Social responsibility is the belief that firms should voluntarily contribute to society and the less fortunate. There are many different ways companies can make their voluntary contributions. Examples include donating percentages of profits to charities, causes, local communities or society in general. Firms can also make contributions to improving the quality of life for employees and their families through benefit packages such as profit sharing and 401K accounts. Examples of some companies who practice social responsibility are Ben and Jerry’s, UPS, Starbucks, Walt Disney, Apple, Johnson & Johnson, and McDonald’s. Larger firms and corporations seem to make the largest social contributions. Many people would argue that this is because they have the largest net profits to work with.

Although social responsibility undoubtedly benefits society, it has become a hot topic because of different concerns that circulate the issue. There are those who argue for social responsibility; since society benefits from the firm, they should give back to society. Others believe the only social responsibility of a firm should be to make a profit.

Corporate social responsibility has many supporters. Firms support social responsibility because it can benefit them in many ways. Many firms have realized that social responsibility is a great recruiting tool when looking for new employees. People are attracted to a company that does good things for society. Also, socially responsible firms have a higher retention rate than those that are not. People enjoy being a part of an organization that is bettering society. Employees of socially responsible firms may be happier in the place of work because they feel like they are a part of something larger than themselves. Furthermore, in a competitive marketplace how a customer views your company is crucial. Companies that are socially responsible build a positive reputation for themselves. In return, more customers may buy their product, or purchase their services.

Social responsibility is also supported because of the way it benefits society in general. Many believe that if enough firms practice social responsibility, in the long run a healthier economy will be molded. A stronger marketplace will be a result of this. People believe that since firms benefit from society that they should in return plow back in some of their profits.

On the contrary, there are many who criticize social responsibility. Refuters of social responsibility argue that this practice can actually harm the balance of a business. Profit given away may disposition a company because these means could have been invested into growth, and improvement of the firm. When portions of profit are being given to charities as opposed to reinvestment for internal growth these socially responsible firms are being put at a disadvantage to those firms that are not.

In addition to this, challengers also argue that it is unethical for corporations to deprive or short challenge stockholders’ dividend payments because of social responsibility investment. Since they are the ones investing in the success of the company in the first place, they are the ones that should be benefiting from profits. Many argue another place these funds should be allocated is to the employees themselves. If they are the ones that are driving the business’s high profits, they should be benefiting from their labor. Instead of investing these additional funds into society they should be reinvesting it into their employees in the form of bonuses. In my opinion, corporate responsibility should be the responsibility of only those who desire to make a difference. Responsibility should not be pushed onto anyone and everyone as a requirement. Only those who will take the time to assure the money they donate will go to a good cause should practice this behavior. Otherwise it is a waste of money that could be spent elsewhere. If the financial situations of the people who work at the company or the stockholders are at stake then I would view social responsibility as irresponsible. I also believe that if social responsibility denies the firm of a reasonable profit margin than this as well is wrong, and a bad business decision. I believe that social responsibility should be a choice, and a luxury, to those firms who can afford to use this tool to their advantage.

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Tags: corporate, ethics, responsibility, business, governance

Parmalat, BCCI and Maxwell are examples of major corporate failures that shocked the world prior to the inception of corporate governance in the 1980s. However, since the corporate scandal of Enron, corporate governance has brought about increased attention amongst regulators and all stakeholders world over particularly shareholders, banks and governments. This concern has resulted in a focus on the relationship between a company’s shareholders and its Board of directors, as well as the executive and non-executive directors.

Regarded as leadership in the corporate sense, corporate governance is meant to assist companies to manage and control risk processes within an organisation.

Inferred from its definition, corporate governance need to be more pragmatic in its operations ensuring that the company conforms to the laws and regulations.

The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. This is usually not the norm. Enron’s demise as a result of its excessive risks, conflict of interest and poor accountability on the part of its directors, does not seem to have scared other organisations. Recent events in organisations are not anything to write home about. Corporate governance is meant to govern not to be used as a witch-hunting exercise. However, the way things happen in the board room, corporate governance needs to be tightened if it can bring about the change so much needed at this time.

