Discussion: View Thread

  • 1.  Corporate constituency statutes

    Posted 04-11-2009 12:13
    Hello to all,

    This is a follow-up to the question on the wording of corporate constituency statutes (thus the change in subject header) raised by Carolyn (sorry about misspelling your name) based on Bill's post.

    The Connecticut Corporation Code at  http://law.justia.com/connecticut/codes/title33/sec33-756.html states:

    " Sec. 33-756. General standards for directors. 

    (d) ... a director of a corporation ... shall consider, in determining what he reasonably believes to be in the best interests of the corporation, (1) the long-term as well as the short-term interests of the corporation, (2) the interests of the shareholders, long-term as well as short-term, including the possibility that those interests may be best served by the continued independence of the corporation, (3) the interests of the corporation's employees, customers, creditors and suppliers, and (4) community and societal considerations including those of any community in which any office or other facility of the corporation is located.  A director may also in his discretion consider any other factors he reasonably considers appropriate in determining what he reasonably believes to be in the best interests of the corporation."


    If I may make some observations

    1.  The state mandate for corporate governors to consider both short- and long-term interests of the corporation and shareholders is consistent with the systems thinking arguments about performance made in this discussion

    2.  The mandate to consider all the significant non-shareholder stakeholders of the corporation is striking and supports the multiple objective function argument made in this discussion

    3.  The last sentence gives broad discretion indeed to a governor to consider whatever he deems important in support of the corporation and I find this consistent with our long discussion on the importance of personal values.


    What do you think of the provision?  Is it sound?  Is it realistic? Will it have worse unintended consequences? How do we prepare our students for decision-making under such a mandate?  Your views would help as I study whether to propose a similar provision for our country code because it seems consistent with our constitution.

    Regards,

    Ben
     

    -------------------------------
    Benito L. Teehankee, DBA
    Sen. Benigno S. Aquino Jr. associate professor in business and governance
    Ramon V. del Rosario Sr. Graduate School of Business
    De La Salle University
    Manila, Philippines
    Office: +632-5234295


    From: Ben Teehankee <teehankeeb@YAHOO.COM>
    To: MG-ED-DV@AOMLISTS.PACE.EDU
    Sent: Saturday, April 11, 2009 9:58:24 AM
    Subject: Re: Performance and values

    Carol and Bill,

    I have been following the non-stockholder (also called stakeholder) constituency statutes that have been appearing in US state laws.  A similar proposal relating to employees was defeated in our country which is interesting in itself, since we patterned our original Corporation Law after the US model when we were occupied in the early 1900s.  Now,  our Corporate Law is even less sensitive to non-stockholders than those of Connecticut and Arizona which reportedly MANDATE that directors consider the interests of other constituencies.  I find our situation anomalous because our Constitution specifies that corporations contribute to the common good.  I wouldn't mind amendments to our law similar to those of Connecticut and Arizona.  As it is, the power of the controlling shareholders to extract value from the corporate arrangement is virtually limitless given the weak protection of employees and customers in our justice system.

    Bill would know more but the list I've seen of states which PERMIT but not mandate directors to consider the interests of non-stockholders includes Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, New York, North Dakota, Ohio, Oregon, Rhode Island, South Dakota, Tennessee, Vermont, Wisconsin, and Wyoming. 

    Carol:  I understand that Delaware has no such statute.  Given your expertise and experience in the state, do you think it will ever be considered in some form? 

    Regards,

    Ben
     
    -------------------------------
    Benito L. Teehankee, DBA
    Sen. Benigno S. Aquino Jr. associate professor in business and governance
    Ramon V. del Rosario Sr. Graduate School of Business
    De La Salle University
    Manila, Philippines
    Office: +632-5234295


    From: Carolyn Fausnaugh <cfausnau@FIT.EDU>
    To: MG-ED-DV@AOMLISTS.PACE.EDU
    Sent: Saturday, April 11, 2009 2:31:33 AM
    Subject: Re: Performance and values

    Bill

     

    Can you provide more details on the 22 states that have amended their corporate laws in the way you indicate below?    Can you name a few of the states for me?  I'd like to pursue the wording changes and see what is happening.  Also, by any chance do you have any information on the first state to make the change?  I am a Delaware CPA and have no information on the phenomenon you mention.

     

    Many thanks

    Carolyn

     

     

    Carolyn J. Fausnaugh PhD CPA

    Assistant Professor of Strategy & New Ventures

    College of Business

    Florida Institute of Technology

    150 W. University Boulevard

    Melbourne, Florida 32901 - 6975

    321-674-7375  Office Phone

    321-674-8896  FAX

    cfausnau@fit.edu  E-mail

     

    -----Original Message-----
    From: Management Education and Development Discussion [mailto:MG-ED-DV@AOMLISTS.PACE.EDU] On Behalf Of Bill Ferris
    Sent: Friday, April 10, 2009 11:54 AM
    To: MG-ED-DV@AOMLISTS.PACE.EDU
    Subject: Re: Performance and values

     

    Kim,

    I think the fact that states in the US are slowly moving away from the shareholder model to the stakeholder model reflects a slow but identifiable rejection of the notion of profits for the shareholders over all else. More than 22 states have changed their corporate laws on this, but unfortunately, Delaware has not, and most publicly traded US companies are incorporated in Delaware. Eventually, changes will come to Delaware, too, though. Your comments on the worship of quarterly profits undermining the ultimate betterment of the firm are unfortunately too accurate. Until we all believe in corporate survival as a greater value than shareholder profit, the stakeholder model value will have serious headwinds. Alarmingly to many, though, survival as a value has achieved new meaning in the last year!

    Best,
    Bill

    William P. Ferris, Ph.D.

