BADM 460

Issues Facing Investors

- Widely held versus concentration ownership -Minority versus majority shareholders -Dual-class stock (non-voting or restricted shares)

Triple-E bottom line

- reporting on economic, ethical, and environmental impacts

Ethics Programs: Evaluation and Benefits

-Business practices more beneficial to society -Alignment of corporate behaviour with values -Heightened ethical sensitivity of employees and managers -Avoidance of criminal acts -Integration of values with quality and strategic management -Recognition of stakeholder impacts -More favourable public image

Types of Codes

-Corporate or business enterprise -Professional organizations -Industry and sector -Single issue -Codes from national and international bodies

Benefits of Issues Management

-Maintain a competitive advantage over rivals -Corporate behaviour is more likely to be consistent with societal expectations -Less likely to make a serious social or ethical mistake -Detect issues earlier and develop appropriate responses much sooner

Corporate considerations:

-Meeting humanity's needs without harming future generations -Demanding accountability beyond economics -Responses to social responsibilities are a valuable intangible asset -Executives must have the skills and competencies to manage these additional responsibilities successfully

Purpose of Issues Management

-Minimize surprises relating to events or trends in society by serving as an early warning system -Prompts managers to be more systematic in coping with issues and stakeholder concerns -Mechanism for coordinating and integrating management of issues

Arguments For the Stakeholder Concept

-Simply good business -Ignoring stakeholder interests can have substantial economic consequences (e.g., employees, customers, lenders, etc.) -Provides more systematic approach to recognizing stakeholder expectations and deciding how to respond

Basic Shareholder Rights:

-Voting power on major decisions -Transfer to ownership -Entitlement to dividends -Accessibility to accurate and timely financial information

Legitimacy

Perception or assumption that actions of firm are desirable, proper, or appropriate

Arguments Against the Stakeholder Concept

Problems of categorization e.g., how to identify and prioritize stakeholders Challenges in meeting expectations e.g., tradeoffs among the stakeholders Dilution of top management focus e.g., away from financial performance Impracticality of shared governance e.g., focus still on shareholders

Individual Rights Ethic

Relies on a list of agreed-upon rights for everyone that will be upheld by everyone and that becomes the basis for deciding what is right, just, or fair. Examples: Rights to safety, information, privacy, property.

Whistleblowing: Issues

Remain silent, quit, or disclose wrongdoing? Does obligation to employer supersede obligation to self, profession, or industry? Will the whistleblower be believed? Is the whistleblower a hero or a snitch? Who should the whistleblower contact? What will the consequences be?

Ethics officers:

Reports to the board of directors or CEO Reviews complaints or information from anyone in the organization or any stakeholder Studies situation and recommends action

Reputation Management

Reputation management is an effort to enhance a corporation's image. Previous focus on media and public relations as well as crisis management. Today, focus is on relationships with all stakeholders. Reputations take a long time to be established, but can be destroyed quickly.

Stakeholder Influence Strategies

Resource dependence stakeholder is supplying a resource and can exert some form of control over it Withholding strategies stakeholder discontinues providing a resource Usage strategies stakeholder continues to supply resource but specifies how it is to be used Influence pathway when withholding and usage strategies are used by an ally of the stakeholder

Ethical Relativism

ethical answers depend on the situation and no universal standards or rules exist to guide or evaluate morality.

Code of conduct

explicitly states what appropriate behaviour is by identifying what is acceptable and unacceptable.

Board of Directors:

group of individuals elected by shareholders to govern or oversee the corporation's affairs.

Pluralistic society

influence or power is decentralized by dispersing it among a variety of institutions No one institution is completely independent of others, but each institution does possess some autonomy to pursue its own interests

Corporate governance

is the processes, structures, and relationships through which the shareholders, as represented by a board of directors, oversee the activities of the corporation.

Corporate sustainability

meeting today's needs without harming future generations

Independent director

no family members, current execs, or professional advisers.

Fiduciary duties

obligations of directors to shareholders that are prescribed by laws or regulations.

Integrity

refers to the appropriateness of a corporation's behavior and its adherence to moral guidelines acceptable to society such as honesty, fairness, and justice.

