Ethics and Law Overview

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Questions and Answers

What is the primary purpose of the 'Articles of Association' for a company?

  • To outline the company's operational procedures and management structure
  • To establish the company's legal jurisdiction and regulatory compliance
  • To specify the company's financial structure and capitalization
  • To define the company's purpose, rights, and obligations of its members (correct)

What is the key principle behind the 'Duty of Loyalty' in a company?

  • Shareholders have the right to act arbitrarily as long as their actions are profitable for the company
  • Shareholders must abstain from any actions that could potentially diminish the company's value
  • Shareholders must prioritize their own financial interests above the company's well-being
  • Shareholders are obligated to uphold the company's interests even if it conflicts with their personal goals (correct)

What does the 'Business Judgement Rule' primarily protect corporate managers from?

  • Legal liabilities arising from incorrect business decisions made in good faith (correct)
  • External pressure from competitors to adopt specific business strategies
  • Personal financial losses incurred due to poor management decisions
  • Scrutiny from shareholders for decisions that harm the company's financial performance

Which of the following is NOT considered an immoral corporate behavior?

<p>Negotiating favorable contracts with suppliers to benefit the company financially (D)</p> Signup and view all the answers

What is the primary purpose of Corporate Governance Codes?

<p>To provide a framework for monitoring and controlling management's performance and decision-making (B)</p> Signup and view all the answers

What does the 'Comply or Explain' principle of Corporate Governance Codes necessitate?

<p>Corporations must explain any deviations from the code's recommendations (A)</p> Signup and view all the answers

Which of the following is NOT a key element of Corporate Social Responsibility (CSR)?

<p>Maximizing profit for shareholders as the primary objective (C)</p> Signup and view all the answers

What differentiates Corporate Social Responsibility (CSR) from Corporate Compliance?

<p>CSR focuses on achieving a positive social impact, while compliance emphasizes adherence to legal regulations (C)</p> Signup and view all the answers

Which of the following is a prominent actor in promoting Corporate Social Responsibility (CSR)?

<p>The United Nations Global Compact (C)</p> Signup and view all the answers

What is the main characteristic of a General Partnership?

<p>Unanimous decision-making by partners (A)</p> Signup and view all the answers

Which of the following statements best describes the relationship between company law and contract law in regards to the Articles of Association?

<p>Both company law and contract law apply equally in all matters regarding the Articles of Association. (C)</p> Signup and view all the answers

Which of the following is NOT a specific duty of a shareholder under the 'Duty of Loyalty'?

<p>Acting in a manner that prioritizes personal financial gains over company interests (D)</p> Signup and view all the answers

What is a key distinction between 'self-interested membership rights' and 'altruistic rights' for shareholders?

<p>Self-interested rights prioritize the shareholder's own interests, while altruistic rights prioritize the company's interests. (D)</p> Signup and view all the answers

What are the main functions of a Corporate Governance Code?

<p>To act as a bridge between national corporate laws and good governance practices (A)</p> Signup and view all the answers

Which of the following situations would NOT be considered an abusive use of voting rights?

<p>A shareholder votes against a proposal that they believe will harm the company's long-term interests (C)</p> Signup and view all the answers

What is the main characteristic of a 'One-Tier' system of corporate governance, as opposed to a 'Two-Tier' system?

<p>The board of directors is responsible for both management and oversight functions (A)</p> Signup and view all the answers

What does normative ethics primarily examine?

<p>Standards for the rightness and wrongness of actions (D)</p> Signup and view all the answers

Which of the following statements is true about business ethics?

<p>It reflects interactions between profit-maximizing behavior and non-economic concerns. (B)</p> Signup and view all the answers

What characterizes applied ethics?

<p>The application of ethical theories to practical life situations. (A)</p> Signup and view all the answers

What distinguishes law from ethics?

<p>Law has non-negotiable and compulsory rules. (B)</p> Signup and view all the answers

What type of law is characterized by judges creating binding case law?

<p>Common law (C)</p> Signup and view all the answers

What is true about the positivist view on legal norms?

