BA342 Final Exam
Managerial View of the Firm
Owners and employees acknowledged as stakeholders
Production View of the Firm
Owners thought of stakeholders as only those individuals or groups that supplied resources or bought products or services
Stakeholders - "Big 5"
Owners, Consumers, Employees, Government, Community
Stakeholders - Owners
Private, corporate, institution
Stakeholder Symbiosis
Recognizes that all stakeholders depend on each other for their success and financial well-being
Creating Shared Value
Refers to companies generating economic value in a way that produces value for society
Jay Cohen Gilbert
- B-Lab co-founder - Maximizing value for all stakeholders - Jobs with dignity and purpose
Innovation & Learning Approach
Active engagement with CSR provides new opportunities to understand the marketplace, provide innovative products and services, and enhance organizational learning, which leads to competitive advantage
B Corps
Certified B Corporations are businesses that meet the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose. B Corps are accelerating a global culture shift to redefine success in business and build a more inclusive and sustainable economy.
Consumers: 2 Big Themes
Information about products & products themselves
Secondary Social Stakeholders
May be extremely influential as well, especially in affecting reputation and public standing, but their stake in the organization is more indirect or derived - Government and regulators - Civic institutions - Social pressure/activist groups - Media and academic commentators - Trade bodies - Competitors
Corporate Citizenship
Means companies have certain duties or responsibilities they must fulfill in order to be perceived as good corporate citizens
Warby Parker
B-Corp; 1 pair of glasses donated for each pair bought
Stakeholder Approaches: Synthesis
Holds that business does have moral responsibilities to stakeholders but that they should not be seen as part of a fiduciary obligation
Legal Approach
Obey society's laws Reflect society's view of "codified ethics" in the sense that they articulate basic notions of fair practices that are established by lawmakers
Past vs Future CSR
Shareholder Value vs. Stakeholder Value
CVS
- 10,000 stores - Roll-up play = buy out other companies and products to create one larger organization - Gave up $2 billion to get rid of cigs - Changing business to CVS Health --> partnerships with medical companies; had to get rid of cigs to secure this deal
Economic Model
- 1700+ - Adam Smith - invisible hand - Holds that a society could best determine its needs and wants through the marketplace - Did not ensure that business acted fairly and ethically
Legal Model
- 1800+ - Laws passed to reflect society's concerns
Social Model
- 1850+ - Focuses more on society's expectations beyond what was legally required
Stakeholder Model
- 1950+ - Sustainability has become a prominent focus
Walmart - The Pros
- 200 million customers visiting per week - Largest company; $500 billion/year
What 3 things do you need to grow in your career?
- Ability to manage money - Ability to manage people - Understanding stakeholders
Conscious Capitalism
- Adam Smith - Wealth of Nations --> fair trade - Unrestrained vs restrained - Unrestrained --> high negatives to stakeholders - Restrained --> iron law of responsibility (info about everything the company does, lots of R&R)
Case New Holland - A CSR Story
- Agriculture and construction equipment manufacturer - Manufacturing plant in Belleville, PA - Had to close plant, which had dominated the town Stakeholder Issues - 500 employees --> transitions, how you manage - Other businesses - Local community --> taxation - Services relying on income - Connection to customers - Younger vs senior community - Environment - Equipment - Real estate value
Arguments Against CSR
- Classical Economics - Business Not Equipped - Dilutes Business Purpose - Too Much Power Already - Global Competitiveness
Patagonia & CSR
- Clothing rehab center in Reno, NV - Not cost effective, but they want to reduce consumption - Donates to environmental causes
Walmart - The Cons
- Downtown declines - Green becomes pavement - Consumerism - buy more stuff - Closed culture led many activists to fight company
Arguments in Support of CSR
- Enlightened Self-Interest - Warding Off Government Regulations - Resources Available - Proaction Better Than Reaction - Public Support
Mixed-Blessing Stakeholder
- High on both potential for threat and potential for cooperation - Strategy = collaborate
Supportive Stakeholder
- High on potential for cooperation and low on potential for threat - Ideal stakeholder - Strategy = involvement
Nonsupportive Stakeholder
- High on potential for threat but low on potential for cooperation - Strategy = defend
United Airlines
- Known for overbooking - Supposed to be done at gate - Algorithm for removing people - Passenger was dragged off an overbooked plane - Lost $500 million in firm value that day - CEO apologized and fired security - If you're kicking someone off, you have to compensate them
Marginal Stakeholder
- Low on both potential for threat and potential for cooperation - Strategy = monitor
Activities of Social Firms
- Makes products that are safe - Does not pollute air or water - Obeys the law in all aspects of business - Promotes honest or ethical employee behavior - Commits to safe workplace ethics - Does not use misleading or deceptive advertising - Upholds stated policy banning discrimination - Utilizes "environmentally friendly" packaging - Protects employees against sexual harassment - Recycles within company - Shows no past record of questionable activity - Responds quickly to customer problems - Maintains waste reduction program - Provides or pays portion of medical costs - Promotes energy conservation program - Helps displaced workers with placement - Gives money toward charitable or educational causes - Utilizes only biodegradable or recyclable materials - Employs friendly or courteous or responsive personnel - Tries continually to improve quality
Primary Nonsocial Stakeholders
- Natural environment - Future generations - Nonhuman species
What are our stakeholders' stakes?
