Corporate Governance and Ethics

Question: Discuss about theCorporate Governance and Ethics for International Journal of Business. Answer: Introduction Corporate governance is defined as a system of policies, rules and regulations and procedures that is used in controlling and directing the functioning of a company. It is used to balance and safeguard the interests of the various stakeholders of a company. Corporate governance refers to the regulatory framework that is necessary to bind the operations and it gives direction to a company (Tricker, 2015). It is a very important aspect that deals with how a company functions. It increases accountability and responsibilities and helps in avoiding tactical blunders and issues that might hinder the progress of a company. The study throws light on the importance of corporate governance and the various theories and models based on corporate governance. Theories of Corporate Governance There are various theories and models that can be closely associated with corporate governance. These theories shed critical light on the concept and dimensions of corporate governance. Some of the important theories of corporate governance are: Stakeholders Theory The stakeholders theory refers to the theory and concept of management of organizations and the importance of business ethics. The theory depicts the importance of moral value and ethical practice while managing an organization. According to this theory, there are various stakeholders to a company like shareholders, suppliers, creditors, customers, government, competitors, etc. The theory stresses on the need of addressing the need and requirements of a stakeholders. The theory states there are various stakeholders that hold a specific quotient of interest, which is vested in the company. It is important that the company makes considerable effort to meet the needs and requirements of the stakeholders. The theory states the political-economic condition of a country has a radical and major influence on the stake of a country (Bridoux Stoelhorst, 2014). Shareholders Theory According to the shareholders theory, a company has no moral or social obligations other than to increase the profit of the company. The sole purpose of the company is to maximize the profit of the company. According to this theory, the managers are appointed as the agent of the shareholders and the obligations of the managers are to maximize the interest of the shareholders and strengthen their interests (Epstein Buhovac, 2014). Agency Theory Agency theory refers to a theory that deals with the relationship between principal and agent. The theory explains the fact that the principal determines the requisite job and the agent is vested with the responsibility of doing the task. Agency theory embarks on solving the issues that occurs in agency relationship. One of the common agency relationships refers to the relationship between the shareholders and the executives of the company (Bosse, Phillips, 2016) Stewardship Theory The stewardship theory stress on the fact that if managers are given the responsibility to act according to their discretion and decision making, then they will behave as responsible stewards or agent of the assets, they are accountable to. The theory believes in the fact that managers would be appropriate agents of the asset they represent and will act to the best of their ability (Schillemans, 2013) Literature Review Shareholder Theory Shareholder Theory sheds light on the fact that the main objective of a company is to maximize their profit and they have no specific moral or social obligations to follow. The managers have to serve the interests of the shareholders and make sure that they maximize the interests of the shareholders. The managers are the agents of the shareholders (Gibson 2012). Shareholder Theory is an extension of agency theory and the theory states that both principal and the agent hold paramount importance. The Shareholder Theory maintains proper alignment with stakeholders Theory. The theory propounds on the measures taken to increase the profits of a company. It depicts the necessary measures taken to reduce the transaction cost and the input costs involved. It is a normative theory, which asserts the fact that shareholders provide capital to the managers of the company, and therefore, it is the duty of the managers to maximize the interests of the shareholders. Stakeholders Theory The stakeholders theory states the fact that there are various stakeholders of a company and it is the duty of the company to look after the interests of the company. It is a normative theory and is based on moral and ethical practices that create awareness of the needs and interests of the various stakeholders of the company. There are factors, like political and economic factor that have an impact on the performance of corporate sectors and as such it does have an impact on the interest of the stakeholders. The theory analyses the methods and approach of managers in dealing with the stakeholders of a company. It is an important theory of corporate governance (Van, Du Bois Jegers, 2012). According to this theory, the managers are vested with two major responsibilities. One of the responsibilities is to make sure that there are violations of the rights and interests of all the stakeholders and the second is to create equilibrium in the rights and interest of the various stakeholders. The sole purpose of this is to ensure profitability of the company in the longer run. The overall responsibility of the company is not just profit maximization but it is also safeguarding interest