Corporate Governance and Corporate Social Responsibility - Essay Example

 Comment on the four alternative views of ethical behaviour. Explain how this might link to definitions of Corporate Social Responsibility. Introduction There are several concepts now being applied in business that appear to have very similar meanings, and might even be used interchangeably. For instance, corporate governance and corporate social responsibility seem to refer to the ethical conduct of business, within the company and outside it. However, this likewise is the implication behind business ethics. All three terms call to mind the same thing – doing what is right for the good of all concerned. And yet upon closer analysis, the words imply different versions of “doing what is right”. Corporate governance (CG) appears to refer to managerial conduct, corporate social responsibility (CSR) seems to connote the conduct of the company as a whole, and business ethics implies conduct of the individual in business. At least, that is how I see it. Petkoski, on the other hand, draws an interesting relationship among the three: Figure 1: Competitiveness Framework (Petkoski, 2005, p. 30) In the shape of a Venn diagram, Petkoski’s model illustrates the interrelatedness of CSR, CG and business ethics. There are broad areas where two of the three elements overlap, and smaller areas where all three overlap. However, there is a fourth element, competitiveness, which does not at all approximate the other three in meaning, yet all four overlap at some point. The objective of this essay is to discuss the overlaps, particularly those of ethics and CSR, although in the course of analyzing this relationship, the areas of CG and competitiveness will also be discussed, because of the context they provide to the overlap of ethics and CSR. We begin by trying to understand what ethics means and in particular what business ethics signifies. Alternative views of ethical behaviour According to the listing in the Princeton University dictionary, ethics (also known as “moral philosophy”) is “duties or conduct relating to moral action, motive or character” (Findlaw.com, 2010), or “the study of human values and moral conduct” (Translation Dictionary.com, 2010), or even simply, “the philosophical study of moral values and rules” (Princeton, 2010). Business ethics is a somewhat “specialized” field of ethics in that it constitutes “acceptable behaviour in organisational, commercial and business contexts” (Cacioppe, Forster & Fox, 2007, p. 682). There are four alternative views of ethical behaviour (Schermerhorn, 2003). These are: (1) the Utilitarian View, which defines moral behaviour as that which delivers the greatest good to the greatest number of people; (2) Individualism which views moral behaviour as the choice of actions which are primarily committed to one’s long term self-interests; (3) the Moral-rights view, wherein moral behaviour is that which respects the fundamental rights shared by all human beings; and (4) the Justice view, which regards moral behaviour as that which is impartial, fair and equitable in treating people (procedural and distributive justice); pursuant to this view, ethical decisions are those that treat people fairly according to established rules. We shall proceed to examine each of these alternative views, and relate it to a corresponding view of corporate social responsibility. Varying shades of meaning of the term “corporate social responsibility” will be discussed in some detail, inasmuch the term itself “means something, but not always the same thing to everybody” (Van Marrewijk, 2003, quoting Votaw & Sethi, 1973). The Utilitarian View The phrase “the greater good” has been used so often in daily conversation that there is some ambiguity in what it means. Put simply in numerical terms, the course of action that does the greatest amount of good for the greatest amount of people would be the most moral act among all alternatives. For instance, a corporation can, with its CSR budget, either build a schoolhouse that can accommodate 100 poor but deserving students, or give out scholarships for 500 such students. Immediately, it appears that according to the utilitarian view, the alternative that calls for scholarships for 1,000 is at once the more moral alternative. Extending the analysis, however, it may be said that a schoolhouse could facilitate the education of 100 students each year for an indefinite number of years, making it the choice that yields the greater good. There are numerous assumptions that could be made which could change our perception of “the greater good” from one alternative to the next, thus such a criterion could be difficult to apply. This concept applied to corporate social responsibility associates with definitions that emphasize the greater public good. One such definition stats that “CSR is a mechanism by which businesses can accept greater social and environmental responsibility for their actions – globally, regionally and locally” (Petkoski, 2005). The very implication of this statement conveys two seemingly contradictory ideas – first, that CSR is a corporation’s responsibility to society and the environment, meaning it is an obligation; and second, that CSR must be