Wednesday, December 19, 2012


Why the Density of Regulation for Global Issues is too high today

Recently I was at a conference about finance and ethics. One of the discussed topics there were regulations in the finance industry. Although the discussion was controversial there was somewhat of an overall agreement that regulation is basically necessary but that its density today is too high. I asked myself why there is on the one hand an insight that regulations are needed and on the other hand a moaning about too much regulation?

The answer, I think, is to be found in the globalization. When the West triggered the economic globalization by national and international market liberalization and deregulations one consequence was the global integration of finance and other industries. The second consequence was that especially states in the West lost control over important political instruments for regulation. And by eliminating regulative buffers, the development of economic and financial crises was facilitated because unleashed financial streams could flow nearly without control.

Besides the political instruments already given away due to deregulation and liberalization the now established economic globalization has created new realities: according to the political scientist Ch. A. Kupchan, still state-based political instruments as e.g. financial- and monetary policies have become ineffective in a globalized world because of its inherent global competition. This all shows that states – and especially Western states which carried out deregulation more thoroughly than others – aren’t able to provide solutions (alone) for global issues as the challenges in the global financial system.

Because of this inability of states and the need to solve global issues, many international and transnational regimes and organizations have come into existence or tried to expand their sphere of activity in the past two decades (e.g. OECD, WTO, Basel III, Kyoto Treaty, GRI). They aim to contribute to solutions of global issues by providing systems of regulation. Because a global coordinating authority like a world-state is not existent, this development meant that a plethora of state and private-actors, organizations, initiatives, conferences and summits try to provide regulations concerning concrete issues.

The result is that there is a mess referring regulation of global issues today. It is not very surprising therefore that regulation concerning single issues such as e.g. unleashed finance or labour conditions in producing countries has become very dense and confusing. One even can speak of a market for regulation of global issues: different international regimes and organizations etc. offer each their “regulation-package” for one and the same issue (what leads to arbitrariness instead to effective solutions).

Because the mostly unintended lack of coordination on a global level can be seen as a central reason for the high density, it is inappropriate to speak of a willfully regulation frenzy. Thus, it is better to speak of an absence of effective regulation on the level of single states as well as of an absence of coordination on a global level, which principally would be the level on which meaningful regulative solutions need to be established.

It remains to be seen if the development of institutional structures for global governance is on the way to a necessary simplification of regulations which are at the same time more binding. Solutions are the aim to which regulations are expected to contribute effectively: this is what they are needed for. Besides, also factors such as moral, (economic) Weltanschauung or mind-set play important roles for effective solutions. But regulations are an indispensable part of them.

Claude Meier

Monday, December 10, 2012




About minimizing costs and transferring costs

 In general, minimizing costs is seen as a virtue: Who in the process of producing goods and services seeks to keep costs as low as possible avoids the unnecessary squandering of often valuable resources, which could otherwise be put to good use. Who would oppose this? Unfortunately, one soon discovers that the word ‘minimizing costs’ is not always used in this positive sense, but often with far less noble intentions.

When I call my insurance company, as a rule I’m told that all the employees are busy at the moment, that my call is however welcomed and I will be connected as soon as possible with an available representative. Then without being requested, an overview of the products and services of the company are transmitted, framed by a catchy melody by Mozart or Louis Armstrong. In the meantime, without having asked for it, my waiting time has increased and with it the cost. After a certain time the whole welcome ritual is repeated – all at my expense! The reason for this is that the insurance company has reduced the number of its employees in order to cut costs, which by virtue of my waiting time has in essence been transferred to me. This is not cost minimization but rather cost transferral.

Something similar takes place when I’m at the train ticket-window of the Zurich Main Station to get a train ticket not available from the automat. Of the 11 available windows, only 3-4 are open; of which one is served by someone in training and another Korean tourists are trying to put together their trip through Switzerland. At the 2-3 well functioning windows a queue of maybe 10 or 15 people are waiting. Again the company is minimizing its costs at the expense of their customers. How the cost transferral of the Swiss train service takes place can be witnessed at the above location, daily for hours and especially at rush hour. It would be interesting to calculate how many man-years the economy loses or to estimate how much is lost in human wellbeing, including that of the persons at the windows, who are subject to constant pressure and the cantankerous reactions of customers. In no way does this correspond to the concept of “people for people”, as we understand up-to-date value creation in firms.

