Corporate Social Responsibility and Corporate Governance - Research Paper Example

Corporate Social Responsibility and Corporate Governance Contents Corporate Social Responsibility and Corporate Governance 18 1 Introduction 2 Why International firms are showing increasing interests in corporate social responsibility and corporate governance 3 Economic and Social factors 4 Cultural factors 5 Legal factors, global standard and non government organizations 6 Technological factors 6 Managers, shareholders, employees, customers and suppliers 7 Strategic issues involved in addressing corporate social responsibility issues. 7 Conclusion and Recommendation 12 Personal contribution to the development and refinement of the topic 13 Corporate Social Responsibility and Corporate Governance Introduction Corporate citizenship or Corporate Social Responsibility (CSR) according to business experts may generally be defined as the set of activities that are integrated into the business model so as to regulate the activities of the corporate entity. CSR- related policies function as built-in, mechanisms through which the business evaluates and ensures that it operates actively in compliance with ethical standards, the law and international expectations. As such, CRS activities care supposed to impact the stakeholders, environment, communities, consumers, employees and the overall public sphere positively. There are a number of goals that drive businesses into engaging in corporate citizenship. However, the key objective behind the activity relates to the establishment of sustainable businesses, which, in fact, need healthy communities, markets and economies. Some of the drivers of corporate social responsibility include enlightened self interest, social investment, trust and transparency, and increased expectations of enterprises by the public according to ASOCIO (2004). There are various approaches that corporate entities can take in regard to social responsibility. While for example some will opt for philanthropy, others will opt for a community-based development approach. Yet again, others will prefer to go the Creating Shared Value (CSV) way. Whichever method or approach is assumed however, the organisation somehow commits some of its resources for the good of other parties as earlier mentioned. Research on corporate social responsibility (CSR) has blossomed in the 21st century. There is also an increased interest on the topic by different firms and people as seen in table 1. This is attributed to various factors like pressure exerted on organisations to demonstrate high ethical standards and the increasing concern about CSR expressed by policy makers. Firms from developing countries are driven by heightened demands on forms exporting to their products to Europe and other western countries do document their compliance to high ethical standards so as to be competitive. Generally, various organisations develop and express CSR because of various factors that can be summarised as internal and external factors. In this paper, three international companies namely Monsanto Company, Microsoft Corporation and Coca Cola Company will be used to illustrate the various arguments. All the three companies already have a CRS in place. The purpose of this report is to analyze why international firms are showing increasing interests in CRS and corporate governance and the strategic issues involved in addressing CRS issues. Why International firms are showing increasing interests in corporate social responsibility and corporate governance There are internal and external factors that are making or motivating international firms to show increasing interests in CSR and corporate governance. Internal factors include managers, shareholders, employees, customers and suppliers while external factors include social, economic, cultural, legal/government regulations, technological, global standard and non government organizations. Economic and Social factors Researchers have given a special attention to the connection between CSR and the financial performance of an organization. A CSR that is developed for purposes of economic gains normally aims at increasing the profitability and other economic gains for an organization. In order to achieve this, an organization has to align its competitive strategy with its CSR. According to International Business Report (2008), companies align their CSR with their core competencies in order to attract more economic gains and this makes CSR a necessity not a choice. The core competencies of a company refer to the set of skills, abilities and experiences that represent the organization’s collective learning. It represents what the organization can do best /unique capabilities. Jastram (2007) explains that while focusing on their core competencies, managers looking for ways in which they can leverage these competencies with the innovative strategies that maximize social benefits and the economic benefits of the company’s businesses. For example, for Monsanto to convert its core competencies to CSR, it has to assess how its capabilities in plant genetics and bio-engineering might negatively affect its stakeholders and how they could also be used benefit them. The core competencies of each organization are normally unique and no other organization or competitors can imitate them easily. This is the reason who the core competencies of an organization are considered to be the main source of the competitiveness of an organization. Monsanto produces a set of unique products that meets the needs of the people than its competitors. Examples of this are shown in figure 1 (Monsanto Company 2011). Coca Cola on its part produces products that have a distinctive Coca Cola touch and this singles out its products from those of its competitors. Companies can also develop their SCR using the socially anchored competencies (SAC) model. In this model, a company examines its core competencies in the light of analysis of its