Ch1 2

1
Strategy, leadership and

culture
Learning outcomes
On completion of this chapter, you should be able to:
Syllabus
reference no.
Explain the fundamental importance of strategy and strategic decisions C1(a)

within different organisational contexts
Apply the Johnson, Scholes and Whittington model of strategic C1(b)

management – the strategic position, strategic choices and strategy into
action
Explain the role of effective leadership and identify the key leadership traits A1(a)
effective in the successful formulation and implementation of strategy and
change management
Apply the concepts of entrepreneurship and ‘intrapreneurship’ to exploit A1(b)

strategic opportunities and to innovate successfully
Apply in the context of organisation governance and leadership qualities, A1(c)

the key ethical and professional values underpinning governance
Discuss the importance of leadership in defining and managing A2(a)

organisational culture
Advise on the style of leadership appropriate to manage strategic change A2(b)
Analyse the culture of an organisation to recommend suitable changes, A2(c)

using appropriate models such as the cultural web.
Assess the impact of culture on organisational purpose and strategy A2(d)

1
Business and exam context

As we start our journey through Strategic Business Leader, it is important that you remember
throughout each chapter the importance of ethical leadership as a concept underpinning
everything that an organisation is and does. The formal roles of leaders include setting mission,
objectives and strategy, governance of the organisation and making key operational decisions,
but more informally they set a ‘tone from the top’ which has a significant influence on the culture
of an organisation and the ethics within it.
In this first chapter, we will look at how leadership is defined, who makes a good leader and what
skills they need to lead effectively, regardless of the challenges they face. The roles played by
both strategy and culture are also explored and framed in the context of bigger organisational
issues such as ethics, governance and corporate social responsibility, all of which you will meet
later on in your studies.
2 Strategic Business Leader (SBL)

1
Chapter overview
Strategy, leadership and culture
Leadership Strategy Culture
What is leadership? What is strategy? What is culture?
Perspectives on leadership Levels of strategy Cultural web
Leadership roles Mission statements
Change and leadership Objectives
Entrepreneurship Strategic values
Strategic management
1: Strategy, leadership and culture 3

1 Leadership
1.1 What is leadership?
Leadership: Is the process of influencing an organisation (or group within an organisation) in

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TERM its efforts towards achieving an aim or goal (Johnson et al, 2017: p.470).
Good leadership is often considered to be a key factor in organisational success. In particular,

visionary leaders are expected to have a clear vision for where the organisation needs to go and
communicate this vision to inspire others.
Ethics are fundamental to good leadership. Leaders have a particular responsibility to ensure that
their behaviour and decision-making reflect a high standard of ethics, which will then have an
impact through the whole organisation. We will examine ethics in more detail later in this Chapter
and in Chapter 9.
Activity 1: Qualities of effective leaders
Think of three people you consider effective leaders, past or present. What qualities do they have
in common?
Solution
1.2 Perspectives on leadership

Yukl (2013) identifies the following main approaches to studying leadership.
1.2.1 Trait approach
Trait theories: The qualities possessed by good leaders.

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Research in the first part of the 20th century tended to assume that ‘natural leaders’ possessed
traits that others did not, such as energy, intuition and persuasiveness. However, this research
failed to identify a set of traits that would guarantee success in leadership. More recent research
tends to focus on how certain attributes can relate to leadership behaviour and effectiveness.
Some research emphasises values that are important in displaying ethical leadership.
1.2.2 Behaviour approach

This focuses on what managers actually do in their jobs and relates leadership effectiveness to
how well managers cope with the demands and constraints of their job.
1.2.3 Power-Influence approach

This explains leadership effectiveness in terms of the amount and type of power possessed by a
leader, and how it is exercised. This is not just power in relation to subordinates, but peers,
superiors and external stakeholders. Leadership can be exercised in a way that is autocratic

(leaders exercise significant power) or participative (power is limited and subordinates exercise
more decision-making and autonomy).
1.2.4 Situational approach

This emphasises that different leadership traits, skills and behaviours will be effective in different
situations. The effectiveness of a certain style of leadership may depend on the characteristics of
followers, nature of the work performed, type of organisation and the external environment. This
can also be referred to as contingency theory.
1.2.5 Integrative approach

This means considering more than one type of the leadership variables described above.
Essential reading
See Chapter 1 Section 1 of the Essential reading, for more detail on the theory of leadership.
The Essential reading is available as an Appendix of the digital edition of the Workbook.
1.3 Leadership roles

Johnson et al (2017) identify a number of key roles in strategic leadership.
1.3.1 Top managers

The following roles are carried out by the CEO and other senior managers.
• Envisioning future strategy means communicating a clear vision of the future and strategy to
internal and external stakeholders.
• Aligning the organisation to deliver the strategy, building relationships of trust and ensuring
that people are committed to the strategy and empowered to deliver it.
• Embodying change is being a symbol and role model for the organisation.
1.3.2 Middle managers

The role of middle managers is not just to implement top-down strategic plans but has multiple
other aspects.
• Advisers to senior management, as they are often closest to day-to-day operations.
• Sense making’ of strategy, means translating the strategy into specific contexts.
• Reinterpretation and adjustment of strategy as circumstances change internally and
externally.
• Local leadership of change mirrors the senior management role of aligning and embodying
change, but at a more local level, particularly in large organisations.
1.4 Change and leadership
Change agent: ‘Is an individual or group that helps to effect strategic change in an
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TERM organisation.’ (Johnson et al, 2017)
Change is unavoidable as organisations and individuals do not operate in a vacuum. As a leader,

how do you make sure that your organisation is able to cope with change?
Change agency (everything associated with making change happen) is an activity that might be
concentrated in one person, but which is just as likely to be spread among the members of a
group, such as a project team or management staff generally. Outsiders, such as consultants,
may share in change agency.

1.4.1 Charismatic and transactional leadership
Johnson et al (2017) note that leadership styles may be fitted into a general model of leadership
that recognises two general types.
Transactional leaders focus on Charismatic leaders energise people

systems and controls and generally and build a vision of the future.
seek improvement rather than Change management is a natural part
change. This approach is also called of what they do. This approach is also
instrumental leadership. known as transformational leadership.
Instrumental leadership: Leadership based on systems and controls (also called transactional
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TERM leadership).
Transformational leadership: Leadership that energises people and builds a clear vision of the
future (also called charismatic leadership).
In practice, these are two extremes and there are a number of points in between. This fits with the
situational approach described earlier, which suggests leadership style needs to be adjusted to
specific circumstances.
1.4.2 Change management styles

Balogun and Hope Hailey (2008) identify five styles of change management which may be
appropriate in a given context.
Education and Explaining in detail why change is necessary, to win people round
communication
Collaboration Bringing people affected by change into the process of managing it
and participation
Intervention Change is led by a change agent who will delegate some tasks to project
teams; the idea is that involvement of those teams will lead to greater
commitment from them
Direction Management use their authority to establish their strategy and how
change will occur in a top-down fashion
Coercion An extreme form of direction – change is simply imposed by

management
Activity 2: Academic Recycling Company
ACCA Professional Skills Focus

Analysis: Consider
You work as a consultant specialising in the area of personnel and management development. You
have been approached by Sully Truin who is keen for some advice about how he should be
leading his organisation.
Ten years ago Sully Truin formed the Academic Recycling Company (ARC) to offer a specialised
waste recycling service to schools and colleges. The company has been very successful and has
expanded rapidly. To cope with this expansion, Sully has implemented a tight administrative
process for operating and monitoring contracts. This administrative procedure is undertaken by
the Contracts Office, which tracks that collections have been made by the field recycling teams.
Sully has sole responsibility for obtaining and establishing recycling contracts, but he leaves the

day-to-day responsibility for administering and monitoring the contracts to the Contracts Office.
He has closely defined what needs to be done for each contract and how this should be
monitored. ‘I needed to do this,’ he said, ‘because workers in this country are naturally lazy and
lack initiative. I have found that if you don’t tell them exactly what to do and how to do it, then it
won’t get done properly.’ Most of the employees working in the Contracts Office like and respect
Sully for his business success and ability to take instant decisions when they refer a problem to
him. Some of ARC’s employees have complained about his autocratic style of leadership, but most
of these have now left the company to work for other organisations.
A few months ago, conscious that he was a self-taught manager, Sully enrolled himself on a
week’s course with Gapminding, a training consultancy which actively advocates and promotes a
democratic style of management. The course caused Sully to question his previous approach to
leadership. It was also the first time, for three years, that Sully had been out of the office during
working hours for a prolonged period of time. However, each night, while he was attending the
course, he had to deal with emails from the Contracts Office listing problems with contracts and
asking him what action they should take. He became exasperated by his employees’ inability to
take actions to resolve these issues. He discussed this problem with his course tutors. They
suggested that his employees would be more effective and motivated if their jobs were enriched
and that they were empowered to make decisions themselves.
On his return from the course, Sully called a staff meeting with the Contracts Office where he
announced that, from now on, employees would have responsibility for taking control actions
themselves, rather than referring the problem to him. Sully, in turn, was to focus on gaining more
contracts and setting them up. However, problems with the new arrangements arose very quickly.
Fearful of making mistakes and unsure about what they were doing led to employees discussing
issues amongst themselves at length before coming to a tentative decision. The operational (field)
recycling teams were particularly critical of the new approach. One commented that ‘before, we
got a clear decision very quickly. Now decisions can take several days and appear to lack
authority.’ The new approach also caused tensions and stress within the Contracts Office and
absenteeism increased.
At the next staff meeting, employees in the Contracts Office asked Sully to return to his old
management style and job responsibilities. ‘We prefer the old Sully Truin,’ they said, ‘the training
course has spoilt you.’ Reluctantly, Sully agreed to their requests and so all problems are again
referred up to him. However, he is unhappy with this return to the previous way of working. He is
working long hours and is concerned about his health. Also, he realises that he has little time for
obtaining and planning contracts and this is severely restricting the capacity of the company to
expand.
Required
Analyse Sully Truin’s leadership style before and immediately after the training course and explain
why the change of leadership style at ARC was unsuccessful.
(12 marks)
Professional skills marks are available for demonstrating analysis skills as part of your diagnosis
of the leadership styles on display here. (2 marks)
(Total = 14 marks)
Solution

Syllabus link
Leadership forms a key part of the Strategic Business Leader syllabus, and links closely to the
Ethics and Professional Skills Module (EPSM) that you are required to complete on your journey
towards full ACCA membership. You are therefore strongly advised to complete the EPSM before
sitting your Strategic Business Leader exam as this will assist with your exam preparations.
1.5 Entrepreneurship
Role of leadership can also include entrepreneurship. We can contrast this with intrapreneurship.
Entrepreneurship: Is a process by which individuals, teams or organisations identify and

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TERM exploit opportunities for new products or services that satisfy a need in a market.
Intrapreneurship: Means applying entrepreneurial principles within organisations.
Entrepreneurship involves recognising opportunities and responding by choosing and

implementing an appropriate business model and strategy. Social entrepreneurship is applying
similar principles to addressing social problems and needs, not necessarily for profit, although
clearly some kind of funding model is needed. This is examined in more detail in Chapter 12.
Some companies encourage intrapreneurship to support innovation, for example by giving
employees more autonomy, encouraging a culture of risk-taking, rewarding intrapreneurial
behaviour and allocating resource to new, speculative ventures. However, conflict with corporate
management may sometimes be necessary to get ideas and innovations accepted.
2 Strategy
As noted above, one of the key roles of leadership is to develop and communicate the
organisation’s strategy.
2.1 What is strategy?

According to Johnson et al (2017):
Strategy: ‘Is the long-term direction of an organisation.’ (Johnson et al, 2017)

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So strategy is concerned with the following.

The long term this will mean a number of years, which can be thought of as ‘three horizons’.
Horizon 1 means defending and extending the current business. Horizon 2 businesses are emerging
activities that should provide new sources of profit. Horizon 3 ventures are new and risky, and
might provide returns in several years’ time. Managers need to consider all three in formulating
strategy
Strategic direction organisations will generally have objectives and then organise themselves to
meet those objectives.
Organisation: organisations generally contain people with differing views and interests, which are
relevant in setting strategy. It will also have to consider its internal and external stakeholders and
its boundaries – what it decides to include or exclude in its activities.
2.2 Levels of strategy

Strategy may be developed at three levels in an organisation.

deals with the overall purpose and scope
of an organisation and how to add value to
the different parts (business units) of an
organisation (for example,the decision to
expand into a new geographical location
Corporate or market)
strategy
is about how to compete successfully in particular

markets (continuing with the expansion analogy,
the head of a business unit must decide where to
Business-level strategy
be based, what products to sell and the markets
to target etc)
are about how parts of an organisation such as

marketing, finance or IT support the overall strategy
(the heads of IT, HR, finance, marketing etc need to
Operational strategies develop a plan to support the overall strategy in
terms of recruitment, appraisal and agreeing terms
and conditions)
2.3 Mission statements
Mission statements: Are formal documents that state the organisation’s mission. They are
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TERM published within organisations to promote desired behaviour: support for strategy and
purpose, adherence to core values and adoption of policies and standards of behaviour.
Real life example

Famous organisations may not always have famous mission statements.
Organisation Mission statement

Nike ‘To bring inspiration and innovation to every athlete* in the
world.’ (Nike, 2019)
Facebook ‘Facebook’s mission is to give people the power to build

community and bring the world closer together. People use
Facebook to stay connected with friends and family, to
discover what’s going on in the world, and to share and express
what matters to them. ‘ (Facebook, 2019)
Airbnb ‘Airbnb’s mission is to create a world where people can belong

through healthy travel that is local, authentic, diverse, inclusive
and sustainable. (Airbnb, 2019)
These are different from their more familiar advertising slogans or brands:
Similar to a mission statement, a vision statement can be used to express the future an
organisation is trying to create. For example, Henry Ford’s aim was to create a car that everyone
could afford.
The Ashridge College model of mission created by Campbell and Yeung (1991) links business
strategy to culture and ethics by including four separate elements in an expanded definition of
mission.

