This reading course is led by Professor Gordon L. Clark with a postgraduate teaching assistant. The reading course is available to MSc, MPhil and DPhil students and is assessed by a 4,000 word option essay subject to approval by the course instructor. Students from outside of the School can arrange for other forms of assessment including examination.
In this course, we consider the relationship between corporate responsibility and the role of financial markets in driving long-term environmental decision-making. This provides us a way of understanding globalization, corporate social and environmental standards, and the role of institutional investors in the global economy.
We begin with the issue of corporate responsibility - who owns the firm, what it does, and what should it do in theory and in practice. This leads on to brand management in consumer markets, focusing upon the nature of corporate "image" and "reputation" in a world of multiple interpretations of meaning. It is argued that brand management is an essential ingredient in corporate strategy, affecting corporate revenue and ultimately stock market prices. This is especially important for firms that offer "premium" products in the global marketplace; these firms often carry little in the way of liabilities in a conventional sense (plant and equipment) but are very vulnerable to issues such as how cultural icons and celebrities are perceived on a local and global basis. Inevitably, their dependence on reputation makes these corporations vulnerable to all kinds of stakeholders and shareholders and their interests in global standards.
Given the significance of institutional investors in global financial markets, many environmental and social activists have argued that these investors should take more seriously their responsibilities in prompting corporations to respond to growing environmental expectations. In this respect we look at the role of responsible investment strategies and the possible impact of the financial services industry in fostering higher standards of corporate environmental and social practice (locally and globally). This issue is very contentious; many politicians are wary of the 'power' of institutional investors. Moreover, there are legal constraints on institutional investors when responding to calls for socially responsible or sustainable investment. This course looks critically at these developments while assessing the role that institutional investors may play in promoting global environmental and social standards.
Finally, students might also examine the role of financial markets in driving environmental transformation through the use of long-term investing. In theory, market pricing should facilitate the reallocation of capital along a low carbon trajectory. Provided in this package are readings on responsible investment and a Towers Watson-led project aimed at long-term sustainable investment.
- European Commission. (2013) Disclosure of non-financial and diversity information by certain large companies and groups (proposal to amend Accounting Directives) - Frequently asked questions.
- Clark, G.L. and Viehs, M. (2014) The implications of corporate social responsibility for investors: An overview and evaluation of the existing literature.
- Ohlins, W. (1995) The New Guide to Identity: How to Create and Sustain Change through Managing Identity. Aldershot: Gower (Introduction, Sections 1 & 2) SAID x12, BOD [RSL] 1 reference + 1 lending + some college (+ SAID)
These readings make two kinds of connections: between corporate responsibility and brand reputation in a global context, and between corporate responsibility and the financial value of the firm made by analysts. This is the story we tell in the course.
Before the course begins, students are asked to watch the movie: The Corporation. HD2731 COR 2003 (DVD in Geography Librarian's Office).
"The Corporation explores the nature and spectacular rise of the dominant institution of our time. Footage from pop culture, advertising, TV news, and corporate propaganda, illuminates the corporation's grip on our lives. Taking its legal status as a 'person' to its logical conclusion, the film puts the corporation on the psychiatrist's couch to ask 'What kind of person is it?' Provoking, witty, sweepingly informative, The Corporation includes forty interviews with corporate insiders and critics - including Milton Friedman, Noam Chomsky, Naomi Klein, and Michael Moore - plus true confessions, case studies and strategies for change. Winner of 24 INTERNATIONAL AWARDS, 10 of them AUDIENCE CHOICE AWARDS including the AUDIENCE AWARD for DOCUMENTARY in WORLD CINEMA at the 2004 SUNDANCE FILM FESTIVAL. The film is based on the book The Corporation: The Pathological Pursuit of Profit and Power by Joel Bakan."
