CORPORATE CITIZENSHIP

MNN3701 LEARNING OUTCOMES 2018

LEARNING UNIT 1: INTRODUCTION TO CORPORATE CITIZENSHIP

1. Define corporate citizenship

According to Matten and Crane (2005), Corporate citizenship is the role of the
corporation in administering citizenship rights for the individual.
This definition has two main features:
1. The role of the corporation
the role of the corporation embraces the fact that businesses have the potential to
influence society through their core business activity.
It is grounded in a thorough consideration of the idea of citizenship with a specific
emphasis on the liberal political-economic tradition that characterises most
industrial societies.
2. Administering citizenship rights for individuals
Corporations can influence society through administering citizenship rights for
individuals.
It specifies emphatically that corporate citizenship is not about corporates as
citizens, but rather that it is about the roles that corporates might play in
administering citizenship rights to citizens.
Corporate citizenship embraces the fact that business activity in general (that is
core business activity) has the potential to influence the administering of
citizenship rights enormously.
Citizenship rights can be categorised into three classes:
1. social rights (the right to education, to health care and housing)
2. civil rights (the freedom of speech, thought and religion)
3. political rights (the right to vote)

2. Discuss how corporates can administer citizen rights through their core
business
Corporations can influence society through administering citizenship rights for
individuals.
two factors have led to corporations being in the position of administering
citizenship rights:
1. the process of globalisation
 2. the smaller capacity of state governments

3. Identify the general economic viewpoint from which corporate

citizenship is addressed in this module
What has been written about Corporate citizenship to date has been framed as a
rebellion against strongly capitalist shareholder focused notions of corporations.
However, our definition of a corporation implies that we do not do this. The basic
premise underlying most of this book is that corporations are indeed principally
engaged in the pursuit of profit for the owners and that any activities that
corporates might undertake under the banner of corporate citizenship must be
consistent with this ultimate goal.

4. Outline the key elements and functions that support the practice of
corporate citizenship in this module
The key elements are:
 Our understanding of corporate citizenship as the roles that corporates might
play in administering citizenship rights to citizens
 Our understanding of corporations as privately-owned entities ultimately or
principally engaged in the pursuit of profit for the owners.

Chapter 1

1.1 Introduction

Climate change, natural and man- made disasters, pollution, poverty, inequality,
lack of ecosystem respect, rising numbers of endangered species, fast depleting
natural resources, the increasing human population, poor ethical conduct, human
rights abuses, ignorance, greed, irresponsible development and investments,
corruption, tax regulation, corporate scandals and global financial crises- these are
some of the many issues confronting society in general and, in the context of this
book, the business world in particular.
Whilst society, consisting of governments, the business world, non- profit
organisations (NPOs), non-governmental (NGOs) and other collective groups of
citizen has purportedly been moving towards addressing these issues. What then do
corporates need to do to adjust to the changing business landscape and do they
need to adjust the corporate role? Might corporate citizenship be the answer? What
is corporate citizenship? Where does the idea come from?
1.2 Corporate citizenship defined
Matten and Crane’s conceptualization of corporate citizenship and the purpose of
this book in general define it as the role of the corporation in administering
citizenship rights for individuals.
There are two features of this definition that appeal to us:
# First it is grounded in a thorough consideration of the idea of citizenship with a
specific emphasis on the liberal political-economic tradition that characterises most
industrialised societies and this provides a critical contextual framework for much
of what is considered in this book.
# Secondly it specifies emphatically that corporate citizenship is not about
corporates as citizens but rather that it is about the roles that corporates might play
in administering citizenship rights to citizens. Corporate citizenship encompasses
much more than corporate philanthropy and social investment-corporate charity if
you like which tended to be the focus of earlier manifestations of corporate
citizenship. This scope of citizenship is narrow and limited however the one that
we have chosen embraces the fact that business activity in general (that is the core
business activity) has the potential to influence the administering of citizenship
rights enormously.

Corporate citizenship rights (Following Marshall’s categorization of these,

Matten and Crane describe three different classes of citizenship rights as
characterizing the liberal political-economic tradition:
# Social positive rights
These would include things like the right to education, health care and housing and
they relate to welfare which must be provided.
# Civil or negative rights
They focus on the protection of citizens against intrusions on their freedom so
things like freedom of speech, thought and religion would fall into this category
very importantly the protection of private property rights would typically be a civil
right.
# Political rights
Political rights include all of the rights necessary to allow citizens to participate in
the formulation of public policies and practices by which society is governed.
Things like the right to vote would be included here. As Matten and Crane argue,
historically the administering of these rights has typically been the responsibility of
governments. However for a variety of reasons not least of all the process of
globalization, corporations are increasingly finding the themselves not only the
best placed to administer some of these rights, but also expected to administer
them in exchange for social legitimacy and the licence to do business.
1.3 Corporations, companies and business
# We view corporations and companies as synonymous and define them in the
capitalist sense as privately owned entities ultimately engaged in the pursuit of
profit for the owners.
# Beyond specifying this ultimate character of a corporation (privately owned and
pursuing profit), we really do not limit our consideration in any way for instance
while the term corporation is quite often associated with large, often multinational,
business we do not consider the understanding of corporate citizenship presented
here to be limited to these. Collectively, small businesses can have a great impact
on an economy, on society and on the environment.
# The principles and practices that are outlined in this book ought to be generally
useful, irrespective of the size of the entity involved. Any tendency in the chapters
that follow to disproportionately use large global corporations to illustrate
principles or practices is simply based on the global recognition that these enjoy.
1.4 Corporate citizenship with a capitalist stance
# Our decision to opt for a traditionally capitalist definition of a corporation is very
important. It must be noted that much of what has been written about corporate
citizenship to date has been framed as a rebellion against strongly capitalist
shareholder-focused notions of corporations as expressed by the likes of Milton
Friedman in his famous 1970 New York Times Magazine article entitled ‘The
social responsibility of business is to increase it’s profits. Friedman has almost
always been framed as the villain in the corporate citizenship story.
# Our definition of a corporation, however implies that in this book we do not do
this. In fact, quite on the contrary. The basic premise underlying most of this book
is that corporations are indeed principally engaged in the pursuit of profit for the
owners and that any activities that corporates might undertake under the banner of
corporate citizenship (that is administering citizenship rights to individuals ) must
be consistent with the ultimate purpose.
Conclusion
#Human society is facing enormous sustainability challenges, challenges relating
to the delivery of fundamental rights to increasing numbers of citizens around the
world today and into the future.
#Some of the more pressing of these challenges were listed explicitly in the
opening line of the introduction to this chapter but this list is certainly not
exhaustive.
#As these challenges become more generalized and prominent around the globe, it
is absolutely obvious that corporations, as increasingly powerful social institutions
must be part of solutions if effective solutions are to be found.
 LEARNING UNIT 2: SUSTAINABLE DEVELOPMENT

1. Unpack the concept of sustainable development.

The systems theory
The systems theory originates from the work of biologist Ludwig von Bertalanffy,
which was called the ‘General Systems Theory’ (GST).
The principle of the systems theory have grown and have been applied to various
other areas, such as linguistics, sociology, ecology, organisational theory and
management, human resources development, education, computer science, biology
and many more.
Von Bertalanffy believed that a general systems theory should be an important
regulative device in science and observed that certain characteristics appeared in
all disciplines:
 In all disciplines, one needs to study the whole organism. ‘organism’ refers
to the whole that consists of various parts, each with its own function,
structure and relationship to the other parts.
 The organism has the tendency to strive for a steady state or an equilibrium.
 All systems are open. This means that the organism is affected by the
environment within which it exists, and it also affects the environment.
The general systems theory can be applied to corporates, which similar to other
organisms, comprise many parts that make up the whole. These parts are
employees, teams, processes and procedures, systems and structures. All these
parts are interdependent and work together to achieve the corporates goals and
objectives.
The corporate is also dependent on the environment for supplying resources or
inputs (such as human resources, physical resources, capital and information) that
are transformed within the organisation, offering the outputs (products and
services) to the environment.
What is sustainability?
Sustainability means to maintain, to keep being, to preserve and to support, with
structures to hold on to. To be sustainable means to sustain resources and the uses
thereof, to avoid meltdown and failure.
It is an all inclusive design, with present and future considerations – looking at the
long term and the big picture.
Sustainability connects the three dimensions of ecology, the economy and social
justice. These three dimensions need to be connected in a gentle manner.
Sustainability can be seen as a science. It can also be described as an emerging
field in research dealing with the interactions between natural, social and economic
systems, and with how these interactions affect the challenge of sustainability.
Sustainability is also multidisciplinary and should not be limited to specific fields,
such as biological sciences and geography. It pertains to engineers, entrepreneurs,
investors, and governments and policy makers.
Understanding sustainability in business management is a priority to ensure that
sustainability is embedded throughout all the functions of business.
The general systems theory can be applied to the three dimensions of ecology, the
economy and social justice. Each of these dimensions can be viewed as open
systems and are dependent on all other systems with a tendency to remain in
balance.
What is development?
Development is a discourse emerged as a set of theories and practices that
influenced the post WW II evolution of the developing world.
To develop means to grow, mature, progress, improve, advance and to change.
Development is qualitative and not quantitative.
In the context of sustainable development, it is important to us to realise that the
qualitative and quantitative measures are of equal importance.
Sustainable development
Brundtland defined sustainable development as follows:
Sustainable development is development that meets the needs of the present
without compromising the ability of future generations to meet their own needs.
The term ‘needs’ refers to essential needs, or satisfaction of basic needs.
Development is thus placed in the context of the struggle against poverty, and the
relationship and contrast of wealth between the rich countries in the North and
poor countries in the South of the globe (the so called north-south justice).
The current and future bearing capacity of the ecosystem must define the limits of
technology and civilisation, this means that the standard that is used for economic
activities must not be the globalised markets, but rather the standard used should
be the permanent bearing capacity of the ecosystem.
The Brundtland definition of sustainable development covers two basic dimensions
that can also be referred to as pillars – the social dimension (human needs), and the
environmental dimension (the imperative to preserve the ability to provide
ecosystem services). However the economic dimension is missing from the
definition.
As a central issue in the report, economic growth is viewed not as a goal for its
own sake, but rather as a means for achieving the key aims of satisfying needs
while recognising the ecological limits established and shaped by society.
Sustainable development can be seen as a visionary paradigm that governments.
Corporates, and civil society have accepted as a guiding principle over the past 20
years.

2. Understand the emergence of sustainable development;

See page 19 of textbook

1968 – Club of Rome

1969 – International Union for the Conservation of Nature
1972 – United Nations Conference on the Human Environment
1974 – World Council of Churches
1980 – World Conservation Strategy
1983 – World Commission on Environment and Development
1987 – Our Common Future

3. Develop a foundational knowledge of the elements of sustainable

development;
There are three elements of sustainable development also known as the three
pillars of sustainable development.
The core elements of sustainable development are:
Society
Society refers to people living in a particular country or region as a nation, where
they share customers, common traditions, values, laws, activities and interests.
Humanity is society.
From the stage of early civilisation, the scale and pace of society’s interventions
increased with each development and elaboration of civilised life. As a society
developed, the tempo of development quickened. From the seventeenth century,
every index of growth, including population, energy, use of food supplies, minerals
consumed and urbanisation – began to increase,
Issues that humanity face include poverty, unemployment, inequalities between
gender, race and religion, inequalities among and within generations, between the
rich and poor, disease, extreme hunger, infant mortality, limited or no access to
education, injustice, discrimination and violence and effects of corruption and poor
governance.
The environment
Within the context of sustainable development, environment refers to the natural
environment – the biosphere in which humanity and all other life on earth exists.
It includes the earths land, oceans, and atmosphere, ecosystems and biodiversity
that give life. The environment makes up natural capital, which is everything in
nature that provides human beings with wellbeing including natural resources,
environmental amenities and the pollution absorptive capacity of the environment.
There are a variety of environmental issues that include climate change, natural
resource wastage and non-renewable energy sources, stress on biodiversity within
ecosystems, and pollution that has wide -ranging and severe impacts on the
environment, as do toxins and chemicals.
Society and the economy rely on natural resources and they should therefore be
managed and protected by politicians and decision makers, rather than rapidly
exploited. This is necessary for the future.
The economy
The term economy is used when referring to a community’s system for using its
resources to produce wealth. The basic economic problem seeks to find answers to
the following three questions:
* what should be produced from resources to increase the wealth of the
community?
* how should these be produced?
* for whom should these be produced?
Economic growth is normally associated an increase in productive capacity, doing
more with less, or using limited resources to gain the greatest possible satisfaction
of people’s unlimited needs.
Sustainable development has brought in additional drivers of economic growth
factors to consider such as:
 Energy.
 Consumption
 Globalisation
Interconnectedness of the elements of sustainable development
The various elements of sustainable development are all related and connected to
each other.
The elements should be viewed in no particular order, meaning that the one is not
more important than the other. These elements should be balanced.
To act in a sustainable development fashion, where the three elements are balanced
and interconnected, a major transformation in three areas is need namely:
 1. growth in population. The current rate of population growth and growth
rates in consumption of resources cannot be sustained. The larger the
population of a society and the larger its rate of consumption of resources,
the more difficult it is to transform the society to a condition of
sustainability.
2. How humans consume materials and resources. The current human
consumption of material and resources cannot be sustained. In order to
transform the situation, environmental limits need to be defined in no
uncertain terms. Attention needs to be given to aspects such as the more
effective and efficient use of materials and resources, the reduction of waste,
the prevention of pollution, educating society in terms of the sustainable use
of resources and materials and changing the perception, attitude and
behaviour of the society towards a more ethical and responsible use of
resources.
3. The role of technology in sustainable development. The development of
new technology and technology transfer need to be mindful of the effects
thereof on sustainable development. The focus should be on a win-win
situation for the environment, society and economy.

4. Understand the implications of the ecological footprint;

Society’s ecological footprint revolves around the relationship between society’s
current economic model of development and the impact it has on the environment.
Economic development is taking place beyond the limits of the planet, this is
known as the overshoot, it usually occurs unintentionally, in other words
accidentally.
An overshoot may cause little harm to the environment however, occasionally the
potential for catastrophic overshoot does arise. A possibility of such an overshoot
is our planets accelerating population growth and its materialistic economy, which
is surpassing the support capabilities of the earth.
It is called the ecological footprint. The EFF is a measure of how much biological
productive land and water an individual, population or activity requires to produce
all the resources it consumes, and to absorb the waste it generates, using prevailing
technology and resource management practices.
The EFF is calculated by the amount of land that would be required to provide the
natural resources consumed by a population and to absorb their wastes.
The ecological footprint outstrips our biocapacity.
Humanity’s demand has exceeded the planets biocapacity, which is the amount of
biologically productive land and sea area that is available to regenerate these
resources.
With this overshoot, which continues to grow, it is becoming more and more
difficult to meet the needs of an ever-growing global human population, never
mind meet the needs for other species that we share this earth with.
Adding to this situation is the uneven distribution of resources between developing
and developed nations.
5. Differentiate between the various views on sustainability;

 Weak sustainability. This view sees natural and human capital as

substitutable with each other. In other words, human capital can substitute
natural capital. Example: the mining of coal and using it to for the
production of electricity. This natural resource (coal) is replaced by a
manufactured good (electricity). The electricity is then in used to improve
domestic life quality and for industrial purposes.
 Strong sustainability. Natural capital is vital to human existence. The
strong viewpoint of sustainability states that human capital cannot be a
substitute of the multiple process applicable to natural capital. This
viewpoint further states that human capital and natural capital should be seen
as complimentary and not as two variables that are interchangeable or
substitutable. This viewpoint also accepts that there are certain functions that
the natural environment performs that cannot be duplicated by humans. The
ozone layer is a good example of a variable in the natural environment that
is almost impossible for humans to duplicate.

6. Provide an overview of the response to the challenge of unsustainable

development;
 Rio summit 1992
The earth summit was hosted in Rio de Janeiro, Brazil in 1992. The primary output
of the UNCED was Agenda 21, a comprehensive plan of action to be taken locally,
nationally and globally in every area in which humans impacts on the environment.
Agenda 21 addressed the problems pressing at the time of meeting and aimed at
preparing the world for the challenges of the next century. It reflected a global
consensus and political commitment at the highest level on development and
environment co-operation, with the notion that special attention should be given to
the particular circumstances facing economies in transition.
  The millennium declaration
In September 2000, the united nations millennium declaration was adopted by the
189 member states of the united nations. this declaration embodied a number of
specific commitments, which aimed at improving the ‘lot of humanity’ in the new
century. The millennium development goals are:
* goal 1: eradicate extreme poverty and hunger
* goal 2: achieve universal primary education
* goal 3: promote gender equality and empower woman
* goal 4: reduce child mortality
* goal 5: improve material health
* goal 6: combat HIV/Aids, Malaria and other diseases
* goal 7: ensure environmental sustainability
* goal 8: develop a global partnership for development
 World summit on sustainable development (WSSD), Johannesburg 2002
The representatives from around the world reaffirmed their commitment to
sustainable development, with a determination to ensure that their collective
strength would be used for constructive partnership for change and for the
achievement of the common goal of sustainable development.
The conference recognised the importance of building human solidarity, urged the
promotion of dialogue and co-operation in the world, regardless of race, disability,
religion, language, culture or tradition.

 Rio +20 (the future we want)

20 years after the Earth Summit, world leaders returned to Rio de Janeiro for the
Rio +20 United Nations Conference on Sustainable development.
At this summit the 2030 Agenda for sustainable development was drafted. This
agenda is a plan of action centred on people, the planet and prosperity as well as
seeking to strengthen universal peace in greater freedom.
See table 2.1 on page 35 of textbook
 United Nations Sustainable Development Summit and the Sustainable
Development Goals
These goals were signed into agreement by the UN General Assembly in New
York.
Governments, institutions, corporates, and citizens came together to embark on a
new path to improve the lives of people everywhere where decisions made ‘will
determine the global course of action to end poverty, promote prosperity and
wellbeing for all, protect the environment and address climate change ‘.
See table 2.2 on page 36 of textbook
7. Defend the future of sustainable development;
Making a new path will require the following:
 Considering wider social, economic and geopolitical agendas. Many of the
needed decisions and actions will take place outside the
environment/community in the fields of energy, security, trade and
investment, and developing and co-operation. It will mean breaking down
silos and looking at growth in an integrated perspective.
 Fundamentally shifting how we develop and evaluate the health economies.
New metrics are needed to measure and report on the interconnectedness of
various agendas such as trade, finance, environment and food.
 Moving to actual implementation with real accountability. Concrete action is
needed that includes measurable activities.
 Encouraging transparency and accountability in actions. The impact of
actions should be measured, not just what actions have been taken. A new
path must be performance based.
 Using partnerships between government, business and civil society. These
partnerships should be used to identify and test new approaches, and to scale
up promising ones.
 Effectively communicating sustainable development successes, policies and
learning. A communications vehicle that has effective access point will help
kick-start and maintain implementation of sustainable development.

8. Understand climate change within the context of sustainable

development.
Climate change defined
A change in the average long-term weather conditions or weather patterns such as
average rainfall and temperature, when these changes last for extended periods of
time, typically decades of even longer is referred to as climate change.
When changes in weather conditions and patterns occur over shorter periods of
time such as a year of even a few years, but less than a decade, these do not
constitute climate change.
Climate change facts
The following list provides an idea of these points:
 There is consensus on climate change. The scientific consensus is that the
earths climate is changing and these changes are in large part caused by
human activities, and are largely irreversible.
 There is also consensus that climate change is primarily caused by excess
greenhouse gases from human activities. Lastly, there is also consensus that
nations, corporates and individuals should take action in order to reduce the
future risks and consequences thereof.

