- INTRODUCTION: UNDERSTANDING THE CONCEPTS
The concept of corporate responsibility is essentially about ensuring a better conversation between business and society. This conversation is driven towards the attainment of defined targets and the management of stakeholder expectations in the value delivery process. Aside from the symbiotic relationship and consequent benefits derivable from the conversation, the dialogue between business and society is underpinned by the principle of accountability which presupposes the need for periodic scrutiny by immediate and remote interests. On the other hand, corporate governance seeks to create the context for advancing this conversation and creating trust, progress and continuity there-from, through the setting of the background against which conversation is expected to take place, while building the limits against which judgments are made and decisions taken in a bid to sharpen the moral planks of the conversation.
Corporate social responsibility as defined by Wikipedia “is a form of corporate self-regulation integrated into a business model”. Another definition by Nova Science in Australia posits that corporate social responsibility is “a concept whereby organisations take responsibility for their impact on society and the environment”. While yet another definition by Pearson Education sees corporate social responsibility as “the awareness, acceptance and management of the implications and effects of all corporate decision making”. From the foregoing we see that the concept is underlined by the idea of the selection of options and priorities, in relationship to the social context, towards engendering an accountable yet caring enterprise.
On the other hand corporate governance, far from being a relationship and a conversation framework, is a platform for ensuring that rules adopted in pursuit of the need for an accountable enterprise are not only applied but also made to govern business and social conversation, and beyond being building blocks upon which relationships will flourish, is a platform for business sustainability and continuity. According to Wikipedia, corporate governance is “the set of processes, customs, policies, laws, and institutions affecting the way a corporation (or company) is directed, administered or controlled”. Another definition by Colgate Palmolive posits that corporate governance is about “the practices, principles and values that guide a company and its business every day, at all levels of the organization”. Yet a much deeper definition comes from Air Berlin which sees corporate governance as “code of behaviour that defines guidelines for the transparent management and control of companies. It creates transparency, strengthens confidence in the company management and in particular serves the protection of the shareholders”.
From these definitions we see that while corporate responsibility strives to forge the relationship, corporate governance helps to define the basis of the relationship and sets the rules. From this relationships and guiding rules are expectations of socially sensitive decisions which seek harmony and continuity as opposed to disharmony and stasis. Furthermore, both concepts are underpinned by the need for sound judgment based on a moral compass as opposed to the prevalence of amorality which is usually a byproduct of most business decisions and actions under a laissez-faire atmosphere.
- FINDING THE POINT OF CONVERGENCE
Having set the conceptual frame-work for our discussion, it will help to put this concept under the spotlight and consider their contemporary applications and misapplications and strive to deduce from real business scenarios if both concepts are mutually exclusive or indeed have hard-worn linkages which have practical basis in the conversation between business and society. Let’s start by showing the linkage of these concepts on the global and local stage.
Firstly, corporate social responsibility is increasingly becoming a buzz word in Nigeria especially given the plethora of activities which attempts at purple-patching the very essence and definition of corporate social responsibility. Corporate organisations in their attempt at being perceived as responsible organisations, orchestrate corporate philanthropy schemes which is not properly assessed and connected to the immediate or remote needs of their target communities neither do they seek a platform for social accountability and sustainability through these interventions. The primary, though unstated, motives for these acts of “corporate giving” are the publicity and most times executive networking which it avails. Given this scenario, it is not strange to see a one million naira act of corporate giving being leveraged with paid advertisers’ announcements ten times the value of what was done. Here, the age-old wisdom, that the route to earning goodwill is to “do and show” is given a banal interpretation as the brazen show of uncoordinated and unplanned ventures are thrust on the psyche of supposed project beneficiaries without recourse to the short, medium and long term benefits of the project not to talk of the dearth of a platform to assess the social and environmental impact of the schemes as well as spot opportunities for future improvements and sustainability of the projects so imposed.
Using the nexus of the rich against the poor, and in a somewhat revision of the laissez-faire business philosophy which sees business as a higher order that should not hobnob with the social basis of its existence, these counter-productive ventures seek, as it were, to read the social context upside-down, from the “hallowed” heights of the board-room as opposed to the “profane” street-level realities of the target of the ventures, without caring to come to terms with the context in which their helping hand could have a better significance and impact. Having so rudely defined the context of their intervention, without doing a reality check or at best a stress test, these ventures become acts of mere tokenism which in the medium term become a corporate lumber rather than an asset as the-end-in-sight, been usually for self-aggrandisement, soon pales into insignificance as a social stranger rather than a pungent point of community connection and thus ends up a waste on corporate resources.
