Corporate Social Responsibility, Business Ethics and Corporate Governance

Introduction

Business accountability that promotes business objectives towards stakeholders rather than sponsors and shareholders is the crucial issue of the term Corporate Social Responsibility (CSR). Employee welfare, civil society and general community and the environmental protection are indulgenced under CSR. In this paper, CSR with business ethics and corporate governance of pharmaceutical company Merck and athletic footwear manufacturer Nike is outlined briefly. Today’s competitive market has needed to take possession of broader society for long-term flexible economic operations. Recent business dynamics of survival, core competencies, and profitability are completely converse from traditional view over and above more convoluted than before.

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Criminal law, civil law, and company image three terms are associated on the road to business ethics. Criminal law and the civil law is an ideal source to dissipate of money and company images. In short and simpler form, business ethics coaches employees about the core theme of morality. Merck Pharmaceuticals and the Nike IHM Incorporations have a numerous initiatives to entire their code of conduct in practice of business ethics so that they could prevent their employees in doing anything harmful for society and environment. The modern philosophers pay special attention on safer products and services, realistic advertisement that obey rules and regulation and sound working atmosphere for the employees. On the other hand, today’s consumers are more aware and they like to ensure highest utility and practice of business ethics separately.

This study would address the corporate social responsibility, business ethics, and corporate governance of the two companies given in the case with their risk management and succession planning for any type multinational company (MNC) conduit corporate governance. Consequence of this liquidity of the firm, sound balance sheet, employee development would deliver in proper manner. Corporate culture in different countries and diverse government policy are also get appropriate shape under this course of action.

Case Study of Merck

Company overview of Merck Pharmaceuticals

The Merck Pharmaceuticals is a Darmstadt, German based company founded in 1668 and since 1827; they were producing a large scale of medicine worldwide. After First World War, they launched in USA and now they produce and supply safe and secured drugs in more than 55 countries. During 2002 fiscal year, their turnover was amounted by £5,000 million. With 34,000 efficient human resources, they are performing globally with a lot of complement. Merck’s product line conducts with-vaccines, animal health, consumer products, prescription products, and prescription guidelines. Apart from producing of medicine, they continue a few of social welfare program in Africa for the poor children and HIV infected.

Corporate responsibility standards

Slogan of the Merck is healthier future. Due to large scale of production, high standard and numerous international accessibility millions of people are regular client of Merck. According to the corporate social responsibility report of Merck Pharmaceuticals, total responsibility of the Merck stands on four major pillar illuminations, and these are –

  • Ethics and transparency;
  • Access;
  • Environment;
  • Community:

Background of Vioxx

In order to provide the historical background of the product of Merck, Gills has mentioned few examples of the failure of corporate governance system of many large companies in pharmaceutical industry. Gills stated that the pharmaceutical business is extremely lucrative, for example, in 2007, Johnson & Johnson has earned about $11 billion net profit, and total revenue of Pfizer was $50 billion. All the large companies in this industry have tried to introduce new product to increase their profit and to hold their brand awareness. All companies should have corporate social responsibility and business ethics because many people may suffer for their invention as the product of GlaxoSmithKline named Seroxat has increased the suicide risk, schizophrenia drug (Zyprexa) enlarged the amount of diabetes patient. However, most pharmaceutical companies would like to settle the litigation in out-of-court, though the US government has withdrawn 15 products from market from 1997 to 2007.

Corporate social responsibility and Vioxx painkiller

In 1991, Daniel Simmons discovered that the enzyme COX-2 helps to generate the pain signals and pharmaceutical companies were eager to introduce a product, which would neutralised its effects and in 1998, Merck had made the painkiller named Vioxx. To introduce a new drug, it is essential to get the authorization from the FDA, so, Merck imposed the drug on 5,000 patients and identified that Vioxx has only one potential side effect. Gills argued that as damage of stomach is the big drawback of traditional painkillers, Merck has only concentrate on this problem but it has failed to recognize the risk of heart attack. From the fact of the case, it can be assumed that Merck had only no business ethics and corporate social responsibility because it had only tried to get approval of FDA. It had only focused on a single problem though FitzGerald demonstrated his findings about Vioxx to Merck. Professor FitzGerald explained that Vioxx interfered with a hormone that thins the blood as well as relaxes blood vessels, which making patients susceptible to heart attacks and strokes but his recommendation has not properly followed by Merck. In this case, Merck has shown its limitation of corporate governance system.

