A few words about me

2002, 2004: MA in Foreign Languages + MA in Media Science & Technology (Pavia University)
2004/2005: Writer of advertorials in NorthWest Italy for Il Sole 24 Ore (Italian FT)
2005/2007: Market Analyst for TV channel ESPN Classic Sport Ltd (London)
Translator/editor (subtitler) for Broadcast Text Ltd (London)
2007/2012: Foreign rights manager for trade publisher Baldini Castoldi Dalai (Milan)
2012/2016: Researcher and assistant lecturer at Lugano University (Switzerland)
2014: Visiting exchange EHESS and ECOLE DES PONTS (Paris)
2016: PhD in Communication Sciences (Lugano, Switzerland)
Apr 2017- NOW INSEEC GRANDE ECOLE (IBS) Associate Professor (Business Ethics & CSR / Geopolitics)
Member of the research chair on Digital Innovation and AI (sponsored by Cegid and Esker)

UNIVERSITÉ LUMIERE LYON 2 Lecturer of Strategy at Master level

Research topics: Organizational space (planning, constructing, changing of buildings, office spaces, cities)
Workplace and Technology-enabled hybrid practices (coworking, telework, nomad work)
Digital transformation, urbanization and social issues (smart cities, homeless, old people)
Legitimacy management (justification and critique of tax minimization strategies)
Business ethics & CSR (HRM of fragile people; postvention for suicide at work)
 Exchange of crucial information and 1st moral issue
Where do Tunisians of Tunisi watch the world cup?
On Saturday 11 AM, I wanted to support Tunisia playing against Australia, but…

Who thinks we should boycot the FIFA WORLD CUP?

Do you know how many workers died in Qatar?

Roughly how much

per life of workers?
57 230 £
Can we do this type
of account?
 How to pass well this CSR workshop

COURSE EVALUATION =

1 quiz tomorrow (easy but pay attention today…) 20%

1 group presentation on an exercise you do tomorrow (read B&T) 30%
1 individual executive summary to send by the end of November 50%

4
 Today’s class concepts and objectives
BUSINESS ETHICS CSR
• Introduce Morality, Business Ethics • Look at CSR’s actors, historical
origins and definitions
• Global societal relevance of Business
Ethics (e.g. environmental • Explain CSR in terms of levels,
sustainability) strategies, outcomes
• Know the participants’ shared values • Apply accurately concepts of
and start exploring our ethical vision corporate governance
of business, professional identity, • Critically evaluate implications
responsibility to ourselves, our family, of different CSR views
our society
LEARNING OBJECTIVES: grasp basic concepts underlying CSR, understanding why ethical
issues of social responsibility matter in business management. Appreciate different ethical approaches,
organizational structures (corporate governance) and sustainable value creation opportunities
that make ethics important for business, in a digital world (HOW? Historical Case studies, Models and Talk) 5
 Business Ethics and CSR history and present
In societies with strong, traditional aristocracies (e.g. England)
business and work was often treated as immoral, demeaning

XIX century: creation of monopolies and the use of slavery started being disputed
(→ and they are still relevant today… look at the work conditions in Qatar…)

1960s: civil rights, the environment, safety in the workplace, and consumer issues

1985-1995: specialized centres, journals and conferences

Since 1995: issues related to international business activity have emerged, including bribery and
corruption, and the use of child and slave labor abroad

Since 2001: understanding causes of major corporate scandal (Enron, Worldcom bubble, 2008 Financial
crisis)
 Ethics as an ancient domain,
with a recent development: Business Ethics (BE)
Business Ethics developed
in the 80s and 90s
(in major corporations and academia)
Today most big firms promote their
commitment to non-economic values
under the forms of ethics codes or
social responsibility charters

Do your companies have formalized

policies related to ethics? If so, have you
read them and do you agree?
 Defining morality, ethics and ethical theory

Morality is concerned with the norms, values and beliefs embedded in

social processes which define right and wrong for an individual or a
community

Ethics is concerned with the study of morality and the application of

reason to elucidate specific rules and principles that determine right and
wrong for any given situation

These rules and principles are called ethical theories

Crane & Matten, 2016

The relation between morality, ethics and ethical theory

… to …that can
Ethics produce be applied
rationalizes ethical to any
morality … theory … situation
Ethical Potential
Morality Ethics theory solutions
to ethical
problems