The most crass examples of unreal cost minimization are those promoted by some politicians. They tell the public for example how the cost for health or educational institutions can be kept low or that one can save money on infrastructure. However they fail to say that this very often involves a tangible reduction in benefits. This has less to do with the virtues of minimizing costs than with a net loss in the quality of life.

Edwin Rühli

Tuesday, November 20, 2012

An unfair and unnecessary comparison

A recent study by a renowned Swiss think tank (avenir suisse) showed that during the last 20 years real incomes of the middle class diminished relatively compared to those of people in the high or low income segments in Switzerland. The roots of this phenomena are identified by an increasing supply of workers from emerging markets, changes in technology and the corresponding higher demand for high-skilled workers. All these factors lead to pressure on average wages, namely of those from the middle class.
While still among the highest real incomes worldwide, the study argues that people in the Swiss middle class get increasingly dissatisfied as their opportunities to improve into the high income segment shrink and the differentiation from the lower income segment gets increasingly difficult. Therefore, people are somewhat trapped in the middle class. To counteract this development the study proposes to downsize and simplify the welfare state as all kind of social benefits for people in the lower income segment are primarily financed by the incomes of the middle class. Hence, taxes affecting the incomes of the middle class should be lowered.
In my opinion, this argumentation is problematic in at least two ways. First, a decrease in taxes for average incomes and a reduction of social benefits indeed allows the middle class to differentiate themselves from people in the lower income segment. But at what price? On the one hand, rising inequality by increasing the income of the middle class and making the poor poorer sounds not really fair to me, on the other hand it does not take into account people in the high income segment, who are completely ignored by the study I mentioned above. This brings me to my second point: the reduction of taxes for those having the highest incomes. During the last couple of years there has been a redistribution of income in Switzerland from the bottom to the top induced by various abolitions and reductions in the taxation of incomes in the highest segment. It is then again simply unfair to tell the middle class that their relative decrease in income is caused by social benefits, for example health care insurance or childcare for people in the lower income segment, when at the same time people in the higher income segment enjoy lower taxation.
The one-sided comparison of the middle class with people in the lower income segment is problematic because it diminishes solidarity in the whole society. In the US, for example, the incomes of both middle class and people in the lower income segment stagnated during the last 30 years, compared to those of the people in the higher income segment. Hence, the single comparison of incomes between the middle class and the people in lower income segment is not fair and, in my opinion, unnecessary. It leads to an increased discrimination among people and reduces the cooperative potentials in a society. Or in the words of Stiglitz (2012) “The other vision is of a society where the gap between the haves and the have-nots has been narrowed, where there is a sense of shared destiny, a common commitment to opportunity and fairness, […] which emphasizes the importance not just of civil rights but of economic rights, and not just the right for property but the economic rights of ordinary citizens.” (p.289).
Tom Schneider
Reference: Stiglitz, J.E. (2012). The Price of Inequality. New York: Norton.

Wednesday, November 7, 2012


Entitlement Cultures

Having recently been in Washington D.C., I was once again struck by the ever more extreme polarization of the political landscape in the United States. Everybody seems to be convinced of being “right” and “in the right” and deeply suspicious of the intentions and moral rectitude of the “others”.
Now, it is an inherent, most likely evolutionarily selected for human quality that we excel at “rationalizing” our morals, conduct and life-style. After all, fundamental self-critique hurts, and self-loathing and depression make for very poor survival strategies in the mating or professional marketplaces. Our brains are thus hard-wired and biased to avoid truths that are too uncomfortable (as long as they are not imminently life-threatening), thus keeping us feeling good about ourselves most of the time.

However, this lack of objectivity with respect to ourselves – if left unchecked - has various unsavory social, economic and political side-effects. One of these is that it engenders a culture entitlement, of which I will focus on entitlements in the form of money.
Now monetary entitlement comes in many guises: from benefiting from the modern welfare state – be it in form of assistance to families with children, the unemployed, disabled or elderly - to agricultural, defense industry and tertiary educational subsidies. Alternatively, entitlements can be in the form of generous tax breaks for home owners and investors, to simply the expected, lavish remunerations found in many professions, made possible by professional accreditation monopolies, lax economic regulations and “free market dynamics”. Now, it is hardly surprising that in all of these instances, the overwhelming majority of beneficiaries naturally feel that they are rightfully the recipients of such largesse: our incessant, narrowly targeted, interest driven political squabbling reflects this pervasive sense of having a legitimate claim upon them.

