Studio 5• Corporate Governance Chapter 2 • Social Responsibility and Ethics Ch 3• Wheelen and Hunger 14th Edition

• Next Week Ch 7-8 Strategy Formulation

• Recap Strategic Management

RecapStrategic Management ? • A system

1 Environmental scanning Ext. Opportunities and treats Int. strengths and weaknesses

2 Strategy formulation3 Strategy implementation4 Evaluation and control with continuous feedback and learning continuously But why use strategic management?

Benefits of Strategic Management Ch1

• Clearer sense of strategic vision for firm• Sharper focus on what is strategically important• Improved understanding of a rapidly changing environment• Helps in a global market where environmental sustainability

seen as increasingly important • Eg Climate change risks: Kyoto Protocol, supply chain,

reputational, physical … risks Mt Tongariro and White Island in recent years!

• Helps create learning organisations • Helps in long term – • May need to start with a strategic audit…

Mt Tongariro Aug 2012 courtesy Radio NZ

Corporate Governance Ch 2 Relationship between which three groups? Company or corporation, the board of directors and the

shareholders. NZ Institute of Directors http://www.iod.org.nz/ “Enable and encourage New Zealand boards and board

members to add value to their organisations and adopt the highest standards of corporate governance”

So just what do Boards do? Monitor Evaluate and influence Initiate and determine

Sarbanes-Oxley Act implications for NZ?

New Zealand companies need to become Sarbanes-Oxley compliant if dealing with US companies. As US companies become fully compliant they will turn their attention to ensuring compliance by new suppliers in new contracts

So what was the Sarbanes-Oxley Act on US Corporate governance about ? Corporate scandals Protect shareholders Protect whistleblowers, adopt code of ethics Should we protect Whistle blowers?

How would you choose ?

How would you choose a board of directors?What criteria would you use?How would you organise rotation, Independent Board Member position Retirement eg NZ Rugby Union http://www.nzru.co.nz/about_us/board_members

Introductory thoughts from Karl Gaines Managing Director “Virtual Business Partner”• Sold Origin IT twelve years ago to focus on helping others with their

strategic development. Website • http://www.virtualbusinesspartner.co.nz/• The Ultimate Programs to Super Charge Your Business • Did you know• 50% of businesses fail within 2 years?• 80% of businesses fail within 5 years?• 96% of businesses fail within 10 years?• And for the ones that do make it, 95% will never reach even

$1 million in annual sales.• If you've done that, you are in the top 5% of entrepreneurs and you are

rare and to be congratulated.• For those of you who get that far, the remaining 95% won't ever make it

to $5 million.

Karl continued• And of those who get that far, 98% won't get to $10 million.• Very, very few go from there to $100 million and beyond.• And these numbers were accurate during GOOD economic

times.)• And yet there are companies not just surviving in your

industry but THRIVING.• Why?• The Game Has Changed • When was the last time you had a day out of the office to take

a Breath, Plan, Learn and GROW your business?• Congratulations on taking this course. • See Karl’s website for contact details

Social Responsibility and ethics in Strategic Management Ch 3 • Compare and contrast Friedman’s traditional view with

Carroll’s contemporary view• Understand relationship between social responsibility and

corporate performance• Explain concept of sustainability• Conduct a stakeholder analysis• Describe different views of ethics

News for Strategy Class• New Zealand Herald articles ?• Air New Zealand 27 August 2015 Exceptional year - Where to

now?• For example Unitec IBM announcement 09 August 2012• IBM announces Westpac will be joining NZ Delivery Centre at

Unitec 14 Feb 2013 • Move to Concentrix• Unitec considering outsourcing IT and Front line Student Central

to Concentrix• What’s the strategy? • Michael Friedberg

Software Group Marketing Manager, General Business and Channels IBM Growth Markets

