THE “NEW” GOAL OF A BUSINESS CORPORATION: THE CORPORATE SOCIAL RESPONSIBILITY AS A MULTI-STAKEHOLDER MODEL From Enron to Enel: a journey towards business ethics

Thus, the sustainable organisation requires all the three legs above showed to properly functions. All the legs are needed, and they require the same amount of attention. Hence, a parallel leg, the stable floor of ethics, would be used to put the same attention to all the three pillars and it will serve to sustain the sustainable organization. As these organizations have a major responsibility in the sustainable development of the society, a strong and positive organizational culture represents an important prerequisite for sustainability of businesses.

3. The new firm: A balance between a corporate social responsibility and profitability 

Having established that a corporation and its decision-making can be retained moral responsible for its decisions and what a firm must do in order to be socially responsible and respond to what the society has been requesting to act, a question come naturally: What is a corporation?

Thus, for ethicists the corporation is a moral agent; for economists it is a set of relationships designed to optimize efficiency; for social scientists it is a social arrangement with its own culture, both like and unlike families and civil societies (Williams, 2008). Is a corporation a legal entity only or rather, something more?

3.1 Corporate social responsibility as a model of multi-stakeholder governance: The relationships between ethics and rules

Whenever one talks about business ethics, both CSR and stakeholder theory come as two major concepts. However, there has been little clarity so far in what relation the two theories stand to each other. Both incorporate societal interests into business operations. Nonetheless, in the stakeholder theory, society is very important but only one part among other corporate social responsibilities, while CSR priorities the societal aspect over the others rather over the other business responsibilities. Besides, although the composition of stakeholders depends on the company’s industry and business model, the stakeholder theory tends to center its attention within a local community where the company operates and surrounding society, CSR tends to extend social orientation of the company much further. Although these differences, the stakeholder theory can be a useful tool to provide guidance on how the company should operate overall and all the company’s responsibilities to stakeholders could be denoted under the term corporate responsibilities. Furthermore, creating value for communities (CSR), does not create tension in value creation for other stakeholders (Freeman and Dmytriyev, 2017).

In fact, one convincing and implementable model of multi-stakeholder and multi-fiduciary corporate governance is CSR. Before describing what incentives and individual motivations can support it or whether a legal enforcement is required or not, and whether it may rest on self-enforceability, I will introduce first the definition of the model.

The EU Commission defines CSR as ‘actions by companies over and above their legal obligations towards society and the environment’ (2011). This definition explicitly includes the interests of stakeholders other than shareholders. It is indeed a strategic management that sets corporate standards of conduct at a higher level than mandatory legal constrains and it is also a governance of transactions between a firm and its stakeholders. It is indeed a governance that allows to reduce transaction costs and negative externalities by establishing rights and obligations. Therefore, Sacconi (2004) introduces the following definition of CSR:

“a model of extended corporate governance whereby who runs a firm (entrepreneurs, directors, managers) have responsibilities that range from fulfilment of their fiduciary duties towards the owners to fulfilment of analogous fiduciary duties towards all the firm’s stakeholders”.

Regarding the matter of implementation, some critiques oppose to business ethics as the basis for introducing forms of ethical and social self-regulation by firms. They invoke stronger regulations and imposition of hard law in order to oblige corporate actors to comply with even the minimal requirement of avoiding conflicts of interest. Without any doubt, the relationship between ethics and legal rules is a complex one. In fact, the definition of ethics – defined as the set of social norms commonly accepted based on agreements and conventions – is opposed to the one of imposing binding rules. From the perspective point of view, ethics precede the law, in the sense that an enduring legal order always rests upon an “overlapping consensus” on constitutional ethical principles (Rawls, 1993, as cited in Sacconi, 2004). Besides, ethics proceed together with the law, which leads with the spontaneous acceptance of the authority of the law and of the legitimate constitutional order; Finally, ethics go beyond the law. It regards to all the matters that cannot be protected specific rules but just by general principles or standards agreed by the parties concerned, or by private orders established by intermediate groups in society.