    Professor of Management

    School of Business

    Western New England College

    1215 Wilbraham Road

    Springfield , MA 01119

     

    Tel: 413-782-1629

    Fax: 413-796-2068

     

     



    Kim Warren wrote:

    Whilst the debate on values has been useful in its own terms, could I respectfully submit that it has moved beyond the simple question of how higher ethical standards might have mitigated the current crisis and into the realm of wishful thinking.

     

    The chances of eliminating the profit motive [even if that were a good thing] are absolutely zero, or even getting it significantly moderated by higher values. Equally unlikely is that teaching ethics in business schools could eliminate from the global management community everyone who might behave wrongly – apart from anything else, many successful business people do not go through formal business education in which they might be exposed to such teaching. [By all means keep doing it, but just don't expect to have a huge impact.] It is equally fanciful to imagine we can architect a fundamentally 'different approach' to business, whatever that might be.

     

    The reality, I suggest, is that we will for the foreseeable future have to live with a world in which the profit motive continues to dominate, and in which a minority of executives and financiers seek to make themselves wealthy at the expense of others, both within accepted ethical norms [e.g. taking market share from competitors] and outside them. ... in which case, the question shifts from how we can re-engineer human nature to how we can set up systems to guard against the problems caused by its harmful excesses.

     

    No such systems are likely to be feasible until executives, investors, regulators etc. share a much stronger understanding of how any business system functions and delivers profits [and other outcomes] from quarter to quarter, year to year. To the best of my knowledge, no such model currently exists. If it did, we would have read analyst reports on corporate performance with comments such as "This action taken by firm X may have raised last quarter's earnings by Y%, but will likely damage earnings 2-3 years from now. So we recommend selling this stock in spite of its earnings rise." Anyone ever seen such a comment? They should have appeared like confetti over the last 3-4 years.

     

    Kim Warren: London Business School.

     

     

     





  • 2.  Corporate constituency statutes

    Posted 04-11-2009 13:32
    Hi Y'all,
     
    It reads well, but how is it enforced and administered and by whom? Who is the director? Who is the superego? CAN IT BE CEASAR'S WIFE? Tell me more please.
     
    Cheers,
     
    George 
     
    In a message dated 4/11/2009 12:02:46 P.M. Central Daylight Time, teehankeeb@YAHOO.COM writes:
    Hello to all,

    This is a follow-up to the question on the wording of corporate constituency statutes (thus the change in subject header) raised by Carolyn (sorry about misspelling your name) based on Bill's post.

    The Connecticut Corporation Code at  http://law.justia.com/connecticut/codes/title33/sec33-756.html states:

    " Sec. 33-756. General standards for directors. 

    (d) ... a director of a corporation ... shall consider, in determining what he reasonably believes to be in the best interests of the corporation, (1) the long-term as well as the short-term interests of the corporation, (2) the interests of the shareholders, long-term as well as short-term, including the possibility that those interests may be best served by the continued independence of the corporation, (3) the interests of the corporation's employees, customers, creditors and suppliers, and (4) community and societal considerations including those of any community in which any office or other facility of the corporation is located.  A director may also in his discretion consider any other factors he reasonably considers appropriate in determining what he reasonably believes to be in the best interests of the corporation."


    If I may make some observations

    1.  The state mandate for corporate governors to consider both short- and long-term interests of the corporation and shareholders is consistent with the systems thinking arguments about performance made in this discussion

    2.  The mandate to consider all the significant non-shareholder stakeholders of the corporation is striking and supports the multiple objective function argument made in this discussion

    3.  The last sentence gives broad discretion indeed to a governor to consider whatever he deems important in support of the corporation and I find this consistent with our long discussion on the importance of personal values.


    What do you think of the provision?  Is it sound?  Is it realistic? Will it have worse unintended consequences? How do we prepare our students for decision-making under such a mandate?  Your views would help as I study whether to propose a similar provision for our country code because it seems consistent with our constitution.

    Regards,

    Ben


     
    -------------------------------
    Benito L. Teehankee, DBA
    Sen. Benigno S. Aquino Jr. associate professor in business and governance
    Ramon V. del Rosario Sr. Graduate School of Business
    De La Salle University
    Manila, Philippines
    Office: +632-5234295


    From: Ben Teehankee <teehankeeb@YAHOO.COM>
    To: MG-ED-DV@AOMLISTS.PACE.EDU
    Sent: Saturday, April 11, 2009 9:58:24 AM
    Subject: Re: Performance and values

    Carol and Bill,

    I have been following the non-stockholder (also called stakeholder) constituency statutes that have been appearing in US state laws.  A similar proposal relating to employees was defeated in our country which is interesting in itself, since we patterned our original Corporation Law after the US model when we were occupied in the early 1900s.  Now,  our Corporate Law is even less sensitive to non-stockholders than those of Connecticut and Arizona which reportedly MANDATE that directors consider the interests of other constituencies.  I find our situation anomalous because our Constitution specifies that corporations contribute to the common good.  I wouldn't mind amendments to our law similar to those of Connecticut and Arizona.  As it is, the power of the controlling shareholders to extract value from the corporate arrangement is virtually limitless given the weak protection of employees and customers in our justice system.

    Bill would know more but the list I've seen of states which PERMIT but not mandate directors to consider the interests of non-stockholders includes Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, New York, North Dakota, Ohio, Oregon, Rhode Island, South Dakota, Tennessee, Vermont, Wisconsin, and Wyoming. 

    Carol:  I understand that Delaware has no such statute.  Given your expertise and experience in the state, do you think it will ever be considered in some form? 

    Regards,

    Ben
     
    -------------------------------
    Benito L. Teehankee, DBA
    Sen. Benigno S. Aquino Jr. associate professor in business and governance
    Ramon V. del Rosario Sr. Graduate School of Business
    De La Salle University
    Manila, Philippines
    Office: +632-5234295


    From: Carolyn Fausnaugh <cfausnau@FIT.EDU>
    To: MG-ED-DV@AOMLISTS.PACE.EDU
    Sent: Saturday, April 11, 2009 2:31:33 AM
    Subject: Re: Performance and values

    Bill

     

    Can you provide more details on the 22 states that have amended their corporate laws in the way you indicate below?    Can you name a few of the states for me?  I'd like to pursue the wording changes and see what is happening.  Also, by any chance do you have any information on the first state to make the change?  I am a Delaware CPA and have no information on the phenomenon you mention.

