The Good, the Bad, and the Ugly of Corporate Social Responsibility - Essay Example

The Good, the Bad, and the Ugly of Corporate Social Responsibility In the given essay, the core purpose is to investigate contradiction between ‘good’ management and its ‘bad’ ethical demonstration. For this aim, it represents the available scope of literature in terms of its ability to provide comprehensive reasons of the appearance of this mismatch. In particular, it investigates the notion of ‘good’ management and the extent to which this concept includes ethical dimension. Then, all the found explanations are divided in two groups; namely, there occur organizational and personal reasons of ‘bad’ ethical choices. In fact, the scope of literature does not include data that is relevant for all the businesses and touches the dilemma between ‘good’ and ‘bad’ solely within corporate management. Thus, the given essay can serve as a background for further researches on this topic that will investigate this problem in different business environments. To start with, the notion of ‘good’ manager needs clarification, since this topic is problematic to date. In this context, the fact that capitalism serves as a preliminary condition of contemporary corporations’ appearance leads to the misunderstanding between ‘good’ management and ‘bad’ ethics. In capitalist framework, the very establishment of enterprise is self-regulatory enough to be good for the society. As a result, no significant attention was paid to the analysis of business in ethical terms in the context of early capitalist development. Because of this, ambiguity between ethics and profit appears nowadays. In Smith’s words, ‘No regulation of commerce can increase the quantity of industry in any society beyond that capital can maintain… And it is by no means certain that this artificial direction is likely to be more advantageous to the society than that into which it would have gone of its own accord… The study of his [every individual] own advantage naturally, or rather necessarily leads him to prefer that employment which is most advantageous to the society.’ (Smith 1976: 486). In the given passage, it is hard to measure the difference between the choice motivated by profit means and by public good. In this context, personal motivation has crucial role; moreover, the level of publicity and acknowledgment of social needs define the ethical behavior in modern times (Treviño and Nelson 2011: 323). In practice, Economist (2005) raises the question of public companies’ donations after Indian Ocean tsunami as an example when managers wasted common money without the permission of all their staff. Otherwise, Skilling’s managerial style in Enron serves as reverse example, since it was very enjoyable for his employees and turned into the financial disaster for the society (McLean and Elkind 2013). In other words, each person has different opinion and it is impossible to satisfy all the actors of business transactions (Mintzberg et al. 2002). In general, it complicates ‘good’ ethics, as it is hard to comprehend who actually deserves good treating more: the person who works for the company or the customer. In this conflict of interest, finding a compromise appears like the accurate trait of ‘good’ manager. In order to fix this contradiction, there exists a term of corporate social responsibility (CSR). In its essence, it institutionalizes Kantian categorical imperative as aspiration to turn one’s action in business into the universal law of nature (Treviño and Nelson 2011: 44). Notwithstanding its potential to solve the problem, corporations do not have common view even on the title of this concept by changing it from ‘Plan A’ (in Marks & Spencer case) to ‘corporate citizenship’ (Economist 2008). Moreover, CSR does not eliminate the problem of multiple positions within stakeholders, which complicates its own ethical consideration (Divinney 2009: 46). Thus, the number of discussions and problem areas in CSR existence within the corporation proves that the concept is not universal and clear yet. Although, the rising popularity of its usage means that business seeks for the clarification of ‘good’ ethical behavior. Thus, it is evident that the activity of ‘good’ management is not limited to the category of high profits, as it was in the times of Adam Smith. Notwithstanding this, the very logic of capitalism brings confusion in its ethics. Even though most of contemporary companies had established special CSR divisions, it appears that they are not successful in institutionalization of ethical behavior. Therefore, it is evident that corporations have ‘contradictive virtues’ (Devinney 2009: 45), and both organizational and personal dimension in this problem are illustrative. On the one hand, the contradiction between ethics and profit is evident in the internal structure of corporation. In this context, there exist specific ‘professional codes of ethics’ as ‘written, distinct and formal documents, issued by professional associations, that attempt to guide the professional behavior of their members’ (Frechling and Boo 