2. Stakeholders and Social Responsibility Flashcards

1
Q

Define Agency Relationship? and the Agency Theory?

A

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.

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2
Q

What can principals do to monitor the action of agents?

&

How can principals solve the agency problem?

A

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

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3
Q

Why would a principal become concerned about their agents?

A
  • 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
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4
Q

What is the definition of a stakeholder?

&

Name and briefly describe the 2 types and 3 categories of stakeholder?

A

Definition: Any individual/group with an interest in the entity.

Types:-

  1. Direct Claims - Those with their own voice and generally do so
  2. Indirect Claims - are generally unable to make the claims themselves
    because they are for some reason inarticulate or voiceless.

Categories:-

  1. Internal - employees, management, board (anyone with an employment contract)
  2. Connected - Shareholders, customers, suppliers, lenders (anyone with a non-employment contract to the organisation)
  3. External - Anyone else, national govt, public, pressure groups, media, competitors, regulators, trade unions.

They can also be Active or Passive.

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5
Q

What is Mendelow’s Matrix? and how is it used?

A

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

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6
Q

What are the disadvantages of Mendelow’s Matrix?

A
  1. It can be difficult/subjective to measure stakeholders power and influence.
  2. The map is not static. Stakeholders positions on the map may change.
  3. Based on strategic positioning rather than moral or ethical positioning.
  4. Key players with conflicting views can create uncertainty for the future
  5. The legitimacy of claims is not taken into account.
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7
Q

Describe the two motivations for considering stakeholders that managers may use to justify their actions.

A

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.

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8
Q

What is CSR?

A

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.

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9
Q

What are the four levels of CSR according to Carroll? (remember we ask why is the organisation there? what does it exist for?)

A

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.

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10
Q

What is the Corporate Citizenship model by Matten & Crane? (remember What do companies need to do to make things better?)

A

- 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.

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11
Q

What are the four ethical stances on CSR by Johnson et Al?

A

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.

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12
Q

What are the 7 CSR Viewpoints by Gray et al?

A

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).

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13
Q

What does Visser suggest in CSR 2.0?

A

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.

  1. Creativity (embracing new ideas)
  2. Scalability (translating these ideas across borders)
  3. Responsiveness (ability to change to new ideas)
  4. Glocality (benefiting the local solutions made on a global scale)
  5. Circularity (recognising the cycle of events)
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14
Q

What are the benefits of CSR reporting to a company?

A
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15
Q

What is Sustainability?

What is Sustainable Development?

What is Generational Equity?

What should be considered when thinking of sustainability?

A

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

  1. Sustainable by whom?
  2. Sustainable for whom?
  3. Sustainable in what way?
  4. Sustainable for how long?
  5. Sustainable at what cost?
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16
Q

What are the 2 approaches to sustainability?

A

Weak sustainability believes that company focus should be on sustaining the human species and the natural environment can be regarded as a resource.

The weak sustainability viewpoint tends to dominate discussion within the Western economic viewpoint.

Strong sustainability stresses the need for harmony with the natural world; it is important to sustain all species, not just the human race.

There is a requirement for fundamental change, including a change in how man perceives economic growth (and whether or not it is pursued at all).

17
Q

Define social and environmental footprint?

&

Briefly explain the factors a company would consider when analysing there footprint?

A

Environmental footprint: Is a measure of the impact that a particular business’s activities have upon the environment including its resource, environment and pollution emissions.

Social footprint: Is a measure of the impact or effect that an entity can have on a given set of concerns or stakeholder interests.

Factors

  1. Depletion of natural resources
  2. Noise and aesthetic impacts
  3. Residual air and water emissions
  4. Long-term waste disposal (including packaging)
  5. Uncompensated health effects
  6. Change in the local quality of life (via tourism for example)
18
Q

What is social accounting?

A

A concept describing the communication of social and environmental effects of a company’s economic actions to stakeholders.

19
Q

What are the four standards of social accounting?

A
  1. AA1000: Triple bottom line reporting - People, Planet, Profit
  2. Global Reporting Initiative
  3. ISO 14000: Environmental Management Standards
  4. EU EMAS: Emphasising Targets & Improvements
20
Q

What is the goal of the AA1000 standard?

&

What are the three elements of the AA1000 standard?

