Week 6 Flashcards
What are the 2 ways of using the Social Return on Investment (SROI)?
- forecasting: predict how much social value will be created if the activities meet their intended outcomes
- evaluative: account for the value being created based on outcomes that have occurred
What is a social venture?
An early-stage business designed to be profitable and has integrated a social mission
What are the 5 steps of calculating the SROI?
- quantify non-financial impact of operations per unit
- translate into dollar terms per unit to achieve ‘social cashflows’
- sum all SCFs for the horizon in question
- discount SCFs to PV
- divide by investment to date
Name 5 (out of 10) guidelines for including SROI.
- include positive and negative impacts
- consider impacts by and on all stakeholders before deciding which are significant
- only include impacts that a clearly and directly attributable to the firm
- avoid double counting
- describe what makes the company different from the industry’s standards
- only monetise impact when logical
- put numeric metrics into context
- address risk factors affected SROI and document choice of discount rate
- carry out sensitivity analysis to identify key factors that identify SROI
- include ongoing tracking of social impact
Name 3 limitations of SROI
- mixing up negative social impact and amount required to achieve social benefit (investment)
- subjective value judgements
- data quality and availability: measurement, timeframe and comparability (lack of consistency in method)
Tell about the Kraft-Heinz and Unilever Case and why it did not work out.
Unilever had created a sustainable living plan (2010) and had its focus on creating social value. Kraft-Heinz had a focus on cutting costs and had no stakeholder-oriented model. Kraft-Heinz share price jumped after bid announcement, but Unilever rejected. In the end: Unilever bought back shares from owners who wanted pay-out and sold assets to improve profit margins. very high stock price after rejection.
Want went wrong in this case of Kraft-Heinz and Unilever? (2 things)
- KH got too focused on cutting costs
- KH forgot the most important thing for a food company: tasty products that people want to buy and eat
Why do firms undertake bids?
- Positive NPV
- Synergy: operating or financial
What are possible protection mechanisms for preventing such mergers as KF and Unilever? (6 possibilities)
- issue shares with dispropotional rights given to certain shareholders
- offer new shares to specific friendly shareholders
- ‘staggered’ board
- incorporate in country/state with regulation that hinders takeovers
- charge legal form: social purpose/benefit
- go private (extreme)
What are the 2 types of agency conflicts?
type I: managers and shareholders
type II: powerful vs remaining shareholders
