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SUBJECT:

Corporate Social Responsibility


ASSIGNMENT #:

ASSIGNMENT TITLE:
Summary of Corporate Governance and Corporate Social Responsibility
Synergies and Interrelationships

SUBMITTED TO:
Mr. MUZHAR

SUBMITTED BY:
M- AZAM
SP13-MBA-013

COMSATS institute of Information Technology,


Sahiwal.

SUMMARY
Now a days organizations are desired to evaluate their performance from a short-term nancial
focus to include long-term social, environmental, and economic impacts. This is where the concepts of
CG and corporate social responsibility (CSR) evolve. By CG, companies are encouraged to promote
ethics, fairness, transparency, and accountability in all their activities. A rms should take decisions
which must be aligned with the interests of different stakeholders of the company. In the previous
researches CG and CSR has discussed independently. However, we feel that CG and CSR are strongly
connected. As by (Bhimani and Soonawalla ) CG and CSR are two sides of the same coin.
CG is defined as the system by which companies are directed and controlled. It also tells how
power is exerted and how decisions are reached. Good governance include corporate leadership and
strategy setting. Corporate Governance is also concerned with honesty and transparency, which are
increasingly expected of the public both in corporate dealings and disclosure. Market efciency and
Investor condence depend on the disclosure of accurate information about corporate performance.
It is observed that there is a two-way relationship and increasing overlap between CG and CSR.
There are five basic Principles of Corporate Governance, 1) Protection of shareholders rights 2)
Equitable treatment of shareholders 3) Protection of stakeholders rights 4) Accurate disclosure of
information 5) Diligent exercise of board responsibilities.
World Business Council for Sustainable Development define CSR as the commitment of business
to contribute to sustainable economic development, working with employees, their families and the local
communities. In another way, CSR is a set of policies, practices, and programs that are integrated
throughout business operations and decision-making processes, and will posture the positive image of
company on society.
Lantos describe three categories of CSR: ethical, altruistic, and strategic. Ethical CSR is morally
obligatory and goes beyond fullling a rms economic and legal obligations even in cases where the
business does not directly benet. Altruistic CSR is sort of philanthropic CSR, which involves optional
caring, irrespective of whether the rm is going to get nancial benets or not. Examples include efforts
to alleviate public problems (e.g., poverty, illiteracy) in an attempt to increase welfare of the society.
Strategic CSR is strategic philanthropy aimed at achieving strategic business goals while also promoting
societal welfare.
There are linkage between Corporate Governance (CG) and Corporate Social Responsibility
(CSR). Broader conception of CG describes that firms are answerable to all of its stakeholder.
Stakeholder approach to CSR also explain that Corporations are made up of different stakeholder and
responsible to all of them. According to narrow conception of CG is to Ensuring accountability,
compliance, and transparency in corporation. Internal dimension of CSR state that Corporations should
take responsibility to internal stakeholders addressing issues relating to skills and education, workplace
safety, working conditions, human rights etc. Many scholars also perceive of CSR as encompassing two
dimensions: internal and external.
Links between CG and CSR In light of the overview presented above, there is overlap between
CG and CSR. When considering the broader conception of CG, it is clear that good governance entails
responsibility and due regard to the wishes of all key stakeholders and ensuring companies are answerable
to all stakeholders. There is thus a clear overlap between this conception of CG and the stakeholder
conception of CSR that Both CG and CSR call on companies to assume their duciary and moral

responsibilities toward stakeholders. CG implies being held accountable for, CSR means taking
account of and both mechanisms are increasingly used by rms to regulate their operations.
Ho (2005) reports evidence that good CG generally enhances rm competitiveness and results in
superior nancial performance and CSR in turn increases the trust worthiness of a rm and strengthens
relationships with core stakeholders.
Literature present here a review of several models which have posited a relationship between CG and
CSR, namely: (1) CG as a pillar for CSR, (2) CSR as an attribute of CG, and (3) CG and CSR as
coexisting components of the same continuum.
Model # 1: CG as a Pillar of CSR. This depiction of CG as a pillar of CSR requires an effective CG
system to be in place as a foundation for solid and integrated CSR activities. In this model Hancock
delineates four pillars for CSR, with strategic governance (entailing traditional CG concerns coupled with
strategic management capability) highlighted as one of these core pillars. Hancock argues that investor
and senior management attention should be focused on these four core pillars, strategic governance,
human capital, stakeholder capital, and the environment, which together help account for about 80 per
cent of a companys true value and future value creating capacity.
Model # 2: Ho (2005), who considers CSR as an attribute or dimension of CG, thus widening the scope of
CG, and incorporating nonnancial risks into the risk mitigation dimension of CG activities. This notion
of CG includes conventional dimensions or attributes (e.g., board structure, strategic leadership,
stewardship, social responsibilities, and capital structure and market relations), as well as CSR. There are
other authors who also consider CSR as an integral part of CG. Model #3: CG and CSR as Part of a
Continuum. Bhimani and Soonawalla (2005) depict CG and CSR as complementary components of the
same corporate accountability continuum. They consider that poor CG and misleading nancial
statements are one side of the corporate coin the other side being poor CSR. Continuum serves the
purpose of describing the basic building blocks of corporate accountability, with CG. The Corporate
Responsibilities Continuum has these elements, 1) Corporate Social Responsibility, 2) Corporate
Conformance are at ends and from left to right, 3) Corporate Financial Reporting, 4) Corporate
Governance, 5) Stakeholder Value Creation and 6) Corporate Performance.
This research sample comprise of eight medium and large companies operating in Lebanon, six of
which are Lebanese owned, and two are subsidiaries of multinational corporations. All interviewees
discussed various aspects of CG that are commonly in practice of their respective rms, the most
discussed aspects were revolving around compliance, transparency, and disclosure. They mostly had
independent directors (ve out of eight), and board of directors committees (four out of eight). When
asked about the principles motivating CSR behavior, most managers mentioned the principle of
legitimacy and the principle of managerial discretion. The managers refer customers as the most
important external stakeholder, followed by the community stakeholder.
Two of the respondents argued that CG and CSR are two facets (internal and external) of commitment to
sound business conduct and that they should be integrated into the same spectrum or continuum of
corporate disclosure. An effective CG structure protects shareholders from unlawful action. They support
3rd model of continuum. Only one of the respondent interviewed considered CSR as a dimension or
attribute of CG as per model 2. In a way, this is a more refined idea of CG that considers CSR as an
integrated mandatory aspect or dimension of good governance. Five of the respondents share the view
that a company cannot have a genuine CSR orientation, if it does not have a solid CG pillar in place.The
conclusion that can be drawn is that CG and CSR should not be considered and sustained independently.

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