Corporate Governance can be defined as the manner in which an organization is governed and the different members of the firm are managed at large. In the same way, the Corporate Social Responsibility can be stated to be the responsibility of the firm towards the welfare of the organization at large. The company is a part of the society and that makes the company highly responsible for the overall development of the society. The company needs to take into consideration the impact it leaves on the different stakeholders as well so as to ensure that it is being able to gain considerable success in the long run. The stakeholders not only involve those individuals who invest in the firm but also involve those individuals who are liable to invest in their time and efforts for the company. These individuals are the employees, the customers, the suppliers and the general public at large. However, very often the business fails to do so and the result is that it is unable to enhance the shareholder value. According to Tricker and Robert (2015) has mentioned that if the business is able to engage in a good relationship with the different parties like the employees, develop effective relationships with the suppliers as well as the customers so as to ensure that they will be able to form a good standing in the business environment.
Hence, the primary aim of the given report is to highlight the importance of maintaining good relationships with the different stakeholders in light of the discussion on corporate governance theory and the principles of Corporate Social responsibility. The corporate governance and corporate social responsibility are taken to be certain business practices which should be employed by the different businesses as present in the economy. The report will highlight the meaning and contribution of the same and thereby critically analyze the statement of National Association of Pension Funds, Guidance on Good Corporate Governance (1996) on the same.
The corporate governance can be stated to be the mechanisms, processes and relations which an organization is required to control and direct. The studies concerning the corporate governance identify that in a workplace, the rights as well as the responsibilities among the different parties must be equally distributed so as to ensure that the company functions in a balanced way. The different participants in a corporation can be stated to be the board of directors, the managers, the creditors, the auditors, the regulators and other related stakeholders at large. According to Velnampy (2013), the different decision making aspects of the organization should comply with the corporate affairs. The corporate governance should comply with the procedures and the overall objectives of the firm in context of the external environment. The primary reason why the practices need to be aligned accordingly is due to the interest of the stakeholders. Many organizations have ignored the particular procedure of corporate governance and with respect to this, there was a huge fall out of the modern organizations and corporations during the period 2001-2002 and the period of 2008. The corporate scandals have involved the breakdown of various companies like Enron, MCI Inc., Parmalat and Clerp 9.
The stakeholder interests form the primary concern of the organization whereby the different stakeholder groups like the shareholders, trade creditors, suppliers, communities as well as customers which affect the different operations of the company. The internal stakeholders comprise of the employees, executives and the board of directors. A primary concern of the different principles of the corporate governance comprise of the conflict management which takes place between the different stakeholders. These stakeholders largely involve the parties like the owners, shareholders, employees, management and others. These conflicts need to be largely mitigated by the process of customs, policies, procedures, institutions, laws as well as regulations.
Hence, the corporate governance can be stated to be the system of various practices, processes and rules which a firm generally uses to direct and control the overall workplace. The corporate governance comprises of ensuring that the balance is achieved and various controls are designed to do the same.
The concept of corporate governance is generally aligned around the major theoretical frameworks and the most popular theories of corporate governance will be discussed in the following section.
Agency theories
The agency theories are the theories which come into the view as a point of differentiation between the shareholders of a firm who can be stated to be the principals and the designated management which can be stated to be the agents of the principals. It is argued that the agent must always look out for the principals and that any loss which the party is affected by can be contributed to the different agents. This is where the conflict comes into consideration. Hence, a hands on approach on behalf of the different stakeholders should exist which shall allow the different parties to take the decision accordingly.
The Stewardship theories
The stewardship theories of corporate governance serve as a guidance to the managers as well as stakeholders and thereby presents an argument that the managers are the stewards of the firm and hence, they should not be highly controlling. Instead the board should be such that it supports the executives and thereby leave a scope for a good performance in the workplace at large. For this reason, the stewardship theory outlines that the relationship between the board and the different executives should be that of training, mentoring and that of mutual understanding.
