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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. Context: Doing Business in a Revolution . Enterprise is in the midst of sweeping transition

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toward the civil economy tools for managing stakeholder relationships

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

context doing business in a revolution
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
consequences raise stakeholder issues
Consequences Raise Stakeholder Issues
  • Who replaces the state?
  • To whom are corporations or funds accountable?
  • How can companies be best shaped to succeed?
new paradigm corporate citizenship
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
corporations meet the emerging civil economy
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
new investor agendas
New Investor Agendas
  • Consensus: activism pays (eg McKinsey findings)
  • Mainstream funds adapting to stakeholder agendas: new Myners Code, UK disclosure regulations, CalPERS
new watchdog tools
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
new market forces
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”)
what s a company to do case study bp
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)
unlocking shareowner value in stakeholder relations
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
surprising success
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
easily squandered
…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
beyond bp the civil economy in asia
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
slide14
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