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CORPORATE PERFORMANCE, GOVERNANCE & BUS ETHICS. SPRING 2007 BUS 189 DR. MARK FRUIN. NIKE: THE SWEATSHOP DEBATE. NIKE: QUINTESSENTIAL GLOBAL CORP ESTAB BY PHIL KNIGHT, UO BUS STUDENT & TRACK STAR SUCCESS ON THE BACKS OF THE POOR? EXPLOIT THE POOR TO MAKE MILLIONS?

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corporate performance governance bus ethics

CORPORATE PERFORMANCE, GOVERNANCE & BUS ETHICS

SPRING 2007

BUS 189

DR. MARK FRUIN

nike the sweatshop debate
NIKE: THE SWEATSHOP DEBATE
  • NIKE: QUINTESSENTIAL GLOBAL CORP
    • ESTAB BY PHIL KNIGHT, UO BUS STUDENT & TRACK STAR
    • SUCCESS ON THE BACKS OF THE POOR?
    • EXPLOIT THE POOR TO MAKE MILLIONS?
    • 2004: $12 BILLION IN REVENUES
      • ROIC 17.5 PERCENT
      • SELL PRODUCTS IN 140 COUNTRIES
      • FABLESS OR NO MFG OF ITS OWN
ernst young confidential report
ERNST & YOUNG CONFIDENTIAL REPORT
  • NOV ‘97 GLOBAL EXCHANGE RPRT LEAKED
  • SUBCONTRACTOR’S VIETNAM FACTORY
    • 9,200 WORKERS MAKING 40,000 SHOES/MONTH
    • YOUNG WOMEN, 65 HOUR WEEKS, @$10/WEEK
    • DANGEROUS WORKING CONDITIONS
  • NIKE’S RESPONSE
    • CODE OF CONDUCT 4 NIKE SUBCONTRACTORS
    • ANNUAL INDEPENDENT AUDITS
    • OSHA STANDARDS ENFORCED
the issues
THE ISSUES
  • WHEN IS IT WRONG TO MAKE MONEY?
  • WHAT’S THE “RIGHT” SPLIT OF PROFITS BETWEEN MANAGEMENT & LABOR?
  • WHAT ARE HUMANE WORKING CONDITIONS?
  • IS PROFIT MAXIMIZATION THE ONE & ONLY MEASURE?
  • IF MORALITY IS AN ISSUE, WHOSE MORALITY?
    • PRODUCERS?
    • WORKERS?
    • CONSUMERS?
corporate governance
CORPORATE GOVERNANCE
  • BALANCING INTERNAL & EXTERNAL STAKEHOLDERS
    • INTERNAL
      • SHAREHOLDERS
      • EMPLOYEES
      • MANAGERS
      • BOARD MEMBERS
    • EXTERNAL
      • CUSTOMERS
      • SUPPLIERS
      • UNIONS
      • LOCAL COMMUNITIES
      • CREDITORS
the impossible balancing act
THE (IMPOSSIBLE?) BALANCING ACT
  • IDENTIFY STAKEHOLDERS
  • INDENTIFY THEIR (CONFLICTING) INTERESTS & CONCERNS
  • IDENTIFY WHICH CLAIMS ARE MOST LIKELY TO BE BROUGHT FORWARD
  • IDENTIFY WHICH STAKEHOLDERS ARE MOST IMPORTANT; PRIORITIZE
  • IDENTIFY RESULTING STRATEGIC CHALLENGES
shareholders
SHAREHOLDERS
  • SHAREHOLDERS PROVIDE RISK CAPITAL
  • GET PROPERTY RIGHTS IN RETURN
  • IN USA, MANAGEMENT HAS PRIMARY OBLIGATION TO SHAREHOLDERS
    • ELSEWHERE, SHAREHOLDER RIGHTS LESS IMPORTANT THAN WHAT?
  • SHAREHOLDERS BENEFIT BY RECEIVING
    • DIVIDENDS
    • SHARE PRICE INCREASES
profits short or longterm
PROFITS - SHORT OR LONGTERM?
  • ROIC IS NEAR UNIVERSAL MEASURE OF PROFITABILITY
