Ethics and Social Responsibility for Corporates - Essay Example

Ethics and Social Responsibility for Corporates There are certain levels of human conduct not only in society but also in the place of work. Similarly, organisations also have a few rules, regulations and conduct that require to be followed. This report aims at discussing two important elements in every business, ethics and social responsibility. A detailed discussion of the ethics and social responsibilities has been included. Also a clear analysis of the choice of the companies i.e., whether it is better for the companies to put the social responsibilities and the ethical considerations ahead of the profit making of the company have also been discussed. "Ethics is a body of principles or standards of human conduct that govern the behaviour of individuals and groups" (Gehrke, 2008). Etical behaviour however also includes a number of other aspects as well. This includes, actions of individuals, groups and even organisations. Ethics include "the principles, norms, and standards of conduct governing an individual or group" (Trevino and Nelson, 2003, p. 13). Ethics can also be considered to be a set of standards that need to be used as a guide for action of the individuals and groups. Corporate Social Responsibility can be described as, “is about how companies manage the business processes to produce an overall positive impact on society" (Trevino and Nelson, 2003, p. 13). Organisations that are socially conscious have a number of different responsibilities. These include various aspects like the economic, social, ethical and also philanthropic responsibilities. This would mean that being ethical is a part of being a socially responsible company. The next section will deal with the ethics and the social responsibilities of the companies and organisations. Ethics and morals play a very important role in the working of every business. Every business has a number of different aspects in the business which require to have set principles. Being socially responsible does not only include that the business follows the economic and legal responsibilities but also considers the social responsibilities. It is essential that companies consider things that are ethical and this is required to be more than just the laws that regulate the companies. This is one of the most important in terms of the multi national organisations which normally operate in different countries with different legal responsibilities. It is essential that companies are driven by the ethical standards more than the minimum legal requirements. It has been noted that business ethics exists in three levels. The three levels are Ethical stance, corporate social responsibility and the role of individuals and managers. a. The Ethical Stance: This is “the extent to which an organisation will exceed its minimum obligations to stakeholders and society at large” (Johnson, et.al., 2006, p. 188). The stances of different organisations are different and it has been noted that there is a strong relationship between the ethical stance, the organisation’s character and also the strategic management. The ethical stance however can be divided into four main and stereotypes. The figure below Figure: Four Possible Ethical Stances (Johnson, et.al, 2006, p.189) The figure above represents a progressively more inclusive list of the stakeholders interest and also a breath wise criteria based on which the performance and the strategies of the company will be judged and graded. The stakeholders of a firm can be broadly classified to fall into three categories, namely Organizational, Capital market and Product market. Another group of stakeholders beyond these three categories form the secondary stakeholders which include the government, communities, etc.., the capital market stakeholders such as the investors, debt suppliers and banks would want to have a right to decide what the organization has to do in order to maximise the shareholder wealth. However, the organizational stakeholders such as the employees and the unions have a claim on how the company operates to achieve the objectives. On the contrary, the product market stakeholders are concerned with the way they will be affected by the firm (Haslam, Neale and Johal, 2000). 1. Short – term Interest of Shareholders: This is a stance where the organisations only take into consideration the duties of the short term shareholders. Here the organisations only met the minimum obligations and nothing more. It has been noted that although the strategies of organisations are based and focused a lot on the financial outcomes (Johnson, et. al. 2006, p. 191). However it has been argued that building a strategy for an organisation needs to consider the social actions as well as this plays a role in the organisation as well. Also this has been known to improve the short term profitability as well. 2. Long – term interest of shareholders: This can also be referred to as the stance of enlightened self interest. This is majorly because the social stance is where the organisations reputation is also important. The major reason being that the long term profitability of the firm is in a number of ways linked to the social responsibilities to a great extent. Take for instance, the external sponsorship, corporate philanthropy or even welfare provisions is considered to be more beneficial than the promotion expenditures and also any other form of investments (Johnson, et. al. 2006, p. 190). Also this stance highlights the importance of not only the responsibilities of the shareholders however it also highlights the relationship with the other stakeholders as well. 3. Multiple Stakeholder Obligations: It is essential that the interests of all stakeholders are taken into consideration rather than only the shareholders. The investors and the shareholders of the