The Strategic Position Strategic Purpose and CSR – Corporate social responsbility

EFBL L5, 04/12/013

Prof. Jovo Ateljevic

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Learning Outcomes (for today)

New terms and definitions Identify the components of the governance chain of an organization Understand differences in governance structures and the advantages and disadvantages of these Identify differences in the corporate social responsibility stances taken by organizations and how ethical issues relate to strategic purpose Prof. Jovo Ateljevic

Expectations and Purposes - Outline • • • • • • •

Corporate governance Organisational stakeholders Stakeholder mapping Ethical issues Culture Cultural web Communication of organisational purposes

Role of People •

Complex role that people play in strategy development

•

Strategy is about

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what people expect an organisation to achieve

–

what influence people can have over an organisation’s purposes

Some key questions: whom should the

organisation be there to serve and

how should the direction and purposes of

an organisation be determined?

• Kome jedna org. treba da služi i na koji način bi trebali da se odrede svraha i pravac iste?

Prof. Jovo Ateljevic

Exhibit 4.1

Expectations and Purposes

Stakeholders?

Stakeholders

  are those individuals or groups who depend on an organisation to fulfil their own goals and on whom, in turn, the organisation depends.

Stakeholder : “Any individual or group who can affect or is affected by the actions, decision, policies, or goals of the organization” Under the narrowly defined version, stakeholders appear to be those who are instrumental, one way or another, to the firm and its well-being.

Prof. Jovo Ateljevic

what is a stake?

• •

….an interest or a share in an undertaking, or a claim. A claim is more than an interest; it is an assertion to a title, or to a right.

The concept of a stake, can range from a simple interest to the extreme of a legal claim of ownership and all the value between Prof. Jovo Ateljevic

Exhibit 4.7 Stakeholders of a Large Organisation Prof. Jovo Ateljevic

Corporate Governance

The governance framework

–

whom the organisation serves

–

how the purposes and priorities should be decided

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how an organisation should function

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how power is distributed among stakeholders

What is Corporate Governance?

Corporate governance

is concerned with the structures and systems of control by which managers are held accountable to those who have a legitimate stake in an organisation.

Prof. Jovo Ateljevic

Corporate governance (CG)

• • • CG exists at a complex intersection of law, morality, and economic efficiency.

...sometimes refers to the way that Boards oversee the running of a company by its managers, and how Board members are held accountable to shareowners and the company.

“Good corporate governance practices instil in companies the essential vision, processes, and structures to make decisions that ensure longer-term sustainability. More than ever, we need companies that can be profitable as well as achieving environmental, social, and economic value for society.”

Rachel Kyte | Vice President, Business Advisory Services, IFC

Prof. Jovo Ateljevic

Šta je Kоrpоrаtivnо uprаvlјаnjе?

• sistеm kојim sе preduzeće usmјеrаvа i kоntrоlišе...strukturа kоrpоrаtivnоg uprаvlјаnjа оdrеđuје rаspоdјеlu prаvа i оbаvеzа izmеđu rаzličitih subјеkаtа unutаr prеduzеćа, kао štо su člаnоvi uprаvе, аkciоnаri i drugа licа kоја su intеrеsnо pоvеzаnа sа prеduzеćеm i dеfinišе prаvilа i prоcеdurе zа dоnоšеnjе pоslоvnih оdlukа.

Prof. Jovo Ateljevic

• • • •

konkretnije

Korporativno upravljanje (KU) je skup odnosa između menadžmenta kompanije, njenih odbora, akcionara i drugih

stakeholdera

. K U se odnosi na strukturu sistema kontrole gdje su diirektori odgovorni onima koji imaju intres u p. KU egzistira u kompleksnoj interakciji ZAKONA, MORAL A i EKONOMSKE EFIKANOSTI Pitanje odgovornosti i održivosti – tu nastaju problemi (kako usaglasiti sve koji su u upravljačkoj strukturi ili LU..pravila postoje ali i prostor za diskreciju ..kao izbjeći konflit interesa, kojim mehanizmon

Prednosti sistema korporativnog upravljanja

• • • Unapr ij eđen proces donošenja odluka Izbalansirani centri donošenja odluka Ispunjava zahtjeve regulatora i poboljšava reputaciju • • • • • Osigurava efikasnu strategiju i strateške smjernice i monitoring Informacije o poslovanju su lako dostupne svima Pomaže svim stakeholderima (interesnim grupama) Ohrabruje investitore Eliminiše mogućnosti k orupcij e

