Global Corporate Governance and Corporate Social Responsibility - Example

Global Corporate Governance and Corporate Social Responsibility Student’s Name: Institutional Affiliation: University Global Corporate Governance & Corporate Social Responsibility Introduction Multinational companies are raising the amount of resources on conserving the environment, corporate ethics code, projects on employees’ safety and health and other work which has no clear financial benefit to the company but which the company identify as its social responsibility. Many companies both local and multinationals have realized the benefit of pursuing corporate social responsibility. They are, therefore, setting aside some of the company’s profits for corporate social responsibility (Bodwell, Graves & Waddock, 2002). Corporate social responsibility refers to the company’s duty to be responsive to the needs of all stakeholders of a business in its activities. The stakeholders are those who are affected or can influence decisions taken by the company. Generally, the major stakeholders to a company include employees, customers, suppliers, and social groups in the community, subsidiaries, joint ventures, local community, shareholders, and other investors. These stakeholders are very influential on how socially the company conducts its business. Most companies are looking for ways to fulfill their stakeholder’s wants. One of the most popular ways is through corporate social responsibility. Corporate governance refers to the rules and process which an organization is operated and controlled. It refers to the internal factors which are defined by all stakeholders (The economist, 2011). Good corporate governance structure benefits every organizations stakeholder by ensuring that the set ethical standards and best practices are followed. Corporate governance practices have received increased attention in the recent past due to scandals involving misuse of corporate power and criminal activity in some cases. Companies are endeavoring to uphold the practice of corporate governance to ensure the integrity and accountability in functions that are vital to achieving the companies’ objectives. Current evidence demonstrates that companies’ participation in corporate social responsibility projects has been rising gradually. In the year 2001, for example, 33 per cent of the managers interviewed in Europe said their organizations had projects in corporate social responsibility. This figure increased to 46 percent in 2003 (Windsor, 2006). The question that arises from this is what has increased the companies’ interest in spending money on corporate social responsibility. The paper analyzes why multinational companies have become very interested in corporate governance and corporate social responsibility. The paper analyzes MacDonald’s in light of corporate governance and corporate social responsibility to find the reasons why multinationals have increased corporate social responsibility. Cultural factors The values and beliefs of the members of the society influence the values and beliefs that influence the functioning of the organization including corporate social responsibility. The institutional theory suggests that organizations assume the values of the society to gain legitimacy in the area in which they are operating. It can, therefore, be assumed that the cultural values of the members of the society influence the emergence of corporate social responsibility in the organization. The level of institutional collectivity is one of the cultural influences the emergence of corporate social responsibility values within an organization. The society usually encourages family integrity as a main component of the society. Institutional collectivism refers to the extent to which a society encourages collective action and encourages group performance and rewards. Belief of institutional collectivism encourages interdependence and, therefore, corporate social responsibility. This belief considers collective responsibility greater than personal concerns. Where the society believes in institutional collectivism, the organization will be influenced to undertake corporate social responsibility. Managers in places where there is strong institutional collectivism like MacDonald’s should stress more on corporate social responsibility to remain in good terms with the society. Group collectivism also encourages corporate social responsibility. The managers in cultures where group collectivity is valued should also cultivate good relationships with the society. Power distance is another cultural factor which influences the corporate social responsibility within an organization. Power distance refers to the extent to which power should be concentrated within a few people in the organization, and the people obeyed without question. Such a society with a culture like this is prone to manipulation, lack of equal opportunities, lack of professional development, and lack of development. The organizations where the people who lead the organization have high power distance are not likely to value corporate social responsibility. High power distance within a culture influences negative the corporate social responsibility. For example, managers in organizations that value high power distance are most likely to be concerned with their own benefits rather than those of shareholders. Running a multinational company like MacDonald’s is a great challenge. This is because it is difficult to create a successful corporate social responsibility plan. MacDonald’s does not run most of the restaurant therefore this is not a major concern for the company but the restaurant have to account for their corporate social responsibility activities. Planning of corporate social responsibility is done locally to take into account cultural factors (Jackson & Aguilera, 2003). Economic factors The economic factors also influence the emergence of corporate social responsibility in an organization to a great extent. The economic factors affect both local and international firms in making decisions regarding corporate social responsibility. If