<![CDATA[Quanta Corporate Citizenship

<![CDATA[Quanta Corporate Citizenship - QuantaBlog]]>Mon, 09 Apr 2012 11:03:50 +0000Weebly<![CDATA[Reflections on innovation]]>Fri, 06 Aug 2010 14:21:08 +0000http://www.quantacitizenship.com/1/post/2010/08/reflections-on-innovation.html One of the major frustrations CSR leaders often share with us is that when they are trying to initiate something new they face enormous resistance inside their organisations, often in the many shades of ‘but no one else has done it’ or, even worse, ‘you don’t have experience doing it’.

As an organisation that often take very innovative approaches, we can sympathise with their frustration to some degree, because it is not rare for our potential clients to fire a ‘how long have you been operating?’ question as a tool to gauge our expertise.

This is particularly frustrating for some CSR practitioners as, unfortunately, their organizations still tend to place or perceive their place in relatively low levels of hierarchy, with modest mandates, despite their desire and abilities. And it gets worse, because CSR as a structured discipline is a relatively new idea, very few practitioners will actually have many years of experience as CSR practitioners (although many of them might have worked in related fields that have now been absorbed into CSR).

But CSR leaders also have an underlying mandate of educating those above them. They are the ones who have to build their credibility and show that they are able to deliver outstanding results despite their limited years in the area or their narrow remit.

If anything, they can be inspired by the work done by professor David Galenson, from the Economics Department of Chicago University. In his research, entitled 'Understanding Creativity', he found two very distinctive types of innovators: experimental and conceptual.

The first group is characterised by those who make progress based on their experience, on trial and error, on steady improvements; whilst the second group is characterised by sudden leaps forward in comparison to what others (and that person herself) have done in the past. Their innovation is not based on experience, but on connecting dots or thinking about things in a way that no one has managed to do before.

For the first group, experience is of great value. Think about scientists who spent decades in their labs to produce an innovative molecule, or artists, such as Cezanne, who made their greatest contributions later in their lives.

For the second group, as Galenson puts it, experience is less valuable than their “ability to recognise the gains from extreme departures from existing conventions, and this ability declines with experience, as fixed habits of thought develop”. Think about Einstein in his early years stuck in a patent office, with no academic qualifications or research experience: we wouldn’t have the theory of relativity today if he believed experience was relevant.

The words chosen by Galenson were very wise: “extreme departures from existing conventions”. And they imply something extra: enormous self-confidence to standout, to take the risk and seize the day. Leapfrog innovations are led by those who have the guts to try, even though no one has done it before. They know that the fact that no one has done it before does not mean that it cannot be done. For these individuals, professional experience is not relevant at all, courage and intellectual ability are. Professional experience might actually be detrimental because entrepreneurs and visionaries are generally those who do not conform, those who do not accept the status quo, and often, as Galenson realised, the greater the experience the more inclined the person will be to try to ‘fit in’ and to believe that innovations should happen steadily and gradually.

It is the job of CSR leaders, at least those who have the ambition to be real leaders, to educate their organisations that their remit needs to be expanded if those organisations expect CSR to add true strategic value and, by consequence, improve their top and bottom lines and generate impact to their beneficiaries.
]]><![CDATA[Making it safe to trust]]>Thu, 22 Jul 2010 08:15:58 +0000http://www.quantacitizenship.com/1/post/2010/07/making-it-safe-to-trust.html Our news headlines are frequently scattered with stories of clients, investors, consumers and employees being taken for a ride. Individuals who either implicitly or consciously weighed up the opportunity in front of them and decided to place their trust in another person or organisation, only to be disappointed. From illegal schemes of some mega 'investors' to daily business partnerships, people are often misled. And even when we dress it with technical instruments, people are still overly optimistic. McKinsey Quarterly, for instance, has recently published a survey showing that financial analysts over the last 25 years have consistently overestimated potential equity growth-earnings by no less than 100%!

If we see the consequences of these poor judgments on such a regular basis, it’s a wonder we venture out of the house at all, but as Roderick Kramer pointed out in his article in Harvard Business Review, ‘Rethinking Trust’, it is human to trust. Indeed, it is intrinsically what has secured the survival of the human race, but why on an individual and organisational basis do we sometimes get it so wrong?

