Corporate Governance Issues - Nestle Waters Canada - Case Study Example

CORPORATE GOVERNANCE ISSUES: NESTLE WATERS CANADA Name Institution Professor Course Date Introduction Nestle Waters is the world’s biggest bottled water company. The company serves over 100 nations through its fifty-two recognised bottled water brands. Nestle Waters is a subsidiary of world’s biggest food company, Nestle S,A, headquartered in Vevey, Switzerland. Nestle Waters is acknowledged for its quality water insurance, offering over a hundred bottled brands across the world. The firm has numerous branches across the world including Canada, Australia, UK, Poland, California to mention but a few. Although the brands are sheered in a heritage of trust, refreshing taste and quality water, the firm, particularly the Canadian and California branches have been facing issues linked to corporate social responsibility. Drawing from the arguments raised by The Globe and Mail, Nestle Waters affects the future of the most critical resource and the natural environment. Similar issues have been raised in the UK’s Guardian against the California based Nestle Waters with environmentalists citing corporate greenwashing. Both articles maintain that water is for life and not for profit, hence a human right. The article by Leslie (2016) posted on The Globe and Mail newspaper highlights issues of corporate social responsibility linked to Nestle Waters. Particularly, the article cites greenwashing on the part of Nestle Waters. Green washing is a term coined in the 1980s that describes actions of firm aimed at promoting green-founded environmental initiatives but, in reality, the firm’s operations damage the environment. According to Maltzman and Shirley (2012), greenwashing is a derogatory term for different practices that appear green but in reality give only a lip service of being green. Sobotta, Sobotta and Gotze (2010, p.198) define greenwashing as the phenomenon of environmentally and socially destructive companies trying to expand and preserve their markets by posing as friends of the environment and leaders in the struggle to eradicate issues linked to the environment. According Leslie (2016), Nestle Waters continues to extract water from Ontario town notwithstanding the drought that has hit the place. Given the irresponsible behaviour of the company towards the community and the natural environment, environmentalists argue that the company’s water-taking permits should not have been renewed. In an article supporting the claims laid by Leslie (2016), Nestle Water Canada had ran an advertisement claiming that bottled water is an environmentally responsible consumer product in the globe. This claim was met with resistance by Canadian groups who maintained that although the company uses less plastic in its bottles and recycles plastic, the fact that the firm extracts a lot of waters from wells without considering the surrounding environment and the community is an irresponsible behaviour. While use of less plastics and recycling of plastics promotes environmental sustainability, the water that gets into the bottles is unsustainable. Drawing from the issues raised by the environmentalists, Nestle Waters fails to provide conscientious water stewardship. The company bottles water in areas that are experiencing droughts leaving the surrounding communities with no source of water, hence a denial of a crucial human right. The Corporate Governance Issue: Corporate Social Responsibility The issue presented in the article by Leslie (2016) is linked to corporate social responsibility. Corporate social responsibility is an issue of corporate governance. Corporate governance (CG) entails the system of processes, practices and rules through which a firm is controlled and directed. CG in essence entails balancing the interests of stakeholders. Fernando (2009, p.14) defines corporate governance as the relationship of a firm to its shareholders, or more widely, as its relationship to society. Milton Friedman, an Nobel Laureate and Economist, believes that corporate governance is the way a business conducts itself in accordance to the shareholders’ desires (Fernando 2009, p.14) . The shareholder’s interests and desires includes making as much money as possible while at the same time conforming to the fundamental rules of society embodied in local customs and law. The World Bank defines corporate governance from two diverse perspectives (Fernando 2009, p.14). From a corporation perspective, corporate governance places emphasis on relations amid the management, board, owners and other stakeholders. Firms’ management requires providing the growth, development and survival of the companies, and at the same time, providing its accountability in the exercise of control and power over companies. Corporate social responsibility (CSR), on the other hand, is a business perspective that adds to sustainable development through delivery of environmental, social and economic benefits. CSR entails initiatives to evaluate and become accountable for a firm’s impacts on social wellbeing and environment (Bueble 2009, p.4). Corporate social responsibility does not involve pure philanthropy, but