Significance of the topic and its relevance to the profession
In the light of the global financial crisis Unerman and O’Dwer (2010) analyse the relevance and scope of academic research to accounting practice. They argue for the academy to lead accounting practice in identifying changing societal needs in transparency (Unerman and O'Dwyer, 2010, p.19). Brennan and Solomon (2008, p.890) suggest a broader notion of accountability can be found in the stakeholder-oriented view of corporate governance. This research explores the question, which mechanisms will contribute to accountability on social, environmental and sustainability performance in corporate governance?
Shareholder activism is an attempt to influence the strategic direction of the firm and operational outcomes (Haigh and Hazelton, 2004). Voting on resolutions is the mechanism through which owners are able to express their preferences to the board of directors. “... conventional wisdom counsels that shareholders have more voice in corporate governance, in order to reduce agency costs and provide democratic legitimacy” (Hayden and Bodie, 2010, p.2071). However the rise in importance of institutional investors gives rise to further agency (Blank et al. 2006), with fund asset owners and fund managers being specialised operations, and voting rights usually controlled by a separate proxy management company.
So-called ethical or socially responsible fund managers have an explicit mandate to combine financial objectives with social concerns. Ethical fund managers seek to implement their ethical policy in their investment selection process and or through engagement. This study will investigate shareholder activism at an ethical fund which has a set investment policy (index fund). The researcher will observe senior level advisory group meetings where strategic decisions about which (of the S&P ASX 200) company to target and the process of forming resolutions. There are several unique, important and valuable features of this study.
Firstly it involves high level strategy at the firm. “Very few studies have been conducted within the inner sanctum of the boardroom” (Parker, 2007a) p 1454. Secondly it involves access to the sorts of confidential discussions that are rarely studied. “One of the more challenging barriers researchers face is gaining access to the types of process-oriented data that … will enhance our understanding of the effectiveness of governance mechanisms” (Daily et al 2003, p 378). Thirdly it involves a newly emerging form of the ethical investment and environmental activist social movement, which due to the pressing nature of climate change urgently demands critical analysis.
This research takes a social accountability perspective of firm performance as a framework for analysing shareholder activism by an ethical fund. It builds on previous studies of ethical funds (Cowton 2004, Kreander et al. 2004) and internal governance (Parker, 2007b). It further advances critical analysis of shareholder activism (Haigh and Hazelton 2004) by seeking to understand the process of activism by a fund. In examining the boundaries of activism for social accountability it reacts to Unerman and O’Dwyer’s (2010) call for further research into broader societal impacts.
Proposed Program of Study (10p ds)
Climate change remains a pressing social issue for which no global consensus on policy options has yet emerged. However, despite uncertainty in government policy, corporations continue to respond to increased social expectations for more environmentally sustainable modes of business practice. One such response is corporate social responsibility (CSR) reporting. Reporting on extra-financial performance has great potential as a, “process of communicating the social and environmental effects of an organization’s economic actions to particular interest groups within society and to society at large” (Gray et al. 1987, p.ix). The global reporting initiative (GRI) is one example of a voluntary mechanism by which firms can choose to communicate extra-financial performance. However, the rate of GRI reporting in the largest Australian firms (ASX top 100 firms by revenue) lags other developed countries (KPMG 2008).
In conjunction with this form of voluntary disclosure, socially responsible investing, or ethical investment, functions as an alternative regulatory mechanism. By aligning the provision of capital with specific personal values, the market for capital can play a role in encouraging companies to internalise what historically would have been construed as externalities. Ethical investment therefore seeks to combine financial returns with environmental, social and governance (ESG) performance. The United Nations Principles of Responsible Investment (PRI) is a voluntary initiative designed to enact corporate social responsibility (OECD 2009). The principles include ownership involving possible actions such as to, “File shareholder resolutions consistent with long-term ESG considerations”, and “Engage with companies on ESG issues”.
This process of engagement on strategic issues is however, rarely disclosed publicly:
“We firmly believe that to be most effective engagement must remain a private dialogue between shareholder and board representatives, and so do not usually disclose publicly activity at an individual company level ...”
