Corporate Governance & Social Responsibility - Assignment Example

Part 1: Questions One & Two: Corporate Social responsibility or CSR can be understood in terms of being a corporate form of self-management which works in combination within a business model. What happens is that a CSR policy is supposed to work as an integrated, built-in and self-managing device with help of which a given business monitors and ensures its obedience to law and to moral standards of society, including international requisites. Most corporates shoulder the burden for the results that the dealing of the business have on the ecology, buyers, workers, the public, and on all those who are involved or affected by the working practices of the business in question. Moreover, the business would preemptively endorse public interest by ensuring and helping community development programmes via active participation. In order to do this they willingly exclude routines that cause harm to the public, irrespective of legality. In essence, CSR is a deliberate attempt to include public interest in corporate executory management, yet honoring the triple bottom line of business: People, Planet and Profit. Like any other theory or model of management and running a business the policy of CSR too has its proponents and critics. It has been subject to much debate. It has been argued by supporters that there exists a huge commercial justification for CSR, because companies profit in various manners by working with a standpoint that is broader than their own short-term benefits. Arguments against the policy however state that it serves to sidetrack from the basic economic role of businesses i.e. profit making; it has also been described as “window dressing” and an attempt to deflect the governmental monitoring of the multi nationals(William W, David C, 2005) Having understood the fundamentals of what constitutes CSR, the main issue can now be addressed in detail. Whether or not following a CSR centric policy can help a company and its economic competitiveness is a matter of debate. There have been very comprehensive arguments that have been made by many to suggest that CSR is a policy that can in the long run help a business in a manner which might not be tangible but nevertheless has an impact that can be felt on the top as well as the bottom line of the company which is to be studied. Commercial competitiveness is a factor dependent on a host of other factors. If one was to enumerate the ways n which CSR helps a commercial organization it becomes clear that the benefits though not visible or tangible are still as important as any other. CSR by definition is ethical, legal and philanthropic behavior in the workplace, market and community. By this definition it should only be a ‘Do-gooder’ kind of work that a commercial venture does. There are however reasons to believe the opposite. Corporates work for profit not for philanthropy. The basic points that run in favour of the policy are: CSR first and foremost helps in the risk reduction. Reputations that take years to build are often gone in the dust in a matter of days. Scandals related to corporate dealing and environmental issues have in the past played havoc with a company’s credibility in the market, credibility that is essential in order to build and maintain a customer base. CSR initiatives help in a way of preemptively putting up a screen and protecting an image. A company which has robust internal management rules in order to ensure that there is a system to protect environmental degradation will have an automatic shield to its reputation which in the ultimate analysis will show in the lower financing costs for that particular business. CSR is also a help and a boost to brand image. Constructive hype and publicity that are generated through CSR undertakings can help fortify the company's brand image as well as help in the establishment of market control, thereby improving it’s basic levels and capacity to create wealth and reap profits. It has to be understood that the market today is crowded with names each one vying to get the consumer’s attention. By following the policy of CSR a company can be in the limelight for all the right reasons thereby marking it as different and making the consumer not just remember it but also think highly of it. For any kind of success in a given corporate in house stability and maximum output contribution from the staff is a necessary pre requisite. A CSR initiative can work as a recruitment and retention agent. Perception, in today’s world holds immense importance. CSR initiatives can for obvious reasons helps portray a corporate's image in a better light not just to the outside world but within its own offices thereby working towards the augmentation of employee output. Last, the very number of corporates that are engaged in the activity and the full fledged CR departments now existing in most corporate boardrooms is proof enough of the fact that it does in some manner or another help in being commercially competitive. CSR help in Race to the Top While answering the