Social Responsibility and Good Governance PDF

LESSON 1 CORPORATE GOVERNANCE TOPICS 1. Definition of Corporate Governance 2. Fundamental Objectives of Corporate Governance 3. Benefits of Good Corporate Governance LEARNING OUTCOMES At the en...

LESSON 1 CORPORATE GOVERNANCE TOPICS 1. Definition of Corporate Governance 2. Fundamental Objectives of Corporate Governance 3. Benefits of Good Corporate Governance LEARNING OUTCOMES At the end of the lesson, students should be able to: 1. explain corporate governance and its fundamental principles, and 2. list down and discuss the benefits of good corporate governance Introduction Corporate governance is a long-term vow by business to perform within the bounds of ethics and to contribute to economic advancement at the same time improving the quality of life of the workforce and their families as well as of the local community and society at large. It is a company’s positive involvement on society and the environment through its operations, products or services and through its relations with key stakeholders such as employees, customers, investors, communities and suppliers. Corporate social responsibility (CSR) is a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis as they are increasingly aware that responsible behavior leads to sustainable success. It is about the alignment of business values and behavior with the expectations and needs of the stakeholders not only to customers and investors, but also employees, suppliers, public, government, special interest groups and society as a whole. TOPIC 1: CORPORATE GOVERNANCE DEFINED Corporate governance is defined as the structuress and processes by which companies are directed and controlled. Good corporate governance helps companies operate more efficiently, mitigate risk and safeguard against mismanagement, and improve access to capital that will fuel their growth. It makes companies more accountable and transparent to investors 1 and gives them the tools to respond to stakeholdes concerns, including implementation of good environmental and social practices. Corporate governance refers to a system whereby shareholders, creditors and other stakeholders of the corporation ensure that management enhances the value of the corporation as it competes in an increasingly global market place (SEC Memorandum Circular No. 2, Series of 2002, Code of Corporate Governance). According to Sir Adrian Cadbury, corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. Corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewarship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society. Corporate governance contributes to the development. Businesses that operate more efficiently tend to allocate and manage resources more sustainably. Better stakeholder relationships help companies address environmental protection, social, and labor issues. TOPIC 2: FUNDAMENTAL OBJECTIVES OF CORPORATE GOVERNANCE Corporate governance have the following fundamental objectives: 1. Improvement of Shareholder Value Shareholders’ value can be improved by making pre-commitment to build better relations with primary stakeholders like employees, customers, suppliers, and communities. Better relations will lead to an increase in shareholders’ wealth since this would help the firms expand and develop intangibles which the firm could capitalize on and in turn become a source of their competitive advantage. Good reputation is just one example to these intangibles which could largely predict the future of the business. Better relations with employees engender employees’ commitment. Good relations with customers and suppliers complete the full circle of strong alliances. 2. Conscious Consideration of the Interests of Other Stakeholders When a company meets the objective of increasing the shareholder value, it will have greater internally-generated resources in improving its commitment in meeting its environmental, community and social obligations. It can pay taxes well; reward, train and retain key staff; and enhance employee satisfaction. A key focus area is a company’s human capital, which is a lead indicator of success. TOPIC 3: WHAT DOES GOOD CORPORATE GOVERNANCE PROMOTES? In almost all sectors of our society, practicing good corporate governance reflects or produce positive results on their day-to-day operations, such as, but not limited to: A. Transparency Transparency is vital with respect to corporate governance due to the critical nature of reporting financial and non-financial information. The aim includes maintaining investor, 2 consumer and other stakeholders’ confidence. The lack of dedication to corporate governance policies particularly those related to transparency will drive home the point that the company is unbalanced and the leadership is not incorporating it to the highest level of truthfulness. Failure in transparency issues could lead to many things, scaring off of investors is just one of them; being singled out by the authority is another which could mean the watchful eyes of the agencies will be focused on the company and many other uncomfortable scenarios which no company wants to be in. Information is the currency of democracy according to Thomas Jefferson. Transparency is a thing of huge concern in government setting since it entails giving out of information. It is crucial because nearly all the decisions of government officials are in the interest of the public. Transparency lessens the likelihood of nepotism, corruption, favoritism and the likes. Shortage of information about the how the government agencies functions can make it easy for corrupt officials to cover their tracks. It can be said that the most corrupt countries are the least transparent. B. Accountability Accountability is the recognition and assumption of responsibility for the decisions, actions, policies, administration, governance and implementation of programs and plans of the corporation and people involved, including the obligation to report, explain and be answerable for its resulting consequences. It is acknowledging and taking charge for and being transparent about the impacts of the company’s policies, decisions, actions, products and its associated performance. It is based on the premise that an accountable organization will take action to: Set a policy based on a comprehensive and balanced understanding and response to material stakeholders’ issues and concerns; the emphasis on this premise is the overall broad philosophy and operating style of the entity itself. Set a goals and standards against which strategy and associated performance can be measured and evaluated. This highlights the deliverables by the people to the organization. Disclose credible information about strategy, goals, standards and performance to those who base their actions and decisions on this information. In this way, there will be goal congruence in the organization. C. Prudence Prudence is defined within the Code of Governance as “care, caution and good judgment as well as wisdom in looking ahead.” It is the management committee which is in corporate setting, the board of director, who will be the body responsible in safeguarding the interests of the organization through good planning and management of finances and other resources of the organization. Activity Discussion. 10 points each question. 1. Discuss the fundamental objectives of good governance. 2. What does good governance promotes in the competitive business world? 3. In this time of pandemic (2020), identify at least five (5) institution (government or private) 3  TOPIC 4: BENEFITS OF GOOD GOVERNANCE If a country does not have a reputation for strong corporate governance practices, capital will flow elsewhere and all enterprises in that country will suffer the consequences. Investors would behave differently in settings with good governance practices. The following are the specific benefits of good governance: 1. Reduced Vulnerability Adopting good corporate governance practices leads to an improved system of internal control. This leads to greater accountability, protection of corporate resources and eventually, better profit margins. Good corporate governance practices will also pave the way for probable future development, diversification including the capability to attract investors, both sourced nationally and abroad. Good corporate governance will also reduce the cost of loans or credits for corporations since the companies with good corporate governance can be considered low- risk companies in the eyes of debt investors. 2. Marketability Embracing principle of good corporate governance can also play a role in enhancing the corporate value of companies. This leads to easy access to capital in financial markets which helps the company survive in an even more competitive environment. Good corporate governance will also make the company more attractive in open market. This attribute will be beneficial and will place the company at the finer end of the bargaining in times when strategic alliances are needed. Examples of these strategic alliances are mergers, acquisitions, corporate absorptions and buy outs, partnerships, joint ventures and other risk mitigating initiatives. 3. Credibility There are a good number of benefits when an entity embraces good corporate governance, one of which is the company need not to spend more resources in compliance with the regulatory and other financial institutions’ requirements necessary since all these things are already integrated in company’s operating approach. Companies that are known for good governance practices do not need to sell themselves that hard for the investors to fuse-in their investment either as equity or as debt investors. In the context of investment, everything could raise and fall in credibility and reputation. When a company is credible, investor’s trust comes next; where investors’ trust is in, money follows; when there is money, there is flexibility. It is in having that flexibility in a competitive world that could spell out the difference between failure and success. 4. Valuation Observed evidence and studies conducted in recent years back the idea that it pays to have good corporate governance. It was found out that more than 84% of the global investors are willing to pay a higher price or a premium for the shares of a well-governed company over one considered poorly governed given all financial figures comparable equal. The issue is reliability of company-provided information. This is one convincing fact that embracing corporate governance principles and practices affects corporate financial and non-financial value of the enterprise. 