Purpose. Why does the organisation exist?
Strategy provides the
Who does it exist for?
commercial logic for the
(i) To create wealth for owners?
company, and so addresses the
(ii) To satisfy the needs of all stakeholders?
following questions: 'What is our
(iii) To reach some higher goal such as the
business? What should it be?'
advancement of society?
Policies and standards of behaviour provide

guidance on how the organisation's business
should be conducted. For example, a service Values are the beliefs and moral
company that wishes to be the best in its principles that underlie the
market must aim for standards of service, in all organisation's culture
its operations, which are at least as good as
those found at its competitors
Stakeholder views will be important in determining an organisation’s mission, its fundamental

purpose and values. This may be written down in the form of a mission statement which may help
to guide the organisation, although in reality many people consider that mission statements are
meaningless, ignored in practice or both. Some are suspicious of mission statements for the
following reasons.
They can sometimes be public relations exercises rather than an accurate portrayal of the firm’s
actual values.
They can often be full of generalisations which are impossible to tie down to specific strategic
implications.
They may be ignored by the people responsible for formulating or implementing strategy.
2.4 Objectives
A mission needs to be supported by more detailed objectives.
PER alert
Performance Objective 13 ‘Plan and Control Performance’ of the Practical Experience
Requirement requires you to ‘contribute to setting objectives to plan and control business
activities’ (ACCA, 2019b). As you will need to display how you have contributed to setting
objectives in the workplace you are strongly advised to take your time as you go through the
following section which considers the role that goals, objectives and targets play in
organisations.
A simple model of the relationship between the various goals, objectives and targets is a
pyramid analogous to the traditional organisational hierarchy.

Overall mission (supported by a small number of
wide-ranging goals: profit; growth; innovation etc)
Each of the high-level goals is supported in turn by more detailed,

subordinate goals. These may correspond, perhaps, to the
responsibilities of the senior managers in the function concerned. A
more modern pattern is for the hierarchy (and indeed many other
aspects of the organisation) to be based on major value-creating
processes rather than on functional departments
In any event, the pattern is continued downwards until we reach the

work targets of individual members of the organisation
Drucker (1989) was the first to suggest that objectives should be SMART.
Specific Measurable Achievable Realistic Time-related
Today, realistic is often replaced with results-focused, to emphasise that managerial

attention needs to be directed towards achieving results rather than just administering
established processes.
2.5 Strategic Values

2.5.1 Ethics in business
Ethics: The study of right and wrong.

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Ethics are the rules and principles of behaviour which help us decide between right and wrong.
Organisations can seek to safeguard their ethical standards by publishing a formal code of
ethics. However, this can backfire if companies are not seen to be adhering to their codes.
It is a key responsibility of leaders to role model high ethical standards for the organisation and
set an appropriate ‘tone from the top’.
Ethics and leadership
Ethics is fundamental to good leadership. Leaders have a particular responsibility to ensure that
their behaviour and decision-making reflects a high standard of ethics, which will then have an
impact throughout the whole organisation.
Business life is a fruitful source of ethical dilemmas because its whole purpose is material gain, the
making of profit. All too often, success in business requires a constant, avid search for potential
advantage over others, so business leaders are under pressure to do whatever yields such
advantage. It is often these pressures which lead otherwise good people to make poor business
decisions and to act unethically.
The ethical values of leaders
The ethical values held by leaders will be shaped by a variety of factors including their own
experiences and beliefs. The ethical views of leaders are often based on values including:
• Accountability
• Integrity
• Honesty

• Objectivity
• Fairness
• Transparency
• Openness
• Responsibility
• Loyalty
The leaders view of the values and principles listed above will ultimately drive how they interact
with stakeholders, view CSR and corporate governance. The role of ethical leadership is discussed
in more detail in the context of stakeholders, CSR and corporate governance in the sections which
follow.
Ethical leadership and the fair treatment of stakeholders
Acting ethically requires leaders to treat stakeholders fairly by recognising the fact that they have
rights of their own. This includes respecting workers’ dignity and the obligations that exist in terms
of equality, diversity and health and safety.
The need for the ethical treatment of staff is particularly important during times of redundancy.
Here it is important that leaders select workers for redundancy following a fair and legal process.
The fair treatment of stakeholders also covers the need to respect the rights of customers in terms
of not deliberately taking advantage of them by, for example, knowingly charging inflated prices
for goods or services. This logic also applies to protecting the interests of shareholders by avoiding
unnecessarily risky or reckless strategies which may jeopardise their investment. This requires
leaders to conduct the affairs of the business in such a way that it is commercially viable but
remains sensitive to the interests of its stakeholders.
Exam focus point

The March/June 2019 exam released by ACCA featured a clothing retailer called SmartWear.
Task 2(b) asked candidates to evaluate the strategic and ethical implications of a proposal for
the company to close a number of loss-making shops in Noria (SmartWear’s home market)
and the withdrawal from Centrum (another country in which SmartWear had a presence).
Professional skills marks were on offer for applying scepticism to the underlying issues and
problems which may arise from the decision to close the shops. The examining team noted
that ‘on the whole this question was answered well, with most candidates identifying that it
was good to stop the ongoing losses from the stores/market to be closed, and also identifying
the ethical issues of jobs being lost. Many candidates went further to identify the redundancy
costs incurred and the increased level of unemployment. The best candidates showed
scepticism and questioned the likelihood of the possible turnaround in Noria, the loss of
presence/market share, damage to reputation and SmartWear brand, and aligned these
issues to SmartWear’s strategy.’ (ACCA, 2019a).
To earn the 2 professional skills marks candidates needed to identify and explain the key
strategic and ethical issues in respect of the proposed closure decision. This required the
creation of an answer which focused on the implications of this course of action for
SmartWear, and which also explored the positive and negative impacts that the decision
would have on the company’s stakeholders.
2.5.2 Corporate social responsibility

Corporate social responsibility (CSR) the approach taken by organisations to provide benefit to
society in general rather than specific stakeholders.
Ethical leadership and CSR
Growing demand around the world for organisations to act in an ethical manner that
acknowledges the impact that their activities have on the natural world have led many leading
organisations to embrace the concept of corporate social responsibility (CSR).

Corporate social responsibility (CSR) is a concept whereby organisations consider the interests of
society by taking responsibility for the impact of their activities. This obligation extends beyond
statutory obligations to comply with legislation.
The planting of trees to replenish those used in production or the establishment of a charitable
foundation to help support local communities living near to an organisation’s factory are common
examples of CSR activities.
The establishment of CSR programmes requires ethical leadership at the top of organisations to
ensure that they are taken seriously and to avoid accusations that they are merely window
dressing that enables organisations to appear superficially concerned about ethical matters. For
such programmes to have real meaning leaders need to make ethics part of the organisation’s
culture. The important role that culture plays in organisations is discussed in greater detail in
Section 3 of this Chapter.
2.5.3 Corporate governance
Corporate governance: Concerns the conduct of senior officers in an organisation. It also

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TERM relates to the way organisations are directed and controlled.
Corporate governance can be defined as the conduct of senior officers in an organisation. The
governance framework describes who the organisation serves and how priorities are decided.
Corporate governance issues may arise from the agency problem – the separation in many cases
between ownership (shareholders) and day-to-day control (managers). Managers are required to
act in the best interests of shareholders but may in fact act in their own best interests if they can.
Corporate governance issues are not confined to commercial companies. A public sector hospital,
for example, is there to benefit patients but decisions may in practice be taken to benefit staff and
management.
Ethical values and corporate governance
The following section illustrates how the ethical values held by leaders supports and underpins
corporate governance.
Fairness
The leaders’ deliberations and values (and those of the board) that underlie the company must be
balanced by taking into account everyone who has a legitimate interest in the company and
respecting their rights and views. In many jurisdictions, corporate governance guidelines reinforce
legal protection for certain groups; for example, minority shareholders.
Openness/transparency
Transparency means open and clear disclosure of relevant information to shareholders and other
stakeholders, also not concealing information when it may affect decisions. It means open
discussions and a default position of information provision, rather than concealment.
Honesty and loyalty
Honesty relates not only to telling the truth but also not misleading shareholders and other
stakeholders. Lack of honesty includes not only obvious examples of dishonesty such as taking
bribes but also presenting information in a slanted way that is designed to give an unfair
impression.
Responsibility
Responsibility requires that leaders’ need to be willing to accept the credit when things go well
and be just as willing to accept the blame for governance failings in the event they occur.
Accountability
Accountability requires organisational leaders’ to be answerable for the consequences of their
actions. Accountability is closely linked to the issue of judgement. Leaders’ need to exercise sound
judgement when making decisions. Leaders’ need to make decisions which enhance the
prosperity of the organisation. Leaders’ must acquire a broad enough knowledge of the business
and its environment to be able to provide meaningful direction to it.

Integrity
Integrity can be taken as meaning someone of high moral character, who sticks to principles no
matter the pressure to do otherwise. In working life this requires leaders to adhere to the principles
of professionalism and probity. Straightforward dealing in relationships with the different groups
is particularly important as this creates trust between parties with different interests in the
organisation. Integrity is an essential principle of the corporate governance relationship,
particularly when representing shareholder interests and exercising agency.
Syllabus link
We will return to all of these issues in later chapters of the workbook. However, you can already
see the importance of leadership in all of these elements.
2.6 Strategic management

Johnson et al (2017) highlight the main elements of strategic management as consisting of the
following:
Strategic position Strategic choices Strategic in action

This includes the This includes how to This refers to the practicalities of
environment (such as achieve objectives (such as forming and implementing
PESTEL factors and those competitive advantage) strategies. It includes appraising
covered by SWOT) plus and focuses on customers performance, strategy
the role played by and markets development processes,
stakeholders and culture organisational structure and
change management.
These elements are explored in later chapters.

Strategic decisions are likely to lead to change within the organisation as resource capacity is
adjusted to permit new courses of action. Changes with implications for organisational culture
are particularly complex and difficult to manage.
3 Culture
3.1 What is culture?
Organisational culture: ‘A pattern of shared basic assumptions…considered valid and

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TERM transmitted to new members’ (Schein, 1985). It has also been described as ‘the way we do
things round here’.
Culture will have formal or visible aspects, such as goals, policies and terminology as well as
informal or less visible aspects such as beliefs, values and norms.
Activity 3: Culture
Consider your employer, or an organisation with which you are familiar. If you were trying to work
out what the culture was like in that organisation, how would you go about doing it and what do
you think you would find?

Solution
An organisation’s culture may be influenced by a number of factors:

• The national culture where the organisation is located, or even the prevailing culture in its
home region.
• The founders of the organisation – particularly if it is fairly new, the values and approach of
the founders may still be pervasive.
• The history of the organisation. For example, one which has grown organically, using its own
resources, is more likely to have a distinctive culture than one which has grown by acquisition
and has had to absorb other cultures.
• Organisational structure can affect culture – organisations sometimes restructure as a way of
trying to change their culture.
• The style of current leaders will have an impact, for example an autocratic style may
encourage a ‘compliance culture’.
Leadership style and culture
The culture of an organisation and its leadership are inextricably linked. Leaders determine the
mission, goals and values of an organisation which are building blocks for culture.
For example, consider a start-up company where leaders are actively involved in the recruitment
process. New recruits are likely to share the same outlook and values as senior management
which serves to build and reinforce a strong company culture.
When corporate culture needs to change, for example to keep pace with economic and industry
changes, senior managers are influential in instilling the new culture. To ensure a successful
cultural shift, leaders should clarify the need for cultural change whilst outlining new goals and
desired behaviours. To engage employees and overcome any resistance to change senior
managers should lead by example, modelling the new behaviours themselves.
Real life example

Common Bond is a US- based student loan and finance company. The co-founder and CEO
David Klein was keen to encourage a culture of open communication and honest answers. Aware
that culture is driven by the actions of leaders and senior managers Klein now holds a weekly “Ask
me anything” session where employees can get immediate and honest feedback directly from the
CEO. The CEO’s willingness to demonstrate the cultural behaviour he is seeking sets the tone for
Common Bond’s culture and motivates employees to follow suit. (CultureIQ,2020)
Strategy and culture
There is no ‘best culture’ for organisations. However, successful organisations generally align their
culture with strategy as closely as possible. Strategy is concerned with a company’s products,
markets and long-term direction. However, to implement strategy effectively, employees need to
be committed to the company and their work thus buying into the organisation’s corporate
culture. Equally, culture can influence an organisation’s strategy and purpose. For example, a
culture that embraces change and demonstrates flexibility is more likely to seek out innovative
strategic opportunities. The connections between culture and strategy are therefore evident.

