The Challenge for Business and Society

From Risk to Reward

Stanley S. Litow

• Publisher: Wiley
• Year: 2018
• Print ISBN: 9781119433880
• eBook ISBN: 9781119437482
• Edition: 1
• Topic: Business
• Subtopic: Corporate Governance
• Index: Business

A roadmap to improve corporate social responsibility The 2016 U.S. Presidential Campaign focused a good deal of attention on the role of corporations in society, from both sides of the aisle. In the lead up to the election, big companies were accused of profiteering, plundering the environment, and ignoring (even exacerbating) societal ills ranging from illiteracy and discrimination to obesity and opioid addiction. Income inequality was laid squarely at the feet of us companies. The Trump administration then moved swiftly to scrap fiscal, social, and environmental rules that purportedly hobble business, to redirect or shut down cabinet offices historically protecting the public good, and to roll back clean power, consumer protection, living wage, healthy eating initiatives and even basic public funding for public schools. To many eyes, and the lens of history, this may usher in a new era of cowboy capitalism with big companies, unfettered by regulation and encouraged by the presidential bully pulpit, free to go about the business of making money—no matter the consequences to consumers and the commonwealth. While this may please some companies in the short term, the long term consequences might result in just the opposite.

And while the new administration promises to reduce "foreign aid" and the social safety net, Stanley S. Litow believes big companies will be motivated to step up their efforts to create jobs, reduce poverty, improve education and health, and address climate change issues — both domestically and around the world. For some leaders in the private sector this is not a matter of public relations or charity. It is integral to their corporate strategy—resulting in creating new markets, reducing risks, attracting and retaining top talent, and generating growth and realizing opportunities. Through case studies (many of which the author spearheaded at IBM), The Challenge for Business and Society provides clear guidance for companies to build their own corporate sustainability and social responsibility plans positively effecting their bottom lines producing real return on their investments. This book will help: • Create an effective corporate social responsibility and sustainability plan
• Provide long-term bottom line benefit
• Protect and enrich brand value
• Recruit and retain top talent

Perfect for CEOs, CFOs, Human Resource/Corporate Affairs executives, but also for government and not-for-profit leaders, this book helps you come up with a solid plan for giving back to society, producing real sustainable value.

Chapter 1
The Good, Bad, and Ugly: A History of Corporate Behavior

In the late nineteenth century, Carnegie Steel was one of the world’s most well-heeled and effective businesses, expanding its workforce in large numbers and growing rapidly across the United States. It came close to being a monopoly, and its success enriched its founder, Andrew Carnegie, who first gained prominence in the railroad industry. With the financial support of J. P. Morgan, Carnegie leveraged his knowledge and experience to build a massive business in steel, to the point where by 1885 he was producing most of the steel that built America’s tools, factories, tall buildings, ships, streetcars, and machines. He was an iconic American business leader. Carnegie’s personal wealth approached that of John D. Rockefeller, reaching far beyond any nineteenth-century standard of wealth. In today’s world, Carnegie would be more than just a billionaire; his wealth would be at the Bill Gates or Warren Buffett level. To put the success of Carnegie’s business into context, when he sold Carnegie Steel in 1901, it netted him nearly $500 million, which today would equate to more than $15 billion. And this was not value that would accrue to shareholders, investors, and executives; it represented Carnegie’s personal enrichment, building on his already extensive wealth. And Carnegie’s personal wealth grew subsequent to the sale, allowing him eventually to become one of the world’s most generous philanthropists, on a scale equal to that of Rockefeller.

Carnegie didn’t just give out money via his philanthropy. He had a vision of what he wanted and executed it effectively, pioneering America’s public library system, which contributed to the nation’s literacy and its transition from agriculture to a manufacturing-based economy. Carnegie’s transformative private foundation survives to this day and plays a vital role in the support of public education and civil society. Its impact has truly been significant. Carnegie is a brand with strong positive impact. And yet the success of his company depended not a scintilla on philanthropy, sound business ethics, solid labor practices, or the support of community. Quite the contrary. Carnegie and the company he founded focused with laserlike attention on the economics of building and sustaining the business, which he did at any cost.

