THE IMPACT OF CORPORATE GOVERNANCE ON CORORATE SOCIAL RESPONSIBILITY A CASE STUDY OF EUROPE

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THE IMPACT OF CORPORATE GOVERNANCE ON CORORATE SOCIAL RESPONSIBILITY:A CASE STUDY OF EUROPE

Dissertation

Faculty

Tableof Contents

Abstract 4

Introduction 5

The Problem 6

Background of the Study 8

Aims and Objectives of the Research 10

Data 12

Research Questions and Hypothesis 12

Hypothesis 1 13

Hypothesis 2 13

Hypothesis 3 13

Significance of the Research 14

Outline of the Research Stricture 15

Chapter 1: 15

Chapter 2: 15

Chapter 3: 16

Chapter 4: 16

Chapter 5: 16

Literature Review 17

Introduction 17

Corporate Governance 20

Corporate Social Responsibility 21

Relationship between Corporate governance and Social responsibility 22

Perspective of Corporate Social Responsibility 23

Corporate Social Responsibility in Europe especially in United Kingdom 25

Role of the European Union and European Commission in Corporate Social Responsibility Concept 25

Corporate Social Responsibility in Global Dimension 27

Theory of Development 29

Agency theory 29

The Stakeholder theory 30

Resource Dependent theory 30

Methodology 32

Introduction 32

Objective of the Research 32

Research Design 32

Research Approach 33

Sample size and Data Collection 33

Dependent and Independent 35

Dependent variables 35

Results, Data analysis, and Discussions 39

Conclusion, Recommendations 47

Recommendations 51

Area of Further Study 51

Bibliography 53

Abstract

Thecurrent existence of corporate social responsibility initiativessuggests that corporate perception of such policies progressed fromunnecessary addition to critical business function. Using theexisting literature and Datastream ASSSET4 of the corporate socialperformance, this dissertation focuses on the impact of CG oncorporate social responsibility in Europe. Unlike previous research,this study additionally tests the impact of corporate socialresponsibility on business operations, gross margins, financialperformance, and insights on sales strategies that can be implementedto maximize the impact if relationship. It critically reviews bothperformances of corporate governance and corporate socialresponsibility and assesses, to what extent do both have oncorporation operations and performance. The introduction andbackground of the research deliver a strong outline of the problem.The literature review provides an overview of both corporategovernance and corporate social responsibility as a concept throughtheir definition, history, and development in the entire Europe andother parts of the world. This unit also reviews the theory ifexpansion, and the current global, and European studies on CSRperformance.

Thestudy utilizes data from ASSET and DataStream to come up with acomprehensive analysis of CSR performance in Europe. Other materialused to obtain information and statistics are the annual report onthe CSR performance. Data was examined using expressive analysis andthe prevailing works on CSR performance. The findings of theseresearch provided valuable information and some recommendation on theimportance of CSR reporting and how Corporate governance should beused to enhance CSR performance.

Introduction

Upto modern times, the contemporary businesses worldwide areincreasingly worried about the encroachment of their businessactivities on society. This is because, they have recognized that thecurrent world that they live in presents a fast growing array ofdemands, pressures, and risks that are not signaled through marketsor the traditional political process on which they have relied on.Similarly, developments in the know-how have been approaching, andmany leaps in technology have transformed how commercial operates andrelates to human. In this case, many businesses and industry haveimplemented into their corporation corporate social responsibilitythat direct to balance their operation with the concerns of theinternal and external stakeholders such as employees, customers,suppliers and business partners, labor unions, local communities,non-governmental organizations, and governments. Corporate socialresponsibility is a multifaceted and multiform marvel that iscurrently developing as the boundary between business enterprises andthe whole society. However, this event is characterized and affectedby internal and external factors that emanate from corporategovernance.

Accordingto Broomhill (2007), there is an increasing number of transnationalcorporations and large domestic companies supported by business andindustry relatives that are following this so-called Corporate SocialResponsibility initiatives that integrate values and aspects such ascodes of conduct measures to improve environmental managementsystems and occupational health and safety company ‘triple bottomline’ reporting on financial. Other values include social andecological aspects dialog with stakeholders and partnerships withNon-Governmental Organizations and the United Nations agenciesparticipation in certification and labeling schemes and increasedsupport for community development programs and projects. Therefore,the presence of Corporate Social Responsibility has introduced thecurrent eminence debate on the effects of Corporate Governance onCorporate Social Responsibility. This marvel is not only extensive inEurope but also in the whole world. Indeed, the alteration in socialand environmental consequences have started to be weighed againsteconomic gains and short-term profit gains against long-termsuccessfulness by the businesses to keep long-term development andsustainable growth.

