Corporate Speech and Stakeholders

At a recent discussion on the Citizens United v. Federal Election Commission case at the University of Virginia, a speaker stated that most publicly traded companies do not contribute to political campaigns and political action committees. The reasons the speaker gave were public companies are generally risk adverse and do not want to alienate stakeholders, and the proxy process for approving such actions is cumbersome. The speaker noted that closely-held companies are often the biggest contributors to campaigns during election cycles.

There is much debate about whether corporations and CEOs should engage in political speech. Recent U.S. Supreme Court decisions have affirmed that companies are entitled to free speech, even when exercised through campaign spending. Over the past few years there have been several media stories about individual CEOs’ views which have led to boycotts.

Since the U.S. has a two-party system that roughly divides the electorate, political speech has the potential to upset one-half of the customer base. There are other consequences for firms to consider: shareholders could disagree with a political contribution and seek removal of the CEO. In addition, other stakeholders, such as suppliers and employees, could be unfairly associated with a company’s views.

In practical matters, while the speaker argued for more corporate speech, he noted the public company proxy process was highly inefficient. The need for individual stockholders to weigh in by voting slows down decision-making.

Should companies engage in free speech? Many would argue yes, that it is their right. However, should they risk alienating their stakeholders, such as customers, shareholders, suppliers and employees?

Leave a comment

Stakeholder Capitalism

freeman-martin-parmar

R. Edward Freeman, Kirsten Martin and Bidhan Parmar

How one views capitalism can inform business decisions and operational values. In a 2007 article, Freeman, Martin and Parmar write: “Traditional narratives of capitalism rely upon the assumptions of competition, limited resources, and a winner-take-all mentality as fundamental to business and economic activity. These approaches leave little room for ethical analysis, have a simplistic view of human beings, and focus on value-capture rather than value creation.”

One traditional narrative is Investor Capitalism which states “…the purpose of the capitalist system is to increase wealth for the investor. In fact, any consideration outside that goal – for example, consideration of the welfare of customers, concern for the community, or charity – is seen as in competition with investor needs and diverting resources away from the primary goal.”

The authors discuss other popularly-held concepts of capitalism; these “…assumptions about markets and capitalism that we believe to be counterproductive. Each narrative assumes that market participants have a naive version of self-interest (that one’s self-interest is not connected to, or doesn’t take into account the self-interests of others), that morality is separate from (or even antithetical to) economic prosperity, and that competition for limited resources (value as a zero-sum game) is the dominant mode of prosperity.”

Additionally, they note: “…we have mistakenly taught managers that business within capitalism is by its very nature amoral.”

“Rather than acknowledging the moral dimensions of every decisions – whether in business or not – academics and practitioners have created a separate sphere of norms, rules, and morals and named it capitalism where competition and winning dictate the rules of the game.”

They continue “…survival of the fittest narrative of capitalism ignores the fact that moral concepts, such as relationships, mutually beneficial agreements, teams, trust, honesty, and care are necessary in those instances when survival of the individual, group, or organization is at stake.”

“Business should be about the best that we can create together, rather than about avoiding the worst. If we critically embrace a new set of assumptions about how value is created, the practice of business will soon follow. We do not have to sacrifice the great strides forward to solve some of the deeply troubling issues with capitalism. We need to think critically, acknowledge the social nature of value creation, and work with an insatiable passion to create value for our stakeholders.”

Excerpted from the article “Stakeholder Capitalism,” by R. Edward Freeman, Kirsten Martin and Bidhan Parmar. Originally published in the Journal of Business Ethics (2007) 74:303–314. (c) Springer 2007.

Leave a comment

The Evolution of Capitalism

Capitalism is in the news a lot these days. Pope Francis made global headlines for his critique of unbridled capitalism. Recently Professor R. Edward Freeman wrote about the future of capitalism in The Guardian, and it was met with vigorous discussion online. It is evident that this topic strikes a nerve with many people in the 21st century.

Even within academia, the Academy of Management’s 2013 Annual Meeting featured the theme of “Capitalism in Question.” Freeman participated on a panel with other distinguished professors, and most thought the world was in trouble because of capitalism.

However, there are several movements afoot in the business community to change the status quo. The Darden School of Business recently hosted Walter Robb, co-CEO of Whole Foods Market, to a packed auditorium of students and community members. Robb and his co-CEO John Mackey are a part of Conscious Capitalism, which champions four principles: higher purpose, conscious leadership, stakeholder orientation and conscious culture.

Whole Foods Market co-CEO Walter Robb speaks at the Darden School.