Essential reading
See Chapter 1 section 2 of the Essential reading, available in Appendix 2 of the digital edition of
the Workbook, for more detail about the role of culture in organisations.
3.2 The cultural web

3.2.1 Theory
Cultural web: An analysis that compares the paradigm (assumptions) in an organisation’s

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TERM culture with the physical manifestations of that culture.
Culture is, by definition, hard to evaluate, manage or change. To assist with this, Johnson (1992)
developed the term cultural web to mean a combination of the assumptions that make up the
paradigm, together with the physical manifestations of culture.
Control systems
Routines (and rituals) Organisation structure

Paradigm
(organisational
assumptions)
Symbols Power structures
Stories and myths
These are defined as follows.

• Control systems – what is measured and rewarded in the organisation, eg people may be
rewarded based on volume of sales rather than customer service
• Routines – the way members of an organisation behave to each other and to those outside the
organisation and Rituals – events that are important to the organisation, whether formal (eg
recruitment and induction processes) or informal (eg drinks after work)
• Organisation structure – this will determine formal and informal relationships and what is
important, for example a hierarchical structure suggest a ‘top-down’ approach
• Paradigm – the shared assumptions of the organisation, including beliefs, that are taken for
granted and represent a collective experience
• Symbols – this can include logos, office layouts, titles and uniforms, often in the form of ‘status
symbols’
• Power structures – people holding power in the organisation. This may not just be based on
seniority, eg in professional firms’ technical experts may hold significant power
• Stories and myths – stories told to each other, outsiders and new recruits such as the
organisation’s foundation or key decisions
You can remember these terms if you need to analyse an organisation’s culture using the cultural
web by the mnemonic ‘CROPS PS’.
Example of the cultural web

The following table illustrates some of the questions which the cultural web prompts us to ask
about an organisation. It also gives some examples of the expressions of culture that could be
generated by the web. The example below is based on the cultural web for a car repair workshop.
Cultural web Examples

Control systems

Which process has the strongest controls? Costs are very tightly controlled. Customers are
Which process has the weakest controls? billed for all parts used.
Is the emphasis on rewarding good work or Quality is not seen as important. Getting work
penalising poor work? done as cheaply as possible is emphasised
ahead of quality.
In their pay review, employees are judged on
the actual costs of their jobs compared to their
job quotes. Staff whose actual costs exceed
quotes tend to get smaller pay rises than those
whose job costs are lower than their quotes.
Rituals and routines
What do employees expect when they come Employees have to sign in, and are then given a
to work? job sheet by the boss showing their jobs for the
What do customers expect when they walk day.
in? Customers expect to hear the radio playing and
What would be immediately obvious if it to be given a mug of coffee while they wait to
changed? collect cars.
What behaviour do the routines encourage? Workshop repainted and new machinery
installed
Lots of talk about money-saving, and
especially how to cut costs
Organisational structure
Is the structure formal or informal? Flat or Flat structure: Owner, Mechanics, Receptionist
hierarchical? The mechanics report to the owner (who is also
What are the formal lines of authority? a mechanic by trade).
Are there any informal lines of authority? The receptionist is the owner’s wife so she
Do structures encourage co-operation and discusses customer complaints directly with
collaboration? him.
Each mechanic works by themselves. There is
no sharing of tools or jobs.
Paradigm
What are the shared assumptions?

What common experiences exist?
What do people take for granted?

Symbols
What language and jargon is used? Is it well Mechanics use jargon which customers don’t
known and usable by all? understand to describe parts and problems.
What aspects of strategy are highlighted in Adverts and leaflets say they won’t be beaten on
publicity? price.
Are there any status symbols? No, the boss wears an overall, like the staff.
Power structures
Who has the real power in the organisation? The owner

How strongly held are the beliefs of the The owner believes strongly in a low-cost model,

people with power? and is prepared to lose repeat customers in
How is power used or abused? order to keep costs down.
What are the main blockages to change? Knowing that their pay reviews are dependent
on cost control keeps mechanics working to this
low-cost model.
The owner insists that his low-cost model is the
best way to run the business and won’t invest in
any new equipment if it will cost lots of money to
do so.
Stories
What stories do people tell about the They’re always the cheapest on the market; they
organisation? do things the cheapest way they can.
What do these stories say about the values They are known for having high numbers of
of the organisation? customer complaints, and for low-quality
What reputation is communicated among workmanship.
customers and other stakeholders?
What do employees talk about when they The founder started the company himself with a
think of the history of the organisation? loan from a friend.
PER alert
Performance Objective 2 ‘Stakeholder Relationship Management’ of the Practical Experience
Requirement requires you to ‘display sensitivity, empathy and cultural awareness in all your
communications’. (ACCA, 2019b). As you will need to display cultural awareness in the work
environment you are strongly advised to take your time as you go through the following
sections which explore the important role that culture plays in organisations.
3.2.2 The cultural web and organisation strategy

The importance of the cultural web for business strategy is that it provides a means of looking at
cultural assumptions and practices, to make sure that organisational elements are aligned with
one another, and with an organisation’s strategy.
If an organisation is not delivering the results its management wants, management can use the
web to help diagnose whether the organisation’s culture is contributing to the underperformance.
There are three phases to such analysis. First, management can look at organisational culture as
it is now. Second, they can look at how they want the culture to be, and third, they can identify
the differences between the two. These differences indicate the changes which will need to be
made to achieve the high-performance culture that they are seeking.
In this way, the cultural web can play a significant role in change management, and changing
organisational culture.
Activity 4: iCompute

Analysis: Investigate
You are working as a consultant specialising in organisational culture. You have been handed
some client notes by a colleague and asked to comment on the culture in place and how it might
affect the organisation’s prospects.

iCompute was founded 20 years ago by the entrepreneur, Ron Yeates. It initially specialised in
building bespoke computer software for the financial services industry. However, it has expanded
into other specialised areas and it is currently the third largest software house in the country,
employing 400 people. It still specialises in bespoke software, although 20% of its income now
comes from the sales of a software package designed specifically for car insurance.
The company has grown based on a ‘work hard, play hard’ work ethic and this still remains.
Employees are expected to work long hours and to take part in social activities after work.
Revenues have continued to increase over the last few years, but the firm has had difficulty in
recruiting and retaining staff. Approximately one-third of all employees leave within their first year
of employment at the company. The company appears to experience particular difficulty in
recruiting and retaining female staff, with 50% of female staff leaving within 12 months of joining
the company. Only about 20% of the employees are female and they work mainly in marketing
and human resources.
The company is currently in dispute with two of its customers who claim that its bespoke software
did not fit the agreed requirements. iCompute currently outsources all its legal advice problems to
a law firm that specialises in computer contracts and legislation. However, the importance of legal
advice has led to iCompute considering the establishment of an internal legal team, responsible
for advising on contracts, disputes and employment legislation.
The support of bespoke solutions and the car insurance software package was also outsourced a
year ago to a third party. Although support had been traditionally handled in-house, it was
unpopular with staff. One of the senior managers responsible for the outsourcing decision claimed
that support calls were ‘increasingly varied and complex, reflecting incompetent end users, too
lazy to read user guides.’ However, the outsourcing of support has not proved popular with
iCompute’s customers and a number of significant complaints have been made about the service
given to end users. The company is currently reviewing whether the software support process
should be brought back in-house.
The company is still regarded as a technology leader in the market place, although the presence
of so many technically gifted employees within the company often creates uncertainty about the
most appropriate technology to adopt for a solution. One manager commented that ‘we have
often adopted, or are about to adopt, a technology or solution when one of our software
developers will ask if we have considered some newly released technology. We usually admit we
haven’t and so we re-open the adoption process. We seem to be in a state of constant technical
paralysis.’
Although Ron Yeates retired five years ago, many of the software developers recruited by him are
still with the company. Some of these have become operational managers, employed to manage
teams of software developers on internal and external projects. Subba Kendo is one of the
managers who originally joined the company as a trainee programmer. ‘I moved into
management because I needed to earn more money. There is a limit to what you can earn here as
a software developer. I still keep up to date with programming though, and I am a goalkeeper for
one of the company’s five-a-side football teams. I am still one of the boys.’
However, many of the software developers are sceptical about their managers. One commented
that ‘they are technologically years out of date. Some will insist on writing programs and
producing code, but we take it out again as soon as we can and replace it with something we
have written. Not only are they poor programmers, they are poor managers and don’t really know
how to motivate us.’ Although revenues have increased, profits have fallen. This is also blamed on
the managers. ‘There is always an element of ambiguity in specifying customers’ requirements. In
the past, Ron Yeates would debate responsibility for the requirement changes with the customer.
However, we now seem to do all amendments for free. The customer is right even when we know he
isn’t. No wonder margins are falling. The managers are not firm enough with their customers.’
The software developers are also angry that an in-house project has been initiated to produce a
system for recording the time spent on tasks and projects. Some of the justification for this is that
a few of the projects are on a ‘time and materials’ basis and a time recording system would permit
accurate and prompt invoicing. However, the other justification for the project is that it will
improve the estimation of ‘fixed-price’ contracts. It will provide statistical information derived from
previous projects to assist account managers preparing estimates to produce quotes for bidding
for new bespoke development contracts.

Vikram Soleski, one of the current software developers, commented that ‘managers do not even
have up-to-date mobile phones, probably because they don’t know how to use them. We
(software developers) always have the latest gadgets long before they are acquired by managers.
But I like working here, we have a good social scene and after working long hours we socialise
together, often playing computer games well into the early hours of the morning. It’s a great life if
you don’t weaken!’
Required
Analyse the culture of iCompute and assess the implications of your analysis for the company’s
future performance. (13 marks)
Professional skills marks are available for demonstrating analysis skills as part of your analysis of
the culture of iCompute. (2 marks)
(Total = 15 marks)
Solution

Chapter summary
Strategy, leadership and culture
Leadership Strategy Culture
What is leadership? What is strategy? What is culture?

The process of influencing an The long-term direction of an 'A pattern of shared basic
organisation (or group within organisation assumptions...considered valid
an organisation) in its efforts and transmitted to new
towards achieving an aim members'
or goal Levels of strategy
Corporate, business-level,
operational Cultural web
Perspectives on leadership • Control systems
• Trait approach • Routines
• Behaviour approach Mission statements • Organisation structure
• Power-influence approach Formal documents that state the • Paradigm
• Situational approach organisation's mission • Symbols
• Integrative approach • Power structures
• Stories and myths
Objectives
Leadership roles
Specific, measurable, achievable,
• Top managers – envisioning results-focused, time-related
future strategy, aligning,
embodying change
• Middle managers – advisers, Strategic values
'sense making',
• Ethics in business
reinterpretation & adjustment,
• Corporate social responsibility
local leadership of change
• Corporate governance
Change and leadership

Strategic management
• Charismatic and transactional
Strategic position, strategic
leadership
choices, strategic action
• Change management styles
Entrepreneurship
Entrepreneurship and
intrapreneurship

Knowledge diagnostic
1. What is leadership?
Leadership is a key factor in organisational success. Good leadership is fundamentally linked to
ethics, as leaders have a particular responsibility in this respect.
2. Leadership perspectives
Broad perspectives on leadership are; traits or qualities of leaders, behaviour (what leaders
actually do), power-influence (the way power is exercised) and situational (styles of leadership
need to vary).
3. Change and leadership

Change may require transactional or charismatic leadership, and a range of change
management styles
4. Entrepreneurship
Entrepreneurship is about identifying and exploiting opportunities. Similar principles can be
applied within organisations, which is called intrapreneurship.
5. Strategy
Strategy is concerned with the long-term direction of an organisation. It may be developed at
corporate, business or operational level, and supported by mission statements.
6. Mission and objectives

Mission and strategy need to be supported by more detailed objectives, which will ideally be
specific, measurable, achievable, realistic and time-related.
7. Ethics and corporate social responsibility

Ethics, corporate social responsibility and corporate governance are key elements of strategic
values, which are developed later in the text.
8. Strategic management
Strategic management includes analysis of strategic position, strategic choices and strategy in
action.
9. Culture
Culture can be described as ‘the way we do things round here’. It is influenced by the national
culture where it is located, the founders, its history, style of current leaders and the organisation’s
structure.
10. Cultural web

Culture can be analysed using the cultural web, which looks at the physical manifestations of a
culture and the assumptions that make up the paradigm.

