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<!DOCTYPE html PUBLIC "-//ABISOURCE//DTD XHTML plus AWML 2.2//EN" "http://www.abisource.com/2004/xhtml-awml/xhtml-awml.mod"><html xmlns="http://www.w3.org/1999/xhtml" xmlns:awml="http://www.abisource.com/2004/xhtml-awml/"> <head> <meta http-equiv="Content-Type" content="application/xhtml+xml; charset=UTF-8" /> <title> Chapter 2 solutions </title> <meta name="title" content="Chapter 2 solutions" /> <meta name="author" content="Craig Deegan" /> </head> <body> <div> <p class="" style="text-align:left" awml:style="Normal"> <span style="font-weight:bold;font-size:16pt;font-family:'Times New Roman';text-decoration:underline">Seminar 11: Suggested Solution to Class Exercise</span> </p> <p class="" style="text-align:left" awml:style="Normal"> </p> <p class="" style="text-align:left" awml:style="Normal"> <span style="font-weight:bold;font-size:14pt;font-family:'Times New Roman';text-decoration:underline">Class Exercise</span> </p> <p class="" style="text-align:left" awml:style="Normal"> </p> <p class="" style="text-align:left" awml:style="Normal"> <span style="font-size:12pt;font-family:'Times New Roman'">You are the company spokesperson and chief communication officer for Balfa Ltd. You work very closely with the chief accountant, and report directly to the Chief Executive Officer (CEO).</span> </p> <p class="" style="text-align:left" awml:style="Normal"> </p> <p class="" style="text-align:left" awml:style="Normal"> <span style="font-size:12pt;font-family:'Times New Roman'">Balfa Ltd is a leading manufacturer of fire retardants, and pesticides, with substantial markets in Australia, and the west coast of USA. Its main Australian operating plant is located on the banks of Laverton River, Altona, in Melbourne’s west, near major transport links. Water from Laverton River is used in Balfa Ltd’s manufacturing processes, and waste water, after being treated (cleaned), is discharged into Laverton River. Balfa Ltd’s 2012 Sustainability report won a gold medal award from the Australian Sustainability Reporting Council.</span> </p> <p class="" style="text-align:left" awml:style="Normal"> </p> <p class="" style="text-align:left" awml:style="Normal"> <span style="font-size:12pt;font-family:'Times New Roman'">It is 6am, and you have just received a phone call from the CEO calling you a crisis meeting. She explains that the company has called a press conference at 3pm today, where you will issue a statement on behalf of Balfa Ltd, addressing the crisis.</span> </p> <p class="" style="text-align:left" awml:style="Normal"> </p> <p class="" style="text-align:left" awml:style="Normal"> <span style="font-size:12pt;font-family:'Times New Roman'">When you arrive at work, you learn that:</span> </p> <ul awml:style="Normal"> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">The dead fish discovered yesterday in Laverton River and at Altona beach was examined by the Victorian Government Environment Authority. The fish died of toxic poisoning, from chemicals believed to have emanated from Balfa Ltd’s Laverton River plant.</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">When inspection officers of the Victorian Government Environment Authority arrived at Balfa Ltd’s plant overnight, they were refused admission by Balfa Ltd’s junior solicitor, due to a technical error in the inspection warrant, (the street address was incorrectly specified).</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">The media were at the front gate of Balfa Ltd’s plant when the inspection officers were refused entry. The media is now speculating that Balfa Ltd’s engineers are frantically rectifying the cause of the alleged toxic chemical leak before the inspection officers return with the correct inspection warrant.</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">Parents of children attending a local primary school, which conducted its swimming carnival at Altona beach two days ago, have contacted the media, expressing serious concerns that their children may have being poisoned by the toxic chemicals.</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">The union representing Balfa Ltd’s employees has called a stop work meeting this morning, to discuss concerns that employees may have being exposed to toxic chemicals at Balfa Ltd’s plant.</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">Balfa Ltd’s major customers are agencies of various Australian and American state governments, responsible for fire fighting and pest control services. Many governments have codes of conduct requiring them to deal only with environmental responsible companies when procuring supplies.</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">As the crisis meeting begins, Balfa Ltd’s Chief engineer confirms that is has just being established that the toxic chemicals did emanate from Balfa Ltd’s plant.</span> </li> </ul> <p class="" style="text-align:left" awml:style="Normal"> </p> <p class="" style="text-align:left" awml:style="Normal"> <span style="font-weight:bold;font-size:12pt;font-family:'Times New Roman'">Required:</span> </p> <p class="" style="text-align:left" awml:style="Normal"> <span style="font-size:12pt;font-family:'Times New Roman'">Devise a strategy for Balfa Ltd to respond to the crisis. You should consider actions to be taken by Balfa Ltd, reporting strategies, including your 3pm press conference. Use legitimacy theory and the managerial branch of stakeholder theory to justify your proposed strategy.