firm determine the organization’s objectives. The investors aim to maximise their wealth whereas the lenders and banks ensure that their investments are preserved and that they will be given back their investments. It is evident that the firm has to be strategically placed to please both the capital market and the product market (Johnson, et. al. 2006, p. 190). The investors would prefer higher profit margins on the products and services, whereas the customers would prefer lower prices. The claims of the investors can affect the product market to a great extent. Profit maximisation is the objective of the shareholders and this conflict with the interests of the customers and suppliers. The investors prefer that the firm chooses low cost suppliers without a compromise in quality. However a low cost supplier may create the need for quality inspections from the firm’s side, thus increasing the operational costs. The decisions taken by the investors with the aim of profit maximization may focus on compromise on quality and other cost cutting processes. But it is essential for the investors to take these decision based on various factors, including the type of product or service, the substitutes available, the level of competition and the barriers to entry in the segment. This will enable the management to effectively take final decisions (Johnson, et. al. 2006, p. 190). However the end customers will be affected, in case the decisions conflict with their interests and claims. 4. Shapers of Society: This represents the ideological end of the spectrum. This mainly deals with the shaping of the society and also the firms here generally pay more attention to the social aspect of the business than the financial considerations. Here the importance is placed on providing the customers with a better and more beneficial experience rather than only concentrate on the financial aspect of the business (Maxwell, 2003). b. Corporate Social Responsibility: This is “concerned with the ways in which an organisation exceeds the minimum obligations to the stakeholders specified through regulation and corporate governance” (Johnson, et. al. 2006, p. 192). The beginning and blossom of the balance creation between all the stakeholders was started in the 60s. This was becoming a majorly famous notion and the corporate executives were required to build a balance in the interests. While considering a business, the social responsibility applies to the company’s duty to ensure that its operations are in a way where there is no harm to the stakeholders or the environment. This is an essential element that requires to be considered for the companies. Ensuring that no individual or environment is affected by the operations and instead as much as possible the company needs to aim at an overall betterment of the society it works in. it is essential to understand that this can be affected by the decisions made by the company. Also any and every action of the company can affect the environment to a great extent. A company which is socially responsible need to strive to balance benefits of strategic actions to the benefit of the shareholder against any possible negative effect on the shareholders. Also it is essential that the company tries to mitigate any possible harm that it might cause to the environment by the working. This needs to be mitigated to the maximum extent. To say that a company is socially responsible would mean that the company has corporate compassion and humanity. Also actions need to be made to earn the trust and respect of the stakeholders of the company. The various stakeholders as discussed earlier also are the customers, employees, local communities, society and the environment. According to Milton Friedman, a Nobel Prize (p. 22) – winning economist, “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say engages in free and open competition, without deception or fraud”. When considering whether it is essential for a company to put the ethics and social responsibilities ahead of the profit marking, it is important to consider a number of different aspects. Firstly it is essential to understand that being ethical and socially responsible is an element that individuals as well as the organizations need to follow and work towards being ‘good’. It is important that everyone is good irrespective of the reward that may follow. There is a very famous saying, ‘one can do well only by doing good’. This would in terms of ethics and social responsibilities mean that a person can be successful in business only by being ethical. It is essential to understand that in the case of businesses, when they work ethically, the companies are able to build a good reputation (Johnson, et.al., 2006, p. 189). Foe any company to be successful, it is essential that the companies consider both the financial aspects of the business along with being ethical while trying to pursue its goals and objectives. A company which follows the ethical considerations while working on achieving its goals will build a good reputation and will also receive a financial reward over a long term. It is also important to consider the main purpose of a business. Businesses are set up mainly with the idea of making profits. Hence it would be completely inappropriate and incorrect to say that the businesses should put the social responsibility and ethical decision making ahead of the profit making efforts (Haslam, Neale, & Johal, 2000). Every business requires keeping a strong balance between the profit making and the ethical and social responsibility. It would be completely incorrect if a company uses all the profits earned to work more with the community and does not need to earn profits for it. It is also important to realize that there are a number of stakeholders that the company requires to satisfy (Sloman and Sutcliffe, 2004). There are a number