History History

 Merchant guilds (1100 +)  Decline in social cohesion and community

 East India Company (1600)  Polly Peck (1990), Maxwell (1991), Enron (2001),
WorldCom (2002), Parmalat (2003), Conran Black
 South Sea Bubble (1720) = Dot Com (late 1990s) (2007), sub-prime mortgage collapse (2007)
 Joint Stock Companies Act (1844 UK), Limited
Liability Act (1855 UK)

 US Constitution (1865) plus Salomon v Salomon (1897

UK)

 ‘Divorce’ of ownership and control

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Yin and Yang capitalism OECD

+++  “The system by which business corporations are

¾ Wealth production directed and controlled. The corporate governance
¾ Economic prosperity structure specifies the distribution of rights and
¾ Corporate success responsibilities among different participants in the
corporation … and spells out the rules and
--- procedures for making decisions on corporate affairs.
¾ Greed (is good?)
By doing this, it also provides the structure through
¾ Despotism
which the company objectives are set, and the means
¾ Abuse of power
of attaining those objectives and monitoring
¾ Opaqueness
performance.”
¾ Social inequality
¾ Unfair distribution of wealth
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Other definitions Key concepts

 “The way in which organisations are directed and  Fairness  Accountability

controlled” (Cadbury)
 Openness/transparency  Reputation
 “The system of checks and balances, both internal
and external to companies, which ensures that  Independence  Judgement
companies discharge their accountability to all
 Probity/honesty  Integrity
stakeholders and act in a socially responsible way in
all areas of their business activity.” (Solomon)  Responsibility
 “The ethical corporate behaviour by directors or
others charged with governance in the creation of
wealth for all stakeholders.”
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 Key issues Key recommendations

 Directors  Duties of directors and functions of the board

 The board  Composition of board and board committees

¾ Non-executive directors
 Remuneration
¾ Remuneration committees
 Financial reporting ¾ Audit committee

 External audit  Public oversight

 Shareholders

 Principles v Rules
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Corporate social responsibility Corporate social responsibility

 The continuing commitment by a business to behave  Encompasses the economic, legal, ethical and
ethically and contribute to economic development philanthropic expectations placed on organisations by
while improving the quality of life of the workforce and society (Carroll)
their families as well as of the local community and ¾ Ethical practices
society at large. ¾ Ecology, environmental impact and protection
¾ Current and future needs of society
 Refers to all of the impacts a company may have on
¾ Product design and customer relations
society and the need to deal with those impacts on all
stakeholders in a responsible way ¾ Employees, communities, human rights

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Carroll Sustainability

 Sustainable development is development that meets

PHIL-
the needs of the present without compromising the
ANTHROPIC ability of future generations to meet their needs.
ETHICAL
 It is not a fixed state of harmony, but rather a process
of change in which exploitation of resources, the
LEGAL direction of investments, the orientation of
technological development and institutional change
ECONOMIC are made consistent with future as well as present
needs.

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 Global Reporting Initiative Carroll strategies

 Economic  Proactive

 Environmental  Reactive

 Labour practices  Defence

 Human rights  Accommodation

 Society

 Product responsibility

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