Relationship between stakeholders, corporations, and corporate social responsibility

Business Theory

Relationship between Stakeholders, Corporations and Corporate Social Responsibility

Businesses around the world are under pressure with a new function, which is to meet the needs of the present generation without compromising the capability of the next generations to meet their own needs. Companies are being called upon to take accountability for the ways their operations impact societies and the natural environment. They are also being asked to apply sustainability philosophies to the manners in which they carry out their business. Sustainability refers to a company's actions, usually considered charitable, that show the insertion of social and environmental concerns in business opera-tions and in associations with stakeholders (D'Amato, Henderson & Florence, 2009).

It is no longer suitable for a corporation to experience financial prosperity in isolation from those things impacted by its actions. A company must now center its attention on both increasing its bottom line and being a good corporate citizen. Keeping on top of global trends and remaining dedicated to financial obligations to deliver both private and public benefits have forced businesses to redesign their frameworks, rules, and business models (D'Amato, Henderson & Florence, 2009). In order to understand and improve current efforts, the most socially accountable organi-zations continue to amend their short- and long-term plans, to stay ahead of rapidly changing challenges.

Additionally, a bleak and complex shift has taken place in how companies must comprehend themselves in relation to a wide assortment of both local and global stakeholders. The quality of associations that a company has with its workers and other key stakeholders, such as customers, investors, suppli-ers, public and governmental officials, activists, and communities, is vital to its success, as is its ability to respond to competitive conditions and corpo-rate social responsibility (CSR) (D'Amato, Henderson & Florence, 2009). These major alterations necessitate national and global companies to move toward their business in terms of sustainable growth, and both individual and organizational leadership plays a key role in this alteration.

Organizations have developed an assortment of approaches for dealing with this junction of societal needs, the natural environment, and corresponding business essentials (D'Amato, Henderson & Florence, 2009). Companies can also be measured on a developmen-tal range with respect to how intensely and how well they are incorporating social responsibility approaches into both strategy and daily operations world-wide. At one end of the gamut are companies that do not recognize any accountability to society and the environment. And on the other end of the scale are those companies that view their operations as having a significant impact as well as dependence on society at the economic, social, and ecological levels, therefore ensuing in a sense of responsibility beyond the customary boundaries of the company. Most companies can be placed somewhere in the middle (Waller & Conaway, 2011).

According to Schwab (2008) many business leaders today think it critical to connect with shareholders, the communities in which their companies function, and others affected by and interested in what they do. The varied activities are needed to respond to these expanded duties are widely known as corporate social responsibility. It includes a host of concepts and practices, including the requirement for sufficient corporate governance structures, the execution of workplace safety standards, the implementation of environmentally sustainable procedures, and philanthropy.

Literature Review

Corporate responsibility or sustainability is consequently an important fea-ture of the business and society literature, addressing themes of business ethics, corporate social performance, global corporate citizenship, and stakeholder management. Corporate Social Responsibility is about how companies administer the business processes to create an overall positive impact on society. In order for a company to assess their corporate social responsibility they must look at two aspects of their operations. The first is the superiority of their management, both in terms of people and procedures. The second is the nature of, and quantity of their impact on society in a variety of areas (Baker, 2004).

For CSR to be established by a conscientious business person, it should be structured in such a way that the total ranges of business responsibilities are looked at. It has been suggested that there are four kinds of social responsibilities that comprise total CSR: economic, legal, ethical and philanthropic (Carroll, 1991). In order to be sure all of these kinds of responsibilities have always existed to some degree but it has only been in recent years that ethical and philanthropic purposes have taken an important place.

In the past, companies were created as financial units intended to provide goods and services to members of the community. The profit purpose was established as the main incentive for free enterprise (Carroll, 1991). Previous to anything else, business organization was the basic financial unit in society. As such, its main role was to produce goods and services that customers needed and wanted and to make an acceptable profit in the process. At some point the idea of the income motive got altered into a notion of maximum profits, and this has been a continuing value ever since. All other business responsibilities appear to be predicated upon the financial accountability of the company, because without it the others become unsettled deliberations.

Society has not only endorsed business to function according to the profit motive but they are also expected to obey with the laws and regulations dispersed by federal, state, and local governments as the ground rules under which business must function (Carroll, 1991). As a partial completion of the social contract between business and society firms are expected to chase their financial missions within the structure of the law. Legal responsibilities reflect a view of codified ethics in the sense that they demonstrate basic notions of fair operations as established by lawmakers.

