Social and Environmental Reporting - Assignment

Social and Environmental Reporting 1
SOCIAL AND ENVIRONMENTAL REPORTING
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Social and Environmental Reporting 2
Introduction
Corporate governance is how businesses are conducted according to the desires of the owners.
By focusing on the profitability goal, corporates protect interests, and value of shareholders. On
the other hand, corporate governance pursues the interests of society by acting ethically and
meeting the needs of the stakeholders. There are three parties in corporate governance, including
shareholders, directors and managers (Haslinda & Benedict, 2009, p. 89). All parties in the firm
are entangled in the day to day running of the firm. Corporate governance is supposed to protect
the rights of shareholders and ensure that there is equal treatment of all shareholders (Sir, 2018,
p. 23). The aim of this paper is analyzing the theoretical frameworks of corporate governance,
the role of the board and external audit in enhancing company sustainability, and how corporate
governance creates engagement between a company and its stakeholders.
Critically summarize the theoretical frameworks of corporate governance by highlighting
its different mechanisms and approaches
Several theories have been used to explain corporate governance comprising; agency theory,
stewardship, the stakeholder theory, resource dependency theory and transaction cost theory
(Gérard, 2004, p. 24). These theories are analyzed below:
Agency Theory: Agency theory is termed as the affiliation amid heads such as stockholders and
representatives like the administrators and supervisors of the company. The model postulates that
the bondholders who are business owners are the owners of the firm hire directors and managers
to execute tasks (Haslinda & Benedict, 2009, p. 24). The agents may, however, not make
decisions that cover the interests of the principals.
Stewardship Theory: Under this theory, the company executives protect the owners' interests and
make choices on their behalf. Their primary aim is to generate and preserve an able body for the
stakeholders to flourish. Firms that apply stewardship theory place the CEO and the chairman

Social and Environmental Reporting 3
under one executive, with the management comprising mostly of the in house members (Gérard
, 2004, p. 45). This model has a clear objective of the gratification of the shareholder.
Stakeholder Theory: This theory focuses on the effect of corporate activity on the stakeholders of
the corporation. The approach of the stakeholder model is to maximize returns from the business
operations. The network of relationships with many groups can influence the decision making as
the stakeholder’s model is concerned with the nature of relationships amid the stakeholders and
the firm (Sir, 2018, p. 32).
Resource Dependence Theory: The basic proposal of asset dependence premise is the obligation
for environmental links amid the company and external assets (Gérard , 2004, p. 78). The
associations have to require assets that prompt the improvement of trade networks between
associations. A few elements would seem to escalate the character of this reliance, for example,
the importance of the resources, the overall lack of the capitals and the degree to which the
resources are packed in the locale (Haslinda & Benedict, 2009, p. 48).
Transaction Cost in Corporate Governance: Organizations choose two options of obtaining
control over resources; the hierarchy of solutions and market solutions. The decision is based on
the comparison of the transaction cost of the two approaches (Haslinda & Benedict, 2009, p. 54).
Transaction costs are non-production costs which are incurred in the performance of a unique
activity; for instance, the expenditure sustained via subcontracting (Gérard, 2004, p. 76).
Critically analyze how the board of directors and the external audit could contribute to
achieving companies’ sustainable development
Corporate responsibility has risen as a strategic priority for most firms. The Board of directors
together with the external audit plays major roles in the achievement of company’s sustainable
development. The engagement of board of management sends a strong message to the leaders of