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What Is Corporate Governance?

• How It Works
• Board of Directors
• Assessing Corporate Governance

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Corporate Governance: Definition, Principles, Models, and Examples

Good corporate governance can benefit investors and other stakeholders, while bad governance can lead to scandal and ruin

James Chen, CMT is an expert trader, investment adviser, and global market strategist.

Amanda Bellucco-Chatham is an editor, writer, and fact-checker with years of experience researching personal finance topics. Specialties include general financial planning, career development, lending, retirement, tax preparation, and credit.

Investopedia / Jessica Olah

Corporate governance is the system of rules, practices, and processes by which a company is directed and controlled. Corporate governance essentially involves balancing the interests of a company's many stakeholders , which can include shareholders, senior management, customers, suppliers, lenders, the government, and the community. As such, corporate governance encompasses practically every sphere of management, from action plans and internal controls to performance measurement and corporate disclosure .

Key Takeaways

• Corporate governance is the structure of rules, practices, and processes used to direct and manage a company.
• A company's board of directors is the primary force influencing corporate governance.
• Bad corporate governance can destroy a company's operations and ultimate profitability.

The basic principles of corporate governance are accountability, transparency, fairness, responsibility, and risk management.

Understanding Corporate Governance

Governance refers to the set of rules, controls, policies, and resolutions put in place to direct corporate behavior. A board of directors is pivotal in governance , while proxy advisors and shareholders are important stakeholders who can affect governance.

Communicating a company's corporate governance is a key component of community and  investor relations . For instance, Apple Inc.'s investor relations site profiles its corporate leadership (the executive team and board of directors) and provides information on its committee charters and governance documents, such as bylaws, stock ownership guidelines, and articles of incorporation .

Most successful companies strive to have exemplary corporate governance. For many shareholders, it is not enough for a company to be profitable; it also must demonstrate good corporate citizenship through environmental awareness, ethical behavior, and other sound corporate governance practices.

Benefits of Corporate Governance

• Good corporate governance creates transparent rules and controls, guides leadership, and aligns the interests of shareholders, directors, management, and employees.
• It helps build trust with investors, the community, and public officials.
• Corporate governance can give investors and stakeholders a clear idea of a company's direction and business integrity.
• It promotes long-term financial viability, opportunity, and returns.
• It can facilitate the raising of capital.
• Good corporate governance can translate to rising share prices.
• It can reduce the potential for financial loss, waste, risks, and corruption.
• It is a game plan for resilience and long-term success.

Corporate Governance and the Board of Directors

The board of directors is the primary direct stakeholder influencing corporate governance. Directors are elected by shareholders or appointed by other board members and charged with representing the interests of the company's shareholders.

The board is tasked with making important decisions, such as corporate officer appointments, executive compensation, and dividend policy. In some instances, board obligations stretch beyond financial optimization, as when shareholder resolutions call for certain social or environmental concerns to be prioritized.

Boards are often made up of a mix of insiders and independent members. Insiders are generally major shareholders, founders, and executives. Independent directors do not share the ties that insiders have. They are typically chosen for their experience managing or directing other large companies. Independents are considered helpful for governance because they dilute the concentration of power and help align shareholder interests with those of the insiders.

The board of directors must ensure that the company's corporate governance policies incorporate corporate strategy, risk management, accountability, transparency, and ethical business practices.

A board of directors should consist of a diverse group of individuals, including those with matching business knowledge and skills, and others who can bring a fresh perspective from outside the company and industry.

The Principles of Corporate Governance

While there can be as many principles as a company believes make sense, some of the most common ones are:

• Fairness : The board of directors must treat shareholders, employees, vendors, and communities fairly and with equal consideration.
• Transparency : The board should provide timely, accurate, and clear information about such things as financial performance, conflicts of interest, and risks to shareholders and other stakeholders.
• Risk Management : The board and management must determine risks of all kinds and how best to control them. They must act on those recommendations to manage risks and inform all relevant parties about the existence and status of risks.
• Responsibility : The board is responsible for the oversight of corporate matters and management activities. It must be aware of and support the successful, ongoing performance of the company. Part of its responsibility is to recruit and hire a chief executive officer (CEO) . It must act in the best interests of a company and its investors.
• Accountability : The board must explain the purpose of a company's activities and the results of its conduct. It and company leadership are accountable for the assessment of a company's capacity, potential, and performance. It must communicate issues of importance to shareholders.

Corporate Governance Models

There are many types of corporate governance that a company might follow. Some use a traditional hierarchical leadership structure, and others are more flexible . Different corporate governance models may be found throughout the world. Here are a few of them.

The Anglo-American Model

This model can take various forms, such as the Shareholder, Stewardship, and Political Models. The Shareholder Model is the principal model at present.

The Shareholder Model is designed so that the board of directors and shareholders are in control. Stakeholders such as vendors and employees, though acknowledged, lack control.

Management is tasked with running the company in a way that maximizes shareholder interest. Importantly, proper incentives should be made available to align management behavior with the goals of shareholders/owners.

The model accounts for the fact that shareholders provide the company with funds and may withdraw that support if dissatisfied. This is supposed to keep management working effectively.

The board will usually consist of both insiders and independent members. Although traditionally, the board chairperson and the CEO can be the same, this model seeks to have two different people hold those roles.

The success of this corporate governance model depends on ongoing communications among the board, company management, and the shareholders. Important issues are brought to shareholders' attention. Important decisions that need to be made are put to shareholders for a vote.

U.S. regulatory authorities tend to support shareholders over boards and executive management.

The Continental Model

Two groups represent the controlling authority under the Continental Model. They are the supervisory board and the management board.

In this two-tiered system, the management board is composed of company insiders, such as its executives. The supervisory board is made up of outsiders, such as shareholders and union representatives. Banks with stakes in a company also could have representatives on the supervisory board.

The two boards remain entirely separate. The size of the supervisory board is determined by a country's laws and can't be changed by shareholders.

National interests have a strong influence on corporations with this model of corporate governance. Companies can be expected to align with government objectives.

This model also greatly values the engagement of stakeholders, as they can support and strengthen a company's continued operations.

The Japanese Model

The key players in the Japanese Model of corporate governance are banks, affiliated entities, major shareholders called Keiretsu (who may be invested in common companies or have trading relationships), management, and the government. Smaller, independent, individual shareholders have no role or voice. Together, these key players establish and control corporate governance.

The board of directors is usually made up of insiders, including company executives. Keiretsu may remove directors from the board if profits wane.

The government affects the activities of corporate management via its regulations and policies.

In this model, corporate transparency is less likely because of the concentration of power and the focus on the interests of those with that power.

How to Assess Corporate Governance

As an investor, you want to select companies that practice good corporate governance in the hope that you can thereby avoid losses and other negative consequences such as bankruptcy.

You can research certain areas of a company to determine whether or not it's practicing good corporate governance. These areas include:

• Disclosure practices
• Executive compensation structure (whether it's tied only to performance or also to other metrics)
• Risk management (the checks and balances on decision-making)
• Policies and procedures for reconciling conflicts of interest (how the company approaches business decisions that might conflict with its mission statement)
• The members of the board of directors (their stake in profits or conflicting interests)
• Contractual and social obligations (how a company approaches issues such as climate change)
• Relationships with vendors
• Complaints received from shareholders and how they were addressed
• Audits (the frequency of internal and external audits and how any issues that those audits raised have been handled)

Types of bad governance practices include:

• Companies that do not cooperate sufficiently with auditors or do not select auditors with the appropriate scale, resulting in the publication of spurious or noncompliant financial documents
• Executive compensation packages that fail to create an optimal incentive for corporate officers
• Poorly structured boards that make it too difficult for shareholders to oust ineffective incumbents.

Examples of Corporate Governance: Bad and Good

Bad corporate governance can cast doubt on a company's reliability, integrity, or obligation to shareholders. All can have implications for the financial health of the business.

