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Corp. Governance and CSR > CSR Incentives and Criticism > Flashcards

CSR Incentives and Criticism Flashcards

1
Q

What are the two governance models discussed related to CSR?

A

Stakeholder and shareholder governance

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2
Q

What is the primary goal of shareholder governance?

A

Maximizing returns to shareholders

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3
Q

What does stakeholder governance imply?

A

Acting in the interest of all stakeholders

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4
Q

What is “pure CSR”?

A

Actions that prioritize social good over firm value

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5
Q

What is “rhetorical CSR”?

A

Actions that align social good with firm profitability

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6
Q

What is “enlightened shareholder governance”?

A

Maximizing firm value by considering stakeholder interests

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7
Q

What is “pluralistic stakeholder governance”?

A

Treating all stakeholders as equally important, regardless of firm value

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8
Q

What is Milton Friedman’s stance on CSR?

A

Managers should focus solely on maximizing profits

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9
Q

Why did Friedman criticize “pure CSR”?

A

It sacrifices shareholder interests and imposes costs on others because lower returns ensure lower wages and higher prices

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10
Q

What alternative does Friedman suggest for CSR goals?

A

Individuals or governments should address societal issues effectively

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11
Q

Why does Friedman oppose executives managing social problems?

A

They lack the expertise to address societal issues effectively

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12
Q

How does Friedman view CSR and public opinion?

A

CSR can reinforce the belief that profit-seeking is immoral

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13
Q

What are agency problems in CSR?

A

Misaligned incentives between managers and shareholders

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14
Q

How can free cash flow cause agency problems?

A

Excess cash can lead to unproductive investments

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15
Q

How can executive compensation affect CSR?

A

Low performance-linked pay can misalign managerial incentives

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16
Q

What methodology did Ferrell et al. use?

A

They studied CSR under poorly aligned managerial incentives.

17
Q

What is a constituency statute?

A

Laws allowing directors to consider stakeholder interests over shareholder profits

18
Q

What was the finding of Ferrell et al. regarding CSR?

A

Firms with good incentives engage more in CSR

19
Q

What is shareholder welfare?

A

Considering externalities that affect shareholders beyond profits such as extra costs of individually solving CSR problems

20
Q

What are externalities?

A

Costs or benefits of a firm’s actions borne by society

21
Q

Why does regulation often fail to address externalities?

A

Imperfect politics and lobbying influence

22
Q

What is the difference between “pre-existing problems” and “externalities”?

A

Pre-existing problems are not caused by firms; externalities result from firm actions

23
Q

How does CSR benefit firms under “rhetorical CSR”?

A

It enhances firm value while achieving societal goals

24
Q

What is an example of a qualitative issue in CSR?

A

Addressing workplace discrimination

25
Q

What is the “free-rider” problem in CSR?

A

Individuals expect firms or others to bear the costs of addressing societal issues

26
Q

How can CSR align with shareholder welfare?

A

By addressing externalities that shareholders care about

27
Q

What is the role of “shareholder altruism” in CSR?

A

Shareholders may support CSR for broader social benefits.

28
Q

What is the debate between profit and welfare in CSR?

A

Whether managers should prioritize profit or broader welfare.

29
Q

How does stakeholder governance influence societal outcomes?

A

It integrates societal and environmental concerns into business decisions

30
Q

What is the conclusion about CSR and agency problems?

A

CSR aligns with shareholder interests when incentives are well-structured

31
Q

What are the two ways to study agency problems?

A

Free cash flow problem, which occurs in a firm with high cash reserves, low debt and low dividend.
Compensation problem, which occurs when there is low pay-performance sensitivity

Corp. Governance and CSR (16 decks)

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