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As stewards of the shareholder's investment, directors have a fiduciary duty to safeguard their investment in the business and to work to maintain and increase the wealth of the shareholder. This is the traditional or stockholder view, but a more considerate approach states that companies should not have a limited view; rather they should have an extended view with regard to the whole society. The stakeholder view states that that as an organization is so powerful, socially, politically and economically, unrestrained and injudicious use of their power will eventually lead to the infringement of the rights of other people. The stakeholder theory thus proposes corporate accountability, not just to the shareholders, but to the stakeholders of the company as well.
A stakeholder is an entity that can affect, or be affected by the achievement of an organization's objectives. But, there is considerable dispute about who should be considered to be a stakeholder, and thus, have a legitimate claim on the company and its activities. The way an organization deals with stakeholders, and their stakeholder perspective (the legitimacy of stakeholder claims) depends on the moral, ethical and political standpoint of the organization and on the level of influence and power a stakeholder has on the organization.One way of analyzing the importance of stakeholders to an organization is through the Mendelow matrix. Mendelow classified stakeholders on a grid whose axes are the power to influence and the interest in the organizations activities. These factors help to identify the relationship between a company and its stakeholders and the potential approach of the organization to stakeholder concerns. (Mendelow, 1991)
According to the Mendelow matrix, illustrated in Figure 1, the stakeholders in grid A are those who have low levels of interest in the organization's operations and only a limited power to influence the organization's activities. These people, thus, require only minimal effort by the organization. Grid B, however, is populated by individuals with a high level of interest but a low level of power over the organization. These stakeholders do not have the ability to influence an organization's strategy, but they may lobby and influence the views of other, more powerful stakeholders, and, so the organization has to, at the very least keep them well informed.
Alternatively, stakeholders in grid C have a high degree of power to influence strategy, but only low levels of interest in organizational activities, therefore, these stakeholders must be treated with caution, as they may develop an interest in the organization, thus making them important to organizational strategy and success. These stakeholders, should, thus be kept satisfied.
Grid D, on the other hand, represents stakeholders with a high interest in organizational activities and a high degree of power to influence operations. These are, thus, the key players, and the organization's strategy must be at least acceptable to them. (Mendelow,1991)
An organization could have very many or very few stakeholders depending on its impact on society. The greater its impact, the wider the pool of potential stakeholders. In the case of GlaxoSmithKline, for example, which is an international pharmaceutical company, the stakeholders are wide ranging and diverse.
The primary stakeholder of the company is its holding company, Set First Ltd UK. Set First Ltd, as a key player with a 79% controlling interest in the company has a lot at stake, and therefore has a high level of interest in the company's operations. The power to influence company strategy, thus, comes from its 79% holding it ahs in GSK. Therefore, Set First Ltd UK can require GSK to alter its strategy and to incorporate diverse goals into its business plans, ranging from new product lines to new areas of expansion, or, a divestment from certain areas. Moreover, Set First Ltd can require GSK to alter its HR policies, to either grant workers more autonomy and better working environments, or to apply a more stringent recruitment drive and health and safety standards, ensuring compliance with all relevant laws and regulations.
The worker themselves, however, have a lower level of influence on GSK, despite their high levels of interest. This is mainly because of the absence of the existence of a trade union, which otherwise would have assisted the workers in influencing organizational strategy. So, while, workers can lobby for their basic legal rights, it is highly unlikely that they would be able to go beyond that to influence organizational policies, as their power over the organization is limited, except, for example in the case of an essential manager or researcher, who may be able to alter strategy, especially on human resources, through the exercise of his influence over the organization.
Alternatively the government, which registers the drugs or grants the patents, could be on grid C with high power and low interest. As it has diverse functions a government may not be interested in a particular business, but it has sufficient control over GSK to make it amend its strategy, through, for example, the granting of patents and licenses. Conversely, the government can impose legislation regarding minimum wage, health and safety, or discrimination. Furthermore, it could provide regional assistance to GSK to assist it to locate in a particular area, and, thus, aid with that region's economic development.
GSK's suppliers or consumers, on the other hand may be classified as having a high level of interest in the organization, but, may not have sufficient power to influence GSK's strategy.
The local community, however, may fall in grid A, with little interest and little power to influence the organization. This may be because GSK is an international concern and thus, may not be swayed by the local community to alter its practices.
Figure 2 illustrates the possible Mendelow matrix for GSK's stakeholders, showing their positions according to their relative interest and power to the organization.
Therefore, a company must consider its stakeholders when taking any decision.
GSK PAKISTAN- ANNUAL REPORT 2009
Johnson G. & Scholes K. (2002). Exploring Corporate Strategy, Text and Cases, 6th Ed. Prentice Hall, Pearson Education Limited.
Mendelow, A. (1983). Setting corporate goals and measuring organizational effectiveness - a practical approach. Long Range Planning, 16(1).
