HM 390 Final Exam
ESG Environmental
-conservation of the natural world carbon emissions energy efficiencies water scarcity waste mgmt pollution mitigation
Ford Motor Co Reactions
-conservatives observed that a sudden increase in wages robs a man of his ambition, does not improve his working capacity, and leads to extravagant methods of living -competitor suggests it was too "radical a step to take w/o talking to other automobile manufacturers" -business philanthropy or utopian project?
ESG Social
-consideration of people and relationships diversity and workplace policies labor standard supply chain mgmt product safety community impact
All good now after crisis?
No. -CDOs returning -deregulations again student loans can be another potential risk -public should be educated and aware of these issues so we can demand transparency and accountability from the financial service industry (and the government)
Since TARP made profit was it all okay?
No. Other costs were made. -people lost jobs, working hours, wages, and benefits -people lost houses or lost value in their houses -psychological health suffer and social problems (family problems, social tension)
Milton Friedman
Nobel Prize Winner in 1976 -big supporter of the free marker- capitalism and freedom -Shareholder Primacy trend resurged w/ Friedman through the 1970s -make as much money for stockholders as possible, free society
NGOs
Non-governmental organizations -exist primarily to help the government w/ social issues BINGO- business friendly international NGO ENGO- environmental NGO INGO- international NGO
Social Obligation
corporate behavior in response to market forces (economic) or legal constraints
Thomas M. Jones 1980
corps have obligation to constituent groups in society other than stockholders and beyond that prescribed bt law and union contract -obligation voluntarily adopted -broad obligation, extend beyond the traditional duty to shareholders to other societal groups such as customers, employees, suppliers, and neighboring communities -CSR not a set of outcomes but a process
Capital gains
profit from the sales of an asset- shares of stock, a piece, a business, and considered taxable income
Whose problem was the financial crisis?
the government bailed out the banking industry with a $700 billion proposal
Pay for Performance
systems seems broken, no correlation between compensation and 10yr returns
Short-term capital gains tax
tax on profits from the sale of an asset held for one yr or less -equal your ordinary income tax rate- your tax bracket
Long-term capital gains tax
tax on profits from the sale of an asset held more than a year -tax rates 0%, 15%, or 20% depending on your taxable income and filing status -lower than short-term capital gains tax rates
Government Bailout
taxpayer's money
Instrumental Perspective
the co should be socially responsible because the investment in CSR will become an instrument to creating value/profit
The World Bank defines CSR
the commitment of businesses to behave ethically and to contribute to sustainable economic development by working with all relevant stakeholders to improve their lives in ways that are good for business, the sustainable development agenda, and society at large
Federal Min Wage
$7.25
17 SDGs (2016)
Sustainable Development Goals -no povety -zero hunger -good health and wellbeing -quality education -gender equality
Evolution of CSR
philanthropy--CSR--Strategic CSR
ISO 14001
(International Org for Standardization) Internationally agreed standard that sets out the requirements for an environmental mgmt system -helps orgs improve their environmental performance, co fulfills compliance obligations and gain a competitive advantage and the trust of stakeholders
Bad thing happens to CDOs
(like CDOs get defaulted), Goldman Sachs will receive payments from AIG -Goldman sold CDOs to its clients as prime investments, then when CDOs defaulted, Goldman made a lot of money from AIG
Landfills
-American consumers are by far the world's biggest wasters -US has up to 40,000 abandoned landfills that are left untreated and filled w/ plastics -take 1,000 years to degrade
Environmental Issues
-Atmospheric air pollution, global warming -Water pollution, quantity -Land pollution, plastic waste, deforestation, biodiversity, food waste
Ford Motor Co & Court Dodge v Ford Motor Co
-1916 went to court to make sure they received what they thought was their fair share, filed suit to stop plant expansions and to require distribution of any future earnings as dividends -judge ruled for shareholders, he wrote that since shareholders owned the co, Ford had to distribute $19 mill as a special dividend -appeal let special dividends stand because a "corporation is organized primarily for the profits of the stockhlders"
Executive Compensation
-1950s CEO made 20x the salary of his average worker -comp increased 40x of average employee in the 1960s to nearly 600x in the early 2000s
Air Pollution
-3 typical sources: 1. Stationary (factories and power plants) 2. Mobile (cars, trucks, planes, trains) 3. Natural (windblown dust, volcanic eruptions) Harms -shorter life spans -illnesses -plants, animals, bodies of water -global warming
Water Pollution
-80% is caused due to domestic sewage, like throwing garbage on open ground and water -every day 2 mill tons of untreated human waste is put into some water source -chemicals in commonly used fertilizers and pesticides can drain into water supplies -major contributor to illnesses in developing countries