Ethics of business

rules, standards, codes or principles that provide guidance for morally appropriate behavior in managerial decision making relating to the operation of the business enterprise's and business relationship with society

Ethics of Business

rules, standards, codes, or principles that provide guidelines for determining right from wrong.

Value judgments

subjective evaluations of what is considered important. Based on how managers intuitively feel about the goodness or rightness of various goals

Corporate social responsibility (CSR)

the balance among economic, social, and environmental responsibilities

Shareholder Democracy

the exercise of power by owners to ensure they are treated fairly and enjoy equally the privileges and duties of ownership

Moral standards:

the means by which individuals judge their actions and the actions of others. Based upon accepted behaviour in society

Ethics

the sense of right and wrong.

Trends and Concerns in Corporate Giving

Charitable foundations Cause-related marketing Strategic giving

Active Shareholders

Participate in the governance of the firm to the full extent allowed by law

Four categories of stakeholders result from this analysis:

1.Problematic stakeholders - those who would oppose the organization's course of action and are relatively unimportant to the organization 2.Antagonistic stakeholders - those who would oppose or be hostile to the organization's course of action and are very important to the organization. 3.Low priority stakeholders - those who support the organization's course of action and are relatively unimportant to the organization. 4.Supporter stakeholders - those who would support the organization's course of action and are important to the organization

Statement of Values

A description of the beliefs, principles, and basic assumptions about what is desirable or worth striving for in an organization. Key components: Key stakeholder interests to be satisfied and balanced Emphasis on quality Efficiency Work climate Observance of codes

Social Enterprise

A model of business operation where some or all profits are deliberately used to further social aims. Two types: Non-profit enterprises that contribute all profits to social initiatives (i.e. Salvation Army thrift stores) For-profit enterprises that divide profits between social initiatives and shareholders (i.e. The Body Shop)

Corporate Sponsorship

A partnership which has been established for mutual benefit between a business sponsor and an event or a non-profit. Examples: sports, cultural, and educational events, literacy, race relations, drug abuse, environmental issues, etc.

Issues Management

A systemic process by which the corporation can identify, evaluate, and respond to those economic, social, and environmental issues that may impact significantly upon it.

Stakeholder Matrix Mapping

A technique of categorizing an organization's stakeholders by their influence according to two variables; usually involves plotting them on a two-by-two matrix: Y Axis: Oppose or support corporation X Axis: Importance of stakeholders

Corporate Sustainability

CS refers to activities demonstrating the inclusion of social, environmental, and economic responsibilities in business operations as they impact all stakeholders.

Laissez Faire Capitalism -

An economic system operating with absolute minimum interference by the government in the affairs of business. Government involvement is strictly limited to providing the essential services such as police and fire protection. Laissez faire stems from a French term that means "allow to do"

Capitalism

An economic system that allows for private ownership of the means of production (land, labour, and capital) and assumes that economic decision making is in the hands of individuals or enterprises who make decisions expecting to earn a profit. An early advocate of capitalism was Adam Smith, whose views are still influential.

Personal Virtues Ethic

An individual's or corporation's behaviour is based upon being a good person or corporate citizen with traits such as courage, honesty, wisdom, temperance, and generosity.

Stakeholders:

An individual, or group, who can influence and/or is influenced by the achievement of an organization's purpose

The corporation's hierarchy of authority

Article and Memorandum of Incorporation->Shareholders-> Board Directors-> Management

Common board committees:

Audit; finance; human resources; pension; compensation; nominating; governance; and strategic planning.

Responsibilities of the Board

Board's written mandate must include board's satisfaction with integrity of CEO and other executives and that they are creating a culture of integrity (Canadian Stock Exchanges) -Board must apply high ethical standards and take into account the interests of stakeholders (OECD, 2004)

Ethics: Who is Responsible?

Boards of directors? Management? Three models of moral management: Immoral (devoid of ethical principles) Amoral (without ethics, but not actively immoral) Moral (conform to high standards of ethical behaviour)

The Community Investment Concept

Community investment: The efforts of a corporation to help develop a community and create economic opportunities through a variety of means, from donations to direct involvement in commercial undertakings. Purpose: to develop CSR strategies in relation to corporate community-related issues and to link economic responsibilities with the social needs of the community.

