MGMT 3011 Final - Fitzgerald

Corporate Power

capability of large corporations to influence government, the economy, and society, based on organizational resources

- influence politics

- shape tastes

- dominate public discourse

corporate responsibility

with the enormous power of large corporations come a responsibility - to utilize that power for the betterment of society

Advantages of Corporate Power

- more resources

- lower cost productions

- new products

- technologies

Disadvantages of Corporate Power

- disproportionately influence political systems

- dominate public discourse

-divide markets

- squash competition

Iron Law of Responsibility

in the long run, those who do not use power in ways that society considers responsible will tend to lose it

- manifest in whistleblower efforts by stakeholders

The Meaning of Corporate Social Responsibility

Act in a way that enhances society and its inhabitants and be held accountable.

Acknowledge any harm to people and society and correct it if possible.

May forgo some profits if its social impacts hurt its stakeholders or if its funds is usable for a positive social impact

Corporate Citizenship

the actions firms take to put their commitments to corporate social responsibility into practice

Global Corporate Citizenship

putting these commitments into practice worldwide

Companies can do this by:

- building stakeholder partnerships

- discovering business opportunities in serving society

- transforming a concern for financial performance into a vision of performance

Origins of Corporate Social Responsibility

In the United States, the idea of corporate social responsibility appeared around the start of the 20th century.

Corporations under attack for being too big, too powerful, and guilty of antisocial and anticompetitive practices.

To use their power and influence voluntarily for broad social purposes rather than for profits alone.

Example: Steelmaker Andrew Carnegie, Henry Ford

George Kaiser

Chairman of BOK financial

- family foundation which focuses on early childhood education

- in 2018 he opened the gathering place, largest public park built with private funds

social entrepreneurship

driven by core mission to create and sustain rather than economic value

- process of identifying a social need and using their entrepreneurial skills to address the need

- social ventures

B Corporations

must meet rigorous, independent social and environmental performance standards

- focus on social responsibility and citizenship by blending their social objectives with financial goals

- must prove its socially responsible by meeting the B lab standards

B Lad Standards

a non-profit organizations that assesses and certifies B corporation

- government may confer benefits on B corporation

Management Systems for CSR and Citizenship

evolving mgmt practices that support global citizenship, seen as an opportunity to:

- create value for their organization

- gain competitive advantage

- help address some of the worlds biggest challenges

Social Audit Standards

created in 3 different ways

- companies can develop standards designed to set expectations of performance

- companies within an industry can agree on a common industry-wide standard

- can be developed by global nongovernmental organizations or standard-setting organizations

social audits

a systematic evaluation of an organizations social, ethical, and environmental performance

social reporting

when a company decides to publicize information collected in a social audit

transparency

When companies clearly and openly report their performance—financial, social, and environmental.

integrated reports

entering trend in corporate reporting where the legally required financial information into a single report

- financial reporting is required by law

How Business and Government Relate

- Seeking a collaborative partnership

- Working in opposition of government

- Legitimacy issues

Public Policy

a plan of action undertaken by government officials to achieve some broad purpose affecting a substantial segment of a nations citizens

- sets the goals, plans, and actions

public policy inputs

external pressures that shape a government's policy decisions and strategies to address problems

public policy goals

can be broad and high-minded or narrow and self-serving

public policy tools

incentives and penalties that government uses to achieve policy goals

public policy effects

the outcomes arising from government regulation

Fiscal Policy

patterns of government collecting and spending funds to stimulate or support the economy

Monetary Policy

policies that affect the supply, demand, and value of a nations currency

Taxation Policy

raising or lowering taxes on business or individuals

industrial policy

directing economic resources toward the development of specific industries

trade policy

encouraging or discouraging trade with other countries

social assistance policies

Policies that concern social services for citizens such as health care and education

regulation

the action of government to establish rules of conduct for citizens and organizations

- primary way of accomplishing public policy

Market Failure

marketplace fails to adjust prices for the true costs of a firm's behavior

- example: EU standards for food contamination

negative externalities

the manufacture or distribution of a product gives rise to unplanned or unintended costs (spillover effects)

natural monopolies

without competition, firms could raise prices as much as they want

- example: electric utility services

ethical argument

consequences, fairness issues

- recent UK modern slavery act

Economic Regulations

aim to modify the normal operation of the free market and the forces of supply and demand - oldest form includes:

- control prices or wages

- allocate resources

- establish services territories

- set the number of participants

- ration resources (ex. Dodd Frank act of 2010)

Antitrust (special kind)

prohibit unfair, anti competitive practices by business

- predatory pricing

social regulations

Aimed at such important social goals as protecting consumers and the environment and providing workers with safe and healthy working conditions

Includes:

- equal employment opportunity

- protection of pension benefits

- health scare for all citizens

- pollution control

- safety and health concerns

Effects of Regulation

government hopes that the benefits arising from regulation outweigh the costs

Cost and Benefits of Regulation

cost-benefit analysis helps the public understand what is at stake when new regulation is sought

continoius regulatory reform

deregulation - the removal or scaling down regulatory activities of governments

- ex: started in 1980s

regulation: the expansion of government regulation

re-regulatuon of the securities and financial services industries in the 2000s

Regulation in a Global Context

Government established rules to protect the interests of the their citizens.

