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GOOD GOV Notes 2

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GOOD GOV Notes 2

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MGT109 GOOD GOVERNANCE AND SOCIAL RESPONSIBILITY — Ethics of duty

— it argues that an action is right or wrong based on


Module 5: Ethics whether it conforms to a set of moral principles,
regardless of the consequences resulting from such
action
Ethics — holds that an individual must follow certain moral duties
— a study of what is morally right and wrong, or a set of beliefs and obligations, such as honesty, justice, respect for
about what is morally right and wrong others, etc
— the science that deals with the ethical norms by — example: During an exam, a student notices that their classmate has
left their answer sheet unattended and visible. According to
investigating, questioning and evaluating such standards
deontological ethics, the student believes they have a duty to act
honestly and with integrity, regardless of the consequences. Even
Ethical norms or morals — are personal beliefs and social though they could easily cheat by copying the answers, the student
standards that regulation the interpersonal relationships in a society refrains from doing so and instead alerts the teacher about the
situation.

How Ethical Theories Help to Solve Practical Problems


c) Consequentialism
— emphasizes the importance of the consequences of the
action when making ethical decisions (Sinnott-
Armstrong, 2019)
— it argues that the morality of an action is determined by
its outcome, such that an action is right if it produces a
good result and wrong if it produces a bad result
— holds that an individual must follow certain moral duties
and obligations, such as honesty, justice, respect for
others, etc
— example: JEMS is organizing a fundraiser to support a local charity.
The society is considering different fundraising ideas, including hosting
a school-wide event with expensive tickets and exclusive activities.
BRANCHES OF THE STUDY OF ETHICS DEALING WITH While this event has the potential to raise a significant amount of
money for the charity, it may also exclude students from low-income
ETHICAL BEHAVIOUR
families who cannot afford to participate. A consequentialist approach
involves evaluating the potential consequences of each option and
1. Normative ethics choosing the one that maximizes overall benefit and minimizes harm.
— examines and evaluates the principles and criteria of After careful consideration, what should JEMS do in accordance with
the consequentialist approach?
moral behaviors as a yardstick for morally correct
actions
2. Descriptive / Comparative ethics
— a branch of moral philosophy that identifies what should
— empirically describes the application of norms and value
be considered morally acceptable and unacceptable
systems
— it seeks to define criteria for judging the morality of
— in other words, how the ethical decisions are made in
behaviors, personality attributes, and other aspects of
practice
human conduct
— the study of people’s views about moral beliefs
— aim
— in other words, it analyses ‘what do people think is
o to determine the norms and values in a certain
right?’ Thus, the study of descriptive ethics involves
situation in order to distinguish the “right” from
describing people’s moral values and standards as well
the “wrong” especially in complex situations
as their behaviour
— in simple terms, normative ethics concerns the moral
— simply describes how people behave and what types of
rightness of an action, attitude, or character trait
moral standards they claim to follow.
a) Virtue Ethics
3. Applied ethics
— places emphasis on a person’s character and values
— provides recommendations for action based on the
(Hursthouse & Pettigrove, 2003)
theories of normative ethics
— individuals must cultivate habits and qualities like
— the practical areas of application for applied ethics are
courage, justice, temperance, wisdom, and compassion
the social areas as well as political challenges
in order to lead a moral life that is conducive to human
— a branch of ethics devoted to the treatment of moral
flourishing
problems, practices, and policies in personal life,
— encourages individuals to actively seek opportunities to
professions, technology, and government
practice their virtuous behavior to promote moral
— in contrast to traditional ethical theory—concerned with
behavior in society overall
— example: You witnessed another student being bullied in the school purely theoretical problems such as, for example, the
cafeteria. Being guided by virtue ethics, considers what virtues are development of a general criterion of rightness—applied
important in this situation, such as compassion, empathy, and ethics takes its point of departure in practical normative
courage. You intervene to stop the bullying and offer support to the
challenges
victim, despite potential social backlash or retaliation from the bullies.

