The Rhetoric of Corporate Governance Legality

The Rhetoric of Corporate Governance Legality

Ben Tran (California School of Professional Psychology at Alliant International University, USA)
Copyright: © 2015 |Pages: 10
DOI: 10.4018/978-1-4666-5888-2.ch064
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Corporate Social Responsibility

Over the last two decades, corporate governance has attracted a great deal of public interest because of its importance for the economic health of corporations and society in general. The headlines in regards to corporate social responsibility governance, or a lack of, portrayed a negative image of corporate social responsibility (CSR). The negative image of CSR affects not only developed countries, for the negative image of CSR impacts developing countries, causing more damages. Thus, CSR has emerged as a major policy concern for many developing countries following the financial crisis in Asia, Russia, and Latin America.

CSR can be understood as a management concept, “whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary1.” A company acts responsible, if it aspires to achieve “an equilibrium between the demands and needs of different stakeholders which is acceptable for everybody involved2.” Essential components of the concept are the voluntary character, the orientation at expectations and values of company (Joyner & Payne, 2002, p. 300), and its cross-functional nature. According to Goebel, CSR should therefore not be seen as a separate function, but as an integral part of general management (Gobel, 2006, p. 156).

In other words, one common way of using the term is based on the following narrow definition: corporate social responsibility is concerned with ensuring the firm is run in the interests of shareholders (Allen, 2005). This is how the term is typically used in Anglo-Saxon countries such as the USA and the UK. The standard mechanisms for ensuring that this occurs are: 1) the board of directors, 2) executive compensation, 3) the market for corporate control, 4) concentrated holdings and monitoring by financial institutions, and 5) debt. Underlying this narrow view of corporate governance is Adam Smith’s notion of the invisible hand as the key principle that the organization of the economy is based on.

Key Terms in this Chapter

Global Approach: Achieving cost advantages through economies of scale.

Second Generation: Indicates that there are significant differences across countries in the degree of investor protection, and that countries with low investor protection are generally characterized by high concentration of equality ownership within firms, and a lack of significant public equity markets.

Agency Theory: Resolving two problems that can occur in agency relationships.

First Generation: Of research on corporate governance mechanisms generally concerns itself with two questions regarding a particular mechanism.

Transnational Approach: Finally recognizes the need to simultaneously respond to local differences and take advantage of global scale economies.

Third Generation: Argue that other countries of the world lack the necessary legal protection to develop good corporate governance systems.

Multinational Approach: Allows adapting to local markets, giving autonomy to subsidiaries and differentiating products and services for local demands. Decisions are decentralized and important functions reside also in local countries.

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