Crane & Matten, 2014

 So what is business ethics?
Business Ethics is the study of business situations, activities, and decisions where
issues of right and wrong are addressed (Crane & Matten, 2016)
→ Business Ethics is not a contradiction…
→ All business, practically all human activities (religious & criminal ones alike) have value systems
that help them to coordinate via uncertainty reduction and clear ways to evaluate whom or
what is worthy

The expression « that business has no ethics » does not really mean much…
Even the Godfather of the Sicilian Mafia has ethics, it’s just very different from conventional
ideals of good. Some(mad people) believe the Mafia has shown social responsible behavior
towards Sicilian society (caring for widows, giving jobs, protecting orphans…); it definitely filled
a void from the Italian state
Business, like war, calls to strategically manage sacrifice
Strategic management example from THE IMITATION GAME
https://www.youtube.com/watch?v=Qdfp5Za0XVg

Sometimes we face ethical dilemmas about what is good or right:

-Good for whom? (e.g. for me  → for my firm; firm  → suppliers…)

-Good for how long? (OK now  → long term consequences) FILM CASE
-Good at what cost for other affected people? FILM CASE

Answers to these questions are not easy to find, neither black/white nor stable over time

This workshop will not provide solutions good for all complex ethical situations
We try to develop knowledge and understanding about the historical and situated nature of ethical problems.

In a nutshell these are problems about how to assign worth/value to objects (e.g. products) and people (e.g.
employees, clients, partners), and what sacrifices are sustainable/acceptable to achieve desired goals beyond
what the law says
 Traditional ethical theories
•Generally offer a certain rule or principle which one can apply to any
given situation
•These theories generally can be differentiated into two groups

Motivation/
Principles Action Outcomes

Non-consequentialist Ethics
Consequentialist Ethics
 Various conceptualizations of good and relative views of ethics
Consequentialism: an action is good if it produces good consequences
Whom does it concern?
1) maximise my good (ethical egoism)
2) maximise overall good (utilitarianism)

Deontology: the rights, duties and obligations due to our rational nature
Ethical action as following imperatives (Kant, 1785)
1) categorical: reason constructs the right moral principles (duty should be the only motive)
2) hypothetical: all things are good/bad pending agents’ intentions (consequences should not motivate)

Virtue ethics: actualization of the potential of our human nature

Aristote perfectionism: developing our rational, moral, social potentials
≠ consequentialism = an alternative to calculative spirit
≠ deontology = emphasis on motivation and inspiration through virtue
Ethical components: community, role-identity, integration of roles & responsibilities,
practical wisdom (φρόνησῐς) decides ethical dilemmas, moderation should balance egoism and altruism

Contractarianism: a procedural decision making of rational agents

Rawls’ (1971) reasonable person’s contract: Veil of ignorance about:
Possession of primary goods; conception of the good; socio-political conditions
 Moral/ethical dilemmas matter in everyday life
Imagine you have a friend, who works as a bartender…

You know she works very hard for the minimum wage

One night, after telling you of her problems on the job, she offers you
a free cocktail, and you gladly accept.

Later you go to order another drink, and again,

she says “it’s on the house…!”

You are celebrating the end of an exam that night, so you order many times for you and your friends,
and your friend does not accept your money…

Do you (ever) stop accepting? Why?

Why does it have to do with morality?
14
 Personal and organizational ethics
• You, managers, encounter day-to-day ethical challenges in:
CSR internal policies and
• conflicts of interest (e.g. insider trading) corporate governance
strategies should try to
• sexual harassment (e.g. HRM policies/sanctions) organize effective
• customer/supplier dealings (i.e. B2B relations worldwide) practices and procedures
that avoid irresponsable
• pressure to compromise on personal standards, and more (e.g. not all that behavior
is legal is always good; sometimes also the reverse: many consider
Snowden’s illegal whistleblowing a good behavior…)
• Many managers have no training in ethics or ethical decision
making
• Ethics is vital to business success (for trust&legitimacy…)
• Ethics is key for humanity’s ability to sustain life on earth
 Different levels where ethics issues arise
▪ Personal level
• Situations faced in our personal lives outside the context of our employment
▪ Managerial and Organizational levels
• Workplace situations faced by managers and employees
▪ Industry or profession level
• A manager or organization might experience business ethics issues at the industry or
professional level.
▪ Societal and global levels
• Managers acting in concert through their companies and industries can bring about
constructive changes.
Factors affecting the morality of managers and employees

Society’s Moral Climate

Business’s Moral Climate
Industry’s Moral Climate
Organization’s Moral Climate

Superiors

Individual
One’s Personal Policies
Situation

Peers
 Ethics and the law

Ethics

BUSINESS ETHICS (BE)

begins where the law
ends, or where there
is no clear consensus on
whether something
is right or wrong

Law
BE is about Grey areas: Grey Area
“where values are in conflict”
(Treviño & Nelson, 2014: 39)
Crane & Matten, 2016
 Grey areas in International Business Management

Tax optimization Strategies: avoidance or evasion?

