Alternative Corporate Goals of Managers

Category: Accounting

Abstract

This paper proposes that except for the traditional forces in a company, like the shareholders, there are in addition new external cells which verify the plans of an organization. Societies, customers, workers, government and many others, who are identified as stakeholders of an organization, are requiring environmental and social criteria for the companies. Administration is at the present under the requirement of applying strategies to facilitate public responsibility of businesses in a number of ways, like the area of ethics, green politics and social accountability. Research and common practice proved that corporate social responsibility have an effect on both social legitimacy and stakeholder opinion, which in sequence impacts the financial performance of businesses.

Introduction

The primary intention of Management in a firm is to be able to take decisions always in the best interest of the firm's shareholders. That is usually accomplished by maximizing the shareholders' wealth following an explicit financial planning and dividend policy. This strain, coming from the shareholders' requirements and needs, has developed into common practice for managers. At the present time, Chief Executive Officers are more alert to the responsible performance and sustainability of their business which originates to external stakeholders' pressure (Hardjono and Marrewijk, 2001).

According to Hardjono and Marrewijk (2001), these improvements have made firms open to the social scope of their organization, their corporate identification, their position within community and their responsibility towards upcoming generations.

Furthermore, the public responsibility of companies is emerged by several means, like the area of ecology, employee safety, public responsibility, and ethical rules (Joener and Raiborn, 2005). These practices not only advance the social competences of a corporation but at the present are presumed as a performance's feature. The latest business background recognizes that prosperity and shareholder value alone do not correspond to the value of the firm (Hardjono and Marrewijk, 2001). To facilitate this predicament, stakeholders of corporations i.e. customers, workers, societies, suppliers, government, shareholders, classified activist groups and the environment in general, have started to require even more information about the procedures that organizations are taking on in order to indicate their responsibility towards public and good corporate citizenship (Joener and Raiborn, 2005). General Electric, for example, issued its first comprehensive citizenship report in 2003 and in the spirit of greater lucidity its web site today features facts and figures on environmental performance, governance, employee relations, supply-chain practices and community contribution. The company has begun an official stakeholder conference process which includes its shareholders, socially-responsible investment firms, community groups and General Electric's employees (Morgan et al., 2009).

The analysis of such objectives could be comprehensible when management settles on its intentions, of providing for instance a reasonable return for the owners and subsequently offering the rest of its resources to society service activity or serving the interests of the workforce, i.e. capitalize on employees' benefits.

2. Theoretical Background

The Issue of Traditional Business Responsibility

Companies' conventional roles have contained disburse taxes, enhancing profits and making use of the workforce but there is nowadays the imperative obligation that companies go ahead of these roles and put in to the progress of the society. Top companies have embraced this public accountability. If we imply that the ethical corporation of the future is the responsible corporation, we have to name the dimension or the state of this responsibility.

The thought that accountability might be the response to the ethical problems of the organizations of present and future is misguided. Whether or not companies can be subjects of responsibility whatsoever, diverse circumstances are to a certain degree confusing and fail at the equal problems of jeopardy and insecurity that arose to the initiative of liability (Stahl, 2005).

The need for Corporate Social Responsibility

The meaning of public responsibility has been underscored by the size of economic scandals and frauds that have infected the business world throughout last years. Examples like the following display the requirement for companies to cope with the issue of accountability (Joener and Raiborn, 2005).

Halliburton Company was driven into bankruptcy by ecological asbestos-related problems that were acquired with the company's 1998 purchase of Dresser Industries (Sheehan, 2003).

Over 250 recent and former employees at an IBM disk-drive plant have charged the company, declaring chemicals used are hazardous and have created various health problems (Ante, 2003; Bulkeley, 2003).

Key corporations like Coca-Cola, Exxon Mobil, Unocal, and IBM have been prosecuted under the 1789 Alien Tort Claims Act for human rights violation (Chepesiuk, 2004).

The thought of corporate social responsibility (CSR) reflects the proposal that directors must consider not only shareholders earnings but also the needs of other organizational stakeholders, including the local and international societies (Joener and Raiborn, 2005). The model of corporate citizenship is clarified as companies develop a call for differentiation within their neighborhood. Research has presented the progress of the Social Responsible Investing (SRI) Industry with respect to methods of screening and auditing corporations' triple P performance. However, a great deal of the present CSR and SRI activities is only "window dressing" (Hardjono and Marrewijk, 2001) which indicates that businesses are paying only lip service to sustainability.

Friedman's fundamental statement is the best possible legal framework including completely assigned property rights. External effects are ruled out by definition. Hence, the appropriate question is not whether an enterprise acts in a socially desirable way, but whether existing legal requirements provide incentives that cause enterprises to so operate. In other words, the important thing is not that enterprises or individuals can take responsibility for granted, but that society's essential order has been planned to cause the desired behavior. Due to these assumptions, there is no need for CSR in Friedman's approach. In reality, however, the assumption of a perfect basic order is no longer applicable. The design of current institutions is the result of a reaction to social needs, but the delay between a change in social preferences and an accordant institutionalization creates a regulation gap (Falck and Heblich, 2007).

2.3 Alternative Management Strategies and Policies

As soon as the organization has a design for its direction, principles, and desired impending form, and when this picture is normally shared, individuals are able to determine their personal roles both in an organization. As Hardjono and Marrewiljk stated, (2001), in terms of the perception and maturity point of the company, the selected policy could have win-win arrangements with clients, suppliers and other stakeholders. The level to which this is applicable, settles on the stage of corporate responsibility.

