Global Corporate Citizenship and Sustainibility PDF

Global Corporate Citizenship and Sustainibility 1. Introduction to Principals of Stakeholder Governance 1.1. Organizational Configuration Five basic parts of an organization (Henry Mintzberg model): - Technical core o Basic work of the organization o Production subsystem o Transformation from inputs to outputs o e.g. production department - Technical Support o Engineers and researchers. Scan for problems o Technological developments o Creating innovations in the technical core o e.g. R&D and marketing research - Administrative Support o Smooth operation of the organization o Physical and human resource activities o e.g. human resource department and maintenance staff - Management (top and middle) o Directing and coordinating other parts o Provides direction, goals, strategy (Top M) o Coordination at the departmental level (Middle M). o Mediating responsibility between top and technical core (Middle M) 1.2. Basics of Corporate Governance → Shareholders, board of directors - Stock corporations that have equity stocks or shares o Stocks as certificates of ownership that frequently confer control rights, i.e. voting rights o Voting rights enable their holders, the shareholders, to vote at the annual general shareholders’ meeting (AGM) o Voting shares grant the right to appoint the members of the board of directors - The board of directors is the ultimate governing body within the firm - Its duty, in particular that of the non-executive directors, is to look after the interests of all the shareholders and other stakeholders such as employees: - The non-executives have two main roles: o 1. To monitor the firm’s top management, including the executive directors which are the other type of directors sitting on the firm’s board o 2. To provide advice, such as strategic direction → One focus definition - The definition of corporate governance is based on implicit or explicit assumptions about the firm’s main objectives. o The dominant definition from a capitalism view : ▪ “the ways in which suppliers of finance assure themselves of getting a return on their investment” (Shleifer and Vishny, 1996) - They justify this focus by the argument that investments in the firm by the shareholders (as well as the debtholders) are sunk funds (unrecoverable): Funds that investors are likely to lose if the firm runs into trouble. o In contrast, stakeholders can easily walk away from it “There is one and only one social responsibility of business–to use its resources and engage in activities designed to increase its profits…” - Milton Friedman “So we must think through what management should be accountable for; and how and through whom its accountability can be discharged. The shareholders‘ interest, both short- and long-term, is one of the areas. But it is only one.” - Peter Drucker → Other focus / definition - focuses on who has the strongest incentive for the firm to be run efficiently, - The claims of employees, customers and suppliers, etc. have to be met first before any money can be paid to the providers of finance → they come first - The shareholders are the residual risk bearers or the residual claimants to the firm’s assets - “A corporate governance system is the combination of mechanisms which ensure that the management … runs the firm for the benefit of one or several stakeholders... Such stakeholders may cover shareholders, creditors, suppliers, clients, employees, and other parties with whom the firm conducts its business.” (Goergen and Renneboog, 2006) In a questionnaire survey sent to managers of German, Japanese, UK and US companies in the 1990s, Masaru Yoshimori asks the question as to whose company it is? - 89% of UK and US managers state that the company’s objective is the shareholders - Only a minority of French, German and Japanese managers do so - 97% of Japanese managers believe the company belongs to the stakeholders rather than the shareholder. This approach is dominantly adopted by this course 1.3. Stakeholders Primary Stakeholders - They have a direct influence on firms’ survival. - Employees, Shareholders, Suppliers, Customers, and local community(natural environment). Secondary Stakeholders: - They have a no essential influence on firms’ durability. - Media, Government, interest groups, labor union, etc. Firms’ existence is found in value-creating stakeholder relationships - Economic extrinsic value (economic value) (e.g. remuneration) - Intangible extrinsic value (e.g. training). - Psychological intrinsic value (e.g. satisfaction, sense of belonging, respect, etc.). - Operational intrinsic value (e.g. acquisition of knowledge and capabilities). - Value that consists of positive or negative externalities (i.e. other stakeholders are influenced; e.g. activities to protect the environment). Principals of stakeholder governance - 1. The value creation principal. o Business creates value or destroy it for a wider range of stakeholders. - 2. The human complexity principal. o Humans’ interests are not merely limited to economic ones. - 3. The purpose principal. o Most firms are set up to meet some of kind of social need. The financial results is merely instrumental. - 4. The interconnection principal. o Value cannot be created in isolation. - 5. The cooperation principal. o Stakeholders and firms are more willing to cooperate with teach other to achieve better outcome than the one they gain by acting individually. - 6. The reciprocity principal. o It focuses on shared value when creation value for a certain stakeholder raises the value for one or more other stakeholders. 2. Corporate Sustainability: Global Grand Challenges, Concepts, and Historical Evolution 2.1. A Changing Context for Business, Nature, and Society 1) Increasing Relevance of ESG Challenges: - scientific evidence supporting the view that environmental challenges (e.g., planetary boundaries), social challenges (e.g., human and labor rights risk), and governance challenges (e.g., board structure, transparency, and corruption risk) are rising globally 2) Rising Scope and Scale of Corporate Activities: - firms have grown in size (and power) significantly; in some industries a few firms cover a high volume of production/service; firms have entered into domains formerly controlled by governments (e.g., water, security) 3) Digitalisation and Datafication: increased public scrutiny has made ir(reponsible) conduct more transparent; tech firms also contribute to ESG problems (e.g., CO2 emissions) 4) Globalisation and (the Lack of Global Governance): firms often escape national regulation due to international nature of value chains (causing a regulatory vacuum) 2.2. Global Grand [Societal] Challenges - Originally: A set of 23 problems that were collectively termed as "grand challenges" (Hilbert, 1902). - → This idea of articulating challenges to focus efforts on addressing common problems has been used successfully by foundations, governments, academies, and multilateral agencies to engender collaborative responses to solving global problems. - Definition: o A “grand challenge” is defined as a specific critical barrier(s) that, if removed, would help solve an important societal problem with a high likelihood of global impact through widespread implementation (George et al., 2016). Important Points - require coordinated, sustained efforts from diverse stakeholders. - focus on a clearly defined problem or goal. - Solutions involve changes in individual/societal behaviors, organizational structures, and advancements in technology. - Addressing GCs involves collaboration across disciplines to create global impact. Examples - Climate Change, Inequality; Global Health Crises; Political Instability and Conflict; Food Security; Water Scarcity; Biodiversity Loss; Cybersecurity Threats; Migration and Displacement; Technological Disruption 2.3. United Nation’s Sustainable Development Goals (SDGs) - Gender Equality: Achieve gender equality and empower all women and girls, addressing systemic inequalities and violence. - Clean Water and Sanitation: Ensure availability and sustainable management of water and sanitation for all, addressing global water scarcity and quality issues. - Affordable and Clean Energy: Ensure access to affordable, reliable, sustainable, and modern energy for all, supporting the transition to renewable energy sources. - Decent Work and Economic Growth: Promote sustained economic growth, full employment, and decent work for all, addressing unemployment and informal labor challenges. - Industry, Innovation, and Infrastructure: Build resilient infrastructure, promote inclusive industrialization, and foster innovation, driving economic development and sustainability. - Responsible Consumption and Production: Ensure sustainable consumption and production patterns, minimizing waste and promoting resource efficiency. - Climate Action: Take urgent action to combat climate change and its impacts, addressing global environmental challenges and promoting resilience. - Life Below Water: Conserve and sustainably use the oceans, seas, and marine resources, addressing marine pollution and biodiversity loss. - Life on Land: Protect, restore, and promote sustainable use of terrestrial ecosystems, combating deforestation and land degradation. - Partnerships for the Goals: Strengthen the means of implementation and revitalize global partnerships for sustainable development, fostering collaboration across sectors and nations. 2.4. Global Corporate Citizenship 2.4.1. GCC - MNEs Responsibility As corporate citizens operating in global markets, MNEs should address the grand challenges and meet their stakeholders’ expectations by improving CSR or sustainable practices among their affiliated subsidiaries and suppliers for the following reasons (Kolk, 2016; Wood et al., 2021): - Heightened stakeholder expectations o as they demand greater accountability and transparency in response to global challenges. - Sustainability pressures (regulated and non-regulated) o require MNEs to implement robust sustainable practices beyond compliance. - Reputational and legitimacy risks o can lead to significant reputational damage, impacting stakeholder trust. - Complex global landscape o due to geopolitical tensions, trade conflicts, and regulatory changes across diverse markets. - Opportunities for innovation o can create new market opportunities for responsible business practices. 