This blog post will examine corporate
governance (CG) and sustainability while attempting to evaluate how these
complement each other in the context of Amazon, a modern-day corporation.
Firstly, upon outlining the background and drawing on the key pillars of CG,
this post critiques how Amazon’s CG practices impact its sustainability as an
organisation. Finally, the blog will conclude by drawing general conclusions
from the analysis and providing recommendations for Amazon to improve
sustainability prospects.
Background
CG is a combination of policies, customs
and measures designed to govern and manage organisations (Kavalíř 2005). All
decisions and actions of the board of directors, managers and interactions with
stakeholders such as employees and auditors fall under CG (Boeva,
Zhivkova & Stoychev 2017). Depending on the organisation’s CG
structure, the delegation of persons’ responsibilities and rights that provide
authority to make decisions for the company differs (Thomsen
2004).
However, ensuring the management of these affairs in the expected levels of
standard denotes good governance (Weiss 2000).
Despite starting as just an online book
retailer, Amazon is now the world’s biggest online retailer (Berg & Knights
2019). Arguably CG structure of Amazon holds the key to its success. Disclosure
and accountability of actions, individuality and fair treatment are the
critical facets of CG (B Tricker & I Tricker 2015).
Pillars of CG
Maintaining transparency between the
management and all stakeholders is one of the crucial facets of CG as it
establishes trust (Desoky & Mousa 2012). For instance, frequent updates and
coherent financial reports make the shareholders aware of its long-term and
short-term plans, inspiring investors to be more confident and support the
company prosper (Drew & Kendrick 2005; Stănculescu & Mitrică 2015).
Amazon is a long-term oriented company
that did not focus on short-term profits; hence reinvest all its annual
earnings on further technological advancements (Kristensen et al. 2017). While
the common shareholder would panic if there are no gains, the shareholders of
Amazon were in line with its strategy as the company had maintained a strong
level of disclosure. Therefore, admittedly transparency is one of the
strongholds of Amazon’s CG structure. In contrast, falsifying balance sheets
and hiding actual asset values from investors led to Enron Corporation’s
downfall (Vinten 2002) [I].
Accountability is another facet that
empowers organisations to take responsibility for their actions (Solomon 2020).
The board of directors has to evaluate progress, set targets, take control and
justify their decisions to stakeholders, creating a sense of obligation to make
the right decisions (Solomon 2020). Instigating internal control and
risk management mechanisms such as audit committees ensures that even
management actions do not go unnoticed, minimising deviation from
organisational aspirations (Brennan & Solomon 2008). Amazon consists of a
culture obsessed with customer satisfaction (Denning 2019). Influencing workers
to follow the same priorities and set goals accordingly motivates employees
(Baboolal-Frank 2021). As a result, Amazon’s workforce is responsible and
productive, which leads to sustainability.
The next pillar is treating all
stakeholders fairly in proportion to their rights (Tricker 2020). Also,
willingness to receive inputs irrespective of the status of the donor results
in symbiosis (Van-Buren III 1999). Amazon has come under scrutiny for the
ill-treatment of diverse categories of employees (Boewe & Schulten 2017);
hence it is an area for improvement within its CG framework.
The last pillar, independence, assures
stakeholders that all of the company’s actions are objective, following the
company code of conduct and not influenced by any other parties (Tricker 2020).
In this regard, Amazon has evidenced clear distinction as management decisions
have followed the company’s code, for example, not paying dividends for all
shareholders (Gilbert 2013). Consequently, Amazon’s credibility has increased,
inspiring more stakeholders to support their long-term vision as their
decisions are not biased (Gilbert 2013) [I].
However, these pillars alone do not guarantee corporate sustainability for contemporary organisations (COs) (Kolk 2016). Even if an organisation manages to increase its short-term earnings without proper financial management, ethics and corporate social responsibility (CSR), no company can sustain its growth in the long term (Kolk 2016) [I].
For instance, CSR cannot be just limited
to an activity but instead a fundamental aspect that defines how the public
regards an organisation. Therefore to become sustainable, COs should be
considerate of all their stakeholders, responsible towards the broader society
and support the environment (Kolk 2016).