On the other hand, the issue of corporate governance which has for some time now been at the centre of business discourse, more so because of the irresponsibility of big corporate organisations in the Western World leading to the mortgage burst, the global credit squeeze and later on, the global recession which governments around the globe have been battling to bring to a halt and has indeed caused colossal value attrition and needless hardships, seem to have obtrusive linkage to corporate responsibility especially as regards the course of decision making and the selection of options in the profit making process .
- GLOBAL CORPORATIONS AND THE ECONOMIC MELTDOWN
Without meaning to chronicle recent global business events, let me look at a few examples from recent history. Leyman Brothers, AIG, Bernard L. Madoff Investment Securities LCC, Washington Mutual, General Motors and Saab Auto-mobile were huge global enterprises which stood tall as icons of business excellence and sustainable enterprises, but a post-mortem of what went wrong within these organisations in the wake of the global recession reveals an alienation from their key constituents. As these companies grew, they gradually became impersonal and strangers to the community which they serve. The reason for this state of affairs is not far-fetched: the bigger an enterprise becomes, the higher the possibility for it to develop the “conveyor-belt” mentality where everything is mass-produced from products to processes. Even up to much more important things as corporate and business strategy are, in a sense, centralized and distributed globally. The thinking here is that a winning formula in Shangai China will readily work in New Delhi India and Nairobi, Kenya. The pressure to deliver year-on-year increased return on investment also fuels this “conveyor-belt” mentality, as the principal concern here is to ensure a shorter time to market, a bigger pie within the target segment, a seemingly healthy return within the shortest time possible in order to guarantee all-time premium share-pricing and shareholder confidence. Given this scenario, these organisations pay less attention to the social nexus of their actions and gradually, though unconsciously, start to lower the bounds of accountability and responsibility.
As this sordid, though immediately gratifying, quasi- lassie-faire mind-set persist, organisations begin to pay less and less attention to the constituents which shape their business success and define their growth. For example, a Leyman Brothers, a Bernard L. Madoff Investment Securities, Washington Mutual, General Motors and Saab Automobile with a history spanning decades and centuries of year-on-year growth, actually failed because they saw their roles more as a money-making machines rather than as corporate citizens which need to act within the bounds of the right social norm and extend a fraction of the privileges which they obtain to their long-suffering, yet vital, communities which has accounted for their successes over the years. These organisations, having developed successful business models, gradually become arrogant, seeking more their mercantilist end than the social good.
A situation where sub-prime mortgages became a trend because it had a money-minting potential without a consideration of the moral foundation and long-term social basis of the profits procured from that sector and investors money were continuously thrown at that sector without balancing the expectations of investors against the Mortgage industry’s long term potential speaks volume of the alienation of the corporate decision maker from the society he serves. As a result of this, a lot of Banks before the mortgage burst happened had given no thought to the other side of the coin nor consider the social, environmental and economic implications of uncontrolled mortgage deals, rather, not wanting to reinvent the wheel and looking for quick-fixes they jumped on the bandwagon and were, for years, basically making money at the expense of society and gradually, like an over-flogged cow, the milk dried up and the mortgage burst happened with dire consequences for business and the larger society.
Still on the global stage, the auto industry’s executive excessiveness and the carefree attitude of its unions, who opted for continuous wage increase at the expense of standards also accounted for the industry’s troubles. A situation where executives brazenly acquired corporate jets and expensive pay packages in a failing enterprise also speaks of the alienation of that industry from the social context within which it operated. Unlike the Japanese Auto industry which ran on a different model and was more about obtaining cost-savings through more efficient ways of doing things and a better understanding of social expectations, such as energy consumption, environmental friendliness; leading to the invention of energy efficient and low carbon emission engines and are currently working on the electric car to eliminate the use of hydro-carbons in car engineering. While the Japanese were innovating along the lines of social and environmental expectations, the American Auto Industry was disconnected with the social order and did not understand the statement the American consumer was making by its increased patronage of the Japanese models until the industry collapsed and the American automobile industry had to go back to the same society it had ignored for bail-out.
