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Chapter 9

Corporate social responsibility, ethics and governance:

implications for corporate citizenship and HRM

© Oxford University Press Southern Africa, 2008. All rights reserved.

© Oxford University Press Southern Africa, 2008. All rights reserved.

Learning outcomesAfter reading this chapter you should be able to:• distinguish between the concepts: corporate social

responsibility, corporate ethics programmes and corporate governance

• explain and discuss the shareholder and stakeholder models of corporate social responsibility and how the two models reflect different theories of the corporation

• identify the key components of an effective corporate ethics programme and explain how they impact upon the implementation of corporate social responsibility

• discuss recent global initiatives in corporate governance• discuss the implications of good corporate citizenship for the HR

function

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Chapter Content• opening case: constructive relationships bring tangible benefits at

Anglo Platinum• introduction• corporate social responsibility• concepts of corporate social responsibility, corporate ethics

programmes and corporate governance are related, but different• corporate citizenship• corporate ethics programmes and the elements of ethics

programmes that corporations have found most effective• corporate social responsibility, ethics and governance, and the

implications for the HR function

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Introduction• corporate social responsibility - proper balance between

obligations to shareholders and obligations to stakeholders

• corporate ethics programmes - programmes that enterprises institute to manage ethics, legal compliance and social responsibilities

• corporate governance - policies, practices and mechanisms that shareholders, executive managers and boards of directors use to manage themselves and fulfil their responsibilities to stakeholders, including investors

• corporate citizenship – requires both corporate ethics and corporate social responsibility (which are interdependent on each other)

Diverse stakeholders with whom companies may engage

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Corporate social responsibility• 3 broad types:

– narrow classical view– socio-economic view – broad or maximal view of corporate social

responsibilityCorporate Social

Responsibility Viewpoints

Approaches Key references

Narrow classical economic (Shareholder model)

Maximisation of shareholder value, uphold the law and ethical custom, enlightened long-term value maximisation

Friedman, 1970

Corporate social responsibilityCorporate Social

Responsibility Viewpoints

Approaches Key references

Socio-economic (Stakeholder model)

Profitability and legal compliance Moral minimum of do no harm (negative duties) Moral minimum of prevent harm (affirmative duties) Uphold issues of justice and rights Respect for all stakeholders as ends in themselves Social contract

Simon, Powers & Gunnemann, 1972; Arrow, 1973; Stone, 1975; Evan & Freeman, 1988; Bowie and Duska, 1990; Goodpaster, 1991, 1996 in West 2006.

Corporate social responsibilityCorporate Social

Responsibility Viewpoints

Approaches Key references

Broad, maximal (Stakeholder model)

Profitability and legal compliance Moral minimum with affirmative duties Uphold justice and rights of all stakeholders Active role in social issues and contributing to the betterment of society through improving social conditions

Davis, 1973; Carroll, 1999, 2000; Mulligan, 1993; Wood, 1991; 2002; Porter & Kramer, 2002; Prahalad & Hammond, 2002

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Corporate ethics programmes

• 3 primary components:

– formulation phase– communication phase– monitoring and enforcement phase

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Effectiveness of corporate ethics programmes

– ethics is hard to measure and any evaluation of a corporate ethics programme must go beyond cost accounting or savings from fewer lawsuits

– measures of effectiveness and ethical behaviour must first determine what behaviour is to be deemed ethical in the normative sense

– involves both processes and outcomes

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Corporate Governance• Corporate governance and its importance

– common themes: shareholder rights, stakeholder rights, disclosure and transparency, executive management and board accountability

– the five pillars of corporate governance• culture• leadership• alignment• structure• systems

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Corporate governance

• Theories of corporate governance– Agency theory - because professional managers

have superior knowledge and expertise they may act opportunistically and gain advantage over the firm’s owners

– Stewardship theory - recognises managers as trustworthy stewards of the resources entrusted to them

– Stakeholder theory - corporations serve a broader social purpose than their responsibilities to shareholders

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Corporate governance• Governance standards and principles in a number of countries

– The King Report, 1994, 2002 (King Committee on Corporate Governance)

– OECD, 1999, 2004 (Organisation for Economic Co-operation and Development Principles of Corporate Governance)

– SOX, 2002 (Sarbannes-Oxley Act, U.S.)– CCUK, 2003 (Combined Code on Corporate Governance,

U.K.)– ASXGCP, 2003, 2007 (Australian Stock Exchange Corporate

Governance Principles and Recommendations)– AS, 8000-2003 (Australian Corporate Governance Standards)

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Corporate citizenship: implications for HR

• Corporate social responsibility and HR– requires corporations to operate in ways that not only avoid

harming people, but which positively impact on people’s health and safety, quality of life and personal growth

– human resource management practices associated with equal employment opportunities, diversity, job security, compensation, occupational health and safety, industrial relations, performance and remuneration and work-life balance

– in global operations, it involves managing human rights particularly those relating to child labour, wage exploitation, basic health and safety, empowerment and quality of life

5 key stakeholder groups and HR and other attendant issues

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Corporate ethics programmes and HR• revising written standards of ethical business conduct in consultation with

employees• HR organise focus groups/workshops • ethical issues should not be limited to specific HR issues it should also

include issues of primary concern to employees in their daily work practices

• HR should provide training about these standards• HR should:

– undertake ethics training– implement in-depth training programmes– initiate creative and meaningful ways to link ethics and organisational

values to performance management and reward programmes

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Corporate Governance and HR• superior governance is identified in terms of transparency,

accountability, responsibility and an independent overview of matters relating to corporate financial, ethical, social and environmental performance

• traditional HR activities of recruitment and selection, training and development, performance management and remuneration have a critical role to play in the development and maintenance of good corporate governance practices; not only in terms of boards of directors, but also in improving shareholder value through the development of intellectual capital and upholding a company’s responsibilities to stakeholders, in particular to its employees

• ‘balanced board’• board remuneration• monitoring and measurement of board performance