Corporate Social Responsibility (CSR) – Corporate Governance

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Corporate Social Responsibility (CSR) – Corporate Governance

Corporate Governance

Corporate governance is the (written) body of laws by which a corporation governs and polices itself. It is an internally generated document, usually made public, mandating how all officers, directors, management, and employees of an organisation interact with each other and other stakeholders. It should encompass aspects of Business ethics and corporate social responsibility. It goes beyond evaluating business decisions based merely on what is legal but also to evaluate a decision on what is also right. Whilst corporate governance is not new, having its genesis after the Wall Street crash of 1929, the concept gained currency in the early 2000s after a number of large corporate failures primarily due to fraud.

Corporate governance addresses five limbs:

  • Ethics
  • Responsibility of the Directors
  • Shareholder rights
  • Stakeholders’ rights
  • Transparency

Conflict of Interest

The overarching philosophy of these five limbs is conflict of interest or the avoidance thereof. It is a reality that each of the stakeholder groups has a different objective or agenda. Managing these different agendas fairly is the objective of corporate governance. It is interesting to note that, at common law, officers of a corporation have a duty to act in good faith (honestly) and in the best interests of the company as a whole. No mention of acting in the best interest of the shareholders. Why do you think that is?

Who owns a Company?

The universal answer to this question is “The shareholders”. WRONG. The correct answer is “Nobody”. This may be a rather startling and uncomfortable answer for people who own shares however it is a little know technicality. The share a shareholder holds is a right, as opposed to a title, to share in profits distributed by way of dividend, should the directors so decide to declare a dividend. Shareholders also have a right to vote in the appointment of directors. That is about all! They don’t have a right to the profits of the company and they don’t have a right to any of the assets of the company. They do have a right to a distribution in any surplus on winding up but only after all creditors have been paid (last in line).

The Risk Takers

The argument that the shareholders are the risk takers in the venture is true however they are not the sole risk takers. Other risk takers are the creditors, who risk extending credit/debt to the company, employees who risk losing their livelihood and outstanding wages and benefits, customers, suppliers and the community are also risk takers and have a vested interest in the success or failure of the corporation. Thus the underpinning of corporate governance is to ensure that all stakeholders are treated fairly.

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