Ethics, Social Responsibility and Innovation in Corporate Governance [1 ed.] 9781443862233, 9781443816908

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Ethics, Social Responsibility and Innovation in Corporate Governance

Ethics, Social Responsibility and Innovation in Corporate Governance Edited by

Jernej Belak and Mojca Duh

Ethics, Social Responsibility and Innovation in Corporate Governance Edited by Jernej Belak and Mojca Duh Reviewers: Prof. dr. Wyrwicka Magdalena Prof. dr. Ženko Zdenka

This book first published 2017 Cambridge Scholars Publishing Lady Stephenson Library, Newcastle upon Tyne, NE6 2PA, UK British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Copyright © 2017 by Jernej Belak, Mojca Duh and contributors All rights for this book reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copyright owner. ISBN (10): 1-4438-1690-6 ISBN (13): 978-1-4438-1690-8

TABLE OF CONTENTS

List of Figures and Tables ......................................................................... vii Foreword .................................................................................................... ix Chapter One ................................................................................................. 1 Enterprise’s Dynamics, Innovativeness and Culture Mojca Duh, Jernej Belak 1 Introduction 2 The main features of a dynamic enterprise 3 Dynamic capabilities and requisite ambidexterity of an enterprise 4 Enterprise’s innovativeness and dynamics – how they are related? 5 Organizational culture and requisite dynamics of an enterprise 6 Conclusions Chapter Two .............................................................................................. 27 Social Responsibility: A Precondition of Requisite Holism in Corporate Governance and Strategic Management Matjaž Mulej, Anita Hrast, Nastja Mulej 1 The selected problem and viewpoint of dealing with it 2 Global conditions demand more social responsibility 3 Social responsibility, (dialectical) systems theory and sustainability are interdependent 4 Social responsibility, neo-liberalism and innovation 5 Methodological support to efforts for social responsibility 6 Some conclusions Chapter Three ............................................................................................ 47 How Enterprise Values Influence Enterprise Policy Tjaša Štrukelj, Matjaž Mulej, Simona Sternad Zabukovšek 1 The selected problem and viewpoint 2 Crises result from one-sided governance 3 Innovation, governance, management and the Dialectical Systems Theory 4 Governance and management process innovation (GMPI)

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5 Competitiveness, social responsibility, and governance and management process innovation (GMPI) 6 Governance and management process innovation (GMPI) toward social responsibility 7 Conclusions: European Union supports SR and hence governance and management process innovation (GMPI) Chapter Four .............................................................................................. 79 The Concept of Corporate Integrity and Its Implementation: The Case of Slovenia Andreja Primec, Mojca Duh, Jernej Belak 1 Introduction 2 Theoretical framework 3 Implementation of corporate integrity concept in Slovenia 4 Incorporation of corporate integrity in governance and management processes 5 Conclusions Chapter Five .............................................................................................. 99 Measuring the Corporate Governance Quality: The Case of Slovenia Danila Djokic, Mojca Duh 1 Introduction 2 Why corporate governance matters 3 Measuring corporate governance quality 4 Corporate governance in Slovenia 5 Empirical research 6 Conclusions About the Authors ................................................................................... 123

LIST OF FIGURES AND TABLES

Table 1: The cybernetic circle of the preparation and implementation of the management process practicing SR (too) as a crucial IIDP (a simple model) Table 2: The principles of stakeholder interests, enterprise developmental, economic and social responsible and sustainable (SIEDES) enterprise policy Table 3: The SEECGAN Index for Slovenia Figure 1: Synergy of USOMID/SREDIM and 6TH methodologies in procedure of USOMID Figure 2: The essence of social responsibility in ISO 26000 Figure 3: Integrity levels in relation to the governance and management process Figure 4: The average values of categories of the SEECGAN Index for Slovenia

FOREWORD

Due to the requirements for a requisitely holistic approach to governance and management, researchers and practitioners have been working on contemporary solutions for governance and management. Certain efforts have led to the development of integral management and governance, meaning that the process of management and governance in a certain enterprise has to be integrated and consistent with culture, credibility, entrepreneurial spirit, ecology, ethics, innovation, and social responsibility. Therefore, in the process of an enterprise’s management and governance, the key stakeholders have to achieve the (corporate) integrity of their enterprise’s functioning. The integrity of such an enterprise’s functioning (considering the culture, ethics, innovation, social responsibility, etc.) is currently treated as the precondition for an enterprise’s success in the long run. The presented book has to be read in a broader context of the MER Model of Integral Management and Governance, which is based on the multi-layered integration of governance and management with an enterprise and its environment, considering the fundamental aspirations (desires) for the enterprise’s existence and, thus, its quantitative as well as qualitative changes. The MER model is based on both horizontal and vertical integration of an enterprise’s governance and management processes, instruments, and institutions into a consistently operating unit. The process, instrumental, and institutional integrability and integrity of the governance and management are also the initial conditions for the implementation of all other integration factors. The mentioned model also deals with and argues the need for equal consideration of an enterprise’s key success factors, such as its competitiveness, internal and external compatibility, credibility, entrepreneurship, synergy, culture, philosophy, ethics, ecology, and efficiency. In the presented book, the importance of some of these key success factors for enterprises is addressed and argued. Due to rapid changes and difficult competitive conditions, enterprises find it difficult to build and sustain a competitive advantage for longer periods. Therefore, achieving dynamics should be the major orientation of any enterprise where the constant sensing and seizing of business opportunities require a positive attitude towards innovations.

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Innovations, creative environments, and cultures which support innovative behaviour are important constituents of a dynamic enterprise. Innovative behaviour and innovations should not be limited to technological ones only. Indeed, the 2008 global economic and social crisis occurred in the most developed and innovative countries which emphasize technological innovations in particular. Consequently, the recent crisis shows that innovations should also consider an enterprise’s needs, habits and values, culture, ethics, and norms. Unfortunately, the official international documents on innovation (launched by the OECD in 1971 and the EU in 1995) draw no distinctions between technological and non-technological innovations, except in the statistical coverage of data about them. The socio-economic crisis that emerged in 2008 in the most technologically advanced and democratic countries demonstrates the need to pay much greater attention to nontechnological innovation, especially the most influential one: the governance and management style on which all other innovations essentially depend. If we want to survive as humankind and as a society, we have to consider wider social interests than just our own (individual) interests and profits. Therefore, social responsibility is a socio-economic innovation aimed at humankind’s survival. Considering the work of various globally recognized authors, social responsibility is a tool to prevent the pending third world war to which the world is being led by monopolies of corporations, resulting from the neoliberal economic theory under its excuse that the totally free market is the best for humankind. The present book argues that the totally free market could be the best, but it is disappearing due to monopolistic organizations that do not practice social responsibility. In addition to unethical behaviour, the economic crisis of 2008 brought about a chance to reflect on good corporate governance and management. The legal and ethical scandals of Enron, WorldCom, Tico, Volkswagen, and many other companies initiated a wave of mistrust. After discussions about how to escape the occurring situations, various initiatives for doing business on different foundations were undertaken. It is not surprising that the business world has realized that a new era of corporate governance and management must (finally) begin. Companies’ governance and management processes must be much more grounded in the implementation of business ethics, the reviewing and monitoring of corporate strategy implementation, and the evaluation of board performance. The principles of corporate integrity have become an essential part of corporate governance and management today. Enterprises with a high level of corporate integrity have become more successful, showing better

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business results. Therefore, enterprises need to be governed and managed properly (read: with a high level of integrity) in order to survive and prosper. With the separation of ownership of the enterprise and its management, where managers have become owners’ agents, self-interested managers have the opportunity to take actions that benefit themselves, with shareholders and stakeholders bearing the costs of such actions. This is referred to also as agency problem, and the costs resulting from this problem are described as agency costs. Therefore, some type of control and monitoring is needed in the organization, which is referred to as corporate governance. Research in this field is concentrated around the main question of good governance, which considers interests of different groups of stakeholders as much as possible. Therefore, this book presents a way to measure the quality of corporate governance, which is still a relatively new concept. One of the recently developed indices is the South East Europe Corporate Governance Academic Network (SEECGAN) Index, which was created for former socialist countries in south-east Europe and is the result of joint work of members of the SEECGAN network. We hope the reader will enjoy reading this book with the passion and concern that the above-mentioned behaviour and functioning of today’s enterprises are not only plausible but also needed for us in order to survive as economies, countries, enterprises, individuals, society, and humankind. We would also like to thank all the authors and reviewers of the present scientific monograph for their valuable contributions, comments, and suggestions. Jernej Belak and Mojca Duh In Maribor, April 2016

CHAPTER ONE ENTERPRISE’S DYNAMICS, INNOVATIVENESS, AND CULTURE MOJCA DUH, JERNEJ BELAK

1 2 3 4 5 6

Introduction The main features of a dynamic enterprise Dynamic capabilities and requisite ambidexterity of an enterprise Enterprise’s innovativeness and dynamics—how are they related? Organizational culture and requisite dynamics of an enterprise Conclusions

1 Introduction Nowadays, enterprises must be able to respond effectively to rapid changes and increasing globalization in their environment. Several authors have suggested that enterprises should become dynamic (e.g., Pümpin and Prange 1995, 1991; Duh 2013) by developing dynamic capabilities (Danneels 2010; Teece et al. 1997; Teece 2007, 2009), where ambidexterity is recognized as one of the most important dynamic capabilities (Gibson and Birkinshaw 2004, 209-210; O’Reilly and Tushman 2007, 40). Enterprises in dynamic environments should successfully pursue exploration and exploitation (Tushman and O’Reilly 1996, 12) and address conflicting demands for alignment and adaptability (Gibson and Birkinshaw 2004, 209-210). The dynamic capabilities approach and the concept of a dynamic enterprise as well as the concept of an ambidextrous organization all address the same question, which Teece (2007, 1347) described as “an extremely seminal and complicated issue: how a business enterprise and its management can first spot the opportunity to earn economic profits, make the decision and institute the discipline to execute on that opportunity, and then stay agile so as to continuously refresh the foundations of its early success, thereby generating economic surpluses”.

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Due to rapid changes and challenging competitive conditions, enterprises find it difficult to build and sustain a competitive advantage for longer periods (e.g., Sirmon et al. 2010; Wiggins and Ruefli 2005). Therefore, achieving dynamics should be the major orientation of any enterprise where the constant sensing and seizing of business opportunities require a positive attitude towards innovations (Mugler 1993, 131; Phan 2006). Innovations, creative environments (Ženko and Mulej 2011), and cultures which support innovative behaviour are important constituents of a dynamic enterprise. Innovative behaviour (Thommen 2003) and innovations should not be limited to technological ones only. Indeed, the 2008 global economic and social crisis occurred in the most developed and innovative countries which emphasize technological innovations in particular (Mulej et al. 2002; Ženko and Mulej 2011). Consequently, the recent crisis shows that innovations should also consider an enterprise’s needs, habits and values, culture, ethics, and norms (Duh and Štrukelj 2011; Mulej 2010; Ženko and Mulej 2011). Organizational culture has often been seen as a precondition for an enterprise’s competitive advantage (Tushman and O’Reilly III 1996, 23), a key factor of the enterprise’s innovativeness (e.g., Detert et al. 2000, 850; Tellis et al. 2009, 4), and crucial for the enterprise’s success (Ralston et al. 2006, 840). Several authors (Bock et al. 2012, 299; Tushman and O’Reilly III 1996, 24) have called attention to the positive association between cultures supporting creativity and innovation and a firm’s ability to respond effectively to internal and external forces. Due to its crucial role for an enterprise’s existence, organizational culture should be managed correctly (Tushman and O’Reilly III 1996, 23). If not, it can create obstacles to the innovation and become a reason for an enterprise’s failure (Tushman and O’Reilly III 1996, 23). Cultural inertia that can present an obstacle to the enterprise’s dynamics is especially characteristic of older, larger, and successful firms (e.g., Majumdar 2000, 60; Tushman and O’Reilly III 1996, 18-19). In such firms, norms and values are strongly institutionalized and, therefore, hard to change; when confronted with incremental and discontinuous change, such a culture can create a barrier to change. In this contribution, we discuss three concepts that address the requisite dynamics of an enterprise: the dynamic enterprise construct, the dynamic capabilities approach, and the concept of an ambidextrous organization. The main features of a dynamic enterprise are explained in the second section. The third section provides insights into the complexity of the dynamic capability concept and ambidexterity. The fourth section examines the role of innovations and an enterprise’s innovativeness in

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dynamic environments as well as their effects on an enterprise’s innovativeness. Due to the major role that innovations play in the dynamic orientation of an enterprise, in the fifth section we discuss enterprises’ innovativeness and dynamics in relation to an organizational culture that builds a precondition for creativity, innovation, and consequently an enterprise’s dynamics. We end this contribution with major findings related to the researched topic, which are presented in the final section.

2 The main features of a dynamic enterprise Pümpin and Prange (1995, 1991) developed the concept of a dynamic enterprise within their model of an enterprise’s development. Their model describes the process of quantitative and qualitative growth of enterprises by introducing four stages of growth that the authors describe as typical enterprise configurations (i.e., a pioneer, a growing, and a mature enterprise and an enterprise in turnover). The authors built their idea of an enterprise’s growth on the life cycle concept of products and business opportunities. In particular, business opportunities (internal and external ones) are found to be a driving force of an enterprise’s growth and development. Because business opportunities follow their own life cycle and eventually reach the maturity stage, it is of crucial importance that enterprises constantly seek out new business opportunities. Namely, the maturity stage of an enterprise is a consequence of the maturity of the majority of the enterprise’s products and opportunities, which according to Pümpin and Prange (1995, 244) is a crucial stage in an enterprise’s life cycle. Although at the beginning of the maturity stage an enterprise shows many strengths (e.g., competent management, the economy of scale and resulting low costs, knowledgeable and experienced employees, established technologies and distribution channels, good relationships with major stakeholders [i.e., customers, suppliers, and the government], and good and stable financial outcomes), eventually the weaknesses (e.g., insufficient flexibility and several innovations’ barriers, including culture, lack entrepreneurially oriented employees, bureaucracy, unproductive conflicts among the members of top management) become evident if not managed in a proper manner. Therefore, Pümpin and Prange (1995, 244) stressed the dangers of an enterprise’s tendency to pursue the maturity stage and call attention to the requisite revitalization and dynamics of an enterprise. Pümpin and Prange (1995, 244) introduced “a dynamic enterprise” as an enterprise’s special (i.e., fifth) configuration based on the cognitions about the problems connected with a mature enterprise. They described this type of enterprise as one that combines the strengths of a pioneer and a

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growing enterprise and is able to respond dynamically to challenges in a firm’s environment. In the opinion of the authors, such an enterprise should possess the following attributes: the ability to seek out and gain new and attractive business opportunities, the multiplication of systems and processes, dual cultures, flexible regulations, dynamics promotors, the development of strategic origins of success, the flexible adaptation of structural and process organization, limitation of the leadership system to reasonable optimum, orientation towards individuals, and time orientation. One of the most important features of a dynamic enterprise is its ability to constantly seek and gain new and attractive business opportunities in the enterprise’s internal or external environment. This is also one of the attributes of a pioneer enterprise. In this respect, setting up a clear vision of future development directions is, according to the authors (Pümpin and Prange 1995, 247), an important precondition for efforts of the enterprise’s key stakeholders. However, it is important not only to seek and attain new business opportunities, but also to multiply these opportunities. This is an attribute of a growing enterprise, which is capable of exploiting new business opportunities to the greatest extent. Multiplication in a dynamic enterprise requires undertaking several measures, such as standardization and efforts to reduce costs (Pümpin and Prange 1995, 247). The management of a dynamic enterprise should be able to justify and support the simultaneous development of two cultures of different orientations. A culture which encourages creativity and innovativeness is a precondition for effectively seeking out and searching for new business opportunities. The main attributes of this type of organizational culture are individualism and entrepreneurship. However, when the multiplicative exploitation of attractive business opportunities is called into question, then a culture that supports efforts in realizing goals, objectives, and strategies should be at the forefront. Because these two (dual) organizational cultures are different in many ways, it is hard to avoid escalating conflicts while implementing both of them. Therefore, the management of a dynamic enterprise plays an important role in justifying and explaining the necessity of the co-existence of these two different cultures in the same enterprise (Pümpin and Prange 1995). Pümpin and Prange (1995, 248-249) suggested simple and flexible legal regulations of an enterprise where its statute as a basic document plays an important role. An enterprise should be flexible regarding changes in ownership, governance, and management of an enterprise, which are sometimes needed in order to dynamically respond to challenges in its environment.

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An important role in a dynamic enterprise is attached to promotors of dynamics, which should come from the external environment in order to prevent “entrepreneurial blindness”. The promotors of dynamics are individuals who possess entrepreneurial values such as self-initiative, competitive spirit, constant dissatisfaction with the achievements, focus on achievements, stakeholders, and profitability. This so-called “fresh blood” launch changes an enterprise, thereby preventing the increase of comfort in thinking about and handling issues (Pümpin and Prange 1995, 249). An important precondition for the enterprise’s dynamics is the special capabilities that need to be developed (so-called strategic origins for success). Among several requisite capabilities, Pümpin and Prange (1995, 250) emphasized in particular capabilities for sensing new opportunities, capabilities for the prompt seizing of attractive business opportunities in a planned manner, capabilities for developing dual cultures, and capabilities for establishing flexible structures within the flexible legal framework. The development of these capabilities is closely linked with the employee base, meaning the training and selecting of skilled co-workers are of crucial importance. According to Pümpin and Prange (1995, 250) only enterprises with a decentralized organizational structure are able to develop the flexibility required for responding dynamically to rapid and complex changes in market conditions and global technological trends. Small and flexible units with responsible management that reduces the probability of establishing kingdoms and principalities are important attributes of a dynamic enterprise. The leadership system of a dynamic enterprise should be as simple as possible. As for the organizational structure, the leadership system should also be conceptualized and implemented as a flexible system that can be simply adjusted to particular situations. The information system of a dynamic enterprise should provide up-to-date information to decision makers (Pümpin and Prange 1995, 250-251). Qualified and skilled employees are highly motivated to accomplish their tasks, are flexible and creative, and are an important part of striving towards requisite dynamics. Pümpin and Prange (1995, 251-252) described this important feature of a dynamic enterprise as “an orientation towards the individual”. This important precondition for dynamics should be accomplished by applying the modern concepts of human resource management, an innovative and flexible reward system, and open communication between employees throughout the organization. The last, but not least, important characteristic of a dynamic enterprise is its time orientation. One of the most critical success factors in seeking and gaining new attractive business opportunities is time in terms of

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“being first”. Only an enterprise that succeeds in entering the market first and rapidly multiplies in the growth stage will be able to gain superior business results. To be able to realize the “being first” concept, an enterprise and its management should follow several fundamental principles, such as a clear definition of priorities, personal time management, and an organizational culture with strong time orientation (Pümpin and Prange 1995, 252).

3 Dynamic capabilities and requisite ambidexterity of an enterprise The dynamic capabilities approach (Teece et al. 1997; also Teece 2007) has been developed as an extension of the resource-based view (RBV) to dynamic environments. Several authors have referred to this concept when discussing the importance of ambidextrous organizations (e.g., Tushman and O’Reilly III 1996; Gibson and Birkinshaw 2004; Simsek et al. 2009) and recognize ambidexterity as one of the most important dynamic capabilities (Gibson and Birkinshaw 2004, 209-210; O’Reilly and Tushman 2007, 40). According to the RBV, strong and close competitors differ among each other in important ways; these differences stem from their resources and capabilities, which are valuable, rare, imperfectly imitable, and not substitutable and are therefore a source of a competitive advantage (Barney et al. 2001; Helfat and Peteraf 2003). However, several authors have questioned the applicability of the RBV in rapidly changing environments and emphasized the importance of an enterprise’s ability to change and quickly develop new capabilities as a prerequisite for a competitive advantage (Schreyögg and Kliesch-Eberl 2007, 914). The “dynamic capabilities approach” developed by Teece, Pisano, and Shuen (1997; also Teece 2007) explicitly acknowledges that enterprises need to adjust to the environmental changes; therefore, they need to reallocate resources and learning new skills (Harreld et al. 2007). According to Teece (2007), this approach should “provide an umbrella framework that highlights the most critical capabilities management needs to sustain the evolutionary and entrepreneurial fitness of the business enterprise” (p. 1322). Some authors (e.g., Schreyögg and Kliesch-Eberl 2007, 914) have suggested that the notion of “dynamic” is devoted to addressing the continuous renewal of organizational capabilities, thereby matching the demands of changing environments. Others (Ambrosini and Bowman 2009, 30) believe that “dynamic” refers to the environment rather than the capability. We believe that both understandings are correct and should be

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considered simultaneously. On one hand, the enterprises’ environments are characterized by rapid and complex changes; on the other hand, enterprises are exposed to the maturity problems emphasized by Pümpin and Prange (1995) within their life cycle approach to the development of an enterprise. Recent research on dynamic capabilities calls attention to the weaknesses of an enterprise that occur because of the enterprise’s maturity. For example, Schreyögg and Kliesch-Eberl (2003, 916-919) argued that, in rapidly changing environments, an enterprise’s capabilities may easily become an obstacle due to path dependency (i.e., “history matters”) and lock-in, structure inertia, and resource commitment. For this reason, enterprises face a dilemma. On one hand, they have to develop reliable patterns of selecting and linking resources in order to attain a competitive advantage; on the other hand, this attempt presents a considerable risk of becoming locked into exactly these capabilities. Similarly, Teece (2007, 1335) argued that, as the enterprise grows, it has more assets to manage. Over time, successful enterprises develop hierarchies, rules, and procedures that begin to constrain interactions and behaviours unnecessarily. According to the authors, except in very stable environments, such hierarchies, rules, and procedures are likely to require constant renovation in order to sustain superior performance. Teece (2007, 1327) called particular attention to the very common phenomena of the mature enterprises that tend to eschew “radical competency-destroying innovation in favor of more incremental competency-enhancing improvements”. Standard procedures, established capabilities, complementary assets, and administrative routines can have negative effects on enterprises’ innovativeness. Dynamic capabilities are defined as the enterprise’s ability to “integrate, build, and reconfigure internal and external competences to address rapidly changing environments” (Teece et al. 1997, 516) and include “difficult-to-replicate enterprise capabilities to adapt to changing customer and technological opportunities” (Teece 2007, 1319-1320). The essence of an enterprise’s competences and dynamic capabilities, according to Teece and co-authors (1997, 522), lies in its processes, which are in turn shaped by the firm’s assets and its revolutionary path. For analytical purposes, dynamic capabilities can be “disaggregated into the capacity (1) to sense and shape opportunities and threats, (2) to seize opportunities, and (3) to maintain competitiveness through enhancing, combining, protecting, and when necessary, reconfiguring the business enterprise’s intangible and tangible assets” (Teece 2007, 1319-1320). Several other definitions of dynamic capabilities have been introduced, many of them being adaptations of Teece et al.’s (1997) original definition

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(e.g., Eisenhardt and Martin 2000; Zollo and Winter 2002; Zahra et al. 2006). An extensive overview of different definitions was provided by Barretto (2010) and Ambrosini and Bowman (2009). For example, Barreto (2010, 271) defined a dynamic capability as “the firm’s potential to systematically solve problems, formed by its propensity to sense opportunities and threats, to make timely and market-oriented decisions, and to change its resource base”. Ambrosini and Bowman (2009, 33) identified dynamic capabilities as intentional efforts to change the firm’s resource base. Wang and Ahmed (2007, 35) defined dynamic capabilities as “a firm’s behavioral orientation constantly to integrate, reconfigure, renew and recreate its resources and capabilities and, most importantly, upgrade and reconstruct its core capabilities in response to the changing environment to attain and sustain competitive advantage”. The authors pointed out that dynamic capabilities are not simply processes, but are embedded in processes. According to Wang and Ahmed (2007, 35-36), a firm’s resources and capabilities have a “hierarchical” order. Resources are the “zero-order” element and capabilities are the “first-order” element of a hierarchy. Core capabilities are a “second-order” element and are a bundle of the firm’s resources and capabilities that are strategically important to its competitive advantage at a certain point. Dynamic capabilities are the “third-order” element of hierarchy, where considerable weight is placed on a firm’s constant pursuit of the renewal, reconfiguration and re-creation of resources, capabilities, and core capabilities to address the environmental changes. Zollo and Winter (2002, 340) defined a dynamic capability as “a learned and stable pattern of collective activity through which the organization systematically generates and modifies its operating routines in pursuit of improved effectiveness”. According to Zollo and Winter (2002, 340), dynamic capabilities arise from learning and constitute the firm’s systematic methods for modifying operating routines (operating routines are geared towards the operational functioning of the firm). According to Hong and co-authors (2008), the dynamic capabilities view considers “the firm essentially as a knowledge creating, upgrading, and applying entity”. Schreyögg and Kliesch-Eberl (2007) identified three different theories of dynamic capabilities. The first one is the radical dynamisation approach that treats the dynamic capabilities as a functional equivalent to the classical capabilities in dynamic environments (developed by Eisenhardt and Martin 2000). The second one is the integrative approach, which fosters the idea of amending by adding a dynamic dimension (developed by Teece et al. 1997). The third one is the innovation routine approach, which assigns the tasks of dynamisation to a special type of routine called

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innovation routine (developed by Zollo and Winter 2002). In many definitions, the dynamic capabilities are understood and described as constructs (e.g., Ambrosini and Bowman 2009, 33; Barreto 2010, 270), and some authors have even distinguished between different levels of capabilities (e.g., Drnevich and Kriauciunas 2011; Winter 2003). Many authors (e.g., Winter 2003, 992) have emphasized that dynamic capabilities should not be seen as ad hoc problem solving or crisis fighting. For example, Zollo and Winter (2002, 340) stated that dynamic capabilities are structured and persistent. However, some researchers have even questioned the term “dynamic capability” itself as being built on “two contradictory notions of logic at the same time: reliable replication and continuous change—two dimensions that hardly mix” (Schreyögg and Kliesch-Eberl 2003, 922-923). Other authors have linked definitional problems within the dynamic capabilities approach with similar problems within the RBV (Wang and Ahmed 2007, 32-33), calling attention to the limited empirical support of both concepts (Ambrosini and Bowman 2009, 37; Barreto 2010, 257; Wang and Ahmed 2007, 31-32). Several scholars (for references, see Güttel and Konlechner 2009, 154; Lubatkin et al. 2006) have explored the relationships that exist between the dynamic capabilities and ambidexterity. O’Reilly and Tushman (2007, 12) explained dynamic capabilities as being “at the heart of the ability of a business to be ambidextrous—to compete simultaneously in both mature and emerging markets—to explore and exploit”. The authors argued that enterprises should be ambidextrous and find their “characteristics” as a critical element of a sustainable competitive advantage (O’Reilly and Tushman 2007, 9). Their argument is based on the adaptive process of an enterprise, which is of great importance to the firm’s ability to exploit existing assets and positions in a profitable way and to explore new technologies and markets (O’Reilly and Tushman 2007, 10). According to O’Reilly and Tushman (2007, 13), the required capabilities for enterprises to be successful at ambidexterity are “a coherent alignment of competencies, structures and cultures to engage in exploration, a contrasting congruent alignment focused on exploitation, and a senior leadership team with cognitive and behavioral flexibility to establish and nurture both”. Simsek et al. (2009) proposed four generic ambidexterity types (i.e., partitional, harmonic, cyclical, and reciprocal ambidexterity) by applying two dimensions. The first dimension is a temporal dimension that captures the extent to which ambidexterity is pursued either simultaneously or sequentially. The second dimension is a structural dimension that captures whether or not ambidexterity is realized within an independent unit (e.g., business unit or a small to medium-sized enterprise [SME]). When

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enterprises establish structurally independent units specializing in either exploration or exploitation and where each unit has “its own strategies, structures, cultures, and incentives systems”, we talk about partitional ambidexterity (Simsek et al. 2009, 884). When the simultaneous pursuit of exploration and exploitation is achieved within a single business unit, we talk about harmonic ambidexterity. Harmonic ambidexterity is sometimes referred to as contextual ambidexterity (Gibson and Birkinshaw 2004, 209). Recent research studies have shown that harmonic ambidexterity is not only possible (Bierly III and Daly 2007, 508), but also crucial for short-term business success and long-term sustainability (e.g., Wang and Rafiq 2014, 2; Gibson and Birkinshaw 2004, 221; Bierly III and Daly 2007, 508) and has positive effects on stakeholder satisfaction (e.g., Simsek et al. 2009, 881). Cyclical ambidexterity is described as the sequential pursuit of ambidexterity within a single unit and is characteristic of enterprises engaged in long periods of exploitation and sporadic periods of exploration. It is a common phenomenon in business units with a strong technological orientation. The fourth type of ambidexterity is reciprocal ambidexterity, which is characterized by the sequential pursuit of ambidexterity across units. This type of ambidexterity assumes reciprocal interdependence between exploration and exploitation units. This type of ambidexterity has received the least attention as a subject of research interest (Simsek et al. 2009).

