Sunday, September-18-11
ADMINISTRATIVE STUDIES
Kaitlyn Di Ilio
CHAPTER EIGHT: THE SOCIETAL CONTEXT
BUSINESS AND SOCIETY :
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Corporate social Responsibility
Unethical behaviour
Costs of such behaviour eventually accumulate
Misuse of natural resources, too close a relationship with government, not treating employees properly and corporations
being too big and too powerful
View that business and ethics do not go together
MANAGING THE FORCES OF BUSINESS AND THE STAKEHOLDERS OF BUSINESS :
 Fully understand the ethical dimension of business
STAKEHOLDERS: are individuals or groups with whom business interacts and who have a stake or vested interest in the business Interest in management's actions - legal or moral right to be treated a certain way to a legal claim of ownership at the other extreme
EXTERNAL STAKEHOLDERS: are composed of such parties as government, consumers and community members
INTERNAL STAKEHOLDERS: can include business owners and employees among the principal groups
 Have legitimate claims on the organization
 Management is to address the needs of differing stakeholders of the business
 Influence the organizations actions and decisions
 Employees and customers, competitors, suppliers, the community, special-interest groups, the media and society
MANAGING CHALLENGES OF THE SOCIETAL FORCE:
 Fulfill its responsibilities to the variety of stakeholders
CORPORATE SOCIAL RESPONSIBILITY

Responsibility of a business organization to develop a moral conscience and exercise ethical judgment or social
responsibilities
SOCIAL RESPONSIBILITY: obligations or responsibilities of an organization that involve going beyond
o The production of goods/services at a profit
o The requirements of competition, legal regulations or custom
 Obligation to create policies, make decisions and engage in actions that are desireable in terms of societies values and
objectives
 Archie Carroll's (economic, legal ethical and discretionary expectations that society has of organizations at a given point in
time
 Issues above economic and legal ones
 Business must abide by the laws in order to fulfill its legal responsibilities
 Standards or expectations that reflect what the societal stakeholders regard as fair
 Activities as corporate donations, volunteerism
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Sunday, September-18-11
CSR RESPONSIBILITIES
Economic responsibilities
Legal responsibilities
ADMINISTRATIVE STUDIES
Kaitlyn Di Ilio
The Four components of CSR
SOCIETAL EXPECTATIONS
EXAMPLES
Society requires business to fulfill these
Generate rational business strategy, make profits,
responsibilities
minimize costs
Society requires business to fulfill these
Honour all relevant laws and regulations
responsibilities
governing business activities
Ethical responsibilities
Society expects business to fulfill these
responsibilities
Engage in business practices that are in line with
what society considers acceptable, fair just
Philanthropic responsibilities
Society desires business to fulfill these
responsibility
Engage in activities that help the betterment of
society (volunteerism, charity)
Against Social Responsibility

The CSR Debate
For Social Responsibility
Business is Business:
o Profit maximization
o Primary purpose of business
o Primary responsibility is to the owners of shareholders
o Confuse their economic goals

Business should conform to societal expectations:
o Business plays a role within society: fundamentally,
businesses are created to serve public needs
o Dependent on acceptance by society- obligation not to
violate societal beliefs regarding socially responsible
behaviour
o Profit motive- not only part of social responsib.
o Shareholders- expectations that businesses behave
responsibly
o Permits investors to present issues of concern to corporate
management and to other shareholders- vote to
support/reject
CSR is a practical strategy:
o Avoid public criticism or scrutiny that might inadvertently
encourage more government involvement or regulation
o Realm of business-consumer relationships

