CHAPTER ONE
INTRODUCTION
1.1 Background to the Background
Not until recently, the issue of corporate sustainability was not taken seriously among business owners and shareholders. To them, it is just another avenue to waste funds that would otherwise be used for profitable production. But this is no longer the case, as a lot of corporations and businesses now see corporate sustainability as a prerequisite for organizational growth and profitability. (Chukwuweike, 2014).
Corporate sustainability is an approach that creates long-term stakeholder value by implementing a business strategy that considers every dimension of how a business operates in the ethical, social, environmental, cultural, and economic spheres. It also formulates strategies to build a company that fosters longevity through transparency and proper employee development (Wikipedia, 2014).
Corporate sustainability is an evolution on more traditional phrases describing ethical corporate practice. Phrases such as corporate social responsibility (CSR) or corporate citizenship continue to be used but are increasingly superseded by the broader term corporate sustainability. Unlike phrases that focus on “added-on” policies, corporate sustainability describes business practices built around social and environmental considerations. (Wikipedia, 2014).
Corporate sustainability does not just increase a corporation’s performance, it increases their good will, strong brand name and reputation and by so doing brings about customer loyalty which, in turn, result in repeat purchase (The dream of every business owner)
Neoclassical economics and several management theories assume that the corporation’s objective is profit maximization subject to capacity (or other) constraints. The key agent in such models is the shareholder, acting as the ultimate residual claimant who provides the necessary financial resources for the firm’s operations (Jensen and Meckling, 1976; Zingales, 2000).
However, there is substantial variation in the way corporations actually compete and pursue profit maximization. Different corporations place more or less emphasis on the long-term versus the short-term (Brochet., Loumioti., serafeim., 2012); care more or less about the impact of externalities from their operations on other stakeholders (Paine, 2004); focus more or less on the ethical grounds of their decisions (Paine, 2004); and assign relatively more or less importance on shareholders compared to other stakeholders (Freeman., Harrison., wicks., 2007). For example, Southwest Airlines has identified employees and Novo Nordisk patients (i.e., their end customers) as their primary stakeholder.
During the last 20 years, a relatively small but growing number of companies have voluntarily integrated social and environmental issues in their business models and daily operations (i.e. their strategy) through the adoption of related corporate policies. Such integration of environmental and social issues into a company’s business model raises a number of fundamental questions for scholars of organizations. Does the governance structure of firms that adopt environmental and social policies differ from that of other firms and, if yes, in what ways? Do such firms have distinct stakeholder engagement processes and adopt different time horizons for their decision-making? In what ways are their measurement and reporting systems different? Finally, what are the performance implications of integrating social and environmental issues into a Company’s strategy and operations? Some scholars argue that companies can ―do well by doing good‖ (Godfrey, 2005). (Elfenbein and Walsh, 2007). Porter and Kramer, 2011) based on the assumption that meeting the needs of other stakeholders–e.g. employees through investment in training-directly creates value for shareholders (Freeman, Harrison, Wicks, Parmar, de Colle., 2010, Porter and Kramer, 2011). It is also based on the assumption that by not meeting the needs of other stakeholders, companies can destroy shareholder value because of consumer boycotts (Sen, Gurhan-canli, Morwitz., 2001), the inability to hire the most talented people (Greening and Turban, 2000), and by paying potentially punitive fines to governments.
On the other hand, other scholars argue that adopting environmental and social policies can destroy shareholder wealth (Clotfelter 1985; Friedman, 1970; Galaskiewicz, 1997; Navarro 1988;). In its simplest form, their argument is that sustainability may simply be a type of agency cost: managers receive private benefits from embedding environmental and social policies in the company’ strategy, but doing so has negative financial implications for the organization (Baloti and Hanks, 1999; Brown et al., 2006). Moreover, these companies might experience a higher cost structure (e.g. paying their employees living rather than market wages).
Consequently, the argument continues, companies that do not operate under such additional environmental and social constraints will be more competitive and as a result, will be more successful in a highly competitive environment. In fact, this hypothesis is well captured in Jensen (2001) who states:
Companies that try to do so either will be eliminated by competitors who choose not to be so civic minded, or will survive only by consuming their economic rents in this manner.