The company did provide benefits to the American economy. It pioneered steel production at massive levels, effectively competed with international geographies, and enriched a range of companies, including the railroads that it did business with. Most important, it created a large number of jobs for Americans at a time when industrialization was on the rise. But in that period of industrialization, economic success depended heavily on the productivity of, and the company’s relationship with its core asset, its workforce. Carnegie and the tight group of executives he had chosen to manage and lead the company in the late 1880s became increasingly worried and concerned about the influence of its fledgling labor union, the Amalgamated Steel Workers. The union representing these skilled workers saw the increasing size and scope of the company, and its astounding financial success, and saw an opportunity to increase wages, limit the workweek, and improve working conditions.

Work conditions at Carnegie’s company were certainly not unique: it had a six-day and in some cases seven-day workweek, twelve- to fourteen-hour or longer workdays, unsafe working conditions, low wages, incidences of child labor, and offered no vacation days or overtime pay. This Industrial Revolution was a time of increased focus on working conditions and worker pay across American industries and around the world. This was intensified by an economic slump in the early 1890s that was part of a range of global economic trends largely beginning in Europe. Carnegie and his company chairman, Henry Clay Frick, who was in charge of the company’s Homestead plant in Pennsylvania, felt the need to act and act promptly to reduce and not increase their labor costs. (Incidentally, Frick also donated his personal wealth at the end of his work life, in his case to create the Frick Museum on Fifth Avenue in Manhattan, which survives to this day.)

Carnegie and Frick and their tight circle of very well-compensated managers and investors were convinced that increased labor costs and any labor demands to improve working conditions and employee benefits would damage the fiscal future of the company and cut into the financial well-being of Carnegie Steel. This was top of mind to Carnegie because steel markets were in a brief decline. The consequences of their actions on the workforce were more than secondary, they were profound. As a result, in 1892 discussions with the union, Carnegie and Frick proposed not only to turn a deaf ear to any and all demands by the union, but to go one step further and reduce the minimum wage in the new contract. And beyond that, they aimed to abolish the bargaining power of the union entirely.

When the negotiations faltered, Carnegie and Frick ceased their negotiations with the Amalgamated Steel Workers and instead aimed to beat the union, or more explicitly, to break it. Their plan had nothing whatever to do with effective negotiation tactics, fairness, or even long-term success. They conceived and executed a strategy that began with employing hundreds of strikebreakers to replace the company’s striking workforce; in record time, they built a ten-foot fence around the workplace to prevent interruption of work. But perhaps most important, they hired the Pinkerton Detective Agency to engage in swift, armed conflict with the strikers. The Carnegie and Frick strategy resulted in the deaths of dozens of workers, with over a hundred more injured, and effectively ended the worker strike and opposition to the company’s labor practices.

They developed and executed their strategy swiftly and without remorse. The action effectively accomplished their goal—it broke the union. While Frick never regretted the action, Carnegie did. He later wrote, “No pangs remain of any wound received in my business career save that of Homestead.” Perhaps some of his commitment to philanthropy served as a reaction to those events. However, in response to Carnegie’s personal philanthropy in the creation of libraries, the president of Dartmouth College at the time, William Jewett Tucker, referring to Carnegie’s efforts, opined that it was a “belated gospel . . . and too late for a social remedy,” and one of Carnegie’s steelworkers at the Homestead plant said, “What good are libraries to me, working practically 18 hours a day?”

Carnegie and Frick’s reaction to their workers organizing to improve labor practices was not unique. The Pullman Strike in 1894, the 1902 anthracite strike, the 1913 Paterson silk strike, and the 1914 Colorado coal strike grew out of similar circumstances. Workers organized to improve working conditions and compensation, and in swift reaction employers beat back their demands with planned and calculated violence.

The actions that led to the Colorado strike and what happened afterward, known as the Ludlow Massacre, are particularly illustrative. Brooklyn-born John C. Osgood established a very successful mining company in Colorado called Colorado Fuel and Iron. Osgood has been characterized as one of a generation of business leaders known as the “robber barons.” Though CF&I was actually owned in the main by John D. Rockefeller, Osgood played a major role in the company and had broad influence over the entire mining industry. Initially he seemed to be a progressive business figure, establishing the town of Redstone, Colorado, as a “company town” and investing in housing for its employees and even building a school for Redstone children and their parents. But after a strike by the workers, similar to what led to Carnegie and Frick’s brutality, Osgood embarked on a publicity campaign to discredit the workers. He engineered actions by the National Guard to break the strike and break the union through violence. Two dozen people were killed in Redstone, leading to further violence. While the union was broken and these industrialists prevailed in the short run, a growing negative reaction by American citizens began to develop, leading to organizing and political advocacy at the state and national levels that ultimately brought about passage of child labor laws and the eight-hour workday.

