Theoretical Foundations of Corporate Social Responsibility - Assignment Example

Heading: Final Exam Your name: Course name: Professors’ name: Date Question One Theoretical foundations of corporate social responsibility According to Jamali & Mirshak (2007), corporate social responsibility (CSR) has many definitions. First, CSR refers to the manner in which a corporation balances its social, economic, and environmental duties in its activities in order to handle shareholder and other stakeholders’ needs and expectations. The term has various names including corporate ethics, corporate responsibility, corporate citizenship, corporate accountability, stewardship, sustainability, as well as triple-E bottom line, which entails ethical, economic, and environmental (Nobel 2011). CSR is an overall management issue, which is vital to all business aspects, and it is incorporated in the organization’s operations via its culture, values, strategy, decision-making, as well as reporting approaches (Jenkins 2006). CSR has major issues in its definition including the need for the corporations’ responsibilities should exceed the profitable production of service and goods. Secondly, firm’s responsibilities should help in solving vital social concerns, particularly those it jointly created. Thirdly, corporations should widen its scope beyond shareholders. Fourthly, firms should beware that their effects exceed mere marketplace operations. Additionally, firms serve various human values, instead of solely focusing on economic benefits (Ma 2012). Various theoretical foundations exist regarding CSR. These theories are in form of social, personal, and amoral views. To start with, the amoral vie represents a conservative business view, as well as the corporation’s role. Legal recognition and free market defenders theorists are part of people supporting the view, as well as those believing that CSR is inexistent. For many years, several theorists have asserted this view, and many people within the business society hold it. Additionally, the amoral view entails activities lacking moral quality; that is it lacks restraints, moral standards, or principles. It is distinct from immoral, as the immoral describes actions lacking moral standards or that fail to conform to commonly established or accepted conduct. On contrast, amoral entails actions that lack good or bad morals. Secondly, personal view describes the corporation’s nature when determining its accountability. The issue involved here is whether the businesses are fully-fledged moral persons or moral agents. It view corporations as collectives, which operate as individuals, as legal persons who can be held liable for their activities (Tumay 2009). Those asserting that organizations are persons allege that firms are accountable for their activities in a manner similar to the natural individuals’ actions. Thus, a corporation may be morally accused just as the natural individuals. A powerful counterargument alleges that the firms are not natural individuals. Those people advocating for the view claim that it is impossible to inflict punishment or moral sanctions on firms as corporations. It is possible to punish or blame the employees or managers of the organization, but not the business itself. It is appropriate to impose certain punishments including fines on shareholders or transferred to consumers as costs (Birch, 2003). This debate does not solve the controversy about whether a corporation is a moral individual or a social institution. Those people holding that corporation are socially responsible for its effects on society, and it is morally liable for its activities in the social arena. On the other hand, those that do not believe that a corporation is a moral individual say that the society should change their views on the corporation. In fact, the personal view symbolizes a middle ground between the social views and the amoral views. It leaves the question unresolved. Nevertheless, the arguments supporting the handling of corporations as individuals yield the next theoretical foundation of CSR, which is the social view (Wheeler, Colbert & Freeman 2003). The social view maintains hat activities of organizations happen in an interpersonal and, most probable, social context. This view considers that corporation as a social organization within the society, with social obligations. The business’ social nature may lie in several distinct theories, some including social contract, stakeholder, ideological or historical, social permission, corporate citizenship, and social interpretation among others. The degree of corporate responsibility relies on the theoretical foundation employed in support of the view (Birch 2003). The view argues that the corporation is a social institution, because it exists since individuals converge to realize a common objective associated with the provision of services and goods. Currently, Parkinson (2003) says that firms exist since the society completely sanctions them to function in that form. Several people in the society consider corporations to operate in the social view of CSR in spite of the ongoing claims of others arguing amoral view, with its partial vision of the company working as a personal institution with an exclusively economic reason (Banarjee 2008). Numerous frameworks and theories exist to explain CSR. While some of these them have parallel, others overlap in their view of CSR. The presence of many theories in support of the CSR complicates the efforts of achieving a definitive and comprehensive explanation regarding social responsibility. In spite of these many CSR views, several business-supported firms advocate for it (Godfrey & Hatch 2007). Corporate Governance agency theory is implicitly incompatible with CSR Abdullah (2009) says that corporations have grown into dominant and powerful institutions in the society. They have attained every corner of the world in different capabilities, sizes, and influences. Their governance has affected different features of social setting and economies. The fact that shareholders are losing trust affects market value immensely. Additionally, globalization has led to deterritorialization and resultant reduction in government control exceeds the necessary accountability. Therefore, corporate governance is a vital factor in the management of firms in the modern complex and global environment. To comprehend corporate governance, it is imperative