Business Ethics & Sustainability PDF

mos 4479a 002: business ethics & sustainability SHAREHOLDER VS STAKEHOLDER A shareholder is someone who owns part of a public company through shares of stock, while a stakeholder has an interest in the performance of a company for reasons other than stock performance or appreciation. Lesson 2: busi...

mos 4479a 002: business ethics & sustainability SHAREHOLDER VS STAKEHOLDER A shareholder is someone who owns part of a public company through shares of stock, while a stakeholder has an interest in the performance of a company for reasons other than stock performance or appreciation. Lesson 2: business, ethics, society and capitalism The business-society-nature interface The disparate view The intertwined view ○ Business, society and nature are separate units ○ BSN (Business, Society, Nature) partially separable ○ Business is independent, self-regulating and of central concern ○ Interdependence, joint and integrated objectives ○ Focus on mutual value creation, triple bottom line The embedded view ○ BSN inseparable ○ A nested system where dependence is in the following order N-S-B ○ Recognizes nature as a finite life system What shapes attitudes about business firms? Standard of living Inequities in society Unemployment Decentralized decision making Business cycle Innovation Allocation of resources Business wrongdoing The Media Self-interest Globalization Government What does business require to operate? Legitimacy: belief in the rightness of an institution, in this case the appropriateness of our business system to supply the goods and services wanted by Canadian society. Social licence: is the privilege of operating in society with minimal formalized restrictions based on maintaining public trust by doing what is acceptable to stakeholders in the business and society relationship. Social contract: a set of two-way understandings that characterizes the relationship between two major institutions. Unethical activities put all three at risk Defining business ethics and sustainability Ethics of business - The rules, standards, codes or principles that provide guidance for morally appropriate behavior in decision-making relating to the operation of the business enterprise and business’ relationship with society. Broadly defined to include: ○ corporate social responsibility (CSR), corporate sustainability, triple bottom line, corporate citizenship, corporate governance, accountability, and environmental stewardship. Corporate Sustainability refers to a set of systematically interconnected and interdependent economic, environmental and social concerns that business is expected to incorporate into its activities. It recognizes that business growth and profits are important, but also requires the pursuit of societal goals, especially those related to sustainable development, such as environmental protection, social justice and equity and economic development. This can lead to many contradictions, paradoxes and tensions. What business ethics is (necessarily) not: Law, Religion, Customs, Etiquette Utopia? Overview of economic systems Economic system arrangement using land,labour, and capital to produce, distribute, and exchange goods and services to meet the needs and wants of people in society Capitalism provides most goods and services but public and non-profit sectors also involved Types of economic systems CAPITALISM - An economic system that allows for private ownership of the means of production (land, labour, capital) and assumes that economic decision making is in the hands of individuals or enterprises who make decisions expecting to earn a profit. SOCIALISM COMMUNISM Three central features of capitalism: 1) Wage labour 2) Private ownership of the means of production 3) Production for exchange and profit There are many different types of capitalism... Laissez-faire capitalism Free/private enterprise system Minimum government intervention An economic system characterized by ownership of private property by Government strictly limited to police and fire protection individuals and enterprises, the profit motive, a competitive market system, and a limited involvement by government. KEY ASSUMPTIONS OF CAPITALISM Private property ○ – Choose occupation The legal right to own and use economic goods (means of production) such as ○ – Choose goods and services for personal and business use land and Buildings You care more about your own property than that of others How economic freedom is measured What should be privately owned and what should be publicly owned? What Property rights about intellectual property? Taxation Individualism Government intervention The individual, and not society or a collective, is the paramount decision maker Regulation, International exchange, Foreign investment, Money and inflation, in society Wage and price controls, Corruption We assume that the individual is inherently decent and rational 1) Are humans decent and/or rational? Why or why not? Tragedy of the Commons Economic freedom The tragedy of the commons is the concept which states that if many people Few restrictions on business activity enjoy unfettered access to a finite, valuable resource such as a pasture, they will ○ – Freedom to voluntarily enter business tend to overuse it and may end up destroying its value altogether. ○ – Enter contract and Locate anywhere If people have access to a common area, they will drain it and destroy it - no self-regulation Equality of opportunity Assumption that all individuals or groups have an even chance at responding to some condition in society 1) What is the difference between equality of opportunity and equality of outcomes/results? ○ In cases involving individual choices, such as voluntary gambling, Equality of Outcome condemns inequality resulting from win or loss as wrong or unfair. Equality of Opportunity, however, is often understood as allowing for these inequalities and many consider this to be a decisive advantage of focusing on opportunity. 2) What are the obstacles to equality of opportunity in a capitalist system? Gender Wage Inequality, Income inequality Competition Many rival sellers seek to provide goods and services to many buyers Consumer sovereignty 1) Is perfect competition possible? The assumption that consumers have and exercise the power over producers 2) What are the barriers to competition? through the decisions they make in purchasing the goods and services provided Profit by business The excess of revenues over expenses 1) Is the consumer really “king”? The “profit motive” 2) In what areas do you feel you have power/don’t have power as a consumer? Profit maximization (?) What about things that are not profitable, but useful to society? Role of government Work Ethic In perfect capitalist market, government intervention would be virtually Code of values, or a body of moral principles, claiming that work is desirable, it is non-existing (e.g. enforcing contracts) natural activity. 1) How is the government involved in the economy? 1) Is work in itself a natural part of life? 2) Are business and government enemies? 2) Is it inherently good to work? Adam Smith’s ethical defense of capitalism (1776, Wealth of Nations) Freedom and liberty are essential values. Free people naturally pursue their own self-interests, they don’t have to be told to do so. People will choose to enter product and labor markets where there is the greatest need and opportunity. People morally self-regulate their actions based on their conscience, belief in God, concern for the well-being of others, and reason. A strong system of justice is essential to punish those who do not appropriately self-regulate themselves. Stakeholder capitalism Business accepts broader responsibilities beyond financial responsibilities with shareholders Balance the needs of shareholders with stakeholders such as employees, suppliers, customers, local communities BUSINESS FIRMS Types of Businesses The Canadian business system comprises business enterprises varying from sole or single proprietorships to partnerships and incorporated entities. Sole proprietorships (single owner, unlimited liability) Partnerships (two or more owners, unlimited liability*) Corporations (one or more shareholders, limited liability) *limited partnerships can have partners who have limited liability; there still has to be one partner with unlimited liability. Corporations a company or group of people authorized to act as a single entity (legally a person) and recognized as such in law Canadian economic system ↑ Doctrine of Incorporation: ○ – Freedom of association (vs ‘concession’): The association of individuals coming together for some purpose is fundamental to forming a corporation. ○ – Necessary regulatory restrictions by the government. ○ – When a business incorporates, a separate legal entity is created. Different types of corporations ○ Privately-owned Owned privately (e.g. founders, founding family) ○ Publicly-traded – Advantage: No shareholders to answer to Traded on the stock market (anyone can buy) – Disadvantage: Have to raise capital privately – Advantage: Can raise capital on stock market – Examples: Samsung, Cargill, Deloitte, Mars – Disadvantage: Must answer to shareholders – Examples: Apple, Exxon, Petro Canada ○ Crown corporation – Wholly-owned federal or provincial organizations that function like independent companies – Advantage: Greater freedom than government departments – Disadvantage: Still subject to constraints of government – Examples: CBC, Via Rail, Manitoba Lotteries Who runs corporations? ○ Owners – Indirect ownership (e.g., investors of mutual funds – Direct ownership (shareholders, e.g. investors, and pension funds) venture capitalists, angel investors, employees, ○ Boards of Directors governments); – Elected by shareholders to manage business and affairs of a corporation – Must fulfill legal and fiduciary obligations ○ Managers – Top Managers are hired by boards of directors – Oversee operations of corporation – Functions of managers include planning, organizing, leading and controlling Other types of organizations Not-for-profits Worker cooperatives (provides employment for its ○ an organization that uses its surplus revenues to further achieve its members) purpose or mission, rather than distributing its surplus income to Consumer cooperatives (provides products/services to the organization's shareholders (or equivalents) as profit or members) dividends. – Producer cooperatives (processes and markets the ○ Examples goods or services produced by its members, and/or Humane Society, Ted Talks, Doctors Without Borders, supplies products or services necessary to the Green Peace, The Mining Association of Canada members' professional activities) Co-operatives: A co-operative is a business that is owned by an association of – Multi-stakeholder cooperatives (serves the needs of persons seeking to satisfy common needs such as access to products or services, different stakeholder groups) sale of their products or services, or employment. ○ Examples, Mountain Equipment Co-op, Home Hardware, Assiniboine Credit Union, London Town Co-op Lesson 3: Managing Stakeholders (1) Stakeholder capitalism: A better way to think about business in the 21st century - The importance of purpose and profits - Creating value for stakeholders and financiers - Business is subject to societal forces, as well as market forces - People are complexly human as well as economic beings - Business and ethics must go together What are stakeholders? an individual, or group, who can influence and/or is influenced by the achievement of an organization's purpose  Owners, Director, Employees Business Organizations Educational Institutions, Religious Groups Customers or Consumers Competitors Service, Fraternal, Cultural, and Ethnic Lenders and Creditors, Suppliers Joint-Venture Participants Associations Service Professionals Non-Governmental Organizations The Media, Government Dealers, Distributors, and Franchisees Society at Large, Charities Categorizing stakeholders Primary vs secondary ○ Secondary (indirect influence on the exchange relationship; no legal ○ Distinguishing feature: Nature of relationship obligation): Media, society ○ Primary (reciprocal and direct exchange relationship): Employees, Internal vs external customers ○ Distinguishing feature: Organizational boundary ○ Internal: employees, shareholders ○ External: society at large, local communities Normative vs derivative stakeholders ○ Distinguishing feature: Has the business accepted benefits? Implies an added moral obligation if yes. ○ Normative (yes): employees, customers ○ Derivative (no): NGOs, the media The shareholder/stakeholder debate | Who should companies focus on satisfying? Shareholders OR Stakeholders The shareholder and stakeholder view in comparison The Shareholder view: Shareholders advance capital to a company's managers, who are supposed to spend corporate funds only in ways that have been authorized by the shareholders The Stakeholder view: managers have a duty to both the corporation's shareholders and individuals/constituencies that contribute, either voluntarily or involuntarily, to a company's wealth creating capacity and activities, and who are therefore its potential beneficiaries and/or risk bearers But... The fundamental distinction is that the stakeholder theory demands that interests of all stakeholders be considered even if it reduces company profitability In other words, under the shareholder theory, non-shareholders can be viewed as "means" to the "ends" of profitability; under the stakeholder theory, the interests of many non-shareholders are also viewed as “ends." Arguments for and against a stakeholder approach (FOR) Resource dependence (AGAINST) Loyalty/support Problems of categorization Legitimacy/social capital Challenges in meeting expectations Systematic way of managing stakehol. needs and issues Dilution of top management focus More aware of external environment Impracticality of shared governance Freeman on stakeholder theory: Businesses in decline dont pay attention to societal needs and wants, dont care about employees, dont care about its financier Why does shareholder value dominate in the US and Canada? Assertion #1: It’s what we are taught - Neoclassical economics, business school curriculum, accounting and finance. However… - Many managers have traditionally viewed their role as satisfying customer and employee interests as well as shareholder interests as their mandate Assertion 2: Incentives for shareholder wealth maximization - Executive compensation tied to share price. However… - Long-term incentive plans are gaining popularity Assertion 3: It’s the law - The laws give primacy to shareholders over other stakeholder. However… - The laws do not say stakeholder needs should not be met… Directors have: ○ Duty to care – directors should gather the necessary information before making decisions ○ Fiduciary duty – directors should act in the best interests of the corporation – selflessly, honestly, loyally From the Canada Business Corporations Act (CBCA) When acting with a view to the best interests of the corporation under paragraph (1)(a), the directors and officers of the corporation may consider, but are not limited to, the following factors: (a) the interests of ○ (i) shareholders, (ii) employees, (iii) retirees and pensioners, (iv) creditors, (v) consumers, and (vi) governments; (b) the environment; and (c) the long-term interests of the corporation. Assertion #4: Market discipline Markets will force managers into embracing shareholder value since not doing so will lead to their removal however… Research indicates stakeholder value maximization=shareholder value maximization Issues relating to ethics, responsibilities and sustainability Issue - point in question where different views are held of what is or what ought to be corporate performance-based management or stakeholder expectations Wartrick and Mahon expand: ○ a. Controversial inconsistency based on expectation gaps ○ b. Involving management perceptions of changing legitimacy ○ c. Occur with or between views of what is and/or what ought to be corporate performance ○ d. Imply an actual or anticipated resolution that creates significant impact on an organization Issue life cycle Fink’s anatomy of a crisis -> Issues can be viewed in two dimensions: ○ Over time & Degree of awareness Stages in degree of awareness: ○ None or little ○ Increasing ○ Prominent ○ Declining Lesson 4: Managing Stakeholders (2) Stakeholder and Issue Analysis Stakeholder engagement → efforts by corporation to understand and involve relevant individuals, groups, or organizations by considering their moral concerns in strategic and operational initiatives Issue analysis → effort to understand the source, nature, and extent of a question or matter in dispute facing corporation ○ – Will result in addressing or resolving the matter Basic Stakeholder Analysis Corporations can increase understanding of stakeholders by asking the following: ○ 1. Who are our stakeholders and what are their stakes? ○ 2. What opportunities and challenges are presented to our firm? ○ 3. What responsibilities does our firm have to all its stakeholders? ○ 4. What strategies or actions should our firm use to deal with stakeholder challenges and opportunities? Stakeholder Management Capability Stakeholder management capability → ability of managers to: ○ – Identify stakeholders and their influence ○ – Develop the organizational practices to understand stakeholders ○ – Undertake direct contact with stakeholders A Simple Stakeholder Map The Position / Importance Stakeholder Matrix Position/Importance Matrix Matrix mapping → technique of categorizing an organization’s stakeholders by their influence according to two variables and plotting them on a two-by-two matrix: ○ Y Axis: Oppose or support corporation ○ X Axis: Importance of stakeholders Allows managers to: ○ Assess power of stakeholders to achieve their demands ○ Whether they have means or resources to influence Stakeholder Matrix Mapping Cont’d… Four categories of stakeholders result from this analysis: ○ Problematic stakeholders - those who would oppose the organization’s course of action and are relatively unimportant to the organization ○ Antagonistic stakeholders - those who would oppose or be hostile to the organization’s course of action and are very important to the organization ○ Low priority stakeholders - those who support the organization’s course of action and are relatively unimportant to the organization. ○ Supporter stakeholders - those who would support the organization’s course of action and are important to the organization After categorization is complete, managers can develop tactics and strategies to most appropriately deal with each stakeholder The Diagnostic Typology of Organizational Stakeholders Matrix mapping (Potential for cooperation/threat) Strategies for managing ○ Collaborate (mixed blessing stakeholders = high/high) ○ Defend (Non-supportive stakeholders= low/high) ○ Involve (Supportive stakeholders=high/low) ○ Monitor (Marginal stakeholders=low/low) Stakeholder management process: ○ 1. Identify key organizational stakeholders by considering factors such as relative power, specific context and history of relationship and specific issues ○ 2. Diagnose stakeholders according to critical dimensions of potential for threat or cooperation ○ 3. Formulate appropriate strategies to enhance or change current relationships with key stakeholders ○ 4. Implement strategies, attempting to transform the stakeholder relationship from less favourable to a more favourable one Stakeholder Identification and Salience Salience → degree to which managers give priority to competing stakeholder claims Stakeholder identification and salience based upon stakeholder possession of one or more of three attributes: ○ Power → a relationship among social actors in which one social actor, A, can get another social actor, B, to do something that B would not otherwise do ○ Legitimacy → Perception or assumption that actions of an entity are are desirable, proper, or appropriate ○ Urgency → degree to which stakeholder’s claim or relationship calls for immediate attention; 1) time sensitivity (degree to which managerial delay is unacceptable to stakeholder), 2)criticality (degree to which stakeholder considers claim to be important) Classes of stakeholders: ○ a) Dormant (only power), discretionary (only legitimacy), or demanding (only urgency) stakeholders ○ b) Dominant (power & legitimacy), dangerous (power and urgency) or dependence (legitimacy and urgency) stakeholders ○ c) Definitive stakeholders (all three) Enables managers to perform systematic categorization of stakeholder-management relationships ○ Allows managers to deal with multiple stakeholder influences Stakeholder attributes are variable, not steady state Also, attributes are socially constructed Consciousness and willful exercise may or may not be present Proximity (geographic/social) as a fourth variable Stakeholder Influence Strategies Frooman → how do stakeholders try to act to influence the organization’s decision making / behavior? ○ Resource dependence → exists when a stakeholder is supplying a resource and can exert some form of control over it Two general means of control over an organization: ○ Withholding strategies → stakeholder discontinues providing a resource with intention of changing a certain behaviour ○ Usage strategies → stakeholder continues to supply resource but specifies how it is to be used i.e. attaches conditions ○ The type of resource control will depend on whether stakeholder is dependent on the firm Resource dependence also arises from relationships between stakeholders: ○ Influence pathway → where withholding and usage strategies could be used by an ally of the stakeholder with whom the organization has a resource dependence ○ The type of pathway (direct/indirect)will depend on whether the firm is dependent on the stakeholder Four influence strategy possibilities: ○ 1. Indirect / usage (firm power) ○ 2. Indirect / withholding (low interdependence) ○ 3. Direct / withholding (stakeholder power) ○ 4. Direct / usage (high interdependence) The Issue Management Process - Involves six steps: 1. Identification of issues 2. Analysis of issues 3. Ranking or prioritizing of issues 4. Formulating issue response 5. Implementing issue response 6. Monitoring and evaluating issue response Issue Materiality Issue materiality (sustainability materiality) → question or matter that is sufficiently important to warrant management’s attention An aspect or issue should be reported if it meets these criteria: ○ Reflects the organization’s significant economic, environmental, and social impacts ○ Substantively influence the assessments and decisions of stakeholders Issues are plotted and ranked in decreasing order of importance ○ Priority issues for management would be upper righthand corner ○ Next priority would be issues located in the upper left and lower right corners ○ Their influence on operations and the ease or difficulty of addressing the issues would be deciding factors for rating ○ Issues in the lower left corner are of little importance to stakeholders or management Stakeholder Collaboration Collaboration (vs. “management”) → establish and maintain relationships that allow organization to tap into powerful source of energy, ideas and wider network ○ More integrated and company-wide ○ Responsibility for stakeholder collaboration assigned to senior executive(s) FOSTERing → framework for organizations to develop collaborative stakeholder relationships ○ Involves six steps: – Creating a foundation – Organizational alignment – Strategy development – Trust building – Evaluation – Repeat the process Summary The various stakeholder matrix mapping methodologies give managers a practical approach to assessing the influence of stakeholders. The diagnostic typology of organizational stakeholders attempts to understand stakeholder influence by assessing the potential threat or potential for cooperation. The salience stakeholder typology increases the complexity of analysis by using three attributes to assess stakeholder importance: power, legitimacy, and urgency Frooman’s influence strategies provide another perspective on understanding stakeholders. He argues that managers should appreciate that stakeholders can influence one another and the corporation in direct and indirect ways and by withholding or specifying usage conditions. Issue materiality analysis has a logical connection to stakeholder analysis. Examining stakeholders and issues together increases management understanding of the environment in which the corporation operates. The FOSTERing model suggests how to move towards collaborating with stakeholders. Lesson 5: Corporate Social Responsibility (CSR) - Concept, Practice and Reporting Describing CSR The way a corporation achieves a balance among it economic, social, and environmental responsibilities in its operations so as to address shareholder and other stakeholder expectations CSR is about making sure that a business operates in a responsible way toward society and does so beyond the narrow economic, technical and legal requirements of the firm in the pursuit of some social good , beyond the interests of the firm Assumptions of CSR Corporations have responsibilities beyond the production of goods and services Dimensions of CSR These responsibilities involve helping to solve social problems, especially those Environmental: the natural environment they have helped create Social: the relationship between business and society Corporations have a broader constituency than just shareholders alone Economic: socio-economic and financial aspects Corporations have impacts that go beyond simple marketplace transactions Stakeholder: stakeholders and stakeholder groups (though not necessarily all) Corporations serve a wider range of human values than can be captured by a Voluntariness: actions not prescribed by law sole focus on economic values CSR in practice Corporate philanthropy is the effort of business to contribute to society socially and is manifested by donations of money or goods and services in kind ○ – Corporate giving Donations Charitable foundations Cause-related marketing Strategic giving ○ – Corporate voluntarism: the time and talent employees commit to community organizations with support and/or consent from employers who recognize the value of such efforts to society ○ – Corporate sponsorship: a partnership, which has been established for mutual benefit between a business sponsor and an event or a non-profit Charity or marketing? Corporate philanthropy takes different forms ○ Social venture philanthropy The investment of human and financial resources by corporations