toward the “civil economy”: tools for managing stakeholder relationships oecd/world bank third...

Toward the “Civil Economy”:Tools for Managing

Stakeholder Relationships

OECD/World Bank Third Asian Roundtable on OECD/World Bank Third Asian Roundtable on Corporate Governance Corporate Governance

Singapore 4-5 April 2001Singapore 4-5 April 2001

Dr. Stephen DavisDr. Stephen Davis

DAVIS GLOBAL ADVISORS


Context: Doing Business in a Revolution

Enterprise is in the midst of sweeping transition Enterprise is in the midst of sweeping transition

The state is privatizing and de-regulatingThe state is privatizing and de-regulating Ownership is global—US/UK capital dominatesOwnership is global—US/UK capital dominates Trade barriers make competition worldwideTrade barriers make competition worldwide Media and Internet expose more scandalsMedia and Internet expose more scandals


Consequences Raise Stakeholder Issues

Who replaces the state? Who replaces the state? To whom are corporations or funds accountable?To whom are corporations or funds accountable? How can companies be best shaped to succeed?How can companies be best shaped to succeed?


New Paradigm: Corporate Citizenship Traditional stakeholder model ill-suited to Traditional stakeholder model ill-suited to

globalization challengeglobalization challenge But traditional shareowner supremacy model fails But traditional shareowner supremacy model fails

to meet stakeholder concernsto meet stakeholder concerns Emerging global paradigm: corporate boards Emerging global paradigm: corporate boards

accountable accountable solely to owners, but solely to owners, but responsible responsible for successful relations with all stakeholdersfor successful relations with all stakeholders


Corporations: Meet the Emerging “Civil Economy”““Civil society” institutions boost Civil society” institutions boost politicalpolitical

accountability. What I call the “civil economy” accountability. What I call the “civil economy” has features born to build has features born to build marketmarket accountability. accountability.

New investor agendasNew investor agendas New watchdog toolsNew watchdog tools New market forcesNew market forces


New Investor Agendas

Consensus: activism pays Consensus: activism pays ((eg eg McKinsey findings)McKinsey findings) Mainstream funds adapting to stakeholder Mainstream funds adapting to stakeholder

agendas: new Myners Code, UK disclosure agendas: new Myners Code, UK disclosure regulations, CalPERS regulations, CalPERS


New Watchdog Tools

Ratings: Ratings: GMI, S&P starting governance scoringGMI, S&P starting governance scoring

Focus Funds: Focus Funds: Spread of funds targeting under-performing, Spread of funds targeting under-performing, under-governed companies or tilting toward well-governedunder-governed companies or tilting toward well-governed

Routine/Electronic VotingRoutine/Electronic Voting: : More monitoring, less expenseMore monitoring, less expense

Benchmarks: Benchmarks: PSAG pressure on indexers and analystsPSAG pressure on indexers and analysts

International AlliancesInternational Alliances——CalPERS/Hermes, ICGN, GCGNCalPERS/Hermes, ICGN, GCGN

Cross-Pollination of Tactics, IdeasCross-Pollination of Tactics, Ideas——eg OTPP onlineeg OTPP online


New Market Forces

Trade unions: Trade unions: ICFTU framework aiding US, UK, Australia and ICFTU framework aiding US, UK, Australia and Canada initiatives; AFL-CIO leadership Canada initiatives; AFL-CIO leadership

Rise of ‘socially-responsible’ investment industryRise of ‘socially-responsible’ investment industry——routine screening (eg Asria)routine screening (eg Asria)

Individual shareowners: Individual shareowners: associations wield new clout (eg associations wield new clout (eg Sweden, Australia), plus Internet investors (Allied Owners, Foliofn)Sweden, Australia), plus Internet investors (Allied Owners, Foliofn)

Maverick web media: Maverick web media: (webb-site.com, crikey.com)(webb-site.com, crikey.com)

NGOs: NGOs: environment, religious, human rights and other lobbies now environment, religious, human rights and other lobbies now embracing shareowner activism (eg “Bench Marks”)embracing shareowner activism (eg “Bench Marks”)


What’s a Company to Do?Case Study: BP

Oil firms a natural target of social activismOil firms a natural target of social activism Traditional defensiveness and secrecyTraditional defensiveness and secrecy But 1997 human rights resolution at Shell and But 1997 human rights resolution at Shell and

BP’s Columbia troubles prompted overhaulBP’s Columbia troubles prompted overhaul Board saw ethics as competitive advantageBoard saw ethics as competitive advantage Firm took pre-emptive steps, a model (until 2001)Firm took pre-emptive steps, a model (until 2001)


Unlocking Shareowner Value in

Stakeholder Relations Aimed for best in governanceAimed for best in governance—re-shaped company —re-shaped company

secretary dept. for dialogue, participation, intelligence gathering secretary dept. for dialogue, participation, intelligence gathering

Revolutionized disclosureRevolutionized disclosure——detailed health, safety, detailed health, safety, environment reports pioneer “intangibles” accountingenvironment reports pioneer “intangibles” accounting

Embraced environmentEmbraced environment: : aim to win recognition as socially aim to win recognition as socially responsible—exited Global Climateresponsible—exited Global Climate Change CoalitionChange Coalition

Backed human rightsBacked human rights——endorsed UN Declaration, re-worked endorsed UN Declaration, re-worked contracts with security forces, built intranet sit, named top executivecontracts with security forces, built intranet sit, named top executive

Green Re-BrandingGreen Re-Branding: ‘: ‘Beyond BP’ promotes soft energyBeyond BP’ promotes soft energy


Surprising Success…

Loyalty of investors: Loyalty of investors: eg backed Amoco mergereg backed Amoco merger

Praise from environmental groupsPraise from environmental groups: : Friends of the EarthFriends of the Earth

Human rights recognition: Human rights recognition: Amnesty InternationalAmnesty International

Citations from stakeholder watchdogs: Citations from stakeholder watchdogs: eg the Prince of eg the Prince of Wales Business Leaders Forum Wales Business Leaders Forum

Reputational goodwill reduced risksReputational goodwill reduced risks


…Easily Squandered

Puzzling U-turn in 2001 with imposition of Puzzling U-turn in 2001 with imposition of restrictions on investor rights at April AGMrestrictions on investor rights at April AGM

Alienated shareowners, reducing trust in board Alienated shareowners, reducing trust in board and raising exposure risksand raising exposure risks

Undermined credibility of stakeholder outreach Undermined credibility of stakeholder outreach Exposed lack of global perspective—Exposed lack of global perspective—a firm cannot seek a firm cannot seek

global capital but expect to play by only local rules when it wishesglobal capital but expect to play by only local rules when it wishes


Beyond BP: The “Civil Economy” in Asia

Expect more activism, more scrutiny on social Expect more activism, more scrutiny on social record—record—PetroChina, Asria screening, monitoring groupsPetroChina, Asria screening, monitoring groups

Corporates need modern “stakeholder Corporates need modern “stakeholder engagement” toolkit like BP developed—but engagement” toolkit like BP developed—but with sustained, board-level attention to themwith sustained, board-level attention to them

Can’t play only by local conventions with Can’t play only by local conventions with global ownership and marketplaceglobal ownership and marketplace


Davis Global Advisors, Inc.Davis Global Advisors, Inc.57 Hancock Street Newton MA 02466-2308 USA57 Hancock Street Newton MA 02466-2308 USA

TT +1 617 630 8792+1 617 630 8792 F F +1 617 630 0398+1 617 630 0398 E E [email protected]@davisglobal.com

www.davisglobal.comwww.davisglobal.com

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