prof. jovo ateljevic the strategic position strategic purpose and csr efbl l5, 17/11/09

Prof. Jovo Ateljevic

The Strategic PositionStrategic Purpose and CSR

EFBLL5, 17/11/09


Learning Outcomes (for today)

Identify the components of the governance chain of an organisation

Understand differences in governance structures and the advantages and disadvantages of these

Identify differences in the corporate social responsibility stances taken by organisations and how ethical issues relate to strategic purpose


Exhibit 4.1 Influences on Strategic Purpose

Strategicpurpose

Governancestructure

Socialresponsibility

and ethics

Stakeholderexpectations


What are Stakeholders?

Stakeholders are those individuals or groups who depend on an organisation to fulfil their own goals and on whom, in turn, the organisation depends.Stakeholder : “Any individual or group who can affect or is affected by the actions, decision, policies, or goals of the organization”Under the narrowly defined version, stakeholders appear to be those who are instrumental, one way or another, to the firm and its well-being.


what is a stake?

….an interest or a share in an undertaking, or a claim. A claim is more than an interest; it is an assertion to a title, or to a right.

The concept of a stake, can range from a simple interest to the extreme of a legal claim of ownership and all the value between


Exhibit 4.7 Stakeholders of a Large Organisation


What is Corporate Governance?

Corporate governance is concerned with the structures

and systems of control by which managers are held

accountable to those who have a legitimate stake in an

organisation.

Corporate governance (CG)

CG exists at a complex intersection of law, morality, and economic efficiency.

...sometimes refers to the way that Boards oversee the running of a company by its managers, and how Board members are held accountable to shareowners and the company.

“Good corporate governance practices instill in companies the essential vision, processes, and structures to make decisions that ensure longer-term sustainability. More than ever, we need companies that can be profitable as well as achieving environmental, social, and economic value for society.” Rachel Kyte | Vice President, Business Advisory Services, IFC



Exhibit 4.2 The Chain of Corporate Governance


Issues highlighted by the Governance Chain (GC)

Conflict of interests, between different groups in the GC and individual managers /directors

Directors responsibilities to shareholders, solely to them or beyond, wide range of stakeholders...

Accountability to stakeholders (both the GC and beyond) has major influence on the strategy development(e.g. public sector organizations is more complex and requires more time to develop strategy)

Principal-agent approach applies within the org. –the way in which targets, budgets and rewards are structured


Problem of Principal-agent relations

One party (“the principal”) contracts another party (“the agent”) to perform some action or to take some decision.

The agent has an information advantage he/she knows something the principal does

not know, – will know something the principal does not

know, – he/she can take secret actions.

The principal knows that the agent has this advantage (making it a potential handicap!).


Principal-agent (examples)

owner – manager insurance company – insured creditor – debtor firm – salesmen voters – government investor – portfolio manager

The principal-agent problem

...arises within the firm when ownership and control are separated and the self-interest of managers may lead them to act other than in the interest of the shareholders. The problem is to design monitoring or incentive systems that will make managers act in the best interest of the shareholders.



Reasons for Imperfect Operation of the Governance Chain

Lack of clarity on end beneficiaries Unequal division of power Different levels of access to inform Self-interest among agents Measures and targets reflect agent self-

interests rather than those of end beneficiaries


Example – the Enron cor. Scandal

Electricity, gas, paper and communication company

21000 employees 80 bil Euro 2001 reported financial problems, fraud The assets was inflated, fraudulent non-existent 4000 people lost they jobs, dissolution of Arthur

Andersen, a Big Five accounting firm The scrutiny revealed 25bil fraud Many other institutions/firm were involved: banks,

Law firms 2002, 16 top executives plead guilty or were

convicted and in the process of being sentenced


Exhibit 4.3 Benefits and Disadvantages of Governance


What responsibilities does the firm have to the stakeholders?Business ethics and social responsibility

Legal vs. ethical issues Legal – law is enacted by govt developed

thru case procedures (common law) it’s a rule governing the act

If person breaks a rule, it’s an illegal act and will be punished by the legal system

Ethics is dealing with what is considered to be right and wrong

Globalisation and the Internet open up an increasing number of new and unregulated activities


Ethics

‘The field of ethics, also called moral philosophy, involves systematizing, defending, and recommending concepts of right and wrong behaviour’ (The Internet Encyclopaedia of Philosophy).

