The Strategic Position Strategic Purpose and CSR

1
The Strategic PositionStrategic Purpose and CSR
Corporate social responsbility

• EFBL
• L5, 04/12/013

2
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

3
Expectations and Purposes - Outline

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

4
Role of People

• Complex role that people play in strategy
  development
• Strategy is about
• what people expect an organisation to achieve
• what influence people can have over an
  organisations purposes

5
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 nacin bi
  trebali da se odrede svraha i pravac iste?

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Expectations and Purposes
Exhibit 4.1
7
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.

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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 

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Exhibit 4.7 Stakeholders of a Large Organisation
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Corporate Governance

• The governance framework
• whom the organisation serves
• how the purposes and priorities should be decided
• how an organisation should function
• how power is distributed among stakeholders

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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.

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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

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• Šta je K?rp?r?tivn? upr?vl??nj??
•   sist?m k??im s? preduzece usm??r?v? i
  k?ntr?liš?...struktur? k?rp?r?tivn?g upr?vl??nj?
  ?dr?du?? r?sp?d??lu pr?v? i ?b?v?z? izm?du
  r?zlicitih sub??k?t? unut?r pr?duz?c?, k?? št? su
  cl?n?vi upr?v?, ?kci?n?ri i drug? lic? k??? su
  int?r?sn? p?v?z?n? s? pr?duz?c?m i d?finiš?
  pr?vil? i pr?c?dur? z? d?n?š?nj? p?sl?vnih ?dluk?.

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konkretnije

• Korporativno upravljanje (KU) je skup odnosa
  izmedu menadžmenta kompanije, njenih odbora,
  akcionara i drugih stakeholdera.
• KU 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
  upravljackoj strukturi ili LU..pravila postoje
  ali i prostor za diskreciju ..kao izbjeci konflit
  interesa, kojim mehanizmon

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Prednosti sistema korporativnog upravljanja

• Unaprijeden 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 mogucnosti korupcije

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Upravljacki Lanac kao mehanizam korportaivnog
upravljanja

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

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Lanac korporativnog upravljanja
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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 ukljucenost bilo u vlasništvu ili
upravljanju
19
Razlozi nesavršenog funkcijonisanja upravljackog
lanaca

• Krajnji korisnici nemaju jasne/tacne informacije
  
• Neadkvatna/nejednaka distribucija moci
• Razliciti nivoi ili selektivan pristup
  informacijama
• Licni interes medu agentima direktorima
• Mjerenje rezultata i poslovnih ciljeva su u
  skladu sa licnim iteresima direktorima a ne
  krajnjim korisnicima

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Modeli korporativnog upravljanja

• Potreba za reformom KU
• Anglo-saksonski- tržišna orjentacija, veliko
  ucešce akcinara -limitira moc pojedinca i jacanje
  zastupnika
• Germanski (Rhine)- striktna procedura...veci
  uticaj kljucnih akcionara
• Japanski višeslojni proces odlucivanja, banke
  su cesti dionicari, važnost dugorocnih ciljeva,
  veliki uticaj tradicije
• Latinski uticaj države, veliki politicki
  uticaj na odlucivanje po pitanju prioriteta
  ekonomskog razvoja

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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, racunovodstvene firme
  Arthur Andersen (Pet velikih) odlazi u stecaj
• Otkriveno 25 milijarde dolara prevare
• Mnoge firme i institucije su bile umiješane
  banke, advokatske kuce itd.
• 2002, 16 top menadžera završava u zatvoru

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Principal-agent (examples)

• owner manager
• insurance company insured
• creditor debtor
• firm salesmen
• voters government
• investor portfolio manager

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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.
st
Exhibit 4.3a
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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
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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

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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

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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

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Exhibit 4.3 Benefits and Disadvantages of
Governance
30
External Stakeholders 3 types regardings their
realtionship with the org. and how they
influasnce STRATEGY ,
Stake-holders Examples Influence
Market environmnet Suppliers, competitors, distributors, shareholders Economic/value creation
Social/p olitical Policy makers, regulators, government agencies Social legitimacy
Techno- logical Key adopters, standards agencies, owners of competitive technologies Diffusion of new technology/ adoption of industry standards
31
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
32
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
33
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?

34
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.
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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.
36
Stakeholders mapping at Tallman GmbH (1)
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Stakeholders mapping at Tallman GmbH (2)
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Sources and indicators of power
Exhibit 4.6
39
Sources of Power
Within organisations External stakeholders
Hierarchy (formal power) Control of strategic resources
Influence (informal power) Involvement in strategy implementation
Control of strategic resources Possession of knowledge (skills)
Possession of knowledge and skills Through internal links
Control of the environment
Involvement in strategy implementation
Adapted from Exh. 4.6
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Indicators of Power
Within organisations External stakeholders
Status Status
Claim on resources Resource dependence
Representation Negotiating arrangements
Symbols Symbols
Adapted from Exh. 4.6
41
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

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Four Possible Ethical Stances
Exhibit 4.7
43
Business Legal vs. ethical issues

• Legal law is enacted by govt developed thru
  case procedures (common law) its a rule
  governing the act
• If person break a rule, its 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

44
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

45
Kantian approach to (business) ethics

• Philosopher, deontologist (1724-1804), moral and
  ethical theorists
• Respect for persons -the key Kants 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)

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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

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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
  firms 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.

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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?

49
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 worlds
  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.

Karliner, J.1997, 5
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• 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/

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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? Friedmans 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)

52
Friedman places primary importance on profit
maximization as the role of business

• There is one and only one social responsibility
  of businessto 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)

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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 organisations view
of itself and its environment
Schein 1997
54
Organisational Culture
Exhibit 4.10
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The Cultural Web
Exhibit 4.11
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The Cultural Web some useful questions
Exhibit 4.12
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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

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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

59
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