Governance in the Business Environment: Volume 2

It is clearly accepted that good corporate governance (CG) is fundamental to the successful continuing operation of any company; hence, much attention has been paid to the procedures of such governance. Often however what is actually meant by the CG of a firm is merely assumed without being made explicit; often, it is assumed to be concerned with how the company conducts its annual meeting, deals with auditors and so on. Increasingly, this has been extended into a more general concern with the management of investor relationships. In reality, of course, it affects all of the operations of a business and its relations with all of its stakeholders – a much more wide-ranging concern than is sometimes appreciated.

One of the main issues which has been of concern to corporate managers, both before the crisis and much more so during it, is that of corporate governance (Aras, 2008). Indeed for the last 25 years corporate governance has attracted a great deal of attention. Early impetus was provided by Anglo-American codes of good corporate governance.¹ Stimulated by institutional investors, other countries in the developed as well as the emerging markets have established a code normally based on these established codes for their own companies. Supra-national authorities like the OECD and the World Bank did not remain passive and developed their own set of standard principles and recommendations. This type of self-regulation was chosen above a set of legal standards (Van den Berghe, 2001) and, after some big corporate scandals, corporate governance has become central to most companies. It is understandable that investors' protection has become a much more important issue for all financial markets after a number of very visible and significant failures and scandals. Investors are demanding that companies implement rigorous corporate governance principles to achieve better returns on their investment and to reduce agency costs. Most of the times investors are ready to pay more for companies to have good governance standards. Similarly a company's corporate governance report is one of the main tools for investor' decisions. Because of these reason companies can not ignore the pressure for good governance from shareholders, potential investors and other markets actors.

Technologists typically give little thought to the negative impacts of technology upon society at large, preferring instead to argue that there is no alternative, and to label those raising social concerns as ‘Luddites’. In any responsible society however it is essential that thought is given to how technological innovation can be managed, and this calls for some government planning – a bete noir of contemporary political thought. It seems that so far all governments have largely failed both to appreciate the significance and pace of developments and have failed to develop a stance in respect to it. They have significantly failed to develop a policy which ensures that society as a whole, and individual members of that society benefit from the future developments in this area. This can be contrasted with many individuals who have readily grasped the power of information technology and have combined into groups who have been able to exert significant influence on those governments. Indeed it can be considered that the entire anti-globalisation movement could not exist without the availability of that information technology. As Barnett and Crowther (1998) point out, the internet removes the need for geographical proximity in order for people to combine in achieving a purpose.

The increasing importance of corporate social responsibility in recent years has been largely discussed, mainly as a part of business strategies to cope with growing environmental challenges. Discourses regarding corporate social responsibility intensified with the emergence of financial crisis. Many of these debates refer to the role CSR plays in society and reasons for a company to involve in supporting social causes in times of crisis.

In every country, those in charge of governance are expected to play a major role in shaping business and economic activities. They are expected to come up with a framework that will underpin the principles, policies, laws and regulations they put in place to guide these economic and business activities and the compliance thereof. Such frameworks always depend on the political-economic philosophy of the country or those in charge of governance. As a result of the enormous power and influence political institutions wield on business organisations, these institutions constitute one of the cardinal ‘environments’ that ought to be considered when businesses are formulating their strategies as they constitute the pivot upon which the wheel of other environmental factors rotate.

At the present time (mid-2010), it is uncertain if the economic crisis is over or not as the recovery is dwindling and the pundits are talking us into a double dip recession. This crisis has however highlighted failures in governance and failures in regulation. Indeed, some writers have argued that the regulators are more guilty even than the perpetrators and should be sanctioned accordingly. There is of course one flaw in this argument and one problem with managing the prevention of future financial crises (Grabel, 2003) and this is concerned with the recognition of and regulation of a truly global market for finance. The liberalisation of financial markets instigated by the Washington consensus has made the free movement of funds a fact of financial life and has encouraged the parcelling together of doubtful debts into mystery parcels to be sold around the world.¹ And of course, the operators in all financial markets, always ready to accept a gamble in the hope of ever larger profits and bonuses, have been quick to respond.