The rationalization, if we are among the losers of the current economic system, is that we were wronged by the lottery of life and/or society and are thus rightfully entitled to state support, especially in view of the great wealth amassed by the top percentiles of the socio-economic spectrum. Alternatively, if we are among the middle classes, we may consider ourselves as the “good citizen” par excellence and the hard working, solid backbone of the economy and thus reasonably entitled to various subsidies such as mortgage interest deductions, medical care benefits, early retirement and higher education. Lastly, if we are among the winners of the system and garnered considerable wealth, we are likely to attributing our success to our superior work ethic, risk taking or intelligence and thus naturally – oft also rationalized along the lines of Social Darwinism - entitled to have garnered this great wealth and consequently, for example, free to adroitly exploit the full panoply of tax loopholes.
The unfortunate corollaries of these self-assessments are however increasing suspicion towards the groups one does not belong to, resulting in rather dim views of the righteousness and fairness of their specific entitlements.

Now as long as the overall pie of wealth increased rapidly enough to sustain such entitlements, these diverse recipients – some political squabbling aside - can be kept largely quiet. Today, however, with increasing pressure on these entitlements, rising discontent and self-righteous polemics find their way into public discourse, political deliberations and increasingly also social unrest.
The question of the day now becomes as to how to best manage a social and political discourse that remains constructive, in spite of a pie that is no longer growing fast enough to sustain the status quo and keep everybody happy.

I think that a first step is the recognition that we are all recipients and that “privileges” should always be also connected with “duties”. It is to recognize and accept the fact that at the end of the day, we are not only participants, but stakeholders in a society and world that must be managed not just for our own short term benefit, but also for our collective long-term well being. It is, perhaps above all, to be willing and able to endure candid self-reflection and critique and to regain the humbleness incarnated by the expression of “privilege oblige”: of whatever sort this privilege may be. We need to recognize that we are all privileged today to have been born in an epoch in human history and a part of the world that has seen unprecedented material wealth. And that is not the doing of any one of us, but rather a historical luck of the straw.
Woody Allen, in a recent interview, impressed me with reflecting on his “successful life” with sincere modesty, highlighting not his superiority or even achievements, but his good fortune and thankfulness.

Manuel Heer Dawson

Wednesday, October 31, 2012

Towards different narratives for the value creation of the firm

A conference was held October 19-21 on stakeholder theory at the renowned Darden School of Business. Forty participants were invited, all academics who had recently made important contributions to stakeholder theory or stakeholder management. A fascinating uplifting atmosphere prevailed. This was already demonstrated by the conference location. On the one hand, there were the historical buildings of the University of Virginia, built according to the plans of Jefferson, founder of the University and later third President of the USA, a true architectural jewel. On the other hand, not far off is the extremely modern and generously designed building of the Darden School of Business; a symbol of the will and strength to find and develop new forms of research and teaching in management.

Contained in these illustrative surroundings, in both senses of the word, the discussion took place among the leading scholars of stakeholder theory. The participants agreed that the failure in recent years of the management generation, and the blatant market failure of the financial industry in particular, necessitates that the theory of value creation in firms and their respective management needs to be reconsidered. The dominating opinion is that the “intellectual comfort zone” of the current theory needs to be abandoned, and new theoretical approaches have to be developed on the basis of assumptions that are more humanly relevant and that lead to positive narratives of the value creation of the firm.

In particular, the question was debated as to which of the basic assumptions of the previous theory of the firm and of conventional management understanding have to be changed in order to do justice to the current situation of the operative reality of businesses, and to develop positive narratives for a firm’s value creation. In different sessions, the participants’ requirements of theories were two-fold. Either one extends the current assumptions of the mainstream theories, as stipulated for instance by the stakeholder theory of the firm, which can induce gradual changes in the theories, as a basis for positive narratives for the management. Or one embraces a more radical change of assumptions, which leads to disruptive changes in strategy theories and practices regarding the theory of value creation. The final conclusion was that the time is ripe for a change.
Let’s seize it!


