Chapter 1 – The corporation and its stakeholders

Market stakeholders

Non Market stake.

Chapter 2: Public issues
 Chapter 3 -CSR

Ma
Arguments for CSR
 Balances corporate power with responsibility
 Discourages government regulation
 Promotes long term profits for businesses
 Improves stakeholder relationships
 Enhances business reputation
Arguments against CSR
 Lowers economic efficiency and profit
 Imposes hidden costs passed on to stakeholders
 Imposes hidden costs passed on to stakeholders
 Requires skills business may lack
 Places responsibility on business rather than individuals
Social entrepreneurs are individuals who act to pursue opportunities
attract support and build new organizations to create sustainable social
value.
B Corp- Benefit corporation, blend social objective with financial goals. the
social and financial goals are assessed by an independent nonprofit
organization b labs. More than 500 orgs registered as B corp.

CHAPTER 4 – Ethics and ethical reasoning

CHAPTER 5 – Organizational ethics and the law
 Chapter 6 – The challenges of globalization

Globalization has made the world “economically better”, BUT - Distribution

of benefits “unequal” between countries- Distribution of benefits “unequal” within
nations. - Western nations: Benefits accrued to the top 1% of the wealthiest -
Developing Nations: Benefits accrued to the “middle class”.- Some continents like
Africa the benefit is negligible. Countries undergo structural changes in the industry –
some industries go out of business and some face changes in the value chain
activities; Uneven playing field in the areas of labour rights and environmental
regulations; There are oppositions to free trade in both developed and developing
nations albeit for different reasons; Constructive engagement between civil society,
businesses, and governments needed to solve “thorny” issues. World Trade
Organization (WTO) and Free Trade: Most Favoured Nation Rule: Countries
can’t discriminate between trading partners. Exceptions: 1. Trading Blocks (only
Tariffs and Customs Duty: - Customs duties do not mean goods traded within the block) 2. Special access to developing countries. 3. Against
discrimination against foreign products; Differential tariffs (Country A specific countries against only specific goods traded unfairly. 4. Limited restriction
may charge higher than B in a bilateral trade) permitted to help on services. - National Treatment: Both international and domestic companies
developing countries up to a time period; Limits on customs duties must be treated on par – products or services or trademarks/copyrights/patents
(agricultural sector for example). Anti-Dumping: Dumping: If a ONLY after they entered the market.
company exports a product at a price lower than the price it normally Chapter 7 – Global Corporate Citizenship
charges on its own home market, it is said to be “dumping” the
product. WTO does not act against the companies Determination of
Anti-Dumping: Sale price in the domestic market in the normal
course of trade. Sales below cost in the export market - Average fixed,
variable costs plus sales and other administrative expenses
-Substantial quantities (20% of the sales volume) - Sales below cost
for an extended period of time (no less than 6 months but normally
one year) - Price at which the product is sold to a third country -
Indirect exports through a third country and country of origin -
Internal transfer pricing - Insufficient sales volume in domestic market:
Below 5% of the export volume.Anti-Dumping Compensation:
Allows for exclusion of some companies: Why punish those who are
not guilty?; Affected party raises issue with WTO dispute panel; Focus
on voluntary bilateral resolution between parties; Panel rules when no
agreement reached bilaterally; Ruling is binding; Provides for both
compensatory damages and also retaliatory anti-dumping duties
Chapter 8 – Business government relations
Public policy –
A plan of action undertaken by government officials to achieve some
broad purpose affecting a substantial segment of a nation’s citizens
 §  Public policy inputs shape a government’s policy
decisions and strategies to address problems
 §  Public policy goals can be broad and high-minded or
narrow and self-serving
 §  Governments use public policy tools involving
combinations of incentives and penalties to prompt
citizens to act in ways that achieve policy goals
 §  Public policy effects are the outcomes arising from
government regulation
Types of Public Policies
Ø Economic policies
§ Policies that concern the economy such as fiscal and
monetary policy
Ø Fiscal policy
§ Refers to patterns of government taxing and spending that
are intended to stimulate or support the economy
Ø Monetary policy
Ø Taxation policy
§ Raising or lowering taxes on business or individuals
Ø Industrial policy
§ Directing economic resources toward the development of
specific industries
Ø Trade policy
§ Encouraging or discouraging trade with other countries
