CSR and Corporate Governance

The Convergence

Bolaji Okusaga

1. Cases and Causes

Global Corporations and the 2008 – 2009 Economic Meltdown

FROM BIG SUCCESS TO BIG

CRASHES

• Leyman Brothers, AIG, Bernard L. Madoff Investment Securities LCC, Washington Mutual, General Motors and Saab Auto-mobile were huge global enterprises before the crash due to quasi- lassie-faire mind-set

The Nigerian Financial Crisis

With democracy Nigeria’s economy opened up to the world via more for foreign investments and the policy of

trade liberalization.

And as the gains gradually started to trickle in, another plan for

strengthening of the Financial System and the deepening of the Capital

Market was also vigorously pursued

A wave of recapitalization followed with the consolidation of the banking industry and reduction of number of operators within the banking system from seventy-nine (79) to twenty-five

(25)

Suddenly, the banks were returning billions of naira in profits.

The return on investment from stocks traded on the Nigerian stock

exchange was not only elephantine but peculiarly humongous and attractive such that the Banks

continued to throw in depositors fund on the market without checking

the risks.

The Consequence - Global

THE CONSEQUENCE OF PROFIT FOR PROFITS SAKE

A situation where sub-prime mortgages became a trend because it

had a money-minting potential without a consideration of the moral foundation and long-term social basis of the profits procured led to the fall

of Wall Street

Erstwhile global giants like AIG and General Motors, badly affected, while

others such as Leyman Brothers, Bernard L. Madoff Investment

Securities, Washington Mutual, General Motors, Saab Automobile,

Zavi, and Woolworth died

The Consequence - Local

THE CONSEQUENCE OF Greed and Lack of Regulation

Financial Crisis leading to the sacking of Managing Directors of 5 Bank and

application of a bail=out to save the Banking Industry

Stock Market Crash and big Margin trading liabilities for Stock market players

2. Reactions and Refocus

Emerging Trends in Corporate Practices

CORPORATE REFORMS

Corporate governance reforms has given rise to more social

and environment responsibility

EMERGENT TREND

There is now a emergent trend towards a focus on companies

off balance sheet environmental and social

impacts

THE MOVE TOWARDS

CONVERGENCE

Consequently, this trend has fueled a debate regarding the

degree and nature of convergence between

corporate governance and corporate social responsibility.

Drivers of ConvergenceStakeholders• Stakeholders are becoming more

aware and are demanding accountability beyond profits

Employees• The changing nature of Employer /

Employee relationship – from Master-Servant to partnership that is mutually reinforcing and beneficial

Reputation• Corporate Reputation and Trust are

beginning to count more for business success than efficiency and product / service quality

Globalisation• Globalisation is helping to

universalize standards across the globe

Leadership• Leadership are coming under more

scrutiny than at any time in history.

Drivers of Responsible Investment

Respect for Globally accepted Values• Fight against Corruption• Respect for Human Rights

The need to professionally manage listed companies in order to protect shareholders investments• Issues of Corporate misdemeanors

endangering Trillions of Dollar Investments

Shareholder activism: • Development of Shareholder activism

as a reaction to Board and Executive excesses

Influence corporate reporting and disclosure requirements• Need for disclosures

New rules on CSR reporting• ISO 2600• Global Reporting Initiative (GRI)

3. Finding the Meeting Point

Defining the Concepts – CR and CGRESPONSIBILITY

• The concept of corporate responsibility is essentially about ensuring a better conversation between business and society.

• Aside from the symbiotic relationship and consequent benefits derivable from the conversation, the dialogue between business and society is underpinned by the principle of accountability which presupposes the need for periodic scrutiny by immediate and remote interests.

GOVERNANCE• On the other hand, corporate governance seeks to create the context for advancing this

conversation and creating trust, progress and continuity there-from, through the setting of the background against which conversation is expected to take place, while building the limits against which judgments are made and decisions taken in a bid to sharpen the moral planks of the conversation.

From Relationship to Accountability

RELATIONSHIP

While Corporate Responsibility strives to forge relationships,

corporate governance helps to define the basis of the

relationships and sets the rules.