Ethics and
sustainability
Acting ethically denotes the course of
right action as per the standards that exist in the world (Fisher
2003). While CG represents the people, decisions and actions;
ethical behaviour is to do the proper thing (Fisher 2003). The leading cause of
the ‘agency problem’ is when directors act unethically outside the shareholders’
interests or make decisions for their benefit (Noreen 1988), for example, the
Enron scandal and Bernie Madoffs’ Ponzi schemes (Rapoport 2009). Prevalence in
unethical acts such as corruption, price fixings, and customer
misrepresentation in COs tarnishes organisations’ integrity, leading to loss of
business (Rapoport 2009). Thus, directors need to ensure organisation acts
objectively aligned with the code of ethics.
In the context of Amazon tax avoidance
(Fisher 2014), meagre wages below even the national minimum wage and unfair
exploitation of workers are strong allegations of unethical practice against
them (O’Connor 2013). Amazon’s infamous strategy of reinvesting, where the
financials show no profits gain, leaves no requirement to pay income tax. Even
if, arguably, Amazon is acting within the law, it does not make tax avoidance ethical.
In contrast, paying warehouse workers a salary below the minimum wage is
illegal and unethical (O’Connor 2013). Failure to address these areas of
concern will result in Amazons productivity levels, credibility and may even
lead to the extent of losing its customers. Therefore, in general, COs should
make sure all decisions made, and the practices followed are within the ethical
standards to minimise the risk and ensure longstanding sustainability.
CSR and sustainability
According to White (2006), the
accomplishment of business targets whilst abiding by ethical standards and
respecting people, society, and the natural ecosystem denotes CSR. Even though
businesses are for-profit, profit should not be the only aspiration of a
company (Cramer 2002). As per the triple bottom line (TBL) concept of
sustainability, i.e. people, planet and profit (Mark-Herbert, Rotter &
Pakseresht 2010), there is always a responsibility towards society and the environment.
Therefore, CSR is not limited to charitable donations; instead, it includes all
contributions made towards its stakeholders and surroundings (Meier &
Cassar 2018). For example, treating employees better and recognising their
interests will encourage them to increase productivity in the long run (Waddock
2003). Stakeholder theory affirms this notion linking strengthened
relationships with stakeholders to sustainability (Garvare & Johansson
2010). Amazon has vowed to eradicate its carbon footprint and use only
renewable energy consumption in the future (Luscombe 2020). Yet, it has
overlooked addressing areas where it can make an immediate improvement, such as
fixing its toxic work culture (Mergen & Ozbilgin 2021). Arguably, increasing
engagement in CSR will considerably increase Amazons social capital and further
strengthen its position. Hence, it is fair to argue that CSR integrates good
governance practices and inspires corporate sustainability (Simpson &
Taylor 2013).
Financial management and
reporting
In pursuit of sustainability, similar to
ethics and CSR components, managing the financial aspects and accurate
reporting is equally essential (Al-Mamun & Ibrahim 2018; Harris 2005). One
such crucial area of finance is to manage the working capital (WC) at an
optimum level for which current assets must weigh out the current liabilities
(Alnuaimi & Nobanee 2020). Amazon is a leader in this prospect as they use
debt financing where the interest is tax-deductible to maintain an operational
WC (Merlo & Wamser 2014). Efficient management of inventories and supply
chains are also ways used by COs to ensure optimal WC levels. Failure to manage
WC at an optimal level reduces the business’s liquidity to cover obligations,
i.e. worker salary, risking insolvency even during the slightest emergency
(Mandal & Goswami 2010).
Furthermore, the credibility and
reliability of the reports develop trust amongst the stakeholders when deciding
whether to engage with a specific organisation (Holder-Webb & Sharma 2010).
The directors must make sure the financial statements are less complex, shorter
in length and avoid window dressing to promote trust (Agarwal 2021). However,
if the external auditors are not independent in their inspection,
misrepresentation of financials similar to the Toshiba scandal in 2015, where
profits were overstated, can happen (Awolowo 2018).
