By Aron Cramer, President and CEO
You don’t have to be younger than 25 to know that Facebook is reshaping the way we communicate. Social networking is now mainstream, and with Facebook’s fascinating decision to open up the terms of use to definition by its users, the company may be reshaping corporate governance the same way it’s reshaped the web.
This five-year old company was hit by an immediate firestorm when it changed its terms of use in a way that many users saw as restricting their privacy. Within 24 hours, CEO Mark Zuckerberg rescinded the change—demonstrating that companies have to respond a lot faster to consumer rejection of their moves in the digital era than they did in the days of the New Coke fiasco.
The real innovation, though, came yesterday, with the company’s announcement that its new policy would be opened up to a vote by its users. Here’s how it will work: the policies will be posted for comment, and Facebook will use “town halls” that will result in comments to be considered for inclusion in final documents. Those final documents will then be put to a vote by users, with a requirement that 30 percent of recent users vote for the results to be binding for the company.
There is another step here that’s potentially quite interesting: the use of plain language for Facebook’s policy, which would run counter to the often obtuse words used to set such standards.
And as is so often the case for the online world, this innovation tracks social mores in the offline world: it is as though the landlord lets the members of a club decide on clubhouse rules, within some boundaries set by the landlord.
It’s unlikely that we’ve seen the last of this issue. We are still working out the rules of the road for preserving freedom of expression and privacy on the net. As an example, the Global Network Initiative—which BSR has helped to facilitate through a long birthing period—developed principles that have been adopted by Microsoft, Google, and Yahoo!, and are supported by leading human rights organizations and socially responsible investment firms. These principles set out important new commitments that are now being implemented and will very likely establish new benchmarks for the industry.
Facebook has taken an innovative step that sets a new standard that other companies will no doubt consider as an option for stakeholder engagement and corporate governance 2.0.
Where will this all go? It’s early to know whether this is a step that will be replicated by other companies, especially those for whom the online world still feels alien. This will be a good test of whether Web 2.0 is a channel for venting, or an emerging force in governance. Bravo to Facebook for opening up their process this way.
Friday, February 27, 2009
Wednesday, February 11, 2009
Executive Pay: Are We Missing a Broader Point?
By Aron Cramer, President and CEO
A recent edition of the Sunday New York Times presented an unintentional debate between two very different perspectives on public and government responses to the recession.
In the “Sunday Opinion” section, columnist Frank Rich wrote passionately about how the Washington policy apparatus is completely missing the populist rage against the misdeeds that led to the buckling economy. He made a persuasive case about why business can’t be trusted, marshaling considerable evidence of wide distress among the growing ranks of the unemployed and vulnerable.
Meanwhile, in the main section of the paper, Wells Fargo CEO John Stumpf, whose bank was stung by public criticism of employee recognition events in Las Vegas, took out a full-page ad to argue that business should be given the discretion to operate as it sees fit. Though Stumpf cancelled all major employee recognition activities for the rest of 2009, he made a good case that those events not only benefit the ultimate victims of the economic fallout—the rank-and-file employees who continue to work hard and deliver solid results—they also help increase profits by giving everyone an incentive to work harder and smarter. In other words, cutting too much spending will only accelerate a deflationary spiral.
These points appear to be irreconcilable, but there may be an answer that could address the two arguments simultaneously: a revamp of corporate governance models. This may send some scurrying for the door, recalling the unhappy experience with Sarbanes-Oxley, which was once the answer to the wave of accounting scandals exemplified by Enron.
With so much attention focused on bailouts and stimulus packages, some fundamental principles of corporate governance have been underplayed and misapplied over the past few months. But making policy to address the symptoms, rather than the causes, of such actions is a poor practice.
Instead, we should be thinking about redefining core principles of corporate governance, for a systemic approach to decision-making that can cushion business, investors, and the public from the kind of shock we are now experiencing.
