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Corporate governance is the system and structures of rules, practices and processes by which a company is directed and controlled, the goals and objectives of the company are established and the performance of the company is tracked. Traditionally, corporate governance has focused on the owners of the corporation that have supplied the financial capital necessary for the business to operate (i.e., the shareholders), regulation of the duties and responsibilities of the persons that the owners have selected as their agent to deploy their financial capital and generate a reasonable return on their investment (i.e., the directors and the members of the executive team); the control environment, which includes accounting procedures, internal controls and external audits used to track the operational activities of the company selected by the directors as the best means for delivering the anticipated return on investment to the shareholders; and transparency and disclosure, which are needed in order for the shareholders to fully understand how their financial capital has been used and to ensure that their agents, the directors and members of the executive team, have not abused their positions.
As time has gone by, corporate governance has emerged from what often seemed to be an esoteric collection of laws, regulations and contracts to recognition of its role as a primary driver of competitive advantage and profitability and a means for making and executing strategic decisions and ensuring that companies achieve their goals. Writing in 2008, Jamali et al. summed up the importance of corporate governance as follows:
“The importance of [corporate governance] lies in its quest at crafting/continuously refining the laws, regulations, and contracts that govern companies’ operations, and ensuring that shareholder rights are safeguarded, stakeholder and manager interests are reconciled, and that a transparent environment is maintained wherein each party is able to assume its responsibilities and contribute to the corporation’s growth and value creation. Governance thus sets the tone for the organization, defining how power is exerted and how decisions are reached.”
In 2010, the International Finance Corporation (“IFC”) described corporate governance as referring “to the structures and processes for the direction and control of companies” and limited the coverage of corporate governance to the areas mentioned above (i.e., shareholders, directors, controls, transparency and disclosure). Notably, the IFC made it clear that it did not consider corporate governance to include, although the IFC said it might reinforce, corporate social responsibility (“CSR”) and corporate citizenship; socially responsible investing and other elements of what had become to be referred to as “corporate sustainability” such as political governance, business ethics, anti-corruption and anti-money laundering. However, since that time, as the world worked its way through a global financial crisis that called into question the norms of corporate governance that had been in place since the 1970s and serious questions arose regarding the environmental and societal impacts of the decisions of shareholders and directors, there has been a clear shift in perceptions regarding the relationship between corporate governance and sustainability. In its guidance to corporate directors for 2018, one of the world’s most prestigious legal advisors to boards on transactions and governance issues nicely described the changing landscape as follows:
“First, while corporate governance continues to be focused on the relationship between boards and shareholders, there has been a shift toward a more expansive view that is prompting questions about the broader role and purpose of corporations. Most of the governance reforms of the past few decades targeted the ways in which boards are structured and held accountable to the interests of shareholders, with debates often boiling down to trade-offs between a board-centric versus a more shareholder-centric framework and what will best create shareholder value. Recently, efforts to invigorate a more long-term perspective among both corporations and their investors have been laying the ground work for a shift from these process-oriented debates to elemental questions about the basic purpose of corporations and how their success should be measured and defined. In particular, sustainability has become a major, mainstream governance topic that encompasses a wide range of issues such as climate change and other environmental risks, systemic financial stability, labor standards, and consumer and product safety. Relatedly, an expanded notion of stakeholder interests that includes employees, customers, communities, and the economy and society as a whole has been a developing theme in policymaking and academic spheres as well as with investors.”
Descriptions of Corporate Governance
As with almost every topic in the study of organizations, definitions of “corporate governance” vary widely and the choice of the “definition” influences how comparisons among organizations and countries are conducted and how the results and implications of those comparisons are interpreted. A relatively simple definition of corporate governance is that it is “the system by which business entities are monitored, managed and controlled”. This notion of a “system” focuses on the relationship, and allocation of responsibilities, between the owners of the firm, the shareholders, and the managers of the firm who are vested with the duties to oversee day-to-day firm operations. The “management group” consists of two different and important classes, both of which are represented on the firm’s board of directors elected by the shareholders: the “executives”, such as the chief executive officer, who are expected to work full-time on the business of the firm; and the non-executive directors, who are not serving as employees of the firm yet are chosen for the independence and expertise and ability to look out for and protect the interests of the shareholders against attempts by the executives to take advantage of their insider positions. According to Nisa and Warsi, the measure of effectiveness of this system of corporate governance is whether a firm has created an enduring structure “that encourages symbiotic relationship among shareholders, executive directors and the board of directors so that the company is managed efficiently and the rewards are equitably shared among shareholders and stakeholders”.
Others have suggested that while definitions of corporate governance do indeed vary widely they can usefully be sorted into two categories. The first set of definitions are primarily concerned with the actual behavior of corporations as measured by indicators of performance (e.g., growth and/or efficiency), financial structure, operations of the board of directors, the relationship between executive compensation and performance, the relationship between labor policies and firm performance and the roles and treatment of shareholders and other stakeholders. This approach is suitable when studying a single country or firms within a single country. The second set of definitions, thought to be appropriate for comparative studies across national borders, are primarily concerned with the “normative framework”, which has been defined as “the rules under which firms are operating—with the rules coming from such sources as the legal system, the judicial system, financial markets, and factor (labor) markets”.
One of the most common descriptions of corporate governance has been the way in which corporations are directed, administered and controlled and the actual activities of the directors and senior executives have been referred to as steering, guiding and piloting the corporation through the challenges that arise as it pursues its goals and objectives. Jamali et al. explained that the “control” aspect of corporate governance encompassed the notions of compliance, accountability, and transparency, and how managers exert their functions through compliance with the existing laws and regulations and codes of conduct. At the board level, the focus is on leadership and strategy and directors are expected to deliberate, establish, monitor and adjust the corporation’s strategy, determine and communicate the rules by which the strategy is to be implemented, and select, monitor and evaluate the members of the senior executive team who will be responsible for the day-to-day activities associated with the strategy. In addition, directors are expected to define roles and responsibilities, orient management toward a long-term vision of corporate performance, set proper resource allocation plans, contribute know-how, expertise, and external information, perform various watchdog functions, and lead the firm’s executives, managers and employees in the desired direction.
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Purpose of the Firm: The Shareholder-Stakeholder Debate
Setting the strategy for the corporation obviously requires consensus on the purpose of the firm, the goals and objectives of the firm’s activities and the parties who are to be the primary beneficiaries of the firm’s performance. Traditionally, directors were seen as the agents of the persons and parties that provided the capital necessary for the corporation to operate—the shareholders—and corporate governance was depicted as the framework for allocating power between the directors and the shareholders and holding the directors accountable for the stewardship of the capital provided by investors. While economists and corporate governance scholars from other disciplines recognized that the governance framework involved a variety of tools and mechanisms such as contracts, organizational designs and legislation, the primary question was how to use these tools and mechanisms in the best way to motivate and guarantee that the managers of the corporation would deliver a competitive rate of return. All of this is consistent with what has been described as the “narrow view” of corporate governance, one that conceptualizes corporate governance as an enforced system of laws and of financial accounting, where socio/environmental considerations are accorded a low priority.