On the 8th of July, 2010, a socially responsible (ethical) investment firm in Australia launched an advocacy fund with a charter to advocate on environmental, social and governance issues for investors. This charter places the ethical fund a unique position: it has a mandated advocacy role, it is a direct retail investment fund, and it will target the top 200 firms in Australia (S&P ASX 200 index fund). As part of its management process the fund has an advisory group who direct and plan advocacy activities.
The firm has been selected as a case study site to examine the role of shareholder activism by an ethical fund for social accountability in Australia from a critical perspective. The firm has agreed to non-participant observation of the advisory group. It is extremely rare to be able to access process data in governance research. The research thus has a very clear potential to make a significant and original contribution to knowledge in the areas of corporate governance and social responsibility.
The literature reviewed so far comprises the economics of externalities, including policy options, socially responsible investing and shareholder activism. Both traditional and critical perspectives are examined in search of possible courses of action that may lead to a future in which social values for human rights and the environment mesh with economy institutions.
Society’s preferences for environmental protection have long led to various forms of conflict with corporations. This tension between profit making enterprises and environmental activists affect the way in which corporate actions are scrutinised and regulated by governments. Green social groups may agitate for reductions in environmental impacts, often termed ‘externalities’. Environmental externalities reach to the basic structure of society, “the way in which the major social institutions distribute fundamental rights and duties, and determine the division of advantages from social cooperation.” (Rawls 1999, p6).
The institutional context evolves with social expectations. In the study the risks from climate change are becoming more pertinent, requiring action.
Climate change presents one such challenge to corporate governance.
Climate change presents economies two major challenges, firstly they involve public goods, and second they involve a lack of transparency (information) about external impacts. Imperfect information has the potential to impact upon economic outcomes (Stiglitz, 2000). Firms have information asymmetries about their contributions to the creation of externalities, as well as the potential to use information to signal and legitimise their actions and responses to external costs. The principal agent problem is also an information asymmetry. Thus managers may, “undertake activities that obfuscate information (thereby increasing their own rents).
Climate change, partly arising from externalities from business operations that contribute to global warming, has been the focus of concerted international policy discussion (e.g. Kyoto Treaty, Copenhagen summit, etc.).
Need for capital markets to account for externalities / Climate change – of pressing importance (PRI & UNEP Finance Initiative)
Universal ownership and fiduciary capitalism (UNCTAD)
Corporate social responsibility
This can be seen in the management literature, where corporate social responsibility reporting and performance is largely categorised as self-interested.
… significant inconsistencies and inadequacies among company reports undermine the comparability and usefulness of this (climate change related) information” p iii Unctad
Extra-financial reporting has great potential, as a, “process of communicating the social and environmental effects of an organization’s economic actions to particular interest groups within society and to society at large” (Gray et al. 1987, p.ix).
Economic policy options for dealing with externalities range from endorsing voluntary self regulation (such as reporting initiatives) to more intrusive regulation (such as exchange disclosure rules, carbon trading etc.).
The potential for voluntary policy options to achieving systematic change is not certain (Haigh and Hazelton 2004, Spence 2009).
There is some evidence that voluntary efforts by corporations to internalise externalities have positive results. “Companies that integrated sustainability and stakeholder concerns into the fundamental processes that make the company ‘work’ – strategic decision-making, resource allocation, human resources management, procurement, marketing – showed better performance” (Sloan 2009, p.37). Sloan (2009) also found, “less of a gap in manager – stakeholder perspectives about the responsibilities of corporations to society for companies that have integrated social responsibility into their day-to-day business processes (on average a 25% gap) than for companies that have not done so (on average a 34% gap)” (p.32).
The global reporting initiative (GRI) is one example of a voluntary mechanism by which firms can choose to communicate extra-financial performance. However, the rate of GRI reporting in the largest Australian firms (ASX top 100 firms by revenue) lags other developed countries (KPMG 2008).
“The emergence of the Global Reporting Initiative, with ints on-going process of developing “sustainability reporting” guidelines, is also clearly implicated in providing an entity-focused view of sustainable development. For companies claiming to be “doing” sustainabile development, there are almost certainly changes in their business practices, both behavioural and reporting, and at face value these changes appear for the better.” (Milne et al., 2009), p 1242)
Ethical fund managers face a challenge to maintain financial performance against benchmarks whilst maintaining an ethical stance on corporate activity.
