governance ethics social responsibility
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Stakeholder Relationships,Stakeholder Relationships,Social Responsibility, CorporateSocial Responsibility, Corporate
Governance & EthicsGovernance & Ethics
Dr. Mohammad Hamsal
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Agency Relationship
Source: Ireland, Hoskisson & Hitt (2011). The Management of Strategy. 9e
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Relationships & Business Building relationships is one of
most important areas in business
today Can be associated with
organizational success andmisconduct
Stakeholder framework
Helps identify internal andexternal stakeholders
Helps monitor and respond toneeds, values, andexpectations of stakeholdergroups
Source: Stockbyte
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What Is a Stakeholder? Stakeholders are those who have a stake or claim in
some aspect of a companys products, operations,markets, industry, and outcomes Customers Investors
Employees Suppliers Government agencies Communities
Stakeholders can influence and are influenced by
businesses
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Primary vs. Secondary Stakeholders
Primary stakeholders : Those whose continuedassociation is necessary for a firms survival Employees, customers, investors, governments
and communities Secondary stakeholders: Are not essential to a
companys survival Media, trade associations, and special interest
groups
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The Stakeholder Interaction Model
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Stakeholder Orientation The degree to which a firm understands and
addresses stakeholder demands Three activities: Generation of data about
stakeholder groups
Distribution of the informationthroughout the firm
Organizations responsivenessto this intelligence
Source: Digital Vision
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Social Responsibility Is an organizations obligation to maximize its positive
impact on stakeholders and minimize its negativeimpact
Four levels of social responsibility: Economic
Legal Ethical Philanthropic
Source: Nancy Ney
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Social Responsibility & the Importanceof Stakeholder Orientation
From a social responsibility perspective , businessethics embodies standards, norms, and expectationsthat reflect concerns of major stakeholders
Social responsibility is associated with: Increased profits Increased employee commitment
Greater customer loyalty
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Corporate Responsibility Crisis... Opinion polls now place business people in
lower esteem than politicians.-Jennifer Merritt (2002) For MBAs, Soul Searching 101,Business Week, Sept. 16, p. 64.
A W.S.J./NBC poll found that 57% of generalpublic believed that standards & values ofcorporate leaders & executives had droppedin the last 20 years.-Eric Hellweg (2002) www.business2.0.com, Sept. 10
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An ABC News/Washington Post surveyindicated 63% of the public felt thatregulation of corporations is necessaryto protect the public.
Seventy-five percent of those surveyed
by ABC, expressed limited confidencein large corporations.-Gary Langer (2002) Confidence in Business: Was Low and Still Is,
www.abcnews.com, Sept. 10.
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Corporate Confidence Crisis
Bernard Ebbers-Worldcom; Kenneth Lay-Enron financial reporting, personal loans, general oversight
Dennis Koslowski-Tyco; Andrew Fastow-Enron;John Rigas-Adelphia conflicts of interest, financial fraud & improper loans
Jack Grubman-Salomon Smith Barney provided IPOs to Ebbers & other CEOs based on investment
banking relationship Henry Blodgett-Merrill Lynch
urged small investors to put money in stocks that he
privately down rated
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Corporate Reform ...
The 2002 Sarbanes-Oxley Act was themost sweeping change in corporategovernance and the regulation of
accounting practices since theSecurities and Exchange Act of 1934. Supported by Republicans & Democrats Provides oversight to restore stakeholder
confidence
Requires business ethics infrastructure
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Sarbanes Oxley Reform Independent Accounting Oversight Board
CEOs and CFOs certify financial statements Board Audit Committee to consist of independent
members (no material interests)
No consulting & auditing by the same firm No loans to officers & board members Code of ethics for senior financial officers
register with the SEC
Whistle-blower protection 10 year penalty for mail/wire fraud Analysts certify objective reports
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Sarbanes Oxley Reform Company attorney must report fraud to top
management & if necessary to the board of directors if nothing is done, attorney must withdraw from
representation
Mutual fund managers must disclose howshareholder proxies are voted-providing investorsinformation about how their shares influencedecisions
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Best & Worst Companies for SocialResponsibility
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Social Responsibility & Ethics
Social responsibility can be viewed as a contractwith society
Business ethics involves carefully thought-outrules (heuristics) of conduct that guide decisionmaking
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Criteria for Evaluating Corporate SocialPerformance
Source: Schermerhorn, John R. Management, 8e
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The Steps of Social Responsibility
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Corporate Citizenship The extent to which businesses strategically meet
their economic, legal, ethical, and philanthropicresponsibilities
Four interrelated dimensions: Strong sustained economic performance Rigorous compliance Ethical actions beyond what is required by the law
Voluntary contributions that advance reputationand stakeholder commitment
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Strategies of Corporate SocialResponsibility