Whole Foods co-CEO Walter Robb at the Darden School.

In his talk Robb mentioned other similar movements, such as Virgin Group CEO Richard Branson’s Enlightened Capitalism and Bill Gates’ Creative Capitalism. He saw all of these ideas as an “evolution of capitalism” for the greater good.

Throughout history ideas have constantly evolved. Is it time for capitalism to evolve?

Leave a comment

What Stakeholder Theory is Not

Excerpted from an article by Robert Phillips, R. Edward Freeman and Andrew C. Wicks

circlesThe word “stakeholder” has become a commonly used term in business and in other sectors. The term means many different things to many different people and hence evokes praise or scorn from a wide variety of scholars and practitioners of myriad academic disciplines and backgrounds. Such breadth of interpretation, though one of stakeholder theory’s greatest strengths, is also one of its most prominent theoretical liabilities as a topic of reasoned discourse. Much of the power of stakeholder theory is a direct result of the fact that, when used unreflectively, its managerial prescriptions and implications are nearly limitless.

At its current stage of theoretical development, stakeholder theory may be undermined from at least two directions: distortions and friendly misinterpretations.

Critical Distortions:

  1. Stakeholder theory is an excuse for managerial opportunism (Jensen 2000; Marcoux 2000; Sternberg 2000).
  2. Stakeholder theory cannot provide a sufficiently specific objective function for the corporation (Jensen 2000).
  3. Stakeholder theory is primarily concerned with distribution of financial outputs (Marcoux 2000).
  4. All stakeholders must be treated equally (Gioia 1999; Marcoux 2000; Sternberg 2000).

Friendly Misinterpretations:

  1. Stakeholder theory requires changes to current law (Hendry 2001a, 2001b; Van Buren 2001).
  2. Stakeholder theory is socialism and refers to the entire economy (Barnett 1997; Hutton 1995; Rustin 1997).
  3. Stakeholder theory is a comprehensive moral doctrine (Orts and Strudler 2002).
  4. Stakeholder theory applies only to corporations (Donaldson and Preston 1995).

Read the full article, “What Stakeholder Theory is Not.” Originally published in Business Ethics Quarterly, Vol. 13, No. 4, Oct., 2003.

Leave a comment

A New Future for Microfinance Institutions?

by Brad Brown, Professor at the U.Va. McIntire School of Commerce and Olsson Center Senior Fellow

Professor Brad Brown

Professor Brad Brown

Microcredit and microfinance have captured the imagination of the world by providing what appears to be a successful model of economic development in which poor people lift themselves out of poverty by starting small businesses with the help of very small loans.  The popular image of microcredit is that of poor villagers, mostly women, organized in five or six person support groups, borrowing small amounts of money to start “cottage” businesses to earn a little money to help their families.

However, as the microfinance industry has grown and spread around the world, almost all of the stereotypes about microfinance have been challenged.  Allegations that microfinance institutions charge usurious interests rate and pressure the poor to take on excessive risk and debt have become well known.  So many institutions claim to provide “microcredit” that the term has become meaningless except that loans are generally small and not regulated by any government.

We suggest a new future for microfinance institutions (MFIs).  In order to better serve the needs of the poor, we propose government regulation, improved organizational governance and business models for MFIs.  With a strict definition of “microfinance” true microfinance can be properly distinguished from other forms of financial activities.  With adequate regulation and supervision, MFIs can take deposits from the poor thus providing a valuable service while obtaining money to lend. We propose that MFIs meet a strict definition and then be regulated and monitored to protect borrowers, which will also help to legitimize the microfinance industry.

The complete article, “Is It Time to Regulate Microfinance?” can be viewed online at Progress in Development Studies. My co-authors were Fahkruddin Ahmed and Susan Perry Williams.

 

 

Leave a comment

Stakeholder Strategy and Resiliency

At a recent public forum for local business owners, Olsson Center Senior Fellow Jared Harris asked, “what is the purpose of business?” The audience, made up of sustainable business owners responded with answers about passion, purpose and a need to fulfill in the community. However, one owner remarked “what about making money?” Harris, who teaches strategy and business ethics, opened the conversation more to talk about the tension between making money and filling a need. Ultimately Harris believes the purpose of business is to create value, and profits are outcomes.

Photo by Abena Foreman-Trice

Photo by Abena Foreman-Trice

The talk, “Lessons from Businesses That Have Weathered the Storm,” is part of the Charlottesville-area Better Business Challenge, a competition among local businesses to incorporate sustainable practices into day-to-day operations. In its second year, the competition also aims to promote companies that have green business models in the community.

