Corporate Governance International Journal of Business in Society

Purpose The purpose of this research is to attempt to gain a deeper understanding on the firm's ability to integrate stakeholder insights into the process of organizational innovation from a sustainable development viewpoint. Design/methodology/approach Given the early stage of empirical research on the topic, an exploratory case study was used of two Spanish companies that have successfully learned from stakeholder dialogue and have generated innovations that are beneficial both for the company and for sustainable development in general. Findings The evidence from the two case studies suggests the existence of two simple capabilities – stakeholder dialogue and stakeholder knowledge integration – for generating innovations in accordance with stakeholder needs. Whereas stakeholder dialogue leverages organizational resources that promote two‐way communication, transparency and appropriate feedback to stakeholders, stakeholder knowledge integration relies on non‐hierarchical structures, flexibility and openness to change. Research limitations/implications The fact that the two companies studied are rather special cases of companies without shareholders might limit the results of the present research. Thus, future research could explore sustainable innovation as a response to the demands of other kinds of stakeholders and refine, validate and test the concept of dynamic capability identified in this paper. Originality/value The paper sheds some light on the under‐researched issue of linking stakeholder dialogue and sustainable innovation, and thus contributes to open the “black box” of dynamic capabilities and advance in the understanding of this fundamental organizational concept.

Those who use stakeholder theory as a reference are both underlining the correlation between facts and a certain conceptualisation thereof (Section 1) and trying to make the necessary shift from a “panoptic” analysis akin to a panoramic vision of texts and positions (Section 2) to an “in-depth” one geared towards an understanding of their foundations (Section 3). As a “theory of organisations”, stakeholder theory helps to nourish a relational model of organisations by revisiting questions about “who” is actually working with (and in) the firm. Stakeholder theory is part of a comprehensive project that views the organisation-group relationship as both a foundation and a norm.

Purpose – This paper documents the motivations of modern corporations in issuing corporate social responsibility (CSR) reports to their stakeholders. It further demonstrates why these entities have suddenly become more moral or ethical. Design/methodology/approach – An empirical methodology was used to gather and analyse the required information from companies drawn from two sectors of the capital market. Findings – The study results suggest that UK companies have different reasons for issuing CSR reports, for instance; in response to an increasing number of stakeholders requesting information on CSR, companies believe that doing so is good for business, to derive positive public relations benefits, to comply with the government's request for them to issue information on CSR, etc. Originality/value – Information on corporate entities' CSR activities is considered to be valuable by both academic researchers and business managers as it provides a working framework on which future studies can be based. In addition, it improves understanding of the social obligations which corporate entities owe to their stakeholders and society in general.

Purpose – The paper aims to describe the reach of the Sarbanes‐Oxley Act that was passed by Congress in 2002 to overcome corporate abuse of federal securities law. Design/methodology/approach – Analysis focused on the impact of the Act on corporate governance and the resulting effects on accounting and auditing functions. Findings – The Act is ab initio to correct corporate officers’ abuses. The research provides information of the range of consequences of the Act. Originality/value – The research is novel in reporting on the effects of the Act. It provides duties to parties in the corporation, directors and executive officers (specifically, CEOs and CFOs) and attorneys.

Purpose The purpose of this paper is to examine how corporate governance affects performance of firms in the non‐traditional export (NTE) sector in Ghana. Design/methodology/approach Panel data covering the ten‐year period 1995‐2004 were analyzed within the generalized least squares (GLS) framework. Findings For efficient performance, firms in the NTE sector in Ghana should have indigenous ownership and must ensure more non‐executive directors on their boards. Research limitations/implications More indicators of corporate governance are needed, due to the fact that corporate governance embraces a broader set of indicators. Practical implications There are practical implications for both academics and practitioners. Originality/value Provides an examination of the link between corporate governance and the performance of the NTE sector, which has hitherto not been researched.

Purpose – This paper aims to explore how existing collaborative governance arrangements in the context of corporate responsibility (e.g. the Global Reporting Initiative and Social Accountability 8000) need to collaborate more directly in order to enhance their impact. The objective of this paper is twofold: primarily, to explore existing and potential linkages between multi‐stakeholder standards; but, at the same time, to explore the potential for standard convergence. Design/methodology/approach – The paper follows a conceptual approach that is supported by a variety of case examples. First, the nature and benefits as well as shortcomings of multi‐stakeholder standards are explored. Second, a categorization scheme for the availability of such standards is developed. Third, linkages between the different standard categories are explored and discussed. Last but not least, the paper outlines practical implications. Findings – A variety of linkages between existing multi‐stakeholder standards exist. These linkages need to be strengthened, as the market for corporate responsibility is unlikely to support a great variety of partly competing and overlapping initiatives. Originality/value – The paper offers a structured discussion of potential linkages between multi‐stakeholder standards and thus complements the literature where such initiatives are discussed (usually without much mention of linkages). Practitioners will find the discussion useful to explore how their participation in a variety of initiatives can be better coordinated.

Purpose The purpose of this paper is to examine the propensity of sovereign wealth funds (SWFs) for shareholder activism and their potential impact on corporate governance. Design/methodology/approach The study highlights the relationships between SWFs and corporate governance and also applies eight antecedents/determinants of institutional activism to analyze whether SWFs have a predisposition for shareholder activism. Findings The study only finds two instances of SWF activism. Additionally, it finds that despite their mostly passive investments, SWFs possess a natural tendency toward shareholder activism. Some are more likely to engage in activism than others, however. SWFs with a higher proportion of their assets invested in equities, those with portfolios fully or partially constructed to emulate the broader financial markets through indexing, and those that depend less on external fund managers are the likeliest candidates for activism. The study also finds that the regulatory environment can curb the natural SWF inclination for activist behavior. Research limitations/implications Due to the lack of transparency within the SWF universe, this study largely depends on the limited data available for sovereign wealth funds. Practical implications Given the growing importance of SWFs, managers, directors, and policymakers must assess SWF activism, its influence on corporate governance, and its implications for public policy deliberations. Originality/value This project, to the best of the author's knowledge, is the first study that applies tested financial models to SWFs in order to determine if they have inherent activist tendencies.

