Corporate Social Responsibility and Citizenship Decisions

Explanations Information on Rules/Procedures Suggestions and Tips

This decision screen displays six optional initiatives that can be employed to create a "social responsibility strategy" for
your company and thereby demonstrate a commitment to operating your footwear business with a "social conscience."
Aside from the fact that being a good corporate citizen and operating your company in a socially responsible manner is
considered by some people as "morally correct" or the "right" thing to do, a good business reason to consider pursuit of
a social responsibility strategy is the positive contribution that such a strategy can have on your footwear company's
Image Rating. Aggressive and astute pursuit of social responsibility/citizenship initiatives over a 5-year period
can potentially boost your company's Image Rating by as much as 15 to 20 points.
There are four important things to understand here:
1. All of the decision entries on this screen are voluntaryyou and your co-managers have the discretion to take no
actions or spend any monies, should you so choose. Your company will absolutely be able to perform at a high
level and have a good Image Rating without spending money on any of the social responsibility and citizenship
initiatives. Your company's image rating is based on three factors: (1) your company's branded S/Q ratings in each
geographic region, (2) your company's market shares for both branded and private-label footwear in each of the
four geographic regions, and (3) your company's actions to display corporate citizenship and conduct operations in
a socially responsible manner over the past 4-5 years. An attractively high Image Rating can be achieved by
performing well on just the first two factors. So you should not feel "forced" or "pressured" to undertake any of the
actions on this screen if you really do not wish to do so. Prior to your taking over company operations at the end of
Year 10, your company spent no money for any of the six social responsibility and citizenship initiatives shown on
this screen.
2. There is no negative Image Rating impact or penalty if you and your co-managers elect not to spend any
money for social responsibility and citizenship.
3. The positive Image Rating gains are minimal unless your company's actions are "comprehensive" (involve several,
but not necessarily all, of the six areas of citizenship and social responsibility), entail more than "token" efforts
(measured by how much money is being spent), and represent an ongoing effort of at least 4-5 years. Expect it to
take time for a company's social responsibility/citizenship strategy to produce much impact on a company's Image
Ratingannual expenditures of x dollars for one or two years will have a substantially smaller impact than
expenditures of x dollars for 4-5 years. So you will have to be patient in expecting sizable Image Rating benefits
from social responsibility/citizenship expenditures.
4. The impacts on your company's Image Rating of expenditures for "green" footwear materials versus recycled
boxing/packaging versus energy efficiency initiatives versus charitable contributions versus ethics
training/enforcement versus workforce diversity are not the same. Some social responsibility and citizenship
actions have a bigger positive impact on your company's Image Rating than do others. The biggest impacts
relate to "green" footwear materials and charitable contributions, not so much because they are "more important"
than the other four as because they are more visible to the public (and can entail bigger dollar expenditures).
Beginning in Year 11 and continuing each year thereafter, you will be provided data at the bottom of Page 3 of
the Footwear Industry Report showing how many Image Rating points are being generated by social
responsibility/citizenship expenditures at each company in your industry, and you will also be provided with
benchmark data showing industry high, low, and average expenditures for prior-year social responsibility and
citizenship programs/initiatives. This data will give you a way to gauge the benefits and costs of social
responsibility/citizenship expenditures at your company.
Entering Decisions for the Six Types of Social Responsibility and Citizenship Initiatives
Beginning in the middle of the decision screen, you will see the six different types of social responsibility/citizenship
initiatives that you and your co-managers can employ to create a social responsibility/citizenship strategy for your
company. Brief explanations of each of the six initiatives are shown on the screen. Click on the white decision entry
boxes to see the different decision options at your disposal. Since none of the decision entries are "final" until the
deadline your instructor has established for completion of the decision round arrives, you and your co-managers can try
as many different combinations of entries as you wish.
The combined costs of your decision entries for the six optional initiatives are shown on the line headed "Projected
Expenditures for Corporate Social Responsibility and Citizenship in Year __" which is just below the decision entry for
Workforce Diversity Program.
You should always make a point of watching the numbers in the bottom section of the screen showing the projected
effects of these expenditures on Net Profit, Earnings per Share, Return on Equity, Credit Rating, Image Rating, and
Year-End Cash Balance for the upcoming yearnote that these numbers change each time you enter a different
decision for any one of the six initiatives (all decision screens are programmed to show the incremental impacts of each
decision entry). You should pay particular attention to the sizes of the impacts of your decision entries on the projections
for Net Profit, Earnings per Share and Image Rating. Remember, however, that these projections are "incomplete" and,
at best, "rough approximations" until you have settled on entries for all the decision boxes on all the decision
screens. Nonetheless, you want to keep a close eye on whether each decision entry is causing the projections to look
better or worsethe size and the direction of the incremental changes is something you will find enormously useful in
deciding the merits of one trail decision entry versus another.
