Short-term Profit Maximization Research Articles

Does ESG privilege climate action over social and governance issues? A content analysis of BlackRock CEO Larry Fink’s annual letters

Milton Friedman famously argued that the social responsibility of business is to maximize shareholder wealth. Friedman’s view is challenged by the proponents of corporate social responsibility who suggest that firms should consider the interests of all stakeholders, and not just shareholders. Following the stakeholder approach, BlackRock’s CEO Larry Fink has made the case that firms should use the ESG (environmental, social, and governance) metric to evaluate their performance as opposed to short-term profit maximization. Fink employs his annual “Dear CEO” letters as a platform to outline his views on ESG. While these letters focus on all three ESG dimensions, the media tends to portray Fink as a climate advocate. We examined the texts of the ten letters Fink has published since 2012 to assess the extent to which Fink focused on climate issues. We found that Fink emphasized the climate dimension over social and governance dimensions only in two letters (2020 and 2022), which suggests that the thrust of Fink’s letters differs from how the media frames them. Broadly, our paper suggests that norm advocates sometimes cannot fully control how their advocated norm is interpreted and framed. Limiting ESG to climate issues has implications for its business acceptability. Specifically, this framing links business incentives to adopt ESG to the policy salience of climate issues as well as the fortunes of both the fossil fuel industry and the renewable energy sector. Second, if businesses face a legitimacy crisis from governance shortfalls or inadequate social performance, ESG will serve as a less effective tool in alleviating stakeholder concerns.

Uberizing Agriculture in Drylands: A Few Enriched, Everyone Endangered

The future of water resources relies heavily on food production. Large-scale agriculture, driven by irrigation technology and cost reduction, has transformed traditional dryland croplands into a very profitable but environmentally and socially impactful agribusiness. The study of groundwater-dependent food systems is fragmented. Hydrology, on one hand, concentrates on water resources while overlooking surface agricultural processes. Meanwhile, the agro-economic sector is fixated on optimizing resource utilization for short-term profit maximization. Consequently, numerous adverse environmental and social consequences are overlooked by these conventional approaches. To steer resource usage and our food systems in a new direction, prioritizing the integration of this collective knowledge is imperative. Here, we analyze the impacts of greenhouse agriculture in SE Spain, one of the global hotspots of fruit and vegetable production. Through the lens of the treadmill of production theory we uncover the model’s significant profitability and its environmental and social effects, which include unequal wealth distribution, precarious working conditions, and the depletion and pollution of belowground water reserves. Reducing water use and limiting the development of new irrigated areas, using crop species adapted to available water resources, and empowering farmers against large distributors are key measures to avoid the social and economic collapse of this region, and of other dryland areas that have followed a similar unsustainable development model. The need for these changes becomes more pressing as the impacts of climate change continue to escalate. Within this context, groundwater reserves represent vital strategic resources that must not be wasted.

Risk mitigation in service industries: A research agenda on container shipping

Shipping lines face various marketing risks, with outcomes that need to be mitigated. A current, serious, example of this has been the COVID19 pandemic and the severe supply chain disruptions that followed it. During such times, unmitigated marketing risks can lead to corporate failure, significant losses, or irreparable adverse impact on a carrier's brand name, due to sailing schedule unreliability. We cast a look at the marketing risks of shipping lines deriving, for instance, from adverse market developments, competitor moves, operational mistakes, unreliability (schedule integrity; supply of containers to customers, etc.), and we propose avenues of risk mitigation. Our methodology includes a combination of literature review and Spherical Fuzzy Theory. Among other conclusions, our results show that it is the ‘unexpected’ and ‘unanticipated’ -e.g., a natural disaster; a war; a tsunami; or COVID19-that poses the greatest risk to carriers: Intense competition amongst them, geared to short-term profit maximization, and coupled with the fine-tuning of capacity management within alliances, does not allow them the luxury of affording built-in buffers or slacks that could ‘absorb’ the unexpected. Not unexpectedly therefore, COVID19 has been the greatest risk factor of all times, mitigated –quite profitably one should add—by the joint capacity management of global shipping alliances.

