Corporation and Society

Corporation and Society
Restoring Confidence
in the Corporation
Costas Kataras
Athens University of Economics and Business
AUEB, International MBA
19 February, 2009
Slide 1
The Mood…
Mission Impossible I ?
Are Bankers Charlatans ?
Focus 29/01/2009
At blame for the financial crisis is the ( greedy ) nature of man, say two
renowned scientists: Nobel Prize winner Daniel Kahneman and bestselling
author Nassim Taleb ( "The Black Swan").
Taleb calls for rigorous changes: nationalize banks..
Slide 2
The Mood…
Mission Impossible II ?
Business is a (necessary ? ) evil in society … only the
worst sort of people are involved.. Plato, c. 340 BC
Slide 3
The situation is hopeless… but not serious !!
Plato, c. 340 BC
Slide 4
Understanding the Landscape (1/2)
Understanding the Landscape of Business Ethics can be Problematic
Business Ethics / Integrity /Practices
(ie how to conduct business responsibly )
Corporate Compliance
( ie focused on complying with laws and regulations )
Corporate Governance
(ie policies and practices that stockholders, executive managers
and board directors use to manage themselves and fulfill their
responsibility to investors and other stakeholders )
Slide 5
Understanding the Landscape (2/2)
Understanding the Landscape of Business Ethics can be Problematic
Corporate Responsibility
( ie fulfilling the responsibilities or obligations that a company has
towards its stakeholders. For example profit vs environment )
Corporate Social Responsibility
( ie as above, but with greater stress upon the obligations a
company has to the community. Sometimes encompasses all
responsibilities to stakeholders-ethical, social and environmental )
Corporate Sustainability
( ie aligning an organization's products/services with stakeholder
expectations, thereby adding economic, environmental and social
Slide 6
Business Ethics:
The Definition Challenge
“ ..achieve commercial success in ways that
honor ethical values and respect people,
communities, and the natural
Source: Business for Social Responsibility- nonprofit CSR Ass., US )
Slide 7
Restoring Confidence in the Corporation
 1.The Business of Business…
2. The Rise of Corporatocracy
 3. Corporation and Society
 4. Restoring Confidence
 5. Social Issues Become Strategic
 6. Government and Society: A Larger Role
 7. “Nice” Capitalism ( Wanted !!)
Slide 8
1.The Business of Business…
Slide 9
The Long-Running Debate
Two Contrasting Ideological Positions
“ the business of business is… business”
“ corporate social responsibility “
Slide 10
And the Winner is ..
…Prof. Milton Friedman & the School of Chicago
“ ..the business of business is business..”
“ responsibility is a fundamentally subversive doctrine..”
“ ..managers that will invest recourses to deal with ethical issues
should be fired..”
Naomi Klein, in her book The Shock Doctrine, accuses Friedman of being complicit in military coups in
countries such as Chile and Indonesia that were used as a way to shock the population into
accepting unpopular neoliberal policies for the benefit of foreign multinational companies.
( Milton Friedman, 1912-2006 )
Slide 11
Corporations Disregard all Human Laws
Carl Marx was Right
“ ..companies with 10% profits feel secure
enough.. with 50% became adventurous.. with
100% disregard all human laws and with 300%
can even take the risk of committing crimes ”
( Carl Marx )
Slide 12
Coca Cola and its Dasani Bottled (Tap !!) Water
It comes from the same source as local tap water
 Result :Coca Cola withdraws bottled water from UK (2004) and
admits that Dasani is nothing but tap water
Slide 13
Starbucks coffee 200% more expensive in Athens than NY
A cappuccino costs : 4,65 $ in Athens, 2,35$ in New York, +100%
 Average PP of an American : + 100%
 Result : +200%
Plus : Cheating and stealing the tips of personnel .”California court
orders Starbucks to return $100m in tips to baristas”
Slide 14
Monsanto’s Terminator Technology
Controls genetically engineered seeds (ie rice, corn, etc) for which
farmers pay high prices
 Terminator technology is used to sterilize crops, ie the seeds lose
their ability to reproduce
 Result : 80% of farmers committing suicide in India, are farmers
not able to pay off their debts / loans used to buy expensive GM
Slide 15
Mrs Anderson vs General Motors (1980)
Chevrolet Malibu cars fuel tank, not sufficiently protected in
 GM cost- benefit analysis shows :
Repair cost : 8,59$ / per car
Anticipated fatalities (Human Life): 500
If pay the cost of each human life , ie 200.000$ /per life the average
cost is: 2,40$ per car
Result : Decide not to repair the cars !!!