Purpose – This paper aims to develop a framework of connotative meanings afforded to the term “corporate governance”. Design/methodology/approach – An examination of academic publications from 1985-2012 containing the term “corporate governance” was conducted. The articles are sorted into the theoretical constructs that influence the contemporary connotative meaning of corporate governance. Findings – That a combination of a weak definitional base coupled with strong motivational forces have aided the development of competing theoretical perspectives of the meaning of corporate governance. The dominant meaning is written from an agency theory perspective. Research limitations/implications – Theoretical analysis was restricted to articles found in academic journals published since 1985. Practical implications – This study provides a very useful analysis into the connotative meanings and theoretical bases used by academic writers in the study of corporate governance. Originality/value – This paper provides an updated and developed analysis to the theoretical dimensions that underpin the contemporary use of the term “corporate governance”.

Purpose – In the past more than three years, Wal-Mart has been embroiled in incidents of public scandals. In part, they pertain to Wal-Mart’s global strategy of growth and expansion, where the company’s senior managers have been implicated in using illegal bribery and corruption to secure business and to conceal this information from regulatory authorities. Another issue, albeit longer running, has been the incidents of fire and resulting deaths and injuries of hundreds of people, most notably in Bangladesh, but also in other countries where low-skill, low-wage manufacturing predominates, and where foreign multinationals have been accused of condoning and profiting from sweatshop-like exploitation of workers. Design/methodology/approach – The authors use Wal-Mart as a microcosm of corporate conduct which provides a prism through which to examine the exploitation of negative externalities, i.e. engaging in illegal and unethical behavior by using their bargaining power and market control these companies, pressure host countries to condone environmental degradation, violation of country laws in terms of wages, working conditions and operating in sweatshop-like conditions to maximize their profits at the expense of other factors of production, i.e. labor and resources. Findings – The authors contend that Wal-Mart’s unique business model, which focuses on everyday low price, absolute growth and market share expansion by any means possible and everyday low cost, has led to the company’s enormous success since its founding and has made it one of the world’s largest corporations by revenue. At the same time, this model seriously impedes the company’s ability to improve unit-based profit margins and thus forces it to take short cuts in achieving lateral growth and low-cost production. Social implications – The authors also examine in some detail the large gap that exists between Wal-Mart’s pronouncements of the company’s commitment to ethical and socially responsible conduct and its actual business practices. They demonstrate that the company’s communications and claims for ethical conduct are mostly aspirational and fail the test of accuracy, specificity, materiality and verifiability through independent, externally provided integrity assurance. Originality/value – Finally, the authors outline a number of measures that would need to be taken by Wal-Mart, industry groups that depend heavily on outsourcing from low-skill, low-wage countries for their products and host country governments and the governments of Western industrialized nations whose corporations and consumers are the primary beneficiaries of the exploitative sweatshops that fatten their companies’ bottom lines and enrich their denizens with ample amounts of inexpensive goods.

Purpose The purpose of this paper is to examine the relationship between gender diversity on the management board and the financial performance of Indonesian listed companies. Design/methodology/approach Cross‐sectional regression analysis was conducted based on a sample comprising 92.4 percent of public firms listed on the Indonesia Stock Exchange (IDX). The dependent variable was firm performance, measured by return on assets (ROA) and Tobin's q . The explanatory variable was gender diversity, proxied by the proportion of women, the presence of women, and a gender heterogeneity index. Findings It was found that the representation of female top executives is negatively related to both ROA and Tobin's q , suggesting that female representation is not associated with an improved level of performance. From correlation analysis, the results also reveal that smaller firms, which tend to be family‐controlled, are more likely to have a higher proportion of female members on management boards. This implies that large firms are “tougher” for women in terms of opportunities to hold seats on the board. Research limitations/implications The data only cover one single financial year (2007); hence, the results may lack generalizability. Originality/value Studies on the relationship between board gender diversity and financial performance have been conducted in the context of a few developed economies. This study contributes to the literature by examining such an issue in a developing economy that has a different environment from that of developed economies.

Purpose The extent to which microfinance succeeds varies greatly even among countries. The paper aims to look at why microfinance develops in some countries rather than others. It aims to identify institutional factors that can be introduced to enable microfinance to succeed in a country. Design/methodology/approach A small‐sample comparative approach is used, combined with correlation analysis. The research methodology was dictated by the need to find countries that are culturally similar and have the same regulation in order to be able to study other elements. Findings The authors find that the success of microfinance is linked to its economic performance, in terms of both levels of per capita income and growth, as well as regulatory and public governance, with the amount of remittances being received in a country and with life expectancy at birth. Research limitations/implications Different sources provide different data. So, the findings may not be robust but it is the best available data. Practical implications The data shows a high correlation between aid and the development of microfinance and also more so between remittances and the growth of this sector. This has some implications for policies aiming at developing entrepreneurship through microfinance. Originality/value Most papers when looking at the success of microfinance across regions have failed to take into account differences in cultures and regulations; thus there is a residual bias. The paper's originality stems from the fact that it explains the success of microfinance while controlling for cultural and regulatory factors, and also goes into public governance indicators. This kind of comparative institutional analysis has not been performed for this region.

Purpose – The purpose of this paper is to emphasize the importance and means of making corporate social responsibility (CSR) an integral part of corporate strategy with the help of case studies. Design/methodology/approach – The article explores the transformation of business from being egocentric to socially responsible. With the use of examples it demonstrates how integrating CSR into strategy can create sustainable business models. Findings – Firms need to develop a framework for integrating CSR into their business strategy for long term successful survival. Social implications – Corporates and society are intertwined and mutually dependent. Business cannot survive without society's acquiescence nor succeed without its active support. Originality/value – The article explains the benefits of CSR and how to make it an integral part of business strategy to gain a competitive advantage.

The process of business decline can be identified through various warning signals that are concomitant with the decline process. These warning signals are noticed in both the internal and external business environments. The successful turnaround of a failing or declining business requires that management analyze the causes of decline and then implement a strategy for reversal of the decline. This article addresses the signals of decline, internal and external business environments and the strategies for reversal of decline.

