Tag Archives: bizgov

Reading Notes: The Logic of Collaborative Governance

Simon Zadek
Collaborative institutions are serving an increasingly important role in setting standards and incentivising voluntary corporate behavior. Are these just a trend, or are they a key mechanism in establishing a more responsible social contract between business and society? The paper looks at the conditions which incentivise individual corporations to participate in collaborative governance. By understanding this structure of incentives, we can hopefully understand how these institutions can be effectively leveraged to create change.
As corporations get larger, their brands and other nontangible assets are becoming increasingly vulnerable. One operation in a worldside network can tarnish the entire company. This tarnish is increasingly visible and actionable over the internet, and as large companies deal increasingly with nonmarket forces in the academic, social and public relms there are steadily increasing points where a bad reputation can be leveraged against a company’s bottom line.
Taken in this view, CSR is not about the discrete, applaudable acts that corporations do, it’s about the way that they integrate social and environmental criteria into their reporting, management and strategic processing. Zadek models this sort of “internal learning”- the extent to which a business integrates sustainability into its strategy- with “external learning”- the extent to which institutions in society hold corporations accountable around those issues.
Zadek argues that as companies begin to integrate sustainability into the decisionmaking at a managerial and strategic level, it is in their interest to elevate the level of “external learning” in the business environment. They will benefit from policies that enforce sustainability and from clear standards that hold their competitors to account, and so it is in their interest to build coalitions to push for those standards. Collaborative governance is an important strategic tool, then, of corporations who see sustainability as a vital part of their competitive advantage. 
It is unclear in this essay how such collaborative governance should deal with companies who do NOT so fully integrate sustainability into thier operations. Should they be ignored in the collaboration? Invited to the table as greenwashers? They would seek to water down the collaboration’s initiatives, how can this be avoided?


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Where Halliburton Went Wrong: Stakeholder Engagement is not Stakeholder Domination

This week, Corpwatch is all about Halliburton. Their former subsidiary, KBR, still has multibillion dollar contracts from the Bush administration, but with Obama’s promised troop pullout and public sentiment towards Halliburton and KBR in a significant slump the company’s future contract bids will face significant public flak.

It’s worth asking how something that seemed so right could turn so wrong. Having a former CEO as Vice President seems like the ultimate government relations coup. A recently released book by Pratap Chatterjee outlines how Halliburton leveraged strong relationships with its government stakeholders to significantly drive profits (in this case by helping to start a war.) It’s the fulfillment of a philosophy hinted at by Cheney while he was still CEO. He said that:

“We have a broad prospective of who are global stakeholders. At Halliburton they include shareholders, employees, retirees, customers, business, government and sometimes non-government organizations.”

But that

“Sometimes government can get in the way of sound policy.”

Freeman et al would see two big red flags in those statements, red flags which hint at the stakeholder predicament in which Halliburton finds itself today. First, when listing their stakeholders they do not include the communities in which they operate. Though Halliburton pays lip service to the community relations on their website, their traditional philanthropic approach indicates that they see community relations as a secondary item unrelated to their core business strategy. Bad move.

Now that the political winds have changed, Halliburton and KBR’s poor public image are poised to have a nasty impact on the government relations which are core to their business. If Halliburton/KBR had considered the community a key stakeholder they may have paid more attention to the negative impact that warmongering would have on that relationship. Failing to engage peace activists to take their concerns into account has translated into big risks for Halliburton in the course of just a few short years.

There is also Cheney’s second statement. What did it mean to have a government relations strategy founded in part on the idea that Cheney could do the government’s job better? Though Halliburton (which included KBR at the time) was highly successful in gaining government influence it arguably gained that interest at the expense of what Freeman et al would deem a positive stakeholder relationship. Halliburton did not seek to understand and respect the government’s agenda so that it could effectively integrate that agenda with its own. Halliburton leveraged its influence to shape the government’s agenda around its goals. While profitable in the short term, this “don’t listen, dominate!” approach is quickly crumbling now that Halliburton’s government influence has waned. A stakeholder strategy grounded in respecting and listening to public needs rather than gaining power over them would have proven more profitable for Halliburton in the long term.

