the Impact of Corporate Governance on Social Responsibility in Listed companies

Abstract

This study will examine on the Impact of Corporate Governance on Social Responsibility in Listed companies. A sample of several companies is selected. The study mainly used secondary data that was mainly taken from the annual accounts and annual reports of the sampled companies. In analyzing the data, means of descriptive statistics that will entail using the STATA package will be used for the analysis. The results greatly divulge that corporate governance has a positive and significant impact on listed companies’ social responsibilities. One of the vital factors in corporate governance is the firms’ board size (OECD, 2006). While other internal factors and external factors within the firm greatly influence its role in social responsibility, the corporate governance of the firm dramatically influences the role played by the firm. Based on the findings, the study recommends much among others that the board size should be firm and broad enough, precisely not less than seven members given the magnitude of the CSR activities that the sampled firms suggested undertaking.

Further, competent members should be the ones comprised in both the Audit Committee and the board committee (Khan et al. 2013). Primarily, the companies ought to ensure that there is adequate adherence to corporate governance matters for the actualization of the firm’s set CSR targets. Increased corporate social responsibility disclosure should also be one of the goals that the companies intend to actualize.

Keywords:  Corporate Governance (CG), Corporate Social Responsibility (CSR), Board size, Corporate Social Responsibility Disclosure (CSRD), Listed Companies.

• INTRODUCTION

For any business, it is vital to ensure it has participated in CSR activities as per the laid down policies and procedures. Generally, several motivational bases exist, perceiving corporate governance to be a vital concept that attracts public interest because it plays a significant role in the financial and economic health of the listed companies. Corporate governance refers to an aspect of a firm that is concerned with holding the balance, significantly between the economic and social goals of the firm, as well as between the individual and collective goals that exist. Corporate governance ensures that a company is run most responsibly, ensuring that matters of transparency, accountability, and compliance concerning the stakeholders, are observed (Jizi et al. 2014). Further, it details the legal, cultural, as well as institutional arrangements that listed companies ought to do, what necessary controls them, and how the control is necessary exercised.

On the other hand, corporate social responsibility is a business approach that significantly contributes to the sustainable development through the aspect of delivering environmental, economic as well as social benefits for all the stakeholders (Giannarakis et al. 2010). It outlines the commitment of a corporate to the environment or the society in which it exists. A listed company is generally a company whose shares are traded in the stock exchange.

• Statement of Question
  • Research Questions

1. Does the commitment of the listed companies to corporate governance have an impact on fulfilling their social responsibilities?
2. What is the reality of the social responsibility of the listed companies, the extent of their commitment to them, and their application of the principles of governance?

Other secondary questions for the study are:

1. What are the concept of governance and the requirements for its application?
2. What are the concepts of social responsibility?
3. Do the listed companies committed to social responsibility, and the areas that they serve?
4. Does the commitment to corporate governance affect social responsibility?
5. Does the disclosure of corporate governance affect the disclosure of a commitment to social responsibility?

1.1.2 Research Objectives

My main objectives for the study are:

1. Knowing whether the commitment of the listed companies to corporate governance has an impact on fulfilling their social responsibilities.
2. Studying the reality of the social responsibility of the listed companies, the extent of their commitment to them, and thus their application of the principles of governance.

Other secondary objectives for the study are:

1. To study the concept of governance and the requirements for its application.
2. Studying the concepts about social responsibility.
3. Knowing whether the listed companies committed to social responsibility and the areas that they serve.
4. To study whether the commitment to corporate governance affects social responsibility.
5. To find whether the disclosure of corporate governance affects the disclosure of a commitment to social responsibility.
   • Background and significance

By the twentieth century, corporates were deemed socially responsible since they complied with the regulations or laws of the land and met the basic needs of their employees and the community in which they existed. In the 20^th century, everything began within the USA, since it became a phenomenon that corporate organizations were significantly using globally to market their products and win the customers. The manner and way in which principal actors in a corporate undertakes their governance clearly shows the extent to which a corporation is responsible. Exemplary corporate governance usually brings up intelligence in business practice (Giannarakis et al. 2010). Due to the excellent corporate governance, the corporate is usually guaranteed natural stewardship within the corporation, a strong financial performance, engagements with the community, and working environment management that is positive. These results help to restore certainty as well as the promotion of economic growth.

In modern times, CSR is far beyond the old altruism whereby cash was handed to great purposes, usually at the end of the fiscal year. Generally, organizations appreciate their immediate environment through participation in communal activities (Majeed et al. 2015). The corporations are not only concerned by the uniqueness and quality of their brand names but also by their degree of connection to the world. CSR helps to empower group development as well as group improvement, since, through the CSR activities, it can gain the knowledge that regards to the organization’s activity to its stakeholders, supporting a positive effect through the activities the corporation undertakes.

LITERATURE REVIEW

2.1 Corporate Governance Concept

There is generally no accepted definition for corporate governance, making the idea of defining it difficult. Wilson (2006) elaborates on the idea, terming it to be the manner on how corporations get controlled, directed as well as held accountable for the corporation’s capable leadership, with this meant to ensure that the corporations deliver on their promises as to the organ of the society that creates wealth, sustainably. Also, OECD (2006) points corporate governance to be a system through which corporations get controlled and directed. Generally, the duties and responsibilities of the different participants within the corporation are specified by the governance structure. Further, the governance structure also specifies the rules and procedures of decision making in the corporate organizations, the structure of setting company objectives, the means of attaining the objectives, and the means of performance monitoring.