18.7.2018
Margaret Vestager Europe’s Antitrust Chief
'the woman Silicon Valley fears’ what Trump called “The Tax Lady”

Anesa et al. (2022) Reassessing moral legitimacy in times of instability (see perhaps just Table I, p. 43 and Table III p. 45)
 Other grey areas in IBM

What is a responsible business behavior? Law

Ethics

• Big Data & Algorhythm

Design and Management
across countries
• Intellectual property of
products co-developed with
intl. collaborations
• Data collection, security and
privacy across many global
regulations

CSR theories suggest there are both business and moral reasons for engaging in social initiatives
 Cases to illustrate moral/ethical dilemmas

Ethics

Law

Can it become unethical to accept free Can it be illegal to accept free

drinks from the bar tender? drinks from the bar tender?

REMEMBER: Responsible managers should consider the implications of their actions

beyond legal requirements…considering any harm they may produce
 fraud

Sylicon Valley start up motto

« fake it till you make it »

Digital tech changes legal and ethical risks (i.e. responsability) of business and government

→ potential for deception and fraud (+ health, environmental & financial negative externalities) calls for new regulations
(laws) and for different organizational culture and values (ethics)
 The Trolley Problem

Imagine you see a train out of control,

without breaks running on a railtrack
where 5 workmen are tied or cannot be warned on time….
→ If you do nothing the train will kill those 5

You then see a switch, which easily allows you

to divert the direction of the train on another track where only 1
workman is tied and cannot
be warned on time…
→ If you pull the switch you will kill this 1 workman

Is it permissible for you to turn the train?

Are you morally required to turn the train?
The Transplant Problem

Imagine you are a surgeon who never fails,

you are an expert in organ transplant and your ward
has 5 young patients in need of 1 heart, 2 lungs,
1 stomach and 1 liver to survive…
→ If they don’t receive a transplant, 5 patients will die

Then a young patient arrives for a minor problem

(appendicitis), the person is a total organ donor,
so you know that by sacrifing 1 patient, you could save
5…

Can you use the organs of 1 patient to save 5?

What is the difference with the case of the trolley?
 What are these problems about?
What are they cases of?
I) Killing 1 is worst than letting 5 die
II) Killing 5 is worst than killing 1

Terms like « Kill », « Let die » are too simple

Of course many laws and conventions guide our

decisions…

Yet some problems remain hard to solve definitively or « cathegorically »…

Answers to such problems depend

on personal philosophical orientations to ethics,
(which shape conflicting&competing conventions)
 Moral dilemmas and philosophical theories
to address them… 1
Kant’s cathegorical imperative (or responsibility):
« Act so as to treat humanity (yourself or others) always as an end
and never as a means only… »
Kant was a son of the Enlightenment:
judgments over right&wrong should not come from tradition, authority, or religion
but from reason, which works out absolute duties,and rules for humans to follow

Humans have universal rational duties to one another, based on a duty to respect the other’s humanity (see citation),
not on the fact that it is anyone’s majority interest (rights trump utilities)

DEONTOLOGY normative ethical theory that stipulates that actions should be judged
morally good or wrong based on a series of rational universal rules, and not based on
consequences (e.g. if lying makes objectives easier, should it be justified?)
 Deontology as one moral philosophy
solution to our dilemma…
Kant’s cathegorical imperative:
« Act so as to treat humanity (yourself and others) always as
an end and never as a means only… »

5 people

1 person
?
Train

Clearly, to save the 5, I do not need person 1 in the first case

while I would be using the 1 person donor as a means to save 5
In the second case
 Deontological complexities…

Kant’s cathegorical imperative:

« Act so as to treat humanity (yourself and others) always as an end and never as a means only… »

THE LOOP VARIANT

5 people
5 thin people

1 person ? (will all die but

stop train hitting
the 1 fat person)
1 fat person
(will die but stop the train
and save the other 5)
Train

Is it still permissible for you to turn the train in the loop variant?
Would you not be using the fat person (as a means to save the others?)
 The Fat man variant
of the Trolley Problem
In this variant, you are
on a footbridge and can push
a fat man over the rails to
stop the train…?

