Corporate Social Responsibilities Term Paper

Pages: 35 (9542 words)  ·  Bibliography Sources: 1+  ·  Level: College Senior  ·  Topic: Business

¶ … responsibility of companies has historically been defined in purely economic terms. For example, Friedman (1990) considered maximization of shareholder wealth as being the sole objective and responsibility of a well-managed company. This perspective, though, generally viewed corporate social responsibility activities as a distraction rather than a goal. From this perspective, any expenditures of resources in the interests of social responsibility was at the expense of shareholders, and the interests of shareholders and other stakeholders were defined implicitly as conflicting and mutually exclusive. Today, though, stakeholder theory maintains that stakeholders should be considered as an important component in a company's overall business plan. By sharp contrast, neoclassical economic theory treats companies as unitary actors that seek to maximize their profits. The stakeholder approach to doing business suggests that all people who hold a legitimate interest in an entity have a right to be heard, and to have their views must be considered as well. Today, the stakeholders in a corporation include not only shareholders and officers, but also customers, lenders (including those other than creditors), employees, creditors, suppliers and the community at large. The vast majority of multinational corporations, though, compete in environments that are characterized by a lack of regulatory or other oversight. This paucity of regulatory guidance has compelled many corporations to forego their responsibilities to their stakeholders in favor of more profits in the near-term, a practice that some observers believe is no longer a sustainable approach to doing business in an increasingly globalized marketplace.

To gain some additional insights into how these forces are playing out in the real world today, this study examines the scholarly and refereed literature to identify the salient issues involved in stakeholder theory as they apply to multinational corporations, and what companies can do today to ensure their long-term profitability while balancing the needs of all of their stakeholders. A summary of the research and findings is presented in the conclusion, followed by personal reflective journal in the appendix.

Chapter 1: Introduction

General Overview

Problem Statement

Research Question

Purpose and Significance of Study

Scope of Study

Research Method of the Study

Chapter 2: Literature Review

Chapter 3: Methodology

Description of the Study Approach

Data-gathering Method and Database of Study

Chapter 4: Data Analysis

Chapter 5: Summary, Conclusions and Recommendations

Study of Relationships between Corporate Social Responsibilities Promotion and Corporate Performance in Multinational Corporations

Introduction

According to Mcmenamin (1999), today, it is not possible, or even desirable, for a company to seek to achieve shareholder wealth maximization in terms of profitability to the total exclusion of all other considerations. Indeed, this author reports that, "In the management of a firm there are a diverse group of interests, often conflicting interests, which need to be recognized and included within the goals and objectives of the firm" (p. 40). For example, there is the primary group of the company's managers who are responsible for operating and controlling the company on a day-to-day basis on behalf of the shareholders, the actual owners of the enterprise. Further, in larger publicly owned companies, there is a principal-agent relationship between shareholders and managers, with managers acting as agents on behalf of shareholders as their principals (Mcmenamin, 1999).

This separation of ownership and control, or agency relationship, particularly in large corporations, can result in conflicts and problems between the interests of managers and the interests of shareholders. Mcmenamin notes that this conflict of interests is known as the agency issue or the agency problem. "In addition to the interests of shareholders and managers, there are other 'stakeholders' whose interests need to be considered," he says. "That is, other groups exist who can be considered to have a legitimate interest, or stake (economic or otherwise) in the goals and objectives of the firm" (p. 40).

For instance, all corporations have employees, customers, and community groups, all with interests that are frequently different and even competing that must be taken into account.

Proponents of the stakeholder theory suggest an all-inclusive approach to management by recognizing the rights of all the diverse interest groups in managing the activities of the corporation; further, stakeholder theory applies equally to public sector and not-for-profit organizations (Mcmenamin, 1999).

