Academic journal article Journal of Economic and Social Development

Corporate Governance and Corporate Social Responsibility Disclosure: Evidence from Saudi Arabia

Academic journal article Journal of Economic and Social Development

Corporate Governance and Corporate Social Responsibility Disclosure: Evidence from Saudi Arabia

Article excerpt

1. INTRODUCTION

The "business is business" culture has been prevalent for centuries. In 1924, Sheldon (1924) introduced the concept of "Corporate Social Responsibility" (CSR) for the first time in the business environment. Since that time, awareness across the globe of the impact of businesses on society has increased significantly and firms have come under greater pressure from society, governments, and other stakeholders to behave responsibly. One driver for the increase in pressure of businesses is the greed of firms in consuming scarce resources in order to realize profits, regardless of the negative implications for society. The negative implications of firms' operations have been apparent in several social and environmental disasters. For example, a toxic gas release tragedy occurred on 3 December 1984 in India and leaving around 16,000 dead in a few days. Furthermore, on 26 April 1986, the Chernobyl Nuclear Power Plant in Ukraine exploded causing several deaths, in addition to creating dangerous social and environmental conditions. Accordingly, firms face a greater pressure to act socially and operate responsibly than ever before.

International concerns in relation to the business-society relationship have resulted in the establishment of organizations and standards that aim to monitor and help firms behave socially and responsibly. Examples of these organizations include AccountAbility which is based in London, the African Institute of Corporate Citizenship (AICC), Business for Social Responsibility (BSR) in the USA, and Business in the Community (BiTC) in UK. Furthermore, the International Organization for Standardization (ISO) issued ISO 26000 as an international standard that provides guidelines on social responsibility for all public and private firms. This standard aims to help firms undertake and manage their social responsibility strategies and activities that affect society and the environment.

The rising pressure on firms to behave socially entails measuring and demonstrating how their activities affect different stakeholders including societies and the environment. This extends the accountability of managers to incorporate social and environmental dimensions in their accounting measurements and disclosures. This is based on the assumption that CSR disclosure can play an important role in communicating whether or not firms behave socially and to what extent firms respect society and the environment. Moreover, CSR disclosure can be argued to be one of the most important voluntary disclosure types, since it highlights the influence of firms' operations on world resources and human life and welfare. Accordingly, rising global awareness of the social responsibility of firms has increased the need for high quality CSR disclosure.

Concurrent with the increased concern for CSR disclosure, Corporate Governance (CG) objectives have evolved to accommodate new relationships never previously been deemed necessary, i.e. business-environment and business-society relations. For example, Claessens (2003, p. 7) states, "In its broadest sense, CG is concerned with holding a balance between economic and social goals and between individual and communal goals". Furthermore, CG has developed to incorporate ethics, accountability, disclosure, and reporting (Gill, 2008). Accordingly, the different CG mechanisms, such as boards of directors, audit committees, and auditors are responsible for monitoring and controlling managers' decisions and firms' activities that affect all stakeholders including society. This may reveal a correlation between effectiveness of CG systems and quality of CSR disclosure. An effective CG system is likely to be concerned with disclosure and transparency in general, and with disclosure of material activities that affect society and environment in particular. Empirically, Said et al. (2009) find a positive significant correlation between government ownership and audit committee and CSR disclosure. …

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