• Noted importance of “tweaks” during lifetime of strategy

Ch 3 Social responsibility and ethics in Strategic Management• In small groups discuss the case study• Q1: What did you think of the General Mills case study? • For example – donating 5% of pre-tax profits to charity including

erasing a slum 5km from their HQ• Q2What is Friedman's traditional view of Business

responsibility? What would he say about the case?• Q3 How does Carroll’s proposal see as managers

responsibilities? What would he say about the Mills Case. • Economic – Must do • Legal – Have to do• Ethical – Should Do• Discretionary - Might do

Ch 3 Social responsibility and ethics in Strategic Management• Friedman's traditional view of Business responsibility• “There is one and only one social responsibility of business- to use

its resources and engage in activities 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 “ (See text page 72)

• Carroll’s view of managers responsibilities? • Economic – Must do • Legal – Have to do• Ethical – Should Do• Discretionary - Might do • Q4 Do you agree with the order Carroll places them in?

Benefits of Citizenship activities? Social capital goodwill of stakeholders Competitive advantage Goodwill with local communities Enhanced reputation with customers

Environmental sustainability leads to ? Using recycled materials preempts attacks from environ gps Reduce pollution may also reduce waste, improve Prod. Charge premium prices, gain brand loyalty Better relationships with stakeholders – savings Attract outstanding employees Utilise goodwill in difficult times More likely to attract investors

Dow Jones “Environmental sustainability index” • Dow Jones pioneered first index to rate wider set of variables:

includes• Environmental sustainability• Economic sustainability• Social sustainability

Stakeholder analysis ?• “ is the identification and evaluation of corporate

stakeholders” a 3 step process• Identify primary stakeholders- direct influence on coy;

customers, employees, suppliers, creditors…• Intel story of end users of chip were also imp.• Secondary stakeholders – indirect stake in corp. NGO’s,

activists, local community, trade associations, competitors, - their actions can occasionally be very important

Stakeholder analysis• Identify primary and secondary stakeholders• Third step : analyze effect of any strategic decision on both

groups.• Include economic, social and environmental perspectives in

analysis• What did you think of Case studies or news stories you have

read • eg Maytag shifting locations, Ford’s extending advertising and

Johnson and Johnson’s Credo

Ethical decision making• What are some reasons that individuals and companies

behave unethically?• No worldwide standard?• Cultural norms and vales vary world wide?• Eg attitude to bribes• Difference in values – profit versus reasonable prices or wages• Let the buyer beware vs ethically explaining issues• Consider Rule based versus Relationship based governance

systems affect on ethical behaviour see p.81

Moral Relativism: 4 types • Claim no absolute code of ethics, morality is relative to some

personal social or cultural std.1 Naïve relativism: indiv can live own life, not responsible, can

ignore observed cheating…2 Role relativism: act according to a prescribed role – eg Nazi

war criminals common excuse3 Social group relativism: Follow group “everyone’s doing it” –

in fact everyone may not4 Cultural relativism: When in Rome , do as Romans do –

understand and follow practices in that society. All 4 approaches would not go as far as doing anything declared

illegal

Encouraging ethical behaviour?

• Codes of conduct• Clarify company expectations in various circumstances• That an ethical dimension is required• Enhanced internal reporting & communicating• Ethics hotlines – ombudsman• Improved compliance procedures• Greater oversight by Board of Directors• Support for whistle blowers

Guidelines for ethical behaviour

• Explain the three approaches• Utilitarian approach: plans should be judged by their

consequences – only the obvious stakeholders considered.• Individual rights approach: But what are fundamental rights ? • Justice approach: proposes equally, fairness, share costs and

benefits • 14 August 2011 death of Sir Paul Reeves “a remarkable man

who brought to all his work a quiet determination and a strong moral compass founded on Christian values and social justice” Reference Anand Satyanand (Former GG NZ).

• http://www.voxy.co.nz/national/sir-paul-reeves-great-new-zealander-says-governor-general/5/98112

Assignments ? • Group 7 ?• Further reading Studio 6 is on Strategy Formulation• Wheelen and Hunger Ch 7-8