Understanding Corporate Governance and Archie Carroll's Pyramid Model

This report provides an overview of corporate governance and its history in the UK. It explains the concept of corporate governance and its importance in sustaining long-term business success. The report also discusses the responsibilities of the Board of Directors and explores Archie Carroll's Pyramid Model of CSR. The case study of Rolls Royce, an automobile company, is used to illustrate the implementation of CSR activities. The report highlights the significance of CSR in building a positive brand image and contributing to society.

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 2...................................................................................................................................1
1) Understanding of corporate governance............................................................................1
2) Explanation of Archie Carroll's Pyramid model ...............................................................2
Conclusion ......................................................................................................................................4
References........................................................................................................................................5

TASK 2
INTRODUCTION
In present times corporate governance is a major concern for many companies. Due to
occurrence of many issues in social sector, government is highly focusing on improving the CSR
activities of government (Ni and Van Wart, 2015). In order to sustain for long term it is very
necessary for companies to engage more in CSR activities. Also, it helps in creating a better
image in minds of people. This report will describe what CG is and its history in UK.
Furthermore, it will show 5 responsibilities of BOD and it will explain Archie pyramid model of
CSR and how it is used. The organisation selected is Rolls Royce that belongs to auto mobile
sector.
1) Understanding of corporate governance
Corporate governance represents a set of rules and regulations which is followed by
company stakeholders in doing business. These rules also define structure or process through
which goals and objectives are developed (Lins, Servaes and Tamayo, 2017). Moreover, with
this it becomes easy to determine performance of company.
Corporate governance is not an older concept but it emerged 20 years ago in UK. The
history of it can be understood only when in May 1991 a committee was set up by financial
reporting council. This was due to concerns in standards in financial reporting and on Maxwell
cases. Here, some rules and regulations were laid down which was incorporated into LSE's
listing rules. These were introduced as principle of comply. There were several recommendations
which were made such as:
 Chairman and CEO of companies will be separate
 There will be at least three non-executive directors
 Board will have an audit committee on non-executive directors
Then in 1995 some more principles were set in Greenbury report related to remuneration
of non-executive directors. In 1998 the Hampel report was final and produced two combined
codes. The report objective was to incorporate and illustrate clearly the Cadburry and Greenburry
recommendations. Therefore, in this way the concept of CG was emerged and it was slowly
implemented by all business in different countries.
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There are several responsibilities which are to be performed by Board of Directors
(Grinstein and Blekher, 2015). It is their moral duty to perform it. They differ according to
company size and country corporate governance. Also, it can be different according to culture of
organisation. They are described as follows:
Trusteeship – it is the main responsibility of Board of Directors in which they have to act as
owner of company. They have to run business for long term but not for own purpose (Roles and
responsibilities, 2018). Also, they are property holders of any organisation.
Formulation of mission, objectives and policies - here, BOD have to formulate entire goals and
objectives of company. Moreover, they are having the right to reform it. Besides this, BOD
develops long term strategies and implements them.
Financial sanctions - where BOD need to decide the overall financial plan of company. They
take foremost financial decisions about distributing of profits, shares and loans. (Grayson and
Hodges, 2017). They are also responsible for reviewing financing performance of business and
reform policies and strategies.
Designing organisation structure – Board of Directors designs and develops overall
organisation structure. This is done by analysing competitors, goals, rules and regulations.
Selecting top executives – their main role is to select and appoint appropriate top executives at
different levels in organisation. This must be done properly so that they can handle and manage
overall company in effective way.
2) Explanation of Archie Carroll's Pyramid model
With rise of CG, CSR was also followed by companies. These both concepts are similar
to each other. CSR refers to the activities which are followed by organisations to contribute
towards society. It consists of ethics and moral responsibilities of company through which
business is done. CSR enforces business to work for betterment of society as well (Clapp and
Rowlands, 2014). There are many activities which are performed such as protecting
