1. Copyright © 2008 McGraw-Hill Ryerson Ltd. 1 Chapter Eleven Owners as Responsible Stakeholders Canadian Business and Society: Ethics & Responsibilities

2. Chapter 11Copyright © 2008 McGraw-Hill Ryerson Ltd. 2 Chapter Outline  Ownership: Individual; Corporate; Non-profit Organization; Government  Ethics and Responsibility Issues of Ownership  Passive versus Active Shareholders  Pros and Cons of Employee Ownership  Management Buyouts and Corporate Buybacks  The Accountability of Government-owned Corporations  Protecting Owners and Investors  Responsible Investing

3. Chapter 11Copyright © 2008 McGraw-Hill Ryerson Ltd. 3 Individual, Direct Ownership  Investors are individuals who personally hold equity interests for investment purposes and who are not involved in the corporation as entrepreneurs or managers (about 46 percent of Canadians are shareholders).  Employee owners: (1) employee share ownership plan (ESOP); (2) worker cooperative.  Customer owners: (1) mutual company (no shareholders, owned by customers); (2) demutualization (shares issued to policy holders)

4. Chapter 11Copyright © 2008 McGraw-Hill Ryerson Ltd. 4 Individual, Indirect Ownership  Indirect owners (intermediary institute exists in which investments are made) include: mutual and pension funds; trusts; and unions.  Mutual fund: a pool of money from many individual investors that is invested on their behalf.  Income Trust: ownership vehicle for income- producing assets or businesses

5. Chapter 11Copyright © 2008 McGraw-Hill Ryerson Ltd. 5 Corporate Ownership  Corporations owning another corporation: –Private equity firms: firms that manage large pools of money acquired from families and big institutions such as pension and mutual funds. –Venture capital company: a type of private equity firm that usually acquires part ownership of business enterprises for which they provide financial and management assistance.

6. Chapter 11Copyright © 2008 McGraw-Hill Ryerson Ltd. 6 Non-profit Organization Ownership  Examples: churches, non-governmental organizations (NGOs), foundations, and universities  Such organizations often scrutinize the activities of corporations for unethical or irresponsible behaviour, sometimes leading to divestment

7. Chapter 11Copyright © 2008 McGraw-Hill Ryerson Ltd. 7 Government Ownership  Canadian federal, provincial, and municipal governments all operate a large number of business enterprises (e.g., Crown corporations)  Affects public policy in transportation, financial services, trade, research, communication, agriculture, fisheries, energy, and culture and recreation

8. Chapter 11Copyright © 2008 McGraw-Hill Ryerson Ltd. 8 Ethics and Responsibility Issues of Ownership  Widely held versus concentrated ownership  Minority versus majority shareholders  Dual-class stock (non-voting or restricted shares)

9. Chapter 11Copyright © 2008 McGraw-Hill Ryerson Ltd. 9 Passive versus Active Shareholders  Passive shareholders: do not attempt to influence the affairs of the corporation even though they have a legal right to do so.  Active shareholders: participate in the governance of the firm to the full extent allowed by law.

10. Chapter 11Copyright © 2008 McGraw-Hill Ryerson Ltd. 10 Pros and Cons of Employee Ownership Pros:  Increases morale  Increases company loyalty  Motivates employees, leading to higher productivity  Sometimes can save failing firms Cons:  Jobs and often savings and pensions depend on fate of firm  Employees seldom have majority ownership  Management may still not relinquish control to employees

11. Chapter 11Copyright © 2008 McGraw-Hill Ryerson Ltd. 11 Management Buyouts and Corporate Buybacks  Management buyout: the purchase of the corporation in whole or in part by the corporation’s executives. –Will shareholders receive a fair price?  Corporate buybacks: repurchasing the enterprise’s own shares (i.e., the corporation uses funds to purchase its own shares). –Good or bad for shareholders?

12. Chapter 11Copyright © 2008 McGraw-Hill Ryerson Ltd. 12 The Accountability of Government-Owned Corporations  Trend to making Crown corporations more commercially oriented has created accountability problems: –Newly defined commercially oriented objectives of public enterprises may conflict with social objectives –Consequences of evaluating performance based on profits –The degree of autonomy that should be granted to the enterprises –Techniques for controlling and evaluating the enterprises

13. Chapter 11Copyright © 2008 McGraw-Hill Ryerson Ltd. 13 Protecting Owners and Investors  Governments (e.g., US Sarbanes-Oxley Act, 2002)  Self-Regulatory Agencies and Organizations (e.g., stock exchanges)  Industry Associations (e.g., Investment Dealers’ Association)  Individual and Institutional Activists (e.g., Small Investor Protection Association)

14. Chapter 11Copyright © 2008 McGraw-Hill Ryerson Ltd. 14 Responsible Investing  Screening investments in corporations or mutual and pension funds for their response to social or ethical responsibilities as well as their financial or economic actions.  Use “positive” screens and “negative” screens (e.g., alcohol, tobacco, weapons, and nuclear power)

15. Chapter 11Copyright © 2008 McGraw-Hill Ryerson Ltd. 15 Stakeholders Monitoring Responsible Investment  Social Investment Organization (Canada)  Jantzi Social Index (Canada)  Domini 400 Social Index (US)  Dow Jones Sustainability Indexes (US)  FTSE4Good Index Series (UK)