Responsible investment practices (efforts by investors to incorporate ESG issues into investment decisions and to engage with investee companies to encourage ESG practices) have become common features of the world’s 100 largest pension funds.” P iii UNCTAD
Shareholder activism is an attempt to influence the strategic direction of the firm and operational outcomes (Haigh and Hazelton, 2004).
The United Nations Principles of Responsible Investment are another voluntary initiative designed to enact corporate social responsibility (OECD 2009). Responsible Investment offers a vehicle for investors to support internalising externalities through providing capital and fulfilling the responsibilities of ownership. Shareholder resolutions as exercising ownership responsibilities are one mechanism for social responsibility, a way for owners to express their desires about the environmental and financial performance.
Approaches to engagement by ethical funds include options such as coordinated campaigns to lobby firms privately and publicly, and withdrawal of investment.
Resultant Dialogue to achieve change
Voting on resolutions is the mechanism through which the owners are able to express their preferences to the board of directors. “... conventional wisdom counsels that shareholders have more voice in corporate governance, in order to reduce agency costs and provide democratic legitimacy” (Hayden and Bodie 2010, p 2071). The usual mechanism then is that owners assert their rights actively. However the rise in importance of institutional investors gives rise to further ownership distance, with fund asset owners and fund managers being specialised, and voting rights usually controlled by a separate proxy manager.
The institutional evolutions of corporate governance in the United States, with shareholder resolutions being non-binding, could be described as board primacy over shareholders. In contrast, successful shareholder resolutions in Australia requires the board to directly address and enact a response. Thus the effectiveness of shareholder activism can vary with the institutional context. For example in a sample from 1985 there were 201 resolutions in the largest 626 corporations in the US, but only 58 were about social issues (seven were about environmental issues (Zampa and McCormick Jr, 1991).
In contrast there were more than 387 resolutions filed on ESG grounds in the US 2010 proxy season (Welsh 2010). Environmental and sustainable reporting proposals comprised 35% of those and two obtained majority support.
The number of resolutions in any period is not the total number of resolutions submitted, resolutions may not be accepted or may be withdrawn before voting. Activist shareholders may consent to withdrawing a resolution if the company is willing to engage or compromise to avoid publicity and potential reputational effects. For example Welsh (2010) reports that two thirds of the requests for sustainability reports were withdrawn by agreement.
Kreander et al. (2004) document the effect of responsible share ownership by two ethical fund managers, citing instances of divestment and exercising voting rights in support of resolutions involving corporate responsibility. Such shareholder activism may be ad hoc and unlikely to achieve systemic change (Haigh and Hazelton, 2004). Further, corporate approaches to environmental management obfuscate the conflicts inherent in commercial activity (Spence 2009).
Efforts at positive/negative screening (Haigh and Hazelton 2004) or social screening are imperfect (Goodpaster 2003). Shareholder activism by ethical funds has been limited to engagement
The research question is:
How does an ethical fund enact social responsibility in activism.
The case study methodology will be employed to explore the reality of a fund implicated with the capitalist system, trying to improve social outcomes in a novel way. The firm was chosen due to this novel innovation.
The novelty is that the subject fund has been set up as an index fund, eliminating the asset selection problems associated with traditional approaches to ethical investment, and seeks to fulfil the ethical desires of investors by engaging in coordinated actions involving shareholder resolutions.
The rich context of the firm involves multiple facets.
The fund is offered by an established ethical investments firm, ethical funds are perceived within the funds management industry as being socially oriented.
The advocacy fund is an extension of the ethical orientation, going beyond mere dialogue, to activate on environmental issues.
The principal informant was the champion to take the idea from concept to fund.
The advisory group to the climate advocacy fund is a sub-group of internal and external actors. Thus a sub-culture is likely to emerge within the membership.
Some of the external actors are from an environmental activist firm.
The first resolutions of the fund, lodged with the companies on September 17 included two with the following wording.