By the directors confirming that the company accounts comply with requirements in the Company Act, they become accountable to the entire stakeholders and responsible for safeguarding their assets and other of the Group and hence for taking reasonable steps for the prevention of fraud and other irregularities. Enron’s conduct indicated that its directors were not really complying. To date, there is increasing acceptance that in spite of legal duties remaining solely to shareholders, there is the view for companies to be more accountable to other stakeholders including workers. Even though this view is being challenged both in America and the U.K, shareholders still want to wield more powers to maintain their investment. This is evident in the recent demonstrations by shareholders describing directors as ‘fat cows’.

Considering the relevant principles missed by Enron in its operations in comparison with Next, it is gainsaying the fact that some of the mistakes Enron made are still going on in some organisations around the globe-unnecessary risk-taking; performance-related pay schemes including share options to Executives with the non-executive directors sitting aloof doing nothing. Enron’s Board’s compensation committee refused to ask any question about the award of salaries, perks, annuities, life insurance and rewards to the executive members at a critical point in the life of Enron. Sir Goodwin’s recent pension saga is a recent case in point. It leaves a sour taste in the mouth of all stakeholders to see that ‘simple’ things to be done to salvage ‘huge’ losses or scandals are clearly overlooked may be due to familiarity which breeds contempt, anyway.

The temptation to be ‘bought’ with money is so strong that the idea of independent executive directors serving on a board is not having the impact it was expected to have as they all easily get caught up in the scandal in the long run. All the so-called independent committees, directors, and auditors were there to bring checks and balances yet they failed shareholders.

People were just doing anything they want. Suffice to say that the onus of the matter is that the culture of the organisation should be linked with individual values and channelled to what the organisation is expected to do in its corporate rules and regulations. This could in no doubt go a long way to stamp out the bad nuts from the corporate board rooms.

Enron created partnerships with shell companies or subsidiaries known as special purpose entities (SPEs), enabling them to keep hundreds of millions of dollars in debt off its books, overstate and understate debt due to some very loose accounting rules. The Directors of Next plc on the other hand complied with Company law requiring them to prepare accounts for each financial year which give a true and fair view of the state of affairs of the company and the Group and of the profit or loss of the Group for that period. Who controls the monitor? A lot might have been said and written about this but it is worth commenting that auditors who are meant to control the system (and for that matter the controllers) are human beings. They have conscience and thus someone or somebody could be said to also monitor them and the cycle goes on and on. What is actually needed in my opinion is little honesty, morals and fear of God.

The four-member Next’s audit committee reviews the risk management process and significant risk issues are referred to the Board for consideration; and considers financial reporting and reviews the Group’s accounting policies relating thereto.

It must be said here that in particular, major accounting issues of a subjective nature are discussed by the committee thus zeroing in to the issues relevant to Next not just the IASB’s requirement. This procedure might have helped the position of Next in the long run and could definitely help other companies if they follow those principles.

Furthermore, the first basic rule of investing which was diversification was also breached at Enron. Workers investing pension money in company shares had their savings tied up in Enron’s stock; and there was no plan for workers to diversify those savings and government regulators did virtually nothing. This is irresponsibility on the part of the directors. Workers’ anger was evident when in France, for example some company bosses were held hostage. The G20 demonstrations in London were also other cases in point.

In Next people are considered a key asset to the business. The Board has, therefore, adopted policies aimed at minimising risks in the Group’s activities to ensure that they do not harm employees, customers or the general public, all of whose interests are regarded as critical to business success. Shareholders have an opportunity to ask questions or represent their views at the Annual General Meeting. This is always the norm at Annual General Meetings. But half a loaf is better than none, it is said. Not all the mistakes and loopholes could be plugged overnight but communications should as usual be a two-way affair, continuous and all concerns by stakeholders should be followed and investigated by independent bodies.

