Q1
Yes, I would recommend the adoption of those
practices.
First, the practices that the Coalition is
asking to be followed are simply in line with obligations that all firms should
be complying with. For instance, one of the standards requires that firms
comply with both U.S and Mexican laws. There is no need for a firm to be
reminded of its obligations to obey laws. Besides the fact that the standards
emphasize existing obligations, benefits also accrue to those firms that act
responsibly. It is possible for a business to leverage on corporate social
responsibility (CSR) so as to gain a competitive edge over other businesses in
the same field. Companies with a reputation for doing good will attract a
talented workforce, win loyalty from its customers, win the trust of suppliers
as well as forge a good relationship with the public.
Regarding
the responsibility towards shareholders, all firms must act to maximize
shareholder value. Firms mainly achieve this goal by making profits. The profit
motive of a firm has been recognized by prominent economists going back in
history. For instance, Milton Friedman noted that making profits is the social
goal that a firm should pursue. Friedman was of the view that diverting
resources to other social objectives will harm as opposed to promote the social
good. The firm must still cover the cost of all its activities and it may as
well achieve this by rising consumer prices.
Q2
No, the firm should not.
Shareholder resolutions normally contain some
novel information that detail potential liabilities of the company like
environmental hazards. Besides, the proxy statements in which they are
distributed also get to a wide variety of people. The company risks exposing
sensitive information if it was to disclose its operational information. Competitors
can seize on such information to hurt the business interests of the company.
Indeed, it is the realization that companies have a right to refuse disclosing
certain kinds of information that has led to the three ways in which
shareholder resolutions can be dealt with. Thus, a company can initiate
negotiations with the activist shareholders to avoid the negative implications
of letting the resolutions appear on proxy statements. This approach is suitable
when the management feels that the information in the given resolution is
sensitive as to negatively affect its interests. The other approach is for the
company to let shareholders vote for the resolution which is only appropriate
with resolutions containing non sensitive information. Even more relevant for
the present discussion is the right of the company to challenge a shareholders’
resolution. This is achievable through the Securities and Exchange Commission
(SEC) Rule 14a-8. Under those rules, a company can challenge a resolution on
the ground that they deal with matters relating to the ordinary operations.
Q3
Yes, I would vote for the resolution.
The issues raised in the resolution are ones
to which I subscribe. For one, the resolution demands that companies adopt fair
employment practices. May main goal as a shareholder would be to see the value
of my holdings grow. This does not, however, happen without the input of other
key stakeholders such as the employees. It would, therefore, be appropriate to
treat employees fairly. Community impact is also an issue in the resolution
that is supposed to be voted on. It is only appropriate for companies to have a
positive impact on the communities within which they operate. It is as much a
social responsibility issue as it is a strategic issue for the company.
Positively impacting on the community enables the company to gain acceptance
with the members of that community. The situation at Maquiladoras perfectly
fits this scenario. There is also an appeal in the resolution for companies to
exhibit responsible environmental practices especially with regards to
hazardous wastes. This is also a part of good corporate citizenship which is a
key component of corporate social responsibility.
Q4
Yes, I believe that the Maquiladora standard
raise appropriate issues for stockholders to consider. The idea that some of these issues should be
left for management and public officials is a traditional view of the social
responsibilities of business (Glac, 2010). It is a view that only considered
the economic aspect of business while ignoring all the other components. Milton
Friedman was among the foremost proponents of this view which saw making
profits as the sole responsibility of business so long as all the rules of the
game were complied with. Attempts by activist shareholders to have socially
oriented resolutions voted prior to the 1970s were rebuffed by the Securities
and Exchange Commission (SEC).
It was the case of Medical Committee for Human Rights v. SEC that saw the end of the narrow approach to shareholder
activism. The Committee had submitted a proposal to Dow Chemicals that would
have seen a stop to selling napalm which was used by the U.S in the Vietnam War.
Dow Chemicals refused to include the proposal claiming that it related to the
ordinary operations and could thus be excluded under SEC Rule 14a-8. The
Committee then requested the SEC to review Dow’s decision but the SEC agreed
with Dow. On appeal, the court agreed with the Committee. Other socially
oriented resolutions have since been voted on at shareholder meetings.
Q5
Multinationals should apply standards
consistently across all operations. This position is consistent with the fact
that there are four components to corporate social responsibility of which the
legal aspect is just one. Applying consistent rules across all operations is in
accordance with ethical and philanthropic goodwill which are the two other
aspects of CSR besides legal and economic aspects. Multinationals have an
ethical responsibility to ensure that business decisions take the needs of all
their stakeholders into account. Such stakeholders include employees,
customers, stockholders as well as the community. Thus, a multinational
operating in a developing country with weak laws and policies on environment,
labor and gender relations should aim beyond the mere compliance with those
laws and policies. It is so often that weak legal and policy arrangements in
some parts of the world are not the consequence of a desire on the part of the
citizenry to have weak institutions. Rather, they are the consequence of a
confluence of factors including manipulation by some multinationals. Responsible
multinationals must, therefore, avoid hiding behind laws that may occasionally
be adequate in the developed world. Philanthropic goodwill as an aspect of CSR
would also support this view.
References
Glac, K. (2010).The Influence of Shareholders on Corporate Social Responsibility.
University of St. Thomas Opus College of
Business.
Medical Committee for Human Rights v. SEC, 432 F.2d 659.
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