Corporate Governance and Social Responsibility - Literature review Example

THE BUSINESS OF WATER due: Introduction Water business is a lucrative one based on the fact that water is an essential commodity, required in driving the daily activities. To ensure that the scarce commodity is well utilized, governments have come up with policies aimed at ensuring that citizens have a constant supply of water. Affinity water is an example of a company supplying water in the UK. The company has been supplying water for more than 130 years. North Surrey Water, formed in 1973 combined forces with Colne Valley, Rickmansworth and Lee Valley to form Three Valleys Water in 1994. In 1987, the company changed name to Veolia Water Central Limited. The Veolia Water was then purchased by Infracapital Partners and Morgan Stanley Infrastructure Partners, changing the name on 1st October to the current Affinity Water (Water 2013, para 1). Objectives The objectives of Affinity water has been expressed through its commitments to the customers. They include; Ensuring their customers have enough water while at the same time leaving more water in the environment. This will be achieved by reducing leakage by 14%, which is equivalent to 27 million litres per day. The company also has intentions of reducing the amount of water taken from the environment by 42 million litres per day. In addition, Affinity Water Company intends to carry out awareness campaigns on the importance of water, and, therefore, encourage their customers to use less water. The company intends to accomplish this by 2020. This will be achieved by metering 280, 00 properties and giving those customers a choice to keep paying non-metered charges. Allowing the users a period of up to two years of payment will make the transition easier for them (Water 2013, Para 1). The other objective is supplying high-quality water. The objective can be met by implementing a targeted programme of lead pipe replacement so as to meet legal standards. Moreover, the company is committed to minimizing disruption of water supply to its customers. This will be achieved through investing in increased flexibility in their network so as to transfer water more effectively and efficiently around all the communities. The final objective is providing value for money service. This is expected to reduce the bills over the next five years before inflation. This is expected to achieve a £106 Million of efficiency savings in the operational costs, thus keeping the bills as low as possible over the next five years (Water 2013, Para 1). The role of privatized companies according to Carroll’s pyramid of social responsibility The pyramid is concerned with measuring the parameters along which a firm operates. The bottom of the pyramid is of an economic nature. The primary obligation of a firm is to operate within a certain range of profit and pursue growth legitimately. The members of the public should be provided with goods and services at fair prices (Aras & Crowther 2010, p.237). The next level in the pyramid is legal responsibilities. A firm is required to abide by legal, ethical, and philanthropic responsibilities. This is a broad scope for CSR, but the responsibilities encompassed are self-evident, based on the fact that they do not carry the same weight in their level of obligation (Keinert 2008, p.69). The society also expects a corporation to exercise ethical responsibilities. A corporation should operate in line with the expected norms of the society. The expectations include respecting the rights of others that may not necessarily be embodied in the laws, meaning they are not legally enforceable. The apex of the pyramid is a virtue on philanthropic responsibilities. At this level, the corporate is expected to conduct itself as a good corporate citizen. The philanthropic responsibilities bind the corporate to carry out charity work, which means good neighbourliness. This is especially expressed through support of the broader community the corporate is operating in (Keinert 2008, p.69; Zu 2009 p.23). According to Carroll, the issue of CSR is not enforceable by law. In fact, CSR tends to begin where the law ends. This is why in his model, he considers economic and legal obligations as the most fundamental and comprehensive responsibilities. The two are not enforceable by law and are instead enforced by the market. He further emphasizes the importance of the values, by giving a clear distinction between requirements and the expectations of the society. Requirements are termed as economic and legal responsibilities. Expectations of the society, are on the other hand termed as the social responsibilities. The motivation of privatizing the water companies has been tied to the belief that private companies are more efficient and cost-effective. Privatization also comes with the advantage of providing a favourable economic climate for the water enterprises to excel in increased competition. Privatization comes with the institutionalization of a regulatory authority, aimed at regulating the behaviour and performance of the private water companies. The UK government, for instance, has established three regulatory agencies that undertake various roles. The OFWAT is the economic regulator while the Drinking Water Inspectorate (DWI) is for controlling drinking water. Environment Agency (EA) on the other hand, is for