Management accountability to a wider range of stakeholders
For long time, there is a popular debate between satisfying organisations’ profits and meeting social and ethics responsibility. For all firms, there is a fundamental question; should a company maximise shareholder’s value or satisfy stakeholder’s benefit? Friedman takes the view that managers should only on the behalf of their shareholders while, other different views generated to consider the concept of stakeholders and corporate social responsibility. One specific view is that managers should take accountability to a wider range of stakeholders for economic and social development.
This essay will review the theory of management accountability to a wider range of stakeholders by evaluating the cost and benefits with specific example of IKEA. Next section is the review of relevant concepts and theories and it also provides the example of IKEA. Final section is the conclusion of whole essay.
Review and analysis
So many false dawns in the last decade of 1990s, hence, in the first ten years of the new millennium, corporate social responsibility (CSR) has attracted attention of researchers. Silberborn and Warren (2007) claim that as the tipping points of business scandals, Enron, WorldCom and Parmalat have impelled a great number of businesses to rethink over the responsibilities that they should be in charge of their various stakeholders. Silberborn and Warren (2007) believe that the development of corporate social responsible is related to corporate culture evolution. It is suggested that useful concept should have some characters that may work for company’s management, company, culture and history. Which means that corporate social responsibility notion is developed by the need of culture and economic for companies. They also find that there are considerable amounts of corporate social responsibilities process. The corporate social responsibilities processes shows that how the firms coordinates with stakeholders and how firms acquire positive effects with their common business activities by confirming the development of corporate social responsibilities notion and a increasing emphasis of ethical parts.
Usually, the original meaning of corporate social responsibility is regional and charitable. With the development of society, especially the development of business, the definition of corporate social responsibility has been broad and diverse. For example, according to the European Commission (2002), the European Union has defined corporate social responsibility as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interactions with their stakeholders on a voluntary basis”. Hence, from the concept of corporate social responsibility, it can be shown that companies should not just make decisions in the behalf of their benefits or profits, but they should put the concerns on the social and environmental problems to make decisions.
Additionally, Roger Martin (2010) believes that corporate social responsibility has movement conformity with laws and criterion standards; corporate social responsibility has particular mission and values that combined with management procedure; corporate social responsibility could make different stakeholders’ interests compatible; corporate social responsibility brings reputation for company and offer strong relationships with governments by making great contribution to economic and social development for country.
Moreover, Pinkston (1991) an American argues that legal and ethical should be the considered components of corporate social responsibility.
For society and country, company should integrate corporate social responsibility and ethics to make decision. Business ethics link among the political, the economic and the social in the real business world, hence the reasons that ethics are required to estimate more closely in small companies are considerable. ‘Milton Friedman’s (1970) assertion that the social responsibility of business is only to increase profits is no longer sufficient in a world where governments are once again actively encouraging `private, free market, solutions to public problems’ ’(Harvey, 1988).
There is a contradiction between stakeholder theory and Friedman. Additionally, the contradiction comes into line with the stakeholder paradox of Kenneth Goodpaster (1991). According to stakeholder theory, ethics tend to require that stakeholder interests are not just instrumental value, but should be intrinsic. However, Friedman believes that the dissolution of management’s fiduciary duty to shareholders tends to threaten the system of private business. The idea that actors have to recognise and act upon a certain management accounting practice is closely related to the linkage between the meaning of accountability and management accounting.
However, it is also necessary to recognize that in some case, management accountability is hard to take and maintain. Jaques (2003) presents that maintaining an annual investment of 10% to 20% of salary should be required to corporate and subsidiary CEOs. Furthermore, the plan should be made to bring about a long-term interest in the companies. In the case of partnerships, such as Andersen’s, the structures have to be revised. In the past, Partnership law stipulated that the number of face-to-face members of partnerships group is no more than 20. The members of face-to-face groups could realistically work together to discuss the solutions of problem of the company they jointly owned. However, with the increase in the number of partners, there could be hundreds, even thousands partnership (called partners scattered) over the world in a company. Thus, it is difficult to make them work together. Obviously, accountability is diffused in such organization with huge partnerships; hence maintaining the accountability is challenge to these organizations, especially in the big management consulting, the big accounting companies and the big law firms (Jaques, 2003).
Moreover, for evaluating the cost and profits of companies being more accountable to a wider range of stakeholders, this essay chooses to use IKEA as the example. Specifically, IKEA is the general case to provide the evidence that managers are better to put more their attention to a wider range of stakeholder for the benefits of firms. IKEA is one of the famous retailing furniture in the world and acquires success in the out of Europe by changing original one-design-suits-all strategies to use aiming at different culture strategy. With this case, this paper could easily estimate the cost and benefits for manager being more accountable to a wider range of stakeholders. IKEA puts attentions to take responsibility in a wider range of stakeholders including customers, environment and staffs.
IKEA changes their marketing strategy to different cultures and different countries, hence, it significantly increase its sales and occupy more market shares by satisfying more customers’ need. It is well known that where there is benefit, there is cost accordingly. With this new strategy, IKEA needs to retrain employees with more time and more money. Surprisingly, IKEA manages this increasing cost properly and achieves success especially in Japan.
Furthermore, IKEA takes accountability to stakeholders by using eco-friendly manufacture materials with the purpose of minimizing the pollution and enhancing the human environment. In short run, IKEA may have no obvious sale advantages by using this kind of materials, however, in long run, IKEA would get excellent reputation which may lead several benefit for company. The decision of IKEA would be accepted and valued by customers and government for protecting public environment.
According to a survey of 1735 Spanish firms (Leal, et al, 2003); it is assumed by most of companies that environmental management mechanism could have a positive impact on elements of competitiveness including media cover range, legal conformity and the quality of products. Meanwhile, IKEA need to face some cost problem with this action. For using green eco-friendly materials, company needs to introduce new mechanism and new technology and also needs to training employees. All these matter are source of cost of IKEA Company.
Another point of IKEA is that all employees could take part in the decision-taking procedure. Different people may have different ideas and strategies. It is possible that employees would acquire satisfaction by attending decision-taking procedure. As (Patrick, 2006) stated that, participation in decision-making would encourage people to enhance their work passion and inspiration. From the company’s prospective, the creativity and efficiency would be generated by this action. In contrast, there is possibility for company to have negative effects with this action. Considering so many ideas or strategies may lead some unnecessary cost of time and fund. IKEA is generally taking the accountability for a wider range of stakeholders and obtain relatively huge success.
To sum up, in long run, completing of corporate social responsibility could help companies run well and longer. With the increasing attention of corporate social responsibility, managers could pay more attention to take accountability of a wider range of stakeholders rather than to only consider the benefit of shareholders. As discussed in the previous section, IKEA obtains success with strategic management and management accountability of a wider range of stakeholders. With taking management accountability to a wider range of stakeholder, IKEA successes to obtain more sale profits, great reputation that will be significantly helpful. This paper may be beneficial for researchers to evaluate the cost and benefits of company being more accountable to a wide range of stakeholders. However, it is necessary to recognize that with the limitation of length and ability, this paper may not fully consider the cost and negative part of company being more accountable to a wide range of stakeholders.
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