CHAPTER 4
The Political Imperative

Computer chip maker Intel, famous for its “Intel inside” motto, got dinged from the outside in 2009.

Outside the marketplace, that is. European regulators slapped Intel with a record-large fine of $1.45 billion for abusing its dominant position in the market for a class of computer chips.¹ After a lengthy probe of the market for chips known as x86 central processing units, the European Commission concluded that Intel engaged in illegal anticompetitive practices such as making direct payments to a major retailer on condition it stock only computers with Intel x86 chips.

“Intel has harmed millions of European consumers by deliberately acting to keep competitors out of the market for computer chips for many years,” said European Commissioner for Competition Neelie Kroes. “Such a serious and sustained violation of the EU’s antitrust rules cannot be tolerated.”²

Kroes’s indignant tone is telling. The antitrust penalty her organization levied on Intel is part of a pendulum swing back toward greater regulation of businesses by governments around the world. That regulatory push is among several political factors forcing companies in the direction of greater goodness. We define political here broadly to refer to the way people and organizations make decisions. In that light, this chapter looks at two other political trends besides the growth in government intervention. They are the increase in shareholder activism and the emergence of workplace democracy.

Regulation Rising

The European Commission’s antitrust fine against Intel was eye-popping, but it was far from an isolated case. In recent years, governments in Europe and other parts of the world have stepped up their policing of markets and companies. Just a year before imposing the hefty fine on Intel, for example, the European Commission ordered software giant Microsoft to pay a $1.3 billion fine for failing to comply with a prior antitrust ruling.³

Commissioner Kroes in particular has been so tough on perceived anticompetitive behavior that she earned the nickname “Steely Neelie,” as well as spot 53 on Forbes’s 2009 list of the 100 most powerful women.⁴

Kroes and her team at the European Commission—an organization akin to the executive branch of the U.S. Government—did not let up against Intel. In their probe of whether Intel improperly tried to shut rival AMD out of European markets through hidden rebates and other means, the regulators went beyond formal contracts and statements to analyzing e-mails obtained partly from unannounced on-site inspections.⁵

And the actions of the commission are only part of the story in Europe.

In the United Kingdom, sweeping legislation known as “the Equality Bill” began to take effect in 2010.⁶ Among other things, the measure gives additional power to employment tribunals and protects employees who discuss their pay to uncover discrimination, even if their employment contract bars them from talking about their pay.⁷ What’s more, in late 2008 Britain’s Equality and Human Rights Commission announced it would probe the financial services and construction industries because of inequality in pay or ethnic minority representation in the workforce.⁸

The U.S. push toward more regulation began in earnest when Barack Obama took office in early 2009. One of his first actions as president was to sign into law a measure that makes it easier for workers to sue employers for pay discrimination.⁹ His administration declared that greenhouse gases are hazardous to public health and welfare, opening the door to tighter emission controls and regulations under the Clean Air Act.¹⁰ The U.S. Congress passed major pieces of legislation to overhaul the healthcare system and increase oversight of the financial services industry. And Obama’s 2011 budget called for $25 million to crack down on the problem of employers misclassifying employees as independent contractors.¹¹

The 2010 U.S. mid-term election results will almost certainly slow this push toward more regulation. But given the underlying dissatisfaction of broad swaths of the U.S. electorate with the state of corporate America, it still seems likely that the long-term trend will be toward greater regulation, across a broad array of industries.

Greater interest in regulating companies extends to China, where a law that went into effect in 2008 strengthened the hand of workers. Among other provisions, the law gives temporary workers the right to earn the same pay as comparable workers at the firm to which they are assigned, and mandates that laid-off workers generally receive one month’s wage for each full year worked.¹²

That measure is part of a shift in China in recent years to balance the country’s breakneck economic growth with the goal of a “socialist harmonious society.”¹³ Also in keeping with that aim is China’s pledge to try to reduce its “carbon intensity”—which refers to emissions of carbon dioxide per unit of economic growth—by 40 to 45 percent by 2020, compared with 2005 levels.¹⁴

China’s swing to rein in market excesses reflects a worldwide reevaluation of the costs of unfettered capitalism and growing doubts about the wisdom of unchecked markets in the wake of the Great Recession. That dramatic downturn resulted at least in part from under-regulation in the financial services industry. Exotic securities products and minimal requirements for capital reserves magnified the effects of a housing market collapse.

