Archive for May, 2006
Tuesday, May 30th, 2006
 I recently completed a paper on Socially Responsible Investing (SRI) and Calvert (best known for their Calvert Mutual Funds) and include a slightly modified version here for anyone interested in SRI, Calvert, or CSR. The paper provides an introduction to SRI for the uninitiated and also takes a close look at Calvert’s rating system to determine qualifying companies in which to invest. As a brief introduction, I’ve included the executive summary below (download the SRI paper [PDF]).
. . .
Executive Summary
Corporations are entering an exciting stage in history—profits, once the focal point of all corporate actions, are beginning to make room for another business priority: social responsibility. Corporate social responsibility (CSR), or the prioritization of societal concerns in addition to maximizing shareholder wealth, has been gaining momentum over the past few decades, enjoying a recent surge following the various Enron-era corporate scandals.
Much of the acceleration in interest can be attributed to the growing popularity of socially responsible investing (SRI), which seeks to evaluate companies as investment candidates that not only meet certain financial performance baselines, but also show a commitment to corporate integrity. Asset management firms such as Calvert have popularized SRI through the use of SRI mutual funds and simple, easy to understand rating systems (e.g. the Calvert RatingsTM). Nothing is perfect, however, and while it is easy to identify the strengths and shortcomings of the various rating schemes, additional rating criteria such as disclosure, product/service safety and purpose, and commitment to and the impact of corporate social responsibility, would make the system more solid.
Unfortunately, there are a few factors impeding SRI’s growth. First, there is a misconception that SRI investments provide lesser returns than non-SRI investments. Second, a corporation’s governance structure is inherently in conflict with the pursuit of social concerns. A corporation’s fiduciaries have duties of loyalty and care to the corporation and it’s shareholders, which typically leads to the prioritization of profits over any other concern. Placing corporate integrity and social concerns first, or even in addition to profit maximization, may cause the fiduciaries to be in breach of one or both duties. Introducing additional fiduciary duties, such as duties of citizenship and humanity, which stipulate a greater social concern by the corporation, may alleviate this conflict.
. . .
Please feel free to download the full SRI paper [PDF].
Posted in CalPoly MBA, Corporate Governance, Corporate Social Responsibility, Socially Responsible Investing | No Comments »
Tuesday, May 30th, 2006
 Today’s New York Times offers a slew of interesting articles. Here are three that caught my eye due to their focus on business ethics, CSR, or governance issues:
Posted in Business Ethics, Corporate Governance, Corporate Social Responsibility, Interesting News | No Comments »
Saturday, May 27th, 2006
 The cryptic post title is meant to be a bit confusing… Earlier this week I ordered a MacBook from Apple and chose the 2-day shipping option. I’ve been salivating ever since, and obsessively checking the laptop’s progress via FedEx’s tracking. Along the way, I’ve noticed two interesting things.
At first, the only information that appeared was that the package info had been sent to FedEx. Then the first location data popped up—the package was “picked up” in Suzhou, China. Normally that wouldn’t be that interesting, but I will be in the area (I’m fairly certain we are visiting Suzhou), MacBook in tow, in about three weeks. As much as I have come to loath references to the flattening world, the laptop’s China to California to China journey in under a month is quite interesting (perhaps only to me…).
The second observation I had came with a bit of frustration. As I continued to remind myself that I paid extra to receive the laptop 2 business days after shipping (it is projected for 4 business days, accounting for the holiday), I couldn’t help but notice the odd flight path my package is following. Leaving Suzhou, it touched down in Anchorage. I thought it a bit weird at the time, but chalked it up to flight time and distance savings. Curiously, though, instead of heading to a destination closer to Southern California (LA or SF, anyone?) the laptop arrived in Indianapolis. Interesting. Perhaps it is now on its way to Atlanta so it can get the corporate FedEx stamp of approval before it heads to it’s final California destination? Or maybe FedEx doesn’t have the super-efficient logistics everyone gives them credit for? Who knows. All I can attest to is that I paid quite a bit of extra money to have my new computer in hand 2 days after shipping, and while I appreciate that it is probably enjoying its world-tour, I’d really like to have received it within that time frame.
