Posts Tagged ‘Governance’

The New Statesman: ‘Doing the right thing is good for business’

By Noreena Hertz
Published: 4th September 2006

Back in the 1970s, Kodak tried to give $25m to a black civil rights organisation in Rochester, New York. The company’s shareholders rose up in arms: making this politically charged offering wasn’t the reason they had entrusted Kodak with their money. The donation was withdrawn.

Fast-forward to the past 12 months. The Norwegian Petroleum Fund, the world’s largest institutional investor, has hired an ethical phil osopher to determine what it should and should not invest in: it sells its shares in Wal-Mart allegedly because of its serious and systematic vio- lation of human and labour rights. A group of 17 leading US pension funds and investors controlling $658bn in assets have pushed for face- to-face meetings with the Exxon Mobil board of directors to discuss the company’s persistent lack of acknowledgement of climate change. In Britain alone, socially responsible investments have increased by 31 per cent.

Today, an increasing number of shareholders are not only not objecting to radical behaviour on the part of the companies they invest in, but they are actually demanding it of them. And this trend is going to accelerate.

I make this claim for the following reasons. First, radical businesses are valuable: witness Cadbury’s glee in acquiring the organic chocolate company Green & Black; ditto ‘Oréal’s acquisition of the Body Shop and Ford’s recent decision to invest one billion dollars in envir onmentally sound cars. Second, it is no longer simply fringe groups that care about these issues, but, increasingly, mainstream pension funds and charities looking to invest in companies whose values are aligned to those they represent. Many young internet and high-tech magnates (the new coterie of high-net-worth individuals) are also keen to put their investment dollars in environmentally and ethically sound companies. Third, because of a legal opinion issued a few months ago by Freshfields.

The renowned international law firm was asked by the United Nations Environment Program to check whether pension funds, public and private insurance companies and mutual funds could incorporate environmental, social and governance issues into their investment decisions. The opinion Freshfields came back with in October 2005 was startling. Not only could they do so, but they have an active duty to have regard to these issues in every single decision they make.

It’s not, to quote Milton Friedman, that the business of business is no longer business. Of course, it is. Nor is it the case that investors are no longer mandated to realise maximum profits for those who entrust their money to them. Of course, they are. It’s just that, as society evolves, the nature of what will ensure the greatest profitability evolves too.

Read the rest of the article on the New Statesman website

Hertz calls for Smashing the Glass Ceiling

August 7th, 2006 by admin

The New Statesman: ‘Come on, get your sledgehammers out’

By Noreena Hertz
Published: 7th August 2006

The term “glass ceiling” was coined in 1984. More than 20 years later, the ceiling has barely cracked. There isn’t a single country in the world that has as many female as male politicians. In business, the situation is even worse. Its highest echelon – the board – remains a chauvinist’s dream. For every hundred men who are non- executive directors of UK companies, there are only 11 women. Portugal does not have a single female board member in any of its leading companies.

When it comes to getting more women into parliament, politicians have at least started to take active measures. The British Labour Party introduced all-female shortlists in 1997. Half of David Cameron’s A-list candidates are women (although Tory selection committees seem wedded to choosing from the other half). The Scandinavian countries, in particular, have had systems of quo tas for women for some time. But that’s for getting more women into parliament. When it comes to getting more into the boardroom, most politicians have done nothing. Apart from Norway, that is – which announced in 2002 that it would be required that 40 per cent of its board members be female – and Spain, which announced a similar mandate this June.

Critics of positive discrimination oppose such direct intervention on the grounds that it sends a message to women that they are not capable enough to be considered on their own merit. But we’re not talking about putting incapable women in the place of capable men. We’re talking about making sure that equally capable women have a fair chance of getting a seat in the boardroom.

There are critics of corporate power who don’t like such a tack, either. “Women should be glad that they are not part of the machinations of the boardroom, not made to feel that this is something they should aspire to,” I can envisage some of these critics saying. Yet keeping women out of the privy chamber serves only to maintain its locker-room nature, a clubbiness that we now know played an important part in such cases as Enron and WorldCom, and is antithetical to good corporate governance. Forcing companies to recruit away from the golf course might lead to the appointment of more women from NGOs and academia and medicine, all of whom are likely to understand such concepts as stewardship and sustainability much better than men picked from the usual hunting grounds.

Others who don’t approve of legislating for more women in power are the corporate apologists who carry the anti-regulation banner. “Yet another attempt by the government to burden big business, bound to create additional costs with no benefits to speak of” is their line – a line that the facts do not support. Several academic studies have demonstrated that companies with women as directors achieve higher returns on equity, stronger financial performance and higher shareholder value than companies with all-male boards. And I hate to state the obvious here, but one is hardly going to optimise talent by, in effect, dismissing 51 per cent of the population from one’s applicant pool.

Read the rest of the article on the New Statesman website