Social Responsibility And Good Governance Business Essay
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Social Responsibility and Good Governance are used interchangeably worldwide by individuals and corporations to show their associations with the activities carried out for the betterment of the society. Although from appearance the two terminologies similar in various aspects but there are huge differences between them when their basics are studied in detail; with the passage of time, the UK government has undertaken numerous legal decisions to support the concept of sustainability, good governance and social responsibility (BIAO, 2009).
According to Robinson and Dowson (2011), the social responsibility is described as an ethical theory in which an entity that can be an individual or an organisation has a responsibility of acting on behalf of the society. The social responsibility is considered as an obligation that every organisation or individual has to perform for keeping a balance between the ecosystem and the economy. The main purpose of the social responsibility is to ensure equilibrium between the environment and society; the government has to impose certain restrictions by developing code of business ethics that will allow every company and individual to fulfil its social responsibilities.
On the other hand, good governance is defined as the complete set of principles or rules that have to be developed with the passage of time for meeting new challenges in various areas such as quality, commerce, reputation, risk, probity, accountability and finance (Charity Commission, 2010). When the organisation's management started to get separated from its ownership, the concept of good governance began gaining entrance in the field of corporate world.
After the economic crisis hit the countries across the globe, the governments realised the need of developing corporate governance policies which are stricter than the existing ones and the businesses will have to ensure compliance with all of them. In the last few years, there has been growth in the need of fulfilment of social responsibilities which incorporated satisfying every stakeholder i.e. customers, suppliers, community, government, distributors, employees and others. All of these tasks have to be accomplished at both individuals and corporate level (Aras & Crowther, 2010).
In order to ensure that the social responsibility and good governance work together, there is a wide range of legal perspectives that have to be studied to understand in detail the effectiveness of these policies. The UK government has designed Code of Governance for various enterprises such as voluntary, commercial, community and social that is developed on six basic principles. Hence, the social responsibility and good governance are inter-linked that aim to give protection to the interests of the stakeholders so that they can get benefited from the decision making processes of existing entities especially corporations.
Social responsibility is a term that is used to explain the contract, either written or verbal, that a corporation is required to accomplish in its business environment. Every company has to ensure compliance with specific standards that are set by the customers, society and investors. While, majority of these compliances are available in the form of regulations, some others are practised in good faith of the citizens (Medrano & Penalver, 2011).
From an organisation's point of view, it is an obligation of the firm's management to make decisions and implement actions that will improvise the interest and welfare of the society. There are various level of social responsibilities that have to be supported by the organisations such as ethical, legal, discretionary and economic. The six key areas comprise of employees, customers, shareholders, government, community/environment and other groups or associations (Williamson & Lynch-Wood, 2008). The pyramid of the social responsibility is shown in the following figure:
Source: Arson and Crowther (2010)
Legal Perspective of Social Responsibility
It has been stated by Banff Executive Leadership Inc. (2010) that there is a huge range of inequality in the roles of various entities as they tend to fulfil their own claimed responsibilities. Although different corporations have varying roles but they have to ensure compliance with the rules that are set by the government such as civil rights of the citizens, provide human rights to the employees, offer authentic and genuine products and services to the customers, make available their financial statements to the investors for ensuring transparency, protecting the environment by carrying out activities in an environmental-friendly way and making valuable contribution in the country's economy (Thomson, Panwar & Hansen, 2010).
According to Golob, Podnar and Lah (2009), social responsibility is voluntary but there are certain restrictions that are imposed by the government in the form of laws and those areas fall in the category of legal responsibilities. One of the crucial legal requirements of every country is that the corporation should develop its Statement or Code of Ethics and ensure that the business practices are conducted in accordance to the ethical practices outlined by the government body.
Similarly, an organisation has to ensure that it does not exploit the rights of its employees by promoting the idea of equal employment opportunities, offering them minimum wages as implemented by the laws, developing healthy and safe working conditions, assisting them in turbulent times, presenting worthwhile solutions for health care and other facilities and avoiding any kind of discrimination within the business operations (Szimigan et al., 2011).
Since a company is liable to present the investors with information about the business activities with complete integrity, it has to fulfil its commitment of being accountable to every decision made by the management team. Similarly, it has to abide by the trust that the customers have in its offerings; the customers have the right to demand any explanation for the course of action undertaken by the company. The customers are willing to purchase those products more whose companies are involved in numerous corporate social responsibility activities especially the protection of nature and environment (Aras & Crowther, 2009).
