Corporate Governance & Social Responsibility - Report Example

Heading:  Corporate Governance & Social Responsibility Your name: Course name: Professors’ name: Date: Executive Summary This analysis focuses in the relevance of corporate governance and corporate social responsibility (CSR) with specific reference of international companies. Corporate governance deals with the management and efficiency principles while CSR deals with fairness and the role of an organization in the social society through actions such as environmental conservation. As noted there is an increase in the awareness of the need to increase firms CSR and corporate governance internationally. Issues addressed in determining this includes economic, social, cultural, legal and technological perspectives. Strategic issues in the CSR perspective that are foundational details of this implementation process are expounded in details in this paper through an analysis of the four main pillars and statistical aspects of the CSR implications. These issues shade more light on international perspective of CSR and the implications of CSR to different companies cited in the paper. The recommendations provided are also imperative in the course of enhancing a CSR sensitive world through establishment of corporations that are well versed with the need to foster CSR and corporate governance. Table of Contents Executive Summary 3 Introduction 5 Why international firms are showing interest in CSR and Corporate governance 6 Economic 6 Social 7 Cultural 7 Legal reasons 8 Technological 8 Environmental 9 Strategic issues involved in addressing CSR 9 Recommendation 11 Conclusion 12 Introduction Corporate governance involves efficiency principles while Corporate Social Responsibility is usually linked with fairness and the role of an organization in the social society through actions such as environmental conservation. Corporate social responsibility (CSR) can also refer to a voluntary undertaking of a business organization to manage its affairs in the most responsible manner. Responsibility in this case is to the stakeholders (Mullerat 2005). Stakeholders are those that the organization has any form of relationship or impact. Most business organizations formulate CSR values and principles which are reflected in the organization’s policies, practices and decision making processes at all levels in the hierarchy of responsibility within the organization (Porter & Kramer 2006). Therefore, CSR is implemented directly through corporate management policies and governance Thus, corporate governance is the tool behind implementation of CSR in the day to day activities. According to Strandberg (2005, p.4) Corporate governance however refers to the broader sense of how investors and other stakeholder interests are fulfilled through use of a broad range of policies and practices which outline how stakeholders, executive managers, and boards of directors manage themselves. CSR undertaking forms part of any business organization operating either locally or at international levels. Even though this idea is up and running in most organizations, involvement of the organization or its stakeholders in unethical and unwarranted conduct is not an uncommon phenomenon (Aras & Crowther 2010). This has raised concerns on the effectiveness of the now universally accepted element in the corporate world. This paper addresses issues of CSR and corporate governance through analysis of the reasons behind international firms showing interest in CSR and corporate governance. Issues addressed in determining this includes economic, social, cultural, legal and technological perspectives. Strategic issues involved in addressing CSR are also analyzed in this paper in order to shade more light on international perspective of CSR and the implications of CSR to different companies cited in the paper. Why international firms are showing interest in CSR and Corporate governance Even though the business benefits gained cannot be quantified, there are notable positive effects of embracing this business element. Most organizations are adopting this strategy partly because they stand to reap great business benefits (Mullerat 2005, p.3). The benefits may not be in monetary terms but may act as a way of boosting financial gains of the corporation either immediately or in the future. Economic All organizations are concerned about building their reputation and standing among customers who are the most important asset of business. Through engaging in CSR programs, an organization creates a lasting impression on the customers (Johnson & Johnson 2002, p.13). Issues like climatic changes, global poverty, and security are issue attracting the global attention. A business organization would endeavor to associate itself with such like issues by initiating projects which try to solve these issues. This helps to enhance brand differentiation and hence strategically position its products within the market. Brand differentiation is very crucial in managing competition from related products. Businesses are recognizing that adopting an effective approach to CSR can reduce risk of business disruptions, open up new opportunities, and enhance brand and company reputation. Social There are a number of social issues that interact with international companies operations, human rights for instance interact with international firms operations. As an example, in China there are many local and international firms that are mainly manufacturing companies doing business in the country. The emissions of these companies have not only caused concern to the local Chinese people but also the entire international community. The consequences of continued emissions of carbon related by products leads to increased global warming which translates to low crop yield and increased spread of diseases as a result of the favorable environment. This is why most international firms are paying more attention to CSR and corporate governance as a way of alleviating further emissions given the life cycle of carbon in the atmosphere responsible for creating greenhouse effect. Cultural Cultures varies with regions, sensitivity to different cultures is one aspect that is indispensible to international firms. The rationale for this is because if a firm needs to be sustainable, it must closely integrate with the culture of the foreign country (Strandberg 2005, p.3). As an example, a pork manufacturing company cannot establish its operations in any Arabic state because of the cultural conflict that exist. Arab’s culture detests any pig meat because of their culture. An international firm that deals with cloth manufacture cannot also manufacture western style of cloths in Arabic countries because of the deeply rooted culture based on the Muslim religion, it will thus be appropriate for the firm to manufacture cloths that are only relevant to Islam countries. Legal reasons One way of demonstrating CSR and corporate governance as an international company is through complying with regulations and statutory provisions of the host country. United Nations and International Labor Organizations have a well structured framework for international organizations (Matten & Chapple 2003, p. 109). There are also a number of different legal restrictions that international firms face in different regions in the world. It is the obligation of these firms to ensure that they meet all the legal processes of the host country not only to be in a position to provide its services in the country but also to promote its image internationally. Technological Dissemination of information has been enhanced through the improvement of technological evolution. International firms are thus optimizing on technology and its ability to spread information to optimize on their CSR and corporate governance. For instance, Johns & Johns strategies of Credo has been largely disseminated by the internet and the media in general. International firms in Countries like China have taken advantage to show how political influence is affecting international