Business Management

Session 5

CSR, Ethics, Governance

Online Revision Bridging Course

1) Discuss whether organisations should be socially involved

2) Describe the concept of green management

3) Factors that determine ethical/unethical behaviour

4) How to encourage ethical behaviour

5) Social responsibility and ethics issues in today’s world

Contents

2

Social Responsibility and Managerial Ethics

4

• Management decisions often have a social dimension

• Classical View

• Only responsibility is to maximise profits

• Socioeconomic View

• Focus goes beyond profit to include protecting and improving society's welfare.

What is Social Responsibility

5

Arguments For Social Responsibility

Public Expectations Discourage Regulation

Long-run Profits Balance Responsibility and Power

Ethical Obligation Stockholder Interests

Public Image Possession of Resources

Better Environment Prevention over Cure

6

Arguments Against Social Responsibility

Violation of Profit Maximisation

Too Much Power

Dilution of Purpose

Lack of Skills

Costs Lack of Accountability

7

Green Management and Sustainability

How organisations go green.

8

Legal approach - organisations simply do what is required legally. They exhibit little environmental sensitivity. They obey laws, rules, and regulations without legal challenge. This approach illustrates social obligation.

Market approach - Here, organisations respond to the environmental preferences of their customers. Whatever customers demand in terms of environmentally-friendly products is what the organisation provides. This approach illustrates social responsiveness.

Stakeholder approach - Here, the organisation works to meet the environmental demands of multiple stakeholders such as employees, suppliers, or community. This approach also illustrates social responsiveness.

Activist approach - If an organisation pursues this approach, it looks for ways to protect the earth's natural resources. It is also known as the dark green approach. This approach reflects the highest degree of environmental sensitivity and illustrates social responsibility.

Managers and Ethical Behaviour

9

• Ethics refers to principles, values and beliefs that define what is right and wrong behaviour.

• A set of moral standards that are relied upon to reach conclusions and make decisions

Managers and Ethical Behaviour

10

• Improved employee and organisational morale

• Increased ability to attract new customers

• Improved customer loyalty

• Reduced risk of negative exposure caused by poor ethics

• Attraction of new stakeholders

• Making a positive impact on the community

Reasons for High Ethical Standards

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Factors that Affect Employee Ethics

12

• Preconventional- choice between right and wrong is based on the personal consequences involved

• Conventional – maintaining expected standards and living up to the expectations of others

• Principled – a clear effort to define moral principles apart from the authority of the groups to which the person belongs

Stages of Moral Development

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Stages of Moral Development

Level Description of Stage

Principled 6. Following self-chosen ethical principles even if they violate the law

5. Valuing rights of others and upholding absolute values and rights regardless of the majority’s opinion

Conventional 4. Maintaining conventional order by fulfilling obligations to which you have agreed

3. Living up to what is expected by people close to you

Preconventional 2. Following rule only when doing so is in your immediate interest

1. Sticking to rules to avoid physical punishment

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• Values are basic convictions about what is right and wrong. Values are broad and cover a wide variety of issues

• Ego Strength is a personality measure of the strength of a person’s convictions. Individuals who score high on ego strength are likely to resist impulses to act unethically and will likely do what they themselves think is right

• Locus of Control is a personality attribute that measures the degree to which people believe they control their own fate

• Individuals with an internal locus of control think that they control their destiny.

• Those with external locus of control are less likely to take personal responsibility for the consequences of their behaviour and are more likely to rely on external forces

Individual Characteristics

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• Structural variables such as rules and regulations, job descriptions, written codes of ethics, performance appraisal systems and reward systems can strongly influence ethical behavior

Structural Variables

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• An organisational culture most likely to encourage high ethical standards is one that is high in risk tolerance, control and conflict tolerance.

• A strong culture exerts more influence that an weak one.

• In organisations with weak cultures, work groups and departmental standards strongly influence ethical behaviour.

Cultural Variables

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• Not all issues are strongly held by everyone

• There are six characteristics that determine issue intensity

• According to these factors

• the larger the number of people harmed,

• the more agreement that the action is wrong,

• the greater the likelihood that the action will cause harm,

• the more immediately that the consequences of the action will be felt,

• the closer the person feels to the victim(s),

• and the more concentrated the effect of the action on the victim(s), the greater the issue intensity.

• The more intense an issue is, the more we should expect employees to behave ethically.