“Therefore, be it resolved:
“That, shareholders consider that the annual director’s report should include:
a description of the level and composition of, and recent trends in, our company’s greenhouse gas emissions; and
a description of our company wide policies and management systems utilised to manage the risks posed by both climate change and the actions of governments to regulate or price greenhouse gas emissions,
so that the members can make a better informed assessment of the operations of our company and our company’s business strategies and its prospects for future financial years, these descriptions are to be prepared at reasonable cost, to omit proprietary information and to use a standardised reporting protocol such as that used worldwide by the Carbon Disclosure Project – CDP.”
“Not unlike quantitative research, the setting and research questions influence the procedures for uncovering data and the instruments used.” (Bluhm et al., 2010). Among the research methods that could be chosen to investigate activism and board level strategy deliberations, qualitative techniques are considered pertinent. Of particular interest is the social potential of the processes and context of activism. Qualitative research is: “... particularly focussed upon understanding process and context and employs a variety of methods in an attempt to interpret and understand the world.” Parker 2003 16
Yin describes field research as:
“an empirical inquiry that investigates a contemporary phenomenon within its real-life context; when the boundaries between the phenomenon and context are not clearly evident; and in which multiple sources of evidence are used.” (Yin 1984, p.23 in Ferreira and Merchant 1992, p4) (Ferreira and Merchant, 1992)
This research adopts a qualitative research approach to inductively study activism. It will involve a field case-study to access the internal actions.
“..the study of subjects in their natural settings whereby the researcher conducts a systematic enquiry into meanings.” Parker 2003 p 16
“... inductive investigation of the phenomenom under study ..” Parker 2003 p17
The research involves data collection at the fund during the resolution generation process.
participant observation (what do you expect to find from this process – what are you observing and what will it tell you; also, you need to specific the nature of the observation – the emphasis here is on the observation rather than the participant –
will employ a field case-study including non-participant observation to experience the organisational actors worlds.
Interpretive methodological approach to develop new theoretical models Brennan and Solomon 2008
“..researcher’s ability to apply, justify and articulate the appropriateness of their choic of informing methodologies and methods employed. Parker 2003P 17
“ qualitative research focuses upon processes of social experience, seeking to understand how people experience and create meaning within processes Parker 2003 p 18
‘culture and subculture in order to penetrate the conscious and subconscious assumptions and understandings that shape their view of the world. And their actions.” Parker 2003 p18
Whilst rigorous data collection will be undertaken, the particular analytical method to be used may changes as the research evolves.
“The researcher may adopt a particular meta-theory or paradigm to inform their investigations, or abjure pre-commitment to any one particular meta-theory or paradigm.” Parker 2003, p 16
This is a particular feature of field research studies, “In field research studies: … The research design is not totally stuructured. It evolves along with the field observations.” (Ferreira and Merchant 1992 p 4.
This is consistent with a reflexive stance, an effort to
“Recognising these inevitable researcher involvements, the qualitative researcher deliberately pursues direct reflexive engagement with actors, field notes and data as a means for penetrating latent meanings and agendas that underlie manifest observed practices and behaviours” Parker 2003 p 17
Summary of Thesis Proposal
This thesis deals with social responses to climate change, stakeholders views of corporate responses to climate change, in particular how activist owners formulate resolutions.
There is a need for critical perspectives of accounting (Unerman and ODwyer) to inform adaptation to contemporary social challenges. A critical perspective of corporate approaches to social responsibility maintains wariness about the pace of change, scope of voluntary initiatives, and possible outcomes from actions within the capitalist paradigm.
Following Parker (2003), the research will offer a, “detailed accounts of organisational practices … interpreting and understanding … in their socio-economic, institutional and organisational context, penetrating the cultural perceptions and understandings of organisational actors and groups …” (p21).
This research takes a social accountability perspective of firm performance as a framework for analysing stakeholders as active owners. The research will involve a field based case study, examining an ethical fund in its natural setting, exploring an emerging form of activism.
Meaning and sense making
The activism of ethical funds management may play an important role in moves towards CSR. How this fund frames and pursues advocacy on climate change is thus important to the responsible investment community. This research will observe advisory level discussion about advocacy on climate change issues at the fund. It thus employs a qualitative approach to investigate an important issue at the emerging stage.