 Sybille Sachs

 

 

Friday, October 19, 2012

Trust and Responsibility in the Financial System


Trust and responsibility in the financial system: this is the theme of the 3rd international conference on ethics in finance, to be held next week at HWZ University of Applied Sciences in Business Administration Zurich. Academics, politicians and practitioners from the financial sector will present and discuss their theses on the causes, the course and the prospects of the present crisis.
Trust is one of the most critical components of financial transactions. However, trust has suffered heavily during the past years. Trust among banks, trust among states, trust in currencies such as the Euro, trust in financial products, trust in shares and public bonds: citizens and investors are alienated. How can trust be re-established? One thing is clear: it is not by trying to go back to business as usual as fast as possible.
We need to better understand the reasons, in order to be better prepared for the future. There is no use in asking who is responsible for what happened. But it is important to ask who will, and how they will take their responsibility in the future. It is most obvious that many tend to point at all the others: THEY need to do this, and shouldn’t do that. But when we talk about responsibility, it’s all about ourselves: academics, politicians and practitioners from the financial sector. We should all reflect on the mantras we have been praying for the last decades. We should be critical about what we teach, decide and deliver. There is no simple solution to the challenges of our time. So join us on Thursday and Friday, 25.-26. October at HWZ University of Applied Sciences in Business Administration Zurich, and enter the dialogue on a more stable, and more live-serving future of our financial system!
Christoph Weber-Berg

Wednesday, October 10, 2012

Tough Anti-Corruption Laws Help Making Resources Work for People


3.5 billion people live in resource rich countries. Many don’t see any results from the extraction of their natural resources. This phenomenon is known as the “Paradox of Plenty” or the “resource curse”. It refers to the paradox that resource rich countries tend to have less economic growth and worse development outcomes than countries with fewer resources. Resource wealth is most often concentrated in the hands of corrupt elites, politicians and industry insiders, meaning for the rest of the population the resources are a curse rather than a blessing. Global Witness estimates that since the starting of the oil boom in the 60ies in Nigeria, the country has lost about $400 billion to corruption. This is a vast figure for a country where large parts of the population live under $1 a day. In 2010, Africa’s oil, gas and mineral exports were worth roughly seven times the value of international aid to the continent ($333 billion vs $48 billion) (http://snipurl.com/258r214 ). Therefore developing countries need to maximize revenue from the finite resources and make sure that revenues go into building schools, infrastructure and hospitals.

The stakeholder network of resource extraction in resource rich but poor countries is pretty sophisticated. Let me name the stakeholders that I think are the most important ones: the extractive companies; the investors; the companies’ host and home governments (including all important offices); the citizens in the host countries; international, national and regional non-governmental organizations; governmental organizations and last but not least international donors.

A global movement of anti-corruption (Global Witness, Publish What You Pay, Transparency International etc.) and human-rights organizations (Amnesty International, Human Rights Watch etc.) has been trying to change the disastrous situation by pushing for transparency measures. A special role has the Extractive Industry Transparency Initiative (EITI). As the EITI is a coalition of governments, companies, civil society groups, investors and international organizations, it is a multisectoral stakeholder network that involves all important stakeholders. EITI increases transparency over payments by oil and mining companies to governments and government-linked entities, as well as transparency over revenues by the host countries’ governments.

But in this August with U.S. regulators setting demanding rules for U.S.-listed firms (http://snipurl.com/258rz3u ) these “soft law initiatives” got important support by “hard law”. In September the European Parliamentary committee has also voted for a draft anti-corruption law. Although the final text of the proposal is yet to be published, they agreed on a detailed project reporting to regulatory authorities starting from a minimum threshold of 80’000 Euros (http://snipurl.com/258rz3u ). The project reporting will enable citizens to follow the money from natural resource deals. As oil majors and other resource firms have already signed up to international guidelines enshrined in the EITI, they believe in transparency and appreciate the new regulations.

If an effective EU directive is established it would enhance the global comparability as well as transparency and would be good for industry and citizens alike. Multisectoral stakeholder groups wouldn’t be jobless: they could try to extend reporting beyond the legal core.
This example shows how important multisectoral stakeholder networks can be to raise awareness and the development of hard law. Let’s hope these new regulations will make resources work for people.
 

Sabrina Stucki

Wednesday, September 26, 2012



Ethics in a Bottle
In my last blog I listed a number of statements and underlying attitudes I encountered while working in the business world. Here I would like to take a closer look at one of them and evaluate its veracity and possible transformation.