Michaelmas Term 2014 Topics: Mondays, Weeks 3-8
|Week 1||No class.|
|Week 2||Mon 20 Oct||Brief organisation meeting, 10.30am.|
|Week 3||Mon 27 Oct||Corporate social responsibility|
|Week 4||Mon 3 Nov||Brand identity and image|
|Week 5||Mon 10 Nov||Global standards|
|Week 6||Mon 17 Nov||Institutional investors|
|Week 7||Mon 24 Nov||The 'Universal' owner|
|Week 8||Mon 1 Dec||Long-term investment|
Topic Outlines and Readings
Michaelmas Term Week 1
Michaelmas Term Week 2
Brief organisation meeting, 11.30am, Monday 20 October.
Michaelmas Term Week 3: Corporate Social Responsibility
In this presentation we look at the definition of corporate social responsibility and any distinction that can be drawn between Anglo-American expectations and those found in continental Europe. To set the scene we note the significance attached to the corporation as a "fictive person" in English common law - being responsible and accountable for its own actions as an entity (going beyond the responsibilities of individual managers and corporate executives). By contrast, much of continental Europe treats the firm as a social institution (an instrument of the state) with concomitant higher expectations regarding its community responsibilities. To make our case, we go back to two important legal cases.
- Dodge et al. v Ford Motor Co. 170 NW 668, 204 Mich 459 (1919). Or via WestLaw UK database on OxLIP+. You then need to use the small "services" tab, next to "my Westlaw UK" and select "WestLaw International" put "170 NW 668" into the "KeyCite" search box in the Left Hand column and you will reach this case (if not nirvana).
- Hutton v West Cork Railway Co. (1883) LR 23 Ch. D 654. Or via WestLaw UK database on OxLIP+
- Handy, C. (2002) What's a business for? Harvard Business Review, 80(12), 49-55.
- Porter, M. and M. Kramer (2006) Strategy and society: the link between competitive advantage and corporate social responsibility. Harvard Business Review, December 2006.
- Stout, L. (2008) Why we should stop teaching Dodge v Ford. Virginia Law & Business Review, 3: 163-176.
Michaelmas Term Week 4: Brand Identity and Image
In this presentation, we look at corporate reputation and its sensitivity to challenges from activists and the NGO community regarding corporate social and environmental performance. For firms that have strong brand names, whose products (and revenue) are a function of image and style, and who rely upon production systems strung across the globe, brand image and identity are crucial intangible assets. While brand image is important for many consumer-products firms, reputation is vital for the financial sector. This argument is developed referencing the relevant literature on reputation management and the intersection between product markets and financial markets. To illustrate, we use a recent case involving a couple of UK community activists who ran a long-term campaign against McDonald's and lost in UK court until the European Court of Human Rights intervened to protect them from the multinational. The reputational damage to McDonald's was considerable.
- Steel and Morris v. The United Kingdom - 68416/01  ECHR 103 (15 February 2005) via WestLaw UK database on OxLIP+
- Lewis, P. and Evans, R. (2013) McLibel leaflet was co-written by police spy. The Guardian, Saturday 22 June 2013, p4, via Nexis UK database on OxLIP+
- Bansal, P. and I. Clelland (2004) Talking trash: legitimacy, impression management, and unsystematic risk in the context of the natural environment. Academy of Management Journal, 47, 93-103.
- Clark, G.L. and T. Hebb (2005) Why should they care? Corporate responsibility and global standards. Environment and Planning A, 37(11): 2015-2031.
- Lev, B. (2004) Sharpening the intangibles edge. Harvard Business Review, 82(6), 109-116.
Michaelmas Term Week 5: Global Standards
This week we examine the implications for brand identity in a global economy with integrating environmental regimes. We consider the case of Sarei v. Rio Tinto which involves the use of the Alien Torts Statute to claim damages in U.S. courts for environmental harms at the Papua New Guinea site of a British-Australian multinational metals and mining corporation. The case taps into key debates in the legal literature including the status of environmental harms under international human rights law, and the proper jurisdictions for contesting the environmental consequences of multi-national corporations.
