Good Citizenship - Research Paper Example

Good Citizenship Introduction Corporate governance encompasses market and regulatory mechanisms as well as the roles and relations between an organization’s management board, its shareholders, the goals that govern the organization, and external stakeholders (Clarke, 2004). Over the last few years, corporate government has been expansively described as a system encompassing sound approaches and laws through which organizations are controlled and directed focusing on the external and internal structures that constitute the corporation (Thomas & Marie, 2006). This is done with the aim of scrutinizing the actions of company management and directors and hence mitigating agency risks that stem from the devious behaviors inherent in these corporate officers. Within modern business organizations, the primary external stakeholder groups include debt holders, trade creditors, communities and customers impacted by the organization’s activities, shareholders, and suppliers. On the other hand, an organization’s internal stakeholders include its board of directors, employees and executives (Colley, Doyle, Logan, & Stettinius, 2004). This paper will examine the corporation as a symbol of a classic failure in the test of good citizenship because of its pursuit of financial gain. This will be achieved through the examination of Nike Company Inc. A significant portion of contemporary interest in the field of corporate governance concentrates on the mitigation of conflicts of interest between an organization’s external and internal stakeholders. This is the primary importance of corporate governance within the business society: the mitigation of conflicts between interests of external and internal organization stakeholders (Denis & McConnell, 2003). Manners in which organizations can mitigate such conflicts include the policies, customs, processes, institutions and laws that have an effect on the way organizations are controlled. A vital theme of corporate governance is, therefore, the extent and nature of accountability demonstrated by an organization’s internal stakeholders. Notably, the system corporate governance is a multi-faceted issue, which, in addition to ensuring the accountability of individuals within the organization to deter the principal-agent problem, also focuses on the effect of corporate governance systems on economic efficiency, laying strong emphasis on the welfare of shareholders (Goodwin, 2000). There has been new interest in the practices of corporate governance by modern corporations since 2001, especially following high-profile collapses of massive US firms such as WorldCom and Enron Corporation. As a consequence, the US federal government established the Sarbanes-Oxley Act aimed at restoring public confidence in the area of corporate governance. Organizations such as Nike Inc. continue to demonstrate how corporations are the classics of the good citizenship test in their pursuit of financial gain. Since 1971, the organization has developed from a US-based distributor of footwear to the globe’s most preeminent marketer of athletic apparel, equipment and footwear (Sytse & Schreuder, 2013). This has come with massive financial gains, for instance, in the 2007 financial year, Nike earned $16.3 billion, which was an increase of $1.3 billion from 2006. Some prominent components instrumental in this growth include the company’s strategy to outsource manufacture to low cost countries such as China, Indonesia and Vietnam. Nike does not own any factory which produces its items. The second factor of Nike’s success is its extensive public relations strategy, which entails sponsoring renowned athletes such as Lance Armstrong, Tiger Woods and Michel Jordan. However, Nike has been surrounded by controversy with anti-globalization activists accusing it of exploiting sweatshop conditions as well as child labor in factories that manufacture its products in order to enhance its financial gain (Carty, 2002). Sweatshops are essentially workplaces, which violate laws and where workers are subjected to poor working conditions, extreme exploitation, arbitrary discipline and fear and intimidation when they organize unions or attempt to speak out. The issue of sweatshops raises controversies, for instance: Should organizations manufacture its products in sweatshops because of the benefit of lowered labor costs, which enhance financial gain? (Thomas, 2007). While sweatshops sometimes present opportunities for economic gain, they are still quite unethical and go contrary to the rules of effective corporate governance since they produce more harm than good. Corporate social responsibility is an integral part of corporate governance and deters organizations from establishing inhumane production systems such as sweatshops to enhance financial gain. Sweatshop workers, despite being in third world countries, still deserve dignity and not work conditions akin to semi-slavery. The period between 1996 and 2001 in which Nike earned immense financial gains is also marked by information regarding the exploitative and abusive conditions inherent in most Nike factory bases (Carty, 2002). These conditions are contrary to all notions of good citizenship, which requires organizations to institute ethically and legally appropriate systems in all its activities, from management to production and distribution. Unethical acts such as exploitative working conditions in sweatshops go against the spread of ethical corporate conduct and good citizenship as a whole. Corporate Governance Framework The corporate governance framework is essentially the structure of practices and rules through which an organization’s board of directors guarantees accountability, transparency and fairness in terms of a company’s relationship with its entire stakeholder population (Goergen, 2012). The framework of corporate governance typically entails the following: both implicit and explicit contracts between the organization and stakeholders for the distribution of rewards, rights and responsibilities; protocols for reconciling conflicts of interests of stakeholders’ privileges, roles and duties and procedures for suitable supervision, information flows for checks-and-balances and control. Corporate governance is essentially a unique