2.5. Corporate Governance Mechanisms
In addition to CSR and company performance, corporate governance mechanisms are key variables which might affect the relationship between CSR and company performance. Corporate governance is defined from a broad perspective by Gillan & Starks (2003) as “the system of laws, rules, and factors that control operations at a company” (p. 2). Corporate governance mechanisms within a company protects shareholder interests and reduces the frequently occurred agency problem (Stuebs & Sun, 2015; Bushee, Carter & Gerakos, 2014). Due to the implementation of corporate governance mechanisms, shareholders have a greater control over the managerial decisions and actions, which prevents the agency conflict and creates trust
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Previous academic studies confirmed a statistically significant positive relationship between corporate governance mechanisms, CSR and company performance (Harjoto & Jo, 2011; Neubaum & Zahra, 2006; Johnson & Greening, 1999; Stuebs & Sum, 2015). Therefore, Johnson & Greening (1999) concluded that corporate governance mechanisms affect the relationship between CSR and company performance and that these mechanisms are crucial to incorporate. Based on previous literature, board structure, managerial incentives, antitakeover measures and ownership structure can be determined as the main components of corporate governance (Gillan, 2006; Bhagat & Bolton, 2008). Nevertheless, Hess (2007) argued that the term corporate governance is expanding and that the term no longer includes only the traditional components such as managerial compensation, board structure and antitakeover devises. The author concluded that non-financial criteria, such as sustainability and CSR are also incorporated in the term corporate governance nowadays (Hess, 2007). Through CSR and sustainability, companies are more long-term focused, reduce risk and improve shareholder value creation (Hess, 2007).
Even though there are various views on the main components of the term corporate governance, this study will examine board structure, managerial incentives, antitakeover measures and ownership structure in more detail to see how these mechanisms are used to reduce the so-called agency conflict and how the relationship between CSR and company performance is affected (Gillan, 2006; Bhagat & Bolton,
Corporate Social Responsibility (CSR) is the way a corporation achieves a balance between its economic, social, and environmental responsibilities in its operations so as to address shareholder and other stakeholder expectations. In general, when firms hold this wider encouraging role on the public by being engaged with stakeholders, a variety of profit can be produced for both company and the stakeholders. A key inclination is the combination of Corporate Social Responsibility (CSR) into the organization strategy, culture, mission and communications. By incorporating corporate citizenship into the company it is no longer an additional “nice thing to do” or something made to obey laws or regulations. Instead, corporate responsibility has become something business leaders and workforce want to engage in, frequently because executives who believe in the long-term see business profit. The four types of social responsibilities a...
There is major concern for corporate management whether there is a direct relationship between corporate social responsibility and financial performance. There is need for assessing the validity of the relationship between CSR and financial performance .Macguire, sundgren and schneweels (1986) argued that previous research has yielded mixed results regarding the relationship between CSR and measures of financial performance. Reviews by Cochran and Wood (1984) and Ullman have all found mixed results regarding the relationship between CSR and a firm’s financial performance. Ullman suggested that the results may have been derived from differences in research methodologies and measures of financial performance
In recent years, more people begin to accept the concept of corporate social responsibility. Companies also pay more attention to the activities of CSR and investment. In addition to face the pressure of the environment and the social moral level, the enterprise managers also have the responsibility of the company 's performance and the value of the shareholder 's wealth. Therefore, enterprises need to pay more attention to the relationship between corporate social responsibility and financial performance.
"Principles of Corporate Governance." 2012. The Harvard School of Law Forum. Ed. Noam Noked. Web. 2 April 2014. .
A corporations CSR should be shaped in order to fit the goals of the corporation, although every corporation’s CSR should differ, since most have different goals and different communities behind them. The CSR should be molded into fitting the corporation’s goals in order to make it easier on the corporation in giving back to the community while achieving its goals. For example, a corporation located in a desert wishes to be more efficient, by reducing water usage it is not only creating lower costs, which result in higher revenue, but also helps the community by not taking up so much water. Taking this into consideration, it is critical that the corporation goals and values are established and clear throughout the corporation, they should be developed by the board or directors and CEO, and the highest managerial level should stress their importance to the rest of the corporation. By making the goals and values at the top branch of the corporate hierarchy, it will be simpler for the corporates community to develop in order to nurture those goals and values. Therefore, a corporation can reach the “shared-value,” a value for both its shareholders and community in a simpler manner that can result benefiting the corporation in the end as well. Throughout the article many examples are given of actual corporations that have benefited and changed their CSR in order to fit their goals, therefore, providing solid proof that these methods work. Nevertheless, as acknowledged by the author’s themselves, most of the corporations taken into consideration where one’s that Harvard CSR students were employed
Bibliography: Turnbull, S. (1997). Corporate governance: its scope, concerns and theories. Corporate Governance: An International Review, 5 (4), pp. 180--205.
