(For other objectives see Stakeholders’ objectives) Arguments against and favoring Social Responsibility recognition: Social responsibility is expected from all types of organizations. AGAINST: Organizations should concern wealth only because Shareholders own assets. Shareholders are part of society. Taxes on revenues are given to build society. Businesses exist for profit. FAVOUR: (by Mintzberg) Most shareholders are passive. Ultimately consumer pays taxes via higher prices. Govt. support Firms produces 2 outputs: Goods and services Social consequences of activities e.g. Pollution Responsibility recognition (e.g. charity) improves: Public relations. Business success and development as part of society. Decisions by organization affects society Externality is a social/environmental cost of organization‘s activities not borne by organization. Boundary Management: - Good public image - securing political environment - Protect environment from pollution - improving quality of life - Good employer - protecting minorities - Welfare of local community Compliance Based Approach Integrity Based Approach e.g - Audit e.g - Internal commitment - Review - Guiding values - Questioning - Pattern of thoughts - System for employees - Share accountability (managers) - Disciplinary procedures (lawyers)
Chapter 12 : Corporate Governance Corporate Governance is the system by which companies are directed and controlled. Patterns of share ownership: (Who are shareholders of company) Types of institutional investors: Pension funds Insurance companies Investment trusts Unit trust Venture capital organizations Range of shareholders: Advantages: Greater activity in firm‘s shares No individual controlling whole firm Less effect on share price if anyone sells No threat of takeover Disadvantages: Administrative cost is high. Various objectives in holding shares. Why knowing shareholders: To get support by exchanging views. Knowledge of shareholders‘ preference about Dividend Policy. To explain recent share price movement. Shareholders‘ attitude to risk and gearing. Key shareholders to consult in the event of takeover bid. Agency Theory: ―Although individual members of the business team act in their own self -interest, the well being of each individual depends on the well being of other team members and on performance of the team in competition with ot her teams‖ Assumptions of theory: Behavioral Individual welfare maximization. Individual rationality. Individuals are risk-averse. Structural Investments are not infinitely divisible. Individuals vary in their access to funds and their entrepreneurial ability. Agency Problem: Arises from separation of ownership from management. Goal Congruence: (solution for agency problem) It is accordance between objectives of agents (acting within organization) and objectives of organization as a whole.
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