2. Stakeholders and Social Responsibility Flashcards
Define Agency Relationship? and the Agency Theory?
Agency Relationship:‘Is a contract which one person (the principals) engage another person (the agent) to perform a service on their behalf. It involves delegating some decision-making authority to the agent’.
Agency Theory: is used to study the problems of motivation and control of the agency relationship.
The theory assumes that agent and principal will act in their own self-interest which may not be aligned and may even be in conflict with each other.
e.g
Principals not wanting to pay a fair amount to directors, which cloud result in undermotivated
Agents making a business decision which is beneficial for them and not the principal.
What can principals do to monitor the action of agents?
&
How can principals solve the agency problem?
Monitoring Activities:
- Request formation of committees
- Employ Consultants
- Increase the number of NEDs
- Attend AGM and question board
The Agency Solution:
- Shareholders possess the right to remove directors or boards from office.
- They can vote in favour of a takeover.
But these steps are extreme, difficult and resource expensive so shareholders can take other steps to exercise control. Which are referred to as agency costs.
- Costs of studying company data and results (either in-house or externally)
- Purchase of expert analysis (such as consultants)
- External auditors’ fees
- Costs of devising and enforcing directors’ contracts
- Time spent attending company meetings (such as the AGM)
- Costs of direct intervention in the company’s affairs (including legal fees)
- Transaction costs of shareholding (such as brokers’ fees and any tax implications for dividends)
Overall, the agency problem is usually addressed by aligning the interests of both agents and principals
Why would a principal become concerned about their agents?
- Decline in profitability
- Lack of disclosures in annual accounts
- Fall in share price
- Adverse commentary by analysts
- Change in the business environment
- Change in key personnel
- Credible claims of a whistleblower
What is the definition of a stakeholder?
&
Name and briefly describe the 2 types and 3 categories of stakeholder?
Definition: Any individual/group with an interest in the entity.
Types:-
- Direct Claims - Those with their own voice and generally do so
-
Indirect Claims - are generally unable to make the claims themselves
because they are for some reason inarticulate or voiceless.
Categories:-
- Internal - employees, management, board (anyone with an employment contract)
- Connected - Shareholders, customers, suppliers, lenders (anyone with a non-employment contract to the organisation)
- External - Anyone else, national govt, public, pressure groups, media, competitors, regulators, trade unions.
They can also be Active or Passive.
What is Mendelow’s Matrix? and how is it used?
The Matrix is used to assess how a company should respond to its stakeholders.
Power: Refers to the level of influence the stakeholders have on the entity. which can be further supported by the Legitimacy and the Urgency of their claims
Level of Interest: reflects the effort stakeholders put into attempting to participate.
Positions on the Matrix
- Minimal Effort
- Keep Satisfied
- Keep Informed
- Key Player
What are the disadvantages of Mendelow’s Matrix?
- It can be difficult/subjective to measure stakeholders power and influence.
- The map is not static. Stakeholders positions on the map may change.
- Based on strategic positioning rather than moral or ethical positioning.
- Key players with conflicting views can create uncertainty for the future
- The legitimacy of claims is not taken into account.
Describe the two motivations for considering stakeholders that managers may use to justify their actions.
1. Instrumental View: Considering stakeholders purely on the basis of the economic benefits to the company. Everything else is of secondary importance.
2. Normative View: Based on the idea that the company has moral obligations towards all of its stakeholders, including those with non-profit aims.
What is CSR?
Corporate Social Responsibility is the concept on which organisations consider the interests of society by taking responsibility for the impact their activities have on wider society and the environment.
What are the four levels of CSR according to Carroll? (remember we ask why is the organisation there? what does it exist for?)
Philanthropic (Benefits All): Charity donations, help to communities, help employees improve their own lives.
Ethical (Not harming anyone): Act fairly even if the law doesn’t compel them to. Legal: Compliance can impose a greater burden in some societies than others. Economic: (Do good things if makes economic sense): to s/h wanting dividends/gains, employees wanting fair employment, customers wanting good quality.
What is the Corporate Citizenship model by Matten & Crane? (remember What do companies need to do to make things better?)
- Limited View: Business only engages with a project for self-interest. Main stakeholder are with local communities & employees
- Equivalent View: (similar to Carrol’s view of CSR). CSR needs to meet legal requirements but can go beyond. partly voluntary & partly imposed
- Extended View: Good working conditions, promote civil rights, promote political causes, philanthropic activity.
What are the four ethical stances on CSR by Johnson et Al?
1. Short term shareholder interest (annual profit focus): Companies exist purely to make money pay taxes and provide jobs. Everything else is up to the government.
2. Long term shareholder interest (strong consumer focus): Investing in the future for staff and communities. Corporate image is enhanced by engaging in wider activities.
3. Multiple Stakeholder obligations (public sector or charities): Consider all stakeholders in their approach eg. suppliers, employers and customers.
4. Shaper of Society (financial issues are secondary): Universities for example. Needs visionary leadership to pursue social and market change.
What are the 7 CSR Viewpoints by Gray et al?
1. Pristine Capitalist (Profit maximisation is the only aim).
2. Expedient (Employ CSR only if it benefits the CO, and disadvantages other competitors).
3. Proponent of Social Contract (change only allowed if it can be accommodated by all connected parties i.e. BBC, Govt & license payers)
4. Social Ecologist (Natural resources used up by the business activity so, they must improve there processes to minimise their eco-impact).
5. Socialist (Promote equality and treat all imbalances in society, and reduce abuse of workers.
6. Radical Feminist (promote feminine value such as co-operation and empathy over masculine values such as aggression and conflict to achieve more socially desirable outcomes rather than just profit).
7. Deep ecologist (Environment should not be destroyed and animals should not be pursued at all, let alone for profit).
What does Visser suggest in CSR 2.0?
Visser suggested the old ways of CSR is not working.
- Due to the high levels of Greed
- It has lead to failed levels of Philanthropy
- People now wish they were more socially responsible because of Marketing
- Management of the problem has failed
- and someone needs to take responsibility to improve things.
So Visser suggested we should all take it upon ourselves by.
- Creativity (embracing new ideas)
- Scalability (translating these ideas across borders)
- Responsiveness (ability to change to new ideas)
- Glocality (benefiting the local solutions made on a global scale)
- Circularity (recognising the cycle of events)
What are the benefits of CSR reporting to a company?
What is Sustainability?
What is Sustainable Development?
What is Generational Equity?
What should be considered when thinking of sustainability?
Limiting the use of depleting resources to a level that can be replenished.
Development that meets the needs of the present without compromising the ability of future generations to meet their own needs.
Generational Equity. Ensuring that future generations can enjoy the same environmental conditions and welfare is maintained or increased per capita.
Questions to consider when thinking of sustainability
- Sustainable by whom?
- Sustainable for whom?
- Sustainable in what way?
- Sustainable for how long?
- Sustainable at what cost?