in non-profit community development agencies to generate a social return instead of only a financial one ○ Community investment  Efforts of corporation to help develop a community and create economic opportunities through variety of means Social enterprise → model of business operation where some or all profits are deliberately used to further social aims Is stakeholder theory the same as CSR? Perspective on business: CSR is more focused on society while ST takes more holistic approach Beneficiaries of responsibility: Society and community-at-large whereas ST focuses on all stakeholders Direction of responsibility: CSR is unilateral The case against CSR Managers are agents, not principals. Therefore, CSR is spending the shareholder’s money against their will Corporations are not equipped to decide what is best for society CSR reduces efficiency and personal freedom Business should focus on maximizing profit as long as it stays within the rules of the game (engages in free and open competition without deception or fraud) [Economic model of CSR] It takes the societal needs out of public hands (e.g. government) and places it into private hands Voluntary CSR is not enough. Mandatory measures are necessary What does “responsibility” even mean? What about accountability? The case for CSR Ethics* (see note) – Utilitarian, universal rules, rights, justice, virtue Legitimacy – the existence of the business system depends on its acceptance by society. If business is to prevent criticisms or mutinous behavior, it must be receptive to what is happening in society and respond in some way The business Case for CSR ○ CSR reduces costs – CSR increases reputation – CSR reduces risk – Possible tax benefits – Possible tie-ins with product/marketing – CSR can lead to identification of new opportunities – CSR is a source of competitive advantage – Win/Win for everybody! Small businesses and CSR Challenges to implementing CSR in small businesses: ○ Entrepreneurs do not have time to devote to CSR ○ Expenses associated may be too high ○ Lack of knowledge of CSR planning and monitoring Differences in CSR between large vs small firms ○ Resources relevant to small businesses not readily available Strongly influenced by personal values of entrepreneur Small businesses must confront social and ethical issues experienced by large business Some issues are associated more with small business: ○ Entrepreneurs more likely to participate in underground economy ○ Misleading advertising and financial reporting ○ Improper gift giving and receiving ○ Tax evasion ○ Ignore or are unaware of workplace regulations ○ Nepotism in hiring and promotion of family members CSR Reporting Auditing CSR First step in measurement of CSR involves some type of auditing ○ Social auditing → systematic assessment that identifies, measures, evaluates, reports, and monitors the effects an enterprise has on society that are not covered in the traditional financial reports Purpose of social auditing is to provide: ○ Information to stakeholders about the impact of the enterprise on society ○ Basis of accountability for the social consequences of corporate activities Social auditing approaches: ○ Social objective setting ○ Triple bottom line reporting ○ Sustainable guidelines ○ Externally verified social reports ○ Consultation with stakeholders Results of auditing process become basis for social reporting ○ CSR reporting → management function that documents the corporation’s economic, ethical/social, and environmental responsibilities and initiatives, and communicates this information to relevant stakeholders ○ Also known as corporate sustainability reporting Trends in Measuring Social Responsibility Measurement of social responsibility is constantly changing and managers must keep up with developments Three reasons why reporting becoming increasingly necessary: ○ To help maintain the corporation’s reputation ○ To meet demands of stakeholders ○ To sustain corporate profitability Corporate Social Reporting Guidelines Several comprehensive guidelines provide illustrations of the criteria used to assess the ethics of business and identify socially responsible initiatives: ○ Global Reporting Initiative (GRI) Standards ○ The International Integrated Reporting Council (IIRC) ○ The Sustainability Accounting Standards Board (SASB) ○ OECD Guidelines for Multinational Enterprise ○ United Nations Global Compact ○ ISO 26000 CSR Standard Global Reporting Initiative (GRI) GRI is most comprehensive and widely used guideline: ○ Independent international undertaking to establish reporting criteria to help businesses and governments to understand and communicate their impact on sustainability issues ○ Main activity is to develop Sustainability Reporting Standards that are made available as a free public good GRI standards can be used for three purposes: ○ 1. Benchmarking and assessing sustainability performance ○ 2. Understanding how organization influences and is influenced by expectations about sustainable development ○ Comparing performance within and between organizations Universal Standards ○ GRI 101 Foundation–Background on sustainability reporting and reporting principles. ○ GRI 102 General Disclosure–Report contextual information about the organization including its strategy, ethics and integrity, governance, stakeholder engagement, and reporting practice. ○ GRI 103 Management Approach–Management’s approach to each topic and explanation to material topic and its boundary. Economic Standards ○ GRI 200 Series—Topics covered in economic performance, market presence, indirect market impacts, procurement practices, anti-corruption, and anti- competition. Environment Standards ○ GRI 300 Series—Environmental standards, materials, energy, water and effluents, biodiversity, emissions, effluents and waste, environmental compliance, supplier environmental assessment. Social Standards ○ GRI 400 Series—Employment, labour/management relations, occupational health and safety, training and education, diversity and equal opportunity, non-discrimination, freedom of association and collective bargaining, child labour, forced or compulsory labour, security practices, rights of Indigenous Peoples, human rights assessment, local communities, public policy, customer health and safety, marketing and labelling, customer privacy, and socioeconomic compliance. Evaluating Canadian CSR Reporting CSR and sustainability reports cover the corporation’s economic, social, and environmental responsibility initiatives as identified in the auditing process – Several ways to improve process: ○ Codes or standards should be more transparent ○ Measures should be better explained and weightings justified ○ Efforts made to reduce compliance costs by better designed forms and measures ○ Data used should be improved, with less reliance on information supplied by management ○ Measurements of social indicators should use sophisticated methodology (as does financial performance measurement) CSR Reports: Best Practices Identify stakeholders | major stakeholders and approaches to engage Describe reporting guidelines or standards used Describe trends, risks, challenges, opportunities Include objectives for the future and report on objective accomplishments Identify and prioritize issues Use visuals to enhance appearance and readability Identify manager(s) responsible for CSR Communicating CSR and Sustainability Results Efforts must be made to communicate CSR reports to stakeholders How to inform employees: ○ Articles in newsletters – Information on employee intranet – Agenda item at meetings – Corporate reputation committees Corporations must “manage" the message Communicating CSR is a continuous process Communication with other stakeholders: ○ Customer invoices or billings (or other correspondence) – Corporate websites – Newspaper, magazine articles and television – Word of mouth Key attributes to make sustainability information useful: – Credibility – Balance – Integration with strategy – Comparability Lesson 7: Ethics Of Business: The Theoretical Basis Assessment of Ethical Implications in Business Decisions Value judgments → subjective evaluations of what is considered important ○ Based on how managers intuitively feel about the goodness or rightness of various goals Moral standards → the means by which individuals judge their actions and the actions of others ○ Based upon accepted behaviour in society Influences on Ethical Behaviour Influences become bases for an individual’s value judgments and moral standards that determine behaviour ○ Five categories: 1. Influences of Individuals 2. Corporate or Organizational Influences 3. Economic Efficiency Influences 4. Government and Legal System Influences 5. Social Influences Ethical relativism → belief that ethical answers depend on the situation and no universal standard or rules exist to guide or evaluate morality Kohlberg’s Stages of Moral Development Individuals have