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The perceptivity of sustainability is both in the sense of achieving long-term success and as survivability of a corporation (Zink, Steimle & Fischer 2008,). Dunphy, Griffiths and Benn (2003) conceive corporations as channels of social purpose, constructed within society to attain useful social objectives. Henceforth, corporate social responsibility commits a significant role towards the sustainability of corporations. Both corporate social responsibilities and sustainability, and its related concepts influence all aspects of business. Chandler and Werther (2010) acknowledge the understanding of corporate social responsibilities as an aim to define the future of our society.
However, the apprehension of corporate social responsibility determines the corporate governances. As the question arises, does practicing stakeholder management aid corporations to be more sustainable? In this essay, classical and contemporary view of corporate social responsibilities will be put into discussion before coming to a conclusion. In addition, theoretical frameworks and real world corporate cases will be reason about in the respective governances.
Classical View on Corporate Social Responsibilities
“The only social responsibility of business is to maximise profits”
– Friedman’s frequent saying.
In reference to Friedman’s classical view, the purposes for business to exist are for distributing products and services to society, and thereafter, for creating economic value which subsequently generate profits for shareholders. Keinert (2008) trusts that the mangers are in control to maximise these revenue for shareholders, obligate by the employment contract as an agents for the shareholders of the firm, the principals. It is also emphasised by Zu (2008) that for classical management corporation has no interest in looking beyond profit maximization, with the exception of profit benefit activity. In another words, the primary goal of business is profit, while corporate social responsibilities and ethical custom deem secondary. Nestle, Walmart, FordMotor, and Microsoft, sadly, are one of those big companies who practice this.
Walmart, one of the biggest and well-known companies worldwide, has a record of relentless violated the right of its US workers and exploited the weak US labour laws thwarts union formation, child slave labour and even broken the environmental laws.
Funds were invested to prevent employees from protesting their right due to the reduction of insignificant take-home pay and working overtime for zero pay. Employees and managers were brainwashed to oppose union from the moment they were employed. Surveillance, rapid response team and undercover spy were funded to monitor any union formation. [Appendix 1] Suppliers of Walmart were pushed to neck up on their wholesale prices. Child slave labour was happening in its manufacturing facilities abroad. [Appendix 2] The environment friendly campaigns involved were all a fraud. [Appendix 3] In 2008, Walwart admitted as much but provided limited responses however continued its public relation effort.
With the underlying of agency theory, principal-agent framework is popularly used in many corporations including Walmart. The principal usually offers incentives to the agent to stimulate them to act upon principal’s best interest. The practice of agency theory is constructive as many big companies have successfully climbed up the rank worldwide.
The problem with principal-agent framework is that agent sometimes practice discretion to maximize their own advantage rather than of the principal. However, usually, agency cost motivates the agent upon acting on behalf for the principal such as monitoring costs, bonding cost and residual loss. With Walmart’s bonding contracts, most employees were in dilemma. In Friedman argument, he claims that owners may establish objectives apart from profit maximization; one example would be taking away money from its stockholders, employees or even customers. (Crane et al 2008) Despite over three hundreds billion in revenue and over ten billion in profits in 2007, Walmart with the conception to provide the best for consumers, dismissed the ethical customs towards its employees and stockholders. On top of that, in order to build its reputation, environmental concerns claimed were put aside.
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Though, Walmart is now sustainable and has picked up itself since then, consumers are still very concern and protesting against Walmart’s corporate social responsibility.
Contemporary View on Corporate Social Responsibilities
The success of the corporation in corporate social responsibilities demonstrates how well it has been able to influence stakeholder concerns while executing its business model. Carroll relates corporate social responsibility into a four level pyramid – economic, legal, ethical and philanthropic responsibility, where his viewpoint is a hybrid between the classical and stakeholder view on corporate social responsibilities. (Chandler & Werther 2010)
Abreast the economic basis of activity, corporations are enacting similarly in Friedman’s theory. Moving up the pyramid, the legal responsibility is its duty to respond within the legal framework. Stakeholders would further anticipate corporations into fulfilling its ethical responsibilities. Lastly, under the philanthropic responsibility, corporations have become more proactive and enforcing strategic means that can benefit both the corporation and stakeholders. (Keinert 2008)
However, with the ever outdated laws, will legal responsibility be accounted for when this happens? Or with ethical debates not written in black and white legible? Are strategic means that benefit stakeholders are done with obligation? And with ‘knowing ethic’ and ‘doing ethic’ does not comes together. Questions like these arise; there is no one who can answer it. Corporations, like Hitachi, who practises under Carroll’s pyramid, might sometimes, deem to have hidden agenda behind the good intention.