Volkswagen AG

Tolerance or support of illegal activities can create scandals like the one that rocked Volkswagen AG starting in September 2015. The details of "Dieselgate" (as the affair came to be known) revealed that for years, the automaker had deliberately and systematically rigged engine emission equipment in its cars to manipulate pollution test results in the U.S. and Europe.

Volkswagen saw its stock shed nearly half its value in the days following the start of the scandal. Its global sales in the first full month following the news fell 4.5%.

VW's board structure facilitated the emissions rigging and was a reason it wasn't caught earlier. In contrast to a one-tier board system common to most U.S. companies, VW had a two-tier board system consisting of a management board and a supervisory board, in keeping with the Continental Model of corporate governance.

The supervisory board was meant to monitor management and approve corporate decisions. However, it lacked the independence and authority to carry out these roles appropriately.

The supervisory board included a large portion of shareholders. Ninety percent of shareholder voting rights were controlled by members of the board. There was no real independent supervisor. As a result, shareholders were in control and negated the purpose of the supervisory board, which was to oversee management and employees, and how they operated. This allowed the rigged emissions to occur.

Public and government concern about corporate governance tends to wax and wane. Often, however, highly publicized revelations of corporate malfeasance revive interest in the subject.

For example, corporate governance became a pressing issue in the United States at the turn of the 21st century, after fraudulent practices bankrupted high-profile companies such as Enron and WorldCom .

The problem with Enron was that its board of directors waived many rules related to conflicts of interest by allowing the chief financial officer (CFO) , Andrew Fastow, to create independent, private partnerships to do business with Enron.

These private partnerships were used to hide Enron's debts and liabilities. If they'd been accounted for properly, they would have reduced the company's profits significantly.

Enron's lack of corporate governance allowed the creation of the entities that hid the losses. The company also employed dishonest people, from Fastow down to its traders, who made illegal moves in the markets.

The Enron scandal and others in the same period resulted in the 2002 passage of the Sarbanes-Oxley Act . It imposed more stringent recordkeeping requirements on companies and stiff criminal penalties for violating them and other securities laws. The aim was to restore confidence in public companies and how they operate.

It's common to hear examples of bad corporate governance. In fact, it's often why companies end up in the news. You rarely hear about companies with good corporate governance because their corporate guiding policies keep them out of trouble.

One company that seems to have consistently practiced good corporate governance, and adapts or updates it often, is PepsiCo. In drafting its 2020 proxy statement, PepsiCo sought input from investors in six areas:

• Board composition, diversity, and refreshment, plus leadership structure
• Long-term strategy, corporate purpose, and sustainability issues
• Good governance practices and ethical corporate culture
• Human capital management
• Compensation discussion and analysis
• Shareholder and stakeholder engagement

The company included in its proxy statement a graphic of its current leadership structure. It showed a combined chair and CEO along with an independent presiding director and a link between the company's "Winning With Purpose" vision and changes to the executive compensation program.

What Are the 4 Ps of Corporate Governance?

The four P's of corporate governance are people, process, performance, and purpose.

Why Is Corporate Governance Important?

Corporate governance is important because it creates a system of rules and practices that determines how a company operates and how it aligns with the interest of all its stakeholders. Good corporate governance fosters ethical business practices, which lead to financial viability. In turn, that can attract investors.

What Are the Basic Principles of Corporate Governance?

Corporate governance consists of the guiding principles that a company puts in place to direct all of its operations, from compensation, risk management, and employee treatment to reporting unfair practices, dealing with the impact on the climate, and more.

Corporate governance that calls for upstanding, transparent behavior can lead a company to make ethical decisions that will benefit all of its stakeholders, including investors. Bad corporate governance can lead to the breakdown of a company, often resulting in scandal and bankruptcy.

Apple. " Investor Relations. Leadership and Governance ."

BBC. " Scandal Cuts VW Sales by 4.5% This Year ."

Dibra, Rezart. " Corporate Governance Failure: The Case of Enron and Parmalat ." European Scientific Journal , vol.12, no. 16, June 2016, pp. 283-290.

Corporate Secretary. " PepsiCo Finds Governance Success Through Evolution ."

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A Guide to the Big Ideas and Debates in Corporate Governance

• Lynn S. Paine
• Suraj Srinivasan

The questions that boards, managers, and shareholders should be asking.

How corporations govern themselves has become a matter of broad public interest in recent decades. Amid this many commentators and experts still disagree on such basic matters as the purpose of the corporation, the role of corporate boards of directors, the rights of shareholders, and the proper way to measure corporate performance. The issue of how shareholder interests should be considered in corporate decision making is particularly contentious. This article is a resource for understanding today’s key debates around governance and identifying the main areas in which changes are being called for. Many readers are grappling with these questions now or may have to address in the near future; in any case, the debates are sure to affect how business operates across the globe.

Corporate governance has become a topic of broad public interest as the power of institutional investors has increased and the impact of corporations on society has grown. Yet ideas about how corporations should be governed vary widely. People disagree, for example, on such basic matters as the purpose of the corporation, the role of corporate boards of directors, the rights of shareholders, and the proper way to measure corporate performance. The issue of whose interests should be considered in corporate decision making is particularly contentious, with some authorities giving primacy to shareholders’ interest in maximizing their financial returns and others arguing that shareholders’ other interests — in corporate strategy, executive compensation, and environmental policies, for example — and the interests of other parties must be respected as well.

• Lynn S. Paine is a Baker Foundation Professor and the John G. McLean Professor of Business Administration, Emerita, at Harvard Business School.
• Suraj Srinivasan is the Philip J. Stomberg Professor of Business Administration at Harvard Business School and Chair of the Digital Value Lab at Harvard’s Digital, Data and Design Institute.

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8 Importance of Corporate Governance: All You Need to Know!

Every company may have policies, rules, or principles which dictate how it functions. These policies differ for each company. However, there are some areas within companies that operate similarly. Furthermore, some areas within a company are critical and need proper attention.

What is Corporate Governance?

Corporate governance allows companies to regulate their relationships with their stakeholders better. These may include both internal and internal stakeholders. It ensures that the board of directors only pursue objectives that are in line with stakeholders’ expectations. Corporate governance deals with the integrity and objectivity of a company’s board of directors in their dealings with the stakeholders.

What is the Importance of Corporate Governance?

Some companies may view corporate governance as an unnecessary and costly process. However, a proper corporate governance system has many advantages. While corporate governance can benefit companies, its importance relies on how companies use it. As mentioned, corporate governance defines the rules, principles, and regulations that companies can use for control and direction. But for these to be effective, companies must use them properly.

#1. Minimize Agency Problems

Agency is when one entity acts as another entity’s agent. In companies, the management acts on behalf of the shareholders, which is a type of agency relationship. In some instances, the board of directors may not act in the shareholders’ best interests. Corporate governance tackles that problem by ensuring the objectives of both the shareholders and the management are in line.

#2. Protect Stakeholders

#3. attract investors, #4. promotes accountability.

A good corporate governance system ensures that companies follow a sound, transparent, and credible financial reporting system. This way, corporate governance helps promote accountability in a company. This accountability can also help in the above aspects, helping attract more investors or protect stakeholders.

#5. Mitigate Risks

#6. ensure compliance, #7. improve efficiency.

Corporate governance also helps companies maximize operational and organizational efficiency. Many companies have ineffective governance, which also translates into below-average performance. Corporate governance lays the foundation for how a company handles its operations, uses its resources, applies innovation, and implements corporate strategies. Through these, it also improves a company’s efficiency.

#8. Ensure corporate Social Responsibility

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Importance of corporate governance in an organization

The importance of corporate governance in today's progressive and aggressive business environment cannot be denied. According to the Financial Times , it's "crucial to the achievement of a new frontier of competitive advantage and profitability." With so much attention focusing on this business practice, it may be time to ask: What is corporate governance exactly, and what makes it so imperative to a company's success?

What Is Corporate Governance, and Why Is It Important?