identifiable cognitive skill levels that they use in resolving moral dilemmas ○ Developed over time as result of educational experience and the socialization process in maturing from childhood to adulthood ○ Six stages of moral development divided into three levels: LEVEL I: Pre-Conventional Level (Self) LEVEL II: Conventional Level (Others) LEVEL III: Post-conventional Level (Humankind) Kohlberg’s Stages of Moral Development Cont’d.. LEVEL I: Pre-conventional (Self) ○ Stage 1 – Punishment and obedience orientation ○ Stage 2 – Individual instrumental purpose/ exchange LEVEL II: Conventional Level (Others) ○ – Stage 3 – Mutual interpersonal expectations ○ – Stage 4 – Law and order orientation LEVEL III: Post-Conventional Level (Humankind) ○ – Stage 5 – Social contract orientation ○ – Stage 6 – Universal ethical principle orientation Level 1 - Preconventional Rules are seen as something external imposed on one’s self Individual is very self-centered ○ Stage 1 (Punishment and obedience orientation) – Obedience to rules; avoidance of punishment ○ Stage 2 (Instrumental relativist orientation) – Satisfying one’s own needs; follow rules only if they satisfy one’s needs Level 2 - Conventional Individual becomes aware of the interests of others and one’s duty to society Personal responsibility is an important consideration in decision-making. ○ – Stage 3 (Good boy-Nice girl orientation) – behavior that pleases or helps others and is approved by them; fairness to others; commitment to loyalty in the relationship ○ – Stage 4 (Law and order orientation) – Law and order; one’s duty to society, respect for authority, maintaining social order Level 3 - Postconventional Decisions based on principled morality ○ – Stage 5 (Social-contract legalistic orientation) – Social contracts; upholding the basic rights, values, and standards that have been critically examined and agreed upon by whole society; calculate net societal benefits if necessary; personally held values or beliefs of justice, fairness, rights. ○ – Stage 6 (Universal ethical principle orientation) – Universal ethical principles that everyone should follow Characteristics of Kohlberg’s Model Kohlberg maintains that his stage sequence is universal – Same in all cultures Stages refer not to specific beliefs, but underlying modes of reasoning Suggests that people continue to change their decision priorities over time and with additional education and experience. Individual’s moral development can be influenced by corporate culture and ethics training. The Theoretical Basis for Ethical Conduct Seven most cited principles of ethical analysis: self-interest, personal virtues, caring, utilitarian benefits, universal rules, individual rights, and justice ○ Ethical principles are applied the same way in any context → not subjective measures rather objective statements Self-Interest Ethic (Ethical Egoism) Individuals or corporations set their own standards for judging the ethical implications of their actions ○ Individual’s values and standards are the basis for actions Problems with self-interest ethic: ○ Considered easy way out because person relies on own beliefs without more complicated analysis ○ Viewed as selfish behaviour ○ Leads to absolutism; failing to take into consideration interest of others It is acceptable for an individual to be appropriately self-concerned as long as interests of others are considered ○ Enlightened egoist – attentive to needs of others, and self-interest provides an incentive to restrain one’s self-interest “Maximization" of profits is acceptable as long as interests of relevant stakeholders are considered ○ Corporation must stay within rules of operation provided in society through government Ethics of Caring Gives attention to specific individuals or stakeholders harmed or disadvantaged Utilitarian Ethic and their particular circumstances Focuses on the distribution of benefits and harms to all stakeholders with the ○ – Responsibility for reducing harm or suffering of others view to maximizing benefits ○ – Solutions designed to respond to needs of particular individuals or ○ “The greatest good for the greatest number.” stakeholders Problems: Managers and corporations should act toward others in a way they would expect ○ Does not account for what is just others to act toward them ○ What should be maximized to result in community’s happiness? ○ – Golden rule: “Do unto others as you would have them do unto ○ Cannot accurately measure some costs and benefits (and/or risk of you” miscalculating them) Advantages: ○ No method for distributing costs or benefits ○ – Responsive to immediate suffering or harm ○ Violation of rights ○ – It allows for flexibility, enabling the manager to respond quickly to Utilitarian Types changing circumstances Act-Utilitarian Problems: ○ Examines the specific action itself versus rule ○ – Lose sight of the bigger picture thus unintentionally harming some ○ Sets aside the rule only if increase in net utility to all stakeholders other stakeholder Rule-Utilitarian ○ – Caring actions rely on subjective criteria that limit understanding ○ Bases behavior on rules designed to promote the greatest utility of all the factors involved Universal Rules Ethic ○ No scale between actions that are considered morally right or Ensures that managers or corporations have the same moral obligations in wrong morally similar situations ○ “What individuals believe is right for themselves, they should believe is right for all others” Individual Rights Ethic ○ Persons should be treated as end in themselves, worthy of dignity Relies on a list of agreed-upon rights for everyone that will be upheld by and respect and never as a mean’s to one’s own ends everyone and that becomes the basis for deciding what is right, just, or fair ○ Categorical imperative → Universality, Reversibility and Respect ○ Examples: Rights to safety, information, privacy, property Problems: ○ Governments identify rights in constitutions ○ Difficult to determine if someone is being used merely as a means Problems: – Determining and agreeing upon the list of rights to an end ○ Rights and/or holders of those rights can be in conflict ○ Not possible to always work to universal rules i.e. exceptions exist; Rights are not absolute and overemphasis on one might result in sometimes rules might conflict injustice Ethic of Justice Considers that moral decisions are based on the primacy of a single value: justice which will result in fair outcome ○ Ethical dilemmas arising from a conflict among rights that can be resolved by the impartial application of some general principle Each permitted the maximum amount of basic liberty compatible with others. Social and economic inequalities are allowed only if benefit all. - Treat equals (i.e., those with equal claims) equally and unequals (i.e., those with differing claims) unequally Different types of justice: – Procedural justice – Compensatory justice – Retributive justice – Distributive justice Advantages: Looks at dilemmas logically and impartially | All are perceived to have an equal right to equitable treatment Problems: ○ Difficult to decide, outside of the law, who has the moral authority to reward or punish whom ○ Ensuring benefits distributed fairly is challenging ○ Interests of particular stakeholders may be overlooked Personal Virtues Ethic An individual’s or corporation’s behaviour is based upon being a good person or corporate citizen ○ – Stress importance of developing good habits of character ○ – Emphasizes traits (virtues) such as courage, honesty, wisdom, temperance, justice and generosity ○ – People should act in ways to convey honour, pride and self-worth ○ – Virtues are acquired through learning and practice, and will become habits ○ – ‘right time, right way, right amount, and right reason’ ○ – considers the attainment of happiness or ‘eudaimonia’ ○ – Focuses on virtuous character, intention and process “Does this action represent the kind of person I am or want to be, or present the desired corporate image or reputation? Ethic of holism Ethic of Holism: ecocentric worldview that accepts that all living and non-living, sentient and non-sentient beings are equally important in the ecosystem ○ Kincentricity: humans and nature are extended family (all our relations, past, present, and future, are important) ○ Seven generations thinking: balancing actions now to make sure we are not stealing from future generations and their capacity to live a good life, using the wisdoms of the ancestors as a guide Ethic of Holism Ethical Principles ○ 1. Act in such a way that individual and collective wellbeing are nurtured through focus on harmony within oneself, peace with others, and balance with nature ○ 2. Ensure that we harvest from nature in a way such that it does not compromise ecological integrity and can be sustained for future generations Businesses are stewards: they do not own but take care of their surroundings for