4  Activity: Discussions 1. Among the four benefits of good governance, choose one (1) benefit and discuss in not less than ten (10) sentences. (10 points) 2. During this pandemic 2020, identify at least five (5) private or government institutions/corporations/organizations who made significant social responsibility (local or national). Discuss their contribution/activity in the community. (10 points) 5  LESSON 2 CORPORATE SOCIAL RESPONSIBILITY TOPICS 1. Concept of Corporate Social Responsibility 2. Corporate Social Responsibility from Historical Perspective 3. Historical Phases of Corporate Social Responsibility 4. Perspectives on Corporate Social Responsibility 5. Assessment on the Practice of Corporate Social Responsibility 6. The Four Corporate Responsibilities 7. Social Responsibility Towards Consumers 8. Social Responsibility Towards the Community and the Environment 9. Current Activities Related to Corporate Social Responsibility LEARNING OUTCOMES At the end of the lesson, students should be able to: 1. discuss the basic concept of corporate social responsibility 2. enumerate and discuss the development of corporate social responsibility 3. discuss the pros and cons of corporate social responsibility 4. identify and explain the distinction between ethics in business and corporate social responsibility, and 5. list down the long-term effect of corporate social responsibility to the stakeholders of the business TOPIC 1: CONCEPT OF CORPORATE SOCIAL RESPONSIBILITY The fundamental reason for examining the activities of business from the moral perspective is for the promotion of the common good, protection of the individual’s interests and the preservation of the human society in general. Without ethics, business will be chaotic because there will be no understanding and agreement about what is wrong and right in the human conduct. Ethics in any field must be rooted in a sense of morality and the justice that is associated with human action. Social responsibility is a moral obligation of each and every individual, institution, business and organization since they all compose the society 6  Figure 1. The Concept of Corporate Social Responsibility TOPIC 2: CORPORATE SOCIAL RESPONSIBILITY FROM A HISTORICAL PERSPECTIVE 2.1 THE ANCIENT AND MEDIEVAL PERIOD During the ancient times, people believed that businessmen and wealthy people should do business to the community as part of public or social service. To make money or to lend money is an activity greatly despised. The Greeks and Romans treated businessmen next to slaves. Businessmen were pressured by society that even Plato, the Greek philosopher and follower of Socrates, who taught, wrote and presented his ideas in the form of dramatic dialogues, recommended that such activities be prohibited. The elite of the society condemned businessmen, criticizing them for utilizing their money for profit and not for service to the community. Furthermore, in the absence of a standard of morality to follow, they were denounced by the upper classes of society. Criticisms against the evil of business came far and wide during the medieval period when the Catholic Church became the most powerful institution in Europe. The Catholic Church did not trust the business system and deemed profit-motive as anti-Christian, believing that the merchant never or seldom pleases God. It was St. Thomas Aquinas who justified that business could exist as long as it was used for the good of the community. During this period, the practice of social responsibility in business produced good results. St. Thomas Aquinas was responsible for introducing the concept of compensatory justice which maintains that prices and wages should be fair. Because of this and despite the poverty experienced, people in the 1500s enjoyed a good standard of living in Europe, which never happened in the next three hundred years that followed. 2.2 PERIOD OF MERCHANTILISM The power of the Catholic Church as the most influential institution in Europe diminished at the onset of mercantilism, a politico-economic philosophy. European governments actively participated in business activities and established monopolies. To them, the main source of power and prestige among nations is the acquisition of gold and silver through trade. 7 Colonization of more territories became rampant as these territories were used as sources of raw materials and cheap if not free labor. The galleon trade or kalakalang galyon is an example of this practice which shows that the Philippines was not spared. It was in 1521 when the Philippines was discovered by the Spanish conquistadores who came to the shores and occupied the islands. The Spaniards’ initial objective in navigating the oceans was to look for spices for the production and marketing of tobacco monopolized by the Spanish government. The medieval and mercantilism periods showed several violations of social responsibility. Colonies were exploited by the European colonial masters. Millions of Africans were sent to work as slaves in the North, South and Central Americas. The Color Purple, a movie starred by the actress Whoopi Goldberg, which also gave the now equally famous Oprah Winfrey a break into the limelight when she was introduced as a co-star in the 1980s, is an award-winning and touching movie that depicts the life of an African forced into slavery. Yet, during that time, no moral issue was raised in Europe and in fact, it was a time when pirates could become heroes. Capturing foreign ships was a practice of countries with strong fleets. At the time of the famous English Pirate Francis Drake, the strength of a country’s fleet was shown when they were able to conquer the ships of other countries. The power of the Catholic Church as the most influential body in Europe did not only diminish because European government s became active but also due to the influence brought about by the philosophy and doctrines introduced to the society. Max Weber’s (pronounced as Vay-bur) philosophy was one of those. He claimed in his most recognized work, an easy entitled Protestant Work Ethics and the Spirit of Capitalism, that Protestant values encouraged thrift, industry and materialism, making Protestant countries more progressive than Catholic countries. John Calvin, one of the proponents of Protestant Work Ethic likewise glorified the thrifty and industrious businessmen. The promotion and growth of business as well as the regard for social responsibility was regarded and supported by the government. The Harmony of Interest Theory of England states that “business should act in accordance with national interest because the state supported it.” Special privileges were granted to businessmen for performing outstanding public service in the conduct of their business. On the other, those who failed and were not able to contribute were fined and punished. 2.3 THE INDUSTRIAL REVOLUTION The industrial revolution is the time when machines were introduced, thus contributing to improved production and business growth. Along with these improvements was the change in the businessman’s attitude and valued towards business. Representing absolute virtue, businessmen regarded wealth as a symbol of moral excellence. Absolute free enterprise became an argument, rejecting the concept of social responsibility and promoting the individualist philosophy that the government must not interfere with the activities of the business. Businessmen reasoned out that the role of the government should be to encourage the growth of unregulated business to which the government responded and quickly favored. Not surprisingly, their activities became free, making big businesses powerful. The capitalists in England were the ones who thoroughly enjoyed this prerogative. They were given the free hand to run their businesses and all their activities became unrestrained. Workers, including children and the aged, were exploited and forced to work, leaving only six hours in a day for rest and sleep but wages given to the workers were extremely low. Workers were left without a choice because in as much as they needed enough rest, they had to work longer hours so they could satisfy their most basic needs. Furthermore, capitalists abused unrestrained business activities by cheating and selling their poor quality products at very high prices. Karl Marx and Robert Owen, fighting against the capitalists, were both responsible in exposing these abuses, thereby earning for them the titles “social reformists.” The emergence of big corporations also happened during this time. Corporate social responsibility was totally absent as big corporations acted above the law. They created their own government and used their wealth to bribe and cheat so that they would 8 remain untouched by the long arms of the law. 2.4 AFTER THE PERIOD OF DEPRESSION (1930s to the present) At the onset of 1930s, the government, especially in progressive countries, protected the welfare of the public against the abuses of businesses, thereon up to a decade ago, businesses viewed social responsibility as an adherence to rules and regulations and compliance with administrative and legal standards. But on the rise across the globe is the mandate to create a more competitive, productive and knowledge-based economy. Ethics in business and social responsibility are now given serious attention by more and more companies as they realized that their success lies in earning the confidence and respect of the society. Being held morally responsible for their actions, on the rise are individuals, firms and companies who continually strive to improve their business practices, emphasizing both legal and ethical behavior where they are held increasingly accountable. As the growing demands for higher corporate social responsibility emerge, approaches to this moral obligation has now become a business pursuit. Businesses have started to integrate corporate social responsibility as part of their corporate structures and processes. This then has resulted to the creation of innovative and proactive solutions to societal and environmental concerns. Similarly, businesses have started to involve internal and external stakeholders to collaborate and participate in the improvement of the standards of their corporate social responsibility policies, procedures and practices. Figure 2. Corporate Social Responsibility from a Historical Perspective TOPIC 3: HISTORICAL PHASES OF CORPORATE SOCIAL RESPONSIBILITY Social Responsibility has gone through three phases, each phase corresponding to particular characteristics, according to Professors Robert Hay and Ed Gray, as presented in the following illustration. 9  Phase 1: Profit Maximizing Management (1800s to early 1900s) Phase 2: Trusteeship Management (Early 1900s) Phase 3: Quality of Life Management (1930s Figure 3. Three Phases of Corporate Social Responsibility Characteristics: Phase 1 Management must maximize profit. Individual drive for profit maximization would ultimately create wealth for the nation. Business systems as profit maximizers are used as tools for the elimination of economic scarcity. Businesses ignored unsafe working conditions, paid starvation wages and used child labor in order to maximize profit. Problems of cultural minorities, unsafe products, unfair advertising and urban poor problems were given little if no attention at all. Abuses of capitalism were extremely rampant and the government tolerated these deplorable business practices. Phase 2 Management was considered both as an instrument of stockholders and as a trustee for all groups who contribute to the business enterprise. Aside from profit maximization, management’s concern was also to maintain a fair balance in the interests of employees, customers, creditors, stockholders and the community. Phase 3 Security of basic goods and services was no longer a principal problem. Social and economic problems brought about by economic growth expanded the concept of social responsibility of management. Society demanded management’s active participation in helping solve social and environmental problems in view of the vast resources (funds, manpower, materials, management skills and technology) of businesses. Business is expected to contribute to the improvement of the quality of life, which involves cultural, social, educational, political factors and economic security. Society is unstable if the quality of life of the people is poor. Businesses contribute for a good quality of life and society. 