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Unit VI Whistleblowing and Corporate Governance Ethics and Social Responsibility of Business Mcom sem 4 Delhi University

Unit VI Whistleblowing and Corporate Governance Ethics and Social Responsibility of Business Mcom sem 4 Delhi University

Unit VI Whistleblowing and Corporate Governance Ethics and Social Responsibility of Business Mcom sem 4 Delhi University

Unit VI Whistleblowing and Corporate Governance Ethics and Social Responsibility of Business MCOM sem 4 Delhi University : Whistleblowing has now become a very significant issue as it plays a very important role in enhancing and improving corporate liability in corporations. Corporations all around the world now strive to practice good corporate governance, in order to as it promote excellent business relationships as well as to avoid any future liability that could arise from any negligence in governance in the corporation. Further, to be a fully respected and trusted corporation, there are many other aspects that need to be measured, such as promoting and maintaining good corporate social responsibility (CSR). This paper will discuss those concerns, as well as describe how important whistleblowing is in ensuring that corporations practice good CSR. 

Unit VI Whistleblowing and Corporate Governance Ethics and Social Responsibility of Business MCOM sem 4 Delhi University

Introduction

“Something in human nature causes us to start slacking off at our moment of greatest accomplishment. As you become successful, you will need a great deal of self-discipline not to lose your sense of balance, humility, and commitment”- Henry Ross Perot. The issues of corporate governance and corporate accountability have been recently highlighted following waves of high profile corporate scandals and collapses.1 Examples of sensational failures in governance which include that of Enron, WorldCom and most recently, British Petroleum and Satyam, suggest that these companies have a long way to go in the matter of corporate governance.

Corporations must practice good governance as ethical behaviour serves as a positive signal of an organization’s business performance.

Corporate governance is a term that is used to broadly refer to the rules, processes or laws by which corporations and businesses are operated, regulated and controlled. Practicing good corporate governance is a major global issue as it involves companies from all corners of the world. Indeed in recent years, some countries, more than others, have pressed for better corporate governance from their respective companies, and this push came about in the form of both regulatory provisions and legal sanctions.

Unit VI Whistleblowing and Corporate Governance Ethics and Social Responsibility of Business MCOM sem 4 Delhi University

What then is CSR? It could be said that the notion of modern CSR was first formalized by Bowen as an obligation “to pursue those policies, to make those decisions or to follow those lines of action which are desirable in terms of the objectives and values of our society”, while the European Commission suggests that CSR is, “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis”.6 Kotler and Lee describe CSR as “a commitment to improve community well-being though discretionary business practices and contributions of corporate resources”.

CSR encompasses a wide range of activities, and is not limited to any one thing. CSR can include re-planting of trees, scholarships to needy students, rebuilding damaged homes as well as various forms of donations, either monetary or otherwise. CSR essentially means conducting business in an ethical manner and can also be seen as a way for corporations to give back to society. Most corporations do frequently claim to practice CSR, and most leading businesses boast of charitable and green activities in their annual reports. Corporations which have good CSR would also enhance good corporate citizenship, enabling corporations to realize that there is more to life than just maintaining share prices.

Unit VI Whistleblowing and Corporate Governance Ethics and Social Responsibility of Business MCOM sem 4 Delhi University

Whistleblowing then becomes an important tool, as this will not only help in promoting CSR, but also in the overall process of avoiding any corporate liability. When companies are made responsible for their actions, this would then give rise to corporate accountability. With regard to this, Chomsky stresses Adam Smith’s critique of the “joint stock companies” of his day, particularly in situations where management is granted a degree of independence; and his attitude toward the inherent corruption of private power, probably a “conspiracy against the public” when businessmen meet for lunch, in his acid view, let alone when they form collectivist legal entities and alliances among them, with extraordinary rights granted, backed and enhanced by state power.

Corporate accountability has been said to be closely linked with corporate governance, in the sense that good corporate conduct would lead to good governance and ultimately, better corporate accountability. 

