Prof. Jovo Ateljevic

The Strategic PositionStrategic Purpose and

CSR – Corporate social responsbility

EFBLL5, 04/12/013

Prof. Jovo Ateljevic

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

Expectations and Purposes - Outline

• Corporate governance• Organisational stakeholders• Stakeholder mapping• Ethical issues• Culture• Cultural web• Communication of organisational purposes

• 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

Role of People

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

Expectations and Purposes

Exhibit 4.1

Prof. Jovo Ateljevic

Stakeholders?

Stakeholders are 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

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

Exhibit 4.7 Stakeholders of a Large Organisation

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

Prof. Jovo Ateljevic

What is Corporate Governance?

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 organisation.

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

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

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

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

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

Lanac korporativnog upravljanja

This chain represents all those groups that have influence on an organization's purposes through their direct involvement in either ownership or management of an organisation

U(L)anac predstavlja sve interesne grupe koje imaju uticaj na organizaciju kroz njihovu direktnu uključenost bilo u vlasništvu ili upravljanju

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’ – direktorimaMjerenje rezultata i poslovnih ciljeva su u

skladu sa ličnim iteresima direktorima a ne krajnjim korisnicima

Prof. Jovo Ateljevic

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

Primjer – Enron cor. Skandal

• Electricity, gas, paper and communication company • 21000 zaposlenih • 100 milijarde. 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

Prof. Jovo Ateljevic

Principal-agent (examples)

• owner – manager• insurance company – insured• creditor – debtor• firm – salesmen• voters – government• investor – portfolio manager

Strengths and Weaknesses of Governance Systems

Exhibit 4.3a

Source: Adapted from T. Clarke and S. Clegg, Changing Paradigms: The transformation of management knowledge for the 21 century, HarperCollins Business, 2000, Table 6.5, p. 324.st

Strengths and Weaknesses of Governance Systems

Exhibit 4.3b

Source: Adapted from T. Clarke and S. Clegg, Changing Paradigms: The transformation of management knowledge for the 21 century, HarperCollins Business, 2000, Table 6.5, p. 324.

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

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

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

Corporate Governance Reforms• 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

Prof. Jovo Ateljevic

Exhibit 4.3 Benefits and Disadvantages of Governance

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

Stake-holders

Examples Influence

Market environmnet

Suppliers, competitors, distributors, shareholders

Economic/value creation

Social/p

olitical

Policy makers, regulators, government agencies

Social legitimacy

Techno-

logical

Key adopters, standards agencies, owners of competitive technologies

Diffusion of new technology/

adoption of industry standards

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

Stakeholder Mapping: the Power/Interest Matrix

Exhibit 4.5

Source: Adapted from A. Mendelow, Proceedings of the Second International Conference on Information Systems, Cambridge, MA, 1991.

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?

Stakeholder mapping at Tallman GmbH

Tallman GmbH was a German bank providing bothretail and corporate banking services throughoutGermany, Benelux and France. There were concernsabout its loss in market share in the corporate sectorwhich was serviced from two centres – Frankfurt (forGermany and Benelux) and Toulouse (for France). Itwas considering closing the Toulouse operation andservicing all corporate clients from Frankfurt. Thiswould result in significant job losses in Toulouse,some of which would be replaced in Frankfurtalongside vastly improved IT systems.

Two power/interest maps were drawn up by thecompany 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.

Stakeholders mapping at Tallman GmbH (1)

Stakeholders mapping at Tallman GmbH (2)

Sources and indicators of power

Exhibit 4.6

Sources of PowerWithin organisations External stakeholders

Hierarchy (formal power) Control of strategic resources

Influence (informal power) Involvement in strategy implementation

Control of strategic resources Possession of knowledge (skills)

Possession of knowledge and skills

Through internal links

Control of the environment

Involvement in strategy implementation

Adapted from Exh. 4.6

Indicators of Power

Within organisations External stakeholders

Status Status

Claim on resources Resource dependence

Representation Negotiating arrangements

Symbols Symbols

Adapted from Exh. 4.6

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

Four Possible Ethical Stances

Exhibit 4.7

21/04/23 Dr Jovo Ateljevic, University of Stirling

Business Legal vs. ethical issues

• 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

21/04/23 Dr Jovo Ateljevic, University of Stirling

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

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)

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

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.

21/04/23 Dr Jovo Ateljevic, University of Stirling

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?

21/04/23 Dr Jovo Ateljevic, University of Stirling

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.

Karliner, J.1997, 5

• 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/

21/04/23 Dr Jovo Ateljevic, University of Stirling

Corporate behaviour – how ethical they should be?

• According (Milton) Friedman a corporation is the property of its stockholders

• The question is should it spend the stockholders money for purposes regarded as socially responsible? Friedman’s answer is NO ‘corporate executives must make as much many as possible for their shareholders..,’

• Peter Drucker arguments are in line with the above; he believes that CSR is dangerous distortion of the business principle ‘if you find an executive who wants to take on social responsibilities, fire him.’

• The part of the above arguments are supported by the fact that corporate are created by law therefore law dictates what their directors / managers can or cannot or must do (Henry Ford example)

21/04/23 Dr Jovo Ateljevic, University of Stirling

Friedman places primary importance on profit maximization as the role of business

• There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.

(Milton Friedman, 1979 p.126)

Organisational Culture

“The basic assumptions and beliefs that are shared by members of an organisation, that operate unconsciously and define in a basic taken-for-granted fashion an organisation’s view of itself and its environment”

Schein 1997

“The basic assumptions and beliefs that are shared by members of an organisation, that operate unconsciously and define in a basic taken-for-granted fashion an organisation’s view of itself and its environment”

Schein 1997

Organisational Culture

Exhibit 4.10

The Cultural Web

Exhibit 4.11

The Cultural Web: some useful questions

Exhibit 4.12

Communicating Organisational Purposes

• Corporate Values– Core values, the principles guiding actions

• Vision/Mission– Statement of overriding direction and purpose of

organisation

• Objectives– Statement of specific outcomes to be achieved

• Financial, market-based• Sometimes measurable• Relevant

Key Points (1)• Expectations and purposes influenced by:

– Corporate governance, stakeholder expectations, business ethics and culture

• Corporate governance– Whom organisation serves, how purposes/priorities

decided• Stakeholders’ power and influence

– Stakeholder mapping• Ethical stance

– Corporate social responsibility

Key Points (2)• Culture

– Levels of cultural frames of reference– Layers of values, beliefs, behaviours and taken-for-

granted assumptions– Cultural web

• Communication of organisational purposes– Values, mission, objectives