Course Hero 5
.docx
School
University of Liverpool**We aren't endorsed by this school
Course
BUSINESS KMGT 706-2
Subject
Management
Date
Jan 2, 2025
Pages
9
Uploaded by KidKnowledge23233
Title: Critically analyse the observation that a determining factor in most corporate scandals is not the lack of corporate social responsibility policies, but the absence of an appropriate corporate culture. Module: ULMS251Word count: 1,998Student ID: 1
This essay will analyse the observation that “corporate scandals are not the result of the lack of corporate social responsibility policies, but absence of an appropriate corporate culture”. It will critically analyse cases such as Enron and recognise cases such as Toshiba, BP and Volkswagen, as to why the scandals took place and whether this was a result of poor corporate culture or the policies alone. Firstly, the essay will define what corporate social responsibility means, why corporations endure in it and arguments around it. It will go into detail about the scandals, and why they took place. Finally, a conclusion based on the observations from the analysed findings. It is observed that corporate social responsibility (CSR) has been on the rise in recent years, “over the decades, the concept of corporate social responsibility has continued to grow in importance and significant” (Carrol, 85:2010). Ethical policies are now adopted in organisations as part of the norm, and in many countries, it is now a mandatory requirement, whereas three to four decades ago the ethical practise of a business was implicit (Webley, 2008). Not only has there been an increase, but CSR is a fluid concept that has changed over the years, with varying definitions across countries and throughout businesses (Chandler, 2017). Despite the variety of definitions, one way to define is “the attempt by companies to meet the economic, legal, ethical and philanthropic demands of a given society at a particular point in time” (Crane, 50:2016). The general idea of CSR is for businesses to contribute, responsibly, to the economic outcomes that meet the expectations of society (Beal, 2015). 2
CSR is important within a corporation as it influences every aspect of a company’s operation, their reputation and competitiveness. Consumers will tend to buy products from companies they trust, suppliers will work with companies that theycan rely on, likewise employees will want to work for a company that values them, and investors will support companies that are well-managed and seek practical solutions. Therefore, CSR is important to a business and its competitiveness, hence the recent rise in the concept being implemented (Chandler, 2017). CSR is important for society and is highly regarded as a tool in ethical conduct (Webley, 2008), but Crane (2016) discusses how it now builds a case for businessesto benefit from them, this can be advantageous, and a disaster. CSR can benefit a business by enhancing long-term revenues if more customers are satisfied and costsreduced (as it helps save energy, reduce waste, and cut inefficiencies). Risk and uncertainty can be managed when voluntarily committing social actions and programmes. This ensures stakeholders that the corporation has greater independence from the government. All of these factors can benefit a corporation, and in some arguments, society too (Crane, 2016). However, Schwartz (6:2012) asserts the ideology that “a corporations only social responsibility is to make as much money as possible while conforming to the rules ofthe game”, further illustrating the ongoing debate from Milton Friedman. Friedman states that the above benefits are not CSR; actions are taken for self-interest of corporations and is a profit maximisation technique (Chandler, 2017). There are continual questions as to whether corporations implement CSR policies to help the interests of themselves, or if it is done to benefit the needs of society (Crane et al, 2014). This argument could be the answer as to why corporate scandals happen, despite them having policies. It is the culture that is implemented by the managers 3
and how they use policies to benefit themselves and not society (Crane et al, 2014), “it is an illusion and a potentially dangerous one” (Crane et al 62:2014). Many corporate scandals have occurred that prove the point of this argument; the Enron case may be considered a result of poor corporate culture. The executivesacted in a way to benefit themselves “a handful of highly paid executives were able to pocket millions while carelessly eroding the life-savings of thousands of unwitting employees” (Sims, 223:2003). Before the scandal was revealed, Enron had recently been in the press as a paragon of successful corporate responsibility, looking like an excellent citizen with CSR and ethics in the correct places (Sims, 2003), but as Crane (2014) would say, an “illusion” to the public. Executives at Enron created a culture that put profit