Corporate responsibility and corporate governance (page 1 of 2)

The over-riding goal in every case has been to restore investor confidence, and that goal has been largely met. However, these changes have also brought with them the realisation that good governance is a key topic not only for shareholders but also for a much broader set of stakeholders, including customers, employees, suppliers and the wider community.

That in turn has made the term corporate responsibility (CR) much more familiar than ever before in boardrooms across the globe. The line is far from solid, but CR can be seen as the extension of governance beyond simple compliance to embrace broader social values.

A recent survey from the Economist Intelligence Unit, produced in cooperation with Oracle Corporation, reveals that more business executives and corporate investors are factoring corporate responsibility into their decision-making.

The survey polled 136 executives and 65 investors in October 2004. A total of 84% of executives and investors surveyed considered CR to be a 'central' or 'important' consideration in investment decisions. This figure is almost double the 44% who expressed that same view five years ago.

The three most important aspects of CR for the executives surveyed were ethical staff behaviour (67%), good corporate governance (58%) and transparency (51%). For institutional investors, transparency was the top concern (68%), followed by high standards of corporate governance (62%) and ethical staff behaviour (46%). Labour practices received a much lower score among investors (23%) than among executives (44%).

Although 84% of survey respondents felt CR practices could help a company's bottom line, finding a direct link between CR and profits has proved elusive. While both executives and investors believed that CR delivered the intangible benefits of brand enhancement and better staff morale, the biggest obstacles to CR were said to be its unproven business benefits and the cost of CR programmes.

That may now be changing. Writing in the Winter 2004 issue of Business Ethics, Marjorie Kelly referred to two major new studies that claim to provide proof positive that CR has a positive impact in the bottom line.

The first was conducted by Marc Orlitzky of the University of Sydney and by Frank Schmidt and Sara Rynes from the University of Iowa. Their meta-analysis, "Corporate Social and Financial Performance," was a study of 52 studies over 30 years. They found that a statistically significant association between corporate social performance and financial performance exists, varying "from highly positive to modestly positive."

In November 2004, a second study, "Corporate Environmental Governance," commissioned by the UK Environment Agency, looked at 60 research studies over the last six years. It found that 51 of them (85%) showed a positive correlation between environmental management and financial performance. Its resounding conclusion was that companies with sound environmental policies and practices are highly likely to see improved financial performance.

It can be argued that CSR helps companies develop new competencies because it engages employees organisation-wide, calls for a forward-thinking managerial style and leaves responsible firms better prepared for external changes, turbulence and crises. It may help firms attract better employees and increase employee goodwill. It may also enhance relations with bankers and investors. Above all, it builds reputations.

Nike is famous for its athletic clothing and footwear and its trademark "swoosh" is one of the most recognisable corporate logos in the world.