This special episode of The BIS features Walton College professor Dan Worrell and Cindy Moehring talking about the history of CSR into what we now know as ESG. They also discuss Dan’s career history, ESG reporting standards across the world, and the need for governments and businesses to collaborate on ESG goals.
Podcast
Resources From the Episode
- Larry Fink 2019 letter to CEOs
- Morningstar Commentary
- SEVI Department at the Walton College
- The Power of And
- A Life on Our Planet (Netflix)
Episdoe Transcript
[music]
0:00:16.3 Cindy Moehring: Hi everybody, and welcome back to another episode of The Bis, the Business Integrity School, and I am just thrilled today to tell you that we have a very special guest, one of our own from Walton College, Professor Dan Worrell. Hi Dan, how are you?
0:00:31.2 Dan Worrell: I'm doing fine. Hanging in there. [chuckle]
0:00:33.9 Cindy Moehring: Good. Yeah, it's been a long slog, and we're still in the middle of COVID while we're taping this, but let me tell you all a little bit about Dan and his illustrious career, and then we're gonna jump into the topic of this particular podcast and this whole season, which is All Things ESG.
0:00:51.3 Cindy Moehring: So let me tell you a little bit about Dan. Dan is a dean emeritus of the Sam M. Walton College of Business. He served as the dean of the Walton College from 2005 to July of 2012. He is a professor now in the Strategy, Entrepreneurship and Venture Innovation Department, also known as SEVI, and he holds the Walton College Corporate Responsibility professorship.
0:01:14.7 Cindy Moehring: Dan has served in a variety of Higher Education administrative roles as well, spanning over two decades. He has held positions like department chair, associate dean, and 15 years of service as a dean at three different business schools. So he's been around the block.
0:01:32.9 Cindy Moehring: Dan Worrell has also published over 50 referenced academic journal articles, and that is a lot, and his work appears in top tier research journals, including the Academy of Management Journal, Strategic Management Journal, the Journal of Management, Industrial Relations and the Journal of Business Ethics.
0:01:50.6 Cindy Moehring: So the one thing that wasn't in there that I think is most important to also say is that Dan serves as a member of the Academic Advisory Board as well for the Business Integrity Leadership initiative, and has just been really instrumental as we've been working to bake this whole topic of ethics and integrity across the curriculum and integrate it, and it's just been great, Dan. So welcome. It's a real pleasure to have you here today.
0:02:16.0 Dan Worrell: Well, thank you. I'm happy to be here.
0:02:19.8 Cindy Moehring: Well, let's just jump right into the questions. I think it's always great for the audience to get to know the guests a little bit personally, so can you just start out by telling us about your academic passions and how you ended up becoming the holder of the chair for the Corporate Responsibility professorship at Walton College?
0:02:45.0 Dan Worrell: Okay. I guess it sort of depends on when you start the story, but I'll start it at my undergraduate education period. So when I was an undergraduate student, I really wasn't quite sure what I was going to be doing with my life. I've got a few miles on my odometer, so to speak, and so when I was completing my undergraduate degree, it was the Vietnam era, and so there was a lottery at the time, and my lottery number was very low, it was 21 to be exact.
0:03:22.8 Dan Worrell: And so I knew that I was likely to have military service, so I voluntarily enrolled in ROTC, and so upon graduation, I was a second lieutenant in the US Army for a while. So then when I completed my service, I moved back to my community where I obtained my undergraduate degree, and I held various positions somewhere in public service. Including things that you wouldn't necessarily associate with a business professor, such as social security disability claims examiner. [chuckle]
0:04:07.6 Cindy Moehring: Wow. [chuckle]
0:04:09.7 Dan Worrell: And public assistance case worker. So I think that sort of intertwines then with some of my background and how I might end up in a CSR type space. So then while I was working, I decided to pursue a Master's degree in Management in the evening. So when I obtained a Master's program, Master's in Management, the faculty, I did reasonably well, and some professors asked me if I might consider the doctoral program.
