case study for good governance

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CGRI Case Studies

Case studies by Stanford GSB faculty that illustrate concepts and lessons in corporate governance.

Keller Williams Realty (B)

This case is a follow up to HR-29A, and explains the actions taken by Keller Williams in response to the residential real estate market downturn in 2008 and 2009. The case explains the programs and initiatives put in place by the company to boost agent…

Baker Hughes, Foreign Corrupt Practices Act

In 2002, Baker Hughes was accused of violating the Foreign Corrupt Practices Act (FCPA). This case describes the actions taken by the company in response to those accusations. These include hiring a third-party law firm to undertake an independent…

Equity on Demand, the Netflix Approach to Compensation

Netflix was among a small group of Silicon Valley companies to emerge from the technology bubble of the late 1990s a clear winner in terms of growth, market share, and profitability. That Netflix was able not only to prevail over this competition but also…

Multimillionaire Matchmaker, An Inside Look At CEO Succession Planning

This case takes an inside look at CEO succession planning at Energy Corp. The case provides an overview of various models of succession planning, including external search, COO appointment, a horse race, and the inside-outside model. The case then…

Sharks in the Water, Battling an Activist Investor for Corporate Control (A)

In July 2006, Barracuda became the largest investor in Tarco International. In a meeting with management, Barracuda’s managing director advised that strong measures needed to be taken to improve operating performance. If management failed, Barracuda would…

Sharks in the Water, Battling an Activist Investor for Corporate Control (B)

This case is a follow up to CG-20A, and explains the actions taken by Tarco in response to threat from activist investor Barracuda. The case explains how the company relied on an analysis of its shareholder base and predictive proxy voting to inform its…

Royal Dutch/Shell, A Shell Game with Oil Reserves - Governance Overhaul After Scandal (B)

Following the revelation that the Royal Dutch/Shell Group of Companies had overstated its proved oil reserves by over 4 billion barrels, company officials announced dramatic changes to the company’s organizational structure and governance system. These…

Royal Dutch/Shell, A Shell Game with Oil Reserves (A)

In January 2004, the Royal Dutch/Shell Group of Companies announced that it would reduce its estimate of proved oil reserves by nearly 4 billion barrels, or 20 percent. The announcement set off a series of events, including a drop in the company’s share…

Attention Shoppers, Executive Compensation at Kroger, Safeway, Costco and Whole Foods

Retail grocery sales represent a significant portion of the U.S. economy. The industry was highly competitive, with companies operating on low gross and net margins. As a result, grocery stores were generally under significant pressure to reduce their…

Financial Restatements: Methods Companies Use to Distort Financial Performance

Over the last 10 years, the number of publicly traded companies that have had to restate financial results has risen dramatically. Regardless of whether the restatements stemmed from the aggressive application of accounting standards or the need to…

Models of Corporate Governance. Who's the Fairest of Them All?

In 2007, corporate governance became a well-discussed topic in the business press. Newspapers produced detailed accounts of corporate fraud, accounting scandals, excessive compensation, and other perceived organizational failures—many of which culminated…

10b5-1 Plans, Mortgaging a Defense Against Insider Trading

In 2006, David Zucker, chief executive officer of Midway Games, came under fire for selling a significant amount of Midway stock just weeks before a precipitous decline in the company’s share price. One year later, Angelo Mozilo, chairman and chief…

AMB Property Corporation, Financial Reporting in the REIT Industry

AMB Property Corporation set out to be a leader in corporate governance and financial reporting. The company, a publicly traded real estate investment trust (REIT) that acquires, develops, and owns industrial properties, believed that its governance and…

AOL Time Warner (A): Accounting for Goodwill

This case asks students to review the impact of SFAS 142, Goodwill and Other Intangible Assets, in the context of the AOL Time Warner merger. Under SFAS 142, companies were required to perform periodic testing to determine whether economic goodwill had…

AOL Time Warner (B): Recognition of Goodwill Impairment

This case reviews the recognition of goodwill impairment taken by AOL Time Warner following the adoption of SFAS 142, Goodwill and Other Intangible Assets. This case is the successor of A-196A, AOL Time Warner (A): Accounting for Goodwill.

Corporate Governance Ratings, Got the grade… What was the test?

In 2007, there were three prominent corporate governance ratings firms—The Corporate Library (TCL), Governance Metrics International (GMI), and Institutional Shareholder Services (ISS). These firms assessed the effectiveness and deficiency of the…

Earnings Conference Calls, Hewlett-Packard Company

The case study asks students to evaluate the role that the quarterly conference call plays in a company’s overall communications strategy with investors. In particular, students are asked to assess what additional information they can learn from the…

Executive Compensation at Nabors Industries, Too Much, Too Little, or Just Right?

Eugene Isenberg, CEO of Nabors Industries, was listed in a 2006 Wall Street Journal article as one of the highest paid executives in the U.S. over the previous 14 years. He received this compensation as a result of a unique bonus arrangement and large…

Halliburton Company, Accounting for Cost Overruns and Recoveries

In July 2002, a legal watchdog group, Judicial Watch, announced that it was suing Halliburton Company for overstating revenues during the period 1998 to 2001. The group’s contention was that Halliburton used fraudulent accounting practices to boost…

Keller Williams Realty (A)

The case describes the economic and cultural models that have led to the success of Keller Williams Realty. By 2006 Keller Williams was one of the most profitable real estate companies in the United States (if not the most profitable); in addition it was…

Shareholder Democracy, Does Gretchen Get It Right?

By 2007, Gretchen Morgenson, assistant editor and columnist at The New York Times, had gained significant attention from business leaders, regulators, and academics for her coverage of a wide range of financial and governance issues. Morgenson wrote the…

Sovereign Bancorp and Relational Investors, The Role of the Activist Hedge Fund

The coca-cola company: accounting for investments in bottlers.

In 2001, accounting regulators, especially those in the U.S., began to reconsider the rules of consolidation with a move toward a requirement based on “control,” with much less consideration of the size of the equity stake. The fundamental accounting and…

The Walt Disney Company: Investor Communications Strategy

As the chief financial officer of The Walt Disney Company, Tom Staggs was responsible not only for the financial management of the company, but also for the communication of the company’s financial and strategic objectives to its investor base. Because of…

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Corporate Governance Case Study: Tesla, Twitter, and the Good Weed

Justin Slane, Sharon Makower and Joe Green are editors for the Capital Markets & Corporate Governance Service at Thomson Reuters Practical Law. This post is based on a Practical Law article by Mr. Slane, Ms. Makower and Mr. Green.

Perhaps no company in the world has the perception of its brand being tied to one person more than Tesla Inc. (Tesla) and its CEO and now former chairman of the board, Elon Musk. As at least one journalist phrased it, “ Elon Musk is Tesla. Tesla is Elon Musk .” And Musk is not just the face of Tesla, but a co-founder of PayPal and Solar City, the founder and current CEO of SpaceX and founder of its subsidiary, The Boring Company. He has crafted a “real-life Iron Man” persona, including all the eccentricity, and is undoubtedly one of the most recognizable and polarizing CEOs in the world.

But 2018 has not been the best year for Elon Musk. In what Musk would call negative propaganda pushed by short sellers, Tesla has faced heightened scrutiny and increasingly negative media attention related to a litany of issues, including cash burn , vehicle safety , production capabilities , and a string of employment-related lawsuits and executive exits ( only made worse recently ). Analysts and investors began to publicly cool on Tesla and question its long-term value, which Musk also attributed to short sellers .

In May, citing independence concerns and questioning whether Musk may be stretched too thin, proxy advisory giants Glass, Lewis & Company (Glass Lewis) and Institutional Shareholder Services, Inc. (ISS) opposed the re-election of current Tesla board members and supported splitting Musk’s roles as CEO and chairman.

As the pressure mounted, Musk became increasingly combative, especially on Twitter, lashing out at short sellers and anyone criticizing Tesla or him. Musk’s erratic behavior and obsession with short sellers and critics drew more criticism of his leadership and that of Tesla’s board of directors .

But it all came to a head on August 7, when in the middle of the trading day, without notice or warning to anyone (including other executives and directors at Tesla or contacts at Nasdaq, the exchange on which Tesla’s common stock is listed), Musk tweeted:

Then, for reasons still unknown, nobody took his phone away, and Musk continued tweeting and interacting with shareholders throughout the day:

The public reaction to Musk’s tweets was strong and immediate. Tesla’s stock soared before Nasdaq eventually halted trading for several hours later in the day, and there was instant speculation about whether Musk actually had the funding to take Tesla private (spoiler: he did not).

Musk’s drastic departure from normal public disclosure standards and the subsequent media circus arising from it unsurprisingly captured the attention of the Securities and Exchange Commission (SEC), which ultimately resulted in an enforcement action and settlement with Elon Musk over the tweets. Tesla also settled with the SEC. The end results of the settlements include the following:

• Musk must step down as chairman of the board and be replaced by an independent chairman, but Musk will be allowed to remain as CEO. On November 7, 2018, Tesla appointed an independent chairman.
• Musk and Tesla must each pay $20 million in fines.
• Tesla must add two independent directors and create a formal disclosure committee to oversee communications from Musk.
• Tesla must hire an experienced securities lawyer, subject to approval by the SEC Division of Enforcement (Tesla’s current general counsel was Elon Musk’s divorce attorney and worked primarily in family law before joining Tesla).