</span> </p> <p class="" style="text-align:left" awml:style="Normal"> <span style="font-weight:bold;font-size:12pt;font-family:'Times New Roman';text-decoration:underline">Solution</span><span style="font-weight:bold;font-size:12pt;font-family:'Times New Roman'">:</span><span style="font-weight:bold;font-size:12pt;font-family:'Times New Roman';text-decoration:underline"></span></p> <p class="" style="text-align:left" awml:style="Normal"> </p> <p class="" style="text-align:left" awml:style="Normal"> <span style="font-weight:bold;font-size:12pt;font-family:'Times New Roman'">Immediate response: statement issued at 3pm press conference</span> </p> <ul awml:style="Normal"> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">The statement issued at the 3pm press conference, would also be issued as ASX announcement, if Balfa is listed. The statement would:</span> <ul awml:style="Normal"> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">Acknowledge and apologise for the toxic chemical leak;</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">State that the management and staff at Balfa take considerable pride in Balfa’s good environmental record, and therefore are severely disappointed and regret that Balfa’s record has being blemished</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">Outline immediate actions to be taken by Balfa;</span> <ul awml:style="Normal"> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">Engaging a team of doctors to visit the primary school which conducted its swimming carnival at Altona Beach two days ago, to conduct a medical check-up of each child at the school;</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">Temporarily close down operations at Balfa’s Laverton River operating plant, while engineers undertake a through and complete check of environmental and employee safety at the factory;</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">Balfa’s employees will be re-deployed to assist with the clean-up of Laverton River, Altona beach, and any other affected areas</span> </li> </ul> </li> </ul> </li> </ul> <p class="" style="text-align:left" awml:style="Normal"> </p> <p class="" style="text-align:left" awml:style="Normal"> <span style="font-weight:bold;font-size:12pt;font-family:'Times New Roman'">Medium term response: Sustainability report, (Sustainability section of annual report); web site</span> </p> <ul awml:style="Normal"> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">The Sustainability report and Balfa’s website would:</span> <ul awml:style="Normal"> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">Highlight Balfa’s excellent environmental and safety record by describing Balfa’s policies and achievements, regarding various aspects of:</span> <ul awml:style="Normal"> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">its environmental record, (e.g. quality of water discharged, carbon emissions, minimising toxic waste, toxic waste disposal procedures, the environmental benefits of Balfa’s products – fire retardants and pesticides prevent destruction of the natural environment by fires, and locust plagues), and</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">its safety record, (safety equipment, safety training, accident rates)</span> <ul awml:style="Normal"> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">should include quantitative data, which shows Balfa in a favourable light, (an improving trend over time);</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">highlight environmental and social reporting guideline s that Balfa has complied with, (e.g. particular components of GRI Sustainability reporting Guidelines G4 version)</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">highlight the various steps that Balfa has taken in response to the toxic chemical leak, (pictures of Balfa staff in uniform cleaning-up Laverton River and Altona beach; doctors and nurses checking children at local primary school supported by Balfa administrative staff in uniform; engineers checking environmental safety of Balfa’s Laverton River plant; fish in Laverton River near Balfa’s plant; measures of water quality of Laverton River</span> </li> </ul> </li> </ul> </li> </ul> </li> </ul> <p class="" style="text-align:left" awml:style="Normal"> </p> <p class="" style="text-align:left" awml:style="Normal"> <span style="font-weight:bold;font-size:12pt;font-family:'Times New Roman'">Justification of proposed strategy: Legitimacy theory</span> </p> <ul awml:style="Normal"> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">The strategies described above have the objectives of</span> <ul awml:style="Normal"> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">minimising the immediate damage to Balfa’s legitimacy, by demonstrating and (more importantly) publicizing that Balfa is very concerned about and conscious of the impact of its operations on the environment and local community, and highlighting that Balfa has otherwise excellent environmental and safety record, and that the toxic chemical leak was a very rare aberration;</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">regaining (and perhaps) improving Balfa’s legitimacy, by publicizing Balfa’s excellent long-term environmental and safety record, and highly commendable response to the toxic chemical leak</span> <ul awml:style="Normal"> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">These strategies seek to demonstrate that Balfa is an excellent corporate citizen which does operate within the bounds and norms/expectations of society, and complies with its social contract with society.