A small h-1 quiz note by: klara, kristal, nikol, and april :>
Session 8
Corporate Governance Foundational Issue
Legitimacy - congruence between organization’s activity and society’s expectations
(sejalan sama hukum dan kemauan masyarakat)
Legitimation - proses bisnis mau mendapatkan approval dari sekitarnya
Micro Level of Legitimacy - adapt operational methods
Macro Level of Legitimacy - adapts the corporate system as a whole
Corporate governance - a method to control/govern/direct the company through
the roles of each stakeholders
4 major stakeholders:
1. Shareholders - pemegang saham, have ultimate control
2. Board of directors - govern the management of a business
3. Managers - hired by the board to manage the business (jadi manager yg
manage sehari-hari, board yg manage managernya)
4. Employees - perform operational work
Corporate’s Hierarchy of Authority
1. State Charter - A state charter is a document that grants a state bank certain
rights, powers, and privileges. It also outlines the bank's organization and
structure.
2. Shareholder
3. Board of Directors
4. Management
5. Employees
Roles in a company and its function
1. Ceo - Overall leader of the company, responsible for setting strategy, making
major decisions, and managing the company’s operations.
2. Cfo - Oversees the financial activities of the company, including budgeting,
financial planning, risk management, and reporting.
3. Chair of board (leader of board of director) - Leads the board in overseeing the
company’s governance, sets the agenda for board meetings, and ensures that
the board functions effectively.
4. Independent director - Provides unbiased oversight and advice to the board,
ensuring decisions are made in the best interests of the shareholders and
stakeholders.
5. Audit - Reviews financial statements, ensures compliance with regulations, and
oversees internal and external audits to maintain transparency.
6. Risk manager - Identifies, assesses, and mitigates risks that could impact the
company’s financial health, reputation, or operations.
7. Major, minor shareholder - Owns a significant portion of the company’s shares,
typically influencing major decisions, especially through voting rights (major).
Owns a smaller portion of the company’s shares, often with limited influence on
decision-making (moinor).
8. Compliance officer - Ensures the company adheres to laws, regulations, and
internal policies to avoid legal or ethical issues.
9. Csr officer - Manages and oversees the company’s social responsibility initiatives
to ensure positive impact on society and alignment with ethical values.
Issues:
1. CEO Pay and firm performance relationship
2. Excessive CEO pay (now kurang lebih 216:1 - bandingin sama gaji average
worker)
Ada clawback provision: Compensation recovery mechanism that allows
company to recoup CEO pay (kalau misal ada misbehavior, gaji CEO bisa ditarik
balik masuk ke kas perusahaan)
● CEO Pay Controversy (Say on Pay Movement)
○ Shareholder push to link pay to performance (kalau kerja bagus,
gaji naik atau baru dibayar)
○ Increasing use of ‘clawback’ provisions where executives must
return pay under some conditions.
3. Executive retirement plans and exit packages
● Retirement packages
○ Have come under scrutiny - a person or thing is being examined or
observed very carefully, especially in a critical way
4. Outside Director Compensation
● Paying board members
● Outside board members are paid
● 2003-2015 paynya from $175.800 - 258,000
5. Transparency; SEC Rules
● SEC rules require disclosure of executive compensation
● Disclosures may have a moderating impact prior to implementation
Governance Impact of Market for Corp. Control
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Mergers and Acquisitions
○ Expectation are that the threat of a possible takeover will motivate top
managers to pursue shareholder, rather than self-interest
○ CEOs and boards try their best to protect themselves against takeovers
■ Poison pills - make the firm difficult to take on.
■ Golden parachutes - pay key officers
Insider Trading - buy or sell a security by someone who has access to non-public info
● Material info - a reasonable investor want to use the info and can affect prices
of firm stock
● Tipper - provides the info
● Tippee - receive the info
Improving Corporate Governance through Legislative Initiatives
● Oxley Act of 2002 (aka SOX or Sarbox)
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○ Limiting the non auditing services an auditor can provide
○ Requiring auditing firms to rotate auditors
○ Enhancing financial disclosure
○ Audit committee must have at least 1 financial expert
○ CEO/CFO held responsible for financial rep of the company
○ Adopt code of ethics
The Dodd - Frank Wall Street Reform and Consumer Protection Act
○ Covers 16 major areas of reform affecting banks, cc companies, credit
rating agencies, insurance companies, hedge funds, futures trading.
