Ferreting out activist shareholders

Activist shareholders have been more active than every this past year, and the big question on my mind is: How will this change the way companies make decisions? The Financial Times seems to be of two minds about it:

1. It's popular "Lex Column" (of 12/9/05) seems to assume that activist shareholders will have increasing sway over corporate policies, and balances the "pro" of forcing management to defend its ideas with the "con" of potentially pitting shareholders with competing objectives against each other.
2. The following day's front page, however, has an article ("Boards check shareholder lists for trouble") describing a very different corporate response: to sleuth out who the activist shareholders are, presumably to cut them off at the pass. The article is not very specific about how corporations intend to use information about internal agitators, but here's the general idea: "Companies want to know who owns their stock, what their investors' intentions are and what their voting history is.... They want to know if there are activists there, and they want to get a better idea of the modus operandi of any activists, as well as what other shareholders might tie into their plans."

What will they do with this information? Will something akin to the "poison pill" be incorporated into company bylaws to prevent activist-driven change? Will they work more collaboratively with activists in advance of a stand-off? Will managers simply be better informed and have their rebuttals ready when the confrontation occurs? This is a very new area, and I'm not quite sure what to expect - probably a bit of each scenario.

The important thing is to keep an eye on this development, and it would be nice if the SEC was ready to move quickly on implementing any new rules, as the need for them becomes more clear - either to stop managers from banishing dissent or to prevent some shareholders from undermining the interests of others.

"If CSR is the answer, what is the question?"

Tonight was the holiday party for the Center for Corporate Citizenship at Boston College, where I work part time, remotely putting together a weekly news brief. I've only been to the office once, for my orientation, and so it was a rare chance to actually meet my virtual co-workers. I had several great conversations, and thought I'd just post some tidbits here.

One woman told me about the upcoming conference that the Center is hosting this March. It has a fantastic theme: "If CSR is the answer, what is the question?" Beyond getting a chuckle from sci-fi fans, it gets at the idea that CSR means many things to many people; in fact, as a popular buzzword it ends up being co-opted by a variety of groups. In particular, advocates of various causes or points of view argue that CSR means that companies have to support their agendas. But this can result in a frenzy of activity, without necessarily appeasing everyone - groups are for or against abortion, for or against gay lifestyles, for or against saying "Merry Christmas" (see http://www.savemerrychristmas.org/), and a variety of other incompatible causes. Sometimes I wonder if my mom thinks this is the sort of thing I aspire to do for a living, actually - stump for one cause or another, and needle corporations into bending to my will.

But for me, the real question is very broad, and it's this: How do corporations fit into society? I'm intrigued by how they fit into different societies (post-communist, for example), and by how they fit with the other puzzle pieces of government, NGO's, consumers, investors, media, etc. I want to know how societies determine their values, and how they can build systems and incentives that will allow and encourage businesses to act in accordance with those values - whatever they may be. Intellectually, I'm more concerned with whether we can build that sort of system than with what precisely the system encourages.

There was also a great conversation about the future of CSR education. I described my experience at the Fletcher School, where a lack of faculty expertise restricts the school's ability to offer more formal and deeper training - even though there is a great deal of interest among the student body.

This tied into other conversations about funding. The Center receives most of its funding though memberships, and some through conferences, classes, and special projects. My boyfriend, who is an engineer, asked me why a Center affiliated with a university isn't simply funded by that university. Good question. Is it simply because we study business, and business has more money than the subjects of other intellectual discourse, that we are expected to be financially independent? Isn't this a valid and worthwhile field on its own, or at least wouldn't it become one if we had more resources with which to study it?

It does seem a shame that the field is restricted by a lack of faculty, and yet I don't know if I could ever afford a Ph.D. (or an MBA) without more funding and support - jobs in this field don't often pay enough for that. And yet it's such an important field to study, as corporations become more powerful and less easily controlled. Can't the government, or the universities, or foundations - can't one of them help with funding? Perhaps they will someday, and I'm just too early on the bandwagon.