Upravljački Lanac kao mehanizam korportaivnog upravljanja

• • • U(L)anac predstavlja sve interesne grupe koje imaju uticaj na organizaciju kroz njihovu direktnu uključenost bilo u vlasništvu ili upravljanju Kako UL funkcioniše? U malim firmamo odnos investitora i agenta je jednostavan dok u većim (privatnim i mješovitim) kompleksan sa puno pojedinčanih lanaca u UL

Lanac korporativnog upravljanja

This chain represents all those groups that have influence on an organization's purposes through their direct involvement in either ownership or management of an organisation

U(L)anac predstavlja sve interesne grupe koje imaju uticaj na organizaciju kroz njihovu direktnu uključenost bilo u vlasništvu ili upravljanju

Razlozi nesavršenog funkcijonisanja upravljačkog lanaca

 Krajnji korisnici nemaju jasne/tačne informacije  Neadkvatna/nejednaka distribucija moći  Različiti nivoi ili selektivan pristup informacijama  Lični interes među ‘agentima’ – direktorima  Mjerenje rezultata i poslovnih ciljeva su u skladu sa ličnim iteresima direktorima a ne krajnjim korisnicima Prof. Jovo Ateljevic

• • • • •

Modeli korporativnog upravljanja

Potreba za reformom KU Anglo-saksonski

učešće akcinara -limitira moć pojedinca i jačanje zastupnika tržišna orjentacija, veliko

Germanski (Rhine)-

striktna procedura...veći uticaj ključnih akcionara

Japanski

– višeslojni proces odlučivanja, banke su česti dioničari, važnost dugoročnih ciljeva, veliki uticaj tradicije

Latinski

razvoja – uticaj države, veliki politički uticaj na odlučivanje po pitanju prioriteta ekonomskog

Primjer – Enron cor. Skandal

• • • • • • • • •

Electricity, gas, paper and communication company

21000 zaposlenih 100 milijarde. US dolara promet 2000. godine 2001 izvještaj otkriva financijske probleme, prevara Naduvana vrijednost kompanije, fabrikovan izvještaj 4000 radnika gubi posao, računovodstvene firme Arthur Andersen (Pet velikih) odlazi u stečaj Otkriveno 25 milijarde dolara prevare Mnoge firme i institucije su bile umiješane – banke, advokatske kuće itd. 2002, 16 top menadžera završava u zatvoru Prof. Jovo Ateljevic

Principal-agent (examples) •

•

• • • •

owner – manager insurance company – insured creditor – debtor firm – salesmen voters – government investor – portfolio manager Prof. Jovo Ateljevic

Strengths and Weaknesses of Governance Systems Source: Adapted from T. Clarke and S. Clegg, Changing Paradigms: The transformation of management knowledge for the 21 century, HarperCollins Business, 2000, Table 6.5, p. 324.

Exhibit 4.3a

Strengths and Weaknesses of Governance Systems Source: Adapted from T. Clarke and S. Clegg, Changing Paradigms: The transformation of management knowledge for the 21 century, HarperCollins Business, 2000, Table 6.5, p. 324.

Exhibit 4.3b

Governing Bodies’ Influence on Strategy • Implications of board involvement – Need to operate independently of management – Must be competent to scrutinise managers’ activities – Need time to do job properly – Importance of softer issues, e.g. trust, respect

Forms of Ownership (1)

• Ownership has fundamental effect on organisational purpose and strategies – Private/public ownership of equity • Public equity often required for growth – Sale of all or part of the company • To a more suitable corporate parent – Target for acquisitions • Compare offer with expected future returns

Forms of Ownership (2)

• Ownership has fundamental effect on organisational purpose and strategies – Mutual ownership • Customers are owners rather than shareholders – Privatisation • Market forces, customer needs, access to capital

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Corporate Governance Reforms

Imperfections in governance chain – Unequal division of power – Differing access to information High profile cases of fraud or poor governance Committees established for reform – Risk management – EU (problem in some member states) More strategic approach is needed to corporate governance reform How to create an optimal balance in the principle-agency structure, the key challenge

Exhibit 4.3 Benefits and Disadvantages of Governance Prof. Jovo Ateljevic

External Stakeholders: 3 types regardings their realtionship with the org. and how they influasnce STRATEGY , Stake holders Market

environm net

Social/ p olitical Techno logical Examples Suppliers, competitors, distributors, shareholders Policy makers, regulators, government agencies Key adopters, standards agencies, owners of competitive technologies Influence Economic/value creation Social legitimacy Diffusion of new technology/ adoption of industry standards

Conflict of Expectations

• • • • • • • • Short-term profitability versus growth Family control versus professional managers Financial independence versus share/loan funding Public share ownership demands openness and accountability Cost efficiency may mean job losses Mass markets may compromise quality Mass public service provision versus specialist services Multinational division loyalty versus host country loyalty Adapted from Exh. 4.4

Stakeholder Mapping: the Power/Interest Matrix Source: Adapted from A. Mendelow, Proceedings of the Second International Conference on Information Systems, Cambridge, MA, 1991.