The Role of SEC
● Protecting investor interest
● More focused on the needs of businesses than of investor (critics said)
● Failed to stop the Bernard Madoff Ponzi scheme
Changes in Boards of Directors
● Board diversity
● More outside board members compared to inside board members
● Use=
○ Make sure of financials are legit
○ Make sure internal control
○ Follow up allegations
○ Ratify the selection of an external auditor
● Red Flags
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Boards monitor CEO performance and can dismiss CEO
The Role of Shareholders
● Shareholder Democracy Movement - karena voting mereka gak dianggap
● Majority Vote - board members berdasarkan plng banyak vote
● Banning Classified/Staggered Boards - takes 3 or more years to replace a board
● Proxy Access - shareholder propose nominees for the board
Investor Relations and Shareholder Engagement
● Corp board communicates with major investors
● Corp has to be fully transparent and provide info that might affect investment
decisions
Session 9
Strategy, Risk, Issues and Crisis Management
Strategic Management - overall management process that strives to identify
corporate purpose and to position a firm to succeed in its market
Corporate Public/Social Policy - adds sustainability to the strategic management
(environmental, economical, social, and ethical)
● Affirmative Action
● Employee Privacy
● Product Safety
● Sexual Harassment
● Environmental Sustainability
Hierarchy of Strategy Levels
1. Enterprise Level - a positive, constructive, sensitive firm response in a public
crisis
● Uses Code of ethics, code of conduct, mission statements, values
statement, vision statements, policy-oriented codes and statements
2. Corporate Level - feedback to num 1
● In what business should we be?
3. Business Level
● How should we compete?
4. Functional Level - feedback to num 3
● How should a firm integrate its various sub functional activities?
Social Entrepreneurship
● A mission of societal value creation
● Make money to be able to achieve goal of creating societal value
● Main focus is to alleviate poverty including education, environment, arts
● Bottom of the pyramid (BOP) - poorest socio economic group
Benefit Corporation
● Includes wanting to have a positive impact on society
● Offers managers, investors, and customers the opportunity to participate in to
make social responsibility an important goal
● Pros
○ Built in commitment
○ Good publicity
○ Protection from investor pressures
○ Partners with similar value
● Cons
○ Lack of oversight
○ Legal uncertainty
○ Brand erosion investor wariness
Core Values - principles ingrained in all company’s decision and action
The Strategic Management Process and Corp Social Policy
Porter and Kramer Framework
Types of Intersection
● Generic Social Issues - social issues not material to long term competitiveness
● Value Chain Social Impacts - normal operations that significantly affect society
● Social Dimensions of Competitive Context - social issues that affect the drivers
of a company’s competitiveness
The Sustainability Report in Context of Strategic Control
Strategic Management Process
Risk, Issue, and Crisis Management
● Issue - a gap between a firm’s actions and stakeholder expectations
● Risk - a potential issue that may or may not occur
● Crisis - an issue that has escalated to a critical state
● Risk management prevents issues from arising
● Issue management prevents and avoids a crisis
Risk Management
● Problem not yet occur and tries to keep the issue from arising
● Prevent internal risk
● Sustainability
● Preventable risk - internal risk that offer no strategic benefit
● Strategic risk - risk taken to achieve greater return
● External risk - risks cannot be controlled
Issue Management
● Process =
○ Identify the issue in stakeholder
○ Analyze and prioritize based on relevance
○ Plan resources to the issue
○ Evaluate and monitor
● Connected with sustainable strategic management process, enterprise level
strategy, corporate public policy, and integrated reporting
Model of Issue Management Process
Crisis Management
● Need to respond quickly, decisively, and effectively
● Steps to Manage Crises
○ Identify area of vulnerability
○ Develop a plan
○ Forming crisis team
○ Simulating crisis drills
○ Learn from experience
● Types of Crisis
○ Economic
○ Physical
○ Personnel
○ Criminal
○ Information
○ Reputational
○ Natural disasters
Session 10
Employee Stakeholders and Workplace Issues
Gig economy / 1099 economy - A less mobile, less loyal, and diverse economy where
workers can easily move jobs if offered a better pay, more benefits, and given
opportunities for personal growth. Millennials and Gen Z have experiences of job loss or
pay cuts, have interest in financial security, and value work life balance.
Employee - work for the company -> Major stakeholder
Right
Obligation
Protected when doing their work
Compliant with company’s rules
Paid minimum wage
Finish their job
Have their problems heard
Achieve company’s goals
Not to be fired without cause*
Due process and fair treatment**
Problems = bribery, corruption, mental health, job hopping (cmn bisa jd masalah
kalau ini ngelanggar contract, hrs ikut aturan), discrimination, seniority
How to solve problem2 ini?