Our Common Future (UN 1987)
-Brundtland Report -Chair of World Commission on Environment and Development was Gro Harlem Brundtland, former Norwegian Prime Minister -sustainable development meets the needs of the present w/o compromising the ability of future generations to meet their own needs
Risky loan
-Prime Mortgage: given to qualified homeowners -Subprime Mortgage: given to under-qualified homeowners
1990s
-Triple Bottom Line 3Ps -Sustainability -Institutionalization continued -Globalization phenomenon became prominent, influencing the CSR movement
Shareholder Primacy
-became dominant again -Friedman came forward w/ a more radical version of Berle's 1931 argument of shareholder primacy quickly went mainstream in 1981 as Reagan began his term
Court case ending
-because Ford was the largest shareholder, $11 of the $19 mill went to him -Ford and his son resigned -oldest Ford announced that he was going to launch a new automobile enterprise, design new, better vehicle w/ lower price -known for reemphasizing the Shareholder Primacy
Pros of Capitalism
-best products for the best price -innovation rewarded
Main benefits (Customer Perspective)
-brand image, awareness, and reputation -loyalty -willingness to pay for premium -services intangible
Pre Modern CSR Era Hershey
-built communities for employees -supported local educational and cultural charities -1909 executed a tightly constructed deed of trust for the Hershey Industrial School for orphan boys -1918 secretly placed all of his shares of the Hershey Chocolate Co into a trust whose sole purpose was to benefit the school, stock was worth $60 mill -good deals were mostly inspired by personal beliefs/philosophy rather than business strategy
1970s
-business community began to formalize and institutionalize their responses to social and public issues, either due to enlightened self-interest or response to regulatory requirements or protests -focused on corporate philanthropy and community relations
Legitimate Perspective
-business depend on the community for its continuity and growth, even for the existence of the business itself -thus, businesses must integrate social demands to achieve social legitimacy, greater social acceptance, and prestige ("license to operate")
General Tax Deduct Co's
-buss other than C-corp cannot deduct more than 30% of the business' total taxable income ea. yr, C-corp cannot deduct more than 10% of their taxable income for the yr
Pay Gap
-co consider less unequal payment -between low or average and high pay -increase the low (or average) pay level and/or reduce the high pay level
Difference communism and socialism
-communists believe that cooperation should be run by a government made up of one political party
Why Corporations responsible for CSR?
-corps growth in size and financial power, the balance of power of resources in the world has changed -make the best social impact now -corp world creates many social problems, thus responsible for those problems
"something else"
-could be price reduction and rebates for consumers, larger paychecks for workers, investments, and cleaning up the workers' communities
Importance of Ford Case
-cultural shift regarding CSR and importance of CSR engagement for business success became evident
Executive Compensation Issues
-decision process seems opaque -comp determined by Compensation Committee which is heavily influenced by CEOs and top execs -Compensation Committee often rely on advice from pay consultants who typically uses pay benchmarking, targeting either median or above median pay which automatically drives up the average pay
5 Stages of CSR Simon Zadek
-defensive (bottom pyramid) -compliance -managerial -strategic -civil
Corporate Citizenship defined
-depicts orgs as citizens of a community and as such subjects to societal controls and limits on their actions -view expanded -now described as the role of the corp in administering citizenship rights for individuals , corp administers certain aspects of citizenship for other constituencies (move away from corp as a citizen themselves)
The Brundtland Report Video
-development is unsustainable -future world crisis interlocking w/ environmental, development, and energy crisis closely linked -sustainable development coined in this report -country will experience (in the longterm) better economic stability -fish industry on the island, only dependent on this, other firms will catch if they do not catch themselves, solve issue by
Min Wage Increase Pros
-economic activity growth -job growth -reduced poverty -reduced gov spending -alleviate income inequality -improve worker productivity
Donating Food
-even w/ Good Samaritan Act 1996, co's still worried about being sued -expensive for businesses to organize food donation, such as administration and transportation -tax break given
Stakeholder Theory
-firms interact with other orgs and groups -these are the firm's stakeholders -suppliers, community, shareholders (primary), customers, government, employees, competitors -Freeman 1984 firms should satisfy all stakeholders
Paris Agreement
-first-ever universal, legally binding global climate change agreement, adopted at the Paris Climate Conference in 2015 -brings all nations into a common cause to undertake ambitious efforts to combat climate change and adapt to its effects -keep global temperature rise under 2 degrees C
Exxon Mobile
