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What is a Responsible Enterprise?

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Published: Wed, 13 Sep 2017

The purpose of this essay is to effectively communicate what constitutes a responsible enterprise. Throughout this essay, the aim is to discuss the changing role of business. Firstly, this essay aims to identify the key global economic and environmental challenges that we face. It will then proceed to set out the understanding of the phrase ‘responsible enterprise,’ and how acknowledging, understanding and implementing responsible enterprise values and strategies might help address those challenges. It will then proceed to look at the roles and responsibilities of government and non-profit organisations and suggest why greater collaboration between business, government & non-profits might be necessary in order to responsibly tackle the challenges that face us. Finally, it will synthesise the contents of the essay and conclude on the global challenges.

The criterion of sustainability integrate three firmly interlinked elements: economic, environmental and social, and when successfully combined can lead to long lasting sustainability (Sheehan, 2009). Elkington (1997) proposed the triple bottom line in relation to sustainability, coining together the term ‘people, planet, profit.’ (Elkington, 1997). The concept of responsible enterprise has a fundamental problem, as people and businesses conceptualise the planet as having abundant resources, hence leading people to believe that economic expansion has countless possibilities (Wadham, 2016). The responsibility does not solely reside with one party, but is contributed to by business, consumers and government. If the efforts of these people are successfully integrated, this triad can shape society (Wetherly and Otter, 2011). With the current status of the world, there are an inordinate amount of challenges that are faced as a global society. This essay will cover two in particular, in relation to the pillars of sustainability.

The first pillar of sustainability is economic. The need for a favourable economic environment is important for businesses and their ability to grow dynamically. In addition to this, stability enhances the external economic environment in a fortunate way for companies as it creates certainty (Wetherly and Otter, 2014). However, due to the global financial crisis of 2008, uncertainty was spread worldwide and the ripples caused nine years ago are still subsiding. Economists failed to perceive the downfall of the US sub-prime mortgage market and were collectively blamed for starting a global economic crisis (Pettifor, 2017). Being such a wide scale catastrophe, starting with the superpower, a domino effect proceeded worldwide. One such effect had the International labour market describing it as a ‘global job crisis’ (Shah, 2013). Jobs were cut as employers could not afford to keep them on, as a result people cut back on expenditure and stopped spending as much money which caused businesses to suffer further. This caused a rift in the business market. It also meant developing countries who were finally improving, were knocked backed once again. As the crisis, caused food prices to rise, commodity prices are fuel prices to soar.

Though the immediate focus of this essay is not on the social aspect of sustainably, it has just as much importance. It involves allowing natural communities and individuals to flourish in the present and future. It is a concept that aims to maximise community assets (Georgia Tech, no date). One key global challenge in relation to this, is the water crisis. Due to bad economics and infrastructure, people are dying, in the millions, from inadequate supplies. It affects a shockingly 40% of the world’s population and is increasing (The Water Project, 2016).

Completing the triad, is environmental impact and it is becoming more apparent that acknowledging business impact is essential. A sustainable business pertains to organisations efforts for creating human benefits in relation to harmonizing their environmental aspects against their criteria with government and society (Crosbie and Knight, 1995). One major challenge that has created awareness is Climate Change. Involving shifting and uncreditable weather patterns that threaten production of food, to problems such as calamitous flooding due to rising sea levels. (United Nation, 2016). As a result, the impacts of climate change are catalysing negative impacts on the environment. In efforts to control environmental impact, The Paris Climate Change Agreement, made it a requirement for both developed and developing countries to limit their emissions to safe levels, by regularly reviewing their activity (United Nation, 2012). However, in terms of business it was found that only 37% of the world’s biggest companies were reporting complete data on greenhouse gas emissions (The Climate Group, 2013). This inhibits the full impact they could have and questions how responsible they are.

With responsible enterprise being such a complex phenomenon, there is no consensus, thus no singular definition. The diverse interpretations encompass various concepts including corporate social responsibility (CSR), sustainability and corporate citizenship. Responsible enterprise as a whole is defined as when companies “operationalise their corporate responsibilities in all of their strategies and business practices by developing relationships with stakeholders and by working to maximise sustainability of the natural environment.” (Waddock and Rasche, 2012: 4). According to the definition provided, the focus of the company should not solely reside in one area, and responsibility should be applied into the core values of the company, in order to enable maximum performance.

Along with the vast interpretations there are various models and beliefs about whether it is fundamental for a business to act ‘responsibly.’ The neo-classical school of thought, believes that businesses can flourish, if a successful environment is created, however this is only possible if the company operates in a free market. As a result, people are free to choose how they behave, without government intervention (Wetherly and Otter, 2014). Friedman (1970) strongly supports this theory, affirming that the underlying principal is to increase profits and whosoever tries to be ‘socially responsible’ is undermining the previous success a free society has attained, thus making them blind to the true aims of business (Friedman, 1970). However, the global financial crisis proved it was hard to argue in favour of a free market approach, with the collapse of the US free market being a prime example (Reynolds, 2008).

