Theoretical moral duties in a secondary sense. By

Theoretical Background and
Summary

 

Before analysing the relationship between corporate governance,
social responsibility, business ethics and corporate performance and strategy
concepts, we first should define them separately. Corporate governance is a
matter of enforcing accountability (Demb and Neubauer, 1992). In the modern
world, companies have many shareholders who do not play a managerial role in
the company. Additionally, today the economic activities of companies are
interconnected with the general economy of the world. Thus, managers running
companies have to be more accountable than in the past. As a result of this
situation, regulatory bodies like OECD have starteddemanding that companies
adopt corporate governance principles said that following these principles
decreases firm’s level of autonomy while making it more transparent and accountable.

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It is clear in this definition that business ethics is related to
moral norms and values. At this point, it is necessary to ask if companies have
moral norms and values as individuals do. Velasquez (2002) argues that
companies do have moral duties in a secondary sense. By saying that, Velasquez
(2002) implies that the workers constitute the business ethics of that company.
This is why companies now provide ethical codes or codes of conduct and expect
workers of all levels to obey these codes when they make a decision as a part
of their jobs. For example, according to Facebook’s code of conduct, employees
are not allowed to accept any gifts of substantial value from partners. Thus,
this code provides an idea as to what is right and wrong in the offices of
Facebook. As a result, business ethics is not related to company obligations to
its stakeholders but ethical behaviours expected from employees. By taking the
definitions above into consideration, it can be argued that corporate
governance, social responsibility and business ethics concepts have some shared
characteristics and that all these three concepts are interrelated. The demands
of Corporate governanceexecutives make their contributing companies more
transparent and accountable; social responsibility demands that companies
support society with their activities, and business ethics clarifies moral
norms for employees. Business ethics can help a manager make his/her company
more accountable and transparent. Similarly, when a company adopts corporate
governance principles, it also has to meet the expectations of its
stakeholders. As a matter of fact, corporate governance principles include
principles related to business ethics and social responsibility. However, some
scholars (e.g. Heath and Norman, 2004) believe a coherent theory of CSR cannot
be created without corporate governance. In any case, it is logical to conclude
that all these three concepts are interrelated and they are imposed upon
companies by shareholders and stakeholders (Scott, 2007). Therefore, we simply debate
that companies take corporate governance, social responsibility and business
ethics concepts into consideration in order to gain legitimacy though they do
not think about their potential impact on corporate performance or strategy.
From this point, these concepts can be dealt with as institutional pressures
which force companies to isomorphism (DiMaggio and Powell, 1983). Obviously,
companies have to adapt to their institutional environments in order to gain
legitimacy and to survive even if this adaption harms corporate performance.
One of the fervent opponents of this idea was Nobel laureate economist Milton
Friedman. In 1970, Friedman gave an interview to the New York Times Magazine
retrieved and in this interview he explains his opinions about social
responsibility with these words:

 

 

