In an economy likely to drive business toward cost cutting and tunnel vision, three faculty members at DU’s Daniels College of Business urge executives to resist that narrow impulse. John Holcomb, Don Mayer and Mike Pfarrer say the new political and economic landscape calls for business leaders to tend to their companies’ reputations and social responsibilities.
In separate research papers, Holcomb, Mayer and Pfarrer discuss business ethics issues that they say will demand attention in the coming months.
Business and Politics
Holcomb’s paper, “Campaign Finance and the 2008 Election: Legal Evasions in a Broken System,” examines financing of the 2008 presidential campaigns, gaps in existing law and the roles that business and other interests played in the election.
Following the most expensive presidential campaign in history, Holcomb believes, “The public finance system is broken. It was fractured before ’08.”
The supply side of the equation cannot be limited, he says, citing Sen. Bill Bradley’s 1996 observation that “money in politics is like ants in the kitchen: Without closing all the holes, there is always a way in.” Holcomb says campaign finance law should seek to limit demand for campaign funds.
Political action committees (PACs) are the primary legal avenue and most ethical mechanism for business involvement in politics, Holcomb says. Rather than “bundling” contributions for candidates and financing campaign events with corporate funds, “Executives should stick with PACs, which are heavily regulated. That’s preferable to funneling out shareholders’ money without their consent.” Moreover, Holcomb urges business to propose new public policies to clean up the campaign finance system rather than simply adapting to solutions that may be enacted.
Corporate Citizenship and Regulation
Anticipating more active market regulation by the incoming Congress and Obama administration, Mayer sees motivation for corporations to renew attention to their societal responsibilities.
In “Global Capitalism and the Call to Corporate Citizenship,” Mayer writes, “A corporation acts like a citizen when it goes beyond delivering shareholder value, beyond stakeholder analysis and begins to morally deliberate, advocate and initiate practices … that improve social, political or environmental conditions for the larger community.”
Recognizing the realities of a marketplace in which shareholders expect corporations to pull whatever strings are available, Mayer nevertheless believes the recent market collapse provides an opportunity for companies to “sober up.”
“Businesses need to discuss what they value and why and to look at the common good,” he says.
Good Corporate Reputation Yields Rewards
The rewards for good corporate practices are tangible, according to Pfarrer and co-authors Tim Pollock, from Penn State, and Violina Rindova, from the University of Texas at Austin.
In their study, “The Effects of Firm Reputation and Celebrity on Earnings Surprises and Investors’ Reactions,” Pfarrer and his co-authors define reputation as long-term, consistent patterns of good behavior and high quality. Celebrity, they say, is a more fleeting combination of media visibility and positive shareholder emotion.
Analyzing earnings and management data from 291 businesses from 1991–2005, they evaluated the effect of good reputation and celebrity on market performance. They conclude that intangible assets yield greater market rewards for positive earnings surprises and fewer penalties for negative surprises.
“Not only is reputation important in the good times when it can serve as a benefit,” Pfarrer says, “but it can give you a do-over in the bad times. Right now, many companies are suffering from infamy — the opposite of celebrity. Now is the time for firms to go out of their way to build their own reputation, to distinguish themselves and get recognition for doing good things.”
Holcomb, Mayer and Pfarrer are members of the Business Ethics and Legal Studies faculty at the Daniels College of Business.