environment, promoting and health. Every business has to be socially responsible so that they
can contribute towards it and build a positive image in society. Through this, they are able to
retain their customers and sustain for long term. If business is not socially responsible it can lead
to its closure as well. There are some examples of companies who were not socially responsible.
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This created a poor impact on their brand image. Also, they had to reform laws and policies.
They are as described below:
Facebook - it is a technological company. They were held responsible in 2018 for leaking and
sharing of large of people personal data and information. This issue was related to privacy of
personal data. For this company has to reform their policies and pay fine.
Volkswagen - they operate in auto mobile sector and involved in many social cases. A popular
scandal case of 2015 in which company produced diesel emission cars with defeat software in
US. It was sold to consumers in many numbers (Cheng, Ioannou and Serafeim, 2014). After
this they were held liable for this and had to pay huge penalty.
British Petroleum - in 1991 EPA report stated that BP was responsible for toxic release and
high level of pollution in US. They have highly affected the environment of country. Thus, this
leaded to formulating of Kyoto protocol for petroleum industry worldwide.
The pyramid developed by Carroll gives on overview that why organisations should
follow CSR activities (Carroll's CSR pyramid, 2018). It is based on earning profit and then
complaining laws and regulations. He included 4 basic areas on which company should focus
on. These are defined as below:
(Source: Tutor2u.net)
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 Economic- as name depicts it states that business must earn profit in order to survive in
market for long term. This is only way to sustain in society. In similar way Rolls Royce
should aim to earn huge profits by providing luxury cars to people.
 Legal – it is necessary for business to operate legally in society. This is done by
following all rules and regulations properly. They must obey laws related to employment,
health and safety of society (Clapp and Rowlands, 2014). Rolls Royce design cars
according to laws of country. They follow zero tolerance approach. For example, they
have set up global anti bribery and corruption policies. It helps them to take strict action
against any person or its subsidiary.
 Ethical – it means to do business in ethical way. Here, they should respect ethics and
values of society. Rolls Royce must provide various health facilities to employees.
Moreover, it should ensure that in case of any injury treatment is given to employees.
 Philanthropic- this is most important responsibility for business. it means that business
should contribute towards society. Rolls Royce contributes to society by giving donations
and charity. They are also engaged in many CSR activities. For example, Muskaan is a
learning initiative conceived by Rolls Royce. they support charities Aids foundation India
which helps in motivating students in learning science.
Conclusion
It can be concluded from essay that company must follow CSR activities to remain
sustain in market for long term. There are different types of CSR activities through which
companies can contribute towards society. It helps them to develop a positive image and
reflecting their responsibility towards society. Rolls Royce follows various CSR activities which
is monitored by its board of directors. They have developed policies and procedures to contribute
towards different programs. They have applied concept of Carroll’s pyramid in which four areas
are described that are legal, economic, ethical and philanthropic. For example, in India company
have initiated programs known as Muskaan and Charities Aids foundation India. With help of it,
they contribute in terms of charity. Through this, they have created a positive image in Indian
market. also, they have retained their customers.
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References
Books and journals
Cheng, B., Ioannou, I. and Serafeim, G., 2014. Corporate social responsibility and access to
finance. Strategic management journal. 35(1). pp.1-23.
Clapp, J. and Rowlands, I.H., 2014. Corporate social responsibility. Essential concepts of global
environmental governance. p42.
Grayson, D. and Hodges, A., 2017. Corporate social opportunity!: Seven steps to make
corporate social responsibility work for your business. Routledge.
Grinstein, A. and Blekher, M., 2015. Corporate social responsibility. Wiley Encyclopedia of
Management, pp.1-3.
Lins, K.V., Servaes, H. and Tamayo, A., 2017. Social capital, trust, and firm performance: The
value of corporate social responsibility during the financial crisis. The Journal of Finance.
72(4). pp.1785-1824.
Ni, A. and Van Wart, M., 2015. Corporate Social Responsibility: Doing Well and Doing Good.
In Building Business-Government Relations (pp. 175-196). Routledge.
Online
Carroll's CSR pyramid. 2018. [Online] Available through :
https://www.tutor2u.net/business/reference/carrolls-csr-pyramid [Accessed 26 November
2018]
Roles and responsibilities. 2018. [Online] Available through :
https://accountlearning.com/roles-duties-responsibilities-of-board-of-directors/ [Accessed 24
November 2018]
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