home > archives > 16/5 > Corporate governance, corporate social r

Corporate governance, corporate social responsibility and corporate

performance
Chi-Jui Huang
Assistant Professor, Department of Banking and Cooperative Management National Taipei
University; Taiwan Section Chief of Banking Bureau; Financial Supervisory Commission,
Taiwan Research interests: Ethics & Corporate Governance
PP: 641 - 655
Abstract
Previous research has analyed and debated corporate governance (CG) and corporate social
responsibility (CSR) independently. This paper aims to empirically explore the interrelationship
between CG, CSR, financial performance (FP) and Corporate Social Performance (CSP) using a
sample of 297 electronics companies operating in Taiwan, a newly industrialized Asian
economy. The results show that a CG model which includes independent outside directors and
which has specific ownership characteristics has a significantly positive impact on both FP and
CSP, whereas FP itself does not influence CSP. The presence of independent outside directors in
the firm has the greatest impact on the social performance of the firm's worker, customer,
supplier, community and society dimensions. Government shareholders enhance a firm's social
performance extraordinarily because government shareholders will be more likely to request that
companies fulfil their social responsibilities. Only government shareholders positively and
significantly relate to a firm's environmental performance. Furthermore, foreign institutional
stockholders help to increase worker and supplier performance by paying more attention to
employee policies and supply chain relationships. Finally, independent outside directors, foreign
institutional stockholders and domestic financial institutional stockholders are shown to improve
financial performance.
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Keywords
Corporate governance; corporate social responsibility; financial performance; stakeholder; social
performance
Article Text
Today's corporations operate in an environment of intense public, investor, regulatory and media
scrutiny. The corporate scandals of recent years, such as those of the Lehman Brothers, Enron,
WorldCom and Sanlu Milk, have created a significantly more constrained regulatory
environment. Those corporate failures have focused attention on issues of good governance and
ethics, heightening the discussion of corporate governance (CG) and the ethics of economic
conduct (Marsiglia & Falautano 2005). At the same time, increasing public and stakeholder
concern about the social and environmental impacts of business practices is forcing companies to
come to terms with a broader set of interests and expectations. Companies must embrace these
challenges in order to reap the benefits: proactive legal, social, environmental and reputation risk
management; enhanced organizational effectiveness; improved relationships with stakeholders;
and 'social license' to operate within communities.
Corporate social responsibility (CSR) has been defined as the obligation of firms to be
responsible for the environment and for their stakeholders in a manner that goes beyond financial
goals (Gössling & Vocht 2007). A particular definition of CSR was presented at the World
Business Council for Sustainable Development: 'Corporate Social Responsibility is the
continuing commitment by business to behave ethically and contribute to economic
development, while improving the quality of life of the workforce and their families as of the
local community at large' (Holme & Watts 1999, p.3). Therefore, CSR is relevant at different
levels within and outside the corporation and is difficult to measure. Corporate social
performance (CSP) is a way of making CSR applicable and putting it into practice (Maron 2006).
CSP can be transformed into measurable variables (Beurden & Gössling 2008). In current
research, CSP assesses an organization's general stance towards a complex range of concerns
related to the social field (Graves & Waddock 1999).
CSR is a general framework for the responsible use of corporate power and social contribution
that may provide an increase in CSP (Turker 2008). Recent research proposes that firms today
are generally broadening the basis of their performance from a short-term financial focus to take
account of long-term social, environmental and economic influences and value added (Hardjono
& van Marrewijk 2001). Under the scope of CG, firms are encouraged to promote ethics,
transparency and accountability in all their conducts, practices and dealings. Additionally, a
company's decisions should be in line with the interests of the different stakeholders within and
outside the firm, including workers, customers, suppliers, the community, society and the
environment. These topics fall into the area of CSR; both the framework and the topics
themselves have recently drawn increasing attention (Jamali et al 2008).
Most of the existing research has studied and debated CG and CSR independently, as monitor
mechanisms and reporting standards, respectively. In fact, the two should not be considered
independently, nor should they be sustained as independent concepts. CG could not work
effectively without a corresponding CSR effort because a firm must respond to the demands of
its several stakeholders so as to create value for its shareholders and be profitable. Therefore,
Jamali et al (2008) suggest that CG and CSR are strongly connected, and that previous studies
have fallen short in capturing the nature and essence of this connection. However, Jamali et al.
adopted a qualitative case research methodology and used a small sample size (eight firms
operating in Lebanon). Hence, this paper seeks to empirically explore the interrelationships
between CG, CSR, financial performance (FP) and CSP as follows: firstly, by reviewing the
literature and establishing various hypotheses (a theoretical analysis); and secondly, by
investigating the conception and interpretation of this relationship in the context of a sample of
297 electronics companies operating in Taiwan (empirical research). Accordingly, the paper
seeks to highlight the interfaces between CG, CSR, FP and CSP capitalizing on fresh insights
from one of Asia's newly industrialized economies (NIEs), and expanding on the previous CSR
research which has emphasized developed countries in the West (Europe and North America)
and, to a lesser extent, Asia (Muller & Kolk 2008).

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