Archives For corporate social responsibility

At his new and excellent blog Hodak Value, frequent TOTM commentor Marc Hodak offers the following in response to a post at the Daily Kos implying that Wal-Mart’s treatment of its workers should give rise to a level of concern similar to that of the Rwandan genocide:

My standard for concern about an organization is somewhat different. If an organization has people beating down the doors to get in, it’s probably not a problem how they’re treating their workers. If an institution has people risking their lives to flee, that’s probably an institution that needs some outside monitoring.

Hodak’s blog is up and running and has lots of great stuff. Check it out.

But back to Wal-Mart for a minute. Hodak’s post got me thinking about some of much milder Wal-Mart rhetoric that has started to fly around since the campaign has started to heat up. The most recent example is presidential hopeful Hillary Clinton’s answer to the “Wal-Mart Question” in the recent debate where she describes Wal-Mart as “a mixed blessing.” Here’s the whole thing:

Well because when Wal-Mart started, it brought goods into rural areas, like rural Arkansas where I was happy to live for 18 years. And it gave people a chance to stretch their dollar further. But as they grew much bigger, though, they have raised serious questions about the responsibility of corporations and how they need to be a leader when it comes to providing health care and having safe working conditions and not discriminating on the basis of sex or race or any other category. Brian, this is all part, though, of how this Administration and corporate America today don’t see middle class and working Americans. They are invisible. They don’t understand that if you’re a family that can’t get health care, you’re really hurting. But to the corporate elite and to the Administration and the White House, you’re invisible.

Clinton starts with the sensible and obvious proposition that Wal-Mart does do at least some good. But notice how the benefits are trivialized: A handful of rural consumers get goods that could not have otherwise and folks can have a “chance to stretch the dollar further.” But the downside is not so trivial, Clinton tells us, because it is “serious problem” that is part of a plot between the Administration and Corporate America to leave middle American behind. Of course it is!!! By the way, Wal-Mart causes crime too.

Luckily, the market provides ample data to test these assertions and distinguish the hand-waving proclamations from the truth.  But who needs evidence when one can rely on the the tried and true causal relationship between firm size and evil: “as they grew much bigger, though, they have raised serious questions about the responsibility of corporations and how they need to be a leader when it comes to providing health care and having safe working conditions and not discriminating on the basis of sex or race or any other category.”

You see, Wal-Mart was all good in its nascent stages when it was not so big  — Guilt-free low prices for families for low and moderate income families!  But those, you see, were the good ol’ days before it grew.  You know, the days when Clinton sat on Wal-Mart’s board, a.k.a. the days when an attack on Wal-Mart and free trade weren’t in the compulsory portion of the campaigning program.  I don’t mean to just pick on Clinton.  Obama has taken the bait to engage in a little Wal-Mart bashing as well at least once.

Here’s a quote from Hillary Clinton from a 1996 interview on C-Span just after endorsing the proposition that ” the unfettered free market has been the most radically disruptive force in American life in the last generation,” where she discusses the good ol’ days of Wal-Mart:

One of the things that Sam Walton believed in was profit sharing. I mean, part of the reason that I appreciated his business philosophy is that the workers at Wal-Mart were able to share in the profits, and the executives, when I was on the board, were very careful to keep their perks down — the kind of offices they had, the way that they lived and the way that they treated their fellow associates at every level in the business. I thought that was a good example.

But then Wal-Mart grew, became evil, and became a serious problem. Never mind the giant consumer benefits that flow from Wal-Mart’s competitive pricing. For example, low generic drug prices. Or how about Hausman and Leibtag’s estimate of consumer benefits from big box retailers that amounts to approximately 20.2% of the average food expenditures. For consumers in the bottom income quintile, this amounts to a welfare increase of approximately 6.5% (and 1.5% averaged across all consumers).  We should all be so lucky to have mixed blessings like this.

But I should be fair to Clinton’s case against Wal-Mart.  Here goes.   Clinton points to three things: (1) health care; (2) working conditions; and (3) discrimination. Oddly, she seems to believe that there is some lcausal link between Wal-Mart’s growth and this trio. I’m fairly certain there is no evidence of that but would love to see it if it is out there. As far as (2) and (3) go, I don’t think any Wal-Mart supporters have argued that Wal-Mart should be immune from labor or discrimination laws. But the public policy debate seems to focus on whether Wal-Mart has some special obligation on these issues because of its size. As Hodak points out, the fact that there appears to be a significant demand for jobs at Wal-Mart is certainly relevant to this analysis, e.g. 15,000 applicants for 400 jobs at the new Chicago Wal-Mart.

So, how about that evidence about Wal-Mart any health care? Jason Furman (NYU, and former economic adviser to John Kerry) offers a thorough review of the available evidence on health care and concludes that “Wal-Mart’s health benefits are similar to or better than benefits at comparable employers.”

Being election season and all, I know I am barking up the wrong tree for wanting more than soundbite treatment of these issues from politicans, e.g. Clinton’s plea that Brian Williams and America see the Wal-Mart issue has part of a conspiracy by the “Administration and corporate America” to ignore and exploit middle class and working Americans. A welfare increase of 6.5% for the lowest income quintile is enormous. How many government programs create that kind of welfare benefit? Can you name one? If there are serious arguments to be launched against Wal-Mart, and surely some of these politicians are serious (right?), they must embrace the reality that Wal-Mart has produced enormous benefits for Americans as a whole and especially lower and middle-lower class Americans.