environmental regulation (Kim 2012, p.75). The privatization of water companies in the UK has involved disposal of public water assets to the private sector, a model that resembles full or material privatization. CSR Theories The Corporate Social Responsibility (CSR) is defined in four major theories. The first theory is called the instrumental. Based on this theory, the corporation is seen as just a tool for generation of wealth. The social activities of the corporate are used as means through which the corporate achieves its desired results in terms of economic achievements. The second theory is known as political. This theory is concerned with how the effect of the corporation is felt in the surrounding society. The corporate, in this case, is expected to meet its mandate responsibly, as far as the political aspect is concerned. The other of these theories is an integrative one (Garriga & Melé 2004, p.51-71; Idowu & Louche 2011, p.167). Based on this theory, the corporate focuses on how to satisfy the demands of the society. The corporate should operate in line with what the society expects. This may be in terms of assisting the society in preserving the environment or offering them free services from time to time. For instance, a company like Affinity Water may be compelled to offer free water on particular days of the month as a way of giving back to the community. The fourth theory is called the ethical theory. The theory focuses on the responsibilities of the corporate as long as operational ethics is concerned. The corporate is expected to operate ethically, so as to maintain good relations with the society in which it operates. In the real world, however, each of the four theories mentioned has four main aspects pertaining to corporate social responsibility. The aspects are related to profits, performance of the firm politically, what the society demands, and the values of the corporate which have to be ethical (Garriga & Melé 2004, p.51-71; Sun Stewart & Pollard 2010, p.8). Privatization of water industries in developing countries Private water companies have been preferred in since they are considered more efficient as compared to public ones. There is; however, some empirical evidence proving that this is not always the case. Comparison between the efficiency of the public sector and private water companies in various developing countries led to researchers’ conclusion that there was not even a single difference in neither in the cost nor the efficiency between the public and the private. Even countries with largest water privatization such as UK have not been exceptional. Research has shown that after 11 years of privatisation, there has been a significant reduction in the efficiency of the water companies. The cases of inefficiency have even exceeded how the public sector was. This is in spite of access to better technology (EPSU 2012, p.6; Holland 2005, p.11). Privatization of water companies has not been without challenges. The major challenge is that most of the private companies take advantage of their position and end up monopolizing the water industry, something that results in discrimination of the consumers. This is why the privatization has at times been described as a pipe dream. There are problems that have occurred in many cases of privatization in recent years, reflecting a marked decline in the private investment in the water sector (Scheumann 2008, p.206). In the developing countries, there are a number of players who have been parties in the water business. The privatization of the water supply has, however, become a contentious issue. This is because the privatization has often been linked with corruption and bureaucracy. This has threatened the security of water, the essential commodity. For instance, the public sector such as the municipal water companies has been unable to meet the expected limits of water supply. The companies have therefore been seen as inefficient and overly bureaucratic, corrupt and even failing. This has, on the other hand, raised the hope that in case the private sector is brought in, then there can be increased efficiency. Moreover, there can be improved service levels that can in turn help in addressing the poor access to water in the developing world (Crane & Matten 2010 p.85; Koppen Giordano & Butterworth 2008, p.2). Other studies have however shown that private companies do not perform any better than the public ones, both on technically and economically. Monopoly and extra costs are some of the problems facing these private companies. The extra costs come in the form of tendering, monitoring, and the costs of dealing with risk mitigation with the problems related to privatisation (EPSU 2012, p.7). In the developing countries such as those in the continents of Africa and India, the private sector is not much involved in the provision of water services. The public sector bears the role instead. For instance, in India, between 65% and 90% of investment is made by the public sector. The rest is financed by government aid; the private sector invests only a little in the developing countries. In South Africa, privatization has proved a poor alternative to public water distribution. The privatization resulted in a 300 percent increase in the water prices in Bhofolo. The township is located in the Cape Province of South Africa. This portrayed a poor corporate social