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Culture, values and ethics of organizations

MITB025VA 19 ESIC VALENCIA

Culture, values & ethics or organizations

Elías Amor
Culture, values & ethics of organizations
MITB025VA19

Introduction
In the modern business world, the terms core values, mission statement and culture, are
constantly heard and for that reason they have been integrated in the business language
and practice, among many other terms and concepts. But what is the culture of an
organization? What are company core values? And, why are they so important for the
ethics of organizations?

By organizational culture we refer to the way people behave in the workplace, how they
go about doing their work, and the values that they demonstrate through their actions
and decision-making1.

Organizational culture passes down from long serving staff to new hires and becomes
embedded in how the organization operates. Thus, organizational culture is influenced
and impacted not just by written regulations, rules and policies, but also by the
unwritten code of “how we really do things around here”.

Besides the organizational culture can be aligned with its stated values and policies
(ethical), or it can be contradictory of those written statements (unethical). Very often,
employees will do what they know is rewarded and will avoid doing what they know
will be punished.

To create and sustain an ethical organizational culture it is necessary a constant


communication about the ethical values of the organization to ensure that the behaviors
of all leaders and staff members are aligned with those values.

This requires going beyond just the written rules to reaching for the highest aspirational
behavior. It means living the principles underpinning the values, even when there is no
rule or where the written rule is unclear.

An ethical organizational culture is just what guides decision-making when no one is


looking; it is what staff will rely on when there is no rule in place to address the
dilemma being faced; it is what supports open discussion of difficult situations related
with the company, and it is what sustains trust when information is unclear or facts are
not known.

1 Vid https://www.undp.org/content/undp/en/home/blog/2014/8/12/creating-and-sustaining-ethical-
organizational-culture-.html

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An ethical organizational culture builds staff loyalty, fosters a sense of responsibility to


deliver results through ethical means as well as to protect the image and reputation of
the organization. It also promotes the commitment needed to manage the organization’s
most difficult challenges or to adapt to new circumstances. For all these reasons, it has a
formidable strategic impact in the organization.

Culture
What is the culture of an organization?

Organizational culture includes an organization’s expectations, experiences, philosophy,


as well as the values that guide member behavior, and is expressed in member self-
image, inner workings, interactions with the outside world, and future expectations.

Culture is based on shared attitudes, beliefs, customs, and written and unwritten rules
that have been developed over time and are considered valid. Culture also includes the
organization’s vision, values, norms, systems, symbols, language, assumptions, beliefs,
and habits.

While the above definitions of culture express how the construct plays out in the
workplace, other definitions stress employee behavioral components, and how
organizational culture directly influences the behaviors of employees within an
organization.

Under this set of definitions, organizational culture is a set of shared assumptions that
guide what happens in organizations by defining appropriate behavior for various
situations. Organizational culture affects the way people and groups interact with each
other, with clients, and with stakeholders. Also, organizational culture may influence
how employees identify with their organization.

In business terms, other phrases are often used interchangeably, including “corporate
culture,” “workplace culture,” and “business culture.” Business leaders are vital to the
creation and communication of their workplace culture.

However, the relationship between leadership and culture is not one-sided. While
leaders are the principal architects of culture, an established culture influences what
kind of leadership is possible.

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Leaders must appreciate their role in maintaining or evolving an organization’s culture.


A deeply embedded and established culture illustrates how people should behave, which
can help employees achieve their goals.

This behavioral framework, in turn, ensures higher job satisfaction when an employee
feels a leader is helping him or her complete a goal. From this perspective,
organizational culture, leadership, and job satisfaction are all inextricably linked.

Models for the analysis of the culture of organizations.

There is a variety of ways of culture for organizations including differences manifested,


but not limited to2:

Person Culture and Market Culture

How members of an organization conduct business, treat employees, customers, and the
wider community are strong aspects of person culture and market culture. Person
culture is a culture in which horizontal structures are most applicable. Each individual
is seen as more valuable than the organization itself. This can be difficult to sustain, as
the organization may suffer due to competing people and priorities.

Market cultures are results-oriented, with a focus on competition, achievement, and


“getting the job done”.

Adaptive Culture and Adhocracy Culture

The extent to which freedom is allowed in decision making, developing new ideas and
personal expression are vital parts of adaptive cultures and adhocracy cultures. Adaptive
cultures value change and are action-oriented, increasing the likelihood of survival
through time.

Adhocracy cultures are dynamic and entrepreneurial, with a focus on risk-taking,


innovation, and doing things first.

Power Culture, Role Culture, and Hierarchy Culture

How power and information flow through the organizational hierarchy and system are
aspects of power cultures, role cultures, and hierarchy cultures. Power cultures have one
leader who makes rapid decisions and controls the strategy.

2 Vid https://www.ocai-online.com/about-the-Organizational-Culture-Assessment-Instrument-
OCAI/Competing-Values-Framework

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This type of culture requires a strong deference to the leader in charge. Role cultures are
where functional structures are created, where individuals know their jobs, report to
their superiors, and value efficiency and accuracy above all else.

Hierarchy cultures are similar to role cultures, in that they are highly structured. They
focus on efficiency, stability, and doing things right.

Task Culture and Clan Culture

How committed employees are towards collective objectives are parts of task cultures
and clan cultures. In a task culture, teams are formed with expert members to solve
particular problems.

A matrix structure is common in this type of culture, due to task importance and the
number of small teams in play. Clan cultures are family-like, with a focus on mentoring,
nurturing, and doing things together.

The Organizational Culture Assessment Instrument (OCAI) and The


Competing Values Framework (CVF)
The Organizational Culture Assessment Instrument (OCAI), developed by © Kim
Cameron and Robert Quinn at the University of Michigan, is a validated research
method to assess organizational culture. The Competing Values Framework (CVF)
emerged from research3 to identify the organizational effectiveness criteria.

The criteria that were found to make a difference are the dimensions internal-external,
and stability-flexibility.

3 From Quinn, R.E., Rohrbaugh J. (1981).


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Internal-external dimension

An organization might have an internal orientation; focusing inward on development,


collaboration, integration of activities, coordination. Or it might have an external
orientation; looking at the market, what’s possible with the latest technology, what
competitors are doing, what customers want, and it could diversify activities as a result.

Both internal and external attention are needed to be successful in the long run, but
depending on their environment an organization will have a dominant preference. An
agile, volatile market will evoke an external orientation whereas a stable environment
will allow for an internal focus.

Note the “competing” nature of the values: it is necessary to choose whether the firm
look inside or outside, it is not possible to do both at the same time.

Stability-flexibility dimension

The second defining dimension is the focus on stability or flexibility, organizations that
prefer to organize for stability value clear structures, planning, budgets, and reliability.
They assume that reality can be known and controlled. Organizations that organize with
flexibility assume the opposite: you can never predict and control everything. They
prefer a flexible attitude and organization to adapt quickly to changing circumstances
focusing more on people and activities than on structure, procedures, and plans.

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The “competing values” nature of stability and flexibility prevents the company from
doing both at the same time. Organizations can spend their money, attention, and time
only once, so they tend to emphasize certain values. Flexible organizations are most
effective, which sometimes leads to contradictory behavior. The “best” organizations
use all four value sets when necessary.

A culture type works best in the activities domain that aligns with its values. In the
health care sector, for instance, we often see clan culture.

In a specific domain or market, one culture type might fit better than another, and this is
for the organization to decide. "When would be at our best?"

Six guidelines for culture change.

1.- Formulate a clear strategic vision.

This vision gives the intention and direction for the future culture change.

2.- Display top-management commitment.

The top of the organization must favor the culture change in order to actually implement
the change in the rest of the organization.

3.- Model culture change at the highest level.

The behavior of the management needs to symbolize the kinds of values and behaviors
that should be realized in the rest of the company. Change agents are keys to the success
of this cultural change process and important communicators of new values.

4.- Modify the organization to support organizational change.

This includes identifying what current systems, policies, procedures and rules need to be
changed so alignment with the new values and desired culture4 can be achieved.

5.- Select And Socialize Newcomers And Terminate Deviants.

Encouraging employee motivation and loyalty to the company will create a healthy
culture. Training should be provided to all employees to help them understand the new
processes, expectations, and systems.

4 https://gothamculture.com/2018/04/09/create-a-culture-of-leaders/
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6.- Develop ethical and legal sensitivity.

This step can identify obstacles of change and resistant employees 5 and acknowledge
and reward employee improvement, encouraging continued change and involvement.

Influencing the Culture of an Organization

There are four primary ways to influence the culture of an organization.

.Emphasize what’s important. This includes widely communicating goals of the


organization, posting the mission statement on the wall, talking about
accomplishments and repeating what you want to see in the workplace.

.Reward employees whose behaviors reflect what’s important.

.Discourage behaviors that don’t reflect what’s important. There is no need to


punish or cause prolonged discomfort. Rather, you want to dissuade the
employee from continuing unwanted behaviors by giving them constructive
feedback, verbal warnings, written warnings, or firing them.

.Model the behaviors that you want to see in the workplace. This is perhaps the
most powerful way to influence behaviors in the workplace. For example, if you
want to see more teamwork among your employees, then involve yourself in
teams more often.

Conclusions
Basically, organizational culture can be understood as the personality of the
organization.

Culture is composed by the assumptions, values, norms and tangible signs of


organization members and their behaviors. Members of an organization soon come to
feel the particular culture of an organization.

Culture is one of those terms that's difficult to express distinctly, but everyone knows it
when they experience it. For example, the culture of a large, for-profit corporation is
quite different of a hospital which is at the same time, quite different from that of a
university.

5 Check https://gothamculture.com/2018/03/07/guide-dealing-difficult-people/
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Sometimes it is possible to catch the culture of an organization by looking at the


arrangement of furniture, what they brag about, what members wear, etc. -- similar to
what you can use to get a feeling about someone's personality.

Corporate culture can be looked at as a system. Inputs include feedback from society,
professions, laws, stories, heroes, values on competition, or service, etc. The process is
based on our assumptions, values and norms, e.g., our values on money, time, facilities,
space and people. Outputs or effects of our culture are, e.g., organizational behaviors,
technologies, strategies, image, products, services, appearance, etc.

The concept of culture is particularly important when attempting to manage


organization-wide change. Practitioners are coming to realize that, despite the best-laid
plans, organizational change must include not only changing structures and processes,
but also changing the corporate culture as well.

There's been a great deal of literature generated over the past decade about the concept
of organizational culture -- particularly in regard to learning how to change
organizational culture. Organizational change efforts are rumored to fail the vast
majority of the time.

Usually, this failure is credited to lack of understanding about the strong role of culture
and the role it plays in organizations. That's one of the reasons that many strategic
planners now place as much emphasis on identifying strategic values as they do mission
and vision.