The field of ethics comprises: Metaethics: asks where do ethical principles come

from, and what do they mean? Normative ethics: articulates moral standards

that regulate right and wrong conduct Applied ethics: involves examining and analysing

the ethical aspects of specific issues, e.g. medical ethics, business ethics


Normative theory

Part of philosophical ethics that examines standards for the rightness and wrongness of actions

normative ethics is prescriptive rather than descriptive yet moral facts are both descriptive and prescriptive at the same time

It deals with set of questions when we ask question “how should one act morally speaking?”

moral theory and apply ethics ( use of philosophical methods to identify the morally correct course of action in various fields of human life including business).

Kant -one of the main contributors


Kantian approach to (business) ethics

Philosopher, deontologist (1724-1804), moral and ethical theorists

Respect for persons -the key Kant’s Moral philosophy principles

Kant argued that the highest good was the good will (as an act of duty)- it is an intention behind the action rather than its consequences that make that action good (Bowie, N. 1999)

acts are inherently good or evil, regardless of the consequences of the acts (deontology)

This principle applies to business ethics today True moral = being honest is right (e.g. businessman is

not genuinely honest if he/she earns it to gain reputation)


Business Ethics and values

Organisation values - to embed a set of ethical values into the organisations goals and strategies and the way it seeks to do what it does

Ethical behaviour - to provide guidance and support to staff for making decisions and carrying out their work in a way that is compatible with the organisation's ethical values and standards

Corporate Culture - to consolidate and strengthen a culture of integrity and openness so as to facilitate a sustainable business

Reputation - to create trust among stakeholders and to facilitate business success


The main principles (in most of them Kant’s principles apply)

1 The business firm should consider the interests of all the affected stakeholders in any decision it makes.

2 The firm should have those affected by the firm’s rules and policies participate in the determination of those rules and policies before they are implemented.

3 It should not be the case that, for all decisions, the interests of one stakeholder automatically take priority.

4 When a situation arises where it appears that the interest of one set of stakeholders must be subordinated to the interests of another set of stakeholders, that decision should not be made solely on the grounds that there is a greater number of stakeholders in one group than in another.

5 No business rule or practice can be adopted which is inconsistent with the first two formulations of the categorical imperative.

6 Every profit-making firm has a limited, but genuine, duty of beneficence.7 Every business firm must establish procedures designed to ensure that

relations among stakeholders are governed by rules of justice. A Kantian views an organization as a moral community. Each member of

the organization stands in a moral relationship to all the others.


What is Corporate Social Responsibility?

Corporate social responsibility (CSR) is concerned with the ways in which an organisation exceeds its minimum obligations to stakeholders specified through regulation.Corporate social responsibility: accountability for the business action that affects people, their community and the environment. ‘…doing more than is required by law’ (Buhmann, 2006)encompasses the economic legal ethical and discretionary (philanthropic) expectation that society has of organisations at a given point in time (Carroll, 2004)


Corporate responsibility:related concepts and issues

It encompasses a number of subjects including: business ethics, corporate governance, business and the environment, and corporate citizenship (businesses in the community), business culture

There has been an historical shift from profit maximization to fulfilling social values

Sustainable development: a framework for balancing social and environmental reproduction

Sustainability - to minimise the organisation's negative impacts on and maximise its positive contribution to the social, economic and environmental wellbeing of wider society


Corporate Social Responsibility and the recent trends

Social exclusion and an ageing society Rights Movement Health Increasing concern for natural environment Climate change and energy Transport Production and consumption (Scarcity of natural

resources) Promotion of sustainable development globally

Business is being asked to assume broader responsibilities to society then ever before, and to serve a wider range of human / environmental values


New paradigms: Sustainable development

promotion and protection of fundamental

rights, solidarity within and between generations, the guarantee of an open and democratic

society, involvement of citizens, involvement of businesses and social

partners, policy coherence and governance, policy integration, use of best available knowledge


The role of business organizations in society

Are companies ‘money machines’ for shareholders?

Should companies take responsibility for the effects of their actions beyond what the law requires?

What they should do? (e.g. donate to charity; build public schools, health care facilities, infrastructure, employ marginalized groups)

What rules corporate’ behavior: laws or business ethics? The role of stakeholders?