4 Enterprise’s innovativeness and dynamics— how are they related? Our previous discussion indicates that enterprises must be dynamic if they want to survive and prosper in dynamic environments. It means that they must be able to resolve tensions between innovation and adaptation as well as replication and optimization that represent antagonistic modes of enterprises’ development (e.g., Güttel and Konlechner 2009, 150). The dynamic enterprise construct and the dynamic capabilities approach both emphasize the role of innovations and innovativeness of enterprises as an important element for building and sustaining their requisite dynamics. Pümpin and Prange (1995) perceived innovations and innovativeness as an important differentiating feature of a pioneer enterprise that should be built and sustained in a dynamic enterprise as well. The authors suggested that the strategic origins of success should be developed, where the creation of knowledge and learning are of crucial importance. Similarly, Teece (2007) and O’Reilly and Tushman (2007) emphasized the importance of knowledge

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and learning for sensing and seizing opportunities. The creation and sharing of knowledge are likely to influence an enterprise’s ambidexterity positively and are recognized as a key (micro) foundation of dynamic capabilities. Several studies have confirmed that innovations are enterprises’ effective answer to rapid changes in external environment (e.g., Craig and Moores 2006; Nonaka et al. 2000). According to Kim (1997), individuals’ innovativeness can be understood as the abilities and knowledge required for effective absorption, management, and improvement of existing and new technologies, products, and processes. Hurt and Teigen (1977) asserted that innovativeness is a stage in which an individual, in comparison with others in a social system, adopts something new relatively early. According to several authors, the innovativeness of enterprises as well as individuals strongly depends on their intellectual resources and knowledge (Marcati et al. 2008; Amar and Juneja 2008; Delgado-Verde et al. 2011). Nonaka and von Krogh (2009) emphasized the processes of knowledge creation being of crucial importance for enterprises’ creativity, change, and innovation. The dynamic processes of organizational knowledge creation (Nonaka et al. 2006; Nonaka and von Krogh 2009) provide companies with the ability to adapt to changes in the environment and develop dynamic capabilities (Nonaka et al. 2006), which Zheng et al. (2011, 048) conceptualized as “a series of processes handling knowledge resources”. Organizational knowledge creation theory, a special theory, aims to explain organizational creativity, change, and innovation based on the concept of four modes of knowledge conversion (for references, see Nonaka and von Krogh 2009). The concept of knowledge conversion is of a fundamental importance for the organizational knowledge creation theory because “it explains how new ideas come forth in innovation” (Nonaka and von Krogh 2009, 645). In this way, learning and the conversion of knowledge are recognized as factors that positively affect enterprises’ innovativeness and competitiveness (e.g., Craig and Moores 2006; Nonaka et al. 2000; Schulze and Hoegl 2006). Learning ability is recognized as one of the most important abilities that an enterprise can possess (Barney et al. 2001; Easterby-Smith et al. 2000). According to several authors, learning plays an important role in the creation of dynamic capabilities through the coevolution process of past experiences, knowledge articulation, and codification (e.g., Eisenhardt and Martin 2000; Zollo and Winter 2002). Therefore, the governance and incentive structures should be developed in a way that enables learning and the creation and sharing of new knowledge

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(Teece 2007). In this respect, Senge (1990, 4) discussed learning organizations, which “discover how to tap people’s commitment and capacity to learn at all levels”. In the opinion of the author, only such organizations are able to become flexible, adaptive, and productive in rapidly changing environments.

5 Organizational culture and requisite dynamics of an enterprise Considerable research efforts have been oriented towards discovering the effects of organizational culture on enterprises’ innovativeness and dynamics while taking into consideration the cultural particularities of different types of enterprises (e.g., Laforet 2012). Organizational culture has often been understood as a precondition for an enterprise’s competitive advantage (Tushman and O’Reilly III 1996, 23), a key factor of enterprise’s innovativeness (e.g., Detert et al. 2000, 850; Tellis et al. 2009, 4), and therefore an important factor in an enterprise’s success (Ralston et al. 2006, 840). Several authors (Bock et al. 2012, 299; Tushman and O’Reilly III 1996, 24) called attention to a positive association between culture that supports creativity and innovation and a firm’s ability to respond effectively to internal and external forces. Organizational culture influences the processes of knowledge creation, and care is found to be a key enabler of organizational relationships; when organizational relationships are characterized by care, it positively influences the process of knowledge creation (Lee and Choi 2003). Some authors (e.g., Litz and Kleysen 2001; Ženko and Mulej 2011) have emphasized the importance of maintaining creative environments in families, especially in childhood, thereby making it a prerequisite for creativity and innovation in businesses. These findings further indicated that roots of organizational culture that stimulates, facilitates, and enhances innovations are based in families and creative family environments. Although numerous research studies on the dynamic capability concept, ambidexterity, and a dynamic enterprise’s construct (e.g., Pümpin and Prange 1995; Tushman and O’Reilly III 1996; for an overview of the research, see Raisch and Birkinshaw 2008; Simsek et al. 2009; Barreto 2010) are theoretical, they provide useful insights into the role of culture when building and sustaining enterprises’ dynamics and innovativeness. No universal definition of organizational culture exists (e.g., Detert et al. 2000; Schein 1992). Very often organizational culture is defined as consisting of a set of beliefs, values, and behaviour patterns that shape the behaviour of members of an organization and build an organization’s core

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identity (e.g., Tuan 2012). A review of the organizational culture research studies revealed eight common dimensions of organizational culture (Detert et al. 2000, 854): the basis of truth and rationality in the organization; the nature of time and time horizon; motivation; stability versus change/innovation/personal growth; orientation to work, task, and coworkers; isolation versus collaboration/cooperation; control, coordination, and responsibility; and orientation and focus-internal versus external. Several organizational culture models exist (for references, see Ralston et al. 2006, 829), and numerous typologies of organizational culture have been developed. Among the most cited and applied typologies are those of Schwartz and Davis (1981), Deal and Kennedy (1982), Hofstede (2000), Schein (1992), Sathe (1984), and Cameron and Quinn (1999; 2004). We shortly present two typologies: those developed by Deal and Kennedy (1982) and Cameron and Quinn (1999; 2004). Deal and Kennedy (1982) distinguished among four types of enterprise culture (i.e., a macho culture, a “bread and games” culture, a risk culture, and a process culture) by applying to two criteria. The first criterion refers to risk-taking during decision-making while the second criterion considers how fast the feedback information on the successful or unsuccessful realization of a decision reaches a decision-maker. According to the authors, a macho culture is a type of culture whose main features are a high level of risk and fast feedback information about the success of realization. In enterprises that display characteristics of such a type of culture, success is often overly celebrated and failure perceived as personal defeat. Examples of enterprises with macho culture are advertising agencies, movie production agencies, cosmetics producers, and fashion designers. A “bread and games” culture is characterized by a low level of risk in decision-making and fast feedback on success. Teamwork does not present an issue and is usually combined with pleasure at unofficial celebrations and award events. Examples of enterprises that display characteristics of such a type of culture include, for example, automobile dealerships, computer enterprises, and sales departments of large companies. A risk culture is found in enterprises’ main activities connected with large and long-term projects that also incorporate very demanding financial aspects. In the majority of cases, such enterprises are large enterprises. The characteristics of a process culture are a relatively low level of risk and slow feedback regarding the successful or unsuccessful realization of goals. Such enterprises usually develop clear and formal hierarchical structures with well-defined rules, rights, obligations, and responsibilities. They establish rules regarding the look of the workplace, dress code, etc. In such enterprises, spontaneous celebrations are unusual; the only

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important role is played by formal celebrations for special occasions. Cameron and Quinn (1999) developed four types of culture, which are distinguished for audit and comparison purposes (see also Ralston et al. 2006, 831-832): the clan (consensual) culture, the adhocracy (entrepreneurial) culture, the market (competitive) culture, and the hierarchical (bureaucratic) culture. Enterprises displaying the clan culture characteristics are familytype ones characterized by flexibility and internal orientation. Such organizations are held together by interpersonal loyalty, trust, commitment, and tradition. In particular, they encourage participation, teamwork, and consensus. Enterprises with the adhocracy culture, which is characterized by flexibility and external orientation, are dynamic and entrepreneur organizations. In such organizations, employees are highly committed to experimentation and innovation. Individual initiative, freedom, and continuous improvement are emphasized as the key elements for achieving the market leadership. The market culture with control and an external orientation is especially present in competitive and hard-driving organizations. Their major goals are the increase of market share and the maximization of productivity. In such organizations, employees are expected to be aggressive and goal-oriented producers. The hierarchical culture characterized by control and internal orientation is found in formalized and structured organizations. The main orientation in such organizations can be described as smooth functioning, stability, and efficiency. Cameron and Quinn (1999) emphasize that theoretically these four cultural typologies may exist simultaneously in all enterprises. For analytical purposes, they developed the Organizational Culture Assessment Instrument (OCAI) using methodology to analyse the culture within organizations. However, both the type and strength of the organizational culture play a crucial role in establishing conditions for enterprises’ dynamics and innovativeness (Steinmann and Schreyögg 2005; Thommen 2003). Often a differentiation between strong and weak organizational cultures is emphasized (Thommen 2002), where a strong culture is recognized to have positive effects (e.g., Huczynski and Buchman 2007; Tushman and O’Reilly 1996) as well as negative effects on an enterprise’s performance (e.g., Steimann and Schreyögg 2005). Steinmann and Schreyögg (2005) identified several positive effects of a strong culture, including behavioural orientation. A strong culture supports a clear picture of reality and provides employees with a clear orientation; without such a clear focus, many situations could have been interpreted differently. This effect is especially important in enterprises lacking formal rules or, if they exist, are not followed properly. Another

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effect is untroubled communication. A strong culture encourages a complex network of informal communication, which supports simple, direct communication. In such cases information is usually less deformed. An important effect is fast decision-making, which is enabled by common values that exist within an enterprise with a strong culture. Harmonization and adjustment between employees are achieved quickly, and compromises are made in an atmosphere of mutual understanding. Steinmann and Schreyögg also considered prompt implementation as one of the positive effects of a strong culture. If any doubts or ambiguities occur, a strong enterprise culture helps by providing orientation. Therefore, fast reactions to decisions, plans, and projects are made possible and are evaluated and supported by other co-workers as well. Low control is also an important positive effect of a strong culture. Control is limited because of its indirect way of implementation. Because of the strong orientation, there is no need to look for any other direct ways to strengthen control. Motivation and team spirit are higher in enterprises with a strong culture. The common focus and the firm’s common responsibilities within common business norms stimulate employees towards higher efficiency and stronger personal identification with an enterprise. Stability is also an important positive effect of a strong culture, where clear behavioural orientation reduces an individual employee’s fear. It gives employees safety and stimulates their self-esteem, thereby influencing their satisfaction with the workplace and working conditions. However, Steinmann and Schreyögg (2005) called attention to possible negative effects of a strong culture. One negative effect of a strong culture stems from the tendency towards a closed system. Too strong anchoring of values can lead to one dominant power. Arguments set against such authority are then overlooked or denied. There is a danger for such an enterprise to become a closed system. Another negative effect of a strong culture comes from blocking any new orientation of an enterprise. Strong cultures support resistance to new ideas, which threaten the enterprise’s identity. New proposals and solutions are therefore often refused. In enterprises with a strong culture, confidence exists only in well-known developmental and success patterns that proved effective in the past and built upon present values. Implementation obstacles are recognized as the negative effects of strong cultures as well. Considering all the negative effects of a strong culture, a conclusion can be made that enterprises with such a culture have the potential to become rigid and inflexible. These can present serious obstacles, especially if an enterprise finds itself in an environment that changes quickly. When a business is not able to adapt to new challenges and redefine its strategy, it has a high probability of failure.

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Thommen (2002) defined four sets of criteria for analysing and measuring the strength of organizational culture. The first set of criteria refers to the level of anchoring indicating the level at which employees accept values and norms. A higher level of anchoring suggests a stronger impact of organizational culture on employees’ behaviour. The second set of criteria refers to a level of agreement indicating a collective character of cultural norms and values. When the majority of employees share the same values and norms, this indicates a stronger culture. The third set of criteria refers to a system compatibility that describes a level of harmonization of organizational culture with all other systems of an enterprise. When the impact of cultural values and norms on these systems is greater, their implementation will be easier and better performed. The fourth set of criteria refers to the compatibility of an enterprise with its external environment. An enterprise should build its culture in harmony with the culture of its environment. An enterprise that possesses a strong culture has a higher level of anchoring of values and norms, a higher level of agreement, and significant system and environmental compatibility. In our discussion thus far, we have explained the idea of dual organizational culture as one of the features of a dynamic enterprise (Pümpin and Prange 1995) that should prevent the progress of an enterprise in a maturity stage. This duality of organizational culture lies in a culture that supports creativity and innovativeness as well as the realization of goals, objectives, and strategies. The enterprise’s management plays a crucial role in explaining the need for such culture(s). Similarly, within the dynamic capability approach, Teece (2007, 1334) addressed the role of culture by assigning an important role to top management, who “through its action and its communication has a critical role to play in garnering loyalty and commitment and achieving adherence to innovation and efficiency as important goals”. Tushman and O’Reilly III (1996) also emphasized the importance of actively managing organizational culture in order to handle incremental and discontinuous change. Culture is crucial for short-term success, but when it is not managed correctly, it can become a reason for long-term failure (Tushman and O’Reilly III 1996, 23). Tushman and O’Reilly III (1996, 18-19) emphasized the dangers of structural and cultural inertia, especially in older and larger firms, that can become an obstacle for an enterprise’s dynamics. According to Tushman and O’Reilly III (1996, 18-19), significantly more pervasive than structural inertia (i.e., a resistance to change rooted in the size, complexity, and interdependence in the organization’s structure, systems, procedures, and processes) is cultural inertia that comes from age and success. Over

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time, larger and established enterprises’ culture becomes “sticky and hard to change because of commitments to particular ways of doing things,” (Majumdar 2000, 60) and presents a significant barrier to innovativeness and the change required for success. Therefore, an organizational culture should be flexible and adaptable (Tuan 2012, 463), and successful enterprises should rely on “a strong, widely shared corporate culture to promote integration across the company and to encourage identification and sharing of information and resources—something that would never occur without shared values. The culture also provides consistency and promotes trust and predictability. ... Yet at the same time, individual units entertain widely varying subcultures appropriate to their particular businesses” (Tushman and O’Reilly III 1996, 26). A widely shared corporate culture complemented by (sub)culture(s) differentiated between evolutionary and revolutionary parts of an enterprise is recognized as one of the most important conditions for ambidexterity (Tushman and O’Reilly III 1996). The “tight–loose” aspect of organizational culture should be considered a crucial precondition for the required ambidexterity of an enterprise (Tushman and O’Reilly III 1996, 26-27). It is “tight” when an enterprise’s culture is broadly shared and emphasizes norms required for innovations such as openness, autonomy, initiative, and risk-taking. The culture is “loose” when common values vary according to the type of innovation required. This tight–loose aspect of culture has to be supported by a common vision and by supportive leaders who both encourage the culture and know enough to allow appropriate variations to occur across business units. Simsek and co-authors (2009, 869) recognized harmonic (or contextual) ambidexterity as the type of ambidexterity strongly tied to organizational culture. This can be attained through the creation of a set of processes and/or systems enabling and encouraging employees to make their own judgement on how to divide their time between the conflicting demands for alignment and adaptability (Gibson and Birkinshaw 2004, 209). Meanwhile, formal structures and processes are always embedded and conditioned by a broader organizational context of culture (Adler et al. 1999 47; Simsek et al. 2009, 870). Contextual ambidexterity is grounded in such a type of organizational culture that succeeds in promoting creativity and discipline (e.g., Wang and Rafiq 2014, 2; Simsek et al. 2009). An internal environment that supports the continuous and balanced performance of exploration and exploitation and where commonly shared values and norms are an important dimension of the contextually ambidextrous organizations should be created (Güttels and Konlechner 2009, 158). An “ambidextrous mindset ... that favors exploration and

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exploitation in an equal balance, a shared language, and mutual understanding” should be developed (Güttel and Konlechner 2009, 162). Wang and Rafiq (2014, 5) conceptualized “ambidextrous organizational culture” as consisting of “organizational diversity” and “shared vision”, which facilitate contextual ambidexterity (Wang and Rafiq 2014, 62). Organizational diversity is defined as “the set of organizational values and norms that encourage and tolerate differences, and recognize and reward individuals’ different viewpoints, skills and knowledge” (Wang and Rafiq 2014, 62). According to these authors, organizational diversity “embodies such values that encourage individuals to think originally, behave autonomously and innovatively, and generate multiple perspectives and viewpoints. ... Diversity helps the organization to avoid the tendency of favoring familiar solutions over unfamiliar ones” and is fundamental for exploration. Shared vision is defined as “the set of organizational values and norms that promote the overall active involvement of organizational members in the development, communication, dissemination and implementation of organizational goals” (Wang and Rafiq 2014, 62). According to Wang and Rafiq (2014, 62) shared vision “gives organizational members a sense of purpose and a rationale to be good agents, increasing their willingness to subordinate their individual goals and actions for collective goals and actions ... The congruence of individual values with organizational values creates a ‘bonding effect’— the foundation of trusting relationships among organizational members ... shared vision encourages collective behavior, which in turn creates team efficiency valuable in translating diverse ideas into focused actions required for exploitation”. One recent research examined the association between the type and strength of culture and the level of enterprises’ dynamics (Duh et al. 2016). The authors applied Cameron and Quinn’s (1999) previously discussed culture typology. The research results showed that the adhocracy culture is the type of culture that positively influences the level of enterprises’ dynamics. Enterprises with the prevailing adhocracy type of culture are a very flexible, dynamic, entrepreneurial, and creative place to work; individuality is supported, and employees are ready to take risks. Leaders are visionaries who support innovativeness and the production of unique and original outputs. The strength of culture also proved to be an important factor influencing the level of enterprises’ dynamics. Strong culture was found to have positive effects on the level of enterprises’ dynamics. The results of Duh and co-authors’ study showed that more than half of enterprises with a high level of dynamics and with “developed” dual cultures (as conceptualized by Pümpin and Prange 2995) display a

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combination of adhocracy and clan culture, not the combination of adhocracy and market culture as expected. The authors found one possible explanation for these research results in a relatively high share of family enterprises in several national economies (as well as in researched one; see also Duh et al. 2010). Namely, clan culture was found to be the prevailing type of culture in family enterprises (Duh et al. 2010).

6 Conclusions Nowadays, enterprises’ environments are characterized by rapid and complex changes that require prompt responses if enterprises want to sustain a competitive advantage. Due to highly competitive conditions, enterprises must constantly seek and gain new business opportunities. Therefore, the enterprises’ abilities to sense and shape opportunities and threats are one of the most important capabilities. However, not only are sensing and shaping opportunities important, but seizing opportunities and maintaining competitiveness by enhancing, combining, protecting, and reconfiguring enterprises’ resources are also critical. Building and sustaining a requisite enterprise’s dynamics in today’s rapidly changing environment are closely tied to the enterprise’s innovativeness and its culture. In particular, adequate organizational culture can facilitate or prevent the enterprise’s efforts to become more flexible and responsive to new challenges in markets and technologies. As new challenges continuously emerge, the dominant organizational culture should not be observed as a static phenomenon that can be the case of an established large and successful enterprise. Organizational culture should be dynamic, which Wang and Rafiq (2014) called ambidextrous and Pümpine and Prange (1995) conceptualized as dual. The change of organizational culture should be understood as “a necessary precondition for organizational change efforts to take place and be sustained within the organization” (Ralston et al. 2006, 826). We find a basic premise on the fit among strategy, structure, culture, and processes to be especially important, where organizations are “able to compete successfully by both increasing the alignment or fit among strategy, structure, culture, and processes, while simultaneously preparing for the inevitable revolutions required by discontinuous environmental changes” (Tushman and O’Reilly III 1996, 11). Organizational culture should be changed in order to better reflect the new challenges (e.g., Tushman and O’Reilly III 1996, 13). Pümpin and Prange (1995), Teece (2007), and O’Reilly and Tushman (2007, 12) called attention to the role of top/senior management in

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managing required changes in culture and organizational alignments. The key success factors needed to succeed in exploitation require a short-term time perspective, efficiency, discipline, incremental improvements, and continuous innovations; on the other hand, the key success factors of exploration include a longer time perspective, more autonomy, flexibility and risk-taking, and less formal systems and control. Building and sustaining an enterprise’s dynamics require an integral approach towards the governance and management of an enterprise (e.g., Belak and Duh 2012; Bleicher 1996; Duh and Štrukelj 2011; Rüegg-Stürm 2002; Spickers 2004; Stacey 2011). This major orientation of an enterprise towards dynamics should be incorporated into the goals and objectives at all hierarchical levels of the management process. The dynamic orientation should be determined in vision, mission, strategies, and operative goals and objectives of the enterprise. Management at all levels, especially the top management together with an enterprise’s owners, should put considerable efforts into planning and realizing this major orientation towards dynamics. In particular, the top management team, whose knowledge crucially defines an enterprise’s ability to adapt to changes in the environment (e.g., Dixon et al. 2010) plays a crucial role in explaining the required changes in an enterprise and should create commitment among the enterprise’s key stakeholders to the overall dynamic orientation of an enterprise.

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Stacey, R. D. 2011. Strategic Management and Organizational Dynamics: The Challenge of Complexity. Harlow: Pearson Education. Steinmann, H., and G. Schreyögg G. 2005. Management. Grundlagen der Unternehmensführung. Konzepte-Fuktionen-Fallstudien. Wiesbaden: Gabler Verlag. Teece, D. J. 2009. Dynamic capabilities and strategic management. Oxford: University Press. Teece, D. J. 2007. “Explicating dynamic capabilities: the nature nd microfundations of (sustainable) enterprise performance.” Strategic Management Journal 28: 1319-1350. Teece, D. J., G. Pisano, and A. Shuen. 1997. “Dynamic capabilities and strategic management.” Strategic Management Journal 18: 509-533. Tellis, G. J., J. C. Prahbu, and R. K. Chandy, R. K. 2009. “Radical innovation across nations: the preeminence of corporate culture.” Journal of marketing 73: 3-23. Thommen, J.-P. 2002. Management und Organisation. Zürich: Versus Verlag. —. 2003. Glaubwürdigkeit und Corporate Governance. 2nd ed. Zürich: Versus Verlag. Tuan, L. T. 2012: “Behind knowledge transfer.” Management Decision 50: 459-478. Tushman, M. L., and C. A. O’Reilly III. 1996. “Ambidextrous Organizations: Managing Evolutionary and Revolutionary Change.” California Management Review 3: 8-30. Wang, C. L., and P. K. Ahmed. 2007. “Dynamic capabilities: A review and research agenda.” International Journal of Management Reviews 9: 31-51. Wang, C. L., and M. Rafiq. 2014. “Ambidextrous Organizational Culture, Contextual Ambidexterity and New Product Innovation: A Comparative Study of UK and Chinese High-tech Firms.” British Journal of Management 25: 58-76. Wiggins, R. R., and T. W. Ruefli. 2005. “Schumpeter's ghost: Is hyper competition making the best of times shorter?” Strategic Management Journal 26: 887-911. Winter, S. G. 2003. “Understanding dynamic capabilities.” Strategic Management Journal 24: 991-995. Zahra, S. A., H. J. Sapienza, and P. Davidsson. 2006. “Entrepreneurship and Dynamic Capabilities: A Review, Model and Research Agenda.” Journal of Management Agenda 43: 917-955. Zheng, S., W. Zhang, X. Wu, and J. Du. 2011. “Knowledge-based dynamic capabilities and innovation in networked environments.”