Resource-Dependence Theories
According to Philstar.com (2018), the resource dependence theories are the theories that in order to ensure that the different executives achieve the goals of the organization, they need to be provided with adequate resources, which shall allow them to function adequately and be able to live up to the expectations of the firm at large. The particular theory suggests that the financial, human and other types of expertise can be given to the different executives so as to ensure that the network of the firm improves and the decision making lies in the hands of the executives at large.
Stakeholder Theories
Lastly, the stakeholder theory comprises of the acute assumption that it is not only the stakeholders who have a stake in the overall performance of the company but also the different stakeholders like the clients, suppliers and other supporting communities as well who are largely affected by the overall welfare of the company. Hence, it becomes the obligation of the management to ensure that the stakeholders receive a fair return from their stake in the company as well. In this context, it needs to be noted that the board needs to act as a guardian of the stakeholders and guide them effectively.
Corporate Social Responsibility can be stated to be the manner in which the business regulates itself and seeks to improve its operations at large. The CSR can be stated to be the internal policy or ethical strategy so as to ensure that the firm is able to fulfill its duties not only towards the stakeholders and fulfill the profit motivates but also fulfills its duties with respect to the beyond industry initiatives. According to Philstar.com (2018), earlier the initiative was considered to be a self-regulation but at present the CSR has been defined as the legal regulations which the organization is required to follow and a certain percentage of the organization`s initiatives have to be contributed towards the different CSR activities at large.
The CSR is often considered to be an organizational policy and hence, the business is required to take considerable initiatives in order to ensure that the CSR becomes a part of the organization and that the different members are easily able to fulfill their duties with respect to the goals of the firm. There are a wide set of principles which are available for the CSR of the company and in addition to this, certain models suggest that the CSR must go beyond the compliance levels and actually engage themselves in activities such that go beyond the general duty of the organization and engage in the social good of the environment. While compliance can be stated to be largely associated with law, going beyond is an effort which is taken by the different organizations for their personal good. According to Philstar.com (2018), the reason why a business engages in CSR may be as follows:
The CSR activities go a long way in ensuring that the company makes a positive impact on the environment and the different consumers, employees, investor’s communities and other related parties. In addition to this, if the firm engages in an effective CSR activities then it will be successfully able to engage in long term benefit for the overall benefit of the firm at large.
As stated earlier, the corporate governance can be defined as the set of practices which are generally practiced in an organization for the overall management of the same. The corporate governance of a firm has a long term positive impact on the overall functioning of the firm at large and ensures that the firm is being able to improve its positioning in the business environment. A good corporate governance goes a long way in ensuring that an organization is able to largely benefit from the overall operations at large. According to Grayson and Adrian (2017), the different benefits of a good Corporate Governance cannot be sustained and ensures that the firm is able to gain corporate success and growth. In this context, the example of Apple can be taken which by ensuring that when a firm tries to engage in a good corporate culture it will successfully be able to ensure that the firm succeeds in its overall operations. Additionally, a strong corporate governance and practice ensures that the firm is able gain as well as maintain investor`s confidence which thereby results in the ability of the company to raise the capital available efficiently. According to Jacoby (2018), the corporate governance also goes a long way in ensuring that the firm is able to lower its capital costs because the overall operations of the firm can be improved at large which then leads to the improvement in the firm`s credibility.
In addition to this, the share price of the firm also increases which is the sole purpose of the overall report which tries to ensure that the firm needs to engage in effective corporate governance and corporate social responsibility in order to ensure that the overall standing of the firm increases at large. Moreover, it also ensures that it acts as an inducement for the owners and the managers so as to balance out the interest of the different parties. Lastly, it engages in effective practices to minimize corruption, avoid wastages and avoid risks such that, the organization will be successful in ensuring the overall operations.
According to Servaes and Tamayo (2013), the companies who want to attract a large amount of capital and thereby enhance their shareholder value will be required to ensure that the company has a good corporate governance. Hence, with respect to this, firms life HSBC Banks, Pepsi, HDFC Bank in India, Tata Motors and others, have adopted a considerable good governance to ensure that the actions of the owners and the stewards can be taken. The professional talents which are hired in the firms need to have the capability of running the company and considering the needs of all the members as present. The reason why the shareholder value increases is because the perception of the firm in the eyes of the different consumer changes considerably. Tai and Shu-Hao Chuang (2014), argues that when the different stakeholder observes that the organization has been treating them well and that as it is able to build strong relationships with all the members as present. For this reason, the shareholder perceive that if the organization is able to treat its different stakeholders well, it will be able to ensure that the firm is a trusted one.