 There is evidence that proves that the earth’s temperature is increasing and
causing other changes in the natural environment. This evidence indicates
that 1) the global average temperature increased by more than 0.8 degrees
Celsius over the last century, 2) rising global temperatures have been
accompanied by other changes in weather and climate, for example, changes
in rainfall and more intensive rain as well as more frequent and severe heat
waves, 3) the planet’s oceans and glaciers have also experienced changes,
and oceans are becoming warmer and more acidic, ice caps are melting, and
sea levels are rising.
 Human activities are mainly responsible for the climate changes observed
today. The earth goes through natural cycles of warming and cooling, which
are caused by factors such as changes in the sun and volcanic activities.
 Too much carbon dioxide can hurt us. Carbon dioxide is a necessary
ingredient for plants to perform photosynthesis. Carbon dioxide is also a
critical element of out atmosphere. If too much carbon dioxide is added to
the atmosphere, global temperatures will increase, leading to climate
changes that can harm plants, animals and humans.
 Climate change has an impact on society, the corporate sector, professions,
industries and individuals. As a society we have structures our lives around
historical and current climate actions. We are accustomed to a normal range
of conditions and may be sensitive to extremes that fall outside of this range.
The corporate sector is structured in such a way as to provide society with
products and services that are needed, in the conditions to which we are
accustomed. Corporates are therefore also sensitive to extremes that fall
outside of this range. Some types of professions may also face considerable
challenges from climate change. Example: professions that are closely
linked to weather and climate, such as outdoor tourism and agriculture, will
likely be more affected than others. Climate change also an affect on
industries, such as insurance industry. Insurance is one of the primary
mechanisms used to protect people against weather-related disasters. We
also rely on insurance to protect our investments in real estate, agriculture,
transportation, and utility infrastructure by distributing costs across society.
 It is projected that climate change will increase the frequency and intensity
of extreme weather events, which will in turn increase losses of property and
cause costly disruptions to society. Individuals are affected by climate
change in a number of ways.
 Society, corporates, professionals, industries and individuals are also greatly
affected by changes in legislation pertaining to climate change. Society,
workers, clients and governments also scrutinise corporates to ensure that
these policies and procedures are implemented.

Strategies for addressing climate change

Climate change can be addressed by the following two strategies:

1) Climate change mitigation

By following a climate change mitigation strategy, the extent of climate change is
limited through reducing greenhouse gas concentrations. This mainly entails a
reduction and conservation of oil, gas and coal, which are the fossil fuels that are
used in transportation, heating and cooling systems, agriculture, and the generation
of electricity by humans. The main aim of a climate change mitigation strategy is
to transform the global economy that is currently fuelled by carbon-based sources
of energy.
How is this done? Renewable and alternative energy sources are used to replace
carbon-intensive fuels – which is key to decarbonising the current energy
infrastructure. Alternative energy sources are already available. these sources
produce energy at costs comparable with coal and natural gas.
2) Climate change adaptation
A climate change adaptation strategy refers to changes in the way society lives in
response to climate change. Society can make changes regarding its ecological,
social and economic systems. Also, society can change traditional processed and
practices as well as structures in order to 1) limit the potential damages caused by
climate change and 2) reduce the vulnerability of communities, regions and
individuals. Examples of climate change adaptation in various sectors are:
 Human health
 Insurance and other financial services
 Human settlements
 Coastal zones
 Ecosystems
 Commercial forestry
  Weather resources

Corporates taking climate action

 Business strategy integration
Business strategy should consider and connect climate change to risks,
opportunities, processes and procedures. One approach to factoring climate change
into business strategy is by establishing an internal price on carbon, known as
carbon pricing.
Carbon pricing charges those who emit carbon dioxide for their emissions. This
charge, called a carbon price, is the amount of money that must be paid for the
right to emit one ton of carbon dioxide into the atmosphere. Carbon pricing usually
takes the form of either a carbon tax or a requirement to purchase permits to emit,
generally knowns as cap-and-trade, but also called ‘allowances’. Putting a price on
carbon can encourage low-carbon growth and lower greenhouse gas emissions.
Corporates should advocate the importance of carbon pricing to all stakeholders
through their policies. Carbon pricing refers to putting a price on carbon emissions
that helps shift the burden for the damage back to those who are responsible for it,
and who can reduce it. Instead of dictating who should reduce emissions where and
how, a carbon price gives an economic signal and polluters decide for themselves
whether to discontinue their polluting and pay for it. Progress over time, or
decreasing its carbon taxes and permissions should be communicated in public
corporate reports.

 Engagement of employees
A top-down and bottom-up approach to engaging employees is recognised as an
effective tactic for addressing climate change. Corporates should have a board
committee that oversees corporate initiatives on climate and the environment.
Employees could be incentivised to assess, manage and implement corporate
strategies and programmes that have a positive impact on the environment.
 Create greenhouse gas reduction projects and targets
Corporates need to set tangible targets and significant greenhouse gas reduction
projects.
 Chapter 2
Sustainable development and climate change
2.1 Introduction
In order for corporations to survive and thrive they need to understand the
changing business landscape and how environmental, social and governance (ESG)
issues are a means of addressing these rights. For corporates to ensure that their
practices are sustainable, they need to effectively consider the ESG issues in all the
business functions. Ideally corporates should not only look at the challenge of
unsustainability. Rather corporates should view sustainability as an absolute
necessity and an opportunity as well as a driver of innovation in their practices. In
order to do this, it is imperative that corporates understand the notion of
sustainable development. The environmental, social and economic issues related to
corporate citizenship are addressed in this chapter at a macro level and aim to
develop an understanding of the tension and alignment between these issues.
Sustainable development is a development that meets the needs of the present
without compromising the ability of future generations to meet their own needs.
This definition of sustainable development contains two key aspects1. The concept
of needs 2. The idea of limitation, imposed by the current state of technological
and social environment’s ability to meet present and future needs. The availability
of information enables us to measure the impacts and consequences of our actions
leading to unsustainable development more accurately than before. Furthermore,
the realities of various issues such as the impact of environmental degradation,
climate change, rising inequalities, and increasing scandals can no longer be
denied.
Biodiversity is often used as an indication of the state of the natural environmental
since it refers to diversity of micro organisms, plants and animals species as well as
the ecosystems within which they interact and live. The latest available World
Wildlife Fund for nature ( wwf) living planet report reveals that biological
diversity also referred to as biodiversity is decreasing sharply with an overall
decline of 52% between 1970 and 2010.
2.2 The emergence of sustainable development
The concept sustainable development can be traced as far back as some 300 years
ago to seventeenth-century Europe. This section however will cover the recent
history from 1945, the post war (World War 2) development era. The motivating
power behind the establishment of the post-war international economic system was
the task of reconstructing what had been damaged during World War 2. This
development was supported by institutions such as the International Bank for
Reconstruction and development that offers funding to developing countries. The
United Nations was established in 1945 a year after the International Bank for
Reconciliation and Development. A key priority for UN was to achieve
international problems of an economic, social, cultural or humanitarian character
and in promoting and encouraging respect for human rights and for fundamental
freedoms for all without distinction as to race, sex, language or religion. The initial
focus of the UN was on social and economic matters. While improving people’s
wellbeing continues to be a main priority of the UN, the global understanding of
development has changed over the years from a focus on social and economic
matters to a focus on the natural environment.

What followed the emergence of sustainable development from 1068 to today

will be discussed.
1968-club of Rome
# In 1968 a small group of professionals from a variety of disciplines met at a villa
in Rome. The idea of the gathering was to discuss the dilemma of prevailing short
term thinking in international affairs. In particular the concerns regarding unlimited
resource consumption in an increasingly interdependent world were discussed.
# Club of Rome was founded as a informal non-profit organization but the club
grew to be more formal in nature and has submitted over 33 reports concerning the
future of humanity.
1969-International Union for Conservation of Nature (IUCN)
# It is the internationally active civil society organization, they met in New Delhi,
India and they voted to draft a programme that would demand a new ethically
responsible manner of dealing with the biosphere and it’s living resources, further
connecting it with the struggle against poverty in the countries of the global South.
1972-United Nations Conference on the Human Environment
# The United Nations Conference On the Human Environment took place in
Stockholm, Sweden.
# This was the first major international gathering to take place, discussing
sustainability at a global level.
# United Nations Environmental Programme (UNE) was established at that
meeting with a mandate to encourage economic growth which is compatible with
the protection of the environment.
# As an outcome of the Club of Rome, the book titled the limits to growth (LTG)
was published.
1974-World Council Of Churches (WCC)
# The World Council of Churches (WWC) met in Bucharest, Romania to explore
solutions to the environmental crisis whilst simultaneously addressing the question
of justice. A co-author of the Club Of Rome Report and participation at the
conference proposed the formulation of the ecologically sustainable society which
was accepted a year later at a plenary meeting in Nairobi.
# The WCC then adopted its new model of a just participatory and sustainable
society.
1980-World Conservation Strategy
# The outcome of the IUCN plenary meeting held in New Delhi in 1969 was
released.
# This document became the joint work of the IUCN, the UNEP and the World
Wide Fund for nature (WWF) and took ten years to compile.
# The document was released and presented to the global public in February 1980
titled the World Conservation Strategy.
# The World Conservation Strategy defined conservation as the management of
human use of the biosphere so that it may yield the greatest sustainable benefits to
present generations while maintaining it’s potential to meet the needs and
inspirations of future generations.
1983-1987
# Sustainable development as a concept, officially emerged in the 1980’s whilst
considering scientific perspectives on the interdependence of society and the
environment.
# In 1983 the United Nations convened the World Commission on Environment
and Development (WCED) which was instructed to formulate a global agenda for
change.
# The outcome of the commission was released in 1987 with a report titled Our
Common Future also popularly known as the Brundtland Report.
# This was a landmark report that advanced the understanding of global
interdependence as well as the relationship between economics and the
environment which was initially introduced by the World Conservation Strategy.
Today the Brundtland definition is still the most widely accepted definition of
sustainable development and we will explore it further in the next section.
Conceptualising sustainable development
# In order to understand the concept of sustainable development, we will first focus
on the systems theory which will place the concept into perspective.
The systems theory
# Systems theory originates from the work of biologist Ludwig Von Bertalanffy
which was called General Systems Theory (GST).
# The principles of this theory of the theory have grown and have been applied to
various other areas such as linguistics, sociology, ecology, organizational theory
and management, human resource development, education, computer science,
biology and many more.
# Von Bertalanffy believed that a general systems theory should be an important
regulative device in science.
# He also observed that certain characteristics appeared in all disciplines. In all
disciplines one needs to study the whole organism. Within this context organism
refers to the ‘whole’ that consist of various parts, each with it’s own function,
structure and relationship to the other parts.
# The organism has the tendency to strive for a steady state or an equilibrium.
# All systems are open. This means that the organism is affected by the
environment within which it exists and it also affects the environment.
# Systems psychology for example is a branch of psychology that studies human
behavior and experience in complex systems.
# Systems engineering is another application which can be viewed as the
application of engineering techniques to the engineering of systems as well as the
application of a systems approach to engineering efforts. The general systems
theory can also be applied to corporates which similar to other organisms comprise
many parts that make up the whole.
# These parts are for example employees, teams, processes, and procedures,
systems and structures.
# All these parts are interdependent and work together to achieve the corporate’s
languages goals and objectives. The corporate is also dependent on the
environment for supplying resources or inputs such as human resources, physical
resources, capital, and information that are transformed within the organization
offering the outputs (products and services) environment. Applying the systems
theory to corporates also strive to remain in balance and that corporates are open
systems-they are affected by the environment and the environment is also affected
by corporates furthermore all the resources or inputs that corporates take from the
environment are limited whilst the needs of the consumer in terms of the outputs
offered by corporates are unlimited.
What is sustainability?
# The Brundtland Report marked the point of departure for the sustainability
debate. In it’s most simplistic form sustainability means to maintain, to keep being,
to preserve and to support with structures to hold on to. To be sustainable means to
sustain resources and the uses thereof, to avoid meltdown and failure.
# Sustainability cannot simply be implemented. It is an all- inclusive design with
present and future considerations looking at the long term and the big picture.
Sustainability connects the three dimensions of ecology, the economy and social
justice.
# The connection fosters new patterns that are compatible with the bearing
capacity of the ecosystems in order to reduce humanity’s footprint on the
environment. It is a survival strategy and a call for new civilization design-we
already have the necessary intellectual resources, the technologies and the
sensitivity for the values of human rights and human dignity.
# Sustainability is also multidisciplinary and should not be limited to specific fields
such as biological sciences and geography. It is a concept that pertains to engineers
(who design our infrastructure), entrepreneurs (who develop innovative solutions
to societal problems), investors (who have the responsibility of investing society’s
hard earned in the right institutions) and governments and policy makers (to make
sure structures such as legislation are put in place to protect society, the
environment and business competitors.
# Understanding sustainability in business management is a priority to ensure that
sustainability is embedded throughout all the functions of business.
# The general systems theory can be applied to the three dimensions of ecology,
the economy and social justice. Each of these dimensions can be viewed as open
systems. Each of these dimensions is also dependent on all other systems with a
tendency to remain in balance. Any action by any part of the system that will lead
to a state of disequilibrium will lead to other actions with the aim to return to a
state of equilibrium. Sustainability therefore requires a balance in terms of each of
these dimensions.
What is a development?
# Development as discourse emerged as a set of theories and practices that
influenced the post World War 2 evolution of the developing world.
# To develop means to grow, mature, progress, improve, advance and to change.
# To an ecological economist however growth is different from development
where growth is quantitative (meaning an increase in size or an increase in
production that can be measured in quantity), while development is qualitative
(meaning an improvement in the quality of goods and services with or without
growth).
# The Brundtland Report explains development more precisely within the context
of sustainable development.
Defining sustainable development
# To understand the compilation of the definition for sustainable development that
will be used in this book let us take a look at some considerations and important
statements of the Brundtland Report.
# The Brundtland Report was released in 1987, During this time, a paradigm shift
occurred. Where the focus in the past had been on various social concerns such as
inequality, social injustices and poverty, it now moved to a focus on the
environment.
# Various environmental problems were identified for example global warming,
threats to the earth’s ozone layer, degradation of the environment and desserts that
consume more and more agricultural land. Although some members involved in
writing the report felt that it should only focus on environmental issues.
# Brundtland stated in her introductory message that focusing only on the
environment issues would have been a grave mistake. The main reason for this
statement is that the environment is part of a complex system and cannot be
separated from human actions, human needs and human ambitions.
# Environment cannot be analysed in isolation and separately from the system in
which it plays an important role.
# The use of the word ‘development’ has also been seen in isolation by man,
thereby giving it a limited focus of what poor (developing nations) should do to
become richer (developed).
# Many participants in the international arena were of the opinion that
development was a concern for specialists involved in issues such as ‘developing
assistance’ in poor nations needing the development.
# Brundtland broke it down by stating that true environment is where we all live
and development is what we all do in attempting to improve our lot within that
abode. The two are inseparable in other words, the natural environment constitutes
society’s home (abode) and it is in our society’s nature to continue to improve our
livelihoods in this home.
# Most developed nations have great economic and political power, and as a result
are often seen as benchmarks and examples for developing nations. For this reason
developed nations need to be more mindful of their development decisions as they
may influence the decisions of developing nations and could consequently
determine how society progresses into future generations.
# Brundtland defined sustainable development as a development that meets the
needs of the present without compromising the ability of future generations to meet
their own needs.
# The term ‘needs’ in the above definition refers to essential needs, or the
satisfaction of basic needs. Development is thus placed in the context of the
struggle against poverty and the relationship and contrast of wealth between the
rich countries in the North and the poor countries in the South of the globe.
# The Brundtland definition of sustainable development covers two basic
dimensions that can also be referred to as pillars-the dimension (human needs) and
the environmental dimension (the imperative to preserve the ability to provide
ecosystem services) however the economic dimension is missing from the
definition.
The elements of sustainable development
There are 3 elements namely:
# Society
# Environment
# Economy
Society
# The term society refers to the people living in a particular country or region as a
nation where they share customs, common traditions, values, laws, activities and
interests, humanity in it’s entirety is society.
# From the stage of early civilization the scale and pace of society’s interventions
increased with each development and elaboration of civilized life.
# Human growth in AD 1600 reached the first billion.
# The second billion arrived after 300 years in 1900.
# The third billion took over 50 years and the fourth was reached in 1980 taking
only 30 years.
# The human population today is over 7 billion.
# Issues that humanity face include poverty, unemployment, inequalities between
gender, race and religion, inequalities amongst and within generations, between the
rich and the poor, disease, extreme hunger, infant mortality, limited or no access to
education, injustice, discrimination and violence and effects of corruption and poor
governance.
The environment
# The environment is quite a broad term and can be seen as many things to many
people. Within the context of sustainable development.
# Environment refers to the natural environment the biosphere in which humanity
and all other life on earth exists.
# It includes the earth’s land, oceans, and atmosphere, ecosystems, and biodiversity
that gave life.
# The environment makes up natural capital, which is everything in nature that
provides human beings with wellbeing including natural resources, environmental
amenities and the pollution absorptive capacity of the environment.
# Environmental changes affect the other pillars of sustainable development-
human wellbeing depends on natural resources, which include water, arable land,
fish, and wood as well as ecosystem services such as pollination, nutrient cycling
and erosion control.
# Therefore, putting ecosystem services at the core of planning and managing
activities of governments, corporates and development institutions that depend on
natural resources brings economic and social benefit.
The economy
# The term ‘economy’ is used when referring to a community’s system for using
it’s resources to produce wealth.
# The basic economic problem seeks to find answers to the following three
fundamental questions:
- What should be produced from resources to increase the wealth of the
community?
- How should these be produced?
- For whom should these be produced?
# Economic growth is normally associated with an increase in productive capacity
meaning using limited resources to gain the greatest possible satisfaction of
people’s unlimited needs.
Drivers of economic growth factors
Energy-Economic growth in modern society has been driven primarily by the
combustion of fossil fuels.
Almost all of our buildings and activities within them depend on electricity, mostly
generated by burning coal
Our food is produced with the help of petroleum-derived fertilizer and petroleum-
powered machinery, which then require more petroleum to transport through the
supply chain to eventually reach the consumer.
Consumption-Society has developed an innate desire to acquire goods and
services that have assumed a central position in contemporary culture. Much of
what is consumed consist of disposable, short-lived products that increase the rate
of production and the flows of materials and waste
Globalization- Globalization is seen as a controversial driver of economic growth.
On the one hand, it has positive effects on wellbeing and economic health, beyond
a certain threshold, globalization can contribute to social injustice and
environmental harm.
Interconnections of the elements of sustainable development
# The elements of sustainable development should be viewed in no particular
order, meaning that the one is not more important than the other.
# These elements should be balanced so that one does not destroy the other.
# Each element of the overlapping circles is interconnected to demonstrate the
interaction between all areas of life.
Where the 3 elements are balanced and interconnected a major transformation in
three areas is needed namely
-Growth in population
-How humans consume materials and resources
-The role of technology in sustainable development
The society’s ecological footprint
-Society’s ecological footprint revolves around the relationship between society’s
current economic model of development and the impact it has on the environment.
-The relationship between the humanity’s demands on the planet and the planets
actual capacity to provide for those demands is called ecological footprint (Ef).
-The EF is a measure of how much biologically productive land and water an
individual, population or activity requires to produce all the resources it consumes
and to absorb the waste it generates using prevailing technology and resource
management practices.
-EF is calculated by the amount of land that would be required to provide the
natural resources consumed by a population and to absorb their wastes.
Views of sustainability
-Many questions about sustainability as a science are being asked continuously,
whether by philosophers, corporate managers, civil society, government or even
layperson or someone hearing about the concept for the first time.
-The debate about the weak and the strong views of sustainability science covers
the question of whether natural capital should be regarded as a substitutable or as
complementary to human capital.
-Human capital refers to produced capital such as infrastructure, labour and
knowledge.
-Natural capital covers the stock of the environment assets such as fossil fuel,
biodiversity and other ecosystems
Weak sustainability
-This view sees natural and human capital as substitutable with each other.
-In other words human capital can substitute natural capital.
Strong sustainability
-Natural capital is vital in human existence. The strong viewpoint of sustainability
states that human capital cannot be a substitute of the multiple processes applicable
to natural capital.
-This viewpoint states further states that human capital and natural should be seen
as complementary and not as two variables that are interchangeable or
substitutable.
Viewers of strong sustainability may wish to pursue this paradigm for a
number of reasons
-The loss of some natural capital may be irreversible
-There remains considerable ignorance, uncertainty and risk attached to the way in
which natural capital works.
-There is evidence suggesting we are more averse (opposed) to losses in utility
than we are keen to gain it.
-The ethical argument for non- substitutability that suggests that increased future
consumption is not an appropriate substitute for natural capital.
Responses to the challenge of sustainable development
Rio summit 1992
(UNCED) also known as the Earth summit was hosted I Rio De Janeiro, Brazil in
1992.
-The primary output of the United Nations Conference on Environment and
Development was Agenda 21, a comprehensive plan of action to be taken locally,
nationally and globally in every area in which humans impact on the environment.
The millennium Declaration
-By the year 2000, implementation of the actions set out in agenda 21 had not yet
been sufficiently addressed. In September 2000, the United Nations Millennium
Declaration was adopted by the 189 member State of the United Nations.
-The Millennium developed goals
Goal 1-Eradicate extreme poverty and hunger
Goal 2-Achieve universal primary education
Goal 3-Promote gender equality and empower women
Goal 4-Reduce child mortality
Goal 5-Improve maternal health
Goal 6-Combat Hiv/aids, malaria and other diseases
Goal 7-Ensure environmental sustainability
Goal 8-Develop a global partnership for development
World summit on sustainable development Johannesburg 2002
The representatives from around the world reaffirmed their commitment to
sustainable development, with a determination to ensure that their collective
strength would be used for constructive partnership for change and for
achievement of the common goal of sustainable development.
Rio + 20 (The Future we want)
Twenty years later after the earth summit, World leaders returned to Rio De
Janeiro for the Rio+20 United Nations Conference on sustainable Development
(UNCSD).
-At this summit in 2012 the 2030 agenda for sustainable development was drafted
only to be signed off at the United Nations Sustainable Development Summit in
2015.
The 5 Ps-Key areas of importance for humanity and the planet (page 35 book)
People-End poverty and hunger and to ensure that all human beings can fulfill their
potential, in dignity, equality and in a healthy environment
Planet-Protect the planet from degradation
Prosperity-Ensure that all human beings can enjoy prosperous and fulfilling lives
and that economic, social and technological progress occurs in harmony with
nature
Peace-Foster peaceful, just and inclusive societies which are free from fear and
violence
Partnership- Mobilise the means required to implement the 2030 agenda through a
revitalized Global Partnership for Sustainable Development, based on the spirit of
strengthened global solidarity, focused in particular on the needs of the poorest and
the most vulnerable and with the participation of all countries
United Nations Sustainable Development Summit (the post 2015 agenda) and
the Sustainable Development Goals
These goals were signed into agreement by the UN General assembly in New York
at the United Nations Sustainable Development Summit 2015 also referred to as
the United Nations Summit for the Adoption of the Post 2015 Development
Agenda.
-This summit was held During September 2015 and the DSG came into effect on 1
January 2016.
Sustainable Development Goals
-End poverty in all it’s forms
-End hunger, achieve food security and improved nutrition and promote
sustainable agriculture
-Ensure healthy lives and promote well being for all at all ages
-Ensure inclusive and equitable quality education and promote lifelong learning
opportunities for all
-Achieve gender equality and empower all women and girls
-Ensure access to water and sanitation for all
-Promote inclusive and sustainable economic growth, employment and decent
work for all
-Build resilient infrastructure, promote sustainable industrialization and foster
innovation
-Reduce inequality within and among countries
-Make cities inclusive, safe, resilient and sustainable
-Ensure sustainable consumption and production patterns
- Take urgent action to combat climate change and it’s impact
-Conserve and sustainability use oceans, seas and marine resources
-Sustainably manage forests, combat desertification, halt and reverse land
degradation, halt biodiversity loss
-Promote just, peaceful and inclusive societies
-Revitalise the global partnership for sustainable development
Strategies for addressing climate change (page 41 book)
-Climate change can be addressed by following two strategies climate change
mitigation and climate change adaptation
 Learning Unit 3: Evolution of Corporate Citizenship

