Some of Moral Money’s most loyal readers are found in universities and business schools around the world — and we’re keen to return the compliment by reading as much thought-provoking academic work as we can.
Today we highlight one intriguing recent paper that caught our eye — let us know what other interesting things you’ve been reading (or writing!) in the academic press.
Also today, Patrick highlights a split between two of the world’s largest asset managers over their ESG shareholder proposal voting records. See you on Friday. — Simon Mundy
What drives scandals into the open?
What does sexual abuse in the US Catholic church have to do with the collapsed German payments company Wirecard? More than you might think, according to a provocative new academic paper on the factors that either drive organisational scandals into the open — or keep them quiet.
Professors Alessandro Piazza of Rice University and Julien Jourdan of HEC Paris focused on the tragic, decades-long saga of sexual abuse by hundreds of Catholic priests across the US. They were looking for patterns in the data that could indicate why abuse is or is not exposed.
“Basically what we are trying to study in this paper is how organisations may get away with wrongdoing for years, sometimes even decades, without being affected or tarnished by a scandal,” Jourdan told me.
The academics say their paper — which is undergoing peer review ahead of publication by the Academy of Management Journal — illuminated three key trends.
First, the more demographically homogeneous a community, the less swift it was to denounce a case of abuse. Second, in communities where the Catholic church was more “embedded” — ie, those with a higher proportion of Catholics in the community — abuse was less likely to be exposed. And third, greater “social connectedness” between different individuals and groups in the community — through social organisations or other gatherings — increased the likelihood that abuse would be uncovered.
Why is any of this of interest to a business school professor? Jourdan says the findings help to explain why some of the worst business scandals of recent years took so long to be exposed.
“There is a social cost of speaking up,” he said. “When there is a scandal, not only the offender is in trouble, but also his or her close associates, and people that might be associated with the offender.” This can provide a clear motivation for others in the community to ignore — or even punish — anyone brave enough to blow the whistle.
While Jourdan’s study looked at geographical communities, he argues the findings are no less applicable to national business communities.
That includes the German financial community, within which members of Wirecard’s management were treated like superstars for years after the FT’s Dan McCrum began reporting on what proved to be catastrophic flaws in its business. (German regulators launched an investigation — into McCrum.)
It includes the financial industry in London, where the celebrated hedge fund manager Crispin Odey abused women for decades with impunity, until the FT’s explosive investigative report in June.
And it includes Hollywood, where Harvey Weinstein’s sexual predation was for many years “an open secret”, Jourdan points out.
So what lessons can businesses and their regulators draw from this?
For business leaders — assuming they want to find out swiftly about problems that arise at their company, rather than have them explode months or years down the line — this study provides a reminder of the importance of workforce diversity, and of the dangers of groupthink.
It highlights risks for corporate regulators too. Notably, there’s a danger that environmental or social violations could be kept quiet within a community that’s being harmed, if that community relies heavily on the company in question for jobs. The paper cites the example of a couple in Parkersburg, West Virginia, who filed a lawsuit against chemical company DuPont over pollution from its local factory. They suffered abuse from other town residents, one of whom accused them of “taking my job away”.
As for Jourdan, he expects plenty of new material for his research on organisational scandals. Fresh grist to his mill is the downfall of FTX, once the darling of a global community of crypto fans and investors.
“One of the great things with scandals is that they keep happening,” Jourdan said. “There will be another one coming up soon.” (Simon Mundy)
BlackRock, State Street split on support for environmental and social issues
In the tiny town of Marshall, Texas, officials from BlackRock and State Street sat side by side in December to be pilloried by state lawmakers over environmental and social investing. Both asset managers were forced to defend their voting patterns on these issues. Texas argued the companies were using their votes to promote “woke” capitalism and steer investments away from oil and gas.
Now, the asset managers’ votes at companies 2023 annual meetings are starting to become public. Companies are required to publish all of their votes from meetings around the world. FT colleague Brooke Masters and I sifted through BlackRock’s voting record and found that its support for environmental and social petitions globally dropped to just 7 per cent this year. That compares with a record of voting in favour of these types of proposals 22 per cent and 47 per cent of the time in the 2022 and 2021 proxy seasons, respectively.
While State Street’s support for environmental concerns has also slumped, it has not declined as dramatically as BlackRock. It supported about one-third of all the climate proposals it faced this year, down from 44 per cent in 2022 and 49 per cent the year before.
Benjamin Colton, head of stewardship at State Street Global Advisors, told us that “nothing has changed in our approach” to ESG voting. Instead, the environmentalists and other activists who file shareholder proposals are getting too picky, he said. “Requesting to have more plant-based options in company cafeterias is not something shareholders should be weighing in on,” said Colton, referring to certain shareholder proposals promoting vegetarianism.
But State Street did not shy away from challenging companies on recycling. State Street voted for shareholder proposals at Amazon and Yum! Brands that demanded more information about plastic recycling. BlackRock said it voted against these proposals.
Once Vanguard reports its voting patterns in the days ahead, a clear picture will emerge of how the world’s largest passive asset managers are navigating the ESG landscape amid the widespread attacks in the US. (Patrick Temple-West)
Smart read
The Green Climate Fund, a centrepiece of the climate finance landscape, needs urgent funding, writes Mahmoud Mohieldin, the UN climate change high-level champion for COP27 and facilitator for the Green Climate Fund’s second replenishment. Developing countries’ ability to deliver on the Paris Agreement goals depend on it.
Read the full article here