People all over the world expressed considerable concern for damage to the environment and its effects on their lives and businesses. In the Brundtland report it is clear that corporate sustainability is important to the future of their businesses, fortunes of nations and individuals (Edwards, 2005; White, 2009).
According to (Ullmann,.2007) corporate sustainability tend to focus on how to organize and manage corporate activities in such a way that they meet physical and psychological needs without compromising the ecological, social or economic base which enable these needs to be met. The role of corporations in this process is significant in most countries around the globe, and especially so in the industrialized West.
In the views of Hart (2007) corporations are the only organizations with resources, technology, the global reach, and, ultimately the motivation to achieve sustainability.
In response to their sustainable development policies and practices, many companies claim that they recognize their social and environmental responsibilities, in addition to their economic responsibilities, and are seeking to manage and account for these activities in an appropriate manner.
Corporate sustainability reporting has become such an important issue that most companies are now embracing because of its long term impact on the performance of the corporation. Statistics from Global Reporting Initiative (GRI) reflect this trend in Sustainability Reporting. According to Peiyuan, Xubiao & Ningdi (2007), the number of enterprises writing sustainability reports based on GRI framework worldwide increased from 150 in 2002 to 750 in 2005. “From 1 January to 31 December 2010, the number of sustainability reports registered on the GRI Reports List increased by 22 percent” (GRI, 2011).
1.2 Statement of the Problem
The importance of corporate sustainability on organizational performance cannot be overemphasized. As stated before, corporate sustainability is an approach that creates long-term stakeholder value by implementing a business strategy that considers every dimension of how a business operates in the ethical, social, environmental, cultural, and economic spheres. That is to say in the absence of corporate sustainability, an organization will pay little or no attention to ethical, social, environmental, cultural economic spheres of life. This will definitely spell doom on the organization in particular and on the society at large; the shareholders of the organization will no longer be satisfied since the organization is no longer profitable.
In a corporation where there is no sustainability practice, the major goal and priority of management becomes the maximization of profit. This profit goal must be achieve even when it is to the detriment of the shareholders, society, community, workers, and culture. Corporations that still contaminate rivers, burn deadly chemical in the air, defy ethical principles, produce product that are not up to standard and other immoral deed, are clearly not practicing corporate sustainability
(https://www.environmentalleader.com/2010/12/setting-sustainability-goals-10-golden-rules/).
The issue of corporate sustainability should be taken very seriously because it has a positive impact on the performance of any organization. Chukwuweike (2004), once said in an informal gathering that the most tangible difference between a successful and profitable organization with a strong brand name and other unsuccessful, weak, liquidating and unprofitable business is the adoption of corporate sustainability. Knowing this, it is therefore very imperative that the study of how important corporate sustainability is to organizational performance in particular and the nation in general should be carried out.
It has been observed that MTN is always having challenges when it comes to obeying government policies; and that is why it is always being surcharged by government. For instance, at the beginning of the Buhari Administration in 2015, the company failed to meet the deadline set by government to all GSM telephone companies in Nigeria to re-register all their subscribers so as to have all subscribers in their data banks. Consequently, the company was fined six billion Naira by government for failure to meet the deadline. It is pertinent therefore to find out how its policies on crises management, code of conduct for its employees, and compliance with statutory regulations, which are sustainability factors, affect the organizational performance of the company.
1.3 Research Objectives
The research objectives for this study are:
- To establish how crises management in MTN affects the company’s earnings per share
- To ascertain how the code of conduct for MTN’s employees affects the company’s reputation.
- To determine how compliance with statutory regulations affects MTN’s return on equity.
1.4 Research Questions
In order to have a better understanding of this research work, the following research question will be asked.
- How does crises management in MTN affect the company’s earnings per share?
- How does the code of conduct for MTN’s employees affect the company’s reputation?
- How does compliance with statutory regulations affect MTN’s return on equity?
1.5 Hypotheses of the Study
The following hypotheses will be stated in their null forms
H0: Crises management in MTN affects the company’s earnings per share.
H1: Crises management in MTN does not affect the company’s earnings per share.
H0: The code of conduct for MTN’s employees affects the company’s reputation.
H2: The code of conduct for MTN’s employees does not affect the company’s reputation
H0: Compliance with statutory regulations affects MTN’s return on equity.
