CORPORATE GOVERNANCE – THEORY AND PROFESSIONAL PRACTICE

Matriculation ID:42202134

25102022-Sneha Sathyanarayana-DLMBAEBECG01-SecondAttempt

IUBH – International University of Applied Sciences, Berlin, Germany

Tutor: Mr Zeljko Sevic

Language: English

Purpose

This document is a written assignment submitted as part of the MA International Management -

120 ECTS study programme at the International University of Applied Sciences (IUBH), Germany,
under the course "Business Ethics and Corporate Governance" - DLMBAEBECG01.

Abstract

This academic journal aims at understanding the conceptualisation of the terms corporate gov-
ernance referred to as CG, corporate social responsibility referred to as CSR, and corporate sus -
tainability referred to as CS. With a significant emphasis on the IT, Manufacturing and airline indus-
tries across Europe, UK, India and the United States, this paper examines the relationship between
CG, CSR and its impact on CS using the bibliographic research methodology. The study presents
ten examples of good and bad corporate governance practices from the real world, concluding that
organisations are concerned with more than maximising profits. Instead, they are becoming more
socially responsible towards people and the planet, realising CSR's direct impact on a company's
sustainability.

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Introduction

The US Business Formation Statistics shows that the number of business applications has steadily
increased over the past decade. The first quarter of 2020 saw the receipt of 5,83,905 new business
applications. Due to the global Coronavirus outbreak, the economy has suffered an overall decline
of 3.96 per cent yearly. As per Forbes, only 10 per cent of start-ups succeed each year, showing
how to overcome the odds of failure. The number of businesses and scandals has increased in
past years. Examples include Wells Fargo's self-inflicted crisis, in which over two million accounts
have opened without permission, Volkswagen's false emissions data, and NewsCorp's illegal hack-
ing of its mobile devices. Thus, throughout the world, governments and regulatory bodies are
bound to tighten corporate governance laws to prevent scams and protect businesses.

An environment that is so complex and fiercely competitive requires that firms upgrade their work-
ing mechanisms as a means of adapting. It is possible, for instance, for specific industries or
groups of companies to overcompensate with external regulations by issuing codes of conduct that
severely restrict certain aspects of their operations. As a shred of credible evidence that they in-
tend to behave in a manner acceptable to the community, such voluntary codes may be justified.
The assignment discusses corporate governance (CG) and corporate social responsibility (CSR),
two means firms can use to regulate their operations. According to theories and managerial discus-
sions, taking a proactive approach to CSR makes sense and leads to better performance. As a
result, CSR has become a reality rather than an ideology. Several organisations believe it is neces-
sary to define their societal roles and apply ethical and social standards as part of their governance
(ESG) for long-term corporate sustainability (CS). This development reflects the conceptualisation
of CSR and the influence of various theories, including agency theory, stakeholder theory and
stewardship theory.

CSR and CG are increasingly being adhered to and demonstrated by organisations, but many
struggles with achieving the desired results. Corporate governance failures can be detrimental to a
company's reputation. They result in lawsuits, and severe losses, create a trust deficit, and lead to
reduced sales, resulting in the closure of the business. In this section of the assignment, we dis-
cuss in detail the scandal that led to the demise of Kingfisher Airlines. Kingfisher Airlines, a pioneer
in luxury air travel, was forced to cease operations in 2012 due to outstanding debt of INR 2551
Million (US$33 Million), declaring bankruptcy and directly impacting the lives of 3000 employees.
As a result of conflict between shareholders, directors and creditors, Kingfisher could not take own-
ership during a crisis. Corporate governance theories that controlled and monitored agents directly
impacting the company's management were not incorporated to fulfil the company's moral and so-
cial responsibility.

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In Milton Friedman's view, firms have a social responsibility to maximise profits. By investing in
profit-maximising firms and firms that give a portion of their profits to social causes, citizens can
directly contribute to social causes. Profit maximisation and protecting the economic agents who
have provided the firm with capital are two defining characteristics of CG. CSR appears at odds
with profit maximisation since it implies a set of actions that may benefit external stakeholders
while conflicting with shareholders' interests. Despite their apparent conflict, Governance, CSR,
and sustainability in corporations are closely interrelated. Examining each of them in this assign-
ment can help us better understand their relationship.