In Japan a network system called keiretsu exists (Abegglen & Stalk, 1985; Gerlach, 1992; Sheard, 1994). Keiretsu may involve formal and informal relationships with suppliers that have developed over the years or other interfirm links (for example, among manufacturers and supporting financial institutions). In the late 1990s, the Japanese economic system has undergone some changes such as the dissolution of cross-shareholdings and the decline of the main bank system (relationship-based financing) leading to changes in the corporate ownership and the governance system of Japanese companies.

China has achieved continuous economic growth and become more integrated with the global economy since the start of the current financial crisis in late 2008. As the second largest economy in the world, China's political policies, economic and social development have influence on global economy. Attention has been paid worldwide to the current Chinese legal system, political policies and the development of economic reform since China entered the World Trade Organisation in November 2001. The corporate governance reform is the centre of the enterprise reform. In September 1999, The Fourth Plenum of the Chinese Communist Party's 15th central Committee identified that corporate governance is the core of the modern enterprise system. In recent years China has made significant progress in developing the foundations of a modern corporate system. There are more than 1,200 companies which have successfully diversified their ownership through public listing and 80% of small and medium size companies have been transformed into non-state-owned enterprises. More and more state-owned enterprises are on the way to transforming into corporations. China has formed a legal framework for corporate governance.

CSR is seen as a constant source of debate in the research of company laws and has attracted wide attention from scholars. It is at the forefront of strategic outlook of contemporary organisations of all kinds. It is associated with the conduct of corporations and whether corporations owe a duty to stakeholders other than shareholders has been debated at various times. The CSR concept itself is not a new one and the social responsibilities of business in a market society has been discussed for decades, long before globalisation became a catchword. However, globalisation has been seen as a new phenomenon that affects our everyday life and the business life. New social networks with mutual dependences are created, thus leading to emerging new responsibilities. Community, work and capital are losing their home and locus and we are confronted with different cultures and life styles, whereas society is pluralised and common traditions, cultural values and social certainties emerge into a melting pot of various values and life styles.

Corporate social responsibility (CSR) is a concept that extends the traditional focus of business in achieving bottom-line results to triple bottom-line results and the concept of sustainability that focus on economic, environmental and social performance. The Bursa Malaysia CSR Framework (2006) defined CSR as open and transparent business practices that are based on ethical values and respect for the community, employees, the environment, shareholders and other stakeholders. This CSR framework was designed to deliver sustainable value to the society at large.

Recently, at the UN Climate Change Conference in Copenhagen (COP 15),¹ in December 2009, we kept our eyes on the political representatives of the countries present, in the hope that decisions would be made that could restrain global warming, soil exhaustion levels, predatory deforesting, the near absence of potable water, the disappearance of animal and plant species and the damage caused by the pollution imposed on nature. Although with great caution, it was expected that the industrialised² nations, led by the United States,³ which over the years have reached a high level of economic and social development, would lead the negotiations, alongside China⁴ and the so-called emerging nations (India⁵ and Brazil, among others) that are now pursuing economic and social development, taking urgent measures with effectiveness and climatic justice, seeking to control global imbalance.

Güler Aras (www.guleraras.com) is professor of finance and dean of the faculty of economic and administrative sciences at Yildiz Technical University, Istanbul, Turkey. She is also visiting professor at De Montfort University, Leicester, UK. Her research is into financial economy and financial markets with particular emphasis on the relationship between corporate social responsibility, sustainability and a firm's financial performance. Güler has published more than 15 books and has contributed over 150 articles to academic, business and professional journals and magazines and to edited book collections. One of the most recent books (2009) is The Durable Corporation: Strategies for Sustainable Development (with David Crowther), which addresses the topical issue of the sustainability of corporate activity. Güler is a founder and member of various associations and research centres in Turkey and worldwide. She is also a member of a number of international editorial and advisory boards and is vice chair of the Social Responsibility Research Network; series editor of the Gower Applied Research in Corporate Social Responsibility book series; associate editor of Social Responsibility Journal and convenor of the International Conference Series on Corporate Social Responsibility, now in its 10th year. She has also spoken extensively at conferences and seminars and has acted as a consultant to a wide range of government and commercial organisations.