stakeholders and this results into a better set of organisational competencies that have a social conscience. As Jastram (2007) explains, the new SACs become the organisational intangible resources that have the potential of enhancing the competitive advantage of company especially in markets that are highly sensitive to its environment and on the society. In the case of Monsanto, its SACs in plant genetics and competencies is very important in developing country. The integration of Sacs can contribute directly to the business benefits of a company by adding value to its products, reducing costs, developing other product lines and therefore beating competition to the market. According to Lin-Hi (2008), explains that SACs can also be successfully integrated to achieve social benefits to a company. In this case, the CSR programs of the company should be efficiently aligned with the business strategy of the company in order to achieve greater social benefits for the company. These programs are able to achieve measurable returns to the society and the business. Cultural factors Companies can also be motivated towards CSR because of cultural reasons. This is so for companies with operate in a region that are more sensitive to some cultural issues. The company therefore does this in order to make the people in that market feel that the company recognises their culture. An example of this is putting some of their cultural artefacts in offices and making sure that their advertisements or the names of their products do not carry names that are offensive in the particular culture. Generally, external factors require a firm to operate within the context of regional and national cultures found in a particular country (Sun 2010). Legal factors, global standard and non government organizations The development of CSR as a result of legal factors has also been witnessed in many international and local companies. In this case, the company ensures that none of its processes and products are in conflict with the laws and regulations of the place it is based. When operating in a given country, own or foreign, a firm is require to conform to the legal framework necessary in an economy as a response to inadequate and inefficient behaviour and global standards. International firms are also forced to develop CSR in an effort to meet the global standards that are important in competing well. Non-governmental also put a lot of pressure or campaigns on several things and standards required of international firms for example environmental conservation. Technological factors The transfer of technology is one important aspect of businesses that makes communities to embrace companies. International firms that have achieve a great level of technological advancement are more likely to take advantage of places interested or which do not access such kind of technologies. For example, Monsanto has achieved a good business because of its technology-based products in various parts of the world like the US, India and even Africa. One technology that marks the public presence of Coca-Cola is vending machines located in various parts of cities or villages. These bring good feelings to the consumers (Coca-Cola Company 2010). In this way, these companies sell themselves as a necessity to the local community. Technologies have facilitated improved efficiency in the production of services and goods and this motivates international firms to develop a good CSR as a way of gaining a competitive advantage in the highly competitive global business environment. They are also being pushed to demonstrate high ethical standards. Managers, shareholders, employees, customers and suppliers These are individuals or groups of people within or outside an organisation who motivate CSR within organisations. These individuals or groups are normally focussed on getting maximum profits on the returns of shareholders (Hemingway 2005). They also focus on giving back something to the society in the form of philanthropic actions whose resources are sourced from the surplus profit of the firm. Strategic issues involved in addressing corporate social responsibility issues. There are several issues that are in the field of CSR and the major issues hinge on the relationship with the community, workplace, corporate governance, risk factors connected to the products, sustainability reporting, stakeholder engagement, impact on environment, sustainability and market place. On their part, organizations have various ways of dealing or counteracting the negative effects of such issues on their business. Some of the strategic issues in particular are involved in addressing the mentioned issues include the employment of actions that address climate change, inadequate stakeholder engagement, social exclusion faced buy the community, sustainability, corporate governance/lack of trust in business and customer satisfaction. Some of the issues related to the market place include the risk factors connected to the products of a company and customer satisfaction. Customer satisfaction is one thing that cannot be ignored in CSR and in fact, it is the bottom line of CSR. A company has to analyses the impact of its business and products on the society where the company operates. A company also has to proof how it goes about to tackle any emerging trends instead of waiting to be caught out in them. Some of the customers can also boycott a company because of the services or product it offers. In order to overcome this, companies seek to understand the needs of the customers to ensure they produce products that are in line with these needs. Impact on environment is one of the issues in CSR. Companies have to be very careful on the amounts of waster they release into the environment as a result of their production process. At the same time, the issue of global warming presents a big threat to the survival of a business no matter the type of business. It should be noted that issues to do with the