Archive for the ‘Corporate Social Responsibility’ Category

Delaware Public Benefit Corporations 90 Days Out: Who’s Opting In?

Posted by June Rhee, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday July 23, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Alicia E. Plerhoples at Georgetown University Law Center. This post is part of the Delaware law series, which is cosponsored by the Forum and Corporation Service Company; links to other posts in the series are available here.

On August 1, 2013, amendments to the Delaware General Corporation Law (DGCL) became effective, allowing entities to incorporate as a public benefit corporation, a new corporate form that requires managers to produce a public benefit and balance shareholders’ financial interests with the best interests of stakeholders materially affected by the corporation’s conduct.

In my paper, Delaware Public Benefit Corporations 90 Days Out: Who’s Opting in?, I present empirical research on the companies that adopted the Delaware public benefit corporation form within the first three months of the effective date of the amended DGCL.

…continue reading: Delaware Public Benefit Corporations 90 Days Out: Who’s Opting In?

Monitoring the Monitors

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday July 22, 2014 at 9:05 am
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Editor’s Note: The following post comes to us from Jodi Short, Professor of Law at the University of California Hastings College of the Law; Michael Toffel of the Technology and Operations Management Unit at Harvard Business School; and Andrea Hugill of the Strategy Unit at Harvard Business School.

Drawing on insights from the literatures on street-level bureaucracy and on regulatory and audit design, our paper, Monitoring the Monitors: How Social Factors Influence Supply Chain Auditors, which was recently made publicly available on SSRN, theorizes and tests the factors that shape the practices of private supply chain auditors. We find that audits are conducted most stringently by auditors who are experienced and highly trained, and by audit teams that include female auditors. By contrast, auditors that have ongoing relationships with audited factories, and all-male audit teams conduct more lax audits, identifying and citing fewer violations. These findings make five key contributions and suggest strategies for designing audit regimes to more effectively detect and prevent corporate wrongdoing.

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Agency Problems of Corporate Philanthropy

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday July 1, 2014 at 9:04 am
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Editor’s Note: The following post comes to us from Ronald Masulis, Professor of Finance at the Australian School of Business, and Syed Reza of the Finance Area at Queensland University of Technology.

While corporate charitable contributions are frequent and often substantial, there is no clear evidence in the literature on whether these expenditures have positive effects on firm revenues or performance or on shareholder wealth. In our paper, Agency Problems of Corporate Philanthropy, which was recently accepted at the Review of Financial Studies, we use contributions of American Fortune 500 firms during 1997-2006 and find in a variety of tests that corporate donations advance CEO interests and suggest that misuses of corporate resources that reduce firm value.

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Speaking of Corporate Social Responsibility

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday June 26, 2014 at 9:10 am
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Editor’s Note: The following post comes to us from Hao Liang and Luc Renneboog, both of the Department of Finance at Tilburg University, Christopher Marquis of the Organizational Behavior Unit at Harvard Business School, and Sunny Li Sun of the Department of Global Entrepreneurship and Innovation.

Linguists suggest that obligatory future-time-reference (FTR) in a language reduces the psychological importance of the future. Applying this to a corporate context, we theorize in this paper that companies with strong-FTR languages as their official/working language would be less future orientated and hence perform worse in future-oriented activities such as corporate social responsibility (CSR)—firms’ environmental, social, and governance engagement—compared to those in weak-FTR language environments.

…continue reading: Speaking of Corporate Social Responsibility

Board Oversight of Sustainability Issues in the S&P 500

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday May 22, 2014 at 9:27 am
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Editor’s Note: The following post comes to us from Jon Lukomnik of the IRRC Institute and is based on the summary of a report commissioned by the IRRC Institute and authored by Peter DeSimone of the Sustainable Investment Institute; the full report is available here.

Board oversight has long been viewed as an effective mechanism to direct and monitor corporate management. For example, in the wake of accounting scandals last decade, the Sarbanes-Oxley Act of 2002 requires all publicly traded companies in the United States to have an audit committee comprised of independent directors, charged with establishing procedures for handling complaints regarding accounting or auditing matters and for the confidential submission by employees of concerns surrounding alleged fraud.

While sustainability has been a concern of corporations and investors for years, there has been little research focused on how boards oversee a company’s sustainability efforts. Sustainable and responsible investors also have seen board oversight as an effective way to encourage corporations to accelerate such efforts; they began filing shareholder proposals requesting board oversight of various sustainability issues in the 1970s, and both the numbers of resolutions and the support those resolutions have received have grown exponentially since. It is worth noting that one such model proposal, formulated by The Center for Political Accountability (CPA) and requesting board oversight of political spending in addition to key disclosure features, accounts for the vast majority of sustainability shareholder resolutions on board oversight and resulted in political spending being a top subtopic of board oversight duties.

…continue reading: Board Oversight of Sustainability Issues in the S&P 500

Court of Appeals Invalidates Part of SEC’s Conflict Minerals Rule

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday May 17, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Yafit Cohn, Associate at Simpson Thacher & Bartlett LLP, and is based on a Simpson Thacher memorandum.

