C. Generating strategic options Flashcards
what are the benefits of stakeholder alliances?
stakeholder analysis
matching needs
creation of the alliance:negotiate terms with desired party
what is a non-market strategy?
refers to an organisation’s relationship and interactions with its non-market environment e.g. gov, regulators, charities, pressure groups, the media, the public
have social and political considerations rather than simply economic concerns
what is corporate political activity?
when organisations influence political decision making instead of waiting for govts to pass new laws
what does corporate political acitivity involve?
lobbying: either individually or as part of an association
donations to political parties
legal action against governments
directorships:give MPs or retired civil servants non-exec directorship
influencing public opinion
associations:interested parties
what seven ways did Porter identify in which a government can affect the structure of an industry?
capacity expansion
demand
divestment and exit
emerging industries may be controlled by the government
entry barriers
competition policy
new product adoption
what are some examples of non market strategy?
Toyota
- sale of hybrid cards
- lobbied for Cali state govt to allow drivers in carpool lanes
- increased demand for hybrid cars and green credentials
Novartis
- pharma company gaining patent for anti-cancer drug (Glivec)
- corporate citizenship programme:low priced drugs to needy
- built brand, improve its image with the wider public and undermine critics
why do some corporate political activities raise ethical concerns?
- donations to candidates of political parties could be seen as bribery, which could be highly unethical
- offering directorships to MPs or retired civil servants in order to gain favourable votes on relevant legislation could be a form of bribery
- advertising campaigns, petitions or legal action could be seen as a way of large, well-resources organisations bringing unfair pressure on the public or government on certain issues, simply for their own profit
what is the Cadbury Report 1992’s definition of corporate governance?
the system by which companies are directed and controlled
- interests of shareholders’ highlighting the agency issue involved
- and in relation to those beyond the company boundaries
- stakeholders’ suggesting a much broader definition that brings in concerns over social responsibility
how are companies directed from within?
-nature and structure of those who set direction, the board of directors
-the need to monitor major forces through risk analysis
the need to control operations:internal control
how are companies controlled from outside?
- the need to be knowledgeable about the regulatory framework that defines codes of best practice, compliance and legal statute
- the wider view of corporate position in the world through social responsibility and ethical decisions
what are the benefits of corporate governance?
- strengthening the control structure fo a business increases accountability of management and maximises sustainable wealth creation
- institutional investors believe that better financial performance is achieved through better management, and better managers pay attention to governance, hence the company is more attractive to such investors
- share price rising ‘ ‘governance dividend’
- socially responsible company may be more attractive to customers and investors hence revenues and share price may risk - ‘social responsibility dividend’
what is the purpose of corporate governance for the private sector?
- monitor those parties within a company which control the resources owned by investors
- primary objective of sound corporate governance is to contribute to improved corporate performance and accountability in creating long term shareholder value
what are the objectives of corporate governance for NFP and public sectors?
more complex and conflicting
VFM: economy, effectiveness, efficiency
what is the primary purpose of corporate governance?
monitor those parties within a company who control the resources owned by investors
supporting:
- ensure there is a suitable balance of power on the board of directors
- ensure executive directors are remunerated fairly
- make the board of directors responsible for monitoring and managing risk
- ensure the external auditors remain independent and free from the influence of the company
- address other issues and protection of whistleblowers
what is the primary objective of corporate governance?
contribute to improved corporate performance and accountability in creating long-term shareholder value
supporting:
- control the controllers by increasing the amount of reporting and disclosure to all stakeholders
- increase level of confidence and transparency in company activities for all investors (existing and potential) and thus promote growth
- ensure that the company is run in a legal and ethical manner
- build in control at the top that will ‘cascade’ down the organisation
what are the key concepts of governance?
FAIRNESS-in all dealings with stakeholders
OPENNESS/TRANSPARENCY-particularly between drs and shareholders
INNOVATION-in how the organisation reports performance
SCEPTICISM-NEDs should challenge and scrutinise EDs
INDEPENDENCE-an equal balance of NEDs and EDs
PROBITY/HONESTY-e.g. in financial/positional reporting
RESPONSIBILITY-clarity in roles and responsibilities
ACCOUNTABILITY-for the outcomes of actions
REPUTATION-developing and sustaining a moral stance
JUDGEMENT-exercise proper judgement in the interests of the organisation
INTEGRITY-honesty and fair dealing
how does corporate governance help maximise the effectiveness of an organisation’s strategy?