After the COVID-19 pandemic and the Ukrainian invasion, a new reality has emerged that pro-
foundly affects human, economic, and business prospects. As stakeholders exert pressure and de-
mand, expectations for corporate citizenship and societal engagement are rising, and the future
appears uncertain. As a result of these factors, board decision-making is becoming more complex.
Over the past few decades, boards and business leaders have primarily governed following the
shareholder-centric models. It will be critical for a board to deliberate on crucial issues thoroughly
and thoughtfully, enabling the board to reach an informed conclusion. During the annual self-as-
sessment process, boards must evaluate their capabilities and readiness for corporate gov-
ernance. During the annual self-assessment process, boards must evaluate their capabilities and
readiness for corporate governance. A structured stakeholder engagement process, comprehens-
ive compensation measures, and an emphasis on business-society intersection are all included in
the annual self-assessment process. This section summarises the fundamental corporate gov-
ernance reform proposed by global regulatory bodies like the OECD and governments in Europe,
India, and the United States.

Increasing awareness of the environment's impact has led to a shift in society's behaviour, and the
concepts of sustainability and sustainable development have become increasingly significant over
time. Various factors influence society's decision to change the direction of quantitative economic
growth towards a qualitative and responsible dimension. These factors include globalisation, cli-
mate change, effective and efficient management of available resources, or population ageing.
Sustainable business practices emphasise growth and profitability in three areas of society. CS's
three pillars, people, planet, and profit, must be protected without compromising long-term value
for stakeholders. Despite the economic and cyberspace uncertainty, organisations and regulatory
bodies face significant obstacles, including supply shocks, inflation, globalisation, and energy
transitions. There may be problems with job participation, returning to work efforts, and other is-
sues related to workplace culture due to social anxieties and unrest. In conclusion, CG and CSR

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 are ever-evolving. Further research is needed to determine how individuals, changes in human be-
haviour, and corporate governance impact sustainability.

Table of Contents:

Purpose……………………………………………………………………………………… 1

Abstract……………………………………………………………………………………… 1

Introduction………………………………………………………………………………….. 1

1. Conceptualisation of CG…………………………………………………………………… 5
1.1. Formulating Effective CG……………………………………………………… 5
1.2. Models and Theories of CG…………………………………………………… 7

2. CG compromise and its effects…………………………………………………………….. 9

3. CSR, a principle of CG………………………………………………………………………. 12

3.1. Is CSR a key to Corporate Sustainability (CS)?.......................................... 12
3.2. CSR vs CS………………………………………………………………………. 16
3.3. CSR Perspectives………………………………………………………………. 17

Summary………………………………………………………………………………………. 17

Scope for further research…………………………………………………………………… 19

Bibliography…………………………………………………………………………………… 20

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 1. Corporate Governance - Conceptualisation

The federal register first cited "Corporate Governance” (CG) in 1976, allowing regulators and com-
panies to quantify structured boards and best practices into benchmarks. According to the Federal
Register, CG refers to the relationship between firms, their management, board of directors, own-
ers, regulators, and other stakeholders and how these objectives and strategies are defined, imple-
mented and monitored.

As Amazon mentioned in its letter to shareholders, a fundamental measure of the company's suc-
cess will be the shareholder value the company creates over the long term. Since Amazon has fo-
cused on the long term from the beginning, the company may make decisions and weigh trade-offs
differently than other companies. Accordingly, investors should understand Amazon's fundamental
decision-making process to ensure it aligns with their investment philosophy.

It is difficult to define the term "corporate governance." However, it can be described as an organ-
isation's set of policies and procedures to oversee, control, and streamline its operations in the in-
terest of society and all stakeholders. In other words, corporate governance ensures that all parties
in the corporate structure are aligned with a common interest and maintain the integrity necessary
to ensure an organisation's long-term sustainability and financial viability.

1.1. Formulating effective Corporate Governance

A practical corporate governance framework consists of an efficient board of directors appointed by

shareholders, stakeholders – employees, investors, and regulatory authorities. Every organisation
must define its corporate governance policies based on the fundamental pillars – transparency, ac-
countability and security.

As a performance-driven, purpose-driven science company, DSM has established a governance

framework that consists of the following:
i. Shareholders - The shareholders draft the Articles of Association.
ii. A supervisory board is responsible for establishing the board's regulations, the audit committee
charter, the nomination committee charter, the remuneration committee charter, and the sustainab-
ility committee charter.
iii. Managing Board/Corporate - Responsible for the regulations of the managing board, the manage-
ment framework for the corporate level, and the DSM code of business ethics.
iv. Management Framework for Operational Units.

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 According to Infosys, an IT services company, the board should be comprised of individuals who
possess one or more of the following qualifications:

i. An extensive leadership background in an enterprise has resulted in the following:

ii. 1. In-depth understanding of the organisational structure, processes, strategic planning and risk
management.
iii. 2. Demonstrated strengths in developing talent, planning succession, driving change and long-term
growth to operate successfully in international markets.
iv. A history of leading growth through acquisitions and other business combinations with the ability to
assess ‘build or buy’ decisions, analyse the fit of a target with the company’s strategy and culture,
accurately value transactions and evaluate operational integration plans.
v. In addition to developing insights into board and management accountability, protecting share-
holder interests, service on a public company board provides insights into the company’s respons-
ibilities to its customers, employees, suppliers, regulatory bodies and communities.
vi. Working knowledge of and experience in building and leading sustainable organisations includes
understanding the importance of the Environmental, Social, and Governance goals ("ESG") and
how they should influence the board’s role, composition and work processes. Implementing inter-
national standards and frameworks to guide the reporting of ESG performance.