Carrolls CSR Pyramid 2.gif

Contrary to this belief, Evan & Freeman‟s (1993) viewpoint is that a company has the responsibility to acknowledge their obligations to indirect stakeholders (Crane and Matten, 2015). In addition, Carroll’s (1991) model of corporate social responsibility (CSR) argues the definition of CSR should encompass four levels; including economic, legal, ethical and discretionary or philanthropic responsibilities, as shown in the diagram above (Carroll, 1983). In essence, Carroll’s definition brings together a range of interpretations, believing businesses should be conducted with the four elements in mind. However, the stages of the pyramid are not chronological and progressive, because it is possible to satisfy the ethical importance whilst failing to meet the legal obligations (Griseri and Seppala, 2010). Also, the diagram leads you to assume Carroll meant CSR as having a hierarchical nature, therefore leading to believe, the higher you go on the pyramid, the more important the stage is. However, Carroll “stipulates that the economic and legal domains are the most fundamental, while philanthropic responsibilities are considered less important.” (Schwartz, 2011:90).

An example of a company using CSR strategies is Costa Coffee. They have various initiatives, but one of their most impressive aspects is their alliance with Rainforest Alliance Certified Farms. Farms, forests and tourist businesses who comply with their extensive sustainability criteria are rewarded with the seal of the green frog. This includes meeting Costas environmental protection, economically viable and social criterion. Ultimately they helps address challenges such as deforestation, climate change, alleviation of poverty and helps transform business practices. Costa as a business within the UK use smart coffee machines and 100% renewable energy supply to reduce carbon emissions. They also work in alliance with farmers from England and Wales, therefore contributing to economic growth and supporting small businesses (Costa, 2013).

Furthermore, responsible enterprise can be defined using the concept of corporate citizenship (CC). Crane and Matten (2010), believe it should be associated with the corporations action towards governing the social, political and civil rights towards citizens (Crane and Matten, 2010). CC has reference towards the relationship between the individual and the state. In other terms, the rights of the individuals are protected and preserved by the government. Also insinuating that companies have a set of rights and duties to the community (Grisseri and Seppala, 2010).

Business ethics is also a part of responsible enterprise. It is a form of applied ethics involving the study of correct conduct in relation to business. Ethical egoism is the perception that the right thing means doing what is best in regards to one’s own interest. For example did Coca-Cola implement sustainability to improve their reputation after reports found that the soft drink giant were funding reports that claimed soft drinks were not a cause for obesity (Nestle, 2015). This is a cause for ethical concern as sugary drinks have proven to cause type-II diabetes. Regardless of this they were spending generously to convince researchers otherwise. By doing this, they relate to the theory of a free market by doing anything to gain and increase profits, and disregarding moral issues by lying and bribing. Therefore, it is hard to distinguish whether firms are applying ‘responsible initiatives’ as a personal interest or genuinely for others, as some claim of being universal, but don’t act correctly (Grisseri and Seppala, 2010).

Governments should view communities holistically and enact decisions that are mutually beneficial to the environment, economy and health of society (Hitchcock and Willard, 2006). REF. Foreseeing the world demand for sustainability allows governments to adapt by transitioning into an economy that is more efficient. Thus, allowing them to take a lead and come out in a strong position to look out for their industries and communities (Peck and Gibson, 2000). In recent years, the importance of addressing the challenges of sustainability is being recognised by governments at every level (Bell, 2002).

A key factor for the government being able to assist positively in all areas of the country, is decentralisation. Centralisation focuses on the retention of authority within the higher brackets of the government. Whereas decentralisation, systematically distributes power and authority throughout the system (Sidana et al., 2015). The need for this system has been acknowledged with the ex-prime minister, David Cameron, recognising and stating “centralised national blueprints don’t allow local solutions to major social problems and centralisation creates a great distance in our democracy between the government and the governed.” (Cameron, 2010). This was further enacted as the Localism Bill came into fruition in 2011 and became an act of parliament. The Localism Act 2011 aims to “devolve greater powers to councils and neighbourhoods and give local communities more control.” (Localism act 2011 – UK parliament, 2011). In regards to the UK government, as a whole, the Green Money Journal (2002) research found that over £120 billion was invested in institutional and retail funds with active social responsible policies, and sustainable development (Higgs, 2002). In essence, this shows that the government, in the last couple of decades, started to see the requirement of responsibly investing to meet its agendas. This caused for government to intervene. As a result, governments have adopted responsibility of driving CSR, through laws, regulations and tax (Moon, 2004).

