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

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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
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Consequences Raise Stakeholder Issues

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

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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

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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

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New Investor Agendas

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

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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 AlliancesCalPERS/Hermes, ICGN, GCGN Cross-Pollination of Tactics, Ideaseg OTPP online

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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)
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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)

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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

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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

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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

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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
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