Global Challenges for Multinational Corporate are Corporate Social Performance - An evolving Concern for all


By

Dr. G. Lakshmi
Sr. Faculty Member
Icfai National College
Mysore
 


Abstract:

"The future belongs to those who understand that doing more with less is compassionate, prosperous, and enduring, and thus more intelligent, even competitive."
                                                                                                                           - Paul Hawken

Global integration of markets across countries has created a favorably climate for corporates to grow into large entities.  The number of MNC's including Indian MNC's is growing rapidly.  Many such corporatist are even large than the economies they are part of they have huge financial power such that they can make or mar economies of small countries individually and large ones collectively.  For Years a common mantra among academics, management gurus, and an increasing number of senior executives has been that manager's purpose in life should be to create value for Shareholders.  The assumption behind this philosophy was that the shareholders interest is residual in nature and he will get return on investments only after the interests of all the other stake holders such as, employees, creditors, government and society are satisfied.  Thus maximizing shareholder's wealth automatically meant maximizing the interests of all others. With the recent trends in the corporate world and the fall of giants such as Enron and WorldCom the realization is slowly spreading that this philosophy may not necessarily hold ground in out context any more.  Academicians, societies and Corporations are slowly beginning to look beyond – Share holder's wealth Maximization to Stake holder Wealth Maximization.  Intertwined with this philosophy is the new buzz word Corporate Social Performance.

Key words:  Corporate Social Performance,  Stakeholders, Values, Corporate Social Resonsibility.

Introduction:

Corporate Social Responsibility is not just about managing, reducing and avoiding risk, it is about creating opportunities, generating improved performance, making money and leaving the risks far behind.
                                                                       - Sunil Misser, Head of Global Sustainability Practice.

Models of Corporate Social Performance are based on principles of Corporate Social Responsibility (CSR) .  CSR essentially considers business organizations as responsible citizens who live in a symbiotic relationship with the other elements within the social spectrum.  It therefore means, just as organizations receive benefits from the society – they also have obligations towards society.  According to K Davis, Society grants eligibility and power to business.  In the long run, those who do not use power in a manner which society considers responsible will tend to lost it."

Vigorous research on the topics of Corporate Social Responsibility and Corporate Social Performance has been taken in recent times.  Corporate Social Responsibility is defined as a Business organization's configuration of principles of social responsibility, processes of social responsiveness, and policies, programs and observable outcomes as they relate to the firm's societal relationships.  Business organization in this context could be a corporation, partnership or any other form of entrepreneurship.  Hence, through out this paper the term "Corporate" is used in a loose sense to indicate all forms of business organizations.

Some of the emerging best practices Corporate Social Performance are as below:

Well defined role, composition and robust functioning of Board of Directors:  Board of directors is increasingly getting involved in the long term strategy definition of organizations as opposed to the hands off policy of the past.  They are also increasingly active in the stringent monitoring of management performance, ensuring compliance, reviewing internal controls and risk management capabilities and succession planning/leadership development.  More emphasis is being given on the right industry and experience mix for BOD also café is being taken to ensure the independence of Board of Directors.

Optimum functioning of Audit Committees: Audit committees are no longer being seen as mere statutory committees – but organizations are giving increased importance to audit committee's independence and enhanced powers to review financial statements and accounting policies and see beyond mere GAAP  compliance.  At least one member of the audit committee is expected to be a designated financial expert with sufficient sub-domain knowledge in financial areas.  Increasingly, audit committees are being vested with more and more oversight on both internal and external audits.

Internal Controls and Practices:  Emphasis is being placed on disseminating timely information, including non-financial information, to stakeholders to improve decision making.  Boards are realizing that it is no longer sufficient to have internal controls, but they must be able to prove the same.  Whistle blower policies are more focused on encouraging reporting and providing adequate safeguards against victimization in fact, whistle blowers have direct access to audit committees.

Risk Management: Risk management and assessment and disclosure have attained significance. Boards are defining and clearly articulating companies overall risk strategies.  The annual reports of companies contain detailed discussion on possible risks and mitigation strategies in their management discussion and analysis.  Risk management is no longer confined to corporate office it is being instilled throughout the organization. 

The question is to whether a link can be drawn between Corporate Social Performance and Corporate Financial Performance has been dogging academicians for sometime now.  As recent as 2003, Barnett & Solomon commented Despite the intensity of study directed at it, the relationship between CSP and CFP remains in dispute.  The methods hitherto adopted to establish this correlation were at best sketchy such as narrative interviews or vote counting and were not scientific as they neither accommodated correct sampling nor statistical measurement for errors.  However, Marc Orlitzsky, Sara L. Rynes have used Meta Analysis to demonstrate this linkage.  Meta Analysis is a statistical technique used extensively in medical research to review multiple studies – its use in management field is relatively new."  These authors, through their study were able to prove. "

  • There is a relationship in significant statistical between CSP & CFP. The correlation was a non trivial 36%
  • CSP and CFP mutually reinforce others
  • This relationship is shown to be due to improved managerial competency and improved corporate reputation.

However measurement of social performance is very tricky and separate data are not available for most corporates.  New metrics has to be created to track performance of corporates on CSP the non financial performance of corporates has to be documented.  Triple bottom line performance has to be reported periodically its focus should change from external reporting to internal with an integrated MIS.

Triple Bottom Line Approach


There must be objectives and targets for each of the three outcome areas for the companies as they generally have financial objectives and targets, additionally they need to:
  • Sensitise the management and employees to social and environmental concerns and need to address them.
  • Put in place a process for achieving social and environmental targets
  • Develop a management system to monitor and control outcomes in these areas.

Conclusion:

It has been seen that the CSP is no longer an academic debate – but a relevant fact of running a successful business, especially in the context of a global business.  The increased thrust on this aspect is a result of both Pull as well as Push factors.  While firms are proactively beginning to respond to the needs of corporate social performance through increased awareness of the subject – the push factor is also due to external regulations, international bodies and various special interest groups that are closing monitoring these multi national firms.

Businesses are increasingly reverting to the basic value systems – rooted in their age old cultures.  Value creation is being looked at beyond maximizing return on income or maximizing shareholders wealth but as a way of meeting all stakeholder needs and there by emphasizing on building strong moral fiber in their organizations.  While it still be a mistake to state that a great majority of corporations are following this the winds of change is fast blowing.

1. Reference: D.J. Wood, Corporate Social Performance Revisited, Acdemy of Management Review 1991

2. K. Davis (1973) The case for ang against business assumption of Social Responsibilities Management Journal Vol 16, Swanson, D.L. (1995)

3. Wood D.J. & Jones, (1995) Stakeholder mismatching, Internal Journal of Organisational Analysis  VOl. 3

4. Business and Government by Francis Cherumilan

5. Ortizky, Schmidt. Rynes (2003) Corporate Social Performance. A Meta Analysis.
 


Dr. G. Lakshmi
Sr. Faculty Member
Icfai National College
Mysore
 

Source: E-mail October 23, 2008

           

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