Firms thrive when markets are operating well, and are simultaneously increasing economic growth. However, allowing markets to take a completely ‘free market’ approach, doesn’t always translate positively. As a precaution, the government sets legislative and institutional frameworks for markets and companies to operate in (HM Government, 2009). By intervening, it means markets are not independent from the government. They intervene through taxes and subsidies, which can be used to influence incentives of firms in the private sector. For example, subsides can be used to increase financial support for businesses with potential, through government grants, soft loans, and taxes (HM Government, 2009). In the way of sustainability, the Environmental Tax was implemented by the UK in order to protect the environment from pollution by promoting positive environmental behaviour and attempting to reduce the damages (Green fiscal commission, 2011). Introduced in 2001, under the environmental tax, was the Climate Change Levy (Office for National Statistics, 2016). By businesses demonstrating that they are operating officially and complying with the needs of the environment, they can get relief from some taxes (Environmental taxes, reliefs and schemes for businesses, 2016). This ensures businesses to be more sustainable, due to the actions of the government.

In relation to the financial crisis of 2008, the fear spread throughout the entire world economy, instilled confidence in the need for government intervention. This was to inhibit the actions of the market through regulation, in specific reference to the banking sector, in order to prevent history repeating itself (Wetherly and Otter, 2011).

An argument for government and businesses collaborating is due to the fact that SMEs equate to ‘99% of businesses within the EU’, making their impact strong (Wetherly and Otter, 2011). They are huge drivers of the economy with 85% of net jobs being created by them, making them favourable. Through the different levels of government, e.g. regional and local, it is easier to provide attention to business growth in one area. It also means SME’s can collaborate with governments, through initiatives, in benefit for themselves, the consumer and the environment. For example, the Welsh government placing £2m into SMEs to find solutions for the challenges facing the public sector (Welsh Government, 2015).

Non-profit organisations (NPO) are also referred to as the voluntary or third sector. Salmon et al (2003) sets out five characteristics for non-profit entities. He states that they are; organisations, private, non-profit distributing, self-governing and voluntary (Salamon et al, 2003). NPOs, have become increasingly present as they have shown to provide a “middle way” platform, in the sense that previously, dependence was either on the market or the state (Salamon et al, 1999). Most theories of the role of non-profit sector embrace the idea of a trichotomy, which refers to the government, for-profit and non-profit organisations, as they are all involved in the production of goods and services (Powell and Steinberg, 2006). An NPO is exempt from paying tax and is formed for various purposes. The money earned does not financially benefit the trustees and shareholders, but instead is used to pay for its own expenses (Jackson, 2003). This is a main difference between private sector businesses and NPOs, as the private sector focuses on the motive of profit (Wetherly and Otter, 2011). Examples of non-profit enterprises include: The Co-Operative, Toms Shoes, and Unicef. In conjunction with these examples, there are other enlightening examples, One World Health is the first non-profit pharmaceutical company that develops medicine at affordable prices for the developing world (OECD, 2010). NPOs therefore acknowledge meeting urgent societal challenges and promoting sustainability.

In regards to NPO and Government, awareness has increased that governments who act alone cannot achieve the changes required for sustainability to great effect. As a result, governments need to implement initiatives to increase participation by all sectors of society (Bell, 2002). As a result, partnerships between the three sectors are required. Over the years it has become increasingly apparent that organisations want to work in conjunction with one another. Partnerships are when organisations work together to address tasks by sharing resources, expertise and risk. Furthermore, popular partners of non-governmental organisations has been with the United Nations and Government agencies (Grisseri and Sepala, 2010).

To conclude, there are various interpretations and concepts of what constitutes a responsible enterprise. Ultimately, driving sustainability and CSR initiatives are crucial in order to come under the scope of being responsible. Although, this essay only covered a couple global challenges, there are more struggles of the world that are increasing rapidly. These struggles pertain to economic, social and environmental issues. By acknowledging and implementing sustainable solutions we can extend the life of the Earth, increase worldwide social welfare and drive economic growth, in preparation for generation to come.

Overall, collaborations are necessary by the government, business and non-profit organisations. By coming together, each can contribute to enhancing sustainability to address the challenges faced. Governments contribute by making sure businesses are aware by implementing legislation and initiatives. Businesses can help by making the products and services they offer make an impact by making consumers aware of the need for sustainability, and also attaining certified stamps to support well established companies that are actively making a difference. Regarding NPOs, they address the challenges by raising awareness, and helping out by investing in the issues that really need help and support. Due to the far reaching involvement sustainability requires. It is evident collaborations are needed as the three models cannot exist in pure form because markets everywhere have already developed in co-operation with the government, voluntary sector and even wider society.

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