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Give me essay relating to importance of corporate social responsibility in the modern global environment and how share holder activism and responsible investment that can be used to promote it
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##Executive Summary
The essay discusses the importance of corporate social responsibility in the modern global environment and how share holder activism and responsible investment can be used to promote it.
#Shareholder Activism and Responsible Investment as Integral Parts of Corporate Social Responsibility Essay
To function in the modern global environment, companies need to foster compliance with their employees’ corporate values and standards. Notably, organizations need that their staff members follow the key ethical principles and quality standards during decision-making. Herein lies the importance of Corporate Social Responsibility (CSR). Shareholder Activism (SA) and Responsible Investment (RI) can be seen as critical tools for promoting CSR in the context of an organization in regard to the financial processes within it. Using SA and RI to encourage CSR is the topic of this essay, which will analyze each phenomenon separately and then draw conclusions.
The phenomenon of SA is quite multifaceted; it can take many forms and manifest itself in a number of ways. Applying a rather loose definition of the subject matter to the analysis, one may assert that SA is a “tactic designed to protect shareholders from managers’ self-interest” (Perrault, 2015, p. 159). SA is expected to protect the rights of shareholders and ensure that their needs are addressed. Therefore, with the application of SA, one can shape corporate behaviors and choices in order to champion the needs and rights of shareholders in regard to a particular business.
Approaching the concept of SA from a more specific standpoint, one may claim that it is a corrective measure for addressing the inconsistencies in the allocation of financial resources within a corporation (Uldam & Hansen, 2017). Therefore, the phenomenon of SA can be defined as the propensity among shareholders to seize control over the key financial processes within an organization or, to the very least, establish rigid control over the transactions performed in its setting.
In addition, SA can be interpreted as the range of activities that shareholders can perform in the context of a publically traded company concerning the financial decision, organizational structure, and overall management (Goranova & Ryan, 2014). However, SA occurs rather rarely in a financial environment since it is fraught with numerous expenses and, therefore, may hamper the progress of an organization.
As a rule, several types of SA are identified in the context of the modern global economy. Traditionally, two types are used most frequently; these include proxy contests and shareholder proposals (Cohn, Gillan, & Hartzell, 2016). It should be borne in mind that the range of SA types is not restricted to the specified two phenomena; there is the SA category that requires the barest minimum of participation from shareholders and is known as “say on pay” (Perrault, 2015, p. 161).
On the other side of the spectrum, there is the hedge fund activism mentioned above, which can alter the very fabric of an organization, and which allows a shareholder to alter a strategy used by a company to allocate its resources. The “Vote No Campaign” is a slightly milder approach toward SA, which suggests that shareholders are urged to withhold their votes from director candidates (Croft & Malhotra, 2017). The shareholder proposal, in turn, implies submitting a document in which a shareholder details their suggestions concerning a change in a company’s investment-related choices.
While the phenomenon of SA is typically associated with numerous expenses, it would be incorrect to label it as purely negative. There are several benefits to the incorporation of SA-based principles into an organization. For example, with the introduction of SA into a corporate environment, the incidences involving poor governance are addressed appropriately (Langenbucher, 2017). Therefore, the overall level of company management is improved significantly, with key processes becoming more organized and managers’ actions being aligned with a firm’s priorities (Laskin, 2017).
The specified change has a direct effect on the levels of CSR within an organization since the objectives of an organization are redefined, and the premises for creating a new corporate value are built. As a result, employees are encouraged to develop a stronger sense of CSR so that the key corporate decisions could encourage consistent economic growth.
In addition, the introduction of SA into the context of a business environment is typically associated with the concept of socially responsible investment (SRI). Being the direct successor of the CSR phenomenon, SRI implies that the choices made in the context of a particular organization in regard to investing resources are aligned with the principles of sustainable use of resources. Particularly, the propensity toward a green economy can be identified in the SRI initiatives that can be launched once shareholders receive the opportunity to define the policies and decisions of an organization. Because of the focus on maximizing the social good, SRI should be seen as a critical impetus for the promotion of CSR as the basis for the corporate philosophy (Ransome & Sampford, 2016).
Herein lies the importance of SA-related initiatives in the organizational setting. By focusing on the issues associated with the ethical functioning of an organization and the social aspects of its decisions, shareholders are capable of altering the course of a firm’s development and integrating the principles of sustainability in it. The identified positive change is bound to have long-term effects since it will lead to a twofold outcome (Crifo & Mottis, 2016).
First and foremost, the opportunities for reducing waste and allocating corporate resources and assets, at the same time minimizing the expenses, will become possible for an organization. Furthermore, with the redesign of corporate values and the adoption of a more ethically appropriate standpoint, a company is likely to win the affection and support of a significant number of stakeholders, including potential buyers, partners, and investors. Thus, a firm that will implement the principles of SA in its design is likely to be represented in the target market much better than its competitors are.
Furthermore, the introduction of SA into the context of an organization allows securing the needs of shareholders and prevent managers from abusing their powers in the context of an organization. The specified outcome aligns fully with the idea of SCR since it entitles shareholders to a certain amount of influence over corporate processes and particularly decision-making. As a result, shareholders are provided with certain power in regard to the choices made to maintain the company consistently popular and successful in the selected market (Kreibohm, 2016).
