The Strategic Position Strategic Purpose and CSR – Corporate social responsbility

1. The Strategic PositionStrategic Purpose and CSR – Corporate social responsbility EFBL L5, 04/12/013 Prof. JovoAteljevic

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 Prof. Jovo Ateljevic

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 organisation’s 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 način bi trebali da se odrede svraha i pravac iste? Prof. Jovo Ateljevic

6. Expectations andPurposes Exhibit 4.1

7. Stakeholders? Stakeholdersare 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

8. 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

9. Exhibit 4.7 Stakeholders of a Large Organisation Prof. Jovo Ateljevic

10. 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

11. What is Corporate Governance? Corporate governanceis 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

12. 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

13. 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

14. konkretnije • Korporativno upravljanje (KU) je skup odnosa između 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 upravljačkoj strukturi ili LU..pravila postoje ali i prostor za diskreciju ..kao izbjeći konflit interesa, kojim mehanizmon

15. Prednosti sistema korporativnog upravljanja • Unaprijeđen 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 korupcije

16. 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

17. Lanac korporativnog upravljanja

18. This chain represents all those groups that have influence on anorganization's purposes through their direct involvement in either ownership ormanagement of an organisation U(L)anac predstavlja sve interesne grupe koje imaju uticaj na organizaciju kroz njihovu direktnu uključenost bilo u vlasništvu ili upravljanju

19. 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

20. Modeli korporativnog upravljanja • Potreba za reformom KU • Anglo-saksonski- tržišna orjentacija, veliko učešće akcinara -limitira moć pojedinca i jačanje zastupnika • Germanski (Rhine)- striktna procedura...veći uticaj ključnih akcionara • Japanski – višeslojni proces odlučivanja, banke su česti dioničari, važnost dugoročnih ciljeva, veliki uticaj tradicije • Latinski – uticaj države, veliki politički uticaj na odlučivanje po pitanju prioriteta ekonomskog razvoja

21. Primjer – Enron cor. Skandal • Electricity, gas, paper and communication company • 21000 zaposlenih • 100milijarde.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

22. Principal-agent (examples) • owner – manager • insurance company – insured • creditor – debtor • firm – salesmen • voters – government • investor – portfolio manager Prof. Jovo Ateljevic

23. Strengths and Weaknesses of Governance Systems Source: Adapted from T. Clarke and S. Clegg, Changing Paradigms: The transformation of management knowledge forthe 21century, HarperCollins Business, 2000, Table 6.5, p. 324. st Exhibit 4.3a

24. Strengths and Weaknesses of Governance Systems Source: Adapted from T. Clarke and S. Clegg, Changing Paradigms: The transformation of management knowledge forthe 21century, HarperCollins Business, 2000, Table 6.5, p. 324. Exhibit 4.3b

25. 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

26. 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

27. 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

28. Corporate GovernanceReforms • 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

29. Exhibit 4.3 Benefits and Disadvantages of Governance Prof. Jovo Ateljevic

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

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.

35. 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)

37. Stakeholders mapping at Tallman GmbH (2)

38. Sources and indicators of power Exhibit 4.6

39. Sources of Power Adapted from Exh. 4.6

40. Indicators of Power 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

42. Four Possible Ethical Stances Exhibit 4.7

43. Business Legal vs. ethicalissues • 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 Dr Jovo Ateljevic, University of Stirling

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 Dr Jovo Ateljevic, University of Stirling

45. 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)

46. 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

47. 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.

48. 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? Dr Jovo Ateljevic, University of Stirling

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 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. Dr Jovo Ateljevic, University of Stirling Karliner, J.1997, 5

50. 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/