0:04:48.0 Dan Worrell: And I said, "Well, you know, I never thought of that." [chuckle] And they say, "Well, you have an oral exam and if you do well, we might invite you to, given your test scores and whatever, we might invite you to join our program." And so I did and got a PhD, obtained a PhD in Management.
0:05:11.7 Dan Worrell: But with the sort of human side of the enterprise, I was also interested in psychology, to be particular, and so I'm minored in Industrial Organizational Psychology. And so one of my key mentors in the doctoral program was a student of a guy named George Steiner at UCLA, and Steiner was the author of a textbook, Business, Government and Society, which was first published in 1980. And that's important because some folks think this whole idea of CSR ESG is very new. Well, it's not.
0:05:58.4 Cindy Moehring: Ed Freeman is another one that would say that, right? He's been... He's been after this whole stakeholder theory for a while, from UVA. I love his book, The Power of And. That's a really good one also.
0:06:08.8 Dan Worrell: Exactly, yeah. I actually watched a podcast with him a couple of weeks ago.
0:06:13.6 Cindy Moehring: Oh, good.
0:06:15.2 Dan Worrell: About the book. So then once I obtained my doctorate, in academia the traditional track, if you go in the university life, there is a traditional stream where you go assistant professor, associate professor, full professor, and then there is sort of a parallel track on the dark side of the enterprise, which is higher ed administration.
[chuckle]
0:06:48.1 Dan Worrell: I did that as well, which you mentioned before, where I served in various capacities. And currently I am definitely in the autumn, you might say, of my career, and so I have the flexibility, I have the academic freedom to sort of align this accumulation of experiences and inquiry that I've had in my career life cycle. And so now really I'm primarily focused on instruction in the CSR space and working with other students on their research projects.
0:07:24.7 Cindy Moehring: I love it. And so, whether you... You call it CSR, and today the buzz word is kind of ESG environment, social and governance issues. So let me just start by asking you, do you think those two things are the same? And does it even really matter what we call it? Are they after the same thing, even if they've been called different things in the past?
0:07:51.0 Dan Worrell: Yeah, that's an interesting question. And at least a couple of thoughts about that. First is, this is not new, the general concept. We can look on the academic side, there was a professor named Howard Bowen, who published a book, Social Responsibilities of Business, back in 1953.
0:08:20.8 Cindy Moehring: Wow.
0:08:23.2 Dan Worrell: Okay? So then there are a lot of other preeminent scholars in the field. You mentioned Ed Freeman, there are people like Archie Carroll, Donna Wood, Bill Frederick, there are a whole bunch of folks like that on the academic side. And then from an actual practice social standpoint, we had all these movements, all these social movements that were occurring; women's movement, civil rights movement, environmental movement, consumer movement.
0:08:56.6 Dan Worrell: And then on the academic side, in addition to textbooks, we also had the creation of journals that were specifically focused on areas in the space, like Business and Society, as I recall originated in 1960. So that's one point. This is not new. And then the second component about the name or the nomenclature that's used, so you have CSR, you have CSP, you have stakeholder management, conscious capitalism, corporate sustainability, inclusive capitalism, connected capitalism, social entrepreneurship, purpose-driven.
0:09:41.8 Dan Worrell: Anyway, there's a lot of branding going on. Yes there can be subtle differences here and there, but in terms of ESG specifically, I would say that one of the differences, even though it's in the same space, is that there's a lot of interest in it from the Wall Street or investor community.
0:10:03.2 Cindy Moehring: Yeah, that seems to be new, if you will, a new angle on it, and it certainly seems to have taken center stage. So why do you think that is?
0:10:15.0 Dan Worrell: Well, I think there are a number of reasons. And so in this space, you hear terms like "responsible investing", you hear like "patient capital", you hear terms like "triple bottom line". And so shareholders appeared to have developed an interest in this, and so I think that there are people like the Business Roundtable and so on, that have expressed renewed interest in this.