- ensure no individual can dominate the board and force through weak strategies
- improving diversity on the board to improve generation of new strategies
- ensuring adequate internal audit and control systems to ensure that the board has accurate information about the company
- enabling the company to continue attracting investors
what is corporate social responsiblity?
firm’s obligation to maximise its positive impacts upon stakeholders while minimising the negative effects
what are the arguments against CSR?
‘the business of business is business’
- purpose is to try and earn a profit
- why donate to charity when we can generate higher returns with them :form shareholders and tax for city
what are the drawbacks of CSR?
loss of business value-acting against primary role
maximisation of profits can be seen as socially responsible-benefits institutional investors and creates more tax revenue for governments
increased cost of raw materials-responsibly sources materials are likely to be more expensive
having to turn away business-an ethical company cannot be seen to be trading with unethical partners
increased management time- significant management time can be taken up by a focus on CSR
what are the arguments for CSR?
attractive to customers-enhances the company’s reputation and can act as positive advertising
attractive to potential employees-ethical businesses can attract higher calibre staff
it can save the business money-many governments will fine or increase the taxes of businesses that cause pollution
it reduces the risk of the organisation-there will be less chance of adverse environmental reactions against the company
form of advertising, tax deductible and improve staff morale
How can CSR increase the financial value of the business?
- good CSR will reduce the risk of adverse environmental reactions against the company. Anything that reduces risk should lower the risk adjusted cost of capital, increasing the value of the company
- a socially responsible business will be allowed to operate for longer in society. Will be more years of cash flows in the future. This would also increase the value of the company.
what are the 3 main models surrounding the concept of CSR?
Carroll’s pyramid
Carroll’s philosophies
Ethical stances (J,S and W)
what is Carroll’s model
Satisfy all 4 parts consecutively
Economic responsibilities-be profitable
- fundamental level that all the others rest on
- shareholders demand a reasonable return
- employees want safe and fairly paid jobs
- customers demand quality at a fair price
Legal responsibility-obey the law
- baseline for operating within society
- accepted rule book for company operations
Ethical responsibility-do what is right and fair
- relate to doing what is right, just and fair
- actions taken in this area provide a reaffirmation of social legitimacy
- naturally beyond the previous two levels
Philanthropic responsibility-be a good corporate citizen
- related to discretionary behaviour to improve the lives of others
- charitable donations and recreational facilities
- sponsoring the arts and sports events
What are Carroll’s philosophies that and organisation can adopt with regard to corporate social responsibility?
Reaction-denies any responsibility for social issues, arguing that is not to blame or required to act
Defence-admits responsibility but fights it, doing the very least that seems to be required. Typically only done as an attempt to defend current position e.g. health warning
Accommodation- accepts responsibility and does what is demanded of it by relevant groups
Proaction-corporation seeks to go beyond industry norms and anticipates future expectations by doing more than is currently expected. The organisation attempts to improve society.
what is sustainability?
the use of resources in such a way that they do not compromise the needs of future generations. It also involves not polluting the environment at a rate faster than they can be absorbed
what 6 key conclusions did the CIMA article on CSR and strategy come up with?
- strong ethical principles can add great value to an org’s BRAND AND REPUTATION
- there may be BOTTOM-LINE BENEFITS from adopting a sustainable approach
- the ETHICAL TONE MUST COME FROM THE TOP of the organisation
- HQ MANAGEMENT INFORMATION on social, environmental and ethical performance is essential
- corporate communications need to provide HARD EVIDENCE of the organisation’s positive impact on the environment and society
- MANAGEMENT ACCOUNTANTS have a particular ethical responsibility to promote an ethics-based culture
How does Ben and Jerrys show CSR in actions?
Fair Trade ingredients-company’s raw materials, reasonable work hours
Ethically sources supplies-Fair Trade, free range ingredients
Community work-engaged with communities to improve sustainability. Practical farming methods to reduce nitrogen and phosphorous run-off
Corporate philanthropy-donate portion of its pre-tax profits to B&J’s foundation
In CIMA and AICPA’s ‘Evolution of corporate sustainability practices’, why do businesses have sustainability plans?