-former CEO (also former US State Secretary of State) Rex Tillerson encouraged US Congress to enact a tax on GHG emissions in order to fight global warming -they had been trying to cover up and hide what they knew already about global issue in 1980s by their own scientists (shows genuine intention)
Executive Compensation Reforms
-full and clear disclosure to stakeholders of executive compensation packages and the decision process -shareholders vote on compensation packages -establish a salary cap for cash compensation -develop compensation packages, include a range of incentives designed to encourage short, medium, and long term performance -measure using revenues, market share, customer service -cap potential payouts of total compensation -empower compensation committees w/ ability to revise packages according to new circumstances as they arise
Possible Financial Crisis Originators
-general trends of deregulations from the 1980s -Securities & Exchange Commission (SEC) also changed a rule in 2004 to expand the amount debt that banks could carry, relaxation enabled investment banks to engage in leveraging -the fundamental issue was about greed by all parties allowed by the system under less regulations
21st Century
-globalization -industrialization cont. -internet & media: transparency and rapid dissemination of info -grown interests in & implementations of related topics: sustainability, triple bottom line, stakeholder theory, corp citizenship
Ford Motor Co Stockholder Reactions
-have stockholders to please, and that they would never stand for it -refused to discuss the plan -if they do not agree, Ford will pay them out money of his own share of the profits -tired of seeing co profits used for "something else" other than paid to them as dividends
Main benefits (Employee Perspective)
-high turnover in hospitality, combat this w/ CSR -improve employee satisfaction w/ and commitment to the company- lead to higher retention rate -likely perform better -give greater value/purpose for their work
Blue Sparrow Coffee
-higher pay ($12.85/hr) -transparency (show wage comparison)
What happened to the subprime mortgages sold
-homeowners defaulted -could not afford -housing price became stalled and began to decrease as more defaults happened -lenders went bankrupt, left w/ properties that were worth less than the amount originally loaned because of the decreasing housing price
Economic Instability
-income/wealth inequality can make the economy more volatile or unstable
Global Warming Problems
-increase in sea level- loss of land -sea water temp rises -likely extinction of 20-30% of all species -more frequent heat stress, drought, severe storms, flooding -increase in human poverty and infectious disease -decrease in air quality
Cons of Capitalism
-lacks equality of opportunity -external costs are ignored
Problems to socialism and communism
-low production -mass poverty -limited advancement -poverty spread so widely in the Soviet Union 1980s that citizens revolted
Movie Wall Street
-made based on financial scandals during 1980s -ex of Ivan Boesky's insider trading and Milken's reporting frauds (and insider trading) -Ivan: greed is healthy, feel good about being greedy
1980s
-major concepts and theoretical frameworks of CSR developed -was a widely reported ethical scandals that brought the public's attention to managerial and corporate wrongdoing -frequently portrayed as the decade of greed or of me
UN Global Impact Concerns
-methodological weakness of self-reporting -voluntary, which means minimal accountability for co members, no legal sanctions for people who do not comply -no clear criteria of what violates rights
Water Shortage
-more than 780 mill people lack access to improved or uncontaminated water sources -on average, 250 mill people worldwide succumb to diseases related to water pollution
Collateralized Debt Obligations (CDOs)
-mortgage backed securities -investors preferred CDOs to Treasury Bonds -AAA credit rating given to higher quality CDOs by Monday's and Standard & Poor's -Investment bonds pay credit rating agencies
Responsible for Financial Crisis
-mortgage lenders: irresponsible sub-prime mortgage practices -Mortgage Borrowers (home buyers): some greed even when such a deal seemed too good, we should always remind ourselves that there is no free lunch -Rating Agencies & Academia: basically worked for banks, not investors, financial markets, governments, or the public -Government: corrupted by banks -Investment Banks: irresponsibly taking too much risk, did this because they knew they would not pay the price (moral hazard) -betting against its own clients
Plastic Harm
-never goes away -affects human health- toxic chemicals -spoils our groundwater -attracts pollutants -threaten wildlife -piles up in the environment -poisons food chain -costs billions to abate
CDS (Credit Default Swap)
-normally, you can insure (bet against) an asset only when you own it -in derivative world, you can bet against (insure) an asset that you do not own -purchase CDSs from AIG (insurance co), Goldman Sachs (investment co) could insure (bet against) CDOs that not only it sold to its clients (as a prime investment), but also it did not even own or sell
Food Waste Problem
-not only food waste itself, but all the energy/resources used to prepare the food up to that point -food waste trapped in landfills produce methane-greenhouse gas that is 20x more harmful than CO2
Western countries
-not pure capitalist societies -UK provides basic needs like healthcare to everyone regardless of their time or effort at work (universal healthcare)