Purpose This paper seeks to illustrate the development of corporate governance issues in the transition economies of Central and Eastern Europe (CEE) and to analyze if codes based on directives or standards are better for these economies. Design/methodology/approach A chapter about corporate governance codes and the respective (dis)advantages of directives and standards starts the paper. Then common European and specific transition economies' corporate governance problems followed by a discussion of directives versus standards for CEE countries are described. Findings The paper finds that historical development of the transition economies in CEE leads to specific corporate governance problems such as high court delays, corruption and immature institutional investors. The introduction of corporate governance codes for these economies seems useful but should not rely on broad standards but on legally enforced binding rules accounting for the discussion of directives versus standards. Research limitations/implications Research on the weaknesses of legal systems in transition economies is mainly verbally argued and needs more empirical backing. The discussion of directives versus standards is limited as we live in a world of flux – standards are becoming directives over time. Practical implications The paper argues against the blindfold implementation of corporate governance codes of other countries and argues for country specific solutions keeping in minds the different effects of directives and standards. Originality/value The paper opposes the mainstream thinking that corporate governance codes are the ultimate ratio for transition economies in countries of CEE.

Traditional management theory is grounded in the concept of bureaucracy which provides a platform for managers to control behavior. When behavior is controlled, personal freedom and the ability to innovate are curtailed, yet creativity is a key driver competitive advantage. Creativity is unleashed when individuals are provided with the opportunity to express their individual freedom, when they feel their actions make a difference. Organizations, bounded only by economic motives, fail to provide such an environment, but when an organization extends its focus to encompass society and the environment, members of the organization can be inspired to share the dream of the organization. This paper explores the traditional management concepts, and presents the reader with a philosophy that both encourages individual freedom and maintains an ordered society. The paper concludes by applying the philosophy to a model for organization design, which facilitates individual freedom and retains the controls necessary to meet performance targets.

Purpose – This paper aims at discussing the determinants of strategic transparency and the governance structure of the East Asian firms. The relatively weak institutional infrastructure in East Asia raises the question about the adaptable governance structure and transparency in the East Asian firms. Design/methodology/approach – The paper presents theoretical underpinnings of the literature on corporate governance, corporate strategy and international business. This paper argues that one of the common factors that determine the success of corporate governance structure is the extent to which it is transparent to the market forces within particular institutional arrangements. Findings – When the institutional arrangements favor mandatory versus voluntary corporate disclosure, this study suggests a reform measure for the East Asian corporate governance system that relies, inter alia, on the percentages of long‐term and short‐term financing to total financing. The higher the percentage of long‐term financing, the more we can infer the extent of outside investors' confidence in the future of the East Asian firms. When more active role of banks involvements with the firms' business is permitted and an effective banks' and firms' strategic transparency can be assured, the East Asian banks and stock market can both lead firms to long‐term favorable achievements. This study also suggests that the protection of both shareholder's rights and creditors' rights can go in parallel lines with the latter is to be given first priority until the investors' confidence in the near and far future of East Asia corporate governance system is built. Originality/value – This paper extends the value of corporate governance structure to the East Asian firms through advocating the determinants of strategic transparency in East Asia.

Purpose – This exploratory study aims to provide preliminary evidence regarding the non-audit committee corporate governance determinants of audit committee functionality. Design/methodology/approach – The study is based on archival accounting, corporate governance data, and interviews of subjects of the top 100 companies listed on the Egyptian Stock Exchange (EGX100). A logistic regression is used to identify the non-audit committee governance attributes that affect the likelihood of of having a functional audit committee. Findings – Board size and board independence, (CEO-chairman duality) are positively (negatively) related to audit committee functionality, suggesting complementary governance relations. On the other hand, the authors document a negative relation between auditor type (Big4) and audit committee functionality indicating a substitutive governance effect. Originality/value – To the best of the authors' knowledge, this is the first study that explores the actual functioning of audit committees in Egypt beyond mere regulatory requirements. The study highlights the importance of assuring that the “spirit” of corporate governance laws and regulations is adhered to rather than the mere compliance with their “letter”.

Examines different approaches to the challenge of Australian corporate law enforcement and governance, and discusses success in this area and how it might be determined. Describes barriers to measuring success of regulatory action, and debates what level of law enforcement is appropriate and cost-effective. Concludes that a more broadly based approach to regulatory action and assessment is of prime importance.

Purpose The purpose of this paper is to document the effect of ownership structure and corporate governance on bank efficiency in the Ghanaian banking industry. Design/methodology/approach The author applies both accounting data and efficiency measures from the period 1999‐2007 via panel data analysis. Efficiency is measured by computing distances from the stochastic frontiers of estimated translog cost and profit functions. These efficiency measures are regressed on ownership and governance variables with dummy variables for bank types. Findings The results show that foreign banks are more cost‐efficient than domestic banks, but not necessarily more profit‐efficient. Nevertheless, foreign banks are more profitable than domestic banks and enjoy better quality loans. Managerial ownership leads to the cost inefficiency of banks. Banks with inside ownership are unprofitable overall but maintain a high loan quality. Governance (a larger board size) strongly improves profit efficiency but slightly worsens banks' cost efficiency. Finally, the capital adequacy ratio and bank size are both significant predictors of bank efficiency in Ghana. Originality/value Few, if any, studies have been carried out in the Ghanaian banking industry.

Purpose This paper aims to address partnerships between corporations and non‐governmental organizations (NGOs) dedicated to corporate community involvement (CCI). It seeks to focus on how to measure both business and community benefits derived from CCI, especially stressing the need for developing indicators beyond the input level considering outputs and impacts. Design/methodology/approach This paper follows a case study research strategy in a subsidiary of a multinational chemical and pharmaceutical company. Data collection is based on triangulation of data using interviews, action research, and documents. Findings Based on the case study presented, it was found that, when CCI is an integral part of corporate strategy, it is also possible to develop advanced performance measurement systems for CCI. Such measurement systems include input, output, and impact level metrics for both community and business benefits. Community benefits are best developed and monitored in collaboration with the NGO partner. Further, it was found that the measuring frequency partly transcends conventional reporting periods. Practical implications The research should motivate companies that engage in corporate community involvement to go beyond input‐level metrics in measuring the success of such initiatives. However, in order to successfully operate a performance monitoring on output and impact levels, partnering with an NGO that has greater capability in socio‐economic assessments is key. Originality/value This paper shows how NGOs can contribute to performance measurement as part of the strategic performance management system of a corporation and how this allows for metrics beyond common input‐level to address output or even impact‐level metrics.

