Governance Ethics Social Responsibility

8/11/2019 Governance Ethics Social Responsibility

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Dr. Mohammad Hamsal 1

Stakeholder Relationships,Stakeholder Relationships,Social Responsibility, CorporateSocial Responsibility, Corporate

Governance & EthicsGovernance & Ethics

Dr. Mohammad Hamsal


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Agency Relationship

Source: Ireland, Hoskisson & Hitt (2011). The Management of Strategy. 9e


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Relationships & Business Building relationships is one of

most important areas in business

today Can be associated with

organizational success andmisconduct

Stakeholder framework

Helps identify internal andexternal stakeholders

Helps monitor and respond toneeds, values, andexpectations of stakeholdergroups

Source: Stockbyte


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What Is a Stakeholder? Stakeholders are those who have a stake or claim in

some aspect of a companys products, operations,markets, industry, and outcomes Customers Investors

Employees Suppliers Government agencies Communities

Stakeholders can influence and are influenced by

businesses



Primary vs. Secondary Stakeholders

Primary stakeholders : Those whose continuedassociation is necessary for a firms survival Employees, customers, investors, governments

and communities Secondary stakeholders: Are not essential to a

companys survival Media, trade associations, and special interest

groups



The Stakeholder Interaction Model



Stakeholder Orientation The degree to which a firm understands and

addresses stakeholder demands Three activities: Generation of data about

stakeholder groups

Distribution of the informationthroughout the firm

Organizations responsivenessto this intelligence

Source: Digital Vision



Social Responsibility Is an organizations obligation to maximize its positive

impact on stakeholders and minimize its negativeimpact

Four levels of social responsibility: Economic

Legal Ethical Philanthropic

Source: Nancy Ney


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Social Responsibility & the Importanceof Stakeholder Orientation

From a social responsibility perspective , businessethics embodies standards, norms, and expectationsthat reflect concerns of major stakeholders

Social responsibility is associated with: Increased profits Increased employee commitment

Greater customer loyalty


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Corporate Responsibility Crisis... Opinion polls now place business people in

lower esteem than politicians.-Jennifer Merritt (2002) For MBAs, Soul Searching 101,Business Week, Sept. 16, p. 64.

A W.S.J./NBC poll found that 57% of generalpublic believed that standards & values ofcorporate leaders & executives had droppedin the last 20 years.-Eric Hellweg (2002) www.business2.0.com, Sept. 10


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An ABC News/Washington Post surveyindicated 63% of the public felt thatregulation of corporations is necessaryto protect the public.

Seventy-five percent of those surveyed

by ABC, expressed limited confidencein large corporations.-Gary Langer (2002) Confidence in Business: Was Low and Still Is,

www.abcnews.com, Sept. 10.


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Corporate Confidence Crisis

Bernard Ebbers-Worldcom; Kenneth Lay-Enron financial reporting, personal loans, general oversight

Dennis Koslowski-Tyco; Andrew Fastow-Enron;John Rigas-Adelphia conflicts of interest, financial fraud & improper loans

Jack Grubman-Salomon Smith Barney provided IPOs to Ebbers & other CEOs based on investment

banking relationship Henry Blodgett-Merrill Lynch

urged small investors to put money in stocks that he

privately down rated


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Corporate Reform ...

The 2002 Sarbanes-Oxley Act was themost sweeping change in corporategovernance and the regulation of

accounting practices since theSecurities and Exchange Act of 1934. Supported by Republicans & Democrats Provides oversight to restore stakeholder

confidence

Requires business ethics infrastructure


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Sarbanes Oxley Reform Independent Accounting Oversight Board

CEOs and CFOs certify financial statements Board Audit Committee to consist of independent

members (no material interests)

No consulting & auditing by the same firm No loans to officers & board members Code of ethics for senior financial officers

register with the SEC

Whistle-blower protection 10 year penalty for mail/wire fraud Analysts certify objective reports


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Sarbanes Oxley Reform Company attorney must report fraud to top

management & if necessary to the board of directors if nothing is done, attorney must withdraw from

representation

Mutual fund managers must disclose howshareholder proxies are voted-providing investorsinformation about how their shares influencedecisions


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Best & Worst Companies for SocialResponsibility


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Social Responsibility & Ethics

Social responsibility can be viewed as a contractwith society

Business ethics involves carefully thought-outrules (heuristics) of conduct that guide decisionmaking


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Criteria for Evaluating Corporate SocialPerformance

Source: Schermerhorn, John R. Management, 8e


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The Steps of Social Responsibility


