Socially Responsible Investing And Morally Responsible Investing Management Essay

Socially Responsible Investing And Morally Responsible Investing Management EssayIntroductionThe last decades a bid debate is expiry on about the responsibility of business. The most k right offn debate is the i that started with the book of Milton Friedman (1962) Capitalism and Freedom. Then at 1970 Friedman produce an article at the sweet York Times Magazine, repeating his views on corporate responsibilities and he supported them further. After that in the public eye(predicate)ation many responses where published from many scholars (ex. mulligan 1986, Shaw 1988, Nunan 1988) each one arguing for or against Friedmans views. One of the well-promoted debates is the one between Friedman and Freeman who is a major supporter of the stakeholder theory. This last debate ended with the ending of Friedman and the essay of Freeman (2008) that he is ending the debate.The main argument between the scholars is focused in the following phrase of Friedman (1962, 1970) thither is one and only one social responsibility of business-to use it resources and engage in activities designed to increase its profits so long as it stays within the rules of the plot of ground, which is to say, engages in blunt and free competition without deception or fraud.. In this essay I pass on try to focus on these rules of the game in at a time days, the demands of the spheric market place and somewhat arguments that con self-colored a change in the rules or at least a movement toward a fundamental change.The New Rules of the jeopardizeIn short time after Friedmans publications, Davis (1973) presented a very prophetically article. He tried to illustrate argument for and against social responsibility, presenting very accurate the issues that light-emitting diode to the CSR development and spreading. Among others he spotted the benefits of CSR towards the public image of a company, the long-run self-interest, the implications from government regulation, social norms and the increasing stockholder interest toward responsible behavior. Cooper suggests that Friedman was right, since the rules of the game be now changed, and book nothing to do with the rules in 1970 that extended only to the basic free market principles. He argues that now the societys expectations of business be including also environmental concern, consumer safety, ethical governance and other. A modern company has to deal with multiple stakeholders that be increasing because of the rising interest and also because of the globalisation of the markets. NGOs, trade unions, consumers organizations, all are trying to influence with the companys activities and support their interests. So now CSR has to go beyond corporate philanthropy and charity work. Row (2006) argues that now there is greater awareness that CSR encompasses not only what companies do with their profits, hardly also how they make them. For better understanding of the changes of the rules I leave present some of those that had ch ange and what is required, from a company, to deal with now.Public ImageVivien and Thompson (2005) in their essay commented the study of FTSE 100 that found that, in UK, around 60 percent of the firms market value was not reflected in the balance sheet. That means that the value of a firm is coming also from other non- pecuniary assets. Deephouse (2000) proposed that reputation is the most competitive value that companies cigaret excite. With the development of the media and the technology, it is crucial for a company to have a good public image. It is now very easy to spread out a problem that occurred in a company, something that in the past was to a greater extent difficult due lack of means. Now with the internet almost anybody in the world bath express an opinion and be read (or heard) by anyone in the world. So a minor problem can easily take global ratio and publicity. Also with the rising number of multinationals millions of people are becoming stakeholders and are inte rested in the activities of these companies. Fombrun (1996) stated that reputation is based on stories various stakeholders split up about the organization. Now with millions of stakeholders, there are millions of stories to be told and the technology provides the means to do it. Fombrun (1998) also lists six criteria that effect reputation of a company in the public eye financial carrying into action, product quality, employee treatment, community involvement, environmental performance and organizational issues. It is easy to see that many of these criteria are connected with CSR strategies. So CSR can assist a company to create or preserve a good public image, something that in the past was not essential for the business. Rowe (2006) argues that the growing verse of NGOs, campaigning groups and activist organizations can strongly affect the image of a company. Some years before the numbers of these stakeholders and their power were far smaller. Friedman, driven by the political status of cold war, was facing any critic on the system as a socialist or communistic approach. Now, in a globalized market, these stakeholders have an important role and influent consumers, shareholders and more or less even nations. People in dissimilar countries have different value but the structure of human value system is universal (Schwartz, 1994, 1999). That is why a bad image can affect the stakeholders around the world, even if they have different values. except we should not forget that reputation also affects shareholders behavior. When having substance, favorable reputation attracts stakeholders as well as shareholders and investors for usually creating refection of investments security and trustworthy treading secernatener (Dowling, 2004 Gregory, 1991). organisation RegulationSome years ago the balance of power shifted away from government in favor of corporations. Under globalization, deregulation, privatization and technological innovation accelerated that pheno menon (Rowe, 2006). But now, in the post-Enron world and in the middle of a global economic crisis, voices raising and asking for more regulation. Greenfield (2006) argues that the law governing corporations need to be more protective of corporations. Lydenberg