Even leading conservative scholar Richard Posner conceded the recession revealed the dangers of overly free markets. Posner published a book in 2009 titled A Failure of Capitalism: The Crisis of ’08 and the Descent into Depression and conceded laissez faire in the financial arena is flawed.

In a 2009 Wall Street Journal op-ed piece Posner wrote, “The banking crash might not have occurred had banking not been progressively deregulated beginning in the 1970s … competition in an unregulated financial market drives up risk, which, given the centrality of banking to a capitalist economy, can produce an economic calamity.”¹⁵

In coming to this conclusion, Posner is in step with citizens around the globe. A 2009 poll of more than 22,000 people in 20 countries found that 67 percent want to see an increase in “government regulation and oversight of the national economy.”¹⁶ And as mentioned in Chapter 2, another 2009 worldwide poll found that just 11 percent said free-market capitalism works well and greater regulation would make it less efficient.¹⁷ That poll, sponsored by the BBC World Service, found particular support for heightened regulations in several key emerging economies. Seventy-one percent of people in China, 87 percent of Brazilians, and 68 percent of Russians want to see government be more active in regulating business.

A U.S.-only poll published in 2009 found that a majority of Americans believe that corporations are not adequately evolving to more sustainable business practices and will require regulation to move in the right direction. The poll, by Harris Interactive, showed that only 16 percent of Americans believe that companies will make these changes on their own.¹⁸

The implication of such surveys and growing government intervention is that companies had better behave better. Firms that fail to demonstrate goodness as a steward, seller, and employer face fines and a corresponding decline in their good name. Evidence that we provide in Chapters 5 and 6 shows that those that abide by and do more than what is required by regulations will likely survive and benefit from an enhanced reputation.

Skeptics of this conclusion might point to mixed signals on the public’s support of more regulation. A Gallup survey from early 2010 found that half of Americans believe the government should become less involved in regulating and controlling business, 24 percent say the government should become more involved, and 23 percent believe things are about right.¹⁹ Pro-regulation forces also were dealt a blow with a U.S. Supreme Court decision in early 2010, which eased restrictions on political spending by corporations and other special interests.²⁰

What’s more, even well-intentioned regulations can prove to be wrongheaded. Businesses have a right to point out unintended negative consequences, to question rules, and challenge findings. Intel, for example, contested the European Commission’s ruling and $1.45 billion fine and pledged it would appeal the decision.

“We do not believe our practices violated European law,” Intel CEO Paul Otellini said at the time. “The natural result of a competitive market with only two major suppliers is that when one company wins sales, the other does not.”²¹

But in the wake of the European Commission fine, other regulators have accused Intel of misbehavior as well. The New York Attorney General sued Intel claiming it violated antitrust law,²² and the Federal Trade Commission filed a complaint against the company alleging anticompetitive tactics that have “stifled innovation and harmed consumers.”²³

And despite public concerns about government overregulation, people are equally if not more wary about the untamed power of large corporations—especially in light of bad behavior during the Great Recession and in the Gulf of Mexico. Based on a survey done in 2010, shortly after BP’s Deepwater Horizon oil spill, the Wall Street Journal reported that “Nearly two-thirds in the survey said they wanted more regulation of oil companies. Majorities also favor more regulation of Wall Street firms, health insurers, and ‘big corporations.’” In addition, the survey found that 63 percent of Americans support legislation to reduce carbon emissions and increase the use of alternative and renewable energy sources, even if it means an increase in energy costs.²⁴

Kroes, for one, does not apologize for taking a hard line with companies. In a 2009 speech she reviewed five years of work at the Commission. “I think it’s a strong record,” Kroes said. “A record that has left the [European market] in much better shape than if we’d left it to the wolves.”²⁵

Thanks to Kroes and the broader rise of regulation, if companies want to thrive in the European market and other markets, they’re going to have to act less like wolves and more like good neighbors.

Shareholder Activism

Home Depot learned the hard way about the growing power of shareholder activism.

The home improvement giant and its CEO Bob Nardelli made headlines by snubbing shareholders at the company’s annual stockholder meeting in May 2006. Amid heated criticism of Nardelli’s hefty pay—some $200 million over five years—and a decrease in shareholder returns, all of Home Depot’s directors save Nardelli skipped the event.²⁶ He didn’t answer the questions and wrapped the meeting up after a mere half hour.²⁷

Later, Nardelli conceded the “new format” was a mistake.²⁸ But given widespread public fury about outsized CEO pay, Nardelli became a poster child for executive arrogance. And shareholders only grew more agitated with the company. In December 2006 a shareholder group, Relational Investors, said it would call for a review of Home Depot’s strategy and management.²⁹ And the flap found its way into the New York Times³⁰.