<p>Their validity is independent of moral considerations. (D)</p> Signup and view all the answers

Which of the following best describes customary law?

<p>Rules accepted as binding by a community. (B)</p> Signup and view all the answers

What is the primary focus of public law?

<p>The relationship between the state and individual subjects. (A)</p> Signup and view all the answers

What type of immoral contract involves limiting a party's economic autonomy for an extended period?

<p>Gagging Contract (A)</p> Signup and view all the answers

In a tort where a party is liable for intentionally causing damage, which of the following must be proven?

<p>The awareness of the circumstances (C)</p> Signup and view all the answers

Which category of immoral conduct includes intentionally sending false information?

<p>Intentional Misinformation (C)</p> Signup and view all the answers

What legal consequence can occur when engaging in usurious practices?

<p>Only the immoral high interest rate is rendered void (D)</p> Signup and view all the answers

How is 'Good Faith' characterized in a legal context?

<p>Reliability, sincerity, and consideration for others' interests (C)</p> Signup and view all the answers

Which of the following actions is an example of misuse of formal rights?

<p>Delaying insolvency procedures (C)</p> Signup and view all the answers

What is crucial for proving a tortfeasor's immoral intention?

<p>Objective immorality based on conduct (C)</p> Signup and view all the answers

When the tortfeasor acts recklessly, how can the level of necessary intent be adjusted?

<p>Lowered to gross negligence or recklessness (C)</p> Signup and view all the answers

What is one of the established types of immoral contracts noted in the content?

<p>Gagging Contract (A)</p> Signup and view all the answers

What does the ‘Principle of Good Faith’ primarily aim to address?

<p>Providing clarity in rights and obligations within a contract (B)</p> Signup and view all the answers

What characterizes a purchase contract?

<p>Permanent transfer of a thing against payment of a price (C)</p> Signup and view all the answers

What is a primary difference between a loan contract and a lease contract?

<p>A loan contract requires return of the item in kind after use (D)</p> Signup and view all the answers

How is a service contract defined in relation to an employment contract?

<p>A service contract allows performance without direct control from the hiring party (A)</p> Signup and view all the answers

What is a key element required for the formation of a contract?

<p>Matching declarations of intent from both parties (B)</p> Signup and view all the answers

What defines specific performance in a contract?

<p>Performance is only possible with the agreed thing (D)</p> Signup and view all the answers

What occurs if the obligor cannot perform a contractual obligation?

<p>The obligor is relieved from obligation and loses claim for counter-performance (C)</p> Signup and view all the answers

What is a requirement for damages to be awarded for breach of contract?

<p>The oblige must have suffered some actual damage (B)</p> Signup and view all the answers

What distinguishes a work contract from a service contract?

<p>Work contracts include promises of creating a tangible result (B)</p> Signup and view all the answers

What are immoral contracts classified as?

<p>Always void and unenforceable (C)</p> Signup and view all the answers

What is a requirement for the validity of a resolution in a partnership?

<p>Must not violate statutory law, public morals, or good faith (B)</p> Signup and view all the answers

What is the primary role of the lessor in a lease contract?

<p>To grant the lessee use of the leased item (D)</p> Signup and view all the answers

Which of the following best describes the liability of a limited partner in a limited partnership?

<p>Liable only up to the amount specified in the Articles of Association (A)</p> Signup and view all the answers

What does 'breach of contract' entail?

<p>Failure of the obligor to perform as promised (A)</p> Signup and view all the answers

In a limited liability company (LLC), what is primarily needed for decision-making?

<p>Simple majority voting among shareholders (A)</p> Signup and view all the answers

In a loan contract, what typically defines the repayment terms?

<p>Specified due date determined through mutual agreement (D)</p> Signup and view all the answers

What type of company allows for a flexible number of members with a minimum of one?

<p>Limited Liability Company (A)</p> Signup and view all the answers

What distinguishes obligations in an employment contract from those in a service contract?

<p>Employers have greater control over the performance in an employment contract (C)</p> Signup and view all the answers

Which characteristic is NOT applicable to the Articles of Association (AoA) for a General Partnership?