In its January 2017 Quarterly Board Matters report, Ernst & Young (EY)'s Center for Board Matters examined corporate governance trends at Russell 2000 and S&P 500 companies. While it found that corporate governance is a "topic of increasing interest to policymakers, investors and other stakeholders," the way it's enacted by businesses isn't always consistent. Some organizations concentrate on independent board leadership, EY says . Others have shifted from staggered to annual elections. Just as no two business strategies are alike, a corporate governance policy is likely to vary from one company to the next. The inner workings of corporate governance strategies may differ, but the business practices they comprise are generally more uniform. ICSA: The Governance Institute defines corporate governance as "the way in which companies are governed and to what purpose." To elaborate, corporate governance impacts all aspects of an organization, from communication to leadership and strategic decision-making, but it primarily involves the board of directors, how the board conducts itself and how it governs the company. Business advisory firm PricewaterhouseCoopers (PwC) calls corporate governance "a performance issue," because it provides a framework for how the company operates. According to PwC, corporate governance should encompass the following:

• The company's performance and the performance of the board
• The relationship between the board and executive management
• The appointment and assessment of the board's directors
• Board membership and responsibilities
• The "ethical tone" of the company, and how the company conducts itself
• Risk management, corporate compliance and internal controls
• Communication between the board and the C-suite
• Communication with the shareholders
• Financial reporting

This list provides a bird's-eye view of corporate governance in action, and conveys the extent to which it can influence business. To help organizations navigate corporate governance, Deloitte offers a Governance Framework that outlines the board's objectives and responsibilities, and how they relate to the corporate governance infrastructure. But simply implementing a corporate governance strategy isn't the same as achieving success. Most examples of good corporate governance have something in common, too: they're built on a foundation of transparency, accountability and trust. Time and time again, these three terms enter into the corporate governance discourse. They have immense value, whether a business is family-run, a nonprofit or a publicly traded company. That's one of the reasons why corporate governance is top of mind for so many business professionals. Above all, the role of corporate governance in modern organizations is to demonstrate these key principles to shareholders, stakeholders and the public.

The Role of Corporate Governance in Modern Organizations

Let's take a closer look at two of these principles: transparency and trust. Businesses today are held to incredibly high standards by investors and customers alike ' consider that 66 percent of global consumers told research firm Nielsen they would be willing to pay more for products from a company that demonstrates corporate social good. Being honest and open about process and operations counts a great deal. Both shareholders and consumers want to see companies operating with integrity. Corporate governance allows companies to put their positive traits on display. With their intentions made visible to all, companies are more likely to be held accountable for their behavior and actions ' and thus more willing to distance themselves from duplicity. This is especially crucial now that trust in businesses is on the decline. Communications and marketing firm Edelman's annual Edelman Trust Barometer , a global survey that measures consumers' trust in business, the media, the government and nongovernmental organizations, found that trust in all four is down for the first time in 17 years. The credibility of CEOs is at an all-time low too, with 63 percent of survey respondents saying CEOs are somewhat credible or not credible at all. "Just 52 percent of respondents to our survey said they trust business to do what is right," reports Matthew Harrington, global chief operating officer of Edelman, in an overview of the survey published by the Harvard Business Review . But when trust is waning, corporate governance can lift it up again.

Displaying Social Responsibility

In an attempt to minimize the risk of distrust, companies go out of their way to emphasize their social responsibility in their corporate governance materials. Organizations of all kinds, including Royal Bank of Canada and Hong Kong's Link Real Estate Investment Trust , choose to make their corporate governance frameworks public. Doing so can go a long way toward putting shareholders' and customers' minds at ease. The Corporate Governance and Ethics section of Microsoft's website, meanwhile, stresses that the company strives to "build and maintain trust through a shared commitment to ethical behavior and to act with integrity in everything we do." Making ' and keeping ' this kind of promise can have a considerable impact on an organization's reputation and success. As explained in a recent PRWeek magazine article, corporate governance "affects and dictates the internal functioning and morale of a company, and it also projects externally to the public." In essence, companies must make a choice: embrace corporate governance and its implied conventions, or reject them. And as expressed by Claudia Gioia , president and CEO of Hill+Knowlton Latin America, those who "turn away from the policies of honesty and transparency lose credibility and competitive advantages."

Considering Company Culture

Business priorities aside, another explanation for different corporate governance strategies comes down to different company cultures. A company's unique culture permeates everything from vision to values, organizational structure, work environment and hiring practices, so it stands to reason that it should affect corporate governance, too. According to EY , "Corporate culture is emerging as an important consideration for boards and audit committees, touching as it does every aspect of a company, from strategy to compliance." Culture is cropping up in the corporate governance policies of companies like Bank of America and Nestl?' . The more involved boards become in corporate governance, the more they influence company culture ' and vice versa. For example, on its website, Nestl?' writes :

In other words, corporate governance has value beyond demonstrating a company's social responsibility efforts and overall principles. It can also shape a company's culture, which, in turn, shapes the way an organization's leaders lead, the way its workers work and how customers perceive the businesses with which they choose to engage.

Security Matters

Given that good corporate governance is linked to transparency, accountability and trust, the issue of security warrants special attention. Communication may be just one facet of corporate governance, but the fact that it includes the internal and external exchange of invaluable data and information makes prioritizing cybersecurity a key part of company policy. Drafting a board communications plan is a good way to ensure all parties are on the same page about communication best practices. In its study of trends in board portal adoption , online resource Corporate Secretary wrote, "Other methods of digital document distribution cannot match the controlled collaboration environment offered by board portal technology." Control is the word to note here. Aside from communication, gaining and maintaining control over an organization's security has a positive effect on many other areas of corporate governance policy, including risk management, financial reporting, board performance and how the company chooses to conduct itself. The Financial Times writes, "Good corporate governance is a competitive advantage." Without it, a company cannot reach its potential, and that makes corporate governance indispensable. Interested in learning more about good corporate governance and how board portals can complement and enhance it? Contact us for a demo today.

What is the Governance Cloud?

Board directors are obligated to perform a host of varied duties and responsibilities. Diligent developed a suite of tried and true governance tools to help them fulfill their responsibilities accurately and efficiently. The Governance Cloud ecosystem of products includes :

• Diligent Boards
• Director and officer questionnaires (pre-filled forms)
• Board evaluations
• Resolutions and voting
• Diligent Messenger
• Diligent Minutes
• Insights (curated content and videos) (beta)
• Entity Management

As board directors continue to express their needs to digitize governance processes, Diligent will continue to expand to meet these needs. Collectively, these tools enable corporations to achieve a fully digitized and integrated governance ecosystem to mitigate risk, plan for strategic growth and ultimately, govern at the highest level.

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The Principles of Corporate Governance: A Guide to Understanding Concepts of Corporate Governance

A roadmap to understanding the fundamental concepts of corporate governance based on theory, empirical research, and data. This guide takes an in-depth look at the Principles of Corporate Governance .

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Essay on Corporate Governance | Company Management

Here is an essay on ‘Corporate Governance’ for class 11 and 12. Find paragraphs, long and short essays on ‘Corporate Governance’ especially written for school and college students.

Essay on Corporate Governance

Essay Contents:

• Essay on the Usefulness of Corporate Governance Reports

Essay # 1. Introduction to Corporate Governance:

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India has the largest number of listed companies in the world, and the efficiency and well-being of the financial markets is critical for the economy in particular and the society as a whole. It is imperative to design and implement a dynamic mechanism of corporate governance, which protects the interests of relevant stakeholders without hindering the growth of enterprises.

Meaning of Corporate Governance:

Corporate governance is the framework for creating long-term trust between companies and the external providers of capital. Corporate governance involves a, set of relationships amongst the company’s management, its board of directors, its shareholders, its auditors and other stakeholders.

These relationships, which involve various rules and incentives, provide the structure through which the objectives of the company are set, and the means of attaining these objectives as well as monitoring performance are determined. Thus, the key aspects of good corporate governance include transparency of corporate structures and operations; the accountability of managers and the boards to shareholders; and corporate responsibility towards stakeholders.

