Three questions for corporate social responsibility - Essay Example

The ability of large corporations to influence how the economy is moving is perhaps one of the most important reasons why their governance should be taken seriously. The administrations of these corporations should always be put under the microscope and watched closely so that they do not end up doing business which is unethical and which might end up making investors lose confidence in it. Consequently, it has become necessary for corporations to have strong boards to oversee their activities since without them they would lack direction.

While this should be the case, most corporations are often lax in their governance since their major aim often tends to be to make profits at any cost (Morrison 2004, p.122). There is the suggestion that companies only take their governance seriously when they feel that they are at risk of not only losing their customers, but also their clients as well. Companies need to find proper validation for their actions and to ensure this; they have to take their governance seriously. It is a fact that those companies or corporations that have strong principles of governance are the ones that are the most successful and this is the reason why this matter should be taken most seriously (Leighton and Garven 1996, p.809). Without strong governance, corporations are likely to cause their own collapse because it is often too late for them to correct those mistakes that they have made, and a major example of this is the current financial crisis caused by financial institutions.

Corporate governance is not all about public relations and corporate social responsibility but is separate activities that should be evaluated separately. However, the latter activities are often used by corporations to promote an image of good governance, often ignoring the fact that it any crisis, such as the financial crisis, occurs, then these activities would be of little significance in saving the corporation. Q2 The agency dilemma is a situation where individuals place their money in the hands of directors of the companies in which they are investing, since these directors are better placed to watch over the money.

While this is the case, the agency dilemma states that these managers are not likely to give the money the attention it needs since it is not theirs but belongs to someone else (Letza et al 2008, p.21). This means that they would not care whether the owner of the money gets a profit or a loss as long as they get their commission out of it. Such a situation would therefore put the investor in a dilemma because he would not know whether to trust others with his money or not since the possibility of being protected against sustaining losses would be low indeed.

Agency theory is similar to the agency dilemma because it involves shareholders signing a contract with those who run the company that they are investing in to take care of their interests. While this is the case, it means that the shareholders have to let go of any decision-making authority towards their investment and trust to the directors or managers to act in good faith on their behalf. Consequently, it is not often easy for the shareholder to gauge whether the manager of a company will act in his best interests or not.

In fact, according to the agency theory, while directors are obliged to act in the interests of their clients, this is not often the case and the former will often work for their