Embedding Corporate Social Responsibility in Corporate Governance: A Stakeholder Systems Approach

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Embedding Corporate Social Responsibility in
Corporate Governance: A Stakeholder Systems
Approach
Article in Journal of Business Ethics · January 2014
DOI: 10.1007/s10551-012-1615-9
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Embedding Corporate Social Responsibility in Corporate
Governance: A Stakeholder Systems Approach
Chris Mason • John Simmons
Received: 26 April 2012 / Accepted: 30 December 2012
Ó Springer Science+Business Media Dordrecht 2013
Abstract Current research on corporate social responsi-
bility (CSR) illustrates the growing sense of discord sur-
rounding the ‘business of doing good’ (Dobers and
Springett, Corp Soc Responsib Environ Manage 17(2):
63–69, 2010). Central to these concerns is that CSR risks
becoming an over-simplified and peripheral part of cor-
porate strategy. Rather than transforming the dominant
corporate discourse, it is argued that CSR and related
concepts are limited to ‘‘emancipatory rhetoric...defined
by narrow business interests and serve to curtail interests of
external stakeholders.’’ (Banerjee, Crit Sociol 34(1):52,
2008). The paper addresses gaps in the literature and
challenges current thinking on corporate governance and
CSR by offering a new conceptual framework that
responds to the concerns of researchers and practitioners.
The limited focus of existing analyses is extended by a
holistic approach to corporate governance and social
responsibility that integrates company, shareholder and
wider stakeholder concerns. A defensive stance is avoided
by delineating key stages of the governance process and
aligning profit centred and social responsibility concerns to
produce a business-based rationale for minimising risk and
mainstreaming CSR.
Keywords Corporate governance  Corporate social
responsibility  Stakeholder systems
Introduction
Current research on corporate social responsibility (CSR)
illustrates the growing sense of discord surrounding the
business of doing good (Dobers and Springett 2010).
Central to these concerns is that CSR risks becoming an
over-simplified and peripheral part of corporate strategy.
Rather than transforming the dominant corporate discourse,
it is argued that CSR and related concepts are limited to
‘emancipatory rhetoric ... defined by narrow business
interests and serve to curtail interests of external stake-
holders’ (Banerjee 2008, p. 52). The focal point of criti-
cism on CSR is the boards of directors, as this key group
defines and implements corporate strategy, and serves to
safeguard the interests of key beneficiaries. Thus, we
contend that a gap in research knowledge exists relating to
CSR and its enactment through corporate governance
systems. We respond to this gap by focusing on CSR’s role
in corporate governance by offering a new conceptual
framework. To address the limited knowledge we have
used a holistic approach to corporate governance and CSR
that integrates company, shareholder and wider stakeholder
concerns. A defensive stance has been avoided by delin-
eating key stages of the governance process and aligning
profit-centred and social responsibility concerns to produce
a business-based rationale for minimising financial risk
and mainstreaming CSR (Paulet 2011; Katsoulakos and
Katsoulakos 2007). We have also addressed the discon-
nection of many salient stakeholders from company deci-
sions on CSR by incorporating stakeholder evaluation of
C. Mason (&)
Faculty of Business and Enterprise, Swinburne University
of Technology, Hawthorn Campus, Melbourne, VIC 3122,
Australia
e-mail: [e-mail]
J. Simmons
Liverpool Management School, University of Liverpool,
Chatham Street, Liverpool L69 7ZH, UK
123
J Bus Ethics
DOI 10.1007/s10551-012-1615-9