Posted in Business Strategy, China | 2 Comments »
Saturday, May 27th, 2006
 CorpWatch has a very interesting article about corporate predators that is worth a peek: The Scariest Predators in the Corporate Jungle.
Beyond having moral and ethical implications, the activities the article mentions pose serious corporate governance conflicts for the various corporations. One fact I found interesting was the distribution of bad behavior by sector. Two thirds of the violations come from the oil, gas and mining industries, with food and beverages, apparel, footwear, and the information and communications technology sectors rounding out the group (in descending levels of abuse respectively).
The article is a good read and of interest to anyone following CSR, SRI or corporate governance.
Posted in Business Ethics, Corporate Governance, Corporate Social Responsibility, Socially Responsible Investing | No Comments »
Thursday, May 25th, 2006
 This didn’t come as a surprise, though I am sure there were a few people who thought at least one of them would get off the hook: Enron Chiefs Guilty of Fraud and Conspiracy
“Mr. Skilling was convicted of 18 counts of fraud and conspiracy and one count of insider trading. He was acquitted on nine counts of insider trading. Mr. Lay was found guilty on six counts of fraud and conspiracy and four counts of bank fraud.
“The conspiracy and fraud convictions each carry a sentence of 5 to 10 years in prison. The insider trading charge against Mr. Skilling carries a maximum of 10 years.”
Posted in Business Ethics, Corporate Governance, Interesting News | No Comments »
Thursday, May 25th, 2006
 The New York Times had quite a meaty article on the front page today: With Links to Board, Chief Saw His Pay Soar. If you have any interest in executive compensation, corporate governance, or business ethics, this is an exceptional article to read.
Centered on the astronomical compensation of Home Depot CEO Robert Nardelli, the article touches on many corporate governance issues. One of the particularly interesting topics discussed is the conflicting presence of a sort of CEO’s club at the director level. It seems that many of the individuals on Home Depot’s board are currently, or were in the past, CEOs of fairly large companies. In fact, one of the board members enjoys a higher compensation package than Mr. Nardelli. Apparently many conflicts arise from these kinds of relationships:
“Two of those members have ties to Mr. Nardelli’s former employer, General Electric. One used Mr. Nardelli’s lawyer in negotiating his own salary. And three either sat on other boards with Home Depot’s influential lead director, Kenneth G. Langone, or were former executives at companies with significant business relationships with Mr. Langone.
“…Governance experts say people who are or have been in the top job have a harder time saying no to the salary demands of fellow chief executives. Moreover, chief executives indirectly benefit from one another’s pay increases because compensation packages are often based on surveys detailing what their peers are earning.”
Hmmmm.
Home Depot shareholders are a bit miffed at Mr. Nardelli, and rightly so:
“The Home Depot board has awarded him $245 million in his five years there….Yet during that time, the company’s stock has slid 12 percent while shares of its archrival, Lowe’s, have climbed 173 percent…. Even last year, when Home Depot’s stock was unchanged, the board raised his salary 8 percent, to $2.164 million, and increased his bonus 22 percent, to $7 million.”
Is there a conflict with the CEO’s compensation and in prioritizing shareholder returns? How does this all fit into exemplary corporate governance? The short answer is that it doesn’t. It gets a bit worse:
“He also received perks like use of a company plane for personal trips; a new car every three years, one similar in price to the Mercedes Benz S series; and a $10 million loan with an annual interest rate of 5.8 percent that would be forgiven over five years. That $10 million loan wound up costing shareholders $21 million after the board agreed to pay all taxes on it, a so-called gross-up.
“…And when it appeared that Mr. Nardelli might not hit one of the few performance goals the board had set to cause payment of a long-term incentive plan, the board lowered the goalposts, according to the Corporate Library.”
There is a lot more juicy content in the article. I highly recommend taking the time to read it.
Posted in Business Ethics, CalPoly MBA, Corporate Governance, Corporate Social Responsibility | 1 Comment »
Wednesday, May 17th, 2006
 Yesterday, and presumably via wire and not on bleached and un-recycled paper, publishing company Random House announced that it will, “increase the proportion of recycled paper it buys for its books to at least 30 percent by 2010, from 3 percent now” (Book Publisher Sets A Goal on Recycling, The New York Times).