environment is a concern of the greater public since it is a universal utility and its misuse affects the local people directly and indirectly. One theory that explains why an organisation’s impact on the environment is an important issue in CSR is social demandingness theory. This is a theory that seeks to promote and protect the interests of the general public. This means that in its operations, a firm should mind about the interests of the general public in addition to its own interests and the interests of its stakeholders. Basing on this, companies are required to involve themselves in carbon footprint reduction and active participation in environmental risk management. A company has to practice good environmental stewardship for example cleaning the environment, planting trees as a strategy to reduce carbon (Feltus and Petit 2009). In fulfilling this, Microsoft Corporation cuts the impacts its products have on the environment by developing designs that are energy efficient. The company is also working towards reducing its carbon emissions for each unit of revenue by 30% by 2012 (Welsh 2010). Coca Cola Company on its part capitalises on sustainable packaging. The company pursues innovative technologies that can enable it minimise the use of natural resources for packaging. They are also building systems to reutilise recycled packaging materials in the process of manufacturing. The company also recycles water used in manufacturing. Its main goal is to replenish as much water as it uses in its products (Coca-Cola Company 2010). International firms can therefore market themselves by portraying high levels of environmental responsibility. Relationship with the community is also a big issue in CSR. No company has a divine right to conduct business in a community. This is proofed by actions of the locals like abuse by the locals. The community may fail to provide the company with the desired educated staff or suppliers. A community may also be facing social exclusion and the reaction of this is directed towards companies operating in their place. To overcome issues to do with the community, companies make sure they build a good relationship with the communities. This situation can be understood using the social activist theory. The social activist theory is a theory that determines the corporate responsibilities of a firm that are independent from the interests of the stakeholders. Monsanto Company not only takes care of its own interests and the interests of its stakeholders but also the interests of the community. For example, the Monsanto Fund has supported over 600 philanthropic projects and in 2008-209, the company distributed $30 million for this. In India, it supports the mid-day meal program to facilitate hunger free education for approximately 1.3 million children as seen in figure II. As for Microsoft Corporation, the company states that its products make important contributions to the prosperity and sustainability of communities globally (Welsh 2010). Basing on this theory, one of the strategies that international firms can use to ensure this is to help the community minimize the effects of social exclusion or implement strategic CSR activities for alleviating these problems. These problems that characterize social exclusion include inadequate access to health services, education, water, air living wage, technology and basic human rights (Totikidis and Heenitigala 2008). Carroll and Buchholtz (2006) note that when the management of a company fails to recognize its stakeholders and their important needs when developing a CSR plan, it becomes difficult to achieve their cooperation. One of the important suggestions of the corporate stakeholder theory is that a company must satisfy the needs of its bondholders and stakeholders including those who have implicit claims. Tekin Akgeyik brought forth a classical theory with the main aim of securing the financial goals of stakeholders and to respond to their wishes wishes/needs relative to the corporation. Basing on these theories, companies should always ensure that they capture the important stakeholder information through engagement cycle and continuous stakeholder mapping. According to Monsanto (2011), the company meets regularly with its stakeholders in various industry and grower advisory council. It also meets regularly with its investors to discuss the company’s corporate. Workplace is also an issue in CSR. Issues here include how an organization treats its workers. The community is always keen in analyzing if a company is treating its workers just as its greatest asset or whether it uses prejudice to create barriers for development for them. It also includes a critique of whether the company is nurturing its pride or burning up its workers. Coca Cola fosters a working environment that is safe and enriching. Stakeholders and the society are normally keen on if and how companies report their sustainability performance. This has to cover the economic, ethical, social and environmental performance as well as its impact of its operations on things like staff satisfaction, carbon footprint, and community investment. In response to this, companies normally ensure they release sustainability regularly. The society is normally keen to observe the sustainability of the activities of an organisation as a way of guarding the earth’s resources that are limited. In order to deal with this issue, companies ensure that in their sustainability performance report, they include the level to which their production processes portray a keen use of the earth’s vital resources. Economic meltdown resulting from lack of transparency and corruption has resulted to lack of trust in businesses. In order to reinstate this trust, Monsanto Company has revamped its practices in its corporate governance and ensure they operate in transparency and great accountability. The company ensures that information of their practices and polices is readily available to the public/any