Corporate Responsibility: British Airways - Case Study Example

Critical assessment of British Airways Introduction: The international scenarios and markets have changed overtime; globalization has bought in fierce market competitions. The organizations face a regular requirement of growth for the survival in these competitive markets; growth is possible only through greater productivity and production activities. The new economy demands creativity and innovation as a part of the regular activities in the corporate sector. Being competitive is very important for the sustainable development of the organization internationally. For the attainment of the sustainable international business it is important for the organizations to understand the roles and social responsibilities of corporate sector. Understanding of the international standards is a prerequisite for sustainable development in the international markets. Companies should follow certain business ethics while planning their strategies so that their strategies are globally acceptable, and based on the principles of international legal rules and regulations. Structuring and planning an effective ethical strategy to maintain the accepted principles in the work procedure is the requirement of the day. “Companies play an important role in public policy, not at least in the countries where the standard of the governance is low, or in situations in which international governance mechanisms are inadequate.” (Murray & Blowfield, 2008 p11). Establishing a feasible international ethical strategy is a difficult task that needs to be performed by the organizations as they are under constant social and competitive pressure. The public expectations from the corporate sector regarding providing solutions to the social and environmental challenges have increased overtime. People have become less tolerant to the corporate malfeasance at the same time facing charges of irresponsibility can become business opportunities for the competitors, affecting the brand image of the organization directly. Corporate governance and corporate social responsibility are the two methods in which the business houses can make positive contributions to the society. These strategies involve employment practices and human rights. It helps the organizations in maintaining legal rules and regulations, these strategies consider all the environmental regulations and help in fighting against corruption. They maintain economic, social and environmental sustainability. The basic purpose of these two methods is the integration of the social responsibility in the business activities of the organizations. The corporate sector is a profit making sector and its objective is to maximize shareholders’ value and long-term profit. The business houses play an important role in increasing the economic efficiency in the society. The idea behind the successful implementation of the corporate governance and corporate social responsibility in the organizations is the ‘promotion of capitalism as a solution to the key social and environmental issues of the society.’ (Murray & Blowfield, 2008 p11). The purpose of this assignment is the critical assessment of the Corporate Governance structure of an organization. For this purpose we undertake the case study of the British Airways, and understand the issues of corporate governance and Corporate Social Responsibility in the organization. In this process we would critically analyze the structure of the British airways and understand the perspective and beliefs of the organization in terms of social responsibilities. Case study of British Airways: Company profile and board structure: British Airways PLC is an international airline organization based in United Kingdom. The major activity undertaken by this organization is operation of international and domestic air services. The company operates globally in the air cargo business with its principal business in London. The company provides provisions for the international and domestic air carriage of passengers, freight, mail and additional services. British Airways PLC is a important organization for the United Kingdom economy as it supports the economy by meeting up with the demands of business and leisure travels and providing linkages between the trade and investment activities. (British airways PLC, 2010). The company declares that it is highly committed to the high standards of corporate governance. “Corporate governance comprises the long-term management and oversight of the company in accordance with the principles of responsibility and transparency.” (Annual report, 2008). The board of the company is responsible for the implementation of the good corporate governance within the system, which is directly monitored by the share holders of the organization. The board of the organization consists of 11 members, with a chairman, two executive directors and eight non executive directors. The structure of the board is such that the chairman heads the board followed by the chief executives who are responsible for the management of the organization. The organization maintains diversity among the members of its board and thus appoints non-executive directors from a diverse range of businesses and backgrounds. (Clarke, 2004, pp.1950-1951). The roles and the responsibilities of the members of the board are clearly defined; the board meets up eight times in a year for assessing the business performances, planning and overall assessment of the control and strategy. The company secretary is responsible for ensuring the transmission of clear, accurate and timely information among the board members. All directors and the executives receive the