© 2015 Cengage Learning1

Chapter 5 Strategic Management and Corporate Public Policy © 2015 Cengage Learning2

Learning Outcomes 1.Describe the concept of corporate public policy and relate it to strategic management. 2.Articulate the four major strategy levels and explain enterprise-level strategy. 3.Explain social entrepreneurship and relate it to the benefit corporation. 4.Explain sustainability reports and integrated reporting. 5.Link public affairs with the strategic management function. 6.Indicate how public affairs may be incorporated into every manager’s job. © 2015 Cengage Learning 3

Chapter Outline The Concept of Corporate Public Policy The Concept of Corporate Public Policy Four Key Strategy Levels Four Key Strategy Levels The Strategic Management Process The Strategic Management Process Public Affairs as a Part of Strategic Management Public Affairs as a Part of Strategic Management The Corporate Public Affairs Function Today The Corporate Public Affairs Function Today Summary Summary © 2015 Cengage Learning 4

The Concept of Corporate Public Policy © 2015 Cengage Learning 5 Corporate public policy is a firm’s posture, stance, strategy or position regarding the environmental, social, global, and ethical aspects of stakeholders and corporate functioning Affirmative Action Sexual harassment Product safety Employee privacy Environmental Sustainability

Corporate Public Policy and Strategic Management Strategic management - Refers to the overall management process that strives to identify corporate purpose, and to position a firm to succeed in its market environment. Corporate public policy - Incorporates sustainability as that part of the overall strategic management of the organization that focuses on the environmental, economic, social and ethical stakeholder issues that are embedded in the decision processes of the firm. © 2015 Cengage Learning6

Relationship of Ethics to Strategic Management - For business ethics to have any meaning beyond pompous moralizing, it should be linked to corporate strategy. Corporate strategy can be revitalized because the linkage permits addressing management issues in ethical terms. This linkage can be better understood when we think about the: Four key strategy levels (decisions are made at several levels) Steps in the strategic management process © 2015 Cengage Learning7

Four Key Strategy Levels Enterprise-level strategy - What is the role of our firm in society? For what do we stand? Corporate-level strategy - What business should we be in? Business-level strategy - How should we compete in this business or industry? Functional-level strategy - How should we integrate subfunctional activities and relate them to changes in our functional areas? © 2015 Cengage Learning8

The Hierarchy of Strategy Levels © 2015 Cengage Learning9 Corporate-Level Strategy Business-Level Strategy Functional-Level Strategy Enterprise-Level Strategy Feedback

Emphasis on Enterprise-Level Strategy For what do we stand? What is the role of our organization in society? How is our organization perceived by our stakeholders? What principles or values does our organization represent? What obligations do we have to society at large, including to the world? What are the broad implications for our current mix of businesses and allocation of resources? © 2015 Cengage Learning10

Manifestations of Enterprise-Level Thinking - A positive, constructive, sensitive firm response in a public crisis The use of: Codes of ethics Codes of conduct Mission statements Values statements Corporate creeds Vision statements Policy-oriented codes and statements © 2015 Cengage Learning11

Social Entrepreneurship - The social entrepreneurship has as its reason for being a mission of societal value creation. The creation of wealth is a means to achieve the goal of creating societal value. Social entrepreneurship’s central focus is the alleviation of poverty, but it may address a range of societal goals, including education, the environment, and the arts. The bottom-of-the-pyramid (BOP) is term used to characterize the largest and poorest socio-economic group of people, those who live on less than $2/day. © 2015 Cengage Learning12

The Benefit Corporation- Unlike the traditional corporation, the Benefit Corporation has a broader mission that includes having a positive impact on society. The societal mission does not take a backseat to shareholder wealth maximization. The Benefit Corporation offers managers, investors and customers the opportunity to participate in or patronize businesses that promise to make social responsibility an important goal. 12 states now have laws permitting companies to incorporate as Benefit Corporations. © 2015 Cengage Learning13

The Importance of Core Values Core Values - Are the deeply ingrained principles that guide all of a company’s actions and decisions. Serve as cultural cornerstones. Having a set of core values that are not followed will do no good. To be effective, firms need to weave core values into everything they do. If a firm’s core values are not upheld, they become hollow, and do more harm than good. © 2015 Cengage Learning14

