Social
responsibility and shareholder value
Walmart, the US department store, is the number one company in the
world in terms of turnover.
It is heartening to note that Walmart was also rated by the Fortune
magazine as the most admired corporate in America. One of its contributions
interestingly had been towards improving the standard of living
of US consumers by offering merchandise to them at affordable prices.
A further ascendant in the Fortune 500 list was British Petroleum
which has increased its petroleum market share by carefully building
an image that it cares for its environment.
What
is social responsibility?
Even though this is a wide topic it can be simply regarded as acting
in a responsible manner towards all stakeholder groups in society.
It is simple logic that organisations are part of society and derive
a number of benefits through membership in that society. In return
they should observe the standard norms of behaviour and be responsible
towards society.
The conduct of Union Carbide in Bhopal, Exxon Mobil's adventures
in Indonesia, what took place at Enron or the general mess audit
firms are in today are quite deplorable.
Where
is social responsibility expected?
The modern corporates are expected to be socially responsible in
the following areas:
* Treatment of customers
* Employee welfare
* Payments to suppliers
* Fairness to
shareholders
* Upholding social
values
* Protecting culture and customs
Treatment
of customers
It is common sense that organisations should treat their
customers well if they are to be successful in the modern, excessively
competitive world. Gone are the days when Henry Ford could insist
that he would only make black cars. Customers expect firms to be
fair by them and deliver the right quality promised at the right
price. Mitsubishi Motors in Japan is currently quite embarrassed
as some customers have accused the company of knowingly selling
defective products to them.
Employee
welfare
Genuine commitment towards the welfare of employees can
result in loyal employees who are determined to commit miracles
for the organisation. Starbucks, the US coffee shop chain, provides
medical insurance to its part time employees and stock options to
its full time employees.
In Sri Lanka, CTC is regarded as a good employer where labour turnover
is very low.
Payments
to suppliers
Many firms delay payments to their smaller suppliers thereby
making their life very difficult. It would be difficult for suppliers
to do business if firms were too hard on them. Despite its giant
size, Walmart is regarded as a firm which demonstrates responsibility
in making settlements to its smaller suppliers.
Fairness
to shareholders
An increasingly publicised problem is unfairness to the
shareholders. Shareholders complain companies do not disclose accurate
information about their performance and that they are misled into
investing in them. It is worrying to note that this problem is global.
The moves by the SEC in Sri Lanka towards better corporate governance
are welcome in this light.
Upholding social values
The Bribery Commission has published a report in Sri Lanka that
bribery and corruption are on the rise.
One of the contributors to this process is corporates of various
sizes. Increasingly corporates are bribing bureaucrats as well as
politicians with the aim of pursuing business quickly.
This leads to an increase in corruption where ultimately similar
demands are made from ordinary citizens. In some countries such
as Nigeria multinationals like Shell have been blamed for supporting
brutal regimes which were exploiting these countries.
Protecting
culture and customs
Every country and community has its own set of indigenous
customs and culture. Such culture is being eroded rapidly by the
process of Americanisation, which is rapidly taking place today.
Corporates are to partly blame for this since they often build images
of success based on western ways of life. It is interesting to note
Unilever, a multinational, promotes the film industry in Sri Lanka
by sponsoring the Sarasaviya Film festival.
Message
to the investor
The value of your investment should be sustainable in
the long run. Only socially responsible organisations can build
such sustainable shareholder value.
Invest only in socially responsible organisations and continuously
maintain pressure on other organisations to improve their attitude
towards responsibility. Only then would your investment be safe
in the long run. |
