Weaknesses of Pluralism
- Pursuit of Self Interest
- Proliferates organizations and groups with overlapping goals.
- Promotes inefficiency.
- Forces conflict to center stage
Strenghts of Pluralism
- Creates diversified set of loyalties
- Maximizes freedom of expression and action
- Prevents concentration of power
- Provides checks and balances
A diffusion of power among many groups and organizations in the society
The ability or capacity to produce an effect or to bring influence to bear on a situation or people.
Societys expectations versus business's actual social performance
Society's expectations of the businesses performance will always be higher than the business's actual social performance
Iron law of social responsibility
The generated forces that work to balance power and responsibility. Those who do not use power in a manner which the society considers responsible will tend to lose it
Factors that lead to Business Criticism
- Affluence and education
- Awareness through TV, movies and internet
- Revolution of rising expectations
- Rights movement
- Entitlement mentality
- Victimization philosophy
The collection of private, commercially oriented organizations, ranging in size from one-person proprietorship to corporate giants
A community, a nation, or a broad grouping of people with common traditions, values, institutions, and collective activities and interests
Social contract between business and society
- Laws and regulations that society has established as theframework within which business must operate
- Shared understandings that evolve over time as to each group's expectation of the other
Macroenvironment of society in which business operates (SEPT)
- Social: Demographics, lifestyle, social values
- Economic: Nature and direction of the economy in which business operates
- Political: Processes for passing of laws and elections of the officals. Interactions between firms, politics and government
- Technological: Changes in technological advancements taking place in society
Carroll's Four Definition of CSR (Big Kahuna) (EELD)
The social responsibility of business encompasses the economic, legal ethical and discretionary expectations that society has of organizations at a given point in time.
Three corporate concepts (under the "citizenship umbrella")
- Corporate Social Responsibility (CSR): The impact of a company's actions on society
- Corporate Social Responsiveness: An action-oriented variant of Corporate Social Responsibility that shows a business's willingness and activity in responding to social demands.
- Corporate Social Performance: A conceptual framework that integrates corporate social responsibilites, modes of responsiveness, and the social or stakeholder issues involved.
Simon Zadek discusses four ways firms respond to CSR pressures (DICS)
- Defensive Approach: This is an approach designed to alleviate pain. Companies will do what they have to do to avoid pressure that makes them incur costs.
- Cost-benefit Approach: This traditional approach holds that firms will undertake those activities it they can identify direct benefits that exceeds costs.
- Strategic Approach: In this approach, firms will recognize the changing environment and engage with CSR as part of a deliberate emergent strategy. Innovation and Learning Approach: In this approach, an active engagement with CSR provides new opportunities to understand the marketplace and enhances organizational learning, which leads to competitive advantage.
Four arguments against CSR (LIDB)
- Limits the ability to compete in a global marketplace
- Increases the power of business
- Dilutes the primary purpose of business
- Business is not equipped to handle social activities
Four arguments for CSR (PAAT)
- Protects business self--‐interest
- Addresses issues by using business resources and expertise
- Addresses issues by being proactive
- The public supports CSR
Individuals and groups with a multitude of interests, expectations, and demands as to what business should provide to accommodate people’s lives and lifestyles. An individual or a group that has a stake in an organization.
An interest or share in an undertaking
“Triple bottom line”
A business perspective that encompasses economic, social, and environmental spheres of sustainability
Define Social Screening
Reasons for upsurge in social or ethical investings
Define Social Screening: A technique used to screen firms for socially-responsible investment purposes.
- Reasons for upsurge in social or ethical investings:
- There is more reliable and sophisticated research on CSP than in the past.
- The socially conscious 1960s generation is now making investment decisions.
Generic stakeholders in business
- Elementary School
- Residents who live close by
- All other residents
- Middle School
- Neighborhood associations
- Local media
- Board Members
- Individual owners
- Management owners
Primary social stakeholders
- Shareholders and investors
- Employees and managers
- Local communities
- Suppliers and other business partners
Primary nonsocial stakeholders
- Natural envirnment
- Future generations
- Nonhuman species
Secondary social stakeholder
- Government and regulators
- Civic institutions
- Social pressure groups
- Media and academic commenrators
- Trade bodies
Secondary nonsocial stakeholders
- Envirnmental interest groups
- Animal welfare organizations
Production view of the firm
View of a firm in which stakeholders are limited to suppliers and customers
Stakeholder view of the firm
View of a firm that sees multilateral relationships among various stakeholder groups in the firm’s internal and external environments
Five questions of stakeholder management
- Who are our stakeholders?
- What are our stakeholders’ stakes?