Warning #1: Expenditures for the six social responsibility/citizenship initiatives will not have much impact on your
company's projected Image Rating in the first year or two (although you should see some differences between spending
a little or a lot and spending more on some initiatives than others). A company's Image Rating does not blossom and
mushroom overnight just because its management team one day decides to demonstrate more of a "social conscience"
and begins to spend some money on a few programs. Building a reputation for operating in a socially responsible
manner and being a model corporate citizen requires years of effort where the sincerity of management's intentions and
the depth of a company's commitment are measured in large part by sustained and meaningfully large expenditures of
money and resources to do good deeds and promote socially desirable outcomes. This is why it will take aggressive
and astute pursuit of the social responsibility and citizenship initiatives over a 5-year period before you can
expect to realize Image Rating gains in the 15 to 20 point range.
Warning #2: Beware of spending so much on the six social responsibility initiatives that you unduly impair the
company's profitability and overall financial performance. While your company can certainly afford to undertake such
spending, the amounts spent do matter!!! It is definitely possible to "overspend" on social
responsibility/citizenship initiatives such that any resulting Image Rating gains are outweighed by the adverse
impact that heavy spending on social responsibility initiatives can have on operating profit, net income, EPS, ROE,
credit rating, and stock price. In other words, aggressively spending large sums on social responsibility initiatives to try
to drive up your company's Image Rating can have the unintended consequence of reducing your company's overall
performance because of the dampening effect that such costs can have on EPS, ROE, stock price, and credit rating. It
is overall performance on the five scoring variables that matters, not just your company's image rating performance.
Suggestions for Year 11 Decision Entries
In making decision entries for Year 11, there's merit in being cautious about how much money you opt to spend for
social responsibility/citizenship initiativesat least the first time you visit this decision screen. This is because your
company spent no money for any of these items last yearhence all such expenditures for Year 11 (shown on the line
headed "Projected Expenditures for Corporate Social Responsibility and Citizenship near the bottom of the screen) will
represent an increase in costs over the prior year and could adversely impact your company's achievement of the Year
11 targets for EPS, ROE, and credit ratingshown in the very bottom section of this screen. Special Note: It is
strongly recommended that you read the section below entitled "Explanations of the Projections of Company
Performance"understanding these numbers and what interpretation to place on them as you make decision
entries is absolutely critical.
Later on, once you have gone through all the decision screens the first time, then revisited all the other decision screens
to fine-tune your initial entries, and see that your company's projected EPS, ROE, and credit rating performances look
acceptable, you may want to come back to this screen and consider spending additional sums on one or more of the six
social responsibility/citizenship initiatives. You and your co-managers should not feel that you are under any pressure to
immediately begin spending millions of dollars for social responsibility/citizenship initiatives. Indeed, as stated above,
your company will be able to achieve a good Image Rating and otherwise be a strong performer without spending any
money for these six initiatives in Year 11 or by spending only token amounts in Year 11. There is ample time in
upcoming decision rounds to make social responsibility and citizenship a major component of your company's strategy.
The Information that Appears at the Top of this Decision Screen (Starting in Year 12)
Beginning in Year 12 and continuing each year thereafter, a two-column block of information will appear at the top of
this decision screen (this new information will permanently replace the introductory text that appeared at the top of this
Decision Screen in Year 11):
On the top left of the screen will be information showing (1) the actions you have taken for each of the six voluntary
social responsibility and citizenship initiatives for the five most recent years, (2) the total dollars your company
spent each year for all six initiatives, and (3) the associated costs per pair sold (the per pair sold number is based
on the combined unit sales of both branded and private-label footwear).
On the top right of the screen will be industry-wide benchmarking data showing (1) the company-high, company-
low, and company-average expenditures for all six initiatives combined and (2) the company-high, company-low,
and company-average costs per pair sold.
TIP #1: Use the historical data for your company shown in the top left column to review the actions your company has
taken in past years and to guide decision entries for the upcoming year.
TIP #2: Use the benchmarking data on the right showing highest, lowest, and average expenditures of companies in
the industry (both the total amounts and the per pair sold amounts) as further guides for your decision entries and
further to compare with your "Projected Expenditures for Corporate Social Responsibility and Citizenship" for the
upcoming yearthis line appears near the bottom of the screen.
TIP #3: Be sure to scrutinize the data at the bottom of Page 3 of the most recent year's Footwear Industry Report
showing (1) industry expenditures on social responsibility and citizenship initiatives and (2) the Image Rating points
generated from such expenditures. This information will be a valuable assist in determining (1) whether your company's
expenditures should be increased, decreased, or remain unchanged in the upcoming year or (2) whether to cease
further expenditures altogether or (3) whether to continue spending nothing for social responsibility and citizenship if
that, in fact, has been your company's past practice.