While the news is uplifting, I am a bit surprised that their current usage is only 3%. I don’t know all of the in’s and out’s of the publishing industry, but I would have put the percentage much higher by this point in time. 3% sounds more appropriate for the late 80’s to me…
Is the cost of recycled paper really that high to have prevented it from being used more by such a large publishing company? Or perhaps it is a supplier issue, either in volume and reliability, or perhaps a weakness in getting the message out. Either way, in an age when consumers have been using, for some time now, recycled copy paper for their office needs, recycled napkins and paper towels for their messes, and even coffee-cup finger burn preventers for their $28 cup of Starbucks coffee, I would have thought the publishing industry would be further along than 3%.
Are all publishers around the same usage? Is the general shift toward greater concern for paper consumption and its impact on the environment? Is Random House breaking away from its peers, or lagging far behind them in increased recycled paper usage?
Posted in Books and Films, Business Ethics, Corporate Social Responsibility, Social Enterprise | No Comments »
Tuesday, May 16th, 2006
 Earlier this afternoon I attended a presentation at Cal Poly by the Chairman of Oracle, Jeffrey Henley. The presentation was excellent and offered a candid look at Mr. Henley’s career and Oracle’s corporate strategy.
During the Q&A portion of the presentation, one of my classmates asked Mr. Henly about Corporate Social Responsibility and its relevance in a corporation such as Oracle. I have a horrid memory, so I unfortunately do not remember the specific question, nor do I remember all of the details of Mr. Henley’s response. What I do remember is the general lack of enthusiasm he showed for CSR.
To be fair, it was apparent based on his response that Mr. Henley seemed to equate CSR only with charitable contributions, and not in a broader capacity of societal responsibility. This realization came up after the presentation in a discussion with a professor and classmates, however, I don’t think it necessarily justifies Mr. Henley’s response. A director of a corporation the size of Oracle, let alone the Chairman, should have a fairly strong idea of what constitutes CSR. If Mr. Henley thinks CSR is little more than charitable contributions by a corporation, then perhaps a bit of research into the topic is called for. And if Mr. Henley is aware of the broader aspects of CSR, then I am curious to hear what he has to say about them.
In reference to what he did speak about, he seemed to convey that his responsibility, and the responsibility of Oracle, was to generate wealth for the shareholders, and nothing more. He noted that Oracle contributes to charity but does so in a very small amount (again, noting that it is possible that Mr. Henley misheard the question). He went on to make the statement that the corporation should generate wealth for its shareholders whom can then do what they please with that wealth, including donating some of it to charity. In other words, charity, and by extension CSR, should be the responsibility of individual, not the corporation. …”ISR” then I suppose?
Mr. Henley also commented that the majority of CSR efforts are “for show” and to gain positive PR, a point I tend to agree with. I do think that there are a good number of companies that truly believe in the value of CSR and am optimistic that their numbers will grow in the coming years.
So what is Oracle’s corporate social responsibility commitment? A search of their corporate website led me to the “Community” page, but I was unable to view many of the sub-sections without a login and password. Hmmm — that doesn’t seem to be a shining example of transparency.
A search for “CSR” revealed a 2005 CSR publication [PDF] that has some very interesting information in it. CEO Larry Ellison is interviewed and offers a fairly interesting quote early in the publication:
“Q [Interviewer]: Is a company’s approach to corporate responsibility and corporate citizenship at odds with financial success?
“A [Ellison]: Absolutely not. Corporate responsibility and citizenship does not mean inappropriately spending shareholder money. It means finding genuine intersections between the needs of our society and the goals of our company, and making investments that benefit both.
“For example, Oracle’s Academic Initiative has provided technical training in 72 countries around the world—a US$1.3 billion investment in the futures of more than 300,000 students. This program not only lays the groundwork for so many successful careers, but it helps us expand the pool of talent available to support our customers’ Oracle solutions. It’s a great example of how good social investment makes good business sense.
“We’ve made similar changes in our environmental policy. We’ve invested in new equipment and changed our business practices to encourage the efficient, environmentally sound use of energy and resources. As a result, we’ve reduced our energy usage at Oracle headquarters each of the past three years. We’re also powering our main data center on approximately 25 percent renewable energy. We earned back our investment in equipment upgrades in eight months and are now able to reduce our real-time energy use by up to 18 percent in case of power emergencies.
