CSR and Corporate Governance

 

CSR has been defined in many different ways. For the purpose of this paper, we will use three key definitions of the World Business Council for Sustainable Development, The European Union and the World Bank which covers all the elements of CSR.

Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources.

The concept of corporate governance was almost non-existent in India. In late 90’s the concept of corporate governance was introduced in India by the Securities and Exchange Board of India (SEBI) through Listing Agreement, which is applicable to the listing companies only. According to OECD the Corporate Governance structure specifies the distribution of rights and responsibilities among different participants in the corporation, such as, the Board, managers, shareholders and other stakeholders spells out the rules and procedures for making decisions on corporate affairs. According to Sir Adrian Cadbury, “Corporate Governance is the system by which companies are directed and controlled……” Corporate governance may be defined as the broad range of policies and ethical practices which are adopted by an organisation in its dealing with the stakeholders.

An extended model of corporate governance based on the fiduciary duties owed to all the firm’s stakeholders. How companies manage the business processes to produce an overall positive impact on the society. The responsibility of corporations to go above and beyond what the law requires them to do. The responsibility of corporations to contribute to a better society and cleaner environment. 

The conceptualization of CSR was, initially, purely in terms of philanthropy or charity. However, the post-liberalization phase has seen a fundamental shift from this philanthropy-based model of CSR to a stakeholder- participation based model. Furthermore, CSR is gradually getting fused into companies’ Corporate Governance practices. Both Corporate Governance and CSR focus on the ethical practices in the business and the responsiveness of an organisation to its stakeholders and the environment in which it operates. Corporate Governance and CSR results into better image of an organisation and directly affects the performance of an organisation. The OECD principles on Corporate Governance, UN Global Compact Participation throw light on CSR scheme but in India CSR, by virtue of clause 49 of the listing agreement, have been made totally optional. It is pertinent to mention here that transparency, disclosure, sustainability and ethical behaviour is central theme in both CSR and Corporate Governance. Further, it is worthwhile to mention that CSR is based on the concept of self governance which is related to external legal and regulatory mechanism, whereas Corporate Governance is a widest control mechanism within which a company takes it management decisions. Furthermore, the objectives and benefits of CSR and Corporate Governance are similar in nature, some of them are stated herein below:

l   Rebuilding of public trust and confidence by increased transparency in its financiaaswell as non-financial reporting and thereby increasing the shareholder value.

l    Establishing strong brand reputation of the company.

l   Making substantial improvement in its relationship with various stakeholders.

l   Contributing to the development of the region and the society around its area of operation

l  Addressing the concerns of its various stakeholders in a balanced way so as to maintaining a strong market position.

      

Furthermore, it may be worthwhile to note that in case of unlisted companies there is not robust system of corporate governance, although there are some provisions in the Companies Act, 1956, in this context the relationship between Corporate Governance and CSR is very important and significant.

Overall, corporate governance debates support the need for an institution between CEOs and shareholders to efficiently discipline CEOs, represent shareholders, and eventually represent other stakeholders: the board of directors (or supervisory board). Accordingly, this amounts to allocate a key role to boards of directors in the elaboration and conduct of CSR strategies responding to stakeholders ‘demands

Source: Patricia Crifo, Antoine Rebérioux, “CORPORATE GOVERNANCE AND CORPORATE SOCIAL RESPONSIBILITY: A TYPOLOGY OF OECD COUNTRIES: ,  Journal of Governance and Regulation / Volume 5, Issue 2, 2016



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