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Strategic Management

The subject of Strategic Management has become an emerging field of study for the successful operation of organisations across the globe. To enable organisations to gain Competitive Advantage in their respective industries and to also become socially responsible corporate citizens implies that management must understand the importance of the subject and know how to effectively apply these principles.

It has then become the responsibility of the Professional accountants and business leaders to make an effort and take the subject as serious as other subjects to enhance a rounded knowledge for the next generation managers for the effective and efficient operations of the organisations.

 Another current development in the field of Strategic Management which is gaining grounds in Europe and America as well as some other parts of the world is Environmental Responsibility of Organisations. Many stakeholders are now interest in businesses that are socially responsible for the well-being of the entire environment and not only seeking to maximize the value of their shareholders’ wealth as the company may seem to be in existence for that purpose. This also has brought another challenge to the professional accountant to understand how to effectively design strategies that will be environmentally friendly and at the same time, enable the company to achieve its main objective, maximising shareholders’ wealth.

Advanced Audit and AssuranceAudit and AssuranceBusiness Management and Information SystemsCorporate FinanceCorporate ReportingManagement AccountingPublic Sector Accounting and FinanceStrategic ManagementTaxation and Fiscal Policy


mock exam

Thank you for visiting our website today. Our team of Expert Professional Educators has put together the following  mock examination questions with suggested solutions for the May 2018 examination.

Check them out and share with other colleagues to increase their chances of passing as well.

To JOIN our class next semester, fill our Online Admission Form  or send us an Email .


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MA – 2018 MOCK






FM- MOCK 2018


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Advanced Audit and AssuranceAudit and AssuranceBusiness Management and Information SystemsCorporate FinanceCorporate ReportingFinancial ManagementFinancial ReportingManagement AccountingPublic Sector Accounting and FinanceStrategic ManagementTaxation and Fiscal Policy



Join our revision session for ICAG May 2018 Examination.

Thank you for visiting our website today. Our team of Expert Professional Educators has put together the following documents, analysis and revision time table for the May 2018 examination.

Our revision session comes in three segment; Revision classes, Mock examination and Mock discussion.

Check them out and share with other colleagues to increase their chances of passing as well.

To sign up for the Revision Session, fill our Online Admission Form  or send us an Email .

If you have any question and want personalize assistance then email Nhyira Premium .

Read on various subjects on our Website

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Download all your notes here


MODULE 1 – Conceptual Framework






PSAF – Solution

PSAF – Questions


PEH – Level one (MAY 2018)

MODULE 7 – Public fund

MODULE 4 – Envirnmental Analysis

MODULE 3 – Regulatory Framework


We wish you the very best as you write your Examination.



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Performance Evaluation Drawn on Brick Wall.


It is very important to assess the performance of an organization. Performance evaluation helps stakeholders to make decisions. But the question we ask ourselves is; “……how can we assess the performance of an organization?” The assessment of the organization can be done from two major angles or perspectives. These are: FINANCIAL PERFORMANCE AND NON-FINANCIAL PERFORMANCE.

In an attempt to answer the above question, we will use two models or frameworks to assess the performance of an entity. These are:


This is a strategic planning and management system that is extensively used by entities to align business activities to the vision and strategy of the organization, improve internal and external communication, monitor organization performance against strategic goals. It was originated by Dr. Robert Kaplan (Harvard Business School) and David Norton as PERFORMANCE MEASUREMENT framework that added strategic metrics to give managers and executives a more “balanced” view of organizational performance.

There are four indicators of measuring the performance of management from the view point of Kaplan & Norton. These are:

  1. THE FINANCIAL PERSPECTIVE: This measures the financial performance of the entity. It is the traditional evaluation of the entire business base on the financial statements. Examples include financial ratios such as return on assets, return on equity, liquidity ratios, and return on investment. This answers the question: “HOW DO WE LOOK TO SHAREHOLDERS”.
  2. THE CUSTOMER PERSPECTIVE: Customer measures of performance relate to customer attraction, satisfaction, and retention. These measures provide insight to the key question “How do customers see us” Examples might include the number of new customers and the percentage of repeat customers. Recent management philosophy has shown an increasing realization of the importance of customer focus & customer satisfaction in any business.
  3. INTERNAL BUSINESS PROCESS: Internal business process measures of performance relate to organizational efficiency. These measures help to answer the key question “What must we excel at”. Examples include the time it takes to manufacture the organization’s good or deliver a service. The time it takes to create a new produce and bring it to the market is another example of this type of measure. This allows management to know how well their business is running, and whether its products and services conform to customers’ requirement (the mission) in terms of cost, quality, reliability, etc.
  4. ORGANISATIONAL CAPACITY/ LEARNING & GROWTH: This relates to the future. Such measures provide insight to tell the organization, “Can we continue to improve and create value”. This includes:
  • Employee training and corporate cultural attitude related to both individual and corporate self-improvement
  • Ability to adapt and utilize advancements/changes in technological tools.


C:\Users\user\Pictures\Pictures\Screenshots\wp_ss_20151017_0001.png2. MEASURING PERFORMANCE USING THE TRIPLE BOTTOM LINE: Ralph Waldo Emerson once noted, “Doing well is the result of doing well. That’s what capitalism is all about.” While the balanced scorecard provides a popular framework to help executives understand an organization’s performance. Other frameworks highlight areas such as social responsibility. One such framework, the triple bottom line, emphasizes the THREE Ps of PEOPLE (making sure that the actions of the organization are socially responsible), the PLANET (making sure organizations act in a way that promotes environmental sustainability), and traditional organization PROFIT.

This notion was introduced in the early 1980s but did not attract much attention until the late 1990s.

Read also: This blog, Balance Scorecard Institute, Indiana Business Review

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Corporate FinanceFinancial ManagementStrategic Management


Valuation 3d Word Collage Multiples Revenues Assets Company Busi

Many people ask various questions concerning business valuation. Some of which include; “how is a company valued when selling?”, “what are the methods or approaches use in business valuation?”, and “what are the factors taken into consideration when valuing a business either for acquisition or stock exchange listing?” These and many others are on the mind of various individual when the topic of business valuation is raised.

In this guide, we will discuss the step – by- step approaches / methods for valuing businesses and also consider the various factors that has to be taken into consideration when choosing a method and the significance of each approach.

Why do we need to value a business?

The reasons why businesses are valued can vary from several perspectives. Among the reasons are the following:

To use the assets of the business:

An acquiring company will value a target company to buy and use the assets of the company. In such cases, the target company may be having valuable assets such as land and building or plant facility which can be used to gain competitive advantage.

To earn dividend:

Investors would want to buy shares in companies and invest their money in such companies to earn dividends on their investment and hence would want to value the business whether it is worth its price.

To manage and control the business:

This is a real acquisition where the acquiring company wishes to buy the target company to become owners and manage the business to earn capital gain and dividend to shareholders thereby maximising the shareholders’ value.


There is a wide range of information that will be needed in order to value a business:

  • Financial statements: Statements of financial position, income statements, statements of changes in financial position and statements of shareholders equity for the past five year
  • Summary of non-current assets list and depreciation schedule
  • Aged accounts receivable summary
  • Aged accounts payable summary
  • List of marketable securities
  • Inventory summary
  • Details of any existing contracts e.g. leases, supplier agreements
  • List of shareholders with number of shares owned by each
  • Budgets or projections, for a minimum of five years
  • Information about the company’s industry and economic environment
  • List of major customers by sales
  • Organisational chart and management roles and responsibilities

Note: In an exam question as well as in practice, it is unlikely that one method would be used in isolation.

Several valuations might be made, each using a different technique or different assumptions. The valuations could then be compared, and a final price reached as a compromise between the different values. Remember that some methods may be more appropriate for valuing a small parcel of shares, others for valuing a whole company.


Investors can use any of the following methods depending on their investment objectives to value a business.


This method can be used when

The Going Concern of the company is not certain

The target / seller company has fixed a certain minimum price below which they are not willing to sell the company.

Formula and format:

Using this method of valuation, the value of an equity share is equal to the net tangible assets divided by the number of shares.

Net tangible assets are the value in the statement of financial position of the tangible non-current assets (net of depreciation) plus current assets, minus liabilities.

Intangible assets (including goodwill) should be excluded, unless they have a market value (for example patents and copyrights, which could be sold)

Under this method of valuation, there are further three classifications/techniques that can be used. Any of which can be applicable depending on the objectives of the acquiring company.

Book Value (From the Financial Accounting perspective): With this approach, the figures in the financial statements (Balance sheet) are subject to adjustment based on historical and subjective basis.

Net Realisable Value (NRV): It is used when the assets of the business is to be disposed of. And for this reason, the company would wish to determine the wealth of the company should all the assets be sold.

Replacement Cost: This method of valuation is used when the company is a going concern and also the acquiring company intends to continue the business. The key question this technique tries to answer is this; “How much will it cost if we are to set up or establish this company (the target) today?”


With this method, the acquiring company is estimating the value of the company from the perspective of the existing shareholders. As such, this method is applicable when the acquiring company has a minimum or minority stake in the target company. Remember also that, this is the reverse of the cost of equity of the firm.