b) Deontology 4. Metaethics
— emphasizing the importance of following moral rules and — focuses on the methods of moral argumentation and the
laws when making ethical decisions (Alexander & applicability of ethical theories
Moore, 2007 — the study of how we engage in ethics
— the metaethicist might comment on the meaning and 2. Legal responsibility
appropriateness of ethical language — furthermore, the society demands that companies do not
use illegal means in their endeavors for value creation
Metaethical positions may be divided according to how they — the business organizations, like all other members of the
respond to questions such as the following: society, are subject to the laws and official regulations
— some recent incidents (example: diesel scandal of
a) What exactly are people doing when they use moral words such Volkswagen, where the German automaker was caught
as “good” and “right”? by the US Environmental Protection Agency for
b) What precisely is a moral value in the first place, and are such manipulating the emission tests from 2009 through 2015
values similar to other familiar sorts of entities, such as objects to forge low pollution level of their diesel vehicles)
and properties? highlight the necessity for continuous monitoring by the
c) Where do moral values come from—what is their source and society
foundation?
d) Are some things morally right or wrong for all people at all times, 3. Ethical responsibility
or does morality instead vary from person to person, context to — the contribution beyond legal standards that is expected
context, or culture to culture? by the society
— a company is considered to assume its ethical
responsibility when it e.g. implements environment-
Module 6: Corporate Social Responsibility (CSR) And Ethical friendly technologies in the production process or
Management ensures decent working conditions and fair pay for
employees in foreign production sites

CSR As Strategic Framework For Ethical Management 4. Philanthropical responsibility


— the term Corporate Social Responsibility (CSR) was first — a voluntary contribution that represents the highest level
mentioned by Howard R. Bowen in his book Social of corporate social responsibility
Responsibilities of the Businessman in 1953 — a company may assume its philanthropical responsibility
— Bowen demands a greater contribution to the civil society by by improving the quality of life for their employees (e. g.
the large corporations in the United States, on the grounds providing family-friendly working time model, providing
of their significant economic power and the major influence childcare facilities) and/or the local community (e. g.
of their business endeavours on lives of the ordinary people making voluntary donations for art projects)
— the concept of Corporate Social Responsibility (CSR)
evolved continuously alongside the social movements in the Two-Dimensional Model of Quazi & O’brien
following decades, e.g. the civil rights movement, the — the strength of the 2-dimensional CSR model by Quazi and
consumer movement, the environmental movement and the O’Brien lies in the clear definition of the corporate CSR
women’s movements (Carroll, 2016) strategy
— in this model, the CSR decisions in business practice,
CARROLL’S CSR PYRAMID regardless of the cultural environment or the market
— the 4-step-pyramid developed by A. Carroll in 1979 is one of constellation, are determined by two factors:
the most widely used CSR-models o the understanding of CSR concept: broad vs.
narrow responsibility
o the benefits vs. costs of CSR activities
— subsequently, the possible CSR strategies may be divided
into the following four groups
— although this 2-dimensional model is practical in strategy
development based on the corporate understanding of CSR
concept, it fails to provide any possibilities to connect the
strategy to the individual CSR activities

1. Economic responsibility
— the society demands from the companies to be
profitable over time
— only when a company is economically successful, will it
be able to offer useful products and services to the
market, to provide secure jobs and to contribute to the
society with tax payments
— economic responsibility forms the basis for corporate
social responsibility
1. Classic view Environment and Development (WCED) “Our common
— the company has a narrow understanding of social future” as a “strategy of social development that meets the
responsibility, while the costs outweigh the benefits of needs of the present without compromising the ability of
CSR activities in the strategic assessment future generations to meet their own needs” (United Nations,
— the focus is on the economic considerations 1987).
— the concept of sustainability intertwines with Corporate
2. Socio-economic view Social Responsibility (CSR)
— the company has a narrow understanding of social — the three-pillar model (triple bottom line) coined by Elkington
responsibility, while the benefits of CSR activities represents a common understanding of the sustainability
outweigh the costs in the strategic assessment concept
— economic benefits are expected from the CSR activities — it depicts the optimal sustainability approach as a healthy
balance between environmental, economic and social goals
3. Modern view — in practice, the business strategies may be classified in
— the company has a wide understanding of social seven categories based on their focus on the three
responsibility while the benefits of CSR activities constituent aspects
outweigh the costs in the strategic assessment
— the economic impact of the CSR activities on the
shareholders are taken into account when defining the
strategy

4. Philanthropical view
— the company has a wide understanding of social
responsibility, while the costs outweigh the benefits of
CSR activities in the strategic assessment
— the overall impact of the CSR activities on the
shareholders are taken into account when defining the
strategy