ADVERTISEMENTS: (adsbygoogle = window.adsbygoogle || []).push({}); Essay # 2. Importance of Corporate Governance:

Good corporate governance—the extent to which companies are run in an open and honest manner—is important for overall market confidence, the efficiency of capital allocation, the growth and development of countries’ industrial bases, and ultimately the nations’ overall wealth and welfare.

Companies around the world are realizing that better corporate governance adds considerable value to their operational performance:

i. It improves strategic thinking at the top by inducting independent directors who bring a wealth of experience, and a host of new ideas.

ii. It rationalizes the management and monitoring of risk that a firm faces globally. It limits the liability of top management and directors, by carefully articulating the decision making process.

iii. It assures the integrity of financial reports.

iv. It has long-term reputational effects among key stakeholders, both internally and externally.

Essay # 3. Parties of Corporate Governance:

This issue of whether a company should be run solely in the interest of the shareholders or whether it should take into account the interest of all constituents has been widely discussed and debated.

In India, the shareholder vs. stakeholder debate has been resolved by taking the view that since shareholders are residual claimants, in well performing capital and financial markets, whatever maximises shareholder value should maximise corporate prosperity and best satisfy the claims of creditors, employees, shareholders, and the State.

Moreover, there exist well-defined laws to protect the interests of employees, and recently framed legislations have considerably strengthened the rights of the creditors. In this context it is appropriate that corporate governance regulations in India seek to promote the rights of shareholders, while at; the same time ensure the interests of other stakeholders are not adversely impacted.

Essay # 4. Growth of Corporate Governance Concept:

Corporate governance guidelines and best practices have evolved over a period of time. Given the peculiar system of ownership, nature of the financial sector and business practices in each economy, it is imperative that the governance mechanisms are designed to suit their unique nature. Since the mid-1990s, several corporate governance guidelines and regulations have been prepared in different parts of the world.

Some of these are:

i. Cadbury Committee Report (1992)

ii. CalPERS—Global Corporate Governance Principles (1996)

iii. Market Specific Principles—UK and France (1997)

iv. Market Specific Principles—Japan and Germany (1997)

v. Core Principles and Guidelines—USA (April 1998)

vi. TIAA-CREF—Policy Statement on Corporate Governance (September 1997)

vii. Business Roundtable—Statement on Corporate Governance (September 1997)

viii. Hampel Report on Corporate Governance—UK (January 1998)  

ix. The Sarbanes-Oxley Act—USA (August 2002)

x. The Higgs Report—UK (January 2003)

At the same time given the increasing interdependence and integration of financial markets around the world it was felt that it is important that some degree of uniformity and coherence is established in the laws of all countries. With this objective the Organisation for Economic Co-operation and Development (OECD) Council, meeting at Ministerial level on 27-28 April 1998, called upon the OECD to develop, in conjunction with national governments, other relevant international organizations and the private sector, a set of corporate governance standards and guidelines.

In order to fulfill this objective, the OECD established the Ad-Hoc Task Force on Corporate Governance to develop a set of non-binding principles that embody the views of OECD countries on this issue.

In April 2004, the governments of the 30 OECD countries approved a version of the OECD’s Principles of Corporate Governance for good practice in corporate behavior with a view to rebuilding and maintaining public trust in companies and stock markets. These principles call on governments to ensure effective regulatory frameworks and on companies to be more accountable.

The principles include increased awareness among institutional investors, enhanced role for shareholders in executive compensation, greater transparency and effective disclosures to counter conflicts of interest.

Essay # 5. Corporate Governance Initiatives in India:

There have been several major corporate governance initiatives launched in India since the mid-1990s. The first was by the Confederation of Indian Industry (CII), India’s largest industry and business association, which came up with the first voluntary code of corporate governance in 1998.

The second was by the SEBI, now enshrined as Clause 49 of the listing agreement. The third was the Naresh Chandra Committee, which submitted its report in 2002. The fourth was again by SEBI—the Narayana Murthy Committee, which also submitted its report in 2002.

The Confederation of Indian Industry (CII) Code:

More than a year before the onset of the Asian crisis, CII set up a committee to examine corporate governance issues, and recommend a voluntary code of best practices. The committee was driven by the conviction that good corporate governance was essential for Indian companies to access domestic as well as global capital at competitive rates.

The first draft of the code was prepared by April 1997, and the final document (Desirable Corporate Governance – A Code), was publicly released in April 1998. The code was voluntary, contained detailed provisions, and focused on listed companies.

Kumar Mangalam Birla Committee Report and Clause 49:

While the CII code was well received and some progressive companies adopted it, it was felt that under Indian conditions a statutory rather than a voluntary code would be more purposeful, and meaningful. Consequently, the second major corporate governance initiative in the country was undertaken by SEBI.

In early 1999, it set up a committee under Kumar Mangalam Birla to promote and raise the standards of good corporate governance. In early 2000, the SEBI board accepted and ratified key recommendations of this committee, and these were incorporated into Clause 49 of the Listing Agreement of the Stock Exchanges.

The Naresh Chandra Committee Report on Corporate Governance:

The Naresh Chandra Committee was appointed in August 2002 by the Department of Company Affairs (DCA) under the Ministry of Finance and Company Affairs to examine various corporate governance issues. The Committee submitted its report in December 2002. It made recommendations on two key aspects of corporate governance – financial and non-financial disclosures and independent auditing and board oversight of management.

Narayana Murthy Committee Report on Corporate Governance:

The fourth initiative on corporate governance in India was in the form of the recommendations of the Narayana Murthy Committee. The committee was set up by SEBI, under the chairmanship of Mr. N. R. Narayana Murthy, to review Clause 49, and suggest measures to improve corporate governance standards.

Some of the major recommendations of the committee primarily related to audit committees, audit reports, independent directors, related party transactions, risk management, directorships and director compensation, codes of conduct and financial disclosures.

SEBI has incorporated the recommendations made by the Narayana Murthy Committee on Corporate Governance too in Clause 49 of the listing agreement. The revised Clause 49 has been made effective from January 1, 2006.

The system of ‘independent directors’ in order to secure good corporate governance in Indian listed companies. An independent director has been defined as, ‘a non-executive director who, apart from receiving director’s remuneration, does not have any pecuniary relationships with the company, its promoters or associates, and is not a relative’.

The Naresh Chandra Committee has recommended that at least 50 percent of the Board of a listed company should consist of ‘independent directors’. The Narayana Murthy committee has also endorsed the Naresh Chandra committee recommendations.

Both Naresh Chandra and Narayana Murthy Committees have ignored the complexity caused by the existence of controlling blocks in most of the Indian companies. In such a situation, an independent director is a weak instrument for ensuring good governance, because he is ‘elected’ to the Board by the grace of the controlling group itself.

Essay # 6. Usefulness of Corporate Governance Reports:

All the listed companies pursuant to clause 49 of the Listing Agreement should include a ‘Report on Corporate Governance’ in their annual report. This report should give details of company’s philosophy on code of governance, Board of Directors, their attendance at the board meetings, various committees—their functions, members, meetings held during the year, disclosures regarding the transactions entered into with directors or the management, their relatives, code of conduct, means of communication, general shareholder information, etc. The main objective of providing this report is to enable the shareholder to have an idea of what is going on in the company.

In the backdrop of this information the investors were enquired whether they have gone through Corporate Governance Reports given in annual reports. Their response is given in Table 12.1.

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Corporate Governance and Corporate Social Responsibility Essay (Critical Writing)

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Introduction

Corporate social responsibility (CSR) is a form of corporate self-regulation incorporated into the business, which functions as an instrument by which a corporation examines and ensures its active conformity with the provisions of the law, ethical norms, and global practices.

The main role of social initiatives is to uphold responsibility and promote a positive impact through its conduct towards the environment, customers, staff, the immediate community, and all members of the public domain (Pearce & Robinson, 2011). In addition, CSR actively promotes the community’s growth and development, and eradicates norms that harm the public, irrespective of legality.

Although there is no single universally accepted definition of CSR, it can be summarized as the intentional inclusion of public interest into corporate decision-making processes, and the honoring of the three corporate pillars: people, planet, and profit.