of the stakeholders (Bridoux Stoelhorst, 2014). The theory is also criticised on the grounds, that it is practically improbable to follow this theory since there are clashes of interest, which creates disputes in the process. Agency Theory The agency theory stresses on the fact that there is agency relationship between the principal and the agent. The agent represents the principal and is vested for promoting the interest of the principal. The theory throws light on the problem occurring in an agency relationship. The problems relate to clash of personal interests, issues dealing with information asymmetry, moral hazards etc. (Hannafey, Vitulano, 2013). The two types of agency theory are positivist agency theory and principal-agency theory. The main source of issue that is highlighted by this theory is the clash of interest between the owners and the managers. It was propounded that was a requirement of transparency in the operations and objectives of the company (Hannafey, Vitulano, 2013). Stewardship Agency Theory Stewardship Agency Theory states that the managers would act in the best interest and would act as best stewards of the assets they represent. This is based on the fact that if the managers are allowed to act according to their discretion. This theory ignores the negative attitude of human nature. (Schillemans, 2013). This theory ignores the principal agent problem. This theory stresses on the point that managers are custodians and agents of the assets of the company and not the shareholders. Best Practices on Corporate Governance Some of the best practices of corporate governance are listed below: Proper information should be provided to the shareholder before making any decisions. It will allow them to work in a proper method. There should be transparency in the strategy and operations of a company Shareholder will have a right in profit sharing and voting They will have access to all corporate information The board of directors shall be vested with the duty of taking care of the corporation and the shareholders. They are vested with the responsibility of managing the corporation in the best interest The composition of the board of directors should be proper and enough to encourage effective decision making. The nomination of the board of directors should be done by a committee, which would ensure that the selection and nomination is done in a fair and just way. Outside directors should effectively participate in the important corporate decisions so that they can assist the company and the management body. Outside directors should be allotted sufficient time to make decisions and at the same time they should review all information before attending a meeting. They should closely follow and listen to the advice of the shareholders. There should be drafting of Board operation Regulation, which would establish the rules and regulation of the board (Vernimmen, Dallocchio Salvi, 2014). Australian Corporate Governance Codes Principle 1: It is the duty of the company to declare the necessary roles and duties of the board of directors and the management Principle 2: There should be effective size of the board of directors so that there is effective discharge of duties and responsibilities. Principle 3: Companies need to encourage responsible and ethical practices and decision making Principle 4: There should be proper arrangement in which the financial reporting of the company can be properly safeguarded (Beekes, Brown Zhang, 2015). Principle 5: There is a major need of timely and proper disclosure of information of the company. There should be transparency in the statements. Principle 6: The rights of the shareholders should be respected (Beekes, Brown Zhang, 2015). Principle 7: A company should establish a system where there is proper management of risk and effective control. Principle 8: There should be fair remuneration given to board of directors (Beekes, Brown Zhang, 2015). Corporate Governance Issue Relating to Bond (Clothing Company) Bonds (clothing) company is an Australian company that manufactures sleep wear, hosiery and undergarments. One of the latest corporate governance issue that circulated the company was that the company had terminated a major portion of its employees, in order to save manufacturing costs. This mass level unemployment caused major uproar and protest was created by the public and by the sacked employees. There were reports that the quality of the product of the company had also declined. This encouraged the sacked employees to form together a company named Tuffys and Tuffetts, which worked as a major competitor of the company. The company compromised with the interest of the employees to promote the self-interest and increase the profitability of the organization ( Kathy, Tilt Lester, 2012). Corporate Governance Theory Relating to this Issue One of the corporate governance theories relating to this issue was the stakeholders theory. The stakeholders theory implies the safeguarding and promotion of the interests of the stakeholders. The stakeholders have interests vested in the companies and the companies are obligated to promote the interest of the people. Therefore, one of the factors that could be depicted is that employees are stakeholder of a company. Bonds (clothing) company terminated a mass number of employees in order to save manufacturing costs. This was unethical and it violated the rights and interest of the employees and on the other hand it contravened with the Australian Code of Governance practices (Beekes, Brown Zhang, 2015). Conclusion It can be concluded that corporate governance practices