Further study guidance
Question practice
Now try the following from the Further question practice bank [available in the digital edition of
the Workbook]:
Further reading
There are articles on the ACCA website written by members of the SBL examining team which are
relevant to your studies and which would be useful to read:
Culture and configuration
This article gives further consideration to the cultural web and explores the importance of
organisational structure and configuration.
Performance indicators
This article focuses on the interaction between objectives, critical success factors, and key
performance indicators.
Approaching SBL overview
This article provides a one-page summary of the key features of the SBL exam.
Approaching SBL reading and planning
This article provides a one-page summary of how best to approach the SBL exam.
SBL – 10 things to learn from the September 2018 sitting
This article highlights some of the issues that ACCA identified in candidates’ answers during the
September 2018 SBL exam sitting. The article provides some useful advice for improving your
chances of passing the SBL exam.
Strategic Business Leader – The importance of effective communication for SBL
This article provides some useful insights into the different formats which you will be expected to
use when answering SBL exam tasks.
Own research
It is critical that you start practicing application of this knowledge as early as possible. Using web
searches, the business press, your own experience and your personal network, look for examples
of leaders or organisations where you can consider application of these concepts. For example:
• Leadership: who do you consider to be a good leader? Why is this? Who do you consider to be
a bad leader? Again, why is this? Are there any common themes you can think of that connect
leaders – where do they get this from?
• Strategy: research an organisation you either work for or are familiar with in some way – what
do you think this organisation’s strategy is? How does it determine this strategy? How does it
respond to change?
• Culture: what form of culture are you part of, either at your place of work or another
organisation you are familiar with? Why does this culture exist – is it due to individuals, history,
technology or something else? Does the culture change (and does it need to change)?

Activity answers
Activity 1: Qualities of effective leaders

Here are some suggestions that you may have considered.
• Charisma – ‘star quality’
• Good communication skills, whether written and/or spoken
• Seen to live in line with their message – ‘walk the talk’
• Expertise in their field
• Willingness to take risk, including the risk of unpopularity
Activity 2: Academic Recycling Company

Tackling the question
Lots of information is given to you in the case and many marks can be gained simply by pulling
out the relevant points. You can apply the theory in this chapter about differing leadership
approaches to identify the changes in style, and why they might have gone wrong.
How to earn the professional skills marks
You are being assessed on your ability to analyse this situation and form an opinion about why
things went wrong for Sully. Consequently, it is your ability to investigate and consider various
elements that will show how well you understand the problems faced by Sully and his leadership
style.
However, don’t forget that as well as analysing Sully’s leadership style before and after the
training course, you also have to explain why the change in style was unsuccessful. For example,
as well as the appropriateness of the different styles in relation to the workforce, how did the
speed with which Sully tried to make the change affect its effectiveness?
To: Sully Truin

From: A Consultant
Subject: Analysis of leadership issues at Academic Recycling Company – CONFIDENTIAL
Hi Sully – as discussed, here is my analysis of your changing leadership style and some
reasons for the problems that you have been experiencing.
Prior to attending the course
Your original management style was autocratic and focused on tight control. This was because
you believed that employees wished to avoid work and responsibility and therefore needed
detailed direction and close control. The jobs of the employees therefore increasingly began to
consist of simple, repetitive tasks which were carried out in accordance with well-defined
procedures. Other matters, even trivial ones, were escalated up to you for you to resolve. The
escalation of these simple issues seems to have further reinforced your opinion of the
inadequacies of your employees and the need for tight controls in order to ensure their work
got done. You were displaying a largely autocratic style of leadership.
After attending the course
The course promoted a more democratic style of leadership which evidently has caused you to
question your approach to management. You attempted to implement a style in which
subordinates are involved in task planning and where leadership responsibilities are shared.
Why the change of leadership was unsuccessful
There are a number of reasons why the change in your leadership style was not successful.
First, the speed of change was such that you radically changed your approach overnight. This
will have been confusing for employees and will have made it very hard for them to understand
what was expected of them under this new approach.

In addition, the employees were uncomfortable with your new style. The original approach
was a fairly good match between the leader, the subordinates and the tasks. Employees who
had not liked your tough-minded management approach will have previously left the
organisation. The remaining staff are the ones who prefer to have their work clearly specified
and tightly controlled. This style may also have influenced choices when appointing new
members of staff, selecting those that will fit in with your views and the culture of the
organisation. The views of the staff can be seen in their suggestions that you revert back to the
original style.
The original approach would also appear to have been well suited to the tasks carried out by
the employees for which you have developed a ‘tight administration process’ and have ‘closely
defined what needs to be done for each contract and how it should be monitored’. The
processes are straightforward, but when quick decisions are required they are escalated up to
you. You are experienced in making fast decisions and have sufficient authority to do so. When
this decision-making responsibility was moved to subordinates, they felt they lacked both the
experience and the authority. They therefore consulted colleagues and the decision-making
process took much longer.
However, although reverting to the old style might be preferred by the employees, it does not
solve the original problems faced by you: being heavily relied upon to the point that it is
damaging to your health and preventing the company from expanding.
Many theorists have suggested that there is no one best way of leadership and that the style
which is appropriate in any given context will depend on the nature of the work and the people
involved. No management style is likely to fit all situations and the approach required will vary
at different times depending on business needs. In order to resolve problems or get things done
a democratic manager may, at some point, need to adopt an authoritarian approach and vice
versa.
I hope this makes sense and is constructive – please contact me should you wish to discuss this
further.
Kind regards,
A. Consultant
Activity 3: Culture
This could range from formal aspects such as procedures manuals, contracts and codes of
conduct to things like looking at how people deal with each other, what they wear, their hours of
work etc.
The findings of your research would be dependent on the organisation that you investigated.
Activity 4: iCompute
Using the Cultural Web as a framework is a good approach, as this will help you structure your
answer and help you identify the relevant information provided to you in the scenario. Note that
although the cultural web has been used in this model answer, the question did not ask for any
specific model or framework to be used (as in the real exam). You might, therefore, have taken an
alternative approach to answering this question. There are a number of frameworks and
perspectives through which the culture of an organisation can be assessed and you will still be
awarded marks if you have chosen a different approach.
To score highly you should make sure that, as well as picking out the relevant points via your
analysis skills (investigate and consider) you state what effect this is currently having on
iCompute and the long-term effect this might have should the behaviour continue.
Suggested solution
The cultural web model can assist in understanding the culture at iCompute as follows.
Stories

Stories circulate between the employees of an organisation and often relate to the history of the
organisation and can be very indicative of the issues that exist.
Stories at iCompute revolve around the weakness of the current management which is presented
in comparison with the management of the past.
Symbols
Logos, language and terminology, offices, cars and titles used commonly within an organisation
are all symbols which give clues towards the culture of an organisation.
At iCompute the main language and symbols are dominated by technology. Possessing gadgets
such as the most up-to-date mobile telephone is not only considered to be important but is also
seen as a reflection of the individual’s technical competence.
Playing computer games is referred to as a typical after-work activity. Combined with the culture
of long working hours this could be potentially viewed as divisive.
There appears to be a constant distraction caused by technological objectives and new
alternatives seem to cause doubt and delay. This was referred to by one of the managers as a
‘state of constant technical paralysis’.
Another manager suggests that customers are viewed as either incompetent or lazy due to their
need to make calls to the support team, indicating a need to refocus managers towards
customers.
Routines and rituals
Routines and rituals relate to ‘the way we do things around here’.
At iCompute, there is a culture of long working hours and male-oriented after-work activities such
as playing football and playing computer games. This culture would quickly alienate any member
of staff who may prefer to go home to undertake family commitments, or who do not have interest
in taking part in such activities.
Such a male-focused culture is likely to contribute to the company’s difficulty in recruiting
females and also to its high first-year labour turnover. The culture therefore is contributing to the
need to incur high recruitment and training costs.
Control systems
In contrast to the technical focus of iCompute, there is a limit to how far technical expertise is
rewarded. In order to be promoted, it is necessary for the technical staff to move into
management and the evidence given in the scenario suggests that this is not always successful.
There is the general view that the managers are technically out of date and any technical work
they produce is generally viewed with contempt and quickly replaced.
The management of iCompute have recognised that there is a lack of measurement systems to
permit adequate control; however, the recent attempts to introduce a system that would improve
time recording has been met with anger from the software developers.
Paradigm and conclusion
When iCompute was first established, it was an entrepreneurial organisation with a strong work
ethic focused around innovation and aggressive management. The organisation now appears to
have superficially matured, but the analysis of the culture within the organisation would suggest
that this is not actually the case.
Managers appear to avoid problems by failing to negotiate with customers, outsourcing
problematic functions such as software support, and attempting to gain control by installing
formal computer systems.
The culture has directly impacted on the ability of the organisation to attract and retain female
staff and has created high levels of staff turnover as only a particular ‘type’ of employee will be
suited to an organisational culture such as this.
In order for iCompute to move forwards and recruit a more balanced and stable workforce, the
culture of the organisation must change. The focus must move away from the technology-centric
attitudes towards a more business-focused approach.

2
Stakeholders and social
responsibility
Learning outcomes
On completion of this chapter, you should be able to:
Syllabus
reference no.
Discuss the nature of the principal-agent relationship in the context of B1(a)

governance
Analyse the issues connected with the separation of ownership and control B1(b)
over organisation activity
Discuss and critically assess the concept of stakeholder power and interest B2(a)
using the Mendelow model and apply this to strategy and governance
Evaluate the stakeholders’ roles, claims and interests in an organisation B2(b)

and how they may conflict
Explain social responsibility and viewing the organisation as ‘corporate B2(c)

citizen’ in the context of governance and sustainability
Discuss the factors that determine organisational policies on reporting to B4(a)

stakeholders, including stakeholder power and interests
Assess the role and value of integrated reporting and evaluate the issues B4(b)
concerning accounting for sustainability
Advise on the guiding principles, the typical content elements and the six B4(c)
capitals of an integrated report, and discuss the usefulness of this
information to stakeholders
Describe and assess the social and environmental impacts that economic B4(d)
activity can have (in terms of social and environmental ‘footprints’ and
environmental reporting)
Describe the main features of internal management systems for B4(e)

underpinning environmental and sustainability accounting including EMAS
and ISO 14000
Examine how the audit of integrated reports can provide adequate B4(f)
assurance of the relevance and reliability of organisation reports to
stakeholders
2
Business and exam context
We are going to learn more about governance throughout this book, but here we are looking at
how important it is to be aware of the world around us as leaders and consider how we can
demonstrate that we have taken our responsibilities seriously.
We will explore the dynamic that exists between the owners and managers of an entity and
consider who else we need to consider and how to prioritise them. We will also look at the duty of
care that an organisation owes to the society in which it exists and consider the various
approaches that could be taken.
Finally, we will consider both the social and environmental impacts that an organisation can have
on society, how they can be communicated and the benefits from disclosing this information in a
way that can be trusted.

2
Chapter overview
Stakeholders and social responsibility
Principals and agents Social Sustainability

in governance responsibility
Environmental and social issues

Agency theory Corporate Social Responsibility
(CSR) (Carroll, 1991)
Integrated Reporting <IR>
Stakeholders
Corporate citizenship
(Matten and Crane, 2005) Social and environmental audits
Power and interest
(Mendelow, 1991)
Ethical stances
(Johnson et al, 2017)
CSR viewpoints (Gray et al 1996)
CSR 2.0 (Visser, 2011)
2: Stakeholders and social responsibility 29

1 Principals and agents in governance
1.1 Agency theory
Agency relationship: ‘Is a contract under which one or more persons (the principals) engage
KEY
TERM another person (the agent) to perform some service on their behalf that involves delegating
some decision-making authority to the agent’. (Jensen and Meckling, 1976: p.5)
Agency theory: is used to study the problems of motivation and control when a principal
needs the help of an agent to carry out activities.
Agent: Is usually a director who is interested in personal gain from their employment.
Principal: Is usually a shareholder who is interested in wealth creation from their investment.
Agency is a significant issue in corporate governance because of the dominance of the joint stock
company, the company limited by shares as a form of business organisation. For larger
companies this has led to the separation of ownership of the company from its management. The
owners (the shareholders) can be seen as the principal, the management of the company as the
agents.
For these reasons, therefore, there is the potential for conflicts of interest between management
and shareholders. The diagram below illustrates how agency works in practice:
Self-interest
Self-interest
appoints Agent
Principal
(directors/managers/
(shareholder)
employees)
Detailed
information
Exam focus point

The Strategic Business Leader specimen 2 exam featured a public sector rail company, Rail
Co, which was responsible for providing rail services within the country of Beeland. The first
question required candidates to act in the capacity of a non-executive member of the Rail Co
nominations and corporate governance committee. Part (a) of question 1 asked candidates to
prepare a briefing paper which identified and explained ‘the agency relationship of the parties
involved in Rail Co’ and discussed ‘the rights and responsibilities of those parties’ (ACCA,
2017a). This task was worth 8 technical marks and tested the ACCA Professional Skill of
Communication. To produce a good answer, candidates needed to use their knowledge of
agency theory applied in relation to Rail Co. To earn the two professional skills marks
candidates needed set their answer out using the specified briefing paper format.
1.1.1 The agency problem

In an ideal world, agents would simply act on behalf of their principals. However, agency theory
assumes that agent and principal will act in their own self-interest which may not be aligned and
may even be in conflict with each other. The agency problem in joint stock companies derives
from the principals (shareholders) not being able to run the business themselves and therefore
having to rely on agents (directors) to do so for them, despite the fact that they cannot always
trust their agents to do everything they would want them to.