Corporate governance often refers to a set of rules and principles by which a company is directed. It provides a guideline for directing a company in order to fulfil its objective, brings added value to the enterprise, and is beneficial to the shareholders in long-term. (1) The rules and principals of corporate governance to an extent might be different in various companies, but some of these rules are similar in all the firms; such as accountability and responsibility towards the shareholders and commitment to conducting business in an ethical manner. (2)
This would result in a systematic growth and development for the company while all the stakeholders would receive the benefits (Sun & William, 2009). Corporate governance has a great impact on the society and the organization itself. Through the CSR activities all the stake holders are benefited by the company equally. It maintains ethical standards by which the society is greatly affected. Corporate governance helps in providing the necessary benefits to all the workers of the
Tsui, J., & Gul, F. A. (2002). Consultancy on a Survey on the Corporate Governance Regimes in Other Jurisdictions in Connection with the Corporate Governance Review. Hong Kong: CityU Professional Services Ltd.
In recent years, there have been a growing number of companies that have an explicit Corporate Social Responsibility (CSR) plan. As stated by European Commission (2001), CSR is defined as “a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.” It is believed that the motives for CSR are gradually converting from philanthropic rationale to performance-driven orientation, but the question of better company performance resulting from the implementation of CSR has often been the centre of debate. The purpose of this paper is to examine how CSR can positively contribute to company performance, which refers to the quantitative values such as profits and stock price. This paper begins by reviewing how investors and managers perceive CSR as a value-creating tool. It will then go on to discuss how CSR helps to build employer-employee relationship and customer loyalty.
As a result of modern corporate scandals and rapid development of international business environments, social responsibility (SR) has become a key aspect of corporate competitive contexts. (Brammer, Williams and Zinkin, 2007). Businesses are under increasing pressure to incorporate SR amongst their profit-driven aims and have become increasingly accountable for their social and environmental actions. Increased interest in CSR developed in the mid 1990s as consumers began to lack their former trust in companies due to both environmental and financial scandals and it became noticeable that society was moving towards values incorporating harmony, quality of life and environmental conservation (Carrasco, 2007) Additionally, major corporate failures over the past two decades have resulted in increased demand for stronger, corporate governance (CG) rules. (Sui, Wright & Evans, 2007). Superior CG rules are needed in order to preserve the integrity of corporations, financial institutions and markets and the health and stability of world economies. (OECD Website)
The dependent variable of this study is awareness of CSR Planning. CSR awareness is about corporate responsibility in how the corporate inculcates knowledge and interest to ensure employees (Abdullah & Khairuddin, 2013) concern in the importance of CSR. Social awareness is seen as one of the key mechanisms of consciousness-raising, the other being social action (Greene & Kamimura, 2003). The meaning of planning is the process of making plans for something (Oxford Dictionary). According to the Bowen (1953) cited in Abdullah & Rashid (2012), social responsibility speak of to the responsibilities of businessman to pursue those rules, to make those conclusions or to follow those lines of action, which are necessary in terms of the objectives and values of our society. By having a CSR planning, a corporation can define what activities they have the resources to offer to be socially responsible and can choose that which will toughen their competitive advantage (Ballowe, 2009). Furthermore, a company can ensure that profits and growing shareholder value don’t dominate the need to behave ethically to their stakeholders as mentioned by Ballowe, 2009. CSR planning process is essential to have a clear agenda for long and short run CSR activities (Paul & Murthy). Furthermore it can clear out any form of confusion of the whole CSR approach in terms of its financial execution, assessment, and allocation (Paul & Murthy). CSR is not an “unreturned investment”, but rather a TBL investment, bringing positive outcomes or benefits to the profit, people and planet if it is managed strategically and systematically. People stand for determining organizational achievement on social issue (Goel, 2010). Social performance addresses connections between a bu...
K, . N., ER, w., DAVID, K., PAUL, M., WALTER, O., & EVANS, A. (2012). Corporate governance theories and their application to boards of directors: A critical literature review . Prime Journal of Business Administration and Management (BAM), 2(12)(2251-1261), 782-787.
Nottingham Trent University. (2013). Lecture 1 - An Introduction to Corporate Governance. Available: https://now.ntu.ac.uk/d2l/le/content/248250/viewContent/1053845/View. Last accessed 16th Dec 2013.
According to this notion, corporate social responsibility leads to a better firm financial performance. While this direct relationship between corporate social responsibility and the firm financial performance has been examined repeatedly with results pointing to a positive relationship, this direct test is vague and invalid (Saeidi et al., 2015, p. 341). According to a study by Saeidi et al. (2015), competitive advantage, corporate reputation and customer satisfaction are the three mediators in the relationship between CSR and firm performance. Customer satisfaction leads to customer loyalty, causing customers to buy the products offered by the firm more frequently and consistently high customer satisfaction over a long period of time strengthens the corporate reputation and leads to higher sales growth and higher returns on assets, working wonders for the financial status of the firm (Saeidi et al.,