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What is the relationship between corporate governance and social responsibility?

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sbridges | Student, Undergraduate | (Level 1) Salutatorian

Posted June 6, 2013 at 12:06 AM via web

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What is the relationship between corporate governance and social responsibility?

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kipling2448 | (Level 2) Educator Emeritus

Posted June 6, 2013 at 12:49 AM (Answer #1)

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A sense of social responsibility on the part of those running major corporations is a relatively recent phenomenon.  For many years, in fact, for most of the post-industrial revolution history, American corporations were insensitive to environmental concerns and many caused considerable damage to the environment.  From routinely draining industrial sludge into rivers and lakes to burying hazardous materials in landfills that eventually seeped into underground water tables, to polluting the air through factory emissions, companies pursued profits for shareholders at the expense of the environment.

Over time, social activists focused on the environment, working with supportive law firms, began to have successes in forcing companies to change the way they produce their products and dispose of their waste.  Environmental consciousness had been a marginal part of the political landscape since at least the mid-19th Century.  It began to gain traction with the public and with greater numbers of elected officials during the 1970s, when the use of toxins like DDT in household goods was banned.  In the late 1970s, the Love Canal, a community in upstate New York, was discovered to have been built on a former toxic waste dumping site, and the next year a nuclear accident at the Three Mile Island nuclear power plant in Pennsylvania began to cement in the minds of more people, and not just the environmental activists, the potential dangers of unchecked corporate practices.  Finally, the Exxon Valdez tanker accident off the coast of Alaska in 1989 shocked the American public, particularly given the negative perceptions of the Exxon Corporation's handling of the environmental disaster.

By the 1990s, environmentalism had become more mainstream, and American companies were increasingly feeling political heat regarding the need to devise new manufacturing processes, waste disposal solutions, and to develop a sense of social consciousness.  Congressional attention on environmentally harmful corporate practices, combined with the increase in fines for violations of environmental regulations, began to take a toll on corporate boards.  Government mandates for environmentally friendly policies for companies desirous of lucrative government contracts saw the more rapid development of social consciousness on the part of the business world.  Suddenly, it could be profitable to be "green."  Competition from Chinese solar and wind power technology companies began to monopolize the business, thereby compelling U.S. firms to get into the environmental business themselves.

Today, it is far more common for corporate governance to assume a greater level of social consciousness than ever before.  Consumer boycotts and the "outing" of polluting industries made the cost of doing business the old way increasingly costly.  The Department of Defense, the largest employer in the government, was required by Congress to purchase only natural gas-powered vehicles for its civilian automotive fleets, which meant private companies in the natural gas-powered automobile industry could suddenly make a lot of money.

In short, social consciousness became part of the corporate mentality when it became required and profitable to do so.

 

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