Good governance is a prerequisite
for sustainable development around the world.
The aim of this
report is to comment and demonstrate how fundamental corporate governance is
for businesses but also to the well-being of our entire society. Therefore, as
a first step, the concept of corporate governance will be studied, secondly, In
the same way, sustainability represents a key subject and is without a doubt
the trendy concept of the moment. While it is clear what is meant by corporate
governance in general, the notion of sustainability is much less so, this
concept will be defined and framed. Thirdly the convergence between the two
notions will be discussed. Then, different economies are going to be compared in
terms of CSR incorporation in their corporate regulation.
I – Corporate Governance
point for the declaration and introduction of corporate governance was in the
1930s, when the difference between shareholder interests and corporate
governance was recognized for the first time. An important book appeared in 1932 under the title The Modern Corporation and
Private Property, (Adolf Augustus Berle and Gardiner C. Means).
Even though the
term first appeared in 1976, it was only known through three reports that
reflected practical experience, most notably the Cadbury Report (1992). According to that
report, “Corporate governance is the system by which companies are directed
and controlled.” In fact, The Cadbury Report (1992), the Greenbury Report
(1995) and the Hampel Report (1998) form the basis for corporate governance in
the United Kingdom. These reports have encouraged companies around the world to
write their principles of good corporate governance. These principles set out,
on the one hand, the main legal provisions on the management and control of
companies and, on the other hand, simple recommendations, for example on
accounting and auditing.
The scandals of
the years 1990/2000, such as the fall of Enron (USA), Worldcom (USA) and the
near collapse of Vivendi Universal (France) revealed what an authoritarian and
non-transparent exercise of power within a large group could cause in terms of
damages to the whole society, because, when a large group falls, it carries
with it hundreds or even thousands of direct employees and subcontractors.
The UK corporate
governance is therefore based on the three reports quoted before; the USA are
based on the 1992 COSO (Committee of Sponsoring Organizations of the Treadway
Commission) and since 2002 the Sarbanes-Oxley Act (SOX) has been binding on all
companies listed on any US stock exchange; Germany has the DCGK (Deutscher
Corporate Governance Kodex), France is controlled by the “Loi de Sécurité
Financière” from 2003; in Brazil, the codes of the Brazilian Institute of
Corporate Governance (IBGC) and the Securities and Exchange Commission (CVM) rule.
have a similar system of governance, Anglo-Saxons countries for instance (Michael and Gross, 2004 cited
by Güler Aras and David Crowther 2008)1 In this same paper, Aras and
Crowther put in contrast Germany, Japan and the USA regarding to the
control/ownership concept (according to Shleifer and Vishny researches, 1997). Germans
seems to have a bigger gap between ownership and control compare to the USA and
Japan is most likely to be in between them. Comparing worldwide systems allows
seeing the different shapes of corporate governance and the matter of managers’
behavior to reach shareholders’ interests.
From all over
the globe, jurisdictions are operating with different corporate governance
systems, but they are all designed, in essence, to bring more balance and
transparency in the distribution of power, in the control of power and in the
involvement of all hierarchical levels in the management of a company.
3 main actors
actors are distinguishable in corporate governance, directors, shareholders,
and auditors (gatekeepers). Indeed managers are one piece of the puzzle, but it
is important to recognize the importance of the other actors involved in the
This report will
focus on directors given that they are the starting point of the decision
making process and their ability to stay impartial is a key factor in many
Ownership VS control
of corporate governance lead inevitably to the great issue of ownership and
control. Being unbiased and serving the company interest before its own is a
characteristics required to direct properly, however, it is observed that if a
director is at the same time owner of the company, even partly, he would most
likely take better decision because his personal interests are the company
II – Sustainability
In the following
report, corporate governance will be seen from the sustainable development
point of view. Therefore, it is important to frame what sustainability is.
