Corporate Social Responsibility and Good Governance: What Is It?

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Originally published Oct 25, 2018, updated Apr 29, 2021
Corporate Social Responsibility and Good Governance: What Is It?

Whenever one thinks about companies, they think of organizations that work to provide products and make a profit. Some corporations do operate this way purely, but there has been a growing movement to push for more than just economic growth. But how exactly can a company do more than just earn a profit? That's where the concepts of good governance and social responsibility (or corporate social responsibility, to be exact) come in.

What Is Social Responsibility?

In a nutshell, social responsibility is the idea that we, as individuals, must work together for the benefit of society. While we are responsible for our own well-being, we also affect other people's lives, directly or indirectly. For example, using large amounts of electricity at home increases our carbon footprint, which affects everyone on a global scale. Because of this, social responsibility insists that we have a duty to look out for other people by minimizing our impacts on others and the environment.

One can achieve social responsibility through either passive or active methods.

  • Passive Methods - Passive methods involve minimizing the potential harms that you may have been causing in your daily routine, such as walking to work as opposed to driving a car to minimize carbon monoxide emissions. 
  • Active Methods - Active methods involve the person going out of their way to positively impact the environment. This could be done by working for an environmental nonprofit or signing up for a local clean-up drive.

But individuals aren't the only ones required to maintain social responsibility. Since the 1970s, there has been a push for companies and businesses to engage in socially responsible actions. This is known today as corporate social responsibility, and it's what could potentially solve many of the world's current problems.

What Is Corporate Social Responsibility Or CSR?

Corporate social responsibility states that businesses should not only look to gain profit but also benefit people and the environment. This essentially creates the triple bottom line that every company must strive to meet - profit, people, and the planet. Let's take a deeper look into the two latter concepts, people and the planet.

CSR and the People

When a company does business, there are multiple stakeholders involved with every transaction. From the employees that supply the products or services to the customers that purchase them, many people are affected by a single company's operations. 

And even if they aren't directly involved with the business, they could still be affected too. For example, the local communities surrounding factories are potential stakeholders due to them feeling the environmental effects potentially caused by pollution.

Since companies affect the lives of millions every day, the goal for a socially responsible one is to bring as much of a positive impact to the people as possible. This is also known as corporate citizenship. CSR in this manner can be achieved in multiple ways depending on who the company wishes to prioritize first.

Improving Working Conditions And Labor Practices For Employees

The employees are just as responsible for the success of a company as the board of directors. Many companies have realized the importance of treating their employees fairly, and as such have launched CSR programs in line with this. For example, more and more companies have started to provide healthcare benefits to their employees. A good example of this is Starbucks, a company that even offers health benefits to part-time employees.

Small businesses can also improve the lives of employees through simpler means. Improving employees' working conditions can increase productivity, raise morale, and give them a safer environment to work in. This could be done by installing fire alarms or purchasing safer equipment and gear for workers to use.

Valuing the Customer

Customers are the final link in the supply chain and are responsible for the majority of many companies' profits. Companies can improve the living conditions and provide benefits to customers in various ways.

The simplest way would be by improving the company's products. The product could include more features or come at a lower price.

In certain industries, companies could benefit the customer by being more accessible. For example, pharmaceutical companies could offer a wider array of OTC drugs in small communities. 

CSR and the Environment

It's no secret that large companies emit toxic gases and dump hazardous waste into our water streams on a daily basis. This not only ruins the living conditions for those living today but also makes it even more difficult for future generations to adjust accordingly. As one of the world's biggest social issues to this day, environmental pollution leads to other potential crises such as climate change.

Transitioning Towards Renewable Energy Sources

One of the best ways for a company to minimize its carbon footprint is by using more renewable sources of energy. Modern technologies allow us to harness the power of wind and the sun to generate electricity at large scales. Many countries have even made it their goal to fully run on renewable energy, with countries such as Portugal and Norway having already achieved it. 

Sourcing energy from renewable sources, however, is a heavy investment for many companies. This is the reason why many companies refuse to transition to this day. Eventually, however, associations such as the United Nations are hoping for environmental sustainability through the use of renewable energy, as it is key to any company's value chain.

What Is Good Governance?

Good governance in any company requires that the entity's governing body (usually the board of directors) is transparent, responsive, sustainable, and can be held accountable for their actions.

Transparency and Responsiveness

While given the power of decision-making, the board of directors must listen to the ideas of the members. They must also be able to provide ample information as to how and why decisions are made. 

This is important because, sometimes, governing entities decide to chase a profit rather than be socially responsible. Resorting to child labor and not prioritizing employees' human rights are just some examples of the lengths that some companies go to. This leads us to our next point - accountability.

Transparency and responsiveness can also extend past internal management. Companies such as Unilever aim to improve their public relations by showcasing their positive social impact as well as environmental impact. For example, the company has partnered with the World Wildlife Fund to protect forests. They also work with organizations such as the Rainforest Alliance on projects such as landfill and greenhouse gas emission reduction. This business strategy not only benefits the company from a marketing standpoint but also comes with pragmatic benefits.

Accountability

The governing body must be accountable for the decisions that they make. Implementing decisions come with consequences, and the board must be able to take responsibility for whatever happens. This means that all business practices should be ethical and in line with all stakeholders' objectives. Meeting ISO requirements and understanding environmental responsibility are just a few examples of this concept.

Sustainability

Corporate sustainability refers to operating a business without sacrificing or harming the environment in the process. To an extent, many companies cannot operate without emitting waste or using non-renewable energy sources, so their goal is to minimize the use of these methods as much as possible. For a company to be sustainable, it needs to have sufficient environmental management.

Because many older companies find it difficult to transition towards cleaner energy and operations, many newer startups have adopted what's known as sustainable development. This allows the scaling of the business while keeping in mind the integrity of the environment. 

Summary

Corporate social responsibility is a concept that's slowly being integrated into even the biggest of companies. It aims to benefit both society and the environment while also offering benefits for the company itself. Whether they're international conglomerates in New York or small startups across the street, companies could benefit from adopting this framework.

Tasha Kolesnikova
Content Team Member

I write articles and do SEO-optimisation here at Studybay. I'm obsessed with creating content both people and Google love, surfing in Portugal, and dancing Jazz-funk.