Elisa M. Zarbafi. Responsible Investment and the Claim of Corporate Change

Transcription

1 Elisa M. Zarbafi Responsible Investment and the Claim of Corporate Change

2 GABLER RESEARCH EBS Forschung Schriftenreihe der EBS Universität für Wirtschaft und Recht i. Gr. EBS Business School Wiesbaden Herausgegeben von Prof. Dr. Falko Fecht Band 79 Die im Sommer 2010 aus der European Business School International University, Schloss Reichartshausen entstandene EBS Universität für Wirtschaft und Recht (i. Gr.) ggmbh ist die erste Wirtschaftsuniversität in Deutschland. Dieser Vorreiterrolle fühlen sich ihre Professoren und Doktoranden in Forschung und Lehre verpfl ichtet. Mit der Schriftenreihe präsentiert die EBS Universität für Wirtschaft und Recht i. Gr. ausgewählte Ergebnisse ihrer betriebs- und volkswirtschaftlichen Forschung.

3 Elisa M. Zarbafi Responsible Investment and the Claim of Corporate Change A Sensemaking Perspective on How Institutional Investors May Drive Corporate Social Responsibility With a foreword by Prof. Dr. Ulrich Grimm RESEARCH

4 Bibliographic information published by the Deutsche Nationalbibliothek The Deutsche Nationalbibliothek lists this publication in the Deutsche Nationalbibliografie; detailed bibliographic data are available in the Internet at EBS Universität für Wirtschaft und Recht i. Gr. EBS Business School Wiesbaden, 2009 D st Edition 2011 All rights reserved Gabler Verlag Springer Fachmedien Wiesbaden GmbH 2011 Editorial Office: Stefanie Brich Britta Göhrisch-Radmacher Gabler Verlag is a brand of Springer Fachmedien. Springer Fachmedien is part of Springer Science+Business Media. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the copyright holder. Registered and/or industrial names, trade names, trade descriptions etc. cited in this publication are part of the law for trade-mark protection and may not be used free in any form or by any means even if this is not specifically marked. Cover design: KünkelLopka Medienentwicklung, Heidelberg Printed on acid-free paper Printed in Germany ISBN

5 Foreword Corporate Social Responsibility has been an appreciative, albeit academic issue for several years. As a result of the recent financial and economic crisis, it is now not only a topical issue in contemporary times, but is also becoming increasingly important in business practice. Leading managers are confronted with the question as to what extent their organizations accept the responsibility to protect the communities and the environment in which they operate. This book explores how and if at all significant players in capital markets, namely institutional investors, place their focus on socially responsible management and how they are best able to use their influence. The deep-rooted understanding that managerial decision-making processes are not only the result of objective analyses, but rather are shaped by the many varied interactions within social systems, delivers the theoretical basis of the dissertation at hand. The author is guided by Karl Weick's sensemaking approach, and with her own particular brand of enthusiasm and passion applies this approach to the relationship between organizations and institutional investors. In sum, Elisa Minou Zarbafi delivers compelling arguments for the construction and reconstruction of these relationships. The acceptance of the proposed approach in business practice would be an effective means to prevent the development of a crisis such as we have recently experienced. In this respect, I hope this book will be widely read both in theory and practice. Professor Dr. Ulrich Grimm EBS Business School, Germany

6 This book covers a huge ground and body of literature, focusing its theoretical critique/analysis on responsible investment, which to my knowledge, is rarely if ever approached from Zarbafi s perspective: social psychology generally, and sense making in particular. In this regard, the book is unique. While complex and grounded in a literature that many in the field of responsible investment are not in the least familiar with, it leads to a compelling read, something not true, in my experience, of even the best 'revised' Ph.D. dissertations. Professor Dr. James P. Hawley Elfenworks Center for the Study of Fiduciary Capitalism, St. Mary's College, California

7 Preface The work embodied in this book is based upon my belief that the integration of social responsibility into corporate policies and practices can play a major role in securing long-term shareholder value. Also, I believe that institutional investors can play a major role in driving the social responsibility of their portfolio companies - as long as both, the investor and the company, recognize social responsibility as a continuous change process in which their own individual members bring structure and events into existence and set them into action. Both beliefs are central to the manuscript at hand which looks at responsible investment and the claim of corporate change from a social psychology perspective. The manuscript represents a revised version of my doctoral thesis and was defended at EBS Business School, Germany, in I wish to thank my supervisors, Ulrich Grimm (EBS Business School, Chair of Strategic Management) and Dirk Schiereck (University of Darmstadt, Chair of Corporate Finance) for their advice and support during my doctoral studies. In particular, I would like to thank Ulrich Grimm for introducing me into the world of constructivism and social psychology and for giving me the opportunity to pass these ideas on to our students and other interested researchers in the field of responsible investment. I also thank James P. Hawley (Saint Mary's College of California, Director of the Elfenworks Center for the Study of Fiduciary Capitalism), David J. Linden (Bangor University, School of Psychology), and Andreas Rasche (The University of Warwick, Warwick Business School) for their in-depth review of my manuscript. Thank you for the time and effort you put into reading my thesis as well as for your wise and helpful comments that I greatly appreciated. Finally, I would like to thank all my friends and doctoral colleagues who shared this journey with me for their continuous support and positive attitude. I wish to express my greatest thanks to my parents, my sister Nassrin, and my friend Fabian for their unquestioning support. Without your infinite patience, understanding, and love, this thesis would have never become reality. Elisa Minou Zarbafi