the economy is good, the company earns greater profit. These means it has money that can be put into corporate social responsibility projects. If the profit of the company grows, the corporate social responsibility budget also grows Corporate social responsibility also puts extra costs to the budget of the company. An international company like McDonalds is more likely to have a separate department that deals with corporate social responsibility. The running of such a department increases the costs to the organization. The company has the option of transferring these costs to the consumer in the form of price increase. This may end up adding additional cost the company, if the consumers refuse to meet the additional cost (Daly, 1997). An international company may also choose to take a different approach where it does not form a department to handle corporate social responsibility issues. In these cases, the company does not invest too much in corporate social responsibility. This kind of company only follows good corporate governance when the law demands it should be followed. The fewest number of stake holders are contacted on matters of corporate social responsibility. The costs by the products of the company are kept low, because no additional costs are incurred for corporate social responsibility. There is a chance of this company will negatively affect the market by causing other companies to cross down their operations due to the price differences (McWilliams & Siegel, 2001). Economic downturns negatively affect corporate social responsibility. When the economy is having an economic downturn the money invested in corporate social responsibility is little. This is because businesses do not get enough profits to put back into corporate social responsibility. The measure taken by multinational companies like McDonalds include cutting down expenditure on corporate social responsibility. From these factors, it can be concluded that economic factors are very important to the spending of multinational companies in corporate social responsibility (Carroll & Buckholtz 2000). The issues affect corporate social responsibility by affecting how money is spent. Multinationals may delay raising prices during a good economy and for companies like MacDonald’s they may help the community by donating food stuffs (Carroll & Buckholtz 2000). This charity is always considered part of the corporate social responsibility but is affected by the economic times. Legal factors Legal factors are very important determinants on how multinational companies engage in corporate social responsibility. The company has a responsibility in ensuring that its activities do not harm the society at large. The law ensures that companies engage in their business in a responsible way. The laws are not always enough to cover all aspects of business operations, which provide a challenge in dealing with corporate social responsibility. The benchmark for the government in responding to issues related to CSR has not yet emerged (Jennifer, 2006). The governments in many countries tax externalities. There has been a shift were the governments are now offering tradable permits to organizations. Others have introduced laws which require reporting on environment mandatory for business. This regulations and legislations tend to improve the social performance of businesses. Many businesses end up being involved in corporate social responsibility projects The regulations by the government may not be counted to improve corporate social responsibility because of the problem of high cost in ensuring compliance, the compliance cost if imposed on business cause non-productive overheads, and impact negatively on international markets, the government also depends on capital from these multinational corporations for investment. The government is not likely to put tough regulations on international organizations on corporate social responsibility (Cole 2004). Many governments have been in the past relying on legislation and regulation to implement social responsibility in business. The resources and regulations have become inadequate to drive corporate social responsibility and corporate governance. The governments are now considering voluntary and non regulatory programs instead for driving good governance and corporate social responsibility. Multinational organizations are now partnering voluntarily with local organizations to support corporate social responsibility. Intergovernmental bodies like united nation, organization for economic co-operation and development, and international labour organization, have developed guideline and principles that guide corporate social responsibilities and corporate governance (Donald, 2004). MacDonald’s faces challenges in terms of compliance issues which is a challenge with many multinationals. This may not be common with the franchises but the parent company must comply with the reporting and other legal requirements which affect how corporate social responsibility is done (Cole, 2004).. Environmental factors 300 Environmental factors are also a major factor that influences how companies handle corporate social responsibility. Multinational like McDonalds have been on the spotlight due to their effect on degrading the environment. Multinational corporations have recognized the need to take care of the environment organizations are now forming policies to help deal with environmental issues. The multinational organizations are part of the larger society of the place they operate. The multinational organizations as part of the society operate in such a way that their activities, cause minimal harm to the environment. The corporations also engage in corporate social responsibility projects that enable the society to maintain the environment. They also abstain from any activities that are likely to cause degradation or depletion to the natural resources. Globalization has been one of the factors that affect corporate social responsibility (McCarthy, 1992). Global firms like MacDonald’s operate in different parts of the world. These firms have been some of the cause