Is it permissible to throw
the man over the bridge?
Why?
 Principle, rule or doctrine of double effect

Double effect
set of ethical criteria which Christian philosophers, and others have
advocated for evaluating the permissibility of acting when one's
otherwise legitimate act (for example, relieving a terminally ill patient's
pain) may also cause an effect one would otherwise be obliged to avoid
(sedation shortening or putting an end to life).
Euthanasia
Aquinas’ solution
an action having foreseen harmful effects practically inseparable from the right effect is justifiable if the
following are true:
1) the nature of the act is itself good, or at least morally neutral;
2) the agent intends the good effect and does not intend the bad effect either as a means to the good or
as an end in itself;
3) the good effect outweighs the bad effect in circumstances sufficiently grave to justify causing the bad
effect and the agent exercises due diligence to minimize the harm
 The Trolley Problem and its practical applications

https://vimeo.com/199613170

These dilemmas seem, and have been

criticized for being abstract
non realistic, situations… but what if
we think about these ethical or
moral dilemmas in the programming
of self-driving cars…?
What about killer robots?

Do you want to know country-based preferences?

See: www.moralmachineresults.scalablecoop.org
 Competing ethical/philosophical views
DEONTOLOGY UTILITARIANISM

rule-based way judging actions by

of judging actions its consequences

These philosophies pervade not just personal decision making

dilemmas, but help you get a deep understanding of why
markets are regulated differently in different parts of the world

American pragmatism has influenced a lot of liberal thinking

which has supported free enterprise and boosted entrepreneurship

In Europe, different views of the role of business in society has structured state intervention
to make firms responsible for many aspects (e.g. health insurance, pension contributions…)
 Why do corporations have social responsibilities?
Business reasons (‘enlightened self-interest’)
◦ Extra and/or more satisfied customers
◦ Employees may be more attracted/committed
◦ Forestall legislation
◦ Long-term investment which benefits corporation

Moral reasons:
◦ Corporations cause social problems
◦ Corporations should use their power responsibly
◦ All corporate activities have some social impact
◦ Corporations rely on the contribution of a wide set of
stakeholders in society, not just shareholders

However, besides the sarcarsm of New Yorker’s cartoons, some firms really care and act responsibly…!!!

33
 What is the nature (and definition) of CSR?

Corporate Social Responsibility (CSR)

The attempt by companies to meet the economic, legal,
ethical, and philanthropic demands of a given society at a
particular point in time

Because societal expectations and legal requirements change all the time
CSR practices need constant revision and management

34
 What is Corporate Social Responsibility?

• https://www.youtube.com/watch?v=E0NkGtNU_9w
Why are BE and CSR important? Why should we bother?
1. Power and influence of business in society
2. Potential to provide major contribution to society
3. Potential to inflict harm
4. Increasing demands from multiple stakeholders
5. Lack of business ethics education or training
6. Continued occurrence of ethical infractions
7. Evaluating different ways of managing business ethics
8. Interesting and rewarding
 Carroll’s four-part model of CSR
Source: Carroll (1991)
The pyramid of CSR:
Towards the moral
management of
Desired by society organizational
stakeholders
Philanthropic
Responsibilities
Expected by society
Ethical
ETHICS Responsibilities

LAW Legal
Required by society
Responsibilities

Economic Required by society

Responsibilities

37
 Elkington’s triple bottom line
THE THREE COMPONENTS PPP OR TRIPLE BOTTOM LINE MODEL
OF SUSTAINABILITY
Assumption: firms should not attend only to the
bottom line of the financial accounts, but should
also consider their social and environmental impacts

Source: Elkington (1994)

Economic Social Towards the sustainable
corporation: Win-win-win
business strategies for
Environmental sustainable development

Procter & Gamble’s Supplier Environmental Sustainability

Adopted by the UN as a
Scorecard measures and rewards suppliers sustainability
standard for urban and
based on energy and water
community accounting
use, green gas emissions and waste disposal

38
 Strategic and dangerous games of national politics and
personal (ir)responsibility

Machiavelli’s
The Prince (1513)

THE END JUSTIFIES

THE MEANS… …REALLY??!! WAS IT RESPONSIBLE??!!

CSR DILEMMA DID TWITTER DO WELL TO BLOCK THE PRESIDENT’S ACCOUNT? WHY?

