Download The Strategic Position Strategic Purpose

The Strategic Position
Strategic Purpose and
CSR
EFBL
L5, 17/11/09
Prof. Jovo Ateljevic
Learning Outcomes (for today)
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Identify the components of the
governance chain of an organisation
Understand differences in governance
structures and the advantages and
disadvantages of these
Identify differences in the corporate social
responsibility stances taken by
organisations and how ethical issues
relate to strategic purpose
Prof. Jovo Ateljevic
Exhibit 4.1 Influences on
Strategic Purpose
Governance
structure
Strategic
purpose
Social
responsibility
and ethics
Stakeholder
expectations
Prof. Jovo Ateljevic
What are Stakeholders?
Stakeholders are those individuals or
groups who depend on an organisation to
fulfil their own goals and on whom, in
turn, the organisation depends.
Stakeholder : “Any individual or group
who can affect or is affected by the
actions, decision, policies, or goals of the
organization”
Under the narrowly defined version,
stakeholders appear to be those who are
instrumental, one way or another, to the
firm and its well-being.
Prof. Jovo Ateljevic
what is a stake?
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….an interest or a share in an
undertaking, or a claim. A claim is more
than an interest; it is an assertion to a
title, or to a right.
The concept of a stake, can range from a
simple interest to the extreme of a legal
claim of ownership and all the value
between
Prof. Jovo Ateljevic
Exhibit 4.7 Stakeholders of a
Large Organisation
Prof. Jovo Ateljevic
What is Corporate Governance?
Corporate governance is
concerned with the structures
and systems of control by
which managers are held
accountable to those who have
a legitimate stake in an
organisation.
Prof. Jovo Ateljevic
Corporate governance (CG)
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CG exists at a complex intersection of law, morality, and
economic efficiency.
...sometimes refers to the way that Boards oversee the running
of a company by its managers, and how Board members are
held accountable to shareowners and the company.
“Good corporate governance practices instill in companies the
essential vision, processes, and structures to make decisions
that ensure longer-term sustainability. More than ever, we need
companies that can be profitable as well as achieving
environmental, social, and economic value for society.”
Rachel Kyte | Vice President, Business Advisory Services, IFC
Prof. Jovo Ateljevic
Exhibit 4.2 The Chain of
Corporate Governance
Prof. Jovo Ateljevic
Issues highlighted
by the Governance Chain (GC)
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Conflict of interests, between different groups in
the GC and individual managers /directors
Directors responsibilities to shareholders, solely to
them or beyond, wide range of stakeholders...
Accountability to stakeholders (both the GC and
beyond) has major influence on the strategy
development(e.g. public sector organizations is
more complex and requires more time to develop
strategy)
Principal-agent approach applies within the org. –
the way in which targets, budgets and rewards are
structured
Prof. Jovo Ateljevic
Problem of Principal-agent relations
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One party (“the principal”) contracts another party
(“the agent”) to perform some action or to take
some decision.
The agent has an information advantage
 he/she knows something the principal does
not know,
 – will know something the principal does not
know,
 – he/she can take secret actions.
The principal knows that the agent has this
advantage (making it a potential handicap!).
Prof. Jovo Ateljevic
Principal-agent (examples)
owner – manager
 insurance company – insured
 creditor – debtor
 firm – salesmen
 voters – government
 investor – portfolio manager
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Prof. Jovo Ateljevic
The principal-agent problem
...arises within the firm when
ownership and control are
separated and the self-interest
of managers may lead them to
act other than in the interest of
the shareholders. The problem
is to design monitoring or
incentive systems that will
make managers act in the best
interest of the shareholders.