Global corporate jets and their power ‘New world’ is centered around multinational corporations,

global financial markets and a highly concentrated system of technological research and development

The number of global corporations in the world has increased from 7.000 in 1979 to 40.000 in 1995.

These corporations and their 250.000 foreign affiliates account for most of the world’s industrial capacity, technological knowledge and international financial transactions.

Global companies hold 90 percent of all technology and product patents worldwide and are involved in 70 percent of world trade.

While the world economy is growing by 2 and 3 percent per year, the biggest global companies are, as a group, growing at a rate of 8 and 10 percent.

Karliner, J.1997, 5


Corporate behaviour – how ethical they should be?

According (Milton) Friedman a corporation is the property of its stockholders

The question is should it spend the stockholders money for purposes regarded as socially responsible? Friedman’s answer is NO ‘corporate executives must make as much many as possible for their shareholders..,’

Peter Drucker arguments are in line with the above; he believes that CSR is dangerous distortion of the business principle ‘if you find an executive who wants to take on social responsibilities, fire him.’

The part of the above arguments are supported by the fact that corporate are created by law therefore law dictates what their directors / managers can or cannot or must do (Henry Ford example)


The corporate responsibility according to Friedman

There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud. (Milton Friedman, 1979 p.126)


The Freeman’s (Edward) view

Law and common morality should guide our actions in the marketplace just as they guide our actions elsewhere. Nevertheless, given that qualification, which is an important one, Friedman places primary importance on profit maximization as the role of business. Thus managers’ first duties and fiduciary (intrusted) duties are to owners or shareholders.

WERHANE, 2000, pp.170


Many individuals and groups are affected by corporate business behavior

Internal Employees and Managers OwnersExternal Investors and other providers of finance Local communities Governments and regulators Civil Society / NGOs Customers Suppliers Shareholders / Financial Analysts


Stakeholders Engagement Issues

Engaging with stakeholders is not without problems

How powerful stakeholders are? How active are they? What risk does non-engagement/non-responsiveness

pose? How do we engage them? Can we be responsive to all their concerns? How do we prioritize or balance their concerns? How do we deal with stakeholders: reactive, proactive? directly or indirectly? accommodate, negotiate or resist? How do we demonstrate that we have integrated their

concerns both operationally and strategically?


Consumers

Consumer rights (J.F. Kennedy) Right to safety Right to be informed Right to choose Right to be heard Clear information Accurate information Adequate informationhttp://video.google.com/videoplay?docid=6180036948830658291


Con...ed

Correct information Ambiguous Advertising, may mean several

different things (role of social marketing) Concealing facts Presenting fact in such a selective way

that a false belief is created Advertising abuses are not quickly

forgotten by consumers Establish effective Consumer Affairs Office


Community

Community involvement must be planned and organized with the same care and energy that are devoted to other parts of the business

Same measure of cost effectiveness Corporation should capitalize on its talent and

resources Employees should be involved in community

programs The corporation should get involved in the

communities it knows Not all action should originate in company Helps others help themselves


Government: important issues

To what extant government should impose environmental regulations?

Effectiveness can decrease by strict regulation The international business faces a complex regulatory

systems Engage Early On Engage Constructively Present Thorough Analysis and Reliable Facts Take Public Interest and Public Policy Perspective Seek Industry-wide approach Seek Coalitions http://video.google.com/videoplay?docid=-465760596456186007

0&q=&hl=en


Government role: the top-down approach to CSR

How far the govt should go in regulation CSR? Some of the govt measures and activities:

Encouraging the spread of responsible business practice

Proactive role of govt in prompting/ participating in CSR & poverty reduction

Investment in community Workplace; govt define decent minimum standards

(health and safety, flexible working, min wage, youth employment etc.

Providing support and guidance and fallible framework for businesses to protect the environment

Governance and transparency


Supranational engagement in sustainable development: the EU example of the agriculture sector –the reform of the

common agriculture policy (CAP) The EU sets out a strategic approach to integrating

environmental concerns into agriculture (Act from 1999)

Over three-quarters of the territory of the EU is agricultural land or woodland

Previous CAPs contributed to the intensive use of the resources (meaning?)