Thus, referring to various company’s corporate governance structures, we can infer that enter-
prises with good corporate governance exhibit the characteristics of:

i. Accountability: Proactively taking ownership of strategy and tasks required to attain organisational
goals involving rewards and risks.
ii. Responsibility: Managerial responsibility refers to behaviour that allows corrective action and mis-
management to be penalised. When necessary, responsible management would take steps to set
the company on the right path. Despite being accountable to the company, the board must act re-
sponsibly towards all stakeholders.
iii. Fairness: Pledge to treat all stakeholders equally by acknowledging and respecting the rights of all
individuals irrespective of caste, creed, race, colour, or gender.
iv. Transparency: Information about all actions financial, social, and economic undertaken or planned
by the company and their impact to be made available for inspection by authorised bodies, pro-
vider parties, investors, and customers regularly through its websites.
v. Ethical and Legal Compliance: Become compliant as per the regulatory standards like the ISO and
similar, and share reports authorising the company to operate its business ethically by law.
vi. Social Responsibility: Ethical Companies are aware of and respond to social issues. Responsible
corporate citizens are committed to environmental protection, human rights protection, and non-
discrimination. These factors can lead an organisation to indirect economic benefits, such as im-
proved productivity and corporate reputation.

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1.2. Models and Theories of Corporate Governance

Concerning the Amazon statement earlier, in light of the current global scenario, it is only possible
to talk about increasing organisational value by considering the interests of shareholders, employ-
ees and business partners. Conflicts between these interests may result in internal conflicts, negat-
ively affecting the entity's performance. Managing such discrepancies requires managers to adopt
a corporate governance model. Regulations vary from country to country, and corporate gov-
ernance models also differ based on these differences.

The Anglo-Saxon model: Independents and shareholders dominate the Anglo-Saxon business
model. A manager is accountable to the board and shareholders for profitable operations and di-
vidends. Following this model, organisations typically have three governance levels: shareholders,
directors, and managers. An entity's shareholders can only elect the board members and possess
limited rights to intervene in current activities. However, they can influence changes in the man-
ager's attitude and leadership style; for example, they may decide to liquidate holdings or refuse to
contribute more capital to the entity, thus halting the funding. Portfolio investors such as banks or
mutual funds sell their shares in the market when they are unsatisfied with the company's perform-
ance. Although this model ensures investment mobility, it needs more strategic development.

The Continental Europe model: The German model is a dual board structure compromising a su-
pervisory and management board. It is the responsibility of the management board to manage the
company effectively but under the supervision of the supervisory board. This model is adopted by
DSM company, as discussed in the previous section. Germany's governance system views enter-
prises as a combination of various interest groups aiming to coordinate national interests. Compan-
ies mostly rely on banks for financing. Creditor protection is therefore highly valued, even to the
point where banks might dominate firms. The UK follows the "comply or explain" model of corpor-
ate governance.

The Japanese model: Financial institutions and banks play a significant role in raising capital for
Japanese companies. In addition to having a massive stake in the business, banks and other insti-
tutions also work closely with the management. Shareholders and banks select the board of Direct-
ors and President. This model recognises the interests of lenders along with those of shareholders.

The Indian model: India categorises companies into three types: public, private, and private sector.
These companies have distinct shareholding patterns. India's corporate governance model com-
bines Anglo-Saxon and German models as mergers and acquisitions have increased.

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The models provide insight into how they came under the influence of specific socioeconomic and
cultural factors depending on their cultural, historical, and technological characteristics. A corporate
governance model needs to be adequate and all are effective; it is difficult to transfer a corporate
governance framework tailored from one country to another.

Agency Theory: Shareholder-manager relationships are the subject of agency theory. While each
party has a self-interest for profit and gain, their way of incorporating strategies could differ. The
managers (“agents”) control the company, and shareholders (“principals”) own the company.
Shareholders appoint agents and expect them to perform duties in the shareholders' best interest,
although agents often seek personal monetary gain, recognition, and authority. On the other hand,
shareholders look toward the long-term benefit of the company expecting stable dividends and del-
egate the responsibility of running the company to agents. A third group may exist; usually, the
lenders or investors as Creditors, expecting timely returns on their investments in the company.
Regarding the agency theory, conflict does not occur until the parties have a common interest;
however, conflict arises when all parties involved tend to have divergent interests, referred to as
the "Agency Problem". Agency Problems lead to "Agency Loss" and increase "Agency Cost".
Agency cost is a cost of separating ownership and control.

