“Good governance cannot remain merely a philosophy. Concrete steps have to be taken for realizing its goals.”
———–Narendra Modi, Prime Minister of India
Businesses and their leadership are under increasing scrutiny for many reasons. Governance issues are at the centre of these attacks, yet there is still a lot of debate on what governance encompasses and its function.
With these mounting pressures, companies seek new and innovative solutions to help make the companies’ complex jobs more manageable. Yet, many current approaches fall short of transforming how companies govern. And one complication is the modest pace of change in company diversity. Despite some recent positive changes in gender diversity, this is still a far cry for the transformational change needed.
Corporate Social Responsibility (CSR) is the realization of business contributions to sustainable development goals. It refers to how business considers its economic, social, and environmental impacts in the way it operates – maximizing the benefits and minimizing the downsides. CSR undertakings are the voluntary actions that businesses can take, over and above compliance with minimum legal requirements, to address both their competitive interests and the interests of broader society.
Governance in corporate terms
Corporate governance is a relatively recent concept (Cadbury, 1992). However, over the past decade, the idea has evolved to address the rise of Corporate Social Responsibility (CSR) and the more active participation of both shareholders and stakeholders in corporate decision-making. As a result, definitions of corporate governance vary widely. As Sir Cadbury so succinctly puts it, “Corporate governance is the system by which companies are directed and controlled” (Cadbury Committee, 1992). Ultimately, two categories prevail. With the primary focus on behavioural patterns — the actual behaviour of corporations, as measured by performance, efficiency, growth, financial structure, and treatment of shareholders and other stakeholders. The secondary focus deals with the normative framework — the rules under which businesses operate, with the regulations coming from such sources as the legal system, financial markets, and labour markets. Both include CSR and sustainability concepts.
Business leaders have to be content with a wide array of pressures from inside and outside the business. Company oversight is charged with risk more than ever before. Businesses at best have to deal with complex issues, ranging from an unpredictable geopolitical, environmental, economic, and social climate. Not to mention workplace misconduct, public and regulatory outcries against companies that have not adequately protected communities. Regardless of all these complexities, companies are expected to respond to any of these issues that come their way with little tolerance from the public and media. The expectation is also nothing less than anything other than shift and positive outcomes. Businesses are judged by their speed of action and ability to accurately predict what is happening in an environment defined by unpredictability.
Why is corporate governance important?
Should governments not implement policies that support the common good? Several governments have enacted corporate governance codes and laws and CSR legislation that ventures to improve the state of affairs in the business world and society. However, it is essential to note that, as mentioned earlier, CSR is typically thought of as going above and beyond what is required by legislation.
We have witnessed our fair share of scandals in recent decades. The biggest being the financial crises in 1998 in Russia, Asia, and Brazil and 2008 in the United States. These certainly also had underpinnings in corporate governance, and the behaviour of the corporate sector affected entire economies, with the deficiencies endangering the stability of the global financial system. These examples demonstrate a lack of internal controls and management oversight that can result in non-compliance with the law. The crises, however, are manifestations of several structural factors and underscore why corporate governance has become even more central for economic development and society’s well-being. This, in turn, damages relations with external stakeholders such as communities and internal stakeholders, like employees.
Corporations have a lot of influence in the world. They affect many people’s lives, and they have tremendous financial power that can be reinvested in creating sustainable products and policies.
Think of it this way: if you want to leave your mark on the world, you have to reach many people. But, unfortunately, global companies don’t just reach people through their products but also through lobbying that influences political decisions. The reality is that, in most economies, the business is designed to make profits or at least still chasing profits. Yet, it is the leading producer of goods and services in the marketplace. For instance, when governments are paying for infrastructure, often, it is a business that is building and even operating the infrastructure. Hence, this symbiotic connection is crucial for further development and to create sustainable societies.
Socio-environmental and business issues now overlap. Customers often prefer products from companies that care, so offering environmentally friendly products can give companies an edge over their competitors. This can increase their profits and help them save money as well. Kimberly-Clark, for instance, was dubbed an “evil empire” by Greenpeace because of its use of fiber from the Canadian boreal forest. However, Greenpeace withdrew this statement in 2009, after Kimberly-Clark changed its mission and decided to use Forest Stewardship Certified (FSC) fibers instead. This made them much more prevalent among their customers and even made their recruitment easier. Tom Falk, the CEO, said the changes saved the company tens of millions of dollars!
