CSR

Chapter I Strategic Public Policy ision for Corporate Social Responsibility
Chapter I Strategic Public Policy I 'ision for Corporate Social Responsibility
Chapter I
INTRODUCTION
Government and Corporate Social Responsibility (GCSR). has made an impressive entry on the economic, business, political and social scene^ In the last decade, there were different terms used, such as; social action, socially responsible investment, management by values, corporate citizenship, business ethics, the triple bottom line, reputation, and so on. However, the diversity of terminologies is only the visible aspect of many initiatives, proposals, programs and experiences that share the same quality or respond to'the same types of actions. Certainly, the issue of quality and actions should still be continuously to be addressed. Thus, when we discuss about Government and Social Responsibility or Corporate Social Responsibility, we should make a distinction between three aspects, according to Albareda, Lozano, Marcuccio, Rocher and Yu: 1. Agenda:- the variety of practices, measures and proposals that come under the term CSR.
STRATEGIC PUBLIC POLICY VISION FOR CORPORATE SOCIAL RESPONSIBILITY
C H A P T E R OBJECTIVES
After this chapter, you should be able to: learn the definitions and applications of corporate social responsibility; and, understand and appreciate the CSR framework.
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2. Understanding:- what we understand by CSR - and the various terms associated with it - and, therefore, what business model is proposed and what role business firm is considered to play in society. 3. Vision: what project for society CSR conforms to. The presence of CSR has grown rapidly in several organizations (Government Organizations and N o n Government Organizations): Several companies have integrated it into their corporate philosophy, agenda, assigning management responsibilities in their
Corporate Social Responsibility and Good Governance 3
CONTENT OUTLINE

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Introduction Corporate Social Responsibility Reference Framework CSR Where Do We Stand? Building the Nation as An Economic and Social space Managing Corporate Social Responsibility Why We Need Strategic Vision
Corporate Social Responsibility and Good Governance
Chapter I Strategic Public Policy I V . w V w for Corporate Social Responsibility
Chapter I Strategic Public Policy I ision Jor Corporate Social Responsibility
organizational structure, and asking themselves what they were doing and what they ought to be doing. Some NGOs have identified it as a new strategic area for action, and in some cases have set themselves up rather as defenders of the cause; GOs have seen it as new opportunity for political initiative, legislative or otherwise: some higher educational institutions have demonstrated the incorporation of CSR into their curricula; experts and consultants of all kinds have created services related to it; seminars, conventions, trainings etc. etc. have been organized with a view to fostering it, either in general or concentrating on certain topics. Thus, CSR also provides an opportunity for differentiation and awareness, among other reasons because information related to this context has increased in the mass media of communication. CSR must be a long term commitment and at the same time a road map of the company for action and not something that is immobile. It is within this context, that we should resist the temptation to present CSR to public opinion as a race to see who projects the best image in this area.
dynamic knowledge - based economy in the world, capable of sustainable economic growth with more and better jobs and greater social cohesions.'" _ The European Commission (2001a) defines CSR as a ' concept whercbv companies integrate social and environmental concerns in their business operations and in their interaction with stockholders on a voluntary basis." The Commission tackles this topic with run aspects: the (^whaj^Xind the "how. " The (whatp emphasizes the fact sodttyT P ' should make social and environmental (.^commitments in their actions; and for the CJiow/ît stresses / the voluntary nature of Those commitments. Consequently, \o(f# our approach starts from the proposition that the right jirfMl* question is not about CSR regulation, but what policy governments should adopt towards CSR. We should ask ourselves what public policy we need in order to develop CSR; it is only within this context that there is meaning to the question about regulation, which after all is no more than a tool and not only of policy.
r t l i a t c o r n a n e s
1.1
C O R P O R A T E SOCIAL RESPONSIBILITY R E F E R E N C E FRAMEWORK
The Green Papers "Promoting a European Framework for Corporate Social Responsibility" (2001) and the subsequent "Communication Concerning Social Responsibility: A Business Contribution to Sustainable Development" (2002) published by the European Commission have undoubtedly become the yardsticks for approaching this topic. The Final Declaration of the Lisbon European Council (March 2000) states: by 2010, "to become the most competitive and
4 Corporate Social Responsibility and Good Governance
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In other words, we believe that the two dominant debates about CSR (the "what" and the "how") are unresolved, and that we will waste a great deal of energy unless we explore the "why", which can only be expressed through the business model and the social model that provide the framework for the CSR debate. This is why we insist that we must put an end to the fiction that the CSR debate is limited to the topic of whether it is accepted or not, and begin to realize that there may be - indeed there are several visions of the nature and the scope of CSR.
Chapter I Strategic Public Policy Vision for Corporate Social Responsibility
Chapter 1 Strategic Public Policy Vision for Corporate Social Responsibility
1.2
CSR W H E R E DO W E STAND?
The CSR debate highlights the fact that, in a globalized world, it is not just products and services that compete but also business models, management models and governmence national models, in this connection, wnen we talk of CSR we have to think of the existence of noncoincident approximations even if we focus on Europe and the United States and allow ourselves to forget the rest of the world. In the U S A , the main issues regarding CSR i revolve for the most part around management in relation to the stakeholders, the establishment of relations with the community, and business action at society, which are [frequently described as CSR because they are carried out by companies, rather than because they affect the company's business core. On the other hand, in Eyiope, ^j,^ CSR tends to be linked increasingly to an overall<$tston)>f \ ^pncXt the company, with more attention to all the processes in 1^ ^ which it is involved and greater sensitivity towards the/ , political and social context in which it operates. In this " connection we have noted a symptomatic similarity between the models of public policies on CSR that we have identified and the various welfare state models. CSR is a new vision of the corporate world to society, a new relationship between the political and business players, and the ability to develop a shared vision about the nature of the main challenges facing our societies in order to enable us to conceptualize that vision and that relationship.
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4. The intensity of the nature to voluntariness, as opposed to the acceptance of regulation and government control 5. How the role of businesses is described locally and nationally 6. The role and the position of NGOs and civil society 7. The characteristics of the educational system and the values converged by it <* ' / 8. What is expected of leaders 9. Historical traditions Hence, in the CSR discourse that is built in every country it is important to take into consideration the following sequence (Figure 1.1) of all the above - mentioned that elements that make it necessary for companies and countries to be fully aware of the need to fashion their approach to CSR. We consider that the most innovative countries regarding CSR are those that lend it to revision of globalization processes, lnfact, the most encouraging ideas on this topic came from those companies, public institutions and research or academic institutions that place CSR within the debate generated by the intersection between the action (positive a.nd negative alike) of transnational corporations, the emergence of a global civil society and public opinion and the reconstruction of the role of governments and their interrelationships. Thus, CSR no longer refers simply to the relations between business and society, but crystallizes as a way of rethinking the role of business in society, incorporating, as a salient feature, a perspective on governance and sustainability. In this connection, we believe that in talking of CSR at the same time we must also ask ourselves about our corporate vision and our vision for the country. To tackle this issue we need leadership, commitment and conviction, not only in the field of business, but also in the political and social spheres. We need to create ivpublic
Roome (2005) stated that, hi the approach taken to CSR in every Country, several elements were included: 1. The political and institutional structure 2. The political style and processes 3. The social structure
space where it is possible to share, spread and recognize significant experiences of others. We need to strengthen a business culture that is open to dialogue and partnership. We need the CSR agenda to take shape in strictly business terms, and not to be induced or conditioned from outside the business world. Corporate Social Responsibility (CSR) brings us, then, to ask ourselves whether our country is capable in its economic and social aspects, because CSR is also about how companies and countries differentiate themselves in an interdependent world. Perhaps, in a globalized world, the "made in" label will became associated not just with the quality of that country's products and services but also with the responsibility, credibility and sustainability of its companies. Institutional reference framework and economic and social history
1.3
BUILDING T H E NATION AS A N E C O N O M I C AND SOCIAL SPACE
Without a shared vision, public - and indeed corporate reflection on CSR boils down to no more than the pragmatic results of the correlation of forces and the play of interests, or the scenario of a conflict of convictions. The time has come to expound openly that CSR constitutes one of the great opportunities for innovation, differentiation and legitimation available to business today. Only with a project and a vision can specific CSR agenda - agenda tailored to each company - become what they really are: a learning opportunity. These ideas have led to discussion on the competitive advantage of countries (Porter, 1990). The discussion does not stop there, through, but goes on to consider the ethical wealth of countries (Donaldson, 2001). Basically, this wealth does not consist of the number of speakers they have or the level of their specialized intellectual production, but above all the quality of their professionals 'actions, the coherence and consistency of their intuitional framework, the reference values that makeup their social relations and the life of their organizations, and so on. In this light, fostering the development of CSR in a nation constitutes in our opinion, one of the cornerstones for the articulation of its competitive advantage and its ethical wealth, because it explicitly gives structure to a corporate vision and a vision for the country in the context of a globalized world. In other words CSR brings us to set forth a way of understanding the role of business in society and at the same time contributes to shape a nation as a space in
7 Business system and culture
7 Approach to CSR
Figure 1.1 CSR Background on National Framework Source: Adopted from Roome (2005)
Chapter I Strategic Public Policy Vision for Corporate Social Respon
which the relationship between the economy and society is not far from reality (Figure 1.2).
CSR
always a debate about the society we wish to build and how companies contribute to the building process. Furthermore, it is a debate about what sort of business we want and need, and about what we require socially and culturally in order to achieve it. In other words, it is a debate that deals with where we want to direct our efforts, what common ground lies between our commitment and what we want to become collectively. The following issues/topics that can be publicly formed and aired:
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Business in society
Governance
Sustainable
Ethical wealth of Nations
Competitive advantage of nations
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1. CSR players involved: How to develop companies' relationship with their social environments. This means identifying and becoming better acquainted with the various players that affect business activities or that may be affected by them. This interrelation should be regarded as an opportunity to build harmonious relationships. 2. CSR and partnership relations. We can infer from this the need to explore in depth a possibility that is quite highly developed in some nations: the creation of new forms of cooperation between businesses, public administrations and social organizations. The creation of these areas of comfortable partnership proposes two aspects: first, that there is dialogue enabling the construction of a common vision and goals; and second, that each player strictly plays it own part, because fostering CSR does not mean that businesses stop being businesses and start performing duties that do not belong to them, nor that they should be subordinated to the demands of public administrations or social organizations. CSR only means that business should be businesses, but at the same time asks what sort of businesses they should be.
CSR
Figure 1.2 CSR, Governance and Sustainability

Source: Lozano, ESADE
Incorporating CSR into the public: economic, political, and social agenda' reminds us that neither companies nor countries are possible without a shared vision: a shared corporate vision and a shared vision for the country, each in its own differentiated way, because the CSR debate is
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Chapter I Strategic I'uhlic Policy I ision for Corporate Social Responsibility
Chapter I Strategic Public Policy I ision for Corporate Social Responsibility
3. CSR and creation of social capital As a result of the above, the possibility of increasing the consolidation and development of social capital arises, inasmuch as the spread of CSR- and also of partnership culture - has a strong influence on the consolidation of the network of economic and social relations. However, this also imposes the need to promote an institutional network making the importance of CSR possible and visible. 4. CSR and business discourse. CSR only makes sense if all organizations (public, social, etc.) put their weight and assume their own social responsibilities, and if they do them as a result of a reflection on what role they should play in the emerging society. In this respect, coherently facing the challenge of CSR also constitutes an opportunity for leadership in the business world that should not be wasted or overlooked. 5. CSR: Innovation and coherence. CSR can become one of the courses of business innovation and cohesion. It is impossible to develop it if it is not linked to the corporate identity, the way of doing things that is particular to each organization, and its culture. -creation or job.' evr**/Ay dt^*/oprr^r\ 6. CSR from rhetoric to good practices: (a) rhetoric on CSR should not (only) serve to state that there is still a long way to go and to criticize irresponsible behavior; rather, it should provide on opportunity to differentiate and highlight socially responsible action (given that CSR is one of the great opportunities for differentiation), (b) We must avoid the impression that companies develop CSR out of nothing; they do it working from the basis of their own track record: CSR is a vision that allows us to innovate, but also to strengthen, consolidate, reinforce and indeed expound ways of operating that have come to form part of
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business practice, (c) Not all companies talk, live and manage CSR in the same way: each does so from its own profile and sector. In other words. CSR is not the exclusive property of large corporations, even if the predominant specific approaches and tools seem to have been designed for companies that are stock market listed and highly exposed to consumer markets. If ii is true that there is no CSR without a corporate vision and a vision for the country, non-listed companies, family firms and SMEs have something to say on the topic, (d) CSR is not only about, philanthropy, particularly in a European context, nor should it systematically give rise to any additional cost.
1.4.
M A N A G I N G C O R P O R A T E SOCIAL RESPONSIBILITY
Basically, CSR should be managed and manageable. If we had to sum up the matter of how to manage CSR. we ought to single out three points: what topics, what processes and how it is integrated into management. Below is a model that divides CSR into six main areas (Figure 1.3): 1. Vision and mission: aspects related to the development of the concept of CSR, its articulation with corporate values, the explication and formulation of those values and how they are integrated into the strategy and governance of the organization. 2. Stakeholders: aspects related to the interaction between the company and society, especially through all the stakeholders who are affected by its activities.
Corporate SocialResponsibility and Good Governance
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( kapltl 1 Strategic Public Policy I ision for Corporate Social Responsibility
3.
M ork: aspects of CSR related to the sphere of work and the quality of its organization and development.
4. Market: aspects of CSR related to the activities of the company with regard to products, sen-ices, and market strategies. 5: Environment: perhaps the area that is recognized with most consensus: it deals with the impact the company's activities have on the environment. 6. Accountability: aspects related to information, lansparencvînd how the company accounts for itself h\>ne<i <towards society with regard to its CSR policies and practices, and the channels it uses to do so.
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Nevertheless, identifying the areas included in CSR does not explain its complexity. To complete the model we have to take into account that, from a CSR perspective, it is necessary to develop strategies, turn them into concrete policies and on this basis generate new practices. We can visualize this as follows.
(Input I Strategic Public Policy I isiot; for Corporate Social Responsibility
Chapter 1 Strategic Public Policy Vision for Corporate Social Responsibility
Corporate Social Responsibility is a process in which the most important thing is the trajectory and the direction that sustain it and the ongoing commitment that gives it structure. That is What provides it with credibility. What has be done at any given moment will depend precisely on the situation in which the company finds itself and the reality of its environment. In contrast, this understanding of' CSR as a learning process is what has become, for many companies, a factor for innovation that has given rise to new forms of organization, new products or improvements in the quality- of their management. In this process, there are three elements that can be regarded as fundamentals (Figure 1.4).
Corporate Social Responsibility only makes sense if it shapes the business strategy and policies and is integrated into the values that are lived- and not just those that are formulated within the company. Consequently the important thing is to nurture the corporate identify- and a trajectory that shows a certain amount of consistent coherence in everything that is done. If this is the case, any attempt to make CSR a matter of ethical code, carrying out particular activities or making donations, will ultimately wither on the vine. Corporate Social Responsibility constitutes a vision of how relationships are carried on with the various players involved in business activity, which include the structures and processes of the company itself. This is why it is particularly relevant to link the development of CSR to the development of people within the company. If CSR is important, it should be carried through to the selection, training, communication, motivation, and reward criteria, and also to the working conditions, furthermore, it is necessary to encourage the skills and attitudes that are linked in each company to the development of its CSR. When C S R is conceived as a process, it is important to be aware that several dimensions have to be taken into consideration:
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(^Strategy/ Values = Identity
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Integration and Learning Process
Management (Structure and Processes)
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Workers Environment Suppliers Consumers "T.ocal ~N (^mmunity^y ASSociahoris Governments etc, etc.
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1. The explicit: those elements that formalize and objective CSR (codes, reports, statements, organizational structures etc). 2. The tacit, those intangible elements that make up. the concrete manifestations of C S R in each company (organizational culture, history, leadership, etc.).
Figure 1.4 CSR Process Source: Lozano, ESADE
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Chapter I Strategic Public Policy I ision fur Corporate Social Responsibility
3. The negative aspects: those approaches, in any of the management areas involved in CSR. that arc characterized by emphasizing what should not happen in business dealings, or should be excluded from them: and also those minimum levels that must be respected by law (sanctions, prohibitions, rules of procedure, etc.). 4. The propositional aspects: those approaches, in any of the management areas involved in CSR, that have a component of enquiry, facilitating innovation or improving management, and shaping new relational dimensions. NEGATIVE CSR PROPOSITIONAL CSR
which, although it may undoubtedly play an important part, has a limited Regulation allows us to influence basically those aspects of CSR that have a strong explicit and negative component in each of the six areas of CSR development (Figure 1.5). but it cannot cover all of them, nor all their aspects. Furthermore it leaves aside from political action which has to do with the promotion of the propositional aspects of CSR, which are. afterall. those that generate improvement and innovation initiatives in management.
1.5.
W H Y W E NEED S T R A T E G I C VISION
EXPLICIT CSR
f (
Space of Regulation
TACIT CSR
Figure 1.5 Variables of CSR and regulation Source: Lozano, ESADE
When we talk of CSR, we take as reference elements the two words that appear in the titles of the European Commission documents: promoting (from the perspective of political institutions and public administrations) and contribution public (from the perspective of business sector). Thus we could formulate the hypothesis that the dialogue surrounding the development of a CSR policy should, on the basis of these two variables, deal with the three elements we mentioned at the beginning of this chapter (agenda, understanding and vision). Nothing can replace business initiative when it comes to contributing through its action to build the CSR agenda, shape its understanding and frame it in a vision. But nothing can justify public powers abstaining from promoting the development of these same agenda, understanding and
vision.
In other words, commitment to CSR has to be linked to economic and social development; to the generation of trust and social capital and to a certain vision of national identity. However, commitment to CSR also has to be linked to a commitment to the - excellence, quality,
This vision of CSR, at the same time synchronic and diachronic, enables us to expound on the limitations of reducing deliberation on policy and CSR to the debate on its regulation. Such a restriction confines it to one element
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Chapter I
Strategic Public Policy Vision for Corporate Social Responsibility
-a
9
CSR/RSC Promoting (governments and public Administrations)
Agenda
Understanding
Vision
5 a.
CI o
Contribution (companies and private sector)
I
Figure 1 . 6 Dimensions of CSR Source: Lozano, ESADK
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M.I.,
Chapter I
Strategic Public Policy Vision for Corporate Social Responsibility
a
Shared Vision
Contribute (Companies)
Individual
Partnerships and Networks
Business
5
a a.
Initiatives Dialogue
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3 B 8
CSR Promote (public policies) Absence of Strategy Regulation
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Figure 1.7 Actions in CSR

Source: Lozano, E S A D E
Chapter I Strategic I'lthlic Policy 1 Ision for Corporate Social Responsibility
Chapter I SlrategU Public Policy I ision for Corporate Social Responsibility
continuous improvement, innovation, differentiation, competitiveness, and internalization of companies. In this regard, neither companies alone nor governments alone can succeed. Thus, success for companies and governments lies in their progressive capacity to face the development of CSR together, each from their own specific institutional position (Figure 1.7). This need for a shared vision for the company and the nation is what convinces us that, as we mentioned earlier. CSR is an essential component in the development of what Donaldson (2001) calls "the ethical wealth of nations." We take this term on board because it expresses graphically a perspective that seems to us to be highly pertinent. It marks the point of convergence between Fukuyama. when he refers to the generation of trust in the economy and Putman (2002), when he speaks of the importance of social capital for the proper functioning of democracy. The basic issue at stake here is that the economic and political inability of a society is not possible without the practical assumption of a set of fundamental values by the majority of its citizens and organizations and that therefore we cannot understand the development of a society merely in economic terms - even though we often only apply this criterion of measurement because economic viability is only possible if associated with the cultivation of these values by the various social players. The governance of our complex societies will not be possible unless use turn the responsibility of the various players into an awareness of co-responsibility. Neither coresponsibility nor the building of a public agenda on CSR is possible without a vision for the nation; that is, without asking ourselves what kind of nation we want to become and what kind of world we want to help to build. And this is equally valid on a European scale: the development of CSR must be linked to European integration and the presence of Europeans in the world, and vice versa. This
also means without am sort of doubt or hesitation, a return to politics. It is for this reason that we must recognize the political dimension of the development of CSR. because let us say it once again - the question about CSR and the role played by business in society does not mean that businesses should stop being businesses and start performing duties that do not belong to them (or even for which they are not legitimated): all it means is thai they should be businesses fully and totally businesses of the twenty' - first century: Consequently, the development of CSR in Europe, including other countries of the world, like the Philippines, is also a question of leadership - primarily business leadership, including political and social leadership. However, it is not enough for leadership to provide a roadmap for the future, if it ignores conflicts of values, nor is it enough for it to offer an easy way out that disregards the facts. Guiding values are interpreted in the context of problems requiring definition and action. To sum up, then, what are our society's and our company's problems that require definition and action in terms of CSR? To talk of CSR is to talk of what vision we have for the company and for the country. To talk of CSR is to talk of how it is conceived and what consequences it has in each particular society - and hence also in ours. To talk of CSR is to consider what agenda of relevant issues and actions render it significant in a company, a sector or a country. To talk of CSR is to talk whether a country is capable of building itself as an economic and social space. To talk of CSR is to talk about what sort of leadership the business world is prepared to assume. To talk of CSR is to talk about how countries and companies rank in a globalized and interdependent world, and what differentiates them.
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Chapter I Strategic Public Policy I 'ision for Corporate Social Responsibility Charier ! Strategic Public Policy ision for Corporate Social Responsibility
Review Problems and Exercises

T R I E OR FALSE If the statement is true, write the word ' T R U E " : if otherwise, write the word, " F A L S E " , opposite the corresponding number. I. Diversity of terminologies is not only the visible aspect of many initiatives, proposals, programs and experiences that share the same quality or respondto the same types of actions but also the issue of quality and actions. Corporate Social Responsibilit^^rvjdes an opportunity fordifferentiatior^n^daw'aren^s^ 3. Corporate Social Responsibility is a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with stockholders on a voluntary basis. Public space is needed to be created to share, spread and recognize significant experiences of others. Without a shared vision, public - and indeed corporate - reflection on CSR boils down to no more down the pragmatic results of the correlation of forces and the play of interests. CSR do not mean that businesses stopped being businesses and start performing duties that do not belong to them, nor that they should be subordinated to the demands of public administrations or social organizations. 7. The Green Papers "Promoting a European Framework for Corporate Social Responsibility" and "Communication Concerning Social Responsibility: A Business Contribution to
Corporate Social Responsibility and Good Governance 24 Corporate Social Responsibility and Good Governance
3-
25
Sustainable Development" published by the European Commission are the yardsticks for approaching CSR. 8. This vision of CSR, at the same time synchronic and diachronic, enables us to expound on the limitations of reducing deliberation on policy and CSR to the debate on its regulation. 9. Commitment to CSR has to be linked to economic and social development; to the generation of trust and social capital and to a certain vision of national identity. *"T 10. The explicit elements are those that formalize the objectives of CSR such as codes, reports, statements, organizational structures, etc 11. In the last decade, CSR is social action, socially responsible investment, management by values, corporate citizenship, business ethics, the triple bottom lipe and reputation. 12. Fostering the development of CSR in a nation constitutes the articulation of its competitive advantage and its ethical wealth, because it explicitly gives structure to a corporate vision and a vision for the country in the context of a globalized world.
2. An aspect of CSR that is concerned with what project for society CSR conforms to a. Agenda b. Understanding c. Vision d. None of the above e. A l l of the above 3. An aspect of CSR that is concerned with what business model is proposed and what role business firm is considered to play in society: a. Agenda b. Understanding c. Vision d. None of the above e. A l l of the above 4. According to Roome, in the approach taken to CSR in every Country, the following elements were included except: a. The political and institutional structure b. The political style and processes c. The social structure d. None of the above e. A l l of the above 5. CSR refers to: a. only to the relations between business and society b. a way of rethinking the role of business in society *+^c. incorporating a perspective on governance and sustainability d. None of the above st. A l l of the above 6. An aspect related to the development of the concept of CSR, its articulation with corporate values, the
MULTIPLE CHOICE 1. An aspect of CSR that is concerned with the variety of practices, measures and proposals that comes under the term CSR: a. Agenda b. Understanding c. Vision d. None of the above e. A l l of the above
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Chapter 1 Strategic Public Policy I ision for Corporate Social Responsibility
Chapter 2
GCSR: Context Aim and Perspectives
explication and formulation of those values and how they are integrated into the strategy' and governance of the organization: â. Vision and mission b. Stakeholders e. Work d. None of the above e. All of the above 7. An aspect related to interaction between the company and society, especially through all the stakeholders who are affected by its activities: a. Vision and mission b. Stakeholders c. Work d. None of the above e. A l l of the above jTQ'UM^ 8. A n aspect related to the activities of the company with regard to products, services, and market strategies: a. Vision and mission b. Stakeholders c. Work ' d. None of the above e. A l l of the above
Chapter 2
GCSR: CONTEXT AIM AND PERSPECTIVES