“There is no accountability to shareholders,” Ralph Whitworth, head of Relational Investors, told the newspaper at the time. “Since Nardelli was made president in 2000, he’s taken hundreds of millions in compensation, but the company’s return to investors has been almost nothing. There needs to be someone making sure management is watching the store.”

Within weeks, Home Depot capitulated to Whitworth and other shareholders. Nardelli was ousted from the firm, reportedly over his refusal to more closely tie his future stock awards to shareholder gains.³¹

Home Depot has plenty of company when it comes to facing pressure from active shareholders. Over the last decade or so, shareholders have been speaking up and calling for a variety of reforms at companies. Although their concerns vary, shareholder activists as a whole are pushing companies in the direction of greater goodness.

Shareholder activism takes advantage of the fact that companies are a kind of democracy. Key decisions are made by a vote of the owners, or shareholders. Unlike in an election for public office in the United States, where each citizen gets a single vote, shareholders get as many votes as shares owned. And in some arrangements, particular classes of shares have more voting power. Still, average shareholders have a chance to participate in major decisions such as electing board members. And individual shareholders have the ability to propose initiatives to be decided on by shareholders overall.

Shareholder priorities vary. Some activist investors are focused on seeing higher stock returns. These include “activist hedge funds” that look to turn around poorly managed or undervalued companies. Other activist investors include public pension funds, unions, and individuals determined to express their political or social values through their investments. These shareholders want changes such as improved governance, more oversight on executive compensation, better treatment of employees, and increased sustainability efforts.

Taken as a whole, shareholder activism is on the rise. Consider a study of activism trends from 2006 to 2008 that examined SC 13D disclosures. This type of U.S. Securities and Exchange filing applies to persons and institutions that take a 5 percent or greater stake in companies and reserve the right to influence management. The study by research firm Audit Analytics found that such activist shareholders expressed concern over share prices five times more in 2008 and 2007 than they did in 2006. The study also showed that activist disagreements with management on actions and strategy increased substantially, as did activist allegations that management provided misleading information.³²

Much of the stepped-up shareholder involvement centers on executive pay. In 2007 a coalition of investors came together to push companies to adopt say-on-pay measures that would give shareholders an annual advisory vote on executive compensation. The coalition, which includes public pension funds, labor funds, asset managers, individual investors, foundations, and religious investors, made progress quickly.³³ In 2007, 51 say-on-pay shareholder proposals came to a vote, with 9 getting a majority of votes. In 2008, 79 of the proposals came to a vote, with 11 winning a majority. Another 76 say-on-pay initiatives were voted on in 2009, with 24 majority votes.³⁴

These measures were themselves advisory. Even when the initiatives won a majority of votes, companies weren’t obligated to adopt say-on-pay. But companies have been heeding the calls for more compensation oversight. By early 2010 more than 50 companies had voluntarily agreed to hold say-on-pay votes, up from just 6 in 2008.³⁵ Adopters include Aflac, Apple, CVS Caremark, Hewlett-Packard, and Valero Energy.

“Say on Pay holds corporate leaders accountable for unjustifiable CEO pay,” says Gerald McEntee, president of the American Federation of State, County and Municipal Employees union, which helped organize the say-on-pay campaign. “The recklessness of too many CEOs has got to end. Shareowners are demanding sensible pay for performance programs that discourage excessive risk taking.”³⁶

Indeed, “Say on Pay” became law in 2010, requiring companies to hold advisory shareholder votes on executive compensation.³⁷ And shareholder activism isn’t happening just in the United States. In Korea, for example, a nongovernment organization known as People’s Solidarity for Participatory Democracy has used the position of minority shareholder to fight for reforms such as leadership change and the disclosure of executive directors’ salaries.³⁸ And say-on-pay legislation has recently been passed in Germany.³⁹

In Europe, two activist hedge funds, Centaurus and Pardus, pushed through changes at technology services company Atos Origin, including a new board chair.⁴⁰ In a 2008 report, financial services firm RiskMetrics Group saw the Atos case as evidence of a turning point for shareholder activism in Europe.