This post examines this corporate governance cautionary tale, focusing primarily on the Regulation FD (Reg FD) issues raised by Musk’s tweets and public statements. The full article from which this post is excerpted also examines a host of other issues including disclosure controls and procedures, stock exchange requirements, conflicts of interest, board independence, and more, highlighting for each issue where things went wrong and identifying resources that perhaps could have helped avoid this type of mess. To learn more about these issues, the full article can be accessed here .

Complying with Regulation FD

Much of the initial reporting surrounding Musk’s tweets questioned whether the use of his personal Twitter account violated Reg FD. Reg FD, which took effect in 2000, prohibits selective disclosure by requiring that material nonpublic information disclosed to securityholders or market professionals (including research analysts) must also be disclosed to the public in a broad, non-exclusionary manner. And in fact, in finally answering why he tweeted about taking Tesla private, Musk explained in an August 13 blog post that he wanted to have discussions with key shareholders and he felt it “wouldn’t be right to share information about going private with just [Tesla’s] largest investors.” While Musk’s intentions are noble and in line with the basic principle of nearly 20-year-old federal securities law, the reports were correct that Reg FD generally requires more than tweets.

SEC guidance issued in 2008 and 2013 regarding the use of company websites and social media for disclosure suggests that companies can still satisfy Reg FD requirements if they notify investors of where they can expect material information to be disclosed online, making it a “recognized channel of distribution.” In particular, the 2013 guidance dealt with the Netflix CEO disclosing monthly viewing hours on his personal Facebook page.

The SEC stated that disclosing material nonpublic information on the personal social media site of an individual corporate officer, without advance notice to investors that the site may be used for this purpose, is unlikely to satisfy Regulation FD because it is not likely a method “reasonably designed to provide broad, non-exclusionary distribution of the information to the public” that Reg FD requires. The SEC stated this is true even if “the individual in question has a large number of subscribers, friends or other social media contacts, so that the information is likely to reach a broader audience over time.”

The SEC used its 2013 guidance to highlight the concept that whether a Regulation FD violation occurred will turn on whether the investing public was alerted to the channels of distribution a company will use to disseminate material information. The SEC’s 2008 guidance on the use of company websites outlines the factors that indicate whether a particular channel (whether it be a corporate website or a corporate executive’s social media account) is a recognized channel of distribution for communicating with investors.

In this case, Tesla and Musk had a few factors in their favor:

• A Form 8-K filed on November 5, 2013 , encourages investors to follow Elon Musk’s personal Twitter account for material information being disclosed to the public. Ideally the notice would be repeated, including in Tesla’s annual reports on Form 10-K or additional Form 8-K reports, but at least some form of notice was provided to shareholders.
• Elon Musk also has nearly 23 million Twitter followers. His original tweet was widely picked up and further broadcast by major news sources within minutes, and within hours, former SEC Chairman Harvey Pitt was on major cable news networks discussing whether Musk committed securities fraud.

While it was far from a safe use of social media for Reg FD purposes, Musk and Tesla appear to have a decent argument that shareholders had notice that information could be disclosed through Musk’s personal Twitter account and his account was reasonably designed to provide broad, non-exclusionary disclosure of the information.

Most public companies typically adopt formal policies regarding compliance with Reg FD (as well as the use of social media by their employees and executives). A strong Reg FD policy should contain:

• A complete outline of the procedures and practices of the company concerning disclosure of information to the public.
• A formal limitation on which company personnel are permitted to communicate with analysts and securityholders on behalf of the company. These people should be well-versed in Reg FD and familiar with the company’s public disclosures. Ideally these people should also understand the concept of materiality and what may constitute securities fraud under Rule 10b-5.
• A restatement of the company’s policy on confidentiality of information.
• A guide to disclosing material information.

Companies should also address the use of social media by their employees and executives, whether in their Reg FD policies or in separate social media guidelines that cover both personal social media use and social media use as an authorized company spokesperson.

While a Tesla Reg FD policy, set of social media guidelines, or other corporate communications policy addressing these concerns does not seem to be publicly available, the Tesla Code of Business Conduct and Ethics (last revised in December 2017) refers to a “Communication Policy … [that covers] Tesla’s social media guidelines, media relations and marketing guidelines, and the circumstances and the extent to which individuals are allowed to speak on Tesla’s behalf.” Musk should have been aware of Tesla’s communications policy, ideally having been reminded frequently through regular training for Tesla officers regarding the company’s policy and their obligations under Regulation FD, and never tweeted to begin with.

Twitter Was Always a Bad Choice

Musk’s tweets are also an extreme, yet useful, example of why casual social media use and disclosure of material nonpublic information should not be mixed. Section 10(b) of the Exchange Act prohibits material misstatements and omissions of fact, and companies must always avoid making disclosures in informal social media posts that lack material information or the context necessary for investors to be fully informed. If a company decides that there is material information that should be disclosed to the public, it must then determine when that information must be disclosed. Information should only be disclosed when it is definitive, accurate, clear, and specific.

Twitter can be an excellent tool for supplementing more formal corporate disclosure, such as linking to SEC filings, the company’s website, or attaching a press release as an image. However, individual Twitter posts as the sole medium of disclosure might be the worst form of social media use for disclosing material nonpublic information. The primary differentiating factor between Twitter and other social media platforms is it limits user posts to just 280 characters. Musk used 61 characters in his original going private tweet (if you pro rate his $20 million SEC fine to the characters in that tweet, Musk spent over $2.6 million on spaces alone). While some may applaud his succinctness, Musk’s August 7 tweets and blog post are textbook examples of public disclosures that lack context and completeness.

What does “funding secured” and “investor support is confirmed” mean? Who is/are the buyer(s)? How was the $420 per share price calculated? Has the board received or approved a proposal? None of these basic questions had answers. We later learned in the SEC’s civil complaint against Musk:

• A Tesla investor texted Musk’s chief of staff “What’s Elon’s tweet about? Can’t make any sense of it….”
• A reporter emailed Musk to ask if his tweet was a 420 joke and whether “an actual explanation” was coming.
• The following investor relations exchange happened in real life seven hours, ten tweets, and one blog post after Musk’s initial “going private” tweet:

“After Tesla’s head of Investor Relations received another inquiry from another investment bank research analyst at approximately 7:20 PM EDT, he asked whether the analyst had read Tesla’s ‘official blog post on this topic.’ The analyst responded, ‘I did. Nothing on funding though?’ The head of Investor Relations replied, ‘The very first tweet simply mentioned ‘Funding secured’ which means there is a firm offer. Elon did not disclose details of who the buyer is.’ The analyst then asked, ‘Firm offer means there is a commitment letter or is this a verbal agreement?’ The head of Investor Relations responded, ‘I actually don’t know, but I would assume that given we went full-on public with this, the offer is as firm as it gets.'” (see SEC Complaint, par. 52 .)

It took six full days before Musk or Tesla provided any clarification about what Musk meant by “funding secured” and the rest of his going private tweets on August 7.

Corporate Disclosure or Personal Statements?

Musk’s claim he was making statements in his personal capacity as a potential buyer of Tesla as opposed to on Tesla’s behalf as CEO and Chairman adds another element to this case illustrating why disclosure of material nonpublic information requires full context. If his personal Twitter account is both a recognized channel for corporate communications and a means for him to make disclosures as a private individual, how are investors supposed to know what is corporate information and what is personal?

Nothing in the August 7 tweets or blog post definitively stated Musk was not speaking on behalf of Tesla as its CEO and Chairman. In fact, in the investor relations exchange mentioned above, Tesla’s head of Investor Relations says “… I would assume that given we went full-on public with this…” (emphasis added), phrasing that certainly implies he thought the statements were made on Tesla’s behalf.

It is generally good corporate governance practice that if a company discovers a Reg FD violation, to minimize risks, it should promptly disclose the information by a Reg FD-compliant method. For example, if an executive officer selectively discloses material nonpublic information, the company can correct the situation by filing a Form 8-K to disclose the information.

Given the potential confusion for investors resulting from Musk’s initial tweets and his claim that he made the statements in his “personal capacity,” Tesla should have immediately filed a Form 8-K (which also happens to allow for more than 280 characters) to correct any potentially selective or misleading disclosure made by Musk and provide any additional context necessary. No Form 8-K was filed though. Again, it was six days before Musk or Tesla provided any clarification or additional explanation for his statements on August 7.

The SEC Settlement and Ongoing Fallout

The ultimate fallout from Musk’s brief foray into a possible going private transaction is still ongoing:

• Class action lawsuits are still pending.
• The Department of Justice is still investigating Musk’s tweets.
• Significant investors are engaging with Tesla requesting changes to the board of directors (and other corporate governance practices).

Musk doesn’t seem to be fazed by any of this, and could do something tomorrow that turns this all on its head again. But the SEC settlement with Musk has now been approved by the Southern District of New York, and Tesla has settled separately with the SEC without a formal enforcement action. The terms of the settlements bring us full circle to where the year started, with the recognition that Tesla was facing an increasing battle between responsible corporate governance and Elon Musk’s persona. Tesla lost this round. If the added disclosure controls and expanded board continues losing battles, well, who knows? There is always Teslaquilla (or maybe not )!

