This work is licensed under a Creative Commons Attribution 3.0 Unported License (CC-BY). Mastering Strategic Management Chapter 10.1 & 10.2: Leading an Ethical Organization: Corporate Governance, Corporate Ethics, and Social Mastering Strategic Management Chapter 10.1 & 10.2 Leading an Ethical Organization: Corporate Governance, Corporate Ethics, and Social Responsibility
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Mastering Strategic ManagementChapter 10.1 & 10.2: Leading an Ethical Organization:
Corporate Governance, Corporate Ethics, and Social Responsibility
Mastering Strategic Management
Chapter 10.1 & 10.2Leading an Ethical Organization:
Corporate Governance, Corporate Ethics, and Social Responsibility
This work is licensed under aCreative Commons Attribution 3.0 Unported License (CC-BY).
Mastering Strategic ManagementChapter 10.1 & 10.2: Leading an Ethical Organization:
Corporate Governance, Corporate Ethics, and Social Responsibility
Corporate governance: The processes, policies, & laws that govern an organization, establishing accountability & reducing conflicts of interest associated with principle-agent issues
Board of directors: A group of individuals, either elected or appointed, that oversees the activities of an organization or corporation
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Mastering Strategic ManagementChapter 10.1 & 10.2: Leading an Ethical Organization:
Corporate Governance, Corporate Ethics, and Social Responsibility
• Under Canadian & Provincial laws, Boards have certain legal responsibilities
• Taxation (CRA) • Employment Laws• Hold AGMs• Represent stakeholders• Act in best interests of the Corporation
• Boards will typically:• Hire (& fire) the CEO, set overall org structure• Approve annual Budget, & hire auditors• Contribute to setting overall strategic direction• Approve high level policies & procedures
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Mastering Strategic ManagementChapter 10.1 & 10.2: Leading an Ethical Organization:
Corporate Governance, Corporate Ethics, and Social Responsibility
CEO Pay
• Board of Dir sets CEO pay, generally includes:• Guaranteed salary• Cash bonus• Stock options• Perks
• Corp. must pay competitive wages for scarce talent required to manage $B corp, competitive environment…
• Boards face increasing scrutiny from investors / AGMs when CEO pay out of line with industry norms, & when bonuses paid when losing money / performing poorly
• CEO salary not well correlated with firm success, but highly correlated with firm size...
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Mastering Strategic ManagementChapter 10.1 & 10.2: Leading an Ethical Organization:
Corporate Governance, Corporate Ethics, and Social Responsibility
Key Takeaways
• Firms benefit from strong corporate governance including an active board that monitors CEO actions, provides strategic advice, and helps to network to other useful resources
• When such mechanisms are absent, CEO excess may go unchecked, resulting in negative publicity, poor firm performance, and even potential takeover by other firms
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Mastering Strategic ManagementChapter 10.1 & 10.2: Leading an Ethical Organization:
Corporate Governance, Corporate Ethics, and Social Responsibility
Stages of Moral Development(Level 3 & 4)
Conventional level
• moral reasoning - morality is judged by comparing individuals’ actions with the expectations of society.
• In stage 3, individuals are conformity driven and act with the goal of fulfilling social roles. Parents that encourage their children to be good boys and girls use this form of moral guidance.
• In stage 4, the importance of obeying laws, social conventions, or other forms of authority to aid in maintaining a functional society is encouraged
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Mastering Strategic ManagementChapter 10.1 & 10.2: Leading an Ethical Organization:
Corporate Governance, Corporate Ethics, and Social Responsibility
Stages of Moral Development (Level 5 & 6)
Post-conventional level, or principled level, occurs when morality is more than simply following social rules or norms
• Stage 5 considers different values and opinions. • Thus, laws are viewed as social contracts that promote the greatest
good for the greatest number of people
• In stage 6, moral reasoning is based on universal ethical principles.
• For example, the golden rule illustrates one such ethical principle. At this stage, laws are grounded in the idea of right and wrong. Thus individuals follow laws because they are just and not because they will be punished if caught or shunned by society.
• Consequently, with this stage there is an idea of civil disobedience that individuals have a duty to disobey unjust laws.
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Mastering Strategic ManagementChapter 10.1 & 10.2: Leading an Ethical Organization:
Corporate Governance, Corporate Ethics, and Social Responsibility
Corporate Scandals
In 90s and early 2000s, a number of corporate scandals in Canada & USA revealed a lack of board vigilance
In Canada, Nortal was the worse, and arguably the most famous involves Enron who used accounting loopholes to hide billions of dollars in failed deals. Before their scandal was discovered, top management cashed out millions of stocks, but many ended up in prison…
In response to these scandals at Canada passed X and USA passed Sarbanes-Oxley Act to tighten the financial standards for the boards of public and accounting firms
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Mastering Strategic ManagementChapter 10.1 & 10.2: Leading an Ethical Organization:
Corporate Governance, Corporate Ethics, and Social Responsibility
Corporate Ethics & Social Responsibility - Canada• In 2002, Canadian securities regulators pressured to
adopt similar reforms as USA to maintain investor confidence in the Canadian regulatory system & protect integrity of Canadian capital markets
• However, lower sense of urgency in Canada since, at the time, Canada had yet to experience corporate fraud on the same scale as in the United States.
• Canadian regulators did seize opportunity (of Sarbanes-Oxley) to introduce desired & long-delayed corporate and securities law reform in 2003
• Many changes introduced in Canada Securities Act & Not-for-Profit Corporations Act and (Omnibus) Bill 198
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Mastering Strategic ManagementChapter 10.1 & 10.2: Leading an Ethical Organization:
Corporate Governance, Corporate Ethics, and Social Responsibility
Corporate Social Performance (CSP)• Social entrepreneurship: Entrepreneurial actions
where both economic and social value creation occur
• Corporate social performance (CSP): The degree to which a firm's actions honor ethical values that respect individuals, communities, and the natural environment
• Kinder, Lydenberg and Domini & Co. (KLD), a Boston-based firm that rates firms on a number of stakeholder-related issues with the goal of measuring CSP
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Mastering Strategic ManagementChapter 10.1 & 10.2: Leading an Ethical Organization:
Corporate Governance, Corporate Ethics, and Social Responsibility
Corporate SP - Metrics
• Assessing the community dimension of CSP is accomplished by assessing community strengths such as charitable or innovative giving that supports housing, education, or relations with indigenous peoples, as well as charitable efforts worldwide such as volunteer efforts or in-kind giving.
• CSP diversity strengths are scored positively when the company is known for promoting women and minorities, especially for board membership and the CEO position. Employment of the disabled and the presence of family benefits such as child or elder care would also result in a positive score by KLD.
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Mastering Strategic ManagementChapter 10.1 & 10.2: Leading an Ethical Organization:
Corporate Governance, Corporate Ethics, and Social Responsibility
Corporate SP – Metrics (con’t)
• The employee relations dimension of CSP gauges potential strengths such as notable union relations, profit-sharing and employee stock-option plans, favorable retirement benefits, and positive health and safety programs
• The environmental dimension records strengths by examining engagement in recycling, pollution prevention, or the use of alternative energies. KLD would also score a firm positively if profits derived from environmental products or services were a part of the company’s business.
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Mastering Strategic ManagementChapter 10.1 & 10.2: Leading an Ethical Organization:
Corporate Governance, Corporate Ethics, and Social Responsibility
Key Takeaways
Generational differences provide powerful influences on the mind-set of employees that should be carefully considered to effectively manage a diverse workforce.