BES EVIDENCE EXAM STACK

Question 1

What is a stakeholder?

Answer 1

“an individual or group that, in the context of a specific situation, is either harmed by, or benefits from, the corporation, or whose rights the corporation should respect.”

CRANE ET Al. 2019

Question 2

Why do Stakeholders matter?

Answer 2

Freeman 1984 in “Strategic Management: A Stakeholder approach” devises that they MATTER due to TWO perspectives the LEGAL and ECONOMIC perspective.

LEGAL - Employees and suppliers have legally binding contracts the company. Freeman’s Stakeholder Theory recognizes that these contracts create legal obligations that must be honored.

Economic - Freeman (1984) challenges the agency problem by advocating for a broader consideration of stakeholders beyond mere shareholder maximization. He emphasizes the economic perspective that recognizes stakeholders as contributors to the long-term success of the firm, not just sources of short-term gains

Question 3

Who came up with the 3 substantiative weaknesses of Stakeholder theory and what are they?

Answer 3

Orts and Strudler 2009

1) clear identification and definition of stakeholders,

2) the potential vagueness and overbreadth in theoretical concepts,

3) difficulty in balancing diverse stakeholder interests.

Question 4

What are the three lens that stakeholder theory can be viewed in?

Answer 4

1. Normative theory - Providing a reason WHY corporations should consider stakeholder interests (it’s what they should do)
2. Instrumental theory - Whether it is BENEFICIAL for the corporation to consider stakeholder interests.
3. Descriptive theory - Ascertain whether (and how) corporations actually DO take into account stakeholder interests (its what’s the organisation did or didn’t do)

DONALDSON AND PRESTON 1995

Question 5

Challenges of normative stakeholder theory and examples

Answer 5

1. Ambiguity in Ethical guidelines: The ambiguity in ethical guidelines surrounding user data at Facebook led to unethical practices contributing to Cambridge Analytica scandal. Orts and Strudler Link: Vagueness and Overbreadth.
2. Difficulty in enforcing ethical standards: Due to Facebook having numerous data-sharing agreements with third party entities along with the sheer amount of data being shared meant that it was hard for Facebook to monitor and enforce ethical standards. Orts and Strudler Link: Identification and Definition of Stakeholders.
3. Differing ethical perspectives: It was hard for Facebook to find a consensus on ethical behaviour as Facebook had to manage perspectives of regulators, users, advertisers and political entities and also societal interests concerned about privacy and ethical data use making it hard in a real-world application of a website with over 1bn users and the amount of data etc. Orts and Strudler Link: Balancing Interests in Decision Making.

Question 6

Challenges of instrumental stakeholder theory and examples

Answer 6

1. Risk of prioritizing short-term gains over long-term: Volkswagen prioritised short-term gains in selling emissions cheating vehicles but when it was found out it caused recalls, public outrage, and severe reputational damage. Orts and Strudler Link: Balancing Interests in Decision Making.
2. Balancing conflicting stakeholder interests: BP struggled to balance conflicting stakeholder interests during the Deepwater Horizon oil spill, facing challenges from environmentalists, affected communities, and shareholders. Orts and Strudler Link: Balancing Interests in Decision Making.
3. Potential reputational risks: Volkswagen had been named the most sustainable automotive company 10 days prior to scandal emerging in Dow Jones Sustainability Index but due to this scandal it impacted its standing in the community and automotive industry. Orts and Strudler Link: Vagueness and Overbreadth.

Question 7

Challenges of descriptive stakeholder theory and examples

Answer 7

1. Difficulties in stakeholder identification: BP faced difficulties in identifying all stakeholders affected by the Deepwater Horizon oil spill, resulting in challenges in communication and compensation. Orts and Strudler Link: Identification and Definition of Stakeholders.
2. Managing conflicting stakeholder interests: The Deepwater Horizon oil spill involved conflicting interests between environmental groups, affected communities, and BP shareholders. Orts and Strudler Link: Balancing Interests in Decision Making
3. Potential for overlooking certain stakeholders: In the Diesel gate scandal, Volkswagen may have overlooked the interests of environmental groups and regulators, leading to legal and reputational consequences. Orts and Strudler Link: Vagueness and Overbreadth.

Question 8

What critiques does Orts and Strudler state about Stakeholder theory?

