This essay has been submitted by a student. This is not an example of the work written by our professional essay writers.
Business is not divorced from the rest of the society. How companies behave affects many people, not just the shareholders. A company should be a responsible member of the society in which it operates.
The above quote gives an insight into what goes through the minds management of Multinational corporations with regards to their corporate social responsibilities (CSR), the management naturally owe their primary duty to their shareholders who had invested money into the company, but since early 18th and 19th centuries the interest of whole world has started shifting from corporate governance to CSR, because events that happened did showed that firms are not only responsible for their shareholders to reward them with good profit from which they can get handsome dividend but also to the public, to their employees, to the government and to the whole world at large. Firm's responsibilities had moved to encompasses ethical responsibilities, social responsibilities, legal responsibilities and economical responsibilities.
Diagram 1: Multinationals Corporate Responsibilities
Source: Elijah Ezendu, (2008)
The consequences of WorldCom's scandal of 2002 did not only affect its shareholders, 17,000 jobs were lost to save $1billion, their equipment vendors (Udo C. Braendle, 2003), and the U.S and world economy was affected, the level of exports, imports domestic production, investment and the share market and real interest rates are all lower than before the scandal (Economic scenarios.com). Hence the need for recent cry for standardised CSR practice by multinationals by academics and public policy makers (Jenny Fairbrass, 2011). These financial scandals listen in appendix 2 make corporate governance/ CSR so prominent today (Becht et al. 2002)
Corporate Social Responsibility is a concept whereby companies integrate social and environmental concerns in their business operations and in their interactions with their stakeholders on a voluntary basis. (European Commission, 2005) also the World Business Council for Sustainable Development defined CSR as "the Continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large". These two definitions viewed CSR as a way through which firms can build trust to the people, trust in their products/services, trust in the firm to do what is ethically right and trust in their employees to do what is right.
Milton Friedman and kirk Russell negatives each other's views on the concept of CRS, Friedman (1970) believed that business organisations has only one social responsibility to use its resource to make profits as long as it stays with "the rules of the game" that is to engage in open and free competition without deception or fraud. While Kirk Russell (1957) opined that every right is married to a duty, every freedom owns a responding responsibility; hence there cannot be genuine freedom unless there exists also genuine order in the moral and social realm that is business organisation need to balance their social and moral responsibilities with their personal profitability objective. In this coursework key issues in Corporate social Responsibilities will be examined as well as both internal and external dimensions of CSR, the corporate responsibilities of Multinationals, factors that promote CSR, and the demanding challenges such as the difficulties stemming from multiple interest, ethical challenges, Lack of benchmarking and global standards, conflict between country prevailing political issue and international initiatives, conventions, declarations and standards , the need for planning, decision making monitoring and evaluation that are faced by multinationals in the management of CSR, which will be supported by real business examples from Enron scandal, Jebsen and Jebsen corporation, Parmalat scandal, WorldCom Fraud, Nike child labour scandal, Royal Dutch Shell scandal etc. will be used to give critical analysis of these challenges.
Multinational firms are faced with some key ethical issues in the management of CSR which include: Labour rights which include issues of child labour, forced labour, right to organise trade union, employee's health and safety issues: Environmental issues such as water and emissions and climate change: Human rights issues, corruption, moral obligations, and poverty alleviation. The management of these multinationals do view CSR in two different dimensions namely: internal and external dimension.
Diagram 2: Internal dimension to corporate social responsibility
Source: Elijah Ezendu, (2008)
The internal dimension focuses on organisational practices which are in line with internal stakeholders that should comply with international standards and directives.
Diagram 3: External dimension to corporate social responsibility
Source: Elijah Ezendu, (2008)
While the external dimension focuses on an organisational practices towards external stakeholders that should comply with international standards and directives (Elijah Ezendu, 2008). Regardless of the dimension the management are focusing on they are still faced with the challenges explained below.
