MGT 166

• Circular Economy


  An economic model, based on systems thinking, that is restorative and regenerative by design and aims to keep products, components, and materials at their highest utility and value at all times, distinguishing between technical and biological cycles

  
• Benefit Corporation

  In the U.S., it is a type of for-profit corporate entity that includes material positive impact on society, workers, the community and/or the environment in addition to profit as its legally defined goals. Benefit corporations differ from traditional corporations in purpose, accountability, and transparency, but not in taxation. They are distinct from non-profit organizations because the benefit corporation should seek to generate a modest profit that will be used to expand the company's reach, improve the product or service, or to subsidize the social mission. A wider definition of benefit corporation is any business which has a social or environmental rather than a financial objective.
• Life Cycle Assessment (LCA)


  A technique to assess environmental and social impacts associated with all the stages of the life of a product or packaging, i.e., from raw material extraction through materials processing, manufacture, distribution, use, repair and maintenance, and disposal or recycling. While typically used to assess environmental impacts, this technique can be used to identify social impacts of a product's life cycle as well.
• Extended Producer Responsibility (EPR)


  Firms which manufacture import and/or sell products and packaging, are seen as financially or physically responsible for environmental and social impacts of their products and packaging. It imposes accountability for such impacts from the beginning of the materials supply chain through disposal and materials reclamation at the end of product's useful life. Increasingly, we expect manufacturers to take back spent products and manage them through reuse, recycling or disposal or delegate this responsibility to a third party. EPR can internalize costs throughout the product lifecycle. For example, it may shift responsibility for waste from government (which represents society) to private industry, obligating producers, importers, and sellers to internalize waste management costs in their product prices.

  
• Externalized Costs


  Negative impacts associated with economic transactions which concern people outside of those transactions. Some argue that they occur when a company transfers some of its moral responsibilities as costs to society.
• Natural Capital


  The stock of assets that can be used to produce ecosystem services. It is the world's stock of natural resources, which includes geology, soils, air, water and all living organisms.
• Ecosystem Services


  The resources and processes supplied by natural ecosystems, e.g., fresh water, clean air, waste decomposition, stable climate.
• Systems Thinking

  A holistic approach to analysis that focuses on the way that a system's constituent parts interrelate and how systems work overtime and within the context of larger systems. The systems thinking approach contrasts with traditional analysis, which studies systems by breaking them down into their separate elements. Systems thinking can be used in any area of research and has been applied to the study of medical, environmental, political, economic, human resources, and educational systems, among many others.
• Social License to Operate

  Refers to a local community's tacit permission for a company's project or ongoing presence in an area. Development of license to operate occurs outside of formal permitting or regulatory processes and requires sustained investment to acquire and maintain social capital within the context of trust-based relationships. E.g., a company that abuses the local environment can find it impossible to get permits to expand operations. Regulators, politicians, and local communities raise barriers. Intangible and informal, license can be realized through actions centered on timely and effective communication, meaningful dialogue, and ethical and responsible behavior.
• Stakeholder Theory, a.k.a. Stakeholder Capitalism


  The business entity should be used as a vehicle for coordinating the interests of all stakeholders instead of maximizing shareholder (owner) profit. It should consider the interests of all stakeholders and optimize profit with these considerations in mind. Shareholder profit is still very important however it is not the only thing that's important. Stakeholder Theory is contradictory to Milton Friedman's thinking that the goal of business must be to maximize profit and that business should not be concerned with anything other than this.
• Stakeholder

  A person, group, organization, or system who affects or can be affected by an organization's actions
• Business Model

  A term used to represent core aspects of a business, including purpose, target customers (e.g., consumers or other businesses), product/service offerings, strategies, organizational structures, trading practices, distribution model (e.g., direct sales, wholesale, retail) and operational processes and policies.
• Business Case


  The argument for doing something; business case vs. business model: why do it vs how to do it. A business case captures the reasoning for initiating a project or task.
• Competitive Advantage


  The edge a company has over its rivals that allows it to generate greater sales or profit margins or to retain more customers than its competition.
• Shareholder