ACCOUNTABILITY

Corporate governance therefore is a platform for ensuring that rules adopted in pursuit of the need for an accountable enterprise are not

only applied but also made to govern business and social

conversations

Corporate Governance – Views from the Top

COLGATE PALMOLIVE

Corporate governance is about “the practices, principles and

values that guide a company and its business every day, at all levels of the organization”.

AIR BERLIN

Corporate governance is “code of behaviour that define guidelines for the transparent management

and control of companies. It creates transparency,

strengthens confidence in the company management and in

particular serves the protection of the shareholders”.

Accountability as Point of Convergence

CORPORATE RESONSIBILITY AS ACCOUNTABLE INVESTMENTS• The search for a goodwill

platform for social and environmental investments creating a sustainable enterprise

CORPORATE GOVERNANCE AS ACCOUNTABLE ACTIONS• Instances of corporate

irresponsibility leading to colossal corporate and / or national economic value attrition

CREATING A BASIS FOR A SOUND BUSINESS• Accountable decision

making in the selection of corporate priorities

There are hard-worn linkages which sets a basis for the conversation between business and society.

4. Reputation as Radar

Reputation Metrics – Companies and Investments

Transparency Accountability Good Governance

Strong Management

Strategic Vision

Corporate Performance

Social Responsibility

Corporate Values

Risks FactorsPERCEPTION

• Increasingly shareholders seeking financial rewards are recognizing CSR issues can act on share price and want to know what companies are doing about their CSR risks.

• Mainstream financial analysts are also becoming aware that CSR issues are not marginal but have materiality for a company, necessitating more strategic thinking about CSR.

MATERIALITY

• The materiality of some CSR issues is becoming so significant that individual managers and departments are unable to resolve them on their own and seek board guidance.

• Governments are regulating in some CSR areas such as environment and labour issues, making it ill-advised not to stay abreast if not ahead of these issues.

REGULATORY SCRUTINY

• New regulations requiring more robust risk reporting compel companies to be more mindful of non-financial issues, thereby driving CSR into corporate governance and accounting processes.

• Legal liabilities and class action law suits create challenges with financial implications resulting in a jolt effect on the architecture of what gets counted.

• A number of CR risks are sector-dependent — in some sectors certain CSR issues can

• affect business survival and as such become central to the way business is managed.

Corporate Governance Practices Deriving from CSR

Risk Management Oversight

This is a major convergence point - A key board duty is

the consideration of long term corporate

risks

Diversity in Board Composition

The need for diversity and

inclusion on boards is another

convergence point

United Nations Initiatives

UN Global Compact UN Principles for Responsible Investment

UNEP Equator Principles ILO Tripartite Declaration of Principles concerning

Multinational Enterprises and Social Policy (MNE Declaration)

UNHCHR Business and Human Rights

UNODC Anti-corruption UNCTAD Corporate Responsibility Reporting, World

Investment Report

Implications for Enterprises

Expanding sphere of influence

Application of Code of Conduct to value chain CSR management: value chain management = compliance management

Development of Codes of Conduct and CSR reporting

New social and product liability patterns

CSR Drivers

Implications for Enterprises: CSR Management

Addressing socio-environmental & legal

compliance issues

Policies - Code of Conduct

Systems - Compliance Management

Reporting - Accounting and Reporting

CSR Management Process

• Needs Assessment

Plan

• Build Intervention Map and Activate

Do • Impact Assessment

Check

• Social Reporting

Review

Stakeholder Dialogue

Organisation’s Response

Independent Study

Stakeholder Dialogue

Thought On Convergence of Corporate Governance and CSR

Values School• Ethical considerations in

business decision making are critical to fostering community connection and cooperation in the wealth creation process.

• This believes that CSR cuts across the entire Business Cycle

Operations School• Corporate social

responsibility is only connected to corporate governance at the operational risk level.

• According to this school, corporate social responsibility is an operational risk issue.

Conclusion• Dislocations in the global economy in recent history which has called

into question the place of capitalism in guaranteeing global peace and prosperity

• The dearth of a deep-seated understanding of how social and environmental factors shape business outcomes and affect organizational success has been at the heart of most corporate failures and systems collapse