Governance and

Responsibility: Corporate
governance and CSR
BAC 4201 PROFESSIONAL ACCOUNTANT
MOHD HANIFF ZAINULDIN

A corporation
Is an artificial person in law. Has the same rights
and responsibilities as human beings
Is notionally owned by shareholders but exists
independently of them. Shareholders have rights to
vote and be paid a dividend but the company
owned its assets
Managers have a fiduciary right to protect
shareholders investments

Milton Friedman
Argue that under the above definition, a corporation
has no responsibility outside of making profits for
shareholders
Only human being have moral responsibilities for their
actions
It is the managers duty to act solely in the interests of
shareholders. Any other action is shareholder betrayal
Social issues are the province of the state and not
corporations

Enlightened self-interests
Corporations perceived as ethically sound are rewarded
with extra customers
Corporations which are ethically unsound are boycotted
Employees are more attracted to work for, and are more
committed to socially responsible companies
Voluntarily committing to social actions and programmes
may forestall legislation and promote independence
from government
Positive contribution to society may be a long-term
investment in a safer, better educated and more
equitable community creating a more stable context in
which to do business.

Corporate social responsibility

(CSR)
Definition: 'CSR encompasses the economic, legal,
ethical and philanthropic expectations placed on
organisations by society at a given point in time.
Economic responsibility
Shareholders demand for a reasonable returns
Employees want fairly paid jobs
Customers demand quality at a fair price

Legal responsibility
The law is a baseline for operating within society
It is an accepted rule book for company operations

Corporate social responsibility

(CSR)
Ethical responsibility
This relates to doing what is right, just and fair
Actions taken in this area provide a reaffirmation of social
legitimacy
This is naturally beyond the previous two levels

Philanthropic responsibility
Relates to discretionary behavior to improve the lives of others
Charitable donations and recreational facilities
Sponsoring the art and sports events

Social responsiveness
The capacity of company to respond to social pressures
Reaction: the corporation denies any responsibility for
social issues
Defence: The corporation admits responsibility but
fights it, doing the very least that seems to be
required
Accommodation: The corporation accepts
responsibility and does what is demanded of it by
relevant groups
Proaction: The company seeks to go beyond industry
norms

Stakeholder classifications and

relations
What is meant by the term stakeholders
Internal and external stakeholders: stakeholders inside and
outside organisations. Example?
Narrow and wide stakeholders: the extend to which
stakeholder group is affected by organizational activities.
Example? Dependent on companys output or less
dependent.
Primary and secondary stakeholders: Direct affect on the
company or limited direct affect on organization. Example?
Active and passive stakeholders: Those who seek to
participate in organizational activities and those who do
not.

Stakeholder classifications and

relations
Voluntary and involuntary stakeholders: removes
element of choice in active and passive and
subdividing active group into 2
Voluntary: choose to be involved in companys decision
making. E.g. management, employees, environmental
group. Can withdraw anytime
Involuntary: do not choose to be involved in companys
decisions. E.g. regulators, customers, suppliers, local
communities

Legitimate and illegitimate stakeholders: the extend

to which the shareholders claims are valid or not and
subjected to debate.

Stakeholder classifications and

relations
Voluntary and involuntary stakeholders: removes
element of choice in active and passive and
subdividing active group into 2
Voluntary: choose to be involved in companys decision
making. E.g. management, employees, environmental
group. Can withdraw anytime
Involuntary: do not choose to be involved in companys
decisions. E.g. regulators, customers, suppliers, local
communities

Legitimate and illegitimate stakeholders: the extend

to which the shareholders claims are valid or not and
subjected to debate.

Impact of stakeholders on CG
Ethical accounting: tends to focus on internal
management systems or codes of practice at an
individual level and how the company audits and
complies with this.
Environmental accounting: tends to focus exclusively on
the organisations impact on the natural environment.
Social accounting: has a broader remit to incorporate
employee conditions, health and safety, equal
opportunities, human rights, charity work.
Sustainability accounting: is a grand title that
incorporates the triple bottom line of the first three with
possible emphasis on environmentalism

Why CSR is important?

Corporations exists for a business purpose (to make
profits). To sustain the profitability of its business, a
company may need to consider its social and
environmental responsibilities
Many stakeholders including global bodies, NGOs and
governments argue that enterprises should make a
contribution towards the sustainable development of the
planet.
A socially responsible company may be preferred by
customers and employees
Innovation
Cost savings