final concept quiz Flashcards
(61 cards)
Corporate Social Responsibility
Ethical expectations that society has for business, and the ethical responsibilities that a business has to the society in which it operates
-Primary question of CSR: how much ethical responsibility businesses and managers have beyond producing goods and services within the law.
Ethical responsibilities
Those things we ought, or should, do, even if sometimes we would rather not.
Three Levels of ethical responsibilities (ranked from less to more obligatory)
- Ethical responsibilities to do good
- Volunteering
- Sponsoring a charity event - Prevent harm
- Good Samaritan
- Use renewable energy - Do not cause harm to others
- A duty or an obligation
- Enforced by legal punishment
Economic Model CSR
- Economically, a business is an institution.
- A business’s sole social responsibility is to fulfill its economic functions. MAXIMIZE profits.
-Place shareholders at the center of the corporation — managers have responsibility to pursue profit by any means as long uas within the law - Business is free to contribute to social causes as a matter of philanthropy
Stakeholder Model of CSR
- Requires management to balance the ethical interests of all affected parties
- Forces managers to consider the consequences of its decisions
- Social responsibility requires decisions to prioritize conflicting responsibilities
Integrative Model of CSR
- Organizations that pursue social ends as the very core of their mission, such as nonprofits
- One can do good profitably
- Embedded into the company
Ex: Tom’s , Ben and Jerry’s (profits go back to an ethical cause)
COMPARISON: economic vs. stakeholder vs. integrative model
ECONOMIC: maximize profit within the law (“managerial capitalism”) —> management can choose to contribute for philanthropy —> reputational purposes, or because it is right thing to do.
STAKEHOLDER: business is embedded in a web of social relationships, mutual rights. Businesses have responsibilities to range of stakeholders
INTEGRATIVE: social responsibility is integrated directly into the mission and purpose of the business
Opioid Crisis Case
- Parties involved: Purdue Pharma, McKinsey, middlemen (PBCs), retail pharmacies (Walmart, CVS)
- McKinsey & Company advised Purdue Pharma on marketing OxyContin, encouraging sales strategies like targeting high-volume prescribers and pushing higher dosages, despite internal awareness of addiction risks.
Retail pharmacies (including Walmart, CVS, and Walgreens) were key distribution channels, later accused of failing to monitor suspicious opioid orders and contributing to widespread overprescription.
Purdue Pharma aggressively marketed opioids while downplaying addiction risks; the company filed for bankruptcy in 2019 amid thousands of lawsuits.
In 2021, McKinsey paid $573M to settle claims from 47 states; pharmacies later reached multi-billion-dollar settlements over their roles in the epidemic.
Corporate Sustainability Report
Provides all stakeholders with financial / other info regarding firm’s economic, environmental, social performance
SEC Climate Disclosures Case (L19)
Exxon Case (L19)
-Exxon intentionally misled Massachusetts investors about the importance and severity of climate-driven risks
- Purposely, through marketing, has deceived consumers about the central role its fossil fuel products play in causing climate change
Corporate Governance
The structure by which businesses are managed, directed, and controlled toward the objectives of fairness, accountability and transparency
-These structures generally will determine the relationship between the board of directors, shareholders / owners of a firm, and the firm’s executives or management.
Gatekeepers / watchdogs
SEC, government, etc. — people who monitor the market
Ensure those in the market play by the rules and conform to market regulations
Internal controls
Auditors, accountants, financial analysts, lawyers
Conflicts of Interest
Person’s ethical obligations in their professional duties clash with their personal interests (ex.: lawyer testifying for a client against his son)
Fiduciary duties
A legal duty grounded in trust to act on behalf of, or in the interests of, a client
-Fiduciary: person in power
Sarbanes-Oxley Act
Public Accounting Reform and Investor Protection Act of 2002.
- Established after unethical practices of major companies like Enron, Worldcom
- Established the Public Company Accounting Oversight Board
- Enforced by the SEC, applies to 15,000+ publicly held companies in the US
- Intended to provide additional oversight where there was none before
- Similar to the EU 8th Directive of 2005 for EU exchange
SOX act key functions
- Corporate accountability: CEOs/CFOs must certify financial statements; criminal liability for false reporting
- Improved financial reporting: internal controls required; effectiveness must be tested and reported
- Oversight & auditor independence: PCAOB (Public Company Accounting Oversight Board) created to regulate auditors; limits on non-audit services
- Transparency: timely disclosures on insider trading, risks, etc.
- Anti-Fraud Measures: harsh penalties for destroying/falsifying records; whistleblower protections
Elements of an Internal Control structure
- Control environment: tone or culture of the firm such as integrity, ethical values, competence, philosophy, operating style.
- Risk assessment: risks that may hinder achievement of corporate objectives; management can prevent, detect, manage risks, resolve ethical dilemmas based on firm’s mission/culture/tolerance for risk.
- Control activities: policies/procedures that support control environment
- Information and communications: fair and truthful transmission of information
- Ongoing monitoring: assessment capabilities to uncover vulnerabilities
3 Clear Duties of Board Members / Fiduciary Responsibility
- Duty of care
- Duty of good faith
- Duty of loyalty
SOX: Section 201
Services outside the scope of auditors — no consulting instead of auditing
SOX: Section 301
Public company audit committees, mandating majority of independents on any board and total absence of current/prior business relationships
SOX: Section 307
Rules of professional responsibility for attorneys
SOX: Section 404
Management assessment of internal controls