2012: 149). By referring to this fact, the existence of business ethics is crucial for each company. Nevertheless, the fixed behavior is contradictory to the adaptive capacity of making money. For this dilemma, unethical behavior of Marsh & McLennan (MMC) is illustrative. In fact, the company’s reputation was one of the best in terms of corporate management within the U.S.; in addition, the business itself served for social interests as the nature of corporation is insurance conglomerate (Treviño and Nelson 2011: 361). Notwithstanding these achievements, the investigation on its Putnam Investments revealed “’pay-to-play’ format of obtaining bids for insurance coverage” (Jennings 2015: 531). In other words, the contradiction between capitalistic willingness to increase profits and ethical obligations supplements almost every managerial choice within the corporation. Moreover, the fact that ethical codes do not work accordingly in the majority of corporations (Frechling and Boo 2012) represents the deeper problem in understanding of business ethics. In this context, CSR does not work accordingly in the circumstances when most managers take its definition in a limited and operationalized manner (Devinney 2009: 45). In the case of Enron, the company did not grudge money on their stuff and charity (McLean and Elkind 2013). Hence, it appears that Enron behaved as a ‘good’ ethical company. Nevertheless, the revealed fact of company’s ‘risky gambling’ nature (Treviño and Nelson 2011: 257) rather serves as manifestation of fractal ethics than an example to follow for contemporary students. Then, the more negative case studies we have, the easier we understand how ‘good’ managers should behave? Moreover, the authority of various stakeholders strengthens. In this context, Kanter (2011) distinguishes the short-term and long-term perspectives of each decision; in the given framework, he puts ethical choices in a latter one. For instance, the growing interests of Goldman Sachs and UBS on environmental issues demonstrates congenial investment climate for these incentives (Economist 2008). In addition, the nature of shared value includes the ethical component, since it means extending the aggregate pool of financial and social quantity (Porter and Kramer 2011). For instance, the environmental issues caused by Apple in China contradict their ‘focus on working and living conditions including health and safety, compensation, working hours and communication with management’ (Urakami 2012: 9). Thus, it is the question of corporate governance, because ‘any company who places an order with a supplier must remember that it is a part of corporate social responsibilities to make sure that outsourced business can be completed through due process and business ethics” (Urakami 2012: 3). In fact, this sound like the modernized to the contemporary condition Kantian logic. Moreover, rising understanding is not limited solely to business environment, as politician also have their vision on ethics in corporations. In this context, certain contemporary governments have already announced their requirements to companies to publish their social and environmental activities (Economist 2008). In Australia, there exists Australian Competition and Consumer Commission in order to regulate business relations with stakeholders ‘independently in the public interest with integrity and professionalism and without fear, favour or bias’ (ACCC n.d.). This, it seems like the business is no longer as self-regulatory as it was even a decade ago. In short, we witness now the transition period of rising understanding how profitable organizations should behave to demonstrate ‘good’ ethics in their daily activity. On another hand, the role of personality of manager surely determines corporate behavior, especially in the circumstances when there are no fixed ethical rules. In the context of possible drivers for ‘bad’ ethical decisions, demographic variables like gender or education play significant role (Ahmadi 2011). In the circumstances while making an ethical choice is a severe mind game (Kolk and Tulder 2010), these characteristics have a potential to play the key role in making ‘bad’ ethical choices. In practice, there are cases of minority discriminations in the employment policy of several insurance companies (Jennings 2015: 60) and in tactics of Abercrombie & Fitch to ‘exclude qualified individuals from certain minority groups’ (Treviño and Nelson 2011: 296). However, public opinion is strictly negative on all the types of discrimination in democratic countries; hence, stakeholders critically react when such an evidence reveals. Among the other personal reasons to behave in an ‘unethical’ manner, certain managers demonstrate their willingness to be liked. In certain cases, this passion even overwhelms their business objectivity (Porter and Kramer 2011). For this thesis, the story of Enron is illustrative. After turning into the powerful corporation, its story ended with a loud bankruptcy scandal, because willingness to maintain financial attractiveness was the key principle of corporate