Prof. Jovo Ateljevic
Reasons for Imperfect Operation
of the Governance Chain
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Lack of clarity on end beneficiaries
Unequal division of power
Different levels of access to inform
Self-interest among agents
Measures and targets reflect agent selfinterests rather than those of end
beneficiaries
Prof. Jovo Ateljevic
Example – the Enron cor. Scandal
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Electricity, gas, paper and communication
company
21000 employees
80 bil Euro
2001 reported financial problems, fraud
The assets was inflated, fraudulent non-existent
4000 people lost they jobs, dissolution of Arthur
Andersen, a Big Five accounting firm
The scrutiny revealed 25bil fraud
Many other institutions/firm were involved:
banks, Law firms
2002, 16 top executives plead guilty or were
convicted and in the process of being sentenced
Prof. Jovo Ateljevic
Exhibit 4.3 Benefits and Disadvantages
of Governance
Prof. Jovo Ateljevic
What responsibilities does the firm have to
the stakeholders?
Business ethics and social responsibility
Legal vs. ethical issues
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Legal – law is enacted by govt developed
thru case procedures (common law) it’s a
rule governing the act
If person breaks a rule, it’s an illegal act
and will be punished by the legal system
Ethics is dealing with what is considered
to be right and wrong
Globalisation and the Internet open up an
increasing number of new and
unregulated activities
Prof. Jovo Ateljevic
Ethics
‘The field of ethics, also called moral philosophy,
involves systematizing, defending, and
recommending concepts of right and wrong
behaviour’ (The Internet Encyclopaedia of
Philosophy).
The field of ethics comprises:
 Metaethics: asks where do ethical principles come
from, and what do they mean?
 Normative ethics: articulates moral standards
that regulate right and wrong conduct
Applied ethics: involves examining and analysing
the ethical aspects of specific issues, e.g. medical
ethics, business ethics
Prof. Jovo Ateljevic
Normative theory
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Part of philosophical ethics that examines
standards for the rightness and wrongness of
actions
normative ethics is prescriptive rather than
descriptive yet moral facts are both descriptive
and prescriptive at the same time
It deals with set of questions when we ask
question “how should one act morally speaking?”
moral theory and apply ethics ( use of
philosophical methods to identify the morally
correct course of action in various fields of human
life including business).
Kant -one of the main contributors
Prof. Jovo Ateljevic
Kantian approach to (business) ethics
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Philosopher, deontologist (1724-1804), moral and
ethical theorists
Respect for persons -the key Kant’s Moral philosophy
principles
Kant argued that the highest good was the good will (as
an act of duty)- it is an intention behind the action
rather than its consequences that make that action good
(Bowie, N. 1999)
acts are inherently good or evil, regardless of the
consequences of the acts (deontology)
This principle applies to business ethics today
True moral = being honest is right (e.g. businessman is
not genuinely honest if he/she earns it to gain
reputation)
Prof. Jovo Ateljevic
Business Ethics and values
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Organisation values - to embed a set of ethical
values into the organisations goals and strategies
and the way it seeks to do what it does
Ethical behaviour - to provide guidance and
support to staff for making decisions and carrying
out their work in a way that is compatible with
the organisation's ethical values and standards
Corporate Culture - to consolidate and
strengthen a culture of integrity and openness so
as to facilitate a sustainable business
Reputation - to create trust among stakeholders
and to facilitate business success
Prof. Jovo Ateljevic
The main principles (in most of them
Kant’s principles apply)
1 The business firm should consider the interests of all the affected
stakeholders in any decision it makes.
2 The firm should have those affected by the firm’s rules and policies
participate in the determination of those rules and policies before they
are implemented.
3 It should not be the case that, for all decisions, the interests of one
stakeholder automatically take priority.
4 When a situation arises where it appears that the interest of one set of
stakeholders must be subordinated to the interests of another set of
stakeholders, that decision should not be made solely on the grounds
that there is a greater number of stakeholders in one group than in
another.
5 No business rule or practice can be adopted which is inconsistent with the
first two formulations of the categorical imperative.
6 Every profit-making firm has a limited, but genuine, duty of beneficence.
7 Every business firm must establish procedures designed to ensure that
relations among stakeholders are governed by rules of justice.
 A Kantian views an organization as a moral community. Each member of
the organization stands in a moral relationship to all the others.
Prof. Jovo Ateljevic
What is
Corporate Social Responsibility?
Corporate
social responsibility (CSR) is
concerned with the ways in which an
organisation exceeds its minimum obligations
to stakeholders specified through regulation.