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However, Merck has complemented for many successful drug solution, which shows its social commitment. During 2001, Vioxx was the second drug, which has earned huge popularity with lots of currency for the company in the US market. According to the view point of Merck, Vioxx is much better than another painkiller in USA. On the hand, Merck was patent Vioxx for 12 years and daily about 8000 artistries take it. During promotion of Vioxx, Merck publicized that it neutralize brain injury. Its also be quoted that a large portion of investment was held in commercializing Vioxx. Merck had struggled to establish to the doctors that Vioxx was not only safe but also safer than the painkillers and in 1999, Merck imposed this drug on more than 8,000 arthritis sufferers and it halve the risk of stomach damage. From several research projects and experiments, Merck clearly discovered that Vioxx caused potentially serious cardiovascular problems, heart diseases etc but the company did not provide any caution, which cause more damages of human lives. In addition, this company has invested about $160 million in the USA for promotional purpose, for example, it provided this drug directly to the US customers, and the CEO of Merck alone earned $ 2.9 million from this source (Giles, 1-4). It is important to notice that this type of promotional activities banned in the EU zone.

If the company gave proper information about the risks, doctors would never prescribed this dangerous drug but Merck has not minimum content of business ethics or corporate social responsibility so they did not appropriately share the data of the research work of Edward Scolnick with doctors and patients. After finding the shocking data, many doctors noticed and decided to prescribe Celebrex (the drug of other company), so Merck had changed the marketing strategy and criticised doctors but did not change the product ingredients. For example, Merck claimed that many doctors provides fake statements about Vioxx because they are agent of its competitors

Impact of Vioxx

No one notice but on the opposite side of popularity, Vioxx has carried a numerous negative impact on people’s health, especially on heart diseases. In USA, more than 140,000 individuals were suffering from heart attack due to take of Vioxx. Now, it has proven that all of the promotional tools were statistically right to make huge profit but wrong in public health issues and consequentially it has created a pathetic history. In conjunction of heat attack, it produces the hormone that thinner blood vessel. On the other hand, there is a high of stomach damage (Giles, 5)

Lesson from Vioxx and naproxen

Vioxx carries five times greater naproxen than another painkiller that’s why many modern patients avoided it to protect stomach damage and dangerous cardiovascular dilemmas. Not only in USA but also in EU, more than 20 people have suffered in heart attack amongst 2,300 people who took Vioxx. Concerning all about Vioxx, it was a tragic chapter for general people who took and damaged. On the other hand, from the impacts of Vioxx, Merck learned how brand image and goodwill of a renowned company may destroy for not to have corporate responsibility, governance and business ethics. In 2005, more than 19,000 individuals in the USA had filed claims for compensation, shareholders started legal actions asking compensation for lost earnings, and Merck had to pay $253 million as compensation to the widow. All facts are noticed of dirty commercialization and gambling with people’s life. Gills argued that statistics of affected people for taking Vioxx is also a threat to general company policy and business ethics.

Case Study of Nike

Company Background

Nike IHM Incorporation was started their journey for the athletic footwear manufacture during 1964 and turned into public limited in 1980. 33,000 people are employed globally in this company besides this more than 7,000 employees are involved in Nike’s headquarter, Beaverton, Oregon. Nike operated their business functions more than 160 countries, $19.2 billion annual revenue has created during the fiscal year 2009, and it was 3% greater than last year.

