owned by JV between Vale and BHP Billiton burst causing environmental disaster

Owned by jv between vale and bhp billiton burst

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owned by JV between Vale and BHP Billiton, burst causing environmental disaster Continued negligence dating back to 2007 (e.g. arsenic levels in river water exceeded local legal limits) BHP and Vale tried to deny responsibility but now face fines of over $7b ⇒ Poor legal compliance of local environmental lawsTraditional views of the firm Traditional neoclassical view =the ‘Friedman doctrine’ (stockholder theory) The primary responsibility of a business is to maximise profits for its shareholders within the bounds of thelaws and ethical customs of society Leads to better alignment of principal-agent motivations and of incentives with performance Believes that CSR leads to competitive disadvantage- direct limited resources So, stock price and shareholder value maximisation should be sole guide for managerial decision making and incentives ⇒ But this approach led to excesses Accounting and corporate scandals(e.g. Enron, Worldcom), bribery allegations(e.g. Siemens), environmental disasters (e.g. Shell in Nigeria), lower labour standards (e.g. Benetton)More contemporary theories / research shifts Stakeholder theory argues that better stakeholder relations(i.e. with employees, customers, suppliers, financiers, govt bodies, etc) can lead to strong financial performance Inter alia through higher quality employees, better access to low-cost financing, reducing consumer price sensitivity, and mitigating risk of non-compliance Supported by research (e.g. showing correlation between CSR and cost of debt and equity*) Harvard Business School ‘Long Term Investigation’ to prove sustainability’s impact on financial performance Analysed financial and nonfinancial results of 180 similar US companies between 1993-2010 90 High Sustainability (HS) firms that emphasised multi-stakeholder relations and ESG factors in their business strategy, 90 Low Sustainability (LS) firms that pursued pure profit maximisation and considered ESG issues as negative externalities Results:HS significantly outperformed LS in: stock market performance return on investment and return on assetsLT performance determined by materiality of industry-specific sustainability issuesfocus on form/s of capital which are the most important to key industry stakeholders and that can have the most material impact on future financial performance E.g. for oil and gas company, natural capital more important ⇒ environmental performancemeasures have higher impact More focus on greenhouse gas emissions, waste and water management issues among others E.g. for clothing retailer, social & human capital more important ⇒
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