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Topic 3: Is adopting a stakeholder approach enough to ensure Corporations meet the moral responsibilities expected of them by society? Introduction In this essay, a discussion on whether adopting a stakeholder approach ensures that corporations meet the moral responsibilities expected of them by society will be researched and elaborated. An argument on Milton Friedmans shareholder theory will be highlighted on its focus on corporate executive duties to shareholders. Edward Freemans stakeholder theory will then be used to explain on how it should be properly applied for corporations to adopt Corporate Social Responsibility towards society. Archie Carrolls four perspectives will then be used to balance between the two arguments. Lastly, views on whether the adoption will meet responsibilities expectations will be analysed to elaborate on the question in relation to Singapore. The stakeholder approach is about groups and individuals who has the ability to affect or is affected by the achievement of the organisations objectives (Freeman 2010). These groups and individuals are separated into primary and secondary stakeholders. Primary stakeholders are groups and individuals who have a formal, official, or contractual relationship with the corporation. They are customers, employees, suppliers, financiers and communities. Secondary stakeholders are groups and individuals who are capable of influencing whether the corporation is effective. They are competitors, consumer advocate groups, special interest groups, media, and government. Moral responsibility is an unspoken expectation towards corporations from society. Corporations exist to make profits from society. Without a society, corporations not exist. Therefore, under moral responsibility, corporations are seen to be responsible to return their profits to the society. It focuses on corporations long-term positioning portrayed in society to examine and improve on groups and individuals who are affected by its activities within the context of social and eco-logical sustainability of its operations. However, a stakeholder approach may or may not be morally responsible to groups and individuals who are primarily or secondary involved with corporations. Freeman view In my opinion, Freemans perspective of stakeholder theory is enough to satisfy expectations of society. With stakeholder theory, shareholders are no longer the only stakeholders in the corporation. This approach determines on how a corporation may have several outcomes depending on the targeted stakeholder audience. Employees are empowered to share their views of the organization to management employees or senior executive who will decide on the feasibility of the views. Current or Page 1 of 10

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impending decisions senior executives make is a reflection of the organization behaviour which may affect stakeholders in one way or another. Under Freemans theory, corporate executives are tasked to create as much value as possible for stakeholders by working together. To achieve this, a compromise has to be reached for all stakeholders to agree that it is in their best interests for the decision to be executed as the greater of good for all. Normative theory holds the idea of how managers and stakeholders are required to act in accordance when viewing organizational purposes under based on principle of ethics. It centralizes morals and values to be its priority in better managing organizations by examining the ends of corporate activity and process to achieve it. Corporations are made up of different stakeholders inter-related to each other. Constant focus on one group at the expense of the other will lead to displeasure from other parties who were not part of the group. This will result in negative consequences for all. The worst scenario that may result would be that of stakeholders who are unhappy leaving the corporation which will lead to the downfall of the corporation. If all stakeholders understand that moral responsibility is good to them then corporate stakeholder responsibility will be able to take over corporate social responsibility which is highly applicable in Freemans theory on stakeholder approach (Langtry 1994). Freeman believes that the rights of individuals should be enforced. For this to exist, society has to believe that in the rights of the people to enforce it. Corporations are responsible to engage in stakeholder theory to protect stakeholders right in order to fulfil its responsibility to society. The implementation of values in the Corporation dictates how others perceive its actions. This comes under ethics and virtues. By implementing ethics and virtues into a corporation framework, this makes it a moral ethical corporation which improves the standard of living of stakeholders (Gibson 2000). Pragmatist involves the use of social practices whereby the stakeholder approach will allow everyone to earn similar profits in order to ensure all interests are being looked after in society. Corporations has to constantly reconsider on how issues which may have been overlooked to realize the methods of achieving better interests to stakeholders socially. Based on these four arguments, we are now clear on stakeholder theory and how moral responsibility may be of different activities but are important individually (McWilliams, Siegel & Wright 2006).