Stewardship Theory: Stewardship theory is servant leadership, in which the managers act as re-
sponsible “stewards." Contrary to the agent theory, stewards do not own what they have respons-
ibility over but are responsible for carrying out their duties consciously, as they have to account to
“shareholders." Shareholder satisfaction is the clear objective of the stewardship theory of gov-
ernance. A single leader serves as a channel for communicating business needs to shareholders
and shareholders’ needs to businesses. Additionally, this allows clarity regarding who is in charge
when a company encounters a crisis. Shareholders who follow stewardship governance must be
trustworthy and willing to put their interests aside for the organisation's stake.

Shareholder Theory: Managing shareholders' values is the primary objective of shareholder theory.
Among other corporate stakeholders, this objective precedes employees, suppliers, customers,
and society in general. Managers and boards are responsible for protecting and growing a com-
pany's assets for the benefit of shareholders. Dividends and share price increases should be com-
bined to maximise management's profits. Corporates and shareholders may have objectives other
than financial performance, but shareholder theory overlooks this fact.

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2. Impact of compromised corporate governance - a case study

In order to enhance governance, security and viability, different models of corporate governance
were developed by different countries, as explained in the previous section. How well are compan-
ies incorporating these models as part of governance? Why are companies still failing to sustain
themselves? Some significant companies' frauds, like Satyam Computers and Kingfisher Airlines
(India), Enron (America), Wirecard and Volkswagen (Germany) and Luckin Coffee (China), to
name a few, prove organisations' inefficiency in forming a robust corporate governance policy.
Also, ethics and CSR are compromised. We shall look deeper into the causes of the failure of one
company mentioned above, Kingfisher Airlines.

Kingfisher Airlines – History:

United Breweries Limited (UB Group) was established and owned by Vittal Mallya in 1915. Share-
holder votes elected Vijay Mallya, the son of Vittal Mallya, as the chairman of UB Group in 1983.
He previously managed UBL's Brewery and spirits division.

In 2005 Vijay Mallya launched Kingfisher Airlines as a subsidiary of UB Group with the brand
tagline – "Fly the good times" as an upmarket carrier. Kingfisher Airlines introduced inflight enter-
tainment to domestic flights and served exquisite cuisines. Kingfishers' luxury airport lounges and
pleasant services set it apart as a high-class airline.

By 2007, Kingfisher operated 34 aircraft, becoming the first Indian airline to procure four A-319s,
twelve A-320s, six A-321s, and twelve ATR-72s worth over $3 billion, managed to garner several
awards for its services in a short span. Among Indian airlines, Kingfisher Airlines had the highest
market share in May 2009, carrying over 1 million passengers.

Significant risks overlooked by the airline landed in a deep crisis:

The airline had been losing money since its inception despite being recognised as a revolutionary
air service provider and market shareholdings. Ignoring its financial metrics, Kingfisher announced
a merger with Air Deccan, and air Deccan had already lost 725.01 crores. With a 50% stake in the
merger, the airline rebranded as Kingfisher Red, offering international and domestic flights. A
single airline's dual-brand strategy created confusion among its regular travellers and their associ-
ation with the brand. By Mar 2009, the merged entity's borrowings increased from INR900 crores
to INR5,600crores due to a global recession and higher oil prices. Unlike competitors, low over-
head costs, quick turnarounds, and selling tickets on the internet were not part of Kingfisher's

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primary operations leading to high operational costs. Kingfisher had borrowed funds from a consor-
tium of 14 banks. With a reduction in fleet size from 85 to 66 in Oct 2011, Kingfisher Airlines
dropped from first to third place. When the debt restructuring took place in May 2012, the com-
pany's interest rate jumped from 11 per cent to 14 per cent.

A management team was never in place for the airline. Nigel Harwood was appointed as COO of
Kingfisher Airlines when it launched in 2005. The airline remained without a CEO until 2010 when
Sanjay Aggarwal was appointed. Also, the company had several board changes. Vijay Mallya's fo-
cus shifted to Formula One, Derby, and Cricket International Premier League sports teams despite
the severe crisis of the airlines raising questions about his leadership.

Aftermath:

Over half of the airline’s fleet was grounded by early 2012, and several employees were on strike
due to the massive losses. According to reports, Kingfisher Airlines owes Rs 300crores to 3000
employees. Stocks of Kingfisher dropped 13.5% after the crisis, dropping from second to last
among top Indian airlines in market share. The Mumbai Income Tax department froze Kingfisher's
bank accounts for non-payment for the second time in two months in Dec 2011. As per the service
tax department's records, Kingfisher Airlines owes the government INR70crore (US$9.2 million).