the effectiveness and equity of system outcomes at each
stage of the governance model that the paper proposes.
Corporate Governance and CSR: A Combined
Stakeholder Perspective
Corporate governance is conceptualised as the creation and
implementation of processes seeking to optimise returns to
shareholders while satisfying the legitimate demands of
stakeholders (Durden 2008). Aligned with this, we have
adopted Sachs et al. (2006) approach that aligns a stake-
holder perspective of CSR and corporate governance.
Viewing corporate governance through a stakeholder lens
broadens traditional shareholder-centric and hub-spoke
approaches to organisation–stakeholder relationships
(Andriof et al. 2002). It facilitates consideration of a wider
range of corporate governance issues, contributes to
stakeholder management decisions on ‘who and what
really counts’ (Mitchell et al. 1997), and extends company
director duties to include formal consideration of stake-
holder perspectives and agendas. Stakeholder approaches
also facilitate a heightened awareness of CSR, business
ethics, and business practices that enable more informed
decisions on stakeholder salience (Fassin 2010) and more
robust CSR evaluations (Fassin and Buelens 2011).
Greater recognition of stakeholder perceptions of CSR
may also addresses issues identified in recent research, that
stakeholder engagement in corporate governance is largely
characterised by low power and low influence (Spitzeck
and Hansen 2010); that the salience of a stakeholder group
is a potent antecedent of an organisation’s perceived social
obligation to them (Mishra and Suar 2010); and that gov-
ernance processes generally fail to accord to stakeholder
expectations (Law 2011). Stakeholder theory also high-
lights organisational justice, and the awareness of stake-
holder perspectives on the equity of corporate governance
(Freeman 2010). It also challenges the primacy that cor-
porate governance traditionally accords shareholders, of
being residual risk-takers.
Consequently, we synthesised a key rationale as com-
prising the need for CSR analyses to adopt a systemic
approach to balance shareholder and stakeholder interests,
and to incorporate methods of corporate governance cor-
responding with CSR. There is significant support for this
rationale. Existing research advocates conceptual frame-
works that include ethical standards, structures, processes,
and performance (Svensson and Wood 2011), or ones that
differentiate system principles, procedures and effective-
ness (Cegarra-Navarro and Martinez-Martinez 2009).
However, we are mindful that replacing a shareholder-
centric mode of corporate governance with one focused on
ethical concerns is unlikely to find favour within the
business community. Yet acceptance that a wider range of
stakeholders have legitimate expectations has resulted in
proposals to align profit centred and social responsibility
models of corporate governance (Waring 2008), and to
balance ‘shareholder value creation’ with ‘stakeholder
value protection’ (Law 2011). Indeed, some studies suggest
that the maximisation of shareholder value may well entail
company directors pursuing a wider range of social and
economic objectives that are consistent with CSR (Tudgay
and Pascal 2006).
A broader-based audit of CSR can evaluate corporate
governance systems, policies, and outcomes in relation to
their contribution to business effectiveness, as well as how
well they meet stakeholder expectations of customer care,
employee involvement, appropriate relationships with
government, and sustainability. The corporate failures and
malfeasance of the 1990s, together with their reappearance
in the recent banking crisis, have increased systemic risk
(Paulet 2011). This has prompted calls from sections of the
business community, politicians, and the general public for
more timely, comprehensive and rigorous methods of
corporate governance that accord with CSR principles of
inclusivity, materiality, and responsiveness (Rasche 2010).
We have responded to these calls by offering a combined
systems approach that seeks to reconcile the conflicts
between CSR rhetoric and the reality of corporate gover-
nance systems and their capabilities.
A Stakeholder Systems Model of CSR: Overview
Limitations in current practice of corporate governance
require a new conceptual framework that balances effec-
tiveness and equity expectations of CSR. Our approach
therefore aligns with longstanding views that the purpose
of organisations is to deliver economic and ethical per-
formance to society (Sherwin 1983). Effectiveness has been
assessed based on CSR’s contribution to organisation
objectives, and equity expectations by stakeholder per-
ceptions of how they are treated by the organisation in
CSR-related contexts. Donaldson and Preston (1995)
claimed that all stakeholder theories contain three separate
attributes. ‘Descriptive’ in that they involve a description
of how organisations operate; ‘instrumental’ in that they
examine how stakeholder management can contribute to
the achievement of organisation goals; and ‘normative’ in
that they provide an ethical rationale for approaches to
stakeholder management (Fig. 1).
The stakeholder systems model that we propose incor-
porates these three attributes. It can be used descriptively to
identify particular stakeholder groups’ expectations of the
organisation, how organisations respond to these expecta-
tions, and the implications for both parties with their
C. Mason, J. Simmons
123

expectations being met. It has an instrumental application
by demonstrating how effective stakeholder management
can make a significant contribution to organisation effi-
ciency, effectiveness, and reputation. Normatively, it uses
equity as an ethical basis for stakeholder management, via
organisational justice dimensions to assess stakeholder
satisfaction with CSR philosophy, process, and outcomes.
Current research identifies the challenge of turning values
into processes, and this remains a key barrier to sustainable
business practice (Ballinger 2011). By incorporating values
(organisational justice dimensions) into evaluation pro-
cesses (stakeholder perceptions of system equity), the
stakeholder systems model represents both a rationale and
a method for achieving this.
Literature on the incorporation of values into manage-
ment control systems (MCSs) is limited and under-resear-
ched (Durden 2008). These issues centre on the omission of
CSR measures from conventional MCSs, which in turn
creates uncertainty on who salient stakeholders are, their SR
expectations and how their SR satisfaction can be mea-
sured. A SR MCS incorporates social and environmental
considerations alongside financial, combines external, and
internal stakeholder perspectives on SR performance, and
recognises stakeholder expectations when evaluating SR
outcomes (Durden 2008). The stakeholder systems model
we propose subsumes these features and builds on them in
the following ways. It identifies salient stakeholder con-
stituencies, and delineates their expectations of a SR
Fig. 1 A stakeholder systems
model of CSR
A Stakeholder Systems Approach
123