International regulatory agreements and cooperation

Sometimes, nations negotiate agreements directly with one another.

Sometimes, they do so under the auspices of the United Nations or regional alliances.

Shareholders

legal owners of business corporations (stockholders, investors)

Types of shareholders

Individual shareholders and institutions

Individual shareholders

people who directly own shares of stock issued by companies "Main Street"

institution (investors)

pension funds, mutual funds, insurance companies, university endowments

Objectives of Stock Ownership

To produce a return greater than they could receive from alternative investments, such as bonds or cash

capital appreciation

when the price of stock rises

dividends

when shareholders receive their share of the company's

Bear Markets

falling prices, selling of stock

Bull Markets

rising prices, value of stocks

Shareholder's legal rights and safeguards

to vote on:

- members of board of directors

- major mergers and aquisitions

- charter and bylaw changes

- proposals by stockholders

to receive annual reports on the companies financial conditions

to bring shareholder suits against the company and officers

to sell their own shares of stock

board of directors

An elected group of individuals who have a legal duty to establish corporate objectives, develop broad policies, and select top-level personnel to carry out these objectives and policies

- vary in size, composition, and structure to best serve interest of corporation

- between 11 to 13 members (most are outside directors)

- elected by shareholders

process of electing board of directors

board nominating committee, working with CEO and chairman, develop list of candidates

- after final selection, the names of these are placed on proxy ballet

- alternative candidates are rarely presented

Principles of Good Governance

-select outside directors to fill most positions

-hold open elections

- hold elections annually

- appoint independent lead director

- diversify board membership

Special Issue: Executive Compensation

emergence of modern, publicly held corporation in the late 1800s effectively separated ownership (shareholder) and control (manager)

Agency Problem

Conflict of interest between principal and agent

pay for performance

executives will work hard to improve companies results

danger - executives may become fixated on their performance pay that they will do anything to increase the stock price

Rise of Institutional Investors

holdings have increased significantly, become more assertive in promoting interest of their members

Council of Institutional Investors (CII)

represents institutions (pension funds, endowments, and foundations)

-developed shareholder bill of rights

- urge members to vote on behalf of shareholders rather than automatically with management

social investment

the use of stock ownership as a strategy for promoting social objectives

- selecting stocks according to various social criteria

- using corporate governance process to raise issue of concern

Stock Screening

A growing number of mutual funds and pension funds use social, environmental, and governance screens to select companies in which to invest

+ choose to invest

- choose to exclude

Social Responsibility Shareholder Resolutions

A resolution on an issue of corporate social responsibility placed before shareholders for a vote at a company's annual meeting.

- corporate political activity

- workplace diversity

- sustainability and climate change

Stockholder Lawsuits

if owners think they or their company have been damaged by actions of company officers or directors, right to bring lawsuits

- insider trading

- inadequate stock buyout price

- timely disclosure of material information

Securities and Exchange Commission (SEC)

The agency of the U.S. government that oversees U.S. financial markets and accounting standard-setting bodies. - protecting shareholder's interest

information transparency and disclosure

companies are required to issue truthful annual financial reports

- many companies have begun reporting detailed information about social and environmental performance, in addition to financial performance

insider trading

occurs when a person gains access to confidential information about a companies financial condition

- uses information, before It becomes public knowledge to buy or sell stock

shareholders and the corporation

Shareholders have become an increasingly powerful and vocal stakeholder group in corporations

- Provide capital

- Monitor corporate performance

- Assure the effective operation of stock markets

- Bring new issues to the attention of management

Community

a company area of business influence

civic engagement

the active involvement of businesses and individuals in changing and improving communities

- major way to carry out corporate citizenship mission

- to win local support for business activity

- build social capital

community relations

organized involvement of business with the community

- employee volunteer programs

- sustainability reporting

- corporate giving

- stakeholder engagement

- disaster preparedness

Community Relations Manager

to interact with local citizens, develop community programs, manage donations of goods and services, work with local governments, and encourage employee volunteerism

economic development

intended to bring new business into the area and develop workforce skills

Aid to Minority, Women, and Disabled Veteran-Owned Enterprises

often operate at an economic disadvantage

Disaster, terrorism and war relief

international relief efforts are becoming more important

corporate philanthropy