Harris offered insights from his research on resiliency in small companies in Virginia. According to Sutcliffe and Vogus, resiliency is “the capacity to rebound from adversity strengthened and more resourceful.”

In his research, Harris and his co-author identified three ways that businesses achieve resiliency:

  1. Psychological strategy, i.e. having a positive attitude to cope
  2. Operational strategy, i.e. what can be changed
  3. Stakeholder strategy, i.e. engagement and cooperation with stakeholders

After analyzing responses from 150 small businesses, he found that there was a positive relationship between a stakeholder approach and profitable growth. “Engaging with external stakeholders pays off,” said Harris.

 

Leave a comment

Employer-Employee Relationship in the 21st Century

Shawn Berman

Shawn Berman

Olsson Center Senior Fellow Shawn Berman, Professor of Business & Society at the University of New Mexico Anderson School of Management, recently gave a talk on the “employer-employee relationship in the 21st century.” Berman was speaking to the Business Ethics Society, an undergraduate club at the University of Virginia.

He discussed how frontline employees are overworked and stressed in the U.S. and how they are often seen as simply “resources.” After presenting statistics on the present-day workforce, Berman noted that corporate CEO pay is 380 times that of the average worker. He asked the students if the rising inequality in society should be of concern. Using stakeholder management, he encouraged the students to think about the employer-employee relationship and its consequences for society.

Leave a comment

Technology and Stakeholders

Early in her talk at the University of Virginia, Professor Jennifer Griffin elicited a telling remark from a student: technology has expanded the number of stakeholders

Griffin, Professor of Strategic Management & Public Policy at the George Washington University School of Business, said that today’s technology makes communication in the business world easier and faster than in the past. In relation to stakeholders, another student said that this also presents the opportunity for more misinformation. Griffin spoke with undergraduate students in the Business Ethics Society to convey the complexities of modern business management in a world of fast-moving technology.

GriffinShe says today’s multinational corporations must operate in an environment similar to “a 3-D chess game” because networks and technology are making the world that much more complex. No longer do companies have to deal with just individual stakeholders, but they must work with sets of stakeholders. She challenged the students to think about these stakeholders’ impacts on the firm.

She stated that we’re now in an information market or marketplace of ideas, especially with the media, internet, governments. “How does that change your world? How does that change your business?” Griffin noted that it is “not just having relationships, but it’s the information with technology that changes the game.”

Griffin urged the future business managers to ask, “What business are you in? How do you co-create value?” and finally, “Why should you tend to stakeholders?” She concluded with “If you don’t do it, someone else will for you.”

Leave a comment

Capitalism in Question

Recently the Academy of Management Social Issues in Management division hosted a panel discussion called, “Capitalism in Question: Towards an Economics of Justice, Sustainability, and Economic Thrivability.” Professor R. Edward Freeman participated in the discussion, where he humorously remarked that he felt like a clown attending a funeral.

R. Edward Freeman at AOMMany of the speakers discussed capitalism’s unsustainable growth, environmental neglect and unsavory scandals. However, Freeman saw a bright future of innovation and hope. He believes that we live in a time where business has the potential to solve real problems. According to Freeman, business adds real value to our lives, and capitalism is the greatest system of cooperation created.

Freeman noted that the old story of business has run its course. That’s why he is actively talking about “New Models of Business in Society” to get people thinking about what is possible.

Leave a comment

New TV Show Asks “Big Questions”

Olsson Center Senior Fellow Patricia H. Werhane, the Executive Director of the Institute for Business and Professional Ethics at DePaul University, has recently launched a new PBS program about ethics called “Big Questions.”

Pat WerhanePart documentary, part talk-show, each episode draws you into major issues facing the world today, and many episodes offer solutions.

The show asks what you think about some of the world’s most critical challenges. Big Questions brings you inspiring stories where just a few people have already made a big difference. The hosts bring years of experience and knowledge to help shed light on new ideas and projects that are changing the way the world works, and then look to you for insights on how that change can continue.

Stirring and motivating stories can be found in all kinds of places, from our backyard to faraway places around the globe. The first half of season takes the viewer to rural villages in Bangladesh, an international corporation’s health care initiative in Tanzania, wage theft protests and food deserts in Chicago, and even includes a rehabilitation program in a small town Michigan correctional facility. The second half brings the viewer to a school in Haiti, a pineapple plantation in Ghana, homeless shelters in the U.S., Hong Kong’s cage homes, a refugee hospital in Jordan and more.

big questions

Leave a comment