Section A: Short essay Question (maximum 3 pages) Total: 30 marks Answer the below questions. Your answer will be graded out of 30 marks. You must write in standard essay format (thesis statement, intro, body, conclusion). Please cite properly (preferably APA style). Maximum 3 pages, double space, Times New Roman, size 12. “Over the last century, management has been involved in bringing better benefits to workers globally”. Do you agree with this statement? Why and why not? Draw on lectures AND course materials (from Trickker’s chapters, Braveman’s paper, additional readings, documentaries, and debate) in your responses. Additional references from outside class are
welcome. 
Section B: Maximum 3 pages Total: 30 marks Analyze and discuss the attached podcast The role of ESG and purpose by Sean Brown and Robin Nuttall (McKinsey &Company), using at least two of the theses explained in class (for example, shareholder model, stakeholder model, firm regulation, director primacy model, the governance partnership, etc.). Be sure to explain the thesis, justify why you chose the thesis you did; explain how it relates to the podcast. You are encouraged to reference similar/different readings we have read and reference certain theories that might inform your approach to
analyzing the podcast. A PDF version of the podcast transcription is posted on the lecture eClass under December right below the exam questions. You must write in standard essay format (thesis statement, intro, body, conclusion) and draw on lectures and course materials in your response. Maximum 3 pages, double space, Times New Roman, size 12. Please cite all sources properly. Additional references from outside class are welcome.
Section C: Case study Total: 40 marks Case study: Joyful International Holdings Ltd Questions: Mr Alan Lau Man Seung, managing director and chairman of the JIH Group of companies, knows that you have recently been studying corporate governance, and has sought your advice as a consultant. He has no experience of joint ventures with overseas companies and is concerned about the way the proposed joint venture board might work in practice. Write a report for Mr Lau explaining the corporate governance matters that you feel he should consider in negotiating the joint venture
with Nortel. In your report to Mr Lau describe any other governance issues in the JIH Group that you feel he should consider and explain what might be done about them.
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Embedding ESG and purpose in your organization | McKinsey
Y
Strategy & Corporate Finance
January 4, 2022 | Podcast
By Sean Brown and Robin Nuttall
Answering three questions about purpose and environmental, social, and
governance issues can help business leaders zero in on what matters
most for their organizations.
DOWNLOADS
_ Article (7 pages)
Purpose and environmental, social, and governance (ESG) issues represent critical
challenges for both boards and executive teams. They have become particularly
salient since the COVID 19 pandemic, which has forced corporations to scrutinize their
responsibilities and role in society. In this episode of the Inside the Strategy Room podcast
—one of three exploring the various challenges around ESG—two experts who have long
studied the connection between purpose and ESG explain how to align these commitments
and embed them in organizations’ lived experiences. Rupert Younger is the founder of the
Centre for Corporate Reputation at Oxford University and chairs the Enacting Purpose
Initiative, a multi-institution partnership that works to establish best practices around
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Embedding ESG and purpose in your organization | McKinsey
purpose governance. Robin Nuttall is a leader in McKinsey’s ESG and regulatory strategy
work. This is an edited transcript of the discussion. For more conversations on the strategy
issues that matter, follow the series on your preferred podcast app .
Sean Brown: Robin, can you start by describing the di erence between ESG and purpose?
Robin Nuttall: Three things matter when it comes to purpose and ESG. The rst is why.
Purpose answers the question of why your company exists. What is its positive impact on
the world? Why do employees get out of bed in the morning and come to work? That is
underpinned by purposeful activity, which often takes the form of environment, social, and
governance factors.
The why needs to link to the what, which is your fundamental business strategy. Which
markets and product categories do you participate in and which ones do you stay out of?
What is your bold commitment to the people and the planet? Finally, the how is the
operating model. It is relatively easy to get to a purpose statement that would appear at the
top of your website. What is more challenging is making it live in the organization.
Sean Brown: Where is the pressure to focus on ESG and purpose primarily coming from—
investors, customers, employees?
