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Clarity from the extractive sector, why being fair can be a winning trait, and reporting lessons from Denmark
In today’s wired up world, transparency is fast becoming a governing concern for large corporations. Of course, secrets are still squirreled away. But it’s getting harder. Few have had their activities and impacts more closely scrutinised in recent years than the big boys of the extractive sector. The reputation of the oil majors and mining giants for riding into poor countries with big promises (and fat backhanders), and riding out with rich pickings, is widespread.
In response to the so-called “resource curse” (ie resource-rich countries remaining poor), global policymakers are busying themselves with anti-bribery laws and revenue transparency initiatives. One of the most important of these is the Cardin-Lugar transparency amendment to the 2010 Dodd-Frank Act. The rule change seeks to increase transparency around payments made by US-listed extractive companies to host governments.
Some would like to see the bar set even higher, with mandatory and enforceable disclosure rules. The extractive industry, in contrast, argues that such a move would lead to burdensome costs and undue risks. The authors of this provocative paper say such arguments are short-sighted and state that tighter disclosure requirements could actually serve companies’ business interests.
The authors present a convincing case for the need among extractive companies for “value insurance”; namely, something to avert the political and social instability caused by resource curse scenarios. By strengthening public accountability, improving stakeholder trust and ultimately creating “shared value” (as defined by Harvard-based scholars Michael Porter and Mark Kramer), measures such as the transparency amendment are providing just such an insurance backstop. Companies’ reputations improve, which feeds into how consumers and regulators treat them. Of course, the business case for transparency rests on the presumption that a company’s practices are sound and ethical. If they’re not, then they will need to be.
Topal, J & Toledano, P (autumn 2013), “Why the Extractive Industry Should Support Mandatory Transparency: A Shared Value Approach”, Business and Society Review 118:3 271–298.
As management virtues go, fairness is seen as a bit wishy-washy: more for the sandal brigade than the suits. Instead, future business leaders are taught to prize traits such as decisiveness, innovative thinking and – yes – ruthlessness. Yet this fascinating study makes a sound case for correcting this bias. Based on a sample of mid-level managers in 100 French companies, the researchers examine the relationship between a manager’s reputation for fairness and his or her “transformational leadership”. The latter is defined in four ways: by idealised influence (setting ethical standards for other to follow), inspirational motivation (participating in shared goals in an ethical manner), intellectual stimulation (allowing others to be involved in decision making), and individualised consideration (taking into account employees’ individual needs and skills). The evidence suggests fairness plays a role in each category of leadership.
The example of “idealised influence” stands out most strongly. “Transformational leaders go beyond self-interest and consider the moral and ethical consequences of their actions,” the theory runs. Such an attitude chimes powerfully with employees, especially when such leaders are seen to be fair. One key implication for managers is that they resist the temptation to see their employees as underlings, and view them as equals instead.
Bacha, E & Walker, S (September 2013), “The Relationship Between Transformational Leadership and Followers’ Perceptions of Fairness”, Journal of Business Ethics 116: 667–680.
Denmark: mandatory reporting
The Danes are known for being progressive. The country’s lawmakers recently made it mandatory for large companies to report on their material social and environmental impacts. This paper focuses on how companies have responded to the legislation, looking in particular at the performance of first-time reporters. What emerges unequivocally from the research into 142 corporate reports is the dramatic and immediate impact that legislation in this area can have. More than two-fifths (45%) of the reports analysed were from companies that had never reported publicly on non-financial issues previously. Another intriguing factor is how quickly first-time reporters get up to speed. Only very minor differences could be identified between newcomers to sustainability reporting and the more experienced reporters.
This insight invites two possible conclusions. First, non-financial reporting isn’t nearly as difficult as many in the business community pretend. Second, there’s lots of copying going on (Danish companies show a remarkable consistency in the topic areas that they address).
Of course, both may be true. That said, frequency of reporting does not mean quality of reporting, and neither does it necessarily indicate genuine action on the ground. Indeed, the uniformity within the reports could well suggest that the law has ushered in a box-ticking mentality. As the paper concludes, it remains “uncertain” whether all this extra reporting has “inspired deeper organisational changes toward sustainability”. So maybe Denmark’s lawmakers aren’t so progressive after all.
Pedersen, E et al, (autumn 2013) “Conformance and Deviance: Company Responses to Institutional Pressures for Corporate Social Responsibility Reporting”, Business Strategy and the Environment 22: 357–373.
The Doughty Centre for Corporate Responsibility is due to launch an MSc in management and corporate sustainability, according to its sixth annual report. The centre, which is housed at Cranfield University’s School of Management, is also developing a suite of masterclasses and workshops for executives.
The Mumbai-based Indian Centre for CSR is now offering a global master of sciences in CSR and ethical management. The practitioner-focused course, which coincides with new mandatory CSR requirements in India, was developed in association with the University of Applied Sciences Vienna. www.iccsr.orgAcademic news Business School Bulletin