Three-Domain Model by Carroll & Schwartz


— this model is intended to be a further development of the
original 4-step pyramid model according to Carroll
— on order to overcome the weakness of the pyramid model
that the pure form of the four levels of corporate social Volkswagen: Sustainable (environmental-social-economic)
responsibility can be rarely found in the business practice, — With our sustainability concept we want to ensure that
this model offers several additional mixed forms of strategic opportunities and risks associated with our environmental,
orientations social and governance activities are identified as early as
— altogether, the 3-domain model contains 7 categories of possible at every stage of the value creation process.
CSR contributions — In keeping with this aim, we are determined that our
a) Purely economic corporate social responsibility (CSR) activities will have a
b) Purely legal lasting, positive impact on the Company’s value and
c) Purely ethical reputation.
d) Economic-ethical
e) Economic-legal Corporate Citizenship (CC)
f) Legal-ethical — the expression Corporate Citizenship (CC) has sometimes
g) Economic-legal-ethical been used synonymously with Corporate Social
Responsibility (CSR) to describe the social role of
companies
— overall, this term in the literature is filled with different
nuances of content

Sustainability and the Three-Pillar Model


— the society demands sustainable business practices from
the corporations to be sustainable
— a prominent definition for the term sustainability comes from
the Brundtland report of the World Commission on
Social rights — the rights of individuals to participate in society (e.g.
the right to education, medical care and other social welfare)

Civic rights — freedom from abuse and interference (especially by


the government), freedom of speech, right to property)

Political rights — the right to vote, the right to hold public office or in
general, the right to participate in the civil political process

For decades, the multinational corporations (MNCs) from the industrialized


countries were encouraged to use their power to actively influence domestic UN Initiative: Who Cares Wins
politics in the developing countries. With the rise of the emerging economies, — the storyline of Environmental Social Governance (ESG)
however, such attempts are being increasingly challenged by the complexity was initiated by former UN Secretary Kofi Annan who
of cultural conflicts and geopolitics. To many critics, such political started the reform of the United Nation in 2003 and wrote a
responsibility rests solely with the state institutions and shall not be misused letter at the beginning of the year 2004 to more than 50
for public relations measures.
Executives to join forces to enhance ESG topic and raise an
understanding for protecting our planet with incorporating
ESG Rating
Corporate Financials
— the corporations’ violations against common ethical values
— as a first result of Kofi Annan’s initiative: there was a paper:
increase the investment risks for the investors
“Who Cares Wins” by Ivo Knoepfel
— to deal with the public image risks, some rating agencies are
— the report “Who Cares Wins” is connecting markets
offering special ESG-rating services to evaluate the CSR
especially financial markets to a changing world,
performance of the companies, industry sectors and
environment behaviours and committed recommendation by
countries
the corporate financial industry like banks, investment trusts
— the ESG approach creates a new dimension for the
and insurance companies
evaluation of financial investments, in addition to the classic
— the overall frame is the recommendation for the specific
criteria of profitability
integration of environmental, social and governance aspects
— ESG ratings are sometimes criticized for lack of information
in asset management strategies and brokerage investments
transparency, since the rating result is largely based on the
— the voluntary initiative is well recognized in the world and
self-declaration of the corporations themselves
more and more companies using ESG as a standard to
convince investors on an investment in their own company
The ESG Rating Covers the Following Aspects of Sustainable
— those ESG aspects were from a traditional point of view not
Investments
part of the investment decision making process. Nowadays,
the focus is on:
1. Environment (E) — the ecological performance of a business is
o Climate change management, company culture
often measured by emissions, share of renewable energy etc. in
policy, diversity and inclusion, labour work
the production process; a company is considered particularly
condition, health management, innovation
sustainable if, for example, the main product uses environment-
performance, safety and security management,
friendly technologies (e. g. electronic vehicles)
supply chain management, water management
2. Social (S) — the social performance can be reflected by the
3 Pillars of PSG
diversity and inclusion measures, production safety and
workplace design, as well as human rights issues such as
prohibition of child labor

3. Governance (G) — governance stands for the inspection


bodies or processes that are intended to ensure compliance
with ethically sustainable standards in the company

