Corporate Responsibility - Essay Example

Corporate Responsibility Copyright © Academia-Research, Inc. 23 May 2006 Introduction – Organization Scenario J. Sainsbury plc is the third largest UK supermarket chain behind Tesco, ASDA and second largest grocery chain behind Tesco with an additional interest in financial services. It is a British home grown company that currently operates around 465 supermarkets and 262 convenient stores. Besides supermarket and grocery services, it also provides other financial, household and personal services in areas of banking, telecommunication, gas and electricity, kitchen appliances and professional eye-care and sale of glasses, contact lenses. Corporate responsibility has always been considered as a top priority by the management of Sainsbury. Such responsibility is mirrored upon their overall commercial business performances. They believe that it is an integral part of their successful business and it reflects their impact on stakeholders which comprises of customers, communities, colleagues, suppliers, investors and the environment. However, Sainsbury has begun to compete on price with Tesco and as a result customer’s loyalty has decreased over the past few months. Its overall performance has been reflected in a sharp drop in Sainsbury Share Price. An ethical audit is required to be carried out for the various stakeholder groups and to investigate the ethical behaviour of Sainsbury. A range of ethical theories will be used to provide a framework for articulating and investigating the forces influencing the resolution of ethical dilemmas faced within the audit environment. The theories allow for a greater ability to define antecedents and consequences of ethical acts by Sainsbury. Being assigned as an ethical consultant with Sainsbury, the findings of the ethical audit is to be reported based on the actual current business practices of J. Sainsbury plc. 2. PART A: Corporate Socially Responsible Sainsbury’s corporate social responsibility strategy (CSR) is to publicize the CSR in their own websites by jumping in and out of the responsibility section to look at CSR related case studies. Sainsbury offer reasonably good case studies [13] that are focused much on performances to satisfy the various stakeholders. The Sainsbury supermarket case is an interesting one for a discussion of CSR because the company shows socially responsible values (or CSR awareness) across a range of customer, colleagues and supplier oriented activities. Such activities include local regeneration and sourcing projects, a long-running initiative to interviewing customers about Sainsbury products, and establishing ethical trading practices with different suppliers. In part, this people-oriented CSR activity can be seen as a counter to past criticism of the supermarket sector in the UK that it was forcing suppliers (particularly farmers) to accept very low prices for produce, and then making unreasonably high profits from the sale of that produce in the supermarkets. While subsequent reports have not supported these continuing allegations, Sainsbury have taken a variety of steps to regain greater public support. The first annual CSR report by Sainsbury published in 2001 highlights the perpetual need for socially responsible values. They quote that “the integration and monitoring of activities explicitly aims to go beyond compliance and marketing and represents a change throughout Sainsbury demonstrating new approaches. This is CSR because it is the process by which Sainsbury’s communicates and manages its relationships with its key stakeholders: colleagues, consumers, suppliers, environment, community and shareholders. CSR for Sainsbury as a company focuses on building relationships with customers, attracting and retaining talented staff, managing risk, and assuring reputation in terms of our social, ethical and environmental performance” [11]. Within the CSR Annual Review, a strong emphasis is placed on external CSR activities which include its environmental and social performance. These activities relate particularly to environmental issues (such as energy efficiency measures and recycling efforts) and community activities (most notably Sainsbury’s computers for schools initiative, and working with local authorities in regeneration areas to train long-term unemployed people for jobs in new stores). Internal CSR activities are noted in such areas as employment diversity, health and safety, and the increased availability of an occupational pension scheme. Current values of social responsibility begins from Sainsbury management philosophy especially behind the agreement to create greater staff cooperation, resolve local problems, and create a more open style of communication. The three key aspirations of socially responsible agreement were to secure high quality representation for staff, to guarantee cooperation, and to allow Sainsbury to remain flexible enough to retain its leading market position. The supermarket union presence is seen by Sainsbury management to give greater legitimacy to the process, and the union has been highly supportive of the agreement. The partnership relations have not been without criticism, particularly criticism of union incorporation. However, other commentators have seen advantages in replacing traditional union-management relations with the multi-level forums, particularly in terms of allowing a broadening of the union-management agenda to take more account of issues such as job security, training, and career prospects. The result has been an overall increase in trade union and employee input into business decision-making. 