Economics -> American Capitalism and Social Justice Fall 10

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

• “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

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)[2]. 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 way 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)[2]. 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)[2]. 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)[2]. 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)[2].

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)[2].

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)[2]. 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)[2]. 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)[2].

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)[2]. 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 of 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)[2]. 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.

The Importance of Unions as described in Why Unions Matter

Unions are a means of holding corporations accountable regarding their behavior towards their employees. Michael D. Yates states in his book that if a worker does not have a union, he has nothing and that working people and employers do not face each other as equals. The working class has only its labor to offer and is replaceable. The employers own the jobs and thus have more bargaining power. Yates explains in his book how unions are formed, how they function, why workers need them and the role of unions in politics. One of his main arguments is that workers that are part of a union are in a far more advantageous position than those who aren’t. Indeed, for a same position, a unionized worker will earn 28.1% more than a nonunion worker; will have a better insurance as well as a better pension settlement. Yates claims that workers are paid low wages not because the market dictates it (as is often claimed) but because employers have the power to impose those low wages [6]. He supports this statement by claiming that for a same company, workers in its European branches will get paid better than those in the United States. This is because European workers are either well organized or subject to generous minimum wage laws secured by their labor movement. But unions aren’t organization that solely work to get their workers better wages. One of their fundamental goals is to change the relationship between labor and its management. When employers hire a worker, they consider it as their own private property and treat it as a replaceable means of production. When workers are asked what fighting for a union means to them, a frequent answer is that it’s a fight for dignity and respect, to be treated as human beings, as equals. Unions are also a protection against discrimination of any nature; they prevent employers to fire a worker for any reason such as race, sex, disability or union activity. The union protects the workers and their rights.[6]

Social Groups for the Labor Movement

Jobs with Justice

Job with Justice is an activist group that engages workers and allies in campaigns to attain justice for working people and communities. It was founded in 1987 and is present is 40 cities in 25 states. It reaches working people through the organizations that represent them such as unions, congregations, community organizations etc. They build coalitions for labor through religious, student and community organizations. They work on campaigns with issues such as health care, immigrants’ rights, global justice, state minimum wage increases etc. they make a big difference for workers facing hostile bosses. In 2009, local Jobs with Justice coalitions worked on a total of 111 workplaces and affected more than 135,000 workers. One of the largest corporations they’re currently working on is Wal-Mart.[7]

Wal-Mart

Wal-Mart is the world’s largest retailer as well as the world’s largest private employer. In spite of the financial ability to do so, it does not provide adequate and affordable healthcare to its employees. Also, only half of their employees benefit from any healthcare at all. Their wages are also extremely low. Indeed, the average pay a worker receives is $1000 below the United States official poverty wage line. Wall-mart also practices union-busting which violates Federal law. Many organizations like the United Food and Commercial Workers union (UFCW) have been strongly working to organize Wall-Mart’s workers. A new pending legislation, the Employee Free Choice Act is currently being lobbied for strongly by the UFCW. This legislation would allow unions to avoid secret-ballot election and form a union if more than 50% of the workers at a given company request it. The Union states that there is no majority support in any of the Wal-Mart stores as of yet but that it has majorities in individual departments which can be unionized separately. As is usually the case, the legislation is facing much opposition from the corporate world claiming that it would pressure union workers to sign cards. Wal-Mart and other companies are trying to defeat the bill by putting out flyers, videos, testimonials etc portraying negative aspects of unions.[7]

Campaign for Labor Rights

The Campaign for Labor Rights is an organization that works to inform and mobilize grassroots activists in solidarity with major anti-sweatshop movements. It works to attack the roots causes of poverty, oppression and global economic disparity. It prioritizes campaigns whose goals are of worker empowerment through Union Recognition and collective bargaining contracts. Its mission to mobilize grassroots support in the United States to promote economic and social justice by campaigning to end labor rights violations. Its campaign strategies are designed in collaboration with workers to get them the right to organize and to collectively bargain with their bosses. Some of its past campaigns include the Taco Bell boycott, the union busting at Alcoa, the world’s largest producer of aluminum, as well as to end the violence against the banana workers in Ecuador. The current campaigns include Wal-Mart and Coca Cola.[8]

Relationship to Readings

Social Activist Successes

Greenpeace vs. Nestlé

Nestlé S.A. is the largest consumer packaged goods company in the world, with operations in over 86 countries worldwide, and an employee base that consists of around 283,000 people.