CSR ensures that a corporation goes beyond its normal requirements so as to handle staff with dignity, operate with integrity and ethics, respect human rights, sustain the environment for future generations, and be responsible in the community (be a good ‘corporate citizen’).

A study conducted by the Fleishman –Hillard in association with the National consumers League came up with the following results regarding the importance of CSR:

From the table, it is evident that CSR programs are very important towards communities and the corporation’s staff.

On the other hand, corporate governance generally refers to the rules, processes, or laws by which corporations are managed, regulated and controlled, and can refer to the internal processes agreed upon by the officers, stockholders or constitution of a corporation, as well as external forces such as consumer groups, customers, and government directives (Brown and Dacin, 1997, pp. 81).

A fundamental theme of corporate governance is the nature and extent of responsibility and accountability of specific individuals in the corporation’s hierarchy, and mechanisms that attempt to eliminate or mitigate the problems that arise due to a lack of corporate governance (Freeman and Jeannen, 1991, pp. 122).

A clearly defined and implemented corporate governance provides a structure that benefits all stakeholders and ensures that the corporation holds onto standard ethical norms and best practices in addition to the formal laws.

Their has been a recent focus on corporate governance among international firms due to the high-profile scandals involving misuse of corporate power that have at times led to the collapse of these corporations. Some of these corporate scandals include the Enron Corporation scandal of 2001 and MCI Inc (previously WorldCom) scandal.

The scandals led to the collapse of these corporations and reminded governments and corporations of the significance or corporate governance. A primary element of corporate governance includes provisions for civil or criminal prosecution of staff who are found guilty of unethical and/or illegal activities due to the power bestowed upon them by the corporation (Gobe, 2002, pp. 12).

Both corporate governance and corporate social responsibility are becoming increasingly important to organizations, governments, and service providers as they strive to meet the challenges of social and economic problems while altering welfare environments and this can be attributed to a number of factors, economic, social, cultural, and legal, and so on.

However, progress in these two areas is often hampered by the fact that the fields are under researched even as corporations face new demands to improve their accountability, transparency, integrity and ethical behavior while observing the interests of its staff and that of the general public (Pearce & Robinson, 2011, pp. 5).

The paper will present a critical analysis of factors that have led many international firms to focus on corporate social responsibility and corporate governance in recent years.

Factors that have led to the increase of Interest in corporate social responsibility and corporate governance

Economic factors.

The importance of corporate governance lies in its contribution both to the success of the business and to accountability. Companies that have embraced corporate governance, mostly public companies, are today regarded as the most accountable companies.

They make their trading results public, and they are required to disclose as much information as possible about their dealings, relationships, remuneration and government arrangements. The importance of accountability was evident in the prosperity made by Cadbury Inc.

However, business prosperity cannot be forced or commanded, it requires the collective contribution of people through teamwork, effective leadership, enterprise, experience and skills (Cochran and Wood, 1984, pp. 43).

There is no single strategy for bringing these elements together, and it is risky to encourage the notion that rules and regulations on structure will automatically deliver success. On the other hand, accountability must be accompanied by rules and regulations, in which disclosure is the central facet.

Therefore, since corporate governance emphasizes on accountability, an international corporation or business will be able to bring together the above-mentioned elements to ensure prosperity in its operations in various locations around the world (Pearce & Robinson, 2011, pp. 122).

Rules and regulations instituted by the committee at the home country are relayed across all divisions, branches and franchises around the world and this results in success in these individual locations, and of the international organization in general.

Besides, good corporate governance can considerably reduce malpractice and fraud in an organization, although it cannot totally eliminate them.This reduces financial losses incurred by the organization whenever such malpractices occur.

A final economic factor that has made international organization increase their interest in corporate governance is related to confidence among investors.

Logically, a very small number of investors will be attracted to an organization that offers weak investor protection, however, for an organization that embraces corporate governance, investor confidence levels are up and this has the potential of attracting investors and raising extra cash through activities such as public listing, sale of shares, stocks, debentures, and so on (Cooper, 2004, pp. 76).

In a similar fashion CSR is of great importance to the economic success of any business organization, be it local or international. CSR not only involves doing the right thing(s), it entails responsible conduct, and also dealing with suppliers, distributors and other constituents of the supply chain network who do the same.

When a corporation implements CSR programs, then this can become known by the customers, suppliers and the local community.

This publicity can contribute significantly to the business in terms of winning contracts. Besides, customers often want to buy from corporations and businesses that are responsible in the way they treat them and in general those corporations that conduct their activities in in an ethical manner as dictated by the CSR policies.

Some clients do not only prefer to deal with responsible corporations, they insist on it (McWilliams and Siegel, 2000, pp. 608). For instance, the Co-operative Group, a consumer co-operative in the UK, attaches a significant importance on its CSR and publishes in depth reports on its performance on a wide range of measures, from animal welfare to the quantities of salt in its pizzas.

And in a study conducted in 2001 by Hill & Knowlton/Harris Interactive showed that 79 per cent of US citizens take into account CSR practices in their decision to buy from a given company. Overall, 36 per cent of those interviewed believe that CSR is a primary factor in deciding to buy a product.

Indeed, 91 per cent of the respondents said that they will switch loyalty to another company if the company has a negative image (Gobe, 2002, pp. 96). In another study conducted by The Aspen Institute Initiative for Social Innovation through Business among students, more than 50 per cent of the respondents said that they would quit their positions if the corporation did not support their values.

In conclusion, CSR programs increase a company’s sales turnover and thereby increases the returns on investments (ROI) besides improving cash flows. Therefore, corporations that implement CSR programs achieve more economic growth and become more competitive in the rapidly changing international business environment (Herremans et al. 1993, pp. 689).

Social factors

The importance of effective CSR strategies and corporate governance in the social spheres cannot be overemphasized. The role that businesses can play in the development of society is very important, and has been underestimated at times.

In fact, the activist community has been very instrumental in pushing organizations to implement CSR programs and corporate governance, and most of these programs are implemented with an aim of improving the organization’s image in the eyes of the public.

In other words, businesses and organizations introduced CSR reports and programs to reduce the damage inflicted on their activities and reputation by attacks from activist social groups who benefitted from 24-hour news media that mainly focus on corporate misconducts.

While, on one hand, this makes a captivating news item, it puts pressure on corporations to give back part of their wealth to society in return for what they have obtained from it (McWilliams and Siegel, 2000, pp. 608). Hence, it not just important for organizations to make profits, the way the profit is made and how it is used is a deep concern for social activists and the general public (Pearce & Robinson, 2011, pp. 75).

An organization must not be seen to be engaging in unethical or illegal practices in any area of its operations such as market conduct, trade policies, staff relations, obtaining raw materials, human rights, and environmental laws.

Whenever any of these offences are detected or observed in any organization, the activists put pressure on them through various forms of media and other channels such as boycotts, sabotage, and protests (Burke and Logsdon, 1996, pp. 501).

Therefore, in implementing CSR programs, a company aims to improve its image and this results into numerous advantages such as increase in sales of the organization’s products and the ability to attract and retain competent staff.

Indeed, a study conducted in 2008 by the Grant Thornton Grant Thornton International Business Report (IBR) revealed the desire to recruit and retain staff is one of the major drivers of CSR as shown below.

CSR also help a corporation differentiate itself by creating a strong corporate brand through CSR programs. Even among competitors, CSR can be significant in helping a corporation stand out. For instance, Wal-Mart, an international corporation, is famous as a business owned by its workers. Its CSR activities are directed to customer service, sales and profits.

Corporate governance also has a similar effect of improving the company’s image in the eyes of the public. The primary role of corporate governance is its transparency and accountability principles. An advantage of corporate governance is that its benefits, or the outcome of failing to implement it, can be assessed and measured by the public.

For instance, when Enron Corporation failed to fix poor financial reporting and a lack of conformation to standard accounting principles, the outcome was evident to all: the bankruptcy of the corporation. On the positive end, companies such as Coca Cola have continued to win public support due to their strong corporate governance policies (McWilliams and Siegel, 2000, pp. 607).