2.4.2. GCC - Citizenship Rights - The idea that business firms have rights and responsibilities toward society, akin to those of citizens, has its roots in political science. This concept has gained significant attention in academic research and business practice since the 1980s (Scherer, & Palazzo, 2010). - In political science, individual citizens are holders of certain rights such as (Ballin, 2014; Matten, & Crane, 2005): o Private Rights: Right to own property rights, to enter contracts, & to engage in market activities. o Social Rights: Right to education and healthcare o Political Rights: Right to participate in public decision-making 2.4.3. GCC – Controversial Views - The notion of corporate citizenship is a dynamic concept and can be complex, as social and political rights may not be direct entitlements for corporations (Norman & Néron, 2008). - However, corporations can be perceived as powerful public actors with a responsibility to respect individual itizens' rights (Wood & Logsdon, 2001) → corporate citizenship describes the role of the corporation in administering citizenship rights for individuals (Matten & Crane, 2005: 173). - Scholars like Wood and Logsdon (2008) debate whether corporations should be seen as equivalent to citizens. Others, such as Norman & Néron (2008), argue that the concept of citizenship does not easily apply to corporations. - Firms should be seen as state-like agencies rather than citizens (Matten & Crane, 2005). This view stems from the fact that businesses often protect citizens' rights when governments are unable or unwilling to do so. 2.4.4. GCC – Definition - Definition: o A global corporate citizen is a multinational enterprise that responsibly implements its duties to individuals and to societies within and across national and cultural borders (Wood and Logsdon, 2002, p. 82). - Global corporate citizenship necessitates a framework of policies and practices that enable a business organization to (Logsdon, & Wood, 2005): o Adhere to a set of universal ethical standards, o acknowledge and respect local cultural variations and institutions that align with these ethical standards, o explore methods to harmonize conflicting local practices with universal standards, o establish systematic learning processes that benefit both the organization and the global community. More definitions: / views - Minimalist View of Global Corporate Citizenship (Norman & Néron, 2008) o Definition: ▪ sees corporate citizenship primarily in terms of compliance with legal obligations and basic ethical standards. ▪ This perspective emphasizes that corporations should fulfill their primary responsibilities to shareholders by focusing on profitability while adhering to the law o Focus: ▪ Corporations adopting this view prioritize their economic role, often limiting their engagement with social issues such as philanthropy. T ▪ Their approach to corporate citizenship may involve minimal efforts in CSR, primarily to avoid legal penalties or reputational damage rather than a genuine commitment to societal well-being in the long term. - Expansive View of Global Corporate Citizenship (Norman & Néron, 2008) o Definition: ▪ defines corporate citizenship as a broader and more proactive engagement with broader social, environmental, and ethical issues. ▪ It posits that businesses have responsibilities that extend beyond mere legal compliance and profit generation. o Focus: ▪ Corporations actively seek to contribute to societal goals and address global challenges, such as poverty, inequality, and environmental degradation. ▪ They recognize their role as stakeholders in society and engage in initiatives that create positive impacts. 2.4.5 Global Corporate Citizenship-Stages Five Stages of Global Corporate Citizenship (Mirvis & Googins, 2006): - Elementary Stage o Focus on legal compliance and basic ethical standards. o Minimal, reactive CSR efforts such as Philanthropy. - Engaged Stage o Recognition of the importance of social responsibility. o Proactive engagement with stakeholders and community projects. - Innovative Stage o Development of formal CSR programs. o Systematic integration of social and environmental considerations into business strategies. - Integrated Stage o CSR is deeply embedded in corporate culture and strategy. o Alignment of business objectives with social and environmental goals (ESG). - Transformative Stage o Companies drive systemic change and act as leaders in sustainable development 2.5. Dominant Concepts 2.5.1 Corporate Sustainability Actors 1. Society: - The core context of corporate sustainability. - Societies have expectations of business and certain powers over business, particularly concerning legitimacy. 2. Business: - Gives corporate sustainability substance and shapes corporate sustainability agendas in order to win legitimacy, innovate, attract new customers, motivate employees and make efficiency savings. 3. Government: - The key institutional shaper on behalf of society given their unique authority. - Business also looks to governments to ensure functioning markets (e.g., by making and applying rules of competition). 4. Natural Environment: - The imperative to include the environment in corporate sustainability analysis became more central in the light of alarming ecological trends (e.g., water scarcity, loss of biodiversity and climate change). 2.6 Phases of Corporate Sustainability Industrialization - brought concentrations of employment raising issues of labor conditions, the working week, and emuneration which also prompted pressure for labor rights and unionization. 2.6.1. The Modern Corporation: Corporate Social Responsibility Background 1950s and 1960s: the early days of the modern era of social responsibility - Bowen (1953, p 6) o social responsibilities of business executives as “the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society” - Selekman (1959) o explored the evolution of the moral responsibility of corporations as a response to the labor expectations of the time. - Davis (1960) argued that: o businessmen have a relevant obligation toward society regarding economic and human values. o He asserted that “social responsibilities of businessmen need to be commensurate with their social power” - McGuire (1963) o firm’s responsibility goes beyond its legal and economic obligations and that corporations should take an interest in politics, the social welfare of the community - Friedman (1962)’s perspective on CSR - The practical implementation of CSR during the 50s and 60s remained mostly with a philanthropic character. 2.6.2. Corporate Social Responsibility background 1980s: the operationalization of CSR - Jones (1980) → arguably the first author to consider CSR as a decision making process that influences corporate behavior. - Freeman (1984) → Stakeholders and their expectations. - The most relevant societal concerns and expectations of corporate behaviour during the 1980s: o environmental pollution, employment discrimination, consumer abuses, employee health and safety, quality of work life, deterioration of urban life, o questionable/abusiveness practices of multinational corporations. The 1990’s: globalization and CSR - During the 1990s, significant international events influenced the international perspective towards social responsibility o e.g. European Environment Agency (1994); United Nations Framework Convention on Climate Change (UNFCCC) (1992) - Burke and Logsdon (1996) → link CSR to the positive financial performance of the firm - Elkington (1998) → Triple bottom line: social, environmental, and economic impact - By the end of 1990s, there was a lack of a globally accepted definition of CSR 2000s: strategic approach to CSR - Smith (2001)→ CSR is part of a company’s strategic perspective to fulfill its long-term obligations - Marrewijk (2003) → Firms respond to their challenges by adopting different levels of integration of CSR into a company’s structure - Werther and Chandler (2005) → CSR from being a minimal commitment… to becoming a strategic necessity - Porter and Kramer (2006) → to maximize the interdependence between business and society through a holistic approach to the company’s operations 2010s: CSR and the creation of shared value - Porter and Kramer (2011, p 2) → o “Policies and operating practices that enhance the competitiveness of a company while simultaneously advancing the economic and social conditions in the communities in which it operates. Shared value creation focuses on identifying and expanding the connections between societal and economic progress” - Chandler and Werther (2013) → “The incorporation of a holistic CSR perspective within a firm’s strategic planning and core operations so that the firm is managed in the interests of a broad set of stakeholders to achieve maximum economic and social value over the medium to long term.” - UN 17 Sustainable development Goals, ESG (environmental, social, and governance) and performance, and stakeholder governance 2.6.3. Internationalization - There is a greater emphasis on planetary issues, notably climate change and bio-diversity, and natural resource issues such as water. - Rather than addressing issues through firm-level policies and practices, corporations now do so in more collaborative modes, resulting in shared approaches and practices. - Reflecting corporations’ greater connection with societal and governmental sustainability priorities, many have adopted, evaluated and communicated their policies in terms of the United Nations Sustainable Development Goals. - This is also encouraged by international financial institutions. 