Although in the past activists have been demonized and likened to “locusts” by some on the European continent, recent activist victories indicate that “mainstream” shareholders under the right circumstances will be willing to see beyond the rhetoric and hold incumbent directors and executives accountable for underperformance much like their investor counterparts in the US have done over the past five years.⁴¹

Shareholder activism has its problems. Initiatives by unions or other advocates theoretically can go too far, forcing a firm to pay excess attention to a particular set of stakeholders. And as the “locusts” reference in the quote above suggests, investors driven by greed can swarm in and destroy a decent company. It’s a short hop, in other words, from shareholder activist to corporate raider. In the 1980s, raiders like Carl Icahn orchestrated leveraged buyouts that led to layoffs and asset stripping to pay back debt.

Even in the Home Depot case, there was a whiff of unfair impatience to activist demands. While the company’s stock price had hovered near $40 since fall of 2004, Nardelli could point to 12 percent sales growth for the year ending January 29, 2006. Net income for that year rose 17 percent.⁴²

Still, part of what irked Home Depot shareholders were signs of long-term trouble. Nardelli hit his numbers to some extent by cutting costs at the expense of service and good treatment of workers. During his six-year tenure, Home Depot’s customer service rating fell to 67 from 75, according to the University of Michigan’s American Customer Satisfaction Index. During the same period, rival Lowe’s rose from 75 to 78.⁴³ And Nardelli bred resentment among his rank-and-file by replacing many full-time employees with part-time workers.⁴⁴

“You can’t s—t on your employees and deliver” results, one Home Depot shareholder told BusinessWeek at the time. In late 2005, the shareholder, an Atlanta attorney, had requested a nonbinding shareholder vote on whether Nardelli should be canned.⁴⁵

Ultimately, Home Depot’s shareholder activism amounted to pressure on the firm to be both profitable and principled—to be a good company. And despite the possibility of doing harm, shareholder activism overall is putting similar salutary pressures on companies throughout the economy. One study of compensation-related activism found that voting shareholders do not support proposals that try to micromanage CEO pay and instead favor proposals related to the pay-setting process.⁴⁶

The report by researchers from Duke University, Harvard Business School, and the University of Texas at Dallas also found that shareholder activism has made a dent in the problem of egregious CEO pay. According to the study, there is a $7.3 million reduction in total CEO compensation for firms with abnormally high CEO pay that are targeted by pay-related vote-no campaigns. Vote-no campaigns are efforts to convince other shareholders to withhold their vote from one or more directors up for election.

At Home Depot, investor involvement didn’t end with Nardelli’s departure. The fact that he left with a whopping severance package worth $210 million further enraged investors. That unseemly amount was based on an employment agreement signed years earlier, giving the company little wiggle room when it parted ways with Nardelli.⁴⁷ But Home Depot did learn some lessons about shareholder activism.

For starters, it crafted a pay package for Nardelli’s successor Frank Blake that took note of shareholders’ compensation concerns. In contrast to Nardelli’s 2005 base salary of $2.16 million, Blake was given base pay of $975,000 when he took over in January 2007. And while Nardelli enjoyed a guaranteed annual bonus of at least $3 million a year and the rich severance deal, Blake’s contract had no guaranteed bonuses and no massive severance package.⁴⁸

Also, as discussed in Chapter 1, the company reached out to critics on a message board at Web site MSN.

Moreover, the firm returned to respecting shareholders enough to engage with them at annual meetings. The May 2009 meeting, in fact, was fairly friendly. Blake heard compliments regarding better staff morale and the promotion of an African American to a top post.⁴⁹

One report of the meeting quoted Gary Patton, a store employee from South Carolina who had criticized the company in the past. “This year I couldn’t think of anything to complain about,” Patton said.⁵⁰

Workplace Democracy

A key to success at tech services firm HCL Technologies has nothing to do with computers. It has to do with workplace democracy.

The India-based company’s “Employees First, Customers Second” program aims to upend hierarchy, engage employees, and generate innovation from throughout the firm. The effort, which dates to 2005, is the brainchild of CEO Vineet Nayar. Nayar had an employee empowerment epiphany earlier in his career, when he led a customer meeting in a different division of HCL Technologies’ parent company. He noticed the customer almost completely ignoring him and focusing instead on members of the team that served the firm. The customer was happy and praised the team members at length. Nayar came away from the event convinced that having the right employees very engaged in creating value for the customer was more important than anything he could do.⁵¹

To engage employees, the company has involved them. One of the Employees First initiatives Nayar launched at HCL was designed to make managers accountable to employees rather than the other way around. Through the firm’s 360-degree feedback program, managers not only receive reviews from subordinates, peers, and supervisors, but are encouraged to post these publicly. Nayar was first to do so back in 2005, and by 2007 more than half of the firm’s 2,282 managers published the feedback they got.