to identify its definition. Corporate governance may refer to set of structures and processes for directing and controlling a company. It comprises of certain rules that govern the connections between shareholders, management, and stakeholders. It also implies the decision-making process that facilitates decision execution. Notably, the meaning of corporate governance varies with different organizations. It involves all kind of organizations and its definitions may widen to incorporate all economic and non-economic operations. Governance entails the processes, actions, institutions, and traditions the firm exercises authority, makes and implements decisions (Benn 2011). Corporate governance has certain fundamental theories supporting it, and they include agency theory, stakeholder theory, stewardship theory, political theory, transaction cost theory, resource dependency theory, and ethics-based theories including business ethics, feminist ethics, virtue ethics, discourse, and postmodernism ethics theory (Abdullah 2009). To start with, agency theory entails the associations between agents comprising of managers and company executives, and principals including shareholders. The theory says that shareholders are the principals, hire agents to execute work. Principals delegate the operations to the managers or directors who are agents of the shareholders. There are two factors influencing the distinction of agency theory. Firstly, the theory is conceptually and simple assumption that minimizes the organization to two shareholders and managers. Secondly, it proposes that managers or employees in corporation may be self-interested (Sundaram & Inkpen, 2004). The second theory of corporate governance is the stewardship theory, which states that a steward safeguards and increases shareholders’ capital by organization performance in order to maximize the steward’s utility functions. Stewards include company managers and executives representing safeguarding, and making profits for company shareholders. This theory focuses on the standpoint of individualism, instead of top management’s role as stewards, incorporating their objectives in the corporation. It recommends that stewards are motivated and satisfied when firms succeed (Abdullah 2009). Stakeholder theory is a combination of organizational and sociological disciplines. The assumption incorporates ethics, philosophy, economics, political theory, organizational science, and law. It entails an individual or a group that may influence, or is influenced by the realization of company objectives. It also suggests that organizational managers have a network of connections to serve including employees, suppliers, as well as business partners. On contrast, political theory concerns the strategy of creating shareholders’ voting support, instead of buying voting power. Therefore, political power in corporate governance can guide corporate governance in the firm (Abdullah 2009). Corporate governance theory is completely different from CSR in that the two address distinct issues. CSR is a corporation’s way of balancing its economic, environmental, and social roles in its operations to meet shareholder and stakeholders’ needs effectively (Schwartz 2011). On the other hand, corporate governance entails structures and processes designed to direct and control a company. It also concerns rules governing the relations between management, and stakeholders, and shareholders (Parkinson 2003). Nevertheless, there is a relationship between the concepts. First, they have theories that support them. They also focus on working towards meeting the needs of the shareholders and all other stakeholders. Both concepts function towards the protection, making, and maximization of organizational profits through effective performance (Benn 2011). Question 2 According to Hamilton (2003), corporate governs entails the system through which firms are managed and directed. Corporate governance affects the way in which companies set and achieve their objectives, they way in which they monitor and assess risks, as well as the way in which companies optimize its performance. Good structures of corporate governance stimulate firms into creating value, by innovation, entrepreneurship, exploration, and development, and give control systems and accountability with involved risks. Whatever comprises of effective corporate governance will develop with the changes in the situations of a business and should be designed to satisfy these conditions. It is imperative that best practice evolves with advancements in Australia and other parts of the globe. There is no one method of enhancing good corporate governance in the country. One of the national models in Australia is the ASX Corporate Governance Council, which provided eight core principles necessary in the achievement of effective corporate governance in the country. The council’s establishment took place on august 15 2002. It gathers 21 groups from contrasting business settings that carry different priorities and aims alongside those constituencies. Each of core principles has a detailed explanation and has execution direction in terms of best practice suggestions. Even though the Council’s suggestions are nor obligatory and may not solely, bar corporate mistakes or failure during decision-making process, they may offer a reference point for improved structures to reduce problems and maximize accountability and performance. According to Hamilton (2003), fundamental to every corporate governance structure is the establishment of duties of the board and the management, as in the first principle. This implies the need for organizations to identify and publish respective responsibilities and roles of their management and board. The body also enhances corporate governance by focusing on the importance of structuring the board in order to add value to the business. It recommends that the board should have an appropriate size, composition, and dedication to discharge duties and responsibilities adequately. This also focuses on a balance of experience, skills, and autonomy on the board suitable to the extent and nature of business operations. Thirdly, Hamilton (2003) says that the body promotes responsible and ethical decision making process in the company. It reiterates the importance of safeguarding in financial reporting. This implies the need for integrity among the people who may influence a firm’s financial