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Journal of Knowledge Management 15: 1035-1051. Zollo, M., and S. G. Winter. 2002. “Deliberate learning and the evolution of dynamic capabilities.” Organization Science 13: 339-351. Ženko, Z., and M. Mulej. 2011. “Diffusion of innovative behaviour with social responsibility.” Kybernetes 40: 1258-1272.

CHAPTER TWO SOCIAL RESPONSIBILITY: A PRECONDITION OF REQUISITE HOLISM IN CORPORATE GOVERNANCE AND STRATEGIC MANAGEMENT MATJAŽ MULEJ, ANITA HRAST, NASTJA MULEJ

1 The selected problem and viewpoint of dealing with it 2 Global conditions demand more social responsibility 3 Social responsibility, (dialectical) systems theory and sustainability are interdependent 4 Social responsibility, neo-liberalism and innovation 5 Methodological support to efforts for social responsibility 6 Some conclusions

1 The selected problem and viewpoint of dealing with it World War III is on our doorstep, but it can (and must) be averted by social responsibility. Organizations with a long-term strategy understand that their success depends on the end of one-sided, myopic behavior that must be replaced by social responsibility, incorporating the ethics of interdependence and requisite holism. The latter belong to systemic behavior and are supported by socially responsible humans and their organizations, including enterprises, countries, non-governmental organizations and families. The daily practice of social responsibility can be nurtured by Mulej’s USOMID (1982) and De Bono’s methods of ‘lateral thinking’, ‘six thinking hats’ and CoRT, each of which we will describe briefly. Social responsibility is officially defined in ISO 26000 (ISO, 2010) as one’s responsibility for one’s impacts on society, that is, humans and nature. Hrast and Štefotiþ (2015) provide an overview of standards,

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certification and awards on social responsibility. Their list is long. This means that there is no longer a problem in knowing how to practice social responsibility; rather, the problem is in appreciating the criticality of social responsibility and sufficiently diffusing it among individuals, organizations and countries. Zore (2016) reviews several definitions of social responsibility which were far from unification until ISO 26000 (ISO, 2010) was published as an advisory (rather than obligatory) international standard. ‘CSR Europe’ reports (2015) about having 10.000 members, which means many more than the EU (2011) mentions; but this is still a small minority of all organizations in Europe. The European Commission (EU, 2011) urged EU member states to support corporate social responsibility (CSR) as a way out from the current crisis which endangers humanity’s survival (Plešnar, 2014). We will report about the global conditions requiring CSR, and some details of our model on how to make (corporate) social responsibility (SR) a real practice.

2 Global conditions demand more social responsibility The internationally agreed upon definition of SR is clear in suggesting that in its economic impact, SR reaches far beyond charity because it represents responsibility for one’s impact in society, be it an organization’s or a person’s, since organizations do not decide, but their influential members do (ISO 26000 by ISO, 2010). SR is a socioeconomic innovation aimed at humankind’s survival. SR is a tool to prevent the imminent third world war to which the world is being led by monopolies of corporations resulting from the neoliberal economic theory under the excuse that a totally free market is best for humankind. The totally free market could be the best, but it is disappearing due to monopolistic organizations that do not practice SR. The neoliberal economic theory swears, but has no empirical evidence, that humankind’s optimal path to well-being is via the free market. Yet 87% of investigations find cooperation a better path (Felber, 2012). Neoliberalism portrayed SR as an obstacle to company freedom and the market as the mechanism to ensure ethical and responsible practices. But the evidence suggests that neoliberalism generates monopolies which operate outside the market mechanism: -

Among 30 million investigated organizations less than 750 control 80% of the world market (which is 0.0004%); Tax havens are hiding tremendous sums, said to be higher than GDP of US and Japan combined;

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-

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Natural resources are being depleted and many minerals no longer exist; Nature is being destroyed, making life unhealthy; Currently about thirty wars are running in addition to the global war against terrorism; 85 individuals have as much property as 3.5 billion people; The former ‘economic killer’, Perkins (2012), reports that governments, including the USA, are largely tools for profit for influential companies, to the detriment of people; The entire global debts reach 286% of the global GDP (Japan 400%, USA and China around 220% (NYT, 2015)); Most wealth belongs to one percent of humankind; Only 15% of humankind lives on more than six USD a day, and; Millionaires make 0.2% of humankind.

More data are available, but there is no room (see: Mulej, Dyck, ed., 2014). The third world war is here because the most influential ones -

avoid SR over their impacts on people and nature; avoid consideration of their interdependence with other humans and with nature, and hence; avoid requisite holism.

They seem to hate their children and grandchildren; so short-term and narrow are the criteria they use for their decisions. (For details see: Mulej et al., 2013; Mulej, Dyck, editors, 2014; Mulej, ed., 2013; Mulej, ed., 2014; Lebe and Mulej, editors, 2014; Hrast et al., editors, 2015). Systemic–requisitely holistic behavior through SR provides a way out of this terrible, global, socio-economic crisis.

3 Social Responsibility, (Dialectical) Systems Theory and Sustainability are interdependent Social responsibility has become increasingly important in recent years, especially after an extended economic growth cycle ended with the 2008 crises.1 During our investigation on SR in 2009 the Google web 1

We hope that the Mayan (tribe/people of Central America) calendar is right: they predicted the end of the ‘homo sapiens’ phase in humankind’s development and the beginning of the ‘homo ethicus’ beginning in December 2012 (Jere, 2013). It would indicate the end of short-term and narrow-minded behavior of influential people and

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browser listed 25 million hits for ‘social responsibility’. There were 116 million hits on May 7, 2010, 137 million on June 27, 2011, and more than 400 million in June 2012. Now, they are too many to read2. Our selection of findings shows the following situation: -

-

-

-

-

The simplest (and oldest) version of SR is charity, which still matters, but it constitutes a small part of SR; it is often a mask for one-sidedness rather than requisite holism, however. The European Union (EU, 2001) officially mentioned four publics in their definition of SR for enterprises: the voluntary ending of abuse of employees, other business partners, broader society, and the natural preconditions of humankind’s survival, beyond law. The new EU’s (2011) definition is more succinct: SR is responsibility for one’s impacts on society and nature. It is also more obligatory: EU member states and big companies should promote SR as its role models – for clear economic reasons, that is, to solve the current socio-economic crisis. Literature on business excellence requires upgrading to include SR (for an overview, see: Gorenak, Mulej, 2010). A bridge connecting the two fields exists in identifying SR as an acceptable modern value/culture/ethic/norm (VCEN) of human behavior (Ženko, Mulej, 2008) and business excellence as a method leading to it in practice (SFPO, 2010). In further literature one sees connection between systemic thinking and SR (Cordoba, Campbell, 2008), but it differs in the authors’ selected viewpoint from the one under discussion here and in the collection of papers in the same journal (Mulej, ed., 2014). A group of references links SR with world peace (Crowther, Caliyurt, 2004). ISO 26000 (ISO, 2010) requires a holistic approach (based on interdependence) and includes seven ‘core subjects’: (1) organization, management and governance; (2) human rights; (3) labor practices; (4) environment; (5) fair operating practices; (6) consumer issues; and (7) community involvement and development;

the beginning of long-term, requisitely holistic behavior. The latter includes social responsibility, through which the European Union sees the way out from the current socio-economic crisis, including sustainability as a world-wide precondition of humankind’s survival (EU, 2011), for economic reasons, not for charity or being nice. 2 See: http://books.com/ingrains, and http://scholar.google.com, and select literature on social responsibility.

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This requirement is supported by the following seven principles: 1. Accountability; 2. Transparency; 3. Ethical behavior;3 4. Respect for stakeholder interests; 5. Respect for the rule of law; 6. Respect for international norms of behavior, and; 7. Respect for human rights (ISO 2010: 10-14).4

To further detail the understanding and practice of SR in ISO 26000, three groups of points are offered, each seven in number: -

-

3

7 principles cited above (ISO 2010: 10-14); 7 content areas (ibid: 19-68), cited above. They are interrelated and bonded with organizational governance in the center. Due to varying circumstances, organizational leaders decide where to put more emphasis: now on some core subjects and on others in different circumstances. We find the two concepts linking them at least equally important: 1. Interdependence, and; 2. The holistic approach (ISO, 2010: lines 896-900); 7 steps of introducing SR within organizations: 1. The relationship of an organization’s characteristics to social responsibility; 2. Understanding the social responsibility of an organization; 3. Practices for integrating social responsibility throughout an organization; 4. Communication about social responsibility; 5. Enhancing credibility regarding social responsibility; 6. Reviewing and improving an organization’s actions and practices related to social responsibility, and; 7. Voluntary initiatives for social responsibility.

Ethical behavior is defined as: values of honesty, equity & integrity, i.e.: Concern for people, and the environment and Commitment to address the impact of its activities and decisions on stakeholders’ interests. 4 The ‘corporate integrity’ (Primec, 2015) can be seen as a case of application of social responsibility as the critical ethics.

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The holistic approach and interdependence are well defined (lines 896 – 900 in ISO 26000) as follows: An organization should look at the core subjects holistically, that is, it should consider all core subjects and issues, in their interdependence, rather than concentrating on a single issue. Organizations should be aware that efforts to address one issue may involve a trade-off with other issues. Particular improvements targeted at a specific issue should not affect other issues adversely or create adverse impacts on the life cycle of its products or services, on its stakeholders or on the value chain.

The holistic approach and interdependence between processes and participants are addressed indirectly in ISO 26000 by terms such as: stakeholders; accountability; transparency; ethical behavior; respect for rule of law and other rules; honesty; human rights; dialogue; wider impact; no abuse; no discrimination; healthy environment; and no exploitation. This means that interdependence is considered and leads to (requisite) holism attainable by their interaction, similar to informal systems/cybernetics thinking/behavior. This is very close to the thought of the pioneers of systems theory and cybernetics: -

Bertalanffy (1968: VII) who wrote explicitly that he had created his General Systems Theory ‘against over-specialization’; Wiener who advocated interdisciplinary creative cooperation, and; Mulej and other authors who supported further development with several methodologies (François, 2004).

Thus, the law of requisite holism (RH) and ethics of interdependence (Mulej and Kajzer, 1998, based on: Mulej, 1979) are reinforced on the global level. The link between social responsibility and sustainability is hence, clear: -

-

Social responsibility supports sustainability and includes care for environment in seven domains; All seven principles are human attributes making the values of social responsibility the basis of ‘knowledge-cum-values’ management (Zlatanoviþ, Mulej, 2015; Šarotar-Žižek, et al, 2014); The first three steps of introducing social responsibility reflect the given situation; steps four and five introduce the action; the sixth includes analysis, and then many are expected to practice many kinds of socially responsible actions.

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The University of Maribor decided to become a sustainable and socially responsible university. This notion was introduced in all basic legal documents in 2012-2014, including an action plan for 2014-2020 and a 2015 survey to provide the basis for SR to become reality as a nontechnological invention-innovation-diffusion process (see: Mulej, ýagran, 2015). This action matches the global need for SR as the way out from the current global socio-economic crisis.

4 Social responsibility, neo-liberalism and innovation The human need to formulate documents of progressive enterprises (e.g., the United Nations and European Union) on SR a decade ago and ISO 26000 in 2010 reflects the blind alley of the socio-economic model of neo-liberalism. Hence, SR could and should be perceived as a complex invention-innovation-diffusion process, which should include dialectical systems behavior (Ženko, 2011, a, b; Ženko, Mulej, 2012). Complex processes can be managed well only with the interdisciplinary cooperation of many specialists (specialized scientific disciplines) who feel and practice the ethics of interdependence because they are complementary with their mutual differences; this enables them to attain requisite holism (disagreement means looking at the same topic from different viewpoints!). The total holism that is addressed in ISO 26000 reaches beyond human capabilities; holism within a single viewpoint and discipline is only marginally sufficient (Mulej et al., 2013). The international ISO 26000 standard offers great guidance to SR and to systemic behavior generally. However, ISO 26000 is guidance, not international law, and even less so, supra-national law, but the market requires it (Repše, 2013; www.horus.si). Dialectical systems theory (DST) and methods (Mulej, 1974; Mulej et al., 2013; etc.) help stakeholders more easily accept, practice and demand SR globally. This can be attained on an informal basis, too, which we will suggest later. The point is not that SR is something self-sufficient, but it offers a systemic/DST alternative to the neo-liberalistic blind alley. It is also important to note that no certification for ISO 26000 exists (ISO, 2010), but certification for management of ISO 26000 became possible in 2011 (IQnet, 2011). This may fortify systemic behavior, albeit in a (overly) slow and rather late invention-innovation-diffusion process (Mulej et al., 2013; Hrast et al, 2015).

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5 Methodological Support of Efforts for Social Responsibility The crucial ideas of social responsibility as human (and therefore organizational) attributes are: -

-

Responsibility for impact over society rather than irresponsibility; Interdependence rather than independence (including the bosses’ right of abuse) or dependence (including subordinates’ acceptance of being abused by bosses); Requisite holism rather than crucial oversights resulting in mistakes which can escalate into world wars.

These need methodological support to become reality in organizational practice. Governance and management do not only need the knowledge briefed above, but also methodological knowledge. We do not have room to summarize all of the ideas suggested by Štrukelj (2015). We shall keep to our own experiences. Both De Bono’s »Six Thinking Hats« (2005) and Mulej’s USOMID (1982) methodologies have experienced thousands of successful applications. To avoid ‘fighting’ rather than creating in sessions, it makes sense to use both methodologies in a synergetic combination. Here we will briefly discuss how we combine these approaches.

5.1 The Essence of USOMID The acronym USOMID stands for the »Creative Co-operation of Many for Innovativeness at Work« (Mulej, 1982). It denotes a methodology and method that has been developed to apply Mulej’s Dialectical Systems Theory (DST) sans a heavy theory emphasis in the presentation (Mulej et al., 2013). In DST one considers starting points—both objective (i.e., outer) and subjective (i.e., decision-makers’)—before defining objectives. The objective ones cover conditions, that is, (a) needs and (b) possibilities typical in an innovative society. The subjective ones cover human attributes summarized as (1) knowledge on »What« or contents; (2) knowledge on »How« or methods and techniques; and (3) values and emotions which respond to the question of »Why do/should/like/dislike to do...«). Each of these is reflected in components of USOMID whose starting points become more concrete in line with the given conditions. They are interdependent. Thus, one attains requisite holism. The general methodical knowledge is called the USOMID/SREDIM

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PROCEDURE and is used by co-workers and other partners organized in USOMID circles. This procedure can apply to educational work or daily operation or decision making, as decades of experience have demonstrated.

5.2 USOMID-SREDIM Procedure as the general Method for Creative Work and Co- operation in the USOMID Circle We now turn our attention to contact points between USOMID and De Bono’s (2005) Six Thinking Hats (6TH) methodology. This is where, among the attributes of USOMID, we find correspondence between the two approaches the most interesting. Specifically, USOMID might complete the so-called Blue Hat, while the other five hats complete the work and co-operation by USOMID. (We will summarize the ‘six hats’ later.) The acronym SREDIM denotes the six steps of the procedure, while the acronym USOMID denotes that it is not only the process of work, but also co-operation that does not exist in the original SREDIM procedure (cf. Mogensen, 1980). The initial SREDIM steps are described as follows: In step S (select problem) the unit’s coworkers (or students) in a team collect suggestions of the problems worth solving and opportunities worth developing. The created list offers every individual a chance to choose what problem/opportunity he or she wants to help solve/develop. Volunteers make circles and decide on their own problem/opportunity selection. (All 6 hats are usable in this step.) In step R (record data) the circle collects data about their selected problem. They can support their work with programs from DST, which we do not summarize here. In this step, no data are critiqued. This is the positivistic, uncritical phase. (It is similar to thinking under the white hat). Criticism will have its turn in the next phase. In step E (evaluate collected data), the question ‘why’ becomes central. Circle members offer no solutions—only unevaluated data are introduced. Data must be analyzed to allow participants to identify a solution in a later step that will not be fictitious but make sense. In this step, several possible solutions are drafted. (All six hats may apply, but mostly the red, green, yellow, and black ones do, in phases rather than all of them in the same moment.) In step D (determine and develop solution) the circle will first assess which drafted solution is most realistic and promising, how can several of them be combined into a new synergy, and so on. Then the circle will try to develop the selected solution into a workable, usable and potentially

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beneficial one. (Again all six hats may apply, but mostly the red, green, yellow, and black ones do, in phases.) In step I (implement solution) the circle tries to have their selected solution applied in reality (on a prototype level, at least). If persons whose habits might be changed by the new solution/innovation feel that the solution is not imposed over them but they are the solution’s (co)-authors, one will probably not have to break their opposition. If one imposes a new solution, only people enjoying trust may succeed. Therefore, this phase may have to be a project in its own right. (This phase is no longer covered by the Six Hats; all six hats may apply, but mostly the red, green, yellow, and black ones do, in phases.) In step M (maintain the introduced solution), the group recognizes that the introduced novelty does not necessarily survive on its own. It needs maintenance. At the same time, this step illuminates remaining or new problems/opportunities worth solving/developing. This brings us into the next cycle of application of the USOMID procedure. (Again, the six hats no longer cover this step, but all six hats may apply—mostly the red, green, yellow, and black ones, in phases.) Concrete techniques for steps SREDIM are chosen in real time according to the problem type. The four steps, which control running each of the SREDIM phases are our addition (Mulej, 1982; several books later on, including Mulej et al., 2013). We found them needed because one otherwise has a process of work with no creative co-operation, which is insufficient. A brief comment: 1. Individual brain writing allows everyone to think at the same time with no waiting for the oral discussants to finish. Notes must have no signature and must be in capital letters or typed for contents to be easier to see, and the authors, indiscernible. 2. Circulation of notes among circle members allows for synergy of notes. Everybody receives the notes of the others, reads them and adds ideas which surface while reading (if any). 3. Oral discussion about the collected ideas follows, after everyone has reviewed all notes once or twice. Discussion must synthesize the collected ideas toward a common opinion/finding/conclusion (all six hats may apply, but mostly the red, green, yellow, and black ones do, in phases). And: 4. Shared minutes/conclusions result from a synthesis of the conclusions. (All six hats may apply, but mostly the red, green, yellow, and black ones do, as phases.)

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Including all four steps of co-operation in the S step makes USOMID different from typical brainstorming techniques where one person may be in charge of imposing the problem on others. Imposing creates resistance, inhibiting devotion of co-workers’ creativity, and resulting in sufficient excuses and inadequacies to make the process fail. USOMID prevents this difficulty, especially in combination with 6TH. USOMID is mostly devoted to studying and innovating processes of creative work rather than routine ones. Principles of proceeding from a rough toward a detailed insight, fishbone diagrams, and others tools are used for individuals to understand the entire dialectical system of preconditions of requisite holism in a given setting (details are available from: Mulej et al., 2013). Neither have we room to include details about an even distribution of organizational jobs to all circle members which allows everyone to control an organizational viewpoint of the shared process as well as be creative as a circle member. There are twelve roles in the USOMID/SREDIM model because the upper limit of the number of circle members is twelve (the minimum being five). In the circle’s meeting, there is another usual danger: some circle members may want to prevail and argue, which leads toward one-way communication rather than to creative cooperation among all circle members. Cooperation receives support from the USOMID/SREDIM procedure and can receive additional support from the 6TH methodology.

5.3 Chances for Completing up USOMID by the SIX THINKING HATS (6TH) As we summarized in section 5.2, the USOMID model of creative cooperation enables smooth work covering several professional vantage points in an organized procedure, thus leading toward the law of requisite holism. This enables a lot of creativity and innovation, not merely invention. A problem that has remained unsolved over 30+ years is (1) wasting of time and (2) fighting/arguing and bad feelings. Team-member assignments (called organizational jobs to be taken care of along with creative cooperation) are supposed to solve this problem but it does not always work without trouble. This is where the 6TH applies. The 6TH enters the scene as the third dimension along with SREDIM and the four USOMID steps (see Figure 1). The 6TH enables all circle members to avoid arguing and to think in the same direction, and to do so in terms of values rather than knowledge; this is called parallel thinking (De Bono, 2005). Thus, our attempt toward requisite holism is not blocked. The six hats are neither used by one person each nor all at the

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same time, but all circle members use the same hat, and later on another one, in phases. According to De Bono, this replaces the old western habit of discussion participants who see only from their respective viewpoints (e.g., as a solicitor or politician or armies or angry children) and fight for the upper hand rather than for the mutual benefit of a shared, new solution (De Bono, 2005). In other words, the 6TH supports creative cooperation but from different viewpoints than the above-summarized attributes of USOMID: the 6TH points more to the values-and-emotion part of the human personality than to the professional part. Thankfully, both of them are interdependent tools. As summarized above, USOMID contains roles for organizational jobs along with shared thinking. With these roles and the USOMID/SREDIM procedure, USOMID covers the blue hat but not the others. The white one may be visible in step 2 (recording data). USOMID-SREDIM may be better in providing logical phases, which users of the 6TH may design on their own. In the 6TH, all circle members think in the frame of the same hat. De Bono calls this »parallel thinking« and it provides for shared orientation of looking for ideas and proofs. It avoids anyone opposing any other. Hats enter the scene as phases, ruled by accents of thinking. This provides focus, time saving, removal of ego, neutrality and objectivity: one viewpoint in one moment by phases or hats. Obviously, all thinking hats are interdependent. With some more detail they can be described summarized as follows (details in: De Bono, 2005, or any other edition of the book): White hat: - Facts and all data in the given framework (e.g., requisite holism); - Verified data without interpretation, possibilities or critique (requires self-discipline); - An overview (map) is made step-by-step; - Mutual listening, no prior definitions and/or decisions; - Practical orientation and; - Like a computer. Red hat: - Feelings, emotions, intuition; - No explanation why something is (dis)-liked; - Beneficial, although not always precise; correct; - Intellectual feelings (e.g., interesting); - The opposite from the white hat; the irrational aspect of thinking; - Emotions are unavoidable;

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-

Intuition that leads to a new view and thus to creativity; Opinion = assessment + interpretation + intuition = feeling; Emotion expressed without delay (i.e., background of thinking, values); - Thinking may lead to satisfaction, but: o Is it detrimental to others? o Short-term versus long-term? - Emotions cannot be logical; therefore, no justification takes place. Black hat: - Pessimism; most frequently precaution, security, possible dangers, in order to enable survival; - Critical standpoint; deviation from expectation in order to act against mistakes; - No exaggeration in order to prevent over-pessimism and abuse of caution; - Criticism, but all remains logical, although from negative viewpoints; - No equilibrium; weak points are stressed; the yellow hat will stress strong ones; - Doubt about strength of proofs (»Might we better switch to the while hat?«) in order to lead to requisitely holistic insight and assessment of the future situation; - No limitation to criticism, but a contribution is requested! Yellow hat: - Optimism; advantages of the suggestion; positive thinking; - How to implement the idea in practice? - Sensitivity to the benefits of the idea; - Care for making not only black views visible; correction of them, but not in the moment they are being expressed; - Success; the unstoppable desire to implement the idea; - Discipline! The conscious search for positive attributes, sometimes in vain; optimism may be exaggerated: »What action follows it now?« o Assessment of the probability that it can become reality; o Backing one’s positive assessment with research; - Constructive approach to strengthen the efficiency of realization; more important changes are not included now—they belong to the green hat.

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Green hat: - Energy, novelty; - Creativity is the key part of thinking; o Deliberate; o Fantasy-based; - Expose chances to overcome obstacles that the black hat demonstrates; - If energy is too abundant, one switches to the red hat to choose the framework of thinking; - Use it when experience no longer works well; - Provocation included, as well as research and risk; - Lateral thinking—a step away with patterns in a new direction; - Thinking about action, rather than assessment only; - Logic of nonsense; provocation by provocative operation (PO) beyond »yes or no«; - Alternatives after some results; - Skill + talent + personality—all are needed and interdependent. Blue hat: - Thinking about thinking; - Conductor, control, organizing, double-checking; - Initial hat/step aimed to define situation, intention, timetable, and sequence of hat application; - The group head is in charge of this hat all the time; other may intervene to help him/her; - At the end, aimed at conclusions and summaries; - Focusing on questions, problem, tasks, procedures and tools; - Observation; discipline. The system of using all six hats has produced many successes in practical cases for three decades around the entire world (De Bono, 2005). This methodology disables one-sided arguing and makes room for all opinions and data to be presented in phases covered by ‘thinking hats’ in a well arranged procedure in which noone has either the upper hand or is marginalized. One-sided, narrow interests that have caused troubles and wars might be overcome through the use of procedures such as those described.

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6 Some Conclusions All of humankind is in trouble due to business and government monopolies in the global economy. The application of knowledge that might be able to solve the problem depends on values that prevail within entities from families to corporations and countries, international entities (such as European Union) and the entire world (and its United Nations organization). The most influential of all of them are the corporations, hence their corporate governance and strategic management. They should urgently incorporate social responsibility and methods supporting its realization, which we have summarized here.