One of the most important things that need to be given utmost attention is the compliance with the government regulations so that the official authorities do not intervene in the business activities too frequently. The UK government has set laws related to industrial relations, protection of employees, protection of customers, tax compliance, quality standards maintenance, competition policy, transparency principle and others so that every firm can ensure that it meets the social responsibility obligations effectively.
However, social responsibility has to be imposed by the government in the form of good governance so that the individuals and corporations are compelled to make significant contributions in the society.
The term 'good governance' has been used in the literature of international development for providing a framework to the public institutions about conducting the public affairs and simultaneously managing and effectively utilising the resources of the public. In simple words, governance is defined as the process of strategic decision making in which careful analysis of available options is done and ensured the decision is implemented appropriately (UNESCAP, 2012). It is further implied that the term 'governance' can be applied to local, national, corporate and corporate governance or even to the interactions that take place between various sectors of the society.
It is stated by Charity Commission (2012) that the concept of 'corporate governance' emerges as the model to do comparison among the unsuccessful economies or political bodies with those ones that have workable political bodies and economies. This concept mandates the government need of realising their obligations to the society and the governing bodies have to meet the needs of the masses as compared to the selected groups of society.
Generally, good governance is perceived to be a normative principle in administrative law in which the State is obliged to perform its roles in ways that will foster the values of responsiveness, decreased corruption and high efficiency for the civil society. This principle is largely defined in terms of its association with the statecraft. According to Bullivant et al. (2012), although the government is not held responsible for delivering of the goods but it has to ensure that the complete processes involved in the identification and delivery of these goods are tangible in terms of:
Developed in response to the demands of public.
Resources allocated in the production are entirely transparent
Goods will be distributed evenly throughout the country.
Moreover, The good governance concept has been implied to a large extent in the operations of both private and public sector organisations. In such a well-integrated manner, the decision making strategies in corporate world are assimilated with the core principle of good governance and ensure that interests of all stakeholders are taken into account effectively (Good Governance Code, 2012).
Legal Perspectives of Good Governance
In UK, the importance of good governance is deemed important in all sectors of the country i.e. private, public and voluntary. All the corporations especially voluntary and community organisations are driven by the altruistic values and they are working for the public benefit, they need to be governed by appropriate code of ethics that will ensure that they conduct their operations appropriately and are held accountable as well (Bullivant et al., 2012).
Over the past decades, some sectors have developed their codes of Good Governance such as Co-operatives UK, National Housing Federation and HEFCE. In 2004, the Good Governance Standard for Public Services was developed and introduced especially for the public sector. Similarly, the UK Corporate Governance Code was launched in the private sector; the work was undertaken by Greenbury, Higgs and Cadbury in response to the governance failures that were encountered by the business organisations as a result of recession in 2008 (Aras & Crowther, 2010).
Similarly, the Code for the Voluntary and Community sector was introduced in 2005 with the aim of providing guidance to the philanthropic organisations about carrying out their business activities in support of the community needs.
Principles of Good Governance
The importance of good governance lies in the fact that the government and other stakeholders have to collectively increase the efforts of improving the lives of citizens. According to the United Kingdom Department for International Development, cited by Ridley, D'Silva and Szombathelyi (2011), "good governance is not solely about the government; it comprises of the political parties, the media, civil society and the judiciary. The main areas that are addressed by this governance are the ways in which leaders, citizens and public institutions work together to bring changes within the community."
The three basic requirements of the good governance are as follows:
Capability of the state - The degree to which the government and leaders have the ability of getting the things done.
Accountability - The aptitude of the civil society, private sector and citizens to analyse the decisions of the government and public institutions and holding them accountable for their implemented steps. It provides the opportunity of changing leader by means of democracy.
Responsiveness - The extent to which the public institutions and policies respond to the citizens' needs and even endorse their rights (BIOA, 2009).
The primary eight characteristics of the good governance are shown in the following figure which is being effectively followed by the UK government to ensure that its governance methods are in compliance with the requirements of today's market:
Source: Aras & Crowther (2009)
In order to provide enhanced protection to each and every stakeholder, the UK Government has provided complete details about the governance rules that can be exercised by the companies, customer, employees, community, suppliers and many more. Following are some of the examples that demonstrate the government's initiatives to reinforce the implication of the concept of 'good governance':
Employees - Laws related to Health and safety at work, payroll, dismissing staff and redundancies, Statutory leave and time off, contracts of employment and working hours, recruiting and hiring and staff pensions.
Education and learning - Governance related to apprenticeships, admission to the schools and transport facility, school life and students finance, loans and universities.
Living in UK - Obligations related to British citizenship and moving to UK, Rights to vote, Living in the UK (government and democracy) and Coasts, country sides and creatures.