are an important element in corporate structure and it is critical that organizations follow ethical practice and make conscious effort to safeguard and protect the interest of the stakeholders of the company. The Bonds (clothing) company is a depiction of this fact and highlight the importance of following and observing the corporate governance practices and understanding the theories of corporate governance. Reference List Ballwieser, W., Bamberg, G., Beckmann, M. J., Bester, H., Blickle, M., Ewert, R., ... Gaynor, M. (2012).Agency theory, information, and incentives. Springer Science Business Media. Beekes, W., Brown, P., Zhang, Q. (2015). Corporate governance and the informativeness of disclosures in Australia: a reà ¢Ã¢â€š ¬Ã‚ examination.Accounting Finance,55(4), 931-963. Biondi, Y. (2012). What do shareholders do? Accounting, ownership and the theory of the firm: Implications for corporate governance and reporting.Accounting, Economics, and Law,2(2). Bosse, D. A., Phillips, R. A. (2016). Agency theory and bounded self-interest.Academy of Management Review,41(2), 276-297. Bridoux, F., Stoelhorst, J. W. (2014). Microfoundations for stakeholder theory: Managing stakeholders with heterogeneous motives.Strategic Management Journal,35(1), 107-125. Epstein, M. J., Buhovac, A. R. (2014).Making sustainability work: Best practices in managing and measuring corporate social, environmental, and economic impacts. Berrett-Koehler Publishers. Gibson, K. (2012). Stakeholders and sustainability: An evolving theory.Journal of Business Ethics,109(1), 15-25. Hannafey, F. T., Vitulano, L. A. (2013). Ethics and executive coaching: An agency theory approach.Journal of business ethics,115(3), 599-603. Kathy Rao, K., Tilt, C. A., Lester, L. H. (2012). Corporate governance and environmental reporting: an Australian study.Corporate Governance: The international journal of business in society,12(2), 143-163. Schillemans, T. (2013). Moving Beyond The Clash of Interests: On stewardship theory and the relationships between central government departments and public agencies.Public Management Review,15(4), 541-562. Tricker, B. (2015).Corporate governance: Principles, policies, and practices. Oxford University Press, USA. Van Puyvelde, S., Caers, R., Du Bois, C., Jegers, M. (2012). The governance of nonprofit organizations integrating agency theory with stakeholder and stewardship theories.Nonprofit and Voluntary Sector Quarterly,41(3), 431-451. Vernimmen, P., Quiry, P., Dallocchio, M., Le Fur, Y., Salvi, A. (2014).Corporate finance: theory and practice. John Wiley Sons. Corporate Governance and Ethics Question: Write an essay about the "corporate social responsibility in indian hospitality sector". Answer: Chapter 1: Introduction 1.1 Introduction This section of the research encapsulates the problems related to the research, the research aim, the research objective, the research question, research hypothesis and summary. This chapter highlights the issues and the focus of the research and states the direction in which the research would be heading. 1.2 Problem Statement The primary issue with the hotel industry in regard to the Corporate Social Responsibility practices is to abide with the moral and ethical obligations. It is critical for the company because the company needs to reduce the adverse affects of the Corporate Social Responsibility practices on the society and environment. 1.3 Research Aim The goal or aim is to understand the steps by the hospitality sector towards Corporate Social Responsibility activities and the effect of the Corporate Social Responsibility practices of the hotels on the society and environment. 1.4 Research objective The objectives of the research are to: To comprehend the key concepts of Corporate Social Responsibility practices: To analyze the Corporate Social Responsibility practices adopted by the Indian Hotels Company Limited (IHCL): To comprehend the issues related to the hotel industry and the practices of CSR: To measure the impact of the Corporate Social Responsibility practices of hotels on society and environment: 1.5 Research Question What are the key concepts of Corporate Social Responsibility practices? What are the CSR practices adopted by the Indian Hotels Company Limited (IHCL)? What are the issues related to the hotel industry and the practices of Corporate Social Responsibility? What are the effects or influences of the Corporate Social Responsibility practices of hotels on society and environment? 1.6 Research hypothesis H0: the Corporate Social Responsibility practices of hotel industry have a positive effect on the society and the environment. H1: the Corporate Social Responsibility practices of the hotel industry have a negative effect on the society and the environment. 1.7 Summary This chapter highlights the issue that the research is dealing with; the influence of Corporate Social Responsibility practices of the hotel industry on the society and environment. The research would analyze the key concepts of CSR practices and the issues that are related to application of Corporate Social Responsibility practices in the hotel industry. This chapter indicates that the research would be focusing on the CSR practices and the issues related to Corporate Social Responsibility practices in regards to the Indian Hotels Company Limited (IHCL) and the moral and ethical obligations of the hotel while the implementation of the Corporate Social Responsibility practices. Chapter 2: Literature Review 2.1 Introduction The literature review in this study will provide a deep in depth study related to the topic of the research. This section of the study will review and discuss the published information on theories of hotel industries around the world with respect to their Corporate Social Responsibilities. Special attention will also be given to the hotel industry in India to give the readers a better understanding of the working of hotels and the influence of their CSR practices on the environment as well as the society. This chapter will also be outlining a conceptual framework, which will give a clear idea about the components of the review and how they are inter linked to each other. A summary will be provided at the end of the chapter which will give a gist of all the points covered in the literature review for the reader to have a quick revision of the chapter. 