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What Is The Relationship Between Corporate Governance And Social Responsibility

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Differences Between Csr And Ethics

Corporate Governance and Corporate Social Responsibility

Business ethics and CSR are closely related. Two schools of thought argue that CSR policies are highly effective and that their objectives reach beyond the sole purpose of communication. The first of these proposes to limit the scope to the notion of business ethics, according to the Anglo-Saxon perspective, and contrast this with corporate responsibility approaches rooted in social objectives, a more European stance, rather than moral principles . The second model argues a mixture of ethics and CSR . From a practical point of view, these two schools of thought are closely related, because a socially-responsible company with a CSR policy should be an ethical company, and an ethical company should be socially responsible .

For most companies, the scope of accountability and ethics are limited to legal obligations and sometimes to codes of best practices, while profitability remains the only criterion that affects company decisions. However, ethical codes are becoming increasingly popular, especially in large companies, and cover areas such as CSR, quality of customer relationships and supply chains, respect for the environment, and personal and corporate integrity charters. In this approach, assessing the ethical performance of a company includes CSR as a dimension of ethics.

Corporate Governance And Ethical Responsibility

Corporate Governance and Ethical ResponsibilityAbstract:Corporate governance and ethical responsibility are two major business aspects that have received sharp focus in the recent past mainly because of the recent corporate malpractices, accounting frauds, and corporate failures. These factors have become a major point of focus by various stakeholders including the public, the government, and legal aspects. This article provides a detailed analysis of each of the two business aspects and their

Implications For Hospitality Firms

In todays business environment, a firm has to be internally well-governed and externally responsible to be considered a good corporate citizen to be accepted by consumers and societies. To illustrate the importance of CSR on businesses, 61% of respondents of a global survey on individuals in London, New York, and Singapore indicated that they would boycott a brand for environmental reasons . Due to the unique characteristics of the hospitality industry, good CG practices and active CSR engagement are especially vital to the success of hospitality firms.

Following the release of the documentary Blackfish in 2013, SeaWorlds profits dropped 84% in the second quarter of 2015 as consumers turned their backs on the theme park for how it abused its animals. As a result, the company announced that it would end its orca breeding program in 2016, stating that Society is changing and were changing with it . In 2020, SeaWorld reached a $65 million settlement over a lawsuit accusing it of misleading investors about the damage to its business from the documentary, leading the company to make certain corporate governance modifications according to a SEC filing .

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The Relationship Between Corporate Governance Csr And Corporate Financial Performance

This section presents a literature review related to the relationships between corporate governance , corporate social responsibility and corporate financial performance . The relationship between CSR and CG has been widely discussed in recent research in reference to problems with conflicts between various stakeholder interests . A large part of the literature defends the idea that the adoption of CSR policies leads to the implementation of new regulations standards and better CG mechanisms within a company . The results of previous studies remain inconclusive and at the very least require further research.

The adoption of CSR principles should not be perceived as the simple consequence of a marginal decision made within the company. Instead, adopting these principles is part of the companys wider culture and all of its hierarchical components are involved. The decision to adopt these principles is made at the top, and stakeholders need to ensure that managers apply CSR principles in accordance with these decisions to optimize the development of appropriate internal CG mechanisms to reflect this.

What Do Statistics Say About Corporate Governance And Social Responsibility

The Relationship between Good Governance, Social Responsibility and S

Studies have been conducted that show that ESG factors have strong connections to good ratings and financial performance over the short- and long-term. A Harvard Business Review study reported that ESG companies had higher profitability and stock performance than non-ESG corporations.

Deutsche Bank compiled an analysis of over 2,000 companies as far back as the 1970s and found that ESG investing yielded superior returns in about 90% of the studies.

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Literature Review And Hypotheses Development

The separation of ownership and control in a company creates the agency problem . Managers who involve in daily operations have better information than shareholders. Shareholders also do not have the ability to observe the managers directly. This information asymmetry creates problems if the managers goals are not in accordance with the shareholders goals. To minimize information asymmetry in the principal-agent relationship, besides corporate governance, companies can use the annual report . The annual report usually includes financial statements and management reports that contain their achievements and performance in one year. Furthermore, the company can also carry out CSR disclosure. In agency theory, CSR and corporate governance mechanisms are one way to reduce agency conflicts, resulting in reduced agency costs and information asymmetry. It is expected that the better and more transparent CSR disclosures can reduce the agency problems faced by the company.

In the research conducted by Esa and Zahari , it is found that the educational background of the board of commissionaires and the directors have a significant relationship with the disclosure of CSR. Golec found that managers and CEOs holding an MBA degree are significantly better than those who do not possess such a degree. Therefore, based on this perspective, it is stated a hypothesis that:

Concluding Thoughts On Corporate Governance And Social Responsibility

There’s no question that there’s a strong connection between corporate governance and social responsibility. There’s also no question that it’s an amiable and successful relationship. Corporate governance, when combined with social responsibility, is trending well enough to help boost the global economy. Ultimately, that makes for a nice world all around. It could be that the global economy is well-positioned, as millennials are slated to outnumber Baby Boomers as early as 2019.