Answer 8

That Stakeholder theory is useful for strategic but not moral thinking (“overblown framework”) as additional frameworks or principles needed to complement stakeholder theory when tackling moral considerations in business context

• Definition of what a stakeholder is remains vague at best

Question 9

What is CSR?

Answer 9

Crane et al. 2019 defined CSR as attempting “to meet the economic, legal, ethical and philanthropic demands of a given society.”

Question 10

Detail the main points for theorists advocating for CSR

Answer 10

Drucker, 1958 – “A corporation is a business enterprise that has multiple objectives and profitability, which is necessary for survival, is merely one of these objectives.”

+ Modern Corporation Project ), “a corporation is considered an artificial person with the legal rights of a person that exists independently of its ‘owners’.” This legal recognition implies that corporations can pursue diverse objectives beyond strict profitability. aligning with Drucker.

+

PORTER AND KRAMER 2011 CSV FRAMEWORK

Porter and Kramer argue that businesses can align social and economic goals through the creation of shared value. They propose that addressing social issues can lead to competitive advantages and, in turn, economic benefits.

They also came up with the Creating Shared Value (CSV) approach to finding profitable opportunities outside of existing business model. Three strategies to do this:

1. Reconceiving products/services and markets – For example, Nestlé launched its “Nestlé for Healthier Kids” initiative in 2018, aiming to address malnutrition and promote healthier lifestyles among children. The company has committed to making these products available in 150 countries by 2030, showcasing a long-term commitment to both social impact and business growth.
2. Redefining productivity in the value chain - Unilever has been actively engaged in sustainable sourcing for several years. The company set a goal in 2010 to source 100% of its agricultural raw materials sustainably by 2020. Unilever achieved its goal in 2019, demonstrating a significant shift in the way it approaches its value chain sustainability.
3. Creating local clusters - Toyota has established an innovation hub in Silicon Valley, California, creating a local cluster focused on cutting-edge automotive technologies. This hub brings together engineers, researchers, and technology experts to collaborate on developing solutions for autonomous vehicles, electric mobility, and smart transportation systems. This collaborative environment is conducive to innovation and problem-solving, both for Toyota’s business goals and for addressing broader societal challenges related to transportation and technology.

Question 11

Detail the main points advocating against CSR

Answer 11

Friedman 1970 + Shell example:

Friedman 1970 argues that the primary responsibility of corporations is to maximize profits for shareholders. According to this perspective, diverting resources to CSR initiatives may be viewed as irresponsible, as it deviates from the core objective of delivering shareholder value. This is Illustrated in the shell abandonment of renewable energy in the 1990’s example.

+ Jensen and meckling 1976 on agency theory

Agency theory suggests that managers are agents representing shareholders. Pursuing CSR goals beyond profit maximization may be seen as an overreach of managerial authority, potentially conflicting with shareholders’ interests.

Question 12

What is shareholder primacy?

Answer 12

Shareholder primacy in corporate governance asserts that a company’s primary objective is to maximize shareholder value. This perspective, championed by Friedman in 1970 and echoed by Jensen and Meckling in 1976, emphasizes prioritizing profits for shareholders. Jensen and Meckling further advocate aligning the interests of managers and shareholders to enhance corporate efficiency.

Question 13

Detail the main points advocating for Shareholder primacy

Answer 13

Theory: Friedman’s 1970 essay titled “The Social Responsibility of Business is to Increase its Profits”. The key quote being “There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits”

+ Jensen and Meckling 1976 Apple Inc

Agency theory posits that executives are obligated to maximize shareholder value. This theory, exemplified by the works of Jensen and Meckling (1976), emphasizes aligning executive behavior with the interests of shareholders to minimize agency costs. Apple Inc. provides a compelling case study that illustrates the practical application of agency theory in promoting shareholder primacy.

Example:
- In 2022, Apple’s CEO, Tim Cook, received a $3 million base salary but was awarded almost $83 million in stock rewards. This compensation structure serves as a clear manifestation of agency theory in action, incentivizing Cook to make decisions that positively impact shareholder value. The direct tie between stock rewards and company performance aligns with Jensen and Meckling’s assertion that executive compensation should be aligned with shareholder interests.

• Over the past three years (2021–2023), Apple has executed stock buybacks totaling a minimum of $77 billion per year. This strategic move reduces outstanding shares, effectively increasing earnings per share for shareholders. Such stock buybacks, along with the distribution of annual dividends, underscore Apple’s commitment to returning value to shareholders—a practice consistent with Friedman’s perspective of maximizing shareholder value.