     

    Many thanks

    Carolyn

     

     

    Carolyn J. Fausnaugh PhD CPA

    Assistant Professor of Strategy & New Ventures

    College of Business

    Florida Institute of Technology

    150 W. University Boulevard

    Melbourne, Florida 32901 - 6975

    321-674-7375  Office Phone

    321-674-8896  FAX

    cfausnau@fit.edu  E-mail

     

    -----Original Message-----
    From: Management Education and Development Discussion [mailto:MG-ED-DV@AOMLISTS.PACE.EDU] On Behalf Of Bill Ferris
    Sent: Friday, April 10, 2009 11:54 AM
    To: MG-ED-DV@AOMLISTS.PACE.EDU
    Subject: Re: Performance and values

     

    Kim,

    I think the fact that states in the US are slowly moving away from the shareholder model to the stakeholder model reflects a slow but identifiable rejection of the notion of profits for the shareholders over all else. More than 22 states have changed their corporate laws on this, but unfortunately, Delaware has not, and most publicly traded US companies are incorporated in Delaware. Eventually, changes will come to Delaware, too, though. Your comments on the worship of quarterly profits undermining the ultimate betterment of the firm are unfortunately too accurate. Until we all believe in corporate survival as a greater value than shareholder profit, the stakeholder model value will have serious headwinds. Alarmingly to many, though, survival as a value has achieved new meaning in the last year!

    Best,
    Bill

    William P. Ferris, Ph.D.

    Professor of Management

    School of Business

    Western New England College

    1215 Wilbraham Road

    Springfield , MA 01119

     

    Tel: 413-782-1629

    Fax: 413-796-2068

     

     


     

    Hurry! April 15th is almost here. File your Federal taxes FREE with TaxACT.


  • 3.  Corporate constituency statutes

    Posted 04-11-2009 18:22
    Hi Carolyn, George, and Ben

    Carolyn, Ben has provided a list of some states that have made changes. Ben, thanks for your contribution. George, I live in CT, where Ben listed some more stakeholder-oriented language has appeared in our state law. Of course, the state of CT can do a lot to enforce its own laws. For example, Atty General Richard Blumenthal recently subpoenaed some AIG executives around the excessive bonuses paid to various AIG executives. Some of the AIG execs live and work for AIG in CT. Regardless of how we may feel about the merits of paying or not paying those bonuses, Blumenthal was doing his best to protect other stakeholders--citizens of his state. However, since AIG is incorporated in Delaware, not much has come of it so far. If AIG were incorporated in CT, it would be much more serious.

    Delaware is the state most friendly to shareholders and the protection of their investment above all else, so naturally more than 90% of major US companies are incorporated in that state. Delaware is not considering making any significant changes in its corporate law to my knowledge, but I am just coming to all this from the vantage point of CSR, not law or finance, which are not my areas of expertise.

    For a brief white paper summarizing key CSR issues around stakeholders as part of Board fiduciary responsibility around the world, see http://www.bsr.org/reports/BSR_AW_Corporate-Boards.pdf.  The organization sponsoring this paper is a global noon-profit sponsored by over 250 companies called Business for Social Responsibility and you can find more information about the organization at www.bsr.org.

    Best,
    Bill

    William P. Ferris, Ph.D.

    Professor of Management

    <st1:place><st1:placetype>School</st1:placetype> of <st1:placename>Business</st1:placename></st1:place>

    <st1:place><st1:placename>Western</st1:placename> <st1:placename>New England</st1:placename> <st1:placetype>College</st1:placetype></st1:place>

    <st1:street><st1:address>1215 Wilbraham Road</st1:address></st1:street>

    <st1:place><st1:city>Springfield</st1:city>, <st1:state>MA</st1:state> <st1:postalcode>01119</st1:postalcode></st1:place>

     

    Tel: 413-782-1629

    Fax: 413-796-2068

     

     



    George Graen wrote:
    c9b.24070222.37122e25@aol.com" type="cite">
    Hi Y'all,
     
    It reads well, but how is it enforced and administered and by whom? Who is the director? Who is the superego? CAN IT BE CEASAR'S WIFE? Tell me more please.
     
    Cheers,
     
    George 
     
    In a message dated 4/11/2009 12:02:46 P.M. Central Daylight Time, teehankeeb@YAHOO.COM writes:
    Hello to all,

    This is a follow-up to the question on the wording of corporate constituency statutes (thus the change in subject header) raised by Carolyn (sorry about misspelling your name) based on Bill's post.

    The Connecticut Corporation Code at  http://law.justia.com/connecticut/codes/title33/sec33-756.html states:

    " Sec. 33-756. General standards for directors. 

    (d) ... a director of a corporation ... shall consider, in determining what he reasonably believes to be in the best interests of the corporation, (1) the long-term as well as the short-term interests of the corporation, (2) the interests of the shareholders, long-term as well as short-term, including the possibility that those interests may be best served by the continued independence of the corporation, (3) the interests of the corporation's employees, customers, creditors and suppliers, and (4) community and societal considerations including those of any community in which any office or other facility of the corporation is located.  A director may also in his discretion consider any other factors he reasonably considers appropriate in determining what he reasonably believes to be in the best interests of the corporation."


    If I may make some observations

    1.  The state mandate for corporate governors to consider both short- and long-term interests of the corporation and shareholders is consistent with the systems thinking arguments about performance made in this discussion

    2.  The mandate to consider all the significant non-shareholder stakeholders of the corporation is striking and supports the multiple objective function argument made in this discussion

    3.  The last sentence gives broad discretion indeed to a governor to consider whatever he deems important in support of the corporation and I find this consistent with our long discussion on the importance of personal values.