Exhibit 4.5

Use of Stakeholder Mapping

• • • • Do actual levels of interest and power reflect corporate governance framework? (e.g. non executive directors, community groups) Who are key blockers and facilitators of a strategy? (e.g. In terms of education or persuasion) Is repositioning of stakeholders desirable/feasible?

(critical in the public sector) Which are the key stakeholders whose interest and power must be maintained to support the strategy?

Stakeholder mapping at Tallman GmbH

Tallman GmbH was a German bank providing both retail and corporate banking services throughout Germany, Benelux and France. There were concerns about its loss in market share in the corporate sector which was serviced from two centres – Frankfurt (for Germany and Benelux) and Toulouse (for France). It was considering closing the Toulouse operation and servicing all corporate clients from Frankfurt. This would result in significant job losses in Toulouse, some of which would be replaced in Frankfurt alongside vastly improved IT systems.

Two power/interest maps were drawn up by the company officials to establish likely stakeholder reactions to the proposed closure of the Toulouse operation. Map A represents the likely situation and map B the preferred situation – where support for the proposal would be sufficient to proceed. Referring to map A it can be seen that, with the exception of customer X and IT supplier A, the stakeholders in box B are currently opposed to the closure of the Toulouse operation. If Tallman was to have any chance of convincing these stakeholders to change their stance to a more supportive one, the company must address their questions and, where possible, alleviate their fears.

Stakeholders mapping at Tallman GmbH (1)

Stakeholders mapping at Tallman GmbH (2)

Exhibit 4.6

Sources and indicators of power

Sources of Power

Within organisations External stakeholders

Hierarchy (formal power) Involvement in strategy implementation Adapted from Exh. 4.6

Control of strategic resources Influence (informal power) Control of strategic resources Possession of knowledge and skills Control of the environment Involvement in strategy implementation Possession of knowledge (skills) Through internal links

Indicators of Power

Within organisations

Status Claim on resources Representation Symbols

External stakeholders

Status Resource dependence Negotiating arrangements Symbols Adapted from Exh. 4.6

Business ethics – the societal expectations of organisations (1) • • Macro level – Range from laissez faire to shapers of society – – Ethical stance of organisation in society Extent an organisation exceeds its minimum obligations to stakeholders and society Corporate social responsibility – Specific ways to exceed minimum obligations imposed by legislation/corporate governance – Reconcile conflicting demands of stakeholders

Exhibit 4.7

Four Possible Ethical Stances

Business Legal vs. ethical issues • • • • Legal – law is enacted by govt developed thru case procedures (common law) it’s a rule governing the act If person break a rule, it’s an illegal act and will be punished by the legal system Ethics is dealing with what is considered to be right and wrong Globalisation and the Internet open up an increasing number of new and unregulated activities 01/05/2020 Dr Jovo Ateljevic, University of Stirling

Business Ethics and values

• • • • Organisation values - to embed a set of ethical values into the organisations goals and strategies and the way it seeks to do what it does Ethical behaviour - to provide guidance and support to staff for making decisions and carrying out their work in a way that is compatible with the organisation's ethical values and standards Corporate Culture - to consolidate and strengthen a culture of integrity and openness so as to facilitate a sustainable business Reputation - to create trust among stakeholders and to facilitate business success 01/05/2020 Dr Jovo Ateljevic, University of Stirling

Kantian approach to (business) ethics

• • • • • • Philosopher, deontologist (1724-1804), moral and ethical theorists Respect for persons -the key Kant’s Moral philosophy principles Kant argued that the highest good was the good will (as an act of duty)- it is an intention behind the action rather than its consequences that make that action good (Bowie, N. 1999) acts are inherently good or evil, regardless of the consequences of the acts (deontology) This principle applies to business ethics today True moral = being honest is right (e.g. businessman is not genuinely honest if he/she earns it to gain reputation)

Moral and duties: two kinds of human duties

• • Persons of good will do their duty because it is their duty and for no reason 2 types of duties (imperatives): – a Hypothetical- human sometimes do things to achieve goals (e.g. study to get good grade) – b) categorical per se duties (no ifs, ands and buts): fundamental principle of ethics • Kant believed that reason provided the basis for the categorical imperative, thus the categorical imperatives of morality were requirements of reason

The business firm as a moral community :The main principles 1 The business firm should consider the interests of all the affected stakeholders in any decision it makes.