Assumptions of dividend models

The dividend models are underpinned by a number of assumptions that you should bear in mind:

(a) Investors act rationally and homogenously. The model fails to take into account the different expectations of shareholders, nor how much they are motivated by dividends vs future capital appreciation on their shares.

(b) The D0 figure used does not vary significantly from the trend of dividends. If D0 does appear to be a rogue figure, it may be better to use an adjusted trend figure, calculated on the basis of the past few years’ dividends.

(c) The estimates of future dividends and prices used, and also the cost of capital are reasonable. As with other methods, it may be difficult to make a confident estimate of the cost of capital. Dividend estimates may be made from historical trends that may not be a good guide for a future, or derived from uncertain forecasts about future earnings.

(d) Investors’ attitudes to receiving different cash flows at different times can be modelled using discounted cash flow arithmetic.

(e) Directors use dividends to signal the strength of the company’s position (however companies that pay zero dividends do not have zero share values).

(f) Dividends either show no growth or constant growth. If the growth rate is calculated using g=bR, then the model assumes that b and R are constant.

(g) Other influences on share prices are ignored.

(h) The company’s earnings will increase sufficiently to maintain dividend growth levels.

(i) The discount rate used exceeds the dividend growth rate.

The formulae to be used under this method of valuation can be either:

Market Value = Dividend/Cost of Equity



It incorporates the time value of money.


A small change in any of the variables will change the Market Value of the company.


Alpha plc has in issue $1 shares and has just paid a dividend of 20c per share. Dividends are expected to remain constant. Shareholders required rate of return is 10% p.a.

What will be the current market value per share?


Market value = 20p/ 10% = 200p ($2.00)


Beta plc has in issue $0.50 shares and has just paid a dividend of 15c per share. Dividends are expected to remain constant. Shareholders required rate of return is 12%.

What will be the current market value per share?


Market value = 15p/12% = 125p ($1.25)

Cum div / ex div values

In the above examples, the company had just paid a dividend, and therefore anyone buying the share would have to wait for a year until they were to receive their first dividend (in the examination we ignore the possibility of interim dividends).

We call this situation an ‘ex div’ valuation.

Suppose, however, that the company was about to pay a dividend. This would mean that someone buying the share would receive a dividend virtually immediately (in addition to all the future dividends). Therefore the price that they will be prepared to pay will be higher by the amount of the dividend about to be paid.

We call this situation a ‘cum div’ valuation.

Market value cum div = market value ex div + dividend about to be paid


Beta plc has in issue $0.50 shares and is about to pay a dividend of 15c per share. Dividends are expected to remain constant. Shareholders required rate of return is 12%.

What will be the current market value per share?


Market value (ex div) = 15p/12% = 125p ($1.25)

Market value (cum div) = 125 + 15 =140p ($1.40)

Note: The market value of a share is the present value of future expected dividends, discounted at the shareholders required rate of return


The information below was extracted from the books of Porhyira Limited. Use the information to determine the value of the business.

Share capital 2m
Current dividend 4c
Dividend two years ago 3.3c
Current equity Beta ( 1.6
Equity risk premium 10%
Risk free rate 5%


From the question, we have been current dividend is 4c but we don’t know the growth rate and the Equity shareholders’ required rate of return. So we must find them before answering the question.

Cost of Equity (CAPM) = Risk free rate + Beta (Return on market – Risk free rate

= 5% +1.6(10%) = 21%

Calculating growth gives 10% using the formula

Market Value = 4(1+0.1)/0.21 – 0.1 = 4 or 400c per share

Value of the business = £4 per share by 2m shares = 8m

This is the value the existing shareholders are expecting.

Note: There is nothing like a perfect answer under valuation. However, it is coming out with our best guess of the value of the company.

Limitations of the Dividend Valuation Model

Although expected future dividends and the shareholders required rate of return certainly do impact upon the market value of shares, it would be unrealistic to expect the theory to work perfectly in practice

Main Reasons For This Include:

• The stock exchange is not perfectly efficient, and therefore the market value of a share may be distorted from day-to-day by factors such as rumours about a takeover bid.

• In practice, market values do not change instantly on changes in expectations – the speed at which the market value change depends on the volume of business in the share.

• The model only deals with constant growth in dividends. In practice this may not be the case.

However, do appreciate that the growth used in the model is the future growth that shareholders are expecting – this is perhaps more likely to be at a constant rate. The big problem is determining the rate of growth that shareholders expect! It is clearly impossible to ask them and to any estimate that we make for our calculations is only an estimate and course be completely different from the rate of growth that shareholders are in fact expecting.


This is the measure of the profit and the P/E ratio of the company. This method of valuation is usually applicable when the acquiring company has a majority stake in the target company.

The suggestion is that, this year’s profit is a representative of what will be earned in the future and if that’s the case what will the company be worth today?

To answer that question, the value of the company is determined using the formula below:

The P/E ratio gives a view of the relationship between current earnings and future earnings. It means we place a value on the company based on its PAT and also what will happen to the profit in the future. If the company has a high P/E ratio, it means the future earnings are higher than current earnings.

The value of the PAT comes from the target company but the P/E ratio will come from the acquiring company or a proxy company.

If the target company and the acquiring company are in the same industry, then the P/E ratio of the acquiring company can be used because it is bringing that business to manage it. On the other hand, if they are not in the same industry, and the target is not quoted, the adjusted industrial average of quoted companies in that industry (target’) or a proxy company’s P/E ratio can be used.

Note: Both the PAT and P/E ratio must be adjusted.

PAT: Adjust for the cost savings after tax because of the dismissal of some senior managers.

P/E ratio: Adjust for risk or protected earnings. E.g. Unquoted Company.


The information below was extracted from the books of both the acquiring and target companies:

PAT £20m £12m
Share price £3 £4
EPS 20c 50c

Required: Value the target company assuming that both companies are in the same industry.


PAT must come from the target company hence £12m

P/E ratio must come from the buyer/acquiring company

P/E ratio

Value of Business = £12m by 15 = £180m


This method tries to combine two of the above methods by finding the Present Value of the Free Cash Flows to the firm.

Free Cash Flows to firms refers to the amount of cash distributable to finance providers within a given period of time.

With this method the value of the target company is calculated using the following formulae

NOTE: The second method is usually used !!!!

To determine the PV of free cash flows, we take into consideration the following:

  • Operating cash flows (excluding depreciation; it means we add back depreciation and amortisation to PBIT)
  • Tax payable
  • Capital Expenditure (CAPEX)
  • Tax relief
  • Saving (synergy; 1 + 1 )
  • Time Horizon: 5 years or 10 years or perpetuity. It means the company will generate revenue into the future.
  • Discount rate: It is usually going to be WACC which must be calculated.


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Stakeholder Value creation is an integral lesson of understanding how value is added to the investment of owners or shareholders who have contributed to the capital of the business.

One often reads in the literature that firms must be “managed” not only “for shareholders” but, more generally, “for stakeholders” (Freeman 2008; 2007; Harrison et al., 2010); or that they must “create value for all stakeholders” (Post, Preston, and Sachs, 2002); or even that they must “create the greatest possible value for all stakeholders” (or for some category of stakeholders, such as employees or consumers). What does this mean? What “value” are we talking about?

Economic Value Creation

In neoclassical theory, economic value is created when the price that consumers pay for goods and services is greater than the cost of producing them. The cost of producing goods and services is the opportunity cost of the resources (i.e., the gain that could be obtained from the best alternative use of the resources), and it is assumed that it is neither necessary nor possible to pay any more or less for the resources, given the competition in the goods and factor markets. The only resource that does not receive a market price is capital, i.e., ownership of the firm, which instead receives the residual value or profit.

In the neoclassical model, the economic value generated is the sum of the consumer surplus and the producer surplus. The consumer surplus is defined as the difference between the highest price that consumers would be willing to pay for a good or service and the price they actually pay, while the producer surplus is the difference between the price at which sellers actually sell and the cost of the resources employed. The question of value maximization boils down to that of the consumer surplus and the producer surplus or residual value, attributed to the owner.

This is not to say that other stakeholders do not also receive a surplus, merely that the task of determining the amount of the surplus and distributing it is transferred to the resource markets (labour, finance, commodities, etc.).

If a product is able to satisfy consumers’ present needs better without losing any of its capacity to satisfy future needs, then more value will be created because buyers will be willing to pay a higher price for the product.

And if a producer uses better technology, combines resources more efficiently or pays lower prices for them, again more economic value will be created. In the neoclassical model, therefore, the problem of value creation is separate from that of value distribution. If the stated conditions are met, consumers receive their surplus, the providers of resources receive their opportunity cost, and the company’s owners appropriate the producer surplus or profit, which is an incentive for them to make decisions that maximize profit and, also therefore, present and future efficiency.

As a consequence of all the above, an economic optimum – in terms of the maximization of “social value” (Jensen, 2001) for the economy as a whole – is attained. If consumers maximize their utility and companies maximize profit for their owners (i.e., the expected present value of the shares, assuming a long-term, stochastic view) (Mossin, 1977), the social (economic) value created will be maximal (Williamson, 1984).