    What do you think of the provision?  Is it sound?  Is it realistic? Will it have worse unintended consequences? How do we prepare our students for decision-making under such a mandate?  Your views would help as I study whether to propose a similar provision for our country code because it seems consistent with our constitution.

    Regards,

    Ben


     
    -------------------------------
    Benito L. Teehankee, DBA
    Sen. Benigno S. Aquino Jr. associate professor in business and governance
    Ramon V. del Rosario Sr. Graduate School of Business
    De La Salle University
    Manila, Philippines
    Office: +632-5234295


    From: Ben Teehankee <teehankeeb@YAHOO.COM>
    To: MG-ED-DV@AOMLISTS.PACE.EDU
    Sent: Saturday, April 11, 2009 9:58:24 AM
    Subject: Re: Performance and values

    Carol and Bill,

    I have been following the non-stockholder (also called stakeholder) constituency statutes that have been appearing in US state laws.  A similar proposal relating to employees was defeated in our country which is interesting in itself, since we patterned our original Corporation Law after the US model when we were occupied in the early 1900s.  Now,  our Corporate Law is even less sensitive to non-stockholders than those of Connecticut and Arizona which reportedly MANDATE that directors consider the interests of other constituencies.  I find our situation anomalous because our Constitution specifies that corporations contribute to the common good.  I wouldn't mind amendments to our law similar to those of Connecticut and Arizona.  As it is, the power of the controlling shareholders to extract value from the corporate arrangement is virtually limitless given the weak protection of employees and customers in our justice system.

    Bill would know more but the list I've seen of states which PERMIT but not mandate directors to consider the interests of non-stockholders includes Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, New York, North Dakota, Ohio, Oregon, Rhode Island, South Dakota, Tennessee, Vermont, Wisconsin, and Wyoming. 

    Carol:  I understand that Delaware has no such statute.  Given your expertise and experience in the state, do you think it will ever be considered in some form? 

    Regards,

    Ben
     
    -------------------------------
    Benito L. Teehankee, DBA
    Sen. Benigno S. Aquino Jr. associate professor in business and governance
    Ramon V. del Rosario Sr. Graduate School of Business
    De La Salle University
    Manila, Philippines
    Office: +632-5234295


    From: Carolyn Fausnaugh <cfausnau@FIT.EDU>
    To: MG-ED-DV@AOMLISTS.PACE.EDU
    Sent: Saturday, April 11, 2009 2:31:33 AM
    Subject: Re: Performance and values

    Bill

     

    Can you provide more details on the 22 states that have amended their corporate laws in the way you indicate below?    Can you name a few of the states for me?  I'd like to pursue the wording changes and see what is happening.  Also, by any chance do you have any information on the first state to make the change?  I am a Delaware CPA and have no information on the phenomenon you mention.

     

    Many thanks

    Carolyn

     

     

    Carolyn J. Fausnaugh PhD CPA

    Assistant Professor of Strategy & New Ventures

    College of Business

    Florida Institute of Technology

    150 W. University Boulevard

    Melbourne, Florida 32901 - 6975

    321-674-7375  Office Phone

    321-674-8896  FAX

    cfausnau@fit.edu  E-mail

     

    -----Original Message-----
    From: Management Education and Development Discussion [mailto:MG-ED-DV@AOMLISTS.PACE.EDU] On Behalf Of Bill Ferris
    Sent: Friday, April 10, 2009 11:54 AM
    To: MG-ED-DV@AOMLISTS.PACE.EDU
    Subject: Re: Performance and values

     

    Kim,

    I think the fact that states in the US are slowly moving away from the shareholder model to the stakeholder model reflects a slow but identifiable rejection of the notion of profits for the shareholders over all else. More than 22 states have changed their corporate laws on this, but unfortunately, Delaware has not, and most publicly traded US companies are incorporated in Delaware. Eventually, changes will come to Delaware, too, though. Your comments on the worship of quarterly profits undermining the ultimate betterment of the firm are unfortunately too accurate. Until we all believe in corporate survival as a greater value than shareholder profit, the stakeholder model value will have serious headwinds. Alarmingly to many, though, survival as a value has achieved new meaning in the last year!

    Best,
    Bill

    William P. Ferris, Ph.D.

    Professor of Management

    School of Business

    Western New England College

    1215 Wilbraham Road

    Springfield , MA 01119

     

    Tel: 413-782-1629

    Fax: 413-796-2068

     

     


     

    Hurry! April 15th is almost here. File your Federal taxes FREE with TaxACT.


  • 4.  Corporate constituency statutes

    Posted 04-11-2009 18:27
    Thank you Ben. This is so interesting to learn about see! And 21 other states have done something similar? I wonder where it started? And, what state was first?

    There is a book titled Megatrends 2010 - The Rise of Conscious Capitalism - written by Patricia Aburdene with a copyright of 2005. ISBN 13: 978-1-57174-539-2.

    There is an excellent graphic on page xx that shows inputs to business transformation as being accounting scandals, executive indictments, rising deficits, and market crash. Arrows pointing outward are labeled shareholder activism, consumer action, responsible investing and spirit in business. At the copyright date only the accounting scandals had executive indictments (some of them) had taken place. The book causes one to think - which is what futurists do - cause us to think.

    Carolyn



    Carolyn J. Fausnaugh PhD, CPA
    Asst Professor of Strategy & New Ventures
    Florida Institute of Technology
    Melbourne, Florida 32901
    Phone: 321-674-7375; Fax: 321-674-8896
    E-mail: cfausnau@fit.edu

    ________________________________

    From: Management Education and Development Discussion on behalf of Ben Teehankee
    Sent: Sat 4/11/2009 12:13 PM
    To: MG-ED-DV@AOMLISTS.PACE.EDU
    Subject: Re: Corporate constituency statutes


    Hello to all,

    This is a follow-up to the question on the wording of corporate constituency statutes (thus the change in subject header) raised by Carolyn (sorry about misspelling your name) based on Bill's post.