Arguably, the independence and
transparency of auditors correlate with ethical behaviour, which amounts to
accountability. Even though Amazon has excelled in this department, it is
noteworthy that as much as CG is essential for the success of COs, it alone by
itself will not lead to sustainability [I].
Conclusion
Conclusively, the analysis established
that, without ethical behaviour, CSR and financial management, CG does not lead
to sustainability. In addition to CG practices consisting of accountability,
transparency, fairness, and independence, the actions must be ethical,
considering all stakeholders’ interests and surroundings to ensure
sustainability. Moreover, the management of financials to earn a profit is
equally essential. In the context of Amazon, regardless of unparalleled
financial management, accountability and transparency, some of the
organisational practices led by employees lack ethicality and fairness, not to
mention the lack of consideration towards society and the environment. Thus,
Amazon’s sustainability prospects are in jeopardy.
Recommendations
The best way for any CO to grow, utilise
its strength to gain the maximum advantage while addressing the weak spots and
threats. In the context of Amazon, ethics and CSR are their feeblest aspects.
Hence, increasing the level of consideration given towards the company’s
employees, such as raising the working environment standards, promoting equality
and recognition systems (Kenny 2019), can be a good start. Savings from taxes
can be utilised to increase employees’ wages and develop facilities (Kenny
2019). Simultaneously, Amazon should adopt a regenerative and distributive
framework of functioning as elaborated through ‘doughnut economics’ concepts to
promote sustainability (Raworth 2017).
References
Agarwal, N., 2021.
Integrated Reporting and the Informativeness of Annual Reports: Does Textual
Coherence Matter?. 中 国 会 计 与 财 务 研 究, 23(1).
Al-Mamun, A. and Ibrahim, M.D., 2018. Development initiatives, micro-enterprise performance
and sustainability. International Journal of Financial Studies, 6(3),
p.74.
Alnuaimi, S. and Nobanee, H., 2020. Working Capital Management and
Sustainability: A Mini-Review. Available at SSRN 3539427.
Awolowo, I.F.,
Garrow, N., Clark, M.C. and Chan, D., 2018. Accounting scandals: Beyond
corporate governance. In 9th Conference on Financial Markets and
Corporate Governance (FMCG).
Baboolal-Frank, R.,
2021. ANALYSIS OF AMAZON: CUSTOMER CENTRIC APPROACH. Academy of
Strategic Management Journal, 20, pp.1-16.
Berg, N. and Knights, M., 2019. Amazon: How the world’s most
relentless retailer will continue to revolutionise commerce. Kogan Page
Publishers.
Boeva, B., Zhivkova, S.
and Stoychev, I., 2017. Corporate governance and the sustainable development. European
Journal of Economics and Business Studies, 3(1), pp.17-24.
Boewe, J. and Schulten, J., 2017. The long struggle of the Amazon employees. Rosa Luxemburg.
Brennan, N.M. and Solomon, J., 2008. Corporate governance, accountability and mechanisms
of accountability: an overview. Accounting, Auditing &
Accountability Journal.
Cramer, J., 2002.
From financial to sustainable profit. Corporate Social Responsibility
and Environmental Management, 9(2), pp.99-106.
Denning, S., 2019. How Amazon uses metrics to drive
success. Strategy & Leadership.
Desoky, A.M. and Mousa, G.A., 2012. Corporate governance practices:
transparency and disclosure–evidence from the Egyptian exchange. Journal
of Accounting, Finance and Economics, 2(1), pp.49-72.
Drew, S.A. and Kendrick, T., 2005. Risk management: The five pillars of
corporate governance. Journal of General Management, 31(2),
pp.19-36.
Fisher, J., 2003.
Surface and deep approaches to business ethics. Leadership &
Organization Development Journal.
Fisher, J.M., 2014.
Fairer shores: Tax havens, tax avoidance, and corporate social
responsibility. BUL Rev., 94, p.337.
Garvare, R. and Johansson, P., 2010. Management for sustainability–a stakeholder
theory. Total quality management, 21(7), pp.737-744.
Gilbert, S., 2013. The story of Amazon. com. Jaico Publishing House.
Harris, A., 2005. Working capital management: difficult, but
rewarding. Financial Executive, 21(4), pp.52-54.
