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Jurnal Akuntansi Multiparadigma JAMAL
Volume 3 Nomor 1 Halaman 1-155 Malang, April 2012 ISSN 2086-7603
AND MANAGING ETHICAL CULTURES Yeney Widya Prihatiningtias
Universitas Brawijaya, Jl. MT. Haryono 165 Malang E- mail: [email protected]
Abstrak: Pertanggungjawaban Sosial Perusahaan dan Memanajemeni Budaya Etis. Artikel ini memberikan argumentasi bahwa pengenalan konsep Tanggung Jawab Sosial Perusahaan dan pelaksanaan etika bisnis adalah hal yang penting.
Tanggung Jawab Sosial Perusahaan saat ini telah menjadi isu krusial karena perusahaan diharapkan oleh masyarakat untuk dapat menunjukkan komitmen mereka melalui tindakan nyata. Tulisan ini menjelaskan, mengevaluasi, dan mengaplikasikan pada contoh-contoh relevan atas pandangan sempit, sosio-eko- nomi yang lebih luas, dan maksimal atas Tanggung Jawab Sosial Perusahaan.
Artikel berikut juga mendeskripsikan secara kritis bagaimana organisasi dapat mengembangkan budaya etis dan program-program etika perusahaan untuk pengimplementasian Tanggung Jawab Sosial Perusahaan.
Abstract: Corporate Social Responsibility and Managing Ethical Culture.
This essay argues that the promotion of Corporate Social Responsibility (CSR) and ethical business conduct is very important. CSR nowadays has become crucial issue as major companies are expected to demonstrate their commitment to soci- ety’s values through actions. The current article explains, evaluates, and applies to relevant examples of the narrow, broader socio-economic, as well as broad maxi- mal view of CSR. It also critically describes how organizations can develop ethical cultures and corporate ethics programs for CSR.
Keywords: Corporate Social Responsibility, narrow view, broader socio-economic view, broad maximal view.
Corporate Social Responsi- bility (CSR) can be simply defi ned as doing no harm and solving the problems of society. The issue of enhancing the implementation of CSR itself has been attracting at- tention, both at the domestic and international level and it can be seen in the result of millennium poll on CSR (Carroll and Buch- holtz 2006). Based on this back- ground, this essay will argue that the promotion of CSR and ethical business conduct is very impor- tant. It will explain, evaluate, and apply to relevant examples of the narrow, broader socio-economic, as well as broad maximal view of CSR. It will also critically describe how organizations can develop ethical cultures and corporate eth- ics programs for CSR.
One explanation of the clas- sic view of CSR is based on Milton
Friedman’s paradigm (1970, cited in Mulligan 1986). He describes a manager who chooses to imple- ment socially responsible actions as a person who is a legislator, ex- ecutive, and jurist simultaneously.
This means that the manager does not pay attention to the ideas and the existence of other stakeholders so that the manager is perceived to be unfair as CSR can imposes taxation without the agreement from the shareholders. It may also be undemocratic as the implemen- tation of CSR initially is the obliga- tion of government, and it is unwise as there is no monitoring from a governmental body. It also violates the trust as the manager is the agent who only has obligation to serve the principal. At last, it is fu- tile as the manager will not be able to predict the future consequences (Mulligan 1986). Friedman gives
arguments to support his paradigm that a manager as a decision-maker in a compa- ny should only focus on making money to maximize the profi ts in order to increase the wealth of the owners or shareholders. If the manager takes CSR into account, he or she is judged to use other parties’ money for pur- poses other than increasing the wealth of the shareholders. Moreover, Milton Friedman ar- gues that CSR is a socialist doctrine not sup- porting the principle of capitalism in the free market economic system (Mulligan 1986).
The arguments given by Milton Fried- man above seem too narrow to be accepted as the premises used are false. A company is a business unit that has missions, objec- tives, goals, and strategic plans, all of which are implemented by all related parties within it, using management principles of planning, organizing, actuating, and controlling. This means that all stakeholders in a company are involved from the starting point up to the very end process to reach what has been targeted.
Therefore, the activities of CSR are not only the decision of manager, but they are the re- sult of the mutual consents between all parts of the company. CSR will not then impose unauthorized tax on both stakeholders and stockholders (Mulligan 1986). Furthermore, as the manager has knowledge and ability to do business, he or she will be able to act in uncertain conditions. The manager is trained to make decisions by using the available in- formation and the measurement of risk in taking a wrong action. Thereby, there is no reason not to support the act of CSR as the manager has already predicted the future consequences of doing so. Finally, according to Mulligan, the doctrine of socialist for CSR is not true because Friedman does not give strong arguments of characteristics of social- ism in his essay.
