Corporate Governance and Corporate Social Responsibility Essay

Corporations have shown an increasing involvement in Corporate Governance and Corporate Social Responsibility in the recent old ages. Many writers have claim that CSR is an drawn-out theoretical account of CG and hence in order to be successful in its CSR plan, a company must be successful in its CG. While CG trades with the internal handling of a company, like accounting processs, general concern moralss and proper concern guidelines, CSR complement this by specifically covering with the stakeholders like the environment and the populace. From the research they carried out, Dima Jamali, Asem M. Safieddine, and Myriam Rabbath claimed that there is an convergence between corporate administration and CSR in that both constructs give importance to the constructs like answerability, transparence and honestness ( Jamali et al. , 2008 ) .

Actually corporations and leaders of the concern universe started to acknowledge the importance CG and CSR in the late seventiess. While in 1977 less than half of the Fortune 500 corporations listed CSR in their one-year studies, that figure increased to about 90 % by 1999 ( Boli and Hartsuiker, 2001 ) . But the true worth of CG and CSR acknowledge at the beginning of twenty-first century when corporations started to truly complied to Codes of Conduct which they established ( Lee, 2008 ) . The chief grounds behind the increased involvement in the two constructs are the recent fiscal dirts and increased stockholders activism. Fiscal dirts like Enron and WorldCom earlier this decennary non merely caused public outrage around the universe, but besides drove a concern for proper answerability and greater transparence. This forced leaders of investing and concern community to reexamine the full “ set of procedures, imposts, policies, Torahs, and establishments impacting the manner a corporation is directed, administered or controlled ” in order to win back the assurance of clients and investors likewise. Second, late corporations must confront stockholder activism through growing of Social Responsible Investors. In fact it is the growing of ethical investing which persuaded corporations to give greater attending to CSR ( Lydenberg and Grace, 2008 ) .

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In the wake of fiscal dirts which caused the chronic loss of trust in systems that were in topographic point, it became really hard for Corporations to disregard their ethical duties. In the old ages after the prostration of concern giants like Enron and WorldCom, good corporate administration implied corporate ethical motives and ethical behaviour which could be illustrated in answerability mechanisms, transparence, and revelation.

Recently the term “ corporate administration ” has been described as “ the set of procedures, imposts, policies, Torahs and establishments impacting the manner in which a corporation is directed, administered or controlled ” .

Adrian Cadbury defined Corporate Governance as “ a system by which corporations are directed and controlled. ” ( Code of Corporate Governance, p.7 )

From the traditional position of the house i.e. the stockholder position, the stockholders are the proprietors of the company, and as such the house has to set their demands foremost and to increase value for them. By this theoretical account, houses merely address the demands of those four parties: investors, employees, providers, and clients. The Neo-Classic theoreticians were for this statement. In this way the high economic expert and former Nobel Prize winner Milton Friedman maintained that concerns ‘ sole intent is to bring forth net income for stockholders. In a Times magazine article published in 1970, he stated “ actions in agreement with ‘social duty ‘ cut down returns to shareholders ” and companies passing on societal actions are consuming stockholders ‘ money.

However, another school of idea besides known as the stakeholder theorists argue corporate administration extend to other parties like governmental organic structures, trade associations, trade brotherhoods, communities, , prospective employees, prospective clients, and the populace at big. In 2004, Monks and Minow provided a list of components in which they include managers, directors, employees, stockholders, clients, creditors, providers, community members and the authorities ( Monks and Minow, 2004, p. 9 )

Corporate administration can be defined as being the ways in which all parties interested in the public assistance of the house attempt to guarantee that directors and other executives do n’t take full advantage of weak codification of pattern and guidelines and intentionally work the agency-principal trust. Thus CG should vouch that executives take steps or follow mechanisms that safeguard the involvements of the stakeholders.

