CSR IN CORPORATE GOVERNANCE:

Corporate social responsibility (CSR) is a self-regulating business model that helps a company be
socially accountable to itself, its stakeholders, and the public. By practicing corporate social
responsibility, also called corporate citizenship, companies can be conscious of the kind of impact they
are having on all aspects of society, including economic, social, and environmental.
Being a good corporate citizen means that companies have to be internally well governed and
externally responsible. In other words, CSR and corporate governance are two sides of the same coin.
The implication here is that unless corporates practice good governance they are unlikely to have a
social conscience and hence the first step towards CSR is through practicing the art of effective
corporate governance.
The relationship between CSR and governance seems simple and clear-cut: if CSR is a type of
agency problem, then good governance should reduce CSR. On the other hand, if CSR is not a type of
agency problem, and indeed improves firm value, then good governance should increase CSR.
The role of the board of directors and the management is especially critical since they are the final
arbiters of the actions of the companies. The buck stops with them and hence they have to ensure that
the companies that they represent are run effectively and at the same time take into account the social
and the environmental concerns. The choice for other companies is clear: either they set their own
house in order and comply with social and environmental norms or they run the risk of a sullied image
among the investors and the consumers at large.
The next aspect is that the employees and the stakeholders including the shareholders have an
important function to perform as far as the twin objectives of good corporate governance and the
practice of CSR are concerned. Since effective corporate governance means that internal democracy
and external responsibility go hand in hand, all the stakeholders have a duty towards the company to
persuade the management to follow ethical and social norms of doing business. This is a manifestation
of what has been called shareholder activism and stakeholder involvement which means that the entire
stakeholder and the shareholders can exercise power over the actions of the board and the management
to steer them towards the practice of good corporate governance and CSR.
Finally, the pressure groups and the consumers at large can vote with their wallets and their unrelenting
focus on the actions of the corporates to bring about effective corporate governance. As the cliché
goes, charity begins at home and hence corporates need to ensure that their internal governance models
are robust before they embark on CSR. In conclusion, there is a mass awakening of sorts that is
happening with society at large waking up to the need for corporates to be ethical and socially
responsible and conscious. Hence, no corporate can afford to ignore the telltale signs of consumer and
stakeholder focus on these aspects.

Family Business and CG

Corporate Governance in a company is a concept relatively easy to define. It is the system formed by
the relations between shareholders, organs of administration and of executive management, taking into
consideration the processes by which these three figures control and direct the organization. According
to Investopedia it "is the system of rules, practices and processes by which a company is directed and
controlled. Corporate governance essentially involves balancing the interests of a company's many
stakeholders, such as shareholders, management, customers, suppliers, financiers, government and the
community."
Family Businesses are well known types of enterprises that have functioned throughout the years as
important elements for the development of a country´s economy.
These types of companies have specific problems due to its nature, their constitution, and their
managerial systems. But at the same time they have demonstrated during the years to have a treasure
on its own that have transformed them into indestructible organization. That treasure is the
management system and the relationship that each of the members has within the company.
As the company grows, more members, children, grandchildren and so on are incorporated into the
family and different types of interests and relationships are generated within the company. The larger
the company, the greater the conflict of interest are. Problems arise when the sentimental value collides
with the entrepreneurial values. This is why conflicts in Family Companies must be handled
corporately with the help of a consultant or lawyer. These conflicts may bring bad consequences to
these kind companies, that may end up destroying the family, the company or both.
Families need governance just as much as any other structure involving multiple persons with their
varied, often competing, interests. Family businesses constitute a major chunk of business in India and
cannot be put on the back seat. Their contribution to the country’s economy is immense and if they are
not disciplined and properly governed, it inevitably affects the national economy. Strong governance
measures in a family owned business can effectively act as a prevention mechanism against a lot of
tensions that may arise between family members at a later stage. It is also imperative for family
businesses to adopt effective corporate governance measures in order to be a tough competition to
other players in the global market.
The most glaring characteristic of a family owned business is that all the key managerial positions in
such businesses are held by family members. Non-family members may of course be employees of the
company, but the decision-making power usually vests with the members of the family. This is
probably the reason why a lot of family businesses are not pro-active in taking strict corporate
governance measures in their activities – out of fear of losing control over the business. These
businesses derive their strength from the love, trust and personal bond that the members share, but at
the same time, even slight instability or rivalry in the family could adversely affect the business and
project a negative picture of the family firm in the market before prospective investors.
MAJOR CHALLENGES FACED BY FAMILY OWNED COMPANIES
Investors are often hesitant and distrustful of the company due to chances of the controlling family
abusing rights of other shareholders. Therefore, governance measures need to be such that provide
reassurance to the investors that their interests will not be diluted in the larger scheme of things.
Concentrated & restricted ownership – there is always the risk of nepotism and favoritism in a family
business.
Maintaining harmony and establishing a good business relationship between the family and non-family
members of the business can often be a very challenging prospect.
Family businesses are driven more by emotion than by professional ethics.
Incapacity of the head of the family to run the business or a change in generations – real problems
arise when a clear succession strategy is not chalked out. Conflicts arise over the control of the
company leading to a trust deficit. As the generations progress, their interests may no longer align and
internal competition among family members may heighten and become hostile.
CORPORATE GOVERNANCE MEASURES FOR FAMILY BUSINESSES
Family owned companies are expected to more or less adhere to the same corporate governance
measures for their business as any other business. The same principles and practices that apply to any
other business are essential for the successful run of a family business as well. Some of these measures
include compliance with the Accounting Standards in the preparation of financial statements by a
company and its auditors, financial reporting as a measure of transparency and accountability –
providing essential financial information about the company to all its shareholders and other
stakeholders, regular board meetings and appointment of independent directors along with other
directors for an accountable and transparent board of directors, whistleblower policies, etc.
However, there are some measures that family businesses particularly need to lay extra focus on so that
they may be successful in the long run:
Clear demarcation between business and emotions: This is essential for the smooth continuity of the
business. This responsibility that entails communicating every member’s clear cut roles to them lies
upon the shoulders of the head of the family as at the end of the day, the business should be about
competing at a global level with other businesses and not internal clashes among members of the same
company.
Clarity on leadership: There needs to be a clear strategy on choosing the next-of-kin to pass the baton
to after the death or incapacity of the previous leader. If there is no such strategy in place, it could lead
to confusion and chaos, causing a hit to the roots of the business.
Democracy – a participative decision making and democratically appointed board of directors is key to
a flourishing and disciplined business practice. More so in case of family businesses, since they are
ridden with the tendency of nepotism and favoritism.
CONCLUSION
Therefore, corporate governance in any business is the buzz word that attracts investors to invest in it.
An outsider to the company would never want to risk his money in a firm that clearly indicates poor
governance. Family businesses are no different. In fact, by virtue of being wound up tight due to
common lineage, interests, blood and family traditions, family businesses likely need a tighter grip on
the proper governance of the business than other non-family businesses to shine in the global market.
Family businesses should thereby not shy away from adopting the above-mentioned techniques and
preventing any possible damage to the business.