The Modern Multinational Corporations in Complex Environments - Essay Example

?Business for Social Responsibility The iron law of social responsibility strongly suggests that those who do not use power in a responsible way to the society will in the final event lose it. Multinational corporations must meet the social responsibility challenge. If a multinational corporation does not do this, government will introduce reform that shall introduce reform compelling the business or corporation to fulfill its obligations. The concept of a social contract took the centre stage as the basis of relationships between both individuals and government (White 2007). This happened prior to the emergence of modern multinational corporations. The most renowned philosophers of that time, Thomas Hobbes, Jean Rousseau and John Locke introduced the concepts of responsibilities and rights of government to its people and citizens to fellow citizens (White 2007 p.13). This line of thinking became the idea behind the modern concept of a democratic state and democracy at large. This was a situation whereby the ultimate power rested on the citizens. However, the citizens are willing to delegate authority to the state. Through this, individuals could participate in social activities that enhance a shared future in a defined territory or community. The basics of social contracts are clear although the emphases and assumptions may vary. The modern day pluralistic society discourages a few people to use power to oppress the majority (Buchholtz & Carroll 2012 p19). These basics have not changed for centuries notwithstanding the huge shift from agrarian societies to complex industrialized societies which are dominated by the global economy (White 2007 p. 8). According to White (2007), this facilitated the shift from a life of endless conflicts over control of assets like water and land. These assets are considered to be common. The rights became defined. Citizens accepted to respect the rights of their fellow citizens with the assurance that their own rights will be protected. Penalties for those who violate the rights of others were introduced (White 2007 p. 8). The foundation of social contracts lies behind the principle of shielding or protecting human rights by means of individuals giving authority or state willingly. The scope of human rights has been rapidly expanding, but the underlying principle remains the same. Social contract is the awareness that the government is supposed to serve the people. With that understanding, the people own all the political power, but in most cases they delegate it to government officials. The people can give or opt to withhold power (Buchholtz & Carroll 22). Social contract theory urges that people can exchange power with authorities so that their rights can be protected. In this process, people surrender some of their freedoms and submit to an authority for protection (White 2007 p.16). The relationship between legal and natural rights becomes a vital aspect of the social contract theory. Members of the society decide to cooperate so that the entire society can benefit. A social contract is a general agreement between members of a society of with the government that explains how the rights of the society shall be protected in a sustainable manner. This agreement is not written, but it is known to exist between the state and individuals. In case of mature democracies, the rights are delegated to elected officials and the leaders are held accountable. Impacts of the iron law of responsibility and social contract. Property rights assist people with the atmosphere to nurture wealth which is supposed to enrich and improve their productivity. According to Thomas Paine, a philosopher in the 18th century, natural property comes from God, who is the Creator of the universe. Therefore, it should not be used for just personal and private needs. The impact of social contracts is increasingly being felt. A society which allows incursions into communal resources to benefit a few cannot have true democracy (White 2007). The level to which multinationals become responsible for the social welfare is being debated in earnest. Some observers think that governments have failed to provide the necessary stability for business activities. The implication shows that multinational corporations cannot thrive in such atmosphere. Successful social contract requires enforcing transparent rules that favor the operations of multinational corporations. Unstable environment affects the ability of multinational corporations to fulfill their role in the social contract. This is common in emerging economies where the government institutions are weak. Another issue is that the level of business being done by some of these multinational has not grown to the extent of affecting traditional functions of the government. In other words, it has not grown to its useful limit (White 2007 p. 9). Clean air and water may not be subject to private controls if the government is corrupt and weak. Modern multinational corporations are aiming at growing to the extent they redefine the traditional governance and commitment to social contracts. Governments license multinationals to operate with the public interest in mind. For the public interest to be served, wealth creation must be viewed as a long term strategy. Long term wealth creation leads to societal benefits. The impact on the society remains even after the multinational corporations relocate. Expansion of natural, social and human capital through productive activity is the best definition of long-term wealth. Wealth creating must have a direct impact on community, nature and culture. These are common aspects that are inherited form one generation to another. Furthermore, these