Communicating engagement in corporate social responsibility : a meta-level construal of engagement

Organizations are increasingly seeking stakeholder support through engagement to demonstrate their corporate social responsibility (CSR) credentials. These credentials are in turn used to support claims of legitimacy for organizational operations. This paper uses a process model of antecedents, implementation, and consequences to study the connection between engagement and CSR. CSR reports show organizations perceive engagement in CSR as both communication and activities between organizations and their stakeholders; and as a second, meta-level of communication about that engagement with stakeholders beyond those directly involved, thereby broadening the scope of organizational claims to legitimacy. Understanding what engagement is and how and why it is carried out in CSR provides a framework for understanding engagement in public relations.

Invisible ties : implicit contracting and its implications for the agency relationship in corporate governance research

Research that applies agency theory to boards of directors suffers from being quite narrow as it does not recognize the true legal relationships between directors, managers and shareholders. Instead, the board of directors is best conceptualized as the principal, management as agents and stockholders’ relationships as a mix of legal and implicit contracts. We propose a recast agency relationship and develop a contingency approach that proposes (1) how a corporation’s goals vary with a board’s implicit contracting and (2) a reconceptualization of the agency problem facing boards.

Corporate Environmental and Economic Performance of Japanese Manufacturing Firms: Empirical Study for Sustainable Development

This study examines the relationship between environmental performance and economic performance in Japanese manufacturing firms. The environmental performance indicators include CO2 emissions and the aggregate toxic risk associated with chemical emissions relative to sales. Return on assets (ROA) is used as an indicator of economic performance. We demonstrate that there is a significant inverted U-shaped relationship between ROA and environmental performance calculated by aggregated toxic risk. We also find that the environmental performance increases ROA through both returns on sales and improved capital turnover. However, we observe a significant positive relationship between financial performance and environmental performance based on CO2 emissions. These findings may provide evidence for the consequences of firms' environmental behavior and sustainable development. © 2012 John Wiley & Sons, Ltd and ERP Environment.

The economics of credence goods : an experiment on the role of liability, verifiability, reputation and competition

Credence goods markets are characterized by asymmetric information between sellers and consumers that may give rise to inefficiencies, such as under- and overtreatment or market breakdown. We study in a large experiment with 936 participants the determinants for efficiency in credence goods markets. While theory predicts that liability or verifiability yield efficiency, we find that liability has a crucial, but verifiability at best a minor, effect. Allowing sellers to build up reputation has little influence, as predicted. Seller competition drives down prices and yields maximal trade, but does not lead to higher efficiency as long as liability is violated. (JEL D12, D82)

Turnbull : generating undue expectations of the corporate governance role of audit committees

Following an initial consultation draft (Turnbull 1999a), the Internal control Working Party of the Institute of Chartered Accountants in England and Wales, chaired by Nigel Turnbull, executive director of Rank Group plc. has published Internal Control: Guidance for Directors of Listed companies Incorporated in the UK (Turnbull, 1999b). The guidance is commonly referred to as the Turnbull Report. This paper outlines the key recommendations of the report and discusses some of its implications, particularly in the context of the increasing emphasis on a broader corporate governance role for audit committees. The paper suggests that the increasing role envisaged of audit committees for example lately in the UK by Turnbull, may generate undue expectations are premised on an unsubstantiated notion of the contribution of audit committees.

Public policy on corporate audit committees : case study evidence of current practice

Corporate failures and malpractices have led to an increasing emphasis on the governance role of audit committees. The Smith report Audit Committee Combined Code Guidance and the Higgs Review of the Role and Effectiveness of Non-Executive Directors (now incorporated in a Revised Combined Code) represent further attempts to strengthen corporate accountability in the UK. Although the regulatory focus on audit committees indicates confidence in their role as part of the solution to governance failures, questions remain about their efficacy in practice. Against the background of the publication of the Smith report and the wider reliance on audit committees in several countries to help improve corporate accountability, this paper provides research evidence, drawn from an ACCA-sponsored project, on the processes and effects of the audit committees in three UK companies. This study complements other research on audit committees by adopting a case study approach, in order to reflect the importance of investigating audit committee operations from within the organisation and to develop a closer understanding of audit committee impact than is available from generally observable data. The empirical evidence for the case studies was obtained from semi-structured interviews with personnel involved in the audit committee process, internal documents made available by the companies, and publicly available information, including annual reports.

The corporate governance effects of audit committees

Arguments associated with the promotion of audit committees in many countries are premised on their potential for alleviating weaknesses in corporate governance. This paper provides a synthesis and evaluation of empirical research on the governance effects associated with audit committees. Given recent policy recommendations in several countries aimed at strengthening these committees, it is important to establish what research evidence demonstrates about their existing governance contribution. A framework for analyzing the impact of audit committees is described, identifying potential perceived effects which may have led to their adoption and documented effects on aspects of the audit function, on financial reporting quality and on corporate performance. It is argued that there is only limited and mixed evidence of effects to support claims and perceptions about the value of audit committees for these elements of governance. It is also shown that most of the existing research has focused on factors associated with audit committee existence, characteristics and measures of activity and there is very little evidence on the processes associated with the operation of audit committees and the manner in which they influence organizational behaviour. It is clear that there is no automatic relationship between the adoption of audit committee structures or characteristics and the achievement of particular governance effects, and caution may be needed over expectations that greater codification around factors such as audit committee members’ independence and expertise as the means of ‘‘correcting’’ past weaknesses in the arrangements for audit committees. The most fundamental question concerning what difference audit committees make in practice continues to be an important area for research development. For future research we suggest: (i) greater consideration of the organizational and institutional contexts in which audit committees operate; (ii) explicit theorization of the processes associated with audit committee operation; (iii) complementing extant research methods with field studie, and; (iv) investigation of unintended (behavioural) as well as expected consequences of audit committees.

