MBC 703 –CORPORATE FINANCE & ACCOUNTS ASSIGNMENT: The Primary goal of a firm has been held out to be shareholder wealth maximization which translates to maximizing stock prices. In light of this statement, do you think firms have any responsibility to society? BY Akanji Emmanuel olusegun BSU/MS/MBA/08/3104 FACULTY OF MANAGEMENT SCIENCE MASTER OF BUSINESS ADMINISTRATION (MBA) BENUE STATE UNIVERSITY MAKURDI. AUGUST,2010 1. 0 Introduction: The fundamental economic role of business is to make profit and to maximize shareholders wealth. Therefore, this primary objective is carried out in the society. Firms Operations are not performed in a vacuum but in an environment. Business Organizations are open system that must interact and respond to the environment. The performance of the Firm therefore is influence by the environment. The environment of business is made up of all the elements that are relevant to an organization’s operation though outside its control. This means that to survive in business environment, firm must anticipate, interact, act and react to environments to utilize the opportunities (maximizing Shareholder wealth) and avert the threats of not getting involve in(corporate social responsibilities) protect the interest of the societies. 1. 1 What is Corporate social responsibility? : Corporate social responsibility (CSR), also known as corporate responsibility, corporate citizenship, responsible business, sustainable responsible business (SRB), or corporate social performance, CSR is a form of corporate self-regulation integrated into a business model. Ideally, CSR policy would function as a built-in, self-regulating mechanism whereby business would monitor and ensure its support to law, ethical standards, and international norms. The definition of CSR used within an organization can vary from the strict "stakeholder impacts" definition used by many CSR advocates and will often include charitable efforts and volunteering. CSR may be based within the human resources, business development or public relations departments of an organisation, or may be given a separate unit reporting to the CEO or in some cases directly to the board. Some companies may implement CSR-type values without a clearly defined team or programme. Consequently, business would embrace responsibility for the impact of its activities on the environment, consumers, employees, communities, stakeholders and all other members of the public sphere. Furthermore, CSR-focused businesses would proactively promote the public interest by encouraging community growth and development, and voluntarily eliminating practices that harm the public sphere, regardless of legality. Essentially, CSR is the deliberate inclusion of public interest into corporate decision-making, and the honouring of a triple bottom line: People, Planet, Profit. Free market theory founded on liberal business ethos, presumably from Adam Smith: In the free marketplace, the essential (and ethical) aim for business leaders is to relentlessly pursue capital for their shareholders. The sole responsibility of business becomes simple: to facilitate the efficient allocation of economic resources and maximize shareholder wealth (i. e. become and remain as profitable as possible). Thus wealth creation transformed from selfish pursuit to “moral act. ” Organized corporate responsibility programs not core function of business but seen ancillary to essential goal of profit-making This includes not only activities such a philanthropy, civic volunteerisms, and the like, but also “people centered” strategic public relations, such as Identifying and building mutually beneficial relationships with publics, or Establishing and maintaining a favorable public reputation Sacconi(2004). 2. 0 CSR and Value Assertion Bansal(2000) stated that Corporate social responsibility are more than philanthropy, not just extraneous activity but should be core moral part of spectrum of obligations businesses address as part of society: in his word, he thought specifically about those decisions which managers face in the daily course of carrying out the firm's normal business activities, but which carry inherent ethical connotations. Examples of these types of decisions would include those decisions regarding layoffs, plant closings, workplace safety, product safety, worker compensation, executive salaries, information disclosure, or the level of pollution emissions . 1 Business Decisions and Corporate social responsibility Because every business decision ultimately affects someone, the decision should be made responsibly. Public relations should play a vital role in decision making by pointing out the potential implications and consequences of all of the firm's behaviors not only for the various stakeholders of the business but, in the long run, for the organization itself. Elements of Liberal Business Ethos • Society is based on atomistic individual freedom, • Individuals are exclusively self-interested; • All relationships in economic society are by nature instrumental; Free markets are inherently stable and self-regulating; • There is a natural division of labor between business and government; and • The sole "ethical" responsibility of business is to maximize shareholder wealth (profits). Adam Smith credited with articulating basis for liberal business ethos in the Wealth of Nations: 2. 2 APPROACHES TO CORPORATE SOCIAL RESPONSIBILITIES An approach for CSR that is becoming more widely accepted is community-based development approach. In this approach, corporations work with local communities to better themselves. Often activities companies participate in are establishing education facilities for adults and Children, given scholarship and HIV/AIDS education programmes. The majority of these CSR projects are established in Nigeria by blue cheap companies such as Shell Nigeria in the Niger delta, Daimond bank Nigeria Plc –Building School Hostels Accommodation, AP oil, First bank Nigeria Plc to mention but a few. A more common approach of CSR is philanthropy. This includes monetary donations and aid given to local organizations and impoverished communities in developing countries. Some organization do not like this approach as it does not help build on the skills of the local people, whereas community-based development generally leads to more sustainable development. Another