<p>Must specify the ceiling of liability for each partner (D)</p> Signup and view all the answers

What is a unique feature of the voting rights in a stock corporation?

<p>Voting rights are equal to the nominal value of held shares (A)</p> Signup and view all the answers

What is the legal consequence of a delay in contract performance by the obligor?

<p>Obligor is liable for damages resulting solely from the delay (B)</p> Signup and view all the answers

What governs the decision-making process in a stock corporation?

<p>A combination of the general shareholders' meeting and management board (D)</p> Signup and view all the answers

What is one of the primary responsibilities of the supervisory board in a stock corporation?

<p>Monitor and oversee the management board (C)</p> Signup and view all the answers

Which of the following best describes the liability for shareholders in a stock corporation?

<p>Only the company's assets are liable to creditors (B)</p> Signup and view all the answers

How are shares categorized in a stock corporation?

<p>Through types such as bearer shares and registered shares (A)</p> Signup and view all the answers

What mechanism can a stock corporation use to handle obstructive motions from predatory shareholders?

<p>Apply for a court order to override these motions (A)</p> Signup and view all the answers

What distinguishes the management of limited partners in a limited partnership?

<p>They are generally excluded from internal management (B)</p> Signup and view all the answers

What is a fundamental requirement for the Articles of Incorporation of a stock corporation?

<p>It must include the business name and objects of the company (C)</p> Signup and view all the answers

What defines the power of representation for managing directors in an LLC?

<p>Can be restricted internally but not externally (B)</p> Signup and view all the answers

Flashcards

Ethics

Set of concepts and principles guiding behavior that helps or harms.

Normative Ethics

Examination of standards for right and wrong actions, distinct from descriptive ethics.

Applied Ethics

Philosophy discipline applying ethical theory to real-life situations.

Business Ethics

Practices affecting organizations' core values, balancing profit and concerns.

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Law

Set of enforceable rules created by institutions to regulate behavior.

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Customary Law

Rules accepted by a community as binding, based on traditions.

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Civil Law

Legal system formally codifying laws, seen in places like Germany and France.

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Natural Law

Legal view that laws must fulfill justice to be valid, not just enacted properly.

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Tortfeasor

A person who commits a tort or wrongful act against another.

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Immoral Contracts

Contracts that violate ethical standards, often leading to legal consequences.

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Gagging Contract

A contract severely restricting another party’s economic autonomy.

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Bribery

Paying money for unauthorized or unjustified benefits.

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Usury

Charging unfairly high interest rates in loans.

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Intentional Misrepresentation

Deliberately conveying false information to deceive others.

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Public Morals

Standards of behavior accepted by society.

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Good Faith

A legal principle ensuring parties act with honesty and integrity in contracts.

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Tort Law Damages

Compensation awarded for wrongful acts causing injury or damage.

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Intent to Cause Damage

A tortfeasor’s intention to inflict harm or injury on another.

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Law vs. Justice

A contradiction between justice and positive law can arise, necessitating justice to prevail.

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Contract Definition

An agreement to clarify rights and obligations in an exchange of goods or services.

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Freedom of Contract

Contracts can include any legal terms not violating common ethics or morals.

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Purchase Contract

An agreement for permanent transfer of goods against payment.

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Loan Contract

An agreement where one party gives a thing to another, with the expectation of return, often for interest.

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Lease Contract

An agreement allowing temporary use of a property against payment.

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Service Contract

An agreement to perform a specific service for payment, involving ongoing relationships.

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Work Contract

An agreement to produce a specific work in exchange for remuneration.

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Contract Formation

Closure requires matching declarations of intent: offer and acceptance.

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Breach of Contract

Failure of obligor to perform as promised, entitling obligee to compensation.

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Causality in Liability

Assigning liability for damages requires proving that the obligor's action caused the damage.

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Negligence & Intent

Damages are awarded if the obligor is liable by negligence or intent.

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Malperformance

Failure to perform as promised, leading to liability for arising damages.