Quite often, a leader has a very good sense of the culture of their organization. They just
haven’t made that sense conscious to the extent that they can effectively learn from, and
lead within, the culture.

Different people in the same organization can have different perceptions of the culture
of the organization. This is especially true regarding the different perceptions between
the top and bottom levels of the organization.

For example, the Chief Executive may view the organization as being highly focused,
well organized and even rather formal. On the other hand, the receptionist might view
the organization as being confused, disorganized and, sometimes, even rude.

Here are some basic guidelines to help a leader assess the culture of their organization.

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1.- Understand some of the major types of cultures. There are a number of research
efforts that have produced lists of different types of culture. You can start by reviewing
the very short list in the previous subsection, Major Types of Cultures.

2.- Describe the culture of the organization. Consider what to see and hear, not what
is felt and believed.

Then answer some of the following questions:

a. Who seems to be accepted and who doesn’t? What is it about those who are accepted
as compared to those who aren’t?

b. What kinds of behaviors get rewarded? For example, getting along? Getting things
done? Other behaviors?

c. What does management pay the most attention to? For example, problems?
Successes? Crises? Other behaviors?

d. How are decisions made? For example, by one person? Discussion and consensus?
Are decisions made at all?

There may not be close alignment between what the organization says it values (for
example, creativity, innovation, team-building) as compared to what you’re actually
seeing (for example, conformity, individualism).

This disparity is rather common in organizations. This disparity has to be explained to


other leaders in the organization. An ideal time to address this disparity is when
developing a value statement during the strategic planning process.

Discussion in class.
The following perspectives provide the kind of holistic, nuanced view of organizational
culture that is needed by leaders in order to truly understand their organizations — and
to have any hope of changing them for the better.

“Culture is how organizations ‘do things’.” — Robbie Katanga

“In large part, culture is a product of compensation.” — Alec Haverstick

“Organizational culture defines a jointly shared description of an organization from


within.” — Bruce Perron

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“Organizational culture is the sum of values and rituals which serve as ‘glue’ to
integrate the members of the organization.” — Richard Perrin

“Organizational culture is civilization in the workplace.” — Alan Adler

“Culture is the organization’s immune system.” — Michael Watkins

“Organizational culture [is shaped by] the main culture of the society we live in, albeit
with greater emphasis on particular parts of it.” — Elizabeth Skringar

“It over simplifies the situation in large organizations to assume there is only one
culture… and it’s risky for new leaders to ignore the sub-cultures.” — Rolf Winkler

“An organization [is] a living culture… that can adapt to the reality as fast as possible.”
— Abdi Osman Jama

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VALUES
What are company values?

Company values, also known as Corporate values or Core values, are the fundamental
beliefs upon which a company and its behavior are based. Core values support the
vision, shape the culture and reflect what the company consider really important.

They are the essence of the company’s identity, the principles, beliefs or philosophy of
values. Many companies focus mostly on the technical competencies, but often forget
what are the underlying competencies that make their companies run smoothly, core
values.

They act as the guiding principles that business uses to manage internal affairs as well
as the relationship with customers. Once set, core values need to be firm and
unwavering, a mandate rather than a suggestion.

They should affect every aspect of the company, from employee benefit packages and
workplace culture to marketing strategies and customers service. Company values
should be more than stated values; they must be practiced values.

If the company doesn’t follow through on the values it claims to hold, it can’t expect
hypocrisy to go unnoticed, or unanswered, by consumers.

Employees, likewise, will notice if their company isn’t living up to its values statement,
which can damage morale.

Why are company values important?

Simply put, millennials generation is too large to ignore. Numbering 83.1 million,
surpassed baby boomers in the 2014. If corporate values matter to millennials, and they
do, then they should matter to managers, too.

As employees and customers, millennials favor companies whose values align with their
own personal values. That makes corporate values an important part of both driving
sales and attracting top candidates.

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According to a study by Fidelity6, millennials would be willing to take, on average, a


$7.600 pay cut for a healthier work-life balance, a better company culture, career
development, or a more meaningful job, factors that would improve their overall quality
of life. A strong set of company values also gives the company direction and helps it to
build a reputation.

They set the tone for how the firm interacts with customers, markets its products, and
makes important decisions. If they are taken seriously, core values will help to construct
a solid brand identity and a cohesive business plan.

Here are just a few of the ways core values can benefit a company:

Business growth

Every company has a business plan, a mission statement and a number of steps it needs
to take to reach its goals. Core values are what determine how these goals are reached.
For example, if one of core values is innovation, looking for new ways to complete
projects and reach the goals should be encouraged. Business will grow succesfully when
core values are utilised to achieve goals.

Employee performance and productivity

A concrete set of core values can help to keep staff engaged and motivated, therefore
raising performance and productivity levels. When employees respect and believe
company values, they often obtain a greater understanding of their job role and how
they can help achieve business goals. Having a staff-base that’s aligned with company
core values also creates a pleasant working environment, which is very important for
employee performance and productivity.

Raise company profile/competitor advantage

Publicising company core values is an effective method of raising company profile.


Displaying them on the website, tell potential clients about them, incorporate them into
advertising campaigns. Alongside this, company must be sure to demonstrate core
values in all aspects of its business, customer service, client communication, recruitment
etc. Doing so will allow outsiders to see how your business operates, and if they like it,
they’ll tell people about it. We all know what a brilliant advertising tool word of mouth
can be.

6 This is the report https://www.businesswire.com/news/home/20160407005736/en/Quality-Work-


Life-Worth-7600-Pay-Cut
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Staff retention

It’s no secret that to retain staff, the company must make the workplace an enjoyable
place to be. Ensuring staff feel appreciated, listened to and trusted are all factors that
contribute to staff retention, along with other incentives such as the possibility of career
progression. Incorporating these factors into the company’s core values will help to
create an environment staff will want to work, learn and grow within.

Attract new clients/employees.

Sharing company core values with the public is a great way to attract more clients and
potential employees - both of whom will likely do their research before deciding to do
business with, or interview with, a company. If company´s workplace values align with
their own, there’s a very good chance of working with first-class clients and finding
employees that are naturally a great fit for the company. On top of this, remember that
each employee is an advert for the company, the way individuals speak, act and their
attitude will be picked up by potential clients or employees.

Happy customers

The customer is always right and caring about a company’s values comes first and
foremost for many consumers. Creating core values that are customer-focused is
fundamental, regardless of the nature of the business, to be customer facing or not.
Customers can be people who buy products or services made by the company, but also
other businesses and clients. Manifesting company’s core values in all that the company
does will result in happy, satisfied customers.

How can be defined company values?

Corporate values can be incorporated in the firm mission statement or write a separate
statement of core values.

Either way, the process should start with a brainstorming session inviting a handful of
people who understand and embody the traits which are pursued by the company.

These could include the founder, CEO, and other company officers, but key employees
are important too, such as top salesman, the most respected managers, or the best
designer. Each participant should be asked to list what they think the company’s values
are or should be.

Some questions are:

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.What core values will resonate with our customers?


.What principles should guide our choices?
.What do we want our company to be known for?
.How will our values distinguish us from competitors?
.What qualities do we value in employees?

Values employees should strive to emulate.

Values are purposeful. Values shouldn’t be a list of generic ideals. They should be
specific to the company, and they should align with company’s goals. For instance,
while a commitment to justice might make little sense for a tech company, a
commitment to privacy would serve an important purpose.

Values are choices. Rather than seeing values as beliefs, they should be treated like
choices. After all, most companies will say they believe that customer service is
important. What differentiates a company from others will be the choices made in the
name of customer service. That could mean committing to a 24-hour response time for
email inquiries and investing in the staff and tools to make that possible.

Values will cost. Like any choice, values come with an inherent cost. Company must be
sure to uphold core values even when it would be easier or less expensive to ignore
them. If the company claims a commitment to sustainability, it should use eco-friendly
materials even if that decision cuts into its profits. Values that cost nothing aren’t worth
having.

Values require action. Beliefs without action are just empty words. For instance, if a
company values innovation, it can’t stifle employees with a “this is how it’s always
been done” mentality. Instead, it should be actively encouraging and considering new
ideas.

Values are timeless. Although the company’s practices and strategies may change over
time core values should be constant. Choose values which can stand by regardless of
economic conditions, external incentives, competitive advantage, or corporate trends.

Company values aren’t merely an internal matter, limited to an obligatory section in the
employee handbook that hardly anyone reads or remembers. Rather, companies are
expected to share their values publicly.

Let consumers know what the firm stand for and how the company is managed.
Employees should be also familiar with company values.

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Values should be put into practice by employees, and they should have the tools and
incentives to do so. There is the Crew app 7 which can help to communicate values to
employees, offer guidance and reminders, and recognize team members who are
following through.

EXERCISE: A list of values to be tested.

Below is a list of 10 core values which are common across organizations in different
industries:

.Accountability. Acknowledging and assuming responsibility for actions, products,


decisions, and policies. It can be applied to both individual accountability on the
part of employees and accountability of the company as a whole. People
(Technical Competences), Written Code

.Balance. Taking a proactive stand to create and maintain a healthy work-life


balance for workers. Underlying Competence, Unwritten Code

.Commitment. Committing to great product, service, and other initiatives that


impact lives within and outside the organization. Underlying Competence,
Unwritten Code

.Community. Contributing to society and demonstrating corporate social


responsibility. Underlying Competence, Unwritten Code

.Diversity. Respecting the diversity and giving the best of composition.


Establishing an employee equity program. Underlying Competence, Written
Code

.Empowerment. Encouraging employees to take initiative and give the best.


Adopting an error-embracing environment to empower employees to lead and
make decisions. Underlying Competence, It can be Written or Unwritten Code

.Innovation. Pursuing new creative ideas that have the potential to change the
world. Underlying pero también puede ser Technical, Written and Unwritten

.Integrity. Acting with honesty and honor without compromising the truth.
Underlying Competence, Unwritten Code

.Ownership. Taking care of the company and customers as they were one’s own.
Underlying, Written and Unwritten Code
7 For the app, https://www.home.crewapp.com/
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.Safety. Ensuring the health and safety of employees and going beyond the legal
requirements to provide an accident-free workplace. Technical Competences,
Written Code

Company values examples

Some examples of valued from successful companies, such as the following8:

.American Express: Customer commitment, quality, integrity, teamwork, respect


for people, good citizenship, a will to win, personal accountability.

.Facebook: Focus on impact, move fast, be bold (be different), be open, build
social value.

.H&M: We believe in people, we are one team, straightforward and open-minded,


keep it simple, entrepreneurial spirit, constant improvement, cost-consciousness.

.Virgin Airlines: We think customer, we lead the way, we do the right thing, we
are determined to deliver, together we make a difference.

Discussion

When it is the time to make decisions, probably like to think that they are based on facts
and data. But most of them are really based on our emotions, on the “why.”

