Toward the Civil Economy: Tools for Managing Stakeholder Relationships

1
Toward the Civil EconomyTools for Managing
Stakeholder Relationships

• OECD/World Bank Third Asian Roundtable on
  Corporate Governance
• Singapore 4-5 April 2001
• Dr. Stephen Davis

2
Context Doing Business in a Revolution

• Enterprise is in the midst of sweeping transition
  
• The state is privatizing and de-regulating
• Ownership is globalUS/UK capital dominates
• Trade barriers make competition worldwide
• Media and Internet expose more scandals

3
Consequences Raise Stakeholder Issues

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

4
New Paradigm Corporate Citizenship

• Traditional stakeholder model ill-suited to
  globalization challenge
• But traditional shareowner supremacy model fails
  to meet stakeholder concerns
• Emerging global paradigm corporate boards
  accountable solely to owners, but responsible for
  successful relations with all stakeholders

5
Corporations Meet the Emerging Civil Economy

• Civil society institutions boost political
  accountability. What I call the civil economy
  has features born to build market accountability.
  
• New investor agendas
• New watchdog tools
• New market forces

6
New Investor Agendas

• Consensus activism pays (eg McKinsey findings)
• Mainstream funds adapting to stakeholder agendas
  new Myners Code, UK disclosure regulations,
  CalPERS

7
New Watchdog Tools

• Ratings GMI, SP starting governance scoring
• Focus Funds Spread of funds targeting
  under-performing, under-governed companies or
  tilting toward well-governed
• Routine/Electronic Voting More monitoring, less
  expense
• Benchmarks PSAG pressure on indexers and
  analysts
• International AlliancesCalPERS/Hermes, ICGN,
  GCGN
• Cross-Pollination of Tactics, Ideaseg OTPP
  online

8
New Market Forces

• Trade unions ICFTU framework aiding US, UK,
  Australia and Canada initiatives AFL-CIO
  leadership
• Rise of socially-responsible investment
  industryroutine screening (eg Asria)
• Individual shareowners associations wield new
  clout (eg Sweden, Australia), plus Internet
  investors (Allied Owners, Foliofn)
• Maverick web media (webb-site.com, crikey.com)
• NGOs environment, religious, human rights and
  other lobbies now embracing shareowner activism
  (eg Bench Marks)

9
Whats a Company to Do?Case Study BP

• Oil firms a natural target of social activism
• Traditional defensiveness and secrecy
• But 1997 human rights resolution at Shell and
  BPs Columbia troubles prompted overhaul
• Board saw ethics as competitive advantage
• Firm took pre-emptive steps, a model (until 2001)

10
Unlocking Shareowner Value in Stakeholder
Relations

• Aimed for best in governancere-shaped company
  secretary dept. for dialogue, participation,
  intelligence gathering
• Revolutionized disclosuredetailed health,
  safety, environment reports pioneer intangibles
  accounting
• Embraced environment aim to win recognition as
  socially responsibleexited Global Climate Change
  Coalition
• Backed human rightsendorsed UN Declaration,
  re-worked contracts with security forces, built
  intranet sit, named top executive
• Green Re-Branding Beyond BP promotes soft
  energy

11
Surprising Success

• Loyalty of investors eg backed Amoco merger
• Praise from environmental groups Friends of the
  Earth
• Human rights recognition Amnesty International
• Citations from stakeholder watchdogs eg the
  Prince of Wales Business Leaders Forum
• Reputational goodwill reduced risks

12
Easily Squandered

• Puzzling U-turn in 2001 with imposition of
  restrictions on investor rights at April AGM
• Alienated shareowners, reducing trust in board
  and raising exposure risks
• Undermined credibility of stakeholder outreach
• Exposed lack of global perspectivea firm cannot
  seek global capital but expect to play by only
  local rules when it wishes

13
Beyond BP The Civil Economy in Asia

• Expect more activism, more scrutiny on social
  recordPetroChina, Asria screening, monitoring
  groups
• Corporates need modern stakeholder engagement
  toolkit like BP developedbut with sustained,
  board-level attention to them
• Cant play only by local conventions with global
  ownership and marketplace

14

• Davis Global Advisors, Inc.
• 57 Hancock Street Newton MA 02466-2308 USA
• T 1 617 630 8792 F 1 617 630 0398 E
  dga_at_davisglobal.com www.davisglobal.com