Governance and CSR Links

Corporate Governance and Corporate Social Responsibility (CSR) are two distinct concepts but by delving into the links between the two it can assist us to move towards putting in place more strategically responsible corporate behaviours, says Associate Professor Suzanne Young from the La Trobe Business School at La Trobe University.

Corporate Governance and Corporate Social Responsibility (CSR) are two distinct concepts but by delving into the links between the two it can assist us to move towards putting in place more strategically responsible corporate behaviours. We find in business there is a lack of integration between the two concepts, with each situated in different departments of organisations and staffed by those with differing expertise and interests.

In the context of the Global Financial Crisis (GFC) where CSR is increasingly being discussed as a strategy to deal with governance failures and corresponding reputation risks linkages between the two are worth exploring. There has been a rise in media, political and community discourse centred on improvements in managerial and director behaviours and corporate responsibility practices. Similarly academic literature has highlighted that corporate governance and CSR are strongly and intricately connected (Young & Marais 2012).

Although Anglo-based corporations consider their responsibilities to shareholders as their primary responsibility, a broadening of responsibilities to those typically found in Relationship governance systems has been evident over the past few years in countries such as the US, UK, South Africa, Canada and Australia as the stakeholder perspective has been increasingly included in soft regulation such as governance codes.

Even though traditionally Corporate Governance has focused on legal rules and corporate structures we are more recently finding academics incorporating CSR into their corporate governance work. Moreover in light of criticisms about CSR in terms of ‘greenwashing’ and being focused solely on ‘reporting’, practitioners are calling for the broadening of the concept of CSR to include a more integrated and strategic approaches. Indeed many definitions of Corporate Governance are explicitly including concepts of CSR. For instance Solomon (2009, p.7) define Corporate Governance as the “system of checks and balances, both internal and external to companies, which ensures that companies discharge their accountability to all of their stakeholders and act in a socially responsible way in all areas of their business activity”.

And linking the institutional environment to responsible corporate behaviours we are increasingly witnessing an increased focus as governance codes and principles broaden the scope of corporate governance from legal and control aspects to one incorporating responsibilities.

Like Corporate Governance, CSR has many definitions and connotations: from “business ethics or philanthropy or environmental policy”, “corporate social performance and corporate citizenship” (McWilliams et al., 2006, p.8; Secchi, 2007; Windsor, 2006) and “social accounting or corporate accountability” (Crowther, 2000). As Moon (2002) argued, CSR like democracy and justice is an essentially contested concept with its meaning always debatable.

Jamali et al (2008) argue that corporate governance and CSR are closely related as they “reflect a firm's commitment to its stakeholders and the nature of its interactions with the community at large”. Kolk and Pinkse (2010) observed that attempts to strengthen corporate governance has seen an increased focus on specific mechanisms such as board behaviour, auditor independence, controls, risk management, and ethical aspects of remuneration, managerial and employee behaviour, including whistleblower and complaint provisions, but also voluntary aspects of environmental, social and stakeholder responsibilities.

Despite this Australian companies have tended to focus on the relationship between corporate governance and CSR in terms of risk, rather than in terms of strategy or innovation. My research reveals the reasons for this approach to be driven by a combination of legislation and strategic and political pressures, alongside a dose of ‘isormorpism’ or fashion. In this vein organizations tend to embrace the norms or values of others so as they are not signalled out for criticism and to enhance their moral legitimacy (Suchman, 1995; Scott, 2000).

This is particularly evident in those industries operating in high impact industries such as energy and mining (Young & Marais, 2012). Even though industry pressures can lead to more strategic type CSR activities for companies operating in high impact industries, in times of economic uncertainty it may lead to more responsive type CSR activities to manage risk.

In thinking more strategically in terms of CSR, firm-level corporate governance can and should include policy and actions in regard to:

• ethical behaviour including remuneration
• both regulated and voluntary behaviour
• environment, social and governance risk
• shareholder and stakeholder communication and participation
• community and stakeholder responsibilities

This is important for leaders, board members, governance and CSR practitioners and policy makers to keep in mind in designing Corporate Governance structures and CSR strategies and actions.

About the author: Suzanne is Director of Executive Education and an Associate Professor of Management in the LaTrobe Business School at La Trobe University.

She has worked as an academic at both Deakin and La Trobe Universities, lecturing in both the undergraduate and post graduate programs in management, organisational behaviour, organisational theory, employee relations, strategic management, corporate governance, and corporate responsibility. 

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References
Crowther, D. 2000. Social and Environmental Accounting, Financial Times Prentice Hall, London.
Kolk, A., & Pinkse, J. 2010. The integration of corporate governance in corporate social responsibility disclosures. Corporate Social Responsibility and Environmental Management, 17:15-26
McWilliams, A., Siegel, D.S., & Wright, P.M. 2006. Guest editors’ introduction. Corporate social responsibility: Strategic implications. Journal of Management Studies, 43(1): 1-18.
Moon, J. 2002. Corporate social responsibility: An overview. In C. Hartley (ed.), The International directory of corporate philanthropy: 3-14. London and New York: Europa Publications.
Secchi, D. 2007. Utilitarian, managerial and relational theories of corporate social responsibility. International Journal of Management Reviews, 9(4): 347-73.
Scott, W. R. 2008. Approaching adulthood: the maturing of institutional theory, Theory and Society, 37(5): 427-442.
Solomon, J. 2009.Corporate Governance and Accountability, 3rd edn., Wiley and Sons
Suchman MC. 1995. ‘Managing Legitimacy: Strategic and Institutional Approaches’, Academy of Management Review, 20(3):571-610.
Jamali, D, Safieddine, A & Rabbath, M. 2008. ‘Corporate Governance and Corporate Social Responsibility: Synergies and Inter-Relationships’ Corporate Governance: An International Review, 16(5) pp. 443–459.
Young, S. and Marais, M. 2012. ‘A multi-level perspective of CSR reporting: The implications of national institutions and industry risk characteristics’ Corporate Governance: An International Review, Vol 20, Iss 5, pp. 432–450
Windsor, D. 2006. Corporate social responsibility: Three key approaches. The Journal of Management Studies, 43(1), 93-114.