Business & Society Exam 1

Arguments FOR CSR

-Enlightened self-interest: Businesses must take actions to ensure long-term viability. -Warding off government regulations. This is one of the most practical reasons. -Resources Available: Business has the resources and expertise. Let it try. -Proaction is better than Reaction. Proaction is also less costly. -Public supports: the public strongly supports CSR.

Special interest groups

**Make life more complex for business and government ** can number in the tens and thousands in some societies ** pursue own focused agendas ** are active,intense, diverse and focused

Other Views of CSR

*Sethi's Three-Stage Schema Social obligation, social responsibility, and social responsiveness; anticipatory, preventive *Frederick's CSR1, CSR2, and CSR3 CSR1 is accountability-focused. CSR2 is responsibility-focused. CSR3 refers to corporate social rectitude. *Epstein's Process View Emphasizes the process of social responsiveness.

Technological segment

Changes in technological advancements taking place in society

Emerging Issue

Characteristics of an emerging issue - The terms of the debate are not clearly defined. The issue deals with matters of conflicting values and interest. The issue does not lend itself to automatic resolution by expert knowledge. Issue is often stated in value-laden terms. Trade-offs are inherent.

Ethical questions

Permeate business's activities as it attempts to interact with major stockholder groups

Stakeholder

-Any individual or group who can affect or is affected by the actions, decisions, policies, practices, or goals of the organization. -Stakeholder is a variant of the concept of stockholder- an investor/owner of businesses.

Three Views of a Firm

Production View, Managerial View, Stakeholder View

The Corporate Affairs functions today

Public Affairs grew in the U.S. because of: -The growing magnitude and impact of government. -The changing nature of the political system. -The recognition by business that it was being outflanked by interests counter to its own. -The need to be more active in politics outside traditional community-related aspects.

Excessive CEO Pay

Ratio of CEO pay to that of average worker - 1980, 42-1 2000, 531-1 2011, 380 to 1 Say on Pay Evolved from concerns over excessive executive compensation. Clawback provisions Compensation recovery mechanisms that enable a company to recoup CEO pay, typically in the event of a financial restatement or executive's misbehavior.

Urgent Vs enduring issues

Short term- issues or crises arise on the spur of the moment and management must formulate quick responses Long term-issues or problems are long-term concern and management must develop a thoughtful organizational response

CEO Pay-Firm Performance Relationship

Stock Options - Allows the recipient to purchase stock in the future at the price it is today. Backdating - Allows the recipient to purchase stock at yesterday's price, resulting in immediate wealth increase. Spring-Loading - Granting of a stock option at today's price, but with the inside knowledge that stock's value is improving. Bullet Dodging - Delaying of a stock option grant until right after bad news.

Business Stakeholder Groups

Stockholders Employees Community Customers Competitors Suppliers Special Interest Groups

Macroenvironment

The total environment outside the firm, the comprehensive societal context in which the organization resides.

Issue Management IM Approach 2:

2. Strategic Management Approach - -Broadly inclusive. -IM is typically the responsibility of senior line management or strategic management staff. -Issues identification is more important than it is in the conventional approach. -Issues management is seen as an approach to the anticipation and management of external and internal challenges to the company's strategies, plans, and assumptions.

Improving Corporate Governance 2

Changes in boards of directors - -More Board diversity -A greater ratio of outside board members to inside board members -Use of board committees to: -Ensure that financials are not misleading -Ensure that internal controls are adequate -Follow-up allegations of irregularities -Ratify the selection of an external auditor

Evaluation, Monitoring, Control

Companies should continually evaluate the results of their responses to issues. Ensure that actions are kept on track. Includes careful monitoring of stakeholder opinions. A form of stakeholder audit (similar to a social audit) can be used. Information from this stage helps firms to make adjustments to the process as needed.

Importance of Core Values

Core Values - -Are the deeply ingrained principles that guide all of a company's actions and decisions. -Serve as cultural cornerstones. -Having a set of core values that are not followed will do no good. -To be effective, firms need to weave core values into everything they do. -If a firm's core values are not upheld, they become hollow, and do more harm than good.

