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) ( ). 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 ( ) 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 ( ). 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