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Activism _ Private Politics

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					Activism & Private Politics
Political Environment of the Law Prof. Charles Cameron New York University Law School

Outline
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What is Private Politics? The Game of Public Sentiment The Game of Conflict Resolution Brent Spar Case

What is “Private Politics”
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The parties – Typically an activist group and a firm The parties do not rely on
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courts or law legislation & law-making administrative rule & regulatory decision making

Elements of Private Politics
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Direct competition for support from the public
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Often leading to public collective action, e.g., a boycott

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Bargaining over resolution
Often, the resolution is a private ordering

3.

Maintenance of the agreed-to order

Often Involves “Credence Goods”
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A good with a characteristic that cannot be observed even with consumption, but which affects the value of consumption
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Apparel produced with sweat shop labor Can of tuna containing dolphins Lumber from an endangered forest Coffee picked by exploited workers

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Producers lack credibility … “believe me”

Examples of Private Orderings
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Fair Trade Certified coffee Conflict-Free Diamonds TRUSTe – certifies privacy policies of Web sites Fair Labor Association – governs working conditions in supplier’s factories in developing countries Milk from rGBH cows

More examples
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Dolphin free Pacific tuna Great Bear Rainforest in British Columbia Boycotts of

The Game of Public Sentiment

Elements of Activist’s Strategy
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Targeting
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Who to go after, to move an industry?
How to win the media war? Putting pressure on the target

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Information Competition
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Boycott
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NOTE: All parts interconnected!

Activists and the Media
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To achieve their goals, social constituencies (such as activists) increasingly target companies To succeed activists need to connect to widely held moral beliefs in their target market The “right” media coverage (upper right hand corner) is key for success because it  Provides comprehensive coverage  Favors simple messages with a strong emotional component (pictures!)  Makes the task of communicating complex business decisions effectively difficult Today: move “backwards” in time-line: anticipation

Target Selection
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Good Targets:  Well-known brands  McDonald’s, Nike  Consumer Products  Cheap substitutes help consumers to participate in boycott  Global Operations  Allows activists to “export” Western standards to developing world  “Bad Reputation”  Makes new campaign newsworthy  Decreases credibility of company  Credence goods  Companies lack credibility Are other companies off the hook?

A Model of Boycotts
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Example: The Nike Boycott Consumers care about private (consumption value, cost etc.) and social aspects of purchased good (e.g. child labor) population of “concerned consumers” of size N>1  Nike costumers that wish to eliminate child labor Agents can choose one of two actions “boycott – buy Reebok” or “don’t boycott – buy Nike”. If at least k agents participate (1<k≤N) each player receives a (collective) benefit of size B; otherwise the collective benefit is not provided (payoff 0)  Think of B as Nike deciding to impose stringent global sourcing standards In addition there is a private cost c of participating independent of whether the collective benefit is provided with 0<c<1  Opportunity cost (“switching cost”) of participating in boycott (utility difference between buying Reebok and Nike)

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Results if and only if A boycott will succeed
B > kc

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To increase chance of successful boycott activists need to select targets with  high B  connect to bigger issue  low c  products with cheap substitutes  low k  low margin businesses  low “capitulation cost”

Strategies: Market Selection
Royal Dutch/Shell (HQ)

Shell Germany’s Market “high B” “Shell now has a new logo”

Shell UK’s Actions “low B”

Strategies: Secondary Targeting
Monsanto

Nestle

Marks & Spencer

The Multiplier Effect

Manufacturer

Retailer

The Multiplier Effect

Kodak

Danburry Hats

Motorphoto

Macy’s

Small Companies are more vulnerable in secondary targeting

Example: The Knights of Labor
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1877: nationwide organization of skilled and unskilled workers from all industries Used both primary and secondary boycotts instead of strikes  e.g. the Danbury Hatters’ boycott in 1902  Target: Macy’s 72% of concluded boycotts successful in attaining objective United Farm Workers Organization Committee (Cesar Chavez) later used similar strategy

Example: Huntingdon Life Sciences (HLS)
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Targeted in 1999 by aggressive activist group, “Stop Huntingdon Animal Cruelty” (SHAC)

Why HLS was targeted?
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“bad reputation” because of previous media coverage  Improved performance is hard to communicate  SHAC always uses “A Dog’s Life” as evidence Targeting one company (rather than many) decreases switching cost for customers (pharmaceutical companies) Note: activists are selecting “easy target” to put pressure on the entire industry (increase relative cost of animal testing)

Tactics: Round 1
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SHAC targeted HLS large pharmaceutical customers, such as Glaxo-Smith-Kline, Lilly, Bayer… attempt was unsuccessful due to high switching costs

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Tactics 2: Attack the Value Chain
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SHAC then targeted every aspect of HLS’ value chain, including the Royal Bank of Scotland, which eventually cut HLS’s credit line SHAC also targeted HLS’ service providers, including insurance broker Marsh, Inc.