I have officially been enrolled as a part time PhD candidate in accounting at La Trobe University since the 20th Sept 2010.
Primary data collection activity (non-participant observation) four years
The firm has agreed to my observing advisory group meetings wherein corporate resolutions and advocacy are discussed, a confidentiality agreement has been entered into.
Proposed use of funds (part time study / scholarship)
The proposed principle data-gathering technique: non-participant observation, is the result of the extension of goodwill and cooperation from the company. Being able to observe senior level strategic discussion represents an extremely rare opportunity. The importance and impact of the research can be further enhanced with scholarship funding. The scholarship funding will enable more intensive field work investigating the culture of the fund and actors.
Understanding the culture of the firm is central to field research, Parker (2003) describes this process as the researcher surrendering themselves to the cultures they study. Their primary concern is to, “… learn their culture and subculture in order to penetrate the conscious and subconscious assumptions and understandings that shape their view of the world and their actions” (Parker 2003, p18)
Funding will be used to experience the fund management culture (attend UNPRI event) and interact with scholars (UNPRI and AFAANZ).
Fund field work – data collection at the firm for the purposes of:
Explore firm in depth – through interviews with senior managers and board members explore the firm culture.
Explore the advisory group in depth -
This early stage of my candidacy would be an opportune time to receive funding. Whilst gathering data, I would like to canvass the existing frontier of knowledge in shareholder activism, socially responsible investment, and governance. The best way to attain that broad exposure would be through conferences, where ideas and research are first presented. Additionally, through the contacts of my associate supervisor I am aware that a major climate change advocacy campaign is about to be launched in Europe. Being able to meet relevant actors and liaise with the UN PRI group at their Young Scholars Academy would be timely and enhance my scholarly network.
To boost my progress I propose three purposes for the funding, to engage with the international responsible investment community, to engage with leading accounting academics and to gather complementary data for the case study. These three activities align with the essential aim of the study, to achieve an original and significant contribution to knowledge in climate change activism by an ethical fund.
Engage with international responsible investment community
Attend UNPRI Young Scholars Academy – (Switzerland)
Liaise with shareholder activists in UK, Hermes Focus Fund, Fair Pensions UK, and governance researchers at Said Business School etc.
The benefits of this activity will be to connect with faculty, responsible investment industry, UNPRI staff and fellow students around responsible investment issues; and keep abreast of emerging research streams.
Engage with Australian accounting academic community
Attend AFAANZ Doctoral Consortium – (Darwin)
Attend AFAANZ QualRAN SIG research colloquium – (Darwin)
Attend AFAANZ Annual Conference – (Darwin)
The benefits of this activity is to obtain in-depth feedback, comprehensive engagement with fellow PhD students, keeping abreast of current qualitative research techniques, and engaging with the accounting and finance academic community.
Engage with critical perspectives researchers on governance and accountability
Attend Critical Perspectives on Accounting conference (USA)
The benefits of this activity will be to learn about current researcher on social issues around corporate behaviour. This aligns with the aims of ethical investment, to affect change.
Additional data gathering
Gather comprehensive case study data through site visits to the firm and collaborating firms. Data collection to include semi-structured interviews with the firm’s board and senior managers, documentation regarding the fund’s origin and operation. (Sydney, Canberra and Melbourne)
Opportunistically explore other activist actors (proxy managers, fund management industry contacts) as they emerge to build a snapshot of the current state of engagement on corporate social responsibility issues in Australia.
The benefit of this activity is to build up a comprehensive case study context, wherein additional richness about the firm’s history, early meetings of the advisory group, and participants can be gathered. This will broaden the study considerably and provide opportunities for interesting additional perspectives.
Statement of Career Intentions
I am a junior academic embarking on PhD study because I would like to contribute to knowledge in the area of internalising corporate externalities. My Masters by Research study analysed policy options for environmental impacts. I am keen to contribute to a field of research which seeks to contribute to society through social accountability and transparent corporate governance.
I am also embarking on PhD study to become part of a community of scholars, to belong to a network of contacts and colleagues working in cognate areas.