1. Explain the changing role of corporates;

According to the systems theory, the corporation is an open system because it does
not operate in isolation – it depends on its external environment to provide inputs
and resources. The external environmental depends on corporates to provide
products and services, to create jobs and to contribute to the wealth of society.
There is a particular and complicated interaction between the system and its
external environment. The ‘external environment’ refers not only to the natural or
physical, but it includes all sub-environments and variables surrounding the
corporation that have an influence on it. Example: the economic, technological,
political/governmental, natural, social, cultural and competitive sub-environments.
The latter refers to competition, suppliers, labour unions and all the intermediaries
in corporates’ competitive environments. Any changes in the external environment
will affect the corporation. In order to survive and be sustainable, corporates need
to anticipate environmental changes, respond to and adapt to them. As corporates
are changing, managers need to adapt their managerial styles and approaches in the
management of these corporations.
 2. Explain the variables influencing corporations to change;
 Globalisation
Corporations operate under increased pressure to do things faster, in greater
quantities and at cheaper prices. Consequently, there exists tremendous pressure to
cut costs, increase profitability and give their shareholders higher returns. Because
of these pressures, businesses have grown, not just within their own national
borders but beyond it. Operating beyond borders offers corporations additional
opportunities to keep costs low, by operating in countries where labour costs are
significantly lower.
These actions, although cost effective and profit inducing, could have a downside –
globalisation may also come at the cost of social and/or environmental elements.
 Advances in technology and a radical transformation of the world of
work
The second industrial revolution is also known as the technological revolution.
Since this revolution, technological advances have been the primary force in
transforming the world of workers. Replacing humans – with robots – this
advance, and many other technological advances, force employers and employees
to change. Employers may need to adapt their expectations of employees, they may
need to change production and manufacturing processes, and they may need to
change their policies in terms of the management of injuries in the workplace.
Over and above changes required from corporates, management and employees,
industries will also be affected by technology, forcing them to change.
It is imperative for workers to update their knowledge and skills to enable them to
perform new jobs. Corporates need to adapt to these changes and constantly
reorganise to support workers and to adapt to changes in jobs that need to be done.
 Increased power and demand from customers
Technological advances, especially in terms of new communication, transportation
and information technologies, allow customers to compare prices, quality,
availability and modern features between various corporates and their
product/service offerings. Consumers are increasingly using social media
platforms, such as facebook, twitter and even snapchat, to communicate real-tie
reviews of services or products of different corporates, which are of either a
positive or negative nature. As corporate misconduct is unveiled, it is exposed via
these platforms, bringing it to the immediate attention of a potential customer or
interested stakeholder. Consumers are more educated than ever, they ask questions
such as where their clothes come from, how products are made, how their food is
produced and where their pension funds are being invested.
  The growing importance of intellectual capital and learning
During the first and second industrial revolutions, the critical factors of production
were mostly land, labour and raw materials. The challenge to corporates during
these times, was to use these production factors to create products and services that
were more valuable than the sum of their parts.
The key factors of production have changed drastically since the third industrial
revolution – intellectual capital has become a critical resource of corporates. Fewer
people are doing physical work and more people are engaged in knowledge-based
work.
It has become increasingly important for corporates to ensure high staff retention
levels – when employees resign, they take their intellectual capital with them,
leaving a gap that needs to be filled and trained. Nothing can impede the
performance of a work team more than low retention levels.
 The changing roles and expectations of workers
the expectations of workers are also changing which emanate from the different
generations of people working in most corporations. The different generations of
society can be broadly categorised as follows:
o The silent generation. This generation was born between 1925 and 1942,
which was also when world war 2 occurred. One of the theories for the title
of ‘silent’ is that the children who grew up during this time worked very
hard and kept quiet. It was commonly understood that children should be
seen and not heard. This generation did not ‘rock the boat’. The conditions
in which these children grew up were complicated by war and economic
downturn. They experienced the great depression (1929-1939) and their
attitude toward s life and work differs a lot compared to all other
generations.
o The baby boomers. This generation was born between 1943 and 1960. Baby
boomers were responsible for major social changes worldwide while they
were teenagers and may are nearing retirement now. This generation grew
up in a wealthier environment than the previous generation, and they
challenge traditional ways of doing things in the workplace. Baby boomers
tend to think of themselves as a special generation – even in the workplace,
and that they are very different from the previous generation.
o Generation X. generation X was born between 1961 and 1980 during the
digital revolution. This generation grew into adulthood with a sense of
world-weariness and many of them earn more than their parents and are
 active and happy and family orientated. They require a work life balance and
a fair remuneration from employers.
o The millennials, also known as generation Y. this generation was born after
1980 and are now in their early careers in the midst of a slow economy and
high unemployment rates. Generation Y workers have a different approach
to and different expectation of their work and employers than any of their
predecessors. Generation Y workers challenge the conventional way of
doing things and they are constantly seeking new and better ways of doing
things. Attracting and retaining young talent is critical to the success of any
corporate.

 Increasing corporate power and responsibility

As corporates grow and get bigger, their revenues and returns become bigger. With
increased returns comes an increase in power. With that power comes a bigger
responsibility. Corporations are acting beyond their own national borders, with
operations in countries all around the world, having tremendous geographical reach
and often power not too dissimilar to the states in which they operate. As such,
corporations are powerful entities who need to be part of the solution, if effective
solutions are to be found. They can be a force for good in driving socio-economic
development, or they can be a hinderance if they are only interested in pursuing
profits, which often come at a social and/or environmental cost.
 Political changes
The government of a country is a major role player in the management
environment of corporates, since it influences corporations primarily as a
regulating force. The policies and laws of the ruling party, and the changes to these
policies and laws, have a direct influence on the way that corporations operate.
3. Discuss the term ‘corporate citizenship’;

 The corporation. Corporations are regarded as the most prominent

organisations of contemporary capitalisation, partly because of the
employment, production, investment and wealth for which they account.
They are generally understood to be non-governmental profit making
businesses with the following characteristics:
- Ownership. Corporations are owned by shareholders who have a financial
interest in the corporation, owners have the potential to share in the profits
made by the corporate, but are also at risk of losing money should the
corporate not do so well.
 - Management. Corporations are managed by managers who act as agents of
the owners of the corporation. Management is responsible for co-ordinating
the efforts of employees to accomplish the goals of the corporation by using
the available resources as efficiently and effectively as possible.
- Legal identity. A corporation is authorised to act as a single entity and
recognised as such in law. The legal identity of the corporate is distinct from
that of its owners.
- Governance. The term ‘governance’ refers to all the processes of
government, a family or a corporation. A variety of entities (known as
governing bodies) can govern. A corporation is a governing body,
recognised as a legal entity by a government. A corporations governance is
the way the rules, norms and actions are produced, sustained, regulated and
held accountable.

Carroll developed a widely cited corporate social responsibility model

conceptualising four types of corporate responsibilities:
1. Economic responsibility to be profitable
2. Legal responsibility to abide by the laws of society
3. Ethical responsibility to do what is just, right and fair
4. Philanthropic responsibility to contribute to various kinds of social,
educational, recreational or cultural purposes.

 Citizenship. The dominant understanding of citizenship in most

industrialised societies is located in the liberal tradition, where citizenship is
defined as a set of individual rights. Liberal citizenship comprises three
different aspects of entitlement: social, civil and political rights.
Social rights consists of those rights that provide the individual with the freedom to
participate in society, such as the right to education, healthcare and various aspects
of welfare.
Civil rights refer to those rights that provide freedom from abuse and interference
from third parties, such as the right to own property, exercise freedom of speech
and engagement in free markets.
Political rights refer to an individuals active participation in society, and include
aspects such as the right to vote, ‘citizenship’ as explained by these rights refers to
the rights of an individuals.
  Corporate citizenship. Corporate citizenship is the role of corporation in
administering citizenship rights for individuals.
- corporations use the term corporate citizenship as one of the several synonyms
for their greater social responsibility
- citizenship is a concept that is specifically concerned with social relations of
power and responsibility.
- the notion of citizenship is at the core of extensive debates about societal
governance of which corporations form a key part.
4. Explain the history of corporate citizenship;

1886 – the idea of using the ‘citizenship’ metaphor first emerged (according to the
authors)
1943 – a paper titled ‘Are chain stores good citizens?’ was published in the
Journal of Marketing
1960s and 1970s – papers addressing corporate citizenship were written (as
referenced by Melé)

1980s – Matten and Crane’s world renowned article published in 2005 (which this
module quite heavily cites and leans on for conceptualisation), noted that the term
‘corporate citizenship’ had emerged since the 1980s as a prominent term in
management literature dealing with the social role of corporates.

5. Explain a framework for facilitating corporate citizenship.

The global compact has provided a leadership platform for the development,
implementation and disclosure of responsible and sustainable corporate policies
and practices. It does so by supporting companies to:
1. Do business responsibly by aligning their strategies and operations with the
ten principles on human rights, labour, the environment and anti-corruption.
2. Take strategic actions to advance broader societal goals, such as the UN
sustainable development goals, with an emphasis on collaboration and
innovation
Participation in the UNGC has the following benefits linked with it:
 Adopting an established and globally recognised policy framework for the
development, implementation and disclosure of environment, social and
governance policies and practices
 Sharing best and emerging practices to advance practical solutions and
strategies to common challenges
  Advancing sustainability solutions in partnership with a range of
stakeholders, including UN agencies, governments, civil society, labour and
other non-business interests
 Linking business units and subsidiaries across the value chain with the UN
global compacts local networks around the world – many of these in
developing and merging markets
 Accessing the united nations knowledge of an experience with sustainability
and development issues.
 Utilising UN global compact management tools and resources, and the
opportunity to engage in specialised workstreams in the environment, social
and governmental realms.
The UN global compact is a framework that facilitates global thinking and local
action.