- Nature or Legitimacy of a Group's Stakes - Power of a Group's Stakes - Subgroups within a Generic Group
CSR Business Case - Core Benefits
- New business - Customer retention - Better relations (stakeholders) - Attract/retain employees - Decrease costs - Enhanced reputation - Increased investment - Better media relations
The Naked Brand Documentary
- People don't trust companies and ads - Companies have to change from saying they're great to actually being great Positive example: IBM Responsible Marketing - "smarter cities" --> ramps, benches, rain cover
Corporate Performance: Financial and Social
- Perspective 1: Socially responsible firms are more financially profitable - Perspective 2: Financial performance is a driver of its social performance - Perspective 3: Interactive relationship between and among social, financial and corporate reputation
Evolving Meanings of CSR
- Protecting and improving - Avoidance of negative impacts on society and the creation of positive benefits for society - "The idea of social responsibility supposes that the corporation has not only economic and legal obligations, but also certain responsibilities to society which extend beyond these obligations."
Carroll's CSP Model
- Social responsibility categories - economic, legal, ethical, and discretionary (philanthropic) - Philosophy (or mode) of social responsiveness - strategies ranging from reaction, defense, accommodation, and proaction - Social (or stakeholder) issues involved - consumers, environment, employees, and others
What responsibilities does a firm have toward its stakeholders?
- State what different stakeholder groups might logically expect from companies - Corporate Social Responsibility - Stakeholder responsibility matrix
Newer CSR
1. Corporate Citizenship 2. Corporate Responsibility 3. Sustainability 4. Creating Shared Value 5. Conscious Capitalism
CSR - Citizenship
1. Corporate Social Responsibility 2. Corporate Social Responsiveness 3. Corporate Social Performance
How Firms Respond to CSR Pressure
1. Defensive 2. Cost/Benefit 3. Innovation 4. Strategic
Unilever Big 3
1. Double size of company 2. Reduce environmental footprint 3. Increase social impact
The Stakeholder Corporation
1. Governing Philosophy (shareholder value = responsibility) 2. Values Statement (accountability to all stakeholders) 3. Measurement System (stakeholder performance system that includes profit and responsibility)
What are the four tenets of conscious capitalism?
1. Higher Purpose 2. Stakeholders Orientation 3. Conscious Leadership 4. Conscious Culture
Unilever Sustainable Living Plan
1. Improving health and well-being for more than $1 billion 2. Reducing environmental impact by half 3. Enhancing livelihoods
CSR Business Case - The Big 6 Reasons
1. Innovation 2. Cost savings 3. Brand differentiation 4. Long-term thinking 5. Customer engagement 6. Employee engagement
What strategies or actions should management take?
4 types: supportive, marginal, non supportive, mixed-blessing
Corporate Social Responsibility Language Check
50% of companies using "sustainability", 25% using "CSR", 25% using other terminology
Cost-Benefit Approach
Holds that firms will undertake those activities if they can identify direct benefits that exceeds costs
Corporate Citizenship: Broad & Narrow Views
Broad - embrace all that is implied in the concepts of social responsibility, responsiveness, and performance Narrow - viewed as corporate community relations
Stakeholder Corporation
Central element = stakeholder inclusiveness "In the future, development of local relationships with customers, employees, shareholders, and other stakeholders will become one of the most important determinants of commercial viability and business success. Increasing shareholder value will be best served if your company cultivates the support of all who may influence its importance"
Stakeholders - Consumers
Consumer activists, product liability
CVS & CSR Pressure
Defensive - Pressured for selling cigs; decided they need to go Cost/Benefit - Gave up $2 billion, but will get $10 billion back over the years Strategic - Change business model Innovation - Bringing medical care to retail
The Business Case for CSR: 4 Approaches
Defensive, cost-benefit, strategic, innovation and learning
Three Values of the Stakeholder Model
Descriptive, Instrumental, Normative
Defensive Approach
Designed to alleviate negative consequences. Companies will do what they have to do to avoid pressure that makes them incur costs
Dr. Michael Hastings
Director of Corporate Citizenship for KPMG; Corporations and individuals both have an impact. Organizations and individuals should both be thinking. Rapid change.