Maximizing profit alone just doesn’t cut it anymore. Communities and employees increasingly expect social responsibility from businesses. They expect equally that corporate governance and CSR policies have to reflect that.
The writing is on the wall
Good corporate governance is not just companies fulfilling their legal obligations but also improving company performance and profitability, resulting in a positive organizational culture. Equally so, it will build good relations with internal and external stakeholders and boost the company’s goodwill and brand image. As a result, the reality is that companies are in a better position to solve some of the most significant issues and problems faced by many societies than most governments.
Being a good corporate citizen means that the company must be well managed internally and accountable to the outside world. In other words, CSR and corporate governance are two sides of the same coin. The implication is that unless a company practices good governance, it is unlikely to have a social conscience, so the first step towards CSR is to put effective corporate governance techniques into practice (MSG, 2020).
The role of the board of directors and management is particularly important because they ultimately decide the behaviour of the companies. The buck stops with them, so they have to take social and environmental concerns into consideration, making sure the company they represent is running efficiently.
Old ways of thinking about business are also on their way out, and paradigms are shifting. It’s clear that corporate governance and CSR go hand in hand, and it has never been more necessary. But corporate governance needs to change with the times, as have CSR evolved over time. Hence, the future of corporate governance must, in all earnest, be rethought, and CSR laws with it. These CSR laws can be the catalyst for the future of business as we know it. We have to do better because we surely can.
Conclusion
The recent bill laid by members of parliament from both sides in Ghana to regulate CSR work is a laudable achievement and require unflinching support to push through. This shows the level of importance attached to CSR and corporate governance.
The bill, inter alia, is to help curtail the knee-jerk practice of firms or institutions in exercise their CSR roles in various communities they operate in. More importantly, the bill if passed into law, will ensure the enactment of a well-defined legal framework that will nudge companies to adhere to best practices and enable communities reap maximum available gains. This eventually aims to “ensure cogent, equitable and sustainable national development.” (Ghanaweb, July 2021).
References
World Bank (2006): Beyond Corporate Social Responsibility: The Scope for Corporate Investment in Community-Driven Development, Report No. 37379-GLB. Washington DC. Available from: https://openknowledge.worldbank.org/handle/10986/8240 [Accessed 24 July 2021].
International Finance Corporation (2012): Focus 10: Corporate Governance and Development – An Update, Global Corporate Governance Forum, Report No. 67394. Washington DC. Available from: https://openknowledge.worldbank.org/bitstream/handle/10986/26874 [Accessed 23 July 2021].
https://www.managementstudyguide.com/csr-and-corporate-governance.htm ([Accessed 26 July, 2021]
OECD (2009): Corporate governance lessons from the financial crisis.
Cadbury Committee. 1992. The report of the committee on the financial aspects of corporate governance. London. http://www.ecgi.org/codes/documents/cadbury.pdf. [Accessed 23 July 2021].
Muller-Stewens, Gunter (2020): The New Strategist: Shape your organization and stay ahead of change. Kogan Page.
Midanek Hicks, Deborah (2018 ): The Governance Revolution: What Every Board Member Needs to Know, Now!. De Gruyter.
https://www.ghanamma.com/2021/07/19/9-mps-on-both-sides-lay-bill-to-regulate-csr-work-in-the-country/ [Accessed July 26, 2021]
About the Writers:
Romein VAN STADEN (Pr. CHSA, MBA) is a (self-confessed) Pan-Africanist by heart. His diversified professional career spans many different sectors, i.e., local government, mining, consultancy, construction, advertising, and development cooperations.Romein is the Head: Business for Development at PIRON Global Development, Germany (www.piron.global). Contact him via ([email protected])
Ebenezer ASUMANG, CGIA.MBA.MA(c) is a Development Communication Specialist, an SDG Mkt Building & SME Researcher and Finance & Investment Nomad. He`s Ag. Country Director with PIRON Global Development GmbH, Ghana (www.piron.global). Contact him via ([email protected])
Alain Mugabo is currently working and ongoing training for medical radiology technology at Centrum für Diagnostik und Therapie Strahleninstitut Cologne in Germany.