The Value of Organizational Purpose

Broadening the organizational purpose of a firm beyond narrow short-term profit maximization may enhance long-term shareholder value. This result obtains when firms generate unpriced externalities and face difficulties in achieving ex ante incentive alignment with stakeholders through contract or have the ex post possibility of altering stakeholders’ perceptions through virtue signaling (i.e., cheap talk or greenwash). As each of these conditions is ubiquitous in practice, discussion of organizational purpose (beyond narrow short-term profit maximization to encompass stakeholder’s harmonious pursuit of a common higher goal or meaning) should shift from why management might pursue it to how managers obtain and maintain it as well as the value creation and distribution implications of doing so. Drawing on a value-based stakeholder theory of strategic management, I argue that attentiveness to the most salient issues of a firm’s most powerful stakeholders related to the attainment of this higher goal more closely aligns stakeholder and shareholder value in the long term, thereby building and sustaining relational contracts with stakeholders. A firm with strong relational contracts across its nexus of stakeholder relationships increases the likelihood of harmony among its stakeholders, including shareholders. An important challenge to realizing this outcome is that of measurement. As a result, research on organizational purpose should turn its attention from legal and moral foundations to empirical research on externalities, stakeholder opinions, and managers’ self-representations of their organization’s purpose. The availability of such data lowers the transaction costs associated with a nexus of relational contracts and enhances societal welfare.History: This paper has been accepted for the Strategy Science Special Issue on Corporate Purpose.

A COMPREHENSIVE CONCEPTUAL FRAMEWORK FOR CORPORATE SUSTAINABILITY

Corporate sustainability has captured the attention of much of the world over the last few years. Trends including the growth of nongovernmental organizations and movements suggest that the public is no longer satisfied with corporations that focus solely on short-term profit maximization. People want corporations to consider broad human needs. The words “sustainable businesses” may sound contradictory, but it is highly necessary for businesses to have less impact on the environment. The aim of this research is to study the concept of sustainable businesses by answering to the following question: “what exactly does it mean to be sustainable in business?” This study is based on descriptive method since it describes the subject of the topic. The findings of the research revealed that sustainable businesses will and need to be the future.

Analysis of the Impact of ESG on Corporate Financial Performance under the Epidemic Based on Static and Dynamic Panel Data

Listed firms all over the globe are moving their focus from short-term profit maximization to long-term environmental, social, and governance (ESG) objectives. Most business leaders are now cognizant of the growing importance of ESG concerns, which may have an effect on an organization’s financial health as well as its reputation in the marketplace. A recent study found that countries with strong ESG performance may be able to improve their financial performance. Yet, in China, the subject of “how does ESG impact financial performance” has received little attention. In this paper, we examine the link between ESG operations and financial indices in China’s publicly traded firms using dynamic and static panel data analysis. We begin by gathering financial data and preprocessing it using z -score normalization. The consequence of ESG variables on the financial performance of the company under the pandemic was investigated using statistical analytic techniques such as the Pearson correlation test, logistic regression model, and Fisher’s exact test. Due to the study’s dynamic and static data, comprehensive ESG has a considerable influence on corporate value and profitability per share. The impact of ESG variables on the financial performance of the company in the event of a pandemic was analyzed using analytical methods such as Pearson correlation, logistic regression, and Fisher’s exact test. Performance in ESG may boost financial performance, which could impact investors, business administrators, decision-makers, and industry regulations.

Job Turnover in Times of Crisis: Family Firms and Rural Context

Financial crises inevitable leads to downturns in the labor market and increased unemployment. Family firms are known for their long-term orientation which help them to survive hardships. In times where short-term profit maximization is compromised, there are reasons to believe that family control can be a source to sustainable business behaviour. In the present study, building on the the nonfinancial logic and local embeddedness literatures, we theorize that that family involvement mitigates involuntary job turnover following an exogenous economic shock (in our case, the 2007–2009 global financial crisis), and especially in rural areas where local ties are likely to be strong. Relying on a panel dataset of Swedish firms, our study contributes to a better understanding of how companies react to employee layoff in times of crisis while shedding some further light on the link between regional economics and family involvement.

