Corporate behaviour is important for company success both financially and concerning the relationship between corporate and business interests (stakeholders). We cannot define corporate behaviour without an ethical and CSR base in order to refer to that behavioral aspect. Corporate behaviour involves legal rules, ethical codes of conduct and social responsibility principles (figural). In other words corporate behaviour is based on all of these components and involves law, ethics and CSR. It is important to recognize also that this behaviour must be ethical but must also be seen to be ethical - perceptions are very important.
Corporate behaviour has effects not only on stakeholders and shareholders but also on the entire economy. When a corporation acts ethically and socially responsibly in its business decisions and strategic planning then that corporation will be more sustainable. As we have seen socially responsible corporate behaviour is increasingly seen as essential to the long term survival of companies.
Figure 6.1 The components of Corporate behaviour
Governance, Ethics and Corporate Behaviour
At this broader level governance and CSR are very interconnected. Carroll (1979: 500) describes CSR in these terms: "the social responsibility of business encompasses the economic, legal, ethical, and discretionary expectations that society has of organizations at a given point in time". After his definition, in 2002 Whetten et al. defined CSR as "societal expectations of corporate behavior; a behavior that is alleged by a stakeholder to be expected by society or morally required and is therefore justifiably demanded of a business" (p. 374). Following from the first definition, the CSR definition expanded and covered more corporate behaviour and stakeholder expectation. On the other hand some broad terms - especially society - have been narrowed to stakeholders.
Corporate behaviour toward the stakeholders is becoming a much more important concept in practice and a central part of corporate governance. Corporate behaviour is an important concept because it has to be ethical, legal, and responsible behaviour for organizations, stakeholders and society. This aspect of the corporate behaviour has more benefit for society also and so that is why it is more related with ethics and CSR as well as with governance. We have of course referred to stakeholders in other chapters and this is an increasingly important aspect of governance.
To be a socially responsible corporation, a company must be more than a legal and ethical person also. CSR is not always a legal necessity; increasingly it is an obligation. However a company has to be socially responsible even though it is not a legal obligation (Aras & Crowther 2008b) - which is one of the most important characteristics of CSR. These provide the platform upon which social responsibility is built.
One concept which is of growing importance for business management is that of corporate reputation. The beginning of the twenty-first century creates a new challenge for corporations - realizing the potential of their corporate brands. In today's markets organisations focus on intangible factors in order to compete and differentiate their services/products in an environment, which is characterized by rapid changes. The reputation of the corporation is often the most important factor in gaining a competitive advantage as well as building financial and social success.
Corporations are realizing that possessing a well-known name such as Johnson & Johnson, can help them secure a good position in the marketplace. Businesses are not only faced with sophisticated and informed stakeholders but also by rigorous regulation and evolving standards as well as by independent associations and agencies that act as watchdogs guarding the interests of their publics.
There are many benefits claimed for being perceived as having a good corporate reputation. One of the main is concerned with the fact that it improves shareholder value; a strong corporate reputation inspires confidence in investors, which in turn leads to a higher stock price for a company. It brings increased customer loyalty to the products of the company. A positive customer perception of a company extends to its products. Equally a strong corporate reputation is an influential factor for forming partnerships and strategic alliances as the partner company has the potential to improve its own reputation by association. Similarly a company with a solid reputation is more influential on legislative and regulatory governmental decision-making.
Employee morale and commitment are higher at corporations with a good corporate reputation. At a time of a crisis a good corporate reputation can shield the company from criticism and even blame, and can help it communicate its own point of view more easily to audiences that are willing to listen to its point of view. A good example is the Pepsi Cola tampering case according to which products on sale were found to contain material injected by hypodermic syringes. Pepsi dealt effectively with the crisis by defusing public alarm with a public relations campaign that highlighted the integrity of its manufacturing process and its corporate credibility.
Ethical behaviour and ethical business has effects not only for stakeholders, and shareholders but also on the entire economy. We believe that when acting ethically in the business decision-making process then this will ensure more effective and productive utilisation of economic resources. Corporate behaviour affects responsible and proper economic and institutional improvement. It will be also an influence on all society and a common benefit. Thus corporate governance can be seen to have an effect outside of the corporation itself as it affects society at large and the relationship between the corporation and society, and therefore all stakeholders.
Additionally we can make the following points:
o Organizations affect the external environment - businesses and the wider global environment
o The Gaia hypothesis shows that the whole ecosphere forms a complete system, unlike classical liberal theory which postulates the independence of each entity
o From 1970 there have developed theories and regulations to include all stakeholders inside and outside the organisation
o Corporate reputation is an increasingly important factor for organisations
o Ethics has been reinstated as a standard for organisational activity
o Corporate governance as a subject indicates an increasing concern with social and environmental effects of organisational behaviour and not merely financial performance.
Aras G & Crowther D (2008a); Culture and Corporate Governance; Leicester; SRR Net
Aras G & Crowther D (2008b); The social obligation of corporations; Journal of Knowledge Globalisation 1 (1), 43-59
Carroll, A. B. (1979). A three-dimensional conceptual model of corporate social performance; Academy of Management Review, 4, 497-505.
Fisher, J. (2004) Social Responsibility and Ethics: Clarifying the Concepts, Journal of Business Ethics 52: 391-400. Friedman, M. (1962), Capitalism and Freedom, Chicago: University of Chicago Press
Joyner, B.E., D. Payne (2002), Evolution and Implementation: A Study of Values, Business Ethics and Corporate Social Responsibility, Journal of Business Ethics 41: 297-311, 2002.
Lovelock J (1979); Gaia; Oxford; Oxford University Press.
Whetten, D. A., Rands, G.,& Godfrey, P. (2002). What are the responsibilities of business to society? In A. Pettigrew, H. Thomas, & R. Whittington (Eds.), Handbook of strategy and management (pp. 373-408). London: Sage.