Economy, industry, innovation, and
technical democracy
Information Society: Governance,
Ethics and Social Consequences
Namur May 22, 2006
Philippe Defraigne
Cullen International
phil.defraigne@cullen-international.com
The ethical firm?
Î Tony Vandeputte (LLB – May 20, 2006)
Î Ethical firm defined as oftening the negative effects of
globalisation beyond what is requested by regulation
Î The role of a company is not to make up for the state’s
shortcomings
Î The sole role of a company is to create wealth
Î Is there room for the ethical firm?
Î The firm is ethically neutral
Î but, employees, in particular managers, are facing
numerous ethical problem
Î Above all strike a balance between the interest of the
various stakeholders.
What is ethics?
Î Ethics is not about prohibition
Î Ethics is not about risk assessment
Î Ethics is not against Economics – it concerns its meaning
Î Ethics is about tensions between what exists and what
should exist
Le Corbusier: Firminy, 1962-67
Le Corbusier: la villa Savoie – 1931
Corporate Social Responsibility (CSR)
Æ Hank McKinnell, chairman and CEO, Pfizer, and
Chairman of the Business Roundtable
Æ CEOs are increasingly committed to socially responsible
corporate behaviour because it is essential to
profitability.
“If we’re seen by the community as providing goods and services
that enable people to live a happy, long life, society will want us to
succeed. If they see what we’re doing in education and sports
programs, that’s important. Otherwise, society will hope that we fail.
If we continue to be disrespected by the public, it makes us a target.
People will say “regulate them”. Excessive regulation is certainly
one of the costs.” (New-York Times – April 29, 2006)
Why business cares about society?
Self
regulation
Regulation
Corporate Social Responsibility (CSR)
Coca-Cola, PepsiCo and Cadbury Schweppes have
decided to remove sugary beverages from school vending
machines. (FT May 5, 2006)
Under threat of regulation and law suits:
Æ In 2005 Arnold Schwarzenegger had banned soft-
drinks vending machines from California’s state’s schools.
Æ A number of Republicans have dropped their opposition
to regulation in the light of growing evidence that obesity is
harming productivity and contributing to rising health
costs.
17% of US children are clinically obese (up from 14% in
1999) !!!
Corporate Social Responsibility (CSR)
David Varney, Chairman, mmO2 plc, Chairman, Business in the
Community (Feb 2004)
“CSR has got to be part of the DNA. It's got to be in the lifeblood of
the organisation, or it's not going to work.”
Why are we doing these things? Is it because we're interested in
profits? Yes, absolutely. It's our job to make profits. We'd be out of a
job if we didn't.
We behave responsibly to protect our corporate reputation. If we had
a lousy reputation, we wouldn't get customers. But society should
share in the profits of our success.
CSR is win-win. It's good for us. It's good for the community. It makes
employees feel motivated about what they're doing. It makes
customers feel good about what they're buying. It makes good
business sense.
Corporate Social Responsibility (CSR)
David Varney’s typology of critics of CSR
The conservative, free-market view
Corporate philanthropy essentially means stealing from shareholders.
Milton Friedman once famously said, the responsibility of corporate
executives is to stay within the law and to make as much money for their
investors as possible. Anything else is harmful to the owners of the
business.
Varney’s response
True CSR does not come free but that's a short-sighted critique.
Shareholders are interested in sustainable profitability. Whatever CSR
takes out, it puts back in - in long-term value.
A company cannot survive and thrive if it does not look beyond the bottom
line. Any shareholder who's interested in sustainable profitability is
interested in all the benefits that CSR can bring.
Corporate Social Responsibility (CSR)
The leftist view
CSR is a good thing, but it's not working as well as it should. Need
to strengthen it with regulation.
Varney’s response
A successful approach to social responsibility cannot be achieved
with a regulatory cookie cutter. It has to be indigenous to the culture
of the company.
Each industry - and each environment - calls for a different approach.
A one-size-fits-all regulatory system will do far more harm than good.
Corporate Social Responsibility (CSR)
CSR is hypocritical
CSR is a smokescreen to hide the truth - mere window dressing on
a system that is ruthlessly self-serving.
The example they often give is the company that claims to be
socially responsible - while making people redundant.
Varney’s response
My answer is: this is capitalism!
