Good governance is a prerequisitefor sustainable development around the world.The aim of thisreport is to comment and demonstrate how fundamental corporate governance isfor businesses but also to the well-being of our entire society. Therefore, asa first step, concepts of corporate governance and sustainability will be explained.While it is clear what is meant by corporate governance in general, the notionof sustainability is much less, so sustainable development will be wider definedand framed. Secondly the convergence between the two notions will be discussed,to know the corporate sustainability. Then, different jurisdictions will betaken as example and compared in terms of CSR incorporation in their region.I – Corporate GovernanceDefinitionThe startingpoint for the declaration and introduction of corporate governance was in the1930s, when the difference between shareholder interests and corporategovernance was recognized for the first time.
An important book appeared in 1932 under the title The Modern Corporation andPrivate Property, (Adolf Augustus Berle and Gardiner C. Means).Even though theterm first appeared in 1976, it was only known through three reports thatreflected practical experience, most notably the Cadbury Report (1992).
According to thatreport, “Corporate governance is the system by which companies are directedand controlled.” In fact, The Cadbury Report (1992), the Greenbury Report(1995) and the Hampel Report (1998) form the basis for corporate governance inthe United Kingdom. These reports have encouraged companies around the world towrite their principles of good corporate governance. These principles set out,on the one hand, the main legal provisions on the management and control ofcompanies and, on the other hand, simple recommendations, for example onaccounting and auditing.
The scandals ofthe years 1990/2000, such as the fall of Enron (USA), Worldcom (USA) and thenear collapse of Vivendi Universal (France) revealed what an authoritarian andnon-transparent exercise of power within a large group could cause in terms ofdamages to the whole society, because, when a large group falls, it carrieswith it hundreds or even thousands of direct employees and subcontractors.The UK corporategovernance is therefore based on the three reports quoted before; the USA arebased on the 1992 COSO (Committee of Sponsoring Organizations of the TreadwayCommission) and since 2002 the Sarbanes-Oxley Act (SOX) has been binding on allcompanies listed on any US stock exchange; Germany has the DCGK (DeutscherCorporate Governance Kodex), France is controlled by the “Loi de SécuritéFinancière” from 2003; in Brazil, the codes of the Brazilian Institute ofCorporate Governance (IBGC) and the Securities and Exchange Commission (CVM) rule.Many countrieshave a similar system of governance, Anglo-Saxons countries for instance (Michael and Gross, 2004 citedby Güler Aras and David Crowther 2008)1 In this same paper, Aras andCrowther put in contrast Germany, Japan and the USA regarding to thecontrol/ownership concept (according to Shleifer and Vishny researches, 1997). Germansseems to have a bigger gap between ownership and control compare to the USA andJapan is most likely to be in between them.
Comparing worldwide systems allowsseeing the different shapes of corporate governance and the matter of managers’behavior to reach shareholders’ interests.From all overthe globe, jurisdictions are operating with different corporate governancesystems, but they are all designed, in essence, to bring more balance andtransparency in the distribution of power, in the control of power and in theinvolvement of all hierarchical levels in the management of a company. 3 main actors Three mainactors are distinguishable in corporate governance, directors, shareholders,and auditors (gatekeepers).
Indeed managers are one piece of the puzzle, but itis important to recognize the importance of the other actors involved in theprocess.This report willfocus on directors given that they are the starting point of the decisionmaking process and their ability to stay impartial is a key factor in manycases. Ownership VS controlTheses aspectsof corporate governance lead inevitably to the great issue of ownership andcontrol. Being unbiased and serving the company interest before its own is acharacteristics required to direct properly, however, it is observed that if adirector is at the same time owner of the company, even partly, he would mostlikely take better decision because his personal interests are the companyinterests evenly.II – SustainabilityIn the followingreport, corporate governance will be seen from the sustainable developmentpoint of view. Therefore, it is important to frame what sustainability is.