above asked question it ha t be remembered that corporate offices and commercial ventures exist before anything else, for the purpose of making profits. In his book, Capitalism and Freedom, Friedman has put forward the argument that “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 open and free competition without deception or fraud”. Why is it then that there has been an effort on the part of almost every corporate giant to get involved in the process of CSR? In order to get an answer to this question and consequentially to the first one, it is important that one traces the growth of this buzz, how it started and how it spread. The basic idea behind the initiatives was that if corporates volunteered to do more it would help calm critics, forestall regulation and preserve corporate legitimacy. The nature of business today is that it runs on the money of stakeholders and CSR is inclusive of responsibility to the stakeholder. Responsibilities of a corporate are inclusive of how the entire business is run everyday. The basic element even till date is in place a notion that there is an exchange that takes place between CSR and rising profits. This is therefore highly visible in corporate actions (Steiner G, Steiner J, 2005). Competition between businesses today exists on the level of pricing, the level of quality or that of service. Non-profit organizations make use of competence, standards of service or societal assistance in order to build up their fighting positives. Customers, financers, regime administrations and even workers have developed better maturity with minds that are better able to think and analyze and are thus know that much more about good commercial practices in regards to society, or the absence of it. In this new commercial scene where distrust about a company’s claims is a standard way of perception, the standing of any given commercial venture is one of its most priced assets, thereby making CSR one of the key ingredients of corporate standing and growth. Positive CSR experiences build confidence and goodwill with stakeholders. A number of commercial ventures have evolved a CSR based management and working strategy in order to compile a situation where there can be no losses. The answer to the question then is ‘yes’, CSR can definitely help a commercial unit in a race to the Top.(Hancock J, 2004) SECTION B Question2: The need for corporate governance has been felt the world over and consequently there have been initiatives that have been instituted in order to deal with the challenges that were posed (Geoffery K 2006).These initiatives took many shapes n forms including a subtle yet complete shift in balance from the CEO to the board. Corporate failure in the past decade have taken many surprising turns from bug names like Xerox to Walt Disney and Enron having come under the scanner. Corporate governance has been in a state of evolution from managerial capitalism which was the dominant force till the late 1980s to Institutional capitalism that has now taken center stage. Need for initiatives of corporate governance have arisen from a number of factors like: Management\ salaries and payouts, Greed and ethical failures Irregularities in accounts and Books Insufficient disclosure actions Responses for such challenges has resulted in legislations and decrees the world over such as The Sarbanes Oxley Act 2002 (US), the Combined Code 2003 (UK), OECD (2004) and the Australian Stock Exchange Guidelines (2003). These initiatives were in essence a result of factors like community and investor dissatisfaction, media attention and regulator scrutiny, which in turn found their source in basic corporate greed. Changes that were constituted internally meant that there was a practical redefinition of the role of the boards, there were voluntary codes of conduct that were adopted and as stated earlier there was a marked in the standards of regulation. The Sarbanes Oxley Act was a legal manifestation that set audit value management along with morals and autonomy standards. It also set new benchmarks for boards and audit committees and CEO/CFO guarantee of revelations in quarterly and yearly reports. The ASX principle document gives voice to the ten basic tenets that constitute the benchmark of good governance. It was also intended as a reference point for companies to understand shareholder needs and reinstate investor assurances. The Combined Code (UK) was a similar regulatory manifestation. External Governance and the stock exchanges and the governments set the legal and regulatory environment for corporate activity making it clear what it was that the expectations from corporatism was. Accounting standards and professional bodies such as the OECD were also instituted. Basic management in this scenario was then carried out by the corporates internally but activities were regulated by external auditors. These reforms were mainly with reference to auditor autonomy, financial coverage, revelations, executive salaries and stakeholder contribution activity. Question 4: The downturn in the world economy has been