Management Decision Governance and sustainability PDF

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Management DecisionGovernance and sustainability: An investigation into the relationship between corporategovernance and corporate sustainabilityGüler Aras David CrowtherArticle information:To cite this document:Güler Aras David Crowther, (2008),"Governance and sustainability", Management Decision, Vol. 46 Iss 3pp. 433 - 448Permanent link to this document: on: 08 February 2015, At: 16:06 (PT)References: this document contains references to 66 other documents.To copy this document: permissions@emeraldinsight.comThe fulltext of this document has been downloaded 6926 times since 2008*Users who downloaded this article also downloaded:Roshima Said, Yuserrie Hj Zainuddin, Hasnah Haron, (2009),"The relationship between corporate socialresponsibility disclosure and corporate governance characteristics in Malaysian public listed companies",Social Responsibility Journal, Vol. 5 Iss 2 pp. 212-226 L. Jones, Clive H. Thompson, (2012),"The sustainability of corporate governance – considerations fora model", Corporate Governance: The international journal of business in society, Vol. 12 Iss 3 pp. 306-318üler Aras, David Crowther, (2009),"Making sustainable development sustainable", Management Decision,Vol. 47 Iss 6 pp. 975-988 to this document was granted through an Emerald subscription provided by 549148 []For AuthorsIf you would like to write for this, or any other Emerald publication, then please use our Emerald forAuthors service information about how to choose which publication to write for and submission guidelinesare available for all. Please visit for more information.About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The companymanages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well asproviding an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committeeon Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archivepreservation.*Related content and download information correct at time of download.DownloadedbySELCUKUNIVERSITYAt16:0608February2015(PT)
Governance and sustainabilityAn investigation into the relationship betweencorporate governance and corporatesustainabilityGüler ArasInstitute of SocialScience, Yildiz TechnicalUniversity, Istanbul, Turkey, andDavid CrowtherLeicester Business School, De Montfort University, Leicester, UKAbstractPurpose– The purpose of this paper is to show that corporate governance is fundamentalto thecontinuing operation of any corporation; hence much attention has been paid to the procedures of suchgovernance.Similarly sustainability is fundamentalto the continuing operation of any corporation,and is arguably the fashionable concept of the moment.While it is clear what is generally meant bycorporate governance it is much less clear what is meant by sustainability and the paper starts byinvestigating this concept.Design/methodology/approach– For two such fundamental concepts however it would seem thatthere should be a relationship between the two, although little work has been undertaken on exploringthis relationship.The centralpartofthis paperis therefore based upon an exploration oftherelationship between governance and sustainability,by investigating the FTSE100 companies andtheir corporate governance policies.Findings– This analysis found some strengthsand hence cause foroptimism – and someweaknesses – and hence cause for concern.Areas where further work is needed are identified.Research limitations/implications– The paper has implications in enhancing the understandingof the necessary components of corporate governance, although it is necessarily limited by the size ofthe sample.Originality/value– This paper increases the understanding of the relationship between corporategovernance,sustainability and sustainable development.KeywordsCorporate governance, Economic sustainability, Financial performance,Sustainable developmentPaper typeResearch paperIntroductionEvery time society faces a new problem or threat then a new legislative process ofsome sort is introduced which tries to protect that society from a future reoccurrence(Romano,2004).Recently we have seen a wide range ofproblems with corporatebehaviour,which has arguably led to prominence being given to corporate socialresponsibility (see for example Boeleet al., 2001).Part of this effect is to recognise theconcerns of all stakeholders to an organisation, and this has been researched by manypeople (forexample Johnson and Greening,1999;Knox and Maklan,2004)withinconclusive findings. Accordingly therefore corporations, with their increased level ofresponsibility and accountability to their stakeholders, have felt that there is a need toThe current issue and full text archive of this journal is available andsustainability433Received September 2007Revised January 2008Accepted January 2008Management DecisionVol.46 No.3,2008pp.433-448qEmerald Group Publishing Limited0025-1747DOI 10.1108/00251740810863870DownloadedbySELCUKUNIVERSITYAt16:0608February2015(PT)
develop a code for corporate governance so as to guide them towards appropriatestakeholder relations.A great deal of concern has been expressed all over the world about shortcomings inthe systems ofcorporate governance in operation:Britain,Australia,mostotherAnglo-Saxon and English speaking countries, and many other countries, have a similarsystem ofgovernance (Michaeland Gross,2004).Conversely Germany is a goodexample of where the distance between ownership and control is much less than in theUSA,while Japan’s system ofcorporate governance is in some ways in betweenGermany and the USA,and in other ways different from both (Shleifer and Vishny,1997).By contrast,in India the corporate governance system in the public sector maybe characterized as a transientsystem,with the key players (namely politicians,bureaucrats,and managers) taking a myopic view of the system of governance.Suchinternational comparisons illustrate different approaches to the problem of corporategovernance and the problem ofensuring thatmanagers actin their shareholders’interest. Recently of course much attention to this issue has been paid by institutionalinvestors (Coxet al.,2004).Good governance is of course