0:10:55.6 Cindy Moehring: Yeah, I really sense that too, and I don't know if there was a particular tipping point, if it was just a... COVID certainly has advanced, I think, many of these issues to front and center in many people's minds, or the social justice issues. But you mentioned the investment community, and I don't think you can overlook Larry Fink's letter from BlackRock a couple of years ago, the CEO.
0:11:21.0 Cindy Moehring: Where he made it pretty clear about what they were going to be looking for and expecting of the companies that they invested in, both both public and private. Do you think that that may have been what helped to awaken the investment side?
0:11:38.7 Dan Worrell: I would say that in academia we've been talking about financial consequences of being socially responsible for a long time. There are countless articles that have used different methodology to explore this. But I think in the big scheme of things, if you can sort of envision two lines, one is the corporate social performance, the actual performance of business, and the other that would be positioned above this line would be societal expectations of business. And so between the two, there is a gap.
0:12:25.8 Dan Worrell: And so CSR or ESG, these are such dynamic changing concepts, and I believe that over time, the expectations have changed in terms of what a business ought to do. And so groups like BlackRock that come out with statements that they have in these annual letters, this is what people usually talk about, has that made a impact?
0:13:02.5 Dan Worrell: Well, certainly, if you look at the visibility, and the rapid beating of the drum, if you will, has been heard. I don't know what the latest number is, but I think that BlackRock is often considered as the world's largest asset manager with over $38 billion. So of course, that makes an impact. So I think the letters carry weight.
0:13:38.7 Dan Worrell: To be fair, from a business and society or CSR perspective, the fact that these do, these letters do carry such weight, also that in and of itself invite scrutiny, which is interesting. So maybe there's some plot of a disconnect that can occur between talking the talk and walking the walk.
0:14:10.5 Dan Worrell: And so if we say ESG, well, the G stands for "governance", and one of the issues is often discussed in governance has to do with CEO compensation. So if we look at the compensation levels of someone like Mr. Fink, he was reported in 2020 that his compensation was $29.85 million, and we compare that compensation to that of the average worker, that's a huge disconnect.
0:14:50.3 Dan Worrell: Now, that's not to say that his stewardship didn't add significant value, I'm sure it did. But in a bigger picture, if we look at the much broader landscape, and we see that for inflation-adjusted dollars over time, the average American workers compensation between 1965 and 2000 grew 30% versus CEO compensation of 2500%.
0:15:20.4 Cindy Moehring: Have CEO expectations changed that dramatically? [chuckle] Toward a 2000% increase? Interesting comparison.
0:15:29.4 Dan Worrell: I'm just saying. Also, I've seen some reports, like I think Morning Star reported that between a 2016 and 2020 proxy season, that the funds that we're talking about with BlackRock supported only 10 of 165 climate change resolutions. So if they are indeed that responsible, are the actions compatible with the words? That's one of the big problems in CSR, is that the issue of measurement is so complicated.
0:16:18.1 Cindy Moehring: It is. So let's turn to that and talk about that for a little bit. So you, just for the audience sake, for them to know, you teach a wonderful course, honours course on Strategy and in the SEVI department, and as part of that course, I know you talk about this topic.
0:16:35.1 Cindy Moehring: And measurement, I would imagine, is one of the topics that you hit on there, because that is extremely important for companies to be able to measure. So what advice... Tell me what you tell your students, bring us into your classroom for a second, and what do you tell your students about measurement of these kinds of things?
0:16:53.3 Dan Worrell: Well, a lot actually. But like the current course I'm teaching this semester is an honours colloquium in Corporate Social Performance. There are all these terms that we said that you can use to describe the behaviour in this space. I personally, for undergraduate students, like the term "performance", because of the action component of it, whereas CSR sometimes is so much more of what we shouldn't do. And when you say "performance" you're talking more measurement.
0:17:32.3 Cindy Moehring: Good point.
0:17:36.0 Dan Worrell: But the way I structure the course this semester, we've just come off of a couple of semesters of all remote delivery, and for the first time now we're face-to-face so far, this semester. But it's a moving target.
