State University

State University -

Higher School of Economics

Faculty of Management

Bachelor Program

Program of the Course

«РАЦИОНАЛЬНОЕ ПРИРОДОПОЛЬЗОВАНИЕ И СОЦИАЛЬНАЯ ОТВЕТСТВЕННОСТЬ БИЗНЕСА В СТРАТЕГИЧЕСКОМ УПРАВЛЕНИИ»

Author: Settles A.М. (Ph.D.)

Moscow

2009

I. Introduction

The prerequisites for the course include knowledge of micro and macroeconomics, principle agent theory, and basic exposure to Russian company law. The purpose of this course is to develop an understanding of corporate social responsibility, the value of good corporate governance for firm valuations, sustainable business practices, value chain management and globalization. Approaches and theories that will be discussed include principle-agent theory, stewardship theory, contractual theory, corporate risk analysis, and social responsibilities of corporation amongst others.

Students are expected to complete all required readings prior to the class these readings are assigned. Students will be expected to be prepared to discuss these readings during the lectures and seminars.

The grade will be determined based on the following method:

Attendance (30%)

Research Paper (40%)

Final Test (30%)

Those students that do not attend any lectures will fail the course.

Students are expected to complete all required readings prior to the class these readings are assigned. Students will be expected to be prepared to discuss these readings during the lectures.

All students must be honest and forthright in their academic studies. To falsify the results of one's research, to steal the words or ideas of another, to cheat on an assignment, or to allow or assist another to commit these acts corrupts the educational process. Students are expected to do their own work and neither give nor receive unauthorized assistance. During exams there will be no talking – no warnings will be given.

Overview of the Subject

II. Table of Work Hours

№ / Name of Themes / Classroom Hours / Form of Control
Lectures / Seminars / Total
1. / Corporate Social Responsibility / 12 / 4 / 16 / Test and Paper
2. / Corporate Social Reporting / 4 / 0 / 4 / Test and Paper
3. / Corporate Governance / 4 / 0 / 4 / Test and Paper
4. / Business Sustainability / 8 / 8 / 16 / Test and Paper
Total: / 40 / 0 / 40

III. Content of the Program

Theme 1: Corporate Social Responsibility

Objectives:

· To define the major characteristics of Corporate Social Responsibility;

· To demonstrate the importance of engagement of stakeholders to companies operating in the Russian business environment and those operating internationally;

Learning Outcomes:

After Studying the students should manage:

· To be able to identify corporate stakeholders and compare and contrast between the stakeholder and shareholder models of corporate governance and

· To discuss the role that corporate social responsibility plays in development of firm strategy

Into the twenty first century, the private sector has increased opportunities and influence but also faces new risks and responsibilities. Adjusting to the myriad impacts of globalization is a complicated process. Around the world, public attitudes are shifting with concerns ranging from climate change to business-community relations to corruption. Pressure from the media, and a more aware and organized civil society demand increased corporate transparency and accountability. No firm wishes to be exposed for use of sweatshop labor, for pollution, or corruption. Consequently, more and more companies feel the need to demonstrate that they are good corporate citizens. CSR is now firmly established in the lexicon of business, NGOs, government, and multilateral institutions.

“Business as usual” is no longer an option, but sustainable business practice and competitive success can go hand in hand. The “business case” for CSR has long been espoused – in addition to reduced reputation risk; it can create greater efficiencies, innovation, improved employee retention and loyalty, and a stronger license to operate. These increasingly influence business decisions.

Over the past decade, CSR has risen in global prominence and importance. Although the terminology is relatively new, companies have been applying its principles for a long time, usually without referring to it explicitly as CSR. Companies have applied CSR as early as concerns arose about their social impact in their host communities. Consumers have also been aware of the corporations’ actions for a very long time. The first consumer boycott against a company’s product happened in the 1790s in Britain, against a firm that used slaves to manufacture their products.

Empirical studies on CSR emerged in the 1970’s, primarily in developed countries. However, firms operating in developing countries also demonstrate CSR and offer many good examples from which we can capture best practices. The call for increased corporate responsibility was finally given formal international attention at the 1992 United Nations Conference on Environment and Development (UNCED), or Earth Summit, in Rio de Janeiro.

CSR is difficult to define because its meaning can depend on who is using the term or the context in which it is being used. Also, the understanding and manifestation of CSR can differ across sectors, time, and geographic location. In WBI’s online course on Social Responsibility and Competitiveness we do not insist on a definition. Instead, those who practice CSR can define it by their own real life experiences. There are a wide variety of definitions offered by the 30,000 plus people from over 40 countries who have taken the course. In an attempt to generally describe CSR, we can say that it refers to:

· a collection of policies and practices linked to: a relationship with key stakeholders, values, compliance with legal requirements, and respect for people, communities and the environment; and

· the commitment of business to contribute to sustainable development.

There is an important difference, between CSR and corporate philanthropy. CSR, by its nature, is integrated into an enterprise’s core business strategy and becomes a critical part of the long-term wealth creation process, sustainability of profits, and value generation. Corporate philanthropy and volunteerism are more external and peripheral to core business; although they also play a very important role in development and can have a fundamental, long-term impact on poverty alleviation.

A crucial part of CSR or CR program is the environmental impact of corporations. Investing only in “social” activities such as paying employees their salaries on time, making charitable contributions to cultural and sport organizations and local governments, building housing for disadvantage populations at the direction of state authorities is only one part of CR. A responsible company must also evaluate the impact of their environmental externalities in the production and distribution activities.

Required Readings:

Simon Zadek. The Path to Corporate Responsibility. Harvard Business Review 82 (December), pp. 125-132.