For that to happen, however, certain conditions must be met: perfect competition (or sufficient competition, cf. Stigler, 1957) in all markets; markets for all goods and services, present and future (i.e., there can be no goods without a price); free entry to and exit from all markets; availability, to all concerned, of sufficient information on the prices, characteristics and availability of the goods and services for all to be able to make optimal decisions; non-existence of public goods; absence of positive or negative externalities (i.e., nobody bears the costs, risks or benefits of actions performed by other agents with which he does not have a market relationship), and so on.

In a stakeholder model, therefore, the theory of value creation implies that:

  1. all those who create or capture value, or who in their relationship with the firm assume risks, either inside the firm (owners, managers, employees) or outside the firm (consumers, suppliers), or who suffer the impact of the firm’s externalities or misinformation (local community, environment, future generations, society at large), must be considered stakeholders – at least for the purpose of value distribution, which is what concerns us here;
  2. maximizing value for consumers and resource providers is not enough to guarantee a social optimum, as there are other relevant stakeholders to be considered, and 3) in relations between stakeholders and the company, there are other variables to be taken into account besides the exchange of goods or services for a price, such as whether there are alternatives (alternatives that limit market power), whether information is provided (including the means to process it and use it rationally), whether protection is available against negative externalities (whether those affected have the means to defend themselves against externalities), and so on.
What is “Value” for a Stakeholder?

What do we mean when we say that a company creates, or should create, “value” for its stakeholders? So far we have been referring to economic value, but there are other ways of understanding what that “value” actually consists of.

What can a stakeholder be seeking when he starts an occasional transaction or a lasting relationship with a company?

Let’s take the example of an employee.

  1. An employee may be seeking an “extrinsic” result, which the company will provide as a consequence of the relationship and which may be an economic good or service, or something non-economic. He may be seeking remuneration, or he may be seeking intangible results, such as career promotion (which will also have economic consequences), recognition (Frey and Neckermann, 2009), and so on.
  2. An employee may be seeking “intrinsic” results, which are not provided by the company but which arise within the employee himself, and which may be psychological (satisfaction with the job or with the results achieved) or operational (operational learning, i.e., acquisition of knowledge, capabilities, etc.).
  3. An employee may be seeking results in other people (satisfaction of customers and suppliers, success of other employees and managers, etc.), which will give rise to “evaluative” learning in the employee himself, i.e., learning about how to take the interests of others (and his own interests) into account.
Based on this classification of the results of an action, we can identify six types of “value”:

1. Economic extrinsic value (economic value). This is created through collaboration among employees and may be appropriated by either side, as we explained earlier.

2.Intangible extrinsic value, which is provided by the company, e.g., recognition, some kinds of training, etc. This is not part of the economic value created by a company, although it may be a form of participation in intangible value (e.g., the personal status that comes from working for a highly regarded company).

3. Psychological intrinsic value, such as satisfaction with the work done. This is generated in the agent himself. It is not part of the economic rent creation process and cannot be appropriated by the company or other stakeholders, although they may help to create or destroy it. In an employee, it may be a (partial) substitute for extrinsic value (besides the satisfaction of working for the company, employees will need a minimum of remuneration).

4.Intrinsic value that takes the form of operational learning (acquisition of knowledge and capabilities). This is created in the agent, not in the company, but probably with the cooperation of other stakeholders. It is not part of the economic value created by the company, although it may contribute to the creation of economic value in the future. It may also be a (partial) substitute for economic value.

5.Transcendent value, which consists of evaluative learning (acquisition of virtues or vices). This is generated in the agent himself as a consequence of his own decisions. It alters the agent’s ability to assess the consequences of those decisions for himself and for other agents

6. Value that consists of positive or negative externalities, i.e., value that is felt by agents other than those with whom the relationship or transaction is conducted.

“Maximizing value for all stakeholders,” which was an impossible task so long as we limited ourselves to economic value, is now possible. And “appropriating value” now also means something different, as some types of value cannot be appropriated. All the different types of value are generated cooperatively, at least insofar as producing goods and services is a social activity.

Finally, “managing the firm so as to serve all stakeholders” is now possible because the challenge is not to share a scarce resource but to generate non-exclusive value which everybody needs. And that is a challenge which, though entrusted to managers, must be addressed by all.

Introducing value creation for all stakeholders broadens the framework of management, bringing it closer to a more realistic economic optimum, generating new cooperative value creation capabilities, and overcoming some conflicts. So long as the focus remains on economic value, however, any solutions adopted will be insufficient, because the processes of capturing that value will always be liable to conflicts of all kinds.

Credit: Antonio Argandoña –

RGB GLOBAL, emerandinsight, university of Virginia, this blog

Shareholder Value creation is very important for the Business Leader

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Stakeholder mapping is a collaborative process of research, debate, and discussion that draws from multiple perspectives to determine a key list of stakeholders across the entire stakeholder spectrum.

Mapping can be broken down into four phases:

1. Identifying: listing relevant groups, organizations, and people

2. Analyzing: understanding stakeholder perspectives and interests

3. Mapping: visualizing relationships to objectives and other stakeholders

4. Prioritizing: ranking stakeholder relevance and identifying issues.

The process of stakeholder mapping is as important as the result, and the quality of the process depends heavily on the knowledge of the people participating.

Action: Gather a cross -functional group of internal participants to engage in this process.

Identify sources external to the company who may have important knowledge about or perspective on the issues, and reach out to these sources for input and participation.

Finally, identify a resource who can facilitate the work through the following activities.

Capture all the work in writing to help with future steps


The first step in the mapping process is to understand that there is no magic list of stakeholders.

The final list will depend on the business, its impacts, and the current engagement objectives—as a result it should not remain static. This list will change as the environment around the business evolves and as stakeholders themselves make decisions or change their opinions.

Action: Brainstorm a list of stakeholders without screening, including everyone who has an interest in your objectives today and who may have one tomorrow.

Where possible, identify individuals. Use the following list to help you brainstorm:

  • Owners (e.g. investors, shareholders, agents, analysts, and ratings agencies)
  • Customers (e.g. direct customers, indirect customers, and advocates)
  • Employees (e.g. current employees, potential employees, retirees, representatives, and dependents)
  • Industry (e.g. suppliers, competitors, industry associations, industry opinion leaders, and media)
  • Community (e.g. residents near company facilities, chambers of commerce, resident associations, schools, community organizations, and special interest groups)
  • Environment (e.g. nature, nonhuman species, future generations, scientists, ecologists, spiritual communities, advocates, and NGOs)
  • Government (e.g. public authorities, and local policymakers; regulators; and opinion leaders)
  • Civil society organizations (e.g. NGOs, faith -based organizations, and labour unions)


Once the organisation has identified a list of stakeholders, it is useful to do further analysis to better understand their relevance and the perspective they offer, to understand their relationship to the issue(s) and each other, and to prioritize based on their relative usefulness for this engagement.

BSR (Business for Social Responsibility) has developed a list of criteria to help an organisation analyse each identified stakeholder:

•Contribution (value): Does the stakeholder have information, counsel, or expertise on the issue that could be helpful to the company?

•Legitimacy: How legitimate is the stakeholder’s claim for engagement?

•Willingness to engage: How willing is the stakeholder to engage?

•Influence: How much influence does the stakeholder have? (You will need to clarify “who” they influence, e.g., other companies, NGOs, consumers, investors, etc.)

•Necessity of involvement: Is this someone who could derail or delegitimize the process if they were not included in the engagement?


The company can use these five criteria to create and populate a chart with short descriptions of how stakeholders fulfil them. Assign values (low, medium, or high) to these stakeholders. This first data set will help you decide which stakeholders to engage.


Mapping stakeholders is a visual exercise and analysis tool that the company can use to further determine which stakeholders are most useful to engage with. Mapping allows management to see where stakeholders stand when evaluated by the same key criteria and compared to each other and helps you visualize the often complex interplay of issues and relationships.

Action: Draw a mapping as follows to identify key stakeholders.

1. Draw a quadrant using two axes labelled “Low” to “High.”

2. Add “Expertise,” “Willingness,” and “Value”

3. Assign “Expertise” to the Y-axis and “Willingness” to the X-axis

4. Discuss and debate where each stakeholder falls

5. Plot the stakeholders on the grid.

6. Use small, medium, and large circle sizes to denote their “Value.”

7. To illustrate relationships, use arrows to depict “Influence.”

Consider quadrants, circle size, and influence arrows when prioritizing.


It is not practical and usually not necessary to engage with all stakeholder groups with the same level of intensity all of the time.

Being strategic and clear about whom the company is engaging with and why, before jumping in, can help save both time and money.


The company should look closely at stakeholder issues and decide whether they are material to the company’s engagement objectives, asking yourself the following questions:

What are the issues for these priority stakeholders?

  • Which issues do all stakeholders most frequently express?
  • Are the real issues apparent and relevant to our engagement objectives?

Credit: Business for Social Responsibility

Other reads, mindtools, this blog

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Environmental analysis is a strategic tool. It is a process to identify all the external and internal factors (elements), which can affect the organisation’s performance. The analysis also entails assessing the level of threats or opportunity the factors might present.

Are you ready? Let’s get into details!!!!!!!!!!!


An entity’s environment is anything that is not a part of the entity itself. The term “macro-environment” is used to mean general factors in the business organization; the environment includes customers, potential customers, markets, competitors, suppliers, and government and potential sources of new employment. It also includes the social, political and economic environment in which the entity exists and operates.