responsibility, fixing prices that the consumers could not afford (Ramazzotti, Frigato & Elsner 2012, p. 194). The citizen rights clean and sufficient water supply has therefore been ignored. The private companies are making large profits at the expense of the citizens’ suffering. The private water companies in the UK, such as the Affinity Water, have been performing well in meeting the public demand for pure water and reliable supply. The likes of Affinity Water can, therefore, serve as good examples of companies that have succeeded in the provision of water. The other companies in the developing countries can learn from them and emulate what they are doing in order to improve their service delivery. The utilities in the UK are now entering a phase of growing competition and price cutting, with the power of independent bodies regulating the services so as to tackle the anti-competitive practices between the public and the private. New legislation in the UK has ensured that the utility shareholders have an obligation to share more of their profits with the utility customers. This is a way of improving the CSR as a way of ensuring customer satisfaction. The government of the UK, under which Affinity Water operates, has placed a ban on the anti-competitive agreements, which include price-fixing, market-sharing cartels or predatory pricing. To ensure compliance with the ban, the companies violating it risk a fine of up to 10 percent of their turnover (Luetge, Conill & Schönwälder 2013, p.14). Conclusion The government is responsible for the provision of basic requirements like water to its citizens. However, to improve the efficiency of the services, governments may at times surrender their role to private companies. The private companies have to consistently ensure quality is observed and that the customers, forming the members of the public, can afford the water. Since the survival is almost impossible without water, the responsible companies have to adhere strictly to the regulations set by their governments, or risk a revoke of their operating licenses. Carrolls Pyramid of Social Responsibility is resourceful in the explanation of the expectations of the companies by the public and the government. Of much importance in the model is for the companies to operate within a certain range such that they do not target very high profits. Their profits should be tuned to a level such that the customers and the companies are comfortable. Legal responsibilities, as found on the second level, have to be considered. The companies should operate in line with the government requirements. Ethical responsibility has to be exercised by the company as well. This will be in terms of providing high-quality services. In the final level of the model is where the company behaves like a corporate citizen, for the benefit of the customers. The issue of privatization of the water industries has been embraced even in the developing countries, though there are limitations such as monopoly that has resulted in high prices for water. It can, however, be concluded that privatization is more efficient as compared to the public sector. Bibliography ARAS, G., & CROWTHER, D. (2010). A handbook of corporate governance and social responsibility. Farnham, Surrey, England, Ashgate. CRANE, A., & MATTEN, D. (2010). Business ethics: managing corporate citizenship and sustainability in the age of globalization. Oxford, Oxford University Press. EPSU. (2012, April 1). Why water is a public service : Exposing the myths of privatization. Retrieved March 3, 2015, from http://www.right2water.eu/sites/water/files/u/u4/20022012-epsuwater.pdf GARRIGA, E., & MELÉ, D. (2004). Corporate social responsibility theories: Mapping the territory. Journal of business ethics, 53(1-2), 51-71. HOLLAND, A.-C. S. (2005). The water business: corporations versus people. New York, Zed Books. IDOWU, S. O., & LOUCHE, C. (2011). Theory and practice of corporate social responsibility. Heidelberg, Springer. KEINERT, C. (2008). Corporate social responsibility as an international strategy. Heidelberg, Physica-Verlag. KIM, C. T. (2012). Malaysian water sector reform: policy and performance. Wageningen, Wageningen Academic Publishers. KOPPEN, B. C. P. V., GIORDANO, M., & BUTTERWORTH, J. (2008). Community-based water law and water resource management reform in developing countries. Cambridge, MA, CABI. http://search.ebscohost.com/login.aspx?direct=true&scope=site&db=nlebk&db=nlabk&AN=211663. LUETGE, C., CONILL, J., & SCHÖNWÄLDER-KUNTZE, T. (Eds.). (2013). Corporate citizenship, contractarianism and ethical theory: on philosophical foundations of business ethics. Ashgate Publishing, Ltd.. RAMAZZOTTI, P., FRIGATO, P., & ELSNER, W. (Eds.). (2012). Social Costs Today: Institutional analyses of the present crises. Routledge. SCHEUMANN, W. (2008). Water politics and development cooperation: local power plays and global governance. Berlin, Springer. SUN, W., STEWART, J., & POLLARD, D. (2010). Reframing corporate social responsibility: lessons from the global financial crisis. Bingley [etc.], Emerald. WATER, A. (2013). Enhanced status for Affinity Water. Retrieved March 2, 2015, from https://stakeholder.affinitywater.co.uk/business-plan.aspx ZU, L. (2009). Corporate social responsibility, corporate restructuring and firms performance: empirical evidence from Chinese enterprises. Berlin, Springer. Read More