Business plays by its own rule:
o Business cannot be judged by the same set of rules or
standards of moral conduct that we apply outside of the
business
o "bluffing" is a legitamate behaviour within the boundaires of
business activity
o Individuals may employ ethical standards in business that
differ from those generally employed in their non working
lives
o Members of organizations will engage in behaviour with
accepted beliefs, although these behaviours might
otherwise be viewed as unacceptable
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Business should not dictate morality:
o Managers are simply not skilled in the area of social policy
o Expanding their power
o Political function in addition to its economic purpose /
dangerous
o The job of the government
o Government can simply enforce regulations to ensure that
business is socially responsible rather than allowing
business to take it upon itself to judge matters of social
responsibility

Must acknowledge network of stakeholders:
o Potential stakeholders - suppliers and government- society
o Must be considered in conducting business
o Impact on any party
o Other stakeholders may withdraw their participation
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Organizations cannot be held accountable for their actions:
o Entity responsible for an action / corporation
o Corporations leaders and their constituents whose behaviour
must be studied

Long-term benefits:
o Wise from a longer-term strategic perspective
o Likely continue to receive acceptance and be considered
legitimate by the public
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ADMINISTRATIVE STUDIES
Kaitlyn Di Ilio
RESPONSIBILITIES TO
EMPLOYEES
treat employees fairly with
regard to hiring firing,
wages
RESPONSIBILITY TO
OWNERS OR
SHAREHOLDERS
RESPONSIBIITIES TO
CONSUMERS/CUSTOMERS
produce products
acceptable quality and price
them fairly
provide fair and honest
reporting
ORGANIZATION
RESPONSIBILITIES TO
COMPETITORS
avoid unethical
corporate activity, such
as corporate spying and
unfair competition
practices
RESPONSIBILITIES TO
CREDITORS
make prper use of
financial resources and
disclose information
fairly
IS CORPORATE SOCIAL RESPONSIBILITY ON THE RISE?
 Shaping organizations to reflect higher levels of social responsiveness
 Balance the profit objective with goals of social responsibility
 Greater efforts - needs of stakeholders
 How corporations govern and oversee their own behaviour
 Accountable for their behaviour
THE SARBANES-OXLEY ACT:
The act- increasing transparency or disclosure or their financial reporting:
 Affect Canadian companies that trade on US stock exchange
 Served as an impetus for similar Canadian legislation
 Evolving standards are intended to make corporations more accountable for their behaviour and financial reporting
methods
 Drive to adopt a more socially responsible approach
 Managers are challenged to use ethical principles to guide managerial actions when faced with competing interests among
different stakeholders
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ADMINISTRATIVE STUDIES
Kaitlyn Di Ilio
STRUCTURE OF CORPORATIONS:
CAPITALISMS is based on private enterprise - to earn profits
 Can provide rewards for those who work hard, incentive, creative - potential reward for creating value in an economy is the
accumulation of personal wealth
 Raise standard of living
 TWO MAIN SOURCES (LONG-TERM PROFITS)
1. Business must provide products and or services to a customer base - find ways to increase profits from core
operations can increase economic value
2. Increased profits can come from a growth in the sales of an existing product or sales resulting from the
introduction of a new product
 Expansion - requires additional money or capital
o Access capital - will Entail risk / control risk- but key to success
o Access to capital and ability to control risks are influenced by the manner in which a firm is organized
o Can be a sole proprietorship a partnership or a corporation
o Each organizational form involves different advantages and disadvantages
FORMS OF BUSINESS OWNERSHIP:
Sole
Proprietorship
STOCKHOLDERS OR SHAREHOLDERS: are owners of a
public corporation- receive any value that the corporation
makes and can also lose their investments
ADVANTAGES:
1.) Any individual, as long as she or he has some
Partnership
money can invest increase of wealth
2.) Business with growth potential can obtain capital
needed to expand, which creates economic value,
Corporation
jobs and taxes. - corporations have an infinite life
( except bankruptcy) - enjoy limited financial
liability