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The Role of Ethics in Corporate Governance [+ Case Study]

Welcome to our comprehensive guide on the crucial role of  ethics in corporate governance . In the dynamic and complex landscape of business, ethics play a pivotal role in governing operations and ensuring the integrity and trustworthiness of organizations.

When it comes to corporate governance, ethics encompass the principles and values that guide decision-making processes and practices. It is imperative to understand the place of  ethics in corporate governance  and the significant impact they have on the overall success and reputation of businesses.

In this article, we will explore the  importance of ethics in corporate governance  and its profound influence on transparency, accountability, finance, banking, accounting, and even the global business environment. We will also discuss the role of a  code of ethics in corporate governance  and strategies for addressing ethics violations.

By delving into these topics, we aim to provide you with valuable insights into the integration of ethics into corporate decision-making processes and maintaining the highest standards of integrity in today’s business landscape.

Understanding Corporate Governance and Ethics

Ethics in corporate governance refers to the system of moral principles and values that guides the behavior of an organization and its decision-making processes.

It encompasses the responsibilities of organizational leaders to make choices that are not only legal but also right in terms of societal and stakeholder expectations

The Relationship Between Corporate Governance and Ethics

In business, corporate governance serves as a set of principles that guides the behavior and actions of individuals involved in the decision-making processes.

It involves establishing structures, policies, and procedures that promote ethical conduct and protect the interests of stakeholders.

The role of ethics in corporate governance  is fundamental, as it dictates the moral compass by which organizations operate. Ethical considerations provide the foundation for responsible decision-making, fostering an environment of integrity, trust, and transparency. 

Corporate governance and ethics in business  are inseparable, as they ensure that organizations are not only focused on maximizing profits but also on creating long-term value for all stakeholders.

How to Integrate Ethics into Corporate Governance

Integrating ethics into corporate governance requires a comprehensive approach that encompasses all levels of an organization.

Ethical guidelines and codes of conduct must be established to outline the expected behavior of individuals within the company.

Regular training and communication initiatives are also vital to promote ethical awareness and understanding.

Achieving effective  corporate governance in ethics  requires accountability and oversight mechanisms to ensure compliance with ethical standards.

Boards of directors play a crucial role in upholding ethical principles, setting the tone from the top and overseeing the implementation of ethical practices throughout the organization.

The Benefits of Ethical Corporate Governance

When ethics and corporate governance align, organizations experience numerous benefits. Not only does ethical corporate governance promote public trust and reputation, but it also attracts and retains top talent by creating a positive organizational culture.

Moreover, ethical decision-making contributes to sustainable growth, as companies that prioritize ethical practices are more likely to maintain long-term success and weather crises.

By prioritizing  the role of ethics in corporate governance  and integrating ethical considerations into decision-making processes, businesses can demonstrate their commitment to responsible conduct, build stakeholder trust, and contribute to a more sustainable and ethical business environment.

Ethical behavior guides decision-making processes, ensuring that actions align with organizational values and principles.

 It creates a framework for responsible conduct, protecting against fraudulent practices and unethical behavior that could harm the company and its stakeholders.

Organizations that prioritize  business ethics in corporate governance  gain a competitive advantage in the marketplace.

By embracing and promoting ethical behavior, companies demonstrate their commitment to doing business in a responsible and sustainable manner, positively influencing public perception and attracting like-minded stakeholders.

“Business ethics is not a mere buzzword – it is the foundation of a strong corporate governance framework that ensures long-term success and a positive impact on society.”

Overall, the  importance of business ethics in corporate governance  is undeniable. It goes beyond legal compliance and encompasses fostering a culture of integrity and ethical behavior throughout the organization. 

By embracing and prioritizing business ethics, companies can build trust, improve stakeholder relationships, and enhance their long-term sustainability in a dynamic and competitive business environment.

The Role of Ethics in Ensuring Transparency and Accountability

Transparency and accountability are crucial elements of effective corporate governance. They promote trust, integrity, and responsible decision-making within organizations. Adopting ethical practices plays a vital role in safeguarding these principles and ensuring that businesses operate ethically and responsibly.

Ethics serve as a guiding framework for corporate governance, helping organizations establish transparent communication channels and accountability mechanisms.

By adhering to ethical standards, companies can maintain open lines of communication with stakeholders, providing them with accurate and timely information about the organization’s performance, goals, and values.

Ethical practices also contribute to accountability within corporate governance. When ethical guidelines are firmly ingrained in an organization’s culture, employees are more likely to take personal responsibility for their actions and decisions.

Ethical conduct establishes clear expectations and norms for behavior, encouraging individuals to act in an accountable manner.

The Limitations of Corporate Governance in Incorporating Ethical Values

While corporate governance plays a central role in shaping an organization’s ethical practices, it is not without limitations.

Corporate governance frameworks often prioritize financial performance and shareholder value, sometimes neglecting the broader ethical implications of business decisions. This narrow focus can create a gap between corporate governance practices and ethical considerations.

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Another limitation is the potential for conflicts of interest. In some cases, corporate governance structures may be influenced by individuals with their own personal agendas, which can compromise ethical decision-making processes.

It is crucial for organizations to establish checks and balances to mitigate these conflicts and ensure that the interests of all stakeholders are prioritized.

Ethics in Finance and Corporate Governance

When it comes to corporate governance, the integration of ethics and finance is crucial for the long-term success of an organization. 

Ethics in finance and corporate governance  refer to the principles and standards that guide financial decision-making while ensuring accountability and transparency.

However, the neglect of ethical considerations in financial decision-making can lead to significant challenges for investors and stakeholders.

One of the main problems that investors face in corporate governance and ethics is the potential for unethical behavior within financial institutions.

The lack of ethical guidelines and oversight can result in actions that prioritize short-term gains over long-term value creation.

This can include misleading financial reporting, insider trading, and excessive risk-taking, all of which can detrimentally impact investors’ interests.

Additionally, the absence of  ethics in finance and corporate governance  can erode trust between investors and companies.

When ethical considerations are disregarded, investors may question the integrity of the decision-making process and hesitate to invest their capital. 

This lack of trust can have far-reaching consequences, including reduced market confidence and limited access to capital.

To address these challenges, it is essential for organizations to prioritize  ethics in finance and corporate governance . 

This can be achieved by adopting robust ethical frameworks, implementing effective internal controls, and promoting a culture of accountability and transparency. 

By integrating ethics into financial decision-making processes, companies can safeguard investor interests, build trust, and enhance long-term value creation.

By addressing these challenges and placing ethics at the forefront of finance and corporate governance, organizations can inspire investor confidence, attract capital, and contribute to the overall integrity and sustainability of the business ecosystem.

Ethics and Corporate Governance in the Banking Industry

When it comes to ethics and corporate governance, the banking industry faces unique challenges that require careful consideration and adherence to ethical standards.

As banks play a crucial role in the economy by managing financial transactions and providing essential services, maintaining ethical practices is of utmost importance to ensure trust, integrity, and stability in the financial system.

The Ethical Challenges in the Banking Industry

The banking industry operates in a complex environment with various stakeholders, including customers, employees, shareholders, and regulatory bodies. This complexity gives rise to several ethical challenges that banks must navigate:

• Conflicts of interest:  Banks often face conflicts of interest when dealing with clients, shareholders, and their own financial interests. Managing these conflicts ethically is vital to avoid compromising the interests of stakeholders.
• Transparency and accountability:  Banks must strive to maintain transparency and accountability in their operations and reporting practices. Ethical behavior ensures that all stakeholders have access to accurate and timely information.
• Risk management:  Ethical considerations play a significant role in risk management within the banking industry. Banks must balance the pursuit of profit with the responsibility to manage risks ethically and safeguard the financial well-being of their customers and investors.

Maintaining Ethical Standards

To address these ethical challenges, banks need to establish robust corporate governance frameworks that prioritize ethics and integrity. This includes:

• Developing a strong ethical culture:  Banks must foster an ethical culture throughout their organization, starting from the top leadership down to every employee. Clear ethical guidelines and regular training programs are essential to promote ethical behavior.
• Implementing effective risk management:  Banks should have comprehensive risk management systems in place that identify, assess, and mitigate potential ethical risks. This ensures that ethical considerations are integrated into decision-making processes.
• Engaging stakeholders:  Banks should actively engage with stakeholders to understand their expectations and concerns. This includes maintaining open lines of communication and soliciting feedback to address governance issues effectively.

Case Study: Wells Fargo’s Ethical Crisis

In 2016, Wells Fargo was embroiled in one of the most significant ethical crises in the banking industry when it was revealed that employees had opened millions of unauthorized customer accounts.

This unethical practice was driven by an aggressive sales culture that incentivized employees to meet unrealistic sales targets, often at the expense of customer interests.

As a result, employees created fake email addresses and forged customer signatures to set up new accounts and generate fees.

The scandal came to light through a series of investigations that unveiled systemic failures in corporate governance, including a lack of oversight from senior management and inadequate internal controls.

This failure not only breached ethical standards but also violated legal frameworks, leading to fines and penalties for Wells Fargo.

