Sustainable Business
Management
Lecture 1
Organisation culture, purpose and values
1
About me
• PJ Davies
• 39 years experience as a fund manager and equity analyst, analysing
and valuing global companies
• London, Tokyo, Paris, Dublin
• Bachelor’s degree 1985
• MBA 1993
• CFA Certificate in ESG Investing 2022
• Financial Times Non-Executive Director Diploma 2023
2
About you
• Where are you from?
3
Why study business ethics and corporate
responsibility?
To help you become more sensitive to
The right course of action is not
the difficult issues when it can be
always clear – in business you will
hard to choose what is right or when
have to make difficult choices
other influences cloud our judgment
By increasing your awareness, we As we shall see, many people see
hope to make you better managers, business as being best placed to solve
dealing with ethical problems and the huge global challenges we face so
social challenges in an informed that means that your generation will
manner be asked to innovate and manage this
4
Learning Outcomes
• Critique and justify sustainable business approaches, taking into account stakeholders,
globalisation, human needs in the workplace, diversity, and corporate citizenship.
• Demonstrate increased capacity to be a responsible, informed, socially aware and self-aware
individual and a contributor to positive organisational change and ethical management
• Anticipate challenges to an organisation’s social and environmental performance and suggest
and defend proposed solutions to these challenges
5
My personal aims
• That my students make the
world a better place
• That I see my students in the
news only for the great things
that they are doing!
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My Teaching
Philosophy
• Learning should be interesting. I
want us all to want to come to class
• People learn from each other, not
just from the teacher
• Group work is important – you will be
assessed partly on your ability to work
as a group
• People learn better when actively
involved
• Ask questions if you don’t understand
or if you need clarification
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How you will learn
• Live face to face lectures for the entire class (Fridays)
• Zoom based tutorials (Mondays) which will take a closer look at an aspect of the
topic discussed in the previous week’s lecture.
PJ Davies
Tutorial Group A Tutorial Group B Tutorial Group C
Team 1 Team 4 Team 7 Team 10 Team 13 Team 16
Team 2 Team 5 Team 8 Team 11 Team 14 Team 17
Team 3 Team 6 Team 9 Team 12 Team 15 Team 18
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How you will learn
• It is important to:
• Attend lectures and zoom tutorials (please do ensure you know
which class group you are assigned to for the tutorials)
• Prepare
• ‘must read’ articles posted on moodle
• other tasks
• Participate in lectures and tutorials
• Ask questions. If you don’t understand something, ask me. There is
no such thing as a stupid question
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Ground Rules – what is expected of
you
• Attend classes
• Do your preparation so that you can participate fully
• Participate in the lectures
• Give your full attention (phones off, email off, social media notifications off)
• Give your opinions and ask questions
• Listen to others
• Be respectful to others
• Participate in the tasks set for you
• For Zoom classes
• Keep video on in during class
• Ensure your user name is the same as your registered name and include your preferred name (if
different)
• Remember to mute when not speaking
10
Some acronyms and terminology
• CSR – Corporate Social Responsibility
• ESG – Environmental, Social and Governance
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Assessment
• Group presentation
• Assignment brief is up on moodle
• Assigned teams
• We will discuss what behaviours we expect of team members
• 45% of your mark is group work
• 55% is individual
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Deadlines
13
Your company
• Please note:
• Your company is imaginary. I have given some examples to give you a sense
of the scale and type of business but you are not managing one of these real
companies
• Your business operates internationally and has been in existence for some
time. It is not a start-up
• Your business is not a fully eco, organic or healthy business. I want you to deal
with the real challenges of running businesses that are not perceived as
‘good’
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What gains marks?
• Teams that have really thought about their business, discussed it in
detail and have a shared vision and understanding
• Teams that have really considered what is important about their
particular business, have identified the issues that are most relevant to
their business and can describe why they are the most relevant
• Teams that have done quality research
• Teams that are comfortable discussing points with me – you may not
have all the answers but an ability to discuss demonstrates that you
have done research and considered issues
• Smooth running presentation, good time management (well rehearsed)
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What loses marks?
• Too many generic issues – make the presentation specific to your business
• Poor research and over reliance on what a similar company is doing in real
life (e.g. don’t just describe what Coca-Cola is doing if your company is a
soft drinks company)
• Plagiarism (and we are very good at finding it) – this is usually an individual
issue. I will not punish a team for plagiarism by one individual that would
be difficult for team members to spot
• A lack of cohesiveness – a presentation that looks like separate
presentations stuck together
• Poor time management
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Desired behaviours
• List the behaviours you’d like to see in an ideal team member
• What are your expectations of your team members?