3. Sainsbury’s acting consistently with its stated values Sainsbury sees CSR as a redefinition of its role in business. Increasingly, they are expected to do account for their social and environmental impact as well as their financial performance, and make a positive contribution to the UK communities they work in. The market is compelling Sainsbury to make changes, as their products and brands are judged not only on their quality and pricing but on their reputation of producing them. Sainsbury is committed to consistently act with its CSR stated values since CSR is becoming fundamental to the creation of long-term wealth and profit for them, thus simply being the right thing to do. The UK government’s involvement in CSR has also led Sainsbury to closely follow its own CSR agenda. As a criteria to excellence in CSR performance benchmark, the government has requested all major UK companies (inclusive of Sainsbury) to publicly publish their CSR activities annually. They further requested the setting-up of a plethora of ratings and ranking systems evaluating CSR performance among UK companies, thus adding growing pressure for these companies to be consistent in their CSR values. In addition, there are plenty of key benefits of staying and implementing with CSR systems. Apart from satisfying stakeholders, other benefits currently experienced by Sainsbury include satisfying growing investor pressure, increase sales and customer loyalty, increase the ability to attract and retain good employees, improve financial performance, reduce operating costs, reduce regulatory oversight and doing good for society. In order to uphold and enjoy all of these benefits regularly, Sainsbury has set regulations on its own CSR monitoring by acting consistently with its CSR principles and vision. 4. Key Issues for ethical dimension in corporate strategy formation There is a traditional view that ethics and business do not mix. Modern corporations like Sainsbury are increasingly demonstrating that they can combine the sensitivity of ethical issues with commercial success. The key to this combination is seeing that the commercial environment is increasingly effected by the very ethical issues that Sainsbury is being expected to deal with. These ethical issues must be addressed by the system of corporate governance (or strategy formation) in the company. Sainsbury defines business ethics as the standards of conduct according to which business decisions are made. An ethical issue in the context of a business is hence a subject which raises questions about the standards of conduct which are being adhered to by the company as distinct from the financial results of the conduct. By definition some ethical issues may require Sainsbury to undertake behaviour which is unprofitable if it adheres to one set of standards or profitable if adheres to another set of standards. The management of Sainsbury has sidelined two major key ethical issues: patent of Sainsbury products and ethical trade. In the 21st century, patents have become strategic assets and competitive weapon of enormous value. Sainsbury consider them as bargaining chips for negotiations with other supermarket companies to gain competitive advantage by gaining access to needed technologies by cross-licensing its patents with partners and competitors. As Sainsbury began to discover, the power of patents can no longer be ignored in business competitions as the importance of new ideas and innovations have overshadowed market position and tangible assets such as real estate and raw materials to achieve competitive goals. Patents are the tools that Sainsbury needs in the business battlefield to capture and defend its market share, stay ahead of the competition, increase revenues, and to be successful in their respective business segments [22]. However, some Sainsbury executives believe that patents have negative effects on innovations and potentially stifle developments of new products. Also, some argue that today’s patent gold rush will enable large firms with deep pockets to increase its patent portfolio to become a monopoly in particular Internet technology-enabled business sectors and suits smaller, more innovative supermarket companies to extinction on the base of infringement. Some have also condemned the recent patents for Internet technology-enabled business methods and models, marketing strategies, and other abstract innovations as this may lead to the monopolization of certain areas and holding up academic freedom and slowing Internet technology innovation. Many argue that granting patents to vital knowledge assets hinder innovations and create monopolies that prohibit the flow and sharing of knowledge, scientific, and medical organic discoveries that may harm society. Nevertheless, patents are being used as a profit-making venture to increase revenues and to maximize the returns on shareholder value in many companies. Valuing intangible assets such as patents, copyrights, and trademarks over tangible assets have a major impact on corporate financing and for the investors to value the market capitalization of all companies. In fact, over two-thirds of the market value of all publicly traded UK companies is not shown on the balance sheets because it is not in the tangible physical assets but in the intangible assets such as intellectual property. Many UK companies have moved intellectual property to the top of the economic value chain because patents and ideas are where the financial rewards are highest. Apart from patents, Sainsbury also see ethical trade as another key issue that must be addressed. Ethical trade is a fast growing field both in terms of interest and practice. It began with a socio-economic focus, but more recently has begun to adopt environmental criteria for measuring its impact on producers [23]. High profile ethical sourcing initiative such as the Ethical Trading Initiative (UK) make no mention of environmental standards, but