Corporate Governance: Meaning, Social Responsibility and Importance

What is Corporate Governance?

Corporate governance is the system by which business corporations are directed and controlled. The Corporate Governance structure specifies the distribution of rights and responsibilities among different members inside the corporation, such as the board, managers, shareholders, and other stakeholders, and spells out the guidelines and techniques for making decisions on corporate affairs.

By doing this, it also provides the structure through which the company objectives are set and the means of attaining those objectives and monitoring performance.

In other words, Corporate governance can be defined as a systematic process, practice, and guidelines that make sure that an organization is governed in the best interest of its stakeholders and social groups.

Therefore the discipline of corporate governance is worth exploring because it includes various organisational aspects such as executive compensation, financial scandals, and shareholder activism.

Corporate governance deals with looking after the complete governance of various organizations with respect to financial disclosures, transparency, legal practices, organizational structure, and social welfare.


Corporate Social Responsibility of Business

The corporate social responsibility of business toward different sections is as follows:

  1. Towards Owners of Enterprise
  2. Towards Workers
  3. Towards Consumers
  4. Towards the Society
  5. Towards the Government
  6. Towards the Weaker Section of Society

Towards Owners of Enterprise

The responsibilities of business enterprises towards their owners are:

  • Payment should be on a regular basis at a fair rate of dividend
  • Increase the present net value of the organization with the help of a production management system
  • Making the full participation of the owners in the operation of the organization
  • Establishing an effective communication system to send a detailed and indiscriminate report on the operation of the organization.
  • Financial doubts should be clarified in a manner so that there is no room for doubt.
  • Owners or the chairman of the organization are available for the directors or top management to discuss or get information relating to the operation of the organization.

Towards Workers

Some of the responsibilities of a business enterprise towards its workers are:

  • Fair salary process, security for the job, medical facility with the family of workers, bonus, etc. are to be maintained
  • The appraisal process is done in a trustworthy manner.
  • A fair-minded opportunity process should be set up within the organization. This helps workers and employees to enhance their skills and qualifications.
  • Participative in management, decision making, etc., are to be promoted in the organization.
  • Facilitating a better work environment and social security
  • Implementing occupational hazards policy in an effective manner
  • Trade union leadership policy should be encouraged
  • Management manages human resources so the attitude towards employees/ workers should be professional as well as human.

Towards Consumers

The responsibilities of a business enterprise towards consumers of its products are:

  • Charging reasonable prices for its products
  • Using correct measures
  • Providing good after-sales services
  • Avoiding restrictive trade practices and other undesirable methods to exploit the consumers
  • Encouraging the formation of associations of consumers and consumers’ advisory councils and maintaining close links with them
  • Developing appropriate products and services to satisfy the needs of the consumers
  • Taking such measures would promote consumer satisfaction and welfare.

Towards the Society

The obligations of a business to society are:

  • Adopting a set of methods to use resources in an optimized manner.
  • Providing sustainability and economic growth for the society.
  • Facilitating opportunities and amenities such as sports events, eco-friendly goods, and water sanitation programs for society.
  • Maintaining natural resources through initiatives like waste management, air pollution control systems, renewable energy systems, etc.
  • Contributing to social welfare programs by conducting sanitation programs in villages and urban slums, facilitating medical care for senior citizens, women, and children, making awareness for skill development, etc.
  • Improving the quality of life of the people at large by capacity building, creating employment, and providing an opportunity to make wealth.

Towards the Government

The obligations of business enterprises to the government are:

  • Strictly observing the provisions of the various laws and enactments
  • Paying taxes and other dues to the government regularly and honestly
  • Extending full support to the government in its efforts to solve national problems such as unemployment, food, inflation, regional imbalance in economic development, etc.

Towards the Weaker Section of Society

The obligations of business enterprise to the weaker section of the society are:

  • Providing vocational training like cookery, tailoring, and selling techniques for their economic growth
  • Donating funds to various voluntary agencies and NGOs, which participate in population and family welfare, literacy and education, and development of women and children of the scheduled caste and scheduled tribes.

Importance of Corporate Social Responsibility

The importance of corporate social responsibility is as follows:

  1. Optimum Utilisation of Resources
  2. Producing Goods and Services
  3. Providing Public Amenities

Optimum Utilisation of Resources

Resources are limited in nature. By following social responsibilities, an organization is expected to use resources in a justified way. Resources are to be used for the production of those goods and services which are not detrimental to the interest of the society.

An organization is not expected to produce unnecessary and unwanted goods. Production of such goods not only reduces national resources but also encourages people to spend on unnecessary consumption.

Producing Goods and Services

Producing Goods and Services Efficiently and Contributing to the Economic Well-being of Society: Organisations are expected to produce goods without wastage. Organizations are expected to practice business process reengineering.

This helps the organization to identify new and improved ways of doing improvement in the product. Product safety is also taken care of. All these factors contribute to the economic well-being of society.

Providing Public Amenities

Providing Public Amenities and Avoiding the Conditions of Slums and Congestion: Organisations are expected to protect the surrounding environment. It cannot hand over this responsibility to the government. If a healthy environment exists, the organization takes the initiative to avoid slums congestion, and pollution of the surroundings.


FAQ Related to Corporate Governance

What is Corporate Governance?

Corporate governance is the system by which business corporations are directed and controlled. The Corporate Governance structure specifies the distribution of rights and responsibilities among different members inside the corporation, such as the board, managers, shareholders and other stakeholders, and spells out the guidelines and techniques for making decisions on corporate affairs.