accepted by the business, meaning that CSR is in some way optional. This is probably the crux of contention in the debate about CSR, if business should feel obliged to undertake it, or if it may not, and if it does, how far to go with it. Another definition is that of corporate social responsibility as a requirement for business, to ensure that the means of production be employed “in such a way that production and distribution would enhance total socio-economic welfare,” to be used “for broad social ends and not simply the narrowly circumscribed interest of private persons and firms” (Frederick, 1960 in Zenisek, 1979). This definition ties in the greater socio-economic welfare with the main purpose of the business. In converting resources into finished goods and services, business has the responsibility to ensure that it serves “broad social ends” and not only the “interest of private persons”. This is a direct 180-degree turn from the traditional shareholder concept of business, that the management of the firm is the agent of the firm’s shareholders (owners) and therefore must serve first and foremost the interest of these “private persons”. The Frederick definition, however, implies the greater importance of management to serve the social interest first, or at least at level with, shareholder interest. It implies that where a conflict of interest arises between the two, the firm’s management may be compelled, in some instances, to choose to serve the interests of the general society and environment over the interests of its own principals, the firm’s owners. Needless to say, the proposition necessarily presented by the utilitarian theory is the most directly opposite to that the traditional view. It is to this ethical view that most businessmen oppose, arguing that serving society first would tend to lead the firm to bankruptcy and failure. Individualism Individualism states that the moral behaviour is that which serves one’s own long-term interest. It is based on the precept that it is a moral good to act in a way that serves one’s benefit, because all things being equal, for one to act against his own interests is unnatural, irresponsible, and suicidal if taken to the extreme. In the normal course of affairs, if each person tended to his own welfare, then there is a collective benefit to society to which each person becomes a contributing asset. Persons who are capable but who neglect to provide for their own well-being become a burden to society, which must provide for their support and maintenance. The idea is true of the business arena. Profit is not myopically taken as the symbol of greed, but as reward for taking the chance to convert the sources of production into goods and services that benefit its customers. In turn, the added value contributed by the firm is rewarded by the profits it earns. The firm, then, serves its own raison d’etre (reason for being) if it earns profits and ensures its own survival. Harris (1991) states it more directly: “It is the moral duty of corporate executives to carry out the wishes of the shareholders, who, in the main, invest in order to make a profit. Managers cannot morally engage in any activity that reduces the corporation’s profitability.” In serving its own interests, then, the firm serves society best. Adam Smith (1863) argued that in their usual and regular pursuit of profit, businesses will inevitably produce the greatest social good, because the marketplace determines what the general public wants and needs. The idea is anchored on the performance of a market where producers auction their products against their competitors and consumers bid according to the value they see, thereby assuring efficiency in pricing and valuation. But this reliance on market forces has been countered by Petkus and Woodruff (1992) and other contemporary theorists. The efficient market works under conditions of perfect competition and full information disclosure. Unfortunately, market distortions such as lack of consumer information and imperfect competition tend to skew the market and render it inefficient (in Mohr, Webb & Harris, 2001). Unscrupulous parties are able to take advantage of these distortions to earn undeserved profits at the expense of the general good. However, under a regime of reasonable regulation that minimizes the distortions, the individualist view is fairly justifiable. Corporate social responsibility supports corporate strategy in its quest for wealth creation. Michael Porter said, “The more tightly corporate philanthropy is linked to the strategy and expertise of the firm, the more effective it will be in creating social and corporate value simultaneously” (Petkoski, 2005, p. 35). Besides, corporate self-interest cannot be separated from the interest of society and the environment. James D. Wolfensohn, president of the World Bank in 2002, said: “Social responsibility is not a question of charity: it’s a question of enlightened self-interest. It’s an issue of how we’re going to keep our planet stable so that your businesses survive” (Petkoski, 2005, p.48). Therefore, one is served by serving the other. The Moral-rights View Under the moral-rights view, moral behaviour is seen as the choice of actions which respects the fundamental