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Freemans argument has also been further improvised where multiple stakeholders goals may not be similar and therefore in order to meet the interests of multiple stakeholders, corporations will need to undergo new reforms to be able to meet all interests of stakeholders as compared to maximising profits will be viewed as a great challenge to measure corporate performance. In order to sustain in a corporation, Freeman believes that all satisfaction of stakeholders has to be met as the basic requirement (Donaldson and Preston 1995). In Google, employees are their priority. They provide contributions of up to US$12,000 per year for eligible employees to non-profit organisations (Google 2011). This signifies that Google would like employees to be involved in contributing back to community. Society consists of individuals who have formed groups voluntarily (Friedman 2007). It determines the relationships patterns between individuals who have a distinct culture and institutions. In the past, societies were only concerned with receiving profits without considering any internal or external factors which may potentially affect them. However, as the education level of society, economical growth, standard of living of developing and developed countries increases, people are now more aware of issues which may possibly affect them or how many individuals may act to affect corporations. Expected returns are now deemed necessary to portray on how corporations are giving back to society which determine their morality (Freeman 2008). Freemans argument may be enough to satisfy corporate social responsibility but corporate social responsibility alone is not enough to sustain corporation. Therefore, Friedmans argument may be seen as appropriate to generate profits for the corporation. Friedman argument Friedman believes that corporation as an artificial body is not susceptible in terms of moral and ethical issues. People are responsible for we are tangible assets but corporations have no real responsibilities, therefore it is questionable as to whether a corporation can be said to have responsibilities. Corporate executives work for the owner of business. They are held solely responsible to his employers. The responsibility relates to obliging to satisfy needs of owners in company who exist to generate profits to follow primary rules to law and ethical conformation towards society for shareholders ultimately (Stieb 2009). In certain cases, the corporate executive may not be achieving profits but to establish quality services in the education or health industry. Profits and performance may not be the best indicator to judge on a person but it is clear enough fundamentally to inform shareholders the criteria has been fulfilled once a contractual agreement has been authorized by the corporate executive himself or herself. Page 3 of 10

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Corporate executive has his or her own rights as an individual. There may be responsibilities that are recognized or assumed based on how its categorization. Such responsibilities may be towards family, conscience, charity feelings, church, clubs, city and country. Such responsibilities might be compelling to him to dedicate a portion of his income to causes he sees that are justifiable to him as expenditure. Friedman firmly stands on the issue whereupon under the pretext of being in an ideal free market, the following situation arises, no individual can influence any other, all cooperation is voluntary and all parties to such cooperation benefit or participation is not needed. There are no values, no social responsibilities in any sense apart from shared values and individual responsibilities involvement. Society contributes to the economy, which is what Friedman implies as a free market. Within this unregulated free market, the invisible hand of the market dictates societal needs (Smith 1977). This includes being freed from moral responsibility too and as such individuals are responsible for themselves. Therefore this brings us to place a societys economic system and its morality side by side. Between the economic system and morality, eventually one factor will have to be sacrificed to benefit the remaining factor. Moreover, moral responsibility will only be attained should the corporation be under the position of a financially positive environment. A corporation might act in accordance with moral responsibility but fail to benefit all stakeholders (Trevino & Nelson 2006). However, Friedman supports moral responsible activities so long as it leads to long term financial benefits for shareholders. To a profit maximisation corporation, adopting moral responsibility would require additional costs. This is considered to be a waste of resources since it does not reap returns for an investment. Should the corporate executive be informed to perform moral responsibility, they may not have the right skills to do so. This will also lead to a waste of time. In an investment, corporate executives exist solely to serve shareholders. Therefore shareholders are the only authoritarians to decide whether the corporation should have moral responsibility or doing away with it (Friedman & Miles 2002). With Freemans emphasis on people and Friedmans view to earn profits, it is difficult for a corporation to do both at the same time unless there is a step by step approach to integrate both factors under one approach which is Carrolls four perspectives (Phillips, Freeman & Wicks 2003). Carroll perspectives