After this chapter, you should be able to: learn the important approaches to the action of governments in the framework of promoting and developing CSR; and, understand and appreciate the elements for analysis and debate on governments and CSR.
CONTENT OUTLINE
Introduction The Literature on Governments and CSR: European Framework Comparative Study Between European Framework and American Framework Roles in the Public Sector in Relation to CSR Governance and CSR Study of Governments and CSR Corporate Social Responsibility as a Relational Approach CSR Framework: Beyond Voluntary Compliance VS Legislation Government Action in the Field of CSR: Comparative Evaluation
(KCAjwvr^CxAi^lÂn aspect related to information, transparency, and how the company accounts for itself towards society with regard to its C S R policies and practices, and the channels it uses to do so: a. Vision and mission b. Stakeholders c. Work / d. None of the above e. A l l of the above
2 8 Corporate Social Responsibility and Good Governance
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Chapter 2
Chapter 2
INTRODUCTION
In the first part of this chapter, we present a summary of what we consider to be the most important approaches to the action of governments in the framework of promoting and developing CSR. A brief introduction to the main research done in this field will serve as a point of departure for our proposal and analysis. The second part of the chapter will discuss the elements for analysis and debate on governments and CSR.
commissions' vision is set in a new complex framework of European Union enlargement with new patterns of business practices and initiatives. The European Commission also published other complementary documents that provide important elements and information on the European debate on CSR and the role of governments. These documents are the reactions of the various social agents involved in the public debate initiated by the Green Paper. The usefulness of these materials lies in the fact that they enable us to know the responses of the European governments (together with some regional governments) to the Green Paper, and their approach to CSR. The debate about the role of governments opened by the Green Paper had a certain tendency to focus on the issue of the voluntary or mandatory nature of CSR. Some of the responses to the Green Paper can be analyzed in this framework. However, this discussion soon became framed in a more complex setting. Thus, some approaches highlight the need to go beyond the voluntariness versus legislation dichotomy. However, other approaches predominate in the analyses of public policies and CSR such as: (1) the analysis of public policies that governments have adopted in the framework of CSR promotion and development; and, (2) the analysis of the public sector roles adopted by the governments in the development of CSR public initiatives. This latter analysis sometimes incorporates the socio-economic and cultural framework in which CSR has developed.
2.1
THE LITERATURE ON GOVERNMENTS AND CSR: EUROPEAN F R A M E W O R K
In the European framework, the starting point is provided by the documents published by the European Commission (EC): The Green Paper "Promoting a European Framework for Corporate Social Responsibility" (European Commission, 2001) and the "Commission Communication Concerning Corporate Social Responsibility: A Business Contribution to Sustainable Development" (European Commission, 2002a). These two documents give us the key to understanding the role governments can play in the promotion and development of CSR. In June 2004, the EC also presented the Final Report of the European multistakeholder Forum on CSR. This document establishes the recommendations derived from the European Multistakeholder Forum on CSR, and serves as a support for the action of governments and the European Commission itself. In March 2006, the European Commission published a new communication explaining a vision of CSR that is linked to sustainable economic growth, the competitiveness of the European economy, innovation and job creation. The
. . Corporate Social Responsibility and Good Governance _
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Chapter 2
Chapter 2
2.2
COMPARATIVE STUDY B E T W E E N EUROPEAN F R A M E W O R K AND AMERICAN F R A M E W O R K
From an American Point of View The pioneering works of Aaronson and Reeves (2002 and 2002b) should be studied. These authors" analyzed the differences between the development and the acceptance among European based companies on the role adopted by European governments promoting CSR and the less favorable acceptance to be found in the US based companies in relation to US government initiatives. Both authors defend the idea that the key element in the attitude of some of the pioneering European governments in the development of CSR is their cooperation with certain coiporations, especially in comparison with the low level of acceptance of CSR public policies by US companies. Aaronson and Reeves (2002a) consider that the difference lies in the respective business cultures: In the last few years, European policymakers have taken a wide range of steps to promote CSR. These actions contrast with the lack of policies in the USA. The failure of American policymakers to promote CSR is surprising, because CSR pressures are so strong in the United States. What explains the difference? Some argue that public pressure might be a good explanation. Europe, Canada and USA have all witnessed violent protests about globalization in recent years. So if public concern and market fences don't explain a more activities role, what does? We would argue business culture. European firms are more comfortable working with government to improve social conditions, and they are more comfortable
Corporate Social Responsibility and Good Governance , 32
in a regulated environment. Business expects government will ask more of them and government does ask more of business. European acceptance of a government role in promoting CSR should not be misconstrued to mean public support of binding CSR policies. The European public and a growing number of European businessmen and women support the current level of experimentation at the national and multinational levels. And European business leaders seem to believe that CSR policies can help - them find their way in the chaotic ever changing global economy. Another comparative study between CSR development in Europe and America *is the report published by Canadian Business for Social Responsibility in 2001. In this document, CSR (2001) compiles the CSR public policies of various governments and gives a series of recommendations to the Canadian government to develop CSR policies and provide support for companies in their social and environmental practices: it should generate business leadership and show commitment, transparency, and a will to comrhunicate and act. Another report that makes recommendations is "Promoting Global Corporate Social Responsibility'' by Frank Hawkins Kenan Institutes of Private Enterprise, (2003), which encourages 'the US government to develop strong partnerships capable of responding to the new challenges for governance generated by globalization. It is very clear in those studies that focus on the evaluation and analysis of public policies and C S R in the US and Canada, some of the themes that emerge as relevant are also those that we will identify as fundamental in European
33
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public policies: CSR promotion, partnership, leadership commitment and the link with governance issues. From a European point of view According to Habisch et. al. (2005), Corporate Social Responsibility across Europe, presents collective research on CSR in 23 European countries, all either E U Member States or in the process of joining. This overview shows how CSR is rooted in different national frameworks and is modulated according to different social, cultural and economic traditions: ethical issues are predominant in the Anglo-Saxon countries; environmental concerns are the main issue on the CSR agenda of the countries of northern Europe; and in southern European countries CSR is approached as asocial development issue. The authors state that in Europe, in general, the concept of CSR is linked to suslainability and governance: it is seen as the way for companies to contribute to sustainable development and strengthen economic competitiveness, social cohesion and environment protection. Contribution that present a more Pan-European Vision: 1. Roome-(2005) presents the irrmljcations_of_the..CSR agenda of European governments by showing how cultural factors and the political, social and business structure influence the shades of meaning the CSR adopts in each country. A comparative analysis is performed of the U K , Germany, the Netherlands, and Sweden regarding the way the topics on the CSR agenda are dealt with. 2. Matten-_and_Jyloon (2005), developed a conceptual framework for understanding. CSR in_ Europe on the
basis of the idea of social governance, comparing the European context with the American one. Their main conclusion is that in the US, more explicit CSR strategies have been adapted by companies, thus resulting in a weaker institutional framework. In the Europe, in the other hand, companies have adopted more implicit corporate strategies for CSR, among other reasons because institutional frameworks for socially responsible business action arc more developed there. 3. Lenssen and Vorobey (2005) provide insight into the development of theoretical and empirical models on the role of business in society in Europe, based on social contract theory' and stakeholder theory. The authors analyze how ciiltural differences and socio political systems affect corporate responsibility in each country. The analysis also incorporates the concept of corporate governance and corporate reputation. The purpose of the work is to find elements of convergence in the framework of the European Union.
2.3
ROLES IN T H E PUBLIC SECTOR IN R E L A T I O N T O CSR
According to Fox et. al. (2002), work from the idea of the public sector adopting four roles: (1) Mandating, (2) -fac-tiiJating, (3) partnering, and, (4) endorsing^ The report builds and develops a matrix with the possible initiatives taken by governments depending on the roles they adopt, in relation to the ten key themes on the CSR agenda (1) minimum standards, (2) the public policy role of business, (3) good corporate governance, (4) socially responsible investment, (5) philanthropy and community development, (6) stakeholder engagement, (7) production and
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consumption, (8) certification and management systems. (9) transparency and reporting, and, (10) international CSR guidelines. Importance is also attached to public sector action in developing countries. In this way. we gain an overview in the basis of a combination of initiatives and roles that provides a reference both for analysis and for the development of CSR public policies. Lepoutre et. al. (2004) also presents a review of the roles adopted by governments in the CSR debate. Their analysis discusses' the strategic roles played by governments (activate, orchestrate and modulate) and presents common tools adopted in public action (public information campaigns, organizational reporting, labelling, contracts, agreements and incentives). The work done by Nidasio (2004) is also interesting, although it focuses exclusively on a comparative study of the reporting frameworks and models developed by four European governments: Italy, Belgium, the Netherlands, and France. The paper classifies national reporting frameworks according to two levels of analysis: a top - down as opposed to a bottom - up approach, and a government centered as opposed to a multi-stakeholder approach.
appeared in the last decades of the twentieth century. At that time, an answer was being sought to the social governance deficit that affected British society in "issues such as unemployment, the regeneration of socially and economically less favored areas, vocational training of the unemployed and the employed, business start-up and job creation. Moon concludes that the British government saw CSR as a contribution by the business world towards meeting these challenges and incorporated it into the political agenda. This explains why the British government became one of the first to foster and institutionalize CSR within the framework of a particular public policy and a particular department. Midttun (2005) locates the development of CSR in the context of the changes taking place in the welfare state, on the basis of a comparative..study- of three models: the Keyhesian'Welfare State Model, the Neo-liberal Model, and' the Embedded Relational CSR Model. Midttun analyzed each of the models adopted by the governments in political, commercial and regulatory exchange taking into account three players: (1) government, (2) industry, (3) civil society. In each model, Midttun analyzed the intermediation between these players and their areas of exchange. The CSR model, in contrast to the welfare state model, is based on decentralized sector, and less state intervention. The CSR model has developed new ways of paying attention to sustainable development, by adding new dimensions and roles to areas of exchange. The CSR model proposed by Midttun is thus based more on the initiative of civil society and the self-regulation of the private sector. Gribben et. al. (2001) presents the role of governments in the creation of new models of social partnerships with a view to solving social problems, in coordination with
2A
GOVERNANCE AND CSR
The development of theories on CSR is increasingly incorporated into an overview of its contribution in terms of governance. In this connection, there is a very relevant . analysis by. Moon (2004) on the CSR policy adopted by the UK government. Moon considers that this government adopted its -CSR policy as a response to the social governance crisis and the lack of legitimacy, of the state that
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companies, social organizations and local government. Guarani and Nidasio (2003), analyzed the role of CSR in public-private partnerships incorporates an area of longterm consistency into the concept of political networks. The authors analyzed public-private CSR partnerships in the Italian context in issues such as management and accountability. The study concludes that public-sector players commit themselves above all in the evaluation of social and environmental needs, thus laying the foundations on which to plan CSR strategy. For its part, the private sector commits itself in both the finding and the performance of projects. Bendell and Kearins (2004) address the political dimension of CSR and its application to business administration and management in relation to the demands of civil society. First, they state that the concept of voluntary compliance linked to CSR is accepted by few stakeholder groups especially NGOs - as they believe Voluntary CSR initiatives to be incapable of leading to the goal of sustainable development. Second, they point out that the voluntary nature of CSR has brought growing social awareness of the political activities of companies, especially those activities that generate a certain amount of controversy around certain companies and their international activities. Third, they claim that some general and financial managers arc of the option that, without major changes in government public policies, individual efforts by companies in CSR may not yield commercial success, and thus may cause the business world to be wary against taking such action. This review of related literature reveals to us that the treatment of CSR public policies has become progressively consolidated as an increasingly all - encompassing perspective that locates these policies within a social
Corporate Social Responsibility and GoodGovernance "f 3g
governance context and that rests on the growing importance given to the interrelationship between business, government and civil society as a basic element for the development of CSR.
2.5
STUDY O F GOVERNMENTS AND CSR
For the last decade, governments all over the world have developed an ever wider range of public policies for the fostering of socially responsible business practices. This public action is being implemented through various public policies and programs. A l l these measures require some degree of public intervention, and are sometimes explicitly requested by the players involved in the development of CSR. In July 2001, the European commission (EC) presented its Green Paper "Promoting a European Framework for Corporate Social responsibility" Since them, there has been a public policies adopted by European governments to encourage CSR. But^ Corporate Social Responsibility has also a global framework:. In 1999, Kofi Annan, Secretary General of the United Nations, proposed the. Global compact with the aim of reconciling the creative forces of private entrepreneurs/tip with the need ! of disadvantaged and future generations. A year earlier, the Organization for Economic Cooperation and Development (OECD) had revised its guidelines for multinational enterprises. Generally, these initiatives are justified because the attitude to business is changing, and it is beginning to be regarded as having an important part to play in improving society.
1
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2.6
C O R P O R A T E SOCIAL RESPONSIBILITY AS A R E L A T I O N A L APPROACH
The European Commission in (2001) defines CSR as "a concept whereby companies integrate social environmental concerns in their interaction with stakeholders on a voluntary- basis." However, if we dig deeper we will realize that CSR implies a relational interpretation of business activity, when this activity is carried out. Thus, in carrying out its CSR activities enterprise builds relationships and can set up frameworks for dialogue with other social players, especially with its stakeholders. From this point of view, Us activity generates frameworks of responsibility in terms of interdependence. The responsibility of enterprise is not reduced, therefore, to the consequences of what companies do; it is about how companies stand and move in the network of relationships in which they act. CSR also refers to the principles, values and criteria that guide businesses in all their dealings. Then, it is only then, we understand CSR not as a mere analysis of the consequences of isolated action, but as a valuation of the specific relationships established between several players. In recent years, in a framework of globalization, there have been changes in the context in which companies act. As a result, companies are emerging not only as economic players but also as political and social one. As companies come to face an increasingly globalized economic and social environment, with increasingly interdependent and multidimensional implications and challenges, they become fundamental players for the social and environmental future of our societies and our universe.
Corporate Social Responsibility'and Good Governance . ... 40
At this point in time, CSR has entered the political agenda, of the governments of most European countries, and those of other countries such as Canada, the United States of America, Australia. Japan and others. The European Commission recognizes that some European governments have been pioneers in this field, and assume the importance of CSR in the political arena. Governments thus face a daunting social challenge: they are responding to the new role of enterprise in the current process of economic development and the resulting social and environmental challenges that arise. Furthermore the European commission requires that these national CSR policies are in accordance with local policies and international standards and code, such as I L O Declaration of fundamental principles and rights at work (1999), the ILO International Labor Standards and the OECD Guidelines for Multinational Enterprises (2000). Many European governments have started to develop and design governmental actions and policies in the framework of CSR. They have adopted several roles and lines of action, such as: 1. They play the tole of facilitators in promotion and discussion on the development of CSR. 2- They play the role of promoters of CSR (increasing knowledge about the positive impact of CSR, developing the exchange of experience and good practice, promoting the development of CSR management skills, fostering CSR among Small and Medium Enterprises, and facilitating convergence and transparency of CSR practices and tools). 3, They play the role of mediators promoting multistakeholder dialogue between the players involved, by facilitating information flows.
4]
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4. They play a role related to partnering in the development of partnership initiatives and projects with the participation of the public-private sector. 5. Thev play the role of creators of knowledge networks, giving validity' to those instruments, standards and tools that are already accepted and legitimized. 6. Thev play a participatory role in the" international organizations that have adopted CSR promotion and development measures on an international scale, by transferring their formal commitments to the national scale. 7. They play the role of regulators often through enabling regulatory measures and transparency measures, and less often through mandatory regulations.
deliberation of whatever policies are implemented. It is crystal clear that this is actually the option chosen by European governments: to identify those particular aspects of CSR the development of which is better off being regulated. Two examples are: sustainability reporting and socially responsible investment. It also implies that there is already a great deal of regulation in the field of CSR.
2.8
G O V E R N M E N T A C T I O N IN T H E FIELD O F CSR: C O M P A R A T I V E EVALUATION
2.7
CSR F R A M E W O R K : BEYOND V O L U N T A R Y C O M P L I A N C E VS LEGISLATION
It is very important to emphasize that the debate between voluntary compliance and legislation depends on how we understand CSR. For the sake of simplicity, on one side of the coin we could put those who consider that CSR starts where the law ends. Efficiency:, competitiveness, paying taxes and abiding by the law is what a company has to do and beyond that point is where CSR starts. On the other side of the coin there are those who think that CSR is a management model that affects the whole of the company's activity, integrally, and cross-sectionally. The latter side of the coin has more substantive implications. First of all, it is irrelevant to talk of regulating CSR (since we are about regulating a management model); rather it is a case of regulating those aspects of CSR that require it at. any given moment, according to the
' Corporate Social Responsibility and Good Governance. ._42
r
Wc studied the various measures taken by the governments of the EU-15 countries. It was found out that there are several models for approaching CSR public policies. Every country has focused CSR on the most appropriate social or environment issues according to its historical trajectory, depending on the relationship that exists between business, government and civil society stakeholders. Today the drafting of CSR public policies by governments involves all social players - the public sector, the private sector, civil society, and even the intersections between them all - in multi-sectoral framework. CSR policies have been defined in some countries on the basis of social issues, thus allowing CSR to be incorporated into the national sustainability policy. This approach, which focuses on sustainability seems to have much in common with the environmentalist tradition - "green" debate - and brings social issues under the_ concept of sustainable development. In contrast elsewhere, the approach to CSR is more closely linked with the business-society tradition and the relationship between these social players and
.
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policies of collective bargaining. We believe that one of the advancements that should be made over the coming years is to begin to elucidate this tension between "the social" and "the sustainable "when we talk of CSR. Each country defines CSR according to. its economic context and its historical tradition. Therefore, the drafting and desicn of a posture with regard to CSR is not just a conceptual matter but a political option. Most research published on CSR shows companies as driving social players that lead and shape the new strategies in this field. However, if CSR is regarded as an element that provides structure for a new model of social organization that reorients the social, economic, and environmental relationships of companies in globalized societies, then in reality CSR involves not only companies, as private agents, but all the social players: governments, businesses, and civil society stakeholders. In this new global context, CSR appears as a new framework in which to establish and organize all kinds of socioeconomic and environmental relationships. Using this approach, we can see that CSR introduces new lines along which the social players relate and interact. For this reason, ' our approach seeks to go beyond the controversy between legislation and voluntary compliance. In other words, to adopt a broader and less dualistic vision, we -.will have, worked on the basis of the relational approach.. In our opinion, this approach provides us with a better' understanding of the current debate on the welfare .state and opens up a wide spectrum of political alternatives for public decision-makers because we must not forget that., wheh;we,talk:.of public policies and CSR, we are talking not about mechanical solutions, but about political options and strategy, f V "
~'C6r^ra7ciS*^J?^îM/0>'trfGoo<i Governance-r .
:

TRUE OR F A L S E If the statement is true, write the word "TRUE"; i f otherwise, write the word. " F A L S E " , opposite the corresponding number. _JI 1- The vision of CSR is linked to sustainable economic growth, the competitiveness of the European economy, innovation and job creation. 2. Every country has focused CSR on the most appropriate^ social or environment issues according to its historical trajectory, depending on the relationship that exists between business, government and civil society stakeholders. 3. In Europe, the concept of CSR is linked to sustainability and governance. 4. CSR is rooted in different national frameworks and is modulated according to different social, cultural and economic traditions. 5. The treatment of CSR public policies has become progressively consolidated as an increasingly all-encompassing perspective that locates these policies within a social governance context and that rests on the growing importance given to the interrelationship between business, government and civil society as a basic element for the deyelopment of CSR. 6. The role of governments opened had a certain tendency to focus on the issue of the voluntary or mandatory nature of CSR. 7. The debate between voluntary compliance and legislation depends on how we understand CSR. 8. The role of governments focus on the issue of ; the voluntary or mandatory' nature of CSR 45
44~
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Chapter 3 Integration of Public Policies on Corporate Social Responsibility
a. b. c. d. e.
business leadership commitment transparency none of the above all of the above
Chapter 3
7. Starting point of CSR where law ends: a. efficiency b. competitiveness c. paying taxes d. none of the above e. all of the above 8. CSR is rooted in different national frameworks and is modulated according to social, cultural and economic traditions except: a. ethical issues b. environmental concerns c. social development issue. d. none of the above e. all of the above 9. Models advanced by Midttun that locates the development of CSR in the context of the changes taking place in the welfare state: a. the Keynesian Welfare State Model b. the Neo-liberal Model c the Embedded Relational CSR Model. d. none of the above e. all of the above
INTEGRA TION OF PUBLIC POLICIES ON CORPORATE SOCIAL RESPONSIBILITY

After this chapter, you should be able to: learn and describe the analytical framework of the different profiles of European governments in order to promote and develop CSR; and, > understand the interdisciplinary analytical framework from transversal theoretical elements of political science, public administration and CSR.
C O N T E N T OUTLINE
Introduction Integrating Different Approaches of Government Action on CSR Stage 1: Applying the CSR Matrix to Government Action Stage 2: Applying the Relational Governance Approach to the Analysis of CSR Public Policies Stage 3: Developing the Analytical Framework for Government Profiles of CSR. < Models of CSR Public Policies in Europe CSR Public Policies and the Welfare State Attachment to the Government Profile of CSR
Corporate Social Responsibility and Good Governance . 49
48
Chapter 3 Chapter .i Integration of Public Policies on Corporate Social Responsibility
Integration of Public Policies on Corporate Social Responsibility
INTRODUCTION
In this chapter, we describe the analytical framework that we have built in order to analyze and interpret the different profiles of European governments in order to promote and develop CSR. It is an interdisciplinary analytical framework from transversal theoretical'' elements of political science, public administration and CSR.
3.1
INTEGRATING DIFFERENT APPROACHES O F G O V E R N M E N T ACTION ON CSR
During the last decade, there is a continuously growing literature on governments and CSR. The literature tends to focus on the changing role of government promoting CSR. There are three main approaches in the analysis of government action on CSR, such as: 1. The first approach deals with the themes and instruments used by governments in their initiatives to promote CSR. This perspective analyzes the theme, policies and instruments that governments apply in order to promote and develop CSR. This approach can highlight the dichotomy between voluntary compliance and legislation that is often formulated when discussing government action to promote CSR. Nevertheless, it should be borne in mind that CSR can also be viewed in . relation to regulation in each of its different areas of application, health and safety at work, workers' rights, consumers' rights, socially responsible investment, policy of support for enterprise and SMEs, etc. But even when policy goes beyond regulation, in this approach, the focus is more on the construction of a
Corporate Social Responsibility and Good Governance^ 50
political agenda on the basis of those CSR themes that are considered to be most relevant. 2. The second approach deals with players and contexts. This perspective takes into account the relationship between the players involved and the interrelationships and co-responsibilities that are created to promote CSR in a globalized world. Furthermore, it incorporates the analysis of the milieu, the cultural context and the socioeconomic tradition of the country in which the government framework for CSR is developed. It analyzes the link between CSR policy and the socioeconomic tradition and key indicators. This approach considers the development of frameworks for the implementation of public policies, and also the government departments concerned. It also attaches importance to the issue of which players should be involved in developing CSR policy and what relations should be established between them. 3. The third approach deals with the relational and strategic aspects, by analyzing models for action on the basis of the conception and development of the discourse on'CSR and the design of strategic visions. In this approach, the functions of leadership are also very relevant. . Consequently, the construction of the anajyjicaljrarnewai^ comprised three distinct stages: Stage 1: Stage 2: Applying the CSR matrix to action. Applying the relational approach to the analysis of policies. Developing the analysis government profiles of CSR. government governance CSR public model . for
Stage 3:

:
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Integration of Public Policies on Corporate Social Responsibilit)
3.2
STAGE 1: APPLYING T H E CSR MATRIX T O G O V E R N M E N T A C T I O N
The CSR analysis model was developed by Vilanova (2003). This model includes six aspects: vision-missionvalues, stakeholders, works, the market, the environment, and accountability (see Figure 1.3: Conceptual Matrix of CSR). Our aim was to identify, using these conceptual matrix as our starting point, the themes and instruments that were incorporated into government action on CSR. This led us to make an aggregate list of themes and instruments developed by government in the field of CSR (see Table 3.1 below). ' Table 3.1 Themes and instruments applied by European governments in the field of CSR.
Themes 2. -y 3. 4. Enterprise policy Environmental policy and national strategies for sustainable development (sustainable planning) Consumer protection policy Trade policy Employee training policy Continuing education policies International cooperation policy Social policy and social cohesion/exclusion Employment policy, labor practices and rights, work-life balance Social dialogue, an inclusive labor market, social and vocational integration and unemployment Social clauses Renewal of socially and economically less-favored areas Social economy, entrepreneurs and small organizations Socially responsible investment and consumption, fair trade Business cases of good practice in CSR Action and involvement of businesses in the community (investment, partnership) SMEs and social responsibility
18. International action by business derealization (human rights, corruption, etc.) 19. Social action by business 20. Company restructuring 21. Human rights 22. Public procurement 23. Social responsibility of the public administration 24. Support for governments of developing countries regarding CSR (corruption) i 25. Sustainable tourism 26. The third sector and social volunteering INSTRUMENTS 1. Develop a favorable legal framework (SRI, pension funds, social labeling, etc.) 2. Develop favorable fiscal framework and financing instruments for companies 3. Promote CSR instruments (social labeling and indexes) and reporting methodologies (GR1 or sustainability reports) 4. Promote management measures and tools rewarding action bycompanies (awards) 5. Apply EU legislation on CSR and sustainability 6. Apply and promote international instruments and agreements on CSR (OECD. ILO, Global Compact) 7. Participate in international summits and European conferences on CSR 8. Promote transparency and exchange best practices 9. Promote, create and supervise evaluation and accountability mechanisms 10. Promote, verification and certification mechanisms 11. Support financially and participate in public-private-civil society partnership 12. Generate mechanisms far credit by companies, community investment or tax relief for socially responsible companies 13. Carry out public campaigns promoting CSR and public awards and recognition 14. Create or facilitate the creation of multi-stockholder forums, financing for CSR organizations and business networks 15. Create public departments or posts in charge of CSR and interministerial programs 16. Favor ' sustainable market development and sustainable competitiveness 17. Leadership by example (internal CSR policies) Source: Albareda and Ysa. ESADE Corporate Social Responsibility and Good Governance 53
5.
6. 7. 8. 9. 10. 11. -12. 13. 14. 15. 16. 17.
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3.3
S T A G E 2: APPLYING T H E RELATIONAL GOVERNANCE APPROACH T O T H E ANALYSIS OF CSR PUBLIC POLICIES
It is a matter of applying the principle of subsidiarity to the
new public service.

It is concluded that the welfare of the community is derived from each sector assuming its responsibilities, but they find that present social challenges, the globalization and internationalization of the economy and the crisis of the welfare state have resulted in the players having less capacity to solve social problems separately. The relational model set forth the idea that only if responsibilities are shared in the areas of common interest, assuming the active collaboration of all social players, society itself and enterprise, in collaboration with state, can today's social and environmental challenges be met. It is a case of articulating "joint projects" in which the two parties reach an agreement on the objective to pursue, contributes resources to that end, and therefore assume responsibility for the outcome (see Figure 3.1). The criterion of allocating tasks and responsibilities is not established on the basis of the public or private nature of the organizations takfng part, but rather on the basis of their ability to meet a particular social need most appropriately and effectively. In this pluralistic context, in which hierarchical control is not possible and contestation and criticism are legitimate, what stimulates civil society and the private sector to collaborate with the state is the degree of coincidence in the objectives of a particular public policy and how it is implemented. These areas of intersection between sectors require collaboration initiatives and shared projects. In the framework of the relationship between the state and society, it is a matter of carrying out common projects, in which all the public - provide the resources available to each sector, implement them jointly and take joint
-54 Corporate Social Responsibility and Good Governance .. 55
The methodology of the relational model was initially developed by Mendoza (1991-1996). The concept of the "relational state" wants to focus on the new role of the statein advanced societies in confronting the crisis of the welfare state in the face of globalization and the internalization of the economy. The relational state locates the relations between the public and private sphere between the state and society in the field of coresponsibility (Mciulo/.a, l'M6): I he icrm co responsibility involves firstly the existences of common objectives, secondly the assuming of specific responsibilities for their attainment, and thirdly the effective articulation of the responsibilities taken on by each party. Posing the relationship between the state and society in terms of co-responsibility thus, means abandoning the mistrust that characterized the welfare state and replacing it with a determined attitude of dialogue and cooperation. Consequently, in the relational state, collective interest cease to be regarded as the exclusive property of the state, and the participation of society-primarily through nonprofit associations and organizations-becomes something not only desirable but also legitimate. This means 'generating attitudes and mechanisms of dialogue, cooperation and partnership between the public administration and a participative society chiefly through associations and NGOs.
- -
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responsibility for the results. This co-responsibility takes the form of joint projects between the state, civil society and the private sector with appearance of shared areas of dialogue, public-private partnership (PPP) projects and conflict resolution networks.
policy we have to address the issue of the social players involved. From this relational perspective, the possible CSR public policies are no longer limited to one single area, that of one-way action from the government to the business world. Moreover, four (4) areas appear in which the uptake of CSR-related public policies maybe relevant. In fact, the CSR public policies adopted by governments are directed to some degree at one or other of these interrelations (see Figure 3.2). The further they can extend cooperation and synergies in the areas of intersection, the greater the chances of success in implementing C S R policies, as they will Jiave been formulated in a shared way and the greater the likelihood that the various players will assume the commitments and the underlying approach. By applying the relational model of CSR policies, it is possible to reorder the material generated by identifying themes and instruments, and so we can systematize C S R public policies taking into account the players involved (see Figure 3.2 and the attachment in Table 3.3). This constitutes a richer approach than that which focuses solely on themes and instruments, as it incorporates the complexity of the interrelations among social players.
Figure 3.1 Areas of Responsibility in the Relational State

Source: Mendoza, 1991
In this application framework for the relational model we adopt an approach that explicitly includes players and thencontexts. Consequently, in order to design a CSR public
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;"
Chapter 3
. '..

.
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C.. -
j! How does the relational model overcome the legislation voluntary'compliance dichotomy?
v e r s u s
3.4
- i First, from the relational perspective, legislation on CSR can onlv cover a very narrow range of the spectrum of possible policies. Legislation affects some of the political measures on CSR that have been taken by governments and are to be found mainly within the relationship between government and business. In fact, if we analyze the action of European governments, regulations favorable to CSR in the framework of relations between government and business are only a small percentage of the measures taken by the former. Among the measures that have been . incorporated through regulatory framework-mostly in connection with the transparency of business practices, we find: regulations favorable to SRI in pension and -investment funds, regulations that either encourage or . . . \ oblige listed companies to publish sustainability reports, the introduction of social labelling, a regulatory framework ' for public procurement, and the inclusion of CSR clauses in some commercial codes. Second, we see that the dichotomy between legislation and voluntary compliance is overcome when we observe that the regulations on CSR that can affect companies in the present economic framework come not only from governments but also from other agents such as, international chambers of commerce, certain international organizations (OECD, ILO), sectoral business associations, or self-regulation by the companies themselves or business sectors. Third, self-regulation may appear as a result of agreements among the various players, without taking' the form of legislation."'
STAGE 3: DEVELOPING THE ANALYTICAL FRAMEWORK FOR GOVERNMENT PROFILES OF CSR
In applying the relational model to CSR public policies, we can gain an overview of government action, taking into account the players involved and their contexts. This enables us to draw up a profile for government analysis, built on the basis of the planning of CSR policies according to the players involved. The important thing here is to have a key to interpret political models through the analysis of government strategies on CSR. In this connection, there is a pattern for analysis that accounts for how CSR policy is inserted into the government structure and the framework of public policies. This enabled us to analyze the following: 1. The profiles and models of action adopted by governments 2. Actions and public policies 3. The discourses devised by governments on the concept of CSR, considering the dissemination, the means and the organizations used 4. The incorporation of CSR into the governmental structure In other words, there is an index for analyzing CSR policies that takes into account the fundamental elements for the construction and implementation of C S R strategies (see table 3.2): 1. Government CSR policy: Vision, mission and objectives; strategies and priorities, origin of the political discourses chronological evolution of the policy
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Table 3.2 Index for Analyzing Government Action on C S R COUNTRY: ISSUE 1 Government CSR Policy 2 Internal Government CSR Structure 3 CSR Responsibility at different levels of government 4. Scope of CSR policy IMPLEMENTA TION Vision, objectives, strategies and priorities Origin of the discourse chronological evolution Position of political figure Organizational structure centralized or Decentralized Cross-cutting policies Regional/decentralized government Local government Domestic vs. International Cross-sector or Sector-oriented Centralized or decentralized Government agencies Intermediary organizations Multi-stakeholder organizations International organizations
5 CSR role of oilier organizations

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6. Players 7. Environmental context (Socioeconomic, political tradition) 8. Welfare state evolution Sources: Ysa and Albareda, F.SADE Corporate Social Responsibility and Good Governance
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We have classified government policies and programs according to the rational model. From this perspective, the thematic and instrumental approach is totally integrated into a relational and strategic approach. These stages that we have gone through in our analysis enable us to identify clearly the fundamental aspects of the political debate on the development of CSR: 1. The debate on the themes and instruments inherent in a CSR policy 2. The debate on which players should participate in the design of a CSR policy, how they should be involved in . their process and the interest of each o f them in the process - -.-' 3. The debate on how CSR should he understood (and the policy that matches it best), considering the economic, social and cultural context of each country.
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3.5
MODELS OF CSR PUBLIC POLICIES IN EUROPE
The application of this relational and strategic approach enabled us to analyze government initiative on the basis of the coincident profiles that we devised. This analysis concluded with the identification in the EU-15 countries of four ideal typology of models of CSR governmental action in the area of the development of public policies for promoting CSR (see Table 3.3) The Partnership Model This model "groups together the countries of northern Europe and takes into account their approach to CSR public policies. Included in this classification are Denmark, Finland, the Netherlands and Sweden. In these countries with a strong welfare state tradition, the governments have gone from acting as.a protecting state, taking responsibility for social issues, to adopting a more facilitating role, sharing the rising costs of solving social issues through public and private partnerships. They are countries with a historical tradition of social negotiation in which the relationship between government and enterprise has a strong component of cooperation. CSR public policies are formulated within the framework of social affairs and integration into society and employment. Local government is intensely involved, channeling the creation of partnership and thus, fostering the concept of social co-responsibility among administrations, companies and social organizations.
.. . yy would like to stress that these three debates are not ; mutually inclusive. In fact, it is possible and desirable to " " conduct them in an integrated fashion. But it is important to " note that each of them stands alone, with its own logic, criteria and priorities. Therefore, the debate on public policies and CSR may, likewise, be difficult to piece . together and to solve when interlocutors focus on their own aspect of the three debates, to the exclusion of those of the others. And all the more so, when the various players involved do not coincide in the priorities of their respective agenda and/or do not share some basic element in their respective" ways of understanding CSR.
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Table 3.3 Models of Government Action in the Development of Public Policies for Endorsing CSR in the ELM 5 Model 1 Characteristics | Countries Partnership as a 1. Partnership | Denmark. shared strategy Finland. The among sectors for Netherlands, Sweden meeting socioemployment challences 2. Business in the Soft intervention Ireland, The Community policies to United Kingdom encourage company involvement in governance challenges affecting the community (entrepreneurship and voluntary service) 3. Sustainability and Citizenship Updated version of the existing social agreement and emphasis on a strategy of sustainable development Regulatory creation of discussion groups for the different social actors to achieve public consensus on CSR Austria, Belgium, Germany, Luxembourg
The Business in the Community Model This model refers to the Anglo-Saxon countries: Ireland and the U K . In these countries, government action is conceived more as a facilitating or mediating element. Government initiatives in the CSR framework focus on supporting the private sector and facilitating sustainable economic development and the economic regeneration on which the collaboration of the private sector rests. These countries seek to solve social problems, such as, unemployment and social exclusion through CSR policies that involve businesses. This is a response to crises of social governance, whereby governments attempt to promote areas of co-responsibility. The governments have employed soft intervention policies to apply CSR measures. The Sustainability and Citizenship Model This is the models that prevail in continental Europe, such as: Austria, Belgium, France, Germany and Luxembourg in this group. This group was divided into two models: The Citizenship Sub-model, which comprises Austria. Belgium, Germany and Luxembourg, and the Regulatory Sub-model, which consist of France. The governments of these countries took on CSR around the time of the publication of the Green Paper by the European Commission. Their initial vision of CSR focuses generically on encouraging enterprise to play an active role in policies grouped under sustainable development strategies. The idea is to generate businesses that also work for a sustainable future in. the countries where they operate. In this way, CSR also incorporates issues linked to enterprise as a creator of social capita: working conditions and standards, worker participation in community issues, the contribution of business to the community and economic development the
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Source: Albareda, Ysa and Lozano, ESADE Corporate Social Responsibility and Good Governance
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solution of social problems and lack of jobs, international action by businesses, new technologies and equal opportunities. The countries that follow this model have a long tradition of social and workers rights and a historical background of dialogue between trade unions and companies. Thus businesses act in a highly developed legal and tax framework with a very clear guarantee of social rights, as a driving force for the social and economic development of society. Businesses are expected to adopt the role of citizens, with the duties and rights it entails. The Agora Model This model refers to the Mediterranean countries: Greece, Italy, Portugal and Spain. They are all countries that have taken on CSR recently. It was the action of the European Commission that drove the government development of CSR in these countries, as none of them took part in the debate opened by the European Commission, nor did they respond to the Green Paper. Most of these governments are currently engaged in developing and designing public strategies and policies for CSR. They are still at an incipient stage. However, the process of drafting their national strategies is characterized by the creation of committees in a multi-stakeholder forum or working groups. There is a perspective of multistakeholder participation in public deliberation before and in parallel to the development of frameworks for government action. This deliberation is impelled by the government, although several social players participate in i t ' W e have called this the Agora model because in the Mediterranean countries the discussion on the political application of CSR arises from discussion processes in which the government invites companies and other social
players (business organizations, universities, trade unions, etc.) to debate on the action to be taken.
3.6
CSR PUBLIC POLICIES AND THE WELFARE STATE
In the development of public policies on CSR, the social, cultural and political context of each country is of paramount importance. The models of public policies and CSR that we have outlined above corroborate this. Those readers who are familiar with the literature on the development of the welfare state in Europe will have detected similarities between the models of public policies and CSR that we have identified and the divisions, that are usually made when analyzing the different forms and experiences of the welfare state. This parallelism is not surprising, especially if we take a close look at the path followed by the European Commission's proposals in the development of CSR policies. An in-depth study of the relationship between CSR public policy models and welfare state development models remains to be conducted. Wc consider such a study to be very necessary, and not for historical or academic reasons. Getting the right approach to CSR public policies will in the long run be a fundamental element and symptoms of the debate on the redefinition of the welfare state.
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3.7
ATTACHMENT TO T H E G O V E R N M E N T PROFILE O F CSR

