Finding a link between investor pressure and how open companies are on climate change, lost in translation in China, and why anger at fat-cat pay is not all fair

Climate ripples

Experts might not agree on what causes climate change, but they agree that no one sector of society can solve it alone. Companies certainly have their part to play. Operating in tandem with others, however, presents its problems.

Businesses’ biggest challenge is to tell the world (and, crucially, investors and governments) exactly what they are up to. When and why do companies accede to shareholder requests to reveal their emissions risks and reduction opportunities?

The authors concentrate on two spurs for action: shareholder activities and regulatory threats. Taking evidence from the London-based Carbon Disclosure Project, a group of investors that demands emissions information from companies, a close correlation is found between those companies that have been the subject of shareholder activism and those that report openly on climate change issues. At an industry level, the same is true for corporate sectors subject to government intervention.

The paper goes on to demonstrate how the actions of activist groups and policymakers encourage greater disclosure by other companies and industries too. So if you happen to hear climate change mitigators eulogising the “spillover effect”, you will now know what they are talking about.

“Responding to Public and Private Politics: corporate disclosure of climate change strategies” by Erin Reid and Michael Toffel, Harvard Business School, Working Paper, August 2008.

Chinese language barriers

Ethics advocates have reason to be optimistic about business behaviour in China. The corporate responsibility agenda has gradually gained credibility in Asia’s fastest growing economy over the past decade – a process charted in the opening sections of this paper. What complicates matters is language.

Taking a small sample of large retailers in China, both Chinese and non-Chinese companies, this paper finds significant divergences in how corporate responsibility and sustainability are understood and applied. Some differences are company-specific. The French retailer Carrefour, for example, is explicit about its sustainability practices at a corporate level but comparatively silent in China.

More significant, however, are disparities in understanding. The evidence suggests that Chinese retailers place greater emphasis on economic issues, including philanthropy, when discussing corporate responsibility. International retailers, on the other hand, prefer to concentrate on product responsibility.

This divergence is perhaps understandable. China is a fast-emerging country, committed to economic growth at all costs. Domestic companies’ performance is measured against such a goal. In contrast, international companies are under pressure to ensure their investments do not compromise commitments to contentious issues such as labour rights and care for the environment.

Chinese companies will have to wrestle with “home” and “host” expectations as they expand internationally, the authors warn. Multinationals in China, meanwhile, must concede that they are foreign and “a more likely target for public scrutiny”, as the paper puts it.

“Corporate Social Responsibility in China: An Analysis of Domestic and Foreign Retailers’ Sustainability Dimensions” by Ans Kolk et al, University of Amsterdam, in Business Strategy and the Environment, forthcoming.

Diets for fat cats

Newspaper headlines about chief executives’ pay could write themselves. Nothing pleases editors more than tales of fat cats creaming off the profits while their companies’ balance sheets flounder. It might make good newspaper copy, but is it fair to criticise chief executive pay packages? The answer from Jared Harris is ambivalent.

Applying a philosophical lens to the commonest criticisms about executive pay, his paper discovers that not all that bad press is justified. Determining when pay is exorbitant or fair, for example, depends on an individual’s moral frame of reference. Any yardstick is either self-referential or indistinguishable from individual envy. The disparity between executive pay and workers’ wages also has its flaws. Differential compensation is, Harris argues, a “fundamental tenet” of capitalism.

Harder to defend is the charge that fat cat payouts run against deeply engrained principles of fairness and distributive justice. A sense of being wronged, whether justified or not, upsets an organisation’s balance – a common consequence of which is the decision by lower-paid workers to leave a company.

The fundamental objection to lucrative executive pay packets, however, is more obvious: empirical data suggests they do not work. Despite adding an extra zero to their leaders’ salaries, shareholders all too often find themselves lumped with a loss-making chief executive. Efficacy, not ethics, is why fat cats should be fed less.

“What’s Wrong with Executive Compensation?” by Jared D Harris, University of Virginia, in the Journal of Business Ethics, forthcoming.

Campus news

Business educators around the world are increasingly considering the topic of “ethical globalisation”, according to a recent white paper by the Center for Business Education at the Aspen Institute. The paper forms part of the “Closer Look at Business Education” series, which aims to share teaching materials related to the area of social impact management.

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