CG and CSR interrelationships Flashcards
Difference between CG and CSR
o With increasing demand from society for organisations to take on sustainable practices the corporate governance of firms has to change the way that they operate to meet these stakeholder demands.
o CG is the notion of “being held accountable for”, whereas CSR means “taking account of”, thus when a company’s governance sets policies to promote sustainability, CSR is acting as the mechanism which undertakes this standard.
o Essentially, CG is doing the talking and CSR is doing the walking in the interests of stakeholders.
- CG as a pillar of CSR
o CG can be seen as a pillar of CSR where a clear and structured set of principles must be established from the board of directors so all employees and stakeholders understand their role and vision of the company. This is essentially a building block for CSR to stem from, as it assists in providing a direction for the company to follow.
o This interrelationship will not only help increase firm value, performance and competitiveness, but will also help increase trust and strengthen relationships with stakeholders.
- CG as a dimension of CSR
o Another relationship that can be considered is CG as a dimension of CSR, where it is the responsibility of CG to identify and mitigate posing risks, where CSR can help further mitigate risk, particularly non-financial ones. It is in a company’s interest to operate in a socially responsible way, which is led by the governance of a company.
- CG as a continuum of CSR
o The final relationship that can be modelled is CG as a continuum of CSR, which relates to the purpose of both mechanisms to improve performance and conformance. In the absence of conformance, which stems from a strong corporate governing, performance cannot improve because there is a lack of assurance to stakeholders that the company is working efficiently and effectively to achieve its goals. When put into practice, CSR will help drive better financial and non-financial performance, whilst also ensuring their compliance.
- Sustainability push helps with credibility
o Overall, with these increased efforts towards sustainability their credibility will increase helping them have a more competitive edge, which are not possible without both CG and CSR working in sync.
o This ideology strongly coincides to how CG characteristics can shape CSR, for example having a single leader versus dual leadership will affect how CSR responsibilities are carried out. Dual leadership is where the CEO and Chairman of the company are separate. This will mean greater monitoring and accountability for the company, as the CEO has less power due to the greater segregation of duties. As a result, a company will be more likely to report more on CSR and take necessary action toward a sustainable course of business.
- Institutional investments
o Institutional investment helps shape CSR, as they tend to lean towards greener products in the interests of society and long-term benefit. Without such investors will mean a dispersed ownership model that will likely not enforce or encourage CSR to a great extent.