Chapter Two

All 6 hats

4. Shared con-clusions of the circle

White hat

All 6 hats

White hat

White hat

White hat

All 6 hats

All 6 hats

2. Record data about the selected topic (no ‘Why’)

1. Select problem / opportunity to work on in an USOMID circle

3. Brain-storming for synergy of ideas / suggestions

USOMID Steps Inside SREDIM Phases 1. Individual brainwriting by all in the organisational unit / circle 2. Circulation of notes for ad-ditional brainwriting by all

SREDIM Phases

All 6 hats, red, black, yellow, green first of all All 6 hats, red, black, yellow, green first of all All 6 hats, red, black, yellow, green first of all All 6 hats, red, black, yellow, green first of all

3. Evaluate recorded data on the topic (‘Why is central’)

All 6 hats, red, black, yellow, green first of all All 6 hats, red, black, yellow, green first of all All 6 hats, red, black, yellow, green first of all All 6 hats, red, black, yellow, green first of all

4. Determine and develop chosen solution/s to the topic

All 6 hats in preparation of implementation All 6 hats in preparation of implementation All 6 hats in preparation of implementation All 6 hats in preparation of implementation

5. Implement chosen solution to the topic in reality

Figure 1: Synergy of USOMID/SREDIM and 6TH methodologies in USOMID (Matjaz and Nastja Mulej, 2006)

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All 6 hats in preparation of maintenance

All 6 hats in preparation of maintenance

All 6 hats in preparation of maintenance

All 6 hats in preparation of maintenance

6. Maintain implemented solution for a requisitely long term

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References Bertalanffy, L. v. (1968, edition 1979): General Systems Theory. Foundations, Development, Applications. Revised Edition. Sixth Printing. Braziller, New York Cordoba, J.-R., and Campbell, T. guest editors (2008): System Thinking and Corporate Social Responsibility. Systems Research and Behavioral Science. May-June. 25, 3: 359-437. Special Issue Crowther, D., and K.T. Caliyut eds. (2004): Stakeholders and Social Responsibility. Penang: ANSTED University. De Bono, E. 2005. Šest klobukov razmišljanja. Ljubljana: New Moment (In: New Moment, 28, all journal) EU (2001): Green Paper on Promoting a European Framework for Corporate Social Responsibility. Brussels: European Union. —. (2011): Communication from The Commission to The European Parliament, The Council, The European Economic and Social Committee and The Committee of the Regions: A Renewed EU Strategy 2011-14 for Corporate Social Responsibility. European Commission. Com(2011) 681 Final. Brussels, 25.10.2011 Felber, C. (2010 in 2012): Die Gemeinwohl-Ökonomie. (In German: Economics of Common Benefit) Wien: Paul Zsolnay Verlag François, Ch., ed. (2004): International Encyclopedia of Systems and Cybernetics. 2nd edition. Munich. Saur Verlag Gorenak, Š., Mulej, M. (2010): Upravljanje popolne odgovornosti kot pot do celovitega vodenja podjetja = Total responsibility management (TRM) as an approach toward holistic business management. Naše gospodarstvo (Our Economy), 56, 1-2: 22-31. Hrast, A., Lorbek, D., Mulej, M., ed. (2015): Proceedings of IRDO conferences on social responsibility 2006 – 2015. IRDO, Maribor Hrast, A. & Lešnik Štefotiþ, V. (2015): Overview of standards, certification and awards on social responsibility. In: Hrast, A., Lorbek, D., Mulej, M., editors: Proceedings of the 10th international conference on social responsibility: Social responsibility and current challenges 2015 »Planning & Reporting about Social Responsibility, Newest scientific and professional views with examples of good practice«. IRDO Institute for the Development of Social Responsibility, Maribor IQnet (2011): Social Responsibility Management Systems. Requirements. IQNet Association, Bern ISO, International Standards Organization. (2010). ISO 26000:2010 ISO [on line], [cited 10 May 2011]. Available from: http://www.iso.org/iso/social_responsibility/.

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Jere, T. (2013): Historic Parallelism of Systems Thinking: Maya and the Evolution of Consciousness vs. Contemporary Systems Thinking, pp. 132-141 in: Mulej, M. & 16 coauthors (2013): Dialectical Systems Thinking and The Law of Requisite Holism Concerning Innovation. Emergent Publications’, Litchfield Park, AZ, USA Lebe, S. S. & Mulej, M., Guest editors and authors, with 48 coauthors (2014): Social responsibility and holism in tourism. Kybernetes, vol. 43, no. 3-4 Mulej, M. 1982. Dialektiþno-sistemsko programiranje delovnih procesov – metodologija USOMID. Naše gospodarstvo, 28, 3, 206-209 [Dialecticall-systemic Programming of Work Processes – Methodology USOMID. In Slovene] Mulej, M. (1979): Ustvarjalno delo in dialektiþna teorija sistemov. Celje, Razvojni center. [Creative Work and the Dialectical Systems Theory. In Slovene] Mulej, M., ýagran, B. (2015): 2014/2015 survey on University of Maribor as a sustainable and socially responsible university. Int. J. Markets and Business Systems, Vol. 1, No. 4, pp. 275-288 Mulej, M., Kajzer, S. (1998): Ethics of Interdependence and the Law of Requisite Holism, in: Rebernik, M., Mulej, M., eds. (1998): 4th STIQE ’98. Proceedings, ISRUM et al., Maribor. Mulej, M., R. Dyck, editors and coauthors, with 48 coauthors (2014): Social responsibility beyond neoliberalism and charity. 4 volumes. Bentham Science, Shirjah, UAE Mulej, M., Hrast, A., Dyck, R., Guest editors and authors, with 32 coauthors (2014 and 2015): Social responsibility – a new socioeconomic order. Systems Research and Behavioral Science, vol. 32, no. 2 Mulej, M., Hrast, A., Ženko, Z., Guest editors and authors, with 19 coauthors (2013): Social Responsibility – measures and measurement. Systems Practice and Action Research, vol. 26, is. 6 Mulej, M. & 16 coauthors (2013): Dialectical Systems Thinking and the Law of Requisite Holism Concerning Innovation. Emergent Publications’, Litchfield Park, AZ, USA Mulej, M., Mulej, N. (2006). Innovation and/by Systemic Thinking by Synergy of Methodologies »Six Thinking Hats« and »USOMID. In: Trappl, R. (Ed): Cybernetics and Systems Research 2006. Vienna, Austrian Society for Cybernetic Studies, pp. 416-421. NYT (2015): From: The New York Times, in the column ‘Others – Drugi’. Veþer, 10 Feb., p. 11

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Plešnar, J. (2014): “Civilizacija pred koncem”, Veþer, 18 March, p. 32 [Civilization before its End. In Slovene] Primec, A., Duh, M., Belak, J. (2015: Corporate integrity : the case of Slovenia. In: Global Conference on Managing in Recovering Markets, Maribor, May 18 - 19. Edited by: Kavkler, A., Logožar, K. Proceedings of the 6th Global Conference on Managing in Recovering Markets, GCMRM 2015, Maribor, May 18 - 19, 2015. Uni versity of Maribor: Faculty of Economics and Business, pp. 561-572 Repše, A. (2013): Interni standard za poslovno odliþnost. In: Glaviþ, P., editor (2013): 38. Strokovno posvetovanje o dveh aktualnih temah: a) Strategija razvoja Slovenije in slovenska industrijska politika – kako zagotavljati pameten, vzdržen in vkljuþujoþ razvoj države? b) Primeri najboljše prakse – s podjetništvom in poslovnimi spremembami v veþjo konkurenþnost in nova delovna mesta. ZES, Društvo ekonomistov Maribor in Štajerska gospodarska zbornica. Maribor [Internal Standard for Business Quality. In Slovene] SFPO, EFQM (2010): Priroþnik z orodji za družbeno odgovornost podjetij. SFPO (Slovenska fundacija za poslovno odliþnost), Ljubljana. [Handbook with Tools for Corporate Social Responsibility. In Slovene] Šarotar- Žižek, S., Mulej, M., Treven, S. & Vaner, M. (2014). Well-being of all stakeholders in higher education - from knowledge management to knowledge-cum-values management. International journal of management in education, Vol. 4, No. 3, pp. 225-243. Štrukelj, T. (2015): Dialektiþni sistem vidikov za inoviranje upravljanja in vodenja tranzicijskega podjetja. (Dialectical System of viewpoints for innovation of governance and management of a transitional enterprise; in Slovenian) Doctoral Diss. University of Maribor, Faculty of Economics and Business, Maribor Zlatanoviü, D., Mulej, M. (2015): Soft-systems approaches to knowledgecum-values management as innovation drivers. Baltic Journal of Management Zore, M. (2015): Krepitev inovativnosti podjetij v Sloveniji z razvojem družbene odgovornosti. (Making Slovene enterprises’ innovativeness stronger by development of social responsibility) Doctoral Diss. University of Maribor, Faculty of Economics and Business, Maribor Ženko Z., M. Mulej (2011a): Diffusion of Innovative Behavior with Social Responsibility. Kybernetes, 40, 9/10: 1258-1272. Ženko, Z., M. Mulej (2012): Approach to requisite holistic socially responsible behavior with Dialectical Systems Theory. Mei Zhong gong gong guan li, 9, 2: 183-194.

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Ženko, Z., M. Mulej (2011b): Innovating measurement of economic success for more accurate information = Inoviranje merjenja ekonomskega uspeha za bolj ustrezne informacije. Naše gospod., 57, 5/6: 11-19. www.horus.si

CHAPTER THREE HOW ENTERPRISE VALUES INFLUENCE ENTERPRISE POLICY TJAŠA ŠTRUKELJ, MATJAŽ MULEJ, SIMONA STERNAD ZABUKOVŠEK

1 The selected problem and viewpoint 2 Crises result from one-sided governance 3 Innovation, governance, management and the Dialectical Systems Theory 4 Governance and management process innovation (GMPI) 5 Competitiveness, social responsibility, and governance and management process innovation (GMPI) 6 Governance and management process innovation (GMPI) toward social responsibility 7 Conclusions: European Union supports SR and hence governance and management process innovation (GMPI) Abbreviations: DST – Dialectical Systems Theory; GMPI – governance and management process innovation; IIDP – invention-innovationdiffusion process; RH – requisite holism; SR – social responsibility; VCEN – values, culture, ethics, and norms; VCENH – values, culture, ethics, norms, and habits.

1 The selected problem and viewpoint The problems humans are facing today can be solved with beneficial changes brought about by ideas becoming inventions, suggestions, potential innovations, and innovations (and their diffusion to many users, at the end of the process). They result from crucially needed creativeness and innovativeness, new ideas, and constructive, out-of-the-box thinking. One precondition for the way out of the crisis and for reaching enterprise

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competitiveness is provided by enterprise governance and management process innovation (GMPI) toward new values/society, social responsibility (SR) and resulting sustainability that enables the survival of humankind. Governance based on the GMPI model can attain these crucial needs. Thus, in this chapter we will address enterprise governance and related innovations leading toward more holism and success. The official international documents about innovation (launched by the OECD in 1971 and by the European Union in 1995) make no distinction between technological and non-technological innovations, except in the statistical coverage of data about them. The socio-economic crisis that emerged in 2008 in the most technologically advanced and democratic countries demonstrates the need for much greater attention to the nontechnological innovation, especially the most influential one, i.e., the governance style on which all other innovations essentially depend. The thesis under discussion reads: requisitely holistic governance leads to more success than a one-sided one, and the GMPI model supports the requisite holism, and thus the way out from the current crises.

2 Crises result from one-sided governance Economic growth can be based on solid ground or on the abuse of humans and natural preconditions for human existence. Which alternative is perceived as making sense depends on the criteria that depend on prevailing values, which become culture when accepted in a (broader) group, and which become the prevailing ethics when winning over other cultures and then the norm for all (the VCEN concept, see Potoþan and Mulej 2007). Recent data show that the neo-liberal economic practice has destroyed the socially beneficial working of the market by allowing monopolization under the banner of ‘market fundamentalism’ to the benefit of a tiny minority of humankind (see Mulej et al. 2013; Mulej and Dyck, eds. 2014; for details see many references in public and professional press). This means that since WWII, mostly(or at least too much for humankind’s benefit) destructive entrepreneurs and managers have dominated the economy and their applied criteria/norms have depended on the narrow benefit of owners and managers , rather than on the social benefit that prevents their abuse of humans and nature (see public data on the inequalities, poverty, the abuse of employees around the world, wars, the production of detrimental tools, the depletion of our natural resources, climate change caused by human one-sidedness, many poisonous waste deposits rather than recycling, cutting woods, mining with no/poor renewal of nature, accelerated urbanization and desertification and other

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ecological limits caused by people, transported rather than local products such as clothes or food and other examples of the world’s misery). Such conclusions make sense in the light of the fact that the United Nations, different associations of progressive global enterprises, the European Union, the International Organization for Standardization, and so on, have published many documents which require social responsibility and oppose neo-liberalism as the promoter of destructive governance and related abuse of humans and nature. Dankova et al. (2015, 158) determine three types of corporate social responsibility standards: x Sustainability standards based on political will (UNGC – the United Nations Global Compact; OECD ME – the Organization for Economic Co-operation and Development Guidelines for Multinational Enterprises; OECD CG – the OECD Principles of Corporate Governance; GSC – the German Sustainability Code); x Corporate social responsibility management standards based on professional judgment (SA 8000 – an auditable social certification standard for decent workplaces, across all industrial sectors which is based on conventions of the ILO – International Labor Organization, the UN – the United Nations and national laws; ISO 26000 – the corporate social responsibility standard by the International Organization for Standardization (N.B. These standards are related by definition to corporate social responsibility, while the other standards mentioned here are linked to the concept of sustainability that can result from SR.); and x Sustainability/corporate social responsibility reporting standards based on professional judgment (GRI – Global Reporting Initiative; EFFAS KPIs – the European Federation of Financial Analysts Societies key performance indicators). Therefore, ISO 26000 (ISO 2010), which is an important methodological starting-point for this research (see Figure 1), is not the first international document standardizing human care for SR, but it is the first one introducing ‘interdependence’ and the ‘holistic approach’ that are the central requirements in the Dialectical Systems Theory – DST (Mulej 1974 and later; Mulej et al. 2000; 2013), which is also an important methodological starting-point for this research. The European Union notes that corporate social responsibility (CSR) is no longer a sole initiative, nor is it self-sufficient; but rather it is obviously a tool for solving critical socio-economic problems (the EU 2011). This is

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very much in line with the fact that ISO 26000 (ISO 2010) is explicitly introducing (1) interdependence and (2) a holistic approach (ISO 2010), which means a broader view rather than a one-sided one. ISO 26000 is making room for more thinking about preconditions for sense-making governance and economic growth rather than the destructive ones of so far: humankind’s prosperity is what makes sense (Mulej, ed. 2013; 2014; Mulej and Dyck, eds. 2014). To sum up, the problems caused by the neo-liberal and industrial ages and paradigms cannot be solved by the same paradigm that was introduced when the number of people on the Earth and their consumption of nonrenewable natural resources was only a tiny fraction of the current one. In other words, the 2008 crisis is/was basically not only a financial and economic crisis, but rather it marks the end of the 2-generation cycle of about 70 years in which the values of neo-liberal economics have prevailed after WWII. It caused people to forget about the fact that the industrial/neo-liberal socio-economic paradigm was only a necessary and an extremely costly phase. If this phase is not overcome, the current civilization will destroy itself very soon (Brown 2008; Harris 2008; Mulej 2010; 2011; Prosenak and Mulej 2008). For over three decades now, the carrying capacity of the Earth has been overburdened (Božiþnik et al. 2008; Brown 2008; Hrast et al., eds. 2012; 2015; Hrast and Mulej, eds. 2010; ISO 2010; Mulej, ed. 2013; 2014; Mulej and Dyck, eds. 2014; Mulej and Hrast, eds. 2010). Thus, humankind needs technological innovations. These innovations are significant factors of enterprises’ market-competitiveness and performance within the process of globalization; however, they depend on non-technological innovations, especially innovations regarding the governance of society and organizations. This Chapter thus focuses on enterprise governance and related innovations leading toward more holism and success.

3 Innovation, governance, management and the Dialectical Systems Theory More than forty years ago, in 1971, the OECD provided its broad and fairly realistic official definition of innovation. Nevertheless, many still tend to limit this term to technological innovation, as is the case with official international statistics. But technology alone does not create the future; it is a tool of decisive humans and their followers (Collins 2001; Collins and Porras 1997). If it is a tool, does either one-sidedness or requisite holism and social responsibility (RH/SR) in human behavior show the way out from any crisis? Data of the results of the recent decades

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expose the dangerous impact of one-sided decision makers and the need for RH/SR (Božiþnik et al. 2008; EU 2011; Harris 2008; Hrast et al., eds. 2012; 2015; Hrast and Mulej, eds. 2010; ISO 2010; etc.; numerous websites on social responsibility; the above mentioned mass media). SR reflects RH and the wholeness of outcomes based on a RH, rather than the one-sided, approach to human activities. The official international definition of innovation does not cover technology only, although the statistical guidelines in the related Oslo Manual cover technology only: “Innovation is the renewal and enlargement of the range of products and services and the associated markets; the establishment of new methods of production, supply and distribution; the introduction of changes in management, work organization, and the working conditions and skills of the workforce” (the EU 2000). In the current trends, innovation cannot be reduced to the invention-innovation-diffusion process (IIDP) of products and services; rather, it must cover non-technological issues as well, or even first of all. Innovation emerges from inventions if one governs the entire process with requisite holism (RH) rather than one-sidedly. This is easier to attain with a systemic approach by putting all essential professions/viewpoints into synergy, such as Mulej’s Dialectical Systems Theory (Mulej 1974; 1979; Mulej et al. 2000; 2013). Then, competitiveness is sufficient because the enterprise is closer to ‘visionary companies’ (Collins and Porras 1997) and their way ‘from good to great’ (Collins 2001). An enterprise of the ‘visionary’ type does not care much for the macroeconomic fact that there are competitors and that a general indicator of the degree of competition on individual markets nowadays is the price convergence that should be somehow automatically achieved (see, for example, BekĘ and Boršiþ 2007). Therefore, we indicate the importance of stimulating innovations of any kind – enforcing also greater consciousness needed for people to use the opportunities available to them (Kadocsa and Francsovics 2011). We do not include the process/technological innovations only, but also the non-technological ones, including tackling governance and management process innovation (including creativity and out-of-the-box thinking). This is a needed condition (and precondition) for positive societal and enterprise/organizational (requisitely holistic) development. To clarify the afore mentioned necessity of enterprise governance and management innovation aimed at problem solving as indicated above, we will use Mulej’s Dialectical Systems Theory (DST) approach (Mulej 1974 and later, included in the encyclopedia by Francois, ed. 2004). DST emerges from Bertalanffy’s crucial statement that he created his General Systems Theory (GST) against overspecialization (von Bertalanffy 1968,

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VII). DST adds methodological support to make this important aim feasible in reality (for the latest version see Mulej et al. 2013). Mulej, as DST founder, states that this methodology is a soft-systems one, a qualitative one, and is designed to be a bridge between disciplines (see Mulej et al. 2000, 283–284). It takes into account the complexity; hence, it is designed to have an impact on people based on their complementarity of differences. Therefore, DST is never based on a system as the image of the object from a single selected point of view; DST is not more describing than it is creating innovation in research (but not limited to); DST is neither more contemplative than it is constructive, but not exclusively. DST tries to enforce the basic purpose of the authors of systems theory/theories: to achieve as much integrity (i.e. requisite holism) in human thinking, in human actions and behavior as possible by linking interdependent components of reality, of specialized professions and viewpoints, which consequently results in synergy as they are interdependent despite being mutually different. Moreover, Mulej attempts to support the path to integrity/holism/comprehensiveness via designing the methods for creative cooperation and the related basic cognitions (Mulej 1974 and onwards). An enterprise’s impact depends on its governance, which is expressed as its enterprise policy, on its strategy, and on its requisite holism. The Mulej/Kajzer law of requisite holism (RH; Mulej and Kajzer 1998) reminds people of their need to reach beyond a single viewpoint toward including all essential viewpoints, their interdependences, interactions and synergies, i.e. their dialectical system, although they have no real chance to attain the total holism. The enterprise’s policy and strategy may support its innovativeness, market competitiveness, better performance and requisite holism very well. They may also help humans pave their way to their sustainable future if entrepreneurs and managers believe that much more can be attained with requisite holism than with one-sidedness of behavior consisting of monitoring, perception, thinking, emotional and spiritual life, decision making, communication, and action. The requisitely holistic behavior and management success can be achieved via dialectical and other soft-systems theories (see Mulej et al. 2000; 2013). For achieving enterprise success, one must follow requisitely holistic behavior concerning innovation (Ženko and Marn 2006; also Crnogaj et al. 2015; Rebernik and Širec 2007) and growth aspiration (Moþnik and Širec 2016), and must practice creative cooperation aimed at innovation, including governance and management process innovation (GMPI), which also depends on enterprise culture (Belak, Je. 2016). Enterprises should use modern, integral management (Duh and Štrukelj 2011; Kavþiþ et al. 2015). Therefore, we used the MER model of

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integral management as our second methodological frame (Belak, Ja. 2002; 2010; Belak, Ja. et al. 2012; 2014; Belak, Ja. and Duh 2012; Duh 2015; Duh and Belak, Je., eds. 2014; see, e.g., also Štrukelj et al. 2012, 163; 2012e, 3; Štrukelj and Mulej 2011a, 2). In the MER model of integral management, enterprise policy, which consists of enterprise mission, purpose and basic goals, is defined as follows (based on and extended from Belak, Ja. 2010, 79–83): x Enterprise policy: “Enterprise policy defines basic, general and long-term characteristics of an enterprise. It contains a mission, a purpose and basic goals of the given enterprise with global determination concerning resources, processes and outcomes.” x Enterprise mission: “It is entrusted enterprise’s duty and role in its relation to its environment: sphere of activity (products/services), profession, basic and general environment/society relation, including modern treatment of its environment.” x Enterprise purpose: “It is the reason for the enterprise’s existence. It aims at simultaneous permanent satisfaction of all stakeholder interests (including the innovation of key stakeholders’ values, culture, ethics, norms and interests); it also stands for the development of enterprise effectiveness.” x Enterprise basic goals: “They stand for the enterprise’s existence, its operations and its ability to survive and to develop; also, they stand for the preservation and the increase of the owners’ funds based on profit and quality (enterprise market value multiplication).” The enterprise policy’s requirements are considered fulfilled when they are realized at the level of the strategic management as well (see Belak, Ja. 2002, 132). Strategies and related structures are crucial instruments for the enterprise policy implementation. In this way, the modes of enterprise policy realization are determined. This is why the enterprise policy implementation is the central task of top management and that is why it directly belongs to the process of strategic management process and indirectly to the operational management process. As pointed out by most of integral management models, every enterprise should be aware of (its) values, culture, ethics and norms (VCEN; see Potoþan and Mulej 2007 about VCEN), of itself (i.e., its characteristics), and the environment in which it is embedded (Belak, Ja. and Duh 2012; Duh 2015). This awareness of owners and managers leads toward their enterprise policy innovation, which consequently results in the search for the enterprise’s development potential. To make this

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possible, it is also necessary to constantly innovate research starting-points and remuneration, as shown in the current crisis (2008-present); special attention should be placed on VCEN. The enterprise policy must be oriented toward the responsible behavior of the society as a whole (i.e., all humans) (see Belak, Ja. 2002, 110–113). The lack of social responsibility, the lack of SR-ethics and the lack of an appropriate holistic behavior and sustainable development are clearly important (economic) factors that caused the socio-economic, value, etc., global crisis of 2008-present. Therefore, we suggest that the SR of enterprises, other organizations, and every individual are incorporated into personal VCEN that influence people, enterprise vision, enterprise policy, strategies and business operations. Positive rather than destructive changes result from increasingly important ideas which turn into inventions, suggestions, potential innovations, and innovations (in all of their types, i.e., technological and non-technological ones) – as phases of the invention-innovation-diffusion process (IIDP). They result from the crucially needed creativeness and innovativeness, new ideas, and constructive thinking in the current era of different viewpoints which originate from different types of leadership, values, knowledge, reality, and experiences (Meško Štok et al. 2009). This is why one addresses also the changes needed for sustainability and new values; nowadays, enterprises’ market-competitiveness, performance, and methods of success are continuously changing. The diffusion of innovations exceeds the scope of this chapter (see Ženko and Mulej 2011 for a detailed elaboration on this topic). Here, we concentrate only on the governance and management process and its link with one’s social responsibility (SR), which is based on (1) interdependence and (2) holism (ISO 2010).