Crane , Matten and Spence (2013), on the other hand, the corporate social responsibility can be rightfully defined as a capability which is taken by the organization for the overall welfare of the firm and in lieu of this, it becomes considerably important for the business to engage in these activities as it also assist the firm in improving the overall positioning of the firm and thereby having a positive impact on the shareholder value of the firm. The different benefits of the corporate social responsibility can be stated to be that the financial performance of the firm increases considerably because when the stakeholders view a balanced view, the employment growth as well as the growth rate increases considerable. According to Saeidi (2015), the corporate social responsibility also leads to an enganced brand image as well as the reputation for which the firm can gain capital much easily than compared to those firms who are not engaged in any CSR activity. Not only the brand image improves, but the overall sales and customer loyalty of the firm also improves conditionally which acts as a good source of income for the overall benefit of the firm at large.
According to Philstar.com (2018), this then contributes towards the firm`s ability to attract a large number of employees and ensure that the firm is easily able to meet its CSR commitments as well. In this manner, it becomes easier for the firm to engage in a considerable benefits which arise from the CSR functions. Lastly, not only does the image of the firm improve but also assists in ensuring that the regulatory oversight of the firm is reduced considerably which then assists the firm to perform well. However, in the context of the statement related to the Shareholder value as mentioned by National Association of Pension Funds, Guidance on Good Corporate Governance (1996), it can be mentioned that the CSR activities tend to contribute towards a value gains as the different stakeholders are socially very conscious and with respect to this, they believe that if they are successfully able to engage in the different CSR activities then it leads to higher returns for the firms. In addition to this, the CSR activities also contribute towards improving the operating performance which means that when the overall labor productivity and other attributes tends to increase then it leads to an increase in the operating performance of the firm. This in turn reflects on the improved shareholder value of the firm. According to this Mishra and Mohanty (2014), the CSR tends to decrease the marginal returns which will then ensure that the rising financial performance of the firm tends to have a positive impact on the shareholder value at large.
According to Cheng, Ioannou and Serafeim (2014), the corporations have a positive impact on the long term performance by operating from a CSR perspective. The relationship between the social as well as the financial performance of a firm is huge and that it is recommended that the firm should engage in acute CSR activities so as to ensure the success of the organization at large. However, it needs to be noted that, CSR is not only concerned with the environmental point of view but is also largely concerned with the healthy relationships a firm shares with its employees at large. Not only employees, it becomes critical for the firm to ensure, that the organization is able to engage in an effective relationship with the suppliers and customers as well. William (2016), states that this can be done by engaging in a fair dealing policy with the suppliers, engaging in employee engagement which ensures long term success. Engagement of the firm in fair product quality and customer support so as to ensure that the overall profits of the firm tends to increase at large. The different companies like the Apple, Cisco systems, Zappos, 3M, IBM and Deloitte tend to engage in considerable CSR activities which has then helped them to perform well in the designated market. The CSR also enables to aid the mission of a firm and serves as a considerable guide to the company in order to help them to fair a good positioning for themselves. The ISO 26000 Standard is generally used by the different companies in order to ensure successful CSR and lastly, some organizations also like to engage in the Triple bottom line effect so that the activities benefit the overall operations of the firm at large.
Conclusion
Therefore, from the given analysis it can be stated that any organization which wants to attain success in the long run would be required to ensure that the firm is successfully able to engage in the operations which help the firm in improving its relationships with different parties like the customers, suppliers, employees and the general public at large. In this manner, the shareholder value of the firm improves and the organization benefits at large. The report examined the manner in which the shareholder value is largely dependent on the performance of the firm and its relationship with the different stakeholders in the light of corporate social responsibilities and the corporate governance. The concepts of these were explained which was then followed by the critical analysis of the statement as given by the National Association of Pension Funds, Guidance on Good Corporate Governance (1996).
