Strategies for Financial Performance Analysis
Introduction
The famous Nobel Prize winning economist Milton Friedman who once said that ‘there is one and only one social responsibility of business to use its resources and engage in activities designed to increase its profits’ (Friedman 1970). Friedman outlines views which are characterized in two perspectives with regards to social responsibility, on one hand we are aware that attaining profits is one of the primary objectives but it doesn’t mean that the managers should be focusing only on profits when making business decisions. There are other factors as well, with can be explored around different perspectives related to social responsibility, however focusing on a business’s application of Social responsibility to make decisions and benefiting society (Spector, 2008). Regardless of whether businesses pose any responsibility to partake in social matters is an ever-growing part of the commercial and industrial world, not too long ago businesses were expected to avoid any harm being done, However, recently its almost frowned upon if a corporation does not engage in corporate social responsibility (CSR) at all.
Qualitative Analysis
Forbes published a blog and the writer carried out a survey about consumer behavior, attitudes and awareness about cause marketing, consumer and employee perspectives on CSR issues. The results were that 65% strongly considered leaving their jobs if harm is caused to the environment by the company and a staggering 90% of the consumers said improving society should go hand in hand with achieving company business goal (Epstein-Reeves, 2010).
30,000 consumers were interviewed on Corporate Social Responsibility conducted by Neilson Global this survey ranged across 60 countries with the purpose to understand how invested consumers are with regards to sustainable practices in their daily purchases. It also covered which segments are ecologically and socially supportive in the responsibility efforts made. 50%+ respondents claimed they purchased at a minimum one service or product within the span of six months from a company that is socially responsible. Out of every 10 respondents, four said they have made socially and ethical purchases, these respondents were from North America and Europe (Nielson, 2014)
Per Net impact’s ‘what workers want’ report, from the sample size, 45% of the staff agreed to have 15% reduction in pay that has a positive environmental or social effect. A further 51% of employees claim that helping ‘make a better world’ working towards ‘contribution to society’ are fundamental to the working society (Heldrich et al. 2012).
Criticism however of business extends much further in that much more is expected of corporations today, with realization of ineffective government solutions on a social responsibility platform, for this and other reasons, in developed countries at least. Private sectors organizations are baring the burden of this responsibility to solve these social problems, let alone the directly responsible cases and matters it must rectify ie. Pollution, health and safety of products produced (smith, 2013)
Discussion
It is clear that with increased public and media pressure CSR is a matter of competitive advantage. From a Moral stand point, the argument is that with all the money businesses have as well as the power they possess to make societal changes, and are now obligated to do so, which seems to be the view of supporters of CSR which is similar to Crowther et all (2008) when he explained in his book that it’s the obligation of the firm to consider and include the society within its decision making and business operations. However, some argue that large companies have the only responsibility to maximize profits and have no grounds in socially moral matters otherwise, this may seem like a heartless view, whereas the supporters of CSR argue that charitable initiatives tend to shift the focus away from organizations harmful and unethical practices (Tran, 2015)
The issue is then how does a business engage in actions that benefit everyone, this is a very difficult task however business managers must be able to balance these competing interests.
Shareholders are those individuals to invest their money in the company in exchange for a percentage of ownership and typically voting rights, this makes shareholders the actual owners of the company and shareholders don’t necessarily have the time or expertise to make a big decisions they elect the board of directors corporate officers to manage the day-to-day operations and send shareholders who again are the owners to make the decisions is the responsibility of the corporate officers to make decisions that are in the best interests of the shareholders and what is more important to shareholders profit so it is the responsibility of the corporate executive to make as much money as possible while of course operating within the rules of the game which refers to establish laws now engaging in what is termed social responsibility is in direct conflict with the shareholder model because it diverse resources in energy is away from profit maximising behaviours
Take for instance giving to a charitable organization Freeman isn’t arguing against donating to a local church but he is arguing that a business is not the appropriate vehicle to do it. for one finding cars that all of its shareholders agree with would be nothing short of a miracle and secondly by spending energies and resources on social responsibility the businesses giving up those alternatives that it may have otherwise engaged those alternatives may produce more of a benefit for the business. Instead Freeman believed that this is a super super profit maximization is actually making as much money for shareholders as possible and with that extra cash shareholders to donate to whatever organization they wish Freeman’s views of course represent just one of the two perspectives related to social responsibility the second perspective is known as the stakeholder model and maintains that businesses have a responsibility to not only see profits but also satisfy the interests of multiple stakeholders these stakeholders represent individuals or groups that have an interest in the actions and behavior of the business
The conceptual thinking behind the stakeholder model is that for an organization to operate effectively the business managers need to continuously maintain a positive relationship and understanding with the environment and the society within which it operates. Failure to manage and maintain this will effectively cause harm to the reputation of the business in turn hinder their ability to operate. Since all stakeholder have different types of influence on organizations, they are then separated in to primary stakeholders and secondary stakeholders.
