Approaches to CSR

Inspiring Long-term Driven by and evokes passion Broad; Overarching; Brief Fundamental statement of the organization’s Values Aspiration Goals Why does the company exist?

Unique purpose of the company Basis of competition and competitive advantages More specific than vision Focused on the means by which the company will compete What does the company do?

Operationalize the mission statement SMART(S) Indicates strategic intent – BHAG Strategic v Financial Long-term v short-term S stretch What will we strive for?

Hierarchy of Goals Values Statement

Corporate Governance The relationship among various participants in determining the direction and performance of the company Mechanisms to ensure that management fulfills its basic purpose: to promote the long-term interests of the shareholders Primary Participants: Shareholders Board of Directors Senior Management

Agency Problem Arises because of separation of ownership (principals) and management (agents) Management may act to promote their own interests at the expense of the interests of stockholders (opportunistically)

Control Mechanisms  Internal  Responsible BOD  Active shareholders Management Compensation  External  Takeover constraint  Auditors  Banks and investment analysts  Regulations  Media and public activists

Corporate Social Responsibility Corporate social responsibility encompasses not only what companies do with their profits, but also how they make them. It addresses how companies manage their economic, social, and environmental impacts. Corporate social responsibility generally applies to company efforts that go beyond what may be required by regulators or environmental protection groups. Corporate social responsibility may involve incurring short-term costs that do not provide an immediate financial benefit to the company, but instead promote positive social and environmental change.

The Purpose of Business Few Trends could so thoroughly undermine the very foundations of our free society as the acceptance of a [corporate] social responsibility other than to make as much money for the stockholders as possible (within the rules of the game A group of people get together and exist as an institution that we call a company so that they are able to accomplish something collectively that they could not accomplish separately – they make a contribution to society.

Approaches to Corporate Social Responsibility Economic/Legal View Businesses are legal entities and have no social or moral purpose Purpose of business is to maximize owner's wealth within the limits of the law Compliance-based ethics encourages meeting legal obligations.

Corporate Governance

Approaches to Corporate Social Responsibility The Stakeholder View Businesses are social entities and have social and ethical impact on society Purpose of business is to satisfy the needs of multiple stakeholders including the financial interests of stockholders Integrity-based ethics encourages morally responsible behavior

Corporate Governance

Stakeholders Firm Stakeholders Any individual or group who can influence or is influenced by the operations of a firm

Types of Stakeholders  Primary – participation and support required for survival of the firm  Inside: Stockholders, Board of Directors, Managers, Employees, …  Outside: Customers, Suppliers, Creditors, Competitors, Governments, Community, …  Secondary – not directly involved in the activities of the firm but can have influence over its operations Media, Special Interests, Investment & Rating Firms, Unions, …

Stakeholder Analysis

StakeholderInterestPowerConsequencesImportance Inside …… Outside …….. Secondary …….

Stakeholder Management Stakeholder 1 Interest and Consequences Actions taken to address needs Assessment of continued support Stakeholder