Responsible Corporate Governance: Towards Sustainable and Effective Governance Structures

304 Pages·2017·4.12 MB·English

by  Maria Aluchna

CSR, Sustainability, Ethics & Governance
Series Editors: Samuel O. Idowu · René Schmidpeter
Maria Aluchna
Samuel O. Idowu Editors
Responsible
Corporate
Governance
Towards Sustainable and Eff ective
Governance Structures
CSR, Sustainability, Ethics & Governance
Serieseditors
Samuel O. Idowu, London Metropolitan University, London, United Kingdom
Rene´ Schmidpeter,CologneBusinessSchool,Germany
Moreinformationaboutthisseriesathttp://www.springer.com/series/11565
Maria Aluchna (cid:129) Samuel O. Idowu
Editors
Responsible Corporate
Governance
Towards Sustainable and Effective
Governance Structures
Editors
MariaAluchna SamuelO.Idowu
DepartmentofManagementTheory GuildhallFacultyofBusinessandLaw
WarsawSchoolofEconomics LondonMetropolitanUniversity
Warsaw,Poland London,UnitedKingdom
ISSN2196-7075 ISSN2196-7083 (electronic)
CSR,Sustainability,Ethics&Governance
ISBN978-3-319-55205-7 ISBN978-3-319-55206-4 (eBook)
DOI10.1007/978-3-319-55206-4
LibraryofCongressControlNumber:2017940406
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Foreword
Governance is an essential element of organization process for a number of
entitiessuchaspublicadministration,NGOs,smallandmediumbusiness,privately
held firms and large corporations listed on the stock exchange. Governance
formulates the goals to be achieved, determines the direction for the organization
developmentandsetstheevaluationcriteria.Corporategovernanceisdefinedasa
set of mechanisms and institutions both inside the company and in its external
environmentwhichareshapedinordertoassurefortheachievementofformulated
goalsandexpressedexpectations.Asclassicsputit“withgreatpowercomesgreat
responsibility”.
Existing studies clearly indicate that responsible corporate governance adds
to economic growth and social development, enhances transparency, enables
stakeholder empowerment and engages them inthe decision process and supports
the adoption of modern and prospectus concepts. However, with the lack of
theadequateguidance,accountability,responsibilityandtransparency,governance
may evolve in the wrong direction, favouring one group at the cost of other
groups, abusing the existing rights, focusing excessively on short-term goals and
benefits,disclosinginsufficientlyornon-complyingwiththerecognizedstandards.
The recent financial crisis of 2008–2010 indicates that the costs of irresponsible
governanceandunethicaloperation ofcompaniesgenerateseverecostswhichare
incurred not only by the direct shareholders but as a matter of fact are significant
systemicburdenforvariousstakeholders,communitiesandgeneralpublic.
Larcker and Tayan (2013) note that corporate governance remains a very
complexissueasitinvolvesorganizationaldecisionsmadeattheseniorlevelthat
directly influence the incentives, motivations and behaviour of all employees.
These decisions need to be undertaken in a given organizational and institutional
context.Itiscrucialhowthestrategicchangescascadethroughoutanorganization
takingintoaccountallstructuralandculturaldeterminantsinwhichthesedecisions
are embedded in. Although in its traditional view corporate governance has pre-
dominantly referred to public listed companies, nowadays the know-how and
evidenceisadoptedinotherorganizationssuchasfamilyfirms,NGOsandpublic
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vi Foreword
administration. This transfer of corporate governance experience into a different
contextalsorequiresunderstandingandcarefulimplementation.
Soundcorporategovernancemayhelpstructurethedecisionprocessanddirect
the organization to strategically incorporate expectations of various stakeholder
groups.Responsiblegovernancebasedonsolidfundamentals,valuesandintegrity
can provide positive spillovers and synergistically influence practices, structures
and behaviour of individual and institutional actors. The growing awareness of
social challenges and environmental damage pressures responsible governance
to shift to address the issues societies and economies call for. Thus, in reaction
governance needs to incorporate the concepts of corporate social responsibility,
stakeholder management and sustainable business. The experience of corporate
governance with the identification of its dynamics and recent improvements
offers knowledge which may add to the development of different organization
and may be effectively adopted in various contexts. I truly believe this is the
underlyingassumptionandthemainmessageofthebook“ResponsibleCorporate
Governance”.
ViceRectorforResearchandManagement PiotrWachowiak
WarsawSchoolofEconomics
Warsaw,Poland
