Question

Businesses combine for many reasons. The rationale for combining sometimes creates tunnel vision where decision-makers fail to see all stakeholders and their potential impacts.

Suggest a stakeholder that is affected when companies combine. Also add the most important considerations for this stakeholder during the combination planning process.

Answer 1

Corporate Social Responsibility (CSR) is the responsibility of an organization towards the welfare and interests of the society in which it operates while maintaining a healthy bottom-line of profits. Responsible, sustainable and transparent business models help build brand and reputation as well as help strengthen the community and therefore the marketplace. Business ethics examines ethical principles and moral or ethical problems that arise in a business environment. Business ethics reflects the philosophy of business, one of whose aims is to determine the fundamental purposes of a company. If a company's purpose is to maximize shareholder returns, then sacrificing profits to other concerns is a violation of its fiduciary responsibility.

The principles of right and wrong that guide an individual in making decisions are called ethics. As ethics are about moral values, cultural assessments can be extremely valuable when assessing the moral values in an organization. The message from businesses today is clear—employees must be well trained and capable of making ethical decisions to protect the business from legal liability and to maximize long-term profits.

3 Step checklist to analyze the ethics of common business situations:

1. Is the action illegal?
2. Does the action violate company or professional standards?
3. Who is affected, and how, by the action?

The social responsibility movement is just one aspect of the overall discipline of business ethics. Many companies believe they have a responsibility to "give back" to society. This focus includes contributions of time and money, a duty to provide environmentally friendly products and services, and a desire to improve the lives of individuals here and around the globe. A few companies stand out as prime examples of how social responsibility can be productively coupled with sound strategies to advance goodwill, while building sustainable and impressive businesses.

Burt’s Bees - The focus for Burt's Bees has always been on well-being and "the greater good." As part of the Natural Products Association, the company helped develop The Natural Standard for Personal Care Products, which created guidelines for what can be deemed natural. Burt's Bees follows the highest possible standards for packaging sustainability, furthering its dedication to the cause as a member of the Sustainable Packaging Coalition. Since the brand's start at a crafts fair selling $200 worth of honey, the company has since expanded to candles, lip balm and now more than 150 products. In 2009, revenue topped $250 million.

The Body Shop - The Body Shop is regarded as a pioneer of modern corporate social responsibility as one of the first companies to publish a full report on its efforts and initiatives. Founder Anita Roddick led her company to stand up for its beliefs and champion causes such as self-esteem, environmental protection, animal rights, community trade and human rights. From sponsoring posters in 1985 for Greenpeace to presenting a petition against animal testing to the European Union with 4,000,000 signatures, The Body Shop has contributed significantly to the causes it supports, and exemplifies how other companies can do the same.

Kenneth Cole - Since 1985, Kenneth Cole has been openly involved in publicly supporting AIDS awareness and research. He uses fashion to promote awareness of, and help fight, various social issues. After 25 years of addressing meaningful social issues, Kenneth Cole established the awareness’ Fund, a not-for-profit initiative that uses partnerships, merchandise, events and its blog to celebrate, encourage and empower acts of service volunteerism and social change. A full 100% of net proceeds of the Awareness products go toward the fund. These efforts have helped fuel the success of the Kenneth Cole brand, a company with nearly $500 million in sales.

Whole Foods - Whole Foods supports sustainable agriculture, promotes the reduction of waste and consumption of nonrenewable resources and encourages environmentally sound cleaning and store-maintenance programs. The company created the Local Producer Loan program, which provides up to $10 million in low-interest loans to small local producers to help grow their businesses. Whole Foods has also created Whole Planet Foundation, which fights poverty through micro lending in rural communities around the world. The foundation has raised $1.5 million to help 40,000 women lift themselves out of poverty by empowering micro entrepreneurs.

Broadly speaking, CSR - also known as sustainable development - involves the increased recognition by publicly held companies that they need to address and heed not only shareholders, but all the multiple stakeholders impacted by the company's behavior.

EMERGENCE OF CSR

The theory behind CSR is that companies can be profitable while at the same time minimizing their negative impact on stakeholders.

A study examined the 602 companies in the Morgan Stanley Capital International World Index that have received Oekom’s Corporate Responsibility ratings and found that, between January 2000 and October 2003, the 186 highest-ranked companies in terms of sustainability outperformed the remaining 416 companies by 23.4 percent. Studies and actual practice have shown that critical stakeholders — including customers, employees, and socially responsible investors — are actively looking to do business with socially responsible companies.

The 2004 Cone Corporate Citizenship Study, conducted by strategic marketing and public relations firm Cone Communications, shows that eight in 10 Americans say corporate support of causes wins their trust in that company, a 21 percent increase since 1997. Moreover, the study reveals that Americans stand ready to act against companies that behave illegally or unethically: more than three-fourths of respondents indicated they would respond to a company’s negative practices by taking actions such as switching to another firm or speaking out against the company among family and friends.

Failure to pay heed to CSR can dramatically impact a company’s reputation and even its value. Multinationals such as Royal Dutch/Shell Group, Dow Corning Corp., Coca-Cola Co., and Nike Inc. have taken hits to their reputations for failing to stay ahead of their stakeholders’ expectations. At Wal-Mart Stores Inc., CEO Lee Scott recently apologized publicly for letting the reputation of the company be sullied by questionable hiring practices.

As evidence, a recent study by Oekom Research, a German agency that rates environmental and social performance, and securities firm Morgan Stanley indicates that companies with higher sustainability ratings outperform their counterparts who score lower on sustainability practices.

Indeed, social responsibility reporting by publicly traded corporations has become an expected part of doing business on a global scale.