themselves and for future generations Four Component Model of Morality (FCM): Four independent and necessary processes that contribute to moral behavior Moral sensitivity ○ Ability to identify what is ethical and unethical ○ Interpret each situation in terms of possible alternatives, stakeholders (including oneself) and impact on stakeholders Moral judgement ○ ability to reason through several courses of actions and making the right (just or fair or morally correct) decision when faced with an ethical dilemma – What a person ought to do (morally) Moral motivation – Give priority to moral values above others (e.g. personal), so that the intention behind the decision was to do the morally right thing Moral implementation – having one’s ethical intentions match actions taken (e.g. through perseverance, implementation skills, not succumb to obstacles, withstand fatigue and flagging will, etc.) Ethical Dilemmas Situation or problem where a person has to make a difficult choice between two alternatives, neither of which resolves an issue or problem in an ethically acceptable fashion Approach to handling: ○ – Identify the ethical principles involved ○ – Review or analyze the problem using one of the ethical principles outlined previously ○ – Examine the problem from an ethical perspective different from the one(s) used initially Moral Reasoning Approaches to Considering Ethical Implications in Business Decisions Systematic approach to thinking or reasoning through the implications of a moral problem or issue Behavioral Ethics Behavioral ethics emphasizes how individuals actually make decisions Kahneman suggests two distinct modes of decision making: – System 1 thinking is an intuitive system of processing information Fast, automatic, effortless, and emotional – System 2 thinking is a reasoned decision process Slower, conscious, effortful, and explicitly S1 Imagine that the government is preparing for the outbreak of an unusual disease, which is expected to kill 600 people. Two alternative programs to combat the disease have been proposed. Assume that the exact scientific estimate of the consequences of the programs are as follows: ○ – If Program A is adopted, 200 people will be saved. ○ – If Program B is adopted, there is 1/3 probability that 600 people will be saved, and 2/3 probability that no people will be saved. ○ Which of the two Programs would you favor? S1a Instead of Programs A and B, the following alternative Programs C and D are given (all else the same): ○ If Program C is adopted, 400 people will die. ○ If Program D is adopted, there is 1/3 probability that nobody will die, and 2/3 probability that 600 people will die. S2 Participants are told they are given $300. Then asked to consider the following two options: ○ Option One: Gain $100 ○ Option Two: 50% Gain Nothing, 50% Gain $200 S2a Participants are told they are given $500. Then asked to consider the following two options: ○ Option One: Lose $100  ○ Option Two: 50% Lose Nothing, 50% Lose $200 Cognitive Errors & Biases People do not necessarily make decisions as we might expect of a rational actor ○ Rules of thumb and biases shape ethical decision-making in ways they do not understand or may not notice Framing effect and loss aversion Incrementalism Tangible versus the abstract Overconfidence Self-serving bias Bystander effect Prejudice/stereotyping In-group favoritism ○ Groupthink: the mode of thinking that persons engage in when concurrence seeking becomes so dominant in a cohesive ingroup that it tends to override realistic appraisal of alternative courses of action Moral Intensity Characteristics of moral issue (Moral Intensity) affects decision making ○ Magnitude of Consequences, Temporal Immediacy, Social Consensus, Proximity, Probability of Effect, Concentration of Effect Understanding unconscious biases that people may have is an important first step to preventing unethical behavior Lesson 8: Ethics Of Business - Management And Leadership Ethics: Who is Responsible? Managerial Approaches to Ethics Boards of directors have two tasks in relation to ethics: ○ – To collectively identify values that determine acceptable behaviour in the firm ○ – Put in place a process that ensures values are reflected in action Success of any ethics programs depends on commitment of top management: ○ – Develop and announce the program ○ – Champion its development and implementation ○ – Aspire to lead in an ethical manner ○ – Immoral, amoral and moral approaches Management styles: 3 approaches to effective management Financial Bottom Line (FBL) management ○ – Maximizes financial performance ○ – A consequential utilitarian logic Triple Bottom Line (TBL) management ○ – Maximizing financial, social and ecological performance ○ – An enlightened consequential utilitarian logic Social and Ecological Thought (SET) management ○ – Prioritizing social and ecological performance over financial Shifts away from profit ‘maximization’ to a ‘viable’ level performance Frames conventional resource-based view and VRIN differently ○ – Aiming viable financial performance Value= for any or all of the firm’s stakeholders ○ – A virtue ethics logic Rare=firm needs to act responsibly for humankind by sharing Inimitable= firm’s responsibility to teach others Competitive advantage: The Resource Based View (RBV) Non-substitutable= welcome alternatives that enhance social welfare Competitive advantage obtained through resources and capabilities that are: – A SET approach to strategic management Valuable – Rare – Non-substitutable – Inimitable An FBL approach to strategic management Competitive advantage: Radical Resource-based View Based on virtue theory and a less individualist/materialist perspective Reputation for ethical leadership Moral person Moral manager Traits: Integrity, honesty, trustworthiness + Role-modeling through visible action Behaviors: do the right thing, concern for people, being open, personal morality Rewards and discipline Decision-making: hold to values, objective/fair, concern for society, follow ethical decision rules Communicating about ethics and values Ethical leadership types - Four types of executive ethical leadership (focus on reputation): – Hypocritical leader = strong moral manager and weak moral person – Unethical leader = weak moral manager and weak moral person – Ethical leader = strong moral manager and strong moral person – Ethically silent leader = weak moral manager and a strong moral person; general perception could be close to that of an unethical leader Corporate Ethics Programs Classification of programs: ○ Formal approach → based on organizational norms that are written as a code of conduct ○ Monological approach → allows managers and employees to determine for themselves what is right or wrong ○ Dialogical approach → emphasizes communication before decisions are made and implemented Comprise some combination of the following: a statement of values, code of conduct and/or ethics, ethics training, ethics audits and consulting services, ethics officers and committees, and ethics reporting systems Statement of Values A description of the beliefs, principles, and basic assumptions about what is desirable or worth striving for in an organization. Types of values (25% explicit/practised): ○ – Accidental: Not deliberately nurtured and emerge spontaneously ○ – Aspirational: Essential for future success, but currently absent, commonly explicitly stated ○ – Core: Embedded, guiding forces, may not be written down ○ – Permission-to-play: “Table stakes” for an industry Codes of Conduct and Ethics Code of conduct → explicitly states what appropriate behaviour is by identifying what is acceptable and unacceptable Code of ethics → a statement of principles or values that guide behaviour by describing the general value system within which a corporation attempts to operate in a given environment Distinction between Codes of Conduct and Codes of Ethics Types of codes:  ○ Corporate or business enterprise, Professional organizations, Industry and sector ○ Single issue, Codes from national and international bodies Codes institutionalize ethical behaviour by: ○ Increasing awareness ○ Discouraging ethical apathy ○ Facilitating ethical decision making ○ Making it easier to refuse an unethical request CPA Ontario Code of Professional Conduct 5 fundamental principles of ethics ○ Professional behavior (maintain good reputation and serve public interest) ○ Integrity and due care (straightforward, honest and fair; diligent actions) ○ Objectivity (not to be compromised by bias, conflict of interest or undue influence) ○ Professional competence ○ Confidentiality “…enforceable by sanctions, does not by its nature state the most that is expected of members and firms, but simply the least. “ “Ethical conduct in its highest sense, however, is a product of personal character an acknowledgement by the individual that the standard to be observed goes beyond that of simply