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Carroll believes in a corporate citizenship of four perspectives which will be able to contribute to the community. Corporate citizenship is a relationship between corporations and all their important stakeholders, not only employees. They are economic, legal, ethical and philanthropic (Carroll 1991). In a corporation, corporate citizens are presumed to profit by abiding law to have an ethical behaviour and returning it through philanthropy acts to society which acts as a balancing force in the conflict between Friedman and Freeman. Based on public opinion, corporations are expected to profit but also to reach out to society. Expectations of profiting will only reach a certain point whereby legal responsibilities will have to be met to justify profiting means. Law has to be present to clear any doubts which may be raised by stakeholders. Once it has been enforced, it is able to communicate clearly to stakeholders such as consumers, employees, community and the natural environment. It is the legal responsibility of corporate citizens to incorporate strategies and operational management to be answerable to the social environment (Chan 2008). However, even when law has been abided, this may not necessarily indicate that the corporation is showing moral responsible. Legal responsibility may only be the minimum requirement given to a corporation. One reason may be the fact that laws are hardly altered which may not be reflected in the current society context or it may not be able to resolve an issue effectively to protect stakeholders interests (Carroll 2001). In order to achieve for a higher sense of morality, corporations will need to seek beyond law. This will be ethics. It differentiates between fair versus unfair which concerns with developing codes, concepts and practices of acceptable business behaviour and doing business with its various stakeholders. In business, two concerns are related to understanding and applying ethics. Behaving ethically is regarded the same as moral behaviour within business. Therefore, an ethical manager is a moral manager. A moral manager will be able to set a good example for subordinates to follow which will influence their behaviours on what is ethically acceptable and unacceptable to the corporation which will serve their own interests and corporations interest as well (Hartman & Desjardins 2008). Apart from adhering to an ethical behaviour, it is important to note that giving back to stakeholders is crucial too. Philanthropy is an activity which gives through corporate accounting to the society. It is also being referred to as corporate citizens contributing to communities which have supported their corporation one way or the other. Corporations hold a duty to highlight the fact that it has to contribute back to its people to ensure that they are being treated correctly. Page 5 of 10

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Therefore, corporations have to be economic, legal, ethical and philanthropic responsible in order to work towards a good corporate citizenship while working with stakeholders. Analysis Freemans stakeholder theory may be seen as the most relevant as it takes into consideration of all stakeholders while profiting (Clifton & Amran 2011). Recent polls in the United States shows that 95 percent of all Americans believe that corporations have a responsibility to sacrifice some profits in order to make the life of the community better. (Carroll 1998). The Singapore Compact for Corporate Social Responsibility (CSR) is a national society committed to move CSR forward. It takes on a multi-stakeholder platform in recognizing the role and contributions of all CSR stakeholders (Singapore Compact 2011). Corporate social responsibility has only started practicing in Singapore over the last 3 years. Within a span of 2 years, CSR membership figures have increased by over 60 per cent of corporations in Singapore (Singapore Compact 2011). This shows that CSR is starting to have a growing effect on Singapore corporations which is one of the criteria Singaporeans emphasized. It is further evidenced by the fact that 76 per cent of companies surveyed see cost management as an influential factor toward CSR practices compared to 44 per cent in 2008 (Singapore Compact 2011). Singapore also has a Guide to Sustainability Reporting for Listed Companies in order to standardize their reports (Singapore Exchange 2005). CSR may play a significant role in corporations but there may be conflicting interests. When corporations profit, all stakeholders will want to benefit too. Thus, it is impossible to fulfil all stakeholders needs (Carson 1994). However, Michael Jensen states that in order to fulfil all stakeholders needs, enlightened stakeholder theory should be applied to resolve this. It uses enlightened maximization of value which comes from stakeholder theory structure which accepts maximization of the long-run value of the firm as the pre-requisite trade-offs among its stakeholders to be able to resolve problems raised by multiple objectives that focus on the idea of traditional stakeholder theory (Mallin 2010). The case of Shell should serve as a reminder to all on the needs for corporate social responsibility. In 1990, Shell wanted to clear out Brent Spar oil storage terminal by sinking it in the North Sea; this resulted in the displeasure of the national government, politicians and people in Nigeria (Post, Preston & Sachs 2002). The plan backfired which led to Shell to reform its corporate goals by applying CSR element to inform stakeholders such as local communities to be part of activities which impacts on their environment and also empowering them with basic human rights. Page 6 of 10

S3250105 Conclusion

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By adopting a stakeholder approach, it is enough to have corporations meet moral responsibilities expected of them by society. Friedman holds strong ideas on profiting but it is still under the ethical way to shareholders. Moral responsibility may be part of it but the minimum requirement would be to first care for the profit of shareholders to consider if morality should be added in. Individuals are basically responsible for their own actions. Freeman and Carroll has brought up the point that people as a whole has to come to an agreement in order to benefit all so as not to have any losses and achieve the best interests as a whole. As a result corporations are also responsible for moral responsibility as dictated by the expectations of society. The ultimate decision to include or to exclude CSR to fulfil stakeholder theory will depend on the corporations directional goals which they will want to achieve locally and globally (Wilmot 2001). (2,694 words)