In a free-enterprise, private-property system, a corporate executive
is an employee of the owners of the business. He has direct responsibility to
his employers. The dutyof the organization is to organize the business in
accordance with their desires, which generally will be to make as much money as
possible while con-forming to the basic rules of the society, both those
embodied in law and those embodied in ethical custom.If Friedman and others who
think like him are right, it is logical to believe that bending to these social
pressures would negatively affect a company’s competitive advantage since
acquiescing makes additional costs inevitable. In fact, early studies that
focused on the relationship between corporate governance, social
responsibility, business ethics and the financial performance of a company
reported that these concepts had a negative impact on profits, returns on
investment and stock prices. Researchers who found this negative impact had a
simple explanation: social responsibility involves certain costs that fall on
the bottom line, but its potential positive impact on corporate performance is
simply uncertain (Gulati et al., 2013). However, a significant amount of recent
research has documented the exact opposite. For example, Ergin (2012) found
that corporate governance rankings and sub-components of corporate governance
had a significant positive impact on the stock prices of publicly-owned Turkish
companies. Similarly, Rehman and Mangla (2012) reported that various dimensions
of corporate governance also had a significant positive impact on Pakistani
bank’s performance. In another study, analyzing 120 French companies, Ezzine
and Olivero (2013) found that complying with corporate governance principles
improved the visibility of a firm in the market. According to Berrone et al.
(2005) this situation is similar for companies with a strong ethical identity.
Strong ethics improve stakeholder satisfaction.which positively influences the
financial performance of a firm. Berrone et al. (2005) tested this assumption
through empirical research and found out that corporate-applied ethics had a
positive impact on financial performance. Finally, Michelon et al. (2012)
inquired about the impact of social responsibility on corporate performance by
analyzing 188 companies over a 3-year period. They concluded that if a company
creates link between social responsibility and strategy then it is possible to
see a positive impact on both market and accounting-based measures of
performance. In a theoretical study, Galbreath (2008) also suggested
integrating social responsibility into company strategy and showed how
companies could do that. Singer (2009) did the same for business ethics by
proposing a model. We can clearly see that , the studies mentioned above which
imply a positive relationship between corporate governance, social
responsibility, business ethics and corporate performance were not published in
journals whose main focus is corporate performance and/or strategy. For
example, as one of the most important journals of SM field, the Strategic
Management Journal (SMJ) published only 23 articles related to business ethics,
social responsibility-and other relevant concepts between the years 1996 and
2005 (Robertson, 2008). These 23 articles constituted just 3.5% of the total
articles that were published in SMJ between those years. For this reason, we
first wanted to see whether this trend started changing after 2005.
Additionally, we also aimed to understand how corporate governance, social
responsibility and business ethics focused studies were related to strategy and
corporate performance.In order to understand the point of view of the strategic
management field with regards to corporate governance, social responsibility
and business ethics concepts we analyzed one of the top research journals of
this field, SMJ, through its articles published between 1998 and 2010. We have
chosen SMJ for the reason it is the top academic journal in the SM field with
its 3,783 impact factors. We assumed that the most trustworthy research was
published in this journal. We chose the years between 1998 and 2010 because
Google grim graphs show that the usage of these three concepts is inclined to
rise in the 2000s and we also know that collapse of giants as a result of unethical
business activities, corruption, and mismanagement occurred especially in late
90s and early years of the 2000s. In addition, the world witnessed the global
crisis in last 15 years and the role played by companies in global warming and
pollution has started been criticizing harshly in those years. With the
intention of discovering the corporate governance, social responsibility or
business ethics related articles published in SMJ between 1998 and 2010, we
downloaded all articles from those years by using the e-journal access of
Marmara University Central Library. We found 908 articles in total, which is
specifically designed for word counting, we found the most repeated words that
consisted of at least four letters and repeat at least three times in each
article. Then, we looked up the terms governance, responsibility and ethics,
and if we found one of these words repeated at least three times, we marked the
article by giving it a special number. We deliberately avoided using the full
names of the concepts like corporate governance, corporate social
responsibility and business ethics just in case we missed an article. Using the
most refined versions of these concepts increased our workload but also enabled
us to catch all articles related to them. The analysis done by us shows that in
234 of the 908 articles one of the governance, responsibility or ethics
concepts appeared at least three times. . In order to understand the reason for
the discrepancy between Robertson’s (2008) studyand ours, we analysed
Robertson’s (2008) methodology and we understood that he qualified some to pies
like corruption, morality and reputation management as business ethics related.
However, we followed a stricter path and we only looked for the terms
governance, ethics and responsibility as explained under the methodology
section of this article. We believe the discrepancy between Robertson’s (2008)
and our studies stems from the concepts that we took into consideration. In
addition, we did not count the articles that did not primarily deal with the
relationship between corporate governance, business ethics, social
responsibility and strategy. Understanding that the concept of governance was
used by the scholars to refer to the managerial structure of a company. Thus,
our focus on abstracts made it possible to eliminate articles in which
governance, responsibility and ethics concepts appeared more than three times
but were unrelated to corporate governance, business ethics and/or social
responsibility.

Good governance goes beyond
common sense.  The key portion of the
contract which underpinsthe economic growth in a market economy and public have
faith in that system. The OECD Principles of Corporate Governance and
Guidelines for Multinational Enterprises are two essential instruments for
ensuring that this contract is honoured.

It implies that the presentargumentin the US corporate failures and
breakdowns in truthful accounting has people’s belief in financial reporting,
corporate leadership, andalso the integrity of the world over. The fact that
the wave of issues has come hot on the heels of a collapse in the high-tech
bubble has a sharp ironic flavour. Both the occurrencehas their roots in the
heady days of stock market presence, when anything was possible, from creating multibillion
dollar companies with little more than an idea, an investor and a lot of belief,
to believing that markets would buy a group of fast-talking executives could
spin, even if to cover up serious losses and illegal practices. The business
scenario and the scandals involved in it and the bursting bubble have different
causes though: on the one hand, the top management decisions and cover-ups, and
on the other, over-bloated investment assessments followed by a sharp market
correction that spelt the end for thousands of high-technology wannabes. However,
it is difficult to disentangle the non-positive effects these two parallel
developments have had on the confidence of stake holders.