Robin Nuttall: There has been a shift in stakeholder attitudes across the board. Start with
employees: 70 percent now demand purposeful work. They want the company they work for
to take a strong position on social issues. Customers are also making choices in the
marketplace based on purpose and sustainability. Millennials and Gen Z have very di erent
attitudes to purpose than baby boomers do and are much more favorable toward
sustainable businesses. Regulators are also getting very interested in ESG and purpose. The
European Union has already implemented the Non-Financial Reporting Directive [requiring
companies to report how they manage social and environmental challenges], and the
Securities and Exchange Commission [SEC] has started to evaluate ESG measures in the
United States. Then there is the critical investor space.
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Sean Brown: Rupert, you have done a lot of research on corporate purpose. Why is it such a
focus for stakeholders now?
Rupert Younger: We have observed, particularly in the research over the past two years
with the Enacting Purpose Initiative, a return to more balanced capitalism. This ties into the
debate about whether Milton Friedman’s ideals about what capitalism should look like need
to be revised. This idea that one stakeholder, the shareholder, is all you need to focus on as
a manager and board director is being overturned by a global movement challenging that
assumption. Capitalism as a concept came into existence in the mid-1800s, but the idea of
how business should balance its di erent stakeholder interests is a tale going back
millennia. We are now seeing a return to the idea that business needs to serve the interests
of multiple stakeholder groups to achieve the outcomes that it seeks.
Sean Brown: What role are investors playing in this push for more balanced capitalism and
what do they want to see?
Rupert Younger: The interesting development is that shareholders are in the vanguard of
the movement for purpose, and certainly for ESG adoption. Last year, we convened 31 asset
owners and managers, some of the biggest names in the world, to help us think through
these issues. Five big themes emerged. The rst is having clarity on what matters. Investors
are not interested in frothy statements but in understanding how purpose is material to the
performance of the business. The second is evidence of metrics. Investors want businesses
to be much clearer on why purposeful activity produces business outcomes. They also want
to see how senior-executive teams are aligned through their incentive systems to deliver
purposeful activity. The fourth area is how purpose informs capital allocation decisions, both
nancial and human capital. The nal concern is standardization of reporting. There has
been an explosion of di erent reporting mechanisms, which is not necessarily helpful, but as
in any new frontier, you will start to see coalescing around the most powerful and easy-toadopt standards.
Sean Brown: How exactly do purpose and ESG interrelate?
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Robin Nuttall: We think about it as a grid with two axes. On one axis is whether you have
strong or poor ESG performance and on the other is your purpose that sets your “North
Star.” You need to make sure that your ESG commitments deliver on the goals your purpose
sets. The pitfall is that you may state a purpose but have no plan to deliver on it, or you may
have a plethora of ESG programs, but nothing ties them together in terms of that North Star.
Sean Brown: How does that alignment in uence nancial performance? Rupert, you and
your Oxford University colleagues have looked at the links between ESG and value creation.
Rupert Younger: We looked at companies on the NYSE and Nasdaq that had strong ESG
records at the start of the pandemic, both when markets started to collapse and from March
23rd onward, when the markets began to recover. In both of those periods, companies with
better ESG records outperformed those with low records. We did the usual regressions,
even accounting for changes in ownership and optimality levels, and saw the same
outperformance, both in falling and rising markets. The work done by George Serafeim at
Harvard and by others also strongly links purposeful activity with productivity and
performance improvements driven by employee engagement. The point is that purpose
does not come at the expense of pro tability but, in many cases, drives outperformance.
Sean Brown: What is behind this higher capital-markets performance by ESG-focused
companies?
— Rupert Younger
Robin Nuttall: We talked about topline growth and customer preferences, whether that is
consumers or businesses or governments—you increasingly need sustainable business
models to win government contracts. There is also an advantage of having better
relationships with regulators if you articulate your societal impact clearly. You can also gain
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Embedding ESG and purpose in your organization | McKinsey
higher resource e ciency. A green supply chain is often a lean supply chain as you remove
redundancy and waste. Finally, as Rupert mentioned, you attract better talent and raise
productivity. All this can translate into an advantage in the capital markets .
Sean Brown: Companies have to make trade-o s to create more sustainable practices,
whether that is making investments or forgoing business opportunities. How do you nd
them approaching those?