conforming to the letter of a list of prohibitions.” Content of Codes of Conduct and Codes of Ethics A general statement of ethics, values, or philosophies Criteria for decision making and compliance with laws Responsibility toward employees, including items such as health and safety, diversity, a respectful workplace, and privacy Conflicts of interest, their identification, and how to handle them Protection of corporate assets, including accurate accounting and record keeping, security or property, and insider information Appropriate business practices, including honesty, fairness, obeying the law, and information disclosure Appropriate conduct on behalf of the corporation; for example, relationships with customers, suppliers, competitors, creditors, and government Responsibilities to society at large, including contribution to political parties, lobbying government, responses to media, treatment of communities, and concern for environmental protection Implementation procedures, including familiarity with the code, reporting of violations, refusing unethical requests, and seeking help on ethical matters Specification of enforcement/compliance procedures and the penalties for inappropriate or illegal behaviour. Conflicts of Interest: When an individual has a private or personal interest that is sufficient to appear to influence the objective exercise of that individual’s duties Common Conflicts of Interest Self-dealing—Exists where a manager or employee takes an action in an official capacity that involves dealing with oneself in a private capacity and that confers a benefit to oneself. Today this extends to one’s spouse, family members, and business partners. Accepting gifts or benefits—Involves the acceptance of some benefit. Influence peddling—The practice of soliciting some form of benefit; for example, asking for a kickback or gift from a supplier if a purchase is made. Using employer’s property—The inappropriate use of an employer’s property; for example, taking office supplies for home use. Using confidential information—The use for personal or private purposes of confidential information obtained from some other source, for example customers or suppliers, to gain some benefit. Outside employment or moonlighting—The work or activity in which an employee engages outside normal working hours for additional remuneration. Post-employment—Subsequent or future employment where information or contacts obtained during employment results in some benefit. Personal conduct—The situation where an employee’s behaviour in private life may reflect adversely on the employer. Handling conflicts of interest Criticisms of code of ethics Remove the conflict (e.g., resign from a position, sell shares) Unenforceable standard Disclose the conflict and ask permission to engage in a certain action (e.g., hiring Unnecessary, as most corporations operate at ethical level above code committee service for talented friend) Only necessary for the less scrupulous Recusal (abstention in cases of conflict) Penalties may be insignificant Request third-party evaluation of the potential conflict of interest (e.g., Convincing everyone to comply is not easy professional body, HR department) Often idealistic and written in meaningless generalities Ethics Training Merely to control competitive conduct among corporations, designed to prevent Involves teaching employees about the values and policies on ethics they should government legislation follow in their decision making Serve as a response to public criticism Teaching sessions can involve: ○ Managers or outside consultants ○ Addressed to all levels of employees, with emphasis on management ○ Online exercises ○ Practical checklists and tests to evaluate actions Checklists and Tests Plainly worded questions should be used by managers when examining ethics of a business decision ○ – Examples: Have you defined the problem accurately? How did this situation occur in the first place? Etc. Pagano model → identifies six tests that provide insights into the ethics of a business’ actions: ○ 1. Is it legal 2. Benefit/cost test 3. Categorical imperative - Do you want this action to be a universal standard? 4. Light of day test - if it was printed on a newspaper would you be okay with it? 5. Do unto others - would you be okay if this action was done onto you 6. Ventilation test - would you share the info with a neutral third party to see their opinion Ethics Audits, Managers, and Committees Systematic effort to discover actual or potential unethical behaviour in an organization ○ – Designed to uncover unethical behaviour and identify existing opportunities for unethical behaviour ○ – Useful in conjunction with a code of ethics Ethics officer → independent manager who: ○ – Reports to the board of directors or CEO ○ – Reviews complaints or information from anyone in the organization or any stakeholder – Studies situation and recommends action if necessary Compliance officer → ensures all employees are familiar with corporation’s policies and codes, and with government laws and regulations (often corporate secretary in Canada) Ethics committees → group of directors, managers or staff formed to monitor ethical standards and behaviour Whistleblowing Ethics reporting systems often take the form of “hotlines” Act of voluntary disclosure of inappropriate behaviour or decisions to persons in positions of authority in an organization Issues: – Remain silent, quit, or disclose wrongdoing? – Range of concerns from clearly illegal to maybe illegal to issue of morality – Does obligation to employer supersede obligation to self, profession, or industry? – Will the whistleblower be believed? – Is the whistleblower a hero or a snitch? – When and who to tell? – What will the consequences be? – Should whistleblowing be rewarded? Establishing an Ethical/Responsible Culture  Corporate culture is the shared beliefs of employees and top managers in a company about how they should manage themselves and other employees, and how they should conduct business. ○ – Be a role model and be visible ○ – Communicate ethical expectations; promote humility ○ – Offer ethics training and skill building ○ – Visibly reward ethical acts and punish unethical ones ○ – Provide protective mechanisms and the tools people need to act ethically ○ – Give back, e.g. through volunteer work Place-basedness “What begins as undifferentiated space becomes place as we get to know it better and endow it with value” (Tuan 1977, p. 6, italics added). Place-basedness is a cultural dimension where all members possess a shared sense of meaning of place. Having a place-based culture will inherently make the organization more caring of their community, which manifests as better corporate social and environmental performance. (Kim, Haider, Wu & Dou, 2020) Discussion: How would you build a culture of place basedness in the workplace? Effective Ethics Management FIRST: Understand the Existing Ethical Culture SECOND: Communicate the Importance of Ethical Standards THIRD: Focus on the Reward System FOURTH: Promote Ethical Leadership Throughout the Firm Implicit ethics programs are implemented through: ○ Organization’s culture, reward systems, valued behaviour, promotion policies, management example, general practice and performance measures Criteria for an effective ethics program: – Visibility – Ownership – Fit – Balance Benefits of Ethics Programs – More favourable public image – Business practices more beneficial to society – Increased awareness of ethics Why Ethical Leadership and Programs Fail – Alignment of corporate behaviour with values Managers are morally imperfect – Heightened ethical sensitivity of employees and managers Self-interest – Sensitizes managers and employees to legal requirements Rationalization and self-delusion – Avoidance of criminal acts Threat of formal sanctions – Integration of values with quality and strategic management Threat of informal sanctions – Implications of management decisions on stakeholders Tolerance to risk-taking behaviour Pressure in particular situations Lesson 9: The Environment And Business Responsibilities: Case Study 'Sasol' Business, Its Stakeholders, and the Natural Environment Environmental issues confront virtually all aspects of the corporation, from: ○ Input of resources to manufacturing process ○ Workplace conditions through to the way products are packaged and sold Managers must cope with planning, organizing, leading, and controlling all the aspects of the environmental issue Commons → any resource used as though it belongs to all The Environmental Ethic and Sustainable Development Environmental ethic → set of values or principles that govern a corporation’s practices relating to the environment Sustainable Development → development ensuring that the use of resources and the impact on the environment today does not damage prospects for the use of resources or the environment by future generations Business