7-12 CSR REVIEWER.pdf

What is triple bottom line reporting? UNIT 3 - CORPORATE GOVERNANCE A framework for measuring and Lesson 7: Triple Bottom Line Reporting reporting corporate performance in CSR...

What is triple bottom line reporting? UNIT 3 - CORPORATE GOVERNANCE A framework for measuring and Lesson 7: Triple Bottom Line Reporting reporting corporate performance in CSR against economic, social and environmental parameters. What is sustainability? From one dimensional economic reporting to three dimensional A strategy thatseek economic economic, social and environmental development approaches that reporting. benefit the local environment and quality of life. How is TBL reporting accomplished? Is a process of achieving human development. Economic Contributed through effective Generally Accepted management of social, economic, Accounting Principles and environment benefits. Customers Suppliers Global Drivers of Sustainability Employees Increasing Industrialization Social Proliferation & Interconnection of Bribery and corruption Civil Stakeholders Political contributions Emerging Technology Child labor Effects of Globalization-poverty, Security practices inequity, population explosion Indigenous rights Training and diversity Triple Bottom Line Accounting Environmental Expanding the traditional reporting Energy framework Water Consider environmental and social Biodiversity performance in addition to financial Emissions, effluents, and performance. waste Company's responsibility to 'stakeholders' rather than How is TBL reporting accomplished? shareholders. Legislation permitting corporations to Through the application of Global adopt a 'Triple Bottom Line' is under Reporting Initiative 2002 or GRI and consideration in some jurisdictions. is defined as “a common framework The triple bottom line has been for sustainability reporting” adopted as a part of the State Started in 1997 by the Coalition for Sustainability Strategy Environmentally Responsible Economies and the United Nations  GRI became independent in 2002 social performance measurement into a and is an official collaborating center single report of the United Nations Environment Programme (UNEP) and works in “You cannot talk about CSR unless you love cooperation with UN your people and your country” Secretary-General Kofi Annan’s Global Compact. The Global Reporting Initiative attempts Lesson 8: Corporate Governance to make the Triple Bottom Line operational Corporate Governance VISION The procedures and processes according to The Global Reporting Initiative’s (GRI) which an organization is directed and vision is that reporting on economic, controlled. environmental, and social performance by all organizations becomes as routine and The corporate governance structure comparable as financial reporting. GRI specifies the accomplishes this vision by developing, distribution of rights and responsibilities continually improving, and building capacity among the around the use of its Sustainability different participants in the organization — Reporting Framework. such as the managers, shareholders, and other How organizations strategically manage stakeholders — and CSR through triple bottom line reporting: lays down the rules and procedures for decisionmaking. TBL reporting enables organizations to: Problems with the management of Measure and manage their financial corporations and non-financial performance and impacts or lack. 1. Management self interest Have their performance and impacts 2. Fraud verified independently 3. Anti-social corporate behavior Communicate effectively with 4. Hiding or falsifying information consumers, governments, investors, 5. Perceived gap between performance and employees, other stakeholders and remuneration watchdog groups These problems, real or perceived, can The implementation of a TBL reporting have wider ramifications: approach to CSR is an incremental process, 1. Poor governance is linked to poorer firm dealing with the complex and contestable performance issues involved in attempting to effectively 2. Increased regulation for all companies integrate economic, environmental and 3. Decreased consumer confidence 4. Reduced economic growth 5. It has even been implicated in a number Positive accounting theory explains that for of national and global financial crises efficiency reasons companies are formed and can be viewed as a network of Advantages of Good Corporate contracts or agreements that determine the Governance relationships with and among the various 1. Globalized and competitive environment parties involved. 2. Reduce the cost of capital 3. Increase shareholder base Elements of Corporate Governance 4. Manage increased scrutiny 5. Increase consumer confidence 1. Controlling and directing the directors 6. Facilitate economic growth (and senior management) 2. Role of shareholders (and other Corporate Governance Stakeholders stakeholders) Whose interests are to be protected and 3. Transparency and accountability what are the ‘appropriate’ objectives of the corporation? Corporate Governance Guidelines and Practices Traditional or ‘Anglo-Saxon’ Model The key role for corporate governance is 1. It is generally acknowledged that there is enabling the efficient use of resources by no ‘one system of corporate governance. helping financial markets to work properly 2. The practices and procedures required or and gives priority to shareholder value desired will be affected by: 3. The nature of the particular corporation Summarised by Milton Friedman: and its activities. Corporate governance is to conduct the 4. The environment in which the corporation business following the owner or operates. shareholders’ desires, which generally will be to make as much money as possible Summary of ASX 8 Principles of while conforming to the basic rules of the Corporate Governance society embodied in law and local customs. 1. Lay solid foundations for management The need for corporate governance and oversight systems: 2. Structure the board to add value The corporate structure requires 3. Promote ethical and responsible decision governance. The separation between making capital contributors and management. 