With the rise of high-tech bubble, share values were penned down and
venture capitalists took a beating, as did many shareholders. This is the reason
of the downfall of committing resources to investments with a high risk/high
reward profile. But in few cases of corporate discipline, the public, employees
and pensioners weremisled. It seems that they have now lost many billions of
dollars, and in few cases their life savings, while some insiders benefited.
Theunluckiest part is that both occurrence might in their own way have been
avoided (or at least anticipated) if effective corporate governance and high
levels of corporate responsibility had been respected. The main intentionof positive
vibes in a governance and corporate responsibility isgiving a hand to assure
the well-functioning markets needed for economicdevelopment which cannot be
taken for granted. This idea has been repeated by government and business
leaders the world over, and most recently reaffirmed at summitsfrom Doha to
Johannesburg. But we are falling short: the systems may be there– the US had,
on paper, one of the best – but evidently, they have not worked. Correctingthe
defects will require both private initiatives and strong government action. I
know that the future of corporate governance and its importance will be fully
understood by every organization. The Organization’s requirement for the
integrity and credibility of market players. It is said that I walk a lonely
road on a boulevard of broken dreams , where the shady sleeps I walk alone the
same implies to the implications of corporate governance. Thisbelief is
undermined, lenders and shareholders lose their appetite for risk, and
shareholders take off their equity, outcomes to lost value and reduced
availability of capital. The rules apply for every step of the investment
process, affecting issues from asset protection and ownership registration, to
disclose and the distribution of authority and responsibility among company
organs. Clearly, the importance of a beneficial corporate governance goes far
beyond the interests of shareholders in an individual company. Obviously, the
central corporate governance rules and regulations of transparency and
accountability are very important to the integrity and legal credibility of our
market system. Ethics related to business have always been an inspiring an innovative
way to succeed in the corporate life . Private participation in delivering
these services has been proven to work, but it inconstantly under scrutiny and
must remain so. Few occurrence of private pension funds, for instance, have
recently been informing their retired citizen of the prospect of reduced
payments, due to falling stocks. The risk and cycles were the only cause behind
this nights will be fine. The idea of the stakeholder would probably live with
that, and anyway, the business arena provides other instruments for investors
to invest in, like property or long-term bonds. But to the crazy tent that the
market’s fall can be utilized to scandals and breaches of love, public support
wanes and the world becomes unworkable. The state’s reputation is also at
stake. Say one day you leave this world behind opinion concerns become even
more important in. We need to develop governance tools and incentive structures
that are more robust in the face of rapid financial innovation, and procedures
that leave no doubt as to the stakes involved.  Corporate life comes to a tint when the nights
carry out the fear of maintaining ethics and regulations and abiding by the
rules of the system provides a cultural environment to work with regulations
and ethics Social responsibility is one of the core values of a organization
and also one should try to contribute something back to the society. These are
the core concerns .These ethics and regulations, that have received OECD
ministerial backing, form the basis of a true worldwide standard in corporate
governance. In the light of recent developments, OECD ministers have called for
an assessment of these principles. The main idea enshrined in the ethics are
not being questioned, but there evidently is a need to provide further
direction, particularly with respect to achieving effective implementation in
the dynamic markets of the 21st century. In India many organization are moving
towards the implications and their positive outcomes if implied in an
organization The current top-profile cases of governance failure and corporate
misconduct have shown us  that corporate
governance mechanisms have not kept up with these developments. The importance
essence of corporate responsibility comes when one realises the duty that governs
him to the organization to provide and be prepared and presented”. The
principle is there, but as we have seen recently, it was not always heeded. They
don’t need any silver lining so they work out on theitr abilities and
affirmations that confirms them to dedication towards work . For example, the
OECD principles and regulations recommend that the board “monitors and manages
potential conflicts of interest of management, board members and shareholders,
including misuse of corporate assets and abuse in related party transactions
Corporate governance as taught in class helped me understand the main
obligation that one is putting to escape from the blame..Also the supervising
is not easy, since the conflicts of interest of the stakeholders that have been
identified extend beyond the corporations themselves to financial analysts,
rating agencies and financial institutions. In other words, who can we trust?
We need to develop governance tools and incentive structures that are more
robust in the face of rapid financial innovation, and procedures that leave no
doubt as to the stakes involved. My summer internship with Cummins India has
given me the insights on how corporate governance comes in handy when it comes
to Corporate Social responsibility.