Sustainability embraces

Criteria which are: environmental, economic, social

Relationships between issue, risk, and crisis management 1

Differentiating between these 3 is difficult. Many product managers cannot differentiate between "risks" and "issues," which has led them to be labeled the Siamese twins of public relations. The Issue Management Council definitions: Issue - a gap between a firm's actions and stakeholder expectations Risk - a potential issue that may or may not occur Crisis - an issue that has escalated to a critical state

CSR Equation ; Total CSR =

Economic Responsibilities + Legal Responsibilities + Ethical Responsibilities + Philanthropic Responsibilities

Ethics

Refers to issues of right, wrong, fairness , and justice

Board Member Liability

The Business Judgment Rule protects board members if: ---they act in good faith, ---making informed decisions --that reflect the company's best interests, and not their own interests. --Good Faith is central to the defense --The argument in favor of the Business Judgment Rule is that Board members need to be free to take risks without fear of liability.

Corporate Social Responsibility As a Concept

Early Definitions - CSR means seriously considering the impact of a company's actions on society. CSR requires the individual to consider his or her acts in terms of a whole social system, and holds him or her responsible for the effects of his or her acts anywhere in that system. These definitions provide useful insights into the concept of Corporate Social Responsibility.

Identification of Issues (2 of 2)

Five Leading forces as predictors of social change: Events Authorities or advocates Literature Organizations Political jurisdictions If these five forces are monitored closely, impending social change can be identified, and sometimes predicted.

Business ethics

Focuses on ethical issues that arise in the commercial realm

Formulation and Implementation of Response

Formulation - The response design process. Implementation - The action design process. Clarity of the plan Resources needed to implement the plan Top management support Organizational structure Technical competence Timing

Pluralistic society

*creates a widely diversified set of loyalties to many organizations, and minimizes the danger that a leader of any one organization will be left u controlled ,** provides a built-in set of checks and balances ,in that groups can exert power over one another with no single organization (business or government) dominating and becoming overly influential

Investor Relations

-A majority of corporate boards now communicate with their major investors -Public corporations have obligations to current and potential shareholders, including Full disclosure (Transparency), and the duty to provide information that might affect investment decisions. -Management is also responsible for communicating with shareholders. -CEO Warren Buffet calls his annual shareholder meeting a "Woodstock weekend for capitalists."

Stakeholder Engagement

-An approach by which companies successfully implement the transactional level of strategic management capability. -Interaction with stakeholders must be integrated into every level of decision-making in the organization. -A ladder of stakeholder engagement depicts a continuum from low engagement to high engagement. -Transparency: working toward the open corporation. -Sustainability is the latest emphasis on engaging stakeholders.

Arguments against CSR

-Classical Economics: The classical economic view is that business' only goal is the maximize profits for owners. -Business Not Equipped: Business is not equipped to handle social activities. -Dilutes Business Purpose: It dilutes the primary purpose of business. -Too Much Power Already: Businesses have too much power already . -Global Competitiveness: It limits the ability to compete in a global marketplace.

Corporate Social Responsiveness

-Corporate Social Responsiveness - An action-oriented variant of CSR. -Responsibility - Implies a state or condition of having assumed an obligation. -Responsiveness - Connotes a dynamic, action-oriented condition.

Relationship of Ethics to Strategic Management

-For business ethics to have any meaning beyond pompous moralizing, it should be linked to corporate strategy. -Corporate strategy can be revitalized because the linkage permits addressing management issues in ethical terms. -This linkage can be better understood when we think about the: -Four key strategy levels (decisions are made at several levels) -Steps in the strategic management process

Strategic Management Process

-Goal formulation -Strategy formulation -Strategy evaluation -Strategy implementation -Strategic control -Environmental analysis

Activities/Characteristics of Socially Responsible Companies

-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.

