Richard Telofski

on "Irregular Competition"

Archive for November, 2009

“Liberal” Access to the Proxy

Nov 30

Posted by Richard in Activism, Anti-Corporatism, Threats | 1 Comment

In a recent Wall Street Journal article, authors Clark Judge and Richard Torrenzano discuss anticipated changes to U.S. Securities and Exchange Commission (SEC) rules which will allow more stockholder freedom of access to the process of corporate resolutions via the annual proxy.

Is this a new threat to corporate strategy?

Is this a new threat to corporate strategy?

Briefly for those of you unfamiliar with this process, annually corporations have their owners (stockholders) vote on various proposals, foremost of which is the selection of the members of the board of directors.

Per the article, these rule changes would allow various stockholders, or groups of stockholders, to nominate individuals for board seats. That nomination process would be at the expense of the corporation and would, again according to the article, create a campaign and election process much like that of any political election we see staged before us every November. It’s forecasted that this process will create more intense debates over various issues before society, offering groups with political agendas such as those of global warming and sustainability, the opportunity to place their candidate of choice on a corporate board. By definition, that candidate of choice would be a candidate who answers to a political constituency, instead of just a constituency of investors, i.e., owners.

A process such as that outlined above would give a clear advantage to activist groups for the placement of their own candidates on a targeted corporate board. This is an advantage which is not currently enjoyed by any activist group. And SEC rule changes such as those proposed above will go a long way to affording more power to activist groups.

But is this just another wrinkle in the everyday ebb and flow of activist vs. corporation? After all, activists and corporations have been wrestling for years. Well, yes, it’s possibly a new wrinkle. But I think this wrinkle is more wrinkly than most that have come before it. Why? Well, the article makes the point that, of course, corporations have always had to deal with multiple stakeholders, stakeholders which activists have traditionally claimed to represent. But the article points out something which is the theme of this blog. That theme is that the current environment in which corporations now need to deal with multiple stakeholders, led by activists, is very different. And one of those factors of difference is social media.

Another recent Wall Street Journal article amplifies this point about social media’s place in the new corporate activism. For example, in this article by Cari Tuna, it is pointed out that a new social networking site, MoxyVote.com, aggregates “advocates” and individual shareholders so that discussions about various proxy initiatives may be made. The effect of which helps activists to present their position to a group of selected shareholders in a socially-supporting environment.

In her article, Cari Tuna also mentions similar sites which allow advocates and individual investors to engage in political conversation regarding proxy initiatives. One such similar site is TransparentDemocracy.org. This site allows individuals and organizations to post corporate proxy and corporate government election recommendations. Then there is Us.ProxyExchange.org which endeavors to create an exchange via which investors in voting blocs may transfer their proxy to other stockholders. The power of these types of sites for activists is obviously clear.

Such sites enable the activist organization to enter into the corporate proxy process in much the same way that they already enter into the general political process. And the existence of sites such as MoxyVote.com, etc. do much of the organizational work for the activist. Sites such as these present the activist group an audience of previously hard-to-reach individual investors all wrapped up in nice, neat package. And all at no, or virtually no, expense.

Democracy is good, yes. I’m all in favor of individuals becoming more active in their proxy voting process and I have indeed encouraged people to do so in articles I have previously written. Yet, what concerns me in this proposed corporate social media-massaged cyber-democracy is that the interests of the individual stockholders, i.e. the owners, can be substituted for that of stakeholders. This would be very much like that where we have the interests of individual citizen voters replaced by that of one of the two major political parties.

In this proposed model, as Judge and Torrenzano pointed out in their article, the proxy process becomes one that is “about placing people on boards who answer to constituents, not investors.” Such procedures have the potential to decrease the importance of capital ownership and reduce it to nothing more than a political process usurped and co-opted by special interests.

And don’t we have enough of that already?

