The Purpose of Business

Few Trends could so thoroughly undermine the very foundations of our free society as the acceptance of a [corporate] social responsibility other than to make as much money for the stockholders as possible (within the rules of the game). Milton Friedman

A group of people get together and exist as an institution that we call a company so that they are able to accomplish something collectively that they could not accomplish separately – they make a contribution to society. David Packard

Corporate Governance

Corporate Governance• The relationship among various participants in

determining the direction and performance of the company

• Mechanisms to ensure that management fulfills its basic purpose: to promote the long-term interests of the shareholders

• Primary Participants:– Shareholders– Board of Directors– Senior Management

Corporate Governance

Shareholders – “Principals”

Management – “Agents”

Board of Directors

Agency Problem

• Arises because of separation of ownership (principals) and management (agents)

• Management may act to promote their own interests at the expense of the interests of stockholders (opportunistically)

What Does Corporate Social Responsibility Mean?

• Corporate social responsibility encompasses not only what companies do with their profits, but also how they make them. It goes beyond philanthropy and compliance and addresses how companies manage their economic, social, and environmental impacts. The term generally applies to company efforts that go beyond what may be required by regulators or environmental protection groups.

• Corporate social responsibility may also be referred to as "corporate citizenship" and can involve incurring short-term costs that do not provide an immediate financial benefit to the company, but instead promote positive social and environmental change.

Stock Market CapitalismCapital Value

RevenueDividends

Porter & KramerCorporate Social Responsibility• CSR does not have to be zero-sum• If considered strategically, CSR can

generate innovation and competitive advantage for corporations, while solving pressing social problems

Porter & KramerStrategic CSR

• Identify points of intersection between firm and society

• Select social issues to address that can create shared value

• Initiate a small number of programs that can generate significant and distinctive benefits for society and the firm

HandyOld Rules

• Virtue of capitalism: provides a way for the savings of society to be used for the creation of wealth

• Market is king, shareholders value is management’s priority, business in the engine of progress

• Markets rely on rules and law, truth and trust for efficient and fair creation and distribution of benefits

HandyNew Rules

The purpose of business is to do something more or better for society.

Shareholders are investors, not owners A business is a community, not a property Business has social responsibilities People participate in business to collectively

make a contribution to society, not for personal gain.

Vision Statement

• Inspiring• Long-term• Driven by and evokes passion• Broad; Overarching; Brief• Fundamental statement of the

organization’s– Values– Aspiration– Goals

Why does the company exist?

3M: To solve unsolved problems innovativelyCargill: To improve the standard of living around the worldHewlett-Packard: To make technical contributions for the

advancement and welfare of humanityLost Arrow Corp: To be a role model and a tool for social

changeMary Kay Cosmetics: To give unlimited opportunity to

womenMerck: To preserve and improve human lifeNike: To experience the emotion of competition, winning,

and crushing competitorsWal-Mart: To give ordinary folk the chance to buy the

same things as rich peopleWalt Disney: To make people happy

Mission Statement

• Unique purpose of the company• Basis of competition and

competitive advantages• More specific than vision• Focused on the means by which

the company will compete

What does the company do?

It is the mission of Advance Auto Parts to provide personal vehicle owners and enthusiasts with the vehicle related products and knowledge that fulfill their wants and needs at the right price. Our friendly, knowledgeable and professional staff will help inspire, educate and problem-solve for our customers.

Ecolab’s mission is to be the leading global innovator, developer and provider of cleaning, sanitation and maintenance products, systems, and services. As a team, we will achieve aggressive growth and fair return for our shareholders. We will accomplish this by exceeding the expectations of our customers while conserving resources and preserving the quality of the environment.

CVS will be the easiest pharmacy retailer for customers to use.

To nourish and delight everyone we serve. (Darden Restaurants)

The purpose of the Cooper Tire & Rubber Company is to earn money for its shareholders and increase the value of their investment. We will do that through growing the company, controlling assets and properly structuring the balance sheet, thereby increasing EPS, cash flow, and return on invested capital. We will provide branded products and services of superior quality and value that improve the lives of the world's consumers. As a result, consumers will reward us with leadership sales, profit, and value creation, allowing our people, our shareholders, and the communities in which we live and work to prosper.

Values Statement

• Statement of ethical priorities• Guidelines for norms and

decision making• Standards of behavior and

practices• Basis for moral courage

How do we behave?

Strategic Objectives

• Operationalize the mission statement

• SMART(S)• Indicates strategic intent –

BHAG • Strategic v Financial• Long-term v short-term S stretchS stretch

What will we strive for?