While primacy of shareholder interests was the dominant theme of corporate governance, at least in the US, for decades, there is no doubt that one of the most dynamic and important debates in the corporate governance arena, as well as in other areas of society, is the purpose of the firm. Williams described this debate as follows:
“Is it “simply” to produce products and services that create economic rents to be distributed to rights’ holders according to pre-existing contractual, statutory and (possibly) normative obligations? (Given that close to 70% of new companies ultimately fail, that task cannot be taken as too simple.) Or does the firm also have a social obligation to minimize harm to people and the natural environment in its pursuits of profits, or even a positive duty to promote social welfare beyond its creation of economic rents? In corporate governance and law, this debate tracks the competition between a shareholder versus stakeholder view of directors’ and officers’ fiduciary obligations.”
For a long time, the most influential voice among academics with respect to the role and primary objective of corporations was Milton Friedman, the Nobel Prize winning economist who famously declared that the exclusive goal of corporate activities was to maximize value for the owners of the corporation (i.e., the shareholders). As history shows, this view was seized upon by investors and CEOs who often used aggressive tactics to drive up share prices and create large, yet often dysfunctional, conglomerates. Friedman and others who shared his view maintained that companies did make a positive social contribution by running a profitable business, employing people, paying taxes and distributing some part of their net profits to shareholders. Another argument often made for the shareholder primacy approach to corporate governance was that requiring management to invest time and effort in devising ways to create additional social benefits beyond the honest pursuit of profits within the boundaries of the law would dilute management’s focus, undermine economic performance, and thereby ultimately undermine social welfare. Other supporters of the shareholder-oriented perspective cautioned that corporate responsibility was too much responsibility to impose on directors and pursuing social policy goals was a task best left to the state and not to businesses, which should not get themselves involved with political matters. Another stated concern about expanding the directors’ power beyond shareholder interests is that it would undermine director accountability by allowing them to act in their own self-interest while claiming to act in other constituents’ interests.
Eventually, other members of the academic community, as well as regulators, politicians, activists and even some of the investors that had grown wealthy during the stock market turbulence over the three decades starting with the 1980s, began to question the primacy of shareholder value and called for rethinking the role of the corporation in society and its duties to their owners and other parties impacted by their operational activities and strategic decisions. Among other things, this meant challenging the long-accepted assumption that the principal participants in the corporate governance framework were the shareholders, management and board of directors. For example, Sir Adrian Cadbury, Chair of the UK Commission on Corporate Governance, famously offered the following description of corporate governance and the governance framework in the Commission’s 1992 Report on the Financial Aspects of Corporate Governance: “Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society.”
Cadbury’s formulation of corporate governance brought an array of other participants, referred to as “stakeholders”, into the conversation: employees, suppliers, partners, customers, creditors, auditors, government agencies, the press and the general community. As described by Goergen and Renneboog: “[a] corporate governance system is the combination of mechanisms which ensure that the management (the agent) runs the firm for the benefit of one or several stakeholders (principals). Such stakeholders may cover shareholders, creditors, suppliers, clients, employees and other parties with whom the firm conducts its business.” The principles of corporate governance of the Organisation for Economic Cooperation and Development clearly state that the corporate governance framework should recognize the rights of stakeholders (i.e., employees, customers, partners and the local community) as established by law and encourage active co-operation between corporations and stakeholders in creating wealth, jobs, and the sustainability of financially sound enterprises.
For further discussion, see Purpose of the Firm: The Shareholder-Stakeholder Debate.
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Descriptions of Corporate Social Responsibility and Sustainability
Masuku briefly described the evolution of thought on the role of business in society, beginning with the observation that the traditional profit centered approach to management originated during the Industrial Age with the presumption that capital formation was the only legitimate role of business and that managers were obligated above all other things to pursue profits to enhance the wealth of their shareholders. The 1960s and 1970s saw the slow ascendency of the social responsibility approach to management which was based on the assumption that businesses were actors in a broader environment and thus had responsibilities to respond to social pressures and demands and treat their stakeholders in a manner that complied with both law and ethics. Writing in the 1970s, Davis defined CSR as “the firm’s considerations of, and response to, issues beyond the . . . economic, technical, and legal requirements of the firm to accomplish social benefits along with the traditional economic gains which the firm seeks”. By the 1980s, the notion that corporations had a duty to behave ethically had achieved broad acceptance and attention then began to turn to what ethical behavior actually entailed, how companies should respond to business-related social issues and how “corporate social performance” should be measured. Beginning in the 1990s, a new economic theory of the firm, the “corporate community model:, put stakeholders at the center of corporate strategy. Masuku explained: “… the organization is viewed as a socioeconomic system where stakeholders are recognized as partners who create value through collaborative problem solving. It is the role of the organization to integrate the economic resources, political support, and special knowledge each stakeholder offers ‘not to do well’, but because it provides a competitive advantage.” 
In 2011 the European Commission provided a simple, yet expansive and important, definition of CSR as being “the responsibility of enterprises for their impacts on society” and went on to explain that “[e]nterprises should have in place a process to integrate social, environmental, ethical, human rights and consumer concerns into their business operations and core strategy in close collaboration with their stakeholders.” The World Business Council for Sustainable Development (“WBCSD”), an organization established and led by chief executive officers of companies focused on sustainability, has defined CSR as “the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large”. This definition recognizes the traditional role of corporations in seeking economic benefits and then expands the responsibilities of corporations to include the voluntary pursuit, as a matter of ethical conduct as opposed to compliance with legal requirement, of wellbeing for a broad range of non-investor constituencies including employees and their families, the local communities in which the business is operated and society as a whole (e.g., environmental responsibility).
A 2017 article in The Economist succinctly described the evolution of CSR up to that time as follows:
“Between the 1950s and 1970s, CSR took shape in the form of pre-corporate philanthropy, a largely disparate approach involving support for domestic nonprofits at the discretion of CEOs with little transparency or oversight. In the 1980s, intense foreign competition and a greater focus on shareholders led many publicly traded corporations to adopt more stringent quality and cost controls. This created greater demands to tie corporate philanthropy to financial performance through efforts like cause-related marketing and practices more aligned with a company’s business. Throughout the 1990s, CSR became more international in scope, but was typically reactive in nature and often a response to negative publicity. During this time, a holistic, triple-bottom-line accounting framework of sustainability also began to emerge. Since the 2000s, CSR has grown increasingly strategic, and a broader concept of sustainability has gained ground. Public pressure to address negative corporate externalities, and pressing social, economic, and environmental issues drove the evolution of these practices. Over time, they have blurred the lines between the public, private, and civil sectors, and redefined traditional roles and structures in the process.”
For further discussion, see Descriptions of Corporate Social Responsibility.
While CSR is generally associated with ensuring the corporations contribute to sustainable economic development at the macro-level, the concept of corporate sustainability can be seen as primarily concerned with the survival, or sustainability, of the corporation itself, something that is necessary in order for the corporation to make the contributions to society that are expected from being a “responsible corporate citizen”. Corporate sustainability goals and programs are focused on issues that not only impact society as a whole but must also be addressed by the directors and managers of a corporation in order for it to survive and thrive: climate change; resource scarcity; demographic shifts; and regulatory and political changes.
A 2017 article in The Economist described “sustainability” in the corporate context as follows:
“The term “sustainability” is often used interchangeably with CSR or viewed exclusively through an environmental lens. Thought leaders, however, generally describe it as a business strategy that creates long-term stakeholder value by addressing social, economic, and environmental opportunities and risks material to a company. It is integral to a company’s business and culture, rather than on the periphery. Optimizing waste reduction, or water or energy consumption, for example, can help a company reduce operational costs. Sustainability can drive innovation by reconceiving products and services for low-income consumers, opening new lines of business and boosting revenue in the process. Finally, being socially responsible can help a company earn license to operate in new markets, and attract and retain talent.”