Slide 16
Dehumanizing- Labor Camps (ie Nike, Gap)
Suppressing – Military Coups (ie United Fruits )
Imprisoning our Mind- PCs controlling Users (ie Microsoft
Defender /Kill Switch
Claiming Ownership of Natural Recourses-Privatizing the
Rain in Volivia (ie Bechtel and Mrs G.Shultz,
C.Weinberger )
Owning our Genes – A Nation’s Genetic Code for Sale (ie
Iceland and deCODE/Hoffman La Roche) , plus
the case of Mr Moore vs University of California
Slide 17
2.The Rise of Corporatocracy
Slide 18
Towards a Definition
“The accumulating corporate power and the evolution, and
finally transformation, of the corporation to a social
institution ( pseudo- authority ) dominating the civil society
and nations, with the support of banks, the financial
establishment, powerful elites and powerless governments”
Slide 19
The Meteoric Rise..
1720 : The creation of a corporation, as a legal
entity, constituted a serious crime in the West
(England) entailing serious punishment
2000 : Of the 100 largest economies in the world,51
are corporations and 49 are countries (in GDP and
sales terms)
Slide 20
.. of Corporate Global Power
Of the 100 largest economies in the world, 51 are corporations and
only 49 are countries
Top 200 corporations’ combined sales is equivalent to 27,5% of
World GDP (from 25% 15 years ago )
Top 200 corporations’ combined sales are bigger than the combined
economies of all countries in the world, minus the biggest ten
While sales of Top 200 are equivalent of 27,5% of world economic
activity, they employ only 0,78 % of the world’s workforce
U.S. corporations dominate the Top 200, with 82 slots (41%),
followed by Japanese firms with 41 slots
Almost 50% of U.S. corporations in Top 200, did not pay the full
standard 35% federal corporate tax during 1996-1998. Seven
actually paid less than zero ( ie Texaco, Chevron, PepsiCo, Enron,
Source :Institute for Policy Studies, 2000
Slide 21
.. in Numbers
General Motors
 Exxon Mobil
 General Electric
 Shell
 Nestle
(GDP/Sales, 1999)
Source :Institute for Policy Studies, 2000
Slide 22
The Global Pyramid of Power
Slide 23
How Corporations Became so Powerful ?
Arrogant, Selfish, U.S. Capitalism and the School of
Chicago creating inequality in the society
(Disaster vs Nice Capitalism books, Naomi & Costas)
Gate Keepers (Media) manufacturing/ engineering
consent (The Century of the Self )
Technology / Globalization/De localization/Export of Jobs
(Lou Dobbs, etc )
The “Other Hollywood Effect”-Weak Political Leadership
(Myth of the Powerless State / Nation)
Slide 24
Two Prophetic Books..
June 24, 2008
July 22, 2008
Slide 25
“Katharsis”: Topology of Factors Undermining
the Future
Overdose (5)
Loss of
Spirit (6)
Extreme Market
Polarization (8)
Complexity &
Frenetic Time
Scarcity of
Attention (9)
Rise of
Eclecticism (11)
Violent Emotional
Detachment from
Brands (12)
Collapse of
Asymmetry (3)
Explosion of
Consumer –
Personal Media
Erosion of
Middle Class
Stock Price (2)
Slide 26
Mega – Trends : A Synopsis
Corporations in a New, Hostile, Terrain
 Society
 Technology
 Corporate Confidence Erosion
Slide 27
The Butterfly Effect
Have you ever been wondering how the current
bank and financial crises started?
 Have you been aware of a company Fanny Mae
or Freddie Mack ?
Slide 28
The Trojan Horse ?