2.7. Differences Between MNC and SME Sustainability and Responsibility Motivation - MNCs = governed by bureaucratic systems and structures - Drivers to corporate sustainability → often the form of complying with regulatory requirements and voluntary. international standards - SMEs drivers = sustainable and responsible are much more likely to be intrinsic to the business - more likely to be interested in how their own practices affect those with close proximity to the business Communication MNCs - sustainability and responsibility activities most often explicitly communicated as a strategic dimension of the company values - have dedicated staff experts with a focus only on sustainability communications SME - owner-manager’s personal ethics = guiding principles for the SME sustainability and responsibility - These values are ‘lived’ in daily practices and embedded in the organizational culture Stakeholder Scope MNC - stakeholder relationships → dictated by transactional, contractual arrangements - How are represented by media → important part of their reputation - are often engaged with governments, working with and seeking to influence their policymaking SNE - business is very often personal and family members may well be involved formally or informally with the business - many SME owner-managers, employees are the key stakeholder - SME stakeholder relationships are probably individually negotiated and based on trust and reputation 2.8. Theoretical Aspect of Corporate Governance - Corporate governance is a global and complex concept influenced by legal, cultural, ownership, and structural differences. - The relevance of governance theories varies based on the stage of development of individual countries or regions. - Two primary governance approaches exist: o Shareholder framework: Focuses on maintaining or enhancing shareholder value as the main objective. o Stakeholder framework: Emphasizes the interests of diverse groups, including employees, creditors, suppliers, customers, and the local community. 2.8.1. Agency Theory (Jensen & Meckling, 1976) - Defines an agency relationship where a principal delegates work to an agent. - Key challenges include: o Agent opportunism or self-interest: The agent may not act fully in the principal's best interests. (→ not acting in the best intrest) o Information asymmetry: The agent typically has more information than the principal, creating a disadvantage for the principal. - Blair (1996) highlights that managers, acting as agents of a corporation's owners, must be monitored to prevent misuse of power: o Agency costs include: ▪ resulting from managers misusing their position ▪ the costs of monitoring and disciplining them to try to prevent abuse o Institutional arrangements are necessary to provide checks and balances on managerial power. 2.8.2. Transaction costs - TCE ( Coase (1937); Williamson (1975)) - Related to agency theory - Coase (1937): firm could save costs by internalizing activities rather than externally. o Undertaking transactions internally is cheaper than marketplace purchase. o But as the firm grow, there comes a point which external market becomes cheaper. The choice of governance structure (hierarchies, markets, or hybrids e.g., alliances) (Williamson, 1985) - The choice depends on promoting asset utilization while minimizing risks and hazards. - In a complex and uncertain environment, economic actors incur positive transaction costs due to: o Incomplete information: o Bounded rationality: Inability to account for every possible future outcome o Opportunistic behavior: The potential for parties to act in self-inte - Transaction Costs: o Costs arise from drafting, negotiating, monitoring, and enforcing agreements (e.g., contracts). o Firms may prefer vertical integration (in-house operations) if internalizing activities reduces these costs more than using external markets. - Factors Influencing Transaction Costs: o Asset specificity: The degree to which assets are tailored to a particular transaction. o Uncertainty: Results from incomplete contracts, unpredictable markets, or events like global crises. o Frequency of transactions: High-frequency transactions may favor internalization to achieve cost efficiency. - The diagram shows how companies decide on governance structures based on transaction costs and market size. - As market size increases, the costs of different governance structures change, and companies shift to the most cost-efficient option: 1. For small markets, exporting is cheaper and preferred. 2. As markets grow, contractual agreements become more cost-effective. 3. For very large markets, foreign direct investment (FDI) is the optimal choice. - The goal is to minimize transaction costs while managing risks such as uncertainty, frequency of transactions, and asset specificity. - Companies adapt their governance structure to promote asset utilization and respond to the complexities of the market environment. 2.8.3. Stakeholder Theory - Many companies do strive to maximize stakeholder value. → The principal of joint value creation. - Shareholders & stakeholders may favour different corporate governance structures and monitoring mechanisms. - The firm / managers = hub and each of the stakeholders is at the end of a spoke - form of managing a series of independent, dyadic relationships between the firm and each of its stakeholders - assumes (albeit often implicitly) that the firm’s managers have some form of authority (i.e., legitimate power) over stakeholders - Interactions among stakeholders, - Powerful stakeholders can influence managerial behavior - Power differential in the manager-stakeholder relationship →In favour of managers or the firm → In favour of stakeholders - forms differ in terms of the centrality of he firm and its managers in the governance of stakeholders’ interactions An organization should ensure it adheres to the following business theories and practices for effective corporate-governance procedures: - Adhere to the principle of fair accounting o To comply, organizations need to ensure they reassess the value of their assets and liabilities on an ongoing basis - Develop a corporate spirit of disclosure and transparency o Two fundamental elements of any corporate governance model - Understand the difference between corporate culture and values o Firms should seek to ensure the culture remains reflective of core values 3. Ethical Aspects of Global Sustainability 3.1 Ethical Terms Morals: Personal philosophies about what is right or wrong. Principles: Boundaries for behavior that are pervasive and specific, should not be violated, Basis for rules like human rights and freedom of speech. Values: Beliefs and ideals that are enduring and socially enforced. Business Ethics: Organizational principles, values, and norms originating from individuals, organizations, or legal systems.These guide behavior in business contexts. 3.2. Ethical Theories 3.2.1. Utilitarianism (Consequentialism) - Jeremy Bentham, John Stuart Mill. - Overview: o Morality depends on the outcomes of actions. o The ethical choice maximizes happiness or minimizes suffering. - Decision: Switch tracks to save five lives, as it creates the greatest good for the greatest number. 3.2.2. Deontology (Duty-Based Ethics) - Immanuel Kant. - Focuses on adherence to rules or duties, not outcomes. - Certain actions are inherently right or wrong. - Decision: Do not switch tracks, as actively causing harm violates moral duties, regardless of saving more lives. 3. 2.3. Virtue Ethics - Aristotle - Emphasizes developing moral character and virtues like courage, compassion, and wisdom to guide behavior - Actions are right if they align with virtues that promote a flourishing life. - Decision: interpretation of virtues like compassion and justice → depends on their interpretation 3.2.4. Ethical Egoism - Ayn Rand - Prioritizes actions that serve self-interest. - Unlike altruism, it focuses on personal well-being over others - Decision: Choice depends on personal benefit, such as avoiding guilt or legal consequences 3.2.5. Care Ethics - Carol Gilligan, Nel Noddings. - Emphasizes empathy, relationships, and caring responses. - Morality arises from personal connections and relational dynamics → ethical decisions should reflect our care for others - Likely to switch tracks to save more lives unless a personal connection influences the decision. 3.2.6. Contractualism - Thomas Scanlon. - Moral rules justified by principles all rational individuals would agree upon in a fair society - Stresses mutual respect and fairness. - might switch tracks if they believe it aligns with principles that everyone would find reasonable, would argue that in a fair system, people might agree to rules that minimize overall harm, even if it means sacrificing one to save five. 3.3. Managerial Ethical Decision-Making - Business ethics is more than an extension of an individual’s personal values. - Professionals must deal with stakeholders’ moral dilemmas. - Value Dilemmas o Occur when two or more beliefs or ideals conflict. o Example: Balancing environmental sustainability against profit goals o Ford Pinto 3.4. Moral Laden Decisions Authentic decision making: - Organizations may claim to care about stakeholders through words. - However, they might genuinely intend to address stakeholders’ interests but fail to put in enough effort to create value for them (deeds). Words-to-Deeds Dilemma Gap between what an organization claims to value and its actual actions. Includes: 1. Words: Public claims of stakeholder care. 2. Deeds: Actual efforts and actions to address stakeholder interests. Managers must align planning, decision-making, and implementation to avoid this gap. This dilemma is better understood as a process, where managers plan, decide, and implement actions aimed at creating stakeholder value Moral Decisions in Management: Managers often make moral decisions as key mechanisms to balance conflicting stakeholder interests effectively. → typical sub set-vlaue trade offs → managers face the challenge of pitting stakeholder values against one another when making decision Moralisch geprägte Entscheidungen: Zusammenfassung 1. Echte Entscheidungen treffen: o Unternehmen sagen oft, dass ihnen ihre Stakeholder wichtig sind (Worte). o Sie wollen vielleicht wirklich etwas für ihre Stakeholder tun, schaffen es aber nicht, genug dafür zu tun (Taten). 