Robin Nuttall: In the near term, there are very real trade-o s. We have developed a model
that can help executives and boards with these decisions. It revolves around what we call
the 5Ps . First, do your portfolio and products re ect your purpose? CVS Pharmacy famously
stopped selling tobacco as it adopted a health-oriented purpose. Number two, people and
culture: are you aligning your recruiting and promotion decisions? Thirdly, processes and
systems: are you embedding purpose into your supply chain and capital allocation?
Then you have performance metrics and, lastly, positions and engagement. What is your
external position? Some oil and gas companies recently withdrew from trade associations
whose positions did not reconcile with the companies’ new purpose statements.
We are starting to see industries take an end-to-end view through these lenses. Some
energy companies have fully adopted the 5P model. It starts with the portfolio strategy
where they divest high-carbon assets and shift toward renewables. They have started
embedding purpose in their people and culture, in how they attract and retain talent. They
are driving out methane emissions from their operational processes and applying metrics
that t with their purpose, such as greenhouse-gas targets wired into manager incentives.
And, as I mentioned, their purpose a ects their external a liations.
Sean Brown: What role are boards playing in fostering this focus on purpose in the
organizations?
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Rupert Younger: Purposeful activity needs to be well governed. The Enacting Purpose
Initiative has put forward a framework called the SCORE model to help boards oversee
purpose, and it comprises ve simple questions [exhibit]. First, is your purpose simple
enough to be understood by everyone? Organizations often overcomplicate. If purpose is to
be meaningful, it needs to connect to every level and function in the organization. The
second is how does it connect to your strategy? If boards think of purpose as a marketing or
cultural driver, that will not deliver its full value. Purpose has to drive strategy and connect
why you exist as a company to the choices you make. The third question is about ownership.
How is purpose lived, owned, and brought to life within the organization, and who owns it?
Exhibit
The fourth area covers the reward system, and not just in terms of nancial rewards but also
promotion and opportunities to work on teams and projects. The nal area, which emerged
out of our meetings with senior board directors and investors, is the power of storytelling.
The human race has long built connections through stories. When people talk about
purposeful activity around the watercooler and share examples throughout the organization,
that can be a powerful way of turning purpose intent into purpose action.
Sean Brown: How are companies aligning executive rewards and incentives with the
corporate purpose?
Robin Nuttall: A recent study found that 29 percent of companies now include various ESG
metrics in their incentive plans, up from 22 percent a year ago. So just as COVID 19 has
accelerated sustainable investing, it has accelerated action on this topic. The areas with the
strongest focus are social metrics, such as diversity and inclusion, with more than 88
percent of companies linking compensation to social and people metrics.
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Embedding ESG and purpose in your organization | McKinsey
Sean Brown: Rupert, you mentioned earlier the proliferation of di erent models for
measuring ESG. Are you seeing points of consensus emerging on metrics?
Rupert Younger: In January, we published a working paper that put forward an approach to
measuring purpose. Historically, people talked about motives—the mission, the strategy,
why the company exists—and then moved straight to how they a ect the balance sheet or
pro t and loss statement. We argue that this is not enough. There needs to be a middle step,
which is metrics, for two reasons. Number one, businesses use metrics when they think
about what assets they deploy and what outputs they produce. In the case of purpose, will it
increase employee engagement or diversity? Will it improve community engagement? Is it
about improving supply chains? There will be various outputs you can focus on that are
business imperatives. You also need to look at what changes as a result of those metrics, or
the outcomes, and the impacts—the e ects on well-being. Looking at metrics helps
businesses and investors put a monetary value on the inputs and the outputs, the outcomes
and the impact.
Sean Brown: Business leaders often struggle to communicate their companies’ purpose
and ESG in a way that investors recognize and reward. How can they get that message out
e ectively?
Rupert Younger: Investors want to understand why your purpose matters. You need to
articulate how you can help to pro tably solve a set of problems relating to people or the
planet. Your ESG commitments then ow from that articulation. Companies nd it di cult to
connect with investors if they start with ESG without those initiatives being anchored in your
reason to exist. Investors need to understand why you are pursuing ESG commitments. You
often nd organizations chasing the latest big ESG issues. The smart companies anchor
themselves in a purpose, and their ESG commitments follow.
