The Impact of Corporate Governance on Corporate Social Responsibility Reporting

Impact of Corporate Governance on Corporate Social Responsibility Reporting
An organization’s Corporate Social Responsibility (CSR) or sustainability report discloses the firm’s ecological and community-based efforts and impacts such as: economic, philanthropic, environmental, and ethical. This report dictates the information an organization renders to the public concerning environmental and social concerns. In this way, CSR reporting mitigates the information asymmetry issues between the company’s owners and managers by empowering investors with information concerning the company’s dealings with the environment, society, and employees. Companies with prudent governance systems promote ethics and transparency and ensure profit maximization objectives of the shareholders are met. Strong CSR policies are centered on practical corporate governance standards. Corporate governance maintains an equilibrium between a company’s communal and individual objectives and social and economic goals (Fahad & Rahman, 2020, n.p.). Therefore, it is increasingly essential to integrate corporate responsibility requirements into governance systems to streamline company operations. In addition, CSR helps a company communicate firm goals and sustainable development objectives to primary external stakeholders. The CSR report also accounts for the values and governance strategies employed by the firm by stimulating the connection between the applied model and commitment to ensuring a sustainable global economy. This report critically evaluates the role of corporate governance variables, including Chief Executive Officer (CEO) duality, the board size, board diversity, and ownership structure on overall CSR disclosure.
Theoretical Basis for the Link Between Corporate Governance and CSR Reporting
In contemporary corporate finance practice, CSR disclosure is a critical aspect of corporate governance, and many theories have been developed to support the reporting processes. CSR is important in companies’ development and provides the ground for business sustainability. Firms can attain strategic goals and gradual improvement only by coordinating stakeholder engagements and executing social responsibility, although resource limitations reduce the business’ capacity to meet its stakeholders’ needs. The legitimacy theory is anchored on the social contract notion. In this way, the legitimacy theory implies that when a company operates within a community, there must be a tacit consensus in place that the firm must endeavor, in its operations, to behave in an environmental and socially responsible way in order to gain public approval, which is necessary for the achievement of firm sustainability objectives. According to the legitimacy model, companies with political connections must address critical reputation issues that could affect legitimacy. CSR reporting could be perceived as an approach tailored to win stakeholders’ support and reduce legitimacy threats. While the stakeholder theory indicates that a company has a CRS responsibility to its stakeholders, the legitimacy theory suggests that its CSR reporting is central to legitimization. Legitimacy theory is more appropriate for firms based in the developed world. At the same time, the stakeholder model is more practical in firms based in the developing world, where a firm can manage its stakeholders and the need to comply with the existing legal frameworks is relatively lower compared to developed nations (Daoud and Kharabsheh, 2022, p.2). Many corporate managers believe that CRS disclosure can enhance a firm’s strategic financial efficiency, and companies should engage in CRS disclosure to sustain their operations and legitimacy.
CEO Duality and CSR Reporting Activities.
CEO duality originates from the leadership board structure. Various scholars have questioned CEO duality as a corporate governance mechanism. According to supporting literature and theories, if one person is given the overall role of running a business, the business will operate effectively and efficiently. Duality is known for creating and harmonizing unity across the board of directors and managers, giving the CEO an overall obligation to serve the company shareholders effectively. Given the senior role, CEOs have an influential role in impacting company CSR reporting and financial performance. First, the ownership model displays crucial participation by primary management shareholders. This practice motivates incongruous interests between the company’s primary and secondary shareholders necessitating corporate misconduct (Bolourian et al., 2021, p.5). Therefore, the Code of Corporate Governance should advocate for the separation of powers between company chairman and CEOs to monitor shareholder interests to the best levels. Since companies are supposed to report on four significant aspects (community, environment, product, and workplace), the direction adopted by the CEO influences the final CSR report.