Chapter 3 Evolution of corporate citizenship

Introduction
-Corporate citizenship is a means of responding to the challenge of unsustainable
development.
-It is a means of linking corporates, society, the economy and the environment to
ensure that corporates operate in a sustainable manner.
-Corporate citizenship also addresses ethical conduct by corporates
-The environments in which corporates performed their business activities
underwent huge changes and management needed to adapt to those changes.
-We also focus on the variables that influenced corporates to change in the past and
that are still forcing corporates to change now.
-As corporates responded to the changes, the need to conceptualise the term
corporate citizenship arose.
-Global framework is provided for facilitating corporate citizenship
The changing role of corporates
-The world is changing-climate change is a reality, temperatures are rising, water
shortages are more frequent and food supplies are increasingly scarce.
-Populations are growing rapidly, increasing the challenges pertaining to basic
hygiene and sanitation and stretching the planet’s resources even further.
-Any changes in the external environment will affect the corporation.
-in order to survive and be sustainable, corporates need to anticipate environmental
changes, respond to and adapt to them.
-The reason why corporates worldwide are changing is that the environments in
which they operate have changed.
-The pace of change is accelerating.
-As corporates are changing, managers need to adapt their managerial styles and
approaches in the management of these corporations.
Revolutionary changes since the 1700s
-The first industrial revolution which began between 1760, 1820 and ended in
1840, was spurred on by the use of water and steam to power machinery.
-Second industrial revolution also known as the Technological revolution began
between 1840 and 1870 and lasted until the beginning of World War 1 (1914-
1918). The second revolution replaced water and steam with electrical power.
Between the second and third revolutions, World War 2 took place (1039-1945).
-Third industrial revolution is the digital or information technology revolution
which began in the late 1950s until the late 1970s.
-The fourth revolution is described as an extension of the third, using a
combination of computer hardware, robotics and massive computing power to
expand information technology beyond just computer software. Developments in
previously disjointed fields such as artificial intelligence and machine learning,
robotics, nanotechnology, 3D printing and genetics and biotechnology are all
building on and amplifying one another.
The developments and changes from the first Industrial revolution to the current
one forced corporations and management to also change. The changes and
transformation brought about by the third and fourth revolutions were so swift in
pace and so profound in social, geographical, cultural and economic implications,
that it also raised serious problems not only for corporations but also for
individuals in our society.
Variables influencing corporates to change
-A number of variables have a definite influence on corporates to which they need
to adapt.
-In this section we focus on globalization, advances in technology and radical
transformation of the world of work, increased power and demands from
customers, the growing importance of intellectual capital and learning, changing
roles and expectations of workers, increased corporate power and responsibility
and political changes.
Globalisation
-Operating beyond borders offers corporations additional opportunities to keep
costs low for example by operating in countries where labour costs are
significantly lower.
-These actions although cost effective and profit inducing could have a down side
globalization may also come at the cost of social and environmental elements.
-One of the corporate’s goals is to improve the health and wellbeing o one billion
people people by taking action in especially developing countries over the next ten
years.
Advances in technology and a radical transformation of the world of work
-The second industrial revolution is known also known as technological revolution.
-Since this revolution technological advances have been the primary force of
transforming the world of work.
-Changes required from corporates, management, and employees, industries will
also be affected by technology forcing them to change.
-The World Economic Forum (WEF) published an analysis on the technological
and sociological drivers of employment.
-The report entitled The future of jobs validates the accelerating power of
technology on global employment trends and also highlights concerns that job
growth in certain industries is still outpaced by large-scale declines in other
industries.
-The WEF report provides us with an indication of the changes in the actual jobs
per job family (indicated in thousands) for all industries surveyed.
-The changes per job family indicate that job opportunities in certain industries
will decline in these industries, workers and corporates will be affected and they
need to adapt to this.
-Corporates need to adapt to these changes and constantly reorganize to support
workers and to adapt to these changes in jobs that need to be done.
Increased power and demand from customers
-Technological advances, especially in terms of new communication,
transportation and information technologies, allow customers to compare prices,
quality, availability and modern features between various corporates and their
product/service offerings.
-As corporate misconduct is unveiled, it is exposed through social media bringing
it to the immediate attention of the customers.
-Consumers are more educated than ever, they ask questions such as where their
clothes come from, how products are made and how their food is produced.
-A significant and important survey, The Nielsen Global Survey on Corporate
Social Responsibility, was conducted in 2014 to assess amongst other things, how
passionate consumers are about sustainable practices when it comes purchasing
considerations.
The growing importance of intellectual capital and learning
-During the first and second industrial revolutions, the critical factors of production
were mostly land, labour and raw materials.
-The challenge to corporates during these times, was to use these production
factors to create products and services that were more valuable than the sum of
their parts.
-The key factors of the production have, however changed drastically since the
third Industrial Revolution-intellectual capital has become a critical resource of
corporates.
-Corporates need to retrain their employees to develop the intellectual capital
because when staff resign or retire they take their intellectual capital with them.
The changing roles and expectations of workers
-As society moved from the First Industrial Revolution to the current one, the roles
and expectation of workers also changed and continue to do so.
-The actual job that workers perform is constantly changing.
-The expectations of workers are also changing which emanate from the different
generations of people working in most corporations.
-The different generations of society can be broadly categorized as follows:
The silent generation was born between 1925 and 1942 which is when World War
2 occurred. One of the theories for the title ‘silent’ is that the children who grew up
during this time worked very hard and kept quiet.
The ‘baby boomers’-This generation was born between 1943 and 1960. The baby
boomers were responsible for major social changes worldwide while they were
teenagers and many are nearing retirement now. This generation grew up in a
wealthier environment than the previous generation and they challenge traditional
way of doing things this also includes challenging traditional ways of doing things
in the work place. The baby boomers tend to think of themselves as a special
generation even in the work place
The Generation x was born between 1961 and 1980 during the digital revolution.
This generation grew into adulthood with a sense of world weariness and many of
them earn more than their parents and are active, happy and family orientated.
They require a work life balance and a fair remuneration from employers.
The millennials also known as Generation Y. This generation was born after 1980
and are now in their early careers in the midst of a slow economy and high
unemployment rates. Generation y workers have a different approach to and
different expectation of their work and employers than any of their predecessors.
Generation y workers are empowered by their ability to master the newest
technology. Generation y workers challenge the conventional way of doing things
and they are constantly seeking new and better ways of doing things.
Increasing corporate power and responsibility
-Unethical practices lead to harsh consequences.
-Millions if not billions worth of revenue is lost, fines are received and legal costs
are encountered, the corporates image is tarnished and it’s share value significantly
decreases.
-In some instances unethical practices may even lead to the demise of the
corporation.
-Corporations are powerful entities who need to be part solutions, if effective
solutions are to be found.
-They can be a force for good in driving socio-economic development or they can
be a hindrance if they are only interested in pursuing profits which often come at
social and or environmental cost.
-Milton Friedman (the economist and Nobel Laureate) published an essay titled
‘The Social Responsibility of Business is to increase it’s Profits’.
-The essay was published in the New York Times Magazine in 1970 and came to
be one of the most famous pieces of work debating the notion of corporate social
responsibility, which is still referred to today.
-Friedman’s main argument was that the social responsibility of a business is to
make profit.
-If the business succeeded in making profit, it would then be to fulfill it’s social
responsibility of employing people in society with a decent wage and it would be
able to pay taxes to the state that could provide the services required by society.
-Good practices are seen in the design of their products, the selection of their
suppliers and ensuring sound quality and governance structures.
-On the other hand corporates are criticized for what is deemed as excessive
business power to such an extent that the rights of citizens and powers of
governments are weakened.
-On the other hand, the corporates make assertions that they are taking on greater
responsibility for society for example by creating jobs.
The following factors contribute to an increase in corporate power and
responsibility
Increasing privatization
-Although governments have in most instances retained their regulatory, fiscal and
organizational capacities.
-Increasing privatization has had the effect of increasing the corporate sectors share
of gross national product and employment.
Creating new consumer markets
-Consumers do not always dictate what is or what should be available in consumer
markets.
-Corporations often create new consumer markets.
-Steve jobs the founder of Apple Company, believed in a simple fact” everything
around you was made up by people that were no smarter than you”.
Increasing cross-boarder activities
-Corporations operating locally are moving from small or medium size to large and
have grown more conspicuous (visible or noticeable) as they operate on an
international platform in other countries.
-This has become more apparent with vast increases in national foreign direct
investment.
Assuming greater roles in the delivery of public goods
-Internationally, corporates are assuming greater roles in the delivery of public
goods and services.
-Examples are education, pensions and security.
-Governments are encouraging corporations to contribute to wide governance
activities.
-From the discussion above it is evident that the power of corporates is increasing
at an accelerating rate.
-Governments are reducing some of their modes of exercising authority (especially
in developing countries).
Political changes
-The government of a country is a major role player in the management
environment of corporates since it influences corporations primarily as a regulatory
force.
-The policies and laws of the ruling political party and the changes to these policies
and laws have a direct influence on the way that corporates operates.
-The changing roles of corporates as we have discussed in this section leads to the
important point that corporates as well as any other corporation abroad conducting
business in South Africa.
Defining corporate citizenship
-Before we represent the concept of corporate citizenship, let us break down the
two key words (corporation and citizenship) which when merged present the
concept of corporate citizenship.
Corporation
-Corporations are regarded as the most prominent organizations of contemporary
capitalism partly because of the employment, production, investment and wealth
for which they account.
-They are generally understood to be (but not limited to) non-governmental profit-
making businesses with the following characteristics:
Ownership-Corporations are owned by shareholders who have financial interests
in the corporation.
Management-Corporations are managed by managers who act as agents of the
owners of the corporation.
Legal entity-A corporation is authorized to act as a single entity (legally a person)
and recognized as such in law.
Governance-The term governance refers to all the processes of governing,
whether undertaken by government, a family or corporation.
What are the social responsibilities of corporates? Caroll developed a widely cited
corporate social responsibility model. Conceptualizing four types of corporate
responsibility.
1. Economic responsibility to be profitable.
2. Legal responsibility to abide by the laws of society.
3. Ethical responsibility to do what is just right and fair.
4. Philanthropic responsibility to contribute to various kinds of social, educational,
recreational and cultural purposes.
Citizenship
-In liberal tradition citizenship is defined as a set of individual rights.
-Liberal citizenship comprises three different aspects of entitlement social, civil,
political rights.
-Social rights consist of these rights that provide the individual with the freedom to
participate in society, such as right to education, health care and various aspects of
welfare.
-Civil rights refer to those rights that provide freedom from abuse and interference
from third parties such as right to own property, exercise freedom of speech and
engagement in free markets.
-Political rights refer to an individual’s active participation in society and include
aspects such as the right to vote
-Corporations use the term corporate citizenship as one of the several synonyms
for their greater social responsibility.
-Citizenship is a concept that is specifically concerned with social relations of
power and responsibility.
-The notion of citizenship is at the core of extensive debates about societal
governance of which corporations form a key part.
The history of corporate citizenship
-The idea of using the citizenship metaphor emerged as early as 1886, When the
US Supreme Court ruling attributed equivalent rights to corporations as to natural
persons in relation to the fourteenth Amendment of the US Constitution
researchers such as Mele made reference to papers addressing corporate citizenship
dating back to the 1960s and 1970s.
-One of the earliest articles suggesting the metaphor was published in 1943 in the
Journal of Marketing entitled’ are chain stores good citizens?’ Matten and Crane,
renowned authors in the field of corporate citizenship.
-Corporate citizenship has been introduced into the corporate social responsibility
discourse (which we explained in the previous section) in the last few years, and
corporate citizenship has been added as a new term to the debate surrounding the
social role of businesses.
-In what follows we will examine the conventional views of the term and followed
by the extended view thereof as developed by Matten and Crane.
The conventional view of corporate citizenship
-This view comprises two approaches, which Matten and Crane called the limited
and the equivalent view.
Limited view of corporate citizenship.
According to this view, corporate citizenship
is regarded as a discretionary activity of corporates, making a choice to ‘put
something back into the community’ (which brings us back to the systems
approach as explained in Chapter 2).
-For corporations, corporate citizenship is depicted as motivated by self-interest-
corporations recognize the fact that their contributions towards building a stable
social, environment and political environment ensures profitable business.
-This view focuses mainly on the direct physical environment of corporations,
resulting in a focus on the local community.
-Proponents of the limited view, ultimately see the contributions of corporate
citizenship to the debate on business-society relations in it’s economic character as
an approach to long term maximization of self-interest through corporate
investment in the processes and rules of the corporate’s social investment.
Equivalent view of corporate citizenship
-This view does not address nor define any new role for the corporation, and it is
more general in scope.
-This view defined corporate citizenship in the same way that corporate social
responsibility is defined consisting of four aspects: economic, legal, ethical and
philanthropic.

Extended view of corporate citizenship

-The purpose of the extended view of corporate citizenship is to establish the
relationship of corporates to citizenship in the context of the recent shifts in
business-society relation, where corporations take over many of the roles and
actions previously associated with government.
-The corporate is also committed to helping smallholders to improve their yields
and transform their livelihoods as part of the corporate’s overall ambition of
ensuring that they have a successful business with a positive social impact.
-The extended view aims to focus on the effective functioning of liberal citizenship
where we define liberal citizenship as the corporate uptake of governmental
functions to render corporate involvement in citizenship.
Matten and Crane suggest three ways in which governmental and corporate roles in
administering citizenship are changing
-Governments cease to administer citizenship rights
-Governments have not as yet administered citizenship rights
-Where the administration of the citizenship rights may be beyond the reach of the
government
There are two features of the extended view
-First- the extended view is grounded in a thorough consideration of the notion of
citizenship with a specific emphasis on the liberal political tradition that
characterizes most industrialized societies in other words citizenship characterized
by civic rights-social, civil and political rights.
-Second, the extended view specifies emphatically and clearly that corporate
citizenship is not about corporates as citizens but rather that it is about the roles
which corporates might play in administering citizenship rights to citizens.
Facilitating corporate citizenship: a framework
-The United Nations Global Compact (UNGC) was initially proposed in 1999 by
Kofi Annan, the former UN secretary-general as a call to companies around the
world to align their strategies and operations with ten universal principles.
 Learning unit 4: Rationale of corporate citizenship

1. Define ethics and morality;

Morality concerns individual or collective behaviour and now individuals should
behave – in their won capacity and towards one another.
Morality is the underlining values on which decisions are based on.
Examples of underlying theories include: integrity, honesty, fairness and
consideration towards others.
Ethics is the philosophical study of morality, therefore it involves the application
of morals to decisions. Ethics is defined as a set of moral principles, norms or
standards that directs individual behaviour.
In the business setting, ethics provides moral principles, norms or standards that
direct business conduct.
2. Understand the most prominent ethical theories;

 Consequential ethical theories

Consequentialists believe that the ‘good’ is determined by the consequences that

follow the specific behaviour.

Consequential theories are primarily concerned with the consequences of a

decision or action. The consequences determine whether a decision or action is
right or wrong.

Consequential ethical theories

 Egoism

The egoism theory states that one should maximise ones own good and happiness.
This theory equates morality with self-interest and maintains that an act is morally
right if it best promotes the decision maker’s interest. The theory further states that
one can indirectly have interest in others and promote their wellbeing, if such
actions or behaviours would maximise what is good for oneself.

Thought processes such as ‘I will not steal, as I will get a criminal record’ and ‘I
will not lie about a particular matter, as it will negatively impact how my
community sees me’ are basic examples of reasoning within this theory’s
parameters.
This theory receives the most criticism – especially since it aligns morality with
self-interest.

Self-interest could include physical wellbeing, power, pleasure, fame, career

satisfaction, a good family life and wealth.

 Utilitarianism

The utilitarianism theory is concerned with the overall good or happiness of an

action or behaviour for the greatest number of people.

Behaviour or an action can be considered good or right if the consequences result

in the greatest overall good, for the largest number of people. This theory involves
identifying the parties that will be affected by a decision, and then determining the
possible costs and benefits for each party.

Non-consequential ethical theories

 Ethics of duty

This theory is based on moral duties that specify certain ways in which individuals
should act. Kant, who pioneered this theory saw humans as rational actors,
implying that they are independent moral agents capable of making their own
rational decisions regarding right and wrong. He also viewed morality as the same
for everyone everywhere. For Kant morality concerned certain eternal abstract and
unchangeable principles and used three imperatives to highlight what ought to be
done by individuals.

The ethics of duty theory has certain problems associated with it namely:

- Undervaluing outcomes. Consequences or outcomes are not properly

assessed in this theory, as its not a fundamental part of the theory. It may be
included or maybe not. Child labour can be argued by an individual as
immoral as it should bot be applied universally (maxim 1), it deprives
children of their dignity (maxim 2) and other societies (globally) feel the
same about child labour as practice (maxim 3)
- Complexity. The imperatives formulated by Kant can be difficult to apply
and requires some abstraction. This level of intellectual analysis required to
apply Kant’s imperatives, should not be taken for granted in every case.
 - Optimism. Kants theory is optimistic. His view of individuals as rational
actors and morality is seen more as an ideal than a reality.

 Ethics of right and justice

Ethics of rights

This theory concerns the notion of natural rights. It is concerned with basic rights
such as the right to life, freedom and privacy to which individuals are entitled. It is
therefore a decision makers duty to respect these rights. the theory states that a
decision or action is right when it respects the rights of individuals. The main
problem with this theory is that is based on western views or western morality.
Applying these views on societies with a different cultural and religious belief
could cause friction.

Ethics of justice

Justice concerns fair treatment of individuals with a fair end result. The theories of
justice seek to achieve fairness in terms of procedures and outcomes. The biggest
challenge with this theory is balancing fair procedures and fair outcomes.

Contemporary ethical theories

 Virtue ethics
Virtue ethics seeks to comprehensively describe character traits that constitute a
good human life. Central to this theory for Aristotle was ‘happiness’ – virtue
behaviour is an internal part of a good life.

Virtues are the traits that allow individuals to behave in ways that would develop
their highest potential, lead to happiness and enable them to pursue the ideals they
have adopted. Honesty, truthfulness, tolerance, integrity, patience, courage, self-
control, fairness and reliability are examples of virtues.

One of the challenges is that this theory requires a fuller description of an

individual and his or her life before one can decide if his or her action is ethical.

 Feminist ethics
The feminist theory of ethics views ethics from a more feminine perspective. This
theory argues that woman (females) have different attitudes towards organising
social life, compared to men. These differences affect how ethical issues and
dilemmas are handled. It views moral issues and dilemmas of responsibility in
relationship to be resolved through personal and subjective assessments.

 Discourse ethics
According to discourse ethics, there should be a process of norm generation
through rational reflection. Norm generation refers to the process of establishing a
rational ideal discourse about a specific problem. It is the procedure of parties
getting together to settle a conflict, solve a problem and provide a solution for a
specific situation that is accepted by all parties. Therefore it involves the time and
energy taken to interact with one another and for each affected party to share their
argument – and to then reach a mutual agreement on a specific norm that will be
applied in the situation (norm generation).

The challenge with applying this theory is that norm generation can be a very time
consuming process. If one party objects and a mutual agreement cannot be made,
then a moral decision hasn’t been reached.

 Post modern ethics

Post modern ethics encourages individuals to question every day practices and
rules. They should rather listen to and follow their own emotions and inner
convictions about what is right or wrong in a particular situation. This theory is
best understood when thinking of the world, the nature of truth and claims by
different communities to truth and then to scrutinise or challenge beliefs on what is
reality and what is knowledge.

The challenge inherent in this theory is that one needs to be in the situation or have
experience of the situation in order to truly tap into ones emotions and feelings and
question the practice.

3. Understand the adage ‘doing good to do well’;

The best way to elaborate this viewpoint is to elaborate on these perspectives:

 The financial perspective. According to this perspective, doing good means

saving money on lawsuits, settlements, fines and consumer boycotts
associated with illegal and/or unethical behaviour. Organisations can avoid
boycotts when they act ethically. Unethical practices can also have an effect
on the economy.
  The reputation, relationship, morale and productivity perspective. Dong
good means avoiding costs associated with deterioration in relationships,
damaged reputations, decline in employee productivity and an increase in
absenteeism. A poor reputation is probably the most obvious consequence of
unethical behaviour – and it deters prospective customers and business
partners. Literature and research studies emphasise that organisations with
good morale have less absenteeism compared to those organisations with
poor to fair morale. Unethical behaviour also impacts employee productivity
negatively.
 The corporate culture perspective. According to this perspective, doing
good also ensures integrity and fosters a better corporate culture. Ethical
behaviour and integrity from managers and leaders (managers doing what is
good) fosters a strong ethical culture, which in return promote ethical
behaviour within an organisation. Numerous studies have found that a strong
ethical culture has a positive effect on employee behaviour and decision
making.
 The customer trust and loyalty, investor confidence and public
acceptance perspective. Ethics have an impact on customer trust and
loyalty, investor confidence and public acceptance. Organisations need to
build trust with their stakeholders – they need to build trust, for example
with their customers and business partners, alliances and society and its
essential for the operations of any market. Trust also has a positive impact
within an organisation, as trust is important for effective communication,
team work, and the general relationship between managers and subordinates.
Trust enhances employee commitment and productivity.
 The investor decision perspective. Ethics influence investor decisions.
Doing good and engaging in socially responsible practices can lead to
investment from prospective investors. ‘ethical investing’ is an example of
ethics influencing investor decisions. Some investors choose not to invest in
‘sin industries’. These investors would actively seek out companies who are
involved in social responsibility initiatives to invest in.

4. Explain the role of legislation in corporate citizenship;

the legislation mainly encompasses four categories of laws and regulation that
govern corporate activities, and these are:

 Regulation of competition
Rivalry amongst corporations for customers and profits can in certain cases, lead to
questionable practices. Large corporations also have more advantage over others –
especially over the smaller business. Large corporations have access to more
resources, and can capitalise on economies of scale (cost per units are lower as
they produce on a larger scale, compared to a small business who produces on a
smaller scale, and therefore smaller business’s products cant always compete with
larger organisations). In addition, some corporations’ competitive strategies focus
on weakening a competitor – thereby weakening competition in the market.
Competition deteriorates when firms limit healthy competition (example; raising
entry barriers so that new competition can’t enter the market).

As a result, laws have been passed to regulate competition. These laws were
established to prevent anti-competition practices aimed at reducing or restricting
competition among corporations. Reducing or restricting competition is to in some
way, hinder healthy competition deliberately. These practices are known as anti-
competitive behaviour and include price fixing, predatory pricing ( a firm setting
their prices so low as to force a competitor out of the market) and rigging bids (to
agree in advance who to award a contract to). Rigging is achieved by setting a pre-
determined price on a tender, limiting other firm’s chances of competing.

Based on international best practices, South Africa has a regulated competition

regime. The Competition Act 89 of 1998 provides for various prohibitions on
various anti-competitive conduct. The acts main purposes are to promote (i)
economic efficiency, adaptability and development; (ii) employment and general
socio-economic welfare, and (iii) a greater spread of ownership within the
economy. The act also provides consumers with competitive prices and product
choices, it ensures equitable opportunity to participate in the economy for small
business and aims to increase opportunities for South Africa to participate in world
markets.

The Competition Amendment Act 1 of 2009 introduces measures such as criminal

sanctions against top managers who participated in or consented to cartel conduct
and leniency provisions that protect whistle-blowers. Penalties and prison
sentences are examples of criminal sanctions. Leniency provisions are made
towards corporations who blow the whistle on the other parties involved.

 Protection of consumers

Business are required to provide consumers with accurate information about

products and services. Businesses also need to follow safety standards. The South
African Bureau of Standards (SABS) is an example of a statutory body that
promotes and enforces national standards in South Africa. The SABS was
established in terms of the Standards Act 24 of 1945.

There are various laws In South Africa that protect consumers rights, of which one
is the Consumer Act 68 of 2008. Other laws aimed at protecting consumers are:

- The electronic communications and transactions act focuses on the

promotion of universal access to electronic communications, promotes
transactions and the use of electronic transactions by SMMEs, and prevents
abuse of information systems. The act also prevents barriers to electronic
communications and transactions.
- The purpose of the protection of personal information act of 2013 is to
ensure the safeguarding of personal information and regulate the manner in
which personal information bay be processed.

 Promotion of equity and safety

These laws promote equity and safety in the workplace and are aimed at protecting
the rights of minorities, woman, senior citizens and people with disabilities, and
the safety of all workers. Exampes are:

- Basic, conditions of employment act 75 of 1997

- Employment equity act 55 of 1998
- Labour relations act of 1995
- Occupational health and safety act 85 of 1993

 Protection of the natural environment

These laws came into pass largely as a response to concerns over business’s impact
on the environment – such as toxic waste in the air and water. In South Africa,
various laws are aimed at protecting the environment.

Examples are:

- National environmental management: biodiversity act 10 of 2004

- National environmental management: protected areas act 57 of 2003
- National environmental management: waste act 59 of 2008
 - National environmental management: integrated coastal management bill
2008 and amendments
- National veld act and forest fire act 101 of 1998

 Legislation and ethics

The scope of ethics include the law, however it also includes ethical standards not
codified by the law. This emphases that the overlap between ethics and the law is
not complete.

The scope of ethics is broader than the scope of law. Unlike the law, ethics cover
every aspect of human conduct. Therefore, ethics exceeds the law.

In lieu of the relationship between the law and ethics, organisations ought to
always consider both their legal responsibility as well as their ethical
responsibility.