According to Giannarakis et al. (2010), it is the mechanisms that are used to safeguard the interests of the shareholders, necessitated by the division between business managers and the owners.  Zhou (2019) terms this concept as a mechanism in which fairness, accountability, transparency, the well-being, and the transparency of the organization are maintained for the shareholder’s interests. Oso and Semiu (2012) detail the essential ingredients of corporate governance to be accountability and responsibility, trusts, honesty within the corporations and beyond, integrity, transparency, participation, ethics, and values, protecting interests and satisfaction of the corporation stakeholders, respect, compliance, and adherence to the set policies and procedures as well as commitment to the organization. By following these essentials in the organization, this paves the way for the sustainability of the corporations, achievement of the corporation’s goals, exemplary turn over, and a global marketplace that is veritable. These elements are helpful in an organization since they help deal with transactional relationships, checks, and balances, manager incentives, and communication within the organization.

Generally, corporate governance can be simplified as the systems, structures, and approaches that significantly determine how well a corporation is managed to achieve its objectives.

2.2 The Concept of Corporate Social Responsibility Disclosure

The World Business Council for Sustainable Development (WBCSD) (1998, in Setyorini and Ishak 2012) notes CSR as the continuance commitment of a corporation in behaving ethically, and the contribution to the economic development, while also purporting on the improvement on life quality of the workforce and their families, local community and the general society. CSRD is defined as the corporations generally reporting on the corporate activities’ social impacts and the effectiveness of the corporation’s social programs. This reporting is generally in a manner that is per the organization’s discharge of its social responsibilities as well as the stewardship kept on its social resources. CSRD is generally a financial disclosure system extension, reflecting the society’s wider anticipations pertain to the businesses’ community within the economy. CSRD can also be termed to be a process in which the environmental and social effects of a corporation are communicated to the interested groups within the society. It is generally used as a strategy in which matters are legitimated into the society’s mind.

Generally, it can be postulated that an organization can express its impacts on the more fully interested groups in it.

2.3 Review of related Empirical literature

In studying the link between CSRD and firm size, several prior studies suggest that the corporation size is highly influential in the firm’s corporate social responsibility activities. Large companies are postulated to disclose more CSR activities than small and medium-sized companies since stakeholders are more hopeful of more CSRD than they do for small corporations. Yao et al. (2011) explore the CSRD determinants among 800 firms listed in Shanghai. Some of the determinants include exposure to media, the concentration of the ownership, the size of the firm, and the institution’s ownership.

In studying the CSR disclosure of 130 listed companies in German, Giannarakis et al. (2010) clearly state that organizations with more visibility disperse ownership structure.

3.0 METHODOLOGY

3.1 Population and sample size

The research design undertaken for the study was generally a non-survey method since it entailed the use of the annual reports and accounts of the sampled firms from listed companies. The population for this study is four firms that are listed in the New York stock exchange. The listed of the sampled companies, the year of incorporation as well as the year of listing are detailed in the table below:

The research mainly considered the recent reports on each of the company’s’ annual reports (Mehrotra, 2016). Based on these previous studies, the researchers used the content analysis method to obtain the relevant data for the research. Secondary data was used for our study.

RESULTS

The sampled companies felt that corporate governance played a pivotal role in the Corporate Social Activities that the companies undertook. This study analyzed the different CSR activities that had been influenced by corporate governance in these firms.

Coca-Cola

The research used the information available in the company reports, journals, books, and newspaper reports. Coca-Cola adopts international CSR guidelines such as the Ruggie’s protection as well as Global Compact. The company’s’ annual sustainability review is mainly cross-referenced with the UN Global Compact principles (Mehrotra, 2016). Through the Coca-Cola Company Sustainability review, the company has undertaken several CSR activities such as community development and water preservation, participation in world life preservation, amongst other activities.

Walmart

In the law field, Walmart has primarily played a vital role in transforming lawmaking within the CSR filed. Walmart has regular use of contractual relationships in regulating the quality of the products, ethical conduct, and working conditions. Global sustainability report, the company’s annual report publishes the social responsibility issues which are undertaken by the corporate. In the report, three parameters are discussed: goals, economic and social (Setyorini & Ishak 2012). Walmart’s participation in corporate responsibility has been vital in helping the corporation to become a retail leader within the market. Walmart’s Global Responsibility Report 2011 postulates Walmart to be a role model in CSR activities according to its performance.

Apple

Form 10-K annual report outlines the CSR activities that Apple undertakes, and how it affects its performance. Apple corporate governance has enabled it to undertake several CSR activities, such as eliminating child labor. On its supplier website, the company postulates that ‘Apple is committed to the highest social responsibility standards across our worldwide supply chain. We insist that all of our suppliers provide safe working conditions, treat workers with dignity and respect, and use environmentally responsible manufacturing processes. Our actions – from thorough site audits to industry-leading training programs – demonstrate this commitment” (Lau et al. 2016). Apples’ participation in CSR has been pivotal in improving its performance.

Canon

Some of this corporation’s CSR activities include fundraising activities. The corporation works in compliance with the GRI Sustainability Reporting Guidelines 2006. Canon has been responsible for regulating carbon (IV) oxide emissions and the conduction of the manufacturing process that is environment friendly (Mehrotra, 2016). The company has also been active in recycling processes.

CONCLUSION

The study analyses the variables of corporate governance:  board composition, the board size, duality of CEO as well as the composition of the Audit Committee. These factors are determinants of how actively a firm participates in CSR activities. Descriptive statistics were used as analyzing tools. The study encompassed no surveys since it depended on secondary data. From the sampled firms, corporate governance presents a vital role in the aspect of the corporation undertaking activities within the society in which it exists. Good corporate governance ensures that the company has actively participated in CSR activities, which is much reflected in the financial performance of the corporation. The audit and board committees should also be comprised of competent members who can offer good governance to the corporation. The corporations should ensure compliance with the code of governance for the actualization of CSR objectives.

References

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