4. Safeguard integrity in financial reporting Under the best circumstances, managers 5. Make timely and balanced disclosure should act as though they had contributed 6. Respect the rights of shareholders the capital. It would appear this does not 7. Recognise and manage risk happen and managers may ‘bias’ or distort 8. Remunerate fairly and responsibly the financial statements Positive Accounting Theory and its Relationship with Corporate Governance Approaches to Corporate Governance Disadvantages 1. Directors must interpret these principles The Rules-Based Approach to Corporate and decide which corporate governance Governance Prescribes precise practices practices are needed. that are required or recommended to ensure 2. It relies on their honesty, integrity, and good corporate governance. Associated commitment to good governance. with enforcement by legislation or listing rules, with the imposition of penalties if the Practical Considerations rules are not followed. In most countries, corporate governance Advantages involves various combinations of both the 1. Provides a set of minimum corporate rules and principles-based approaches. governance practices that must be followed Specific legislation that requires certain by all corporations. corporate governance practices to be 2. Aids enforcement and clarifies potential followed by law. Codes of corporate liability. governance practice issued by a government or industry groups and also by Disadvantages stock exchanges. 1. Lowest common denominator approach 2. Encourages form over substance Developments and Issues in Corporate 3. Focus on legal liability, not stakeholder Governance interests The global financial crisis has provided an The Principles-Based Approach to impetus for regulators, corporations Corporate Governance themselves, and other organizations to reconsider aspects of corporate 1. Identifies general principles or objectives governance. for the corporate governance system to aim An OECD review concluded that while the to achieve. espoused principles of corporate 2. Responsibility is placed on the managers governance were sound, there was a ‘gap’ to consider which practices are appropriate, between the principles and their given their circumstances. implementation. Advantages Increased Focus on Risk Management 1. Places a higher level of duty on directors to determine which corporate governance The failure of many corporations to manage practices are required. and control risk has been identified as a 2. Its flexibility means that practices can be cause of the financial crisis. adapted for the particular circumstances and environment of the entity. Risk management deficiencies noted include:The risk was not managed or monitored at the entity level, but rather at the individual activity level. Information about risks was not reaching the Linking manager's performance to rewards. board. Organizational culture encouraged Transparency and disclosure.Requiring risk-taking. The disconnect between the specific disclosure about areas relevant to corporation’s overall risk strategy and corporate governance. E.g. AASB 124 related procedures. Related Party Disclosures & AASB 2 Share-based Payment The task of business risk management is now delegated to the audit committee Informing Shareholders and Stakeholders.Executive Remuneration The key role of financial reporting in This is a contentious issue regularly corporate governance is to provide the scrutinized by the public and the media. information needed to assess the Concerns have been raised. The size of performance of the corporation and its executive remuneration. The apparent managers. disconnect between performance and pay. The use of public (bail-out) money to pay To be useful the financial statements bonuses. The connection between provided must be transparent, unbiased, remuneration packages and rewarding and complete. short-term focus Financial statements are a crucial link Role of Accounting and financial enabling shareholders to monitor directors’ reporting in corporate governance actions and to assist in identifying any deficiencies in the effectiveness of Accounting has a central role in directing corporate governance and controlling a corporation. Financial reporting ‘problems’ Management accounting provides a 1. Historically and recently there are many significant part of the information on which examples of financial reporting failures. company operations will be decided. 2. The choices of accounting policy may not be neutral or unbiased. Financial accounting provides the means for outsiders to monitor the corporation and to Two key drivers are assess how well those responsible for 1. Maximizing remuneration bonuses managing the corporation have performed. 2. Meeting market expectations 3. Also instances of outright fraud Deterring, Preventing, and Encouraging Certain Actions and Decisions Good corporate governance cannot exist without ethics There are two key ways in which accounting is used to direct and control the managers 1. The Sarbanes–Oxley Act in the United of a corporation. Encourage appropriate States requires disclosure of whether or not decisions. there is a code of ethics for senior financial officers. 2. CPA Australia argues that implementation Building relationships is one of most of a corporate governance structure is not important areas in business today. Can be sufficient and will only work if the culture of associated with organizational success and the corporation supports good governance. misconduct. 