§ Refers to policies that affect the supply, demand, and value
of a nation’s currency
Ø Social assistance policies
§ Policies that concern social services for citizens such as
health care and education
 Ø  Advanced industrial nations have developed
elaborate systems of social services for their citizens
 Ø  Developing economies have improved key areas
of social assistance (health care, education)
Chapter 9 : Influencing the political environment
Reasons for regulation
Market failure, Negative externalities, Natural monopolies, Ethical
arguments
Ø Economic regulations
§ Aim to modify the normal operation of the free market and
the forces of supply and demand
Ø Includes regulations that
§ Control prices or wages, Allocate public resources, Establish service
territories, Set the number of participants § Ration resources
Antitrust: A Special Kind of Economic Regulation
Ø Antitrust laws prohibit unfair, anticompetitive practices by business
§ If a group of companies agreed among themselves to set prices at a particul
this would generally be an antitrust violation.
Ø Predatory pricing
§ The practice of selling below cost to drive rivals out of
business
Ø Two main antitrust enforcement agencies
§ Antitrust Division of the U.S. Department of Justice § Federal
Types of Regulation: Social
Ø Social regulations
§ Aimed at such important social goals as protecting consumers and the
environment and providing workers with safe and healthy working
conditions
Ø Includes regulations which apply to all businesses § Pollution laws
§ Safety and health laws, Job discrimination laws
§ Consumer protection laws for businesses producing and selling
consumer goods
Continuous Regulatory Reform
Ø Levels of regulatory activity tend to be cyclical and dependent on
politics
 §  Deregulation refers to the scaling down of regulatory authority
 §  Reregulation is the return to increased regulatory activity
Ø Areas where deregulation has occurred in recent years
§ Commercial airlines
§ Interstate trucking companies § Railroads
§ Financial institutions
 Promoting a Financial Incentive Strategy Lobbying
Ø Political action committees Lobbyists communicate with and try to persuade others to support an
organization’s
Independently incorporated organizations that can solicit contributions and interest or stake as they consider a particular law, policy, or
then channel those funds to candidates seeking political office regulation
Ø Economic leverage Direct communications
Businesses
Occurs when a business uses its economic power to threaten to leave a city, invite officials to participate in activities that will improve
state, or country unless a desired political action is taken government officials’ understanding of management and employee
Promoting a Constituency Building Strategy concerns
Expert witness testimony
Ø Stakeholder coalitions
Businesses provide facts, anecdotes, or data to educate or influence
§ Businesses try to influence politics by mobilizing various
government leaders at public forums like congressional hearings
organizational stakeholders to support its political agenda Ø Advocacy
The Business Roundtable
advertising
 Ø  One of the most effective organizations for promoting direct comm
§ Advertisements that focus on a company’s views on controversial political
between business and policymakers
issues
 Ø  Organization of CEOs of leading corporations
Ø Trade associations
 Ø  Studies various public policy issues and advocates for laws it belie
§ Coalitions of companies in the same or related industries used
vigorous economic growth and a dynamic global economy
to coordinate businesses’ grassroots mobilization campaigns
 Ø  Considers issues like corporate governance, education, health care
Ø Legal challenges
justice reform
§ Business seeks to overturn a law after it has been passed

Campaign Financing Reform Abroad Voluntary Business Initiatives

Limits on expenditures, Contribution limits, Disclosure
regulations, Bans against certain types of contribution, Bans
against certain types of expenditures, Measures designed to
encourage donations, Subsidies in kind, Public subsidies
Chapter 10 – Ecology and Sustainable Development in
global business
Forces accelerating ecological crisis
 Population explosion, World income inequality, Industrialization,
Global environment issues
Ozone depletion, Global Warming (happens due to
deforestation, CFCs, beef production, fossil fuel burning),
Decline of biodiversity, disappearing marine ecosystems,
Ø Life cycle analysis
§ Involves collecting information on the lifelong environmental impact of a
product, from extraction of raw material to manufacturing to its
distribution, use, and ultimate disposal
Ø Industrial ecology
§ Refers to designing factories and distribution systems as if
they were self-contained ecosystems Ø Design for disassembly
§ Means that products are designed so that at the end of their useful life
they can be disassembled and recycled