ahead of behaviour and doing the right practise for society. Ethical conducts were overlooked in consequence of their success. The corporation prioritised making money and created an atmosphere primarily to break the rules. When in crisis of major growth, their response was to defend a culture that valued profitability at the expense of ethical reasoning. The company promoted and retained only employees that produced consistently, leading to an annual “rank and yank” policy where the bottom fifteen to twenty percent of producers were released after a formal evaluation. Again,proving an unethical and intimidating environment (Sims, 223:2003). The key aspect of Enron’s case is the deceiving corporate citizenship; their image was superior and heroic, yet acting only in a way of self-interest and money making (Sims, 2003). This supports Friedman’s argument of how the benefits that come of CSR may be down to the self-interest of the company and not for societal reasons (Chandler, 2017). Furthermore, support from Beal (2015), is the danger isn’t4
that CSR isn’t effective, it is that CSR can give society a false sense of security and work to prevent the implementation of effective ethical conduct. Enron’s case supports the observation that some scandals are a result of inappropriate corporate culture, not the codes, and Sims (223:2003) emphasises this “the business ethics is a question of culture, rather than the ethical codes”. BP is another example, they had a comprehensive ethical policy however they were not immune to corporate malpractice (Webley, 2008). Volkswagen faced a $17 billion fine after their emission scandal. Armstrong (2017) states to assume that something had gone wrong with their culture as the immoral behaviour became acceptable throughout the production process. Another is Toshiba’s accounting scandal. They overstated their earnings by more than $1.2 billion over 7 years, and revealed that its three most recent CEO’s had a part to play in inflating profit. Not long before the scandal, the Financial Times ranked them 9thout of 120 publicly traded Japanese companies with good governance (Singh, 2015). It turns out the governance structure that looked good on paper was ineffectively monitored by the company and CEO’s were in on these ordeals, suggesting unethical culture (Singh, 2015). It is important to note that many of the business that get singled out by the mediaas less than ethical in their behaviour, have had an explicit ethics policy, so it can’t be the policies alone that are the problem to these scandals but a result of deficiencies in corporate culture (Webley, 2008). The scandals mentioned support the observation that corporate scandals are a result of inappropriate corporate culture. 5
To further support the argument Webley (2008) revealed an observation that companies around the world now have ethical codes, but reported ethical practise does not appear to uphold, which indicates a gap between the existence of ethical policies and the behaviour of the organisation. A survey from the National Business Ethics in the US, found that even though formal programmes had risen in the past 5 years, the positive outcomes expected from these, had not. Suggesting that even if arange of formal ethical policies are in place, they will not prevent corporate malpractice if not embedded into organisational culture that encourages ethical behaviour (Webley, 2008). The majority of research considering organisational culture and CSR emphasises the role of the culture as a determinant of successful orunsuccessful CSR (Barker et al, 2014). Despite arguments against CSR and corporate culture, there are primarily good reasons as to why it might be good for corporations to act in a socially responsible manner. For example, cost reductions from reduction of waste will impact the environment in a positive way, and gaining competitive advantage and reputation can benefit the business in positive ways, as well as providing society with benefits, such as meeting the needs they desire (Carroll, 2010). American Apparel is a company that positions itself in a socially responsible manner, resulting in some success from it, in terms of profit (Crane, 2016). However, this brings in the argument that it may not matter whether profits arise from a corporation’s social actions, but whether the profit was the main reason the action took place to start with. In that case then it is not CSR, it is action of self-interest (Crane, 2016). Another argument that Crane (2016) draws attention to, is whether a corporation can have social responsibility. He states that may be only humans have a moral responsibility for their actions, and it is the managers responsibility to act in the 6