Fair compensation
-pay employees fairly -min wage is one factor to make sure for a fair payment -min wage payment is certainly not sufficient
3 P's
-people social performance -profit economic performance -planet environmental performance
Pre-Modern CSR Era Cadbury (UK)
-prospered in 1870s -1900, established Bournville Village to promote housing reform and green environment w/ a message- "successful businesses in successful communitites" -democratically elected work councils were set up in 1918, one for men and another for women
Environmentally Friendly Restaraunts
-reduce food waste -use organic materials -reduce meat purchases -food choice w/ less distance of transportation -different transportation mode -use reusable, recyclable, and compostable items -reduce energy use (electricity, AC) -LED light bulbs
Ford Plant Expansion
-reinvest co's profits on plant expansion while slashing the price of the Model T's vehicle -do as much as possible for everybody concerned, make money and use it, give employment, and send out the care where the people can use it
Former Starbs CEO Howard Shultz
-responsibility to multiple constituencies -financial performance is linked to this -balance between profitability and responsibility
Dodge v Ford Used for Bad
-routinely employed as the only legal authority for the proposition that corp law required corps to have a profit maximizing purpose, legal duty to shareholders interests above all others
Moral Hazard Defined
-situation where a party will have a tendency to take risks because the costs that could incur will not be felt by the party taking the risk -tendency to be more willing to take a risk, knowing that the potential costs or burdens of taking the risk will be borne, in whole or part by others
Political Perspective
-social power of corps emphasized, relationship w/ society and its responsibility in the political arena associated w/ this power -if the corp does not use the political power, they will lose it
Late 60s to early 70s
-social regulations as a response to social movements -Equal Employment Opportunity Commission 1965 -Age Discrimination in Employment Act 1967 -OSHA 1971 -legislation initiatives tell co's must make organizational mechanisms for complying w/ federal law dealing w/ environment, product, safety, employment discrimination, and worker safety
Business in Contemporary Society
-socially responsible if managers balance a multiplicity of interests -instead of striving only for larger profits for its stockholders, take into account employees, suppliers, dealers, local communities, and the nation
ESG (corporate) Governance
-standards for running a co -set of rules, controls, resolutions, and policies put in place to dictate corporate behavior -firm directed and controlled -balance interest in stakeholders -Board of directors is pivotal in governance, major ramifications for equity valuation board diversity executive compensation political contributions bribery and corruption accounting and reporting
Reduce economic inequality TED Talk
-tax increase for rich (Sweden) -equal payment (Japan)
Friedman's Acknowledgement
-the importance of legal and ethical dimensions of the business, but his message to the business and public wasn't clear that the maximization of profits to the shareholders is the most important thing -within legal framework and ethical custom of the country
Lenders change loan qualification standards
-to maintain growth -more liberal interpretations of those standards, meaning the development of the riskier types of loans -to expand the potential pool of applicants
Large and Powerful Firms
-too much power, more willingly influence employment contracts, pricing, and gov policies -wage was low because of Great Depression -little regulation (little gov intervention), and free market capitalism
Min Wage Increase Cons
-unemployment -increased poverty -businesses go bankrupt -increased inflation rate -aggravated income inequality (hurt the poor and unskilled more)
CSP Dimensions
1. Define or configure principles of CSR (ex. Carroll's pyramid of CSR) 2. Identify social issues involved in the firm's mgmt 3. Develop policies and programs, and produce observable outcomes to address identified social issues
Regulate Plastic Bags
127, 66% of the countries surveyed have implemented some type of policy to regulate plastic bags -limit free distribution through retail stores
Pre Modern Era Great Depression
1929-1939 followed the industrial revolution w/ powerful firms in charge -massive unemployment and business failure and the post-Depression period ushered in the next period of business and society relationships -
E. Merrick Dodd Debate
1932 For whom are corp managers trustees? In addition to the economic responsibilities mgrs owed shareholders, they had social responsibilities to society because the modern large firm (a corp) is "permitted and encouraged by the law primarily because it is of service to the community rather than because it is a source of profit to its owners"
Ford Motor Co
1938 Henry Ford -US gov enacted the first federal min wage of $2 an 8hr day -Ford initiated a corp-wide min wage of $5 for an 8hr day in 1914 -5 yrs later, raised to $6/day and 10 yrs after that $7/day
Howard Bowen
1950s -Father of Modern CSR (Carroll 2006) -Landmark book: Social Responsibilities of the Businessman (1953) -Social Responsibility (SR) = CSR -what responsibilities to society may businessmen reasonably be expected to assume?