Gold Star Awards for Corporate Citizenship. Beginning in Year 14 and continuing each year thereafter, the World
Council to Promote Exemplary Corporate Citizenship will present a Gold Star Award for Corporate Citizenship to the
athletic footwear company in your industry demonstrating the greatest commitment to operating its business in a
socially responsible manner and being a model corporate citizen. The World Council's Board of Directors has
decided that its annual award will be presented to the company that spent the highest percentage of its overall
corporate revenues for the six social responsibility and citizenship initiatives in the preceding yearthe Council
opted to base its Gold Star Award on percentage of revenues rather than total dollars spent because a total dollar
number is "biased" in favor of companies with big revenue streams (the use of a % of revenues measure is size-neutral
and a more valid measure of "company effort"). A 2nd place Gold Star Award will also be announced.
The annual Gold Star Awards should be viewed as a company honor and as a means of giving special recognition to
companies that are striving to be exemplary corporate citizens and to conduct their business operations in a socially
responsible manner. But such awards do not in any way provide an "extra" boost to a recipient company's
Image Rating or otherwise improve its performance scores. Companies failing to receive a Gold Star Award incur no
special penalty of any kind.
Explanation of the Projections of Companywide Performance at the Left of Each Screen
At the left of every BSG decision screen, there is a box containing projections of the company's overall performance for
the upcoming year on six measures:
Earnings per share defined as net profit divided by the number of shares outstanding at the end of the year.
Earnings per share is one of your company's five annual performance targets.
ROE (return on average equity) defined as net profit divided by the average amount of shareholders' equity
investment; the average amount of equity investment is equal to the sum of shareholders' equity at the beginning of
the year and the end of the year divided by 2. An annual ROE of 15% or higher is one of your company's annual
performance targets.
Credit rating Your company's credit rating is established by credit analysts using three measures: debt-assets
ratio, interest coverage ratio, and the default-risk ratio. The credit rating shown at the left of the screen is the
projected credit rating for next year, given the company's projected performanceit is not the current credit
rating (which is reported in each issue of the Footwear Industry Report). Investors expect that your company will
achieve a credit rating of B+ each year.
Image rating Your company's image rating is based on (1) its branded S/Q ratings in each geographic region,
(2) its market shares for both branded and private-label footwear in each of the four geographic regionsa total of
12 factors, and (3) your companys actions to display corporate citizenship and conduct operations in a socially
responsible manner over the past 4-5 years. Investors have established a target image rating of 70 or higher for
your company to achieve each year.
Revenues defined as worldwide revenues (after taking into account all exchange rate adjustments) from the
combined sales of both branded and private-label footwear in all four geographic regions. Revenues are booked at
the time of shipment, not when the company receives the cash payments (25% percent of annual revenues are not
received in cash until the first quarter of the following year, since payments on shipments to retailers in the fourth
quarter of each year are normally not received until the first quarter of the following year).
Net profit defined as worldwide profit after all expenses and taxes.
Each time you make a new decision entry, all 6 of these companywide performance projections are recalculated,
thereby showing you the incremental impacts of that decision entry. This feature of BSG provides you with powerful
what-iffing capability that makes it much easier to identify what you and your co-managers consider to be an "optimal"
or at least "acceptable" decision entry.
Always bear in mind that the 6 projections do not really represent a true indication of your company's projected
performance until you and your co-managers have made a complete set of decisions (covering all decision
screens) for the upcoming year.
Why These On-Screen Projections Are So Important and How to Use Them Properly. Each time you make a new
decision entry, all 6 of the above companywide performance projections are instantly recalculated, thereby showing you
the incremental impacts of that decision entry. It is easy enough then to simply enter a "trial" decision and determine
whether the resulting projections look better or worse than before. By entering several different "trial" decisions, you can
quickly and readily compare the projected outcomes of "what if we do this" against "what if we do that." After entering a
number of different trial decisions, you'll be able to identify which decision entry seems "best" or "most acceptable,"
given all the different on-screen calculations that are provided. This BSG feature provides you with powerful capability
to explore all kinds of "what if" scenarios and make wise numbers-based decisions.
Always bear in mind that the 6 projections do not really represent a "valid" indication of your company's
projected performance until you and your co-managers have made a complete set of decisions (covering all
decision screens) for the upcoming year. In other words, while you are working your way through the early decision
screens the projections will be updated with each entry, but the numbers shown will only be "a rough approximation"
and lack finality because the projections are not yet based on all the decision entries you plan to make for the
upcoming year.
Once you have gone through all the decision screens and entered what you think are reasonable decisions for all the
boxes, then it is time to really scrutinize these 6 company performance projections and determine whether the projected
outcomes of your strategy and decision-making look acceptable. If not, then you need to tour back through the decision
screens, make different trial decisions here and there as seem appropriate, and not stop tweaking and fine-tuning until
you arrive at a set of company projections that appears to be the best you can come up with. But even then, then
projections are still only projectionsthey do not represent guaranteed outcomes. Why? Because there remain a
host of uncertainties about what competitors will actually do (what prices will they charge, how much they will spend on
advertising, how many different models and styles they will offer, and so on). These will not be known until the deadline
for the decision round arrives, at which time the BSG server will process the decision entries of all companies and
determine the actual outcomes of competition in the marketplace for athletic footwear.