Lesson 6_Corporate Governance and Social Responsibility PDF

those who wanna do whats right and not cut short process Corporate Governance and Social Responsibility refers to having the appropriate ppl processes and structures to direct and manage the business and affairs of the company should oelad to the enhancement of kong ter...

those who wanna do whats right and not cut short process Corporate Governance and Social Responsibility refers to having the appropriate ppl processes and structures to direct and manage the business and affairs of the company should oelad to the enhancement of kong term shareholder value, whilst taking Learning objectives  Billion $ Bird Poop  What is CSR  History of CSR  Examples of CSR  Advantages & disadvantages CSR  Classical View of CSR kant- responsibllity and.. and some other person  Issues Raised familiar words  Moral Minumum  Power and Responsibility  Helping the Government  No to CSR  Yes to CSR  Business approach to CSR  Global Standards on CSR  Create a Corporate Social Agenda  SMU Classification: Restricted Learning objectives  Corporate Governance  Billion $ Bird Poop  What is CSR  History of CSR  Examples of CSR  Advantages & disadvantages CSR  Classical View of CSR  Issues Raised  Moral Minumum  Power and Responsibility  Helping the Government  No to CSR  Yes to CSR  Business approach to CSR  Global Standards on CSR  Create a Corporate Social Agenda  SMU Classification: Restricted Corporate Governance  Corporate governance refers to having the appropriate people, processes and structures to direct and manage the business and affairs of the company  This should lead to the enhancement of long-term shareholder value, whilst taking into account the interests of other stakeholders  Companies that embrace the tenets of good governance, including accountability, transparency and sustainability, are more likely to build investor confidence and achieve long-term sustainable business performance. https://www.eguide.sid.org.sg/index.php/singapore-code-of-corporate-governance/preamble/definition-of-corporate-governance  SMU Classification: Restricted Board of Directors: Board of Directors takes crucial decisions to attain long-term business objectives. Management: The management is a subset of the BOD led by the Chief Executive Officer (CEO) of the company. The CEO is responsible for business operations, formulation of strategies, and evaluation of associated risks. Shareholders: The stockholders are investors who put their hard-earned money into the company anticipating positive returns. They cannot track corporate affairs on a daily basis, and therefore, rely on the directors. Further, shareholders appoint auditors to dig into the business’s financial affairs—provide the audit report. SMU Classification: Restricted http://timwell.com.my/govstatement.html  SMU Classification: Restricted FRRAT Principles of Corporate Governance  Fairness: The board of directors must treat shareholders, employees, vendors, and communities fairly and with equal consideration.  Transparency: The board should provide timely, accurate, and clear information about such things as financial performance, conflicts of interest, and risks to shareholders and other stakeholders.  Risk Management: The board and management must determine risks of all kinds and how best to control them. They must act on those recommendations to manage risks and inform all relevant parties about the existence and status of risks.  Responsibility: The board is responsible for the oversight of corporate matters and management activities.  Accountability: The board must explain the purpose of a company's activities and the results of its conduct. The board and company leadership are accountable for the assessment of a company's capacity, potential, and performance. It must communicate issues of importance to shareholders. What Happened When a Tiny Nation Got Filthy Rich Overnight  Nauru – the case for social responsibility Nauru used to be so rich. but it changed  Nauru’s troubles:  70% of land uninhabitable can only live on 30% of the land  97% of men & 93% of women are overweight mainly eating canned food  40% of population has Type II diabetes  90% of population are unemployed  The case of Nauru shows that humans tend towards greed and lack of responsibility towards others  One might blame the corporations for fuelling Nauru’s downfall  However, it was ultimately government who did not practice self- restraint/regulation from their pursuit of wealth and greed Greed, exploitation, abuse of resources When left unchecked, humans tend towards unsustainable exploitation Thus, when corporations and organisations are uncontrolled left unchecked, will they too display unbridled greed and abuse of resource allocation? What do you think? What is CSR? businesses ethically should make money eg banana pie- opp katong  Business firms have different responsibilities