  • IN GENERAL, A PROFITABLE FIRM IS
    • IN A GROWING INDUSTRY
    • EXCELLING IN BASIC BUILDING BLOCKS OF COMPETITIVE ADVANTAGE: F-L STRATEGIES
    • TAKING MARKET SHARE FROM RIVALS (THROUGH B-L STRATEGIES)
    • PERHAPS CONSOLIDATING INDUSTRY
    • PERHAPS DEVELOPING NEW MARKETS & BUSINESSES (THROUGH C-L STRATEGIES)
profits or profit growth
PROFITS OR PROFIT GROWTH?
  • CURRENT PROFITABILITY CAN COME AT EXPENSE OF FUTURE PROFITS
  • STAKEHOLDERS DIFFER W/ RESPECT TO EMPHASIS: PROFITS OR PROFIT GROWTH
    • INTERNAL STAKEHOLDERS
      • EMPLOYEES WANT?
      • MANAGERS?
      • BOARD MEMBERS?
    • EXTERNAL STAKEHOLDERS
      • UNION OR EMPLOYEE ASSOCIATIONS?
      • CREDITORS?
      • LOCAL COMMUNITIES?
strategies must be legal
STRATEGIES MUST BE LEGAL
  • GOVERNMENTS ARE PRIMARY ACTORS IN REGULATING BUSINESSES
  • (BUT GOVERNMENTS ARE ONE OF MANY STAKEHOLDERS & REMOTE AT THAT)
  • GOVERNMENT LAWS & POLICIES
    • ANTITRUST/ANTICOMPETITION LAWS
    • OSHA & ENVIRONMENTAL LAWS
    • FRAUD (CIVIL & CRIMINAL)
      • WHISTLEBLOWERS
      • HOW INCENTIVIZE WHISTLEBLOWERS & THEIR LAWYERS?
    • LABOR LAWS
how theories of the firm affect ethics
HOW THEORIES OF THE FIRM AFFECT ETHICS
  • AGENCY THEORIES
    • SEPARATION OF OWNERSHIP & CONTROL
    • HOW DO PRINCIPALS (SHAREHOLDERS) ENSURE THAT AGENTS ACT APPROPRIATELY?
    • INFORMATION ASYMMETRY BTWN PRNCPLS-AGNTS
  • TRANSACTION COST THEORIES
    • HOW FAR TO GO IN THE INTEREST OF MINIMIZING TRANSACTION COSTS?
  • BLACK BOX/ECON 101 THEORIES
    • FIRM AS BLACK BOX (INPUTS & OUTPUTS W/O RECOGNIZING NATURE OF ORGANIZATIONS
  • GUIDED EVOLUTION THEORIES
    • WHAT VALUES, GOALS & BEHAVIORS ENCOURAGED?
governance mechanisms as solution
GOVERNANCE MECHANISMS AS SOLUTION
  • ALIGN PRINCIPALS & AGENTS
  • MEASURE, MONITOR & MANAGE AGENTS
    • BOARDS OF DIRECTORS
      • INSIDE & OUTSIDE DIRECTORS; #’s & INFO ASYM
    • STOCK-BASED COMPENSATION
      • WHEN JUSTIFIED, HOW MUCH & HOW EXPENSED?
    • AUDITORS & FINANCIAL STATEMENTS
      • HOW CONSISTENT, DETAILED & ACCURATE IS INFO?
    • TAKEOVER CONSTRAINTS
      • RISK OF BEING TAKEN OVER FORCES FIRMS TO KEEP BOOK VALUE ABOVE VALUE OF SHARES
    • STRATEGIC CONTROL SYSTEMS
      • BALANCED SCORECARD: EFFICIENCY, QUALITY, INNO & C.R.
    • EMPLOYEE INCENTIVES (PAY 4 PERFORMANCE)
      • ESOPs AS POSITIVE INCENTIVE; STOCK OPTIONS ANOTHER
ethical issues
ETHICAL ISSUES
  • SELF-DEALING
  • INFORMATION MANIPULATION
  • ANTICOMPETITIVE BEHAVIOR
  • OPPORTUNISM
  • FRAUD (RELATED TO OPPORTUNISM)
  • ENVIRONMENTAL DEGRADATION
  • SUB-STANDARD WORKING CONDITIONS
  • CORRUPTION