3.) Ownership is quite liquid- easily bought and sold
DISADVANTAGES:
 Profits are subject to business taxes
 Must also pay personal taxes on dividend income
 Running a corporation can be quite expensive
 Serious governance problems
 Do not feel any sense of ownership or control over firms
Owned by single person
Easy to start up
Ubiquitous representing 70% of all businesses
Limited lifespan
Limited ability to obtain capital
Unlimited personal liability for the firm
More than one owner
Pool capital
Combining service-oriented expertise and skill
Is its own legal entity
Engage in business transactions and other
business activities in its own name
Corporate officers act as agents for the firm
and authorize those activities
ADVANTAGE
Access to capital markets
Issuing stocks and bonds to investors
To raise money for Expansion in the capital
markets the business sells stocks to investors
PEOPLE IN BUSINESS: (SHAREHOLDERS, DIRECTORS, OFFICERS, AND EMPLOYEES ):
SHAREHOLDERS: own a public firm / owners who capture economic value of the firm in the form of stock price increases and
dividends - suffer the losses ( act like investors not owners)
DIRECTORS: hire oversee, evaluate and fire officers of the firm - represent the interests of the shareholders (CEO) ex. - ultimately
responsible for the day-today operation of the firm
EMPLOYEES: have a stake in the firm- dedicate their human capital
Stakeholders: creditors, government, suppliers and customers, - ( those who deal with the firm)
OFFICERS: control the firm
SEPARATION OF OWNERS HIP AND CONTROL:
 Corporate ownership and control are divided into two parties4
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ADMINISTRATIVE STUDIES
Kaitlyn Di Ilio
1. STOCKHOLDERS: own the firm- business performance of the firm and investors focus on the risk and return of their stock
portfolios - diversifying reduces risk for investor - ownership of many companies also make participation and influence
those companies less likely - investors tend to be inactive shareholders in many firms
2. OFFICERS: control the firm
 Principal agent problem or the agency problem
 Monitoring is important help overcome the agency problem
 Shareholders of a corporation are the principals and the managers- run the company are the agents
 Tempted to use the firms assets
SOLUTIONS:
1. Incentives- tie the wealth of the executive to the wealth of shareholders - aligning executive incentives with shareholder
desires
2. Monitoring - set up mechanisms for monitoring the behaviour of managers
CAN INVESTORS INFLUENCE MANAGERS?:
 Managers work for owners (shareholders)
 Shareholders have the power to make proposals that can be voted on the annual shareholders meeting
 TWO TYPES OF PROPOSALS:
1. Related to governance
2. Oriented to social reform
 When there is a vote they are usually defeated - trumped by the manager
 Proposal is successful depending on management opinion
ARE INVESTORS HELPLESS?:
 Managers work is mostly unknown to investors - may not act in best interest of shareholders- need for MONITORS
BOARD OF DIRECTORS: oversee management and are supposed to represent shareholders interests- evaluates
management and can also design compensation contracts to tie managements salaries to the firms performance
Outsiders: interact with the firm and monitor manager activities
o
VALIDATE FIRMS ACTIVITIES: activities, accountants and auditors, can attest to the firms financial health and
verify its activities
o INVESTMENT ANALYSTS - evaluations of the companies business activities
o Analysts are supposed to give unbiased and expert assessments
o Obtaining more capital from public investors , firms must register documents with regulators that show potential
investors the condition o the firm
o Investment banks help firms with this process and advise managers on how
to interact with the capital markets
monitors
o Government also monitors business activities
•stockholders
•Within company
SEC Security Exchange Commission •creditors
•board of directors
•employees
•managers
regulates public firms for the protection of
•outside the company
•society
public investors: - and IRS Internal Revenue
•auditors, analysists,
bankers, credit
Service- enforces the tax rules
controllers
agencies, attorneys
stakeholders •government
AN INTEGRATED SYSTEM OF GOVERNANCE:
•SEC IRS
Corporate governance system is integrated and complicated
Managers want to increase profits
Gaining analysts favour
Awards them stock options and stock incentives
Regulators also monitor managers behaviour
Conflicts of interest
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