Robin Nuttall: We hear that from quite a few clients: “We are communicating a lot on this,
but we don’t feel we are getting credit.” In addition to Rupert’s point, make sure you are
talking about something material that has value to your business. The notion of a road map
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is also powerful. Investors don’t expect you to change your business overnight, especially if
you have a strong legacy in fossil fuels or food products now perceived as less healthy. They
want to see a bold road map and a trajectory to improvement. We saw situations last year
where oil and gas companies came out with ten-year road maps for decarbonization, and
the industry and capital markets’ response was extremely positive.
— Robin Nuttall
Rupert Younger: I would particularly stress the value of having milestones. There has been a
lot of talk around ESG and purposeful activity, and investors now want to see progress. You
cannot pivot an organization overnight, but you can show intent. That could mean immediate
allocations of capital or investments you have chosen not to pursue.
Sean Brown: Where should responsibility reside for guiding this purpose journey? Should
companies appoint chief ESG o cers who report to the CEO?
Robin Nuttall: This is very much a CEO-level topic. The CEO is the only person who can
integrate purpose across the organization and take the leadership of projecting the purpose
in ESG. Of course, you need to develop the ESG strategy and communications, and some
companies are appointing chief ESG o cers or chief sustainability o cers who often
connect with government and public a airs. That is an increasingly common portfolio at the
top-management table. But it is critical for business unit leaders to be involved and
champion this. What we nd to be most e ective at the operational level is for chief
sustainability o cers to act as pivot points but develop the purpose and the ESG jointly with
the business unit leaders.
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Sean Brown: Do you believe that every company, regardless of industry, can become
purpose-driven?
Rupert Younger: Absolutely the answer is yes. Purpose does not have to be something
owery and beautifully constructed. It is a simple articulation of what issues that a ect
people or the planet you are trying to solve. This can be remarkably powerful whether you
are making nuts and bolts or you are an energy company or an investment rm. You can
articulate why you deserve the license to exist. This comes back to the idea of the
corporation—the corporation is a legal ction. It is given its license to operate by society.
Sean Brown: What are the key early decisions that business leaders who want to embed a
purpose in their organizations need to make?
Robin Nuttall: I would call out two things. Number one is to pose the question about
materiality and value at stake. What factors matter to my business and my stakeholders
above all else? The second question is about focus. Some of the most successful ESG
leaders have a focus, whether on sustainable living or reimagining food, and that drives two
or three clear ESG commitments. Ask yourself what one or two topics you want to lead in
your sector versus those topics where you are content to share the lead with others or
follow. That focus will give you more impact, both with your colleagues and with the markets.
ABOUT THE AUTHOR(S)
Robin Nuttall is a partner in McKinsey’s London o ce. Rupert Younger is the
founder of the Centre for Corporate Reputation at Oxford University and chair of
the Enacting Purpose Initiative. Sean Brown is global director of communications
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for McKinsey’s Strategy & Corporate Finance Practice and is based in the Boston
o ce.
Comments and opinions expressed by interviewees are their own and do not
represent or re ect the opinions, policies, or positions of McKinsey & Company or
have its endorsement.
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Joyful International Holdings Ltd
Activities of the Group companies
Joyful International Holdings (JIH) grew from a Hong Kong watch manufacturing company,
originally founded in 1954. The business prospered and the group now has three principal
activities: property development, the manufacture and marketing of sophisticated
electronic equipment, and financial services.
The property business, which is run through JIH, has expanded its property investment
portfolio to benefit from the recovering property market in Hong Kong. JIH has acquired
high quality development assets at prime locations in Hong Kong, Macau, and major cities
in the PRC. It also receives rental returns from properties in Central, Causeway Bay, and
Tsuen Wan.
The electronics business is operated through Joyful Electronics Ltd (JEL), which has
manufacturing plants in the PRC, Malaysia, and Australia and sells patented and licensed
computer and telecommunications equipment around the world.
The financial services business is run through Joyful Financial Services Limited (JFS),
which offers a full range of listed stocks, bonds, funds, futures, options, and derivative
products, as well as margin-financing services to both retail and institutional clients in
Hong Kong.
Ownership of the Group companies
JIH, the holding company of the group, is incorporated in the British Virgin Islands and is
listed on the Hong Kong Stock Exchange main board. The founding family and related
parties own 68% of the voting stock of JIH. None of the 32% minority share holders have
significant positions in the company, except Bright Flower Holdings, which holds 12.1%.
