Aim of Companies and Social Responsibilities - Essay Example

Aim of Companies and Social Responsibilities In the contemporary world, corporate social responsibility has assumed great significance. Thus, several of the leading companies of the world have taken the initiative in the area of corporate social responsibility. This phenomenon has also been witnessed in Australia. The extant corporate laws of Australia, UK and the US enjoin upon the corporate sector to provide information regarding the influence of their operations and policies on the economy, environment and society (Horrigan, 2010, p.185). Australian corporate law does not directly address the interests of shareholders and non – shareholders. All the same, the Corporations and Markets Advisory Committee and the Australian Parliamentary Joint Committee on Corporations and Financial Services came to the following conclusion. In effect, these entities were convinced that the extant law provided sufficient flexibility for company directors to take into account shareholder and non – shareholder interests (CPA, 2011). Some of the legal luminaries of Australian corporate law have emphasised that the absence of direct legal obligation in the company law on directors, with regard to interests other than that of the shareholders, the latter cannot ignore such other interests. Nevertheless, directors of Australian companies are under no obligation, as per the existing laws, to promote non – shareholder interests (Horrigan, 2010, p.182). In a communiqué to the UN Office of the High Commissioner for Human Rights, the Australian Government reiterated its firm commitment to promoting the principle that the guidelines relating to corporate social responsibility were to be made voluntary (Business & Human Rights Resource Centre, 2004). It was opposed to the imposition of norms that were aimed at forcibly implementing corporate responsibility (Gustavson, 2008, p.466). The Corporations Act 2001 is one of the most important pieces of legislation that regulate corporate social responsibility in Australia (Australian Government Corporations and Markets Advisory Committee, 2005). Specifically, Section 180 (1) of this Act requires company directors to function in a manner that works towards the best interests of the company and for a proper purpose. However, a company director who voluntarily reduces the profits of the company or enhances the expenditure, in order to address the requirements of corporate social responsibility to the detriment of the company, could be deemed to have discharged his duty towards the company in an illegal manner (Gustavson, 2008, p.466). The notion of socially responsible investment has its origins in the corporate culture of the US. Its emergence in Australia has had a major impact on the dissemination of corporate social responsibility in the Australian context. As such, this development can be attributed to the significance of the Australian financial market (Wailes & Michelson, 2008, p.107). A substantial increment has been noticed in the deployment of investment funds that are specifically characterised as being socially responsible. In the US this component of investment funds was of the order of 10%. However, in the Australian context, the allocation has not been of this magnitude. As of the year 1996, Australia boasted of 10 socially responsible investment managed funds, which increased to 89 by the year 2004. The proportion of these funds in that very same year was around 2%. These funds were estimated to be approximately $35. 3 billion as of the year 2007 (Wailes & Michelson, 2008, p.108). The principal characteristic of socially responsible investments lies in the fact that firms are scrutinised in order to ensure that they support ethical and social objectives, in addition to acceptable financial activities. Some of the measures adopted in this context are the examination of companies to prevent them from indulging in unethical practices, and the production of harmful goods. It is also the goal of socially responsible investments to ensure that companies adopt desirable business practices (Wailes & Michelson, 2008, p.108). Corporate social responsibility has been described as an activity that accords due importance to internal as well stakeholders, and which enables firms to function in a fair manner via activities that are socially responsible. It has been contended by some authorities that individuals depict a psychological necessity for control. The basis for this necessity is a self – serving concern for justice (Galbreath, 2010, p.414). From the perspective of employees, justice is demonstrated by the provision of information by firms that facilitate the prediction of the actions to be undertaken by an organisation. Consequently, the proactive demonstration of corporate social responsibility enables employees to assess the degree to which they will be accorded fair treatment (Galbreath, 2010, p.414). The community tends to entertain certain expectations from the companies. This all important facet of social responsibility has been increasingly recognised by the companies. The outcome has been that companies now depict a greater inclination