CEO duality in most settings is likely to create a concentration of power and maximize the self-utility behavior of the company managers. CEO duality renders the company CEO limitless power to steer decisions in the firm. For instance, the CEO can manipulate board tenure and composition, control inflow and outflow of information, set company agendas, and resist change strategies even when the CSR report is unstable. Accordingly, these powers may be limited by company shareholders and directors to exercise their roles efficiently through accountability and continuous monitoring. In this context, the dominant personality of the CEO may jeopardize the shareholder’s interests (Mubeen et al., 2021, p.3). Also, if the chairman and CEO have questionable personality traits, the company will be run based on poor skills, expertise, and knowledge. Once the actions of the CEO and chairman are vested together, the board of directors may be harbored from removing them. Their actions and decisions dictate the content in the company’s CSR report, which is often overtly devastating. Self-evaluation and independence in reports are questionable if the company CEO is more powerful in influencing firm operations and reporting activities.
Companies with separate CEO and chairman roles have a positive reputation among diverse stakeholders. Separating these powers has been coined as a significant initiative but it is rarely adopted in most countries. Despite several legislative structures in corporate governance structure, the link between CSR reporting and corporate governance remains less unveiled. Due to the understudy, most developing countries shun the CSR model since it reduces company earnings. Governments and regulations keep the CEO in a position to implement sustainable development goals. Companies that are regarded as socially responsible have effective corporate governance. Most developing countries have their governments promoting solid corporate governance to assist companies in taking care of their stakeholder interests. Due to family ownership requirements, CEO duality is most common in developing economies (Mubeen et al., 2021, p.3). Therefore, there is a greater chance that this duality will eventually affect CSR practices and reports.
CEO duality deals with the separation of powers, which ultimately affects the company’s disclosure. In other contexts, the boards are indifferent to the duality tenet. Duality prevails in firms where the CEOs can execute their roles effectively. According to CSR reports, duality may increase company performance since management compensation is integrated. Commentators have continuously confirmed enhanced return on assets where CEO duality prevails. It can be confirmed that in companies that have the chairman as the CEO, fraud may increase in the company (Alabdullah et al., 2019, p.124). CEO duality can influence board effectiveness in executing governance functions. Empirical analyses stipulate diverse results on the effect of duality on CSR reporting. For instance, companies with a unitary CEO issued their reports later after the firms with separation of powers. This implies that CEO duality, to some extent, is detrimental to the effective role of the board. Other proponents refute the claim by suggesting that CEO duality helps eliminate information dissemination barriers (Mubeen et al., 2021, p.4). In summary, there are a lot of inconsistencies between CEO duality and its effect on CSR reporting.
Board Size and CSR Reporting Activities.
According to corporate governance, the board size is limited to 8-10 members. According to stakeholder-agency theory, an appropriate number of board members offer facilitative support and good quality on the board’s efficiency. Also, the large-sized board could relate to inefficiencies and flawed actions to delve into free-rider actions. Therefore, scholars have argued that board size as corporate governance has several controversial variables. Alongside the legitimacy theory, an increase in board size could lead to dynamism and legitimacy in the decision-making paradigm (Bolourian et al., 2021, p.6). This is made possible by inefficient self-evaluation and poor discussion processes. In this context, monitoring demands with the board increases with the board size, hence, demand for more resources with attention to special experience and real-time. Board size is considered optimal based on personal factor components and not the most relevant to impact CSR reporting (Alabdullah et al., 2019, p.127). There are several positive relations between board size and corporate social responsibility reporting.
Company shareholders play the role of voting on the board of directors to control and manage the organization. The board’s fundamental role is to align management concerns with those of the stakeholders. Board characteristics, therefore, are used to measure efficiency and performance. Board members should accomplish corporate social purposes such as delivering environmental, social, and political obligations. In this context, board size influences corporate social purposes such as treating the employees safely, considering environmental and human rights, protecting the environment, and demonstrating oversight on behalf of the shareholders. Given these primary benefits, the board is given leadership and governance obligations to execute corporate social purposes (Ongsakul et al., p.4). As interest expositions enhance, companies continuously increase their board sizes to master corporate social responsibility objectives. Given these diverse roles, the board size must be altered with changes in administration and governance. The nature of the social purposes of a company affects the effectiveness of the board size and CSR reporting. The bigger the size of the committee, the greater the reputation and commitment to accomplish pro-social objectives. In a context where CSR reporting is violated, adjusting the body size or composition may serve better (Ongsakul et al., p.5). Separate-level board sizes are vital in strategizing and evading management risks. The greater the board size, the advent significant the benefits in addressing first-hand advocacy issues and supporting the firm in decision-making. Therefore, the novelty of board size in CSR repor...