding criminal or unethical practices by the members of a corporation regardless of their hierarchy. Examples of these practices can be fraud, damage to the environment, exploitation of labor and resource and much more. Many organizations and social activist groups advocate for the enforceability of this corporate accountability.
Social Activist Groups
CorpWatch
Created in 1996, Corp Watch is a non-profit organization that attempts to discover and expose corporate misbehavior and promote corporate accountability and a higher level of transparency of corporate action. Through investigative journalism and distribution of information, the organization attempts to spread knowledge of corporate behavior in all major industries.
In September 2007 CorpWatch launched the Wiki project Crocodyl.org, in partnership with the Center for Corporate Policy and the Corporate Research Project. Besides providing informative reports of corporations and industries, CorpWatch also attempts to empower the general public by providing guidelines on how to do research of corporate behavior and through easy access to a variety of data bases.
Goals of CorpWatch
Going hand in hand with William Domhoff’s description of corporate power and influence in his book Who Rules America?, CorpWatch believes that “corporate power and influence eclipses even the democratic political process itself as they exert disproportional influence on public policy they deem detrimental to their narrow self-interest” [1].
Therefore, CorpWatch intends to “expose multinational corporations that profit from war, fraud, environmental, human rights and other abuses, and to provide critical information to foster a more informed public and an effective democracy” [1]. Since CorpWatch shares the belief that private corporations, in particular since the last two decades, where several companies have become larger than entire nation’s economies, have a tremendous impact on the people’s lives everywhere in the world. However, “few mechanisms currently exist to hold them accountable for those actions” [1]. Therefore, CorpWatch intends to embody one additional resource and mechanism that regularly reports on corporate behavior and accountability. In particular, the organization ends each year with an annual report, highlighting once again the most important events and corporate actions over the last year in order to inform the public and provide them with resources and insight.
Successes of CorpWatch
Successes of CorpWatch • “Corpwatch launched its first major shot across the corporate bow in 1997 when it blew the whistle on working conditions in Nike’s operations in Vietnam, ultimately helping secure greater oversight of their factories and changes in their corporate practices” [1]. • In 1998, CorpWatch started investigating the Enron Corporation and releasing reports of their practices, a few years before the company collapsed shortly after the beginning of the next millenium. • Structured around a “Climate Justice Initiative” organized from 1999-2002, CorpWatch was highly valuable and helpful in redefining climate change as an environmental justice and human rights issue, and helped mobilize communities already adversely impacted by the fossil fuel industry.
Shareholder Activism is defined as “the use of ownership position to actively influence company policy and practice. Shareholder activism can be exerted through letter writing, through dialogue with corporate management or the board, through asking questions at open sessions at annual general meetings and through the filing of formal shareholder proposals” (pg. 149). Shareholder activism is a form of activism that has been rising in importance and significance over the last three decades, as the financial market is increasingly being used as a to influence corporate social and environmental responsibility. Since shareholders are owners of the company, they have both an interest and a right to be in contact with executives of the corporations “in order to optimize long-term or short-term shareholder value, and corporate directors have a fiduciary duty to act in the best interest of shareholders” (pg. 142). The start for more active shareholder activism was 1970, when “a legal ruling in a lawsuit regarding a social issue proposal became the starting point for the allowing of social policy topics, which had previously been inadmissible” (pg. 145). Since this point in time, shareholders have been increasingly asking for general codes as a resolution to human rights and labor issues. Also, it became apparent that in the early days, religious groups as well as religious and ethical concerns were of high importance to the process of proposal filing at corporations’ annual meetings, for it is said that “more than half of the proposals…were sponsored or co-sponsored by religious groups” (pg.145). In more recent years, more and more proposals are submitted by mutual funds that intend to strengthen socially responsible actions by the corporations they invest in. Primarily, large and well-known corporations are targets of social activism from these religious groups, mutual funds, and others. The study identified “two kinds of motive: interest-based motives, i.e. where shareholders feel that their specific interests are not adhered to, and identity-based motives, i.e. as a way to solidify the activist group, by targeting visible companies and thereby creating external attention” (pgs. 146-147).
Effects on Coporate Behavior
Generally, there is strong disagreement as to whether corporate behavior is affected by shareholder activism. The studies and people that do not believe that shareholder activism can influences companies argue that shareholder activism does not have sufficient power to turn around entire companies, thus they would certainly not have a enough power to change corporate behavior in entire industries. The reasoning behind is that proposals have never received more than a minority vote. Also, even if a proposal were to receive a majority vote, the “corporation-specific changes that shareholder advocacy can prompt will not be enough to create a more general and long-term industrial change” (pg. 148).
The ones in support of the idea that shareholder activism influences corporate behavior provide examples to prove their point. For example, an in-depth study of withdrawn proposals over the last decade seems to strengthen the point that a firm’s behavior can be affected and influenced: “A majority of the withdrawn proposals studied resulted in dialogue between shareholders and corporate managers, and that in a majority of these cases the corporations agree to the shareholders’ request. The fact that a third of the proposals were withdrawn is therefore a vital piece of information” (pg. 146). Another study, focusing on the Amoco Corporation, also suggests that shareholder activism can result in a changed corporate behavior: Here, a coalition of shareholders pressured the company to adopt a number of environmental principles that they believed to be vital from the standpoint of long-term success as well as environmental sustainability. The final outcome was “a negotiation process where both the shareholder coalition and the company accepted a compromise in order to come to an agreement. Shareholders were able to influence the corporation, albeit with some tradeoffs” (pg. 147). Others are even more optimistic that shareholder activism has the ability to influence companies, stating that “with a ‘socially responsible investment’ approach being adopted by an increasing number of institutional investors, the prospects of influencing corporations to take social and environmental responsibility have improved significantly” (pg. 147).