Purpose – This paper aims to present the findings from a small study of social enterprise governance in the UK, taking a case study approach to uncover the experiences of internal actors who are involved in their board-level management. Design/methodology/approach – The study took a qualitative constructionist approach, focusing on stakeholder involvement in social enterprise governance. Initial theme analysis of 14 semi-structured interviews with board or senior management representatives revealed key issues in the governance of social enterprise, which were then explored through a comparative case study of two organisations. Findings – The study found that social enterprises surveyed employed a number of mechanisms to ensure appropriate stakeholder involvement in their governance, including adopting a participatory democratic structure which involves one or more groups of stakeholders, creation of a non-executive advisory group to inform strategic direction and adopting social accounting with external auditing. The research also highlighted the potential of the community interest company legal form for UK social enterprise, particularly in developing the role of the asset-locked body in terms of providing CIC governance oversight. Research limitations/implications – This survey was limited to the North West of England; however its findings can potentially support innovation in conceptual developments internationally. Originality/value – This research contributes to the under-researched field of social enterprise governance, potentially enabling these organisations to adopt more effective governance mechanisms that appropriately manage the involvement of beneficiaries and other stakeholders.

Our current social, environmental, and economic systems are being confronted with global, interlinked problems such as environmental degradation, loss of biodiversity, climate change, and social inequalities and exclusion. Against this background, corporate responsibility (CR) and sustainability have become topics of high interest in business, academia, and the political sphere alike. It is increasingly understood that organisations can not have a full perspective of the issues, opportunities and threats that they face without the help of outside experts. Thus, for organisations (especially large ones) it is increasingly common practice to engage in different forms of ‘stakeholder engagement’ in order to source external views and thereby improve internal decision-making. Possible examples of engagement techniques include stakeholder surveys, stakeholder dialogue fora and partnerships with non-governmental organisations (NGOs). However, existing research on, and the practice of, stakeholder engagement often too strongly focuses on mere ‘engagement,’ whereas the actual links to internal decision-making remain vague. In other words, there exists “a gap between stakeholder engagement and governance”. Indeed, few empirical investigations have evaluated how stakeholder input is taken into account in relation to internal decision-making. This paper will elaborate on (voluntary mechanisms of) stakeholder engagement with a focus on how stakeholders can indeed influence corporate decision-making – what we then call ‘stakeholder governance’ because their views have an impact on how 'companies are directed and controlled.' To pursue this goal, we use a systematic analysis of 51 company responses with reference to stakeholder relationships from the Business in the Community (BITC) Corporate Responsibility Index (2002-20081). While research has considered the importance of stakeholders being involved in corporate decision-making, apart from anecdotal evidence, few empirical investigations have evaluated how stakeholder input is taken into account within internal decision-making. Prior exploratory research has identified at least four dimensions as being important for stakeholder governance.

Purpose – This paper aims to understand the determinants of board structure of listed firms at institutional, industry and firm levels within an emerging economy. At the institutional level, the paper explores laws, managerial culture and the role of state in instituting and endorsing corporate governance practices. At the firm level, ownership patterns (family and non-family), experience in the capital markets, age and size of the firms are studied to find out the relation between these variables and the board structure. Design/methodology/approach – The research domain of the study is listed firms operating on the Istanbul Stock Exchange. The data for the study are collected at two phases; at the first phase, compliance reports, annual reports, articles of association and annual shareholders’ meeting reports of each firm in the sample are analyzed. At the second stage, secondary data are used for understanding the dynamics of Turkish institutional context. Findings – The results of this study reveal that boards of directors of listed Turkish firms comply with the governance practices instituted by state agencies, except on issues as independent members and committees that will influence the majority owners’ control domain and private benefits. Originality/value – This paper draws attention on institutional context and argues that “good governance” instruments developed for Anglo-Saxon stock market-controlled business systems provide limited explanation for an emerging economy that is characterized by close cooperation between the state, family-owned businesses and financial markets. The study offers insight to policy makers at a national level, interested in developing corporate governance principles regarding boards of directors of listed firms.

To date, corporate governance research agendas have tended to concentrate on one particular role that a board performs. For instance, agency theory concentrates on the monitoring role, resource dependence theory concentrates on the board providing access to resources and stewardship theory concentrates on the board’s advice-giving or strategic role. While these approaches provide practitioners with useful guidelines regarding issues such as board independence, we contend that practitioners need to take care not to act on the recommendations from a single theory in isolation from the others. To address this concern, we provide a model of board effectiveness that uses the construct of board intellectual capital to integrate the predominant theories of corporate governance and illustrate how the board can drive corporate performance. We further contend that boards that wish to improve their performance need to review their intellectual capital. We conclude by linking the model to a practitioner-focused framework that identifies four key areas on which a board must concentrate to develop its intellectual capital.

Governing boards are a bit like meteors above an organizational “planet”. If they position themselves too far above it all, they are likely to float at an innocuous distance, meaningless and without impact. On the other hand, if they plunge too deeply and quickly they are likely to burn up in the atmosphere, dissipating their well-intentioned energy in a spate of “micromanagement”. This article describes a process for capitalizing on a market “crossroad” as an opportunity for board and staff alike to “rehearse” alternative views of the future, gain experience in the process of grappling with associated policy matters and make peace with both a shared vision and a more appropriate relationship with one another. Relevant concepts, tools and processes are outlined for adaptation by governing bodies in similar circumstances.

As multinational corporations are sometimes built from a large number of separately incorporated firms, which may have a one or a two tier board, a practical question is "which powers should be devolved by the board of the parent company to the boards of the subsidiaries?". This question an be answered in a straightforward way by describing what parent companies do today and why. However, when the question is answered in the perspective of changing strategies, economies and technologies, a number of additional questions arise. Should subsidiary boards have autonomous boards with independent, non-executive directors? Do traditional control techniques still work? and how can we delegate decision rights in a system of networked, mutual independent subsidiaries?