• Attending classes
• Communication with the team
• Idea generation
• Production of materials
• Etc
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Team Contract
• Recommendation:
• In your teams review the list of desired behaviours
• Decide which are most important to you as a team
• Use them to write a team contract that everyone signs
• Agree what communication platform you will use as a team
• Agree what technology you will use for team meetings
• Agree how you will organise work
• Monitor your progress
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Form your teams
• Group yourselves into teams of 5
• Nominate a team leader
• Team leader to email me names of team members
• I will assign company types to the teams
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What are Ethics?
• How would you define ethics?
• Ethics are a system of moral principles or rules that say what is and is
not acceptable
• Ethics refer to the rules or code of conduct that people use to
determine when an action is acceptable or not
• Personal ethics can contradict society’s ethics. For example, you
believe it is ok to own a gun, but you live in a society where that is
unacceptable
https://www.dictionary.com/browse/ethics#google_vignette
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Why should business be ethical?
• Sceptics say that there is no such thing as ‘Business Ethics’
• Companies exist only to make profits for shareholders – do you
agree?
• Can a company be successful and ethical?
• What about other people with an interest in the company?
• Employees
• Suppliers
• Customers
• The Community
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Why Should a Company be Ethical?
– Robert Reich
https://www.youtube.com/watch?v=sGhJyAYZj9o 23
Stakeholder theory
• Stakeholder – individual or group who is affected by or can affect the organisation
• Shareholders
• Suppliers
• Customers
• Governments
• NGOs
• The Environment
• Local Communities
• Etc
• Stakeholder capitalism is where companies are managed for all stakeholders, not
just shareholders
• Not because they want to be “good” but because this is good for the business
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Stakeholder Theory
• Edward Freeman,
“father of stakeholder
theory”
https://www.youtube.com/watch?v=bIRUaLcvPe8
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Stakeholder diagram
Customers
Government
NGOs
Shareholders/
Owners
General Public The Business Suppliers
Employees
Media
Creditors
Communities
26
Decentred Stakeholder Map
Calton, J., Werhane P., Hartman, L., Bevan, D.
(2013) ‘Building Partnerships to Create Social
and Economic Value
at the Base of the Global Development
Pyramid’ Journal of Business Ethics March-
April
27
Notes from Academic Paper Building
Partnerships to Create Social and Economic Value at the Base of the Global Development
Pyramid
• Article references The Fortune at the Bottom of the Pyramid, Prahalad and
Hart
• The decentred stakeholder map no longer has the company at the centre.
Stakeholders are equal
• Example: Indian banks copying Grameen Bank in microlending failed
because they put their bank at the centre of the stakeholder map rather
than focusing on other stakeholders
• Example: P&G failed to distribute water purification powder in India
because of a failure to work as one of a number of stakeholders
(communities, NGOs)
Calton, J., Werhane P., Hartman, L., Bevan, D. (2013) ‘Building Partnerships to Create Social and Economic Value
at the Base of the Global Development Pyramid’ Journal of Business Ethics March-April 28
Business V Civil Society
Traditionally seen as adversarial relationship Intertwined and need each other
29
Porter, M. & Kramer, M. R. (2011) ‘Creating Shared Value’,
Harvard Business Review, 89(1/2), 62-77
30
Porter, M. & Kramer, M. R. (2011) ‘Creating Shared Value’,
Harvard Business Review, 89(1/2), 62-77
31
Notes from Academic Paper Creating Shared
Value
• Shared value
• Enhances the competitiveness of a company
• Simultaneously advances economic and social conditions in the communities in which
the company operates
• Shared value is created by a company in three ways:
• By reconceiving products and markets
• Eg food companies shifting focus from selling more to developing better nutrition
• By redefining productivity in the value chain
• Eg Walmart reducing packaging and rerouting trucks to shorten journeys and burn less fuel
• By enabling local cluster development
• Eg Nespresso building agricultural, technical, financial and logistical firms and capabilities in each
coffee-growing region
Porter, M. & Kramer, M. R. (2011) ‘Creating Shared Value’,
Harvard Business Review, 89(1/2), 62-77
32
ESG Investing and Reporting
• Environmental, Social, Governance
• Fast growing area of investment
• People want their savings invested in ethical companies
• Companies want to attract investment
• Rules and reporting to create transparency
• What is “sustainable”?
