Social, Ethical, and Governance Dimensions of Business

Sustainability
— The human side of sustainability's integration to business is all about stakeholder
development, both internal (employees) and external (suppliers, community, customers).

— An organization has a commitment to manage human resources by levelling up their skills

amd by ensuring that they are free from an form of abuse or neglect

— Similarly, it's also the responsibility of an organization to give back to their community from
all the benfits reeked by the business — Leadership positions, business ethics, and governance
play a role that enable companies to think about placing the strategy and to work on achieving
corporate responsibility

SOCIAL DIMENSION OF BUSINESS SUSTAINABILITY

It soesnt mean that whatever you do, it will automatically have an in/direct impact in the
company's profitability

 SOCIAL RESPONSIBILITY

— This refers to the how organizations consider and manage their impacts on different
stakeholders to emphasize that they are not simply independent units operating in
isolation to make money for shareholders and achieve their objectives.

— Socially responsible actions by businesses may invariably have an impact on its

reputation but it would be very difficult to show them having a direct impact on its
profitability.

— The concept of “Corporate Social Responsibility” (CSR) becomes not just desirable
but essential in establishing long-term sustainability through improved relationships with
firm’s stakeholders.

 SOCIAL RESPONSIVENESS

— The degree of effectiveness and efficiency an organization displays in pursuing its

social responsibilities

— The greater the degree of effectiveness and efficiency, the more socially responsive
the organization is said to be

FOUR CATEGORIES OF SOCIAL RESPONSIBILITY

 ECONOMIC
 —Produce goods/services that society wants and needs

 LEGAL

— Conduct business in lawfl and compliant manner

 DISCRETIONARY

— Perform socially desirable actions that are beyond the other 3 obligations

 ETHICAL

— Engage in practices which are consistent with societal values

FOUR COMPONENTS OF SOCIAL RESPONSIBILITY

 Core labor standards

Composed of a general commitment to human rights, the right to equality or opportunity

and treatment, the right to freedom of association and collective bargaining, the
prohibition of forced labor, the abolition of forced labor, and workforce diversity.

— pledge to social equality and equity

 Working conditions

Addresses the general working condition of business facilities, working hours, achieving
balance between family and work, wages and benefits, occupational safety and health,
stress and violence, harassment, and maternity protection.

—application of core labor standards, where employees achieve work-life-balance or

work-life integration

 Community Involvement

Measures the extent to which the company initiates and supports community programs
like improved health and educational services to those who live within its surroundings
and beyond.

 Philantropic Programs

Refers to the assistance that is extended by the company to non-profit organizations,

foundations, institutions, and causes which support national and international advocacies.

Typical examples are a company’s support for local exhibits, music, and the visual arts
staged for the advancement of a common good.
Important considerations:

— Occupational health and safety

— Labor code and huan rights

— Stakeholder engagement

— Volunteerism

DETERMINING IF SOCIAL RESPONSIBILITY EXISTS

Challenge: to determine which specific social obligations are implied by their business situation

EXAMPLES:

 Tobacco industry managers – to contribute to public health by pushing for the

development of innovative tobacco products that do less harm to people’s health
 Cement industry managers – to insure that right technology is obtained in order that
emission of dusts and gases are way beyond compliance
 Managers of industrial plants along waterways and lakes – to insure that contamination of
water system from effluents is nil or way beyond compliance

STAKEHOLDERS OF A TYPICAL MODERN ORGANIZATION & EXAMPLES OF

SOCIAL OBLIGATIONS MANAGERS OWE TO THEM

 Stockholders/owners

To increase value of organization

 Suppliers

To deal with them fairly

 Banks & other lenders

To repay debts

 Government agencies

To abide by laws

 Employees & unions representatives

Safe work environment & to negotiate fairly with union

  Consumers

To provide safe products

 Competitors

To compete fairly & to refrain from restraints of trade

 Local communities & society at large

To avoid business practices that harm the environment

THREE MANGEMENT APPRAOCHES TO MEETING SOCIAL OBLIGATIONS

1. Social obligation approach – considers business as having primarily economic purposes

and confines SR activity mainly to existing legislation
2. Social responsibility approach – sees business as having both economic and societal goals
3. Social responsiveness approach – considers business as having both societal and
economic goals as well as the obligation to anticipate potential social problems and work
actively toward preventing their occurrence

ETHICAL DIMENSION OF BUSINESS SUSTAINABILITY

BUSINESS ETHICS

The application of our understanding of what is good and right in business (institutions,
technologies, transactions, activities, and pursuits)

Why be ethical?

— "Unethical behavior in business tends to be a losing proposition because it undermines the

long-term cooperative relationships with customers, employees, and community members on
which business success ultimately depends”.