COMPLIANCE-need to comply with laws and regulations
REPUTATIONAL RISK-companies are concerned with how stakeholders will view them if they fail to act in a sustainable manner
COST-CUTTING AND EFFICIENCY-acting in a sustainable manner can help to reduce business expenditure. This is especially valuable for smaller companies
In CIMA and AICPA’s ‘Evolution of corporate sustainability practices’, what are the 10 elements of organisational sustainability?
Strategy and oversight
- Board and senior mgmt commitment
- Understanding and analysing the key sustainability drivers for the organisation
- Integrating the key sustainability drivers into the organisation’s strategy
Execution and alignment
- everyone’s responsibility
- break down targets and objectives
- processes enable clear accountability and consistently in day-to-day decision-making
- extensive and effective sustainability training
Performance and reporting
- including sustainability targets and objectives in performance appraisal
- champions to promote sustainability and celebrate success
- monitoring and reporting sustainability performance
what is the impact of technologies on CSR?
Quicker scrutiny - get updated in real time on the actions of the organisations due to increased connectivity
Greater stakeholder engagement-use of technology such as virtual reality means more stakeholders are willing to engage with the organisation
More integrated CSR practices-data can be provided on the entire supply chain
Improved measurement-of performance e.g. via Big Data and AI
Increased openness in the ecosystem-due to greater expectation of openness
what are corporate ethics?
related to the application of ethical values to business behaviour
- broad strategies to how companies negotiate
- goes beyond legal requirements and is to some extent therefore discretionary
- many companies provide details of their ethical approach in a corporate and social responsibility report
what are the key areas included in a code of corporate ethics?
purpose and value of business employees customer relations suppliers shareholders society implementation
how do JS&W define an ethical stance?
the extent to which an organisation will exceed its minimum obligations to stakeholders
what are the 4 possible ethical stances?
ST shareholder interest (STSI)-follow the law, max profits
long-term shareholder interest(LTSI)-spend on CSR in the short term to make long-term financial gains e.g. donating funds. ‘enlightened’ self interest
multiple stakeholder obligation-involve stakeholders. The company has a purpose beyond the financial
shaper of society-financial and other stakeholder interests are secondary
What are the fundamental ethical principles?
confidentiality-no disclosure of information unless there is a legal or professional duty to do so
objectivity-no bias or conflict or interest
professional competence - have required skills and knowledge to carry out work
professional behaviour - not bringing the profession into disrepute
integrity-fair dealing and truthfulness
What type of information should a member with integrity not be associated with?
- materially false or to contain misleading statements
- provided recklessly
- incomplete such that the report or communication becomes misleading by this omission
what are the 3 reasons where Confidentiality can be forgone?
1) permitted by law and authorised by the client
2) required by law e.g. during legal proceedings or disclosing information regarding infringements of law
3) professional duty or right to disclose e.g. provision of information to the professional institute or compliance with ethical requirements
How can ethical conflicts be resolved?
1) gather all relevant facts
2)establish ethical issues involved
3refer to relevant fundamental principles
4)follow established internal procedures
5)investigate alternative courses of action
6)consult with appropriate persons within the firm
7)obtain advice from professional institutes
8)if the matter is still unresolved, consider withdrawing from the engagement team/assignment/role
what is an inducement?
receiving bribes or offers that encourage unethical behaviour
what is gap analysis?
comparison between an entity’s ultimate objective and the expected performance from projects, both planned and under way, identifying means by which an identified difference or gap might be filled
what is the diversification gap?
new strategies will be needed to close this gap
what is the efficiency gap?
after efficiency savings made
what is the expansion gap?
filled through market or product development
how is the efficiency gap closed?
through an efficiency driver
- make cost savings and any other actions that will improve the output for a given set of inputs
- easiest way of closing a gap and is therefore normally undertaken first
how is the expansion gap closed?
look at ways that the organisation can expand its sales
can either adopt a market development approach, where it looks to sell its existing products to new markets or could choose a product development strategy where it tries to sell new products
how is the diversification gap closed?
involved the organisation taking a riskier strategy where it looks to sell new products to new markets
due to higher risk of failure, this is typically the last strategy that the organisation would adopt in order to close its gap
why is significant spend on orecasting systems needed?
need to identify deviance and apply corrective, proactive action
too important to leave to reactive control systems