On application of the precautionary principle to ban GMVs: an evolutionary model of new seed technology integration

Since the 1990s, agri-biotech multinationals have introduced a radical innovation in the form of seeds derived from genetically modified plant varieties or GMVs. However, on the basis of the ‘precautionary principle’ that advocates ensuring a higher environmental protection through preventative decision-taking, many countries have banned the cultivation of GMVs within their territories. Thus, the objective of the present paper is to attempt to explore the rationale for application of the precautionary principle. This is done through development of an evolutionary model of farmers’ technology choice incorporating intrinsic features of agriculture such as the technological obsolescence of seed varieties, impact of environmental degradation engendered by new seed technology adoption and farmers’ compliance choice vis-a-vis sustainability guidelines. Further, instead of a unique representative farmer, two types of farmers are considered. The first type is driven by short term profit maximization, while the second type aims to be sustainable, by maximizing profit over the life time of the technology. Integrating the above elements and considering two possible rules for application of the precautionary principle, the paper explores the conditions under which the precautionary principle can be implemented. It demonstrates that, even under complete and perfect information the need to exercise such caution depends principally on four factors: the economic gains from GMVs, the possibilities for sustaining the production of the conventional variety in the post-GMV period via compliance, the distribution of farmers over types and the compliance-contamination burden.

How Behavioral Interventions Can Reduce the Climate Impact of Energy Use

Kristian S. Nielsen is a research associate in the Department of Zoology at University of Cambridge. He received a PhD from Copenhagen Business School in 2019 with a dissertation focused on the role of self-regulation in environmental behavior change. His current research focuses on bridging research in behavioral science and biodiversity conservation as part of an interdisciplinary project called Nudging for Nature. His other research interests revolve around behavior change as a climate change mitigation strategy, the dynamics of the behavior change process, self-regulation and self-control, and sustainable clothing consumption. Sander van der Linden is Reader in Social Psychology in Society and director of the Cambridge Social Decision-Making Lab in the Department of Psychology at the University of Cambridge. He is also a fellow in Psychological and Behavioral Sciences at Churchill College, Cambridge and the editor-in-chief of the Journal of Environmental Psychology. His research on the psychology of human judgment and decision-making, especially in the context of climate change, has received numerous awards including the Rising Star award from the Association for Psychological Science and the Sage Early Career Award from the Society for Personality and Social Psychology . Paul C. Stern is president of the Social and Environmental Research institute and was previously a principal staff officer at the US National Academy of Science, Engineering, and Medicine where he directed its Board on Environmental Change and Society. He is a fellow of the American Association for the Advancement of Science and the American Psychological Association. His research interests include the integration of social science into research and practice for governing environmental change and into risk assessment and management. Among his publications are Environmental Problems and Human Behavior (coauthor) and Understanding Risk: Informing Decisions in a Democratic Society (coeditor).

ESG and Energy Transition Balancing Value and Values in a Post-Pandemic World

When Shell slashed its dividend by 66% on 30 April, it not only sent shock waves through financial and business communities throughout the world, it “tore up the industry’s financial playbook,” according to Laura Hurst at Bloomberg. Amid the chaos and damage churned up by the pandemic, what had long been unthinkable - the world’s largest supermajors ceasing to defend their dividends at almost any cost, given the importance of payouts to North American investors - suddenly became fact. The last time Shell had slashed its dividend coincided with World War II, nearly 80 years ago. Equinor also cut its dividend, and Exxon Mobil froze its dividend for the first time in 13 years. Asked whether the long-held strategy of sacred payouts to shareholders was sustainable in the current situation, Shell Chief Executive Officer Ben van Beurden said, “I would say, no.” “I think a crisis like this has the potential to catalyze society into a different way of thinking,” van Beurden said. Total has now joined Shell and other European counterparts, BP and Repsol, in setting ambitious climate targets. Despite a drop in profits as the coronavirus has decimated fuel demand, the French company committed to eliminating most of its carbon emissions by 2050 and to investing more in clean energy. Its shares rose 6%, to $34.90, immediately following its announcement - almost three times the gain in France’s benchmark index. Announcements like these from Shell and Total reflect the ongoing pressure on oil giants from investors and society to tackle long-term environmental challenges. “I think we’re in the midst of a paradigm shift in terms of how we think about the scope of investing, which in turn is related to a shift in thinking about the purpose of the public company from one of shareholder primacy and short-term profit maximization to one that focuses on delivering what is often referred to as long-term sustainable value to all stakeholders,” said Jon Hale, head of sustainability research at the Morningstar global financial services firm. Stakeholders include customers, employees, and communities up and down the supply chain in which the company operates, and the planet itself, as well as shareholders. For many years, it was universally understood that institutional investors’ main objective, and the investee company’s main obligation, was to maximize short-term returns for shareholders, and that factors such as social and environmental impacts required a tradeoff on the investor’s part. More recently, with the rise of the “responsible investment” movement, ESG criteria not only allow investors to put their money where their values are, but also play a practical role in evaluating a company’s ability to manage risk. One thing that has moved the needle in the direction of what Hale refers to as “sustainability thinking” is the development and collection of sophisticated and large amounts of data about companies’ performance, including ESG performance. “So, it’s really gotten more focused on materiality,” Hale said. “And it’s not so much based on values any-more for investors as it is on really wanting to drive the long-term value of an investment.” “The bigger your base of sustainable investors, the more leeway corporate management has to shift in this direction,” Hale said.