Environmental influences on an organization vary with the size of the organization, and the industry and the countries in which it operates.

The importance of environmental factors for strategic management arises because:

  • Organizations operate within their environment and interact with it
  • Changes in the environment can be large and significant- and continually happening
  • Future changes can be very difficult to predict.

The purpose of environmental analysis:

  • To understand the factors in the environment that have significant effect on the entity and what it does.
  • To understand the key drivers of change: these are the factors in the environment that will have the greatest effect on the entity, and force the entity to change its strategies in order to survive and succeed
  • To understand the difference in the impact that key drivers of change in the environment will have on different industries or different markets, or how changes in the environment might affect one particular entity more or less than other entities.

Two models for environment analysis:

In your examination, you may be required to carry out an environmental analysis. You might be required to use any ‘model’ of your choice. Alternatively you might be asked specifically to use PESTEL analysis or Porter’s Five Forces.

  • The PESTEL model is used to analyse reasons why entities in particular environment of an entity.
  • Porter’s Five Forces is use to analyse the competitive industry


It describes a framework of macro- environmental factors used in the environmental scanning component of strategic management. It is an overview of the different macro-environmental factors that the company has to take into consideration. These factors have great influence on every organization and must be taken into consideration in deciding on every strategic plan to be taken by management. They include:

Political Environment:

This consists of political factors that can have a strong influence on business entities and other organization.

Investment decisions by companies will be influenced by factors such as:

  • The stability of the political system particular countries
  • The threat of government action to nationalize the industry and seize ownership from private business
  • Wars and civil unrest
  • The threat of terrorist activity.

Political considerations are particularly important for business entities operating in countries with an unstable political regime, or a dictatorship.

Economic Environment:

This consists of the economic influences on an entity and the effect of possible changes in economic factors on future business prospects. Factors in the economic environment include:

  • The rate of growth in the economy
  • The rate of inflation
  • The level of interest rates, and whether interest rates may go up or fall
  • Foreign exchange rates, whether particular currencies are likely to get weaker or stronger
  • Unemployment levels and the availability of skilled and unskilled workers
  • Government tax rates and governance subsidiaries to industries
  • The existence and non-existence of free trade between countries, and whether trade barriers may be removed

Economic factors could affect a decision by a company about where to invest.

Social and cultural Environment:

An entity is affected by social and cultural influences in the countries or regions in which it operates, by social customs and attitudes. Some influences are more significant than others.

Factors in the social and cultural environment include the following:

  • The values, attitudes and beliefs of customers, employees and the general public.
  • Patterns of work and leisure, such as the length of the working week and the popular views about what to do during leisure time.
  • The ethnic structure of society
  • The relative proportions of different age group in society.

Technological environment:

This consists of science and technology available to an organization (and its competitors), and changes and development in science and technology.

Environmental / Ecological Influence:

For business entities in some industries, environmental factors have an important influence on the strategic planning and decision- making. They are particularly important for industries that are:

  • Subject to strict environmental legislation, or the risk of stricter legislation in the future(for examples, legislation to cut levels of atmospheric pollution)
  • Faced with the risk that their sources of raw materials will be used up
  • At the leading edge of technological research, such as producers of genetically modified foods.

Legal environment:

This consists of the laws and regulations affecting an entity, and the possibility of major new laws or regulations in the future. These may include:

  • Employment legislation
  • Environmental legislation or health and safety legislation
  • Tax systems
  • Company Laws and Ghana Stock Exchange Laws or regulations.

Limitations of PESTLE analysis:

  • It is difficult to identify the environmental influence that will have the biggest influence in the future
  • It does not provide an assessment of the environmental influences.


It describes a framework that attempts to analyse the level of competition within an industry and business strategy development. It draws upon industrial organization economics to derive five forces that determine the competitive intensity and therefore attractiveness of an industry. Attractiveness in this context refers to the overall industry profitability.

The framework was written by Professor Michael Eugene Porter of the Harvard Business School.

These five forces include:

Threats from potential entrants: One of the Five Forces is the threats that new competitors will enter the market and add to the competition. New entrants might be attracted by the high profits. One way these new entrants gain market share is to compete on price and charge lower prices than existing competitors. The significant of this threat depends on how easy or how difficult it would be for new competitors to enter the market.

Barriers to entry:

  • Economic of scale
  • Capital investment requirements
  • Access to distribution channels
  • Technical know-how
  • Government regulations
  • Switching costs

Threats from substitute product or services: There is a threat from substitute products when customers can switch fairly easily to buying alternative products (substitute products). Example may include the TRANSPOT INDUSTRY, COMMUNICATION INDUSTRY, etc.

The bargaining power of suppliers: Porter wrote “Suppliers can exert bargaining power over participants in the industry by threatening to raise prices or reduce the quality of purchased goods or services. Powerful suppliers can thereby squeeze profitability out of an industry unable to recover cost increases in its own prices.”

The bargaining power of customers: Buyers can reduce the profitability when they have considerable buying power. Powerful buyers are able to demand lower prices or improved product specifications. Porter suggested that buyers might be particularly powerful in the following ways:

  • When the volume of their purchases is high relative to the size of the supplier
  • When the products of rival suppliers are largely the same
  • When the buyer has full information about suppliers and prices.
  • When the profit of the buyer are low.

Competitive rivalry within the industry or market: Competition within an industry is obviously also determined by the rivalry between the competitors.




The value chain describes those activities of the organization that add value to purchased inputs. These activities are divided into two broad categories:

    1. Primary activities: These involved in the production of goods and services. They include (Service [installing products, repairing them, among other], Marketing & Sales, Outbound Logistics [this involves storing the product and distributing to customers: packaging, testing, delivery and so on], Operations [converting resource inputs into a final product] and Inbound Logistics [This involves receiving, handling and storing inputs to the production system: warehousing, transport, inventory control and so on].
    2. Supporting Activities: These activities provide purchased inputs, human resources, technology and infrastructural functions to support the primary activities.


NOTE: The value network joins the organization’s value chain to those of its suppliers and customers.

After analysing the external environment and its factors concerning how they affect the performance of the entity as well the in the strategic planning and decision-making in the organization, the next thing to consider are the factors within the organization that can help it to gain competitive advantage in the industry to survive and succeed.

There are two models that can be used in the assessment of the internal environment. These are:



This model combines the results of the environmental analysis and the internal appraisal into one framework for assessing the firm’s current and future strategic fit, or lack of it, within the environment. It summarizes the key issues from the business environment and the strategic capacity of an organization that are most likely to impact on strategy development. It also involves specifying the objectives of the business and identifying the internal and external factors that are favourable and unfavourable to achieve these goals.

Some Authors credit SWOT to Albert Humprey, who led a convention at the Straford Research Institute in the 1960s and 1970s using data from Fortune 500 companies.

  • STRENGTH: These refer to the characteristics of the business that give it an advantage over others. The strength of the organization can be from its infrastructure facilities, people, skills, technical know-how, reputation, brands, and processes, among other.
  • WEAKNESS: These are characteristics that place the business at a disadvantage relative to others.
  • OPPORTUNITIES: These are the elements that the business could exploit to its advantage. These may include factors relating to markets, sectors, competition, politics, trends, culture, and technology, among others.
  • THREATS: These are the elements in the environment that could cause trouble for the business.


  • To identify strengths, weakness, opportunities and threats to the entity.
  • To identify strengths to take advantage of opportunities available.
  • To modify weakness into strengths
  • To modify threats into opportunities.



The TOWS matrix is a variant of the SWOT analysis, which is another popular strategic planning method often used when devising marketing plans. Both of these techniques require marketers/management to first identify a company or product’s strengths, weaknesses, opportunities and threats.

However, while a SWOT analysis aims to use strengths and weakness to reduce threats and maximize opportunity, the TOWS matrix identifies external opportunities and threats and compares them to the company’s internal strengths and weaknesses.

This tool aims to answer the following four questions:

  • Strengths and Opportunities (SO): How can your current strengths help you to capitalize on your opportunities?
  • Strengths and Threats (ST): How can your current strengths help you identify and avoid current and potential threats?
  • Weaknesses and Opportunities (WO): How can you overcome your current weaknesses by using your opportunities?
  • Weaknesses and Threats (WT): How can you best diminish your weakness and avoid current and potential threats.

In answering these questions, Weirich proposed four strategic options that each organization can use in achieving the corporate objectives or mission.

These are summarized in the table below:

Objectives of Weirich’s TOWS matrix

  1. It provides a clear set of steps to move from SWOT analysis to formulate strategic options.
  2. It makes management aware of the need for defensive strategies (WT) in addition to strategies to grasp opportunities.
  3. It therefore helps the organization to adopt an inherently positioning approach to strategy.
  4. It enables management to identify external opportunities and threats and compares them to a company’s internal strengths and weaknesses.

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Business Management and Information SystemsCorporate ReportingStrategic Management




The role of business ethics cannot be over – emphasized. This is because, business ethics an important topic to the success of a business and gaining competitive advantage.

You can relate very well to this because of the continuous news release of businesses engaging in several non – ethical behavior as well as the impacts of this on the businesses.

In today’s post, we will spend time to discuss in details the role of business ethics.