Programs
Classification of Government Policies and According to the Relational Approach. Towards the Suppliers
the areas where they operate. Proper regard to the environmental and social consequences of the business must be made, with' special attention to the duty of renewing resources where possible and not sacrificing safety and efficiency for short-term profitability. The Businessmen and the Code An important element in the Code concerns the important understanding of the key role of the businessman and/or the professional manager in the success of all endeavors. As is widely recognized elsewhere in the world today, the entrepreneur and the manager are the prime movers of development. It is true that economic growth depends upon the availability of capital, natural resources and labor, but these factors do not work in a vacuum nor by themselves produce results. They become productive only within organizations that are run by astute businessmen and managers. The Code recognizes this and has in fact been formulated on the basic premise that the modern manager is the strategist for human development. Moreover, the Code recognizes that ultimately, all business is essentially an expression of human relationships and that therefore the man or woman who brings all of these relationships together towards a common end must be guided by humanist, ethical principles in his actuations. The Code, therefore, devotes a section to such principles for the professional manager. Using the Code The Code seeks also to be pragmatic and not merely conceptual. Hence it includes a section outlining three simple stepsa way to use the Code. These steps hold true
Business must ensure that terms of contracts with suppliers be clearly stated and honored in full. The abuse of economic power especially in dealing with smaller firms must also be avoided. Towards the Owners and Other Providers of Capital Owners and providers of capital must be provided an adequate return on their capital to ensure the security of ' their investments. Hence, business must utilize the financial resources of the providers of capital with responsibility and efficiency. Towards the Local and National Government While it is agreed that the responsibility of government is to. enact legislation and formulate implementing policies and programs, it is the duty of business to involve itself in the discussion of proposed legislation and to propose sound policies in the use of human and material resources. Towards Society in General Realizing that business utilizes an important degree of the nation's resources, it is the duty of business to make sure that the resources are deployed in such a manner which will benefit society in general and which does not conflict with the needs and reasonable aspirations of the communities in
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for any enterprise regardless of size, whether public or private, whether a proprietorship, partnership or a corporation. The first recommended step would involve the examination, understanding and acceptance of the Code by the policy makers in the enterprise. Assuming acceptance, the Code would then be adopted officially, as is or with suitable modifications, as being a fundamental aspect of the operations of the firm and its principles should therefore be disseminated to all employees. As the Code dwells on basic principles and cannot cover or anticipate every possible situation not sufficiently specific to guide the individual at every instance, the next step involves the development by policy makers of detailed guidelines and policies for use by their employees. The B B C has plans to organize workshops which interested officers of any enterprise may attend and participate in with the objective of formulating specific guidelines. The last step necessarily involves an evaluation and regular audit of the implementation of the Code and the attendant set of specific policies and guidelines. The Code recommends this as possibly an annual procedure which serves to ensure adherence as well as to appraise performance of the firm as a whole, its key officers and its employees.
business and its role in society especially with respect to the issue of its social responsibility. This has arisen because of the tremendous impact business has wielded and will continue to wield in human society. There has therefore been keener awareness that greater economic size and larger spheres of influence by business should beget a commensurate degree of responsibility. The kinds, extent and impact business wields in society determine the nature and extent of demands a society makes on business. For developing societies, therefore, business must make its choices as to the kind and quality of impact it should bring.to its communities precisely because of the fact that its communities are still developing and provide it with wider latitude for such choices. As the current thinking on development is that its end is the upliftment of man's dignity, so should the end of business be. This is the essential and ultimate and, hence, social responsibility of business, and this responsibility can be understood and undertaken more clearly and meaningfully in terms of three components. These are the areas under which business ethics fall. The first involves the straightforward pursuit of daily business operations in an efficient and profitable way to ensure that the firm continues to perform its function of providing goods and services through the resources society yields for its use. The second aspect has to do with the morally and socially responsible way the business follows in pursuit of profit. The third component involves whatever laudable initiatives the business may engage in over and above the requirements of the first two aspects in the enlightened belief that any effort made to enhance the quality of life of
3.7
SUMMARY
In conclusion, the major points developed in this chapter are summarized below. ' v.'.?-* ' ^ f c ^ W - f i > .-i. . v^'' -S v, Firstly, there has been a trend worldwide, including the Philippines, J o wards rethinking, of the _ Philosophy, of
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society ultimately redounds to the preservation of the firms own interests. The important features of the B B C Code of Ethics for Business were also discussed as a way of embodying these philosophies and the principles that - should guide businesses in making the ideal of human dignity a reality. The implementation of the Code is something that takes time to realize, but as its use in small but meaningful efforts becomes widespread, it will hopefully lead to. its basic premise that through the application of its principles, a truly human development will prosper in our society and with it greater prosperity and well-being for our people will be attained. Relationship of Business to its Publics Over the many years it has existed, the nature and structure of business organizations have evolved, at certain points, _ very dramatically. Along with the evolution of its nature and structure also evolved its relationship with what we may call its "publics", groups of people and/or organizations it deals with in the conduct of business. Since the early 1900s, a view of these relationship and the attendant rights and privileges, obligations and duties have remained relatively stable, unquestioned as the "guideposts" for "appropriate", "proper", "right", and even "ethical", business conduct. That they were seen to be the products of an evolutionary process reinforces the belief that they are superior to forms they succeeded. That they are products of an evolutionary process not separate from the evolution of men and the various social forms he lives within may point to strengths as well as flaws.
Corporate Social'Responsibility and GoodGovernance 74
What are these relationships that now guide business relationships with their perceived publics?
Figure 3.4 Relationship of Business Organization to its Special Publics Source: Aquino, Rosemarie (1981). Perspective on the Social Responsibility of Business. "Prestige" is associated with a company's reputation as an earner and as a leader in its industry in particular and of the business sector in general. It is typically associated with such measures as profitability, sales volume, earnings per share, value of each share, and a number of other wellknown financial measures.
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Through the years, the group of people called workers has been divided into two distinct groups, one retaining the original name of "worker", i.e. labor, and the other termed the "Professional Manager". The Professional Manager is perceived as essentially providing managerial expertise and leadership, and his or her rewards may, in fact, include ownership by way of being given stock options or what is commonly called "a piece of the action". The relationship between the business enterprise and its customers carries a number of seldom explicitly stated but nonetheless existent expectations. It is often assumed that businesses operate in a free market economy where such a consumer has genuine alternatives in sourcing a desired commodity or service. It is further assumed that when a consumer decides to purchase or source goods and/or services from a particular outlet, he does so because he has decided that such outlet presents to him the most advantageous exchange of values, i.e., his money for the supplier goods. A series of exchanges will typically forge bonds other than the purely business transaction. Regular buyers unconsciously begin to expect preferential treatment, e.g., the ability to be given first preferences in being allowed to choose, or in being allotted a regular share (in the case of regularly purchased goods). The expectations may also include credit accommodations. In like manner, the seller develops a complementary set of expectations. He would wish for the customer to "try him out first in every purchase before he decides to buy elsewhere". In many instances where he raises his price, he may even expect his customers not to change suppliers in the name of. all the past favors he has given, at least not to take their business away suddenly and totally.
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For both parties, while it is not often stated, some degree of reliability in meeting payments on time is expected. From government is expected "infrastructure", a term that covers "soft infrastructure", such as laws, ordinances, rules and regulations, and services, and "hard infrastructure", divided into "horizontal construction", i.e. roads, bridges, piers, and "vertical constructions", i.e. power towers, buildings, etc. Despite what we know to be common practice, it seems that the original assumptions have been that what government should expect from the citizenry is prompt and proper payment oS the necessary taxes, tariffs and other fees, based on all incomes, needed to enable government to provide the infrastructure. What is considered proper behavior is that each 'actor' in this scheme lives up to mutually agreed upon exchanges and agreements, because it is by observing the proper exchanges of values that the relationships will go on smoothly and benefit all. Another matter that has been covered by assumptions is the matter of profits.'Almost everyone grants the right and privilege of businesses to make profits on their dealings. Most Calvinists view profit as God's reward for doing a job well, a more moderate stand is that of Lord Keynes who views "normal" profits as also being a reward, presumably as it remains "normal". The problem of course is that the Father of Formal Macro Economics somehow forgot to mention what constitutes "normal." C. Northcote Parkinson (yes, of Parkinson's law) states that profits can be viewed as "insurance premiums to pay for future costs of running a business". It is his contention, a
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contention supported by many businessmen, and even many of the critics of business, that a business can only benefit people if it remains on its feet. Profitability is what allows this.
7

TRUE OR FALSE If the statement is true, write the word " T R U E " : if otherwise, write the word, " F A L S E " , opposite the corresponding number. r .1. "Prestige" is associated with a company's reputation as an earner and as a leader in its industry in particular and of the business sector in general. .2. The Professional Manager is perceived as essentially providing managerial expertise and leadership, and his or her rewards may. in fact, include ownership by way of being given stock options or what is commonly called "a piece of the action". _3. The criterion of allocating tasks and responsibilities is not established on the basis of the public or private nature of the organizations taking part, but rather on the basis of their ability to meet a particular social need most appropriately and effectively. _4. The term co-responsibility involves firstly the existences of common objectives, secondly the assuming of specific responsibilities for their attainment, and thirdly the effective articulation of the responsibilities taken on by each party. _5. There is a pattern for analysis that accounts for how CSR policy is inserted into the government structure and the framework of public policies. T _6. Regular buyers unconsciously expect preferential treatment, e.g., the ability to be given first preferences in being allowed to
PROBLEMS From the 50s on to the 60s and the 70s, the years termed 'by the United Nations as the "Development Decades", a growing awareness of issues, and perhaps a keener perception of certain realities, brought out questions regarding what really constituted the proper relationships of business environment and the various publics within it. One issue raised has been. "Are the original five publics the only publics business must address itself to?" There has been much agitation towards an enlargement of the number of publics business must take account of or must account to, as well as an increase in the number of questions it must address with regards these relationships. For example, "What relationship other than those stipulated does a business enterprise lease to the community (at large) in which it is situated?" Or, "Is it not that through the years there has been a growing.discrimination in the treatment of ordinary laborers as contrasted to professional managers, instead of treating both as one category of people? .' More questions are being asked of business for which there seem-to be no ready answers. Some cases and write-ups '. serve to. illustrate the emerging dimensions of these new concerns. '
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sales volume high employee rum over rate none of the above all of the above
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7. So called because in the Mediterranean countries the discussion on the political application of CSR arises from discussion processes in which the government invites companies and other social players to debate on the action to be taken: a. Agora b. Partnership c. Business in the community d. None of the above e. All of the above 8. So called because in the Mediterranean countries the discussion on the political application of CSR arises from discussion processes in which the government - i f - v'. invites companies and other social players to debate on the action to be taken: a. Agora Model b. Partnership Model c. Relational Model d. None of the above ' ;'e; A l l of the above i ?. Focus on the new role of the state in advanced societies ip confronting the crisis of the welfare state in the face of globalization and the internalization of the economy ' in the field of co-responsibility: ""ai^ Agora Model " : : b . Partnership Model - c. Relational Model d. None of the above e. All'of the above
; v ; v
THE CORPORA TE IMA GE: AN EXPRESSION OF CHANGING RESPONSIBILITIES By Warren H. Brockmann

After this chapter, you should be able to: learn the definitions and applications of corporate social responsibility; and, understand and appreciate the CSR framework.
C O N T E N T OUTLINE
Introduction Corporate Images for Corporate "Publics" The Corporate Image for Employees The Corporate Image for the Trade The Corporate Image for the Local Community The Corporate Image for Government The Corporate Image for the Investing Community Corporate Image Measurement Conclusion
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INTRODUCTION
The corporate image exists in the minds of people. It is a loose structure of knowledge, belief, and feeling. It may be vague or clear, weak or strong It differs from person to person, from company to company- In pan-it is based on facts and figures, such as a company's sales volume, its product activities, the amount of its profits, the price of its stock, the location of its plants, and so forth. Additionally, it is rooted in a variety of social attitudes and value systems which people carry in their minds. The corporate image, then, may be defined as a composite of knowledge, feelings, ideas, and beliefs associated with a company as a result of the totality of its activities. United States corporations have invested huge sums of money to project their unique characters or personalities to the American public in an effort to show dramatically that they are more than organizations to produce goods and services. This effort on the part of large corporations to project a favorable image to the public has only come into prominence during the last two decades. Initially, before the huge corporations came upon the scene, most products carried the owner's or the company's name. Most of the advertising of products consisted of a picture of the factory, or of the company's founder, and an 'institutional" message indicating that the product was superior because the particular manufacturer was responsible for producing it. As the tempo of marketing increased, as products multiplied, it became important for names to stand out clearly and be easily and quickly pronounceable and identifiable. In response to this, brand names replaced those of men oi even companies. During the depression of the 1930's, when established values and loyalties were being corroded, many
manufacturers abandoned personal or company names completely and promoted their products and their brands with no attempt to identify them with the company that produced them. It was felt that the consumer cared nothing about the institution behind the product as long as the product itself and the price were satisfactory. Promoting of corporate images reached a low point during the 1930's. During the past twenty years there has been an increasing tendency to tie prominent brands to a corporate identity. This reversal quickened during World War II when producers who were making war materials sought to maintain their reputation in the marketplace although no longer producing consumer goods. The development of corporate images during the past two decades was furthered by the growth of great industrial complexes. Businesses have sought diversification and have merged with other companies. This process and advanced technology have resulted in fewer differences between competitors of competitive products. With competing products also often becoming nearly identical, many companies - particularly in the consumer goods field - have felt that the product itself is a relatively minor factor in sales and that outside factors such as the reputation and integrity of its producer may frequently be decisive. Finally, the emergence of the super-corporation has created social and sociological problems related to their size and complexity rather than simply to the selling of their products. Because of these problems, super-corporations have felt a considerable need lot projecting their image favorably to various ['.roups in the population, to stockholders and investors, legislators, civic leaders, labor, college and high school students who may be induced to work for them, educators, engineers, and a host of others in
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addition to those directly concerned with recommending or buying or using their products. This paper is one of a group investigating the following hypothesis: "Corporate management is increasingly required to justify itself in terms of due process of law rather than by an appeal to the market. The corporation in modem society evidences integration of the democratic processes hitherto reserved for politics with the private decisions hitherto reserved for economic life." The particular purpose of this paper is to evaluate the increased effort being directed toward building a corporate image and to attempt to determine whether this is an indication of the modem corporation's acceptance of moral responsibility beyond the profit motive. We should leam something of what motivates and controls corporate behavior from what corporations themselves try to tell the world about corporate responsibilities. The first section of this paper will evaluate the various corporation "publics" and suggest how a favorable corporate image can influence each of these groups. Then an attempt will be made to determine whether the increased attention being paid to these intangible images by corporations is an indication of increased moral responsibility, responsibility beyond the profit motive. In the second section, I will describe the development of measurement systems designed specifically for the purpose of providing management with a precise knowledge of a corporation's personality. In this connection, an attempt again will be made to determine whether this development suggests growing responsibility to social forces other than the market.
The final section will summarize my findings and state any general conclusions which can be drawn from this research.
4.1
C O R P O R A T E IMAGES FOR C O R P O R A T E "PUBLICS"
Peter Drucker sees the essence and purpose of the corporation "not in its economic performance or in its forma! rules, but in the human relationships both between the members of the corporation and between the corporation and the citizens outside of it." The modem corporation is an instrument for conducting a profitable business enterprise through the pooling of venture capital. Stress on this fact argues that the Board of Directors' prime responsibility is to return a profit on the investment, that all other responsibilities are purely secondary. In a now famous debate between the late Professor E. Merrick Dodd and Professor A. A. Berle over twenty years ago. Berle did argue that corporate powers were powers in trust for stockholders. Dodd insisted, however, that these powers were held in trust for the entire community. And in "The ' 20th Century Capitalist Revolution," Berle conceded that Professor Dodd had won the argument. Berle does not admit that Dodd was right all along, but concedes that social fact and judicial decisions made Dodd's version a reality. Looking at Dodd's argument, we find that he was talking about the trends of public opinion of that period as they affected the law of corporations. Dodd stated that lawyers had assumed that corporate managers must conduct tIncorporate institution with single-minded devotion to stockholder profit. That assumption, he said, was based on
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"a particular view of business as a purely private enterprise." He went on to say: If we recognize that the attitude'of law and public opinion toward business is changing, we may then properly modify ideas as to the nature of such a business institution as the corporation and hence as to the considerations which may properly influence the conduct of those who direct its activities. [Public opinion], which ultimately makes law, has made, and is making today, substantial strides in the direction of a view of the business corporation as an economic institution which has a social service as well as a profit-making function. . . Business is permitted and encouraged by the law primarily because it is of service to the community rather than because it. is a source of profit to the owners.
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nature of the ethical statement and the size and industry classification of the firm Results showed that statements with some ethical content were found in fifty-two of the 219 reports. The fifty-two reports, in turn, contained 121 statements of moral responsibilities. These statements were classified according to the public toward which they acknowledged some responsibility. A tabulation showed the following: Number Group Number of Firms of Statements General Public Customers Employees Stockholders Unclassified 27 27 31 14 __2 101 40 34 31 14 _2 121
Dodd's argument was not that social responsibilities of the corporation had replaced its responsibilities to the shareholder but rather that profit making and social service go hand in hand. The modem corporation in recent decades has increasingly been urged to adopt broader, more socially responsible goals The reaction has been positive, even i f only to indicate increased management interest in motives other than the profit motive That the annual report to the stockholders, for example, has not remained unchanged by this trend toward increased emphasis on ethical standards and public service is shown by a recent study by the Florida State University, School of Business of the measure of ethical content of annual reports to stockholders. A sample ol 219 reports of large corporations was inspected and the ethical statements in each were tabulated according to the
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Some typical ethical statements found in these annual reports may be summed up as follows: 1. Concern for the customer was evidenced in promises to provide quality goods at low cost, improved goods and services through technology, and honest and intelligent service 2. Responsibility to the stockholders was acknowledged in statements delineating corporate management's position as a steward or trustee of company resources so that stockholders might be afforded a "fair" return on investment 3. Management in numerous companies acknowledged in various ways their surveyed particular 89
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responsibility to employees. For example, Macy's declared that it has long recognized that the excellence of its operation results from the skill and care which all of its employees bring to their work and that, accordingly, management places major emphasis on fair treatment of Macy's people - in terms of compensation, working conditions, employee benefit programs, recognition of individual excellence, and encouragement of individual growth and advancement 4. Most Companies are very community conscious and attempt to project their image of "good citizens" to their . neighbors. In the words of General Motors Corporation. "To be a good neighbor and a good citizen, both in plant communities and on the national scene, is an 5.-sr.v.< important responsibility of a well-managed enterprise." iThe Lentz and Tschirgi study did not purport to measure K he reasons for inclusion of such statements in the annual SRreport. The data simply showed sufficient company interest in questions of business ethics to include them in reports traditionally intended to portray the profit position of the company to its owners. The results of this study would seem to indicate acceptance of responsibility beyond the , .-profit motive and a general belief that stockholders ûnderstand the propriety of accepting such responsibility.
have their image in the minds of employees develop along certain lines they deem desirable. The creation of the employees' image of the corporation is top management's responsibility. The task presumably is not an easy one. To produce a set of principles, guides, or beliefs from which an image can be developed takes considerable time and thought. It should be sufficiently clear and firm to provide a suitable and comfortable framework in which to work, but not so specific as to become obsolete tomorrow. Management's growing interest in creating for employees an image showing a corporate sense of social responsibility and responsibility toward the employees themselves is evidenced in its credos or "we believes." A company can give convincing proof that it accepts broad responsibilities to its employees by practicing what it preaches in its credo. An example of such a credo, one used by Johnson & Johnson is appended as Exhibit 1.11 In it, Johnson & Johnson acknowledges five responsibilities. Johnson & Johnson lists first its responsibility to its customers, which itself modifies the conventional code of responsibility to stockholders. Moreover, the second responsibility is said to be that to employees. This is a dramatic expression of a commitment to due process, to non-market morality, and the broad outline of this credo is actually translated into operating reality. For instance, the reference to opportunity for advancement is repeated at least twice in Johnson & Johnson's standard booklet on personnel practices. One practice deals with the promotion of employees while the second deals with financial assistance for education. During the past few decades the whole conception of an employee has undergone dramatic change. In place of a "labor is a commodity" concept there is now reliance upon
feTHE C O R P O R A T E I M A G E FOR ÊMPLOYEES

'Employees of any organization have an image of that
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- ^ K & l l " 8 Simply the facUhaFpSople i eans they have some thoughts 3ces where, they work and the products or servicesîch'they produce. Corporations seem anxious to
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the more recent "welfare" concept in labor relations, Richard A . Lester contrasts these concepts by indicating that, until World War I, corporate management regarded labor as a commodity, in line with classical theory and the view of the matter underlying the philosophy of F. W. Taylor's "scientific management." Employment was a short-run business transaction. As a result of union activities and the growth of socially responsible professional management, there has developed the idea of employment as a work-life attachment to a firm. This is part of the image large corporations try to project to their employees.
philosophy and these principles flow down from the top and. hopefully, are projected by the salesmen. In a 1959 survey by McGraw-Hill Research, over 1,000 salesmen of machinery and equipment were asked to check what factors they felt were most important in selling. The second most important factor mentioned by eighty-five per cent of the salesmen, was "seller's integrity and reputation." Also cited was a similar study conducted among salesmen of chemicals and raw materials which yielded almost identical results. Assuming that salesmen fashion and reflect corporate philosophy and principles, it would seem that corporations are aware of the importance of moral factors demanding responsibility beyond those imposed by profit motive. Image building has become a very important concept in trade relations. It plays an important part in building longlasting loyalty towards a company and its products. More and more companies are marketing their products under one name, as for example, General Electric, or The Borden Company, or Westinghousc. with advertising primarily geared to creating a corporate image with which the distributors are associated. The essence of the corporate image sought seems to involve recognition and reputation. Nothing will build dealer loyalty and support more than an image which tells the distributors" customers: "Look, this is the kind of company we keep company with; you can, therefore, trust us and trust our merchandise." The emphasis on the importance of projecting a favorable character to customers may be overdone, witness General Electric's experience connected with the 1960 antitrust scandal. Despite the adverse publicity'connected with the antitrust violations, sales continued to increase. Apparently, the reputation of the company's products overshadowed
4.3
THE CORPORATE IMAGE FOR THE TRADE
In our complex modem society, personal contact between suppliers and buyers has all but been obliterated. The corporate image that the trade sees and thinks it knows comas from opinions they have of a corporation's salesmen, advertising, sales or trade policies, and the corporate trade mark. Let us examine these company-image communications to appraise whether they evidence increased concern by the corporation about moral responsibility beyond the profit motive. The contact between a manufacturing company and the middlemen who distribute that company's products is in an overwhelming number of cases the company's salesman. The chief responsibility for these personal relationships of a company,- therefore, rests with the salesman. The responsibility for selecting the right representative rests squarely with the manufacturer, who must select the type and kind of people he wants to represent the company and present the company's philosophy and principles. This :;,. 92
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reflections on the integrity and honesty features of their corporate image. Large corporations are concerned, nevertheless, to stress social responsibility in the face they present to dealers.
4.4
T H E C O R P O R A T E IMAGE FOR T H E L O C A L COMMUNITY
Since the end of World War II, the importance of establishing a company's reputation as a "good citizen" of the community has become increasingly evident. Benefits which presumably accrue to corporations when good relations are established are: 1. 2. 3. 4. 5. The recruitment of better workers. The reduction of turnover and absenteeism. The improvement of job satisfaction and morale. Increased sales. The creation of a better local understanding and acceptance of the company
contribute to worthwhile local charitable and cultural projects; to pay its share of taxes to support the local government; and to be a good neighbor keeping a clean and attractive place of business." These reasons and this image suggest more than mere profit seeking. Good industrial citizenship, therefore, consists of becoming a part of the community and cultivating genuinely friendly relationships with the citizens living within it. William T. Gossett has declared, "Wc can hope that whether or not there is a corporate conscience, there may at least be corporations of conscientious men. We can base that hope on the vigor and tenacity of the moral principles that underlie our civilization." It isn't quite a market model if firms and communities each expect something from the other as their due, not just because "it pays." That corporate responsibilities extend to local communities has become widely recognized in public statements of business leaders and in company policies. The largest companies- are gradually adapting their public and external relations policies, to these obligations. As an example, the General Motors Plant Visits Plan Book states. "Today's industrial leaders recognize that it no longer is enough just to build a better mousetrap. Good industrial citizenship must go hand in hand with the production end of business. Good industrial citizenship consists mainly of becoming a part of the community and cultivating genuinely friendly relationships with the people who live in it_" Cultivation of an effective community relations program has to become an indispensable function of prudent management. As noted in the Community Relations Manual of one of the largest companies, it is that management function which "appraises plant-community attitudes, identifies and relates company policies with
The case for community relations programs can also be put on the basis of mutual obligations between company and community. Business firms "expect the schools to provide well-educated employees with good attitudes, skill,- and work habits; the churches to contribute persons of good morals and character; the local government to furnish fire, police and sanitary protection and highway facilities; the public utilities to provide water supply, gas, electricity and transportation; and the social service organizations to contribute health, hospital and medical facilities." In return, the community expects business organizations "to provide iepil.li employment, good working conditions, fair pay and satisfying work, to purchase goods and services locally and put nioie money in circulation in the community; to
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community interests, and initiates programs of action to earn community' respect and confidence for the company." it would appear that there are pressures upon business to create and reserve a moral attitude toward the community, to do things not because they are required, but because they are right.
today, only two were in existence by 1900. During the next twenty years, only five new agencies were created. However, from 1920 to 1960 twenty-three large regulatory agencies were created, of these, ten appeared in the period of the New Deal. A recent example of this development at the national level is the appearance of the Committee on Government Contracts. This small, powerful committee reporting to the Vice-President is able to put pressure on private enterprise throughout the United States to expand job opportunities for minority groups. The government, as client and contractor for a substantial part of the business now being done in the United States, is in a strong position to exercise moral power and thus affect private economic practices. The Committee on Government Contracts exercises such power to force profit-making organizations to obey the moral rules and basic values of a democratic society. This would indicate that the modem corporation is now accepting moral responsibilities to its public even i f only because of pressures exercised by the government. The Congressional hearings of a few years ago investigating prices of drugs and the relations of drug manufacturers to pharmacologists and doctors produced a strong moral reaction that is still being felt. The manufacturers were charged with selling their goods to eel the highest profit attainable, an effort once considered noble, worthy, and the only one that should be allowed to operate in a free society. As a result of these hearings, the drug industry felt the disapproval of most Americans and feared legal developments. A l l that the market will bear is no longer all that the moral values of public opinion will bear. Government investigation informs public opinion and then acts as its moral agent.
4.5
THE CORPORATE IMAGE FOR GOVERNMENT

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David E. Lilienthal. in his book Big Business: A New Era declares:
Government has become an active and frequently the dominant factor in economic affairs. Today few important decisions are made by business ..-. executives and boards of directors in which some ',$>".' f government do not play a significant, part. 3$!!HPS|vS'r What is true of business also applies to farmers and -. workers in industry.
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- The development of moral responsibilities and sanctions tying- local and private business to large political communities quickened dramatically during the New Deal. Then and later the principles of economic rationality gave way to varying kinds of moral beliefs and values that were made part of the formal system of American government, ".enormous power is now exercised over private enterprise by.rclativcly new administrative bureaus and regulatory agencies. . ' . < ; , Jfciul toward the development of government regulatory.agencies is quite recent is indicated by the fact I'" ', " . ^ f e . ' ^ ' y '"dependent administrative and regulatory agencies'"? j-iVatest power and influence i n Washington
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Many politicians in recent years have urged today's businessmen to take a more active role in politics. They have been advised to do this by the Chairmen of both the Democratic and Republican National Committees, in talks before the American Management Association in New York. Said Democrat Paul M . Butler: While the businessman, like any other citizen, may shrink from or ignore politics, he does so at his own peril for politics will most certainly not ignore him. Too many of our businessmen, while contributing handsomely to various lobbying groups or political parties, have scorned personal participation in politics and dodged direct political responsibility. Senator Thurston B . Morton, as Chairman of the Republican National Committee, outlined the task even more specifically. His advice was summed up by Lee H. Bristol as follows: Men and women of the business community should not only in their own self-interest but in the interest of the country, participate more fully in party organization work at all levels. They should not hesitate to undertake such , often unglamorous but highly important political chores as doorbell ringing, poll-watching, and even soapbox orating. And above all, they should be both articulate and aggressive not only in helping to shape policies and programs which affect them directly as businessmen, but they should also take an intense interest in the broader problems which concern all citizens of the United States, It is a myth that the businessman who engages in politics automatically harms his own business
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interests. That could happen only if a man sought to obtain special privileges for himself because of his political activities. Perhaps the modem corporation is accepting its responsibilities to its public primarily because it wants to continue in business and not ultimately become a part of the State. Managers and owners may feel that i f they misbehave, not only could they lose control of their corporations, but the corporations themselves could disappear becoming a part of the State. The important point is that corporations seem to respond to the power of public opinion, to the rapidly developing beliefs and values that Professor Berle feels lead them to economic and social responsibility.
4.6
THE CORPORATE IMAGE FOR T H E INVESTING C O M M U N I T Y
In referring to the financial community, we are talking about a vast public. The New York Stock Exchange, in its June 1962 study, estimated that there were seventeen million people in America owning shares in publicly held companies, that thirty-five million non-shareholders were on the verge of investing, and, finally, that some 120 million were indirect shareholders whose savings were invested for them in equity securities by a variety of financial institutions. Among important institutional investors currently are at least 239 commercial banks, 200 insurance companies, and 120 investment companies Also influencing investors are 1,855 advisory services registered with the SEC (as of July 31, 1961). 6,500 security analysts who are members of organized groups across the country, and financial magazines, rating services, business editors of national news and comment magazines, the business and
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financial newspapers, wire services, business columnists something over 500 outlets. The prime purpose of projecting a favorable image to the financial community is to inspire confidence in management policies, confidence that can result in a decision to invest It has been said that this means convincing the potential financers that a company is well run, progressive, and farsighted, with good prospects for continuous growth. It must be asked, however, what image in fact inspires such confidence. As in the case of any of the corporate "publics," an image may seek to offer assurance of broad, social responsibility or it may stress only a profit orientation. To evaluate the situation with respect to the financial community we must ask what benefits are sought from having a "favorable" image. The following tangible benefits may be derived from securing favorable investor recognition: I'. A fair and accurate market appraisal of a company's business, industry position and prospects 2. Continuing stockholder support for management's long-range plan and policies 3. Improved public acceptance of newly issued securities 4. A preferred position wîth respect to possible acquisitions 5. Prestige in trade, industry, and customer relations through an improved standing in the financial community , l "i a i ompany to grow and prosper, it needs money. Most corporations need to raise funds by borrowing or by Moulin," slo. I. or bond issues. The importance of projecting
i oi punHi VIH ml Responsibility- and Good Governance 100
a favorable image to the financial public can be shown by an example. A well known company, financially solvent and with established lines of credit, can normally get its money at the prime rate of interest. If that rate is four per cent, a lesser-known company might be forced to pay five per cent. This one per cent difference on a S50 million loan means a saving of half a million dollars during the year. There is also strong evidence that a favorable image affects corporate finances in the following tangible ways 1) It improves the price-earnings ratio: 2) it increases the amount of equity capital available from the public; 3) it improves standing with investment funds: and 4) it creates a favorable climate for acquisitions. The considerations just listed suggest projection of a corporate image stressing a desire to make money and a capacity to make money. However, corporations must take into account not only what they expect of the financial community, but what the financial community expects of them, and, at least in recent years, the force of law requires them to include large elements of "responsibility" in their image. ' The "acceptance" by the corporation of its responsibilities to the financial community can best be seen in historical perspective. In 1939 Judge Pecora. who had been counsel to the Senate Committee on Banking Currency (1933-34) during its investigation of banking and security market practices, wrote the following concerning the results of the reforms: The old regime of unlimited license may he said to have definitely come to an end. The testimony had brought to light a shocking corruption in our -. banking system, a widespread repudiation'of oldfashioned standards of honest and fair dealing in
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the creation and sale of securities, and a merciless exploitation of the vicious possibilities of intricate corporate chicanery. The public had been deeply aroused by the spectacle of cynical disregard of fiduciaiy duty n the part of many of its most respected leaders; of directors, who conveniently subordinated their official obligations to an avid pursuit of personal gain; of great banks, which combined the functions of a bank with those of a stock jobber, of supposedly impartial public markets for the sale of securities, actually operated as private clubs for the individual benefit of their members. According to Pecora, four statutes marked the beginning of a new era in the history of American finance, the Banking Act of 1933, the Securities Act of 1933, the Securities Exchange Act of 1934, and the Public Utility Holding Act of 1935. Pecora concluded that while all this legislation ^-'represented progress, vigilance was necessary to maintain if
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';;;..At the present time it is not unusual to hear the argument i that even under existing laws professional managers with little or no financial investment in the companies they run cannot be depended upon to fulfill the corporate , responsibility to the financial community. Some have said ^that "corporate democracy" is the answer. Lewis D , ''""^Qilbert, a leader of this movement, lays down the major planks of his platform in these terms:
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3. Strengthening of the SEC's proposal rule. 4. Equitable pensions, option control and executive compensation with reasonable ceilings and periodic shareholder review. 5. Cumulative voting to give the minority representation and the majority the benefit of the minority's criticism. 6. Preemptive rights to purchase new stock. 7. The elimination of the stagger system of electing board directors, 8. The election of auditors by shareholders. 9. The elimination of the millions of automatic, uninstructed proxy votes cast by fiduciaries for management. 10. The stipulation by SEC order of a maximum sum that can be spent in a proxy contest. 11. The nomination of independent directors through the company proxy statement, 12. Ownership of slock by directors in the companies on whose boards they sit 13. The election of qualified women to boards of directors, 14. Impartial and factual press reports on corporate affairs, 15. The right of a secret corporate ballot as inviolable in its privacy as a political vote. It is interesting to note that most of these suggestions call for reforms within each corporation, without additional legislative action. Since demands for legislative reform continue, it would appear that corporate leadership is under both public and private pressure to accept responsibility to security holders and other elements of the financial community.
!'' More e democratic, better attended, regional and annual meetings. leetings. '
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4.7
CORPORATE IMAGE MEASUREMENT
We have examined the various corporation "publics'" and related how a "responsible'* image can influence each of these groups. However, can some concrete evidence be found to indicate how interested corporations really are in projecting a favorable image to these "publics?'* Can we discover what images they are in fact, trying to project? Let us look at the research that is being directed toward the measurement of the corporate personality for answers to these questions and for evidence of actual acceptance of social responsibilities to the various "publics," The importance that the large corporation places upon projecting a favorable image is best illustrated by the fact thaf United States business spends about one billion dollars each year to promote a better corporate image. Another indication of the increasing importance of a favorable image is that all advertising expenditures rose 20.9 per cent between 1953 and 1958, while "General Promotion" advertising (that category closest to "corporate image" advertising) rose 63,3 per cent. The newness of research concerned with the corporate image can be shown by the fact that it is less than a decade and a half old; the standard text on advertising psychology and research, published in 1950, does not have any discussion of the subject as suchSuch research differs from most research carried out in an applied setting in that it addresses itself simultaneously to near-term practical operating needs of the business executive and to basic long-term needs for better understanding of the relationships between the complex corporate entity and its human surroundings. In cail> development of corporate-image research methods, n was perhaps natural for pioneering Opinion Research ('oip&m Social Responsibility and Good Governance'-'
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Corporation to start with a depth interview format in which highly skilled interviewers guided respondents through a portrayal of their images of corporations. This led to use of a small national sample for which a somewhat more structured interviewing instrument was used. These experiences provided clues about the distinctive characteristics attributed to large corporations in the minds of the public, while serving also to indicate the links between people's experiences and behavior and their images of large companies. More important, the early development work suggested the form that future measurement instruments should take. ORC compiled an extensive list of statements concerning large companies from the depth interview phase of their early study. The statements were put through screening and field pre-testing sequence, and the lists were then refined. In current corporate image studies, a list of statements is presented to a respondent who is told: "Read through the list and keep Company A in mind. Every time you come to a statement that fits your ideas or impressions of Company A, just tell me the number of it. You can check as many or as few as you like - you don't have to be certain; just check all the statements you think fit Company A . " To make analysis simpler, ORC regroups these statements into four subject areas in its report: producer-distributor image statements; management-image statements; citizenshipimage statements; and the employer-image statements. The researcher's challenge is to discover which among hundreds of criteria are most meaningful for people, as they judge the effect of corporate behavior on their daily life. For the statistics resulting from such a study to be meaningful a "benchmark" is necessary. For example, knowing that twenty per cent of the respondents considered a company research-minded is not meaningful in the
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abstract as it is if you can look at this score in the context of a profile of the industry as a whole. Corporate images all have common features as they exist in the public mind, as people are similar in that they each have a head, arms, legs, etc But just as people have different color eyes, so do corporate images differ in fine particulars Some companies stand out for their scientific characters, others for their service to the consumer; in rare instances their image as a good employer is conspicuous. It is judgment on these distinguishable points that corporations attempt to discover through research, with the ultimate goal an improved image profile. The standard image profile developed by ORC was put to a nationwide test in the early part of 1959, The test was given to a group of adults, who testified to their images of twentyleading companies. The people were guided by the following list of statements touching the companies' possible image as employer, citizen, investment, and producer of goods and services: Products stand up well High standards of quality One of strongest companies Done a lot for housewives Outstanding on new products History to be proud of Believable advertising Research-minded Dedicated to progress Seeks better living for all ' ' Pleasant to do business with Growth stock Keeps public informed Good record for steady work Best radio and TV programs
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Fair in its dealings Essential to nation's economy Fair on complaints Contributes to defense Help to farmers Employees are proud of company Outstanding in science High caliber management Shares fairly with all groups Good on employee advancement Tries to keep, prices down Pays attention to human values Excellent employee benefits Gets along with labor unions Has concern for health, welfare Good dividend record Supports education Takes interest in employees Shares prosperity with employees Executives are public-spirited Leader in atomic energy Helpful to small business Leader in raising wages. v. This study proved rather conclusively that images are related to how people behave toward a given company. Consumers with favorable images of consumer goods companies are much more likely to recommend such companies' products to their friends and neighbors than those who have weak or unfavorable images. Nevertheless, the increased interest in a good image also seems to denote recognition of moral responsibility on the part of a corporation. For instance, the fact that the corporation is concerned with having a reputation for steady work, that the employees are proud of the company, that the trade rates the products of the company as high quality, all tend
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to indicate that the corporation is concerned with its responsibilities to various "publics" and is not strictly profit oriented. Similarly, statements such as "products stand up well," history to be proud of." "seeks better living for all.." "fair in its dealings," "pays attention to human values," and "has concern for health and welfare" all seem to indicate that the modem corporation is concerned with projecting a socially responsible image, and to indicate an acceptance on the part of the corporation of its moral and social responsibilities to its "publics." The very fact that there is a corporate image, that it is measurable, and that the modem corporation is concerned with the type of image projected to its public would tend to imply that the corporation has a life of its own, a life apart from stockholders, making it rational to maximize considerations such as survival or size rather than profits, just as suggested by Berle.
the corporations wish to project a favorable image to their employees and by so doing indicate an acceptance of responsibilities beyond profit making. The increased concern of the modem corporation for winning long-lasting loyalty from the trade by projecting an image of reliability, integrity, honesty, and trustworthiness would also tend to indicate an acceptance of social responsibilities to this "public" Corporate responsibility has also been shown to extend to local communities, as indicated by public statements of business leaders and examples of various public relations policies. This appears to indicate that there arc pressures on business to create and preserve a moral attitude toward the community above and beyond the demands of short-run profit. The corporation also has shown an increased concern for moral responsibilities by tying local and private business to the political community. To the extent that the corporation is no longer free of public pressures, as shown by sharp increases in government regulatory agencies, so-called natural rights of enterprise have been modified and the public interest has-become a controlling factor in business, No longer can the entrepreneur charge what the market will permit, nor can he keep what the profit motive has led him to acquire. In the past a man or company failed or succeeded entirely on the basis of business decisions; now the sanctions are both technical and moral. Finally pressures have been applied on corporate leadership to make it accept responsibility to the financial community. These pressures have been chiefly in the form of legislative reforms which force "professional" managers, with little if any investment in the companies they run, to accept a moral responsibility to the financial community.
4.8
CONCLUSION
In the first section of this paper an attempt was made to evaluate the various corporate "publics" and to relate how a favorable image could influence each of these groups. It was pointed out that certain ethical statements found in various stockholder reports would tend to indicate that the corporation is accepting its responsibility to these "publics." As argued by Professor Dodd, and later conceded by Professor Berle, though social responsibilities of the corporation have not replaced responsibilities to the shareholder, profit making and social responsibilities now seem to go hand in hand. v. Thus, management has shown increased interest in creating an image showing a corporate sense of social responsibility to employees. The use of credos, which in many cases are translated, into operating reality, would tend to indicate that
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We then considered the recent emphasis being placed upon measuring and evaluating the corporate image. The increased importance being placed on a good corporate personality profile, with features showing a sense of moral responsibility, would tend to indicate that the corporation has a life and personality of its own, The fact that many of the statements used to evaluate a company's image were not in the slightest way connected with the profit motive would indicate that the large corporation is accepting moral and social responsibilities. Certainly the modem corporations operate under new legal and social pressures. Today the principal limitations on business are moral and practical, not economic. Profit making is still good, but it is no longer good enough.

