quiz
CHAPTER 11
Corporate Citizenship
CORPORATE GOVERNANCE
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Chapter Overview
- Stakeholder view of the firm
- Governance and stakeholder theory
- Criticisms
- International aspects of corporate citizenship
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Corporate Governance: the Stakeholder Perspective
- From the perspective of agency theory, corporate governance is mainly about the incentive systems and monitors designed to protect shareholder interests
- From the stakeholder perspective, corporate governance is the mechanism that ensures corporations take responsibility for directing their activities in a manner fair to all stakeholders
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Stakeholder View of the Firm
- Stakeholders - people or groups with legitimate interests in various aspects of the company’s activities.
- Companies have varying responsibilities to each of their stakeholders.
- These relationships between managers and stakeholders are based on a moral or ethical foundation.
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Corporate Social Responsibility
- Proponents of the stakeholder view argue that companies have a social obligation to operate in ethically, socially, and environmentally responsible ways
- This approach is referred to as “corporate social responsibility” (CSR) or “corporate citizenship”
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Governance and Stakeholder Theory
- Aligning managerial incentives with multiple stakeholder groups and measuring overall performance can become a noisy and chaotic process.
- There is still no consensus on how to measure and report on changes in stakeholder welfare.
- Organizational theory states that the firm will only value CSR goals if the company executive exhibits strong leadership in instilling corporate responsibility within the company’s culture.
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Criticisms
- It is difficult to assess the stakeholder view because it is not a well-defined theory.
- Even critics of CSR agree that companies should act responsibly and should be seen doing so.
- However, critics also argue that deviating too far from the profit-maximizing role of companies would be harmful to society.
- When managers involve themselves in stakeholder engagement activities, higher costs and impaired business performance are likely to follow.
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Triple Bottom Line Reporting Guidelines
(from Ernst & Young paper)
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Cascade Engineering
Triple Bottom Line
Scorecard
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Stock market performance of European firms that sustain corporate citizenship to 600 other European firms.
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How Effective are Your Efforts Today to Address the Citizenship Factors that will Assure Your Success Tomorrow?
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Figure 11.3
| Leader | Leader | Leader |
| Partner | Partner | Partner |
| Supporter | Supporter | Supporter |
Figure 11.4
| Extremely effective | Extremely effective | Extremely effective |
| Somewhat effective | Somewhat effective | Somewhat effective |
| Mixed results | Mixed results | Mixed results |
| Not very effective | Not very effective | Not very effective |
| Not effective at all | Not effective at all | Not effective at all |
Data
| U.S. | Europe | Asia-Pacific | |
| Leader | 40% | 36% | 31% |
| Partner | 31% | 53% | 42% |
| Supporter | 29% | 11% | 28% |
| U.S. | Europe | Asia-Pacific | |
| Extremely effective | 9% | 13% | 3% |
| Somewhat effective | 47% | 55% | 13% |
| Mixed results | 28% | 27% | 23% |
| Not very effective | 12% | 6% | 55% |
| Not effective at all | 5% | 0% | 7% |
Summary
- The stakeholder view of the firm does not focus on the maximization of shareholder wealth, but rather an optimization of the sustainable economic wealth of all stakeholders
- The modern evolution of the stakeholder view of the firm advocates that companies have a social obligation
- Corporate citizenship may serve as an implicit monitor
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0%
10%
20%
30%
40%
50%
60%
Extremely
effective
Somewhat
effective
Mixed resultsNot very effectiveNot effective at all
U.S.
Europe
Asia-Pacific
Data Source: Corporate Citizenship in the New Century: Accountablility, Transparency, and Global Stakeholder Engagement, The
Conference Board, Research Report # R-1314-02-RR, July 2002.