39
 CSR and the powerful business of business…
In terms of power and influence you can forget about the church, forget politics.
There is no more powerful institution in society than business...The business of
business should not be about money, it should be about responsibility. It should
be about public good, not private greed Anita Roddick, Business as Unusual(2000)
 Who does CSR? Institutional actors
Organizations and institutions engaging with CSR

Business: national corporations; MNCs; SMEs; SOEs; business

associations (e.g. Chambers of Commerce)
Labour: (inter-)national trade unions (e.g. ILO)
Finance: National Stock Exchanges (e.g. Dow Jones, Fed)
Government: local&(inter-)national (e.g. UN, OECD)
Civil society: local&(inter-)national NGOs (e.g. Amnesty Intl.)
Professional: law firms; accounting, HR associations…
 (C)SR… Key features of Corporations

Corporations are defined in terms of legal status and the ownership of assets;
…‘artificial persons’, authorized to act as single entities and recognized as such in law;
…notionally ‘owned’ by shareholders, but existing independently of them (Crane&Matten, 2016)

WHY does society expect firms to act responsibly?

Historically Gs granted Bs special licenses for public projects (e.g. roads, railway) XIX siècle

Later… given limited (Ltd) responsibility of incorporated (Inc.) firms, society needed further assurances on business organizations

Inc. indicates a legal entity where ownership is arranged in shares and shareholders have no responsibilities to the company: losses
and liability are limited (Ltd) to the value of the stock turning to zero in case of bankruptcy.

42
 The role of management in Business and Society

Managers have a ‘fiduciary’ responsibility to protect the investment of

shareholders… … yet negative externalities, moral hazard and monopoly power
led to more external control on managerial capitalism (Freeman, 1984)

UNFORTUNATELY, THE REGULATORS HAVE NOT ALWAYS DONE A GOOD JOB

https://www.youtube.com/watch?v=XBZfsb7OO_k
https://www.youtube.com/watch?v=RrFSO62p0jk

43
 Can a corporation have social responsibilities?
Milton Friedman’s article “The social responsibility of business is to increase its profits” (1970)
argues that The Business of Business is Business
LECTURE
3pp!!!
Friedman (Nobel prize for Economics in 1976)
vigorously argues against the notion
of social responsibilities for corporations
based on three main arguments:

1. Only human beings have a moral responsibility for

their actions

2. It is managers’ responsibility to act only in the

shareholders’ interests

3. Social issues and problems are the proper province of

the state rather than corporate managers

44
 Can a corporation be morally responsible for its actions?
Long debated, complex question
In general, literature has supported that some degree of
responsibility is accredited to corporations
This argument is based on the fact that:
◦ Every organisation has a corporate internal decision
structure which directs decisions in line with predetermined
goals (French, 1979)
◦ All organisations manifest a set of beliefs and values that lay
out what is generally regarded as right or wrong in the
corporation – organizational culture (Moore 1999)

The answer depends on how firms organize (through rules of corporate governance)
to monitor that top management decision making aims at certain goals
45
Corporate governance as an accountability structure

• The method by which a firm is governed, directed,

administered, or controlled, and the goals it aims for.
• The relative roles, rights and accountability of groups like
owners, boards of directors, managers, employees, and
other stakeholders.
 Corporate governance definitions

Management
▪ The system by which companies are = control
monitored and controlled (ΟECD, 1999) Systemic view
▪ The relationship of the company with its
shareholders and society at large Business & Society
broader Relational
(Financial Times) view
▪ Regulations for promoting corporate
fairness, transparency and responsibility Towards ethical
(Chairman World Bank) standards
Corporate
Regulations-based
view
 What is corporate governance (CG ) about?

▪ The system societies use to direct & “control” the conduct of corporations
– sets the rights & obligations of companies, owners (shareholders), and
company obligations against other stakeholders
– accountability to society and mechanisms to align the company with the
“public interest” at large
▪ Includes formal laws &regulations & codes, as well as informal customs
and processes
– all determine to what end a firm should be run
 Defining sustainability

Sustainability refers to the long-term maintenance of systems according to environmental,

economic and social considerations

Sustainable development is development that meets

the needs of the present without compromising the
ability of future generations to meet their own needs.
(World Commission on Environment & Development 1987)

Remember the three components PPP of sustainability

and the triple bottom line of business accountability…
Paradoxical myths of valuable unsustainability
 Ford Pinto
Comparing alternative courses of action
Benefits calculates $ incurred with the option of ▪ https://www.youtube.com/watch?v=2qjM0CQTBn4&t=263s
Public sector
▪ https://www.youtube.com/watch?v=_junR946xpw
producing the car with defects
organizations
Costs calculates the $ Ford would pay to fix
the engineering problem in cars and trucks
 Ford Pinto
Ethical/CSR evaluation of the case