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Personal Charity vs. Charity-By-Law

Nov 18

Posted by Richard in Activism, NGOs | No Comments

There are three primary concepts on which society functions: faith, rule of law, and commerce. When these three key functions are allowed to find their optimum, society can really hum along. They act independently, but yet together. There are some overlaps among their functions, naturally. Such as when the ideas of

Each key has a function.

Each key has a function.

faith form the basis of law, or when the principles of law are used to modify commerce, or when the fruits of commerce are used to support faith or government. Venn diagrams are always interesting and revealing.

The dangers to society though, I think, are when the Venn diagrams of the three primary concepts overlap too much or when one circle overshadows the other. Perhaps we have reached that point of overlap and overshadow.

Over the past few decades I’ve seen the influence of faith fade in the daily lives around me, with its replacement coming either in the sphere of government or commerce. Faith serves many a purpose. One of which is to support charity, and the caring of individuals unable to do so for themselves. As the influence of faith has receded, so has its ability to offer care to those who need it. And instead of that faith-based care, that which was originally called “charity,” the need has been replaced by a faceless societal driver. That driver is from the rule of law, or what we call government.

The Venn diagram of the triad has changed, such that the circle representing faith has gotten smaller, while the circle representing rule of law has grown larger, usurping some of the functions of faith.

When charity was faith-based, the charity was provided by individuals. Charity was then personal. Faith called upon us to be charitable, individually, personally, and offer ourselves to the service of others, on a one-to-one basis. Those in need benefitted as did those who helped. Society was enriched, one helping gesture at a time. We felt good about ourselves.

In an article entitled “Government Usurps Charitable Giving and Nature,” author John Atwood explores this idea. He says:

An act of charity ennobles the grateful recipient and burnishes the kinder spirit of the giver.

As the circle of government has grown larger in the Venn diagram of society, as government, aided by NGOs and activists, has increased its influence within society, we are poorer for the lack of good that is created. As John Atwood points out:

Government can’t bring good to its people, it can only bring force and power and results, numbers, outcomes. The good is within the individual and the people. The “good” government does is only defined by the elites who determine those results, outcomes, numbers and forces to exert.

John makes an excellent point. In other words, governments aided through NGOs and activists, have taken the “good” out of charity. They have helped remove the “faith” we used to have in each other. The faith that we would all do right by each other. That faith has been reduced to nothing more than the payment of a tax to a body of law or the payment of a donation to a NGO or activist organization, which is to be distributed by a bureaucrat, and disguised as charity.

And what about that third circle in the Venn diagram of society? That circle representing commerce.

The three concepts of faith, law, and commerce complemented each other. Faith bound us to each other and provided the spiritual needs. Commerce drove the economic engine and provided the earthly needs. And law? Well, law was there to be the arbiter in the inevitable human breakdown of the other two processes.

With the diminution of the faith circle and the enlargement of the law circle, the circle of commerce is left to finance the process of secular charity by law. The circle of commerce becomes the financier of organized, governmental charity. It’s a function that commerce was not created to fulfill. Yet, governments, and their assistants in NGOs and activists, call upon commerce to make those contributions, stressing the economic system and pushing it toward dysfunction.

What happens when the circle of commerce ceases to play its new and imposed role in the Venn diagram of society? What happens when governments, with NGOs and activists, push commerce beyond its capability, or willingness to provide? What happens to charity then?

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Wrap Your Argument in a Principle

Nov 12

Posted by Richard in Activism, Irregular Competition, Rainforest Action Network, Tactics | No Comments

Chevron has been embroiled in an environmental case concerning their operations in the Amazon rainforest. The controversy and legal wrangling has been going on for quite a while. Just Google “chevron amazon lawsuit” and you’ll see what I mean. Today I’m not commenting on that case per se, but what I am commenting upon is a tactical maneuver by the Rainforest Action Network (RAN).