4 Governance and management process innovation (GMPI) SR actually supports solutions to problems that result from one-sided management and behavior and that are very costly to repair. These problems show up in many forms but with a common denominator; that is, a lack of requisite holism results in failure rather than successes (see Mulej 2011). The lack of requisite holism (RH) and the resulting failures to take into account crucial attributes cause the waste of both human and material resources because the longer-term effects are overlooked as they are deemed less important side effects. Actually, side effect is a wrong classification, as the available data tell us; such side effects diminish competitiveness and hence the benefits for all stakeholders and society at

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large. Both human and material resources are underused or wrongly used, which is especially true for human creativity, capability, and VCEN. The usual accountancy does not show these facts; opportunity cost/benefit calculation does. This means that neo-liberal economics have not been successful, but have resulted in destructive governance once the socio-economic viewpoint is also considered, rather than only individual enterprises’ viewpoints. The latter perspective tends to be too narrow and short-term to be satisfactory. Prosperity is defined best (i.e., more holistically) when it includes human wellbeing (ýanþer and Šarotar Žižek 2015; Šarotar Žižek et al. 2012), which depends much less on knowledge than on values (Letonja and Duh 2015) and on systemic thinking (Ženko and Šardi 2014). Hence, the innovation of values in the direction of SR might offer a solution for sense-making governance and economic growth to become the prevailing reality of competitiveness. Education in schools and outside schools provides young and adult persons with basic VCEN and related knowledge. Due to a huge growth of knowledge and poor experience with the life in preindustrial times, the entrepreneurs-run society – called capitalism – has introduced VCEN and knowledge of extremely narrow specialization (Smith 2010). The resulting one-sidedness was supposed to be overcome by a totally free market and multi-party political democracy that were to take care of the common good. Now one sees that this approach has caused two world wars (with the Great Depression between them and linking them) and many other crises, including the ongoing global crises, with global detriments for an overwhelming majority and benefits for very few (see data in public press). The public data about the crisis, however, do not show the essence of the problem, but only the visible consequences. The problem did not grow on a tree; it has resulted from human behavior that lacks SR for humans to be less selfish for selfish reasons, i.e., less short-term and narrowly oriented in their behavior than so far in order for the current human civilization to survive. The Earth can exist without humans (as it had for millennia), but humans cannot live without a healthy Earth, and hence without a healthy economy (Hrast et al., eds. 2015; ISO 2010; Mulej 2010; 2011; Mulej, ed. 2013; 2014; Mulej and Dyck, eds. 2014; Mulej and Hrast, eds. 2010; their quoted references; etc.). Thus, for very economic reasons, IIDP and innovation, as its outcome, need a broader definition than a technology-related one only. The EU’s definition (the EU 1995) is broad enough, in principle, although completely enterprise-based, but not elaborated in any detail; technological innovation only is measured. This causes misinformation in the statistics, which in turn forms a misleading

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basis for government, business, and individual decisions. Additionally, safety issues can be added. These are examples of the threats of one-sidedness rather than SR. Human behavior toward humankind’s natural environment has so far received more attention from ecologists than from criminal justice and security scientists (Meško et al., eds. 2011). Now, financial experts and ecologists are equally important (Brataniþ, 2016). From all these aspects, invention-innovation-diffusion processes (IIDP) are urgently needed in order for humans to achieve SR and to survive as the current civilization; in this connection, a broader definition of innovation that reaches beyond technology is required. One precondition for overcoming the one-sidedness and for building support for SR as a solution to the current crises and for reaching enterprise competitiveness is provided by GMPI, which we introduce below. The GMPIs, which are needed for enterprise business and development, arise from the managerial style. As in many life situations, it seems that the specialists of particular business fields sometimes do not take into consideration the systemic connectedness of the selected fields of enterprise governance, management, and business process, and the necessary close link between an enterprise business (practice) and its development. From the MER model of integral management’s viewpoint, the developmental starting points are, however, determined in the enterprise policy and similar shareholders’ (owners’) starting points used by top managers in strategic management (see, e.g., Belak, Ja. and Duh 2012; Belak, Ja. et al. 2014; Duh and Belak, Je., eds. 2014). In addition, as the values are a part of these starting points, they have an important impact on the enterprise policy of enterprise governance; considering problemsolving in the framework of management, the basic realization process also results from them (Malbašiü et al. 2014; Potoþan and Nedelko 2015; Štrukelj 2015). Hence, we state that the recognition of the importance of GMPI has a deep influence on the enterprise development, performance, and success. Thus, we set the hypothesis that organizations need GMPI for the strategy of any kind (including the market-competitiveness strategy based on SR that leads to better performance). GMPI, as a factor in an enterprise’s market-competitiveness/performance, is described in Section 6 with Section 5 explaining GMPI in more detail. Although this is only a part of our research, we would like to move toward essential further research on the particularities of GMPIs: their interdependence with an innovative business environment within different frameworks; according to new, requisitely holistic, socially responsible behavior as introduced in

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Section 5, owners and managers decide so and know how to do it. To do so, they need requisite holism (RH) in their approach and social responsibility (SR) in their VCEN (see a less detailed description of this topic in Štrukelj and Mulej 2011c).

5 Competitiveness, social responsibility, and governance and management process innovation (GMPI) The current circumstances of an increasing social complexity and of our civilization calling for sustainability (Goerner et al. 2008) unavoidably require a market-competitiveness strategy that results in an enterprise’s better socially responsible performance (Dankova et al. 2015; the EU 2011; Štrukelj and Šuligoj 2014). Enterprises, therefore, must establish their vision and enterprise policy first, and they must regularly innovate the whole governance and management process (for the correlation between an enterprise policy and its market value see, e.g., Amman et al. 2011; Balasubramanian et al. 2010). See Section 6 and Table 1. Accordingly, one must take into consideration that GMPI depends on the subjective viewpoints of stakeholders, but most of all on the viewpoints of shareholders and top managers and their ability of adaptation toward requisite holism of the approach for requisite wholeness of outcomes. This is why we explored the issues of the enterprise GMPI as a framework for thinking about enterprise policy, strategic management, innovativeness, social responsibility, competitiveness, and better performance. This is, among others, one possible way for humankind to find its way out from the current 2008-present crisis (see Štrukelj and Mulej 2010a). All changes that humans are facing today take place within the framework of the global economic environment; to get the proper data, enterprises can use the enterprise resource planning system (Sternad et al. 2011), although they need the knowledge to use them (Šebjan and Tominc 2015). SR is a potential innovation that reduces costs (the EU 2011). If we consider the cited issues with RH, we find that SR causes uncovered and avoidable costs only fictitiously and in a short term (the opponents of SR often quote costs as reasons against SR, see public press). The costs of honest behavior replace – as an opportunity cost that is hard to see in book-keeping data – the costs that are clearly (although often indirectly) visible in book-keeping data, such as the costs resulting from, for example, mistrust on the part of managers, co-workers, and business partners, the double-checking of the creditworthiness of new business partners and replacing the lost ones, a dissatisfaction causing poor work and strikes that result from dissatisfaction, be they visible or white, the loss and the

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recruitment of high-quality co-workers and other business partners, the routine-addiction rather than creative/innovative behavior, misery and poor health and illnesses (which are cured rather than prevented), the remediation of consequences of natural disasters, terror, and wars, etc. Thus, SR changes the practice of ownership as defined by the still accepted Roman law stating that the ownership gives to the owner the right of use and abuse (Cunk 2016). The abuse must be replaced by SR/RH for humankind and its organizations, for that matter, to survive as the current civilization. This civilization faces problems of (1) extreme division and (2) affluence. Affluence is subjective; it causes the lack of ambition to work hard in order to have more once one has everything one feels as a need (James 2007). Need differs from greed in a sense that ‘one buys things which one does not need in order to impress individuals for whom one does not really care’. Greed supports production beyond needs, but it ruins nature beyond needs, too, and is detrimental in the long term at least. Development of SR is, hence, aimed to be an innovation in human behavior toward the ethics of interdependence and a resulting RH – for clear business reasons. For SR to become more than a word, a strategy of implementation of SR (introduced in Section 6) – as a potential innovation – might be needed (Štrukelj 2015). To improve their competitiveness and governance, enterprises can use findings summarized in the ISO 26000 standard on social responsibility (ISO 2010), which places organizational governance in the centre of all 7 core social responsibility subjects. ISO 26000 requires a holistic approach (based on interdependence) and includes the following seven content areas: (1) Organization, management and governance, (2) Human rights, (3) Labor practices, (4) Environment, (5) Fair operating practices, (6) Consumer issues, and (7) Community involvement and development. See Figure 1. Principles of SR, belonging into VCEN are seven: (1) Accountability, (2) Transparency, (3) Ethical behavior1, (4) Respect for stakeholders’ interests, (5) Respect for the rule of law, (6) Respect for international norms of behavior, and (7) Respect for human rights (ISO 2010, 10–14). For social and economic reasons, social responsibility means that everybody behaves as a reliable person beyond social community requirements defined in legislation. It exposes giving up dangerous one-sidedness in order to free all humans of its tough consequences, and to attain more survival possibilities, success and well-being, at least in the long term. The economic, social and natural 1

Ethical behavior means values of honesty, equity and integrity. These values imply a concern for people, animals and the environment and a commitment to address the impact of its activities and decisions on stakeholders' interests.

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crises of 2008-present resulted from such dangerous one-sidedness, which lacks social responsibility’s crucial concepts that link all principles, core subjects and process steps in ISO 26000: (1) interdependence and (2) the holistic approach. Thus, ISO 26000 (see Figure 1) requires the application of the DST approach. The European Union (the EU 2011) no longer allows enterprises to treat their social responsibility as a very private affair. The EU requires all EU Member States and large enterprises to apply social responsibility in order to support their competitiveness as a non-technological invention-innovation-diffusion process (IIDP). Gerzema and D’Antonio (2011) found empirically that customers in the USA increasingly require their suppliers to be socially responsible. Thus, both the market and the law require GMPI. Figure 2: The essence of social responsibility in ISO 26000

* The figures denote the corresponding clause numbers for the seven core subjects/summary of the essence of social responsibility in ISO 26000. Source: ISO 2010, 4.

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According to Lenihan (2011), the ‘new’ enterprise policy should take into consideration the systems approach and should stimulate research and development, innovations, and training/education (including the training/education about SR). All of the summarized research indicates a shift toward enterprise governance, creativity and social responsibility, and confirms our argumentation that the current economies need radical changes to come from the ongoing 2008-present (values) crisis, and also through the GMPI. This process must lead toward the socially responsible enterprise. Rapid changes from a supplying to a sustainable and, consequently, socially responsible (global) enterprises are shown in Section 6. The need for governance and management process innovation toward SR is discussed in Section 6.

6 Governance and management process innovation (GMPI) toward social responsibility Many researchers have detected that the same ideas/technologies and marketing with two different business models result in two different enterprise performances (Laroche, ed. 2011; Porter and Kramer 2006). This is why enterprises should develop their business model innovation ability (Kavþiþ et al. 2015; Sorescu et al. 2011; Sosna et al. 2010; Teece 2010). Thus, enterprises should innovate their governance and management processes as well or to a greater degree. Among the many worldwideacknowledged models of integral management that stress governance and management processes, we would like to point out the following authors: Belak, Ja. and Duh(2012), Belak, Ja. et al. (2014) Duh and Belak, Je., eds. (2014), Bleicher (1995) and Wheelen and Hunger (2010). These authors take the above systems connections into account or at least point them out. However, we must be aware that also each of these models presented only a partial (although rather integrative) view of organizational development and business, depending on subjective viewpoints of cooperating authors and schools (see Štrukelj and Mulej 2008, 178–179). Thus, they provide only a framework for the precise investigation of an enterprise. Moreover, there is a lack of integral (and integrative) linkage in consideration of leadership and enterprise policy as well as other components of integral management concepts, including GMPI. All the presented models verified the hypothesis we had set for our research; that is, for a strategy of any kind one needs GMPI (also for a market-competitiveness strategy, based on SR, which results in better performance). One must first establish and regularly verify the validity of enterprise vision and enterprise policy (mission, purpose, and the basic

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goals of the given enterprise) whatever its size. SMEs must apply the law of requisite holism to succeed, too (Mulej and Kajzer 1998). One must then implement enterprise policy, i.e., one must search for strategic possibilities, the right strategies to achieve the enterprise policy, and structures to achieve the strategies. Shareholders determine enterprise policy in accordance with their philosophy/VCEN via their interests (see Table 1). All this matches the MER model of integral management (Belak, Ja. 2002; 2010; Belak, Ja. et al. 2012; 2014; Belak, Ja. and Duh 2012; Duh 2015; Duh and Belak, Je., eds. 2014). According to Eüimoviü and Haw et al. (2012), sustainable development must lead to sustainable future; humans should neither become selfsufficient nor locally-minded only. Thus, sustainable future needs support from human behavior (Šarotar Žižek and Mulej 2013; Mulej et al. 2015). The process must lead toward socially responsible enterprise governance (and resulting enterprise policy), management, and practice (Dankova et al. 2015; Štrukelj and Šuligoj 2014). Rapid changes from a supplying to a sustainable, socially responsible enterprise and a new definition of the concrete contents of requisite holism of enterprises’ behavior are described below. X denotes interdependence. No attribute can be avoided any longer for a long-term success/requisite holism. In the first version, Bolwijn and Kumpe (1990) did not include the X sign, but they had the + sign. The + sign denotes no interdependencies and resulting synergies; elements are only summed up in a set, not in a system. Summation only is actually an oversimplification. The original model did not contain the periods 1945– 1960, 2000s, 2010s, and 2050s either; The sign * means the addition by Štrukelj and Mulej (2009), who supplemented the 2010s and added the 2050s: x Period 1945–1960 – Market and social requirements: covering of post-war conditions of scarcity, rebuilding, etc. Enterprise’s ways to meet requirements (thus to succeed*): supply anything; supply does not yet exceed demand. Type of enterprise: supplying enterprise. x The 1960s – Market and social requirements: suitable price (as judged by customers*). Enterprise’s ways to meet requirements (thus to succeed*): internal efficiency i.e. cost management. Type of enterprise: efficient (exporting*) enterprise. x The 1970s –Market and social requirements: suitable price X quality (as judged by customers*). Enterprise’s ways to meet requirements (thus to succeed*): efficiency X technical &

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x

x

x

x

x

commercial quality management. Type of enterprise: quality (exporting*) enterprise. The 1980s – Market and social requirements: suitable price X quality X range (as judged by customers*). Enterprise’s ways to meet requirements (thus to succeed*): efficiency X technical & commercial quality X flexibility management. Type of enterprise: flexible (global*) enterprise. The 1990s – Market and social requirements: suitable price X quality X range X uniqueness (as judged by customers*). Enterprise’s ways to meet requirements (thus to succeed*): efficiency X technical & commercial quality X flexibility management X innovativeness management. Type of enterprise: innovative (global*) enterprise. The 2000s* – Market and social requirements: suitable price X quality X range X uniqueness X contribution to sustainable development (as judged by customers*). Enterprise’s ways to meet requirements (thus to succeed*): efficiency X technical & commercial quality X flexibility management X innovativeness management X sustainable development management. Type of enterprise: sustainable (global*) enterprise. The 2010s* – Market and social requirements: suitable price X quality X range X uniqueness X contribution to sustainable development/future X (corporate) social (and other) responsibility (as judged by global, networked learning customers*). Enterprise’s ways to meet requirements (thus to succeed*): efficiency X technical & commercial quality X flexibility management X innovativeness management X sustainable development management X management of/by enterprise key stakeholders honest behavior toward co-workers, other business partners, broader community/society (thus all stakeholders) and natural preconditions of the survival of the current human civilization (backed by interdependence and requisite holism). Type of enterprise: socially responsible (global*) enterprise. The 2050s* – Market and social requirements: suitable price X quality X range X uniqueness X contribution to sustainable development/future X (corporate) social (and other) responsibility X conscious of fragility and interdependence of all species on/and the Earth (as (would be) judged by customers, society, other stakeholders, and the Earth, residents as interdependent species) X sustainability/interdependence requirements. Enterprise’s ways to meet requirements (thus to succeed): efficiency X technical &

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Table 1: The cybernetic circle of the preparation and implementation of the management process practicing SR (too) as a crucial IIDP (a simple model) The considered and the unconsidered markets, social, cultural, political, financial, economic, technical-technological, alimentary, natural, and ecological environment ENTERPRISE GOVERNANCE AND MANAGEMENT PHASES Definition of vision

PREPARATION PHASES



  Definition of mission, purpose, and basic goals (enterprise policy)

  Definition of other partial/entireness enterprise policy/ies   Definition of strategies

  Definition of tactics and operative directions   Running the operations

Drafting of vision, mission, policy/ies, strategies, tactics, operation ž Definition of starting points for drafts (including e.g. VCEN, strengths, weaknesses, opportunities, and threats) ž Definition of starting points for drafts ž Consideration of experiences

 

Ÿ

Source: Mulej et al. 2009; Štrukelj 2015, 61–62.

ž Intervening when and where needed in all management phases ž Checking the results of operation

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commercial quality X flexibility management X innovativeness management X sustainable development management X management of/by enterprise key stakeholders honest behavior toward co-workers, other business partners, broader community/society (thus all stakeholders) and natural preconditions of the survival of the current human civilization (backed by interdependence and requisite holism) X management of conscious and purposely worked-on satisfaction/well-being assurance of all species, protection of the Earth, and unselfish business for welfare of all/everything; less of the current short-term and narrow-minded selfishness for the basic selfish reason – survival; developing toward sustainability: people and the Earth beyond short-term profits. Type of enterprise: socially responsible (smaller, local) requisitely holistic enterprise, including spiritual conscious (respectful to the Universe). The enterprise policy results from the enterprise vision and it incorporates this vision; thus, it presents broad starting points for the enterprise (see Belak, Ja. 2002, 44 and 38–39). To overcome the crisis that the Earth faces, this vision should include the social responsibility (SR) of the behavior motivating the enterprise stakeholders toward a modern, requisitely holistic, VCEN and behavior for the long-term survival of their enterprises (Duh et al. 2010). See also Belak, Je. (2013), Belak, Je. et al. (2010), Hrast et al., eds. (2011; 2012), Hrast and Mulej, eds. (2010), ISO 2010, Mulej and Hrast, eds. (2010), Peršiþ and Markiþ (2013), Prosenak and Mulej (2008), Štrukelj (2015), Štrukelj and Mulej (2008; 2010a; 2011c). The differences in enterprises’ policies result from the differences in stockholders’ and stakeholders’ interests which reflect VCEN. The enterprise’s policy is an important management instrument that influences the development and the operations of that enterprise (Belak, Ja. 2002; 2010). See also Belak, Ja. and Duh (2012), Belak, Ja. et al. (2014), Duh and Belak, Je., eds. (2014), Bleicher (1995), Lenihan (2011), and Wheelen and Hunger (2010). Our example highlights the management process practicing SR and takes into consideration the model shown in Table 1. It presents a basis for the strategy of the implementation of SR and shows how such a strategy can receive good support from a requisitely holistic (RH) approach to governance and management process (using GMPI):

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x Enterprise vision: survival based on competitiveness by RH/SR creative work and cooperation aimed at a systemic quality matching the customers’ requirement. x Enterprise mission: delight customers with an excellent systemic quality and attract them as socially responsible, sustained and sustainable customers in interdependence and requisite holism (RH). x Enterprise purpose: sustainable/SR development for satisfying all crucial stakeholder interests. x Enterprise basic goals: existence, performance, survival, and the development ability of the enterprise, its stakeholders, the Earth, and society. x Enterprise policy: implement sustainable innovative business and SR as a source of a continuous systemic quality in all parts of the enterprise development, business process and all units. x Enterprise strategy aimed at the implementation of such a policy may employ (1) continuous self-assessment of one’s own quality in terms of the Deming Prize of Japan, the European Excellence Award, or Baldrige Award of USA or (2) (as a first phase) the attainment and the re-attainment of International Organization for Standardization’s rules as ISO 9000, ISO 14000, ISO 26000 or ISO 27000 certificates, and/or something similar (see, for example, the Slovenian award for SR HORUS at www.horus.si). x Enterprise tactics and operative directions for the implementation of such an IIDP strategy include organized critique, which is followed by teams’ and task forces’ work on solutions to the selected problems (on a free-will basis and during working hours, one hour per week), with the awards for inventions and innovations (symbolic in value, but with no delay). An ‘Innovation reward’ is foreseen for all innovative teams, all members of their own organizational units, every organizational member including managers, while a half of the value created by the innovation enters the enterprise’s business funds for IIDP. x Enterprise practice (running the operation): permanent IIDP on a RH/SR basis as its management style and process. x Monitoring and intervening: the managers’ committee for the promotion of IIDP and excellence based on SR – in session once in every three or (later) six months; Agenda: 1. comparative assessment of all units; 2. variable part of income of units' managers depending on this assessment; 3. the approval of new innovation-related objectives of units.

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x Rewarding: non-monetary (i.e., recognition by peers and superiors of being considered creative and innovative) and monetary (e.g. 50% of innovation-based profit goes to enterprise funds, 50% goes to co-workers, 30% of which is allocated to authors and co-authors of innovations, 10% to everyone in the innovative unit, and 10% to everyone in the enterprise). x Training: in profession and creation, including creative interdisciplinary cooperation. VCEN (see Potoþan and Mulej 2007) are soft determinants that influence the needed (corporate) SR (Štrukelj and Šuligoj, 2014); it is important to mention the well-described attainment of SR by enterprise ethics planning, which is presented in Belak, Je. and Milfelner (2011). The authors found that the SR of enterprises, other organizations, and countries depends on humans and their ethics, which can be viewed as the information impact of influential persons over others and their internalization of received information about the ‘correct’ ethics/VCEN. SR can be attained by the planning of ethics. Moreover, as we have experienced, achieving this is an essential part of GMPI within IIDP. Nowadays, the enterprise policy must be oriented toward the enterprise’s responsible behavior (Belak, Je. et al. 2010; Belak, Je. 2013; Štrukelj 2015; Štrukelj and Šuligoj 2014). This need has to be included into all steps as presented in Table 1. The responsible enterprise policy is (1) many-sided, (2) objective-oriented into the implementation of all stakeholders’ interests, and has (3) high level of SR consideration and (4) long-term developmental attitude, which requires the entrepreneurial innovative search for new opportunities (see Table 2). (Source: Bleicher 1995, 100–120; also Belak, Ja. 2002, 113; adapted, supplemented, extended, and modified according to the authors’ recent study. Authors’ own presentation. See Štrukelj and Mulej (2011a, 2 (first version)), Štrukelj et al. (2012, 163; 2012d, 33–34; 2012e, 3–4), Štrukelj (2015, 173– 174) for previous versions of this model). The principles of stakeholder interests and their enterprise’s developmental and economically and socially responsible and sustainable (SIEDES) (enterprise) policy belong to the attributes that one should learn and make VCEN; then, all the crises might be overcome (see Belak, Je. et al. 2010; Cleveland et al. 2011; Dyck 2011; etc., about VCEN). One must always work to exceed one’s own current best (Goerner et al. 2008, 167). To reach business excellence, responsible enterprise policy, strategic management, and basic-realization processes should be regularly innovated. The principle of responsible enterprise policy (see Table 1) is

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Table 2: The principles of stakeholder interests, enterprise’s developmental, economic and socially responsible and sustainable (SIEDES) enterprise policy The principles of SIEDES responsible and sustainable enterprise policy 1. Responsible enterprise should stress regular innovating in its enterprise vision and resulting enterprise policy to reach its business excellence and hence to avoid or to find its way out from its crisis. 2. Arising from VCEN innovations, which are expressed as persons’ interests, the enterprise’s general definitions of its enterprise policy depend on the interests of its important stakeholders. 3. All stakeholders should rethink their long-term interests (benefits). 4. All stakeholders should rethink the consequences of their interests. 5. The stakeholders’ willingness/ability to innovate their VCEN toward their responsible, requisitely holistic behavior concerning all other humans (families, young, old, co-workers, other citizens), the natural environment and other inhabitants of the planet Earth – with having longterm interests concerning all of them). 6. Enterprise’s developmental orientation (e.g. using the opportunities of its environment development or avoiding the threats of its environment development). 7. Enterprise’s economic orientation (with the growth of wealth, business success and affluence as well as by striving for the politics of economic responsibility toward all inhabitants of the Earth). 8. Enterprise’s ecological orientation (including raising consciousness about the importance of all aspects of nature). 9. Enterprise’s social orientation should also be innovated all the time toward ecological and socially responsible goals and socially desired consideration. 10. Enterprise’s social orientation (toward ecological, cultural, socially, and other responsible goals and socially desired consideration, including social community, happiness, well-being and life satisfaction levels of the world’s inhabitants) should be innovated all the time. 11. Sustainable behavior should be developed consciously: adopting a new, out-of-the-box, more requisitely holistic SIEDES logic of enterprise governance, management, and operation, to prevent our civilization’s collapse and to assure the prosperity. Source: Štrukelj 2015, 173–174.

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directed toward the attainment of appropriate requisitely holistic interests of all enterprise participants/stakeholders, long-term development, and economic, ecological, and socially responsible business orientation, improving people's lives, their ethics of interdependence, protecting the Earth, wisdom and creativity. Such factors must be learned and adapted so that they become our VCEN if we want to be able to successfully overcome the crisis of 2008-present (see Mulej et al. 2013; Potoþan and Mulej 2007) and other crises/problems linked-up with business excellence; better: VCEN and habits – VCENH. Therefore, the enterprise policy concerning its SR must also be regularly innovated. By innovating the VCENH-based general and long-term enterprise policy, one defines the overriding interest of its important internal and external stakeholders. They should rethink their long-term interests and the consequences of these interests in order to cope with their own readiness, willingness and the ability to innovate their long-term interests in the direction of responsible, non-destructive promotion/protection of the interests of all of Earth’s inhabitants. They should always let the common and long-term interests prevail. Enterprises should constantly innovate their developmental policy/direction (such as the exploitation of the opportunities arising from the development of the enterprise’s environment), their economic policy/direction (with the aspiration to economic policy supporting responsibility toward all of the world's population), ecological policy/direction (including consciousness raising about the importance of all aspects of nature) and social policy/direction (in the direction toward the ecological and otherwise socially responsible goals; also toward taking into consideration the social needs of individuals). The research results in the fact that enterprise policy is widely viewed as directly realized at the level of strategic management, and indirectly at the level of the implementation management (and actually in the basic realization process) (see Belak, Ja. 2002; Štrukelj 2015). This suggests that in addition to the need to innovate the enterprise policy (therefore corporate governance) there is also a need to innovate its management. This forces enterprises into their development. In our view and experience, ‘soft’ variables (VCENH) will play an increasingly important role when planning the development of enterprises in which people spend between one third to one half of their active, working-age life (Štrukelj and Šuligoj 2014). Due to the changes in the interests which reflect a change of VCENH and lead to a less expected behavior of important shareholders, the general criteria for determining whether an individual enterprise policy is suitable are also changing (ranging from opportunistic to socially responsible enterprise policy; see, e.g., Dankova et al. 2015; Štrukelj and

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Šuligoj 2014; Štrukelj et al. 2012). Because people – individuals, businesses, and society as a whole – are increasingly developing positive values, this is also reflected in ever more responsible enterprise policies (Belak, Je. 2013). GMPI must therefore include the global transition from efficiency to its synergy with sufficiency, from GDP to more sustainable measures of success. The depletion of our natural resources and climate change must and can be avoided if there is political will to use the latest environmentally-friendly technologies of technological and social innovation as a top priority rather than simply ‘shifting the chairs on the deck of the Titanic approaching the iceberg’. No doubt, this innovation of paradigm includes the redistribution of power and profit, but only if the current power-holders and profit-earners become conscious of the humankinds’ and individuals’ need for the principles of SR and SIEDES responsible (enterprise) policy and synergy of all of them – for the survival of us all. See also the EU strategy 2011–14 for Corporate Social Responsibility launched at the end of October 2011 (the EU 2011).