5. Explain the relationship between corporate citizenship and profitability.

An organisations’ financial performance indicates overall organisation success. It

provides an indication of how well a corporate can use its assets from its primary
mode of business and generate revenues.

Social responsibility and financial performance – the arguments

There are three perspectives on social responsibility and financial performance to

keep in mind:

1. The perspective that social responsibility has a negative influence on

financial performance

This perspective maintains that engagement in social responsibilities activities

increases costs, and increased costs (with the same level of income) will lead to a
decrease in financial performance. This view is particularly based on Milton
Friedman’s argument that on a corporates true purpose – which is to maximise
profits for shareholders. He asserts that they only social responsibility that
corporates have is to increase profits (or shareholder wealth). If a manager were to
invest in other social issues, then that manager is spending ‘shareholder’ money –
money that would have increased profits.
 2. The perspective that social responsibility has a positive influence on
financial performance

The positive perspective is grounded in stakeholder theory which suggest that

corporate social performance is positively related to financial performance as it
appeals to stakeholders= interests and the organisation’s reputation.
Taking into account the interest of stakeholders is seen as important, as failure to
do so can be detrimental to those stakeholders – and ultimately shareholders, and
the long-term survival of the organisation.

Stakeholder interest, in particular has become important for encouraging corporate

citizenship in South Africa. Society or community groups challenges in South
African organisations on whether they are upholding the constitutional rights of
citizens.

Corporate reputation, which is vital to the success of the corporate, is viewed as an

intangible organisational asset. In addition, reputation is built by the organisation
and upheld in the perceptions by stakeholders. A good and sound reputation
(amongst all stakeholders) is also perceived to give an organisation a competitive
advantage. Purchasing and investment decisions are often based on the reputation
of an organisation.

3. The perspective that social responsibility is equivalent to financial

performance

The equal perspective views social responsibility and financial performance in

synergy. This perspective maintains that high social performance leads to better
financial performance, which again leads to better social performance. In a study
done by Waddock and Graves, they indicate that better financial performance may
lead to improved social performance, and better social performance leads to
increased financial performance. Orlitzky, Schimdt and Rynes tested this theory
and their findings suggest this virtuous circle. They maintain that there is indeed a
credible link from corporate financial performance to corporate social
performance, as organisations who perform better financially would receive higher
corporate social performance ratings (they are in financial positions to invest more
into corporate social performance) and consequently, have larger impacts ( can
invest more resources into a community) and outcomes) can achieve larger
outcome, for example number of people skilled, number of vegetable tunnel built,
or number of volunteers)(due to the size of their investments).
Evidence of social responsibility influencing financial performance – an
academic review
See table 4.5 on page 99 of textbook

Learning Unit 5 Responsible Leadership

Management Definition:
Manager is an individual who is responsible for a certain group of tasks or
subset of corporation.
 She has staff of people reporting to her
 Responsible for successful execution of tasks assigned to section
 Together with other managers she makes up the corporate
management team
Management team is responsible to attain vision, mission, goals and the
objectives of the corporation.
Responsibilities of Management:
5 Tasks – performed by all levels of management in all functional areas of
corporation
1. Set goals and objectives of corporation
Planning phase. Determine what needs to be done to meet the corporate
goals and objectives
2. Organise
Outline tasks and activities
Do job design and assign tasks to employees
Develop corporate design and structure
3. Communicate and motivate staff
Create team
Based on remuneration, placement, promotion
4. Develop people
Very important part
5. Measure performance
Establish appropriate standard and measures
Analyse actual performance
Take appropriate action

Levels of Management:
3 layers: Top, Middle, Lower
Top Responsible for corporation as a whole
Formulate vision, mission, long-term goals, strategies
Design broad organisation structure
Lead organisation and Control organisation
Determine Values and corporate culture
Middle Responsible for smaller sections and departments
Formulate medium term goals for functional areas
Implement policies, rules and procedures formulated by top
management
Typical: Marketing, Financial, Human Resources, Procurement,
and Operations Managers
Low Apply policies, procedures and rules
Focus to attain high levels of production
Organise sub section
Motivate individuals
Control outputs

Leadership: Leader is one who leads

1. Needs followers
2. Sets the pace
Determine standard and direction of movement
3. Not necessary 1 person
4. Does not need to be in an appointed position

Leadership vs Management
The meaning of the terms leadership and management differs

Study guide p42

Leadership approaches
Leadership traits: Research showed a weak link between traits and leadership. This
approach aims to identify and analyse the personal qualities of a leader
Leadership Replace the belief that managers are born, with a theory
styles that shows that leaders can be made
Likert’s Id 2 forms of leadership behaviour:
behavioural Task-oriented: autocratic style; supervision and
approach to control
leadership Employee-oriented: democratic style; motivational
and participation, people focused
Blake and Identified 5 leadership styles, based on the leaders’ task
Mouton’s and employee orientation.
leadership grid 1. Impoverished
Minimum effort to get job done. Has a low concern
grid: for production and people. Work to meet deadlines.
horizontal axis = Disharmony and disorganisation prevails
task, vertical axis 2. Autocratic = Dictatorial
= employee Demand performance
Has minimum concern for people
High concern for production
Employee needs are not taken care of
Strict policies and procedures are in place
Have a high labour turnover, poor staff morale
3. Middle of the Road
Accepts adequate performance, combination of
concern for people and production
Neither employee or production needs met
4. Country Club
High concern for people
Little concern to get job done
Good treatment of employees serves as self-
motivation
Disadvantage: low focus on tasks hamper
production and has unsatisfactory results.
5. Team Leadership
The ideal leadership style
Portray high concern for people and production
Create team culture which lead to high employee
satisfaction and high production
Motivate the employees to pursue goals of the
 corporation
Tannenbaum and Developed a continuum of leadership styles between the
Schmidts extremes of task-oriented and employee-oriented
continuum of leadership
leadership
behaviour
Friedler’s Successful leadership depends on the match between the
contingency leader, the follower and the situation, and how well his or
theory of her style fits the situation.
leadership
Hersey and The most effective leadership style for a particular
Blanchard’s situation is determined by the maturity of the followers.
leadership model 4 leadership styles needed from a leader:
1. Tell and direct
Define the task and supervise closely
When: Effective for new/inexperienced employees
2. Sell and coach
Define and assign roles and tasks and input from
followers
When: Employee who needs guidance and
supervision
3. Participate and support
Gives control to follower with minimum
supervision
When: Expert followers who needs emotional
support
4. Delegate
Followers have ability to resolve own problems
When: Ability to work in groups and teams
Robert House’s Effective leaders help clarify corporate goals for their
path-goal theory followers. They show the PATH they need to follow to
achieve GOALS and to ensure that these goals are aligned
with the corporate goals.
Contemporary Aim to construct an ultimate leadership approach.
leadership
approaches
Charismatic Heroic/inspiring guidance provided by one or more
leadership individuals
Granted organisational power to make dramatic changes and
extract extraordinary performance levels from followers
Example: Gandhi, Mandela, Churchill
Transactional Supervision, organisation, group performance role of leader
leadership Don’t like change
(Manager Reward good performance. Punish non-performance
leadership) Example: Bill Gates
Transformational Establish clear vision. Define processes required.
leadership Dramatic changes in organisation. Motivates and inspire
employees
Traits: confidence, courage, vigour
Example: Mark Zuckerberg
Servant Share power with followers, help them develop and perform
leadership 10 characteristics:
 Listening
(leadership  Empathy
philosophy / set  Healing
of practices)
 Awareness
 Persuasion
 Conceptualisation
 Foresight
 Stewardship
 Committed to the growth of other
 Building community
Responsible Make business decisions that takes into account all
leadership stakeholders

Responsible leadership
Today’s leaders act in a global stakeholder society. They need to be
responsible and accountable to shareholders for financial performance and
all stakeholders for the organisations’ impact on the economy, society and
environment. Responsible leaders deliver on the triple bottom-line of
organisation.
Create trust and value to all stakeholders
 Triple bottom-line = Accounting framework with 3 parts: social,
environment, finance
(Also called 3 pillars of sustainability)

Responsible leaders follow the ‘stakeholder theory’

- Assumption that values are necessary and explicitly part of doing
business

Value and value creation are responsibility of the leader

Values and Value creation in organisation

Personal value: individual’s absolute or relative and ethical value. The basis
of ethical action.
Value statements: Grounded in personal values. Define how people want to
behave.
Value system: Set of consistent values and measures.

Day-to-day lives: law, custom, tradition

Leaders play essential role in determining values for organisation
Values of organisation used as base to build vision, mission, goals and
strategies on

Leadership responsibilities with key stakeholders

Key stakeholders are employees, clients, business partners, social
environment, natural environment shareholders, government

Employees Mobilise people, lead teams across business, countries

and cultures to achieve performance objectives derived
from org strategic objectives.
Coach and mentor employees to act ethically
Ensure implementation of employment regulations and
standards.
Ensure humane working conditions, safety healthy non-
discriminatory
Address needs for recreation, work-life balance
Clients and Ensure products/services meet customer needs
customers Communicate risks openly – real/potential risks
Business Someone with involvement in business dealings e.g.
partners suppliers.
 Ensure partners adhere to ethical, environmental and
labour standards.
Ensure fair and ethical treatment of partners
Social Foster contributions to society
environment - Passive: charity/corporate donations
- Active: community projects
Develop staff to understand responsibilities of org in
society
Natural Sensitive to impact decisions and actions of organisation
environment will have on environment
Use green technology, recycle material, save energy
Shareholders Owns shares in organisation. Protect investment capital
and ensure adequate return on investment. Respect
shareholders’ rights, provide timeous information on
performance of organisation.
Show due-diligence – with respect to insider knowledge
Prevent moral wrong-doing.
Act responsibly wrt own compensation packages.
Government Obey laws, pay taxes
Provide input to form policies
Assist government and work on committees
Can participate in politics

Responsible leaders in action:

Steward: guard the values and value system of organisation and protect the
personal and professional integrity of the organisation
Citizen: Business expected to use minimum inputs to deliver the maximum
output, be effective and efficient, and perform financially well. Contribute to
thriving community and good society. Must know both goals are connected.
Visionary: Responsible vision and build on sound values to lead to a
sustainable business. Ensure financial success, safe environment and society.
Servant: Server others. Be attentive, modest, supporting.
Coach: facilitate learning and development of others. Motivate to work
together and realise common vision.
Architect: Plan, design, construct organisation structure to support ethical
and effective achievement of triple bottom-line
Storyteller/meaning enabler: use storytelling to spread organisation vision
socially, culturally, environmentally
Change agent: initiate and support change towards value conscious and
sustainable business in a stakeholder society

Learning Unit 6 Corporate governance and risk management

Background to corporate governance
 Foundation – 19th century: company law, Joint-Stock Companies Act 1844
 Cadbury Committee on financial aspects of Corporate Governance – UK
1992
 Greenbury Committee on Directors’ remuneration UK 1995
 Hampel Committee on Corporate Governance UK 1998
 King Report on Corporate Governance – SA 1994
 King III Report – SA 2009
 King IV Report – released 1 Nov 2016, effective from 1 April 2017

Definition of corporate governance which incorporate the primary goal

The practice by which companies are managed and controlled
OR
A set of relationships between a company’s management, its board, its
shareholders and other stakeholders which provides
(i) The structure through which the objectives of the company are set
(ii) The means through which the objectives are met; and
(iii) The monitoring of the organisations performance

Concept and primary goal of corporate governance

To implement systems and processes by which corporations can be directed
and controlled to the benefit of all stakeholders

Principles/fundamental values of corporate governance in terms of corporate

citizenship
 Transparency – mostly financial transparency. Inform stakeholders about
the financial state of business, provide assurance of a profitable business and
effective risk management framework.
 Accountability – Overall involvement of top management. Ensure
organisation managed according to sound values and code of ethics.
 Responsibility – All employees are responsible for their individual actions
that contribute to the success of the organisation.
 Integrity and honesty (probity) – Essential values – Create a sense of trust
amongst all role players. Provide positive business environment for
employees and investors.
Purpose of a code of ethics
 The tool to help corporates ensure ethical behaviour and good conduct.
A code of business conduct and ethics must ensure that directors,
management and employees are committed to act in the best interests of all
the stakeholders of the organisation.
Their conduct must be internationally acceptable, and recognised as morally
correct and proper.

Six elements that should be included in a code of ethics

(i) Guidelines for fair business activities
(ii) Ensuring confidentiality
(iii) Compliance with laws and regulations
(iv) Eliminating procedures for conflicts of interest
(v) Guidelines for intellectual honesty, integrity, trust and respect
(vi) Value statements and standards for the organisation

King III Report

Ethical leadership and corporate citizenship
The board should
 Provide effective leadership based on ethical foundation
 Ensure the company is – and is seen as – a corporate citizen
 Ensure that the company’s ethics are managed effectively
Governance of Risk
The board should
 Be responsible for the governance of risk
 Determine the levels of risk tolerance
 Be assisted by the risk/audit committee in carrying out their
responsibilities
 Delegate to management responsibility to design implement and
monitor the risk management plan
 Ensure that risk assessments are performed on a continuous basis
 Ensure frameworks implemented to anticipate unpredictable risks
 Ensure management implement appropriate responses
 Ensure continuous risk monitoring by management
 Receive assurance of the effective risk management process
 Ensure processes are in place enabling risk disclosure to stakeholders
(timely, accurate, accessible)
Key Governance elements
Numerous frameworks/processes/systems to guide companies
 National level – King III
 Global – OECD Principles of corporate governance
Retained in a position of trust and are bound by responsibilities known as
fiduciary responsibilities
The following should ideally be in place –especially for publicly listed business

Unisa Study Guide 2018: Page 54

Divided in Executive & Non-Executive Component – one part watches the other.
Non-executive classified as independent or non-dependent.
Independent director: no existing or prior
business/employment/consultancy/relationship with company.
Cannot retire to become a board member of same company.
Ideal: board made up of majority of independent non-executive directors
Chairman of board is in charge of non-executive portion: they decide what
company should do and how it should be done.
First Role of Non-Executive
 Evaluate risks and opportunities
 Listen to stakeholders
 Formulate strategies
  Formulate policies
Hand over the strategies and policies to executive management – leadership of
CEO.
 Ensure implementation for strategies according to policies
Second role of Non-Executive
Confirm that executive is actually doing what they are supposed to do. Use
 Internal control elements
 Internal audit
 External audit

Role of board of directors in corporate governance

 Need commitment from top management – corporate citizenship committee
 Include corporate citizenship in director induction programmes
 Corp Cit must be embedded in core risk management and internal control
systems – not managed as a side issue
 Corporate citizenship programmes must be governed
 Risks and opportunities must be monitored
 Stakeholders need to be engaged with
 Policies and strategies need to be formulated and implemented
 Implementation needs to be monitored
Stakeholder engagement:
 business cannot be all things to all stakeholders.
 AND corporate citizenship does not end with stakeholder engagement.
 Business need to use common sense and judgement to the demands of
stakeholders
 This common sense should come from leadership and governance elements

Definition of risk appetite:

The amount of risk the organisation is prepared to accept and tolerate at any point
in time. A business’s risk tolerance is the capacity to absorb risk.
Risk management framework
Definition
Helps organisation to practically implement governance and it helps
determine how to identify, assess, measure, monitor and manage it risk
exposures. Assists in effective management of risks through the risk
management process.
Components Summary
of RM
Framework
Risk Establish RM culture in organisation. Typically consists of 2
management components
(RM) culture  Value adding activities
 Primary principles of managing risk
Management need to ensure proactive approach. Cost of risk
controls should not exceed actual value of controls.
Good risk management principles are:
 Common understanding of RM terminologies
 All business levels involved in RM
 Establish RM process
 Bottom-up risk reporting process, top down
communication process to provide management
feedback on reports received

Risk Sets overall tone and approach for risk exposure management
management Risk Strategy should include expression for risk appetite.
strategy Include Risk Strategy in overall business strategic planning
process.
Support management decisions – trade-off between risk and
return on investment.

Risk Organogram with positions responsible for RM

management Main role players:
structure  Board of directors & senior management (crucial role)
 Business manager / risk owners (actual management
of risks)
 Risk managers (employees closes to risk exposure)
 Internal audit (assurance that risk managed)
Ensure active management participation; make clear
distinction between roles and responsibilities.
 (Textbook page 141/142 for detailed responsibilities of each)

Risk Structured cycle of activities that provides management with

management assurance that all risks are managed.
process Step 1
Business analysis – understand nature of business
Step 2
Risk identification – prevent successful achievement of
objectives, ID overall risk types, contributing risk factors
Step 3
Risk evaluation – determine potential influence on business.
Quantify and qualify risks
Step 4
Risk mitigation and control – risk control measures
(i) Accept risk as part of daily business
(ii) Define control measure – related to cost
(iii) Transfer effect of risk to a 3rd party (buy insurance
policy)
(iv) Incorporate a procedure to avoid risk in totality
Step 5
Risk financing – determine the costs of the risk controls.
Cost of controls should not exceed the loss of the actual risk
should it occur. Determine insurance requirements.
Can serve as input to determine risk appetite of organisation.
Step 6
Continuous risk monitoring and reporting
Determine effectiveness of each activity in the process.
Ensure new risk identified and addressed timeously
Risk reporting is a crucial step. Objective: inform
management about risk experience, trigger actions, resource
allocations, effectiveness of process, external risk reporting
to stakeholders (regulatory and/or informative – investors)

Principles of risk governance

Based on King III, relevant principles can be linked to specific activities or
requirements
See table 6.2 textbook page 146-149

What has this to do/relate with corporate citizenship

 Organisations are in the best position to contribute to sustainable
development and economic growth if they are optimising their returns in the
best interests of the shareholders.

In order to play their role in working towards sustainable development for

national and global prosperity, the organisation needs to capture the set of
values, issues and processes which must be addressed in order to minimise
the harm (consider the economic, social and environmental elements) which
could result from their activities.
Effective corporate governance would then be a process used to achieve
sustainable successes for the community, economy and the environment. A
company will then be in a positive position to contribute to an organisation’s
corporate citizenship responsibilities.
Refer page 150 Textbook Table 6.3
Benefits of sound corporate governance to the organisation and the
community

Corporate principles for a government – why and how?

Triple bottom line responsibilities start at the highest governance level of the
country, namely government.
For government, sound economic governance is dependent on the strength of the
institutional framework, flexibility, resilience to changes in economic, political and
social development, AND the ability and competence of personnel to make rational
decisions.
Government need to ensure good corporate governance by:
 Appoint capable staff in management positions
 Formulate/implement/enforce sound policies and regulations
 Be monitored and be held accountable
 Ensure/Respect rules and norms of economic interaction
 Be unimpeded by corruption and other activities inconsistent with public
trust.
Worldwide Governance Indicators to capture six key dimensions of governance:
1. Voice and accountability
Freedom of speech, citizens participate in selecting government
2. Political stability
Likelihood for terrorism or politically motivated violence, that might
destabilise government
3. Government effectiveness
Quality of public services and policy formulation
Credibility of government commitment to these policies
4. Regulatory quality
Formulate and implement policies that promote private sector development
5. Rule of law
Confidence in rules of society
Quality of contract enforcement, property rights
Confidence in police and courts
6. Control of corruption
Extent to which public power is used for private gain and corruption

Learning Unit 7 Strategic management and competitive advantage

Strategic management process
Refers to the overall management process that strives to identify the corporate’s
purpose and to position a corporate to succeed in its environment.
Strategic management process consists of a series of management decisions
About the corporate’s strategic planning and development, its implementation and
its performance and control.
1. Strategy planning and control
Corporate vision, mission and value statements
Analysis of internal and external environment
Develop business models
Select corporate and business level strategies
2. Strategy implementation
Decisions and strategies required to make chosen strategies a reality
Integration and application of drivers to ensure success of strategies
3. Strategy performance and control
Monitor, evaluate, track

Competitive advantage
When corporation is more profitable than its competitors by creating
products or services that are of a higher quality, lower cost or better value
than its competitors.
Sustained competitive advantage
When a corporate achieves “above average” performance in an industry for
at least 10 years or more.
Corporate citizenship (LU 1 & 2)
Concept through which business activity of corporates has the potential to
influence the administration of citizenship rights. It calls for corporates to
support government in addressing citizen rights through their business
activities.
CZ means that corporates need to do more than just focus on their own
financial performance but also focus on the sustainability of their business,
the environment, the economy and the society at large.
Sustainability
It is the business of staying in business, connected to the organisations
capacity to endure and perform over the long term.
Calls for the simultaneous pursuit of economic prosperity (profit),
environmental quality (planet) and social equity (people).
Sustainable corporate (Differentiate between the goal of a sustainable
corporate and the goal of a traditional corporate)
 Characterised by its strongly internalised ideology of working for a
sustainable world.
 Embed sustainability vs corporates seeing sustainability as an add-on
function or lay-out of additional costs or charitable deeds.
 Accepts that sustainability, strategy, risk and performance are inseparable.
Realised that a corporate sustainability is enhanced by creating value in a
sustainable way.
 Actively promote sustainability, implement financially viable business
models, that produce growth and performance.
 Choose strategies that solve some of the complex social and environmental
problems.
 Has a stakeholder focus instead off a narrow shareholder focus, engages
with a broader group of stakeholders (environmental & community groups)
vs just considering shareholders and stakeholders associated with financial
performance.