Issue Intensity

18

Issue Intensity

19

Content Categories for Corporate Codes of Ethics

Category 1: Be a Dependable Organisational Citizen

• Comply with safety, health, and security regulations

• Demonstrate courtesy, respect, honesty, and fairness

• Illegal drugs and alcohol at work are prohibited

• Manage personal finances well

• Exhibit good attendance and punctuality

• Follow directives of supervisors

• Do not use abusive language

• Dress in business attire

• Firearms at work are prohibited

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Content Categories for Corporate Codes of Ethics

Category 2: Do not do anything unlawful or improper that will harm the

organisation

• Conduct business in compliance with all laws

• Payment for unlawful purposes is prohibited

• Bribes are prohibited

• Avoid outside activities that impair duties

• Maintain confidentiality of records

• Comply with all antitrust and trade regulations

• Comply with all accounting rules and controls

• Do not use company property for personal benefit

• Employees are personally accountable for company funds

• Do not propagate false or misleading information

• Make decisions without regard for personal gain

21

Content Categories for Corporate Codes of Ethics

Category 3: Be Good to Customers

• Convey true claims in product advertisements

• Perform assigned duties to the best of your ability

• Provide products and services of the highest quality

22

Social Responsibility and Ethics Issues in Today’s World

Managing Ethical Lapses and Social Responsibility

Involves employees at all levels of the organisation

Ethical Leadership – set an ethical example

Protecting Employees Who Raise Ethical Issues – ‘whistleblowers’

Social Entrepreneurship

Seeking out opportunities to improve society by using practical,

innovative and sustainable approaches

Businesses Promoting Positive Change

Examine the social impact of decisions and actions

Corporate Philanthropy – charitable donations

Employee Volunteering Efforts – encourage employees to volunteer

2018 May Question 5 Corporate Social Responsibility

(a) Describe the term Corporate Social Responsibility (CSR) . (5 Marks)

(b) Write an explanatory note on any TWO (2) of the following;

o CSR in SMEs

o Broad categories of CSR that businesses are practicing today

o Why CSR matters?

o Benefits of CSR

o Three major challenges businesses face in fulfilling their Corporate

Social Responsibilities? (2x10 Marks)

Total: 25 Marks

2018 August Question 5

(a) List FIVE (5) of Hofstede’s Dimensions of National Culture (5 Marks)

(b) There are many factors reshaping and redefining management

Write an explanatory note on any TWO (2) of the following:

The importance of Innovation to Managers

The importance of Social Media to Managers

The importance of Sustainability to the Mangers job

The importance of Customers

Workforce Diversity

Work/Life Balance Programs

Generational differences in the workplace (20 Marks)

Total: 25 Marks

2018 August Question 6 Corporate Social Responsibility

"Business ethics and the concept of ‘social responsibility’ have become

increasingly important in the modern business world" (Armstrong,

2016).

(a) Explain THREE (3) reasons why high Ethical Standards are

important in organisations today. (9 Marks)

(b) Describe FOUR (4) arguments IN FAVOUR of greater levels of

Corporate Social Responsibility. (8 Marks)

(c) Describe FOUR (4) arguments AGAINST greater levels of

Corporate Social Responsibility. (8 Marks) Total: 25 Marks

2017 August Question 5

Professor Geert Hofstede defines culture as “the collective programming of the

mind distinguishing the members of one group or category of people from

others”

(a) Explain THREE (3) of Hofstede's Dimensions of National Culture. (12 Marks)

(b) Explain THREE (3) of the different stances companies can take towards

Corporate Social Responsibility (CSR). (9 Marks)

(c) LIST TWO (2) arguments FOR AND TWO (2) arguments AGAINST

companies taking on higher levels of Corporate Social Responsibility. (4

Marks)

Total: 25 Marks

2016 August Question 5

(a) Describe the term Social Responsibility. 5 Marks

(b) Discuss FOUR (4) arguments in favour and FOUR (4)

arguments against greater recognition of social

responsibility by business firms. 20 Marks

Total 25 Marks

1) Discuss the importance of the governance chain in modern business

2) Describe the governance chain

3) Describe the key issues in governance today

Contents

28

Corporate Governance

30

• Corporate governance is concerned with the structures and systems of control by which managers are held accountable to those who have a legitimate stake in an organisations

• It essentially involves balancing the interests of all of the various stakeholders

What is Corporate Governance

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The Origins of Corporate Governance

Technological Development

Mass-marketing (consumer society)

Changing Demographics

The Equality Movement

Knowledge Management

Globalisation

Corporate crises of the 1970s and 1980s

Access to credit and the money supply

Social networking The Cadbury report 1992

32

The Growing Importance of Corporate Governance

Enron Scandal, Exxon Valdez Disaster

Global Financial Crisis 2007/2008

News of the World Phone Hacking Scandal

Collapse of Barings Bank

Increased accountability to wider stakeholder interests

Growing importance of separating ownership from management/control

33

The Governance Chain

The chain shows the roles and relationships between the

different groups involved in the governance of the organisation

34

The relationships of the governance chain can be understood in terms of the principal-agent model.