sustainable development → adopting business strategies and activities that meet the needs of the enterprise and its stakeholders today while protecting, sustaining, and enhancing the human and natural resources needed in future Environmental Concerns in Business and Society Acid rain Air pollution Ecosystems Energy production and consumption Nature and wildlife Ozone Pollution Waste management Water quality Climate change / global warming Government’s Influence Extensive government involvement exists through public policy formulation and the regulation of all aspects of the natural environment ○ Canadian Environmental Protection Act, Canadian Environmental Assessment Act, Kyoto Protocol Government departments and agencies established to: ○ Regulate the activities of corporations ○ Assist corporations in meeting environmental performance targets ○ Examples: Environment Canada, Canadian Council of Ministers of Environment, National Roundtable of the Environment and the Economy, Canadian Environmental Assessment Act Agency Environmental NGO Influence Environmental non-governmental organizations (ENGOs) → groups that hold shared values or attitudes about the challenges confronting the natural environment and advocate for changes to improve the condition of the environment. ○ Influence corporations through protests, blockades, boycotts, and annual shareholder meetings ○ Example: Greenpeace Why Do ENGOs Target Some Firms? ENGOs select corporations to target based on: ○ Firm is the source of the environmental impact – Extent of the consequences of the firm’s actions – Denser relationships among firm’s ENGOs – Larger the firm – Greater influence of the firm within their industry – Previous interactions with ENGO – Closeness of the firm to consumers in the supply chain – Firm’s brands are well known Influence of Market-Driven Environmentalism Standard environmentalism → government regulation is necessary remedy for the market’s failure to provide enough environmental amenities Market environmentalism → economic incentives created by market are more effective at protecting the environment than government intervention Market factors influencing environmentalism are: – Economic growth – Free trade – Property rights Market-Driven Environmentalism Carbon pricing → financial instrument that businesses and governments are using to reduce carbon emissions, which can be done in one of three ways:  ○ Cap-and-Trade → governments cap total carbon emissions and then give or sell companies carbon permits that add up to the cap ○ Carbon Pricing → governments impose a fee on carbon ○ Output-based Price System → instead of paying the charge on fuels that they purchase, industrial facilities in the system will face a carbon price on the portion of their emissions that are above a limit Offsets (emissions-reduction credits) → credits purchased from other corporations or organizations to mitigate greenhouse gases released into the environment ○ The funds generated used to finance undertakings that will result in the reduction of emissions Carbon capture and storage (CCS) → carbon emissions are captured and injected into underground formation. ○ Referred to as carbon sequestration or geosequestration ○ Can be expensive and difficult to implement Business Responses to Environmental Issues Management positions and committees should be created to deal with the environment issue Key to have top management commitment so that there are practical principles to: ○ Guide the corporation’s environmental efforts ○ Integrate environmental affairs with operations ○ Encourage environmental professionals to meet mounting environmental requirements Different approaches to environmental concerns: ○ Token response - focuses on damage control as problems arise and attempts are made to fix them ○ Compliance with laws and regulations - concern about lawsuits and prosecution has motivated managers and executives to adopt strategies of compliance ○ Comprehensive environmental management - management seeks to gain a competitive advantage by taking an active stance on environmental issues ○ Sustainable development - corporations integrate concepts of sustainable development into their business strategies and environmental policies Corporations need comprehensive environmental policies and programs ○ Referred to as environmental management systems (EMS) → ensure that environmental practices become an important component of the corporation’s overall strategy ○ EMS helps corporations to: Reduce costs Respond to investor demands Facilitate regulatory approaches and mitigating operational risk Hire best employees Meet consumer demand for “green” products and services Financial Management Includes consideration of environmental factors and involves many aspects: ○ Accounting guidelines ○ “Eco-insurance” products now available ○ Environmental assessments necessary to determine influence on financial performance and liability ○ Investments being screened for environmental performance ○ Shareholders unhappy with a corporation’s environmental policy may hurt its financial performance Marketing Green marketing → selling environmentally friendly goods and services to consumers Consumers are increasingly considering ecolabels when purchasing products – To increase the legibility and trust in eco-labels, third-party certification is occurring Are consumers willing to pay the increased prices often necessary for many green products? Human Resources Eco-friendly policies and practices are influencing the recruitment and retention of employees Practices and Policies to Create the Green Workplace Offering a recycling program for office products, including donating and discounting used office furniture to employees or charities, and banning disposables such as plastic utensils and paper cups and plates. Conserving energy by using energy-efficient lighting systems, and equipment, and installing automatic shutoffs of idle equipment. Encouraging employees to be more environmentally friendly by promoting walking, biking, and using public transport to work. Providing bike stands, showers, and fare subsidies. Creating a pesticide-free green landscape with trees, lawns, and gardens. Reducing emissions through less travel and climate control, striving for carbon neutrality. Purchasing renewable energy credits. Conducting virtual meetings through video and teleconferencing thus reducing travel. Using natural lighting, with windows and skylights. Investing in community environmental initiatives. Requiring suppliers to be green. Publicly disclosing sustainability initiatives through reports that identify objectives and detail the progress made in achieving them. Convincing employees of program benefits and top management support. Providing incentives for environmentally friendly behaviour. Organizing employee committees to provide advice on practices. Operations Business is trying to implement environmentally friendly processes and Environmental Sustainability Measures and Standards technologies into all aspects of operations or the production function Coalition for Environmentally Responsible Economies (CERES) ○ Three main areas of activity: Pollution reduction Waste International Organization for Standardization ISO 14000 management and recycling Energy conservation International Institute for Sustainable Development (IISD) Canadian Sustainability Indicators Network (CSIN) Measuring and Reporting on Environmental Sustainability Environmental and Sustainable Development Indicators Initiative (ESDI) Examples of indicators used to evaluate environmental performance: ○ Type and amount of materials used Dissenting Views on the Environment ○ Source of energy and efficiency of use Not everyone agrees that business should play leading role in protecting ○ Source and quality of water environment ○ Impact on biodiversity Criticisms of sustainability: ○ Reduction of emissions, effluents, and waste ○ Concept difficult to define and understand ○ Product design that minimizes impact ○ Means stopping or constraining economic development ○ Compliance with environmental regulations ○ Implies capitalism is unsustainable and morally lacking ○ Use of efficient transportation mode ○ Lacks understanding of markets and moralistic system of markets ○ Executives are being misled into responding to it as a social issue The Environment: Corporate Opportunities Corporations face many opportunities as they attempt to practice sustainable development: ○ Reputations likely enhanced ○ Better integration with local community ○ Revenues may suffer if customers are lost ○ More competent staff attracted ○ Business opportunities emerge from new ○ Investors may decide not to invest ○ Customers attracted technologies ○ Material and production costs may increase ○ Investors attracted ○ More efficient ways of producing products ○ Financial penalties increasing ○ Costs reduced through found ○ Insurance premiums can increas