2. Problem: Worte und Taten: o Es reicht nicht, nur auf Worte und Taten zu schauen, weil es oft schwer ist, die Lücke dazwischen zu erkennen. o Es ist ein Prozess, bei dem Manager planen, Entscheidungen treffen und umsetzen, um einen Mehrwert für die Stakeholder zu schaffen. 3. Moralische Entscheidungen: o Manager treffen oft moralische Entscheidungen, um die unterschiedlichen Interessen der Stakeholder in Balance zu bringen. Reference-Dependent Decision-Making (Prospect Theory) - PT accounts for differences in risk preferences in the domain of gains versus losses with decision makers tending to give more weight to losses than to equivalent gains. o Emotional response Axes: X-axis: Shows gains (to the right of the reference point) and losses (to the left of the reference point). Y-axis: Represents the intensity of the emotional reaction to gains and losses (e.g., joy or pain). Reference Point: The reference point is the starting point from which decisions are made. Gains and losses are evaluated relative to this point. Curve Shape: The loss curve (left) is steeper than the gain curve (right). o This shows that losses carry more emotional weight than equivalent gains (loss aversion). Risk Behavior: People often exhibit risk aversion for potential gains (they prefer smaller, certain gains over larger, risky ones). For potential losses, people tend to exhibit risk-seeking behavior (they are willing to take greater risks to avoid losses) Criteria for a Reference Point 1. Power: o Decisions that risk crossing the reference point have a stronger emotional impact (e.g., regret or anxiety) than those that do not. o Diminishing Sensitivity: People are more sensitive to changes near their reference point than to those further away. 2. Content: o The reference point must be relevant to the subject of the decision. o Decision options should be evaluated in relation to the reference point in a way that aligns with the decision's context. o Organizations should handle trade-offs morally when managing reference points. 3.5. Trade-Offs in Ethics - Compensating for disadvantages on one attribute with benefits on another. - Economic View: o Values are commensurable (comparable) and can be exchanged or compensated to maximize utility. o Example: Paying an adult for their working hours. - Moral View: o Values are often incommensurable (not directly comparable), emphasizing social and ethical constraints. o Example: Compensating child labor or a mother's time raising her child is morally complex and socially constructed. Value Types - Based on moral commitments, two broad categories of values can be identified: 1. Sacred Values: o core values that people treat as infinitely significant, absolute, and protected from trade-offs, especially against monetary benefits. (e.g., human life, freedom, equality). 2. Secular Values: o ordinary or profane values such as money, time, and convenience. o their commensuration along a common scale (usually money) and, therefore, trading off among them is common and acceptable. Categories of Trade-Offs 1. Routine Trade-Offs o Secular vs. secular values o when two secular values are balanced against each other. o Example: Allocating money between employee bonuses and new office equipment; Choosing between two cost-effective suppliers. o everyday decisions in business or life, often involving measurable or financial considerations. 2. Virtuous Trade-Offs o Sacred and secular values align (e.g., environmental sustainability while maintaining profitability). o Occur when sacred (moral or core) values align with secular values, resulting in a decision that supports both ethical and practical outcomes. o Example: A company invests in sustainable energy (sacred value: environmental preservation) while reducing long-term operational costs (secular value: money). o These decisions align moral values with measurable benefits, making them desirable and easier to justify. 3. Taboo Trade-Offs o Sacred values compromised for secular ones (e.g., prioritizing profit over human rights). o when a sacred value is directly compromised or traded for a secular value. These trade-offs are often controversial or morally unacceptable to stakeholders. o Example: Allowing child labor in exchange for lower production costs, Selling environmentally damaging products purely for profit. o These trade-offs provoke ethical backlash because they prioritize mundane (secular) gains over deeply held moral principles. 4. Tragic Trade-Offs o Conflicts between sacred values (e.g., saving one life vs. another). o Occur when two sacred values come into direct conflict, forcing a choice between them. o Both options involve significant moral compromise or loss. o Example: ▪ Allocating scarce medical resources between two critically ill patients. o These decisions are emotionally and morally difficult because they involve weighing one moral good against another. Reference Points (RP1 and RP2): RP1: The threshold where decisions become ethically controversial (e.g., taboo trade-offs). RP2: The threshold for risk-seeking decisions aimed at expanding and sustaining joint value creation. Stages of Trade-Offs: Taboo Trade-Offs (Zone A): o Description: Involves compromising sacred values (e.g., human rights, environmental sustainability) for secular gains (e.g., money). o Behavior: High risk aversion; companies avoid these to maintain ethical legitimacy. o Example: Choosing profit over worker safety or child labor concerns. Facilitating Joint Value Creation (Zone B): o Description: Aligns sacred and secular values to create shared benefits among stakeholders. o Behavior: Moderate risk aversion; companies focus on collaborative solutions. o Example: Implementing sustainable practices that reduce costs and enhance reputation. Sustaining Joint Value Creation (Zone C): o Description: Embraces calculated risks to innovate and sustain long-term value creation for a broad stakeholder base. o Behavior: Risk-seeking; organizations invest in bold solutions for growth. o Example: Investing in renewable energy technologies despite high initial costs. Risk Behavior Shifts Along the Stages Taboo Trade-Offs (Zone A): o Organizations are highly risk-averse, avoiding decisions that compromise sacred values (e.g., human rights) to maintain legitimacy. Facilitating Joint Value Creation (Zone B): o Companies balance competing values, showing moderate risk aversion while focusing on aligning stakeholder interests. Sustaining Joint Value Creation (Zone C): o Companies become more risk-seeking as they innovate and invest in sustainable practices to achieve long-term growth. The graph shows that businesses must carefully navigate ethical trade-offs while balancing risk aversion and risk-seeking behavior to align stakeholder interests and achieve long-term value creation. It emphasizes avoiding harm, fostering collaboration, and embracing innovation for sustainable growth. Practical Implications for Businesses Long-term value creation requires: o Avoiding trade-offs that harm stakeholders. o Pursuing joint value creation by integrating stakeholder values. o Identifying new stakeholders to expand shared value creation. 4. Legitimacy, Non-market Strategies, and Sustainable Reporting Corporate Legitimacy - Investors need confidence that the business is good managed and profitable → look at published autides reports - Many corporate collapses happened even though the accounts were fine Failures Despite Perceived Legitimacy: o Enron: Used Special Purpose Entities (SPEs) to hide large losses. o Theranos: Manipulated diagnostic test results; Edison device proved unreliable, at the peak had a valuation of 9 Billion o Other Examples: ▪ Olympus (Japan): Financial scandals. ▪ Petrobras (Brazil): Corruption and fraud. ▪ Steinhoff (South Africa): Accounting irregularities. - Emerging corporate scandals will continue to ensure that there is a sharp focus on governance issues, especially relating to: o transparency and disclosure, o control and accountability, o to the most appropriate form of board structure ▪ → preventing such scandals - Some of the important features of such governance: o helps to ensure that an adequate & appropriate system of controls operates within a company → assets may be safeguarded. o prevents any single individual from having too powerful an influence. o aims to ensure that the company is managed in the best interests of the shareholders & other stakeholders. o tries to encourage both transparency and accountability → investors are increasingly looking for ( in corporate management and corporate performance Legitimacy: A condition that prevails when there is an congruence between an organization’s activities and society’s expectations → Definition: Exists when a company’s operations align with societal expectations. Legitimation: A dynamic process by which a business seeks to maintain its acceptance. Non-Market Strategies of Multinational Enterprises (MNEs) Ways Corporations Interact with Society: 1. Generic socio-environmental issues: ▪ firm’s operations do not affect society and the issue is relevant to the firm’s long-term competitiveness. ▪ R 2. Value chain social impacts: ▪ Normal operations significantly affect society and the environment. ▪ S 3. Socio-environmental dimensions of competitive context: ▪ social and ecological issues affect the underlying drivers of a firm’s