and Sinclair (2009) argue that there may be battles between corporations, government and NGOs over the appropriate circumstances for regulation and the degree of that regulation, but the ground rules will have changed only when corporations are seen fighting for, not against, such oversight. CSR, for now, is a voluntary initiative that corporations are taking beyond their legal requirements. Reporting CSR initiatives was part of the communication strategy of each company. Now governments and regulators increasingly expect, and are beginning to require, CSR historying (Lydenberg and Sinclair, 2009). Governments, especially in Europe, ask from public traded companies to include social and environmental indicators in their repo rts to shareholders (Lydenberg and Sinclair, 2009). National pension funds are required to adopt social and environmental guidelines for their investments. Also raising economies and markets, such as China, are requiring from the state-owned companies to report their CSR initiatives (Ethical Performance, 2008). We see that, starting from reporting, CSR starts to be regulated. For now reporting of public companies and public interests investments are required to report and consider social and environmental issues. For sure that will expand to the private sector, maybe through contracting from public companies.Socially Responsible Investing (SRI) and Morally Responsible Investing (MRI)Calvert Investments states that SRI funds aim to contain personal, social and environmental concerns with financial considerations, their objective is to increase investors wealth while ensuring that the selected companies have a positive impact on people and the Planet.. SRI funds are also known as Gre en Funds or Ethical Funds (Ghoul and Karam, 2007). Lydenberg and Sinclair (2009) argue that systematic corporate disclosure on social and environmental issues is increasingly demanded by responsible investors and consumers. SRI Funds are going a step further. SRI Funds demand their investments to be in an ethical way and in ethical sectors of economy. Usually SRI Mutual Funds are not involved with alcohol, gambling, tobacco and weapons production or distribution. Beyond that they pursue to have good performance is areas of welfare, board diversity, community relations, corporate governance, environment, human rights, indigenous peoples right, product safety and impact, and workplace practices (Lydenberg and Sinclair, 2009). Baue and Cook (2008) note there has been a changing behavior of rough-cut fund voting on climate change issues. Also public pension and investment funds have moved significantly on their enhancer with respect to proxy voting (Global proxy Watch, 2008). Moreover in 2006 the United Nations Global Compact and the UN Environment Programme Finance Initiative lunched, at the New York Stock Exchange, the Principles for Responsible Investment, an initiative that aim to connect pension funds and money managers from around the world to commit to principles of responsible investment. As we see there is a turning to the way that investments are done. Beaver (2001) argues that institutional investors have been taking large and long-term positions in firms while playing more governing role in corporate affairs. Also Warren (2002) notes that over 60% of shares are held by financial institutions, which seek the best returns on behalf of their investors however, there is now a growing sector of the investment market that is guided by ethical criteria in the selection of its investment portfolio. At last Hendry et al. (2007) argue that the activism of public pension funds, and more recently of trade unions pension funds, has had greater effect on company -shareholder relationship. .. Public pension funds, have taken the view that the pensioners of the future have an interest not only in financial returns but also in such things as environmental sustainability and ethically and socially responsible capitalism..A different kind of responsible investment is the so-called Morally Responsible Investing (MRI). These are faith-based funds that invest in companies whose products and policies are consistent with the investors sacred (usually moral) beliefs (Ghoul and Karam, 2007). There are basically two types of MRI funds, the Islamic Mutual Funds and the Christian Funds. Both are based on the religion and their investment is more focused on ethical (each in its own perception) field of investing and less on social or environmental contribution (Ghoul and Karam, 2007). That is the major difference with the common SRI funds.ConclusionsWhen Milton Friedman was writing his famous book and essay couldnt predict these changes in the world. He w as actually right when he argued that companies should act within rules of the game. Those rules have change. Cooper supports that companies of the 21st century have as an essential component of success a balanced approach of CSR issues. As we saw many of the rules are changed and keep changing. The image of a company is now more important than ever before. CSR makes the corporate image better. Also the way of investing had changed. Personal values of the investors or sustainability strategies of Mutual Funds are affecting the investors portfolio towards ethical and responsible investing. Regulatory systems are changing and moving towards more ethical accountability. The corporate scandals and the financial crisis triggered a reaction of multiple stakeholders that now demand a more regulatory system. Companies also start to support that, since they see that the bad actions of some targeted building block industries (ex. Bonuses of bankers). Risk and sustainability strategies are be coming a mainstream in the business world. Those cant work if they are not connected with CSR strategies and responsible behaviors. Klein and Dawar (2004) propose that CSR has value to the firm as a form of insurance policy against negative events. There is still to see if these rules are going to change more and how are they going to interact with the market and companies behavior. Googins et al. (2007) argue that the rules of the game are to change, however this redefinition will need to encompass shifts that are legal, regulatory, theoretical and cultural.