Corporate Philanthropy
1950s A.P. Smith Manufacturing C. v Barlow Case 1953 -directors of AP approve donation of $1,500 to Princetown Univ. the shareholders disapprove the gift and contended that it breach's a directors duty to act in the corp or shareholder interest -NJ Supreme Court cleared the way for AP to donate w/o violating shareholder interest -reversed Ford v Dodge -era of modern corp philanthropy started
Berle v Dodd Debate Conclusion
1954 Berle said that argument has been settled (at least for the time being) squarely in favor of Dodd's contention
Ralph Nader's book
1965 Unsafe at Any Speed critique of the safety record of American automobile manufacturers that became known as one of the most important journalistic pieces of the 20th century
Corporate Citizenship
1990s Davis, Longsdon and Wood, Matten and Crane -emerged as a prominent term in the mgmt literature dealing w/ the social role of businesses -occurred first in the realm of mgmt practice, originated in the US businesses in the 1980s, begun to enter the language of the global business community -landmark process join statement on the "Global Corporate Citizenship"- Leadership Challenge for CEOs and Boards
Good Samaritan Act
1996 Clinton passed to encourage co's and orgs to donate healthy food that would go to waste, protects businesses from liability when they donate to non-profit, and from civil liability should the product donated in good faith later cause harm to recipient
Protecting Americans from Tax Hikes (PATH)
2015 tax break All businesses including C-corp, S-corp, LLCs, partnerships, and sole proprietorships, are eligible for an enhanced tax deduction for donations that meet certain eligible criteria
Creating Shared Value
21st Century Social Value + Business Value= CSV (Creating Shared Value) ex. Whole Foods Market
Top Federal Income Tax Rate USA
37%
Food Waste
63 million tons, 85% at consumer-facing businesses and home Food Waste Consumes -21% all fresh water -19% all fertilizer -18% of cropland -21% of landfill volume
Plastic Recycling
7 different types of plastic identified by the American Society of Plastics Industry
Classic Debate on CSR
Adolf A. Berle and E. Merrick Dodd Harvard Law Review
Enhanced Tax Deduction Co's
All businesses may deduct up to 15% of their taxable income for food donations
CSR
At the firm level, but still focusing on philanthropy
Strategic CSR
At the firm level, consider CSR as a strategy
Capitalism Inherent
Bill Gates -income inequality is built in to capitalism, it is inherent to the system
Sustainability & Pyramid of CSR
Bottom -Economic responsibilities implementing environmentally friendly practices to reduce cost -Legal responsibilities implementing environmentally friendly practices to comply w/ laws -Ethical responsibilities implementing environmentally friendly practices to meet various stakeholders' expectations beyond regulations -Discretionary responsibilities implementing environmentally friendly practices beyond stakeholders' expectations
General (non-enhanced) tax deduction
Businesses that donate inventory may claim a tax deduction in the amount of the property's basis, which is usually the cost to the business and often lower than the fair market value, which is the value at which goods can be sold
3 Concentric Circles of CSR
CED 1971 -Inner Circle -Intermediate Circle -Outer Circle
Corporate Social Performance (CSP)
Carroll Wartick, Cochran -CSR model overlooked the dimension of corporate action and performance -considered a more integrated or comprehensive framework -3 dimensions
Land Pollution
Causes -dumping of residential and industrial wastes -strip mining -poor forest conservation Problems -health problems in humans -jeopardizing wildlife habits -erosion -altering watercourses (leading to flooding) -poisoning groundwater supplies -global warming
Stage 5
Civil (called strategic CSR) -final stage, value creation, current trend -co changes rules of the game, raises the civil foundation, and changes society -embeds CSR into daily operations -collaborate w/ other co, change rules of game, attack problems at the cause
Civil Rights Act of 1964
Civil rights and US labor law in the US that outlaws discrimination based on race, color, religion, and sex, or national origin -prohibits unequal application of voter registration requirements, racial segregation in schools, employment, and public accommodation
Social Responsibilities of Business Corps
Committee for Economic Development 1971 -substantial and important changes of the social contract between businesses and society -business asked to assume broader responsibilities to society than before -business future depends on the quality of mgmt response to the change expectations of the public
Stage 2
Compliance --risk mitigation, historical focus -pressure on, co leaders know they need to do something to comply -minimum investment of financial resources to show they are taking action -apparel co avoiding being the next Nike by sending out rules to all factories
Starbucks CSR
Conducting our business in ways that produce social, environmental and economic benefits to the communities in which we operate.In the end, it means being responsible to our stakeholders
Stage 1
Defensive --risk mitigation, historical focus -defensive move -bad behavior/practices w/in the co pushed the co to improve -Nike exposed in 1998 human rights abuses in Asian factories Starbucks 2001 treating local farmers poorly
Skeptical Perspective
David Vogel's book The Market for Virtue 2005 -CSR will not be successful until mainstream companies begin reporting some aspects of CSR as being critical to the co's past or future performance
Philanthropy
Individual contribution
ESG vs SRI
ESG grew out of SRI (Socially responsible investing) -ESG looks at finding value in companies, not simply supporting a set of values -SRI uses exclusionary filters to keep co's out of portfolios that don't meet certain criteria -ESG opts-in to co's that are making positive impacts in the 3 factor areas
Triple Bottom Line
Elkington 1994 corps must meet not only economic bottom line, but social and environmental bottom lines
ESG
Environmental, Social, Governance -3 central factors in measuring the sustainability and ethical impact of an investment in a co -these criteria help to better determine the future financial performance of co's in an investment context
