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Corporation and Society Restoring Confidence in the Corporation

Corporation and Society Restoring Confidence in the Corporation. Costas Kataras. Athens University of Economics and Business AUEB, International MBA 19 February, 2009. The Mood… Mission Impossible I ?. Are Bankers Charlatans ? Focus 29/01/2009

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Corporation and Society Restoring Confidence in the Corporation

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  1. Corporation and SocietyRestoring Confidence in the Corporation Costas Kataras Athens University of Economics and Business AUEB, International MBA 19 February, 2009

  2. 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..

  3. The Mood… Mission Impossible II ? Business is a (necessary ? ) evil in society … only the worst sort of people are involved..Plato, c. 340 BC

  4. The situation is hopeless… but not serious !!Plato, c. 340 BC

  5. 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 )

  6. 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 value)

  7. Business Ethics: The Definition Challenge “ ..achieve commercial success in ways that honor ethical values and respect people, communities, and the natural environment..” ( Source: Business for Social Responsibility- nonprofit CSR Ass., US )

  8. Restoring Confidence in the CorporationTopics • 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 !!)

  9. 1.The Business of Business…

  10. The Long-Running DebateTwo Contrasting Ideological Positions “ the business of business is… business” vs “ corporate social responsibility “

  11. And the Winner is .. …Prof. Milton Friedman & the School of Chicago “ ..the business of business is business..” “ ..social 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 )

  12. 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 )

  13. ..DeceivingCoca 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

  14. ..CheatingStarbucks 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”

  15. ..Controlling 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 seeds

  16. ..Killing Mrs Anderson vs General Motors (1980) • Chevrolet Malibu cars fuel tank, not sufficiently protected in collisions • 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 !!!

  17. ..Plus • 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

  18. 2.The Rise of Corporatocracy

  19. CorporatocracyTowards 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” (Kataras)

  20. CorporatocracyThe 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)

  21. Corporatocracy.. ofCorporate 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, Worldcom) Source :Institute for Policy Studies, 2000

  22. Corporatocracy.. in Numbers (GDP/Sales, 1999) • General Motors > DENMARK • Exxon Mobil > GREECE • General Electric > PORTUGAL • Shell > IRAN • IBM > IRELAND • Nestle > HUNGARY Source :Institute for Policy Studies, 2000

  23. CorporatocracyThe Global Pyramid of Power

  24. CorporatocracyHow 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)

  25. CorporatocracyTwo Prophetic Books.. June 24, 2008 July 22, 2008

  26. “Katharsis”: Topology of Factors Undermining the Future Brands’ Overdose (5) INDIVIDUAL SOCIETY Scarcity of Human Attention (9) Rise of Eclecticism (11) Loss of Entrepreneurial Spirit (6) Information Economy Extreme Market Polarization (8) Violent Emotional Detachment from Brands (12) Arrogant Corporation Increased Complexity & Unpredictability (1) Collapse of Information Asymmetry (3) Explosion of Consumer – Generated Personal Media (10) Brands’ Insignificant Impact on ROI & Parent Company Stock Price (2) Frenetic Time Acceleration (4) ENVIRONMENT TECHNOLOGY Dramatic Erosion of Middle Class (7) ECONOMY

  27. Mega – Trends : A SynopsisCorporations in a New, Hostile, Terrain • Complexity • Society • Technology plus • Corporate Confidence Erosion

  28. ComplexityThe 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 ?

  29. Technology The Trojan Horse ? OPPORTUNITIES • Productivity • Globalization • Delocalization • Etc THREATS • Transparency • Reduced Information Asymmetry • Empowered , Educated, Never Satisfied, Distant, Unreachable Consumers • etc

  30. SocietySociety Dominates Corporations The Coca Cola , Dasani case

  31. Corporate Confidence Erosion Route Causes • Increased Income Inequality / Power Distances in Society • 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 (30-80%)

  32. Inequality: A Roadmap to Crisis Source :PricewaterhouseCoopers, World Economic Forum, UNDP, World Bank (2007/8)

  33. US Losing Favor Across Europe and the West Source :PricewaterhouseCoopers, World Economic Forum, Pew Global Attitudes Survey (2008)

  34. The Growing Sentiment Against Globalisation in All Rich Countries Source: Financial Times , Harris Research , 2007

  35. Mistrust 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 )

  36. 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 )

  37. 3.Corporation and Society

  38. Corporation and Society New Issues OLD ISSUES • Growth • Globalization • Competitiveness • Innovation • etc NEW ISSUES • Regulation • Environmental Sustainability • Labor / Unions • Civil Society • Governments as Owners • Consumer over stimulation and mental health • Business Confidence Erosion • etc

  39. 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)

  40. 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 WHAT IS THIS ? According to the DSM-IV-TR (Diagnostic and Statistical Manual for Mental Disorders) this is the definition of a …..

  41. The Corporation is a.. Psychopath !!!(Antisocial Personality Disorder -APD ) A PSYCHOPATH ALSO CAN BE : Charming, manipulating, focusing solely on self-gratification, deceiving and swindling the unsuspecting. (Hare 1999, Black 1999)

  42. 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 )

  43. Chilling Findings about People and Authority • Stanford Prisoners Experiment /SPE (Prof. Philip Zimbardo, Stanford 1971) • The Milgram Obedience to Authority Experiment (Prof. Stanley Milgram , Yale 1963) “ Ordinary People, Doing their Jobscan become Agents in a Terrible Destructive Process under the Umbrella of a Legitimizing Ideology and Social Institutional Support”

  44. 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

  45. 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%)

  46. 4. Restoring Confidence

  47. Can We Restore Confidence ? Plato: …” business is a necessary evil in society… only the worst sort of people are involved”...

  48. Towards a New Corporate Social ContractCorporation 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 promises) • 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”)

  49. Corporate Social Contract / CSCThe 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 )

  50. 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)

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