Broomhill(2007), notes that CSR is a hard concept to understand since it is aconcept that intersects with other concepts such as environmentalresponsibility, corporate citizenship, corporate governance,sustainable business, business ethics, and corporate accountability(Broomhill, 2007). In Europe, the term CSR is not only a complexcontextual but also it corporates both political and environmentalconcepts. Corporate governance plays substantial roles in determiningCorporate Social Responsibility.

The Problem

Withthe current sensitivity towards social, environmental issues, andshareholder that is entirely addressed through the internal andexternal dimension of CSR, business and industry partners in Europeare striving to become a better corporate citizen that suitably graspand implement Corporate Social Responsibility. However, to shedfurther light on the CSR performance in Europe, the research examineswhether the CSR performance in Europe both in local and global firmsare pronounced by weak or strong corporate governance. According toWang (2015), current studies recommend that corporate governance iscompletely related to corporate social responsibility. This researchinspects the possible impacts of Corporate Governance characteristicson CSR in Europe. According to the Agency Theory developed by Jansenand Mackling, an agency associations arise where there exists acontract under which on principle party engages another party (theagent) to perform some services on the principal’s behalf(Rusmanto, Waworuntu, and Syahbandiah, 2014).

Becausecorporate social responsibility is rapidly gaining importance inbusiness all over the world to ensure long-term growth development,little research has been done linking board diversity, andenvironmental development, with the CSR decision-making process.Observing the Corporate governance that is grounded on the parting ofthe proprietorship and administration in large corporations. Theshareholders and large firms have used a range of governancemechanism to ensure that the agent`s act in the best interest ofprincipals (Rao and Tilt, 2013). The government plays meaningfully innurturing social justice and environmental fortification andheartening social development. Separately, looking at the definitionof the Corporate Governance, Rao and Tilt (2013) note that corporategovernance is seen as a mechanism to protect the ownership of theshareholder, while others view it as a mechanism to safeguard theinterest of a broader range of stakeholders. With these two views,Corporate governance has both positive and negative impacts onCorporate social responsibility. With soaring economic position amongEuropean countries, the majority of the research have not focused onthe effect that corporate governance has on corporate socialresponsibility.

Accordingto Palmer (2012), over the past years, there has been a drasticincrease in adoption and implementation of CSR programs from theorganization in all sizes. This has showcased the growth inexpenditure to highlight the social responsibilities of corporationsand principals find a benefit in CSR implementation. Therefore, thisresearch tries to deliver evidence on the impact that Corporategovernance has to do with CSR on the financial performance thatmanagers can use to a stature business strategy to maximize futurereturns.

TheProblem is that: To examine the impact of Corporate Governance onCorporate Social Responsibility in Europe. The study will alsoinvestigate the role played by the government is shaping corporatesocial responsibility. The dissertation will focus on the impact ofcorporate governance on social responsibility in small, medium-sized,and larger and multinational firms in Europe.

Background of the Study

Overthe past years, many companies have found it problematic to functionefficiently without interlacing in rudiments of corporate socialresponsibility in the day-to-day running business. However, in thepast, most of the stockholder`s decision were directed principallybased on the well-being of the company’s balance sheet. Therequirement for established social responsibility and moralbackground for business has developed to a foremost precedence in thecurrent European Society (The European Union, 2008). This nature isbacked up by the fact that the number of the well-known regional andinternational corporations are currently integrating corporate socialresponsibility programs into their business, the prominence of CSRinitiatives today hints that executive perception of such policieshave shifted from unnecessary addition to a critical businessfunction (Palmer, 2012). And because there exist new dimensions inthe CSR implementations, many corporations are regulated by corporategovernment to ensure these sustainable development programs aresocially and environmentally accepted in the society.

Subsequently,small and big companies are the mainstay of the European economy.Numerous research has explored corporate governance as it applies togiant companies. However, less studies have explored in what way docorporate governance relates to the CSR of small corporations. Li(2014), asserts that the ‘one size fits all model’ that isacquired by most of the companies’ law framework and the ‘complyor explain’ mentality positions a vast amount of unnecessary anddisproportionate compliance burden on small business. According tothe Stakeholder theory (Li, 2014), the ultimate aim of corporategovernance is to work towards increasing the efficiency andproductivity. In this case, the definition of corporate governanceshould be a system that regulate and oversee corporate conduct andbalance all the interest of the internal stakeholders and externalstakeholder (local community, governments) who can be affected by thecorporation’s conduct, in order to ensure responsible behavior bythe companies and to achieve the maximum level efficiency andprofitability (Li, 2014).