    The Connecticut Corporation Code at http://law.justia.com/connecticut/codes/title33/sec33-756.html states:

    " Sec. 33-756. General standards for directors.

    (d) ... a director of a corporation ... shall consider, in determining what he reasonably believes to be in the best interests of the corporation, (1) the long-term as well as the short-term interests of the corporation, (2) the interests of the shareholders, long-term as well as short-term, including the possibility that those interests may be best served by the continued independence of the corporation, (3) the interests of the corporation's employees, customers, creditors and suppliers, and (4) community and societal considerations including those of any community in which any office or other facility of the corporation is located. A director may also in his discretion consider any other factors he reasonably considers appropriate in determining what he reasonably believes to be in the best interests of the corporation."




    If I may make some observations

    1. The state mandate for corporate governors to consider both short- and long-term interests of the corporation and shareholders is consistent with the systems thinking arguments about performance made in this discussion

    2. The mandate to consider all the significant non-shareholder stakeholders of the corporation is striking and supports the multiple objective function argument made in this discussion

    3. The last sentence gives broad discretion indeed to a governor to consider whatever he deems important in support of the corporation and I find this consistent with our long discussion on the importance of personal values.




    What do you think of the provision? Is it sound? Is it realistic? Will it have worse unintended consequences? How do we prepare our students for decision-making under such a mandate? Your views would help as I study whether to propose a similar provision for our country code because it seems consistent with our constitution.

    Regards,

    Ben




    -------------------------------
    Benito L. Teehankee, DBA
    Sen. Benigno S. Aquino Jr. associate professor in business and governance
    Ramon V. del Rosario Sr. Graduate School of Business
    De La Salle University
    Manila, Philippines
    Office: +632-5234295


    ________________________________

    From: Ben Teehankee <teehankeeb@YAHOO.COM>
    To: MG-ED-DV@AOMLISTS.PACE.EDU
    Sent: Saturday, April 11, 2009 9:58:24 AM
    Subject: Re: Performance and values


    Carol and Bill,

    I have been following the non-stockholder (also called stakeholder) constituency statutes that have been appearing in US state laws. A similar proposal relating to employees was defeated in our country which is interesting in itself, since we patterned our original Corporation Law after the US model when we were occupied in the early 1900s. Now, our Corporate Law is even less sensitive to non-stockholders than those of Connecticut and Arizona which reportedly MANDATE that directors consider the interests of other constituencies. I find our situation anomalous because our Constitution specifies that corporations contribute to the common good. I wouldn't mind amendments to our law similar to those of Connecticut and Arizona. As it is, the power of the controlling shareholders to extract value from the corporate arrangement is virtually limitless given the weak protection of employees and customers in our justice system.

    Bill would know more but the list I've seen of states which PERMIT but not mandate directors to consider the interests of non-stockholders includes Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, New York, North Dakota, Ohio, Oregon, Rhode Island, South Dakota, Tennessee, Vermont, Wisconsin, and Wyoming.

    Carol: I understand that Delaware has no such statute. Given your expertise and experience in the state, do you think it will ever be considered in some form?

    Regards,

    Ben


    -------------------------------
    Benito L. Teehankee, DBA
    Sen. Benigno S. Aquino Jr. associate professor in business and governance
    Ramon V. del Rosario Sr. Graduate School of Business
    De La Salle University
    Manila, Philippines
    Office: +632-5234295


    ________________________________

    From: Carolyn Fausnaugh <cfausnau@FIT.EDU>
    To: MG-ED-DV@AOMLISTS.PACE.EDU
    Sent: Saturday, April 11, 2009 2:31:33 AM
    Subject: Re: Performance and values



    Bill



    Can you provide more details on the 22 states that have amended their corporate laws in the way you indicate below? Can you name a few of the states for me? I'd like to pursue the wording changes and see what is happening. Also, by any chance do you have any information on the first state to make the change? I am a Delaware CPA and have no information on the phenomenon you mention.



    Many thanks

    Carolyn





    Carolyn J. Fausnaugh PhD CPA

    Assistant Professor of Strategy & New Ventures

    College of Business

    Florida Institute of Technology

    150 W. University Boulevard

    Melbourne, Florida 32901 - 6975

    321-674-7375 Office Phone

    321-674-8896 FAX

    cfausnau@fit.edu E-mail



    -----Original Message-----
    From: Management Education and Development Discussion [mailto:MG-ED-DV@AOMLISTS.PACE.EDU] On Behalf Of Bill Ferris
    Sent: Friday, April 10, 2009 11:54 AM
    To: MG-ED-DV@AOMLISTS.PACE.EDU
    Subject: Re: Performance and values



    Kim,

    I think the fact that states in the US are slowly moving away from the shareholder model to the stakeholder model reflects a slow but identifiable rejection of the notion of profits for the shareholders over all else. More than 22 states have changed their corporate laws on this, but unfortunately, Delaware has not, and most publicly traded US companies are incorporated in Delaware. Eventually, changes will come to Delaware, too, though. Your comments on the worship of quarterly profits undermining the ultimate betterment of the firm are unfortunately too accurate. Until we all believe in corporate survival as a greater value than shareholder profit, the stakeholder model value will have serious headwinds. Alarmingly to many, though, survival as a value has achieved new meaning in the last year!

    Best,
    Bill

    William P. Ferris, Ph.D.

    Professor of Management

    School of Business

    Western New England College

    1215 Wilbraham Road

    Springfield , MA 01119



    Tel: 413-782-1629

    Fax: 413-796-2068







    Kim Warren wrote:

    Whilst the debate on values has been useful in its own terms, could I respectfully submit that it has moved beyond the simple question of how higher ethical standards might have mitigated the current crisis and into the realm of wishful thinking.