Question 14

Detail the main points advocating against shareholder primacy

Answer 14

Business Roundtable 2019 - new purpose of a corporation that “executives have a responsibility to act in the best long-term interests of the corporation.”

+ MCP company law statement on company law challenges the idea that executives are mere agents of shareholders as they have the discretion to “act in what they believe to be in the best long term interests of the company as a separate entity, even if this does not entail seeking to maximise short-term shareholder value”, aligning with the Business Judgement rule, but where they do “it is usually a product not of legal obligation, but of the pressures imposed on them by financial markets, activist shareholders, the threat of a hostile takeover and/or stock-based compensation schemes.

Examples:

• Unilever’s Sustainable Living Plan - integrates social and environmental goals into its business strategy, showcasing a commitment to stakeholder theory beyond immediate financial returns.
• Patagonia, known for environmental and social responsibility, prioritizes fair labour practices and sustainability, aligning with stakeholder theory over strict shareholder value maximization.

Question 15

Detail the main points for the Dichotomous perspective in Government (and Regulation)?

Answer 15

The dichotomous perspective, influenced by theorists like Milton Friedman, presents one view where government regulation is excluded from CSR, emphasizing voluntary actions. Friedrich Hayek and others, deems government regulation as undesirable in essentially the same light but not that’s its excluded but that’s its involvement is undesirable. Figures like Hayek and Friedman, argue that such regulation may hinder business innovation and economic growth.

VIEWS:
Definitional view:
* Theory: Excludes government regulation from CSR definition, emphasizing voluntary corporate actions.
* Example: Milton Friedman argues business’s primary responsibility is profit maximization (Shareholder theory), viewing CSR and government regulation as outside ethical business scope.
Normative view:
* Theory: Suggests government regulation for CSR is harmful, promoting an arms-length relationship.
* Example: Critics argue excessive regulation stifles business innovation; industries left to self-regulate may be better positioned to balance profit motives with social and environment concerns.
Empirical view:
* Theory: Based on CSR evidence without government regulation, indicating voluntary corporate engagement.
* Example: Companies like Patagonia & Ben and Jerrys showcase CSR without heavy government regulation, integrating environmental/social considerations voluntarily.
Implied view:
* Theory: Absence of government regulation reference signals deliberate exclusion.
* Example: Research focusing solely on voluntary corporate initiatives, excluding government influence, follows the implied perspective by potentially ignoring regulatory impacts on CSR practices.

Question 16

Detail the main points for the Related perspective in Government (and Regulation)?

Answer 16

The related perspective, influenced by institutional theorists like Scott and Meyer 1983, explicitly recognizes the symbiotic relationship between Corporate Social Responsibility (CSR) and government regulation. This viewpoint highlights the nuanced dynamics that intricately connect corporate ethical conduct to the regulatory frameworks established by government entities.

Definitional view:
* Theory: Acknowledges the interconnectedness of CSR and government regulation, recognizing the influence of regulatory frameworks. (Institutional theory) Institutional theory explores how organizations conform to established norms and expectations in society. In this context, the acknowledgment of regulatory frameworks aligns with institutional theory.
* Example: The Modern Slavery Act 2015 in the UK aligns with this viewpoint, reflecting how government standards shape the definition of CSR by addressing societal expectations against modern slavery.
Normative view:
* Theory: Recognizes the interplay between CSR and government regulation, viewing such regulations positively as contributing to societal and CSR goals. (Stakeholder theory)
* Example: The Plastic Packaging Tax supports the normative perspective by encouraging businesses to reduce single-use plastics, aligning with societal and governmental expectations for sustainable practices.
Empirical view:
* Theory: Draws on evidence of CSR practices influenced by government regulation, providing tangible examples of corporate responses to regulatory pressures.
* Example: Modern Slavery Act of 2015 mandates businesses with annual turnover of £36m or more to disclose their efforts in combatting forced labour and human trafficking within their business or supply chains, the Act creates a regulatory framework that encourages transparency and proactive measures and integrates CSR considerations into their core operations.

Implied view:
* Theory: Implies that any analysis of CSR should include reference to government regulation, and the absence signals a deliberate exclusion.
* Example: Analysing fair trade practices in the UK involves acknowledging government regulations that support fair trade, such as labelling requirements. Failing to do so would overlook a crucial aspect of the CSR landscape influenced by governmental expectations.

Question 17

What is civil society organisations?