ОЦІНКА РІВНЯ ЗРІЛОСТІ УПРАВЛІННЯ РИЗИКАМИ В ПРОЦЕСІ ЗАБЕЗПЕЧЕННЯ ЕКОНОМІЧНОЇ БЕЗПЕКИ ПІДПРИЄМСТВА: АНАЛІТИЧНЕ ДОСЛІДЖЕННЯ

The article seeks to explore and evaluate the level of risk management maturity in Ukrainian enterprises in the process of ensuring their economic security. The study presents the results of an analytical survey on risk management practices to ensure enterprise economic security. To achieve the research objectives, the following methods have been employed: to obtain data for the analytical research, the method of questionnaire-based expert evaluation on the Google Forms platform; the method of comparison, the graphical method – to evaluate previously received analytical data on the risk management maturity level. The findings revealed that the implementation of a risk-based approach is perceived as a tool to increase the company value and achieve strategic goals. The survey results showed the distribution of expert opinions, indicating the willingness of Ukrainian companies to implement risk-oriented management approaches to ensure their economic security. It is demonstrated that the major objective of the risk-oriented approach is to ensure the effective and lawful business operation in the long run which may come into a conflict with the operational management priority, i. e. short term profit maximization. The analytical survey argues that a risk-oriented approach challenges the use of impartial methods to risk identification, taking risk management actions, and the search for an optimal solution between profit raising here and now, and the long-term sustainable development and protection of shareholders’ interests. The study on the latest tools for assessing the level of economic security using a risk-oriented approach is a critical instrument in enhancing corporate management practices at different management levels, providing further nation-wide implications on stabilization of domestic business performance to improve the overall national security indicators in the international economic and political arenas.

Inside a Multinational Corporation Combining Commercial and Social Objectives

This qualitative study explores whether, and if so how, a multinational corporation can organize itself to develop internal ventures that pursue blended, commercial and social, value at the base of the pyramid (BoP). Comparing four such BoP ventures combining commercial and social objectives inside a multinational corporation, we find that structural origins (differentiated or integrated) and operational relatedness (higher or lower) did not determine whether BoP ventures could develop internally. We find that BoP ventures with different structural origins and degrees of relatedness developed internally, instead of spinning out from the corporation, by extricating from standard corporate rules primarily centered on short-term profit maximization and corresponding uncertainty avoidance. They did so with the support of top and senior managers from organizational units with high decision-making power, who could thereby play the role of extricator. This rule extrication involved three components: permission, which authorized departure from standard activities; fluid metrics, which provided a rationale for high risk and uncertainty; and an expedient process, which provided space for experimentation over time. Overall, this study contributes to emergent theory of how large corporations can fulfill the growing external demands and their own internal commitments to deliver social value alongside profit.

Why is there resistance to works councils in Germany? An economic perspective

Recent empirical research generally finds evidence of positive economic effects for works councils, for example with regard to productivity and – with some limitations – to profits. This makes it necessary to explain why employers’ associations have reservations about works councils. On the basis of an in-depth literature analysis, this article shows that beyond the generally positive findings, there are important heterogeneities in the impact of works councils. The authors argue that those groups of employers that tend to benefit little from employee participation in terms of productivity and profits may well be important enough to shape the agenda of their employers’ organization and have even gained in importance within their organizations in recent years. The authors also discuss the role of deviations from profit-maximizing behavior like risk aversion, short-term profit-maximization and other non-pecuniary motives, as possible reasons for employer resistance.