Chapter 11 – Managing environmental issues

Alternative policy approaches to environmental regulation
Environmental standards
Standard allowable levels of various pollutants are
established
by legislation or regulatory action
Also called command-and-control
Can be environmental quality standard or emission
standard
Market-based mechanisms
Based on the idea that the market is a better control than
extensive standards that specify precisely what companies
must do
Tradable permits - allows businesses to buy and sell the
right to pollute, a process known as cap-and-trade
Emissions charges or fees
Government incentives
Information disclosure
The government encourages companies to pollute less by
publishing information about the amount of pollutants
individual companies emit each year
Also called regulation by publicity or regulation by
embarrassment
Civil and criminal enforcement
The threat of fines or even prison can be an effective
deterrent to corporate outlaws who would otherwise degrade
the environment
European regulators have actively pursued environmental
criminals
U.S. Sentencing Commission has established guidelines
for sentencing environmental wrongdoers

Greening of Management
Environmental regulations establish minimum standards for
environmental performance
Many firms are now voluntarily moving beyond compliance to
improve environmental performance in all operational areas
This is referred to as the greening of management
Three reasons companies take this path Gain competitive
advantage
Gain legitimacy
Moral commitment to ecological responsibility

Stages of Corporate Environmental Responsibility (down to
top arrow) Clean technology - Businesses develop innovative, new
technologies that support sustainability Product stewardship -
Managers focus on envrnmntl impacts associated with full life-cycle of a
product Pollution prevention - Focuses on minimizing or eliminating
waste before it is created
Ecologically Sustainable Organization Companies that
operate consistently with principles of sustainable development
Is an “ideal,” absolute standard against which real organizations can
be measured Some visnary companies are trying to achieve this
Supportive government policies and widespread movement among
many businesses and other social institutions will be needed for ESOs to
succeed
Environmental Partnerships Voluntary, collaborative
partnerships with environmental organizations and regulators to achieve
specific objectives Draw on the unique strengths of the different
partners to improve environmental quality or conserve resources
Environmental Management in Practice Organizational Chapter 11 –
elements of many proactive green companies Top management
involvement in sustainability
Chapter 12 – Managing technology and innovation
Threats from Technology – Spam and Unsolicited Commercial E-
mail Spam refers to unsolicited commercial e-mails (UCE or junk e-
mails) sent in bulk to valid e-mail accounts Has become big business
and big headache for business Organizations and individuals have
adopted use of spam blockers, but sometimes difficult to sort out bad
emails Government has attempted to monitor, control and prosecute
spammers using Internet for illegal activity U.K. and Italy also has
anti-spam legislation Threats from Technology – Phishing
Practice of duping computer users into revealing their passwords or
Line manager involvement Codes of environmental conduct Cross-
functional teams Rewards and incentives Environmental audits to track progress
Environmental Audits A way for green companies to track their progress
toward meeting environmental goals More recently, many firms have moved to
integrate their social and environmental reporting into a single sustainability report
Environmental Management as a Competitive Advantage Cost savings -
Companies that reduce pollution and hazardous waste, reuse or recycle materials, and
operate with greater energy efficiency can reap significant cost savings Product
differentiation - Companies that develop a reputation for environmental excellence and
that produce and deliver products and services with concern for their sustainability can
attract environmentally aware customers Technological innovation - Technological
innovation can lead to imaginative new methods for reducing pollution and incrsing
efficiency Reduction of regulatory risk - Companies that are proactive with respect
to their environmental impacts are often better positioned than their competitors to
respond to new government mandates Strategic planning Companies that
cultivate a vision of sustainability must adopt sophisticated strategic planning
techniques
All the user has to do is click the links or view the message to activate the pharming
attack on their computer Threats from Technology – Internet Censorship Many
people believe that information on the Internet should be universally accessible. Some
people believe that restrictions should be placed on some categories of information
Some countries have imposed censorship on broad categories of online information
The Chinese government operates one of the most sophisticated systems of Internet
censorship in the world It requires all China-based Web sites and blogs to register with
the government and blocks access to many kinds of information, including material
critical of the government Socially Beneficial Uses of Technology Technology
and Education Enables students in poor and remote communities to access the