Unit VI Whistleblowing and Corporate Governance Ethics and Social Responsibility of Business MCOM sem 4 Delhi University

Theories of Corporate Accountability

Initially, it was thought that at one time, corporations lay outside the law and could not commit or suffer a personal wrong. It is a mere abstraction of the law, and as such, had no body to commit a wrongful act, nor a soul to harbor wrongful intent. Corporate personality encompasses the capacity of a corporation to have a name of its own, to sue and be sued, and to have the right to purchase, sell, lease and mortgage its property in its own name. In addition, property cannot be taken away from a corporation without due process of law.

This showed how greatly corporations were regarded, that it almost always seemed as if they were invincible. When talking about corporate accountability, we must first determine what it is. Major academic figures, Bearle and Means, made two key comparisons about the operation of American companies in the 1930s. First, that the shareholders are so numerous, that no single individual director wanted to shoulder responsibility or even attempt to control the management, and second, these writers expressed concern that even if some directors did assume the task, they exercised such enormous economic power, which had the potential to harm society.

As the writers succinctly put it, “The economic power in the hands of few persons who control giant corporations can harm or benefit a multitude of individuals, affect whole districts, shift the currents of trade, bring ruin to one community and prosperity to another”. Nowadays, for certain corporations that wield such immense financial power, it is only reasonable to assume that they practice good corporate governance, in order to promote good CSR.

Unit VI Whistleblowing and Corporate Governance Ethics and Social Responsibility of Business MCOM sem 4 Delhi University

Corporate Pragmatism and Whistleblowing The idea of corporate pragmatism originated from 19th century theorists who considered corporations to be an entity in itself, and it operates on the idea that corporations are beings which are neither accountable nor answerable to anyone. Corporations are real persons, with their own interests and it can be in no way owned or accountable to the shareholders. They exist purely on an axis by themselves. This, however, leaves us with two big question marks, and ones that beg to be answered. First, what are the interests of the company if not equated with the shareholders and second, who exactly are the shareholders? In very broad terms, the corporation may be viewed as either a shareholder-focused entity, or as an entity with a wider array of interests to be met.

The second thing, and probably the most important, it is now no longer quite appropriate to say that a corporation is only accountable to its shareholders, as corporations have to take into account its other stakeholders, which is the general public.16 Corporations now more than ever have to be accountable to society for any wrongful action that they could or would have taken. Maximizing shareholder value contributes to the welfare of other stakeholders, as stakeholder-friendly management, therefore, does create shareholder value in the longer term.

This means other avenues must be considered, such as the welfare of other stakeholders, to ensure that a corporation maintains long term benefits. This would mean conducting their businesses in an honest and transparent manner to allow for better accountability. Good CSR encompasses a lot of things, from small scale contributions like donations and scholarships, to large scale assistance, such as re-building homes and re-planting trees. The best thing about CSR is that it is not limited to any particular activity. It can consist of anything at any given time.

Unit VI Whistleblowing and Corporate Governance Ethics and Social Responsibility of Business MCOM sem 4 Delhi University

For instance, Standard Chartered Bank in Karachi, Pakistan has become a pioneer in the country by meeting its CSR through an induction of 14 blind graduates of Ida Rieu in its tele-sales and tele-marketing department. Meanwhile, the new CEO of GlaxoSmithKline, Andrew Witty has startled commentators, campaigners and a few shareholders, with his announcement that the company would slash the cost of many of its drugs to people that need them in developing countries.19 It was a perfect example of CSR, reducing the price of drugs for countries that need them but have insufficient funds to buy them.

Goodyear Malaysia Berhad has also jumped on the CSR bandwagon, by continuously seeking to provide assistance and contribute to the society in the form of in-kind donations, sponsorships and gifts to organizations such as Spastic Children’s Association, Malaysian Association for the Blind, Independent Living & Training Center, National Kidney Foundation and Mercy Malaysia. Furthermore, Goodyear Malaysia Berhad recently contributed to Sekolah Kebangsaan Pendidikan Khas Selangor in the form of in-kind donations as well as volunteer efforts to beautify the school grounds.

Meanwhile, in an effort to practice good CSR, Maxis launched in December 2001 the Corporate and Social Responsibility programme, Maxis Bridging Communities which aims to empower and connect communities, primarily the youth, through education in communications technology. With a commitment of RM20 million annually, programmes include the The CyberKids Camp, which targets rural school children, Excellence in Education Funds, which contributes to local institutions of higher education to enable less privileged students to continue their education as well as the Maxis Volunteer Brigade, the Maxis employee inspired volunteer programme.