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S3250105 References

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Carroll, AB 1991, The pyramid of corporate social responsibility: Toward the moral management of organizational stakeholders, Business Horizons, vol. 34, no. 4, pp. 39-48. Carroll, AB 1998, The Four Faces of Corporate Citizenship, Business and society Review, vol. 100, no.1, pp.1-7. Carroll, AB 2001, Models of management morality for the new millennium. Business Ethics Quarterly, vol. 11, no. 2, pp. 365-71. Carson, TL 1994, Corporate moral agency: A case from the literature, Journal of Business Ethics, vol. 13, pp. 155-6. Chan, GKY 2008, The relevance and value of Confucianism in contemporary business ethics, Journal of Business Ethics, vol. 77, no. 3, pp. 347-60. Clifton, D & Amran, A 2011, The Stakeholder Approach: A Sustainability Perspective, Journal of Business Ethics, vol. 98, no. 1, pp. 121-136, Business Source Complete, EBSCOhost, viewed 17 August 2011. Donaldson, T & Preston, LE 1995, The stakeholder theory of the corporation: Concepts, evidence and implications, Academy of Management Review, vol. 22, no.1, pp. 65-91. Freeman, RE 2010, Strategic Management: A Stakeholder Approach, Cambridge University Press, UK. Freeman, RE 2008, Managing for stakeholders, in Donaldson, T & Werhane, PH (eds), Ethical Issues in Business: A Philiosophical Approach, 8th edn, Prentice Hall, London, pp. 39-53. Friedman, M 2007, The social responsibility of business is to increase its profits, in Zimmerli, WC, Holzinger, M & Richter, K (eds), Corporate Ethics and Corporate Governance, Springer Berlin, pp. 173-8. Friedman, AD & Miles, S 2002, Developing Stakeholder Theory, Journal of Management Studies, vol. 39, no. 1, pp. 2-21. Gibson, K 2000, The Moral Basis of Stakeholder Theory, Journal of Business Ethics, vol. 26, no. 3, pp. 245-257, Business Source Complete, EBSCOhost, viewed 17 August 2011.

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Google 2011, Benefits, Google, viewed 21 August 2011, <http://www.google.com/intl/gn/jobs/lifeatgoogle/benefits/>. Hartman, LP & Desjardins, J 2008, Business ethics: Decision making for person integrity & social responsibility, McGraw-Hill Irwin, Boston, pp. 63-90. Langtry, B 1994, Stakeholders and the moral responsibilities of business, Business Ethics Quarterly, vol. 4, no. 4, pp. 432-443. Mallin, CA 2010, Corporate Governance, 3rd edn, Oxford University Press, Oxford. McWilliams, A, Siegel, DS & Wright, PM 2006, Guest Editors Introduction Corporate Social Responsibility: Strategic Implications, Journal of Management Studies, vol. 43, no. 1, pp. 2-17. Phillips, R, Freeman, RE & Wicks, AC 2003, What stakeholder theory is not, Business Ethics Quarterly, vol. 13, no. 4, pp. 479-502. Post, JE, Preston, LE & Sachs, S 2002, Managing the Extended Enterprise: The New Stakeholder View, viewed 23 August 2011, <http://www.politikkampagnen.de/politikkampagnen/documents/pdf/post-al-managing-extendedentreprise_einwiller.pdf>. Singapore Compact 2011, Cost Management and Staff Retention and Recruitment Found to be the Top Drivers of CSR in Singapore, Singapore Compact, viewed 21 August 2011, <http://www.csrsingapore.org/c/news/60-cost-management-and-staff-retention-and-recruitmentfound-to-be-the-top-drivers-of-csr-in-singapore>. Singapore Compact 2011, About us, Singapore Compact, viewed 21 August 2011, <http://www.csrsingapore.org/c/about>. Singapore Compact 2011, Resources, Singapore Compact, viewed 21 August 2011, <http://www.csrsingapore.org/c/resources>. Singapore Exchange 2005, Guide to Sustainability Reporting for Listed Companies, Singapore Exchange, viewed 19 August 2011, <http://rulebook.sgx.com/en/display/display_main.html? rbid=3271&element_id=5863>. Stieb, JA 2009, Assessing Freemans Stakeholder Theory, Journal of Business Ethics, vol. 87, pp. 401-414.

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S3250105 Chicago Press, USA.

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Smith, A 1977, An Inquiry into the Nature and Causes of the Wealth of Nations, University Of

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