The assertion that “there is no ethics in the business world” is both an observation as also an assumption. As an observation it reflects a simple “is”: personal experiences I shared with you in past postings revealed that human needs are indeed frequently placed behind the short-term imperative of a corporation to post profits and maximize shareholder wealth. In a world where organizational survival is dictated by the mere string of numbers that are published on a monthly or quarterly basis and not by the reality of the personal stories of the involved stakeholders, it is only logical that there will – push come to shove – be an inherent bias and managerial recompense to sacrifice human “ethics” for the sake of the ethic of maximizing profitability. Therefore, there is a certain amount of veracity to this statement as an observation, provided one defines “ethics” as placing the well-being of human beings in the center of our moral considerations.
As an assumption, on the other hand, this statement implies a normative “should”: there should not be any ethical considerations that impede the profitability and shareholder wealth. An individual who once shared this view with me in an unabashed manner revealed also that he made a clear cut distinction between how he valued, and consequently then treated, people in his private circles such as friends and family, and how he did so in his work dealings. This type of an attitude I have come to label “ethics in a bottle”: it is a form of moral compartmentalization where at times radically different standards apply in different types of social contexts. Now, it is naïve to think that we as human beings can ever completely transcend moral compartmentalization (for example, we will continue to be more inclined to help a personal friend in distress, rather than an anonymous individual at the other end of the world, all other things being equivalent). Nonetheless, it is legitimate to question if such a strict demarcation line should be drawn between the personal and professional worlds.

The problem with moral compartmentalization in our economic dealings is that under the guise of “professionalism” almost anything can be justified. Professional organizations and corporations, particularly publically traded ones subject to short-term shareholder wealth maximization, have gone to great lengths to legitimize their institutionalized norms to conform to the prerogatives of profitability or the stock markets. Under the guise of “accreditations”, “codes of professional conduct”, “best practices” and the likes, professional organizations and corporations have created sophisticated constructs to make employees, clients and the public think and feel as if they were upholding the highest of moral standards.
For the professional, the rationale then is often, “if it meets the highest standards of professional codes of conduct, well, than it must be ok for me to do.”

Well, no. Simply because something meets the standards or regulations of a certain corporation, industry or profession, does not make it morally palatable in a larger context. For example, nowhere in the Certified Financial Advisors (CFA) Code of Ethics (http://tinyurl.com/9wxs38) is there any mention or consideration of the secondary ramifications of certain investment tools or choices. Yes, we find the statement that the advisors must “Place the integrity of the investment profession and the interests of clients above their own personal interests.” (As recent scandals, however, illustrate that this rule was nevertheless frequently ignored.). But what about the fact, for example, that speculating in mercantile exchanges can abruptly drive up the price of certain commodities like corn, wheat or rice beyond the capacity of people in third world countries to pay for? Or take the code of conduct in private banking, for example, of Singapore (http://tinyurl.com/bu8m8yl). The transfer of large amounts of wealth of high net worth individuals from poor, developing countries into international tax havens such as Singapore, the Cayman Islands or Switzerland, while certainly in the interests of the client, deprives these countries of these sorely needed resources. While there is mention of money laundering and terrorism, nowhere in its code of conduct is there any consideration of this wider moral dimension of the professional’s actions.
However, since a financial advisor’s or private banker’s circle of professional responsibility is defined only in a very narrow manner driven by the client’s (and the advisor’s or bank’s) interests, both the financial professional and their clients indirectly partake in the creation of human poverty, and that with a clear conscience, extracted as they are of further responsibility by the professional code of conduct they are adhering to (and often also legitimized by Milton Freedman’s position that these ethical consideration is not the purview of the business community, but of the regulatory agencies of countries). This divorce of responsibility of one’s personal, professional activities and the wider social ramifications represents one of the major challenges facing our current status quo in how we structure and manage our economic activities.

What we consequently have is “ethics in a bottle” and by extension, if you will, a form of the “banality of evil”. It’s time for professionals to take the ethics out of the bottle and permit it to imbue all domains of human lives, not just the ones of one’s family, friends, corporation or business clients.


Manuel Heer Dawson

Tuesday, September 18, 2012


How Economic Individualism leads to Anarchy. And a possible Way Out

In Thomas Hobbes’ (1588-1679) prominent state of nature every individual fights against all other individuals. Each individual does so to survive: When I kill my neighbor he can no more steal my belongings or kill me, I am consequently safer now. Hobbes’ state of nature is an individualism-based condition of anarchy: Neither laws nor governments nor any form of contracts exist. His ultimate objective is to find ways to leave or avoid this condition.
 
