Corporate Governance and Sustainability

Introduction

Looking at the original thought of Corporate Governance (CG), Berle and Means, (1932) explain that the discussion was originally surrounded over the agency theory. Back in time, CG used to revolve around resolving issues that arise related to the disconnects of interests and goals between the agents and principles. Over the years, corporate governance has been defined in many ways and perspectives. As an example, Shleifer and Vishny (1997) described CG as a relationship between the organizations and its shareholders, while scholars such as Caramolis-Cötelli, (1995); Keasy, and Wright, (1997); Roe, (2005) and Pintea, (2015) explain CG as a relationship including both internal and external shareholders.

Among the most recent definitions give on Corporate Governance, Ahmed, and Mohammad, (2005); Krechovská, and Procházcová, (2014) and Tophoff, (2007) have given a broader explanation on CG focusing on the positive effects on environmental, social and economic development. According to OECD, (2015), Corporate Governance is incorporated with processes and procedures that helps an organization to be directed and controlled to build a habitat of confidence, clarity and accountability. As stated by Romano, (2004), every time the world faces a new type of a threat or a challenge, there was always a new legislative process which came in to place to protect the society from the ongoing challenges as well as to prepare the society to successfully face any future reoccurrences. Similarly, we could see variety of ups and downs in the organizational behavior in the recent years. Boele, et al., (2001), further articulate that these anomalies have given a prominence towards the corporate social responsibility. However, Johnson and Greening, (1999), and Knox and Maklan, (2004), argue that an undivided attention should be given to the concerns of all stakeholders as well when discussing about the anomalies of the organizational behavior. Therefore, with the increasing responsibilities the corporations hold, it is evident that a code of conduct should be developed for corporate governance in order to maintain the balance between the social responsibilities of an organization as well as to address all stakeholder concerns.

As per Michael and Gross, (2004), they state that countries all over the world have already understood that there are gaps in their systems and corporate governance is needed to have a smoother system. Michael and Gross, (2004), further state that leading countries such as the Great Britain and Australia have a similar system in place while Shleifer and Vishny, (1997) describe that in Germany, space between the ownership and control is significantly low compared to the United States, while Japan's system of corporate governance is different from both USA and Germany. Analyzing the CG system of India, Cox, et, al., (2004), describe the CG system of the country as a short-term system where the key players of this system are politicians, civil servants and managers who mainly work towards the interests of the shareholders. Cox, et, al., (2004) further state that these nearsighted views have created a negative impression in the eyes of institutional investors. Gill, (2008), further argues that corporate governance is becoming a foundation of ensuring public interest in an organization as well as a structure of ethics which showcase a company's good interaction with the outer society and the commitment it gives to ensure the comfort of the environment as well as the citizenship of its domain.

Corporate Sustainability

While there are discussions emerging on the interest of having proper corporate governance, there's also a rising interest in sustainability. Many numbers of authors over the past years have identified that the actions taken by originations not only impact itself and its shareholders, but it also affects the external environment. Hence, they have argued that an organization therefore should be accountable to a greater domain than simply its stakeholders. (Ackerman, 1975). It was also noted that the larger organizations have been understanding the need of changing their business strategies to go inline with community responsibilities, but the revenue-oriented approach has always been hampering them from focusing on the social responsibilities; Ackerman, (1975) further argues.

Gladwin et. al., (1995) took general public's awareness towards environmental sustainability stating that the public should no more be eco-centric or techno-centric, whereas the focus should be on transforming to become sustain-centrism. As per the studies conducted by Marshall and Ramsay, (2009), their studies indicate that, Directors in organizations in countries such as Australia are allowed to consider several shareholder interests into consideration, only if those considerations are affecting positively towards the long-term wellbeing of the shareholders. They also argue that even though the aforementioned is expected, the duties extended by the Directors towards the expectation to secure stakeholder rights are not much satisfactory. They also state that even though the ultimate goal of an organization is to uplift the shareholder value, they should also concentrate on the interests of the other stakeholders. Marshall and Ramsay, (2009), also states that it is common knowledge for Directors to understand that for better corporate sustainability, the focus towards employee motivation, support given towards the community and having loyal customers is an important factor, which directly contributes through the success of their organization.

Corporate Social Responsibility

According to the World Business Council for Sustainable Development (WBCSD), the theory of Corporate Social Responsibility (CSR) has been characterized as "the commitment of business to contribute to sustainable economic development, working with employees, their families and the local communities" (WBCSD, 2001). As per the studies conducted by KPMG, (2011), considering 250 big companies into account, it was noted that the interest these companies have given towards CSR has increased within a decade, where the percentage was at 35% in 1999, and the percentage increased up to 95% by 2011.

As stated by Khoury, et al., (1999), the main elements of CSR consists of attention given towards community wellbeing, growth in employee correlation, innovation and nurture new employment opportunities and ensure the sustainable growth of environmental factors. Furthermore, Jamali and Mirshak, (2007) articulate that, the notion of CSR interests the world under the facts of business entanglement and the requirement of being transparent. Supporting this, Simms, (2002) has stated via a survey that above 70 percent of the CEOs around the world has agreed that CSR has been playing a fundamental role in their companies' profitability. In addition to the above, what Husted, (2000), states is, that once an organization reaches its final stage, so called the "civil" stage, organizations are expected not only to absorb social strategies for their economic planning, but also to encourage and influence positive actions which will benefit towards the betterment of solving ongoing concerns of the society.

Even though various number of studies are carried out independently on CG and CSR, Bhimani and Soonawalla, (2005) and Jamali et al., (2008) states, the attention given to understand the correlation between the two is very poor. Bhimani and Soonawalla, (2005) further articulate that CG and CSR is more like the two sides of a coin, while Jamali et al., (2008) support the statement stating that, CG and CSR are twisted and bond together with each other.

Conclusion

As described by Crowther (2000), and Gilmore and Willmott, (1992), it was identified that the information provided by the organizations, first to their shareholders, then to their possible investors and lastly to other stakeholders has been increasing over the past years as the organizations have started to understand the advantage of doing so via CG and CSR, which has indirectly favored towards the sustainability of the organization. Also, Blair (2004), supports the same statement by articulating that, organizations should more focus on shifting towards a social responsibility model just as they focus on the sustainability of their shareholders, which will also support towards the sustainability of corporate governance directly, as this is tested and proven strategy which is being practiced by modern organizations. However, many of the findings say that the organizations are much eager on focusing on the sustainability aspect, by being transparent towards the society, Adams and Frost, (2008), disclose that, some organizations tend to report numbers which are only in their favor, withholding rest of the data which they think could negatively reflect on the organization. Adams and Frost, (2008) further suggest that, this is an evident fact that the outside society should be more sceptic when reading these numbers. Donaldson and Dunfee, (2000); and Garriga and Mele, (2004), state that, to secure an organization's genuine interest towards corporate sustainability there might be a need of rigid regulations or laws in order to ensure that both favorable and unfavorable data are reveled to the general public. It is an important factor to consider that a mix of good governance, well maintained management strategies and good engagement with the stakeholders are obvious factor if an organization is to maintain its equilibrium for not only its long-term sustainability, but also its rightfulness within the community.

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