Furthermore, the Indian Tax Department found the airline to be insolvent. The Directorate General
of Civil Aviation summoned the airlines' CEO, Sanjay Agarwal, to explain the disruptions. Seven
creditors of the airline filed a winding-up petition in November 2011. As Kingfisher Airlines faced
bankruptcy, its lead lender, the state bank of India, refused more loans until they raised additional
equity. According to the company's financial report for the third quarter of 2011-12, Kingfisher re-
corded losses of $58 million (*INR4.44 billion). GMR Hyderabad International Airport Limited
(GHIAL) filed a case of bouncing cheques worth INR100 million against Kingfisher Airlines and its
chairman Vijay Mallya on 12 Oct 2012. Following concerns over Kingfisher's operations, the Dir-
ector-General of Civil Aviation suspended its license on 20 Oct 2012.

Analysis:

Kingfisher Airlines' failure was likely due to ethical and governance issues.
1. Compromise on Corporate Social Responsibility: Due to Vijay Mallya’s “One man shows” man-
agement style, the airline suffered from a trust deficit with employees, banks, fuel companies, and
the general public. Mallya's decisions aimed at personal gain and reputation at the expense of em-

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ployees and creditors directly impacted several stewards of the company who relied on share-
holder Mallya's success.

2. Compromise on Corporate Governance: The airline lacked efficient leadership. With the board
facing several changes, Vijay Mallya ("Principal Shareholder") failed to establish a stable board
structure that could act on his behalf and control the company's performance. It would have been
better if the creditors were more vigilant before disbursing loans of such large amounts, mainly
since the company reported losses year on year.

3. Unethical conduct: In addition to failing to explain itself to regulatory bodies, the airline did not
repay its debts, resulting in the authorities' suspension of its entire operations.

As a company, Kingfisher failed to incorporate stakeholder management and stewardship theory

into its corporate governance framework and demonstrate, comply and explain the principal pillars
of good corporate governance, such as transparency, fairness, and responsibility towards the
stewards of the company as discussed in the previous section. This decline affected the sharehold-
ers and the company's profits and directly impacted the livelihood of 3000 employees who de-
pended solely on the company's well-being. Agents other than employees indirectly related to the
company, for example, investors and vendors, were also severely impacted. A sole motive for
profit by the airlines caused an imbalance in the economy due to monetary losses and government
dues.

In addition to the question, what caused the failure? Analysing the situation leads to a more critical
question: how can such failures be prevented in the future?

Even though corporate governance theories and models were developed long before 2013, com-
panies had the option of adopting them voluntarily. It was up to each company to determine how it
would conduct its corporate governance. Few companies diligently adopted effective corporate
governance practices. However, due to sheer negligence, many needed help forming an effective
governance body, especially smaller businesses and start-ups that needed more awareness.

.
All organisations must follow laws and regulations to protect themselves from failures and scams.
These regulations have become effective at both the regional and international levels. Regulatory
bodies such as OECD have developed global guidelines for governing and monitoring companies'
global economic and social responsibilities.

3. Corporate Social Responsibility (CSR) – A principle of CG

3.1. Is CSR a key to corporate sustainability (CS)?

New lawsuits claim Tesla broke federal law when it abruptly fired thousands of employees and
denied them two months' pay. Among supply chain issues and other economic woes, the electric
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 car maker faces a flurry of legal action as it navigates a rough patch. As published in the Washing-
ton Post, the company has terminated three Tesla employees for staying home rather than risking
exposure to Coronavirus at its Fremont, California factory. Since June, the workers have informed
their supervisors about their situation, acknowledging that they remain concerned about exposure.
In their opinion, their managers understood and allowed them to remain at home for various reas-
ons. Fear of exposure to an infant with respiratory problems, an elderly stepfather cared for by the
Tesla employee in one instance, and a fiancee was suffering from chronic obstructive pulmonary
disease and recent heart surgery. According to the workers, Tesla informed them at the end of
June that they had abandoned their jobs and fired them.

Was Tesla moral? Profits are essential to a company, but what is more important? How vital are
employee well-being and societal acceptance contributing towards the long-term sustenance of the
company?

The answers to these questions highlight CG's previously shadowed primary principle, “Corporate
Social Responsibility” (CSR). CSR is a corporate governance strategy that ensures an organisa-
tion's business operations are ethical and have social, economic, and environmental value. Even
though financial profitability and sustainability are the primary goals of every organisation, they also
must contribute to the welfare of the societies in which they operate for holistic business growth.

