1. The Strategic Position Strategic Purpose and CSR
EFBL
L5, 17/11/09
Prof. Jovo Ateljevic

2. 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
Prof. Jovo Ateljevic

3. Exhibit 4.1 Influences on Strategic Purpose
Governance
structure
Strategic
purpose
Stakeholder
expectations
Social
responsibility
and ethics
Prof. Jovo Ateljevic

4. 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.
Prof. Jovo Ateljevic

5. 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 
Prof. Jovo Ateljevic

6. Exhibit 4.7 Stakeholders of a Large Organisation
How can competitors be stakeholders in a firm? If a corporation is found to be taking great risks in providing unsafe products to the market and these risks become known to the public, the industry, and therefore all competitors, are affected because the spotlight of scrutiny will fall on them also. Social pressures groups such as human rights activists are also stakeholders.
Prof. Jovo Ateljevic

7. 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.
Prof. Jovo Ateljevic

8. 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
Why is corporate governance important?
Corporate governance 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. This has implications for company behaviour not only to shareowners but also to
employees, customers, those financing the company, and other stakeholders, including
the communities in which the business operates.
Prof. Jovo Ateljevic

9. Exhibit 4.2 The Chain of Corporate Governance
Prof. Jovo Ateljevic

10. 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
Prof. Jovo Ateljevic

11. 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!).
Prof. Jovo Ateljevic

12. Principal-agent (examples)
owner – manager
insurance company – insured
creditor – debtor
firm – salesmen
voters – government
investor – portfolio manager
Prof. Jovo Ateljevic

13. 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.
Prof. Jovo Ateljevic

14. 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
Prof. Jovo Ateljevic

15. 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
Prof. Jovo Ateljevic

16. Exhibit 4.3 Benefits and Disadvantages of Governance
Prof. Jovo Ateljevic

17. What responsibilities does the firm have to the stakeholders
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
Prof. Jovo Ateljevic

18. 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
Prof. Jovo Ateljevic

19. 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
Normative ethics is the branch of philosophical ethics that investigates the set of questions that arise when we think about the question “how ought one act morally speaking?” Normative ethics is distinct from meta-ethics because it examines standards for the rightness and wrongness of actions, while meta-ethics studies the meaning of moral language and the metaphysics of moral facts. Normative ethics is also distinct from descriptive ethics, as the latter is an empirical investigation of people’s moral beliefs. To put it another way, descriptive ethics would be concerned with determining what proportion of people believe that killing is always wrong, while normative ethics is concerned with whether it is correct to hold such a belief. Hence, normative ethics is sometimes said to be prescriptive, rather than descriptive. However, on certain versions of the meta-ethical view called moral realism, moral facts are both descriptive and prescriptive at the same time.
Prof. Jovo Ateljevic

20. Kantian approach to (business) ethics
Philosopher, deontologist ( ), 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)
Deontological ethics or deontology Greek δέον, deon, "obligation, duty"; and -λογία, -logia) is an approach to ethics that holds that acts are inherently good or evil, regardless of the consequences of the acts. A central theme among deontological theorists is that we have a duty to do those things that are inherently good ("truth-telling" for example); while the ends or consequences of our actions are important, our obligation or duty is to take the right action, even if the consequences of a given act may be bad.
Deontology -relating to moral theories: relating to philosophical theories that state that the moral content of an action is not wholly dependent on its consequences
Prof. Jovo Ateljevic