competitiveness ▪ P Corporate Social Responsibility (CSR) Types: 1. Responsive CSR: ▪ Addresses generic social impacts through good corporate citizenship and value chain social impacts by mitigating harm. ▪ donating to people after a natural disaster, or COVID crisis 2. Strategic CSR: ▪ Transforms value chain social and ecological impacts into activities that benefit society while reinforcing corporate strategy. (CSR and value chain) ▪ Advances strategic philanthropy that leverages competitiveness. ▪ prioritize sustainable sourcing of materials, fair labor practices throughout its supply chain, and reducing its carbon footprint 3. Political CSR: ▪ Corporations play roles in addressing global issues. ▪ MNEs play a key role in the provision of global public ▪ ( presupposition that globalization = results in states suffering a loss of power) ▪ Corporations can, and should, participate within an multi-stakeholder environment to better ensure that their policies and practices are democratically legitimate ▪ Examples: ▪ Refugee hiring initiatives. ▪ Global vaccination efforts. ▪ Promoting peace in conflict zones. Collaboration Continuum Model Stages of Stakeholder Relationships: Philanthropic Stage: - Engagement Level: Low. - Importance to mission Outer - Magnitude of Resources: Small (typically financial donations or minor resources) - Scope of Activities: Narrow; limited to charitable giving or one-time actions. - Interaction Level: Infrequent (ad hoc or transactional) - Managerial Complexity: Simple (minimal coordination or strategic alignment) - Strategic Value: Minor (mainly fulfills CSR obligations without direct business benefit) o Donations to disaster relief, Sponsorships for community events. Transactional Stage: - Engagement Level: Moderate. - Scope of Activities: Broader (involves exchanges of goods, services, or support tied to specific projects) - Magnitude of Resources: Significant (includes time, funding, and other tangible support) - Interaction Level: More frequent but still limited to project needs. - Managerial Complexity: Moderate → requires coordination for clear deliverables. - Strategic Value: Medium; generates measurable benefits for both parties, often focused on operational or reputational gains. o Partnerships to hire local employees, Joint campaigns with NGOs to address environmental issues, Funding initiatives in return for specific social or environmental outcomes. Integrative Stage - Engagement Level: High. - Importance Mission: Central - Scope of Activities: Broad; embedded in the organization’s core strategy and mission. - Magnitude of Resources: Large; involves long-term commitment and significant investment. - Interaction Level: Intensive; regular collaboration with continuous feedback and adaptation. - Managerial Complexity: complex; requires shared governance, mutual trust, and co-creation of goals. - Strategic Value: Major; aligns stakeholder partnerships with long-term corporate strategy to drive innovation and sustainable value. o Co-creating sustainable supply chain initiatives with multiple stakeholders. o Multi-stakeholder platforms addressing global challenges like climate change or poverty. o Collaborative innovation efforts (e.g., creating technologies to tackle renewable energy issues). Sustainable Business Models Business models: describe (c) and influence (p) how companies create, propose, deliver & capture value. Value creation: relates in many ways to the natural environment and society - Conceptual level: ‘An business model describes how an org. creates, delivers, and captures value based on an particular value proposition.’ - practical level: what companies do and the characteristics they have - Business Model for Sustainability: o is about solving ecological and social challenges through a company's value-creation activities. o A company operating an (theoretically) perfectly sustainable business model would restore the natural environment, create social value, and profit from every product or service it sells. Business Model Patterns: 1. Pricing & Revenue Patterns: primarily address a business's revenue model. ▪ Freemium Model – Spotify 2. Financing Patterns address the financing model within a business model, Example: Crowdfunding ▪ Raising capital via platforms like Kickstarter or Indiegogo. 3. Eco-Design Patterns integrate ecological aspects into key activities and value propositions ▪ Cradle-to-Cradle Design– Designing products with their entire life cycle in mind, ensuring they can be recycled or reused with minimal environmental impact. 4. Closing-the-Loop Patterns help integrate the idea of circular material & energy flows into all operations, ▪ Product Take-Back Schemes 5. Supply Chain Patterns modify the upstream and/or downstream components of a business model, ▪ Just-in-Time (JIT) Supply Chain. 6. Giving Patterns help donate products or services to target groups in need, ▪ Buy One, Give One – For every purchased, company donates an product to a someon in need. 7. Access Provision Patterns: create markets for otherwise neglected target groups, involving modified value propositions, channels, revenue, pricing, and cost models, ▪ Pay-Per-Use Model – Providing customers with access to products or services for a fee based on usage, such as in car-sharing platforms. 8. Social Mission Patterns: integrate social target groups in need, including otherwise neglected groups, either as customers or productive partners ▪ Social Enterprises – Businesses that integrate social goals with their operations. 9. Service & Performance Patterns: emphasize the functional and service value of products and offer performance management ▪ Offering products with services tied to performance outcomes, like energy-efficient appliances. 10. Cooperative Patterns integrate a broad range of stakeholders as co-owners and co-managers ▪ Cooperatives – An business structure where employees or customers are also the owners. 11. Community Platform Patterns substitute resource or product ownership with community-based access to resources and products ▪ Sharing Economy Platforms – Platforms like Airbnb or Uber. Stakeholder Value Creation Model The firm-stakeholder interaction = dynamic process. Value is built on: - Trust: o reduces tension and enables reaching common goals. o Reciprocal trust enhances affirmative and productive relationships. - Ability collaborate o requires information sharing and learning. o Openness and transparency. o Commitment through frequent meetings, continual negotiation - Joint Interest o By finding the jointness of interests → parties can create the basis for interaction. o Common history, shared experiences, and mutual objectives. o Parties consider the objectives as meaningful Corporate Sustainability Reporting (CSRep) - Achieving sustainability requires performance accountability. - When firms measure only financial performance→ environmental & social side issues. - To achieve sustainability→ people, planet, profit must be reflected in every aspect of firm operation. - Sustainability reports (integrated reports – IR) reflect the extent to which the firm is creating value in the business’s multiple bottom lines (social, environmental, and financial). - Social Audits, Social Responsibility Reports & Environmental Impact Reports - focus specific areas. - CSRep reflects a company’s responsibility to portray (in printed reports or on corporate websites) o an account of its ecological, social and economic performance and impact, o and inform its stakeholders to what extent the company can contribute to sustainable development. ▪ Has increasingly become an subject of regulatory approaches → also remains vague, ambiguous and contested ( plus entire concept of socially responsible business) ▪ A related and emerging element: use of the internet for disclosing information and engaging with stakeholders about corporate sustainability. Approaches CSRep - Guidelines: o Non-binding and often used as a basis for the voluntary development of csreports o reflect practical experiences encountered by organisations and institutions o Development by governmental as well as non-governmental - Standards o development of standards for reporting and assurance and by the introduction of new regulations (mandatory reporting) o issued by standardization organizations & often form a basis for certification processes - Regulations o on various forms of CSRep o binding character o have been enforced by associations & ministries in various parts of the world The Corporate Sustainability Reporting Directive (CSRD): o Scope: Applies to large companies (250+ employees, €40M turnover, or €20M assets), listed SMEs, and non-EU companies with significant EU operations. o Disclosures: Environmental, social, and governance (ESG) factors, risks, impacts, and strategies. o Framework: European Sustainability Reporting Standards (ESRS) o Audit & Digital Format: Reports must be audited for accuracy and published in an machine-readable digital format. o Double Materiality: Companies must report how sustainability issues affect financial performance and how their activities impact society and the environment. o Implementation Timeline: Applies from 2024, covering the 2023 financial year. Goals: o Encourage transparency and accountability. o Promote sustainable business practices. Marc & Spencers: - How did M&S’s CSR approach complement its business model? o M&S’s CSR enhanced ist reputation for quality, community engagement, and ethical sourcing. Their “Buy British” policy and investment in employee welfare aligned with their focus on community-centric business practices. These initiatives helped M&S build brand loyalty while emphasizing social esponsibility, particularly during economic and social challenges. - Why did M&S heavily invest in CSR in the 1980s? o During the 1980s, the UK faced mass unemployment and urban decay. M&S invested heavily in CSR to address these societal issues and safeguard its