other private data under false pretenses The Anti-Phishing Working
Group, a U.S. industry association, reported in 2008 an 827 percent
increase in password stealing, from 3,362 cases in January 2008 to
31,173 cases in December 2008 In 2009, about 1 in 300 e-mails
contained some form of a phishing attack, an increase of more than 30
percent from the previous year Threats from Technology – Pharming
Domain name system (PNS) poisoning, is a hacking technique that
redirects a user’s computer from a legitimate Web site to another site by
altering the user’s computer or router Pharming attacks were first
reported in the 1990s, e-mail and wireless computing provided hackers
and criminals opportunities
Chapter 13 – Managing technology and innovation
Protecting Privacy The potential for breaches of privacy are
everywhere Employees have access to new technologies at work and
companies may be monitoring usage, raising employee concerns about
invasions of privacy Businesses have adopted privacy policies to
explain what use of the company’s technology is permissible and how it
will monitor employee activities More aggressive efforts by cyber
criminals resulted in a steep rise of attacks on information security
Recent technological advancements have increased the number of
ways that privacy violations may occur Managing the Protection of
Privacy Platform for Privacy Preference Project (P3P) provides
users with software that enables them to define what information they are
willing to divulge on the Internet Since 2008, representatives from
the United States and 27 European countries have gathered annually for
Data Privacy Day The event, which brings together privacy
professionals, government leaders, academics and students, and business
executives, was designed to raise awareness and generate discussion
about data privacy practices and rights Managing the Protection of
Privacy The Children’s Online Privacy Protection Act of 1998
(COPPA) requires commercial Web sites to collect a verifiable form of
consent from the parent or guardian of any user below the age of 13
It will be difficult to achieve international government control of
privacy, especially as it pertains to the Internet The management of
privacy may need too come from the Internet companies themselves
Technology Advances Pros – greater efficiency and productivity,
greater availability of information, faster dissemination of information,
better life styles, improved working environ. Cons – Misuse of
information, ability to amplify and spread misinformation, costs of
protecting information and reputation, speed at which technology
becomes obsolete
Management of Information Security Businesses now acutely
aware of maintaining information security Information security and
various computer-related crimes cost U.S. businesses an
estimated $67 billion annually, according to an FBI study How
to best manage information security remains a major challenge for
businesses The corporate nemesis responsible for creating and
spreading computer zombies, viruses, and worms is called a computer
hacker Although businesses are spending millions of dollars to
protect the information they sore from hackers and other criminals,
some organizations have discovered that their own
employees can be their worst security leak Business Response
to Information Security Invasions Businesses have invested more
resources in protecting their information The Federal Trade
Commission began a series of workshops offered to businesses, such as
“Protecting Personal Information: Best Practices for Businesses”
The simple five key principles advocated by the FTC were these:
take stock, scale down, lock it, pitch it, and plan ahead
Companies now using honeypots, a system used by security
professionals to lure hackers to a fabricated website that can track all their Investigation, Rights and Freedom of Others, Enforcement of Civil Law
movements Protecting Intellectual Property Intellectual property
The ideas, concepts, and other symbolic creations of the human
mind Protected in U.S. by copyright, patent and trademark laws
Theft of intellectual property, artistic performance, or copyrighted
material exploded with the entrance of the Internet and global connectivity with EU member state law Right to Restriction of Processing (Accuracy of
Whether it is computer-based software, musical recordings, video
movie productions, or electronic versions of books, piracy is on the rise
and victims are retaliating turning to governments for enforcement and
protection of their rights, or seeking collaborative solutions to this ethical (Only data provided by the subject and not inferred data such as health score
challenge
Chapter 14 – Stockholder Rights and corporate governance
Stockholders Stockholders (also called shareholders) The legal
owners of business corporations Types of stockholders
Individual stockholders are people who directly own shares of stock
world’s best libraries, instructors, and curses available through the Internet
Technology has brought education online – By 2007,more than 3.9 million post-
secondary students were taking at leas one online course Medical Information via
the Internet By 2009, the Internet had become the primary source for health
information for 70 percent of Americans Another emerging issue focused on digital
medical records, or how a patient’s medical records should be stored and linked to other
health care providers