firms in the country (Aras & Crowther 2010, p.7). Environmental According to Akerstrom (2009, p.25) as one of the key issues of CSR, environment is often considered by international firms while setting up their businesses abroad. With the increase in global concern about the ever increasing carbon related emissions to the environment, international firms are becoming more aware of the need to reduce its emissions to the atmosphere. Toyota, a Japanese company manufactured Prius Hybrid car which used environment sensitive fuel demonstrated the essence of environment sensitivity in a corporate perspective. Johnsons & Johnsons also demonstrated the need to be sensitive to the environment by reacting to its issues in early 80’s when its drugs caused some health concerns. Johnsons & Johnsons are also environment sensitive based on the fact that they spend most of their revenues in environment conservation. Strategic issues involved in addressing CSR According to Porter & Kramer (2006) there are several perspectives of incorporating CSR into the business process of an organization. For a company to be strategic in its niche especially in the increasing globalization, a holistic view of the incorporating CSR to the business process is indispensible. There are four fundamental pillar of strategic CSR namely CSR perspective, stakeholders’ perspective, core firms operations, and short to long term strategy. The integrations of these four pillars form the foundation of daily functions of a company in terms of strategic plan. CSR perspective is one of the four issues which involve integration of social aspect to the strategic decision making. The fundamental framework for this pillar involves the interaction of issues that are of concern to the society as well as issues that concern the firm (Brown 2007, p.23). There are three levels in this interaction as follows i. Social issues which are generic or indirectly related to the firms core operations ii. Social impacts value chain which defines the limit at which the society influences the society. iii. Competitive context of social dimensions which implies the limit at which the environment affects the operations of a firm. Stakeholder’s perspective is a strategy that shows significant CSR in the sense that the company’s shareholders are given the last priority while the customers are given the first. A good example of such company is Johnson & Johnson which formulated Credo, a famous stakeholder’s perspective that prioritizes customers, employees, suppliers, distributors in place of stakeholders (Solomon 2007). Core firms operations involves the internal operations of a firm that may or may not influence the outside environment in the sense that if a company is a manufacturing company, its wastes should be well managed in order to avoid any possible effects on the environment. Core operations also include its hiring of employees, in an international perspective, it would be more reasonable for a firm to train employee the locals instead of seeking its human capital in its native country. As shown in figure 1 in the appendix, Bosch Corporation has a well developed internal framework that handles environmental issues through protections cost which amounts to 100.8 million Euros (Bosch 2008, p.9). The company spent a larger percentage of its expenditure of management of waste, water and soil. Some of the key environmental issues that the company achieved in 2008 include protection of water and soil, management of waste, air purification, abatement of noise and remediation of soil. As stated by Bosch (2008, p.9) the company also developed a better framework for handling operations related to fire and rescue as shown in figure 2 in the appendix. The largest investments went to technical assistance (4387), followed by false alarms (4299), then ambulance services (2960) and lastly fires (643). As evident in these statistical findings, Bosch Corporation maximizes on CSR to achieve its competitive advantage. Short term to long term perspective mainly focuses on the handling of the company’s key resources with consideration of its stakeholders over short term to long term (Berkhout 2005, p.21). In order for the business to remain relevant in its market niche, it is obliged to satisfy these key groups of people that can change the fate of the company in the long run. Organizations should be in a position to balance the interest of conflicting parties in order to remain relevant. These conflicts may occur as a result of varying definitions of what is acknowledged as acceptable performance level. Recommendation Corporate governance and social responsibility is slowly becoming a competitive advantage and hence more international companies are adhering to the regulations demanded by CSR and corporate governance. The legal process in all countries should therefore be is a position to help with this implementation process by incorporating CSR and corporate governance to their core legal process before a company establishes itself in the country. This will important in the sense that increased environmental sensitivity and increased social responsibility will be achieved. CSR fundamental roles should also be acknowledged beyond publishing success reports on the same. The CSR programs should be intertwined with the core business motive not simply by making it an add-on. The government should encourage all corporate organizations to carry out some audit on how much they have contributed to society. This would form the basis for yearning for better results in future. To enhance competition on who is better in serving the society would boost the performance of corporate organizations. Since some irresponsible corporate organizations have proofed to be more concerned about business and are ready to involve in unscrupulous business ventures, there should be more regulation. Regulation of CSR management would ensure clear definition of the motive behind a CSR program. This would ensure more responsible corporate enterprise CSR programs and favorable business ventures. The reaction of Toyota its Prius hybrid brand with faulty brake system was a clear indication on why it is necessary for a company to fully adhere to regulations established within the CSR and corporate governance. Conclusion This paper has highlighted some of the major CSR and corporate governance issues, the main finding is the fact that CSR is slowly being considered as a major competitive advantage which firms can use to attract its clientele, some of the major factors include economic, social, cultural, legal, technological and environmental. The four pillars which are CSR perspective, stakeholders’ perspective, core firms operations, and short to long term strategy are considered the major strategic CSR issues. CSR programs which are highly recognizable throughout the firm influence the business strategy and consequently result in high score on CSR management. There is a thin line between corporate governance and corporate social responsibility but they work jointly in a firm’s perspective as analyzed in this paper. A high score on CSR management has great implications on the corporate organization, including financial, be it in the current or in the future prosperity of the organization. There is a prospect of better CSR management by corporate organizations in the future as CSR issue are more likely to be part and parcel of boardroom decisions. This would be driven by the realization of the interrelationship between the business goals and CSR. The stakeholders are is likely to influence business decisions more at the conscious and sub conscious levels. There is a specific emphasis by organizations to implement corporate social responsibility programs which are in line with the business strategy. There are clear drawn boundaries of the extent of responsibility an organization can voluntarily take responsibility for. A company is unlikely to be so generous as to spend in areas which would not directly improve its standing in the business circles. Read More