Other Manifestations of Enterprise-Level Thinking - Establishment of public-policy committees - Sustainability Ethics Corporate philanthropy, etc. Establishment of a Public affairs Office - Included in strategic decision-making Identification of social or public issues – Integrated into strategic management processes © 2015 Cengage Learning15

The Strategic Management Process- 1.Goal formulation 2.Strategy formulation 3.Strategy evaluation 4.Strategy implementation 5.Strategic control 6.Environmental analysis © 2015 Cengage Learning16

Strategic Management Process and Corporate Public Policy © 2015 Cengage Learning17

Components of Strategy Formulation © 2015 Cengage Learning18

Strategic Corporate Social Responsibility (1 of 2) CSR & Competitive Advantage - 3 ways corporations intersect with society: Generic social issues (firm’s operations do not affect society and issue is not material to firm’s long-term competitiveness) Value chain social impacts (a firm’s normal operations significantly affect society) Social dimensions of competitive context (social issues affect the underlying drivers of a firm’s competitiveness) These categories divide into 2 modes of corporate involvement: © 2015 Cengage Learning19

Strategic Corporate Social Responsibility (2 of 2) Responsive CSR Addresses generic social impacts through good corporate citizenship and value chain social impacts by mitigating harm. Strategic CSR Transforms value chain social impacts into activities that benefit society while reinforcing corporate strategy. Advances strategic philanthropy that leverages competitiveness. © 2015 Cengage Learning20

Measuring Sustainable Corporate Performance Achieving sustainability requires performance accountability. When firms measure only financial performance, environmental and social considerations become side issues. To achieve sustainability, the triple bottom line must be reflected in every aspect of the firm’s operation. Sustainability reports (integrated reports – IR) reflect the extent to which the firm is creating value in the triple bottom line. Social Audits, Social Responsibility Reports and Environmental Impact Reports focus on specific areas. © 2015 Cengage Learning21

Public Affairs As a Part of Strategic Management © 2015 Cengage Learning 22 Strategic Management Process Corporate Public Policy Issues Management Crisis Management Public Affairs Management Part of which is Enterprise-Level Strategy Environmental Analysis

The Corporate Public Affairs Function Today Public Affairs grew in the U.S. because of: 1.The growing magnitude and impact of government. 2.The changing nature of the political system. 3.The recognition by business that it was being outflanked by interests counter to its own. 4.The need to be more active in politics outside traditional community-related aspects. © 2015 Cengage Learning23

Public Affairs Defined - The Public Affairs Council (PAC), the leading organization of executives who do the PA work of companies, defines PA as: “Public affairs represents an organization's efforts to monitor and manage its business environment. It combines government relations, communications, issues management and corporate citizenship strategies to influence public policy, build a strong reputation and find common ground with stakeholders.” © 2015 Cengage Learning24

Public Affairs Activities & Functions - Public Affairs (PA) began from isolated company initiatives designed to handle diverse activities, but was sometimes managed by Public Relations staffers, but they are not the same. Public relations focuses on selling a product, while public affairs is designed to influence public policy. PA activities may include lobbying, global public affairs, social media, corporate responsibility, campaign finance, grassroots advocacy, crisis communication, and more. © 2015 Cengage Learning25

Future of Corporate PA © 2015 Cengage Learning 26 If the PA function is to be effective, it must have influence at the top management level. Because of corporate ethical crises, PA specialists have an ideal opportunity to help transform business and society relationships. There are 3 primary opportunities: Help develop value-based enterprises; and work cooperatively with them on social issues. PA executives can be thought leaders in their firms, and collaborate with those outside the firm on current issues. Be mindful of global issues, including those which begin as domestic issues and migrate.

benefit corporation bottom of the pyramid business-level strategy corporate-level strategy corporate public affairs corporate public policy enterprise-level strategy functional-level strategy Global Reporting Initiative issues and crisis management public affairs (PA) public affairs departments public affairs management public affairs strategy shared value social audit social entrepreneurship social responsibility report strategic management strategic management processes sustainability report value shift © 2015 Cengage Learning 27 Key Terms