Public Affairs Activities and Functions

-Public Affairs (PA) began from isolated company initiatives designed to handle diverse activities, but was sometimes managed by Public Relations staffers, but they are not the same. -Public relations focuses on selling a product, while public affairs is designed to influence public policy. -PA activities may include lobbying, global public affairs, social media, corporate responsibility, campaign finance, grassroots advocacy, crisis communication, and more.

Corporate Governance

-Refers to the method by which a firm is being governed, directed, administered, or controlled, and to the goals for which it is being governed. -Is concerned with the relative roles, rights, and accountability of such stakeholder groups as owners, boards of directors, managers, employees, and other stakeholders.

Identification of Issues (1 of 2)

-Scan the environment -Identify emerging issues and trends

The Corporation's Hierarchy of Authority

-State Charter -Shareholders -Board of Directors -Management -Employees

Alternative Model of Corporate Governance

-The Anglo-American model of corporate governance is one of shareholder primacy -A emerging perspective is a director-primacy model of corporate governance -A director-primacy model is based on the concept of a corporation that is not owned, but is an independent legal entity that owns itself. -Boards are mediating hierarchs, responsible for balancing competing interests of stakeholders -Boards have a duty to shareholders, but boards are the ultimate decision-makers, whose duty is to the corporation

The Role of Shareholders

-The Shareholder Democracy Movement rises from the fact that although they are owners, shareholders may find that their votes are not counted. They seek: -A Majority Vote The requirement that board members be elected by a majority of votes cast, rather than by a plurality. -Banning Classified or Staggered Boards Electing members in staggered terms means that it might take 3 or more years to replace a board. -Proxy Access Would provide shareholders with the opportunity to propose nominees for the board of directors.

Four Stakeholder Types

-The Supportive Stakeholder High potential for cooperation, low for threat -The Marginal Stakeholder Low potential for cooperation and threat -The Nonsupportive Stakeholder High potential for threat, low for cooperation -The Mixed-Blessing Stakeholder High on potential for threat & cooperation

Social Entrepreneurship

-The social entrepreneurship has as its reason for being a mission of societal value creation. -The creation of wealth is a means to achieve the goal of creating societal value. -Social entrepreneurship's central focus is the alleviation of poverty, but it may address a range of societal goals, including education, the environment, and the arts. -The bottom-of-the-pyramid (BOP) is term used to characterize the largest and poorest socio-economic group of people, those who live on less than $2/day.

Reasons for Upsurge in Socially Responsible Investing

-Total dollars invested in SRI has grown exponentially over past twenty years. -Council on Economic Priorities suggests 3 reasons: -More reliable research on CSP -Investment firms using social criteria have solid track record -The socially conscious 1960s generation is making investment decisions

The Benefit Corporation

-Unlike the traditional corporation, the Benefit Corporation has a broader mission that includes having a positive impact on society. -The societal mission does not take a backseat to shareholder wealth maximization. -The Benefit Corporation offers managers, investors and customers the opportunity to participate in or patronize businesses that promise to make social responsibility an important goal. -12 states now have laws permitting companies to incorporate as Benefit Corporations.

Issue Management IM Approach 1:

1. Conventional Approach - -Narrowly focused. -Issues fall within the domain of public policy or public affairs management. -Issues have a public policy or public affairs orientation. -An issue is any trend, event, controversy, or public development that might affect the corporation. -Issues originate in social, political, regulatory, or judicial environments.

Strategic Corporate Social Responsibility

CSR & Competitive Advantage - -3 ways corporations intersect with society: -Generic social issues (firm's operations do not affect society and issue is not material to firm's long-term competitiveness) -Value chain social impacts (a firm's normal operations significantly affect society) -Social dimensions of competitive context (social issues affect the underlying drivers of a firm's competitiveness) -These categories divide into 2 modes of corporate involvement:

Factors in the social environment

Affluence and education (create higher expectations of major constitutions, growing public awareness through tv, movies, Internet) and the Revolution of rising expectations (creates social problem - gap between societal expectations for social conditions and social realities) leads to entitlement mentality, rights movement, victimization philosophy

Stake

An interest or a share in an undertaking. Can be categorized as: interest a right -> legal right / moral right ownership

Four-Part definition of CSR

Corporate social responsibility encompasses the: Economic Legal Ethical, and Discretionary expectations that society has of organizations at a given point in time.