Purpose The purpose of this paper is to show how boards can get in touch with their value critical stakeholders, those who can make or break the company. Design/methodology/approach The paper first develops the hypothesis that boards often are out of touch with reality. It then introduces the concept of value critical stakeholders and proposes that boards introduce an outreach program to get in touch with them. For each of the proposed five elements in an outreach program, the paper reviews what boards already are doing to be in touch. Findings The review of existing practice shows that for each of the elements in an outreach program, there is enough practice available for boards to develop a comprehensive approach to get in touch with the value critical stakeholders. Social implications To prevent a future governance crisis, get in touch and promote long‐term value creation, boards need an explicit program of reaching out beyond the boardroom, not only to the immediate stakeholders, but also the societal stakeholders, who can make or break the company. This paper shows how it can be done. Originality/value The paper introduces the new concept of value critical stakeholders and describes how it can be used to help boards get in touch with reality.

Purpose – This paper aims to investigate the role of boards in owner‐managed small to medium‐sized enterprises (SMEs), and seeks answers to the questions of whether boards generally enhance good governance in SMEs, and whether the use of outside board members plays a significant role. Finally, the paper seeks to examine the question of whether in practice owner‐managers see their boards as a resource. Design/methodology/approach – The paper is based on a study of the ownership and control structure in 1,313 SMEs and an interview survey of 1,040 Danish owner‐managed SMEs. Findings – The analysis of the empirical studies indicates that the role of a board as a resource is more important than its control role, which suggests that there should be a multi‐theory approach to board roles in SMEs. It also indicates that good governance appears to be associated with the existence of boards and of outside board members, and finally that boards in SMEs remain an untapped resource. Originality/value – The paper contributes to the empirical literature on the role of boards. It contributes to the understanding of the role of boards in SMEs and to whether boards enhance good governance in SMEs. It also gives an insight as to whether boards are an untapped resource in SMEs.

Purpose – This paper aims to identify the effectiveness of private equity and venture capital (PE/VC) funds in promoting best practices of corporate governance in small and medium enterprises (SMEs) committed to PE/VC partnerships, in an institutional environment characterized by ownership concentration, lack of support for minorities' shareholder rights, and limited outside sources of finance for SMEs. Design/methodology/approach – Based on the literature related to similar work and context as in Eastern Europe and South Africa and best corporate governance practices developed for Brazil, the authors developed a list of aspects associated to practices related to SMEs. This list was submitted to 15 specialists, and the resulting compilation produced a list of 49 items that were submitted to a sample of 78 respondents to evaluate the relative importance of each item. Finally, a survey comprised of 70 entrepreneurs and managers of SMEs with investments from PE/VC funds evaluated the situation of their companies before and after forming a partnership with the fund. Findings – The study provides evidence that PE/VC funds play an important role in promoting best practices of corporate governance in invested SMEs, which contributes to development of the institutional environment and SMEs access to outside sources of finance. Originality/value – The study contributes empirical evidence to the role played by PE/VC funds and their influence on corporate governance practices.

The starting point of this paper is the traditional view of stakeholders (encompassing the binomial affecting – affected by the company), and identifies the analytical, managerial and normative dimensions implicit in this view. It goes on to suggest that all stakeholder approaches should make explicit their models, what we call a company model, a management model, a description model, a values clarification model and a legitimacy model. The next issue raised is how far most stakeholder approaches are constructed from a view of the corporation focused inwards, at the center of a universe with stakeholders revolving round it. The complexity of contemporary society (the network society) may require us to learn how to interpret the company’s economic and social relationships system, so that thinking about the company means thinking about it both within and without the network. This is why we propose the term relational corporation, to refer to a corporation that changes its approach to links with its stakeholders, moving from managing relationships to building relationships.

Principal-agent problems are largely responsible for poor corporate governance. Much work on private sector corporate governance reform seeks to address transparency, accountability and responsiveness to stakeholder interests under the new category of corporate social responsibility. Yet, these issues are not new. The public sector has been working on these issues for many years - especially in looking at ways of reducing malfeasance and also optimizing use of resources for the benefit of principals. Some lessons from public sector reform include promoting information dissemination, participation, and balancing powers between a corporation's executive and supervisory entities. While firms should not necessarily be administered like governmental bodies, there are many lessons from public sector organisational reform and institutional governance that may be applicable to large-scale public corporations.

Purpose – The aim of this paper is to offer a new conceptualisation on partnership emergence and dynamism between the business sector and the non-governmental organization (NGO) sector from a corporate social responsibility perspective. More specifically, the paper intends to examine partnering behaviour and management from a socio-political standpoint. Design/methodology/approach – The case study approach used in the study utilised data from eight in-depth, semi-structured interviews, with managers from the business and NGO sectors engaged in a large-scale partnership between a Palestinian Cellular Corporation and an NGO. Interview transcripts were analysed using content and narrative analyses. Findings to be presented include reciprocity, corporate constitutionalism and utilitarianism. Findings – The results found in this paper show that partnership has social, political, and ethical dimensions in support of the theoretical framework developed for this paper. More specifically, the results show that the studied partnership is an emergent process, fundamentally concerned with self-efficacy over community welfare, as well as being driven by individual organisational goals. Originality/value – This paper sheds light on certain aspects of partnership that are often overlooked in mainstream research. It does not only highlight the multifaceted dimensions of partnering but also discusses how partnership can be envisioned and practised as inter-organisational relationships. It stimulates a pragmatic understanding of partnership nature and management showing that partnership emergence, direction and sustainability are conditioned by the stakeholders’ socio-political and ethical practices.