important in every sphere of the society whether it bethe corporate environmentorgeneralsociety orthe politicalenvironment.Goodgovernance levels can, for example, improve public faith and confidence in the politicalenvironment. When the resources are too limited to meet the minimum expectations ofthe people, it is a good governance level that can help to promote the welfare of society.And of course a concern with governance is at least as prevalent in the corporate world(Durnev and Kim,2005).Corporate governance can be considered as an environment of trust,ethics,moralvalues and confidence – as a synergic effort of all the constituents of society – that isthe stakeholders,including government;the generalpublic etc;professional/serviceproviders – and the corporate sector.One of the consequences of a concern with theactions ofan organisation,and the consequences ofthose actions,has been anincreasing concern with corporate governance (Hermalin, 2005). Corporate governanceis therefore a current buzzword the world over. It has gained tremendous importance inrecent years.Two of the main reasons for this upsurge in interest are the economicliberalisation and deregulation ofindustry and business and the demand for newcorporate ethos (Joyner and Payne,2002) and stricter compliance with the law of theland.One more factorthathas been responsible forthe sudden exposure ofthecorporate sector to a new paradigm for corporate governance that is in tune with thechanging timesisthedemand forgreateraccountability ofcompaniesto theirshareholders and customers (Bushman and Smith,2001).SustainabilityJustas there has been a vastincrease in interestin,and concern for,corporategovernance,so too has there been a similar growth in interest in sustainability.Agrowing number of writers over the last quarter of a century have recognised that theactivities of an organisation impact upon the external environment and have suggestedthat such an organisation should therefore be accountable to a wider audience thansimply its shareholders.Such a suggestion probably first arose in the 1970s[1] and aconcern with a wider view of company performance is taken by some writers whoevince concern with the social performance of a business,as a member of society atMD46,3434DownloadedbySELCUKUNIVERSITYAt16:0608February2015(PT)
large. This concern was stated by Ackerman (1975) who argued that big business wasrecognising the need to adapt to a new social climate of community accountability, butthattheorientationofbusinesstofinancialresultswasinhibitingsocialresponsiveness.McDonald and Puxty (1979)on theotherhand maintain thatcompanies are no longer the instruments of shareholders alone but exist within societyand so therefore have responsibilities to that society, and that there is therefore a shifttowards the greater accountability of companies to allparticipants.Implicit in thisconcern with the effects of the actions of an organisation on its external environment isthe recognition that it is not just the owners of the organisation who have a concernwith the activities of that organisation.Additionally there are a wide variety of otherstakeholders who justifiably have a concern with those activities,and are affected bythose activities.Those other stakeholders have not just an interest in the activities ofthe firm butalso a degree ofinfluence over the shaping ofthose activities.Thisinfluence is so significant that it can be argued that the power and influence of thesestakeholders is such that it amounts to quasi-ownership of the organisation.IndeedGrayet al.(1987) challenge the traditional role of accounting in reporting results andconsider that,rather than an ownership approach to accountability,a stakeholderapproach,recognising thewidestakeholdercommunity,isneeded[2].MoreoverRubenstein (1992) goes further and argues that there is a need for a new social contractbetween a business and its stakeholders.Central to this social contract is a concern for the future which has become manifestthrough the term sustainability.This term sustainability has become ubiquitous bothwithinthediscourseofglobalisationandwithinthediscourseofcorporateperformance.Sustainability is ofcourse a controversialissue and there are manydefinitions of what is meant by the term.At the broadest definitions sustainability isconcerned with the effectwhich action taken in the presenthas upon the optionsavailable in the future (Crowther,2002).If resources are utilised in the present thenthey are no longer available for use in the future, and this is of particular concern if theresources are finite in quantity.Thus raw materials of an extractive nature,such ascoal, iron or oil, are finite in quantity and once used are not available for future use. Atsome point in the future therefore alternatives willbe needed to fulfilthe functionscurrently provided by these resources.This may be at some point in the relativelydistant future but of more immediate concern is the fact that as resources becomedepleted then the costofacquiring the remaining resources tends to increase,andhence the operational costs of organisations tend to increase[3].Sustainability therefore implies that society must use no more of a resource than canbe regenerated. This can be defined in terms of the carrying capacity of the ecosystem(Hawken,1993)and described with input-outputmodels ofresource consumption.Thus the paper industry, for example, has a policy of replanting trees to replace thoseharvested and thishastheeffectofretaining costsin thepresentratherthantemporally externalising them.Similarly motorvehiclemanufacturerssuch asVolkswagen have a policy of making their cars almost totally recyclable.Viewing anorganisation as part of a wider social and economic system (Hart,1997) implies thatthese effects must be taken into account,not just for the measurement of costs andvalue created in the present but also for the future of the business itself.Such concerns are pertinent at a macro level of society as a whole, or at the level ofthe nation state but are equally relevant at the micro level of the corporation, the aspectGovernance andsustainability435DownloadedbySELCUKUNIVERSITYAt16:0608February2015(PT)
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