According to the
Norwegian Prime Minister Gro Harlem, sustainable development is a “development
that meets the needs of the present without compromising the ability of future
generations to meet their own needs.” Brundtland (1987). In 1992, the Rio Earth Summit,
held under the auspices of the United Nations, formalized the concept of
sustainable development and its three pillars, an economically efficient,
socially equitable and ecologically sustainable development.
environmental and social crisis that is now manifesting globalization (global
warming, lack of natural resources, lack of fresh water, peak oil
reconciliation, differences between developed and developing countries, food
security, deforestation and drastic loss), biodiversity, global population
growth, nature – and industrial disasters), sustainable development is a
reaction of all actors (states, economic agents, civil society), cultural and
It is also,
based on new universal values ??(responsibility, ecological participation and
sharing, precautionary principle, debate) to affirm a dual approach:
– in time: we
have the right to use the resources of the Earth, but the duty to ensure its
sustainability for future generations;
– in space: each
human has the same right to the natural resources of the Earth (principle of
universal destination of goods).
realization, the idea of “sustainable development” that can both
reduce social inequalities and reduce pressure on the environment is making its
industrial revolution, the West has lived under the sign of unbridled
development and economic growth, which emphasizes the production and consumption
of material goods. However, since the beginning of the 1970s, concern has been
expressed about economic activities that generate visible and localized
environmental damage (waste, factory fumes, pollution of rivers, etc.). At the
economic and social level, it was already apparent at the time that the overall
policy maintained or even increased the inequalities between rich and poor
countries, rich and poor populations within the same country or region. Through
these observations, the limits of the current mode of development of our
society were already beginning to be felt. This will lead to the emergence of
the concept of “sustainable development” (1968: creation of the Club
of Rome, which will publish the first reports on the subject, 1972: Stockholm United
Nations Conference on Environment and Development).
All sectors of
activity are concerned by sustainable development: agriculture, industry,
housing, family organization, but also services (finance, tourism …) material
or immaterial. More simply, sustainable development is a mode of development
that aims to meet the needs of all without degrading the environment.
sustainable point is reached when the three pillars (that are social,
environment and economic) are gathered. The brilliant concept of the TBL
(Triple Bottom Line), from Michael
Blowfield’s book “Sustainability and business management”, demonstrates
clearly what is in stake when it comes to sustainability.
The Triple bottom line is the
transposition of sustainable development’s concept into business (CSR – corporate
social responsibility). The performance of the company is evaluated from
From a social point of view,
that is to say the social consequences of the company’s activity for all its
stakeholders (People); from the environmental aspect, or the compatibility
between the activity of the company and the contribution to a healthy
ecosystem (Planet); and eventually the economic aspect (Profit).
This term is an allusion to the
Bottom Line (or last line of the balance sheet), that is to say to the net
This concept is a way to go further to the
traditional measures of shareholder value, profits, return on investment, and
to include new scope (social and environment oriented).
III – Corporate Sustainability
of the best example would be the American energy company Enron, when the lies
were public exposed in 2001, they went bankruptcy, it resulted in the loss of
20 000 jobs and 2 billion dollars in employees’ retirement funds. That is
how corporate governance is important (Li, 2010). A few persons
on top of a company are taking a non-suitable decision, and it is everyday life
of thousands of people that are impacted. Another good example is Worldcom, one
of the world biggest telecommunications’ companies, which went bankruptcy in
2002 after showing huge accounting irregularities, after overstating their
incomes. The consequences were losses of more than 400 thousands in employees’ retirement
funds. (Thornburgh, 2004)
Then 2009 subprime crisis,
what went wrong USA housing market, high risk loans,
governance was mostly linked with financial crisis, managerial problem,
shareholders’ interests, strategic goals, and economical scandals; nonetheless,
after the 2009 financial crisis, companies were asked by the society to rely on
trust, transparency and accountability. Then the social and environmental
issues arose as main points of interest. As a matter of fact, there is a real
awareness of society, in particular thanks to NGOs and associations that have today
a wider credibility and scope with citizens, who allow them to exercise an
implicit power on corporate governance. Beyond the image that the company sends
back and the consequences on the turnover, the social responsibility of the
company induces to change the traditional modes of governance and impacts the
company as a whole.
The goal of
governance is to reach decisions that are acceptable to the majority, to the
extent possible, and consistent with the common good.
initially corporate governance was simply the protection of a company’s real
wealth – capital and labor – that directly affects the bottom line. As more and
more questions arose about corporate environmental commitment, investors and
the public started to demand certainty. That’s why strong governance is needed.