0:17:52.3 Cindy Moehring: Yeah. Fingers crossed, we should say this is at the time of taping. [chuckle] Which we're early into the semester here, a couple of weeks, so we'll see.
0:18:00.6 Dan Worrell: Essentially in the class this semester, it's sort of more of a survey course. We're talking about students that are, I would say probably the majority of them are seniors, and the other component is juniors, so it's juniors and seniors. They come from a variety of majors, typically just within the business schools, sometimes outside the business schools, but I have accounting, finance, information systems, supply chain management, marketing, so on, I have a real mix.
0:18:35.8 Dan Worrell: These are all very bright students, or they wouldn't be honour students, and they're at the end of their pipeline in terms of getting through the undergraduate program. So the way it's generally structured, is it's a colloquium, which means a shared experience, we have a lot of discussion. And enrolment is capped such that it can be more possible, so enrollment is usually like 25 students or something.
0:19:09.7 Dan Worrell: And so we have usually a framing section that would be followed by a reading, so we'll have... This is such a current concept that we... Really recent readings, and we would have various ways to assess behaviours and issues, which could be government influence, diversity at work, consumer issues, community issues. They're 14 folders on different topics, and so that's what we do. It's kind of a long answer, I guess. [chuckle]
0:19:50.0 Cindy Moehring: Yeah, no, that's good. So measurement, when you talk with them about that, do you talk about measurement of all of those different components that you mentioned, so they have some concept of what they may be asked to do when they are in the social... I mean in the corporate world and have to actually perform and measure the performance?
0:20:09.6 Dan Worrell: Yeah. Again, the big caveat of course, is these students upon graduation aren't moving into the executive suite. [chuckle] And so they're embedded in existing corporate culture, and so how much difference can they make at that point? Probably not that much. But at a minimum, I would like the students, even at entry managerial levels, they will be involved with multiple stakeholders.
0:20:44.7 Cindy Moehring: Yes.
0:20:46.5 Dan Worrell: And they will be actively engaged in decision-making.
0:20:50.3 Cindy Moehring: Yes.
0:20:53.9 Dan Worrell: So to speak, I like them to envision having a managerial tool kit. You know?
0:20:58.2 Cindy Moehring: Right, right.
0:21:00.7 Dan Worrell: In the toolkit, one of the things they might pull out is the decision matrix, and I would hope that at least a few of the cells in that matrix have some CSR-related issues, that we can't surgically implant responsible behaviour in an employee or a manager, but we can at a minimum, I think, ask them to at least consider that in the decisions they make.
0:21:29.6 Dan Worrell: So that's kind of what we do, and we use a lot of case studies of actual corporate behaviour and try to look at that behaviour through a variety of lenses. That's what we do.
0:21:44.3 Cindy Moehring: Yeah. Well, and I would imagine courses like yours have really increased in popularity as of late. The generation of students who are in college now are, even as consumers, and I think as soon to be joining the corporate world, very interested, I seem to think, in companies' value, purpose.
0:22:08.8 Cindy Moehring: What else are they doing to contribute to the world beyond just their stated reason for being in business, and how are they going about doing that. And that seems like a real sea change to me in terms of focus for the younger generation. Are you seeing that?
0:22:25.3 Dan Worrell: Yeah, I would think up to a point. I think a lot of the research would, let's say about millennials, would suggest that other things being equal, they would prefer to work for a firm that was more proactive in terms of multiple stakeholder consideration. Now, are they willing to take a 50% pay cut or less pay to work for that particular firm? Well, probably not. But I think it is definitely a component for most of the students I've talked to, in terms of their desirability of what they're looking for.
0:23:12.1 Cindy Moehring: Yeah, it kinda goes into their decision-making matrix, I think in a way that was different from maybe new employees in the past. So let's talk about reporting for a minute. There's just a host of different ESG rating agencies out there, there's a lack of commonality among them. The EU seems to be a little further ahead on this whole issue and reporting, and maybe even some regulatory requirements, so they seem to be further along than even the SEC is.