Legal Factors

Another reason for the increasing interest of international corporations in corporate governance and CSR is the need to conform to legal provisions and requirements. Central and state labor offices investigate compliance with all matters pertaining to employment such as wages, working conditions, working hours, discrimination, child labor and other human rights violations, and so on (Linton et al, 2004, pp. 230).

Other authorities also investigate issues pertaining to the environment with respect to the operations of the operations such as environmental pollution and degradation, use of toxic substances in the manufacture of products meant for human consumption, use of non-biodegradable materials, and so on.

These organization fine companies found to be flouting any rules, and in serious situations, such organizations can be shut down temporarily or permanently (Herremans et al. 1993, pp. 704). Other punishments may include profit disgorgement from firms found to be selling goods obtained from corporations that do not comply with the legal requirements.

However, implementing and monitoring CSR programs and corporate governance policies can be significant in helping a corporation comply with the various regulatory requirements, especially in an international market where the management may not have adequate information regarding the requirements.

Implementing a CSR aimed at ensuring that staff works in humane conditions and the wages equal or exceed the minimum wage requirements. Such a move can ensure that the firm does not violate legal requirements relating to these issues (Pearce & Robinson, 2011, pp. 56).

Other business processes that may lead to legal action against the corporation include the failure to have an effective Foreign Corrupt Practices Act compliance program and this may result into investigation and if found guilty, the corporation may be fined millions of dollars.

Insufficient knowledge of the corporation’s supply chain may result in the use of an unauthorized contractor, leading to hefty fines. Besides, corporations that do not sufficiently monitor suppliers’ product safety systems can be sued (Brown and Dacin, 1997, pp. 75).

With a strong CSR program that is employee focused in place, legal actions relating to staff discrimination, abuse, or issues relating to wages can be mitigated.

A customer and environment oriented CSR program can lead to an improvement of product safety and use of green technologies in manufacturing processes that ensure environmental protection and compliance to environmental laws both at home and in international locations.

Similarly, corporate governance policies can result in transparency regarding the corporation’s handling of issues relating to staff, production methods, supply chain processes, and so on.

This may result in a review and evaluation of these policies by external persons and bodies and this may assist a corporation in identifying areas that have not conformed to the legal provisions in the country of operation (McWilliams and Siegel, 2000, pp. 607).

Cultural Factors

The influence of culture in setting CSR programs and corporate governance policies is considerable. International corporations such as Bayer AG are known for having a culture of corporate citizenship dating back more that a century ago.

For example, the company has supported community sporting activities since the early 20 th century, the most evident of these activities is its supporting of Bayer 04 Leverkusen soccer club, which it has supported since 1904 to date. Bayer AG has continued with its corporate citizenship activities through the support of disabled athletes, evident during the Beijing Olympics in 2008 (Bayer, 2011, para. 3).

Cultural influence to implementing corporate citizenship policies are seen when a corporation moves into a country or community where specific aspects of business operations and values are observed.

For example, when Coca Cola began production of its products in the Saudi Arabian market in 1988, it had to conform to the Muslim ways of doing business and in the process, embraced CSR activities aimed at fulfilling its corporate citizenship objectives (McWilliams and Siegel, 2000, pp. 605).

These shifts included the use of decently dressed persons in its advertisements to reflect the Muslim tradition and use of halaal materials in its production processes. Incidentally, these activities represented people-directed CSR activities in respect of their tradition and culture. The company also embraced corporate governance principles such as ethical and transparent accounting procedures.

Both corporate governance and corporate social responsibility are very important towards the overall success of a business entity operating in numerous countries. These two aspects of large organizations are important in a number of business processes and can be used as marketing, tools.

Economically, corporate governance enables firms to bring together elements of business success such as teamwork, effective leadership, enterprise, experience and skills. Besides, good corporate governance can considerably reduce malpractice and fraud in an organization and improve investor confidence. Customers other groups in the supply chain network prefer to deal with companies that embrace CSR.

Socially, in implementing CSR programs and embracing corporate governance, a company can improve its public image and this results into numerous advantages such as increase in sales of the organization’s products and the ability to attract and retain competent staff.

CSR and corporate governance are important in legal spheres as they ensure that a corporation conforms to the legal requirements in the country if operation regarding wages, workplace conditions, discrimination, environmental issues, product manufacturing processes, and supply chain networks, among others.

CSR and corporate governance can also be of importance in conforming to the culture and traditions of a community, or the country in general.

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McWilliams, A., and Siegel, D. (2000). Corporate Social Responsibility and Financial Performance: Correlation or Misspecification? Strategic Management Journal , Vol. 21, No. 5, pp. 603-609.

Pearce, J. A., & Robinson, R. B. (2011). Strategic management: Formulation, implementation, and control. (12th ed.). Boston: McGraw-Hill/Irwin.

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IvyPanda. (2019, May 12). Corporate Governance and Corporate Social Responsibility. https://ivypanda.com/essays/corporate-governance-and-corporate-social-responsibility-critical-writing/

"Corporate Governance and Corporate Social Responsibility." IvyPanda , 12 May 2019, ivypanda.com/essays/corporate-governance-and-corporate-social-responsibility-critical-writing/.

IvyPanda . (2019) 'Corporate Governance and Corporate Social Responsibility'. 12 May.

IvyPanda . 2019. "Corporate Governance and Corporate Social Responsibility." May 12, 2019. https://ivypanda.com/essays/corporate-governance-and-corporate-social-responsibility-critical-writing/.

1. IvyPanda . "Corporate Governance and Corporate Social Responsibility." May 12, 2019. https://ivypanda.com/essays/corporate-governance-and-corporate-social-responsibility-critical-writing/.

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IvyPanda . "Corporate Governance and Corporate Social Responsibility." May 12, 2019. https://ivypanda.com/essays/corporate-governance-and-corporate-social-responsibility-critical-writing/.

Corporate Governance in India: Issues and Importance

26 Pages Posted: 1 Jul 2024

Rudra Pratap Singh Sengar

NMIMS Deemed-to-be-University

Date Written: June 01, 2024

Corporate governance includes everything that is done to give its citizens a good quality of life. With the fast pace of “ change in the business world and the creation of new rules by ” international ” organizations. The concept of Corporate Governance (CG) has been introduced and given a boost. Corporate governance sets the basic values for an organization's culture. This makes sure that the business works well and is based on ethical values and principles. It looks at how a company should be managed and how its controls should be set up. It tells boards, managers, shareholders, and other stakeholders what their rights and responsibilities are and how far they can go. Corporate governance is mostly about long-term relationships, like “checks and balances”, “managers' incentives”, and “communication between management and investors and a business relationship” that has to do with issues of disclosure and authority.

Most of the above definitions of "Corporate Governance" focus on setting minimum standards and describing the roles of the different people who are involved.

Suggested Citation: Suggested Citation

Rudra Pratap Singh Sengar (Contact Author)

Nmims deemed-to-be-university ( email ).

Mumbai India

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Digitalisation and corporate governance

• Industry, business and entrepreneurship
• Finance and investment
• Corporate governance
• Financial markets

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This paper addresses the implications of digitalisation on corporate governance. It focuses in particular on the potential for digitalisation to improve market supervision and enforcement of corporate governance related requirements and the efficiency of disclosure; its use for remote and hybrid participation in general shareholder meetings; the implications of digital security risks and the role of the board in their management; and how digitalisation can encourage the development of primary public equity markets.