These instances of corporate alienation led to the fall of Wall Street and the crash of Detroit leading to the spiraling of the consequence of corporate irresponsibility around the globe, causing grave social and economic dislocation and needing a massive intervention of governments around the world, who hitherto had been branded bad managers of profit-oriented enterprises and laggards in corporate norm, whose only claim to fame is the control of tax payers money and the instruments of coercion such as the Army and the Law Enforcement Agencies. But alas, erstwhile global giants, faced with the imminent death, were forced to go cap-in-hand to their governments for bail-outs. Others such as Leyman Brothers, Bernard L. Madoff Investment Securities, Washington Mutual, General Motors, Saab Automobile, Zavi, and Woolworth who could not hold-out the sudden shift in market realities were dead before help arrived and had to be taken into administration in order to salvage what was left of the public trust invested in them. The ones that survived resorted to the bail-out funds drawn largely from the tax-payer! American International Group (AIG), a financial sector player for instance received about one hundred and eighty-two billion dollars ($182B) in bail-out funds and Chrysler, an auto industry player got about four billion dollars ($4B) in bail-out funds.
- THE MONEY MARKET, THE CAPITAL MARKET AND THE NIGERIAN FINANCIAL CRISIS
On the local front in Nigeria, there has also been a rallying point for the concept of corporate governance especially with regards to some of the actions already taken by the new Central Bank of Nigeria Governor to clean up the financial system and make the banking industry more accountable to depositors, who are usually the victims of Bank failures, as opposed shareholders. The usual industry excuse for nefarious practices is that corporate decisions are primarily about raising shareholder value, and this is often adduced when dangerous risks are taken which most times backfire with grave implication for bank depositors who are not taken into account in the course of the tendentious actions which lead to bank failures. Let us consider acts of social alienation that led to the near crash of the entire financial system in Nigeria with grave consequences for the macro-economy. Without also meaning to be a business chronicler let me hazard an explanation of what went wrong.
As the 1990’s gradually exited, in came democracy and the opening up of the Nigerian economy to international world via push for foreign investments and the policy of trade liberalization. And as the gains gradually started to trickle in, another plan for strengthening of the Financial System and the deepening of the Capital Market was also vigorously pursued, leading to the recapitalization and consolidation of the banking industry with the eventual reduction of number of operators within the banking system from seventy-nine (79) to twenty-five (25) and the expansion of the potential of the capital market essentially from funding procured from Foreign Portfolio Investors and margin trading coming from the banking system. Suddenly, the banks were returning billions of naira in profits and the return on investment from stocks traded on the Nigerian stock exchange was not only elephantine but peculiarly humongous and attractive such that the Banks continued to throw in depositors fund on the market without checking their risk appetite through, for instance, a sound credit processes, which would have spoken of an industry which cared about the principal source of their wealth, the depositor and the larger society which was looking forward to more responsible outcomes from the support they had availed the industry in it consolidation drive and were hopeful that funds will be channeled to more sustainable enterprises such as power, manufacturing, micro-credits and infrastructural developments; but that was not to be as the bank chose the quick-fix option which guaranteed immediate return to the shareholder and immediately improved their profit profile and to the shrewd banker, the route to financial Eldorado was the capital market and petroleum trading! And in keeping with the creed of the greedy, everything that should have been left-out was thrown-in as expectations of huge returns soared in the market.
While the party was on, the depositor and the society waited patiently for a turn-around in the relationship with “Broad-street” to no avail. The banks continued to clean-out at their expense and all of a sudden, the dynamics changed: the Foreign Portfolio Investor began to ravage the market in the wake of the global recession through a crass profit-taking never before envisaged by market players and regulators, and as this continued, there was the sudden emergence of a bearish trend on the Nigerian stock exchange. As this trend intensified, players and regulator were initially in denial of the trend and sought to release gratifying messages and embark on weak measures to try to stabilize the market but all these met with little or no success and the investor community soon started the flight to safety from the capital market to other safer havens, leading to further stress and as the trend spiraled into other sectors, the weakness of the money market and its culpability in the whole process soon came to the fore as banks started to witness a regime of liquidity squeeze leading to banks inability to meet obligations to depositors and the larger society, a constituency which it had betrayed having helped it to cross the recapitalization and consolidation hurdle!