to provide reports regarding the impact of their corporate activities on communities and the environment (McGraw & Dabski, 2010, p.390). In the year 2003, $21.3 billion was invested in funds with Socially Responsible Investment guidelines. Such investment depicted a growth of 625% between the years 2000 to 2003. From this initiative it can be understood that a rapidly increasing repository of funds will be available to companies that undertake ethical, environmental and social responsibilities in the course of their usual business (Cacioppe et al., 2008, p.688). The core of the Socially Responsible Investment stocks of the Australian Ethical Investment and the Sustainable Investment Research Institute has exhibited strong returns. The extent of this increase can be evaluated from the fact that these stocks have shown an average increase of 27% per year for the last 11 years. These developments have induced several banks and insurance companies to incorporate ethical, environmental and social criteria into their investment and risk – assessment policies (Cacioppe et al., 2008, p.698). Small firms and their business practices comprise an influential component of the Australian economy and society. In this context it is imperative to realise that the economic effect of small and medium enterprises have a major bearing on future development . Small businesses remain efficient and profitable in the long term, only if they conduct their activities in ways that are environmentally and socially responsible. In addition, these firms should aim to maximise the stakeholder value, by concentrating on economic, environmental and social performance (Sawyer & Evans, 2010, p.253). Several business concerns had adopted measures to reduce environmental damage significantly. These efforts had several consequences, such as the concern depicted by these entities to circumvent the unnecessary waste of energy and materials. A large number of these businesses referred to measures for protecting the environment, such as conserving energy and recycling waste. In addition, measures, such as planning deliveries, car pooling and utilising products that were friendly towards the environment were also adopted (Sawyer & Evans, 2010, p.264). Corporate social responsibility can be construed to be the necessity for firms to be responsible for the environment as well as their stakeholders. Such responsibility, however, has to transcend financial goals (Huang, 2010, p.642). There is much that is innately incorrect with the idea of corporate social responsibility. For instance, it is based on the belief that capitalism and companies indulge in activities that are not fully justifiable from the moral point of view. This is an unfortunate development that has attached itself to capitalism. There has been a concerted effort by some entities to promote the thinking that capitalism and public good are fundamentally divergent concepts (Broomhill, 2007). Corporate Community Involvement: Establishing a Business Case and Corporate Community Investment in Australia, are two reports that provide a comprehensive overview of the social ramifications of corporate social responsibility in the Australian context. The latter of these reports disclosed that there was an increase in the expectations of the community regarding the contribution of companies towards the betterment of society (Gustavson, 2008, p.478). A central feature of corporate social responsibility in Australia is occupied by corporate philanthropy. During the economic distress experienced in the early 1990s, Australian companies were compelled to reduce their involvement in corporate social responsibility activities (Gustavson, 2008, p.478). In Australia, there is an appreciable amount of support from the corporate sector for corporate social responsibility. Such support has been observed to be chiefly in the realm of financial support (Zappalà & Cronin, 2003, p.63). For instance, the research study Giving Australia: Research on Australian Philanthropy has revealed that during the financial year 2003 – 2004 the contribution of business towards philanthropic activities was twice that of the contribution in the financial year 2000 – 2001. The scale of this contribution can be envisaged by noting that some 526,000 odd business concerns had contributed around $ 3.3 billion, during the financial year 2003 to 2004. Such support was in the garb of money, time, services and goods (Australian Government , 2005). Several research studies have come to the conclusion that increased profitability is one of the outcomes of an improvement in reputation due to socially responsible behaviour (Ruf et al., 2001, p.143). Nevertheless, the evidence regarding causation has been considered to be inconclusive. This lacuna is particularly glaring in the financial sector, chiefly due to the reason that all the major players in this domain tend to actively support corporate social responsibility (Parliamentary Joint Committee on Corporations and Financial Services, 2006). The State of CSR in Australia Annual Review has disclosed that the corporate sector in Australia has not been sufficiently active in creating new products, services