Corporate governance is how a company behaves when nobody is looking
I always find curious the attitude of some people that advocate for certain actions but cry foul when a corporation actually engage in such actions. We want the world to go organic, but we do not like when Walmart sells organic food. We want Fair Trade coffee, except if it comes from Starbucks.
Michel Porter and Mark Kramer stated that “Corporations are not responsible for all the world’s problems, nor do they have the resources to solve them all. When a well-run business applies its vast resources, expertise and management talent to problems that it understands and in which it has a stake, it can have a greater impact on social good than any other institution or philanthropic organization.”
We can think of organisations as evildoers looking to predate the world. Certainly, the Rational Theory advocates for companies only looking after their shareholders; but Rational Theory has been challenged nowadays and we can look at companies not only responsible for their shareholders but for all the stakeholders involved in the company’s environment and sphere of influence.
The new vision for companies as global citizens incorporates a host of concepts and practices, including the necessity for adequate corporate governance structures, the implementation of workplace safety standards, the adoption of environmentally sustainable procedures, and philanthropy. We tend to use the umbrella term”corporate social responsibility” to explain the new vision, but this concept is an oversimplification that has led to a great deal of confusion. Klaus Schwab distinguishes four different categories or behaviors:
- corporate governance
- corporate philanthropy
- corporate social responsibility
- corporate social entrepreneurship
A new attitude for business will be described as “global corporate citizenship”. Companies not only must be committed with stakeholders but need to become themselves stakeholders, side by side with governments and civil society, The logic being:Global issues impact business -> Global issues impact the bottom line.
Global citizenship is then part of a corporation’s self-interest, hence, it is sustainable. It is not an act of charity, is a business model.
Companies are getting involved in the health of workers, the education of employees and their children, and the pensions that sustain them in retirement. Corporations have an impact on everything from air quality, to social justice, to life-saving drugs availability. It is normal then, and justified, to look to corporations with request for help and criticism for wrongdoing the same way we looked upon governments.
The focus of much of the civic action of NGOs has naturally been corporations. After initial confrontations, some of the critics came to appreciate that many business leaders are engaged in society.In 1971, the World Economic Forum identified the stakeholder concept: the idea that a company has a clear responsibility to the community beyond its shareholders. In 1973 it became the cornerstone of the Davos Declaration, Five core concepts -corporate governance, corporate philanthropy, corporate social responsibility, corporate social entrepreneurship, and global corporate citizenship- define the different types of business engagement.
Over 3,000 companies in 120 countries have signed on to the UN Global Compact: Ten core principles to guide business behavior in areas such as human rights, the environment, labor practices, and corruption. Some others are subscribing to the Global Reporting Initiative, launched in 1997, to institute international guidelines for sustainability reporting, the publishing of an organization’s economic, environmental, and social performance and impact.
Corporate philanthropy is engagement that does not go beyond writing a check or handing out donated goods. Social investing is a special form of corporate philanthropy, in which a company invests in organizations or programs that have broad social appeal, such as inner-city housing projects or funds for student loans.
Corporate social responsibility is measured through so-called triple bottom-line accountability, according to which a company reports not only on its financial results but also on what it is doing and what it is not doing in meeting stakeholder expectations of its environmental and social responsibilities.
Corporate social entrepreneurship is strictly defined as the transformation of socially and environmentally responsible ideas into products or services. The role model of these social entrepreneurs, Muhammad Yunus, the inventor of microcredit, received the Nobel Peace Prize in 2006
Global corporate citizenship goes beyond the concepts of corporate philanthropy, including social investing; corporate social responsibility; and corporate social entrepreneurship in that it entails focusing on “the global space,” which is increasingly shaped by forces beyond the control of nation-state. It means engagement at the macro level on issues of importance to the world: it contributes to enhancing the sustainability of the global marketplace.
Nestlé voluntarily takes measures to reduce the water it uses in its operations. As Nestlé engages with governments and NGOs to reduce water use in a broader way, it also offers an example of global corporate citizenship. If the company gave free water to a community, it would be engaging in corporate philanthropy. And if it sold recycled water in biodegradable bottles, that would be an act of corporate social entrepreneurship.