Explain how to embed sustainability into strategy formulation

It is a deliberate and continuous process by corporate managers,
involves a series of decisions focused on making sustainability part of the
strategic management process.
 Unisa Study Guide 2018 page 61
1. Strategic direction
 How corporation defines itself, where it finds competitive advantage.
 Include vision, mission, overall goals, values
 Shape strategic position
2. Strategic analysis
 Strategies are developed based on environment it operates in.
 Investigate internally for strengths and weaknesses
 Investigate externally for opportunities and threats
 Define position relative to competition and operational environments
2.1 Analyse internal environment
Resources and capabilities inside the corporation.
Resources = tangible and intangible assets, can be used to achieve
objectives
Capabilities = combinations of people, resources, processes used to
develop products/services to achieve corporate goals.
2.2 Analyse external environment
Refers to global, country, industry factors.
Might affect ability of corporate to attain goals, threat of new entrants
Political, economic, socio-cultural, technological, legal, ecological,
global, demographic, social
3. Strategic choice
Choose a strategy that will create/sustain their competitive advantage.
NB that sustainability is part of this process.

2 Levels of strategies to choose from: Business & Corporate

3.1 Business level strategies

How to compete successfully within existing market conditions
When embedded with sustainability, it aims to support the business
model.
The goal should always be to address financial, social and
environmental sustainability at the same time.
3 generic strategies to choose from:
 Cost leadership
Built on low input costs where savings are transferred to large
price sensitive market
Sustainability: use fewer materials, less energy, less waste,
support local
Attributes to lower environmental impact, higher competitive
advantage
 Differentiation
Unique and valued offerings such as quality and convenience
Smaller target markets, willing to pay more for the offering
Sustainability: address social needs, address environmental
issues e.g. use organic material
Product, brand uniqueness, process leads to competitive
advantage
 Focus
Specific niche in the market
Offer lower price or better value for money
Corporate citizenship view: opportunity to address a group of
stakeholders whose needs have not been adequately met by
business

3.2 Corporate level strategies

Grow/Defend the business, outperform rivals, achieve objectives
 Support corporates to determine in which industries to operate in,
build synergy amongst business units.
Decision makers need to make realistic decisions to ensure financial,
social, environmental sustainability in the medium and long term.
Various options available:
 Internal Growth
Focus to grow business from within
 External Growth
Backward integration – amalgamate with suppliers
Forward integration – amalgamate with customers
Horizontal integration – amalgamate with competitors
 Decline/defensive
To stay in business or manage their exit
Turnaround: include cost cutting and job losses, downsizing,
reduce non-core assets, absence of profit
Various reasons: recessions, inefficiency, poor governance, low
productivity.
 Combination

Explain how to embed sustainability into strategy implementation

Business activities influence administration of citizen rights. Leaders need to
ensure that a corporate commitment to sustainability is delivered upon through
implementation/ management.
Strategy implementation drivers:
 Leadership – sustainable leadership refers to behaviours, practices, systems
that create enduring value for all corporate stakeholders incl investors,
environment, other species, future generations, and community. Aim to attain
excellent outcomes in a responsible way and embrace the idea of the corp
operating sustainably.
 Culture
System of norms, values, beliefs, that bind members together.
Right behaviour needs to be followed with rewards. Leaders influence the
culture by demonstrating the right behaviour – create entrenched sustainable
culture.
 Structure
How positions, business units and individuals are arranged to deliver on their
tasks. Add a sustainability department to corp structure
  Reward systems
Can be financial/non-financial, while serving to create loyalty and
commitment in employees. Rewards guide behaviour. Leaders need to
ensure that rewards are aligned with desired behaviour and performance
expectation levels – especially when corporate desire sustainable behaviour
from employees.
 Policies and Procedures
Guide members in activities and behaviour. Sustainable corporates need to
revisit their policies to ensure that they correspond with their strategic
direction. For example, ensure all suppliers adheres to environmentally
friendly practices, they are required to fill in a questionnaire that are rated on
an ESG rating system. (Env, Social, Governance)
 Training and Education
Knowledge, skills and abilities by employees or managers form competencies
that ar fundamental drivers of strategy implementation.
Create Sustainability focused training programmes for all employees
Shortage of knowledge, skills and abilities: develop unique competencies
internally amongst employees
 Stakeholders
Groups/individuals who can affect or are affected by the achievement of the
corporate’s objectives – shareholders, government, employees, environment,
community. NB to include stakeholders in strategic management process.
Commitment to sustainability means responsibility for a broader group of
stakeholders.
 Technology
Application of science to improve corporate’s operation capability.
Green technology is the use of technology to mitigate or reverse the effects of
human activity on the environment.
Green technology and renewable energy should form should form an integral
part of the implementation processes.

Explain how to embed sustainability into strategy controls to ensure

implementation of a sustainable strategy
 Performance Management and Control is the final phase of the management
process.
 Critical evaluation of activities and results.
  Provide corporate leaders with information to make decisions about corporate
future and adjust strategies.
 Corporate evaluations assist managers to monitor performance and detect
deviations from standards and goals set.
 Ask 5 questions:
o How well planned strategy implemented?
o Any critical environment or industry constraint that could affect
implementation?
o Any unexpected events occurred that might render strategy impossible?
o Changes/Trends in environment that present opportunities or threats?
o What contingency plans and strategies can we put in place to respond to
current conditions and constraints affecting strategy implementation?
 Need to review risk management and reporting procedures as well.
Risk Management: understand, manage, communicate, prevent unfavourable
conditions. RM processes should be integrated with sustainability goals.
Corporate reporting: especially sustainability and integrated reporting
supports corporate to ensure that its corporate strategy is implemented in a
sustainable case.
Stakeholders and listing institutions require triple bottom-line reporting and
the inclusion of non-financial criteria in reports.
Assist corporate to convey to public their commitment to sustainability,
adherence to King III, and progress against sustainability standards and
metrics.
Purpose of corporate reporting is to evaluate the long-term sustainability of
the corporate and is considered a valuable strategy control.

Greenwashing
Greenwashing (a compound word modelled on "whitewash"), also called
"green sheen", is a form of spin in which green marketing is deceptively
used to promote the perception that an organization's products, aims or
policies are environmentally friendly.
 LU 8 Stakeholder Engagement

Define Stakeholder engagement

Process of involving individuals and groups that either affect or are affected by the
activities of the corporate. Most effective when it includes both internal and
external stakeholders. Will provide benefits for a wider range of stakeholders.

Background:
1984 R Edward Freeman wrote a book titled: Strategic Management: A
stakeholder approach. It introduced a stakeholder map that takes into account all
groups and individuals that can affect or be affected by the corporates purpose. He
defined stakeholders as “those groups without whose support the organisation will
cease to exist”
Donaldson and Preston: Stakeholder theories have multiple distinct aspects that are
mutually supportive and can be categorised in various approaches: descriptive,
instrumental, normative

Different stakeholder theories:

 Descriptive: describe characteristics of the corporation, management &
stakeholders
 Instrumental: Identify relationships between management of stakeholder
groups, goals
 Normative: core of stakeholder theory developed by Donaldson and Preston.
Examines the function of corporation, moral guidelines for corporation,
management of corporation
 Convergent theory: Seeks balance between normative and instrumental
approaches – neither of the two is complete without the other
Stakeholder engagement process
4 steps
 Stakeholder identification
 Stakeholder prioritisation
 Stakeholder engagement
 Stakeholder relationship management

Why is it important for corporates to engage with their stakeholders?

 There should be interdependency between social responsibility and the
profitability of the corporate. To reach such an ideal position, corporates
need to involve their stakeholders in the manner in which they operate their
business.

Explain who the stakeholders of an organisation are

Narrow view: refers to a group of individuals who are included within the
boundaries of the corporate. Relevance to core economic interest of
organisation. Stakeholders directly linked. Focus on ‘where’ the organisation
does business. Includes employees, suppliers, customers, financial
institutions.
Broader view: include also those on the outside, community, local and
national government.

Stakeholder identification
Stakeholders change often (dynamic), the identification process should take place
continuously.
Benefits of Stakeholder identification
 Determine who and what really counts in organisation
 Assisting in the analysis of the corporate’s external environment
 Provide feedback on how Standard Operating Procedures affect stakeholders
within the corporation – day-to-day business
 Provide feedback on how Standard Operating Procedures affect stakeholders
outside the corporation – influence cost of production and price
Explain approaches to stakeholder identification
Salient = degree to which managers give priority to competing stakeholder claims
(Approach developed by Mitchell, Agle and Wood)
1st identify stakeholders
2nd prioritise those identified
Based on 3 variables: Power, Legitimacy, Urgency
Power: Extent to which a party has/can gain access to physical, material, esteem or
social means to impose its will. Corporates can have power over stakeholders and
vice versa.
Legitimacy: Only entities with a legitimate claim or stake in the corporate should
be considered a stakeholder. All possible stakeholders should not be considered by
managers.
Urgency: the degree to which stakeholder claims call for immediate action. Time
sensitivity, criticality of relationship, importance of legitimate claim

Discuss the different classes of stakeholders and how they can prioritised
The more attributes a stakeholder possesses, the higher it will be prioritised.
Salience approach leads to 7 different classes of stakeholders, grouped into 3
groups
Group 1 – High salience
Definitive - Highest priority.
stakeholders possess power, legitimacy and urgency
Example: Board of directors with an urgent issue
Group 2 – Expectant (moderate salience)
Dominant - stakeholders possess power and legitimacy
Example: HR Department during wage negotiations
Dangerous - stakeholders possess power and urgency but no legitimacy
Might be violent and coercive
Group can be identified but does not have to be recognised
Example: activists that use unlawful tactics
Dependent - stakeholders possess legitimacy and urgency but no power
Are dependent on others to carry out their will
Example: During the BP oil spill the animals that suffered were
dependent stakeholders. They need animal right activists to Act on
their behalf
Group 3 – Latent (lowest salience)
Dormant - stakeholders possess power, but no legitimacy and urgency
 Example: Temporary staff who demand to be permanently employed
and make use of protest actions and strike
Discretionary – possess only legitimacy. Most likely recipients of corporate
philanthropy. Corporate are not forced to engage but choose to do so.
Example: beneficiaries of charity
Demanding – urgent claims, but no power and or legitimacy
Example: Serial complainers or people with unjustified complaints

Explain why stakeholder engagement is important to corporates

 Strengthen the relationship – understand interests and expectations
 Builds trust
 It is an indicator of the quality of management and long-term financial
performance

Discuss how to engage stakeholders

Effective engagement: managers and stakeholders influence one another positively
in various ways.
Categorise communication along “ladder” of stakeholder engagement with
different levels of engagement
Low Levels = inform or explain something to stakeholders
High Levels = active attempts to involve stakeholders in decision making.
6 levels of engagement; derived from 8 levels of corporate citizenship
Which level to engage? Depending on purpose and circumstances of engagement.
Higher impact, higher level of engagement
Example: Inform/Communicate = Level 2 (consultation). Projects that affect
environment/community = Level 5 (Delegated power)
Table 8.3 Textbook page 205
Different tools can be used:
Different approaches can be followed, the form of interaction is important as
it is used to capture information about the interests and expectations of
stakeholders.
More interaction leads to a better understanding which leads to being able to
address concerns and interests.
Will also alert managers of potential problems and areas of disagreements.
Identify it early on ensure better relationship.

External oriented stakeholder engagement tools:

Surveys, focus groups, consultative panels to bring stakeholder expectations
to the foreground.
Dialogue – written and spoken, community support programmes, measures
to strengthen capability of suppliers, providing reports of organisations’
sustainability and social responsibility initiatives
Internal orientated stakeholder engagement tools:
Invest in employee health and development
Consult stakeholders in making changes in organisations’ operations
Create a learning organisation  transform into knowledge  insight
Collaborate, partnership, alignment (corp an internal stakeholders)
Expound on the goals and principles of stakeholder relationship management
Will hold both tangible and intangible long term rewards for corporation.
New products/stronger supply chain/more diverse workforce  more
competitive advantage for organisation.
Change from seeing stakeholders as risks to stakeholders as opportunities
Highest goal: To Engage with stakeholders on a transactional level =
relationship level. Most developed level and characterised by
communication, interactiveness, and resource adequacy (mgt spending
resources on stakeholder transactions).
To get to this level, management must first go through 2 other levels:
Introductory / rational level – ID stakeholder and prioritise, determine nature
of power
Process/ Second level - develops processes, policies and procedures that will
assist corporation to scan the environment and gather information about its
stakeholders.

Discuss relationship management principles as proposed by the King III

report
1. Appreciate stakeholder perception of the organisation reputation. Manage
gap, regular board item.
2. Management should deal proactively with stakeholder relationships.
Strategy, policies, processes.
3. Appropriate balance between various stakeholders and their interests and
expectations. Take into account during decision making.
4. Treat all shareholders equally. (individuals, institutions, other entities)
5. Transparent and effective communication is essential. Complete, timely,
relevant, honest, accessible, understandable, clear
6. Resolve disputes effectively, efficiently and as quickly as possible. Adopt
formal dispute resolution processes – internal & external.

Discuss the drivers required to manage the relationships with stakeholders

It is intangible assets that form part of the shared value and social capital of a
business

Explain the concept of shared value

Create economic value for the corporate (profit), that also creates value for the
society by addressing its needs and challenges. It is the sharing of value already
created by corporates.
It is NOT social responsibility/philanthropy/ sustainability. New way to achieve
economic success.
Corporate competitiveness and community health are interdependent.
 Corporate needs a successful community to create a demand for its
products/services
 The community needs a successful corporation to provide employment and
opportunities.
About redistribution rather than expanding the overall amount of value created.
Improving value in one area will create opportunities in another.
Create shared value through circle of shared value in 3 areas:
 Reconceive products and markets through innovation
 Redefine productivity in the value chain
 Build supportive industry clusters at the company locations

Discuss the value and benefits of social capital

Definition: ability to secure or obtain resources, knowledge and information
through relationships with and between individuals, communities, and stakeholder
groups.
It is all about the network and ties between the stakeholders. It can be internal or
external.
Internal: emphasise norms & values & culture to employees. Develop social
cohesiveness
External: decide where to source knowledge, information, resources; relationships
with suppliers, community, government officials
Can use both.

3 dimensions of social capital:

 Social networks – the number and strength of ties & position in network.
Characteristics & relations of individuals
 Trust and reciprocity – the quality of relationships. Interpersonal and
generalised trust, trust in corporation and formal institutions (government).
Reciprocity indicate willingness to share resources in the expectation
that the recipient would provide such help in similar circumstances.
  Shared norms and values – this will enhance communication and collective
action

Benefits and value of social capital:

 More effective information & knowledge sharing
 Enhance efficiency and reliability in the operations
 Employees supporting innovation (same norms and values)
 Leads to committed and loyal employees, leading to improved employee
retention
 Strong relationship of employees and external stakeholders (local
communities and customers) will lead to cost reductions & competitive
advantage)
 Increased reputation among customers and communities / prospective
employees
 Provide opportunities to explore benefits of relationships e.g. suppliers
 Communities can identify benefits derived from the trust relationship
 Corporation can address the social needs of the community, create positive
changes

Types of social capital

 Individual
 Organisational
 Collective
 Community based

Systematic approach to social capital

 Employers must have knowledge of their employees
 Need to determine the type of social capital
 Build trusting relationships with them
 The relationships must be maintained – with employees and 3rd parties

Discuss stakeholders as part of a network

 Corporation’s stakeholder community is a network
 Individuals that each has their own individual and structural ties
 Relationship is dynamic – needs to be reviewed regularly and continuously
 Two aspects of stakeholder community:
 Network diversity and Network consistency
Differentiate between network diversity and network consistency
Network diversity – variety of stakeholders
Network consistency – uniformity of social performance across multiple
stakeholder groups & influences of corporates reputation

Identify internal and external stakeholders of corporates &

Explain the influences of internal and external stakeholders on an
organisation
 Internal:
o employees – expect a steady income, regular salary increase
o include employees in sustainability efforts
o key to successful business: empowered and motivated employees
o SA legislation that applies to employees as internal stakeholders
 Basic conditions of employment Act
 Compensation for occupational injuries and diseases Act
 Employment equity Act
 Labour relations Act
 Occupational health and safety Act
 Skills development Act
 Unemployment insurance Act

 External:
o community – expect corporate to act more sustainable to their natural
environment
o natural environment – vital for human survival, should be preserved
for future generations
o Business, government and public (study guide page 72)
Discuss the consequences of a lack of adequate stakeholder engagement
 Significant and costly disruptions in projects
 Difficulty making decisions – stakeholders do not understand each other
 Alienation – stakeholders feel excluded or concerns not heard
 Distrust
 No channels of communication
 No established relationships
 Damaged corporate reputation
 Lost productivity
 High staff turnover and frustration

What are the challenges and implications when corporates engage with
stakeholders?
 Not identifying the correct stakeholders
 Choosing incorrect engagement tools
 Information that is not transparent
 Not recognising that engagement requires internal support
 Reaching out to stakeholders that avoid engagement – continue to try
 May want to end formal relationship, try to maintain informal/dormant
relationship
 Planning for violations of confidence and trust
Address these issues:
 Acknowledge imperfections
 Apologise for miscommunication
 Acknowledge positive impact of stakeholder engagement
Chapter 9: Management Of Business Ethics

Ethics: a set of moral principles, norms or standards that govern human behaviour.
Business ethics: a guideline for human excellence or human quality in the
business environment.
Ethical issue: a situation, opportunity, or problem that requires of the decision
maker to choose between several actions that must be evaluated as ethical (right) or
unethical (wrong). Examples of ethical issues in the work place are lying, conflict
of interests, environmental issues, sexual harassment, fraud and privacy issues.
Ethical dilemma: a situation, opportunity or problem that requires the dicision
maker to choose among several unethical options. Ethical dilemmas are seen as
“grey area” – with no right answer or ethical conclusion to a specific problem.
Corporations manage ethics through policies, cods of conduct and ethical training.

