Corporate Accountability FA10
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.