regular information about the strategies to be planned prior to the board meetings. This ensures the transparency in the activities of the board. The executive directors can even contact the company secretary for the information they feel they would require. Critical analysis of the Corporate Governance within the structure of the British Airways: The company ensures the flow of clear and accurate information within the system so that the channels of the communication within the system are unblocked. There is a continuous system of self-evaluation among the system. “The Board has conducted a self-evaluation each financial year since 2002/03 and intends to continue to do so.” (Corporate governance, April 2010). These reviews aim at assessing the effective functioning of the board and its committees. The commitment of the individual directors is also accessed to understand their contributions and performances. To meet up the long term insights and management policies the board ensures that it receives regular feedback from the investors and the stakeholders. The shareholders and the investors are contacted regularly for the passing on of the information and increase their participation in the organizational activities. The stakeholders are encouraged to express their views and voice their opinions about the activities of the board directly or through e-mails. The chairman in the annual general meeting addresses these issues. The system in the organization ensures that the duties of the directors or the committee members do not create a conflict of interests within the employees and the organization. For the long term benefits of the employees the organization has “purchased insurance against directors’ and officers’ liability as permitted by the Companies Act 1985 for the benefit of the directors and officers of the Company and its subsidiaries” (Corporate Governance statement, 2009). The organization also allocates funds for political donations and other expenditures. The company announced that the approval of the shareholders was taken priory. “The optimal governance system will be one that just balances the benefits of reducing malfeasance with the added costs of more stringent governance.” (Corporate Governance, July 2006). The directors, assuring the preservation of proper accounting records, review the internal financial control. The financial standings of the organization are regularly updated to the staff. The company maintains an internal control framework for the review of the financial board. The business and cost controls are managed and reviewed by this board internationally. “Throughout 2008/09, the Capital Investment Committee, chaired by the Chief Financial Officer, was instrumental in maintaining tight control of capital and major contract expenditure and headcount. All major corporate projects are audited regularly.” (Corporate Governance statement. 2009). The company has a clear organizational structure to maintain professionalism and competency; the information systems are such that they cover all the areas of business. Appropriate actions for the identification and management of the weaknesses are taken to ensure smooth functioning. Risk management plan shave been set up for the management of individual and departmental risks. Rigorous discussions and debates are undertaken to assess a profile or risk. The organization ensures that the stakeholders are actively involved in the evaluation process of the organization. The treasury committee chaired by the stakeholders undertakes the management of the liquidity risks, the system faces. The board allots the shares of the company to the shareholders by a system of ordinary resolution. However the stakeholders can renew this authority of the board if they feel that the shareholder rights have not been taken care of. The corporate governance structure of the organization ensures that the actions within the organization are managed actively for meeting the long term growth plans of the organization. Therefore from the following analysis of the British Airways board structure we can conclude that the organization has an organized system among the corporation to provide an equal distribution of value among the stakeholders, with the viewpoint of maximization of the value creation. The boards and the mangers are under a constant scrutiny so that there is no miscommunication of the information across the workers as well as the shareholders. The primary attention is bestowed on the broader group of the shareholders, clarifying the position of the shareholders as the real owners of the organization. The organization has a well-established corporate governance system to manage its external activities; however the system fails to ensure the vision of value maximization of the system. There is no guidance for the unaccountability of the managers; one can never keep a tab on all the activities of the managers. There is no method that is adopted to tap the enthusiasm of the managers and the employees and direct it towards the contribution in the value creation in the system. More stress on the behavioral pattern of the employees is required, dealing effectively with the non-rational behavior is very important to resolve the internal problems. The value creation in the long run requires effective management of the trade off between the managers, employees and the stakeholders, such that none of them can apply their selfish interest strategies and cause harm to the organization in the long run. (Corporate Governance. July 2006 & Corporate Governance statement, 2009). The corporate governance system of Japan and its effects on the structure of British Airways: The poor