For example, shareholders (principals) would rather be paid the maximum amount of earnings via
dividends each year, but in doing so, may not pay directors (agents) enough to motivate them to
maximise these earnings (or may pay them to take inappropriate levels of risk). Leaving directors
to manage the company as they see fit may lead to strategies that shareholders perceive as
either too risky or too safe, but in either event, without being involved in the day-to-day running
of the company, shareholders may be powerless to stop directors from pursuing these strategies
in time.
Addressing the agency problem appears to be a complex balancing act which is seldom perfected
and underpins many of the controls in place as part of sound systems of corporate governance.
Essential reading
See Chapter 2 section 1 of the Essential reading for more detail about the agency problem.
1.1.2 Agency monitoring systems

Principals can take a number of steps to monitor their agents when they perceive the agency
problem to be present (or at risk of materialising):
• Request formation of committees
• Employ consultants
• Increase numbers of Non-Executive Directors (NEDs)
• Attend AGM and question board
1.1.3 The agency solution

The power that shareholders possess is the right to remove the directors from office. But
shareholders have to take the initiative to do this, and in many companies the shareholders lack
the energy and organisation to take such a step. Ultimately, they can vote in favour of a takeover
or removal of individual directors or entire boards, but this may be undesirable.
Shareholders can take steps to exercise control, but such action will be expensive, time-consuming
and difficult to manage because it is difficult to:
(a) Verify what the board is doing, partly because the board has access to more information
about its activities than the principal does; and
(b) Introduce mechanisms to control the activities of the board, without preventing it from
functioning effectively.
Any steps taken by shareholders are likely to incur ‘agency costs‘ (Jensen and Meckling, 1976:
p5). Common agency costs include:
• Costs of studying company data and results (either in-house or externally)
• Purchase of expert analysis (such as consultants)
• External auditors’ fees
• Costs of devising and enforcing directors’ contracts (see later content on remuneration)
• Time spent attending company meetings (such as the annual general meeting or AGM)
• Costs of direct intervention in the company’s affairs (including legal fees)
• Transaction costs of shareholding (such as brokers’ fees and any tax implications for
dividends)
Overall, the agency problem is usually addressed by aligning the interests of both agents and
principals – how can this be done?
Activity 1: Agency issues
1 Identify some reasons why shareholders might become concerned about the management of
an organisation in which they hold an investment.

2 Suggest some ways in which principals can align their interests with those of their agents in
order to address the problems identified.
Solution
1.2 Stakeholders
Stakeholder: Is someone who affects or is affected by an entity and who has a corresponding
KEY
TERM claim (usually this is what they want).
Stakeholders are people, groups or organisations that can affect or be affected by the actions or
policies of an organisation. Each stakeholder group has different expectations about what it
wants, and therefore different claims upon the organisation.
A useful distinction is between direct and indirect stakeholder claims.
(a) Stakeholders who make direct claims do so with their own voice and generally do so clearly.
Normally stakeholders with direct claims themselves communicate with the company.
(b) Stakeholders who have indirect claims are generally unable to make the claims themselves
because they are for some reason inarticulate or voiceless. Although they cannot express
their claim directly to the organisation, this does not necessarily invalidate their claim.
Stakeholders may lack power because they have no significance for the organisation, have
no physical voice (animals and plants), are remote from the organisation (suppliers based in
other countries) or are future generations.
1.2.1 Who are stakeholders?
Activity 2: Stakeholders

Commercial acumen: Demonstrate awareness
You work as a senior advisor to the board of a large listed organisation that operates in the
construction industry. The services offered range from homebuilding to large civil engineering
projects, such as bridges and dams, and can be undertaken for central and local government
bodies as well as other profit-making companies. All projects are carried out by staff who require
formal accreditation by their professional body.
As part of your work, you have been asked to brief the board about its stakeholders.
Required
Draft a list of stakeholders for the board; briefly explain the nature of each stakeholder’s claim.
(6 marks)
Professional skills marks are available for demonstrating commercial acumen skills in
demonstrating awareness of stakeholders and their claims. (2 marks)
(Total = 8 marks)

Solution
1.2.2 Classifying stakeholders

Stakeholders can be classified by their proximity to the organisation.
Stakeholder group Members

Internal stakeholders Employees, management, the board
Connected Shareholders, customers, suppliers, lenders

stakeholders
External stakeholders The government, local government, the public, pressure groups, the
media, competition, trade unions
Another way of viewing stakeholders is as follows:
Stakeholder group Members

Active stakeholders Those who seek to participate in the organisation’s activities. This
includes managers and some shareholders but may also include
other groups such as regulators and pressure groups.
Passive stakeholders Those who do not seek to participate in policy making, such as most
shareholders, local communities and government.
Passive stakeholders may still be interested and powerful. If corporate governance arrangements
are to develop still further, there may be a need for powerful, passive stakeholders (eg
institutional investors) to take a more active role.
Real life example

Why might an organisation need to recognise its stakeholders when making significant strategic
decisions? Here are some suggestions:

To identify ways To pre-empt
of communicating negative reactions
with and managing and manage
stakeholders stakeholder conflicts
To assess level To establish

of interest support for
and power strategic goals
Each of these is a valid reason for focusing on stakeholders and their claims – however, the most
important one is likely to be to ensure that various inevitable stakeholder conflicts can be
managed.
PER alert
Performance Objective 2 ‘Stakeholder Relationship Management’ of the Practical Experience
Requirement requires you to ‘gain commitment from stakeholders by consulting and
influencing them to solve problems, meet objectives and maximise mutually beneficial
opportunities’ (ACCA, 2019b). To help improve your effectiveness in managing and influencing
stakeholders you are strongly advised to take your time as you go through the following
section which explores the different approaches that can be taken when managing different
stakeholder groups.
1.3 Power and interest

One way of assessing stakeholders is to look at the power they exert and the level of interest they
have about its activities.
Mendelow (1991) classifies stakeholders on a matrix whose axes are power held and likelihood of
showing an interest in the organisation’s activities. These factors will help define the type of
relationship the organisation should seek with its stakeholders and how it should view their
concerns. Mendelow’s matrix represents a continuum, a map for plotting the relative influence of
stakeholders. Stakeholders in the bottom right of the continuum are more significant because they
combine the highest power and influence.
Level of interest
Low High
Low
A B
Power
High
C D
(Adapted from: Mendelow, 1991)

• Key players are found in Segment D. The organisation’s strategy must be acceptable to them,
at least. An example would be a major customer.
• Stakeholders in Segment C must be treated with care. They are capable of moving to Segment
D. They should therefore be kept satisfied. Large institutional shareholders might fall into
Segment C.
• Stakeholders in Segment B do not have great ability to influence strategy, but their views can
be important in influencing more powerful stakeholders, perhaps by lobbying. They should
therefore be kept informed. Community representatives and charities might fall into Segment
B.

• Minimal effort is expended on Segment A.
1.3.1 Using Mendelow’s approach to analyse stakeholders

Stakeholder mapping is used to assess the significance of stakeholders. This in turn has
implications for the organisation. The framework of corporate governance and the direction and
control of the business should recognise stakeholders’ levels of interest and power.
Power means who can exercise most influence over a particular decision (though the power
may not be used). These include those who actively participate in decision making (normally
directors, senior managers) or those whose views are regularly consulted on important
decisions (major shareholders). It can also in a negative sense mean those who have the right
of veto over major decisions (creditors with a charge on major business assets can prevent
those assets being sold to raise money). Stakeholders may be more influential if their power is
combined with:
• Legitimacy: the company perceives the stakeholders’ claims to be valid
• Urgency: whether the stakeholder claim requires immediate action
Level of interest reflects the effort stakeholders put in to attempting to participate in the
organisation’s activities, whether they succeed or not. It also reflects the amount of knowledge
stakeholders have about what the organisation is doing.
Companies may try to reposition certain stakeholders and discourage others from repositioning
themselves, depending on their attitudes. Key blockers and facilitators of change must be
identified. Stakeholder mapping can also be used to establish future priorities.
1.3.2 Stakeholder power and interest in reporting

The more influential a stakeholder group is in terms of their level of power and interest the better
placed they are to influence the approach the organisation takes when reporting its performance.
Stakeholders classified as key players (per Mendelow) are able to influence the issues they would
like the organisation to report on in its annual report. This is evident given that most annual
reports produced by listed entities focus upon the financial performance and position of the
entity. Such reporting aims to meet the needs of influential groups, each of which has its own
distinct interest in the financial affairs of the organisation, for example:
• Shareholders want to gain a better understanding of how their investment is performing and
whether or not to continue their support
• Regulators want to ensure compliance with relevant laws, e.g. including provisions to cover
environmental pollution obligations
• Tax authorities want to assess the profitability of the organisation for the purpose of ensuring
the correct amount of tax is paid
Despite this, organisations are increasingly changing the approach that they adopt when
reporting on performance with many now reporting on a far broader range of issues. Many
organisations focus on providing information to stakeholders that are more likely to be classified
as ‘keep informed’ and ‘keep satisfied ’groups per Mendelow. Later in this Chapter consideration
is given to sustainability and Integrated Reporting which view performance reporting in a broader
sense.
Activity 3: Goaway Hotels

Evaluation: Assess
Goaway Hotels is a chain of hotels based in one country. Ninety per cent of its shares are held by
members of the family of the founder of the Goaway group. None of the family members is a
director of the organisation. Over the last few years, the family has been quite happy with the
steady level of dividends that their investment has generated. Directors are encouraged to achieve

high profits by means of a remuneration package with potentially very large profit-related
bonuses.
The directors of Goaway Hotels currently wish to take significant steps to increase profits. The
area they are focusing on at present is labour costs. Over the last couple of years, many of the
workers they have recruited have been economic migrants from another country, the East Asian
People’s Republic (EAPR). The EAPR workers are paid around 30% of the salary of indigenous
workers, and receive fewer benefits. However, these employment terms are considerably better
than those that the workers would receive in the EAPR. Goaway Hotels has been able to fill its
vacancies easily from this source, and the workers from the EAPR that Goaway has recruited have
mostly stayed with the company. The board has been considering imposing tougher employment
contracts on home country workers, perhaps letting the number of dismissals and staff turnover
of home country workers increase significantly.
In Goaway Hotels’ home country, there has been a long period of rule by a government that
wished to boost business and thus relaxed labour laws to encourage more flexible working.
However, a year ago the opposition party finally won power, having pledged in their manifesto to
tighten labour laws to give more rights to home country employees. Since their election the new
government has brought in the promised labour legislation, and there have already been
successful injunctions obtained, preventing companies from imposing less-favourable
employment terms on their employees.
An international chain of hotels has recently approached various members of the founding family
with an offer for their shares. The international chain is well known for its aggressive approach to
employee relations and the high demands it makes on its managers. Local employment laws allow
some renegotiation of employment terms if companies are taken over.
Required
You are acting as an advisor to the board, specialising in negotiating changes to employment
conditions. Using Mendelow’s matrix, evaluate the importance of the following stakeholders to the
decision to change the employment terms of home country’s workers in Goaway Hotels.
(1) The board of directors
(2) The founding family shareholders
(3) The trade unions to which the home country workers belong
(4) Migrant workers
(8 marks)
Professional skills marks are available for demonstrating evaluation skills in assessing the
importance of the different stakeholders. (2 marks)
(Total = 10 marks)
Solution
Syllabus link
Stakeholder management and cultural issues form a key part of the Strategic Business Leader
syllabus, and link closely to the Ethics and Professional Skills Module (EPSM) that you are required

to complete on your journey towards full ACCA membership. As part of the EPSM you will need to
show how you have communicated effectively in the business environment with different
stakeholder groups. You are therefore strongly advised to complete the EPSM before sitting your
Strategic Business Leader exam as this will assist with your exam preparations.
1.3.3 Problems with stakeholder mapping

However, there are a number of issues with Mendelow’s (1991) approach:
(a) It can be very difficult to measure each stakeholder’s power and influence.
(b) The map is not static. Changing circumstances may mean stakeholders’ positions move
around the map. For example, stakeholders with a lot of interest but not much power may
improve their position by combining with other stakeholders with similar views.
(c) The map is based on the idea that strategic positioning, rather than moral or ethical
concerns, should govern an organisation’s attitude to its stakeholders.
(d) If there are a number of key players, and their views are in conflict, it can be very difficult to
resolve the situation, hence there may be uncertainties over the organisation’s future
direction.
(e) Mendelow’s matrix considers power and influence but fails to take legitimacy into account.
Legitimacy is a distinct concept from power. For example, minority shareholders in a company
controlled by a strong majority may not have much power, but law in most countries recognises
that they have legitimate rights which the company must respect. Mitchell et al (1997) argue that
legitimacy is a desirable social goal, dependent on more than the perception of individual
stakeholders.
1.3.4 Problems with stakeholder theory

We saw in Illustration 1 that an organisation’s stakeholders can be a diverse and lengthy list of
parties, often with conflicting claims. One reason for analysing stakeholder claims is therefore to
ensure that each of these can be managed in some way. However, keeping all parties satisfied is
far from straightforward.
Fiduciary duty: Is a duty of care and trust which one person or entity owes to another. It can
KEY
TERM be a legal or ethical obligation.
One such conflict comes from the general principle of fiduciary duty that expects managers to
maximise shareholder wealth. This can create significant problems, especially if managers are
also expected to satisfy other stakeholder claims which conflict with the stated aim of long-term
profitability.
There are two fundamentally different motivations for considering stakeholders which may be
used by managers to define their actions.
• The instrumental view justifies considering stakeholders purely because of the economic
benefits to the company – everything else is of secondary importance
• The normative view is based on the idea that the company has moral obligations towards all
its stakeholders, including those whose main aim is not profit-driven
Essential reading
See Chapter 2 section 2 of the Essential Reading, available in Appendix 2 of the digital edition of
the Workbook, for a discussion about the emergence of ecosystem environments in business.
Although the concept of ecosystems is a relatively new one and is not covered by the Strategic
Business Leader syllabus, it is worth taking the time to read this additional material as it considers
how organisational interactions with stakeholders are starting to evolve.