One of the major challenges faced by Multinational corporations is the difficulties to follow through with their ethical responsibility while pursuing their primary objective of profit making. These firms were setup primarily to make profit and managers sometimes allow this objective to affect their corporate responsibilities, this was the case with Nike in 1984 when it closed down its last U.S factory and moved its entire production to the cheap labour region of Asia. About 65,000 U.S workers lost their jobs because of this action. It couldn't move to Taiwan and South Korea because of their new of their democracy, their union has gained power and employee wages has begun to rise. Nike makes use of sub-contractors in China, Vietnam, Pakistan, and Thailand in order for them to be exonerated from their misdeeds (Campaign for labour rights, 2004); Most of these sub-contracted employees are teenagers and unmarried women from age 17 to 30, the average worker produces 4.3 pairs of shoes and gets a minimum of $2.50 as wage per day in Indonesia (where the daily liveable wage is $4.00-$4.50), 20cents per hour or $1.60 per day in Vietnam (where the cost of daily simple meal is $2.10) (Newber Paul, 1997) and these Nike shoes are sold more all over the world for instance Nike Air Max is sold for $140 in which the direct cost of labour is $3.50, Nike spent huge money on athletic endorsement(between $250-$280 million) which is way higher than the total labour way of most of the labour cost in all its factories in Asia. This cheap labour scandal in Third world countries is as a result of their pursue of profitability at the expense of their ethical standards, Nike owners knows about this abuse but turn deaf ear to it, the president and CEO Phil Knight prefer to announce record earnings and another stock split than to see to this child abuse, sexual abuse and molestation that is going on in the third world countries, he simply said " the problems in Asia as simple an incident in which a single worker was hit over the head by a supervisor" (Campaign for labour rights, 2004) .
Secondly, another of the major challenges faced by Multinational corporations is the difficulties stemming from multiple of interests, in which the firm had to balance the need for social responsibility, social accountability and profitability; managers sometimes fail to marry these three responsibilities together, this was also the case in Enron. In 1985 after the deregulation of natural gas in U.S, Enron was born from the merger of Houston Natural Gas and InterNorth, in 1998 Enron diversify into Online Trading business, it made everyone including its shareholders to believe that they are making growth in their earnings, its share price was growing, in the last 20 straight quarter to 2002 it keep reporting increasing income, unknowing to most people on the wall street Enron was losing money in its core business. In 2000, its derivatives-related assets increased to $12 billion from $2.2 billion, but in mid-August the stock price began to fall and eventually filed bankruptcy in December 2nd 2001. (Udo Braendle, 2003) Enron managers were hiding bad investment assets and borrowing from their financial statement, the cash flows were manipulated to show a healthy balance sheet and also some of their SPE transactions were illegally back dated, in order to have a shareholders' preferred statement of account. This unethical practice of mislead was prompted because they want the world to see them as a profitable business venture. This leaves a deep and ugly scar on the face of modern business practice because many people lost their jobs; some lost their entire pension, shareholders 'investment too was left hanging if not totally lost. Kenneth Lay (the former CEO)and Jefrey Skilling knew about this problem but they were clouded with the fact that they can turn things around by diversifying into another line of business and reinvest the profit made, but not reporting the true and fair view of their financial performance is very unethical which was driven by their profitability objective. This same challenge was the cause of Parmalat and WorldCom fraud scandal their mangers were driven by money and greed.
