3. Governance & ethics in the strategy process

Question 1

Benefits of corporate governance

Answer 1

1. Increases accountability of management -> maximises wealth creation.
2. More attractive to investors
3. “Governance dividend” -> benefit that shareholders received from a good corporate governance
4. Socially responsible company may be more attractive to customers & investors > revenues and share price may rise

Question 2

Key concepts of governance

Answer 2

1. Fairness
2. Openness/transparency
3. Innovation
4. Scepticism
5. Independence
6. Honesty
7. Responsibility
8. Accountability
9. Reputation
10. Judgement
11. Integrity

Question 3

Main goal of corporate social responsibility?

Answer 3

Firm’s obligation to maximise its positive impacts upon stakeholders while minimising negative effects.

Question 4

Arguments against CSR

Answer 4

Business is business -> profit maximation.

Increased returns -> increased tax payments -> can be passed on to “worthy causes”.

Practical arguments:

Increased costs + turn away business from customers that are not CSR + management time wasted on CSR.

Question 5

Arguments for CSR

Answer 5

Good CSR can attract customers (offer what customers want).

Good CSR -> most likely good working conditions -> attract better employees.

Avoiding pollution -> avoiding fines/increased taxes.

Sponsorship/charitable donations tax dedutible -> improve staff more and can be seen as a form of advertising.

Good CSR reduces the risk of adverse environmental reactions against the company. Lower risk = lower risk adjusted cost of capital = increased company value.

Socially responsible business will be allowed to operate longer -> more years of cash flows in the future = increased company value.

Question 6

Approaches to CSR (Carroll’s pyramid)

Answer 6

1. Philanthropic (be good citizen)
2. Ethical (do what is right and fair)
3. Legal (obey the law)
4. Economic (be profitable)

Question 7

CSR strategies

Answer 7

1. Reaction (deny responsibility)
2. Defence (admit responsibility but fight it, do very least that is required)
3. Accommodation (accept responsibility, do what is demanded)
4. Proaction (go beyond industry norms, do more than expected)

Question 8

Key areas of corporate code of ethics?

Answer 8

1. Purpose and value of business
2. Employees
3. Customer relations
4. Shareholders (or other providers of money)
5. Suppliers
6. Society/wider community

Question 9

Etchical stances?

Answer 9

1. Short-term shareholder interest
2. Longer-term shareholder interest
3. Multiple stakeholder obligation
4. Shaper of society

Question 10

Fundamental ethical principles?

Answer 10

Integrity
Objectivity
Professional competence & due care
Confidentiality
Professional behaviour

Question 11

Tech impact on CSR

Answer 11

1. Quicker scrutiny
2. Greater stakeholder engagement
3. More integrated CSR practices
4. Improved measurement
5. Increased openness in the ecosystem