  • (ALL BASED ON NOTIONS OF WHAT IS RIGHT & WRONG; CULTURE/INSTITUTIONS DIFFER)
ethical models
ETHICAL MODELS
  • FRIEDMAN DOCTRINE: INCREASE (MAX) PROFITS AS LONG AS RULES OF GAME OBSERVED
  • UTILITARIAN ETHICS: BENTHAM ET AL
    • MAXIMIZE GOOD, MINIMIZE HARM
    • NOT ALWAYS EASY TO CALC COSTS-BENEFITS
  • RIGHTS THEORIES
    • INDIVIDUAL RIGHTS V. COLLECTIVE GOODS
  • JUSTICE THEORIES
    • JOHN RAWLS: GOODS & SERVICES DISTRIBUTED EQUALLY EXCEPT WHEN UNEQUAL DISTRIBUTION MAXIMIZES ADVANTAGE
    • VEIL OF IGNORANCE = IMPARTIALITY
      • EVERYONE MAX LIBERTY IF COMPATIBLE W/MAX FOR OTHERS
      • ONCE BASIC EQUALITY ENSURED, INEQUALITY ALLOWED IF IT BENEFITS EVERYONE (UNEQUAL OPPOR=MOTIVATION)
    • DISTRIBUTIVE JUSTICE; PROCEDURAL JUSTICE
behaving ethically
BEHAVING ETHICALLY
  • HIRING & PROMOTING
    • THESE PROCESSES REPRODUCE ORGS
  • ORGANIZATIONAL CULTURE
    • WORLDVIEW, VALUES & FEELINGS (GEERTZ)
  • LEADERSHIP
    • WALKING THE TALK
  • DECISION-MAKING PROCESSES
    • QUESTIONS TO ASK ONESELF
      • DOES DECISION CONFORM TO FIRM & COMMUNITY VALUES
      • WILLING TO MAKE DECISION KNOWN TO ALL STAKEHOLDERS
      • WOULD FAMILY AND FRIENDS APPROVE
behaving ethically ii
BEHAVING ETHICALLY II
  • ETHICS POLICE OR OMBUDSMEN
    • MANY FIRMS HAVE INDEPENDENT ETHICS OFFICERS
  • STRONG CORPORATE GOVERNANCE
    • STRONG BOARD OF (OUTSIDE) DIRECTORS
    • SEPARATION OF CEO AND CHAIRMAN POWERS
    • COMPENSATION COMMITTEE OF OUTSIDE DIRECTORS
    • AUDIT COMMITTEE OF OUTSIDE DIRECTORS
    • INDEPENDENT AUDITORS
  • MORAL COURAGE
    • FIRMS CAN ENCOURAGE INDIVIDUALS TO BEHAVE ETHICALLY BY NOT RETALIATING
    • REQUIRE INDIVIDUALS/FIRMS TO REPORT UNETHICAL BEHAVIOR
nike again
NIKE AGAIN
  • IS IT ETHICAL FOR NIKE TO MARK UP ITS COSTS BY 100%?
  • IS IT ETHICAL FOR NIKE TO OUTSOURCE PRODUCTS IN ASIAN SWEATSHOPS?
  • IS IT ETHICAL FOR NIKE TO HIDE BEHIND MFG SUBCONTRACTORS?
  • SHOULD THE U OF OREGON PROFIT FROM NIKE’S SUCCESS?
    • SUPPORT FLA (Fair Labor Assoc) or WRC (Worker Rights Consortium)?
    • HOW MUCH $ TO ACCEPT & FOR WHAT ENDS?
    • UO ATHLETIC DIRECTOR’S RECENT RESIGNATION
final questions
FINAL QUESTIONS
  • RELATIONSHIP BETWEEN STRATEGY AND ETHICS
    • LET FIRMS DECIDE ON A FIRM-BY-FIRM BASIS?
    • IF LAWS ARE PASSED, THEY SHOULD BE VIGOROUSLY ENFORCED (ETHICS POLICE)
    • ONE SET OF LAWS/STANDARDS FOR HOME & ANOTHER OVERSEAS: NECESSARY 4 SUCCESS?
    • LOCAL RESPONSIBILITIES & GLOBAL NECESSITITIES
      • CAN FIRMS HONOR THEIR RESPONSIBILITIES AT HOME & BE SUCCESSFUL GLOBALLY?
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