Normative theories Flashcards
Know the definition and examples of each normative theory (41 cards)
Normative theory
The actions that the organisations are ought to take which are considered ethical in a certain perspective
Positive theory
Description of how people and organisations actually behave. Used to predict activities rather than advise people on how they are ought to behave
Deontological
The intention behind the action is just as important as the actions itself
Institutional theory
Example of positive theory. Organisations alter their behaviour based on what other organisations are doing (peer pressure. The first step is a coercive process where pressure from powerful lobby groups or the government itself causes one or two organisations to take actions. Other organisations will start mimicking these organisations until that becomes the norm for every organisation to follow. (Homogenisation or isomorphism)
Ethical Egoism
Is both a positive and normative approach sometimes the term “Green Washing” is used to show how good a company is in relation to CSR, however, the truth is that it is only doing it in its best interest.
Homogenisation
The process of making practices across the industry or competitors uniform.
Isomorphism
Process of organisations adapting a mimetic behaviour, this is part of the institutional theory.
Legitimacy Theory
Organisations need to be genuine or legitimate if they are to operate appropriately. Organisations work hard to be portrayed as legitimate by meeting their social contract.
4 types of actions organisations take to adapt to legitimacy theory
1) Take genuine action
2) Deceive people- change their perceptions
3) Deflect intention
4) Change Evaluation
Examples include:- False propaganda, false labelling
Agency Theory
Agency Theory= Agent + Principal
The relationship between the agent and the principal. Where the agent is the executives of the company and the principal are the shareholders and owners of the company.
There are two main underlying assumptions in this theory.
- All individuals are egoists, they are to act in their self-interest. They are to make decisions which works to their advantage.
- Agents are in the position of power. The board has the power to make the decision and take the consequences of the decision as well.
Rights theory
Decision is ethical if it respects the rights of other people.
1) Legal Rights eg: Voting rights
2) Human Rights eg: Freedom of Speech
3) Contractual Rights eg: Agreement between builder and investor
Rights Vs Duties
Rights is what you have as a human being.
Duties is an obligation to do an action.
In the relationship between a doctor and a patient. The job of a doctor is pursued as a duty as it is an obligation for him/her to provide health care to the patient. Whereas the service received by the patient is seen as a right.
Disadvantage of rights theory
There is no hierarchy to decide which right takes precedence when two or more rights are in conflict.
Integrated Reporting
explains how an organisation creates value over time. It is a strategic and future-oriented communication about how organisations draw on the different resources and relationships available.
Disadvantages of Current Accounting Method
- Businesses are trapped in reporting cycles that are short-term
- Backward looking
- Box ticking mentality
- Fragmented Approach, reports are getting too long and too complex without telling a holistic story
AS A RESULT
- businesses are facing significant compliance burden
- investors are not getting the right information they need
- capital markets are suffering from short-termism and excessive focus on financial information
- lack of trust
Integrated reporting captials
1) Financial
2) Manufactured
3) Intellectual
4) Human
5) Social and Relationship
6) Natural
Benefits of IR
- helps organisations think holistically
- making better informed decisions
- managing key risks taking advantage of the key opportunities
- more effective resource allocation
- an end to incentive systems
- investors able to understand the company better and validating by futuristic information
Input vs. Output vs. Outcome
Input is the resources required for the process
Output is generally the products and services delivered.
Outcome is the specific result a program is intended to achieve
Root causes of unsustainability
- society produces and concentrates substances faster than they can be broken down by natural processes eg: plastic
- Society inhibits physically nature’s ability to run cycles/ regenerate eg: over harvesting of trees
Doughnut Economics
Challenge to meet the needs of all within the planet, by achieving the sweet spot which means the just right level of consumption and excretion into the environment.
GRI- General Rate Increase
Global network of many thousands worldwide that create the reporting framework and use it in disclosing their sustainability performance.
Traditional forms of External Reporting
Financial Statements
- balance sheet
- income statement
- cash flow statement
- statement of changes in owners’ equity
Emerging forms of external reporting
- Integrated Reporting
- Sustainability reporting
- service performance reporting
Advantages of IR
- Growing expectations from society that businesses do more than simply turn a profit
- Businesses must operate and be perceived to operate that is
- responsible
- ethical
- sustainable - Organisations want to be perceived to do business in a way that minimises negative impacts on the environment