Is Catholic Social Thought compatible with stakeholder theory? Towards human-centered businesses

The dominant view of the role and objectives of the firm is still based on neoclassical thinking, which maintains that short-term profit maximization is the basic driver of the firm. On the other hand, the stakeholder theory highlights the importance of considering the aims of all groups that participate or are affected by the functioning of the firm. For many economists, the stakeholder theory is a new stage for corporations, necessary in order to insert Corporate Social Responsibility at the strategic level and to find, first, new ways of maintaining the social legitimacy to operate and, secondly, new sources of competitive advantage through shared value creation. From the perspective of Catholic Social Thought (CST), the firm is considered as a positive institution with the aim of increasing the common good of society. This common good is linked with the achievement of the particular goods of all stakeholders of the firm. From this perspective, CST and the stakeholder approach seem to be compatible standpoints. However, stakeholder theory has not developed a clear criterion to take management decisions when stakeholders’ aims collide. CST proposes a normative solution to these situations, based on ethical and anthropological principles. This paper analyzes the compatibility of stakeholder theory and CST ethic- based approach to management decision taking. In our view, CST demands the introduction of morality in management, based on the achievement of the common good and the creation of a community inside the firm that goes beyond contractual bonds or the mere bargaining of stakes.

Competition For Versus In the Market of Long-Distance Passenger Rail Services

Abstract This paper is aimed at evaluating the net gains and trade-offs at stake in implementing the competition of the rail mode in the long distance passenger market either by means of franchise or by an open access mechanism. We simulate the outcomes of competition in and for the market using a differentiated-products oligopoly model allowing for inter- and intra-modal competition in a long distance passenger market. Specifically we first calibrate the model using data describing high speed lines in France and show that the incumbent railway operator’s strategy does not simply boil down to a short-term profit maximization (e.g. because of existing regulation or limit-pricing strategy). This yields two important results when simulating competition. First, whether it is for or in the market, the opening to competition does not guarantee a decrease in prices in favor of passengers. Second, the effects of opening up to competition for the market are relatively predictable and potentially positive, while those of opening up to competition in the market remain very uncertain.

Roche and Tamiflu®: Doing Business in the Shadow of Pandemic

The spread of bird flu outside of Asia, particularly in Africa and Europe, topped headlines in 2006. The migration of wild birds brought the virus to Europe, where for the first time it spread to productive livestock, bringing it closer to the Western world. Due to today's globalized and highly interconnected world, the consequences of a potential bird flu pandemic are expected to be much more severe than those of the Spanish flu, which killed 50-100 million people between 1918 and 1921. A vaccine for the bird virus is currently not available. As of July 2006, 232 cases of human infection had been documented, mostly through direct contact with poultry. Of those, 134 people died. The best medication available to treat bird flu was Roche's antiviral drug Tamiflu. However, Tamiflu was not widely available; current orders of government bodies would not be fulfilled until the end of 2008. Well aware that today's avian flu might become a global pandemic comparable to the Spanish flu, Roche CEO Franz Humer had to decide how Roche should respond. While the pharmaceutical industry continued its research efforts on vaccines and medications, Tamiflu could play an important role by protecting healthcare workers and helping to contain the virus---or at least slow down its spread. Due to patent protection and a complicated production process with scarce raw ingredients, Roche had been the only producer of the drug. Partly in response to U.S. political pressure, in November 2005 Roche allowed Gilead to produce Tamiflu as well. Even so, it would take at least until late 2007 for Roche and Gilead to meet the orders of governments worldwide. The issue was a difficult one for Roche: What were the risks; what were the opportunities? If a pandemic occurred before sufficient stockpiles of Tamiflu had been built up, would Roche be held responsible? What steps, if any, should Roche take with respect to patent protection and production licensing in the shadow of a potential pandemic?Students will weigh the benefits of short-term profit maximization against the risks that a highly uncertain event could pose to a business and consider nonstandard approaches to mitigate these risks. Students will discuss the challenges of addressing low-probability, high-impact events; potential conflicts with the short-term view of the stock market and analyst community; and challenges of the patent protection model for drugs for life-threatening diseases.