Levels of ethical issues and dilemmas:

Individual level
 Ethical challenges experienced by people in their personal lives when they
face issues involving individual responsibility outside the context of their
employment.
 Examples: cheating on personal tax returns, calling in sick when you are
needed at home and accepting a bribe.
Organisational level
 Ethical challenges experienced by individuals inside the context of their
employment.
 Carries consequences for the organisation.
 Individuals dealing with such issues should consult the organisations
policies, procedures and code of ethics to clarify the organisations stand on
these issues.
 Examples: overstating overtime by a staff member, a manager setting high
organisational goals, knowing employees might cut corners to achieve them,
and an organisation who requires an employee to overlook the unethical
behaviour of a colleague whose action has benefitted the organisation.
Industry or professional level
 Ethical challenges experienced within an industry or profession.
  Examples: banks that grant loans to customers who do not meet the bank’s
credit requirements; or telemarketers calling people late in the afternoon
(after 17:00).
Societal or international level:
 Ethical challenges experienced in the global environment – in doing
business globally.
 These ethical challenges are the same as the ethical challenges experienced
in domestic environments, encompassing all aspects of product safety, plant
safety, advertising practised, human resource management, human rights and
environmental issues.
 Examples: outsourcing to countries and companies that have unacceptable or
unfair working conditions.

Arguments against business ethics:

Ethics is personal
 Critics are of the opinion that ethics is based on personal or religious beliefs.
 An individual therefore decides what is ethical or not in the privacy of his or
her own conscience.
 However, it is also true that ethical choices are influenced by discussions,
conversations and debates in the workplace.
 In addition, the corporate culture and ethical conduct also governs
employee’s actions and conduct within the work place.
Business and ethics do not mix
 Critics state that business, or management, is based on scientific principles
and not on ethical or religious principles.
 However, with the incidents such as unsafe products, corporate corruption,
toxic waste and improper use of public funds, this view has eroded over the
last two decades.
Business ethics is relative
 This argument is based on the perspective that ethics and morality differ
from society to society.
 The question is thus, what is ‘right’ and according to ‘whom’ and ‘why’.
 Also, how could interactions, transactions and negotiations between
individuals and groups on ethical dilemmas be completed if this ‘relativism’
 is to be carried to its logical extreme? How would one then resolve an
ethical issue?
 The relative business ethics perspective is particularly not possible in
international business.
 No one could argue or disagree with anyone about moral issues, as each
person’s values would be true to themselves.
Good business means good ethics
 This argument states that if top managers and companies maintain good
corporate images, practise fair dealing with customers and employees and
earn ‘legitimate’ profits (not in illegal ways), then they are inherently
ethical.
 Hence, there is no need for these companies to focus on ethics in the work
place.
 However, no correlation exists between ‘good business’ and ‘material
success’.
Information is neutral and amoral
 This argument views information as amoral (it is neither moral nor immoral,
but neutral).
 Information has both a good and a bad side.
 While information empowers and enlightens, it can also be used as a ‘form
of control’, for power and manipulation (for example, falsehood, inaccuracy,
lying, deception, disinformation and misleading information).
 Business ethics is needed to ensure that truth and accuracy concerning
information is maintained.

Drivers of business ethics

Consumers’ purchasing decisions are influenced by the ethics of organisations.
Some consumers will not purchase a product from a company, where there are
concerns about the way the products were made. This is the same for investors.
Certain investors actively seek out companies who are engaged in corporate social
responsibility to invest in. Organisations who are involved with unethical practices
(such as child labour) could face public boycotts; hence public acceptance also
remains important. For these reasons, the following drivers for business ethics
exist:
  Protecting organisational reputations
 Maintaining customer trust
 Maintaining public acceptance
 Maintaining investor confidence
Considering that shareholders (customers, employees, society) desire ethical
behaviour from organisations, another driver is that:
 ‘it is the right thing to do’
 It has an impact by protecting:
 Brand
 Reputation
 Customer trust
 Investor confidence
 Minimising the possible costs associated with unethical behaviour such as:
 Lawsuits
 Theft (employees stealing money, products or time from the employer),
loss of productivity (staggering or idle workers) and absenteeism in the
event of hiring untrustworthy employees.
 Monitoring employees in whom trust needs to be restored (additional
costs due to increased supervision and time spent in monitoring emails
and time spent on a computer/internet).
 An organisation’s damaged or destroyed reputation
 Recruitment and turnover (in the event of dismissing unethical
employees and hiring new employees).

Benefits of business ethics

 Competitive advantage associated with being ethical because an organisation
will be able to attract and retain high-quality employees, customers,
suppliers and investors.
 Attracting high-quality employees, customers, suppliers and investors, will
lead to the following benefits:
 Greater and more trustworthy information available for decision making
 Higher levels of employee productivity
 Higher quality of products and services
 Less employee theft
  Less need for employee supervision
 Increased flexibility from stakeholders in times of emergency.

Regulation and business ethics

 Statutory regulatory bodies are established by the government, and on the
basis of a legal mandate. They exercise regulatory functions encompassing
drafting and imposing requirements, restrictions and conditions of conduct
within an industry, setting standards in relation to any business activity, and
ensuring compliance and enforcement.
 Self-regulatory bodies are often established in non-regulated industries or
professions.
 Regulations, just like legislation is still not sufficient to prevent unethical
conduct.
(please check table on page 232 in the textbook for examples of the above)
Managing business ethics
Formal management of business ethics includes initiatives such as having code of
ethics, ethical officers and policies relating to ethical conduct.
Components of formal management of business ethics:
1. Mission and value statement
2. Code of ethics/conduct
3. Ethical training
4. Reporting, advise and communication channels
5. Risk analysis and management
6. Ethical officers and/or committees
7. Ethical consultants
8. Auditing, accounting and reporting
9. Other
Mission and value statement
 Many large organisations have a mission and vision statement
 It gives an indication of where the company is heading, the goals they
want to achieve, and what they stand for in terms of values (such as
integrity or transparency)
 The company’s values inform and underpin the way that it does business
  These statements include the general statements of the organisational
aims, beliefs and values, as well as the social goals and commitments to
conducting business ethically

Code of ethics/conduct
 This includes the type of conduct desired and expected from employees
 Ir is a document that develops an organisation’s core values, and forms
an ethical point of view within certain organisations, professions or
industry.
 There are three types of codes of ethics, namely:
1. Organisational code of ethics
- Sets out the guiding principles of the organisation and a specific
to a single organisation.
- It encourages ethical behaviour within an individual
organisation, hence it is only relevant to a particular
organisation, and one cannot assume that the codes of ethics
will be the same from company to company.
- This document is also referred to as a code of conduct
2. Professional code of ethics
- Sets out the guiding principles for a specific group of
professionals
- The professionals with specific code of ethics in South Africa
are amongst others, medicine, law, engineering and
accountancy
Chapter 10

1. Define procurement and supply chain management;

Procurement, aka purchasing or supply chain management entails the management
of all activities relating to the purchasing of materials and services from the
organisation from an external source (suppliers). Procurement is used as a
synonym for purchasing and forms a part of supply chain management. It is aimed
at adding value, maintaining and increasing an organisation efficiency,
sustainability and customer service.

Supply chain management is used to refer to the management of materials

information and finances as they move in an integrated process from a supplier’s
network to a manufacturer to different wholesalers and/or retailers to the final
consumer. SCM entails the planning and management of all activities involved in
the sourcing and procurement, conversion, all logistics management activities
management and marketing. It also includes the coordination and collaboration
with channel partners, which can be suppliers, intermediaries, third-party service
providers and customers.

2. Briefly explain procurement and the extended supply chain as drivers for
improving corporate citizenship;
Procurement’s social responsibilities can be defined as meeting the discretionary
responsibilities expected by society. This includes activities relating to (i) the
community; (ii) affirmative action; (iii) the environment; (iv) ethics; (v) financial 

i) As far as possible buy from local suppliers, donate to local development

campaigns and philanthropic organisations and seek opportunities for community
development and poverty alleviation

ii) Affirmative action means including and focusing on previously disadvantages

groups. In the spirit of reconstruction and development and setting right
inequalities, previously disadvantaged suppliers who show potential should be
given the opportunity to enter the market or give preference to suppliers who are
BBBEEE certified.
iii) Environment: Procurement should take a life-cycle approach when considering
the impact of the procured material and products on the environment. This means
looking at the impact of the use of the products, packaging, waste reduction,
recycling or reuse opportunities, in co-operation with suppliers. This aspect will
also receive more attention later. 

iv) Ethics: Ethics in procurement is based on ethical business princliples. It is seen

as an extension of trade practises and rules recognised by the business sector as
important for solid and

v) Financial responsibility: Procurement staff must have a sound knowledge of

financial issues and follow applicable financial standards and requirements, apply
sound financial practices and ensure transparency in financial dealings. They must
actively promote and practise responsible financial behaviour throughout the
supply chain, particularly to the supply side. 

vi) Human rights: Procurement staff and managers should treat other people,
including colleagues, superiors, subordinates, suppliers and potential suppliers
fairly, and with dignity and respect. Procurement should visit suppliers’ plants to
make sure that the working conditions of employees are of an acceptable standard,
they are treated fairly, and that no children or slave labour is used. 

vii) Safety: Procurement should always take the safety of colleagues and customers
into consideration when purchasing materials, products and services. A particularly
important aspect is the procurement of quality materials, products and services.
Procurement must ensure that suppliers’ operations are conducted in a safe
manner, and that the materials are packed, transported and moved in the safest
possible manner to and in the organisation. 

3. Explain the creation of value through the supply chain management

approach;
The idea with supply chain management is that all the suppliers and customers
from the raw material stage through various cycles of conversation, to the use of
the product by the final customer, work closely together with mutual respect,
seeking the best value for all parties in the supply chain, particularly the
satisfaction of the final consumer. SCM is a term used to refer to the management
of materials, information and finances as they move in an integrated process from a
supplier network to a manufacturer to different wholesalers and/ or retailers, to the
final consumer. Procurement deals with the suppliers of an organisation, upstream
in a supply chain. The supplier-side of the supply chain is upstream and the
customers are downstream in the supply chain of an organisation. 

Supply chain management entails the planning and management of all activities
involved in sourcing and procurement, conversion (production or operations), all
logistics management activities and marketing. It also includes coordination and
collaboration with channel partners, which can be suppliers, intermediaries, third
party service providers and customers.

In the SCM approach, planning is done together (particularly on the quantities and
time of final products needed in the market); and a co-operative effort is made to
(i) cut costs over the supply chain; (ii) improve quality; (iii) assist other members
in the supply chain to reach the supply chain’s targets; (iv) improve the time it
takes from the raw materials sup~ plier to the final consumer; (v) share information
that may benefit or impact the supply chain; and (vi) work towards innovative
ideas (for example, product differentiation, such as low-calorie, low-alcohol beers
or new bottles), that may improve the competitiveness of the supply chain’s
offering to the final consumer. 

4. Explain the three areas of corporate responsibility for the procurement

function;
As part of a business or public organisation, procurement has
(i) an economic (financial) responsibility to shareholders or
taxpayers/citizens (for example, continuously purchase the best value
package);
(ii) (ii) to comply with legal obligations (for example, law of contract and
environmental laws and regulations); and
(iii) (iii) ethical responsibilities, which are those activities that are expected as
part of societal norms but are not codified in laws (for example, not
accepting gifts, fair treatment to all suppliers, not purchasing from
suppliers who use child labour or not having a tax clearance certificate).
5. Summarise the selection of the appropriate suppliers from a private
institution’s perspective;
The selection of the right suppliers is crucial with the procurement of strategic
items or services. The procurement team must ensure that the right supplier is
chosen because it must serve as a long-term strategic ‘partner’ in the supply chain. 

With the procurement of non-strategic nature items, for example, consumables

such as cleaning materials or refreshments, supplier selection is an ongoing
process. Existing suppliers have to be constantly reconsidered with each new
purchase, especially in view of changing circumstances and needs. The past
performance of an existing supplier obviously counts a great deal in the selection
process. This is the area where procurement in the private sector (businesses) and
public sector (government) differs.

The supplier selection process for large quantities, expensive and non standard
items is as follows:
Set specific and predetermined criteria
List possible suppliers
Determine short list
Conduct supplier quotations/negotiations
Choose supplier
Evaluate supplier performance continuously

6. Summarise the supplier selection approach used by public institutions;

See figure 10.2 On page 273

7. Highlight the important issues in ethical conduct in procurement and

supply chain management.
There are 3 rules to follow to ensure ethical conduct of the procurement function in
an organisation:
1. People involved in the procurement transaction must have the benefit of the
organisation in mind and not personal enrichment to the detriment of the
organisation. Ethical buyers do not accept gifts or services and deal firmly with
sales people who are trying to tempt them.
2. Buyers need to treat all suppliers ethically and fairly, without favouritism. They
need to be treated professionally and with respect.
3. Buyers need to keep to the code of ethics of the organisation and the purchasing
profession

Chapter eleven

1. Explain the five Rs of sustainable supply chains;

The 5 R’s of sustainable supply chain are: reduce, reuse, remanufacture,
recondition and recycling aspects in the supply chain
1. Reduce: fewer raw materials used for the same purpose. For example, thinner
plastic bottles, it also means the use of less or alternate methods.
2. Reuse: materials, products or equipment needs to be treated, cleaned or repaired
so that it can perform the same function or that it can be disassembled and the parts
be reused.
3. Remanufacture: a product or part goes back to the production process, it is
reworked and returns to the market “as good as new”
4. Recondition: used products are repaired or reworked and returned to the market
in working condition, but not “as good as new”
5. Recycling: the secondary use of materials such as glass bottles, cans and paper.

2. Discuss sustainable operations management by referring to the objectives

and practice thereof;
The objectives of sustainable operations management are:
 Minimise the use of resources (reduce) and find operation methods to
minimize the impact on the environment during the operation process.
 Assure the manufacturing of quality products to reduce returns or additional
processes
 Minimize scrap and waste
 Find innovative ways of responsibly disposing of by-products and waste.
These can be obtained through the application of a lean production process.

Lean production entails the identification and removal of non-value adding

activities through the whole supply chain in order to realise quicker customer
response, reduce inventories, better quality and improved human resources. It also
entails an integrated set of activities that are designed to obtain the same output
from half the resources used by older production methods. The management of
inventory is an important element of lean production.
3. Discuss sustainable logistics management by focusing on transport,
outsourcing and reverse logistics

Freight transport is estimated to contribute 8% of energy-related CO2 emissions

worldwide. The transport sector consumes 27% of South Africa’s total final
energy, 78% of its liquid fuels and 1.6% of its electricity. Investing in green
technologies and assets such as Euro 5 and Euro 6 vehicles, green distribution
centres and zero-emission vehicle refrigeration play an important part in the
reduction of environmental impact. For example, electricity consumption for
lighting purposes can be decreased by leveraging natural light in a warehouse.
Vehicle refrigeration is a further area that has potential to decrease carbon
footprint. Technology such as nitrogen-powered, zero-emission eco-fridge and
Euro 5 and Euro 6 fleets can make a big difference in the amount of carbon
emission. 

 Transport

One of the most important elements of logistics is transportation. The management

of transport is important because it ensures that the products or materials are
received on time at the place where they are required and in a usable condition.
Another reason for the significance of managing transport efficiently is the large
costs involved. Transport costs constitute a significant part of the purchasing costs
of enterprises. Transport costs often constitute 10% or more of the total cost of a
product. Furthermore, transportation is a key component of supply chain
management Transportation links the different parties or processes in supply
chains through the materials flow. It is therefore a key element to the coordinated
flows throughout the supply chain. Figure 11.1 is a simple representation of
transport in a simple supply chain. It is, however, much more complicated in
practice because to produce one consumer item involves a network of sup~ pliers
and customers. Due to the co-ordination required in transport, it is a specialised
and complicated activity. Therefore, it is often outsourced to organisations
specialising in transport/ logistics, called third-party logistics providers.
They often act on behalf of multiple suppliers and customers in the supply chain.
Successful supply chain management requires good transportation resources
because the transportation system becomes the warehouse, with
orders consolidated by the computer and carriers co-ordinated for deliveries. The
bottom line is that a good transportation system can enable a firm to achieve a
competitive advantage by helping to satisfy customer needs faster and at a lower
cost. Another reason why transportation is important is the environmental impact it
has with a high level of carbon emissions, particularly caused by air freight and
road transportation. 

Outsourcing of logistics: third-party logistics providers 

Logistics is a non-core function for manufacturers. In order to focus on the core

function (manufacturing), organisations outsource their logistics function to third
parties on a contractual basis. Sometimes own logistics activities are not well
managed because it is not regarded as a core activity of the organisation. There
may also be a lack of staff knowledge, commitment and low morale of own
personnel. In addition, own fleets are often not sufficient, undercapitalised, old
technology and not maintained. This may lead to unreliable deliveries, poor
customer service, increasing distribution costs due to poor management decisions,
a lack of vehicle utilisation, high carbon footprint and general waste. 

The emphasis on service excellence and reducing environmental impact is forcing

increased specialisation in the way the logistics system is operated. The example
above looked at the outsourcing of part of the logistics function of Orange River
Cellars (ORC) to Orange River Tankers (ORT). The cellars use the third-party
provider, ()RT, for transporting their wine in bulk to the bottline plants. ORT
specialises in bulk fluid transport and own state-of-~the-art vehicles in terms of
productivity, safety and carbon emission. 

Reverse logistics 

Reverse logistics means the reverse flow of materials, products, packaging, scrap
or equipment backwards in the supply chain to be reused, refurbished,
reconditioned or recycled. It also includes the removal of waste to landfill. Reverse
logistics management forces organisations to consider different options in terms of
the impact on the environment. The bottom line of reverse logistics is that
materials or items must be transported in the opposite direction from the customer
or any place in the supply chain back to the source of origin (manufacturing point)
or to another site of disposal. Reverse logistics includes the return of goods or
materials during any stage of the supply chain process to its source. This may
include return of unsold goods to the supplier, product returns and exchanges
because of damage, incorrect orders or deliveries, warranties and repairs. This also
includes product recalls and waste management. A reverse logistics process may
also start with the end user’s decision that the product has reached the end of its
life and the materials  need to be disposed of. These processes may include: 

 Asset recovery (use it for other purposes or sell it) 

 Recycling management (send broken down or as is to recycling plants to

recover raw materials for other uses) 

 Service parts planning (optimally and proactively managing parts for

maintenance service through a system) . Returns (sending the item back to
the supplier for replacement or credit) 

 Repair management (moving items to a place where it will be repaired for

reuse or resale). 

Chapter 12

Learning objectives

1. Describe corporate citizenship within the context of the human resource

(HR) function;
the responsibility of the HR function is to implement practices that support and
facilitate corporate citizenship. ‘In other words the responsibility of the HR
function is to implement practices that support and facilitate the ability of the
corporate to administer citizenship rights to its employees and other stakeholders.
Aspects that need emphasis are corporate leadership, that sets the example, as well
as culture, as this informs the alignment of policies, processes and performance to
the corporate’s citizenship values. Typical policies that need to be aligned to the
corporates’ citizenship values are, for example, the performance management
policy and the training and development policy to empower employees and to
ensure a motivated and satisfied workforce with a high morale. All of these should
be based on the notion of responsible, transparent and consistently applied
practices within the corporate. Most HR practices (including the policies, processes
and the way it is operationalised), often serve as a catalyst to create a corporate
culture that subscribes to corporate citizenship principles and ultimately 

2. Understand the impact of corporate citizenship on the traditional HR

functions of human resource planning, staffing (recruitment and selection),
development of human resources, utilisation of human resources, career
development, recognition and rewards, employee health and wellness,
occupational health and safety and employee relations;

3. Think critically about the HR value-added debate and how it relates to

corporate citizenship.
The value added debate is based on the premise that HR practices influence
performance and add value to the corperate performance. HR should effectively
measure and evaluate the contribution made by its practices with clear metrics and
management systems to determine the value f its human resources.

