Broadening the Corporate Governance Agenda: The Corporate Social Responsibility

In recent years, there has been an increasing emphasis on governing corporations according to social and environmental norms and ensuring that the negative externalities associated with them are minimized. When we talk about negative externalities, what we mean are the social and environmental costs that corporations impose on society and which are not factored into the costs incurred by them. Since these affect society without the corporations paying for them, there is a need for the corporations to be socially and environmentally conscious and responsible so as to minimize inconveniencing society at large. This is the paradigm of corporate social responsibility or CSR which indicates the need for corporations to follow sustainable business practices.

In the context of corporate governance, CSR means that corporations have to take into account society and the environment as stakeholders and cater to their needs instead of just pursuing profits at the expense of everything else.

The point here is that corporate governance must include aspects of social and environmental responsibility and this is where CSR comes into the picture. By including CSR within the ambit of corporate governance, it is hoped that corporates would govern themselves and be accountable for their social and environmental costs. Thus, by broadening the ambit of corporate governance by embracing CSR, it is hoped that corporates would be responsible towards society and the environment.

To take examples of how corporate governance has been impacted by CSR, there are many cases of corporates like Samsung, Hyundai, Unilever and P&G (to name a few) that are publishing their CSR reports along with their annual reports. This is a direct consequence of the push to broaden the corporate governance agenda by including CSR within its ambit.

Further, many corporates now routinely report how much cost they are imposing on society (the negative externalities) and their efforts towards minimizing them. Moreover, corporate governance is no longer just about transparency and accountability within the business framework. Instead, it has been broadened to include the whole gamut of social and environmental concerns that make up the corporate governance agenda.

In recent years, multilateral bodies like the United Nations and WTO have established normative rules of conduct under classifications like the UN Global Compact that bind organizations to social and environmental responsibility and formulate a set of guidelines that these corporations can follow. There are many corporates who are signatories to the UN Global Compact and it is expected that the guidelines, though voluntary, would be followed by the corporates as part of their sustainability drives.

Finally, it is indeed the case that there needs to be a combination of voluntary and enforced rules of conduct and behavior that corporates are expected to follow as part of their social responsibility related to corporate governance. Hence, we have reached a stage where if the voluntary guidelines do not work, multilateral bodies like the UN has a duty to enforce them so that society as a whole is better off. Including social and environmental concerns as part of a corporate governance agenda is a good thing. However, there needs to be a mechanism that tracks compliance with these principles as well.

In conclusion, corporate governance is no longer just about ethical practices pertaining to business processes alone. Instead, the corporate governance agenda has been broadened to include social and environmental norms as well.

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Corporate Governance