The U.S. Consumer Financial Protection Bureau (CFPB), along with other regulatory bodies, fined the bank $185 million, reflecting the severity of the misconduct.

Following the crisis, Wells Fargo took several remedial actions to restore its reputation and realign its operations with ethical standards.

This included overhauling its sales practices, eliminating sales goals for retail bankers, and implementing a new system for whistleblowers to report unethical activities safely.

The bank also made changes at the executive level, signaling a commitment to ethical reform by appointing new leadership and enhancing board oversight.

Despite these efforts, the scandal had far-reaching consequences, damaging customer trust and leading to a broader industry-wide examination of sales practices in banking.

The Wells Fargo case serves as a stark reminder of the critical importance of ethics in corporate governance. It underscores the need for organizations to foster a culture of integrity and transparency and to establish robust mechanisms that prevent, detect, and address ethical violations effectively.

The Code of Ethics in Corporate Governance

Corporate governance is essential for maintaining integrity and ethical standards within organizations. A crucial component of corporate governance is the establishment and implementation of a  code of ethics . 

This code serves as a guiding framework that outlines the expected behaviors and principles that all employees and stakeholders should adhere to.

A well-developed  code of ethics in corporate governance  helps foster a culture of transparency, trust, and accountability. It provides employees with clear guidelines and expectations, ensuring that ethical decision-making is prioritized in all aspects of business operations.

Some key elements typically addressed in a  code of ethics in corporate governance  include:

• Integrity and honesty: Upholding high ethical standards and acting with honesty and integrity in all business interactions and transactions.
• Conflicts of interest: Recognizing and managing conflicts of interest to ensure that personal interests do not compromise professional judgment.
• Compliance with laws and regulations: Adhering to all applicable laws, regulations, and industry standards.
• Fair competition: Engaging in fair competition and avoiding practices that could result in antitrust violations.
• Confidentiality: Respecting and safeguarding confidential information, both internally and externally.
• Respect and diversity: Treating all individuals with respect, valuing diversity, and promoting an inclusive work environment.

“A code of ethics is not just a piece of paper; it sets the tone for the entire organization and shapes its culture.”

Having a well-communicated and regularly reinforced code of ethics is essential for maintaining trust and credibility among stakeholders, including employees, customers, investors, and the wider community.

It demonstrates a commitment to ethical conduct and helps organizations navigate complex ethical dilemmas.

Corporate Governance Ethics in the Global Business Environment

In the increasingly interconnected and complex global business environment, the ethical practices of corporations play a crucial role in maintaining effective corporate governance.

With multinational companies operating in diverse cultural and regulatory contexts, the integration of ethics into corporate governance becomes paramount for long-term success and sustainability.

When multinational corporations prioritize corporate governance ethics in their global operations, they demonstrate their commitment to responsible and ethical decision-making.

By adhering to high ethical standards, these companies foster trust among stakeholders, including shareholders, employees, and customers.

One of the key challenges that organizations face in promoting corporate governance ethics in a global business environment is navigating the differences in cultural values and legal frameworks.

What may be considered ethically acceptable in one country may be viewed as unethical in another. Therefore, multinational corporations must be mindful of the cultural nuances and legal requirements of the countries in which they operate.

Furthermore, multinational corporations must prioritize ethical behavior not only within their own operations but also among their suppliers, partners, and stakeholders throughout the global supply chain.

This commitment to ethical practices in the global business environment helps prevent unethical practices such as corruption, human rights abuses, and environmental degradation.

To emphasize the importance of corporate governance ethics in the global business environment, the following table highlights the key factors and their impact:

By prioritizing corporate governance ethics in the global business environment, multinational corporations can contribute to the development of sustainable and resilient economies that benefit both societies and shareholders.

Addressing Ethics Violations in Corporate Governance

When ethics violations occur in corporate governance, the consequences can be far-reaching, impacting not only the reputation of the company but also its stakeholders and the overall integrity of the business ecosystem.

It is crucial for organizations to address and rectify such violations promptly to restore trust and maintain ethical standards.

Effective strategies for addressing  ethics violations in corporate governance  involve a multi-faceted approach that encompasses prevention, detection, investigation, and remediation.

The following steps can help organizations navigate the challenges posed by ethics violations:

• Develop and enforce a robust code of ethics:  A well-defined and comprehensive code of ethics serves as a guiding framework for ethical behavior and decision-making. Organizations should clearly communicate their expectations and ensure compliance through regular training, monitoring, and enforcement mechanisms.
• Establish an independent and effective ethics reporting mechanism:  Whistleblower hotlines and reporting systems provide avenues for employees and stakeholders to report potential ethics violations confidentially and without fear of retaliation. These channels should be readily accessible and supported by a culture that encourages ethical reporting.
• Conduct thorough investigations and implement appropriate disciplinary actions:  When ethical misconduct is reported, organizations must conduct timely and impartial investigations. This process should be carried out by an independent team or external experts. If violations are substantiated, appropriate disciplinary actions, such as employee reprimands, suspensions, or terminations, should be taken to reinforce the seriousness of ethical breaches.
• Strengthen internal controls and risk management systems:  Robust internal controls and risk management frameworks help identify and mitigate the potential for ethics violations. These mechanisms should encompass regular audits, risk assessments, and compliance monitoring to ensure adherence to ethical guidelines.
• Cultivate a strong ethical culture:  A culture of ethics starts at the top with leaders who demonstrate and prioritize ethical behavior. Organizations should promote ethical values and integrity through training, communication, recognition of ethical conduct, and aligning performance evaluations with ethical standards.

By proactively addressing  ethics violations in corporate governance , organizations can foster a culture of trust, accountability, and transparency. This, in turn, enhances stakeholder confidence , protects reputations, and contributes to sustainable business success.

“Ethics is not just about avoiding wrongdoing; it’s about doing what is right, even when no one is watching.”—Aldo Leopold

The Triple Bottom Line: Ethics and Corporate Governance

Corporate governance is not solely concerned with financial performance and shareholder value. In recent years, a broader perspective called the triple bottom line has emerged, emphasizing the interconnection between social, environmental, and financial sustainability. 

In this context, ethics in corporate governance play a crucial role in ensuring responsible and sustainable business practices.

When we examine the triple bottom line, we can see how ethics weave into each dimension:

• Social sustainability:  Ethics in corporate governance drive organizations to consider the well-being of their employees, customers, and communities. It includes fair labor practices, diversity and inclusion, and responsible marketing. By prioritizing social sustainability , companies build trust and foster positive relationships with their stakeholders.
• Environmental sustainability:  Ethics in corporate governance involve responsible resource management, waste reduction, and minimizing the organization’s ecological footprint. By integrating environmental ethics into decision-making processes, companies contribute to a sustainable and resilient future, mitigating the negative impact of their operations on the environment.
• Financial sustainability:  Ethical considerations in corporate governance play a vital role in long-term financial success. By practicing transparency, accountability, and integrity, companies maintain the trust and confidence of investors, attract sustainable capital, and foster long-term profitability.

Measures that include corporate ethics and governance ensure that organizations navigate the complexities of the triple bottom line effectively. By embedding ethics into the governance framework, companies can align their values with their business strategies and enhance overall sustainability.

What is the place of ethics in corporate governance?

Ethics play a crucial role in corporate governance by guiding decision-making processes and ensuring the integrity and trustworthiness of business operations.

What is the role of ethics in corporate governance?

Ethics influence the practices and processes of corporate governance, helping to establish transparency, accountability, and responsible behavior within organizations.

Why is ethics important in corporate governance?

Upholding business ethics in corporate governance is essential for maintaining a positive reputation, fostering stakeholder trust, and achieving long-term organizational success.

What is the relationship between ethics, finance, and corporate governance?

Ethical considerations are crucial in financial decision-making within corporate governance. Overlooking ethics can lead to problems such as conflicts of interest, insider trading, and unethical financial practices.

How are ethics integrated into corporate governance in the global business environment?

In a global business context, ethics in corporate governance are vital for multinational corporations to navigate diverse cultural norms, regulatory frameworks, and stakeholder expectations.

How should ethics violations in corporate governance be addressed?

Ethics violations in corporate governance should be taken seriously and addressed through effective policies, mechanisms for reporting misconduct, and appropriate consequences for wrongdoing.

In summary, ethics play a vital role in corporate governance, ensuring integrity, transparency, and accountability within organizations. Upholding business ethics is essential for building trust among stakeholders and maintaining a positive reputation.

Integrating ethics into decision-making processes is a corporate governance best practice that fosters responsible and sustainable business practices. It promotes a culture of professionalism, fairness, and respect, which ultimately contributes to the overall success of an organization.

By recognizing the  importance of ethics in corporate governance , businesses can navigate the complexities of the global business environment while upholding ethical standards.

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Case Studies of Good Corporate Governance

This second fully revised edition of "Case Studies of Good Corporate Governance Practices" presents the experiences of a set of leading companies in Latin America in reforming and improving how their firms are governed, and the results these changes have achieved. Each chapter's contents reflect the views of one company's management and directors of the motivations, challenges, solutions and rewards for devising and putting in place better governance rules and practices.

The full publication download also includes the case studies translated into Spanish and Portuguese.  