    The chances of eliminating the profit motive [even if that were a good thing] are absolutely zero, or even getting it significantly moderated by higher values. Equally unlikely is that teaching ethics in business schools could eliminate from the global management community everyone who might behave wrongly - apart from anything else, many successful business people do not go through formal business education in which they might be exposed to such teaching. [By all means keep doing it, but just don't expect to have a huge impact.] It is equally fanciful to imagine we can architect a fundamentally 'different approach' to business, whatever that might be.



    The reality, I suggest, is that we will for the foreseeable future have to live with a world in which the profit motive continues to dominate, and in which a minority of executives and financiers seek to make themselves wealthy at the expense of others, both within accepted ethical norms [e.g. taking market share from competitors] and outside them. ... in which case, the question shifts from how we can re-engineer human nature to how we can set up systems to guard against the problems caused by its harmful excesses.



    No such systems are likely to be feasible until executives, investors, regulators etc. share a much stronger understanding of how any business system functions and delivers profits [and other outcomes] from quarter to quarter, year to year. To the best of my knowledge, no such model currently exists. If it did, we would have read analyst reports on corporate performance with comments such as "This action taken by firm X may have raised last quarter's earnings by Y%, but will likely damage earnings 2-3 years from now. So we recommend selling this stock in spite of its earnings rise." Anyone ever seen such a comment? They should have appeared like confetti over the last 3-4 years.



    Kim Warren: London Business School.


  • 5.  Corporate constituency statutes

    Posted 04-11-2009 22:15
    Carolyn,

    The article CORPORATE CONSTITUENCY STATUTES AND EMPLOYEE GOVERNANCE by McDonnell found at http://www.wmitchell.edu/lawreview/Volume30/Issue4/2McDonnell.pdf says Pennsylvania first did it in 1983.  McDonnell
    does not believe the statutes have much impact and favors more direct participation of employees in governance.

    The critics of the statutes say that they are meant to protect management from takeovers (after the rash of hostile LBOs in the US, I think) and represent a new wave of managerialism or a lack of accountability to shareholders. 

    I'll look up Megatrends 2010.  By the way, I also liked Nudge for its analysis of contextual cues for decisions.  I think that management educators give a lot of context cues, consciously or not.  I'm looking forward to reviewing the Dyck book on Management which our library ordered 4 months ago but is strangely  taking some time to arrive.  We are reviewing textbooks for the coming academic year for the basic management course.  I'm interested in new paradigms, frameworks and methods that students can explore in facing the current challenges as managers.  These are really worrisome times as we watch the US economy and our own struggle.  2 of my 3 siblings who migrated to the US 20 years ago have already lost their jobs.  The 3rd one is just waiting.

    Regards,

    Ben
     
    -------------------------------
    Benito L. Teehankee, DBA
    Sen. Benigno S. Aquino Jr. associate professor in business and governance
    Ramon V. del Rosario Sr. Graduate School of Business
    De La Salle University
    Manila, Philippines
    Office: +632-5234295


    From: Carolyn Fausnaugh <cfausnau@FIT.EDU>
    To: MG-ED-DV@AOMLISTS.PACE.EDU
    Sent: Sunday, April 12, 2009 6:27:09 AM
    Subject: Re: Corporate constituency statutes

    Thank you Ben.  This is so interesting to learn about see!  And 21 other states have done something similar?    I wonder where it started?  And, what state was first?

    There is a book titled Megatrends 2010 - The Rise of Conscious Capitalism - written by Patricia Aburdene with a copyright of 2005.  ISBN 13: 978-1-57174-539-2. 

    There is an excellent graphic on page xx that shows inputs to business transformation as being accounting scandals, executive indictments, rising deficits, and market crash.  Arrows pointing outward are labeled shareholder activism, consumer action, responsible investing and spirit in business.  At the copyright date only the accounting scandals had executive indictments (some of them) had taken place.  The book causes one to think - which is what futurists do - cause us to think.

    Carolyn



    Carolyn J. Fausnaugh PhD, CPA
    Asst Professor of Strategy & New Ventures
    Florida Institute of Technology
    Melbourne, Florida 32901
    Phone:  321-674-7375; Fax:  321-674-8896
    E-mail:  cfausnau@fit.edu

    ________________________________

    From: Management Education and Development Discussion on behalf of Ben Teehankee
    Sent: Sat 4/11/2009 12:13 PM
    To: MG-ED-DV@AOMLISTS.PACE.EDU
    Subject: Re: Corporate constituency statutes


    Hello to all,

    This is a follow-up to the question on the wording of corporate constituency statutes (thus the change in subject header) raised by Carolyn (sorry about misspelling your name) based on Bill's post.

    The Connecticut Corporation Code at  http://law.justia.com/connecticut/codes/title33/sec33-756.html states:

    " Sec. 33-756. General standards for directors. 

    (d) ... a director of a corporation ... shall consider, in determining what he reasonably believes to be in the best interests of the corporation, (1) the long-term as well as the short-term interests of the corporation, (2) the interests of the shareholders, long-term as well as short-term, including the possibility that those interests may be best served by the continued independence of the corporation, (3) the interests of the corporation's employees, customers, creditors and suppliers, and (4) community and societal considerations including those of any community in which any office or other facility of the corporation is located.  A director may also in his discretion consider any other factors he reasonably considers appropriate in determining what he reasonably believes to be in the best interests of the corporation."




    If I may make some observations

    1.  The state mandate for corporate governors to consider both short- and long-term interests of the corporation and shareholders is consistent with the systems thinking arguments about performance made in this discussion

    2.  The mandate to consider all the significant non-shareholder stakeholders of the corporation is striking and supports the multiple objective function argument made in this discussion

    3.  The last sentence gives broad discretion indeed to a governor to consider whatever he deems important in support of the corporation and I find this consistent with our long discussion on the importance of personal values.