2.2 Concept of CSR The idea or concept of CSR or Corporate Social Responsibility has become a significant sphere of study for the industrialists, researchers, and scholars over the past couple of decades. A huge debate has been developed with respect to the nature of the topic in the modern academic literature. They seem to have renewed their curiosity on the topic, which has produced a plethora of different perspectives, terminologies, and theories relating to Corporate Social Responsibility(Zhang Choi, 2014). CSR can be defined as the activities, which make the company, behave like good citizens who contribute towards the welfare of the society beyond their own vested interests. The legal, ethical, and economical domains can be considered as the most important components of the CSR. The concept of Corporate Social Responsibility is mainly concerned with the relationship between business organization and the society in which it operates. This kind of social contract implies a form of altruistic and s elfless behavior, the opposite of selfishness. The utilitarian perspective pioneered by philosophers like Mill, Locke, and Bentham promotes self-interest ( Gu et al., 2013). The central idea around CSR is the contract between all the components of the society, which is a crucial tenet of a civil society. Social responsibility does not only extend to the present members of the society but also to the future members of the society. The responsibility and accountability towards the environment also comes under the definition of Corporate Social Responsibility. It is a concept where the companies incorporate environmental and social concerns in their business organizations (Fu et al., 2013). This also includes their relation and interaction with the stakeholders on a regular basis. The decision whether a company should indulge in the activities of CSR, depends on the economic activities and perspective of the firm. There are three principles of Corporate Social Responsibility- Sustainability, Accountability, and Transparency. Sustainability is majorly concerned with the impact which the future societies will have to bear because of the actions which are taken today by the companies. Accountability is when the organizations assume the responsibility of the actions taken by them that can have an impact on the external environment (Benavides et al., 2014). Lastly, Transparency means that the company will report the impact, which the organization has on the external environment, clearly, without any ambiguity. 2.3 Corporate Social Responsibility- Theories There are three major theories related to the concept of CSR namely : The Business ethics theory of the CSR The Shareholder theory of CSR The Stakeholder theory of CSR Business ethics theory of CSR is solely based on the companys social obligation and moral responsibilities that is has towards the environment and the society. These obligations are a result of the ever-changing social expectations and responsiveness to specific issues and problems. The are also a reaction to the eternal ethical values imbibed in people as advocated by philosophers like Kant denoting universal and normative principles like fairness, social justice, and human rights. This theory also embodies corporate citizenship, that is, a business organization or company as a responsible citizen which is aware of its duties in the society aiming for its over all well being (Font et al., 2012). This theory sees Corporate Social Responsibility more as ethical and philanthropy based responsibilities than legal or economic based responsibilities. The Nobel Prize Laureate, Milton Friedman forwarded the shareholder theory of Corporate Social Responsibility, arguing that the only responsibilities that the business organizations consider, is to generate profits while abiding by the legal norms. This theory advocates that the companies are already serving the society by ding business and adding up to the economy and hence its functions must not be confused with other societal responsibilities. Hence, the companys goal is only to concentrate on the maximization of profits of the shareholders (Garay Font, 2012). This theory is based on the assumption that the managers of a company are appointed as the agents of the shareholders to operate the company. The only obligation of the management in this case is to make as much money as possible, following the legal norms, thus satisfying the shareholders (Jones Comfort, 2016). The shareholder theory is not given much important these days and is considered a historic concept since it only prioritizes the satisfaction of the shareholders. This theory involves many loopholes since there is only focus on the short-term strategies and the risks are also greater when the only priority is the maximization of profits. The Stakeholder theory of CSR has gained popularity as