• Greenwashing
• Consistent reporting rules so that investors can make comparisons
33
Definition of ESG Factors
• Environmental Factors
• Factors pertaining to the natural world. These include the use of resources
(e.g. water, minerals, ecosystems and biodiversity)
• Social Factors
• Factors that affect the lives of humans and communities
• Governance Factors
• Factors affecting how companies are governed and managed
34
Examples of ESG Issues
• Environmental • Social • Governance
• Climate change • Human rights • Bribery & corruption
• Resource use • Modern slavery • Lobbying
• Waste management • Child labour • Executive pay
• Pollution • Working conditions • Board structure
• Deforestation • Employee relations • Board diversity
• Sustainable land use • Tax strategy
35
MSCI ESG Universe cited by PWC ESG Oversight 2020 36
Growth of ESG funds
Global Sustainable Investment Review 2022
37
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Opportunity for business in addressing
social issues
Shared value is a management strategy in which
companies find business opportunities in social
problems.
Porter, M. & Kramer, M. R. (2002) ‘The competitive advantage of
corporate philanthropy’, Harvard Business Review, 80(12), 56-68,
Porter, M.E. & Kramer, M. R. (2006) ‘Strategy and society: the link
between competitive advantage and corporate social
responsibility’, Harvard Business Review, 84(12), 78-92
Porter, M. & Kramer, M. R. (2011) ‘Creating Shared Value’, Harvard
Business Review, 89(1/2), 62-77
Porter, M. & Kramer, M. R. (2015) ‘Profiting the Planet’, Fortune.
9/1/2015, Vol. 172 Issue 3, p64-65
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• “… companies are likely to be more resilient in the face of unexpected
shocks and hardships if they are managed for the long term and in
line with societal megatrends such as inclusion and climate change.”
• Serafeim, G. (2020) Social-impact Efforts that Create Real Value, Harvard Business Review
September-October
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ESG Reporting
• How do investors decide which companies are most ethical?
• BP, Shell, Exxon?
• H&M, Shein, Primark?
• Nestlé, Unilever, P&G?
• They need frameworks, reporting standards and ratings
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Framework
• EU Taxonomy
• The EU Taxonomy is a classification system designed to define
environmentally sustainable economic activities within the European Union
• Its primary goal is to provide clarity on what can be considered "green" or
environmentally sustainable, particularly in the context of investments
• Defines criteria for economic activities that are aligned with a net zero
trajectory by 2050
• Defines criteria for non-climate related environmental goals
https://finance.ec.europa.eu/sustainable-finance/tools-and-
standards/eu-taxonomy-sustainable-activities_en
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Framework
• SBTi (Science Based Targets initiative)
• The Science Based Targets initiative (SBTi) is a collaborative effort between
CDP (formerly the Carbon Disclosure Project), the United Nations Global
Compact (UNGC), World Resources Institute (WRI), and the World Wide Fund
for Nature (WWF). It helps companies set science-based targets (SBTs) to
reduce greenhouse gas (GHG) emissions and meet the goals of the Paris
Agreement.
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Reporting Standards
• ISSB (International Sustainability Standards Board)
• A standard setter formed at COP 26 in Glasgow in 2021 to develop "a high-quality,
comprehensive global baseline of sustainability disclosures focused on the needs of
investors and the financial markets". The ISSB released first 2 standards in Jun 2023
• ESRS (European Sustainability Reporting Standards)
• Adopted by the EU in July 2023. Closely aligned with ISSB
• GRI (Global Reporting Initiative)
• US based. Since its first draft guidelines were published in March 1999, GRI's
voluntary sustainability reporting framework has been adopted by multinational
organizations, governments, small and medium-sized enterprises (SMEs), NGOs,
and industry groups. Over 10,000 companies from more than 100 countries use
GRI. ISSB and GRI will work together on "full interoperability"
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ESG Rating Agencies
• Agencies evaluate the ESG credentials of companies
• Rank companies according to ESG criteria
• Investors pay for this information to build green funds, responsible
funds, etc KLD
Sustainalytics
• Problems EcoVadis
Bloomberg
• Inconsistency between agencies
S&P Global CPD
• Mistakes (Tate & Lyle)
• Over-simplification (one number) Thomson Reuters MSCI
• Too many agencies RepRisk
ISS
Dow Jones Corporate Knights
FTSE Russell Moody’s Refinitiv
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Edelman Trust Barometer
• Annual global survey (since 2000) that measures public trust in 4
institutions:
• Government,
• Business
• Media
• NGOs
• The survey covers tens of thousands of people across many countries
• Shows trends in trust of institutions
• Trust is influenced by issues such as economic inequality, climate
change, technology
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2022 Edelman Trust Barometer
• People are very distrustful
• Business is more trusted than government
• There is a downward cycle of trust
• People want business to lead change
• Investors are not just focused on financial performance. They also
want operational excellence and a focus on ESG
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2022 Edelman Trust Barometer
https://www.youtube.com/watch?v=8BMZQBCIrtc
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2023 Edelman Trust Barometer
• Division has moved to polarisation
• Ideology has become identity
• Low trust in government
• Business is the only trusted institution
• Decline in economic optimism
• The rich trust more than the poor
• Business must continue to lead in diversity & inclusion, climate
change
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2023 Edelman Trust Barometer
https://www.youtube.com/watch?v=56tcawlusPA
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2024 Edelman Trust Barometer
• Innovation is poorly managed
• The impact of innovation needs to be prioritised
• There should be more government regulation to control innovation
• There needs to be more transparency
• Business is still the most trusted institution
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2024 Edelman Trust Barometer
https://www.youtube.com/watch?v=xO73R1KAmIY
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Purpose
• What is the purpose of a business?