So what is Business ethics?

Business ethics (corporate ethics) is a form of applied ethics or professional ethics that examines ethical principles and moral or ethical problems that arise in a business environment. It applies to all aspects of business conduct and is relevant to conduct of individuals and entire organizations.


Business ethics are govern by certain rules. Rules are a collective idea of what is right and wrong for the good of a group of people the breach of which results into punishment.

Ethics are a set of moral principles to guide human behavior.

Sources of Rules

  • The law: This is the highest source of rule from which all other rules must originate or conform. Any rule that is not conform to the law, which is the constitution of a country, then it, means such rules are illegal and cannot be enforced on any individual.


  • Non- legal rules and regulation: These are rules issued by some specific bodies to regulate the behavior of its members. These may not necessarily be conforming to the laws of a certain jurisdiction due to how complex and global some of them are. These may include; International Financial Reporting Standards (IFRSs), International Accounting Standards (IASs), International Standards on Auditing (ISAs), Ghana Stock Exchange regulations, among others.
  • Ethics: Ethical behavior is seen as the highest level of behavior that society expects.

Business Ethics – Corporate Governance Concepts

  • Fairness: This means directors must have systems and values that take into account everyone who has a legitimate interest in the company, and respecting their rights and views. An example of directors’ fairness can be how they relate to ordinary and preference shareholders and how they treat other stakeholders.
  • Openness or transparency: This means open and clear disclosure of relevant information to all stakeholders and not concealing information when it may affect decisions.  Disclosures include; financial statements, narrative notes (directors’ report, the operating and financial review).

 Main Reasons / Importance of Openness

  • To solve the agency problem
  • To confirm the level or strength of internal controls for reliability
  • Market prices of shares

 Circumstances for Concealment

  • The future strategy of the company
  • Confidential issues relating to individuals.

NOTE: To ensure this, there has to be independent non-executive directors.


  • Probity /honesty: This means telling the truth and not misleading shareholders and other stakeholders. Management must be honest with preparing and preparation of financial statement and other operations of the organization.
  • Responsibility: This means management accepting the credit or blame for governance decisions.


The South Africa King Report stressed that; there must be a system that allows for corrective action and prevailing mismanagement to ensure to ensure responsibility.


NOTE: There is always a battle or contention as to the responsibility of manager’s towards each stakeholder.


  • Accountability: This refers to whether organizations (and its directors) are answerable in some way for the consequences of their actions.

NOTE: The UK Cudbury report stressed that making the accountability work is the responsibility of both parties (directors and stakeholders).


  • Reputation: This means how an organization fulfills other principles of corporate governance. It is often a very valuable asset of the organization.


  • Judgement: This means that the board making decisions that enhances the prosperity of the organization. This is ensured by directors having multiple conceptual skills to management that aim to maximize long-term returns.


  • Integrity: This means management being straightforward in dealing and completeness. It means, adhering to principles of professionalism and probity. The Cudbury report stressed on the need for personal honesty and integrity of preparers of accounts. This is one of International Federation of Accountants (IFAC) codes of ethic.


Fiduciary responsibility: This means managers have a duty of faithful service in respect of stakeholders and their behavior must always reflect it.

The boundaries of management Discretion:

The stakeholder view of company objectives:

 Each stakeholder has an objective and managers must ensure to balance off all these through their actions and discretion.

The consensus theory of Company objectives

This theory was developed by Cyert and March. They simply argued that, objectives are always not selected or controlled by management but differing views of stakeholders. It means management takes into consideration the objectives of stakeholders.


Ethics and morality are about rights and wrong behavior. Western thought about ethics is based on two ideas; Duty & Consequences. Ethics is also influenced by the concepts of virtue and rights.

Organizations always have complexity in dealing with the political and social environment.

Whiles the political environment consists of laws, regulations and government agencies, the social environment consists of the customs, attitudes, beliefs and level of education of citizens.


This approach judges actions by reference to their outcomes or consequences.

Utilitarianism :

This refers to choosing the action that is likely to result in the greatest good for the greatest number of people. It was propounded by Jeremy Bentham.


It states that an act is ethically justified if decision makers freely decide to pursue their own short-term desires or their long-term interest.


It is mostly by shorter-mists. That’s long-term goals are sacrifice for short-term goals.


This concept states that ‘different views may exist on morality. It means there are considerations of different range of perspectives or viewpoint in order to establish a course of action.



This refers to the view that a wide variety of acceptable ethical beliefs and practices exists. The ethics that are most appropriate in a given situation will depend on the conditions at that time.



  • It highlights our cognitive bias in observing with our senses(we see only what we know and understand)
  • It highlights differences in cultural belief.
  • It resolves moral conflicts between different cultures. The philosopher Bernard Crick states that, each culture has an absolute.
  • More flexibility and greater success for multinational companies.



  • There is always a fundamental contradiction between different cultures.
  • It leads to a philosophy of ‘anything goes by religious leaders.
  • It contradicts with natural laws; this view was by the atheist scientist Richard Dawkins.


This is the view that, there is an unchanging set of ethical principles that will apply in all situations, at all times and in all societies. 


  • Absolutists: believe that certain actions are always wrong – no ‘ifs’ or ‘buts’.
  • Relativists/pluralists: believe that that nothing is objectively right or wrong and that ‘right’ or ‘wrong’ depend on the prevailing view of a particular individual, culture, or historical period.
  • Consequentialism: whether something is right or wrong depends on the consequences, or outcome, of the act.
  • Utilitarianism: this is a branch of consequentialism that states that the ethically right choice in a given situation is the one that produces the most happiness and the least unhappiness for the largest number of people.
  • De-ontological: this is a duty-based approach to ethics and is concerned with what people do, not with the consequences of their actions. People have a duty to do the right thing because it is the right thing to do.


Managers have a duty (in most enterprises) to aim for profit. At the same time, modern ethical standards impose a duty to guard, preserve and enhance the value of the enterprise for the good of all touched by it, including the general public.

There are basically two issues; conflict of interest among stakeholders and the payments made by the companies to government or municipal officials.


In his book ‘The Ethics of Corporate Conduct’, Clarence Walton refers to the fine distinctions which exist in the area of payments organizations have to make;

  • Extortion: Some officials may threaten to seize or bring closure of a company’s business if some amount of money is paid.
  • Bribery: This refers to payments for services to which a company is not legally entitled.
  • Grease money: These are payments made to right people in a country to oil the machinery of bureaucracy. This may happen due to the inability of the company enjoying the services for which it is legally entitled to have.
  • Gifts: In some cultures such as Japan, gifts are regarded as essential part of civilized negotiation and companies may adopt this in such cultures even though it may appear dubious by other cultures.



Lynne Paine of Harvard Business Review suggests that there are two approaches to the management of ethics in organizations:

Compliance-based approach:

This is primarily designed to ensure that company acts within the letter of the law, and that violations are prevented, detected, and punished. Organizations may take the following step:

  • Compliance procedures to detect misconduct
  • Audit of contracts
  • Systems for employees to report criminal misconduct without fear of retribution
  • Disciplinary procedures to deal with transgressions.

Integrity – based approach:

This approach combines a concern for the law with an emphasis of managerial responsibility for ethical behavior.


As a Professional Accountant, your values and attitudes flow through everything you do professionally. They contribute to the trust the wider community puts in the profession and the perception it has of it.

A code of ethics for accountants

Fundamental principles of the IFAC Code of Ethics and Conduct (ICAG):

  • Integrity: be straightforward and honest in all professional work. Stand up for what you believe to be right. Do not ‘turn a blind eye’.
  • Objectivity: do not allow bias, self-interest or conflicts of interest to influence professional judgements and conclusions.
  • Professional competence and due care: carry out work to proper standards; don’t skimp; keep up to date with changes in legislation, methodology and regulations.
  • Confidentiality: do not disclose information received through professional work without permission or if there is a legal duty or right to disclose it.
  • Professional behavior: comply with laws and regulations and do not act in a way that brings ICAG or the wider accountancy profession into disrepute.



Personal quality Details
Reliability When taking on work, you must ensure it gets done and meet professional standards
Responsibility In the workplace you should take ‘ownership’ of you work
timeliness Clients and work colleagues rely on you to be on time and produce work within a specific time frame
Courtesy You should conduct yourself with courtesy and consideration towards clients and colleagues
Respect As an accountant, you should respect others by developing constructive relationships and recognizing the values and rights of others.





Professional quality Details
Independence You must be able to complete your work without bias or prejudice and you must also be seen to be independent
Skepticism You should question information given to you so that you form your own opinion regarding its quality and reliability
Accountability You should recognize that you are accountable for you own judgements and decisions
Social responsibility Accountants have a public duty as well as a duty to their employer or client. Audit work, accountancy work and investment decisions may all affect the public in some way.