First and foremost, we must reconsider corporate purpose and redefine fiduciary responsibility.
Second, while it seems ludicrous to ask whether directors have the core knowledge to perform their duties, the increase in exotic financial instruments requires we look again at whether they can exercise oversight effectively.
Third, it’s time to refocus attention on the value of stakeholder governance models as the gap between the needs of society and the arc of many businesses has widened in the past decade or more.
So far, public debate over corporate governance has been overwhelmed by efforts to deal with the crisis at hand. Fair enough. But to prevent the next crisis, it should be a topic that gets a lot of more attention.
A recent edition of the Sunday New York Times presented an unintentional debate between two very different perspectives on public and government responses to the recession.
In the “Sunday Opinion” section, columnist Frank Rich wrote passionately about how the Washington policy apparatus is completely missing the populist rage against the misdeeds that led to the buckling economy. He made a persuasive case about why business can’t be trusted, marshaling considerable evidence of wide distress among the growing ranks of the unemployed and vulnerable.
Meanwhile, in the main section of the paper, Wells Fargo CEO John Stumpf, whose bank was stung by public criticism of employee recognition events in Las Vegas, took out a full-page ad to argue that business should be given the discretion to operate as it sees fit. Though Stumpf cancelled all major employee recognition activities for the rest of 2009, he made a good case that those events not only benefit the ultimate victims of the economic fallout—the rank-and-file employees who continue to work hard and deliver solid results—they also help increase profits by giving everyone an incentive to work harder and smarter. In other words, cutting too much spending will only accelerate a deflationary spiral.
These points appear to be irreconcilable, but there may be an answer that could address the two arguments simultaneously: a revamp of corporate governance models. This may send some scurrying for the door, recalling the unhappy experience with Sarbanes-Oxley, which was once the answer to the wave of accounting scandals exemplified by Enron.
With so much attention focused on bailouts and stimulus packages, some fundamental principles of corporate governance have been underplayed and misapplied over the past few months. But making policy to address the symptoms, rather than the causes, of such actions is a poor practice.
Instead, we should be thinking about redefining core principles of corporate governance, for a systemic approach to decision-making that can cushion business, investors, and the public from the kind of shock we are now experiencing.
First and foremost, we must reconsider corporate purpose and redefine fiduciary responsibility.
Second, while it seems ludicrous to ask whether directors have the core knowledge to perform their duties, the increase in exotic financial instruments requires we look again at whether they can exercise oversight effectively.
Third, it’s time to refocus attention on the value of stakeholder governance models as the gap between the needs of society and the arc of many businesses has widened in the past decade or more.
So far, public debate over corporate governance has been overwhelmed by efforts to deal with the crisis at hand. Fair enough. But to prevent the next crisis, it should be a topic that gets a lot of more attention.
Thursday, February 5, 2009
To Regulate or Not to Regulate: The Human Rights Debate
By Diane Osgood, Vice President, CSR Strategy
Are voluntary principles and enforceable mechanisms on corporate accountability for human rights contradictory or complementary? I spoke on a panel last week on this very question as part of the two day semi-annual meeting of the International Human Rights Funders Groups.
The debate burns. On one end, activists demand new laws and regulations that punish corporate human rights abuses committed abroad. On the other end, companies prefer voluntary initiatives to more regulation.
So who is right?
My perspective is that both sides are right because corporate responsibility is by definition going beyond legal compliance. It's never ok to break the law, and corporate responsibility picks up where the law stops.
Thus, it's the government's duty to protect citizens from human rights abuses, including those committed by companies. Effective laws are the only way for governments to fulfill this duty. However, companies also have a responsibility to actively ensure that they do not violate any human rights—even if local laws are weak or poorly enforced. Corporate responsibility could be defined as activities seeking to fill in the ensuing gap between what is legally required and what is socially mandated of companies.