H3: Compliance with statutory regulations does not affect MTN’s return on equity.
1.6 Scope of the Study
The trust of this study is on the ascertainment of the level of effects of Corporate Sustainability on Organizational Performances using Breweries Company in Benin City.
1.7 Limitations of the Study
Conducting a research encounter a lot of obstacles just as in any developing country. In this research the following limitation is encountered. The researcher encountered the problem of sourcing for data. This is because the extent of prior research literature available on Corporate Sustainability Reporting by Nigerian companies is limited. In spite of dearth of data, the researcher was able to collect enough through friends and the internet and was able to address the research questions.
1.8 Significance of the Study
The significance of this research is viewed from two major perspectives – practical and academic.
(a) Practical Significance
This research will assist various stakeholders in the following ways:
Organisations Management: Corporate Sustainability is rapidly evolving; hence different standards and frameworks have emerged. This research will assist organisations management in determining which sustainability standards and guidelines to follow.
Regulatory Authorities: From a regulatory perspective, there are currently no legislative requirements in Nigeria for companies to prepare and publish sustainability reports. This research will help in enhancing understanding of the scope of knowledge of regulatory authorities like Corporate Affairs Commission and the legislative arm of government in putting in place regulations that encourage corporate sustainability.
Financial Reporting Council of Nigeria: From standard setting perspective, there is currently no local standard for companies to prepare and publish sustainability reports. This research will serve as a wakeup call for the Financial Reporting Council of Nigeria to put machineries in place for Sustainability Reporting standard or guidelines.
Local Communities and Other Stakeholders: This research will help to educate local communities where these companies operate and other stakeholders like employees and social and environmental non-governmental organisations regarding the adequacy and potentials of corporate Sustainability Reporting to meet their information needs and help them hold companies to account.
Companies yet to adopt corporate sustainability: This research will help companies that are yet to adopt corporate sustainability practices to understand the pros and cons of this evolving reporting system and its impact on organizational performances. They will be better placed to take decision on whether to adopt this reporting system or not.
Academic Significance
In the area of academics, the significance of this research will arise from the following ways:
It will contribute to the enrichment of the literature on Sustainability Reporting.
It will throw more light to students, scholars and academics on the relationship between Corporate Sustainability and performance of companies.
The research will serve as a body of reserved knowledge to be referred to by researchers. That is to say it will increase the frontier of knowledge.
1.9 Operational Definition of Terms
The following definitions relevant for the study shall be adopted.
1. Corporate Sustainability: A business approach that creates long term stakeholder value by embracing opportunities and managing risks derived from economic, environmental and social performance.
2. Organizational Performance: This represents a general measure of a firm’s overall financial health over a given period of time.
3. Crises management; Crisis management is the application of strategies designed to help an organization deal with a sudden and significant negative event.
4. Earnings per share. Earnings per share or EPS are an important financial measure, which indicates the profitability of a company. It is calculated by dividing the company’s net income with its total number of outstanding shares. It is a tool that market participants use frequently to gauge the profitability of a company before buying its shares.
5. Code of conduct; is a set of rules outlining the social norms, religious rules and responsibilities of, and or proper practices for, an individual. In its 2007 International Good Practice Guidance, “Defining and Developing an Effective Code of Conduct for Organizations”, the International Federation of Accountants provided the following working definition.
6. Company’s reputation. The collective assessments of a corporation’s past actions and the ability of the company to deliver improving business results to multiple stockholders over time. For example, many businesses assess corporate reputations using financial soundness, quality of management, products and services and market competitiveness as the criteria for ranking.
7. Compliance with statutory regulations; compliance means conforming to a rule, such as a specification, policy, standard or law. Regulatory compliance describes the goal that organizations aspire to achieve in their efforts to ensure that they are aware of and take steps to comply with relevant laws, policies, and regulations.[1] Due to the increasing number of regulations and need for operational transparency, organizations are increasingly adopting the use of consolidated and harmonized sets of compliance controls.[2] This approach is used to ensure that all necessary governance requirements can be met without the unnecessary duplication of effort and activity from resources.
8. Return on equity: Also referred to as ROE or net assets or assets minus liabilities, it is a measure of the profitability of a business in relation to the book value of shareholder equity. It is a measure of how well a company uses investments to generate earnings growth.
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