Essay: Case Studies On Corporate Social Responsibility.

Exxon Mobil - Stewardship, Leadership, Corporate Social Responsibility

Exxon Mobil - stewardship, leadership, corporate social responsibility (refer to p. 229, Tricker, 2015)

After reading the case study below, answer the questions following the case in your initial post. Respond to at least two posts.

US John D. Rockefeller founded the Standard Oil Corporation, which became Exxon Mobil, the world’s largest publicly owned energy company. At the 2008 AGM, some of his descendants brought shareholder motions calling for the company to curb greenhouse gas emissions, to increase renewable energy research, and to develop sources of alternative fuel.

Three resolutions asked Exxon to study the impact of global warming on poor countries, to reduce company emissions of greenhouse gases, and to do more research on renewable energy sources such as wind turbines and solar panels. Neva Rockefeller Goodwin, an economist and great-granddaughter of Rockefeller, told shareholders:

These increased concentrations of CO2 in the atmosphere will cause weather disasters that will work against everyone’s best hope for robust development in emerging countries, while also increasing the vulnerability of the poor in the rich countries. It will also impact the global economy. The proposals were opposed by Exxon Mobil’s board.

The family also supported resolutions calling for the company to establish an independent chairman, separating the role from that of the current chairman and chief executive Rex Tillerson. Shell and BP, they noted, had already separated the positions. The motion to split the roles, which had been raised for the last seven years of shareholder meetings, was supported by a significant number of shareholders. But the final poll showed only 39.5% of the shares were voted in favour. Commentators suggested that the US $40 billion profit reported by the company in 2007 may have influenced the rest. ‘The past year was an outstanding year and a record for our corporation by nearly every measure,’ Tillerson said. ‘Millions of people have benefited financially by holding Exxon Mobil shares either directly or indirectly through their pension, insurance, and mutual funds,’ he added.

Mr.Tillerson added that he thought Exxon had to keep focused on its mission of developing more oil and gas reserves, and that oil and gas would remain the primary fuel source for decades to come. Some shareholders disagreed, arguing that the company’s emphasis on developing oil and gas as energy sources threatened the global environment and ultimately the company’s financial health.

 One shareholder suggested that the company was ‘acting like a dinosaur by not adapting to a changing environment’. Another shareholder, a Dominican nun, said: ‘We’re faced with a profound moral and business challenge.’ These shareholders were countered by otherswho defended the management, saying it had been ‘a great engine for profit’.

Discussion questions

1. Should the company keep its focus on its mission of ‘developing more oil and gas reserves’?
2. How would you make a case for the company to curb greenhouse gas emissions, increase renewable energy research, and develop sources of alternative fuel?

In addressing both questions, apply the concepts of stewardship, leadership and corporate social responsibility to support or to argue against the position.

Read Case Study Tokyo Electric Power and the disaster at Fukishima Daiichi (p. 161) in Tricker, B. (2015). Corporate governance: Principles, policies and practice. Oxford: U.K. Oxford University Press.

After reading the case study, discuss:

1. How did the board structure contribute to the failures?
2. How do you account for the discrepancies between the company’s alleged concerns for corporate governance on its website and the catastrophic failure?
3. What advice would you give to the chairman of TEPCO?

Southern Cross Healthcare - Challenges and Board Structure

After reading the case study below, answer the following questions in your initial post:

1)     Given the situation that faced the company, do you think the board had an appropriate structure and membership?

2)     What changes, if any, would you recommend?

Respond to at least two posts of your cohort members.

Case study: Southern Cross Healthcare

Philip Scott, who trained as a psychiatric nurse, took over Southern Cross, a small provider of care homes in 2000. Within four years, he had built it, largely through acquisition, into the largest provider of care for the elderly in the UK. His business model relied on sale and leaseback of the homes to generate funds for expansion. In other words, properties were sold and then leased back to Southern Cross for an agreed rent.

In 2004, Blackstone, a US-based private equity firm, bought Southern Cross for £162 million. Its business model recognized that the UK population was ageing, and that vulnerable old people would need housing and care. Moreover, much of the fee income for such protected accommodation would come from the taxpayer, through state support for the elderly provided by local authorities.

This fee income was expected to be guaranteed and to rise with inflation, while economies of scale would reduce running costs. This was a relatively risky model, assuming growing demand and state-supported income that would reflect cost rises. In 2005, Blackstone acquired NHP, a large nursing home group, merged its operations with Southern Cross, and sold most of its homes, leasing them back to Southern Cross.

In 2006, Blackstone floated Southern Cross on the London Stock Exchange into a bull market. Some 60% of its voting shares are held by institutional investors. Financial institutions and advisers took substantial fees from the flotation. Four of the Blackstone nominee directors cashed in their shares, allegedly making over £35 million. The Blackstone holding was gradually sold producing around £1 billion.