human rights. These would of course include the fundamental rights to life, liberty, and the pursuit of happiness, as well as the rights to decent and humane treatment in the workplace, fair wages, and participation in the determination of working conditions, as far as employees are concerned. Externally, it includes respect for a community’s right to a clean and sustainable environment and the right to be free from over-exploitation and abuse of its natural resources. Legally also, management has the contractual obligation to its shareholders and therefore a moral responsibility to protect and advance their interests. Understandably, these moral obligations will tend to irreconcilably conflict where certain issues are concerned, in which case the firm’s management will have to weigh their options according to the most pressing interests. “The powers of corporate management are held in trust for the entire community” (Merrick Dodd, in Thomas & Nowak, 2006, p. 4). There is no question that business firms have a moral responsibility to advance basic human rights at every opportunity, but there is a question as to how far it is obliged to do so. It may be argued, as it has been by some business leaders, that the moral responsibility for uplifting the economic plight of society resides with the government; however, this is not an exclusive purview of government, and corporations may be seen to be in part morally responsible to the society from which it makes its profits. Business fulfils a role as part of an important triangular relationship with the State and Civil Society (Van Marrewijk, 2003). Business and the state interact together in the nation’s economy (the market) and the legal structure within which this market functions (control). This interacting relationship is depicted in the following diagram : Figure 2: The triangular relationship of Business, State and Civil Society (Van Marrewijk, 2003, p. 100) In the figure, the working relationship among the state, business, and civil society is presented as it had been configured in the past, and as it is conceived now in the present. There was a time when civil society saw itself as the balancing force against the state and business, and in which case sounded off the defects and abuses of the institutions belonging to those sectors. At present, however, civil society has expanded its sphere of activity and influence to overlap with business and the state. The theme of interaction has shifted from the adversarial to the collaborative, further enhancing the role of business in matters previously thought the exclusive jurisdiction of the state or of civil society. The function of legislation and maintenance (control) and that of competition and cooperation (market), formerly assigned to the state and business respectively, now combine to some extent with collective action and participation which was the function of civil society. Boundaries no longer differentiate them; instead, each sector takes an active role in the other’s functions. By the same token, business has an active role in control (through self-regulation and social and environmental accountability) as well as collective action and participation (in programs for social and economic advancement). Overall, many authors see no conflict between the moral-rights view and the profit motive of the company; rather, the former is seen as the manner by which the corporation can achieve the latter. CSR is defined as ‘achieving commercial success in ways that honour ethical values and respect people, communities and the natural environment’ (Business for Social Responsibility, 2003, para 1, in Cacioppe, Forster, & Fox, 2008). The Justice View The justice view is that ethical approach that regards moral behaviour as being impartial, fair and equitable in treating people. Legal theory labels this procedural and distributive justice, where fairness and equity temper what would otherwise be harsh consequences of otherwise legal actions. Ethical decisions are those that treat people fairly according to the moral and ethical precepts. By “justice” here is meant not only the legality of an action or decision according to the letter of the statute, but moreso filial adherence to the spirit of the law that is the source of substantial justice. There are many reasons why a corporation would want to advance the just (as versus “legal”) cause. One the one end is the altruistic desire to see that the interests of equity be served. On the other end, companies seen to be just and fair could realize improved business as a result. “Ethics and economic advantage go hand in hand. As research is beginning to document, companies that bring ethical discipline to bear on their activities and tap into a variety of economic benefits from doing so. Many of these benefits follow from the very simple fact that given a choice, most people prefer to work for and do business with companies that are honest, fair, reliable and considerate” (Paine, 2003 in Cacioppe, Forster, & Fox, 2007, p. 681. The social and ethical commitment attributed to society has increased dramatically because of the many corporate scandals that have come to light. These would include issues of indiscriminate exploitation of natural