7 Conclusions: the European Union supports SR and hence governance and management process innovation (GMPI) The future is unpredictable; humankind does have the knowledge and the technology to resolve the problems into which it has brought itself with its concept of sovereign national states and monopolistic/feudal capitalism included in international law and the socio-economic concept of its industrial and post-industrial age. In it, the human impacts are global and long-term, but the humans’ selected viewpoints on their/our bases of action are narrow and short-term. Therefore, we cannot speak of developed and developing countries, but rather of self-destroying ones. Thus, humankind needs the political will to innovate itself. In October 2011, the European Union published a (new) program and a (new) definition of social responsibility (SR) of enterprises as the ‘responsibility of organizations for their impacts on society’ (the EU 2011). The essence of the program is expressed with the following sentence: Via SR enterprises benefit themselves and society. This is linked with the more globally accepted international definition in ISO 26000 standard (ISO 2010) that all seven central topics of SR are linked by the concepts of interdependence and a holistic approach. Thus, both the EU and the ISO as international associations are searching for a way out from the neo-liberal practice of the economic growth at any cost. The neo-liberal practice

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generated the growth in the amount of business without the growth in the satisfaction of people in the economically most developed parts of our planet (i.e. the European and North American populations), while critically exploiting stocks of natural resources around the globe and destroying the natural environment as preconditions of our current human existence. Neoliberalism has indeed endangered all living beings on our planet. But not only that – the exploitation of natural resources and the neo-liberal mindset of ‘developed’ nations has resulted in the widening of the gap between the rich and the poor by exploiting the nations in Africa, Asia and Latin America and forcing them into a subordinate (unequal) position, which has also resulted in their growing dissatisfaction. It has put practically most countries in the world in terrible debts, etc. In other words, the neo-liberal practice of economic development has destroyed more than has it created. Such economic growth makes no sense; nor is there a sense in the related governance that is reduced to the creation of new needs, including (or especially) fictitious needs, making the impression that it is the growth of trade that makes sense rather than the growth of the satisfaction of the population. Sense-full investment, production, trade, and consumption (rather than self-perpetuating ones that fail to have available resources in nature as well as people’s demand, hence fail to make sense) are easier to attain with more honest cooperation, with listening to, hearing, and completing each other, which is better supported by inter-dependence (i.e. mutual need and respect for each other due to mutual differences completing each other2) than by independence and dependence, because interdependence leads to more holism. In our opinion, it is possible to create a new model for sensemaking governance and economic growth, based on the innovation of governance and management, leading toward interdependence and holism, which can be supported by ISO 26000, DST, and GMPI. The systems /systemic, i.e. requisitely holistic, thinking is required also for thinking about GMPI as an essential component of IIDP based on RH/SR. Solving the current socio-economic crisis depends on the innovation of the current governance and management practice toward including the application of social responsibility. In ISO 26000, SR is based on (1) interdependence and (2) holistic approach, which are central in Mulej’s Dialectical Systems Theory (DST) and Bertalanffy’s General Systems Theory (GST). An especially crucial role belongs to business 2

Interdependence is natural, e.g. between male and female, flowers and bees, parts of bodies, part of engines and organizations, nations, specialized professionals, parents and children, business partners, etc. Independence is critical in legal terms for nobody to have the title to abuse others, which existed in slavery and feudal times.

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leaders (entrepreneurs and managers) and to political leaders as they control the society that has replaced the feudal society and economy with big success and crucial terrible consequences that are no longer simple side effects.

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CHAPTER FOUR THE CONCEPT OF CORPORATE INTEGRITY AND ITS IMPLEMENTATION: THE CASE OF SLOVENIA ANDREJA PRIMEC, MOJCA DUH, JERNEJ BELAK

1 Introduction 2 Theoretical framework 2.1 The concept of corporate integrity 2.2 Definition of integrity and corporate integrity 2.3 Ethical and integrity levels 3 Implementation of the corporate integrity concept in Slovenia 4 Incorporation of corporate integrity in governance and management processes 5 Conclusions

1 Introduction The economic crisis of 2008 brought, in addition to all the unethical behaviour, a chance to reflect on good corporate governance and management. The legal and ethical scandals of Enron, WorldCom, Tico, and many other companies initiated a wave of mistrust. After discussions about how to emerge from these situations, various initiatives for doing business on different foundations were undertaken. It is not surprising that the business world has realized that a new era of corporate governance and management must begin. Companies’ governance and management processes must be much more grounded in the implementation of business ethics, reviewing and monitoring of corporate strategy implementation, and evaluation of board performance. The principles of corporate integrity have become an essential part of corporate governance and management today. Companies with a high level of corporate integrity have become more successful, showing better business results (see Belak Ja. et al. 2014;

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Bleicher 1994; Rüeg-Stürm 2002; Widana et al. 2015; Ferrel et al. 2011; Hassan et al. 2008). The September 2015 fiasco affecting VW Group, one of the world’s automotive giants in the United States market, clearly shows the consequences of fraudulent, irresponsible, and unethical conduct. We recognize the importance of corporate integrity as an appropriate tool for the efficient guidance of companies, which unites all relevant, internal, and external stakeholders in companies’ functioning. Therefore, we decided to explore corporate integrity by reflecting the principles of the Organisation for Economic Co-operation and Development (OECD; Towards a Sound Integrity Framework: Instruments, Processes, Structures and Conditions for Implementation 2008), Maak’s (2008) framework on seven aspects of corporate integrity called the “7Cs”, and the MER model of integral management (Belak Ja. et al. 2014) considering the levels of business ethics (Thommen 2003). The main motivations for our research were twofold: First, many cases of fraudulent and unethical conduct have been identified in companies the public recognized as credible companies; second, the guidelines on corporate integrity were adopted in Slovenia in 2014. The main purpose of our research was to explore the theoretically developed concept of corporate integrity and the OECD principles as well as their implementation on the case of Slovenia. In our opinion, corporate integrity should be approached in a holistic manner. Therefore, we incorporated the concept of corporate integrity as well as the OECD principles in the MER model of integral management and governance (Belak Ja. et al. 2014). The contribution is structured as follows. We start with the theoretical framework of the concept of corporate integrity, focused on the OECD’s principles and Maak’s 7Cs framework of corporate integrity. We explain how Slovenian companies have approached the implementation of the corporate integrity concept by illustrating the Slovenian Guidelines of Corporate Integrity, which have been adopted by 29 Slovenian companies to date. Furthermore, we suggest the incorporation of corporate integrity in governance and management processes. We apply the MER model of integral management for the conceptualization of our idea and provide arguments for the companies’ successful implementation of integrity.

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2 Theoretical framework 2.1 The concept of corporate integrity Creating a concept of corporate integrity has been a long-term process that started in the early 1950s. One of the first authors to deal with the social responsibility of businesses was Frank Abrams, Standard Oil’s executive director. His article entitled “Management’s Responsibilities in [a] Complex World”, published in the Harvard Business Review in 1951, created awareness of corporate integrity through the domains of social responsibility and corporate social responsibility. He tried to influence colleague managers’ speculation about their status in society and, in particular, their responsibility to society, not only in the context of individual responsibility to shareholders, but also in the broadest sense of their responsibility to the public in general (Maak 2008). In the 1970s, several efforts to define corporate social responsibility, including notions like the legal responsibility of a corporation, a corporation’s charitable action, being ethical, and ensuring legitimacy (Eels and Walton 1974), began to emerge. In the 1980s, the discussions of corporate social responsibility (CSR) sought to define corporations’ moral status, while the 1990s brought specialization into business ethics theories and attention to issues involving global business ethics. After Enron’s scandal, CSR became an instrument to benefit a corporation and was transformed from CSR to strategic social responsibility (SCR). According to this new perspective, CSR is a strategic response to changing circumstances and new corporate challenges. Organizations must rethink their position and act in terms of the complex societal context of which they are a part (Marrewijk 2003). Today, CSR faces different challenges, such as social, moral, environmental, and humanitarian challenges. These diverse areas by inference affect several research domains that are connected by having the same purpose—namely, dealing with ethical issues in business. They should all be connected and discovered under some kind of integration work, called “corporate integrity” as an umbrella term (Maak 2008).

2.2 Definition of integrity and corporate integrity Maak cited Webster’s New World Dictionary to explain the term “integrity”, which is defined as “the quality or state of being complete; unbroken condition; wholeness; entirety” and “the quality or state of being of sound moral principle; uprightness, honesty, and sincerity” (Maak

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2008). Both meanings complement one another and reflect that integrity involves an undivided, completed whole, acting in accordance with moral principles like honesty, sincerity, and confidentiality. Moral integrity starts with the commitment to comply with moral principles and continues with moral conduct to fulfil integrity requirements on environmental, ethical, political, and social fields. Maak (2008) illustrated this by explaining a person “has integrity if she acts in accordance with important moral principles, [and] does so in a coherent and consistent way, over time”. In Latin, integrity means “not touching” (in tangere) and defines something or someone who is not contaminated. In the context of creating an integrity framework, it refers to the application of generally adopted norms and values in daily practice (OECD 2009). However, to achieve integrity of companies, core elements have to be involved (OECD 2009): -

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The integrity management instruments, which constitute the integrity management system by defining integrity (codes of conduct or codes of ethics), by managing integrity, supervising compliance, and enforcing integrity (the integrity management framework); and The instruments of the integrity context, which include factors outside and inside the organization other than the instruments of the integrity management system.

Five levels of corporate integrity—interpersonal, organizational, cultural, social, and natural levels—are of crucial importance for achieving a holistic view of corporate integrity and the “wholeness” of the corporation. Each level is important for assessing the integrity of a corporation and for improving it. On the interpersonal level of corporate integrity, the focus is on relational awareness. Communication between workers and managers is needed because workers are not involved only in relationships at work, but also have relationships with families and civil society. The cultural level reflects the requisite openness of corporations to other cultures and the need for being directed by worthwhile purposes (organizational level). Social challenge is concentrated around the development of relationships with other private and government agencies. Corporations have to address the natural environment to provide prosperity for all natural communities (Brown 2006). Individuals possess integrity if they follow moral virtues and act honestly, credibly, loyally, and trustworthily, even when they have to abandon self-interest to act in line with moral values. In contrast, the integrity of an organization (including a corporation) applies not only to its

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members, but also to its structure, function, and culture. It is mostly concerned with the integrity of its members—that is, their individual integrity—but also with essential differences; in the case of corporate integrity, individual integrity depends on the constitutive virtues of the individual role in terms of professional responsibility (Miller 2007). In discussing integrity systems at the institutional (macro) level, Miller (2007) established that regulatory frameworks and integrity systems do not represent identical notions. A regulatory framework consists of a set of definite laws, rules, or regulations governing behaviour and minimum ethical standards, usually incorporated in a law passed by an institutional authority with provided sanctions. The integrity system is a train of institutional entities, roles, mechanisms, and procedures whose purpose is to ensure compliance with minimum ethical standards and promote the pursuit of ethical goals, while the calculation of the law is generally missing (Miller 2007). Maak (2008) developed a working definition of corporate integrity by creating an interesting theoretical framework based on seven distinct aspects of integrity—namely, commitment, conduct, coherence, content, context, consistency, and continuity (called the 7Cs). According to Maak, “being of sound moral principles” requires a commitment to the right moral principles (e.g., honesty, respect, sincerity); such commitment must be unconditional commitment and is not only an internal (unique individual) state, but is especially assessed by others. Thus, integrity is a relational phenomenon considering relationships with all stakeholders. Integrity requires moral conduct and functioning according to contentrelated requirements as well as the consistency and coherence of words and actions. An important element of integrity is continuity—to ascribe integrity to a person or to a company whose actions we should be able to observe over a certain period of time (Maak 2008). According to Maak (2008), the same conditions and integrity requirements can be applied to corporations and individuals. Corporations can be considered moral agents. Ethical challenges that companies face today require integration, which means “efforts to align corporate principles and practice, to engage stakeholders, to ensure ethically sound issue management and certainly to align words and deeds” (Maak 2008). As in the case of individual integrity, in the case of corporate integrity all 7Cs must be connected in a cycle of relational wholeness to become an “undivided corporate self”. Companies need to be committed to the right moral principles that are aligned to “the basic moral principles of society and basic human rights more generally” (Maak 2008). It is of crucial importance that a company ensures that its purpose is considered a

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worthwhile one not only by its shareholders, but also by all stakeholders. The moral conduct of companies needs to aligned with their integrity requirements to ensure that “professional ways of designing, steering, and controlling integrity-related matters in a corporation need to be implemented” (Maak 2008). In short, the implementation of an integrity management system is required in companies. The next C is content, which suggests that it is important that companies act responsibly and consider what they are doing. Maak (2008) illustrated this by companies taking care of the natural environment; indeed, companies are expected “to be part of the solution of global warming and the environmental crisis, and not part of the problem” (Maak 2008). Context as an integrity element means that companies should be aware of all relationships, engage with all stakeholders, and meet their reasonable expectations, which requires “an ethically sound stakeholder engagement and management” (Maak 2008). Consistency as a required element of corporate integrity demands that a company “adheres to ethical principles in consistent ways, in particular with respect to aligning [the] talk and walk” (Maak 2008). Coherence between moral principles and moral actions is a basic requirement of corporate integrity; in particular, a company must follow ethical principles that are defined in a code of conduct and the value and/or mission statements. Continuity requires that the corporation or the person (Maak [2008] illustrated this case with a whistle-blower) act in accordance with integrity requirements for years to prove integrity. Based on the discussion thus far, we can state that the wholeness (holism) of a corporation is structured from different ethical and integrity levels. These levels are discussed in the next section.

2.3 Ethical and integrity levels The ethics and integrity of a company can be observed and explored at all three levels of ethical relationships: the individual, organizational, and social levels (Staffelbach 1994; Weiss 2006). First, individual integrity includes all individuals, executives, and employees. Second, corporate (organizational) integrity represents the level of the organization. Third, stakeholder (social) integrity consists of all individuals or groups that have a legitimate interest in, are affected by, or could be affected by the activities of both the corporation and its members. These integrity levels may conflict with each other. However, to reach a level of corporate integrity, all participants (individuals, the corporation, and other stakeholders) must resolve conflicts of interest and win this challenge of wholeness (Kolb 1988). Thommen (2003) named

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these levels the micro, mezzo, and macro levels. Several informal (e.g., informal norms, heroes and role models, rituals, stories, and the specific language used to define important parts of the informal culture) as well as formal measures (e.g., a statement of the enterprise’s core values, a compliance manual, a code of conduct or code of ethics, a mission statement, and anonymous hotlines) can be applied at all levels to foster and achieve the ethical behaviour of a company and, consequently, its integrity (see Belak Ja. et al. 2014; Murphy 1995, 1998; Trevino et al. 1990, 1992, 1999, 2000; Laufer and Robertson 1997). At this point, it should be stressed that—due to their different interests—the company’s stakeholders are considered constitutive elements of the business ethics and company’s integrity at all levels. An examination of business ethics and the company’s integrity exclusively at the mezzo level is therefore impossible because all three levels of business ethics and a company’s integrity are tightly connected to each other and depend on each other. We therefore advocate the premise that only considering very narrow interpretations of the legal requirements cannot ensure the company’s ethical behaviour or the building and sustaining of its integrity. For the purposes of integrity implementation, companies should overcome literal compliance with the law and, within a frame of their functioning, take into account purposes above the law (Di Lonrenzo 2007). Because the law is treated as a minimum ethical standard, it must not serve as the only basis for corporate ethics. The standardized and generalized behavioural requirements set by the law should therefore be supplemented with the careful judgement and interpretation of the companies belonging to a certain industry. At the micro level, the actions of an individual are observed and examined. The subject of research at this level is the functioning of an individual in his or her specific living environment and place of work and the circumstances that limit the individual’s functioning in such a living environment (e.g., working conditions). The purpose is to describe what the individual’s behaviour ought to be in the case of an employer, manager, or user. At this level, the possible behaviour of an individual in particular conditions and circumstances is examined (e.g., the possible behaviour of a co-worker who is concerned with the safety and quality of a certain product when superiors do not consider his or her arguments to be relevant). However, the core values and organizational culture can importantly influence an individual’s behaviour. At the mezzo level, the functioning of a company is examined and observed. A company consists of individuals who shape and form a certain entity or organization. However, such a company represents an economic

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unit; therefore, it should be considered an independent functioning subject. As such, it is responsible for its moral behaviour and actions. It should also carry the burden as well as the consequences of its actions. In addition to being a legal entity, a company is also a moral entity; a company has moral responsibility for its wrong actions. Therefore, in the case of unethical behaviour, it should not only accept the legally assigned penalty, but also take other measures and responsibilities as well. At the macro level, the general economic conditions are shaped. At this level, questions regarding the best economic system for the functioning of different organizations such as companies, legal entities, and consumer associations are established. In addition, this level considers questions such as the extent to which the market economy can satisfy ethical principles, what the righteous economic policy is, how to set effective ecological and energy policy, or how to set and implement a system of integrity in a certain economy. At this level of integrity, for example, the policymakers in Slovenia should consider the propositions of ISO 26000 as well as the OECD’s (2009) guidelines to ensure an environment that fosters companies’ ethics and integrity. .

3 Implementation of the corporate integrity concept in Slovenia Efforts to implement the principles of corporate integrity are also alive in Slovenia. They peaked in January 2014, when cooperative efforts among the Chamber of Commerce of Slovenia, Managers’ Association of Slovenia, Slovenian Directors’ Association and Economic Faculty of the University of Ljubljana, under the honorary patronage of the president of the Republic of Slovenia Mr. Borut Pahor, led to the issuance of the Slovenian Guidelines of Corporate Integrity (SSKI). The purpose was to offer companies in Slovenia an opportunity to exercise systematically the principles of corporate integrity in their functioning. The formulation of the Slovenian guidelines derived from codes of conduct and Slovenian and international regulations on corporate integrity, particularly those emphasized in the OECD Good Practice Guidance on Internal Controls, Ethics and Compliance (OECD 2009). By signing the Slovenian guidelines in public, to date presidents of boards, members of boards, and directors of 29 companies—the ambassadors of corporate integrity—have committed their companies to respect and follow the principles incorporated into the SSKI. Seven of these companies are listed on the Ljubljana Stock Exchange and are the prime market companies. Prime market is “a prestigious market intended for larger established companies

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renowned for their liquidity and transparency of operations” (LJSE Markets, 2015). A detailed analysis of the companies—the ambassadors of corporate integrity—indicated that, in the majority of cases, they included the statement of commitment to corporate integrity in their annual reports, sustainable reports, annual reports on social and environmental policy, and/or published press releases in this respect on their webpages. In the majority of cases, they also explain why and how they understand and implement high ethical standards and principles of corporate integrity. These support Maak’s (2008) observation that, due to the corporate scandals and an exponential increase in CSR activities and reporting, companies “have started to present themselves in much detail as ‘good corporate citizens’, explaining why and how they care about a sustainable future and what they do for their employees”. SSKI define corporate integrity in the most general and broadest way as the compliance of business companies. Business companies will be in compliance only when their operations are consistent with legislation, other rules, current recommendations, internal regulations, good business practices, and ethical principles (SSKI 2014). At almost the same time as the SSKI were issued, the Slovenian corporate integrity webpage was established. Its main purpose is to provide companies with an overview and practical support during the preparation of measures and planning activities for improving their functioning from legal and ethical aspects (SSKI 2015). Because the decision on whether and to what extent to accept SSKI is an autonomous right of every company, these guidelines serve as guidance for establishing adequate activities. When putting the idea of corporate integrity into practice, additional sources of information, documentation, and good practices can also provide important support in this process. For this reason, a special part of the webpage is designed to provide information on: -

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Corporate integrity definitions, explanations, references to international and national legislation, and initiatives that are important for companies; it also encompasses the terminology related to corporate integrity; Partners with their presentations and efforts to strive for corporate integrity; SSKI with examples of key steps and activities in realizing functioning in accordance with legislation and ethical principles; Sources, tools, and good practices that include a list of documents, good practices, and links to webpages on corporate integrity, codes

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of ethics, internal controls, and instruments for the reporting of irregularity, risk management, and notification; and Education and training that includes a list of workshops and other types of training organized by different institutions.

SSKI establish the mechanism for creating the system of corporate integrity in the following ways: -

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Management and supervisory boards’ commitment with respect to the principles of corporate integrity; Establishment of control environment with the determination of a representative for corporate integrity and procedures of internal controls; Establishment of the mechanism for risk identification and management of corporate integrity; and Creation of a system of professional training and education on corporate integrity and cooperation between management and supervisory boards.

The initiators of corporate integrity are management and supervisory boards, officers, employees, and—where appropriate—other stakeholders of the company (e.g., business partners, agents, consultants, representatives, distributors, contractors, and suppliers). Companies should consider ethics and compliance programmes and inform business partners of the companies’ commitment to abiding the principles of corporate integrity, seeking a reciprocal commitment from them. In contractual arrangements with business partners, companies should develop measures (both informal and formal) for implementing the principles of corporate integrity, including properly documented riskbased due diligence pertaining to the hiring as well as the appropriate and regular oversight of business partners (SSKI 2014). Next we argue the role of a company’s management and supervisory bodies as well as corporate integrity officers by ensuring and fostering corporate integrity. Role of management and supervisory bodies The commitments made by the company’s management and supervisory bodies to respect and apply the corporate integrity principles constitute the initial step towards the establishment of a corporate integrity system. Formally, their commitments are integrated into the strategic and operational documents of a company and are in fact present in its day-to-

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day operations. In addition to their own commitment to integrity, they also call upon other stakeholders in the company to respect the corporate integrity principles—namely, the employees as well as representatives and business partners. The responsibilities arising out of the commitment include adopting the legal compliance code, designing a programme for positive motivation of employees, integrating the anti-corruption clauses into the agreements with business partners, and setting up a system of sanctions that defines the breaches of discipline, the procedure for handling them, and appropriate sanctions for the employees at all levels of the company, breaching the corporate integrity. Based on the commitment to corporate integrity, the management body is obliged to adopt the rules for the implementation of procedures for the initial and periodical verifications of appropriateness and adequacy of managers. Furthermore, it is obliged to produce a report on the state of corporate integrity in the company, include it in the annual report, and formulate, together with other stakeholders, the indicators for reporting and monitoring progress in this area. Role and responsibilities of corporate integrity officer In agreement with the supervisory body, the management body appoints one or more corporate integrity officers or sets up a separate department to this end. The corporate integrity officer is in charge of setting up a mechanism of internal reporting and the protection of all who report breaches of corporate integrity. Moreover, an efficient system, responsive to the whistle-blowers’ reports, should be put in place, taking care of the protection of their identity. The corporate integrity officer must report on a continuous basis to the management body and to the supervisory body, if necessary, about any identified and rectified irregularities.