Ethical Approach
Do right and avoid harm Embody the full scope of norms, standards, values, and expectations that reflect what consumers, employees, shareholders, and the community regard as fair, just, and consistent with respect for or protection of stakeholders' moral rights
Net Impact Conference
Doug McMillon - CEO of Walmart; Philly, November 2016. - By 2025, zero waste in 4 largest markets - 100% renewable energy - Transparency & quality leader - Forests - zero net deforestation
4 Part Pyramid of CSR
Economic, legal, ethical, philanthropic
Historical Perspectives on CSR
Economic, legal, social, stakeholder
Corporate Social Responsiveness
Emphasis on action and activity EX: Zero-waste initiatives
Corporate Social Responsibility
Emphasis on obligation and accountability EX: Walmart letting Girl Scouts sell cookies and then adding extra money
Corporate Social Performance
Emphasis on outcomes and results EX: Gates Foundation
What are the two largest stakeholder groups?
Employees and consumers
4 Key Stakeholder Groups
Employees, consumers, community, government & non-government
Stakeholders - Community
Environmental groups, public
What's it all mean?
Every corporation around the world has the same list. Individuals and corporations have the same dynamic.
EAP
Excellent Performance Academic Integrity Professional Behavior
Primary Social Stakeholders
Have a direct stake in the organization and its success and, therefore, are most influential - Shareholders and investors - Employees and managers - Customers - Local communities - Suppliers and other business partners
Strategic Approach
Firms will recognize the changing environment and engage with CSR as part of a deliberate, emergent corporate strategy
B-Lab
Formed to certify companies environmentally and socially. 3,000 companies.
Economic Approach
Foundation: make a profit Business should have the objective to produce goods and services that society needs and wants and to sell them at fair prices
The Iron Law
In the long run, those who do not use power in a manner in which society considers responsible will tend to lose it
Secondary Nonsocial Stakeholders
Include those who represent or speak for the primary nonsocial stakeholders - Environmental interest groups - Animal welfare organizations
License to Operate
Intangibles: 53% of Total Value of Fortune 500 or about $24.27 trillion Consumers: 85% reputation responsibility key (competitiveness and market positioning) Risk Management: Government, NGO's, Legal Employees: 3 of 5 want to work for a values corporation Investors: 86% institutional investors Operations: Innovation, energy, waste, water
Instrumental Value
It is useful in portraying the relationship between the practice of stakeholder management and the resulting achievement of corporate performance goals
Descriptive Value
It provides language and concepts to describe effectively the corporation or organization in stakeholder inclusive terms
Unilever 3 Beliefs
Last, grow, thrive
Individual Citizenship Characteristics
Leader, engaging in society, voting, paying taxes, giving to others, obeying the law, be productive, volunteering, be honest, be respectful to others, recycling, caring for the environment, shovel sidewalks
Important Stakeholder Attributes
Legitimacy, power, urgency
Stakeholders - Government
Local, federal, state
What do responsible companies do?
Make safe products, don't pollute, obey all laws, promote honest behavior, safe workplace, ads are not misleading, do not discriminate, packaging - limits impact, no harassment, recycle, respond to customers, help with medical, energy conservation, give to charity
Responsible Leadership - Financial Times Definition
Making business decisions that takes into account stakeholders, such as workers, clients, suppliers, the environment, the community, and future generations
Stakeholder View of the Firm
Management must perceive as stakeholders not only those groups that the management thinks have some stake in the firm but also those individuals and groups that themselves think or perceive they have a stake in the firm
Who are the organization's stakeholders?
Stakeholder identification stage --> must identify generic groups and specific subgroups
Normative Value
Stakeholders are seen as possessing value irrespective of their instrumental use to management
Stockholders vs Stakeholders
Stockholders = Owners Stakeholders = Interests **stockholders are stakeholders**
Stakeholder Approaches
Strategic, Multifiduciary, Synthesis
Philanthropic Approach
Take a citizenship approach - Reflect current expectations of business by the public - Corporate giving, product and service donations, employee volunteerism, community development, etc. - EX: Chick-fil-A operates foster homes, sponsors a summer camp, and has provided college scholarships
Responsibility
The ability or authority to act or decide on one's own without supervision
Who saved New Orleans?
The business community - Walmart has a fantastic supply chain and knew what to send to stores. They had 100 trucks ready to help. 126 stores went down. Big 3 = Associates, Community, Operations
Stakeholders - Employees
Union, older, women, minority, activists
Stakeholder Approaches: Multifiduciary
Views stakeholders as more than just individuals or groups who can wield economic or legal power
Stakeholder Approaches: Strategic
Views stakeholders primarily as factors to be taken into consideration and managed while the firm pursues profits for its shareholders