According to theNorwegian Prime Minister Gro Harlem, sustainable development is a “developmentthat meets the needs of the present without compromising the ability of futuregenerations to meet their own needs.” Brundtland (1987). In 1992, the Rio Earth Summit,held under the auspices of the United Nations, formalized the concept ofsustainable development and its three pillars, an economically efficient,socially equitable and ecologically sustainable development.Given theenvironmental and social crisis that is now manifesting globalization (globalwarming, resources scarcity, lack of fresh water, peak oil, differences betweendeveloped and developing countries, food security, deforestation),biodiversity, global population growth, nature/industrial disasters,sustainable development is a reaction of all actors to face those crises.It is also,based on new universal values:- in time: wehave the right to use the resources of the Earth, but the duty to ensure itssustainability for future generations;- in space: eachhuman has the same right to the natural resources of the Earth (principle ofuniversal destination of goods).Given thisrealization, the idea of “sustainable development” that can bothreduce social inequalities and reduce pressure on the environment is making itsway.Since theindustrial revolution, the West has lived under the sign of unbridleddevelopment and economic growth, which emphasizes the production and consumptionof material goods.
However, since the beginning of the 1970s, concern has beenexpressed about economic activities that generate visible and localizedenvironmental damage (waste, factory fumes, pollution of rivers, etc.). At theeconomic and social level, it was already apparent at the time that the overallpolicy maintained or even increased the inequalities between rich and poorcountries, rich and poor populations within the same country or region. Throughthese observations, the limits of the current mode of development of oursociety were already beginning to be felt. This will lead to the emergence ofthe concept of “sustainable development” (1968: creation of the Clubof Rome, which will publish the first reports on the subject, 1972: Stockholm UnitedNations Conference on Environment and Development).
All sectors ofactivity are concerned by sustainable development: agriculture, industry,housing, family organization, but also services (finance, tourism …
) materialor immaterial. More simply, sustainable development is a mode of developmentthat aims to meet the needs of all without degrading the environment.Indeed, thesustainable 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 MichaelBlowfield’s book “Sustainability and business management”, demonstratesclearly 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 three angles. 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 result.
This concept is a way to go further to thetraditional measures of shareholder value, profits, return on investment, andto include new scope (social and environment oriented). III – Corporate Sustainability 1. OriginsOne of the greatest examples would be the Americanenergy company Enron, when the lies were public exposed in 2001, they wentbankruptcy, it resulted in the loss of 20 000 jobs and 2 billion dollarsin employees’ retirement funds. That is how corporate governance is important (Li, 2010). A few personson top of a company are taking a non-suitable decision, and it is everyday lifeof thousands of people that are impacted. Another good example is Worldcom, oneof the world biggest telecommunications’ companies, which went bankruptcy in2002 after showing huge accounting irregularities, after overstating theirincomes. The consequences were losses of more than 400 thousands in employees’ retirementfunds. (Thornburgh, 2004)Then 2009 subprime crisis,what went wrong USA housing market, high risk loans, Corporategovernance 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 ontrust, transparency and accountability.
Then the social and environmentalissues arose as main points of interest. As a matter of fact, there is a realawareness of society, in particular thanks to NGOs and associations that have todaya wider credibility and scope with citizens, who allow them to exercise animplicit power on corporate governance. Beyond the image that the company sendsback and the consequences on the turnover, the social responsibility of thecompany induces to change the traditional modes of governance and impacts thecompany as a whole.The goal ofgovernance is to reach decisions that are acceptable to the majority, to theextent possible, and consistent with the common good.Indeed,initially corporate governance was simply the protection of a company’s realwealth – capital and labor – that directly affects the bottom line. As more andmore questions arose about corporate environmental commitment, investors andthe public started to demand certainty. That’s why strong governance is needed.
In addition to managing the business responsibly; it is also important toreport on activities in a frank and transparent manner. Now more than ever, thegoal is to preserve customer trust and the reputation of the company.Thirty yearsafter Our Common Future, also known as the Brundtland report (1987), (and twentyfive years later the United Nations Conference on Environment and Developmentin Rio de Janeiro) the concepts of sustainable development have never been morepresent in the social debate than today.