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Why corporate social responsibility should be recognized as an integral stream of international corporate governance

• Karen Paul , 
• Department of International Business, Florida International University, Miami FL, USA
• Received: 12 February 2024 Revised: 24 May 2024 Accepted: 17 June 2024 Published: 20 June 2024

JEL Codes: M16

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This paper reviews the existing corporate social responsibility (CSR) content in the field of international corporate governance (ICG) and suggests specific lines of potential integration of existing theory and research on topics such as green finance, sustainability, and bottom-of-the-pyramid studies. The approach began with an extensive review of the literature in ICG culminating in a review by Aguilera et al. (2019) in which three streams of ICG research were identified. Examples of existing elements of CSR were subsumed in these dimensions, and an argument was made for more integration. CSR was not an important part of international business theory and research in the early days of the field. However, sufficient research exists now in CSR and of CSR topics in the field of international business to justify that CSR should be recognized as an important stream in ICG. This integration would be beneficial since calling attention to the development of theory and research and data availability in CSR can inform international business (IB) and ICG researchers and enable them to tackle previously under-researched issues from other disciplines and areas of the world.

• corporate social responsibility (CSR) ,
• corporate governance ,
• grand challenges ,
• green finance ,
• international business ,
• international corporate governance (ICG) ,
• sustainability ,
• wicked problems

Citation: Karen Paul. Why corporate social responsibility should be recognized as an integral stream of international corporate governance[J]. Green Finance, 2024, 6(2): 348-362. doi: 10.3934/GF.2024013

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IFRS Sustainability Disclosure Standards are developed by the International Sustainability Standards Board (ISSB). The ISSB is an independent standard-setting body within the IFRS Foundation.

IFRS Sustainability Standards are developed to enhance investor-company dialogue so that investors receive decision-useful, globally comparable sustainability-related disclosures that meet their information needs. The ISSB is supported by technical staff and a range of advisory bodies.

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Education, membership and licensing, issb delivers further harmonisation of the sustainability disclosure landscape as it embarks on new work plan.

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• Developments in strategic relationships between ISSB and each of the Transition Plan Taskforce, GHG Protocol, CDP, Taskforce on Nature-related Financial Disclosures and Global Reporting Initiative
• ISSB publishes Feedback Statement as it embarks on new two-year work plan
• Key engagements at IFRS Foundation Conference and London Climate Action Week as ISSB work advances

Today—at the IFRS Foundation Conference coinciding with London Climate Action Week—ISSB Chair Emmanuel Faber will announce further harmonisation of the sustainability reporting landscape, as the International Sustainability Standards Board (ISSB) embarks on its new two-year work plan and publishes the Feedback Statement on that work plan.

Key drivers that led the IFRS Foundation to establish the ISSB include the need to address the proliferation of voluntary initiatives in the sustainability disclosure landscape; to ensure that investors receive high-quality, comparable information about sustainability-related risks and opportunities; and to enable companies to provide such information to their investors efficiently.

Since the outset, the ISSB has worked to reduce the complexity of multiple sources of sustainability reporting initiatives, while building on the established expertise and practice associated with market-leading frameworks and standards.

The creation of the ISSB involved the consolidation of the Climate Disclosure Standards Board (CDSB), Sustainability Accounting Standards Board (SASB) and the International Integrated Reporting Council (IIRC) with the IFRS Foundation. Furthermore, the Task Force on Climate-related Financial Disclosures (TCFD) was disbanded following publication of the ISSB’s inaugural Standards, IFRS S1  General Requirements for Disclosure of Sustainability-related Financial Information and IFRS S2 Climate-related Disclosures .

The ISSB works closely with the body that brings together international securities regulators—IOSCO—as well as directly with jurisdictions, including through its Jurisdictional Working Group to support steps towards the use of the ISSB Standards. More than 20 jurisdictions have already decided to use or are taking steps to introduce ISSB Standards in their legal or regulatory frameworks. Together, these jurisdictions account for nearly 55% of global gross domestic product (GDP) and more than 40% of global market capitalisation.

During the next two years, the ISSB will deliver further harmonisation and consolidation of the disclosure landscape in response to market demand.

Harmonising disclosures about transition plans

Globally, disclosures on an entity’s plans to address any targets it has in place to transition to a lower-carbon economy—often called transition plans—are a growing proportion of corporate climate-related disclosures. IFRS S2 requires that information be disclosed if an entity has such a plan. To support application of these disclosure requirements and to reduce fragmentation in information provided in the market, the ISSB plans to support work to streamline and consolidate frameworks and standards for disclosures about transition plans.

This will also align with the ISSB’s focus on supporting the implementation of IFRS S1 and IFRS S2 over the next two years. The focus of the ISSB in this regard will continue to be on the provision of high-quality, decision-useful information about the plans that companies have, consistent with the focus of IFRS S2, rather than requiring that companies engage in transition planning, per se. 

To achieve this, first, the IFRS Foundation will assume responsibility for the disclosure-specific materials developed by the Transition Plan Taskforce, whose disclosure framework and related guidance draws on components identified by the Glasgow Finance Alliance for Net Zero (GFANZ) [1] . The disclosure-specific materials will be housed on the IFRS Sustainability Knowledge Hub . 

In the near term, the IFRS Foundation expects to use these materials to develop educational materials, ensuring that they do not change the requirements in IFRS S2, by tailoring them to ensure global applicability and to deliver full compatibility with the global baseline and IFRS S2’s focus on disclosures of the climate-related risks and opportunities affecting an entity’s prospects, to meet the needs of investors and the financial markets.

Over time, the ISSB will consider the need to enhance the application guidance within IFRS S2. In so doing, the ISSB will utilise these materials, as relevant, to support the provision of high-quality disclosures to meet investors’ information needs. Any such enhancements would be undertaken in accordance with the IFRS Foundation’s due process and mission. 

Measuring greenhouse gas (GHG) emissions effectively

IFRS S2 requires GHG emissions to be measured in accordance with the GHG Protocol Corporate Standard (2004), given its wide use around the world. Furthermore, IFRS S2 requires companies to use the categories of Scope 3 as set out in the Corporate Value Chain (Scope 3) Standard (2011).

To ensure ongoing compatibility between the work of the GHG Protocol and the ISSB and to ensure that the information provided meets the needs of capital markets, the IFRS Foundation and GHG Protocol have signed a Memorandum of Understanding to put in place governance arrangements so that the ISSB is actively engaged in updates and decisions made in relation to the GHG Protocol standards and guidance. This includes the appointment of a representative of the ISSB as an observer on the GHG Protocol Independent Standards Board.

Partnering with CDP to deliver alignment

CDP is the ISSB’s key global climate disclosure partner providing a trusted tool that supports companies on their path to compliance with ISSB Standards.

Earlier this month, CDP opened its new platform to 75,000 organisations. CDP’s 2024 questionnaire is aligned with IFRS S2 as the foundational baseline for CDP’s climate disclosure.

Full interoperability with Global Reporting Initiative (GRI)

As per the significant announcement between the IFRS Foundation and GRI in May 2024, the ISSB and GRI’s Global Sustainability Standards Board (GSSB) have committed to jointly identify and align common disclosures that address information needs under the distinct scopes and purposes of their respective standards, for both thematic and sector-based standard-setting.

This collaboration seeks to provide a seamless, global and comprehensive sustainability reporting system for companies looking to meet the information needs of both investors and a broader range of stakeholders.

Informed by the Taskforce on Nature-related Financial Disclosures

Finally, as set out in the ISSB’s Feedback Statement published today, the ISSB will look at how it might build from relevant initiatives to meet the information needs of investors as it embarks on its research project on biodiversity, ecosystems and ecosystem services.

The ISSB has agreed that in undertaking this research, it will consider how to build upon the recommendations of the Taskforce on Nature-related Financial Disclosures (TNFD) published in September 2023.

London Climate Action Week

Today, ISSB Vice-Chair Sue Lloyd and London Stock Exchange Group CEO David Schwimmer opened the London Stock Exchange, marking one year since the launch of the inaugural ISSB Standards.

The market opening was followed by a panel discussion during which Sue Lloyd discussed with Aviva CEO and Co-Chair of the Transition Plan Taskforce Amanda Blanc, GFANZ Vice-Chair Mary Schapiro and IOSCO Chair Jean-Paul Servais the plans for the ISSB to assume responsibility for the Transition Plan Taskforce’s disclosure-related materials.

