Editor’s note: William Dunk of William Dunk Partners is an international business consultant who has been based in Chapel Hill since 1996. He writes frequently about business and cultural issues in his column “The Global Province.” He compiles a widely read and quoted review of corporate annual reports. WRAL Local Tech Wire is publishing Dunk’s 2007 reviews “Beast in the Jungle,” which concludes today.
CHAPEL HILL, N.C. – The Social Contract is regaining value in corporations.
The corporation, in essence, dates back to the 17th century when the Crown chartered joint-stock companies, giving them a set of privileges and monopoly powers usually in foreign domains. These trading companies were granted wide powers, virtually creating foreign policy for the king, but it was thoroughly understood that they were agents of the Crown and under its control. In other words, with all their considerable privileges came obligations to the State.
In the United States, there has been frequent debate about the obligations of a corporation, some saying it is only indebted to its shareholders, others insisting that it had wider inherent ties and responsibilities to the country where it is based. We would refer you to the Journal of Globalization for the Common Good, which discussed the debate on just this issue between Merrill Dodd and Adolph Berle. In theory it has come to be acknowledged that the corporation has social duties. In practice, Boards of Directors have largely been remiss in making sure that any one corporation serves the state and society, as well as its shareholders.
What we learn in many current annual reports is that this neglect of one’s larger responsibilities is coming to an end. There is no better evidence that we are in a changed world than the 2006 and 2007 annual reports from Wal-Mart which are riddled with references to its social and environmental dimensions. Right up front Wal-Mart says, “We save people money so they can live better—Wal-Mart’s Mission around the World.”
The index quickly takes the reader to its “ethical standards program,” its “equality of opportunity policy,” its “environment” and “community” initiatives. It claims it is helping us lead “a healthier life,” and that it is a champion of “sustainability.” Indeed, its reports are so laden with its social gospel that one could come to believe that it is a foundation or church, not the world’s most important business. As we have indicated in our “Watching Wal-Mart” section, a goodly part of society doubts its good intent. No matter how one rates its social accomplishments, it is nonetheless beating the social tom-toms. If we were to take its annual reports at face value, Wal-Mart is striving to be the super citizen.
Indeed, a very long list of companies that appear to be either socially or environmentally challenged have turned the social corner—at least in their rhetoric. They have acknowledged that their obligations range well beyond their shareholders. For instance, one only has to look at the laundry list of major companies on Pew’s Business Environmental Leadership Council to realize that a bevy of corporate leaders understand that they have to get pro-active on global warming and other environmental issues.
Just as surprising, however, are the large number of companies that are more complaisant about their obligations to the community. At the end of the day, the majority of companies still are casual about what they can and should do for their country. While many leading companies have adopted a very ‘social’ voice in their reports, a host of others are rather silent about what they’re doing to make the world better.
Beast in the Jungle
For the last couple of years annual reports show corporations to be caught up in ever more frenetic activity—cost cutting, acquisitions, then more cost slashing—with no clear end in mind. In general no new business model seems to have emerged: what has occurred at GE and other great companies is constant improvisation to deal with the forces sweeping through global business. Cost cutting has reached the point of diminishing returns. Some businesses—say a Washington Post Company—seem to be slowly accepting that they must move to a radically different model, the shape of which is still elusive. It is clear that, for this company, it has to be wrapped around the new media technologies that have the populace in their grip.
Grudgingly, a corporation here and there has become more global. Berkshire has put some of its chips overseas. But only a very few corporations have been smart enough to put at the helm truly global leaders along the lines of Carlos Ghosn of Renault and Nissan who was of Middle Eastern extraction, brought up in Brazil, flirted with U.S. business, worked his way up through more than one French company, and, hence, had the cosmopolitan background to turn around a Nissan. The test, of course, of a global organization is not the percentage of its operations that are overseas but rather the ease with which its leaders transition from one country to another.2
What some annual reports do make apparent is that the globally conversant, technologically agile corporation which is coming into being will have—for certain—one other dimension. To succeed in many locales, it will have to have demonstrable social objectives. Wal-Mart makes this self evident. It not only is stressing its social goals in the United States, but is emphasizing its responsible character as it tries to further penetrate developing countries such as China, India, and Mexico.
The public company, as we have known it for the last 50 years, seems to be coming to an end. A new creature is emerging that has global and technological lineaments, wants to do good while doing well, and knows it has to redefine itself, at least in the United States. It is part of a world that is becoming progressively more unfriendly to the public corporation, such that private equity capital is enjoying all the real spoils.
In 1903 the great American writer Henry James published a novella entitled “The Beast in the Jungle.” John Marcher, the protagonist, puts much of life on hold, awaiting the ‘beast in the jungle,” the great spectacular event he is sure fate will bring to his doorstep. Only at the last does he learn what that ‘beast’ is. His earth-shattering event is to be a bust: nothing big is to happen to him. He is to be greeted by nothingness.
That is the state of suspension corporations find themselves in today, as revealed by their annual reports. Major corporations have been slicing and dicing themselves now for at least 20 years-with little to show for it. They expect easy times to come a-knockin at their doors, but the grind is relentless, and the outcome is never assured. They are waiting for greatness, but struggle along in the weeds.
So, in America, their reports on themselves have turned into a bland president’s letter, a badly designed cover, and a chunk of black ink on white paper that comprises the 10Ks they file with the SEC in Washington. It will probably take a decade before they come to life again. Like Marcher, the end to their story is rather thin.