A true social issue for more thanthree decades, sustainable development goes beyond the notion of economicgrowth and places societal issues at the heart of the problem of short-termchoice over the long term. Fair trade, green companies, organic labels, andmixed staff within companies are terms and concepts that are recurrent intoday’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 continuationof its activity in order to sustain its income and production.
It is thereforeresponsible to its employees but also suppliers, customers, shareholders. Inthe social field, its responsibility comes as a job provider; it participatesin this way to the structuring of society. It is essentially a commitment interms of working conditions for both the producer and its suppliers. Last butnot least, in the ecological field, the company is engaged in the health and developmentof a territory. 2. Eco-efficiencyTheeco-efficiency of a business is achieved by distributing competitively pricedgoods that meet human needs and provide quality of life, while graduallyreducing ecological impacts and resource use throughout the life cycle.
.Eco-efficiency involves:- reducing the intensity of goods and services (concept ofdematerialization 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 biologicallyproductive spaces:- reduction, location of units and choice of the least pollutingmodes 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 products3. 10 principles Corporate Governance (Chambers, 2008) Corporate Sustainability (Compact, 2014) 1 Stakeholder control of the business Businesses should support and respect the protection of internationally proclaimed human rights 2 Maximum and reliable public reporting Make sure that they are not complicit in human rights abuses 3 Avoidance of excessive power at the top of the business Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining 4 A balanced board composition The elimination of all forms of forced and compulsory labour 5 A strong and involved board of directors The effective abolition of child labour 6 A strong independent element on the board The elimination of discrimination in respect of employment and occupation 7 Effective monitoring of management by the board Businesses should support a precautionary approach to environmental challenges 8 Competence and commitment Undertake initiatives to promote greater environmental responsibility 9 Risk assessment and control Encourage the development and diffusion of environmentally friendly technologies 10 A strong audit and assurance process Businesses should work against corruption in all its forms, including extortion and bribery Six years afterthe release of the 10 principles of corporate governance in the “Corporategovernance handbook” by the Professor Andrew Chambers, the United Nation wrotethe 10 principles of corporate sustainability in their “Guide to corporatesustainability” published in December 2014. Those new principles are not hereto replace the firsts ones, they are a complement to add values I terms ofhuman rights, labour, environment, and anti-corruption. Indeed if a company wants to achievesustainability, they must operate with integrity and respect the fundamentalresponsibilities of those four aspects. (Compact, 2014)Already in 2015,according to “The Nation”, there are nearly 180 laws and regulatorystandards that require reporting on sustainable development across 45countries. Stock exchanges play a vital role in creating a sustainable capitalmarket.
Especially inEurope and Japan, plenty of multinationals have started to focus more onmonitoring the board and implementing sustainability, compliance, ethics andexternal audit responsibilities. Besides being a pragmatic answer from the firmto the society and its consumers, CSR represent also a modification in thebusiness environment in which individual companies operates.4. Globalization & EcologyPreviously, thetransportation of goods was long and dangerous. Most communities used localresources 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 theglobe to the other.
These international exchanges are extremely beneficial forthe economy and have encouraged the emergence of international companies.Most of thepredicted changes in the environmental situation indicate that, if itcontinues, the degradation of the planet’s natural resources may ultimately jeopardizeeconomic development.Given theexpected increase in the global population, which is expected to increase by aquarter by 2020, and the steady increase in economic growth and globalization,the pressures of human activities on the environment are not about to declineunless vigorous action is taken to protect ecosystems and maintain theessential services they provide.
To maintain long-term ecosystem integrity,policies will need to be implemented to ensure the detoxification of substancesreleased into the environment, the “decarbonisation”of energy, the conservation of biological diversity and the sustainable use ofrenewable natural resources. “It is anambitious program, which will involve cooperation in the sustainable managementof natural resources at the global level supporting national initiatives inboth industrialized and developing countries. Assuming that market-basedsolutions offer the best cost-effectiveness, and therefore the best option fortaking into account global externalities, a number of institutional problemswill need to be addressed. The focus will be on how local environmentalservices that have positive global effects need to be addressed ininternational (global) agreements.Today, the vastmajority of the products we consume come from very far away, whereas most ofthem could be produced locally. This paradoxical situation is explained by thelow price of transport combined with the minimal wages offered in certain partsof the world for often dismal working conditions. Thus, it is now cheaper to buyapples that have grown in New Zealand than in the neighboring field. 5.
