“CORPORATE PERFORMANCE, GOVERNANCE AND BUSINESS ETHICS” STAKEHOLDERS AND CORPORATE PERFORMANCE Company’s stakeholders ⇒ individuals or groups with an interest claim or stake in the comp
Trang 1“CORPORATE PERFORMANCE, GOVERNANCE AND BUSINESS ETHICS”
STAKEHOLDERS AND CORPORATE PERFORMANCE
Company’s stakeholders ⇒ individuals or groups with an interest claim or stake in the company, in what it does
& how it performs
The company must take claims into account when formulating its strategies otherwise stakeholders may withdraw their support
ROIC = Return on
Invested Capital
Stakeholders Impact Analysis
The goals of different groups may conflicts, so the company must identify the most important stakeholders & give highest priority to their goals
Stakeholder impact analysis can provide such identification & include following steps:
Stakeholder’s identification
Recognize stakeholders’ interest & concerns
Indentify what claims stakeholders are likely to make on the organization
Indentify most important stakeholders
Indentify the resulting challenges
Three stakeholders must be satisfied above all others in order to survive & prosper ⇒ consumers, employees & stockholders
The Unique Role of Stockholders
Stockholders ⇒ legal owners & the providers of risk capital (capital that has no guarantee that the shareholders will ever recoup)
To reward risk capital ⇒ firm use strategies that maximize the returns that stakeholders receive from their investment in the company’ stock
Profitability, Profit Growth, and Stakeholder Claims
Stockholders return:
Dividend payments
Capital appreciation
ROIC tells managers how efficiently they are using the capital resources of the company to generate profit
To grow profit companies must:
Participate in a growing market
Take market share from competitors
Make horizontal integration
Expand internationally or integrate vertically
The relationship b/w profitability & profit growth is complex ⇒ attaining future profitability may require investments that reduce the current profitability
Managers must have to find the right balance b/w profitability & profit growth
Strategies to maximize profitability & profit growth help a company to better satisfy the demands that several stakeholder group place on it
The Company
External Stakeholders
Customers Suppliers Creditors Governments Unions Local communities General public
Internal Stakeholders
Stockholders Employees Managers Board members
Contributions
Inducements
Contributions
Inducements Stakeholders and the Enterprise
Reference: Level III Curriculum, Volume 4, Reading 28, Page 264
Trang 2AGENCY THEORY
Agency problem arise when one person delegates decision-making authority to another
This theory explains why managers don’t always act in the best interest of stakeholders
Principal-Agent Relationships
Principal ⇒ the person who delegates authority
Agent ⇒ the person to whom authority is delegated
The relationship b/w stockholders & senior managers is the classic example of
an agency relationship
The Agency Problem
The problem arises if agents take actions that are not in the best interest to their principals
Agents almost have more information about the resources they are managing than the principal does (information asymmetry)
Principals do put mechanisms in place whose purpose is to monitor agents, evaluate their performance & take corrective actions if necessary
The principals must have to:
Shape the behavior of agents
The information asymmetry
Remove agents who don’t act in accordance with the goals of principals
Ethical Issues in Strategy
It is unethical to violate shareholder’s basic rights (e.g timely & accurate information about their investments)
Unethical behavior in corporate settings ⇒ managers prefer their personal goals from the goals of the enterprise
Self dealing ⇒ managers find a way to feather their own nests with corporate monies
Substandard working conditions ⇒ when managers under-invest in working conditions or pay employees below market rates in order to cost
Environmental degradation ⇒ when the firm takes actions that directly or indirectly result in pollution or other forms of environmental harm
Corruption occurs when managers pay bribes to gain access to lucrative business contracts
ETHICS AND STRATEGY
Business ethics ⇒ accepted principals of right or wrong governing the conduct
of business people
Behaving ethically goes beyond staying within the bounds of the law
Trang 3The Roots of Unethical Behavior
An individual with a strong sense of personal ethics is less likely to behave in an unethical manner in business settings
Business people behave unethically because they simply fail to ask the relevant question: is this decision or action ethical?
De-emphasizing business ethics is another cause of unethical behavior
Pressure from top management to meet unrealistic performance goals may lead
to unethical behavior
Unethical leadership may another root cause of unethical behavior
The Fried Doctrine
Basic position ⇒ the only social responsibility of business is to profits, as long
as the company stays within the rules of law
Open & free competition without deception or fraud
Fried man’s statement “rules of the game” is open to different interpretations
or vary from country to country
Philosophical Approaches to Ethics
Utilitarian and Kantian Ethics
Utilitarian approach ⇒ moral worth of actions or practices is determined by their consequences
This approach committed to maximize good actions & minimize bad actions
Tools such as cost-benefit analysis & risk assessment are used under this approach
Drawbacks
Difficult to measure the benefits, costs & risks of a course of action
This philosophy does be not consider justice
Kantian ethics ⇒ people should treated as ends & never purely as means to the ends of others
Moral philosophers tend to view kant’s ethical philosophy as incomplete
Rights Theories
Right theories recognize that human beings have fundamental rights &
privileges
It is important to note that along with rights come obligations
Justice Theories
These theories focus on the attainment of a fair (just) distribution of eco goods
& services
Rawls theory ⇒ all eco goods & services should be distributed equally expect when an unequal distribution would work everyone’s advantage
Two fundamental principles of justice:
Everyone should be permitted the maximum amount of basic liberty compatible with similar liberty for other
Difference principle ⇒ inequalities are justified if they benefit the position
of least advantaged person
Veil of ignorance ⇒ everyone is imagined to be ignorant of all of his or her characteristics (e.g race, sex)
Trang 4Behaving Ethically
Seven things to ensure that basic ethical principals are adhered includes:
Hiring people with a well-grounded sense of personal ethics
Organizational culture with a high value on ethical behavior
Leaders within the business must articulate the rhetoric of ethical behavior & must act accordingly
Decision making process should consider the ethical dimension of business decision
Hire ethics officers
Strong governance processes
Act morally (walk away from a decision that is profitable but unethical)