Milton Friedman. The Social Responsibility of Business Is to Increase Its Profits. The New York Times Magazine, September 13, 1970.

Reinhold Kopp1 and Klaus Richter. Corporate Social Responsibility at Volkswagen Group

Stefan Ambec and Paul Lanoie. Does It Pay to Be Green? A Systematic Overview. Academy of Management Perspectives. November 2008.

Theme 2: Corporate Social Reporting

Objectives:

· To introduce the concepts of corporate social reporting; and

· To introduce the process of assurance of corporate social reports

Learning Outcomes:

After Studying the students should manage:

· To compare and contrast corporate social reporting standards and

· To understand the methods of corporate social reporting and to understand the value of corporate social reports to stakeholders, including the board of directors

Corporate Social Reporting is the expression of CSR practices by major corporations. This theme will exam the current status of corporate social reporting practices and the major influences on CSR reporting.

Corporate responsibility is intrinsically tied to corporate governance. Better corporate governance increases the likelihood that the enterprise will satisfy the legitimate claims of all stakeholders and fulfill its environmental and social responsibilities, and thus ensure the long-term, sustainable growth of companies. Corporate governance is the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. By doing this, it also pro- vides the structure through which the company objectives are set, and the means of attaining those objectives and monitoring performance. Corporate social responsibility can not exist without a base of good corporate governance. In Russia the rapid adoption by major firms of “window dressing” CSR program has not necessary been based on good governance but rather driven by PR needs and government pressure.

Readings:

AA1000 Overview, AccountAbility, 1999

Sustainability Reporting Guidelines, Global Reporting Initiative, Boston MA, 2002

UN Global Compact Principles

Theme 3. Corporate Governance

Objectives

· To define the significance of corporate governance mechanisms;

· To explain the importance of Corporate Governance as a field of management research;

· To introduce the framework for corporate governance analysis;

· To identify parties involved in corporate governance process and corporate environment; and

· To introduce the national models of corporate governance and to place the Russian model within that context.

Learning outcomes:

The students should be able:

· To explain the development of Corporate Governance as an issue;

· To analyze the difference between Corporate Governance, corporate administration, and management;

· To present key factors affecting Corporate Governance;

· To demonstrate understanding of the importance of the main components of Corporate Governance;

· To describe place and role of different players in corporate governance;

· To describe main theories dealing with corporate governance issues and recognize their place in historical development process;

· To differentiate components of Corporate Governance theoretical model;

· To understand the general framework for different models;

· To analyze strengths and weaknesses of different models of CG; and

· To identify key factors driving each model.

Themes covered include:

The main stages in the history of the modern corporation

The development of private enterprise for partnership to joint stock company/corporation

The issue of separation of management from ownership

The evolution of corporate governance and corporate control.

The theme will cover the participants of the corporate governance process (shareholders, board of directors, committees, management, CEO, and Chairman) as well as their role in corporation. The evolution of theoretical understanding of corporate governance will be covered along with an analysis of how to use the differing theories as a tool to understand the concepts of corporate governance. The theme will focus on principle –agent, stewardship, stakeholder, and contractual theories to explain board management interaction. The principle-agent theory focuses on the agency problem and agency costs in running the corporation. The stewardship theory focuses on the board as stewards of the corporation and on the role of accountability of the firm’s managers and directors. Stakeholder theory provides a framework for internal and external stakeholders to be represented through corporate governance structures to balance the different interests of these groups of stakeholders. The contractual theory treats the corporation as the network of contracts as means to explain corporate governance relationships.

Corporate governance has been described as a series of relationships between the providers of capital (investors), the board of directors, and the management of the company (OECD 2003). The factors that describe these relationships include the transparency of the firm disclosure, the composition of the board of directors, protection of minority shareholder’s interests, accountability and monitoring of the firm by the board of directors and the general meeting of shareholders, and the development of measures of internal control. The general theory of the model firm first developed by Berle and Means (1932) describes these relationships as a set of contracts between owners and directors and directors and managers that align the interest of agents with their respective principles. A break down in these relationships results in a situation where managers are able to shirk their responsibilities or misappropriate firm’s (and therefore owners) assets for their own use. The failure or misuse of the corporate governance system in a manner where effective control over the actions of managers is lost results in an ineffective use of capital, a long term reduction in share value, and a serious threat to firm sustainability. At a country level poor corporate governance practices result in an underinvestment in productive activities and a misallocation of scare resources.

The models to be examined include the Anglo-American Model, Continental Model (France and Germany), and the Japanese Model. The discussion will also focus on the models of CG developing in transitional and developing countries and the influence of dominant “western” models upon these countries. The historical roots of each model will be discussed along with its major features and criticisms. The Anglo-American model will be discussed in the framework of the board of directors structure and shareholder’s control via the representation in the Board of Directors; independence of the Board of directors; structure of the financial market and the role of Institutional investors in the ownership of UK and US companies; and the methods of corporate control. The Continental model discussion will focus on issues related to the principle of social cooperation, the two-tier board structure that consists of a supervisory board and executive board, whose interests are represented on these boards, the role of banks as major shareholders, and role of cross–shareholding in financial – industrial groups. The Japanese model discussion will focus on the formal role of large and almost entirely executive boards, the historical roots of the Keiretsu network, the existence of significant cross holdings and interlocking-directorships, the role that lifetime employment system plays in corporate policy, the evolution of bank-centered system.

The theme will involve a comparative analysis of existing models and the role of international organizations in the development of corporate governance in the global economy. An examination of the key drivers of each model: the ownership structure, the patterns of financing, culture, and social traditions will be conducted. Also an understanding of the key international factors affecting national models: globalization of the financial markets; unification of principles of corporate governance will be considered.