Corporate Governance And Ethics Private water - public good

Question: (a) Discuss and critically evaluated the role of privatised water companies in terms of Carrolls pyramid of Corporate Social Responsibility. Issues that would require discussion : Critically evaluate the water companies Economic, Legal, Ethical and Philanthropic responsibilities, and discuss which responsibilities they live up to and where might there be room for improvement. (b) Examine the privatised water companies in developing countries, in terms of the extended view of Corporate citizenship. Discuss the governmental roles they have taken on, and evaluate their performance from this perspective. Answer: Introduction: This assignment deals with the impact of privatization on water supply. Privatization of water indicates to the transfer of ownership from the public sector to private sector. However, almost two third of sanitation and water system are publicly owned. With increasing capitalistic world, privatization is becoming very common in the water industry. The assignment will discuss the impact of water privatization and evaluate the desirability of public/private management. Since, water is basic needs of time and often viewed as a gift of nature. Privatization of water service influence strong sentiments of the population, particularly among the poor. The assignment discusses the necessary responsibilities that the private organization dealing with water system need to perform. Impact of privatization in water sector: The involvement of private sector in water supply has a long history. This was first practiced in USA and UK. However, this sector has taken by private sector gradually over the time. There are many models on water privatization (Bakker 2013). The sale of water companies assets is probably the most extreme form of water privatization. However, this form of privatization is very rarely been practiced in this industry. More common form of privatization is where private sector controls the operations and invests in the water system for an extended period of time. Several companies have emerged as a giant as the privatization increased in water sector. These organizations have obtained contracts to operate water services in number of countries. Companies like Suez and Vivendi are the major players of water supply in developing countries. However, privatization of water is a controversial issue and often seen it negatively. Still it has several benefits as well such as unlike municipal water companies; private companies are very efficient and it had no corruption issue. Hence, it helps to improve service of water supply. In reality, the impact of water privatization has mixed views. Baer (2014) state that more practices of privatization have actually enhanced water provision. Many spectacular mistakes have made politician and activist to argue against the privatization process in water supply. Different nature of water industry and its impact on privatization: Like any private companies, water supply companies are those entities whose business operation decisions affect the environmental and economic condition of the society in which they operate. However, unlike other manufacturing companies, water companies are in the business to provide public service, a service that is necessary for the well-being of the entire populations. Another difference of water industry comparing with the others is the involvement of the government. In other industries CSR issues government placed in marginal position but in case of water industry, government has significance role. There are lots of instances where government failed to provide right quality water that leads to sever health problems. Government failure to expand water system leaves many households unconnected. This leads the privatization concept to take over water industry (Bakker 2014). In water privatization, government signs contracts regarding utility operation. However, even after the contract is signed, the government has significant control over the pricing policies, priorities and service standards in the water sector. Ideally, economic regulator is independent but still a portion of this compliance is monitored by the public sector (Bauer 2012). Hence, the scope of private decision-making is designed by these policies. This different nature of water industry has immense impact on companies CSR decisions. Impact of privatization in bottled water: In the United States of America and Europe, bottled water is not viewed as a part of water service industry. Many people viewed bottled water as a life-style product that is branded and sold in supermarkets. Normally, bottled water companies meet the standard of the water quality. However, there is no proven benefits regarding health of bottled water over tap water. People decision of buying bottled water is based on personal choice and cost. In developing countries, the situation is somewhat different. The reality is that distribution system of water that brings tap water to the households does not cover the entire population. Even there are many places where water system is available but water services are unreliable or the quality of the water is poor (Spronk 2014). In this situation, households have to depend heavily on the other sources of water and bottled water in one of them. In this situation, the water services companies have to incorporate different range of water services. Therefore, large corporate water services companies (like- Vivendi and Ondeo) are not the only players in this industry but smaller companies are also present in this industry and selling water as a commodity in the form of private water tankers, bottled water etc. In piping water distribution, affordability and equity are probably the major factors in pricing decisions. Until water supply able to reach entire population, both private and pu blic sector will have to participate to ensure water supply services (Bhattacharya 2016). Hence, bottled water can also be considered as the necessary product for human lifestyle. So introduction of private sector to this industry has created new possibilities for the people in the society (Burke 2013). With privatization, people can expect to have high quality water available anywhere in the society. At the same time, pricing decision of these public companies can be an issue for the society. Since it is a necessary product, government played a crucial role in setting the prices of bottled water so that everyone in the society can have the access of this necessary product. Water companies corporate social responsibility issues: In this different circumstances, social responsibility of the water companies are also somewhat different from other industries. There are several issues that influence privatization of the water industry. Hence, it is necessary for private sector to ensure that these issues