Mr. Eisner’s ouster was never about financial performance, however. When he took over as CEO in 1984, Disney was close to being moribund, living on its past glory in animation and its two theme parks, Disneyland and Disney World. In 1983, the studio released only three films; annual revenue was $1.6 billion. In contrast, in 2004, Disney took in $30 billion. Its film library had grown from 158 titles to 900. The studio had won 140 Academy Awards. It owned ABC and cable channels like ESPN and the Disney Channel. It had Disney Resort Paris just outside the French capital. This book makes one wonder what Michael Eisner’s behavior cost Disney shareholders, and how it constrained value creation opportunities.
Of course, the scandals and brazen behavior that rocked Wall Street and the business world globally in the first years of the 21st century hark back to the first stock market crash, in the 18th century, when the “South Sea bubble” marked the sudden rise and collapse of the artificially pumped-up stock price of a British trading company. Corruption and excess in business are recidivist. As a result, every generation has its watchdogs dedicated to exposing bad corporate behavior and thereby shaming companies into being better, and its regulations to keep wayward corporate behavior in check. (In the U.S., think Upton Sinclair, Ida Tarbell, Michael Moore, the Sherman Antitrust Act, and now Sarbanes-Oxley.)
That corporations can be forced, nudged, shamed, or pressured into being good and doing good has been a preoccupation of mine for 37 years. On the basis of my own experience, I agree with the arguments mounted in Steven Lydenberg’s Corporations and the Public Interest that suggest strategies for elevating corporate behavior through a mix of regulatory oversight and new voluntary standards and reporting systems.
In this slim book, Mr. Lydenberg traces the growth and impact of CSR and socially responsible investing (SRI) — both of which are inspired by the notion that public accountability leads to better corporate behavior. He also lays out a blueprint for a marketplace that rewards corporations for the pursuit of long-term wealth creation, which he describes as “the creation of value that will continue to benefit members of society even if the corporation was dissolved today.”
In a variation of the Adam Smith dictum, Mr. Lydenberg calls his plan “guiding the invisible hand,” meaning he does not advocate heavy government regulation, à la Joel Bakan. He calls for governments to set certain standards, such as requiring companies to disclose more data. He also expects stakeholders — consumers, investors, employees, and community groups — to play roles in making companies more accountable. Under his scenario, corporations would be compelled to:
Address and minimize the public costs they incur before they declare private profits.
Preserve and renew resources so that they remain available for future generations.
Invest in stakeholder relations, including relations with stockholders.
Even though there are more opportunities today for companies to be both socially responsible and financially successful, social benefits are often manifest only in the long term — and may or may not be measurable in financial terms. Meanwhile, short-term financial measures are the ones that count in practice. I rarely see security analysts giving points to companies for their social responsibility initiatives.
But Mr. Lydenberg is hopeful that more analysts will start paying attention to nontraditional measures of performance, with longer time horizons. He himself has been responsible for the development of investment screens that evaluate a company’s social performance. He has done this first as a founder of the research company Kinder, Lydenberg, Domini & Company, and now as chief investment officer of Domini Social Investments, manager of the Domini Social Index mutual fund.