Source: Schermerhorn, John R. Management, 8e
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Reputation
Reputation is one of an organizationsgreatest intangible assets with tangible value Difficult to quantify,
but very important
Source: Digital Vision
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The Worlds Most Ethical Companies
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Corporate GovernanceFormal systems of accountability, oversight, and control
Accountability Refers to how closely workplace decisions arealigned with a firms stated strategic direction
Oversight Provides a system of checks and balances that
limits employees and minimizes opportunities formisconduct
Control The process of auditing and improving
organizational decisions and actions
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Common Corporate GovernanceIssues
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Corporate Governance Models
Shareholder model Founded in classic economic precepts The maximization of wealth for investors and
owners
Stakeholder model A broader view of the purpose of business Includes satisfying concerns of a variety of
stakeholders
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Corporate Governance Best Practices Support to split roles of CEO and Chairman
Chubb Corp. (& others) named a board member as non-executive chairman
Outside directors meet alone as often as necessary
Independent internal ombudsman to encourageinternal reporting of misconduct often called ethics officer
Formation of an internal audit function of everypublic company
Support for codes of ethics to improve shareholderrelations & auditing practice
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Boards of Directors Hold final responsibility for their firms
success, failure, and ethicality of actions Increased demands for accountability/
transparency Trend toward outside directors chosen for
expertise, competence, and strategic decisionmaking
Executive compensation a large and growingconcern
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Executive Compensation
Many boards spend more time discussingcompensation than ensuring integrity offinancial reporting systems
How closely linked is executive compensation tocompany performance? Does performance-linked compensation
encourage executives to focus on short-termperformance at the expense of long-term growth?
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Predicted Trend in CorporateGovernance
Board responsibility for developing companypurpose statements that cover stakeholderinterests
Annual reports will include more non-financialinformation
Boards will be required to self-assess
Board member selection processes willbecome increasingly formalized Boards will need to work more as teams
Board membership will require more time
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The Reactive-Accommodative-Proactive Scale
Rating Strategy Performance
Reactive DenyResponsibility
Doing less thanrequired
Defensive Admitresponsibility, butfight it
Doing the leastthat is required
Accommodative Accept
responsibility
Doing what is
requiredProactive Anticipate
ResponsibilityDoing more than isrequired
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Implementing a StakeholderPerspective
1. Assessing the corporate culture2. Identifying stakeholder groups3. Identifying stakeholder issues
4. Assessing organizational commitment tosocial responsibility5. Identifying resources and determining
urgency6. Gaining stakeholder feedback
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How does Ethical Decision MakingOccur in Organizations?
#1 influencer of ethical/unethical behavior is
the influence of top management & thecorporate culture
Business ethics in an organization relates to acorporate culture of values, programs,enforcement & leadership
Stakeholders must support organizationalethics initiatives-its good business stop focusing on the short term!!!
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Recommendations for BusinessLeaders ...
Take responsibility for educatingyour managers about corporateresponsibility & business ethics
Top management needs to makesure there are visible & supportedprograms do not rely upon individual ethics & the
character of employees alone
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Ethics Code of moral principles.
Set standards of good and bad asopposed to right and wrong.
Ethical behavior What is accepted as good and right in the
context of the governing moral code.
What is Ethical Behavior?
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Factors Influencing Ethical Behavior
Source: Schermerhorn, John R. Management, 8e
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Business Ethics Initiatives Have BeenTied to ...
Greater efficiency in daily operations Greater employee commitment Improved financial performance Higher product quality Improved decision making Increased customer loyalty Improved reputation
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Trust in Corporate Citizenship
Trust is the glue that holdsorganizational relationships together
Stephen Covey contends, low trustresults in organizational decay &relationship deterioration
political problems & inefficiency Most workers feel they can be trusted
more than they can trust others
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Employees & Trust
All organizational members shouldshare a sense of trust
Trust should exist between departmentswithin a firm
Ethics Resource Center study shows
that 93% of employees who say trust isfrequently evident in their organizationreport satisfaction with their employer
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Companies Convicted of Misconduct ...
Provide significantly lower returns onassets & lower returns on sales thanfirms that have not been convicted
Organizational misconduct can result in: loss of reputation
supplier concerns investor concerns greater government scrutiny
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Centrality of Ethics & Social Responsibility
Source: Schermerhorn, John R. Management, 8e
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