Opening to the Study

According to the given case this study has been addressed the corporate social responsibility, business ethics and corporate governance of Nike considering the performance, difficulties and complexities to implementing them under the competitive market in order to survive. Being a multinational company, the promotional strategy, code of conduct and standards of Nike have generated to maximising profit when its overall corporate responsibility needed to emphasis equal concentration in home as well as in abroad. As Nike has gone through the risk and benefits of globalisation but eager to be a good corporate citizenship, it is necessary to examine the diverse complexities that the company faces to uphold its corporate social responsibility and business ethics to balance the prime way of being superior global corporate besides a multinational company. (Locke & Siteman 2-9)

For the last two decades, the demand of athletic footwear has increased to a wide range. More specifically, since 1985, vendors of Nike have gone through a dramatic victory and placed their position at the top ten of footwear industries. In 2001, only in USA they sold 335 million pairs of shoes and for last two decades by displacing the Adidas and Reebok Nike have achieved the potential and largest market share of the athletic footwear.

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Globalisation promises of Nike

From the beginning of Nike’s journey, it has involved to import and distribute Japanese athletic footwear in US and global market. All departments of the Nike’s business functions- design, marketing, and distribution are a business legend. They are pioneer to utilise their investment to design, marketing and sales rather than making contract with other business holders for manufacturing and it is the aphorism of their growth. Moreover, a large portion of their investment has employed in the research and development (R & D). High-quality and low cost products are one of their globalisation promises of Nike. In order to keep their promises they have preferred Asian countries such as China, Korea, Taiwan, Indonesia, and Thailand to supply athletic footwear. (Locke & Siteman 2-9)

Code of conduct

Four key principles of mutual respect, teamwork, trust, and honesty have established the basement of Nike with their all of business partners. For the fitness and sport customers, Nike’s business functions have flowed through a circle consecutively pointed with designing, manufacturing and marketing. Continuous improvement of business ethics in conjunction with practice of labour and corporate law of the operating country would generate the key tools of their code of conduct and pointed as below- (Locke & Siteman 34-35)

  • Collective bargaining power, equal opportunity for both of male and female, individual diversity appreciation and equal rights for all employees are the tread of their management practice.
  • Protection environment through reducing impact on environment;
  • Health, hygiene, and safer workplace;
  • Aware all of the employees by promoting health;
  • Employee benefits, compensation, wages, salary, and other allowances would be paid based on employees’ ability and skill.
  • Nike’s standards of conduct always follow local rules and regulation for all kind of forced labour, child labour, working hour, and overtime for a specific region or country.
  • A regular inspection and audit without prior notice is a part of business operation so that it would make easier for them to report whether company standards and code are violated.

Dilemmas of Corporate Social Responsibility at Nike

The government rules and regulations, customer awareness, investors’ pressure, labour market’s competitiveness and supply chain management are the recent issues of corporate social responsibility in this globalization phase. Due to distrust of regulation and decrease of government assets, non-regulatory regulations are now treated as an alternative initiative. On the other hand, business sector is needed to grasp social and environmental issues. Considering all of these, today’s government has attended towards voluntary exploration.

Nowadays demand for disclosure from stakeholders has reached at the optimal level that includes all of the business dynamics such as-investors, operational employees of the organization, consumers, and suppliers.

These days, consumers are more conscious in purchasing goods and services with accordance to the code of ethic. In recent times, within five consumers, one reported either for the punishment of companies and rewarding them for their social performance.

For the last decades, both of the two parties’ investors and of buyers have transform performance assessment standards dramatically. Both of them include ethical concern and environment protection issues entire of the business standards. In this way, buying decision of goods and services has greatly affected. During 1999, US had worth of $ 2 Trillion portfolio assets due to social and environmental responsibility. Not only in purchasing decision, but also investment in stock market also affected by ethical concern.

As other forces of business operation labour market are also highly competitive and today’s labours prefer better employer’s philosophy and pay check. Consequences of these employers need to improve working condition forcefully and thus they could able to hire skilled employees for as long time. Illustrations of the previously mentioned issues are structured bellow those Nike was leave behind for the last two decades in different region.

