Corporate Governance, Corporate Social Responsibility and Corporate Performance

Article excerpt

ABSTRACT

Previous research has analyzed and debated corporate governance (CG) and corporate social responsibility (CSR) independently. This paper aims to empirically explore the interrelationship between CG, CSR, financial performance (FP) and Corporate Social Performance (CSP) using a sample of 297 electronics companies operating in Taiwan, a newly industrialized Asian economy. The results show that a CG model which includes independent outside directors and which has specific ownership characteristics has a significantly positive impact on both FP and CSP, whereas FP itself does not influence CSP. The presence of independent outside directors in the firm has the greatest impact on the social performance of the firm's worker, customer, supplier, community and society dimensions. Government shareholders enhance a firm's social performance extraordinarily because government shareholders will be more likely to request that companies fulfill their social responsibilities. Only government shareholders positively and significantly relate to a firm's environmental performance. Furthermore, foreign institutional stockholders help to increase worker and supplier performance by paying more attention to employee policies and supply chain relationships. Finally, independent outside directors, foreign institutional stockholders and domestic financial institutional stockholders are shown to improve financial performance.

Keywords: corporate governance, corporate social responsibility, financial performance, stakeholder, social performance

INTRODUCTION

Today's corporations operate in an environment of intense public, investor, regulatory and media scrutiny. The corporate scandals of recent years, such as those of the Lehman Brothers, Enron, WorldCom and Sanlu Milk, have created a significantly more constrained regulatory environment. Those corporate failures have focused attention on issues of good governance and ethics, heightening the discussion of corporate governance (CG) and the ethics of economic conduct (Marsiglia & Falautano, 2005). At the same time, increasing public and stakeholder concern about the social and environmental impacts of business practices is forcing companies to come to terms with a broader set of interests and expectations. Companies must embrace these challenges in order to reap the benefits: proactive legal, social, environmental and reputation risk management; enhanced organizational effectiveness; improved relationships with stakeholders; and 'social license' to operate within communities.

Corporate social responsibility (CSR) has been defined as the obligation of firms to be responsible for the environment and for their stakeholders in a manner that goes beyond financial goals (Gössling & Vocht, 2007). A particular definition of CSR was presented at the World Business Council for Sustainable Development: 'Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development, while improving the quality of life of the workforce and their families as of the local community at large' (Holme & Watts, 1999, p. 3). Therefore, CSR is relevant at different levels within and outside the corporation and is difficult to measure. Corporate social performance (CSP) is a way of making CSR applicable and putting it into practice (Maron, 2006). CSP can be transformed into measurable variables (Beurden & Gössling, 2008). In current research, CSP assesses an organization's general stance towards a complex range of concerns related to the social field (Graves & Waddock, 1999).

CSR is a general framework for the responsible use of corporate power and social contribution that may provide an increase in CSP (Turker, 2009). Recent research proposes that firms today are generally broadening the basis of their performance from a short-term financial focus to take account of long-term social, environmental and economic influences and value added (Hardjono & Marrewijk, 2001). …