approach to CSR is to incorporate the CSR strategy directly into the business strategy of an organization. For instance, Diamond Bank Nigeria PLC in one of her product sponsor children to South Africa for maintaining some balances in their account. Another approach is garnering increasing corporate responsibility interest. This is called Creating Shared Value, or CSV. The shared value model is based on the idea that corporate success and social welfare are interdependent. A business needs a healthy, educated workforce, sustainable resources and adept government to compete effectively. For society to thrive, profitable and competitive businesses must be developed and supported to create income, wealth, tax revenues, and opportunities for philanthropy. CSV received global attention in the Harvard Business Review article Strategy & Society: The Link between Competitive Advantage and Corporate Social Responsibility Michael(2000). Mark(1998) In his article provides insights and relevant examples of companies that have developed deep linkages between their business strategies and corporate social responsibility. Many approaches to CSR pit businesses against society, emphasizing the costs and limitations of compliance with externally imposed social and environmental standards. CSV acknowledges trade-offs between short-term profitability and social or environmental goals, but focuses more on the opportunities for competitive advantage from building a social value proposition 2. 3 Criticisms and concerns The practice of CSR is subject to much debate and criticism. Proponents argue that there is a strong business case for CSR, in that corporations benefit in multiple ways by operating with a perspective broader and longer than their own immediate, short-term profits. Critics argue that CSR distracts from the fundamental economic role of businesses; others argue that it is nothing more than superficial window-dressing; others yet argue that it is an attempt to pre-empt the role of governments as a watchdog over powerful multinational corporations. Corporate Social Responsibility has been redefined throughout the years. However, it essentially is titled to aid to an organization's mission as well as a guide to what the company stands for and will uphold to its consumers. Development Business ethics is one of the forms of applied ethics that examines ethical principles and moral or ethical problems that can arise in a business environment. CSR and the nature of business :Milton Friedman and others have argued that a corporation's purpose is to maximize returns to its shareholders, and that since (in their view), only people can have social responsibilities, corporations are only responsible to their shareholders and not to society as a whole. Although they accept that corporations should obey the laws of the countries within which they work, they assert that corporations have no other obligation to society. Some people perceive CSR as incongruent with the very nature and purpose of business, and indeed a hindrance to free trade. Those who assert that CSR is contrasting with capitalism and are in favor of neoliberalism argue that improvements in health, longevity and/or infant mortality have been created by economic growth attributed to free enterprise. Critics of this argument perceive neoliberalism as opposed to the well-being of society and a hindrance to human freedom. They claim that the type of capitalism practiced in many developing countries is a form of economic and cultural imperialism, noting that these countries usually have fewer labor protections, and thus their citizens are at a higher risk of exploitation by multinational corporations. A wide variety of individuals and organizations operate in between these poles. For example, the REALeadership Alliance asserts that the business of leadership (be it corporate or otherwise) is to change the world for the better. Many religious and cultural traditions hold that the economy exists to serve human beings, so all economic entities have an obligation to society (e. g. Economic Justice for All). Moreover, as discussed above, many CSR proponents point out that CSR can significantly improve long-term corporate profitability because it reduces risks and inefficiencies while offering a host of potential benefits such as enhanced brand reputation and employee engagement. 2. 4 CSR and questionable motives Some critics believe that CSR programs are undertaken by companies such as British American Tobacco (BAT), the petroleum giant BP (well-known for its high-profile advertising campaigns on environmental aspects of its operations), and to distract the public from ethical questions posed by their core operations. They argue that some corporations start CSR programs for the commercial benefit they enjoy through raising their reputation with the public or with government. They suggest that corporations which exist solely to maximize profits are unable to advance the interests of society as a whole. Another concern is when companies claim to promote CSR and be committed to Sustainable Development whilst simultaneously engaging in harmful business practices. For example, since the 1970s, the McDonald's Corporation's association with Ronald McDonald House has been viewed as CSR and relationship marketing. More recently, as CSR has become mainstream, the company has beefed up its CSR programs related to its labor, environmental and other practices All the same, in McDonald's Restaurants v Morris & Steel, Lord Justices Pill, May and Keane ruled that it was fair comment to say that McDonald's employees worldwide 'do badly in terms of pay and onditions' and true that 'if one eats enough McDonald's food, one's diet may well become high in fat etc. , with the very real risk of heart disease. ' Shell has a much-publicized CSR policy and was a pioneer in triple bottom line reporting, but this did not prevent the 2004 scandal concerning its misreporting of oil reserves, which seriously damaged its reputation and led to charges of hypocrisy. Since then, the Shell Foundation has become involved in many projects across the world, including a partnership with Marks and Spencer (UK) in three flower and fruit growing communities across Africa Gary (2004) Critics concerned with corporate hypocrisy and insincerity generally suggest that better governmental