Social evaluations and value heterogeneity

Question 1

According to Martin, what are the steps firms should consider when dealing with social and political issues?

Answer 1

• Develop robust principles to guide choices
• address ethical issues early
• consistently communicate and implement choices
• engage beyond the industry to shape context
• learn from mistakes to make better choices in the future

Question 2

What does it meant to develop robust principles?

Answer 2

Attempt to anticipate most likely to occur challenges to operations, and have principles to address them

Question 3

What are the recommended steps for developing robust principles?

Answer 3

• understand salient social and political issues for your firm
• understand where issues may intersect with your business (and the implications of making decisions on those issues)
• listen to and understand the opinions of your employees (as they are often the root for firms stances)

Question 4

What does it mean to address ethical issues early?

Answer 4

recommended for firms to anticipate, preempt, and shape ethical challenges

Question 5

What does it mean to consistently communicate and implement choices?

Answer 5

communicate principles to all employees (who in turn communicate to customers), make principles part of everyday business making decisions

Question 6

What does it mean to engage beyond industry?

Answer 6

Engage with civil society in order to affect change

Question 7

What are the risks by not engaging beyond the industry?

Answer 7

• ad hoc responses due to an unpredictable enviro
• regulations are forced upon by an industry they failed to impact
• not being informed about new issues that effect their firm

Question 8

What is core stigma?

Answer 8

The very nature of a firm is stigmatized.

Question 9

What is the Friedman doctrine?

Answer 9

It is the social responsibility of business to use resources to make profit. Executives are employees of the owners of the firm, and have direct responsibility to stockholders

Question 10

What is agency theory? What is the issue in it?

Answer 10

A “principal” hires an “agent” to do something. The problem is that the interests of the two do not always align

Question 11

What is the solution to the problem in agency theory?

Answer 11

Create performance based initiatives; that is the better a company/ shareholders (principal) does, the better the executives (agents) get paid

Question 12

What is the normative core of stakeholder theory?

Answer 12

Rejection of stockholder centric theory, for a stakeholder centric one to create a win-win for both stockholders and stakeholders

Question 13

What is commensuration?

Answer 13

Comparison of different things using the same metric. Ex. Compare a banana, plan, and couch based on price

Question 14

What is ESG?

Answer 14

Environment, social, and governance. A collection of indicators and metrics to allow stakeholders (mostly shareholders) to make comparisons between firms

Question 15

What was an assumption about ESG that porter would make?

Answer 15

The pattern of imitation, when one firm began pursuing a high ESG score, other firms would follow

Question 16

What is the issue with ESG scores?

Answer 16

They don’t tell the whole story, as companies can offset weaknesses in their score with other points (ex bad environment with increases in diversity)

Question 17

What is a stigma?

Answer 17

A negative social evaluation (of a firm)

Question 18

What are the 3 types of stigma?

Answer 18

Core, event, by association

Question 19

What are ways to counteract core stigmatization?

Answer 19

• dilution: operate in multiple industries to make stigma less a core part of identity
• information control: reduce reaction by hiding presence in market or obscuring information about the market
• stigma reduction: change perceptions of taint from the stigma

Question 20

What is event stigma?

Answer 20

Taint produced by a specific event, usually a scandal

Question 21

What is a counter action to event stigma?

Answer 21

Cleaning out: removing all employees associated with the event/ scandal

Question 22

What is stigma by association?

Answer 22

Stigma transfer between entities (ie stigma of one entity effect another)

Question 23

How do you counter act stigma by association?

Answer 23

Sever ties with the controversial entity

Question 24

What is the homogenization of society?

Answer 24

An old liberal idea that societies would become more and more similar as we imitated each other

Question 25

What are the consequences of a heterogeneous society for firms?

Answer 25

• taking a stance can alienate some stakeholders while appealing to others
• temporal shifts in values: values shift over time
• certain issues may be more widely agreed upon than others