Other democratizing reforms have included the extensive use of employee opinion polls, executive meetings with rank-and-file workers over company strategy, and U&I—an online forum letting employees interact directly with Nayar. Between late 2006 and July 2008, employees asked 2,492 questions. Of those, 2,346 had been answered.⁵²

In 2005 employees were leaving HCL at an above-average rate and the firm struggled to compete against larger rivals. By 2009, attrition had dropped, the firm had won best-employer awards, and its revenue during the recession outpaced that of a key competitor. HCL chalked up the turnaround to Employees First and its new flatness—its effort to put employees and supervisors on an equal footing.

“Through a combination of engaged employees and accountable management, a company can create extraordinary value for itself, its customer, and the individuals involved in both companies,” Nayar says.⁵³

Although HCL stands out as a radical example, many companies are tapping the concept of workplace democracy. Just as shareholders are growing more active in companies, so too, in a way, are employees. Over the past 15 years or so, employees have gained power through a shift in management style away from hierarchy and toward decentralization. To be sure, rank-and-file employees have limited authority in this new workplace. They typically don’t have much control over corporate strategy, nor can workers generally prevent layoffs or pay cuts. But employees at many companies now determine the way they do their jobs to a great extent and are consulted by management about matters ranging from new hires, possible productivity improvements, and levels of trust in senior leadership.

In other words, workers in the age of flat organizations are generating helpful ideas, having a say over their jobs, and holding leaders accountable. This sort of workplace democracy, then, is a force for company goodness. And it is likely to grow in significance, largely because it makes good business sense.

Flatness as a management philosophy helps companies adapt to and thrive in today’s global economy. That economy has grown more integrated, fast-paced, and competitive since the 1990s thanks to changes such as the diffusion of personal computers, the emergence of the Internet, and the rise of outsourcing and offshoring.

Thomas Friedman crystallized the power of such forces to erode traditional management methods in his 2005 book, The World Is Flat:

Globalization 3.0, which is built around the convergence of the ten flatteners, and particularly the combination of the PC, the microprocessor, the Internet, and fiber optics, flipped the playing field from largely top-down to more side to side. And this naturally fostered and demanded new business practices, which were less about command and control and more about connecting and collaborating horizontally.⁵⁴

A major form of employee involvement is self-managed teams—placing workers in teams and allowing them to decide how to organize themselves and how to do their tasks. Companies increasingly are adopting this practice. According to the Center for Effective Organizations at the University of Southern California, the percentage of Fortune 1000 firms with self-managing teams rose from 28 in 1988 to 65 in 2005.⁵⁵

In addition, companies increasingly have adopted “parallel participation practices,” which are separate from a worker’s regular job.⁵⁶ The most popular of these are suggestion systems, attitude feedback, and discussion groups. In 2005 more than 90 percent of Fortune 1000 companies used one or more of these methods.⁵⁷

Workplace democracy can be a key to company success, according to scholars James O’Toole and Edward E. Lawler III. In their 2006 survey of the American workplace, O’Toole and Lawler point to evidence that companies and employees both benefit when all employees participate in decisions affecting their work and all employees participate in the financial gains resulting from their ideas and efforts.⁵⁸

“It makes sense economically, psychologically, and practically that, the more that employees are as fully engaged as executives in the most important managerial aspects of the company, the more they will think and act like those executives,” O’Toole and Lawler write.⁵⁹

That captures the thinking of Nayar when he took over HCL Technologies in 2005. He inherited a troubled operation of some 30,000 employees. Amid heated competition and commoditization in the tech services arena, HCL suffered from above-average attrition of 30 percent in 2004.⁶⁰

Nayar was determined to go after more complex, higher-value contracts and trusted that a more democratic workplace would help drive the change. His “HCLites” proved him right. Questions raised in the U&I forum became increasingly strategic in nature, shifting from matters like delayed performance reviews to topics including new opportunities in the technology industry.⁶¹ Overall, employees generated a number of ideas, such as putting into place a “concept to manufacture” offering with business partners. Joining forces with manufacturing services firm Celestica, for example, HCL was able to provide a C2M service that was more comprehensive than what Nayar’s team had been able to sell in the past. In addition to the product design work HCL had done previously, the new service included prototyping as well as manufacturing and after-sales support.⁶²

Attrition dropped below 15 percent for the year ending June 2008, while revenue jumped 146 percent between June 2005 and June 2008 to $1.9 billion annually. And HCL continued to progress amid the Great Recession. HCL’s revenue grew more than 20 percent in 2009, while rival Infosys saw its sales shrink slightly that year.