One reason, as Kramer points out, is that we are pre-disposed to a ‘confirmation bias’, meaning we see what we want to see in others and our decisions are swayed heavily by our expectations and the biases in our heads. It’s why we often comfortably agree to trust someone based on a recommendation.

For CSR, there in lies one of the dangers of kite marking and industry rankings. In a bid to broadcast the moral intent of an organisation, it is tempting to rely on stamps of approval that come from an external body. As individuals lying in wait ready to hand out our trust, this means that we allow our trust to be transitive, transferring it from one body to another. For Kramer, this is one of the foremost reasons we find our trust being compromised, because we don’t find the time to research and investigate for ourselves.

Furthermore, we are not as prudent as we think when it comes to spotting a ‘faker’ or in estimating how well trusted we are. In experiments, for instance, he found that not only were business students only as competent as a coin toss in spotting a faker at a negotiating table, but that both managers and subordinates overestimated how much they were trusted, principally because they made assumptions and underinvested in communicating their trustworthiness to others.

The lesson, as companies try to rebuild trust in business across the globe, is that, as painful as it is, there are no shortcuts in building and maintaining trust. We can gain external approval of our CSR in the same way that a company can receive a ‘buy’ recommendation from a financial analyst, but unless we are taking the time to communicate it openly and transparently to our stakeholders and building it into the core of our business culture, there will be no basis for trust. Seals of approval are little more than pieces of paper if, internally, a company is not culturally committed to delivering on its own promises and standards. At the end of the day, an external accreditation body is only that: an external body. The amount of information they have – often their business model – is built around providing the stamp of approval based on superficial information. Having this level of external reassurance is positive, but real trust is only born when internal commitment is born, and if this fails, CSR becomes a castle of cards waiting for the next corporate scandal.
]]><![CDATA[Altruism, empathy & relational orientation]]>Thu, 15 Jul 2010 14:24:43 +0000http://www.quantacitizenship.com/1/post/2010/07/altruism-empathy-relational-orientation.html The Third Sector Magazine has recently published an article saying that ‘People can be nudged into altruism’. The article then goes on to say that a recent research has shown that “people are more likely to do good work if encouraged by door-to-door canvassing, for example, or the public display of donors’ names”. This reflects a common misunderstanding of what altruism means.

As altruism is becoming a very fashionable word, it might help to go back to the basics and check what it really means before going down the wrong path. Accordingly to the Oxford Dictionary, for instance, it means “disinterested and selfless concern for the well-being of others”. The Merriam-Webster defines it as “1: unselfish regard for or devotion to the welfare of others. 2: behaviour by an animal that is not beneficial to or may be harmful to itself but that benefits others of its species”.

Notice that both sources focus on the word selfless, i.e., the importance that an altruistic action is a selfless one, where the actor does not benefit from his or her action, and sometimes suffers from it.

It would be great for CSR consultants to be able to knock at a company’s door and say ‘we can make your staff more altruistic’. Consultants would make money, companies would have amazing people putting the company’s interest before their own, the employee would be extremely happy because all other colleagues would be putting his or her interest before their own, and the world would be a much better place.

Unfortunately, reality is very, very different. There is no magic formula to make people altruistic. It is very rare for us to see cases of altruism and it is even rarer in a corporate environment. Google saying it would close down its Chinese operations because of alleged privacy concerns would have been a case in point. But rarely one will see companies or their staff choosing to put someone else’s interest before their own.

As a matter of fact, no one really knows how people become altruistic. We put two children through similar experiences and one could become a kind and altruistic individual and the other a resented serial killer.

Having said that, the majority of psychologists agree on when people become altruistic: during their childhood and early adolescence. Other than that, it seems that only major traumas (and I mean really life-and-death events) are able to transform altruism levels in adults. This is because altruism is a personality trait, not a social one, and personality is fundamentally shaped earlier on in our lives.

What people generally misread as altruism is empathy. Empathy is the social ability that individuals have to be sensitive to someone else’s situation, i.e., the ability we have to wear someone else’s shoes. Empathy, in short, is our ability to emotionally connect to someone else and ask ourselves “what would I feel if I were in his or her situation?”, “what is that person feeling and why?”.

Like altruism, our ability to empathise is fundamentally shaped during our early years. But, differently from altruism, this is a social skill and we seem to be able to learn it later on in life and without major traumas. As other social skills, empathy becomes stronger the more we practice it, and given the chance to practice, adults will get better at it. Think about a call centre attendant: the more he is taught to be cold towards customers, the better he will be in emotionally disengaging himself from the customer’s perspective when the next call comes. On the other hand, the more he practices trying to understand his angry customer’s perspective, the more likely he is to do even better when the next caller rings.