GUIDELINES FOR BEHAVIOR

There are upwards of 50 global and domestic guidelines by which companies can measure their social responsibility efforts including the environment, supply chain management, hiring practices, community relations, internal management or corporate governance, and charitable donations.

Perhaps the most widely accepted reporting guideline, however, is the Global Reporting Initiative (GRI) developed by a group of organizations widely involved with responsible business reporting. GRI aims to take the best practices in the area of human rights, labor relations, environmental management, and sustainable development, and craft them into guidelines that enable any corporation to produce one comprehensive report on CSR.

The U.S. Sarbanes-Oxley Act of 2002 has raised the bar for many corporations with mandates that they conduct business with social responsibility in mind.

Some of the global benchmarks against which companies' CSR performance is being measured include the United Nations Declaration of Human Rights, the International Labor Organization's labor standards, and several globally recognized voluntary standards, such as the Organization for Economic Co-operation and Development's guidelines for multinationals and the United Nations Global Compact, to name just a few.

More needs to be done by U.S. companies to incorporate sustainable development issues to make sure the information regarding CSR is complete and independent in line with GAAP financial reporting guidelines.

Principally through Sarbanes-Oxley Section 302, company executives must now certify that they have effective disclosure controls and procedures in place - and they must continually evaluate them to ensure their ongoing effectiveness. Many domestic and international companies are taking social issues more seriously and making them an important part of their agendas.

Under fire for years, cigarette manufacturer Brown & Williamson Tobacco Corp. began an unprecedented series of dialogues with various stakeholders across the United States to improve its image. The company has asked that more of the money U.S. states receive from tobacco settlement funds be spent by the states on education, prevention, and treatment. It has also requested that the Motion Picture Association of America not feature cigarettes in movies. Moreover, the company will no longer put any advertisements on the back of any magazine lest a child see it.

Baxter International, a manufacturer of pharmaceutical and biomedical products, has a viable sustainability program in place. The external verification aspect of Baxter’s program got its start in the mid 1990s in response to a stockholder group wanting assurance that environmental data presented to the public was accurate. The external verification aspect of Baxter’s program got its start in the mid 1990s in response to a stockholder group wanting assurance that environmental data presented to the public was accurate.

In a country with a substantial natural resource sector, Canadian investors, businesses, and taxpayers have been sensitive to social and environmental concerns for some time. Rio Algom Ltd., which before a takeover in 2000 was one of Canada’s leading diversified mining and metals distribution companies, developed and operated mines in North and South America. “The company believed a strong corporate social awareness went beyond a matter of being a good corporate citizen to being good business,” recalls Archie Thomas, a former chief audit executive of Rio Algom.

In an address on matters related to CSR at The IIA’s International Conference in Sydney in June 2004, Charles Macek, chairman of the Australian Financial Reporting Council and the Sustainable Investment Research Institute (SIRIS), said companies should regard their social responsibilities at least on a par with their financial obligations. Too often, he said, financial analysis of companies ignores other risks and resources beyond purely financial matters. “These are regarded as ‘soft’ or nonfinancial issues,’’ Macek said. “Yet a failure to meet environmental, labor market, or even social obligations can have a substantial impact in the longer term. Names such as Shell, Exxon, Nike, Philip Morris, and Coca-Cola come to mind.”

“Directors are appointed by shareholders as fiduciaries, and have an obligation to the company, which should include its multiple stakeholders.

Internal auditors, he said, should take the lead in managing risk in these areas beyond their traditional role in financial reporting.

There is broad agreement that for the future, chief audit executives need to ensure that social responsibility is on the board’s agenda of corporate governance issues. They should be aware of existing standards and global initiatives as they relate to CSR and use them as yardsticks against which to measure their organization’s performance.

Internal auditors should use the international standards and practices designed by independent organizations or competitors as benchmarks against which to measure their organization’s CSR performance.

Accounting Ethics - Importance of Accounting Ethics

Maintaining ethical standards are necessary in every business entity that intends to survive successfully in the market and improve total organizational competencies and efficiencies.

Developing total efficiencies of the employees is essential for leading a business entity in the direction of success continuously. This necessitates training and guiding the employees in such a way as to build their efficiencies in all the aspects of business while stressing on maintaining ethical standards effectively at all times. Understanding and upholding business ethics is essential for overall business activities. So it goes with the accounting profession as well.

Ethics is synonymous with morality, honesty and integrity. Ethics means the basic concepts and fundamental principles of right human conduct, which involves differentiating between good and bad, right and wrong, so that an accounting professional follows what is principally right for him to do.

Since the accounting profession involves various functions of accounting, such as, recording of all business events that are of financial character, classifying and summarizing them and present them in the form of profit and loss statement, balance sheet and cash flow statement, the way these activities are performed is very important and it has a lot do with maintaining accounting ethics of accountants.

One of the most important things that shows ethical behavior of an accountant is that he needs to remain impartial and loyal to the business organization while performing the related activities sincerely and in all honesty. Since the accounting information drawn from the financial statements is of great value and significance to be relied upon and upon which the success or failure of a business immensely depends, an accountant should not manipulate the accounting figures in order to hide any information. In terms of balance sheets, the information concerning, cash, receivables, inventory, prepaid expense, long term receivables etc must be presented accurately.

Similarly, the activities pertinent to the components of income statements, such as, revenues and expense are to be carried out efficiently. An accountant should not change the accounting figures to make profits look better on income statement. In this way, accounting professionals are supposed to provide the accurate information to the top management without changing the figures showing less expenses or greater revenues.

Hence, the accounting ethics should be applied to each and every activity of the process of accounting, so that the complete, accurate and reliable information can be presented to the desired users of financial statements in a business organization.