2 Social responsibility
Corporate social responsibility (CSR) is a concept whereby organisations consider the interests of
society by taking responsibility for the impact of their activities on wider stakeholder groups. This
obligation can be seen to extend beyond statutory obligations to comply with legislation. Let’s
have a look at some examples of how such responsibilities could be categorised and described.
2.1 Corporate social responsibility (CSR) (Carroll, 1991)

This approach is modelled on the idea of a hierarchy of needs that an organisation should be
aiming to fulfil, starting at the most basic level (economic) which expects some form of
profitability for investors. However, it will be seen as more socially responsible if such profits are
earned legally, as opposed to aiming simply to maximise the proceeds of crime! Many
organisations aspire to legal profits, but beyond that there is no obligation. Consequently, acting
in an ethical manner (such as adopting a code of conduct or extended paid maternity leave for
staff) is a choice that is made for a variety of reasons that goes beyond the bare minimum of
what the law demands. To be classed as philanthropic, an organisation’s behaviour needs to
include activities that go far beyond the law – establishing a charitable foundation that supports
the local community, for example.
Charitable donations, contributions to local

communities, and providing employees with
Philanthropic the chances to improve their own lives
Organisations are required to act in a fair and

Ethical just way even if the law does not compel them
to do so
Obeying the law is a requirement in all

Legal societies, though legal compliance imposes
greater burdens in some societies than others
To shareholders wanting dividends/capital

Economic gains, to employees wanting fair employment,
to customers wanting good quality products
2.2 Corporate citizenship (Matten and Crane, 2005)
Limited view consists of limited projects undertaken in the business' self-interest
• The main stakeholder groups that the corporation engages with are local communities
and employees
Equivalent view (similar to Carroll's view of CSR having four key elements)
• Based on a wider general definition of corporate social responsibility that is partly

voluntary and partly imposed
Extended view organisations will promote:
• Social rights of citizens by provision of, for example, decent working conditions
• Civil rights, by intervening to promote citizens' individual rights themselves or to
pressurise governments to promote citizens' rights
• Political rights by allowing individuals to promote their causes by using corporate power
• Reinforces the idea of a company being part of a community and meeting the
citizenship needs that government does not currently fulfil

2.3 Ethical stances (Johnson et al, 2017)
Long-term shareholder interest
Corporate image may be enhanced by an
assumption of wider responsibilities. The Short-term shareholder interest
responsible exercise of corporate power may It is up to governments to impose constraints on
prevent a build-up of social and political pressure governance (ie laws) but beyond that, there is no
for legal regulation. This approach is quite obligation to go any further. Companies are there
pragmatic and acknowledges that the pursuit of to make profits, pay taxes and provide jobs but only
profit alone will not maintain shareholder wealth in order to comply with the law – no more! Relies
over the long term. Such organisations are led by on strong controls and objectives being set to
supportive individuals who encourage best practice achieve this main aim and is unlikely to respond to
to engage with stakeholders and respond to outside outside pressures. Examples include large
pressures. Examples include groceries stores and multinational corporations quoted on many
other retailers with a strong consumer focus. different stock exchanges.
Which one is
right?
Multiple stakeholder Shaper of society
obligations Although it is accepted that this role is largely the
Accept the legitimacy of stakeholders and their preserve of public sector organisations, it is aspirational
claims because without recognising groups such as enough for all organisations to at least attempt to
suppliers, employers and customers, the emulate (whether they achieve it or not). Requires
organisation would not be able to function. visionary leadership to pursue an agenda of social and
Interested in operating in partnership with market change in conjunction with other organisations.
stakeholders and being proactive in championing Supports individual responsibility being taken across
many of their claims. Stakeholders' views are used the organisation to achieve this. In its purest form, it is
by the board to pursue strategies that go beyond debatable whether such organisations truly exist,
pure profit generation. Examples include public although some of these traits may be present (such as
sector organisations, educational establishments visionary leadership, supportive management styles and
and those operating in the arts. a desire for social change) in isolation.

2.4 CSR viewpoints (Gray et al, 1996)
Pristine capitalist
Business has no moral responsibilities beyond its obligations to shareholders and creditors. Profit
is the only aim for such organisations − everything else is irrelevant. Could include any organisation
where profit maximisation is the only objective.
Expedient
Social responsibility may be appropriate, but usually only if it is in the business's economic interests.
Such a pragmatic approach to social responsibility could simply be seen to be a cynical response to
maintain profits, not to benefit stakeholders' interests. Includes organisations with a strong
consumer focus (eg retailers marketing themselves as being on the same side as the consumer).
Proponent of the social contract

There is effectively a contract or agreement between these organisations and those who are
affected by their decisions (for example, such as between UK state broadcaster the BBC, the UK
Government and licence fee payers who receive their content). Change is usually not allowed unless
it can be accommodated by all parties involved.
Social ecologist
Traditional business activities result in natural resources being used up in the pursuit of profits.
Social ecologists believe that strategies leading to waste and pollution must be modified and
organisations must become more socially responsible in their resource usage (for example,
cosmetics being sourced from natural products and sold in recyclable packaging).
Socialist
Business decision-making should no longer be determined by the requirements of capitalism and
materialism alone, but should promote equality and treat all parties' interests equally. This is
equivalent to the political definition of socialism in many respects and aims to reduce the abuse of
workers by the ruling classes.
Radical feminist
Can include a variety of approaches, but in general terms, such organisations aim to promote
feminine values (such as co-operation and empathy) over typically masculine values (such as
aggression and conflict) in order to achieve more socially desirable objectives, and not just profit.
Deep ecologist ('Deep Green')

Suggests that humans have no greater right to resources or life than any other species on the planet.
Organisations therefore should not destroy animal habitats (using techniques such as deforestation
or greenfield development) or pursue animals (such as commercial whaling) at all, let alone for profit.
Environmental pressure groups are examples of organisations that take such a stance.
2.5 CSR 2.0 (Visser, 2011)

In his book The Age of Responsibility – CSR 2.0 and the New DNA of Business (Visser, 2011), Visser
takes stock of the current state of corporate social responsibility across the globe, charting its
history and development over time using the following ‘ages’ (some of which imply that current
views on CSR may be in need of some radical overhaul):

Greed
Responsibility Philanthropy
Management Marketing
Figure 2.1: The ages and stages of CSR
(Adapted from: Visser, 2011)

Each ‘age’ is characterised by different organisational behaviours.
• Greed - results in defensive CSR whereby companies do enough to protect shareholder
wealth.
• Philanthropy - delivers charitable CSR whereby a company donates to environmental or social
causes.
• Marketing - CSR is seen mainly as a tool to promote and enhance the company reputation
and brand. This is often known as ‘greenwashing’.
• Management - CSR becomes more strategic and tied into a company’s core business, for
example investing in local education to provide a supply of educated workers.
• Responsibility - CSR involves systemic change with companies changing their strategy to
improve outcomes for the wider society and environment.
Consequently, Visser suggests that we need systemic CSR or ‘CSR 2.0’ to take corporate social
responsibility to the next level, if we are to make change happen at a societal, organisational and
individual level. There are five principles that should be adopted in order to achieve this:
Creativity (embracing
new ideas)
Circularity (recognising Scalability (translating

the cycle of events) them across borders)
Glocality (local solutions Responsiveness (the

made on a global scale) ability to change)
In conclusion, he discusses barriers to achieving CSR 2.0 which question as a society both our
ability and our desire to change, suggesting that good CSR may still only be a choice, not an
imperative.

Activity 4: Corporate social responsibility

Communication: Inform
You work as a senior advisor to the board of a large listed organisation that operates in the
construction industry. The services offered range from homebuilding to large civil engineering
projects, such as bridges and dams, and can be undertaken for central and local government
bodies as well as other profit-making companies. All projects are carried out by staff who require
formal accreditation by their professional body.
As part of your work, you have been asked to brief the board about its corporate social
responsibility (CSR) position. Proponents of CSR argue that there is a strong business case for
considering stakeholders, whereas critics argue that CSR distracts from the fundamental
economic role of businesses.
Required
Draft one presentation slide with presenter’s notes showing arguments supporting both the case
for and against CSR. (6 marks)
Professional skills marks are available for demonstrating communication skills in informing the
audience of the arguments for and against CSR. (2 marks)
(Total = 8 marks)
Solution
Activity 5: CSR and tax

Commercial acumen: Demonstrate awareness
GSA is a listed pharmaceutical manufacturer that operates across different countries but has its
headquarters in a European country. In general terms it always complies with the law – financial
statements are filed on time, employee and sales taxes are paid over to the local tax authority –

but despite the parent company recording high operating profits, it recently paid a very low level
of corporate tax due to apparent loopholes in the legislation (sometimes referred to as ‘legal tax
avoidance’). This became a controversial news story and led to calls for a boycott of the
company’s products unless they voluntarily paid more corporate tax. GSA’s Chief Executive
Martyn Rice agreed to respond to the media on behalf of the board.
Required
You are a senior manager working in the strategy function of GSA.
Recommend a series of responses for the Chief Executive to make based on current CSR theory.
You should aim to include at least four different points of view. (8 marks)
Professional skills marks are available for demonstrating commercial acumen skills in
demonstrating awareness of the factors influencing this decision. (2 marks)
(Total = 10 marks)
Solution
3 Sustainability
3.1 Environmental and social issues
3.1.1 Environmental and social footprint
Sustainability: Means limiting the use of depleting resources to a level that can be replenished.
KEY
TERM
Sustainable development: Is development that meets the needs of the present without
compromising the ability of future generations to meet their own needs.
When considering sustainability, a number of questions need to be considered:
Sustainable
by whom?
Sustainable at Sustainable
what cost? for whom?
Sustainable for Sustainable in

how long? what way?

A key issue is generational equity, ensuring that future generations are able to enjoy the same
environmental conditions, and in social terms per capita welfare is maintained or increased.
The two approaches to sustainability are:

Weak sustainability believes that the focus Strong sustainability stresses the need for
should be on sustaining the human species harmony with the natural world; it is
and the natural environment can be regarded important to sustain all species, not just the
as a resource. The weak sustainability human race. There is a requirement for
viewpoint tends to dominate discussion within fundamental change, including a change in
the Western economic viewpoint. how man perceives economic growth (and
whether or not it is pursued at all).
Environmental footprint: Is a measure of the impact that a particular business’s activities have
KEY
TERM upon the environment including its resource, environment and pollution emissions.
Social footprint: Is a measure of the impact or effect that an entity can have on a given set of
concerns or stakeholder interests.
It is the impact on people, society and the wellbeing of communities. Impacts can be positive
(such as job creation and community benefits) or negative, such as when a plant closure
increases unemployment and the local community suffers.
Examples of factors that could be used to determine a firm’s environmental footprint include the
following items (note that many of them could be assessed using metrics that may be measured
and reported as part of assessing an organisation’s environmental footprint):
Depletion of
natural resources
Change in the local quality of life Noise and

(via tourism for example) aesthetic impacts
Environmental
footprint
Uncompensated Residual air and
health effects water emissions
Long-term waste disposal

(including packaging)
3.1.2 Social and environmental reporting
Social accounting: Is a concept describing the communication of social and environmental

KEY
TERM effects of a company’s economic actions to stakeholders. A number of reporting guidelines
have been developed to serve as frameworks.

ISO 14000
Environmental
Management Standard
Global Report Initiative

(GR) sustainability
AA1000 reporting
guidelines EU EMAS
Standard –
emphasising
based on triple
targets and
bottom line
improvements
(3BL) reporting
AA1000 standard
The AA1000 standard is produced by AccountAbility.
‘AccountAbility is a global consulting and sustainability standards firm that works with businesses,
governments and multilateral organisations to advance responsible business practices and
improve long-term performance.’ (AccountAbility, 2019).
The AA1000 (2008) standard was based on the concept of triple bottom line accounting which
encourages organisational activities to be accounted for in less obvious ways than just financial
reporting terms:
• People – the equivalent of social accounting (for example, the amount of charitable donations
made)
• Planet – a focus on environment performance such as waste management and recycling
targets
• Profit – a measure of the success of the business, but considering the redistribution of wealth
which brings benefits to the local community (for example, education schemes and community
projects)
The AA1000 standard was updated in 2018, and is based on the following principles:
• ‘Inclusivity – People should have a say in the decisions that impact them.
• Materiality – Decision makers should identify and be clear about the sustainability topics that
matter.
• Responsiveness – Organisations should act transparently on material sustainability topics and
their related impacts.
• Impact – Organisations should monitor, measure and be accountable for how their actions
affect their broader ecosystems.’ (AccountAbility, 2018).
The AA1000 standard provides organisations with guidance on how to respond to the challenges
presented by sustainability issues.
Global Reporting Initiative (GR)
The Global Reporting Initiative (GR) (2016) is a reporting framework and arose from the need to
address the failure of the current governance structures to respond to changes in the global
economy. The GR aims to develop transparency, accountability, reporting and sustainable
development. Its vision is that reporting on economic, environmental and social importance
should become as routine and comparable as financial reporting.
Essential reading
See Chapter 2 section 3 of the Essential Reading, available in Appendix 2 of the digital edition of
the Workbook, for more detail about the purpose and advantages of environmental reporting.