0:23:46.7 Cindy Moehring: Do you... Is this a topic, first of all, that you hit on in your class? And then two, what do you think about the need for regulation in this space, do we need government regulation to help bring some maybe regulatory enforcement horsepower? Or is this an area where really regulation should back off and we should let industry figure it out, what do you think?
0:24:09.9 Dan Worrell: Okay, there were at least a couple of questions there.
0:24:12.9 Cindy Moehring: Yes, there were. [chuckle]
0:24:17.6 Dan Worrell: I think your first one was talking about all of these various rating agencies and things. So we referenced the ESG space earlier in our discussion this afternoon, and so the United Nations, back in 2005 or 2006, when they came out with the principles for responsible investment, that globally, that had a big impact. And I agree with you that probably the European Union could be considered a bit ahead of the US with, what are some of the examples? Like the European Green Deal, no net emissions of greenhouse gases by 2050.
0:25:16.3 Dan Worrell: But to be fair, I mean, who knows how this will progress, but President Biden's $2 trillion climate plan is out there. And so to some extent, I would say that the EU is definitely further ahead in the formalisation of compliance, if you will, or movement in that direction, but the US may not be as far behind in some cases, if you consider nuances in terms of how they may move ahead.
0:25:50.9 Dan Worrell: So our students, getting back to them, they may read CSR reports that companies are putting out all the time about what they're doing, and admittedly some of that is positioning. You know, building brand. But sometimes businesses are a little bit ahead of what the minimum requirements are in terms of discretionary behaviour.
0:26:18.1 Dan Worrell: And the SEC, I think it was in May of 2020, they had indicated that they're going to develop a list of... A way to rate, I should say, a philosophy of rating that's somewhat independent of these third-party groups that have shown up. You have a whole bunch of these; Global Reporting Initiative, Carbon Disclosure Project, Sustainability Accounting Standard Board, Task Force on Climate-Related Financial Disclosures, so on.
0:27:02.5 Dan Worrell: So you have all these frameworks and then you have all these rating agencies. And so a lot of problems there of course is that they don't necessarily agree. So I think the SDC is trying to say, "Let's not use a third-party technology or method or framework. Let's try to come up with our own."
0:27:25.4 Dan Worrell: So that's encouraging. So if one is, cynical might be too strong of a word, but financial firms offer ESG products because it's lucrative. [chuckle] Not just because it might be the right thing to do. And firms believe, in part, that a motivation is if you don't manage these ESG risk properly, not only might you hurt your brand, but it might also actually hurt your bottom line.
0:28:07.0 Cindy Moehring: Right. Yeah, yeah, I completely agree. Yeah, because consumers may just choose to vote with their pocket books, right? And if you don't manage them properly, they may choose to go elsewhere. It could also hurt the employee base, like we talked a little bit about before, we may not be as a desirable place to work either. So they have to worry about it from many different stakeholder perspectives.
0:28:29.4 Dan Worrell: The ultimate problems in this is that even if we go beyond these specific frameworks and rating agencies that we have, if we just look at reports that we receive about Fortune Magazine or Business Week or something like that will put out these kinda metrics and they'll say, "This company is number one."
0:29:01.1 Dan Worrell: Well, then if you drill down a bit, well that's like an aggregate measure, and then you look at, "Okay, how did this company rate on, let's say diversity? How did they rate on the environment?" And so on down this list. Well, the number one company is not number one on all dimensions. [chuckle]
0:29:27.0 Dan Worrell: What does that mean then? Well, for the students, getting back to them, this is a difficult bear to manage, 'cause there's all this, so many different stakeholder groups, if you will, and you cannot be number one on all of these dimensions over time. It's impossible. You were saying something about regulation. Sorry for jumping in. I don't know if you want me to...
0:29:58.9 Cindy Moehring: No, no, go ahead.
0:30:01.1 Dan Worrell: Okay, so I would say that ideally, your question was government regulation or should the private sector sort of address this on its own, and my answer would be, well, they should ideally work together. [chuckle]
0:30:18.7 Cindy Moehring: Yes, that would be great.