 Productivity
 Globalization
 Delocalization
 Etc
 Transparency
 Reduced Information Asymmetry
 Empowered , Educated, Never Satisfied, Distant, Unreachable
 etc
Slide 29
Society Dominates Corporations
The Coca Cola , Dasani case
Slide 30
Corporate Confidence Erosion
Route Causes
Increased Income Inequality / Power Distances in
U.S. Losing Favor in the West
A Growing Sentiment Against Globalization in All
Rich Countries
Corporations: Lack of Trust in Business is Growing
Brands :Consumers are Falling out of Love with
Brands…a corporation’s most valuable asset (3080%)
Slide 31
Inequality: A Roadmap to Crisis
Source :PricewaterhouseCoopers, World Economic Forum, UNDP, World Bank (2007/8)
Slide 32
US Losing Favor Across Europe and the West
Source :PricewaterhouseCoopers, World Economic Forum, Pew Global Attitudes Survey (2008)
Slide 33
The Growing Sentiment Against Globalisation in All Rich Countries
Source: Financial Times , Harris Research , 2007
Slide 34
The Lack of Trust in Business is Growing
% of the public that agreed that you could trust business leaders:
2002: 36%
2004: 31%
2006: 28%
(Source :D.YANKELOVICH, 2007 )
Slide 35
Brand Erosion
Brand Importance Goes Down in Recent Years
Brand Awareness : 20 %
Brand Esteem : 12 %
Brand Perception of Quality : 24 %
Trust in Brands : 50 %
Brand Loyalty : 9 % ( from 40 % !!!)
(Source: WPP, The Brand Bubble by John Gerzema )
Slide 36
3.Corporation and Society
Slide 37
Corporation and Society
New Issues
 Growth
 Globalization
 Competitiveness
 Innovation
 etc
 Regulation
 Environmental Sustainability
 Labor / Unions
 Civil Society
 Governments as Owners
 Consumer over stimulation and mental health
 Business Confidence Erosion
 etc
Slide 38
Major Periods of Corporate Confidence Erosion
1929: Great Depression
(Unemployment )
1968-80: Banana Republic
( Multinationals, Cynicism, UF syndrome , School of Chicago)
2001- : Antisocial
(From the Enron Scandals in 2001 to the Virtual Money
Game of Lehman Brothers in 2008)
Slide 39
The Antisocial Era of Corporations
Towards a Diagnosis
Failure to conform to social norms,( i.e. evidence by
repeated unlawful behavior)
Deceitfulness, repeated lying, use of aliases or
manipulating others for profit
Reckless disregard for safety of (self) or others
According to the DSM-IV-TR (Diagnostic and Statistical Manual for
Mental Disorders) this is the definition of a …..
Slide 40
The Corporation is a.. Psychopath !!!
(Antisocial Personality Disorder -APD )
Charming, manipulating, focusing solely on selfgratification, deceiving and swindling the unsuspecting.
(Hare 1999, Black 1999)
Slide 41
Who ? In Managers /CEOs We Trust..
Ordinary, Good People Become Monsters in an Evil Place?
The Power of the Institution
(ie Corporations larger than many Nations, are becoming Social
Institutions, Pseudo Authorities, etc )
The Power of the Situation
( ie Poverty, DFI, WTO, IMF, FED, Globalization, Labor Camps )
The Power of the Lucifer Effect
(ie How good people turn into evil / sadists )
Slide 42
Chilling Findings about People and Authority
“ Ordinary People, Doing their Jobs
can become Agents in a Terrible Destructive Process
under the Umbrella of a Legitimizing Ideology and Social Institutional Support”
Stanford Prisoners Experiment /SPE
(Prof. Philip Zimbardo, Stanford 1971)
The Milgram Obedience to Authority Experiment
(Prof. Stanley Milgram , Yale 1963)
Slide 43
The Lucifer Effect (1)
Demonstrates the impressionability and obedience of people when provided
with a legitimizing ideology and social and institutional support
Stanford Prisoners Experiment /SPE
(Prof. Philip Zimbardo, Stanford 1971)
The Stanford experiment ended on August 20, 1971, only 6 days after it began instead of
the 14 it was supposed to have lasted. The experiment's result has been argued to
demonstrate the impressionability and obedience of people when provided with a
legitimizing ideology and social and institutional support
Slide 44
The Lucifer Effect (2)
Obedience to Authority :Chilling findings regarding the
weaknesses of human nature
The Milgram Obedience to Authority Experiment
(Prof. Stanley Milgram , Yale 1963)
Ordinary people, simply doing their jobs, and without any particular hostility on their
part, can become agents in a terrible destructive process. Moreover, even when the
destructive effects of their work become patently clear, and they are asked to carry
out actions incompatible with fundamental standards of morality, relatively few
people have the resources needed to resist authority.
When Good People Do Evil:
45 years ago, Stanley Milgram's classic experiments showed that, under orders, decent
human beings will do anything. ( at 90% level , while psychopaths are at 1%)
Slide 45
4. Restoring Confidence
Slide 46
Can We Restore Confidence ?
…” business is a necessary evil in society… only the worst
sort of people are involved”...