4 Incorporation of corporate integrity in governance and management processes The previous discussion shows that corporate integrity is not an isolated phenomenon. We strongly believe that a company’s success crucially depends on its credibility and integrity. A company must follow and obey not only legal principles, but also ethical principles in order to secure its long-term survival and success. Stemming from different models of management and governance, we argue that the company’s owners and

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top management are the carriers of (and institutionally responsible for) a company’s ethical and credible behaviour and, consequently, the carriers of corporate integrity. Therefore, the level of corporate integrity quality strongly depends on corporate governance and management. Consequently, we can conclude that the concept of corporate integrity should be incorporated and implemented holistically within companies’ management and governance processes. Several models of governance and management have been established, such as Sanktgallen’s model of integral management (Rüegg-Stürm 2002; Rüegg-Stürm and Grand 2014), Bleicher’s (1994) model of integral management, and the MER model of integral management (Belak Ja. et al. 2014), which emphasise the requisite holism of governance and management. We selected the MER model of integral management and governance (Belak Ja. et al. 2014) to illustrate the incorporation of the corporate integrity concept into the integral wholeness of governance and management. The MER model describes governance and management as having three dimensions: process, instrumental, and institutional dimensions. Considering the process dimensions, companies’ integrity should be planned and implemented (managed) at all three hierarchical levels (i.e., the political level, level of strategic management, and level of operational management). A company’s ethical behaviour and integrity can be achieved only by “complete organizational conversion” (Thommen 2003, 85), which has to take place at all levels of the company’s management and governance processes (the political, strategic, and operational management levels). Therefore, the idea of a company’s credibility and integrity should be incorporated into a company’s vision, mission and basic goals, strategy, and finally the processes and structures necessary for the realization of this idea of a credible company or a company with integrity. The strategic management process is where strategies are defined and the strategic allocation of resources is carried out to achieve the goal of making a company credible and achieving its integrity. The company’s top management holds the main responsibility for these activities and should result in a comprehensive ethics programme indicating activities needed for the realization of a company’s credibility and integrity, vision, mission, and strategies. For the successful implementation of an ethics programme to achieve the company’s integrity, it is important that the programme be internalized by all workers and groups and at all management and governance levels of the company. A company’s integrity, credibility, and ethical behaviour can be achieved only through a holistic enterprise transformation and should

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be implemented from top to bottom, starting with the owners’ values that influence the company’s vision and policy (see also Thommen 2003; Belak Ja. et al. 2014; Widana et al. 2015; Ferrel et al. 2011; Hassan et al. 2008) and ending at the fundamental (basic) realization process. Considering the OECD (2008) guidelines, corporate integrity demands answers to “what?”, “how?”, “by whom?” and “why?” Therefore, certain measures of corporate integrity should be implemented and assessed. This strongly supports the importance of basic management and governance functions such as planning, organizing, directing, and control/monitoring (Belak Ja. et al., 2014). The company’s integrity (implementation) should be well prepared and planned, organized, directed, and controlled (monitored) at all management and governance levels. The theory and practice (as well as our research cognitions) show that at the declarative level many companies approach the problem of corporate integrity and/or business ethics. Furthermore, companies develop formal measures of corporate integrity implementation (e.g., codes, rules, guidance regarding integrity). However, they seem not to use them or use them only when they find them suitable. If we take into account the levels of business ethics and corporate integrity as defined by Miller (2007), we can say that these measures are mostly developed at the macro institutional level, but less so at the micro and mezzo levels. The implementation and management of corporate integrity should therefore consider not only the macro institutional level, but also the micro individual and mezzo organizational levels of corporate integrity. According to Maak’s 7Cs of corporate integrity, such contradictions arise particularly because sufficient “consistency” in the process of corporate integrity implementation is missing. The possibility of implementing sanctions and benefits for participating stakeholders at all levels of corporate integrity should also be considered. Miller pointed out that integrity systems should have sanctions for those who do not comply with legal rules and ethical standards and benefits for those who act in compliance. Today, this stick-and-carrot approach is popular, but both of these “self-interest” reasons for compliance must be connected with a moral sense to do what is right (Miller 2007). In this way, the management and governance of corporate integrity also consider the individual’s moral judgements when facing ethical dilemmas at the mezzo organizational level of corporate integrity to overcome the minimum ethical standards as set and defined at the macro institutional level of corporate integrity. We therefore argue that it is not sufficient to plan, organize, and direct a company’s integrity. Considering the MER model of integral management and governance, the control of

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activities and achievements should be carried out constantly as one of the basic functions of the management and governance process (Belak Ja. et al. 2014). To successfully carry out the controlling (monitoring) process at all hierarchical levels, adequate controlling instruments (measures) should be developed (compare with Belak et al. 2010). In the context of companies’ integrity monitoring, the OECD (2008) referred to passive monitoring, establishing the reporting channels and active monitoring with various measures, such as whistle-blowing (compliance officers, internal auditors), survey measurements of integrity violations and integrity dilemmas, and informal probing for ethical dilemmas and issues among staff. The OECD has also proposed measures at the macro level of corporate integrity, like citizen complaint systems such as ombudsmen, where citizens can complain about wrongdoings by companies or individual company employees. The main goal of an integrity system and its basic elements (ethics, codes of conduct, education programmes) is not to dissuade the minority of wrongdoers from doing bad, but to convince the majority to be sensitive to wrongdoing. In this context, it is worth pointing out that most fraudsters are detected and convicted as a consequence of disclosures from their colleagues (Miller 2007). We therefore argue that all basic functions (planning, organizing, directing, and controlling) and dimensions (process, organizational, and institutional) of management and governance of companies’ integrity should be carried out at all three levels of corporate integrity (micro, mezzo, and macro), as shown in Figure 3. In this discussion, we argue the importance and (especially) the lack of a controlling and monitoring function in the corporate integrity management and governance process. As conceptualized within the MER model, each function has its institutional and instrumental dimension. It is therefore of crucial importance to guarantee the successful implementation of corporate integrity via its institutionalization as well as instrumentalization. They must both be controlled and monitored (especially) at the macro (institutional, system) and mezzo (organizational) levels of corporate integrity. At the macro level, institutions or bodies should be established and implemented (by the state authority). Their basic function should be to control and monitor the compliance of companies’ behaviour with the adopted ethical standards at the level of the economic, social, and political systems. At the mezzo level, the companies themselves should develop and implement institutional measures to foster and control (monitor) the integrity of their (as well as individuals’ and company stakeholders’) behaviour. In this case, the control and monitoring at the macro level of corporate integrity

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Figure 3: Integrity levels in relation to the governance and management processes.

Source: Supplemented presentation of process dimensions of the MER Model of Integral management and Governance (Belak Ja. et al., 2014, p. 79).

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would use an external audit of corporate integrity, where the control and monitoring at the mezzo level of corporate integrity would use an internal audit of corporate integrity. In our opinion, such a holistic approach in accordance with the dimensions and basic management and governance functions would result in successful corporate integrity implementation. Besides strengthening the external and internal measures of monitoring and auditing the system of corporate integrity, steps for evaluating the behaviour (i.e., stick-and-carrot approach) of each participating individual should also be incorporated as an integral part of the corporate integrity system (at the mezzo and macro levels of corporate integrity). In this way, the individuals, stakeholders, and companies would behave more ethically. In our opinion, such a holistic approach to corporate integrity would lead towards more efficient and effective systems of corporate integrity and result in higher levels of corporate integrity.

5 Conclusions In the long-run, top-performing companies will be those ensuring not only their regulatory compliance, but also their compliance with ethical standards. Although a company’s conduct is in compliance with laws, rules, and regulations, this does not necessarily ensure the satisfaction of other stakeholders if it fails to comply with ethical standards. The law is a relatively rigid system of rules that roughly regulates the most important relationships in a society and protects its most important values. This is why it is created prudently, in an organized manner, although it cannot regulate in detail all forms of social life. Therefore, it is important for legal rules to complement ethical standards, being more or less constant and close to people in terms of their content, thereby making them easier to accept and respect. A symbiosis of legal and ethical rules is crucial for all forms and at all levels of organized associations of individuals, including corporations and companies. Therefore, corporate integrity, in our view, is crucial to ensuring such symbiosis or “wholeness” of a company. The concept of corporate integrity is correctly defined, although in practice its major drawback is the absence of supervision and control over the implementation (provision) of corporate integrity in a company. To address this weakness, actions are required at the macro level, with the state playing a major role to set up supervision and control mechanisms through its own means. It is too soon to say whether the state will use its legislative power or opt for softer forms of control mechanisms. Nevertheless, the state’s instrumental and institutional framework is essential for the efficient corporate integrity in companies.

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On a mezzo level, it would be necessary to raise awareness of the significance of corporate integrity among individuals and stimulate them to help provide corporate integrity in their company. In this context, it would be necessary to explore whether a carrot-and-stick method would be suitable for it or any other type of stimulation. In our opinion, the implementation of corporate integrity requires a multifaceted approach to accommodate different cultural and economic characteristics that vary from country to country and continent to continent. This needs to be taken into account in any further exploration at all levels of ethical relationships. In other words, when building a corporate integrity system, both legal and ethical issues must be addressed.

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CHAPTER FIVE MEASURING THE CORPORATE GOVERNANCE QUALITY: THE CASE OF SLOVENIA DANILA DJOKIC, MOJCA DUH

1 Introduction 2 Why corporate governance matters 3 Measuring corporate governance quality 3.1 Approaches to measuring corporate governance quality 3.2 The SEECGAN Index 4 Corporate governance in Slovenia 4.1 Corporate governance framework 4.2 History of corporate governance code edition in Slovenia 4.3 Some assessments of the development and positive legal consequences of the CG code in Slovenia in the past 5 Empirical research 5.1 Research methodology with sampling and data collection 5.2 Results and discussion 6 Conclusions

1 Introduction Companies need to be governed and managed in order to survive and prosper. With the separation of company ownership and management, where managers became owners’ agents, self-interested managers have the opportunity to take actions that benefit themselves, with shareholders and stakeholders bearing the costs of such actions. This is also referred to as agency problem, and the costs resulting from this problem are described as agency costs. Therefore, some type of control and monitoring is needed in the organization, which is referred to as corporate governance (e.g., Müller-Stewens and Lechner 2005). Research in this field is concentrated

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around the main question of good governance, which considers the interests of different groups of stakeholders as much as possible. Corporate governance has become an especially important and often discussed topic (in professional and academic spheres) due to numerous cases of corporate fraud, accounting scandals, and other organizational failures, many of which culminate in lawsuits, resignations, and bankruptcy. A common and central feature of these stories is the assumption that somehow corporate governance is to blame—that is, the system of checks and balances designed to prevent such abuses by managers ultimately failed (e.g., Larcker and Tayan 2011). A series of formal regulations and informal guidelines, recommendations, codes, and standards of corporate governance have been established to try to determine good governance and prevent or dissuade potentially selfinterested managers from engaging in activities detrimental to the welfare of shareholders and stakeholders. Measuring the quality of corporate governance is still a relatively new concept (Tipuriü, Dvorski and Deliü 2014). One of the recently developed indices is the SEECGAN Index, which was created for former socialist countries in south-east Europe and is the result of the joint work of members of the South East Europe Corporate Governance Academic Network (SEECGAN). The index has been introduced in several countries (i.e., Croatia, Bosnia and Herzegovina, Serbia, Montenegro, Slovenia, and Macedonia). In this chapter, we present the results of preliminary research conducted in Slovenia. The contribution is structured into six sections. Following the introduction section, in the second section we discuss the main challenges in the broad area of corporate governance and the importance of improving corporate governance practices. In the third section, different approaches of measuring corporate governance quality are discussed and the SEECGAN Index is presented as one of the recently constructed indices. The corporate governance framework in Slovenia is presented in the fourth section, thereby explaining the specific national setting in which the research was conducted. In the fifth section, we present and discuss the research results on corporate governance in Slovenia. The last section is the conclusion section, where the major findings and directions of future research are presented.

2 Why corporate governance matters The separation of company ownership and its management, where managers became owners’ agents, leads to agency problem (also known as

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the principal–agent conflict), and the costs resulting from this problem are described as agency costs. Namely, self-interested managers have the opportunity to take actions that benefit themselves and shareholders while stakeholders are those that bear the costs of such actions. For this reason, some type of control and monitoring is needed in the organization. Such efforts (institutional, process, and instrumental solutions) are referred to as corporate governance (e.g., Müller-Stewens and Lechner 2005). Different definitions of corporate governance exist in the literature. Cadbury (1992) defined corporate governance as the system by which companies are directed and controlled. Corporate governance is often identified as a pure concept of control. In that sense, it deals with the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment (Shleifer and Vishny 1997). Thus, corporate governance has become an important feature of the investment management process and is recognized as a key business discipline that can contribute to the financial stability and growth of any corporation or—if ignored— can lead to the downfall of corporations, both large and small (Beckley, Perrett et al. 2005). However, Korent, Ĉunÿek and Klaþmer ýalopa (2014, 221) call attention to the inadequacy of defining corporate governance solely “as a way to determine the manner in which the suppliers of financial input in the corporation ensure returns on their investments”. According to the authors, a broader definition of corporate governance is needed that takes into account all crucial stakeholders. Within such an understanding, corporate governance can be defined as a process by which a company corresponds to the rights and preferences of stakeholders. According to Tipuriü (2008; also Tipuriü, Dvorski and Deliü 2014), corporate governance embodies a set of relationships among the company’s management, board, shareholders, and stakeholders and defines a framework for setting goals, defining means for achieving these goals, and monitoring the performance and efficiency of a company. Research in the corporate governance field is concentrated around the main question of good governance, which considers the interests of different groups of stakeholders as much as possible. In particular, important issues refer to relationships between relevant stakeholder groups and top management. Owners (shareholders) are only one of various groups of stakeholders, although in certain environments they are among the most influential ones. In the United States and the United Kingdom, the shareholder-centric view prevails, which holds that the primary responsibility of a company is to maximize shareholders’ wealth. Other countries tend toward a stakeholder value view, which holds that obligations toward stakeholders such as employees, suppliers, customers,

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and local communities should be held in equal importance to shareholder returns. This means that the governance system that maximizes shareholder value might not be the same as the one that maximizes stakeholder value (e.g., Larcker and Tayan 2011). According to Tipuriü, Dvorski and Deliü (2014, 235), a sound corporate governance “should create the conditions in which the behavior and actions of top managers is aligned with the interests of the firm, its shareholders and key stakeholders”. In this way, the corporate governance system helps prevent and overcome the imbalance between different interests and reduce the negative effects of opportunistic behaviour of important stakeholders (especially top management) that might threaten the existence of a company. The importance of corporate governance has been magnified worldwide, especially due to the proliferation of numerous scandals and crisis— namely, cases like Enron, WorldCom, Adelphia Communications, Tyco International, Parmalat, and Satyam Computer Services. Due to globalization and the complexity of modern corporations, such failures have had an even more detrimental impact for public confidence in securities markets. The reaction to these major corporate and accounting scandals in the United States was embodied in the Sarbanes–Oxley Act in 2002, with much stricter rules for publically traded companies. This act, as well as the other related American legislation, also influenced the European Union’s actions concerning this matter (Naciri 2008). In Europe, the recommendatory codes for good corporate governance are the basis of the annual reports on corporate governance for companies listed on regulated markets. This is a direct result of the European Parliament and Council Directive (2006). The effectiveness and quality of corporate governance depend on its compliance with laws and regulations as well as the application of governance principles and standards (Tipuriü, Dvorski and Deliü 2014), where corporate governance codes and the “comply or explain” principle play an important role. By installing good governance practices (e.g., corporate governance codes), companies can reduce the agency costs and improve company performance (Renders, Gaeremynck and Sercu 2010). Investors believe that good corporate governance reduces risk and leads to improved shareholder value. Historically, it is difficult to quantify improvements in shareholder value that are attributable directly to corporate governance improvements and/or good behaviour (Beckley, Perrett et al. 2005). Corporate governance is needed because more detailed information about corporate projects allows investors to assess the corporate growth potential better and invest their money into companies

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that can generate the highest returns. Therefore, if all companies were to conceal information about their activities, a more inefficient allocation of capital would arise, leading to lower economic growth. Hence, a redistribution of wealth between competing companies caused by a higher level of disclosure seems less harmful for the economy than the misallocation of capital caused by the lack of transparency. As such, mandatory rules that impose more disclosure enable economies to achieve a more optimal outcome (Martynova and Renneboog 2010). Adopting a specific corporate governance regulation forces companies to commit credibly to a higher quality of governance (Becht, Bolton and Röell 2005). Even if companies initially design efficient governance rules, they may break or alter them at a later stage. Investors anticipate this and are willing to provide firms with funds at lower costs only when companies find ways to commit credibly to good governance. However, credible pre-commitment mechanisms may be expensive or unavailable in countries lacking an effective institutional framework (Doidge, Karolyi, and Stulz 2004). For instance, a well-functioning infrastructure (in terms of internal control structures, audit mechanisms, voting procedures at annual meetings, etc.) is required to enable investors to verify the information that companies disclose (Black and Scholes 1973).

3 Measuring corporate governance quality 3.1 Approaches to measuring corporate governance quality Measuring the quality of corporate governance could be an important activity in the process of developing an effective corporate governance model. Although still a relatively new concept (Tipuriü, Dvorski and Deliü 2014), several approaches have been developed. In the majority of cases, these approaches have the form of ratings and indices. Different governance ratings have been developed by consulting companies (e.g., Risk Metrics/ISS, Governance Metrics International [GMI], and the Corporate Library [TCL]) that aim to rank companies according to the set of criteria that they believe measure governance adequacy and effectiveness. The inputs in these models are based on corporate governance characteristics, such as the structure of the board and the elements of the executive compensation plans. Companies with high ratings are considered less risky and most likely to grow the value for shareholders. Those companies that have law ratings are considered riskier and, therefore, have the highest potential for failure or fraud (Larcker and Tayan 2011). Academic researchers have also put considerable efforts into developing

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models to measure corporate governance quality. The typical model has the form of a corporate governance index that aggregates numerous variables into single metrics (e.g., Larcker and Tayan 2011). Corporate governance indices vary considerably when taking into consideration corporate governance dimensions included in a particular index (Tipuriü, Dvorski and Deliü 2014). When constructing an index, the researchers usually select those corporate governance characteristics they believe are important for the governance quality. Selected variables are quantified and then compiled into a single figure that reflects the overall corporate governance quality (Larcker and Tayan 2011). The main idea behind the creation of a corporate governance index is to make possible a comparison of the characteristics of a corporate governance of a particular company with those governance provisions that the creators consider to be an example of the best governance practice (Tipuriü, Dvorski and Deliü 2014). Several indices and ratings have been developed and analysed (for a detailed analysis, see e.g., Larcker and Tayan 2011; Tipuriü, Dvorski and Deliü 2014). Renders, Gaeremynck, and Sercu (2010) found a significant positive relationship between corporate governance ratings and performance. The results of their research imply (Renders, Gaeremynck, and Sercu 2010, 100) that “corporate governance ratings are relevant and that in adhering to good corporate governance practices, companies can significantly improve their performance”. However, based on an analysis of different ratings, Larcker and Tayan (2011) concluded that the accuracy and predictive power of different ratings have not yet been demonstrated clearly enough. In these authors’ opinion, ratings built on the “assumption that a single governance structure can be built as a ‘best practice’ and then uniformly applied across firms” (p. 454) are likely to be unsuccessful. Ratings encourage a “check-the-box” approach to governance, thereby overlooking an important context. The authors suggested assessing corporate governance quality on a case-by-case basis, taking into consideration the interaction of various governance structures and its influence on corporate performance. According to Tipuriü, Dvorski and Deliü (2014), governance indices that combine various dimensions of governance, thereby taking into consideration various governance mechanism and interaction effects, can be a useful tool for measuring corporate governance quality. Tipuriü, Dvorski and Deliü (2014) identified three main reasons for the development and application of a corporate governance index. First, an index supplements the regulatory framework and provides initiatives for improving companies’ corporate governance practices. Second, companies

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that dispose the governance evaluation system have the possibility of differentiating themselves from other companies, thereby gaining a strategic advantage. Third, a governance index might be one of the indicators of a company’s potential to access new sources of capital and to minimize the costs of capital.

3.2 The SEECGAN Index One of the recently created indices is the SEECGAN Index of Corporate Governance, which was created and presented in 2014 as the result of the joint efforts of SEECGAN members. The SEECGAN Index was designed and adapted with regard to the situation and the specificities of the business environment in the selected countries of south-eastern Europe (Croatia, Bosnia and Herzegovina, Serbia, Montenegro, Slovenia, and Macedonia) (Tipuriü, Dvorski, and Deliü, 2014). The SEECGAN Index was developed with the goal of enabling a comparative analysis of corporate governance quality in south-eastern European countries (Tipuriü et al. 2015). The results of such a comparative analysis can present useful insights into good and bad corporate governance practices and, as such, present the basis for undertaking measures for improving practices on the company and national levels (e.g., improving legislation framework, national corporate governance codes). The SEECGAN Index measures the quality of corporate governance in seven segments, which are called corporate governance categories (Tipuriü, Dvorski and Deliü 2014; Tipuriü et al. 2015): (1) Structure and Governance of Boards (2) Transparency and Disclosure of Information (3) Shareholders’ Rights (4) Corporate Social Responsibility (5) Audit and Internal Control (6) Corporate Risk Management (7) Compensation/Remuneration Corporate governance is evaluated by 98 attributes that are formulated as questions and divided into seven categories. Each question is answered in the affirmative (yes) or negative (no) in order to ensure objectivity in corporate governance rankings and indices (e.g., Patel and Dallas 2002; Tipuriü et al. 2015). Affirmative answers imply good corporate governance practices whereas negative answers describe bad corporate governance practices. Because the SEECGAN Index is a weighted index, a

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weight is assigned to each answer, where the minimum value is 1 and maximum value is 3. After scoring all attributes, the total score of attributes within a certain category is divided by the possible total score for that category. The results present an index of that particular category. The maximum score for each category is 10, presenting the best possible practice, and the minimum is zero, indicating the worst possible practice. The overall SEECGAN Index score is the average value of all seven categories, where 0 is the lowest value and 10 is the maximum index value. Analysed companies are classified into four groups according to the total or per category SEECGAN Index score. If the value of the SEECGAN Index in a particular category or in total is equal to or higher than 7.5, then such a company is classified as an A class company having first-class corporate governance. If the value is equal to or higher than 5.00 and lower than 7.5, the company is classified as a B class company having good corporate governance. Unsatisfactory corporate governance is present in a company (i.e., C class company) if the value is equal or higher than 2.5 and lower than 5.00. Corporate governance is described as poor in a company (i.e., D class company) if the value of the SEECGAN Index (total or per category) is lower than 2.5 (Tipuriü et al. 2015). The SEECGAN Research–Slovenia 2014 (Djokiü et al. 2014) was conducted in Slovenia using the SEECGAN Index at the same time as it was in Croatia and Macedonia. In the next section, we present the preliminary research results.

4 Corporate governance in Slovenia 4.1 Corporate governance framework Corporate governance in Slovenia is particularly important due to the transformation of companies’ equity ownership system. The beginnings of corporate governance in Slovenia dates back to the 1990s, when the country initiated the ownership transformation of companies (ZTLR 1992). Based on this law, companies whose equity source is social capital were transformed into companies with equity capital in private ownership. After Slovenia joined the European Union (EU), directives and regulations were implemented that brought about positive legal effects in corporate governance after 2004. Companies in Slovenia have been implementing corporate governance for 20 years now, and during this time the development of Slovenian codes of corporate governance and corporate governance legislation has resulted

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in improvements in the quality of corporate governance. Legislation concerning corporate governance of joint stock companies in Slovenia includes the following features: (1) Slovenian legislation on corporate governance is improving:  stockholders acquired more power in making decisions at stakeholder meetings (ZGD-1C 2009);  the principle of disclosure and transparency of corporate information was emphasized (ZGD-1C 2009);  Corporate Governance Statement was enacted (Djokiü 2009);  remuneration policy was instituted (Djokiü 2011);  revised accounting and the revision of the Directive of the European Commission (EC) were implemented to improve the reporting and revision of corporate information (Djokiü 2008);  revision commissions of supervisory boards was established (Djokiü 2007); and  public control of auditors was introduced (Djokiü 2008). (2) Standards and principles aiming for better and more effective corporate governance and supervision in practice are being modernized (Djokiü 2011). (3) Professional associations and institutes regularly monitor improvements within their scope of activities, inform their members about the innovations, and comment on them (Djokiü 2011). An important improvement in terms of corporate governance quality in Slovenia was the introduction of the Slovenian Corporate Governance Code. Its beginnings and development are discussed in the next section.

4.2 History of corporate governance code edition in Slovenia The first Slovenian Code of Governance of Public Companies (i.e., Slovenian CG Code [2004]) came into force in March 2004. It was adopted by the Ljubljana Stock Exchange, the Managers’ Association of Slovenia, and the Slovenian Directors’ Association. The same signatories adopted the changes and supplements of the Code from 2004 on December 14, 2005, resulting in the Slovenian CG Code (2005). Subsequent changes made by the same signatories were adopted on May 5, 2007, resulting in Slovenian CG Code (2007), and December 8, 2009, leading to Slovenian CG Code (2009), which is still in power in Slovenia. The World Bank’s 2004 Report on the Observance of Standards and

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Codes (ROSC) on Corporate Governance benchmarked Slovenia’s observance of corporate governance against the Organisation for Economic Co-operation and Development’s (OECD) Principles. The report discussed the Slovenian CG Code (2004), stating that the corporate governance framework in Slovenia is “strong relative to the OECD Principles, and adheres to high levels of transparency of ownership”. Slovenian legislation complied with EU directives, and its corporate governance legal and regulatory framework was comparable to that of many EU member states (ROSC 2004, 16). However, the Slovenian CG Code (2004) did not pay sufficient attention to specifics of the Slovenian financial market and ownership structures of Slovenian corporations. Slovenia faced the postprivatization era, where the process of consolidating control was in progress, either by takeovers or by other types of concentration. Due to the method of privatization, the state and two para-state funds had significant influence in practically all listed Slovenian companies. Consequently, the amendments of the Slovenian CG Code (2004) regulated the role of the funds. The Slovenian CG Code (2005) also stipulated the representation of minority shareholders. According to the European Bank for Reconstruction and Development’s (EBRD) 2006 report on Commercial Laws of Slovenia, amendments to the CG code in 2005 were expected to enhance the independence requirements of the supervisory board (EBRD 2006, 26). The code amendments therefore implemented the above recommendations regarding the maximum number of companies in which a single person can act as a member of a supervisory or management body. The amendments also assumed the disclosure rules as they had already been enacted by the Ljubljana Stock Exchange Rules (EU Study 2009, 349). The Slovenian CG Code (2007) aimed to define in more detail the governance and management principles of public companies as well as recommend the same governance principles to companies that have not gone public, but have the form of a joint stock company. The Slovenian CG Code (2007) leaned heavily on the principle of “comply or explain” in all the areas of potential conflicts of interest. The key element of this principle is disclosure. According to the Slovenian CG Code (2007), the purpose of publicly disclosing a company’s declaration of compliance with the code has been to provide information on the company’s system of corporate governance and the related corporate governance risks to its shareholders, potential investors, and other interest groups. In light of such developments, the objective of the code was to urge companies to provide sufficient information on their corporate governance practices (Slovenian CG Code 2007). The Slovenian CG Code (2007) also encouraged

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substantial shareholders, institutional investors, and the state to reveal publicly the company’s investment policy. It further encouraged minority shareholders to be more active by stipulating the right of each shareholder to attend the general meeting and to present their opinion on the items on the agenda as well as ask questions and provide suggestions relating to the agenda of the general meeting. All these were explicitly written because in some companies the minority shareholders had not been allowed to exercise these rights. Some amendments were adopted to improve the transparency of companies (i.e., the provisions about the information that has to be published upon convening of a general meeting and after the general meetings were held). Because both companies and the public have become increasingly familiar with the provisions of the previous Slovenian CG Code (2007), all the provisions of the amended Slovenian CG Code (2009) have the nature of recommendations, which are not legally binding. However, a public company should inform investors of any deviations from the code and the reasons for them. Non-public joint stock companies that base their Corporate Governance Statement (hereinafter: CG Statement) on this code (Slovenian CG Code 2009, 2) must also disclose all such deviations. For many reasons, the year 2009 represented an important pillar in the development of corporate governance in Slovenia. The Slovenian CG Code (2009) introduced the Corporate Governance Policy (CG Policy) and its content for the first time. The Slovenian Companies Act (ZGD-1UPB3) enacted the CG Statement in the same year as well. Both the code and the Companies Act brought positive changes in the field of corporate governance and especially enlarged the transparency of public companies in Slovenia.

