What is the relationship between corporate governance and social responsibility?

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Lulwah AlBinali 200800313

Learning Outcome ASSE III/COB_202

Homework 3

  1. What is the relationship between corporate governance and social responsibility?

In the post-Enron years, corporate governance has shifted from its traditional focus on agency conflicts to address issues of ethics, accountability, transparency, and disclosure. In the 21st century corporate governance and social responsibility are strongly linked with business environment. Business Dictionary tells that the traditional meaning of corporate governance is the methods used by companies to protect its financiers such investors and creditors. However, new expectations from other stakeholders have forced companies to broaden the focus of corporate governance to include accountability to customers, suppliers, employees, the government and community. This ethical accountability to stakeholder groups is the essence of corporate social responsibility (CSR). Currently, corporate governance is being linked more and more with business practices and public policies that are stakeholder-friendly.

  1. What is your opinion of GAP International’s having a code of conduct for its suppliers? What would Milton Friedman say? Contrast his view with Archie Carroll’s view.

I think GAP has a very strong international code of conduct. One could argue that a company is composed of its employees and all of its assets, such as land, buildings, and equipment. These can thus define a company's boundary. Everything else may be called a company's "environment" and therefore outside of a company's control or responsibility. The very popularity of outsourcing as a substitute for vertical integration means that more companies are contracting with other companies to achieve functions a company no longer wishes to do on its own. If the contract is long term, then the hands-length nature of transactions is compromised and it becomes difficult to discern where one company boundary begins and another firm's leaves off.

Milton Friedman I think would be against Gap's meddling with the rights of its suppliers to freely contract with their employees. Through Carroll's categories, Milton Friedman would say that the only responsibilities of a business firm are economic and legal. If a purely economic justification is used, it may be difficult but still possible to justify ethical and discretionary responsibilities. In the second point Friedman would say that this is foolishness, but Carroll would argue that this is a natural result of ignoring one's ethical responsibilities.
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