Fall2016
Preface
In recent years, boards of directors have faced acute criticism for poor corporate
governance,theblameforwhicharguablyliesinanexcessivefocusonshareholder
value and the inefficient incentive mechanisms and excessive risk taking it
involves.Thetraditionalneoclassicalviewofthefirm,withitsfocusonshareholder
value,ignoresthecompany’sbroaderroleinsocietyandcanbearguedtohaveled
to increased instability in the global economy and its stock markets, ultimately to
the detriment of shareholders. Recent reforms and recommendations call for a
broaderapproach tocorporate governance whereshareholderprimacyisbalanced
with an approach that incorporates multiple stakeholder expectations. Moreover,
neglectingtheinterestsofotherstakeholderscanreducefinancialperformanceand
thrustthecompanyintothespotlightofsocialcriticism andstakeholder rejection.
The changing role of corporate governance raises a series of questions about the
development of the concept, its integration with corporate social responsibility
(CSR) and sustainability as well as its practical implementation at the company
level.
Thisbookaddressestasksandfunctionsofcorporategovernanceinthelightof
currentchallengesandthedynamicsthatarisefromabroaderapproachtocompany
management and the integration of corporate governance with CSR and sustain-
ability. Addressing corporate governance shortcomings that are believed to have
contributed to the recent financial crisis, the book will identify the integration of
corporate governance and CSR and will include examples of company practice.
Such changes affect the practices of shareholders, boards of directors and regula-
tors.Forshareholders,theintegrationofcorporategovernanceandCSRtranslates
into their activism, different investment strategies, specific reporting expectations
and the submission of proposals to the annual meeting. Boards of directors
need to revise their tasks with respect to the criteria for executive appointments,
their corporate strategy, performance measures and diversity recommendations.
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viii Preface
Directorsshouldreconsiderthestructureofexecutivepayandperformanceincen-
tives. Finally, regulators introduce new laws addressing for instance the need for
integrated reporting (combined reports on financial, social and environmental
performance),limitingthevoiceofshort-termorientedshareholdersandproviding
guidelinesforexecutivecompensation.
London,UK SamuelO.Idowu
Warsaw,Poland MariaAluchna
November2016
Acknowledgements
This book evolved during hours of discussions we held with our colleagues,
inspirations during meetings and events and in the process of confrontation with
business practice. By initiating the book, we are hoping to show the critical
development ofcorporate governance in—whatwebelieve—responsibleand sus-
tainable direction. We hope this book adds to the discussion on the necessities of
continuousimprovementsincorporategovernance.
We would both like to thank Professor David Crowther, formerly of London
MetropolitanUniversity,UK,andnowProfessorofCorporateSocialResponsibil-
ity, De Montfort University, UK, whose motivation and inspiration initiated the
sparkleofinterestsforCSRandopenedtheopportunitiesforjointprojectsduring
numerousCSRconferencesorganizedbyProfessorCrowther’sResearchNetwork.
Wealsowouldliketoacknowledgetheexcellentcooperationofallourcontributors
fortheirvaluableinput,disciplineandunderstandingduringtheprocessofprepar-
ingthebookandfortheirfriendshipandsupportthroughoutthevariousstagesthat
culminatedintotheproductionofthebook.
Samuel O Idowu would like to express his gratitude to a number of people
who have continued to support his research activities: Emeritus Professor
Malcolm Gillies, former Vice Chancellor London Metropolitan University;
ProfessorStephenJPerkins,DeanGuildhallFacultyofBusiness&Law;Professor
Nicholas Capaldi, Emeritus Professor Richard Ennals; Professor Stephen
Vertigans; and Professor John O Okpara. I am grateful to many of my long-time
friendsandmyfamilywhohavecontinuedtosupportme.Iamparticularlygrateful
tomywifeandchildren forprovidingtheatmospheretodoallthesethings—Mrs
OlufunmilolaOIdowuandJosiahOIdowuandHannahAIdowu.
MariawouldliketothankProfessorPiotrPłoszajski,theheadoftheDepartment
ofManagementTheory,WarsawSchoolofEconomics(SGH),Poland,fortheyears
of guidance and support as well as all the Department co-workers for creating a
creative and friendly atmosphere. I would also like to express my thanks to
Professor Ryszard Bartkowiak, the Dean of Management and Finance Collegium
ofWarsawSchoolofEconomics(SGH)whofacilitatesmyresearchandcontinuous
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