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10 good governance cases

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Corporate social responsibility and governance

• Published: 26 June 2019
• Volume 23 , pages 901–912, ( 2019 )

Cite this article

• Jean-Michel Sahut 1 ,
• Marta Peris-Ortiz 2 &
• Frédéric Teulon 3  

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1 Introduction

Corporate governance (CG) and corporate social responsibility (CSR) have been important research issues for decades. The relationship between CG and CSR has been studied in financial literature in conjunction with the relationship between CSR, risk and corporate financial performance (CFP). In numerous previous studies, CG has been analysed as a pre-requisit or a component of CSR (Jamali et al. 2008 ; Roshima et al. 2009 ; García-Sánchez et al. 2015 ). A considerable number of these studies examining the interrelations among CSR, CFP and risk report conflicting evidence (Becchetti and Ciciretti 2009 ). The multiplicity of data sources and methodologies used in existing studies can explain, to a large extent, these differences in empirical results. Moreover, the relationships between CSR, governance, financial structure, and financial performance are complex, requiring more global models to better understand them (Flammer 2015 ).

Other fields of management literature have attempted to explain the relationship between governance and CSR engagement, policy and strategy (Carroll 1999 ; Danvila del Valle et al. 2013 ; Zingales et al. 2016 ). These have offered some definitions and typologies of strategic CSR behaviours in terms of corporate governance, and have demonstrated how management practices and the company’s structure of CSR strategies depend on governance factors. In particular, board composition and ownership structure may explain strategic CSR decision-making and risk-taking. They shape their companies’ CSR policies with the aim of hedging against potential risks including egregious unethical behaviour and outright misconduct.

An in-depth examination of CSR and governance issues is particularly important, given the alarming increase both in frequency and severity of incidents of corporate fraud. The scandals associated with Enron, WorldCom and Lehman Brothers, as well as the Ponzi schemes of Allen Stanford, Bernard Madoff and others, have undermined the confidence of investors and the public alike. Remarkably, Dyck, Morse and Zingales ( 2014 ) estimate that only 1 in 4 frauds committed are detected in the U.S. market, and that around 15% of U.S. companies were engaged in corporate fraud over the period between 1996–2004. This is particularly troublesome for those who believe that the U.S. has the highest standards of monitoring and investor protection practices worldwide. Equally disturbing is their finding that the annual cost of fraud among large U.S. companies is around $380 billion. These results are particularly disconcerting for markets with weaker regulatory environments compared to the U.S.

Moreover, according to Gangi and Trotta ( 2015 ), socially-responsible investment funds demonstrate greater stability in their benefits in times of economic crisis than those funds whose sole aim is profit. It seems that the moral and economic values linked to CSR provide balance and robustness to the system, as well as temper the incentive to maximize profits as the sole objective.

2 Definition of concepts: CSR and governance

A Green Paper released by the European Commission defines Corporate Social Responsibility (CSR) as actions which allow companies to not only meet their legal obligations but also to go beyond and invest in human capital, in the environment, and in strengthening relations with stakeholders. In the spirit of the OECD, the Green Paper defines corporate governance as the system or interface which manages and controls relations between the management, the board of directors, shareholders and other stakeholders. The standard approach of “corporate governance” was initially based on the objective of optimizing company value; i.e., aligning the interests of managers and shareholders at the lowest possible cost (Turnbull 2015 ).

For these two concepts, the notion of stakeholder is central, although its scope is more restrictive in the case of governance, which explains the reason why the relationship between quality of governance and CSR is mainly addressed in the scientific literature in light of potential conflicts of interest between different stakeholders (Aguilera and Cuervo-Cazurra 2009 ; Ntim et al. 2012 ). Waddock and Graves ( 1997 ) argue that governance has struck a balance between economic and social interests, as well as between individual and collective interests. It is by encompassing all stakeholders, instead of only taking into account the interests of shareholders as suggested in the agency theory of Jensen and Meckling ( 1976 ), that many governance researchers have shifted their attentions to CSR issues. Corporate governance is thereafter studied in light of different ownership structures and governance practices, mainly related to the board of directors. In particular, presenting their resource dependency theory, Pfeffer and Salancik ( 1978 ) have analyzed the link between the attributes of boards of directors and their companies’ CSR performance (Hillman and Dalziel 2003 ; Jo and Harjoto 2011 ).

Using a sample of S&P500 firms, Tsoutsoura ( 2004 ) has shown that when board members own a substantial number of shares, firms are more sensitive to CSR practices. For Barnea and Rubin ( 2010 ), it is rather CEOs and senior managers who tend to over-invest in CSR activities to establish their own personal reputation as good citizens, which can lead to conflicts with other stakeholders. In the same perspective, Ntim and Soobaroyen ( 2013 ) highlight that in well-governed firms, managers develop more CSR practices. Their results indicate that board size, diversity, and the number of independent directors significantly affect the adoption of CSR practices. Overall, prior literature has shown that certain characteristics of board of directors, including board composition and functioning, play a monitoring role aimed at ensuring a balance between the interests of the different stakeholders, which explains to a large extent CSR practices (Hillman and Dalziel 2003 ; Mallin et al. 2013 ).

3 Differences between CSR and ethics

Business ethics and CSR are closely related. Two schools of thought argue that CSR policies are highly effective and that their objectives reach beyond the sole purpose of communication. The first of these proposes to limit the scope to the notion of business ethics, according to the Anglo-Saxon perspective, and contrast this with corporate responsibility approaches rooted in social objectives, a more European stance, rather than moral principles (Maxim 2014 ). The second model argues a mixture of ethics and CSR (Postel and Rousseau 2008 ). From a practical point of view, these two schools of thought are closely related, because a socially-responsible company with a CSR policy should be an ethical company, and an ethical company should be socially responsible (Fassin et al. 2011 ).

For most companies, the scope of accountability and ethics are limited to legal obligations and sometimes to codes of best practices, while profitability remains the only criterion that affects company decisions. However, ethical codes are becoming increasingly popular, especially in large companies, and cover areas such as CSR, quality of customer relationships and supply chains, respect for the environment, and personal and corporate integrity charters. In this approach, assessing the ethical performance of a company includes CSR as a dimension of ethics.

4 The dimensions of CSR strategies

CSR considers that company responsibility should be shared beyond the owners alone, instead extending to the various stakeholders. Responsiveness to pressures from stakeholders depends on the environmental and social risks companies take. The power, legitimacy and urgency of stakeholder demands shape managerial decisions with regards environmental and social concerns (Mitchell et al. 1997 ).

The most studied CSR dimension is by far governance, which creates consensus among studies (Orlitzky 2013 ). The second most studied dimension is the environment. However, social factors are much less studied. Horváthová’s ( 2010 ) meta-analysis of ecological studies warns that simple correlation coefficients generate more negative results when linking performance to ecological factors. Therefore, it seems appropriate to rely more on advanced econometric methods instead. She also highlights that a positive link is found more frequently in common law countries than in civil law countries, which brings us to our next topic.

Concerning the country of observation, there seems to be a difference in empirical results obtained in the U.S. compared to other countries. Studies on the U.S. context more often find positive results, while studies on non-U.S. companies tend to lead to more neutral results. An attempt to justify these discrepancies can be found in the activism of U.S. pension funds toward sustainability.

5 The relationship between corporate governance, CSR and corporate financial performance

This section presents a literature review related to the relationships between corporate governance (CG), corporate social responsibility (CSR) and corporate financial performance (CFP). The relationship between CSR and CG has been widely discussed in recent research in reference to problems with conflicts between various stakeholder interests (Aguilera et al. 2007 ; Ntim et al. 2012 ; Starks 2009 ; Shahzad et al. 2016 ). A large part of the literature defends the idea that the adoption of CSR policies leads to the implementation of new regulations standards and better CG mechanisms within a company (Albareda et al. 2008 ). The results of previous studies remain inconclusive and at the very least require further research.

The adoption of CSR principles should not be perceived as the simple consequence of a marginal decision made within the company. Instead, adopting these principles is part of the company’s wider culture and all of its hierarchical components are involved. The decision to adopt these principles is made at the top, and stakeholders need to ensure that managers apply CSR principles in accordance with these decisions to optimize the development of appropriate internal CG mechanisms to reflect this.

These CG mechanisms promoting CSR emerged in the aftermath of infamous accounting scandals such as Enron, HealthSouth, Tyco, and Worldcom, all of which have shaken the trust of investors (Agrawal and Chadha 2005 ). The aim of promoting CSR was to reestablish investors’ confidence in the financial system. Companies are now required to be more transparent and to provide more timely and intelligible disclosure regarding financial statements and corporate governance practices. Disclosure of information by the management team responsible implementing CSR activities has become increasingly commonplace.

In the same context, the standard governance approach was based on the basic objective of optimizing company value. In other words, the objective of good governance is to align the interests of stakeholders and managers at a low cost to the company (Turnbull 2015 ). Waddock and Graves ( 1997 ) argue that CG develops a balance between economic and social objectives, as well as between individual and community goals. Based on a large sample of companies from the S&P 500, Tsoutsoura ( 2004 ) finds that, when board members own a large portion of stocks, companies are more sensitive to CSR practices.