Corporate Social ResponsibilityThe concepts ofCSR are the economic, social and environmental impact of commercial operationsand their response to the expectations of customers, employees, shareholdersand stakeholders in the context of these impacts. CSR is no longer limited tocorporate philanthropy; On the contrary, taking on social responsibility has apositive impact on the financial performance of companies.Companies needto size up what is at stake of new challenges, adapt their strategies in orderto take advantage of them.According to theGreen paper fromthe European Commission, CSR can be described as “a concept whereby companiesintegrate social and environmental concerns in their business operations and intheir interaction with their stakeholders on a voluntary basis”. The termCorporate Social Responsibility (CSR) describes the voluntary contribution ofthe economy to sustainable development that goes beyond legal requirements.
CSRstands for responsible entrepreneurial activity in the actual business activity(market), over ecologically relevant aspects (environment) up to the relationswith employees (workplace) and the exchange with the relevant stakeholders.Governance,whether it targets the environment or sustainable development, cannot beconsidered out of context. It is part of a broader set of governance featuresand principles needed to meet the needs of modern society.
Accountability,transparency and participation are increasingly important criteria at a timewhen the roles and responsibilities of public actors and other actors differfrom what they were and are certainly more difficult to pin down. Moderncommunication technologies make it possible to obtain information immediatelyand distribute it anywhere in the world at a relatively low cost. Informationknows the same evolution as people, goods and investments: it circulates freelythroughout the world. The challenge here is to ensure that this situationbenefits both developing and developed countries.
“69%of high-net millennials place greater worth in putting their money towardcompanies that show a high level of CSR” https://skytopstrategies.com/csr-fortune-500-companies-measure/ JapanIn Japan, the period of highgrowth (which began in the 1950s) saw a proliferation of cases of pollution andpoisoning, the most emblematic of which is the disease of Minamata that strikesthe 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 movementsquestion the unrestrained pursuit of profit. The period of financial euphoriaof the late 1980s stimulates patronage activities: the employers’ federationKeidanren creates a club for companies that devote more than 1% of theirprofits to “philanthropy”.In 2003, a growing number ofJapanese companies joined the UN Global Compact, CSR was on the agenda of theG8 summit in Evian and the European Commission launched a process to implementthe adopted principles.On theweaknesses side, Japan is often singled out for conformity, lack of diversityand creativity, pressure from the group to the detriment of the rights ofindividuals, and the place of women (who are often forced to choose betweenfamily life and career).
For some critics, unpaid overtime is akin to forcedlabor and violates workers’ basic rights.On the side of the forces, one canput forward the stability offered by the employment for life, the long-termvision, the importance given to the continuous formation, the search for theconsensus, a calm social climate allowing the expression of the employees andtheir 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 ISO14000 standards, have set targets for reducing their environmental impact.Proactive in terms of the environment, Japanese companies are neverthelessreluctant 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 introducedin Japan by companies that have been confronted with the problem of CSR in thecourse of their activities.The conclusion of this argument is that theadaptation of the corporate governance model is decisive in the implementation ofeach of the different cultures that populate the world.FranceIn France for example, companies assumethat it is up to the state to manage social problems, having high socialsecurity contributions. It is therefore difficult to motivate companies toimplement a coherent CSR strategy.
Germany As a conclusion, sustainability has become inevitable when it comes to corporategovernance. Given the current worldwide situation, every company should beinvolved, proportionally to its size, in the planet and its inhabitant’s fate.Being a responsible company also means wealth creation and brand imageguaranty. Nevertheless, the adaptation of the corporate sustainability model (asthe corporate governance model) to each culture should be more cautious.
Indeedas shown with the examples of Japan and Germany, every people responddifferently to a new regulation and the intercultural communication andstructure should not be left behind. Last but not least, the breadth of the currentcorporate sustainability models could be widen and improved. However, given theimplication of NGOs worldwide and the risen awareness of people, the situationis most likely to enhance itself.