Business
Global Corporate Responsibility Model
Corporate Social Responsibility (CSR) is defined as “consideration and response to, issues beyond the narrow economic, technical, and legal requirements of the firm to accomplish social benefits along with the traditional economic gains which the firm seeks” (Peng, 2014, p. 363).
Figure 1 Comprehensive stakeholder map
(Freeman, 1984 cited by Preble, 2005, p. 411)
The basis of CSR rests solidly on the philosophy of making ethical business decisions (Business Ethics, 2015). In the past CSR was not a priority for management, but with the recent corporate scandals, environmental issues, and extreme global poverty levels facing the world sustainability is becoming an essential activity. Bormann-Larsen and Wiggen (2004, p. 203) note that the global business responsibility “is to control the harmful side-effects of otherwise moral corporate activity.” A company’s responsibilities range from honest transactions with customers to responsible treatment of the environment (Business Ethics, 2015).
CSR expands the definition of stakeholder to “any group or individual. Many stakeholders are invested monetarily such as the stockholders, the board of directors, employees, suppliers and competitors. (See fig. 1) Peng (2014) points out that the managers are a unique group of stakeholders because they are the hub between the stakeholders’ relationships. Other stakeholders are invested for protection of the local or global environment or other special interests. An intense debate on CSR has emerged over whether management “efforts to promote the interests of these stakeholders “are at odds with their fiduciary duty (required by law) to safeguard shareholder interests” (Peng, 2014, p. 553).
Figure 2 Comprehensive Model of Corporate Social Responsibility
(Peng, 2014, 12-2
The major aim for implementing global CSR is to maintain sustainability; sustainability meets “the needs of the present without compromising the ability of future generations to meet their needs” (Peng, 2014, p. 363). The goal is to preserve social and natural environments, and includes “sustainable capitalism” (Peng, 2014, p. 363). An appropriate balance needs to be managed to meet the considerations of the industry, resources and institutions. (See fig. 2) The strategies that are chosen by institutions vary.
Reactive strategies focus on profit and do not deal with CSR,
defensive strategies put costs first in decisions about CSR,
accommodative strategies embrace CSR as well worth the effort
or proactive strategies are highly involved with CSR policy, enhancing the participation of stakeholders, and surpass the established regulations (Peng 2014).
One industry can take on each of the strategies during different periods of time in order to reach their goals (Peng, 2014).
A comprehensive model for management requires continual review to keep track of any influences either externally or internally. The general steps of the model start with identification of the stakeholders and categorizing their status as primary, public or secondary (Preble, 2005). Step 2 is to evaluate the stakeholders’ claims “and power implications”; Step 3 is to identify performance gaps and carry out performance audits; Step 4 considers the stakeholders expectations identified earlier and prioritize their demands; Step 5 is to “develop organizational responses” and Step 6 is monitoring and control of stakeholder positions, strategic progress and to carry out environmental and social audits (Preble, 2005, p. 412). The steps are carried out in a continuous cycle.
Global security and Corporate Governance Laws
No scandals comparable to those in America by Enron and WorldCom have taken place in India, a country that has remained “insulated from scandals” (Bajpai, 2005, p. 17). India’s security market is in charge of regulating the country’s corporate governance standards (Baijpai, 2005). Regulators in India are aggressive with enforcement.
Barglof and Claessens (2005) note that the corporate governance problems in developing countries are different from those in developed countries. Managers and entrepreneurs in developing countries must look to outside markets for financing while facing a “serious commitment problem” (Barglof & Claessens, 2005, p. 31). Investors are not confident in such cases as to whether they are choosing the projects that will result in profits (Barglof & Claessens, 2005). Another problem in developing countries is that governance disagreements between major and minor shareholders (Barglof & Claessens, 2005). On the other hand, the conflicts over corporate governance in the United States and the United Kingdom are “between powerful managers and widely dispersed investors” (Barglof & Claessens, 2005, p. 38). Another difference to keep in mind between developing and developed countries is the nature and degree of the written laws, and the occurrence of unwritten laws that need to be codified in developing countries and the large, complex amount of laws in developed countries (Barglof & Claessens, 2005). As developing countries become market-based formal and codified standards and regulations are developed (Barglof & Claessens, 2005). Ordering and enforcement are can be more expensive and the benefits are not clear unless the laws and regulations are transparent.
Southern Italy in Sicily is dominated by private enforcement by the Sicilian Mafia (Gambetta, 1993 cited in Barglof & Claessens, 2005). Vietnam is considered a transition country where private enforcement is obvious in some areas (McMillan & Woodruff, 2000). Research shows that in developing markets private enforcement is often more effective than public enforcement (Barglof & Claessens, 2005). Private enforcement is the “key mechanism for private enforcement” so investment in markets experiencing private enforcement are risky (Barglof & Claessens, 2005, p. 34).