With an industry faced with imminent collapse, the then Central Bank Governor, Chukwuma Soludo, the man credited with laudable initiative of laying the foundation for a more solid and stronger financial system, suddenly lacked an insight into the solution of this new challenge and like a bolt out of the blues, a radical in the person of Lamido Sanusi, an insider who understood the dark spots and the inner contours of the rot within the banking system soon emerged as the new Governor of the Central Bank of Nigeria.
Having understood the background to the rot, being an industry insider himself, Lamido Sanusi swung into action with an agenda to clean up the Financial System and ensure the prevalence of healthy credit practices underscored by a sound corporate governance principles and soon the culprits and victims soon began to emerge from the steps which he initially took by bailing out the failing banks, removing the boards and management of the bailed-out banks and appointing interim managements to oversee these banks while compelling the entire industry to rethink their business strategy leading to a regime of downsizing with its attendant negative side-effects; again making a number of laid-off workers suffer for the corporate recklessness and irresponsibility of a few.
As the remedial action commenced, the neglected society suddenly began to have the last laugh as the farcical publications of bank debtors and arraignment of culprits behind the rot suddenly came to public glare. The media became awash with who did what and the possible consequences for the system while mediating the social reality.
From the foregoing, it is evident that there is a convergence of views if not of action and consequences as regards the concept of corporate responsibility and corporate governance. Looking at both the global and local perspectives and considering all the various incidents of industry and systemic failures which has dogged years of corporate irresponsibility such as the collapse of Lehman Brothers, Bernard L. Madoff Investment Securities, Washington Mutual, General Motors and Saab Automobile which failed and a host of other enterprises such as Citibank and American International Group which had to be bailed out with tax payers money in order to stave-off total systemic failure, we see clearly that corporate social responsibility and corporate governance, far from being strange bad-fellows, seem to have some curious linkages and where these linkages and dynamics are properly understood and calibrated in the decision making process, we see that a sustainable enterprise, one which is able to hedge against volatility and uncertainties, which lie in the future, emerges.
Having seen the global and local industry examples, let us look at an interesting case-study and by so doing begin to draw a model for other businesses in pursuit of a world where business and society are aligned in the cause at pursuing the end of a greater good of people rather than a world where a few profit at the expense of the majority.
- GOLDMAN SACHS: BETWEEN THE PROFITABLE COMPANY AND THE SOCIAL ENTERPRISE
Goldman Sachs has arguably been one of the most successful firms on Wall Street for decades, with some of the world's biggest private equity and hedge funds and investment bankers and traders who practically minted money.
The bank, like the rest of Wall Street, went through rough patches in 2008 when the financial markets crashed, turning itself into a commercial bank and surviving the meltdown with federal assistance. In 2009, it led Wall Street's resurgence and was the first to seek to pay back its bailout money. However, its business practices and source of its profits came under scrutiny from society. And in April 2010, the bank was charged with securities fraud in a suit brought by the American Securities and Exchange Commission.
This charge came on the heels of torrents of accusation to the regulator community that they had watched passively during the mortgage boom as a lot of under-hand deals and unhealthy practices were going on and had not intervened until the whole system was brought down. So the move, to unearth the supposedly unhealthy practices of Goldman Sachs was praised by “Main street” as it marked the first time that a regulator have taken action against a Wall Street deal. The regulator moved in on this case because it was alleged that Goldman itself profited by betting against the very mortgage investments that it sold to its customers, which was some form of insider dealing and was, looking at corporate governance principles, a deviation from the norm.
The American Securities Commission premised its charge on the fact that Goldman Sachs had told investors that the mortgage bond was pooled together by Abacus, an independent manager, while in truth, Goldman Sachs had some form of underhand dealing through one John Paulson, a hedge fund manager who was availed information which enabled him to hedge against bonds which he believed had the least chances of gaining value.