Eco-Management and Audit Scheme (EMAS)
EMAS (EU, 2019) is a voluntary scheme that emphasises targets and improvements, on-site
inspections and requirements for disclosure and verification.
• An environmental policy containing commitments to comply with legislation and achieve
continuous environmental performance improvement
• An on-site environmental review
• An environmental management system that is based on the review and the company’s
environmental policy
• Environmental audits at sites
• Audit results to form the basis of setting environmental objectives and the revision of the
environmental policy to achieve those objectives
• A public environmental statement validated by accredited environmental verifiers containing
detailed disclosures about policy, management systems and performance in areas such as
pollution, waste, raw material usage, energy, water and noise
ISO 14000
ISO 14000 (ISO, 2015) provides a general framework on which a number of specific standards
have been based (the ISO family of standards).
ISO 14001 (ISO, 2015) prescribes that an environmental management system must comprise:
An environmental policy statement, which should be the basis Assessment of environmental

for future action; it needs therefore to be based on reliable aspects and legal and
data, and allow for the development of specific targets voluntary obligations
A management system ensuring Internal audits and A public declaration that ISO
effective monitoring and reporting reports to senior 14001 is being complied with
on environmental compliance management
ISO 14005 (ISO, 2019) was published in 2019. ISO 14005 aims to encourage and support
organisations to develop and implement their own environmental management system based on a
phased approach which meets the requirements set out by ISO 14001.
3.2 Integrated Reporting <IR>

The aim of integrated reporting (sometimes referred to by this symbol: <IR>) is to demonstrate the
linkage between strategy, governance and financial performance and the social, environmental
and economic context within which the business operates. <IR> is based on the concept of
integrated thinking.
Integrated thinking: ‘Is the active consideration by the organization of the relationships
KEY
TERM between its various operating and functional units and the capitals that the organization
uses or affects.’ (International Integrated Reporting Council, 2019)
Adopting integrated thinking helps organisations to improve their approach to decision-making,

as decisions and actions are not made or undertaken in isolation from the wider situation facing
the entity. Integrated thinking, in essence ensures that managers and organisational leaders
make decisions and undertake actions that consider value creation not in just the short-term but
in the medium to longer term. The International Integrated Reporting Council (2019) note that this
requires ‘thinking holistically about the resources and relationships the organization uses or
affects, and the dependencies and trade-offs between them as value is created. In applying this
mindset, the organization views itself as part of a greater system, one shaped by the quality,
availability and cost of resources, as well as evolving regulations, norms and stakeholder
expectations.’

Activity 6: Integrated thinking
Identify how the adoption of integrated thinking might benefit a clothing retailer, listed on a
national stock exchange, which operates 100 stores and sells all of its products at low prices.
Solution
By making these connections, businesses should be able to take more sustainable decisions,
helping to ensure the effective allocation of scarce resources. Investors and other stakeholders
should better understand how an organisation is really performing. In particular, they should
make a meaningful assessment of the long-term viability of the organisation’s business model and
its strategy.
<IR> should also achieve the simplification of accounts, with excessive detail being removed and
critical information being highlighted.
IR: Is a process founded on integrated thinking that results in a periodic integrated report by
KEY
TERM an organization about value creation over time and related communications regarding
aspects of value creation. An integrated report is a concise communication about how an
organization’s strategy, governance, performance and prospects, in the context of its external
environment, lead to the creation of value in the short, medium and long term.’ (International
Integrated Reporting Council, 2018)
Where <IR> differs from other forms of reporting is that it focuses on the process not the product,
using a series of capitals to illustrate how an organisation creates value for all stakeholders, not
just shareholders. The International Integrated Reporting Council (2018) have identified the
following six capitals:
Category of Characteristic elements of the category of capital

capital
Financial Funds available for use in production or service provision, obtained through
financing or generated through operations
Manufactured Manufactured physical objects used in production or service provision;

including buildings, equipment and infrastructure
Human Skills, experience and motivation to innovate:

• Alignment and support for an organisation’s governance framework and
ethical values
• Ability to understand and implement organisation’s strategies
• Loyalties and motivations for improvements
Intellectual Intangible assets, providing competitive advantage:

• Patents, copyrights, software and organisation systems
• Brand and reputation

Category of Characteristic elements of the category of capital
capital
Natural Inputs to goods and services, and natural environment on which an
organisation’s activities have an impact:
• Water, land, minerals and forests
• Biodiversity and health of eco-systems
Social The institutions and relationships established within and between each
community, stakeholder group and network to enhance individual and
collective wellbeing.
Includes an organisation’s social licence to operate.
There are seven guiding principles or characteristics that <IR> requires an organisation’s reporting
to display in some way in order to be seen as meaningful:
Connectivity across
all relationships that
create value
Consistent and comparable Stakeholder relationships
presentation with other and how they work to
organisations and over time create value
Strategic and
forward-looking
Conciseness (to Materiality, disclosing those
encourage people to matters that substantially
read about <IR>) affect value creation
Reliability and
completeness,
avoiding any bias
3.2.1 Auditing Integrated Reports

The audit of an organisation’s Integrated Report by an independent assurance provider allows the
users of such reports to place greater levels of reliance on their content. Enhanced reliance helps
organisations to build trust among investors and other stakeholder groups. This is evident as it
shows that the organisation is open to reporting (and having its performance verified by an
independent party) from a number of perspectives beyond the traditional financial viewpoint.
Enhanced transparency and the improved levels of accountability that audited Integrated Reports
bring heighten the likelihood for the company to attract new investors to purchase shares. This is
supported by the fact that investors are becoming increasingly interested in understanding how
the organisations they own have performed from an environmental and social perspective. The
audit of Integrated Reports helps to ensure that management avoid the temptation of simply
paying ‘lip service’ to recent developments in performance reporting. Instead of viewing the
production of an Integrated Report as a PR exercise in which the production of the report is
viewed as the final output, managers are instead forced to commit, in the longer term, to the
concept of integrated reporting by permitting regular outside scrutiny.
Nonetheless, it is not straightforward for organisations who are interested in having their
Integrated Report audited. A significant issue for such organisations concerns the reluctance,
among many audit firms, to provide the same level of assurance over the content of Integrated
Reports that they give when conducting a statutory financial audit. A significant issue for auditors
concerns the high costs incurred in being able to provide even limited assurance. This situation
has been driven in part by the fact that often the performance objectives and measures used in
reporting the six capitals are qualitative in nature. This increases the subjectivity of measuring
performance. The lack of mandatory assurance over integrated reporting in many jurisdictions
around the world has hindered the process of auditing integrated reports.

Exam focus point
The March/June 2019 exam released by ACCA featured a clothing retailer called SmartWear.
Task 5(a) required the preparation of one slide with notes for a presentation to be given by the
CFO at SmartWear to the rest of the board. The slide and notes needed to describe the
benefits of integrated thinking within SmartWear to all stakeholders. The examining team
commented that ‘most, but not all, candidates included a presentation slide, and most had
accompanying notes. However, the quality of these varied considerably, with some slides
containing masses of text, and others one or two basic bullet points. Candidates should be
able to communicate this way with ease, so it is suspected that many answers were rushed
due to poor time management’. (ACCA, 2019a).
Task 5(b) followed on from part (a) and required the creation of a briefing paper for
SmartWear’s CFO. The briefing paper would allow the CFO to address the wider finance
team, explaining how corporate reporting, using the <IR> framework, would provide better
information for SmartWear’s shareholders about the creation of sustainable long-term value.
The examining team noted that many candidates seemed to understand the theory of
integrated reporting but struggled to apply it to the case. ‘The weakest candidates only listed
the 6 Integrated Reporting Capitals, with only the best candidates able to show how these are
clearly linked to how sustainable long-term value can be created for the SmartWear
shareholders.’ (ACCA, 2019a). Professional skills marks were available for parts (a) and (b) of
the task by demonstrating appropriate communication skills to the different audiences.
To earn the 2 professional skills marks on offer candidates needed to produce a slide and
notes which communicated the main elements about integrated thinking in respect of part (a).
The briefing paper in part (b) needed to be structured in such a way that it was informative
and convincing to the shareholders about introducing integrated reporting.
3.3 Social and environmental audits

3.3.1 Social audits
Social audit is the process of checking whether an organisation has achieved set targets.
Generally, social audits will involve a process that focuses on reviewing the following (note that no
one area is given any overall priority as they are all expected to interact):
Establishing whether the organisation Identifying that all current environment

has a rationale for engaging in socially programmes are congruent with the
responsible activity mission of the company
Assessing objectives and priorities Evaluating company involvement in such

related to these programmes programmes past, present and future
Universities and public sector organisations are examples of the type of organisation that might
be expected to use social audits (usually due to their interaction with a range of individuals across
the various stakeholder groups they engage with, such as students, hospital patients and
vulnerable members of society).
3.3.2 Environmental audits

An environmental audit is a systematic, documented, periodic and objective evaluation of how
well an entity, its management and equipment are performing, with the aim of helping to
safeguard the environment by facilitating management control of environmental practices and
assessing compliance with entity policies and external regulations.
Environmental audits help organisations to identify possible liabilities from their ongoing
activities, assess the threat of unethical behaviour and even act as a form of marketing for
investors especially sensitive to having environmentally and socially questionable representation
in their portfolios.

The process of completing environmental audits requires three stages:
Agreement on suitable metrics to The measurement of A report from the

assess environmental performance actual performance and auditor stating levels of
(this will include what should be comparison with targets compliance or variance
measured and how, and fits in with
the idea of footprint)
Examples of organisations that make use of environmental audits will obviously include those
whose environmental footprint is either significant or high-profile (or in the case of petrochemical
and pharmaceutical companies, both).

Chapter summary
Stakeholders and social responsibility
Principals and agents Social Sustainability

in governance responsibility
Agency theory Corporate Social Responsibility Environmental and social issues

• Principals (shareholders) vs (CSR) (Carroll, 1991) • Environmental and social
agents (directors) • Economic (basic requirement) footprint
• Agency problems • Legal (and comply with laws) • Social and environmental
• Agency monitoring • Ethical (go beyond the law) reporting
• Agency solutions • Philanthropic (help others)
Integrated Reporting <IR>

Stakeholders Corporate citizenship • Founded on integrated thinking
• Who are stakeholders? What (Matten and Crane, 2005) • Financial capital
do they want (claims)? • Limited view = self-interest only • Manufactured capital
• Classifying stakeholders • Equivalent view = CSR • Human capital
• Extended view = going above • Intellectual capital
and beyond • Natural capital
Power and interest • Social capital
(Mendelow, 1991) • Auditing Integrated Reports
• Low power, low interest = Ethical stances
minimal effort (Johnson et al, 2017)
• Low power, high interest = • Short-term stakeholder interest Social and environmental audits
keep informed • Long-term stakeholder interest • Social audits – engaging in
• High power, low interest = • Multiple stakeholders socially responsible activity;
keep satisfied • Shaper of society goal congruence with this;
• High power, high interest = assess objectives and priorities
key player • Environmental audits – agree
CSR viewpoints (Gray et al 1996) on suitable metrics; measure
• Pristine capitalist performance and compare
• Expedient with targets; report from
• Social contractarian auditor on compliance (or
• Social ecologist otherwise)
• Socialist
• Radical feminist
• Deep ecologist
CSR 2.0 (Visser, 2011)

• Responding to change: greed;
philanthropy; marketing;
management; responsibility
• CSR 2.0: creativity; scalability;
responsiveness; glocality;
circularity
• Our ability to change

Knowledge diagnostic
1. Agency theory
Principals and agents often have different goals that can be in conflict with each other, but
organisational success comes from finding ways of aligning these interests
2. Stakeholders
Stakeholders are not just people who are affected by an entity; they can also affect the entity, so
knowing their claims and assessing their power and interest is essential in managing them
3. Corporate social responsibility

There are many stances that could be taken to explain how a corporate entity displays its
responsibility to society (CSR) – this ranges from pure economic gain for all parties to putting the
needs of the environment first and foremost, with plenty of grey in the middle!
4. Social and environmental considerations

Social and environmental footprints need to be understood, assessed and communicated and this
can be done in a variety of ways using techniques such as the GR and 3BL
5. Integrated reporting
Integrated reports are fast becoming the preferred method of communicating value for
organisations who wish to inform their stakeholders, so an awareness of the various capitals used
and created is essential for this to be effective
6. Social and environmental audits

Social and environmental audits are fast becoming a way of holding organisations to account for
their impact on society and the environment they operate in, usually via an assessment of a series
of metrics or other deliverables

Further study guidance
Question practice
Now try the following from the Further question practice bank [available in the digital edition of
the workbook]:
Q2 ZK
Further reading
There are articles on the ACCA website written by members of the SBL examining team which are
relevant to your studies and which would be useful to read:
All about stakeholders (Part 1)
This article considers the nature of stakeholder claims and explores Mendelow’s matrix in the
context of stakeholder influence.
All about stakeholders (Part 2)
This article considers different stakeholder groups and further explores the work of Gray et al.
The integrated report framework
This article explores the main principles of integrated reporting.
Approaching SBL overview
This article provides a one-page summary of the key features of the SBL exam.
Approaching SBL reading and planning
This article provides a one-page summary of how best to approach the SBL exam.
SBL – 10 things to learn from the September 2018 sitting
This article highlights some of the issues that ACCA identified in candidates’ answers during the
September 2018 SBL exam sitting. The article provides some useful advice for improving your
chances of passing the SBL exam.
Strategic Business Leader – The importance of effective communication for SBL
This article provides some useful insights into the different formats which you will be expected to
use when answering SBL exam tasks.
Own research
Consider your own organisation, or one with which you are very familiar – let’s see if you can find
out more about the topics considered in this chapter:
• How does the organisation aim to control its agents and who are the principals?
• What stakeholders does your organisation have? What are their claims?
• In terms of its CSR position or stance, what kind of entity is your organisation?
• What information does your organisation publish about its social and environmental footprint?
• Does your organisation publish an integrated report? If so, try and get access to it to see how
it works in practice. If not, use the ACCA integrated report as an illustration available on the
ACCA website.