10  TOPIC 4: PERSPECTIVES ON CORPORATE SOCIAL RESPONSIBILITY People’s attitude, values and management culture differ. Consequently, each has a social responsibility in society since every individual, body or institution makes up a society. Businesses have different viewpoints on social responsibility as well. CLASSICAL VIEW MANAGERIAL PUBLIC VIEW CHRISTIAN VIEW VIEW The primary Does not Includes the Excess wealth responsibility of emphasize needs and should be given business is profit profit interests of the to the less maximization. maximization whole society fortunate. Obligation of and interests of in contrast with Wealthy management is to stockholders. the classical individuals satisfy To balance the and managerial have a stockholders for interests of views. responsibility their investments. employees, Establishes to share their Supported by customers, harmony with blessing with Milton Friedman, suppliers and both business the poor. one of the most the local plant operations and A successful effective community is public interest. corporation advocates of the role of should perform economic freedom managers of its social and free big businesses. responsibility enterprise. more by returning a fair portion of its profits to the people in the form of social services. Based on the teachings of Jesus Christ as taught in the Bible. TOPIC 5: ASSESSMENT ON THE PRACTICE OF CORPORATE SOCIAL RESPONSIBILITY 5.1 Arguments in Support of Corporate Social Responsibility (F. Fajardo, (2000), Management, pp. 103-109) 5.1.1 Long-run self-interest - In the long run, business enterprises will benefit from their own investment by using their resources in reducing and eliminating social problems. A good social and economic condition will offer an encouraging 11  environment for businesses. 5.1.2 Business resources - Businesses could use their huge resources in the improvement of societal and environmental conditions. Some of these business resources are manpower, funds, materials, management skills and technology. 5.1.3 Viability of Business - As embodied in the deed of a corporation, businesses are granted powers and privileges by the government due to their contributions to the economy and valuable services to society. The government can also revoke the charter of a business once it fails to meet social expectations. For this reason, businesses have to perform their social responsibilities. 5.1.4 Public Image - Charitable, civic and socio-economic projects are some of the activities where businesses take part. As they become active with such projects, their public image is also enhanced. They leave to the society a very good impression of their corporate image that attracts more competent recruits and a greater number of customers. 5.1.5 Profit from Social Problems – Businesses can turn problems into profits by being creative and resourceful. An example is recycling of waste materials into other valuable goods. 5.2 Arguments Against the Practice of Corporate Social Responsibility 5.2.1 Profit maximization – Corporate executives and managers are primarily responsible to investors and stockholders. It is their duty to maximize the profit of their business, not the concerns of the society. 5.2.2 Lack of Social Skills – Businessmen lack the appropriate skills in solving social concerns. Social problems should be the concern of the government, not the businessmen’s who are honed with the disciplines involved in business. 5.2.3 Lack of Social Accountability – The social needs and problems should not depend on businessmen. Businesses cannot be expected to solve social problems. This must be left to the government. 5.2.4 Higher Product Cost – Businesses’ active participation in social, charitable or civic projects leads to additional expenses and wastes manhours of the company. In order to recover from such losses, businesses increase the cost of their products that may also cause them a disadvantage from the costs of the products of their competitors. Figure 4. Assessment in the Practice of Corporate Social Responsibility 12  TOPIC 6: THE FOUR CORPORATE RESPONSIBILITIES Taking it from The Pyramid of Social Responsibility, a four-part model developed by Archie B. Caroll and published in the July-August 1991 issue of the Business Horizons, the corporate social responsibilities of a business can be classified into to four as can be seen from the following figure. 1.1 Philanthropic Responsibilities - DESIRED of business by society 1.2 Ethical Responsibilities – EXPECTED of business by society 1.3 Legal Responsibilities – REQUIRED of business by society 1.4 Economic Responsibilities – REQUIRED of business by society Philanthropic Responsibilities (Good corporate citizenship) Ethical Responsibilities (Obligation to be ethical; do what is right and avoid harm) Legal Responsibilities (Compliance with laws and regulations) Economic Responsibilities (Being profitable) Figure 5. The Pyramid of Corporate Social Responsibility TOPIC 7: SOCIAL RESPONSIBILITIES TOWARDS CONSUMERS Not only workers experience abuses and exploitation, cheating and abuse. These also happened to customers in as early as the beginnings of the history of social responsibility when workers were forced to work longer hours and treated as slaves. Although aware of the poor quality of their products, avaricious businessmen during the early periods cheated their customers by selling the same poor quality products with very expensive prices. Even at present, there are still a great number of cheating businessmen who swindle, deceive and take advantage of their trusting customers. Consumer rights which are, the right to safety, the right to be informed, the right to choose, and the right to be heard were introduced by the famous former U.S. President John F. Kennedy. These rights became contributory to the now more intelligent and smarter consumers of our generation. As more and more customers become aware of their rights, businesses in turn have to take care not to violate these rights. 13  TOPIC 8: SOCIAL RESPONSIBILITIES TOWARDS THE COMMUNITY AND THE ENVIRONMENT All living things are dependent on the earth’s natural resources. Therefore, man has the moral obligation to preserve the environment and respect the natural order of things. Of all the living things created God, man is the only living thing given the responsibility of taking care of all the rest of the creatures on earth. It is a clear order from God as written in the bible. Only man is given authority over all the other creatures in the same way the he is the only one given the ability to protect the environment, not to intervene with the forces of nature. The business industry is no doubt the primary user of the earth’s natural resources. In the everyday course of a business, an enormous quantity of energy and raw materials are being used in the manufacturing of products and services. Energy is both employed and discharged into the environment. When resources and energy is used, the earth’s natural resources are depleted. Businesses benefit so much from the environment in order to produce the products, goods and services they need for their businesses to prosper. They primarily rely on the benefits provided by the environment. In turn, businesses have the corporate social responsibility of preserving and maintaining the balance of nature because once natural resources are depleted, these can never be replaced no matter how magnificent the power of man’s brain is. TOPIC 9: CURRENT ACTIVITIES RELATED TO CORPORATE SOCIAL RESPONSIBILITIES The response of the business industry to the call to become more socially responsible encompasses a great deal of activities in recent years. Across the globe, teams and organizations were created as part of making corporate social responsibility an integral part of business operations, and strategies. These teams provide information, tools, training and advisory services that businesses use to collaborate and develop business performance towards higher standards of corporate social responsibility. Some of these activities involve the following: Establishment of certifying bodies to develop standards, programs and to train and certify employees, managers and businesses with quality programs, certifications and accreditations, e.g., ISO Certification; Total Quality Management; 5S of Good Housekeeping; Self-evaluating and Product Teams; Occupational Health and Safety; Health, Safety and Environmental Accreditations that will ensure continual improvement of all aspects of the business. Training their employees for customer care and people skills with the application of Customer Relationship Management standards. Training of employees for continuous improvement and development of skills. Improvement of compensation and benefits packages for employees to enjoy from hiring to retirement while a number of benefits are also rewarded to families of the employees such as health and medical assistance, hospitalization benefits, scholarship grants, among others. Establishment of programs for the protection and preservation of the environment, some of which include tree-planting activities, recycling of waste materials, segregation of hazardous, infectious, biodegradable and non-biodegradable waste materials, among others. Active participation in socio-civic and charitable activities, adopt-a-community programs, adopt-a-school programs, books and toys donation to government agencies and NGOs, 14  scholarship grants, volunteer work to communities and those affected by calamities and the like. Development of customers complaint desks or hotlines, a large number of which are impressively using state-of-the-art technology or sub-contract with call centers in order to reach customers wherever they are across the globe 24 hours a day, seven days a week. Recruitment of competent and technical employees to ensure manufacturing of their products follows the strictest standards. Training quality people that will handle all aspects of the business processes including accreditation of suppliers, third-party contractors, standardization of the requirements for raw materials, calibration of machines, handling of product complaints, and after-sales service. Application of good manufacturing practices and advance quality assurance standards for safe and good quality products including handling and packaging. Strengthening of ties with agencies and creating organizing bodies that aim at the promotion, monitoring and recognition of companies that adhere to their moral obligation in order that they will have a standard of corporate responsibility to follow. Several of these commitments and activities fulfill the firms’ moral obligation to societal, economic and environmental concerns. In general, they act in response to these key elements and issues: Figure 6. Current Activities Related to Corporate Social Responsibility The way businesses engage employees, shareholders, consumers, suppliers, the government and its agencies, non-governmental organizations, international organizations and other stockholders form a progressive of corporate social responsibility of businesses at the present time. Many of these firms believe that it stimulates corporate innovation and provides them a clear competitive advantage. Companies worldwide have been motivated to respond favorably because many of them have been proven that responding to the call of being 15 responsible businesses has given them better financial performance and profitability, improved accountability to and assessments from the investment community, enhanced employee commitment, decreased vulnerability through stronger relationships with communities and improved reputation and corporate image building. ASSESSMENT: DISCUSSION A. Discussion: 5 points each question. Questions: 1. Is it possible for a company to be profitable and socially responsible at the same time? 2. What do you think is the business organization’s primary responsibility to its stakeholders and why? 3. Cite some examples of companies engaged in projects and activities geared towards the promotion of the quality of life of people. 