According to Carroll (1991) even though financial and legal responsibilities demonstrate ethical norms about justice and fairness, ethical responsibilities embrace those activities and practices that are expected or forbidden by societal members even though they are not set down by law. Ethical responsibilities represent those values, norms, or prospects that reflect a concern for what customers, workers, shareholders, and the community observe as fair, just, or in keeping with the respect or protection of stakeholders' ethical privileges.

According to Carroll (1991) philanthropy entails those corporate actions that are in reply to society's expectation that businesses be good corporate citizens. This includes energetically engaging in acts or programs to promote human welfare or goodwill. The distinctive feature between philanthropy and ethical responsibilities is that the former are not expected in an ethical or moral sense (Jo & Harjoto, 2011). Communities want companies to give their money, facilities, and worker time to humanitarian programs or purposes, but they do not look upon the company as unethical if they do not supply the desired level. Consequently, philanthropy is more voluntary on the part of businesses even though there is forever the societal anticipation that businesses provide it (Carroll, 1991).

Nowadays outside stakeholders are taking a growing interest in the activity of the company. Most look at what the company has in fact done, good or bad, in terms of its products and services, in terms of its impact on the environment and on local communities, or in how it treats and develops its labor force. According to Baker (2004) out of the assorted stakeholders, it is monetary analysts who are mostly focused on quality of management as a pointer of likely future performance.

The dispute of what responsibilities and too whom that a company has covers many different aspects. Some argue that any such duties are limited just to abiding by the law and earning income for shareholders. Others argue, though, that they also have ethical responsibilities towards the larger community, responsibilities similar to that of individual people. Some argue that the purpose of an efficient company may be to make profits for its shareholders, but simply in doing that, provided it faces competition in its markets, behaves truthfully and obeys the law, the company, without even trying, is doing good things (Cline, 2005). This last one is a remarkably narrow outlook of ethics and ethical responsibilities. Essentially it is saying that as long as a company is earning an income, they have no ethical accountability to do anything not commanded by the law. This in the end supports the passing of more and more laws, something that is not usually desirable. Law and ethics are separate things and should be treated as such. Sometimes people are ethically bound to do things that the law doesn't require while other times that are required by law to do things they find ethically doubtful. There is no good reason to think that companies, already treated by the law as persons in many regards, are any dissimilar.

Over the years companies have looked at business ethics in a variety of ways, including the implementation of compliance programs and managers, the addition of board-level ethics committees, the development of codes of conduct, the training and distribution of values statements, the hiring of corporate social responsibility managers and training programs of all types (Hurst, 2004). As the proceedings of the past few years have shown, these labors, regrettably, have not prevented companies from engaging in unethical behaviors that lead to larger corporate disgraces. As a result there is augmented force to make accessible more structured power and ethics programs so that companies are more accountable to the societies in which they function.

Understanding the setting of business ethics can be very difficult. The field is vast, often encircling such concerns as corporate governance, reputation management, precise accounting, fair labor practices and environmental stewardship. In fact, the field addresses the complete range of responsibilities that a company has to each of its stakeholders like those who have a vested interest in the judgments and actions of a company, like clients, workers, shareholders, suppliers and the society. Depending upon the company in question, one may even be able to distinguish additional stakeholders. The field of business ethics is further convoluted by the fact that many terms exist to refer to corporate offices and programs intended to communicate, watch, and implement a company's values and standards (Jo & Harjoto, 2011). In theory, one can make some coarse distinctions among the various domains related to business ethics, like corporate responsibility, social responsibility and corporate compliance. In practice, though, such differences blur because corporate offices of compliance established in the past may now function similarly to offices of corporate and social responsibility (Hurst, 2004).

Not only do business have to worry about how they ethically behave they have to worry about their corporate social responsibility as well. The rising expectations of responsible business behavior results in a growing dispute about the degree to which organizations are accountable for the negative impacts related to their doing business. Although this debate has been around for a long time it wasn't until the 1970's that a trend towards eco competence stimulated companies to reduce their environmental impacts. In the 1980's and 1990's, next to environmental issues, social issues began to receive increasing public concentration (Maas, 2009). In response to the demand to take responsibility for their effects on society, companies plan to progress their impact by investing in stakeholder satisfaction and by preventing or solving environmental and social troubles.

According to Maas (2009) the interest of organizations to progress their impact on society is not sector specific. In corporate boardrooms managers are more and more being asked to explain, their impacts on the natural environment or the local economy. These trends involve organizations need to improve the management of their environmental and social impacts, as it advocates companies to assess their impact across the environmental, social and economic measurement. In an ideal world, social impact should be incorporated into management decisions and corporate strategy.