The individualistic concept was new then and characterizes many schools of thought in the modern period. Among others, the neoclassical theories in economic sciences of the 20th century generally rely on the methodological individualism. Each individual aims to rationally maximize its utility accordingly.
Through neoliberal politics these theories were implemented in many countries in the last 30 years: The transfer of theoretical concepts like the methodological individualism was essentially (although not exclusively) transferred and supported by such politics into the real world. Today, they structure to large parts the perception of how the economy functions and what it is in reality. This thinking is also based on competition because others are understood as (potential) competitors. The assumption of this politics of deregulation was that market-ruled competition alone establishes the most effective and efficient solutions.
 
Yet, individualism (as also competition) is not bad per se. Every one of us is an individual and it is nothing else than self-evident that individual rights need to be protected. But, the methodological individualism as the one of economic provenience was implemented at the cost of the community. In Switzerland e.g. voluntary community work is strongly decreasing (e.g. there are less football coaches for children). People are too busy with their individual job career and want to score (financially) in their personal competitive game.
 
The strong individualism of today may be seen as a kind of a global state of nature. Some examples: The exploitation of workers and local communities by transnational corporations is fostered by political deregulation and missing cooperative global governance structures: Responsibility is left often to individual managers; because of removing or not establishing regulation it is often made easy for managers of firms to enrich themselves excessively. Conversely, single individuals can trigger shitstorms against firms by posting individually declared violations of political correctness in the social media. And, as mentioned, voluntary community work is decreasing. The neoliberal politics of deregulation thus led at least partly to conditions which for Hobbes were imperative to leave in place.
 
A possible way to balance the corrosive consequences of such overreaching (economic) individualism on communities is that we, the civil society, begin rebuilding voluntary, non-market based cooperation between us citizens. A stronger togetherness between neighbors and friends etc. can foster the creation of values that provide a whole society meaning and vision. The economy can rediscover its role in and for society by cooperating more seriously with and for stakeholders.
 
Of course humans are competition-oriented individuals but they are also cooperative and social beings needing mutual value and meanings. The sociologist Richard Sennett and communitarianists often write about the importance of cooperation and togetherness in civil societies. And the stakeholder theory explains the advantages and appropriateness of an economy understanding itself more as a part of society and related to stakeholders.
 
 
Claude Meier

Wednesday, September 5, 2012

Awareness and simplification: The KONY 2012 campaign

To increase the awareness level of a message, advertisers and campaign managers know well about the psychological effects of simplifying matters on people’s attention. Short communications are persuasive and affect people’s readiness to engage in different kind of actions. However, short communications have to simplify complex topics an may lead to the problem of not taking into account the entirety of a complex problem, for example by focusing only on a specific relationship among many affected interest groups. To avoid a misleading reduction of complex issues, I argue that the intention to increase the level of people’s awareness by simplifying communications should be accompanied by a careful consideration of the corresponding impacts in a more fine-grained stakeholder network. An insightful example is the viral campaign KONY 2012, which entered the social media in early March 2012.
The core of the KONY 2012 campaign is a short film created by the non-profit organization Invisible Children, Inc. The film documents the brutal abduction and cruel abuse of children by Joseph Kony and his Lord’s Resistance Army (LRA) to use them as child soldiers in an ongoing conflict in northern Uganda. The LRA is a guerilla group and its leader, Joseph Kony, was indicted for war crimes and crimes against humanity by the International Criminal Court in 2005, but still has evaded capture.
 
The KONY 2012 short film spread virally in the World Wide Web, mainly through social media channels like YouTube, Vimeo, Facebook and Twitter. Within a month the clip had been viewed more than 90 million times and the social media campaign raised a tremendous awareness all over the world. Celebrities and politicians started to support the concerns of Invisible Children, Inc. to bring Joseph Kony to justice.
However, criticism about simplifying the complex conflict in northern Uganda arose shortly after the film’s release. Invisible Children, Inc. was accused of providing a black-and-white picture of the situation and of manipulating the public opinion. For example, the film suggests that violence in northern Uganda will come to an end and the abducted children will be able to return to their families as soon as Joseph Kony would be captured. Of course, Kony is a dangerous and cruel individual and bringing him to justice would be important. But reducing the problems in northern Uganda to the faith of Joseph Kony is deceptive. The history of the conflict is far more complex and includes many other interest groups like, for example, the Ugandan army and government, of which many seem highly suspicious too. Further, the film neglects the fact that most LRA forces, including Joseph Kony, fled northern Uganda in 2006 to be dispersed now across three neighboring countries.
 