Slide 47
Towards a New Corporate Social Contract
Corporation and Society : Evolution Phases
Corporate Social Responsibility / CSR: The “Green Wash” Era
(ie Corporations react to pressures from NGOs, etc )
Triple Bottom Line / TBL :The Unfulfilled Era
( ie Charmy annual reports regarding CFP,CSP,CEP and no binding
Corporate Social Contract / CSC: The License to Operate Era
(ie Civil society and government take control through the license principle
and ensure that big corporations comply regarding CFP,CSP,CEP and CHP or
the “Corporate Quartet Principle/CQP”)
Slide 48
Corporate Social Contract / CSC
The License to Operate Era ,
and the “Corporate Quartet Principle”
for a Multiple “Corporate Zero Footprint”
Government and society could provide a license to corporations to operate ,
based on the approval of their annually submitted plans and performance
on the following :
1. Corporate Financial Performance / CFP
(ie Tax Equality- MS in Greece )
 2. Corporate Social Performance / CSP
(ie Humanity- Feminization of Man in US cities )
 3. Corporate Environmental Performance / CEP
(ie Sustainability – The Big Five oil companies )
 4. Corporate Health Performance / CHP
(ie Engaging the Brain-From over stimulation(2500 ads/day) to
Neuromarketing and the “Buy Button” in our Brain /BrightHouse studies )
Slide 49
A New Corporate Footprint
Physical and Mental Health/ Happiness and Depression
Depression the second largest killer, after heart disease, by 2020
15% of the population in developed world suffers severe depression
15% of depressed people will commit suicide
“..studies document that strong materialistic values (imposed by
persuasive advertising..) lead to low life satisfaction and happiness ,
to depression and anxiety and to personality disorders” ..(T.Kasser)
Slide 50
The Secret Paths to Depression in a Materialistic
Culture Cultivated by Corporations Through Brands
Imposed Values
of Success (State of
Atrophy of
Individual Values (State
of Permissiveness)
Isolation &
to Brand Stimuli (State
of Apathy)
(ie Compulsive
Feelings of
Inadequacy (Low
Self- Esteem )
Brands’ Hedonic
High Level
Low Satisfaction /
Seek Higher
Slide 51
5. Social Issues Become Strategic
Slide 52
When Social Issues Become Strategic
New Organizational Challenges for Corporate Leaders
The case for incorporating an awareness of social and political
trends into corporate strategy has become overwhelming
 Issues: privacy, obesity, safety, health, offshoring,
environment, etc
 Companies should look for signs of emerging hot topics and
be ready to respond to them early
 CEO’s must be willing to ensure a coherent approach, to
engage in external debate and to consider collaboration with
( Source :McKinsey)
Slide 53
Ensuring a Coherent Approach
Organizational Coordination- Reinventing Public Affairs
Slide 54
CR Delivers Improved Financial Performance
CR Index Outperforms FTSE by 3,3% to 7,7% pa
( Source : Ipsos /MORI , BITC , 2008 )
Slide 55
6. Government and Society: A Larger Role
Slide 56
Ensuring Corporate Treatability
“Treatability” is questioned
(ie According to top psychiatrists … )
Enforcement through the License to Operate Principle
( ie Initiatives and self – regulating promises /tactics not acceptable)
Strong Watch Mechanisms in Place
Slide 57
“Treatability” is Questioned
GM/Ford : Private Jets
 AIG : Spa
FORTIS : Monte Carlo
Slide 58
Watch Mechanisms
“ ..people are basically honest. And they
are even more honest when you are watch
( Alan Greenberg, ex Chairman Bear Sterns )
Slide 59
The Myth of the Powerless State
Government and Society Take a Larger Role
“ ..shareholder value is growing increasingly
irrelevant as government and society take a
larger role in shaping business and industry..”
( Ian Davis, MD , McKinsey )
Slide 60
7. Nice Capitalism (Wanted !!)
Slide 61
The “Nice Capitalism” Movement
Nice Capitalism, Corporations and Nations are Interrelated
Democracy , Justice , Transparency ( no Corruption )
Equality ( narrow income gap, Scandinavian Model )
Responsibility , Honesty,
Human Centric Attitude , Human Improvement
Sustainable Development
High Standards of Governance
Human “Ethos”
Focus on Well – Being , Happiness , “Eudemonia”
“Metron” (Human Measure )
Slide 62
“ Man is the measure of all things ..”
( Protagoras )
Slide 63
Thank You
(Available in
Slide 64