Social segment:

Demographics, lifestyles, social values

Boards Relationship with CEO

Boards are responsible for monitoring CEO performance and dismissing poorly performing CEO Formerly, CEOs were protected; no more; firings of CEOs are up significantly If CEO also serves as Chairman of the Board, this duality can offer some protection Activists have moved to separate CEO and Board functions

Triple Bottom Line Perspective

Business Must Attend to Three Key Spheres of Sustainability - -Economic -Social -Environmental The goal is corporate sustainability.

Legitimacy and Corporate Governance

Legitimacy - A condition that prevails when there is a congruence between an organization's activities and society's expectations. Legitimation - A dynamic process by which a business seeks to perpetuate its acceptance.

A typology of stakeholder attributes

Legitimacy - Refers to the perceived validity or appropriateness of the stakeholder's claim to a stake. Power - Refers to the ability or capacity of a stakeholder to produce an effect. Urgency - Refers to the degree to which the stakeholder's claim demands immediate attention or response. Proximity - The spatial distance between the organization and its stakeholders.

Managerial approach

Managers are practical, and have begun to deal with social and ethical concerns in ways similar to those they use to manage traditional business functions such as marketing, finance, operations, and risk management.

Legitimacy

Micro Level of Legitimacy -Adapt operational methods to perceived societal expectations. -Attempt to change societal expectations or norms to conform to firm's practices. -Seek to enhance its legitimacy by identifying itself with others that have a powerful legitimate base in society. Macro Level of Legitimacy -Focus is on the corporate system, the totality of business enterprises. -Business has a fragile mandate, subject to ratification. -Business exists solely because society has given it that right.

Pluralistic society

Prevents power from being concentrated in the hands of few**, maximizes freedom of expression and action, and strikes a balance between monism on the one hand, and anarchy on the other **

Political segment:

Processes for passing laws and election of officials. Interactions between firms, politics, and government

Relationships between issue, risk, and crisis management 2

Goal: To be effective, issue, risk and crisis management must close the gap between the firms' situation and its stakeholders' expectations. Many of the crises firms face today arise out of issue categories they are monitoring and prioritizing through issue management systems. Risk Management may keep issues from arising Effective issue management may enable the firm to avoid a crisis, or minimize its impact, and is vital to post-crisis management.

External stakeholders

Government, consumers, natural environment, community members

Sustainability

Has become one of businesses most pressing mandates

Issue Management in practice

Issue management covers a range of public relations and management activities. Companies that adopt issues management processes: -Develop better overall reputations -Develop better issue-specific reputations -Perform better financially The most successful firms sought close-knit ties with external and internal stakeholders, and successfully incorporated their values and interests into management decisions.

Issue Selling/Buying

Issue selling - Relates to middle managers exertingupward influence in organizations as they try to attract the attention of topmanagers. Issue buying - Top managers adopt a more open mind-set for the issues that matter to their subordinates.

Issue Development Process

Issues Development Process - The growth process or life cycle of an issue helps management recognize when an event or trend is becoming an issue. The process has five stages: Early Emerging Current Crisis Dormant

Basic Assumptionsof the Issues Management Process-

Issues can be identified earlier, more completely, and more reliably. Early anticipation: -Widens the range of options. -Permits study and understanding of the full range of issues. -Permits organization to develop a positive orientation towards the issues. The organization will have earlier identification of the stakeholders. The organization will be able to supply information to influential publics earlier and more positively, creating better understanding.

Red flags signaling board problems

Ranking of Red Flags: 1. Company has to restate earnings. 2. Poor employee morale. 3. Negative risk assessment from auditor. 4. Poor customer satisfaction track record. 5. Management misses strategic performance goals. 6. Company is target of employee lawsuits. 7. Stock price declines. 8. Quarterly financial results miss analysts' expectations. 9. Low corporate governance quotient rating.