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Amendments to AoA

Changes made to the Articles of Association (AoA) of a partnership.

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Voting Process

A method by which decisions are made among partners based on predefined rules in the AoA.

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Liability in Partnership

Partners' responsibility for debts includes partnership and personal assets.

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Limited Partnership (LP)

A partnership with general partners managing and limited partners investing, having limited liability.

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General Partners (GP)

Partners who manage the business and have unlimited liability for debts.

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Articles of Association (AoA)

A primary document outlining partnership structure and operational rules.

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Decision-Making in LP

Unanimous agreement required for decisions among limited partnerships.

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Managing Directors in LLC

Appointed individuals responsible for managing the day-to-day operations of a Limited Liability Company.

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Voting Rights in LLC

Shareholders vote based on the number of shares they hold.

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Shareholders Assembly

Main decision-making body in LLC where shareholders discuss matters and vote.

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Articles of Incorporation

Document needed to legally establish a corporation, including key information like business name.

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Predatory Shareholders

Shareholders who exploit small holdings to block resolutions for personal gain.

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Corporate Liability

Creditors can only claim against a corporation's assets, not personal assets of shareholders.

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Types of Shares

Different categories of shares in a corporation that define rights and obligations of shareholders.

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Annual General Meeting

Yearly meeting where shareholders review and decide on major corporate matters.

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Good Faith (GF)

General principle ensuring fair dealing in exercising rights and duties.

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Violation of Good Faith

Misuse of rights or behaviors damaging trust and agreements.

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Duty of Loyalty

Obligation of shareholders to act in the company's best interest.

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Altruistic Rights

Rights that serve the company's interests above all.

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Self-Interested Membership Rights

Rights focused on benefits for the shareholder, with some company consideration.

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Business Judgment Rule

Protection for managers making decisions under uncertainty, focusing on the company's benefit.

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Corporate Governance Code

Framework for directing and controlling businesses, promoting transparency and accountability.

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Comply or Explain

Corporate requirement to follow codes or explain deviations transparently.

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Corporate Social Responsibility (CSR)

Companies integrating social and environmental concerns voluntarily into operations.

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Stakeholder Perspective

View that considers all parties affected by a company's actions.

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General Partnership

Business arrangement with at least two partners, requiring unanimous decisions.

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Violation Consequences

Legal actions become invalid, damages may be sought for breaches.

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Management Authority in Partnerships

All partners can manage daily operations; others need consensus.

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Key Principles of Corporate Governance

Emphasis on shareholder engagement and managerial transparency.

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Study Notes

Ethics

  • Defined: A set of concepts and principles used to evaluate behaviors as helpful or harmful.
  • Normative Ethics: Examines the morality of actions, distinct from descriptive ethics (empirical study of moral beliefs). Traditionally provides overarching moral principles.
  • Applied Ethics: Philosophic discipline applying ethical theory to real-life situations. Includes fields like business ethics.
  • Business Ethics: Practices within an organization, influencing core values positively or negatively. Reflects the interplay of profit-seeking and non-economic considerations. Promoted via ethics codes and social responsibility charters.

Law

  • Defined: Created rules enforceable by social or governmental institutions to regulate behavior, prevent and resolve conflict, and enable peaceful coexistence.
  • Origins:
  • Customary law: Rules accepted as binding by a community.
  • Statutory law: Rules created by legislative bodies.
  • Executive, judicial, or autonomous: Law shaped by authorities/judges/private individuals.
  • Legal Systems:
  • Civil law: Formally codified law (e.g., Germany, France, Japan).
  • Common law: Judges create binding case law, potentially overturned by higher courts or legislatures (e.g., Great Britain, USA).
  • Legal Domains:
  • Public law: State's relationship with individuals (constitutional, administrative, criminal law).
  • Private law: Relationships between individuals (contract, property, tort law).
  • Ethics and Law: Separate normative systems; rules justified by moral philosophy or authorized institutions. Moral vs. legal bindingness; enforcement differences.
  • Positivist view: A law's validity doesn’t depend on its moral content, as long as enacted correctly.
  • Natural law view: A law must align with justice to be considered valid.

