Governance as Stakeholder Responsibility

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Governance as Stakeholder Responsibility

• James E. Post
• Prepared for the Advancing CSR Theory An
  Intercontinental Dialogue
• Montreal, CANADA
• 12-15 October 2006

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Introduction

• Perspective 30 years of CSR teaching, research,
  and practical experience.
• Our field is a mixture of theory and practice
  we need both to build.
• We need realism as well as idealism
• Hewlett-Packard as a case example
• How do we know we are not being fooled?

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Challenge we face

• Governance is about authority
• Who has authority to make decisions?
• What is the source of that authority?
• How is authority legitimately exercised?
• This intercontinental dialogue will explore the
  implications of these issues.

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A Sobering Story

• Hewlett-Packard leaking scandal
• Ethics standards H-P Way
• Every member of the H-P community (including
  directors, executives, managers, employees,
  business partners) must adhere to the highest
  standards of business ethics and comply with all
  applicable laws.
• What went wrong?
• Do the ends justify the means?

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From Halos to Horns
H-P Board Chair, P. Dunn

• I do not accept responsibility for what happened
  . (Testimony)
• I am not an investigator or a lawyer .
  (Testimony)
• H-Ps lawyers and counsel said pretexting was
  legal (or not illegal).

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H-P Mark Hurd
H-P CEO, Mark Hurd

• I accept personal responsibility to get to the
  bottom of this and fix it
• This was not the CEOs No. 1 priority.
• The CEO cannot be the backstop for every process
  in the company. (Testimony)
• Processes break in two ways. They break because
  they dont have the right checks and balances and
  because they dont have the right execution.
  This one broke down on both fronts. Like
  anything else we need to go fix it. (CNN
  Money/Fortune interview)

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Just Because You Are Paranoid Doesnt Mean
Hewlett-Packard Is Not Spying On You
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Roots of CSR Theory Research

• Disasters/crises (such as H-P case)
• Externalities ecological, consumers, etc.
• Growth of giant business enterprise
• Labor-management relations, unions, and social
  conflict
• Competition policy market abuses

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Development of CSR Field

• All research begins with a good question
• CSR questions
• To whom is the corporation responsible?
• For what?
• How can we evaluate progress and performance?

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Canadian Social Performance

• Royal Commission on Corporate Concentration -
  1976
• The concept of corporate social responsibility
  is still a relatively new and therefore an
  evolving determinant of corporate behaviour in
  Canada.
• R. T. Mactaggart, et. al., Corporate social
  performance in Canada, Study 21, RCCC, 1978.
• Focus on how the social contract was evolving
  between MNCs and Canadian society.

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Normative theory - CSR 1

• CSR 1 is the theory of how the modern
  corporation should exist and interact with
  people, institutions, and all segments of
  society.
• CSR -1 is normative how the corporation ought
  to act
• Normative state Define ideal or proper state
  of relations between the corporation and society

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Grounded theory - CSR 2

• CSR 2 is the theory of how the modern
  corporation formulates and implements policies,
  programs, and practices that accomplish the
  normative goals.
• CSR -2 is process-oriented (responsiveness). How
  does the corporation translate policy ideas into
  practice?
• CSR 2 is a grounded theory actual practice.

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Policy and Action CSR 3

• CSR-3 Critical ethical and management issues of
  our time human rights, environment, labor
  rights
• Corporate policy rooted in moral correctness
• Corporate social rectitude
• Legitimacy of governance as the key issue for
  corporate and governmental institutions
• Age of Accountability

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Traditional view of governance

• Traditional property rights view emphasizes that
  the owner of property has dominion over it.
• Three rights
• To use as the owner wishes.
• To transfer as the owner wishes.
• To set conditions for others to use it.
• New realities affect those rights however.

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PAC Newsletter - headline

• Corporate social responsibility is undergoing a
  huge transformation because of new realities.
• Public Affairs Council, Sept. 2006
• Point The community is no longer geographically
  defined . Even for small companies, the
  community is now the globe.
• Recommendation Corporate community activity
  should be based on your organizations key
  competency.
• Example -- UPS - transport logistics during
  Katrina, UPS was among the most effective
  responders.

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New realities

• The nature of assets has changed (intangibles).
• The modern firm is not factories railroad cars.
• It is composed of networks of voluntary
  relationships.
• Culture and history support more open
  approaches to authority and power.
• Governance requires legitimate processes of
  leadership and accountability

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CSR at a Crossroads

• Old-style corporate social responsibility seems
  to be morphing into new models.
• PR model good works at the margin of the
  business/ philanthropy (Buffet, Gates, Branson)
• Integrate the concerns supply chain,
  subcontractors, transparency, reputation
• Corporate re-design for the 21st century
• Corporation 2020 project

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Integration Respected Companies

• Barrons financial journal, September 11, 2006
• 85 institutional investors evaluated 100 largest
  companies in terms of respect.
• respect is intangible, which may be why its
  so important. Barrons
• Top ranked
• Johnson Johnson, General Electric, Procter
  Gamble, Toyota, Berkshire-Hathaway, Pepsico,
  Exxon Mobil, Goldman Sachs, Honda, Amgen

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5 Factors considered

• Factor Most important 2d most
  important
• Strong mgt 31 24 (55)
• Sound bus. strgy 27 25 (52)
• Consistent sales
• profit growth 22 6 (28)
• Ethical bus. practice 15 25 (40)
• Competitive edge 4 12 (16)

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Re-design model 21st c. Principles

• 1. The purpose of the corporation is to harness
  private interests to serve the public interest.
• 2. Corporations shall accrue fair profits for
  shareholders, but not at the expense of the
  legitimate interests of other stakeholders.

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Redesign principles

• 3. Corporations shall operate sustainably to meet
  the needs of the present generation without
  compromising the ability of future generations to
  meet their needs.
• 4. Corporations shall distribute their wealth
  equitably among those who contribute to its
  creation.

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Redesign principles

• 5. Corporations shall be governed in a way that
  is participatory, transparent, ethical, and
  accountable.
• 6. Corporate rights shall not supersede or weaken
  rights of natural persons to govern themselves.
• Source ltwww.corporation2020.orggt

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The Business School Research Project

• To learn how leading business schools are
  addressing social and ethical issues in
  curriculum, research, and community.
• To assess faculty resources and related support
  for these areas.

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Key findings

• Social and ethical issues are now taught in five
  distinct sub-areas ethics, social enterprise
  (CSR), social entrepreneurship, corporate
  governance, and sustainability.
• Leading schools use one or more of these areas as
  key focal points for MBA program activity.
• Dominant focus on ethics and social
  entrepreneurship as organizing themes for
  teaching.
• Leading schools are innovating and using these
  areas as springboard to public awareness and
  recognition.

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Conclusion

• Governance is about stakeholders
• Who matters? Why? What is the proper way to deal
  with stakeholders?
• Responsibility is understood through answers we
  develop to these fundamental questions
• To whom is the corporation responsible?
• For what?
• How do we measure performance and progress?

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Ethics
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Social Enterprise
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Social Entrepreneurship
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Corporate Governance
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Sustainability