a miscellaneous array of recent news

McDonald's is changing its drinks menu to include more bottled drinks, which will allow more variety and more portability. The upside of this for health advocates is that new format can offer more healthy drinks such as juice, and customers may take unfinished amounts with them rather than chugging down a liter of sugary soda. Apparently this new drinks strategy would be a large departure from the restuarant chain's 51-year partnership with Coke. (Financial Times, 6/19/06, p. 18)

One large headline proclaims that a "European poll highlights French gloom on politics" (FT 6/19) - but a different table is more eye-catching: apparently citizens of the U.K., France and Spain consider the U.S. to be a greater "threat to global safety" than Iran, China, North Korea, Russia or Iraq. It would be nice if George Bush read the newspapers; then he might come across polls like this and act differently - or at the very least talk more diplomatically. But I digress. After all, this is a CSR column. This is a good opportunity to mention, however, an interesting business coalition called "Business for Public Diplomacy" which is trying to engage the private sector in changing our American image, not least becaue anti-Americanism hurts sales of American products. This is a remarkably big-picture area for CSR, and I hope they can make it work well. Certainly there are potential pitfalls but that could be the subject of another post.

Last Sunday's New York Times had a great article on green consumption, in particular detailing the many ways that individuals can "offset" the carbon emissions that their lifestyles create. Essentially, you can buy a certification attesting that you've contributed enough money to carbon-offsetting activities (planting trees, cleaner energy technologies, etc) to cancel out your negative impacts. We've come a long way, it seems, in accepting this sort of economics as moral. In my undergrad days, I wrote my senior thesis about tradeable SO2 permits and the U.S. Acid Rain program; back then many environmentalists saw "pollution permits" as morally wrong. I actually think they are a great idea, but am unsure how many people understand that if they are really "worth" a certain amount of carbon offset, they will become more and more expensive as they become more commonly purchased. The first ton of carbon is so cheaper to offset than the last.

Wal-Mart is closing some stores in Germany. It's not a big news story, but maybe it's an early signal that the world is no longer embracing the Wal-Mart way of life? (FT 6/19)

The Financial Times section on "Financial Training" (6/19/06) contains a cover story about the irresponsible amount of debt that young people are accumulating. Now I've seen articles on student loan burdens, and I've seen articles on irresponsible debt, but so far I haven't seen anyone connect the dots and say, "Hey, wait a minute. You can no longer get a good job without a college education. But tuition prices are skyrocketing. It seems our society is essentially requiring young people to take on an unsustainable debt. Maybe we should do this differently?" I'm sure society will solve this right after I've sacrificed just long enough to actually pay off my own debts, maybe 20 years from now. This reminds me of a long-standing wish that there were CSR grants and fellowships. The field seems to be too new, but perhaps better research could be done if those of us with "irresponsible" levels of debt could still engage in CSR research both in the U.S. and overseas?

I also saw a full-page tri-color ad for the FTSE4Good Index, which is encouraging. (FT 6/19)

Finally, Net Impact came out with "rankings" of the top responsible firms, presumably so that its predominately-MBA membership can favor these companies when choosing their career paths. It's a great idea, and I generally applaud efforts to bring complex CSR information to a simple, quick, usable form. Not everyone can be a CSR expert, but for the idea to work we need almost everyone to act according to CSR principles - in their consumption, investment, careers, etc. The list is not as useful as I had hoped though; it's just a compilation of five other lists, organized alphabetically and including scores from each of the 5 lists next to each company. Someone asked me a couple of days ago how companies get selected for these lists, and I jokingly said they do it by getting on other lists. I guess maybe I was only half-joking.

Whew! So much news, so little time. This blog is still evolving, as a product and also as a part of my routine - perhaps next time I can be more focused and more current. But for today, I'm just happy not to be packing the same torn-out newspaper articles back into my backpack again.

Scandal of the week: backdating options

When I mention "corporate social responsibility" to someone unfamiliar with the field, the most common response (besides "Is that an oxymoron?") is to mention Enron and related corporate-governance scandals. It seems that governance gone bad has captured public attention more than any other issue. And just when I think they must have run out of news, recent issues of the Financial Times have reported the all-too-common practice of "backdating" options.

Stock options grant the right to own a certain number of shares of of stock, at a certain fixed price. They are worthless if the current market price is below the stock-option price (then you might as well buy your shares in the regular market), but if they can be extremely valuable if, for example, they allow one to buy $200 shares for only $100 each. Presumably, granting stock options to a CEO is an incentive for him/her to create shareholder value - because the CEO's own fortunes become highly dependent on the stock price. Some have argued this still doesn't make the CEO feel the pain of stock-price drops (and can therfore lead to excessive risk-taking), but overall the idea makes some amount of sense.