How else can be explained the success of Harley-Davidson? Japanese manufacturers


have been making more technically advanced, reliable, and less expensive motorcycles
for decades. By the judgment of the rational brain, Harley-Davidson should have gone
out of business a long time ago.

But Harley-Davidson isn’t selling motorcycles. They are selling the experience,
freedom, the open road, the lifestyle. They are saying to their customers if that is the
experience you are looking for, then come and join us.

If the question is to build a long-lasting business, this is precisely the kind of mentality
that is necessary to adopt.

Here are five reasons9 why an organization needs to be clear on its purpose:

8 More than one hundred https://inside.6q.io/190-examples-of-company-values/


9 Vid https://www.fastcompany.com/90292848/why-are-core-values-important-to-an-organization

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It gives the company a beacon for everything

Having a “why” gives a base from which is possible make decisions, grow, and evolve.
People who have no sense of who they are–or what they stand for–are rudderless,
drifting whichever way the wind blows, falling for anything and everything that appeals
to their whims at any given time.

This principle also applies to organizations. If they don’t have a sense of purpose,
they’ll find it difficult to make future decisions. Having a “why” provides a moral
direction to guide them in difficult times. In a volatile environment of rapid
technological, environmental, and societal changes, it’s a much-needed constant.

The company can attract loyal employees who share organization’s beliefs

Organizations that know their purpose, proclaim it, and put it out there, attract people to
their organization who share their beliefs. This has always been true to some degree, but
in the past, people were more willing to put up with working for organizations whose
values conflicted with their own. They saw it as a necessary way to earn a living and
provide for the family. Often employees didn’t see that they had any choice.

Today’s workplace is different. Employees are no longer willing to work for just a
paycheck but are looking for a reason to work, contribute to something worthwhile, and
make a difference. They actively seek out organizations whose purposes matches their
own. In a world of rapid workplace turnover, employees who identify with the values of
an organization are less likely to leave.

The company attract loyal customers who share similar beliefs

In addition to attracting workers, it is possible to attract loyal customers. Witness the


many organizations that are making every effort to promote themselves as green and
environmentally friendly. They are very aware that this will attract a particular type of
customer who will only purchase from an organization that shares their values.

The company will be in a better place to build a stronger team

People who share similar values and beliefs will get along better, and this makes it
easier to work toward a common goal. When they share the company’s mission, they’re
more likely to be self-motivated, so they require less supervision or external forces to
keep them on track. When their own goals align with the overall success of the
organization, they’re more internally motivated to do their best.

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It makes communication and marketing easier

Having a purpose provides a central focus for all communication and marketing for a
company. It is possible to evaluate everything that goes out internally and externally
against how well it stacks up to the organization’s purpose. As a result, the organization
will be more likely to deliver a consistent message about who is and in what it believes
in.

Organizational success requires more than facts and numbers. A good product is critical,
but so is a sense of mission. When the company is sure of its “why,” it might find that
can spend less time questioning what it is needed to do, and more time taking actions
that contribute toward organization’s success.

How To Define And Implement Core Values

When a company was first established, what principles did it run off? How were goals
set out and achieved? Was it with little planning and much haste? Was it with a
carefully defined strategy and communication across teams? Or was it with creativity,
innovation and experimentation? Core values are ever-present in the way a business
operates. They are innate to a business and can usually be found when casting the mind
back to the early stages of operations.

However, it may be the case that a lot has changed since then, and the company has a
completely different set of values to what it started with. Here’s how to define and
implement core values across your business:

Define company Values

To define business values, the company will need to reflect upon what is important as a
business. What does the company already innately do? Are you passionate about
protecting the environment? Do you feel strongly about diversity in the workplace? Do
you help your local community? Do you aid employees with career progression?
Speaking with existing members of staff is also a great way to get a sense of company
principles. Core values can’t just be thought up and applied to a business; they form the
pillars that hold up the business and should reflect business practices.

Make Values Known

Once defined core values, it’s important to make them known across the company. Let
them guide the way the business operates. If communication is one of core values, it
must be used effectively within meetings and throughout team projects.

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Ensure that existing staff are aware of and understand values, and bring them to the
attention of interviewees. Display signage internally and incorporate values into
marketing materials. Let them be known in the local community so that potential clients
and customers can see what a credible company you are.

How to Maintain Core Values?

It’s one thing to define business values, but for them to mean anything they must be
maintained and practised in everything the company does. Here are a few ways to
ensure this happens across the business:

Gain Feedback

Ask employees if they know of the company’s core values. If they do, what do they
think of them? How do they use them in their day to day work? Do they believe them to
portray the correct image of the company? If they aren’t aware of the values, that’s
useful feedback in itself.

Offer Rewards

A great way to ensure core values are incorporated across the company is to offer an
incentive to individuals who demonstrate them. Offering incentives like extra holiday
days or monetary rewards can encourage individuals to take note of values and apply
them to their actions in the workplace. Doing so will also show how important it is to
the business for staff to take on these values.

Core Values And Corporate Social Responsibility

Corporate social responsibility (CSR) where businesses operate in an ethical and


sustainable way is a strong example of core values in action. The importance of CSR to
organisations has increased in recent years and is now not only regarded as good
business practice, demonstrating sustainability and positive business ethics, but also
improves reputation and promotes competitive advantage.

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The Vision.
Setting the vision

A vision statement describes what a company desires to achieve in the long-run,


generally in a time frame of five to ten years, or sometimes even longer.

It depicts a vision of what the company will look like in the future and sets a defined
direction for the planning and execution of corporate level strategies10. The vision
statement is not what the company is presently engaged in but rather a future objective
where the company plans to be.

While companies should not be too ambitious in defining their long-term goals, it is
critical to set a bigger and further target in a vision statement.

This definition communicates its aspiration and motivates the audience.

These are the main elements of an effective vision statement:

.Forward-looking, a time horizon, a fixed point in the future when you will achieve
and evaluate the vision statement. Define that time.

.Motivating and inspirational. Live up to the title of the document, and create
something that will rally the troops and be desirable as a goal for all those
involved in the organization.

.Reflective of a company’s culture and core values.

.Aimed at bringing benefits and improvements to the organization in the future.

.Defines a company’s reason for existence and where it is heading towards.

10 Information https://corporatefinanceinstitute.com/resources/knowledge/strategy/corporate-strategy/

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.Concise, this is not the place to stuff a document with fluff statements. It should be
simple, easy to read and cut to the essentials, so that it can be set to memory and
be repeated accurately. Not longer than a short paragraph.

.Clear, to focus on one primary goal, rather than trying to fill the document with a
scattering of ideas. One clear objective is also easier to focus on and achieve.

.Stable, the vision statement is a long-term goal that should, ideally, not be affected
by the market or technological changes.

.Challenging, the company must not be timid in setting goals. The objective
shouldn’t be too easy to achieve, but also it shouldn’t be so unrealistic as to be
discarded.

.Abstract. The vision statement should be general enough to capture the


organization’s interests and strategic direction.

Don’t confuse a vision statement with a road map for business's future success. It's not.
What Bill Gates envisioned when he first started Microsoft was a personal computer in
every home and business, not a series of steps for making that happen.

One of Elon Musk's visions is that humankind will be able to travel to Mars and live
there. While his company SpaceX designs and launches spacecraft intended to
eventually make that happen, the spacecraft designs are not part of the vision statement.

That is to say, Mr. Musk did not have to have already designed a craft before he chose
to focus on the idea of travel to Mars; Mr Gates did not have to include how his
company was going to market and deliver a computer to every home when he created
his vision.

The vision statement is not tied to the details. That's why it's important when crafting
one to let your imagination go and dare to dream - and why it's important that a vision
statement captures your passion. The vision statement is about soaring; the poring over
ways and means to accomplish the vision comes after.

The vision is a broad description of the value an organization provides. It is a visual


image of what the organization is trying to produce or become.

Discussion

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IKEA

“Our vision is to create a better everyday life for many people.”

NIKE

“Bring inspiration and innovation to every athlete* in the world. (*If you have a body,
you are an athlete.)”

MCDONALD’S

“To be the best quick service restaurant experience. Being the best means providing
outstanding quality, service, cleanliness and value, so that we make every customer in
every restaurant smile.”

PATAGONIA

“Build the best product, cause no unnecessary harm, use business to inspire and
implement solutions to the environmental crisis.”

OXFAM

“A world without poverty.”

Microsoft

“To create local opportunity, growth and impact in every community and country
around the world”.

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The Mission.
Defining the mission.

A mission defines what an organization is, why it exists, its reason for being. A brief
description of a company's fundamental purpose. It answers the question, "Why does
the business exist?"

At a minimum level, mission statement should define who are the primary customers,
identify the products and services produced by the firm, capabilities and describe the
geographical location in which operates. A sentence describing a company's function,
markets and competitive advantages; a short written statement of business goals and
philosophies.

Mission statements focus on the present, giving a statement that declares what
continually dives a company forward. Mission statements can be thought as how a
company will achieve their vision statement.

If a company does not have a mission statement, must create it by writing down in one
sentence what the purpose of the business is.

Ask two or three of the key people in the company to do the same thing. Then discuss
the statements and come up with one sentence everyone agrees with. Once finalized
mission statement, communicate it to everyone in the company. It's more important to
communicate the mission statement to employees than to customers. The mission
statement doesn't have to be clever or catchy, just accurate.

If a company has already a mission statement, it will need to periodically review and
possibly revise it to make sure it accurately reflects the goals of the company and the
business and economic climates evolve. To do this, simply ask if the statement still
correctly describes what you're doing.

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More specifically, it outlines:


.What you do
.How you do it
.Whom you do it for
.What value you bring

Start by writing the words "Be the most..." and go from there.

The mission statement describes what the organization needs to do now to achieve the
vision. The vision and mission statements must support each other, but the mission
statement is more specific. It defines how the organization will be different from other
organizations in its industry.

It is important to consider that the values statement, also called the code of ethics of the
company, differs from both the vision and mission statements.

The vision and mission state where the organization is going (vision) and what it will do
to get there (mission). They direct the efforts of people in the organization toward
common goals.

The values statement defines what the organization believes in and how people in the
organization are expected to behave—with each other, with customers and suppliers,
and with other stakeholders.

How to write a mission statement

Well-crafted mission statements:

.Identify the organization’s target market, audience, or customers.

.Say what makes the business unique or provides its competitive advantage.

.Are realistic and reasonable rather than grandiose or lofty.

.Are relevant, specific, and believable.

.Inspire employees.

.Are short and to the point. One study of 50 nonprofit mission statements found
average length to be 15 words.

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While a mission statement shouldn’t be written in isolation by one person if the


organization employs many people, it’s not a job for a committee, either. Leaders often
some employees to write one sentence that summarizes what the company does and
stands for. They compare them, looking for similarities, differences, and surprises. They
use that input to craft a statement that is honest and accurate rather than something the
company aspires to achieve.