CSR is generally integrated into the corporate’s business model governing initiatives, including but
not limited to the 3P's, Planet, People, and Profit, called the triple bottom line approach.

i. Planet: Environment Responsibility - sustainable use of natural resources to reduce carbon foot-
print.
ii. People: Human Rights Responsibility - provide fair labour, compensation, and trade practices.
iii. Profit: Philanthropic Responsibility - Volunteering projects supporting education and healthcare.

Rather than taking initiatives to boost morale and support its employees, Tesla failed to protect its
employees' well-being during uncertain global times. It is unfortunate when companies with a
brand image compromise on social responsibility and ethics, aiming only at gains for the company.
An employee is likely to stay longer with the company when supported in crucial times and feels
motivated to contribute positively to the company. However, Tesla’s behaviour has only resulted in
a bad reputation for the company.

A company cannot survive by itself. For a company to consistently perform, it needs to ensure that
the people associated with it and the surroundings in which it operates are safe and healthy as
well. While Tesla set a lousy example, realising the benefits of CSR towards the company's
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 longevity to continue the business, organisations are now establishing dedicated departments to
monitor and carry out CSR activities. To demonstrate their commitment to transparency, many
companies disclose their annual investments in such programs and their outcomes.

Infosys embraces responsibility for the company's actions and encourages a positive impact
through its activities to alleviate hunger, poverty, and malnutrition; protect the environment; support
communities, stakeholders and society. Infosys has implemented the policy action by collaborating
with local non-government organisations (NGOs). The company also pledges that any surplus
arising from the CSR activities shall not form part of the company's business profit. Per the com-
pany’s policy, allocate such surplus to CSR activities.

BOSCH's director of industrial relations, Filiz Albrecht, states, " Sustainability is an integral part of
our corporate culture — because it is our associates at Bosch who turn abstract goals into measur-
able achievements." With "New Dimensions - Sustainability 2025" as a target vision, Bosch strives
to improve quality through economic, social and governance initiatives:

i. Climatic actions: Improve climatic conditions by using renewable energy sources to reduce carbon
emissions.
ii. Water Scarcity: Reduce total water withdrawal and improve the quality of wastewater flows.
iii. Circular Economy: Improve materials efficiency and extend product lifecycle by reusing materials
and components from old appliances.
iv. Diversity: To ensure equal opportunity and increase the proportion of female executives to 20%
v. Human Rights: Assuring the protection of human rights throughout the value chain and enhancing
transparency.
vi. Occupational Health and Safety: Reducing accidents to 1.45 per million hours worked or less by
2025.

The Schneider Electric Foundation for sustainable development aims to implement sustainability
impact initiatives and UN Sustainable Development Goals (SDGs). The company aims to provide a
high quality of life and a safe working environment for individuals, communities, and employees
through its sustainability initiatives. With equitable quality education and training for all, Schneider
Electric prides itself on being the world's most sustainable and inclusive impact company. Provid-
ing long-term vocational training and volunteering worldwide supports the Sustainable Develop-
ment Goals, protecting vulnerable and exposed populations, assisting disadvantaged youth trans-
ition into the education system and providing professional training. Involvement of volunteers in
civic engagement, strengthening social inclusion, and deepening solidarity with initiatives under-
taken by local partners' networks is encouraged through the Volunteer In platform. By supporting
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local partners' initiatives regarding training and entrepreneurship in the electricity sector,
Schneider's Foundation contributes to economic and social development and promotes a fair soci-
ety.

Besides IT and manufacturing companies, e-commerce companies publish annual CSR reports on
their websites like the coffee brewing company "Starbucks" and the shoe company "TOMS" owing
to transparency. Thus, regardless of the size of the company or its category, every company must
contribute to corporate social responsibility.

As companies across countries recognise the significance of CSR for sustainability and strive to
promote a healthy and safe environment, corporate social responsibility has become an integral
part of their regulatory acts. CSR compliance was mandated by the Indian Companies Act 2013 in
April 2014. These governing committees have the right to perform audits and make regular amend-
ments to the Acts. Companies diligently following CSR practices monitor their performance and
share reports annually with their stakeholders, thus establishing trust and commitment towards
their business purposes and adhering to good corporate governance.

Motivational factors for organisations to adopt CSR

Building a strong brand identity: A well-executed CSR initiative positively affects the image and
reputation of a brand. Moreover, it increases customer loyalty and sales.

Raising capital is easy: Share prices will rise if the brand image is improved, and raising capital on
the stock market will become easier.

Regulations are less burdensome: Besides reducing regulatory compliance costs, a trusted and
close relationship with regulatory bodies makes the company's work more accessible and efficient.