As a parenthesis, our experience with empathy has been showing us some very interesting results, and one of them is that workforces with greater empathy levels tend to have lower levels of conflict internally, present lower turnover and be less disgruntled about their pay package. So, in short, increasing empathy in the workforce has a direct top and bottom line impact. This is not just bla-bla-bla: it can be financially quantified.

Going back to the article, the problem with it is not even about empathy. Notice that it states that individuals can be nudged to do something good when they are expected to receive something back. That is not empathy, let alone altruism. This is what we call a relational orientation, and is something extremely common and easy to achieve. As a matter of fact, this is what the majority of companies have been doing for hundreds of years: “I pay you bonus if you do X”, “You get promoted if you achieve Z” etc.

Our experience has been showing us that among the three types of orientations – individualistic, relational and collectivist – the relational one is actually the most common one within the work environment and in our daily social lives. Relational orientations are what make me “invite you to my party if you’ve treated me well”, “grant you access to our airline lounge if you fly with us frequently”, “pay my taxes if I think the government will do something for me” or “give back to my university if I believe my university opened doors for me”. Universities, museums and galleries, by the way, have mastered relational orientation long ago using exactly the same formula described by the article: it is rare to see one that does not have a public list naming its high value donors, rooms or buildings named after them, especial gatherings reserved for them etc.

In an environment where CSR itself is still being interpreted in some unhealthily flexible ways, it would be ill advised to start inferring different meanings from other concepts as well.
]]><![CDATA[Are leaders born or made?]]>Tue, 06 Jul 2010 17:48:48 +0000http://www.quantacitizenship.com/1/post/2010/07/are-leaders-born-or-made.html A very interesting research by professor Edward Lazear, from Stanford University, has shown that leaders are generalists. Or as he puts it, “because leaders are confronted with a wide variety of choices and because these choices span many fields, leaders tend to be generalists rather than specialists. Further, the broader the organisation that an individual leads, the more general are the skills.

Academic department chairs are broader than many of their colleagues who are not well suited to be chairs, but they are less broad than the heads of large corporations. Analogously, political leaders tend to be the least specialised and broadest of all leaders because they confront the entire spectrum of possible decisions. This is sometimes characterised as shallowness - knowledge that is 1000 miles wide and 1⁄2 inch deep - but breadth is important when the situations that will be encountered are from a large set of potentially unpredictable areas. An additional key ingredient is that leaders also possess the skills necessary to convince others that they have leadership ability. Consequently, communication skills are likely to be an important component in the leadership mix”.

But the most interesting aspect of his analysis, using Stanford MBA statistics, though, is that he found that career choices and chances during one’s life are the greatest drivers behind someone who makes it to the C-level, whilst innate differences between people responds for only 22%. “Person effects are important, which suggests that there are innate differences in leadership ability that play a role in becoming a leader. But these differences can be offset by experience and taking on many roles, both of which boost the probability of getting a leader position. In explaining variance in leadership, the changes that occur over time seem more important than the innate differences across people.”

This should be a warning sign to organisations investing in leadership development. We often hear practitioners using psychometric tests to define whether someone will be suitable or not to leadership roles in 10-15 years time. Actually, those psychological traits predict very little about the likelihood that someone will have the right experience, skills and followers when the time comes. Charisma, communication skills and desire to be on the spotlight are all essential elements, but not all those who have those traits will make it to the C-level, nor all those who make it to the C-level will have those traits/skills earlier in their career. Charisma, communication skills and the desire to be in the spotlight are all elements that can be learned overtime given the proper opportunity and coaching.

Contrary to commonsense that suggest that companies should decide earlier on who has what it takes to make to the C-level and focus their resources on them, this research suggests that pigeonholing staff earlier on in their careers can be detrimental to the staff and, more importantly, not be in the company’s best interest, as they might be disregarding talented individuals that could be shaped over time, as psychological traits are less relevant than the breadth of exposure and likelihood of taking the right decisions (and being perceived to take the right decisions).
]]><![CDATA[Can't buy me trust: well-being and the feeling of belonging]]>Fri, 18 Jun 2010 12:29:04 +0000http://www.quantacitizenship.com/1/post/2010/06/cant-buy-me-trust-well-being-and-the-feeling-of-belonging.html We’ve recently talked about the work done by professors Helliwell and Wang, from the British Columbia University linking trust and well-being. Professors Helliwell and Christopher Barrington-Leigh have now published a new paper called ‘How much is social capital worth?’, in which they analyse the link between the feeling that one has that he or she belongs (i.e., social connections) to a group and his/her perceived well-being. The findings, once again, are fascinating.