In a recent article from NGO Watch, it was stated that Chevron said they had been relieved of the liability for the environmental problem via a release from the Ecuadorian government. Per the article, RAN rebutted the claim by Chevron saying:

” ‘By focusing energy on evading responsibility instead of cleaning up the mess in Ecuador, Chevron is letting children suffer from some of the world’s most heinous environmental destruction when they could be doing something about it.’ “

Principle wrapping is a tactic for study.

Principle wrapping is a tactic for study.

In the article from NGO Watch, the quote was attributed to Rebecca Tarbotton, Program Director of Rainforest Action Network.

This particular quote caught my attention. It caught my attention because I am currently dealing with the principles of propaganda in researching a new book. In my research, I deal with the principles of propaganda as laid down in the seminal book Propaganda, written by Jacques Ellul.

This 1965 classic deals with the elements of communication and what makes a successful message. One of those elements Jacques discusses is the Fundamental Currents of Society, and within those currents he places the Four Values of Daily Life. One of those four values is youth, or we can interpret that as children. He maintains that bringing into a message any of the four values, and their support thereof, will greatly increase one’s argument and make that message more effective.

So very well-played. Bringing the children into the argument. We see this happen periodically and are somewhat accustomed to it. But do we really realize why it works? Why bringing the children into the argument can contribute to the effectiveness of the message?

Jacques Ellul discusses this in-depth. He says, also within the Fundamental Currents of Society and within what he describes as the Four Sociological Suppositions, that the prime objective of humans is to attain happiness. Seems reasonable, yes? And he supports the notion that without youth there can be no progress in society and that without progress humans cannot obtain the happiness.

So, is the argument really about the principle of the protection of children, or is the argument actually about the principle of the attainment of individual human happiness?

To whichever principle you subscribe, the fact remains . . . wrapping your argument in a principle can be very effective. And the bigger the principle, so much the better.

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Will Too Much Transparency Be Bad for All of Us?

Nov 11

Posted by Richard in Activism, Anti-Corporatism, NGOs, Strategy | No Comments

transparent windowActivist and NGO calls upon companies to act in a more transparent fashion are fine, but only up to a point.

Although I am a business advocate, I’m absolutely not in favor of companies adopting questionable processes, cheating consumers, or raping the land. I am a business advocate to the point of business being necessary and beneficial for the larger society.

So when I hear calls for “transparency,” such as is the mantra of many a social media guru, I think that transparency directed at the interested consumer is good, but we can’t take those calls too far. As the adage goes, “Too much of anything is not a good thing.” Why would I say this? Let’s use the following quote as a point of illustration.

In a June 2008 Fast Company article entitled “Buying Local - Isn’t it really about Social and Environmental Responsibility?“, we see the oft-repeated call-to-action under the topic: Questions Conscious Consumers should ask:

Transparency and Accountability: is it possible for me to learn where the materials to make the good came from and who made, transported, distributed, and retails the good? Can I contact anyone of these organizations if I want to learn more?

Before I moved into the area of macro-marketing consulting and analysis of anti-corporate activism, I was a competitive intelligence (CI) analyst. I made my living by examining the strengths and weaknesses of my clients’ competitors. One thing that would have simplified my job as a CI analyst would have been more “transparency.” When I was a CI analyst, had I known: where my clients’ competitors sourced there materials, who transported them, who distributed them, and exactly who retailed them, my analyses would have been absolutely devastating to the competitors my clients were paying me to examine.

With that intelligence, I would have been able to easily zero in on the competitor’s cost profile and from there I would have easily been able to back into the competitor’s profit margin. Easily. Devastatingly. My clients would have been ecstatic. Good for my clients. Not so good for the competitor. That transparent competitor would have “shot themselves in the foot.”

In capitalist markets, and in America we still are a capitalist society at least for the time being, too much transparent information floating around can be bad for the business that releases that info. Excessive transparency can cause reduced competitiveness and with that reduction in competitiveness can go the company itself. “Self-imposed” transparency can cause a company to leave the marketplace, i.e. go out of business, taking the jobs of hundreds or thousands of individuals with it.