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Discrimination =training, policy
Mental health = work life balance, telecommuting, consulting, uang jajan using
company’s money (budget dr company buat beli brg yg kt mau)
Seniority = whistleblowing - preventive, rules/policy
Employee Engagement can be supported through mentoring, training, and
survey.
* Right not to be fired without cause
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Employee pny hak buat ga di pecat klo dia ga salah
Kalau mau pecat:
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3 models of management
1. Moral = employees are human resources that should be treated with
dignity and respect
2. Amoral = employees are treated as law minimally requires
3. Immoral = employees are viewed as factors of production to be used and
exploited
Good cause norm = employees should only be discharged for good reasons
Employment-at-will doctrine = Relationship between employee and employer
can be terminated at any time.
Challenges of employment-at-will:
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Public policy exception - protects employee from firing throguh refusal of
crime commitment or legal rights
Implied contract exception - employees have contracts, can’t be fired any
time
Good faith principle - employers might lose a lawsuit if they cannot show
that employees have chance to improve if they weren’t terminated
Objections of employment-at-will:
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Employees deserve respectful treatment
Employees are expected to be trustworthy, loyal, and respectful. Same
goes for the employers.
Employers can’t be arbitrary (seenak jidat) and capricious (moody, labil)
to employees.
How to dismiss employees:
** Right to due process and fair treatment
Due process: requirement that legal matters be resolved according to established rules
and principles and that individuals be treated fairly (in a company)
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Alternative Dispute Resolution (ADR)
1. Open door policy - employees are encouraged to communicate with their
managers regarding an issue. The concerns about this policy is that this is
a closed process and only 1 person reviews the whole situation, so
managers will most likely support other managers and not hear their
employee’s issues.
2. Hearing procedure - a formal meeting between employee and employer
to discuss misconducts or performance issues. Employees can elect a
representation from their group to clearly discuss the issue and gain
solutions
3. Ombudsman (public advocate) - government employee who is pointed to
investigate a complaint among the company (neutral, promises
confidentiality)
4. Peer review panel - group of employees and managers (people inside the
organization) who resolve disputes. they should be elected rather than
appointed, and must receive training in resolving disputes.
Freedom of speech
Whistle-blowing system - where a worker passes on an information regarding
misconducts and wrongdoings (whistle-blower, someone who discloses the information)
Session 11
Consumer Stakeholders - Product Service Issues
Customer/Consumer -> Major stakeholder
Problems = complaint, customer’s concerns about quality of product/service
Solution
1. 7 principles of customer service
2. Maintain service quality, how?
Note: omnichannel = business strategy that provides seamless and effortless
experience
Going extra mile: misal kasih compliment biar customer seneng and mau beli lg
Conformance: how well a product meet a standard
Ethical underpinnings of quality (Landasan dasar)
1. Contractual theory
Product or service must meet the promises set out in the contract, warranty, or
agreement between the producer and the buyer
Example: kalau mobil blg mesin tahan 5 tahun ya 5 tahun, di bawah itu dia
langgar ethical obligation
2. Due care theory
Responsibility of manufacturers to ensure that their products are safe and
reliable for consumers, even beyond the contract.
Include: Design safety, Manufacturing integrity, Clear instructions for use
3. Social cost view
Manufacturers are held accountable for all harm caused by their products, even
if:
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The product meets the contract terms, and
Due care was exercised.
Dampaknya terasa di reputation, socially
Who is liable for a defective product?
Product Liability responsibility of a manufacturer, distributor, or seller for a defective
product that injures a consumer
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Why is this concerning? High number of illnesses/harm resulted from a product.
Doctrine of strict liability: anyone in the value chain is responsible for the harm
caused by the product.
extensions:
1. Absolute - a manufacturer or producer is held responsible for any harm
caused by their product
2. Market share - liability is distributed among multiple manufacturers based
on their market share
Business response to consumer stakeholder:
Casual and ineffective -> Formal interactions -> advanced technologies
Early business might be casual and ineffective. Early business responses to
consumer concerns were informal, unstructured, and lacked proper systems. Over time,
businesses began to recognize the importance of interacting with consumers in a
systematic and formalized manner. Businesses now employ advanced tools and
technologies to enhance consumer engagement
Total quality management
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Businesses are blended around quality, teamwork, productivity, customer
understanding, and satisfaction. TQM focuses on product quality and safety,
customer, and improvement.
8 key elements:
Six Sigma Methodologies
Six sigma strategy
Six Sigma is a process improvement that aims to reduce defects, improve quality, and
enhance efficiency in business processes. It focuses on minimizing variation and
achieving near-perfect performance, resulting in customer satisfaction and operational
excellence.
