A7-Corporate governance and corporate social

responsibility
CSR Introduction
Corporate Social Responsibility
The Mendelow Framework
Shareholder ownership, property and responsibilities

Corporate Social Responsibility (CSR)

CSR is a concept whereby organisations consider the interests of society by taking
responsibility for the impact of their activities on wider stakeholders.
Milton Friedman
Only humans have moral responsibilitiesnot companies
Enlightened Self Interest
By looking after society also, society will respond and look after your company

Carrolls view on CSR

1. Economic
Economic responsibilty towards shareholders, employees etc -eg Maximise
EPS, be consistently profitable
Eg.

Shareholders demand a good return

Employees want fair employment
Customers seek good quality products

2. Legal
Legal responsibility to operate within the laws of society e.g.. Health and
safety
Laws codify society's moral views
3. Ethical
Ethical responsibility to act fairly e.g..Do not put profits before ethical norms
4. Philanthropic
Philanthropic responsibility to give to charities, sponsor art events etc

Social responsiveness of a company

1.
2.
3.
4.

Reaction (deny all responsibility to society)

Defence (Accept responsibility but do the minimum)
Accommodation (Do what is demanded of them)
Proaction (Go beyond the norm)

Corporate Social Responsibility

This is concerned with business ethics and accountability to stakeholders.
Companies should look after ALL shareholders and be transparent in its dealings
with them when compiling corporate reports
CSR requires directors to look at the aims and purposes of the company and not
assume profit to be the only motive for shareholders
Arrangements should be put in place to ensure that the business is conducted in a
responsible manner. This includes environmental and social targets, monitoring of
these and continuous improvement
There is pressure now for companies to show more awareness and concern, not
only for the environment but for the rights and interests of the people they do
business with. Governments have made it clear that directors must consider the
short-term and long-term consequences of their actions, and take into account
their relationships with employees and the impact of the business on the
community and the environment.
CSR requires the directors to address strategic issues about the aims, purposes,
and operational methods of the organisation, and some redefinition of the business
model that assumes that profit motive and shareholder interests define the core
purpose of the company.
The reporting of the companys effects on society at large. It expands the
traditional role that companys only provide for the shareholders.
Why prepare a social report?

Build their reputation on it (eg body shop)

Society expects it (Shell)
Long term it will increase profits
Fear that governments may force it otherwise

How companies interact responsibly with society

Provide fair pay to employees

Safe working environment

Improvements to physical infrastructure in which it operates

Is it against the maximising shareholder wealth principle?

Organisations are rarely controlled by shareholders as most are passive investors.
This means large companies can manipulate markets - so social responsibility is a
way of recognising this, and doing something to prevent it happening from within.
Also, of course, business get help from outside and so owe something back. They
benefit from health, roads, education etc of the workforce and suppliers and
customers. This social contract means that the companies then take on their own
social responsibility
Human Capital Reporting
Sees employees as an asset not an expense and competitve advantage is gained by
employees.
The training, recruitment, retention and development of employees is all part of
what would therefore be reported
Implications:

People are a resource like any other and so needs to be effectively and
efficiently managed
Safeguarding of the asset as normal
Impairment could mean a simple drop in motivation

Human Capital Management reports should:

Show size of workforce

Retention rates
Skills needed for success
Training
Remuneration levels
Succession planning

The Mendelow Framework

Understanding the Influence of each Stakeholder (MENDELOW)
This framework is used to attempt to understand the influence that each
stakeholder has over an organisations strategy.
The idea is to establish which stakeholders have the most influence by estimating
each stakeholders individual power over and interest in the organisations
affairs.

The stakeholders with the highest combination of power and interest are likely to
be those with the most actual influence over objectives.
The Mendelow Framework

Power
Is the stakeholders ability to influence objectives
Interest
is how much the stakeholders care
Influence
= Power x Interest

However it is very hard to effectively measuring each stakeholders power and

interest.
The map is not static; changing events can mean that stakeholders can move
around the map

Mendelow Framework - explanation

A) Low power, low Interest - Minimal effort

These can be largely ignored, although this does not take into account any
moral or ethical considerations.
It is simply the stance to take if strategic positioning is the most important
objective

B) Low power, high interest - Keep informed

Can increase their overall influence by forming coalitions with other

stakeholders in order to exert a greater pressure and thereby make
themselves more powerful.
The management strategy for dealing with these stakeholders is to keep
informed

C) High power, low interest - Keep satisfied

All these stakeholders need to do to become influential is to re-awaken their

interest.
This will move them across to the right and into the high influence sector,
and so the management strategy for these stakeholders is to keep satisfied.

D) High power, high interest - Key players

Those with the highest influence.

The question here is how many competing stakeholders reside in that
quadrant of the map.
If there is only one (eg management) then there is unlikely to be any conflict
in a given decision-making situation.
If there are several and they disagree on the way forward, there are likely to
be difficulties in decision making and strategic direction

Shareholder ownership, property and responsibilities

Ownership and property generally have four elements:
1.
2.
3.
4.

has the right to use P as he wishes

has the right to regulate anyone elses use of P
has the right to transfer rights to P on whatever terms he wishes
is responsible for ensuring P does not harm others

Ownership of a share
Shareholders have the following rights:

The shareholder owns a right to participate in the risks and rewards of

ownership but only to a limited degree

To sell their stock

To vote
To obtain certain information about the company
To sue for misconduct
Residual rights in the case of liquidation.