The idea is that the implementation of the normative model of multi-stakeholder corporate governance may rest largely on voluntary self-regulatory norms deliberated by companies. Effective CSR self-regulation is a viable option only within an institutional and legal environment that does not obstruct it, but as soon as the firm’s objective-function laws define the only goal the shareholders’ value maximization, would prevent the board from deciding to balance stakeholders‘ interests according to the social contract view. As CSR requires sustained stakeholder engagement, this collective approach means that corporate governance cannot just be about a fixed set of rules to be applied and enforced. Further, corporate governance laws can have better effects and outcomes if they can communicate, facilitate, and entrench effective and efficient governance without coercing (Tan, 2013). Most importantly, as we have seen that contracts are incomplete, responsibility intervenes as a remedy to contractual gaps by introducing internal restraints within the very exercise of legitimate authority over non-controlling stakeholders by owners and management. The self-regulation mechanism to implement CSR can be obtain through different approaches:

• Discretionary approach: self- regulation without specific rules. It is an enlightened self-interest which consists in an endogenous force able to induce self-discipline because it induces to account for personal interest into the long run. On this view, self-regulation is nothing other than self-discipline whereby the firm does not behave in a manner such to abuse the trust that stakeholders have placed in it.
• The reputation mechanism: It arises from the recognition of the firm of the importance of safeguarding and enhancing its reputation, which depends on non-abuse of the stakeholders. However, the main reason for weak self-regulation fails is the cognitive fragility of reputation.

The logic of the management of CSR that the firm’s strategic behaviour must conform to in a context of incomplete information in order that reputation effects are reactivated (Sacconi, 2004).

The principles must be general and abstract, so that their application does not require a detailed description of the situation;

Definition of the principles allows identification of areas of potential opportunism where interactions between stakeholders and firm put those principles at risk. precautionary rules of behaviour can be established which assure the relevant stakeholder that a form of opportunism has been avoided;

Principles and precautionary rules of behaviour must be communicated, given that reputation depends on them. Thus, communication and dialogue with stakeholders is essential.

3.2 CSR and financial performance relationship

A vital issue in corporate governance and management is the influence of CSR on companies’ performance, especially corporate financial performance (CFP). The conventional view holds that CSR is costly since being socially responsible incurs additional expenses. In fact, socially responsible actions as investments in pollution reduction or employee benefit packages, are costly. According to the traditional view, these expenses deteriorate the profitability of the firm. However, flowing the stakeholder theory of the firm, the dissatisfaction of any stakeholder group can potentially affect economic rents and even compromise a company’s future:  CSR is therefore a prerequisite for protecting the bottom line and boosting shareholder value. If managed properly, CSR will not only improve the satisfaction of these stakeholders but also lead to improved financial performance. For example, satisfied employees will be more motivated to perform effectively, satisfied customers will be more willing to make repeat purchases and recommend the products to others, satisfied suppliers will provide discounts (Galant and Gadez 2016).

The evidence enquiry has been showed through the measurement of CFP and CSR, although it has been demonstrated to be problematic. The difficulty come from the way the two dimensions can be operationalised and measured. CFP is typically measured with accounting-based or market-based indicators with profitability ratios retrieved from financial statements that are relatively standardised and readily available. However, the first measurement relies just on historical data, while the second one gives data only to listed firms, leading to systematic errors.

The measurement of CSR is even more complex. The first challenge is the lack of consensus concerning operationalisation of the CSR concept; Secondly, regarding the measurement, information concerning this concept is mostly non-financial and there is little, if any, reporting standardisation; Finally, the last problems regards disclosure as CSR reporting in many jurisdictions is not mandatory. Due to the lack of consensus and complexity of the concept, it is not surprising that many different approaches have been used in the literature to measure CSR:

• Reputation indices by specialised rating agencies. Typically, they acknowledge the multidimensional nature of CSR. Most used index for measuring CSR is MSCI KLD due to its comprehensive and prominent data on stakeholder management. Some other authors claim that the Fortune index is most comprehensive and comparable, as it is included not only social responsibility but even other variables as the use of corporate assets, innovation, global competitiveness and so on. Another index is the so called Vigeo, which is commonly used when appraising European Countries where other indices are often not available. These indices are though characterised by some weaknesses: They are compiled by private firms that have their own agenda and not necessarily rely on scientific research; Plus, these rating agencies’ coverage is limited in terms of geography or number of firms rated.
• Content analysis of corporate communication. It usually consists into determining the construct of interest and codifying qualitative information to derive quantitative scales. The key advantage for the researcher is flexibility. Indeed, a researcher can specify CSR dimension of interest, collect data according to those dimensions and interpret and code data numerically for further use in statistical analyses. However, using this method the researcher subjectivity is highly embedded in all these stages of the research process.
• Questionnaire – based surveys. This method is used whenever a company is not rated by the rating agencies or corporate reports are unavailable or insufficient for a meaningful content analysis. Hence, the researches send questionnaire to respondents or interviewing them. Like the content analysis, this method provides great flexibility for the researcher but nonetheless, it can be subject of response bias. First of all, more responsible firms are typically more open to respond to these surveys. Besides, firms might be more likely to answer with desirable answers. One possible answer to this limit may be to open these interviews to stakeholders as well.
• One dimensional measure: It means focusing on just one aspect of CSR. Using this method, it easy to collect data and compare them with similar firms. Even though it might seem easier and more immediate method, it is important to remember that CSR – by definition – is multidimensional.