shopping centre (same ish recioe)—> not like this  Economic responsibility vs  The obligation to seek out supplies of raw materials Economic responsiblity:  Discover new resources Apple iphone better pixel (every company that starts has a economic  Improve current technologies responsibilty for the customers, eg update technology so ppl can enjoy  Legal responsibility them)  To manage the assets of the corporation in the interests of shareholders  To be legally responsible to customers, suppliers and regulatory authorities  History of CSR eg smu 80 hours of csp —> boasting the csp just doing what u shld do if a company isnt specializing in CSR, should they still do it? flipside: —> but this gives u exposure and if u -cost goes to consumer (eg tissue with sustainability logos—> could increase price) never try u never know  Debates over CSR started in 1950s  Normative question (a subjective question) – was CSR something that corporations were morally obligated to do?  American economist Milton Friedman argued that corporations should not engage in CSR unless it benefited shareholders legal responsibility  Others argued that corporations should be morally faulted for not being socially responsible  Examples of CSR eg receipt. thermal paper fades..sustainability body shop test on humans instead of animals but the whole point of testing on  Operating on an ethical level higher than the minimum legal requirement eg body shop knows that there r animal testing but they dont do that, they are higher than that animals is so u dont test on humans  E.g. Body Shop not testing on animals despite ethical standards for doing so  Making contributions to civic and charitable/non-profit organisations  E.g. Donating to schools, charities, special interests  Providing benefits for employees and improved quality of life beyond economic and legal requirements  E.g. OCBC employee resource groups for single parents, caregivers, special needs kids like CCAs daiso- bamboo cutlery  Paying more for a socially responsible alternative resource —> have to put additives to keep the cutlery tgt. in eg SIT foodcourt cannot  E.g. Fairtrade coffee; Sustainable wood for furniture order to be sustainable, u give disposable bowls —> end up harming urself bcs sustainable but students  Using corporate resources to address a major social problem additives are bad may end up stealing the cutlery and if not so kind,  E.g. Banyan Tree Global Foundation to create employment for far-flung they put it on benches etc communities and empowering women go to ulu resorts to create employment —> needa go clear those areas eg cut down trees—> hire ppl in then u needa get cleaners to clear it the area to work …so its sustainable bcs cutting doen gtees can lead to air pollution and noise pollution  guy servicing vans go up the mountain to fix the tv then when he Samsung Service Vans reached, he realised she is visually impaired and they could fix the tv so all of them could watch the advertisement World No.1 Best Ad, Heartfelt Ad by Samsung, Must Watch  Advantages of CSR but has responsibility if not they dont contribute their part, using the legitimacy of organisation—> then who will provide these things to protect user privacy and data eg. company has the right to gather data to improve ethically services and increase profits  Helps balance corporate power and rights with responsibilities  Encourages more responsible self-regulation (than government oversight) companies should be accountable to themselves  Promotes long term profits for businesses  Improves business value and reputation with trust and confidence building unintended consequences as a result of the thing u do  Manages negative externalities caused by businesses  E.g. Resort hotels disrupt the natural environment with more traffic and pollution – the resort helps those affected by it resort should help to mitigate against these thing, bcs if they dont then who whould help  Disadvantages of CSR eg bodyshop gives voucher of $1 for every $10 u purchase. they will factor in the extra price in the items. —> company is actually spending money on ur behalf (u feel good contributing to it but it doesnt hurt them)  Lowers economic efficiency and short term profits  Costs of CSR are born by stakeholders and customers  i.e. when a company does CSR initiatives, they are spending money on your behalf, from the profits you contribute to the company  Many businesses lack expertise, knowledge in dealing with social issues eg doing community service in workplace (bank ppl go autism csp—> they drk what to do—> not rly effective)  Individuals and governments may find little incentive to be involved in the business’ CSR efforts  This is a *moral hazard situation because individuals and governments take advantage of a situation by making businesses pay for CSR. The consequences of risk-taking fall on the party taking action (corporation), but they (individuals & government) still receive all of the benefits *Moral Hazard is the concept that individuals have incentives to alter their behaviour when their risk or bad-decision making is borne by others.  