Corporate social responsibility:
accountability for the business action that
affects people, their community and the
environment.
‘…doing more than is required by law’
(Buhmann, 2006)
encompasses the economic legal ethical and
discretionary (philanthropic) expectation that
society has of organisations at a given point
in time (Carroll, 2004)
Prof. Jovo Ateljevic
Corporate responsibility:
related concepts and issues
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It encompasses a number of subjects including:
business ethics, corporate governance, business and
the environment, and corporate citizenship
(businesses in the community), business culture
There has been an historical shift from profit
maximization to fulfilling social values
Sustainable development: a framework for
balancing social and environmental reproduction
Sustainability - to minimise the organisation's
negative impacts on and maximise its positive
contribution to the social, economic and
environmental wellbeing of wider society
Prof. Jovo Ateljevic
Corporate Social Responsibility and the recent
trends
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Social exclusion and an ageing society
Rights Movement
Health
Increasing concern for natural environment
Climate change and energy
Transport
Production and consumption (Scarcity of natural
resources)
Promotion of sustainable development globally
Business is being asked to assume broader
responsibilities to society then ever before, and to
serve a wider range of human / environmental
values
Prof. Jovo Ateljevic
New paradigms: Sustainable
development
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promotion and protection of fundamental
rights,
solidarity within and between
generations,
the guarantee of an open and democratic
society,
involvement of citizens,
involvement of businesses and social
partners,
policy coherence and governance,
policy integration,
use of best available knowledge
Prof. Jovo Ateljevic
The role of business organizations in
society
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Are companies ‘money machines’ for
shareholders?
Should companies take responsibility for
the effects of their actions beyond what
the law requires?
What they should do? (e.g. donate to
charity; build public schools, health care
facilities, infrastructure, employ
marginalized groups)
What rules corporate’ behavior: laws or
business ethics? The role of stakeholders?
Prof. Jovo Ateljevic
Global corporate jets and their power
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‘New world’ is centered around multinational corporations,
global financial markets and a highly concentrated system of
technological research and development
The number of global corporations in the world has
increased from 7.000 in 1979 to 40.000 in 1995.
These corporations and their 250.000 foreign
affiliates account for most of the world’s industrial
capacity, technological knowledge and international
financial transactions.
Global companies hold 90 percent of all technology
and product patents worldwide and are involved in
70 percent of world trade.
While the world economy is growing by 2 and 3
percent per year, the biggest global companies are,
as a group, growing at a rate of 8 and 10 percent.
Prof. Jovo Ateljevic
Karliner, J.1997, 5
Corporate behaviour – how ethical they
should be?
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According (Milton) Friedman a corporation is the
property of its stockholders
The question is should it spend the stockholders money
for purposes regarded as socially responsible?
Friedman’s answer is NO ‘corporate executives must
make as much many as possible for their
shareholders..,’
Peter Drucker arguments are in line with the above; he
believes that CSR is dangerous distortion of the
business principle ‘if you find an executive who wants
to take on social responsibilities, fire him.’
The part of the above arguments are supported by the
fact that corporate are created by law therefore
law dictates what their directors / managers can or
cannot or must do (Henry Ford example)
Prof. Jovo Ateljevic
The corporate responsibility according
to Friedman
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There is one and only one social
responsibility of business—to use its
resources and engage in activities
designed to increase its profits so
long as it stays within the rules of
the game, which is to say, engages
in open and free competition
without deception or fraud. (Milton
Friedman, 1979 p.126)
Prof. Jovo Ateljevic
The Freeman’s (Edward) view
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Law and common morality should guide
our actions in the marketplace just as
they guide our actions elsewhere.
Nevertheless, given that qualification,
which is an important one, Friedman
places primary importance on profit
maximization as the role of business.
Thus managers’ first duties and fiduciary
(intrusted) duties are to owners or
shareholders.