Corporate managers’ duties, of course, are not confined to producing
truthful financial reporting, carrying out the basic functions of conducting
business and obeying the various applicable laws. No Wahala by Demarco states
that implied corporate governance in an organization should eliminate many
major issues. In essence “corporate responsibility” refers to the activities
taken by businesses in response to such expectations in order to enhance the
dependent relationship between business and societies. Shareholders, in fact,
expect their organization to meet society’s demands, consistent with maximising
the value of the firm. Indeed, experience has shown that organization that do
so are generally the best performers in the long run. The difficulties in meeting these expectations has become more
complex in today’s global economy, with firms typically operating in a number
of legal, regulatory,, in fact, expect their organization to meet society’s
demands, consistent with maximising the value of the firm. Indeed, experience
has shown that organization that do so are generally the best performers in the
long run. Thedifficulties in meeting these expectations has become more complex
in today’s global economy, with firms typically operating in a number of legal,
regulatory, cultural and business
environments. The world moving
towardsglobalisation’s benefits are well documented, but it has raised legal
public concerns, several of which have been directed at multinational
enterprises as agents of the globalisation process. Multinational enterprises
sometimes are perceived as taking the money and running, not doing enough to
build up local economies, and so on. In the past years, businesses have already
engaged in voluntary initiatives to improve their efficiency and performance in
various areas of business ethics as well as legal compliance. They have
developed codes of conduct and management systems designed to help them comply
with these commitments. They have developed them with the help of labour
unions, non-governmental organisations and governments. The recently updated
OECD Guidelines for Multinational Enterprises complement and support these
private initiatives for corporate responsibility. Government of India has given
positive vibes towards implication of corporate governance in every
organization , even whistle blower policy will be implemented. Being from the
OECD is somehow appropriate, given that nearly all FDI that takes place in the
world originates and is financed in the OECD area. We know that in fact , the
MNE guidelines are the only laterally multiple endorsed instrument for
corporate responsibility and reflect broad consultation with countries outside
the OECD, as well as business and civil society. They cover the full range of
areas relevant to standards of responsible business conduct and so provide to
corporations a most valuable international benchmark of society’s expectations
Further improving the “competencies” between corporations and the societies are
the areas in which they operate is a key goal of the OECD. That means
strengthening the governance structures and practices within corporations, and
their relationships with shareholders and other stakeholders. It is said that Good
corporate governance and corporate responsibility are no longer just add on benefit
to markets; they are integral to them. They are the basis on which
public-private partnerships can grow. The OECD is determined to lead the way.

Corporate social responsibility is a topic that has been given
increased attention in the lasttwo decades in practice and in theory, both in
management and law. Defined in an influential1970’s article as “the firm’s
considerations of, and response to, issues beyond the economic, technical, and
legal requirements of the firm to accomplish social benefits along with
thetraditional economic gains which the firm seeks,”1 the European Commission
more simply defined it in 2011 as “the responsibility of enterprises for their
impacts on society.” As mentioned that the Commission stated in taking over
that definition, enterprises should have in place a process to integrate
social, environmental, ethical, human rights and consumer relations into their
business operations and core strategy in close collaboration with their
stakeholders.” Thus, the emphasis has shifted from philanthropy and attention
to corporate action “beyond law,” to an inquiry into how a company conducts its
business. Indicative of this shift, many academics and practitioners in
management now refer to the topic as corporate responsibility, not corporate
social responsibility, as will this author.What is some evidence of a
developing norm of corporate responsibility? Few global companies today fail to
highlight their social initiatives and performance on their websites, while
over 90% of the Global 250 companies voluntarily disclose more environmental,
social and governance (ESG) information than required by law.5 Voluntary,
transnational standards of best social and environmental practices are
proliferating in virtually every industry, many with associated certification
schemes and requirements for third-party attestation or auditing.6 These
voluntary initiatives are increasingly being supplemented by domestic and
multilateral government actions to encourage, or in some cases require,
companies to pay closer attention to.

Corporate social
responsibility has become a subject of growing importance in business and law. In
the present scenario, there is  no
analysis of corporate governance systems would be complete without considering
the pressures on companies to be seen as responsible corporate citizens of the
country. This chapter first provides a descriptive overview of developments in
the field, including increasing voluntary and required environmental, social
and governance (ESG) disclosure; and proliferating voluntary and multilateral
standards for responsible corporate behaviour. This chapter then reviews some
of the more significant empirical evidence on the financial results of
companies’ implementation of corporate responsibility initiatives, including
the effects of such initiatives on innovation, trust, and social welfare. It
concludes with an analysis relating these developments to arguments over the
objectives of the corporation and the shareholder/stakeholder debate.