1. DMAIC (For improving existing processes):
○ Define: Identify the problem, process, and customer requirements.
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Measure: Collect data to measure current process performance.
Analyze: Find the root causes of defects and variations.
Improve: Implement solutions to address root causes and optimize the
process.
Control: Monitor improvements to ensure long-term success.
2. DMADV (For designing new processes or products):
○ Define: Define project goals and customer requirements.
○ Measure: Measure product capabilities and customer needs.
○ Analyze: Develop and evaluate design alternatives.
○ Design: Create a detailed process or product design.
○ Verify: Test and validate the design to ensure it meets customer
requirements.
Session 12
Community Stakeholders and Philanthropy
Community - it’s reactions will affect the company’s policy -> affect the
development of the company
Have interest with the company
Standards of Excellence in Corporate Community Involvement :
1. Leadership : committed to the mutual success of business and the
community and demonstrates leadership around this issue both internally
and externally
2. Strategy : takes strategic approach to community involvement to add
demonstrable value to the business and to society
3. Relationship building : builds and maintains trusting and productive
stakeholder relationships in the community to advance both business and
community goals
4. Infrastructure : provides the resources and support needed to ensure the
successful execution of its community involvement strategy
5. Measurement and Evaluation : measures and evaluates the results and
effectiveness of its community involvement programs to improve
performance
6. Communication : effectively and transparently communicates about its
community involvement, mission, strategy, and performance
Community can be free marketing - spread word of mouth
Volunteer Programs : paid release time, company-wide day of service,
skills-based pro-bono service, dollars for doers
Business Stake in the Community
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The actions of a business affect a range of communities. Managers must
be aware of these impacts, and manage the way that respects community
stakeholders
focus on the immediate locale, but instant communication means that the
relevant community includes the region, nation, or the world
2 major kinds of relationships (for business and community stakeholders) :
the positive contributions business can make to the community, the harm
business can cause to community stakeholders
Developing a Community Action Plan
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Knowing the community
Assess the company’s resources
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Design a community action program making the commitment needs and
resources available
Monitor performance of the community actions program and make
adjustments
Corporate Philanthropy or Business Giving
Philanthropy : a desire to help mankind as indicated by acts of charity and love
of mankind
Corporate philanthropy : business giving, the motive for which can be difficult
to assess
A brief history of Corporate Philanthropy
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Community chest efforts dominated early giving
Since 1960, giving has grown to address a variety of initiatives
Now, the watchword is “strategic philanthropy” which benefits both
society and the business
A call for transparency
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Companies need not disclose direct donations to charities, but proposed
legislation would require disclosure
Proponents say the money belongs to the shareholders, and they should
make the decision, not managers giving to their favourite charities, which
would not benefit the business
some fear that disclosure would result in fewer donations, and would
reveal company strategy
Non-disclosure has led to a rise in “dark money” political funding to
nonprofits from undisclosed sources.
Giving to the Nonprofit Sector
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Business and government are supported by profits and taxes
the nonprofit sector - (churches, museums, hospitals,dll) depends on
philanthropy
Why do companies give?
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Charitable : no expected benefit for the business
Community : gifts support business goals
Commercial : giving that benefits the business
To whom do companies give?
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during any budget year, firms receive numerous requests for
contributions from a variety of applicants, and decide which to honor
Giving patterns
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Health and human services
Education
Civic and community activities
Culture and the arts
Giving in a time of crisis
Reordering matters of policy and practice during crises like COVID-19
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Fund Innovation
Give to crisis-adjacent charities
be open to funding new needs
support inclusive leadership
sponsor social events
Managing Corporate Philanthropy
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2 aspects to the pressure on businesses to be more businesslike in their
philanthropy :
○ Base giving on business skills, resources, and capabilities to
enhance philanthropic outcomes
○ Focus on philanthropy that will enhance corporate profitability and
also make a difference in the community (a strategic approach)
Community Partnerships - broad response to growing need to reconcile
financial and social goals
Strategic philanthropy - corporate giving and other philanthropic endeavors
are designed in a way that best fits overall mission, goals, or objectives
Factor (supply) conditions - the available inputs for production
Demand conditions - concerned with the nature of the company’s customer and
the local market
Context for strategy and rivalry - businesses are helping to build a better
competitive
Related and supporting industries - can also be strengthened through
strategic giving
Cause-related marketing - a direct linking of a firm’s product or service to a
specified charity; each time a consumer buys the product, a donation is given to
the charity by the business (is this really philanthropy?)
