Corporate GV

7/27/2019 Corporate GV

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Corporate business ethics and governanceSep-2009

Q9. Corporate governance and ethics relate closely to conformance. What is the

relationship, if any between conformance and performance in organizations?

Oct-2008

Q8. (i) Distinguish between corporate philanthropy (An activity performed with the goal

of promoting the well-being of fellow man) and strategic CSR

(ii) Is the latter driven by self-interest, and hence, defeating the very spirit of social-

giving? Discuss.

Simply put, ethics involves learning what is right or wrong, and then doing the right thing --

but "the right thing" is not nearly as straightforward as conveyed in a great deal of business

ethics literature.

Many ethicists assert there's always a right thing to do based on moral principle, and others

believe the right thing to do depends on the situation -- ultimately it's up to the individual.

Who's responsible for acting ethically? It isn't the "company." It isn't just the business owner.

It isn't only your manager. It is every person. Ultimately, each of us is responsible for our

own actions, including being ethical.Many philosophers consider ethics to be the "science of conduct. Many religious leaders

including Buddha have preached on ethics. What becomes an ethical guideline today is often

translated to a law, regulation or rule tomorrow. Respect, honesty, fairness, responsibility, etc

are moral values which guide how we ought to behave. Statements around how these values

are applied are sometimes called moral or ethical principles.

Also one society may accept some behavior/acts as ethical while one may not and therefore

ethics could vary based on the common acceptance of a society and may not be influenced

only by the personal behavior or believes. For example abortion may be not be accepted in

Asian countries while the American and Europeans may have a different school of thoughts

on the matter on a social angle. Same goes for many social issues like marriage , bringing up

a girl or the womens role in society etc.


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In the context of the corporate world where we are interested in the issue of what are

business ethics and how ethics should be followed there is no clear moral compass to guide

leaders through complex dilemmas about what is right or wrong. Attention to ethics in the

workplace sensitizes leaders and staff to how they should act. Perhaps most important,

attention to ethics in the workplaces helps ensure that when leaders and managers are

struggling in times of crisis and confusion, they retain a strong moral compass. However,

attention to business ethics provides numerous other benefits, as well

Many global businesses, including most of the major brands that the public use, can be seen

not to think too highly of good business ethics. Many major brands have been fined millions

for breaking ethical business laws.

[1] Law suit against Coca Cola on fraud in a market study conducted on behalf of Burger

King. In the market test for frozen Coke, Coca Cola exaggerated sales in the market test. To

settle the dispute Coca Cola paid $21 million to burger king.

[2] Coca Cola was again alleged by US SEC on overstating sales by shipping extra beverage

concentrate to bottlers. [3] Recently bottlers who are retailers of Coca Cola sued on directly

sending powdered product to Wall Mart as it was violation of their contacts.

[4] Radio Shacks CEO resigned for lying on his resume.

[5] Nike offshore manufacturers were having low wage rates and labour practices. Nike

refuses to accept the responsibility on offshore manufacturers activities. But due to public

boycotting Nike implement fare trade terms on their offshore manufacturers.

-Oxley compliance requirement.-NASDAQ

requirement

Today, ethics in the workplace can be managed through use of codes of ethics, codes of

conduct, roles of ethicists and ethics committees, policies and procedures, procedures to

resolve ethical dilemmas, ethics training, etc.


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Thus it is important to have a system which controls these ethical issues. The formal system

of accountability and control of ethical and socially responsible behavior is corporate

governance.

Corporate governance is a term that refers broadly to the rules, policies, processes, or laws

by which businesses are operated, regulated, and controlled.

The stakeholder framework is the combination of internal and external stakeholders. It is

important as business is running on the relationship instakeholder framework.

Primary stakeholders: whose existence is absolutely necessary for the continuity of the

business (employees, investors, customers and Government, etc).

Secondary stakeholders: Dont directly deal with company on regular basis (eg: Media,

Trade Associations etc). While primary stakeholders are important on business decision

making process the secondary stakeholders are also important in ethical decision making

process.