as a way of attaining commercial success in a manner that honours ethical values and respect for the natural environment, communities and people. With regard to article subject for analysis, Nestle Waters Canada fails to respect the environment and the community. Firstly, the Ministry of Environment failed to involve or consult the Ontario community before renewing the firm’s water-taking permit. Secondly, the firm’s activities are not socially responsible because it continues to extract water from wells despite the drought being experienced in the region. According to the article, the validity of the commercial water-taking permits is up to ten years and permits the extraction of a lot of water every day. The extraction of water in large quantities affects the social wellbeing and livelihood of the surrounding communities. Although the extraction of large quantities of water from the wells in Ontario is more shareholder-friendly, this activity affects the Ontario community. According to Hong, B, Li and Minor (2015, p.205), more shareholder-friendly corporate governance is attained via the execution of practices, incentives and rules to align the shareholders’ interests with those of a firm’s management. Therefore, shareholders benefit through fostering enhanced corporate governance. Hong, Li and Minor (2015) further assert that corporate social responsibility arguments shareholder’s value, hence improved corporate governance. The link amid CSR activities and corporate governance is undeniable. According to Hong, Li and Minor (2015), better corporate governance influences socially responsible behaviour in a firm. With respect to the institutional theory, a firm’s social conduct is by and large influenced by the requirements of an institution such as public awareness, laws, regulations and industry standard. According to Lau, Lu and Liang (2016, p.75), most empirical studies assessing the effects of environmental and other corporate social responsibility strategies on organisational performance including social and financial performance centres on aspects in the institutional environment. According to Kaur (2016, p.29), institutional theory is founded on three main pillars that include mimetic, normative and coercive pillars. Firms that operate while considering legal requirements depend on the coercive pillar, while firms that obtain legitimacy via moral obligation follow the normative pillar. Firms that operate while taking into account behaviours adopted by other firms depend on the coercive pillar. With regard to Nestle Waters, the firm fails to acquire legitimacy through moral obligations thereby triggering the resistance by the Ontario community. Kaur (2016, p.30) asserts that legitimacy is a major element for organisations. Legitimacy is an basic aspect for organisations’ survival and growth. In this regard, firms establish strategic responses with respect to the institutional context, given the significance of legitimacy within firms. Nestle Waters Canada legitimacy is at stake following the resistance the firm is facing from the community. Evidently, the legitimacy of the firm is challenged because the Ministry of Environment failed to involve the community before renewing the water-taking permit and the fact that the firm continues to extract water from wells when the community is experiencing draught. As a result, the firm fails to behave responsibly towards the society. The firm activities contravene people’s right to water and maintaining the right of people is a social responsibility to firms. Corporate social responsibility practices are supposed to surpass legal obligations which firms have, and attain stakeholder’s expectations. Although the Ministry of Environment in Ontario has renewed Nestle water-taking permit, it is the responsibility of the firm to assess the issues affecting the community at the moment. It is irresponsible of the firm to continue bottling water from the Ontario wells while the area is experiencing draught. According to Kaur (2016, p.30), companies that adopt effect CSR are those taking part in institutionalised dialogue with the stakeholders. Raising the Arguments through the Media The media is a powerful tool that creates and shapes public opinion besides strengthening the society. The media is used as an information channel and plays a role of allowing stakeholders to monitor the actions of firms. With respect to corporate governance and CSR issues, the media ascertains whether firms are acting in accordance with the obligations, they hold towards the stakeholders; and whether these firms respect moral principles. OECD (2011, p.13) claim that the media holds a crucial role in reporting issues linked to corporate governance. The media influences the perception of corporate governance in the market. The responsiveness of the media towards corporate governance issues such as the one presented in the article triggers further actions from the involved firms and agencies. The media holds great effect on corporate conduct and can affect the reputation or the image of a firm either negatively or positively. The media coverage of corporate governance issues increases the