- Sarei v. Rio Tinto PLC case (United States District Court, C.D. California, July 9, 2002) via WestLaw UK database on OxLIP+
- Clark, G.L. and Monk, A.H.B. (2010) The legitimacy and governance of Norway's sovereign wealth fund: The ethics of global investment. Environment and Planning A, 42(7): 1723-1738.
- Holt, D.B., Quelch, J. and Taylor, E.L. (2004) How global brands compete. Harvard Business Review, 82(9): 68-75.
- Hughes, A., McEwan, C. and Bek, D. (2013) Retailers, supply networks and changing articulations of ethicality: lessons from Flower Valley in South Africa. Journal of Economic Geography, 13(2): 211-230.
Michaelmas Term Week 6: Institutional Investors
This week we look critically at the potential and scope of institutional investor-driven corporate social responsibility. Institutional investors (including pension funds, endowments, insurers and sovereign wealth funds) have a role in funding economic activity, as well as a variety of important social functions: for example, pension funds manage retirement benefits for future retirees; endowments finance charities' various policy objectives. At issue is the scope of investor behaviour, and what legitimates intervention going beyond 'financial matters' to deeply held community norms and expectations
- Presbyterians Vote to Divest Holdings to Pressure Israel. New York Times June 20, 2014 via Nexis UK database on OxLIP+ but date is 21st June
- Clark, G.L., Salo, J. and Hebb, T. (2008) Social and environmental shareholder activism in the public spotlight: US corporate annual meetings, campaign strategies, and environmental performance, 2001-04. Environment and Planning A, 40: 1370-1390.
- Richardson, B. (2009) Keeping ethical investment ethical: regulatory issues for investing for sustainability. Journal of Business Ethics, 87: 555-527.
- Urwin, R. (2011) Pension funds as universal owners: opportunity beckons and leadership calls. Rotman International Journal of Pension Management, 4(1): 26-33.
Michaelmas Term Week 7: The 'Universal' Owner
Beyond global standards and social responsibility, it is argued that large institutional investors have a special role in underwriting the functionality of the global financial system. Where nation-states may be unable or unwilling to regulate or set standards for the global financial system, large institutions may take on the role if only because their size and significance would otherwise overwhelm their host nations. By this logic, these types of institutions are the guardians of the system, on behalf of their beneficiaries. As such, the UN principles of responsible investment can be seen as an expression of the universal owner hypothesis.
- Principles for Responsible Investment, An Initiative of UNEP Finance Initiative and the UN Global Compact.
- Bauer, R., Clark, G.L and Viehs, M. (2013) The geography of shareholder engagement: evidence from a large British institutional investor. Available at SSRN 2261649.
- Hawley, J. and Williams, A.T. (2007) Universal owners: challenges and opportunities. Corporate Governance: An international review, 15(3): 415-20.
- Rakotomavo, M.T.J. (2011) Preferences of retail investors and institutions for corporate social performance. Journal of Sustainable Investment and Finance, 1(2): 93-102.
Michaelmas Term Week 8: Long-term Investment
Do investors invest for the long-term? What are the conditions for long-term investing? Here, we take students into the world of fiduciary duty, conceptualising the nature and scope of investing, and the latest thinking in actually making real such an agenda. We reference the UN Principles of Responsible Investing but rapidly extend this agenda to 'sustainable' investing and the recent attempts to conceptualise the nature of long-term investing relevant to the environment and climate change.
- Project Telos - Addressing the challenges of transformation through sustainable investing. We need a Bigger Boat. Sustainability in Investment.
- Clark, G.L. (2013) The Kay Review on long-horizon investing: A guide for the perplexed. Rotman International Journal of Pension Management, 6(1): 58-63.
- UNEP (2014) Aligning the Financial System with Sustainable Development: Invitation and Background. Geneva.
- Woods, C. and Urwin, R. (2010) Putting sustainable investing into practice: a governance framework for pension funds. Journal of Business Ethics, 92(1): 1-19.