In a system such as ours, companies sometimes have to adjust
their workforce to survive. That's an inevitable outcome of a
dynamic marketplace. That's its strength. When companies
downsize to survive, the system produces other opportunities
Financial capitalism
In the past
Individuals invested in companies through financial intermediaries
such as banks
Today
10-12 m individuals control half the market capitalisation worldwide.
Investors allocate directly their capital to firms through the stock
market. This is known as financial disintermediation.
It does not mean that every individual trade their shares in
companies themselves but pension funds and insurance companies
simply managed their clients funds for a fee and pass on the gains
and losses. They are not real intermediates as bankers used to be.
Financial capitalism
Power inside a company has shifted from the
management to the funds.
Æ 50% of stocks held by funds managers
Æ United States holds half of the financial assets
worldwide.
Æ Europe controls 30% including 10% for the
UK alone.
Financial capitalism
Pension funds
North American: 2/3
Europe < 15% (incl. 11% for the UK alone).
Direct consequence of European countries choice to fund pensions on
a pay as you go basis rather than through the accumulation of
financial assets. Calpers, the pension fund for California civil servant
manages assets worth > $150bn.
The indirect consequence is that financial markets are dominated by
US fund managers.
These funds buy all the stocks constituting stock indices such as the
Dow Jones and then, under the corporate governance banner, weigh
heavily on management of those companies.
Financial capitalism
Î In Ireland, fund managers investing Ireland’s €15bn National
Pension Reserve Fund (NPRF) have been told their 2005
performance was lacklustre and warned their mandates are
under review. (FT fm March 13, 2006)
Î NRPF explained that “while their equity performance in 2005
was in line with its benchmark, our objective was to outperform”.
Î Instead, it underperformed the index of Irish pension funds,
which achieved 21.2% return against the NPRF’s 19.6%.
Î According to the FT, the pressure the NPRF is putting on its fund
managers represents continuing evidence that short-term criteria
are applied to portfolios with even very long-term investment
horizons – the NPRF will not distribute any of its assets to
pensioners before 2025!
Financial capitalism
FT notes that although the NPRF is wary of openly criticizing its
fund managers, Paul Carty, chairman of the commission appointed
by the government to over see the fund remarked that “some active
managers have outperformed”.
Æ This was taken as a big hint that some managers had not.
Æ ‘They know who they are’ said an official at the National
Treasury Management Agency, the government agency that
runs the fund.
Financial capitalism
Æ Booz Allen Hamilton survey of CEO’s succession 2004
Æ In 2004, underperforming CEOs were removed after 4.5 years
(World average)
Æ In BAH’s judgment, this is an appropriate period. A 15-year vision is
irrelevant.
Æ Research shows CEOs need 3 to 5 years to develop their strategies
and see them through to their results.
Æ CEOs on a short leash tend to become more risk averse and may
be reluctant to embark on riskier projects, such as big investments
or M&A activity.
Financial capitalism
Î In Europe in particular, the pendulum may already have
swung too far toward the short term.
Î In 2004, CEOs removed for poor performance were in
office for a median tenure of two and a half years, an
astonishingly and counterproductively brief period of
time.
Î Many of the fundamental changes needed to make
companies competitive require more than two years to
take effect, especially given the region’s tradition of
cooperative labour relations and the high social costs
associated with transformative change.
Î Europe may be entering a cycle in which transformative
change is required
Financial capitalism
Is he still in charge?
Financial capitalism
Europe mad auctions for 3G licences
Country End of the Total bids/ Bid per pop
auction licence fees in in €
€ bn
UK April 2000 36 620
Netherlands July 24, 2000 2.7 181
Germany August 2000 50.8 618
Italy October 2000 12 208
Financial capitalism
Î Jean Peyrelevade
Î The strength of present-day capitalism arises from the
nature of the shareholders and the functioning of the
fund management sector.
Î On the one hand, shareholders are widely dispersed,
have a single aim (get richer) and are anonymous
because of their (large) number and the ordinariness of
their conditions. These characteristics confer them a
kind of democratic legitimacy.
Î On the other hand, the fund management industry
cannot be considered as liable as it is merely serving
the interest of its clients.
Î Where is the crime if nobody is guilty?