Agency theory and agency Cost

An important theme of corporate governance is to ensure the accountability of certain

individuals and corporate transparency in an organization through mechanisms that try to

reduce or eliminate the principal-agent problem.

A well-defined and enforced corporate governance provides a structure that works for the

benefit of everyone concerned by ensuring that the enterprise adheres to accepted ethical

standards and best practices as well as to formal laws.

The following list describes various types of benefits from good corporate governance

1. Attention to business ethics has substantially improved society at large Non recruitment

of child labor, installation of water systems, management of waste disposal, Concern for

pollution (carbon footprint) and more eco friendly investments are pursued. Research on

renewable energy etc


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2. Corporate governance serving as a moral compass in turbulent times/ fundamental change.

leaders and staff are guided to act consistently.

3. Ethics programs cultivate strong teamwork and productivity - Ongoing attention and

dialogue regarding values in the workplace builds openness, integrity and community.

Employees feel strong alignment between their values and those of the organization. They

react with strong motivation and performance.

4. Ethics programs support employee growth and meaning - legitimizes managerial actions,

strengthens the coherence and balance of the organizations culture, improves trust in

relationships between individuals and groups, supports greater consistency in standards and

qualities of products, and cultivates greater sensitivity to the impact of the enterprises values

and messages.

5. Ethics programs are an insurance policy -- they help ensure that policies are legal

7.Ethics programs help avoid criminal acts of omission and can lower fines.

8.Ethics programs promote a strong public image

CSR

Business ethics has come to be considered a management discipline, especially since the

birth of the social responsibility movement in the 1960s. In that decade, social awareness

movements raised expectations of businesses to use their massive financial and social

influence to address social problems such as poverty, crime, environmental protection, equal

rights, public health and improving education. An increasing number of people asserted that

because businesses were making a profit from using our country's resources, these businessesowed it to our country to work to improve society. Many researchers, business schools and

managers have recognized this broader constituency, and in their planning and operations

have replaced the word "stockholder" with "stakeholder," meaning to include employees,

customers, suppliers and the wider community.


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It has been argued that the dominant perception of both CSR and CG, especially in the

developing countries is one which treats them as nice to do endeavors, in which costs do

not typically outweigh their benefits to the organization. Consequently, many corporations

have either failed to pursue both CSR and CG with the purpose and rigor (firmness) they

deserve, or approach them in a way that is markedly disconnected with business and strategy,

i.e. as a purely philanthropic endeavour. If CSR and CG, as it impacts on society, are seen as

an activity that incurs costs that outweigh benefits to the corporation, then, such activity will

be carried out, either because they are mandatory, as enforced by a regulatory authority, or

out of a sense of sympathy with a social cause, leading to charitable action and philanthropy.

It is argued that such must do actions, compelled by regulation or feel good initiatives,

propelled (pushed) by a sense of compassion, in the name of CSR will, at best, remain in the

fringes of corporate endeavor. Moreover, such attempts at CSR are extremely unlikely to

stand the test of time. CSR activity of corporations that does not take the centre stage, and

remain incidental and unconnected to its core business, are likely to die slowly, but surely.

It is argued that CSR (including the social benefits of CG), and its relationship with business

the strategy/society duality takes four distinct forms or levels.


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RCCL1

At Level One, the corporation takes two positions.

First, it does not want to take deliberate action towards Not taking anything away from

society (including the environment the people and the planet). Such action is exemplified

in the non recruitment of child labor and the installation of water systems, management of

waste disposal and environmental degradation. Here, corporations adopt damage control

measures to minimize or mitigate harmful effects on people and the planet.

Second, the Responsible Corporate Citizen may attempt to Give something back to society,

in the belief that it takes a great deal from society, in the form of resources and markets. The

company believes that it is only right that some of the bounty is given back, for good

measure. Such an intent leads to charity and philanthropy. Importantly, the Responsible

Corporate Citizen is giving without the manifest intent of being compensated for such

giving. It is an attempt at doinggood and being responsible.