Greenpeace is a non-governmental organization with a stated goal to "ensure the ability of the Earth to nurture life in all its diversity.”

Greenpeace, known for its aggressive hands on approach when dealing with corporate accountability launched a new campaign against Nestle and its environmentally damaging suppliers. Nestle uses large amounts of palm oil in many of its products most notably Kit Kat, Aero and Quality Street, however unknown to the majority of Nestlé’s consumers is the source and manner in which the palm oil is harvested. A large portion of the palm oil used by Nestle is grown and harvested in Malaysia and Indonesia where thousands of hectares of pristine rainforest have been cleared to give way to oil palm plantations “depriving tribes of ancestral lands, increasing climate change emissions and killing rare animals such as the Sumatran tiger, sun bear, clouded leopard and pangolins” [9]. The Greenpeace campaign against Nestle was focused on informing consumers about the source of palm oil and its effects on the environment and eco-system. On March 17, 2010 Greenpeace uploaded a YouTube video titled ‘Need a break? So does the rainforest’ depicting a bored office worker biting into a Kit Kat which really was an orangutan finger [10].The campaign quickly expanded as activists and common people worldwide began posing serious questions to Nestle on Facebook, Twitter and other social networks.

Initially Nestle defended its position claiming they only represented a small portion of palm oil use worldwide and that as far as they where aware their suppliers where not damaging the environment. This however, only further strengthened the movement, as people were outraged at Nestle response. On April 15 on and offline protests emerged as a Nestle’ shareholders meeting was taking place. Greenpeace activists dressed up as orangutans and waved banners in front of the shareholders saying Nestle: give us a break, meanwhile online activists began sending mass emails and posting on networking sites. After this Nestle finally ceded stating it would allow the auditing of its supply chain to ensure that ‘its products have no deforestation footprint’. Nestle also agreed to partner with the rainforest trust a non-profit dedicated to preserving rainforest in order to increase supplier accountability and to further ensure that suppliers to Nestle weren’t deforesting. Furthermore, other corporations which use large amounts of palm oil, fearing a similar campaign against them also pledged to ensure that their palm oil came from sustainable sources, among the pledging corporations where Marks & Spencer, Cadbury and Mars. This effective Greenpeace campaign can serve as the template for future social activists looking to integrate both on an offline activism to change corporate accountability for the better [11].

Killer Coke

The Coca Cola Company is the world's largest soft-drink company, with a wide array of products ranging from its renowned Coca-Cola to Fanta, Sprite, Minute Maid, Powerade, and Dasani water. In 2008 the company reported sales of approximately 31 billion dollars and has employee base of around 92,400 people.

The Killer Coke campaign headed by Ray Rodgers is dedicated to informing the general populace of Coca Cola’s terrible human rights abuses internationally in an attempt to get the Coca Cola to be accountable for its actions. Among the strategies pursued by the Killer Coke campaign is to get Coca Cola and its products banned from university campuses, institutions, high schools and even communities. Several lawsuits have been filed against Coca Cola in the U.S. regarding Coca cola strong anti-union actions and human rights abuses all over the world, including Guatemala, Turkey, China, El Salvador and primarily Columbia. “The lawsuits charged Coca-Cola bottlers contracted with or otherwise directed paramilitary security forces that utilized extreme violence and murdered, tortured, unlawfully detained or otherwise silenced trade union leaders"[12]. According to the Human Rights watch Coca Cola has also been involved in child labor in El Salvador where children worked in terrible conditions in sugar cane fields.