In light of this review, we hypothesize the existence of a significant relationship between CG and CSR. This argument was also put forward by Kendall ( 1999 ), who supports the idea that good governance preserves stakeholder interests related to CSR policy. Ntim and Soobaroyen ( 2013 ) confirm the results presented by Aguilera et al. ( 2007 ) and find evidence that, in well-governed companies (i.e. those promoting high levels of accountability, responsibility, and transparency), managers are more likely to implement positive CSR practices. To summarize, the literature suggests that well-governed companies are more likely to adopt CSR practices.

Many studies have examined the relationship between company-specific characteristics and their CSR practices in order to identify their financial and non-financial determinants. For the financial determinants, the research is mainly based on slack-resource theory, which suggests that better financial performance results in more available resources which may be allocated to CSR activities (Waddock and Graves 1997 ). We argue that this relationship will also be mediated by the company’s size, intangibles, and leverage. Using different methodological approaches, Adams et al. ( 1998 ), Neu et al. ( 1998 ), Brammer and Pavelin ( 2006 ), and Haniffa and Cooke ( 2005 ) find that the extent of corporate social disclosure is positively related to the size of the company. Thus, large companies are expected to have a high level of systematic risk and therefore to counter this by placing greater emphasis on the long term than smaller companies. Therefore, companies will disclose corporate social information to both reduce risk and reassure investors.

Intangible assets also play a role. For Surroca et al. ( 2010 ), intangible assets moderate the relationship between corporate social performance and CFP, in both directions. Intangibles such as reputation, trust, and capacity to innovate, all widely recognized as being fundamental to strong financial performance, are at the same time integral to the CSR agenda (Brondoni 2010 ). Thus, an intimate link exists between intangibles and CSR, and we can suppose that investments in intangibles increase with the level of CSR practices.

Among studies interested in the impact of the financial structure on the adoption of CSR rules, Purushothaman et al. ( 2000 ) find that high-leverage companies have closer relationships with their creditors and use other means to disclose social responsibility information. Brammer and Millington ( 2008 ) argue that a high level of leverage negatively affects the reputation of the company. Therefore, the company should implement CSR practices to improve its image on the stock market. However, Zweibel ( 1996 ) demonstrates how excessive company debt increases interest expenses, discouraging investment in CSR. Thus, compliance with shareholder profitability goals is often in conflict with the cost involved in setting up CSR practices. For this reason, the capacity of a company to invest in CSR practices is expected to depend on its economic performance. As a result, financial resources allocated to CSR activities are simply generated by current operations, which can be measured by the operating income. The main advantage of this financial indicator is that it does not take the financial structure and taxes into account (Ernst & Young’s Corporate Responsibility Report 2012 ).

While the determinants of a company’s social responsibility have been the subject of numerous studies, the main focus has been on testing the impact of CSR practices on company performance. Several researchers have found a negative relationship between CSR and CFP (e.g. McGuire et al. 1988 ; Preston and O’Bannon 1997 ). These authors argue that companies engaged in CSR strategies face additional costs which negatively affect their performance. Other empirical studies have found that CSR does not affect CFP (Aragón-Correa and Rubio-López 2007 ; Chand and Fraser 2006 ; Mahoney and Roberts 2007 ; McWilliams and Siegel 2000 , 2001 ). Based on different company samples, these studies do not support any particular relationship between CSR and corporate financial performance. A third group of researchers found a positive relationship between CSR activities and financial performance (accounting and stock market performance measures). They argue that the costs of CSR are minimal, and that the benefits are potentially consequential. Orlitzky ( 2013 ) identified a positive relationship between CSR and CFP and argued that CSR enhances a company’s reputation. In addition, they suggest that CSR raises managerial skills and improves the organizational efficiency of the company. Margolis et al. ( 2009 ) provide a meta-analysis of 251 studies for the period between 1972 and 2007 which investigate the link between CSR and CFP. These authors show that the majority of studies provide evidence of a significant positive relationship between the adoption of CSR principles and the accounting performance of a given company. Focusing on the same issue, Tsoutsoura ( 2004 ) found a significant and positive impact of CSR on a company’s return on equity (ROE) and ROA. She supports the view that socially responsible corporate performance can be associated with a series of bottom-line benefits. These results furthermore corroborate the findings of previous studies conducted in different markets, such as Russo and Fouts ( 1997 ), Nakao et al. ( 2007 ), Scholtens ( 2008 ), Brammer and Millington ( 2008 ), Okamoto ( 2009 ), and Yang et al. ( 2010 ). The slack-resource theory suggests that this relationship is reversible and can create a synergetic circle. One main determinant of CSR politics is the availability of financial resources, and that companies able to invest in CSR are expected to perform better (Waddock and Graves 1997 ). However, different studies have established that a company’s capacity to invest in CSR depends more on size, leverage, and other investments in intangibles than on their financial performance (Surroca et al. 2010 ). Thus, these resources, financial and otherwise, are necessary to improve social performance.

On the other hand, several studies have found evidence of a significant relationship between CSR and stock market performance. In this context, Navarro ( 1988 ) and Webb ( 1996 ) suggest that CSR practices increase the transactional volume of shares as well as the share price, up to a certain threshold. Moreover, Dowell et al. ( 2000 ), in a study of the impact of CSR disclosure on company performance, show that a high level of CSR reporting positively affects a company’s market performance as measured by Tobin’s Q.

The lack of consistency in these empirical results may be explained by two factors. Firstly, the relationships between CG, CSR and financial performance are partially explored in pairs, therefore these factors may also operate in reverse and create a synergetic circle, yet they are not examined as a whole (Waddock and Graves 1997 ). However, these relationships are more complex, and a more global model is required to better understand them (Flammer 2015 ). Secondly, the multiplicity of data and methodologies used can explain the inconsistent empirical results observed. Specifically, a problem of endogeneity exists between CSR and CFP variables, and the strength of the link between financial and CSR performances depends on the way they are measured, as well as numerous moderating variables (Orlitzky 2013 ; Gramlich and Finster 2013 ).

Based on the above-mentioned discussion, the debate on the causal effect of CSR practices on financial performance is still open and new approaches are necessary. Moreover, the lack of a clear consensus on this relationship suggests that only a particular combination of environmental, social, and societal practices are likely to influence corporate financial performance. These particular practices are highly dependent on the availability of financial resources discretionarily allocated to meet stakeholders’ interests, as well as on the power balance between different stakeholders.

The objective of this special issue is to understand the intertwined links between CG, financial variables, CSR, and CFP based on comprehensive empirical models which take into account interactions between these different factors as the theory suggests. Thus, it aims to investigate the extent to which a company’s internal CG structures and financial variables may influence CSR practices and the impact of these practices on the market and accounting performances of the company.

6 The content of this special issue

This special issue of the Journal of Management and Governance brings together research from authors in France, Switzerland, the United Kingdom, Tunisia, and further afield. The underlying theme of the articles is the nature of corporate social responsibility and its relationships with governance, financial structure and financial performance.

The special issue begins with a study by Maria Giuseppina Bruna, Rey Dang, Marie-José Scotto, and Aymen Ammari addressing the question “ Does board gender diversity affect firm risk - taking? Evidence from the French stock market ”. Drawing on a sample of French companies listed on the SBF120 index over the 2006–2010 period, the authors find no evidence of any significant relationship between the proportion of women on corporate boards and corporate risk-taking practices. This result brings into question the usefulness of the Copé-Zimmermann law on gender quotas on management boards enacted in January 2011 and which took effect from early 2017, obliging French companies to include at least 40% of women on their boards. The results are also consistent with Nelson ( 2015 ) who considers that men and women do not behave significantly differently in terms of risk-taking.

The second paper of the special issue, by Fatma Baalouch, Salma Damak Ayadi and Khaled Hussainey is “ A study of the determinants of environmental disclosure quality: Evidence from French listed companies ”. This paper combines several theories in a unique framework, to assess the factors which shape the quality of environmental disclosure. In particular, the paper looks at the effects of a company’s environmental strategy (Environmental audit, presence of an environmental committee, environmental performance, and the company’s carbon footprint) and board diversity (board independence and gender diversity) on the disclosure of environmental information. In the footsteps of Chauvey et al. ( 2015 ), the authors develop an index based on recommendations by the IASB, FASB and GRI to gauge the quality and extent of environmental disclosure. Using a sample of French companies listed on the SBF120 index over the 2009–2014 period, the authors show that quality of environmental disclosure is relatively low in France but tends to increase over the sample period. They also show that environmental audit, board gender diversity and environmental performance explain, to a large extent, the quality of environmental disclosure.

Mehdi Mili, Sami Gharbi, and Frédéric Teulon focus on “ Business Ethics, firm value & Ownership ” in the third paper of the special issue. Specifically, they test the impact of ethical performance on company value and the attractiveness of stocks for main shareholders (i.e., large owners, institutional investors and insiders). The authors use the Ethisphere ® database to disentangle ethical companies from others and to show that best ethical practices improve company value in the US. This result is consistent with prior literature suggesting that companies are able to create value for all stakeholders. Moreover, the authors provide evidence that institutional investors are more likely to invest in ethical companies as they play an effective monitoring role in encouraging these companies to strengthen their ethical behavior.