While the terms “CSR” and “corporate sustainability” are often used interchangeably, there are real and important distinctions between the two concepts; however, corporations can and should pursue both CSR and sustainability in order to generate the most value for all of their stakeholders:
- Avoiding environmental harm from operational activities is not only a socially responsible way to conduct business but also ensures that the corporation has sufficient natural resources available to it to survive and thrive in the future;
- Monitoring the environmental and social impact of the activities of members of the corporation’s supply chain not only protects natural and human resources it also ensures that the corporation will have reliable partners and a stable stream of inputs for its products;
- Treating employees and their families fairly and providing them with a living wage not only enhances their well being but also makes it easier for the corporation to attract and retain the talent necessary to create and commercialize innovative products and services needed to maintain long-term competitiveness;
- Honest engagement with local communities and environmental and social activists promotes mutual understanding and problem solving while reducing potential distractions for directors and members of the management team; and
- Products that are developed in an environmentally and socially responsible manner not only reduce the burden on natural and human resources but also improve the corporation’s reputation and brand and reduce the risk of consumer disenchantment and product recalls.
For further discussion, see Descriptions of Corporate Sustainability.
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Corporate Governance and Corporate Social Responsibility
According to Rahim, there is an evolving interplay between corporate governance and CSR, both of which hold economic and legal features that may be altered through socio-economic processes in which competition within the product market is the most powerful force. Rahim stressed that corporate governance and CSR are complimentary and closely linked with market forces and that while their objectives are not concurrent they may act as tools for attaining each other’s goals. Winberg and Randolph also agreed that “CSR is related to and overlaps in some respects with the concepts of corporate governance and ethics”, however, they believed that: “it is nevertheless distinct….governance programs tend to be internally focused and generally retain heavy rules based favor. In contrast CSR tends to be more value-based and externally focused.” The Australian Parliamentary Joint Committee on Corporations and Financial Services noted that the terms “corporate responsibility” and “corporate governance” were sometimes confused with each other and explained its position that corporate governance referred to broader issues of company management practices (i.e., the conduct of the board of directors;, the relationships between the board, management and shareholders; transparency of major corporate decisions; and accountability to shareholders) and that corporate responsibility is only one aspect of an organization’s governance and risk management processes.
A somewhat contrary view of the relationship between CSR and corporate governance was taken by Walsh and Lowry, who wrote that “corporate governance is an increasingly important aspect of CSR…. to provide the more solid foundation on which broader CSR principles and business ethics can be further enhanced”. Their approach was based on the assumption that “corporate governance” was to be construed narrowly, thus limited to enhancement of shareholder value and the protection of the interests of shareholders, and that the obligations of corporations with respect to the environment, employees and consumers could be assigned to the separate domain of CSR even though some of those obligations were becoming based in law regulation. All of this illustrates the importance of how corporate governance is conceptualized, narrowly or broadly, on the degree of overlap and convergence between CSR and corporate governance.
For further discussion, see Relationship between Corporate Governance and CSR.
Rahim observed that the convergence of CSR and corporate governance has been slowly but surely evolving over a number of decades beginning with “the sophistication of consumers in the 1960s, the environmental movement of the 1970s and the increasing interest in the social impacts of business in the 1990s”. While these changes and movements did not always trigger specific CSR initiatives, they did set the stage along with “the global social urge to include the previously excluded social costs of production and the hidden costs incurred by the environment as a result of business activities with the corporate balance sheet; the lack of confidence in the institutions of the market economy; and the demand for ensuring sustainable development”. According to Rahim, the result of all this was increased pressure to update and extend the narrower meaning of corporate governance to enable companies to demonstrate their responsibility to all of their stakeholders and society in general through their performance. As time has gone by, CSR has become recognized as “[a] business strategy to make the ultimate goals of corporations more achievable as well as more transparent, demonstrate responsibility towards communities and the environment, and take the interests of groups such as employees and consumers into account when making long-term business decisions.”
Jamali et al. argued that the convergence of CSR and corporate governance could be illustrated by identifying and acknowledging discernable overlaps between the two concepts. For example, the broader concept of corporate governance, which entails responsibility and due regard to the wishes of all key stakeholders and ensuring that companies are answerable to all stakeholders, is quite similar to the stakeholder conception of CSR that views businesses as being accountable vis-à-vis a complex web of interrelated stakeholders that sustain and add value to the firm. When corporate governance is viewed in a narrower manner, such as focusing on ensuring accountability, compliance and transparency, one can see the need for firms to meet their responsibilities to internal stakeholders by addressing issues related to skills, and education, workplace safety, working conditions, human rights, equity/equal opportunity and labor rights. Jamali et al. mentioned other links between CSR and corporate governance including the duty of companies to assume their fiduciary and moral responsibilities toward stakeholders; a common grounding in transparency, accountability and honesty; opportunities to regain the trust of clients and society at large; and sources of important long-lasting benefits and sustainability for the business.
Szabó and Sørensen noted that corporate governance and CSR shared many common features that are likely to promote good governance while at the same time encouraging greater attention to, and improvements in, CSR initiatives. Some of the specific common features that they mentioned included regulatory approach, which is both cases has largely been based on voluntary codes and self-regulation; transparency, which has been integrated into corporate governance through reporting requirements on financial performance and now appears in connection with the voluntary disclosure and reporting on CSR initiatives and topics such as environmental, labor and human rights matters; independent directors, which have traditionally been used as a means for ensuring that the interests of shareholders are protected but could also be proponents for taking into account a broader group of stakeholder interests and could therefore play an important role in advancing CSR; greater diversity of board members, which could enhance both corporate governance and CSR; risk management, an obligation of the board of directors that have always been part of corporate governance but which has been expanded to include the risk and opportunities associated with key topics of CSR (i.e., climate change, the environment, health, safety, human rights etc.); and “whistleblowing” procedures for employees and other stakeholders that can be used to report both corporate governance and regulatory compliance problems and activities of the company that are unethical and/or likely to have adverse environmental and/or social impacts.
The drive toward, and pace of, convergence of CSR and corporate governance has turned on a variety of key factors. Strandberg found that drivers of CSR at the values level included improvements in information technology and a surge of globalization that has resulted in greater interconnection between stakeholders and companies, recognition of the role that CSR and taking a values-based approach to governance and decision making on improving motivation and productivity among employees, the desire of companies to protect their reputation and build trust in an era of corporate scandals; the need to take steps to ensure that the benefits of globalization are shared more broadly and the ascendency of new types of corporate leaders dedicated to advancing CSR competencies in their organizations and linking CSR issues with mainstream business issues. At the risk level, the main drivers of CSR have been the recognition of investors that CSR can and does have a positive impact on the financial and overall performance of their portfolio companies and the growing attention that directors have paid to social and environmental responsibility which developing their governance frameworks. In addition, governments have become more involved with regulating activities in CSR areas such as the environment, labor relations and reporting, which means that companies have had to expand the scope of their compliance operations.