The ’99 act introcuced a number of measures and incentives: extensification of land use, insentives for farmers and those maintaing countryside

Minimum environmental standards are an integral part of the agricultural support programmes


Corporation social responsibilities: recent developments

They has always been philanthropic (e.g. donated to charities, sponsored local sport clubs, helped to build communal facilities)

From recently social responsibility has become core of their business plan (some of them try to make the world better place)

Corporation are changing their business philosophy in their core management areas e.g. marketing and promotion, image

Today corporate, as many of their CEOs argue are genuinely concerned about their own actions affecting social and environmental interests not juts for stockholders. As W. Ford the Ford motor chairman remarks: ‘corporations could be and should be a major force for resolving environmental and social concerns in the 21st century’

Or is all this just a PR tool for businesses? See Shell in action in business http://www.shellgaslpg.com/;

another example - shell is ‘exploiting’ a women sanctity towards fragile natural environment http://it.stlawu.edu/~global/pagessemiotics/testshell.html

‘despite that she’s not at war with the oil company, she is the oil company’ (a lyrical Scottish-accented narrator)

http://www.shell.com/home/content/envirosoc-en


[Corporate] morality and order (law): A pessimistic view

The most powerful class of institution on earth, is by any reasonable measure hopelessly and unavoidably demented. The corporation lies, steals and kills without hesitation when it serves the interests of its shareholders to do so. It obeys the law only when the costs of crime exceeds the profits. Corporate social responsibility is impossible except in so far as it is insincere.

(Bakan, 2004)


What is Stakeholder Mapping?

Stakeholder mapping identifies stakeholder

expectations and power and helps in understanding political

priorities.


Exhibit 4.9 The Power/Interest Matrix


Questions Addressed with Stakeholder Mapping

In determining purpose and strategy, which stakeholder expectations need to be most considered?

Do the actual levels of interest and power reflect the corporate governance framework?

Who are the key blockers and facilitators of strategy?

Is it desirable to reposition certain stakeholders?

Can level of interest or power of key stakeholders be maintained?


What is Power?

Power is the ability of individuals or groups to persuade, induce, or

coerce others into following certain courses of action.


Sources of Power Within Organisations

HierarchyInfluence

Control of strategic

resourcesKnowledgepossession

Control of human

resources

Involvement


Sources of Power For External Stakeholders

Control of strategic

resources

Knowledgepossession

Informal linksto internal

power

Involvement


Indicators of Power For Within Organisations

Status

Symbols

Representation

Resourceclaims


Indicators of Power For External Stakeholders

Status

Symbols

Negotiatingarrangements

Resourcedependence


Organisational Purposes

Values Mission statement Vision statement Objectives


What are Core Values?

Core values are the underlying principles that guide

an organisation’s strategy.


What are Mission and Vision Statements?

A mission statement provides employees and stakeholders with clarity

about the overall purpose of the organisation.

A vision statement is concerned with what the organisation

aspires to be.


What are Objectives?

Objectives are statements of specific outcomes

that are to be achieved.


Chapter Summary (1)

The purpose of an organisation will be influenced by expectations of shareholders

Governance chains reveal the links between ultimate beneficiaries and management

The shareholder model and the stakeholder model are the two generic governance systems

Stakeholder analysis reveals the influence of different stakeholders


Chapter Summary (2)

Ethical dimensions of organisational purpose are expressed via organisational approach to corporate social responsibility as well as by individual resolution of ethical dilemmas

Managers must decide how the organisation should express its strategic purpose through values, vision, mission, and objectives


Key Debate: Three Views on the Purpose of a Business? (1)

Friedman posited that “the business of a business is business.”

Handy suggested the purpose of a business was to make a profit and use it to do something good.

Davies, Lukommik, and Pitt-Watson explained that society and share owners are one due to investments in portfolios.


Key Debate: Three Views on the Purpose of a Business? (2)

Which view do you hold as a manager? As a shareholder?

What are the implications of the different views for managers’ development of organisational strategy?


Case Example: Product Red and Gap (2)

(Red) was created by Bono and Bobby Shriver, Chairman of DATA, to raise awareness and money for The Global Fund.

It seeks to do so by teaming up with the world’s most iconic brands to produce Red-branded products, a percentage of which is then given to the Fund.

prof. jovo ateljevic the strategic position strategic purpose and csr efbl l5, 17/11/09

Documents

jovo ateljevic slide

jovo ateljevic exhibit

jovo ateljevic issues

strategic purpose slide

governance structures

structured slide

large organisation slide

corporate governance