Regionaland International organizations around the world are struggling witha new function that is to satisfy the needs of the present generationwithout conciliatory the ability of the next generation to meet theirneeds. In this case, organizations are being called upon to upholdfull obligation for the ways their operations affect the society andthe natural environment (D’Amato, Henderson, and Florence, 2009).They further suggest that these local and multinational corporationshould apply sustainable principles to the manners in which theyconduct their business. This means that no company is recognized toexperience economic success in segregation from those agents squeezedby its exploit. Therefore, a firm must focus its attention on both toincrease its bottom line and become a good corporate citizen.According to D’Amato et al. (2009), organizations are currentlyreshaping their frameworks, rules, business models to keep abreast ofthe global trends and to remain active duties to render both privateand public benefit. To acknowledge and understand these currenttrends, most socially responsible corporations are revising theirshort and long-term agendas, for them to stay ahead of the rapidlychanging disputes.

Overthe recent years, argument about CSR has spread vastly across Europespecifically as part of part of the intense debate about sustainableand globalization. Discussion on sustainability and environmentaldevelopment to a certain capacity precede debate about CorporateSocial Responsibility, nevertheless, these topics are immenselydialogued and dealt with hand-in-hand. As far as supportable isconcerned, it has been one of the chief duty of European Union since1997 and also it was enshrined as article two of the European UnionTreaty. The agreement was made-up to reinforce all European policiesand actions as an over-arching principles. They first come up withits sustainable development strategy during the 2001 GothenburgEuropean Council.

In2005, the European Commission took the sock and realized that somesustainable trends continue to worsen. This made the Commission toupdate the EU Sustainable Development Strategy that was also acquiredby European Council in 2006. This has been a predominant approach forall European Union policies which summaries how needs can be met forthe contemporary generations without conceding the volume of futuregenerations to respond to their needs. According to European Union(2008), the Sustainable Development Strategy in Europe deals in anintegrated way with economic, environmental, and social matters andattempts to address challenges like sustainable consumption andproduction, global poverty, climate change and clean energy, publichealth, conservation and management of natural resources, sustainabletransport, and social inclusion, demography, and migration.

Aims and Objectives of theResearch

Consideringthe current trends of CSR in Europe, the ground of these researchwill address significant matters as the relationship betweencorporate governance and CSR and the impact they have on bothregional and multinational corporation. The identification of themain research problem about the implications of the corporategovernance on corporate social responsibility is the central concernfor any organizations and companies specifically in Europe. Previousstudies on the emerging corporate governance and CSR in manyorganizations have foretold high productivity and creating of thesocially sustainable environment. The existing study, in this case,will determine the extent to which corporate governance affect CSRboth in small and large forms.

Anotherobjective of the research is investigating the perspective ofcorporate social responsibility and its association with Corporategovernance. In this scenario, the study will attempt to show how CSRas a concept is embedded in the idea of sustainable growth whichembraces all the actions, operations, initiatives by businesses thatassure and improvement on social and environmental issues, which isgoing beyond the corporations’ legal obligations. Considering theadvent of the concept CSR the expansion of guidelines throughcorporate governance, this study will concentrate on the potentialguidelines at the European Level, global and international level aswell as national levels of the European Union member states.

Thefundamental objective of the research is to explain the importance orotherwise social responsibility business activity in Europe. Thisstudy will serve as an added contribution to the understanding of themilestone of Corporate Social Responsibility in Europe. The researchwill further investigate various factors that surround corporatesocial responsibility, how it affects firm’s profitability,financial and prudent decisions, business stakeholders, government’sagencies. Similarly, with the current trend in status these companieshave increasingly focused on profits as their only priority and thebottom line at the expense of social and community concerns. Theorigin of the social and environmental awareness and the ensuingpressure brought by many groups and organization globally thatincludes foreign investors have taken into consideration theimportance of CSR in business growth and sustainable social andenvironmental development.

CSRis the association of a certain firm or company with society as awhole. Majeed et al. (2015), posit that CSR is growing areas ofactivity for management in that it involves actions of corporationsto do good for the society that is by far compulsion of the law andthe primary of the objective of the organization which is to act inthe interest of its shareholders. About this, the determination ofthe study is to investigate the possible effects of the CorporateGovernance (CG) elements on CSR disclosure. Similarly, businessethics and corporate governance are employed in many companies toachieve the organizational goals and excellence, the question in thestudy is that, how is excellence is converted into businesssustainability, in which the CSR plays a vital role.