Writing in 2005, Strandberg summed up the state of convergence of CSR and corporate governance at that time as follows:
“There is an overall trend towards greater accountability of corporations, not just in financial matters, but regarding impacts on society. Institutional investors are pushing non-financial issues more and more. As companies come to understand looking for loopholes will not serve them in the longer term they will drift to a principles-based approach to governance—the bridge between CSR and governance. Up until recently a lot of resources and effort have been spent on spin—marketing CSR—getting the message out that companies are doing the right thing without necessarily doing so. It is becoming more important that a company’s decisions stand up to scrutiny than in the past and this will drive CSR convergence at both the risk management and the values level of a corporation.”
Rahim summed up the evolution of corporate responsibility and its relationship to corporate governance as follows:
“The basis of corporate responsibility has transitioned from why companies must be socially responsible to how they can become socially responsible. CSR is now a major component of new business and CG models for long-term sustainability. It has converged with the new trend of CG and contributed to the shifting of the traditional notion of CG to a vehicle for pushing corporate management to consider broader social issues. CSR defines corporate responsibilities to society as follows: firstly, that companies have a responsibility for their impact on society and the natural environment, which on occasion goes beyond legal compliance and the liability of individuals; secondly, that companies have a responsibility for the behavior of others with whom they do business; and thirdly, that business needs to manage its relationship with wider society, whether for reasons of commercial viability or to add value to society.”
For further discussion, see Convergence of CSR and Corporate Governance.
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Impact of Convergence on Corporate Regulation
Rahim observed that the potential convergence of CSR and corporate governance has affected the modes of corporate regulation and that “hierarchical command-and-control” regulation dictated by the state is being replaced by a mixture of public and private, state and market, traditional and self-regulation institutions that are based on collaboration among the state, business corporations, and NGOs. In fact, Rahim argued that the impact of the convergence of CSR and corporate governance has mostly been reflected by the development of self-regulatory regimes in the business environment which include both attempts by organized groups to regulate the behavior of its members and efforts by individual companies to exercise control over themselves to maintain the stability of their function and achieve certain organizational goals. While self-regulation can be mandated or coerced by the state, most of the self-regulatory initiatives to date relating to CSR have been voluntary systems initiated and operated by corporations, often acting collectively with input from stakeholders. All of this seems to be consistent with the erosion of the authority and power of the nation-state that has occurred due to globalization and the accompanying rise of the influence of non-state actors and transnational bodies in constructing regulatory schemes and devices for businesses.
Rahim noted that individual companies have been self-regulating their CSR-related activities through their own codes of conduct and/or through incorporation of a multi-stakeholder initiative or guidelines prepared by another social or commercial organization. When corporations create their own codes of conduct they are simultaneously acting as both “regulator”, responsible for the rules, and the “regulate”, responsible for implementation of those rules. Acting in this fashion provides the corporation with the flexibility to frame its own internal strategies for pursuit of broader public policy goals taking into account its specific circumstances and resources. On the other hand, when corporations adopt technical and qualitative standards provided by multi-stakeholder initiatives and other external organizations, the regulator is separated from the regulate, although corporations are generally encouraged to get involved in standard-setting exercises to ensure that their concerns are heard and addressed. While acting in this manner arguably increases the costs associated with implementation and compliance, it does provide corporations with the opportunity to access emerging best practices amongst their peers and enhance their brand and reputation by being associated with widely-respected standards.
The codes of conduct referred to above began to appear during the 1990s, often adopted by large companies with a strong presence in developing economies with weak state-based regulatory systems and companies engaged in sectors where brand reputation and export orientation were critical (e.g., apparel, sporting goods, toy and retail sectors, oil, chemicals, forestry and mining). In general, these codes addressed corporate ethics, moral guidelines, and key CSR issues like human rights, labor, the environment and sustainable development. Notably, the codes generally extended outward to include supply chain participants and included restrictions on doing business with suppliers that did not respect workers’ rights (e.g., freedom of association) and ensure fair pay and treatment for their workers. Suppliers were also expected to support sustainability and use ethical practices to ensure their product quality and processing efficiency (e.g., refrain from using child labor and provide for environmentally-friendly manufacturing methods). In many cases, companies supplemented their codes by providing training programs for suppliers and creating mandatory environmental management systems.
Codes of conduct have been criticized as tools used by corporations to pursue their own interests rather than public policy goals and for failing to actually improve corporate behavior worldwide absent accompanying changes in business culture and decision making. Companies have also been criticized for creating codes of conduct that are complex and difficult to interpret and then ignoring them in practice or failing to ensure that they are prioritized through proactive communications from the independent directors and the members of the senior executive team. In turn, proponents of codes of conduct argue that the codes can positively affect sales, purchasing and recruitment of new staff, secure the company’s reputation, create innovation, increase motivation among their employees and improve risk management and compliance, all of which ultimately leads to the increased sustainability of their company. Codes of conduct have also been praised for their potential positive impact on internal governance including clarification of the company’s mission, values and principals and their value as a guide and source of reference for the day-to-day decision making of employees.
Rahim noted that another trend in self-regulation has been the growing attention to non-financial reporting, a trend that began in the 1990s in response to a series of environmental disasters and continued thereafter to expand to include a wider range of corporate policies and CSR-related issues. At the beginning, these reports primarily focused on informing the public of the company’s existing CSR policies; however, as time went by companies began to use the reporting process as a means for creating channels of communication with their stakeholders. As this so-called sustainability reporting has become more sophisticated, incorporating metrics to be used to track the company’s CSR performance, it has become a driver of corporate governance practices and pushes boards toward considering and incorporating better mechanisms for long-term accountability to their constituencies. While sustainability reporting has been largely voluntary, there is now a trend among legislators and regulators to require such reporting alongside traditional disclosures of financial results.
Rahim noted that both codes of conduct and non-financial reporting have been significantly influenced by external stakeholders eager to be involved in the formulation of codes and reporting practices and “supervise” the way in which businesses have chosen to self-regulate their CSR activities. One important byproduct of all of this has been the development of a “standardization regime” (i.e., “an agreement based on the principles that guide the standards of activities”) in both areas including multi-stakeholder codes and principles used as guidelines for codes of conduct and reporting frameworks, such as the Global Reporting Initiative, available for consultation in presenting the content and results of CSR initiatives and programs. Rahim explained that the multi-stakeholder initiatives involved companies, trade unions and other workers’ associations, government agencies, NGOs and academics and included not only a framework of rules and guidelines for operations but also mechanisms for monitoring and verification and evaluation of the CSR performance of companies.
Williams noted that some stakeholder theorists have argued that the current version of “corporate responsibility”, which generally emphasizes disclosure and voluntarism, is too modest and has failed to make a significant impact on addressing human rights issues, many of which remain in an extreme form all around the world in the communities in which corporations continue to pursue their profit-making strategies. These theorists believe that even though much is made of the “business case” for “voluntary” corporate responsibility (i.e., acting responsibly enhances the “intangible” value of the corporation, which has been estimated to account for anywhere from 70% to 80% of total market value, by improving brand reputation and goodwill and creating intellectual property necessary for innovation), the reality is that substantial economic disincentives remain for corporations and that they are likely to be unwilling to incur higher labor costs and/or make expensive investments in pollution abatement unless there is a supportive regulatory framework that creates a level playing field for competition (i.e., all of the participants in the market will be required by law to increase wages and reduce the harm that their activities cause to the environment).
