Chapter 6: Corporate Governance Issues, Corporate Policy, and Corporate Social Responsibility Practices
INTRODUCTION In the previous two chapters, we discussed environmental, social, ethical, and religious issues, and their associated risks to socially responsible investors and all stakeholders. In this chapter, we examine corporate governance issues and risk, and some of the associated factors considered in the investment decision process. Corporate governance information is of importance to investors for their stock analyses, valuation of companies, and risk assessment. Page (2005) argued that society demands good corporate governance in order to create economic value, leading to contention for the primacy of shareholder interests or supremacy of shareholders. Empirical evidence from other studies have shown that corporate governance can create (or destroy1) value and wealth.2 We also examine the issues surrounding corporate governance among the intertwining dimensions in legal, regulatory, institutional, competitive, and ethical frameworks, and the effects on various the stakeholders of the company. We present a conceptual framework for analysing how the competing forces of profit maximization and corporate social performance determine corporate policy (see Hudson 2006). We end this chapter with a discussion of corporate social responsibility reporting and a case example of Emerson Electric Co. CORPORATE GOVERNANCE Definition For practitioners and academics, corporate governance refers to the rules prescribing how boards of directors and corporate management operate. In general, it refers to the control mechanisms used to reconcile competing interests between company management and shareholders (see Page 107 108 Socially responsible investment in a global environment 2005). However, other definitions of corporate governance also include the degree of control boards have...
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