The Complementarity between Corporate Governance and Corporate Social Responsibility
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The Complementarity between Corporate Governance and Corporate Social Responsibility Andrea Beltratti* Bocconi University, Instituto di Economia Politica, Via Gobbi 5, 20136 Milan, Italy. E-mail: [email protected]
The paper aims at understanding the relation between corporate governance (CG) and corporate social responsibility (CSR). In theory, CG refers mainly to the mechanisms which protect outsiders and ensure an effective working of the firm, while CSR refers mainly to the objective function of the firm and the attention for various stakeholders. The paper discusses these concepts, with particular attention to the relation between CSR and profit maximization. This relation is important to evaluate which actions are truly socially responsible and which actions are simply profit maximization in disguise. The available empirical evidence shows that both CG and CSR are positively related to the market value of the firm. This suggests that in the long run the market mechanism should be able to provide additional resources to those companies which are best at maximizing a widely defined bottom line. The Geneva Papers (2005) 30, 373–386. doi:10.1057/palgrave.gpp.2510035 Keywords: corporate governance; corporate social responsibility; stakeholders; ethics; externalities
Introduction There is increasing attention to the global impact of large corporations. The global impact includes both economic and social elements. Wealthy economies are not willing to passively accept the decisions made by firms, especially when these amount to inflicting costs to society. A few decades ago, companies could pollute environment with no punishment, and still be considered as beneficial to the community in their role of job providers. Today, there are rules which are sometimes implemented so strictly as to threaten the survivorship of misbehaving companies. Social communities try to influence firms in their normal operations from a variety of points of view, including their goals, transparency and code of behaviour. This influence is exerted by means as diverse as legislation, regulation, pressure groups, political contacts. In such a complex environment, it is natural that firms react by upgrading their working mechanisms. For example, specific sectors or groups of firms can voluntarily overcomply with external rules by issuing codes of behaviour severely restricting certain aspects of their operations. The existence of such voluntary codes may be *
I thank Geoffrey Heal, Isabella Falautano as well as participants at seminars at MPS Vita for interesting comments. A previous version of this paper was presented at the conference on ‘‘The paradigms of value. Towards a good governance in financial and insurance services: the challenge of ethics, transparency and trust’’, organized by Montepaschi Vita and The Geneva Association, in Rome, October 15, 2004.
The Geneva Papers on Risk and Insurance — Issues and Practice
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justified as a credible proof that they want to behave in an acceptable way from the point of view of th
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