As a result, shareholders are offered crucial information relating to organization’s performance, influence, and the type of presence that it has established in the chosen area so far. As a result, shareholders are capable of making financial decisions that will affect a company positively and encourage it to grow.
Unfortunately, the implementation of SA in the realm of a specific business is not devoid of disadvantages, either, the problem of time horizons being the key one. Specifically, it is important to keep in mind that different types of investors have different time horizons, which makes them frame their goals, strategies, and actions, respectively. The discord in the time frame of the planning process and the following conflicts in the designated area make it very difficult to plan the company’s actions and create long-term strategies.
Although the phenomenon of the inconsistency between the time frames of different stakeholders could be seen as a challenge to a company’s flexibility, it still causes more harm than good by introducing discrepancies into an organization’s strategies in the global market. Particularly, because of the shift toward the short-term perspective, a firm’s long-term goals may suffer significantly, with the ensuing drop in-market representation, market shares, and profit margins (Hebb, ‎Hawley, Hoepner, Neher, & Wood, 2015).
Thus, the adoption of the DSA framework requires the reconsideration of the approach toward managing long-and short-term goals, as well as the ability to balance between the needs and interests of different types of shareholders, which is often a great challenge for an average firm.
The disadvantage mentioned above is particularly detrimental to the promotion of SCR since it implies that a company will put some of its investors at a significant disadvantage. Due to the differences in priorities of shareholders, locating the solution that will become the middle ground and satisfy the needs of all parties involved will become particularly difficult once SA is introduced. Therefore, an organization will not be capable of creating the setting in which all participants will cooperate to achieve a common goal; instead, each stakeholder will strive to meet their own needs, with the long-term goals of a company being abandoned.
While the described scenario represents the extreme situation in which the problem of managing people’s interests has grown out of its proportions, it nevertheless is a plausible situation (Ransome & Sampford, 2016). Therefore, SA may have vastly negative consequences on both CSR and investment options.
Nonetheless, it would be erroneous to dismiss SA as an entirely negative phenomenon. Although it may have negative effects on CSR and the overall management of corporate resources, it also provides an opportunity to introduce a stronger corporate philosophy, thus reinforcing the relevant values and enhancing key processes. However, due to the threats of failing to maintain flexibility within an organization and, thus, succumbing to a very rigid set of standards for organizational behaviour, decision-making, and especially investment options, there is a need to control SA as a phenomenon. Thus, a well-balanced solution can be introduced into the corporate setting, allowing one to keep the corporate integrity and ensure that the needs of all stakeholders are addressed respectively.
Investing safely is one of the crucial goals that an organization can pursue in the global market. Because of the risks associated with investments, it is critical to building a sustainable approach toward investing. The problem of investment choices is also linked directly to the phenomenon of CSR since they define the process of value creation and, thus, indicate whether an organization is compliant with the existing ethical and environmental standards as it pertains to the organization’s investments (Louche & Lydenberg, 2017). Herein lies the importance of Responsible Investment (RI) as the tool for keeping a company’s financial decisions aligned with the existing standards.
By definition, RI is a strategy for investing a company’s financial assets in a way that allows it to build its financial value, at the same time maintaining its sustainability levels high (Lean, Ang, & Smyth, 2015). The connection between CSR and RI is evident since RI is often termed as a socially responsible investment (SRI), which indicates that its nature is linked directly to CSR principles (Nakano & Tsuge, 2018).
The phenomenon of RI can be used to help an organization benefit significantly as a CSR-oriented entity. Specifically, the application of RI affects the choices associated with sustainability directly. However, at this point, one should note that the concept of RI might take a range of shapes depending on the goals that the specified process pursues and the setting in which a firm operates.
For example, RI may be linked directly to the idea of sustainability and environmentalism as the constituents of SCR, which will require that a company adopt an environmentally safe investment technique. Particularly, investing in green technology and similar projects should be seen as the critical aspect of the proposed policy in regard to environmental RI.
Alternatively, RI may imply following ethical practices based on the concept of safety in investment. Either way, the focus on ethically sensible decisions made in the environment of a specific company is typically regarded as the propensity toward building an EI-based strategy. As a result, RI is likely to have a profoundly positive impact on the levels of performance of an organization. Apart from creating chances for safe investments, the RI framework will help improve the current reputation of a firm and introduces opportunities for reinforcing the system of corporate values (Bilbao-Terol, Arenas-Parra, Cañal-Fernández, & Bilbao-Terol, 2016). Thus, RI should be seen as a critical component of the CSR framework and an important constituent of managing an organization from an ethical standpoint.
In addition, one should give RI credit for setting the platform for a significant change in the overall framework of decision-making in a global company. The specified step is very difficult to accomplish due to a vast range of factors that one has to embrace when dealing with a change at every level of a company’s functioning. The application fi RI, in turn, will affect every facet of a firm’s functioning, leading to a huge shift in priorities and a massive alteration in the company’s decision-making principles (Trinks & Scholtens, 2017). RI introduces the tools for making a shift in the corporate policies, organizational framework, and financial operations, giving all parties involved an option to adjust to the changes and accept them.