interested party. One of the theories that summarize all the above issues is the stakeholder theory. This theory portrays international firms as corporate citizens who have the responsibility to manage its own role as a producer, customer, marketer and a citizen in a responsible manner. As a corporate citizen and a citizen who is responsible, international firms are supposed to act as the citizens of the country they are operating in do behave. Now that they are part of the citizens of that nation, though non-living, such firms are expected to take care of the environment, show accountability for their actions, use resources carefully, and participate in other activities that like contributing to charity and improving the livelihoods of the people. They are also supposed to produce the right quality of products. Conclusion and Recommendation International firms are showing increasing interests incorporate social responsibility and corporate governance because of various reasons which can act in combination or as exclusive forces behind the actions of many of these firms. Some of the major reasons that make these firms interested in CSR include social reasons, need for economic gain, cultural, legal and technological forces. Whichever is the driving factor, organizations normally gain an economic advantage as a result of this and this is because they normally put in place strategies to improve their corporate image over that of their competitors. CSR is a good strategy in gaining an economic advantage. However, there are issues that companies face in their CSR and this requires that they employ tactical strategies to overcome them. Some of the issues faced by companies in their CSR include issues touching on the community, workplace, corporate governance, risk factors connected to the products, sustainability reporting, stakeholder engagement, environment, sustainability and market place. In order to combat the effect of such issues on their businesses, organizations resolve to technical strategies addressing each of them. These include employment of actions that address climate change, inadequate stakeholder engagement, social exclusion faced buy the community, corporate governance/lack of trust in business, customer satisfaction and giving a performance sustainability report. This report will help firms/companies to gain an insight into the issues or challenges faced by organisation in their CSR. It also provides for them some significant strategies on how to overcome such threats. In this way, firms can be able to know how to align its CSR actions with an aim of overcoming such threats. This will enable them to conduct business in various parts of the world because they will have known how to treat the locals, environment, customers, shareholders and its workforce and thus improving their image continually. This report will therefore act as an information /advisory tool leading to growth of international business. Existing research has revealed a lot about CSR. However, future research should extend into finding out how organisations can use their core competencies to drive their CRS initiatives as a step towards achieving a greater competitive advantage. Personal contribution to the development and refinement of the topic In this paper, I have begun by exploring CSR in general and giving an overview of its drivers and development. After this, I have refined the topic by narrowing down my research on CSR into identifying specific issues involved in addressing corporate social responsibility issues and reasons behind increased interest in CSR by international firms. References ASOCIO (2004). CORPORATE SOCIAL RESPONSIBILITY. Online: www.asocio.org/.../Corporate%20Social%20Resp... – Accessed on 8th November, 2011. Carroll Archie and Buchholtz Ann (2006). Business and Society: Ethics and Stakeholder Management. (6th Ed). Mason, OH. Thomson/South-Western. Coca-Cola Company (2010). Coca-Cola Sustainability Report 2010. Online: www.cocacola.co.jp/positively/.../2010/2010E.pd.. Accessed on 8th November, 2011. Feltus Christopher and Petit Michael. (2009). “Building a Responsibility Model Including Accountability, Capability and Commitment: Proceedings of the Fourth International Conference on Availability, Reliability and Security. Institute of Electrical and Electronics Engineers ( IEEE ). Fukuoka. Hemingway Christine. (2005). "Personal Values as a Catalyst for Corporate Social Entrepreneurship". Journal of Business Ethics (3) pp 233–249. International Business Report (2008). Corporate Social Responsibility: a necessity not a choice. Grant Thornton. UK. Jastram Sarah (2007). "The Link Between Corporate Social Responsibility and Strategic Management". CIS Papers No.17. Centre of International Studies. Hamburg. Lin-Hi Nick (2008). "Corporate Social Responsibility: An Investment in Social Cooperation for Mutual Advantage", Wittenberg Center for Global Ethics Discussion Paper 2008-6. Monsanto Company. (2011). 2010 Sustainability and Corporate Responsibility Report. Online: www.monsanto.com/.../2010-csr-report.pdf -. Accessed on 8th November, 2011. Sun William (2010). How to Govern Corporations So They Serve the Public Good: A Theory of Corporate Governance Emergence. Edwin Mellen. New York. Totikidis Vicky and Heenitigala Kumudini. (2008) "Corporate Social Responsibility in a Troubled World: Keeping Sight of Local and Global Community Problems". Poster presented at: Managing in the Pacific Century: The Australian and New Zealand Academy of Management 22nd Annual Conference. The University of Auckland Business School. Welsh Heidi (2010). Microsoft: Sustainability Reporting 2010. Online: www.basis.org.bd/csr.../MSCorporateSocialRespo.. Accessed on 8th November, 2011. Appendix I Table 1. Response on the need for companies to have a CSR Appendix II Figure 1.0 Range of products produced by the company using technological advances Figure 2.0. Monsanto with Akshaya Patra-suporting the Mid-Day Meal Program. Read More