Purpose This paper aims to analyze existing corporate governance rules which aim to regulate and control the following type of problems: to restore confidence in the financial markets, to reformulate the existing corporate governance systems and mechanisms that have been inadequate, and, finally, to rethink the relationship between ethics and economy. It also aims to identify the factors determining the corporate governance systems and mechanisms in a global economy. Design/methodology/approach The paper reports the results of a comparative analysis between different corporate governance systems and mechanisms. In addition, in order to explore the role of institutional determinants in attracting foreign direct investment (FDI) flows, this study considers variables such as an index of shareholder protection, openness to FDI and the interaction between the two above mentioned variables. Findings This analysis confirms the economic theory that less open countries are characterized by stronger ownership restrictions and a weak corporate governance mechanism. Conversely, open market and investment regimes are particularly powerful instruments to attract investment in general and FDI in particular. Originality/value This study provides a survey of the main system and mechanisms of corporate governance all supported by a survey of recent developments regarding the empirical analysis on the role of institutional determinants in attracting FDI flows.

Purpose The purpose of this paper is to extend our understanding of CEO compensation by looking into the CEO pay‐setting process. Particularly, a process model is proposed to specify the interaction between situational indicators, process variables, contextual factors and CEO pay. Design/methodology/approach A modest review the major theories that are driving the field of CEO compensation study reveals several interesting findings. These models or perspectives provide valuable but incomplete understanding of the multifaceted phenomenon. Especially, the realm of CEO pay‐setting process is still unexplored. A process model of CEO compensation is developed to fill in this gap. Findings CEO compensation is a negotiation between a CEO and a principal. Negotiated CEO pay is better predicted by CEO aspirations and principal reservations, rather than economic indicators. CEO power and the institutional environment have a moderating effect. Practical implications The study suggests that a better theory is critically in demand in order to improve effectiveness of corporate governance. This paper underscores that a real challenge for a principal in influencing CEO pay is to anticipate CEO aspirations and to monitor the gaps between CEO aspirations and principal reservations, rather than to control economic indicators. Unfortunately, until now there has been very limited information about principal reservation and CEO aspiration. Originality/value This inquiry seeks to make a difference by moving CEO compensation research into a fruitful direction. To our knowledge, this inquiry is the first attempt that provides systematic explanation as to how and why situational indicators do not directly influence the negotiated CEO pay. The newly proposed model is much realistic, much integrative and much dynamic, compared with existing conceptualizations. Eight propositions are presented to guide empirical research as well as future theory development.

Modern day business is beset with changing operating paradigms. Economies with efficient economic policies and stable political systems are a big draw among the investors. Countries that have opened themselves to world markets and that have good legal systems in place, providing protection to investors have attracted more capital in the process of globalization. As the demand for capital is growing in both the developed and the developing economies, the need to establish good governance practices has gained momentum. Governance practices however, are not uniform across nations. This diversity may be particularly because of the different legal structures and cultural settings adopted by different nations. This paper tries to explore the arguments on convergence and divergence of corporate best practices, keeping in view the various governance models currently in practice. Explaining the rationale behind the emergence of corporate governance as a movement, this paper attempts at discussing the various prevalent systems of governance. In the end an attempt is made to address the challenges to corporate governance in the context of globalization of best practices. Given the cultural settings of different nations it is argued that it would never be possible for corporate laws to converge universally. New models of corporate governance are likely to emerge given the large-scale experimentation done by transition economies.

Purpose The purpose of this paper is to understand whether firms evolve towards more comprehensive postures of CSR and what strategic factors drive the change. Design/methodology/approach The approach is deductive‐inductive research based on six critical case studies and supported by extensive review of related literature. The paper provides historical analysis of six firms leaders in their industry (Nike, Shell, General Electric, 3M, CEMEX and IBM) combining primary and secondary data. Findings Firms evolve over time towards more complex CSR postures. This evolution is driven by some key strategic factors. The article sets out a three‐stage framework connecting CSR evolution and the strategic change factors. Practical implications The paper provides managers with a framework to promote strategic CSR change in their organizations. Originality/value The paper is a joint research study on the evolution of CSR and strategic drivers of change.

Purpose The paper seeks to review the literature on CSR in industrial clusters in developing countries, identifying the main strengths, weaknesses, and gaps in this literature, pointing to future research directions and policy implications in the area of CSR and industrial cluster development. Design/methodology/approach A literature review is conducted of both academic and policy‐oriented writings that contain the keywords “industrial clusters” and “developing countries” in combination with one or more of the following terms: corporate social responsibility, environmental management, labor standards, child labor, climate change, social upgrading, and environmental upgrading. The authors examine the key themes in this literature, identify the main gaps, and point to areas where future work in this area could usefully be undertaken. Feedback has been sought from some of the leading authors in this field and their comments incorporated in the final version submitted to Corporate Governance . Findings The article traces the origins of the debate on industrial clusters and CSR in developing countries back to the early 1990s when clusters began to be seen as an important vehicle for local economic development in the South. At the turn of the millennium the industrial cluster debate expanded as clusters were perceived as a potential source of poverty reduction, while their role in promoting CSR among small and medium‐sized enterprises began to take shape from 2006 onwards. At present, there is still very little conceptual and empirical work that systematically investigates the linkages between industrial clusters and CSR in developing country contexts. Hence, the authors recommend that future work in this area should focus on conceptually developing and empirically testing “cluster and CSR” impact assessment methodologies in Asia, Africa, and Latin America. This will provide insights into whether joint CSR interventions in clusters bring about their intended consequences of improving economic, social, and environmental conditions in the South. Originality/value This article is likely to be the first systematic review of the literature on industrial clusters and CSR in developing countries.

Purpose This paper aims to describe the emerging practice of joint management‐stakeholder‐committees (JMSCs) in which corporate executives take decisions in collaboration with stakeholders. Design/methodology/approach To identify firms involving stakeholders in their governance arrangements, the authors analysed 51 companies regularly participating in Business in the Community's Corporate Responsibility Index in the UK. The data provided by the index as well as corporate reports were then analysed to evaluate the impact of JMSCs on corporate decision‐making. Findings The research finds that JMSCs strongly influence corporate governance mechanisms such as monitoring and measurement as well as the policy development of firms. Research limitations/applications The analysis builds on corporate responses given to the questionnaire sent by the Corporate Responsibility Index as well as corporate reports. Future research is encouraged to triangulate findings with stakeholder opinions on the effectiveness of JMSCs. Practical implications JMSCs prove to be an effective tool to involve stakeholders in corporate decision‐making processes. Owing to their effectiveness JMSCs are more likely to create trust between firms and their stakeholders. Originality/value The paper is the first empirical investigation into the effectiveness of engaging stakeholders in joint management‐stakeholder committees, demonstrating the impact and effectiveness of such engagement.