Module 7: Corporate Social Responsibility (CSR) vs


Environmental Social Governance (ESG)
ESG as a New Factor for Investments
— a mainstream approach whereby many investors still see
Environmental Social Governance (ESG) the only responsibility for itself to maximize the shareholder
— environmental social governance is seen as part of a further value for its clients in the way to pick the right stocks which
wording and familiar description of Corporate Social are promising the maximum of the combination in share
Responsibility to evaluate one’s company’s social price increasing and dividend payment or ensure for private
responsibility (Euramco, 2021) equity fully owned companies the maximum profit
— the Mankind is focusing more and more on environmental — 80% of the companies using Global Reporting Initiative GRI
and social aspects to support our blue planet Earth for the standards for ESG reporting
next generation — in addition, there were new standards with higher quality
launch recently:
o International Integrated Reporting Initiative IIRC
o US-based Sustainability Accounting Standard
Board SASB
CSR and ESG as Two Entrepreneurial Tool Sets for ISO 14008:2019 Monetary valuation of environmental impacts and related
environmental aspects
Sustainability
— Corporate Social Responsibility (CSR) and Environmental ISO 14030-1 Environmental performance evaluation – Green debt instruments – Part
Social Governance (ESG) are both tools to support 1: Process for green bonds
corporate companies and Non Profit Organisations (NGOs)
ISO 14030-2 Environmental performance evaluation – Green debt instruments – Part
to have a positive picture of them in the world as well as
2: Process for green loans
underline their claim to make the world better from a society
point of view ISO 14030-4 Environmental performance evaluation – Green debt instruments – Part
4: Verification program requirements
Corporate Social Responsibility (CSR)
ISO 14097:2021 Greenhouse gas management and related activities – Framework
— self regulations by companies including principles and requirements for assessing and reporting investments and
— meaningful positive impact on customers, employees, and financing activities related to climate change
public society
— philanthropical non-measurable approach ISO 37000 Governance of organizations – Guidance

ISO 45000 FAMILY OCCUPATIONAL HEALTH AND SAFETY


Environmental Social Governance (ESG)
— comparable quantifiable data and accountability over supply ESG’s emerging influence in PHL business
chain, employees, climate change and carbon footprint
— measurable quantifiable approach to support diversity and
inclusion in our society

Regulations, ISO Standards and ISO Certification on ESG


— the International Organization for Standardization ISO based
in Geneva issued several ISO standards regarding ESG

ESG Standards

E Standard
— are addressed through legislation that aims to control
pollution – namely the Philippine Clean Air Act, 1999, and
Philippine Clean Water Act, 2004 – and promote the proper
disposal of solid waste, such as the Ecological Solid Waste
Management Act, 2000, and other toxic and hazardous
waste, in the Toxic Substances and Hazardous and Nuclear
ISO 14001:2015 Environmental management systems – Requirements with guidance Wastes Control Act, 1990
for use — in 2019, the Philippines enacted the Energy Efficiency and
Conservation Act, providing fiscal and non-fiscal incentives
ISO 50001:2018 Energy management systems – Requirements with guidance for use
to energy efficiency projects, and mandating establishments
ISO 45001:2018 Occupational health and safety management systems – to develop and design measures for energy efficiency,
Requirements with guidance for use conservation and sufficiency, including installation of
renewable energy technologies
ISO 26000:2010 Guidance on social responsibility
— to offset carbon emissions, the government encourages the
ISO 22000:2018 Food safety management systems – Requirements for any private sector to participate and invest in reforestation
organization in the food chain programmes under the National Greening Programme of the
Department of Environment and Natural Resources
ISO 37001:2016 Anti-bribery management systems – Requirements with guidance for
use — additionally, the Extended Producer Responsibility Act, 2022
requires large companies to adopt and implement policies
ISO 9001:2015 Quality management systems – Requirements for the proper management of plastic packaging waste
— the Philippines is also gradually upholding ESG criteria
ISO 19600:2014 Compliance management systems – Guidelines
through corporate reporting obligations. The SEC issued
ISO/IEC 27001:2013 Information technology – Security techniques – Information Memorandum Circulars (MCs) 19-16 and 24-19, which
security management systems – Requirements respectively created the Code of Corporate Governance for
Publicly Listed Companies and the Code of Corporate
ISO 56002:2019 Innovation management – Innovation management system –
Guidance Governance for Public Companies and Registered Issuers
— these codes require companies to disclose their ESG
ISO/TC 322 Sustainable finance performances and practices in their annual corporate
governance reports
ISO 14007:2019 Environmental management – Guidelines for determining
environmental costs and benefits
— similarly, SEC MC 04-19 provides for the Sustainability
Reporting Guidelines for Publicly-Listed Companies – a
voluntary framework for companies to report on their ESG
impacts and initiatives using internationally recognised
standards such as the Global Reporting Initiative and UN
Sustainable Development Goals

S Standard
— take the shape of labour standards, privacy and data
protection measures, as well as human rights standards
— the Expanded Anti-Trafficking in Persons Act, 2022, for
example, punishes corporations that engage in forced
labour, child abuse and involuntary servitude

G Standard
— find support in the Revised Corporation Code, which
empowers the Securities and Exchange Commission (SEC)
to promote corporate governance and dissolve or impose
sanctions on corporations that engage in graft and corrupt
practices

ESG Materiality Matrix

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