After far too long, corporate managers and directors may be starting to catch on. Many investors, not to mention the general public, have lost any patience for corporate irresponsibility. Recent high-profile shareholder revolts could finally be spurring corporate bigwigs to change their ways.
Better safe than sorry
After 29 miners died in an April coal mine explosion, Massey Energy (NYSE: MEE ) has taken several measures to address shareholder anger about safety lapses and irresponsibility. Going forward, Massey will set up a safety committee comprised of independent directors. It's also made other corporate governance changes, including requiring directors to stand for reelection every year starting in 2012.
Hewlett-Packard's (NYSE: HPQ ) highly publicized ouster of CEO Mark Hurd for shameful behavior is an equally interesting development. Although some seem to believe Hurd's infraction was minor, executives who bend smaller rules now might bend other, bigger rules later. Shareholders simply can't afford that potential risk.
In 1970, Milton Friedman famously said that the only social responsibility of business is to increase profits. However, solid corporate governance may lead companies toward stronger performance on the bottom line.
Forbes recently profiled "The 20 Most Responsible Companies," according to data from GovernanceMetrics. In a nutshell, these contenders are chosen according to exemplary corporate governance policies.
Let's study a handful of the companies highlighted on that list, and see why GovernanceMetrics placed them near the top of the heap of responsible businesses:
- Powerful performance: American Electric Power (NYSE: AEP ) documents its environmental and social performance. Its fast facts page includes great data, including disclosure on emissions.
- Squeaky-clean corporate hygiene: Colgate-Palmolive (NYSE: CL ) dreamed up a system to achieve solid governance and ethical business policies. Its website has a detailed chart showing key performance indicators on "people, planet, and performance."
- A little less filthy lucre: ExxonMobil (NYSE: XOM ) shareholders are given the coveted ability to call special meetings, and the company's pay incentives are linked to peer group performance.
- Anti-sweatshop brigade: Gap (NYSE: GPS ) reviews garment manufacturing and factory approval processes, with an eye toward better factory conditions for workers and advancement for female employees, among other goals.
- Truly open networks: Sprint Nextel (NYSE: S ) corporate policies push for diversity both within the company and among its suppliers. The telecom also has a chief diversity officer on board.
- Copy that: Xerox (NYSE: XRX ) exhibits a strong commitment to ethics, diversity, the environment, and safety. Its most recent Global Citizenship letter seems to take inspiration from the conscious capitalism philosophy, opening with "Dear stakeholders," and saying things like: "We don't have to choose between the environment and profit. We can do both."
Rev up the responsibility
These lists may be a great starting point for Fools' further research, but they can also illustrate just how subjective the notion of "responsibility" can be. ExxonMobil may make GovernanceMetrics' list, but that didn't prevent its shareholders from filing 11 proposals in its latest proxy statement, many of which dealt with environmental concerns.
Hopefully, more and more companies are building their businesses to avoid as many long-term problems as possible, instead of shirking responsibility now, and reacting to inevitable shareholder outrage later. Taking more responsibility and fewer risks can substantially help a company generate long-term shareholder value. Investors should search for stocks that are up to the challenge.
Check back at Fool.com every Wednesday and Friday for Alyce Lomax's columns on corporate governance.