4. Mention some examples of philanthropic responsibilities. 5. Which is more important – philanthropic responsibility or economic responsibility? Why? 6. Is the Christian view on CSR applicable to business? B. Case Study (15 points) Situation: Where Is After-Sales Service? Spidermart is a shop in Celia’s neighborhood. It is well-known for being very spacious, well supplied and for its enticing advertisement. Celia bought a shower nozzle at the store and was assured by the salesman that despite the product’s being quite expensive, Celia got more value for her money because the product is guaranteed to last a lifetime and was imported from one of the largest sanitary product manufacturers in the world. However, when Celia’s plumber was installing the nozzles, he discovered that the nozzles were defective. The plumber showed her the newly installed nozzles and she saw how the water kept gushing out from the wrong places even if they were properly installed. She was convinced that it is a factory defect so she went back to Spidermart and told the salesman about it. The salesman would not believe her story about Celia insisted until the store manager was summoned. The manager sided with salesman right away and kept convincing Celia that it must be because wrong installation. The commotion then resulted to Celia claiming that the shop was only violating its catchphrase and that she had been deceived. The manager still maintained not to replace the defective nozzles. Celia told her friends about it and one of them suggested that she raise this issue to the Consumers’ Union. The Consumers’ Union met with the director of Spidermart and warned that they will publicize the issue if the shop will not do anything about the matter. The shop director, out of fear of having the issue blown out of proportion by the Consumers’ Union, agreed to have the nozzles replaced. Only then was the issue resolved. Questions: (5 points each) 1. In what instances in the case were violations of corporate social responsibility evident? 2. Was it right for the store manager to immediately side with the salesman? Why or why not? Justify your answer. 3. Celia’s case may only be one of the many unpleasant episodes that happened and remained uninvestigated at Spidermart. Replacing the defective nozzles does not totally resolve the core of the matter as the Consumers’ Union has given Spidermart a warning and many customers may suddenly come out in the open upon hearing the news about the case of Celia. As a shop director, what are the next steps that you must do? 16  LESSON 3 BUSINESS AND ECOLOGY TOPICS 1. Dimensions of the Ecological Problems 2. Traditional Attitudes of Business Towards the Environment 3. Environmental Ethics 4. Moral and Social Obligations of Business to the Environment 5. The Valdez Principles LEARNING OUTCOMES At the end of the lesson, you should be able to: 1. discuss the activities of business that are detrimental to the environmental and the ecosystem 2. identify and discuss the moral obligation to protect and preserve the environment as future managers and business leaders 3. enumerate and explain the dangers and the detrimental effects of environmental abuse, and 4. list down our commitment to protect nature and Mother Earth TOPIC 1: DIMENSIONS OF THE ECOLOGICAL PROBLEMS The ecological problem that the world is facing today is actually a very serious problem that needs urgent attention and solution. There are many dimensions to this problem that humanity is now confronted with Fr. Moga, S.J., in his book Toward Authentic Morality (pp. 113- 119), enumerates the different dimensions of ecological problem. 1.1 Population Explosion The last few centuries saw the rapid increase of the world’s population. In the year 1650, the world’s population was only.5 billion. In the 1900s, it increased to 1.7 billion people. By 1960, the world’s population grew to 3 billion. And for the year 2000 and beyond the estimated world population will be more than 6 billion. The main reason for this dramatic growth of the world’s population is largely due to improved medical care which lessened the rate of infant mortality and increased the life span of beings. The population explosion is a problem that humanity has to deal with squarely because the earth and its resources is limited. Moga explains that if human population on earth continues to grow, the whole human race will soon come to a point where the earth’s space and resources will be used up. The result will be famine, poverty and more unlivable for human beings. 17 1.2 Depletion of Natural Resources The second dimension of the problem related to ecology is the depletion of the earth’s natural resources. The growth of this problem worldwide is largely due to activities of business. Although people benefit from the use of these resources and modern industries depend on the existence of these resources, humanity will one day go back to a life centered on smale-scale farming. The main reason for this technological regression is the depletion of our natural resources. Once these resources are gone, there is no way they can be replenished. Figure 7. Depletion of Natural Resources 1.3 Pollution of the Environment The third dimension of our ecological problem is the increased pollution of the environment. The wastes of our increased population and from our modern industrial lifestyle are destroying the land, air and water of our planet earth. According to DENR, 60 percent of air pollution in Metro Manila comes from motor vehicles. Of the 400 major rivers in the Philippines, 50 are heavily polluted and 10 are virtually dead. Garbage is also a big problem in our country. Metro Manila alone produces about 3,000 tons of garbage daily. According to Fr. Moga, the air, the sea and the land that used to bring health, joy and vitality to the human race no longer do so. And with the destruction of the ozone layer, we now fear the sun. because of pollution, the earth is rapidly becoming unsuitable for decent human living. 18 1.4 The Destruction of the Earth The fourth dimension of our ecological problem is found in the destruction of the earth. In the Philippines alone, only 20 percent of our forests remain intact. Out of 500,000 hectares of mangrove in 1920s, only 130,000 hectares remain in our archipelago. In addition to this, data also shows that more than 90,000 sq kms. of our land are in such distressing condition because of soil erosion that they can no longer support cultivation, farming and gardening. Figure 8. Destruction of Earth TOPIC 2: TRADITIONAL ATTITUDE OF BUSINESS TOWARDS THE ENVIRONMENT Business, no doubt has contributed greatly to the destruction of the earth and our environment. The creation of ner products and services to satisfy the needs and wants of the customers, for instance, do not come without any price to pay, e.g., the depletion of natural resources to produce something. Although business has, in one way or the other, helped in the promotion of the quality of life of people, it has, on the other hand, contributed to the destruction of the earth and the pollution of our environment. The following are the traditional beliefs of businessmen, vis-à-vis, the environment (cf. W. Shaw. 1999. Business Ethics. Boston, USA: Wadsworth Publishing, Inc. p. 397 ff.) Business people, for a long time, believed that the world is “free and unlimited.” Because of this paradigm, businessmen found a justification to exploit and abuse the earth without regard for the next generations. The businessman’s pursuit for private interests at the expense of the common good has created an imbalance between individual gain and social costs, e.g., some companies do not treat their chemical wastes properly, and instead they released them into the rivers. This questionable practice obviously saves production costs but makes our rivers unsafe. In this case, the private cost is minimized but the social costs are increased. 19  TOPIC 3: ENVIRONMENTAL ETHICS Every human being has the right to a livable environment. Without this natural habitat, human beings and other species will not survive for a long time. It is also our duty to ensure the survival of the next generations of human beings. Although man as a creature is privileged to live in a decent environment, ironically, he is also the only creature who has been tampering with the environment. For this reason, man has a paramount duty to arrest the total degradation of the environment and to preserve Mother Earth. Ramon Agapay, in his book, Ethics and the Filipino (p. 213) defines Environmental Ethics as the study of man’s moral obligation to preserve the environment and the natural order of things. Thus, in the preservation and protection of the environment, man has three important things to imbibe: 1. Man has a moral obligation to preserve the environment. The idea of moral obligation in this context is the perceived duty to perform an act as good and to avoid an as evil. 2. Man has a primary duty to take care of the environment. This duty is based on the assumed truth that man’s survival is interrelated with that of his environment. Man is part of a complex web of interrelationship and interdependence of all entities in the environment that we call ecosystem. A destruction of one part of this ecosystem affects the relationships of these entities and eventually, creates an imbalance in the ecosystem. 