Classical View of CSR business, non profit and governmental organisations  Economic behaviour is separate and distinct from other types of behaviour, and business organisations are distinct from other types of organisations, even if the same individuals may be involved in business and non business affairs. Business organisations do not serve the same goals as other organisations.  The primary criteria for business performance are economic efficiency and growth in production of goods and services.  The primary goal and motivating force for businesses is profit. The firm attempts to make as large a profit as possible so that it maintains efficiency and take advantage of opportunities to grow and innovate for the benefit of themselves and society.  Bottom line: Corporations should engage purely in economic activity and be judged solely in economic terms. While social issues are important, this should be left to other institutions who specialize in such areas. we focus on business, government and society, let th other organisations who specialise in social issues handle them and we only handle bgs  when i focus on doing biz, i make profit, and according to these adam smith and ethical egosism, it creates benefits for other societies, so even though i dont contribute directly to ppl, but i make phones- samsung, phones so good that even blind can use Cont’d ppl in social service in those industry can communicate w ppl—> samsung creating good phones—> hence they in this line should just focus on creating phones Classical View  Remember Adam Smith and Ethical Egoism?  When corporations seek self-interest, it creates overall benefits for the whole economy, even in the area of social responsibility  The Classical View suggests that Ethical Egoism leads the Invisible Hand to resolve unresolved issues eventually.  As such, social issues will be resolved but it is not within the purview of businesses  Issues raised moral minimum of the market refers to the basic ethical standards that businesses are expected to uphold while conducting their operations.  Moral Minimum of the Market  Pro Classical View supporters acknowledge that corporations must play by the rules and carry out business in honesty and good faith. That is as far a responsibility corporates have. those who support csr Anti Classical View supporters say that this thinking is not enough to prevent corporations from ‘social injury’ (harm to society). Good faith is not enough, active self-regulation is needed.  Power and Responsibility nauru’s case—> govt unrestrained—> greed and excesses  Anti Classical View supporters say that powerful corporations need to be restrained. The only way this can be done is through active CSR methods.  Pro Classical View supporters argue that it is because of such immense power in corporations that resources diverted to CSR would control the outcome of the types of CSR corporations seek to influence in the market – which may not be good for society im a big company and i am google and i decide—> cause lapses in society  Cont’d Issues Raised  Helping the government  Classical View supporters say that economic well-being of society is best left to corporations. and societal social services  Social problems should be left to the government and non-governmental organisations to handle.  Corporations handling the economic side of things is seen as helping the government resolve the economy problem. Governments should just focus on social issues.  However, anti-classical view supporters propose that social problems are too big for governments to handle alone. Corporations should help socially if:  The need is urgent bunyan tree case—> close proximity to the need—> so  The corporation is of close proximity to the need they are responsible to do csr  The corporation can respond effectively  The need will be left unattended to unless a corporation acts sell bulldozers etc —> building collapse—> out of a csr act, the need was urgent, they brought in bulldozers and tractors to clear  eg in kl alw get robbed. they all have to pay to get security. then those who pay get it, those who dont dont get it (security if robber breaks Milton Friedman - Morality & Capitalism into house)  No to CSR Milton Friedman’s arguments against CSR  CSR has no place for a businessman money spent on csr can do into ur bonus but its spend on csr  When the corporation CEO spends money, it means he/she spends money that is diverted away from the employee.  Prices have to be lowered for the social objective of preventing inflation; and not in the company’s interests of maximizing profits. govt asks to maintain prices bcs its for social objective. but why should i if i sell good food, that i should do this for government agenda?  