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Both sides of the coin

Published: 
13 Sep 2016

A combination of corporate governance and social responsibility can strengthen organisational commitment

Corporate governance and social responsibility is now in process of being integrated into both business planning and academic research, a trend reflected in a conference of the same name held in July last year that was co-hosted by the ASEAN CSR Network and the National University of Singapore. Governance practices and socially responsible initiatives are proving successful in enhancing the overall internal perception of a firm’s reputation, and can thus cover “both sides of the same coin”.

The integration of the two is also gathering momentum given the trend towards multi-stakeholder engagement among top management, the firm, and its internal and external constituencies from the organisation to customers and communities. It also effectively bridges the divide among academics who make a distinction between Corporate Governance (CG) and Corporate Social Responsibility (CSR), perhaps to achieve scholarly focus in research, and the heads of business firms. CEOs prefer to link the two concepts possibly based on the practical experience of combining the seemingly stricter requirements of adapting governance measures of performance and compliance together with the “feel-good” aftermath of socially responsible initiatives. The process is attractive as it also includes the measurement of outcomes using periodic interviews of top management and employee survey. In addition, there are also firms seeking to build their reputations that globally subscribe and adhere to the Global Reporting Initiative (GRI) covering CSR and the Asian Global Governance Scorecard (GSC) covering CG.

Applying GRI and GSC in research

Our team explored this further and conducted research on five corporations in five ASEAN countries using their published GRI and GSC submissions. However, only one family-controlled diversified conglomerate in the Philippines agreed to discuss their internal surveys to monitor governance and responsibility. The firm is registered with both the GRI and the GSC. In 2009, it decided to explore in depth its own responsibility and governance initiatives within its organisation. The firm recently completed a second round. The results should not be statistically generalised, but offer insights of the organisation’s perceptions of the firm.

In the second round, 50 senior officers and board members were interviewed. An employee survey was administered to 1,645 respondents, equal to 76 percent of total employment in the firm’s six facilities. The interviews and survey covered perceptions on five themes: culture, ethics, organisational values, leadership and governance, and community relations. In addition, four small group discussions were conducted among employees.
 

Examples of Questions and Responses

The 57-question survey used a five-point scale that ranged from Strongly Disagree to Strongly Agree with a “Don’t Know/Not Applicable” checkbox.

Three examples of the statements used in questions on governance include:

  • The company is committed to implementing good corporate governance practices.
  • Top management has clearly communicated that unethical behaviour will not be tolerated.
  • Misconduct is adequately penalised, regardless of the perpetrator's position.

The resulting computed net ratings were +89, +85, and +70 respectively.

With respect to the interviews, the most cited specific practices on governance were: (1) a proper investigation process by the internal audit team even if the misconduct involves a long-serving “tenured” employee, (2) regular investigations followed by the corresponding disciplinary actions, such as termination or court cases when warranted.

Two examples of answers given to the questions on Responsibility include:

  • The Company contributes directly to the welfare of the people in the communities where it operates, with a +93 rating.
  • Social responsibility as one of the organisational values demonstrated in the company, with +92 rating.

The interviews cited (1) the consistent use of multi-stakeholder engagement and (2) commitment to the firm’s sustainable energy objectives, and (3) regular reporting that includes accountability measures, to reflect good governance in the firm’s social responsibility initiatives.
 

FINDINGS

The survey and interviews yielded consensus on the professional behaviour and the integrity of this family firm, the adherence to meritocracy in employee selection, and the proper implementation of the company’s employee grievance procedures.

Although the survey and interviews did not directly probe the relationship between governance and responsibility, there were comments recorded in the group discussions such as “the whistle-blowing policy demonstrated responsible behaviour” and “measures of the performance of the CSR initiatives gives more them credibility”.

Some responses implied that governance and responsibility is still a work-in-progress. Transparency was recognised, but there was one project in one site that over time had suffered repair delays and technical problems—with environmental implications since the country is disaster prone. It appeared that over time, the submission of results and outputs was also delayed. A foreign contractor was largely responsible for the delays that occasionally generated media coverage over the period that, in turn, probably generated criticism at all levels, from both the employees who were skilled technicians and took professional pride in their expertise, and the board and top management who approved the appointment of the contractor.

Perceptions of management and employee morale seemed to vary depending on age group, in part due to a conglomerate-wide Manpower Reduction Programme (MRP) and Early Retirement Programme (ERP) that took place over a two-year period. The programmes were still on-going at the time of the survey. Employees aged 50 and over were understandably concerned about the MRP/ERP. Those employees aged 40 or younger were attracted to the competitive and incentive-based compensation package that complemented the MRP and ERP. The younger and newer hires with less than five years in the firm proved most adaptable and positive.

The company applied multi-stakeholder engagement (MSE) in its CSR projects such as for-profit partnerships aimed at improving community income and sustainable energy practices. The former projects included warehousing and distribution, garments, fruit growing and trading. The latter included proper commercial waste collection and disposal. In addition MSE replaced the previous approach of philanthropy and command-and-control as a governance process. Governance measures for these initiatives included quarterly and annual audits to measure qualitative and quantitative costs, benefits and long-term viability. The audit reports created lively discussions amongst the board on accepting a longer payback period to enable demonstration of shareholder value, as opposed to pure philanthropy without requiring strict measures.

Finally, the conglomerate as a whole remained committed to continuing annual reporting using the governance scorecard in accordance with international standards. However, the company itself noted its own shortcomings with respect to disclosures, for example on related party transactions and the oversight on long-term strategic directions using more independent directors. The board also needed more women directors.

LESSONS LEARNED

Surveys are a means for improving governance and decision-making. For instance, based on the result of the first survey (not included in this article), top management took several corrective measures that probably led to the positive responses among senior executives and employees in the recent interview and survey.

As suggested from the transparency issue, two obvious lessons are (1) that responsibility and governance represent a continuing effort, and (2) that “bad news” persisted in the collective memory of the organisation despite otherwise positive perceptions.

The perception of competence and its relation to governance may differ across generations of employees. The interviews suggest that the younger generation is more amenable to performance criteria while the older generation has become accustomed to seniority based on tenure and proven technical expertise accumulated over the years. With regard to socially responsible projects, the younger generation seems to be more willing to accept the initiatives as genuine, rather than as a public relations project.

Ultimately it does appear that the adherence to international or global standards of governance may well be the "new normal" especially for large and largely domestic firms seeking international partners as well as intend to expand beyond their local borders.

 

Francisco Roman Jr. is executive director of the Ramon del Rosario Centre for Corporate Responsibility and the Hills Program on Governance at the Asian Institute of Management. Mary Kris Camua is deputy director of the RVR Centre.

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