As the example of KONY 2012 shows, awareness and simplification have to be balanced so that creators of social media campaigns are able to achieve their objectives and at the same time meet their responsibility towards other stakeholder groups affected by complex problems. The narrow spotlight on Joseph Kony led Invisible Children, Inc. to donate funds to support military action for capturing the LRA leader. But what about the rehabilitation and reintegration of former child soldiers as another affected interest group?

Monday, August 27, 2012

AoM-Meeting 2012; People for People

The annual meeting of the Academy of Management  (AoM), at which 12,000 participants from all over the world discussed the latest research results and trends, was held in Boston August 3-7. One presentation type is the “Professional Development Workshops” (PDW), which are about the further education of university teachers. Professors Joe Mahoney (University of Illinois) and Sybille Sachs (University of Applied Sciences in Business Administration Zurich, HWZ) organized and moderated a panel discussion on “Value creation with People for People”. It was the continuation of an initiative that the two had started the previous year at the AoM-Conference with the goal that after years of excessive emphasis on shareholder-value thinking the importance of people should again be regarded as the central focus of interest (see the report of last year). Some impressions of the well attended and comprehensive presentation are noted in the following:


Professor Joe Mahoney (University of Illinois), a leading academic in the field of the Theory of the Firm, demonstrated among other things that managing decisions narrowly oriented to shareholder value often lead to breaks in the social contract that exists between the firm and its stakeholders (e.g. customers, employees etc.). This again leads to the underinvestment of these stakeholders in their firm specific engagement and generally to a lack of commitment of these stakeholders. The firm can thereby suffer a weakening of its resources and a decrease in productivity. In contrast, when stakeholders are involved as people in management decisions, not only can negative effects be avoided but also commonly found innovative solutions can be encouraged (see our book, Chapt.7, p. 114 ff). 

Ed Freeman (Darden Business School), theoretician and founder of Stakeholder-Management, regards the increasing inclusion of People for People thinking as the most central question of business education in our time. He reminded us that in the course of history great thinkers (e.g. Freud, Kant etc.) have acquired fundamental knowledge about human beings that has not been sufficiently regarded and applied in the education of true leaders.

Jim Post (Boston University), professor for Business and Society, who together with other authors has recently published a book on The Historical Development of Social-Responsibility – Idea in Theory and Practice, demonstrated with the example of his own university, how regard of human aspects have changed in teaching. Whereas a few years ago the vision of the Dean in charge was completely oriented to human aspects and required a humanistic mindset from the faculty, this orientation is missing today.

Sybille Sachs (HWZ), professor for Strategy and Stakeholder Theory, demonstrated in her contribution that the aspiration of a more human perspective, and in particular an increased propagation of positive narratives, is not only to be seen in management. In various academic disciplines analogous thoughts are being acquired, which means that there is potential for interdisciplinary cooperation. She illustrated this with quotations from very different scientists, who are advocating a positive humanistic view in their fields. One such quotation is given here: “In particular, we encourage researchers to examine the origins and implications of positive framing. We further advocate for positive leadership (e.g., Cameron 2008) in response to crisis and the outcomes to be gained from crisis events when positive frames and positive leadership are enacted” (James, Wooten and Dushek, 2012, p. 483).


The participants of the workshop agreed at the end of the extremely stimulating discussion that the idea of People for People needs to be continued and deepened in a presentation at the AoM-Meeting 2013. In the meantime information on examples of positive narratives in leadership education or in firms should be exchanged among the participants. Should you also know of examples, we would be happy to publish them in our blog.

Edwin Rühli

Wednesday, August 22, 2012

What about Fair Play of International Sporting Events?

Sport games are a wonderful celebration of excellence in sports, excitement and pride. The expectation of sporting events is always high and the questions being raised even higher: Will the event help develop the infrastructure and the society of the host country in a sustainable way? Will all the money be well spent? Huge sport games like the Olympics and the European Cup might be vulnerable to corruption in several ways: match-fixing, corporate hospitality, ticket allocations, sale of television rights, corporate sponsoring (for further information please visit http://snipurl.com/24qh8hy ). Above all they represent a big exercise in construction and procurement. Both stand for classic areas that are prone to corruption. In this article I will focus on these two challenges.

