Common Themes L5&6

Question 1

Define Corporate Political Activity (CPA)

Answer 1

Corporate attempts to shape government policy in ways favorable to the firm.
~this is often seen as negative

Question 2

What are the 3 CPA decisions that a firm has to make:

Answer 2

1. Approach
2. Participation Level
3. Engagement Strategy

Question 3

Explain the Approach (Decision 1: CPA) a firm has to choose: (2,3)

Answer 3

• Transactional approach
  
  • Involved only in salient and specific issues
  • Strategy formulated after issue arises
  • Relatively short-term orientation
• Relational approach:
  
  • Pursue political strategies with a long-term orientation
  • Build relationships with policy makers across issues and over time
  • Build political capabilities

Question 4

Explain the Participation level (Decision 2: CPA) a firm has to choose: (2,2)

Answer 4

• Individual Action:
  
  • Solitary involvement
  • Often adopted by large firms and market leaders
• Collective action:
  
  • Collaboration and cooperation between firms on issues
  • i.e. Industry associations

Question 5

Name the Engagement Strategies (Decision 3: CPA) a firm has to choose: (3)

Answer 5

1. Information Strategy
2. Financial Incentives Strategy
3. Constituency-building strategy

Question 6

Define what the Information Strategy is for CPA

Answer 6

Businesses provide government policymakers with information to influence their actions.
i.e. Lobbying, commissioning research projects and reporting research results, testifying as expert witnesses, etc…

Question 7

Define what the Financial-Incentives decision is for CPA

Answer 7

Businesses provide financial incentives to influence government policymakers to act.

Question 8

Define what Constituency-building is for CPA

Answer 8

Businesses seek to gain support from other affected constituents to better influence policymakers to act in a preferred way. (Business brings in more support for policymakers)

Question 9

What is Corporate Social Responsibility? (CSR) (General Definition)

Answer 9

The general idea of CSR is that business and society are interwoven rather than distinct entities.

Question 10

What are the 3 perspectives of CSR?

Answer 10

1. Neo-classical economics perspective
2. Moral approach linked to social expectations
3. Enlightened self-interest or strategic approach

Question 11

Describe the Neo-classical economics perspective of CSR

Answer 11

Hardcore Economic Argument:
The ethical responsibility of the manager is to act legally, and to take those actions that maximize shareholder value. Shareholders = Owners

Question 12

Describe the 3 theories associated to the Moral Approach Linked to Social Expectations (CSR)

Answer 12

1. Stakeholder Theory
2. Social Contract Theory
3. Legitimacy Theory

Question 13

Define the Stakeholder Theory in the Moral Approach linked to Social Expectations. Explain the steps in a Stakeholder Analysis (3)

Answer 13

• A firm should create value for all stakeholders, not just shareholders
  
  • A ‘stakeholder’ is any group or individual who can affect or is affected by the organizations objectives.
    
    • A firm should conduct stakeholder analysis and engagement:
      Identifying most important stakeholders (1) –> Understanding stakeholder needs and expectations (2) –> Communicating and interacting with stakeholder groups (3)

Question 14

Define the Social Contract theory in the Moral Approach linked to Social Expectations (2)

Answer 14

This is the belief that businesses ought to behave in a responsible manner. Not because it is in its commercial interest, but because it is part of how society implicitly expects business to operate.
Firms ‘should’ use their power and resources in a positive way. “They can, so they should.”

Question 15

Define the Legitimacy theory in the Moral Approach linked to Social Expectations (3)

Answer 15

• To gain legitimacy, the actions of a firm must be proper and appropriate within the social system of norms, beliefs, and definitions.
• Society grants legitimacy and power to business. Long-term, firms who do not use their power in a manner which society considers responsible tends to lose it.
• CSR helps firms maintain legitimacy

Question 16

What 3 questions do firms ask to identify the most salient stakeholders?

Answer 16

Which stakeholders…
1. Have the most power over the firm?
2. Provide higher legitimacy?
3. Have needs that are urgent to address?

Question 17

Describe the Enlightened Self-Interest (Strategic) approach of CSR (2) and the potential benefits (6)

Answer 17

It is in the business’s long-term self-interest to be socially responsible. By maintaining a healthy climate in which to function in the future, it must take actions now that ensure long-term viability.
Business benefits from being more socially responsible and this can help sales, the workforce, and trust in the company as a whole:
1. Political Benefits- voluntarily adopt standards to keep government out
2. Employee Loyalty - Employees identify more with the firm
3. Risk management benefits- avoid non-market disruptions (boycotting)
4. Reputation and legitimacy benefits - this leads to consumer loyalty
5. Branding benefits - companies can promote their initiatives
6. Capital (access) benefits- Environmental, Social, and Governance (ESG) pays

Question 18

How does CSR help multinationals (MNEs) in foreign markets?

Answer 18

MNEs face liabilities of foreignness–> CSR investments can be a useful non-market mechanism for gaining legitimacy.

Question 19

How does institutional distance influence CSR for firms?

Answer 19

The larger the institutional distance:
- Less willingness- MNEs feel less empathetic towards host country when they are unable to identify with them.
- Less ability- CSR investment in newer and different regulatory, economic, and cultural environments can be more costly and difficult. ROE more uncertain.