Enron and its executives have contributed large sums of money to some politicians. Enron created a culture in which financial instruments was designed to turn profits into losses and taxes into tax shelters. Excessive risk was the word. It was different with Next. It conducts a weekly “Next Brand trading meeting” which considers the performance and development of the Next Brand through its different distribution channels. All business aspects of risk management in respect of the Next Brand including sales, property, product, systems, warehousing and personnel also considered here. Key performance indicators are monitored daily and weekly to help to keep in check all aspects of risk. To Next, risk management was part of their organisational culture.Next’s Board is responsible for the Group’s risk management process. It has delegated responsibility for implementation of the risk management process to the Chief Executive and senior management best qualified in each area of the business. The Board sets guidance on the general level of risk.

Next’s conduct or operations in the board room should be emulated. Corporate governance should be a continuous process and all stakeholders-focused. It should not discriminate and should be regularly reviewed by an external body appointed by shareholders in consultation with the board so that they do not take over the responsibilities of the board.

The Next’s Board takes care not to disseminate information of a share price sensitive nature which is not available to the market as a whole. On the other hand share performance-related pay contributed to Enron’s demise by pushing the executives to announce non-existent profits through the special purpose entities to deceive the market in order to keep its stock price high to enable them receive their fat pay. They paid themselves huge salaries as a result.

This practice is still continuing all over the globe; and was mainly part of the current recession. There is no doubt that Boards of companies should be made to live up to their responsibilities. With Next’s corporate governance, one could see that the main responsibilities lie with the Board. For example, the system of internal control and major policy decisions as well as the Group’s risk management are the responsibilities of the board; who in turn delegates these responsibilities to the CEO and senior management best qualified in each area of the business.

The Board at Next acknowledged that its primary role is to represent and promote the interests of shareholders; is accountable to shareholders for the performance and activities of the Group and communicates with its shareholders in respect of the Group’s business activities through its annual Report and accounts, yearly and half yearly announcements and regular trading updates to the stock exchange. Enron’s board of directors were ‘busy’ trying to mislead tax authorities in order to collect $87m from creating tax shelters. A little over the top maybe, but little drops of water make a mighty ocean. Enron could have avoided all those mess if it had listened, complied and enforced the rules to the letter instead of bending them to suit their whims And caprices. The Business Roundtable emphasised that in planning communications with shareholders and investors, companies should consider never misleading or misinforming shareholders about the corporation’s operations or financial condition. This was lack of business ethics.

Enron appears to be ‘an accident waiting to happen’. Enron’s internal controls had been very weak as a matter of fact. When an employee wrote a memo about the CEO, Ken Lay; he himself handled the matter internally by appointing a law firm which has a long association with Enron to investigate the matter. Auditors, lawyers and independent directors should be seen to be totally independent as outlined in the relevant regulations and laws. They should not be allowed to dabble in the company’s affairs where they have any interest. This must be seen to be enforced.

The main lesson to learn from Enron’s experience is there was no compliance whatsoever with Enron’s operations. Enforcement does not necessarily mean there would be compliance. Enforcement precedes compliance and could be linked together to the success of corporate governance. Enforcement means to compel people to comply with or do something by law or regulation. Unfortunately this had not been the case in most of the corporate scandal cases. No one seemed to enforce the laws and regulations; not the independent directors or the regulators themselves. The significance of this is that compliance to laws and regulations does not come easily without independent directors disciplining themselves to follow the regular review of risk management issues for the company concerned.

Nevertheless, corporate governance could be the hub to the reputation of company and its directors regardless of other equally important issues like corporate social responsibility (CSR) for the reason that it has widely been embraced for its apparent economic health of companies and society in general. Like Total Quality Management, corporate governance should be made company-wide, stakeholder-focused and rated given awards like the ISOs.The ratings should be published regularly. This could benefit all stake holders and bring back the trust shareholders in particular have lost in both executive and non-executive independent directors.