Mendelow, A. L. (1991). Environmental scanning: The impact of the stakeholder concept. In Proceedings from the second international conference on information systems. Cambridge, MA.
Evaluate the effectiveness of the corporate social responsibility strategy by using an organization of your choice.
Discussion on corporate social responsibility has been linked with the stakeholder view of corporate activity, the approach, that, as businesses benefit from society, they in turn, also owe society certain duties, particularly towards its stakeholders. Businesses, especially large ones are increasingly subject to the expectation that they will exercise corporate social responsibility.
According to the Carrol model, an organization fulfills four types of responsibilities - economic, legal, ethical and philanthropic. Economic responsibilities entail providing shareholders with a good return, employees with fair employment prospects, customers with quality products and value for money and suppliers with timely payment.
Legal responsibilities, on the other hand require compliance with laws and regulations. Whereas, ethical responsibilities require corporations to do more than their basic legal duties and to act in a just and fair way. Philanthropic responsibilities, on the other hand, desire, rather than require companies to contribute to charity and to the local community.
An alternative approach to CSR is that of corporate citizenship which, according to Matten et al (Matten 2003;Matten 2008) has three perspectives. The limited view, which is based on voluntary philanthropy undertaken only in the business' interests; the equivalent view, which focuses on legal requirements and ethical fulfillment; and, the extended view under which organizations promote social, civil and political rights.
This means that CSR activities not only impact the objectives and mission statement of the organization, but also the code of conduct of the organization and corporate reporting, which would then include a social report and social accounts.
Gray, Owen and Adams in their book Accounting and Accountability, identify seven viewpoints or stances of social responsibility. This scale begins from the pristine capitalists who consider only the financial implication of a decision and the extent to which each of an organization's stakeholders can contribute to the level of profits made. Then come the expedients, who take into consideration society's views on social responsibility and then evaluate the impact on profits of not appearing to be socially responsible. The proponents of social contract believe that organizations should behave in accordance with ethical norms because, according to them, there is effectively a contract between the organization and its stakeholders; and thus a business can enjoy a license to operate only if society grants it that license. Social ecologists, however, take into account the impact on the environment caused by business activities. Socialists, however state that decision making should no longer be determined by the requirements of capitalism, rather, they should promote equality and redress the imbalances in society, providing benefits to all stakeholders rather than just providers of finance to the organization. The radical feminists, however, argue that there should be a complete overhaul of business practices, with activities and operations being based on feminine values of sharing, cooperation and reflection rather than the masculine values of aggression and competition. The deep ecologists, on the other end of the spectrum from the pristine capitalists argue that human needs should not take priority over other living things and, thus, a full recognition of all stakeholders, including the natural habitat, plants, animals, the environment, etc should be considered when taking a decision or carrying out an activity.(Gray, Owen and Adam, 1995)
A practical example of CSR is well demonstrated by the international pharmaceutical company GlaxoSmithKline, which in its mission statement says, "GSK has a challenging and inspiring mission: to advance the quality of human lives by enabling people to do more, feel better, live longer". In its code of conduct, it sets out its primary responsibility as that of "conducting business with honesty, integrity and in a professional manner" and of "treating individuals with respect and dignity". This shows its commitment to advance and better fulfill the organization's responsibilities towards society.
GSK donates funds, medicines, equipment and time to non profit organizations in order to improve the health and education standards of the under privileged. In 2009 alone, it developed a strong partnership with Pakistan National Forum on Women's Health, Concern for Children Trust, and The Trust for Health and Medical Sciences. GSK has also been one of the largest donors for the National Commission for Human Development. In recognition for its generosity and commitment to society, the Pakistan Centre for Philanthropy awarded a Corporate Philanthropy Award Certificate to GSK Pakistan in 2008. GSK Pakistan is among the top 15 corporate donors in Pakistan.
It targets health, education, women and social programs at the grass root level, and, additionally provided bulk stock of the necessary antibiotics, painkillers and anti-diarrheal medicines for the internally displaced persons in Pakistan in 2009.
As part of its global CSR initiatives, GSK donated over one billion medicines to 83 countries under the Global Alliance to eliminate Lymphatic Filariasis. It also developed a simple hand-washing program PHASE, to help reduce the infection which leads to diarrheal diseases. It also established a Positive Action for children Fund which will make funds available to prevent mother-to-child transmission of HIV and to support orphans and vulnerable children.
So, it seems that according to the Gray, Owen and Adams model, GSK is at the stage of social ecologists who take into account the impact of business activities on the business' stakeholders. GSK, additionally, seems to have the extended view of CSR, considering the social and civil rights of its stakeholders.
Accordingly, if an organization wants to exist and operate in society, it should act in a responsible way with all those concerned rather than working only for economic returns.