of globalization. The firms have to take responsibility of their actions by undertaking corporate social responsibility projects to protect the environment. The main input for MacDonald’s come from the environment which is the case with other multinationals. The company must always ensure that the environment is not affected negatively when getting these resources. The firm engages in activities that ensure the sustainability of the brand as well as the environment. This activities include recycling and packaging in environmental friendly packages (McCarthy, 1992) which imposes extra costs to the company. Technological factors Technology factors are also a major factor on how Multinational Corporation spends on corporate social responsibility projects. The society now has more expectations that the organization will utilize the available resources in a more responsible manner. The advances in technology have improved the tools used by managers to address corporate social responsibility issues. Technology has led to the growth of more socially responsible companies. The impact of technology has been felt in monitoring, reporting and measuring of corporate social responsibility to ensure all stake holders are satisfied. The application of technology has been an integral part of increasing revenue and reducing costs. When multinationals earn more from investing in technology the increase in profits helps the company to spend more on corporate social responsibility projects (Victoria & Linda, 2002). Ensuring that the tools above are functional will allow MacDonald’s to improve its value chain and ensure proper reporting of corporate social responsibility activities. Positives and negatives of corporate social responsibility for multinational companies like MacDonald’s. The positive thing about technology is that the improvement in communication technology has also improved the reporting of corporate social responsibility. The communication technology like the internet and cell phones make it easier to track corporate social responsibility and report on it. Activist organizations keep track of the businesses activity everywhere easily. They will regularly report on their websites any business activities or interests, which are against good corporate governance or corporate social responsibility. MacDonald’s has been one of the multinational companies that use technology to report on their corporate social responsibility. The issue of environment has been very influential on MacDonald’s corporate social responsibility. The positive effect of the environmental factor is that it has made multinationals like MacDonald’s to get involved in projects that help in conserving the environment. MacDonald’s has addressed this issue by engaging in corporate projects that support environmental conservation. MacDonald’s operates in environments where people have different cultures. The different cultures influence the management of the restaurants both positively and negatively. The positive thing about institutional collectivism to MacDonald’s is that the society helps in caring for the environment in which it operates. The negative aspect of high power distance to MacDonald’s is that it influences the people not take corporate social responsibility seriously. MacDonald’s has been able to handle the cultural aspects by training its managers on taking corporate social responsibility seriously. The legal aspect of corporate social responsibility has it positive and negative effects on corporate social responsibility by multinationals companies. The positive aspect of legal factors to MacDonald’s is that it has been able to improve on its corporate social responsibility by observing the laws of countries in which it operates. These negative effect on multinationals is that the laws influence the extent to which the companies engage in corporate social responsibility. Most companies will just do what the law requires them to do. MacDonald’s has addressed this issue by having its own code of conduct on corporate social responsibility. Economic factors have been very influential on MacDonald’s corporate social responsibility. The positive aspect of the economy is that when the economy is good MacDonald’s has been able to increase its corporate social responsibility budget. The negative aspect is that multinationals like MacDonald’s reduce their corporate social responsibility budget during the harsh economic times. Theories of corporate social responsibility There are for main theories of corporate social responsibility. The main aim of these theories is to take specific actions to better how it operates in the society (Palmer, 2001). The corporate social responsibility theories used by multinational corporations like MacDonald’s include ethical theory, political theory, instrumental theory and integrative theory. The firm follows ethical theory where it fulfills corporate social responsibility to be truthful and ethical. Under instrumental theory a firm engages in corporate social responsibility in order to benefit. Integrative theory requires the firm to be sensitive to the needs of the society. How MacDonald’s practice their policies with Corporate Social responsibility theories Different companies practice various theories in regards to corporate social responsibility. MacDonald’s is a large multinational organization and fully takes responsibility towards the society. MacDonald’s takes part in projects that fulfill corporate social responsibility theories. Supports projects in environmental protection MacDonald’s always ensures that the environment is protected from the farm through its supply chain to the customer. This is a positive aspect of corporate social responsibility by MacDonald’s. The environmental protection is in line with integrative theory, which requires business to be sensitive to the needs of the society. By protecting the environment, it meets the needs of the society of having a clean environment (Jones, 1996). MacDonald’s works together with the farmers to develop sustainable farming practice. The farmers are taught how to use their land more