The development of infrastructure for international sporting events involves the mobilization of vast resources, complex logistical arrangements and pretty tight timeframes. These challenges probably became a sincere problem for one of the latest European sporting event. In regard of the Euro 2012 allegations of corruption have been made. Ukraine embarked on a program of modernization for Euro 2012. Stadiums were built or renovated, the airports were upgraded and the roads repaired. All this happened without competitive tenders, since in 2010 Ukraine cancelled the tenders for all Euro 2012 projects. Uefa, the governing body of football in Europe, is now under pressure to investigate claims of massive corruption. Opposition politicians claim that $ 4 billion from the state funds were stolen by officials (http://snipurl.com/24qh8s2 ). But also in Brazil the preparation for the World Cup in 2014 and the Olympics in 2016 face some corruption challenges. In June the government coalition deputies approved a bill that would keep the massive infrastructure budgets secret (http://snipurl.com/24qh96c ). Because of critics the text got changed and the budget will be public but just after the public tender process.

In international sporting events many stakeholders are involved: the organizing international organization, the host country, different governments and last but not least the public - just to mention the very important ones. To enhance transparency, the involvement of all these stakeholders is central. A good way to do this is a multisectoral initiative.
In regard of the construction sector the Construction Sector Transparency Initiative (CoST) could be of help (www.constructiontransparency.org). CoST is a country centered multistakeholder initiative designed to promote transparency and accountability in publicly financed construction. CoST’s core is the belief that the processes involved in the construction of public infrastructure must be more transparent.

As all the mentioned critical aspects are important issues for various stakeholders, pressure will increase to make international sport mass gathering events that cost billions of dollars more transparent for them. Then availability of information to the public is of great importance to hold decision makers to account and to ensure better value for money. In this regard issue based multistakeholder initiative represent a promising solution.

Sabrina Stucki

Wednesday, August 15, 2012

Switching perspectives

If we talk about stakeholder relationships, the most common reaction of people is to think about a firm and the different groups which are affected by the corresponding business activities. These stakeholders are usually named as financiers, customers, suppliers, employees, the communities and so on. By this means we talk about stakeholders defined by their functional relationships with a firm, which is situated in the center of its stakeholder relationships. Further, the usual way of thinking about stakeholder management is on how to elaborate positive relationships with stakeholders to create as much economic value as possible.

In this blog post I would like to address two rather unusual ways of thinking about stakeholder management by making use of the example of employees’ work-life balance as an independent issue. In the context of this issue, the traditional defined stakeholder categories of a firm are no longer of much use to capture the essential features of the employees’ work-life balance. To assess what is of real importance for people, a firm’s decision makers have to switch perspectives to find out which groups have a real stake in the issue of the work-life balance. The traditional stakeholder category of employees then becomes more fine-grained, for example as mothers, fathers, daughters, sons, part-time workers and so on. By switching the perspective from a functional firm-centered to an issue-based view, decision makers are able to identify a much broader, and arguably more useful, set of stakeholders related to the firms’ activities.

But how are those newly recognized stakeholders related to a firm’s value creation? I think part of the answer arises from a too narrow understanding of value in an economic sense. It is easy for decision makers to conceptualize economic value creation in traditional firm-stakeholder relationships, as those ties are, as described above, functionally defined. But from a stakeholder’s perspective, there are other ways of understanding what “value” actually consists of. Indeed, regarding the issue of the work-life balance, stakeholder groups like mothers or fathers acknowledge the results related to their relationship with a firm, for example the accessibility to corporate childcare services, but also the possibility to work part-time in a managerial function. However, besides those extrinsic values related to economic or non-economic goods or services in a stakeholder relationship, employees are also seeking for more intrinsically motivated results. For example, employees also appreciate the psychological result of job satisfaction, as they are recognized and esteemed by the firm’s decision makers regarding their stake in the issue of work-life balance, thus for example as mothers and fathers.

In my opinion, managerial decision-makers can realize a much broader potential for value creation if they not only rely on a firm-centered approach to create economic value together with their functional stakeholders. Switching perspectives to identify the stake different groups have in a focal issue and recognizing both the corresponding extrinsic and intrinsic results of stakeholder relationships will then lead to an enhanced mutual value creation of a firm with its stakeholders.

Thomas Schneider