Question

QUESTION 1 Read the extract below and answer the questions which follow:

Stakeholder Engagement
The Challenge
The fast-changing events of 2008 reinforced how important it is to understand the undercurrents of change that shape our world—and determine the success of business strategy. Companies that anticipate underlying social, economic, technological, and political changes are positioned to win.
Our Strategy
BSR, in partnership with the Institute for the Future (IFTF), developed a framework called Sustainability Outlook to identify the signals of change likely to define sustainability over the coming decade. Working with a cross-industry group of 10 companies, the BSR/IFTF team of experts produced a map of emerging trends. We then used our distinct lenses to consider how these new realities could be shaped and managed: market-based solutions, regulatory efforts, technological innovation, and bottom-up solutions from "the commons." We also developed scenarios to illustrate specific aspects of the map.
Among the questions we explored were: What if the advancement of mobile and sensor technology enables individuals to monitor each other's environmental impacts? What if the use of infrastructure becomes taxed? What if measuring social and environmental impacts becomes integrated into business accounting?
The group also examined four future scenarios that were influenced by different sets of sustainability-related factors. We explored this content in workshops and asked ourselves: What could the business operating environment look like in the future? What does this mean for our companies today?
Our Impact
Sustainability Outlook provided participating companies a window into the future of sustainability. The various materials were designed to be a "wind tunnel" through which participating companies could test their own sustainability strategies, as well as learn from each other and the BSR/IFTF team. BSR and the companies involved with this group—Campbell Soup Company, Deloitte, General Motors, Ikea, Kraft Foods, Nike, Procter & Gamble, Rio Tinto,

Starbucks Coffee Company, and Sun Microsystems—have been able to take a long-term, bigpicture view of the future business environment. This focus on identifying new opportunities in addressing critical horizon challenges has helped companies switch from a risk-management to a forward-looking approach.
In late 2008, we began the second phase of Sustainability Outlook, which will explore future trends through an online wiki-based tool, and will allow participating companies to integrate the lessons from this innovative project into their strategies.
Source: https://www.bsr.org/en/our-insights/case-study-view/sustainability-outlookforecasting-the-future

1.1 Who are the stakeholders in this case and what are their stakes?    (5)

1.2 Is it possible for stakeholder relationship to be only one-way? Discuss.   (5)

1.3 Why is it important to engage on sustainability?      (10)

1.4 What is meant by a ladder of stakeholder engagement?     (5)                                          [25]

QUESTION 2 How can governance failures such as that of Enron which resulted in major global turmoil be avoided? [25]

QUESTION 3 Discuss the three models of management ethics and explain why it is critical to observe sound ethical practices in all stakeholder relationships. Provide examples from wider reading.    [25]

QUESTION 4 Discuss the idea of regulation and why it is necessary for government to regulate. Also explain the key benefits and possible drawbacks of regulation for all stakeholders using examples from wider reading. [25]

Answer 1

Answering the first 5 questions:

1.1 The various stakeholders in this case are:

• The management of the companies: They have to keep a check on the performance of the company and ensure that sustainable measures are adopted in the business process
• The shareholders: They need to have a knowledge about the way their money is getting utilized in the business process
• Government: The government interventions must facilitate sustainable measures in the business process
• Consumers: The consumers must demand sustainable products from the company

1.2 Stakeholders are the entities who can affect a decision, activity, and course of action or the result of a project. Basically the key stakeholders in project management are:

• Users: The entities who will consume the end product of the project
• Governance: Group of people who are involved in managing the project. Example: management board, auditors, etc.
• Providers: The providers of raw material and services for successful flow of the project. Example: vendors and suppliers
• Influencers: The external entities that have the power to change the course of the project at any instant. E.g.: market conditions, trade unions, etc.

Project Management phases and stakeholder involvement:

• Initiation phase: The governance and influencers come into play. Based on the influencers, the governance will decide on the project framework.
• Planning phase: Governance with the help of the providers, develop a project plan
• Execution phase: The governance sets into action and keeps the project flow adherent to timelines
• Monitoring & Closing Phase: The Users come into play here.

