Chapter 2 - Stakeholders and social responsibility

Question 1

Explain the agency relationship

Answer 1

A contract in which the principal (shareholder) engages the agent (directors) to perform a service on their behalf (run the business)

Question 2

What is the agency problem?

Answer 2

That agents will act in their own self-interest and not aligned with interests of shareholders.

Question 3

What can be used to monitor agents?

Answer 3

• Formation of committees
• Employ consultants
• Increase number of NEDs
• Attend AGM and question board

Question 4

Give examples of agency costs

Answer 4

• Purchase of consultant
• External auditors’ fees
• Time spent attending company meetings

Question 5

What is the difference between a direct and indirect stakeholder claim?

Answer 5

• Direct claims made with their own voice

- Indirect claims unable to make claims themselves as they are inarticulate or voiceless

Question 6

What are the different types of shareholders?

Answer 6

• Internal
• Connected
• External

Question 7

How does Mendelow’s matrix work?

Answer 7

Stakeholders are assessed based on ‘power’ and ‘level of interest’

• Low power, low interest - minimal effort
• Low power, high interest - keep informed
• High power, low interest - keep satisfied
• High power, high interest - key player

Question 8

What can make a stakeholder claim more influential?

Answer 8

• Legitimacy - perceives claims to be valid

- Urgency - if requires immediate action

Question 9

What does Carroll’s CSR pyramid suggest?

Answer 9

There is a hierarchy of needs an organisation should aim to fill, starting at the bottom

• Philanthropic - charitable donations
• Ethical - act in a fair and just way
• Legal - obeying law
• Economic - to shareholders wanting dividends

Question 10

What does Matten and Crane corporate citizen suggest?

Answer 10

Three views of citizenship:

• Limited view - self-interest only
• Equivalent view - CSR
• Extended view - going above and beyond

Question 11

What are the Johnson ethical stances?

Answer 11

• Short term shareholder interest - no obligation beyond law
• Long-term shareholder interest - image enhanced by assumption of wider responsibilities
• Multiple stakeholders - without customers etc wouldn’t be able to function
• Shaper of society - visionary leadership for social and market change

Question 12

What is a pristine capitalist?

Answer 12

Business has no moral responsibilities beyond obligations to shareholders

Question 13

What are the Gray CSR viewpoints?

Answer 13

• Pristine capitalist
• Expedient
• Social contract
• Social ecologist
• Socialist
• Radical feminist
• Deep ecologist

Question 14

What is the ‘expedient’ viewpoint?

Answer 14

Social responsibility is only appropriate if in business economic interests

Question 15

What is the ‘social contract’ viewpoint?

Answer 15

There is a contract between organisations and those affected by their decisions

Question 16

What is the ‘social ecologist’ viewpoint?

Answer 16

Strategies leading to waste and pollution must be modified and organisations should be responsible for resource usage

Question 17

What is the ‘socialist’ viewpoint?

Answer 17

Business decision-making should promote equality

Question 18

What is the ‘radical feminist’ viewpoint?

Answer 18

Aim to promote feminine values (co-operation and empathy) over masculine values (aggression and conflict)

Question 19

What is the ‘deep ecologist’ viewpoint?

Answer 19

Humans have no greater right to resources than any other species.

Question 20

What does Visser CSR 2.0 suggest?

Answer 20

CSR Good Catch
Five principles should be adopted to overhaul CSR: 
- Creativity - embrace new ideas
- Scalability - translate across borders
- Responsiveness - ability to change
- Globality - made on global scale
- Circularity - cycle of events

Question 21

Explain triple bottom line accounting

Answer 21

Organisational activities are accounted for in less obvious ways

• People - social accounting - charity
• Planet - waste management
• Profit - success of business, redistribution of wealth to local community

Question 22

Define integrated thinking

Answer 22

The active consideration of relationships between operating and functional units and the capitals that the organisation uses

Question 23

What are the benefits of integrated thinking?

Answer 23

• Improve approach to decision-making - not made in isolation of wider situation
• Look at where they can create value in long term
• Think holistically
• Build relationships with employees
• Increased transparency

Question 24

What are the capitals of integrated reporting?

Answer 24

FISH MN

• Financial - funds for use in production
• Intellectual - intangible assets
• Social - relationships between stakeholders
• Human - skills, experience, motivation
• Manufactured - physical objects used in production
• Natural - inputs to goods and services, and natural environment.

Question 25

What is integrated reporting?

Answer 25

A process that results in a periodic integrated report about value creation.

Question 26

What is a disadvantage of integrated reporting?

Answer 26

Auditors are concerned by high costs of being able to provide even limited assurance.