After evaluating the arguments made by proponents of both the shareholder and stakeholder perspective, Williams pointed out that the proposition that corporations should stay out of the politics associated with making social policies made no real sense in a world in which businesses spend heavily on lobbying, litigating to narrow and adapt regulations to their benefit and contributing to electoral campaigns. As for the concerns about self-interested actions of directors if the stakeholder view was adopted, Williams stated that “the prioritizing of shareholders’ interests as it has been instantiated in the U.S. over the last three decades has itself masked self-interest and created new agency problems” and explained that stock option compensation that rewards managers for taking a short-term perspective has enriched executives while doing little to improve underlying corporate value. In addition, the need to appease activist investors has pushed management to engage in share buy-backs or special dividends, sales of premium assets, ill-advised mergers and acquisitions and increasing leverage that generally destroy longer-term value and cripple the ability of the corporation to invest in the sustainability of the business. Moreover, the push to drive share prices upward has driven management of many businesses to engage in shady financial reporting practices.
Based on her review of the case law and the opinions of a variety of scholars, Williams concluded that “… shareholders are important beneficiaries of fiduciary obligations in Delaware, of course, but only so long as their interests and the corporation’s long-term interests are in harmony. Corporate responsibility initiatives are one type of strategy to promote the corporation’s long-term financial well-being, as the empirical evidence shows, and thus there is no fiduciary breach”. Williams praised the corporate responsibility initiatives for the many ways in which they had improved conditions of employment, brought attention to environmental problems and motivated firms to develop innovative products and solutions to address these problems, and noted the empirical evidence that responsibility is generally a good business strategy; however, she cautioned that “corporate responsibility does not fundamentally change underlying power relationships between companies and citizens”; that companies can volunteer to act to address social and environmental problems—or not; and that corporate responsibility may dissuade governments from regulating, thus leaving gaping holes into which corporations may decide to march at great cost to the environment and the lives of millions of people around the world. Williams also noted that while economic development has improved the overall standard of living, billions of people would benefit from greater access to productive enterprise and it is important that the underlying normative and material conditions of that access matter be managed properly, a role that should not be left to corporations themselves.
For Williams, the solution was to seriously consider more “hard law” regulating social responsibility, thus giving directors more guidance for decisions in the area and satisfying those who have complained that corporate responsibility based primarily on disclosure is too weak, and she suggested that the best place to look for guidance would be the self-regulatory initiatives that businesses had already chosen to participate in. More regulation is allowed by economic theory when necessary to address market failures such as the negative externalities associated with irresponsible behavior of businesses and, as Williams pointed out, “[e]ven Friedman believed that business has an obligation to conform ‘to the basic rules of the society, both those embodied in law and those embodied in ethical custom’”. In addition, actions by governments to make environmental and social responsibility a legal obligation for businesses may be necessary in order to ensure that the positive changes associated with corporate responsibility become sustainable.
For further discussion, see Impact of Convergence on Corporate Regulation.
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Investor Interest in Corporate Social Responsibility and Sustainability
Sustainability has become an important issue for the major institutional investors and asset managers and the marketplace is seeing an increase in smaller, more specialized investment funds that are primarily oriented toward providing capital to companies that excel in their environmental, social and governance (“ESG”) practices and which focus on ESG-oriented activities such as climate change and impact investing. The goal of investors is to encourage their portfolio companies to contribute to the successful pursuit of environmental and social outcomes which continuing to provide investors with a suitable financial return.
A number of factors have contributed to the surge in the interest of investors in corporate sustainability and the ESG practices of their portfolio companies:
- Recognition in the financial community that ESG factors play a material role in determining risk and return;
- Understanding and acceptance that incorporating ESG factors is part of investors’ fiduciary duty to their clients and beneficiaries;
- Concern about the impact of short-termism on company performance, investment returns and market behavior;
- Increased legal requirements protecting the long-term interests of beneficiaries and the wider financial system;
- Pressure from competitors seeking to differentiate themselves by offering responsible investment services as a competitive advantage;
- Increasing activism of beneficiaries who are demanding transparency about where and how their money is being invested; and
- Concern regarding value-destroying reputational risk associated with environmental and social issues such as climate change, pollution, working conditions, employee diversity, corruption and aggressive tax strategies in a world of globalization and social media.
The potential benefits to institutional investors have been highlighted by the Conference Board, which has argued that CSR enhances market and accounting performance, lowers the cost of capital, improves business reputation, and fosters new revenue growth when it is channeled toward product innovation. Similarly, the Chairman and CEO of BlackRock, Inc., the largest asset manager in the world, wrote in his 2016 Annual Letter to the CEOs of BlackRock’s portfolio companies that “[o]ver the long-term, environmental, social and governance (ESG) issues—ranging from climate change to diversity to board effectiveness—have real and quantifiable financial impacts”. While many investors argue that focusing on corporate sustainability is necessary in order for companies to identify and mitigate the risks to current operations due to climate change, shortages of natural resources and ignoring basic human rights issues, investors also believe that developing and implementing innovating solutions to environmental problems, improving workplace conditions and forging strong relationships with local communities will lead to better economic performance for the business.
For further discussion, see Investor Interest in CSR and Sustainability and Investors Beginning to Prefer Companies that Pursue Long-Termism.
Harper Ho suggested that investor activism around ESG issues and investors’ growing demand for investment-grade ESG information has important implication for how directors should approach corporate governance, investor engagement, compliance and disclosure practices. First of all, the broadened scope of risks that directors must consider in light of ESG activism means that boards must have new capacities to support oversight of ESG risk. Second, investors want their companies to integrate ESG performance metrics and long-term benchmarks into executive compensation. Third, directors should ensure that investor engagement encourages dialogue and learning and confirm that senior management and investor relations personnel are aware of the increasing overlap between corporate governance and environmental and social concerns. Finally, directors need to improve the quality and formatting of their sustainability-related reporting and ensure that ESG materiality is being considered as part of their company’s financial reporting process. According to Harper Ho, companies that can improve their practices in these areas are likely to see improved financial and operational performance, improved focus on long-term risk and return, better access to “patient capital” (i.e., investors that are less fixated on quarterly earnings and more supportive of R&D and other investments in the company’s future) and be able to identify and exploit new sources of value for the company and keep ahead of emerging risks and opportunities.
CSR and corporate sustainability are broad and challenging topics and the directors must carefully consider how the board’s duties and responsibilities will be discharged and allocated among board members. One well-known corporate governance advisor has counseled that directors should begin the process of developing an oversight framework for CSR and corporate sustainability by asking and answering the following questions:
- How should concerns regarding CSR and corporate sustainability be integrated into the board’s discussions on strategy and risk oversight? Strategy and risk oversight are two topics that all board members should be working on and actively discussing during each board meeting and investors are looking to see whether CSR and corporate sustainability have been formalized as priorities in the board’s governance guidelines and overall goals.
- To what extent should CSR and corporate sustainability topics be included as standalone agenda items for board meetings?
- What information should be provided to directors (e.g., data on how the company’s efforts compare to those of its peer companies, leading industry standards, and the CSR-related priorities of key shareholders and proxy advisory firms)?
- Which metrics should the board and members of the executive team focus on in considering progress against CSR and corporate sustainability goals (e.g., goals involving reduction of water usage and emissions, reducing on-the-job injuries and employee turnover, or improving workforce diversity and employee retention)?