Testing the statement with employees before sharing it internally or externally helps
generate useful feedback. Does it ring true? What would they change? Employees are
the most important audience for the mission statement because they will need to “walk
the talk,” so it needs to resonate with them.

Criteria for a good mission statement.

Changing the mission or creating an organization’s first mission statement is a process


of gathering ideas and suggestions for the mission and honing them into a short, sharply
focused phrase that meets specific criteria.

An effective mission statement clearly defines who the customer is and what services
and products the business intends to provide. It also serves as a guide for day-to-day
operations and as the foundation for future decision-making.

The following are criteria for a good mission statement:

The Mission statement focuses on satisfying customer needs.

A mission statement should focused on satisfying customer needs rather than being
focused on the product. Products and technologies eventually become outdated, but
basic market needs may last forever. A market-oriented mission statement defines the
business in terms of satisfying basic customer needs.

The Mission statement tells “Who” are the customers.

Who is being satisfied? A company should define the type of customers it wishes to
serve. Which customer groups it is targeting? Customer groups are relevant because
they indicate the market to be served, the geographic domain to be covered, and the
types of buyers the firm is going after.

The Mission statement explains “What” customer needs of the company?

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What customer needs is the company trying to satisfy? A company should define the
particular needs of those customers groups it wishes to satisfy. A product or service
becomes a business when it satisfies a need or a want.

The Mission statement explains “How” the company will serve its customers.

How customers’ needs are satisfied? A company should define the means or technology
by which it will serve the target market and satisfy the customer’s needs. By
incorporating Who, What and How the firm will be perceived and act more customer &
market-oriented. It will be perceived as a customer-satisfying entity, not a product-
producing entity.

The Mission statement fits the current market environment

Missions should fit the current market environment. Girl Scouts would not recruit
successfully in today’s environment with their former mission: “to prepare young girls
for motherhood and wifely duties.”

The Mission statement is based on the competitive advantage of the firm

Competitive advantage arises from leveraging a firm’s unique skills and resources to
implement value-creating strategy that competitors cannot implement as effectively.
Your company should base its mission on a competitively superior internal strength or
resource that the company performs well in comparison to its competitors.

The Mission statement is based on distinctive core competencies.

The organization should base its mission on its distinctive competencies. A distinctive
core competency is a competitively superior company resource that the company
performs well in comparison to its competitors. It needs to stay focused on specific
traits (i.e., quality, customer service) and on target or niche markets.

The Mission statement motivates and inspires employee commitment

Mission statements should be motivating. It should not be stated as making more sales
or profits. A company’s employees need to feel that their work is significant and that it
contributes to people’s lives. Visionary companies set a purpose beyond making money.
Even though profits may not be part of these companies’ mission statements, they are
the inevitable results.

A company that says its mission is to make a profit begs the question “What will
we do to make a profit?”
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To understand a company’s direction, we must answer “to make a profit doing what and
for whom?”

The Mission Statement is realistic

Mission statements should be realistic. The company should avoid making the mission
too narrow or too broad.

The Mission Statement is specific, short and sharply focused

Mission statements should be specific. Vague or generic mission statements lack


resonance and meaning. They won’t be remembered by anyone, and will likely be
dismissed as too difficult to understand. Many mission statements are written for public
relations purposes and lack specific, workable guidelines. It is a precise statement of
purpose.

It should be memorable. Describe the essence of the business in words your employees
and customers can remember you by. Peter Drucker says the mission should “fit on a T-
shirt,” yet not be a slogan.. Don’t use the mission statement as an essay or a vehicle for
abstract philosophy. Words should be chosen for their meaning rather than beauty, for
clarity over cleverness. The best mission statements are plan speech with no technical
jargon and no adornments.

The Mission statement is clear and easily understood

Develop mission statement to a “party level.” A simple, clear, “party level” mission
statement can be used to tell people the company meets at a party or on airplanes why
the company exists. At the same time it needs to give the company team as a profoundly
simple focus for everything it does as a firm.

The Mission statement says what we want to be remembered for

In the end, a mission statement says what you want to be remembered for. It is actually
an epitaph in present tense. What would you want your epitaph to read some day? Your
ideal can provide a profoundly simple insight into your purpose for existing today.

Step-by-Step

To develop a mission statement at the corporate level the following steps are suggested:

1. Establish a mission-writing group

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The writing group must be able to identify the company’s reason for existing, the
primary customer, and what the goals and results should be. Members should include
the chief executive, the board chairman or another representative of the board, a writer,
a manageable number of additional members who represent different parts of the
organization, and a facilitator.

2. Adopt criteria for an effective mission statement.

Gather ideas and suggestions for first drafts. The writing group should adopt the criteria
they will use to judge the effectiveness of the mission they are about to develop.
Following the adoption of criteria, the group moves on to ideas and suggestions for the
mission statement. Idea-generating techniques include:

.Open brainstorming: any thought or idea is welcome.

.Each group member finishes the sentence, “The mission should be…”

.Small teams “complete” in a very short time span to draft and nominate the “best”
new mission statement

.Go around the group two or three times asking for the one word that must be in the
mission statement.

.Each person quickly draws a picture of the mission, then “shows and tells.”

To conclude the exercise, the group:

.Posts and reviews all ideas and suggestions. The facilitator draws a circle around
the words or phrases that appear most often.

.Discusses key ideas or themes the must be captured in the new statement.

.Discusses key ideas or themes that must not be part of the new mission statement.

3. Develop one or more draft statements.

The writers along or with a small group develops drafts of at least two possible new
mission statements.

4. Judge initial drafts against criteria and suggest revisions or new options.

To judge drafts and make suggestions:

.The groups reviews the criteria for an effective mission statement.


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.The first draft statement is posted in front of the group.

.Group members individually rate the draft for each criteria using the worksheet.

.The facilitator polls and records the group’s response for each criteria to determine
the overall strengths and we4aknesses of the draft.

.The group discusses the merits of the draft and makes specific suggestions for how
it might be improved. All suggestions are encouraged and recorded.

.The second draft statement is posted and steps are repeated.

.The facilitator instructs each group member to individually write their


recommended mission statement. Members read their statement aloud, and give
it to the writer.

.The group discusses whether it has developed an effective statement or whether the
writer should develop a second set of drafts.

5. Develop second drafts.

The writer or small subgroup develops a second draft of one or more possible new
mission statements.

6. Gain feedback from outside the writing groups.

The board chairman and chief executive decide who, outside the writing group, will be
asked to give feedback. This may includes organization wide input or a few key people
inside or outside the organization. Each individual group being contacted for their
response is:

.Shown the criteria for an effective mission statement.

.Asked for a rating of each draft, based on the criteria.

.Asked for comments on the merits and weaknesses of the draft(s).

.Asked for ideas or recommendations for improvement.

7. Summarize feedback and distribute second drafts and summary to writing


group.

8. Propose a draft mission statement.

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The writing group meets:

.Reviews the second draft(s).

.Discusses a summary of feedback from outside the writing group.

.Rates the draft(s) against criteria and cites merits and weaknesses

.Attempts group editing or rewriting.

.Approves its proposed mission statement..

9. Presents the proposed mission statement for board approval.

There is a place for mission statements for key functions (R&D, marketing, finance) and
support units (human resources, training, information systems). Every department can
benefit from a consensus statement spelling out its contribution to the company mission,
its principal role and activities, and the direction it needs to be moving. The following
are some examples:

.The mission of the human resources department is to contribute to organizational


success by developing effective leaders, creating high-performance teams, and
maximizing the potential of individuals.

.The mission of corporate security is to provide services for the protection of


corporate personnel and assets through preventives measures and investigations.

Defining an organization mission statement is a fundamental aspect of beginning


strategic planning. Miss-representing the company’s mission can lead to strategic plans
that do not complement the company’s purpose and reason for being.

Discussion

Here are the mission statements of some active companies and government entities:

Microsoft: “Empower every person and organization on the planet to achieve more”

Chipotle: “To change the way people think about and eat fast food”

MGM Resorts International: “MGM Resorts International is the leader in


entertainment and hospitality—a diverse collection of extraordinary people, distinctive
brands and best-in-class destinations”.

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Nike: “To bring inspiration and innovation to every athlete in the world”

Walmart: “We save people money so they can live better”.

Starbucks: “To inspire and nurture the human spirit—one person, one cup, and one
neighborhood at a time”.

Tesla: “To accelerate the world's transition to sustainable energy”.

JP Morgan: “To be the best financial services company in the world”.

Amazon: "”To be Earth's most customer centric company; to build a place where
people can come to find and discover anything they might want to buy online."

Tesla: "Tesla's mission is to accelerate the world's transition to sustainable energy."

Apple: "Apple is committed to bringing the best personal computing experience to


students, educators, creative professionals and consumers around the world through its
innovative hardware, software and internet offerings."

Virgin Atlantic Airways: "...to embrace the human spirit and let it fly."

Tata Motors: "A USD 42 billion organisation, Tata Motors Limited is a leading global
automobile manufacturer with a portfolio that covers a wide range of cars, sports
vehicles, buses, trucks and defence vehicles. Our marque can be found on and off-road
in over 175 countries around the globe."

Walmart: "Walmart helps people around the world save money and live better -
anytime and anywhere - in retail stores, online and through their mobile devices. "

Canadian Tire: “Canadian Tire is a growing network of interrelated businesses...


Canadian Tire continuously strives to meet the needs of its customers for total value by
offering a unique package of location, price, service and assortment.”

The Royal Canadian Mint: "Delivering excellence...through our customer-driven


businesses, our talented people and the value we add to Canada and Canadians."

The IRS: Provide America's taxpayers top quality service by helping them understand
and meet their tax responsibilities and enforce the law with integrity and fairness to all.

The Canada Revenue Agency: "To administer tax, benefits, and related programs, and
to ensure compliance on behalf of governments across Canada, thereby contributing to
the ongoing economic and social well-being of Canadians."
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Rivercorp (business development consultants in Campbell River, B.C.): “To provide


one stop progressive economic development services through partnerships on behalf of
shareholders and the community.”

Ethics of organizations.
Stakeholder capitalism.

Probably, the defining question of our era is what kind of capitalism do we want? If we
want to sustain our economic system for future generations, we must answer it
correctly. Generally speaking, we have three models to choose from11.

The first model is “shareholder capitalism,” embraced by most Western corporations,


which holds that a corporation’s primary goal should be to maximize its profits.

The second model is “state capitalism,” which entrusts the government with setting the
direction of the economy, and has risen to prominence in many emerging markets, not
least China.

But, compared to these two options, the third has the most to recommend it.
“Stakeholder capitalism,” a model first proposed in Davos a half-century ago, positions
private corporations as trustees of society, and is clearly the best response to today’s
social and environmental challenges.