and markets, due to its lack of initiative in exercising the various innovative choices provided by their corporate social responsibility programmes (Australian Centre for Corporate Social Responsibility, 2012). Research in this area clearly indicates that Australian business continues to subscribe to the passé perception that true value is promoted and preserved by improving reputation, mitigating risks and facilitating regulatory compliance. This pathetic inability to comprehend the potential of corporate responsibility programmes by the Australian companies was decried by Black, the managing director of ACCSR. (Australian Centre for Corporate Social Responsibility, 2012). The contemporary fixation of Australian business is to conform to the regulatory requirements relating to carbon price – related issues. All the same some of the Australian companies have adopted corporate social responsibility programmes with zest and verve. These pioneers have benefitted enormously, as they have been able to reduce costs, improve their reputation and competitive edge, and circumvented the deleterious effects of poor performance (Australian Centre for Corporate Social Responsibility, 2012). As per the above discussion, it can be surmised that the Australian corporate sector has singularly failed to take full advantage of the various benefits provided by corporate social responsibility programmes. At best, their involvement is perfunctory and indicates a marked reluctance to discard traditional beliefs. References Australian Centre for Corporate Social Responsibility, 2012. State of CSR in Australia Annual Review 2011/2012. South Yarra Victoria: ACCSR. Australian Government , 2005. Giving Australia: Research on Philanthropy in Australia. Discussion Paper. Canberra: Commonwealth of Australia Department of Family and Community Services. Australian Government Corporations and Markets Advisory Committee, 2005. Corporate Social Responsibility. Discussion Paper. Sydney: Corporations and Markets Advisory Committee. Broomhill, R., 2007. Corporate Social Responsibility: Key Issues and Debates. Adelaide: Don Dunstan Foundation Dunstan Paper Series. Business & Human Rights Resource Centre, 2004. Excerpts from submissions to United Nations consultation on business & human rights. [Online] Available at: http://www.corporation2020.org/documents/Papers/SF_Prep/UnhchrSubmission.pdf [Accessed 3 September 2012]. Business Council of Australia, 2007. Corporate Community Investment in Australia. Melbourne Victoria Commonwealth of Australia: Corporate Community Investment in Australia. Cacioppe, R., Forster, N. & Fox, M., 2008. A Survey of Managers' Perceptions of Corporate Ethics and Social Responsibility and Actions that may Affect Companies' Success. Journal of Business Ethics, 82(3), p.681 – 700. CPA, 2011. The social responsibility of corporations. [Online] Available at: http://www.cpaaustralia.com.au/cps/rde/xbcr/cpa-site/social-responsibility-of-corporations-report.pdf [Accessed 2 September 2012]. Corporations Act 2001. Galbreath, J., 2010. How does corporate social responsibility benefit firms? Evidence from Australia. European Business Review, 22(4), p.411 – 431. Gustavson, R., 2008. Chapter 21 Australia: Practices and Experiences. In S.O. Idowu & W.L. Filho, eds. Global Practices of Corporate Social Responsibility. Springer. p.463 – 496. Horrigan, B., 2010. Corporate Social Responsibility in the 21st Century: Debates, Models and Practices Across Government, Law and Business. Edward Elgar Publishing. Huang, C.–.J., 2010. Corporate governance, corporate social responsibility and corporate performance. Journal of Management and Organization, 16(5), p.641 – 655. McGraw, P. & Dabski, S., 2010. Corporate Social Responsibility Reporting in Australia's Largest Companies. Labour & Industry, 21(1), p.390 – 409. Parliamentary Joint Committee on Corporations and Financial Services, 2006. Corporate responsibility: Managing risk. Canberra: Commonwealth of Australia. Ruf, B.M. et al., 2001. An Empirical Investigation of the Relationship Between Change in Corporate Social Performance and Financial Performance: A Stakeholder Theory Perspective. Journal of Business Ethics, 32(2), p.143 – 156. Sawyer, J. & Evans, N., 2010. An Investigation into the Social and Environmental Responsibility Behaviours of Regional Small Businesses in Relation to their Impact on the Local Community and Immediate Environment. Australasian Journal of Regional Studies, 16(2), p.253 – 265. Suggett, D., Goodsir, B. & Pryor, S., 2000. Corporate Community Involvement Establishing a Business Case. [Online] Melbourne Victoria Commonwealth of Australia: Centre for Corporate Public Affairs Available at: http://www.allenconsult.com.au/resources/acgcorporatecommunityinvolvement2001.pdf [Accessed 3 September 2012]. Wailes, N. & Michelson, G., 2008. The Transfer of Management Ideas to a Western "Periphery": The Case of Corporate Social Responsibility in Australia. International Studies of Management & Organization, 38(4), p.100 – 118. Zappalà, G. & Cronin, C., 2003. The contours of corporate community involvement in Australias top companies. Journal of Corporate Citizenship, (12), p.59 – 73. Read More