4.3 Some assessments of the development and positive legal consequences of the CG code in Slovenia in the past Soft provisions of the Slovenian CG Code, which are non-binding, created a suitable legal basis for the development, better understanding, and implementation of corporate governance in Slovenian public companies. In addition, the CG Statement has become a requisite element of the public companies’ annual reports (Djokiü 2009). Being an obligatory instrument for public companies, the CG Statement includes the material information that should be revealed to shareholders. Disclosure and transparency were introduced by imperative rules of law and soft law. The combination of both techniques established the legal basis to help improve corporate governance of public companies, not only in words but also in practice.

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Following the examination of the annual reports of joint stock companies that entered the first Ljubljana Stock Exchange listing of 2008, 2009, and 2010, one could perceive an improvement in the disclosure of data in the annual reports and enlargement of the transparency. For example, the examination of the annual reports of public companies in the first Stock Exchange listing for 2008 showed an additional improvement in disclosing the data on the remuneration of supervisory board members, considering that the reports, as a rule, disclose them by structure and by individual members. The frequency of disclosure and transparency of the data on corporate governance and potential conflicts of interest in this field from 2009 to 2010 are ever greater in the annual reports of Slovenian public companies (Djokiü 2012). The Ljubljana Stock Exchange made another analysis of the CG Statement in 2012 (LJSE Analysis 2012). This analysis included the disclosure of the explanations from the Slovenian CG Code (2009) of the corporations included in the prime listing of the Ljubljana Stock Exchange for 2010 and 2011. The major source of data was companies’ annual reports. Companies listed on the stock exchange must, in accordance with the Slovenian Companies Act (ZGD-1, Paragraph 70), disclose the CG Statement in an annual report. In this statement, a company must disclose the selected corporate governance code, where this code is obtainable, and any deviations from the code’s principles (“comply or explain principle”). The LJSE Analysis (2012) shows that the first listing of public corporations showed the biggest deviations from the following principles of the Slovenian CG Code (2009):  definition of goals in the company’s statute  use of information technology to inform and implement supervisory board sessions  the principle regarding payment to supervisory board members  appointment of an audit and personnel committee  disclosure of benefits given to members of the management and supervisory board The LJSE Analysis (2012) also showed that, in certain cases, companies still fail to disclose all deviations, consider them irrelevant, or interpret them in different ways. It expected this attitude to change as soon as possible because it could destroy the very intent of the “comply or explain” principle in Slovenia. This principle is effective when a high level of transparency is achieved through authentic and complete disclosures, including specific explanations of deviations, alternative practices, and

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reasons for it. The LJSE Analysis (2012) also stated that the general level of corporate governance in Slovene companies is relatively good. The overall harmonization of the CG Statement with good practices of corporate governance has been improved. The total number of deviations has been lower, while the proportion of quality deviation explanations has been significantly higher (LJSE Analysis 2012, 3). Improvements made in public companies’ reporting have brought hope for better corporate governance in Slovenia. It has also showed that the practice in Slovenia is following the legislation demands and has been developing in harmony with the regulations of the ZGD-1-UPB3 and the provisions of the Slovenian CG Code (2009). Recently, the Ljubljana Stock Exchange together with the Slovenian Director’s Association made another analysis of the disclosure of the explanations of deviations from the Slovenian CG Code (2009) of corporations for the 2011–2014 period. This analysis included a much bigger sample of companies than the 2012 analysis. The sample of the analysis (LJSE Analysis 2015, 6) comprises companies listed at the Ljubljana Stock Exchange—namely, 58 companies for 2011 and 2013, 57 companies for 2012, and 60 companies in 2014. The major sources of data were companies’ annual reports, especially the CG Statement, which is the compulsory part of the annual report. The analysis (LJSE Analysis 2015, 8) indicated that the number of companies using the Slovenian CG Code (2009) has increased from 63.8% in 2011 to 71.7% in 2014. The number of companies that do not use the Slovenian CG Code (2009) has decreased from 36.2% of such companies in 2011 and 28.3% of companies in 2014. It is interesting that companies (with the exception of one company) do not use any other publicly accessed corporate governance codes even though the law enables such a solution. Furthermore, the analysis (LJSE Analysis 2015) found that companies reported on deviations from 84 principles (of the code’s total 112 principles) in 2011, from 78 principles in 2012, from 85 principles in 2013, and from 89 principles in 2014. In all the observed years, only 22 principles were identified as those that all companies in the sample complied with. The average compliance of a company (the average was calculated only for those companies that reported deviations) with the Slovenian CG Code (2009) was 89.8% in 2011, 90.6% in 2012, 89.9% in 2013, and 89.8% in 2014. The analysis shows that half of the most frequent deviations are deviations from the principles on transparency (last chapter of the code).

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The reported deviations related to the rules and communication strategy of a company, restrictions of trading with the company’s shares, public announcements and reports in a foreign language, and disclosure of remuneration of each member of the management board and the supervisory board. For 2014, the analysis revealed the most frequent deviations from the following principles of the Slovenian CG Code (2009):    

publication of an annual report in the English language definition of goals in the company’s statute drawing up and adopting of the Corporate Governance Policy the principle regarding the work of supervisory board in compliance with the code (a statement on the independence of supervisory board members)  the principle on appointing special committees of supervisory board

Yet the question remained: Would it be possible to find out whether companies had improved their corporate governance practices and not only published some data in the statements on corporate governance and their reports? The answer to such a question would indeed depend on companies’ abilities to precisely measure and anticipate different areas and levels of corporate governance (model, ownership structure, risk, etc.) in the domain of the corporate governance. The present situation calls on Slovenia to become more aware of the importance of a competent and effective corporate governance model. The creation and use of an economically successful model should be supported by the use of different legal techniques of regulators and others involved in the regulatory process (Djokiü 2013). We believe that soft law and obligatory provisions enacted by laws should be used and combined.

5 Empirical research 5.1 Research methodology with sampling and data collection The SEECGAN Index was applied to measure the level of good governance practices implemented in Slovenian companies. The research was based on the methodology of the SEECGAN Index, which was described in the previous section. In the SEECGAN Research–Slovenia 2014 we selected 22 companies to be included in the sample.

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Companies listed on the Ljubljana Stock Exchange in June 2014 were included in the sample. The equity market of the Ljubljana Stock Exchange is divided into three segments (LJSE Markets 2015): (1) prime market, (2) standard market, and (3) entry market. We included in the sample nine companies from the prime market (at that time, these were all of the companies from the prime market) and 13 companies from the standard market (Djokiü et al. 2014). The major source of the data was annual reports, with included corporate governance statements in which a company discloses its compliance with the Slovenian Corporate Governance Code, and data displayed on companies’ web pages (internal acts of the management boards, documents, reports, information for different groups of stakeholders).

5.2 Results and discussion In this section, we present the aggregated results of the SEECGAN Index for all 22 companies included in the sample and based on the data published in 2013 (Table 3). The data in Table 3 shows that the average value of the SEECGAN Index of the corporate governance quality of the listed companies in the Republic of Slovenia is 5.49, indicating the presence of good corporate governance practices, on average, in the listed companies. The maximum value is 8.16, and the minimum value is 2.26. The average deviation from the mean is 1.71. Half of the listed companies display an average value of the SEECGAN Index greater than 5.26. The research on corporate governance quality applying the SEECGAN Index was conducted in Croatia and Macedonia at the same time. The comparison with Croatia and Macedonia showed that the governance practices are of better quality in Slovenia. The average value of the SEECGAN Index among the joint stock companies in Croatia is 3.91, indicating the presence of unsatisfactory governance practices in the average joint stock company in Croatia. The maximum index value was 8.13, and the minimum value was 1.11, while the standard deviation was 1.97 (Tipuriü et al. 2015). Similarly, unsatisfactory corporate governance practices were identified in joint stock companies in Macedonia, where the average SEECGAN Index is 4.09 (Vrboski et al. 2015, cited in Tipuriü et al. 2015).

Max.

Min.

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Median 1.71

2.19 2.12 1.88 1.60 2.55 2.49 2.26 2.27

5.26

5.95 4.44 6.18 5.00 3.81 6.04 8.75 4.84

Standard deviation

Variance

3.54 2.55 6.51 6.20 5.12 5.15

4.80 4.50

2.92

The two-tier governance system is present in listed companies and is a corporate structure system that consists of two separate boards (i.e., management and supervisory boards) that work together in order to govern a business. Each serves a particular purpose.

1

Total 8.16 2.26 5.49 Structure and Governance of Boards1: - supervisory board 8.65 1.62 5.66 - management board 8.15 0.74 4.49 Transparency and Disclosure of Information 10.00 3.53 6.62 Shareholders’ Rights 7.10 0.97 4.79 Corporate Social Responsibility 10.00 0.00 3.66 Audit and Internal Control 10.00 3.33 6.36 Corporate Risk Management 10.00 3.13 7.61 Compensation/Remuneration 9.06 0.63 4.74 Source: The SEECGAN Research–Slovenia 2014 (Djokiü et al. 2014)

SEECGAN Index

Table 3: The SEECGAN Index for Slovenia

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Figure 4: The average values of categories of the SEECGAN Index for Slovenia

SEECGAN Index Compensation / Remuneration

4.74

Corporate Risk Management

7.61

Audit and Internal Control

6.36

Corporate Social Responsibility

3.66

Shareholders' Rights

4.79

Transparency and Disclosure of… Structure and Governance og…

6.62 4.49

Structure and Governance of… Total

5.66 5.49

0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 Source: The SEECGAN Research–Slovenia 2014 (Djokiü et al. 2014)

Companies included in the sample achieved the highest average value of the quality of corporate governance in the risk management category (see Figure 4). On average, they were evaluated in this category as being A class companies with an average index value of 7.61. The median shows that 50% of companies have an SEECGAN Index value higher than 8.75 in the risk management category; this means that practice in risk management is first class among Slovenian listed companies. In the risk management category, we examined the risk management practice of each company. All companies developed a system of risk management and made efforts to identify and classify risks as well as measure and manage financial risks (i.e., currency, interest rate, price, and credit and liquidity risks). The majority of the companies in the sample have a special department/division of risk management whose primary responsibility is to measure and manage operative and strategic risks.

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The lowest index value was calculated in the social responsibility category. Companies were, on average, evaluated as unsatisfactory (3.66) and were categorized as C class companies in this corporate governance category. In the corporate social responsibility (CSR) category, we traced the largest deviation from the mean (2.55) and the lowest minimum value. Within this category, we examined compliance with CSR guidelines for each company in the sample. Only one company had a board member/department whose primary responsibility was CSR and held special meetings to engage with stakeholder groups to solicit their opinions in a formal way. Two companies prepared CSR reports according to the UN Global Compact, Global Reporting Initiative, B-Corporation, or other internationally recognized reporting standards. Public calls or similar transparent procedures for financing projects in the local communities and company donations were applied in only five companies. Good corporate governance was carried out in segments of the structure of the supervisory board (5.66), transparency and disclosure (6.62), and audit and internal control (6.36). In the future Slovenian public companies will have to pay attention to the quality of corporate governance, especially to the segment of shareholder rights, CSR, structure of the board, and remuneration of the members of the board and the supervisory board, as the practice in these areas has been unsatisfactory.

6 Conclusions Corporate governance has become an important and often discussed topic due to numerous cases of corporate fraud, accounting scandals, and other organizational failures, many of which have culminated in lawsuits, resignations, and bankruptcy. Therefore, the quality of corporate governance has been increasing in importance. Those companies that have met the standards of corporate governance have high quality corporate governance. Standards in Slovenia are recorded in the 2009 Slovenian Code, which was adopted by the Ljubljana Stock Exchange, d. d., the Managers’ Association of Slovenia and the Slovenian Directors’ Association. The Slovene code of governance of public companies came into force in 2009 and has the nature of recommendations, which are not legally binding. Companies can summarize the description of their corporate governance system in the CG Statement determined by the Slovenian Companies Act. However, the development of good and effective corporate governance cannot be based on written rules and standards alone. Effective corporate governance is demonstrated by the implementation of the rules in practice

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and through the promotion of the objectives of the corporation. The codes could be a big help in providing better practices of corporate governance in a particular company. If the management bodies are prepared to use their recommendations properly, the codes could be an orientation on how to execute a particular job or operation. Practical behaviour and factual performance of the duties of a particular management body of a company are significant. In addition to the recognition of the importance of the quality of corporate governance, the question of measuring quality arises. To this end, various researchers have introduced a variety of indices to measure the quality of corporate governance. This paper applied the SEECGAN Index, which was designed and adapted with regard to the situation and the specificities of the business environment in selected countries of southeastern Europe. Results from the preliminary research show the quality of corporate governance of listed companies in the Republic of Slovenia is good (value of the SEECGAN Index being 5.49). The highest average value of the quality of corporate governance that public companies have reached in the segment of risk management was evaluated as first class (7.61) whereas the lowest value in social responsibility were evaluated as unsatisfactory (3.66). In the future, Slovenian public companies will have to pay attention to the quality of corporate governance, especially to the segment of shareholder rights, CSR, structure of the board, and remuneration of the members of the board and the supervisory board as practices in these areas are unsatisfactory. Slovenian companies with high quality corporate governance have the possibility to differ from their competitors. By knowing the quality of individual companies’ corporate governance, investors can better assess the potential growth of their investment in the company, thereby creating higher returns. Future research should cover cross-country comparisons. Some preliminary comparisons have already been made by applying the SEECGAN Index. However, more detailed analyses of research results from participating countries (besides Croatia and Macedonia) are needed in order to identify good corporate governance practice in different national settings and to assess the possibility to introduce such practices in other national contexts.

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Uradno preþišþeno besedilo Zakona o gospodarskih družbah. Državni zbor RS, Št. 310-01/09-15/1, z dne 15. 7. 2009. Zakon o gospodarskih družbah – ZGD-1 (Uradni list RS, št. 42/06 z dne 19. 4. 2006), Popravek Zakona o gospodarskih družbah – ZGD-1 (Uradni list RS, št. 60/06 z dne 9. 6. 2006), Zakon o spremembah in dopolnitvah Zakona o sodelovanju delavcev pri upravljanju – ZSDU-B (Uradni list RS, št. 26/07 z dne 23. 3. 2007), Zakon o spremembah in dopolnitvah Zakona o sodnem registru – ZSReg-B (Uradni list RS, št. 33/07 z dne 13. 4. 2007), Zakon o trgu finanþnih instrumentov - ZTFI (Uradni list RS, št. 67/07 z dne 27. 7. 2007), Zakon o spremembah in dopolnitvah Zakona o gospodarskih družbah – ZGD-1A (Uradni list RS, št. 10/08 z dne 30. 1. 2008), Zakon o spremembah in dopolnitvah Zakona o gospodarskih družbah – ZGD-1B (Uradni list RS, št. 68/08 z dne 8. 7. 2008) in Zakon o spremembah in dopolnitvah Zakona o gospodarskih družbah – ZGD-1C (Uradni list RS, št. 42/09 z dne 5. 6. 2009). ZTLR. 1992. “Zakon o lastninskem preoblikovanju podjetij.” Uradni list RS, št. 55/92;7/93; 31/93; 32/94; 1/96; 30/98;“Zakon o Agenciji RS za prestrukturiranje in privatizacijo.” Uradni list RS, št. 7/93; “Zakon o Skladu RS za razvoj.” Uradni list RS, št. 7/93; “Zakon o investicijskih skladih in družbah za upravljanje.” Uradni list RS, št. 6/94, 25/97 (ZISDU-A), 10/98 (ZISDU-B), (uradno preþišþeno besedilo) (ZISDU1-UPB1); “Zakon o slovenskem odškodninskem skladu.” Uradni list RS, št. 7/93; “Zakon o privatizaciji pravnih oseb v lasti Sklada RS za razvoj in obveznostih Agencije RS za prestrukturiranje in privatizacijo.” Uradni list RS, št.71/94; “Zakon o zakljuþku lastninjenja in privatizaciji pravnih oseb v lasti Slovenske razvojne družbe (ZLPPO).” Uradni list RS, št. 30/98; 79/2001;“Uredba o metodologiji za izdelavo otvoritvene bilance stanja.” Uradni list RS, št. 24/93; “Uredba o pripravi programa preoblikovanja in izvedbi posameznih naþinov lastninskega preoblikovanja podjetij.”Uradni list RS, št.: 13/93; 45/93; 55/93; “Uredba o naþinu oblikovanja rezerv v okviru otvoritvene bilance stanja.” Uradni list RS, št. 40/93; “Uredba o izdaji, razdelitvi in uporabi lastniških certifikatov.” Uradni list RS, št. 40/93; “Navodilo o dokumentaciji, ki jo mora podjetje pred vpisom lastninskega preoblikovanja v sodni register priložiti zahtevi za pridobitev soglasja Agencije.”Uradni list RS, št. 51/93; “Pravila borze (preþišþeno besedilo).” Uradni list RS, št. 113/2002; “Sklep o podrobnejši vsebini in naþinu objave sporoþil javnih družb.” Uradni list RS, št. 6/2000; “Navodila Ljubljanske borze vrednostnih papirjev za obvešþanje (druga verzija).” Ljubljana, januar 2003; “Slovenski raþunovodski standardi 2001.”Slovenski inštitut za revizijo; Ljubljana,

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ABOUT THE AUTHORS (IN ALPHABETHICAL ORDER)

Belak Jernej University of Maribor, Faculty of Economics and Business, Department of Strategic Management and Enterprise Policy, Razlagova 14, SI – 2000 Maribor, Slovenia Email: [email protected]; Djokiü Danila University of Primorska, Faculty of Management, Department for law, Cankarjeva 5, 6000 Koper, Slovenia E- mail: [email protected] Duh Mojca University of Maribor, Faculty of Economics and Business, Department of Strategic Management and Enterprise Policy, Razlagova 14, SI – 2000 Maribor, Slovenia Email: [email protected]; Hrast Anita IRDO Institute for Development of Social Responsibility, Maribor, Slovenia Email: [email protected]

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Mulej Matjaž University of Maribor, Faculty of Economics and Business, Razlagova 14, SI – 2000 Maribor, Slovenia Email: [email protected]; Mulej Nastja Nastja Mulej, s.p., Ljubljana, Slovenia Email: [email protected] Primec Andreja University of Maribor, Faculty of Economics and Business, Department of Strategic Management and Enterprise Policy, Razlagova 14, SI – 2000 Maribor, Slovenia Email: [email protected]; Sternad Zabukovšek Simona University of Maribor, Faculty of Economics and Business, Department of Strategic Management and Enterprise Policy, Razlagova 14, SI – 2000 Maribor, Slovenia Email: [email protected]; Šrukelj Tjaša University of Maribor, Faculty of Economics and Business, Department of Strategic Management and Enterprise Policy, Razlagova 14, SI – 2000 Maribor, Slovenia Email: [email protected];

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Biographies Jernej Belak, Faculty of Economics and Business, University of Maribor Razlagova ul. 14, SI-2000 Maribor Slovenia Fax: +386 (0)2 25 16 681 Email: [email protected]; http: www.epf.um.si Jernej Belak, Ph.D., born on Dec., 7, 1976, in Maribor, Slovenia, is Associate Professor at The Department for Strategic Management and Enterprise Policy at the Faculty of Economics and Business, University of Maribor, Slovenia. In his master and doctoral dissertations he dealt with the problems of business ethics and its implementation. Embracing the topic of business ethics, organizational culture, credibility and philosophy within the field of corporate governance and strategic management he published several scientific articles and monographs as well as attended various scientific conferences. He is the head of the Institute for Management Development at the of Economics and Business, University of Maribor, Slovenia. Danila Djokiü, Faculty of Management, University of Primorska Cankarjeva 5, SI-6000 Koper Slovenia Email: [email protected] http: www.fm-kp.si Ms. Danila Djokiü, Ph.D., is Associate Professor at the Department of Law and Management at the University of Primorska, Faculty of Management, Koper, Slovenia. Ms. Djokiü has more than twenty years’ experience as a commercial and corporate lawyer. For several years she run her private law office. Her past experiences include managerial work for the Slovenian privatization agency. Her research interests in her current position at the UP FM encompass issues related to supervision and control in the field of corporate governance, autonomous sources of business and corporate law and business (commercial) contracts. She lectured in Finland, Malta and Spain and authored several books, teaching materials, articles and scientific papers.

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Mojca Duh, Faculty of Economics and Business, University of Maribor Razlagova ul. 14, SI-2000 Maribor Slovenia Phone: +386 2 22 90 253 Fax: +386 (0)2 25 16 681 Email: [email protected] http: www.epf.um.si Mojca Duh, Ph.D., born on Feb., 26, 1966, is Full Professor of Strategic Management and Corporate Governance at Faculty of Economics and Business at the University of Maribor, Slovenia, where she teaches courses in strategic management, corporate governance and family businesses management at undergraduate and postgraduate studies. Her main research interest includes strategic management, corporate governance, firms’ dynamics, knowledge management and creation, and development and management of family businesses. She participated with research papers at several national and international conferences; she is (co)author of scientific and professional articles, and several chapters in books. Anita Hrast, IRDO – Institute for the Development of Social Responsibility Preradoviþeva ulica 26, SI-2000 Maribor Slovenia Fax: +386 (0)31 344 883 Email: [email protected], [email protected] http: www.irdo.si, www.horus.si Anita Hrast is founder and general manager of IRDO – Institute for the Development of Social Responsibility (www.irdo.si) and co-founder of Slovene award for Social Responsibility Horus (www.horus.si). As a researcher and development manager she is publishing texts from the social responsibility and marketing at international scientific and expert conferences. She works in communication, marketing, social responsibility and develops new methods, projects, products and services for different clients (companies, NGO’s, government). She links many Slovene and international organizations, experts, with purpose to develop and implement social responsibility in theory and practise, also drafting Slovene National Strategy on Social Responsibility.

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Matjaž Mulej, Faculty of Economics and Business, University of Maribor Razlagova ul. 14, SI-2000 Maribor Slovenia Fax: +386 (0)2 25 16 681 Email: [email protected] http: www.epf.um.si Matjaž Mulej, born on Jan., 20, 1941, in Maribor, Slovenia; University of Maribor; Professor Emeritus, Systems and Innovation Theory (applied also to social responsibility for +10 years). +1.800 publications in +40 countries (see: IZUM/Cobiss/Bibliographies, 08082). Visiting professor abroad: 15 semesters. Author: Dialectical Systems Theory (see: François, 2004, International Encyclopedia); Innovative Business Paradigm and Methods. Member: European Academy of Sciences and Arts, Salzburg (2004), European Academy of Sciences and Humanities, Paris (2004), International Academy for Systems and Cybernetic Sciences, Vienna (2010; former head). M.A. in Development Economics, Doctorates in Economics/ Systems Theory, and in Management / Innovation Management. E-mail: [email protected]; homepage: epfip.uni-mb.si; www.irdo.si Andreja Primec, Faculty of Economics and Business, University of Maribor Razlagova ul. 14, SI-2000 Maribor Slovenia Fax: +386 (0)2 25 10 461 Email: [email protected] http: www.epf.um.si Andreja Primec, Ph.D., graduate layer, born on Dec., 30, 1966, in Ljubljana, Slovenia is an assistant professor at The Department of Business Law at the Faculty of Economics and Business, University of Maribor. She started her professional careener at the High Court of Maribor as probationer and after receiving bar examination as professional collaborator. After that she joined the Department of Business Law, first as assistant and today as assistant professor for business law. Her basic fields of professional and scientific research work are: business law, international business law, the European Union law, intellectual property law and arbitration law. In 2012 she became an arbitrator of the Permanent Arbitration attached to the Chamber of Commerce and Industry of Slovenia. She published several scientific articles and participated to different professional and scientific conferences.

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Simona Sternad Zabukovšek University of Maribor, Faculty of Economics and Business, Maribor, Slovenia Department of E-Business Razlagova ul. 14, SI–2000 Maribor Slovenia Fax: +386 (0)2 25 16 681 Email: [email protected] http: www.epf.um.si Simona Sternad Zabukovšek is an assistant professor of Information Systems at the Faculty of Economics and Business at the University of Maribor. She has a Ph.D. in the field of management information science. Her research areas include business process reengineering, ERP and ebusiness solutions, and the implementation and maintenance of ERP solutions. Her bibliography includes more than 70 articles, conference papers, and research reports. She has collaborated in several courses at the undergraduate (E-business, Introduction to Information Systems, EFinance and E-Banking, Enterprise Resource Planning Solutions, EBusiness Information Systems) and graduate levels (Business Information Solutions, Strategic Management Issues in E-business). She also serves as a consultant for several companies in Slovenia. Tjaša Štrukelj University of Maribor, Faculty of Economics and Business, Maribor, Slovenia Department of Strategic Management and Enterprise Policy Razlagova ul. 14, SI–2000 Maribor Slovenia Fax: +386 (0)2 25 16 681 Email: [email protected] http: www.epf.um.si Dr. Sc. Tjaša Štrukelj is an assistant professor for Enterprise Policy, Strategic Management, Enterprise Culture, Enterprise Ethics, Social Responsibility, and SMEs management at the University of Maribor, Faculty of Economics and Business (FEB), Department of Strategic Management and Enterprise Policy, Maribor, Slovenia; [email protected]. Her postgraduate education includes titles Master of Science (of University Maribor, Slovenia) and KMU – Diplom HSG (SME Intensive Study Program of University St. Gallen, Switzerland). In 2015 she concluded doctoral thesis on subject

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Dialectical System of Viewpoints for Innovating of Governance and Management of a Transitional Enterprise and publishes in field of her research (http://www.cobiss.si/, 16338). She does also confidential clerk work, advisory work in business practice, is a member of the international research group »The acceleration method of development of transversal competences in students' practical training process« (2015-), participates in the research program »Entrepreneurship for Innovative Society«, Slovenia (2016-), is a coeditor of series of professional monographs Contemporary Business and economics, Slovenia (2011-), a member of IRDO – Institute for Development of Social Responsibility, Slovenia (2009-), head of the project »FEB and social responsibility« responsible for spreading consciousness about social responsibility in FEB and broader (2012-) and a member of the Council of the Institute SrCi Institute of systems thinking and holistic innovating Maribor, Slovenia (2014-).