The fourth paper by Rihem Braham, Christian de Peretti, and Lotfi Belkacem is entitled “ Do political connections affect bank leverage? Evidence from some Middle Eastern and North African countries ”. The authors use a sample of commercial banks from the MENA region for the period between 2003 and 2014 to study whether political patronage shapes banks’ financing decisions. The authors demonstrate how politically-connected banks are more likely to exhibit high levels of leverage. This effect is found to be larger among highly-profitable banks, suggesting that privileged relations with politicians help banks to be more profitable and lead to higher levels of leverage. Politicians on boards of directors seem to be a valuable resource and to play an important role in shaping banks’ financing decisions. Depositors may perceive politically-connected banks as being less risky, as they are more inclined to be bailed out by the government when facing financial difficulties.

The final paper, written by Eric Braune, Pablo Charosky and Lubica Hikkerova, is “ Corporate social responsibility, financial performance, and risk in times of economic instability ”. This paper analyzes the effect of a company’s social responsibility on stock market returns from a systematic risk angle. The authors begin by looking at the link between CSR and systematic company risk, then investigate the relationship between CSR and company performance. The empirical evidence indicates a negative relationship between corporate social performance and systematic risk, leading to higher stock returns for those companies which implement socially responsible strategies. These strategies are considered by investors to be insurance against the negative effects of periods of turmoil.

We would like to thank Lino Cinquini, editor-in-chief of the Journal of Management and Governance, for offering me the opportunity to guest-edit this special issue. Our sincere thanks also to all the reviewers for the time and effort they invested in providing feedback on these papers. And, last but not least, our thanks to the contributing authors for their intellectual contributions and for the quality of their work, including during the reviewing process. All views expressed in the papers remain, of course, the sole responsibility of the contributing authors.

Change history

28 september 2019.

The original version of this article contained a mistake. The list of the authors was incorrect. The authors of this article are: Jean-Michel Sahut, Marta Peris-Ortiz, Frédéric Teulon.

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Please note you do not have access to teaching notes, a strategic framework for good governance through e-governance optimization: a case study of punjab in india.

Program: electronic library and information systems

ISSN : 0033-0337

Article publication date: 7 April 2015

The purpose of this paper is to attempt to find out whether the new information and communication technologies can make a significant contribution to the achievement of the objective of good governance. The study identifies the factors responsible for creating a conducive environment for effective and successful implementation of e-governance for achieving good governance and the possible barriers in the implementation of e governance applications. Based on the comprehensive analysis it proposes a strategic policy framework for good governance in Punjab in India. Punjab is a developed state ranked amongst some of the top states of India in terms of per capita income and infrastructure.

Design/methodology/approach

The study designs a framework for good governance by getting the shared vision of all stakeholders about providing good quality administration and governance in the Indian context through “Participatory Stakeholder Assessment”. The study uses descriptive statistics, perception gap, ANOVA and factor analysis to identify the key factors for good governance, the priorities of public regarding e-services, the policy makers’ perspectives regarding good governance to be achieved through e-governance.

The study captures the good governance factors mainly contributing to the shared vision. The study further highlights that most Indian citizens in Punjab today believe in the power of information and communication technology (ICT) and want to access e-governance services. Major factors causing pain and harassment to the citizens in getting the services from various government departments include: unreasonable delay, multiple visits even for small services; poor public infrastructure and its maintenance in government offices. In the understanding of citizens the most important factors for the success of e-governance services are: overall convenience and experience of the citizens; reduction in the corruption levels by improvement in the transparency of government functioning and awareness about the availability of service amongst general masses.

Originality/value

The present study has evolved a shared vision of all stakeholders on good governance in the Indian context. It has opened up many new possibilities for the governments, not only to use ICTs and help them in prioritizing the governance areas for focused attention, but also help to understand the mindset of the modern citizenry, their priorities and what they consider as good governance. The study will help policy makers focus on these factors for enhancing speedy delivery of prioritized services and promote good governance in developing countries similar to India.

• Information and communication technologies
• E-governance
• Good governance

Kalsi, N.S. and Kiran, R. (2015), "A strategic framework for good governance through e-governance optimization: A case study of Punjab in India", Program: electronic library and information systems , Vol. 49 No. 2, pp. 170-204. https://doi.org/10.1108/PROG-12-2013-0067

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Data Governance: All you need to know

Written by Sandra Suszterova  |  Jun 14, 2024

Table of Contents

What is data governance?

Why is data governance important, data governance framework, data governance roles, data governance solutions, data governance best practices, data governance benefits, data governance trends, next steps with gooddata.

Data is an essential part of every business, driving operations across all industries. This makes it one of the most valuable assets a company possesses. However, with great value comes great responsibility, and it is crucial therefore to manage this wealth of data effectively and responsibly. Enter data governance.

Data governance is a framework of principles that manage data throughout its lifecycle, from collection and storage to processing and disposal. It outlines the necessary actions, processes, and supporting technologies to ensure effective data handling.

Data governance aims to maintain high data quality in a secure and easily accessible manner. Simply put, it governs who can access specific types of data and which datasets are governed under these protocols.

Data governance overview

Data governance and data management

Data governance encompasses policies and standards for managing data as a valuable asset, ensuring compliance and security. In contrast, data management involves the practical processes and technologies for collecting, storing, and using data, with a focus on accuracy and availability.

Data governance is vital for organizations to ensure effective data management and utilization. Here are key reasons why data governance is crucial:

• Avoid inconsistent data silos across different departments by unifying data management practices.
• Establish standard data definitions to create a shared understanding of data across the organization.
• Improve data quality by identifying and rectifying errors in datasets, ensuring accuracy and reliability.
• Increase the accuracy of analytics to provide reliable information for informed decision-making.
• Develop and enforce policies to prevent data errors and misuse, ensuring data integrity.
• Help ensure compliance with data privacy laws and regulations, protecting the organization from legal risks.

A data governance framework is a set of rules, processes, workflows, technologies, metrics, and responsibilities that guide how an organization collects, organizes, stores, and uses data. The data governance framework is part of the data governance strategy that defines and outlines the goals and direction for data governance across an organization, both internally and externally.

Want to see what GoodData can do for you?

Data governance principles and components

As data is one of a company's most valuable assets, it is crucial to shape the data governance strategy based on well-defined principles. These principles ensure that the strategy effectively manages, protects, and leverages data to its maximum potential.

Various technologies and tools are available to apply data governance principles in practice. In data governance, three areas work together: people, processes, and technologies.

Data governance principles

Data accuracy

Data accuracy ensures that data is correct, precise, and free from errors. How can we achieve accurate data?

• Data profiling analyzes data structure, distribution, patterns, and anomalies. It scans tables to create profiles with statistics on missing values, data types, and distribution, helping users to quickly understand data quality, spot anomalies, and ensure accurate analytics for better decision-making.
• Data quality tools combine data accuracy, validity, completeness, and consistency. To achieve this, dbt can be used as a transformation tool, enabling data analysts and engineers to more effectively transform data in their warehouses.

Data consistency

Data consistency ensures that data remains uniform and consistent across different systems.

Start with data integration , which helps collect and merge data from multiple storage systems (e.g., data warehouses and data lakes) to create a unified view. You can use built-in ETL (Extract, Transform, Load) tools within analytics platforms or external tools like Meltano (for extracting/loading data) and dbt (for data transformation).

Once a unified dataset is established, effective master data management requires providing consistent terms and definitions of metrics to all tenants (departments, vendors, business units, and clients). The semantic layer maps physical data to a logical model, defining rules, relationships, and a common business vocabulary. A shared logical data model and metrics store maintain data consistency and integrity. With Headless BI , you can use consistent definitions across tools like Jupyter Notebook , Tableau, and Power BI through API integrations .

The position of the semantic layer

Data accessibility

Data accessibility ensures that data is readily available to authorized users. To apply this principle in practice, you can establish data catalogs and access control over your solution. To ensure data accessibility, it is beneficial to have all of the following:

• Semantic layer , which ensures data accessibility by using business-friendly terms for easy data interaction. It serves as a unified layer across the entire organization, including departments, teams, clients, customers, and vendors.
• Searchable repositories using Analytics Catalog , as a central hub for users to search, view, and organize analytical assets. The semantic layer enhances this functionality by allowing searches in familiar business terminology. It provides metadata for context, origin, and timestamps, and offers categorized views for easy discovery.
• A data catalog serves as a centralized repository that provides comprehensive information about the data stored within a platform, including metadata — information about data sources, structures (such as tables, columns, and data types), relationships between datasets, metrics, dashboards, visualizations, and other entities like users, user groups, and workspaces.

Metadata example

In a multi-tenant architecture , users share the same environment but can only access relevant data. This is achieved through access control , user grouping, assigning permissions, and restricting access with data filters.

Data compliance

Data compliance ensures adherence to legal and regulatory requirements by implementing policies and procedures for accurate, consistent, and responsible data management. It involves measures to protect personal data and ensure privacy under frameworks like GDPR, HIPAA, and CCPA. Regular monitoring and reporting on compliance is also required.

Data integrity

Data integrity requires that data remains accurate and consistent throughout its lifecycle. Data integrity involves various measures, such as data validation, backups, and security controls. Your analytics solution should allow users to define validation rules to ensure data quality, with features like enhanced model validation to manage null values and handle duplicate primary keys.

