PAPER FOURTH GROUP

Business Ethics

by
Group 4:

Nurfajrina (0611310046)
Tria marissa (0611310056)
Ryan novrian (0611310083)


ACCOUNTING DEPARTMENT
EKONOMIC FACULTY SYIAH KUALA UNIVERSITY
DARUSSALAM – BANDA ACEH
2008


CORPORATE SOCIAL RESPONSIBILITY AND SOCIAL REPORTING
A. IS THERE A SOCIAL RESPONSIBILITY OF BUSINESS?
The first article in this section by Milton Friedman is perhaps the best known argument for a purely profit-based social responsibility of business. Friedman is not ignoring ethical responsibility in his analysis, he is merely suggesting that decision maker are acting ethically if they follow their firm’s self-interest. That responsibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom. Of course, in some cases his employers may have a different objective.
In either case, the key point is that, in his capacity as a corporate executive, the manager is the agent of the individuals who own the corporation or establish the eleemosynary institution and his primary responsibility is to them. Insofar as his action in accord with his “social responsibility” reduce return to stockholders, he is spending their money. Insofar as his action lower the wages of some employees, he is spending their money. The basic reason why the doctrine of “social responsibility” involves the acceptance of the socialist view that political mechanisms, not market mechanisms, are the appropriate way to determine the allocation of scarce resources to alternative uses.

B. WHAT IS THE NATURE OF CORPORATE SOCIAL RESPONSIBILITY?
Is profit for the firm the only guiding principle of socially responsible activities, or should the impact of its decision on others be considered, even where the law allow the decision. Philosopher Ayn Rand contends that our one and only social responsibility is to ourselves, but that this concern does not act as a barrier to helping others: The moral purpose of one’s life is the achievement of happiness. This does not mean that he is indifferent t all men, that human life is of no value to him and that he has no reason to help others in an emergency-but it does mean that he does not subordinate his life to the welfare of others, that he does not sacrifice himself to their needs, that the relief of his suffering is not his primary concern, that any help he gives is an act of generosity not of moral duty.

C. IN THE END, DOES GOOD ETHICS MEAN GOD BUSINESS?
Previous studies has found both supporting and conflicting result. Professor Ullman summarizes the results of previous empirical studies on the relationship between social and financial performance as follow:
• Seven showed a positive relationship between social and financial performance.
• Three showed a negative relationship between social and financial performance.
• One showed a positive relationship between the promotion of women and financial performance and a negative relationship between charitable contribution and financial performance.

D. IF THERE IS A CORPORATE SOCIAL RESPONSIBILITY, HOW DOES A FIRM EVIDENCE ITS SATISFACTION OF THAT RESPONSIBILITY?
Even in focusing on social reporting, there is no one structure of group of topic for a corporate social report. Through some element are mandatory pursuant to other regulations, such as corporate charitable contributions, pension fund adequacy, employee share ownership scheme and employment data, other information is not otherwise required to be disclosed in the United States. Formal effort at standardized corporate responsibility reporting began in early 1990s. In, 1991 seven companies had published sustainability report, at that time, however much of the report focus was on the environment. The reporting trend has since transformed itself, addressing not only environmental issues, but also economic and social performance. Seven organizations have created processes or standardized reporting structures to assist organizations in quantifying their social reporting as well as in creating benchmark data against which they can gauge their activities and decisions.
• Global Reporting Initiative
Established in 1997, the global reporting initiative (GRI) is foundation-funded program that established a generally accepted sustainability-reporting framework to which corporation adhere. The reporting criterion covers all aspects of a company’s performance, economic, environmental and social.
• Global Sullivan Principles
As opposed to the auditable framework of the GRI, the Global Sullivan Principles comprise a set of internal ethical business operating principles. The Global Sullivan Principles have a tripartite structure that include corporation, higher education and civic involvement. However because the Global Sullivan Principles omit the right to freedom of association as a core labor standard, they lack support from the labor organization community.
• Social Accountability 8000
Created in 1997 by the Social Accountability Institute (SAI) , a not-for-profit, nongovernmental organization, an the Council n Economic Priorities (CEP) , Social Accountability 8000 (SA8000) is a standard based on a commitment to establishing a cross-industry standard for workplace condition and independent verification.

