Corporate Social Responsibility and Corporate Governance

What is corporate social responsibility?

According to Leonard and Rodney (2003), corporate social responsibility (CSR) is a secure tactic businesses or firms use in addressing the environmental, social and economy in such a way that the society or public benefits from it.

CSR can also be defined as the continual obligation of an organisation to behave in an ethical way, contributing to the development of the economy and improving life’s quality as well as the humanity at large. (Sims, 2003)              

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The purpose of corporate social responsibility is to improve and identify the impact of a business in the society and environment as it strives to become stronger in business outcomes like satisfaction of employee, enhancement of brand and market differentiation. (Carroll and Butchholts, 2012)

From an employer’s perspective, CSR programmes is a vital way to raise and protect brand awareness and building trust amongst the customers as well as the employee’s. It is also an important way to increase a business’ competitive advantage. (Whitman, 2013)

Identification of key stakeholders in P&J

According to Freeman and Reid (1983), Stakeholders can be defined as any recognisable individual or group who can affect an organisation’s achievement and aims. In other words, stakeholders is an individual or a group of person who has interest in a business. In a company’s point of view, stakeholders include; the shareholders, employee’s, investors, community, the government, trade associates, suppliers and consumers/customers.

However, the stakeholder analysis comprises of identification, understanding the needs and determining the suitable level of focus. Using the stakeholder’s interest and power matrix in identifying the key stakeholders in P&J. This matrix was developed by Mendelow (1991) and it is used to map out different stakeholders according to their level of interest in a business and the level of power to influence the business decision. It’s serves as a guide to a firm’s management as to what type of response should be given to different stakeholders in order to keep them satisfied.

MENDELOW’S MATRIX FOR P&J

[pic 3]Figure 1:0

In figure 1:0, consumers are those that have “minimal effort” in the company they lack of power and interest which makes them open to influence. While the “keep informed” are those that has a high level of interest in the business but they lack power if not kept informed, they will try to gain power by joining individuals in ‘C’ and ‘D’. For example, Professor Kroll should be kept informed as to what decisions they are taking regarding his research.

However, the “keep satisfied” (Hannah Yin) has high power but low interest in the business, the key is keeping her satisfied to avoid her gaining interest in the company. In this case, Hannah Yin should be kept satisfied as the shareholders trust her performance and believes whatever she says. Lastly the “Key player” (Lazlo Ho), has a high level of interest and power in the business who can stop management plans if they are not satisfied however, the management must communicate the plans to them.

QUESTION 2

What is risk and risk management?

Risk can be defined as the hazard of cost-effective loss, precisely in a case of insured goods or property. (Das, 2006)

 According to Ronald and Roy (1988), Risk management is the method of reducing or moderating the risk. This starts with the valuation and identification of risk followed by optimum use of funds to minimize and monitor the same. However, Risk managements is defined as the identification, valuation, economical control of hazards that endanger a business assets and profits.

 P&J is faced with lawsuits risk that will be filed against the company in the future by employees  who worked in the environment that contains high level of X32 which is very harmful to human health and it has also caused the death of employees in the company. This will have effect on the finance of the company judging from the two figures (best and worst case scenarios) and if in the worst case scenario the company is likely to survive.

For P&J to manage this risk, the company will have to identify, prioritise, evaluate, manage and monitor the risk. Identification of risk is the process of determining why, what, when and how an incident could occur. This procedure identifies risks that will arise from the working environment. There are nine key areas that should be considered when conducting the risk identification process. The areas are; Legal or commercial risk, technology risk, human resource risk, economic or financial risk, occupational health and safety risk, operational risk, political risk, natural events and control or management activities risk.(Davis and Jarvis, 2007)

P&J is faced with Legal, financial and environment/ occupation health and safety risk. Legal in the sense of the future litigations against the company, financial risk as a result of lawsuit payments and environmental as it is harmful to health.

P&J cannot accept this risk as the Finance Director already forecasted the cumulative compensations with the best and worst case scenarios. She further stated that the best case is very likely to occur but the company will face a very high and damaging level of losses while if the worst case occurs, the company will not be able to survive. But P&J can however reduce the likelihood of the risk by; by removing the hazard, usage of less hazardous materials, buying new modified equipment’s, provision of safe work practices like training policies and provision of safety work practices like the usage of gloves, goggles and gasmask. (Cornrow, 2003)

 For example, since X32 is produced with an element that is harmful to health, P&J can replace that element with a new one. Since the “Plan A” is not affordable for all the mines, they can start with Emmland as its major stakeholders and investors are there and later on they can extend to the other minor mines in other countries. P&J can also choose to transfer the risks in future by obtaining insurances from additional hands for losses that will occur. (Garvey, 2008)

In reference to the corporate governance in risk management, the board ought to be responsible for defining the extent and nature of significant risk they are willing to take in order to accomplish its tactical aims. Also, the board of directors should maintain strong internal control systems and risk managements. The UK corporate governance code (2012) further states that every year at least the board should conduct an internal control system and a risk management review for the company showing its effectiveness. And this review should cover all controls which includes the compliance, financial and operational controls. This system of accountability can be implemented in P&J in managing and controlling its future risks.

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