Interpretation of Corporate Responsibility: Issues Management

INTERPRETATION OF CORPORATE RESPONSIBILITY
These group of theories looks at how businesses integrate the social demands arguing
that the business depends on the society for its existence and growth. Social demands
are generally considered to be the way in which society interacts with business and
gives it a certain legitimacy and prestige. As a consequence, corporate management
should take into account social demands, and integrate them in such a way that the
business operates in accordance with social values. Basically, these theories focus on
the responsiveness of businesses to social demands which affords it greater social
acceptance and prestige.
Issues management
Social responsiveness, or responsiveness in the face of social issues, and processes to
manage them within the organization (Sethi, 1975) was an approach which arose in the
70s. In this approach it is crucial to understand the expectations of the organization’s
relevant publics and the organization’s actual performance.
The concept of ‘‘social responsiveness’’ was soon widened with to the concept ‘‘Issues
Management’’. Issues management has been defined by Wartick and Rude ( 1986) as
the “ processes by which the corporation can identify, evaluate and respond to those
social and political issues which may impact significantly upon it”. Some of the aspects
which have been considered include the corporate responses to media exposure,
interest group pressures and business crises as well as organization size, top
management commitment and other organizational factors.
Stakeholder management
Instead of the social responsiveness or public responsibility principle, the stakeholder

approach is oriented towards the “stakeholders” or people who affect or are affected by
the corporate policies and practices. Stakeholder management tries to integrate groups
with a stake in the firm into managerial decision making. A seminal study carried out by
Freeman and Emshoff (1978) presented two basic principles which underline
stakeholder management.
The first principle is to ensure maximum cooperation between the entire system of
stakeholder groups and the objectives of the corporation.
The second principle states that the issues regarding multiple stakeholders require
efforts which simultaneously deal with various issues affecting multiple stakeholders. In
recent times, corporations have come under intense pressure from Non- Government
Organizations (NGOs),ocal communities, media and other pressure groups to conform
to what is termed as socially responsible business practices.
Ethical theories
This is the fourth group of theories that focuses on the ethical requirements. This
approach is based on the right thing to do to achieve a good society.
Stakeholder management has been included within the integrative theories group
because some authors consider that this form of management is a way to integrate
social demands. However, stakeholder management has become an ethically based
theory mainly since 1984
when Freeman wrote Strategic Management: a Stakeholder Approach. In this book, he

took as starting point that ‘‘managers bear a fiduciary relationship to stakeholders’’
(Freeman, 1984,), instead of the conventional view of the firm which advocated a
relationship to only stockholders.
Stakeholders are individuals, groups or entities (including the natural environment) that
claim rights or interests in a company and its past, present and future activities.
Freeman (1984) drew a distinction between ‘primary’ and ‘secondary’ stakeholders.
Primary stakeholders are those without whose participation a company cannot survive
(e.g. employees, investors, suppliers, customers and communities). Secondary
stakeholders are those that influence the company or are affected by it, but who are not
essential to its survival, although they may be able to help or harm the company (eg, the
media, NGOs). The manager’s duty, therefore, is to create sufficient wealth, value or
satisfaction for its primary stakeholders to ensure that they remain part of the
stakeholder system. He may pay attention to secondary stakeholders as well, but there
may often be circumstances under which the interests of the primary stakeholders are
pursued at the expense of those that are secondary
a. Transparency : We live in an information-driven economy where business practices

have become increasingly transparent. Companies can no longer sweep things under
the rug. Whatever they do (good or bad) will be known, almost immediately, around the
world. The Internet, the ubiquitous 24/7 news cycle, thousands of media outlets, web
sites, online newsletters and NGOs using electronic communications to mobilize
constituencies - all contribute to placing corporations under a permanent microscope in
this new age of transparency.
b. Knowledge: The transition to an information-based economy also means that

consumers and investors have more information at their disposal than at any time in
history. They can be more discerning and can wield more influence. Consumers visiting
a clothing store can now choose one brand over another based upon those companies'
respective environmental records. Likewise, investors can choose stocks or mutual
funds based not only on financial factors but on social and environmental criteria as
well.
This is a fundamentally new phenomenon; potentially altering the balance of
power between consumers/investors and corporations in ways we are only beginning to
understand.
c. Sustainability: The earth's natural systems are in serious and accelerating decline,
while global population is rising precipitously. In the last thirty years alone, one-third of
the planet's resources – the earth's "natural" wealth - have been consumed We are fast
approaching or have already crossed the sustainable yield thresholds of many natural
systems (fresh water, oceanic fisheries, forests, rangelands), which cannot keep pace
with projected population growth. Failure to address these developing ecological
catastrophes will mean unimaginable changes to life – including human life - on planet
earth. As a result, corporations are under
Globalisation:
In the new global economy, there is no central government to legislate and enforce
basic labour, human rights and environmental safeguards. Globalization institutions to
protect society by balancing private corporate interests against broader public interests.
Global corporations are under constant scrutiny by the media, governments, workers,
environmentalists, human rights groups and NGOs to incorporate basic CSR standards
and sustainability strategies into their worldwide operations - and to disclose and report
on those strategies
Today, companies are not merely judged on the financial performance by the various
stakeholders, primarily investors, employees, consumers and communities in which
they operate. Companies are now expected to perform well in non-financial arenas such
as human rights, business ethics, environmental policies, corporate contributions,
community development, corporate governance, and workplace issues. Social and
environmental performances are considered side by side with financial performance.
From local economic development concerns to international human rights

policies, companies are being held accountable for their actions and theimpact.
Companies are also expected to be more transparent in disclosing and communicating

their policies and practices as these impact employees, communities, and the
environment. In the new global economy, companies that are responsive to the
demands of all of their stakeholders are arguably better positioned to achieve long-term
financial success. It is no longer optional for a company to communicate its
environmental and social impacts; stakeholders, regulators, and NGO’s demand such
information in an information-driven economy, and improved communication has
become critical for sustainable business growth. A company is considered a good
106"Sustainable development is development that meets the needs of the
present without compromising the ability of future generations to meet their
own needs.

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INTERPRETATION OF CORPORATE RESPONSIBILITY

Instead of the social responsiveness or public responsibility principle, the stakeholder

when Freeman wrote Strategic Management: a Stakeholder Approach. In this book, he

a. Transparency : We live in an information-driven economy where business practices

b. Knowledge: The transition to an information-based economy also means that

From local economic development concerns to international human rights

Companies are also expected to be more transparent in disclosing and communicating

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