References
Journals
Armstrong, Christopher S., et al. “Corporate governance, incentives, and tax avoidance.” Journal of Accounting and Economics 60.1 (2015): 1-17.
Baumann-Pauly, Dorothée, et al. “Organizing corporate social responsibility in small and large firms: Size matters.” Journal of Business Ethics 115.4 (2013): 693-705.
Breitbarth, Tim, et al. “Corporate social responsibility and governance in sport:“Oh, the things you can find, if you don’t stay behind!”.” Corporate Governance 15.2 (2015): 254-273.
Cheng, Beiting, Ioannis Ioannou, and George Serafeim. “Corporate social responsibility and access to finance.” Strategic management journal 35.1 (2014): 1-23.
Claessens, Stijn, and B. Burcin Yurtoglu. “Corporate governance in emerging markets: A survey.” Emerging markets review 15 (2013): 1-33.
Deng, Xin, Jun-koo Kang, and Buen Sin Low. “Corporate social responsibility and stakeholder value maximization: Evidence from mergers.” Journal of financial Economics 110.1 (2013): 87-109.
Flammer, Caroline. “Corporate social responsibility and shareholder reaction: The environmental awareness of investors.” Academy of Management Journal 56.3 (2013): 758-781.
Frederick, William C. “Commentary: corporate social responsibility: deep roots, flourishing growth, promising future.” Frontiers in psychology 7 (2016): 129.
Khan, Arifur, Mohammad Badrul Muttakin, and Javed Siddiqui. “Corporate governance and corporate social responsibility disclosures: Evidence from an emerging economy.” Journal of business ethics 114.2 (2013): 207-223.
Kraakman, Reinier, and Henry Hansmann. “The end of history for corporate law.” Corporate Governance. Gower, 2017. 49-78.
McCahery, Joseph A., Zacharias Sautner, and Laura T. Starks. “Behind the scenes: The corporate governance preferences of institutional investors.” The Journal of Finance 71.6 (2016): 2905-2932.
Mishra, Supriti, and Pitabas Mohanty. “Corporate governance as a value driver for firm performance: evidence from India.” Corporate Governance 14.2 (2014): 265-280.
Saeidi, Sayedeh Parastoo, et al. “How does corporate social responsibility contribute to firm financial performance? The mediating role of competitive advantage, reputation, and customer satisfaction.” Journal of business research 68.2 (2015): 341-350.
Servaes, Henri, and Ane Tamayo. “The impact of corporate social responsibility on firm value: The role of customer awareness.” Management science 59.5 (2013): 1045-1061.
Tai, Fang-Mei, and Shu-Hao Chuang. “Corporate social responsibility.” Ibusiness 6.03 (2014): 117.
Books
Crane, Andrew, Dirk Matten, and Laura Spence. “Corporate social responsibility in a global context.” (2013).
Du Plessis, Jean Jacques, Anil Hargovan, and Jason Harris. Principles of contemporary corporate governance. Cambridge University Press, 2018.
Grayson, David, and Adrian Hodges. Corporate social opportunity!: Seven steps to make corporate social responsibility work for your business. Routledge, 2017.
Jacoby, Sanford M. The embedded corporation: Corporate governance and employment relations in Japan and the United States. Princeton University Press, 2018.
Schwartz, Mark S. Corporate social responsibility. Routledge, 2017.
Tricker, RI Bob, and Robert Ian Tricker. Corporate governance: Principles, policies, and practices. Oxford University Press, USA, 2015.
Velnampy, T. “Corporate governance and firm performance: a study of Sri Lankan manufacturing companies.” (2013).
Websites
Bloombergquint.com India`s most transparent companies . 2018. https://www.bloombergquint.com/business/these-are-indias-most-transparent-companies 10. Dec. 2018.
Philstar.com Good corporate governance. 2018. https://www.philstar.com/business/2017/09/02/1735171/good-corporate-governance-boosts-shareholder-value#s8PMMXzplaPUVarM.99 10. Dec. 2018.
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