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Emerald Group Publishing Limited
Copyright © 2006, Emerald Group Publishing Limited
Recent research pursued by our research team over a five-year period explored the varying practices of leadership, governance and corporate and social responsibility application, emerging with the following results:
Governance requirements, whether as a result of Stock Exchange listing conditions, or pressure to be seen to adopt voluntary codes, or the demands of legislation particularly that of the SOX Act (USA), were considered by most of the senior managers we interviewed as a bureaucratic burden for which compliance needed to be seen to be done. Attention to administrative procedure and adherence to controls resulted in certain improvements but also considerable lip service to governance, with directors making public statements and even statements to each other of the value of improved governance, but in private expressing frustration that nothing has changed, nor will it. Particularly with SOX, corruption was viewed by a number of American directors as being driven more underground as the suspicion of company wrong-doing should be best kept to oneself. Being seen to be governance compliant was all that was required. Ironically, most directors and senior managers knew, often in intimate detail, what was going on in their company but found it prudent to keep quiet.
If inhibition dominated governance concerns, greater openness of conversation typified discussion of the firm’s corporate and/or social responsibilities. For the majority of directors in the study, the topics and language of CSR engendered considerable irritation and even rejection. CSR held meaning if addressed from the perspectives of health and safety and risk management, but little else. We note the examples of BT and Unilever offered by Andrew Wilson, but the results of our investigation showed that these types of positive examples are pitifully few.
One company in particular, whose identity we are obliged to keep confidential, has been portrayed in the press and media as an outstanding example of CSR in practice having won prizes for sustainability and social responsibility pursuit. In this company we traced CSR application in the field, interviewing internal company and external stakeholders. The overwhelming result was that meeting financial targets, i.e. “hitting the numbers”, so predominated that concern for stakeholder needs was viewed by middle management as irrelevant. Local and expatriate country managers expressed hostility toward their bosses at regional and corporate centre levels for making CSR public statements and promises that more junior management considered impossible to achieve. The pressure to meet financial and economic targets was paramount. If any scandal or reputational concern emerged, middle and junior management said they were blamed and scapegoated for policies which mouthed CSR but, in reality, were focused on achieving shareholder economic value. In this company, publicly positioned as a shining example, CSR emerged as script for the annual report. Yet the paper chases down the organisation showed that the relevant forms were duly completed with managers “ticking the box” that their CSR responsibilities were duly exercised so that on the surface all looked fine (we have to say, even then there were gaps in the paperwork but it took time to find them).
From these exhaustive investigations, we consider that shareholder value at the expense of stakeholder concerns is alive, well and dominates reality. Further, there was little evidence of change in the immediate future. It should emphasised that the companies under scrutiny were not largish SMEs who have to contend with cash flow constraints or challenges of capitalisation. The enterprises under investigation were large national and multinational firms with broad global reach from varying sectors and with the financial strength to effectively pursue pertinent CR and/or CSR policies. So, what to conclude?:
The two worlds of shareholder and stakeholder remain far apart.
CSR language generates distinct hostility, particularly from Anglo-American companies, but PR departments present a very different public picture.
Overall CSR is still a concern of corporate reputation principally for the annual report and little else.
Distinction needs to be drawn between CR and CSR, in that, particular corporate responsibilities which add immediate advantage to the corporate plan are adopted, whilst social, stakeholder oriented responsibilities are more neglected but pronounced as being pursued for PR purposes.
Drawing on emerging evidence from the USA, UK, Australia and certain Continental European countries, the “race to the bottom” is evident with a few becoming more wealthy and a considerable number of citizens finding themselves worse off.
As a result of this study, what of the role of educational institutions such as business schools?
Certainly our research into CSR application emphasises that more in-depth inquiry is needed in order to ascertain the truth of what really happens on the ground. Such study should not be seen as “company bashing”. Drawing attention to the “difficult to reconcile” paradoxes that confront management in terms of CSR pursuit, is a positive contribution which should be undertaken without fear of hostile response. In our research, the case study of the challenges facing the CSR prize-winning company made one sympathetic to their circumstances. Within their portfolio, this company has 7,000 products or so all of which are under a CSR administrative discipline attempting to track and control what happens. We can only congratulate this company for their CSR governance endeavour. However, our investigation showed that their governance discipline has become an end in itself. Management were reluctant to face up to that reality and their reaction was to prefer to maintain pretence.
For business schools, greater attention should be given to the teaching of ethics, value systems, moral philosophy and social responsibilities challenges and concerns. However, we contend that we also need to give considerable attention to socio-political theory.
Why has the firm become such a predominant vehicle of social and economic development?
Do we really have free markets or are we in the oligopolistic position of a few firms dominating each market so that free competition, open information exchange through the press and media and broader social responsibility to community have become myths?
Have public policy design, political processes and wealth creation become so entwined that well organised and very particular interests determine the agendas we debate?
In Europe are our constitutional identities as nations too limiting to pursue social responsibility application with large, financially well-endowed, multinational interests who can easily transcend national boundaries?
In terms of ethics, value systems and social responsibility teaching, we have witnessed a concerted and laudable effort to make such topics “frontline” subjects on MBA and other business education programmes. What we do not see to the same extent is “biting” socio-political analysis where some of the broader questions highlighted above and the central role of the firm in society is debated. Certainly, what also emerged from our study is that particular companies openly discussed their lobbying strength and influence on NGOs and government in the pursuit of their own agendas. Other companies, more reluctant to be so open, at least admitted that if they were caught committing a CSR transgression, they had (in their eyes) the capacity to limit scandal or public scrutiny to the local press of the disadvantaged parts of the world without such stories penetrating the considerably more powerful US and Continental European press and media. Such admission supports, we contend, the need for greater attention to the broader socio-political landscape in business school curricula.
Therefore, the challenge is as great as ever for improved governance and attention to concerns of social responsibility. The five issues for 2006 go some considerable way to addressing the governance and social responsibility challenges we face both as individual and corporate citizens. Throughout the year of 2006, the governance theme is particularly strong, with contributions addressing how the US SOX Act will affect Australia, the similarities and differences of governance application between the USA and Europe, as well as exploration of the governance implications within an enlarged EU. Further contributions will explore corporate governance from an Islamic perspective, the role of audit committees in Barbados, the intriguing theme of money laundering (book review), the costs of corporate governance reform and, an old favourite, directors’ remuneration, but this time a case study of Malaysia.
Considerable attention will also be given to CSR featuring articles examining future trends, particularly taking into account global developments.
We hope that you find the five issues for 2006 interesting, informative and, possibly, a stimulus for action. It certainly is our intention, as editors, to enhance awareness in the areas of governance and CSR so as to be able to promote a socio-corporate dialogue which may motivate some to social practice improvement. These five issues of Corporate Governance: The International Journal of Business in Society go some way to achieving the objective of positive social responsibility practice.
Nada and Andrew KakabadseCo-Editors