Ford was wrong in designing

and marketing the Pinto
Large
corporations

(the accident of the Ulrich girls

?
Small Civil society
businesses organizations
Public sector
organizations
Ford was neither criminally nor civilly
guilty and in producing the Pinto acted in an
irreprehensible responsible way (complying to all
was simply the wrong one to attack the company: the security standards)
civil vs criminal charge)

The business ethical trade off between safety and production cost:
Ford could have produced a safer tank, but would have lost its market
Ford could have offered customers a safer option at an extra cost
(at the risk of ruining its market, by revealing a problem)

▪ Is it legitimate/ethical for a corporation to lobby in order to delay federal safety

standards? Is it illegal?
▪ Should Ford play a role in setting acceptable security standards when it would be
in a conflict of interest as a profit seeking organization???
 Nestlé infant formula

Large Small Civil society Public sector

corporations businesses organizations organizations

https://www.youtube.com/watch?v=1-_yitXcHU0

or ?
 Nestlé infant formula
Ethical dillemma in introducing First World products in Third World Markets
• The infant formula product is not defective in itself (≠ from Pinto..??)
• The infant formula
Largeis not harmful if Small
consumed under proper
Civil conditions (≠ tobacco)
society Public sector
Ethical dilemma for managers:
corporationscan a product be marketed when its
businesses organizations proper use cannot be expected in
organizations
places lacking minimal conditions for safe use?
The higher user risk factors are, the less appropriate is the product for marketing

Appropriateness of products in developing countries

1 Products are not equally appropriate in all countries or social environments
2 Inherent riskines of envmnt can make good products inappropriate
3 Companies cannot close their eyes once a product is sold (post-marketing)
4 Products sold to consumers who cannot use them safely should be demarketed
5 Marketing strategies must be appropriate to the environments they target
6 Marketing strategies are inappropriate when they exploit consumer vulnerability
7 Marketing strategies should be flexible enought to adjust to new circumstances b

Nestlé’s legitimacy was strongly injured by its slow response to criticism. Instead
of resisting and denying charges, it had to change its mass-market consumer-ADV
approach to one which emphasized promotion through medical/health care system
 Can a corporation have social responsibilities? (MF1)
• Milton Friedman’s classic article is “The social PARADOX: ONE OF THE MOST INFLUENTIAL
responsibility of business is to increase its PAPERS OF CSR, DENIES THE CSR NOTION!
profits” (1970)
• Friedman vigorously argued against the
notion of social responsibilities for
corporations based on three main
arguments:

1. Only human beings have a

moral responsibility for their
actions
2. It is managers’ responsibility
to act only in the
shareholders’ interests
3. Social issues and problems
are the proper province of
the state rather than
corporate managers
 Can a corporation have social responsibilities? (MF2)
DO YOU AGREE?
2. It is managers’ responsibility to act only
MILTON FRIEDMAN IS TELLING YOU THAT AS in the owners or shareholders’ interests
FUTURE MANAGERS, YOU WILL HAVE A PRIMARY
RESPONSIBILITY TOWARDS THE OWNERS OF THE
FIRM WHO HIRE YOU….

WHAT IS WRONG WITH THAT?

NOT MUCH…
YET LEARN TO DOUBT THE SIMPLE IDEAS, LIKE
THE PERFORMANCE OF THE TASK OF A MANAGER IS
HARD TO JUDGE…

… BUT THERE IS A
STRAIGHTFORWARD PERFORMANCE CRITERION,
FOLLOWING FROM CONTRACTS (A COMMON
ASSUMPTION IN ECONOMIC THEORY)
 Stockholder theory of the firm
In whose interest and for whose benefit should the firm be managed?

Managerial stockholders
capitalism’s shareholders
answer owners
At its purest ideological form, the economic argument supports
The Invisible Hand doctrine
(Adam Smith’s metaphor for the unintended but optimal
social benefits resulting from individuals’ self-interested actions)

Critique of government regulation: management often claims that since business produces the greatest good for
the greatest number, it should be left free to operate by market rules only, and states should not intervene to
regulate the market
Laissez faire approach (leave the market work itself out)
 Stakeholder theory of the firm
• Theory developed by Edward Freeman (1984)
A stakeholder of an organization is:
• - …a group key to success/survival of the firm (narrow definition)
• …any group or individual who can affect, or is affected by, the achievement of the
organization’s objectives (Freeman & Reed, 1983) (wider definition)