The arguments against the classical view of CSR can be seen in a real business case of Astra International, Inc., a major public listed automotive company in Indone- sia which publishes its CSR report inside the 2008 Annual Report. Both the board of com- missioners as the legislator and the board of directors as the executives state that they jointly work with full support from the em- ployees to implement CSR by placing CSR as a strategic long-term goal and comprehen- sive program within the company. Addition- ally, they commit to sharing part of the profi t to the community, especially during the fi - nancial crisis. CSR in Astra International is
also viewed by the boards as the result of an agreement among related parties inside the company to make long-term investment that should be implemented through short-term activities (Astra International 2008).
The next view of CSR is a broader-so- cio economic perspective. Simon, Powers and Gunneman (1972) describe this view by fi rst- ly making a distinction between negative in- junctions and affi rmative duties. The former relates to not injuring others and a duty to do good activities and the later is the relation- ship between human beings with God and parents and it sets out about what should not be done. Secondly, Simon, Powers and Gunneman (1972) argue that all human be- ings have at least the moral minimum obliga- tion not to impose social injury and human beings should go beyond the moral minimum to prevent harm, avoid damage, and commit to promoting public welfare. Thirdly, they suggest the four “Kew Garden Principles” as the guidance of how to act morally when the injury is not clearly self-caused. These prin- ciples are need, proximity, capability, and last resort. This broader-socio economic view means the responsibility of business involves more than profi t maximizing, but it also in- cludes not doing activities that will be dan- gerous and create instability for the stake- holders, preventing something that will hurt the society, and promoting activities that will be useful for every party. The reason for do- ing this is because the more needs that are expected by the community, the more res- ponsibility there is for the company to fulfi l these needs. As the company operates with- in the society, it is therefore should notice that it needs to meet the social expectations.
Moreover, the company has the capability to give a hand as it earns profi ts from doing business and has resources to be partly dis- tributed to the society.
Nowadays, the society expects business to accomplish a variety of social goals, and it must accomplish these goals if it expects to create long term profi ts and remain viable.
In addition, by enhancing CSR, the company will create a good society and in turn, good so- ciety will produce good environment for busi- ness activities. In the long term, the company will be able to create a good image so that it may gain more customers, better employees, and other benefi ts. However, according to Milton Friedman (1972), the activities regard- ing CSR are costly, therefore someone must pay for them (Davis, 1973). Furthermore, as
CSR spends resources and the resources are not self-renewable, Friedman suggests that it is a not appropriate decision to do it. In addition, business already has enough social power, so it should not take any steps which would give it more power by doing something good for the society, rather it should let the government to do the good (Davis, 1973). An example of broader socio-economic view is a joint work of Novozymes China with local go- vernment to develop environmental protec- tion projects to ensure that production and new projects are in accordance with the law and the norm of the local community (Buh- mann 2005). This indicates that the compa- ny tries to prevent harm to the surrounding society from the effect of pollution by utiliz- ing its resources, as the society needs this action. The company also manages not to in- jure the trust from the community to operate business and conducts its duty to protect the society from dangerous chemical pollutants.
The last CSR perspective is the broad maximal view. According to Mulligan (1993), the moral mission of a company is to do busi- ness to make the world better. The company has a moral obligation to provide products that can be morally useful to solve the com- munity’s problems and to avoid the product- ion of goods and services that are unworthy.
These actions should be done although they are not required by the law and even if they are not in accordance with the company’s profi tability target. Mulligan (1993) claims that the true function of a company is not only obeying the law, paying attention to the market, and responding to public expecta- tions. However, the moral mission of busi- ness has some features beyond these func- tions. First, it places the focus of business morality at the core of business function, which is producing goods and services. Se- cond, the morality of business is to facilitate the integration of moral conduct within ef- fective strategic management. Third, busi- ness ought to produce products which will contribute to create world betterment in its own special way.
The descriptions given by Mulligan (1993) above can be explained that actually corporations have a signifi cant role to en- hance the quality of life. Corporations ought to create benefi ts for the society (Shaw 1988), and it means that corporations have an ob- ligation to solve social problems as well as doing the moral minimum such as staying within laws and avoiding deception. It can be
further explained that the corporations can shape the society awareness by producing ethical goods and services and enhancing its ability to maintain and develop a better world to live in while minimizing the negative effects caused by the production process.