- What opportunities and challenges do our stakeholders present to the firm?
- What economic, legal, ethical, and philanthropic responsibilities does the firm have to its stakeholders?
- What strategies or actions should the firm take to best address stakeholder challenges and opportunities?
Define two of the three levels of stakeholder management capability
- Rational Level: The first and simplest level of stakeholder management capability, in which a company identifies who its stakeholders are and what their stakes happen to be
- Process level: The second and intermediate level of stakeholder management capability, in which a company develops and implements approaches, procedures, policies, and practices relevant to stakeholders, which are then used to make decisions
- Transactional level: The third and highest level of stakeholder management capability, in which a company actively engages in transactions with stakeholders, building relationships, negotiating with them, and attempting to be responsive to their needs
Define stakeholder inclusiveness
The degree to which a company has developed relationships with its many stakeholders
Define Stakeholder symbiosis
A state in which company’s stakeholders depend on each other for their success and financial well-being
List and briefly describe five of Clarkson`s Principles of Stakeholder Management
- Managers should Acknowledge & Monitor concerns of legitimate stakeholders, take interests appropriately into account.
- Managers should Listen & Communicate with stakeholders about their concerns & risks they assume by their involvement with the firm.
- Managers should Adopt processes & behaviors that are sensitive to the concerns and capabilities of each stakeholder constituency
- Managers should Work Cooperatively with public & private entities to insure risks are minimized & where unavoidable, properly compensated.
- Managers should Avoid Altogether activities that jeopardize inalienable human rights such as the right to life.
A condition that prevails when there is congruence between an organization’s activities and society’s expectations
The process by which a company seeks to perpetuate its acceptance (i.e., achieve the condition of legitimacy)
The method by which a firm is being governed and the goals for which it is being governed
A condition resulting from separation of ownership from control, in which the interest of the manager (the “agent” with the responsibility of representing the owners’ best interests) are not aligned with the interests of the shareholders
- Inside directors: Members of the board of directors who have ties of some sort to the firm, whether as top managers, family members, or other professionals “beholden” to the firm or CEO
- Outside directors: Members of the board of directors who are independent from the firm and its top managers
Major issues surrounding CEO compensation
- The extent to which CEO pay is tied to firm performance.
- The overall size of CEO pay
- Many executives had received staggering salaries, even while profits were falling, workers were being laid off, and shareholder return was dropping.
Define Stock Options
A benefit in which an individual may purchase stock in the future at the price it is at the time of receipt of the benefit; intended to encourage an increase in the value of a stock.
A stock option benefit, in which an individual may purchase stock at an earlier date’s price, resulting in an immediate and guaranteed wealth increase.
The granting of a stock option at the current price but with inside knowledge that the stock’s value will increase.
The delaying of a stock option grant until right after bad news, when the stock’s value will be low.
Define Clawback Provision
Mechanisms that enable a company to recoup compensation funds, typically in the event of a financial restatement or executive misbehavior
Define Poison Pill
A provision intended to discourage a hostile takeover by making the company to be acquired “difficult to swallow” — e.g., by manipulating the purchase of shares to make the company prohibitively expensive
Define Golden Parachutes
A contract in which a corporation agrees to make payments to key officers in the event of a change in the control of the corporation, intended to discourage top executives from resisting takeovers that could maximize shareholder wealth
Define Full Disclosure
- Information filed at regular and frequent intervals that contains information that might affect investment decisions.
- Also called “transparency”. To protect the interests of the investing public, companies will be upfront about financial matters, tender offers and anything that may impact success. Excellent relationships with shareholders are possible and should be encouraged. Shareholders do have a recourse: selling shares, shareholder lawsuits, shareholder resolutions, for example.
A vehicle by which shareholder activists communicate their concerns to management groups; resolutions, after obtaining a certain required number of signatures, appear on proxy statements so that they may be voted on by all shareholders
A phenomenon of public shareholders organizing and defending their interests against company management.
A committee responsible for assessing the adequacy of internal control systems and the integrity of financial statements
Ideally composed of outside directors, responsible for evaluating executive performance and recommending the terms and conditions of employment
Ideally composed of outside directors, responsible for ensuring that competent, objective board members are selected
Public issues committee
Also known as the public policy committee, a committee responsible for providing public policy leadership and for monitoring management’s performance on public issues
List three ways in which the Sarbanes-Oxley Act has helped to address problems with corporate governance
- Limits the nonauditing services an auditor can provide
- Requires auditing firms to rotate the auditors working with a specific company
- Makes it unlawful for accounting firms to provide services where conflicts of interests exist
- Changes in boards of directors
- Board should “get tough” with the CEO