8 Summary of Contents List of Figures... XV List of Abbreviations... XVII 1 Introduction Context and Motivation of the Study Previous Literature and Research Relevance Research Approach and Theory Perspective Research Objective and Scope of the Study Course of Investigation Responsible Investment and the Claim of Corporate Change The Phenomenon of Responsible Investment The Practice of Responsible Investment The Link to Corporate Social Responsibility Towards a Process Model of Responsible Investment Responsible Investment in the Light of Agency Theory Towards a New Conceptualization of Responsible Investment Introducing Sensemaking Studies as Underlying Theory Interim Conclusion I: A Framework to Analyze Responsible Investment as a Driver of Corporate Social Responsibility Making Sense of Responsible Investment as A Driver Corporate Social Responsibility How Institutional Investors and Corporations Enact Their Sense of Responsibility How Institutional Investors and Corporations Interact How Institutional Investors May Change a Corporation s Sense Responsibility Interim Conclusion II: A Process Model of Responsible Investment as a Driver of Corporate Social Responsibility Implications for Practitioners and Researchers Implications for Institutional Investors Implications for Researchers Concluding Remarks Appendix... 2 Bibliography... 24

9 Contents 1 Introduction Context and Motivation of the Study Previous Literature and Research Relevance Research Approach and Theory Perspective Research Objective and Scope of the Study Course of Investigation Responsible Investment and the Claim of Corporate Change The Phenomenon of Responsible Investment Introduction and Definitions The Evolution of Responsible Investment The Role of Institutional Investors as Responsible Owners The Practice of Responsible Investment Responsible Analysis: The Entry Decision Screening Enhanced Analysis Responsible Ownership: The Loyalty Decision Engagement Activism The Link to Corporate Social Responsibility The Concept of Corporate Social Responsibility Investor Responsibility and the Claim of Corporate Change Towards a Process Model of Responsible Investment Responsible Investment in the Light of Agency Theory Responsible Investment and the Principal-Agent Paradigm Underlying Assumptions Towards a New Conceptualization of Responsible Investment Limitations of the Principal-Agent Paradigm The Need for a New Conceptualization of Responsible Investment as Sensemaking Process Introducing Sensemaking Studies as Underlying Theory Enactment Double Interact Continuous Change Interim Conclusion I: A Framework to Analyze Responsible Investment as a Driver of Corporate Social Responsibility... 96

10 XII Contents 4.1 How Institutional Investors and Corporations Enact Their Sense of Responsibility Preliminary Remarks Enacted Responsible Investment Enacted Corporate Social Responsibility Belief-driven Processes of Sensemaking Arguing Level of Cognition: Identity Orientation Level of Action: Identity Defense Mechanisms Expecting Level of Cognition: Role Expectations Level of Action: Behavioural Confirmation Action-driven Processes of Sensemaking Committing Level of Action: Behavioural Commitment Level of Cognition: Justification Manipulating Level of Action: Invention Level of Cognition: Legitimacy How Institutional Investors and Corporations Interact Preliminary Remarks Influence as Outcome of Collective Sensemaking Collective Sensemaking through Reciprocal Inquiry Processes and Outcomes of Reciprocal Inquiry Collective Sensemaking through Observing Observing Minimal Collective Sensemaking Collective Sensemaking through Asking Asking Fragmented Collective Sensemaking Collective Sensemaking through Telling Telling Restricted Collective Sensemaking Collective Sensemaking through Generating Generating Enhanced Collective Sensemaking How Institutional Investors May Change a Corporation s Sense Responsibility Preliminary Remarks Corporate Social Responsibility as Continuous Change Process The Logic of Intervention in Continuous Change