Until recently, relatively few companies around the world provided information about their environmental practices and performance. Now environmental reporting is progressively more common. One estimate is that around 35 per cent of the world's largest corporations publish reports on their environmental policies and performance. Partly, this may be motivated by an altruistic desire to cause less damage to the planet. However, what is also becoming accepted is that green reporting makes good business sense (Slack et al., 2010).

In a study of the environmental management plans of the firms, Petulla (1987) proposed three grouping of environmental management:

Crisis-oriented which have no green strategy for conformity with regulations and laws and have no environmental division in the company.

Cost-oriented which set up company guidelines and separate units for environmental realization.

Enlightened which have strong company aspiration to go beyond regulatory compliance.

Companies, which determined to act proactively, initiate with a strategy that reproduces important environmental goals and secure the obligation of administration for continuing finance. Another study which conducted by the Mc Kinsey Corporation (1991), affirmed that more than 400 senior executives of corporations around the world, more than 79% of them reported that their companies had written company green statements (Berry and Rondinelly, 1998).

2.4 Shareholders' and Stakeholders' Interests

Implementing theconformity duties owed to investors presents reasonable involvedness. The partition of corporate ownership and management is referred to as the "principle-agent" issue, where managers are the agents who are actually obliged (mutually morally and legally) to operate in aid of the shareholders principals. Nevertheless, occasionally dishonorable managers exploit their informational advantage to endorse their interest at cost of the stockholders. According to Coelho et al. (2003) there are three ways of encouraging agents to perform on behalf of their principals:

Initially, is transparency, recommending the corporation's insider information and decision-making to public assessment. Thus, principled executives should unite shareholder wealth and not expose business secrets or further proprietary information (Ross, 1973).

Secondly is to line up the aims of administration with those of shareholders. Normally this involves either managerial share option or an equity position by management in the company.

Finally is an active market for corporate management. If control is not being accurate to the interests of owners, this presents an opening for other investors gaining profits by taking over the company and altering current board of directors.

Concerning socially accountable management, it is intricate for outsiders to distinguish the consequences of corporate support on business value. Business policies that produce profits will not be reduced by increased antagonism (Coelho et al., 2003).

Alternatively, firms seeking to suit dissimilar stakeholders have discovered that practical green management involves supplementary adjustments to government rules. In line with Berry and Rondinelly (1998) the strategies can necessitate firms: (a) to make more efficient use of business intelligence to identify innovative assignments, (b) to align firm's rate systems, (c) discover new techniques of managing adjustment, (d) accelerate education and training and (e) transform performance all over the organization.

A lot of companies that implemented a quality management agenda toward to advance their competitive positions, like Sony, Volvo, 3M, Procter & Gamble, Kodak etc., are also acknowledged by their stakeholders for excellent environmental act (Berry and Rondinelly, 1998). Companies that carry out some form of total quality management persistently examine and develop their operating procedures.

Alternative Management's Payoff

A corporation can facilitate reduction of distress about its policies by (a) stating its arrangements in a range of areas, (b) developing perception of its activities in different areas of public accountability and (c) revealing how its actions in each of these areas are tied to the general approach of the association (Joyner Raiborn, 2005).

The knowledge of areas in which a company and its external stakeholders work jointly results in maximum common good. As Joyner and Raiborn mentioned (2005), the appliance of these managerial actions, when applied in areas of public accountability for firms, must create a high level of practice and understanding for corporations and their stakeholders. Internal stakeholders will also asses the supervision provided by this method. As companies lead the way in reporting their public responsibility efforts, it is imperative to maintain personnel interested and concerned.

Besides, having motivated human resources, being employee's primary preference, (a) operating a friendly environmental manufacture process, (b) supplying in the neighboring communities, (c) contributing to volunteers, (d) funding local activities or (e) get involved in private organizations, will establish corporation into social indexes and will contribute to the boost of its revenues and market shares (Hardjono and Marrewijk, 2001). An exceptional case of following such strategy is the Collins and Porrals' list of pioneer companies, which are to different extent socially accountable corporations. In accordance with Hardjono and Marrewijk (2001) these firms had a remarkable economic performance and their profits over the last decade are four times higher than the revenues in their industry.

Bringing to a close, the actual payoff is three-pronged, as Joyner and Raiborn (2005) stated:

First, public get the required information to make well-versed assessment about the organization.

Second, parts of business put in the effort to develop and provide such information, directing to a stronger "culture of responsible performance".

Third, in establishing this type of assessment system, organizations address their own performance topics in these parts.

3. Conclusion

Throughout time, we realize that corporate social responsibility and profit increase will become growingly undividable. Reflective accountability is currently a practical approach for the ethical company of the future. Ultimately, corporate social responsibility involves both social legitimacy and stakeholder awareness, which consecutively change financial performance of businesses.

Principally in the last years, the subject of sustainable growth has been receiving growing attention from major stakeholders, like government, suppliers, costumers, societies, workers, shareholders and others, all over the world. Corporate social liability, social responsible investing and corporate citizenship have been placed on the agendas of management and corporate boardrooms.

Moreover, administration ought to take environmentally sound decisions with no economic welfare's sacrifices of the company to any great extend. Environmental management must be viewed as a regular process of improving environmental corporate strategies and programs considering the supervision of technical development.

Summarizing, we may possibly state that this attempt at improving performance in social responsibility, green policies, employee wellbeing and safety, and ethics will promote the parts which are implicated. More significantly, communities will succeed in carrying out these alternative corporate goals, in the course of joint efforts of the business world and management.