of different claims that would be presented to the company from the stakeholders. In order to analyse the connections between the stakeholder claims and the product market, it is essential to understand the different stakeholder groups, their functions and their rights, in relation to the firm. Stakeholders are defined as “any group or individual who can affect or [be] affected by the achievement of an organization’s objectives” (Friedman & Miles, 2006, p. 23). It is clear from this definition that there is a strong relationship between the stakeholder and the organization. The product market stakeholders include the suppliers and the customers. These stakeholders have an important role to play in the organization and its value, and in turn, have a major effect on the other stakeholders of the firm. The customers of a firm expect high value from the firm in all their encounters. However, they will also have a lot of choices in the market for the product or service, and hence the prices have to be attractive to them. The customers choose a product or service, not only based on the quality but also on the costs involved. Hence their primary expectation or demand from the firm is a reliable and high quality product at the lowest cost (Sloman, Sutcliffe, 2004). The suppliers on the other hand have a considerable power over the firm, as they control the basic products or services required by the firm in its value chain. The power of the suppliers and their claims in the firm differ based on the availability and the level of competition in their products and services. In case of a supplier having a monopoly in the market, the supplier will have a high level of claims in the firm’s activities and will not be affected profoundly due to other stakeholders (Sloman and Sutcliffe, 2004). However, in an open market with a number of suppliers, the firm and its stakeholders can affect the supplier to a great extent. The employees and the unions are the organizational stakeholders of a firm .They determine the way the firm operates and the firm is highly dependent on the employees and vice versa. The employees expect job security and career advancements (Johnson, Scholes and Whittington, 2006, p. 190). Their claims to the organization can affect the product market, as their claim for increase in salaries, will in turn affect the product or service cost. The other important member of the organizational group in a large organization is the trade or the employee union. They claim secure and ideal working conditions for the employees, which might involve increase in costs for the investors. This will affect the customers and there is a chance for them to shift to another provider. Hence the organizational stakeholders have to take into account, the consequences of their claims and act responsibly, so that they as well as the product market stakeholders benefit. The capital market also has to ensure that they share the profit generated with its employees, as they are the ones who create the company’s wealth (Snoeyenbos, et.al., 2001). Ethics in a company mainly are to ensure that the happiness and security of an individual are not violated or encroached upon for the simple need for pleasure of the company (Snoeyenbos, et.al., 2001). It is essential when any steps are undertaken to consider how many people would benefit out of the decision being made and how many people would be harmed in any way. The main aim of any ethics that are incorporated within a company is to make sure that the number of people benefiting from any decision is higher than the people suffering due to the decisions made. It is the moral responsibility of any company to ensure complete confidentiality of the employees, customers and even any person related to the company (Winstanley & Woodall, 2000). However if the companies themselves start violating the laws and try disturbing the personal space of people that they deal with, then the issue is very big and requires strict and immediate action. Ethical and social considerations are very essential aspects of every business. Principles are very important, both in the case of individuals as well as in the case of companies. Businesses which do not have strong ethical and moral principles should have serious action taken against them for the safety of any people working for or even dealing with the company (Winstanley & Woodall, 2000). From all the above discussions it is safe to say that companies that do good to others, i.e. the stakeholders and the society, will receive good in return, i.e. will be more profitable. This is simply because a company which does act socially responsible will gain a good reputation for itself and this will in the future move to become a source of revenue for the company. The amount of goodwill that is earned from being socially responsible and ethic is very high for the company and also provides the companies with a chance of becoming more desirable by stakeholders as well as potential investors. The above discussion proves that: “The relationship of an organisation’s ethics and social responsibility to its performance concerns both organisational managers and organisation scholars.” (Daft 2007, p. 377). Also it clear that the relation is small yet a positive between the ethical and social responsibility of the organisations and the financial performance. Bibliography Daft, R 2007, Organization theory and design, 9th edn, Thomson South-Western, New York Friedman, A.L. & Miles, S., 2006, ‘Stakeholders’, Oxford University Press, New York Gehrke, J., 2008, ‘What Do Ethics and Corporate Social Responsibility Mean Today?’, 17 January 2008, Accessed on 14 May 2009, Retrieved from http://ezinearticles.com/?What-Do-Ethics-and-Corporate-Social-Responsibility-Mean-Today?&id=934412 Haslam, C. Neale, A. and Johal, S. 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