The above brief comparisons between India, Vietnam, Italy, United States and United Kingdom, developing and developed countries showed India to the most attractive location for a firm. Bajpai (2005) is a recent Chairman of the Securities and Exchange Board of India (SEBI) and addressed the importance of business ethics in India. His positive descriptions of the business environment in India showed the country to be a secure location and a country highly invested in achieving higher business ethics in corporate governance (Bajpai, 2005). The United States and the United Kingdom have been the locations of corporate scandals that were involved in financial problems that reached around the world. Vietnam is transitioning and not yet implementing public enforcement. Sicily is definitely an unattractive location due to the Mafia’s private enforcement of corporate governance. African communities are “local in nature and most firms are small” with informal transactions reported to make up 47 percent of all transactions (Peng, 2014, p. 47). Considering the above factors, India is the most attractive country for locating a business enterprise.
The nature of the firm in society
Firms interact with institutions dynamically and the “strategic choices are direct outcomes” of the relationships (Peng, 2014, p. 99). Firms are placed inside institutional frameworks where both informal and formal limitations are defined (Peng, 2014). Peng (2014) offers the following core proposition relating to firms.
Firms (and managers) “rationally pursue their interest and make choices” within the boundaries set by institutional frameworks (Peng, 2014, p. 121).
The amalgamation of unofficial and official determines the nature of a firm’s behavior (Peng, 2014).
Informal constraints are often not always plainly understood, but when formal constraints do not fulfill their objectives or are confusing, it is the informal constraints that play “a larger role in reducing uncertainty to firms” (Peng, 2014, p. 121).
Firms’ strategic decision-making is governed by business ethics and the respect or disrespect of ethical business practices has a large impact on the success or failure of the firm. A firm needs to seriously consider following ethical practices for a better chance at success. Firms can follow ethical practices while making a profit and the well-planned implementation of CSR can result in higher profits than what would have been expected if unethical practices are practice. Contemporary businesses are ethically bound to employ social and environmental responsibilities due to the needs of the world citizens. Firms are bound ethically to be good world citizens.
References
Bajpai, S. G. N. (2005). India at the Cutting Edge of Corporate Governance. In Millstein, I. M., Bajpai, S. G. N., Berglof, E & Claessens, S. 2005. Enforcement and Corporate Governance: Three Views. Global Corporate Governance Forum. Focus 3. pp. 17-26.
Berglof, E. & Claessens, S. (2005). Corporate Governance and Enforcement. In Millstein, I. M., Bajpai, S. G. N., Berglof, E & Claessens, S. 2005. Enforcement and Corporate Governance: Three Views. Global Corporate Governance Forum. Focus 3. pp. 27-70.
Bomann-Larsen, L., & Wiggen, O. (Eds.). (2004). Responsibility in World Business: Managing Harmful Side-Effects of Corporate Activity. Tokyo: United Nations University Press. Retrieved from Questia.
Business ethics. (2015). In The Columbia Encyclopedia (6th ed.). The Columbia University Press. Retrieved from Questia.
Freeman, R. E. 1984. Strategic Management: A Stakeholder Approach. Marshfield, MA: Pitman.
Gambetta, Diego. 1993. The Sicilian Mafia: The Business of Private Protection. Cambridge, MA: Harvard University Press.
McMillan, John and Christopher Woodruff, 1999, "Dispute Prevention without Courts in Vietnam," Journal of Law, Economics and Organization, 15(3), pp. 637-658.
Millstein, I. M. (2005). Non-traditional modes of enforcement. In Millstein, I. M., Bajpai, S. G. N., Berglof, E & Claessens, S. 2005. Enforcement and Corporate Governance: Three Views. Global Corporate Governance Forum. Focus 3. pp. 1-16.
Millstein, I. M., Bajpai, S. G. N., Berglof, E & Claessens, S. 2005. Enforcement and Corporate Governance: Three Views. Global Corporate Governance Forum. Focus 3. pp. 1- 88. http://www.ifc.org/wps/wcm/connect/6ab71c8048a7e7b3accfef6060ad5911/Focus_ENFCorpGov3.pdf?MOD=AJPERES
Peng, M. W. (2014). Leveraging Resources and Capabilities. Chapt. 4 in Global Strategy. 3rd ed. Mason, OH: South-western Cengage Learning, pp. 92-139.
Peng, M. W. (2014). Making Alliances and Acquisitions Work. Chapt. 12 in Global Strategy. 3rd ed. Mason, OH: South-western Cengage Learning, pp. 364-393.
Preble, J. F. (2005). Toward a Comprehensive Model of Stakeholder Management. Business and Society Review, 110(4), pp. 407-431. http://onlinelibrary.wiley.com/doi/10.1111/j.0045-3609.2005.00023.x/full139