The lesson here is an interesting one. Having control over a stakeholder only works so long as that mechanism of control can be maintained. In the long run, a good relationship based on mutual respect is better business.

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Reading Notes: The Social Responsibility of Business is to Increase It’s Profits

Milton Friedman

Check it out.

A lot of people these days are talking about “social responsibility” in business, but that basically amounts to poorly executed socialism. A “socially responsible” corporation takes profits- that is money that would be going to shareholders- and spends it on what are deemed to be socially just endeavors. This spending occurs at the whims of the CEO,  how much money is spent and how it is spent reflect her individual sense of “responsibility.”

CEOs don’t have the right to take other people’s money and spend it as they choose, they have a fiduciary responsibility to maximize returns to their shareholders. Any returns that they fail to make for “socially responsible” reasons constitute a tax on shareholders (those poor, poor rich people) which is levied and spent by the CEO. No one elected the CEO to levy and spend taxes, we have politicians for that. If socially good stuff is going to happen it needs to happen in a way that’s publicly accountable- either by individuals using their own money or by the government raising taxes to take action. 

Friedman accepts that some corporations may cave to public pressure and look socially responsible to protect their brand and profits, but he calls this a “fraud”, since it’s corporations taking a role that corporations aren’t built to take in our society. 

Ok, Milt, there are a million angles on this one but let’s take a new one. This argument assumes that $ spent outside of a corporation are essentially equivilent to dollars spent in it, even when those dollars are directly related to the corp’s operations. Say, for instance, that a corp is polluting. Which is cheaper in the end for society- for the corp to stop polluting, or for an activist group to put pressure on the government to create an ugly beaurocratic oversight mechanism which forces the corporation no to pollute? If the ONLY way that corporations interacted with society was delivering returns to shareholders this would make sense, but that’s just not true. Shareholders still have the right to fire CEOs if they spend too much on social programs, but we should not assume that socially aware shareholders are an “activist minority”, or even that they have a democratically efficient mechanism of exercising control. 

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Reading Notes: Managing for Stakeholders

Freeman, Harrison, and Wicks

I was assigned the 5th chapter but skimmed the rest for context. 

Overview: Business is all about delivering value to a range of stakeholders. Traditionally these have just been investors and (kinda) customers, but it’s important to take a broadder view of how other stakeholders define the business environment.

 Effective stakeholder management (and, according to Freeman et al, all effective business) is about getting the interests of stakeholders to line up. If you can regularly please enviros, employees, investors and customers all at the same time you’re well on the road to success. Tradeoffs are necessary some of the time, but generally they are a sign of   a lack of innovation.

There are no answers on how to make this magical alignement happen, but the book provides an interesting framework for getting to know stakeholders well enough to work with them effectively:

  1. Map your stakeholders, what they want, and your current relationship with them.
  2. Break them up in terms of potential change. Ask yourself “what’s the worst case scenario for this relationship and what does it mean for us? What’s the best case scenario for this relationship and what does it mean for us?”
  3. Develop strategies based on those potential changes. 
    • If there’s nowhere to go but up, try to squirm your way into aligning with their interests.
    • If there’s nowhere to go but down, reinforce whatever makes the relationship work now.
    • If the relationship can go both ways examine the conditions that can change it and try to establish more favorable ones. (This last part is the sketchiest to me, IMHO.)
  4. Once you’ve got the beginnings of a strategy go out and talk to stakeholders about it.
    • A lot of organizations just try to have in-house people guess what stakeholders want. This is called “implicit negotiation.”
    • When you go out and hit the pavement, your goal should be to create an environment of ongoing, informal negotiation. Formal negotiation may be necessary to establish trust though.
  5. Once you’ve gathered needs of various stakeholders put them all in front of you and innovate strategies which serve multiple groups.

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