corporate governance in Japan has been identified as the core reason for the slow growth of the organizations in the country. Japan lacks efficiency because of the lack of internal monitoring activities as compared to other countries like U.S and U.K. it has been stated that the Japanese corporate system lacks the well-managed corporate governance and thus fails to enable sustainable growth to its industries. The corporate governance system in Japan separates the management and the financial interests of the organizations. It has been observed that in the Japanese firms the “Managerial decisions affect not only shareholders, but they also exert externalities on a various kinds of stakeholders who have an innate relationship with the firm.” (Sakai & Asaoka, January 2003). So the corporate governance system in Japan instead of alleviating the differences or the conflicts of interests among the stakeholders and the managers, aggravate the situation. The basic characteristic of this kind of corporate governance is insufficient disclosure of information and ideas. The communication channels are blocked and the key decisions are undertaken on the basis of long term relationships and mutual reliance among the management and the shareholders. The monitoring is carried out on the limited basis. This system is often termed as the insider type corporate governance as compared to the open type governance system prevalent in the European nations. The Japanese system leaves the authority of the corporate governance in the hands of the creditors instead of the shareholders. “Main bank system, that represents this type of corporate governance, has institutional complementarities with life long employment system and seniority promotion system.” (Sakai & Asaoka, January 2003). This internal system though helps in the cost saving within the organization is detrimental for the growth and the sustainable development of the organization. There are various market forces that govern the system of the organization and improper corporate governance may lead to the damage in the organization inn one way or the other. The market dynamics have changed considerably; the market now has different requirements as compared to what it had ten years back. British Airways PLC is a huge firm with its subsidiaries and operations spread worldwide, the adoption of the Japanese type corporate governance would definitely be detrimental for the sustainable growth of the organization in the long run. Though this system provides incentives to the managers as the power of discretion is bestowed to them, it may lead to the mismanagement of funds and the authority. The stakeholder’s value may decrease due to the personal interests of the managers. The balance between the conflicts of the stakeholders and the managers cannot be handled effectively under this system. The fall of the stock prices may lead to making the organization a target for takeovers and mergers. British Airways has a system of unstable management thus the system of the Japanese or the insider corporate governance would not be valid under its framework. The information asymmetries and the system of insufficient disclosure cannot function under the international network of the British Airways. With its offices set up all over the world insufficient information would create inefficiencies in the system. “The key issue of corporate governance is, at its heart, to develop regulatory and organizational modes which motivate suppliers of finance to provide financial resources to a firm despite the existence of certain costs of governance.” (Sumiya, 2000). The insider system of the corporate governance would not be beneficial for the functioning of the British Airways. This organization is a corporate firm, which would require efficient information networks and the active cooperation among the stakeholders and the managers. The insider system of the corporate governance would fail to establish harmonious relationship between the stakeholders and the mangers. British airways have a policy of bestowing greater power in the hands of the stakeholders who are considered as the real owners of the organization. The insider corporate governance system act completely opposite to it, thus we can conclude that the adoption of this system would be detrimental for the organization. (Sumiya, 2000 & Sakai & Asaoka, January 2003). Assessing British Airways approach towards corporate social responsibility: The other prerequisite for the sustainable development of an international organization is the contribution towards the corporate social responsibilities. The CSR activities act as a measure of self-regulation and review of its activities. (Chyssides and Kaler, 2003, p. 230). Every organization is dependent on the cultural, economic, political and physical environment of the area in which it operates. Therefore maintaining the standards of the area forms a part of the responsibility of the organization. “It is now widely recognized by business leaders that their companies need to accept a broader responsibility than short-term profits” (French, Maklan & Knox, September 2005). Implementing effective business ethics is very important for international businesses because these add values to the society and simultaneously helps in building up the brand image of then organization. Understanding of the social, economic, political and cultural set up of the country is the challenge that the corporate sector faces, in establishing the plans of the CSR. (Crane, Matten and Spence 2008) Different countries or rather places have different requirements and drawbacks where the system needs to work, identification of this is very important for