CRM:L2

At Level 2, the corporation does give something of value to society. It is about doing

good, but with a sharp eye on getting back value for the corporation. Cause-Related

Marketing (CRM) emerged as a veritable (absolute) tool of Marketing Communication in the

early 1980s. Cause- Related Marketing, placed within the larger context of societal

marketing, attempts to embrace the consumers interests and well-being, rather than mere

customer needs and desires.

The phrase Cause-Related Marketing was first used by American Express in 1983 to

describe its campaign to raise money for the restoration of the Statue of Liberty. American

Express made a one cent donation to the Statue of Liberty every time someone used its

charge card; the number of new card holders soon grew by 45%, and card usage increased by

28%. The possible benefits of cause-marketing for business include positive public relations,

improved customer relations, and additional marketing opportunities. Cause-Related

Marketing, as is evident, attempts to integrate its CRM activity with the corporations

business strategy. However, its scope remains essentially in the domain of Public Relations

and Marketing Communication. The principal outcome of CRM is the shaping of a favorable


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image of the corporation in the eyes of customers and other stakeholders, thereby raising its

profile.

Strategic CSR:At Level Three, Strategic CSR activity is integrated with the corporations business strategy,

which goes beyond its Public Relations and Marketing Communication activity. Strategic

CSR moves beyond good corporate citizenship or (RCC) behavior, as it has an eye on

getting something back from what it gives, in a way that reinforces the strategic position of

the corporation in a competitive context.

Cargills Food City, a chain of supermarkets in Sri Lanka, improves its competitive context by

working closely with farmer communities that supply fruits, vegetables, spices, and rice tothe chain. It typically pays 20% more than the market does, and importantly, guarantees a

minimum, threshold price in order to cushion downward price movements in the market.

Process inputs such as drip irrigation systems and collection centers are provided by Food

City. Moreover, it underwrites loans granted by banks, and facilitates collaborative

arrangements a number of NGOs have with the farmers, in setting up cleaning and packaging

centers. Clearly, these CSR efforts benefit rural communities, in as much as they help the

company to improve its competitive context.

Strategic CSR, unlike Cause-Related Marketing (CRM), gives to society and also gets

from it, and importantly improves the corporations competitive context. Clearly, strategic

CSR is not the business of the corporation. It is incidental to its business, but the CSR

activity is neatly integrated with the business.

SRB

If the CSR activity of a business is the very purpose of its existence, not just being incidental,

but central to it, then, it is argued that such a corporation is engaged in Socially Responsible

Business (SRB). Here, the paradigm of giving to get, as in the case of CauseRelated

Marketing and Strategic CSR is transcended by the paradigm of doing andgetting- doing

business that is socially beneficial, which is not merely incidental and integrated, but the

very centre, the core of it. Indeed, SRB is largely about creating market space itself. The fact


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that such business activity helps the organization to get in terms of return on capital

employed is not certainly missed. It is very much a part of the business model, that includes

both value chain activity and markets. A formal definition of SRB that will help better

appreciate the difference between strategic CSR and SRB is as follows: The aim of SRB is to

profitably serve the socio-economically disadvantaged people, in an environmentally-

friendly manner, through innovative products and services that are financed, sourced,

processed, delivered, communicated, and priced, keeping in mind the constraints and

limitations of the end beneficiaries. SRB can be contrasted with good Corporate Citizenship

(CC) and CauseRelated Marketing/Strategic CSR. Serving the worlds poor constitutes a

vivid example of SRB.

A corporations strategy and its adoption inevitably impacts on its multiple environments

the society. Formulating strategy and implementing it with an eye on possible social impacts

constitute responsible behaviour on the part of the corporation. The conceptualization of

Socially Responsible Business (SRB) is, it argued, a logical extension of the discussion on

the corporations need to be responsible in its behaviour. SRB is unique because the very

purpose of doing business is inextricably linked to social responsibility, to the extent that

attempts at CSR become entirely superfluous. Not all businesses and organisations will find

SRB attractive and indeed, relevant. But those who do find SRB as its central not incidental

(though integral) activity will have the unique satisfaction of doing good, being the very

pith and substance of its business; indeed, its very purpose.


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