There is a term in management 'what gets measured gets managed' and it is a vital
aspect in the added-value debate. Human capital metrics, such as turnover, health
and safety, employee development and diversity, for example, are the traditional
HR metrics used to justify the HR department’s existence as well as the value it
adds to the corporate’s performance. The traditional metrics are often focused on
compliance (for example, race and gender representivity, organisational health and
safety targets and results, etc.), management information systems (for example,
voluntary employee turnover, number of promotions, absenteeism statistics, etc.).
Additional corporate citizenship related metrics should be added to the traditional
metrics to reveal the corporate’s commitment to corporate citizenship and the
degree to which it ‘walks its talk! Corporate citizenship metrics are more based on
the ‘how?’ while the traditional metrics are about the ’what?’ and ‘how many?’ 

Table 12.1 presents the typical traditional metrics and possible HR corporate
citizenship measures. 

In order to contribute to the added-value debate by HR departments, HR

functionaries will have to improve their analytical abilities to function on a much
higher conceptual level. The rationale for higher-order reporting and analytics are
not only to report on the hygiene and compliance issues, but importantly to engage
more scientifically and analytically to explain certain occurrences and phenomena,
and even, when the necessary information is available, to do predictions and
forecasting. The added-value debate in terms of HRS contribution to corporate
citizenship should therefore be in the form of direct results, such as economic
savings and indirect results, like increase in employee satisfaction, less employee
turnover, as measured by staff attitude surveys. These results will ultimately
indicate the contribution to the improved corporate performance. 
 LEARNING UNIT 13
CHAPTER 13
MARKETING MANAGEMENT
The unit will focus on the marketing management function as one of the functional
areas of management.
13.2 LINKING MARKETING PHILOSOPHIES AND CORPORATE
CITIZENSHIP
13.2.1. Marketing concept started long time ago with the production era
which moves to the sales era and then marketing era. During the marketing
era the marketers found out that they had to focus on satisfying the needs &
wants of their customers so as to develop a long term relationship with their
customers. The experience they got during the marketing phase made them
to follow an ethical code where all marketing activities should be performed.
It consists of four principles:
1. Profit orientation
It is the first principle of marketing concept which emphasises the long term
maximisation of profits. However companies could not only focused on
profit maximising without taking into consideration of their customers’
needs and rights.
2. Consumer orientation
According to consumer orientation philosophy, customer has to be viewed
as a King or Queen, and it must satisfy customer’s needs within the
boundaries of making profit. It also emphasises that the customers have to
be given accurate and adequate information about the business market
offerings. Among consumers, corporate citizenship can improve the
organisation’s relationships with customers, hopefully leading to an increase
in the intention to purchase and customer loyalty.
3. Social responsibility
In relation with the responsibility towards the consumer of its products, the
business has a responsibility towards the community where the marketing is
taking place. Social responsibility means that the corporate should make a
contribution to the community and the stakeholders with whom it does
business with. Corporate donates funds for community projects such as
schools, conservation programmes, welfare activities and so on.
4. Organisational integration
Organisational integration implies that all functional departments in the
corporate should be co -ordinated in a way that they must know that all their
 functions will definitely have an impact in an organisation, and they will
affect the image of the organisation if they are not market oriented.
13.2.2SOCIAL MARKETING
Social marketing is seen as a broader concept that the marketing concept.
They could also sell ideas, attitudes and behaviours to consumers. The aim
of this type of marketing is to influence social behaviours for the benefit of
the society and the target market and not solely for the benefit of the
marketer.
Social marketing can be defined as the use of marketing principles and
techniques to influence a target audience to voluntarily accept, reject,
modify, or abandon a behaviour for the benefit of individuals, groups,
or society as a whole.
13.3 CUSTOMERS’ WANTS AND NEEDS
13.3.1The conscious customer
Over the years consumers have become more aware of what they need and
want from companies and the products and services they sell. They are
demanding responsibly sourced and environmentally friendly products, and
prefer to buy products from companies that are committed to having a
positive social and environmental impact.
Consumers are also becoming aware of their rights as consumers and they
are demanding that these rights be adhered to. The generally accepted rights
are the right to safety (protection from dangerous products), the right to be
informed (adequate information should be available for consumers to make
informed product decisions and protection from false misleading
advertising), the right to choose (competing products and service offering
alternatives with regard to, among other things, price, quality) and the right
to be heard (consumers should be able to voice complaints and concerns
about products and services in order to have these issues handle efficiently).
13.3.2Consumer protection in South Africa
Internal audiences (Employees) are well-protected by labour laws. The
external audience (consumers) are, however often open to exploitation by
companies. Consumer protection laws and bodies are discussed below:
The Consumer Protection Act (CPA)
Consumer Protection Act 68 of 2008 came to effect on 1 April 2011. The
Act outlines the rights of South African consumers as follows:
 Be heard. They have a right to be heard on issues, policies, plans,
programmes and decisions which affect them.
 Be Safe. They must be protected against flaws or hidden dangers in
products and services.
 Redress. If an inferior product is sold they have a right to demand
replacement or refund.
 Be informed. They have a right to be given all the information they need
about a product or service.
 Choose. They have a right to a variety of products and goods that are
competitively priced.
 Be educated. Have the right to education that will empower them to make
informed choices.
 Safety Basic Needs. Have the right to basic goods and services for
survival, such as food, water, education and sanitation.
 A healthy environment. Have the right to a physical environment that will
enhance their quality of life.
The Consumer Protection Act (CPA) places restrictions on the way the
businesses can market products and services to consumers.
The Protection of Personal Information Act (POPI)
The purpose of the Protection of Personal Information Act 4 of 2013 is to
ensure that all South African institutions conduct themselves in a responsible
manner when collecting, processing, storing and sharing personal
information of consumers.
POPI Act present on the consumers or owners of the personal information,
certain rights of protection and the ability to exercise control over:
 When and how they choose to share their information.
 The type and extent of information they choose to share.
 Transparency and accountability on how the data will be used and
notification if / when the data is compromised.
 Providing them with access to their own information as well as the right
to have their data removed and or destroyed should they wish so.
 Who has the access to their information.
 How and where their information is stored.
 The integrity and continued accuracy of the information.
Consumer protection organisations
There are a number of consumer protection organisations in South Africa.
Below is a number of them but not limited to:
  The National Consumer Commission(warns consumers of scams or
unfair business practices)
 Provincial Consumer Affairs Offices are run at provincial level to
provide consumers with protection, information and advice.
 The National Consumer Forum is an umbrella body for consumer
organisations that is dedicated to the promotion and protection of
consumer rights.
 The South African Bureau of Standards (SABS) maintains quality of
products sold.
 The Advertising Standards Authority (ASA) has a code of conduct to
which all advertisements must adhere.
 The Broadcasting Complaints Commission is a commission where
consumers can complain about television or radio broadcasts that they
find offensive.
13.4 NGOs AND MARKETING
A non-governmental organisation (NGO) is a non-profit, voluntary citizen’s
group that is organised on a local, national or international level. They
campaign for health, education, economics, industry, energy, the
environment, human rights, justice and other social and government issues.
13.5 THE TRADITIONAL MARKETING INSTRUMENTS AND
CORPORATE CITIZENSHIP
13.5.1Product decisions, branding and packaging
A product can be seen as everything of a physical or mental nature that is
offered to a customer who is prepared to pay for it. The product is bought to
satisfy need or a want. A product usually has a brand name. The band name
usually distinguishes the product from competing products.
Packaging is another important part of the product. It can be defined as those
activities concerned with the design, manufacturing and filling of container
wrapper with the product, so that he product can be effectively protected,
stored, transported, identified and marketed.
Products can be deliberately made technically and or psychologically
obsolete on order to coerce the consumer to buy a new version of the
product, the process is called product obsolescence.
Another form of obsolescence is psychological obsolescence that refers to
the introduction of a new model or style of product that results in the
consumer rejecting the still functional older version of the product.
13.5.2Pricing and corporate citizenship
Price that is charged must cover the cost of manufacturing and the
distribution of the product. Cost price is the first step that must be
determined and the final price of the product cannot be lower than the cost
price. The organisation has to determine the Market price which is the price
the consumer is prepared to pay for the product. Then there is a Target price
which is the price the organisation wants to obtain, taking into consideration
the cost structure, the business capital needs, and the potential sales volumes
of the product. Then the final price which is the price at which the product is
offered to consumers.
There are also various adaptations which are called price strategies that are
available to adapt the price that the consumer will pay, namely:
Skimming price strategy
Market-penetration price strategy
A leader pricing strategy
Odd prices
Bait prices
13.5.3Distribution and Logistics (Where to sell)
Distribution and the total supply chain focuses on the transfer of raw
materials and eventually the final product so that it ends up in the possession
of the customer.
Market coverage refers to the manner in which the product is distributed
throughout the market. Market coverage has three types namely; intensive,
exclusive and selective market coverage.
Intensive occurs when as many suitable and available middlemen as possible
are used.
Selective refers to the selection of a limited number of intermediaries who
will distribute the product efficiently.
Exclusive happens when a manufacturer limits the number of middlemen
handling its products to only few intermediaries who obtain exclusive rights
to sell the product in a specific geographic area.
There is also logistical activity that makes a final product available to
consumers at a right time:
 Transportation by road, air, ship etc.
 Storage for example in warehouses or in underground bunkers
(containers) in case of fuel.
 Inventory holding
  Receipt and despatch
 Packaging
 Administration
 Stock ordering
The purpose of supply chain is to maintain satisfactory service level to
clients at the lowest possible cost.
Logistics inherently uses some form of energy that is carbon-negative o the
environment.
The three main components of the logistics decision are:
1. Selecting warehouses.
2. Selecting the most suitable mode of transport.
3. Selecting optimal inventory holding levels.
13.5.4 Marketing communication advertising and PR
Marketing communication is the process of informing, persuading,
and reminding the consumer about the availability of an
organisation’s product.
There are four elements that can be used in combination to
communicate with consumers:
1. Advertising: can be described as controlled and paid for non-
personal marketing communication activities about a good or
service aimed at a specific target market.
2. Personal selling: occurs where a sales person is in direct
personal contact with the consumer.
3. Sales promotion: it is outdoor advertising on billboards, posters,
bus stops and public-transport vehicles which reaches
consumers at a time when they are out of their homes and busy
with other activities
4. Public relations, publicity and sponsorship: can be seen as a
separate function of a marketing function. It has a wider range
of audiences that it targets. Its main aim is to build good
relations with different stakeholders of the organisation.
ETHICAL AND CAUSE-RELATED MARKETING
Ethical Marketing
Can be described as the process through which corporations develop customer
interest in their range of products and services, and as a result of that also develop
a relationship with all stakeholders of society in general and the environment in
which the corporation operates.
Cause-related marketing
Refers to specific type of marketing activities joining the combined efforts of a
profit-seeking business and a non-profit seeking organisation for mutual benefit of
both organisation .
 LEARNING UNIT 14

FINANCIAL MANAGEMENT
14.1 INTRODUCTION AND AIM OF THE LEARNING UNIT
Corporates need to realise healthy and acceptable profits in order to satisfy
their owners, investors, financiers, employees, government and other
stakeholders, and to ensure the long-term sustainability of the corporate.
14.2 THE FINANCIAL MANAGEMENT FUNCTION
14.2.1 Defining financial management: refers to the efficient and effective
management of money (funds) in such a manner as to accomplish the
objectives of the corporate. Corporates face three major financial
decisions:
 Which real assets and /or financial assets and/or projects should
we invest in?
 How should the corporate finance these real assets and/or
financial assets and/or projects?
 How should the profit of the corporate be distributed?
14.2.2The fundamental objectives of financial management: The financial
management objectives usually centre on the maximisation of some
variable. Profit maximisation is often regarded as an appropriate and
fundamental objective of financial management, since all stakeholders
are interested in the financial well- being of corporates. A corporation
that doesn’t realise an acceptable level of profitability will not be
sustainable, and over time, will not be able to meet its financial
obligations. However, profit maximisation is only part of the total
picture in terms of financial management. Why Correia et al provide
several reasons:
 Firstly it is possible for management to increase corporate’s
profit within a specific financial year by reducing costs such as
advertising and research and development, or a once-off
increase in earnings, such as once-off sale of valuable asset.
 Second, profit maximisation does not directly factor in the time
value of money.
 Third, accounting profits do not always reflect cash flows.
  Fourth, accounting profits do not include an adjustment for the
cost of equity financing (capital contributed by the owner’s
corporation).
 Finally accounting profits ignore the impact on risks on the
value of the corporation.
The following primary objective is adopted in this book- the maximisation of
the value of the corporate, and especially the claims that all stakeholders
have against the value of the corporate
Corporate value can only be maximised by responsible investment,
financing and profit distribution decisions made by the financial function.
14.2.3The ethics of maximising corporate value: There is absolutely nothing
wrong with the objective of maximising value. What may be wrong is
how value maximisation is achieved. Ethical standards are
fundamental in corporate finance and it makes sense over long term as
well. Financial managers should focus on the interests of all
stakeholders (including shareholders), but they should also act in a
responsible way. All kinds of managers, at all levels of management,
need to take decisions that entail the allocation of scarce resources in
the most effective and efficient way.
14.2.4The focus of financial management: Financial management faces
three basic decisions:
 The selection of assets and/or projects to invest in: requires that the
finance function find assets or projects that will maximise the
value of the corporation. Assets can be short term of long term.
Short term assets are referred to as current assets e.g. Cash on
hand, inventory and the debtors of the corporation. A long term
assets are often referred to as fixed assets and include, buildings,
machinery, land and so on.
 The financing of these investments: in these assets or projects the
requirement is the raising of the capital, either equity (capital
contributed by the owners of the corporation) or debt (capital
contributed by the non-owners of the corporation) to finance the
investment in assets (current and fixed assets) A general rule Is
that fixed assets should be financed by long term resources( such
as long-term loans, mortgages and equity)and that current assets
 should be financed by short term resources( overdraft bank
accounts, suppliers ‘credit, short-term loans and retained earnings).
 The distribution of corporate profits: Involves the distribution of
the net profit of the corporation. The net profit for a specific
financial period (usually a financial year) is calculated by sales
revenue, less cost of sales, operating expenses, interest paid and
taxes. Therefore the net profit is the amount available for
distribution as dividends to shareholders and retained earnings,
which can be re invested in the corporate
The effectiveness of the finance, investment and profit distribution
decisions, are measured by the increase or decrease in the value of the
corporation.
14.3 CORPORATE CITIZENSHIP AND THE FINANCE FUNCTION
14.3.1Responsible investment: can be interrogated from the view point of a
corporate that invests in assets and projects to ensure its long-term
growth and sustainability.
14.3.1.1 Responsible investment from the view point of the corporate
that invests in asset and projects (PRIs): define responsible investment
as an approach to investing in assets (real and financial), and/or
projects that aims to: incorporate environmental, social and
governance (ESG) factors into investment decisions; generate
sustainable, competitive long-term returns; improve the management
of risk; achieve a positive societal impact.
14.3.1.2 Responsible investment from the point of view of the
individual and institutional investor: Asset managers and asset owners
can implement ESG issues into the investment process in a number of
ways: Best-in-class: investing in companies that follow the ESG
performance standards; Negative screening investment strategy:
excluding companies that are involved in activities that are deemed
unacceptable or controversial; Positive screening investment strategy:
inclusion of a company or industry or project that is involved in
activities that promote and sustain communities, the environment and
governance; Impact investing strategy: investment in an industry that
is aimed at solving and /or environmental problems; Sustainable-
themed investing strategy: means the selection of assets specifically
relates the sustainability in single or multi-themed funds; Community
 investing strategy: refers to an investor explicitly seeking to invest in
projects or institutions that will serve poor and underserved
communities in order to provide capital, credit and training
opportunities that these communities would otherwise lack.
14.3.2 Responsible financing: How should a corporate finance its real
assets and/or financial assets and/or projects?
14.3.2.1 Responsible finance from a corporate viewpoint: There are 2
broad categories of finance that are available to corporates: equity –
related instruments and debt-related instruments. The primary source
of finance is that provided by the owners of the corporation, in other
words, equity. In the case of a company, equity is contributed by
means of ordinary shares, retained earnings, and preference shares.
Debt- related instruments are categorised as long-term and medium
term finance, although the exact line of separation between long and
medium term is not clear. Debt-related instruments are associated with
interest that needs to be paid to the financier and debt can be secured
or unsecured. Secured debt is secured over one or more assets of the
corporate. In case of unsecured debt the financier does not have
preferential claim over any assets of the corporate- therefore, it is a
greater risk than the secured debt.
The relationship between debt and equity financing of the corporate,
is known as the capital structure of the corporate.
There are certain features that need to be considered in terms of
responsible finance: return, risk and control.
Return: making use of debt financing, the corporate will need
to make interest payments as agreed upon with the financier,
irrespective of the financial performance of the corporate.
Risk: the risk I associated with debt financing is higher than
that of equity financing, since debt requires the payment of
interest, whereas a corporation is not required to pay dividends
in poor financial circumstances.
Control: Making use of debt and equity financing has various
control implications for corporations. For instance, raising
finance through equity dilutes the control of existing
shareholders.
 14.3.2.2 Responsible finance from a financier’s viewpoint: The term
responsible finance has different meanings for different people and different
situations.
Responsible finance can be define by the Responsible Finance Forum as a
guiding principle for how financial services should be delivered to meet the
challenge of promoting and advancing sustainable development.
In the financial market, three key stakeholder groups play crucial role in
terms of responsible finance:
1. The financial services industry: This industry plays a key role in
responsible finance through a variety of actions, such as compliance
with laws and regulations, adherence to industry codes of conduct,
standards, good practices and institutional commitment to
transparency and fairness in its operations.
2. Governments: governments play a key role in responsible finance
through policy and consumer protection regulation, and commitments
to increasing attention to financial literacy at the national level.
3. Consumers and corporations: play a key role through enhanced
consumer awareness and capability. Social media especially makes
consumers and corporates more aware of products and services
available in the financial services industry.
Advantages of responsible finance from a financier’s viewpoint:
 Responsible finance activities are important contributors to macro-
and micro- economic strategies of governments that are aimed at
growing inclusive business and business development.
 It is critical for the stability of financial markets.
 It is crucial for access to finance, financial inclusion and inclusive
business agendas.
 It contributes to economic development and poverty reduction.
The main instruments of responsible finance:
 Consumer protection regulation
 Financial institutions self-regulations
 Financial education.
14.3.3Responsible distribution of profits: A corporate that realised a profit during
a specific financial year, needs to decide which proportion of the profit will
be invested back to its activities, and which proportion will be distributed
amongst shareholders.
When paying out dividends the most important factor to consider in the
dividend decision is the value maximisation of the corporate.
Other factors are:
 Legal requirements
 Contractual obligations
 Information content of dividends
 The nature of shareholders
14.4 INTEGRATED REPORTING
Definition:
The concise communication about how an organisation’s strategy, governance,
performance and prospects, in the context of its external environment, lead to
the creation of value over the short, medium and long term.
The IF framework assists corporations to prepare an IR, and is principles-based.
The IR framework provides among other things eight content elements that would
typically be covered in an IR.
1. Corporates overview and external environment:
 What does the corporate do?
 What are the circumstances under which the corporates operate?
2. Governance:
 How does the governance structure support the corporates ability to
create value?
3. Business Model:
 What does the corporate’s existing business model look like?
4. Risk and opportunities:
 What are the specific risks and opportunities that affect the corporates
ability to create value?
 How does the corporate deal with these specific risks and
opportunities?
5. Strategy and resource allocation:
 Where is the corporate heading?
 How is the corporate planning to get there?
6. Performance:
 To what extent is the corporate achieving its strategic objectives?
 What are the outcomes I n terms of the transformation process from
resources to final products or services?
7. Outlook:
 What are the most likely challenges and uncertainties that the
corporate is encountering?
 What are the potential implications on the business model and future
performance?
8. Preparation and presentation:
 How does the corporate identify what is relevant information to
include the IR?
 How the relevant information is quantified or evaluated?