several supermarket companies like Tesco supportive of these initiatives also monitor the environmental performance of their suppliers; for instance, through the Assured Produce scheme used in British agriculture and supported by many multiple retailers also involved in the Ethical Trading Initiative. For Sainsbury, ethical trade is a step on the path to sustainable development, and it therefore makes no sense for companies to concentrate on socio-economic conditions of production to the exclusion of environmental impact. It follows therefore that ethical trade should logically include initiatives with an environmental focus such as those for responsible forest management, organic agriculture and sustainable fisheries. That ethical trade should encompass socio-economic and environmental issues is further endorsed by contemporary business management theory which emphasises the triple bottom line of social, financial and environmental performance. For Sainsbury, whose work at supermarket franchise and financial institutions has been highly influential, this will allow their businesses to look beyond the immediate financial bottom-line and address issues of equity and futurity. Ethical trade today is a long way from addressing many of the issues surrounding sustainability which lie at the heart of such thinking. Indeed, rather than providing a definition of a particular approach to trade, ethical trade is best thought of in terms of scope; a term that brings together a variety of Sainsbury approaches affecting trade in goods and services produced under conditions that are socially and/or environmentally as well as financially responsible. 5. Adaptation of an alternative ethical stance The Management of Sainsbury currently reviews ethical thinking on a vital key issue relating to supermarket chain business and ethics. They formulate these issue in terms of alternative ethical stances: uniform versus double standards by comparing public and bakery worker risk. Utilitarian ethical theorists would be likely to sanction such a double standard (for supermarket workers and the public) on grounds of bakery efficiency, whereas egalitarians would be likely to oppose it, on the grounds that workers deserve protection equal to that accorded members of the public. The problem is that around one in ten supermarket bakery workers risk developing asthma by breathing in dust from flour and bread mixes. This number increases as the number of in-store bakeries grows. Flour and widely used baking additives such as the alpha-amylase enzyme were blamed for causing asthma-related symptoms, including chest tightness and wheezing, in 15 per cent of the bakery workers surveyed. A quarter of the workers interviewed also said that their eyes and noses became irritated whilst at work, indicating a high sensitivity to the ingredients which can increase the chances of developing asthma. Current research is being carried out to monitor bakery employees, including bakers, managers and assistants, representing 20 in-store bakeries belonging to Sainsbury supermarket chains. While bakers’ asthma is not a new phenomenon, this is not reported and less known among public households doing private bakeries. Hence, this is the first time a study has been conducted in supermarket bakeries. This is definitely a new occupational health issue and is especially important given the high and increasing proportion of baking that now takes place in Sainsbury. Sainsbury’s have complete on-site baking facilities as well as facilities for par-baked goods. The amount of baking from scratch has increased in the last 15 years as the retailer have moved into larger out-of-town stores capable of housing more equipment. In-store bakeries account for almost 20 per cent of the UK bread market. The utilitarian argument here is in favour of the double standard is that, all things being equal, because as a result of the risk of catching asthma, bakery workers receive slightly higher wages for so-called risky work, this compensating wage differential justifies their bearing greater risks than members of the public. According to the theory behind the differential, the riskier the occupation, the higher the wage required to compensate the worker for bearing the risk, all things being equal. Moreover, proponents of the double standard argue that imposition of the higher workplace hazards also is defensible because bakery workers have consented, with knowledge of the risks involved, to perform the work for the agreed-upon wage. Because this hazard is considerably new to the supermarket industry, it is quite difficult, ethically speaking, to justify the double standard of asthma protection for bakery workers, especially for workers who may not receive adequate compensation and liability protection due to health failures. 6. Some recommendations to improve as an effective corporate citizen Sainsbury has a long heritage, in UK, of earning the trust of their customers by acting responsibly in the communities in which they operate. Their customers and staff are their principal shareholders, and they are committed to regularly engaging with them. This is in line with their two principal company values of trying hard to consistently satisfy customers and secondly, to treat the public how they like to be treated as valued customers. They recognize their impact on society at all levels and work to maximize the benefits they bring. Their simple philosophy of every little help and commitment underpins these responsibilities. The best practice in corporate responsibility in the community can be further realized if Sainsbury plans to build several retail developments at specific areas around populated Counties in UK which is in line with the City Development Plans. Such an establishment can