In the aftermath of the fiscal dirts, corporate administration has call attending to issues that go beyond this traditional focal point to touch on corporate moralss, answerability, revelation, and describing. Desiring to reassure regulators and investors that they are to the full crystalline and accountable, corporations have progressively pledged their committedness to honest and just corporate administration rules based on the house belief that good administration and leading will assist reconstruct assurance once more. A study produced by Professor Stephen Cheung of Hong Kong ‘s City University has found that companies with better corporate administration criterions have a higher market value and hence more attractive in the eyes of investors.

Cadbury even states that “ in its broadest sense, corporate administration is concerned with keeping the balance between economic and societal ends and between single and communal ends ” ( Code of Corporate Governance, p.7 )

To include the involvements of non-investing stakeholders in corporate administration is in fact really ambitious.

The Ethical Investment Research Services gave a wider definition of CG by saying that ( Maier, 2005, p. 5 ) : “ Corporate administration defines a set of relationships between a company ‘s direction, its board, its stockholders and its stakeholders. It is the procedure by which managers and hearers manage their duties towards stockholders and wider company stakeholders. For stockholders it can supply increased assurance of an just return on their investing. For company stakeholders it can supply an confidence that the company manages its impact on society and the environment in a responsible mode ” . In this definition of Corporation Governance, direct allusion is made to Corporate Social Responsibility in the sense that the corporate societal duty ( CSR ) motion laid greater accent on thought of utilizing corporate administration as a mean for forcing direction to see broader ethical considerations.

In position to convey about greater investor answerability and stakeholder of these procedures, big public companies have late created mechanisms of corporate administration. Some of these mechanisms include CSR board commissions, company units covering with concern moralss, corporate codifications of behavior, non-financial coverage patterns, and stakeholder ailment and duologue channels, among others. All of these administration schemes are usually applied on a voluntary footing to represent what is referred to as “ corporate ego ordinance, ”


In fact it is CSR that brought about the dramatic advancement made by companies in recent old ages in equilibrating stockholder ends with the demand to cut down outwardnesss that impact other stakeholders. corporations that are socially responsible are more familiar to public, environmental, and societal demands and more to it by prosecuting corporate administration as a model, boards and directors are encouraged to handle employees, consumers, and communities likewise to, if non the same as, stockholders.

This can be declarative of a convergence between corporate administration and societal duty. While corporate administration is bit by bit going a model for guaranting the public involvement in concern and showing its good citizenship, CSR is progressively establishing itself on corporate administration as a window on the company ‘s scruples and long-run committedness to stakeholder answerability.

For many old ages, CSR has been a really controversial subject in the fact that the pattern of CSR has been much debated and criticized. While some say that it distract corporations from its primary purpose of doing net incomes for its stockholders, others maintain it is there merely for window dressing chiefly used as a selling run to heighten corporate repute and public dealingss. CSR is besides perceived as a barrier to free trade.

The phrase “ corporate societal duty ” was foremost used in 1953 by Howard R. Bowen in his book ‘Social Responsibility of Businessmen ‘ . Bowen argued that Businessmen ought to presume duty of the system of free endeavor and act thenceforth for the system to boom ( Maak, 2008 ) .

On one side, the Neo-Classic theoreticians argued that the lone duty of a house to society is to increase net incomes. This position is possibly best illustrated by the sentiment of Friedman ( 1970 ) who argued that “ the societal duty of concern is to increase net incomes. ” He claimed that stockholders would endure because of higher costs associated with

Friedman viewed CSR as an extension of houses ‘ attempts to maximise stockholders ‘ wealth but besides conformed to basic regulations of society ( Friedman, 1970 ) .

