U.S. Government Passes Historic Legislation to Reform Wall Street and Protect Main Street

In the land that caused the global credit crisis of 2008 and following recession - the United States - its government has now acted to forestall similarly caused collapses of private financial markets in the future.

While the Caux Round Table welcomes this legislation, we are also sorry that it leaves unreformed some of the powerful, but dysfunctional, aspects of private sector risk governance and setting valuations for companies and financial instruments.

To read our analysis of the legislation, please click here.

BP and the Gulf of Mexico - A Way Forward to Restore Modern Capitalism?

The Caux Round Table (CRT) today described the BP crisis in the Gulf of Mexico as fundamentally a governance failure and called on corporations to take the lead in preventing such failures by embracing a more responsible and moral form of capitalism.

CRT Chair Dr Noel Purcell stated that the failure of BP to prevent and, subsequently, to be able to control the massive oil leak from their well in the bed of the Gulf of Mexico, demonstrates the need for more enlightened and improved corporate management of risks.

The environmental and social harms precipitated by the Gulf of Mexico crisis parallels the economic and social harms triggered by poor risk management on the part of banking firms in the lead up to the Global Financial Crisis of 2008. In both cases, risk management was compromised as senior corporate officers and boards of directors failed to closely monitor and control the widening of risk parameters as the limits of technology, on the one hand, and of financial leverage on the other, were pushed to extremes.

Recognizing that management of risks and stakeholder impacts determines the quality of a company’s responsibility and resilience, the Caux Round Table has pioneered development of a new approach to management of such obligations.

The approach recognizes that risk is inherent, not just to business, but to the human condition, which always seeks to apply intelligence and creativity to use of our resources. It recognizes that the need of business and humanity is to manage risk and not to foolishly seek its elimination. An equilibrium embracing a range of acceptable risks is the goal of the approach. This is especially needed in free market environments where the propensity of modern business is to accelerate risk taking through invention of new technologies and new methods of financial intermediation.

Finding the right level of risk invokes application of sound judgment and so needs to be placed with persons of wisdom and good character, who possess a sense for history and understand the frailties of human nature and the role of the common good.

“Capitalism is the best means to positively channel humanity’s access to needed resources, both natural and financial, especially in the form of successful enterprise. But equally, irresponsible capitalism ultimately causes material harm economically, socially and environmentally” said Dr. Noel Purcell, CRT Chair.

As experienced by the banks and now by BP, poorly handled risk management that results in material social harm, directly leads to the re-issuance of society’s license to operate on new and more restrictive terms. Most often, these new restrictions are placed in the law and in regulatory supervision of key business decisions. Just recently, the United States Congress adopted new laws limiting the entrepreneurial freedoms of financial firms. And the Obama Administration has required BP to contribute US$20 billion to a fund for payment of damages caused by the oil gushing into the waters of the Gulf of Mexico.

Therefore, to maximize the scope of their licenses from society, responsible private firms need enhanced techniques to enable their boards of directors to exercise fiduciary attention over a wide range of risk possibilities. Society trusts more those firms that act ethically and responsibility, permitting them greater flexibility to seek profitable business opportunities.

“It is the responsibility of boards of directors to watch the pots that might boil over and scald all about them. Management of risk is too important to be left to staff professionals. Poorly managed risk threatens the fundamental financial value of the enterprise and so preserving enterprise value through proper stewardship of risk is a fundamental board responsibility”, Dr. Purcell said.

The CRT risk assessment process, titled Arcturus, also recognizes the enormity of such responsibility in large modern multi-national corporations engaged in complex, far-flung operations. It enables boards of directors, in timely fashion, to gain accurate assessments of a company’s risk profile.

The Arcturus process is simple but subtle. It permits boards and senior managers to monitor future developments of concern to stakeholders. It builds on the proven lessons of quality management, which after all, was a most successful enhancement of risk management issues.

The Arcturus process engages the experience and the judgments of directors, senior managers and line professionals. It surfaces concerns that a company’s quality of performance is at risk and helps prevent it being compromised by short-sighted views of risk.

Ricky Fukada Elected to Caux Round Table Global Governing Board

Mr. Shizuo (Ricky) Fukada of Japan has been elected to the Global Governing Board of the Caux Round Table.  Mr. Fukada was also recently appointed Executive Director of CRT Japan.

Mr. Fukada is a global expert on corporate social responsibility. From 2000 to 2009, he served the Keidanren (Business Federation of Japan) as Chair of its Council for Better Corporate Citizenship and as a member of its CSR top management committee.  He had been a member of the Keidanren Council for Better Corporate Citizenship from 1990 to 1999. Mr. Fukada was a member of ISO26000 Japanese expert group representing industry and served as the leader of the Japanese delegations to the ISO conferences from 2005 to 2009. For this work, he received an Honor Award from the Japanese Ministry of Economics, Trade and Industry.

Mr. Fukada graduated from Osaka University of Foreign Studies in 1960 and then worked for the Ataka and Sumitomo trading companies for 34 years, stationed in the United States for 23 years. Then, he was corporate associate director for overseas operations for the Omron Corporation, where he also took a lead in its CSR activities.