On April 14, 2014, in National Association of Manufacturers v. Securities and Exchange Commission, the United States Court of Appeals for the District of Columbia Circuit partially invalidated the final rule of the Securities and Exchange Commission (“SEC”) requiring public companies to investigate and disclose the origin of certain minerals found in the war-ridden Congo region (“conflict minerals”). [1] While upholding most aspects of the rule, the Court concluded that the rule and the statutory provisions on which it is based violate the First Amendment “to the extent the statute and rule require regulated entities to report to the Commission and to state on their website that any of their products have not been found to be ‘DRC conflict free.’” [2] On April 29, 2014, amid uncertainty regarding the impact of the Court’s decision on issuers’ obligations under the rule, the Director of the SEC’s Division of Corporation Finance announced that the SEC expects issuers to comply with those aspects of the rule that were upheld by the Court.

…continue reading: Court of Appeals Invalidates Part of SEC’s Conflict Minerals Rule

Who’s Responsible for the Walmart Mexico Scandal?

Posted by Benjamin W. Heineman, Jr., Harvard Law School Program on Corporate Governance and Harvard Kennedy School of Government, on Thursday May 15, 2014 at 4:00 pm
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Editor’s Note: Ben W. Heineman, Jr. is a former GE senior vice president for law and public affairs and a senior fellow at Harvard University’s schools of law and government. This post is based on an article that appeared in the Harvard Business Review online, which is available here.

The Walmart bribery scandal is one of the most closely-watched cases of alleged malfeasance by a global company. It broke into the open in April, 2012, when the New York Times published a lengthy investigative piece alleging Walmart bribery in a Mexican subsidiary and a cover-up in its Bentonville, Arkansas, global headquarters. The piece, which won a Pulitzer Prize for reporter David Barstow, raised a host of personal accountability and corporate governance issues for the company.

Late last month, on the second anniversary of the story nearly to the day, Walmart released its first Global Compliance Report (GCR). The report describes the company’s governance response and changed compliance framework—from holding 20 audit committee meetings in 2014, to substantial organizational restructuring, to enhanced education and training. On paper, Walmart appears to have adopted many best practices and to have set out a sound plan for moving forward. However, questions of accountability remain unanswered, when it comes to determining what actually happened in the past, what systems failed, and who was responsible for possible violations of the Foreign Corrupt Practices Act, which bars bribery of foreign officials. A lengthy internal inquiry continues, as well as investigations by the Justice Department and the SEC, with the scope broadened to include possible Walmart improprieties in Brazil, China and India.

…continue reading: Who’s Responsible for the Walmart Mexico Scandal?

What Will Result From the SEC’s Current Disclosure Reform Initiative?

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Sunday May 11, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Betty Moy Huber, co-head of the Environmental Group in the Corporate Department of Davis Polk & Wardwell LLP, and is based on an article by Ms. Huber that first appeared in the American Bar Association’s Environmental Disclosure Committee newsletter.

The SEC is in the midst of what could be a sweeping reform of its disclosure regime. During the course of this year, the SEC’s Division of Corporation Finance, or Corp Fin, will be seeking broad input from companies and investors on how the SEC can improve its disclosure rules. This initiative follows on Corp Fin’s lengthy December 2013 report on this topic. Arguably, the SEC’s disclosure reform initiative could not have come at a better time for sustainability and environmental groups who have been working for years to achieve better corporate sustainability disclosure. These groups are savvy, dedicated, and have trillions of institutional investor (and other) dollars backing them. With social media, they have become well organized and effective advocates for their cause. In addition, investment banks are taking note and becoming interested in better and more uniform sustainability disclosure in their capacity as underwriters as well as investors themselves. Further, shareholder proponents have submitted a record number of environmental and sustainability shareholder proposals in recent proxy seasons. But will these sustainability groups succeed in finding common ground with the SEC and, if necessary, convince the SEC that sustainability issues are material or otherwise a priority?

…continue reading: What Will Result From the SEC’s Current Disclosure Reform Initiative?

Putting Integrity into Finance

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday March 26, 2014 at 9:04 am
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Editor’s Note: The following post comes to us from Werner Erhard and Michael Jensen, Professor of Business Administration at Harvard Business School.

The seemingly never ending scandals in the world of finance with their damaging effects on value and human welfare (that continue unabated in spite of all the various efforts to curtail the behavior that results in those scandals) argues strongly for an addition to the current paradigm of financial economics. In our paper, Putting Integrity Into Finance: A Purely Positive Approach, which was recently made publicly available on SSRN, we summarize our new theory of integrity that reveals integrity as a purely positive phenomenon with no normative aspects whatsoever. Adding integrity as a positive phenomenon to the paradigm of financial economics provides actionable access (rather than mere explanation with no access) to the source of the behavior that has resulted in those damaging effects on value and human welfare, thereby significantly reducing that behavior. More generally, we argue that this addition to the paradigm of financial economics will create significant increases in economic efficiency, productivity, and aggregate human welfare.

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The Foundations of Corporate Social Responsibility

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Wednesday February 19, 2014 at 9:00 am
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Editor’s Note: The following post comes to us from Hao Liang and Luc Renneboog, both of the Department of Finance at Tilburg University.

A fundamental issue in business and economics is the sustainability—and not merely the growth—of economic development, which crucially hinges on the socially responsible operational and investment behavior of modern corporations (Porter, 1991). There is a widespread recognition, as well as growing empirical evidence, that corporate social responsibility (CSR) can substantially contribute to social progress and stakeholder wealth, including the wealth of shareholders (e.g., Dimson, Karakas, and Li, 2012; Deng, Kang, and Low, 2013). In our paper, The Foundations of Corporate Social Responsibility, which was recently made publicly available on SSRN, we examine the forces that fundamentally steer companies to behave as good citizens in society.

…continue reading: The Foundations of Corporate Social Responsibility

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