Strategic Corporate Social Responsibility 2

Responsive CSR Addresses generic social impacts through good corporate citizenship and value chain social impacts by mitigating harm. Strategic CSR Transforms value chain social impacts into activities that benefit society while reinforcing corporate strategy. Advances strategic philanthropy that leverages competitiveness.

Managerial approach

Result is managers have been able to convert seemingly unmanageable concerns into ones that can be dealt with in a balanced and impartial fashion. ^** also managers have had to integrate traditional economic and financial considerations with ethical and social considerations

Improving Corporate Governance

Sarbanes-Oxley Act of 2002 (SOX) - Amends securities laws to protect investors in public companies Enhances public disclosure to require reporting of off-balance sheet transactions, and personal loans to executives Limits the nonauditing services an auditor can provide to a firm it audits Makes it unlawful for accounting firms to provide services where conflicts of interests exist CEOs and CFOs must certify financials, and are held responsible for financial representations

Roles of Four Major Groups

Shareholders - Own stock in the firm, giving them ultimate control (the shareholder-primacy model). Board of Directors - Govern and oversee management of the business. Managers - The individuals hired by the Board to manage the business on a daily basis. Employees - Hired to perform actual operational work

Concepts of Macroenvironment

Social/economic/political/technological

Socially Responsible, Sustainable, Ethical Investing

Socially Responsible Investing - -Emerged in the 1970s -Over $3.74 trillion in socially responsible investments in the U.S. Social Screening - A technique used to screen firms for socially-responsible investment purposes.

Steps to take for Board Repair

Steps to Take - -Spread risk oversight among multiple committees -Seek outside help in identifying potential risks -Deepen involvement in corporate strategy -Align board size and skill mix with strategy -Revamp executive compensation -Pick compensation committee members who will question the status quo -Use independent compensation consultants -Evaluate CEO on grooming potential successors -Know what matters to your investors

Corporate Public Policy and Strategic Management

Strategic management - Refers to the overall management process that strives to identify corporate purpose, and to position a firm to succeed in its market environment. Corporate public policy - Incorporates sustainability as that part of the overall strategic management of the organization that focuses on the environmental, economic, social and ethical stakeholder issues that are embedded in the decision processes of the firm.

Public Affairs Defined

The Public Affairs Council (PAC), the leading organization of executives who do the PA work of companies, defines PA as: "Public affairs represents an organization's efforts to monitor and manage its business environment. It combines government relations, communications, issues management and corporate citizenship strategies to influence public policy, build a strong reputation and find common ground with stakeholders."

The role of the SEC

The SEC Is responsible for protecting investor interests. Critics argue that the SEC is more focused on the needs of businesses than on that of investors. The SEC failed to stop the Bernard Madoff Ponzi scheme before losing investors billions, although they had been warned of the scheme a decade earlier.

Issue, Risk, and Crisis Management 1

The World Health Organization declared the China dairy industry scandal to be one of the largest food-safety crises in recent history. Nearly 300 people became sick, and several infants died due to tainted infant formula and food products. Several causes of the crisis included farmers using a lower grade of feed, distributors adding melamine to boost protein content, and dairies, and US firms distributing the tainted milk, or using its contaminated ingredients, and government cutting food inspections.

Sustainability concerns

The ability of businesses to survive and thrive over the long term

Business Power

The ability or capacity to produce an effect or to bring influence to bear on a situation or people

Business

The collection of private, commercially oriented organizations ranging in size feom one-person proprietorships to corporate agents.

Issue Management

is a process by which organizations: -identify issues in the stakeholder environment, -analyze and prioritize them in terms of their relevance -to the organization, -plan responses to the issues, and then -evaluate and monitor the results. It is helpful to think of issue management in connection with sustainable strategic management process, enterprise-level strategy, corporate public policy, and integrated reporting.