Stakeholder capitalism' is gaining momentum, in part thanks to the “Greta Thunberg


effect” because it offers the best opportunity to tackle today's environmental and social
challenges and The World Economic Forum is launching a new “Davos Manifesto”.

Shareholder capitalism, currently the dominant model, first gained ground in the United
States in the 1970s, and expanded its influence globally in the following decades. Its
rise was not without merit. During its heyday, hundreds of millions of people around the
world prospered, as profit-seeking companies unlocked new markets and created new
jobs.
11 Based in https://www.weforum.org/agenda/2019/12/why-we-need-davos-manifesto-for-better-kind-
of-capitalism/
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But that wasn’t the whole story. Advocates of shareholder capitalism, including Milton
Friedman12 and the Chicago School, had neglected the fact that a publicly listed
corporation is not just a profit-seeking entity but also a social organism.

Together with financial-industry pressures to boost short term results, the single-minded
focus on profits caused shareholder capitalism to become increasingly disconnected
from the real economy. Many realize this form of capitalism is no longer sustainable.
The question is: why have attitudes begun to change only now?

One likely reason is the “Greta Thunberg” effect. The young Swedish climate activist
has reminded us that adherence to the current economic system represents a betrayal of
future generations, owing to its environmental unsustainability.

Another (related) reason is that millennials and Generation Z no longer want to work
for, invest in, or buy from companies that lack values beyond maximizing shareholder
value.

And, finally, executives and investors have started to recognize that their own long-term
success is closely linked to that of their customers, employees, and suppliers.

The result is that stakeholder capitalism is quickly gaining ground. The change in
direction is long overdue. The concept was introduced back in 1971, when it was
created the World Economic Forum to help business and political leaders implement it.
Two years later, attendees at the Forum’s Annual Meeting signed the “Davos
Manifesto” which describes a firm’s principal responsibilities toward its stakeholders.

Now, others are finally coming to the “stakeholder” table.

The US Business Roundtable13, America’s most influential business lobby group,


announced this year that it would formally embrace stakeholder capitalism. And so-
called impact investing is rising to prominence as more investors look for ways to link
environmental and societal benefits to financial returns.

We should seize this moment to ensure that stakeholder capitalism remains the new
dominant model. To that end, the World Economic Forum is releasing a new “Davos
Manifesto 202014” which states that companies should pay their fair share of taxes,
12 https://www.project-syndicate.org/columnist/milton-friedman

13 https://www.businessroundtable.org/business-roundtable-redefines-the-purpose-of-a-corporation-to-
promote-an-economy-that-serves-all-americans
14 https://www.weforum.org/agenda/2019/12/davos-manifesto-2020-the-universal-purpose-of-a-
company-in-the-fourth-industrial-revolution
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show zero tolerance for corruption, uphold human rights throughout their global supply
chains, and advocate for a competitive level playing field – particularly in the “platform
economy.”

But to uphold the principles of stakeholder capitalism, companies will need new
metrics. For starters, a new measure of “shared value creation” should include
“environmental, social, and governance” (ESG) goals as a complement to standard
financial metrics.

Fortunately, an initiative to develop a new standard along these lines is already under
way, with support from the “Big Four” accounting firms and led by the chairman of the
International Business Council, Bank of America CEO Brian Moynihan.

The second metric that needs to be adjusted is executive remuneration. Since the 1970s,
executive pay has skyrocketed, mostly to “align” management decision-making with
shareholder interests. In the new stakeholder paradigm, salaries should instead align
with the new measure of long-term shared value creation.

Finally, large companies should understand that they themselves are major stakeholders
in our common future. Clearly, all companies should still seek to harness their core
competencies and maintain an entrepreneurial mindset.

But they should also work with other stakeholders to improve the state of the world in
which they are operating. In fact, this latter proviso should be their ultimate purpose.

Is there any other way? State capitalism, its proponents would say, also pursues a long-
term vision, and has enjoyed recent successes, especially in Asia.

But while state capitalism may be a good fit for one stage of development, it, too,
should gradually evolve into something closer to a stakeholder model, lest it succumb to
corruption from within.

Business leaders now have an incredible opportunity. By giving stakeholder capitalism


concrete meaning, they can move beyond their legal obligations and uphold their duty to
society.

They can bring the world closer to achieving shared goals, such as those outlined in the
Paris climate agreement and the United Nations Sustainable Development Agenda. If
they really want to leave their mark on the world, there is no alternative.

The Davos Manifesto 2020 and the Fourth Industrial Revolution.


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A. The purpose of a company is to engage all its stakeholders in shared and sustained
value creation. In creating such value, a company serves not only its shareholders, but
all its stakeholders – employees, customers, suppliers, local communities and society at
large.

The best way to understand and harmonize the divergent interests of all stakeholders is
through a shared commitment to policies and decisions that strengthen the long-term
prosperity of a company.

i. A company serves its customers by providing a value proposition that best meets their
needs.

It accepts and supports fair competition and a level playing field. It has zero tolerance
for corruption. It keeps the digital ecosystem in which it operates reliable and
trustworthy. It makes customers fully aware of the functionality of its products and
services, including adverse implications or negative externalities.

ii. A company treats its people with dignity and respect.

It honours diversity and strives for continuous improvements in working conditions and
employee well-being. In a world of rapid change, a company fosters continued
employability through ongoing upskilling and reskilling.

iii. A company considers its suppliers as true partners in value creation.

It provides a fair chance to new market entrants. It integrates respect for human rights
into the entire supply chain.

iv. A company serves society at large through its activities, supports the communities in
which it works, and pays its fair share of taxes.

It ensures the safe, ethical and efficient use of data. It acts as a steward of the
environmental and material universe for future generations. It consciously protects our
biosphere and champions a circular, shared and regenerative economy. It continuously
expands the frontiers of knowledge, innovation and technology to improve people’s
well-being.

v. A company provides its shareholders with a return on investment that takes into
account the incurred entrepreneurial risks and the need for continuous innovation and
sustained investments.

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It responsibly manages near-term, medium-term and long-term value creation in pursuit


of sustainable shareholder returns that do not sacrifice the future for the present.

B. A company is more than an economic unit generating wealth.

It fulfils human and societal aspirations as part of the broader social system.
Performance must be measured not only on the return to shareholders, but also on how
it achieves its environmental, social and good governance objectives. Executive
remuneration should reflect stakeholder responsibility.

C. A company that has a multinational scope of activities not only serves all those
stakeholders who are directly engaged, but acts itself as a stakeholder – together with
governments and civil society – of our global future.

Corporate global citizenship requires a company to harness its core competencies, its
entrepreneurship, skills and relevant resources in collaborative efforts with other
companies and stakeholders to improve the state of the world.

Environmental, social, and governance (ESG) goals

Sound ESG practices are linked to better business results in companies. For instance,
MSCI is deeply committed to being a leader in corporate responsibility and providing
the global financial community with innovative products and services that power better
investment decisions for a better world (Diana Tidd, Head of Index and Chief
Responsibility Officer MSCI).

Every business is deeply intertwined with environmental, social, and governance (ESG)
concerns. It makes sense, therefore, that a strong ESG proposition can create value15.

The E in ESG, environmental criteria, includes the energy your company takes in and
the waste it discharges, the resources it needs, and the consequences for living beings as
a result. Not least, E encompasses carbon emissions and climate change. Every
company uses energy and resources; every company affects, and is affected by, the
environment.

S, social criteria, addresses the relationships your company has and the reputation it
fosters with people and institutions in the communities where you do business. S

15 It follows, https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/our-
insights/five-ways-that-esg-creates-value?cid=other-eml-nsl-mip-
mck&hlkid=938444b141be4d6c818e903b8b2d7211&hctky=1841664&hdpid=bf3ea65f-cecc-4a66-
b4ad-0a4a6f811d5a

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includes labor relations and diversity and inclusion. Every company operates within a
broader, diverse society.

G, governance, is the internal system of practices, controls, and procedures your


company adopts in order to govern itself, make effective decisions, comply with the
law, and meet the needs of external stakeholders. Every company, which is itself a legal
creation, requires governance.

Just as ESG is an inextricable part of business, its individual elements are themselves
intertwined. For example, social criteria overlaps with environmental criteria and
governance when companies seek to comply with environmental laws and broader
concerns about sustainability.

The focus is mostly on environmental and social criteria, but, as every leader knows,
governance can never be hermetically separate. Indeed, excelling in governance calls
for mastering not just the letter of laws but also their spirit—such as getting in front of
violations before they occur, or ensuring transparency and dialogue with regulators
instead of formalistically submitting a report and letting the results speak for
themselves.

Thinking and acting on ESG in a proactive way has lately become even more pressing.
The US Business Roundtable released a new statement 16 in August 2019 strongly
affirming business’s commitment to a broad range of stakeholders, including customers,
employees, suppliers, communities, and, of course, shareholders.

Of a piece with that emerging zeitgeist, ESG-oriented investing has experienced a


meteoric rise. Global sustainable investment now tops $30 trillion—up 68 percent since
2014 and tenfold since 2004.

The acceleration has been driven by heightened social, governmental, and consumer
attention on the broader impact of corporations, as well as by the investors and
executives who realize that a strong ESG proposition can safeguard a company’s long-
term success. The magnitude of investment flow suggests that ESG is much more than a
fad or a feel-good exercise.

But even as the case for a strong ESG proposition becomes more compelling, an
understanding of why these criteria link to value creation is less comprehensive. How
exactly does a strong ESG proposition make financial sense?

16 Vid https://opportunity.businessroundtable.org/wp-content/uploads/2019/08/BRT-Statement-on-the-
Purpose-of-a-Corporation-with-Signatures.pdf

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From our experience and research, ESG links to cash flow in five important ways: (1)
facilitating top-line growth, (2) reducing costs, (3) minimizing regulatory and legal
interventions, (4) increasing employee productivity, and (5) optimizing investment and
capital expenditures.

Each of these five levers should be part of a leader’s mental checklist when approaching
ESG opportunities—and so should be an understanding of the “softer,” more personal
dynamics needed for the levers to accomplish their heaviest lifting.

The five links are a way to think of ESG systematically, not an assurance that each link
will apply, or apply to the same degree, in every instance. Some are more likely to arise
in certain industries or sectors; others will be more frequent in given geographies. Still,
all five should be considered regardless of a company’s business model or location. The
potential for value creation is too great to leave any of them unexplored.

1. Top-line growth

A strong ESG proposition helps companies tap new markets and expand into existing
ones. When governing authorities trust corporate actors, they are more likely to award
them the access, approvals, and licenses that afford fresh opportunities for growth. For
example, in a recent, massive public private infrastructure project in Long Beach,
California, the for-profit companies selected to participate were screened based on their
prior performance in sustainability.