business. By investing in local communities and launching charitable initiatives, M&S aimed to stabilize the market where it operated and reinforce its reputation as a responsible business, which helped protect its stores during social unrest. - What alternatives could M&S have considered in response to global competition? o Instead of resisting global competition by adhering strictly to the "Buy British" policy, M&S could have adopted a phased approach to international sourcing earlier. They could have diversified their supplier base, investing in responsible global sourcing while maintaining strong UK relationships. Additionally, earlier investments in technology, supply chain innovations, and marketing strategies for a global audience could have helped M&S adapt more swiftly to global pressures. - What risks come with being a first mover in sustainability with Plan A? o As a first mover in sustainability with Plan A, M&S may face financial risks from high upfront investments without guaranteed short-term returns. They also may encounter operational risks in implementing ambitious sustainability goals across a global supply chain with varying regulations. Moreover, the challenge of stakeholder engagement, especially within the company, may pose risks in aligning internal operations with sustainability goals. M&S also can face reputational risks if the ambitious goals of Plan A were not achieved or if competitors caught up with less effort. Should I Stay or go? - Should all firms operating in Russia divest in light of the invasion, or are there justifiable exceptions, such as firms providing essential goods? Why or why not? o Firms must weigh the ethical implications of continuing operations in Russia with the potential humanitarian need for their products. Companies providing essential goods, such as food, medical supplies, or hygiene products, may argue that divesting would harm civilians more than the state, as access to these goods can be life-sustaining. However, continuing operations may indirectly support the regime. Thus, the ethics of divestment foressential goods providers hinge on a delicate balance between humanitarian commitment and not inadvertently endorsing or supporting state actions. - How effective or ethical is the approach of firms donating profits from their Russian operations to humanitarian causes? Does this genuinely mitigate negative perceptions? o Donating profits to humanitarian causes is an approach some firms have taken to distance themselves from the conflict’s perceived endorsement while aiming to retain business continuity. Ethically, this may seem like a pragmatic compromise, allowing companies to support relief efforts actively. However, it does not completely absolve the firm, as some critics might view it as an insufficient response to the larger ethical issues tied to continued operation in a conflict area. While it may soften negative perceptions, its effectiveness depends on transparency, consistency, and the scale of aid relative to the profits earned. - For firms that have temporarily suspended operations in Russia, does this stance reflect an ethical compromise or a lack of seriousness about corporate responsibility? o Temporary suspensions could be perceived as an ethical compromise that allows firms to observe the political climate while avoiding drastic long-term decisions. While this approach shows a willingness to respond to the situation, critics may argue it lacks the decisiveness expected from a strong corporate responsibility stance, especially if the firm's ultimate aim is to re-enter once conditions stabilize. ERON – MAP - Firm is governed through these three, and they are interconnected Mindsets - Mindsets refer to the attitudes, beliefs, and cultural norms within an organization that influence decision-making, ethical behavior, and overall governance. Decision Making, Resource Planning ( Financial, Intellectual, social) Leadership, Control Enron’s Mindset: o Greed and Risk-Taking Culture: ▪ leadership; mindset of high risk and excessive focus on profit maximization at all costs. ▪ Employees were incentivized to prioritize stock price performance and earnings manipulation over sustainable and ethical business practices. o Lack of Ethical Values: 2. Architecture (of Activities) - Definition: Architecture encompasses the structural and operational systems, processes, and mechanisms used to govern organizational activities. Structure, Network of people, Communication / Collaboration, Workload / Jobs, Culture, Teamwork, Processes Enron’s Governance Architecture: o Complex and Opaque Systems: o Failure of Internal and External Controls: o Weak Governance Mechanisms: 3. Purpose - Definition: Purpose refers to the overarching goals and mission of the organization, guiding its strategic and operational activities. Value creation, Profit vs non-profit organization , Sustainability, Competitive advantage, Commercial (Activities) Enron’s Purpose (or Lack Thereof): o Stated Purpose vs. Actual Actions: o Short-Termism: Enron’s Overall MAP Governance Failure 1. Mindsets: o Toxic culture driven by greed and unethical behavior, with no prioritization of transparency or stakeholder trust. 2. Architecture: oWeak internal controls, opaque financial practices, and complicit external auditors undermined accountability. 3. Purpose: o The company’s true purpose (profit at all costs) diverged from its stated mission, sacrificing long-term value for short-term gains. → Shell Apartheid regime vs. profit. Should Ford have been transparent about the risks associated with the Pinto’s fuel tank? Yes, Ford should have been transparent, as honesty and openness about safety issues are crucial for building and maintaining trust with consumers. 2. What other courses of action could Ford have taken? Ford had several alternative approaches to balance safety concerns and competitive pressures: 1. Redesign the Fuel System: o Ford could have invested the additional $11 per car to improve the gas tank's safety. o Outcome: Although it would have raised production costs slightly, it would likely have reduced lawsuits, saved lives, and avoided long-term reputational damage. 2. Delay the Launch: o Extending the design phase by a few months would have allowed for additional testing and adjustments. o Outcome: This would have ensured the product met higher safety standards while still addressing consumer demand for a fuel-efficient car. 3. Offer Retroactive Fixes: o Ford could have introduced a recall program at launch, offering customers free upgrades to reinforce the fuel tank. o Outcome: This proactive approach could have mitigated the backlash while maintaining consumer trust. 4. Communicate Safety Features: o Ford could have marketed the Pinto as safe and reliable by emphasizing improvements in fuel efficiency and safety. o Outcome: Safety-focused messaging would have addressed competitive pressures without compromising ethical obligations. 3. To what extent should a company prioritize consumer safety over cost savings? Consumer safety should take precedence over cost savings, as it is both an ethical imperative and a long-term strategic necessity. Balancing Safety and Costs: 1. Long-Term Profitability: ▪ Ensuring safety reduces future litigation costs, regulatory fines, and reputational damage, which often outweigh initial production expenses. 2. Consumer Trust: ▪ Companies that prioritize safety cultivate customer loyalty and brand equity, which are invaluable in competitive markets. 3. Ethical Responsibility: ▪ Businesses have a moral obligation to protect their consumers, even if it means sacrificing short-term profits. 4. Regulatory Compliance: ▪ Meeting or exceeding safety standards ensures adherence to laws and avoids penalties. Ford’s Missed Opportunity: o By prioritizing cost savings over safety, Ford damaged its reputation, faced lawsuits, and ultimately incurred higher costs due to the recall and settlements. A better balance could have been achieved by investing in safety improvements upfront. #BURNBERRY The reactions to the scandal of burning clothes were various. They reached from twitter posts over Celebrity comments into politics and BALANCING EXCLUSIVITY AND governments. The backlash had a significant SUSTAINABILITY IN THE LUXURY influence on the company with the following FASHION INDUSTRY details: Negative posts on social media with their own hashtag can lead to significant business damage The reaction of celebrities in public leads to a In July 2018 the famous luxury fashion brand multiplication of negative news about Burberry Burberry became a hot topic of discussion, Other companies are trying to get rich from the following the publishing of their annual report. media attention generated by the scandal, which It showed that the company had burned is also increasing its spread excess goods that were worth 37 million USD The attention generated also attracts the in the previous year. What followed was attention of aid organizations, which have a public outrage, many expressing their opinion negative impact on the company's reputation through using the viral hashtag #Burnberry. Although this controversial practice was no exception in the luxury fashion industry, the incident in 2018 brought attention to a huge environmental and ethical problem - the destruction of enormous amounts of excess stock that is commonly performed by many brands. Reasons for burning or shredding excess stock: low costs preserving image and exclusivity by Burberry's viral scandal also has consequences creating scarcity monetary benefits (taxes, etc.) for legislation. One year after the incident, the French government banned the destruction of Other labels, like Chanel and Louis Vuitton clothing, cosmetics and accessories. This could also came under fire and a worldwide also have an impact on other governments and conversation about balancing exclusivity with their legislation. sustainability