Mr. Fukada has taken special interest in the China-Japan business relationship, leading the dialogue conferences with Chinese colleagues. He has participated in WTO and APEC conferences and supported the Japan-Singapore trade agreement and the Japan-Thailand Free Trade Agreement.

We look forward to Mr. Fukada's experience to enhance the success of the Caux Round Table.

Caux Round Table Hosts Event with Congressman Barney Frank

On Saturday, May 8th, Congressman Barney Frank, Chair of the House Committee on Financial Services, spoke about the future of financial services in the U.S. Dave Beal, a reporter with MinnPost and friend of the Caux Round Table, covered the event. To read his article, please click here.

The Heart of Capitalism
 
In recent times capitalism has come in for a rough ride. The huge corporate scandals - the Enrons, Worldcoms and Tycos of the world - focused attention on the way the corporate world works long before the recent excesses of the financial services industry, but what would a world practicing responsible, or moral, capitalism look like. Steve Young, global executive director of the Caux Round Table, has a vision and shares his thoughts with Directors Eric Baker. Read more . . .

The Responsible Capitalists: Will Anyone Fill Their Shoes?
(Stephen B. Young, Minneapolis Star Tribune)


 
Denny Hecker has certainly been in the news, with his failed marriages, failed businesses, and seemingly endless difficulties with the law and lawyers. Earlier this year we saw the conviction of Tom Petters -- local exemplar of Bernie Madoff's business orientation.

Is this what Minnesota business leadership has come to represent in the public mind? Are Hecker and Petters merely extreme exceptions to the rule of the business game in Minnesota? Or has something changed in our business culture? I think the answer is yes to all these questions.

Business ethics in Minnesota are still of a high caliber; Hecker and Petters truly are exceptions. But at the same time, I fear that our state's business culture today places ever more importance on simply "making the numbers." This value, more typical of the national business scene, has risen in prominence as senior corporate leadership here has been drawn more and more from the ranks of professional, have-gun-will-travel style MBA contract managers, and less from local families or in-house talent. Read more . . .

Lehman Brothers, Repo 105 Sales, Lawyers and Ethical Abuse

Caux Round Table's Global Executive Director Honored in Ban Chiang, Thailand

On February 9th, 2010, CRT Global Executive Director Steve Young attended the opening of new museum buildings at Ban Chiang, Thailand. HRH Princess MahaChakri Sirindhorn, Crown Princess of Thailand, seen to the right of Steve Young, officiated at the opening. Young received from the Princess her personal Anurak monogram for his work in discovering the bronze age site of Ban Chiang in 1966. Ban Chiang is today a UNESCO World Heritage Site for its importance in Asian pre-history. Young's 1966 field work in Ban Chiang is on display at the museum.  Click to view larger photo.

Wise Recommendations for Better Corporate Governance

The Committee for Economic Development in Washington, DC, has released a set of recommendations for better corporate governance proposed by Ben Heineman, former Senior Vice President-General Counsel of GE, and now a scholar in residence at the Harvard Law School. This statement is a high cut above recent recommendations coming in the wake of the 2008 collapse of credit markets.

Many talk about the need for American business to regain public trust, but this set of recommendations is an actual plan. It can work. It’s based on values – stewardship and responsibility – and knows how the right values can be grown inside a corporation.

The CED has given us an action agenda to improve American capitalism. The Caux Round Table fully supports the proposal.

To read the recommendations, please click here. 
 

Caux Round Table 2009 Global Dialogue Proceedings

We are very pleased to announce that the proceedings of our 2009 Global Dialogue are now complete. We are very grateful for the thoroughness and care which Dr. Lester Myers brought to his task as our Rapporteur. He not only organized the discussions, but provided reference links to other books and sources of importance to most helpfully connect our comments and concerns to the wider world of reporting and analysis. It is these references that give this set of proceedings important "shelf life."

To read the proceedings, please click here.

Caux Round Table Guidelines for Executive Compensation  

Aligning executive compensation with long-term value creation and with responsible concern for stakeholders is an essential requirement of a more moral capitalism. The Caux Round Table advocates a set of guidelines for Boards of Directors to follow in setting compensation for senior company officers. To review these guidelines, please click here.

Caux Round Table Fellows Call for New Foundation for Professional Education

The CRT hosted its second annual Academic Retreat for CRT Fellows and other scholars earlier this year in Caux, Switzerland. The concern that emerged in retreat discussions was over the intellectual limitations that seem to have overcome professional education in modern society and turned potential stewards of virtue and values into mere technocrats who sell their skills for whatever they can get. Technocracy, it seems, is not about just ends, but means only and the application of formal logics, data sets, theoretically constrained relationships, and assumption-based algorithms.

Several of our CRT colleagues and Fellows have called for the grounding of professional education in ethical and intellectual fundamentals. Fortunately, as our colleagues point out, humanity has a rich tradition of wisdom literatures on which to draw for such education. Click here to read summary statement.

