Good Governance and Social

Responsibility
Dr. A. Castor
Good Governance and Social Responsibility

•Social Responsibility and Good Governance

are used interchangeably worldwide by
individuals and corporations to show their
associations with the activities carried out
for the betterment of the society.
Need to Develop Corporate Governance
• After the economic crisis hit the countries across the globe,
the governments realised the need of developing corporate
governance policies which are stricter than the existing ones
and the businesses are mandated to ensure compliance with
all of them. In the last few years, there has been growth in
the need of fulfilment of social responsibilities which
incorporated satisfying every stakeholder i.e. customers,
suppliers, community, government, distributors, employees
and others. All of these tasks have to be accomplished at
both the individual and the corporate level (Aras & Crowther,
2010).
Social Responsibility
• According to Robinson and Dowson (2011), the social
responsibility is described as an ethical or ideological theory
in which an entity that can be an individual or an
organisation has a responsibility of acting on behalf of the
society.
• The social responsibility is considered as an obligation that
every organisation or individual has to perform for keeping a
balance between the ecosystem and the economy
Social Responsibility
• Social responsibility is a term that is used to explain the
contract, either written or verbal, that a corporation is
required to accomplish in its business environment. Every
company has to ensure compliance with specific standards
that are set by the customers, society and investors. While,
majority of these compliances are available in the form of
regulations, some others are practised in good faith of the
citizens (Lockwood, 2010).
Social Responsibility from Organization’s Point
of View
• It is an obligation of the firm’s management to make decisions and
implement actions that will improvise the interest and welfare of the
society.
• There are various levels of social responsibilities that have to be
supported by the organisations such as ethical, legal, discretionary
and economic.
• The six key areas comprise of employees, customers, shareholders,
government, community/environment and other groups or
associations
Main Purpose of Social Responsibility
• To ensure equilibrium between the environment and
society; the government has to impose certain
restrictions by developing the code of business ethics
that will allow every company and individual to fulfil
the respective social responsibilities.
Legal Perspective of Social Responsibility
• It has been stated that there is a huge range of inequality in the roles
of various entities in different countries as they tend to fulfil their
own claimed responsibilities. Although different corporations have
varying roles but they have to ensure compliance with the rules that
are set by the government such as civil rights of the citizens, provide
human rights to the employees, offer authentic and genuine products
and services to the customers, make available their financial
statements to the investors for ensuring transparency, protecting the
environment by carrying out activities in an environmental-friendly
way and making valuable contribution in the country’s economy
Good Governance
• Good governance is defined as the complete set of principles
or rules that have to be developed with the passage of time
for meeting new challenges in various areas such as quality,
commerce, reputation, risk, probity, accountability and
finance (Charity Commission, 2010).
• When the organisation’s management started to get
separated from its ownership, the concept of good
governance began gaining entrance in the field of the
corporate world.
• The term ‘good governance’ has been used in the literature of
international development for providing a framework to the public
institutions about conducting the public affairs and simultaneously
managing and effectively utilising the resources of the public.
• Governance is defined as the process of strategic decision making in
which careful analysis of available options is carried out and
ensured that the decision is implemented appropriately (Kaufmann,
Kray & Mastruzzi, 2010).
Where Governance can be applied:
• It is further implied that the term ‘governance’ can be
applied to local, national, corporate and corporate
governance or even to the interactions that take place
between various sectors of the society.
Concept of Corporate Governance
• Concept of ‘corporate governance’ emerges as the model to
do comparison among the unsuccessful economies or
political bodies with those ones that have workable political
bodies and economies. This concept mandates the
government need of realising their obligations to the society
and the governing bodies have to meet the needs of the
masses as compared to the selected groups of society.
Legal Perspectives of Good Governance
• All the corporations especially voluntary and community
organisations are driven by the altruistic values and they are working
for the public benefit, they need to be governed by appropriate code
of ethics that will ensure that they conduct their operations
appropriately and are held accountable as well (Bullivant et al., 2012).
Principles of Good Governance
• The importance of good governance lies in the fact that the
government and other stakeholders have to collectively increase the
efforts of improving the lives of citizens.
• Good governance is not solely about the government; it comprises of
the political parties, the media, civil society and the judiciary. The
main areas that are addressed by this governance are the ways in
which leaders, citizens and public institutions work together to bring
changes within the community.”
The three basic requirements of the good
governance :
• Capability of the state – The degree to which the government and
leaders have the ability of getting the things done.
• Accountability – The aptitude of the civil society, private sector and
citizens to analyse the decisions of the government and public
institutions and holding them accountable for their implemented
steps. It provides the opportunity of changing leader by means of
democracy.
• Responsiveness – The extent to which the public institutions and
policies respond to the citizens’ needs and even endorse their rights
Importance of Ethics in Business

Business allegations…

 Little concern for the consumer

 Cares nothing about the deteriorating social order
 Has no concept of acceptable ethical behavior
 Indifferent to the problems of minorities and the environment

What responsibility does business have to society?

