The Impact of Corporate Governance on Corporate Social Responsibility Reporting

Impact of Corporate Governance on Corporate Social Responsibility Reporting
An organization’s Corporate Social Responsibility (CSR) or sustainability report discloses the firm’s ecological and community-based efforts and impacts such as: economic, philanthropic, environmental, and ethical. This report dictates the information an organization renders to the public concerning environmental and social concerns. In this way, CSR reporting mitigates the information asymmetry issues between the company’s owners and managers by empowering investors with information concerning the company’s dealings with the environment, society, and employees. Companies with prudent governance systems promote ethics and transparency and ensure profit maximization objectives of the shareholders are met. Strong CSR policies are centered on practical corporate governance standards. Corporate governance maintains an equilibrium between a company’s communal and individual objectives and social and economic goals (Fahad & Rahman, 2020, n.p.). Therefore, it is increasingly essential to integrate corporate responsibility requirements into governance systems to streamline company operations. In addition, CSR helps a company communicate firm goals and sustainable development objectives to primary external stakeholders. The CSR report also accounts for the values and governance strategies employed by the firm by stimulating the connection between the applied model and commitment to ensuring a sustainable global economy. This report critically evaluates the role of corporate governance variables, including Chief Executive Officer (CEO) duality, the board size, board diversity, and ownership structure on overall CSR disclosure.
Theoretical Basis for the Link Between Corporate Governance and CSR Reporting
In contemporary corporate finance practice, CSR disclosure is a critical aspect of corporate governance, and many theories have been developed to support the reporting processes. CSR is important in companies’ development and provides the ground for business sustainability. Firms can attain strategic goals and gradual improvement only by coordinating stakeholder engagements and executing social responsibility, although resource limitations reduce the business’ capacity to meet its stakeholders’ needs. The legitimacy theory is anchored on the social contract notion. In this way, the legitimacy theory implies that when a company operates within a community, there must be a tacit consensus in place that the firm must endeavor, in its operations, to behave in an environmental and socially responsible way in order to gain public approval, which is necessary for the achievement of firm sustainability objectives. According to the legitimacy model, companies with political connections must address critical reputation issues that could affect legitimacy. CSR reporting could be perceived as an approach tailored to win stakeholders’ support and reduce legitimacy threats. While the stakeholder theory indicates that a company has a CRS responsibility to its stakeholders, the legitimacy theory suggests that its CSR reporting is central to legitimization. Legitimacy theory is more appropriate for firms based in the developed ...