One way that companies can demonstrate their commitment to sustainable, green and socially conscious business practices is by using electronic board management systems and the suite of software solutions that comprise Governance Cloud. Investors will appreciate knowing that companies make a full commitment to socially responsible business practices.

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The Importance Of A Good Corporate Governance Framework

why a good corporate governance framework must incorporate stakeholder accountability. For the purpose of this paper, the term stakeholder governance will be used to incorporate all aspects of stakeholder accountability and engagement, that is dialogue, decision making, transparent operations and implementation of solutions to common problems or goals. The first part of this paper will describe how the landscape has changed for business operations due to environmental, economic and social reasons

The New Trend Toward Corporate Governance And Social Investing

Corporate Social Responsibility and Corporate Governance

In the past, investors only analyzed financial ratings. Today, many investors are looking at a combination of strong returns and ESG ratings. Before ESG indexes emerged, investors that were interested in companies that held deep social and environmental values had to rely on the reputations of companies and those that promoted themselves as being sustainable or socially responsible.

ESG ratings have given investors a more objective look at corporations. At the same time, ESG ratings give investors more socially responsible companies from which to choose.

Investors Jason Teed and Ron Rowland, from Invest With An Edge, state, ‘Taking a long-term, sustainable view ensures that a company can operate in perpetuity.’ They add, ‘Going forward, it would appear that the appetite for these types of products will only increase.’

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Corporate Social Responsibility Literature Review

2.2.1 Corporate Social Responsibility and its Importance

Every organization depends on its stakeholders to develop a good image and goodwill for long-term sustainability. Corporate sustainability is defined as:

a business approach that creates long-term shareholder value by embracing opportunities and managing risks deriving from economic, environmental and social developments

Which means every stakeholder must be well-accounted for this is where CSR comes into play.

Bowen defined CSR as

the obligations of businessmen to pursue those policies, to make those decisions, or to follow those lines of action which are desirable in terms of the objectives and values of our society.

The Parliamentary Joint Committee on corporations and financial services defined CSR as striking a balance and controlling the triple bottom lines of economic, social and environmental impact of the corporation. Sir Adrian Cadbury, the founder of Cadbury Plc in 2002 encapsulated the whole idea of CSR saying

the broadest way of defining social responsibility is to say that the continued existence of companies is based on an implied agreement between business and society and that the essence of the contract between society and business is that companies shall not pursue their immediate profit objectives at the expense of the longer-term interests of the community.

Friedman in 1970 stated that:

In general, CSR can be summarized in terms of the expectation of every stakeholder as

The Direct Cost Of Csr

Starting from the supply side, PayneFootnote 26 claims that risk management is one of the goals of corporationsâ ethics by upgrading the ethical and social values of the corporation and its employers one may hope to minimize the cases of bad behaviour and the potentially negative consequences on the value of the firm. For example, the Shareholder Action Network accuses ExxonMobil of weak sensitivity to issues like climate change and alerts to the possibility that there are risks connected with future claims on the part of stakeholders who in the future may be damaged by climate change and consequently by the lack of action of the company. In this case, CSR is positively related to the value of the firm from the point of view of minimizing future possible liabilities associated with lack of social responsibility.

Another positive effect of CSR and ethical values is associated with improvements in organizations through innovation,Footnote 27 cooperation, motivation on the part of the workers, branding of the corporation in the relevant market by constructing a special relationship with the stakeholders, especially clients and intermediate suppliers.

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What Is The Relationship Between Corporate Governance

This is the strategy and method a corporation employs to direct its decisions and actions based on the rules and practices they employ. Corporate governance policies have a significant impact on the performance of companies, since the rules that govern how these decisions are reached dictate how they are made.

The Dimensions Of Csr Strategies

Corporate Governance Vs. Corporate Social Responsibilities

CSR considers that company responsibility should be shared beyond the owners alone, instead extending to the various stakeholders. Responsiveness to pressures from stakeholders depends on the environmental and social risks companies take. The power, legitimacy and urgency of stakeholder demands shape managerial decisions with regards environmental and social concerns .

The most studied CSR dimension is by far governance, which creates consensus among studies . The second most studied dimension is the environment. However, social factors are much less studied. Horváthovás meta-analysis of ecological studies warns that simple correlation coefficients generate more negative results when linking performance to ecological factors. Therefore, it seems appropriate to rely more on advanced econometric methods instead. She also highlights that a positive link is found more frequently in common law countries than in civil law countries, which brings us to our next topic.

Concerning the country of observation, there seems to be a difference in empirical results obtained in the U.S. compared to other countries. Studies on the U.S. context more often find positive results, while studies on non-U.S. companies tend to lead to more neutral results. An attempt to justify these discrepancies can be found in the activism of U.S. pension funds toward sustainability.