3. The Hong Kong Institute of Certified Stakeholder framework Public Accountants guidelines for public Helps identify internal and external bodies emphasizes the personal qualities of stakeholders individuals as the foundation for good Helps monitor and respond to needs, corporate governance. values, and expectations of stakeholder groups International Perspectives and Developments What Is a Stakeholder? Stakeholders are those who have a stake The Anglo-Saxon model emphasizing or claim in some aspect of a company’s shareholders' interest dominates in the products, operations, markets, industry, and United States, Australia, Canada, and the outcomes. United Kingdom. Customers Government agencies Asia is increasingly adopting the Employees Anglo-Saxon shareholder model. Investors Suppliers In Europe, there is a more direct recognition Communities of alternative stakeholders (such as employees in France and creditors Stakeholders Primary Stakeholders Implications Those whose continued association 1. Corporate governance will increasingly is necessary for a firm’s survival consider broader stakeholders. 2. The principles-based approach prevails Secondary Stakeholders at the moment, backed by legislation for Are not essential to a company’s particular practices. survival 3. Future crisis collapses and financial reporting failures will influence future stakeholder Orientation directions The degree to which a firm understand and addresses stakeholder demands UNIT IV - Stakeholders Relationships and Issues The Stakeholder Interaction Model Lesson 9: Stakeholder Relationships Relationships and Business Three activities Corporate Citizenship ▪Generation of data stakeholder groups ▪Distribution of the information The extent to which businesses strategically throughout the firm meet their economic, legal, ethical, and ▪Organization’s responsiveness philanthropic responsibilities. to this intelligence Four interrelated dimensions: Social Responsibility Strong sustained economic is an organization’s obligation to maximize performance its positive impact on stakeholders and Rigorous compliance minimize its negative impact Ethical actions beyond what is required by the law Four levels of social responsibility: Voluntary contributions that advance 1. Economic reputation and stakeholder 2. Legal commitment 3. Ethical 4. Philanthropic Reputation is one of an organization’s greatest Social Responsibility and the Importance intangible assets with tangible value. of Stakeholder Orientation Increased profits Increased employee commitment Greater customer loyalty Corporate Governance Formal systems of accountability, oversight, and control Accountability Refers to how closely workplace decisions are aligned with a firm’s stated strategic direction Oversight Provides a system of checks and balances that limits employees and minimizes opportunities for misconduct Control The process of auditing and improving organizational decisions and actions The Reactive-Accommodative-Proactive Business units, teams, and groups can use Scale this approach. Stakeholder Analysis The stakeholder approach is a pragmatic way of identifying and understanding multiple, often competing, political, social, legal, economic, and moral claims of many constituencies Implementing a Stakeholder Perspective Assessing the corporate culture Identifying stakeholder groups Identifying stakeholder issues Assessing organizational commitment to social responsibility Identifying resources and determining urgency Gaining stakeholder feedback Lesson 10: Stakeholder and Issues Stakeholder Approach And Ethical Management Approaches Reasoning The stakeholder analysis is an analytical Why Use A Stakeholder Management method where no prescribed ethical Approach For Business Ethics? principles or responsibility rules are built-in. The stakeholder approach is a response to Ethical reasoning in the stakeholder the growth and complexity analysis What is equitable, just, fair, and The ethical dimension of this approach is good for those who affect and are based on the view that: affected by business decisions? Profit maximization is constrained by justice Who are the weaker stakeholders in terms of power and influence? Stakeholder Management Approach Who can, who will, and who should Defined help weaker stakeholders make their The stakeholder approach provides a voices heard and encourage their framework that enables users to map and participation in the decision process ideally, manage the corporation’s and outcomes? relationships, both present and potential, with groups to reach win-win collaborative outcomes. Moral Responsibilities of Functional Second Approach: 7-Phase Issue Area Professionals Development Process Stakeholder analysis focuses the enterprise’s attention and moral decision-making process on external events. This approach applies internally, especially to individual managers in and across traditional function areas. Moral Responsibilities of Functional Area Professionals Traditional functional and expert areas Third Approach: 4-Stage Issue Life Cycle include: ▪Marketing ▪Research and development (R& D) ▪Manufacturing ▪Public relations ▪Human resource management (HRM) Three Issues Management Approaches First Approach: 6-Step Issue Management Process Second Approach: 7-Phase Issue Development Process Third Approach: 4-Stage Issue Life Cycle Two Crisis Management Approaches First Approach: 6-Step Issue First Approach: Precrisis Through Management Process Resolution Second Approach: Reaction Through Accommodation First Approach: Precrisis Through Resolution Second Approach: Reaction Through Accommodation Suggestions that corporations can follow to respond more effectively to crises include: 1. Face the problem 2. Take your lumps 3. Recognize that there is no such thing as a secret or private crisis 4. Stage war games 5. Use the firm’s philosophy, motto, or mission statement 6. Use the firm’s closeness to customers and end-users for early feedback Issues and crisis management methods and preventive techniques are effective in corporations only if: 1. Top management is supportive and participates 2. Involvement is cross-departmental 3. The issues management unit fits with the firm’s culture 4. Output, instead of process, is the focus LESSON 12: Issues & Trends in Corporate Social Responsibility LESSON 11: Issues & Trends in Good Governance Trends shaping corporate governance in 2024: Five areas to watch