    What do you think of the provision?  Is it sound?  Is it realistic? Will it have worse unintended consequences? How do we prepare our students for decision-making under such a mandate?  Your views would help as I study whether to propose a similar provision for our country code because it seems consistent with our constitution.

    Regards,

    Ben




    -------------------------------
    Benito L. Teehankee, DBA
    Sen. Benigno S. Aquino Jr. associate professor in business and governance
    Ramon V. del Rosario Sr. Graduate School of Business
    De La Salle University
    Manila, Philippines
    Office: +632-5234295


    ________________________________

    From: Ben Teehankee <teehankeeb@YAHOO.COM>
    To: MG-ED-DV@AOMLISTS.PACE.EDU
    Sent: Saturday, April 11, 2009 9:58:24 AM
    Subject: Re: Performance and values


    Carol and Bill,

    I have been following the non-stockholder (also called stakeholder) constituency statutes that have been appearing in US state laws.  A similar proposal relating to employees was defeated in our country which is interesting in itself, since we patterned our original Corporation Law after the US model when we were occupied in the early 1900s.  Now,  our Corporate Law is even less sensitive to non-stockholders than those of Connecticut and Arizona which reportedly MANDATE that directors consider the interests of other constituencies.  I find our situation anomalous because our Constitution specifies that corporations contribute to the common good.  I wouldn't mind amendments to our law similar to those of Connecticut and Arizona.  As it is, the power of the controlling shareholders to extract value from the corporate arrangement is virtually limitless given the weak protection of employees and customers in our justice system.

    Bill would know more but the list I've seen of states which PERMIT but not mandate directors to consider the interests of non-stockholders includes Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, New York, North Dakota, Ohio, Oregon, Rhode Island, South Dakota, Tennessee, Vermont, Wisconsin, and Wyoming. 

    Carol:  I understand that Delaware has no such statute.  Given your expertise and experience in the state, do you think it will ever be considered in some form? 

    Regards,

    Ben


    -------------------------------
    Benito L. Teehankee, DBA
    Sen. Benigno S. Aquino Jr. associate professor in business and governance
    Ramon V. del Rosario Sr. Graduate School of Business
    De La Salle University
    Manila, Philippines
    Office: +632-5234295


    ________________________________

    From: Carolyn Fausnaugh <cfausnau@FIT.EDU>
    To: MG-ED-DV@AOMLISTS.PACE.EDU
    Sent: Saturday, April 11, 2009 2:31:33 AM
    Subject: Re: Performance and values



    Bill



    Can you provide more details on the 22 states that have amended their corporate laws in the way you indicate below?    Can you name a few of the states for me?  I'd like to pursue the wording changes and see what is happening.  Also, by any chance do you have any information on the first state to make the change?  I am a Delaware CPA and have no information on the phenomenon you mention.



    Many thanks

    Carolyn





    Carolyn J. Fausnaugh PhD CPA

    Assistant Professor of Strategy & New Ventures

    College of Business

    Florida Institute of Technology

    150 W. University Boulevard

    Melbourne, Florida 32901 - 6975

    321-674-7375  Office Phone

    321-674-8896  FAX

    cfausnau@fit.edu  E-mail



    -----Original Message-----
    From: Management Education and Development Discussion [mailto:MG-ED-DV@AOMLISTS.PACE.EDU] On Behalf Of Bill Ferris
    Sent: Friday, April 10, 2009 11:54 AM
    To: MG-ED-DV@AOMLISTS.PACE.EDU
    Subject: Re: Performance and values



    Kim,

    I think the fact that states in the US are slowly moving away from the shareholder model to the stakeholder model reflects a slow but identifiable rejection of the notion of profits for the shareholders over all else. More than 22 states have changed their corporate laws on this, but unfortunately, Delaware has not, and most publicly traded US companies are incorporated in Delaware. Eventually, changes will come to Delaware, too, though. Your comments on the worship of quarterly profits undermining the ultimate betterment of the firm are unfortunately too accurate. Until we all believe in corporate survival as a greater value than shareholder profit, the stakeholder model value will have serious headwinds. Alarmingly to many, though, survival as a value has achieved new meaning in the last year!

    Best,
    Bill

    William P. Ferris, Ph.D.

    Professor of Management

    School of Business

    Western New England College

    1215 Wilbraham Road

    Springfield , MA 01119



    Tel: 413-782-1629

    Fax: 413-796-2068







    Kim Warren wrote:

    Whilst the debate on values has been useful in its own terms, could I respectfully submit that it has moved beyond the simple question of how higher ethical standards might have mitigated the current crisis and into the realm of wishful thinking.



    The chances of eliminating the profit motive [even if that were a good thing] are absolutely zero, or even getting it significantly moderated by higher values. Equally unlikely is that teaching ethics in business schools could eliminate from the global management community everyone who might behave wrongly - apart from anything else, many successful business people do not go through formal business education in which they might be exposed to such teaching. [By all means keep doing it, but just don't expect to have a huge impact.] It is equally fanciful to imagine we can architect a fundamentally 'different approach' to business, whatever that might be.



    The reality, I suggest, is that we will for the foreseeable future have to live with a world in which the profit motive continues to dominate, and in which a minority of executives and financiers seek to make themselves wealthy at the expense of others, both within accepted ethical norms [e.g. taking market share from competitors] and outside them. ... in which case, the question shifts from how we can re-engineer human nature to how we can set up systems to guard against the problems caused by its harmful excesses.



    No such systems are likely to be feasible until executives, investors, regulators etc. share a much stronger understanding of how any business system functions and delivers profits [and other outcomes] from quarter to quarter, year to year. To the best of my knowledge, no such model currently exists. If it did, we would have read analyst reports on corporate performance with comments such as "This action taken by firm X may have raised last quarter's earnings by Y%, but will likely damage earnings 2-3 years from now. So we recommend selling this stock in spite of its earnings rise." Anyone ever seen such a comment? They should have appeared like confetti over the last 3-4 years.