— Personal integrity

Value system

Religion/Faith

ETHICS VS PURSUIT OF PROFIT

Doing good

"Merck"
"Vandivier @ Good rich"

Doing well

"Arthur Andersen etc"

Worldcom

Enron

ETHICAL DECISION MAKING

 THE UTILITARIANISM APPROACH

—Which option will produce the most good and do the least harm

 THE RIGHTS APPROACH

Which optioin best respects the rights of all who have a stake

 THE JUSTICE APPROACH

Which option treat people eqully or proportionately

 THE COMMON GOOD APPROACH

Which option best serves the community as a whole, not just some members

 THE VIRTUE APPROACH

Which option leads me to act as the sort of person I want to be

THE UTILITARIAN PRINCIPLE

— Act in a way that results in the greatest good for the greatest number of people

— Main proponent: Jeremy Bentham

Cost-benefit analysis - choose greatest net benefit or lowest net cost Efficiency – max output
given input

MODELS OF THE FIRM

 Shareholder model – The firm’s purpose is to maximize shareholder wealth

 Stakeholder model – Management must take into account the rights of multiple
stakeholders. Manager is a trustee balancing the interests of diverse constituents
  Common good model – The firm must contribute to authentic human development and
the conditions that support it

CORPORATION CODE OF THE PHILIPPINES

The purpose of the law is to “establish a new concept of business corporations so that they are
NOT merely entities established for private gain but effective partners of the National
Government in spreading the benefits of capitalism for the social and economic development of
the nation.

THE PRINCIPLE OF COMMON GOOD

— God intends the human race to be a community of persons

— Every social group must take account of the needs and legitimate aspirations of other groups,
and even of the general welfare of the entire human family.”

— Solidarity in community: a firm and persevering determination to commit oneself to the

common good; that is to say, to the good of all and of each individual because we are all really
responsible for all.” (JP II)

THE PRINCIPLE OF COMMON GOOD - APPLICATION

Organizations serve the common good when:

EXTERNAL - They produce goods and services that meet authentic human needs and wants,
when they operate responsibly in their relationships with their stakeholders, when they provide
employment that enables people to enjoy a decent standard of living, etc.,

INTERNAL - They foster the emergence of a sense of real community among their employees,
so that people find fulfillment as persons precisely by engaging with others in the pursuit of the
external common good

ETHICS

Codes of conduct with no universal enforceability or widely recognized disciplinary action for
non-compliance.

In some cases, ethics remain unwritten and are actually unspoken rules of conduct that people
adhere to.

Ethical codes are intended for a particular group/entity/organization and may differ across
entities.

LAW
Written, approved, and enforced by the level of government where they were written.

Non-compliance with the law are met with generally acknowledged penalties/sanctions.

Laws, regulations, and ordinances are intended to foster ethical treatment among all citizens.

FOUR PRIMARY COMPONENTS OF BUSINESS ETHICS

 Complying with all applicable laws, rules, regulations, and standards.

 Refraining from breaking the law relevant to all business activities.
 Avoiding any actions that may result in civil lawsuits against the company.
 Refraining from actions that are bad for the company’s image and reputation.

ETHICS KEY PERFORMANCE INDICATORS (KPIs)

 Truthful advertising
 Fair competition
 Fair wages and benefits
 Employee satisfaction, productivity, & engagement
 Supplier satisfaction, retention, & commitment
 Customer satisfaction, retention, & commitment

GOVERNANCE DIMENSION OF BUSINESS SUSTAINABILITY

WHAT IS BUSINESS GOVERNANCE

— Simply defined, it is the manner by which a business entity is managed.

— But in more holistic terms, it refers to “the set of responsibilities and practices exercised by
the business owner which are intended to

provide strategic direction,

ensure that goals are achieved,

manage risks appropriately, and

verify that the organization’s resources are used responsibly.” (International Good Practice
Guidance, 2009)

DIMENSIONS OF BUSIENSS GOVERNANCE

The CONFORMANCE dimension involves compliance with all applicable laws, rules,
regulations, ordinances, and standards, as well as accountability to all stakeholders.
The PERFORMANCE dimension of governance underscores the importance of adopting policies
and following procedures which address opportunities and risks, proper resource utilization,
strategy formulation, value creation, and thoughtful decision-making.

DRIVERS OF GOOD GOVERNANCE

 Knowledge, expertise, and experience of directors/business owner

 A competent CEO/business owner whose integrity is unimpeachable
 A keen focus by board members/business owner on key strategic issues
 Regular and credible information is shared through robust reporting systems
 An ethical and competent organizational culture that starts from the TOP
 Integrating the five sustainability dimensions into strategy formulation as well as
business operations

BUSINESS GOVERNANCE KEY PERFOMANCE INDICATOR'S (KPIs)

 Level of expertise by owner/board member

 Codes of conduct and ethics
 Executive Compensation
 Number of instances of non-compliance with rules and laws
 Independence of audit function
 Existence of legal counsel
 Shareholder’s democracy
 Management’s description of its long-term vision

POTENTIAL CHALLENGES IN PROMOTING GOOD GOVERNANCE

 Succession planning
 Compliance
 Board leadership
 Risk assessment and management
 Executive compensation