A strong ESG proposition helps companies tap new markets and expand into existing
ones. ESG can also drive consumer preference. McKinsey research has shown that
customers say they are willing to pay to “go green.” Although there can be wide
discrepancies in practice, including customers who refuse to pay even 1% more,
upward of 70% of consumers surveyed on purchases in multiple industries, including
the automotive, building, electronics, and packaging categories, said they would pay an
additional 5% for a green product if it met the same performance standards as a
nongreen alternative. In another study, nearly half (44%) of the companies identified
business and growth opportunities as the impetus for starting their sustainability
programs.

The payoffs are real. When Unilever developed Sunlight, a brand of dishwashing liquid
that used much less water than its other brands, sales of Sunlight and Unilever’s other
water-saving products proceeded to outpace category growth by more than 20% in a
number of water-scarce markets. And Finland’s Neste, founded as a traditional

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petroleum-refining company more than 70 years ago, now generates more than two-
thirds of its profits from renewable fuels and sustainability-related products.

2. Cost reductions.

ESG can also reduce costs substantially. Among other advantages, executing ESG
effectively can help combat rising operating expenses (such as raw-material costs and
the true cost of water or carbon), which McKinsey researched, has found can affect
operating profits by as much as 60%. In the same report, McKinsey created a metric
(the amount of energy, water, and waste used in relation to revenue) to analyze the
relative resource efficiency of companies within various sectors and found a significant
correlation between resource efficiency and financial performance. The study also
identified a number of companies across sectors that did particularly well—precisely the
companies that had taken their sustainability strategies the furthest.

As with each of the five links to ESG value creation, the first step to realizing value
begins with recognizing the opportunity. Consider 3M, which has long understood that
being proactive about environmental risk can be a source of competitive advantage. The
company has saved $2.2 billion since introducing its “pollution prevention pays” (3Ps)
program, in 1975, preventing pollution up front by reformulating products, improving
manufacturing processes, redesigning equipment, and recycling and reusing waste from
production.

Another enterprise, a major water utility, achieved cost savings of almost $180 million
per year thanks to lean initiatives aimed at improving preventive maintenance, refining
spare-part inventory management, and tackling energy consumption and recovery from
sludge. FedEx, for its part, aims to convert its entire 35,000-vehicle fleet to electric or
hybrid engines; to date, 20 percent have been converted, which has already reduced fuel
consumption by more than 50 million gallons.

3. Reduced regulatory and legal interventions.

A stronger external-value proposition can enable companies to achieve greater strategic


freedom, easing regulatory pressure. In fact, in case after case across sectors and
geographies, McKinsey has seen that strength in ESG helps reduce companies’ risk of
adverse government action. It can also engender government support.

The value at stake may be higher. Typically one-third of corporate profits are at risk
from state intervention. Regulation’s impact, of course, varies by industry. For
pharmaceuticals and healthcare, the profits at stake are about 25 to 30%. In banking,
where provisions on capital requirements, “too big to fail,” and consumer protection are
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so critical, the value at stake is typically 50 to 60%. For the automotive, aerospace and
defense, and tech sectors, where government subsidies (among other forms of
intervention) are prevalent, the value at stake can reach 60% as well.

So does the level of business performance. The overwhelming weight of accumulated


research finds that companies that pay attention to environmental, social, and
governance concerns do not experience a drag on value creation—in fact, quite the
opposite.

A strong ESG proposition correlates with higher equity returns, from both a tilt and
momentum perspective. Better performance in ESG also corresponds with a reduction
in downside risk, as evidenced, among other ways, by lower loan and credit default
swap spreads and higher credit ratings.

4. Employee productivity uplift.

A strong ESG proposition can help companies attract and retain quality employees,
enhance employee motivation by instilling a sense of purpose, and increase productivity
overall. Employee satisfaction is positively correlated with shareholder returns.

For example, the London Business School’s Alex Edmans found that the companies that
made Fortune’s “100 Best Companies to Work For” list generated 2.3% to 3.8% higher
stock returns per year than their peers over a greater than 25-year horizon. Moreover,
it’s long been observed that employees with a sense not just of satisfaction but also of
connection perform better. The stronger an employee’s perception of impact on the
beneficiaries of their work, the greater the employee’s motivation to act in a “prosocial”
way.

Recent studies have also shown that positive social impact correlates with higher job
satisfaction, and field experiments suggest that when companies “give back,” employees
react with enthusiasm. For instance, randomly selected employees at one Australian
bank who received bonuses in the form of company payments to local charities reported
greater and more immediate job satisfaction than their colleagues who were not selected
for the donation program.

Just as a sense of higher purpose can inspire your employees to perform better, a weaker
ESG proposition can drag productivity down. The most glaring examples are strikes,
worker slowdowns, and other labor actions within your organization. But it’s worth
remembering that productivity constraints can also manifest outside of your company’s
four walls, across the supply chain. Primary suppliers often subcontract portions of

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large orders to other firms or rely on purchasing agents, and subcontractors are typically
managed loosely, sometimes with little oversight of workers’ health and safety.

Farsighted companies pay heed. Consider General Mills, which works to ensure that its
ESG principles apply “from farm to fork to landfill.” Walmart, for its part, tracks the
work conditions of its suppliers, including those with extensive factory floors in China,
according to a proprietary company scorecard. And Mars seeks opportunities where it
can deliver what it calls “wins-wins-wins” for the company, its suppliers, and the
environment. Mars has developed model farms that not only introduce new
technological initiatives to farmers in its supply chains, but also increase farmers’
access to capital so that they are able to obtain a financial stake in those initiatives.

5. Investment and asset optimization.

A strong ESG proposition can enhance investment returns by allocating capital to more
promising and more sustainable opportunities (for example, renewables, waste
reduction, and scrubbers). It can also help companies avoid stranded investments that
may not pay off because of longer-term environmental issues (such as massive write-
downs in the value of oil tankers).

Taking proper account of investment returns requires to start from the proper baseline.
When it comes to ESG, it’s important to bear in mind that a do-nothing approach is
usually an eroding line, not a straight line. Continuing to rely on energy-hungry plants
and equipment, for example, can drain cash going forward. While the investments
required to update your operations may be substantial, choosing to wait it out can be the
most expensive option of all.

The rules of the game are shifting: regulatory responses to emissions will likely affect
energy costs and could especially affect balance sheets in carbon-intense industries. And
bans or limitations on such things as single-use plastics or diesel-fueled cars in city
centers will introduce new constraints on multiple businesses, many of which could find
themselves having to catch up.

One way to get ahead of the future curve is to consider repurposing assets right now—
for instance, converting failing parking garages into uses with higher demand, such as
residences or day-care facilities, a trend we’re beginning to see in reviving cities.

Foresight flows to the bottom line, and leaning into the tailwinds of sustainability
presents new opportunities to enhance investment returns. Tailwinds blow strongly in
China, for example. The country’s imperative to combat air pollution is forecast to
create more than 3$ trillion in investments opportunities through 2030, ranging across
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industries from air-quality monitoring to indoor air purification and even cement
mixing.

These five links to value creation are grounded in hard numbers, but, as always, a softer
side is in play. For leaders seeking out new ESG opportunities or trying to nudge an
organization in directions that may feel orthogonal to its traditional business model,
here some personal points to keep in mind.

Get practical

Value creation should be the CEO’s core message. Anything else could sound off-key.
Managers, especially more senior ones, are usually assessed based on performance
targets. Under those conditions, top-down ESG pronouncements can seem distracting or
too vague to be of much use; “save the planet” won’t cut it. To get everyone on board,
make the case that the company’s ESG priorities do link to value, and show leaders
how, ideally with hard metrics that feed into the business model (for example, output
per baseline electricity use, waste cost in a given plant or location per employee, or
revenue per calorie for a food-and-beverage business).

The case will be simpler if the hard work to analyze what matters along your value
chain is done, where the greatest potential lies, and which areas have the most impact
for the company. Proactive companies carefully research potential initiatives, including
by tapping thought leaders and industry experts, iterate their findings with internal and
external stakeholders, and then publish the results. Making the case publicly—not least
to investors—enforces rigor and helps ensure that practical actions will follow.

Get real

An honest appraisal of ESG includes a frank acknowledgment that getting it wrong can
result in massive value destruction. Being perceived as “overdoing it” can sap a leader’s
time and focus.

Underdoing it is even worse. Companies that perform poorly in environmental, social,


and governance criteria are more likely to endure materially adverse events. Just in the
past few years, multiple companies with a weak ESG proposition saw double-digit
declines in market capitalization in the days and weeks after their missteps came to
light.

Leaders should vigilantly assess the value at stake from external engagement (poor
external engagement can typically destroy about 30% of value) and plan scenarios for
potential hits to operating profits. These days, the tail events can seem to come out of
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nowhere, even from a single tweet. Playing fast and loose with ESG is playing to lose,
and failure to confront downside risk forthrightly can be disastrous.

The linkage from ESG to value creation is solid indeed. Five levers in particular, across
the bottom and top lines, can be difference makers. In a world where environmental,
social, and governmental concerns are become more urgent than ever, leaders should
keep those connections in mind.

Discussion

To ensure guidance and support at the highest level, MSCI’s Board of Directors’
Nominating and Corporate Governance Committee receives regular reports on corporate
responsibility and sustainability efforts. Corporate Responsibility Committee in its
efforts to implement practices and policies that are most meaningful to clients,
shareholders and employees and underscore MSCI’s position as a leader in corporate
responsibility and ESG.

Additionally, the Board’s Compensation & Talent Management Committee helps


to develop and oversee many of MSCI’s social programs and practices,
including talent management and diversity and inclusion.Five pillars
of corporate responsibility.

The commitment to corporate responsibility is embodied in five pillars: Our Purpose,


Our People, Our Integrity, Our Communities and Our Environment.

Our purpose

We create innovative products and services that power better investment decisions. We
provide investors with critical performance measurement and risk management data and
analytics.

Through our environmental, social and governance (ESG) research and applications, we
deliver insights, analytics and tools to support investment processes that incorporate
sustainability considerations.

Our people

Our people power our business – their success is our success. MSCI is committed to
creating a performance culture of high employee engagement where every employee
takes personal ownership and responsibility for their performance, career and
professional growth.

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Our talent and leadership development programs are designed to ensure we have the
leadership and talent pipeline in place to deliver on MSCI’s strategy, and our diverse
workforce and inclusive work environment are critical to our success.

Our integrity

Our integrity is the framework for how we do business. We expect employees at all
levels to meet the highest standards of business conduct, which are embodied in our
Code of Business Conduct and Ethics, and to comply with all applicable laws and
regulations.

We also expect our suppliers to act consistently with our corporate values and in
accordance with our Supplier Code of Conduct.

Our communities.

We believe that we have a responsibility to bolster the communities in which our


employees live and work. Our various social responsibility initiatives make a big impact
on our communities, such as employee-driven volunteerism, participation in numerous
charitable events and corporate-level sponsorships and giving through our charitable
match program.

