With the developing global market place, the number of ‘global companies’ has began to grow and along with it, so has their power both in an industry setting and also on the wider sociocultural scale. Naturally this has led to organisational relationships both with societies at large and markets undergoing transformation. For example in the light of troubling allegations of the use of sweatshops in manufacturing GAP Incorporated (US) have now embarked on a scheme to “improve garment factory conditions...[using]...this as a central element to their social responsibility. [However Gap's] social commitments do not stop there. Community giving and volunteerism are also deeply imbedded in their organisational culture.” (Gap Inc: Social Responsibility Report 2003:3).
As mentioned above, the ethical challenges to modern day businesses are frequently referred to as CSR. Although in its broadest sense ethics and CSR appear to go hand in hand, defining CSR can be a problem. As there have been many definitions overtime, CSR's definition in itself has led to series of debates amongst many academics, business people and politicians. However, before beginning to define CSR and its ethical grounding, it is worth considering why CSR matters. In today's business environment, it is clear to see that CSR can not be categorised merely as public relations 'whitewash' and if it can be well executed, it is a perfectly rational way of increasing a companies profitability and improving its long-term prospects. Thompson et al (2003) believe the driving force behind the concept of CSR is the “Licence to Operate, which gives companies permission to exist, do business and make a profit.” It can therefore be argued that to take away this so-called ‘Licence to Operate’ can lead to the company ceasing to be able to trade profitably and ultimately to exist. It is in the light of amoral behaviour by highly paid executives and scandals such as Enron that many firms now feel obliged to increase their CSR activities as an attempt to rebuild shattered trust in many parts of the world. For example Gap Incorporated and The Nike Corporation have both recognised the importance of CSR reports and management positions. As the Financial Times reported (Nov. 24, 2003) “both companies have taken extensive steps to ensure that its contractors treat their staff decently and do not employ child labour...as people want to be proud of their employers.” The Millennium Poll on Corporate Social Responsibility (1999:2) highlighted the growing importance of CSR as 56% of respondents view “social responsibilities as the factor most influencing public impression of individual companies.”
So with the growing importance of CSR in mind, where have the theories and writings on ethics and CSR emanated from? Peter Drucker argued as far back as 1954 “that the purpose of business is to create satisfied customers and that if they are doing this they are being socially responsible.” Milton Friedman interestingly conflicts this in the 1970s when he put forward "that the only responsibility of business was to maximise returns to shareholders" (in Behrman 1981:68). Both the Drucker and Friedman ideologies have one thing in common. This being that, in its basic sense, one of the first responsibility of business is to be economically viable and that “failure to comply with this trail of thought from a business and managerial perspective can in itself be deemed as a serious form of irresponsibility and this ‘irresponsibility’ can lead to misallocation of, or scarce resources” (Zinkin 2003:16). This is further supported by Freeman et al (1988:89) who states that “in Friedman's view, if corporate social responsibility required giving profits to charity or using them in a way without a direct benefit to stockholders, it would be tantamount to stealing from stockholders.”
On first look this appears to be very straightforward and uncontroversial, however it was Schumpeter's work (1942) on Capitalism, Socialism and Democracy that offered a differing insight to the role of business. Schumpeter “coined the term ‘creative destruction’ to denote a process of industrial mutation that incessantly revolutionizes the economic structure from within” (). In other words, Schumpeter contemplated the suggestion of something new killing something old. This therefore leads us to a view of business being disruptive, as whilst focussing on customers (Drucker’s ideology) organisations are “forced to understand that customers have choices and they may not wish to continue being customers of any one particular company” (Zinkin 2003:19). Naturally this will guide many of the multinational corporations of today to always being on the lookout for new ways of operating. For example this will include better, cheaper, and faster ways of satisfying today's consumers in order to attempt to keep them in the future. This is something that has been highly witnessed in recent time at Marks and Spencer's PLC who have constantly looked for cheaper ways to produce their clothing in order to pass the savings on to their customers and at the same time increase their profits.
Although this work gives us a differing view of organisations and the way they operate, Friedman's work needs to be paid closer attention. The Friedman literature is commonly referred to as an aspect of ‘agency theory.’ Agency theory in it broadest sense refers to “business existing principally for the shareholders and its actions judged mainly on the criteria of maximising their interests…directors are seen as agents of the owners and are duty bound…to act within the rules of the game.” The agency theory view is also in line with utilitarianism and more specifically ‘rule utilitarianism.’ Although the basis of utilitarianism is to secure “the greatest happiness for the greatest number” (http://www.kcmetro.cc.mo.us), rule utilitarianism is the view that “the rightness or wrongness of an action is to be judged by the goodness and badness of the consequences of a rule [which says] that everyone should perform the action in like circumstances” (http://www.ipfw.edu). These rules that would be prescribed would logically therefore become morale codes used to produce the greatest happiness for the greatest number. So using this as a basis to investigate Friedman's view, it would mean that organisations should operate within the law in order to achieve shareholder gains.