This will be the most efficient way of handling the stakeholders in the project.

For the business to run smoothly and for successful achievement of objectives, it is essential that all stakeholders work in harmony and in tandem towards the business objectives.

1.3 Companies are moving towards sustainability and are becoming increasingly aware of the impact its business operations have on the environment. Many companies have implemented ISO 14000 as a part of their CSR activity so that the focus is on improving the conditions of the deteriorating environment.

Environment management is the need of the hour in this era of global warming and ever-increasing pollution. Companies are trying to be socially responsive in the way, their business operations impact environment. So, they have started taking care that the waste of their operations is either discharged efficiently or is recycled and reused. Many companies have banned plastic while adhering to ISO 14000. These mini steps are critical to maintain the sanctity of the environment.

Sustainability reporting is the mechanism used by organizations to analyze and report the impact of its business operations and activities on environment, society and economic climate. This tool is used to track the changes that the business’ operations are causing to the external environment. Sustainability practices and metrics are tracked with the help of this sustainability reporting.

Some of the metrics that are disclosed through sustainability reporting are:

• Carbon emissions
• Water consumption in business operations
• Waste generation
• Waste recycling
• Climate Disclosure reporting
• CSR initiatives taken for the betterment of society

The various advantages of sustainability reporting are:

• This is used as a tool to link the financial and non financial business performance
• Impact of business on external environment can be tracked and regulated
• External risks and opportunities can be estimated with the help of sustainability reporting
• Sustainability reporting helps in streamlining the business processes to increase their efficiency and cost effectiveness.

1.4 The ladder of stakeholder engagement is used to define the extent of stakeholder involvement and participation in the business processes. A business objective can be met efficiently if the stakeholder involvement is 100%. The stakeholders must be involved in all the major business processes and policies of the company. This helps in having comprehensive process and policy discussion and facilitates its implementation in the long run.

2. Enron Corp. was considered as America’s most innovative company since its integration in 1985. Enron was placed as the energy trader and supplier. At that time, there was deregulation in the energy market, which gave permission to the companies to bet on the future prices. Enron took advantage of this opportunity. This regulatory industry environment helped Enron to flourish.

With the commencement of dot-com bubble in 1990s, Enron also decided to participate in the market trend. Enron created Enron online i.e. EOL in 1999. This was an electronic trading website which had its focus on commodities. The conditional transactions through EOL had Enron, either as the buyer or the seller. Enron used to give credit to the participating companies to encourage trading. It was considered as America’s most innovative company for 6 years.

When recession hit USA in 2000, Enron resorted to mark-to market accounting., which helped the company to write off unprofitable activities without affecting the bottom line of the company. This led to introduction of pseudo schemes, which hid the company’s losses and made company look profitable in the market. So, though the company was making losses, people were investing in it owing to the profitable mask dawned by the company in the market.

This was a clear case of fraud. The investors and the market was bluffed to consider that Enron Corp. was a very profitable company while in reality, it was struggling for mere existence.

Several of Enron’s executives were roped in for the fraud. The fraudulent activities included insider trading, conspiracy and securities fraud. Enron’s founder was also convicted. He was convicted for 24 years sentence along with a hefty money penalty. The impact of the fraud led to Enron’s downfall.

The Sarbanes-Oxley Act was passed in the year 2002 after the Enron scandal, to protect shareholders against any type of accounting fraud. It requires the companies to have stringent audit policies and strict adherence to the audit schedule. Also it makes any director liable for maintaining accuracy in the financial statements of the company. The SOX Act helps in keeping such conflicting interests in check and give priority to the overall interest of the involved shareholders.

Following are the major impact that the Sarbanes-Oxley Act had on the corporate governance of a company:

• This act empowered the board of directors to hold accountability for the financial statements of the company.
• Corporate code of ethics got imbibed in the culture of the company with the introduction of this act.
• This act laid the importance of having a knowledgeable in house counsel in the company to monitor the legal adherence in all business processes.
• Shareholder activism got encouraged by introduction of this act.