Making responsible consuming easy

Tonight I'm putting together an internal newsbrief that I write each week as my second job; it summarizes the CSR news for the staff of the Boston College Center for Corporate Citizenship. I've been reading a New York Times article about how and why the public increasingly distrusts business ("New Surveys Show That Big Business Has a P.R. Problem"; New York Times; 12/9/05; by Claudia H. Deutsch).

In this article, there is a good back-and-forth with the opinion poll statistics and with company responses to them. The point made by many company officials: maybe consumers don't like us, but they are part of the problem. For example:
-- "They say that people who blame McDonald's for their obesity still order the large fries, and that those who complain about low wages still insist on low prices."
-- "'I don't see investors refusing to buy because they think the chief executive is overpaid, and I don't see union members boycotting nonunion stores that sell attractively priced foreign goods."
-- "Wal-Mart's own surveys, done at the behest of board members worried about the company's image, indicated that only 8 percent of consumers refused to shop at Wal-Mart because they were opposed to its practices."
These are good points. Consumers seem to care that businesses sometimes causes social ills, but they don't often research these issues thoroughly and use that information to influence their buying decisions. And how could they? How could each and every one of us spend hours researching every product we buy and finding alternatives that meet our values? In most people's opinions, I'm sure, it wouldn't be an efficient use of time.

So the question of the day is: How can we put society's values into action, without demanding that individuals spend inordinate amouts of time on their buying decisions. I think that the answer - or at least a large part of it - is in standard-setting and voluntary certification.

Already there are independent international labeling groups such as Fair Trade, Energy Star, the Forest Stewardship Council, and others. As individual organizations, they are not perfect. But they are working toward a system-wide solution. If each product category can have one or two trustworthy NGO's concentrating their resources on figuring out who the good companies are and which products are made in socially- and environmentally- reponsible ways, then indivual consumers can make choices within their values and within their schedules.

If there are any social entrepreneurs reading this who are looking for a way to make a big impact right now, I think that amazing contributions could be made by establishing more of these organizations, making them more credible, and advertising them to both consumers and suppliers.

The "Bottom of the Pyramid"

There's a conference here at Harvard Business School right now, on Global Poverty. To a large degree, it's also a conference on the "Bottom of the Pyramid" buzz that's been gripping the CSR Nation for the past couple of years. This concept was first proposed by C.K. Prahalad and Allen Hammond in an article (then a book), which essentially says that the way to alleviate poverty is to treat the poor as customers rather than as aid recipients, thereby bringing them the benefits of free markets. It's a good idea at the broadest level, based on the arguments that:
1) the poor currently lack access to many products (and a basic princple of economics is that voluntary transactions create economic value for both parties);
2) the poor tend to pay higher prices because distribution to their communities is scarce, and many of the poor lack the transportation to shop further from home); and
3) products are usually designed for the rich, and then sold with minor adaptations to the poor as a secondary market - rarely are products designed with the specific needs of the poor in mind.

The Bottom of the Pyramid ("BoP") theory also argues that businesses can and should make a profit by selling to the poor - that good opportunities have been left on the table due to a lack of dedication and imagination on the part of business leaders, and that uncovering these profits will have the important secondary benefit of helping lift the poor out of poverty. This concept has spread like wildfire among business leaders, and (perhaps because of the receptive audience) among CSR practitioners. It seems to me that business leaders are delighted to have both a new growth opportunity and a reason to say (and believe) that pursuing profits is a noble goal.

I agree with the general assertions that market creation is crucial to poverty alleviation, and that companies could have a role in this by concentrating on lower-income sectors. However, I cannot believe that targeting poor customers will always be to their benefit. For example, one story in the original article is of a company that makes penny candy for children in India; I fail to see why having children spend their parents' money on non-nutritional snacks (that will cause more dental problems than they can afford to fix) is somehow going to lift people out of poverty. In other cases (e.g., affordable artificial limbs and water purification systems), it seems reasonable to assume that companies have created social value. But there is no real focus on how to determine which ventures are good for the poor, and which are not - just an assumption that all are good. Everything is anecdotal, except for a few poorly-designed charts.

All these misgivings are thoughts from before the conference, and I hope to actually post something about the learning that's going on now. The participants are in fact moving well beyond what I just described, although with so many people in the room (over a hundred), it's difficult to discuss any one idea thoroughly. I'll say something more about it soon.