I have taught introductory finance and modelling for ten years. Gaining disciplinary expertise in corporate governance will provide welcome diversity to my potential teaching areas.
I have been a part of a research team investigating accounting education on an ALTC grant. Collaborating with senior academics was a great opportunity to interact around practical research conduct, analysis and writing. This experience has further impressed upon me the need to acquire the skills pertinent to the discipline.
Name Ben Jacobsen
Address 12 Gummow Close
Cairns Queensland 4870
Telephone Work 61 7 40421090
Home 61 7 40323022
2004 Masters of Economics by research
Economic Assessment of Agricultural Pollution Management Options in Sugar Cane Production in Queensland: A Case Study Involving a Dugong Protection Area
1999 Bachelor of Economics with Honours (IIA)
02/01 - Present Lecturer - tenured
James Cook University - School of Business
Preparing and presenting lectures, tutorials and workshops,
Teaching undergraduate students in Economics, Applied Financial Management, Business Finance, Multinational Business Finance, Investment Analysis and Modelling Business Decisions, and
Administration, assignment and exam marking.
7/98 - 01/2000 Department of Environment and Heritage
Senior Conservation Officer - Sugar Industry Liaison
Develop rapport and contacts with Sugar Industry,
Assess, collate and interpret natural resource and environmental information, and
Produce environmental guidelines for new cane production areas.
6/97 - 6/98 CANEGROWERS Innisfail
Grower Services Officer
Assist in preparation of arguments for negotiations,
Assist in analysis of issues affecting the industry, and
Administration of assignments
Jacobsen, B., Howieson, B., De Lange, P., Carr, R., Milton, A. and O’Connell, B., 2010, “To appease or educate: accounting academics’ conceptions of and approaches to feedback”, paper presented to the Annual Conference of the British Accounting Association Special Interest Group on Education, Dublin, 26 – 28th May.
Jacobsen, B., 2008, “Assessment feedback in accounting at Australian Universities: Feedback as a thinking skill”, paper presented to AFAANZ Annual Conference, Sydney, 7th – 9th July.
Jacobsen, B., 2007, “Assessable case based activities: Towards student centred teaching in information systems”, in Meyers, N.M., Smith, B.N., Bingham, S.A. and Shimeld, S.F. (Eds), Proceedings of the Second Innovation in Accounting and Corporate Governance Education Conference, Hobart, Tasmania, 31 January – 2 February.
Jacobsen, B. and Wybrow R., 2007, “Property rights, individual incentives and remote area Aboriginal economic development”, Third Sector Review, 13(1), p 21-31
Jacobsen, B., Jones, C. and Wybrow, R. 2005, “Indigenous Economic Development Policy: A Discussion of Theoretical Foundations”, paper presented at Social Change Research in the 21st Century, Centre for Social Change Research Conference, QUT, 28th October 2005.
Jacobsen, B., 2005, “Policy Options for Great Barrier Reef Water Quality”, Journal of Ecological Management and Restoration, Vol. 6 Issue 2.
Jacobsen, B., 2002, “An Economic Analysis of Agricultural Pollution Mitigation Policy: Towards Protecting the Near Shore Marine Environment in New Development”, National Student Essay Award Winner, Environment Institute Australia Annual Conference, Brisbane, 31 July – 2 August.
Jacobsen, B. and Mallawaarachchi, T., 2002, “Issues in the Implementation of Pollution Mitigation: A Case Study of Potential Expansion of the Sugar Industry in North Queensland”, paper presented at 46th Annual Conference of the Australian Agricultural and Resource Economics Society, Canberra, ACT, 13-15 February.
Jacobsen, B., 2001, “Issues in the Implementation of Nonpoint Source Pollution Mitigation: A Case Study of Potential Expansion of the Sugar Industry in North Queensland”, poster paper presented at Sustaining our Aquatic Environments – Implementing Solutions, Townsville, November 20 – 23.
Jacobsen, B., Lukacs, G. and Mallawaarachchi, T., 2001, “The Economics of Constructed Wetlands for Pollution Mitigation: A Case Study in the Burdekin River Irrigation Area”, paper presented to Fourth International Conference on Geochemistry in the Tropics, Townsville, May 7-11.
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