activity (McLean and Elkind 2013). In addition, the authors of book on their failure had titled it ‘The Smartest Guys in the Room’ to demonstrate ambitious nature of Enron managers that was the core of all their mistakes. Although, their followed Smith’s vision on highly profitable enterprise as an obvious good for public. Notwithstanding, the times have surely changed since people took for granted ethical ‘goodness’ of high profits. After this failure, Kanter’s (2011) words on the nature of ‘good’ manager as the one who is able not only to make money but also to create the sustainable institution within the company seem prominent. Even within the rational component of company’s activity, the ‘good’ manager never confuses operational effectiveness with business strategy (Kolk and Tulder 2010: 119-125). Moreover, he has a comprehension of appropriate managerial style that copes with all the challenges occurring in his daily practice (Slavitt 2013). The Economist (2005) supports this idea by believing that manager must have an understanding of all the peculiarities of corporate social responsibility. Therefore, the notion of ‘good’ management has fewer contradictions with ethical choices in recent years; perhaps, there will be no such dilemma in the nearest future? In conclusion, it is evident that capitalism by being a background for corporations creates an ethical vacuum for contemporary epoch. By allowing enterprises to gain profits in an unlimited amount, Smith enabled the appearance of corporative behavior demonstrated by MMC and Enron. In particular, such type of business management demonstrates extraordinary profits by sacrificing certain dimensions of their corporate social responsibility. Thus, the fact that mostly effective and successful actors are those who make these inappropriate decisions is a challenge for both the companies themselves and the researchers who analyze their activity. However, this challenge is not that sharp in the recent years. The role of stakeholders is significant, the severity of law increased, and the role of ‘good’ manager have started to include ethical dimension. In this context, researches investigate several dimensions within corporate internal structure to provide a guide for ‘good’ ethical management. Moreover, corporations realize by themselves the need to re-build their reputation in a more favorable way for the stakeholders after loud public scandals. In short, contemporary epoch is more and more confident on that manager cannot be ‘good’ and make ‘bad’ ethical choices at the same time. Wordcount (excluding references): 1915 References: ACCC, n.d., ‘Compliance and Enforcement Policy, Australian Competition and Consumer Commission. Available at: https://www.accc.gov.au/about-us/australian-competition-consumer-commission/compliance-enforcement-policy#australian-consumer-law Accessed 25 January 2015. Ahmadi, A., 2011, 'Factors affecting ethical perceptions and attitudes of managers', African Journal of Business Management, Vol. 5, Issue 26, pp. 10452-10461. Devinney, T., M., 2009, ‘Is the Socially Responsible Corporation a Myth? The Good, the Bad, and the Ugly of Corporate Social Responsibility’, Academy of Management Perspectives, May, pp. 44-56. Economist, 2005, The good company. Available at: http://www.economist.com/node/3577141 Accessed 23 January 2015. Economist, 2008, Just good business. Available at: http://www.economist.com/node/10491077 Accessed 24 January 2015. Frechling, D. C., Boo, S., 2012, ‘On the Ethics of Management Research: An Explorary Investigation’, Journal of Business Ethics, Vol. 106, pp. 149-160. Jennings, M., M., 2015, Business Ethics: Case Studies and Selected Readings, Cengage Learning, Stamford USA. Kanter, R., M., 2011, ‘How Great Companies Think Differently’, Harvard Business Review, Vol. 89, Issue 11, pp. 66-78. Kolk, A., van Tulder, R., 2010, 'International business, corporate social responsibility and sustainable development', International Business Review, Vol. 19, Issue 2, pp. 119–125. McLean, B., Elkind, P., 2013, The Smartest Guys in The Room: The Amazing Rise and Scandalous Fall of Enron, Tenth edition, Portfolio/Penguin, New York. Mintzberg, H., Simons, R., Basu K., 2002, 'Beyond Selfishness', MIT Sloan Management Review, Fall (Autumn), pp. 67-74. Porter, M., E., Kramer, M., R., 2011, 'Creating Shared Value', Harvard Business Review, Vol. 89, Issue January, pp. 62–77. Slavitt, E., 2013, 'Analysis of Organization Ethics: Do They Exist? How Can We Think about Them?', Southern Journal of Business and Ethics, Vol. 5, pp. 154-186. Smith, A., 1976, An Inquiry into the Nature and Causes of the Wealth of Nations, ed, by R. H. Campbell and A. S. Skinner, Glasgow Edition, Oxford University Press, Oxford. Treviño, L., R., Nelson, R., A., 2011, Managing Business Ethics: Straight Talk about How to Do It Right, Fifth edition, John Wiley and Sons, Inc., Hoboken USA. Urakami, K., 2012, ‘Outsourcing and corporate social responsibility: Apple in China’, Urakami Asia Management Research, May. Available at: http://mpra.ub.uni-muenchen.de/38614/ Accessed 25 January 2015. Read More