Corporate governance and corporate social responsibility (CSR) are actually quite different business concepts but they have become much more closely linked in the early 21st century due to increased focus on balancing business profits with responsible operations. In fact, the definition of corporate governance has evolved over time to include core aspects of CSR.
Corporate Governance Basics
Corporate governance has traditionally been defined as the systems and processes used by a corporation to make certain that operations are optimized to produce the best financial results for shareholders and other company financiers. Corporate boards typically develop and oversee these governing systems. However, as broader government and public demands have increased the expectation that companies balance shareholder interests with other stakeholder needs, company boards have routinely incorporated social and environmental responsibility into corporate guidelines.
Convergence with CSR
There continues to be a debate surrounding whether corporations should feel compelled to include other stakeholder interests within the corporate governance system. Some companies still hold to long-held beliefs that their primary responsibility as publicly owned companies is to maximize shareholder value. Others believe that by balancing social and environmental responsibility with profits, long-term viability and success will be even greater.
CSR has evolved largely in the early 21st century from basic standards of business ethics. It has taken simple concepts of honest and transparency and added other expectations for companies of social and environmental responsibility. Mal Warwick Associates outlined "The Five Dimensions of CSR." This demonstrates that companies should balance interests of customers, communities, business partners and employees with those of shareholders, to meet public requirements for CSR compliance.
Actual business results of the common convergence of corporate governance and social responsibility are hard to measure. "Forbes" magazine suggested that company leaders should not expect to see tangible profits from responsible behavior. Instead, companies should include responsible behavior in its corporate governance to do the right thing and to experience long-term indirect benefits of better community relations and the avoidance of public backlash.