contribute to better retail infrastructures to meet the growing population. Majority if the areas surrounding the development may experience high levels of unemployment, which has had a detrimental impact on the economy at some sectors of UK. Part of their business expansion policy could be to employ the local people in all of their stores where possible, and they can therefore decide to engage with the local community groups to see if they could improve the employment opportunities in the area. For example, Sainsbury could begin working with some locally-based government-funded partnership development companies working with the community and local employers to create employment and training opportunities for people in many areas of UK. The programme had as its objective, that is, to provide an opportunity for disadvantaged/unemployed people living in the vicinity of populated Counties to access tailored pre-employment training which opens the door to a job with their local Sainsbury. The Sainsbury strategy is based on their core purpose is to create value for customers to earn their lifetime loyalty. It clearly makes sound business sense for us to create value for local communities by helping to regenerate the areas in which they live. Providing employment for local people will always be a priority for Sainsbury. The strategy is what customers want and it is good for the local economy as it attracts further investment, new services and ultimately more people/customers into the area. Other recommendations of CSR implementation could involve business and venture philanthropy. Venture philanthropy is a new form of charitable giving that has caused great interest mainly in the United States. At an early stage of Sainsbury CSR development and based on well established venture capitalist principles, it has the potential to revolutionize social practice. However, present developments suggest that venture philanthropy has some way to go before it becomes viable, complementing other more old-fashioned forms of charitable giving. As the influence of multinational corporations such as Sainsbury expands globally, pressure from media, consumer activists, pressure groups and ethical shareholder requirements is forcing the corporate sector to demonstrate responsible behaviour towards their workers, host communities and societies at large. Ensuring human rights are respected has become a key component of this pressure. In response, codes of conduct and voluntary standards have been set up, but are unlikely at present to be followed by legislation. Sainsbury’s Corporate Social Responsibility annual Report 2001 [11] covers issues ranging from local sourcing, environmental impacts of their stores, charitable giving, employee retention, to labour conditions in the supply chain. However, there is still much room for improvement as Sainsbury will be providing a useful chart showing where it has missed its Key Performance Indicators in CSR implementation, and explaining why it does not carry out certain functions. In future, other key improvements of Sainsburys CRS approach could include (i) integrity and assurance of products (social practices of supplies playing an important part), (ii) environmental impact of product and operations, (iii) improved health and safety practices and (iv) more specific roles in the community. 7. PART B: Critical Appraisal of Ethical Theories One ethical theory that is being widely used by J. Sainsbury plc is the Structuration ethical theory. This theory, developed by social theorist [7-9], has engendered an ethical literature of comment, critique and application [1, 19, 20]. Giddens work contains a moral dimension that can be useful to understand how ethical norms are constituted and reconstituted in an organization such as Sainsbury. Ethical acts are not solely dependent on the actions of the organization or the specific dilemma addressed. Rather, such acts are a function of an interrelated set of structures and organization and cannot be understood or significantly influenced without addressing the context within which they are formulated. Fig. 1 depicts the dimensions of Giddens theory of social responsibility systems. The theorys primary contribution is the recognition of the dynamic interaction between organization and human social structures. It is an integration of the existential humanist perspective of human beings as purposeful, wilful Sainsbury company acting and enacting their environment, and the structure perspective that views human action as determined by prevailing social structures [2]. Grounded in sociology, Giddens theory proposes three primary categories or properties of a social responsibility system: structure, modality, and interaction. Structures are rules and resources organized as properties of social responsibility systems. Modalities are the means by which structures are translated into action. Interaction is the action or activity instantiated by the Sainsbury company acting within the social responsibility system. Giddens proposes three types of structures: signification, domination and legitimating. Associated with each structure are mediating components, interpretative schemes, facilities for achieving goals, and norms whereby concepts embedded in the structure are given specificity by social responsibilities through application of the actors stocks of knowledge. The interaction of the Sainsbury and the structures results in action manifested as communication, power and/or sanctions. Structuration ethical theory is grounded in the duality of structure whereby social structures guide and provide the context for human organization and are recreated, and possibly changed, as a result of the actions carried out. As shown in Figure 2 below, structure has two components: rules and