3. Man must submit to the demands of natural law (agree sequitur esse, e.g., everything has been created with a specific purpose) and must not intervene carelessly with the work of nature. Thus; man must “fit” his technology with ecology. The duty to preserve the environment has also been reiterated by the Catholic Church in the encyclical “Ecclesia in Asia” (1999) by the late Pope John Paul II: “It is the duty of Christians and all who look to God as the creator to protect the environment by restoring a sense of reverence for the whole of God’s creation. It is the Creator’s will that man should treat nature not as ruthless exploiter but as an intelligent and responsible administrator… The protection of the environment is not only a technical question, it is also above all an ethical issue. All have a moral duty to care for the environment, not only for their own good but also for the good of future generation.” (EA#41) 20  TOPIC 4: THE MORAL AND SOCIAL OBLIGATIONS OF BUSINESS TO THE ENVIRONMENT Business depends on the natural environment for its operations, specifically, for its energy, raw materials and waste disposal. The natural environment in turn is affected by the industrial and agricultural activities of business. Since business is dependent on the natural environment for its operations and obviously, for profit, business must take the lead in the effort to protect and preserve the environment to which it is totally dependent. According to Dr. Jose Mario B. Maximiano, there are three factors that must be considered to be socially responsible to the environment, namely: 1.) Business cannot use with impunity the different categories of creatures and resources, whether living or inanimate, simply as they will. 2.) Business must realize that the natural resources are limited. Our natural resources, once depleted are not renewable. 3.) Business must comprehend the evil effects of industrial development on the quality of life. The direct or indirect result of industrialization is the pollution of the environment, with serious consequences on the health and safety of the population. (Cf. Jose Mario Maximiano.2003. Corporate Social Responsibility. Manila: De La Salle University Press, Inc. pp. 425-440.) In addition, Maximiano, also enumerates the reasons for social responsibility of business towards the environment, to wit: 1. Business is socially responsible to the environment because it is an important part of the macroecological system. Business is part of the society and at the same time part of Mother Nature, such that any separation made between business and nature is artificial and false. 2. Business depends on the natural environment for its operations, e.g., energy, raw materials and waste disposal. It is socially irresponsible for business to destroy the very resources that they depend on. 3. Business also must take into account the ethical issues when it relates with environment, e.g., short-term profit vs. long-term gain of the environment. TOPIC 5: THE VALDEZ PRINCIPLES The Coalition for Environmentally Responsible Economics (CERES) in Boston drafted in 1990 a Guide to the Valdez Principles. This is a list of principles that explains how we should deal with the environmental issues. From the business and management points of view, this list is like the 10 commandments of environmental protection (cf. Feliciano R. Fajardo. 2000. Management. Manila: Rex Book Store, pp. 321-322). The Valdez Principles were formulated in 1990 after a major oil spill from an Exxon tanker- The Exxon Valdez which run a ground near Valdez, Alaska on March 24, 1989 and spilled 240,000 barrels- 11 million gallons of crude oil which eventually covered 2,600 square miles of Prince William Sound and the Gulf of Alaska. Although the Exxon spill was not the largest ever, it was one of the worst in terms of environmental damage. The effects of the spill can still be seen 10 years after the wreck. 21 Figure 9. The Effects of the spill 10 years after the wreck ASSESSMENT: DISCUSSION QUESTIONS FOR DISCUSSION 1. Why should business take the lead in the protection of the environment? 2. Enumerate and discuss some concrete programs being undertaken by business corporations to arrest the problem of environmental degradation. 3. Discuss the phrase: “We must fit our technology to ecology.” 22  ASSESSMENT: ANALYSIS Cases for Analysis Case 1: The Asacro Company The Asacro Company was foundry for copper in Tacoma, Washington. People used to talk of the “Tacoma aroma” when referring to the foul smell emitted by Asacro’s giant chimneys. The company’s activities however, did not just produce bad smell. Worse, they also released a notably high amount of arsenic. In the ‘70s the company had invested more than $40 million in an attempt to reduce the arsenic emission. But in 1983, the agency for environmental protection told the company that the law demanded that they reduce the emission of arsenic by at the very least, 25%. Arsenic is carcinogenic. The agency estimated that the arsenic emissions of the company led to four lung cancer cases a year. The new restriction was aimed at reducing this figure to the probability of just one case yearly. Questions: 1. What is the ethical issue in the case? 2. If you are the president of Asacro Company, what would you do and why? 3. Discuss the ethical implications of the case using the utilitarian principle. Case 2: Silverstar Chemical Company Silverstar Chemical Company’s new president, Mr. David Santos, has learned that for the past four years the company has been dumping its industrial waste into the local river and falsifying reports to authorities about the levels of suspected cancer-causing materials in that waste. The plant manager says that there is no proof that the waste can cause cancer and there are only few fishing villages within a hundred kilometers downriver. If the company has to treat the substance to neutralize its potentially injurious effects and then transport it to a legal dumpsite, the company’s operating costs would rise to a level that might make the firm uncompetitive. If the company loses its competitive advantage, 10,000 local employees could become unemployed and the town’s economy might collapse. Questions: 1. What is the ethical dilemma that Mr. Santos, the company president, is facing? 2. Why is environmental pollution a moral issue? 3. If you are the president, what would you do? And why? 4. Cite three other ethical issues that we can find in this case. Case 3: Waste Sites and Wasted Funds On an otherwise uneventful Tuesday night in July, police ordered nineteen families out of their homes in West Covina, one of the many cities in the megalopolis of Los Angeles. They were told that their health was jeopardized by high levels of methane and vinyl chloride gases, which had been escaping from the nearby BKK landfill into their homes. When a plastics company makes a plastic razor or ballpoint pen, it must dispose of vinyl chloride, which tent to cause cancer when inhaled above acceptable levels. For years, vinyl chloride was discarded at the BKK landfill- that is, in the middle of a city of more than 80,000 people. When authorities roused families out of their quarters that quiet summer evening, they 23 did so because fumes of the deadly chemical were seeping into nearby homes at a rate ninety nine times the acceptable standard. Local officials quickly began urging the EPA to do something and do it fast. Representative Esteban E. Torres, whose district includes the BKK landfill, called on the EPA to shut down the dump immediately. Federal law, Torres pointed out, allows the EPA head to close a landfill when, in the administrator’s view, it may present an imminent and substantial danger to health or the environment. “All he the EPA head has to prove is that the BKK landfill is a public nuisance,” said Torres. “I am sure he can prove it, but he refuses to exercise his discretion.” Reacting to the pressures, federal and state officials urged to BKK Corporation, operators of the landfill, to close the site. Two months after the evacuation in the Western Covina, BKK officials announced that the landfill would stop receiving liquid and solid hazardous wastes. But Kenneth Kazarian, vice president of BKK, wanted to make it clear that BKK was not being forced into the decision. The company, he said, was simply withdrawing its request to be granted a permanent federal permit to operate a hazardous landfill. An official from the Health Services Department welcomed the BKK decision. “That will put them out of the hazardous waste business entirely,” he said. But not everyone received news of the BKK shutdown with enthusiasm. For one thing, it involves rerouting from BKK to other California landfills as many as forty toxic-waste-bearing trucks a day. This fact has caused grumbles of protest from the countries earmarked for the diverted toxic waste. Moreover, although state and federal officials moved quickly to assure West Covina residents that the landfill presented “no imminent danger to public health,” many residents remain worried. One local California assemblyman says, “If this is the great solution we’ve been hearing about…I’m very disappointed.” For his part, Representative Torres started pushing in Congress for a bill that would be require hazardous-waste landfill operators to conduct health effects studies for areas around their facilities. This legislation would make it possible for people living nearby to make an informed judgement about possible hazards to their health. Meanwhile, what becomes of the BKK landfill? The prospects for cleaning up such toxic dumps aren’t very promising these days. To be sure, in 1980 congressional legislation created the EPA’s Superfund, which was meant to salvage hazardous-waste sites like BKK’s. At the time Superfund’s sponsors believed that the program could mop up the nation’s worst toxic dumps within five years and do so for a relatively modest $1.6 billion, to be covered by sales taxes on chemicals and petroleum- based products. Superfund was authorized to recover its costs from the polluters themselves and to use this money to pay for future cleanup efforts. In this way, Superfund would become self-financing, with industry, not the taxpayers, picking up the tab. But the hopes of Superfund’s sponsors have yet to be realized. In 1986 the program was reauthorized at a new budget of $8.5 million, and again in 1990 and 1994- each time at a cost of nearly $12 billion. To date, however, only a fraction of the country’s toxic-waste sites have been restored. Congressional estimates put the number of toxic dumps at 10,000, whereas the EPA identifies 33,000 potential cleanup sites. Of these, the EPA has placed 1,236 on its National Priorities List. Work has begun at 400 of these, but only about 35 have been fully cleaned up and deleted from the National Priorities List. Moreover, Superfund has grown increasingly and staggeringly expensive. Its cleanup efforts have become hopelessly mired in lawsuits, and the resulting litigation costs have been so high that the final cleanup bill could end up at double the cost of the bailout of the savings and loan industry. The problem, it seems, goes back to the initial Superfund legislation, which permits the EPA to penalize companies for dumping that was not illegal at the time it occurred. In addition, it makes individual polluters liable for the entire cleanup costs of toxic sites that may been used by many other firms. Not only do corporations dislike these liability principles; they find it less expensive to resist the EPA in court than to pay up. “From the individual corporation’s perspective,” says David Morell, a toxic removal consultant and an expert on Superfund’s history, ”lawyers’ bills are still cheaper than paying for an entire cleanup.” And he adds: “The longer you can stall- and convince yourself that you may never have to pay at all- the more the legal fees seem like a bargain.” 