Corporate Governance and Social Responsibility - Hongkong and Shanghai Banking Corporation - Assignment Example

Corporate Governance and Social Responsibility HSBC 1. International Firms and Corporate Social Responsibility Corporate governance has gained unprecedented prominence in recent years. The phenomenal growth in social power and influence of corporations equally contributed to them taking responsibility for balancing their own interest with those of the societies and the natural environment in which they operate. CSR is an important part of corporate governance because it helps satisfy the needs of all major stakeholders. Multinational companies must address social, environmental, and economic demands from stakeholders, as well as financial demands from shareholders. CSR is a governance issue, which means it belongs to directly on the board’s agenda. Both domestic and international companies now face growing pressure to give stakeholders a role in corporate governance, to more transparently disclose social, environmental, and economic policies, to shift many of the previously treated voluntary policies or programs of CSR as mandatory, and to be more responsive to the growing interest by the financial community in the link between shareholder value and non-financial corporate performance (Luo 2007, p.211). The purpose of this paper is to investigate and conduct an in-depth analysis of reasons why these corporations are showing so much interest in CSR and corporate governance. It will also identify strategic issues involved in addressing CSR issue and evaluate them from various theoretical perspectives. 2. Environmental Concerns The strong connection between financial and social performance stimulated managers to pay greater attention to corporate communication and business ethnics (Tulder & Swart 2006, p.139). According to Idowu & Filho (2008, p.154), the great majority of the companies that issue a CSR report are international companies. This shows that the companies that are more active in the field of CSR are those with a wider range of activities. It appears that international companies are more influenced by new trends and also the need to demonstrate a good social and environmental behaviour in order to be sustainable. Moreover, majority of these organizations are private, which in combination with the above mentioned behaviour leads to the conclusion that the companies that are innovative in CSR are those that belong to private individuals, and their activities surpass the borders of their home country. In an attempt to categorize the CSR behaviour of international companies, the category that appears to be of vital importance is the environmental impact of the companies. HSBC or the Hongkong and Shanghai Banking Corporation, the largest banking and financial service organizations in the world, claims that they have long-standing commitment to the environment and operate efficiently and making wise lending decisions as much as possible to lessen the environment affect of their business activities. HSBC is currently one of the leading financial companies who are concern with climate change because they believed it is the single largest environmental, social, and economic challenge that could impact their customers, employees, and shareholders. By improving the banks operation, incorporating sustainability into purchasing decisions, reducing energy, water use, and carbon dioxide emissions, HSBC avoids the direct environmental impacts of their businesses (HSBC 2008, p.1). In 2005, it became the first major bank to become carbon neutral and currently contributing zero net carbon dioxide into the atmosphere in its worldwide operations. Moreover, it is currently developing it Climate Change Centre of Excellence and taking part in Carbon Disclosure Project to facilitate dialogue between shareholders and corporations on carbon emissions and climate change. In the hope to make a real difference in addressing climate change and improving sustainability, HSBC launched a five year $100 million partnerships with world-class environmental charities in 2007 to tackle the threats of climate change (HSBC 2008, p.1). HSBC also knows that demand for socially responsible investments or SRI has increase substantially in recent years, especially in Europe, the US and more recently in Asia. As a result, HSBC has a small SRI team of five based in Paris, comprising analyst, and marketing and fund managers. HSBC claims that its SRI team has a programme of ongoing meetings with a large number of companies on social and environmental issues. By the end of 2004, HSBC had some US$1 billion in ethical and SRI assets (Hopkins 2007, p.219). HSBC’s work in community development and environmental protection is an integral component of its business operating processes. Its CSR policy is focused on issues of education and the environment, and is aligned with business processes, practices, and employee welfare. The bank has policies regarding health and safety, quality, environment, business ethics, HIV/AIDS, child labour, and employment of the differently abled. The company is acutely aware that its operations have environmental and social impacts, and hence a conscious decision has been taken to implement energy savings, carbon emission reductions, water conservation, and solid waste management. Moreover, it realizes the importance of responsible sourcing and minimizing the impacts of purchase and consumption. Its purchasing team work closely with suppliers to ensure high standards of compliance and reduction of negative impacts. HSBC has employee guidelines concerning recruitment, termination, career advancement, appraisal, and ethics, all of which form part of the human resource policies. It also has a diversity committee and policy, which ensures gender sensitization at the work place. To ensure that lending operations are limited to clients with a good environmental record, the company adheres to responsible lending principles. These include the insistence that corporate borrowers comply with the Equator Principles, a set of environmental and social policies, such as impact assessment, compliance with local and international laws, stakeholder consultation, preparation of environmental management plans, and so on. HSBC has also issued responsible lending guidelines covering energy sector, chemical industries, forestland, and forest products sector (Energy and Resources Institute 2004, p.44). 