the successful implementation of the CSR plans. CSR helps in controlling the relationship between the environment stability and organizations’ business ethics. The organizations are dependent upon the employees and the society; therefore they expect some social, legal and ethical support from the corporate sector. Meeting up these expectations and contributing positively to the society form a part of the CSR. “When companies shift their value proposition from selling desirable products to solving difficult social and environmental problems, whole new opportunities arise.” (Connor, march 2010). British Airways have from long been participating actively in the activities related to CSR. This organization has actively being involved in the social issues of the countries in which it operates. The organization has worked on developing the small and low income groups by funding huge amounts in the UNICEF programs. For instance it has donated 250000 pounds for the project involving street children and orphans of Nairobi, Kenya. The organization has understood that tourism could help a number of poverty-ridden economies to develop and grow. The organization has been providing important sources of income and employment to the poverty stricken European nations. (British Airways, 2010). The organization has adopted the approaches towards the following for participating actively in the development of the society. The organization works actively in the process of reduction of the carbon wastes and emissions to save the environment. The organization even works towards decreasing the noise pollution caused by the aircraft industry and helps to improve the air quality of the local areas. In its act for contributing towards the community services the organization provides huge sums as charity and donations for the countries it operates in. the organization even has strategies for the improvement of the marketplace and the workplace. The company works towards encouraging customers and suppliers to participate in the CSR programs. It helps in creating awareness among the other corporate sand its subsidiaries to work actively towards the improvement of the environment and the society. At the workplace, the company encourages and instigates its employees to work for the society; it plans events for encouraging the participation of the employees in the CSR activities. (One destination, 2010). This organization has a great insight for the future and thus works actively towards the establishment of its long-term goals. The organization understands that CSR is the requirement for the day and active participation would definitely help the organization in gaining a competitive edge over the others. “This increases the efficiency of employees and also increases the value of the firm.” (Frederick, 2006, p.141). The organization understands this and thus takes voluntary actions in promoting solutions to the environment and other socially relevant issues. The organization works actively towards supporting the climate change projects and the aviation projects. The organization has faced several political challenges while participating in these programs; still the organization is proactively lending support to the issues related to CSR. “BA recognizes that financial sustainability alone cannot ensure long term prosperity, therefore it strongly believes in the importance of loyalty, support and trust of customers, employees and amongst the communities within which it operates.” (Enviornment, 2010) Conclusion: The role of business in society is to increase the economic efficiency level to develop good society. The basic objective of the organization is to maximize shareholders’ value and long-term profit. The effective implementation of the corporate governance and the corporate social responsibilities can help in the increasing of the efficiency, productivity and the brand value of the organization. Corporate governance and the CSR activities can help in the profit maximization of the firms. Corporate governance helps in the smooth functioning of the system by reducing the conflicts between the shareholders and the mangers. (Activities. 2010) It helps in the disseminating of the information through proper channels, hence improving the communication networks in the organization. It helps in increasing the managerial performance along with increasing the shareholders values. At the same time CSR helps in the efficient operation of the organization in the area. The benefits provided to the society reflect back to the organization in one way or the other. CSR is not a responsibility only for firms; customers, employees, suppliers, financiers, communities, society and shareholders are equally responsible. In the case study of the huge corporate like the British airways we understand the effective implementation of the corporate governance in the system. This can be attributed to one of the major causes of the success of the organization. We also witness the active participation of the organization in the corporate social responsibilities. The organization acts in every field of the society to contribute towards it. This has certainly helped in building up the brand image of the organization. (Brand responsibility, 1997) References 1. MURRAY A. AND. BLOWFEILD M. (2008) Corporate Responsibility: a critical approach. Oxford. Oxford University Press. 2. CRANE A., MATTEN D. AND SPENCE J.L. (eds.) (2008) Corporate Social Responsibility: Readings and cases in a global context. Abingdon. Routledge 3. CLARKE T. (ed.) 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Available at: http://www.csreurope.org/pages/en/activities.html (Accessed on June 25, 2010) Read More