COMM1100 Business Decision Making

Decision-making: An overview
Instructors
Aleksandra (Sasha) Balyanova
Rob Nicholls
Jimi Kim
With Special Guest: Professor Wayne Bergmann

Coordinators
Andreas Ortmann and Udeshi Nugawela
To create a positive online class experience
• Please switch your microphone off so we can ensure a quality class experience.
• Please ask questions! We will use Slido to answer your questions.
• The lecture will be recorded, and the recording will be available in Moodle for you to review.
What you have learned so far
Last week you learnt about:
• The reasons why governments tax businesses and the
normative and instrumental factors that contribute to why
businesses decide to pay them.
• Economic effects of government intervention in markets,
with a focus on levy of a tax.
• In your individual independent learning this week
you learnt about:
• Stakeholder involvement in decisions
• Principle – Agent problem
COMM1100 Business Decision Making
Foundations of Business Decisions Decision Making Processes
Decisions Related to Stakeholders

1 2 3 4 5 6 7 8 9 10 11

10 11
Intro to Surplus
Decision
Stakeholders Employee Stakeholder
Business Decision measures and Legal rights of Competitor
making welfare and & Supplier Decisions
Making stakeholders Relations The role of Regarding Manages
Stakeholders Supply and Market power Customer Flexibility Relations
in decision Decisions government in
and Demand and imperfect Relations Week Decisions Complexity in
making business
CR competition Decisions Business Decision
Making
ASSESSMENTS

Quiz 1: Case study Quiz 2: Final

10% analysis: 20% 10% exam
50%

Participation: Participation: Participation: Participation: Participation: Participation: Participation: Participation:

10% (in total) 10% (in total) 10% (in total) 10% (in total) 10% (in total) 10% (in total) 10% (in total) 10% (in total)
Plan for today
1. Case study
2. Overview
3. Course wrap-up and exam information
Rainbow Diagram
Rainbow for for
Diagram Stakeholder Analysis
Stakeholder Analysis
Rainbow Diagram for Stakeholder Analysis

Community
Group

Natural
Environment
 Rainbow Diagram
Rainbow for for
Diagram Stakeholder Analysis
Stakeholder Analysis
Rainbow Diagram for Stakeholder Analysis

Principal-Agent Problem
Community
Group

Natural
Environment
Corporate Governance

Shareholders

Board

Hiring
Executives Compensation
Rules
Rainbow Diagram
Rainbow for for
Diagram Stakeholder Analysis
Stakeholder Analysis
Rainbow Diagram for Stakeholder Analysis
Examples of corporate irresponsibility
• Week 5: not providing patients with access to drugs
• Week 7: unfair wages
• Week 9: tax avoidance

• Pollution
• Modern Slavery
Juukan Gorge Case

Wayne Bergmann
UNSW Professor of Practice
Thank you!
What are your options as a stakeholder?
To get more power, get bigger -
or work together
Employees: Trade unions and labour associations
(e.g., international trade union federation)
Shareholders: institutional investors (e.g., super funds
and shareholder activists)

Suppliers: Supplier associations, industry networks

Customers: consumer groups (e.g., Choice), retailers

Community and environmental groups: ANTaR, Greenpeace

What are your options as an activist?
Option
Appeal to Rio Tinto executives/
managers
Appeal to Rio Tinto customers
Appeal to Rio Tinto shareholders/
institutional investors
Appeal to competitors
Appeal to government/ legislators
Bomb Headquarters
Considerations
How much discretion do they have?
What are the market and legal constraints?
How many other sellers are there?
(ie mining companies) What is the market position?
How many other investors are there? What are their social
values?
How many other competitors are there? (mining
companies) What influence do they have on industry
standards and practice?
How politically popular the laws would be? What are the
risks of not regulating?
Is this ethical, legal, safe? (recompense or revenge?)
Two approaches to normative decision-
making

Utilitarian Approach: Deontological Approach:

Calculate the weighted average of If it violates the rule, then decision =

the value for each stakeholder. If the no.
answer > 0, then decision = yes.
Framework for understanding ethical
decision-making
Individual factors

Recognise Make moral Establish Engage in

moral issue judgement moral intent moral
behaviour

Situational factors
Why do corporations have social
responsibilities?
• Business reasons (‘enlightened self-interest’)
• Extra and/or more satisfied customers
• Employees may be more attracted/committed
• Forestall legislation/ risk mitigation
• Long-term investment which benefits corporation
• Moral and ethical reasons
• Corporations cause social/environmental problems
• Corporations should use their power responsibly
• All corporate activities have some social impacts
• Corporations rely on the contribution of a wide set of
stakeholders in society, not just shareholders
 Does Corporate Social Responsibility
Pay Off?
According to a 2003 Stanford University Study (below), more
recent studies in (2013 and 2017) have shown good CR will help
companies in times of financial crisis, and expectations of social
responsibility continue to increase (2018).
• Consumers, increasing expectations - source of loyalty (52% check product
packaging for sustainable impact, 2003; 53% have stopped doing business with a
company because of its words or actions about a social issue, 2018).
• Employee morale and loyalty – Greater satisfaction, commitment and reduced
turnover. (67% prefer to work for socially responsible companies, 2003).
• Reduced costs- inputs, legal costs, impact of boycotts.
• Greater Social Capital and scope for Cross-sector partnerships
• Improved Financial Performance – Orlitzsky, Schmidt & Rynes, 2003
The economics
perspective

Aleksandra Balyanova
One issue: externalities
• For Rio Tinto, blowing up Juukan Gorge…

• Had benefits of the iron ore it gave them access to

• Had costs of labour, explosives, etc.