Sustainability Europe vs USA
Europe includes environmental and economical USA is more environmental concerns
Who take care of social responsibilites
Government, but not performed in a timely matter
8 Components (crisis)
Help to prevent a repeat of the financial crisis 1. Oversees Wall St 2. Stops banks from gambling w/ depositors' money 3. Oversees credit rating agencies 4. Regulates credit cards, loans, and mortgages 5. Increase supervision of insurance co's 6. Reforms the Federal Reserve System (US central banking system) 7. Regulates risky derivatives 8. Brings hedge fund trades into the light
Keith Davis
Important CSR definition -businessmen's decisions and actions taken for reasons at least partially beyond the firm's direct economic or technical interest 1960 -asserted that some socially responsible business decisions can be justified by a long, complicated process of reasoning as having a good chance of bringing long-run economic gain to the firm, thus paying it back for its socially responsible viewpoint
Perspectives for CSR
Instrumental, political, legitimate, ethical
Stakeholders of IHG
InterContinental Hotels Group -NGOs, government, and community orgs -industry associates -colleagues -guests and corporate clients -IHG owners association -shareholders -suppliers -academic institutions
Enlightened Stakeholder Theory
Jensen 2001 -adds that the objective function of the firm is to maximize total long-term firm market value -it is possible for markets not to know the full implications of a firm's policies and practices until they begin to show up in cash flows over time
Circular Economy
Make-Use-Reclaim, reuse, recycle-make
Confusion in Financial Industry
Mallen Baker argues: while firms in general, benefit from striving to meet the needs and demands of their customers, this relationship is weaker for those firms that sell products that their consumers do not necessarily need and do not fully understand
Stage 3
Managerial -risk mitigation, historical focus -co develop a mgmt process or system so that responsibilities can be assigned internally, measured, and executed -viewed as a cost for the co, not an opportunity or of value -since not seen as value creating, innovation and creativity lacking in the CSR activities
Moral Hazard in the Crisis
Mark Goyder Financial Times 2009 -price attractive -money to make on the deal -if it was responsible is irrelevant because it was legal, and others were making money that way -paying the price in trillions of dollars for that imprudent attitude
Executives punished in the Crisis?
No executives of the involved banks were charged, creating no fear for those who can repeat the same in the future -those execs were still lavishly compensated event with some resignations, thus encouraging them or any to repeat the same in the future
McDonalds & GAP CEO
Mc 2,124x GAP 3,566
Keith Davis 1973 quoted
Paul Samuelson and Milton Friedman
Sustainability & Stakeholder Theory
People see environment as one major stakeholder of businesses -customers, community also care about the environment
Early Ideas of CSR
Pre-Modern CSR Era -1931 Theodore Kreps introduced Business and Social Welfare -Pete Brucker argued that co's have a social dimension as well as an economic purpose in his second book, The Future of Industrial Man 1942 -businesses responsible for results of business dealings JM Clark 1916
Enhanced Tax Deduction
Provides an extra incentive for donation by allowing the donating business to deduct the lesser of (a) twice the basis value of the donated food or (b) the basis value of the donated food plus one-half of the food's expected Profit Margin
Optimistic Perspective
Steven D. Lydenberg's book Corporate and the Public Interests 2005 -CSR as a major secular development, driven by a long-term reevaluation of the role of corps in society -more evident in Europe, where stakeholder responsibility notion is readily assumed
Stage 4
Strategic (called strategic CSR) -value creation, current trend -view as part of their value and opportunity-creating strategies -on par w/ their business development, research and development, branding, and market-entry strategies -Starbucks ethically sources 99% of coffee beans -economic and social value together -GE commitment to products and services that are as economically advantageous as they are ecologically sound
SASB
Sustainability Accounting Standards Board 2011 -connects businesses and investors on the financial impacts of sustainability -similar to GRI, reporting on sustainability issues -US organization, NGO
Value Creation in CSR
Sweet Spot
Linear Economy
Take-Make-Dispose
GRI
The Global Reporting Initiative 1997 -international independent organization that helps businesses, governments and other organizations understand and communicate their impacts on issues -of largest 250 corps, 92% report on their sustainability performance and 74% use GRI standards to do so -over 23,000 GRI reports in database, most widely used, 35 countries
Severe Income Inequality
becomes a problem, causing more social illnesses and potential corruptions in economic and political systems
Food Recovery Hierarchy Levels
Top upside-down pyramid -source reduction -feed hungry people -feed animals -industrial use -composting -landfill/incineration
Single Use Plastic
USA -37 million tons of plastic used every year -of this, food-service packaging represents 16 mill tons -only 12% recycled of this -more than 70% or 11mill tons sent to landfill
Liberal Capitalism
USA -free market approach -deregulation -the efficient market hypothesis -weakened after the crisis and market efficiency questioned -gov regulations are more encouraged -credibility of the US Financial market has diminished
Global Warming & Must Dos
Washington Post -cut carbon dioxide emissions by at least 45% in 12 years to preserve any hope of maintaining a livable planet -immediate needs include converting energy systems from fossil to clean-energy technology and tax fossil fuels at their source
Business Implications
Whose job is to determine an increase in the tax rate for rich people? -government What can companies do about income inequality then? -fair compensations
Global Warming
a gradual increase in the overall temperature of the earth's atmosphere generally attributed to the greenhouse effect caused by increased levels of carbon dioxide, chlorofluorocarbons, and other pollutants.