These actions currently also mean preserv- ing the company’s going concern and avoid- ing regulation by government as it is costly and restrict company’s fl exibility in making decisions (Tsukamoto, 2007). Nevertheless, some contra arguments could be pointed against this broad maximal view. These are that the company’s involvement in social matters might dilute its emphasis on eco- nomic productivity, divide the focus and in- terests of its leaders, and weaken business in the marketplace, which will result in poor both economic and social roles.
An example of the broad maximal view is the action taken by Shell China when it prepared a new area for oil extraction (Buh- mann 2005). To minimize the negative im- pact, Shell resettled 8,000 people away from their villages near the extraction area to a newly built town. This effort also meant gi- ving respect to human rights to ensure ad- equate living and shelter. Shell additionally established some projects to provide employ- ment for the village people such as building bicycle lanes or putting up traffi c lights. This example clearly identifi es that the obligation of a corporation is not only fulfi lling basic ethical norms, but also to solve social pro- blems such as unemployment.
Meanwhile, corporations should opera- tionalize ethics and CSR within the strategic managerial process. Specifi cally, company has to establish the corporate culture and corporate ethics programs for the basis of CSR implementation. A generic diagram that gives an overview of how to achieve CSR in corporate culture is presented below.
To develop the ethical culture, success- ful ethics programs, and implemented CSR, fi rstly, executive leadership has to personify the organization’s corporate values by giving opportunities to employees to take responsi- bility for their mistakes. The ethical leader- ship here will guide ethical behaviour to show that the leaders stand out as ethical fi gures.
Of course, top management has a crucial role in establishing ethical culture within an organization by being models of ethical be- haviour (Hunt et al 1989, cited in Shih and Chen 2006), and ethical culture will be able to be developed after a code of ethics is es-
tablished and strongly enforced (Singhapak- di and Vitell 1990, cited in Shih and Chen 2006; Kranacher 2006). Secondly, the ethical values have to be communicated frequently and honestly so that employees will feel the responsibility to maintain the ethical culture, for example by providing training with real- life ethical situations to experience and en- hance managers’ outcome expectancies and furthermore outcome expectancies will infl u- ence cognitive moral development in making ethical decision. Thirdly, the company have to provide mechanisms to monitor, evaluate, control, report and investigate fractions by collecting information through anonymous resources to be more effective in improving its ethical compliance efforts. An example is issuing Corporate Responsibility Report to
communicate company’s efforts in manu- facturing ethically and meeting government laws. And fourthly, the company must give feed back using rewards and punishments to demonstrate to employees that it takes se- riously the betterment of corporate culture and the implementation of corporate ethics programs (Ashkanasy, Windsor and Trevino 2006; Gebler 2006; Verschoor 2005; Trevino, Brown and Hartman 2003; and Youngblood and Trevino 1990).
Additionally, there are some other sig- nifi cant points that should be considered in developing the ethical culture and corpo- rate ethics programs. First, the corporation should not give attention only on formalized ethics programs. The company should con- sider about the support from other organiza- Figure 1
Steps to Develop Ethical Cultures and Corporate Ethics Programs to Enhance the Im- plementation of CSR
tional systems, informal norms and practices (Weaver, Trevino and Cochran 1999). Second, a multinational company which operate in many different areas with different cultures has to vary the ethics approach as practices which are appropriate in one cultural setting may violate the established understanding or organizational and social life in another cultural context (Weaver 2001). Third, as the result of implementing ethics programs, ethics programs will not only develop the company’s ethical culture, but also its at- tention to CSR (Velentine and Fleischman 2008), and company’s internal and external communications explicitly make the connec- tion between ethics and CSR (Rowe 2006).
This idea is also strengthened by Perrini and Minoja (2008) that the entrepreneur’s beliefs, value system, vision and mission, as well as his past experience, appear to have a funda- mental role in shaping CSR within the corpo- rate strategy.
In conclusion, CSR nowadays has be- come crucial issue as major companies will be expected to demonstrate their commit- ment to society’s values through actions. Es- pecially as the result of current global fi nan- cial crisis, companies are proposed to share part of the business profi t to stakeholders as well as protect society from negative im- pacts of company operations and their prod- ucts and services. The broad maximal view is believed to have suffi cient arguments for companies to do good while trying to solve social problem, although its implementation needs very detail and coherent steps within strategic managerial process. Finally, it is unarguable that the promotion of CSR and ethical business conduct at the domestic and international level is both essential and chal- lenging, as the implementation of CSR is not as easy as blinking eyes.
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