Philip Scott, who resigned from the board in 2008, made over £10 million. In 2010, Southern Cross operated over 750 care homes, with more than 38,000 beds and 44,000 staff, offering residential care homes for the elderly who could no longer care for themselves at home, and nursing care homes with additional levels of medical care for thoseneeding it.

Southern Cross runs into trouble

However, by 2010, Southern Cross was struggling with its cash flow, facing rising rents, rapidly increasing energy and food costs, and reducing fee income as councils reacted to lower government grants and cut their expenditure on care for the aged. With less revenue,the quality of some homes declined, and occupancy levels fell.

In December 2010, the possibility of a takeover was rumoured (Investors Chronicle). The UK government became involved when seven age-concerned organizations complained publicly that increasing pressure on public finances was pushing an already overburdened care system to breaking point. An uncertain future and potential hardship facing 31,000 vulnerable, elderly residents of Southern Cross homes would not be well received by voters. As can be seen from the summary results below, the company was facing real challenges as it entered 2011.

Tokyo Electric Power and the Disaster at Fukushima Daiichi

Stephen Schwarzman, chairman of Blackstone, defended Blackstone’s original financial strategy, claiming that the crisis at Southern Cross was a reflection of the global financial crisis and not his business model. Philip Scott accused the current directors of scaremongering and said they were partly responsible for the decline.

The board in 2011:The board had six members, four men and two women, whose profiles follow.

Ray Miles, 66, non-executive director and chairman, who has spent most of his career in the shipping industry, became a non-executive director of the company in June 2006 and served as the senior independent director until he was appointed chairman on 1 January 2008.

Jamie Buchan, 51, chief executive, was appointed as an executive director of the company on 1 January 2009. Between 2002 and May 2008, Mr Buchan, backed by a Malaysian private fund, led the successful turnaround and subsequent sale of the ExCeL Exhibition and Conference Centre in London.

David Smith, director of finance and support services, joined Southern Cross as group finance manager in 2006, was appointed group financial controller in 2008 and director of finance and support services in September 2010 (replacing Richard Midmer). A chartered accountant, he previously spent ten years with accountants Price waterhouse Coopers.

Christopher Fisher, 57, senior independent non-executive director, who spent most of his career at Lazard, the investment bank, joined the board in June 2006 and became the senior independent non-executive director in January 2008. He is a partner in Penfida, a firm providing independent financial advice to pension fund trustees, and is also president of the Council of Reading University and a trustee of the Imperial War Museum.

Baroness Morgan of Huyton, 51, became a non-executive director of the company in June 2006.He became a non-executive director of the company in June 2006. A former teacher, Baroness Morgan worked as a senior aide to the British Prime Minister from 1997 to 2005. In 2001, she was made a peer and served as a Minister in the Cabinet Office. From 2001 to 2005, she was Director of Government Relations, Downing Street, working closely with the Prime Minister.

Nancy Hollendoner, 54, joined the board as non-executive director in January 2008 and is a senior adviser on the healthcare market to Hawkpoint Partners Limited. She previously worked as an equities analyst specializing in the healthcare market and was employed by UBS Investment Bank between 1996 and 2002. (See the 2010 annual

By mid-2011, Southern Cross had run out of cash and the residents of its homes seemed vulnerable. In May of that year, Southern Cross was locked in negotiations with its landlords, demanding a cut of 30% in current rents and looking for longer-term solutions. In June 2011, it announced 3,000 staff redundancies. By July, failure seemed inevitable, the stock market suspended its shares, and the company tried to return the care homes to their landlords. It was then faced with the prospect of having to pay over half a million pounds to its top executives under contractual ‘golden parachute’ terms, unless they voluntarily waived those rights.

1. The case study is based on Exxon Mobile. The CEO of company saidthat according to him, the company had to made focus on the mission to establish more oil and gas reserve, and that oil and gas will stay primary fuel sources for periods to come. Many shareholders did not agree. They argued that company’s importance on establishing oil and gas as energy source exposed global environment and economical or financial condition of the company. It is analysed that the company need to stick with its mission and vision for developing sustainability in their business operation. The company addresses the impacts of the rising greenhouse gas emission, which result to propose changes of climate. After evaluating the case, it is suggested that the company should continue to involve the related stakeholders in various sustainability procedure for securing the surroundings. Thus, company should make focus on the mission to establish more oil and gas reserves (Kallamu, 2015).
2. The corporations do not have ethics. It is required by the Board of company to be morality of corporation. The directors are required to render the corporation with ethical scope. For this, board is liable for making the substantial effects of the approaches it makes. The board is also accountable to recognise the both long-term effects and short-term effects of policies it accepts and for identifying the probable results on the individuals and for admitting the obligations to be responsible. It is a duty of board to make strategies of the company and identify the involved risk. It is necessary to balance challenging claims of various stakeholders and develop maintainable corporate social responsibility strategies, when fulfilling the expectations of shareholders. As per the concepts of stewardship, leadership, and corporate social responsibility (CSR), the motion of shareholder is correct that the company is required to curb greenhouse gas emissions enhance renewable energy research and establish the alternate fuel sources (Basco, 2014).