E. MAXIMIZING ETHICS AND PROFIT
Patrick Primeaux offers a practical rejoinder to critics of Friedman, arguing for the possibility of a balance between money and ethics that is based on a theory of profit maximization. Everyone knows that men and women in business are interested in one thing: money. And, as everyone also knows, men and women in business will do anything that has to be done to make money.
The problem for business and business ethics is the equation of business with money, specifically bottom-line accounting profits, and pressure to increase those profits quarterly or annually. That motivating objective is itself reflective of an ethical code. It consists of an ethical principle and demands a certain kind of behavior consistent with that principles. The organization is structured, people are hired, jobs are described, managers are held accountable, raw materials are acquired and technology engaged to increase that bottom-line. Everything and everybody within the company is directed by that profit maximizing principle and expected to conform to its demands.
Opportunity costs are usually defined as the forgone goods ans services that could have been produced from a given set of a scarce resources that was used to produce some other goods and services. Opportunity cost decision making leads to profit-maximization insofar as it recognizes the scarcity of all of its resources and uses those resources as efficiently as possible. To evaluate whether a company is profit-maximizing, then one needs to look beyond bottom-line accounting profits to identify what those profit represent. This perspective commends itself for good business and good business ethics because it originates directly within business theory and practice. It also commend itself because it encourages business to move beyond bottom-line accounting profits to consider people and things not only as valuable for production, but also as valuable in themselves –as scarce resources having value and dignity. It also commends itself because we could then equate good business and good business ethics.

F. THE DIVINE RIGHT OF CAPITAL, Is Maximizing Returns to shareholders a legitimate Mandate?
In response to what she sees as the problems of capitalism -bloated CEO pay, sweatshops, speculative excess to stagnant wages, corporate welfare and environmental indifference- Marjorie Kelly explores the question of whether maximizing shareholder wealth is an appropriate mandate for business. This mandate, she contends, arises from the unconscious belief that property owners matter more than others resulting in an economic aristocracy.
To judge by the current arrangement in corporate Amerika, one might suppose capital creates wealth –which is odd, because a pile of capital sitting there creates nothing. Yet capital -provides (stockholders) lay claim to most wealth that public corporations managed on their behalf. Corporation are believed to exist for one purpose alone : to maximize return to shareholders. This principle is reinforced by CEOs, The Wall Streat Journal, business schools, and the courts. It is the law of the land –much as the difine right of kings was once the law of the land. Indeed, “ maximizing returns to shareholders” is universally accepted as a kind of divine, unchallengeable mandate.

G. GLOBAL CORPORATE CITIZENSHIP,The Leadership Challenge for CEOs and Boards
The following is a join statement by a task force of the World Economic Forum CEOs. The task force recommends a framework for action that chief executives, chairmen, board direction and executive management teams can use to develop a strategy for managing their company’s impact on society and its relationships with stakeholders.
 FRAMEWORK FOR ACTION
1. Provide Leadership
Set the strategic direction for corporate citizenship in your company and engage in the wider debate on globalization and the role of business in development.
i. Articulate purpose, principles and values internally and externally
Business leaders play a crucial role in serving as role models and champions by communicating and be having in a manner that is consistent with he company’s state principles, values and purpose.

ii. Promote the “business Case” internally
Business leaders are uniquely placed in highlighting to their employees in a persuasive manner the costs of “getting a wrong” in terms of economic, social and environmental performance and the business and societal benefits of “getting it right”

iii. Engage the financial sector
The shareholder-driven and short-term nature of the financial markets is often cited as an obstacle to social and environmental innovation both within companies and in the market more generally.

2. Define What it Means for Your Company
Define the key issues, stakeholders and spheres of influence which are relevant for corporate citizenship in your company and industry.

i. Define the issues
Corporate citizenship is often talked about in the abstract, but it is fundamentally concerned with real and compelling issues. They will vary in nature and importance from industry to industry and location to location.

ii. Agree on Company’s spheres of influence
Companies and business leaders have different spheres of influence, where they have different levels of authority and ability to manage their impacts and to influence the actions of their own employees, stakeholders and others.

iii. Identify key stakeholders
As with issues and spheres of influence, a company’s stakeholders will fall into similar broad categories, with variation depending on industry sector and other circumstances :
 Investor, customers and employees are important stakeholders for almost all companies.
 Other stakeholders may or may not be important depending on the company and industry sector.

3. Make it Happen
i. Put Corporate Citizenship on Board Agenda

ii. Establish Internal Performance, Communication, Incentive and Measurement Systems

iii. Engage in dialogue and partnership
Managers at all levels of the company are important intermediaries in building opportunities for productive dialogue and partnership.

iv. Encourage Innovation and Creativity
Innovative new technologies, products and services can help to address many environmental and social challenges. By creating incentives and support for social and eco-innovation inside the company and encouraging external partnership with relevant innovators, researchers and customers, business leaders can help to provide a framework for new product development that meets business objectives.

v. Built the Next Generation of Business Leaders
Leadership development is an important element of “making it happen” and today’s business leaders play a vital role in helping t develop tomorrow’s.