TRUE OR FALSE If the statement is true, write the word " T R U E " ; i f otherwise, write the word, " F A L S E " , opposite the corresponding number. 1. Today, the principal limitations on business are moral and practical, not economic. 2. Corporate image is measurable and that the modem corporation is concerned with the type of image projected to its public would tend to imply that the corporation has a life of its own, a life apart from stockholders, making it rational to maximize considerations such as survival or size rather than profits. 3. The increased concern of the modem corporation for winning long-lasting loyalty from .the trade by projecting an image of reliability, integrity, honesty, and trustworthiness would also tend to indicate an acceptance of social responsibilities to this "public. 4. The increased interest in good image denotes recognition of moral responsibility on the part of a corporation. 5. The fact that the corporation is concerned with having a reputation for steady work, that the employees are proud of the company, that the trade rates the products of the company as high quality, all. tend to indicate that the corporation is concerned with its responsibilities to various "publics" and is not strictly profit oriented
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5.1
INTRODUCTION
ETHICS AND CORPORATE SOCIAL RESPONSIBILITY FOR BUSINESS
This chapter provides the relevance of ethics and corporate social responsibility (CSR) for business. It is structured into four sections. The first presents the emergence of ethics and corporate social responsibility (CSR) during the last 20 years. The second undertakes to clarify key ethical concepts of morality; ethics, responsibility and business ethics. Subsequently, the context of the "global business place" is characterized of applied ethics with its implications for business ethics. To conclude, evolving perspectives are delineated for business ethics in the global arena.
5.2
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E M E R G E N C E O F ETHICS AND CSR
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P ' w , the students shall be able tounderstand the relevance of ethics and corporate f "sensibility (CSR) for business; and. the stmilarities. differences and associations of morality, ethics and responsibility.
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CHAPTER OUTLINE ' ' T Introduction J':: Emergence ofl-thics and CSR v^c*i5 "Multiple Forms in Different Nations and Regions ''^teorldwide.
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vArguments for Business Ethics V -'''Different Views and Attitudes About Ethics ' Clarifications of Ethical Concepts
CorporateSbci
In the 1980s we hardly could have predicted the explosive growth and rising ethical expectations and initiatives regarding business .behavior that have emerged worldwide over the past two decades. O f course, this does not mean that these expectations were consistent, nor met, and that all these initiatives" were well designed and successful. Nevertheless, despite the mixed record, the emergence of ethics and corporate social responsibility as a prerequisite in the global business is a recognized phenomenon. In this chapter we first explore a multitude of forms of broadly defined ethics and CSR that have emerged globally and in different countries and regions. We then explore the underlying arguments which may have driven those multiple expectations and initiatives. To conclude this section, we try to explain several views about ethics in general that seem to steer the assessment of those phenomena.
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5.3
M U L T I P L E FORMS IN DIFFERENT NATIONS AND REGIONS WORLDWIDE
Sustainability: In 1987 the World Commission on Environment and Development (WCED) published its report Our Common Future (WCED 1987) and gave the definition of "Sustainability". which means, to meet the needs of the present without compromising the ability of future generations to meet their own needs'. Therefore, we have to think and act today in terms of intergenerational ethics so that our next generations will have at least the same conditions we enjoy, to live their own lives. This definition was also adopted by the United Nations Conference on Environment and Development (UNCED) in 1992 in Rio de Janeiro, Brazil, and has been playing a guiding role ever since in dealing with issues such as the depletion of the ozone layer, biodiversity, and global climate change. .'
" *
publications how business can operated in a genuinely sustainable manner: Changing Course: A Global Perspective on Development and the Environment. (Schmidheirny 1992); Financing Change, The Financial Community, Eco-Efficiency and Sustainability (Schmidheiny and Zorraguin 1996); Eco-Efficiency: The Business Link to Sustainable Development (Desimane and Popofe 2000); Walking Talk: The Business Case for Sustainable Development (Holliday Jr. et. al. 2002) Compared with the late, 1980s, we can safety state, that the challenge of sustainability is now recognized by more people and businesses. To explain this change, the world dissemination of the "Equator principles" since 2005, an industry approach for financial establishments in determining, assessing and managing environmental and social risk in project financing (www.equatorprinciples.com): and the Award for Sustainable Banking (2008 in its third year) sponsored by the Financial Times and IFC, the private sector arm of the World Bank Group (Financial Times, Special Report, June 7, 2007) deserves to be stated. It should also be noted that the great need for sustainability has tremendously increased and the degree of recognition and taking action differs a great deal among nations and populations. Corruption: This is another issue that was widely underestimated in the 1980s and has then turned out to be a very serious problem in developing and developed countries. The World Bank was not ready to tackle corruption head-on in the early 1990s, in 1991 a senior officer of the W B , Dr. Peter Eigen, left the Bank and organized Transparency International (TI), a nongovernmental organization with the mission to fight corruption. It is headquartered in Berlin because corruption should be considered primarily a challenge for developed * . ' .''
In business sector, the World Business Council on Sustainable Development (WBCSD) has taken multiple initiatives to promote environmental awareness and business conduct that is sustainable. This idea of sustainability, which is a goal for the society as a whole, should not be misconstrued, with "eco-efficiency". That denotes both economic and ecological efficiency as stated by S. Schmidheiny and F. Zorraguin (1996). It also clearly differs from other usages of the term sustainability, for example, "sustainable profit" or "sustainable businesses, which often means merely for profits without environmental concerns. Rather, the commitment to sustainable development includes economic growth, ecological balance, and social equity. Over the years WBCSD has grown to be a powerful organization . (www.wbcsd.nrff) and documented in . a number of
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Chapter 5 Ethics and Corporate Social Responsibility- for Business
countries. Transparency International (TI) has become very influential NGO with more than 90 national chapters and issued many publications, in particular the annual Global Corruption Report, the Corruption Perceptions Index and Bribe payers Index (www.transparency.orc). In the last few years, corruption has become a major concern for the World Bank too. (The search result for "corruption" under the World Banks Data & Research shows about 8860 references as of February 27, 2008). Human rights: A third area of emerging concern relates to the responsibilities of companies with respect to human rights. Traditionally, it was up to specific countries to make sure that the human rights codified in international declarations and conventions were incorporated into national laws and enforced by national governments. However, in the process of globalization the relationships between government, business, and civil society have changed considerably. The power of multinational corporations has increased dramatically. Nongovernmental organizations have multiplied, become more vocal and applied more pressure; And governments in many countries are or have become weak; Therefore, the responsibility of business has changed, as stated in the report of the United Nations High Commissioner for Human Rights'. Business. like all actors in society, has to operate in responsible manner, including through respecting human rights. Business has an enormous potential to provide an enabling environment for the enjoyment of human rights through investment, employment creation and the stimulation of economic growth. Its activities have also threatened human rights in some situations and individual companies have been complied in human rights violations. (Quoted in Chandler 2005).
In order to better understanding the nature and scope o f business responsibilities with regard to human rights, John Ruggie was appointed by Kofi Annan, U N Secretary General, to reconcile the often-conflicting demands of companies, NGOs. and governments and to elaborate common standards for operationalizing the normative principles of human rights. Unfortunately, despite J. Ruggic's relentless and patient efforts, no compromise could be found until to date, as stated by J. Zerk (2007). United Nations Global Compact and Other Initiatives: The three areas of concerns, as mentioned above, have been also addressed by the United Nations Global Compact based on "Shared Values for global business" and launched by Kofi Annan in 2000 (www.globalcompact.org). Business (and later also cities, business schools and other organizations) are invited to become signatories of the ten principles of human and labor rights, environmental protection, and anti-corruption, to shape their performance every two years. As of February 2008, more than 3,200 companies/organizations have joined the UN Global Compact (UNGC) and submitted a "Communication of Progress". The Global Reporting Initiative (GPI), another voluntary effort, was organized in 1997 and has developed "Sustainability Guidelines" for economic, social, and environmental performance on the basis of reporting principles and with a series of specific indicators (wwywglobalreporting.org). Since then, approximately 20,000 people have engaged in the GRI network, as of February 2008. The G R I complements the Global Compact, and now actually collaborates with it, by providing measurable standards to the United Nation Global Compact's general principles. Among the many activities in the past 21 years for setting standards of corporate "responsible" behavior we should
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also mention the world-wide and long-lasting activities of the International Organization for Standardization (ISO; http://isotc.iso.org) After developing the standards ISO 9000 for quality management and ISO 14000 for environment conduct, ISO is in the process o f producing ISO 26000 for social responsibility in October 2008. ISO might cooperate with other international organizations, particularly with the International Labor Organization and the UN Global Compact (UNGC). While all the aforementioned initiatives unmistakably involve an ethical dimension, either implicitly or explicitly, the following declarations and statements clearly articulate the ethical nature of those expectations. In particular, the Declaration toward Global Ethic (1993), the Interfaith Declaration of International Business Ethics (1994), the Caux Round/able Principles for Business (1994), and the statement for the Inter Action Council (1996) (all presented in Enderle 1999) arc noteworthy, whereas these documents are of global scope and promulgate universal ethical norms, a worldwide survey of business ethics in 1996 focused on the situations in different countries and continents and described various forms of emerging business ethics issues (Enderle 1997). Interaction Between Law and Ethics Initiatives: As ethical concerns have sometimes led- to laws and regulations (example, in the case of corruption), legislation and other government initiatives have also brought about increasing ethical awareness and likely, even better business conduct. In the United States the Federal Sentencing Guidelines, enacted in 1991, accounted for the corporations' proactive compliance efforts in reducing the fines for their wrongdoing, and the revised Guidelines of 2004 explicitly require the judges, to take into account the ethicaLeffort made by the defendant organization. As a
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result of these regulations, now most major corporations have established positions of compliance and ethics officers (Ethikos 2004). Although one might disagree on the appropriateness of certain provisions (for instance, its applicability to smaller companies or its treatment of foreign corporations), one can still agree that this Act, by and large, has helped to raise the awareness of the importance of ethical business conduct (Ethikos 2004). In the Philippines, we have Republic Act No. 6713, An Act Establishing a Code of Conduct and Ethical Standards for Public Officials and Employees to Upholding the TimeHonored Principle of Public Office Being a Public Trust, Granting Incentives and Rewards for Exemplar)? Sen'ice, Enumerating Prohibited Acts and Transactions and Providing Penalties for Violations Thereof and for other Purposes (see Appendices). Corporate Social Responsibility (CSR): More than in North America, the promotion of CSR has been advanced in Europe, especially by the European Union in the early years of the twenty-first century. In 2001 the Commission of the European Communities published a Green paper to promote " A European Framework for Corporate Social Responsibility" (Commission 2001), followed by a Communication (2002) that invited many stockholders to participate in the European-wide dialogue on Corporate Social Responsibility. In 2004 the commission published the final results of this dialogue and recommendations. Two years later it refocused its attention on "implementing the partnership for growth and jobs" and, by doing so, hoping "to make Europe a pole of excellence on Corporate Social Responsibility". Unluckily, this publication was not the product of a multi-stakeholder dialogue, but was the result of negotiations between the Commission and business executives alone. Besides these initiatives of the European Union in Brussels, as a matter of fact, there is a
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considerable diversity of Corporate Social Responsibility in Europe, well documented in Corporate Social Responsibility Across Europe, according to A . Habich, J. Jonker, M . Wegner and R. Schmidpeter (2006). Corporate Social Responsibility expectations and initiatives have emerged in other continents as well. Numerous examples are discussed in Responsibilidad Social Corporativa - Una Mirada Global (Arroyo, et.al, 2006) as well as a report on business ethics in Latin America, published by The Ethical Corporation (2005). Furthermore, since 2001 and on a regular basis, The Ethical Corporation has reported Corporate Social Responsibility and ethical challenges and initiatives around the world, to mention, in particular, the reports on Africa (Nov. 2002), Asia (June 2002 and September 2003), China (March 2004), and India (April 2007). The efforts of companies (especially multinationals) in developing more coherent Corporate Social Responsibility strategies has been documented in a number of recent sources, according to P. Engardio (2007).
The Argument of Scandals: Business scandals did not begin with the Enron. Lehman Brothers Holdings Inc. and Parmalat cases. The list of scandals in long and seemingly unending: bribery in the procurement of aircraft: explosions of highly toxic substances in the chemical industry; spectacular environmental pollution of rivers and seas; food contamination; dubious marketing practices in developing countries; car ferry disasters: illegal armament exports: insiders trading; deceptive financial reporting: excessive executive compensations, etc. It is fair to say that no country spared from such scandals. But what arc their consequences for improving business practice in the long run? It is true that scandals naturally provoke outrage along with a call for new and better business undertaking. In spite of the dramatic publicity they receive, the scandals argument does not seem to be very strong. One just reacts, mostly emotionally and without adequate background knowledge. Scandals can shake up, but not motivate for lasting changes in practices. The Argument'of Economization: This argument states that business nowadays plays an ever more important guiding role for the whole of social life, that an "economization" of society is underway. Economic thinking and acting are penetrating and dominating more and more domains: large investments; research and development; mass media; politics; education; healthcare; culture; and family, for example. Thus, only what counts economically and yields profit is relevant. The potentially disastrous consequences are compounded through the process of globalization. What can be said about this argument? Even i f this statement appears to be exaggerated, various tendencies toward economization cannot be denied. Against them, business ethics is called to support insurmountable boundary lines imposed by laws and regulations. The remedy comes from outside business.
5.4
ARGUMENTS FOR BUSINESS ETHICS
The emerging expectations and initiatives regarding ethics and Corporate Social Responsibility in the global businsessplace, one may question the underlying drivers or arguments that can explain these developments. Although the circumstances vary a great deal across the countries and industries, four arguments can be identified which apply to different contexts in varying degrees, according to M . Kotabe andK. Helsen.
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which is necessary but certainly not sufficient for introducing and strengthening "new practices". The Argument of "Good Business": This is also called 'making the business case" for ethics and Corporate Social Responsibility. Now widely used, particularly in Asian countries, it says that "good business" and "good ethics" go hand in hand. Ethical conduct lies in the self-enlightened interest of the companies and is seen as an important motivational and unifying force to compete in the global business place. Because this argument comes from within business and is not imposed from outside, it is especially attractive for business people. The Argument of Challenges: The reason for business ethics is forward-looking as we face the great challenges in the 21 ' century. Emotional reactions to scandals, imposed restrictions on business from outsides, and trust in selfregulation and making the business case for better business conduct are considered insufficient. Merely reactive attitudes and behaviors will fail. What is important is an anticipatory action, proactive, and "entrepreneurial" approach. Among the great challenges that we may include are: (1) an ecologically compatible economy, which allows all human beings to live decently on this planet earth; (2) the overcoming of worldwide poverty and unemployment; (3) the abolition of discrimination relating to gender, nationality, race, and religion; (4) the establishment of relatively corruption-free business environments; and, (5) the shaping of just and fair international business reactions, not biased by reckless competition and extreme power balances, but promoting efficient and peaceful cooperation among all business partners.
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Responsibility, they may involve very different views and attitudes about ethics in this process.
5.5
DIFFERENT VIEWS AND ATTITUDES ABOUT ETHICS
In explaining the emergence of ethics and Corporate Social Responsibility in the global businessplace. we took stock of a wide array of things that business should do, either because business itself embraces those responsibility or because other groups expect business to fulfill them. We discussed about sustainability, human rights, corruption, kidnappings, terrorism, drug-lordism, smuggling and many more big issues. These are all ethical questions in the sense that they ask the fundamental questions of ethics; What should 1 do? What should we do? However, the more specific these questions are formulated and the more closely we look at the proposal answers, the more diverse and even bewildering become the pictures. When we try to reach out to global understanding (which is an almost impossible endeavor), we may realize something of enormous diversity and contradictions to cultural norms and values. As a matter of fact, as Christians as C. Tyler stated, "we live in an age of ethical confusion and are prone to periodic outbreaks of moral panic". (C. Tyler 2000). There are different ways of facing, and reacting to, this confusion, which have also affected the emergence of ethics and Corporate Social Responsibility (CSR), as mentioned-above. One way it could be called is "ethical imperialism "' that is the attitude of people, organizations, and governments. Good example, various developed countries and Non-Governmental Organizations are accused of ethical imperialism because they require
While these four arguments can very-well explain, to some extent,- the emergence of ethics and Corporate Social
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developing countries to meet their own labor and environmental standards. Or the enforcement of human rights is interpreted by certain Asian leaders as an act of Western ethical imperialism, while similar feelings arise among non-Asians (and Asians as well) at the promulgation of so-called Asian values. The countervailing attitude to ethical imperialism is ethical relativisms. Instead of imposing one's^thical views on other cultures and countries, one refuses to make ethical judgments on them. Relativism states that ethical valuesand judgments are ultimately dependent upon, or relative to. one's culture and society, and there is no right or wrong, moral or immoral, to follow the in terms o f a particular culture or society as stated by J. Desjardims (2006). For example, widespread corruption in a particular country cannot be ethically criticized by foreigners. If multinational corporations want to operate in that particular country according to relativist, they are morally obligated to play by the rules of the corrupt regime. A third attitude, often in response to ethical confusion and particularly directed to international affairs, is ethical skepticism. It tells us that we cannot reasonably assess ethical values and norms at all, Doubt and uncertainty prevent us from making any ethical judgment. Therefore, ethics has no place in a global businessplace. At best, a pragmatic approach can bring about some practical rules and standards.
5.6
CLARIFICATIONS O F E T H I C A L CONCEPTS
Morality, Ethics and Responsibility The basic questions of morality and ethic are: What should 1 do? And what should we do? If we do not ask ourselves these questions, then, any discussion regarding morality and ethics is in vain. This was crystal clear to the Chinese philosopher and teacher of ethics Confucius (551-479 BCE) when he admitted that "I can do nothing for those who do not ask themselves what to do". Therefore, morality and ethics are about action and essentially normative, not explicative. Their primary focus is on what we should do: neither on what we can do nor on what we can know. The terms "morality" and "ethics" are derived from the Latin mores and the Greek ethos respectively, both words meaning the same thing, namely "the morally appropriate conduct that conforms to what has become region of life through habit, tradition, and convention", as stated by A . Rich (2006). In other words, that which I should do was opposed to what which one does, conscience to convention. The ethical question in its true nature is thus a question about the good and the right, which is more than morals, customs, and civic legality-", according to A . Rich (2006). As a consequence of this change of meaning, to be "ethical" or "moral" now means to be "good" and "right" that which stands the test of reasoned examination. In this regards, Richard De George (2006) came-up these definitions: Morality: is a term used to cover those practices and activities that are considered importantly right and wrong;
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the rules that govern those activities; and the values that are embedded, fostered, and pursued by those activities and practices. Ethics: is a systematic attempt to make sense of our individual and social moral experiences, in such a way as to determine the rules that ought to govern the character traits concerning development in life. These definitions of morality and ethics can clarify key feature: First, it is crucial to distinguish between practice of individual and social moral experiences (be it negative or positive) on the one hand and the study and examination on the other hand, the terms "morality and "ethics" pointing to this difference. Thus, study cannot substitute for practice, but also practice needs systematic examination to scrutinize "what is considered importantly right and wrong" in order to determine what should be importantly right and wrong. We may remember Socrates' questioning social norms and customs in order to gain reasoned insight for our convictions. Ethics understood in this sense, cannot put up with the aforementioned attitudes of ethical skepticism, imperialism, and relativism and would not qualify everything in our previous survey of the emergence of ethics as pertaining to "ethics". Sustainability and human rights are considered importantly right and corruption importantly wrong. But to be considered as such, does not make them ethically required without a systematic attempt to make out of them. . ' " " . . . . . Second, morality and ethics are not only about practices and activities but also about rules, values, and character traits: Although the fundamental ethical questions are: What should I do? What should we do?; thus focusing on
practices and activities, it is important to include this wider scope of relevant aspects because practices are necessarily governed by rules, embedded and nourished by values, and steered by character traits and habits (e.g., virtues or vices) of decision-makers and actors. If goes without saying that, according to these proposed definitions, morality and ethics cannot be confined to solely rules or values or character traits. Third, in order to avoid different kinds of ethical judgments, it is necessary to distinguish three different levels of ethical obligation: (1) minimal ethical requirements which must be not under all circumstances; (2) positive obligations which determine "good practices"; and, (3) the_aspiration for ethical ideals which strives for ethical excellence, as stated by Richard De George (2006). If one falls short of being excellent, one is not necessarily unethical, and if one violates minimal ethical standards, one cannot be "goodor excellent". A company that contributes millions o f dollars to philanthropy supports the local cultural group and cleans up neighborhood parks, claiming to be "socially responsible", AS not nearly ethically and socially responsible i f it is cheating in their core business activities. Although the lines between the three levels are not always easy to determine, it is not too difficult to substantiate minimal ethical requirements to do no harm. They are globally applicable, supported by a wide consensus and frequently incorporated in legal standards, through more often in developed than in developing countries. With regard to "positive obligations", they go beyond the minimum, require doing well in a broader sense. For example, we may mention the obligation to be charitable or help the needy. Here, in contrast to the first level, each person has a certain amount of discretion in determining how to fulfill this obligation. At the third level, one has even more discretion, not only in choosing the
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means but also in setting the goals of ethical excellence. It is a space wide open to moral imagination and abundant diversity that cannot be determined by rules and standards. In other words, the importance of this three-level lies in cautioning against a blunt cither/or of "ethical" versus "unethical" and fostering a more differentiated approach to ethical evaluation, be it of persons or organizations. Fourth, morality and ethics presuppose freedom. Thus, robots and animals cannot be ethical. The actors, be they persons or organizations, must have some space of freedom to choose. To have such space that might van,' among actors and over time means to have "real freedom" to make decisions and take actions. It also means to be subject to constraints that can be of different nature (physical, legal, economic, social, cultural and others) and lie beyond the actor's control. The actor has the ethical obligation to use his or her space o f freedom in an ethical manner to the fullest extent possible. At the same time the actor should not be held ethically accountable for what he or she cannot control, based on the fundamental principle, held throughout the history of ethics, that "ought implies can". Does this imply that the constraints are not subject to ethical examination and change? The answer is "no " in so far as constraints are human made. But the changes have to be made by those who are capable of making them, i f not individuals, then collective bodies, perhaps organizations, governments or international institutions. Freedom and responsibility: According to G. Enderle (1999), responsibility has become a key concept of contemporary morality, maybe even more important than integrity and fairness. The word "responsibility", contains the idea of responding or giving valid answers to questions asked by others, similar to the meaning of the word
"accountability". Thus, responsibility reflects the rational structure of human existence. According o Walter Schulz (1972), who offers a very deep understanding of responsibility in his mastcrwork Philosophic in der veranderten welt (Philosophy in the World That Changed) the concept of responsibility includes a polarity. On the one hand, there is the inner pole or selfcommitment originating from freedom. Responsibility thus, rests on and requires an inner decision. A responsible person cannot hide himself/herself behind in a given role. Rather, the exercise of responsibility may demand one act above and beyond conventional morality. Think of a whistleblower in an oppressive corporate culture or of what we said about Socrates. On the other hand, at the opposite pole, this self-commitment originating from freedom has its point both of departure and destination in a worldly relationship. Walter Schulz (1972), anchors responsibility in the freedom of the human person as decision maker, stretching it to an authority toward which one is responsible and to a very concrete matter for which one is responsible. So we may conclude that responsibility involves three components: (1) the subject of responsibility or who is responsible; (2) the content of responsibility or for what one is responsible; and (3) the authority toward whom one is responsible. According to Viktor E. Frankl (1984), a psychiatrist and survivor of the Auschwitz concentration camp, provocatively states in his book Man's Search for Meaning: Freedom is only part of the story and half of the truth. Freedom is but the negative aspect of the whole phenomenon whose positive aspect is responsibility. In fact, freedom is in danger of degenerating into mere arbitrariness unless it is lived in terms of responsibility.
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Chapter 5 Ethics and Corporate Social Responsibility for Business Chapter 5 Ethics and Corporate Social Responsibility for Business
That is why 1 recommend that the statue of Liberty on the East Coast be supplemented by a statue of responsibility on the West Coast, Frank! stated. Corporate Responsibility and CSR A concise concept of corporate responsibility consists of four points: First, responsibility, as "self-commitment originating from freedom", is a rich and central concept of contemporarymorality and can be applied to the business organization as a moral player, by doing so, the widely and vaguely used term responsibility, in business language and corporate reports, gains clarity and depth. As a result, the decisive challenge for business shifts. Rather than only asking whether CSR should be mandatory or voluntary, as it is has been hotly debated in the European Union, the decisive challenge. for business is whether or not it commits itself out of freedom. Thus, ethical responsibility is not limited to voluntary actions as i f mandatory actions were only a matter of legal responsibility. Even legal and regulatory requirements need the support of ethical responsibility, since one should pursue not only the latter but also the spirit of the law. Second, responsibility includes three components: (1) It needs to be anchored in a clearly defined subject bearer of responsibility (which might be an individual, a group, an organization, a nation, or another entity). Only with such anchorage can the language of responsibility make sense and be effective.
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:
(2)
Executing responsibility means answering the questions asked by others who have legitimate authority to do so. now commonly called "stakeholders'". This relationship comprises more than simply being "responsive" as many business consultants have recently urged companies to become. For this relationship has an ethical quality, which means that the company is concerned about what is right and wrong, just and unjust. But this relationship is also less than numerous stakeholder theorists claim because the substantive issues of responsibility are not identified yet. Hence, the third component of corporate responsibility deals with the contents that can be divided into three major groups; economic, social and environmental.
(3)
Third, given the widespread custom of opposing corporate social responsibility against business ethics, one might assume that CSR has nothing to do with ethics. However, in our conceptual approach, we place ethics at the heart of corporate responsibility permeating the company's purposes, constraints, performance and impacts. The company's ethical responsibility extends as much as its space of freedom. Moreover, by distinguishing three levels of ethical obligations, that is ethical minima, positive obligations, and ethical ideals, we reject the simplistic alternative to choose between either "ethical" or "unethical", offering instead a differentiated way of evaluating corporate ethical conduct. Indeed, simplistic" alternatives make reasonable ethical evaluation impossible for companies and their critiques alike. Fourth, the discussion about the purposes of the company brings to the fore that "making the business case " for CSR
..
can be misunderstood very easily. If social and environmental concerns are merely used as means in order to achieve a single and often simple economic purpose (for instance, to make money), the endeavor of making the business case becomes self-defeating, entailing mistrust and skepticism among those inside and outside the company as this kind of strategy is revealed. Instead of promoting the slogan "ethics pays'*, one had better follow the principle that "ethics counts", as stated by L.S. Paine (2003). Lynn S. Paine (2003), in her remarkable book. Value Shift, examines the legal history and the contemporary persuasive presence of the corporation and comes to the conclusion that "I'm today's society; the doctrine of corporate amorality is no longer tenable" (Paine. 2003). Indeed, unless we recognize the status of the corporations as moral players, it does not make sense to speak of unethical corporate conduct, to promote the ethical corporation, to hold the corporation morally accountable for its impact, or to publish corporate responsibility reports.
REVIEW PROBLEMS AND EXERCISE