On the other manus, R. Edward Freeman and others argued it is impossible to unplug concern from moralss ( Freeman, 1994 ) . In 1984, Freeman introduced the Stakeholder theory ; he defined stakeholders as anyone that affects or is affected by corporate policies and activities ( Freeman, 1994 ) .Freeman believed that he believed that all stakeholders need to hold their voices heard. In 1995 writers Donaldson and Preston farther expand Freeman ‘s thoughts were farther expanded to a new focal point on moral and ethical dimension ( Donaldson and Preston, 1995 ) . In malice of the fact that the construct of corporate societal duty is non trade name new and has evolved well in the last few decennaries, no universally acceptable definition of corporate societal duty exists. Many faculty members have tried over the old ages to specify CSR because deficiency of proper definition has made theoretical development and measuring hard ( Godfrey and Hatch, 2007 ) . A recent, but widely accepted definition was created by McWilliams, Siegel and Wright ( 2006, p.1 ) and they believed that CSR can be defined as “ state of affairss where house goes beyond conformity and engages in actions that appear farther some societal good, beyond the involvements of the house and that which is required by jurisprudence ”

Many writers maintained that CSR is motivated either by selfless statements or by net income maximization motivations. They maintained that many corporations undertake CSR programme in the purpose of capturing ethical investors looking for companies with positive repute and to better their image. Through their research and experience acquired a taking non-profit administration, Business for Social Responsibility, involved in CSR services, has concluded that companies have earned benefits from prosecuting in CSR activities. Benefits would include stronger trade name placement, corporate image, market portion and gross revenues. It besides helped to increase their ability to pull and retain employees and entreaty to investors and fiscal analysts. By cut downing struggles with their stakeholders CSR finally assist companies construct on their repute, hiking stakeholders ‘ assurance in covering with them.

CSR model

Harmonizing to A.B Caroll and A.K. Buchholtz, corporate societal duty can be defined as “ economic, legal, ethical, and discretional outlooks that society has of organisations at a given point in clip ” .

In 1991, Archie Carroll built a foundation for farther development of the CSR field by making “ The Pyramid of Corporate Social Responsibility ” with four identified constituents: economic, ethical, legal and discretional or philanthropic ( Carroll, 1999 ) . The theoretical account created a model that embraces the full spectrum of the society, but critics questioned the necessity of calling philanthropic as a individual point ( Malachowski, 2001 ) . As a effect, Carroll updated the theoretical account and renamed it “ The Three-Domain Model of CSR ” where the three constituents are: economic, legal and ethical. Carroll argued that the three constituents are all every bit of import and interact with each other, where some corporations might be labeled “ strictly ethical ” or “ strictly legal ” whereas others can be labeled as “ economic/legal ” and at last some might be labeled as a combination of all three, “ economic, legal and ethical ” ( Schwartz and Carroll, 2003, p.509 ) .

Hill, Ainscough and Manullang ( 2007 ) define CSR as the economic, legal, moral, and beneficent actions of houses that influence the quality of life of relevant stakeholders. In general, CSR describes how houses manage the concern processes to bring forth an overall positive impact on society and refers to functioning people, communities, and the environment in ways that go above and beyond what is lawfully and financially required of a house.

Hence it can be said that CSR promotes a vision of concern answerability to a broad scope of stakeholders, apart from stockholders and investors, who are more concerned about the protection of the environmental protection, the right of employees, the community and civil society in general, both now and in the hereafter. This is underpinned by the thought that corporations can no longer execute detached from the broader society, from which they take their resources without giving anything in return. Traditional positions about fight, endurance and profitableness are being carried off. One of the chief drivers for forcing concern towards CSR is the Demands for greater revelation. There is a turning demand for corporate revelation from stakeholders, including clients, providers, employees, communities, investors, and activist organisations. better revelation and greater transparence of information have become indispensable for concern survival..

Surveies conducted on developed states have shown that Corporate Social Disclosure ( CSD ) in one-year studies has increased over clip in response to a figure of factors. Some of the grounds may be attributed to additions in statute law, activities of force per unit area groups, ethical investors, economic activities, media involvement, social consciousness, and political relations. This is besides due to greater client involvement and turning investor force per unit area. There is clear grounds that the ethical behavior of companies wields a turning influence on the buying determinations of clients. In a study carried out by Environics International, they found out that more than one in five consumers reported holding either rewarded or punished companies based on their perceived societal public presentation. Furthermore Investors are altering the manner they assess companies ‘ public presentation, and are doing determinations based on standards that include ethical concerns. These purpose at promoting companies to develop a corporate scruples

There is besides a figure of peculiar issues that the companies see as of import and therefore unwrap them in the one-year study. It was found that the environment, employment chances, merchandise safety, educational assistance, contributions, employee benefits and community engagement were often mentioned countries. Research workers found that the highest revelations were by the human resource subject followed by the community engagement and environmental subject.