framework, which is developed around an organization’s values and missions (Erturk, Froud, Johal, & Williams, 2004). Massive and publicly held organizations such as Nike Inc. often make use of corporate governance frameworks to develop internal business policies, particularly because of the layers of management inherent in the organizations. While corporate governance frameworks are often unique to each organization, they have several universal elements such as outlining the roles, privileges and duties of board of directors to ensure such individuals do not exploit the organization’s resources. Frameworks of corporate governance also outline the objectives and purposes of all business contracts. Corporate governance frameworks also highlight elements of contracts such as people with the capacity to approve controls, length of the contract and rate of return (Dignam & Lowry, 2006). These frameworks also establish checks and balances systems that govern internal departments of an organization (Goodwin, 2000). Organizations with effective corporate governance frameworks can effectively streamline their business operations and enhance their potential for profit maximization. The streamlining of business operations and maximization of profits are the basis of corporate governance measures in major economies. Companies’ boards of directors play critical roles in the establishment and implementation of corporate governance frameworks. A company’s board of directors consists of directors elected by shareholders for several years. In most instances, directors have vested interests in the organization, work in its upper management or are independent from their organization but are acclaimed for their business capabilities (Dignam & Lowry, 2006). The number of directors in a board varies among organizations, for instance, Nike Inc. has 10 directors including, among others, the company’s CEO, director of corporate responsibility and CFO. In the US, at least 50% of directors should not be associated with the organization. A company’s board of directors (BOD) is tasked with overseeing an organization’s procedures and policies established to guarantee adherence to its ethical and legal business conduct. The BOD is also responsible for selecting senior management such as the CEO and developing benefits and compensation for the management (Holton, 2006). Directors also evaluate the performance of senior management and institute appropriate changes. The BOD also reviews and approves organizational short and long term strategic financial and business plans while also providing oversight of the organization’s management and business. A BOD also establishes and maintains mechanisms through which shareholders communicate with the non-executive chairman. It also engages directly with professional advisors as needed (Thomas, 2004). Evaluation of the Corporate Governance Framework Corporate governance plays a critical role in enhancing the economic position of a company. Corporate governance controls all manners in which corporations behave. Proper organizational conduct is dictated by an organization’s corporate governance (Thomas & Marie, 2006). This is because corporate governance guarantees the rights as well as equitable treatment of shareholders. Corporate government upholds the reverence of shareholders’ rights and assists them in exercising their rights fully. Corporate governance also helps shareholders apply their rights by efficiently and openly communicating information and supporting shareholders’ participation in general meetings. Corporate governance also promotes the interests of all company stakeholders by ensuring that organizations recognize their contractual, market driven, social and legal obligations to their non-shareholder stakeholders such as creditors, employees, customers, policy makers and local communities (Michel & Rebérioux, 2005). Through providing for the responsibilities, structures and roles of the BOD, corporate governance also ensures that corporations are governed by highly skilled individuals whose size is appropriate to sustain the economic feasibility of the organization in the short and long term. Moreover, corporate governance deters an organization from engaging in unethical conduct that jeopardizes its integrity and that of its stakeholders (Khalid, 2011). Integrity is a fundamental paradigm in corporate governance and ensures that organizations have upright board members and senior management who establish appropriate codes of behaviors for company executives and employees, thereby promoting responsible and ethical decision making in the entire organization. Another integral function of corporate governance is ensuring transparency and disclosure as necessitated by state and federal laws (Erturk, Froud, Johal, & Williams, 2004). Corporate governance essentially requires organizations to clarify and publicize the responsibilities and roles of its BOD and management to offer stakeholders sufficient levels of accountability. Corporate governance also ensures the implementation of procedures to safeguard and verify independently the integrity of an organization’s financial reporting. This serves to deter the incidence of fiscal and accounting fraud, which adversely affects all company stakeholders. Therefore, ensuring the disclosure of material matters regarding an organization in a timely and balanced manner guarantees that investors can access factual and clear information to facilitate decision making (William, 2004). References Carty, V. (2002). Technology and the counter-hegemonic movements: The case of Nike corruption. Social Movement Studies 1 (2), 129–146. Clarke, T. (ed.) (2004). Critical perspectives on business and management: 5th volume series on corporate governance - genesis, Anglo-American, European, Asian and contemporary corporate governance. London: Routledge. Colley, J., Doyle, J., Logan, G., & Stettinius, W. (2004). What is corporate governance? New York: McGraw-Hill. Denis, D. K., & McConnell, J. J. (2003). International corporate governance. Journal of Financial and Quantitative Analysis, 38 (1), 1-36. Dignam, A., & Lowry, J. (2006). Company law. Boston: Oxford University Press. Erturk, I., Froud, J., Johal, S., & Williams, K. 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