aspects are common and present in the modern society and there has to be real strategies of passing them to the next generations. Social contract must make the multinational corporations feel compelled to give back to the society (White 2007). White (2007) argues that, the government enacts policy that cause multinationals to interact with the society. Designing a social contract may necessitate a frame work, which enables and requires multinational corporations and private enterprises to give their maximum contribution to the process of creating long-term wealth. Multinational corporations have various statements of purpose. The iron law of responsibility is gradually causing multinationals to come up with statements which are bent towards serving the need of the society. Social contract is tied to corporate social responsibility (White 2007). The reality of the social contract has caused multinational corporations to balance profit making with giving back to the society. This has coerced multinationals to come up with generally accepted statements of purpose with keen interest on the societal needs. Corporate and multinationals must be seen to be harnessing private resources or interests with an aim of improving the public welfare. For social contract to become a working reality, multinational corporations must move from unique to general. This entails formulation of statements of purpose which are deeply rooted in societal interest. This is how to restore trust in multinational companies (White 2007). The society will always expect multinational corporations to act in the public interest. Therefore, the society readily licenses multinational corporations whose activates are driven by a real awareness of public interest. Iron law of responsibility and social contracts has created an undeniable impact in the multinational corporations' statements of purpose. These statements have to appear generic and flexible. The international bodies like the United Nations have enforced certain standards for the operations of multinational corporations. The future of multinationals lies in incorporation of public interest as a requirement. Multinationals with corporate specific statements of purpose are redesigning their statements (Holliday & Schmidheiny 2002 p13). The public interest has become an anchor. Shareholder interest alone is seen as unsocial and acceptable for 21st century. All multinationals are reinventing themselves and accepting the fact that they are public entities. They are duty bound to protect and prioritize social and environmental requirements. Large multinationals have both private and public ownership. These attributes have forced the multinational corporations to put laws that project public interest as an ultimate obligation of these corporations. Another implication of the social contract and enactment of the iron law of responsibility is the creation of long term wealth (White 2007). This has become the heart of multinationals. Increasingly, multinationals and corporations are structuring their formation with a long term approach. This is because long-term wealth creation results in the societal benefits. The success of corporations is increasingly being seen through its role in the community (Holliday & Schmidheiny 2002 p13). According to Holliday & Schmidheiny (2002), most of the leaders of multinational companies are now aware that this approach enhances preservation of natural human and social capital, which is the multinationals’ highest calling. Therefore, the value of shareholders and profits from the company must be seen as a means to an end. Huge profits enable wealth creation, but they are only a means to a greater societal purpose. Investment in environmental conservation enhances the long-term conditions and wellbeing of countries and the multinational corporation itself. When the social capital is expanded, the business and the society benefit. Moreover, environment must be seen with a political perspective. The government should create a legal environment which is regulatory and stable. This includes respecting human rights, rule of law and fully democratic government and social processes. As a result of the social contract, governments are coming up with legislations that facilitate long-term wealth creation and social contract in general. In conclusion, for the social contract to be implemented fully new and better institutional structures must be used. The modern multinational corporations find themselves operating in complex environments. Governments expect multinational corporations to lead in productivity and innovative solutions. The multinational corporations expect governments to create a stable environment from business. The civil society seeks strong legitimate recognition from the government as development partners. The government expects accountability and other services which it is not able to provide on its own. Multinational corporations cannot thrive where government fails. The prerogative of creating a stable business environment lies with government authorities. The government must ensure a stable and fair environment for multinationals to thrive. The society, government and multinational corporations must interaction in a functional framework for growth to be sustainable. Works Cited Buchholtz, Ann K., and Archie B. Carroll. "The Business and Society Relationship." Business and Society: Ethics and Stakeholder Management 1.1 2012: 4-27. Print. Holliday, C. O., and Schmidheiny S. "The Foundation: The business case for sustainable development." Walking the Talk: The Business Case for Sustainable Development 1.1 2002: 11-37. Print. White, A. L. 2007. Is It Time to Rewrite the Social Contract? business for social responsibility, 11, 1-19. Read More