A showstopper on European laws to make companies behave better, and more evidence that happy employees create happy shareholders
A song for Europe
If Andrew Lloyd Webber was a business academic, there would be no question what topic he would choose for his thesis: regulatory frameworks versus market mechanisms. It might lack the buzz of a West End hit, but it would be guaranteed to run and run. The publication of yet another paper on the theme serves at least one important purpose: it alerts companies to a discussion they thought was over and done with. Serious proponents (not just non-governmental organisations) of greater regulation are out there, as this article in the prestigious European Law Journal proves.
The first two sections on the development of corporate social responsibility in the European Union and the critique of the “so-called” business case will throw up few surprises for long-term practitioners. Newcomers, on the other hand, will find an invaluable and succinct overview.
The third section on regulatory possibilities is also useful, if only to see what’s been tried and has failed (the alleged confusion and cost of monitoring among differing consumer codes being a case in point).
The genuinely new twist to the regulatory tale is European Union enlargement. Low wages and low regulatory barriers to entry have attracted high foreign capital flows into the new member states. Many might therefore be reluctant to impose “far-reaching obligations” on such investors, the paper suggests.
The cultural perception in central and eastern Europe of economic regulation as “recolonisation” is also considered. Low stock market capitalisation also reduces investor pressure. Hence the argument in favour of a convergence, not a dilution, of corporate social responsibility requirements in the new-look Europe.
There’s a starting list for legislators too: environmental and social clauses in public contracts, corporate social responsibility reporting under the Modernised Accounting Directives, and codes of conduct in relation to potentially misleading advertising. All that’s lacking is to set it all to music.
“Corporate Social Responsibility European Style” by Olivier De Schutter, University of Louvain, published in the European Law Journal, Vol 14, No 2, March 2008.
Stocks and staff
Everyone wants to work in a fulfilling, empowering, responsible work environment. But is what you want for your working life necessarily what you want for your investment portfolio? The initial figures appear positive. Fortune magazine’s “Best Companies to Work For in America” earned 14 per cent annual returns from 1998 to 2005, more than double the market average. Happy employees, therefore, should mean happy shareholders.
In management terms, the findings signal a perception shift from employees as a cost centre to a key organisational asset. Traditionalists will now find it harder to argue that improvements in worker welfare must come at the expense of shareholder returns.
Managerial myopia needs to be overcome next. In the investors’ eye, the habitual argument runs, wage bills remain the most tangible evidence of human capital investment. Markets tend to overlook intangibles, thereby under-evaluating employee satisfaction.
Analysing “positive event-study reactions” to the Fortune figures, this paper confirms the premise of such myopia: that communicating intangibles to outsiders is a tricky business. To the rescue ride the socially responsible investors, whose employee welfare screens succeed in pricing the intangibles that the general market misses.
Stock price performance might correlate with Fortune’s list of friendliest companies, but the reason has less to do with investors factoring in employee happiness than happy employees fomenting company growth.
“Does the Stock Market Fully Value Intangibles? Employee Satisfaction and Equity Prices” by Alex Edmans, published by Wharton School, University of Pennsylvania, January 2008.
Development dating
The world of corporate social investment has come to resemble a dating game in recent years: every company in a desperate search for a partner. Now we learn that the days of exclusive relationships are over. “Multi-dating” is all the rage; firms and other firms, firms with charities, firms with government agencies.
Using the experience of Dutch multinationals, this paper provides a timely stocktaking on the partnership game. Despite the vogue for multi-partner love-ins, traditional private-non-profit partnerships remain the norm. Most, the paper also finds, are focused on companies’ core activities or market sector.
Tripartite and other complex public-private partnerships tend to come into play for macro, development-focused issues. Regarding the latter, an analysis of cross-sector projects between Shell, Unilever, the Dutch development ministry and local partners in Ghana provides some interesting insights on current practice and potential hurdles. This review of current literature serves to clarify the roles, objectives and “throughputs” of the various dating partners. Plus the “outcome” benefits, of course, if they really hit it off.
“Business and Partnerships for Development” by Ans Kolk, Rob van Tulder & Esther Kostwinder, published in European Management Journal, forthcoming.
Campus news
Dow Chemical has awarded research grants worth a total of over $6.4 million to Cardiff University and Northwestern University. The funding will finance research into the area of methane conversion to chemicals.
Canada-based mining company Kinross Gold is investing around $1 million in a joint research project with the University of Guelph in Ontario. The tie-in will create an education and research network between partners in Canada and Brazil focused on the use and remediation of land and water.