Importance of Ethics in Business

Seriously considering the impact of

a company’s actions on society.
Corporate
Requires the individual to consider
Social his/her acts in terms of a whole
Responsibility social system, and holds him/her
responsible for the effects of acts
anywhere in that system.
Importance of Ethics in Business
Corporate Social Responsibility
• Responsibility is related to the obligation, or moral duty.
• Responsibility is by definition, an ethical value that is applied within a
reasonable judgment by a person while fulfilling with dignity all his
duties
• Social Responsibility –pertains to the duties towards the society and
its ability to fulfill its mission on behalf of any individual or
organization. As a consequence, we are socially responsible when we
accomplish our duties with the society, it also means to be a good
citizen. Social Responsibility is not a prerogative to enterprises and
companies.
Ethics
 The code of moral principles and values that govern the behaviors of a person
or group with respect to what is right or wrong.

 The domain of ethics does not have specific laws.

 The mistaken notions is if it is not illegal it must be ethical

Ethical Dilemma

 A situation that arises when right or wrong are in conflict or cannot

be clearly identified.
 The individual who must make the choice is the moral agent.
 Examples of ethical dilemma
 A pharmaceutical sales manager promotes a new expensive drug
costing expensively per dose. The drug is only *, more effective than a
dose costing less. Should you aggressively promote the more expensive
drug to a hospital catering to indigent patients
 A company will save millions from not installing an anti1pollution
device. But doing so will damage a river from which hundreds of
poor people make a living from fishing
The Importance of Business Ethics

 The ability to recognize and deal with complete business ethics issue
has become a significant priority in twenty first century companies.
 In recent years, a number of well publicized scandals resulted in
public outraged about deception and fraud in business and
demand for improved business ethics and greater corporate
responsibility.
 In recent investigations on German corporate giant Siemens
revealed systematic and well-coordinated use of bribery of foreign
government officials to get contracts and
business. The practice was so widespread that one observer remarked
that bribery is their business model. In the end, Siemens will pay more
than 6.7 billion in fines and fees in Germany and the United States and
more than 6 billion for internal investigations and reforms.
 In China, the melamine in milk Scandal have claimed the lives of at
least four infants and caused illness in many babies. It also caused a
worldwide scare and did inestimable damage to the already
maligned trade in China.. The chairman of the maker of the tainted
milk is appealing a life sentence.
 The iPhone was launched in Poland where demand for the gadget
was very low. As part of a marketing campaign, the country's largest
mobile operator Orange, paid dozens of actors to stand in queues
and pretend that they were ordinary people interested in getting
the phone.
 Regardless of what an individual believes about a particular action,
if society judges it to be unethical or wrong, whether correctly or
not, that judgment directly affects the organization’s ability to
achieve its business goals.
Importance of Ethics in Business
• Ethical management, is the foundation of CSR in the workplace,
covers those ethical issues arising from the employer-employee
relationship, such as the rights and obligations justly owed between
them.
• Ethics concern an individual's moral judgements about right and
wrong. Decisions taken within an organisation may be made by
individuals or groups, but whoever makes them will be influenced by
the culture of the company.
What is Business Ethics?
• The system of moral and ethical beliefs that guides the
values, behaviors and decisions of a business organization
and the individuals within that organization.
• When the prevailing management philosophy is based on
ethical practices and behavior, leaders within an organization
can direct employees by example and guide them in making
decisions that are not only beneficial to them as individuals,
but also to the organization as a whole.
What is Business Ethics?
• Building on a foundation of ethical behavior helps create
long-lasting positive effects for a company, including the
ability to attract and retain highly talented individuals, and
building and maintaining a positive reputation within the
community.
• Running a business in an ethical manner from the top down
builds a stronger bond between individuals on the
management team, further creating stability within the
company.
Business Ethics Benefits
• The ethical operation of a company is directly related to
profitability in both the short and long term.
• The reputation of a business in the surrounding community,
other businesses and individual investors is paramount in
determining whether a company is a worthwhile investment.
If a company is perceived to not operate ethically, investors
are less inclined to buy stock or otherwise support its
operations.
Business Ethics Benefits
• With consistent ethical behavior comes an increasingly
positive public image, and there are few other
considerations as important to potential investors and
current shareholders.
• To retain a positive image, businesses must be committed to
operating on an ethical foundation as it relates to treatment
of employees, respecting the surrounding environment and
fair market practices in terms of price and consumer
treatment.
Business Ethics Benefits

 Ethics contribute to Employee commitment

 Issues that may foster the development of an ethical culture for employees
include the absence of abusive behavior a safe for" environment ,
competitive salaries, and fulfilment of all contractual obligations toward
employees.
The more a company is dedicated to taking care of its employees, the
more likely it is that the employees will take care of the organization.
 Ethics contribute to Investor loyalty
 Ethical conduct results in shareholder loyalty and can contribute to success
that supports even broader causes and concerns.