Ethics committees:

Comprising management, employees, and outside stakeholders

Ethic of Justice

Considers that moral decisions are based on the primacy of a single value: justice. Different types of justice: Procedural justice Corrective justice Retributive justice Distributive justice

Responses to CSR

Corporate Giving, or Donations Voluntarism Programs Corporate Sponsorship Social Venture Philanthropy Social Enterprise Community Investment

Corporate and Business Citizenship

Corporate citizenship occurs when a corporation demonstrates that it takes into account its complete impact on society, environment and economy.

Key Elements of Corporate Social Responsibility (CSR)

Corporations have responsibilities beyond the production of goods and services. These responsibilities involve helping to solve social problems. Corporations have a broader constituency than just stockholders. Corporations have impacts beyond simple marketplace transactions. Corporations serve a wider range of human values than just economic values.

Arguments for/against Corporate Social Responsibility

Corrects social problems caused by business. Balances corporate power with responsibility. Requires social skills business may lack. Lowers economic efficiency and profit.

Deontological-Teleological-Virtue Ethics

D- If I follow the rules it doesn't matter the outcome T-Screw the rules it is the outcome that matters V-No control of anything, as long as you are a good person.

Main Approaches to Ethical Thinking

Deontological ethics: An approach to ethics that determines goodness or rightness from examining the acts, rather than from the consequences of the acts. Teleological ethics: An approach to ethics that focuses on outcomes, or results of actions. Virtue ethics: An approach to ethics that emphasizes the individuals character or identity, and focuses on being instead of doing.

Universal Rules Ethic

Ensures that managers or corporations have the same moral obligations in morally similar situations. Treat people as means in themselves (i.e., with respect) and never as a means to one's own ends.

The ownership of Canadian Business

Owner, also referred to as investors or shareholders- are key stakeholders as they provide a major portion of the capital to finance corporations

Triple Bottom Line

Evaluates a corporation's performance according to a summary of the economic, social, and environmental value the corporation adds or destroys. Triple-E bottom line: economic, ethical, and environmental Often forms the basis for corporate reporting of economic, ethical, and environmental responsibilities. Has also been criticized as being of limited value and misleading.

Issues Life Cycles

Five stages of awareness: none or little; increasing; prominent; peak; or Declining.

Utilitarian Ethic

Focuses on the distribution of benefits and harms to all stakeholders with the view to maximizing benefits. "The greatest good for the greatest number."

Corporate Voluntarism

Forms of support: Providing facilities, allowing time off, assisting with personal expenses incurred while undertaking voluntary activities, special recognition to employees Policies on voluntarism: Encouraging Enabling Promoting

Ethics of Caring

Gives attention to specific individuals or stakeholders harmed or disadvantaged and their particular circumstances. The advantage of this ethic is that it is responsive to immediate suffering or harm. It allows for flexibility, enabling the manager to respond quickly to changing circumstances, and precedents are not a concern Golden rule: Do unto others as you would want done to you.

Major issue on board membership:

Independence from the operations and management of the corporation

Ethics in Business: Some Challenges

Indicating 'just do the right thing' is insufficient (i.e., too open ended) It's not easy to be ethical Unethical behaviour not just due to a few bad apples People always have been (and always will be) unethical Most believe (due to implicit bias) that they behave ethically towards others

Self-Interest Ethic (Ethical Egoism)

Individuals or corporations set their own standards for judging the ethical implications of their actions; only the individual's values and standards are the basis for actions. Self-interest not necessarily the same as: selfishness, greed, disregard for the rights and interests of others, hedonism, or materialism.