General overview

Multinational corporations have become increasingly common in recent years, a process that suddenly accelerated in the late 1990s, particularly in the fields of telecommunications and energy; further, approximately one-third of the $3.3 trillion in goods and services traded internationally in 1990 was comprised of transactions within a single firm (Korten, 1995, p. 43). The globalization of markets, the increased need for working capital, and new technology, combined with an improved investment environment, are contributing to this acceleration today as well (Miller, 2000). According to Rao (1999), "Globalization, with its corollaries of global products, global consumers and the global marketplace, appears to signify the crystallization of the entire world as a single place. The questions are: what economic, political or cultural parameters does this process of globalization render invisible? What groups of people or regions are excluded from this discourse?" (pp. 58-9). These fundamental issues have emerged as the result of the globalization of the world's marketplace, a process that has been driven by two primary technological forces. First, transportation costs have decreased dramatically with the introduction of improved physical communications such as better vehicles, modern aircraft; containerization; and expanses of interstate and international motorways. Second, and more spectacular, advances in computing power and in telecommunications through the introduction of a wide range of computer-based systems, satellite technology, and, more recently, fiber optics; these innovations have fundamentally improved the ease, speed, quantity, and quality of international information flows around the world (Cable, 1995).

According to Mayer (2001), though, today, just a few multinational corporations are increasingly consolidating their hold on the global economy. "Given their impact on our lives," he advises, "it is predictable that individuals will in various ways accommodate their lives to the dynamics and beliefs of corporate values" (p. 215). These trends have resulted in many observers suggesting that multinational corporations owe a higher duty to the communities in which they are situated, with various theories being advanced on how best to accomplish this end. In reality, though, most major multinational corporations are constrained only by various laws and regulations in these venues that do not pertain to their ethical conduct, and the consequences have been both severe and pervasive in many cases. In order to determine how a multinational can compete in an increasingly globalized economy today, this study examines multinational corporate governance policies and what issues have emerged in recent years to compel these companies to afford greater attention to their responsibilities to all of their stakeholders rather than just a few shareholders. Stakeholder theory maintains that there are constituents other than the shareholders of the corporation to whom the corporate leadership has certain responsibilities; these constituents are groups that are likely to be affected, either directly or indirectly, by the decisions of executives. Therefore, these stakeholders are said to have a "stake in the corporation"; stakeholder theorists recognize that corporate managers may act from various incentives and a number of stakeholder theorists recognize that the interests of noninvesting stakeholders may not always override the financial interests of shareholders (Karake-Shalhoub, 1999).

Problem statement

According to Mayer (2001), "The vast majority of international trade and business is carried on by large multinational corporations whose pursuit of ever-increasing global market share is breaking down traditional patterns of life and community, imposing a dynamic of rapid change on many segments of most societies, and severely degrading the natural environment on which business, communities, and human life ultimately depend" (p. 215). "Readers may rightly ask about the corporate responsibilities that accompany those rights. Suffice it to say that the responsibilities are few. With the exception of those activities either banned by government (child labor) or mandated by government (minimum wage, job safety, etc.), the corporate entity operates largely in a do-as-you-please environment" (Gates & Schmidheiny, 1999, p. 313).

Research question

The primary research questions that will guide this study are:

1. What are corporate responsibilities in general and how do they affect multinational corporations in particular; and, 2. Can an ethical multinational corporation compete in a globalized marketplace where other similarly situated companies may not be so concerned about stakeholder rights?

Purpose and significance of study

Claims that various types of corporate activity have a detrimental impact on human welfare are certainly not new, but the assertions today represent different issues both in terms of their origin and their content. According to Ratner (2001), these claims "emanate not from ideologues with a purportedly redistributive agenda, but from international organizations composed of states both rich and poor; and from respected nongovernmental organizations, such as Amnesty International and Human Rights Watch, whose very credibility turns on avoidance of political affiliation" (p. 435). Just as importantly, these groups have not attempted to undermine capitalism or corporate economic power per se; rather, they have leveled increasing amounts of criticism at certain types of corporate behavior that has clearly transcended… [END OF PREVIEW]

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