In this article the author traces the history of corporate governance in Britain over the past decade. He concludes that the movement has been “hijacked” by the city and large accountancy partnerships. This has led to an undue emphasis on achieving financial goals and compliance with codes of practice i.e. “box-ticking”. In the drive to maximize shareholder value, the critical relationships with employees, customers, suppliers and the community have been sacrificed and long-term shareholder value has been destroyed. In order to rebuild the trust of the individual shareholders, employees, pensioners and the public at large, city institutions must focus less on maximizing shareholder value in the short-term and more on optimizing shareholder value through building strong relationships with all the stakeholders.

Purpose The purpose of this paper is to analyse the changing role of governments promoting corporate responsibility (CR) as a result of the challenges raised by globalisation. Design/methodology/approach CR is linked to the restructuring of governments' agendas in the framework of government/private sector/civil society relationships. It is a result of the research project that applies the Relational State Model Approach to the analysis of CR public policies. The relational state situates the relations between the public and private sectors, between the state and society, in the sphere of co‐responsibility. Findings The paper concludes that in the UK a more systemic, national government‐centred and business‐oriented approach prevails, while Italy has a more extensive, multi‐stakeholder and multi‐level approach. Research limitations/implications Future research should complete the comparative analysis expanding it to other European countries: northern and central European countries to analyse the difference between all European governments in order to promote CR. Practical implications The analytical framework of this paper could be used for academic, business leaders and policy makers to develop future actions in relation to CR public development. Originality/value The objective to be achieved is to understand the new political and public framework incorporating CR as a new form of governance. We compare two countries that represent two very different models of government action. The theoretical approach of the paper is based on the comparative analysis of CR governmental vision, objectives, strategies and internal government CR structure.

Purpose The objective of this paper is to present an initial evaluation of recent Irish legislation in the area of corporate governance. Design/methodology/approach The background to the introduction of the 2001 Company Law Enforcement Act, establishing the Office of the Director of Corporate Enforcement (ODCE), and the Companies (Auditing & Accounting) Act of 2003, establishing the Irish Auditing and Accounting Supervisory Authority (IAASA), is first outlined. Some empirical evidence is then presented on how such initiatives are perceived by Irish accountants, auditors and directors. Findings The tentative conclusion reached is that these regulatory and legislative changes, particularly the active stance of the ODCE, are contributing positively towards creating a compliance culture among Irish directors and their professional accounting advisers. The most striking aspect of the IAASA is its mere existence at a regulatory level over the main professional bodies for the first time in the history of the Irish state. Research limitations/implications Law mediates the relationship between the steering media of economics and politics – and the lifeworlds of accountants, auditors and company directors. This relationship is contextually complex and further research on this institutionalisation process may lead to further insights emerging. Practical implications Legislation, if supported with the requisite resources and institutions, can positively impact on business culture through influencing the behaviour of key actors. Originality/value This paper is one of the first evaluations of recent Irish responses to enhancing the integrity of its business culture.

Extending “above-the table”-relationships has been a principal objective of corporate social responsibility (CSR) from the very outset. This would provide benefits to the corporation and its stakeholders by getting everyone closely involved in the raison d'être of the business, through inviting them to pose their perspectives and to participate in decision-making. The same applies to sustainable development. However, when it comes to measuring how these efforts can be integrated into overall corporate performance, the major emphasis is on technical data. The main achievements have been consolidated in the Global Reporting Initiative (GRI) where each of the indicators prudently measures a well-determined set of facts. But one major discussion point is whether GRI and other reporting frameworks do really reflect the link between the outcome of CSR and economic value, and how they would properly connect to the information used by management for running the business on a day-to-day basis. This article tries to point out that one way out of the disconnectedness might be through expanding the concept of ‘Economic Value Added’ (EVA). EVA measures overall corporate performance by claiming that shareholders gain when the return from the capital employed in a corporation is greater than the cost of that capital. From there it is a short way to proclaiming that all stakeholders gain when the value created by a corporation is greater than the cost of the capital employed in the corporation and the capital employed in whichever commonly available resources outside the corporation are used by its business. The expansion of EVA that is envisaged would be to enlarge the cost of capital by the costs that are caused by that part of ‘Public Goods’ that is available to a corporation. There is one political and one theoretical obstacle in this: the argument is quite radical and complying with it would require some leadership from ‘big corporations’; and valuing public goods is a research field that has not yet reached the stadium of generally accepted applicability, at least with regard to aggregative monetary value. However there are new initiatives under way, e.g. the International Integrated Reporting Committee now formed, among others, by the GRI, which will join forces to reach a breakthrough.

Purpose To further the dialogue on corporate strategy and corporate social responsibility (CSR). Specifically, to describe four options with respect to CSR strategies and to offer points of consideration for moving home country CSR strategies to host countries. Design/methodology/approach The approach is based on developing a conceptualization of various CSR strategic options. The paper also incorporates key global considerations for moving home country CSR strategies to host country operations. Findings The analysis suggests that CSR can not be separated from corporate strategy. Thus, firms have several factors to consider with respect to choosing appropriate CSR strategies. Not only are there fundamental strategic goals and outcomes to consider, but also a variety of cross‐border factors that can potentially complicate the success of CSR strategies if not examined appropriately. Practical implications As with any good decision‐making exercise, managers would do well to explore a variety of options before making a final decision. This paper offers four CSR strategic options from which managers can explore the development of a CSR strategy. However, recognizing the increasing influence of globalization and the need to expand operations overseas for many, if not most companies, the paper also suggests a number of salient factors that can effect the movement of CSR strategies from a home to host country. Thus, the paper offers a useful framework for making strategic decisions with respect to CSR. Originality/value The value of the paper rests in its dialogue of CSR in the context of corporate strategy and global business. With few exceptions, CSR and strategy have been given short shrift in the literature. Thus, by expanding an important component of corporate strategy and placing it in a global context, the paper properly expands on an essential topic in business.

