Business case for sustainability Flashcards
Tragedy of the commons
Individuals acting in own self-interest deplete a shared resource leading to its degradation for everyone
Fisheries represent archetypal example
Economic and environmental thinking can be aligned
Population growth curve
S type which levels at carrying capacity
Maximum sustainable yield
A step in the right direction towards maximum economic yield
Want to harvest at maximum economic yield to keep population high and rapidly growing
How is corporate sustainability viewed by managers?
The debate about the ownership of the corporation is not a focus for corporate managers
An assumption that corporations need to be viewed as holding themselves to higher standards than what is required by law
The extent of this difference varies enormously, depending on:
- geography
- industry
- client base
What drives manager behavior?
Fear or Reputational impacts, communications, social media, affluence, regulatory risk management, market potential (millennials especially), individual values in some cases
Fiduciary Duty
Officers and directors of corporation owe fiduciary duties to corporation:
1) duty of loyalty: making decisions in interest of company
2) duty of care: making informed decisions on behalf of corporation
Alternatives to mainstream view
Concerns about corporations overly focused on shareholders to the exclusion of stakeholders led to founding of B Lab
B Lab is an organization that provides a certification that a corporation is run according to principles of social and environmental responsibility
Such B Corps are certified to consider the benefits they provide to employees, communities, and the environment in addition to shareholders
Some 33 states have constituency statues. However, in others, ordinary corporations may not be allowed to consider the interests of stakeholders
Benefit Corporations: B labs and B corps
Disagreement about who should benefit from corporate activity has led many states to pass laws establishing a new form of corporation (benefit corporation) which explicitly allows consideration of other interests in addition to those of shareholders
Despite success of B corp and benefit corporation movements among smaller businesses, very few large, publicly-traded corporations have adopted either of these models
Shareholder Value
Whose interests should corporations serve?
The answer to this determined whether a corporation is a net contributor to society or a drag
Do shareholders actually own the corporation?
Dodge vs. Ford (1919)
Some argue forcefully that the corporation is not owned by anyone but instead an independent entity and that a share merely gives certain limited rights to the shareholder
Corporate officers and directors generally treat shareholders as the owners. Mostly operate not in the interest of the state or society but shareholders. Shareholder value or shareholder primacy
Planetary Boundaries Framework
Identifies 9 critical environmental thresholds that, if crossed, could destabilize the Earth’s ecosystems and threaten human survival.
Climate change, biodiversity loss, land-use change, ocean acidification, freshwater use, nutrient cycles, atmospheric aerosol loading, chemical pollution, stratospheric ozone depletion
3 mega trends that will shape tomorrow
Multipolar world: as global wealth is rapidly spreading from developed to emerging world and as a result of accelerating globalization, more emerging market countries are increasingly participating in the global economy
Demographics: rapid population growth in emerging markets and increasing aging, mainly in developed markets, representing the starting point in the cycle of Megatrends
Sustainability: rising demand and depleting resources are leading to imbalances, one solution to restore the balance between supply and demand in the sustainable generation of resource as well as more efficient use of exiting resources
Scope of Corporate Sustainability
Required (not sustainability), expected, desired, unexpected
Corporation governance
Shareholders elect the board of directors, amend bylaws, and own the shares
Board of directors appoints the CEO of the corporation
CEO reports to Board, appoints management, and is responsible for day-to-day running of the corporation
Background on Corporate Entity
- Public vs. private corporation
- limited liability
- corporation vs. partnership
- c corporation
- shareholders or stockholders
- civil law vs. common law
When was first general incorporation statute passed by New York and which is most important state of incorporation for large US corporations
1811, Delaware
US Corporations are organized under…
State law not federal law
Legal personhood
Natural persons vs. juridical persons
Limited liability
Protection against personal liability for shareholders (contrast with partnerships)
Private corporations vs. public
Public corps register with securities regulators and list on a stock exchange. Private corps can be more tightly controlled by owners. Private vs. public ownership is relevant to corporate sustainability as private corps have more
Peter Drucker
Profit for a company is like oxygen for a person. If you don’t have enough of it you’re out of the game. But if you think your life is about breathing, you’re really missing something
Triple Bottom Line
Economic performance, environmental responsibility, social solidarity