Influences on Ethical Behaviour

Influences become the bases for an individual's value judgments and moral standards that determine behaviour. -Influences on Individuals -Corporate or Organizational Influence Economic Efficiency Influences Government and Legal System Influences Social Influences

Many leaders feel CSR:

Is the right thing to do Creates value for an organization Is important to the quality/ continuity of life on this planet

Society's Permission for Business

Legitimacy To be legitimate, the business enterprise system must respond to the changing values and expectations in society Attitudes (criticisms) must be monitored Social licence Must be earned and maintained—it is non-permanent because society's beliefs, perceptions, and opinions change

Why Ethical Leadership and Programs Fail

Managers are morally imperfect Self-interest Rationalization and self-delusion Threat of formal sanctions Threat of informal sanctions Tolerance to risk-taking behaviour Pressure in particular situations

Ethics Training

Managers or outside consultants Online exercises Practical checklists and tests Is it legal Benefit/cost test Categorical imperative Light of day test Do unto others Ventilation test

Ethics Audits, Managers, and Committees

Systematic effort to discover actual or potential unethical behaviour in an organization. Preventive and remedial purpose Useful in conjunction with a code of ethics Conducted by consultants

The Theoretical Bases for Ethical Conduct

The 7 most cited principles of ethical analysis are: Self-interest ethic Personal virtues ethic Ethic of caring Utilitarian ethic Universal rules ethic Individual rights ethic Ethic of justice

Corporate Philanthropy

The effort of business to contribute to society socially, manifested by donations of money or goods and services in kind, voluntarism (where corporate employees work for social causes), and sponsorship of events that contribute to society.

Social Impact Management

The field of inquiry at the intersection of business needs and wider societal concerns that reflects and respects the complex interdependency between the two. Evaluates three aspects of business: Purpose of business Social context of business Metrics: how performance is measured

Social Venture Philanthropy

The investment of human and financial resources by corporations in non-profit community development agencies to generate a social return instead of only a financial one. Also known as social venturing, the new philanthropy, and high-engagement philanthropy.

Corporate Voluntarism

The time and talent employees commit to community organizations with support and/or consent from employers who recognize the value of such efforts to society. Employee voluntarism has become more important for two reasons: the decline of the professional volunteer of the past, the homemaker who did not work outside the home; and the increasing need for volunteers to serve.

Corporate Sponsorship: Charity or Marketing?

The trend toward sponsorships has been found to be attractive for a variety of reasons: Favourable media exposure or publicity Opportunity to entertain clients Building a company/product presence Reaching select market segments Business-to-business networking

Understanding Conflicts of Interest

Three types of conflict: Real Apparent Potential

The Diagnostic Typology of Organizational Stakeholders

Type 1: Supportive stakeholder and strategy (i.e., involve) Type 2: The marginal stakeholder and strategy (i.e., monitor) Type 3: The non-supportive stakeholder and strategy (i.e., defend) Type 4: The mixed-blessing stakeholder and strategy (i.e., collaborate)

Factors influencing attitudes toward business (con't):

Unemployment Innovation The Media Government Business cycle Business wrongdoing Globalization Social Media

Criticisms of Codes

Unenforceable If enforced, penalties are insignificant Unnecessary, as most corporations already operate ethically Often idealistic Written in meaningless generalities Merely to prevent government legislation Mere response to public criticism

Corporations can increase understanding of stakeholders by asking the following:

Who are our stakeholders? What are their stakes? What opportunities and challenges are presented to our firm? What responsibilities (economic, legal, ethical, and philanthropic) does our firm have to all its stakeholders? What strategies or actions should our firm use deal with stakeholder challenges and opportunities?

Corporate citizenship

a corporation demonstrating its triple-E responsibilities

Code of ethics:

a statement of principles or values that guide behaviour by describing the general value system within which a corporation attempts to operate in a given environment

Whistleblowing

an act of voluntary disclosure of inappropriate behaviour or decisions to persons in positions of authority in an organization.

Power

ability to get firm to do something that it would not otherwise do based on force, threat, incentives, etc.

Stakeholder

any individual or group who influences or is influenced by the achievement of an organization's purpose.

Issues

arise from the relationships between business corporations and their stakeholders

Mutual Funds

can be purchased that invest in corporations considered to have a social, ethical and environmental focus or objective

Salience

degree to which priority given to competing stakeholders

Urgency

degree to which stakeholder's claim or relationship calls for immediate attention

Passive Shareholders

do not attempt to influence the affairs of the corporation even though they have a legal right to do so