 2009 Social Capital Achievement Country Rankings

The Caux Round Table recognizes that economic development does not occur independently from social, cultural and political institutions. Wealth creation is not an isolated, autonomous, self-referential process within communities; it is a dependent variable, subordinate to the dictates of prior conditions. Markets are organic phenomena; they grow strong and vibrant only in facilitating environments. The Caux Round Table recognizes this dependence of wealth creation upon surrounding conditions as Kyosei, or dependent co-arising. Read the full 2009 Report here.
 

 
OPINION ESSAYS

High Frequency Trading: A Public Good? (Stephen B. Young, Global Executive Director, Caux Round Table). I am increasingly drawn to the proposition that financial markets and capitalism are not soul-mates. They are more like fractious siblings competing for parental attention, or narcissistic partners in a rocky marriage, each needing the other but each fearful of the other’s shortcomings. There is a close tie between them which can’t be totally severed. Traders in financial markets need real economic activity and growth in order to have financial contracts - stock, loans, options, derivatives, insurance guarantees, etc. - to buy and sell. Finance has no social purpose other than gambling unless there are related economic transactions to use the money which is bought and sold in financial markets. Read on . . .

The Moral Instinct and Organizational Excellence - An American Perspective (Prof. Doran Hunter, Research Fellow, Caux Round Table). Thomas Jefferson, in a 1787 letter to Peter Carr, made a profound observation about human nature that only now is being verified by neuroscience and behavioral genetics studies. Man is, Jefferson wrote, a social animal and is “endowed with a sense of right and wrong.” If one would “State a moral case to a ploughman and a professor … the former [would] decide it well, and often better than the latter, because he has not been led astray by artificial rules.” Today neurobiologists and psychologists are scientifically confirming Jefferson’s observation by demonstrating that human beings are “hard wired” to make initial moral judgments without knowing why they are making them and then using reason to support their judgments. The content of such judgments seems to be an emotional human need to treat others as one wishes to be treated. It seems that David Hume was correct: reason is the slave of human emotions. Could this human predisposition to act morally in most situations explain why 95% of business arrangements and other forms of negotiable agreements and understandings are carried out with honesty, fairness and probity? Read more ...

CSR and Public Goods (Stephen B. Young, Global Executive Director, Caux Round Table). A month or so ago I suggested that a very helpful way to understand corporate social responsibility within capitalism is to think of it in structural/functional terms as a mediating process for the private business enterprise with its environment. Private enterprise does not have modern society all to itself. There is government and there is, increasingly, civil society. Private enterprise seeks profit within the rules and regulations set down by government and ingests the social capital provided by civil society. The interactions among business, government, and civil society need constant mediation as a function of successful business enterprise. Such mediation, I suggested, is the function of CSR and CSR managers. Read more . . .

The Case for Moral Capitalism (Claire Chiang, Managing Director and Senior Vice President, Banyan Tree Holdings Ltd). The collapse of the global financial system has resulted from a decline in moral principles. Capitalism characterized by maximization of profit and survival of the fittest is no longer the model to success. Read more...

Organizations and Ethical Behaviors: Anxiety has a Hundred Faces (Stephen B. Young, Global Executive Director, Caux Round Table). Our global community of business leaders, politicians, regulators and commentators have not yet, I sense, fully digested intellectually the implications of the 2008 meltdown in global credit markets. But, after that in stunning succession, we have seen more failures in the delivery of responsible outcomes as we experienced the failure of General Motors as a going concern, the failure of Toyota to foresee, remedy, and explain failures in acceleration systems and brakes, and, perhaps most sadly, the failure of certain priests in the Roman Catholic Church in Ireland and elsewhere to maintain the standards incumbent upon those who would be God’s vicars on earth and of their administrative superiors to quickly and efficiently deal with their wrongs and to comfort and heal their victims. Read more . . .

Governance is Governance (Stephen B. Young, Global Executive Director, Caux Round Table). Business ethics and corporate governance would seem to be two peas in the same pod of a moral capitalism. But one falls to the teachings of moral philosophers and the other to the recommendations of lawyers. The two, therefore, rarely intentionally intersect within our corporations - ethics on one side and compliance on another.Read more ...

The Ethics and Economics of Food Security (Stephen B. Young, Global Executive Director, Caux Round Table). The Caux Round Table advocates responsible business practices resting upon three core values: human dignity, Kyosei or mutual dependencies, and stewardship. These values inform all aspects of a sustainably profitable capitalism. From the perspective of human dignity, each business has a duty to contribute to rising standards of living that give more effective scope to the moral virtues of individuals. From the perspective of Kyosei, each business depends on mutually beneficial relationships and other forces in its commercial environment such as customers, employees, suppliers, and communities. From the perspective of stewardship, each business has an office to perform to society in wealth creation for the common good, taking into account the needs and interests of its constituent stakeholders. Read more ...

The Social Ecosystem of CSR: Mediating Among Businesses, Government and Civil Society (Stephen B. Young, Global Executive Director, Caux Round Table). Corporate Social Responsibility (CSR) plays a vital, yet unheralded, role in mediation among the business sector, which creates the wealth of nations, government, which provides for public goods, and civil society, which fosters and sustains social capital. Thus, CSR theory and practice has become necessary for the smooth functioning of any sophisticated, post-modern social ecosystem. Read more ...


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