Internationalizing the University: A Case Study of a Canada-China Program

Internationalization has become a goal of most universities in the world and includes increased student mobility across borders. Goals behind greater student mobility are mixed, but whatever the goals are, all institutions should strive to try to maximize the net benefits for students. An economics program between Dalhousie University in Canada and Shandong University of Finance and Economics in China is used to examine how net benefits can be maximized. Amongst the conclusions reached by the paper, it is students who participate in exchange or study abroad programs that will experience an increase in intercultural competence, which is a major benefit of the experience. A second significant conclusion is that language is a crucial determinant of success when students must adopt a foreign language when they study abroad. The paper also shows that faculty engagement is crucial to success. Strictly top-down programs that originate and/or reside in the central administration are less likely to have, and less likely to be successful without faculty engagement. The paper concludes that the institutions must have a commitment to the program that goes beyond a simple short term profit maximization motive but ultimately, the success of any program depends on the students themselves. Other factors can defeat a given program, but only the students can ultimately make a program successful.

Minimal tillage and crop residue retention adoption, input demand, and maize (Zea mays L.) production: A household survey analysis of smallholder producers in Lesotho

Conservation agriculture technologies are promoted in sub-Saharan Africa to conserve water, reduce soil erosion, increase farmer household well-being and crop yields, and achieve food security. However, conservation agriculture adoption rates by smallholder farmers in this region remain relatively slow. This paper examines the factors influencing adoption of two important conservation agriculture components in Lesotho—minimum soil disturbance and crop residue retention—and the effects these technologies have on input demand, maize (Zea mays L.) production, and farm profit of farmers. Using survey data of 432 households, we find that adoption of these practices is related to a number of household, farm, and farmer characteristics, and ongoing extension efforts in the surveyed region. Farmers were not responsive to maize prices or fertilizer costs, suggesting that input allocation decisions for maize production may not be oriented towards short-term profit maximization objectives. Further research focusing on the influence of nongovernment organizations (NGOs), the provision of fertilizers by groups promoting conservation agriculture in the region, and the use of in-kind labor exchange among farmer working groups, government extension services, and nongovernment efforts promoting minimal tillage crop residue retention adoption in Lesotho is warranted to understand the interface between prices, input allocation, and the incentives that would sustain the long-term adoption of these soil conservation practices by smallholder farmers.

Jesuit Business Education Model: In Search of a New Role for the Firm Based on Sustainability and Dignity

Abstract: Jesuit Universities have been training responsible professionals since the 16th century. Given this educational tradition, and in the face of the new challenges posed by the present-day social and economic situation, the Society of Jesus has started to implement the “Ledesma-Kol-venbach” educational paradigm in its higher education institutions. Instead of short-term profit maximization, the Ledesma-Kolvenbach model considers sustainability, human dignity and social well-being as key elements in business strategies. The objective of this paper is to propose a method capable of measuring the economic and social value generated by a firm managed in accordance with the four dimensions of the Ledes-ma-Kolvenbach model. The methodology is developed in three steps. In the first place, the authors explore the existing literature on the Ledes-ma-Kolvenbach model and its roots in Jesuit education. Secondly, they analyze the literature that studies the role of the firm from a neoclassical perspective, as well as other complementary or alternative approaches. In the third place, they present an empirical model that has already been tested in different organizations, designed to measure the social and economic value generated by firms. The main result of the paper is a method that can be used to measure the social and the economic value generated by firms, such that society, managers and public administrations have an operational tool to present and evaluate the economic and social performance of firms.

Compromising Long-Term Sustainability for Short-Term Profit Maximization: Unethical Business Practice

Abstract The current environmental challenges caused by the dependence on nonrenewable energy, increased waste disposal, the toxic emissions created by operational activities, and also the scarce supply of water are so complex and important that it requires immediate attention. Strict environmental legislation, market pressures, and urgent need for sustainability have given businesses no option but to ensure that they do all that is possible to ensure that their business operations are sustainable. This paper addresses the underlying factors that determine the extent to which organizations adopt sustainable business practices and cleaner production techniques and technologies. It had been concluded that ethics is linked to sustainable business practices, because the objectives of both these concepts are to think about doing what’s right for others and the world, including the environment. According to the organizational corporate compliance regulations, a company’s commitment to ethical business and sustainable business practices should be detailed in their policy handbook and communicated to all employees within the company (Sustainability Report 2013/2014).