Responsibility of Companies Has Historically Term Paper

  • Length: 35 pages
  • Subject: Business
  • Type: Term Paper
  • Paper: #1324596

Excerpt from Term Paper :

These claims are virtually all based on the concept that corporations - particularly multinationals -- should be held accountable for their actions within their sphere of operations. "Corporations, for their part, have responded in numerous ways, from denying any duties in the area of human rights to accepting voluntary codes that could constrain their behavior" (Ratner, 2001, p. 436). In fact, this very point is echoed throughout the literature; for example, "At the turn of the 20th century, corporations tended to disregard the public interest willy-nilly. And even as recently as one-half century ago, corporations had so much power over the marketplace and so little responsibility to society" (Sriramesh & Vercic, 2003, p. 450). Despite these trends, things are changing, though, as Ratner points out: "The last decade has witnessed a striking new phenomenon in strategies to protect human rights: a shift by global actors concerned about human rights from nearly exclusive attention on the abuses committed by governments to close scrutiny of the activities of business enterprises, in particular multinational corporations" (p. 435). This closer scrutiny has profound implications for those companies who would seek to expand their market share into the global marketplace.

Research method of the study

The research method used in this study will consist of an exploratory approach comprised of a critical review of the scholarly and refereed literature, with an emphasis on identifying the corporate responsibilities of multinational corporations today based on historic trends and events.

Literature Review

Background and overview.

It just makes good sense the companies must be concerned with their profitability; clearly, without profits, the company would simply cease to exist and there would be no benefits accruing to anyone. In recent years, however, there has been an increasing amount of attention paid to the underlying ethics of how companies, and particularly multinationals, compete in an increasingly globalized marketplace, and precisely what responsibilities are associated with doing business abroad. These questions are not new, but they have assumed increasing importance today. Citing studies by J. Scott Armstrong, Mayer reports that in the 1970s, there was fairly global and homogenous response to increasing corporate pressures to make decisions with their bottom line foremost in mind identified. Armstrong surveyed approximately 2,000 management students from ten countries to play the roles of corporate board members of a multinational pharmaceutical company; the author posed the question of whether the company should remove a drug that had been found to endanger human life from the market. As board members, fully 79% refused to withdraw the drug and sought legal and political actions to either delay or stop government efforts to ban the drug (Mayer, 1999).

Likewise, the Bhopal tragedy caused by Dow Chemical and the Exxon Valdez oil spill are just some of the better-known instances of the disasters that took place in the late 20th century that clearly demonstrated the power of the multinationals to cause enormous devastation on the health and safety of neighboring communities if unconstrained. Not surprisingly, these events have resulted in a demand for the imposition of corporate responsibilities (Mehmet & Mendes, 2003). Unfortunately, these authors point out that, "These patterns of immediate denials and downplaying or withholding of vital information seem a constant theme in these corporate activities which have devastating impacts on local communities. Such exercise of power without responsibility is a serious flaw in the workings of global governance" (Mehmet & Mendes, 2003, p. 122). In order to identify precisely what responsibilities such multinationals have, it is first necessary to define and describe them; these issues are discussed further below.

Corporate responsibilities - What are they?

According to Pava (1999), things have changed in fundamental ways for most companies today. "Most of us, most of the time," he says, "look at business through the commodity-based lens. Business is action-oriented. Defining the corporation in this way does not necessarily entail an amoral view of the business corporation. The best example of a business ethics built upon a commodity-based view of the corporation is the now-familiar 'stakeholder theory'" (p. 6). The stakeholder theory maintains that corporations must recognize their responsibilities to various stakeholder groups in society, beyond just their own stockholders; in this regard, these responsibilities include:

1. Providing customers to produce safe, high-quality products at reasonable prices;

2. Treating suppliers with honesty and with integrity;

3. Ensuring that employees and managers are provided with profitable work opportunities and to be rewarded in an open and just way;

4. Being good corporate citizens with regards to local, national, and global communities; and, 5. Providing their shareholders and creditors with a fair return on their invested capital (Pava, 1999).

While the stakeholder theory assumes that corporate executives are responsible to stockholders, it also maintains that there are other groups that are directly affected by the conduct of the company. For example, employees, consumers, creditors, suppliers, and legal subsystems are representative constituents who have a vested interest in the corporation and who might affect, in one way or another, corporate decision making; consequently, corporate executives have a direct responsibility to promote the interests of these groups. Nevertheless, there remains significant disagreement among stakeholder theorists concerning whether stakeholders' interests of these groups take precedence over the financial interests of stockholders, just as there is disagreement over which of the stakeholders' interests should be the predominant ones (Karake-Shalhoub, 1999).

By sharp contrast, social demandingness theorists maintain that corporations have a fundamental responsibility to protect and to promote certain interests of the general public. According to Karake-Shalhoub:

They [social demandingness theorists] agree with the stakeholder theorists that the interests of stakeholder groups are important, but they believe that these interests do not override nonstakeholders' interests or demands for such things as safety, health, freedom, and prosperity. As with the stakeholder theory, this one repudiates the notion that there is some balanced or sensible list of tangible responsibilities that corporate executives always have toward society. The list varies as the nature and ranking of the interests or demands of the public change. (p. 6).

Furthermore, many companies are seeking to decentralize and make basic corporate functions such as buying, selling, financing, developing, producing, and servicing, more efficient and effective by changing their mode of internal organization; these changes have placed greater reliance on worker initiative and a less rigid division of labor (Dunning, 1999). Today, groups or circles of workers (or 'associates') are being empowered to make front-line decisions based on their own best judgments concerning the best way to run a production line or a specific machine, reduce costs at all stages of production, and improve quality. As a result, "Middle strata (such as supervisors), as a result, are becoming increasingly irrelevant" (Dunning, 1999, p. 433). The fundamental goal of these new business models is to improve company performance by facilitating the flow of information both within the firm, and between the firm and its network of suppliers and clients; and by establishing new incentive regimes for labor, whose greater involvement and increased responsibilities is being rewarded with longer tenure, extensive training, and better compensation (Dunning, 1999).

In reality, though, the key challenge facing multinational corporations and their leadership today does not so much concern the difficulties related to guiding individual behavior, but rather in providing an ethical framework for corporate behavior (Casmir, 1997). In this regard, Casmir suggests that when the individual is the subject of investigation, the majority of attention is afforded to straightforward issues of compliance, while the value of the policy or procedure to which compliance is directed receives little or no attention. "Additionally, the largest issues of responsibility and value relate to systemic problems and collective actions. Clearly this is also the case in international business. There are unethical employees and they do harm (judged by any number of standards and measures), but their compliance to laws and corporate policies will not solve many of today's difficult problems" (Casmir, 1997, p. 190). The primary objectives and day-to-day activities of multinational corporations have become the focus of concern; however, the primary constraint involved here concern developing an adequate public rather than merely private ethic (Casmir, 1997).

According to Casmir, "Today, many lament the weak morality of commercial corporations. Thus, an adequate discussion of ethics must focus on both the individual and corporate levels. But the discussion of corporate responsibilities has been severely hampered by dominant social conceptions which make such a discussion difficult" (p. 190). Indeed, while it is frequently difficult, if not impossible, to provide a "one-size-fits-all" guide concerning the critical issues related to business ethics, the stakeholder theory provides a useful framework for investigating and pinpointing corporate responsibilities while at the same time providing a company's leadership with a powerful reminder that their stockholders are not the only legitimate stakeholders involved (Dunning, 1999, p. 433).

Unfortunately, it would appear that these trends have created more questions than answers, and the underlying issues have been perhaps better described than they have been understood by…

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