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Corporate Responsibility--- Stakeholders

Stakeholders- An Overview Internal Stake holders (shareholders, employees and management) External stakeholders (consumers, suppliers, creditors, competitors and community) Milton Friedman said, one and only one responsibility of business is to increase profits so long as it stays within the rules of the game, which is to say, engage in open and free competition without deception or fraud. The role of business in Master subtitle style Click to edit society The tasks of business in society Financial tasks Economic and production tasks Maintenance tasks The adaptive tasks


The Management or Political tasks Environmental Tasks Social Responsibilities

The Social Challenges For the purpose of measuring corporate giving, the enlightenment matrix can be used to identify the position of companies or specific endowments Hig Lo h w Self Interest Social Responsibility Pure High Philanthropy

Philanthro py Low



Enlightened selfinterest

SHAREHOLDERS Owners Employers

v v

Expectatio ns Primary -- Financial returns -- Pay satisfaction -- supply of goods/services

Quality -- credit worthiness -- payment relationships -- safety and security contribution to comm. unity -- compliance

Seconda --ry Added value -- Work

--- security -- long-term --- improved

Customers vCreditors v Suppliers v Community v Government



Corporate Governance
Corporation facilitates tapping of large amounts of capital in order to create wealth.

an increase in International trade, thereby increasing employment opportunities encouraging rapid business development

19th century (Europe and North America) business was carried out in 3 ways:

Sole proprietorship under contract law

Partnerships as per partnership act

As an unlimited and unincorporated company


owners were held personally liable for the debts when the business failed

5/28/12Unlimited liability on the part of owners discouraged them from investing capital in o

Companys boundaries, functions and purpose could be defined easily.

Separation of business from owners and incorporation of business as an independent legal entity enabled to define corporate boundary

Corporate cover given to companies helped them limit the liability of the shareholders to the amount of their initial equity capital incase of business failure

Companies---- recognised as a person under law

Can own, buy and sell assets Incur debts Enjoy people Sue and be sued


Some of the powers of owners of a corporation are:


Power to nominate and elect directors to manage company on behalf of the shareholders Powers to make the directors accountable for their actions Powers to cross check the information (accounts, reports etc) by appointing independent auditors



Darwinian process

Early Anglo-Saxon form (municipal and educational

17th Century:

states created corporations for specific purposes Limited liability of these corporation attracted huge investments


Characteristics of Corporation

3 developments in 19th Century

Economies of scale Need for a greater number of investors to support large firms acceptance of private ownership of private property as a social norm

4 characteristics of a corporation:

limited liability for investors free transferability of investor interests legal personality centralized management

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Purpose of Corporation

Human Satisfaction

Corporation as a Person Corporation as a Moral Person Corporation Expectation of Society Corporation Expectations of the Market CORPORATE GOVERNANCE
Investors regard corporate governance as:

Ensures optimum use of: human physical financial resources


Corporate Governance Addresses 3 Basic Issues:

Ethical Issues Efficiency Issue Accountability Issue

The growing scales of corporations have raised new issues of corporate governance:
The growth of private companies The magnitude and complexity of corporate groups The importance of institutional investors Rise in hostile activities of predators (take over) Insider trading Litigations against directors


Need for restructuring of boards



Governance assumes an open system Management assumes a closed system Strategy-oriented Task- oriented Concerned with where the company is Concerned with getting the company going THEORY OF CORPORATE GOVERNANCE there

Theory of Macgregor

humans are by nature trustworthy and act in good faith with integrity and honesty monitoring is required only to curtail the rare misconduct of human working in corporations

The Stewardship Theory (Donaldson and Davis 1988)

accepted the assumptions of behavior theory Y


Bearle and Means (1932) critics of stewardship theory contradicts the assumptions

separation of ownership from management no single shareholder who holds a major chunk of equity capital inability of small investors to directly monitor the activity of corporation control over corp changing from owners to mgt divergent interest of owner and mgt

Jensen and Meckling (1976)

strengthened Bearles argument there exists an agency relationship between the owner and mgt a contract under which one or more persons (the principals) engage another person (the agent / manager) to perform some service on their behalf


Agency Theory:
assumes that the agent manager will not always take decisions

that maximise long term owner value

Managers take decisions , which further their interest and are detrimental for organization

Agents/managers/employees cannot be trusted to act in the best interest of organization thus has to be monitored and controlled


Anglo-American Model:

shareholders elect the board of Directors the board of directors performs three functions on behalf the shareholders: representation, direction and oversight


Anglo-American Model
Shareholde rs (owners) Board of Directors (supervisor s) Officers (Manager s) Compan y Ele ct own Creditor s

lien Stakeholde rs Structur al framewo rk

Legal system


Japanese Model of Corporate Governance

Supervisory board (including president)


Shareholders Ow n

Presiden t

Monitors acts in Emergencies Provides managers

Executiv e mgt Loan s


Compan y


German Model of Corporate Governance

Superviso ry board

Appoint s 1/2

Employees and labor unions

Management board (including labor relations director)

Appoint s 1/2 Own

Compan y

Shareholders (own)


Ethical Dilemmas at Work Place

The most important common dilemmas in business relate to:

Power, Authority and Trust Secrecy, Confidentiality and Loyalty

Resolving Dilemmas Ethical dilemmas commonly arise in the workplace. Who is going to resolve these dilemmas? The employee or the manager?

Manager Employees

Training employees to resolve ethical dilemmas

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Step-by-step process known as Believe Believe is an acronym for background, estimate, list, impact, eliminate, value and evaluate.