Our environment.

Sustainability of our environment is a top priority. While our environmental impact as a


financial services company is relatively small, we have taken actions through our day-
to-day operations to implement initiatives to reduce our impact on the environment.

We remain committed to continuing to develop, adopt and monitor climate and carbon-
related strategies to even further reduce our environmental footprint.

The MSCI ESG Indexes are designed to support common approaches to environmental,
social and governance (ESG) investing, and help institutional investors more effectively
benchmark to ESG investment performance as well as manage, measure and report on
ESG mandates. MSCI’s ESG Indexes also provide institutional investors with
transparency into ESG sustainability and values alignment, together with the ability to
compare holdings.

More information:

https://www.msci.com/esg-indexes

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Corporate Social Responsibility.


What is CSR?

Employees and customers place a premium on working for and spending their money
with businesses that prioritize corporate social responsibility (CSR), in today's socially
conscious environment.

CSR can be defined as an evolving business practice that incorporates sustainable


development into a company's business model. It has a positive impact on social,
economic and environmental factors. CSR can positively impact company´s business by
improving company image, building the brand and motivating as a business owner.

What the public thinks of the company is critical to its success. Then by building a
positive image in which the company believes in, it can make a name for the company
as being socially conscious.

As the use of CSR extends, it is becoming extremely important to have a socially


conscious image. Consumers, employees and stakeholders are beginning to prioritize
CSR when choosing a brand or company. They are holding corporations accountable 17
for effecting social change with their business beliefs, practices and profits.

In that case, a robust CSR program is an opportunity for companies to demonstrate their
good corporate citizenship, and protect the company from outsized risk by looking at
the whole social and environmental sphere that surrounds the company.

17 Vid https://www.businessnewsdaily.com/10487-corporate-social-accountability.html
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To illustrate how critical CSR has become, previous research by Cone


Communications18 found that more than 60% of Americans hope businesses will drive
social and environmental change in the absence of government regulation. Nearly 90%
of the consumers surveyed said they would purchase a product because a company
supported an issue they care about. More importantly, roughly 75% will refuse to buy
from a company if they learn it supports an issue contrary to their own beliefs.

Consumers aren't the only ones who are drawn to businesses that give back. A
company's sustainability strategy is a big factor in where today's top talent chooses to
work. The next generation of employees is seeking out employers that are focused on
the triple bottom line: people, planet and revenue. Coming out of the recession,
corporate revenue has been getting stronger. Companies are encouraged to put that
increased profit into programs that give back.

In addition to a better company image, sustainable development can help your business
financially. For example, using less packaging and less energy can reduce production
costs.

CSR types companies can practice

Recognizing how important socially responsible efforts are to customers, employees


and stakeholders, many companies now focus on a few broad CSR categories:

.Environmental efforts: One primary focus of CSR is the environment.


Businesses, regardless of size, have large carbon footprints. Any steps they can
take to reduce those footprints are considered good for both the company and
society.

.Philanthropy: Businesses can practice social responsibility by donating money,


products or services to social causes and nonprofits. Larger companies tend to
have a lot of resources that can benefit charities and local community programs.
It is best to consult with these organizations about their specific needs before
donating.

.Ethical labor practices: By treating employees fairly and ethically, companies


can demonstrate their social responsibility. This is especially true of businesses
that operate in international locations with labor laws that differ from those in
the United States.

18 View https://www.conecomm.com/research-blog/2017-csr-study

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.Volunteering: Attending volunteer events says a lot about a company's sincerity.


By doing good deeds without expecting anything in return, companies can
express their concern for specific issues and commitment to certain
organizations.

The construction of a CSR business.

Although being socially responsible isn't free, because it can cost time, money and
resources, it is important to remember that every little bit can help the environment.
Many companies start making an impact on society by donating a small portion of their
sales to a cause in which they are care about.

When initiating CSR, companies give employees a voice by involving them in the
decision-making process. They create an internal team to spearhead the efforts and
choose an organization or cause they care about. Contributing to something the
employees are passionate about can increase engagement and success. Involving
employees in the decision-making process can also bring some clarity and assurance to
the team.

Regardless of which strategies used for sustainable development, it is important to be


vocal. The company let consumers know what is really doing to be socially conscious.

Consumers deserve to share in the good feelings associated with doing the right thing,
and many surveys have found that consumers are inclined to purchase a sustainable
product over a conventional alternative. Announcing these benefits is a win-win from
both a commercial and sustainability perspective.

What to avoid when creating a CSR business model.

Becoming a CSR business can be simple, but there are a few things to avoid in the
process. Businesses should avoid participating in charitable efforts that are not related to
their core business focus or ethical standards in any way. Instead of blindly sending
money to a completely unrelated organization, find a nonprofit that the company
believes in or a project in the community.

Avoid using CSR opportunities solely for marketing purposes. Running a corporate
responsibility campaign as a quick marketing scheme can backfire when business
doesn't follow through. Instead of employing a one-time act, the company can adopt
socially responsible business practices over time. Employees and consumers tend to
react positively to companies that embrace long-term social responsibility.

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If a company is considering sustainable activities that aren't legally required yet, must
not wait. By adopting socially responsible norms early on, the company can set the bar
for its industry and refine its process.

Undertaking CSR initiatives is truly a win for everyone involved. The environmental
impact of company actions will not only appeal to socially conscious consumers and
employees but can also make a real difference in the world.

From CSR to TSI

Companies have long focused on maximizing total shareholder return (TSR) for
investors. Today, under increasing scrutiny from all stakeholders, companies must also
consider their total societal impact, TSI.

TSI is not a metric; it is a collection of measures and assessments that capture the
economic, social, and environmental impact (both positive and negative) of a
company’s products, services, operations, core capabilities, and activities.

Adding the TSI lens to strategy setting naturally leads companies to leverage their core
business to contribute to society in a way that enhances TSR.

Past research has demonstrated a link between a company’s performance in social and
environmental areas and its financial returns. A recent Boston Consulting Group BCG,
meta study of over 200 firms revealed that 80% find that better ESG is linked with
better stock price performance.

ESG data is not designed to measure a company’s TSI. In particular, ESG provides a
limited window onto the largest impact of a corporation: the intrinsic societal value
created by its core products or services. However, it is the best way currently available
to quantify a company’s societal impact.

While these studies provide support for the value of contributing to society, they do not
offer a blueprint for how companies can actually go about this. To that end, BCG
conducted a comprehensive study of how companies in five industries—consumer
packaged goods, biopharmaceuticals, oil and gas, retail and business banking, and
technology. In four of those industries, BCG quantified the relationship between
specific topics and financial benefits, helping companies understand which ESG topics
they should focus on.

The first step was to identify the ESG topics that are most important in each industry
studied. These topics relate to the companies’ core business models and operations and

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concern both the creation of positive societal impact (such as expanding financial
inclusion in retail and business banking) and the minimization of negative societal
impact (such as reducing waste in oil and gas).

To identify these ESG topics, BCG gathered extensive input from industry partners,
clients, and industry experts. We also drew on information from many organizations, in
particular, the Sustainability Accounting Standards Board (SASB), which has zeroed in
on nonfinancial topics that it considers to be “material”—that is, likely to be of interest
to investors because they can affect financial performance.

BCG list of important ESG topics by industry ultimately included topics deemed
material by the SASB as well as additional topics that BCG believes are important to
society, irrespective of their current financial materiality in the industry.

A number of ESG topics are common across industries. Efforts to support diversity and
to reduce the environmental impact of a company’s operations, for example, are
relevant for most corporations in all the industries we studied. In addition, there are
some less obvious areas—most notably, efforts to address humanitarian crises—that are
applicable to multiple industries. More often, however, areas where companies have the
most leverage to deliver societal and business impact are distinct to their industries.

After identifying the right topics for each industry, BCG determined which they could
measure with available data. There are a number of sources that measure company
performance on these topics. For this study, BCG used data from MSCI and Oekom
Research, two of the leading providers of such information. BCG then selected for
analysis the largest companies in each industry that collectively represented at least 80%
of the industry’s market capitalization and for which there was publicly available data
for at least the past three years. This yielded 39 to 141 companies for each industry.

BCG analyzed, by industry, the relationship between nonfinancial (ESG) performance


and two key financial variables: valuation multiples and margins (EBITDA margins and
gross margins). Valuation multiples reflect investor sentiment about long-term
prospects and risk, and margins reflect current value-added. Both are important
contributors to corporate value creation, as reflected in TSR. The analysis looked at
ESG performance and valuation multiples for 2013 through 2015, while the margin
analysis used data from 2014 and 2015.

BCG valuation analysis relied on Smart Multiple, BCG’s well-established, proprietary


approach for predicting quantitatively the valuation of public companies 19. The Smart
19 Vid https://www.bcg.com/publications/2013/value-creation-strategy-unlocking-new-sources-value-
creation.aspx
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Multiple approach uses a multiple regression model incorporating traditional financial


performance measures such as margin levels, growth rates, debt leverage, and company
size.

By adding nonfinancial measures to the Smart Multiple model, BCG can determine the
incremental impact on valuation of ESG performance, separate from financial
performance. In BCG margin analysis, it was used a similar approach to control for a
variety of factors—for example, R&D spending—in order to zero in on the incremental
impact of ESG performance.

The quantitative analysis revealed a concrete link between performance on specific ESG
topics and both valuation multiples and margins. BCG found positive, statistically
significant correlations on valuation multiples for 16 topics and positive, statistically
significant correlations on margins for 17 topics out of a total of 65 topics examined
across all industries.

It is important to note that the analysis does not prove causality. In fact, in some cases it
may be that higher margins, for example, allow companies to invest more in ESG
initiatives, resulting in stronger ESG performance. However, in many cases it is likely
that performance in these topics is contributing to financial performance. Ultimately, the
two factors—strong ESG performance and strong financial performance—may be self-
reinforcing.

BCG found that companies with strong performance in material ESG topics enjoyed a
premium valuation multiple. This finding yields a powerful insight. While it has long
been understood that fundamental financial factors such as margin structures, growth
rates and financial risk are key drivers of valuations, BCG results show that non
financial metrics, the ESG measures, add significant and incremental information that
also affects valuations directly.

What does all this mean for executives? They need to know which ESG topics have a
positive correlation with valuations in their industry.

As BCG looked at those topics, noted a pattern: nearly all are related to risks or other
negative impacts that are particularly relevant in certain industries. Examples include
ensuring a responsible environmental footprint and maintaining robust occupational and
safety programs. BCG call these downside topics. The remaining topics are upside
opportunities, optional activities that can generate revenue. Nearly every one failed to
show a positive correlation to valuations.