“Our success is magnified by a good relationship with our neighbors: the customers, partners, and residents of the cities where we operate. We should not shy away from supporting the issues that are important to their communities. Investments in the environment and education ensure that our business leaves a positive footprint and improves the lot of the people we work among.”
Interesting. I’m fairly certain that Mr. Ellison and his Chairman have chatted about Oracle’s CSR initiatives at least once or twice, say in a board meeting perhaps? Is it possible that Mr. Henley is simply unaware of all of the neat things Oracle is doing to promote corporate social responsibility, or is it more likely that he was being brutally honest when he made the claim that most CSR efforts are for show? Given his candor earlier today, he did quip questionably, ‘there aren’t any press present, right?’, I think it is difficult not to draw the conclusion that Oracle’s CSR efforts fall into the PR and “puffery” bin.
Is it a shame that Mr. Henley conveyed what he did about CSR, or should we applaud his honesty? Is he part of the problem, pushing for greater and greater shareholder wealth (check out his compensation below), or is he simply adhering to the true purpose of Capitalism and corporations. Should Mr. Henley be subject to criticism for not taking CSR more seriously, or should the system be criticized for creating the problem?
Truthfully, I went to the presentation with fairly high hopes but left feeling a bit cheated. I expect more from executives and powerful corporations. Am I being incredibly naive and idealistic, or is there more that Oracle, Mr. Ellison, Mr. Henley, and the cadre of other $1 million+ compensated executives at the company should be doing to promote CSR?
Here are a few additional resources to check out:
[Update 1, 5/17/06]: A brief article about the event appeared in the local paper today: Oracle Exec Offers An Upside To Global Economy.
[Update 2, 5/17/06]: Here’s another interesting article about Mr. Henley: Insiders: Oracle Chairman Cashes In. When I was doing a bit of research for the original post, I noticed that he had been selling large chunks of shares in the past few months and thought it was quite interesting. This additional article comments a bit on why he would be selling shares in such quantities and frequency, and I thought it put everything into perspective quite nicely.
 TAGS: CSR | Ethics | Oracle | Jeffrey Henley | Larry Ellison | Executive Compensation
Posted in Business Ethics, Corporate Social Responsibility, Interesting News, Social Enterprise | No Comments »
Monday, May 15th, 2006
During my upcoming trip to China with my MBA class, we will be visiting a number of multinational companies and China-based firms as well as a few universities and other organizations. The list below does not include a breakdown of the cultural sites we will visit (e.g. The Forbidden City, etc.) but should give you a fairly good idea of what kind of companies we will tour.
Shenzhen:
Shenzhen Newly Ever Rise Electronics Co., Ltd
Though the company’s website is in Mandarin (presumably) I was able to gather a little information by using Google’s translate feature (a bit ironic given my recent post about Google and China, but I digress). The translation was a bit choppy, but it seems that the company manufactures small to medium-sized consumer electronics, appliances and electronic components. It will be interesting to see if my assumptions are close or way off when we arrive.
BBK Cell Phone Factory
BBK’s website is also in Mandarin but I was able to again gather a bit of information using Google. In addition to the obvious manufacturing of cell phones, the company also produces other consumer electronic devices such as MP3 players and compact flash readers. The translation was quite choppy (I hope), so it is possible that the company is in an entirely different industry. My favorite translation is from the description of an MP3 player: “Nano lords glass lenses simultaneous broadcast with music sing quanbing simultaneous visual learning multi-level recite thesaurus download.” I suppose that is why Google’s translation service is still in beta…
Yantian Seaport & Logistics Center
The Yantian Seaport is the second largest deep-water container port in China (the Shanghai Yangshan Deep Water Port is the largest) and presumably handles all of the container shipping originating in Shenzhen. Due to Shenzhen’s rapid growth over the past decade, it will be interesting to see this massive port in person. Moreover, the growth and success of the port is directly related to Shenzhen’s position as one of China’s hottest regions — should the economy shift, or wages increase rapidly, the port may be dramatically impacted.
Shanghai:
PricewaterhouseCoopers
One of the Big Four accounting firms, PricewaterhouseCoopers offers a range of services including the following: Audit and assurance, crisis management, human resources, performance improvement, tax, and transactions consulting. The company has 13 offices in China from Beijing to Shanghai to Shenzhen. As a side note, check out PWC’s Corporate Responsibility publication.