Global philanthropy - depends on the size of the firm’s workforce in
international markets
Detrimental Impacts on Communities
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A negative consequence of a firm’s actions; has a detrimental impacts on
the community
Offshoring - The relocation of business processes to a different country
○ Popular when tech jobs became cheaper to do overseas - thanks to
high-speed data and the internet
○ Began with blue-collar, factory jobs, more recently affected
white-collar jobs
Reshoring - Returning of business processes to their original location; the
costs often outweighed the benefits
Business and Plant Closings
● What rights and responsibilities does business have in relation to
employee and community stakeholders?
● Consider :
○ Before the decision to close is made - is this the only option?
○ Diversification - new ownership or employee ownership
● After the decision to close is made :
○ community-impact analysis
○ advance notice to employees or community
○ transfer, relocation, and outplacement benefits
○ gradual phase-outs
○ helping to attract replacement industry
Worker Adjustment and Retraining Notification Act (WARN)
● Requires firms with 100 or more workers to provide 60 days
advance notice before shutting down or conducting layoffs
● regular federal, state, and local government entities that provide
public services are not covered by WARN
● Legislators have tried to strengthen the law by closing loopholes
Communicating with Employees who are being Laid Off
● Be complete
● Be consistent
● inform affected employees first
● inform retained employees
Session 13
THE ROLES OF GOVERNMENT AND BUSINESS
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For effective management, the government's role as stakeholder must be
understood.
If the role of business were simply production and distribution of goods
and services, business would need little regulation.
However, other goals exist such as a safe working environment, equal
employment opportunities, fair play, clean air, safe products which
business does not automatically factor into the business decision making
process.
As a result, it falls to the government to ensure those goals are achieved.
INTINYA: pemerintah harus membuat regulasi yang bikin company pada
mikirin hal lain selain produksi dan distribusi. Pemerintah juga harus
memastikan bahwa setiap company melakukan regulasi tersebut.
Kalau buka fnb, hrs fokus ke food safety (di indo ada BPOM)
A Clash of Ethical Systems
Detrimental Interaction of Business, Government, and the
Public
Government’s Nonregulatory Influence on Business
Two major nonregulatory issue
- Industrial policy: concerned with the role of government in a national
company
- Every form of state intervention that affects industry as a distinct part of
the economy
- A current trend towards stronger industrial policy is likely to continue
while the world economy works to recover from a global financial crisis.
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Privatization: whether current public functions should be turned over to the
private (business) sector.
- The process of changing a public organization to a private control or
ownership
- The intent is to capture the discipline of the free market and a spirit of
entrepreneurial risk-taking.
Two functions a government might perform:
- Producing a service
- Providing a service
Pro privatization
- Government has no comparative advantage in many functions
- Government is less efficient and less flexible
Anti-privatization
- Some activities cannot effectively handled by the private sector
- Privatization works best when the pursuit of profits does not work against
broader social goals or public policy
Government’s Regulatory Influence on Business
Regulation -> The act of governing, directing according to the rule, or bringing under
the control of law or constituted authority.
A federal regulatory agency:
- Has decision making authority
- Established standards
- Operates principally on domestic business
- Has members appointed by the president subject to senate confirmation
- Has its legal procedures governed by the administrative procedures act
Issues Related to Regulation
Innovation may be affected
- When corporate budgets must focus on “defensive research” certain types of
innovation are less likely to take place
New investments in plant and equipment may be affected
- To the extent that corporate funds must be used for regulatory compliance, they
are diverted from more productive uses.
Small business may be adversely affected
- Federal regulations can have a disproportionately adverse effect on small firms
because of the (lack of) economies scale.
Deregulation
Represents a counterforce
-> Aimed at keeping the economy in balance. A continual striving for the balance
of freedom and control for business will be best for society.
Purpose of Deregulation
->Intended to increase competition with hopes for greater efficiency, lower
prices, and enhanced innovation
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Deregulation which began in the 1980s had mixed results
Ada harga yang turun, tapi competitors jadi gabisa compete sm dominant firms
The savings and loan industry crisis cost the government a $124 billion bailout
Repeal of the Glass-Steagall Act caused the global recession that began in 2008
The dilemma is how to enhance competition without sacrificing applicable social
regulations such as health and safety requirements
Self-Regulation as an Alternative
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Arguments have been made to let industries police themselves
There is precedent for this in the workplace:
- Federal Aviation Administration : airline manufacturers like Boeing
- Consequence: The crash of two of its 737 Max jetliners
Self regulation in developing standards around content can help companies
avoid some of the costs associated with impending regulation, while also
showing society that they care about curbing inappropriate or harmful activities.