interests of its stakeholders, therefore social issues are the province of the state rather than the corporate managers. This suggesting, that it is not up to the corporation to act in the interests of society, and hence the reason for these scandals as managers act in their own accord depending on their own morals and motives. Corporate motives are difficult to determine therefore, both above points are hardto prove. Even though evidence suggests a positive relationship between CSR and success of corporations, it is questionable that when successful companies are seento be operating CSR programmes, it doesn’t contribute to success of the business and society, but rather the financial success that allows the company to indulge into benefits that CSR can give them personally (Crane, 2016). Again, supporting the argument about organisational culture impacting corporate decisions due to the self-interested benefits. Research suggests that if culture is a central part of the organisations values thatare ethical, it can have a positive impact on society and environment, this supporting that CSR policies will only be effective if they are embedded within corporate culture (Barker, 2014). After doing a questionnaire on 4000 US employees Webley (2008) found that, if a company had an ethics policy expressed as a comprehensive ethics programme, it had a positive impact on ethical behaviour. But it also found that if a code of business conduct was not supported by embedding tools such as training, then it tended to have a negative effect on employee’s attitudes and perceptions regarding corporate ethical performance. Another finding was those respondents who said their organisation had a code but no follow-through programme, had an even more negative perception of their organisation’s ethical performance than thosewho reported no code at all. This is a clear indication that a code alone is not 7
sufficient and policies need to be embedded throughout the corporation via an appropriate culture (Webley, 2008).Findings show that culture has a major impact in the way that CSR is embedded and the way corporations handle pressures, a strong corporate culture will endure in times of stress and mitigate the impact (Bischoff, 2016). Strong policiesshould underpin a healthy culture, but only if the boards demonstrate good practise and promotion throughout the business. “A healthy corporate culture both protects and generates value, it is therefore important to have a continuous focus on culture” (Bischoff, 2:2016). Therefore, culture is an important aspect of a corporation, and supports the reasoning for scandals to occur when poor corporate culture is embedded.Overall, this essay concludes to support the observation. It is clear that the reason for many corporate scandals is not the lack of corporate social responsibility policies, but absence of poor corporate culture. This can be seen in the cases such as Enron and Toshiba, where lack of ethical culture and providing an ethical environment to work in, led to the corporations committing illegal actions. Both corporations were recognised for their extensive CSR policies, yet they still acted unethically and illegally, demonstrating policies alone do not work. Proving culture of the corporation needs to be ethical to ensure these policies are embedded appropriately throughout the business. 8
Biblography Armstrong, R. (2017) The Volkswagen scandal shows that corporate culture matters,[online] Financial Times. Available at: https://www.ft.com/content/263c811c-d8e4-11e6-944b-e7eb37a6aa8e [Accessed 7 Mar. 2018].Barker, B. et al (2014) Understanding CSR Culture and Subcultures: Consensual and Conflicting Matters, 22(2), pp 25-48. Beal, B.D. (2015) Corporate Social Responsibility: Definition, Core Issues and Recent Developments, SAGE Publications, Thousand Oaks California. Bischoff, W. (2016) Corporate Culture and the Role of the Boards, [online] Financial Reporting Council. Available at: https://www.frc.org.uk/getattachment/3851b9c5-92d3-4695-aeb2-87c9052dc8c1/Corporate-Culture-and-the-Role-of-Boards-Report-of-Observations.pdf [Accessed 7 Mar. 2018] Carroll, A.B. Shabana, M.K. (2010). ‘International Journal of Management Reviews’ The Business Case for Corporate Social Responsibility: A Review of Concepts, Research and Practise, pp 85-105. Crane, A. et al (2014). Corporate Social Responsibility: Readings and Cases in a Global Context, 2ndedn, Routledge, Abingdon.Schwartz, M.S. Saiia, D. (2012) ‘Business and Society Review’ Should Firms go “Beyond Profits”? Milton Friedman Versus Broad CSR, 117(1), pp 1-31. Sims, R.R. Brinkmann, J. (2003). ‘Journal of Business Ethics’ Enron Ethics: Culture Matters More than Codes, 45, pp 243-256. Singh, M. (2015). Toshiba Accounting Scandal: A Corporate Culture Problem. [online] CFA Institute Market Integrity Insights. Available at: https://blogs.cfainstitute.org/marketintegrity/2015/10/30/toshiba-accounting-scandal-a-corporate-culture-problem/ [Accessed 7 Mar. 2018]. Webley, S. Werner, A. (2008). ‘Business Ethics: A European Review’ Corporate Codes of Ethics: necessary but not sufficient, 17(4), pp 405-415. 9