NGOs
Many NGOs that are concerned with social or environmental issues nowadays attempt to influence companies through shareholder activism. Despite the limited amount of financial assets and resources available to NGOs, it has been argued that NGO intervention on the stock market can be successful in changing business strategy. This is supported for example by studies that concluded that “due to the public profile and stakeholder status of NGOs they may influence corporate strategy to a degree disproportionate to the shares owned” (pg. 149). Therefore, NGOs are able to translate their ideologically based concerns into financial terms, thereby making their issue and argument a relevant topic for corporations and other shareholders, which increasingly influences corporations.
Pension Funds
Pension Funds have increased their importance in the financial markets and thus increased their voice in corporation’s decision-making. Studies believe that because o f their potency and their right to socio-environmental concerns, “public pension funds are a potentially powerful catalyst for corporate social and environmental responsibility. …Pension funds can serve as surrogate regulators if they engage in corporate social and environmental issues” (pg. 150). As pension funds focus primarily on long-term value creation for their clients, these funds tend to raise their voice regarding issues that might impact the long-term success of the company rather than short-term success. As most long-term issues are of social or environmental nature, these pensions funds have realized to serve their best interests by advocating and engaging in shareholder activism that can influence corporate behavior.
Corporate Enlightened Self-Interest as a Source for Corporate Accountabilty
Generally, it has been successfully argued that the working class and the capitalist class are opposed to one another, and in order to maximize their own gains, they need to suppress and work against the opposing class and their interests.
However, articles in the “Economist” from 2006 and 2008 discuss the most recent changes in corporate behavior caused by an increased awareness and interest of the public in concerns related to corporate responsibility regarding their employees and the treatment of the world’s resources. In addition, corporate philanthropy is being discussed. One change in the perception of the relationship between companies and capitalists on the one side and employees and customers on the other side is that “philanthropy is in the enlightened long-term interest of shareholders” [3], showing that there is the possibility for synergy between the various ends of our economy.
In regard to corporate responsibility, one can see a similar trend of increased awareness of corporations. For example, in an “Economist” article published on January the 17th, 2008, Mr. Benioff of salesforce.com reacted to this trend “by committing 1% of equity, profits and employees’ time as a contribution to the community” [4]. Even more, companies realize that Corporate Social Responsibility is not only a necessity, but it has the potential to create new markets and business structures, because “the entrepreneurial model of tackling social and environmental problems is likely to stir up the CSR (Corporate Social Responsibility) world. It may over time produce transformative technologies and creative new business models” [4]. Just like in other industries, some companies are leading and very active with regard to showing responsibility, while others are still lagging behind. However, the general trend is that companies slowly but surely realize more and more that exploitative methods are not being supported by customers and thus can affect a company’s sales. Therefore statements such as “one way of looking at Corporate Social Responsibility is that it is part of what businesses need to do to keep up with (or, if possible, stay slightly ahead of) society’s fast-changing expectations. It is an aspect of taking care of a company’s reputation, managing its risks and gaining a competitive edge” [4] are of increasing importance and popularity in businesses.
Clearly, the change happening in businesses nowadays involves an increasing emphasis on Corporate Social Responsibility, as it “comes closer to being ‘embedded’ in the business, influencing decisions on everything from sourcing to strategy” [4]. As consumer behavior shapes corporate behavior, we may hope that increasing consumer awareness and involvement in social and environmental issues will continue to shape corporate behavior and continue to influence it in the way that the synergy between corporations and the communities will be fostered and enhanced.
The New Triple Bottom Line as described in People, Planet, Profit
In the book “People, Planet, Profits” Peter Fisk brings forth the notion that there are immense benefits for corporations who incorporate the triple bottom line of people planet and profits in their agenda. Fisk states that companies must become accountable for all the actions in which they are involved either directly or indirectly and use this to their advantage.
Fisk writes, “Sustainability is inherently about trade-offs…resolving these trade-offs offers business growth and new opportunities for competitive differentiation” [5]. For example if a company can successfully establish a ‘closed-loop’ supply chain system, where the waste of one activity is used as the ingredients of another, it will vastly reduce operating expense and increase revenue while reducing the companies impact on the environment. Fisk states that “the implications are enormous if a brand can connect with a community of consumers rather than just as individuals” by either creating consumer consciousness of the brand or by helping the local community. Among the benefits of doing so are that brands (companies) can align themselves to local communities and grow quickly, they can connect with more consumers in the community and can allow customer input into the creation of specific products created for the community. Establishing a unique connection between a community and company would allow consumers to have a choice and impact on the company and for the company to promote growth in the community, as they are both intertwined.
Peter Fisk asserts that a company does not need to be forced into becoming accountable for its actions. He argues that companies must adapt to the changing consumer trend of people no longer buying products only for their functionality but also for the image that the company portrays be it one of human rights abuses or one of great Corporate social responsibility initiatives. Fisk concludes the book by stating that companies will move into the direction of triple bottom lines as they begin to learn and understand the vast array of benefits that can be achieved by corporations by focusing equally on people and communities, the environment and sustainability and profits.