24  As a result, a flood of lawsuits has slowed Superfund’s cleanup efforts to a crawl while the costs of those efforts have ballooned. “The idea behind Superfund,” Morell says, “was supposed to be shovels first and litigation later. Instead, it has become ‘litigation first and shovels never.’ “Many experts agree that Superfund is headed toward a debacle, with the legal fees, transaction costs, and administrative overhead toward a debacle, with its cleanup projects likely to exceed $200 billion. Others put the bill as high as $2,000 per person- to be paid in price increases on countless everyday chemical and petroleum-based products. Bear in mind that this sum doesn’t pay for the removal of any hazardous wastes; it covers only litigation-related costs. Worse, each day in court increases the cleanup costs as wastes from untouched sites seeps into the groundwater and increases the size of the polluted area. As John O’Connor, dinner of the National Campaign Against Toxic Hazards, explains, “These sites are not like fine wine. They get worse with age, and they get more difficult and costly to clean up.” Question: 1. Identify the values and describe the attitudes that have contributed to the problems associated with toxic-waste sites. 2. What restrictions should be placed on the operation of hazardous wastes disposal sites? Do you think the BKK Corporation had a moral obligation to shut down its landfill, even if it was not legally forced to? Explain by appeal to ethical principles. 3. What would your reaction be if you were a citizen of a country to which toxic wastes were being diverted? How should we handle the problem of toxic-waste disposal? 4. Who should pay the costs of cleaning up site like BKK? Whose responsibility is it to clean up the country’s hazardous waste dumps? Is it fair for Superfund to fine polluters for dumping that was legal at the time? Is it fair that each polluter have full liability for cleaning up a dump that others may also have used? How might Superfund be made to work better? 5. With regard to the disposal of toxic wastes, what are the obligations of individual manufacturers and of society as a whole to future generations? Case 4: Poverty and Pollution It is called Brazil’s “valley of death,” and it may be the most polluted place on Earth. It lies about an hour’s drive south of Sao Paulo, where the land suddenly drops 2,000 feet to a coastal plane. More than 100,000 people live in the valley, along with a variety of industrial plants that discharge thousands of tons of pollutants into the air every day. A reporter for National Geographic recalls that, within an hour of his arrival in the valley, his chest began aching as the polluted air inflamed his bronchial tubes and restricted his breathing. The air in the valley is loaded with toxins- among them benzene, a known carcinogen. One in ten of the area’s factory workers has a low white-blood-cell count, a possible precursor to leukemia. Infant mortality is 10 percent higher here than in the region as a whole. Out of 40,000 urban residents in the valley municipality of Cubatao, nearly 13,000 cases of respiratory disease were reported in a recent year. Few of the local inhabitants complain, however. For them, the fumes smell of jobs. They also distrust bids to buy their property by local industry, which wants to expand, as well as government efforts to relocate them to free homesites on a landfill. One young mother says, “Yes, the children are often ill and sometimes can barely breathe. We want to live in another place, but we cannot afford to.” A university professor of public health, Dr. Oswaldo Campos, views the dirty air in Cubatao simply as the result of economic priorities. “Some say it is the price of progress,” Campos comments, “but is it? Look who pays the price- the poor.” Maybe the poor do pay the price of pollution, but there are those who believe that they should have more of it. One of them is Lawrence Summers, chief economist of the World Bank. 25 He has argued that the bank should encourage the migration of dirty, polluting industries to the poorer, less-developed countries. Why? First, Summers reasons, the costs of health-impairing pollution depend on the earnings foregone from increased injury and death. So, polluting should be done in the countries with lowest costs-that is, with the lowest wages. “The economic logic behind dumping a load of toxic waste in the lowest-wage country,” he writes, “is impeccable.” Second, because pollution costs rise disproportionately as pollution increases, it makes sense to shift pollution from already dirty places such as Los Angeles to clean ones like the relatively under populated countries in Africa, whose air Summers described as “vastly under- polluted.” Third, people value a clean environment more as their incomes rise. If other things are equal, costs fall if pollution moves from affluent places to less-affluent places. Critics charge the Summers views the world through “the distorting prism of market economics” ant that his ideas are “a recipe for ruin.” Not only do the critics want “greener’ development in the Third World, but also they are outraged by Summer’s assumption that the value of a life- or of increases or decreases in life expectancy- can be measured in terms of per capita income. This premise implies that an American’s life is worth that of a hundred Kenyans and that society should value an extra year of life for a middle-level manager more than it values an extra year for a blue collar, production line worker. Some economists, however, believe that Summer’s ideas are basically on the right track. They emphasize that environmental policy always involves trade-offs and that therefore we should seek a balance between costs and benefits. As a matter of fact, the greatest cause of misery in the Third World is poverty. If environmental controls slow growth, then fewer people will be lifted out of poverty by economic development. For this reason, they argue, the richer countries should not impose their standards of environmental protection on poorer nations. But even if economic growth is the cure for poverty, other economists now believe that sound environmental policy is necessary for durable growth, or at least that growth and environmental protection may not be incompatible. First, environmental damage can undermine economic productivity. Second, poverty itself is an important cause of environmental damage because people living at subsistence levels are unable to invest in environmental protection. Finally, if economic growth and development are defined broadly enough, then enhanced environmental quality is part and parcel of the improvement in welfare that development must bring. For example, 1 billion people in developing countries lack access to clean water while 1.7 billion suffer from inadequate sanitation. Economic development for them means improving their environment. Still, rich and poor countries tend to have different environmental concerns: Environmentalists in affluent nations worry about protecting endangered species, preserving biological diversity, saving the ozone, and preventing climate change, whereas their counterparts in poorer countries are more concerned with dirty air, dirty water, soil erosion, and deforestation. Questions: 1. What attitudes and values on the part of business and others lead to the creation of areas like the “valley of death”? 2. Should the Third World have more pollution, as Lawrence Summers argues? Assess his argument that dirty industries should move to poorer and less-polluted areas. 3. Some say, “Pollution is the price of progress.” Is this assertion correct? What is meant by “progress”? Who in fact pays the price? Explain both the moral and economic issues raised by the assertion. What are the connections between economic progress and development, on one hand, and pollution controls and environmental protection, on the other? 4. Do human beings have a moral right to a livable environment? To a nonpolluted environment? It might be argued that if people in the “valley of death” don’t complain and don’t wish to move, then they accept the risks of living there and the polluters are not violating their rights. Assess this argument. 26 5. Assess the argument that people in the Third World should learn from the errors of the West and seek development without pollution. Should there be uniform, global environmental standards, or should pollution control standards be lower for less- developed countries. 27  LESSON 4 POLITICAL ENVIRONMENT OF BUSINESS TOPICS 1. Corporate Social Responsibility and Organizations 2. Contemporary Social Issues 3. Ethical Behavior in the Enterprise 4. Role of the State and Its Impact on Business Organizations LEARNING OUTCOMES At the end of the lesson, you should be able to: 1. enumerate and discuss some contemporary issues and concerns on CSR 2. identify and explain ethical behavior in the enterprise, and 3. discuss the role of the government or state in business affairs TOPIC 1: CORPORATE SOCIAL RESPONSIBILITY AND ORGANIZATIONS Corporate Social Responsibility (CSR) can be defined as the “economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time” (Caroll and Buchholtz 2003). The concept of corporate social responsibility means that organizations have moral, ethical, and philanthropic responsibilities in addition to their responsibilities to earn a fair return for investors. A traditional view of the corporation suggests that its primary, if not sole, responsibility is to its owners, or stockholders. Figure 10. Carroll’s Pyramid of Corporate Social Responsibility 28  CSR requires organizations to adopt a broader view of its responsibilities that includes not only stockholders, but many other constituencies as well, including employees, suppliers, customers, the local community, local and national governments, environmental groups, and other special interest groups. Collectively, the various groups affected by the actions of an organizations are called “stakeholders.” Figure 11. Stakeholders Freeman et al (2004) state “Stakeholder theory begins with the assumption that values are necessarily and explicitly a part of doing business” (Freeman et al 2004). Corporate social responsibility is limited in its definition of the mandate and responsibilities of the business towards its identified stake holders. The rights of a legal entity enjoyed by the firm, carries with it duties and obligations to the environment of which it is a subset. These duties must be part of the norms and code of conduct and be made part of institutional design (Singer 2013). The resource pool and the environment that a business operates in, have a stake in its operations. The business has duties and reciprocity towards that environment for a continued sustainable existence for itself and the environment. Stakeholder theory involves looking at the organizational systems and process design as a whole (Freeman 1984 as cited in Parmar et al 2010). TOPIC 2: CONTEMPORARY SOCIAL ISSUES Corporations deal with various social issues and problems, both directly related to their operation and not. It would not be possible to satisfactory describe all of the social issues faced by business. This section will just briefly discuss three contemporary issues that are major concern: the environment, global issues, and technology issues. 