1. Forces that should be avoided by businessmen: a. The need for transparency b. The knowledge that corporate ethical reputation matters c. Implications caused by bribery d. None of the above c. A l l of the above 2. Responsibility includes the following components except: a. the subject of responsibility or who is responsible b. the content of responsibility or for what one is responsible c. the authority toward whom one is responsible d. None of the above e. A l l of the above 3. Morality and ethics are the following except: a. practices and activities b. rules, values, and character traits t c. authorityd. None of the above e. A l l of the above 4. The following are arguments for business ethics except: a. The Argument of Scandals b. The Argument of Economization - c. The Argument of Good Business d. None of the above e. A l l of the above 5. Practices and activities that are considered importantly right and wrong; the rules that govern those activities;
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Chapter S Ethics and Corporate Social Responsibility for Business Chapter 6
pcc tt. . FUU cfApp^ EMc
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the aspiration for ethical ideals which strives for ethical excellence, rules, values, and character traits none of the above all of the above
Chapter 6
13. Why is the Non-Governmental Organizations accused of ethical imperialism? a. because ther require developing countries to meet their own labor and environmental standards ' b. because they have their own rules, values, and character traits c. because they impose enforcement of human rights d. none of the above e. all of the above .-. 14. What is relativism? ethical values and judgments are ultimately dependent upon, or relative to, one's culture and society there is no right or wrong, moral or immoral, just follow the intents of a particular culture or society widespread corruption in a particular country cannot be ethically criticized by foreigners, they are morally obligated to play by the rules of the country where they are operating a business d. none of the above e. all of the above
THE GLOBAL B VSINESSPLA CE AS A FIELD OF APPLIED ETHICS
CHAPTER OBJECTIVES After this chapter, the students shall be able to: understand and evaluate economic globalization; and. appreciate the need for corporate reporting in economic social and environmental terms.
CHAPTER OUTLINE Introduction Economic Globalization and the Global Busincssplace A Multi-Level and Two-Legged Approach to Business Ethics Increasing Importance o f Corporate Reporting in Economic. Social and Environmental Terms Normative Perspective for Ethical and Socially Responsible Business
Corporate
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Chapter 6 The Global Busincssplacc as a Field ofApplied Ethics
The Global Businessplace as a Held of Applied Ethics
6.1
INTRODUCTION
For several years the debate on globalization has become widespread and highly controversial as it explores what the concept is. how it impacts the world, and what it should be. as stated by J.E. Stiglitz (2002). With these' arguments, the often evoked enrage of the world as "a global village" seems rather innocent and even misleading, although it correctly points to the increasing intcrconnectedness of the world, due to an immense reduction in the cost of transportation and communication. Globalization can be understood as a kind of international system in the making. It is: not simply a trend or a fad but is rather, an international system... that has now replaced the old Cold War system, and ... has its own rules and logic that today directly or indirectly influence the politics, environment, geopolitics and economic of virtually every country in the world, as stated by T.L. Friedman (2000).
activities and their impact but also the institutions and the rules (or "the system") that govern and should govern these activities and consequences. Hence, the rules of the market in particular are at stake. It is useful to recall the strengths and weaknesses of the market in the domestic context of industrialized countries to investigate the question of what markets can and cannot provide in the international arena. Free and competitive markets, properly regulated, provide freedom to economic players (individuals, organizations, and countries). They have an equalizing impact insofar as they are based on economic performance, expressed by the price system, as distinct from non-economic characteristics such as race, gender, religion, and nationality: A t the same time, from economic theory and practical experience we know that economic growth is not necessarily sustainable. Markets by themselves cannot ensure an acceptable distribution of economic opportunities or results. Even if they are perfect, they fail in providing public goods. Moreover, some markets, particularly in the areas of labor, basic health care and education, are inherently unreliable at maximizing aggregate output in these areas, according to A . Turner (2001). Given these strengths and weaknesses of the markets in the domestic realm, these same factors must be taken seriously in the shaping of economic globalization as well. Global businessplaces need global institutions that should not only enhance freedom, efficiency, and economic growth. They should also promote sustainability and distributive justice, provide international public goods that are essential for living and collaborating in the "global village", strengthen fairness in labor markets and ensure basic health care and education (as suggested, for instance, by the capability approach in the section "Human Capabilities"). The lessons
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6.2
ECONOMIC G L O B A L I Z A T I O N AND T H E G L O B A L BUSINESSPLACE
While economic globalization is paramount important, it would be shortsighted to conceive of it exclusively in these terms (economic globalization and the global businessplace). This system in the making is about "global transformation", including, political, cultural, and environmental globalization, migration and the expanding reach of organized crimes, as stated by D. Held and A . McGrew (2002). To. understand and evaluate economic globalization, one has to investigate and account for. not only economic
Chaffer 6
The Global Businessplace as a Field of Applied Ethics
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learned in the local setting should be applied to "the international system in the making" in general and to economic globalization in particular. Nevertheless, effective, fair, and sustainable global institutions do not suffice single handcdly to make economic globalization succeed. The successful "game" depends not only on the quality of the rules but also on how "the players play" First and foremost, it is the moral responsibility of the "big players", that is, powerful nationstates, unions of states, and multinational corporations, to shape globalization according to universal, ethical standards. This enormous task includes two simultaneous tracks: the big player should exhibit exemplary behavior towards the goal of globalization "with a human face", while also fairly participating in establishing the necessary global institutions.
focus is on the individual, that is what he or she, as employee or employer, colleague or manager, consumer, supplier, or investor, does, can do, and ought to do in order to perceive and assume his or her ethical responsibility. Also groups composed of small numbers of individuals without organizational structures, making collective decisions and taking collective actions, are attributed to this level. At the meso-level, at stake is the decision making and action of economic organizations, chiefly business firms, but also trade-unions, consumer organizations, professional associations, NGOs etc. Finally, the macro-level includes the economic system as such and shaping of the overall economic conditions of business: the economic order with its multiple institutions, economic, financial, and social policies, and others. It goes without saying that this conception includes the broad field of business in society, as stated by G. Gundlach et., al. (2007). In every level (micro, meso, macro), the players are supposed to have more or less extended spaces of freedom for decision-making with corresponding ethical responsibilities, and to be limited by conditions (that is constraints) that they cannot change, at least for the time being. No level can substitute for another. This that even if all problems at one level (for example, macro-level) could be satisfactorily solved, many problems at the other levels (for instance, meso-and micro-levels) still remain. Performing responsibly at all levels can require ethical displacement, a technique of resolving a dilemma, or sometimes solving an ethical problem, by seeking a solution on a level other than the one on which the dilemma or problem appears, as stated by De' George (2006). Example, to prevent sexual harassment of saleslady, an explicit corporate policy and a sustained corporate culture (at the meso-level) might be necessary i f a change of
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6.3
A M U L T I - L E V E L AND T W O - L E G G E D APPROACH T O BUSINESS E T H I C S
In order to deal with the highly complicated challenges of business ethics in the process of economic globalization, it does not suffice to focus only on institutions and rules or on the behavior of particular states and corporations alone. Rather, a more sophisticated approach to the complex field of global marketing ethics is needed, which we might call a multi-level and two-legged approach, according to G. Enderle (1999).. To identify the subjects of responsibility, three qualitatively different levels of acting are proposed by G. Gundlach, L . Block and W. Wilkie (2007), each of which includes actors with their respective objectives, interests, and motivations: the micro, meso, and macro levels. A t the micro-level, the
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attitude and behavior by individual players (at the microlevel) is not- sufficient. If such organizations and institutions at higher levels do not exist (as is the case with many international problems), it might be necessary to create them. In order to adopt this three-level conception to" the global businessplace, we propose an extended three-level model that accounts for different types of international relations at all three levels. At the micro-level special attention is paid to personal (inner-group) relations and responsibilities across national borders; example, cross-national groups of managers and employees or cross-national families. At the meso-level the focus is on inner-organizational relations and responsibilities across national borders; example, multinational corporations. The macro-level includes innersystemic relations and responsibilities across national borders, incorporated, for instance, in bilateral agreements, regional treaties or global institutions such as the World Trade Organization (WTO). Although, the extended three-level conception helps to identify different types of players, the tow-legged approach suggests how to understand the relationship between ethics and business. As "applied ethics " can have many different communications, so does business ethics as a form of "applied ethics". One important idea is to formulate absolute ethical principles and implement them on business practices, which implies that business theory is irrelevant to business ethics. Another approach holds that business ethics has its own imperatives that are markedly, or even completely, distinct from high ethical requirements. A proposal called a two-legged approach, offers a more sophisticated understanding: on the theoretical level, "applying" means placing ethical theory and business theory in a two-way relationship that festers productive
interdisciplinary communication. With regard to practice, this combined theoretical knowledge is being "applied" to practical issues like product safety or power in the channel which, in mm, influence this theoretical knowledge. This means that business expertise as well as the theoretical knowledge of business science and ethics, and should take, them seriously by fostering mutual communication among these kinds of competencies, as stated by G. Enderle (1999).
6.4
INCREASING I M P O R T A N C E OF C O R P O R A T E REPORTING IN E C O N O M I C , SOCIAL, AND E N V I R O N M E N T A L TERMS
In exploring the emergence of ethics and CSR in the global businessplace, researchers have identified multiple forms, different players, and various underlying arguments. Compared with the 1980s, it is safe to say that today's expectations about corporate responsibilities in economic, social, and environmental terms are considerably higher; the pressures on corporations by non-governmental organizations have substantially increased; many companies have expanded their PR efforts on CSR and some also improved their behaviors; and various legal and regulatory provisions have supported the emergence of ethics and CSR. Thus, reporting on and monitoring of corporate responsibilities have gained momentum, greatly facilitated by the Internet. Today, we can find an abundance of all kinds of reports. Under a variety of titles, such as sustainability report; corporate social responsibility report; corporate citizenship report; energy report; and corporate
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responsibility report, which they vary greatly in format, length, and substance. The numbers of reports are in by the thousands and websites such as: ethicalperformance.com and wwH.globalreporting .org, regularly publicizes these reports. Nevertheless, one might evaluate the quality of those reports; the upshot is that they are now available in the public domain. The advent of blogs and critical web analyses of many corporate actions should have the effect of "Keeping companies honest'" in these reports.
6.5
NORMATIVE PERSPECTIVE F O R E T H I C A L AND S O C I A L L Y RESPONSIBLE BUSINESS
the centrality of people in all ethical exchanges and relationship. Business concepts should be directed where the needs of the consumer are placed a head before the needs of the businessmen. The upshot of basic perspective is that business managers have an undeniable responsibility to society. When businessmen treat stakeholders merely as means, they failed the test of placing people first. The iron law of responsibility and states that when entities, such as business organizations, have great economic power and do not exhibit proportionate social responsibility, they will have their power proportionately diminished, as stated by Laczniak and Murphy (2006). These points fit in well our previous discussion that identified the centrality of persons/people in all ethical relationships. If businessmen are to place people as the central point of their activities, they will certainly be successful. The discussion of the iron law of responsibility means that more is expected of the larger organizations, as we noted above,. Consequently, Walmart; Tesco; Toyota; Sony and other multinational manufacturers or retailers should be expected to take the lead in bringing responsible behavior to the markets where they operate. The other basic perspective that relates indirectly to our analysis here is thefifthone. According to G. Laczniak and P.E. Murphy (2006): "businessmen who aspire to operate on a high ethical plane should articulate and embrace a core set of ethical principles. These principles should address ethical issues concerning the Tightness or fairness of various business strategies. The first is the principle of "nonmalfeasance" means that businessmen should never knowingly do harm when discharging business duties. The area of product safety is one where much attention has been devoted over the years. Multinational Corporations have been charged over the years for "dumping" less safe
G.R. Laczniak and P.E. Murphy (2006) suggested seven basic perspectives for ethical and socially responsible business, such as: , 1. Ethical business puts people first. 2. Ethical business must achieve a behavioral standard in excess of the law. 3. Businessmen arc responsible for whatever they intend as a means or ends with a business action. 4. Business organizations should cultivate better (that is higher) moral imagination in their managers and employees. 5. Business should articulate and embrace a core set of ethical principles. 6. Adoption of a stakeholder orientation is essential to : ethical decisions. . 7. Business organizations ought to delineate an ethical decision-making protocol. While all the seven basic perspectives have relationship to the topics discussed in Part II, we concentrate on two of them here - 1 and 5. The first basic perspective focuses on
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products in lesser developed countries. Recently, imports ranging from tire, housing materials, foodstuffs and others from China to other countries have been criticized for not meeting safety laws. The second principle is one of "non-deception". This principle states that businessmen ought to never intentionally mislead or unfairly manipulate consumers. This is obviously consistent with basic perspective no. 1 's notion of respecting people. Deceptions, such as overselling extended warranties, channel stuffing by sales representatives and promising more than any product can violate this principle. Safeguarding vulnerable segments represents the third principle. Uniquely vulnerable segments include children, the elderly, mentally or physically handicapped and economically disadvantaged consumers. Businessmen must always take extraordinary care when engaging in exchanges with vulnerable segments as stated by G. G. Brenkert (1998). Multinational businessmen have been criticized over the years for exploiting consumers who lack education or sophistication in the workings of the businessplace. The new focus on the base of the pyramid as a. market (C.K. Prahalad 2005) will necessitate that businessmen take precautions in dealing with emerging markets.
' ........
A fifth principle of enlightened business is "stewardship" which reminds businessmen of their social duties to do the common good. Following this principle, managers are obligated to ensure that their operations will not impose external costs on society, especially the physical environment, that result from their internal operations. Employing illegal immigrants at reduced wages to reduce costs, while knowing that incremental social costs accrue to the community (example, additional healthcare, education and law enforcement) is an example of violation of this principle. The stewardship principle particularly addresses environmental/ecological responsibilities of businessmen. It suggests that businessmen have a moral obligation to protect the environment via a socially sustainable pattern of consumption such that damages are not imposed on the ecological system in a way that penalizes future generations. Although some business organizations initially looked at the environment as only a promotional opportunity and were guilty of "greenwashing" by touting products of questionable environmental as being compatible, such as plastic trash bags, several firms such as Interface and its visionary chairman Ray Anderson have embraced sustainable practices and changed their products and business efforts dramatically, as stated by P. E. Murphy (2005). Whereas many other business issues such as bribery, branding, selling and product pricing in international markets have ethical and Corporate Social Responsibility (CSR) implications, we believe that the concepts and principles discussed above (Part II) can be applied to business organizations regarding the ethical and social dimensions of their decisions are increasing. This strengthened global expectation means that greater scrutiny
The-fourth essential moral percept for business is the principle of "distributive justice ". This principle suggests that, there . is an obligation in the part of all business organizations to. assess the fairness of businessplace consequences,, flowing from their collective business practices. The theoretical foundation for the principle of M^^^M'M^? . finding of John Rawls (1971).
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is given to even everyday business decisions. The need for transparency and the knowledge that corporate ethical reputation matters are forces that cannot be resisted by businessmen. Henceforth, we conclude that ethical and Corporate Social Responsibility (CSR) issues should play a vital role in both business strategy development and execution in both local and international markets.

1. Forces that should be avoided by businessmen: a. The need for transparency b. The knowledge that corporate ethical reputation matters c. Implications caused by bribery d. None of the above e. All of the above 2. The following are basic perspectives for ethical and socially responsible business except: a. Businessmen are responsible for whatever they intend as a means or ends with a business action. b. Business organizations should cultivate better (that is higher) moral imagination in their managers and employees. c. Business should articulate and embrace a core set of ethical principles. d. None of the above e. All of the above 3. Which is a perspective for ethical and socially responsible business? a. Ethical business puts people first. b. Ethical business must achieve a behavioral standard in excess of the law. c. Adoption of a stakeholder orientation is essential to ethical decisions. d. None of the above e. All of the above 4. An example of violation of stewardship:
Chapter ' Hhat Good Governance Chapter 7 What is Good Governance
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INTRODUCTION
In an article entitled "The future of corporate governance" written by Mr. Benjamin A.I. Espiritu (Chairman of the Business and Governance Department of the De La SalleProfessional Schools Inc. Graduate School of Business") for Business Mirror on May 31, 2006, Mr. Espiritu said: In May 2001, the Bangko Sentral N g Pilipinas (BSP) issued Circular 283 mandating the adoption of good corporate governance practices by members of the boards of directors of banks and non-bank financial institutions under its jurisdiction. In April of the following year, the Securities and Exchange Commission (SEC) came out with its Code of Corporate Governance. This code covered corporations whose securities are registered or listed, corporations which are grantees of permits/licenses and secondary franchise from the SEC, and public companies and branches or subsidiaries' of foreign corporations operating in the Philippines whose securities are registered or listed. In July of the same year, the Insurance Commission (IC) promulgated the Code of Corporate Governance for Insurance Companies and Intermediaries. The IC Code applies to all life, non-life insurance companies, professional reinsurers and insurance intermediaries. In June 2004, the Energy Regulatory Commission (ERC) launched its program to promote good corporate governance in distribution utilities. To ensure that good corporate governance practices are internalized, the four government agencies took the extra
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WHAT IS GOVERNANCE?
After tli is chapter, you should be able to: learn the relationship between shareholders, bondholders, bankers and directors, the potential for conflicts of interests and the effect of the agency theory on concepts of governance; and, understand and appreciate the SEC requirements on Corporate Social Responsibility.
CONTENT OUTLINE
Introduction Definition of Corporate Governance What is Corporate Governance? How is Corporate Governance Affecting the Rules and the Environment of Doing Business? The Relationship Between Shareholders, Bondholders, Bankers and Directors; the Potential for Conflicts of Interests; the Effect of the Agency Theory on Concepts of Governance Securities and Exchange Commission of the Philippines Model
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step of mandating the training of the directors of the companies. The promulgation of the corporate governance codes and the training required for members of the board of directors of companies regulated by the BSP, SEC. IC and ERC has forever changed the character of corporate governance in the Philippines. It has clarified the role of the board of directors vis-a-vis that of management, resulting in more active and proactive boards. No longer will boards of directors be considered as mere "rubber-stamps" of management actions. However, people often ask how long these reforms will last. Is it simply a fad? Will the focus on good corporate governance decrease and slowly die down as the years go by? What is the future of corporate governance in the Philippines?
and contributes competitiveness.
to
the
nation's
economic
2. Corporate governance regulations will be encouraged, and may even be mandated, for small and mediumsized enterprises. This will happen because minority shareholders and other stakeholders will demand it for the protections of their interests. Likewise, since good corporate governance has been proven io enhance shareholder value and contribute to the nation's economic competitiveness, it is in the interest of smalland medium-sized enterprises to adopt it. 3. There will be an increasing number of familycorporations that will employ formal family governance structures. Given the need to comply with corporate governance regulations, and a real desire to have good corporate governance, an increasing number of family corporations will have formal family governance structures with a family council, family assembly and/or advisory council. 4. There will be increased independence in the relationship between the board of directors and management. This check and balance will come about as a natural consequence of the boards of directors doing their job as mandated by regulation and by global practices, by management adhering to its role as the implementer of the policies promulgated by the board, and by shareholders and other stakeholders demanding it. particularly for publicly listed companies. Regardless of the size of the company, the days of the "rubber-stamp" board will be, generally, a thing of the past A l l of the preceding will generally mean better governance
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The continuation of the corporate governance training program, observed supervision of the regulatory agencies. y - t - V conversations with several directors, shareholders and , stakeholders of various companies covered by the corporate ... governance regulations make me venture this forecast: 1. The focus on corporate governance, the measures taken . to have good corporate governance practices in companies covered by corporate governance regulations, will continue. Corporate governance is not a fad but an actual improvement in the manner by '_ which companies are directed and controlled. Corporate governance will be institutionalized because: 1) best global practices dictate it; 2) it is "necessary in a globalized and competitive economy; and 3) it truly contributes to :he enhancement of shareholder value
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by the board of directors, and better management by the company's managers. This all redounds to the benefit of the shareholders and other stakeholders, the public at large, and the nation as a whole.
In 2002, the US federal government passed the SarbanesOxley Act. intending to restore public confidence in corporate governance.
7.2 7.1 DEFINITION OF C O R P O R A T E GOVERNANCE
W H A T IS C O R P O R A T E GOVERNANCE?
Corporate governance is the set of processes, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled. Corporate governance also includes the relationships among the many stakeholders involved and the goals for which the corporation is governed. The principal stakeholders are the shareholders, management and the board of directors. Other stakeholders include employees, suppliers, customers, banks and other lenders, regulators, the environment and the community at large. Corporate governance is a multi-faceted subject. An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem, A related, but separate thread of discussions, focus on the impact of a corporate governance system in economic efficiency, with a strong emphasis on shareholders welfare. There are yet other aspects to the corporate governance subject, such as the stakeholders' view and the corporate governance models around the world. There has. been renewed interest in the corporate governance practices of modem corporations since 2001. particularly due to the high-profile collapses of a number of large U.S. firms such as Enron Corporation and Worldcom.
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A variety of definitions of corporate governance has evolved. The Philippine SEC defines corporate governance as a system whereby shareholders, creditors and other stakeholders of a corporation are assured that management enhances the value of the corporation as it competes in an increasingly global market place. The Organization for Economic Cooperation and Development (OECD) has a broad definition of corporate governance as the system by which business corporations are directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as the board, managers, shareholders and other stakeholders, and spells out the rules and procedures for making decisions on corporate affairs. It also provides the structure through which the company sets its objectives, and the means to attain those objectives and to monitor performance. The Financial Times narrowly defines corporate governance as the relationship of a company to its shareholders or, more broadly, as its relationship to society. J. Wolfenshon, president of World Bank sees corporate governance as promoting corporate fairness, transparency and accountability.
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In a wider sense, corporate governance has been described by Professor Kenneth Scott of Stanford Law School: In its most comprehensive sense, corporate governance includes every force that bears on the decision-making of the firm. That would encompass not only the control risk of stockholders, but also the contractual covenants and insolvency powers of debt holders, the. commitments entered into by employees, customers and suppliers, the regulations issued by government agencies, and the statutes enacted by parliamentary bodies. The foregoing definitions are very technical in nature. Perhaps, corporate governance can simply be defined as that set of rules that govern the internal relations of various stakeholders within the corporate organization and in the community where it operates, in order to provide for integrity and honesty in decision making and to ensure transparency and accountability in the system.
The CEOs/CFOs are required to issue certifications of annual and quarterly financial reports. Off-balance sheet disclosures are now required. The board audit committee is mandated to be independent. The external auditor is selected by the audit committee. It establishes for the first time a mandatory government-sponsored body to oversee the accounting profession. This is one noticeable reform element of SOA. Lawyers are required to report securities violations. Protection is now given to employceswhistlcblowers. Management is generally prohibited from taking out personal loans from the company. Auditors are prohibited from providing non-audit services. These US securities reforms are intended to 1) make management more accountable: 2) increase required disclosure; 3) strengthen the authority and obligations of corporate gatekeepers and outside advisors; 4) remove conflicts of interest of management, auditors, gatekeepers and advisors: 5) regulate'auditors strongly; and 6) improve guidance about accounting standards. These reforms are inviting reviews and revisions of similar rules in other places. Some are adopting somewhat similar rules. In the Philippines, the SEC has issued new rules on the subject. Listed companies are now required to adopt a Manual on Corporate Governance (Manual) and a Code of Conduct (Please refer to the model on Exhibit 10). These companies were also required to submit a corporate governance rating form indicating their level of compliance with the new rules, as well as annual certifications on the companies' compliance with their respective Manuals. Others are more cautious and passively waiting for the next developments. A few are cynical and are questioning
7.3
HOW IS C O R P O R A T E G O V E R N A N C E A F F E C T I N G T H E RULES A N D T H E ENVIRONMENT O F DOING BUSINESS?
The fiasco of Enron, WorldCom and the like is shaping a new regulatory landscape in world business. The emerging scenario is characterized as reportorial and penalty heavy, and monitoring sensitive. The US SEC and the New YorkStock Exchange (NYSE) have prescribed numerous reportorial certifications and requirements, hopefully to enable the regulators to monitor compliance, deviations and violations in a timely manner and to act. with dispatch.
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whether adopting new securities rules is the appropriate response to the problem.
7.4
T H E RELATIONSHIP B E T W E E N SHAREHOLDERS, BONDHOLDERS, BANKERS AND DIRECTORS; T H E POTENTIAL FOR CONFLICTS O F INTERESTS; T H E E F F E C T O F T H E A G E N C Y T H E O R Y ON C O N C E P T S OF G O V E R N A N C E
Corporate governance is an expansive topic that refers to the power-sharing arrangement between a company's shareholders, its board of directors, and its senior management. The actual power-sharing arrangement of a corporate entity depends upon its rules of governance and the rules that define and protect the rights, responsibilities, and claims of the three relevant parties: shareholders, directors, and management. Corporate governance rules are established by firm-specific charters and bylaws, as well as by statutes and regulations promulgated by state and national governments. The federal and state judicial systems likewise play a major role in corporate governance matters through an on-going process of litigation, interpretation, and enforcement. The essence of a corporate governance failure is where the managers of a firm, acting as agents for the shareholder, seek to improve themselves at the expense of the shareholders. The recent collapses of Enron and Worldcom have been characterized as corporate governance failures. These very public corporate blow-ups" have resulted in actions taken by legislators, regulators, stock exchanges, and institutional investors such as the Virginia Retirement
System and have caused a rethinking of the relationship between corporate management and shareholders. Shareholders have finally started to protest, claiming that management is not serving them, as they should. As the owners of the companies, shareholders are able, at least in theory, to rectify this. There is a growing perception that managers have become insufficiently accountable to shareholders, from blatant theft, as is alleged in the case of Adelphia, to bad investments in the case of Time Warner's purchase of A O L . The objective of the Corporate Governance Task Force is to identify sources of governance problems and to recommend actions that should be taken by VRS to encourage good corporate governance practices in order to improve the returns generated by VRS. Achieving this objective requires a consideration of the costs to VRS associated with reducing possible future corporate governance failures. Many researchers have examined the subject of corporate governance. Perhaps not surprisingly, their findings do not reach a clear consensus regarding the effectiveness of particular governance rules for improving corporate performance and whether shareholders are successful in changing governance rules. These mixed results serve to emphasize that "good governance" practices may not be universal one practice does not necessarily fit all enterprises and thereby the task of identifying best governance rules requires considerable expertise and idiosyncratic analysis. In practical terms, this simply means that the knowledge to distinguish between good and bad corporate governance and the actions required to address governance problems involves costs that must be weighed against the potential benefits.
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7.5
SECURITIES AND E X C H A N G E COMMISSION O F T H E PHILIPPINES MODEL
the position of a Vice President or its equivalent. He shall have direct reporting responsibilities to the Chairman of the Board. 2.1.2 He shall perform the following duties: o Monitor compliance with the provisions and requirements of this Manual; Appear before the Securities and Exchange Commission upon summon on similar matters that need to be clarified by the same; Determine violation/s of the Manual and recommend penalty for violation thereof for further review and approval of the Board; Issue a certification every January 30th of the year on the extent of the Corporation's compliance with this Manual for the completed year, explaining the reason/s of the latter's deviation from the same; and Identify, monitor and control compliance risks.
Securities and Exchange Commission of the Philippines issued this model manual on Corporate Governance Model Corporation The Board of Directors and Management, Officers and Staff of Model Corporation hereby commit themselves to the principles and best practices contained in this Manual, and acknowledge that the same may guide the attainment of our corporate goals.
OBJECTIVE o
This Manual shall institutionalize the principles of good corporate governance in the entire organization. The Board of Directors and Management, employees and shareholders, believe that corporate governance is a necessary component of what constitutes sound strategic business management and will therefore undertake every effort necessary to create awareness within the organization as soon as possible.
2.1.3
2 . 2.1.
COMPLIANCE SYSTEM Compliance Officer 2.1.1. To insure adherence to corporate principles and best practices, the Chairman of the Board shall designate a Compliance Officer who shall hold
The appointment of the compliance officer shall be immediately disclosed to the Securities and Exchange Commission on SEC Form 17-C. A l l correspondence relative to his functions as such shall be addressed to said Officer.
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2.2.
Plan of Compliance 2.2.1. Board of Directors Compliance with the principles of good corporate governance shall start with the Board o f Directors. It shall be the Board's responsibility to foster the longterm success of the Corporation and secure its sustained competitiveness in a manner consistent with its fiduciary responsibility, which it shall exercise in the best interest of the Corporation, its shareholders and other stakeholders. The Board shall conduct itself with utmost honesty and integrity in the discharge of its duties, functions and responsibilities. 2.2.1.1. General Responsibility
Ensure that the Corporation complies with all relevant laws, regulations and codes of best business practices; Identify the Corporation's major and other stakeholders and formulate a clear policy on communicating or relating with them through an effective investor relations program; Adopt a system of internal checks and balances; Identify key risk areas and key performance indicators and monitor these factors with due diligence; Properly discharge Board functions by meeting regularly. Independent views during Board meetings shall be given dueconsideration and all such meetings shall be 'duly minuted: and Keep Board authority within the powers of the institution as prescribed in the Articles of Incorporation, By-Laws and in existing laws, rules and regulation.
o A director's office is one of trust and confidence. He shall act in a manner characterized by transparency, accountability and fairness. 2.2.1.2 Specific Duties and Functions o
To insure a high standard of best practice for the Corporation and its stakeholders, the Board shall:
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Install a process of selection to ensure a mix of competent directors and officers. Determine the Corporation's purpose, its vision and mission and strategies to carry out its objectives.
2.2.1.3. Duties and Responsibilities of a Director A director shall have the following duties and responsibilities:
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To conduct fair business transactions with the Corporation and to ensure that personal interest does not bias Board decisions; To devote time and attention necessary to properly discharge his _ duties and responsibilities; To act judiciously;
whom must be independent) and one (1) nonvoting Director in the person of the H R Director/Manager. 2.2.2.1.1. It shall prc-screen and. shortlist all candidates nominated to become a member of the board of directors in accordance with the following qualifications and disqualifications: Qualifications
o o o
To exercise independent judgment; o To have a working knowledge of the statutory and regulatory requirements affecting the Corporation, including the contents of its Articles of Incorporation and By-Laws, the requirements of the Commission, and where applicable, the requirements of other regulatory agencies. To observe confidentiality; To ensure the continuing soundness, effectiveness and adequacy of the Corporation's control environment. Board Committees Disqualifications Holder of at least one (1) share of stock of the Corporation; He shall be at least a college graduate or have sufficient experience in managing the business to substitute for such formal education;
o o
o He shall be at least twenty one (21) years ' old; o . He shall have proven to possess integrity and probity; and o He shall be assiduous.
2.2.2.
-To aid in complying with the principles of good corporate governance, the Board shall constitute Committees. 2.2.2.1 Nomination Committee
Any person finally convicted judicially of an offense involving moral turpitude or fraudulent act or transgressions; Any person finally found by the Commission or a court or other administrative body to have willfully
ci The Board shall create a Nomination Committee which shall have at least three (3) voting (one of
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violated, or willfully aided, abetted, counseled, induced or procured the violation of, any provision of the Securities Regulation Code, the Corporation Code, or . any other law administered by the Commission or Bangko Sentral ng Pilipinas. or any rule, regulation or order of the Commission or Bangko Sentral ng Pilipinas; o Any person insolvent; judicially declared to be
Absence or non-participation for whatever reason/s for more than fifty percent (50%) of all meetings, both regular and special, of the Board of directors during his incumbency, or any twelve (12) month period during said incumbency. This disqualification applies for purposes of the succeeding election: Dismissal/termination from directorship in another listed corporation for cause. This disqualification shall be in effect until he has cleared himself of any involvement in the alleged irregularity; Being under preventive suspension by the Corporation;
Any person finally found guilty by a foreign court or equivalent financial regulatory authority of acts, violations or misconduct similar to any of the acts, violations or misconduct listed in the foregoing paragraphs: and Conviction by final judgment of an offense punishable by imprisonment for a period exceeding six (6) years, or a violation of the Corporation Code, committed within five (5) years prior to the date of his election or appointment.
If the independent director becomes an officer or employee of the same corporation . he shall be automatically disqualified from being an independent director, 4 o Conviction that has not yet become final referred to in the grounds for the disqualification of directors. 2.2.2.1.2. In consultation with the executive or management committee/s, re-define the role, duties and responsibilities of the Chief Executive Officer by integrating the dynamic requirements of the business as a going concern and future expansionary prospects within the realm of good corporate governance at all times. 2.2.2.1.3. The Nomination Committee shall consider the following guidelines in the
Any of the following shall be a ground for the temporary disqualification of a director: o Refusal to fully disclose the extent of his business interest as required under the Securities Regulation Code and its Implementing Rules and Regulations. This disqualification shall be in effect as long as his refusal persists;
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determination of the number of directorships for the Board: c The nature of the business of the
2.2.2.2.2 Duties and Responsibilities o Establish a formal and transparent procedure for developing a policy on executive remuneration and for fixing the remuneration packages of corporate officers and directors, and provide oversight over remuneration of senior management and other key personnel ensuring that compensation is consistent with the Corporation's culture, strategy and control environment. Designate amount of remuneration, which shall be in a sufficient level to attract and retain directors and officers who are needed to run the company successfully.
Corporations which he is a director; o Age of the director: of and directorships/active officerships in other
o Number memberships
corporations or organizations: and c Possible conflict of interest. o
The optimum number shall be related to the capacity of a director to perform his duties diligently in general. 2.2.2.1.4. The Chief Executive Officer and other executive directors shall submit themselves to a low indicative limit on membership in other corporate Boards. The same low limit shall apply to independent, nonexecutive directors who serve as full-time executives in other corporations. In any case, the capacity of directors to serve with diligence shall not be compromised.
o Establish a formal and transparent procedure . for developing a policy on executive remuneration and for fixing the remuneration packages of individual directors, if any, and officers. c Develop a form on Full Business Interest Disclosure as part of the pre-employment requirements for all incoming officers, which among others compel all officers to declare under the penalty of perjury all their existing business interests or shareholdings that may directly or indirectly conflict in their performance of duties once hired. Disallow any director to decide his or her own remuneration.
2.2.2.2. Compensation Committee
and
Remuneration
2.2.2.2.1 The Compensation or Remuneration Committee shall be composed of at least three (3) members, "one of whom shall be an independent director.
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Provide in the Corporation's annual reports, information and proxy statements a clear, concise and understandable disclosure of compensation of its executive officers for the previous fiscal year and the ensuing year. Review (if any) of the existing Human Resources Development or Personnel Handbook, to strengthen provisions on conflict of interest, salaries and benefits policies, promotion and career advancement directives and compliance of personnel concerned with all statutory requirements that must be periodically met in their respective posts. Or in the absence of such Personnel Handbook, cause the development of such, covering the same parameters of governance stated above.
Check all financial reports against its compliance with both the internal financial management handbook and pertinent accounting standards, including regulatory requirements. Perform oversight financial management functions specifically in the areas of managing credit, market, liquidity, operational, legal and other risks of the Corporation, and crisis management. Pre-approve all audit plans, scope and frequency one (1) month before the conduct of external audit. Perform direct interface functions with the internal and external auditors. Elevate to international standards the accounting and auditing processes, practices and methodologies, and develop the following in relation to this reform: a. A definitive timetable within which the accounting system of the Corporation will be 100% International Accounting Standard (IAS) compliant. b. An accountability statement that will specifically identify officers and/or personnel directly responsible for the accomplishment of such task.
o o
o o
2.2.2.3. Audit Committee 2.2.2.3.1 The audit committee shall be composed of at least three (3) members of the Board, one (1) of whom shall be an independent director. Each member shall have adequate understanding at least or competence at most of the company's financial management systems and environment. 2.2.2.3.2 Duties and Responsibilities
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Develop a transparent financial management system that will ensure the integrity of internal control activities throughout the company through a stepby-step procedures and policies handbook that will be used by the entire organization.
Assist the Board in making business judgment in good faith and in the performance of their responsibilities and obligations. Attend all Board meetings and maintain record of the same. Submit to the Commission, at the end of every fiscal year, an annual certification as to the attendance of the directors during Board meetings.
o 2.3.3. The Corporate Secretary 2.3.3.1 The Corporate Secretary is an officer of the company and perfection in performance and no surprises are expected of him. Likewise, his loyalty to the mission, vision and specific business objectives of the corporate entity come with his duties. 2.3.3.2 The Corporate Secretary shall be a Filipino citizen. 2.3.3.3 Considering his varied functions and duties, he must possess administrative and interpersonal skills, and i f he is not the general counsel, then he must have some legal skills. He must also have some financial and accounting skills. 2.3.3.4. Duties and Responsibilities o Gather and analyze all documents, records and other information essential to the conduct of his duties and responsibilities to the Corporation.
2.3.4. External Auditor 2.3.4.1 T A n external auditor shall enable an environment of good corporate governance as reflected in the financial records and reports of the company, an external auditor shall be selected and appointed by the stockholders upon recommendation pf the Audit Committee. 2.3.4.2. The reason/s for the resignation, dismissal or cessation from service and the date thereof of an external auditor shall be reported in the company's annual and current reports. Said report shall include a discussion of any disagreement with said former external auditor on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure. 2.3.4.3 The external auditor of the company shall not at the same time provide the services of an internal auditor to the same client. The Corporation shall ensure that other non-audit work shall not be in conflict with the functions of the external auditor.
. . ' o As to agenda, get a complete schedule thereof at ... least for the current year and put the Board on ":" notice before every meeting.
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2.3.4.4. The company's exiemal auditor shall be rotated or the handling partner shall be changed every five (5) years or earlier. 2.3.4.5. If an external auditor believes that the statements made in the company's"~annual report, information statement or proxy statement filed during his engagement is incorrect or incomplete, he shall present his views in said reports. 2.3.5. Internal Auditor 2.3.5.1. The Corporation shall have in place an independent internal audit function which shall be performed by an Internal Auditor or a group of Internal Auditors, through which it's Board, senior management, and stockholders shall be provided with reasonable assurance that its key organizational and procedural controls are effective, appropriate, and complied with. 2.3.5.2. The Internal Auditor shall report to the Audit Committee. 2.3.5.3. The minimum internal control mechanisms for management's operational responsibility shall center on the CEO, being ultimately accountable for the Corporation's organizational and procedural controls. 2.3.5.4. The scope and particulars of a system of effective organizational and procedural controls shall be based on the following factors: the nature and complexity of business and the business culture; the volume, size and complexity of transactions; the degree of risk; the degree of
Corporate Social Responsibility and Good Governance ] 82
centralization and delegation of authority; the extent and effectiveness of information technology; and the extent of regulatory compliance. COMMUNICATION PROCESS 3.1. This manual shall be available for inspection by any stockholder of the Corporation at reasonable hours on business days. 3.2. A l l directors, executives, division and department heads are tasked to ensure the thorough dissemination of this Manual to all employees and related third parties, and to likewise enjoin compliance in the process. 3.3. An adequate number of printed copies of this Manual must be reproduced under the supervision of HRD, with a minimum of at least one (1) hard copy of the Manual per department. TRAINING PROCESS 4.1 If necessary, funds shall be allocated by the C F O or its equivalent officer for the purpose of conducting an orientation program or workshop to operational ize this Manual. A director shall, before assuming as such, be required to attend a seminar on corporate governance which shall be conducted by a duly recognized private or government institute.
4.2.
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REPORTORIAL OR DISCLOSURE SYSTEM OF COMPANY'S CORPORATE GOVERNANCE POLICIES
external parties concerned, as governance covenant between the company and all its investors: 6.1 INVESTORS' RIGHTS AND PROTECTION 6.1.1 Rights of Investors/Minority Interests The Board shall be committed to respect the following rights of the stockholders: 6.1.2 Voting Right 6.1.2.1 Shareholders shall have the right to elect, remove and replace directors and vote on certain corporate acts in accordance with the Corporation Code. 6.1.2.2 Cumulative voting shall be used in the election of directors. 6.1.2.3 A director shall not be removed without cause if it will deny minority " shareholders representation in the Board. Pre-emptive Right A l l stockholders- shall have pre-emptive rights, unless the same is denied in the articles of incorporation or an amendment thereto. They shall have the right to subscribe to the capital stock of the Corporation. The Articles of Incorporation shall lay down the specific rights and powers of shareholders with respect-to the particular shares they hold, all of which shall
5.1. The reports or disclosures required under this Manual shall be prepared and submitted to the Commission by the responsible Committee or officer through the Corporation's Compliance Officer; 5.2. A l l material information, i.e., anything that could potentially affect share price, shall be publicly disclosed. Such information shall include earnings results, acquisition or disposal of assets, board changes, related party transactions, shareholdings of directors and changes to ownership. 5.3. Other information that shall always be disclosed includes remuneration (including stock options) of all directors and senior management corporate strategy, and off balance sheet transactions. 5.4. A l l disclosed information shall be released via the approved stock exchange procedure for company announcements as well as through the annual report. 5.5. The Board shall commit at all times to fully disclose material information dealings. It shall cause the filing of all required information for the interest of the stakeholders. 6 SHAREHOLDERS' BENEFIT The company recognizes that the most cogent proof of good corporate governance is that which is visible to the eyes of its investors. Therefore the following provisions are issued for the guidance of all internal and
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be protected by law so long as they shall not be in conflict with the Corporation Code. 6.1.4 Power of Inspection A l l shareholders shall be allowed to inspect corporate books and records including minutes of Board meetings and stock registries in accordance with the Corporation Code and shall be furnished with annual reports, including financial statements, without cost or restrictions. 6.1.5 Right to Information 6.1.5.1 The Shareholders shall be provided, upon request, with periodic reports which disclose personal and professional information about the directors and officers and certain other matters such as their holdings of the company's shares, dealings with the company, relationships among directors and key officers, and the aggregate compensation of directors and officers. 6.1.5.2 The minority shareholders shall be granted the right to propose the holding of a meeting, and the right to propose items in the agenda of the meeting, provided the items are for legitimate business purposes. 6.1.5.3 The minority shareholders shall have access to any and all information relating to matters for which the management is accountable for and to those relating . to matters for which the
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management shall include such information and, if not included, then the minority shareholders shall be allowed to propose to include such matters in the agenda of stockholders* meeting, being within the definition of "legitimate purposes". 6.1.6 Right to Dividends 6.1.6.1 Shareholders shall have the right to receive dividends subject to the discretion of the Board. 6.1.6.2 The company shall be compelled to declare dividends when its retained earnings shall be in excess of 100% of its paid-in capital stock, except: a) when justified by definite corporate expansion projects or programs approved by the Board or b) when the corporation is prohibited under any loan . agreement with any financial institution or creditor, whether local or foreign, from declaring dividends without its consent, and 'such consent has not been secured; or c) when it can be clearly shown that such retention is necessary under special circumstances obtaining in the Corporation, such as when there is a need for special reserve for probable contingencies. 6.1.7 Appraisal Right The shareholders' shall have appraisal right or the right to dissent and demand payment of the fair value of their shares in the manner provided for under Section 82 of the
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Corporation Code of the Philippines, under any of the following circumstances: o In case any amendment to the articles of incorporation has the effect of changing or restricting the rights of any stockholders or class of shares, or of authorizing preferences in any respect superior to those of outstanding shares of any class, or of extending or shortening the term of corporate existence; In case of sale, lease, exchange, transfer, mortgage, pledge or other disposition of all or substantially all of the corporate property and assets as provided in the Corporation Code; and 7
necessary to make informed subject to legal constraints. MONITORING AND ASSESSMENT
decisions
7.1. Each Committee shall report regularly to the Board of Directors. 7.2. The Compliance Officer shall establish an evaluation system to determine and measure compliance with this Manual. Any violation thereof shall subject the responsible officer or employee to the penalty provided under Part 8 of this Manual.
*
o In case of merger or consolidation. 6.1.8 It shall be the duty of the directors to promote shareholder rights, remove impediments to the exercise of shareholders' rights and allow possibilities to seek redress for violation of their rights. They shall encourage the exercise of shareholders' voting rights and the solution of collective action problems through appropriate mechanisms. They shall be instrumental in removing excessive costs and other administrative or practical impediments to shareholders participating in meetings and/or voting in person. The directors shall pave the way for the electronic filing and distribution of shareholder information
7.3. The establishment of such evaluation system, including the features thereof, shall be disclosed in the company's annual report (SEC Form 17-A) or in such form of report that is applicable to the Corporation. The adoption of such performance evaluation system must be covered by a Board approval. 7.4. This Manual shall be subject to quarterly review unless the same frequency is amended by the Board. 7.5. A l l business processes and practices being performed within any department or business unit of Model Corporation that are not consistent with any portion of this manual shall be revoked unless upgraded to the compliant extent
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PENALTIES F O R N O N - C O M P L I A N C E WITH THE M A N U A L 8.1. To strictly observe and implement the provisions of this manual, the following penalties shall be imposed, after notice and hearing, on the company's directors, officers, staff, subsidiaries and affiliates and their respective directors, officers and staff in case of violation of any of the provision of this Manual: o In case of first violation, the subject person shall be reprimanded. Suspension from office shall be imposed in case of second violation. The duration of the suspension shall depend on the gravity of the violation.