11 Contents XIII Processes of Intervention Freeze Rebalance Unfreeze Interim Conclusion II: A Process Model of Responsible Investment as a Driver of Corporate Social Responsibility Implications for Practitioners and Researchers Implications for Institutional Investors Tie Your Beliefs and Actions: Investor Responsibility Matters Balance Advocacy and Inquiry: Engagement is the Way Forward Focus Attention: The Logic of Attraction Implications for Researchers Exploring the Plurality of Organizational Phenomena from Multiple Perspectives Continuing Research on the Claim of Corporate Change as Resulting from Sensemaking Processes Concluding Remarks Appendix Bibliography

12 List of Figures Fig. 1: Paradigms in social science according to Burrell and Morgan Fig. 2: Research problem and corresponding research objectives Fig. 3: Course of investigation Fig. 4: SAM s practice of responsible investment Fig. 5: The SANE BP 2001 shareholder proposal of Greenpeace Fig. 6: Logsdon and van Buren s model of the shareholder resolution process Fig. 7: The four practices of responsible investment Fig. 8: Carroll s four-part model of CSR Fig. 9: Relationship CS and CSR according to Wempe and Kaptein Fig. 10: A model of a principal-agent relation Fig. 11: An overview of agency theory s assumptions Fig. 12: Assessment of agency theory s assumptions in their application to responsible investment Fig. 13: Towards a new conceptualization of responsible investment as sensemaking process Fig. 14: The relationship between enactment, organizing, and sensemaking Fig. 15: Weick s process of organizing Fig. 16: Beliefs and actions as drivers of sensemaking Fig. 17: Making sense through tying beliefs and actions Fig. 18: The double interact Fig. 19: Interlocking behaviour cycles in selection process according to Weick Fig. 20: Weick and Quinn s comparison of episodic and continuous change Fig. 21: Intervention theory in continuous change processes Fig. 22: Underlying assumptions of sensemaking

13 XVI List of Figures Fig. 23: Research questions in the light of sensemaking studies Fig. 24: A framework to analyze responsible investment as a driver of CSR Fig. 25: Belief-driven processes of sensemaking Fig. 26: Belief-driven processes in making sense of responsibility Fig. 27: Action-driven processes of sensemaking Fig. 28: Action-driven processes in making sense of responsibility Fig. 29: Processes of advocacy and inquiry according to Ross and Roberts Fig. 30: Collective sensemaking through observing Fig. 31: Collective sensemaking through asking Fig. 32: Senge s snowball effect of reinforcing advocacy Fig. 33: Collective sensemaking through telling Fig. 34: Collective sensemaking through generating Fig. 35: Processes and outcomes of reciprocal inquiry in responsible investment Fig. 36: A process model of responsible investment as a driver of CSR Fig. 37: Propositions for investor responsibility Fig. 38: Propositions for CSR Fig. 39: Propositions for reciprocal inquiry Fig. 40: Propositions for transformational leadership

14 List of Abbreviations ABP Stichting Pensioenfonds ABP (National Civil Pension Fund) AG Aktiengesellschaft AGM annual general meeting AUM assets under management AXA IM AXA Investment Managers BNP PAM Banque National de Paris Paribas Asset Management BP British Petroleum Company BTPS British Telecommunications Pension Scheme CalPers California Public Employees' Retirement System CDP Carbon Disclosure Project CEO chief executive officer CFP corporate financial performance CMS certified management standards CS corporate sustainability CSP corporate social performance CSR corporate social responsibility DJSI Dow Jones Sustainability Indexes e.g. exempli gratia (for example) EAI Enhanced Analytics Initiative EC European Commission egip European Group of Investor Protection EMH efficient market hypothesis EOS Equity Ownership Services ESG environmental, social, and corporate governance et al. et alii (and others) EUR Euro Eurosif European Social Investment Forum fig. figure FTSE4Good Financial Times and London Stock Exchange for Good GRI Global Reporting Initiative ibid. ibidem (at the same place)

15 XVIII List of Abbreviations i.e. id est (that is) ILO International Labour Organization IR investor relations ISO International Organization for Standardization MIC methyl isocyanate MNC multi-national corporation NGO non-governmental organization NL The Netherlands p. page P-A principal-agent para. paragraph PFZW Stichting Pensioenfonds Zorg en Welzijn (Pension Fund for Care and Well-Being) plc public limited company pp. pages PRI Principles for Responsible Investment SA Social Accountability SAM Sustainable Asset Management SEC Securities and Exchange Commission SEE social, environmental, and ethical SIF Social Investment Forum SRI socially responsible investment SWOT strengths, weaknesses, opportunities, threats TQM Total Quality Management UK United Kingdom UN United Nations UNEP United Nations Environment Programme UNEP FI United Nations Environment Programme Finance Initiative US United States USD United States Dollars WpHG Wertpapierhandelsgesetz WpÜG Wertpapiererwerbs- und Übernahmegesetz WWF World Wide Fund for Nature