Unit VI Whistleblowing and Corporate Governance Ethics and Social Responsibility of Business MCOM sem 4 Delhi University

However, even though CSR is a noble cause, not many companies actively participate in it. More avenues are needed to ensure that companies, especially the major ones, would be more involved in promoting excellent CSR. Good CSR is needed to ensure that a company maintains a good relationship with society, for it to be conscious of its moral duty to the public. After all, the public are also the stakeholders of the companies and thus, they must be treated accordingly, because the larger the company is, so would their responsibilities be to the public In fact, Mackey, CEO and founder of Whole Foods, arguably the world’s largest retailer of natural and organic foods, frankly acknowledges, “a certain amount of corporate philanthropy is simply good business”, it is “an excellent marketing strategy”.

As a certain Jowett said, “We knew we were going to have problems just by the sheer nature of the size of the ship, and this was why quality control was so important”. This comment would ring true for many large companies, as the bigger a company, the more difficult it sometimes is for them to practice good CSR. This is then where whistleblowing would come in. Whistleblowing is not only used to prevent wrongdoing, it could also be used to encourage “do-gooding”.To achieve excellent corporate governance that would result in improved corporate accountability, the use of whistleblowing should be encouraged. The term whistleblower actually originated from Victorian England whereby, when a crime was committed, the policemen or more commonly known as ‘bobbies’, would blow the whistle while chasing the criminals to alert the public of the crime.

Unit VI Whistleblowing and Corporate Governance Ethics and Social Responsibility of Business MCOM sem 4 Delhi University

Today, much like these past officers, modern whistleblowers that spot crime would blow the whistle and seek to alert the public. A whistleblower is “an informant who exposes wrongdoing within an organization in the hope of stopping it” or more specifically, “one who reports a problem or violation to the authorities, especially an employee or former employee who reports any violation done by an employer”. A whistleblower is also an employee, former employee, or member of an organization, especially a business or government agency, who reports misconduct to people or entities that have the power and presumed willingness to take corrective action.

Generally the misconduct is a violation of law, rule, regulation and/or a direct threat to public interest, such as fraud, health/safety violations, and corruption. In any event, no matter what the definition is, the role of the whistleblower remains unchanged, that is to expose any wrongdoing done by employers in a corporation or organization. Whistleblowing includes reporting any wrongdoing or violation of the law to the proper authorities, such as a supervisor, a hotline or even an Inspector General, as well as leaking or telling the media about any purported wrongdoing. Whistleblowing normally is not confined to issues that affect only one person; it is concerned with issues that affect the whole of society. These would include issues regarding public safety, how taxpayers’ dollars are spent or alleged violations of public trust.

Furthermore, whistleblowing is most common in the workplace, and would usually involve large corporations, who have dabbled in some sort of corporate misconduct. It is here that most whistleblowing instances 62 are generally found. Unfortunately, it is not always easy, as it is fraught with danger and often requires uncommon courage for it to be done. For example, one in five employees, working for multinational companies in Europe, say they would not blow the whistle if they suspect a case of fraud, bribery or corruption in their organisation, according to a study by Ernst & Young.

Unit VI Whistleblowing and Corporate Governance Ethics and Social Responsibility of Business MCOM sem 4 Delhi University

The survey, Fraud Risk Mitigation in Europe, interviewed 1300 employees of multinational companies in eight Western European and five Central and Eastern European countries (100 respondents in each country), and invited their views on how anti-fraud measures were implemented within their organizations. The report shows that the employees in France (39%) feel the least at ease about blowing the whistle in the workplace because they fear reprisals.

The employees from Czech Republic (42%) and Austria (44%) also scored very low on confidence. However, the United Kingdom’s employees bucked the trend with 86% saying that they would feel comfortable blowing the whistle at work if they suspected fraud or other wrongdoing, which is the highest percentage across the 13 European countries in the survey. This study showed that the United Kingdom’s employees are less adverse to report any wrongdoing in their companies and as such, this would also come in handy in promoting good CSR. 

Unit VI Whistleblowing and Corporate Governance Ethics and Social Responsibility of Business MCOM sem 4 Delhi University

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