The result of the actions taken by companies in order to develop their impact on society is what is understood by Corporate Social Performance (CSP). Conventional performance measurement is frequently based on the supposed goal-attainment approach and does characteristically not consider social or environmental questions. The hypothesis that underlies the goal-attainment approach is that the goals of a company are identifiable and unmistakable (Maas, 2009). A companies' competence is represented by the accomplishment or progress towards these organizational goals. Attaining organizational goals such as increasing production, growing profit or dropping costs, can be researched by using conventional performance measurement methods. Including impact upon the society on a variety of dimensions, economic, environmental, and social, into performance measurement complicates the capability to recognize, measure and value these impacts. On the other hand, it adds to the wholeness of the performance measurement. Mostly environmental and social impacts are not articulated by the market, as they do not have a market value and are therefore often fundamentally ignored by companies.

A new imperative that businesses must think about is best described as global corporate citizenship. "This is the belief that companies not only must be engaged with their stakeholders but are themselves stakeholders alongside governments and civil society. International business leaders must fully commit to sustainable development and address paramount global challenges, including climate change, the provision of public health care, energy conservation, and the management of resources, particularly water"(Schwab, 2008). For the reason that these global issues increasingly impact business, not to connect with them can hurt the bottom line. Because global citizenship is in a corporation's enlightened self-interest, it is sustainable. Addressing global issues can be good both for the company and for society at a time of increasing globalization and diminishing government influence.

The case for corporate engagement in society is compelling, and business leaders must look cautiously at how their companies are engaged, consider what more they can do, and act. Businesses often miss the true benefits of an incorporated strategy for effective corporate engagement. Sharpening definitions of the concept of corporate engagement is vital to making the business sector understand and practice it better (Schwab, 2008). Clarification is also important to make sure that the general public better appreciates the complex challenge company's face and can assess how successfully or not they address them.

"There are five core concepts - corporate governance, corporate philanthropy, corporate social responsibility, corporate social entrepreneurship, and global corporate citizenship that define the dissimilar types of business engagement" (Schwab, 2008). Corporate governance is more than the manner in which a company is run. It means that a company complies with local and international laws, clearness and accountability necessities, ethical norms, and environmental and social codes of conduct. Every company is subject to some demonstration of authority; or else, it would not have the fundamental license to do business. The main issue is the quality of this governance. A company either abides by or does not abide by the laws and standards that apply to it. Good corporate governance means that the company's behavior meets or exceeds what is necessary on paper, not doing any damage because it is following the rules and possibly even doing good by going beyond the mandated minimum. Corporate governance is how a company acts when nobody is watching. Without good corporate governance, no other form of corporate commitment is believable.

A key part of corporate governance is the growth and implementation of internal programs to support ethics, moral standards, and socially acceptable practices (Schwab, 2008). These should include admiration for human rights and observance of labor standards, as well as internal efforts to prevent corruption and dishonesty. This can be predominantly difficult for companies in jurisdictions where the rule of law is weak and what is adequate may not be clear. Many companies now publish standards of business conduct that direct their decision-making and set the parameters for their professional relationships worldwide.

According to Schwab (2008) good corporate governance should not be seen as only a fulfillment issue. Companies should be vigorously concerned in the development of standards and practices, acclimatizing them constantly to the requirements of global markets and public expectations. New areas calling for tighter governance rules include managerial compensation and the clearness of new financial instruments such as hedge funds and private equity funds.

Companies are expected to manage sensibly an extended web of stakeholder interests across more and more permeable organization boundaries and recognize a duty of care towards traditional interest groups as well as silent stakeholders, such as local communities and the environment (Jamali, 2008). It has been suggested that the needs of shareholders cannot be met without fulfilling to some amount the needs of other stakeholders. In other words, even when a company seeks to serve its shareholders as a main concern, its attainment in doing so is likely to be affected by other stakeholders. Some even argue that a comprehensive stakeholder approach makes commercial sense, permitting a firm to make the most of shareholder wealth, while also increasing total value added.

Corporations today cannot operate unaided, but are connected to complex multi-stakeholder networks in society. Stakeholders are individuals or groups who have some kind of stake in or relationship with a corporation; this can be one of support, authority on or being influenced by the corporation in some way. The stakeholder concept is related to the resource dependence theory as well as the institutional theory and how its stakeholders recognize a corporation will influence their behavior toward it for better or worse. Stakeholder pressure drives businesses towards levels of sustainable performance beyond legal compliance, which is also the objective of corporate environmental management (CEM) (Paloviita & Luoma-aho, 2010). The corporate environment necessitates a more strategic approach than mere reporting. It entails the idea that societal needs should be discussed through a dialogue between corporations, government policy-makers and public interest groups. Too often, though, corporations are taking a reactive approach after the urgency in environmental issues has already appeared by a certain stakeholder group.