- What process should be used for drafting and reviewing public disclosures about the company’s CSR and corporate sustainability efforts?
In addition, the board should also consider how the company’s current efforts and activities with respect to CSR and corporate sustainability compare to its peers, how investors and other stakeholders perceive the company’s engagement with and disclosure of CSR and corporate sustainability and whether or not the company has been effectively communicating its CSR and corporate sustainability strategies, goals and actions to investors and other stakeholders.
For further discussion, see Changing Expectations for Board Oversight of Sustainability.
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Transparency and Disclosure
As interest in CSR and corporate sustainability has grown, companies have found that they are subject to heightened scrutiny and that the traditional disclosure practices that focused primarily, if not exclusively, on financial information and performance and related risks are no longer adequate. Companies must now be prepared to provide disclosures that address the specific concerns and expectations of multiple stakeholders beyond investors including customers, employees, business partners, regulators and activists. This means that the board of directors must understand existing and emerging disclosure requirements and ensure that the company has the necessary resources to collect and analyze the required information and present it in a manner that is clear and understandable. At the same time, however, the directors need to be mindful of the risks of expanded disclosure include the possibility of providing too much strategic information, exposing the company to heightened risk of litigation from stakeholders that believe the company has not vigorously pursued its promised CSR and corporate sustainability goals and the need to invest additional time and resources in creating and maintaining the internal reporting process necessary to support CSR and corporate sustainability disclosures.
While certain CSR and corporate sustainability disclosures have now become minimum legal requirements in some jurisdictions, in general such disclosures are still a voluntary matter and directors have some leeway as to the scope of the disclosure made by their companies and how they are presented to investors and other stakeholders. Some companies continue to limit their disclosures to those are specifically required by regulators; however, most companies have realized that they need to pay attention to the issues raised by institutional investors and other key stakeholders and make sure that they are covered in the disclosure program. At the other extreme, there are companies that have embraced sustainability as integral to their brands and have elected to demonstrate their commitment by preparing and disseminating additional disclosures that illustrate how they have woven sustainability into their long-term strategies and day-to-day operational activities. These companies understand that not only are investors paying more attention but that more and more people everywhere are considering ESG performance when deciding whether to buy a company’s products and/or work for a particular company and that it is therefore essential to lay out their specific CSR and corporate sustainability goals and the metrics used to track performance and provide regular reports to all of the company’s stakeholders on how well they are doing against those goals.
As of 2013, over 90% of the Global 250 companies had decided to voluntarily disclose more environmental, social and governance information than required by law and Williams noted in 2016 that “[v]oluntary, transnational standards of best social and environmental practices are proliferating in virtually every industry, many with associated certification schemes and requirements for third-party attestation or auditing … [and] … [t]hese voluntary initiatives are increasingly being supplemented by domestic and multilateral government actions to encourage, or in some cases require, companies to pay closer attention to the social and environmental consequences of their actions and to disclose more information about those consequences.
The US, which has comprehensive reporting requirements relating to a broad range of corporate governance matters, has been a notable laggard with respect to establishing a comprehensive general ESG disclosure framework; however, there are certain specific federal and state disclosure requirements in certain contexts such as releases into the environment, management through recycling, median employee pay, mine safety disclosure and “conflict minerals” disclosure. Public companies in the US are required to make certain of their CSR and corporate sustainability disclosures in their SEC filings, which means that those disclosures are being made with a higher potential risk of liability. Apart from mandatory disclosure, several studies have found that about 80% of larger US public companies have voluntarily provided some form of disclosures on their CSR and corporate sustainability initiatives in the form of published CSR/sustainability reports and/or disclosures on the company website; however, the quality of these disclosures has been criticized by the Sustainability Accounting Standards Board, which found that 52% of a sample of almost 600 companies that had made disclosures of CSR-related risks had done so using boilerplate language and has failed to disclose their plan to address such risks. Directors need to be involved in decisions regarding placement of CSR and corporate sustainability disclosures including links in SEC filings to online sustainability reports and adding sustainability information to proxy statements as part of the company’s investor-focused communication efforts. Companies can, and often do, rely on communications professionals to prepare sustainability reports; however, even when such reports are not included in the company’s SEC filings they should be subject to the same level of scrutiny applied in procedures established by the board’s disclosure committee.
When companies were first attempting to provide voluntary disclosures relating to their CSR and corporate sustainability initiatives they often struggled with the format and depth of their reporting. Fortunately, as time went by, a consensus began to emerge about the benchmarks that companies should use for guidance in preparing their CSR and corporate sustainability reports. Of particular note are the standards for sustainability reporting developed by the GRI , which is a multi-stakeholder developed international independent organization that helps businesses, governments and other organizations understand and communicate the impact of business on critical sustainability issues such as climate change, human rights, corruption and many others; the International Integrated Reporting Framework developed by the International Integrated Reporting Council, or IIRC, and the resources available from the Sustainability Accounting Standards Board, or SASB, which publishes the SASB Implementation Guide for Companies that provides the structure and the key considerations for companies seeking to implement sustainability accounting standards within their existing business functions and processes. However, while the efforts of the GRI, IIRC and the SASB indicate that some progress has been made regarding the development of measurement and disclosure frameworks relating to corporate sustainability and ESG practices, companies and their stakeholders are not yet able to rely on universally accepted guidelines.
For further discussion, see Transparency and Disclosure.
For further discussion of sustainability and corporate governance, see “Sustainability and Corporate Governance: A Practice Guide to Implementing a Sustainability Governance System” prepared by the Sustainable Entrepreneurship Project and published and distributed by Kluwer Law International.
Click here to access all of the Sustainable Entrepreneurship Project’s articles on Sustainability and Corporate Governance.
To access and download certain of the publications referred to herein, go to the author’s Gumroad Storefront.
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KLUWER LAW INTERNATIONAL
Sustainability and Corporate Governance (Forthcoming Fall 2018)
Chapters or Articles in Books
Articles in Journals
Governmental and Other Public Domain Publications
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 For a general introduction to corporate governance, see “Introduction to Corporate Governance” in “Governance: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (www.seproject.org).
 D. Jamali, A. Safieddine and M. Rabbath, “Corporate Governance and Corporate Social Responsibility Synergies and Interrelationship”, Corporate Governance, 16(5) (2008), 443, 444 (citing J. Page, Corporate Governance and Value Creation (University of Sherbrooke, Research Foundation of CFA Institute, 2005)).
 International Finance Corporation, Corporate Governance: List of Key Corporate Governance Terms (2010), 4.
 M. Lipton, S. Rosenblum, K. Cain, S. Niles, V. Chanani and K. Iannone, “Some Thoughts for Boards of Directors in 2018” (Wachtell, Lipton, Rosen & Katz, November 30, 2017), 1, accessible at http://www.wlrk.com/webdocs/wlrknew/WLRKMemos/WLRK/WLRK.25823.17.pdf.
 For further discussion of definitions and descriptions of corporate governance, see “Introduction to Corporate Governance” in “Governance: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (www.seproject.org).
 P. Srinivasan and V. Srinivasan, “Status of Corporate Governance Research on India: An Exploratory Study”, Indian Institute of Management Working Paper No. 34 (2011), 128.
 Id. at 129.
 S. Claessens, Corporate Governance and Development (Washington DC: The World Bank (Global Corporate Governance Forum), 2003), 4.