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Low wages

At the beginning of 1990, yearly six million pair of shoes was produces in Indonesian factory where more than 25,000 employees worked. Nike’s Korean suppliers owned four amongst these six factories and it was horrific news for the Indonesian employees. Since most of these factories did not pay minimum daily wages $ 1 to 2 equivalents to 100 rupees as per local law. Moreover, factory atmosphere, labour activities, and human rights were questioned and claimed by different NGOs and humanity agents due to abuse. Exclusive of family $ 1 could not meet up an Indonesian labour’s 70 % basic need and factory contractors cut wages without any proper reason! With the aid of few NGOs underprivileged figure was publicised and thereafter the Indonesian government increased monthly wages $ 26 or rupees 231,000. Consequence of the government declaration, Nike has also announced that their range of legal monthly wages would be $30 – 37.50.

Child labour

The most giant sports accessories vendors like Adidas, Reebok, Nike, and Mitre are the key clients of Sialkot, Pakistan for world’s first class soccer balls and this area has produced 70 % of total demand globally. The most alarming point is that, the industries here have involved in abusing child labour to produce sports accessories. According to the Life magazine (June, 1996), children of 12 years old are employed for soccer ball stitching in Sialkot. It’s an anti-step to the international labour standards as well as corporate social responsibility and business ethics. Nike was involved with the Pakistani company Saga with 12 stitching centres for collecting soccer balls and after publication of the report child labour, Nike has droved to protect the engagement of child labour to rescue their distressing brand image (Locke & Siteman 9-15).

Health and hygiene

In 1997, on Vietnam, an audit by the Ernst and Young reported that mouthy 400,000 pairs of shoes were manufactured by only 9000 employees. Because of this the butchery task labour of that factory suffered from various organ diseases such as- eye irritation, skin infection, kidney, launch and stomach damage, mental depression etc. Moreover, the Korean constructor in Vietnam violets both working condition and working time of the Nike’s code of conduct. Analyzing all these facts, Nike’s cordiality in practicing environment support programs, labour health standards, supplier’s plant in the factory has faced a wave of criticism all around.

Response of Nike

After reporting about contravene of their codes by different regional suppliers, Nike has took a set of potential initiative to improve their brand image and conscious their employees globally. Following are the core responses: (Locke & Siteman, 15-21)

  • Appoint numerous new staffs and train them by 85 excellent trainee experts in labour law, environment compliance, global supply chain management, cross culture etc. At the same time, Nike has established a few new departments. For instance, NEAT (Nike Environmental Action Team) was born in 1993, a SHAPE program that deals sequentially with safety, health, attitude of management, people and environment and in 1996 for labour and commercial law LPP (Law Practice Program). Another important issue for global manufacturer suppliers is that they have 1000 specialists.
  • Regular monitoring and nursing of every supplier during the consulting mode. For example- PWC (Price Waterhouse Coopers)
  • One of the most effective and optimistic initiatives is to trade-off among other international and non-profit industries. Some of them are- UNGC (United Nations Global Compact), GAWC (Global Alliance for Workers and Communities), FLA (Fair Labour Association) etc. Amongst them GAWC is a non-profit firm where Nike is a founder member.

Conclusion

In this paper all the current key areas of corporate social responsibility (CSR), business ethics and corporate governance of the Merck Pharmaceuticals Limited and Nike IHM Incorporation has analysed. From the very beginning of this paper, it has already quoted that these two has operated their businesses in different fields. Nike’s corporate social responsibility report outlined many optimistic business standards for the welfare of their employee over and above society and environment and the same has done by Merck. However, in practice, their health, labour and environment standard report have depressed all the awarded people. Though Nike ignored and pushed the claims and complaints on their local suppliers in the mode, they display a deprived relationship with their suppliers as well as violation of human rights. In case of Merck, their new project Vioxx has completely failed and threatened the general peoples’ life.

Obliteration of commitment now aroused a complex public relation for them. However, Nike is now the most popular athletic footwear industry, a few colleges and university committees has recently concealed their contract with them. For both the companies strict monitoring and nursing of their code of conduct and business standards in every region of the world could sweep out all criticisms and media publication. On the other hand, improved trade-off among their suppliers, continuous development of their employees along with their products would also bring a good globalization image.

Works Cited

Giles, Jim. “How Merck made a Killing”. Prospect Magazine. 2008. Print

Locke, Richard. & Siteman, Alvin. The Promise and Perils of Globalization: The Case of Nike. Sloan School of Management. 2001.

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