Corporate social responsibility case study: Rydex

Rydex

CQ #3. For the investment houses, a slow application process is likely to result in a reduction in their business. Firms will be set and up ready to operate, but will be unable to generate as much income as they might otherwise be able to, because the products they want to offer are bogged down in the approval process. For the consumer, however, the delays are a mixed blessing. These delays allow the SEC to properly evaluate each new ETF, and this can ensure that only good products make it to market. However, the slow approval process also means that fewer new products are on the market. This inherently limits consumer choice, and can reduce total innovation among financial products in general, again to the detriment of the consumer.

CQ#4. The new regulation would have to go through a few steps at the SEC level. The SEC would have to formulate the regulation, but then would also have to work with the industry to determine the precise wording and implementation plan for the regulation. The process can involve several back-and-forth steps, different rounds of consultation and other such time-consuming processes. In the end, however, it would result in a more streamlined law that would allow ETFs to be approved more quickly.

LO 1-6. A strategy is something that a firm undertakes as the core of its business -- it is how the firm expects to do business. A market strategy is one that relates to how the firm will deal with suppliers and customers in the market. A non-market strategy relates to non-market actors. In this case, politicians and regulators would be the subject of the non-market strategy for Ryder in order to achieve a streamlined ETF approval process (or more specifically to receive approval for its ETFs).

LO 2-2. Public affairs management is a subset of issues management. It refers specifically to issues that are in the public domain. The situation with the SEC is a good example of this, because it involves the intersection between politicians, regulators, the industry and the general public. An issue that relates to supplier management would still be subject to issues management but not to public affairs management because it would not be a public issue.

LO 2-6. In the launch cycle, the strategic focus is building brand awareness. The growth cycle sees a focus on building market share. The mature stage of the life cycle sees a focus on driving profitability. The decline stage sees emphasis on an either a renewal strategy or an exit strategy.

LO 3-5. The corporate stakeholders are all those with a stake in how the corporation performs -- employees, customers, suppliers, managers, competitors, the general public, the environment, regulators, creditors and more. Their primary power lies in the ways that they can influence the performance of the corporation. In the Ryder case, the SEC is a major stakeholder because its approval process directly impacts Ryder's ability to make money.

LO3-6. Government protects stockholders with regulation. The SEC ensures that the investments business is conducted ethically and with a high degree of transparency, so that investors can trust the system.

LO 4-1. Corporate social responsibility is the duty the corporation has to the best interests of its stakeholders. Citizenship specifically relates to the duties towards the public and community, and sometimes to employees. Social performance is the evaluation of the company's social responsibility duties.

LO 4-2. CSR is viewed as a duty to stakeholders that includes non-financial measures and externalities (the sum total of organizational outputs), but some argue that the firm's only duty is to its shareholders.

LO 5-1. The community is the general public, particularly those with whom the organization has a close interaction or impact upon. There is a relationship because the community consists of customers and employees in addition to those with no direct relationship.

LO 5-3. Customers buy products from the company. Consumers are all individuals who could potentially buy products from the company. Consumerism is the philosophy of a free-market consumer culture, which emphasizes the active trade in goods as the source of growth in an economy.

LO 5-5. In this case, the SEC is the Securities Exchange Commission. It regulates the securities industry, including publicly-traded corporations, stock exchanges and investment dealers.

LO 6-1. The news media attracts an audience by producing news programming. That audience is then sold to advertisers on the basis of its size and characteristics. The media needs to continually attract an audience in order to maintain advertising revenues.

LO 6-3. A story is newsworthy primarily if it has interest to the public. In this case, ETFs are a minor story outside of the financial news media, but because the entire investing public is affected, the story could have broader appeal. By contrast, a hastily-approved ETF in which consumers lose their money would be more newsworthy, something the SEC is taking into account in its hesitance.

LO 7-4. Business interest groups promote their interest to politicians and regulators, and sometimes the public. In this case, investment dealers want to promote their interests to the SEC in particular, and may leverage politicians and the public to that end.

LO 8-1. There are three branches of the federal government: executive, legislative and judicial. The SEC lies within the executive branch.

LO8-2. Business rules can be made by the legislative branch, which will assign enforcement to different agencies. However, some agencies like the SEC can also make rules and then enforce them.

LO 8-3. Business has a tight relationship with government and is often consulted on matters of public policy. Business attempts to influence government wherever possible.

LO8-4. A bill must be passed by both the House and the Senate in order to be passed. This final version that has cleared both bodies must then be signed into law by the President.

LO8-5 Business typically focuses on the first step, and promotes its interests to the legislative branch members (congressmen and senators). They then write the laws and vote on them -- at this stage business lobbies to gain votes for bills it likes.

LO8-6. Political information strategies are those where lobbyists or other bodies have a strategy for telling their side of the story to lawmakers. They choose how to frame the issue in ways that will convince lawmakers to support their point-of-view.

LO9-1. The executive branch consists of a number of federal agencies that enforce laws and set policies governing numerous issues. The three roles of the President are to head the military, to sign treaties and to fill vacancies in the different government bodies.

LO9-2. Regulatory impact analysis is often conducted with proposed regulations to get a sense of their potential impact. The Federal Register is an archive of government publications, so the impact analysis will often be archived there. Regulations.gov is a public website with many federal publications posted on it.

LO9-5. Congress relies on campaign contributions to finance their election campaigns, so they are much more beholden to those than are the regulatory agencies, who are subject to Presidential appointment and public hiring processes. As a result, Congress is much more susceptible to lobbying efforts and testimony strategies as well. The regulatory agencies do take testimony, but they are expert in the subject, whereas members of Congress often are not, so testimony strategies are less effective of members of regulatory agencies.

LO9-6. Advisors are important because they keep members of Congress informed about issues. Businesses serve on advisory panels and committees because they are stakeholders in legislation, and they should have their interests heard.

Case Analysis: CASE ____Ryder Investments____ Ch ____ Name ____ Date

Issue Identification [1]

Interested Strategic Stakeholders [2]

[Fig 1-5, p. 28 Blue sheet: Name each Bus, Soc & Gov. Sentiment For (+) or Against (-) Business or neutral (=)

Incentive of Stakeholders What can they gain or lose?

[3]

Will they help us? Cost vs. Benefit Analysis

(C > B = No, B > C = Yes they will help us

Objective for issue and Information [4]

to be used to meet objective.

Fact (F), Assumption (A), (#s}

Whether the SEC should implement an accelerated approval process for ETFs

Stage of Life Cycle

[Figure 2-4 p. 54 Blue sheet]

Stage Two -- ETFs are 10 years old but just entering the growth phase

Business:

Owners +

Managers +

Employees +

Customers +/-

Sophisticated investors +

Unsophisticated investors

Consumers +/

Competitors +

All firms in the industry benefit

Society:

Sentiment =

Community

Consumerism +

Media

(risk of negative publicity is higher if current system is changed)

Social Interest Group

Investment Dealers lobby groups ++

Government:

Executive: +/-

SEC: +/-

Congress +

Profit B>C

Profit B>C

More work/jobs B>C

More investment opportunities B>C

More investment risk C>B

More consumer choice, but less regulation has risks B=C

Profit B>C

Generally not knowledgeable about the issue n/a

Lower regulations on investment risky BC

Risk of investment scandals BC

Significant benefits and risks B=C

Significant benefits and risks B=C