</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">These strategies seek to minimise the sanctions that will be imposed upon Balfa for breaching the bounds and norms/expectations of society that Balfa is expected to operate within, thereby breaching its social contract with society. For example:</span> <ul awml:style="Normal"> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">minimise or avoid loss of sales contracts;</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">minimise fines and compensation payments;</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">attract favourable media coverage in order to improve corporate reputation/image, and thereby minimise damage to Balfa’s capacity to attract and retain employees, and attract funds from investors and lenders;</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">minimise concerns of the local community regarding the continuing presence of Balfa’s Laverton River operating plant within their community.</span> </li> </ul> </li> </ul> </li> </ul> </li> </ul> <p class="" style="text-align:left" awml:style="Normal"> </p> <p class="" style="text-align:left" awml:style="Normal"> <span style="font-weight:bold;font-size:12pt;font-family:'Times New Roman'">Justification of proposed strategy: Managerial Stakeholder theory</span> </p> <ul awml:style="Normal"> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">The strategies described above have the objectives of:</span> <ul awml:style="Normal"> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">minimising the immediate damage to Balfa’s relationships with its powerful stakeholders, by demonstrating and (more importantly) publicizing that Balfa is very concerned about and conscious of the impact of its operations on the environment and local community, and highlighting that Balfa has otherwise excellent environmental and safety record, and that the toxic chemical leak was a very rare aberration;</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">rebuilding (and perhaps) improving Balfa’s relationships with its powerful stakeholders, by publicizing Balfa’s excellent long-term environmental and safety record, and highly commendable response to the toxic chemical leak.</span> <ul awml:style="Normal"> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">These strategies seek to demonstrate that Balfa is meeting the expectations of its powerful stakeholders, (and very committed to meeting those expectations).</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">These strategies seek to minimise the loss of support for Balfa, by its powerful stakeholders, and therefore minimise the loss of resources provided to Balfa by its powerful stakeholders. For example:</span> <ul awml:style="Normal"> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">minimise the loss of support of Australian and American state governments, thereby minimising the loss of sale contracts, and minimising fine and compensation payments;</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">minimise the loss of support of the local community, thereby minimising local community concerns regarding the continuing presence of Balfa’s Laverton River operating plant within their community</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">minimise the loss of support of the media, thereby minimising unfavourable media coverage of Balfa, and maximising favourable coverage;</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">minimise the loss of support of investors and lenders, thereby minimising the damage to Balfa’s capacity to attract funds from investors and lenders;</span> </li> <li> <span></span><span style="font-size:12pt;font-family:'Times New Roman'">minimise the loss of support of employees and the union representing their interests, thereby minimising the damage to Balfa’s capacity to attract and retain employees.</span> </li> </ul> </li> </ul> </li> </ul> </li> </ul> <p> </p> <p> </p> <p class="" style="text-align:left" awml:style="Normal"> </p> <p class="" style="text-align:left;margin-right:1.6mm" awml:style="Normal"> </p> <p class="" style="text-align:left;margin-right:1.6mm" awml:style="Normal"> </p> <p class="" style="text-align:left;margin-right:1.6mm" awml:style="Normal"> </p> <p class="" style="text-align:left" awml:style="Normal"> <div> </div> <p class="" style="text-align:left" awml:style="Normal"> </p> <p class="" style="text-align:left;margin-right:1.6mm" awml:style="Normal"> </p> <p class="" style="text-align:left;margin-right:1.6mm" awml:style="Normal"> </p> <p class="" style="text-align:left;margin-right:1.6mm" awml:style="Normal"> </p> <p class="" style="text-align:left" awml:style="Normal"> </p> </p> </div> </body></html> ">