Workers thinking like executives—like stewards of the company’s financial success—is part of the way employee involvement pushes companies toward goodness. Workplace democracy also helps make an employer a worthy one by addressing workers’ basic human desires for control and social belonging.⁶³ And more decentralized decision-making can make it more likely that potential problems will be noticed and fixed before a company hurts its customers, its communities, or the environment. A more transparent, participatory company, in other words, encourages whistle-blowing and makes it hard to hide wrongdoing.

Firms that stand out for a management style with high employee involvement include Gore-Tex maker Gore Technologies, junk retrieval service 1-800-GOT-JUNK?, and household products maker Seventh Generation.

The ranks of these firms are likely to grow in the future partly because of growing amounts of attention given to workplace democracy. The annual Fortune list of the Best Companies to Work For shines a spotlight on worker-friendly practices, including shared decision making. In addition, advocacy group Worldblu has been publishing a list of the most democratic workplaces each year since 2007.

Radical power sharing in a company may strike some as a recipe for anarchy and disaster. Skeptics also might question whether workers truly have much authority in workplaces today. Given the decline of unions and the workplace clout they represent, doesn’t the current edition of employee involvement amount to democratic window dressing at best and the exploitation of workers’ ideas at worst?

But the decline of unions is owed in part to their inability to channel worker voices toward helping companies handle competition and change.⁶⁴ And while it is true that individual workers typically don’t have much authority to stave off layoffs and may not own the intellectual property they create on the job, the ever-flatter nature of organizations means their contributions are increasingly meaningful.

Decentralized companies can be messy and sometimes slow to act. But firms are getting smarter about how to manage in a bottom-up manner, about when executives should be decisive and when they should be consultative.

In any event, business trends, including globalization and the participatory inclinations of younger workers, will increase the pressure on companies to hammer down their hierarchies.

WorldBlu founder and president Traci Fenton explains: “Organizational democracy is inevitable. The Internet, the demands of Generations X and Y to have a voice in the workplace, and the Gallup Organization’s report that nearly two-thirds of US workers are disengaged at work are causing businesses to rethink their management models and embrace a more democratic style. The companies that choose organizational democracy will lead their industries, boost their bottom lines, and ultimately build a more democratic world.”⁶⁵

One sign that workplace democracy is on the march is the way HCL’s star continues to rise. BusinessWeek called it one of the “World’s Most Influential Companies” in 2008,⁶⁶ Fortune said HCL had “the world’s most modern management,”⁶⁷ and Nayar has become a blogger for the prestigious management journal Harvard Business Review. Nayar also recently published a book about the firm’s philosophy of flatness.

“One of the structural flaws of traditional management systems is that the leader holds too much power,” Nayar writes in Employees First, Customers Second. “That prevents the organization from becoming democratized and the energy of the employees from being released.”⁶⁸

More and more, democratic workplaces are releasing that energy, and it is propelling companies in the direction of goodness.

CHAPTER FOUR SUMMARY

Three fundamental, broadly defined political forces are increasing the premium on being a good company.

Rise in Regulation

• Governments around the world have been regulating businesses with greater vigor.

• The trend reflects worldwide doubts about the dangers of unchecked capitalism, especially in the wake of the Great Recession.

• While the 2010 election makes the short-term prognosis less clear in the United States, broad-based, nonpartisan discontent with corporate behavior also points to a more highly regulated environment.

• As a result, firms that fail to demonstrate goodness as stewards, sellers, and employers face fines and a corresponding decline in their good name.

Shareholder Activism

• Taken as a whole, shareholder activism is on the rise.

• Much of the stepped-up shareholder involvement centers on executive pay.

• Shareholder activism tends to push companies in the direction of worthier behavior.

Workplace Democracy

• Workplaces are becoming more democratic and less hierarchical.

• Increased “flatness” owes in part to trends such as the rise of PCs, the Internet, and offshoring, which have made top-down management less effective.

• Workers are generating helpful ideas, having a say over their jobs, and holding leaders accountable.

• More decentralized decision making can make it more likely that potential problems will be noticed and fixed before a company hurts its customers, its communities, or the environment.