Tomorrow—Tuesday 25 June—the Deloitte Academy in collaboration with the ISSB will host a hybrid event about advancing harmonisation through the ISSB, between 14:00–15:30 BST. The ISSB will be joined by speakers from CDP, GHG Protocol, GRI and TNFD. You can watch the event live .

ISSB Chair Emmanuel Faber said:

As we embark on our new two-year work plan that will see us strengthen and build out the global baseline of sustainability-related financial disclosures, I am grateful to our partners in the sustainability reporting landscape for their commitment to delivering an efficient, effective sustainability disclosure system for capital markets.

IOSCO Chair Jean-Paul Servais said:

Transition plans are increasingly being considered by investors as part of their broader review of climate disclosures and, where they are published by corporates, would benefit from a level of consistency and comparability to assist investors in their decision-making. In that context, the ISSB providing further educational material on its existing language will be helpful to market participants. IOSCO is undertaking its own engagement on transition plan disclosures and is considering the role of markets regulators in promoting integrity and mitigating greenwashing in that regard.

Financial Stability Board Chair Klaas Knot said:

The ISSB Standards strengthen the comparability, consistency and decision usefulness of climate-related financial disclosures around the world. The interest from users of disclosures in comparability and consistency applies to all elements of disclosures, including transition plans. The FSB is currently analysing the relevance of transitions plans for financial stability. So I welcome the ISSB announcement to support users of IFRS S2 in providing disclosures about their transition plans.

Aviva Group Chief Executive Officer and Transition Plan Taskforce Co-Chair Amanda Blanc DBE said:

Companies developing and disclosing transition plans need clear and consistent guidance. Today’s announcement that the International Sustainability Standards Board will look to use the resources we have developed in the Transition Plan Taskforce is brilliant news and an important step towards greater consistency and clarity.

GHG Protocol Independent Standards Board Chair Professor Alexander Bassen said:

This coordination between the IFRS Foundation and GHG Protocol is a momentous step in standardising GHG reporting globally. The deepening of the collaboration between the two parties will be a great benefit to companies seeking to measure, manage and report on their GHG emissions, and close collaboration with the IFRS Foundation will be invaluable to GHG Protocol’s standards update process for the suite of corporate standards.

GRI CEO Eelco van der Enden said:

Robust and effective sustainability reporting, which meets the needs of investors and other stakeholders, won’t be achieved without well-harmonised and aligned global standards. That is why the strengthened collaboration between GRI and the IFRS Foundation has been widely welcomed. Together, we are working towards streamlined and seamless corporate reporting on an organisation’s impacts, risks and opportunities, using GRI and ISSB standards.

CDP CEO Sherry Madera said:

CDP is proud to be ISSB’s key climate disclosure partner. This year, CDP is a better partner for corporates, cities, states and regions than ever before, making their disclosure even more efficient as we align with global standards. Our ISSB partnership is a critical step, answering market demand for efficiency and enabling better understanding through the power of data. The ISSB’s climate Standard is the foundational baseline for CDP’s climate disclosure. Our new questionnaire, open now for 2024 disclosure, is aligned with IFRS S2. This means that companies can disclose IFRS S2-aligned climate data directly to their stakeholders through CDP, enhancing data availability and accessibility for investors, lenders and buyers across the globe. With many thousands of UK companies gathered at London Climate Action Week likely to face mandatory ISSB reporting in the future, now is the time to get prepared by disclosing through CDP.

Taskforce on Nature-related Financial Disclosures Co-Chair David Craig said:

The ISSB has been a valued partner to the TNFD since the Taskforce commenced its work in late 2021, providing input into our recommendations published last year. We are delighted to now be reciprocating by supporting the ISSB as it advances its research on nature that will include work focused on the recommendations of the TNFD. Bringing nature-related issues into the global baseline for sustainability disclosures is a critical next step in encouraging companies to provide comprehensive, material information about their risks and opportunities across the full spectrum of planetary boundaries not just climate change.

[1] GFANZ has developed a global transition plan framework to support firms undertaking transition planning. The Transition Plan Taskforce has drawn on components of GFANZ’s work to develop an aligned set of transition plan disclosure guidance. 

Related information

ISSB Consultation on Agenda Priorities

International Sustainability Standards Board

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Employee well-being matters in corporate strategy.

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Human sustainability is about prioritizing people

Today’s corporate world recognizes the importance of looking beyond profits. But how is this shift reflected in the way companies treat their employees?

Deloitte’s Third Edition of the C-suite Well-being report conducted in collaboration with Workplace Intelligence, an independent research firm, surveyed 3,150 C-suite executives, managers, and workers across the U.S, U.K., Canada, and Australia. The survey offers valuable insights into the importance of “human sustainability” and its impact on both employee well-being and overall business success.

Emphasizing Human Sustainability

The term, “human sustainability” was first introduced in Deloitte’s 2023 Global Human Capital report , referring to “the degree to which an organization creates value for people as human beings, leaving them with greater health and well-being, stronger skills and greater employability, good jobs, opportunities for advancement, progress toward equity, increased belonging, and heightened connection to purpose.”

It aligns with the social dimension of ESG and emphasizes that organizations should “focus less on how much people benefit their organization and more on how much their organization benefits people.”

The survey highlights a consensus among most executives (93%) and workers (88%) that a company should create value not just for shareholders but also for human beings and society.

Despite this agreement, there remains a significant gap in putting this philosophy into practice. Survey findings revealed a significant disparity in perceptions of human sustainability progress: only 56% of workers believe their company is advancing human sustainability, compared to 82% of C-suite executives. This disconnect suggests that while executives may believe that their strategies and policies are effective, workers may feel these efforts are not sufficiently impactful.

What Does it Mean to Prioritize Employee Well-Being?

Employee well-being is an integral aspect of human sustainability. The survey identified worker burnout, declining mental health, and workplace violence as systemic challenges affecting employees, and revealed that a disconnect exists between leaders and workers regarding their perception of how well the company supports employees’ well-being.

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According to the survey, approximately 90% of executives believe their company positively impacts worker well-being and career advancement, yet only 60% (or fewer) of workers share this view.

This discrepancy suggests that executives may have an overly optimistic view of their employee well-being policies, which may very well exist on paper, but are possibly inadequately implemented.

For well-being programs to be effective, they need to address the real and perceived needs of employee. The C-suite well-being report identifies these needs as fundamental, encompassing structural and systemic issues. Key areas include enhancing physical, mental, and emotional health, providing opportunities for skill development, ensuring job quality and security, promoting equity and inclusion, and fostering a sense of purpose and connection among employees.

This is however not an exhaustive list. Frequent, open and when necessary, confidential communication between workers and executives is needed to understand specific challenges and goals, allowing policies to be tailored in such a way that better support employee development.

As Colleen Reilly, a fellow Forbes Contributor emphasizes in her article discussing how employee well-being positively impacts firm performance, “organizations need to focus on creating a humanistic culture where people feel like they have meaningful work and purpose, opportunities to engage with their manager, productive and well environments, as well as growth opportunities and trust in leadership.”

Also, Sue Cantrell, vice president, products and workforce strategies at Deloitte suggests that “leaders need to expand from extractive, transnational thinking about workers and focus on creating greater value for them and all stakeholders within the broader human ecosystem.” She further proposes that leaders can achieve this by “using metrics focused on human outcomes, making public commitments around these metrics and aligning rewards with these outcomes.”

Why Should Companies Prioritize Employee Well-Being?

Prioritizing employee well-being positively impacts a company’s bottom line as evidenced by several studies. For example, a 2019 study found that higher employee well-being leads to higher productivity and company profitability.

Also, the World Economic Forum , reports that companies that pay attention to employee health and well-being achieve a significant competitive edge. Firms recognized for their health initiatives experienced a 115% growth in earnings per share compared to just 27% among their competitors.

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These findings underscore the necessity for companies to recognize that employee well-being is not a luxury but essential for long-term sustainability. Corporate leaders should therefore create thriving workplaces that prioritize well-being, rather than merely assuming that employees' needs are being met.

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