A second AEI conference in June 2004 similarly took aim at SRI, with the title "SRI and Pension Funds: Welcome Reform or Fiduciary Nightmare." It featured AEI fellow Jon Entine ? a long-time critic of SRI - and Sarah Fuhrmann of v-Fluence Interactive Public Relations. Several V-Fluence employees are ex-public affairs staffers for Monsanto - where they honed skills fighting CSR initiatives that targeted genetically modified foods.
AEI's analysis helped spur an under-the-radar 2003 Harvard Business Review article, "Reining in Activist Funds," which recommended curbing shareholder activism. It suggested legislating the composition of pension fund boards; discouraging resubmission of shareholder proposals by requiring 25 percent support; and shifting the cost of dealing with resolutions to filers when proposals get less than 40 percent support.
Another prominent voice in the anti-CSR movement is Jarol Manheim, professor of political science at George Washington University, who in mid-2004 published the book Biz-War and the Out-of-Power Elite: The Progressive-Left Attack on the Corporation. Like The Economist, Manheim mis-characterized CSR as an "anti-corporate" strategy. He claimed that "biz-war" forces used "other people's money," sometimes with the intent of seeking corporations' actual demise.
Amid the escalating critique, Tim Smith, a well-known figure in the SRI movement and executive at Walden Asset Management in Boston, was sued by Cintas Corp., which charged him with defamation of corporate character for statements he made about sweatshop labor abuses at its annual meeting in late 2003. While the case was settled with no monetary damages, it sent a temporarily chilling message.
Proxy Access - the Seminal Issue
What seems to have initially galvanized the backlash reaction was the issue of shareholder "proxy access" - the modest proposal made by the Securities and Exchange Commission in late 2003, suggesting shareholders should be able to nominate corporate directors in limited circumstances. Originally intended to correct insider boards, the issue exploded when comments poured in from 16,000 investors - more comments than any proposed rule had received in SEC history. The vast majority strongly supported the rule.
Lobbying against the rule was intense, with the Business Roundtable - an association of over 150 CEOs - pressuring the White House and Congress, and spending nearly $13 million on the rule and related issues. The proposed rule has since languished. But it seems that the popularity of proxy access is what triggered the wagons to start circling, igniting a more coordinated response to CSR.
"We should welcome the criticism because it's a sign that what people once considered "fringe" is now widely accepted," said Peter Kinder, president of the social research firm KLD Research & Analytics in Boston. "It's clear we are being taken very seriously by our intellectual opponents." What's intriguing is that "their response is so incoherent," he added. He emphasized that SRI and CSR professionals should focus on "what's attracting this attention."
What's attracting the attention is the success of CSR. While no one was looking, CSR seems to have mushroomed into the new orthodoxy. Backlash articles number a hundred, but that's dwarfed by the 9.8 million hits garnered by a Google search on "corporate social responsibility." Indeed, while The Economist derided CSR in one issue, its Economist Intelligence Unit that same month released a report called "The Importance of Corporate Responsibility," showing that 84 percent of executives and investors felt CSR practices could help the bottom line.
According to Burson-Marsteller, more than two-thirds of CEOs believe CSR is vital to profitability. Companies like Ford, Microsoft, and Starbucks have CSR offices. The largest public pension fund in the nation embraces social investing - financially outperforming its peers.
CSR has become the new economic mantra not because it has won some imagined "battle" between left and right - as backlash purveyors would have it. Instead, CSR has become pervasive because it represents the logical, organic next phase of corporate evolution.
North Carolina Treasurer Richard Moore - part of the coalition battling Schwarzenegger's campaign to terminate pension funds - summed it up well. "We have been successful because we are right," he said. "If they want a fight, bring it on."
++++
Tracey C. Rembert is a freelance writer in College Park, Md., who coordinates public policy for the Social Investment Forum.
FROM Business Ethics Magazine, a SustainableBusiness.com Content Partner.