29  TOPIC 3: ETHICAL BEHAVIOR IN THE ENTERPRISE Paying attentions to ethics makes good business sense. This can create goodwill for the corporation and enhance the chances of success. Meeting its obligation and treating customers, suppliers, employee, and other stakeholders fairly is a sure shot investment of a brighter future the company in the long run. When we hear the word ethical, several ideas come to mind, most notably good versus bad and right versus wrong. These are the six foundation of trust upon which ethical business practice is built Character- drivers what we do when no one is looking. Each person has the ability to build, change, or even destroy his or her own character. We can build our character through the way we live by thinking good thoughts and performing good acts. 30  Ethics- refers to a set of rules that describes what is acceptable conduct in society. Ethics serve as a guide to moral daily living and helps corporation judge whether such behavior can be justified. Integrity- to have integrity is to be honest and sincere. Integrity is defined as adhering to a moral code in daily decision making. Integrity put simply, when people and businesses possess integrity, it means they can be trusted. Laws -is a series of rules and regulations designed to express the needs of the people laws frequently provide us with a sense of right and wrong and guide our behavior. Morals- are a set of rules or mode of conduct on which society is based. Certain moral elements are universal, such as the laws forbidding homicide and the basic duties of doing good furthering the well-being of others. Morals and ethics are very similar; both pertain to society’s ideas of right and wrong. Values- are defined as the acts, customs, and institutions that a group of people regard in a favorably way. Enterprise governance refers to the set/systems of responsibilities and practices exercised by the board and executive management with the goal of providing strategic direction, ensuring that objectives are achieved, ascertaining that risks 6 M.-G. Baldarelli et al. are managed appropriately and verifying that organization’s resources are used responsibly (Paci 2003). Briefly, the system of corporate governance is conceived in terms of systems of decision-making processes and of internal control, configuration of assets and related matters. TOPIC 4: ROLE OF THE STATE AND ITS IMPACT ON BUSINESS ORGANIZATIONS ROLE OF GOVERNMENT IN BUSINESS The private sector is the chief economic force of every country, but it needs government regulation. The government’s role in business is as old as the country itself; the Constitutions gives the government the power to regulate some commerce. Though the government’s role has increased over time, the business community still enjoys considerable freedom. However, the government still exercises its authority several ways. CONSUMER PROTECTION a. Protecting property rights, enforcing contracts and resolving commercial disputes b. Protect consumers from business c. Corrects consumer complaints d. Protect public health and safety CONTRACT ENFORCEMENT Businesses deal with other businesses. These contracts may be complex, such as mergers, or they may be as simple as a warranty on supplies purchased. Companies bring one another to court just as individuals do. An oral agreement can constitute a contract, but usually only a written agreement is provable. If one party fails or refuses to meets its obligation under a contract, a company will turn to the government’s legal system for enforcement. 31  EMPLOYEE PROTECTION Many agencies work to protect the rights of employees. This rights covers the following: regular employment, probationary employment, minimum employable age, prohibition against stipulation of marriage, anti-sexual harassment law and many others. ENVIRONMENTAL PROTECTION When a marketing transaction impacts a third party besides the marketer and purchaser the effect is called an “Externality”. The third party is often the environment. Thus, it is the government’s role to regulate industry and thereby protect the public from environmental externalities. Whether the government is effective in this role is a matter of much discussion. INVESTOR PROTECTION Government mandate that companies make financial information public, thereby protecting the rights of investors and facilitating further investment. This is generally done through filings with the Securities and Exchange Commission. Whether government regulation has been adequate is a matter of much debate especially in countries with advance economies. PERMISSION Most businesses need to register with a government to operate. Corporations need a charter, and other forms of businesses, such as limited liability companies or partnership, need other form of registrations. The function of this registration is usually to define the financial liability the owners of the company have. It limits their risks to the amount they have invested in that particular organization. Registration also allows the government to monitor companies to execute its other functions in the business world. TAXATION Governments at all levels tax businesses, and the resulting revenue collected is an important part of government budgets. Some revenue is taxed at the corporate level, then taxed as personal income when distributed as dividends. This is in no way inappropriate, since it balances the tax burden between the company and individual and allows the government to tax more equitably. ROLE OF GOVERNMENT POLICY Governments policies can also promote businesses. Governments provide certain services- such as national defense, administration of justice, education, environmental protection, public works and highways. The aforementioned services are viewed as better suited for the government than private businesses although government certainly needs help on the delivery of these services from the private enterprises. Government also take care of requirements beyond the reach of market forces. When market is behaving like a “dead horse” wherein it is lowly irresponsive no matter how hard it is hammered by initiative, government comes to the rescue. 32  ASSESSMENT: WRAP UP 1 to 4: Carroll’s Pyramid of Corporate Social Responsibility (CSR) 5 to 14: Various group of stakeholders 15 to 17: Contemporary Social Issues 15. _____________________________________________ 16.______________________________________________ 17.______________________________________________ 33 18 to 23: Ethical Behavior in the Enterprise 18.______________________________________________ 19.______________________________________________ 20.______________________________________________ 21.______________________________________________ 22.______________________________________________ 23.______________________________________________ 24 to 25: Role of the State and Its Impact on Business Organizations 24._______________________________________________ 25._______________________________________________ ASSESSMENT: ANALYSIS Case Analysis Case 1: ABC Corporation’s Casino Macau, an autonomous territory on the western side of China, is considered one of the richest in the world mainly because of its two industries- tourism and gambling. It houses world- famous casinos, and several famous personalities have visited its territory to travel and play. ABC Corporation in the Philippines witnessed the success of casinos in Macau and eventually established a huge casino business in Manila. Indeed, the casino business has been a tremendous success for ABC Corporation. It gained regular customers mostly belonging to the youth segment, majority of them are rich, fresh graduates aged 21-25. Instead of entering the corporate world or managing the business of their families, these customers devoted their time going to the casino in the guest of winning. Most of them inside the casino since it is allowed and spend most of their winning going to the bars having drinking sprees. When they lose, they ask money from their parents in the hope of winning again and recovering the lost money. This has been the customer cycle of ABC Corporation’s primary target market. ABC Corporation’s net income grew by 40% after a year of running of casino. Questions: 1. Did ABC Corporation violate good management practice? Why or why not? 2. Did ABC Corporation violate any government policy? Why or why not? 3. What do you think is the public’s opinion on ABC Corporation? 4. Will you consider establishing a casino in the Philippines a new opportunity? Why or why not? Case 2: CSR in Business Organizations A Filipino company pioneered a project that feeds impoverished students with its Busog, Lusog, Talino (BLT) feeding program as its corporate social responsibility. The company identified that hunger and undernourishment are the main causes why lower grade pupils drop out of school or incur unnecessary absences. They thus provide daily lunch to underweight grades 1 and 2 pupils with food prepared by parent groups who follow menus developed by the company. Access the following Web sites to learn more about the BLT program. Then answer the questions that follow. 34  https://www.youtube.com/watch?v=GaFpSL4dkW4 http://jollibeefoundation.org/wp-content/uploads/2015/05/About-BLT_10th-YR- CommBook.pdf 1. What are the four key components of the program? 2. What is the importance of BLT Community of Practice (CoP)? Case 3: Environmental Issues as Consumer affluence Albert Nolasco belongs to an affluent and influential family, and thus owns four cars. He and his wife are into the export business and go to work in Ortigas Center in Pasig City. Their three children are studying in well-known universities in Metro Manila. Mr. Nolasco and his wife, and each of their three children, have their own other destinations. Their main reason for using all their cars daily is the dreaded commuting and traffic problem in Metro Manila. 1. What are the effects on the environment if more people are bringing cars on the streets? 