• More precise definition of ‘can affect’ and ‘is affected by’(Evan & Freeman 1993)
• Principle of corporate rights - the corporation has the obligation not to violate the rights of others
• Principle of corporate effect – companies are responsible for the effects of their actions on others
Stakeholder theory of the firm: Traditional management model

Shareholders Customers

Firm

Suppliers Employees
 Stakeholder theory of the firm

Government Competitors

Customers
Shareholders
Firm

Suppliers Employees
Civil
society
Stakeholder theory of the firm: A network model

Customer
stakeholder
1
Government Competitors

Customer
Customers stakeholder
Shareholders
3
Firm

Employee
Suppliers stakeholder
Employees 1
Civil society
Supplier Employee
stakeholder stakeholder
Civil society 2
1 Civil society stakeholder
stakeholder 1
2
 Why stakeholders matter to firms

• Milton Friedman – businesses should only be run in the interests of their

owners

• Edward Freeman – others have a legitimate claim on the corporation

• Legal perspective
• ‘Stake’ in corporation already protected legally in some way (e.g. legally binding contracts)
• Economic perspective
• Externalities – outside and beyond contractual relationships…
• Agency problem – short term interests of ‘owners’ vs. long term interests of managers, employees, customers etc.
Breaking down the shareholder stakeholder opposition

KEY
TAKEAWAY
https://www.youtube.com/watch?v=7dugfwJthBY

Creating value without making bad trade-offs and when trade-offs are
unexpectable, human creative imaginations can make miracles

Conflict, challenge and pushback as sources of value source

not as something to be avoided
Underlying assumption has been

Business Social
value value
The prevailing tradeoff logic and the
making of a ‘business case’ for CSR
Unless there is a clear business case for CSR,
firms will have fewer incentives to act responsibly (Vogel, 2005)

resources for good purposes

=
costs, not Investments…?
→ CSR = damage control,
imposing trade-offs
(profit maximization
and responsible behavior
seen as incompatible)
Creating shared value

66
 Different approaches to CSR

• Three ways Business can engage with society

soeciety
 Porter’s Value chain

Support
activities

Primary
activities

Porter, 1985
 Porter on the need of business scale
to fix global & sustainability problems

TED talk on letting business solve social issues

https://www.ted.com/talks/michael_porter_why_business_can_be_good_at_solving_social_problems
Creating Shared Value (CSV) Looking inside out

Looking inside out:

Mapping the social impact
of the Value Chain

Porter & Kramer, 2006

Creating Shared Value (CSV) Looking outside in

Looking
outside in:
Social Influences on
Competitiveness

Porter & Kramer, 2006

Creating Shared Value (CSV) Identifying strategic social issues

« An affirmative corporate social

agenda moves from mitigating harm
to reinforcing corporate strategy
through social progress »

« Typically the more closely tied a

social issue is to a company’s business,
the greater the opportunity to leverage
the firm’s resources – and benefit
society »

Not all social issues are strategically

equal to become shared values Porter & Kramer, 2006: 6, 10
The CSV distinguishes itself from stakeholder CSR approaches
Porter & Kramer identify 4 justifications for CSR:
1. Moral appeal: argument that companies have a duty to be good citizens
and do the right thing
2. Sustainability: emphasizes environmental and community stewardship
3. Licence to operate: every firm needs tacit or explicit permission from
governments, communities and numerous other stakeholders
4. Reputation: companies justify CSR on the grounds that it will improve
a company’s image, strengthen its brand, enliven morale, and even raise
the value of its stock

« The vehemence of a stakeholder group does not necessarily signify the importance of an issue – either to the company or the world »
Porter & Kramer, 2006: 4
Greta cannot run your company’s strategy, nor does she know how businesses can contribute to save the world

Examples of how sustainability appeals better as enlightened self-interest

McDonald’s change of wrapping materials has reduced its solid waste by 30%
Implementing the CSV in CSR: Nestlé

« We believe that, to succede as a

business in the long-term and create value
for our shareholders, we must also create
value for society. Our aim is to provide safe,
SHARED VALUE: responsibly produced food and beverages
NUTRITION, of the highest quality. »
WATER,
RURAL DEVELOPMENT

SUSTAINABILITY:
PROTECTING THE FUTURE

NESTLÉ’S
COMPLIANCE ADOPTION
OF THE CSV
MODEL
CSV: From responsive to strategic CSR
Separation of Ownership from Control

Corporate Period
Pre-corporate Period
Shareholders
Agency (ownership)
Problem
Owners
(ownership)
Board of
Directors
Managers
(control)
Management
(control)
 4 groups of CG hierarchy

A document filed with a US state by the founders of a corporation, with components of a

company, objectives, structure and its planned operations. If approved, the company State Charter
becomes a legal incorporation (Inc.)