The paper examines the role of employees in governance. The paper highlights from a theory basis that employee and shareholder utilities can be coincident. However, it shows that corporate practice with respect to employee involvement in governance and decision-making is diverse. The paper draws out the contrast in approaches between the Anglo-American and the German approach to employees by detailing differences in employee power, career patterns, ownership patterns and legal obligations. These lead to enactment of a different structural and cultural governance systems; which are encapsulated in the unitary board structure of the UK and the two-tier German approach. The strengths and limitations of the unitary board and two-tier boards are highlighted, and the case for convergence examined.

The paper presents the results of a study based on an extensive number of interviews and focus group discussions conducted with non-executive directors (NEDs), executive and non-executive chairmen, chief executive officers (CEOs) and other key line and functional directors within UK corporations. Four critical issues concerning NEDs’ performance are identified, namely the need to be responsive to boardroom dynamics, the need to be multi-competent in response to the various challenges NEDs face, the need to have the capability to address governance issues which are increasingly identified as predominating boardroom debate and the need to be sensitive to the context within which the company finds itself. Overall, NEDs are considered to provide a valuable contribution to the progress of the enterprise. However, the question that remains unanswered is what motivates NEDs to continue to address such challenges as, in the UK context, NEDs’ rewards are seen to be particularly low.

Purpose This paper seeks to establish a benchmark for the evaluation of the quality of corporate governance (CG) and to detect the factors that affect it in Greece. Design/methodology/approach An index of corporate governance quality is constructed using binary variables. Data from annual reports are used to identify the mechanisms and practices of corporate governance. An ordinal probit model is used to identify the drivers of corporate governance. Findings CG quality in Greece is quite low, in terms of international best practices. The main drivers of CG quality are firm size, leadership or power concentration and board characteristics. Greek firms' CG quality depends mainly on the balance of power within the firm, rather than performance or market for corporate control. Research limitations/implications Data for the constructed index have been collected from the annual reports, and not from questionnaires. Practical implications The study provides evidence that there is a different set of factors that affect CG quality from those in Anglo‐Saxon countries. The paper addresses the issue of the relevance of proposed CG mechanisms to real CG problems. By identifying the factors that have an impact on CG quality, policy makers can focus on them to create a legal‐regulatory framework that can improve the level of CG. Originality/value The paper not only measures CG, but pinpoints its formulating factors as well. Furthermore, the need for new benchmarking tools to address the fundamental elements of the corporate environment (i.e. ownership concentration, the lack of a market for corporate control, etc.) in continental Europe is highlighted.

Purpose – This paper aims to explore the power of one of the primary organizational stakeholders (shareholders) in the development of a corporate social performance (CSP) score. Few research works in the CSP empirical literature have studied the relationship between stakeholder power and CSP. Design/methodology/approach – Stakeholder theory is used as a theoretical framework to explain how shareholder voting power can influence the CSP level of French publicly listed companies. Stakeholder theory is tested through the operationalization of Ullmann’s (1985) three-dimensional model. Hypotheses related to shareholder voting power, strategic posture and financial performance are formulated through a literature review. A Data Envelopment Analysis approach was presented as a strong tool to measure CSP level. Multiple linear regressions were undertaken to test the hypotheses in a sample of 129 French companies between 2006 and 2007. Findings – The results indicate that companies with dispersed ownership and high proportion of institutional shareholders record a high score of CSP. Strategic posture measured by the implementation of environmental certification standard was positively and significantly related to CSP. Financial performance does not affect significantly the level of CSP. Originality/value – This paper is the first to empirically analyse the relationship between Ullmann’s three-dimensional model and CSP level in the French context. It offers to managers a better understanding of the power that certain stakeholders can use to acquire satisfaction.

Purpose - The purpose of this paper is to propose a new approach to designing enterprise systems (ES). The goal is to create an information system that can be more efficient and able to contribute to a more stable and efficient corporate governance system. Design/methodology/approach - The new design approach is based on a retrospective analysis of the evolution of enterprise systems and the emerging business requirements. Findings - The new ES (Holistic Information System) does not diminish the problem of Corporate Governance (CG). The design and implementation of ES, according to modern CG principles and guidelines, can help all parties make rational decisions (through the power of logic and not through the logic of power), facilitate the market for corporate control, the flow of information and hence the efficiency of the CG system. Practical implications - The new framework can help information systems designers to understand and create a more holistic system. Also, it can help stakeholders understand the role that the ES can play in the corporate governance system and exert influence on managers to adopt an information system that covers their needs as well. Originality/value - It is the first attempt to merge the theory of corporate governance with the ES theory in order to formulate a new design approach. Paper type - Conceptual paper

Focuses on what can be referred to as the “fundamental philosophical issues of corporate governance”. Outlines the interdependence of various kinds of governance. Demonstrates that corporate governance is part of a bundle of governances and that, in this respect, it occupies a leading place to the degree that its principles are becoming consolidated. Then discusses in a more detailed manner what is meant by the term “dominant functionalism”. Then deals with the question of the equilibrium between sovereignty and legitimacy from the point of view of corporate governance. In effect, rules of governance (considered as the designation of a sovereign power) are searching for a legitimizing instance originating outside the framework of those rules. Finally, covers the proprietarialist origins of stakeholder theory, origins which correspond to a moderate liberal tradition.

Purpose – The purpose of the paper is to provide an illustrative picture of how large corporations in a peripheral country such as Portugal engage in corporate social responsibility (CSR) practices and discuss the motivations underlying these practices. Design/methodology/approach – In this study, a case study methodology was used to explore CSR practices and the underlying motivations in two Portuguese companies. Findings – The results obtained suggest that some specificity may be present in the way of defining corporate responsibility for society by Portuguese companies. The Portuguese companies analysed seem to display an historical preference for corporate paternalism. This suggests that moral reasons can motivate firms (and individuals within them) to engage in social responsibility activities. Research limitations/implications – This work focuses on two specific case studies, but other cases might find diverse findings. Originality/value – It adds to the scarce research on CSR by Portuguese companies by providing new empirical data. It contributes to the growing body of evidence which seems to suggest that cultural differences associated with different countries affect CSR dynamics.