As they explain “respondents report significantly higher life satisfaction when they have strong social networks, when they make more frequent use of these supportive networks, when they trust those among whom they live and work, and when they feel a sense of belonging in their communities”. And let’s not forget that life satisfaction (well-being) plays a significant role in one’s life: human beings make their decisions primarily in order to maximize their well-being. And as they had demonstrated in their previous work, non-financial elements can have a much greater impact on well-being than financial rewards, but if those non-financial elements are not present, financial rewards will have to be used to fill the gaps in order to achieve the same level of well-being.

In this newer research, they were able to demonstrate that individuals with strong social identities [defined by them as the feeling of belonging to community, province and country] report well-being twice as high as those without similar social identities. Or as they put it “the combined social identity variables explain twice as much variance [on perceived well-being] as does income; the trust variables explain more than income, and the social network variables are of roughly similar size”. Although their work does not identify cause-and-effect, there is very statistical doubt that they are strongly correlated. Once again, the same theme surfaces: human beings are happier interacting with those they like and trust than when well paid.

One particularly interesting aspect of this new research is that when they analysed what were the main drivers to create the feeling of belonging to the three levels (belonging to a country, to a province and to a community), the most consistent driver was trust in colleagues. Trusting colleagues not only presents the highest average among any other group, but is also the most constant among them, with very little standard deviation, even when compared to elements such as family and close friends. Once again, trusting those you work with is the single most important element for one to feel that she belongs to her community, province or country.

They haven’t extended their research to include the feeling of belonging to a company, but if trusting your colleagues is strongly correlated to the feeling that you belong to a country, try to imagine to the feeling that you belong to a company or a team, especially because, as they put it, “the benefits of belonging to one’s local community do not appear to depend on being less attached to the larger encompassing communities”.

]]><![CDATA[A snapshot of CSR wages]]>Wed, 16 Jun 2010 12:52:26 +0000http://www.quantacitizenship.com/1/post/2010/06/a-snapshot-of-csr-wages.html Acre has published its annual report on wages of CSR practitioners, and it provides an interesting snapshot about how the sector is operating:

More than a third of CSR practitioners have no budgetary responsibility and two thirds manage less than US$500k, the same proportion of those who work in teams of 9 or less people. As a matter of fact, less than a quarter have more than 3 direct reports. These four elements are good indicators that companies still treat CSR as a relatively unimportant issue.

The majority of in-house practitioners (56%) are individuals who used to work in other functions within the company, i.e., they had to (or are) developing on the job expertise, instead of arriving at their new positions with previous CSR experience. As a matter of fact, the current position is the very first contact with CSR for more than half of those interviewed.

Salary wise, the UK is where the CSR practitioners experience the lowest salaries. As a matter of fact, salaries are 20% lower in the UK when compared to the US, even though the cost of living in the UK is significantly higher.

Bonuses are also significantly lower in the UK than in the US and Europe, where the bonuses are, on average, around 50% higher, even though bonuses rarely exceed US$10k. Only 31% receive more than US$10k per year, and less than 10% receive more than US$30k per year.

The UK is clearly still playing catch up. By paying lower salaries and bonuses, companies are probably capturing employees in the earlier stages of their careers and also signalling that CSR is still not a top priority, whilst in the US and in the rest of Europe it is quickly becoming a board issue. A clear signal that the UK is not immune to this global trend, though, is that in the last year, despite the financial crisis, UK practitioners experienced salary gains of over 10%, while the percentage of CSR practitioners earning more than £80k has jumped from 12% to 17%.