2 The firm should have those affected by the firm’s rules and policies participate in the determination of those rules and policies before they are implemented.

3 It should not be the case that, for all decisions, the interests of one stakeholder automatically take priority.

4 When a situation arises where it appears that the interest of one set of stakeholders must be subordinated to the interests of another set of stakeholders, that decision should not be made solely on the grounds that there is a greater number of stakeholders in one group than in another.

5 No business rule or practice can be adopted which is inconsistent with the first two formulations of the categorical imperative.

6 Every profit-making firm has a limited, but genuine, duty of beneficence.

• 7 Every business firm must establish procedures designed to ensure that relations among stakeholders are governed by rules of justice.

A Kantian views an organization as a moral community. Each member of the organization stands in a moral relationship to all the others.

The role of business organizations in society?

• • • • Are companies ‘money machines’ for shareholders?

Should companies take responsibility for the effects of their actions beyond what the law requires?

What they should do? (e.g. donate to charity; build public schools, health care facilities, infrastructure, employ marginalized groups) What rules corporate’ behavior: laws or business ethics? The role of stakeholders? 01/05/2020 Dr Jovo Ateljevic, University of Stirling

Global corporate jets and their power • • • • • ‘New world’ is centered around multinational corporations, global financial markets and a highly concentrated system of technological research and development The number of global corporations in the world has increased from 7.000 in 1979 to 40.000 in 1995.

These corporations and their 250.000 foreign affiliates account for most of the world’s industrial capacity, technological knowledge and international financial transactions.

Global companies hold 90 percent of all technology and product patents worldwide and are involved in 70 percent of world trade.

While the world economy is growing by 2 and 3 percent per year, the biggest global companies are, as a group, growing at a rate of 8 and 10 percent.

01/05/2020 Dr Jovo Ateljevic, University of Stirling

Karliner, J.1997, 5

• • the Global 2000 companies now account for $36 trillion in revenues (up 12%), $2.64 trillion in profits (up 11%), $149 trillion in assets (up 8%) and $37 trillion in market value (down 0.5%). These firms also employ 83 million people worldwide.

http://www.forbes.com/global2000/

• • • • Corporate behaviour – how ethical they should be? According (Milton) Friedman a corporation is the property of its stockholders The question is should it spend the stockholders money for purposes regarded as socially responsible? Friedman’s answer is NO ‘corporate executives must make as much many as possible for their shareholders..,’ Peter Drucker arguments are in line with the above; he believes that CSR is dangerous distortion of the business principle ‘if you find an executive who wants to take on social responsibilities, fire him.’ The part of the above arguments are supported by the fact that corporate are created by law therefore law dictates what their directors / managers can or cannot or must do (Henry Ford example) 01/05/2020 Dr Jovo Ateljevic, University of Stirling

Friedman places primary importance on profit maximization as the role of business

•

There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.

(Milton Friedman, 1979 p.126) 01/05/2020 Dr Jovo Ateljevic, University of Stirling

Organisational Culture

“The basic assumptions and beliefs that are shared by members of an organisation, that operate unconsciously and define in a basic taken-for-granted fashion an organisation’s view of itself and its environment”

Schein 1997

Exhibit 4.10

Organisational Culture

Exhibit 4.11

The Cultural Web

The Cultural Web: some useful questions Exhibit 4.12

Communicating Organisational Purposes • • • Corporate Values – Core values, the principles guiding actions Vision/Mission – Statement of overriding direction and purpose of organisation Objectives – Statement of specific outcomes to be achieved • • Financial, market-based Sometimes measurable • Relevant

• • • •

Key Points (1)

Expectations and purposes influenced by: – Corporate governance, stakeholder expectations, business ethics and culture Corporate governance – Whom organisation serves, how purposes/priorities decided Stakeholders’ power and influence – Stakeholder mapping Ethical stance – Corporate social responsibility

Key Points (2)

• • Culture – Levels of cultural frames of reference – Layers of values, beliefs, behaviours and taken-for granted assumptions – Cultural web Communication of organisational purposes – Values, mission, objectives