 Investors today are increasingly concerned about ethics’ social responsibility

and reputation of companies.
Business Ethics Benefits

 Ethics contribute to customer Satisfaction

 It is generally accepted that customer satisfaction is one of the most
important factors in successful business strategy.
 Successful businesses provide an opportunity for customer feedback which
can engage the customer in cooperative problem solving.
 When an organization has a strong ethical environment, it usually focuses on
the core value of placing customer’s interest first.
 Ethics contribute to profits
 Ethical conduct toward customers builds a strong competitive position that
has been shown to affect business performance and product innovation
positively.
The Corporation’s concern for ethical conduct is becoming a part of
strategic planning toward obtaining the outcome of higher
profitability
Ethics and Leadership

 Ethics and Leadership that would lead to Good

Governance rests upon 3 pillars:
 (1) Moral character of the leader
 (2) Ethical values embedded in the leader’s vision,
articulation, and program which followers either
embrace or reject,
 (3) Morality of the processes of social ethical choice
and action that leaders and followers engage in and
collectively pursue
Ethics and Leadership

 Ethicsand Leadership for Good Governance

must, recognize pluralism of values and diversity
of motivations.
 One’s moral obligations should be grounded in
a broader conception of individuals within the
community and related social norms and
cultural beliefs.
Ethics and Leadership