Savings in terms of costs: Investors and suppliers are also pleased when there is a base of loyal
customers, so investing in operational efficiencies can result in operational cost savings.

Employee retention: An employer with a positive brand image tends to retain employees.

In its simplest form, sustainability refers to reducing environmental impact through reducing con-
sumption (reduce, recycle, reuse). Sustainability is a component of corporate responsibility, but it
also refers to the broader relationships between an organisation, its key stakeholders, and the
community. In addition to increasing their social capital, companies can reach out to customers
that support green initiatives through CSR to gain social power. Publicity is also a motivation,
and a company that is eco-friendly in its practices is regarded well by its customers. Corporate so-
Page 14 of 19
cial responsibility can boost public relations campaigns, and motivation can manifest in conform-
ity. Due to increased business competition and the growing green movement, companies need to
keep up with the competition.

Thus, the consumption of resources is becoming increasingly unsustainable, and CSR plays a crit-
ical role in this. Society faces a challenge when it comes to achieving sustainable development,
and the goal of sustainable management is to maximise the company's contribution to advancing
sustainability. Businesses can benefit from CSR programs that contribute positively to their com-
munities vital for long-term sustainability. In order to achieve the benefits of solid CSR initiatives, it
is paramount for an organisation's motivations to anchor on principles and values instead of just
financial gain. Moreover, principles and values can build goodwill within a community. Lastly, a
CSR program can cater to those interested in the program and enhance the company's innovation
by involving stakeholders.

3.2. CSR vs CS

This comparison illustrates the current context's relationship between Corporate Social Responsib-
ility (CSR) and Corporate Sustainability (CS).
CSR CS
CSR programs focus on an organisation's con- A sustainable business practice takes an in-
tribution to society in the recent past, usually novative approach to ensure a business's fu-
within the past year. ture by identifying what changes can be made,
such as reducing waste, securing supply
chains, exploring new markets, and building
brand awareness.

Politicians, pressure groups, and the media Suppliers, operations, partners, and end users
are usually the targets of CSR. are part of the sustainability value chain.

Complying with regulations has become a key Business plays a crucial role in sustainability.
component of CSR.

It is unavoidable for businesses in developed Emerging markets drive sustainability.

markets to practice corporate social responsib-
ility (CSR) in order to maintain their competit-
iveness and protect their reputation.

Table 1

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There is a tendency to use the terms corporate responsibility and sustainability interchangeably.
Nonetheless, the difference is significant, and it is vital to understand it.

Term definitions: what do we need to know?

Why is the company in existence, what are its responsibilities, and how will it achieve those re-
sponsibilities and goals? Considering corporate social responsibility (CSR) in the company's vision
and mission is helpful for businesses.

A business's approach to sustainable development must also consider its operations. Specifically,
it refers to the use of natural resources both directly and indirectly.

3.3. CSR Perspectives

Based on the motivational factors, an organisation may choose to achieve CSR based on the fol-
lowing perspectives:

Ethical Perspective:

Ethics are either consequentialist (utilitarian) or categorical (Kantian). In consequentialist reason-

ing, actions are justified based on the outcomes, i.e., maximising the maximum benefits for the
maximum number of people. In categorical reasoning, actions are justified based on the principles
upon which they are carried out, following core ethical principles regardless of their outcome.

Economic Perspective:

A company's commitment to do good in all aspects of its operations constitutes economic respons-
ibility. The ultimate goal of any business operation should not only be to maximise profits but also
to ensure that the operations have a positive impact on the environment, people, and society in
general.

Environmental Perspective:

A company’s environmental responsibility refers to its commitment to be as environmentally

friendly as possible. As a form of corporate social responsibility, it is one of the most common.
Such initiatives are sometimes referred to as "environmental stewardship" by some companies.

Philanthropic Perspective:

Organisations driven by philanthropic responsibility often devote a portion of their earnings to phil-
anthropic causes and acting ethically and environmentally friendly. In addition to donating to worthy
causes aligned with their mission, many organisations donate to causes unrelated to their busi-
ness. In order to give back to society, some organisations establish their charitable trusts, enabling
them to make a positive impact.

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Summary:

In a nutshell, corporate governance involves applying the most effective management practices for
meeting stakeholder responsibilities and complying with corporate social responsibility. CG en-
sures that the law is as intended and per the ethical standards.

A comprehensive corporate governance policy outlines the policies and rules to be followed by the
company's owners, the shareholders, the Board of Directors, management, and various stakehold-
ers, such as employees, customers, suppliers, and the general public. Organisations, whether for-
profit or not-for-profit, must comply with this requirement.

Essentially, corporate social responsibility is committed to contributing to sustainable economic de-

velopment by working collaboratively with employees, their families, local communities, and soci-
ety. CSR focuses on protecting the planet and people ethically and morally by using profits.