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SHAC pressured the Marsh value chain (secondary target) including employees, directors, and organizations that were affiliates of Marsh directors (tertiary and quaternary targets). Led to termination of Marsh/HLS relationship.
Other targets (market makers, accountants etc.)

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Target Chains
Directors Marsh Marsh HLS Director English National Ballet Customers Sponsor

GSK

Customers

Strategies: Vertical Integration
Manufacturer Manufacturer

Retailers

Retailers

Calvin Klein

Abercrombie and Fitch

Takeaways – Risk Assessment
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Activists should frequently rely on secondary boycotts, i.e. boycotts where the target is not the business entity engaged in the offensive practice  Retailers Secondary targeting should also occur in cases where the primary target is a well-known consumer brand.  Calvin Klein boycott Targeting is predominantly driven by switching costs and multiplier effects. May lead to complicated targeting chains. In cases where activists try to change industry practice, they will not target the firm that caused the most egregious offense, but the most vulnerable. Activists should also limit their actions to a single target.

The Game of Conflict Resolution

The Target’s Response
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Activists’ goal is frequently change in industry practice  “fear and loathing” strategy  self-regulation by fear Creates common incentives among targeted industry to use political/legal strategies to reduce/eliminate activist threat Examples
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Knights of Labor: Taft-Haltrey Act (1947) and Landrum-Griffin Act (1959) effectively outlawed “coercive” secondary boycotts and created significant legal obstacles for labor-organized boycotts. HLS (C): company used coalition of pharmaceutical and biotech companies to push UK government to provide liability protection and credit line and push for changes in homeland security laws

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Needs sophisticated political strategy (later)

The Dual Nature of Activists and NGOs
Sometimes companies collaborate with NGOs, sometimes they fight  Starbucks and Conservation International  HLS and SHAC  What drives these decisions?  Key question: Is there a common interest between company and NGO?  Examples:  Credibility  Change of regulation (pharmaceutical co. and patient groups)  …
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If there is a common interest…
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Can lead to a private ordering

Nike
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Phil Knight, “The Nike product has become synonymous with slave wages, forced overtime and arbitrary abuse. I truly believe the American consumer doesn’t want to buy products made under abusive conditions

Characteristics of Private Orderings
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Essentially, a political institution
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A substitute for missing piece of governance

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Representation, decision rights, standards, monitoring, certification, public reporting, amendment procedures

The FLA: Formal Organization
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Fair Labor Association www.fairlabor.org Includes 19 companies & 21 NGOs
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Nike, Adidas, Patagonia, Reebok, Liz Claiborne

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Each group holds 6 board seats 141 college and university affiliates hold 1 board seat The chair has 1 board seat

What It Does
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Detailed code of work practices
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60 hr workweek, no kids under 15

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Certifies independent 3rd party monitors that inspect a % of factories every year Gives a “service mark” to participating companies that meet its standards With majority approval, can publicly release inspection reports

What Can A Manager Do?

Credibility – The Profit Paradox
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Business Decision are frequently hard to communicate
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Technical details (versus “drama”) Pricing and cost/benefit analysis (versus “need and suffering”) Statistics (versus “victim”) Long-run (versus short-run)

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Because businesses care about profits, they frequently lack credibility, especially if products have a credence good quality,
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e.g. danger for environment (Shell), child labor (NIKE), dolphin-safe tuna

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This gives intermediaries (media, activists, experts, regulators) a key role in shaping public opinion

Recognize importance of intermediaries and use them to your advantage

What Can a Manager Do?
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Anticipate likely issues and groups that will be mobilized Engage activists in the process Consider media coverage  Avoid “Media Moments” What is the likelihood of success of the activists?  Can they mobilize?  Can they get their message across?  Will the issue snowball?  Will they go away?  What will be the impact on the company? Involve all levels (horizontally and vertically) of the organization in decision-making Have a plan when you must challenge the activists

Non-Market Strategy Matrix
Offense (Value Creation)
e.g. socially responsible brands

Defense (Risk/Cost Minimization
e.g. risk management Shell Baxter International International Paper

Individual

Body Shop Patagonia Ben &Jerry’s BP Ford

e.g. image campaign tobacco industry Biotech industry

e.g. self-regulation Entertainment industry U.S. beer industry

Collective


				
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