What doesn't make sense is to retroactively grant options. It's against the whole idea of incentives, because one already knows the price today and the price before. It's really just a way to mask CEO pay. Strictly speaking, it's not illegal - but it's deceptive.

Until 2002, it was possible for companies to backdate options so that, following a rise in the stock price, options were granted for an earlier date (and at a lower price). These options were therefore immediately valuable. After 2002, thanks to the Sarbanes-Oaxley legislation, options must be reported within two days, making backdating virtually impossible.

To date, according to the Financial Times (see, for example, "Options Backdating Scandal Snowballs, 6/14/06, p. 12) about 40 companies are under formal investigation or holding internal inquiries. The results of these investigations are expected to reveal abuses across the Fortune 500.

Soaring CEO pay has already become an area of concern in the past few years, and the options backdating scandals will likely fuel more criticism. Then again, perhaps CEO pay has been rising to offset the decline in backdated options since 2002... a case of two wrongs making a right?

Can't stop thinking about food today...

The food industry has been a CSR hotspot over the past year, as obesity in developed countries triggered such critiques as Fast Food Nation and Super Size Me. These brought food issues into the mainstream press, and now there are regular news pieces criticising the food industry - and also covering the industry's responses and rebuttals.

The June 5th Financial Times has an interview with Roger Deromedi, CEO of Kraft ("Watching the World's Waistlines"). In the article, Deromedi brags about the many changes Kraft has made to its products, and the fact that his own meal adjustments (which still contain a large proportion of Kraft products) have allowed him to lose 15-20 pounds. With Kraft being best known for unhealty products like macaroni-and-cheese, Oreo cookies and Kool-Aid, the change in strategy/messaging is huge.

Yesterday I was also reading an early manuscript of a colleague's book, and he mentions Hershey Foods as an outlier in the sense that it doesn't even publish a social report. This sort of CSR activity was, until quite recently, considered above and beyond the call of duty - but now perhaps is expected.

Other articles have criticized the food industry for making only small incremental changes to their products, too small to make much difference.

In the US and the UK, schools are starting to ban "junk food" from the cafeterias. Actually, my own high school had a similar rule. The problem was that the lunch food wasn't really any healthier than the "junk food"- we had greasy tater-tots, "grade N" canned beef, chocolate pudding, etc. I would sometimes eat only bread rolls for lunch, as they seemed the healthiest edible option (the vegetables being too old or overcooked to seem edible).

Any real fix to the school-lunch problems would have to involve adding foods that are healthy, not just taking away the worst of the current foods. Super Size Me showcased one provider of school lunches that uses local/organic produce and allegedly cost no more than other providers. It seems hard to believe, but if it's true it would be a great breakthrough.

Someone I met at a conference recently is spearheading a campaign to change the food sourcing at Princeton University; she had information on other colleges who are experimenting with healthier dining-hall options, with great success. But everyone in this business has an agenda - the companies who say everything's fine and the activists who say their way is better.

But even if the solutions aren't easy, I'm glad to see that this dialogue has started.

A greater share for the shareholders (and less for workers)

Today I attacked the growing pile of Financial Times in my livingroom, and found several interesting articles. One front-page piece ("US Business Increases Its Share of Economy"; 6/5/06) shed some light on the pressures people are feeling for more corporate social responsibility.

The article essentially said that shareholders are receiving a larger and larger share of the economic "pie" - while employees are receiving a smaller share than ever, possibly because they lack bargaining power as their jobs shift overseas. Bondholders didn't fare too well either.

To share the exact figures with you: Profits were 7% of GDP in 2001, and are 12.2% of GDP today. This rate of profit growth is the highest since records began in 1947. The share going to workers has fallen over the same period from 58.6% to 56.2%. Interest payments also fell, from 5.6% to 4.1% of GDP.

While this article wasn't explicitly about CSR, it did show that corporations are being run more and more for the benefit of one stakeholder: the equity investor. There is, of course, a major school of though that believes a (public) firm's primary reponsibility is to these "owners" - but it is important to realize there are alternatives. Under different circumstances, more of the wealth generated by the private sector can go to employees. Maybe to consumers. Maybe even to communities or to taxes.

In other words, there are alternative slants to the capitalist model, and CSR to a large degree should be about finding the right balance.