Threats to professional ethics arise from

  • Self-interest
  • Self-review
  • Advocacy
  • Familiarity

Self-interest threats

 Self-interest threats are the following:

  • Financial: For example if an auditor own shares in the client, the auditor could be accused of wanting the client’s profits to look good, so that the share price rises thereby enriching the auditor.
  • Close business relationships are also threats. For example, if a partner retired from an audit partnership and then immediately went to work for a client, they could be accused for having lined themselves up for a job and to do that they perhaps did not do their audit rigorously. A period of at least two years should pass before an ex-partner takes up an appointment with a client. Having a partner on the client board is also unacceptable.
  • Close family and personal relationships between the auditor and owners or directors of the company they are auditing lay the auditor open to suggestions that the audit has been neither objective nor independent, and that the auditor did not show the proper degree of integrity.
  • Loans and guarantees from the client to the auditor should be looked at carefully. If the audit client is a bank and it makes a loan on a normal business terms to a member of the audit staff, for example a mortgage, this would normally be regarded as acceptable. If however the bank (the audit client) makes a large loan into the partnership then this again could leave the audit firm open to accusations of having being treated faithfully by the bank. Certainly no loans or financial relationships should exist between a client and an auditor if it is not normal business for the client to make loans.                                                                                       
  • Overdue fees put the auditor at some risk as there is a possibility that client will never pay those fees. This could lead to accusations that the auditor has not qualified the audit report to reduce the likelihood that a worried creditor triggers the company’s liquidation. If there are overdue fees the auditor should not make the situation worse.

Self-review threats

Self-review threats arise when an auditor does work for a client and that work may then be subject to self-checking during the subsequent audit. For example, if the auditor prepares the financial statements, and then has to audit them or the auditor performs internal audit services and then has to check that the system of internal control is operating properly.

Auditors could obviously be reluctant to criticize the work which their own firms have earlier undertaken, and this could interfere with independence and objectivity.

Advocacy threats

Advocacy is where the assurance or audit firm promotes a point of view or opinion to the extent the subsequent objectivity is compromised. An example would be where the audit firm promotes the shares in a listed company or supports the company in some sort of dispute. Advocacy can interfere with professional skepticism.

Familiarity threats

Familiarity threats arise because of the close relationship between members of the assurance or audit firm and the client. The close relationship can arise by friendship, family or through business connections. There is no general definition of what’s meant by close relationships, but if you were an auditor and your brother was the Finance Director of a client firm then there probably is a close relationship! If however the finance director was a remote cousin of yours, there might not be a close relationship.


The final groups of threats are intimidation threats. These can deter the assurance team from acting properly.

Examples could be threatened litigation, blackmail, or there might even be physical intimidation, though it is to be hoped that that is rare. Blackmail could be more subtly applied and might relate back, for example, to a period where the auditor was not acting in accordance with the required ethical standards.


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Strategic Management



Corporate Social Responsibility is an “organisation’s obligation to maximize positive stakeholder benefits while minimizing the negative effects of its actions.”

It is the idea that businesses and other organisations occupy a significant space in society and that a responsibilities are not owed only to shareholders.

Basic element of CSR

  • Staff development via training and education
  • Equal opportunities statements
  • Written antidiscrimination policies
  • Commitment to reporting on CSR
  • Policies for restricting the use of child labour by suppliers
  • Commitment to the protection of the local community.

Obviously laws must be obeyed (for example on employee safety and welfare), but proponents of CSR go further and say that organisations should go further than prescribed by law so that they become good corporate citizens.

For example:

  • Release less pollution and greenhouse gasses than permitted so that the local population and world resources are safeguarded.
  • Offer enhanced welfare and training opportunities to employees.
  • Support local charities.

Merits of Corporate Social Responsibility

CSR is claimed to offer the following advantages to businesses, all of which might lead to profit increases:

  • Goodwill and reputational improvements
  • Brand strengthening and protection
  • Differentiation so as to attract particular customers, talented employees and high class collaborators.
  • Lower costs e.g. saving energy, less waste.

Corporate Social Responsibility Stances

These refer to the approaches that organisations take to CSR. Different organisations take very different stances on social responsibility, and their different stances will be reflected in how they manage such responsibilities.

JSW identify four CSR stances, these include

Laissez Fair Stance – Short-term shareholder interest:
Limit ethical stance to taking responsibility for short-term shareholder interest on the grounds that it is for government alone to impose wider constraints on corporate governance. It is a minimalist approach to respond to the demands of the law but would not undertake to comply with any less substantial rules of conduct. The ground here would be that going beyond it can challenge government authority.

Enlightened self- interest – Long-term shareholder interest:
Wider view of ethical responsibilities, enhances the organization’s image. The cost of undertaking such responsibilities may be justified as essentially promotional expenditure. This can prevent a build-up of social and political pressure for legal regulation.

 Multiple stakeholder obligations:
Accepts the legitimacy of stakeholders other than shareholders and build those expectations into its stated purpose.

 Shaper of society:
Largely the concern of public sector organizations and charities. Accepts a wide responsibility to stakeholders.

Limits of corporate social responsibility:

Milton Friedman argued against CSR on the basis that There is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits.”  That’s


  • Businesses do not have responsibilities, only people have responsibilities. Managers in charge of corporations are responsible to the owners of the business, by whom they are employed.
  • These employers may have charity as their aim, but generally their aim is to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical customs.
  • When management as according to the definition of CSR, it means they act in some way that is not in the interest of the employee (shareholders).
  • If management undertake any CSR, then they are generally spending the employers money on purposes other than those they have been authorized.


A second argument against CSR is that maximization of wealth is the best way that society can benefit from a business’s activities. That’s


  • Maximizing of wealth has the effect of increasing the tax revenue available to the state to disburse on socially desirable objectives.
  • Maximising shareholder value has a ‘trickle down’ effect on the other disadvantaged members of society.
  • Many company shares are owned by pension funds, whose ultimate beneficiaries may not be the wealthy anyway.

 Approaches to Social Responsibility


Proactive strategy A strategy which a business follows where it is prepared to take full responsibility for its actions. A company which discovers a fault in a product and recalls the product without being forced to, before, before any injury or damage is caused, acts in a proactive way.
Reactive strategy This involves allowing a situation to continue unresolved until the public, government or consumer groups find out about it.
Defence strategy This involves minimizing or attempting to avoid additional obligations arising from a particular problem.
Accommodation strategy This approach involves taking responsibility for actions, probably when one of the following happens:

  • Encouragement from special interest group
  • Perception that a failure to act will result in government intervention.




Sustainability reporting has emerged as a common practice of 21st-century business. Where once sustainability disclosure was the province of a few unusually green or community-oriented companies, today it is a best practice employed by companies worldwide.


Sustainability: Involves developing strategies so that the company only uses resources at a rate that allows them to be replenished such that the needs of the current generation can be met without compromising the needs of future generations. At the same time, emissions of waste are confined to levels that do not exceed the capacity of the environment to absorb them.


The triple bottom line (TBL) is sometimes summarized as People, Planet, and Profit. It consists of:


  • Social justice: fair and beneficial business practices towards labour and the community and the region in which a corporate conducts its business. A TBL company conceives a reciprocal social structure in which the wellbeing of corporate, labour and other stakeholders’ interests is interdependent.


  • Environmental quality: a TBL company endeavours to benefit the natural order as much as possible, or at the least do no harm and curtail environmental impact.

In this way, the company tries to reduce its ecological footprint by, among other things, carefully managing its consumption of energy and non-renewable resources, and by reducing manufacturing waste, as well as rendering waste less toxic before disposing of it in a safe and legal manner.


  • Economic prosperity: the economic benefit enjoyed by the host society. It is the lasting economic impact the organisation has on its economic environment.


Importantly, however, this is not as narrow as the internal profit made by a company or organisation.


A focus on sustainability helps organizations manage their social and environmental impacts and improve operating efficiency and natural resource stewardship, and it remains a vital component of shareholder, employee, and stakeholder relations.


Sustainability reporting requires companies to gather information about processes and impacts that they may not have measured before. This new data, in addition to creating greater transparency about firm performance, can provide firms with knowledge necessary to reduce their use of natural resources, increase efficiency and improve their operational performance.


  1. The Value of Sustainability Reporting


Sustainability disclosure can serve as a differentiator in competitive industries and foster investor confidence, trust and employee loyalty. Analysts often consider a company’s sustainability disclosures in their assessment of management quality and efficiency, and reporting may provide firms better access to capital.

The benefits of reporting include:

  • Better reputation
  • Meeting the expectations of employees
  • Improved access to capital
  • Increased efficiency and waste reduction


A sustainability report is an organizational report that gives information about economic, environmental, social and governance performance.

 Global Reporting Initiative (GRI)




An ever-increasing number of companies and other organizations want to make their operations sustainable. Moreover, expectations that long-term profitability should go hand-in-hand with social justice and protecting the environment are gaining ground. These expectations are only set to increase and intensify as the need to move to a truly sustainable economy is understood by companies’ and organizations’ financiers, customers and other stakeholders.


Sustainability reporting helps organizations to set goals, measure performance, and manage change in order to make their operations more sustainable. A sustainability report conveys disclosures on an organization’s impacts – be they positive or negative – on the environment, society and the economy. In doing so, sustainability reporting makes abstract issues tangible and concrete, thereby assisting in understanding and managing the effects of sustainability developments on the organization’s activities and strategy.


The Guidelines offer two options to an organization in order to prepare its sustainability report ‘in accordance’ with the Guidelines: the Core option and the Comprehensive option. Each option can be applied by all organizations, regardless of their size, sector or location.