However there are two sides to utilitarianism as with many aspects of business theories. Act utilitarianism on the other hand “is the view that the rightness or wrongness of an action is to be judged by the consequences, good or bad, of the action itself.” (http://www.ipfw.edu). This therefore means that under this ideology, should shareholder benefits outweigh the costs (for example, environmental damage or worker exploitation) of operations, then those operations can be deemed to be ethical. Interestingly enough this statement targets the implication that unethical practices can be acceptable as long as they can be outweighed by an ‘overall good.’ Still, this raises an attention-grabbing question especially for the world of business: does it therefore mean, from Friedman’s perspective, that acting unethically can be acceptable as long as it leads to benefits being provided for the shareholders?
According to Strayer (2005) there are however, traditional objections to utilitarianism. For example it is difficult to see how it can be practically applied. Can we really know what amount of happiness is likely to result from either individual actions or from general rules pertaining to actions? Utilitarianism also seems to be unfair. Can’t it be the case that the happiness (and rights) of some individual or group of individuals be sacrificed for the happiness of the majority? For example what of groups of people who suffered while the majority benefited from slavery or was Hitler’s treatment of the Jews fair so the Arian race could benefit? Finally Strayer considers utilitarianisms focus on actions to the exclusion of motives and intentions - this makes it seem one-sided and naive.
Nevertheless, it seems under Friedman's writings, organisations can be seen to be pursuing their own self-interest. As Adam Smith (1986:7) wrote, “it is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own interest. We address ourselves, not to their humanity but to their self love, and never talk to them of our necessities but of their advantages.” Ikerd (1999) believes this statement provided “the foundation of the contemporary economic wisdom -- that pursuit of short run self-interests is transformed into achievement of the public good, as if by an invisible hand...the greatest societal good results from the greatest individual greed.” However in the late 1700s, at the time of Smith's writings, the economy was very different to that of today. In fact “most enterprises were small, family operations...and corporations were very few in number” (http://www.answers.com/topic/free-trade). Although this was the case, Smith (1986:28) had still realised the dangers of excess profits: “the price of a monopolist is upon every occasion the highest than can be got...and corporations [are] to be inherently irresponsible entities, and [Smith] could think of only a handful of endeavours where publicly owned corporations could be justified.”
However with most areas of study, ethics does have other dimensions to it. For example under Kantianism it can be argued managers have a choice to make. It was Kant who argued that we must “act only on the maxim through which you can at the same time will that it be a universal law” (O'Neill, 1991:177). Using this as a theoretical basis would therefore mean managers, employees, consumers etc have the choice to leave or stop using the company if they are asked to do anything which they may construe as immoral. However would this always be the case? For example how many of us believe The Nike Corporation or The Royal/Dutch Shell Group of companies have previously acted immoral yet we still use their products. I for one can freely admit to being guilty of this! This, as Hendry (2004:175) states is because “we may be uncertain, in many situations, what is morally right.” However to some extent the “weakening of moral authority has been compensated for by strengthening of the law, as areas that were previously left to people's moral judgement are brought into legislation” (Hendry (2004:175). Although at one time accounting for as Kant believes, the ability to make choices, the legislation element supports Friedman's view that managers should not consider the wider ethical implications of their actions other than keeping within the law. However, in Kantian theories, Kline (2005:23) states that “respect for human beings is said to be necessary - not just as an option or at one's discretion - because human beings possess a moral dignity and therefore should not be treated as if they had merely the conditional value possessed by machinery for example. In a corporate context, this refers to respect for the individual.” In other words, for organisations to act without considering the consequences of their actions on wider society would be wrong.
Another area of ethics that can be taken into consideration when looking at CSR is ‘stakeholder theory.’ As Cannon (1994:32) writes, stakeholder theory states, “there exists an implicit or explicit contract between business and the community in which it operates. Business is expected to create wealth; supply markets; generate employment; innovate and produce a sufficient surplus to sustain its activities and improve its competitiveness while contributing to the maintenance of the community in which it operates. Society is expected to provide an environment in which business can develop and prosper, allowing investors to earn returns while ensuring that the stakeholders and their dependants can enjoy the benefits of their involvement without fear of arbitrary or unjust action. The interdependence between society and business cannot be understated.” Using stakeholder theory, it therefore appears that social responsibility is indeed a business issue. As we have seen, to act purely from self-interest point of view would indeed contradict the opinions of those such as Cannon. The reasoning behind this is simple for as Freeman et al (1988:89) state “firms are social entities, and so they should play a role in the social issues of the day. They should take seriously their obligations to society and actively try to fulfil them.”