• For society, blowing up Juukan Gorge…

• Had (has) costs of the irremediable destruction of the site

• It is unlikely that the executives that made the decision fully internalised the
(extra) social cost of destroying the site = externality

• Moral of the story: Unless market participants are incentivised appropriately (by
having them internalise social costs), their actions may not be socially optimal
Another issue: principal-agent
• It can be tempting to think of large organisations as monolithic decision-makers

• The principal-agent framework allows us to see organisations as sums of

individual decision-makers, each driven by intrinsic and extrinsic motivators
• BoD is principal, CEO is agent
• (Lower level) manager is principal, employee is agent
• Etc.

• No single decision-maker is trying to maximise Rio Tinto’s profit – most are

(roughly speaking) trying to maximise pay/effort, future career prospects, etc.

• Moral of the story: we often observe companies making decisions that are not in
the company’s long run interest, because companies are made up of individuals
responding to their own incentives
 The big issue: incentives
• The economic perspective on decision-making in a
nutshell is:

Decision-makers respond to incentives

• What incentives does the board face when choosing

what kind of manager to hire?

• What incentives does the manager face when making

business decisions?

If we (as a society) want to see different decisions being

made, we need to change the incentives faced by
decision-makers.
Juukan Gorge –
More legal issues

Rob Nicholls
Is a policy a contract?
There are three requirements for a contract:
• Agreement
• Intention
• Consideration

• Potentially, the policy might be regarded as a contract element

with suppliers
• Compare with a privacy policy
Was there misleading or deceptive
conduct?
Section 18(1) of the Australian Consumer Law (which is Schedule
2 to the Competition and Consumer Act 2010 (Cth)) states:
a person must not, in trade or commerce, engage in conduct that is
misleading or deceptive or is likely to mislead or deceive
However, breaching this section gives rise to damages and not a
pecuniary penalty

Section 29 of the Australian Consumer Law prohibits misleading

representations (narrower than conduct)
What about directors’ duties?
Two key duties here:
• To be honest and careful in their dealings at all times
• To act in the company’s best interests

The board fired the CEO and two key executives in September
2020
Simon Thompson, chairman of Rio Tinto corporation resigned on
3 March 2021
Legal personality
A ‘company’ is an incorporated body and is regarded by the law
as a separate, artificial legal person
It owns property in its own right and its property is not the
property of its directors, shareholders or members

The company was responsible for the destruction of Juukan

Gorge
It found that there were internal management issues, but still has
a market capitalisation of $A165 billion
Tax issues?
The concept of a social licence is separate from a licence to perform
functions
A business licence has terms and conditions and a fee is payable
Example is a spectrum use licence
When a social licence is lost, then there may be a business tax imposed
Example is Star Casino in NSW $120 million-a-year tax to support
“communities recovering from the unprecedented impacts of COVID-19,
bushfires and floods”
COMM1150
Global Business Environments
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Final Exam Overview
 Final Exam Structure

Part 1:90 minutes case study

Part 2:45 minutes Moodle Quiz

Case study will be released 24 hours before the exam.

Tuesday, 2 May at 1:00pm (AEST) via Moodle

There will be at least 15 minutes break in between the two parts

Final exam will be conducted in Moodle

All material covered from Week 1-10 including individual core learning,
synchronous (live) lectures, associated readings, and tutorials

Refer the 'Final Exam' section in Moodle and the COMM1100

Assessment Guide for more information
Final Exam Timeline
Case study will be released on Part 1 – Case Study Analysis
​Opens at 1:00pm on Wednesday , 3 May (AEST)
Closes at 2:30pm on Wednesday , 3 May (AEST)

You have 90 minutes during this window to complete the task

in Moodle

There will be a break of at least 15 minutes between the two

parts

Part 2 - Quiz
Opens at 3:00pm via Moodle (AEST)
Closes at 3:45pm (AEST)
You will have 45 minutes to complete the Moodle Quiz
Part 1 – Case Study

You will have 90 minutes to complete this section on the day of the exam

Case study will be released 24 hours before the exam (on Tuesday, 2 May at 1:00pm (AEST) via Moodle

This is a Turnitin assignment in Moodle

Weight: 30%

The exam is an individual assessment. Any evidence of collusion from the time the case study is released on Wednesday
30 August will result in an Academic Integrity investigation.
Part 2 – Moodle Quiz

You will have 45 minutes to complete this task on the day of the exam

This is a Moodle Quiz from all 3 disciplines. The type of questions consist of MCQs + Fill in the space Numerical
Questions

Weight: 20%

The exam is an individual assessment. Any evidence of collusion will result in an Academic Integrity
investigation.
Final Exam Consultations
Thank you!

If you have any questions about

this lecture, please post it on
Moodle.

The lecture recording will be made

available in Moodle.

Moodle course site:

https://moodle.telt.unsw.edu.au/course/view.php?id=60102

Course email:
COMM1100@unsw.edu.au