TRUE OR FALSE If the statement is true, write the word " T R U E " ; i l otherwise, write the word, " F A L S E " , opposite the corresponding number. 1- Corporate governance is the set of processes, customs, policies, laws and institutions affecting the way a corporation is directed, administered or controlled. 2. The, Philippine SEC defines corporate governance as a system whereby shareholders, creditors and other stakeholders of a corporation are assured that management enhances the value of the corporation as it competes in an increasingly global market place. 3. An important theme of corporate governance is to ensure the accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem 4. Corporate governance is not a fad but an actual improvement in the manner by which companies are directed and controlled. 5. Corporate governance clarified the role of the board of directors vis-a-vis that of management, resulting in more active and proactive boards. 6. The fiasco of Enron, WorldCom and the like is shaping a new regulatory landscape in world business resulting to numerous reportorial certifications and requirements, hopefully to enable the regulators to monitor compliance, deviations and violations in a timely manner and to act widi dispatch. i orpin me Social Responsibility and Good Governance
o For third violation, the maximum penalty of removal from office shall be imposed. 8.2. The commission of a third violation of this. manual by any member of the board of the company or its subsidiaries and affiliates shall be a sufficient cause for removal from directorship. 8.3. The Compliance Officer shall be responsible for determining violation's through notice and \-, - hearing and shall recommend to the Chairman of the Board the imposable penalty for such violation, for further review and approval of the . Board... ., .'
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c.
d. c.
ensures accountability of certain individuals in an organization through mechanisms that try to reduce or eliminate the principal-agent problem none of the above all of the above
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8. Duties and responsibilities of the audit committee: a. Check all financial reports for compliance with both the internal financial management handbook and pertinent accounting standards, including regulatory requirements b. Perform oversight financial management functions specifically in the areas of managing credit, market, liquidity, operational, legal and other risks of the Corporation C. Perform direct interface functions with the internal and external auditors d none ol the above v. nil ol tin above
'
THE ORGANIZATION'S CULTURE AND VALUES
CHAPTER OBJECTIVES After this chapter, you should be able to: explain the importance of organization's culture and values: critique your organization's core values and beliefs; and, formulate and improve your Organization's Valuesand-Beliefs Statement.
ate high profile corporations in the US that collapsed except: a I.nron Corporation b. Worldcom c. San Miguel Corporation d. None of the above c. All of the above
I IK IOIIOVNMIJ'
CONTENT OUTLINE Introduction Organization's Culture Organization's Values Declared and Operative Values Values Held and Practiced Consistently Organization's Core Values Organization's Core Values and Beliefs Examples O f Core Corporative Values Organization's Values-and-Beliefs Statement
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10. Corporate governance rules are established by the following except: a. , firm-specific charters and bylaws b. statutes and regulations promulgated by state and national governments c. judicial systems d. none of the above e. all of the above
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Chapter 8 Organization s Culture and Values
INTRODUCTION
Vision, mission and culture are inter-connccted. Vision and mission are shaped by culture and culture comes alive through vision and mission. Vision and mission are the major external focus for our actions. But an organizations' culture provides the underlying foundation for our actions and behavior. Values are the bedrock of corporate culture and the essence of an organization's philosophy. They provide guidelines for working with and relating to one another.
confrontation because it was believed that workforce was led by radical socialistic or communistic unions. 3. Characteristic Beha\>iors cover a broad range of topics. Some key aspects include the following: a. Management Style: Is the decision-making style collaborative or autocratic? Are managers available and approachable? Do managers practice "management by walking about (MBWA)?"
b. Relationships:
8.1
ORGANIZATION'S C U L T U R E
Do people address each other formally or informally? Do people interact across different levels in the organization? Do people relate to each another socially as well as at work?
An organization's culture is an amalgam of: Shared values; a common mindset; characteristic behaviors - "The way we do things around here"; and symbols of various kinds, as stated by A . D'Souza: 1. Shared Values are standards by which members of an organization coilectively_see as important. Therefore, they tend to guide behavior, relationships and interactions. There is an important difference, however, between declared values to which mere lh>service may be paid and operative values that are actually put into practice and deeply seated. Organizations may draw up fine-sounding lists of values but embedding such values into the culture is much more difficult. 2. Common Mindset or paradigm consists of a set of shared assumptions or beliefs. For a long time, the only sensible policy for labor-management relations was
c. Dress: Are people expected to wear formal business " dress? 4. Symbols: a. Image, i.e., use of green to symbolize concern for the environment. b. Flag, symbol of a country
8.2
ORGANIZATION'S V A L U E S
In Search oj I xccllence by Peters and Waterman states:

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Every excellent company we studied is clear on what it stands for, and takes the process of valueshaping seriously. In fact, we wonder whether it is possible to be an excellent company without clarity on values and without having the right sort of values. We all have beliefs and values we live by. An organization's values answer the question: "What is important to us?" Core organizational values arc understandings about: 1. What is most important? 2. How to treat other people? 3. How to work together? In most organizations, core values are understood or assumed but seldom discussed. Exploring and discussing values enhances harmony and teamwork. Values that remain unclear or unexplored can create tension or conflict and make people feel understood, confused or frustrated. Hence clarifying valuesboth personal and professionalcan be a tremendous help in aligning and unifying the organization. Values provide an anchor when an organization or individual is buffeted by a storm of change. They arc the moral compass that gives direction when things get rough. They are a guide to help you reach your destinationyour "Vision and mission. Peters and Waterman stated that values will have a tremendous impact on organization. They help to: 1. Create an atmosphere of common purpose and trust
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2. 3. 4. 5.
Clarify goals and ways those goals will be achieved Set priorities and sort out information overload Provide a clearer focus for performance and feedback Indicate which behaviors are acceptable and appropria and which are not within the organization 6. Specify how the organization wants to deal with and 1 perceived by people outside the organization 7. Provide guidelines for selecting and orienting ne members or employees who will not have to spcr much time identifying and understanding organization values When values are clear and consequently, people know wh; to do and how to do it, the organization's management ca get out of the way and let employees do their worl Autonomy and the entrepreneurial spirit rather than rule and regulations will carry the day. More will b accomplished.
Leaders of the organization thus free themselves to focu on priority tasks and achieve more by allowing employee to make their own day-to-day operating decisions withi: assigned areas of responsibility. Organizations wit effective leadership teams are generally tight on values bu loose on rules. Values determine what the organization prizes above al else and what its highest priorities are. They providt boundaries and determine what the organization wil reward. M.ni\ organizations talk about excellent service but few have defined what they mean by it. One organizatior lOOepted Improving service as a challenge. They pul ilni | he following statement of values for leadership
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and management to discuss, to debate, to refine and to commit to: We accept service as a challenge. We will, therefore: 1. Respond to the customers in a caring manner at all times by actively listening to them and demonstrating empathy by thoroughly understanding their need. 2. Build customers first and showing genuine interest in satisfying their needs. 3. Develop expert product knowledge and deliver the product that best meets the customer's needs. 4. Conduct all business with honesty, integrity and in an ethical manner. 5. Project a professional image by maintaining a professional office appearance and in personal dress and manners
2. "The customer is always righi'king." But in practice their personal actions seem to contradict publiclystated values. When this happensstated values arc not consistent with true valuesthe result is a lack of confidence, lack of purpose and an atmosphere of low morale and stress. Organizational effectiveness is maximized when stated values are consistent with the personal values of the organization's leaders and members. When behaviors are consistent with the organization's stated values, these values serve as unifying principles for all organizational policies and actions. This provides a highly focused approach for achieving the vision and mission. The organization's values thus form the foundation of its culture. If groups within the organization demonstrate values contrary to one another, they will be working at loggerheads even though they may have the same goals.
S3
D E C L A R E D AND O P E R A T I V E VALUES
According to Anthony D'Souza. values also have two critical parts: intended or declared values and operative or lived values. Declared values exist in the corporation's policies and mission statement. Operative values are lasting and are lived from day-to-day by the members. Frequently, there is a significant gap between those values that leadership and management prefer and those expressed in their daily behavior. There are times when individuals or organizations publicly espouse such values: 1. "People are our most valuable asset."
8.4
V A L U E S H E L D AND P R A C T I C E D CONSISTENTLY
Once values have been clarified, they must be held and practiced consistently. Putting them into practice becomes most difficult at times. Values must be both understandable and attainable. At least members of the organization must constantly aspire to practice them. Values are the bedrock of exceptional performance. People work harder if they feel they are working for a higher purpose or a greater good. Shared \ .dues produce shared results.
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E D U C A T I 0 N
Equality Democracy Uniqueness Compassion, Commitment Accommodating Temperance Idealism Openness Negotiating
8.5
ORGANIZATION'S C O R E V A L U E S
While you fan create an impressive list of values to consider, it's important that you identify your core valuesthose that are central in your character and that of your organization. Merely composing a long list of values or characteristics will defeat the purpose of focusing on your core values. Paul J. Meyer, Rex C. Houze and Randy Shechta, who have personally built effective and winning organizations and wrestled successfully with the complex challenges of everyday life, emphasize the importance of core values in building effective leadership and effective organizations. In their recently published book, Bridging the Leadership Gap (1998), they remark: Without core values as the foundation, a leadership bridge is impossible to construct. A values-driven organization, however,, builds for itself a lasting bridge. Through values-centered leadership, it distinguishes itself from its competitors in its ability to survive and thrive. A value-driven organization is more likely to know what it stands for and thus maintain momentum over time.
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Outsiders observe these organizations, trying to uncover their competitive advantage, but they look in the wrong places. It is not the obvious visible elements like product lines, manufacturing processes, or even individual talented people that create the identity of the effective organization. It is the intangible values that make the difference. \Wiat too many obsen'ers do not realize is that without values, it is impossible to build a truly effective team or to become a truly effective leader. The above-mentioned authors emphasize that highly effective leaders build their organizations on a bedrock of three central values: stewardship, shepherdship and a servant's heart. These three values form the basic foundation of effective leadership and are critical to the emergence of successful and winning organizations. When aspiring leaders strive to become stewards of human potential, they begin to achieve their own personal goals while making a unique contribution to the lives of their team members. Wlien highly effective leaders are possessed of personal and professional integrity shepherdship. their efforts bring about solid and stable organizations that prosper, grow, and stand the test of time. And when extraordinary leaders develop a servant's heart, they find a unique synergy that springs from their sincerity. The more they give, the more they are able to serve. Core values held by organizational leadership provide a scale by which all behavior is ultimately judged. And
shared values provide strong feelings of personal effectiveness among members of the organization. They promote high levels o f loyalty and commitment, develop deep consensus about mission and goals and inculcate a strong sense of ownership and caring about the organization. Hence vitality of the organization depends upon and is directly proportionate to the existence of a set of core values shared by all.
8.6
ORGANIZATION'S AND B E L I E F S
CORE
VALUES
Values and beliefs of leadership are the shaping force of the entire organization. They generate attitudes and specify behavior. In practice, they affect everything about the organizationthe priorities established, the decisions made, the conflicts resolved, the problems solved, and many more. Core values and key beliefs like other permeate every aspect of the organization. Lylc E. Schaller, in Getting Things Done, writes: "The values of any organization control priorities, provide the foundation for formulating goals, and set the tone and direction of the organization." Core values and beliefs are the basis for all organizational behavior and actions and the bottom-line by which you and your organization will be judged; for as the leadership goes, so goes the organization.
8.7
K X A M P L E S OF C O R E CORPORATIVE VALUES
Hen mi examples of the core values of two multi-national oii'iini/alions now operating worldwide:
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1. Herman Miller Inc: Its Corporate Values Herman Miller Inc. is a leader in participative management and has a clearly-defined set of corporate values: Innovation: We seek and encourage appropriate problem-solving designs and innovative solutions that deliver results for our customers and meet our business challenges. Excellence: We create value for our customers by providing quality and excellence in all that we do and the way in which we do it. Participation: We work together in teams, with each person contributing to the level of his or her capabilities. Ownership: We each have a stake in the organization in which we invest our lives and share the risks and rewards of ownership. Leadership: We can lead best by enabling others and by being dedicated to achieving our corporate vision.
2. IBM's Values: the Foundation of Vision Tom Watson, Sr. was a man of grandiose vision dedicated to well-defined and fundamental values. IBM's corporate values, probably the oldest and the best known in the world, were developed specifically by Tom Watson, Sr. in the very early days. They are: Respect for the individual: Respect for the dignity and the rights for each person in the organization. Customer Service: To give the best customer service of any company in the world. Excellence: The conviction that an organization should pursue all tasks with the objective of accomplishing them in a superior way.
Herman Miller Inc. sums up the company's values as: "Innovation and Excellence through Participative Ownership and Leadership." The Company's then CEO Max DePree, who is also a leading business author, thinks that Miller's participative ownership and its strong commitment to shared values provides a competitive edge for superior performance. ("Innovation and Excellence through Participative OwnershipA Statement of the Herman Miller, Inc." . Corporate Values, 1989.)
These short and simple values statements were the foundation of the I B M vision. Both Tom Watson, Sr., and his .successor, Tom Watson, Jr., attribute a great deal of the corporation's success to these fundamental values which, over time, were converted into broad principles, policies and practices.
8.8
ORGANIZATION'S V A L U E S - A N D BE'LIEFS S T A T E M E N T
A Values-and-Beliefs Statement is not a mission statement. Rtther, it expresses the principles most important to the organization and is a powerful influence to energize, guide md align everyone in a common direction. We all operate within a set of certain values and beliefs in oui personal and professional lives. And as we do spend a
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considerable amount of our lives at work and with one another, it is reasonable that it should reflect our shared values and beliefs. Shared values and beliefs are the underlying principles that influence our ways of operating and decision-making based on what is important to us. Every member of the organization has_ the right and responsibility to know what the organization stand for, then to choose those actions, or behavior that support and in alignment with those values. Expressly stating the organization's values and beliefs helps each person stay in alignment with the work and with the more stable aspects of how the work is performed and how people relate to one another. Discussion about values and beliefs will not only help build an atmosphere of open, candid communication but will also ensure independent critical thinking on important and difficult issues. Here are some questions that will help to build your Values-and-Beliefs Statement suggested by Anthony D'Souza: 1. What are the values you want to live by: Integrity? Stewardship? Shepherdship? A servant's heart? Companionship? 2. How would you like to be known and seen:. Efficient? Service-minded? Customer-oriented? Communityminded? 3. How can we create and open atmosphere where together we can learn to relate to one another and work consistently with our group's and organization's values?
Examples of an organization's Statement of Values: 1. We value our customers as our number-one priority. We listen to our customer's needs and concerns, understand their business and look out for their interests. 2. We strive for maximum efficiency and effectiveness. We provide added value in everything we do or we don't do it. 3. We maintain high standards of excellence, integrity, and quality. 4. We value our employees and reward excellence and productivity. 5. We practice teamwork within the organization and with our clients* and recognize the unique and valuable contribution each member makes to the team. Here are some areas in which you and your team may wish to develop a standard of values and beliefs: How do we treat our customers? How do we treat one another? How do we provide meaning and dignity to the workplace? How do we recognize good work? What do we want to be known for in the quality of our work and service?
Carefully-crafted core Values-and-Beliefs Statement can be used for the following purposes: 1. As the fundamentals to which you may be held accountable by those who relate to you or deal with von, by those who care about you and by those whom you trust. . .
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2. As the foundation
for consistent
and
appropriate
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decisions. . 3. As the filter through which you evaluate the importance of opportunities or alternatives. 4. As the basis from which your vision originates.