Carnegie and Frick as well as Osgood and Rockefeller and many others were successful, at least in the short term. In the case of Carnegie and Frick, they and the company created some economic benefit, to be sure, but they enriched themselves greatly and cared little about the consequences. Carnegie’s business grew rapidly through the end of the nineteenth century into the beginning of the twentieth. The business practices he followed with respect to his workforce were reprehensible. And, sadly, they had their influence on the practices of many other businesses. Jay Gould, a man of outsized wealth, legendary for his greed and lack of ethics, and importantly an investor in CF&I, summed up his views regarding labor practices as follows: “I can hire one half of the working class to kill the other half.” Gould’s actions went far beyond breaking unions. He engaged in stock fraud, manipulated the gold market, and rightly earned his membership in the club of robber barons.

These actions had an impact not only on business behavior but also on Americans’ view of large companies and their business practices overall. America at that juncture was hardly pro-labor and certainly not pro-union, but the actions of Carnegie and Frick in their Pennsylvania steel plant and beyond were viewed negatively by most Americans and reinforced a view that wealthy business owners were singularly focused on greed and profit, regardless of the cost. Instead, those actions further spurred labor organizing efforts. Ultimately, they led to changes in government at both the state and federal levels to reverse conditions that in retrospect are embarrassing to all Americans. Between 1880 and 1900, 35,000 workers died in factories and mines as a consequence of unsafe working conditions. In the same period, another 500,000 were injured. With respect to child labor the numbers are even more distressing. By 1900, 1.7 million children under the age of 16 worked in factories and fields. And roughly 20 percent of all boys and girls across America between the ages of 10 and 15 worked long days in poorly compensated salaried jobs.

So clearly the actions of Carnegie, Frick, Osgood, Gould, and others were not unique, and they were not confined just to labor practices either.

Decades earlier, John Jacob Astor created the American Fur Company, which used intimidation and monopolistic practices to put his competitors out of business, cheated Native Americans, and thus grew his business and his personal fortune. His workers were paid and treated very poorly, and communities and competitors suffered greatly as a result. James Fisk, the founder of Fisk and Belden, controlled the Erie Railroad. By fraudulently inflating the price of gold, which led directly to the stock panic of 1869, and engaging in blatant stock fraud, Fisk increased his wealth and the wealth of his company, again at the expense of workers, communities, and investors. He actually swindled his investors and created and sold fraudulent stocks. At the same time on the West Coast, Leland Stanford, whose name is emblazoned on Stanford University and whose business school pioneered the teaching of both business ethics and corporate responsibility, served as the chairman of the Central Pacific Railroad. While today this would be inconceivable, at that time he led his company concurrent with his service as California’s governor. In his capacity as governor, Stanford enriched his company and himself by combining state funding and state resources in service to the company. The growth of the railroad was achieved by seizing property via eminent domain claims, and by routinely making outsized cash donations to government officials to obtain ownership of property. He was able as a consequence to see his and his company’s influence grow. The benefits to Stanford’s company came at the expense of the public coffers and the communities he was elected to serve.

Such corporate practices not only negatively affected the employees of a single company, they had a broader negative effect on society. They hurt investors, defrauded the competition, and emptied governmental coffers. While there were clearly some immediate and short-term economic benefits to the companies, the practices wound up in the main costing jobs, and as a consequence had a negative overall societal effect. The labor practices of these companies were simply not sustainable. When these company practices became known, via news coverage by reporters who became known as “muckrakers,” they affected the public’s views about those individuals, their companies, and ultimately the private sector overall. The resulting negative consequences far outweighed the short-term benefits.