]]><![CDATA[Commonsense advice for managers]]>Tue, 08 Jun 2010 08:38:10 +0000http://www.quantacitizenship.com/1/post/2010/06/commonsense-advices-for-managers.html Some of the wisest advice an organisation can receive was summarised back in 1944 by William Donovan:

"Insist on doing everything through the right channels.
Talk as frequently as possible and at great length, illustrating your points by anecdotes and accounts of personal experiences.
Never hesitate to make a few appropriate "patriotic" comments.
Refer matters to committees, for further study and consideration.
Attempt to make the committees as inclusive as possible, and never less than five.
Demand use of precise wordings on communications, minutes, resolutions.
In doubt, refer back to matters decided upon at the last meeting and re-open the question of the advisability of that decision.
Be cautious.
Be reasonable and urge your fellow-conferees to be reasonable and avoid haste, which might result in embarrassments or difficulties later on.
Be sure about the propriety of any decision. In doubt, raise the question whether such action, as is contemplated, lies within the jurisdiction of the group or whether it might conflict with the policy of some higher echelon."

What you might not expect is that all of these very clever advices came from the now declassified booklet called Simple Sabotage Field Manual, by the US Directorate of Strategic Services (OSS), where Donovan was a director during the II World War. It was a clever text that taught employees in occupied Europe to sabotage their companies if their employers were cooperating with the invading forces. In short, it is a summary of how to make sure your organisation will fail.

Interesting enough, it is exactly the (if not all of) advices above that still guide many companies and leaders till this day.

The advices above, obviously, look very inoffensive. No employee could ever be fired for following it. If anything, an employee could certainly be fired for not following it. As the small booklet reminds the reader, “simple sabotage requires no destructive tools whatsoever and produces physical damage, if any, by highly indirect means. It is based on universal opportunities to make faulty decisions, to adopt a noncooperative attitude, and to induce others to follow suit. Making a faulty decision may be simply a matter of placing tools in one spot instead of another. A non-cooperative attitude may involve nothing more than creating an unpleasant situation among one's fellow workers, engaging in bickerings, or displaying surliness and stupidity.”

The danger of these advices is that any manager can use them as tools to stop any process, and that was the whole idea behind the booklet. All it takes is to remove the goodwill and common sense of any intervention and a single employee can disrupt any new initiative, stop any work from progressing, any change from happening, and any objective from getting achieved. And, if anything, those pressing for change, for results and for new ideas end up being the ones who look uncooperative, dysfunctional and intractabl, and will be the ones most likely to be forced to leave, or who will leave out of frustration for not getting anything done.

How many times have you heard a company saying it could not initiate this or that project (CSR-related or otherwise) because it was unreasonable, because no one had done it before, because the decision hasn’t been signed off by all levels, because an obscure committee didn’t have time to analyse it, or there was still uncertainty about the outcome? These might all be genuine concerns, but if goodwill and commonsense are absent, they are perfect snipe-and-hide platforms for saboteurs.

Here is the booklet:

simple_sabotage_field_manual.pdf
File Size:	2283 kb
File Type:	pdf

Download File

]]><![CDATA[What have future generations ever done for me?]]>Fri, 04 Jun 2010 18:26:12 +0000http://www.quantacitizenship.com/1/post/2010/06/what-have-future-generations-ever-done-for-me.html ‘It is not human nature to think long term’. This comment was made in a recent lecture by Dr. Spencer Wells, the Explorer in Residence for the National Geographic Society and the former director of the Genographic Project. His comment was based on studying the patterns of behaviour from our evolution as hunter-gatherers and our concern for survival on a day-to-day, season-to-season basis. Embracing behaviour to have impact as far in advance as 100 years had little role to play in our evolution when we may not have survived the perils lurking around tomorrow’s corner. In short, if we need to learn to think about the long-term, we first have to overcome tens of thousands of years of naturalised behaviour. That's a daunting starting point, cleverly captured by Wood Allen in the quote used as the title of this article.

The ’present bias preference’ is not a new concept for us and the term is one well used by behavioural economists. Some say that 46% of all behaviours are purely habit bound. Furthermore, Teresa Marteau, a professor of health psychology at Kings College London, has demonstrated through her work that short-term behaviour shows signs of social bias that can be linked to particular contexts. For instance, her research has shown that young children, lower socio-economic groups and individuals with addictive behaviours are more prone to short-term behaviour than others. Young children find it far harder to say ‘no’ to a sweet now when two could be rewarded next week, whilst older children can do so because they have had time to learn the proportional value of a little patience. Lower socio-economic groups also find it harder to respond to long-term incentives – for example, saving schemes – because they may have larger proportional short-term needs to respond to. And those individuals with addictive behaviours, such as smoking, gambling or drinking, are also more orientated towards the short-term and its rewards than any long-term health benefits of giving up smoking.