Activity answers
Activity 1: Agency issues

1 The following could be reasons for a principal becoming concerned about their agent(s):
• Decline in profitability
• Lack of disclosures in annual accounts
• Fall in share price
• Adverse commentary by analysts
• Change in business environment
• Change in key personnel
2 The alignment of interests between principal and agent can be achieved by the following:
• Performance-related pay
• Bonuses
• Share options
Activity 2: Stakeholders
The list of possible answers to the question of ‘who or what is a stakeholder’ is theoretically
endless, especially as you are not given much detail in the scenario – however, you can infer
plenty from the details that you have been given and develop your answer from there. The mark
scheme of 6 + 2 = 8 marks means that you need at least six stakeholders and then their claims
need to have been considered fully enough to merit the two professional marks.
Acting with commercial acumen requires you to demonstrate an awareness of wider external
factors and to act with perception and insight into a situation. Some of the stakeholders here are
obvious (employees, suppliers, customers etc) while others (such as involuntary stakeholders from
the natural world) may not be quite so obvious. Coupled with the need to identify stakeholder
claims as well, this is not an easy task but could be asked for in virtually any situation.
Suggested solution
The list of stakeholders is likely to include the following (with their claims in brackets)
• Shareholders who require a return on their investment – (this is a direct claim because they are
in contact with the organisation already)
• Lenders who require their loans to be serviced in full and on time (also direct)
• Customers who require good quality projects to be completed (also direct)
• Suppliers who require being paid on time (also direct)
• Employees who require good working conditions and being paid on time (also direct)
• The general public who require no adverse effects from the organisation and its projects (such
as safe housing, reliable infrastructure) (direct/indirect)
• The government which requires tax to be paid on corporate profits and other expenses, plus
the ideal of maximising employment levels in the economy (probably also direct)
• Professional bodies which require the organisation’s accreditation process to be robust to
maintain their reputation (also direct)
• Flora and fauna whose natural environment is affected by civil engineering projects being built
– (they require a clean, unspoilt environment to live in, but their claims are indirect because
they did not ask to be affected by the organisation’s projects)

• People living near a construction project (whether housing or some other kind) who require a
quiet, clean and safe environment in which to live but who may be adversely affected by either
the construction process or the finished asset (again, likely to be indirect)
Activity 3: Goaway Hotels

Remember that we are talking about one specific decision so we need to focus on that decision
and how each of the identified stakeholders will affect the process of changing terms and
conditions.
Assessing means using professional judgement when considering issues. In this case, you will
show that judgement by carefully considering the different stakeholders and the potential impact
of the hotel’s decisions on them.
Suggested solution
Taking each stakeholder in turn:
The board of directors – need to be kept informed about the decision to change working
conditions
Power: Low, surprisingly perhaps. However, the new employment legislation appears to limit
significantly directors’ freedom to reduce labour costs by changing contractual terms. The
directors also have little say over the decision of shareholders to sell shares. (This demonstrates
that you cannot take anyone’s role for granted.)
Level of interest: High, as this is a major decision, integral to the directors’ plans for the future of
the Goaway hotel chain. It may also have a significant effect on their remuneration.
Shareholders – they need to be kept satisfied due to their role in any decisions taken
Power: High, because the shareholders are currently in a position to sell their shares if they feel
that they have received a good offer. If they do, unions and employees may find that the
international company is able to take a much tougher approach.
Level of interest: Low, as none of them participates actively in Goaway’s decision making. Their
main concern is whether to continue to take dividends or realise a capital gain from their
investment.
Trade unions – they are key players and will need to be managed closely when the decision
is made
Power: High. This is because they have the economic power to take legal action to prevent
Goaway from changing their members’ employment terms.
Level of interest: High. This is because they wish to protect their members
Migrant workers – minimal effort should be deployed as they do not have much effect on
the decision
Power: Low. This is because replacement workers can be recruited easily from the home country.
Level of interest: Low. The migrant workers seem quite happy with their current employment
terms, even though these are not as favourable as the home country’s workers.
Each stakeholder group would be plotted on Mendelow’s matrix as follows:

Level of interest
Low High
Low A B
Migrant workers Directors
Power
C D
High
Shareholders Trade unions
Activity 4: Corporate social responsibility

Balance is the key to answering this question as the slide requires both viewpoints to help inform
the board. You would probably need at least three points on each side to have a good chance of
scoring the marks on offer here.
Inform means to communicate concisely, objectively and unambiguously, using appropriate
media. It is essential that you use the slide format as requested, but do not overload your slides
with too much detail. The detail should be contained within the presenter’s notes.
Suggested solution
The slide could look like this:
Business case for CSR Business case against CSR
• Builds reputation • Does not support shareholders

• Attracts investors/employees/customers • Cost vs benefit?
• Competitive advantage • Time-consuming
• Branding • Credible?
• Unregulated
Presenter’s notes
For
• Reputation (eg focusing on health and safety for employees pre-empts the need for legislation
to be imposed by outside regulators)
• Attraction of individuals or organisations who support good CSR and see the company as
being a good place to work
• CSR can create competitive advantage (especially as the wider construction industry has a
reputation for poor health and safety)
• Can tie into our branding to reinforce ‘responsible’ credentials
• Unregulated = easy to incorporate (because there’s no ‘wrong’ answer, so you will always be
right whatever you do)
Against
• Organisations are responsible to shareholders \ CSR is ‘stealing’ their funds

• Benefits do not outweigh costs (no tangible evidence to support CSR)
• Time-consuming to implement across a business

• Seen as PR only (most stakeholders in construction will think it’s only done for this reason) so is
it going to be seen as credible or merely cynical?
Activity 5: CSR and tax

This solution has been framed around the Gray, Owen and Adams model but any similar
approach could have been used as long as four different perspectives were adopted. For example,
taking Carroll’s model – GSA could have considered the following responses:
• Economic – why pay more tax if it reduces our profits (regardless of what the law says)? Note
that this perspective ignores the law, a position that most organisations cannot take.
• Legal – why pay more taxes if the law says we have paid enough already? We already pay
more than we want to because we want to obey the law.
• Ethical – maybe we should acknowledge that paying more corporate tax than we need to is
the right thing to do and presents a view of us being more socially responsible.
• Philanthropic – we will rearrange our tax strategy to pay what we think is right and start to fill
in some of the social and economic gaps left behind by government policy via targeted
donations and other benevolent initiatives.
Part of demonstrating commercial acumen is the ability to show insight and perception in
understanding work-related and organisational issues, including the management of conflict,
demonstrating acumen in arriving at appropriate solutions or outcomes. This is a classic example
of such a conflict where there is probably no right answer – however, the depth of your analysis is
what you are being asked to show here, along with good awareness of the external factors the
company must deal with.
Suggested solution
Taking Gray, Owen and Adams as an example, GSA could reach a number of different
perspectives regarding the decision to pay more tax on a voluntary basis.
• Pristine capitalist – the company should not pay any more tax than is legally due as that
would erode shareholder wealth.
• Expedient – the company could pay tax to present the impression that it wishes to empathise
with its customers, thus reducing the threat of further adverse reputational damage and sales
boycotts (it may even attempt to calculate the point at which marginal extra tax paid equals
marginal sales restored).
• Social contract – the company should pay a fair amount of tax as society expects it to play its
part.
• Social ecologist – all companies should pay as much tax as possible in order to support
society and those who need assistance.
• Socialist – the company should definitely pay more tax just like the workforce has to
(employing expensive tax advisors that employees cannot afford is unfair).
• Radical feminist – the company should pay tax in order to empathise with society and the
pain it feels from punitive taxation.
• Deep ecologist – the company should donate money to an environmental pressure group (eg
Greenpeace) and consider whether it is operating with enough of a social and environmental
mandate to continue trading (as a pharmaceutical company, this is debatable).
Activity 6: Integrated thinking

The benefits of adopting integrated thinking:
• Helps the retailer to ensure that its approach to business considers inter-related factors when
developing strategies. This helps to ensure sustainable value creation. For example, the
adoption of integrated thinking should help to ensure that the retailer’s low-priced strategy

aligns to the underlying opportunities for market growth, such as developing new product
ranges or selling through new mediums, for example through social media platforms.
• Integrated thinking should force the board to not only consider those strategies that will result
in short-term gains, such as increased profits, but to devise and implement strategies which
focus on key business areas which will enhance performance in the long-term. For example,
pursuing strategies which build brand awareness or improve the customer experience so that
shoppers return in the future.
• Enhanced reputation among key stakeholders, for example, among investors and providers of
finance. Integrated thinking should help to ensure that the retailer’s decisions are joined up
and consistent with previous decisions made. This should result in better performance.
Integrated thinking should help to prove to the retailer’s shareholders that the decisions taken
by the board are made in their best interests. This in turn may also help improve the retailer’s
approach to risk management.
• Integrated thinking increases employee engagement. Employee knowledge about the issues
affecting the retailer’s operations can be fed into the process of setting strategy. This should
enhance the selected strategies by making use of operational-level employee knowledge to
improve operational efficiency, which, in turn, should improve overall performance. Integrated
thinking should help to break-down organisational silos and improve the flow of knowledge
and data between departments and stores.

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1

Strategy, leadership and

Explain the fundamental importance of strategy and strategic decisions C1(a)

Apply the Johnson, Scholes and Whittington model of strategic C1(b)

Apply the concepts of entrepreneurship and ‘intrapreneurship’ to exploit A1(b)

Apply in the context of organisation governance and leadership qualities, A1(c)

Discuss the importance of leadership in defining and managing A2(a)

Advise on the style of leadership appropriate to manage strategic change A2(b)

Analyse the culture of an organisation to recommend suitable changes, A2(c)

Assess the impact of culture on organisational purpose and strategy A2(d)

Business and exam context

2 Strategic Business Leader (SBL)

Strategy, leadership and culture

Leadership Strategy Culture

What is leadership? What is strategy? What is culture?

Perspectives on leadership Levels of strategy Cultural web

Leadership roles Mission statements

Change and leadership Objectives

Entrepreneurship Strategic values

1: Strategy, leadership and culture 3

Leadership: Is the process of influencing an organisation (or group within an organisation) in

Good leadership is often considered to be a key factor in organisational success. In particular,

Activity 1: Qualities of effective leaders

1.2 Perspectives on leadership

1.2.1 Trait approach

Trait theories: The qualities possessed by good leaders.

1.2.2 Behaviour approach

1.2.3 Power-Influence approach

4 Strategic Business Leader (SBL)

1.2.4 Situational approach

1.2.5 Integrative approach

1.3 Leadership roles

1.3.1 Top managers

1.3.2 Middle managers

1.4 Change and leadership

Change is unavoidable as organisations and individuals do not operate in a vacuum. As a leader,

1: Strategy, leadership and culture 5

Transactional leaders focus on Charismatic leaders energise people

1.4.2 Change management styles

Coercion An extreme form of direction – change is simply imposed by

Activity 2: Academic Recycling Company

ACCA Professional Skills Focus

6 Strategic Business Leader (SBL)

1: Strategy, leadership and culture 7

Entrepreneurship: Is a process by which individuals, teams or organisations identify and

Entrepreneurship involves recognising opportunities and responding by choosing and

2.1 What is strategy?

Strategy: ‘Is the long-term direction of an organisation.’ (Johnson et al, 2017)

So strategy is concerned with the following.

2.2 Levels of strategy

8 Strategic Business Leader (SBL)

is about how to compete successfully in particular

are about how parts of an organisation such as

2.3 Mission statements

Real life example

Organisation Mission statement

Facebook ‘Facebook’s mission is to give people the power to build

Airbnb ‘Airbnb’s mission is to create a world where people can belong

1: Strategy, leadership and culture 9