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 issues●focus 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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- Business Ethics, Corporate social responsibility, LISA YANG