    Kim Warren: London Business School.









  • 6.  Corporate constituency statutes

    Posted 04-12-2009 01:14
    HI bill,
     
    In a message dated 4/11/2009 5:22:53 P.M. Central Daylight Time, bferris@wnec.edu writes:
    Hi Carolyn, George, and Ben

    Carolyn, Ben has provided a list of some states that have made changes. Ben, thanks for your contribution. George, I live in CT, where Ben listed some more stakeholder-oriented language has appeared in our state law. Of course, the state of CT can do a lot to enforce its own laws. For example, Atty General Richard Blumenthal recently subpoenaed some AIG executives around the excessive bonuses paid to various AIG executives. Some of the AIG execs live and work for AIG in CT. Regardless of how we may feel about the merits of paying or not paying those bonuses, Blumenthal was doing his best to protect other stakeholders--citizens of his state. However, since AIG is incorporated in Delaware, not much has come of it so far. If AIG were incorporated in CT, it would be much more serious.
    We need some Federal law to force Delaware and the others to do so.
     

    Delaware is the state most friendly to shareholders and the protection of their investment above all else, so naturally more than 90% of major US companies are incorporated in that state. Delaware is not considering making any significant changes in its corporate law to my knowledge, but I am just coming to all this from the vantage point of CSR, not law or finance, which are not my areas of expertise.
    Thx.

    For a brief white paper summarizing key CSR issues around stakeholders as part of Board fiduciary responsibility around the world, see http://www.bsr.org/reports/BSR_AW_Corporat
    I'll read it with special interest.
    e-Boards.pdf.  The organization sponsoring this paper is a global noon-profit sponsored by over 250 companies called Business for Social Responsibility and you can find more information about the organization at www.bsr.org.
    Great.

    Best,
    Bill

    William P. Ferris, Ph.D.

    Professor of Management

    <st1:place><st1:placetype>School</st1:placetype> of <st1:placename>Business</st1:placename></st1:place>

    <st1:place><st1:placename>Western</st1:placename> <st1:placename>New England</st1:placename> <st1:placetype>College</st1:placetype></st1:place>

    <st1:street><st1:address>1215 Wilbraham Road</st1:address></st1:street>

    <st1:place><st1:city>Springfield</st1:city>, <st1:state>MA</st1:state> <st1:postalcode>01119</st1:postalcode></st1:place>

     

    Tel: 413-782-1629

    Fax: 413-796-2068

     

     Cheers,

     
    George


    George Graen wrote:
    c9b.24070222.37122e25@aol.com" type="cite">
    Hi Y'all,
     
    It reads well, but how is it enforced and administered and by whom? Who is the director? Who is the superego? CAN IT BE CEASAR'S WIFE? Tell me more please.
     
    Cheers,
     
    George 
     
    In a message dated 4/11/2009 12:02:46 P.M. Central Daylight Time, teehankeeb@YAHOO.COM writes:
    Hello to all,

    This is a follow-up to the question on the wording of corporate constituency statutes (thus the change in subject header) raised by Carolyn (sorry about misspelling your name) based on Bill's post.

    The Connecticut Corporation Code at  http://law.justia.com/connecticut/codes/title33/sec33-756.html states:

    " Sec. 33-756. General standards for directors. 

    (d) ... a director of a corporation ... shall consider, in determining what he reasonably believes to be in the best interests of the corporation, (1) the long-term as well as the short-term interests of the corporation, (2) the interests of the shareholders, long-term as well as short-term, including the possibility that those interests may be best served by the continued independence of the corporation, (3) the interests of the corporation's employees, customers, creditors and suppliers, and (4) community and societal considerations including those of any community in which any office or other facility of the corporation is located.  A director may also in his discretion consider any other factors he reasonably considers appropriate in determining what he reasonably believes to be in the best interests of the corporation."


    If I may make some observations

    1.  The state mandate for corporate governors to consider both short- and long-term interests of the corporation and shareholders is consistent with the systems thinking arguments about performance made in this discussion

    2.  The mandate to consider all the significant non-shareholder stakeholders of the corporation is striking and supports the multiple objective function argument made in this discussion

    3.  The last sentence gives broad discretion indeed to a governor to consider whatever he deems important in support of the corporation and I find this consistent with our long discussion on the importance of personal values.


    What do you think of the provision?  Is it sound?  Is it realistic? Will it have worse unintended consequences? How do we prepare our students for decision-making under such a mandate?  Your views would help as I study whether to propose a similar provision for our country code because it seems consistent with our constitution.

    Regards,

    Ben


     
     

    A Good Credit Score is 700 or Above. See yours in just 2 easy steps!


  • 7.  Corporate constituency statutes

    Posted 04-12-2009 04:17
    In a message dated 4/11/2009 5:22:53 P.M. Central Daylight Time, bferris@wnec.edu writes:

    For a brief white paper summarizing key CSR issues around stakeholders as part of Board fiduciary responsibility around the world, see http://www.bsr.org/reports/BSR_AW_Corporate-Boards.pdf.  The organization sponsoring this paper is a global noon-profit sponsored by over 250 companies called Business for Social Responsibility and you can find more information about the organization at www.bsr.org.

    Best,
    Bill
    Bill,
     
    WoW, What a great paper!
     
    I recommend it to all my potential corporate government game changers. The Figure 1 says it all. They identify the Big 8 stakeholders for large multinational corporation chartered in the US.
     
    Let's make it so.
     
    The financial crash or 9/11/08 demands it. The Board member should be responsible personally for the  damage. Remember their social contract--Let's make it law in the US.
    Stakeholders of the world unite. You have nothing to lose but your chains.
     
    Let's roll!
     
    George Graen

    A Good Credit Score is 700 or Above. See yours in just 2 easy steps!