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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: 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

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  1. CORPORATE PERFORMANCE, GOVERNANCE & BUS ETHICS SPRING 2007 BUS 189 DR. MARK FRUIN

  2. 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

  3. 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

  4. 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?

  5. CORPORATE GOVERNANCE • BALANCING INTERNAL & EXTERNAL STAKEHOLDERS • INTERNAL • SHAREHOLDERS • EMPLOYEES • MANAGERS • BOARD MEMBERS • EXTERNAL • CUSTOMERS • SUPPLIERS • UNIONS • LOCAL COMMUNITIES • CREDITORS

  6. 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

  7. 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

  8. 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)

  9. 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?

  10. 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

  11. 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?

  12. 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

  13. 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)

  14. 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

  15. 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

  16. 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

  17. 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

  18. 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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