Responsible Corporate Governance: Towards Sustainable and Effective Governance Structures PDF
Preview Responsible Corporate Governance: Towards Sustainable and Effective Governance Structures
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 ©SpringerInternationalPublishingAG2017 Thisworkissubjecttocopyright.AllrightsarereservedbythePublisher,whetherthewholeorpartof the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilarmethodologynowknownorhereafterdeveloped. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publicationdoesnotimply,evenintheabsenceofaspecificstatement,thatsuchnamesareexempt fromtherelevantprotectivelawsandregulationsandthereforefreeforgeneraluse. Thepublisher,theauthorsandtheeditorsaresafetoassumethattheadviceandinformationinthis book are believed to be true and accurate at the date of publication. Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained hereinor for anyerrors oromissionsthat may havebeenmade. Thepublisher remainsneutralwith regardtojurisdictionalclaimsinpublishedmapsandinstitutionalaffiliations. Printedonacid-freepaper ThisSpringerimprintispublishedbySpringerNature TheregisteredcompanyisSpringerInternationalPublishingAG Theregisteredcompanyaddressis:Gewerbestrasse11,6330Cham,Switzerland 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 v 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. vii 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 ix
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