WERHANE, 2000, pp.170
Prof. Jovo Ateljevic
Many individuals and groups are affected
by corporate business behavior
Internal
 Employees and Managers
 Owners
External
 Investors and other providers of finance
 Local communities
 Governments and regulators
 Civil Society / NGOs
 Customers
 Suppliers
 Shareholders / Financial Analysts
Prof. Jovo Ateljevic
Stakeholders Engagement Issues
Engaging with stakeholders is not without problems
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How powerful stakeholders are?
How active are they?
What risk does non-engagement/non-responsiveness
pose?
How do we engage them?
Can we be responsive to all their concerns?
How do we prioritize or balance their concerns?
How do we deal with stakeholders:
reactive, proactive?
directly or indirectly?
accommodate, negotiate or resist?
How do we demonstrate that we have integrated their
concerns both operationally and strategically?
Prof. Jovo Ateljevic
Consumers
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Consumer rights (J.F. Kennedy)
Right to safety
Right to be informed
Right to choose
Right to be heard
Clear information
Accurate information
Adequate information
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http://video.google.com/videoplay?docid=61800369488
30658291
Prof. Jovo Ateljevic
Con...ed
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Correct information
Ambiguous Advertising, may mean
several different things (role of
social marketing)
Concealing facts
Presenting fact in such a selective
way that a false belief is created
Advertising abuses are not quickly
forgotten by consumers
Establish effective Consumer Affairs
Office
Prof. Jovo Ateljevic
Community
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Community involvement must be planned and
organized with the same care and energy that are
devoted to other parts of the business
Same measure of cost effectiveness
Corporation should capitalize on its talent and
resources
Employees should be involved in community
programs
The corporation should get involved in the
communities it knows
Not all action should originate in company
Helps others help themselves
Prof. Jovo Ateljevic
Government: important issues
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To what extant government should impose
environmental regulations?
Effectiveness can decrease by strict regulation
The international business faces a complex
regulatory systems
Engage Early On
Engage Constructively
Present Thorough Analysis and Reliable Facts
Take Public Interest and Public Policy Perspective
Seek Industry-wide approach
Seek Coalitions
http://video.google.com/videoplay?docid=4657605964561860070&q=&hl=en
Prof. Jovo Ateljevic
Government role: the top-down approach to
CSR
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How far the govt should go in regulation
CSR?
Some of the govt measures and activities:
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Encouraging the spread of responsible
business practice
Proactive role of govt in prompting/
participating in CSR & poverty reduction
Investment in community
Workplace; govt define decent minimum
standards (health and safety, flexible working,
min wage, youth employment etc.
Providing support and guidance and fallible
framework for businesses to protect the
environment
Governance and transparency
Prof. Jovo Ateljevic
Supranational engagement in
sustainable development: the EU
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example of the agriculture sector –the reform of the
common agriculture policy (CAP)
The EU sets out a strategic approach to integrating
environmental concerns into agriculture (Act from
1999)
Over three-quarters of the territory of the EU is
agricultural land or woodland
Previous CAPs contributed to the intensive use of the
resources (meaning?)
The ’99 act introcuced a number of measures and
incentives: extensification of land use, insentives for
farmers and those maintaing countryside
Minimum environmental standards are an integral part
of the agricultural support programmes
Prof. Jovo Ateljevic
Corporation social responsibilities:
recent developments
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They has always been philanthropic (e.g. donated to charities,
sponsored local sport clubs, helped to build communal facilities)
From recently social responsibility has become core of their
business plan (some of them try to make the world better place)
Corporation are changing their business philosophy in their core
management areas e.g. marketing and promotion,
image
http://www.shell.com/home/content/
Today corporate, as many of their CEOs argue are genuinely
concerned about their own actions affecting social and
environmental interests not juts for stockholders. As W. Ford the
Ford motor chairman remarks: ‘corporations could be and should
be a major force for resolving environmental and social concerns
in the 21st century’
Or is all this just a PR tool for businesses? See Shell in action in
business http://www.shellgaslpg.com/;
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another example - shell is ‘exploiting’ a women sanctity towards
fragile natural environment http://it.stlawu.edu/~global/pagessemiotics/testshell.html
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‘despite that she’s not at war with the oil company, she is the
oil company’ (a lyrical Scottish-accented narrator)
Prof. Jovo Ateljevic
[Corporate] morality and order (law):
A pessimistic view
The most powerful class of institution on
earth, is by any reasonable measure
hopelessly and unavoidably demented.