sparked. The younger It is striking that the other luxury manufacturers generations were especially adamant about making changes towards a more sustainable did not comment on the incident; it can be future. assumed that the practice was widespread in the industry. This could also have resulted in competitor companies changing their behavior. Burberry implemented a range of sustainability measures in response to the backlash over their unsustainable practices. These included immediately ceasing the destruction of unsold goods, launching circular economy initiatives in partnership with the Ellen MacArthur Timm, Hendrik Bernhard, 12321718 Foundation, and introducing the ReBurberry More, Miriam, 11706726 program to promote the resale and repair of Neuhaus, Emilia Paulin, 12343387 products. Key Takeaways for Corporate Responsibility Ethical decision-making should prioritize human lives over profits. Transparency and proactive problem-solving build consumer trust and minimize long-term risks. Balancing short-term pressures with long-term sustainability is essential for both ethical and business success. #BURNBERRY The reactions to the scandal of burning clothes were various. They reached from twitter posts over Celebrity comments into politics and BALANCING EXCLUSIVITY AND governments. The backlash had a significant SUSTAINABILITY IN THE LUXURY influence on the company with the following FASHION INDUSTRY details: Negative posts on social media with their own hashtag can lead to significant business damage The reaction of celebrities in public leads to a In July 2018 the famous luxury fashion brand multiplication of negative news about Burberry Burberry became a hot topic of discussion, Other companies are trying to get rich from the following the publishing of their annual report. media attention generated by the scandal, which It showed that the company had burned is also increasing its spread excess goods that were worth 37 million USD The attention generated also attracts the in the previous year. What followed was attention of aid organizations, which have a public outrage, many expressing their opinion negative impact on the company's reputation through using the viral hashtag #Burnberry. Although this controversial practice was no exception in the luxury fashion industry, the incident in 2018 brought attention to a huge environmental and ethical problem - the destruction of enormous amounts of excess stock that is commonly performed by many brands. Reasons for burning or shredding excess stock: low costs preserving image and exclusivity by Burberry's viral scandal also has consequences creating scarcity monetary benefits (taxes, etc.) for legislation. One year after the incident, the French government banned the destruction of Other labels, like Chanel and Louis Vuitton clothing, cosmetics and accessories. This could also came under fire and a worldwide also have an impact on other governments and conversation about balancing exclusivity with their legislation. sustainability sparked. The younger It is striking that the other luxury manufacturers generations were especially adamant about making changes towards a more sustainable did not comment on the incident; it can be future. assumed that the practice was widespread in the industry. This could also have resulted in competitor companies changing their behavior. Burberry implemented a range of sustainability measures in response to the backlash over their unsustainable practices. These included immediately ceasing the destruction of unsold goods, launching circular economy initiatives in partnership with the Ellen MacArthur Timm, Hendrik Bernhard, 12321718 Foundation, and introducing the ReBurberry More, Miriam, 11706726 program to promote the resale and repair of Neuhaus, Emilia Paulin, 12343387 products. Selina Eisler, Noah Konstantin Knecht, Devin Robert Lamhéne Fairphone - Case Study Introduction to the topic: Smartphones & E-Waste − 50 million tons of e-waste in 2018, Increase to 62 million tons in 2022 − → highlighting the rapid growth of electronic waste and the urgent need for sustainable solutions in the electronics industry − Smartphones are one of the largest contributors, due to their short lifespans and low recycling rates (less than 20%) − Complex materials: Each phone contains more than 62 metals, including rare earth elements like tantalum and gold, which are difficult to source and recycle. − 85% of a smartphone’s carbon footprint comes from its production o Mining for materials destroys ecosystems, pollutes water, and deforests land. o Toxic waste: harmful chemicals like lead and mercury i − Social costs through poor working conditions and child labour Fairphone’s Journey − Fairphone started as an awareness campaign, focusing on these issues above − Fairphone 1: smartphone made with ethically sourced materials, setting a precedent for sustainability in the tech industry. − Fairphone 2: modular design allowing users to repair and replace parts Problem Statement 1. Producing sustainable phones Product Manufacturers Suppliers sustainable practices are small interest due to too one suppliers has hundreds more expensive small order sizes of sub-suppliers lacking funds small market share -> small each component has its own Which sustainability aspects bargaining power to demand supply chain prioritize? raw materials supplies and identifying all unsustainable How green should the phone working condition practices impossible be? chile labour and poor conditions = unavoidable 2. Selling sustainable phones price competition: not in the range of global lack of brand recognition leaders, but more expensive than other mid- range phones Market prioritizes either low cost or brand reputation current customer base insufficient for scaling up biggest challenge = scaling up while staying financially sustainable (only "dark greens") Selina Eisler, Noah Konstantin Knecht, Devin Robert Lamhéne 3. Internal organizational challenges - Staff passionate about sustainability and mission, but little experience in business and supply chain management - Many idealistic ideas, but no clear strategy or targets - Nothing measurable - Democratic structure made decision-making processes very slow - Shareholders´ commercial demand: clear targets increasing sales and market share Proposed Solutions Internal Change: Major transformation to address operational inefficiencies and prepare for growth − Leadership: new CEO to guide with a more professional, results-driven approach − Key performance indicators to track sustainability efforts and financial goals − Key hires: Experts in branding, technology & management professionalizing operations − Changes → foundation of Fairphone 3 Fairphone 3: - Reasons for implementation of Fairphone o Reducing electronic waste (Repairable, modular design) o Ethical sourcing (Use conflict-free minerals and recycled materials.) o Workers' Rights (Ensure fair wages and safe working conditions) - Technical and Sustainability Highlights o Recycled Copper and Plastics o Diagram of modular components - Market positioning o Mid-market (focus on recycled materials) - Target Customers o Dark Greens (Supporting initiatives that promote fair trade and reduce environmental harm) o Light Greens (Consumers interested in sustainability but balance it with functionality, design, and affordability. They are not as deeply committed as Dark Greens.) - Environmental Impact with modular design and longevity - Future Outlook o Expanding Impact o Research into biodegradable components and circular economy materials Current Status: - Rebranding to achieve commercial targets and increase brand recognition - New products o New fairphone 5: ▪ More sustainable with 70% fair or recycled focus materials ▪ Improved technical attributes o Sustainable headphones - Overcoming complex supply chain and unsustainable material problems with participation in credit systems 2024W 040180-1 Global Corporate Citizenship and Sustainability (MA) DELL: UPCYCLING OCEAN PLASTICS THROUGH SUPPLY CHAIN INNOVATION TAKEAWAY POINTS Problem: Ocean Plastic Plastic has enhanced lives in many ways. However, it comes with many concerns. Plastic products are made with different chemical compounds that microorganisms cannot break down. This means nature cannot decompose it. Because of a shortage of adequate waste disposal infrastructure and policies, plastics often collect in certain areas such as the ocean or in coastal areas. 2010: 275 million metric tons of plastic was produced, out of this 4.8 - 12.7 million metric tons entered the ocean 2023: 413,8 million metric tons of plastic was produced ○ leading regions for plastic production: China (33%), Rest of Asia (19%), North America (17%), Europe (12%) By 2050, the ocean is expected to contain more plastic than fish Ocean plastic creates risks to marine ecosystems and sea life In order to take on the ocean plastic problem the United Nations has included "Life Below Water" as a Sustainable Development Goal. DELL: Challenges and Next Steps Like other companies Dell pledged at the United Nations Oceans Conference to increase ocean plastics usage as part of Dell's commitment to the SDGs. Next steps: ○ Utilize meaningful volumes of ocean plastics ○ Create partnerships with other companies Challenges: ○ buy-in from Internal stakeholders ○ the problem is too big for Dell alone - seek to lead like-minded companies Lucie Hornauer (12244959) & Melanie Kloimstein (51900754) 1 2024W 040180-1 Global Corporate Citizenship and Sustainability (MA) DELL: Ocean Plastics Initiative Goal: use ocean-bound plastics in supply chain Partner: Lonely Whale Development of a methodology on 4 progressive phases: Initial Assessment Haiti pilot supply chain (2016) Asia-based supply chain Scaling (2018) (2015) (2017) Locate sites with high Technical test phase Moved supply chain to Creation of concentration of South Asia (shorter supply consortium of ocean plastics Sourced 16,000 