 D. Jamali, A. Safieddine and M. Rabbath, “Corporate Governance and Corporate Social Responsibility Synergies and Interrelationship”, Corporate Governance, 16(5) (2008), 443, 444 (citing K. MacMillan, K. Money, S. Downing and C. Hillenbrad, “Giving your organization SPIRIT: An overview and call to action for directors on issues of corporate governance, corporate reputation and corporate responsibility”, Journal of General Management, 30 (2004), 15; and A. Cadbury, “The corporate governance agenda”, Journal of Corporate Governance, Practice-Based Papers, 8 (2000), 7).
 K. MacMillan, K. Money, S. Downing and C. Hillenbrad, “Giving your organization SPIRIT: An overview and call to action for directors on issues of corporate governance, corporate reputation and corporate responsibility”, Journal of General Management, 30 (2004), 15; A. Cadbury, “The corporate governance agenda”, Journal of Corporate Governance, Practice-Based Papers, 8 (2000), 7) and J. Page, Corporate Governance and Value Creation (University of Sherbrooke, Research Foundation of CFA Institute, 2005).
 H. Mathiesen, Managerial Ownership and Finance Performance (Dissertation presented at Copenhagen Business School, 2002).
 K. Saravanamuthu, “What is measured counts: Harmonized corporate reporting and sustainable economic development”, Critical Perspectives on Accounting, 15 (2004), 295.
 C. Williams, “Corporate Social Responsibility and Corporate Governance” in J. Gordon and G. Ringe (Eds.), Oxford Handbook of Corporate Law and Governance (Oxford: Oxford University Press, 2016), 34, available at http://digitalcommons.osgoode.yorku.ca/scholarly_works/1784.
 Id. at 35.
 Id. at 35 (citing H. Hansmann and R. Kraakman, “The End of History for Corporate Law”, Georgetown Law Journal, 89 (2001), 439, 442-443).
 Id. at 36-37 (citing D. Engel, “An Approach to Corporate Social Responsibility”, Stanford Law Review, 32 (1979), 1; D. Fischel, “The Corporate Governance Movement”, Vanderbilt Law Review, 35 (1982), 1259; and S. Bainbridge, “Corporate Social Responsibility in the Night-Watchman State”, Colorado Law Review Sidebar, 115 (2015), 39, 49).
 M. Goergen and L. Renneboog, “Contractual Corporate Governance”, Journal of Corporate Finance, 14(3) (June 2008), 166.
 C. Masuku, Corporate Social Responsibility Literature Review and Theoretical Framework, available at https://www.academia.edu/2172462/CORPORATE_SOCIAL_RESPONSIBILITY_LITERATURE_REVIEW_AND_THEORETICAL_FRAMEWORK
 For further discussion of the evolution of corporate social responsibility and the various definitions and descriptions of the concept that have been suggested, see “Introduction to Corporate Social Responsibility” in “Corporate Social Responsibility: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (www.seproject.org).
 K. Davis, “The Case For and Against Business Assumption of Social Responsibilities”, American Management Journal, 16 (1973), 312.
 C. Masuku, Corporate Social Responsibility Literature Review and Theoretical Framework, available at https://www.academia.edu/2172462/CORPORATE_SOCIAL_RESPONSIBILITY_LITERATURE_REVIEW_AND_THEORETICAL_FRAMEWORK (citing W. Halal, “Corporate community: a theory of the firm uniting profitability and responsibility”, Strategy & Leadership, 28(2) (2000), 10).
 European Commission, A Renewed European Union Strategy 2011-14 for Corporate Social Responsibility, COM (2011) 681, ¶ 3.1.
 World Business Council for Sustainable Development, Corporate Social Responsibility: Meeting Changing Expectations, 3, available at wbcsd.org.
 For further discussion of the various definitions and descriptions of corporate sustainability, see “Corporate Sustainability” in “Entrepreneurship: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (www.seproject.org).
 RobecoSAM, Corporate Sustainability, available at sustainability-indices.com.
 M. Rahim, Legal Regulation of Corporate Social Responsibility: A Meta-Regulation Approach of Law for Raising CSR in a Weak Economy (Berlin: Springer, 2013), 13, 21 (citing L. Mitchell, “The Board as a Path toward Corporate Social Responsibility” in D. McBarnet, A. Voiculescu and T. Campbell, The New Corporate Accountability: Corporate Social Responsibility and the Law (2007), 279). See also M. Rahim, “Corporate Governance as Social Responsibility: A Meta-regulation Approach to Incorporate CSR in Corporate Governance” in S. Boubaker and D. Nguyen (Eds.), Board of Directors and Corporate Social Responsibility (London: Palgrave Macmillan, 2012).
 D. Winberge and P. Randolph, “Corporate Social Responsibility: What every In-House Council Should Know”, ACC Docket (May 2004), 72.
 Parliamentary Joint Committee on Corporations and Financial Services, Corporate responsibility: Managing risk and creating value (2006), 6-7.
 M. Walsh and J. Lowry, “CSR and Corporate Governance” in R. Mullerat (Ed.), Corporate Social Responsibility: The Corporate Governance of the 21st Century (Amsterdam: Kluwer, 2005), 38-39.
 M. Rahim, Legal Regulation of Corporate Social Responsibility: A Meta-Regulation Approach of Law for Raising CSR in a Weak Economy (Berlin: Springer, 2013), 13, 22 (citing A. Bagi, M. Krabalo and L. Narani, “An Overview of Corporate Social Responsibility in Croatia” (2004); and T. Pinckston and A. Carroll, “A Retrospective Examination of CSR Orientations: Have They Changed?”, Journal of Business Ethics, 15(2) (1996), 199). See also N. Kakabadse, C. Rozuel and L. Lee-Davies, “Corporate Social Responsibility and Stakeholder Approach: A Conceptual Review”, International Journal of Business Governance and Ethics, 1(4) (2005), 277, 279 (identifying ‘consumerism’ and ‘corporate scandals’ as the most important drivers underpinning the growth in interest and acceptance of CSR).
 M. Rahim, Legal Regulation of Corporate Social Responsibility: A Meta-Regulation Approach of Law for Raising CSR in a Weak Economy (Berlin: Springer, 2013), 13, 22.
 Id. (citing A. Gill, “Corporate Governance as Social Responsibility: A Research Agenda” (2008)).
 D. Jamali, A. Safieddine and M. Rabbath, “Corporate Governance and Corporate Social Responsibility Synergies and Interrelationship”, Corporate Governance, 16(5) (2008), 443, 446.
 Id. at 446-447.
 D. Szabó and K. Sørensen, “Integrating Corporate Social Responsibility in Corporate Governance Codes in the EU”, European Business Law Review, 2013(6), 1, 5-8.
 Id. at 8-9.
 C. Strandberg, The Convergence of Corporate Governance and Corporate Social Responsibility: Thought-Leaders Study (Canadian Co-operative Association, March 2005), 13.
 M. Rahim, Legal Regulation of Corporate Social Responsibility: A Meta-Regulation Approach of Law for Raising CSR in a Weak Economy (Berlin: Springer, 2013), 13, 44 (citing M. Blowfield and J. Frynas, “Setting New Agendas: Critical Perspectives on Corporate Social Responsibility in the Developing World”, International Affairs, 81(3) (2005), 499, 504).