a direct alternative to the shareholder theory of CSR. Edward Freeman, who recognizes as an important component of Corporate Social Responsibility, proposes this theory. The theory explains the importance of the stakeholders stating that a company is responsible to a wide group of stakeholders and not just the shareholders (Tsai et al., 2012). A stakeholder can be defined as anyone who is affected by the activities of a company or a business venture. This covers the suppliers, creditors, employees or even the competitors. Freeman supports the faces and names approach: which means that the stakeholders are people with names and that they should not be treated as anonymous entities. Figure 1: Comparison between Friedman and Freemans CSR models. (Source: Pedersen, 2015) 2.4 Corporate Social Responsibility and the Hotel Industry With respect to the hotel industry, the corporate Social Responsibilities of the industry encompasses various initiatives, which includes responsibilities towards the environment, its customers, employees and the community. A hotel firms relationship with its employees has a direct impact on the customers and eventually, the profit it generates. For instance, there has already been a case in the past when the employees of a hotel firm had boycotted over a labor related issue, which led to the cancellation of an event with five thousand potential attendees. A companys CSR programs reflect the values and norms of the company and are an indication of how the employees identify with the company. The hotel industry is often identified as a people-focused, labor-intensive service industry in which the employees at the frontline are crucial to the success of the hotel (Park Levy, 2014). A number of studies have observed that the service quality of the employees have a direct impact on the customers perception about the hotel firm, its service quality, the satisfactory levels, and their loyalty towards the company. The hotel industry is the worlds fastest growing sector with 10 percent contribution to the global Gross Domestic Product, which almost amounts to $6.6 trillion. Keeping in mind the responsibility towards the stakeholders, the companies in the industry have begun to integrate responsible practices into their business activities. As the social, economical, and environmental conditions are developing, the industry has started to accept the notion of sustainability. The hotel industry is indulging in various CSR Activities like offering environmental friendly-labeled products, serving healthy dishes to its customers in the restaurant, and training its staff for the better organization of health related initiatives. With respect to the interiors, the companies in the industry use lightings, which are energy saving, and ensure that the waste is recycled. Many hotel firms also participate in initiatives concerning social causes like Aids, cancer and many other mental and physical health initiatives (Calabrese et al., 2014). 2.5 Corporate Social Responsibility and Hotel industry in India The Indian hotel industry takes its corporate social activities very seriously. They are of the belief that the environment is an integral component of its stakeholders along with the customers, shareholders, suppliers, vendors and other associates. They see Corporate Social Responsibility as a potential, long term medium which can benefit the stakeholder in various environmental and social facets (Kang et al., 2012). The hotel industry in India is committed to train and educate the next generation. The industry is continuously looking for opportunities that provide job-related experiences to the young people and provide them on-job training in the hotels. It is also apparent that the hotels in India are helping young people from the deprived backgrounds by providing them training and employment skills as well as vocational opportunities. The Indian hotel industry is striving to give its customers the best experience and services in their hotels, by creating a homely atmosphere away from home. It is seen that the hotel firms are actively taking part in the social and environmental causes which is aimed at eliminating poverty, crating shelter for the refugees, feeding poor people and helping the people in times of manmade and natural calamities (Coles et al., 2013). It is very apparent in the hotel industry of India that they pay special attention to the well upbringing of children and ensuring their bright future. The hotel firms take initiatives to work for the childrens education, their mental and physical well-being. The hotel firms in the industry also support gender equality, establishing hostels for the homeless and for women and children. Many hotels have also taken initiatives in making old age home for the elderly. The industry also gives special attention to the protection of national heritage, culture and art, taking efforts to protect sites of historical importance. Initiatives are also taken for the development of rural and slum projects. References: Aguinis, H., Glavas, A. (2012). What we know and dont know about corporate social responsibility a review and research agenda. Journal of management, 38(4), 932-968. Bauman, S. (2013).Principles of cyberbullying research: definitions, measures, and methodology. Routledge. Benavides-Velasco, C. A., Quintana-Garca, C., Marchante-Lara, M. (2014). Total quality management, corporate social responsibility and performance in the hotel industry. International Journal of Hospitality Management, 41, 77-87. Billig, S.H., Waterman, A.S. eds. 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