Economic segment :

Nature and direction of the economy in which businesses operates

Society

Is the Macroenvironment in which businesses operate

Business Case for CSR

6 Reasons for Embracing CSR -Innovation -Cost savings -Brand differentiation -Long-term thinking -Customer engagement -Employee engagement Business Benefits of CSR -Win new business -Increase customer retention -Develop and enhance relationships with customers, suppliers, and networks. -Attract, retain, and maintain a happy workforce and be an Employer of Choice. -Save money on energy and operating costs and manage risk. -Differentiate itself from competitors -Improve its business reputation and standing -Provide access to investment and funding opportunities -Generate positive publicity and media opportunities due to media interest in ethical business activities.

Society

A community, a nation, or a broad group of people with common traditions, values, institutions, and collective activities and interests.

Issue

A gap between what stakeholders expect and what the firm is doing. The gap typically involves debate, controversy, or differences of opinion that must be resolved. At some point, the organization must make a decision on the matter, but that does not mean the issue is resolved. Once an issue becomes public, its resolution becomes increasingly more difficult. Issues are ongoing, and require ongoing responses.

Manifestations of Enterprise-level thinking

A positive, constructive, sensitive firm response in a public crisis The use of: -Codes of ethics -Codes of conduct -Mission statements -Values statements -Corporate creeds -Vision statements -Policy-oriented codes and statements

Benefits of Corporate Citizenship

Benefits to the business: Improved employee relations (improves recruitment, retention, morale, loyalty, etc.) Improved customer relationships (increases customer loyalty; a tiebreaker) Improved business performance (positively impacts bottom-line returns, increases competitive advantage) Enhanced marketing efforts ( helps create a positive company image)

Corporate Citizenship

Embraces all the facets of corporate social responsibility, responsiveness, and performance. Corporate citizenship is not a new concept, but one whose time has come. Corporate Citizenship serves a variety of stakeholders. Broad View A reflection of shared moral and ethical principles. A vehicle for integrating individuals into the communities in which they work. A form of enlightened self-interest that balances stakeholders' claims and enhances a company's long-term value. Narrow View Corporate community relations

Internal stakeholders

Employees, those involved in corporate governance

Four Key Strategy Levels

Enterprise-level strategy - What is the role of our firm in society? For what do we stand? Corporate-level strategy - What business should we be in? Business-level strategy - How should we compete in this business or industry? Functional-level strategy - How should we integrate sub functional activities and relate them to changes in our functional areas?

Future of Corporate PA

If the PA function is to be effective, it must have influence at the top management level. Because of corporate ethical crises, PA specialists have an ideal opportunity to help transform business and society relationships. There are 3 primary opportunities: -Help develop value-based enterprises; and work cooperatively with them on social issues. -PA executives can be thought leaders in their firms, and collaborate with those outside the firm on current issues. -Be mindful of global issues, including those which begin as domestic issues and migrate.

Iron law of responsibility

In the long run, those who do not use power in a manner society considers responsible will tend to lose it

Stakeholders

Individuals or groups with which business interacts and who have vested interest in the firm

Ethical questions

Inevitably and continually come into play during business operations

Sustainability development

Is a pattern of resource use that aims to meet current needs while preserving the environment for future generations

Ranking/Prioritization of Issues

Two essential questions - 1)How likely is the issue to affect the organization? 2)How much impact will the issue have? Once these questions are answered, it is necessary to prioritize them as to their importance or relevance to the organization. Those listed at the top will receive the most attention and resources; those at the bottom may be removed from consideration.

Analysis of Issues

Who (which stakeholder) is affected by the issue? Who has an interest in the issue? Who is in a position to exert influence? Who has expressed opinions on the issue? Who ought to care about the issue? To help with issue analysis: Who started the ball rolling? (Historical view) Who is now involved? (Contemporary view) Who will get involved? (Future view)

Issue, Risk, and Crisis Management 2

With little government oversight, the consumer is forced to rely on businesses to act responsibly. But such tragedies, and the financial scandals of many corporations, continue to erode consumer trust in businesses. Major external social events not caused by business also affect businesses, and firms must prepare to deal with them. No company is immune to the threat of a crisis, but few prepare. Managerial decision-making processes should include Issue Management, Risk Management, and Crisis Management.