McGraw-Hill/Irwin Strategic Management, 10/e Copyright © 2007 The McGraw-Hill Companies, Inc. All rights reserved. Corporate Social Responsibility and Business Ethics Session 4 Chapter 3

3-2 Learning Objectives 1.Understand importance of stakeholder approach 2.Describe a social audit 3.Discuss the effect of Sarbanes-Oxley, Explain relevance of business management practice 5.Role of Ethics in strategic management

3-3 Word of the Day STAKEHOLDER

3-4 Stakeholder Approach According to Stakeholder Approach: strategic managers must recognize the legitimate rights of the firm’s claimants. These include outside stakeholders affected by the firm’s actions.

3-5 Perceived Stakeholders Customers Government Stockholders Employees Society

3-6 Inputs to the Development of Company Mission

3-7 Types of Social Responsibility Economic – the duty of managers, as agents of the company owners, to maximize stockholder wealth Legal – the firm’s obligations to comply with the laws that regulate business activities Ethical – the company’s notion of right and proper business behavior. (strategic to a degree) Discretionary – voluntarily assumed by a business organization. (strategic)

3-8 Sarbanes-Oxley Act of 2002 CEO and CFO must certify every report containing company’s financial statements Specifies duties of registered public accounting firms that conduct audits Composition of the audit committee and specific responsibilities Rules for attorney conduct Disclosure periods are stipulated Stricter penalties for violations

3-9 New Corporate Governance Structure Restructuring governance structure in American corporations Heightened role of corporate internal auditors Auditors now routinely deal directly with top corporate officials CEO information provided directly by the company’s chief compliance and chief accounting officers

3-10 The New Corporate Governance Structure

3-11 CSR’s Effect on Mission Statement The mission statement embodies what company believes Managers must identify all stakeholder groups and weigh their relative rights and abilities to affect the firm’s success

3-12 Social Audit A social audit is an attempt to measure a company’s actual social performance against its social objectives. The social audit may be used for more than simply monitoring and evaluating firm social performance.

3-13 Management Ethics The Nature of Ethics in Business: Belief that managers will behave in an ethical manner is central to CSR Ethics – the moral principles that reflect society’s beliefs about the actions of an individual or a group that are right and wrong Ethical standards reflect the end product of a process of defining and clarifying the nature and content of human interaction

3-14 Code of Business Ethics To help ensure consistence in the application of ethical standards, an increasing number of professional associations and businesses are establishing codes of ethical conduct. The following all have ethics codes: –Chemists –Funeral directors –Law Enforcement Agents –Hockey Players –Librarians –Physicians

3-15 Chapter 4: External Environment The O & T of SWOT Analysis

3-16 Chapter 4: External Environment To stress the importance of the sectors of the firm’s external environment to strategy formulation. To describe the role of external analysis in the formulation of strategic management

3-17 The Firm’s External Environment Remote Environment (Global and Domestic) Industry Environment (Global and Domestic) Operating Environment (Global and Domestic ) Economic Social Political Technological Ecological Entry barriers Supplier power Buyer power Substitute availability Competitive rivalry Competitors Creditors Customers Labor Suppliers THE FIRM

Economic Factors Concern nature and direction of economy in which a firm operates Types of factors –General availability of credit –Level of disposable income –Propensity of people to spend –Prime interest rates –Inflation rates –Trends in growth of gross national product

Social Factors Include beliefs, values, opinions, and lifestyles of people Recent social trends –Entry of large numbers of women into labor market –Accelerating interest of consumers and employees in quality-of-life issues –Shift in age distribution of population

Political Factors Define legal and regulatory parameters within which firms must operate Types of factors –Fair-trade decisions –Antitrust laws –Tax programs –Minimum wage legislation –Pollution and pricing policies –Administrative jawboning

Technological Factors Focus on technological changes affecting industry Types of changes –New products –Improvements in existing products –Manufacturing and marketing techniques Role of technological forecasting –Foresees advancements and estimating their impact –Alerts managers to impending challenges and promising opportunities

Ecological Factors Involve relationships among human beings and other living things and air, soil, and water Current concerns –Global warming –Loss of habitat and biodiversity –Air, water, and land pollution Responsibilities of firms –Eliminating toxic by-products of current manufacturing processes –Cleaning up prior environmental damage