The third challenge is the conflict between country prevailing political issue and international initiatives, conventions, declarations and standards. International initiatives such as United Nations Global Compact (UNGC), World Summit on Sustainable Development, OECD Guidelines on Multinational Enterprises, OECD Principles of Corporate Governance, Social Accountability 8000, Global Reporting Initiative, World Business Council for Sustainable Development, Environmental and Social Standards of International Finance Corporation, International Labour Standards of International Labour Organisation. These international initiatives serve as guidelines for multinationals on how best to manage their CSR practice and more often the host country to these multinationals does have issues that prevent them from following these directives. The United Nations Global Compact (UNGC), which is a strategic policy initiative for business around the world who are committed to align their business operations with ten universally accepted principles in the area of labour, human rights, environment, and anti-corruption. Though most Multinationals are subscribing to this initiative, they find themselves faced with the situation in their host country which prevents them from obeying these initiatives. For instance Shell Petroleum Development Company of Nigeria Ltd.(SPCD) is one of those Multinational that in support of UNGC but their complains with its 10 principles are cut short by the crisis in Niger-Delta region of Nigeria which the major crude oil producing region. Militant groups kidnapped 26 SPDC employees in 2010 and one contractor was killed in 2010, criminal gangs steal crude oil worth 100,000 barrel per day from pipe, which is causing extensive damage to the environment (Shell Sustainability Report, 2010). In 2010 Shell proposed to spend $8 billion between 2010 - 2012 and later $10 billion for the next 10 years to help eradicate poverty from the region, precisely $2.50 per person per week for two year and $0.62 for the next 10 years (Paul Seaman, 2010). Despite all these CSR contribution by Shell the Ogoni people still feel they were being exploited by these multinationals including /shell, hence they form militant groups that are still a national issue to the government of Nigeria. This is a huge challenge to Shell and other Multinationals who are extracting crude oil form this region of Nigeria as this is preventing them from carrying out the aforementioned UNGC 10 directives.
The need for careful planning, decision-making, monitoring and evaluation is another challenge that multinationals are facing in the management of their CSR, diagram 4 below, is a
Diagram 4: CSR Implementation Framework
The implementation of CSR strategy takes a lot of time and resource (both capital and human resources), multinationals can pursue an effective CSR strategy either in an offensive (corporate social opportunity) or defensive manner ( CSR as brand insurance). Multinationals pursue the offensive approach by making use of opportunities that will maximise company's capabilities and identify new competitive advantage, for instance the decision by Nike to produce Air Jordan XXX3 athletic shoe, which was made without any chemical-based glues and an outsole made of recycled materials. This single act requires a lot of effort and planning, and they are so different in different culture, firms cannot use the same CSR plans for different countries because each has its own unique people, tradition, language and social norms and value. Even in developed countries CSR strategy can never be the same for a single multinationals for instance in the U.S there is a legal action that defined CRS threshold for tobacco and fast food companies but in Europe NGOs and not for profit making organisations drive the CSR agenda . Another example is the Greenpeace's campaigns against Shell's operations in Nigeria, which requires a lot of planning, decision making by those in charge to evaluation, implementation and also the review of the strategy to comply with current political, social, economic and legal issues in the county.
The fifth challenge to the management of CSR by multinational is the last benchmarking and global standards. All the international initiatives and standards listed above are just a mere voluntary initiatives without any strong mandatory backing, it is up to the firm to decide to support it or not, this is a big challenge to multinationals because some are implementing them while some are not doing anything about it, and it is so easy for firms to abstain because of the fact that there is no punishment for doing so. Recently the new Global CSR that was implemented by OECD, the world Bank the UN Guiding Principles on Business and Human Right and the EU In the UK there is a pending legislation. This will give CSR services and products to companies, the diagram below shows what it entails.
Diagram 5. Global CSR Products and Services.
Source: Global CSR (2012)
These services will take effect from Feb 2012. Also there is a pending legislation in the UK that will require all company listed on the stock exchange to disclose their ethical, social and environmental risks in its annual reports. Until such legislation is passed into law in most countries in the world will multinational be supported by global and mandatory global CRS initiatives that come with a sanction in the event of failure to comply.
In conclusion, several scholars, government organisations both local and international have written widely on the management of CSR, there is now a growing awareness that business should manage its relationship with the larger society and its natural environment. United Nations has written some directives that multinationals around the world are following their guidelines but some multinationals are still pursuing their own objectives at the expense of the environment in which they make the profit. Multinationals host country has different political, social and economic climates that often prevent them from carry out their own CRS programmes. Most of this challenges being faced by multinationals in the management of CSR are inevitable, hence multinational corporations should try to re-examine the CSR implementation frame work in diagram 4 above and begin a new journey towards a sustainable approach that is integrated into their business strategy.