Here are few simple but interesting tests to discover your organization's core values: 1. Imagine yourself five or ten years in the future. What is it about your organization that you would look back on with pride and with the greatest satisfaction? 2. Go back to the origin of the organization. Look at those who started or founded it. Try to identify their values or what was most important to them. 3. What are some of the key words or phrases people in your organization frequently use? It has been said that you can detect an organization's heart by looking at its language. Buzz-words and jargon reveal the organization's current values. 4. Then ask the following questions: a) What are the things you always do and the things yon never do in your organization? b) What is the one thing about your organization that you hope never changes? c) If you could change one thing about your organization, what would it be? d) What do you find most meaningful about your organization? e) What do you find least meaningful about your organization? f) How do you want to treat each other, especially at work? g) How do you want to treat your clients, customers or people who come to you for help or service?
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SUMMARY
Until you have confidently stated your Values-and-Beliefs Statement, every philosophy of living, every behavior or human desire becomes a potential substitute. If you do not clearly identify your values, they will be determined for you by the influences and whims of the world. As the saying goes: If you do not stand for something, you will fallfor everything. Values become the filter for distinguishing significance from worthlessness and importance from meaningless. They are non-negotiable perspectives of your life and behavior. They guide you to live in harmony with your core beliefs, vision and mission.
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5. An organization's culture can be represented by the following symbols except: a. image such as use of green to symbolize concern for the environment b. flag such as symbol of a country c. characteristic behaviors d. none of the above e. all of the above 6. The following are management styles except: a. collaborative b. autocratic c. informal d. none of the above e. all of the above
ORGANIZATION'S VISION, VALUES AND MISSION
CHAPTER OBJECTIVES 7. What are core values? a. those that are central in your character and that of your organization b. origin of the corporation c. buzzwords and jargons d. none of the above e. all of the above 8 In what areas can teams develop a standard of values and beliefs? a. The way one treats the customers b. The way one provides meaning and dignity to the workplace c. The way one recognizes good work d. none of the above e. all of the above After this chapter, you should be able to: * * * explain the process of visioning; determine the tenets of formulating vision, mission, and goals of the organization; present the impact of vision, mission, values system to success of organizations; and, solve case studies related to vision formulation. CONTENT OUTLINE J* Introduction The Process of Visioning Organizational Renewal Cycle Visionary Leadership
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INTRODUCTION
The present is both a time of upheaval and change in organizations. Companies and Institutions are challenging the ways they do business. They need to innovate, adapt, shift and transform themselves. For an organization to succeed today, even.' employee needs to exhibit leadership skills in making decisions and in acting on opportunities to keep a person and an organization on track. One of the key characteristics of high-performing organizations and teams is that they have a clear picture of what they are trying to create. Furthermore, they understand the basic purpose of their organization's existence, as well as the common set of values that bind them together. The vision, mission, and values of the organization form the core of their identity and keep people, teams and organizations responsive to the opportunities and challenges in new situations.
1. Values are the principles, the standards, and the actions that people in an organization represent. It is also something which they consider inherently worthwhile and of the outmost importance. They include knowing what is important to the organization, how people are treating each other; and how they conduct business. 2. Scanning the current situation involves looking beyond the organization to its customers, suppliers and the industry. It entails scrutinizing and analyzing information in and out of the organization. 3. Mission is the core purpose for which a person, team or organization is created. It is summarized in a clear, short, inspiring statement that focuses attention in one clear direction. It states the purpose o f the individual's, business's or group's uniqueness. 4. Visioning is picturing excellencewhat the person, ""team or organization wants to create in its best possible future. It is an evocative description of what is possible. A vision is not "something out there" that is impractical, but a way of setting a compelling scenario. Creating this image of the future requires the ability to expand one's sense of possibilities and then focus on what new initiatives can lead to success.
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T H E PROCESS OF VISIONING
Visioning is a journey from the known to the unknown, which helps create the future from a montage of facts, hopes, dreams, dangers and opportunities. It involves a process of clarifying one's values and is accomplished over a period of time. More so, it provides creative solutions to business challenges and eventually leads to the organization's continuous evolution and learning. . Elements of the Visioning Process The following are the elements in the visioning process.
5. implementation includes the strategy, plans, procedures, and key actions that will put all of the above into action. Five-Step Visioning Sequence STEP I: Clarify Values Define key values and what they mean in action Scan the Current Situation
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Examine the current environment internally and externally S T E P 3: Define the Mission Clarify the basic purpose Create a Vision Generate a clear image of the preferred future Implement the Vision Create the strategic plans, action plans and feedback loops to implement the values, vision and mission.
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After its initial period of creative activities, the organization will experience their stability or managed growth. They build structures to ensure that their purpose is carried out consistently and define the way things are done. But in doing so, they inevitably lose something. Organizations at this developmental stage predictably become firm in their ways and lose their ability to innovate and respond to the market place. Eventually, company employees feel that everything is routine and the company needs to change. An opportunity to begin a new phase begins with the realization that the initial energy can be recaptured. The visioning process offers the company an opportunity to change and become more vital. It allows the organization to take a hard look at itself. What does it do, who are its customers, what basic assumptions does it operate from and what internal processes reinforce its values? Visioning revisits the values and mission and engages the organization in seeing new possibilities. Visionary leadership During a period of organizational renewal, the manager becomes a vital key to the visioning process. The manager often leads this process, during which people and teams clarify their values, visit their mission, and create exciting visions. 1 IK- role of the manager is to articulate and define v. hat has been implied or unsaid in the organization. The visioning pioeess uses different steps to provide clarity of focus. People want a sense of direction and meaning in order to pull togethei organizational actions. Using images, metaphors anil models helps the people in the team or organization understand what is going on.
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The essence-driven organization Studies have shown that visioning, planning and goalsetting can improve organizational performance. Attractive visions of the future have great power. A n organization that is formed around a deep sense of values, missions and vision is called an essence-driven organization. This kind of organization has clarity of direction and focus, enabling it to endure various changes in the marketplace. It is purposeful and inevitably more powerful, commands more commitment for employees, and ultimately becomes more efficient in the midst of a changing environment.
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ORGANIZATIONAL RENEWAL CYCLE
Organizations go through cycles as part of their growth and development. They choose different times to revisit and revise their inner identity. Most organizations start out with a clear purpose, a lot of energy and a compelling vision that propels them to make things happen.
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For the manager, the process of leading people in visioning is far different from the more traditional planning, controlling and scheduling. Managers who engage in visioning must be able to implement the basic purpose of the organization and compel others to push it into the future. Start AnywherePerson, Team or Organization As we demonstrate how to generate values, mission and vision, we will assume that this process will take place within the team, group, or the whole organization. If the organization already has a vision, mission or set of values, the task of the group is to determine how the group vision complements with the vision of the organization. Individuals face the same hurdles. As each person clarifies his personal values, mission and vision, the primary challenge is how to align these personal values with the organization's values As organizations go through the process of renewal, it is possible that change will occur within the team or group first. This growth escalates to other groups at different levels. In most cases, this renewal begins from the strategic planning of the leader leading to competitive advantage. Creating alignment .Alignment of the group values, mission, and vision with those of the individuals and those of the organization creates the power of commitment in achieving excellence in the organization. Frustration and tension occur if these values are not aligned with the organizational values. There needs to be one overarching vision for the entire
organization enabling each group to create it s own vision that rests within the larger vision. Organizations consist of teams and groups, and a very important step in the visioning process is to have all these groups share a common vision. This process involves steering the individual vision in the same direction as those of the team and organization's visions. Linking Visions
Every Person Individual Work Groups Needs a Vision Adapt Visions To Fulfill Aspects of The Overall Vision
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VISIONARY LEADERSHIP
How Visioning Fits into the Planning Sequence The processes of clarifying values, revitalizing the mission and creating a vision are key to this strategic planning process. Visioning does not substitute for strategic and tactical plans; it is a process that comes before the plans. Organizations move from visioning to strategic planning, to yearly plans and measurements. 1. Visioning Is Emotional When groups engage in visioning, emotions will come into play. Visioning often unleashes conflicting forces. People feel at once hope and motivation, as well as fear and anxiety about making changes. It is important to understand that i f this process is not experienced emotionally, then the "buy in" and commitment are drastically reduced. Groups tend to become upset and dissatisfied with the current state of functioning after they have visioned a positive alternative. If the group moves too slowly toward the vision, people become impatient and frustrated. There feelings can be channeled into a positive reaction by helping people understand that this tension is normal and predictable. 2.. Visioning Is an Organizational Change Process Shared visions are the foundations for making change. Without shared vision, new ways of thinking or acting are inhibited by the pull of how things have been in the past. But without real change, visioning is pointless and counterproductive. Starting a visioning process without
understanding that it is a part of a larger organizational change process is to undertake a hazardous enterprise. Clarifying values, mission and vision often calls into question basic assumptions about work design, direction, leadership and strategy'. The process of conducting an organization scan, clarifying mission and vision can mean that the people in the organization will become more empowered and committed to the results. 3. Visioning Requires Involvement One of the most important parts of this whole process is the amount of involvement of the key stakeholders. It is tempting to take a small "representative" group off to do the visioning and then deliver the mission and vision to everyone else. This method may seem like a prudent use of time for the organization, but people will not be committed to the discoveries of others, and much effort will be wasted. It pays to spend more time in the planning, gathering and discussing of the analysis, mission and vision, because the buy-in will be substantially stronger. In a nutshell, the visioning proctss requires widespread involvement. The core of this process is a design team that spans all levels of the organization and represents all important stakeholder groups. This group needs to be carefully selected and given the necessary amount of release time and resources to accomplish the task. These teams become successful when participation in this process is part of their job description and performance review. Always keep the larger organization apprised of what the Irani is doing. Communication of the overall process in new sinters, meetings and other methods is very important. At |OmC point, everyone in the organization should feel that
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they have contributed some input into the process. After all, those who craft the process, own it. Visioning Hits the Wall Many visioning projects have fallen flat because they questioned basic assumptions of the organizations and fundamental structural relationships. Often organizations wanted to have a vision but did not want to learn or respond to what they found out. At this point, some efforts reach an impasse. To ensure that people do not become disillusioned, it is necessary to think the process all the way through and to make sure that leadership will support the changes necessary for reaching the vision.
completely. This list is used to ensure that all the aspects are covered. 1. Create a representative design team for the organization that guides the visioning process. 2. The design team then scans the environment and drafts a statement that summarizes why the organization exists, what business it is in, what products and sen-ices, customers and what value you bring to them. 3. The design team compares their statement to anyexisting mission statements. 4. The design team generates questions they think the vision statement should answer. 5. Visioning tools get people thinking creatively about the vision questions. 6. The design team drafts a mission and vision statement. 7. Circulate the draft statements to key decision makers and members of the organization. Incorporate their feedback. 8. Communicate the mission and vision to your organization, groups with which you interact with and your custodiers.
Principles of Visioning If people create the vision, they will own it and implementation of the vision will happen more quickly The process of developing the vision is as important as its outcome Visions are best stated in the language of the key stakeholders Visions helps to focus the strategic planning process and therefore needs to be developed before planning takes place
STEP 1 CLARIFY VALUES - IDENTIFYING VALUES "We've learned...that the soft stuff and the hard stuff are becoming increasingly intertwined. A company's valueswhat it stands for, what its people believe inare crucial to its competitive success. Indeed, value drives the business." Robert Hass, Chairman and CEO, Levi Strauss
Example of Organizational Visioning It is helpful to see an example of visioning process to get a sense of the steps involved and the amount of time it takes to go through that it can take to go through the process
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A person's values answer the question "What's important to me?" Our values are the deep seated pervasive standards that influence almost even,' aspect of our lives: our moral judgments, our responses to others, our commitments to personal and organizational goals. We all have belief systems we live by. Our beliefs and value systems are deeply seated and connected. We are motivated and make decisions based on these belief systems and values. If we all had the same values with the same priorities, it would be easy to work in groups. Most teams, however, have a diversity of values and beliefs. To help us work better as a team and to make decisions that lead to" commitment and action, it is necessary to see the range of values that influence the decision-making process and to find ways to prioritize and clarify the values used.
Definition
Meaning at Work The first step in creating an atmosphere of common commitment is to invite the hearts and minds of employees to join the purpose of the company. One of the vital things people look for in their work is the meaning of what they are doing. People need to feel what they do go beyond the immediate connection between your actions and greater purpose. For example, many people have stuffed envelopes to further an initiative they support. Stuffing the envelopes may be rather boring, but the reason sustained them. Shared mission, values and vision brings people together. They provide the- unity and link between diverse people and activities. A shared essence is the expression of what people have in common, of what they, in community, are committed to. People who share values or vision are more likely to take responsibility and challenge the bounds of convention. In organizations where this essence is developed, people do not assume they are powerless. They believe they have the power to contribute directly. Values at Work Central to a company getting the job done today is its clarity about its values. Before mission, vision and strategy, a company or group must come to an agreement about what it stands for, both in its customer service and community relations, and within itself, in its dealings with employees. As employees face increasing responsibility, milking more complex and far reaching decisions, a rot poind values credo is an essential standard for behavior. I low you achieve your goals and vision is as important as the goal itself.
Values are defined by Webster's dictionary as "a principle standard or quality considered inherently worthwhile or desirable." The root for value is valor, which means strength. Values are a source of strength, because they give people the power to take action. Values are deep, emotional, and often difficult to change. Values are the Foundation lor Vision Values are the essence of a company's philosophy for achieving success. They are the bedrock of corporate culture. Values provide employees with a sense of common direction and guidelines for day-to-day behavior.
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Groups have become concerned with defining their vision of the future and their mission. The vision and mission are incomplete if they define only the major external focus. Clarity about values provides the underlying foundation for action. In addition to its mission and vision, a group must also determine how they will work together, how they will treat each other and what bonds them together. People work for different reasons and want different things from each other and from the organization. It is possible that a group agrees on a vision and mission, but lapses into conflict because different people have different values about working together. Some members might want to work on their own, and some might want lots of competition and "winning" through good results. Team and individual values exploration will make these differences explicit and eventually lead to the building of a team values statement.
managers and chief executives suggest that an understanding of this relationship will provide new leverage for corporate vitality. However, when mismanaged, it can lead to a breeding ground for conflict and cynicism. The survey provided solid evidence that shared values between the individual and the company are a major source of both personal and organizational effectiveness. The same report showed that when managers* values were congruent with the values of their companies, their personal lives were in better shape, their approach to their job more optimistic and their stress lower. Employees' sense of what is important strongly influences their commitment and motivation. Values Provide Guidance Values are one of our most special achievements as human beings. A person acts not just in service to a personal need, but also out of a broader sense of what is important and meaningful! In fact, values are the deepest and most powerful motivators of personal action. Values represent an organizing principle for our lives, as well as for an organization. What is most important to us to accomplish at work, in our family and in our personal life and career, can be described in relation to the values we want to achieve. Sometimes we mistakenly think of values as a series of "shotilds," telling us what we can and cannot do. This approach is a very limited way to see values. Rather, values are energizing, motivating and inspiring. When we caic passionatcl\ about something, we can spur ourselves on to great achievements. The highest achievements of
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STEP 2 - L I N K I N G P E R S O N A L A N D ORGANIZATIONAL VALUES If employees know what their company stands for, i f they know what standards they are to uphold, then they are much more likely to make decisions that will support those standards. They are also likely to feel as if they are an important part of the organization. They are motivated because life in the | company has meaning for them. Terrence E . Deal and Allan A . Kennedy, Corporate Cultures One of the most important keys to greater effectiveness is a close link between personal and organizational values. A survey by the American Management Association of 1,460
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people and organizations arise when they feel inspired to accomplish something that fits their highest values. Values are at the root of all learning. We have met people who live out values that are important in our own lives. Think back about the people who have made a significant difference in your life or in the lives of others. What are the values that they exemplify? While there will always be differences of emphasis and increasing diversity of values among employees, creating consensus about key values is an important task for any group. Employees at every level must face customers, make costly decisions and balance competing priorities. Previously, agreement was generated by having strict procedures and standards of behavior, which were enforced by supervisors. Today, with increasing improvements and autonomy for individual employees, people need to be guided not by rules, or by supervisors, but by understanding the most important values held by the organization. If a decision fits the values, then it is right. Aligned Value When you work in an environment where your work activities are aligned with what you consider important, your energy, motivation, desire and will to achieve even the most difficult tasks seem to emerge. Therefore, clarifying personal and work values can be a great resource for an organization. First, we clarify our values for ourselves, and then for our team and organization. Sometimes our most important or most neglected values remain obscure. Unclear or unknown values can produce conflicts and contradictions that can make people feel.confused, blocked, and frustrated. .
Undiscussed Values Values provide the foundation for the strategy, the mission and the structure. They are a set of understandings in an organization about how to work together, how to treat other people and what is most important. These understandings are the core values. In most organizations they are understood, but they are seldom discussed. Most organizational and team values are unconscious, in that they lie below the surface and are not openly explored or discussed. Bringing them into the light of day enhances agreement and connection. Change of Values Research conducted on American values found that until recently, values have remained quite stable over time. O f the six values ranked highest in 1968 (honesty, ambition, responsibility, forgiveness, broadmindedncss and courage) the same were ranked highest in 1981. Whereas, the stability -of the least preferred (imagination, logic, obedience, intelligence, politeness, independence) also ranked similarly. In this 13-year period it was also found that American society was undergoing changes in certain values, shifting away from a collective norm to a more individualized orientation. Values are the meaning we attach to things. Our earliest values revolve around our parents and the people who take care of us. As people grow they develop values. These revolve around things we learn about in the larger community and school. . These learned values are assoeialed with our basic growth and development. Later on we develop values that are related to work, thereby be< Oming more independent. There are also some people
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who develop values related to the human community in general. More recently, the values of teamwork, independence and creativity have moved onto the list of most important values. This signals some major value, shifts in what people want from the workplace and how people want their organizations to be designed. They want more participation and creative involvement in defining not just what they do, but what the organization is all aboutits essence. Values into Action People assume certain basic values, rarely questioning them. People act from their values, and different people value different things. In fact, values are motivators, since when we feel that something is right and important; we will spend a great deal of effort to achieve it. To be effective, a company needs some agreement about what it values. It has to mm these values into policies, practices and standards for behavior. A company's or group's values thus focus the behavior of people in all of their activities. To be effective, a company's needs some agreement about what it values and to rum these into policies, practices and standards for behavior. Thus, a company's or group's values forms the behavior of people in all of their activities Value Conflicts Sometimes values are espoused or acted upon what contradict or conflict with other values. These are values conflicts. What i f a company values honesty, as well as value achieving high sales volume? How or when does the value of honesty supersede the value of making a sale? Many companies have been deeply wounded by such value
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conflicts. A values exchange and discussion is critical to clarifying the limits of behavior and personal responsibility. For example, one company with a strong values orientation reported that they were given a huge order from a tobacco company, with the condition that they eliminate their corporate no-smoking policy. The company debated the order within every work group, balancing the need for the order with the challenge to its values. Finally, a consensus was reached among the different work groups that their value on health promotion was far more important that the order and they turned it down rather than change their policy. ARRANGING YOUR VALUES CARDS ALWAYS VALUED
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Sorting Your Values Begin your personal values exploration by placing the five column heading cards across the top of a table in the order listed. They form the top of five columns. Place each value card in the column that indicates how central or important that value is in your life. Sort the cards so that there are 10 in each column. It will take some time, and you will probably end up moving your cards back and forth between columns. To get an idea of how the sorted values column will look like, please refer to a diagram on the previous page. At first, you may feel that all the values are important to you, and you will want to put most of them under the "Always" or "Often" valued columns. But remember, the purpose of the values sort is to indicate your values in order of their importance to you at this time in your life. Some will be less important values because you have to set priorities in your life. When sorting your values, try to think of specific examples of how that value applies to your life. If you cannot think of a specific example, it probably means that the chosen specific value is not your highest priority value. After you have sorted the cards into the columns, try to arrange the cards in each column form the most important to the least important. Put the most important cards at the top of the column, down to the least important. In that way, you will ultimately have sorted all 50 values from the most to least important. This exercise will help you determine which are the central values guiding your life.
S T E P 3 - D E F I N E T H E MISSION Checking your mission
Your first obligation is to find out the mission you are meant for....Your mission will manifest in vou when you decide to listen to your heart's desire. d^ggmt Stephen, Finding Your Life M j ^ n
Individuals have reasons for living their lives. A personal mission statement articulates an individual's unique direction. A personal mission articulates what you do and the purpose for which you exist. It answers the existential question, "What is it I'm here to do?" Defining your personal mission acts as an emotional touchstone that unleashes powerful feelings. A mission is not a narrow goal, but an overall guiding direction. Sometimes people do not want to.clarify their mission for fear they will be held to it. A personal mission is not a restraint, but a fuel, propelling you toward your vision. The following questions are helpful in guiding an individual in the process of developing a personal mission. It is best to have a few uninterrupted hours to work through the personal mission section.
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Developing Your Own Personal Mission What is my basic purpose in the work I do?
technology in order to serve the needs of the nation. That mission was one that could keep them going. Use the worksheet below to distill your understanding of your mission to its essence.
What is my basic purpose in life?
Personal Mission Worksheet What do you say is your mission?
What are the unique aspects that I bring to work? Why do you say that? What values are most important to what I do? What is the true purpose of what you do?
What are the critical considerations that 1 make (i.e., family, community, geographic location, etc.) when I develop my mission?
Now take some time to revise your personal mission based on what you discovered above.
M y Personal Mission Statement Link to Personal Mastery

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A mission answers the reason why you are alive, your core existential reason for being on the planet. A mission is often not the first answer to the question, why? When a group of nuclear technicians was asked what they did, they said, "We build bombs." To have stayed with the answer would have produced a less than inspiring mission. By asking, "Why? again and again, the group realized the purpose of their .workto learn to use science and
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Mission Buffers Stress Research has shown that people who have an understanding or reason for what they are doing, do so much better in times of stress. This sense of coherence or mission helps people focus and endure challenges that stand in the way of their realizing their vision. With a clear mission, people know what is important to them and can focus their activity. They can be strategic and pick priorities, rather than be reactive. Mission Drives Strategy A change in mission resulted when Expresses decided that they were business rather than in the package align their business with this new large changes. the leaders of Federal in the transportation delivery business. To mission required two
Questions for a Group to Clarify Values What do we stand for?
Vv hat behaviors would mirror these values?
How do we treat our employees?
How do we treat our customers?

W har do we mean by ethical behavior?
What are the core values that are more important to us than profits?
1. Rethinking the assumption that packages should travel the shortest distance between pickup and delivery points to a system whereby all packages are flown to a hub city (Memphis, Tennessee) and then sorted and redirected for their final delivery. 2. The need to develop a new dedicated information system that allowed the company to have concrete realtime information on the whereabouts of every package.
How do we want to treat each other at work?
What do we offer our employees for their work

effort?
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How do we want to be seen by the community?
The worksheet on the following page are guide questions on how a company can clarify its values.
What attitudes and behavior in employees do we want to reward?
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more likely to attract talented workers who are looking to commit themselves to an organization they can be proud of. 3. Are less likely to quit their jobs. Turn-over and absenteeism drop substantially. Committed employees value their relationships so highly that they may even pass over more lucrative opportunities. 4. Are happy in their work. They love their jobs, and employee morale is high. The result is a heightened atmosphere of general goodwill and more interaction and cooperation among individuals and groups. Team spirit comes naturally when people are committed to the organization and to their co-workers. Teams work together readily as they bond with one another.
1. A sense of belonging to the organization builds the essential spirit o f loyalty necessary to overcome barriers between "them and us." 2. A sense of enthusiasm and excitement motivating people to perform. 3. Confidence in leadership provides the right climate for commitment to flourish. Below is Figure 4.1 which illustrates the three major pillars for creating commitment.
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10.3 T H R E E PILLARS FOR BUILDING COMMITMENT

People in the workplace become committed when they have a sense of belonging, when they are treated as part of the team and when they know their contributions are important. Commitment and loyalty grow as people, with meaningful work, experience a sense that they are appreciated. Above all, to gain the commitment of your work group, be the kind of leader who earns, rather than demands, respect and trust. People must have confidence in your leadership. According to A . D'Souza, there are three major pillars for building commitment in the workplace: Figure 8.1 Creating Commitment -
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To create enthusiasm and commitment in others, you must show that you have it yourself. The extent of your persona! commitment to the vision, mission, and values will often be decisive. People can tell when leaders and managers express commitment verbally without demonstrating it by their actions. When you are genuinely committed to a particular course of action and openly express the strength of your feelings without undue aggression, this can become an extremely powerful force for creating commitment in others. The leader must also demonstrate consistency of focus, an ability to maintain the organization's direction in spite of obstacles from less committed peers. Refusing to retreat in the face of organizational inertia or opposition and refusing to settle for a quick fix are crucial to leading transformational change. Successful leaders have proven results that are produced by underpinning commitment with dogged persistence. Creating commitment in others requires more than a leader's inner strength or personal power of persuasion. 'Truly involved people can do anything," argues international management consultant Tom Peters. He admits to being "frustrated to the point of rage" about the failure of managers of corporations to understand the importance of employee involvement to obtain their commitment. But involvement is only one of the key elements in creating commitment.
Personal M o r a l e (Satisfiers) Positive I'm liked and accepted here; People are helpful, pleasant to talk with, supportive; 1 am trusted and respected as a person; I trust other who work here and have confidence in my colleagues and supervisors. Feeling: Accepted Supported trusted
Professional M o r a l e (Mot ivatnrc\

| 1 * 1 U U 1 C11UI S }
Positive I do my job well and I'm

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lit
respected for mv abilities" I feel I'm pan of a professional team with a definite ohip-tiv* and plan: - My efforts are appreciated: My suggestions and comm-nts are duly considered in discussions and decisions Feeling: Worthy Appreciated Recognized - I am contributing I can achipvp Negative: My professional opinions and efforts are not anDreriateH I feel there is no professional direction; There is never anv frillmi'through on projects or meetings. Feeling:
Negative:
I feel alone and isolated here; I can't trust or depend on my peers or supervisors; 1 don't feel appreciated (accepted) as a person. Keeling: Cold and lonely I can't trust 1 urn not trusted I am mil appreciated I am nol accepted
Helpless Blocked Inadequate Desperate Frustrated 1 M i n n 0 1 C m.t . I'igure 8.2 Sense of Belonging and Enthusiasm: Personal V s . Professional Morale
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10.4
SENSE O F B E L O N G I N G AND ENTHUSIASM
In Figure 8.2, you have what people say and feel when they look for a sense of belonging and enthusiasm about their work. A sense of belonging gives them a feeling of satisfaction, whereas excitement about the work they do motivates them to perform better. According to Anthony D'Souza (1993), in order to gain the commitment of your people, the following guidelines should be taken in consideration: 1. Communicate candidly: Give timely and reliable information in all your interactions with people. They especially need to know where the organization is heading, what it stands for and how their jobs contribute to the success of the overall operation. When you, as a leader, communicate candidly, you manifest your respect for others as persons and as professionals. They will readily commit themselves to the goals of the organization. 2. Empower your people: Give people work they find meaningful and a measure to control over their work. Ask their opinions, listen to their ideas and get them involved in projects and programs early on. Including them in the process of problem-solving and decision-making meets their need to make creative contributions. When you show genuine approval, give deserved recognition and demonstrate your appreciation, people respond by becoming more cooperative and committed.
3. Develop your people both professionally and personally: Encouraging people to grow and develop their potential increases their commitment to the organization and excitement about future opportunities. A personal interest in your co-workers as individuals creates a powerful bond of reciprocal trust. By helping people link their own individual aspirations to the goals of the organization, you build strong, mutually reinforcing sets of loyalties. 4. Lead with honesty, integrity and impartiality: For people to trust your leadership, this is a very important credibility factor. When your interactions with team members arc ethical and impartial, when you show that you care about them, they will be proud to be associated with an organization under your leadership. This will, in rum, inspire them to bond and commit to such an organization. Warren Bennis and Joan Goldsmith (1993) highlight four qualities of leadership that, when practiced, engender trust and commitment'. They are vision, empathy, consistency, and integrity. A leader who builds credibility demonstrates these four characteristics: I I In leader has a vision for the organization that is clear, attractive and attainable. We tend to trust leaders who create inspiring visions. The leader's vision functions in .1 i . ' M i ! M ill. n pro\ ides shared beliefs and a common oigaiii/.itu.nal purpose with which we can identify and feci that wc belong. The leader involves us in the vision empowers us to create it and communicates the dinned vision so that we integrate it into our lives.
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2. The leader has unconditional empathy for those who live in the organization. We tend to trust leaders who can walk in our shoes and are able to let us know that, although they may have a different point of view, they are able to see the world as we see it and understand the sense we make of it. 3. The leader's positions are consistent. We tend to trust leaders when we know where they stand in relation to the organization and how they position the organization relative to the environment. We understand how leaders' positions evolved and know that they are willing to reconsider them in the face of new evidence. 4. The leaders integrity is unquestionable. We tend to trust leaders who stand for a higher moral order and who demonstrate their ethical commitments through actions that we can observe. Leaders uphold a standard of ethics and call themselves and others to account for deviation from this moral code. According to Bennis and Goldsmith, these leaders believed in the rightness of their cause at a moment in history when action was called for. But their impact was felt because of the trust they enjoyed - trust that was based on their invincible integrity and powerful commitment. Trust is the essential quality that creates a following for the leaders. It is the secret of their ability to inspire those who create movements for social change and build organizations that realize their dreams. Trust provides the motivation and energy that makes it possible for organizations to function effectively. It is hard to imagine an organization without some semblance of trust operating somewhere. It motivates heroism and keeps
communications humming. organizational integrity.
It
is
the
source
of
Like leadership, trust is hard to describe, let alone define. We know when it is present and we know when it is not. We are aware that it is essential and that it is based on predictability. We trust people who are predictable, whose positions are known and who keep at it: leaders who are trusted make themselves known and make their positions clear. Figure 8.3 demonstrates graphically the three pillars for enhancing commitment: 1. A sense of belonging occurs when leaders managers: Inform; Involve; Share success. and
2. A sense of excitement in the job depends on: Work that is meaningful and provides opportunities for growth; Clear responsibility and accountability for result; Appreciation and recognition for a job well done.
3. Confidence in leadership/management is created when ' Icudns: Display competence and exercise their attention u n.el\ The) must be seen as capable and effective mid as having the ability to get things done; Aie forward-looking and inspiring. This is an essenlial attribute of leadership, bul il is nol enough
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for leaders to have a sense of mission and a vision of the future. They must be able to communicate these in ways that motivate and inspire others to follow. We respect and admire leaders who are positive, optimistic, dynamic, enthusiastic and uplifting. We want them to be inspiring. Exhibit honesty and integrity. If people are going to follow willingly, they want to be certain leaders are worthy of trust. Honesty and integrity are absolutely essential to effective leadership. Confidence is strong when leaders are truthful and ethical.
Frank and honest communication, ethical behavior, employee involvement and active participation, respectful treatment and appreciation are very important for creating commitment. However, while leadership skills and techniques are important, the very foundation for building commitment lies in your intent. If you genuinely care about people, it will be apparent in all your interactions. If not. all the skills and techniques in the world will not be sufficient to build commitment.
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10.5
SUMMARY

Be able to prepare a plan of action for developing and maintaining commitment in your workforce. 1. What are the benefits of building commitment to you, your team or collaborators and your organization? You
When vision, mission and values are translated into action, the expected outcomes are alignment, commitment and empowerment. Alignment: There is an increased sense of purpose and an overall congruence with the organizational goals. The vision and mission process gives people the bigger pictureon which to focus their individual and group efforts and sec themselves in their everyday work connected to a larger effort. Commitment: Work has a deeper meaning for people that have gone through the vision, mission and values process. People work not from compliance, but from commitment. And vision, mission and core values replace rules as norms of guidance. Empowerment: Going through the vision, mission and values process, creates a sense of personal mastery, team empowerment and organizational vigor. There is an increased sense of enthusiasm, energy, dynamism and excitement.
Your team or collaborators
Your organization
2. List steps of action you will take in each of these three broad areas to increase your self satisfaction: '" n nl In-longing
1
Pride tnd excitement in your work
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3. What skills, knowledge and attitudes do you need to develop in order to better lead for commitment? Skills
THE POWER OF VISION, PURPOSE AND MISSION STATEMENTS

CHAPTER OBJECTIVES After this chapter, you should be able to:
Knowledge
Attitudes
4. What five concrete actions can you take in the next sixty days that will enhance the commitment of your people and their trust in your leadership?
explain the importance of having a good vision, purpose and mission statement; leam and develop formulation of vision, purpose and mission statement; and, improve your own organization's vision, purpose and mission statements.
CONTENT OUTLINE v < v i Introduction Purpose of a Vision Statement Motivational Power of Vision Statement Developing the Vision Vision and the Organization's History Communicating the Vision formulating a Vision linpoiianec of the Purpose-and-Mission Statement I )cviioping the Mission Statement < 'ommunicating the Mission Setting (ioals and Objectives
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INTRODUCTION
Vision, purpose and mission are very powerful motivators among individuals in the organization. Martin Luther King's, "I have a Dream," did not only talk about rights, equality and freedom. He painted word pictures so his audience could see and fee! them. He talked of his view from the mountain. He visualized the promised land. He described black children and white children playing together and black people and white people living in harmony. His audience could see the pictures and feel their significant impact in the organization.
A vision is not mere fantasy or naive idealism. It is not wishful thinking or flight from reality. A vision is not just a dream. A vision directs and focuses us towards the future, but it is experienced and rooted in the present. It creates the tension that is aroused from comparing the image of the desired future with the present state of things. It moves us to explore possibilities and desired realities. It becomes the framework for what we want to create and thus guides us in making choices and commitments. Developing a vision is not just a one-time process that people engage in and then forget. It requires skill and knowledge that is learned and used repeatedly. James M . Kouzes and Barry Z. Posner (1999), in The Leadership Challenge, state: "There is no freeway to the future. No paved highway from here to tomorrow. There is only wilderness. Only uncertain terrain. There are no road-maps. No signposts. So pioneering leaders rely upon compass and a dream." Leaders have a.very important role in the formation of a vision. Robert K. Greenleaf (1977), The Leadership Crisis, asks: "Can a key leader contribute, but with the use of authority cannot shape?" He adds, "indispensable conditions for the persuasive power of leaders to be effective is that the institution is living out a great dream. Institutions function better when the idea, the dream, is to the fore." According to R.K. Greenleaf (1977), a powerful vision,
thtrafbre, Is:
11.1
PURPOSE O F A VISION S T A T E M E N T
According to Anthony D'Souza (1993), a vision statement should reflect the following: 1. Pictures of the promised land to give the journey a destination; 2. Sounds a clarion call to rally the troops to the mission ahead; 3. Lights a flame to inspire and excite them to action; 4. Provides visible evidence commitment and priorities; of the organization's
"5. Stands as a visible reminder to focus people's minds and efforts; 6. Declares the standard by which the organization would like to be judged.
I, A mental picture of the preferred and meaningful future one seeks to create.
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2. An answer to the question, "What do we really want?" that reflects what we care about most. 3. An image of how we see our purpose or mission unfolding and how it fits with our highest values. 4. A compass that serves as a guide when all other indicators of direction may cease to operate. A vision statement must be: 1. Clear, simple and easy to communicate so that it gets people's attention and can be felt or experienced. 2. Challenging and compelling so that it inspires, provides a motivating force even in difficult times and moves to greatness.
1. President F.W: de Klerk of South Africa opened a prison door and gave all South Africans hope for place with justice in their troubled land. 2. Pope John Paul 11 gave a captivating vision of forgiveness simply by visiting the man who had shot him in a prison cell in Rome. That event, captured in pictures and instantly communicated throughout the world by press and television, spoke powerfully to millions about the importance of forgiveness. 3. Mother Teresa, through the simple power of love, compassion and sen'ice, became a world celebrity. Her passion for a mission-driven life of dedication and thankless service to the poor, the abandoned and the down-trodden, serves as an outstanding mode! for authentic servant-leadership. 4. Mahatma Gandhi of India, was the embodiment of peace and non-violence. He taught the world the meaning of civil disobedience, which he called Satyagraha, and was the bedrock of the Indian freedom movement. The "saint in the lion-cloth" united India as none other and shaped India in the twentieth century.
m
11.2
MOTIVATIONAL POWER OF VISION STATEMENT
A vision statement may be expressed in a captivating way. Warren Bennis (1993) wrote in his books on Leaders: // there is a spark of genius in the leadership function at all, it must lie in this transcending ability, a kind of magic, to assemble-out of all the variety of images, signals, forecasts and alternativesa clearly articulated vision of the future that is at once simple, easily understood, clearly desirable, and energizing. A vision must be simple, comprehensible and motivating. For example:
Gandhi and Martin Luther King, Jr., were practitioners of active nonviolence reforms, they were masters in initiating radical strategies and struggles that baffled and exasperated their political opponents. Their practices were adopted by: I. I ceh Walesa, who changed the course of Polish and international history with the weapons of courage and integrity. He initiated labor movement, Solidarity, attracted global support of governments, political
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leaders, the Pope and millions of kindred souls around the world. 2. Mikhail Gorbachev-, who made Perestroika (restructuring) and glasnost (openness) words that most non-Russian-speaking people now understand. He initiated a wave of change in the Soviet Union, which, for decades, was the citadel of sovereign power and subjugation, and where movement toward freedom and individual leadership were loathed and repressed. 3. Nelson Mandela, who was highly focused on the basic issue of his demand for '"one person, one vote." The discipline and grace of his leadership enabled him to rise from imprisonment and solitude, after nearly flurry years of political confinement, with poise, balance and the gracious spirit of forgiveness and reconciliation. A vision, by its very nature, is futuristic. Yet most people prefer to live as things have always been, in the here and now, rather than go where they have not been. Leaders can either yield to the complacency of the people or be willing to win them over to their own dream for a better tomorrow. There are two criteria for a powerful vision statement, according to Robert K . Greenleaf (1977) and they are the following: 1. The target or goal should be within sight, but just out of reach. 2. It should be brief and summarized, if possible, in one 1 line or. sentence. Someone had said: "People will march for a sentence, but never for a paragraph."
Here are some one-liners that have dramatically changed history: 1. For God's Greater Glory 2. We will Overcome
3. Liberty! Equality! Fraternity! 4. Workers of the World, Unite! 5. I Shall Return A vision is a rallymg cry. It empowers people and makes them believe they can do it. A true vision is always perceived as attainable.
11.3
DEVELOPING T H E VISION
Ideally a vision statement should be encapsulated in one line; initially it may need to be much more comprehensive. The full and comprehensive statement should be made available to all, but the one-liner should be permanently visible.
1
'in corporation follows:

1.
S c l i s i VOIII
described this visioning process
as
mountain climb.
2.
Ensure it is the right one.
3. OnM 1 n " i you want to climb it. I Work out what you need to do.
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5. Decide how you are going to do it. 6. And when you are going to start. Below is Figure 9.1 which illustrates the visioning process. 1. Select your mountain 6. And when you arc going to 2. Ensure it is the
2. Why it is there; 3. What are its opinions for the time? Vision should always grow out of the history of the organization. And while history should not determine vision, if it is ignored, the vision will not be adequately understood and fully shared by all. Today, an ever-changing externa! environmental force requires careful attention. But organizations are open systems and cannot insulate themselves with protective shields. In envisioning the future, there is a need to get feedback regarding the current situation and future needs. This includes people's ideas, opinions and perceptions culled from focused group discussions, conversations and surveys. Clues for the future can be predicted as answers to the following questions as suggested by Burt Nanus, in The Leader's Edge, such as the following: 1. Which individuals and institutions have a stake in the future of this organization, and what are they trying to make happen? 2. What could happen if we continue on our present path without any changes? 3. What early-warning signals might we detect i f the external environment forces were to change substantially? 4. What future events could happen, both inside and outside (Hit organization, that would have a big impact on us, and how likely arc they to occur?
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5. Decide how you are going 3. Check why you want to 4. Work out what you
Figure 9.1 Visioning Process
11.4
VISION AND T H E ORGANIZATION'S HISTORY
"While it is true that vision focuses on the future, it also honors the past and is made possible by the past. The history of an organization, to a great extent, shapes: I. Where it is;
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5. How much leverage do we have to influence the course of an event, and how could that leverage be applied? 6. What options could be available to us, and what might their consequences be? 7. What future resources might be available, and what would we have to do to secure them? 8. What alternative futures might occur for our organization and its environments, which are more likely to be favorable to our survival and success? Warren Bennis (1993), who has spent several years interviewing leaders, remarks that while leaders come in every size, shape, and disposition, there is at least one ingredient that every leader shares: concern with a guiding purpose and overarching vision. Leaders are more than goal-directed; they are vision-directed. W. Bennis concisely captures the role of leadership in vision development when he says that an effective Chief Executive Officer (CEO), with his leadership group, should be able to effectively do the following: 1. Develop a compelling vision of the firm's future. 2. Translates the vision into a reality by concentrating on the keys to success. 3. Remains deeply involved at the very heart of things, and spurring the action necessary to carry out the vision. 4. Motivates employees to embrace the vision.
5. Constantly articulates the vision so that it permeates all organizational levels and functions, and taking the organization where it's never been before.
11.5
C O M M U N I C A T I N G T H E VISION
In order to gain consensus and commitment throughout the organization, even a compelling vision requires effective communication. "Only through good communication can a good leader convey and preserve a common corporate vision. Communication can sharpen, embody, and help enact that vision" (Max DePree, Leadership, is an Art, Doubleday, New York, 1989). Communicating the vision to all key personnel is very important. To build a great corporation, "takes endless articulation and reinforcement of what the institution honors, values, and believes" (Richard T. Pascale and Anthony C . A t h o s , The Art of Japanese Management; Simon & Schuster, New York, 1981). Fr. Theodore Hcsburg, former president of the University of Notre Dame, served as the chief architect of Notre Dame's aspiration into a leading university. His thoughts on the role of vision are very clear: "The very essence of leadership is you have a vision. It's got to be a vision you i an articulate clearly and forcibly on every occasion. You OinOOl blow an uncertain trumpet" ("His Trumpet Was Ntvtl i tacertain;" Time, May 18,1987).
11.6
FORMULATING A VISION
I i .uli it. an people to whom others are drawm because they haw a \ iinn. a dream, an agenda, or a frame of reference.
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Clearly, when we are with these individuals, we sense an extraordinary focus of commitment that attracts us to them. It is often said of these leaders that they make us want to join with them. They enroll us in their vision. A vision can be seen with the mind's eye. It can be pictured - it has substance, form and color. Visual literacy experts tell us that over 85% of the information we absorb is visual. Leaders understand the power of the visual and use it to attract others to their dream. A vision is a portrait of the future to which people can commit. It is the articulation of values. It empowers and inspires people to do a job and to contribute ideas or actions beyond themselves. In formulating a vision statement for your organization, Warren Bennis (1993) suggests that you consider the following criteria: 1. A vision engages the heart-and the spirit. 2. A vision taps into embedded concerns and needs. 3. A vision asserts what you and your colleagues want to create. 4. A vision is something worth going for. 5. , A vision provides meaning to the work that you and your colleagues do. 6. A vision is, by definition, a little cloudy and grandif it were clear, it wouldn't be a vision. 7. A vision is simple.
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8. A vision is a living document that can always be expanded. 9. A vision provides a starting place on which to build more and more level of specificity. 10. A vision is based in two deep human needsquality and dedication. Your vision will uniquely be your own. In formulating it, take a risk: be daring and reach for what you truly want for your organization and your own role in it. Your vision should speak to the needs of others in the organization - to the strivings and hopes that may be unexpressed but held within. If it touches their longings, if it resonates with what is deeply felt, then it has the power of a vision.
11.7
I M P O R T A N C E O F T H E PURPOSEAND-MISSION S T A T E M E N T
The purpose-and-mission statement tells the world why you and your team are making the effort to act and to succeed. It identifies the motivation for your organization's actions. It tells your reason for existence, your unique contribution potential and gives guidance and direction in a number of ways: 1. Ii helps everyone focus on why they exist -as an ui)',nil..in,HI 2. 1 1 ei rules an energizing feeling that their work makes a tlijlei fin v.
1
Ii piovuliv. llie foundation for the organization's pi'ln H iinilioils. procedures and decisions.
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4. It is the starting point for both strategic planning and related operational planning. In order that the statement shall be a useful guide to others, it must be effectively communicated and acted out. To remain relevant, effective and dynamic, _ it is vital to periodically examine the purpose and mission of the organization. A periodic update can rekindle people's commitment to their work and to one another. Here are some important points to remember, according to A . D'Souza (1993): 1. Clarity of the mission - Requires that leaders come to a basic agreement on what is important since a clear mission is the foundation for strategic decisions. 2. Uniqueness of the mission - Differentiates organization from other similar ones. the
Employees, associates or members The community or the public
The mission statement must clarify the focus and direction of the organization. It should be inspiring but much more concrete, more practical, more in the here-and-now than the vision. The reason for the mission statement is that each member be very clear on what the organization is all about. It helps each key member make independent decisions when necessary, knowing that each decision will help the group and organization move in the right direction.
11.8
D E V E L O P I N G T H E MISSION STATEMENT
3. Communication of the mission - Reduces inevitable internal conflicts about departmental " t u r f or about use of resources and clarifies the rationale behind any changes. Anthony D'Souza (1993) suggested a set of criteria for an effective mission statement: 1. Brief'in order to be memorable and remembered. 2. Concrete rather than abstract, and easy to understand. 3: Uplifting to reach into the future and reflect the present. 4. Specific to identify responsibility to: ' your intent of service or
Involving people, particularly senior personnel in developing and updating the organization's mission is the best way to gain their commitment. A . D'Souza (1993) suggested some steps to determine a mission statement: I. The Top-Management Team must come to an agreement on their own sense of mission for the organization. They need to ask themselves some very Important and fundamental questions: Why arc we in this business or organization? What do we want to do or achieve? What is our unique contribution that would not happen i f we did not exist? I luu i n we going tO do it?
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Who are the people to whom we deliver our service or product? How would we like to be seen by our customers and be known within our organization?
member of the organization has the responsibility for the accomplishment of the mission. How will you share it with others, both within and without the organization, particularly with those who may be interested? How will you keep it before you and the rest of your staff in your daily tasks? The best means for focusing awareness of mission within the organization are through visits by senior managers, by conferences or by .routine chats. There are the most important and credible means of communicating the mission or reminding people of it. Whatever is done to communicate the mission, it must: 1. Be obviously sincere. 2. Contain emotion. a 3. Be mentioned frequently. I Mlicr supplementary ways of communicating or highlighting the mission of the organization that several Icadcis have found useful include the follow-big: 1. Publishing ii on your brochures and perhaps your letterhead and business card.
2. Middle Management is the key to" promoting and managing the mission. A mission from the top in itself will be useless unless middle managers feel they can own it and have an opportunity to contribute to it. Here are crucial questions they need to ask: How can we contribute to this mission? How can we be models of it? How can we get our front liners excited about it?
3. Front-liners deliver the mission. They too must be given opportunity to ask crucial questions: How do we contribute to this mission? How do we make it happen? How do we relate to people with whom we deal?
For your organization's purpose-and-mission statement to be succinct, it should be composed of two or three sentences or at most a brief paragraph. It must state clearly whyfor what purpose you organization exists; whatthe business you are in or what you do and; whoyour customers or whom you serve.
11.9
C O M M U N I C A T I N G T H E MISSION
2. Making it clearly visible at the entrance of your building Posting it . H I bulletin boards in conference rooms and other nuns.
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4. Placing it as the lead page for strategic planning documents and operational-planning documents. 5. Encouraging division or department heads to develop their own mission statements that support the overall mission of the organization. 6. Reviewing the mission periodically and updating it when necessary.
organization are contributing to its overall purpose and mission. Such annua! or semi-annual meeting can: 1. Begin with discussion of the corporate strategy and goals. 2. Discuss each unit's goals: Have there been any major changes? What goals are still relevant to achieving the mission? What goals need to be updated? Should new goals be set? Decide on four or five goals for the organizations and each unit. Prioritize them according to their importance to the overall purpose and mission. For each major goal, brainstorm various strategies and decide on specific objectives for achieving the goal. List the various activities or objectives to be undertaken,- is responsible, and the projected date of accomplishment. Specific, realistic, challenging and measurable goals are vitally important. They tell the people precisely what is expected In Why Employees Don't Do Wiat They're Supposed in Do, I crdinand F. Foumies says: "As .mi,: my, as this may sound, the most common reason managers give as to why people al work doll'l do what they are supposed to do is, "They don't know what they tire supposed to do. "
11.10 SETTING G O A L S AND O B J E C T I V E S

Once you have clarified the purpose and mission of your organization, you must decide what arc the major goals and objectives that will help accomplish it. Goals are broad long-term strategic plans of what you want to accomplish. They must be both realistic and challenging. Objectives are more technical and spell out specific timebound activities that must be undertaken and met in order to achieve your goals. Goals and objectives pin down what will be accomplished, when and by whom. A clear vision of the mission makes setting goals and objectives an easy, interactive and effective process. A corporate strategic plan with measurable goals and objectives for the entire organization and specific action plans for each unit and each individual where applicable must be developed. Members should meet annually or semi-annually with quarterly updates to examine how various activities of the.
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At its worst, this literally means people do not know there is a specific task they should perform. Variations of this problem are: They know they are supposed to do something, but they do not know when they are supposed to begin. They know they are supposed to do something and know when they are supposed to begin, but they do not know^ when they are supposed to finish. They know what to do, when to begin and when to end it, but they do not know what finished is supposed to look like. You told them to do a good job, but they do not know whether a good job is ten percent error, five percent error, or error-free performance.
MISSIONS Broad. General Not Measurable. Not Quantifiable No Timeframe. No Deadline Fairly Comprehensive
'
GOALS/OBJECTIVES Clear. Specific Measurable. Nearly Always Quantifiable Definite Timeframe, Clear Deadline Significant Priorities Only
11.11 S U M M A R Y
The best visions capture in words or picture the desired future and inspire and excite the emotions. The vision must inspire and move the leaders. If it does not inspire the leaders, it will probably cannot inspire others. Determining the organizations' mission is the responsibility of leadership and top management. Communicating the mission is the responsibility of all management levels. Implementing the mission is the job of all staff members. The key function of empowering an effective leadership is to constantly articulate the meaning and purpose of what then organization is doing. Many Organizations have become so divided because their purpose is imcleai and the leaders do not have time to articulate their vision, mission and goals/objectives.
While a goal must reflect the belief that it is important, meaningful and worthwhile, it must also be clear and understandably specific about what it will achieve. In Teamwork: What Can Co Wrong, What Must Go Right, Carl Larson and Frank LaFasto remark: Charity implies that there is a specific performance objective, phrased in such concrete language that it is possible to tell, unequivocally, whether or not that performance objective has been attained. Goals and objectives define the end result the organization wants to achieve within the given timeframe. Here are some significant differences between the Mission and Goals/Objectives:
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II. Use the objective-setting worksheet below. For each major goal, list various activities or objectives to be undertaken, who is responsible, and the projected date of accomplishment. OBJECTIVE-SETTING WORKSHEET FOR EACH MAJOR GOAL Major Goal:
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Objectives
Who is responsible
When accomplished Begin: End: -
CHAPTER OBJECTIVES After this chapter, you should be able to: explain the importance of having a good vision, purpose and mission statement; learn and develop formulation of vision, purpose and mission statement; and, improve your own organization's Vision, Purpose and Mission Statement.
1.
2.
3. ( ONTENT OUTLINE 4. Introduction The Difference Between Leadership and Management I eadership and Management Skills - A Comparison The Difference Between Proactive and Reactive 1 .eadership Functions of Proactive Leadership Vision-Driven Leadership . .... , . People's Involvement and Interaction
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INTRODUCTION
The beginning of this century involves a paradigm shift from a management era to a leadership era. John Naisbitt and Aburdene in Megatrends 2000 described this paradigm shift as follows: The dominant principle of organization has shifted from management in order to control enterprise to leadership in order to bring out the best in people and respond quickly to change. This is not the "leadership" individuals and groups so often call for, when they really want a father-figure to take care of all their problems. It is a democratic yet demanding leadership that respects people and encourages self management, autonomous teams, and entrepreneurial units. Warren Bennis and Burt Nanus in Leaders: The Strategies for Taking Charge emphasized the difference: By focusing attention on a vision, the leader operates on the emotional and spiritual resources; on its values, commitment, and aspirations. The manager, by contrast, operates on the physical resources of the organization, on its capital human skills, raw materials and technology. It remains for the effective, however, to help people in the organization know pride and satisfaction in their work. It is an emotional appeal to some of the most * fundamental of human needs- the need to be important, to make a difference, to feel useful, to be a part of successful and worthwhile enterprise. Included in their book is a powerful message published by United Technologies Corporation:
People don't want to be managed. They want to be led. Whoever heard of a world manager? World leader, yes. Educational leader; Political leader; Religious leader; Scout leader; Community leader; Labor leader; Business leader; They lead. They don't manage... if you want to manage somebody, manage yourself. Do that we/1 and you'll be ready to stop managing and start leading.
12.1
T H E DIFFERENCE B E T W E E N LEADERSHIP AND M A N A G E M E N T
Leaders have been characterized as inspiring or charismatic, but one rarely hears of inspiring or charismatic managers. In the minds of many, management is associated with words such as efficiency, planning, procedures, control and consistency. Leadership is associated with words such as vision, creativity, dynamism, change, and risk-taking. But are there real differences between managers and leaders? Between leadership and management? According to A . D'Souza (1993), here are some distinctions: 1. Managers are concerned with the present - Leaders look to the future. 2. Managers make sure details are taken care of Leaders set broad purposes and directions, 3. Managers exercise control to make sure that things v\ml will I eaders create commitment that things may wotk better. 4. Malingers solve today's problems by addressing dillieulties caused by changing events Leaders create Corporal*
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a better future by seizing opportunities stimulated by changing events. 5. Managers focus on the process - Leaders focus or, the product. 6. Managers focus on problem behavior and try to improve it through counseling, coaching, and nurturing - Leaders focus on what is right and praise it. 7. Managers make sure people put in an honest day's work for their pay - Leaders inspire people to do their best. 8. Managers organize and plan to meet this year's objectives - Leaders create a vision of the years down the road. 9. Managers create efficient policies and standard operating procedures - Leaders go beyond the need for standard procedures and create a more efficient system. 10. Managers focus on efficiency - Leaders focus on effectiveness. In his Seven Habits of Highly Effective People, Stephen Covey (1992) stated: Management is a bottom-line focus: How can I best accomplish certain things? Leadership deals with the top line: what are the things I want to accomplish? Management is efficiency in climbing the ladder of success; Leadership determines whether the ladder is leaning against the right wall.
.
Warren Bennis (1993) in his own inimitable style characterized managers as people who do things right and leaders who do the right things. Other distinctions Bennis makes between leaders and managers are: Managers administer - Leaders innovate. Managers maintain - Leaders develop. Managers control - Leaders inspire. Managers have a short-term view - Leaders, a longterm view. 5. Managers ask how and when - Leaders ask what and why. 6. Managers imitate - Leaders originate. 7. Managers accept the status quo - Leaders challenge it. John Kotter's A Force for Change (1993) does a reputable job of showing the importance of an organization needing the respective strengths of management (doing things right) and leadership (doing the right things). Kotter's makes a solid case for .the team approach between leaders and managers, if an organization is to prosper:
1. 2. 3. 4.
Management Planning and Budgeting establishing detailed steps and timetables for achieving needed results, and then allocating the resources necessary to make thai happen.
Leadership 1) Establishing Direction - developing a vision of the future, often the distant future, and strategies for producing the changes needed to achieve that vision. .
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.,.
....
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2) Organizing and Staffing establishing some structure for accomplishing plan requirements, staffing that structure with individuals, delegating responsibility and authority for carrying out the plan, providing policies and procedures to help guide people, and creating methods or systems to monitor implementation. 3) Controlling and problem solving - monitoring results versus plan is some detail, identifying deviations, and organizing to solve these problems.
2)
Aligning People communicating the direction by words and deeds to all those whose cooperation may be needed so as to influence the creation of teams and coalitions that understand the v ision and strategies, and accept their validity.
In summary, below is a difference of a leaders and from a managers:

Leaders ) Leaders gain power through their actions and personal relations. Leaders are found throughout an organization. Leaders have followers desire to be on the team. who
Managers 1) Managers have positional power on which to rely.
2)
21
Managers arc found in the organization's higher echelons. Managers have subordinates who have been assigned to them. on the
3)
3)
3)
Motivating and Inspiring - energizing people to overcome major political bureaucratic and resource barriers to change by satisfying very basic, but then often unfulfilled, human needs. Produce Change, often to a dramatic degree, and has the potential of producing extremely useful change (e.g., new products that customers want, new approaches to labor relations that help make afirmmore competitive).
4)
Leaders depend on people for success. Leaders provide vision in terms of "the real benefit to you..." Leaders have self-conceived goals to better the organization.
4) Managers depend system for success. 5)
5)
Managers use the "this is your job..." approach. Managers attempt to meet lhc goals provided by the organization.
6)
6)
4)
Produces a degree of Predictability and Order, and has the potential of consistently producing key results expected by various .. parties (e.g., being on time for customers, being on budget for stockholders).
4)
7)
Leaders strive to change the niâm/aiinn io best meet needs us they perceive them. Leaders often view rules and procedures as bureaucratic red tape. i iidera work for results. work through their
71 Managers work to maintain the organization's status quo.
8)
8)
Managers view rules and procedures as necessary controls to provide order.
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9 ) Managers follow directives. 10) Managers work with charts and computer print-out.
10) leaders people.
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A second and similar work is Craig Hickman's Mind of a Manager; Soul of a Leader. Hickman, like Kotter, speaks of the importance of a balance between leader and manager qualities on a leadership team, calling for the full deployment of both managers and leaders: Most current thinking seems to suggest that all managers should become more leadership oriented. I disagree. I believe managers should not be required to become more like leaders, nor should leaders be required to become more like managers. Rather, both should come to value and emphasize the unique strengths of each other in order to top the natural tension between them to produce a "one plus one equals three" outcome. This requires blending strong management and strong leadership into one integrated whole where the strengths of leaders combine with, rather than clash with, the strengths of managers, thereby minimizing the weakness of both.
separate functions. In this way the best possible attributes from both perspectives can be used, and a multiple viewpoint will become the rule rather than the exception: Genevieve Capowski's, "Autonomy of a Leader" Management Review (March 1994) made a comparison between a leader and a manager, such as: Leader 1) 2) 3) 4) 5) 6) 7) 8) 9) 10) Visionary Passionate Creative Flexible Inspiring Innovative Courageous Imaginative Experimental Independent vs. vs. vs. vs. vs. vs. vs. vs. vs. vs. vs. Manager Rational Consulting Persistent Problem-solving Tough-minded Analytical Structural Deliberative Authoritative Stabilizing
12.2
LEADERSHIP AND M A N A G E M E N T SKILLS - A COMPARISON
12.3
Both leadership and management skills are needed to build a successful organization. It is also important to realize that the way situations are viewed depends on whether it's from the leadership or the management perspective. The best advice is to look at situations from both perspectives so that all aspects are understood. The comparison that follows is presented by Anthony D ' Souza (1993), to assist with the understanding of these two
THEDIFFERENCE BETWEEN PROACTIVE AND REACTIVE LEADERSHIP
According to Anthony D'Souza (1993), people who achieve what they want, because they do the following: 1) Have clear and specific goals; 2) I )cvclop plans and schedules for achieving goals; 3) Assume personal responsibility for implementing and following these plans and schedules; and 4) Persevere in the face of setbacks.
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The same is true with highly effective people, who are proactive and future-oriented. They have freed themselves from reactive and post-oriented modes of living. They do not wait for things to happen to them -they take charge. They do not spend time responding to unanticipated events not of their own making - they find ways to anticipate future events and influence them in advance. They have learned to plan ahead and are more alert and responsive to challenges, opportunities and changes that affects them and their organization. Proactive Leadership means: Taking charge in a conscious, deliberate, active manner; Looking ahead and anticipating the desired future; Planning for what will be accomplished; Strategizing to prevent potential problems so as to spend less time on fire - fighting and more time on fire - prevention.
Anthony D'Souza stated the following characteristics
Reactive Leadership
Proactive Leadership
I) Avoids blame or responsibility; 1) Takes responsibility for actions; 2) Sees reasons why things cannot be done: 3) Feels in no control of environment; 2) Has a "can do" attitude:
3) Feels in control of environment;
4) Focuses on problems, obstacles 4) Focuses on solutions or or what to avoid; results wanted; 5) Is limited by what worked in the past; 5) Thinks in terms of new possibilities;
Reactive Leadership means: Living in an after-the-fact mode; Spending most of the time reacting to events after they have occurred; Waiting passively for things to happen and resolving problems to arise; Fire-fighting that keeps leaders so occupied that sometimes they don't have lime to think about what caused the fires. Proactive leadership is far more effective. The difference between the two behavior styles revolves primarily around the leader's vision and commitment and the mobilization and empowerment of people.
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6) Is blinded by the problems and 6) Seeks options and obstacles in a situation; focuses on opportunities in a situation; 7) Is problem-oriented 7) Is opportunity-oriented - concentrates on finding -concentrates on weaknesses and problems to fix; finding, strengths and resources; 8) Finds it difficult to choose and 8) Makes choices easily; decide; 9) Is afraid of taking risk and facing challenges; 10) Is resistant to change; 9) Is driven to excel bychallenges and risks; 10) Is open to change;
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11) Cannot let go of the past;
11) Is present and future oriented; 12) Enjoys an calmness: inner
and goals and in significance of the achievement to add meaning to that person's work on life. 3. The proactive leader assumes responsibility- and exercises initiative in obtaining the desired results. Responsibility and initiative are two of the major functions a group expects of its leader. 4. The proactive leader is highly goal-oriented, selfmotivated and self-disciplined. For these reasons he initiates projects and programs, works hard and cares deeply about the organizational vision. Self-direction and self-motivation are clearly manifest in the proactive leader. Having these abilities wins the respect and trust of others and justifies the position of the leader. As a leader, his basic motives, attitudes toward others and general methods of dealing with people are of crucial importance in determining acceptance and effectiveness. 5. The proactive leader sets an example for others, personifies the- ideal for the group and expresses the core values of the organization. People will look to the leader's character and behavior even more than his words to decide how they should act. People want their leaders to be credible, and setting the example is the key credibility factor. People look their leaders as an expression of the organization's philosophy and exemplification of a personal ethical code.
12) Suffers excessive inner stress;
13) Is devastated by failure;
13) Learns and grows from mistakes: 14) Energetic and alert; 15) Has a positive self-image and high self-esteem.
14) Runs out of energy quickly; 15) Has a negative self - image and low self-esteem.
12.4
FUNCTIONS O F P R O A C T I V E LEADERSHIP
1. The proactive leader provides a vision for the organization. He has thought about what the organization could be and could accomplish and is very clear about what he wants it to become. The leader's vision goes far beyond the .day-to-day setting of objectives and solving of problems. It must be both inspiring enough to be challenging and practical enough to be believed. 2. The proactive leader communicates the organizational vision in such a way that it inspires others to follow and motivates them to action. To do this effectively, the leader must believe passionately in the vision. Only then can he convince others what a wonderful thing it would be for the organization to develop ..in that direction. He shows each person how he or she will benefit both in satisfactions of their individual wants
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12.5
VISION-DRIVEN LEADERSHIP
talents and gifts, and with a special sense of direction. And so, the vision becomes unique and idealized. A visual image or a succinct statement may display a vision. The process of developing a pictorial representation helps to clarify and give feeling to the vision. Leaders have been described as "painters of the vision and architects of the journey." Leaders dream of the desired future. Their dream is to change the world - the world of their organization, their nation or their planet. ^ At the core of the leader's vision is a positive belief and conviction that life can and will be made better by taking a new path. Those words attributed to George Bernard Shaw and so often quoted by Robert Kennedy: "you see things as they are and ask why. But I dream of things that never were and ask, why not?" It is said of Robert Kennedy that his distinguishing quality was moral courage to dare and to act. "That is unacceptable," he used to say of many situations and conditions- that most of us accept as natural or inevitable. Lives of people are sometimes gripped by sense of helplessness and cynicism. There are those who feel their lives cannot count for anything against the odds of powerful economic, social, and political forces. People need a sense of vision for the future that will help them discover that they can make a difference right where they are, that challenges them to reach out to the world around them and make this world a better place to live. The importance of articulating a compelling vision to which followers can-commit themselves was emphasized by Robert Greenleaf (1977) in his book, Servant 11 .idership: A Journey into the Nature of Legitimate Power and Greatness.
Corporate Social Responsibility and Good Governance 30]
Warren Bennis and Burt Nanus made a study of the work patterns of ninety prominent leaders. Their study led to the discoveiy of an important common denominator - all the leaders has a compelling vision, a realistic dream about their work. " A l ! ninety people interviewed had an agenda, an unparalleled concern with outcome. Leaders are the most results-oriented individuals in the world, and results get attention. Their visions or intentions compelling and pull people toward them. Intensity coupled with commitment is magnetic. Vision grabs." Jim Kouzes and Barry Posner (1999) state: Visions derive from a word literally meaning "see ". What better word than vision to describe the capacity to be forward-looking and foresighted? Vision suggests a future orientation. A vision is an image - a picture of what could be. Visual metaphors are very common strategic standard of excellence, an ideal. It implies a choice of values. Vision also has the quality of uniqueness. It hints at what makes something special. A vision is an ideal and unique future state crystallized as an image or brief declaration. A n organization's vision gives a crystal-clear depiction of what an organization wants to become. It shows a glimpse of the future as we would like it to be and as we think it should be. As Jonathan Swift wrote in Gulliver's Travels, "Vision is the art of seeing things invisible." A statement of vision is also unique. It takes into account a specific milieu, a particular group of people with their
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A mark of leaders ...is that they are better than most at pointing the direction. As long as one is leading, one always has a goal. It may be a goal arrived at by group consensus, or the leader, acting on inspiration, may simply have said. "Let's go this way. " But clearly stating and restating the goal the leader gives certainty and purpose to others who may have difficulty in achieving it for themselves. The word goal is used here in the special sense of the overarching purpose, the big dream, the visionary concept, the ultimate consummation which are approaches but never really achieve...lt is so stated that it excites the imagination and challenges people to work for something they do not yet know how to do, something they can be proud of as they move toward it. Effective leadership is developed and sustained by your vision. Without one, you cannot reach your full leadership potential. Harry Emerson Fosdick once said, "No life ever grows great until it is focused, dedicated, disciplined." In the same manner that no organization, institution or school ever grows great until it is focused, dedicated and disciplined. Charles Garfield (1987), who has written so much about "peak performance" and "peak performers" states that ultimately it is the vision that counts". Peak performers organize their actions around intended results. They affirm and communicate a clear vision and mission. They have plan of action with specific goals for achievement followed by specific time-bound targets for evaluating progress results.
The book of Proverbs states: "where there is no vision the people perish" (Prov.29:18). This statement dealt with the well being, growth and progress of a people chosen to be a blessing to the world. It is a reminder to us of the importance and significance of a future orientation - of expectations and hope. People drift into pointless, meaningless, listless existence if there is no captivating vision, no goal, and no plan for the future. Here's what A. D'Souza (1993) says about vision: 1. Operates as your dynamic force energized by voltage and vitality; 2. Provides lift, stretch, clarity and focus; 3. Guides you to see beyond the immediate; 4. Makes you future-oriented, concentrating on results rather than on activity; 5. Shows you where you are going and why you are going there; 6. Helps you spot opportunities that others have not seen; 7. Gives you the driving power to see you through tough times: and 8. Makes the unreachable reachable and makes toward a worthwhile future.
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ideas by forcing re-examination of objectives, plans and implementation. Effective leaders are not only skilled in the dynamics of planned change and goal- achievement, they also empower others. Without shared vision there would be no common direction. Without empowerment of others, there would be no excellence in performance. Leadership is the simultaneous provision of direction and empowerment.

1. Compare and contrast leadership from management. 2. Compare and contrast proactive leadership. reactive leadership from
3. Differentiate a good leader from a good manager. 4. Describe the present leadership you have in your organization or institution. 5. How do you help your organization attain effective leadership?
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12.5
PEOPLE'S I N V O L V E M E N T AND INTERACTION
alive. But with a revived vision, organizations and institutions can come to life again. There are leaders who have visions that could be highly successful but are unable to convey their visions to others. It is difficult to overcome the natural resistance to change. As pointed out by Niccolo Machiavelli, "There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things because the innovator has for enemies all those who have done well under the old conditions and lukewarm defenders in those who may do well under the new." Developing a shared vision is both difficult and complex. It is essential to: Communicate and stress open communications; Be accessible and visible; Involve people to help plan for change; and Build a climate of trust.
Leaders recognize that gTeat dreams and grand visions are not realized through their actions alone. A vision must be clearlv articulated and shared and many others are needed to create, produce and support it. Involvement, interaction and mobilization are keys to making those dreams and visions significant realities. Leaders encourage collaboration and work in ways that maximize the commitment of people. One of the major functions of a shared vision is to align education, upbringing, information and perceptions influence us to move in different directions. A shared vision captures the attention and emotion of people. Creating a shared vision allows a leader to secure a commitment to a common purpose so that innovation and improvement prevail over inertia and stagnation.
A shared vision:
Attracts people to it and aligns them in the same directions; Keeps people focused, energized and on target;
12.6
.Gives meaning and purpose to their lives and work and provides a motivating environment for excellence; and Creates a challenging, empowering organization rather than a styling, dehumanizing one.
SUMMARY
Organizations and institutions disintegrate and members drift away without a shared vision. Those that remain shift into a survival made and perhaps desperately cling to stay
Effective leaders build a climate of trust where people can freely express their ideas and concerns. Such an atmosphere requires sensitive leaders who are secure in their own knowledge, skills and relationships, rather than feel threatened by differences 'or resistance. If used creatively without resentment or suppression, resistance and differences of viewpoint can become a source of new
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Chapter I Strategic Public Policy ision for Corporate Social Responsibility

Chapter I Strategic Public Policy I 'ision for Corporate Social Responsibility

STRATEGIC PUBLIC POLICY VISION FOR CORPORATE SOCIAL RESPONSIBILITY

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Corporate Social Responsibility and Good Governance

Chapter I Strategic Public Policy I V . w V w for Corporate Social Responsibility

Chapter I Strategic Public Policy I ision Jor Corporate Social Responsibility

C O R P O R A T E SOCIAL RESPONSIBILITY R E F E R E N C E FRAMEWORK

Corporate Social Responsibility and Good Governance

Chapter I Strategic Public Policy Vision for Corporate Social Responsibility

Chapter 1 Strategic Public Policy Vision for Corporate Social Responsibility

Corporate Social Responsibility and Good Governance

Chapter I Strategic Public Policy Vision for Corporate Social Responsibility

Chapter I Strategic Public Policy I 'ision for Corporate Social Responsibility

BUILDING T H E NATION AS A N E C O N O M I C AND SOCIAL SPACE

7 Business system and culture

Corporate Social Responsibility and Good Governance

Chapter I Strategic Public Policy Vision for Corporate Social Responsibility

Chapter I Strategic Public Policy Vision for Corporate Social Respon

Ethical wealth of Nations

Competitive advantage of nations

Figure 1.2 CSR, Governance and Sustainability

Chapter I Strategic I'uhlic Policy I ision for Corporate Social Responsibility

Chapter I Strategic Public Policy I ision for Corporate Social Responsibility

12 Corporate Social Responsibility and Good Governance

Corporate SocialResponsibility and Good Governance

( kapltl 1 Strategic Public Policy I ision for Corporate Social Responsibility

14 Corporate Social Responsibility and Good Governance

(Input I Strategic Public Policy I isiot; for Corporate Social Responsibility

Chapter 1 Strategic Public Policy Vision for Corporate Social Responsibility

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Integration and Learning Process

Management (Structure and Processes)

\ccountability and uiiimnr.il-. ilioi

Figure 1.4 CSR Process Source: Lozano, ESADE

Corporate Social Responsibility and Good Governance

Chapter I Strategic Public Policy I ision fur Corporate Social Responsibility

Chapter I Strategic Public Policy I 'ision for Corporate Social Responsibility

Figure 1.5 Variables of CSR and regulation Source: Lozano, ESADE

Strategic Public Policy Vision for Corporate Social Responsibility

Contribution (companies and private sector)

Strategic Public Policy Vision for Corporate Social Responsibility

Partnerships and Networks

Figure 1.7 Actions in CSR

Chapter I Strategic I'lthlic Policy 1 Ision for Corporate Social Responsibility

Chapter I SlrategU Public Policy I ision for Corporate Social Responsibility

Corporate Social Responsibility and Good Governance

Review Problems and Exercises

Chapter I Strategic Public Policy I ision for Corporate Social Responsibility

Chapter I Strategic Public Policy I ision for Corporate Social Responsibility

Chapter 1 Strategic Public Policy I ision for Corporate Social Responsibility

GCSR: Context Aim and Perspectives

GCSR: CONTEXT AIM AND PERSPECTIVES

2 8 Corporate Social Responsibility and Good Governance

GCSR: Context Aim and Perspectives

GCSR: Context Aim and Perspectives

THE LITERATURE ON GOVERNMENTS AND CSR: EUROPEAN F R A M E W O R K

Corporate Social Responsibility and Good Governance

GCSR: Context Aim and Perspectives

GCSR: Context Aim and Perspectives

COMPARATIVE STUDY B E T W E E N EUROPEAN F R A M E W O R K AND AMERICAN F R A M E W O R K

Corporate Social Responsibility and Good Governance

GCSR: Context Aim and Perspectives