Ethics and information society
The “obvious” subjects
Privacy
Internet and human rights
Internet governance
Closed Circuit TV
etc.
Ethics and information society
Cyberspace
Anybody being potentially connected with anybody anytime
anywhere brings radical changes in the our perception of space
(death of distances) and time.
Human cyborg
MIT’s Media Labs, William Mitchell argues that the advent of mobile
devices and wireless Internet access, digital bits no longer exist in a
separate sphere called cyberspace but have gone on location in the
real world. The trial separation of bits and atoms is now over.
The result is the rise of a human cyborg: a biological core
surrounded by extended, constructed systems of boundaries and
networks. In this new world, the social ties that exist are no longer
provided by a continuous home turf; increasingly, my sense of
continuity and belonging derives from being electronically networked
to the widely scattered people and place I care about.
Ethics and information society
Î The network of our friend is increasingly mediated by electronic
address books – in SIM cards, mail browsers and buddy lists.
Î Impact on our intersubjectivity: common-sense, shared meanings
constructed by people in their interactions with each other and used
as an everyday resource to interpret the meaning of elements of
social and cultural life.
Î How to feel responsible for others?
Î We need urgently to decipher what this proliferation of new
technologies will
Î do on our brains (why remember things when you have google)
Î have on our relationships
Î affect our sexuality
Why should business care?
Social
Business as
inclusion -
usual
sustainability
Ethics is not a
barrier to doing
business it's the
foundation
ICT – EU policy
Î How is ICT seen by the EU?
Î ICT industries are one of the main drivers of economic
growth.
Î Their impact on the improved efficiency of other
sectors has multiplier effects far greater than the size
of the industry itself.
Î How about expected benefits forICT users?
Î Bridge digital divide, lower prices, better quality…
ICT – EU policy
Î Growth in the ICT sector is at risk
Î ICT sector is expected to grow at only 3% in nominal
terms in 2006 and 2007
Î Telecommunications services sector. Growth
Î < 2.2% in 2006
Î < 1.6% in 2007
Î The mobile industry
Î is getting every year closer to saturating the mobile
telephony market
Î has placed a lot of hopes in mobile television as the
next engine of growth.
ICT – EU policy
Commissioner Reding appears particularly enthusiastic
about mobile telephony: “a natural successor to mobile
telephony”.
The results of the first pilot projects suggest half of
European mobile phone subscribers (200 million people)
may become mobile TV users.
In early 2007, the Commission will issue a Communication
on "Strengthening the Internal Market for Mobile TV". It will
propose specific further steps to unlock the potential of
Mobile TV.
ICT – EU policy
Î Radio Frequency Identification Devices (RFID)
Î RFID market is expected to grow fast over the next ten
years.
Î Cumulative sales of RFID tags so far amount to 2.4
billion, with 600 million tags being sold in 2005 alone!
The number of tags delivered in 2016 could be over 450
times the number delivered in 2006.
Î The deployment of RFID technology is expected to make
a major contribution to growth and jobs.
ICT – EU policy
How the Commission sees its role?
The Commission believes it is necessary to build a
cross-society consensus on technical, legal and
ethical issues associated with RFID and to intervene,
where required, with regulatory instruments. The
issues which need to be addressed include privacy…
The Commission sees that to exploit the economic
potential of RFID, privacy and consumer concerns
associated with the use of RFID tags need to be
handled constructively, with the assent of all
stakeholders.
Outlook
“The legitimacy of technological innovations requires
a connection between the technical justifications and
the social ones, to consider their ethical meanings
and to demonstrate their democratic opportunity. »
Difficult to have a dialogue between “intellectuals of
all countries”. The complexity of globalisation
weakens that dialogue while the simplicity of profit
maximising strengthens (Peyrelevade).
Outlook
Self
regulation
Ethics as the DNA
of business
Business as Social
usual inclusion -
sustainability
Regulation
The shift to the knowledge society
should be an opportunity!
Financial capital Æ Human capital
Re-humanisation of management
Scarcity Æ abundance
Growth: quantitative Æ qualitative
Goods without ethical value Æ goods with ethical
value
Reconnection with sustainability and qualitative
growth
IF…
Change – Brussels capital of Europe
Change – Porte de Ninove 2020
Porte de Ninove 2040
(Projet Joel Claisse Architectures)