CB Richard Ellis
You may have seen CBRE’s distinctive signs posted on buildings, from warehouses to skyscrapers, throughout the U.S.. Due mainly to a number of strategic acquisitions over the past decade the company has grown into a dominant global real estate services company with over 300 offices in 50 countries. The company seems extremely customer-focused and a great company to work with or have as a partner in real estate. We had the pleasure in late April of receiving a presentation from the President of the Western Division, Bill Chillingworth.
Shanghai Urban Planning Exhibition
Tapping Google again for a bit of translation help, I was disappointed to see that the search engine was unable to help out. It appears that the main page (the second one, not the cryptic black one with a few Chinese characters on it) is comprised all of images which Google is unfortunately unable to convert to English. From the name, the images on the site, as well as a quick search, I imagine the organization to be an exhibit on urban planning within the city including residential dwellings and high-rises.
HSBC
Based in London, HSBC offers banking and financial services world-wide. The company has been in China for quite some time, however, having been established in Shanghai in 1865 as the Hongkong and Shanghai Banking Corporation Limited. Perhaps most readily recognized in the U.S. for its credit card services, HSBC offers a slew of financial services including mortgage lending, consumer and corporate banking, and investment services, and currently boasts 12 branch offices in China.
RR Donnelley
From the company’s website: “RR Donnelley is the world’s premier full-service provider of print and related services, including document-based business process outsourcing.” I imagine most global companies would refer to themselves as “the” premier company, but in RR Donnelley’s case their global dominance is definitely evident. Based in Chicago, the 140-year old company racked up $8.4 billion in sales in 2005 and has more than 600 locations worldwide. The company provides services in, “commercial printing, direct mail, financial printing, print fulfillment, forms and labels, logistics, call centers, transactional print-and-mail, print management, online services, digital photography, color services, and content and database management to customers in the publishing, healthcare, advertising, retail, technology, financial services and many other industries.”
Microsoft Global Technical Service Center
One of five Microsoft Global Technical Support Centers in the world, this branch opened in Shanghai in 1998. With over 500 employees, the center “[provides] comprehensive technical support services for customers from regions in Asia-Pacific, America and Europe.”
Groupe Carrefour
Often referred to as the ‘Wal-Mart of Europe,’ Carrefour is a massive retail chain with locations world-wide. Though 84% of its revenue comes from Europe (47% of that is from France alone), the company is making strides internationally. It has 436,000 employees and is the second largest retailer in the world. The company sells goods via four main formats: hypermarket, supermarket, hard discount, and convenience store. It was also the first large retailer to establish a presence in Asia (1989).
Shanghai Museum
The Shanghai Museum looks quite interesting and should be a nice break from our more business-oriented visits. It has a wide range of Chinese art on display including ancient bronze, paintings, calligraphy, jade, coins, and furniture. I’m drawn to calligraphy in general but especially appreciate Asian calligraphy and anticipate enjoying the visit considerably.
Hangzhou/Suzhou:
Suzhou Industrial Park
Turning to Google again, I noted the following introduction on the website: “May the golden rooster lakes spend too podium, weeping willow Tulu, the weather each arrest. Lawn of the young woman, shaking his wits Tong envy watching the kites in the wide square run juvenile.” Interesting. I almost stopped reading, but then the translation actually started to make sense, following with, “China and Singapore as the largest cooperation project between the two governments, the Suzhou Industrial Park interpretation of the “Industrial” and “garden” wonderful combination.” It started to fall apart then at the end of the sentence, but at least I was able to glean a little information. I tried to dig a bit more but didn’t have any luck. Again, another site that should be interesting to see in relation to what I am expecting.
Beijing:
US Embassy/Commercial Attache
This organization, the U.S. Commercial Service, is very upfront about its purpose, noting clearly on the home page of its website that it helps U.S. businesses grow their sales in China. The site is a little overwhelming at first, in the sense that it offers such a wealth of information and resources to businesses aiming to enter the Chinese marketplace. There are programs, reports, research, information, and other services available, all aligned with the goal of helping U.S. companies do business in China. The U.S. Commercial Service looks to be an invaluable resource for any company doing business or planning on doing business in China.