Holder-Webb, L. and Sharma, D.S., 2010. The effect of governance on credit decisions and perceptions
of reporting reliability. Behavioral Research in Accounting, 22(1),
pp.1-20.
Kavalíř, P., 2005. Hodnocení corporate governance v České
republice. Centrum ekonomických studií VŠEM, Working Paper CES VŠEM,
(14).
Kenny, S.E., 2019.
Strategic Audit of Amazon. com, Inc.
Kolk, A., 2016. The
social responsibility of international business: From ethics and the
environment to CSR and sustainable development. Journal of World
Business, 51(1), pp.23-34.
Kristensen, M., Penner, J., Nguyen, A., Moy, J. and Lam, S., 2017.
Company Synopsis for: Amazon. com, Inc.
Linnenluecke, M.K. and Griffiths, A., 2010. Corporate sustainability and
organisational culture. Journal of world business, 45(4),
pp.357-366.
Luscombe, R., 2020.
Amazon’s Jeff Bezos pledges $10 bn to save Earth’s environment. The
Guardian.
Mandal, N. and Goswami, S., 2010. Impact of Working Capital Management on Liquidity, Profitability and
Non Insurable Risk and Uncertainty Bearing: A Case Study of Oil and Natural Gas
Commission (ONGC). Great Lakes Herald, 4(2), pp.21-42.
Mark-Herbert, C., Rotter, J. and Pakseresht,
A., 2010. A triple bottom
line to ensure Corporate Responsibility. Timeless Cityland: An
Interdisciplinary Approach to Building the Sustainable Human Habitat (1-7).
Uppsala: Sveriges Lantbruks Universitet.
Meier, S. and Cassar, L., 2018. Stop talking about how CSR helps your bottom line. Harvard
Business Review, 31.
Mergen, A. and Ozbilgin, M., 2021. Toxic Illusio in the Global Value Chain: The Case of Amazon. In Destructive
Leadership and Management Hypocrisy. Emerald Publishing Limited.
Merlo, V. and Wamser, G., 2014. Debt shifting and thin-capitalisation rules. CESifo DICE
Report, 12(4), pp.27-31.
Noreen, E., 1988. The
economics of ethics: A new perspective on agency theory. Accounting, Organisations
and society, 13(4), pp.359-369.
O’Connor, S., 2013.
Amazon unpacked. Financial Times, 8, p.2013.
Rapoport, N.B., 2009.
Lessons From Enron-And Why We Don’t Learn From Them. Com. Lending Rev., 24,
p.21.
Raworth, K., 2017. Doughnut economics: seven ways
to think like a 21st-century economist. Chelsea Green Publishing.
Simpson, J. and Taylor, J.R., 2013. Corporate governance ethics and CSR.
Kogan Page Publishers.
Solomon, J., 2020. Corporate governance and
accountability. John Wiley & Sons.
Stănculescu, A. and Mitrică, E., 2015. Discussing three pillars of corporate
governance. In International Finance and Banking Conference (p.
93).
Thomsen, S., 2004.
Corporate values and corporate governance. Corporate Governance: The international journal of business
in society.
Tricker, B., 2020. The
evolution of corporate governance. Cambridge University Press.
Tricker, R.B. and Tricker, R.I., 2015. Corporate governance: Principles,
policies, and practices. Oxford University Press, USA.
Van Buren III, H.J., 1999, August. If Fairness is the Problem, Is Consent the Solution?
Integrating ISCT and Stakeholder Theory. In Academy of Management
Proceedings (Vol. 1999, No. 1, pp. C1-C6). Briarcliff Manor, NY 10510:
Academy of Management.
Vinten, G., 2002. The corporate governance lessons of
Enron. Corporate Governance: The international journal of business in
society.
Waddock, S., 2003.
Stakeholder performance implications of corporate responsibility. International
Journal of Business Performance Management, 5(2-3), pp.114-124.
Weiss, T.G., 2000. Governance, good governance and
global governance: conceptual and actual challenges. Third world
quarterly, 21(5), pp.795-814.
White, A.L., 2006. Business brief: Intangibles and CSR. Business
for social responsibility, 6, pp.1-10.