attention of government and other agencies. With respect to the Nestle waters issues, the media coverage increased the attention of the government, particularly, the Ministry of Water and Environment. According to OCED (2011, p.13), the media increases awareness of corporate governance issues and supports higher corporate governance standards. It plays a crucial role in influencing corporate environmental sustainable development. The environmental activists understand the power of the media in reaching out to large numbers of people and in attracting the attention of individuals and groups. A research carried out by Dai, Parwada and Zhang (2015) confirmed that the media disseminates and rebroadcasts regulatory information to the market more widely compared to the regulatory filing process. According to the researchers, the dissemination of information by the media promotes the breadth of coverage and attracts the attention of people through repetition. The media hold a dual role in reporting corporate business occurrences, undertaking original investigations and rebroadcasting existing news. Besides disseminating information, the media protects and fights for the interest of the society. Existing proof supports the idea that the media disciplines managers through creating content that brings into the light governance issues (Dai, Parwada & Zhang 2015, and p.333). Dyck, Volchkova and Zingales (2008, p.1103) affirm that the media is an instrument of change and leads to generation of reactions from the people affected by corporate governance issues. The role of media is to gather, select, certify and repackage information and lowers the costs stakeholders face to become informed. The media augments the number of persons who learn about conducts of other people, thereby agumentig the effect of reputation. It promotes publicity, which is recognised as a solution to corporate governance and other social issues. More importantly, the media influences the possibility of enforcement and the size of the penalty (Dyck, Volchkova & Zingales 2008, p.1104). However, the effectiveness of media depends on several qualities of the surrounding environment such as the set of values employed by the community. With respect to the Nestle Waters issues, there are scores of social benefits linked to use of media making the arguments presented by the environmental activists. Conclusion Corporate governance touches on so many issues in a firm that include corporate social responsibility, transparency and disclosure, community engagement, internal control and audit among others. With respect to the article by Leslie (2016), the corporate governance issue presented is corporate social responsibility (CSR). Corporate social responsibility activities have become an ever more essential investment by firms over the last several years. The developing significance of corporate social responsibility as a phenomenon has raised basic questions as to whether CSR promote shareholder’s value, or whether these activities are an agency cost enjoyed by an organisation’s management at the expense of shareholders. With respect to the article, the irresponsible behaviour of Nestle Waters is aimed at increasing shareholder’s value at the expense of the community. The issues raised by the environmental activists are valid and can affect the performance of the firm if the firm’s management does not implement environmental sustainable activities and avoid greenwashing. Reference List Bueble, E 2009, Corporate social responsibility: CSR communication as an instrument to consumer-relationship marketing, UK, GRIN Verlag. Dai, L, Parwada, J & Zhang, B 2015, ‘The governance effect of the media’s news dissemination role: Evidence from insider trading’, Journal of Accounting Research, vol.53, no.2, pp.331-366. Dyck, A, Volchkova, N & Zingales, L 2008, ‘ The corporate governance role of the media: Evidence from Russia’, Journal of Finance, vol.63, no.3, pp.1093-1135. Fernando, A.C 2009, Corporate governance: Principles, policies and practices, India, Pearson Education. Hong, B, Li, Z & Minor, D 2015, ‘ Corporate governance and executive compensation for corporate social responsibility’, Journal of Business Ethics, vol.136, no.1, pp.199-213. Kaur, G 2016, Corporate social responsibility in the hospitality and tourism industry, UK, IGI Global. Lau, C, Lu, Y & Liang, Q 2016, ‘ Corporate social responsibility in China: A corporate governance approach’, Journal of Business Ethics, vol.136, no.1, pp.73-87. Leslie, K 2016, ‘Nestle continues to extract water from Ontario town despite drought: Activists’, The Globe and Mail. Retrieved from http://www.theglobeandmail.com/news/national/nestle-continues-to-extract-water-from-ontario-town-despite-severe-drought-activists/article31480345/ Maltzman, R & Shirley, D 2012, Green project management, USA, CRC Press. OECD, 2011, Strengthening Latin American corporate governance: The role of institutional investors. USA, OECD Publishing. Sobotta, A, Sabotta, N.& Gotze, J 2010, Greening it, USA, Adrian Sobotta. Watson, B 2016, ‘ The trouble evolution of corporate greenwashing’, The Guardian. 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