In addition to managing the business responsibly; it is also important to
report on activities in a frank and transparent manner. Now more than ever, the
goal is to preserve customer trust and the reputation of the company.
after Our Common Future, also known as the Brundtland report (1987), (and twenty
five years later the United Nations Conference on Environment and Development
in Rio de Janeiro) the concepts of sustainable development have never been more
present in the social debate than today. A true social issue for more than
three decades, sustainable development goes beyond the notion of economic
growth and places societal issues at the heart of the problem of short-term
choice over the long term. Fair trade, green companies, organic labels, and
mixed staff within companies are terms and concepts that are recurrent in
today’s economic language and present the new organizational challenges. Today,
no company can fail to ignore its obligation or commitment to its wider environment.
The responsibilities of the company extend over three fields; economic,
social and ecological. In the economic field, it must ensure the continuation
of its activity in order to sustain its income and production. It is therefore
responsible to its employees but also suppliers, customers, shareholders. In
the social field, its responsibility comes as a job provider; it participates
in this way to the structuring of society. It is essentially a commitment in
terms of working conditions for both the producer and its suppliers. Last but
not least, in the ecological field, the company is engaged in the health and development
of a territory.
eco-efficiency of a business is achieved by distributing competitively priced
goods that meet human needs and provide quality of life, while gradually
reducing ecological impacts and resource use throughout the life cycle..
– reducing the intensity of goods and services (concept of
dematerialization of products)
– reducing the energy intensity of goods and services;
– the reduction of discharges into the natural environment (water,
air, soil) and in particular of toxic products;
– the reduction of the use of the territory and the biologically
– reduction, location of units and choice of the least polluting
modes of transport for goods and people:
– increasing the recyclability of materials;
– maximizing the sustainable use of renewable resources
– the extension of the viability of the products
Corporate Governance (Chambers, 2008)
control of the business
Businesses should support and
respect the protection of internationally proclaimed human rights
and reliable public reporting
Make sure that they are not
complicit in human rights abuses
of excessive power at the top of the business
Businesses should uphold the
freedom of association and the effective recognition of the right to
balanced board composition
The elimination of all forms of
forced and compulsory labour
strong and involved board of directors
The effective abolition of child labour
strong independent element on the board
The elimination of discrimination
in respect of employment and occupation
monitoring of management by the board
Businesses should support a
precautionary approach to environmental challenges
Undertake initiatives to promote
greater environmental responsibility
assessment and control
Encourage the development and
diffusion of environmentally friendly technologies
strong audit and assurance process
Businesses should work against
corruption in all its forms, including extortion and bribery
Six years after
the release of the 10 principles of corporate governance in the “Corporate
governance handbook” by the Professor Andrew Chambers, the United Nation wrote
the 10 principles of corporate sustainability in their “Guide to corporate
sustainability” published in December 2014. Those new principles are not here
to replace the firsts ones, they are a complement to add values I terms of
human rights, labour, environment, and anti-corruption. Indeed if a company wants to achieve
sustainability, they must operate with integrity and respect the fundamental
responsibilities of those four aspects. (Compact, 2014)
Already in 2015,
according to “The Nation”, there are nearly 180 laws and regulatory
standards that require reporting on sustainable development across 45
countries. Stock exchanges play a vital role in creating a sustainable capital
Europe and Japan, plenty of multinationals have started to focus more on
monitoring the board and implementing sustainability, compliance, ethics and
external audit responsibilities. Besides being a pragmatic answer from the firm
to the society and its consumers, CSR represent also a modification in the
business environment in which individual companies operates.
Globalization & Ecology
transportation of goods was long and dangerous. Most communities used local
resources for their daily needs (food, clothing, building materials, tools,
etc.). Only certain luxury products were “imported” (silk, tea, coffee)
Since then, transportation systems have grown incredibly, with planes, boats,
trains and trucks transporting huge quantities of goods from one end of the
globe to the other. These international exchanges are extremely beneficial for
the economy and have encouraged the emergence of international companies.
Most of the
predicted changes in the environmental situation indicate that, if it
continues, the degradation of the planet’s natural resources may ultimately jeopardize
expected increase in the global population, which is expected to increase by a
quarter by 2020, and the steady increase in economic growth and globalization,
the pressures of human activities on the environment are not about to decline
unless vigorous action is taken to protect ecosystems and maintain the
essential services they provide. To maintain long-term ecosystem integrity,
policies will need to be implemented to ensure the detoxification of substances
released into the environment, the “decarbonization” of energy, the
conservation of biological diversity and the sustainable use of renewable
natural resources. ”
It is an
ambitious program, which will involve cooperation in the sustainable management
of natural resources at the global level supporting national initiatives in
both industrialized and developing countries. Assuming that market-based
solutions offer the best cost-effectiveness, and therefore the best option for
taking into account global externalities, a number of institutional problems
will need to be addressed. The focus will be on how local environmental
services that have positive global effects need to be addressed in
international (global) agreements.