Own stock in the firm, giving them ultimate control (the shareholder-primacy Shareholders
model, pervades strategy literature)

Govern and oversee management of the business Board of Directors

The individuals hired by the Board to manage the business on a daily basis. Management

Hired to perform actual operational work . Employees

 Differences across organizational types

Large Small Civil society Public sector

Stakeholders
corporations businesses organizations organizations

Main priorities Financial integrity, Financial integrity, Delivery of mission Rule of law, conflict
in addressing employee/ employee/ to clients; of interest;
ethical issues customer issues customer issues legitimacy and accountability
accountability issues

Approach to Formal, public Informal, Informal, Formal,

managing relations and/or bureaucratic
systems-based trust-based valueS-based
ethics

Responsible Shareholders and Owners Donors and clients General public,

other stakeholders higher level
and/or
government
accountable to organizations
Main Shareholder Lack of resources Lack of resources Inertia, lack of
constraints orientation; size and attention and formal training transparency
and complexity
Different approaches to Business Ethics responsibilities?

▪ Who isLarge
responsible for ethical conduct in business?
Public sector
▪ Who iscorporations
the key actor in business ethics? organizations
▪ What are the key ethical guidelines for ethical
behaviour?
▪ What are the key issues in business ethics?
▪ What is the most dominant stakeholder
management approach?
Some regional differences: Europe, North America, Asia
Europe N. America Asia
Large Social control
Public sector
Top management
Who is responsible for ethical The individual
corporations
conduct in business? by the collective organizations

Government, trade The corporation

Who is the key actor in business unions, corporate Government,
ethics? associations corporations

Negotiated legal Corporate codes of

What are the key guidelines for Managerial
framework of ethics
ethical behaviour? discretion
business

What are the key issues in business Social issues in Misconduct and Corporate
ethics? organizing the immorality in single governance and
framework of business decisions situations accountability

What is the dominant stakeholder Implicit multiple

Formalised multiple Focus on
management approach? stakeholder
stakeholder shareholder value
approach, benign
approach
managerialism
 Desirable features of Corporate Governance

▪ Independent Large
BoD Public sector
– Majority “independent”
corporations directors organizations
– Min number of non executive directors
▪ Control / supervision of CEO
– Separate Chairman / CEO
– Time limits on CEO
– Appointment committee by independent directors
▪ Audit committees
– Majority Non Executive independent Directors (NEDs)
– Internal auditing reporting to independent NED
▪ Control on Executive Pay
– Remuneration committee with independent directors
– Disclosure of individual payments
 Specific Corporate Governance practices
EXECUTIVE
SEPARATE CHAIRMAN/ AUDIT COMMITTEE
COUNTRIES BOARD INDEPENDENCE PAY
CEO COMPOSITION
Large Public sectorDISCLOSURE
corporations organizations
1/3 non-executive directors At least 3 NEDs, at least 2 of
BRITAIN Split recommended Yes
(NEDs) majority independent them independent

FRANCE Majority independent Do either 2/3 independent Yes

Unspecified number of Required by law for larger

GERMANY Minimal guidance Encouraged
independents, max 2 ex-execs companies

ITALY Adequate number independent No All NEDs No

UNITED
Majority independent Not covered All independent NEDs Yes
STATES

1/3 non-executive directors

Yes, but
GREECE (NEDs), at least 2 of them Encourage Encourage
collectively
independent
Styles of corporate governance across countries

Large Public sector

corporations organizations
Italy Spain
France
UK Germany
Japan
USA Greece

Capital Market Stable Relations

Orientation Orientation
 Anglo Saxon
Advantages Disadvantages
Large Public sector
– Flexible flow of
corporations organizations
– Volatile, unstable
capital investment in
and out – Short-termism

– Facilitates
internationalization
 Continental Europe and Japn

Advantages Large Disadvantages

Public sector
corporations organizations
– Stable long term – Lack of flexibility
commitment to
– More difficult
capital investment
internationalization
– Creditors protect the
corporation
 Brief Recap

Investors’ activity Company activity

BoD

Investment
Managers Executives

Trustees
Managers
of Funds

Beneficiaries* Workforce

*Pension beneficiaries included