In short, there is not a perfect measure for both the identities. The empirical literatures fail to provide evidence of the possible influence of CSR on CFP showing that there is not a significant relationship between socially responsible activities and financial performance. But as we assumed that CSR as a normative multi-stakeholder corporate governance, the question is not whether CSR can positively effect the goal of financial beneficiaries; Rather, the question might be, as both the dimensions are complementary goals of the firm, how they can coexist successfully without undermining one to another. An important example is the Italian case of Enel, which has elaborated a CSR structure based on the its relationship with its stakeholders. Besides it has increased value and synergy with the external world, promising to fulfil the United Nations Sdgs. Indeed, while not undermining its financial performance, it committed to the Sdgs number 13 – reducing Co2 emissions and in 2018 the specific emissions were equal to 0,369 kg/kWheq – and 4,7,8, 9 and 11 – favouring the community access to education, energy and occupation and investing in resilient infrastructure, leading to sustainable communities and cities (standard ethics, 2019). The main Enel policies include:

• Besides the Committee for green bond emissions and management, Enel was one of the first organizations worldwide in 2018 to formalize the establishment of a permanent structure dealing with sustainable finance issues. This structure includes the “Finance-Capital Markets”, “Investor Relations” and “Innovability – Sustainability Planning and Performance Management” units, guaranteeing an approach that is integrated, inclusive and multi-disciplinary.
• Identifying and updating the list of the relevant categories of stakeholders; evaluating and weighting the different categories according to the parameters of dependence, influence and tension; engaging stakeholders as appropriate according to the communication channels.

Hence, Enel commitments include both sustainable finance in order to mitigate its action on the environment and enhance sustainable development and the understanding of stakeholders’ expectations as one of the crucial phases of the assessment (Enel, 2018). Hence Enel is succeeding in undertaking normative stakeholder and CSR models without undermining the more traditional goal of “making money”.

Conclusion 

The Enron case is an important example that shows that a firm can be moral responsible for its unethical actions if they are demonstrated to causal, intentional and aware. The goal of the firm is not only to be a profit-making machine but, as ethical and moral agent, their duties towards stakeholders must be involved among its purposes. Enron also demonstrates that the shareholder supremacy might have a negative impact on stakeholders but also on the corporate wealthy life expectancy. Shareholder value-increasing strategies that are profitable for one shareholder in one period of time can be bad news for shareholders collectively over a longer period of time (Stout, 2013). Besides, shareholders as a class want companies to be able to treat their stakeholders well, because this encourages employee and customer loyalty.

Nearly 200 chief executives, including the leaders of Apple, Pepsi and Walmart, redefined the role of business in society — and how companies are perceived by an increasingly sceptical public. Given the potential impact of corporate’ actions, the public demands exceed to the protection of the environment by embracing sustainable practices across the businesses and to foster diversity and inclusion, dignity and respect. Klaus Schwab, the chairman of the World Economic Forum affirmed in an interview that “The threshold has moved substantially for what people expect from a company. It’s more than just producing profits for the shareholders.” (as cited in Gelles and Yaffe-Bellany, 2019). Indeed, many are and will be the firms that decide to introduce CSR as a corporate goal complementary to the financial performance. In short, the paper does not want to show that the implementation of CSR will ensure further earnings but rather, as the correlation is still uncertain and a standardisation does not exist, the two dimensions must coexist as both part of the goal of the new firm. The case of Enel Group is a current example of how a successful self-regulated business aim to be socially responsible for itself, the stakeholders and to the more general public and environment (CSR).