While the adoption of RI techniques may seem like an entirely flawless plan for integrating the [principles of SCR into the corporate environment, the specified decision will ensure both benefits and problems. Due to the explicit focus on following a set of ethical guidelines and principles, the problematic sides of RI are more pronounced than their benefits. The first and most obvious issue is linked directly to the increased number of responsibilities and a change in the public image of an organization.
Specifically, the decisions made by a firm that has adopted RI will be scrutinized much more closely than the ones of other organizations, and the slightest deviations from the selected path will be judged very harshly by the public (Bilbao-Terol et al., 2016). While the described outcome cannot be deemed as exactly negative, it will put an organization under considerable strain, making it meet a range of rigid demands.
For instance, it is critical for a company that uses the RI principles based on environmentalism to invest in the firms that also follow impeccable environmental policies; any decision that implies the opposite will lead to an organization being criticized, with an immediate public scandal and the inevitable PR crisis. The propensity to view the choices made by companies solely from a two-dimensional perspective, as well as the public disdain and the impossibility of a resurgence for a company whose reputation has been stained, are evident disadvantages (Auer, 2016). Since the specified perspective implies that a single step in the wrong direction will imply an immediate and unavoidable demise for a company raises financial risks for a firm far too high to be seen as a positive or even a neutral factor.
Surprisingly enough, the disadvantage mentioned above can also be seen as an advantage that an organisation can use when applying IR techniques. Specifically, it should be mentioned that the described problems of PI also contributes to the promotion of ethical standards within an organisation. Indeed, the inability to avoid repercussions for ethically wrong actions is not a negative factor for a company that does not intend to engage in corporate fraud (Sullivan & Mackenzie, 2017).
Therefore, the focus on IR will help an organisation to follow the established ethical guidelines closely and, thus avoid the instances of corporate fraud. Furthermore, a company can monitor the adherence to corporate ethical standards and values more closely once the IR principles are integrated into its framework (Riedl & Smeets, 2017). The promotion of responsibility will create additional opportunities for fostering clarity across all organisational, financial, managerial, promotional, and other types of processes that will occur in the corporate setting. Therefore, the transparency of the firm’s activities will make it more credible in the public eye. As a result, the firm will be capable of attracting new customers and investors, as well as enhancing loyalty among its current ones.
At the same time, a company that adopts IR will also have to face the problem of following objective criteria for its actions. The specified issue is rooted in the deeply subjective nature of responsible choices, in general. While there are general principles such as the need to abstain from investment fraud, the concept of responsibility, ethics, and appropriate investment choices remains a very subjective idea.
The specified statement means that an organisation will never satisfy every single stakeholder and member of the general audience (Chen, Chen, & Chi, 2018). Consequently, what some critics may deem as legitimate and ethically appropriate, others may dismiss as ethically flawed, at best. The specified problem of IR is, perhaps, the greatest one for an organisation to handle in the realm of the global market. Because of the need to appease a very diverse audience, a global firm will need to be especially cautious in its investment decisions. Consequently, a range of potentially profitable opportunities will have to be discarded in case even the slightest moral ambiguity can be identified.
The problem is aggravated by the fact that, in the global market, what seems as an ethically feasible choice by one culture will be branded as immoral by another. Thus, a profound cultural research will have to be made prior to making any corporate decisions, which will hamper all processes within a firm.
However, there is also the undoubtable advantage of using RI is the rise in SCR within the corporate setting. By encouraging ethically responsible investing in the corporate setting, leaders will foster the idea of moral responsibility among staff members, thus redesigning the corporate environment toward a more wholesome and healthy one. Consequently, it is critical for companies to adopt RI and CSR as the foundational principles for governing their organisations. The specified notions allow building the organisational environment in which any dishonest practice becomes impossible (Louche & Lydenberg, 2017).
The identified opportunity is essential for a firm that operates in a global economic setting; Due to the numerous options for staff members to engage in corporate fraud and the lack of control that leaders can exert in a global firm, it is essential to focus on building an ethically rigid setting. Thus, one can avoid a range of issues associated with the management of a company in the environment of a global market.
Therefore, RI should be considered as an important chance for an organisation to advance in the selected area by building the reputation of an ethically responsible company. Although RI concerns primarily financial operations directly, it provides the foundation of building a new system of values based on which decisions are made in the corporate environment (Lean et al., 2015). Moreover, the specified approach will encourage staff members to follow the principles of corporate ethics and the principles of CSR.
Promoting change in the corporate setting is a challenging task, especially when it comes to advocating ethical principles and encouraging staff members to accept rigid guidelines for decision-making. However, the specified measures are not only necessary but also inevitable in the global setting, where the threat of external factors affecting an organisation increases exponentially. Therefore, one should consider integrating the principles of SA and RI as the elements of SCR into the framework of a firm. While the specified changes may entail certain difficulties, they will set the course for a more ethical approach toward making decisions and solving issues related to finances and resource management. Thus, a firm can maintain flawless reputation in the global economy, meeting the needs of its stakeholders.