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Corporate Citizenship The extent to which businesses strategically meet

their economic, legal, ethical, and philanthropicresponsibilities

Four interrelated dimensions: Strong sustained economic performance Rigorous compliance Ethical actions beyond what is required by the law

Voluntary contributions that advance reputationand stakeholder commitment


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Strategies of Corporate SocialResponsibility



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Reputation

Reputation is one of an organizationsgreatest intangible assets with tangible value Difficult to quantify,

but very important

Source: Digital Vision


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The Worlds Most Ethical Companies


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Corporate GovernanceFormal systems of accountability, oversight, and control

Accountability Refers to how closely workplace decisions arealigned with a firms stated strategic direction

Oversight Provides a system of checks and balances that

limits employees and minimizes opportunities formisconduct

Control The process of auditing and improving

organizational decisions and actions


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Common Corporate GovernanceIssues


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Corporate Governance Models

Shareholder model Founded in classic economic precepts The maximization of wealth for investors and

owners

Stakeholder model A broader view of the purpose of business Includes satisfying concerns of a variety of

stakeholders


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Corporate Governance Best Practices Support to split roles of CEO and Chairman

Chubb Corp. (& others) named a board member as non-executive chairman

Outside directors meet alone as often as necessary

Independent internal ombudsman to encourageinternal reporting of misconduct often called ethics officer

Formation of an internal audit function of everypublic company

Support for codes of ethics to improve shareholderrelations & auditing practice


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Boards of Directors Hold final responsibility for their firms

success, failure, and ethicality of actions Increased demands for accountability/

transparency Trend toward outside directors chosen for

expertise, competence, and strategic decisionmaking

Executive compensation a large and growingconcern


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Executive Compensation

Many boards spend more time discussingcompensation than ensuring integrity offinancial reporting systems

How closely linked is executive compensation tocompany performance? Does performance-linked compensation

encourage executives to focus on short-termperformance at the expense of long-term growth?


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Predicted Trend in CorporateGovernance

Board responsibility for developing companypurpose statements that cover stakeholderinterests

Annual reports will include more non-financialinformation

Boards will be required to self-assess

Board member selection processes willbecome increasingly formalized Boards will need to work more as teams

Board membership will require more time


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The Reactive-Accommodative-Proactive Scale

Rating Strategy Performance

Reactive DenyResponsibility

Doing less thanrequired

Defensive Admitresponsibility, butfight it

Doing the leastthat is required

Accommodative Accept

responsibility

Doing what is

requiredProactive Anticipate

ResponsibilityDoing more than isrequired


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Implementing a StakeholderPerspective

1. Assessing the corporate culture2. Identifying stakeholder groups3. Identifying stakeholder issues

4. Assessing organizational commitment tosocial responsibility5. Identifying resources and determining

urgency6. Gaining stakeholder feedback


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How does Ethical Decision MakingOccur in Organizations?

#1 influencer of ethical/unethical behavior is

the influence of top management & thecorporate culture

Business ethics in an organization relates to acorporate culture of values, programs,enforcement & leadership

Stakeholders must support organizationalethics initiatives-its good business stop focusing on the short term!!!


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Recommendations for BusinessLeaders ...

Take responsibility for educatingyour managers about corporateresponsibility & business ethics

Top management needs to makesure there are visible & supportedprograms do not rely upon individual ethics & the

character of employees alone


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Ethics Code of moral principles.

Set standards of good and bad asopposed to right and wrong.

Ethical behavior What is accepted as good and right in the

context of the governing moral code.

What is Ethical Behavior?


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Factors Influencing Ethical Behavior



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Business Ethics Initiatives Have BeenTied to ...

Greater efficiency in daily operations Greater employee commitment Improved financial performance Higher product quality Improved decision making Increased customer loyalty Improved reputation


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Trust in Corporate Citizenship

Trust is the glue that holdsorganizational relationships together

Stephen Covey contends, low trustresults in organizational decay &relationship deterioration

political problems & inefficiency Most workers feel they can be trusted

more than they can trust others


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Employees & Trust

All organizational members shouldshare a sense of trust

Trust should exist between departmentswithin a firm

Ethics Resource Center study shows

that 93% of employees who say trust isfrequently evident in their organizationreport satisfaction with their employer


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Companies Convicted of Misconduct ...

Provide significantly lower returns onassets & lower returns on sales thanfirms that have not been convicted

Organizational misconduct can result in: loss of reputation

supplier concerns investor concerns greater government scrutiny


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Centrality of Ethics & Social Responsibility


Governance Ethics Social Responsibility

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