 Leadership, therefore, must bring about in

its mechanisms, institutions, and structures,
a system that fosters integrity, authenticity,
credibility, visibility, honesty, loyalty and
the ultimate ethical value, justice.
Good Governance has 8 Major
Characteristics/Elements
 It assures that corruption is minimized, the
views of minorities are taken into account
and that the voices of the most vulnerable
in society are heard in decision-making. It
is also responsive to the present and
future.
Good Governance has 8 Major
Characteristics/Elements
 1. Rule of Law
 Good governance requires fair legal frameworks that are enforced
by an impartial regulatory body, for the full protection of
stakeholders.
 2. Transparency
 Transparency means that information should be provided in easily
understandable forms and media; that it should be freely available
and directly accessible to those who will be affected by
governance policies and practices, as well as the outcomes
resulting therefrom; and that any decisions taken and their
enforcement are in compliance with established rules and
regulations.
Good Governance has 8 Major
Characteristics/Elements
 3. Responsiveness
 Good governance requires that organizations and their
processes are designed to serve the best interests of
stakeholders within a reasonable timeframe.
 4. Consensus Oriented
 Good governance requires consultation to understand the
different interests of stakeholders in order to reach a broad
consensus of what is in the best interest of the entire
stakeholder group and how this can be achieved in a
sustainable and prudent manner.
Good Governance has 8 Major
Characteristics/Elements
 5. Equity and Inclusiveness
 The organization that provides the opportunity for its
stakeholders to maintain, enhance, or generally improve their
well-being provides the most compelling message regarding its
reason for existence and value to society.
 6. Effectiveness and Efficiency
 Good governance means that the processes implemented by
the organization to produce favorable results meet the needs
of its stakeholders, while making the best use of resources –
human, technological, financial, natural and environmental –
at its disposal.
Good Governance has 8 Major
Characteristics/Elements
 7. Accountability
 Accountability is a key tenet of good governance. Who is
accountable for what should be documented in policy statements. In
general, an organization is accountable to those who will be affected
by its decisions or actions as well as the applicable rules of law.
 8. Participation
 Participation by both men and women, either directly or through
legitimate representatives, is a key cornerstone of good governance.
Participation needs to be informed and organized, including freedom
of expression and assiduous concern for the best interests of the
organization and society in general.
Moral Theories and Principles
 Agency Theory
 Agency theory having its roots in economic theory was exposited
by Alchian and Demsetz (1972) and further developed by Jensen
and Meckling (1976). Agency theory is defined as “the relationship
between the principals, such as shareholders and agents such as
the company executives and managers”.
 In this theory, shareholders who are the owners or principals of the
company, hires the gents to perform work. Principals delegate the
running of business to the directors or managers, who are the
shareholder’s agents (Clarke, 2004). Indeed, Daily et al (2003)
argued that two factors can influence the prominence of agency
theory. First, the theory is conceptually and simple theory that
reduces the corporation to two participants of managers and
shareholders. Second, agency theory suggests that employees or
managers in organizations can be self-interested
Moral Theories and Principles
 Stewardship Theory
 Stewardship theory has its roots from psychology and sociology and is defined
by Davis, Schoorman & Donaldson (1997) as “a steward protects and
maximises shareholders wealth through firm performance, because by so
doing, the steward’s utility functions are maximised”.
 In this perspective, stewards are company executives and managers working
for the shareholders, protects and make profits for the shareholders. Unlike
agency theory, stewardship theory stresses not on the perspective of
individualism (Donaldson & Davis, 1991), but rather on the role of top
management being as stewards, integrating their goals as part of the
organization. The stewardship perspective suggests that stewards are satisfied
and motivated when organizational success is attained.
 Agency theory looks at an employee or people as an economic being, which
suppresses an individual’s own aspirations. However, stewardship theory
recognizes the importance of structures that empower the steward and offers
maximum autonomy built on trust. It stresses on the position of employees or
executives to act more autonomously so that the shareholders’ returns are
maximized.
Moral Theories and Principles
 Stakeholder Theory
 Stakeholder theory was embedded in the management discipline in
1970 and gradually developed by Freeman (1984) incorporating
corporate accountability to a broad range of stakeholders. Wheeler
et al, (2002) argued that stakeholder theory derived from a
combination of the sociological and organizational disciplines.
Indeed, stakeholder theory is less of a formal unified theory and more
of a broad research tradition, incorporating philosophy, ethics,
political theory, economics, law and organizational science.
 Can be defined as “any group or individual who can affect or is
affected by the achievement of the organization’s objectives”.
Unlike agency theory in which the managers are working and serving
for the stakeholders, stakeholder theorists suggest that managers in
organizations have a network of relationships to serve – this include
the suppliers, employees and business partners.
Moral Theories and Principles
 Resource Dependency Theory
 Resource dependency theory concentrates on the role of board
directors in providing access to resources needed by the firm.
 Resource dependency theory focuses on the role that directors play in
providing or securing essential resources to an organization through
their linkages to the external environment. Indeed, Johnson et al, (1996)
concurs that resource dependency theorists provide focus on the
appointment of representatives of independent organizations as a
means for gaining access in resources critical to firm success.
 For example, outside directors who are partners to a law firm provide
legal advice, either in board meetings or in private communication with
the firm executives that may otherwise be more costly for the firm to
secure.
Moral Theories and Principles
 Transaction Cost Theory
 Transaction cost theory was first initiated by Cyert and March (1963)
and later theoretical described and exposed by Williamson (1996).
 Transaction cost theory was an interdisciplinary alliance of law,
economics and organizations. This theory attempts to view the firm as
an organization comprising people with different views and
objectives. The underlying assumption of transaction theory is that
firms have become so large they in effect substitute for the market in
determining the allocation of resources.
 In other words, the organization and structure of a firm can determine
price and production. The unit of analysis in transaction cost theory is
the transaction. Therefore, the combination of people with
transaction suggests that transaction cost theory managers are
opportunists and arrange firms’ transactions to their interests
(Williamson, 1996).
Moral Theories and Principles
 Political Theory
 Political theory brings the approach of developing voting support from
shareholders, rather by purchasing voting power. Hence having a political
influence in corporate governance may direct corporate governance
within the organization. Public interest is much reserved as the government
participates in corporate decision making, taking into consideration cultural
challenges (Pound, 1993). The political model highlights the allocation of
corporate power, profits and privileges are determined via the
governments’ favor.
 The political model of corporate governance can have an immense
influence on governance developments. Over the last decades, the
government of a country has been seen to have a strong political influence
on firms. As a result, there is an entrance of politics into the governance
structure or firms’ mechanism (Hawley and Williams, 1996).
Moral Principle 1: Human Dignity in
the Priority of Labor over Capital–
 The priority of labor over capital means
that all those who operate in the
economic system, whether private
companies or state agencies, must ensure
that all they do is directed to benefiting
labor itself – people – rather than capital,
mere things.
Moral Principle 1: Human Dignity in the
Priority of Labor over Capital–
Moral Principle 2: Respect for Basic
Employee Rights–
Moral Principle 2: Respect for Basic
Employee Rights–
Moral Principle 2: Respect for Basic
Employee Rights–
Moral Principle 2: Respect for Basic
Employee Rights–
Moral Principle 2: Respect for Basic
Employee Rights–
Moral Principle 2: Respect for Basic
Employee Rights–
Moral Principle 2: Respect for Basic
Employee Rights–
Moral Principle 2: Respect for Basic
Employee Rights–
Moral Principle 3: Social Justice
Moral Principle 3: Social Justice
Moral Principle 3: Social Justice
Moral Principle 3: Social Justice