The assumption is that an agent will not work diligently for the principal unless incentives are carefully and appropriately aligned.

This means that decisions might not always be taken in the interests of the principal, and in the absence of rules, sanctions and incentives agents might act in their own self interest.

The Governance Chain

35

• Knowledge Imbalances

Principals might know what they want to achieve, but agents are more likely to know what can be done ‘in practice’. This might not get passed ‘up the chain’ effectively.

• Monitoring Limits

It may be difficult to monitor agents effectively

If monitoring metrics are agreed the agent might focus solely on what is being measured and miss the ‘bigger picture’

• Misalignment of Incentives and Control

The expectation of the Principal can get lost as information passes down along the chain. This can result in the agent taking different perspectives than the principal wants

Key Challenges in the Governance Chain

36

• Who are the shareholders?

Should boards respond to the demands of institutional investment managers or the ultimate beneficiaries?

• The role of institutional investors

Should they actively intervene in strategy?

• The specific role of the board

Especially the role of non-executive directors

• Scrutiny and Control

Statutory requirements and voluntary codes to regulate boards

Issues in Governance

37

Governance Models

Shareholder Model Stakeholder Model

Advantages • Higher Rates of Return• Reduced Risk• Increased Innovation and

Entrepreneurship• Better Decision-making

• Long-term horizons• Less reckless risk

taking• Better management

Disadvantages • Diluted Monitoring• Vulnerable minority

shareholders• Short-termism

• Weaker Decision-making

• Uneconomic Investments

• Reduced Innovation and Entrepreneurship

38

• Single-tier Board

Majority of directors are non-executives and represent the interests of shareholders

The choice of non-executives may be influenced by executives

• Two-tier Board

A supervisory board represents a wider range of stakeholders

A management board plans strategy and has operational control

Major strategic decisions have to be approved by both boards

The Role of Boards

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• Delegation

Strategy can be delegated to management but it is easier to ensure other stakeholders are protected with a supervisory board

• Engagement

The board can engage in the strategic management process but board members may have insufficient expertise

The Role of Boards – Two key Issues

40

• Operating ‘independently’ of Management - the role of non-executives is crucial, avoids conflicts of interest/perception of conflicts

• Being Competent - to scrutinise the activities of Managers

• Having Time – to do their job properly

• Behaving Appropriately – in the context of society’s expectations for trust, role fluidity, collective responsibility and performance

The Role of Boards – Accepted Good Practice

41

• Internal - management and employees

• External – economic, social/political, technological, community

Types of Stakeholders

42

Conflict of Expectations

In order to grow, short-term profit, cash flow and pay levels may have to be sacrificed

Short-termism might suit managerial career aspirations but preclude investment in long-term projects

When family businesses grow the owners may lose control

Development may require funding through borrowing thus sacrificing financial independence

Public ownership = openness and accountability

Cost efficiency = job losses

Mass markets = reduced quality standards??

Public Services = Mass provision or specialist services

Multinational Organisations = host country/ head office

43

• Directors

• Remuneration

• Accountability and audit

• Relations with shareholders

Corporate Governance Codes – The Combined Code (key Principles)

44

• Rights and equitable treatment of shareholders

• Role of Stakeholders in corporate governance

• Disclosure/transparency

• Responsibilities of the Board

G20/OECD Principles of Corporate Governance

May 2018 Question 6

Corporate Governance is concerned with the structures and systems of

control by which managers are held accountable to those with a legitimate

stake in an organisation.

(a) Explain the origins of ‘Corporate Governance’ and how it is growing in

importance. (15 Marks)

(b) Outline FOUR (4) Corporate Governance initiatives that would be

suitable for SMEs to implement. (10 Marks)

Total: 25 Marks

2017 August Question 6 Corporate Governance

Chris has been asked to join the Board of a local company. He has never served

on a Board before and has asked for your assistance with some questions that

he has in relation to the role of a Board.

(a) Explain the term 'Corporate Governance’ and how it is growing in

importance. (15 Marks)

(b) Explain the role of the Board of a company, detailing what is considered to

be good practice for boards today (10 Marks)

Total: 25 Marks

2016 May Question 6 Corporate Governance

(a) Explain the term ‘Corporate Governance’. 8 Marks

(b) Outline the advantages and disadvantages of any TWO (2) governance

models (namely the shareholder and stakeholder models). 12 Marks

(c) Write a brief note on the Combined Code of Corporate Governance. 5 Marks

Total 25 Marks

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