pounds of chain, area of highest like-minded HDPE from Port-au-Prince mismanagement waste) companies → Focus on ocean-bound (Haiti) NextWave plastic (material 50 km Shipped for further processing Cost savings compared to off the shore – before to North Carolina Haiti supply chain Global network of it reaches the ocean, ocean-bound Still remaining risks of but likely to end up at Shipped to Kunshan (China) to plastics supply working with new sea) mold the material into packaging chains suppliers (child labour, trays poor wastewater practices, etc.) Commitment to increase the use of ocean plastics by 2025 ten-fold Dell - Status Quo: 2030 moonshot goals ○ 100% of packaging and 50% of products from recycled or renewable materials ○ For every product bought, they want to recycle or reuse and equivalent product In 2023 doubled use of recycled material with adding it to their products Have kept the equivalent of 39.2 million plastic bottles in the circular economy and out of the ocean Lucie Hornauer (12244959) & Melanie Kloimstein (51900754) 2 Handout: DHL Envirosolutions Australia: End-of-life management services for e-waste Global Corporate Citizenship and Sustainability About DHL Envirosolutions: Specializes in reverse logistics and e-waste recycling under Australia's Extended Producer Responsibility (EPR) regulations. Holds a 43% market share in e-waste logistics, consistently exceeding recycling targets. Collaborates with global brands to achieve recycling goals. Focuses on providing cost-efficient services while maintaining high recovery rates and adhering to stringent environmental standards. Balances competitive pressures, logistical challenges, and regulatory compliance to remain a leader in sustainable e-waste management in Australia. Problems DHL Envirosolutions is facing: Cost Inefficiencies in Recycling: TVs cost AUD 300/ton vs. AUD 150/ton for computers, placing higher burdens on smaller importers and risking illegal disposal. Logistical Challenges in Transportation: High transport costs and underutilized routes in remote areas increase inefficiencies and strain resources. Regulatory Challenges: Merged quotas for TVs and computers complicate compliance under stricter EPR laws. E-Waste Growth: Global e-waste expected to grow to 80M tons by 2030, demanding scalable and proactive recycling strategies. Key Takeaways: DHL uses data to identify inefficiencies and design targeted approaches. By addressing cost disparities and regulatory gaps, DHL remains compliant and sustainable. Fair pricing and voluntary programs ensure scalability and efficiency. Partnerships with recyclers, clients, and authorities boost efficiency and influence. Prepare for e-waste growth and regulations to stay resilient in a dynamic industry. Takeaway points Unilever’s New Global Strategy: Competing through Sustainability (Bartlett, C.A.) Status Quo Strategic Repositioning Under CEO Paul Polman: Shifted corporate strategy to address internal and external challenges (including over-diversification, global coordination difficulties, slow decision-making, slowing growth, underperformance, declining stock prices, and increasing competition). The strategy involves the integration of sustainability into Unilever's core business model built on the founding belief: "Doing well by doing good." Emphasised a stakeholder approach, combining corporate growth with reducing environmental impact and increasing social contributions (Shared Value concept). Introduction of the Unilever Sustainable Living Plan (USLP): Positioned sustainability at the core of the business. Incorporated sustainability across all business areas, functions, countries, and the value chain. Addressed environmental footprint reduction (including suppliers contributing 21% and consumers 70% of Unilever's total GHG emissions, reflecting its role as a consumer products manufacturer). USLP Goals: Improve Health and Well-being for over 1 billion people. Reduce Environmental Impact by half. Enhance Livelihoods for millions. Implementation: Goals were translated into 7 specific commitments. Further broken down into 50 measurable targets to facilitate transformation into a sustainable operating business model. Problems Financial and work related problems: Difficulty of upper management acceptance of the new objectives, profits have lowered in the last year, developed markets have stalled and developing markets are slowing their growth. Environmental: Water usage and GHG emissions are mostly made by users, large supplier chain form all around the world have to follow strict environmental objectives. Social: Old Image of the brand can lower market share due to sexist phrases, difficulty to improve working conditions in undeveloped areas, users in undeveloped areas don’t have safe water access. Strategies used for the problem identification Internal Performance Monitoring Tracking Key Metrics: monitoring of specific sustainability goals such as GHG emissions and water usage revealing that VC wide goals were off-track Annual USLP Progress Report: comparison of targets against actual results, highlighting which areas require further effort External Criticism Analysis Investor Reactions: investors were skeptical about long-term financial benefits Market & Consumer Analysis Consumer Behavior Data: studies showed that consumer use accounted for 70% of its GHG emissions → need to influence end-user habits Stakeholder Feedback Leadership Insights: CEO & Leadership Executive team actively evaluated challenges identifying resistance to USLP due to cost concerns for example Employee Engagement tracking job satisfaction: feedback revealed hesitation to embrace USLP due to unclear roles, perceived cost burdens and payoff doubts Solutions Structural & Cultural Changes Replacement of key executives and shift of organizational culture to align with sustainability goals Integration of Sustainability into the core company vision to make it everybody’s responsibility rather than a CSR initiative Transformational Partnerships Collaboration with NGOs, Governments to address systemic issues such as deforestation, water scarcity and New initiatives based on innovation teams with academics Campaign Crafting Brands for Life (CB4L) Workshop & Brand Deep Dives to train marketers on integrating sustainability into brand strategies Many more brands linked their strategies to USLP priorities Strategy Adjustments “Scaling for Impact” Eliminating Deforestation Sustainable Agriculture & Smallholder Farmers Universal access to safe drinking water, sanitation & hygiene Current Status (2023) - Enhancement in Products and Sustainability Product Enhancement Prioritization of innovation across its Power Brands, presenting around 75% of the company’s turnover and grew 8.6 % in 2023 Key innovations include science-backed products in beauty, care, home care and ice cream cabinets Examples: Dove’s technologies which has the potential to reduce the amount of palm- derived ingredients in our soap bars Sustainability and GHG Reduction 74% reduction in Scope 1 and 2 (Direct & indirect emissions such as energy use) GHG emissions from its operations compared to the 2015 baseline Total GHG emissions across the value chain reduced by 4% on a per-consumer-use basis for 2022 to 2023 Significant milestones including achieving 97.5% deforestation-free supply chains for key commodities and a reduction in virgin plastic use by 18% since 2018 Investments in renewable energy and energy efficiency projects Facebook - Can Ethics Scale in the Digital Age? 2004: Founded by Mark Zuckerberg Milestones: Introduction of News Feed (2006) - Like Button (2008) - Open Graph API (2010) - Acquisitions: Instagram (2012) - WhatsApp (2014) Rebranding to Meta (2021): Aimed to lead the metaverse and immersive technologies, signaling a broader strategic focus Strategic Focus - Status Quo in 2023 Emphasis on AI, Reels and Metaverse development to compete with emerging platforms like TikTok Revenue model: Over 95% reliant on digital advertising Content Moderation Challenges Details Over 3.74 billion users posting in 100+ Volume and Diversity languages; AI struggles with nuances Compliance with GDPR (EU) and Section 230 Global Regulation (USA) creates operational tension Data Privacy Issue Details User data fuels targeted advertising but raises Reliance on User Data transparency and consent issues Cambridge Analytica (2016): Data from 87M Major Scandal users was exploited for political ads GDPR enforcement challenges balancing data Regulatory Pressure security with platform functionality Antitrust Concerns Aspect Details Acquisitions of Instagram and WhatsApp Market Domination reduced competition in social media Alleged imitation, acquisition, or suppression of “Copy, Acquire, Kill” Strategy competitors Alongside Google, Facebook dominates 60% of Advertising Control global ad revenue Social Impacts Challenge Examples Prioritization of sensational content ampliﬁes Algorithm Accountability & Misinformation extremism Addictive design features and negative Mental Health Concerns comparisons harm users Broader Societal Impact Political polarization via echo chambers Dissemination of fake news leads to real-world harm Ampliﬁed mental health risks in youth populations Solutions: Facebook’s Initiatives Content Moderation ⟶ AI tools for proactive detection; expanded workforce of 30,000 moderators Transparency ⟶ Quarterly content moderation reports; creation of Oversight Board Data Privacy ⟶ New privacy tools post-Cambridge Analytica; restricted API access to third parties Subscription Model ⟶ Introduced “Meta Veriﬁed” for paid veriﬁcation and enhanced security features Challenges Subscription models may not o set ad revenue loss particularly in low-income markets Ongoing tension between innovation and regulatory demands Ethical Mandates: Address societal issues of misinformation, mental health, and algorithm bias

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