Corporate credit risk prediction under stochastic volatility and jumps

This paper examines the impact of allowing for stochastic volatility and jumps (SVJ) in a structural model on corporate credit risk prediction. The results from a simulation study verify the better performance of the SVJ model compared with the commonly used Merton model, and three sources are provided to explain the superiority. The empirical analysis on two real samples further ascertains the importance of recognizing the stochastic volatility and jumps by showing that the SVJ model decreases bias in spread prediction from the Merton model, and better explains the time variation in actual CDS spreads. The improvements are found particularly apparent in small firms or when the market is turbulent such as the recent financial crisis.

On the efficacy of key corporate governance recommendations in mid-tier companies : window-dressing or value-adding?

This paper examins the relationship between firm performance and key board and audit committee variables in a sample of mid-tier listed Australian firms. Unlike the UK where the corporate governance Code specifically outlines special arrangements for companies outside the FTSE 350 index, the ASX Corporate Governance recommendations make no special provisions for mid-tier companies. Consequently, mid-tier Australian companies may be expending scarce resources in conforming with recommendations that are not value-creating.

Institutional investors, risk/return and corporate governance : practical lessons from the Global Financial Crisis

The global grown in institutional investors means that firms can no longer ignore their influence in capital markets. However, not all institutional investors have the same motives to influence the firms they invest in. Institution investors' ability to influence management depends on the size of their investment and whether they have any business relations with the firm. Using a sample of Australian firms from 2006 to 2008, our empirical results show that the proportion of a company's shares held by institutional investors is positively associated with firm governance ratings, risk and profitability. This study shows that a positive association between risk and return is associated with large active institutional ownership, which we interpret as shareholders with sufficient power to pressure management to increase short-term profits.

The rise of englightened shareholder primacy and its impact on US corporate self-regulation

Enlightened shareholder primacy (“ESP”) is a new approach in the corporate governance (“CG”) framework. The emergence of this approach is important owing to its role in answering a vital question: is the company really a private organisation to be seen only through the economic prism of contract? Or is it public and about a wider group of interests and underwritten by communitarian concern about social responsibility? Apart from answering this question, ESP explains the changes in corporate directors’ roles and self-regulation strategies of companies.

Convergence in European corporate governance : the audit committee concept

This paper analyses recent corporate governance codes issued by 20 countries for evidence of convergence in corporate governance systems in Europe. The analysis shows that there has been a degree of convergence towards an Anglo-Saxon model of corporate governance as the audit committee concept is widely accepted in countries with both unitary and two-tier governance systems. Further, the latest audit committee recommendations in countries that have issued several governance codes show a strengthening of the recommendations for an audit committee over time in line with the Anglo-Saxon audit committee concept and convergence with the debate in the US and UK on issues such as the independence and financial expertise of members. However, consistent with the literature on the convergence of European corporate governance systems, at an operational level there is limited consistency in the recommended structure and role of audit committees.

Work health and safety and the criminal law in Australia

This paper analyses recent Australian debates about the use of the criminal law in work health and safety regulation. It argues that these debates have to be seen in the context of the historical development of work health and safety regulation in the United Kingdom and Australia. The first part of the paper shows that, since the late 19th century, contraventions against the Australian work health and safety statutes have not been regarded as 'really criminal', and have largely been addressed by informal measures and, since the 1980s, by administrative sanctions. When prosecutions have taken place, work health and safety issues have been individualised and decontextualised, so that defendants have been able to reduce their culpability in the eyes of the court. Significant legal barriers have undermined the use of the crime of gross negligence manslaughter against corporations and individuals. The second part of the paper analyses recent debates about restructuring gross negligence manslaughter and bolstering the 'criminality' of offences under the work health and safety statutes. It argues that the latter debate has been constrained by the historical forces examined in the first part of the paper, and that the current position, embodied in the recently harmonised Work Health and Safety Acts, favours attempting to recriminalise the work health and safety legislation. The debate about reforming gross negligence manslaughter has stalled.

Take me to your employer: the organisational reach of occupational health and safety regulation

[Conclusion] We have explored two dimensions of the Australian OHS statutes which enable statutory OHS duties to reach more than one employer or self-employed person within a corporate group or network. First, most of the OHS statutes contain provisions extending the reach of employer’s duty beyond the employer’s employees. One legislative technique is to deem contractors and their employees to be employees of the principal contractor. Another imposes duties on employers and self-employed persons to persons who are not employees, so that employers and self-employed persons can be responsible for the OHS of firms, and those they engage, lower in the contractual chain. These duties are non-delegable, meaning that the principal contractor cannot seek to delegate OHS duties to firms lower in the contractual chain. Second, new Victorian ‘shadow officer’ provisions can be applied to remove difficulties and doubt as to the liability of partners in a partnership, officers of unincorporated associations, joint venturers, and holding and subsidiary companies within corporate groups. While the provisions can be argued simply to confirm that a partner who fails to take reasonable care in relation to OHS will be guilty of an offence, we demonstrate that there are very real benefits to having ‘shadow officer’ provisions which remove uncertainties about the liability of unincorporated associations, joint ventures and corporate groups. Perhaps most significantly, the Victorian corporate officer provisions have the potential to extend liability to individuals and other entities within organisational structures, where those individuals and entities make or participate in making decisions that affect the whole or a substantial part of the organisation’s business, and are responsible for an OHS offence having been committed, due to their failure to take reasonable care. We suggest that similar provisions should be included in all OHS statutes, to overcome at least some of the barriers limiting group responsibility for OHS statutory duties.