Stakeholder management is based on the idea of the displacement of politics whereby private managers are absorbed into a political arena. More than in the past, managers nowadays operate in a societal field of influence without being able to hide behind the government. The manager needs to obtain societal legitimacy in another way, for example through dialogue with society. It is not adequate to merely distribute information to concerned parties. Societal legitimacy also implies responsibility and leaving room for policy influence. This necessitates leaving room for opposition and the active participation of all concerned. The presence of stakeholders implies that societal responsibility is not a one-way communication. The different parties are thrown together and are dependent on each other. Their shared problems indicate a shared responsibility. The stakeholders approach makes an appeal to the civil society, to that part of society in which mature citizens and their associations tackle problems together and in which they jointly try to steer societal developments in the right direction (Corporate citizenship: How to strengthen the social responsibility of managers, 2004).

It has been found that stakeholder -- manager relations are not stationary but, rather, are in a constant state of fluctuation. The activities managers designate as dynamic have become somewhat tricky, as stakeholders are becoming increasingly conspicuous. This is not merely an internal development from within management, but rather a movement that has been forced upon it. Insofar as the stakeholder approach is not already the ideal of the manager, it has increasingly become a force that the manager has to reckon with. Stakeholders have become a more and more countervailing power for management (Corporate citizenship: How to strengthen the social responsibility of managers, 2004).

Managers who vigorously seek dialogue with stakeholders need, at least, to be familiar with the societal role of their own organization. Recognizing the countervailing power of stakeholders implies that the scope and legitimacy of stakeholder management is not a static happening, but is part of permanent struggle about the societal responsibility of private organizations. The increased importance of more and more agents with which the management has to consider, indicates that this version of corporate citizenship has the greatest implications for the performance of markets (Corporate citizenship: How to strengthen the social responsibility of managers, 2004).

Discussion

Corporate citizenship challenges the basis and workings of the basic institutions market, state and civil society. Corporate citizenship weakens the modern theory of societal differentiation, which in the end leads to static institutions. There needs to be a theory of institutional dynamics in order to comprehend the phenomenon of societal entrepreneurship. The assessment of a dynamic vision on institutions is not self-evident, since the interest for societal entrepreneurship is nothing new, which gives rise to doubts about the far-reaching implications of this phenomenon. Corporate citizenship not only challenges existing institutional patterns, but is also a result of an institutional crisis around the modern welfare state. The state is monetarily overloaded and wrestles with steering problems. The steering power of the state is too limited for our public ambitions. According to this analysis, societal actors themselves, the citizens, non-profit organizations and business firms, should be more accountable and should reasonable their claims on the state. The retreat of public administration necessitates a larger self-steering capacity of society, the new problem bearers must deal with collective troubles. The government is no longer the only guardian of public interest. Through a process of deregulation and privatization, actors in the field gain not only more freedom to act, but also more tasks. This means that private organizations should therefore add more to the public good, such as a clean environment, the provision of health care or the quality of the neighborhood. This accountability for matters of public interest goes further than just law-abidance and obedience to the rules of the market like trustworthiness and promise keeping. Private organizations are, or should be, placed in the middle of society, in a public space where collective interests are at stake and political or normative considerations like solidarity, justice and the ability to pay, come into play. Privatization and deregulation therefore imply more than a displacement of tasks to the market; they also demand that the market works differently (Corporate citizenship: How to strengthen the social responsibility of managers, 2004).

Summary

The responsibility of companies has in the past been defined in purely economic terms. Today, though, stakeholder theory upholds that stakeholders should be thought of as an important part in a company's overall business plan. The stakeholder approach to doing business suggests that all people who hold a justifiable interest in an entity have a right to be heard, and to have their views must be considered as well. Nowadays, the stakeholders in a corporation include not only shareholders and officers, but also customers, lenders including those other than creditors, workers, creditors, suppliers and the community at large. The vast prevalence of multinational corporations, though, competes in environments that are characterized by a lack of regulatory or other oversight. This shortage of regulatory guidance has compelled many corporations to forego their responsibilities to their stakeholders in favor of more income in the near-term; a practice that some observers believe is no longer a sustainable approach to doing business in a more and more globalized marketplace (Arias & Patterson, 2009).