can have very limited impact on the water supply system. To perform that, water companies need to consider general CSR issues like community relationships, human and labor standards, environmental protection along with the following issues: Poor water quality is one of the major issues of the public sector that influences the private sector to get into this industry. Investment decision in water industry is also a crucial issue because here companies are not only have to consider the business outcomes but also have to consider those people who belong below to the poverty line. Corruption is another issue in water industry. Since, there have been many issues found where peoples of the society are provided with substandard water. Carrolls Pyramid: The concept of corporate social responsibility (CSR) reflects about how to motivate about socially responsible behavior in the corporate sector focus on two major approaches: industry-wide standards and code of conduct for individual firms. However, codes of conduct could be significant but only the corporate behavior alone does not guarantee desirable social outcomes in the water industry. Figure 1: Carrolls CSR Pyramid (Source: Bakker 2013) The social responsibilities of the water companies results from its different strategies as well as shareholders and investors beliefs. It demonstrates key elements of long-term profit are the value brought to the society (Murthy 2013). Water companies concentrated on the support activity and cooperation of the government, contributes to the societys economic development (Ouda et al. 2014). For example, understand the requirements about water system so that it can meet the requirement put by the government. Carrolls corporate social responsibility pyramid demonstrates the layers of social responsibilities that constitute the concept of CSR. The first layer in the Carroll pyramid describes the economic responsibilities of the organizations that aim to enhance the long-term financial purpose of the organization (De Gouvello and Scott 2012). However, in case of water industry companies not only have to consider only about the financial aspects of the company but also it had to maintain rule and regulation impose by the government. Since water is a necessary product, companies economic responsibility is not only to enhance its own business but also to provide high quality water to the people. As the idea of privatization in the water industry come up because of the government failure to provide the level of quality of water, it is important for the companies to provide high quality water not only from ethical perspective but also from business perspective as well (Morris 2012). Since, any f ailure in these issues will increase the thought that only government need to deal in the water industry. The second level of the Carrolls pyramid illustrates the legal responsibilities of the organization. It refers to the international and national laws that have been imposed on the companies. In case water industry, government has more rules and regulation comparing to the other industries. Since water is necessary for human life, companies dealing in this industry also have to maintain certain rules and regulations (Grant 2013). Water industries rules include the quality of the water, pricing decision of the company and availability of this high quality water. From ethical perspective as well companies have to understand that maintaining proper rules and regulations is absolutely crucial. Otherwise it can become a major issue of the society that might have negative impact on the image of the organizations. The third layer illustrates the ethical responsibilities of the organizations. Water companies have to consider several ethical factors because of the nature of the product. There are lots of concerns regarding corruption and bribery in the water industry. Hence, water companies have not only to stay clear of the corruption also has to play an influential role in the development of the society in which they work by coordinating with public companies. Factors like workers pay, benefits, training and development of the employees have to be above the standard level for the water industry because privatization of water industry forces many government employees to get into the sector (Jaffee et al. 2013). As a result, any improper style of management practices will encourage many adverse critics to raise their voice against privatization. The final level of Carrolls pyramid illustrates philanthropic responsibilities of the corporate organization. This level expects organization to be good corporate citizen by contributing to the society and its quality of life (Lieberherr and Truffer 2015). Water services organization have to think outside of the box to achieve solutions for serving households in different cities, slums and rural areas. Companies have to employ many strategies such as through tankers trucks and bottled water to provide water to every citizen of the society. It is necessary for the water companies to play a critical role in protecting environment as well. With increasing number of population worldwide, scarcity of pure drinking water has been found. Hence, water companies not only have to ensure high quality drinking water has been provided but also it need to preserve existing drinking water or rainwater so that people can have their necessary water need fulfilled (Molinos-Senante and Sala-Garrido 201 5). Conclusion: The study reviews the characteristics of water services industry that is different from service and manufacturing industry CSR literature. The study established the usefulness of CSR concept for privatization of the water supply. In this sector, it is important to consider the social importance of outcomes. The study shows the importance of public sector in achieving outcomes and also the political and social expectation from this sector. The study indicates that underlying principle of CSR in this industry would include going beyond the requirements of the contracts in order to meet its social objectives. From stakeholders perspectives, privatization will be helpful in water industry. The study concludes that industry-wide multiple approaches to promote CSR are more appropriate for the water industry than is a focus of code of conducts for single companies. However, much innovation and thinking is still needed about the industry-wide approach to CSR in the sector water services coul d be more effective while avoiding counterproductive one size fits all prescriptions. Extended view: Based on the above discussion, social responsibilities of water companies should be as follows: Private water companies not only have to meet minimum contract requirements but also have to go beyond that in order to fulfill social objectives such as water quality and environment. 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