Data security includes controls for both the application and its users. Application security covers HTTPS/TLS encryption, separate credentials, and logical data models to prevent SQL injections. It ensures strong segregation in multi-tenant instances. User security involves centralized authentication and authorization, multi-factor authentication, session expiration management, and encryption to prevent unauthorized access and tampering.

Data stewardship

Data stewardship involves managing and overseeing data assets to ensure quality, integrity, and accessibility. It includes centralized data management, comprehensive data catalogs, granular access control, continuous quality monitoring, and compliance features. This ensures data is reliable, secure, and well-managed, supporting informed decision-making and operational efficiency.

Data transparency

Data transparency ensures that data governance processes and usage are clear and understandable to stakeholders, using data lineage and visualization tools.

Data lineage tracks data origin and transformations, providing a clear path from source to final output. This traceability helps users to understand data flows and all changes made through various systems and processes. Leveraging an analytics-as-code approach allows for version control, enabling users to track changes in data, models, and metrics over time, ensuring transparency and accountability. Integrating CI/CD pipelines allows teams to automate, test, and collaborate more effectively, enhancing the quality and reliability of analytics solutions.

To simplify data governance, use visualization tools like GoodData . GoodData offers an API-first, AI-powered, cloud-based analytics platform that empowers engineers with data definition, optimization, and visualization tools. The platform is user-friendly, open, and scalable, making it ideal for embedding analytics into SaaS products, internal BI, or large-scale data products.

In a successful data governance plan, specific individuals take on vital roles with distinct responsibilities. Data stewards manage data quality and security for particular domains; data custodians handle the technical environment for data storage and processing; data users analyze and report data; data architects design the data architecture, ensuring alignment with governance policies; and compliance and legal teams ensure data practices comply with legal requirements. A data governance council , responsible for setting strategies and policies, oversees the entire governance effort.

Data governance is essential for analytics solutions across various industries, including healthcare, insurance, and financial services. Each analytics solution involves extracting data from multiple sources, transforming and loading it into data warehouses, and connecting it to analytics tools to generate shareable metrics and dashboards. Effective data governance ensures data quality, security, and compliance throughout this process, enabling reliable insights and informed decision-making.

Data governance strategies must be tailored to align with an organization’s processes, needs, and goals. Here are a few best practices worth following:

• Understand your data: Identify the data that is crucial for your business and where it originates.
• Organize your data: Structure your data to achieve a comprehensive view and enhance its usability.
• Manage data lifecycle: Implement policies for data acquisition, storage, transfer, and disposition at every stage of its lifecycle.
• Ensure privacy and security by default: For analytics, employ user authentication and authorization tools that comply with security regulations, and restrict user access through permissions and data filters.
• Continuous monitoring and adjustment: Regularly revisit and update your data governance strategy to ensure it continues to meet the needs of your customers and organization.

Implementing robust data governance provides several key benefits:

Data democratization

• Facilitates easy, secure data access for authorized users
• Empowers data-driven decisions, fostering innovation and agility

Standardized and trusted data

• Ensures data consistency, accuracy, and quality
• Builds trust, enables reliable analytics, reduces reporting errors, establishes a strong data culture

Compliance with regulatory requirements

• Maintains adherence to legal and industry regulations
• Reduces legal risks and enhances reputation by ensuring data privacy and security

Current data governance trends include:

• Automation: Implement workflows for resolving issues, lineage tracking, and policy management to save time, reduce costs, and minimize human error.
• AI and ML integration: Use AI and ML to monitor data quality, detect anomalies, and suggest corrections, reducing manual effort and enhancing accuracy. Proactively predict and prevent governance issues.
• Data monitoring and lineage: Track data flow and transformations to ensure quality, detect errors, and reveal inconsistencies.
• Cloud-based governance: Ensure robust governance as companies migrate data to the cloud, enabling secure access from anywhere.
• Ethical data use: Implement frameworks to ensure ethical use of data, especially in AI and machine learning models.

Interested in enhancing your data governance with GoodData as your analytics and BI tool? Explore GoodData's comprehensive solutions, from data integration to advanced analytics and seamless sharing. Begin with a free trial to gain hands-on experience, or request a demo to ask questions and discover how GoodData can be tailored to your needs.

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Governance strategies for sustainable circular bioeconomy development in europe: insights and typologies.

1. Introduction

1.1. regional circular bioeconomy governance, 1.2. the european bioeconomy strategy development, 1.3. bioeconomy strategy development in eu regions, 2. materials and methods, 2.1. development of a typology of circular bioeconomy governance models in european regions, 2.2. collection of good governance policies for supporting local stakeholders towards bioeconomy implementation.

• Fiscal and financial instruments
• Regulatory instruments
• Information and advisory instruments
• Networking, collaboration, and joint planning instruments
• Voluntary instruments
• Other instruments
• Implemented with positive results.
• Successful, (innovative), tested and validated: it contributes to the improved performance of an entrepreneurship/farm/organization and this contribution is recognized.
• Transferable: it can be adopted in and adapted to other contexts.
• Several commonalities exist within these definitions including:
• Demonstrating positive results.
• Has been tested and validated.
• Has been or can be transferred and/or replicated.
• Implemented and demonstrating positive results—the template asks for contribution of the practice to environmental, social, and economic impacts.
• Has been tested and validated—the template asks for the nature of beneficiaries, level of uptake, and the duration for which the practice has been in operation.
• Has been or can be transferred and/or replicated—the template seeks to understand whether the practice can be replicated in other settings/jurisdictions and to understand if there are barriers to regional deployment.
• Balkan Cluster (Greece, Cyprus, Bulgaria, Albania, Serbia, Montenegro, Romania, North Macedonia, Croatia, Bosnia, Slovenia)
• Central Europe Cluster (Germany, Austria, Switzerland, Netherlands, Denmark, Poland)
• Eastern Europe Cluster (Slovakia, Czech Republic, Hungary, Ukraine, Estonia, Latvia, Lithuania, Moldova)
• Mediterranean Cluster (Spain, Portugal, Italy, Malta)
• North-West Europe Cluster (Ireland, UK, Sweden, Norway, Finland, Iceland)
• Western Europe Cluster (Belgium, France, Luxembourg)

3.1. Results from the Collection of Circular Bioeconomy Governance Strategies and the Development of a Typology of Circular Bioeconomy Governance Models

3.1.1. transformation paths, 3.1.2. enabling governance mechanisms, 3.1.3. constraining governance mechanisms, 3.1.4. helix models, 3.1.5. transition process, 3.1.6. territorial aspects of the governance models, 3.1.7. decision-making, voting mechanisms and dispute resolution processes, 3.1.8. driver measures, 3.2. results from collection of good governance policies for supporting local stakeholders toward bioeconomy implementation.

• Balkan regional cluster: 12 good governance practices
• Central Europe regional cluster: 7 good governance practices
• Eastern Europe regional cluster: 8 good governance practices
• Mediterranean regional cluster: 12 good governance practices
• North-West Europe regional cluster: 24 good governance practices
• Western Europe regional cluster: 12 good governance practices

3.2.1. Regional Circular Bioeconomy Good Governance Practices as Policy Instruments

3.2.2. territorial context of regional circular bioeconomy good governance practices, 3.3. findings from application of typology to good practices, 3.3.1. transformation paths applied to good governance practices, 3.3.2. enabling governance mechanisms applied to good governance practices, 3.3.3. constraining governance mechanisms applied to good governance practices, 3.3.4. helix models applied to good governance practices, 3.3.5. transition process applied to good governance practices, 3.3.6. territorial aspects applied to good governance practices, 3.3.7. driver measures applied to good governance practices, 3.3.8. foci of regional circular bioeconomy good governance practices, 3.3.9. implementation strategy of regional circular bioeconomy good governance practices, 4. discussion and conclusions, supplementary materials, author contributions, institutional review board statement, informed consent statement, data availability statement, acknowledgments, conflicts of interest.

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Skondras, A.; Nastis, S.A.; Skalidi, I.; Theofilou, A.; Bakousi, A.; Mone, T.; Tsifodimou, Z.E.; Gaffey, J.; Ludgate, R.; O’Connor, T.; et al. Governance Strategies for Sustainable Circular Bioeconomy Development in Europe: Insights and Typologies. Sustainability 2024 , 16 , 5140. https://doi.org/10.3390/su16125140

Skondras A, Nastis SA, Skalidi I, Theofilou A, Bakousi A, Mone T, Tsifodimou ZE, Gaffey J, Ludgate R, O’Connor T, et al. Governance Strategies for Sustainable Circular Bioeconomy Development in Europe: Insights and Typologies. Sustainability . 2024; 16(12):5140. https://doi.org/10.3390/su16125140

Skondras, Alexandros, Stefanos A. Nastis, Ifigeneia Skalidi, Asterios Theofilou, Aikaterini Bakousi, Thomas Mone, Zoi Eirini Tsifodimou, James Gaffey, Robert Ludgate, Tracey O’Connor, and et al. 2024. "Governance Strategies for Sustainable Circular Bioeconomy Development in Europe: Insights and Typologies" Sustainability 16, no. 12: 5140. https://doi.org/10.3390/su16125140

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