Rotary Four-Way Test and Promoting Social Justice through Good Business

Rotary Four-Way Test

• Of the things we think, say or do• Is it the TRUTH?• Is it FAIR to all concerned?• Will it build GOODWILL and BETTER

FRIENDSHIPS?• Will it be BENEFICIAL to all concerned?

TRUTHThere is something higher and more universal

than our own will or self-interestSomething we cannot change even if we want toImplication: we are part of a large whole, our

lives are bound up in the lives of others

FAIR

There is imbalance and a disturbance if we take out too much for ourselves or pay too much attention to our own emotions and needs

Implication: reciprocity and equilibrium are essential in life; extremism brings on negative consequences

Goodwill/Better Friendships

What others think of us matters.We can prosper more and be happier when we

have good relationships with people who like and respect us.

Implication: Many assets are intangible

Beneficial to All

If we do live within a larger order, that which is of benefit to more than ourselves improves the order from which we derive our being and our well-being

Implication: Providing Benefits to others unselfishly elevates our sense of well-being and goodness

GLOBAL CSR MOVEMENTEuropean Definition: “the responsibility of enterprises for their impacts

on society”

To fully meet their corporate social responsibility, enterprises shouldhave in place a process to integrate social, environmental, ethical,human rights and consumer concerns into their business operations and core strategy in close collaboration with their stakeholders, with the

aim of: – maximising the creation of shared value for their owners/shareholders and for their other stakeholders and society at large; – identifying, preventing and mitigating their possible adverse impacts.

Care About Stakeholders

Four-Way Test can be implemented in business by using it to take care of stakeholders

- Truth tells us that stakeholders are important- Fairness includes interests of stakeholders- Goodwill/better friendships is ethical guide to

good management of stakeholder relationships- Beneficial to all – business practices are win/win,

not win/lose; shared value; avoid negative externalities

Stakeholders

- Customers – moral compass for capitalism- Employees – moral agents, not parts for a machine- Owners and Investors – fiduciary duties of loyalty

and due care- Suppliers – friends, not foes- Competitors – compete with quality and

innovation, not price- Communities – enhance social capital to enhance

future profitability

Business

People

Politics, Government, Law and Regulation; Sociology; Psychology; History; Anthropology; Arts and Literature; Economics; Sciences

Ethical Environment of Business

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What is the fair value of an investment in business?

• Quality Income Stream• High net present discounted value• Good capitalization multiplier

Good Corporate Value (Warren Buffet would buy it)

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Today where does most corporate value come from?

Intangible Assets!

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S&P 500 Companies

80% of market value comes from:

Intangible Assets

Source: Monks/Lajoux, Corporate Valuation

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How do you manage risk?-Each risk hides in a relationship - customers - investors - government regulation - employees-Each relationship is an intangible asset of the

business (Assets can Appreciate or Depreciate).-Lowering risk for each relationship enhances the

quality of intangible assets and increases business valuation

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INP

UT

S

$; sustainable

profits; low beta; maximum

value

Reputational capital

Social capital

Finance capital

Physical capital

Human capital

Conversion processes

OUTPUT Goods/services

Customers

Return on Capital

(preserve adequacy of capital inputs)

Theory of the Moral Firm(self interest considered upon the whole)

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Capital Accounts

Capital Accounts are your defense against risk and your resource base for competitive initiatives

Finance CapitalPhysical CapitalHuman CapitalReputation CapitalSocial Capital

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How Can you Measure and, therefore, Manage

Stakeholder RelationshipsAnd all a company’sCapital Accounts?

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ASK QUESTIONS!

Assess the Quality of yourrelationships

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Category 1. Fundame

ntal Duties

2.Custom

ers

3.Employ

ees

4.Owne

rs/Invest

ors

5.Supplie

rs/Partner

s

6. Competit

ors

7. Communities

1. Responsi-bilities of Business

Criterion1.1

Criterion1.2

Criterion1.3

Criterion

1.4

Criterion1.5

Criterion1.6

Criterion1.7

2. Economic and Social Impact of Business

Criterion2.1

Criterion2.2

Criterion2.3

Criterion

2.4

Criterion2.5

Criterion2.6

Criterion2.7

3. Business Behavior

Criterion3.1

Criterion3.2

Criterion3.3

Criterion

3.4

Criterion3.5

Criterion3.6

Criterion3.7

4. Respect for Rules

Criterion4.1

Criterion4.2

Criterion4.3

Criterion

4.4

Criterion4.5

Criterion4.6

Criterion4.7

5. Support for Multi- lateral Trade

Criterion5.1

Criterion5.2

Criterion5.3

Criterion

5.4

Criterion5.5

Criterion5.6

Criterion5.7

6. Respect for the Environment

Criterion6.1

Criterion6.2

Criterion6.3

Criterion

6.4

Criterion6.5

Criterion6.6

Criterion6.7

7. Avoidance of Illicit Operations

Criterion7.1

Criterion7.2

Criterion7.3

Criterion

7.4

Criterion7.5

Criterion7.6

Criterion7.7

Arcturus Risk Assessment Instrument – Criteria Matrix

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The Corporate Improvement Cycle

Performance Improvement

Performance Feedback to Management

Management Action

CRT Assessment