CORPORATE PERFORMANCE,

GOVERNANCE, AND BUSINESS

ETHICS
Group 10
STAKEHOLDERS AND
CORPORATE
PERFORMANCE
Stakeholders and Corporate Performance

◦ Stakeholders: Individuals/groups with an interest/claim/or stake in company.

◦ A stakeholder is either an individual, group or organization who is impacted by

the outcome of a project. They have an interest in the success of the project, and
can be within or outside the organization that is sponsoring the project.

◦ Stakeholders can have a positive or negative influence on the project.

• Internal (e.g., employees, stockholders)
• External (e.g., customers, creditors, governments)
Stakeholders and the Enterprise
Stakeholder Impact Analysis
◦ Stakeholder Analysis is an important technique for stakeholder identification & analyzing
their needs. It is used to identify all key (primary and secondary) stakeholders who have a
vested interest in the issues with which the project is concerned.
◦ Identifying all stakeholders
◦ Documenting stakeholders needs
◦ Assessing & analyzing stakeholders interest/influence
◦ Managing stakeholders expectations
◦ Taking actions
◦ Reviewing status & repeat
Profitability, Profit Growth, and
Stakeholder Claims
◦ To grow profits, companies must be doing one or more of the following:

1) Participating in growing market

2) Taking market share away from competitors
3) Consolidating industry via horizontal integration
4) Developing new markets

◦ Stockholders receive their returns as:

 Dividend payments
 Capital appreciation in market value of shares
AGENCY THEORY
INTRODUCTION
◦ Relationship between management and stockholders

◦ Explains the reasons why managers act against the interest of shareholders

◦ Unethical or illegal behaviour

◦ Extends to relationship between epmloyees, different levels within oraganisation

etc…
 AGENT PRINCIPAL RELATIONSHIP

◦ Managers are agents of shareholders

◦ Shareholder wealth maximisation function

◦ Authority and responsibilities are delegated., Decision making powers

◦ Principal delegates to agent

◦ Principals provide risk capital

◦ Agents., Managers are supposed to generate return on that capital

AGENCY PROBLEM

◦ Arises when agents act against the best interest of principal.

◦ Due to Information asymmetry

◦ Maximise their own interests at the expense of principals

◦ For eg; CEO and stockholders.

◦ Authority distributed to CEO, he knows more than stockholders about the company’s
operations.
Continued,
Examples or forms in which agency problem exists in companies
◦ On-the-job consumption
◦ Influencing compensation committee for pay increases
◦ CEO pay packages and lack of relationship to company performance
◦ Empire building
MECHANISMS
◦ Board of directors
◦ USA; regular filing of financials with SEC (in accordance with GAAP)
◦ Inter control systems; within a company
PROFITABILITY AND GROWTH
RATES
EMPIRE BUILDING CEO
◦ Empire building; growth in size through diversification

◦ Depresses long run profitability

◦ Imbalance between profitability and revenue growth

◦ Growth rate G ; return II*

◦ Growth rate G1; return II1 (II1< II*)

◦ Growth rate G2; return II2 (II2< II*) ., EMPIRE BUILDING

◦ Adequate growth rate is what matters; both increase and decrease in revenue growth can negatively impact
profitability
ETHICS AND
STRATEGIES
INTRODUCTION
◦ The term ethics refers to accepted principles of right or wrong that govern the conduct of a
person, the members of a profession, or the actions of an organization.

◦ Business ethics are the accepted principles of right or wrong governing the conduct of
businesspeople.

◦ Ethical dilemmas are situations in which there is no agreement over exactly what the accepted
principles of right and wrong are or where none of the available alternatives seems ethically
acceptable.
ETHICAL ISSUES IN STRATEGY
◦ Potential conflict between the goals of the enterprise, or the goals of individual managers, and the
fundamental rights of important stakeholders, including stockholders, customers, employees,
suppliers, competitors, communities, and the general public.

◦ Self-dealing
◦ Information manipulation
◦ Anticompetitive behavior
◦ Opportunistic exploitation
◦ Substandard working conditions
◦ Environmental degradation
◦ Corruption
 The Roots of Unethical Behavior
◦ Personal ethical codes will exert a profound influence on the way we behave as businesspeople.

◦ Businesspeople sometimes do not realize that they are behaving unethically because decisions are
mostly made on the basis of good economic logic.

◦ An organizational culture that de-emphasizes business ethics and considers all decisions to be purely
economic ones.

◦ Pressure from top management to meet performance goals that are unrealistic, which can be attained
only by cutting corners or acting in an unethical manner.

◦ Unethical leadership.
Behaving Ethically
◦ Hiring and Promotion

◦ Organizational Culture and Leadership

◦ Decision-Making Processes

◦ Ethics Officers

◦ Strong Corporate Governance

◦ Moral Courage