A

Describes the goal of CSR by encouraging organisations activities to be accounted for, in less obvious ways than financial reporting terms.

People - social accounting, i.e how many charity donations the co’ has made.

Planet - focus on environmental performance such as waste management and recycling bags.

Profit - measures the success of the business but considering the redistribution of wealth which bring benefit to the community i.e. education schemes, community projects.

21
Q

What is the Global Reporting Initiative?

A

The framework aims to develop social reporting by increasing

  • transparency,
  • accountability,
  • reporting
  • sustainable development.

The vision of this framework is that economic, environmental and social importance should be as routine and important as financial reporting. with the aim of giving people a balanced viewpoint

22
Q

What is the Eco-Management & Audit Scheme (EMAS)?

and the 6 requirements for registration?

A

A voluntary scheme emphasising targets, improvements, inspections and requirements for disclosure and verification. To improve on social matters.

  1. A policy of commitments to comply with legislation and to pursue continued environmental performance improvement.
  2. On-site environmental review
  3. Env. management system based on the review & env. policy.
  4. Env. audits conducted every three years at least.
  5. Audit results form the basis of setting env. objectives and revision of policy to achieve this obj.
  6. A verified public env. statement containing detailed disclosures about policy, management systems and performance.
23
Q

What are the 5 elements to ISO 14000?

A
  1. Policy statement
  2. Legal, voluntary and environmental aspects assessments.
  3. Management system for env. compliance.
  4. Internal audits & reports to senior management.
  5. Public declaration that ISO 14000 is complied with.
24
Q

What is integrated reporting?

A

Integrated reporting is strategic and future-oriented communication, on how organisations use the different invested “capitals” available, to create value in the short, medium and long term.

It demonstrates that there is a linkage between strategy, governance and financial performance and the social, environmental, and economic context within which the business operates.

It helps organisations to think holistically about their strategy and plans in the context of business impacts to the capitals, by making better-informed decisions, manage key risks and take advantage of opportunities.

IR includes and adds to financial reporting which focuses more on the processes of the business and not just the end product of a process.

S.H.I.N.F.M

25
Q

What are the 7 characteristics that an organisations’ integrated reporting must have in order to be deemed meaningful?

A
  1. Strategic &forward looking
  2. Connected data
  3. Stakeholder relationships create value
  4. Materiality
  5. Reliability and completeness
  6. Conciseness
  7. Consistency & comparability of data.
26
Q

What are the 6 investment categories of the capitals of Integrated Reporting? S.H.I.N.F.M.

A
  1. Social Capital (Relationships between stakeholders/community)
  2. Human Capital (Investing in skills, experience and motivation)
  3. Intellectual Capital (Intangible/Virtual Assets & IP)
  4. Natural Capital (Impact on Environmental Footprint)
  5. Financial Capital (Funds)
  6. Manufactured Capital (Non-Current Assets)
27
Q

What are the benefits of integrated reporting?

A

A) More effective resource allocation and help the business make more sustainable decisions

B) Prevent incentive systems that lead to short term decision making

C) reporting aligned to modern business models

D) Investors able to better understand a company and its prospects, so they can manage their investment risk, validate decisions, and assess a company’s forward-looking information

E) a system of capital allocation that better aligned to long term goals of business and society and building trust

28
Q

Integrated reporting vs Financial Statements

A

F.S - Only focus on financial info

F.S- little narrative/context to the numbers

F.S- historic data

<ir> Wider focus on all the 6 Capitals</ir>

<ir> Direct concise communication with useful narrative</ir>

<ir> Forward-looking</ir>

29
Q

What is a social audit?

A

An audit that checks whether an organisation has achieved set targets surrounding;

  • Programme congruency with company mission
  • Establishing the rationale for engaging in social activity
  • Objectives and priorities relating to their programmes
  • Company involvement in programmes
30
Q

What is an environmental audit? and what is the purpose of it?

A

An evaluation of how well an organisation is performing in regards to safeguarding the environment through its policies and procedures.

  • identifies possible liabilities
  • assesses the threat of unethical behaviour
  • acts as a form of marketing for certain sensitive investors.
31
Q

What are the three stages to an environmental audit

A
  1. Agree on suitable metrics (what should be measured? and How?
  2. Measure actual performance vs. targets
  3. Auditor’s report detailing compliance/variance levels.