And with that company goes competitiveness across the industry. The companies left to compete in that marketplace, companies that are perhaps not as transparent, read that as “stupid,” become fewer, consolidating market power. With consolidation of power comes higher prices and fewer jobs through which the work force can finance those higher prices.

In other words, based upon my experiences as a CI consultant, what I can see as a product of too much corporate transparency is a dystopia.

Too much of anything is not a good thing.

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Activism: Harm to the Body Politic?

Nov 6

Posted by Richard in Activism, Anti-Corporatism, NGOs, Tactics | No Comments

In their battle against business, one tactic of activists is to challenge the legal parameters within which corporations operate.

In reading about this tactical approach, I came across an article entitled “Paradigm Shift: Challenging Corporate Authority” and written by Paul Cienfuegos. This article appears in a book entitled The Global Activist’s Manual, edited by Mike Prokosch and Laura Raymond. On the first page of the article, author Paul discusses how early Americans, unlike modern Americans, understood that a corporation was an artificial entity, one created by law and people. He states that in 1834 the Pennsylvania legislature declared a corporation as a “creature of the law” and that it should be shaped “for any purpose that the Legislature may deem most conducive to the common good.”

This position encompasses very astute insights by Paul. He makes the distinction between a corporation and a human. The former being manmade, while the latter being a creation of the Almighty. The corporation being manmade should then be responsible to those who created it, which he equates with the people of the state where the corporation was formed. Excellent point.

Paul continues, “People understood that they had a civic responsibility not to create artificial entities that could harm the body politic, interfere with the mechanisms of self-governance, and assault their sovereignty.” Again, all excellent points which I take as Paul saying that the corporation should be responsive to the people who, through their state legislature, created the corporation. Sound reasoning and the basis of a tactic which can be used in the never-ending battle between activists and business corporations.

Activists would adopt this tactic and take it into the legal arena when battling business corporations. The activists’ tactic would be to force the legislatures to make business corporations more responsive to the people, who created the corporation in the first place. Yes, again sound reasoning and brilliant thinking.

But brilliance can cut both ways and payback is always a bitch.

Businesses are not the only organizations that are formed under state corporation law. NGO and activist organizations are also formed under the corporate statutes of a state. Can anyone reasonably, semantically, and validly state that NGO and activist corporations do not “harm the body politic” or “interfere with the mechanisms of self-governance” or assault the sovereignty of the people?

Tactics can be turned around.

Tactics can be turned around.

NGOs and activist corporations benefit from the limited liability protection of state corporation laws. The people of the state have afforded those organizations that privilege. In return the people of a state should expect that their interests should be represented as the “common good.” But no one elects NGOs or activists to act in the peoples’ interest. NGO and activist corporations decide on their own what the “common good” should be. Through the non-democratic processes under which NGO and activist corporations operate, these organizations by definition “harm the body politic,” and “interfere with the mechanisms of self-governance,” and assault the sovereignty of the people.

When pursuing or recommending a tactic, perhaps its best to assess how it can be used against one’s own position.

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Free Food is Next on the NGO Agenda

Nov 3

Posted by Richard in NGOs, Trends | No Comments

Remember back in the 1990s, when Hillary-Care was being bandied about as a program to provide free medical care for all Americans. During that debate I thought it was only a matter of time until someone went further and started pushing, seriously, for a program advocating free food for all. Perhaps we’ve reached that point.

Natural Light Collection uiPer an article at GlobalGovernanceWatch.org, the Food and Agricultural Organization of the United Nations recently produced a five volume guide entitled the Methodological Toolbox on the Right to Food, the contents of which are very interesting. Let’s discuss how the implementation of this publication’s call-to-action could lead to free food and, with it, economic instability in the food industry and perhaps social uncertainty.