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Business Purpose
• “Why are we here? I think many people assume, wrongly, that a
company exists solely to make money. Money is an important part of
a company's existence, if the company is any good. But a result is not
a cause. We have to go deeper and find the real reason for our being.”
• David Packard (of HP) quoted in Handy, C. 1997 The Hungry Spirit Broadway
57
Business Purpose – FRC
• Financial Reporting Council (UK)
• Independent regulatory body
• Sets standards for auditors
• Publishes the Corporate Governance Code which must be followed by UK
listed companies
• Publishes the Guidance on Board Effectiveness to help boards understand
their role and improve their companies
• Develops accounting and reporting standards for companies
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Business Purpose – FRC
‘A company’s purpose is the reason for which it exists.
The board is responsible for setting and reconfirming the company’s
purpose.
A well-defined purpose will help companies to articulate their business
model, and develop their strategy, operating practices and approach to risk.
Companies with a clear purpose often find it easier to engage with their
workforce, customers and the wider public.’
FRC Guidance on Board Effectiveness paragraph 12
59
Business Purpose – Knowles et al.
• A purpose is about the essence of the company. Its goal is to achieve
buy-in from a broad range of stakeholders—whereas the function of
brands is to persuade consumers to buy the company’s products and
services.
Knowles, J., Hunsaker, B.T., Grove H. and James, A. (2022) ‘What is the Purpose of your Purpose?’
Harvard Business Review March-April
60
Examples of company purpose
• Medtronic – to alleviate pain, restore health, and extend lives
• Coca Cola – to refresh the world
• Ikea - to create a better everyday life for the many people
• Tesla – to accelerate the world’s transition to sustainable energy
• Kellogg’s - Nourishing families so they can flourish and thrive
• Southwest Airlines - To connect People to what's important in their lives
through friendly, reliable, and low-cost air travel
• What do the above have in common?
61
Examples of company purpose
• Advanced Micro Devices – Technology enabling a better world
• Pfizer – Working together for a healthier world
• M&T Bank – To make a difference in people’s lives
• Huntington Bancshares - To make people’s lives better, help businesses
thrive, and strengthen the communities we serve
• JLL – We shape the future of real estate for a better world
• Expedia – To bring the world within reach
• Foot Locker – To inspire and empower youth culture
• Wells Fargo – To help our customers succeed financially
https://purposebrand.com/blog/best-purpose-statements-fortune-500/
62
Analysis of 115 purpose statements
• Word count
• Live / lives / life 45
• People 28
• World 26
• Better 21
• Help 19
• Customer 15
https://purposebrand.com/blog/best-purpose-statements-fortune-500/
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Purpose of a company
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Purpose can evolve – Unilever
example
• 1996 – 2003 Meeting the everyday needs of people everywhere
• 2004 – 2008 Adding vitality to life
• 2009 – 2011 Creating a better future every day
• 2012 – present Making sustainable living commonplace
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Purpose can evolve – Sage example
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Culture
• What do we mean when we speak about the culture of an
organisation?
69
• What do we mean by an organisation’s culture?