Special Issue: The Digital Divide Gap between those that have technology and
those that do not Recently, some evidence has suggested that the digital divide in
the United States is becoming smaller Progress in narrowing the digital divide in
developing countries has been slower, but still evident Programs have been
developed to narrow the global digital divide • University of Michigan and Google •
One Laptop per Child (OLPC)
Government and Industry Efforts to Combat Piracy Companies have sought
assistance on the issue of software piracy from governmental agencies and the courts
both inside and outside the United States In 1998, the United States passed the
Digital Millennium Copyright Act, making it a crime to circumvent antipiracy
measures built into most commercial software agreements between the manufacturer
and the user In China, where experts estimate that 90 percent of all software in the
use is unlicensed, government officials have also take steps to curb
piracyAnother approach businesses have tried to protect music copyrights
involves streaming GDPR PRIVACY: The Right to Respect for Private Life
(Need to Prevent Undue Interference in Private Life) Article 7: Everyone Has
the Right to Respect for His or Her Private and Family Life, Home and
CommunicationsPrivacy is a Fundamental Human Right PERSONAL
DATA: “All Information” That Relates to an “Identified or Identifiable Natural
Person”. Very broad to include both objective and subjective data;
demographics, work hours, test scores, political opinions, social media posts,
user behind an IP address, etc.PROTECTION OF PRIVATE DATA:
Everyone Has the Right to Protection of Personal Data Concerning Him or Her
APPLICABILITY All Member States of EU and all companies doing
business in the EU or collects, processes, or stores data about EU
citizens.Violations: Fine up to 20 million Euros or 4% of global revenue of
the firm whichever is higher – high risk versus low risk Applies to natural
person and not legal entities such as corporations, etc. DATA PROTECTION VS
PRIVACY RIGHTS Data Protection Broader than Privacy Protection
Data Protection Includes other Fundamental Rights and Freedoms
Includes all Kinds of Data Regardless of Relationship to Privacy Data
Protection limited in Scope: Refers to Processing of Information and may
Disregard Other Aspects of Privacy and Freedom CONSENT Collection:
Obtained and Processed Fairly and Legally Specific Purpose: User control
and transparency Freely Given Consent: No deception, intimidation,
coercion, or negative consequences Informed : Understand what they are
consenting to in ordinary language Unambiguous: Affirmative action of the
individual required.Explicit Consent Required for Special Categories of Data
(race, ethnic origin, political opinions, religious or philosophical beliefs,
union membership, genetic data, biometric data, health data, sexual
orientations or sex life) Data Controller Accountable to Demonstrate
Consent (by whom, when, where, and how) AgeRequirement: 13 but
member countries can increase to 16 Unbundled, Active Opt-in, Granular
(separate), Easy to Withdraw and No Imbalance of Power NOTICE OF
REQUIREMENT Rights of Individuals Storage Period Transfer to
Other CountriesContractual Requirements Purpose of Processing
Automated Decision-Making Right to Lodge ComplaintLegal
Requirements Provide Sources of Personal Data Right to Withdraw
Consent. DATA SUBJECT ACCESS REQUESTS Concise, precise,
intelligible, and easily accessible form using plain and clear language
Requests in Writing including Electronic Means Without Undue Delay (1
month of receipt) Free of Charge unless Excessive or manifestly
unfounded Identity Issue: May request verification Exceptions: National
Defence, Criminal Issues, Public Security and Interests, Breaches of Ethics
Claims Right to Rectification: Obligation to Inform Third Party recipients of
the request Right to Erasure (Right to be Forgotten) Data no longer
necessary for the purpose Individual Withdraws Consent Successful
exercise of the right to object Unlawful processing of data Compliant
Data, objection to processing, unlawful processing of data, and data no
longer necessary for the purpose)Right to Portability: Right to have
personal data transmitted to another controller when technically feasible 
or credit score). Right to Object Processing: Data subject can object to the
processing of data (exceptions: legitimate interests of the company override the
processing of data, public interest or exercise of official authority, scientific or
historical research for developing statistical models). Automated Decision
Making: Right to object when negative action has taken place and requires
human intervention.
Executive Compensation: Is it Justified? Arguments of proponents of high
executive pay Well-paid managers are simply being rewarded for outstanding
performance High salaries provide an incentive for innovation and risk-taking
Not many individuals are capable of running today’s large, complex organizations
issued by companies Institutions, such as pension funds, mutual funds,
insurance companies, and university endowments • Called institutional
investors Objectives of Stock Ownership To produce a return greater
than they could receive from alternative investments
Stockholders make money when the price of the stock rises (capital
appreciation) and when they receive their share of the company’s earnings