Upon the break of this big corporate scandal, the press went to work and all manners of innuendos were raised and varying interpretations were given to each side of the story. At some point, it was reported that the American Securities and Exchange Commission conducted its own silent investigations as a responsible regulator; at another point it was alleged that the tip-off came from people who were familiar with goings on inside Goldman Sachs. Again in other quarters, the allegations were dismissed as wide allegations calculated at destroying a good organisation which had managed to surmount the hurdles of the Global Recession, paid back the bail-out fund it received and was back to profitable ways again, while others felt that profit-taking at the expense of a dying industry was a cardinal sin which should not go unpunished. To this group, the bank's pressing objective of attaining a quick recovery and the dispensing of dividends and bonuses to shareholders and staff was a source of worry. And to press home their point, it was alleged that bankrupt Washington Mutual was helped by Goldman to feed a housing frenzy that Goldman already lost faith in.
At the start of the Subprime Mortgage crisis, analyst had enthused that Goldman Sach was in the best position to weather the storm, and the bank had in keeping with analyst forecast, lived up to the billing, but in tune with the need for businesses not only to do the right things but be seen to be doing good, the preying eye of the regulator and interested parties had put the activities of the bank under the searchlight for the following reasons:
In 2007 when Citigroup and Merrill Lynch removed their chief executives for sloppy performance, Goldman recorded good profits and paid its chief Executive, Lloyd C. Blankfein, $68.7 million — the most ever for a Wall Street C.E.O. Raising the torch of suspicion as to where value was coming from for Goldman Sachs in a market witnessing a down-turn.
By September of 2008, the Bank also reported a decent, though reduced, profit for the third quarter, beating expectations. Again fueling suspicion as to the root of its gains, which the opposition camp later alleged was at the expense of the larger society.
Following a close watch of events at Goldman Sachs it became obvious that the company was hedging its bet against some inventive instruments in the financial market and making short term gains at the expense of the Financial System and by implication the larger social order. For example, American International Group, the American insurance giant facing collapse due to its exposure to the subprime mortgage crisis, was one of Goldman Sach’s biggest allies. When American International Group received an emergency $85 billion bailout from the federal government, a lot of investors and customers who were suspicious of the bogus gains of Goldman Sachs, started to pulled out, worried that Goldman’s performance might not be real, essentially basing their argument on the negative results the business partners of Goldman Sachs were recording. Goldman’s shares therefore started to decline steeply even in spite of its relatively good performance.
Later on Goldman Sachs, in tune with the suspicion that it was inventively maneuvering its way out of the recession as opposed to gaining a long term advantage, changed its status to that of a commercial bank to better its chances of obtaining a bail-out. This sweeping move presented a corporate and cultural challenge to Goldman Sachs though the strategy, like other short term moves by the bank, helped it to stay afloat while others were dying. Following after this, Goldman Sachs obtained ten billion ($10B) from the United State government.
Furthermore, as part of its short term strategy, Goldman Sachs was the first bank to take advantage of the debt programme when it was introduced by the American government. But in spite of these innovative feats the opposition camp was soon to unravel the root of the Bank’s growth in an industry in turmoil and with the larger society reeling under burden of the meltdown. The bank continued to be in the eye of the storm as regards its practice and in defence of the accusations the Bank responded as follows:
1. In countering accusations of the opposition camp on profit taking against sound moral principles, Goldman Sachs chief financial officer, David A. Viniar, said that it was able to make much of its revenue by trading "the usual" investments. He enthused that the Bank’s margins were higher because of the absence of some of Goldman's former competitors, like Bear Stearns and Lehman Brothers who had gone under.
2. In reaction to the public outcry over executive compensation, the bank reduced the share of revenue going to bonuses. On average, each Goldman employee received about $498,000 in bonus and compensation for 2009, an amount that still incensed the opposition camp, given issues of recklessness which led to the near collapse of the entire financial system.
In spite of the defences by Goldman Sachs, the opposition camp was more than sure that there were some under-hand deals fueling this growth, drawing examples of what was happening to notably partners of Goldman who were deeply enmeshed in under hand deals that had led to the near collapse of the financial system with AIG and Bears Stearns featuring prominently on the list of such allies, and these claims and other silent investigations gradually led the American Securities Commission to level a securities fraud allegation against Goldman Sachs.
- GOLDMAN'S GOALS AGAINST SOCIAL EXPECTATIONS
The issue here is not that it is bad for a company to consistently record growth in a downturn, what the opposition camp was harping its argument on, was that it is better for the profits to be based on good fundamentals underscored by sound corporate governance principles which would have shown Goldman Sachs as a social enterprise committed to the long term good of society and building its growth on moral principles as opposed to one, who in search of elusive growth, will gladly engage in insider deals to gain an advantage against the larger social order.
