Chapter 1

Good Governance and Social Responsibility (Chapter 1)

• Diagnostic questions help to understand what a corporation is, values of good organizations, management's role in survival, and ethical corporate behavior.

What is a Corporation?

• A corporation is a legal entity formed by shareholders to engage in business activities.
• Monk and Minow (2011) define it as a structure established by law for parties to contribute capital, expertise, and labor for maximum benefit.
• It is represented by common stock holdings, where 1 share equals 1 vote.
• All corporations are formed with the goal of earning profit.
• Not all corporations are purely profit-driven, with some being charitable, non-profit, or non-governmental organizations.
• Corporations emerged in the 19th century to supply goods and services like food, utilities, and housing.

Appealing Attributes of Corporations

• Limited liability protects owners' assets from foreclosure in bankruptcy, with creditors only able to recover debts through the liquidation of the corporation's assets.
• Transferability of ownership allows shareholders to freely sell stock unless restricted by corporate bylaws.
• Corporations are legal entities considered "legal persons", allowing them to perform functions like buying/selling properties, owning copyrights/patents, and engaging in business.
• They have an indefinite lifespan, surviving from generation to generation.
• Centralized management involves governance by executive managers and a board of directors.
• This allows efficient operation without shareholder interference.
• Stock price is typically used as a performance indicator.

The Philippine Corporation

• Under the Revised Corporation Code (RCC), there is no minimum number of directors, but there can be no more than 20.
• Each director must own at least one share of stock.
• A corporation is granted a perpetual corporate term.
• There is a requirement for subscribed/paid up capital, and residency requirements for incorporators align with global standards.
• A significant change in the RCC is the introduction of the One Person Corporation (OPC).
• The RCC focuses on enhancement of doing business in the Philippines.
• It promotes stockholder protection, corporate governance, corporate social responsibility, improved policies, and a regulatory framework.

Importance of Social Responsibility and Good Governance

• Corporate Social Responsibility (CSR) is a manifestation of good corporate governance.
• Good governance means companies should act and behave ethically to meet stakeholders' needs.
• CSR is an ongoing organizational commitment to ensure accountability to stakeholders impacted by their existence.

Four Perspectives of Corporate Social Responsibility (Archie Carroll)

• Economic: Making a profit is a natural expectation. Corporations must first be profitable, pay legal obligations to employees/suppliers, and conform to consumer needs/demands.
• Legal: Corporations must abide by fairness and justice rules/regulations. Legally compliant firms satisfy economic responsibilities.
• Ethical: Ethical firms do what is right for stakeholders and exceed legal requirements
• Philanthropic: Fulfilling this responsibility involves philanthropy related to improving human lives without compromise and is desired, but not required/expected.

A Brief History of Corporate Social Responsibility

• CSR can be traced back to the industrial revolution, with growing concern for worker well-being and related productivity.
• The industrial revolution led to the economic growth of nations but also social problems.
• CSR began as a philanthropic endeavor by successful businessmen wanting to help the underprivileged.
• CSR was officially introduced in the early 1950s through Howard Bowen's work.
• The 1970s mark the marked developments in CSR as companies became more aware of their social responsibility.
• In the 1980s and 1990s, companies became more responsive to stakeholders due to social activism.
• In the 21st century, CSR has become integral to organized strategy.
• In the Philippines, CSR started with donations from businesses in the 1960s; activities in the 1960s were unorganized and sporadic.
• The 1970s saw coordinated efforts between companies and intermediaries.
• The 1990s saw CSR flourish as companies acknowledged their roles as social catalysts.
• The 2000s onward consider CSR an integrative strategic management tool and an accepted norm of good corporate governance.

Drivers and Barriers of CSR

• Regulation: Laws provide a framework that must be followed; China mandates CSR.
• Market Behavior: Benchmarks are established from best practices; CSR is considered a builder of reputation.
• Social Activism: Stakeholders demonstrate or voice concerns which impacts company behavior.
• Culture: Culture is described by shared beliefs, norms, and symbols; benevolence and philanthropy should be ingrained in the organization.
• Limited Financial Resources A company can only engage in CSR if it generates a sufficient profit.
• Profit Maximization Executives support maximizing returns to shareholders so CSR may act a barrier to profit maximization.
• Availability of Human Resources Lack of employee involvement will undermine CSR implementations.

Measuring CSR

• Measurement helps understand what is being measured and lays groundwork for improvement.
• It is a harder management concept to measure compared to others.
• CSR concepts like social and environmental impact cannot be accurately measured.
• Measurements provide benefits, such as helping organizations make better decisions on allocating resources.

Kaplan and Norton's Balanced Scorecard

• It is an example of an integrated strategic measurement system.
• It includes both tangible and intangible measurements.
• Metrics are carefully identified for each objective, meeting goals in all four identified dimensions (financial, customer, processes, learning and growth).

Triple Bottom Line (Three P's)

• The triple bottom line is an accounting framework describing evaluation perspectives that add greater value to an organization.
• Increasing government/social pressure to manage/assess results has led to scrutinizing companies for economic (profit); social (people); and environmental (planet) impacts.
• Emphasis on employee happiness, good governance, well-being, and ethical behavior contribute to the "bottom line" reporting.

Leadership

• Leadership plays a key part in influencing CSR.
• CSR and leadership are founded on service, integrity, and inspiration.
• Employees and managers are concerned with their organization's social consciousness, particularly their leaders' commitment to CSR.
• Leader perceptions provide evidence regarding the CSR attitude and employee subsequent attitude, behavior, and engagement.
• Leaders must be able to communicate their stories to contribute to the company's reputation.
• "Kapwa" (fellowship) is considered an essential component of effective leadership.
• "Kapwa" is a shared identity with others, sparking genuine concern.

The Future of Philippine CSR

• Corporate Social Responsibility (CSR) has become part for most companies as its becomes an opportunity to engage stakeholders and creating a shared-value
• CSR stands for serving the Filipino.
• With sustainability, CSR is critical in mapping out company policies (SM Cares).
• Awareness of the individual's contribution to society has increased.
• Top Philippine corporations are paving the way in setting examples on how to embed CSR in their corporate strategies: Ayala Land, BDO Unibank, Coca Cola Phils, and Globe Telecoms.
• Criticality of individual social responsibility in shaping CSR leads to sustainable development.
• Volunteerism and activism will be key drivers in furthering progress of CSR.
• Full disclosure and transparency leads to synergy among the socio-political-economic spectrum.
• The Philippines abides by international regulatory frameworks for CSR.
• Survival and sustainability of the human race is the main goal.