 M. Rahim, Legal Regulation of Corporate Social Responsibility: A Meta-Regulation Approach of Law for Raising CSR in a Weak Economy (Berlin: Springer, 2013), 13, 23 (citing A. Gill, “Corporate Governance as Social Responsibility: A Research Agenda” (2008), 464).
 Id. at 27 (citing J. Cioffi, “Governing Globalisation? The State, Law, and Structural Change in Corporate Governance”, Journal of Law and Society, 27(4) (2000), 572).
 Id. at 29 (citing H. Arthurs, “Private Ordering and Workers’ Rights in the Global Economy: Corporate Codes of Conduct as a Regime of Labour Market Regulation”, Labour Law in an Era of Globalisation: Transformative Practice and Possibilities (2005), 471; and United Nations Research Institute for Social Development, Corporate Social Responsibility and Business Regulations: How should Transnational Corporations be Regulated to Minimise Malpractice and Improve their Social, Environmental and Human Rights Record in Developing Economies? (2004), available at http://www.unrisd.org at 29 June 2010).
 E. Wymeersch, “Corporate Governance Codes and their Implementation” (Gent University, 2006).
 M. Rahim, Legal Regulation of Corporate Social Responsibility: A Meta-Regulation Approach of Law for Raising CSR in a Weak Economy (Berlin: Springer, 2013), 13, 29-30.
 Id. at 30 (citing A. Blackett, “Global Governance, Legal Pluralism and the Decentered State: A Labour Law Critique of Codes of Corporate Conduct”, Indiana Journal of Global Legal Studies, 8 (2000), 401; and R. Locke and M. Romis, Beyond Corporate Codes of Conduct: Work Organisation and Labour Standards in Two Mexican Garment Factories (2006)).
 See, e.g., P. Smalera, “The valley’s mess: why codes of conduct don’t work”, Fortune (September 1, 2010)
 M. Rahim, Legal Regulation of Corporate Social Responsibility: A Meta-Regulation Approach of Law for Raising CSR in a Weak Economy (Berlin: Springer, 2013), 13, 31.
 Id. at 31. For further discussion of the evolution of voluntary sustainability reporting, see A. Kolk, “Sustainability, Accountability and Corporate Governance: Exploring Multinationals’ Reporting Practices”, Business Strategy and the Environment, 17(1) (2008), 1; D. Hess, “Social Reporting and New Governance Regulation: The Prospects of Achieving Corporate Accountability through Transparency”, Business Ethics Quarterly, 17 (2007), 455, 458; and J. Elkington, The Triple Bottom Line for 21st-Century Business, The Earthscan Reader in Business and Sustainable Development (2001).
 Id. at 32.
 Id. at 39.
 Id. at 40. Williams also noted that the business case for corporate responsibility depends on several other assumptions that have yet to be empirically confirmed such as consumers being willing to pay more for goods produced in socially-responsible fashion, employees being selective about where they will work and choosing only the most responsible employers, and investors generally investing and disinvesting based on social parameters; however, as time goes by more and more studies are appearing that provide support for the reasonableness of these assumptions.
 Id. at 44.
 Id. at 49-50.
 Id. at 50-51.
 Id. at 49.
 Id. at 54-55.
 Id. at 53.
 Id. at 52 (citing M. Friedman, “The Social Responsibility of Business is to Increase its Profits”, New York Times Magazine (September 13, 1970), 6). See also Section 2.01(b) of the American Law Institute’s Principles of Corporate Governance and Structure: Analysis and Recommendations, which provides that: “Even if corporate profit and shareholder gain are not thereby enhanced, the corporation, in the conduct of its business: (1) is obliged, to the same extent as a natural person, to act within the boundaries set by law; (2) may take into account ethical considerations that are reasonably regarded as appropriate to the responsible conduct of business; and (3) may devote a reasonable amount of resources to public welfare, humanitarian, educational and philanthropic purposes.”
 M. Tonello, Corporate Investment in ESG Practices (The Conference Board, Inc.: August 5, 2015).
 Annual Letter from Larry Fink, Chairman and CEO, BlackRock, to CEOs (February 1, 2016), available at blackrock.com.
 V. Harper Ho, Director Notes: Sustainability in the Mainstream–Why Investors Care and What It Means for Corporate Boards (The Conference Board, November 2017), 13-14, electronic copy available at: https://ssrn.com/abstract=3080033 (based on information available at UNPRI, Signatories, https://www.unpri.org/signatory-directory/).
 Id. at 15.
 H. Gregory, “Corporate Social Responsibility, Corporate Sustainability and the Role of the Board”, Practical Law Company (July 1, 2017), 3.
 D. Kuprionis and P. Styles, “Translating Sustainability into a Language Your Board Understands”, The Corporate Governance Advisor, 25(5) (September/October 2017), 13, 15.
 For further discussion of non-financial disclosures and reporting, see “Sustainability Reporting and Auditing” in “Corporate Social Responsibility: A Library of Resources for Sustainable Entrepreneurs” prepared and distributed by the Sustainable Entrepreneurship Project (www.seproject.org).
 As mentioned above, expansive disclosure of this type increases the risk of litigation and/or adverse market reaction in the event that the company fails to meet its stated CSR and corporate sustainability goals, even if the disclosures are accompanied by appropriate disclaimers and are not included in regulatory filings that typically are covered by anti-fraud standards. Disclosure of actual or potential links between CSR and corporate sustainability goals and compensation must also be handled carefully, similar to links between short-term financial goals and compensation.
 KPMG, The KPMG Survey of CR Reporting 2013, available at http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/corporateresponsibility/Documents/corporate-responsibility-reporting-survey-2013-exec-summary.pdf. In addition, in 2013 76% of the top 100 companies in the Americas published a separate corporate responsibility report, as did 73% of top 100 companies in Europe and 71% in Asia. Also, 59% of the Global 250 had their reports “assured” typically by the specialist bureaus of the major accountancy firms. As reported in C. Williams, “Corporate Social Responsibility and Corporate Governance” in J. Gordon and G. Ringe (Eds.), Oxford Handbook of Corporate Law and Governance (Oxford: Oxford University Press, 2016), 5, available at http://digitalcommons.osgoode.yorku.ca/scholarly_works/1784
 C. Williams, “Corporate Social Responsibility and Corporate Governance” in J. Gordon and G. Ringe (Eds.), Oxford Handbook of Corporate Law and Governance (Oxford: Oxford University Press, 2016), 2-3, available at http://digitalcommons.osgoode.yorku.ca/scholarly_works/1784 (citing M. Blair, C. Williams and Li-Wen Lin, “The New Role for Assurance Services in Global Commerce”, Journal of Corporate Law, 33 (2008), 325).
 Id. at 16-19. See also C. Williams, The Securities and Exchange Commission and Corporate Social Transparency, Harvard Law Review, 112 (1999), 1197. The federal Securities and Exchange Commission has also occasionally issued guidance on selected ESG topics such as disclosures related to climate change.
 See Flash Report: Eighty One Percent (81%) of the S&P 500 Index Companies Published Corporate Sustainability Reports in 2015 (Governance & Accountability Institute, Inc., 2016), available at ga-institute.com; and Sustainability Accounting Standards Board, The State of Disclosure Report 2016, available at sasb.org. The percentage is particularly striking given that less than 20% of the companies in the same group in 2011 published sustainability reports in that year.
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