The UK government has developed various bodies such as government agencies and boards that ensure that the corporate governance in every sector is effectively followed. There are differed departments within the UK government body that ensures that the laws and regulations are effectively implemented (BIAO, 2009).
Linkage between SR and GG
As the countries worldwide are becoming aware of their responsibility towards their community and society, they are promoting the idea of strengthening the governance bodies so that they develop the policies that are favourable for everyone within the convergence. There is strong link between Social Responsibility and Good Governance because only with the help of authoritative bodies, the individuals and corporations can be forced to work for the benefits of the society and country as a whole (Williamson & Lynch-Wood, 2008).
Since the corporate governance was not strong in 2008 in UK, the government decided to reform its Code of Governance for various organisations by developing separate policies for the diverse range of types of businesses. Hence, good governance is vital in every phase of the social responsibility whether it is for the corporation environment or society in general or even the political setting. With the help of good governance, the public faith will increase and people will be more confident about the stability of the country's political situation.
When there is limited number of resources available for meeting the minimum expectations of the people, a good and effective governance can assist in flourishing the idea of social responsibility so that society's welfare can be promoted. Moreover, the corporate world will be able to conduct its business activities at minimal level of risk as it will be aware of the methods that have to be implemented to avoid any business related pitfalls (Bullivant et al., 2012).
Points of separation between SR and GG
The main point of separation between the two terminologies is that good governance can be easily measured by using the right tools and techniques which ensure that any modifications are quickly made. Whereas, the extent of social responsibility effectiveness cannot be assessed by utilising the measurement tools; hence, it becomes mandatory for the official bodies to ensure alignment between the good governance and social responsibility so that both of them can work along.
In some cases, the organisations are provided to support to promote the profit making objective but they have to make sure that they don't compromise on the quality of products or deny employees their rights. Sometimes, maintaining a balance between the two concepts becomes unmanageable. In addition to these aspects, the UK government is considered about developing a global governance system so that it can provide effective guidelines for the corporations that are working in international market. For instance, the government aims to provide employment opportunities to its citizens but it also needs to provide support to the organisations to make contribution in the country's economy.
Therefore, it can be said that the corporate governance and social responsibility have various separation points but they need to be inter-linked in an effective manner so that there are no problems for any stakeholders and everyone gets benefited with the government's good governance policy (Szmigin et al., 2011).
Critical review and analysis
As UK is also operating in the free market system, it will have to ensure that it creates a sustainable environment for the citizens, corporations and every stakeholder by making effective use of good governance tools. The legal bodies have started working on developing the relationship between good governance, social responsibility and sustainability so that the country can sustain for a long period despite negativity within the corporate world.
If the free market democracy has to be ensured, the system of sustainability has to be strengthened by developing a deep sense of responsibility towards the society. The citizens have to be made aware about their role in helping the government in fulfilling its social responsibilities along with providing appropriate and positive policies to the business players. In order to embed the social responsibility wisdom, the voters have to reassert the control over unchecked bureaucracies and lenient politicians who are not working too hard to develop an effective governance framework.
The legal framework needs to be updated frequently so that it takes into account the changing patterns of globalisation and industrial trends that are happening worldwide. Since corporations and government authorities can exploit the customer's right of freedom, the citizens have to become alert and protective about their freedom that has given them the prosperity and right of making decisions about their own lives.
Similarly, the society has to be prepared to make any sacrifices that are required for promotion the well-being of the society along with supporting the welfare of the associate citizens and continue to enhance the economy's competitiveness on global level. Similarly, the leaders of these free market democracies are developing their own beneficiary goals without considering the basic requirements of the citizens. These leaders have to ensure that they define the goals that are realistic and attainable goals and then gain support from the voters (Bullivant et al., 2012).
Hence, social responsibility and corporate governance are same concepts in various aspects. Every stakeholder in the country is equally responsible for the protection of their rights and have to ensure that they work together like a team. When everyone will share same responsibility about the whole society, then the laws developed will be effective and the country will prosper at an accelerating pace.
In the last few years, the social responsibility and good governance have become crucial aspects of the countries as they are the backbone for assisting it in effectively flourishing on the global level. Although the UK government and its legal bodies have ensured that they promote the social responsibility among citizens and corporations but they need to revitalise their political setting. It has become mandatory for the governance to be implemented properly so that it can maintain sustainability for unlimited time.
Moreover, it has been found that those countries who have citizens that are deeply committed to the social responsibility are able to sustain and prosper in this tough and challenging environment. The good governance schemes have to be strategically implemented that are in compliance with the social responsibility so that everyone within the country is able to reap the benefits of sustainability for immense time period.
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