The corporation was awarded by the non-profit Social Innovation Japan and supported by the Ministry of the Environment, also honoured with a Social Business Award. Concurrently, while in developing a tractor that could neutralises landmines and cultivates land, Cambodia was affected by the post-war. This further benefits the product. The machines were placed in affected population by mine camps to curtail critical injuries and deaths, while prepares land for their own sustainable futures. [Appendix 8] Despite being awarded, Hitachi was found below social responsibility examination standard. [Appendix 9]
Stakeholder View on Corporate Social Responsibilities
An effective stakeholder management present a clear synopsis of societal expectations and a concrete foundation for a distinct and legitimate corporate social responsibility approach (Louche & Baeten 2006). Freeman relates stakeholders with business and stakeholders with ethics as they come together as the same thing. He emphasises on the fundamental human connection with the stakeholders, and it is a duty to take the effects of the business on stakeholders into consideration. (Stakeholders Are People 2009) Corporations are usually described as interconnected interest group, also known as ecosystem concept. UPS, Starbucks, Disney and Marks & Spencer are the few sincere corporations that have strong believe and practice in corporate social responsibilities.
United Parcel Service (UPS)
According to CNN Money, UPS has been on Fortune’s Most Admired list of top ten socially responsible firms for three consecutive years. (Gunther 2006) Beside heavily involve in global economy, with great corporate social responsibilities, UPS has been awarded with plenty of commitments towards its people and the environment as well. [Appendix 4]
Many employees settle in UPS for more than 30 years regardless of their position as a driver or in the office. Many of them are immigrants and the poor, and some join after high school or college. Employees are provided with good pay, health-care benefits, tuition assistance, stock purchase plan, a chance to advance and a share sense of purpose. Above all, the most recent, UPS supported numerals organizations towards humanitarian relief and road safety initiatives by awarding grants from The UPS Foundation. [Appendix 5] Beside, in UPS, employees are encouraged to volunteer and make a difference in their communities. [Appendix 6] At the same time, UPS was awarded being the first in its industry with Leadership in Energy and Environmental Design’s Gold Status and Energy Star Certification. [Appendix 7] UPS has shown a consistent stakeholder practice towards corporate social responsibilities.
With underlying of stakeholder theory, it can accumulate future development of corporate social responsibility by determining and integrating financial and social concerns. In Freeman’s view, the intention will be better served and satisfied if corporations were to think about stakeholders. Given the interrelationship with its stakeholders, UPS has shown great ability in responding effectively toward the stakeholders. (Freeman et al 2010) With UPS case, we can see that UPS has successfully sustained itself with the management of stakeholders.
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Utilitarian believes stakeholder management leads to the best consequences as it acknowledges stakeholders interests. However, Banerjee (2007) doubts the capability of stakeholder management due to its one-dimension and emphasising on utilitarian power withal ignoring the mechanisms that form and transform economic and social domains.
In Kantianism argument, considering of stakeholder and using of the individuals within the stakeholder are two different things. In another words, to use stakeholders to increase shareholder revenue would be ethically wrong. (Cooper 2004) In Kantianism term, questions arise, such as are the employees volunteering their hours willing or are they obligated to do so?
In the debates about corporate social responsibility, Justice Ethic believes ethical responsibilities are not defined by the efforts of the righteousness in economic and legal terms, but in the pursuit of voluntary measurements of individual character. (Rendtorff 2009) In other words, the business virtues of UPS, are they formed to create stakeholder values?
While there is increasing agreement that businesses need to embrace sustainability, research in the theories above, stakeholder management has proven to be more sustainable in the global economic landscape.
Freeman believes each of the stakeholders has a right not to be accounted for compromising end, and hence stakeholder participation is essential in order to determine the future direction of corporation. As each category group places a major part in each other in term of harms and benefits as well as rights and duties.
In return for labour, employees are given job security, wages, medical benefits, and meaningful work.
By addressing toward consumers’ needs and satisfactions, corporate governance immediately satisfies the need of suppliers and shareholders. Usually the ethical of excellent consumer services and products carry over to the community resulting in good reputation.
Stakeholder theory above proves to be a useful tool to assist a broad range of corporations to develop their sustainability portfolio and consistently create sustainability value in a long run.
Corporations exist in a sustainable model that enable people to effectively practice their expertise and create jobs, economic value and wealth for the society and the corporation.
With globalisation, corporate governance can have a huge impact on the society. Examples of Walmart and Hitachi showing their irresponsible ways of governance, with agency theory and stewardship theory lead to a bad reputation. Corporations are urging to reposition themselves towards a sustainable value portfolio and making stakeholder theory seems to be the most effective instrument to ensure strategic sustainability.
Pursuing the expanding frontier of corporate governance as social responsibility, with the effectiveness of stakeholder management within corporate governance, it may generate a more equitable global business environment.
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