the first such cycle since the idea of CSR came under the scanner in the world of corporates (Stephanie B and John Peloza, 2008) With the news of collapse of the Lehman Brothers corporates the world over have gone into a frenzy thereby raising major doubts about the future of SCR in this kind of an unstable environment. Mounting losses and cost cutting are the buzzwords in world economy. Layoffs seem to be everyday occurrences. What then is the future of CSR initiatives, CSR that was in any case considered useless expenditure by many. The answer is not simple. Strategically managing CSR in downturns requires an approach that is bold and aggressive. First businesses need to ensure that CSR efforts are in with the core purposes of the business. CSR activities that can help support the company’s cost saving methods have to be increased and others discarded. Programmes that help in a better management of employee owner relationships have to stay. Cues have to be taken here from companies such as Wal-Mart that attribute their CSR related efforts with huge cost savings that run into millions of dollars. Business portfolios have to be broadened to be inclusive of activities that contribute to tangibles successes. Research and development assume big responsibility here. CSR initiatives can be linked to R&D efforts. The easy way out is probably to duck out of CSR commitments but it has to be remembered that brand loyalty and commitments are not built in a day. Tough times and the company deals with it is what decide a firm’s credibility in the market, not just in the mind of the consumers but in the mind of the stakeholders. In theory at least discipline and capacity building sound like the ideal ways to deal with the issue at hand, this can be implemented in practice as well as has been demonstrated by big names such as Toyota and GE. But there will still be a number of CFOs that will say clearly that CS initiatives have been abandoned as cost cutting measures. What will be interesting to see in fat is how it is that companies deal with the downturn and CSR. It will in all probability turn out to be a so called real test of corporate character. Conclusion Corporate Social Responsibility has evolved primarily in the past decade and half. It has its critics who are of the opinion that CSR is basically an attempt on the part of corporates to curb any attempts to put brakes on corporate power and get admission to markets. CSR however can also be looked at as being a planned and thought out alliance for sustainable growth that takes place between corporates, government and the civil society. It is a relatively new feature of development and commercial evolution, but is a rapidly expanding tale in both developed and developing countries. An alliance, like any new association requires the bindings of a common idea for all involved in order to produce a clear demarcation of responsibilities, and a ability to answer to outside business and political truths. It has to be accepted as a reality and should be embraced thereby giving its merits greater scope for growth Reference: Strategic Corporate Social Responsibility, William w, David C, Pub 2005, accessed, April 18, 2009, http://books.google.com/books?id=etEOEKUxJV0C&pg=PA54&dq=Strategic+Corporate+Social+Responsibility:+Stakeholders+in+a+Global+Environment,+Google+book&ei=h3_pSaj2KZTOkwTpoIyUAQ#PPP1,M1 Investing in Corporate Social Responsibility, A Guide to Best Practice, Business Planning & UK’s Leading Companies, Hancock j, Pub 2004, accessed, April 18, 2009, http://books.google.com/books?id=qWoiD88rBAgC&dq=Strategic+Corporate+Social+Responsibility:+Stakeholders+in+a+Global+Environment,+Google+book&printsec=frontcover&source=in&hl=en&ei=aX_pSZb3H9CJkQW8-7GqCA&sa=X&oi=book_result&ct=result&resnum=12> Business Government and Society, Steiner and Steiner, accessed on April 17, 2009, http://books.google.com/books?id=6FDyQ-zp5lUC&pg=PA136&lpg=PA136&dq=Steiner+and+Steiner+text-+CSR&source=bl&ots=MDoa3V6O-h&sig=J-tVd9NA-sp24c2b0jTfr6OqHSk&hl=en&ei=dqDoSevJEqXa6gPx2_DNAw&sa=X&oi=book_result&ct=result&resnum=1#PPA123,M1 Corporate Social responsibility, Shah Anup, accessed on April 17, 2009, http://www.globalissues.org/article/723/corporate-social-responsibility Key Challenges for Corporate Governance in the Public sector: Private Sector lessons and Models, Kiel Geoffery, Pub, March 9, 2006, accessed April 17, 2009, < http://www.canberra.edu.au/corpgov-aps/whatsnew/CONFERENCE_March2006/Conf2006_Papers_PPts/KielCG%20_Conf2006.pdf> Stephanie Bertels, John Peloza(2006), Corporate Reputation Review, accessed, April 18, 2009, https://secure.palgrave-journals.com/crr/journal/v11/n1/full/crr20081a.html Industry as a player in the political and social arena: defining the competitive environment, Richard M, 1996, accessed April 18, 2009, http://books.google.com/books?id=tPIStJEoR-8C&dq=Strategic+Corporate+Social+Responsibility:+Stakeholders+in+a+Global+Environment,+Google+book&printsec=frontcover&source=in&hl=en&ei=LYLpSaqMJcmHkQXf8NWtCA&sa=X&oi=book_result&ct=result&resnum=13#PPP1,M1> Read More