AB Carroll, KE Aupperl - Academy of Management Journal, 1985 - JSTOR
AB Carroll- Corporate social responsibility: A three-domain approach- Business Ethics Quarterly, 2003 - JSTOR
Gray, R, Owen, D, Adams, C. - Accounting and Accountability, Prentice Hall; 2nd edition (April 1, 1995)
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Matten, D., Crane, A. and Chapple, W., 2003. Behind the mask: Revealing the true face of corporate citizenship, Journal of Business Ethics, 45(1/2),
Matten, D. and Moon, J. 2008. "Implicit" and "explicit" CSR: A conceptual framework for a comparative understanding of corporate social responsibility.Academy of Management Review, 33(2).
Do multinational enterprises bring prosperity or hardship to less developed countries? Use theoretical frameworks and example(s) of organization(s) to justify your answer.
Multinationals are simply defined as organizations that have business operations in more than one country. Multinational firms have headquarters in their core country or market and factories, assembly plants or operation outlets in ore than one country. Their importance can be acknowledged from the Fortune Magazines report that found that in 1996 that 500 largest MNC's were worth $11.4 trillion with profits over $404 billion and assets in excess of $33.3 trillion
Since globalization has allowed for free movement of capital, labor and profits across border it has facilitated organizations operating in more than one country. Multinationals operate across various countries and continents since it allows them to operate in lower cost conditions. These multinationals are attracted by lower wage rates, lower taxes, cheaper access to raw materials that may also be scarce and evasion of trade barriers by operating in less developed countries (LDC's).
Countries hosting multinationals benefit from but also suffer as a result of their presence. Their impact on host countries and its people are discussed below.
Host countries especially developing ones benefit from multinational operations because of the employment prospects they bring. Multinationals also use training programs for locals to familiarize them with new technology. This helps improve both quality and efficiency of local labor.
But the host country may on the other hand bring no new prospects for the locals. In fact because multinationals are influential employers they may exploit workers. Because of the political leverage MNC's gain from operating across continents, they have strong influence over host governments, who fail to exert any authority on MNC's in most cases.
Multinationals may also be very selective in their recruitment process. In some cases it has been seen that MNC's only provide locals with low skilled and laborious jobs while keep top jobs for their own nationals. This does not add to prosperity of LDC. Instead it is pure exploitation. This is exactly what Nike and Gap were practicing in sweatshops in Vietnam and Thailand until media attention forced reconsideration of operational policies.
Local firms can also benefit from MNC operation in their country. They may act as ancillary organizations providing raw material, services and components. This multiplier effect may bring more jobs and economic prosperity. However in some cases MNC's are just a threat and competition to local firms. Some local firms do not have the resources or technology to compete with firm footed MNC's. MNC's in such cases would bring problems rather than prosperity to LDCs.
MNC's are also beneficial as taxpayers to LDC government. MNC's often make huge profits and so LDC's are likely to receive chunks of it as taxes, which the government can use for domestic development. But in reality LDCs suffer from flight of profits from the host country to the core country. Despite the profits originating from the LDC they are rarely reinvested back into the LDC. MNC's a find ways of tax evasion amidst weak LDC legislations. According to study prepared for the US congress MNC'S evaded taxes worth 186 million pound and expatriated capital worth 600 million pounds from Bangladesh during 2005-2007.
MNC's are an added benefit to poor LDC's because of the output they produce and their contribution to the GDP. In fact if the output produced or surplus of it is exported LDC hosts benefit from valuable foreign exchange. In cases where LDC's were net importers of the goods that the MNC produced they benefited from better balance of trade. However the increase in output can be at the cost of depletion of natural resources of the host LDC. Large MNC's have little interest in preservation of resources and so they might relocate as soon as the required natural resource in an economy is depleted.
Because MNC's are better equipped and well resourced they have an edge of latest technology. Host countries could as a result benefit from improved technological prospects bought by these MNC's. But trends of MNC operation in less developed countries have noted that MNC's do not conduct R&D in LDC. In fact the cost of R&D are also borne by these LDC's
MNC's are influential global operators accounting for large proportions of world trade. This authoritative position of MNC's is often used to influence host governments to give them unfair privileges over local competitors. Mittal for instance obtained for $900 million the right for mining iron ore in Liberia. When the government that signed the deal failed to get reelected Mittal had to negotiate the deal upwards for more than $1 billion. This is a clear indication of how powerful MNC's could manipulate weaker governments.
MNC's are also known for their excessive pollution in host LDC's particularly because of non existent pollution regulations or because of weak law enforcement. MNC's hence operate on low cost but high polluting techniques in these host nations. Coca Cola's bottling plant for instance was accused of using water resources in Kerala, India. Coca Cola was also accused of dumping on to land its waste calling it fertilizer when it was not.
If MNC operations in host countries comply with business ethics and MNC's act in a socially responsible manner than their presence in less developed nations and third world countries can be a blessing rather than a bane for the hosts. If MNC's operate in compliance with local legal regulations as well as show awareness of responsibility towards local stakeholders than their operations can bring prosperity and economic development into the region. However, if the MNC's operations are not ethically governed, and instead, they show a lack of corporate social responsibility, then their presence might be beneficial only in the short run.