Furthermore, the opposition camp was able to establish that the activities of the Bank was really against public good by raising the involvement of Goldman Sachs with the Greek government and how this had snowballed into a huge macro-economic crisis for the Nation of Greece and her people. To this end, they showed evidence of Goldman’s association with Greece, Spain and other southern European countries that suddenly started to face debt crises. Based on their evidence, it was discovered that Goldman Sachs and other banks had helped the Greek government “legally” cover its debts so the nation could appear to be complying with budget rules governing the euro-zone to which Greece belonged. In that role, Goldman Sachs was alleged to have advised Greece and, in return, collected hundreds of millions of dollars in fees from an activity widely believed to be against the public interest.
With more revelations still coming out, the argument as to the place of business in society has continued in public and corporate circles especially as regards the role of Goldman Sachs in the Greek Credit Crisis and the issue of Securities Fraud, a charge which the American Securities and Exchange Commission had leveled against Goldman Sachs.
So what went wrong? Were decisions taken against the corporate ethics in order to survive a hard time? While Goldman Sachs continue to have a host of satisfied customers who are champions of the values of Goldman Sachs in the outer space and internally within the Bank, the Bank’s claim that it puts its customers first is hotly contested by opposition camp which recently unearthed reported which show that the bank most times appears to be working against the interests of it customers and by implication the larger society when opportunities to make trading profits off the financial troubles currently ravaging the system arise.
While this indictments are going on it is instructive that Goldman does indeed have written codes of corporate responsibility and governance. However the extent to which this is followed in taking business decision is questionable. For Example Goldman Sachs staff are told to follow 14 principles that outline the firm's best practices. "Our clients' interests always come first" is principle No. 1. The 14th principle is: "Integrity and honesty are at the heart of our business." But some former staff of the Bank say Goldman has a 15th, unwritten principle that employees openly discuss, about procuring profits at the expense of society. For instance, from documents released by the Senate Permanent Subcommittee on Investigations, it is claimed that Goldman Sachs had bet against WaMu, Bear Stearns and Countrywide Financial in order to gain short term advantages as the mortgage disaster was ravaging America. The opposition camp maintained that this is a tip of the ice-berg as these documents are only related to the mortgage unit and it is unknown what other bets the rest of the firm made.
These sad scenarios bring to fore the need not only to have sound responsibility and governance principles on paper, but to adhere strictly to these principles in taking business decisions as no single victory can be sustainable if it procured at the expense of society. The Goldman example poses a lot of challenge on the role of regulators and industry players in the search for the moral face of capitalism; one which will meet the goals of business, yet connect with the aspirations of the larger society for full disclosure or where attainable, the absence of conflicts of interest, transparency, accountability and fairness in business dealings.
- CORPORATE RESPONSIBILITY AND CORPORATE GOVERNANCE – THE PATH OF CONVERGENCE
Should Goldman Sachs come out of all of these accusations without an indictment, its reputation would none-the-less continue to take a bashing and this reputational crisis which has a lot to do with corporate responsibility and corporate governance is already negatively impacting the shares of Goldman Sachs. The decline in the corporate value of Goldman Sachs following these allegations of underhand dealings brings to fore the need for corporations to understand the place of Corporate Responsibility and corporate governance in the wealth creation process. In truth, while organisations may seek to differentiate themselves and their offerings from other organisations operating within the same industry in order to engender love and deep connections and consequently financial reward from the communities they serve, the standards of social performance and responsiveness remains a key consideration for earning that love and connection more than any other consideration. Quoting from a study conducted on the convergence of corporate social responsibility and corporate governance conducted by Strandberg Consulting (which was sponsored by the Canadian Government): “corporate governance reform efforts of the past decade have bumped into decade-old efforts to mainstream social and environment responsibility of corporations and a growing awareness that firms’ off balance sheet environmental and social impacts can have tangible financial consequences. This encounter has fueled a debate regarding the degree and nature of convergence between corporate governance and corporate social responsibility”. The study shows clearly the linkage between corporate social responsibility and corporate governance in deepening relationships with the community, fostering business continuity and sustainability as well as furthering organizational success. While these facts cannot be contested, especially looking at the issues from the prism of the player / regulator conflicts using the Goldman example as a case-study, there are none-the-less a divergence of views as to the path to attaining this convergence. Again quoting from the study by Strandberg Consulting, “one group believed CSR connects to governance at the values level, determining the boundaries and accountabilities of the company in relation to a broad universe of stakeholders and its social and environmental responsibilities and opportunities, while the other group perceived CSR governance to be an operational risk issue”.