JEL, the electronics business, is incorporated in Bermuda and is also listed on the Hong
Kong Stock Exchange main board. 73% of the voting equity of JEL is owned by JIH, the
balance being held by private investors. All minority holdings are below 3%, with the
exception of Bright Flower Holdings, which holds 9.8%.
JFS, the financial services firm, is currently wholly owned by JIH. But the board’s intention
is to list JFS on the Hong Kong GEM market.
Corporate information
Directors of JIH
Lau Man Seung, Alan
Chow Chi Fai, Peter
Lau Pai Lam, Charles
Ho Pak Lam, Johnny
Woo Lik Shing, Arthur (Dr)
Sun Fung Lin, Rebecca
Managing director and chairman JIH, JEL, and JFS
Deputy managing director JIH
Managing director of JEL
Director finance and chairman JFS
Director research and development
Director finance and company secretary
Independent non-executive directors
Lau Siu Man
Ho Liu Hing Jp
Directors’ biographies
Lau Man Seung, Alan
Managing director and chairman JIH, JEL, and JFS
Mr Lau graduated from the University of Toronto with a bachelor’s degree in commerce.
He worked in the banking industry for almost eight years before joining the family
business. He is prominent in Hong Kong business affairs.
Chow Chi Fai, Peter
Deputy managing director JIH
Mr Chow graduated from the University of Hong Kong with a bachelor’s degree in law. He
also holds a master’s degree in business administration from the Chinese University of
Hong Kong. He has experience as a management consultant with an international firm.
Lau Pai Lam, Charles
Managing director of JEL
Mr Lau is an associate of the Hong Kong Institute of Certified Public Accountants and a
fellow of the Association of Chartered Certified Accountants. He has over 20 years’
experience in finance and management spanning a diverse range of businesses from
manufacturing to property investment. He joined the Group in 1991.
Ho Pak Lam, Johnny
Director finance and chairman JFS
Mr Ho graduated from the University of Keele in Britain with a bachelor’s degree in law
and economics. He is a lawyer by profession in Hong Kong. He has over 10 years’
experience in finance, forex trading, and securities business. He joined the Group in 1993
as legal consultant and was appointed executive director of the company in August 2002.
Woo Lik Shing, Arthur (Dr) Director research and development
Mr Woo graduated from the University of Portland in 1982 with a bachelor’s degree in
electronics and the University of Hong Kong with a master’s in engineering. He was
awarded a doctorate for his work on broadband electronic transmission. Prior to joining
the Group, he had over six years’ experience in research and development. He joined the
Group in 1990. He also serves on the board of JEL.
Sun Fung Lin, Rebecca Director finance and company secretary
Ms Sun is a registered accountant in Hong Kong. She holds a master’s degree in
business administration. She is also a director of JEL, the shares of which are listed on
the main board of The Stock Exchange of Hong Kong Limited.
Lau Siu Man
Independent non-executive director
Mr Lau holds a master’s degree in business administration. He is a fellow of the Hong
Kong Institute of Certified Public Accountants, the Association of Chartered Certified
Accountants, and the Taxation Institute of Hong Kong and also a member of the Society of
Chinese Accountants and Auditors. He runs a professional accountancy firm in Hong
Kong and has over 10 years’ experience in accounting, taxation, auditing, and corporate
finance. He serves on the boards of three other Hong Kong-listed companies.
Ho Liu Hing, JP
Independent non-executive director
Mr Ho is an associate of the Institution of Business Agents, the Land Institute (London),
the Chartered Institute of Arbitrators, and a fellow of the Institute of Administrative
Accounting. He is a board member of Tung Wah. His business involves property valuation
and property auction and he has over 25 years’ related experience. He is a Justice of
Peace and was awarded the Bronze Bauhinia Star in 2004 for his outstanding service
over a long period of time. He served on the boards of many other Hong Kong companies
and is currently a director of a property company listed in Hong Kong.
Auditors: Deloitte Touche Tohmatsu
Current financial situation
JIH is committed to massive development expenditure in its property business, which will
be funded by the cash flow from the rest of the group, supported by significant bank
finance. Consequently, movements in international interest rates continue to concern the
board.