Beijing Planning Exhibition Hall
The Exhibition Hall, our second planned museum visit, hosts a number of ancient Chinese artifacts. Noted in the linked article is a huge arial photograph of Beijing that is printed on approximately 1,000 lighted glass floor panels. In addition to the photograph is a “giant model” of the Beijing urban master plan, which will be implemented in relation to the city’s hosting of the 2008 Olympics. The model sounds pretty intricate. Note the following fact from the article: “The deputy curator said it was produced with such finesse that even the wood between panes of glass in the windows has been added.”
Sun Microsystems Engineering Center
Sun is a fascinating company that epitomizes Silicon Valley to me. I tend to think of their giant mainframes or Java, but after checking out their corporate website, I see that they have quite a bit more going on. They segment the company’s offerings into Solutions and Services, with the former having the following enticing description: “We engineer radical technology solutions that solve impossible problems for businesses, government, and institutions.” Incredibly vague sounding, but also quite cool. The description for the latter is a bit more bland and uninteresting: “Sun Services is where network computing and business converge.” I’m interested to see if the company feels like it is in the Valley, or if it takes on a more local feel.
Beijing (Peking) University
The university, called “Peking University” on its website, is located near the Summer Palace in Beijing. It appears quite large, with “30 colleges and 12 departments, with 93 specialties for undergraduates, 2 specialties for the second Bachelor’s degree, 199 specialties for Master candidates and 173 specialties for Doctoral candidates.” I poked around and visited a few of the photo galleries. The campus looks very interesting and should prove to be an enjoyable portion of the trip.
Tsinghua University
Tsinghua University also has a rich history and looks to be a very interesting site to visit. While it doesn’t seem to have the depth of academic offerings that Peking University provides it seems to emphasize its educational philosophy more prominently, to “train students with integrity.” I look forward to contrasting our visit at this university with what we experience at Peking University.
Panjianyuan Antique Collection Market
From the market’s website: “The Panjiayuan folk culture market is a market in Beijing dealing in secondhand goods of private citizens and art and craft articles.” It sounds like a very large art market akin to a flea market in the States, but perhaps with a much more “cultural” feel.
Aside from specific questions that come up during each visit, I hope to find the answer to each of the following for each business and organization listed above:
- Why do you have a location/office in China?
- What difficulties have you experienced? Any related to the government, different cultural issues, or marketplace demand?
- For U.S. multinationals: Does adhering to the FCPA impact your ability to do business or compete with other firms?
- Are there differences between operating in China vs. the U.S. or other countries?
- If wages increase significantly, will your company remain in China or shift to another low-wage country?
Posted in CalPoly MBA, China, Interesting News | 1 Comment »
Monday, May 15th, 2006
 In performing a bit of background research for some of the firms I will visit on my upcoming trip to China, I stumbled upon PricewaterhouseCoopers’ Corporate Responsibility publication (download on this page). The publication is very well put together and quite informative. I skimmed most of it, but read the portion about China closely. Here are a few clips that I found interesting and pertinent:
“China’s economic expansion heralds a significant rise in demand for consumer and industrial goods, from today’s already high levels. However, the downside is the surge in its use of natural resources and the impact on the environment. China is already the world’s second largest consumer of energy; it uses more than 1.6 trillion kWh of electricity a year and about five million bbl/day. Even so, demand for oil is forecast to rise 250% by 2025. It also suffers from a chronic shortage of water. Half of China’s nearly 1.3 billion citizens do not have access to clean water supplies, and it is less efficient in its use of water than most other nations, consuming an extra 135,000 cubic feet of water for every $10,000 it adds to its GDP.
“…Meanwhile, the leading multinationals are raising local standards by adopting clean and safe technologies in their own Chinese operations and encouraging their Chinese suppliers to manage the supply chain more ethically. As a result, the most prominent Chinese companies are rapidly improving their behavior and a growing number of them are disclosing environmental information.”
While the first portion is fairly alarming, the second clip seems to offer signs of improvement. I wonder how accurate the second statement is and how much of it is feel-good puffery.
Posted in CalPoly MBA, China, Corporate Social Responsibility | No Comments »
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