Furman addresses this issue head on:

Well-intentioned Wal-Mart critics are sincerely interested in an America where workers are better off. They understandably want higher wages and higher benefits for everyone. Wal-Mart’s low prices help to increase real wages for the 120 million Americans employed in other sectors of the economy. And the company itself does not appear to pay lower wages or benefits than similar companies, or to cause substantially lower wages in the retail sector. Although there may be a dispute about the magnitude of the cost savings for consumers, no one disputes that they are large. In contrast, the effect on workers is relatively smaller and far from obviously negative.

There is relatively little scope to pressure Wal-Mart – and almost no scope to pressure other smaller and less visible companies – into paying higher compensation. Even if the campaign resulted in, say, some expansion of health benefits to placate one of Wal-Mart’s most visible public relations problems, the result could well be lower wages. At worst, to the degree the anti-Wal-Mart campaign slows or halts the spread of Wal-Mart to new areas, it will lead to higher prices that disproportionately harm lower-income families.

In the process, some of the campaign’s rhetoric risks undermining public support for making work pay, and in particular for publicly provided health benefits for less-skilled and less experienced workers who earn lower wages. A much better strategy would be to recognize that Wal-Mart is a progressive success story. By acting in the interests of its shareholders, Wal-Mart has innovated and expanded competition, resulting in huge benefits for the American middle class and even proportionately larger benefits for moderate-income Americans.

Obama’s lead economic adviser is Austan Goolsbee — which gives me hope that this is some sort of election rhetoric from Obama that he doesn’t really mean because he gets basic economics.  Maybe Clinton should hire Jason Furman?

Today’s WSJ had an article titled “Wal-Mart Apologizes to Groups That Were Focus of Surveillance,” which noted that Wal-Mart apologized for responding to large institutional shareholders as “threats.”  Obviously Wal-Mart realized a bit too late that it was absurd, from an investor relations standpoint (and a corporate governance standpoint), to refer to the owners of the corporation as “threats.”

That said, I am not shocked by the reference to large (activist) shareholders as “threats,” and I partially blame corporate lawyers for that perspective.  My view is that, too often, outside counsel forgets that, actually, the corporation is the client, not the CEO/GC who hired outside counsel.  My impression is that often outside counsel tries to “protect” executive officers and the board from large shareholders, as opposed to trying to agitate *for* the shareholders.  Of course, we all know why.  Who hires and fires outside counsel (outside accountants, investment banks, etc.)?  They know where their bread is buttered.  The savvy lawyer/accountant/banker is going to try to keep the person who hired her happy.

Perhaps, then, the solution is to have shareholder ratification of outside counsel….  (Just a random thought that came to me as I typed – no prior thought given.)  Kudos to Wal-Mart for at least recognizing their shareholder relations gaffe.

google/csrThe government subpoenas Google’s records, and also Yahoo!’s and Microsoft’s. MSFT and YHOO cave: Their stocks are down a little over and a little under 2%, respectively. Google resists. Its stock drops almost 9%. And yet a headline for an article by MSNBC’s chief economics correspondent–with the relevant stock prices immediately alongside–notes, “Google stand could be good for business.” Maybe he’s talking about Microsoft’s business?

The article quotes Dan Solove who has thoughts about the matter here, here and here. Solove and others view Google’s resistance as primarily a matter of principle, but I bet Google is quick to claim that it is (or at least “will be eventually. Really. We promise”) good for the bottom line. And perhaps here principle and profit coincide: That principle in this case seems to require resisting government interference in markets is a good indication that this might be true. But what if the two remain divergent?

Think about how Google’s actions square with one or more of these claims, Tyler Cowen’s attempted distillation of Milton Friedman’s thoughts on Corporate Social Responsibility:

1. Profit maximization is the best rule available, even though it fails society in particular instances (in that case, isn’t there some slightly more convoluted rule that can cover at least some of these situations and modify the outcomes? If only “very simple” rules are allowed, why?)

2. Businesses have no responsibility to behave in an act utilitarian fashion. Rules are rules, and we should follow them, come what may.

3. Following the doctrine of fiduciary responsibility — in this case to shareholders — is the greatest social good in these situations. It outweighs potential act utilitarian considerations pointing in other directions.

4. Force and fraud aside, profit maximization always coincides with the social good, at least in the absence of bad government interventions.

5. It is a public choice argument. The claim is a noble lie, for otherwise business will be regulated by government in a counterproductive manner.

6. So much anti-corporate nonsense has been written, so we need to shock people with an extreme claim in the opposite direction.

Defenders of Google’s actions on principle will point to the caveat in #4 and will deny especially #2 and #3.

I would like to rest my defense of profit maximization on #4, but as a descriptive matter, I think the exception is in serious danger of subsuming the rule. I suppose that leaves me with #3, which looks to me like a slightly weaker version of #4. (And Steve Bainbridge has mounted a compelling justification of #1 and #2).

Either way, I’ve said it before and I’ll say it again: Google does not have a duty here to saddle its shareholders with the cost of saving the world from itself. Although if I knew its leaders believed in any of the claims above, I’d give them the benefit of the doubt.