| Summary: | Thesis (MBA)--Stellenbosch University, 2002. === What, if any, is the relation between Corporate Governance and Corporate Social
Responsibility? "Corporate Governance is concerned with holding the balance
between economic and social goals and between individual and communal goals. The
corporate governance framework is there to encourage the efficient use of resources
and equally to require accountability for the stewardship of those resources. The aim is
to align as nearly as possible the interests of individuals, corporations and society"
(Cadbury, 2000).
The World Bank notes, that there is no single model of corporate governance with
systems varying by country, sector and even in the same corporation over time.
Among the most prominent systems are the US and UK models, which focus on
dispersed controls; and the German and Japanese models which reflect a more
concentrated ownership structure. Recently, South Africa's own King Report II on
corporate governance is getting more and more international acclaim.
Corporate social responsibility is concerned with treating the stakeholders of the
firm ethically or in a socially responsible manner. Stakeholders exist both within a firm
and outside. Consequently, behaving socially responsibly will increase the human
development of stakeholders both within and outside the corporation. For instance the
OECD (Organisation for Economic Co-operation and Development) principles imply
that a key role for stakeholders is concerned with ensuring the flow of external capital
to firms and that stakeholders are protected by law and have access to disclosure
(OECD,1998:15).
While the World Bank have been intrigued by a June 2000 Investor Opinion Survey of
McKinsey (World Bank, 2000) that finds that investors say that board governance is as
important as financial performance in their investment decisions and that across Latin
America, Europe, the USA and Asia investors (over 80% of those interviewed) would
be willing to pay more for a company with good board governance practices.
"Poor governance" was defined by McKinsey as a company that has:
• Minority of outside directors;
• Outside directors have financial ties with management;
• Directors own little or no stock;
• Directors compensated only with cash;
• No formal director evaluation process;
• Very unresponsive to investor requests for information on governance issues.
"Good governance" was defined by McKinsey as:
• Majority of outside directors;
• Outside directors are truly independent, no management ties; Directors have
significant stockholdings;
• Large proportion of director pay is stock / options;
• Formal director evaluation in place;
• Very responsive to investor requests for information on governance issues.
In view of the new thinking regarding the function of boards of directors, this mini-thesis
will focus particularly on the role of the independent director in corporate governance,
with a specific review of the approach in the USA, Europe and South Africa. A
proposed role for the independent director will be given, as well as some final
conclusions and recommendations on the topic.
Without a more complete study it would be immature to think that this paper could
have a final say on the role of the independent director in corporate governance, rather
it is intended as a stimulus for further research in this very contemporary area.
|
|---|