Contracts

  • Defined: Used to clarify uncertainties in exchanges (honesty, details, remedies). Rights protected by law, enforceable by court order.
  • Freedom of Contract: Contracts can contain anything legal, not against common ethics/morals. Defined by non-monetary performance.
  • Purchase Contract: Most common, permanent transfer of ownership for payment.
  • Seller Obligations: Delivery, enabling ownership, agreed quality.
  • Buyer Obligations: Payment, acceptance.
  • Loan Contract: Permanent transfer of a thing, usually money, with interest. Payback terms negotiated.
  • Lease Contract: Temporary use of a thing for payment. Continuing obligations. Not ownership transfer.
  • Lessor Obligations: Granting use, proper condition.
  • Lessee Obligations: Paying rent, care, agreed use.
  • Service Contract: Engaging someone for a service against payment. Distinct from employment (individual control).
  • Obligor Obligations: Performing the agreed service in person (unless otherwise specified).
  • Creditor Obligations: Paying remuneration.
  • Work Contract: Engaging someone for producing work against payment. Distinct from purchase due to production.
  • Producer Obligations: Completing work to agreed quality.
  • Customer Obligations: Paying remuneration, acceptance.
  • Rules of Contract Formation: Consent, key elements (parties, performance, consideration). Offer/acceptance required. Implied consent via behavior.
  • Contract Performance: Heart of contracts. Type determines obligations. "In kind" vs. "specific". Due date.
  • Breach of Contract: Entitles obligee to compensation.
  • Impossibility: Obligor cannot perform.
  • Malperformance: Obligor fails to perform as promised.
  • Delay: Late performance.
  • Material change in transaction basis: Enabling renegotiation or rescission.
  • Liability & Damages: Causation, attribution, negligence, intent. Liability for third-party actions. Damage proven by obligee.

Immoral Contracts

  • Contracts against public morals: Always void. Public morals defined by average standards, taking legal input into account.
  • Violations: Based on transaction content and circumstances; tortfeasor's conduct assessment (purpose, means, disproportion).
  • Established immoral contracts: Gagging contracts, excessive suretyship, bribery, usury (conspicuous disproportion).
  • Legal Consequences: Reclaim of money paid; voiding interest or loan, or compensation for damages against perpetrator.
  • Injury against public morals (tort): Immoral injury in exceptional cases. Intentional immoral conduct (tortfeasor’s intent to cause damage). Proving immorality.
  • Categories of immoral conduct: Violating relationships, intentional misinformation, misuse of rights, endangering creditors. Legal consequences: Tort damages, possible contract remedy.
  • Principle of good faith: An attitude of reliability, sincerity, and consideration; clarifies/adds/supplements/corrects rights and obligations.
  • Violation of good faith: Abuse of rights, contradictory behavior.
  • Good faith vs. public morals: Public morals are external constraints, good faith are restrictions on internal conduct.
  • General Partnership: Small number of members, unanimous decision-making, unlimited liability for all partners.
  • Limited Partnership: Two or more partners, general partners with unlimited liability, limited partners with limited liability, decisions by unanimity (limited partners may have veto rights).
  • Limited Liability Company: Single or multiple members, limited liability for members, decisions via majority shareholders' assembly, management by appointed directors.
  • Stock Corporation: Multiple members, limited liability, decisions by shareholders, management by board of directors, also influenced by supervisory board.
  • Duty of Loyalty: Shareholders/directors act in company's best interests, especially avoiding conflicts of interest.
  • Business Judgement Rule: Managers are protected from liability when making potentially risky decisions in company's best interest (with limited information, scope for discretion).
  • Immoral corporate behavior: Includes abuse of voting rights, actions for annulment, destructive asset deprivation. Possible legal consequences.
  • Corporate Governance Code: System directing and controlling businesses. Voluntary principles for improved management, transparency, and accountability, typically for listed companies. Comply or explain principle.
  • Corporate Social Responsibility: Companies integrating social and environmental considerations into operations. Stakeholders' needs prioritized.

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