• Set of values/beliefs, goals, norms that the members of an
organisation share
• The unwritten rules
• Tradition and history reinforced by the recounting of stories
• Norms of behaviour - “The way we do things around here”
• Or “the invisible powerful force that gently nudges you into
compliance with how we do things around here”
• Dr. Linda Ford author of The Fourth Factor: Managing Corporate Culture
• We cannot be complacent about the impact of culture on behaviour
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Graham, J., Grennan, J., Harvey, C., Rajgopal S. (2022) ‘Corporate Culture: Evidence from the
Field’ Journal of Financial Economics 146, 552 – 593
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Values
• The attributes that are held to be important in an organisation
• The attributes that define the organisation’s ‘personality’
• Help to define the kind of behaviour expected of people in the
organisation
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Values
• Core – Behavioral traits that are core and unique to your organization –
no compromise
• Permission to Play – Important to you, but is it something that would
apply to most organisations e.g. Integrity or honesty
• Aspirational – Things you want to be true about your organisation but
they aren’t core values at the moment and need to be worked at.
• Accidental – Values that happen to us. They worm their way in without
us intending them and don’t reflect what we want to be
• Lencioni, P. (2012) The Advantage Jossey Bass
73
Identifying our Org Values
• Why do we exist as a business? What is our purpose?
• What is different about us as a business?
• What are our principles? What do we stand for?
• What will never change even if it has a short-term cost?
• Not necessarily nice and sweet, can be tough.
• E.g. speed of response rather than a focus on friendliness and
politeness may be required for a business to fulfil its purpose
effectively
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Values
• Strong values create a corporate ‘personality’
• Truly embedded in the organisation and guides employees in their behaviour and
the way decisions are made
• Collins and Porras in their seminal work ‘Built to Last’ found this to be one of the
key factors in ensuring corporate success over a long period of time
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Embedded values or window
dressing?
• Values must be known
• Shared understanding about what they mean
• Shared understanding of the behaviours that demonstrate the values
• Behaviours must be role modeled consistently by leaders in the
organisation
• Match between the values and policies/processes within the
organisation
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For Assessment
• In your presentation, outline the ‘purpose’ of your company (we’ll be
doing some work on this in the tutorial)
• Outline the values of your company
• Explain why they are important values for your particular business
• Outline what you will do to help ensure they are real lived values in the
business
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Preparation for zoom tutorial
• View the Simon Sinek Ted Talk “How Great Leaders Inspire Action”
• Read the FRC Guidance on Board Effectiveness (2018) section 1,
paragraphs 11 to 14 (next slides)
• Read the must-read article:
• Knowles, J., Hunsaker, B.T., Grove H. and James, A. (2022) ‘What is the
Purpose of your Purpose?’ Harvard Business Review March-April
• Create a purpose for your company
79
Board Leadership and Company
Purpose
FRC Guidance on Board Effectiveness paragraph 11
An effective board defines the company’s purpose and then sets a
strategy to deliver it, underpinned by the values and behaviours that
shape its culture and the way it conducts its business. It will be able to
explain the main trends and factors affecting the long-term success and
future viability of the company – for example technological change or
environmental impacts – and how these and the company’s principal
risks and uncertainties have been addressed.
80
Board Leadership and Company
Purpose
FRC Guidance on Board Effectiveness paragraph 12
A company’s purpose is the reason for which it exists. The board is
responsible for setting and reconfirming the company’s purpose. A
well-defined purpose2 will help companies to articulate their business
model, and develop their strategy, operating practices and approach to
risk. Companies with a clear purpose often find it easier to engage with
their workforce, customers and the wider public.
81
Board Leadership and Company
Purpose
FRC Guidance on Board Effectiveness paragraph 13
A sound understanding at board level of how value is created over time is
key in steering strategies and business models towards a sustainable
future. This is not limited to value that is found in the financial
statements. An understanding of how intangible sources of value are
developed, managed and sustained – for example a highly trained
workforce, intellectual property or brand recognition – is increasingly
relevant to an understanding of the company’s performance and the
impact of its activity. These are important considerations for boards when
setting corporate strategy.
82
Board Leadership and Company
Purpose
FRC Guidance on Board Effectiveness paragraph 14
Boards have a responsibility for the health of the company and need to
take a long-term view. This is in contrast to the priorities of some
investors, not all of whom will be aligned with the pursuit of success
over the long-term. An effective board will manage the conflict
between short-term interests and the long-term impacts of its
decisions; it will assess shareholder and stakeholder interests from the
perspective of the long-term sustainable success of the company.
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Purpose: Edward Freeman
https://www.youtube.com/watch?v=7dugfwJthBY 84
Purpose: Simon Sinek
How Great Leaders Inspire Action
https://www.youtube.com/watch?v=u4ZoJKF_VuA 85