0:30:19.0 Dan Worrell: Rather than one or the other. That at least theoretically, it should be a partnership. It takes a commitment. It's not either/or. Business itself doesn't necessarily have an inherent right to exist, it's embedded in society. So ideally, that should be the case in my mind. But as what we alluded to before, these social expectations change over time.
0:30:52.5 Cindy Moehring: They do, yeah.
0:30:56.5 Dan Worrell: Let's face it, all the many businesses may voluntarily engage in desirable ESG deliverables, there are some bad apples out there. I mean, there's a reason that we have Sarbanes-Oxley Act. I think government has a place in these regulations and that it can raise awareness, it can encourage compliance, not only of perpetrators, if you will, but more of a general deterrence, not just specific deterrence, but also general deterrence.
0:31:47.3 Dan Worrell: That's part of the criminal justice system, is that if one person is convicted of a crime, that might possibly discourage others from engaging in that behaviour. It can both provide framework, add transparency, all these sorts of things. But of course, as government regulation has increased over time, so has business lobbying.
[chuckle]
0:32:17.6 Cindy Moehring: Yes. Yes it has. With one comes the other.
[chuckle]
0:32:22.0 Dan Worrell: So that makes perfectly sense, but there can be a lot of problems that can occur, there's been a lot written about the revolving door where industry folks go to government, government folks go to the industry, the revolving door, the foxes watching the chicken coop. Regulatory capture, like we looked at the Boeing 737 MAX and how some of the Boeing folks were being their own regulatory group in-house.
0:32:57.4 Cindy Moehring: Yeah, sure. Yeah.
0:33:00.6 Dan Worrell: So, a lot of problems that can occur, but in the big scheme of things, I think that the two, that is the private sector and the government, need to work together.
0:33:14.0 Cindy Moehring: Yeah, that's a good answer. I would agree on that one. Because some of these big problems, like what we've been talking about today, all things are related to ES and S and G, I think we've already seen there's not one sector of society that can effectively solve any of those issues, it is gonna take collaboration and cooperation among the different sectors.
0:33:32.5 Cindy Moehring: Well, Dan, this has been a fabulous, fabulous conversation. Thank you for allowing us to kind of come inside your classroom, at least for a few minutes and be a student and learn from you. And thank you for sharing your wisdom and your knowledge. I always like to leave the audience with one last answer to a question about where they might go for some additional resources if they're really interested in this topic.
0:34:01.0 Cindy Moehring: I think guests are a fabulous resource. So do you have any good books or documentaries or, I don't know, podcasts or anything that you might recommend to the audience for them to pick up?
0:34:18.3 Dan Worrell: Well, you actually mentioned one that I think is really good, which is The Power of And. That Freeman, Martin and Parmar wrote. I guess technically, it was in 2020. But it's a very quick read, it's not full of academic jargon. It's practitioner-focused. And I think that would be probably my most favourite current book, if I was to suggest that.
0:34:58.3 Dan Worrell: In a different media, I think there's a lot of film and documentaries out there that, some are classic, some can be depressing if you watch, of course. But the classic An Inconvenient Truth about global warming, Al Gore, some of the folks in the audience, particularly younger people, like my students, for example, they may be, the vast majority would be totally unfamiliar with that.
0:35:32.0 Cindy Moehring: Sure, sure.
0:35:32.8 Dan Worrell: We could probably get at them with the Happy Feet, the animated musical comedy.
[chuckle]
0:35:36.7 Dan Worrell: For people interested in climate change. So there's a lot out there. Probably in terms of current documentaries and things, I've always liked to watch nature kind of shows, and David Attenborough's A Life on Our Planet, is a new classic in that space. So those are a few that I would mention.
0:36:03.1 Cindy Moehring: Oh, those are great, those are just really great resources. I'll have to add that new nature show to my list. I don't have that one on there. Well, Dan, thank you again for your time. I really, really appreciate it, and this has just been a real treat and a real pleasure, so thank you.
0:36:20.2 Dan Worrell: It was a pleasure. Thank you.
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