Few trends showing Corporate Governance and Repsonsibilty will stay

Corporate governance has gained a much higher profile in the last few decades in the wake of various corporate scandals and collapses. Corporate social responsibility (CSR) is now becoming much more a part of mainstream corporate governance as there is a recognition that a company cannot have in the long-term to operate in isolation from the wider society in which it operates. Regardless of whether you call it CSR, corporate responsibility, environmental, social and corporate governance  or sustainability, a common understanding is emerging around the world: a company’s long-term financial success goes hand in hand with its record on social responsibility, environmental stewardship and corporate ethics.

The broadest way of defining social responsibility is to say that the continued existence of companies is based on an implied agreement between business and society and that the essence of the contract between society and business is that companies shall not pursue their immediate profit objectives at the expense of the longer-term interests of the community.

The costs to business and society of getting it wrong and the benefits of getting it right are increasingly apparent. However, the question remains whether this is a passing trend or one that will continue to reshape the profile of business. Several big trends indicate that corporate sustainability is here to stay:

1. Transparency
If a company is transparent enough and reports material facts in real time, stakeholders will have more confidence in the management. Consequently, they will be more willing to invest in the company, thereby reducing the cost of capital. Transparency also helps those in charge to avoid fraud and put measures in place against it. All these factors put together enable the firm’s productive capacity and productivity to improve.

2. Trust
The ever-growing impact of business on society means that citizens and consumers expect corporate power to be exerted responsibly. As citizens more often are sceptical, self-organised and prone to challenge authority, the corporate community will have to raise its learning curve on building trust. This means being proactive and thorough in how a company views its responsibilities and impacts on society, and then showing how it manages operations accordingly.

3. Community participation
Companies that collaborate with scientists, civil society and public regulators and show early on that they are part of the solution will come out ahead. Environmental issues are a good example of this.

4. Accessing new markets responsibly
Business is moving from resource taker to market builder. With economic growth migrating southward and eastward, foreign direct investment is becoming more about building and gaining access to new markets and less about simply exploiting low-cost inputs.

5. Initiatives to engage companies
Means for engaging in corporate sustainability are plentiful and growing. Initiatives, standards and consultancies are booming at national and global levels.

6. Going Global
The relentless march toward globalization will continue to stretch the scope of corporate responsibility. Corporate social responsibility leaders will be increasingly accountable for responsible behavior all along their supply chains.

For business, environmental, social and governance responsibilities are no longer add-ons. Corporate governance and corporate responsibility are intertwined. There is increasing influence from shareholders, other stakeholders, and also government/international legislation.They are integral to success.

While the great majority of companies have yet to commit to this trajectory, there is a strong upward growth curve in actively engaged companies, with a vanguard taking serious action in all key markets. The growing feeling is that corporate sustainability has drawn a line in the sand, and it’s best for business to get on the right side.

Oct 1 2014