Akhila is a Justmeans staff writer for CSR and ethical consumption. As an IEMA certified CSR practitioner, she hopes to highlight a new way of doing business. She believes that consumers have the immense power to change 'business as usual' through their choices. She is a Graduate in Molecular Biology from the University of Glasgow, UK and in Environmental Management and Law. In her free-time she i...
CSR and Corporate Governance - What's the distinction?
In the world of CSR, there are some terms that often gets confused. Corporate Social Responsibility and Corporate Governance (CG) are often used interchangeably when they are in fact distinct ideologies. The concept of governance has been in existence since the beginning of corporations but the phrase itself did not feature in financial literature until late 20th century. It is only in the last 10 years that it has gained popularity because it is often used in conjunction with or instead of CSR.
To put a little clearly: in the course of defining CSR, CG is an essential part of it, but not actually it. Good governance, corporate or otherwise is about values rather than rules. CSR is how those values manifest themselves in a corporate environment. Having a good concept of CG often negates the need for CSR. In more practical terms - CSR is easy to fake, governance isn't.
For corporate performance to be viable, good governance is essential. This is where stewardship fits in, which is another phrase that further confuses CSR. Organizational management is concerned with stewardship which is essentially the proper management of resources - financial, social, environmental etc. The concept of sustainability further grapples with those resources that are located externally in relation to the business, specifically environmental resources. Sustainability is the branch of stewardship that maximizes resource potential as well as keeps an organization focused on the future by ensuring that present resource utilization does not constrain future business activities.
So where does CSR come in? CSR includes three basic activities: sustainability, accountability and transparency. CSR is also the physical manifestation of CG and thus needs to be given some allowances for developmental changes as organizations mature in their attitude towards stakeholders. The updated idea of CG is more aligned with CSR and it emphasizes corporate ethics, accountability, disclosure and reporting. This increase in areas of overlap between the two concepts is the root cause for confusion which is not merely semantics.
Risks taken with CSR can have a financial impact on a company, however a company that has strong principles of CG can bounce back quicker from these lapses due to the fact that it would have lesser PR holes. Some companies make a distinction by defining governance as part of investor relationships and CSR as part of stakeholder relationships. Others think of CSR as part of risk management. However it may not always be so clear-cut. There are significant global issues hampering the understanding of CG and CSR and better multi-national cooperation will ensure that there are codes of agreement that would create a distinction between the two.
CSR is in itself is a complex process of regulation especially with global supply chains and multi-stakeholder business models. There are actually very few CG and CSR practices that don't overlap and often one drives the other. There is this idea that CG is a precursor to CSR which not only enables CSR performance but also encapsulates it. CSR and CG are often converging values at a level of governance that often requires reclassification of boundaries of business ethics. As these points are renegotiated, CSR itself will play a more important role in corporate boardrooms.