Corporate Governance and Environmental Responsibility

Ienciu, Alin I., European Journal of Management

1. INTRODUCTION--A Literature Review of the Corporate Governance Concept

There is no generally accepted definition for the corporate governance concept. The specialty literature highlights significant differences in defining this concept, differences appearing depending on the manner in which the company, organization, investors and other users perceive this concept. There is a variety of definitions on corporate governance, starting with the most simplistic ones, presenting corporate governance as a system wherein a company is directed and controlled (The Cadbury Code, 1992; Brennan and Solomon, 2008), to the most diversified and complex definitions.

There are definitions also emphasizing the activism of investors, presenting their role in the corporate governance. From this perspective, the corporate governance represents the relation between shareholders and the company and how they act to the purpose of encouraging the best practices, including here the activism of shareholders in achieving the company's objectives (Solomon, 2007). Certain definitions are focused on observing regulations or on company success. Thus, corporate governance represents the sum of all activities representing the internal regulation of a company in order to observe legal, shareholders and control obligations (Cannon, 1994).

A financial, more traditional approach would restrict the corporate governance to the relation between the company and shareholders or stakeholders. This is the vision that is specific to the agency theory, according to which, the manager is rationally interested in maximizing his or her personal profit and there is a conflict of interests between the shareholders of the company and the manager they hired. This theory was described from the perspective of environmental reporting during the first chapter and brings forth the conflict between the principal and the agent, appearing in the case where the structure of incentives imposes personal costs from the agent and where it performs activities with the intention to maximize the principal's objectives. This conflict, called agency problem has been used in several studies to explain why sometimes managers chose to take decisions which in fact do not best represent the interests of the company (Tuttle et. all. 1997; Rutledge & Karim, 1999; Booth & Schulz 2004). Judging from the point of view of this theory, corporate governance is defined as the supervision and control process intended to ensure that company management acts accordingly to the interests of the shareholders or owners (Solomon, 2007).

Corporate governance is also presented by the specialty literature with the theory of stewardship, according to which, individuals with key leading roles in an organization are …

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Publication information: Article title: Corporate Governance and Environmental Responsibility. Contributors: Ienciu, Alin I. - Author. Journal title: European Journal of Management. Volume: 11. Issue: 1 Publication date: Spring 2011. Page number: 116+. © 2008 International Academy of Business and Economics. COPYRIGHT 2011 Gale Group.

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