The focus of both options is on the process of identifying material Aspects. Material Aspects are those that reflect the organization’s significant economic, environmental and social impacts; or substantively influence the assessments and decisions of stakeholders.


The Core option contains the essential elements of a sustainability report. The Core option provides the background against which an organization communicates the impacts of its economic, environmental and social and governance performance.


The Comprehensive option builds on the Core option by requiring additional Standard Disclosures of the organization’s strategy and analysis, governance, and ethics and integrity. In addition, the organization is required to communicate its performance more extensively by reporting all Indicators related to identified material Aspects.


Two different types of disclosures are required by the Guidelines:


  • General Standard Disclosures for the Core and Comprehensive options
  • Specific Standard Disclosures for the Core and Comprehensive options


The Reporting Principles are fundamental to achieving transparency in sustainability reporting and therefore should be applied by all organizations when preparing a sustainability report.


  • Stakeholder Inclusiveness


 Principle: The organization should identify its stakeholders, and explain how it has responded to their reasonable expectations and interests.


  • Sustainability Context


 Principle: The report should present the organization’s performance in the wider context of sustainability.


  • Materiality


Principle: The report should cover Aspects that:

  • Reflect the organization’s significant economic, environmental and social impacts; or
  • Substantively influence the assessments and decisions of stakeholders


  • Completeness


 Principle: The report should include coverage of material Aspects and their Boundaries, sufficient to reflect significant economic, environmental and social impacts, and to enable stakeholders to assess the organization’s performance in the reporting period.


  • Balance


Principle: The report should reflect positive and negative aspects of the organization’s performance to enable a reasoned assessment of overall performance.


  • Comparability


Principle: The organization should select, compile and report information consistently. The reported information should be presented in a manner that enables stakeholders to analyze changes in the organization’s performance over time, and that could support analysis relative to other organizations.


  • Accuracy


Principle: The reported information should be sufficiently accurate and detailed for stakeholders to assess the organization’s performance.

  • Timeliness


 Principle: The organization should report on a regular schedule so that information is available in time for stakeholders to make informed decisions.



  • Clarity


 Principle: The organization should make information available in a manner that is understandable and accessible to stakeholders using the report.


  • Reliability


Principle: The organization should gather, record, compile, analyse and disclose information and processes used in the preparation of a report in a way that they can be subject to examination and that establishes the quality and materiality of the information.





  • Strategy and Analysis
  • Organizational Profile
  • Identified Material Aspects and Boundaries
  • Stakeholder Engagement
  • Report Profile
  • Governance
  • Ethics and Integrity


  • Disclosures on Management Approach
  • Indicators

General Standard Disclosure


GRI Report content Detail of GRI requirement
1 Strategy and Analysis Provide a statement from the most senior decision-maker of the organization (such as CEO, chair, or equivalent senior position) about the relevance of sustainability to the organization and the organization’s strategy for addressing sustainability.


Provide a description of key impacts, risks, and opportunities.

2 Organizational Profile These Standard Disclosures provide an overview of organizational characteristics, in order to provide context for subsequent more detailed reporting against other sections of the Guidelines.


Report the name of the organization. Report the primary brands, products, and services. Report the location of the organization’s headquarters. Report the number of countries where the organization operates, and names of countries where either the organization has significant operations or that are specifically relevant to the sustainability topics covered in the report. Report the nature of ownership and legal form.

Report the scale of the organization, including:

Total number of employees

Total number of operations

Net sales (for private sector organizations) or net revenues (for public sector organizations)

Total capitalization broken down in terms of debt and equity (for private sector organizations)

Quantity of products or services provided



3 Identified Material Aspects and Boundaries These Standard Disclosures provide an overview of the process that the organization has followed to define the Report Content, the identified material Aspects and their Boundaries, and restatements.
4 Stakeholder Engagement These Standard Disclosures provide an overview of the organization’s stakeholder engagement during the reporting period. These Standard Disclosures do not have to be limited to engagement that was conducted for the purposes of preparing the report.


Provide a list of stakeholder groups engaged by the organization. Report the basis for identification and selection of stakeholders with whom to engage.

Report the organization’s approach to stakeholder engagement, including frequency of engagement by type and by stakeholder group, and an indication of whether any of the engagement was undertaken specifically as part of the report preparation process.


5 Report Profile These Standard Disclosures provide an overview of the basic information about the report, the GRI Content Index, and the approach to seeking external assurance.


Reporting period (such as fiscal or calendar year) for information provided. Reporting cycle (such as annual, biennial).

6 Governance These Standard Disclosures provide an overview of:

The governance structure and its composition

The role of the highest governance body in setting the organization’s purpose, values, and strategy

The competencies and performance evaluation of the highest governance body

The role of the highest governance body in risk management

The role of the highest governance body in sustainability reporting

The role of the highest governance body in evaluating economic, environmental and social performance

Remuneration and incentives


7 Ethics and Integrity These Standard Disclosures provide an overview of:

The organization’s values, principles, standards and norms

Its internal and external mechanisms for seeking advice on ethical and lawful behavior

Its internal and external mechanisms for reporting concerns about unethical or unlawful behavior and matters of integrity




The Guidelines organize Specific Standard Disclosures into three Categories – Economic, Environmental and Social. The Social Category is further divided into four sub-Categories, which are Labor Practices and Decent Work, Human Rights, Society and Product Responsibility.


GRI Report content Detail of GRI requirement
1 Disclosures on Management Approach The DMA is intended to give the organization an opportunity to explain how the economic, environmental and social impacts related to material Aspects are managed.


Material Aspects are those that reflect the organization’s significant economic, environmental and social impacts; or that substantively influence the assessments and decisions of stakeholders.


DMA provides narrative information on how an organization identifies, analyzes, and responds to its actual and potential material economic, environmental and social impacts. DMA also provides context for the performance reported by Indicators.

2 Indicators Indicators give information on the economic, environmental and social performance or impacts of an organization related to its material Aspects.


Material Aspects are those that reflect the organization’s significant economic, environmental and social impacts; or substantively influence the assessments and decisions of stakeholders.


Environmental Management Accounting


The global profile of environmental issues has risen significantly during the past two decades, precipitated in part by major incidents such as the Bhopal chemical leak (1984) and the Exxon Valdez oil spill (1989). These events received worldwide media attention and increased concerns over major issues such as global warming, depletion of non-renewable resources, and loss of natural habitats.

EMA is the generation and analysis of both financial and non-financial information in order to support internal environmental management processes. It is complementary to the conventional financial management accounting approach, with the aim to develop appropriate mechanisms that assist in the identification and allocation of environment-related costs (Bennett and James (1998a), Frost and Wilmhurst (2000)). The major areas for the application for EMA are:

  • product pricing
  • budgeting
  • investment appraisal
  • calculating costs and
  • savings of environmental projects, or setting quantified performance targets.




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Principles of Corporate Governce


I believe you will agree with me when I say Corporate governance principles play a major role in an organisation’s ability to gain competitive advantage in the industry and become successful.

Well this statement is not just a myth but true in reality and you can relate to this as an individual.

And in today’s post, I am going to explain exactly these Corporate governance principles and how they help an organisation to gain competitive advantage.

So you will ask: “what are the principles of Corporate Governance?”

CORPORATE GOVERNANCE is the system of rules, practices and processes by which a company is directed and controlled. Corporate governance principles essentially involve balancing the interests of a company’s many stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the community.



 Read also, Governance Pro

  • Risk management: A need for a new look

Boards of directors are increasingly willing to take firm managerial action to mitigate the downside risks of strategic change. In February of 2005, for example, the directors of Hewlett Packard suddenly removed Carly Fiorina as CEO because of her management of the risks and slow progress of the complex HP-Compaq merger.


  • Effectiveness and Efficiency
    Good governance means that the processes implemented by the organization to produce favourable results meet the needs of its stakeholders, while making the best use of resources – human, technological, financial, natural and environmental – at its disposal.


  • Accountability
    Accountability is a key tenet of good governance. Who is accountable for what should be documented in policy statements. In general, an organization is accountable to those who will be affected by its decisions or actions as well as the applicable rules of law.
  • Equity and Inclusiveness
    The organization that provides the opportunity for its stakeholders to maintain, enhance, or generally improve their well-being provides the most compelling message regarding its reason for existence and value to society.


  • Rule of Law
    Good governance requires fair legal frameworks that are enforced by an impartial regulatory body, for the full protection of stakeholders.


  • Transparency
    Transparency means that information should be provided in easily understandable forms and media; that it should be freely available and directly accessible to those who will be affected by governance policies and practices, as well as the outcomes resulting therefrom; and that any decisions taken and their enforcement are in compliance with established rules and regulations.


  • Responsiveness
    Good governance requires that organizations and their processes are designed to serve the best interests of stakeholders within a reasonable time frame.




1.1. Domination by a single individual

A feature of many corporate governance scandals has been boards dominated by a single senior executive with other board members merely act as a rubber stamp.  Sometimes the single individual may by pass the board to action his own interests. This can result in management and directors awarding themselves remuneration and company perks that do not align with company performance or shareholder interests. This is an inherent problem in agency theory.

1.2. Lack of involvement of board


Boards that meet irregularly or fail to consider systematically the organization’s activities and risks are clearly weak. Sometimes the failure to carry out proper oversight is due to lack of information being provided.