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BCG found a positive correlation between margins and both upside opportunity and
downside ESG topics in consumer packaged goods, biopharmaceuticals, oil and gas,
and retail and business banking. In BCG analysis, it was examined margin premiums—
the percentage point difference between margins for top performers in ESG topics and
median performers. In oil and gas, for example, if median performers in the health and
safety topic had an EBITDA margin of 30%, BCG analysis showed that the EBITDA
margin for top performers in that topic—all other things being equal—was 33.4%.

In most cases, for consumer packaged goods, biopharmaceuticals, and oil and gas, the
positive relationship showed up in both EBITDA and gross margins. For the purposes
of the industry discussions that follow below, BCG highlight the measure for which the
correlation was strongest.

It is not difficult to understand why strong performance in the downside topics would
contribute to higher margins. Many of them are related to practices that can lower costs,
such as the reduction of water and energy use and minimizing the likelihood of a
catastrophic operating incident.

While performance in many upside opportunity topics may not yet be rewarded by
investors (as reflected in our valuation findings), it can have a direct effect on
performance by helping a company create a sustainable competitive advantage over
rivals. A more inclusive supply chain, for example, it can help a company attract a
broader, more socially conscious customer base.

BCG quantitative analysis reveals the power of a focus on ESG. So, what ESG areas are
linked to financial performance, and what are individual companies doing in those
areas? Here we address those questions for each industry in our analysis. For the
purposes of this report, we examine company activities related to topics where our
analysis found a quantitative link—and a few where we did not.

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Mission, Vision and Values


These are strategic business concepts which are closely related to the environment and
the market where it operates. Undoubtedly, the development of the mission, vision and
values seeking a relationship of excellence with its internal and external clients,
generates loyalty because these economic actors recognize that the company promotes
through its actions, which it preaches in its strategy.

So companies committed to their development and that of their environment, managing


to influence the community where they operate, are examples of potential commercial
growth and end up being leaders in their markets. It is important to involve emotions in
the statements of strategic concepts, since this is what connects the commercial
audience with the business brand.

The importance of an adequate combination of values, mission and mission lies in the
fact that these three strategic concepts allow efficient interaction with internal clients
(workers) and external clients (markets), and promote information and communication
about the business to economic actors

In addition, they are a fundamental part of the strategy, an indispensable factor of the
Strategic Plan, helping to define the short and medium term strategic objectives,
achieving sustainability.

In the same way, they allow better orientation, marketing actions, market positioning,
how to offer a varied portfolio of quality products; therefore achieve sustainable
competitive advantage.

Those companies that define their values generate inward the promotion of responsible
citizens, while guaranteeing part of the path to success and the return of benefits.

The mission, vision and values of a company are the foundations of its culture make,
from the deepest, some decisions are made or others, provide identity to the
organization, align the motivation and focus of employees in a unified direction. The

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fact that a certain company has enunciated the mission, vision and values also helps to
foster the sense of belonging, since in this way those who are part of the organization,
can make them their own and feel that they orient their efforts towards a goal greater
than the individual.

The decisions taken will be better informed, and therefore more accurate if they have a
solid foundation and if everyone in the company understands perfectly what we do, how
we do it and where we want to go. Therefore, values, mission and vision are
fundamental for the management of companies.

A mission statement is a concise explanation of the organization's reason for existence.


It describes the organization's purpose and its overall intention. The mission statement
supports the vision and serves to communicate purpose and direction to employees,
customers, vendors and other stakeholders. Questions to consider when drafting mission
statements could include:

.What is our organization's purpose?

.Why does our organization exist?

A vision statement looks forward and creates a mental image of the ideal state that the
organization wishes to achieve. It is inspirational and aspirational and should challenge
employees. Questions to consider when drafting vision statements might include:

.What problem are we seeking to solve?

.Where are we headed?

.If we achieved all strategic goals, what would we look like 10 years from now?

A values statement lists the core principles that guide and direct the organization and
its culture. In a values-led organization, the values create a moral compass for the
organization and its employees. It guides decision-making and establishes a standard
against which actions can be assessed. These core values are an internalized framework
that is shared and acted on by leadership. When drafting values statements, questions to
consider might include:

.What values are unique to our organization?

.What values should guide the operations of our company?

.What conduct should our employees uphold?

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In conjunction with a values statement, a code of ethics puts those values into practice.
It outlines the procedures in place to ensure the organization's values are upheld.
Questions to consider when creating codes of ethics might include:

.What are common ethical issues in our industry?

.What should someone do if he or she sees a violation of our values?

Management cannot create a new values statement or ethics code and expect immediate
change. For an organization to have an effective values statement, it must fully embrace
its values and ethics at all levels of the company and use them daily to guide its
attitudes, actions and decision-making.

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Discussion

A strategic plan is a document that establishes the direction of an organization. It can


be a single page or fill up a binder, depending on the size and complexity of the
business and work.

Most managers can benefit from having a strategic plan. The process of developing a
plan helps the manager (and the team) step back and examine where they are, where
they want to go, and how to get there. In the absence of a plan, work still gets done on a
day-to-day basis but often lacks a sense of purpose and priority.

There are seven basic elements of a strategic plan. While there can be much more
included in the plan, these seven elements will help you get started.

Vision statement

A vision statement describes the way the company envision its business. As such, it
should communicate that dream to employees and customers in an inspirational manner.
A vision statement should be reviewed continuously to ensure it is still aligned with the
way the company is seen.

Harley-Davidson's vision statement focuses on keeping its brand internationally known


and valued, using the combined power of its stakeholders and employees to drive value
and innovation:

Harley-Davidson, Inc. is an action-oriented, international company, a leader in its


commitment to continuously improve our mutually beneficial relationships with
stakeholders (customers, suppliers, employees, shareholders, government, and society).
Harley-Davidson believes the key to success is to balance stakeholders’ interests
through the empowerment of all employees to focus on value-added activities.

A vision is an overall idea of what the organization should be and do. Often it reflects
the dream of the founder or leader, as well as the core values and mission of the
organization.

Usually, organizations create a vision statement that communicates that vision to its
employees and the public. It must be sufficiently clear and concise so that
everyone in the organization understands it and can buy into it with passion.

Some examples of vision statements are:

."to be the largest retailer of automobiles in the U.S."


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."to be the maker of the finest chocolate candies in London"

."to be the management consultant of choice for nonprofit organizations in the


Southwest"

Mission statement

While a vision describes how is seen the company business to customers and
stakeholders, a mission statement describes what the company does currently. It often
describes what the company does, for who, and how. Focusing on the mission each day
should enable the company to reach its vision. A mission statement could broaden
company choices, and/or narrow them.

RedHat has been a provider of Linux operating systems for over 25 years. It has a
simple mission statement: To be the catalyst in communities of customers, contributors,
and partners creating better technology the open source way.

A vision and mission can also be combined in the same statement.

The Walt Disney Company does this: The mission of The Walt Disney Company is to
entertain, inform and inspire people around the globe through the power of
unparalleled storytelling, reflecting the iconic brands, creative minds and innovative
technologies that make ours the world’s premier entertainment company. Note that the
statement is both aspirational (“is to…”) and descriptive of what they do and how they
do it ("through the...").

Core values

Core values describe beliefs and behaviors. They are the beliefs the company has that
will enable it to achieve the vision and mission.

The Coca-Cola Company lists it's core values as: Leadership: The courage to shape a
better future, Collaboration: Leverage collective genius, Integrity: Be real,
Accountability: If it is to be, it's up to me, Passion: Committed in heart and mind,
Diversity: As inclusive as our brand, Quality: What we do, we do well

SWOT analysis

SWOT is an acronym for strengths, weaknesses, opportunities, and threats. A SWOT


analysis provides businesses a situational investigation into their position in the market.
It allows to spot and name the important aspects, happenings, and adversaries of
company business.
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A business' strength could be its ability to attract local customers, while its weakness
might be an inability to break into a non-local consumer base. A local competitor with
ties to non-local customers could be facing a financial situation, giving this business an
opportunity. However, the other business remains a threat if it pulls out of the crises. If
another competitor is trying to expand its customer base, it is a threat as well.

Developing a strategy

The company strategy is one or more plans that will be used to achieve the vision—it's
like a roadmap or outline for getting there. For example, to be "the largest retailer of
automobiles in the U.S.," a company might have to decide whether it's a better strategy
for it to buy other retailers, try to grow a single retailer or a combination of both. A
strategy looks inward at the organization, but it also looks outward at the competition
and at the environment and business climate.

To be "the management consultant of choice for nonprofit organizations in the


Southwest," company strategy would need to evaluate what other companies offer
management consulting services in the Southwest, which of them target nonprofits, and
which companies could in the future begin to offer competing services. The strategy
also must determine how the company will become "the consultant of choice." What
will do so that your targeted customers choose the company over everyone else? Is the
company going to offer the lowest fees?

Will the company offer a guarantee? Will it hire the very best people and build a
reputation for delivering the most innovative solutions?

If the company decides to compete on lowest billing rates, what will do if a competing
consulting firm drops their rates below yours? If the company decides to hire the best
people, how will attract them? Will it pay the highest salaries in a four-state area, give
each employee an ownership position in the company, or pay annual retention bonuses?
The strategy must consider all these issues and find a solution that works and that is true
for the vision.

Long-term goals

Long-term goals are statements that drill down a level below the vision and describe
how the company plans to achieve it. This set of goals usually starts three years out and
extends to around five years into the future, directly aligning with the mission and
vision statements.

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Long-term goals are the milestones a company sets to guide operations toward their far-
reaching objectives. Some examples of long-term goals could be for a business to
strengthen its hold on the local market, increasing profits or expanding its operations
and sales.

Yearly objectives.

Each long-term goal should have a few one-year objectives that advance company
goals. Each objective should be as SMART as possible: Specific, Measurable,
Achievable, Realistic, and Time-based.

After the company makes its yearly objectives, it might break each one down further
into short-term goals, which define the actions and objectives for the next three months
to get the company to its yearly goals. The plans for achieving short-term goals are the
called action plans.

Action plans, Tactics.

Each objective should have a plan that details how it will be achieved. The amount of
detail depends on the amount of flexibility the company wants for its managers and
team. The more detail there is, the less flexibility those that follow it has.

It’s been said that “A vision without a plan is just a dream. A plan without a vision is
just drudgery. But a vision with a plan can change the world.”

Creating a plan to achieve company business objectives may not change the world—but
it is possible. Some of the most successful corporations started in garages, and through
planning became industry giants.

Vision, strategy, and tactics each have different meanings, but they all work together to
help an organization succeed—whether it's a multinational corporation or a one-person
startup.

First, you must develop a vision, sometimes called a mission of what you want the
organization to be and do. Once you have that vision, you can develop a strategy or a
broad plan that outlines how you'll achieve that vision. When you've outlined a strategy,
you can decide on tactics, or specific actions you'll take to employ that strategy and
reach your vision.

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