3. Economic Interest Although voluntary giving and commercial profits do not have to be mutually exclusive, philanthropy can be uses as a means of improving a company’s image and therefore have a commercial value. According to Grant & O’Connor (2005, p.18), the growth of cause-related marketing is that publicly owned companies in particular are taking more strategic approach to their community involvement efforts, seeking ways of benefiting community organizations while also furthering their business goals. Corporate social responsibility involves making a real commitment to putting values into practice and these new operational values may involve a lot of soul-searching for many organizations and can involve cost. Businesses have to examine their positions, and often their consciences, in relation to human rights issues, to the environment from which they have been profiting for decades, and to the community around them that has been seen in the past as little more than a market to be exploited. However, as in the case of cause-related marketing, many companies find that it is possible to operate on the basis of principle and at the same time be profitable. According to Grant & O’Connor (2005, p.19), there has been a great deal of experience to suggest that companies that place a premium on employee health and safety, environmentally friendly work practices and non-abusive work methods, and exhibit concern for honesty and fairness in the treatment of customers do very well. However, when companies sign up publicly to CSR, every business decisions, every investment or closure can immediately be subjected to the CSR test. For instance, HSBC claims that their employees are the biggest beneficiaries of their businesses ahead of shareholders but HSBC retrenched some 4,000 employees when it transferred its call-centre operations from the UK to Asia (Gill 2006, p.171). 4. Culture and Diversity “Culture is the domain of civil society; governance and legislation of governments and the economic sector is the domain of the business community in its full diversity” (CSR Journal Business & Society 2005, p. 15). The international nature of the operation of business in trade, investment, and production brings a more complex dimension to business ethics and corporate responsibility in both the cultural aspect of doing business in environments with different norms and values, and in diversity of employees and stakeholders (Dunning 2003, p.308). Business leaders recognizes that key to this diversity is respect for ethnic and gender diversity, and ensuring that it is reflected in employment and all business relationships, including efforts to ensure that management and governance structures better reflect the composition of the world and communities in which a company does business. They also know the importance of willingness to collaborate outside ones own national business arrangement where there is a counter-force, which seems to press managers to stick with their own culture and nationality and familiar business organization and practices. They believed that they will be more successful at international business if they have a mind-set that is aligned to the international nature of their economic performance. This is because many companies fail in this respect, such as those companies and managers operating in Muslim countries and with Muslim employees who found themselves at a serious loss to understand many of the issues raised between Islam and the West in the wake of the September 11, 2001 terrorist attack (Dunning 2003, p.310). “Corporate culture is the very basis for corporate social responsibility” (Kogel 2006, p.138). Some companies believed that a strong corporate culture is a means of overcoming diverse national cultures whereas other evolves different cultures in different organizations and incorporate cultural diversity in their management strategy. According to Johnson & Turner (2003, p.218), cultures also operates on markets as well as within organizations. According to Ulm (2008, p.3), corporations must ensure compliance with national laws and avoid human rights violations through diligence by considering the ‘country context’ where they operate. The development of global culture would facilitate the development of global products, enabling companies to reap economies of scale at all stages of the value chain. For instance, according to Yoshihara & McCarthy (2005, p.65), Coca-Cola and McDonald’s do use core brands but still adapt their products for local markets, either out of necessity or to maximize returns. Similarly, HSBC has business arms in nearly 80 countries, several market segments, several customer segments, and under several regulatory regimes. The cultivation of local managerial staff is extremely important to the bank’s global market strategy particularly in the emerging markets of the Pacific Rim. To demonstrate its commitment to local employees and the seriousness with which it takes issues surrounding Asian professionals, HSBC instituted a novel programs for its Chinese managers in the late 1990s. By presenting local market candidates with strong training, clear career development options, competitive compensation, and the chance to grow quickly into general management roles, HSBC will likely to sustain its reputation for low turnover and capitalize on the merits of a motivated and committed workforce (Yoshihara & McCarthy 2005, p.65). HSBC uses the slogan ‘Living our Values’ to demonstrate how its core values translate into action through its community programs, active company-sponsored employee volunteerism, corporate social responsibility, and customer care (Barnes 2006, p.167). For instance, one of the company’s key business values is to promote good environmental practice and sustainable development thus HSBC is working with organizations such as the World Wildlife Fund and Earthwatch to improve rivers and undertake conservation projects around the world. As the world’s ‘Local Bank’ HSBC has presence in the locality of many countries and improving their relations with customers, suppliers, employees, regulators, and other key stakeholders (Kiernan 2008, p.127). 