1.3. Lack of adequate control function

Another potential weakness is a lack of adequate technical knowledge in key roles, for example in the audit committee or in senior compliance positions. A rapid turnover of staff involved in accounting or control may suggest inadequate resources, and will make control more difficult because of lack of continuity.

1.4. Lack of supervision

Employees who are not properly supervised can create large losses for the organization through their own incompetence, negligence or fraudulent activity. The behaviour of Nick Leeson, the employee who caused the collapses of Barings bank was not challenged because he appeared to be successful, whereas he was using unauthorized accounts to cover up his large trading losses. Leeson was able to do this because he was in charge of dealing and settlement, a systems weakness of lack of segregation of key roles that featured in other financial frauds.

1.5. Lack of independent scrutiny

External auditors may not carry out the necessary questioning of senior management because of fears of losing the audit, and internal audit do not ask awkward questions because the Chief Financial Officer determines their employment prospects. Often corporate collapses are followed by criticisms of external auditors, such as the Barlow Clowes affair were poorly planned and focused audit work failed to identify illegal use of client monies.

1.6. Lack of contact with shareholders

Often, board members grow up with the company and lose touch with the interests and views of shareholders. One possible symptom of this is the payment of remuneration packages that do not appear to be warranted by results.

1.7. Emphasis on short-term profitability

Emphasis on success or getting results can lead to the concealment of problems or errors, or manipulation of accounts to achieve desired results.

1.8. Misleading accounts and information

Misleading figures are often symptomatic of other problems (or are designed to conceal other problems) but clearly poor quality accounting information is a major problem if markets are trying to make a fair assessment of the company’s value. Giving out misleading information was a major issue in the Enron scandal as discussed previously.




The debates about the place of governance are founded on four differing views associated with ownership and management of organisations. These theories include:

1.1. Stewardship theory

This theory means that, management is the steward of the assets of the organization and good governance requires active participation from all members. Management will act primarily as stewards of the organization.

1.2. Stakeholder theory

This means that, management has a duty of care to the organization, its owners, and to its wider stakeholders.

1.3. Agency theory

This means that, management will act in an agency capacity, seeking to service their own self-interest and looking after the performance of the company only where its goals are co-incident with their own. Agency theory aims to ensure that managers pursue effectively shareholders’ best interest.

1.4. Transaction cost theory

This theory means the way the company is organized or governed determines its control over transactions. Management will be opportunistic. Like agency theory, transaction cost theory aims to ensure that management effectively pursue shareholders’ best interest.


Stakeholders can be defined as anyone affected by the organisation. It’s important to know who your stakeholders are and what they want, because if the stakeholders are unwilling to cooperate you may find it difficult to put a strategy into action.


 Stakeholders include:


  • Shareholders
  • Employees
  • Managers/directors
  • Suppliers
  • Customers
  • Competitors
  • The government
  • The local community


Stakeholders can be classified as:


  • Internal Directors: managers and employees
  • Connected Shareholders: lenders, suppliers, customers
  • External: Government, local populace, pressure groups, trade unions, non-governmental organisations, regulatory agencies.




Corporate governance is about ensuring that companies are run well in the interests of their shareholders and the wider community. The following points explains gives us an idea


  • The need to improve corporate governance came to prominence in the

UK in the 1980s, following the high profile collapses of a number of large companies (Maxwell, Polly Peck, BCCI, etc.).


  • Poor standards of corporate governance had led to insufficient controls being in place to prevent wrongdoing in the US in the 1990s, as demonstrated by the collapses at Enron and WorldCom.


  • The authorities internationally have now been working for a number of years to tighten up standards of corporate governance.


  • Good corporate governance is particularly important for publicly traded companies because large amounts of money are invested in them, either by ‘small’ shareholders, or from pension schemes and other financial institutions.


  • The well-publicised scandals mentioned above are examples of abuse of the trust placed in the management of publicly traded companies by investors. This abuse of trust usually takes one of two forms (although both can happen at the same time in the same company):

– The direct extraction from the company of excessive benefits by management, e.g. large salaries, pension entitlements, share options, use of company assets (jets, apartments etc.)

– manipulation of the share price by misrepresenting the company’s profitability, usually so that shares in the company can be sold or options ‘cashed in’.



The need for regulation of how companies are run in a Good Corporate Governance manner came to implementation in the year 1991 in the UK.

During the 1990’s in the UK, there were three separate committees set up to consider aspects of corporate governance which each produced a report.


These were:


The Cadbury Report in 1992, which focused on the control functions of boards and on the role of auditors


The Greenbury Report in 1995, which focused on the setting and disclosure of directors’ remuneration


The Hampel Report in 1998, which brought together the previous recommendations and submitted a proposed code to the Stock Exchange which listed companies, should comply with.

The Stock Exchange published the final version of its ‘Principles of good governance and code of best practice’ (known as the Combined Code) in June 1998. Listed companies now have to disclose how they have applied the principles and complied with the Code’s provisions in their annual report and accounts. The auditors have to express an opinion on this statement.


Then the Financial Reporting Council in June 2010 revised and renamed the code as The U.K. Corporate Governance Code. Which applies to all quoted entities and every entity must report on:

  • How it has apply the code
  • Whether or not; if not why?




There are 45 ‘code provisions’ which include the following:

Board members

  • The roles of Chair of the Board and Chief Executive should be separated unless the company publicly justifies reasons for not doing so
  • The identification of a senior independent director
  • Not less than one-third of the board comprises non-executive directors
  • The majority of non-executive directors should be independent

Board structure and function

  • There should be a nominations committee (unless the board is small)
  • The formalisation of the role of Chairman in ensuring that all directors are properly briefed on issues arising at board meetings
  • The audit and remuneration committees must only be of non-executive directors
  • Directors should, at least annually, conduct a review of the effectiveness of the group’s system of internal controls and should report to shareholders that they have done so.

Remuneration of directors


  • Performance related elements should form a significant proportion of the total remuneration package

Conduct of AGMs

  • Announcement of proxy votes at AGMs
  • Unbundling of resolutions
  • sending out the notice of the AGM and the related voting papers at least 20 working days before the meeting

There is also a requirement that companies consider:

  • A reduction of the notice period of directors to one year or less
  • Early termination arrangements
  • The extent to which the principal shareholders should be contacted about directors’ remuneration
  • Whether the remuneration report should be voted on at the AGM



Most corporate governance codes are based on a set of principles founded upon ideas of what corporate governance is meant to achieve. This is based on a number of reports.


1) To ensure adherence to and satisfaction of the strategic objectives of the organisation, thus aiding effective management.

2) To minimize risk, especially financial, legal and reputational risks, by ensuring appropriate systems of financial control are in place, systems for monitoring risk, financial control and compliance with the law.


3) To promote integrity, that is straightforward dealing and completeness.


4) To fulfil responsibilities to all stakeholders and to minimize potential conflicts of interest between the owners, managers and wider stakeholder community.


5) To establish clear accountability at senior levels within an organisation. However, one danger may be that boards become too closely involved with day-to-day issues and do not delegate responsibility to management.


6) To maintain the independence of those who scrutinize the behaviour of the organisation and its senior executive managers.

Independence is particularly important for non-executive directors, and internal and external auditors.


7) To provide accurate and timely reporting of trustworthy/independent financial and operational data to both the management and owners/members of the organisation to give them a true and balanced picture of what is happening in the organisation.


8) To encourage more proactive involvement of owners/members in the effective management of the organization through recognizing their responsibilities of oversight and input to decision making processes via voting or other mechanisms.



  1. The right to shareholders:

Shareholders should have the right to participate and vote in general meetings of the company elect and remove members of the board and obtain relevant and material information on a timely basis. Capital markets for corporate control should function in an efficient and timely manner.

2) The equitable treatment of shareholders:

All shareholders of the same class of shares should be treated equally, including minority shareholders and overseas shareholders impediments to cross-border shareholding should be eliminated.

3) The role of stakeholders:

Rights of stakeholders should be protected. All stakeholders should have access to relevant information on regular and timely basis. Performance-enhancing mechanisms for employee participation should be permitted to develop. Stakeholders, including employees, should be able to freely communicate their concerns about illegal or unethical relationships to the board.

4) Disclosure and transparency:

Timely and accurate disclosure must be made of all material matter regarding the company, including the financial situation, foreseeable risk factors, issues regarding employees and other stakeholders and governance structure and policies. The company approach to disclosure should promote the provision of analysis or advice that is relevant to decisions by investors.


5) The responsibilities of the board:

The board is responsible for the strategic guidance of the company and for the effective monitoring of management. Board members should act on a fully informed basis, in good faith, with due diligence and care and in the best interest of the company and its shareholders. They should treat all shareholders fairly. The board should be able to exercise independent judgement; this includes assigning independent non-executive directors to appropriate tasks.


The OECD Principles of Corporate Governance are intended to:


  • assist Member and non-Member governments in their efforts to evaluate and improve the legal, institutional and regulatory framework for corporate governance in their countries


  • to provide guidance and suggestions for stock exchanges, investors, corporations, and other parties that have a role in the process of developing good corporate governance.


I trust you now understand corporate governance

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