2. If you have substantial amount of money, would you also live a lavish lifestyle like Mr. Nolasco and his family? Why or why not? 35  LESSON 5 CORPORATE SOCIAL RESPONSIBILITY AND CORRUPTION IN A GLOBAL CONTEXT TOPICS 1. Corporate Social Responsibility and Developing Countries 2. CSR in International Business 3. Sustainable Development and Environment 4. Local Economy and Society 5. Corporate Transparency 6. Corruption in International Business 7. Globalization of Corruption LEARNING OUTCOMES At the end of the lesson, you should be able to: 1. understand global corporate social responsibility and relate how CSR affects developing countries 2. identify and discuss some CSR issues and concerns in international business 3. explain the impact of corruption involving large multinational companies, and 4. discuss sustainable development and environment TOPIC 1: CORPORATE SOCIAL RESPONSIBILITY AND DEVELOPING COUNTRIES The concept of corporate social responsibility (CSR) aims to examine the role of business in society and to maximize the positive societal outcomes of business activity. In practice, much of the business activity that has so far been labeled CSR has been driven by the concerns of investors, companies, campaign groups and consumers based in the world’s richest countries. National CSR agendas in middle and low-income countries have been less visible internationally, and have often not been labeled CSR. The result has been CSR practices that are largely framed in rich countries, then internationalized and transferred to other businesses and social settings through international trade, investment and development assistance. The strategic challenge for governments at national and local levels is how best to shape an agenda that has been largely market-driven and responsive to concerns of rich country stakeholders. Over the past years, governments, companies and NGOs in many middle-and-low-income countries have accelerated the process of adaptation of the developed-country-driven CSR agenda through greater direct engagement. CSR movements and initiatives have emerged in countries such as China, India, South Africa, Philippines and Brazil among others. Governments 36 of some middle-income countries facing major social challenges have explicitly sought to engage business in meeting those challenges, as with Black Economic Empowerment in South Africa or presidential encouragement of business efforts to tackle poverty in the Philippines. In developed countries too, there is increasing recognition among companies that a ‘one- size fits all’ approach to CSR in operations around the world is ineffective in responding to the business drivers of socially responsible behavior. The result has been reinvigorated focus on themes of greater importance in middle and low-income countries including the value of sustainable local enterprise and the role of business in poverty reduction. JUSTIFICATION FOR CSR Two broad sets of justifications for public sector actors in middle and low-income countries to engage with CSR: 1. Defensive justification relates to minimizing the potential adverse effects of CSR on local communities, environments and markets when it is imposed through international supply chains and investment. Governments of some major economic powerhouses such as China have undertaken a variety of initiatives to ensure that CSR practices with impact in their countries are tailored to national economic and sailor interests. 2. Proactive justification for public sector actors to engage with CSR is provided by the opportunity to increase the domestic public benefits of CSR practices in economic, social and environmental terms. POTENTIAL ROLES OF GOVERNMENT IN THE CSR AGENDA From a sustainable development perspective, public sector engagement with CSR potentially spans social, economic and environmental spheres, including issues of corruption, poverty reduction and human rights. The goals of public sector engagement in CSR are likely to differ from country. They might be structured in relation to the underlying drivers for public engagement in CSR. A first broadly defined goal of public engagement in CSR is the alignment of business activities and public policy to achieve societal goals. A clear government vision of how it wants to address issues where there are potential trade-offs between economic, social and environmental considerations, as in the case of the use of the country’s natural resource endowment for socio- economic development, may increase the likelihood of success of corporate contribution to national development. A MULTIPLICITY OF POLICY INSTRUMENTS CSR practice has identified five distinctive roles for public sector engagement with CSR: regulations, facilitation, partnership, endorsement and demonstration. In practice, there are no bright lines between them, and many of the policy instruments governments wanting to promote a CSR agenda can use could be considered as expressions of more than one of these government roles. The range of policy instruments used by governments to promote goals related to CSR is wide and reflects varying policy approaches as well as economics circumstances. Some governments may prefer interventionist approaches. Others may prefer to work with the grain of market drivers, including consumer interest or civil society pressure. The factors that may determine the course of action taken by any individual government include capacity constraints; the size of domestic markets for products potentially affected by CSR concerns; the degree of expert orientation of the economy in sectors affected by international CSR drivers (e.g., 37 agriculture, textiles, pharmaceuticals); the presence of enterprises willing to champion change; and the degree to which different stakeholders are comfortable working in partnership for commonly defined outcomes. TOPIC 2: CSR IN INTERNATIONAL BUSINESS With globalization, international market is showing some strong influence on the development of CSR. Multinational enterprises’ activities are faced with diverse legal system in each country coupled with new public opinion, more demands on social responsibility, sustainability and transparency. Practicing CSR on a level of sincerity that satisfies the minimum based on shareholders’ opinion can make the company noticeable in local and international markets which leads to stakeholders’ confidence. The following are the different ranges of application for CSR in the international perspective where the socially conduct of a corporation can assure the increase in acceptance by the stakeholders. TOPIC 3: SUSTAINABLE DEVELOPMENT AND ENVIRONMENT There is a pressing need to promote a new economic development model that would secure the needs of the current generations without giving any concession on the chance of future generation to enjoy theirs’. As a matter of opinion, today’s generation should invest for the future and therefore, should stop borrowing from future generations by squandering resources at present. From the business standpoint, the state regulations cannot always guarantee that the entrepreneurial conducts of these big enterprises are all compliant with such development model. In addition, in some cases, there are outsourcing practices and issues not only in business process but also in labor and materials which can promote the adoption of standards lower than those prescribed in the home countries. It is in this context that the corporations should go beyond the minimum. Many studies have shown that in the medium-term, this model will bring turn out about better consumer favor, product innovations, process innovations, and the most basic of all advantages, raw material savings. HUMAN AND LABOR RIGHTS Corporations, particularly the larger ones, have a significant influence not only on the economy but also on the social and political life of the country in which they operate. It is therefore expected from a socially responsible behavior standpoint that corporations should be consistent with the principle of fairness and respect of basic rights. In affirmation to this, the entrepreneurial strategy of these large enterprises should be based on the following CSR demands. Be Compliant The operational conduct of the enterprise should not be lower than the standards of the host country; for example, with regard to compliance with environmental laws, commercial laws, 38 salaries, benefits, working conditions and many other things directly or indirectly related to any stakeholder of the enterprise. Be Consistent Have partners of the same kind. Human and labor rights are ought to be respected anywhere and therefore, multinationals in the host countries should press hard on their partners, both local and international, to adopt the same observance and recognition of rights the enterprise is following when it does business. In this way, businesses will move on the same path towards genuine CSR practice. To be specific, an enterprise must protect the primary rights of its workers wherever it operates and strive to observe the following: Refrain absolutely from making recourse to forced or obligatory labor and intimidation of any form. Be an advocate of the abolition of child labor. Respect the right of privacy and freedom of opinion. Respect the exercise of the political rights and of the trade union activities. Refrain from discriminatory treatment by reason of sex, race, religion, political opinion, citizenship or social extraction. Provision for a fair compensation. Provision for a healthy and safe working environment. However, it is hard to determine as to what extent the above standards could be justifiably attuned on the basis of peculiarities of the host countries particularly on the socio- economic aspects. For example, average employees’ earnings differ on a country-to-country basis. Equal opportunity in employment may earn the loudest applauses in many countries but sadly there are still cultures in a number of host countries that are still too far off on this especially in women issue. For instance in some parts of India, they still have the “caste system” which is a social stratification system that separated communities into hereditary jobs. A person borne in a caste will remain in that class unless the person does something extraordinary. These are just some of the pre-defined realities that the enterprise has to deal with in operating internationally. TOPIC 4: LOCAL ECONOMY AND SOCIETY It is undeniable that large international enterprises can bring extraordinary impact on the development of less-developed countries. This is however not without obstacles, for instance, the disparity on technological capability; the host country’s lack of capacity to adapt to these technologies that are expectedly advanced in most scenarios. This gap could prevent the local country or economy from maximizing the benefits that these technologies can bring. Another issue would be that the local entrepreneurship might be overwhelmed due to entrepreneurial crowding and higher level of competitiveness of large multinational corporations. It is necessary to involve the stakeholders in those relevant in those relevant decisions that would contribute to the development of the territory or to the host country in particular. Involving the stakeholders produce local consensus which reduces investment risks. The following are the typical examples of conduct of multinational companies considered to be responsible and have gained wide positive recognitions: 39  Transfer of technology; The grant of licenses for the use of intellectual property rights at costs compatible with the local market; Granting authority to manufacturer products and brands that are protected under international IP laws; Training for the development of local skills; Development of new products by means of local knowledge and skills; Creation of viably durable forms of collaboration with local partners; this will encourage them to gain access to the global market; Corporate venturing investment in the local start-up capital. The real test on the MINCs’ sincerity to develop the host economy or country is to invest on fixed asset if allowed by the host. Seeing their buildings and other fixed assets could only mean one thing, they will be here for long if not for good. A good number of international companies, have visible initiatives that can be called “CSR in action”, they are manifested by giving out a portion of their income for projects like maintenance of roads, improvements of public hospitals, adoption of a school and many other activities that should have been rendered by the government. This kind of activities would give