resources. Rules are seen as either being normative or interpretative. Normative rules represent structures of legitimating, that is, they are a matrix of admissible transformations that makes things seem correct or appropriate. The normative rules are translated and verbalized by social members in Sainsbury as specific rights and obligations (e.g., norms). The rights and obligations are accompanied by sanctions/rewards. The legal institutions of a society are an example of a legitimating social structure. The normative rules, such as privileging private property rights, are translated into laws directed against theft of private property which impose sanctions upon those members of society who act contrary to the rules/laws. Interpretative rules create signification or meaningful symbolic systems that provide ways for actors to see and interpret events. Responsibilities reflexively apply interpretative schemes and stocks of knowledge. The result is communication among the social members in Sainsbury. The signifying structure represents the general rules of language. The mediating dimensions are the syntax or grammars and semantics that give the language its specific form and meaning as well as the stocks of knowledge and experience of the Sainsbury members. The second primary component of structure is resources. Giddens identifies two categories of resources: allocate and authoritative. Allocate resources relate to material, or economic, resources such as materials, natural resources, etc. and result from human domination over nature. Authoritative resources are nonmaterial resources, such as human beings, and result from the dominations of some actors by others. These resources provide the means or facilities for realizing specific goals or social objectives. The realization of such goals results in the manifestation of power by those Sainsbury members controlling the resource. 8. Evaluation of Contemporary Developments in Ethical Theory Contemporary developments of ethical theory in the form of interacting modalities incorporate the notion that changes in ethical norms coincide with changes in interpretative schemes and access to resources. As discussed earlier, structuration ethical theory includes three major social structures: signification, domination, and legitimating. The legitimating component represents the structure underlying the development and enactment of ethical norms. Morals and sanctions are strongly integrated with structures of meaning and power. Audit ethics research treats ethical decision making as something separate from the distribution of power and the means of communication and, thus, generally fails to consider the precedents of ethical change. Ethical programs and behaviours purported to improve conduct are commonly prescribed, but rarely do the studies explore how these prescriptions come to be adopted. Structuration theory recognizes the structural properties of systems to be only analytically separable; thus as a result of the interacting modalities, changes in one element influence other systemic components. For example, symbolic orders or modes of discourse help determine the interpretative schemes auditors use to make sense of their work and the types of communication that take place. Through communication among auditors, new understandings are reached and resources allocated in a manner consistent with those new understandings. With the reallocation of resources come changes in the legitimacy of particular auditor behaviours which may initiate new norms and sanctions. For Sainsbury to adopt a stakeholder orientation, auditors must first come to the understanding that an enlightened stakeholder ethic is desirable and legitimate. Saisnbury bring their own experiences to bear on these decisions and look to others for confirmation of their beliefs. They engage in discourse regarding the importance and implications of the process change. Only when those in power come to some consensus can resources be allocated to accommodate stakeholder inclusion. Once the change is implemented, new norms must also develop regarding the manner in which profitability is weighed against other objectives such as customer service or, more generally, the public interest. The reallocation of resources alone cannot affect the actions of Sainsbury. Sainsbury must also come to believe that stakeholder input is important and that new sanctions for accommodating a broader constituency should be developed. New processes themselves can bring about further changes. Through communication with stakeholders, auditors may come to new understandings regarding the need for, and the consequences of, certain decision-making processes. Likewise, stakeholders may become more informed and supportive regarding the auditors strategic objectives. Through discourse among the various stakeholder groups, members may develop common signification structures as stocks of knowledge and interpretations of individual group members are shared. The interaction may also lead to shared legitimating structures as each member brings a unique moral perspective and set of ethical norms. Giddens work points out that ethical change cannot be made independently. Structures of power and meaning both influence and are influenced by ethical norms and behaviours. Understanding the interactive nature of these structures helps lay a foundation for understanding and enacting change. REFERENCES [1] Clark, J., C. Modgill, and S. Modgill. (1990). Anthony Giddens: Consensus and Controversy. London: The Falmer Press. [2] Dillard, J. (1996). Organizational sociology and accounting information systems research. Advances in Accounting Information Systems, (4) 333-349. [3] Donaldson, T. and Preston, L. (1995). 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