Corporate Governance and Social Responsibility the PyramidResearch Paper

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Corporate Governance and Social Responsibility

The pyramid of corporate social responsibility

The three-domain model of corporate social responsibility

Factors determining the importance of corporate governance and corporate social responsibility

Strategic issues with corporate governance and corporate social responsibility..5

The case of Wal-Mart

Importance of corporate social responsibility

Strategic issues

Concluding remarks

The contemporaneous society is changing at a rapid pace and organizations need to change along in order to remain competitive and able to attain their financial goals. Corporate governance and social responsibility represent modern day tools through which economic agents strive to improve their relationship with the stakeholders. In this light of events, a question is being posed relative to the roots of the organizational interest in the tools of corporate governance and social responsibility, with particular interest for the underlying factors. It also important to identify and assess the strategic issues involved in corporate governance and social responsibility.

In order to answer these questions, a dual approach would be implemented. On the one hand, a review of the available literature would be conducted to identify the theoretical dimension of the questions. The literature review will however only partially answer the questions and in broad and generic contexts. In order to more particularly identify the dimensions of the questions, a research would be conducted on the real life case of corporate governance and corporate social responsibility implementation within Wal-Mart.

The findings -- supported throughout the work with tables and graphs -- are integrated within the final section of Concluding Remarks, which restates the most important issues of the literature review and of the research conducted. Throughout this section, another topic would be address. It revolves around the impact on the organizations' growth and expansion strategies in a context in which the firms face the challenges of corporate governance and social responsibility. In the last section, the dual contribution of the project is also revealed and the relevance of the findings is discussed.

2. Introduction

There is virtually no doubt that the society continually evolves. Whether one likes it or not, this evolution is a constant of the modern day life. The business community has been one particular sector which was deeply impacted by the changes of the past few decades. One example in this sense is constituted by the developments at the level of the human resource. Once perceived as the force operating the organizational equipments, the staff members are now regarded as the most important organizational assets (Boyd, 2003). The employees are now valued not for their physical abilities, but for their intellectual capital which can be used in the creation of more organizational value.

Another example is offered by the development of a more in depth and stronger relationship with the customer, which is now not the group buying the items produced by the company, but the force demanding what products to be manufactured and sold. Overall, it is observed that changes have impacted the relationship of the company with all of its stakeholder categories -- customers, employees, business partners, purveyors, competitors, the general public, governmental and non-governmental institutions and so on.

Given this scenario and the emergent challenges of the modern day community, leaders of economic agencies have intensified their efforts in adapting along. One particular means in which this desiderate is brought closer to the organizational context is that of the development and implementation of corporate governance and social responsibility programs. Through these programs, economic agents hope to better interact with the audience and as such improve their reputation as well as the demand for their products.

In other words, the scope of economic agents has remained the same as that of the past decades -- the registration of profits -- but the demands of the audience have changed. This means that the companies are now forced to change the means in which they attain their goals. Corporate governance and social responsibility strategies offer them the new context for reaching their secular goal in the context of the emergent demands of the internal and external environment.

3. Literature Review

The concepts of corporate governance and corporate social responsibility are often misused as perfect synonyms, when they are in fact two different elements. It could be said that corporate governance and corporate social responsibility are similar to the concepts of management and leadership -- while management deals with technical functionalities within a firm, leadership deals with the motivation and integration of the employees. Similarly, corporate governance is in charge of internal functionalities, such as resource allocation, product quality or employee efficiencies, whereas corporate social responsibility is in charge of stakeholder relations.

The concept of corporate social responsibility (CSR) is a direct component of the greater concept corporate governance and it is a particular tool by which the company strives to improve its image and as such generate more demand for its products and services, to improve its financial results. "CSR is an extended model of corporate governance, to be successful in its CSR program: a company must be successful in its corporate governance. While corporate governance deals with the internal handling of the company, like accounting procedures and general business ethics, CSR specifically deals with stakeholders like the environment and the communities" (Akerstrom, 2009).

The framework for corporate social responsibility was initially created in the form of a pyramid, which contained four layers: economic, legal, ethical and philanthropic.

Figure 1: The pyramid of corporate social responsibility, Akerstrom (2009)

At the first level, it was required that the company be profitable in order to cover its expenditures and realize its financial goals. At the second level, it was demanded that the economic agent respected the legislation. At the third level, it was expected that the company operated in an ethical manner in all aspects of business operations and decisions. Finally, at the fourth level, it was desired that the organization be a good corporate citizen.

The critics of this initial model argued that the fourth level is fairly limited and should not be an individual pyramidal level of its own. This sustained criticism has lead to the construction of a second corporate social responsibility framework -- the three-domain model of corporate social responsibility -- from which the philanthropic dimension was eliminated.

Figure 2: The three-domain model of corporate social responsibility (Akerstrom, 2009)

The model is explained in the meaning that "the three components are all equally important and interact with each other, where some corporations might be labeled purely ethical or purely legal, whereas other can be labeled as economic. Legal and at last some can also be labeled as combination of the three, economic, legal and ethical" (Akerstrom, 2009).

An article entitled Governance as a form of social responsibility, featured in the Journal for Quality and Participation, argues that economic agents often implement the practices of corporate social responsibility in relationship to the environment, but that this approach is limited. The editors quote the framework as it has been issued by ISO 2600, and which reveals seven distinct dimensions of corporate social responsibility as follows:

1. The involvement within communities and the offering of support in the development of the communities

2. The implementation of fair operating practices

3. The protection of human rights

4. The implementation of the adequate labor practices

5. The development and implementation of adequate organizational governance practices

6. Focus on customer rights and satisfaction

7. The protection of the natural environment

According to the same source, the responsibility of an economic agent is understood in terms of the "impacts of its decisions and activities on society and the environment, through transparent and ethical behavior that contributes to sustainable development, including health and the welfare of society; takes into account the expectations of stakeholders; is in compliance with applicable law and consistent with international norms of behavior; and is integrated throughout the organization and practiced in its relationships" (the Journal for Quality and Participation, 2009).

Based on this understanding, it becomes obvious that corporate governance and corporate social responsibility refer to the actions and decisions by which companies make and implement decisions, with consideration of the following: accountability, transparency, ethics, stakeholder interests and compliance with the legal stipulations (the Journal for Quality and Participation, 2009).

John M. Conley and Cynthia a. Williams (2005) argue that the principal scope of corporate social responsibility is that of ensuring sustainable growth for the organization. And aside from being an organizational attempt to improve the image and as such better appeal to customers, CSR is becoming an increasing necessity. In the aftermath of the large corporate failures of the twenty-first century, such as Enron or WorldCom, the legislators have forced economic agents to implement the practices of transparency to a wider extent.

Still from a legal standpoint, the matter of corporate social responsibility is questionable. While the new laws have made it possible for large sums of money to be transferred from the economic agents to not for profit entities, managers are not directed towards the institutions to support. This often leaves room for managers to… [END OF PREVIEW]

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