One key tool in this gap-filling work is the development of voluntary standards, which are co-created in multi-stakeholder processes, such as Beyond Monitoring and Voluntary Principles. If these processes are transparent and have effective accountability mechanisms, they can start to become the standard bearers, and may over time, help strengthen the rule of law. Thus they are complementary, not contradictory for advancing human rights. A good thing? I think so.
Are voluntary principles and enforceable mechanisms on corporate accountability for human rights contradictory or complementary? I spoke on a panel last week on this very question as part of the two day semi-annual meeting of the International Human Rights Funders Groups.
The debate burns. On one end, activists demand new laws and regulations that punish corporate human rights abuses committed abroad. On the other end, companies prefer voluntary initiatives to more regulation.
So who is right?
My perspective is that both sides are right because corporate responsibility is by definition going beyond legal compliance. It's never ok to break the law, and corporate responsibility picks up where the law stops.
Thus, it's the government's duty to protect citizens from human rights abuses, including those committed by companies. Effective laws are the only way for governments to fulfill this duty. However, companies also have a responsibility to actively ensure that they do not violate any human rights—even if local laws are weak or poorly enforced. Corporate responsibility could be defined as activities seeking to fill in the ensuing gap between what is legally required and what is socially mandated of companies.
One key tool in this gap-filling work is the development of voluntary standards, which are co-created in multi-stakeholder processes, such as Beyond Monitoring and Voluntary Principles. If these processes are transparent and have effective accountability mechanisms, they can start to become the standard bearers, and may over time, help strengthen the rule of law. Thus they are complementary, not contradictory for advancing human rights. A good thing? I think so.
Wednesday, February 4, 2009
Recent Ink Misses the Point of Corporate Responsibility
By Diane Osgood, Vice President, CSR Strategy
Two recent articles—one in the Financial Times and another in the Economist—refer to corporate responsibility as “hot air” and “unsustainability” respectively. The FT article even quotes sustainability consultant Michael Littlefield as saying that some business people consider corporate social responsibility (CSR) as a case of “BDF”—babies, dolphins, and forests.
These naysayers are raising old arguments and reiterating tired misconceptions. For the many business people who are serious about CSR, their efforts involve much more than token philanthropy, greenwashed ads with fields full of daisies, or the difference in price between a “fair trade” T-shirt and a “sweatshop” T-shirt.
Corporate responsibility is about good governance and accountability, ensuring that your business model doesn’t wreak havoc on other people’s lives or natural resources. And for the really smart companies, it’s about creating real economic value for shareholders by ensuring long-term access to the market, maintaining consumer trust, developing effective and efficient relationships in your supply chain, and figuring out how to reduce the use of non-renewable resources and increase the use of renewables.
Recently, we have seen a serious erosion of public trust in the private sector precisely because prominent corporations acted irresponsibly. The reality of 2009 is that we’re in an economic reset. The smart companies around the world realize that the time is now to innovate, redevelop trust with consumers and the public, develop clearer relationships with governments, and, yes—create business models that both help transform our world for the better and make money doing so. CSR is not just good for the BDFs, it’s GBL—good for the bottom line.
I am not alone in my views. In fact, according to a recent survey BSR conducted with Cone, 77 percent of business leaders are optimistic that despite the economic downturn, global business will embrace responsible business practices as part of their core strategies and operations over the next five years.
Messages from Davos underscore the growing importance of value-creating CSR. BSR’s President and CEO Aron Cramer recently returned from Davos, where he reported that, “it is undeniable that sustainability, transparency, and values were more firmly a part of the debate than in any of the prior four years. There is no illusion that business as usual will do—or will be accepted.”
Two recent articles—one in the Financial Times and another in the Economist—refer to corporate responsibility as “hot air” and “unsustainability” respectively. The FT article even quotes sustainability consultant Michael Littlefield as saying that some business people consider corporate social responsibility (CSR) as a case of “BDF”—babies, dolphins, and forests.