So with genetics and a range of contexts acting against our interests to become more long-term orientated, what are the solutions?

We can see examples around us already where we are provoking a change in context and habit. The more traditional solutions for this problem focus primarily around changes in legislation and policy to shape behaviour. Think about the level of tax applied to cigarettes and alcohol, and smoking bans in public places. Or think about bonus systems given in the finance industry. This type of policy works when individuals can be persuaded to change their behaviour because of the positive or negative consequences imposed on them.

But if we remember that genetically, we are prone to short-term behaviour, what do we do when it isn’t possible to offer incentives or punishment by legislation, or when those incentives are too expensive for society, or when checking for compliance is just too expensive, or when they would create unintended segmentation among different groups? Think about speed limit fines: wealthy individuals actually are less affected by them than poor individuals. Or think about the cost of monitoring elections in countries with unstable democracies.

Likewise, introducing excessively heavy compliance and policing of business makes any business model bureaucratic and sluggish. In other words, companies want to shape behaviours, but introducing and maintaining instrumental (reward/punishment) methods of compliance is just too expensive for them, and represents a cost, not an asset.

This is when we should turn to look at both individuals and organisations’ value systems. When people’s values extend beyond what they can receive or benefit from tomorrow; when they don’t need to be coaxed into a behaviour, but they act in certain ways because they simply believe the desired type of behaviour is important and in their best interest, then we start to see an evolution in thinking that remains resolute to focus on the future when faced with temptation for instant gratification.

In short, focusing on normative (social/group acceptance) rather than on instrumental (policy & policing / reward & punishment) drivers offer a lower cost mechanism to create human compliance and move human focus to the long-term consequences of our behaviours.

Changing value systems in our societies and in our businesses is no easy task, but in the survival of the fittest, evolution of businesses means that those companies able to implement coherent value systems and adapt their culture to incorporate long-term thinking and behaviour create a tangible competitive advantage for themselves: it is simply cheaper for them to manage and supervise their staff and create an environment where there are fewer cases of deviation from the expected/desired bahaviour.

- Kim ]]><![CDATA[A thought experiment on corporate philanthropy]]>Tue, 01 Jun 2010 23:24:40 +0000http://www.quantacitizenship.com/1/post/2010/06/a-thought-experiment-on-corporate-philanthropy.html Let’s have a little thought experiment:

Imagine your company has an office in Colombia and an expat colleague posted out there has a close relative (a child or a spouse) kidnapped and your company is asked to pay a ransom of £20k, otherwise…

Would you pay? If you said yes, you overpaid by 1.5 times. In Colombia, the average ransom is around £13k per kidnapping. That's the price for saving the life of a loved one.

Now let’s make it slightly different. Let’s imagine your company’s ship has been hijacked in the east coast of Somalia, and a demand for a £20k ransom per crewmember has been made from your company, otherwise…

Would you pay? If you decided to pay, you are very much in the right ballpark. In March 2009, the cargo ship Blue Star was hijacked with 28 crewmembers on board and released (with the 6 thousand tons of fertilizer inside) for £685k (£24k/crewmember).

Let’s continue with our thought experiment. Your company has been approached to donate £20k to help to save a Gravy Zebra, one of the most endangered species on the planet. As a side effect of saving one of the few remaining animals left in the planet, your company will be known worldwide for helping to save this highly endangered species, your logo will probably be shown in a BBC documentary, a few zoos in America and Europe will have your logo somewhere, and around 100 very high net worth individuals will be exposed to your brand daily when they come to visit the local wildlife conservancy you are sponsoring in Africa.

Would you pay? If you paid, you should be aware that this time you overpaid by 7.5 times: with a budget of less than US$2 million, Lewa Wildlife Conservancy looks after 500 Gravy Zebras (25% of the remaining world population), as well as 50% of Kenya’s black rhinos and other slightly less endangered species, such as elephants, lions, leopards, cheetahs, white rhinos etc. As a side effect, it directly employees around 400 members of the local community and provides education and health for a few thousand children through a network of primary schools and clinics. All at £2.8k per zebra (and everything else).

Let’s evolve our thought experiment and imagine that, instead of endangered species, we are talking about a non-endangered species, for instance, their sibilings: horses or donkeys. And, instead of Kenya, they were based in the western Europe. And they approached your company to pay the same £20k to save one of their donkeys? Would you pay?