Answer 17

CSOs, or civil society organizations, are non-governmental entities independent of government and the private sector. They focus on citizen-driven interests to address social, environmental, and ethical concerns

Question 18

What are the tactics of CSO’s? + examples

Answer 18

1. Indirect actions – credible arguments about issues, competition for public and media attention.
   - Example: Greenpeace is known for its indirect actions, utilizing credible arguments to draw attention to environmental issues.
2. Violent direct actions – illegal and highly visible action to generate media attention.
   - Example: The Animal Liberation Front emerged in the 1970s and prominent in 80’s and 90’s as an underground animal rights organization. Actions typically included breaking into facilities, releasing animals, and damaging property associated with animal testing. The ALF justified its actions as a response to perceived cruelty to animals.
3. Non-violent direct actions – demonstrations, protests, boycotts.
   - Example: The Civil Rights Movement in the United States employed non-violent direct actions to protest racial segregation and discrimination. Iconic events like the March on Washington (1963) and sit-ins at segregated lunch counters were powerful non-violent demonstrations that played a pivotal role in advancing civil rights.

Question 19

Advantages of Business-CSO collaborations + examples

Answer 19

1. Diverse Expertise and Resources:

Example: Unilever collaborated with Oxfam in the “Livelihoods Fund for Family Farming.” This initiative combines Unilever’s supply chain knowledge with Oxfam’s community development experience to promote sustainable agricultural practices and improve the livelihoods of smallholder farmers.

2. Increased Innovation:

Example: IBM partnered with Greenpeace in the development of the “Guide to Greener Electronics.” This collaboration aimed to innovate in the electronics industry by encouraging companies to design products with longer lifespans, reduce hazardous materials, and improve recycling practices.

3. Enhanced Corporate Social Responsibility (CSR):

Example: Nike’s collaboration with the Fair Labor Association (FLA) addressed labor conditions in its supply chain. This partnership led to increased transparency, better working conditions, and improved labor practices, demonstrating a commitment to CSR.

4. Improved Corporate Reputation:

Example: Microsoft collaborated with NGOs like Code.org and TEALS to enhance digital literacy worldwide. Through initiatives like TEALS, Microsoft positively impacted education, contributing to its reputation as a socially responsible company.

Question 20

Dis-advantages of Business-CSO Collaborations

Answer 20

1. Potential for Greenwashing:

Example: The collaboration between Shell and the Nature Conservancy in 2019 exemplifies the potential for greenwashing accusations. Despite the announced partnership’s emphasis on environmental initiatives e.g. invest in forest protection projects, renewable energy initiatives, and carbon offset programs, critics argued that it failed to align with Shell’s core activities in fossil fuel extraction, raising concerns about the sincerity of the company’s commitment to genuine environmental sustainability and the possibility of using the collaboration to improve its green image without substantive change in its primary operations.

2. Conflict of Interests:

Example: Gilead Sciences, a pharmaceutical company, and its collaboration with non-profit organizations, Clinton Health Access initiative and others, to address the global HIV/AIDS epidemic. Gilead, a pharmaceutical company, faced criticism for the pricing and accessibility of its HIV drug Truvada for pre-exposure prophylaxis (PrEP). Activists argued that the high cost of Truvada limited its accessibility, despite its efficacy in preventing HIV transmission. The conflict emerged as Gilead’s profit motives clashed with the NGOs’ goal of ensuring affordable access to life-saving medications

3. Power Imbalances:

Example: collaboration between Nestlé, a multinational food and beverage company, and small cocoa farmers in West Africa. Nestlé has faced criticism for its cocoa sourcing practices, with accusations that the company’s substantial influence and resources have led to unequal power dynamics in its partnerships with local farmers. Critics argue that Nestlé’s dominant position in the supply chain allows it to dictate terms, affecting the livelihoods of small-scale cocoa farmers. Issues such as low prices for cocoa, concerns about child labour, and insufficient support for sustainable farming practices have been raised, highlighting the power imbalances that can arise in collaborations between large agribusinesses and smaller farming entities.

4. Limited Scalability:

Example: “Google Station” initiative, which aimed to provide free Wi-Fi in public spaces in developing countries. While Google successfully implemented this initiative in specific regions, such as India and some parts of Africa, challenges emerged when attempting to scale it globally. The initiative faced hurdles related to varying infrastructural capacities, regulatory environments, and local partnerships in different regions.