However it can be seen that this raises the question of how do you determine the role of an organisation in society? Wood (2000) wrote that the “principles of social responsibility are based on three major elements: legitimacy; public responsibility; and managerial discretion.” This Wood (2000) believes “concerns business as a social institution; frames the analytical view of the interrelationship of business and society; considers the individual firm and its processes and outcomes within the framework of its own principles in terms of what it actually does; and finally a process whereby managers and other organisational members are moral actors.” Taking this into account, it is therefore clear that social responsibility is a growing trend among top executives and companies. However acting responsibly as we can see involves more than planting a few trees here and there or giving some educational tools to local schools. This ‘interrelationship’ involves organisations undergoing a fundamental change in how they operate and the culture they have within. This will naturally be a long and costly process for many organisations that have perhaps not undertaken this role before, however the benefits of getting this correct are without doubt there to be witnessed.
Having now discussed globalisation and CSR does it therefore mean that CSR is indeed a business issue or just another passing management and cultural 'fad'? The past highly publicised behaviour of executives and organisations has merely reinforced people’s miss-trust of large organisations and as a result many firms now feel obliged to increase the visibility of their CSR activities as part of an attempt to rebuild trust.
As we have seen, the ‘agency’ theorists and especially Milton Friedman, as far back as 1970 argue, “that the only responsibility of business was to maximise returns to shareholders” (in Behrman 1981:68). Consequently to “place the burden of social engineering at the door of business can be viewed as inappropriate for several reasons” Zinkin (2003:19). Zinkin takes this argument further. For example he states that “managers do not have the skills or the experience needed to arbitrate between competing claims of different sections of society. This it can be said must remain the role of government...as without a political mandate, deciding between competing claims for resources, would be unfair and biased as after-all, organisation are not ‘elected’ and if managers get into the business of politics, politicians will get into the business of management and this will lead to `money politics' undermining the legitimacy of both business and politics.”
However Archie Carroll (Professor of Business at The Terry College of Business, University of Georgia, USA) argues that “at minimum, businessmen must demonstrate social responsibility by satisfying an economic purpose through a) the provision of products and services desired by customer and b) the creation of sufficient capital to fund R&D, to invest in replacements of existing capital stock and to upgrade current human and intellectual capital, so that the great engine of creative destruction can continue, focussing on both efficiency and effectiveness.” This alternative view is of course supported by the ‘stakeholder theorists’ and as we have seen, in particular Cannon (1994:32) with the belief of there existing an “implicit or explicit contract between business and the community.”
As with many debates, there will always be two sides of the coin. To say the agency theorists are wrong or the stakeholder theorists are right, or even vice versa would be unfair. Markets, economies and peoples perceptions have changed and with it so has peoples expectations of organisations and their roles in society. For example who would have believed that boycotts by ethically motivated consumers would cost big brands £2.6 million per year or that 51% of the British public say they have chosen a product because of its reputation? Organisations will always have to make money in the first instance, for without this fundamental business principle many would collapse under market pressures. Although this is the case, many of today’s MNEs have recognised the benefits of going further and also the need to do so for their reputations. For example both Nike and Gap sponsor Non-Governmental Organisations (NGOs) to look at their operations abroad and both also produce CSR reports in order to demonstrate how serious an issue responsibility is.
As Multi National Enterprises by definition can operate in several markets in which they can have increased or restricted liberties in decision making than in their home country, socially responsible practices have come under great scrutiny. What is classed as ‘normal’ practice in any given country will depend on that country’s ethical positioning and this may even conflict with a company’s domestic practices or beliefs. This for example has been highlighted with the use of child labour in Indonesian countries. In Western cultures the use of children in work places is ‘frowned’ upon and this is why The Nike and Gap Corporations have as Douglas Alexander MP stated “suffered as a direct result of conditions that workers were exposed to in the factories run by some of their sub contractors…and now both companies sponsor an independent NGO to review their operations.”
