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How Corporate Governance is different from Corporate Social Responsibilities

Economics
How Corporate Governance is different from Corporate Social Responsibilities

Every business has some obligations and responsibilities to society. Today, in this blog, we shall discuss how Corporate Governance is related to Corporate Social Responsibilities. Students will also come to understand the major differences between these two terms. However, let us move forward and read the information given below.

Introduction to corporate governance and social responsibility of a business

Corporate Governance: It is related to maintain the balance between social and economic goals and between communal and individual goals. There is a corporate governance framework that encourages the best use of resources efficiently and equally. The aim is just to align close to the interests of a people, society and corporation.

Corporate Social Responsibility: CSR deals in the treatment of the company’s stakeholders in both socially and ethically manner. These stakeholders exist both within and outside the company. As a result, having responsibilities towards society enhances the human development of stakeholders in both the way i.e. outside and within the corporation.

Apart from this, there are few principles related to corporate governance such as transparency, responsibility, accountability and fairness. Let us understand these terms broadly.

Understanding the Principles of Corporate Governance

Transparency

Under this corporate governance principle, a company offers timely and exact information about entire material and facts. For example – financial situation, environmental and social indicators, ownership structure, performance and company governance.

Accountability

Accountability means liability or answerability. It has been a great corporate governance debate as there is no consolidated doctrine for what accountability includes. Politicians, academics and businessmen advocate are the different categories of doctrine.

Responsibility

The firm finds the rights for all the parties permitted by applicable law and who need to cooperate with such companies or a group of people for financial stability and their development.

Fairness

A firm or an organisation tries to protect the rights of their shareholders and make sure for equal treatment as well. The Board of Directors shall provide the opportunity to get effective redress to stakeholders.

A Framework To Understand Corporate Governance in Australia

The transaction-level cost related to different organisational structures offers the conditions under which the company owners find the ways to organise the cost to maximise profit. Firms where individuals produce services and goods solve informational and coordination problems concerned with the contract (Williamson, 1971; Alchian and Demsetz, 1972). The corporate governance of a company, therefore, encompasses a set of the mechanism through which company owners attempt to make sure that managers handle the task consistently.

However, practically, the principal-agent relationship between the managers and the owners establish a possibility that managers can take actions to improve welfare.

The Firm As a Nexus of Contracts

The Firm As a Nexus of Contracts

From the above figure, the debt and equity holders are the most important financial claimants to the value of the firm. Debt holders get the risk-determined coupon whereas equity holders are the residual claimants who help managers and the board of directors in decision making.

Major Elements of Corporate Governance

Good governance acknowledges about the present and future requirement of an organization, exercises diligence in the setting of policies as well as decision-making. However, there are eight different major characteristics of good governance.

  • Rule of law
  • Transparency
  • Consensus oriented
  • Responsiveness
  • Equity and inclusiveness
  • Effectiveness and efficiency
  • Accountability and
  • Participation

So, these were the few details about corporate governance and corporate social responsibility. Willing to learn more? Contact Online Assignment Expert!

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