The electronics business JEL has been facing major competition recently. The JEL
proprietary product is reaching the end of its effective life and in some areas is being
superseded by competitors’ products. The board recognizes a need for sustained
commitment to research and development, to ensure that the company’s products
maintain their reputation for innovation and quality.
In the financial services company JFS, despite some recent losses inevitable in a riskrelated business, business is expected to maintain a significant growth rate for the
foreseeable future. The continuing strength of Hong Kong as an international financial
market supports the confidence the board has in this sector.
Highlights
Results
For the year ended 30th
June
2005
2004
HK$’000 HK$’000
2003
HK$’000
Turnover
947,216 1,279,983 660,548
Gross profit
189,134 353,491
279,772
Surplus on revaluation of
351,740 273,253
investment properties
(204,475)
Profit (loss) from
operations
93,064
339,630
(334,504)
Profit (loss) attributable
to shareholders
101,221 334,869
(710,937)
Earnings (loss) per
share
HK$0.23 HK$0.39* (HK$0.82)*
Prospects (as described in the chairman’s most recent report to shareholders)
In general, the Group is optimistic about the economy in Hong Kong and the PRC region.
The Group’s property investment arm focuses on superior rental properties. Its two
acquisitions in Macau will generate steady rental income for the Group with good
prospects of growth in the long run. For property development, the Group focuses on highend residential projects in popular locations in Hong Kong, Macau, and major cities in the
PRC. It planned to start construction in Xiamen in 2006. In the meantime, it is awaiting
government approval to enlarge the scales of its luxurious sea view development project
in Hong Kong. The management will continue to look for opportunities to expand its land
bank and development portfolio.
The board of JEL have put into effect a major product development programme to meet
the growing competition and to ensure that the company’s world-wide reputation for
innovation and quality are maintained. This initiative may take up to two years to show
concrete results.
The management of the financial and consultancy arm expects financial markets will be
on growth track in 2006. The Group will expand its business in the trading of commodity
futures and is making preparation to diversify its revenue stream by launching asset
management services.
Looking ahead, the Group will closely monitor the performance of all its business
segments to maximize returns for its shareholders and investors.
The corporate governance of JIH (as described in the chairman’s most recent report to
shareholders)
The Group is committed to maintaining corporate governance and effective accountability
mechanisms in every aspect of its business. Conducting business in a socially responsible
and honest manner serves both the Group and its shareholders’ long-term interests. The
Group believes that its commitment to good corporate governance has given it a firm
foundation for growth and enabled it to provide quality products and services to the
community, while maximizing shareholder returns. The Group has an audit committee and
an internal audit department to ensure proper reporting and uphold corporate governance.
Other measures to safeguard shareholders’ interests include the prompt disclosure of
relevant information to shareholders.
In the opinion of the board, the company has complied with the code of best practices as
set out in Appendix 14 to the Listing Rules throughout the accounting year covered by this
report. An audit committee was established with terms of reference which deal clearly with
its authority and duties in Paragraph 14 of Appendix 14 of the Listing Rules, including a
review of the company’s financial reporting processes and internal audit systems and the
review of audited financial statements.
The joint venture strategic opportunity
Four weeks ago Mr Lau Pai Lam (managing director, JEL) received an offer from Nortel, a
major North American electronics firm, to enter into a joint venture agreement, which
would enable JEL to acquire the rights to use Nortel’s latest technology. Dr Woo Lik Shing
(director research and development and a director of JEL) has discussed the opportunity
with Nortel and has strongly recommended the proposal on the terms offered. He feels
that this strategic opportunity would enable JEL to leap-frog a lot of development work that
is necessary to bring new products to market by themselves.
Nortel proposed that a joint venture company (Nortel Joyful Electronics—NJE) be
incorporated in Hong Kong, with equal equity capital provided by each party. Nortel would
provide product and manufacturing technology plus marketing throughout the world except
Asia Pacific and India; and Joyful would provide manufacturing capacity and marketing
throughout Asia Pacific and India. In the draft joint venture agreement, Nortel offered to
provide the chief executive of the joint venture company (NJE)—a senior Nortel executive,
knowledgeable about the technology and experienced in start-up projects—to serve for
three years initially. Nortel also proposed that the board of NJE should have three
directors from each of the partner companies and that