resources, pollution, the use of child labour, accounting fraud such as in the Enron affair. In order to counter the widespread mistrust towards management of big businesses, companies are now pressured not only to undertake CSR activities, but also to communicate them to the public (Arvidsson, 2010). What is important is that the company is perceived to be righteous, fair and equitable, in order to dispel any notion that the business is engaged in inappropriate and illegal behaviour. The justice view of corporate social responsibility is seen as relating to internal and external organisational problems – internal problems relate to stockholder and worker rights, while external problems deal with the impact of the product or service to the community, the relationship of the selling process to social values, and the prevailing implications of corporate citizenship (Klein, 1967 in Zenisek, 1979) Synthesis: The model of social responsibility as a continuum How, now, is one to conceive of corporate social responsibility? In early studies, the debate centered on the nature of management’s role, either as agent of the owners (shareholder theory), counterparty to employees, customers and suppliers (stakeholder theory), or actor in the broader community and caretaker of the environment (socio-ecological theory). This debate has evolved into one of degree; it is generally conceded that business is to an extent accountable to society, the only questions are how, and how far, they are accountable. The following diagram shows a conception of social responsibility as continuum. On the one end, the corporation could have the barest contribution to society (austere), having mostly to do with its regular operations and little more. Household would refer to a level of social contribution that ensures the corporation maintains its immediate environment so as not to leave any footprint. Vendor would refer to social participation that serves its marketing profile, while investment is that degree of contribution where the company “invests” in its social and ecological environment so as to sustain its own business in the future. Civic would of course mean that level of participation that would be attributable to a civic-minded citizen. Finally, artistic is the maximum level of responsibility, where the organization takes the initiative to lead and design its social responsibility programs to create and advance new directions towards social and environmental upliftment. Figure 3: Walton’s Continuum of Social Responsibility (Zenisek, 1979) Within this continuum may be situated the various connotations of corporate social responsibility previously discussed. Most corporations would tread the middle ground, between vendor and investment, in the continuum, striking a balance and even exploring synergies between corporate profit and social-environmental benefit. The differences center on two important aspects of CSR: the degree of initiative to take, and the beneficiary of the action (Thomas and Nowak, 2006). The key is to serve the interests of the company by enhancing the situation in the community References Arvidsson, S 2010 Communication of Corporate Social Responsibility: A Study of the Views of Management Teams in Large Companies. Journal of Business Ethics, Oct 2010, Vol. 96 Issue 3, p339-354; DOI: 10.1007/s10551-010-0469-2 Cacioppe, R; Forster, N; & Fox, M 2008 A Survey of Managers’ Perceptions of Corporate Ethics and Social Responsibility and Actions that may Affect Companies’ Success. Journal of Business Ethics, Oct 2008, Vol. 82 Issue 3, p681-700; DOI: 10.1007/s10551-007-9586-y Findlaw.com 2010 Ethics. Accessed 26 November 2010 from http://public.findlaw.com/library/pa-professional-responsibility-law.html Harris, T F Jr 1991 Corporate Social Responsibility: A Dialogue. The Freeman. The Foundation for Economic Education, Sept. 1991, vol. 41, no. 9 Mohr, L A; Webb, D J; & Harris, K E 2001 Do Consumers Expect Companies to be Socially Responsible? The Impact of Corporate Social Responsibility on Buying Behavior. Journal of Consumer Affairs, Summer 2001, Vol. 35 Issue 1, p45 Petkoski, D 2005 Corporate Social Responsibility – The Role of the Private Sector and International Financial Institutions. World Bank Institute. Accessed 28 November 2010 from http://unpan1.un.org/intradoc/groups/public/documents/un/unpan022960.pdf Princeton, 2010 Ethics. Accessed 26 November 2010 from http://wordnetweb.princeton.edu/perl/webwn?s=ethics Schermerhorn, J R 2003 Core Concepts of Management. John Wily & Sons, Inc. ISBN 9780471230557 Thomas, G & Nowak, M 2006 Corporate Social Responsibility: A Definition. Working Paper Series 62 . Graduate School of Business, Curtin University of Technology. December 2006. Perth, Western Australia. Translation Dictionary.com 2010 Ethics. Accessed 26 November 2010 from http://www.translationdirectory.com/glossaries/glossary007_e.htm Van Marrewijk, M 2003 Concepts and Definitions of CSR and Corporate Sustainability: Between Agency and Communion. Journal of Business Ethics, May2003, Vol. 44 Issue 2/3, p95-105 Zenisek, T J 1979 Corporate Social Responsibility: A Conceptualization Based On Organizational Literature. Academy of Management Review, Jul 79, Vol. 4 Issue 3, p359-368 Read More