Primary stakeholders represent those individuals or groups to have a greater influence on the organization they include businesses, customers, employees, suppliers government agencies and the local community (Henriques et al. 1999). These groups are very importance because the business depends of them for long term existence and survival. Consider the impact on the business if suddenly customers seize to buy and products or even the withdrawal of investors. The stakeholder model business managers top priority should be satisfying the various interests of these groups. Common secondary stakeholders like the media maybe not critical in the role played in CSR, however secondary stakeholders do pose strong publish perceptions which can influence the business (Henriques et al. 1999).
Case Study 1 – British Petroleum
The stakeholder group do not carryout business on a regular basis with the company but the information that they communicate impacts the perception of the public drastically. For example, the lengths British Petroleum has taken to repair is damaged image in the light of the Deepwater Horizon oil spill (Spence, 2011).
The shareholder and stakeholder models above clarifies the if the objective if profitability, does it make it wrong to proceed with decisions with the profitability objective in mind although one can confidently argue the case that boosting profits by cutting cost didn’t benefit BP in the long term. Therefore, conducting oneself as socially responsible is less about being socially responsible and being more profitable in an unadulterated socialistic way as Freidman suggests.
On the other hand, Shell does portray and provide good examples of CSR by promoting openness. Shell makes it clear that it is keen to commit to transparency when debating with stakeholders. “Tell Shell” is a discussion blog or forum which tackles issues and matters relating to Shell on a global scale. The posts are criticizing Shell and at the same time supporting Shell, and regular responses from Shell (Shell, 2017). Once the correct personnel are in place, the identification of which stakeholder representatives should be engaged with, specific types of engagements should be determined and a measurement of social performance. A detailed understanding of the companies current corporate social performance is vital when constructing a plausible CSR strategy with clear objectives and goal (Shell, 2017)
Case Study 2 – Kraft Heinz
Kraft Heinz Co suffered a blow from the media in 2009/10 because of Cadbury’s hostile acquisition. Even though the unions of Cadbury opposed and fought the case in the anticipation that there will be major job cuts. Following the take-over, many top potions employees and executives quit and as much as 30% of the Cadbury staff were privy to leadership posts (Moeller, 2012).
As the acquisition ended, over four hundred job had been made redundant despite the promise of Kraft to retain employees (Stiener 2017), this was seen to be a horrible PR let alone a worst case of CSR for Kraft since Kraft now has been negatively portrayed socially.
The rising government and public pressure regarding the manner in which companies operate and the total effect it has on the environment is increasing. Kraft as well as many other snack food companies are under pressure with their role in buying palm oil which has direct and considerable links to deforestation (Allen, 2015).
Kraft as all multinationals has strict regulations when in operation, these rules are constantly changing with the evolvement of new contaminants globally, but was forced to recall 11 types of chocolate in Chine when it was reported that 50,000 babies become sick and 4 died by contaminated milk by a chemical product (Rigby, 2011)
Kraft invests largely in improving its technology to minimize their Co2 emission and protect the environment and reduce global warming. They have incorporated policies to increase the use of rail and low emission modes of transport instead of using trucks (Kraft, 2010)
Key Drivers
To get and understanding to what the key drivers are, then answering questions of intent is the first item to uncover. An examination of processes and practices is not the only method when studying CSR, but also in depth discussions of communication strategies within CSR. In which way do social and organizational factors cultivate and shape the beliefs and norms that drive organizations to engage in socially responsible activities? A practical way to accomplish this would be to consult top management since they are normally the candidates that spear head CSR initiatives (Lee, 2010)
Ethical Consumerism – How aware are end users of the activities of the company they buy their product from? Front a B2B standpoint, are converter factories making conscious decisions about who they trade with?
Responsible Investment – This drives public /institutional investors as well as high net worth individuals to invest in ethically responsible companies. This is a big encouragement for companies to comply and produce CSR reports
Shrinking Role of Government – This is evident in the fact that due to the shrinking role of governments to solve the problems and issues within the society, its it becoming increasingly clear that organizations are taking on this role.
Public Pressure/NGO – We can establish that trade unions and NGO’s do play a big role in pushing CSR initiatives, therefore due to the possible reputational consequences, firms are partly incorporating more inclusive CSR policies and initiatives.
Conclusion
Parameters for measuring a company’s value or worth and competitiveness has evolved over time, especially since the time Friedman wrote his article in the 1960’s. Hence with the ease of access and availability of external information, ie. Macro factors, yes parameters have changed. Therefore in the 60’s, companies that took part in social initiatives were rarely publicized or even made known to the larger audience or media. Where as in this current day and age, even the slightest alteration in the CSR policy of the company or social activity is documented and either praise or frowned upon. To sum up, this is a view point Milton Friedman may have not anticipated at the time when analyzing and writing his report.