5. Social Obligation, Morality and the Law Social responsiveness is the extent to which an organization is responsive to perceived social obligations. Contrasting Milton Friedman’s “business has no social responsibility’; business does have social responsibilities because it has been given social and economic power (Montana & Charnov 2000, p.47). Given that the main goals of a business are economic in nature, primarily maximizing of profits and stockholder’s equity, a company who believes in social responsiveness and recognizes that business has both economic and social responsibilities, will take a proactive role in society. This will ultimately have a beneficial effect upon the company since it does business within that society. CSR is the expression of a corporation’s level of moral development, where the values that guide a corporate socially responsible policies, decisions, and programs are products of a variety of normative systems, depending from the culture, religion, education, and so on (Bronn & Belliu 2001, p.7). Morality generally dictates the corporations produce goods and services that have some social value and be socially responsible. The law is based on current underlying moral principles that dictate how it is applied and a collective willingness on the part of the citizenry to be bound by the law. The law requires businesses to use reasonable care to protect consumers from identifiable and avoidable harm caused by the use of their products and services. Failure to eliminate a risk or make full disclosure to the consumer is immoral and the legal remedy of the resulting harms or breached of reasonable care is addressed by law (May et al. 2007, p.158). 6. Strategic Issue – Role of businesses in partnership with government and community organizations. Companies are taking a more strategic approach in their CSR efforts and significant research and preparation goes into the planning of CSR strategies, determining where a company can make the most effective impact. “The role taken on by business, in partnership with third sector is a key issue in CSR” (Nourick 2001, p.21). Companies seek strategic involvement in the community in order to address social issues and these issues are chosen in order to protect its interests and to enhance its reputation. At the same time, these companies are investing to the needs and appeals of charitable and community organisations. “CSR is function of creative partnership” (Robinson et al. 2007, p.165), “often carried out in partnership with others” (Kew & Stredwick 2005, p.186) and this partnership involves multiple partners (Huniche & Pedersen 2006, p.183). There were suggestions that the proper way for private business to discharge its social responsibilities is to form partnership with government. The task of government would be to determine the nation’s goals, set the priorities, develop the strategies and create conditions for carrying out the work most effectively to the satisfaction of the public. Therefore, ‘business’s role’ would be in the actual execution of social programs carried under the policy umbrella of government (Frederick 2006, p.34). CSR appears to signal a “new form of cooperation between government, business, and civil society in the promotion of social objectives” (Mullerat & Brennan 2005, p.478). It is clear therefore that in the absence of public funds or even in partnership with existing institution, businesses will play a larger part in human development and social issues. However, the problem with any partnership with corporations, whether by government or non-government agencies, is about authority, because partnership according to Banerjee (2007, p.157) implies some level of equality, which raises the question about who has sovereignty over corporations. Strong support from government and a harmonious relationship with are crucial to the success of any CSR intervention. An effective company-government partnership will perhaps make the implementation of CSR activities less complicated, predominantly in a regulated in environment. For instance, fundraising and other organized welfare activities require government approval and are subject to certain government guidelines. Evidently, without government support it would be difficult for any organization to conduct their operations. However, to make the company-government partnership work for the community, government should set out and effectively enforce a clear set of rules and guidelines, without interfering into the daily operations of the various stakeholders involve in the process of implementation. 7. Conclusion International corporations are taking responsibility for balancing their own interest with those of the societies and the environment in which operate. There is indeed a strong connection between financial and social performance because improving a company’s image through CSR have a commercial value. Culture plays a very important role in motivating a company to embrace the principles of CSR and corporate governance as the success of international businesses depends on how they manage their relationship with the culture of the host country. Development of global culture facilitates the development of global products. Similarly, morality and the law or the legal obligations of businesses to ensure public safety is forcing organizations to embrace social responsibility. In sum, social issues, the law, and cultural diversity are only secondary to economic as a reason for adopting a CSR. If this is the case then our findings suggest that international firms may need to improve their ethics and values, environmental records, and quality of products and services to survive. 8. Bibliography Banerjee Subhabrata Bobby. 2007. Corporate Social Responsibility: The Good, the Bad and the Ugly. Edward Elgar Publishing, UK Barnes James G. 2006. Build Your Customer Strategy: A Guide to Creating Profitable Customer Relationships. Wiley-Interscience, US Bronn Peggy & Belliu Albana. 2001. Corporate Social Responsibility, Cause Related Marketing. International Journal of Advertising- 2001, Norway, p.1-15 CSR Journal Business & Society. 2005. 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