1. The board of company was very large, managerial and missing any logic of self-governing external directors. It is very difficult in various well-known corporations of Japan. The government of Japan and world-wide organisational depositors like US Calpers have been made efforts but they have not succeed to later the attitude in boardroom, to where powers must exist in and who is required to be encouraged to the board of company(Kallamu, 2016).
2. It was the corporation, which seemingly did not admit the importance of professional corporate governance believing, however went over the motion to fulfil the controllers, managers, and depositors of stock market.
3. After reading the case, it is recognised that the chairman has main role in appointing the directors of the company. There may be great effect of the resignation from the board on the conduct of Chairman or CEO of the company. The resignation of the directors of the company creates the negative image of Chairman of company or CEO of company. The main important thing to be taken as challenge is to know the constitution of the board and process of behaviour of the directors. It is considered as other corporate governance standard or model. It is analysed that supplanting the board of company with majority of independent directors, is not good suggestion. There is no such provision of practise of the independent directors; it operates conflicting to various top managerial beliefs. The burden from organisational depositors to leave the job might work; however, there must be replacement. Otherwise, the accessing advices, consultation services, directions, guidance, mentoring, reviewing, activities related to changing the behaviour, involvement and understanding on further board might be the better ideas or suggestions for the chairman of the TEPCO company(Çetinkaya, Agca & Ozutku, 2016).  

1. As per the Corporations Act, 2001, there are no prescribed maximum number limit of the directors (Clarke, Thurstan & Yates, 2016). Mostly, states based associations incorporation legislations do not recommend minimum number of member or maximum number of member for the board of company. The minimum number of board or maximum number of board for legal experts and other public sector organisations are generally recommended in legislature or the regulations by which the companies or authorities are created. Further, as per the provision of the Corporations Act, 2001, the number of the non-executive members should be more than executive members in company. It means there should be majority of non-executive members. In this company, the board of company has six members including four males and two females. The company has majority of non-executive directors. According to these criteria, the board has appropriate body structure. However, the board has only one independent non-executive director. It may affect the independency of the company. Because as per the Corporations Act, 2001, there should be at least two independent directors for smaller board (Bateman & Balmford, 2018). This structure may arise the question on the appropriateness of the board structure of company. In the given situations, it is analysed that the board structure of the company is not appropriate structure. Furthermore, it is the fiduciary duty of director to act in good faith (Ljubojevic & Dasic, 2018). The person who is holding the position in one company, cannot hold the position in same or other capacity in other company. In this company, David Smith, Christopher Fisher and Nancy Hollendoner hold the position in some other companies. In this way, they are not eligible to be director in this company.  

2. As per the above discussion, it is recommended to appoint one or more independent director in the company to avoid the situation of interest confliction. It is also recommended to ask the David Smith, Christopher Fisher and Nancy Hollendoner to held the position in Blackstone only or in other company. if they wish to continue in other company, then it is required to appoint more executive or non-executive directors in appropriate balancing number(Nikhmah & Asrori, 2017).

References

Bateman, I. J., & Balmford, B. (2018). Public funding for public goods: A post-Brexit perspective on principles for agricultural policy. Land Use Policy, 79(5), 293-300.

Clarke, B., Thurstan, R., & Yates, K. (2016). Stakeholder perceptions of a coastal marine protected area. Journal of Coastal Research, 75(sp1), 622-626.

Kallamu, B. S. (2016). Nomination Commitee Attributes and Firm Performance: Evidence from Finance Companies in Malaysia. Journal of Economic and Social Thought, 3(1), 150-165.

Kallamu, B. S. (2015). Ownership Structure, independent directors and firm performance. Journal of Social and Administrative Sciences, 3(1), 17-30.

Ljubojevic, G., & Dasic, G. (2018). Boards attributes and their implications on decision-making process. Hotel and Tourism Management, 6(1), 19-29.

Nikhmah, S., & Asrori, A. (2017). The Effect of Good Corporate Governence Implementation on Profit Sharing Financing through Banking Risk. Accounting Analysis Journal, 5(4), 263-270.

Çetinkaya, M., Agca, V., & Ozutku, H. (2016). Priorities for Corporate Social Responsibility Reporting: Evidence from Listed Turkish Companies in Istanbul Stock Exchange. Journal of Economic & Social Studies (JECOSS), 6(2).

Basco, R. (2014). Exploring the influence of the family upon firm performance: Does strategic behaviour matter?. International Small Business Journal, 32(8), 967-995.