In today’s market places we are seeing many organisations lay out minimum levels of business ethics that they must follow both domestically and on a worldwide scale, “regardless of the legal requirements or ethical norms prevalent where they operate” (Donaldson, 1992:51-55). Naturally acting socially responsible from a business view “can have two possible objectives: create competitive advantage and avoid being perceived as irresponsible” (Daniels et al 2001:23). Hosmer (1996:501) believes that “in terms of the former, it is argued that responsible acts create strategic and financial success because they lead to trust, which leads to commitment.” For example, this is highlighted by The Levi-Strauss Corporation who state that “an expose on ’60 Minutes’ can undo years of effort to build brand loyalty” (In Daniels et al 2001:23). It is with positive actions and beliefs such as those as Levi-Strauss that is leading to a shift in the way many large organisations are beginning to view CSR. This is supported by Daniels et al (2001:23) as they see “that MNEs are obligated to set good examples that may become the standard for socially responsible behaviour.”
Many organisations today have become so large that their turnovers can rival the income of some of the poorest countries in the world. For example Gap Incorporated had an annual income of $15 billion (US) in 2003 (http://abn.mobular.net). Organisations are therefore in a position to ‘shape’ cultures and markets in anyway they choose fit to do. Without doubt social responsibility requires human judgement and this is one reason that can make decisions in this area very complex and subjective. Organisations do and will continue to face many ethical dilemmas both at home and abroad in their operations. However this can be seen as the ‘price of success.’ As the scope of many organisations has grown, so has people’s awareness of their actions. With the expansion of the Internet and twenty-four hour news services organisations are open to more scrutiny than perhaps ever before. Those who do act unethically, such as the Enron’s of the world, will be found out and have to face the consequences, which can be far more damaging than a mere dip in sales for example. However “many multilateral agreements now exist that can help companies make ethical decisions. These agreements deal primarily with employment practices, consumer and environmental protection and human rights in the workplace” (Daniels et al 2001:24). An example of which can be the US government voluntary code, 1995 for US companies’ operations abroad, which included recognition of workers rights to organise and the avoidance of using child or forced labour.
Finally as we can see globalisation is difficult to define and a contentious topic between many. The views on globalisation itself are also very wide ranging and in itself, globalisation has quickly come to affect every field of world society. Be it from the economy to politics, or technology to culture. In a business sense, globalisation affects the internal and external relationships of organisations and the process of globalisations has undoubtedly brought to the forefront of discussion the social responsibilities of many of the worlds MNEs. Globalisation and its forces, such as, power, cultural diversity and the quest for competitiveness, therefore raise serious questions about business ethics. It is with this background to globalisation that social responsibility is indeed a business issue. For today’s large organisations to continually ignore the society’s rules, laws and workers rights of the areas in which they operate could overtime lead to a mass of ruin and poverty in many areas of the world. As the influx of goods and services from the global market place continues to grow, the responsibilities of organisations is something that we must all be aware of. The days of ‘the business of business being business’ are far-gone. It is my opinion that MNEs cannot, and should not be allowed to do as they please in many markets and places of manufacture. They should indeed, as we as human beings are, be held accountable for their actions and as we move forward through a new millennium take stock of the growing role that many of these organisations have in developing not only good quality products, but also many of the economies and skills of the people and places whom they encounter through their operations.
Hopefully this discussion into this debatable area of the business world has stimulated your own thoughts to the importance of this theme and will make you think about the actions of MNEs and how you as a human being reflect on the decision and actions taken by many organisations in the world today remembering, that there is always two-sides to every story.
Adapted from "Global...Business Ethics? Challenges and Paradoxes" at http://www.sase.org/conf2003/papers/coutinho-bertrand.pdf
Adapted from "Globalization: What Is It?" at http://globalization.about.com/cs/whatisit/a/whatisit
Adapted from http://www.sociology.emory.edu/globalization/issues01.html
Adapted from www.nonprofitbasics.org/TopicAreaGlossary.aspx
See appendix for figures on globalisation trends
See appendix for further story details
Adapted from http://search.epnet.com/login.aspx?direct=true&db=buh&an=2W81466580915
Composed by Environics Ltd. Adapted from http://www.environics.net/eil
Adapted from http://www.economyprofessor.com/economictheories/agency-theory.php
Adapted from http://www.ipfw.edu/phil/faculty/Strayer/UTILITARIANISM.PDF
Presented at a seminar sponsored by the Organization for Competitive Markets, Omaha, NE,
September 1999
Prof. Donna Wood article adapted from http://www.mhcinternational.com/measurement.htm
Adapted from The Co-Operative Bank, The Ethical Consumerism Report, 2003
Adapted from The Ethical Consumer, MORI/The Co-Operative Bank, 2002
Douglas Alexander MP is the former Minister of State for E-Commerce and Competitiveness. Adapted from ‘CSR: Future Challengs’ speech, March 21st 2002.