The Horse Trust, with an annual income of £2 million looks after 100 horses and donkeys. That is roughly £20k/horse per year. The Donkey Sanctuary, with a much larger scale, has an annual income of £22.6m, to look after 2,800 donkeys in the UK and Ireland. That is, roughly £9k/donkey per year.

If we compare these figures with the other ones above we can see how humans still do not act rationally when it comes to parting with their money. In Colombia, a human life can be saved with only £13k, even if you have little bargaining power. In Somalia, you can not only save human lives, but also regain control over tens of millions of tons of valuable chemicals by paying £24k per crew member. In Kenya, a highly endangered animal can be saved with only £2.8k and provide health, education, micro-credit and jobs for 30 thousand members of the local community. But in the UK, organisations dealing with the welfare of common animals raise up to £20k per animal to improve their living conditions. And that, contrary to the first two situations where human lives were put in danger by hijackers, these funds are almost entirely raised as voluntary income. Actually, while donations to the majority of charities fell by 11% in the UK last year, the Donkey Sanctuary’s raised by 20% (and expenses increased by 12%).

Corporate philanthropy is not just signing a check for local leaders who ask for money, but understanding the needs (yours and theirs), the gaps and what are the best ways to address them.

- Gus
]]><![CDATA[The dark side of outside directors]]>Fri, 21 May 2010 13:40:59 +0000http://www.quantacitizenship.com/1/post/2010/05/the-dark-side-of-outside-directors.html We've all had experiences with people who are somehow always around when we are on a high, but are mysteriously too busy to meet or answer our calls when we are in bad shape. Companies suffer from the same problem, accordingly to recent research from Rüdiger Fahlenbrach, René Stulz and Angie Low entitled The dark side of outside directors. Analysing statistical data from 1981 to 2006, they found that outside directors have an interesting habit of leaving boards prior to companies announcing that they had hit a bad patch.

“Following surprise director departures, affected firms have significantly worse stock and accounting performance, are significantly more likely to suffer from an extreme negative return event, are significantly more likely to restate earnings, and have a significantly higher likelihood of being named in a federal class action securities fraud lawsuit. These results are also economically significant. For example, the surprise departure of an outside director increases the probability of an earnings restatement by almost 20% and the probability of being named in a federal class action securities fraud lawsuit by 35%. These results are consistent with directors leaving in anticipation of adverse events to protect their reputation or to avoid an increased workload.”

As per their findings, the problems faced by the companies are not caused by the departure – as the root of many of the problems precedes the departure by months or even years – but the cause of their exit. But, as they put it, the directors departure might actually make things worse; “We cannot exclude the possibility that the outside director departure has a causal effect on firm operating performance post departure. Under this hypothesis, the firm loses a talented outside director. Without her monitoring and advising capabilities, firm performance deteriorates post-director turnover.”

This study is interesting to highlight two very important issues about board of directors and of trustees that are often overlooked.

Firstly, if shareholders are a primary CSR stakeholder, the departure of a director should be treated more seriously than a simple handshake followed by farewell drinks. Good governance requires a body producing independent meaningful reports on why a director is leaving and making that report available to the market on an equal basis. That is particularly important for companies with a very diluted shareholder basis, where pensioners and other small investors (or donors, in the case of trustees) aggregately hold substantial ownership, but are unlikely to be active enough in the financial market to understand what might be going on behind closed doors or to hear the noise before their investments are negatively impacted.

Second, and also to reassure good governance, it is important for the rest of the board to know why a board member is leaving. We all know boards where a director left and for some reason did not fully disclose to the board why he or she was leaving because no one actually cared to ask. “Poor health”, “personal reasons” and “spend time with my family” are catchall excuses that often hide deeper reasons. Boards need to have reliable mechanisms to share the concerns of any board member. This is particularly important in boards where asymmetric information is likely to be a substantial concern, such as boards that do not meet often, or that are constituted primarily by outside directors who do not hold enough information about the company, or are constituted by several smaller subcommittees where only the chairs meet in a main board.

On both accounts, the most straightforward solution is for an independent facilitator or legal advisors to be retained to collect the relevant information from the departing director and inform the board, and at the same time work as a reassurance mechanism that the concerns shared by the leaving director will not be used against him/her in the future in the form of bad references or criticism.

- Gus
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