What is the relationship between corporate governance and social responsibility?

Our text defines corporate governance as, “The relationship among the board of directors, top management, and shareholders in determining the direction and performance of a corporation,” (Wheelen 2018). Social responsibility is defined as, “The ethical and discretionary responsibilities a corporation owes its stakeholders,” (Wheelen 2018). These two concepts can interact in either a positive or a negative way for organizations. I will use an example to illustrate this. A corporation’s board of directors could make the decision to focus on maximizing profits over doing what is environmentally safer. This could result in a negative relationship with shareholders and consumers because the organization has chosen profits over the planet. Alternatively, the same organization could choose to redefine its purpose as providing reduced rates on products for low-income individuals. This not only fulfills a social responsibility, but it creates a positive image of the organization.

An article written by Kezia Farnham expands on the relationship between corporate governance and social responsibility. Farnham states, “…good corporate governance improves the public’s faith and confidence in its corporate leaders,” (Farnham 2021). Consumers having a growing interest in social responsibility and sustainability has increased corporate responsibility to stakeholders. One way to successfully balance an organization’s responsibilities is by adopting the three P’s of the triple – bottom line, (people, profits, and planet).