The article on the Global Governance Watch site states that, since the United Nation’s founding in 1948, it has been a goal of the UN that individuals worldwide have the right to an adequate standard of living. In the United States, we call this the “pursuit of happiness.” Global Governance Watch (GGW) also says that in 1999, the United Nations clarified this position with General Comment 12 of the UN’s International Covenant on Economic, Social and Cultural Rights:

. . . the right to adequate food is realized when every man, woman and child, alone or in community with others, has the physical and economic access at all times to adequate food or means for its procurement.

As I interpret this quote, its key idea is that governments create an environment where individuals have economic access to food or access to its means of procurement. Very reasonable. In simplified terms, we can call that access a politically-supported environment where those who want a job can have a job so that they can economically access and procure, i.e., buy, food. Again, you have the right to the pursuit of happiness. I support that wholeheartedly.

But GGW reports that in 2005, the game began to change at the United Nations because in that year the General Assembly passed a resolution calling:

upon States to implement legal and political strategies to ensure that the right to food was not compromised.

Hmm.  That’s a bit of a shift in thinking, isn’t it?

GGW says that for the UN to give “traction” to General Comment 12 and the 2005 resolution, the UN produced the aforementioned Methodological Toolbox on the Right to Food. The Toolbox was recently published (October 23, 2009) and in its website article about the Toolbox, GGW calls specific attention to the first of the five Toolbox volumes. The first volume is entitled “A Guide on Legislating for the Right to Food. In its synopsis of the Guide, GGW interprets the Guide as saying that:

. . . States must incorporate the right to food into national constitutions . . . (and) they must establish a “framework” law on the right to food, which sets out obligations for state authorities and private actors and establishes “necessary” institutional mechanisms to enforce right to food legislation and policies.

(The mention of States here is taken to be member states of the United Nations.)

Right now, I’ll make a very astute comment, one I’m sure is very often used within academic circles and by political consultants, as well.

“Are you kidding me?”

The United Nations wants to butt into our, the American, constitution to guarantee a right to food? And the UN wants to force the participation of “private actors,” let’s read that as companies, to participate in that right to food?

What appears to be happening here is that the United Nations wants us to recast that phrase, “the pursuit of happiness,” one so engrained in our national consciousness, into a new phrase, something like “the guarantee of happiness.”

Let’s put the national sovereignty issues aside. I’ll leave those to the political scientists to hash out. Right here in this blog, I deal with business issues and how they are affected by social trends and particularly by activists and NGOs. NGOs like the UN. And one of those business issues is that it should be clear to anyone with at least a basic understanding of economics, capitalist economics that is, that a free food policy could be disastrous.

If food companies are forced to participate in a “right to food” rather than a “right to economic access,” serious repercussions will be felt within that industry, compromising the food supply for all. Such actions, although very charitable and humanitarian in their intent, would actually be counterproductive. Here’s the scenario.

Let’s say there is a legal demand on food companies to make a portion of their production available at no charge. If food companies must provide a significant portion of their output for free, doing so will force prices to rise on the food for which the companies will be remunerated. The result of this scenario would be that there would be less food consumed.

The decrease in food consumption would begin with paying customers on the lower end of the income scale. As food prices rise, to cover production and distribution of the food for which the company receives no compensation, lower income consumers would not be able to absorb the increases. They would buy less food, and indeed most likely join the ranks of individuals receiving the free food, thereby increasing the proportion of the market which receives the free food. This increase in free food recipients would raise food prices further.

Spiraling increases of food prices would occur, with the paying market segment becoming smaller and smaller and, accordingly, profits becoming smaller and smaller or non-existent. At some point the food company would decide to exit the progressively unprofitable market or go bankrupt. The exit of the food company would necessitate other food companies to feed the defunct company’s non-paying consumers, for free of course, and the cycle would repeat. Food companies would fall progressively, like dominos.

And as the food companies fall, unless supported by government subsidies which presents different economic problems, “food fights” may begin. Not fights with food. Fights for food.

No. Although this idea the UN has might seem like an altruistically good idea, in practicality the concept of free food, like free health care, only brings negative results and exacerbates the problem it was intended to solve in the first place.

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