  Any person, company, investment fund, or other institution that owns at least one share of a company's stock. Shareholders are a company's owners. They have the potential to profit if the company does well, but that comes with the potential to lose money if the company does poorly. A shareholder may also be referred to as a stockholder.
• Ethical Dilemma


  A situation in which there is a choice to be made between two options, neither of which resolves the situation in a way that is morally satisfying to the decision maker.
• Value


  Benefits relative to costs. Relative worth, merit, or importance, e.g., the value of a college education. NOTE: value ≠ values.
• Values


  Important and lasting beliefs or ideals shared by the members of a culture about what is good or bad and desirable or undesirable.
• Corporate Social Responsibility / Sustainability


  "Continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life in the workforce and their families as well as of the local community and society at large" (source: World Business Council on Sustainable Development, http://www.wbcsd.org).
• Types of organizations


  • Traditional Corporation
  • Benefit Corporation
  • Non-Profit Organization
• Operating Principle


  • Traditional: Profit-maximizing
  • B Corp: Social benefit
  • NPO: Social benefit
• Source of Capital


  • Traditional: Owner Investments
  • B Corp: Owner Investments
  • NPO: Donations
• Source of Revenue


  • Traditional: Sale of products/services
  • B Corp: Sale of products/services
  • NPO: n/a (Some minor sales)
• Financial Return to Investors

  • Traditional: Dividends, growth of capital
  • B Corp: n/a
  • NPO: n/a
• Tax Effect for Organization


  • Traditional: Increase taxes if profit realized (reduce if loss)
  • B Corp: Increase taxes if profit realized (reduce if loss)
  • NPO: No profit, so no tax paid on profit
• Potential Tax Effect for investors/contributors


  • Traditional: Increase taxes if profit realized (reduce if loss)
  • B Corp: No impact
  • NPO: Potential to reduce taxes via personal deduction
• Success Metric


  • Traditional: Profit
  • B Corp: Social impact
  • NPO: Social impact
• Extended Producer Responsibility (EPR)


  Firms which manufacture import and/or sell products and packaging, are seen as financially or physically responsible for environmental and social impacts of their products and packaging. It imposes accountability for such impacts from the beginning of the materials supply chain through disposal and materials reclamation at the end of product's useful life.

  
• EPR Example


  • IKEA's Flat Packaging - Efforts to squeeze millimeters out of every box have allowed IKEA to pack its trucks and trains much tighter. In some cases, the company has achieved a 50% increase in fill rate. This smart packaging has saved up to 15% on fuel per item shipped and reduced the waste stream from product packaging.
• Creating Shared Value (the objective of CSR)


  Businesses creating economic value in a way that also creates value for society by addressing its needs and challenges.
• Examples of Creating Shared Value


  • Vodafone, Dow Chemical, Novartis, Becton Dickinson, Mars, Nestlé
• Natural Capital


  The world's stock of natural resources including geology, soils, air, water, and all living organisms.
• Ecosystem Services


  Processes that are supplied by natural ecosystems.
• Examples of Ecosystem Services


  • Provisioning Services, Regulating Services, Supporting Services, Cultural Services
• How natural capital is related to ecosystem services


  Some natural capital assets provide people with free goods and services, often called ecosystem services. Two of these - clean water and fertile soil - underpin our economy and society and make human life possible.
• The cost to industry of internalizing costs is typically lower than the externalized social costs that they resolve.
• The change happens typically because government policies and incentive programs encourage or force internalization of these costs into the market price of goods and services for all competitors in that industry.
• The costs of pollution prevention measures are typically much lower than the total costs to society over time if the measures are not implemented.
• Firms have an incentive to manage/reduce these costs when they are internal to the company.
• Ways business needs society


  • Demand for products/services (customers)
  • Productive workforce, which results from education, healthcare, equal employment opportunity, etc.
  • Efficient utilization of land, water and energy to make business more productive
  • Good government, the rule of law and property rights are essential for efficiency and innovation
  • License to operate
  • Capital (funding)