The CSD procedure is besides seen as a scheme taking at decreasing the spread between direction and stockholders via non-executive managers.

Information on location of the revelations is important in conveying the comparative importance of the revelation. The location of the revelation does demo the importance placed by the company on its pick of revelation. The common locations of these revelations are: ( a ) The president ‘s study,

( B ) The fiscal statements and notes to histories,

( degree Celsius ) The managers ‘ study and ( vitamin D ) The reappraisal of operations. In fact the location of the revelation indicates the importance placed by the company on revelations. Consequently from the point of view of the writers of the one-year study and of many readers of the study, it seems that CSD contained in the Chairman ‘s statement is likely to transport more weight than that contained in the elaborate notes to histories.

In 1986, Freedman and Jagi drew the decision that the chief medium of revelation is the one-year study.


Mauritius has non been spared from misdirection of stockholders ‘ fund and the state has known its portion of fiscal dirts. In the Restoration of public assurance in concern patterns, the Government and concern executives felt a demand to reevaluate the corporate administration government of corporations by puting up a Code of Corporate Governance. The “ Report on Corporate Governance for Mauritius ” ( Code ) , published in October 2003 and revised in April 2004, had for chief purpose of bettering ethical behavior of managers and senior degree staff members in the direction of both the populace and private sector companies. In this manner make a corporate landscape that attract Foreign and domestic investors and guaranting them that the state offers a corporate environment that protects their rights, secures their investings and conforms to recognized criterions of responsible concern behavior. Furthermore, corporate administration should take at heightening answerability, transparence, and equity to all stakeholders.

Hon. Sushil K.C. Khushiram, Minister of Economic Development, Financial Services and Corporate Affairs who presented the state ‘s Draft Code of Corporate Governance on 26 May 2003 stated that

“ aˆ¦ . corporate administration should take at heightening answerability, transparence, and equity to all stakeholders. Stakeholders include stockholders, creditors, providers, clients, employees, and other parties with whom the company engages in businessaˆ¦ . It includes considerations that would elate society in relation to sustainable development issues, environmental and societal concerns, stableness of employment, and wealth creative activity. The premiss is that a company that is good governed is crystalline and accountable to its stockholders and other stakeholders, including the broader community. ”

In this, we can clearly see the inclusion CSR in our Corporate Governance model.

The codification of CG in Mauritius is based on self-regulation, i.e, on a “ comply or explain ” footing. In fact Section 1 of the Code provides as follows:

“ The Code of Corporate Governance applies to the following concern enterprises.A In instance of non-compliance, these endeavors shall unwrap and explicate the grounds for their non-compliance. ”

Due deficiency of transparence and answerability of public involvement entity, and besides to recover trust of populace, the authorities has become more rigorous. The Finance Act 2004 has been revised in July 2009 and it is now a demand for Public Interest Entities to follow Corporate Governance on a comply and explain footing in order to follow with Financial Reporting Act Section 75

Section 75. Conformity by public involvement entities

( 1 ) Where a public involvement entity is required under any passage to fix a fiscal statement or study, it shall guarantee that the fiscal statement or study is in conformity with the fiscal coverage demands of this Act or any other relevant passage, any ordinances or regulations made under this Act and with the IFRS.

( 2 ) Every public involvement entity shall, capable to subdivision 6A ( 5 ) of the Statutory Bodies ( Accounts and Audit ) Act, adopt corporate administration in conformity with the National Code of Corporate Governance.

( 3 ) Where a public involvement entity does non follow corporate administration under subdivision ( 2 ) , it shall explicate its grounds in any fiscal statement or study referred to in subdivision ( 1 ) .


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