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Transparency Is Key Aspect Of Corporate Governance

The boards of directors are responsible for the governance of their companies so there has to be transparency in company reporting. Transparency is key aspect of corporate governance because of implementing corporate governance this will allow stakeholders and shareholders to review and evaluate performance of management and the company this ensures that the board of directors and the executive directors of corporations act in the best interest of shareholders and the corporations. It is implemented

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More Nuggets Of Discovery

Corporate Governance and Corporate Social Responsibility

The majority of the studies in LMEs focus on how board characteristics affect CSR. Board gender diversity, board CSR committee, board expertise, board independence, board networking capacity, board diversity on age and race parameters, and multiple directorships are found to be positively associated with CSR. Also, firms with an audit committee demonstrating high expertise positively influences CSR. With respect to CEO traits, the impact of CEO duality , tenure, and age, on CSR depicts mixed results.

Delving into research investigating the effect of executive compensation on CSR, brings to light the positive association of CSR-related bonus on CSR activities. The effect of media coverage and legislation pressure on CSR is unclear. With respect to ownership structure, family ownership and CEO shareholding are found to be negatively related to CSR, as family owners are preoccupied with accumulating family financial wealth and consider CSR investments as additional unnecessary costs.

Additionally, while higher corporate giving tends to positively influence investor perceptions, create favourable media coverage as well as promote dialogue with shareholder activist groups, such firms exhibit weak corporate governance particularly on board monitoring and increased insider shareholder activity.

Having uncovered these insights, what is the direction to take for future research?

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How Do Csr And Cg Work Together

Corporate governance and corporate social responsibility are two sides of the same coin. Businesses with weak internal systems are unlikely to have an excellent external conscience. For a company to become an outstanding corporate citizen, it has to have stable corporate governance.

The role of corporate governance in business is to lay down the proper channels for the industry to run smoothly. Companies who are under fire for environmental pollution or employee abuse have poor corporate governance. It results in poor corporate social responsibility.

A business must have the proper integration of the two, so it can have a lead role in solving wider issues in the community and further afieldfor example, solutions for generating economic stimulus which can save and create jobs. During the pandemic corporates with good governance and CSR could quickly switch their offering to meet the needs of the community. General Motors switched from vehicles to ventilators and other corporates also stepped up with relevant products to address realtime community needs.

Edited By Andrew Crane Dirk Matten Abagail Mcwilliams Jeremy Moon And Donald S Siegel

Class 11 Business Studies Chapter 6 | Corporate Governance – Social Responsibility of Business
Print Publication Date:
Business and Management, Business Policy and Strategy, Finance and Economics
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date: 25 December 2021

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The Content Of This Special Issue

This special issue of the Journal of Management and Governance brings together research from authors in France, Switzerland, the United Kingdom, Tunisia, and further afield. The underlying theme of the articles is the nature of corporate social responsibility and its relationships with governance, financial structure and financial performance.

The special issue begins with a study by Maria Giuseppina Bruna, Rey Dang, Marie-José Scotto, and Aymen Ammari addressing the question Does board gender diversity affect firm risktaking? Evidence from the French stock market. Drawing on a sample of French companies listed on the SBF120 index over the 20062010 period, the authors find no evidence of any significant relationship between the proportion of women on corporate boards and corporate risk-taking practices. This result brings into question the usefulness of the Copé-Zimmermann law on gender quotas on management boards enacted in January 2011 and which took effect from early 2017, obliging French companies to include at least 40% of women on their boards. The results are also consistent with Nelson who considers that men and women do not behave significantly differently in terms of risk-taking.

What Is Corporate Governance

Corporate governance is the framework that stakeholders use to manage the business at a high level. In a business environment, for the company to succeed all its stakeholders must have a satisfactory working relationship. To make that happen theres corporate governance, a set of processes for overseeing how decisions are settled, executed and communicated between key shareholders, including investors, and management, and sometimes also staff, and clients.

Without corporate governance, rogue decisions and activities can go unnoticed and also illegal action like fraud, and embezzlement. Good corporate governance can also be the leading force to settling investor and management disagreements, plus scandals, liabilities, and what to do when a companys performance is dire.

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Accountability Is An Essential Ingredient Of Corporate Governance

AbstractAccountability is an essential ingredient of corporate governance, and indeed is the reason for any corporate governance set up. This paper discusses the ways in which accountability contributes to corporate governance and vice versa, and the mechanisms by which organizations may become more accountable and transparent. Corporate governance and accountability are often interrelated in organizations and provides a focus for business practices that promote fairness, ethical behavior, and

The Cost Of Socially Responsible Investment

Corporate Governance Vs. Corporate Social Responsibilities

The previous paragraph has shown that CSR may not necessarily be a cost to the firm. On the contrary, there are theoretical reasons to believe that CSR may have a positive impact on value, and empirical analyses showing the existence of a positive relation. On the basis of this evidence, one would expect to find little or no cost also from the point of view of the financial investor following principles of social responsibility. The available evidence shows that this is indeed the case.

One way to understand this is to look at socially responsible indices of stock performance. Three important indices are the Domini 400, started in 1990 and based in the U.S. market, the Dow Jones Sustainability Index started in 1999 and the more recent FTSE4Good, started in 2001. The three indices are based on partially different inclusion criteria: Domini excludes some specific sectors on the basis of the estimate of their social damage, Dow Jones Sustainability Index does not discriminate on the basis of belonging to a specific sector but only includes firms which satisfy minimum requirements as far as issues like environmental sustainability and human rights are concerned.

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