Week 5 Economics, Governance and Business Ethics

Shareholder Theory

Developed by economist Milton Friedman in the 1960s, also known as the Friedman Doctrine or Stockholder Theory. Its core principle is that an entity's greatest responsibility lies in the satisfaction of the shareholders, focusing on maximizing profits and returns for company owners. It prioritizes the financial interests of shareholders, emphasizes profit maximization as the primary business goal, advocates for shareholder control in key decisions, supports value addition and cost minimization strategies, and believes social initiatives should be decided by shareholders. Tesla, Inc. is provided as a real-world example.

Corporate Social Responsibility (CSR)

A business model that helps companies be socially accountable to themselves, stakeholders, and the public. It encompasses four types: Economic Responsibility (profitable operations, sustainable business models), Legal Responsibility (compliance with laws), Ethical Responsibility (behaving ethically beyond legal requirements), and Philanthropic Responsibility (making the world a better place). Steps in implementing a CSR strategy include defining the concept, getting leadership approval, setting goals, analyzing practices, launching campaigns, and monitoring programs.

Annual CSR Report Components

These reports typically include an overview of the CSR policy and activities, the composition of the CSR committee, average net profit for the last three financial years, prescribed CSR expenditure, and detailed information on CSR activities/projects undertaken (total amount to be spent, amount carried forward from previous years, amount spent during the current year, and amount carried forward for the next year). Impact is measured through environmental metrics (e.g., carbon footprint reduction) and social impact indicators (e.g., lives improved, communities supported).

Sustainability Reporting Initiatives

Key frameworks and standards for comprehensive corporate transparency and accountability in sustainability, including:

Global Reporting Initiative (GRI)

A widely used framework for comprehensive sustainability reporting. Sustainability reporting is the practice of disclosing a company's environmental, social, and governance (ESG) performance and impacts.

Sustainability Accounting Standards Board (SASB)

A framework for industry-specific standards for financially material sustainability topics.

Task Force on Climate-related Financial Disclosures (TCFD)

A framework for climate-related financial risk disclosures.

Integrated Reporting (IR)

An approach to connect financial and non-financial information.

Emerging Trend

The convergence of sustainability reporting standards for improved comparability and consistency.

Benefits of Sustainability Reporting

Includes competitive advantage, improved stakeholder relationships, risk management, strategic alignment, and potential positive impact on financial performance.

Future Directions and Challenges

Involves standardization, technology integration, impact measurement, sector-specific reporting, assurance and verification, and addressing greenwashing.

Sharing Economy

An alternative economic system involving non-ownership forms of consumption activities such as swapping, bartering, trading, renting, sharing, and exchanging. There is a debate on whether it constitutes "true sharing" or "commodity exchanges wrapped in a vocabulary of sharing" (pseudo-sharing). It involves moral dilemmas and governance issues for cities, including property rights, employment relationships, data privacy, security, health and safety, licensing, and taxation. It is predominantly an urban phenomenon where regulation often lags innovation. Different business models exist, such as traditional sharing, grassroots sharing, and platform sharing. Perspectives on the sharing economy are dichotomous, viewed as either an opportunity (people-centered, "end-to-capitalism," transition to a better society) or a challenge (dehumanized economy).