productively. MacDonald’s is also a leader in waste management. The company is very efficient in the recycling of waste water (MacDonald’s, 2006). All these knowledge is passed to the farmers to help them conserve the environment. This is a good example of how MacDonald’s uses integrative corporate social responsibility theory. MacDonald’s supports the local economy. MacDonald’s purchases all the 80 percent of the raw materials it uses at its restaurant from the local communities (MacDonald’s, 2006). This is another positive economic aspect of how MacDonald’s engages in corporate social responsibility. This ensures that some of the money that is used at MacDonald’s restaurant remains in the local economy. This is also in line with instrumental theory of which ensures that it engages in social activities to gain economic results. It’s also part of integrative theory of ensuring that the local community benefits. MacDonald’s applies both theories to solve the problem of corporate social; responsibility. MacDonald’s is also focused on helping the community through the Ronald MacDonald’s house of charity The Ronald MacDonald’s house of charity was established to help in charity work for organizations working for the benefit of children (MacDonald’s, 2006). This is a positive aspect which shows institutional collectivism by MacDonald’s. The Ronald MacDonald’s house is a home away from home for families of children receiving treatment in children’s hospitals. The houses are built with the help of assistance from the restaurants, suppliers and customers. The theory applied by MacDonald’s is integrative and is used to help in the needs of the society. MacDonald’s helps in developing the career of its employees MacDonald’s provides training to employees which are a valuable contribution to the society. Most of the employees of MacDonald’s are trained at Hamburger University, which helps in developing their skill in teamwork and managing the kitchen (MacDonald’s, 2006). These skills can be applied in jobs in other industries. Employees are also encouraged to further their education and those who take up the opportunity are offered a scholarship. This ensures that employees of MacDonald’s can be employed in any other restaurant throughout the world. MacDonald’s also ensure that it engages in responsible advertising All multinational business is engaged in promoting their products. These businesses have the responsibility of ensuring that the statement put in their advertisements are valid and truth full. This is according to the ethical theory of corporate social responsibility which requires business to engage in ethical and truthful business. All adverts that are prepared by MacDonald’s, meet the ethical requirement in regards to promoting healthy eating (MacDonald’s, 2006). The adverts request people to engage in some form of exercise to maintain a healthy lifestyle. MacDonald’s has also been ranked as a good company to work for worldwide MacDonald’s has over 1.5 million employees worldwide. It has also been ranked one of the best companies to work for worldwide in the hospitality sector (MacDonald’s, 2006). The employment practices promote fair and progressive employee practices. The staffs who work at McDonalds come from all backgrounds. The employees include parents, senior citizens, people with disabilities and university students who work both fulltime and part-time. The good work environment is part of MacDonald’s corporate social responsibility. The theory of integration of CSR into business is applied by the bossiness in the work environment (Welford & Strachan, 2005). Conclusion and implications Based on the above discussion, we may conclude that there are several factors which have raised the interest of multinational companies, in engaging in increasing corporate social responsibility and corporate governance. This is confirmed by the fact that multinational companies MacDonald’s are affected by a number of them in developing corporate social responsibility and corporate governance. It has been found that economic, cultural, technological, environmental and legal factors affect corporate social responsibility by firms. The discussion indicates that multinational firms are more likely now than in the past to participate in corporate social responsibility than in the past by directing more resources into social projects. Overall corporate social responsibility has become a very important issue for multinational companies. The first implication for companies engaging in corporate social responsibility is that multinational companies are going benefit from CSR by integrating it into the core business. MacDonald’s has a department which deals with corporate social responsibility (MacDonald’s, 2006). The second implication is that multinational corporations will have to integrate tools of corporate social responsibility into their business plans. The tools which the company can use to manage corporate social responsibilities include life cycle assessment tools for the environment, eco labeling and corporate governance standards. The final implication is that CSR is necessary for any multinational company to survive. MacDonald’s has been able to ensure corporate social responsibility by allocating some activities to the franchises. This has made it function like other multinationals. It projects like Roland MacDonald’s charity and introduction of healthier menus and support to local communities have been coordinated by the franchises. CSR has been very important to MacDonald’s and therefore it has been successful. CSR is very critical for multinationals and impact on how the company is able to meet the demands of its customers. References Aguilera, R. V., & Jackson, G. (2003). The cross-national diversity of corporate governance: Dimensions and determinants. Academy of Management Review, 28 (1), 447-465. Bansal, P., & Roth, K. (2000). Why Companies Go Green? A Model of Ecological Responsiveness. The academy of Management Journal, 43 (4), 717-736. Bodwell, C., Graves, S. B., & Waddock, S. A. (2002). 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