These naysayers are raising old arguments and reiterating tired misconceptions. For the many business people who are serious about CSR, their efforts involve much more than token philanthropy, greenwashed ads with fields full of daisies, or the difference in price between a “fair trade” T-shirt and a “sweatshop” T-shirt.
Corporate responsibility is about good governance and accountability, ensuring that your business model doesn’t wreak havoc on other people’s lives or natural resources. And for the really smart companies, it’s about creating real economic value for shareholders by ensuring long-term access to the market, maintaining consumer trust, developing effective and efficient relationships in your supply chain, and figuring out how to reduce the use of non-renewable resources and increase the use of renewables.
Recently, we have seen a serious erosion of public trust in the private sector precisely because prominent corporations acted irresponsibly. The reality of 2009 is that we’re in an economic reset. The smart companies around the world realize that the time is now to innovate, redevelop trust with consumers and the public, develop clearer relationships with governments, and, yes—create business models that both help transform our world for the better and make money doing so. CSR is not just good for the BDFs, it’s GBL—good for the bottom line.
I am not alone in my views. In fact, according to a recent survey BSR conducted with Cone, 77 percent of business leaders are optimistic that despite the economic downturn, global business will embrace responsible business practices as part of their core strategies and operations over the next five years.
Messages from Davos underscore the growing importance of value-creating CSR. BSR’s President and CEO Aron Cramer recently returned from Davos, where he reported that, “it is undeniable that sustainability, transparency, and values were more firmly a part of the debate than in any of the prior four years. There is no illusion that business as usual will do—or will be accepted.”
Sunday, February 1, 2009
Davos: The Last Day
By Aron Cramer, President and CEO
Davos closes each year with a lunch at the Schatzalp Hotel, on the outdoor terrace overlooking an idyllic Alpine valley (and some very tempting ski runs). The view inspires tranquil optimism.
This year, the view from inside the Congress Centre was decidedly more mixed though, in sum, not entirely bleak.
The closing session was the backdrop for "Fareed Zakaria GPS" on CNN. French Finance Minister Christine Lagarde—who may combine elegance and command more than any public figure since John F. Kennedy—warned of the dangers of protectionism. Observers, from Lagarde to Oxford historian Timothy Garton Ash, see it happening now with the possibility of a vicious cycle of recriminations that could prevent a real recovery.
From the business sector, there were more hopeful signs. Uday Kotak of India's Kotak Mahindra Bank presented a picture of banking in his country, noting that—in contrast to the situation in the United States—his salary is reviewed by regulators. He said that there is a simple three-part formula for a healthy banking system: 1. adequate capitalization, 2. humility—not arrogance, and 3. transparency. Jeroen van de Veer of Shell called for more servant leadership on the part of business. He cautioned against over regulation but also dismissed a laissez-faire approach as equally unworkable in light of current circumstances.
From up on the mountain top lunch, at the hotel that was the backdrop for the movie version of Thomas Mann’s The Magic Mountain, the week at Davos ended with some notes of optimism. Thinking about the entirety of the events, it is undeniable that sustainability, transparency, and values were more firmly a part of the debate than in any of the prior four Davos meetings I’ve attended. There is no illusion that business as usual will do—or will be accepted. The social contract is rapidly being rewritten in the form of stimulus packages being drafted from Washington to Beijing.
A few additional notes on international initiatives discussed and launched at Davos:
• UN Global Compact Executive Director Georg Kell is pointing toward the 10th anniversary gathering in July 2010 and was here with Secretary General Ban Ki-moon to meet with Compact signatories to discuss their forward strategy. He also noted the growing debate within the United Nations about whether to call a “Rio + 20” conference in 2012.
• The WEF's Global Agenda Councils will likely refocus efforts to articulate a clear global agenda and road map to recovery, leading to the second meeting of the Councils this coming November in Dubai. (Note: I sit on the Council on biodiversity and ecosystems)
• Erik Rasmussen is busy organizing the World Business Summit on Climate Change in Copenhagen in May. This will likely be the major, public-business conclave on climate leading to the COP15 in Denmark in December. BSR will be there, presenting and supporting a strong business presence.