This group of late-nineteenth-century business leaders engaged in the antithesis of ethical business practices. As a direct response to such negative behavior, federal and state legislative action was initiated, with broad and growing public support, to curtail unethical business practices. It began at the federal level, in the administration of President Theodore Roosevelt, who opined, “I believe in corporations. They are indispensable institutions . . . but I believe they should be supervised and regulated, that they should act in the interest of the country as a whole.”

Another Way of Proceeding

Teddy Roosevelt’s attitude and the federal legislation he championed that followed have been extensively written about. The legislation was designed to rein in those corporations in particular and more broadly the private sector overall, altering corporate behavior over the long term. In the early years of Roosevelt’s administration, the Department of Commerce and Labor was created (years later it was split into two cabinet-level agencies), and one of its key units was the Bureau of Corporations, which Roosevelt believed could monitor unethical and greedy business behavior and, by its very existence, avert it. Roosevelt continually used his presidential bully pulpit to decry unethical business practice and rein it in through legislation and regulation. His successor, President William Howard Taft, who had a far more pro-business attitude, also called for a focus on “fair dealing” on the part of business. Early on in his presidency, Taft even went so far as to encourage companies to offer paid vacations.

Regulations instituted by Roosevelt helped, without a doubt, and the focus on fair dealing and ethical practice made total sense, but neither actually solved the problem, and scandals and unethical practices persisted in the early decades of the twentieth century. However, what resulted from those scandals was a growing anger on the part of the public toward business leadership, or the lack of it, and it had its effect on governmental policies. And while Roosevelt and others hoped that their actions would significantly change corporate behavior over the long term, and unquestionably they were effective to some extent, at least in the short term they did not eliminate poor corporate behavior entirely, nor did they eliminate the need for further actions by government. In a speech before the U.S. Chamber of Commerce, which was founded in 1912 to give business a voice in governmental action, then secretary of commerce and future Republican president Herbert Hoover, who was also generally thought of as a strongly pro-business conservative, in a speech to corporate leaders said that “business must end its wrongs or law will.”

Various forces, spurred on by advocacy efforts, progressive politicians, and labor organizers, attempted to turn their disfavor into legislation and regulations as a means of ending such bad practices. Muckraking investigative journalists were particularly effective in highlighting bad ethics and close-to-criminal behavior, stimulating such action. And it was not only investigative journalists who got into the mix profiling bad business behavior. Novels by well-respected writers like Upton Sinclair had an equally important impact. Sinclair’s 1906 novel The Jungle outlined the horrendously unsafe and unsanitary conditions in the Chicago stockyards, and arguably led to the passage of the Pure Food and Drug Act. Ida Tarbell, the leading female journalist of the era, published a devastating set of pieces on John D. Rockefeller’s Standard Oil Company, detailing a clear record of bribery, corporate espionage, and industrial deceit. While Tarbell’s writing led to local and federal prosecutions of Standard Oil, and arguably led Rockefeller to pursue personal philanthropy to address the damage to his reputation and that of his company, his company’s financial success continued and its unethical and decidedly antilabor practices went unchanged for years.

The Progressive movement was successful in electing to political office a range of important reformers, a clear reaction to bad business behavior. However, while such efforts were sorely needed and somewhat successful, they did not end or even diminish bad ethical practices or bad business behavior. In a relatively short period after the Progressive Era of the first years of the twentieth century, pro-business activities resurged in America in the 1920s, ushering in the Great Depression, which in turn demonstrated how much still needed to be done. The reaction and result to the Depression in the 1930s was President Franklin D. Roosevelt’s New Deal. While it again led to a host of actions aimed at ending bad business practices, largely via legislation and regulation, it too did not end such behavior.

I could go on and on detailing the negative actions of business in virtually every decade of America’s history, but it would be a mistake to paint every business leader and segment of the private sector with the same brush. The facts, the data, and a review of history, demonstrate just the opposite. Clearly the negative behavior of some business leaders, perpetuated by greed and a ...

Table of contents

• Cover
• Title page
• Copyright
• Foreword
• Acknowledgments
• Introduction
• Chapter 1 The Good, Bad, and Ugly: A History of Corporate Behavior
• Chapter 2 Past Is Prologue, but Today Is What Matters
• Chapter 3 The Future
• Conclusion
• About the Author
• Index
• End User License Agreement