Chapter 3 - Role of governance and ethics in the strategy process Flashcards
What is corporate governance?
System by which companies are directed and controlled
What is governance?
The system by which companies are directed and controlled in the interests of shareholders and other stakeholders
What benefits does corporate governance bring?
Increases accountability of management and maximises sustainable wealth creation
More attractive to investors as they believe that better financial performance is achieved through better management
More attractive to customers and investors which could lead to revenues and share price rising
What purposes and objectives does corporate governance have for the private sector?
Purpose is to monitor those parties within a company which control the resources owned by investors
Objective is to contribute to improved corporate performance and accountability in creating long term shareholder value
What purposes and objectives does corporate governance have for the public sector?
Objective more complex and conflicting
Appraised according to value for money they generate
Value for money may be defined as performance of an activity to simultaneously achieve economy, efficiency and effectiveness.
Means maximising benefits for the lowest cost and has three constituent elements:
Economy - measure of inputs to achieve a certain service or level of service
Effectiveness - A measure of outputs
Efficiency - optimum of economy and effectiveness
What are the characteristics which are important in the development of an appropriate moral stance?
Fairness - a sense of equality in dealing with internal stakeholders, sense of even-handedness in dealing with external stakeholders
Openness/transparency
Innovation
Scepticism
Independence
Probity/honesty
Responsibilty
Accountability
Reputation
Judgement
Integrity
Why is corporate governance important to help maximise the effectiveness of an organisation’s strategy?
Ensures that no individual can dominate the board of directors
Improve diversity of the board of directors
Adequate internal audit and control systems should ensure that the board has accurate information about the current operations of the company
Having good corporate governance is attractive to investors
What is corporate social responsibility?
Firm’s obligaition to maximise its positive impacts upon stakeholders while minimising the negative effects
Why might a business choose not to pursue CSR?
Increased cost of sourcing materials from ethical sources
Having to turn business away from customers considered to be unethical
Management time that can be taken up by CSR planning and implementation
Why may businesses feel that CSR is a vital part of their strategy?
Good CSR can attract customers
Attract a higher calibre of staff
Access to a wider human resource base
Fining or increasing taxes of more polluting businesses
Form of advertising
Increase financial value of the business
What is the four part model of Carroll’s to CSR?
Philanthropic Responsibilites - be a good corporate citizen
Ethical Responsibilties - Be ethical
Legal Responsibilties - Obey the law
Economic Responsibilities - Be profitable
What is the economic reponsibilitys of Carroll’s four part model?
Fundamental level - all other levels rest on this
Shareholders demand a reasonable return
Employees want safe and fairly paid jobs
Customers demand quality at a fair price
What is the legal responsibilty of Carroll’s four part model?
Law is baseline for operating within society
Accepted rule book for company operations
What is the ethical responsibilty of Carroll’s four part model?
Relates 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
What is the philantrophic responsibilty of Carroll’s four part model?
Relates to discretionary behaviour to improve the lives of others
Charitable donations and recreational facilities
Sponsoring the arts and sports events
What are the four possible strategies that Carroll suggest that the organisation can adopt with regards to CSR?
Reaction - corporation denies any responsibility for social issues
Defence - corporation admits responsibility but fights it
Accommodation - accepts responsibility and does what is demanded of it
Proaction - seeks to go beyond industry norms and anticipates future expectations by doing more than is currently expected
What is sustainability?
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 are ESG issues seen as?
Environmental - Issues relating to the quality and functioning of the natural environment
Social - Issues relating to the treatment of people and communities
Governance - Issues relating to how organisations are run and managed
What are the impact of technologies on CSR?
Quicker scrutiny
Greater stakeholder engagement
More intergrated CSR practices
Improved measurement
Increased openness in the ecosystem
What is corporate ethics?
Relates to application of ethical values to the business behaviour.
Encompasses many areas ranging from board stategies to how companies negoatiate with their suppliers
Goes beyond legal requirements and is to some extent therefore discretionary
Companies provide details of their ethical approach in a corporate and social responsibility report
What is the key areas included in a code of corporate ethics?
Purpose and value of business
Employees
Customer Relations
Suppliers
Shareholders
Society
Implementation
What does Johnson, Scholes and Whittington define ethical stance as?
Extent to which an organisation will exceed its minimum obligations to stakeholders
What are the four possible ethical stances?
Short term shareholder interest
Longer term shareholder interest
Multiple stakeholder obligation
Shaper of society
What is short term shareholder interest?
Aim to maximise profits in the financial year.
Believe that it is the role of government to set the legal minimum standard