(called dividends) Bull markets (in which share prices rise overall)
alternate with bear market (in which share prices fall overall) Although
stock prices can be volatile, stocks historically have produced a higher return
over the long run than many other types of investments Some investors
use stock ownership to achieve social or ethical objectives Discussed
further under “social investment Major legal rights of the shareholders
– To receive dividends if declared, To vote on – members of board of
directors, major mergers and acquisitions, charter and bylaw changes,
Proposals by stakeholders, to receive annual reports on the company’s
financial condition, to bring shareholder suits against the company and
officers, to sell their own shares of stocks to others Corporate
Governance Corporate governance - Refers to the process by which
a company is controlled, or governed Board of directors - An
elected group of individuals who have a legal duty to establish
corporate objectives, develop broad policies, and select top-level
personnel to carry out these objectives and policies
Boards of Directors Vary in size, composition, and structure to best
serve the interests of the corporation and shareholders Survey of
governance practices in leading firms in the Americas, Europe, and Asia
Pacific: Average board size was 10 members
Typically, 8 of the 10 are outside directors (not managers of the
company) Work of the Board is done through committees:
Typical committees: Compensation, Executive, Nominating, Audit
Audit has key role to review financial reports, recommend outside
auditors, and oversee integrity of internal financial controls
Boards of Directors Board members are elected by shareholders at the
annual meeting, where absent owners vote by proxy
Process is not truly democratic, but tends to be self- perpetuating
The board nominating committee, working with the CEO and chairman,
develops a list of candidates. Once approved by the Board, the names of these
individuals are placed on the proxy ballot. Because alternative candidates are
often not presented, the vote has little significance. Key Features of
Effective Boards or principals of good governance 1. Select outside
directors to fill most positions 2.
Hold open elections for members of the board 3. Appoint an independent lead
director and hold regular meetings without the CEO present 4. Align director
compensation with corporate performance
5. Evaluate the Board’s performance on a regular basis
Executive Compensation Executive compensation is a key Board
function An important mechanism for aligning the interests of the
corporation and its stockholders with those of its top managers
Many critics feel that this system is not working and executive pay has
become excessive Executive compensation in the U.S., by international
standards, is very high In 2008, the U.S. chief executives of the largest
corporations earned, on average, $8.4 million (composed of salaries, bonuses,
benefits and stock options)
• Stock options is controversial subject on its own
Chapter 15 – Consumer protection
Consumerism/consumer movement – the organized activates,
collective efforts by consumers in many countries to safeguard their own
rights Reasons for Consumer Movement
Complex products have enormously complicated the choices consumers
need to make Services, as well as products, have become more
specialized and difficult to judge When businesses try to sell both
products and services through advertising, claims may be inflated or they may
appeal to emotions Some businesses have ignored product safe
Consumer rights – 1. The right to be informed - Protection against
misleading advertising, labeling; given the facts to make an informed
purchasing decision 2.The right to safety - Protection against the marketing
of good that are hazardous to health or life 3. The right to choose -
Assurance of access to a variety of products and services at competitive
prices 4. The right to be heard Assurance that consumer interests will
receive fair consideration in government policy and courts 5.The right to
privacy - Assurance that information disclosed in a commercial transaction is
not shared Responsibilities of Consumers Keep yourselves informed
as best as possible Exercise due care when making decisions in the
marketplace Consider the detrimental consequences that may arise from
ill-considered decisions Honor reasonable obligations arising from your
decisions. Goals of Consumer Laws 1. To provide consumers with better
information when making purchases 2. To protect consumers against possible
hazards 3. To promote competitive pricing 4. To promote consumer choice 5.
To protect privacy Consumer Protection in the Digital Age
Arguments of critics of high executive pay Inflated executive pay hurts the ability of
U.S. firms to compete with foreign rivals Multimillion dollar salaries cause resentment,
sap the commitment of hardworking lower and midlevel employees As many
extravagantly compensated executives preside over failure as they do over success
Executive Compensation Reform Has been the subject of shareholder pressure
Some companies have changed the way they set executive pay; have compensation
committees of entirely outside directors and tie pay more directly to company performance
Small number of companies set multiple of executive pay versus others workers
Government regulations Under U.S. rules, corporations must disclose top 5