4. Be Transparent About it
Build confidence by communicating consistently with different stakeholders about the company’s principles, policies and practices in a transparent manner, within the bounds of commercial confidentiality.

i. Agree what and how to measure
In most companies communication efforts are initially to identify what to measure and how to measure it, in consultation with employees and key business partners, but in some companies also in consultation with external stakeholders.

ii. Develop a graduated program for external reporting
Once the company has decided how best to evaluate its progress against the issues or stakeholders identified as being important, senior management has a role to play in communicating this externally and in ensuring that such communication is regular and consistent

iii. Be realistic
Executive management teams play an important role in setting the pace and managing expectations by agreeing on clear strategies, timetables or roadmaps for implementing the company’s evolving commitments to corporate citizenship.
The Case For Action
For most leaders there is a compelling case for taking action on issues relating to global corporate citizenship :
• First, an individual business case, that in today’s world good corporate citizenship make sound business sense.
• Second, a broder case, that business prospers in societies that are prosperous.
H. REPUTATION QUOTIENT (RQ)
The Reputation Quotient is designed to help identify the relative placement of your company’s reputation among competitors in the market place. The Reputation Quotient developed by Harris Interactive and Professor Charles Fombrun of New York University’s Stern School of Business and Executive Director of the Reputation Institute. The Reputation Quotient to leverage your reputation‘s advantage based on six dimension that are :
1. Emotional Appeal
How much the company is liked, admired and respected.
2. Products and Services
Perception of the quality, innovation, value and reliability of the company’s product and services.
3. Financial Performance
Perception of the company’s competitiveness, profitability, growth, prospects, and risk.
4. Vision and Leadership
How much the company demonstrates a clear vision, strong, and an ability to recognize and capitalize on market opportunity.
5. Workplace Environment
Perceptions of how well the company is managed, what it’s like to work there and the quality of its employees.
6. Social Responsibility
Perceptions of the company as having high standards in its dealing with people, good causes and the environment.
The Reputation Quotient was tempted through two phases during July 1999 and August 1999. In phase 1, Data conducted by online and telephone interviews with 4500 respondents throughout the U.S. Respondents were asked to nominate the companies they believed to have the best and worth reputations. In phase 2, another 10830 respondents provided detailed ratings of the 30 best regarded companies and a control group of 10 other companies. The Reputation Quotient scores for each company based on respondent ratings comprising the six dimension of reputation. In comparing any two scores, a difference of 1.96 would be considered significantly different at the 90% confidence level.
I. MARKETING GOOD CORPORATE CONDUCT
Marketing products may not be particularly harmful so long as individuals are aware of such practices and able to make well-reasoned decisions concerning the effects of such campaign upon their purchasing decisions. But such practices are much more serious when used to promote purported good corporate conduct. So, important that companies which engage in the marketing of good corporate conduct make every effort to ensure that consumers are granted access to relevant information and that outside audits with respect to the good corporate conduct marketed are available. This is likely one of the only ways to ensure that the benefits of moral praise garnered by making moral praiseworthiness of corporate actions more widely known through marketing strategies are in fact justly deserved.
J. TITHING PROGRAM
According to Charles Stoddard, the chairman and CEO of the Grand Rapids, if the company used Tithing program so would be get three advantages he called “triple win” that are : The charity received an unsolicited donation, the stockholders received recognition for designating the donation, and the bank received a tax-deduction.
K. REPORTING INITIATIVE
Potential benefits of reporting in the business community :
1. Reporting and measuring both past and anticipated performance is a critical management tool in today’s high speed to be effective management.
2. Reporting is a key ingredient to building, sustaining, and continually refining stakeholder engagement. Reports can help communicate an organization’s economic, environmental, and social opportunities and challenges in a way far superior to simply responding to stakeholder information requests.
3. Transparency and open dialogue about performance, priorities, and future sustainability plans help to strengthen these partnerships and to build trust.
4. Sustainability reporting is a vehicle for linking typically discrete and insular functions of the corporation in a more strategic manner.
5. Reporting helps management evaluate potentially damaging developments before they develop into unwelcome surprises.
6. Sustainability reporting helps sharpen management’s ability to assess the organization’s contribution to natural, human and social capital. Reporting helps highlight the societal and ecological contributions of the organization and the “sustainability value proposition” of its products and services.
7. Sustainability reporting may reduce volatility and uncertainty in share price for publicly traded enterprises, as well as reducing the cost of capital.
The Global Reporting Initiative comprise of three sections contain the reporting elements and performance indicators for the Global Reporting Initiative Guideline, That are :
1. Vision and Strategy
This section encompasses a statement of the reporting organization’s sustainability vision and strategy, as well as a statement from the CEO. Statement of the organization’s vision and strategy regarding its contribution to sustainable development. Present overall vision of the reporting organization for its future, particularly with regard to managing the challenges associated with economic, environmental and social performance. Statement from CEO sets the tone of the report and establishes credibility with internal and external users.
2. Profile
This section provides an overview of the reporting organization and describes the scope of the report. Thus, it provides readers with a context for outstanding and evaluating information in the rest of the report. This section also includes organizational contact information.

3. Governance Structure and Management Systems
This section provides an overview of the governance structure, overarching policies ands management systems in place to implement the reporting organization’s vision for sustainable development and to manage its performance. The global reporting initiative is sensitive to the need to avoid unnecessary duplication of effort. However, for the sake of ensuring full and complete contextual information for users of sustainability reports, it is important to cover the items listed below in combination with other information on the organization’s economic, environmental and social performance.