21. 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
Prof. Jovo Ateljevic

22. 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.
Principle 1 seems like a straightforward requirement for any moral theory that takes respect for persons seriously. Since autonomy is what makes humans worthy of respect, a commitment to principle 2 is required. Principle 3 provides a kind of organizational legitimacy; it ensures that those involved in the firm receive some minimum benefits from being a part of it. Principle 4 rules out utilitarianism as a criterion for decision-making in the moral firm. The justification for principle 6 is based on an extension of the individual’s imperfect obligation of beneficence which Kant defended in the Metaphysics of Morals.
The strategy here is to extend this argument to the corporate level. If corporations have benefited from society, they have a duty of beneficence to society in return. And corporations have benefited. Society protects corporations by providing the means for enforcing business contracts. It provides the infrastructure which allows the corporation to function – such as roads, sanitation facilities, police and fire protection – and, perhaps most importantly, an educated work force with both the skills and attitudes required to perform well in a corporate setting. Few would argue that corporate taxes pay the full cost of these benefits. Finally, principle 7 is a procedural principle designed to ensure that whatever rules the corporation adopts conform to the basic principles of justice.
A manager who adopts the Kantian principles of a moral firm must also look at human nature in a certain way. In management terms, the theory Y view of human nature must be adopted rather than a theory X view. (The distinction between theory X and theory Y was made prominent by McGregor (1960).
Prof. Jovo Ateljevic

23. 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)
Prof. Jovo Ateljevic

24. 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
Prof. Jovo Ateljevic

25. 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
Prof. Jovo Ateljevic

26. 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
Prof. Jovo Ateljevic

27. 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? .
Prof. Jovo Ateljevic

28. 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 in 1979 to in 1995.
These corporations and their 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.
Prof. Jovo Ateljevic
Karliner, J.1997, 5

29. 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)
Prof. Jovo Ateljevic

30. 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)
Prof. Jovo Ateljevic

31. 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
There is a myth that business ethics is primarily focused on libertarian views defending laissez faire capitalism and competitive, unfettered free markets except in cases of egregious harms, particularly harms to liberties.
Prof. Jovo Ateljevic

32. Many individuals and groups are affected by corporate business behavior
Internal
Employees and Managers
Owners
External
Investors and other providers of finance
Local communities
Governments and regulators
Civil Society / NGOs
Customers
Suppliers
Shareholders / Financial Analysts
Prof. Jovo Ateljevic

33. 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?
Prof. Jovo Ateljevic

34. 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 information
Prof. Jovo Ateljevic

35. 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
Prof. Jovo Ateljevic

36. 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
Prof. Jovo Ateljevic

37. 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
Prof. Jovo Ateljevic

38. 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
Prof. Jovo Ateljevic

39. 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
Prof. Jovo Ateljevic

40. 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
another example - shell is ‘exploiting’ a women sanctity towards fragile natural environment
‘despite that she’s not at war with the oil company, she is the oil company’ (a lyrical Scottish-accented narrator)
Prof. Jovo Ateljevic

41. [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)
Prof. Jovo Ateljevic

42. What is Stakeholder Mapping?
Stakeholder mapping identifies stakeholder expectations and power and helps in understanding political priorities.
Prof. Jovo Ateljevic

43. Exhibit 4.9 The Power/Interest Matrix
Prof. Jovo Ateljevic

44. 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?
Prof. Jovo Ateljevic

45. What is Power?
Power is the ability of individuals or groups to persuade, induce, or coerce others into following certain courses of action.
Prof. Jovo Ateljevic

46. Sources of Power Within Organisations
Hierarchy
Influence
Involvement
Control of
human
resources
Control of
strategic
resources
Knowledge
possession
Prof. Jovo Ateljevic

47. Sources of Power For External Stakeholders
Control of
strategic
resources
Involvement
Knowledge
possession
Informal links
to internal
power
Prof. Jovo Ateljevic

48. Indicators of Power For Within Organisations
Status
Resource
claims
Symbols
Representation
Prof. Jovo Ateljevic

49. Indicators of Power For External Stakeholders
Status
Symbols
Resource
dependence
Negotiating
arrangements
Prof. Jovo Ateljevic

50. Organisational Purposes
Values
Mission statement
Vision statement
Objectives
Prof. Jovo Ateljevic

51. What are Core Values?
Core values are the underlying principles that guide an organisation’s strategy.
Prof. Jovo Ateljevic

52. 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.
Prof. Jovo Ateljevic

53. What are Objectives?
Objectives are statements of specific outcomes that are to be achieved.
Prof. Jovo Ateljevic

54. 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
Prof. Jovo Ateljevic

55. 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
Prof. Jovo Ateljevic

56. 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.
Prof. Jovo Ateljevic

57. 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?
Prof. Jovo Ateljevic

58. 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