and international regulation and enforcement, rather than voluntary measures, are necessary to ensure that companies behave in a socially responsible manner. Others, such as Patricia Werhane argue that CSR should be looked more upon as a Corporate Moral Responsibility, and limit the reach of CSR by focusing more on direct impacts of the organization as viewed through a systems perspective to identify stakeholders Fields(2002). In the increasingly conscience-focused marketplaces of the 21st century, the demand for more ethical business processes and actions (known as ethicism) is increasing. Simultaneously, pressure is applied on industry to improve business ethics through new public initiatives and laws (e. g. higher UK road tax for higher-emission vehicles). The term CSR came in to common use in the early 1970s, after many multinational corporations formed, although it was seldom abbreviated. The term stakeholder, meaning those on whom an organization's activities have an impact, was used to describe corporate owners beyond shareholders as a result of an influential Freeman(1984). . 5 Potential business Impacts of CSR The scale and nature of the Impacts of CSR for an organization can vary depending on the nature of the enterprise, and are difficult to quantify, though there is a large body of literature exhorting business to adopt measures beyond financial ones found a correlation between social/environmental performance and financial performance. However, businesses may not be looking at short-run financial returns when developing their CSR strategy. A recent survey of 20,000 people in 20 countries offers some fascinating insights into the way consumers, and societies at large, perceive the social and environmental responsibilities of business. Corporate Social Responsibility Monitor 2001: Global Public Opinion on the Changing Role of Companies identifies those aspects of corporate practice that matter most to the general public. It also reveals some intriguing differences in priorities between different regions of the world. The survey was undertaken by Environics International, and involved interviews with around 1,000 people in each of 20 countries including the USA, Canada, Mexico, Britain, France, Germany, Japan, India, Russia and Nigeria. The key findings are as follows. 1. Significant numbers of investors take a company's social performance into consideration when making investment decisions 2. In wealthy countries, social responsibility makes a greater contribution to corporate reputation than brand image 3. Companies that ignore social responsibility place market share at risk 4. Views and behaviours of opinion leaders indicate that consumers' social expectations of companies will continue to grow 5. North American consumers represent the most socially demanding market for companies 6. Two distinct groups of citizens, making up a third of the world, are engaged in pressurizing companies to assume greater social responsibility Human resources A CSR programme can be an aid to recruitment and retention, particularly within the competitive graduate student market. Potential recruits often ask about a firm's CSR policy during an interview, and having a comprehensive policy can give an advantage. CSR can also help improve the perception of a company among its staff, particularly when staff can become involved through payroll giving, fundraising activities or community volunteering. See also Corporate Social Entrepreneurship, whereby CSR can also be driven by employees' personal values, in addition to the more obvious economic and governmental drivers. What to Do? Articulate an alternative corporate ethical framework that places public relations into the core goals of socially responsible corporations. Public relations often perceived as attempt by cynical corporations to manipulate public opinion. Sadly true in some cases, but PR much more than this. 3. 0 Conclusion If Corporate Social Responsibilities(CSR) could become truly valued and supported by all Firm, it could become the foundation for a revised ethos between businesses and their societies all over the world. Such a revision should turn the invisible hand of business profitability into a visible and active hand of social prosperity. And businesses would be the better for it. . 0 Recommendations If corporate morality is to change into something less selfish and more humane, it should be guided by someone who values human relationships and be socially responsible too. Corporations must acknowledge that they are part of broader society and that publics in the society can have an impact on their achievements. Corporate Social Responsibilities(CSR) is based on publics, and publics are cultural constructs. Corporate Social Responsibilities , therefore, must take into account culture. REFERENCES: Baker, M. Companies in Crisis- What to do when it all goes wrong. " Bansal, P. , R. Roth (2000). "Why Companies Go Green: A model of Ecological Responsiveness". The Academy of Management Journal, Vol. 43, No. 4. Bulkeley, H. (2001). "Governing Climate Change: The Politics and Risk Society". Transactions of the Institute of British Geographers, New Series, Vol. 26, No. 4. Davis Lewiz (2001) “Corporate Social Responsibility Monitor” Global Public Opinion on the Changing Role of Companies http://www. environicsinternational. com/ Fields, S. 2002). "Sustainable Business Makes Dollars and Cents". Environmental Health Perspectives, Vol. 110, No. 3. Freeman K(1984). “Business and Corporate Social Responsibility” New York. Fry, L. W. , G. D. Keim, R. E. Meiners (1982). "Corporate Contributions: Altruistic or for Profit? " The Academy of Management Journal, Vol. 25, No. 1. Gary Woller, (2004) “Business Responsibility and Society- A Public Relation Perspective” Mark R. Kramer(1998), “V FSG Social Impact Advisors. ” Kennedy School Harvard University. Michael E. Porter(2001) a leading authority on competitive strategy and head of the Institute for Strategy and Competitiveness at Harvard Business School Sacconi, L. (2004). A Social Contract Account for CSR as Extended Model of Corporate Governance (Part II): Compliance, Reputation and Reciprocity. Journal of Business Ethics, No. 11. Sullivan, N. ; R. Schiafo (2005). Talking Green, Acting Dirty (Op-Ed). New York Times, June 12, 2005. 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