Because of social responsibility, he may have to hire less qualified persons because of a social agenda that is not in the interest of the company’s efficiency goals and targets. eg blind person hired for social enterprise—> but blind person cant do work as fast as someone who has sight and they have to make provision for that  Money spent in these areas take away from employees and shareholders.  This role is like ‘taxing’ employees and shareholders, a role that should be left to elected officials  Yes to CSR Arguments against Classical View While the company focuses on increasing sales, it should also consider the public health implications of promoting sugary  Business lobbies influence on specific issues drinks, which can lead to obesity and diabetes. large beverage company lobbies the govt to keep taxes low on sugary drinks to maintain profits  Corporations lobby the government daily on rules and standards. Corporations are already playing a role in society apart from purely business matters. There is then no excuse for them not to be concerned about CSR. shouldnt worry about how they r using certain csr projects for their own motives  Shortcomings of governments  Governments do not have all the resources to manage the negative externalities of businesses. Corporations must play their part where they can, since they are in a position to reduce sg these externalities. (e.g. cocoa and coffee trade) cannot rly put sanctions or embargo on coffee trade so they have fair trade -the only ppl like starbucks then can  Taxation argument  While corporations are spending money that could be used for employees and shareholders, the use of this money ultimately affects everyone positively. Imagine a corporation with all financial resources maximized but are living in a polluted environment as a result of the corporation’s actions? airpollution in that area—> using csr efforts help the ppl living around the factory Business approach to CSR  Market for Virtue  CSR is profitable for corporations because the market rewards responsible behaviour and punishes lapses in corporations.  Competitive Advantage  CSR can be a competitive advantage because it makes socially responsible corporations standout from amongst the competition, offering a value proposition others cannot or choose not to provide  Competitive Advantage  Harvard Professor Michael Porter introduced the idea of competitive advantage for businesses. He proposes CSR can be a source for opportunity, innovation and competitive advantage. Whole Foods Market is a grocery store chain porter’s five forces that specializes in selling natural and organic foods. focus more broad focus narrow- on coffee Market for Virtue  IO Sustainability (Consulting firm) and Babson College found that corporations who were socially responsible produced the following metrics:  enhance sales by as much as 20%  increase productivity by 13%  reduce employee turnover by half  protect against litigation risk at a value equivalent to the cost of insurance worth up to 4% of the company's value  increase the company's share price by up to 6%  create a "reputation dividend' worth up to 11% of market capitalization  reduce financial risk, the cost of equity, and the cost of borrowing. Choosing a social issue to address  No business can solve all of society’s problems or bear the cost of doing it.  Selection of issues must intersect with its business dealings and operations. they should intersect. eg dealing a travel—> airline company (use SAF sustainable)  Generic social issues  Issues important to society but not significantly affected by the company’s activities in the course of business. banks- broad base  Value chain social impact  Areas significantly affected by the company’s activities in the course of business. use planes use cars  E.g. DHL and carbon emissions  Social dimensions of competitive context  Factors in the external environment that significantly affect underlying drivers of competitiveness in places where company operates.  E.g. Rio Tinto mining in Africa where there is an AIDS epidemic – affects the hire and cost of labour ppl have AIDS—> more expensive to hire healthy ppl Global Standards on CSR – UN Global Compact RE SEES F PAD  Global Standards on CSR - ISO 26000 human Create a Corporate Social Agenda  Responsive CSR  Being a good corporate citizen  Mitigating harm from company’s value chain  Strategic CSR  Deliberate selection of a unique position from its competitors in CSR  Adding the social dimension to the company’s value proposition (USP – unique selling proposition)  Whole Foods is committed to natural and environmentally friendly practices across their value chain.  This separates Whole Foods from other competitors. samsung ad for deaf blind ppl (can type morce code and to send msg is flip phone over) Samsung India Good Vibes App: Caring for the impossible