The corporation lies, steals and kills
without hesitation when it serves the
interests of its shareholders to do so. It
obeys the law only when the costs of
crime exceeds the profits. Corporate
social responsibility is impossible except
in so far as it is insincere.
(Bakan,
2004)
Prof. Jovo Ateljevic
What is Stakeholder Mapping?
Stakeholder mapping
identifies stakeholder
expectations and power and
helps in understanding political
priorities.
Prof. Jovo Ateljevic
Exhibit 4.9 The Power/Interest Matrix
Prof. Jovo Ateljevic
Questions Addressed with Stakeholder
Mapping
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In determining purpose and strategy,
which stakeholder expectations need to
be most considered?
Do the actual levels of interest and power
reflect the corporate governance
framework?
Who are the key blockers and facilitators
of strategy?
Is it desirable to reposition certain
stakeholders?
Can level of interest or power of key
stakeholders be maintained?
Prof. Jovo Ateljevic
What is Power?
Power is the ability of individuals
or groups to persuade, induce, or
coerce others into following certain
courses of action.
Prof. Jovo Ateljevic
Sources of Power
Within Organisations
Hierarchy
Influence
Involvement
Control of
human
resources
Knowledge
possession
Prof. Jovo Ateljevic
Control of
strategic
resources
Sources of Power
For External Stakeholders
Control of
strategic
resources
Knowledge
possession
Involvement
Informal links
to internal
power
Prof. Jovo Ateljevic
Indicators of Power
For Within Organisations
Status
Resource
claims
Symbols
Representation
Prof. Jovo Ateljevic
Indicators of Power
For External Stakeholders
Status
Resource
dependence
Symbols
Negotiating
arrangements
Prof. Jovo Ateljevic
Organisational Purposes
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Values
Mission statement
Vision statement
Objectives
Prof. Jovo Ateljevic
What are Core Values?
Core values are the
underlying principles that guide
an organisation’s strategy.
Prof. Jovo Ateljevic
What are Mission and Vision
Statements?
A mission statement provides
employees and stakeholders with clarity
about the overall purpose of the
organisation.
A vision statement is concerned with
what the organisation
aspires to be.
Prof. Jovo Ateljevic
What are Objectives?
Objectives are statements
of specific outcomes
that are to be achieved.
Prof. Jovo Ateljevic
Chapter Summary (1)
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The purpose of an organisation will be influenced
by expectations of shareholders
Governance chains reveal the links between
ultimate beneficiaries and management
The shareholder model and the stakeholder model
are the two generic governance systems
Stakeholder analysis reveals the influence of
different stakeholders
Prof. Jovo Ateljevic
Chapter Summary (2)
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Ethical dimensions of organisational purpose are
expressed via organisational approach to
corporate social responsibility as well as by
individual resolution of ethical dilemmas
Managers must decide how the organisation
should express its strategic purpose through
values, vision, mission, and objectives
Prof. Jovo Ateljevic
Key Debate: Three Views on the
Purpose of a Business? (1)
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Friedman posited that “the business of a
business is business.”
Handy suggested the purpose of a
business was to make a profit and use it
to do something good.
Davies, Lukommik, and Pitt-Watson
explained that society and share owners
are one due to investments in portfolios.
Prof. Jovo Ateljevic
Key Debate: Three Views on the
Purpose of a Business? (2)
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Which view do you hold as a
manager? As a shareholder?
What are the implications of the
different views for managers’
development of organisational
strategy?
Prof. Jovo Ateljevic
Case Example:
Product Red and Gap (2)
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(Red) was created by Bono and Bobby
Shriver, Chairman of DATA, to raise
awareness and money for The Global
Fund.
It seeks to do so by teaming up with the
world’s most iconic brands to produce
Red-branded products, a percentage of
which is then given to the Fund.
Prof. Jovo Ateljevic