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Toward the “Civil Economy”: Tools for Managing Stakeholder Relationships

This article explores the challenges and opportunities of stakeholder management in the globalized "civil economy" and presents tools and strategies for companies to navigate this new landscape.

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Toward the “Civil Economy”: Tools for Managing Stakeholder Relationships

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  1. Toward the “Civil Economy”:Tools 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 global—US/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, S&P 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 Alliances—CalPERS/Hermes, ICGN, GCGN • Cross-Pollination of Tactics, Ideas—eg 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 industry—routine 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. What’s 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 BP’s 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 governance—re-shaped company secretary dept. for dialogue, participation, intelligence gathering • Revolutionized disclosure—detailed health, safety, environment reports pioneer “intangibles” accounting • Embraced environment: aim to win recognition as socially responsible—exited Global ClimateChange Coalition • Backed human rights—endorsed 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 perspective—a 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 record—PetroChina, Asria screening, monitoring groups • Corporates need modern “stakeholder engagement” toolkit like BP developed—but with sustained, board-level attention to them • Can’t 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 8792F +1 617 630 0398E dga@davisglobal.comwww.davisglobal.com

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