performance. It further emphasizes the significance of meeting of information needs in a current investment community, with regard to attracting capital and accountability. The presentation of a firm’s financial and non-financial status necessitates processes that protect both externally and internally, the integrity of firm reporting. The fifth principle proposes that the processes should also offer a balanced and timely picture of all material issues. Sixthly, it proposes that the rights on the importance of explicitly upholding and recognizing firm owners including shareholders. In the seventh principle, ASX Council emphasizes that each business decision constitutes an aspect of improbability and carries a threat that is manageable by effective internal control and oversight. In the eighth principle, the Council notes that keeping abreast with the current business risks, as well as other elements of corporate governance needs official strategies that stimulate improved management and board effectiveness (International Risk Governance Council 2008) The ninth principle of the Council proposes that rewards are necessary in attracting essential skills in the achievement of performance that shareholders expect. Lastly, the last principle notes that the effect of corporate decisions and activities is increasingly varied and effective governance identifies the stakeholders’ rightful interests (Hamilton 2003). OECD is another corporate governance body that established its principles in 1999. The body claims that its principles serve as global benchmark for investors, policy makers, firms, and other stakeholders across the world. Additionally, the body its principles have promoted the corporate governance plan and provide certain direction for regulatory and legislative initiatives in all member and non-member countries (OECD, 2004). It is consistent with ASX CGC in that it stresses that there is not specific model appropriate for corporate governance. The principles of both corporate governance bodies are not binding and do not intend to offer detailed instructions for national laws. Their primary function is to act as reference point. Policy makers may employ them as they analyze and develop the regulatory and legal structures for corporate governance that symbolize their own social, economic, cultural, and legal conditions, and by market players as they advance their own operations (OECD, 2004). Just like ASX CGC, OECD’s principles are vital in influencing corporate governance in the country. First, the body enhances corporate governance by creating a foundation for a successful corporate governance structure. It recommends that the framework must boost efficient and transparent markets, conform to the constitution, and have clear articulation of responsibilities among various regulatory, supervisory, and implementation authorities (Clarke 2007). Secondly, the body enhances corporate governance with a focus on shareholders’ rights and main ownership functions. It reiterates that the governance structure should safeguard and enable the shareholders to exercise their rights. Through its third principle, the body establishes need for equitable handling of shareholders. It stresses that the governance framework must ensure that all local and foreign shareholders’ treatment. They should have a chance to receive successful redress for their rights’ infringement. As Clarke (2007) asserts, OECD also addresses the stakeholders’ roles in the corporate governance. It recommends that the framework ought to identify stakeholder rights, either legally or by mutual consents, and promote active collaboration between stakeholders and companies in the creation of jobs, wealth, and sustainability of monetarily effective firms. It also influences corporate governance by focusing on transparency and disclosure. This implies that the framework must ensure accurate and timely disclosure on all material issues as regards the business, including performance, financial status, governance and ownership of the organization (OECD, 2004). Lastly, Clarke (2007) maintains that OECD ensures sound corporate governance by advocating for board’s responsibilities. It states that the governance framework must ensure company’s strategic guidance, successful board monitoring of business management, as well as the board’s accountability to the shareholders and the firm. Though OECD is broader based and generic as compared to the ASX CGC, they both help in the achievement of an effective corporate governance in the country. The above governance principles by national bodies should be made legally binding in order to promote best practices among corporations in the country. This national corporate governance body is critical to Australia in a variety of ways. Firstly, evidently effective corporate governance practices are vital in the determination of capital cost in the world capital market. Australian businesses ought to equip themselves in order to compete internationally, as well as to uphold and boost investor confidence both locally and worldwide. In the analysis of their corporate governance applications, the country begins from a point of strength. Nonetheless, it is vital that it persists in the review of the practices in order to continually reflect domestic and global developments and position itself at the front position of best performance (OECD, 2004). Question 3 Role of board of directors According to the ASX CGC, a board of directors has a number of duties and responsibilities. To start with, board of directors is responsible for providing oversight to the organization including its accountability and control systems. For instance, the board of directors of Chiquita Company had a responsibility of providing the business with supervision activities, as well as control and accountability systems. This means that the firm’s board oversaw and was accountable for the payments made to terrorist groups in Colombia (Chiquita 2010). It is also responsible for the appointment and removal of a firm’s chief executive officer whenever it is appropriate. The board also ratifies the appointment and, when suitable, the removal of chief financial officer, or equivalent, as well as the firm’s secretary (Hendry & Kiel 2004). Furthermore, Nobel (2011) says that the board of directors is also responsible for the review and ratification of risk management systems, internal conformity and control, legal