• Nike is about to launch a fascinating open source “green exchange,” enabling collaborative development of sustainable products and services. Look for Best Buy and other companies to join the effort.
The world faces the need to restore employment, unlock a frozen and discredited financial system, ensure that national barriers don’t rise to choke off trade, and, not to mention, reach a deal on climate.
Davos is a swirl of talk and planning. The ultimate test of the WEF’s meeting is not what happens in Davos this January, but whether it helps to define and catalyze some of the actions needed to restart the economy—on a more sustainable path. Was this year’s Davos successful? Come back in January 2010; we’ll know a lot more then.
Davos closes each year with a lunch at the Schatzalp Hotel, on the outdoor terrace overlooking an idyllic Alpine valley (and some very tempting ski runs). The view inspires tranquil optimism.
This year, the view from inside the Congress Centre was decidedly more mixed though, in sum, not entirely bleak.
The closing session was the backdrop for "Fareed Zakaria GPS" on CNN. French Finance Minister Christine Lagarde—who may combine elegance and command more than any public figure since John F. Kennedy—warned of the dangers of protectionism. Observers, from Lagarde to Oxford historian Timothy Garton Ash, see it happening now with the possibility of a vicious cycle of recriminations that could prevent a real recovery.
From the business sector, there were more hopeful signs. Uday Kotak of India's Kotak Mahindra Bank presented a picture of banking in his country, noting that—in contrast to the situation in the United States—his salary is reviewed by regulators. He said that there is a simple three-part formula for a healthy banking system: 1. adequate capitalization, 2. humility—not arrogance, and 3. transparency. Jeroen van de Veer of Shell called for more servant leadership on the part of business. He cautioned against over regulation but also dismissed a laissez-faire approach as equally unworkable in light of current circumstances.
From up on the mountain top lunch, at the hotel that was the backdrop for the movie version of Thomas Mann’s The Magic Mountain, the week at Davos ended with some notes of optimism. Thinking about the entirety of the events, it is undeniable that sustainability, transparency, and values were more firmly a part of the debate than in any of the prior four Davos meetings I’ve attended. There is no illusion that business as usual will do—or will be accepted. The social contract is rapidly being rewritten in the form of stimulus packages being drafted from Washington to Beijing.
A few additional notes on international initiatives discussed and launched at Davos:
• UN Global Compact Executive Director Georg Kell is pointing toward the 10th anniversary gathering in July 2010 and was here with Secretary General Ban Ki-moon to meet with Compact signatories to discuss their forward strategy. He also noted the growing debate within the United Nations about whether to call a “Rio + 20” conference in 2012.
• The WEF's Global Agenda Councils will likely refocus efforts to articulate a clear global agenda and road map to recovery, leading to the second meeting of the Councils this coming November in Dubai. (Note: I sit on the Council on biodiversity and ecosystems)
• Erik Rasmussen is busy organizing the World Business Summit on Climate Change in Copenhagen in May. This will likely be the major, public-business conclave on climate leading to the COP15 in Denmark in December. BSR will be there, presenting and supporting a strong business presence.
• Nike is about to launch a fascinating open source “green exchange,” enabling collaborative development of sustainable products and services. Look for Best Buy and other companies to join the effort.
The world faces the need to restore employment, unlock a frozen and discredited financial system, ensure that national barriers don’t rise to choke off trade, and, not to mention, reach a deal on climate.
Davos is a swirl of talk and planning. The ultimate test of the WEF’s meeting is not what happens in Davos this January, but whether it helps to define and catalyze some of the actions needed to restart the economy—on a more sustainable path. Was this year’s Davos successful? Come back in January 2010; we’ll know a lot more then.
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