executives’ compensation and the rationale for it Allows shareholders to vote on
executive and director compensation United Kingdom requires such a vote
Shareholder Activism – Rise of Institutional Investors Many owners both
individual and institutional take actions to protect their own interests called activism As
shown earlier, holdings have increased significantly; have become more assertive in
promoting interests of their members Have large blocks of stock so not easy to sell if
become dissatisfied, therefore strong incentive to work to change management policy
Council of Institutional Investors Represents institutions and pension funds with
investments collectively exceeding $3 trillion in holdings Developed a Shareholder Bill of
Rights Research shows involvement of institutional investors can improve company
performance Shareholder Activism – Social Investment Social investment
Refers to the use of stock ownership as a strategy for promoting social objectives;
also called social responsibility investment Social screening of stock Some
stock purchasers choose stocks based on social or environmental criteria, called social
screens In 2007, $2.7 trillion invested in socially responsibility funds; approximately 1
in 9 investment dollars Rapid growth in similar funds in Europe and beyond
Shareholder Activism –
Social Responsibility Shareholder Resolutions Social responsibility
shareholder resolutions A resolution on an issue of corporate social responsibility
placed before stockholders for a vote at the company’s annual meeting Has
been a significant rise in social responsibility shareholder resolutions in recent years – about
650 were sponsored in 2007 Sponsorship is often from a coalition of groups, like
Interfaith Center on Corporate Responsibility Resolutions can be about social issues, not
company’s ordinary business Only garner about 15% of votes, yet their influence is
stronger as company managers respond ahead of annual meetings so they will be withdrawn
Shareholder Activism – Shareholder Lawsuits If owners think they or their
company have been damaged by actions of company officers or director, they have right to
bring lawsuits Can be initiated to check abuses, for example insider trading, inadequate
stock buyout price, or lush executive pensions Some corporations have claimed were target
of frivolous shareholder lawsuits As result Congress passed legislation making it more
difficult for investors to sue corporations for fraud Securities and Exchange
Commission (SEC) Government agency charged with protection of stockholder
interests Established in 1934 in the wake of the Great Depression Mission is to
protect stockholders’ rights by making sure that the stock markets are run fairly and that
investment information if fully disclosed Unlike more government agencies, generates
revenue to pay for its own operations SEC – Information Transparency and
Disclosure Giving stockholders more and better company information is one of best
ways to safeguard investor interests. In recent years, management has tended to disclose
more information than ever before to stockholders and other interested people. Although
the overall trend has been to greater transparency, some observers felt that a lack of
disclosure about complex financial instruments that became common in the mid-2000s, led
investors to underestimate their risk.
Dilemma: how to protect consumer privacy while fostering internet commerce
Proposed solutions: 1. Consumer self-help - Internet users should use technologies that
enable them to protect their own privacy 2. Industry self-regulation -Internet-related
businesses advocate being allowed to regulate themselves 3. Privacy legislation - Favour new
government regulations protecting consumer privacy online Product Liability The
legal responsibility of a firm for injuries caused by something it made or sold In U.S. and
some other countries, consumers have right to sue and collect damages if harmed by unsafe
product Strict liability – doctrine under which the U.S. courts have held that
manufacturers are responsible for injuries resulting from use of their products,
whether or not they did it knowingly; consumers can also prevail even if they partly at
fault for the injuries Product liability systems of other nations differ significantly from
that of the United States Product Liability Reform In 2005, Congress passed the
Class Action Fairness Act - significant product liability reform The two key elements of this
legislation were:
Most class-action lawsuits moved from state to federal courts Attorneys in some kinds
of cases were paid based on how much plaintiffs actually received, Business Efforts for
CONTINUED Reform of Product Liability Laws Set up uniform federal standards
for determining liability Shift the burden of proving liability to consumers Require
the loser to pay the legal costs of the winner Limit punitive damages Establish
liability shields for certain kinds of products Positive Business Responses to
Consumerism Quality management Emphasizes defining the customer’s needs,
analyzing the quality of finished products Building products right the first time reduces
liability and improves brand loyalty Complex issue of what to do when business produces
safe, high quality product but that is used by others in dangerous ways Voluntaryindustry
codes of conduct Consumer affairs departments Product recalls Voluntary
product recalls or product recalls under government pressure