McWilliams and Siegel 2001
actions that appear to further some social good beyond the interest of the firm and which they are required by law
Communism and socialism
are economic and political structures that promote equality and seek to eliminate social classes -both founded on the idea of collective cooperation and focused on equality
Inner Circle
basic responsibilities for the efficient execution of the economic function: products, jobs, and economic growth
People purchase expensive houses (subprime mortgages)
because they were hoping to refinance their mortgage rates after fixed and low intro rates expired, housing prices were historically increasing
Major Idealogies
capitalism, socialism, communism
Income Inequality
closely related to or considered as causes to many social issues including economic instability, political instability, poverty, pollution, mental illness, and crimes -exists everywhere
S. Prakash Sethi 1975
described 3 corporate behaviors: 1. Social obligation 2. Social Responsibility 3. Social Responsiveness
Bailout Package
did not cost the taxpayer the full $700 billion, Treasury disbursed $441.8 billion from the Troubled Asset Relief Program (TARP) 2008 -gave money by purchasing co stock -made $900 million in profit (Obama) did not expect to recover bailout money
Carroll CSR Pyramid
different layers in the pyramid help managers see the different types of obligations that society expects of businesses corporate social responsibility involves the conduct of a business so that it is economically profitable, law abiding, ethical and socially supportive -economic responsibility -legal responsibility -ethical responsibility -philanthropic/discretionary responsibility
Capitalism
economic system in which wealth, and the means of producing wealth, are privately owned and controlled rather than commonly, publicly, or state-owned and controlled
Social Movements 1960s
emerged in the realms of civil rights, women's rights, and consumer's rights and a desire for environmental protection -workers, consumers, and citizens heightened expectations for their rights significantly shaped the idea that businesses had the responsibilities not only to stockholders, but also to them (other shareholders)
Intermediate Circle
encompasses responsibility to exercise this economic function w/ a sensitive awareness of changing social values and priorities
Restaurants & Food Waste Reduction
for every $1 invested in programs to reduce kitchen food waste, restaurants on average saved $7 in operating costs
5 Dimensions of CSR
environmental, social, economic, stakeholder, and voluntariness (actions not prescribed by law)
Derivatives
financial instrument whose value is derived from the value of another asset, known as the underlying -when the price of the underlying changes, the value of the derivative also changes -not a product, it is a contract that derives its value from changes in the price of the underlying -ex. the value of the CDS (Credit Default Swap) (derivative) is derived from the value of the underlying asset of the CDOs
Paul Samuelson
first American to win the Nobel Peace Prize in Economic Sciences in 1970 -large corp these days not only may engage in social responsibility, it had damn well better try to do so -define CSR- refers to the firm's consideration of and response to issues beyond the narrow economic, technical, and legal requirements of the firm
Business for Social Responsibility (BSR) 1992
global non-profit org works w/ its network of more than 250 member co's and other partners to build a just and sustainable world -develop sustainable buss opportunities through counseling, research, and cross-sector collaboration
Environmental Mgmt System
helps orgs identify, manage, monitor, and control their environmental issues in a "holistic" manner
Social Responsibility
implies bringing corporate behavior up to a level where it is congruent w/ the prevailing social norms, values, and expectations of performance
E. Merrick Dodd 1932
in addition to economic responsibilities owed to shareholders, have social responsibility to society because shareholders have limited liability -maximum loss to shareholders is their investment -corp existence is for society
Driving forces of CSR
increasing affluence sustainability globalization communication brands (reputation)
Lenders sell more subprime mortgages because
investment banks pooled mortgages together into a financial security called CDOs
ESG Investing
investors apply these ESG non-financial factors as part of their analysis process to identify material risks and growth opportunities -SASB and GRI work to form standards to facilitate incorporation of these factors into the investment process
Social Responsiveness
is regarded as the adaptation of corporate behavior to social needs which is anticipatory and preventative
Government
lag behind the need for action because -can't anticipate many issues -legislation process takes time -general consensus is slow to form -significant influence by powerful corporations gap between legal sanction and societal expectations (needs)
Silent Spring