For a business to flourish, it must treat its society well and contribute to its betterment, protecting
human rights by taking care of employee well-being. The organisation must ensure the availability
of natural resources and renewable energies. This initiative develops trust in the public eye and
helps the company be identified as ethical, thereby increasing the return on investment and attract-
ing investors for future developments. With rapidly changing technology, a growing number of
small and medium-sized businesses and globalisation, CSR adoption into an organisation's corpor-
ate governance framework is imperative because CSR helps protect businesses from calamities,
save natural resources, protect human rights, and achieve sustainability. Thus, CSR is proven to
be directly associated with corporate sustainability. Effective CSR practices ensure the long-term
viability of the company. Therefore, the most efficient corporate governance framework will adopt
an efficient board and CSR as primary principles leading to corporate sustainability and continuous
growth.

By combining geospatial weather, and Internet of Things data, governance enables sustainable de-
velopment and prepares for the unexpected. A comprehensive analysis of assets, employees, and
customers ensures business continuity. Corporate governance identifies top challenges, prioritises
critical actions, and measures business, environmental, and social outcomes against business and
sustainability goals.

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 Ownership of CSR

CSR is not the responsibility of just the company or government but every individual. Also, CG is
ever-evolving; thus, the policies need to be amended from time to time based on the circum-
stances. Businesses face a critical challenge today due to the COVID-19 pandemic and the
Ukraine war against Russia, which has disrupted the economy and the availability of resources
across Germany and the United Kingdom. As remediation, the OECD and governments across
countries have initiated amendments to corporate governance policies.

At the 2019 OECD Ministerial Meeting in Athens, the OECD released separate urban and rural
policies in response to the COVID-19 pandemic and Russia's large-scale aggression against
Ukraine, affecting health, lives, the economy, and the environment. A study by the OECD exam-
ines how capital markets work, provides international comparisons and discusses ways to improve
access to capital. In its latest Factbook 2021, OECD has provided follow-up steps to support fur -
ther progress towards advancing global women's leadership and sustained engagement in paid
work. OECD's purpose is to recognise the efforts of the EMPOWER Alliance to encourage con-
crete, practical initiatives to support the leadership role of women in the private sector.

The UK government released a white paper with recommendations for strengthening the UK's ac-
counting framework and auditing system for significant firms. Reforms aimed at achieving the fol-
lowing objectives:

i. UK's most prominent companies need to be run and scrutinised to restore public trust.
ii. Ensure responsible corporate governance for UK's most significant corporations.
iii. Information about a company's performance should be available to investors, creditors, workers,
and other stakeholders.
iv. Achieve international best practices in the UK's legal framework for significant businesses.

EU has raised its climate ambitions by at least 55% by 2030 as an intermediate step towards cli -
mate neutrality. As part of the "Fit for 55 packages", the EU is revising its climate, energy, and
transport laws to align with 2030 and 2050 goals. The package also includes several novel initiat-
ives.

United States officials have set a sustainable aviation fuel (SAF) goal of 11 billion litres per year by
2030 through the Challenge for Sustainable Aviation. This effort includes developing SAF tax cred-
its linked to GHG intensity. A draft of the Renewable Fuel Standard (RFS) will also be published by
the United States this year, and RFS credits are available to SAFs.

Page 18 of 19
For further interest

An investigation into the Wirecard scandal found a series of corrupt business practices and faulty
accounting reports that led Wirecard, a payment processor and financial services provider, into in-
solvency. Wirecard is headquartered in Munich and listed on the stock exchange under the DAX
index. Customers could obtain electronic payment transactions, risk management services, and
physical cards issued and processed by the company. Various international financial services com-
panies had contracts with Wirecard Bank AG, a subsidiary of Wirecard Group.

Allegations of accounting malpractice have dogged the company since the early days of its incor-
poration. In 2019, this situation peaked due to the Financial Times publishing a series of investiga-
tions, whistle-blower complaints, and internal documents. Wirecard filed for insolvency on 25 June
2020 after revealing that €1.9 billion was missing and terminating and arresting its CEO Markus
Braun. The former auditor of Wirecard, Ernst & Young, has been investigated on allegations of
malpractice and failure to comply with the regulations of the Federal Financial Supervisory Author-
ity (BaFin).

Although transparency, fairness and accountability form the pillars of corporate governance, tech-
nological advancement exposes avenues for unseen loopholes. Companies face difficulties motiv-
ating employees to return to work as usual, and security thus becomes a future threat and con-
cerns governance. Is the role of individuals pivotal for corporate governance? How will companies’
policies be amended to ensure security as part of corporate governance can be an interest to fur-
ther research?

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