compliance, as well as codes of conduct. For instance, Chiquita’s board of directors ensured that the company complied with the legal requirements of the country. This is evident in the meeting they held to discuss the legality of making payments to the terrorists (Chiquita 2010). It also oversees the input in and ultimate endorsement of the management’s establishment of a performance objectives and strategy. It also monitors the top management’s performance and enforcement of strategy, as well as ensuring the availability of suitable resources (Nobel 2011). In the case study, Chiquita board of directors ensured that the company had adequate supply of the essential resources including raw materials, funds, and employees. In terms of strategy, Chiquita board of directors made strategic decisions regarding new projects and partnership with other organizations, such as, the Rainforest Alliance. In addition, the board of directors is responsible for the approval and monitoring of the progress of the key capital expenditure, divestitures, and capital management (Hendry & Kiel 2004). In Chiquita Company, the board of directors approved capital expenditures and capital management including the payments made to the terrorist group. It also approves and monitors financial any other form of reporting in the company. For instance, Chiquita board of directors oversaw any form of reporting the firm including financial, ethical, and social responsibility to the public. It also made decisions regarding the disclosure of their illegal activities to the relevant authorities (Nobel 2011). Could companies function without a board and run by the executive management team? A firm cannot be more effective and efficient if the executives alone run it with the board of directors. This is because the executives have their own different roles and responsibilities, which are distinct from those of the board of directors. Chief Executive Officers mandate involves the management of the daily operations of a company and ensuring that the activities are in compliance with the policies that the board of directors develops. For instance, in Chiquita Company, the CEO manages all the firm’s routine operations, and ensures that they conform to the board’s policies. The executives are also responsible for ensuring that the performance of the operations is in line with the set requirements. The executives are accountable to the board in terms of the contribution towards the setting of annual objectives and goals. The Chiquita CEO also works with the board in the formulation of yearly objectives and goals. They also ensure that corporation procedures and general management are set in line with board policies. They also inform the board of impending or existing board policy matters. In Chiquita, the CEO’s responsibility was to inform the board of any impending concerns regarding their policies. For instance, he informed that the board that the payments the firm made to the terrorist group was against the American laws. Furthermore, the executives have a responsibility to the company’s board. Together with the board, the executives develop plans and policies that comply with the shareholders’ mandate. The board also ensures that the executives are not subjected to political obstruction (Hendry & Kiel 2004). In Chiquita Company, the CEO worked with the board in developing plans and policies that conform to the shareholders’ mandate (Chiquita 2010). Therefore, these facts indicate that it is impossible for chief executive officers to manage the firm alone in the absence of the board of directors. What corporate governance problem could arise without a board of directors? Absence of the board of directors in a firm can result in detrimental effects on corporate governance. To begin with, absence of board of directors in a company will lead to poor oversight of the organization, and ineffective accountability and control systems. Directors are responsible for the appointment and removal of CEO, and thus, their absence implies no executives; hence, poor corporate governance. A company would also lack a secretary if there is no board of directors because the board is responsible for the appointment or removal of a secretary. In the case study, Chiquita would be lacking a CEO if there was no board of directors in place to appoint and supervise him (Chiquita 2010). In addition, lack of board of directors in a firm may also result in poor risk management, legal compliance, and internal compliance. Besides, a firm without board of directors has ineffective coded of conduct (International Risk Governance Council 2008). What is more, absence of board of directors also implies poor performance of the senior management. This is because one of the board’s roles is to manage their top management. The board’s absence can also compromise the firm’s production, as there will be no one to manage the availability of required resources in the business. The firm will not manage to develop and implement clear strategies without a board of directors (Hendry & Kiel 2004). For example, Chiquita’s board of directors handled strategy development and implementation; hence guiding the firm’s operations (Chiquita 2010). One of the roles of the board is to endorse and monitor any reporting in the firm including financial and social responsibility to the public. Thus, the board’s absence implies that the firm will fail to give approved reporting to the shareholders and other stakeholders. The firm can also experience inappropriate approval and monitoring of its capital expenditure. For instance, in Chiquita, the board’s responsibility was to approve and monitor any business reporting, such as legal and financial issues (Chiquita 2010). Therefore, a board of directors is highly indispensable in every company that strives to succeed. References Abdullah, H 2009, ‘Fundamental and Ethics Theories of Corporate Governance’, Middle Eastern Finance and Economics, vol. 3, no. 4, p.89-95. http://www.eurojournals.com/mefe_4_07.pdf Banarjee, B 2008, ‘Corporate Social Responsibility: The Good, the Bad and the Ugly, Critical’, Sociology, vol. 34, no. 1, 51-79. 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Wheeler, D, Colbert, B & Freeman, RE 2003, ‘Focusing On Value: Reconciling Corporate Social Responsibility, Sustainability and a Stakeholder Approach in a Network World’, Journal of General Management, vol. 2, no. 4, pp. 1-28 Read More