These two schools thought though not mutually exclusive takes different paths to articulating critical convergent points of the concepts of corporate social responsibility and corporate governance in helping organisations forge year-on-year improved financial performance and business continuity. Let us briefly consider their point of difference.
- THE VALUES SCHOOL
The values school emphasize that ethical considerations in business decision making are critical to fostering community connection and cooperation in the wealth creation process. It postulates that good governance is primarily about values rather than rules. If good governance flows from values, it becomes part of the corporate subconscious and guides business decision making and consequently, corporate social responsibility becomes an external expression of those values. It further emphasize that corporate governance has gone beyond the traditional core governance functions to incorporate the values dimension. The critical task here being to first determine what kind of corporate citizen the company seeks to be with corporate social responsibility as a part of that exercise.
According to this group, there is an emerging paradigm of governance that perceives corporate social responsibility and corporate governance to be one and the same at the level of values: an ethical strand joins governance with CSR thinking. They Values School conclude that governance must have an ethical backbone for it to connect with the internal and external stakeholder. It concludes that if governance and responsibility are taken as operational considerations and not values based, the organisation runs the risk of being technically compliant but not morally so and given the need to foster deep connections at the moral level, a lot of reputational capital may be lost.
- THE OPERATIONS SCHOOL
The Operations School posits that corporate social responsibility is only connected to corporate governance at the operational risk level. According to this school, corporate social responsibility is an operational risk issue. The Operations School backs its claim with the fact that the rise of social and environmental reporting standards (through the Global Reporting Initiative1) to systemize non-financial issues as an operational point of convergence between corporate responsibility and corporate governance. It summits that while corporate governance is now defined in a way that includes risk management, with corporate social responsibility, one is looking at social and environmental risks. To this School these operational risk points define the convergence of corporate responsibility and corporate governance.
From the point of the Operations School therefore, a realization that corporate social responsibility risks can have a financial impact on a company and should form part of the operational considerations of companies in taking business decisions.
- PURSUING THE CONVERGENCE – A CONCLUSION
Having reviewed both concept and giving practical vent to their application in a business context as well as identifying the differences of opinion regarding the interrelationship of these concepts it is germane to emphasize that in spite of the differences of opinion in pursuit of the marriage of these concepts with everyday business reality, there will continually be values crisis and operational calamities of micro and macro dimension until these concepts enjoy a pride of place in business thought and leadership. To buttress this point it is needful to refer to the submission of the United Nations Global Compact 2004 in a report titled Who Cares Wins – Connecting Financial Markets to a Changing World, the report concludes that “in a more globalized, interconnected and competitive world, the way that environmental, social and corporate governance issues are managed is part of companies’ overall management quality needed to compete successfully. Companies that perform better with regard to these issues can increase shareholder value by, for example, properly managing risks, anticipating regulatory action or accessing new markets while at the same time contributing to the sustainable development of the societies in which they operate. Moreover these issues can have a strong impact on reputation and brands, an increasingly important part of company value.”
From the foregoing it is glaring that the dislocations observed in the global economy in recent history which has called into question the place of capitalism in guaranteeing global peace and prosperity, would not have happened if corporate organisations had recognized the linkage of corporate responsibility and corporate governance and had conferred a high regard on these two concepts above the usually laissez-faire considerations in the decision making and wealth creation process.
The dearth of a deep-seated understanding of how social and environmental factors shape business outcomes and affect organizational success has been at the heart of most corporate failures and systems collapse and until concerted efforts are made to address this gap, the recent measures taken by the Group of twenty nations (G20) and the Group of eight nations (G8) at halting the current cycle of global recession and depression may indeed be an effort in futility.
Bolaji Okusaga is the Managing Director of The Quadrant Company (Public Relations) in Lagos
No comments:
Post a Comment