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28-corporate performance, governance and business ethics.html
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<!doctype html>
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<title>Study Session 12 | Reading 28 | Corporate Performance, Governance and Business Ethics</title>
<meta name="description" content="Chartered Financial Analyst Level 3 Study Materials">
<meta name="author" content="MacLane Wilkison">
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<section>
<h1>Reading 28</h1>
<h3>Corporate Performance, Governance and Business Ethics</h3>
<p>
<small>Created for <a href="http://alchemistsacademy.com">AlchemistsAcademy</a> by <a href="http://alchemistsacademy.com/about">MacLane Wilkison</a></small>
</p>
</section>
<section>
<h2>Stakeholders and the Enterprise</h2>
<img src="images/28/stakeholders-and-the-enterprise.png" alt="stakeholders and the enterprise" />
<aside class="notes">
A company's stakeholders are those individuals or groups with an interest, claim, or stake in the company and it actions
</aside>
</section>
<section>
<h2>Stakeholder Impact Analysis</h2>
<p><em>Definition: The process of identifying the most important stakeholders and giving highest priority to pursuing strategies that satisfy their needs</em></p>
<ul>
<li>Steps:</li>
<ol>
<li>Identify stakeholders</li>
<li>Identify stakehoders' interests and concerns</li>
<li>Identify what claims stakeholders are likely to make on the organization</li>
<li>Identify stakeholders who are most important from the organization's perspective</li>
<li>Identify resulting strategic challenges</li>
</ol>
</ul>
</section>
<section>
<h2>The Unique Role of Stockholders</h2>
<ul>
<li>Stockholders are legal owners and the providers of risk capital (a major source of capital that allows a company to operate its business)</li>
<li>No guarantee they will recoup their investment or earn a return</li>
<li>Managers typically seek to maximize returns that stockholders receive</li>
</ul>
</section>
<section>
<h2>Agency Theory</h2>
<p><em>Definition: Examines the problems that can arise in a business relationship when one person delegates decision-making authority to another</em></p>
<ul>
<li>Principal-agent relationship</li>
<ul>
<li>Arises when one party delegates decision-making authroity or control of resources to another</li>
</ul>
<li>The agency problem</li>
<ul>
<li>Arises when agents and principals have different goals and if agents take actions that are not in the best interests of their principals</li>
<li>Enabled by the fact that agents normally have more information than principals (information asymmetry)</li>
</ul>
</ul>
</section>
<section>
<h2>Ethics and Strategy</h2>
<ul>
<li>Preeminent goal of managers is to pursue strategies that maximize long-term profitability and growth in order to boost returns to stockholders</li>
<li>However, actions should be consistent with applicable laws and ethics</li>
<li>Common causes of unethical behavior:</li>
<ol>
<li>Flawed personal ethics among managers</li>
<li>Neglecting to consider ethical implications of decisions in favor of straightforward economic calculus</li>
<li>Organizational cultures that deemphasize ethics</li>
<li>Pressure to meet unrealistic performance goals</li>
<li>Unethical leadership</li>
</ol>
</ul>
</section>
<section>
<h2>Ethics and Philosophy</h2>
<ul>
<li>The Friedman doctrine - businesses' only social responsibility is the pursuit of profit, subject to the constraint that the engage in free and open competition</li>
<li>Utilitarian ethics - the moral worth of actions is determined by their consequences</li>
<li>Kantian ethics - people should be treated as ends and nevers purely as means to the ends of others</li>
<li>Rights theories - humans have fundamental rights and priviliges that establish a minimum level of morally acceptable behavior</li>
<li>Justice theories - focus on the attainment of a just distribution of economic goods and services</li>
</ul>
</section>
<section>
<h2>Ensuring Basic Ethical Principles</h2>
<ol>
<li>Favor hiring and promoting people with a well-grounded sense of personal ethics</li>
<li>Build an organizational culture that places a high value on ethical behavior</li>
<li>Ensure that leaders within the business not only articulate the principles of ethical behavior but also act in a manner consistent with their words</li>
<li>Establish decision-making processes that require people to consider the ethical dimension of decisions</li>
<li>Hire ethics officers</li>
<li>Establish strong governance processes</li>
<li>Act with moral courage</li>
</ol>
</section>
<section>
<h1>THE END</h1>
<h3><a href="http://alchemistsacademy.com">AlchemistsAcademy.com</a></h3>
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