The killer coke campaign calls on young people, particularly students, which are coke’s main target market to stand up and pressure the Coca Cola Company to be accountable for its corporate malpractice and injustice. Around 20 university campuses worldwide have banned coca cola products on their campuses and the momentum is growing. Although College deals with Coke represent a small portion of Coca Cola’s overall profit, it is the effect the campaign has had on Coke’s image as a company and its public relations which has had the greatest impact. As the general populace becomes more informed about the continued abuses of Coke many people will think twice when purchasing a Coca Cola product.

Most importantly however, is the fact that corporations worldwide are now becoming more aware of how they are accountable for everything in which the company is involved, including the community, environment and “everything that occurs all the way through the supply chain, even when it involves independent contractors” [13].

Think Outside the Bottle

Think outside the bottle, is a social activism campaign by Corporate Accountability international “working to promote, protect and ensure public funding for our public water systems” [14]. The campaign is centered on informing people about the detrimental effects water bottles have on our environment as the vast majority of them are not recycled and end up in landfills polluting the eco-system. Moreover, the campaign shows how corporations have misinformed the public regarding tap water in an attempt to get them to consume more water bottles, which directly converts into higher profits for corporations. According to Corporate Accountability international about 40% of all bottled water comes from the same source as tap water. Corporate Accountability international produced a short animated video depicting their stance on water bottles, which explains how lucrative the water bottle industry has been for corporations and how they have increased their markets [14]. The movement encourages people to stop buying bottled water and to pressure local governments to increase tap water standards.

Nike Sweatshop Controversy

Nike Inc. is the world's leading supplier of athletic shoes and apparel with an employee base of more than 30,000 people. In 2008 Nike reported revenue of more than $18.6 billion. Nike sells a wide array of products worldwide, however Nike does not produce any of these products; they hire manufacturing firms in Asia and around the world to produce their products. In the 1990’s several reports emerged depicting the terrible conditions under which workers where employed in factories where Nike products where being made; the reports included child labor, unsafe factory practices, forced overtime and wages below the poverty line [15]. Human rights groups soon took notice and began taking actions to further publicize what was going on in Nike factories worldwide. Initially Nike responded by denying they had anything to do with the scandal, but in “In April 1997, more than 10,000 workers from Nike's Indonesian factories went on strike to protest low and unpaid wages, while 1,300 workers in Vietnam went on strike hoping for a raise of one cent per hour” [16]. As the pressure on Nike was gaining momentum, the company decided to give in and began initiatives to improve worker conditions. By 2004 Nike had issued a company code of conduct to all its factories establishing clear safety conditions and minimum wage, in addition it also issued a responsibility report that allowed outside sources to monitor and grade Nike factories overseas. Now when there is a breach in the company code of conduct in factories, human rights groups work directly with Nike in an attempt to solve the issue at hand instead of lashing out at the company in demonstrations or via the Internet.

Future Outlook

In America Beyond Capitalism, Gar Alperovitz claims that the current economic system in the United States violates the values of equality, liberty, freedom and democracy for which it stands. Society has lost its moral perspective and buried itself in consumption, and the government policies are merely the result of the interests of powerful and wealthy parties. However, the book is full of promising economic alternatives, descriptions of what an alternative capitalism might look like and a strategic political-economic path for long term change. These alternatives and modifications involve socially inclined change on behalf of corporations and political structures. One of the main arguments he makes is that in order to be able to achieve those changes is to ask the question: who owns wealth? On his website, Alperovitz states: “The distribution of wealth ownership in America is truly feudal--and deeply corrosive of our democracy. Is the growing concentration of wealth inevitable, or are there innovative models and policies that begin to point the way toward more equitable ownership of wealth by individuals, workers, communities?” [17] And indeed, wealth distribution data is truly disturbing and goes against America’s basic values. The top 5% of Americans own just under 70% of all financial wealth. The top 1% of Americans now claim more income per year than the bottom 100 million Americans taken together, and the top 2/10th of 1% makes more on the sale of stocks and bonds in one year than everyone else combined [17]. Despite all of this, Alperovitz is hopeful for change.