Reference:

1.’In search of Gates’; Fortune, October 4, 2004 pp76

2. Elkind, P; Bethany, M; ‘They’re getting close’, Fortune November 24, 2003 page21

3. Fortune Europe Edition No.24, December 22,2003pp 40

4. Gunther, M; ‘Boards Beware!’ Fortune November 10, 2003 page 80

5.’Inside The Head of BP’ by Nelson D.Schwartz, Fortune, July 2004, page 56

6.’LEADERS: The real Scandal’ the Economist January 19th, 2002 page9

7. Next Annual Report and accounts, January, 2002

8. Sellers, P. “INNOVATION SPECIAL; P&G: Teaching an old dog New Tricks”, Fortune; May 31, 2004 page36, 37, 60-63

9. Taylor III, A., THE AMERICANISATION OF TOYOTA, Fortune, December 8, 2003 pp56

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Tags: ethics, result, relation, country, governance

This articles relates to the AlphaMeasure core competency Culture and Climate. AlphaMeasure defines climate as the effect an organization has on the employees, while culture refers more to the acceptable behaviors, attitudes, and habits of the organization as a whole. Knowing and understanding workplace culture and climate leads to a better understanding of what factors are influencing employees. In relation, the level of service your customers receive is almost always influenced by the culture and climate of your organization. This competency can be especially insightful if your organization is experiencing customer service related issues or problems working together internally.

A Tale from the Corporate Frontlines: An Employee’s Perpective on Culture and Climate. This short story is part of Tales from the Corporate Frontlines AlphaMeasure’s .

When large, multinational corporations acquire medium-sized, locally-oriented businesses, huge shifts in the culture and climate of the workplace can occur.

I experienced such a shift while working for a prosperous company with a rich local history and plenty of prestige in the community. When I started there, years ago, the culture was very friendly and laid back. This may have been due to the fact that although an eastern company, it was owned and directed by a larger west coast entity.

The culture and climate was relaxed and friendly. Occupants of executive row could be seen mingling with “regular employees” at company functions, which were many- the bill nearly always footed by the company. They recognized employees and their families by name, and were regularly spotted in offices, hallways, and the cafeteria, catching up with fellow workers, and enjoying themselves. Morale was high, along with productivity and profitability. It reminded me of working for a family business, even though 500+ people worked in the building.

Then came the sale. At the first of many employee meetings, the details of the huge corporate transaction, of the kind so common these days, were outlined. This new parent company turned out to have a climate and culture exactly the opposite from what we were used to for years.

Change didn’t occur overnight, but gradually the shift began. Then it washed over our little company like a tidal wave. Executive row was walled in like a fortress, and its occupants stayed inside. We were barraged by memos, new rules, more rules, dress codes, building regs, vacation regs, holiday changes, work process changes, changes for the sake of making changes (or so it seemed to the employees), layoffs, restructurings- the climate became tense and chaotic. Morale suffered, as well as productivity.

Eventually, things worked out. Communication between various levels of management improved, understandings were reached, and the company survived and thrived again. But I always wondered—couldn’t someone have done something to make the shift easier and smoother? With sales, mergers, and acquisitions so common these days, there has got to be a better way. It seemed to me that if a little consideration had been given to the radical climate and culture changes involved, the company could have handled the transition more smoothly, to the benefit of everyone involved.

This article may be reprinted provided it is published in its entirety, includes the author bio information, and all links remain active.

2004 – AlphaMeasure, Inc. – All Rights Reserved

Josh Greenberg is President of AlphaMeasure, Inc. located in Boulder, Colorado. AlphaMeasure provides organizations of all sizes a powerful web based method for measuring employee satisfaction, determining employee engagement, and increasing employee retention.

The AlphaMeasure Employee Survey System is fully-customizable and allows you to target the organizational topics and challenges facing your staff today. Designed by HR professionals from the ground up, the AlphaMeasure Employee Satisfaction Survey System provides an affordable, feature rich solution for deploying fully-customized employee satisfaction or employee engagement surveys.

For additional employee surveying resources go to this site

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Tags: corporate , ethics, governance, training