landmark book by Rachel Carson 1962 -marked birth of the modern environmental movement -DDT eventually banned domestically in 1972 and 1975 each of the dangerous chemicals identified In the book had been banned or restricted -1970 Environmental Protection Agency (EPA) was established -created widespread public support of co actions regulated with the environment -public awareness or education may be the most important achievement
Pre Modern Era Industrial Revolution
led to creating greater power for a few large firms which began to dominate the economy and many of these had the power of governments -almost limitless power, the large firms became badly corrupt and led to collapse of economic system
Mortgage Lenders founded 1969
make money through interest income -market became less saturated, no people getting loans
Heavy defaults on subprime mortgages occurred
much of CDOs became defaulted as well
UN Global Impact
non-binding UN pact to encourage businesses worldwide to -adopt sustainable and socially responsible policies -report on their implementation -10 principles in human rights, labor, environment, and anti-corruption
SR Definition Bowen
obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society
Future of CSR
optimistic perspective, skeptical perspective
Outer Circle
outlines newly emerging and still amorphous responsibilities that business should assume to become more broadly involved in actively improving the social environment
Richest 1%
owns more of the country's wealth than at any time in the past 50 years
Food Recovery Hierarchy
prioritizes actions organizations can take to prevent and divert wasted food -each tier focuses on different mgmt strategies for your wasted food -top levels of the hierarchy are the best ways to prevent and divert wasted food because they create the most benefits for the environment, society, and the economy, strive to avoid bottom level
Plutonomy
refers to an economy that exhibits massive income and wealth inequality -spending and consumption activity of an extremely wealthy minority have an outsize impact on the economy -driven by or that disproportionately benfits wealthy people
Dodd-Frank Wall Street Reform Act
regulates the financial markets and protects consumers -8 components help prevent a repeat of the 2008 financial crisis
Political Instability
rich people and a few large corporations can heavily influence the governmental decisions
Adolf A. Berle Debate
the corps purpose is to advance the purposes of these owners (to increase their wealth) and the function of its directors to faithfully advance the financial interests of the owners
Why corporations responsible?
shareholders bear limited liability- max loss to shareholders is their investment -purpose of corps existence is to provide benefits to the society
"Global Corporate Citizenship"- Leadership Challenge for CEOs and Boards
signed during the World Economic Forum in NY in Jan 2002 by CEOs from 34 of the worlds biggest multinational corporations
Marxist Theory
socialism is a stage following capitalism in the transition of a society to communism
China Economy
socialist market economy -based on the predominance of public ownership and state-owned enterprises w/ a market economy
Greenhouse Effect
some sunlight that hits the earth is reflected, some becomes heat, CO2 and other gases in the atmosphere trap heat keeping the entire earth warm
Constituencies
stakeholders, employees, customers, or shareholders, but also other people/things w/ no direct transactional relationship to the co
Sustainability & Triple Ps
sustainability is a part of CSR due to the "planet"
2008 Financial Crisis
the most serious financial crisis since the Great Depression of 1929 -effected everyone -revealed many issues about everyone including business, financial market, government, academia and public
Ethical Perspective
the relationship between business and society is imbedded w/ ethical values, firms must accept responsibility as an ethical obligation because it is the right thing to do
EU Commission defines CSR
the responsibility of enterprises for their impact on society and, therefore, it should be company led. Companies can become socially responsible by: 1. integrating social, environmental, ethical, consumer, and human rights concerns into their business strategy and operations; 2. following the law -aim of maximizing the creation of shared value for their owners/shareholder and their other stakeholders and society at large
Citigroup Plutonomy Report
top 1% households account for 33% of net worth, greater than the bottom 90% of households out together -Citi warns focusing on the top 1% masks the fact that their share of the pie is almost entirely driven by the fortunes of the top 0.1% -Citi praises the lower taxes and changes in senior executive compensation that have driven tremendous increase in the share of the pie taken by these 100,000 households
US Capitalism?
welfare and public education are a form of socialism
Socialism
workers can earn wages and they can spend as they choose, government, not citizens, own and operates the means for production -workers receive what they need to produce and survive -no incentive to achieve more