Today, the vast
majority of the products we consume come from very far away, whereas most of
them could be produced locally. This paradoxical situation is explained by the
low price of transport combined with the minimal wages offered in certain parts
of the world for often dismal working conditions. Thus, it is now cheaper to buy
apples that have grown in New Zealand than in the neighboring field.
Corporate Social Responsability
The concepts of
CSR are the economic, social and environmental impact of commercial operations
and their response to the expectations of customers, employees, shareholders
and stakeholders in the context of these impacts. CSR is no longer limited to
corporate philanthropy; On the contrary, taking on social responsibility has a
positive impact on the financial performance of companies.
to size up what is at stake of new challenges, adapt their strategies in order
to take advantage of them.
According to the
Green paper from
the European Commission, CSR can be described as “a concept whereby companies
integrate social and environmental concerns in their business operations and in
their interaction with their stakeholders on a voluntary basis”.
Corporate Social Responsibility (CSR) describes the voluntary contribution of
the economy to sustainable development that goes beyond legal requirements. CSR
stands for responsible entrepreneurial activity in the actual business activity
(market), over ecologically relevant aspects (environment) up to the relations
with employees (workplace) and the exchange with the relevant stakeholders.
“69% of high-net millennials place greater
worth in putting their money toward companies that show a high level of CSR” https://skytopstrategies.com/csr-fortune-500-companies-measure/
In Japan, the period of high
growth (which began in the 1950s) saw a proliferation of cases of pollution and
poisoning, the most emblematic of which is the disease of Minamata that strikes
the inhabitants of a bay in the region of Kumamoto contaminated with mercury.
The 1970s are those of the awareness of the limits of growth. Citizen movements
question the unrestrained pursuit of profit. The period of financial euphoria
of the late 1980s stimulates patronage activities: the employers’ federation
Keidanren creates a club for companies that devote more than 1% of their
profits to “philanthropy”.
In 2003, a growing number of
Japanese companies joined the UN Global Compact, CSR was on the agenda of the
G8 summit in Evian and the European Commission launched a process to implement
the adopted principles.
weaknesses side, Japan is often singled out for conformity, lack of diversity
and creativity, pressure from the group to the detriment of the rights of
individuals, and the place of women (who are often forced to choose between
family life and career). For some critics, unpaid overtime is akin to forced
labor and violates workers’ basic rights.
On the side of the forces, one can
put forward the stability offered by the employment for life, the long-term
vision, the importance given to the continuous formation, the search for the
consensus, a calm social climate allowing the expression of the employees and
their unions, the contribution of employees in search of productivity gains,
the low pay gap between the base employee and the CEO.
Japanese companies, which have massively adopted the series of ISO
14000 standards, have set targets for reducing their environmental impact.
Proactive in terms of the environment, Japanese companies are nevertheless
reluctant to be imposed binding rules. In Japan, CSR is essentially voluntary.
In the debate between voluntary soft law and the rules imposed by the state,
Japan is resolutely on the liberal side. In general, the rules are introduced
in Japan by companies that have been confronted with the problem of CSR in the
course of their activities.
The conclusion of this argument is that the
adaptation of the corporate governance model is decisive in the implementation of
each of the different cultures that populate the world.
As a conclusion, sustainability has become inevitable when it comes to corporate
governance. Given the current worldwide situation, every company should be
involved, proportionally to its size, in the planet and its inhabitant’s fate.
Being a responsible company also means wealth creation and brand image
guaranty. Nevertheless, the adaptation of the corporate sustainability model (as
the corporate governance model) to each culture should be more cautious. Indeed
as shown with the examples of Japan and Germany, every people respond
differently to a new regulation and the intercultural communication and
structure should not be left behind. Last but not least, the breadth of the current
corporate sustainability models could be widen and improved. However, given the
implication of NGOs worldwide and the risen awareness of people, the situation
is most likely to enhance itself.