Data

These research will use data from sources like:

  • Researchers and data set from European Union, European Commission, and Scholarly articles.

  • Secondary data from researches carried out by numerous scholars in the Europe as well as other governmental documents concerned with CSR.

  • In depth analysis from both scientific literature and relevant European Union and Government documents will be used to build the foundation for drawing conclusion and creating a consequential model at the final stage of this paper.

Research Questions andHypothesis

To succeed in finding a satisfying solution for this researchquestions, below several sub-questions are supposed to be addressedforehand:

  1. To what extent does corporate governance impact corporate social responsibility in Europe?

  2. What is the level Corporate Social Responsibility in Europe?

  3. What does Corporate Social Responsibility mean?

  4. Why do firms engage in Corporate Social Responsibility?

  5. To what extent can CSR be regulated by Corporate governance at the European Union level?

  6. What is the relationship, if there is any, between corporate governance and corporate social responsibility in Europe?

Owing to the research’s descriptive nature, practical experience ofthe situation, literature review and analysis, below are the researchhypothesis:

Hypothesis 1

Corporate Governance has positive dimensions on the current trends inCorporate Social Responsibility in Europe.

Hypothesis 2

Firms and businesses that implement Corporate Social Responsibilityare positively related to the financial performance as well associally responsibly in the images of the citizens and producepositive effect on the society.

Hypothesis 3

Corporate governance as a system of rules, norms, and institutionnegatively impacts the Corporate social responsibility that do notallow managers to ensure a socially responsible firm.

Significance of the Research

The European Union and European Commission has been focusing on theissues surrounding CSR and corporate governance that assuresustainable social activities that further the interests of thestakeholders through increased competitive advantage and benefits ofthe community for whom CSR activities are employed. Nevertheless,this is not enough, many regional and multinational corporations inEurope will be able to catalyze the transformation on how theyconduct their day-to-day business activities that fully seek relatesto the general society. On the other hand, the study is significanceat the global level in the sense that a high correlation will existbetween firms with good corporate governance and performance,especially in CSR. Furthermore, institutional investors always honorwell board of management as much as strong financial indicators whenevaluating investments.

After the introduction of Green paper in 2001 that was calledPromoting European for Corporate Social Responsibility, the board ofthe effectiveness and corporate governance has improved significantlyin the recent years in Europe. However, this research outlines morefactors that should be considered by the board of the organizationwithin Europe to improve the social and environmental relationsbetween firms and the citizens. More progress is needed, especiallyfor the reference to the impact of corporate governance on corporatesocial responsibility and the role of the board of directors of smalland large firms within Europe.

This research also contributes to several areas of the literature.For instance, the study is significance as it addresses the currentdebate on the cost and the benefits of CSR IN Europe. In this case,Chintrakarn et al. (2016), asserts that many managers usuallyover-invest in CSR and are forced to cut back on the CSR investmentwhen sufficient rules and regulations originating from corporategovernance are more effective in the company. Also, the study alsoexamined the effects of corporate governance on variousorganizational outcomes.

Finally, this research is significance in the sense that most studieshave been carried out on the role played by firms through theimplementation of CSR. However, no recent that ensured therelationship between corporate governance and corporate socialresponsibility. Similarly, no particular study has been conducted onthe impact of CG on CSR in the European states.

Outline of the ResearchStrictureChapter 1:

Introduction: The introduction chapter plans the researchinquiries, the implication of the survey, brief investigation of thestudy, purpose of the study, and how the investigation will be usedin analysis. Similarly, the chapter provide present the currentproblem and its background and providing the significance of theresearch both in firms and society as a whole.

Chapter 2:

Literature Review: This chapter will provide relevantinformation from pertinent secondary sources. In this section, alltheoretical concept of both CSR and CG will be discussed especiallyfrom origin, theories, and previous empirical study. Chapter two willalso review both current debate on the CSR and how it has contributedto the social and environmental sustainability. The study willincorporate the relationship between CG and CSR, how CG impacts CSRin regional and multinational corporations. The research will alsocapture the milestone of CSR both at European Union level and thenationalities in Europe. This chapter is important in the sense thatit helps in designing a study model that will become the framework ofthe research.

Chapter 3:

Research Design and Methodology: In this part of the projectwill include topics such as methods of data collection, researchdesign, target firms and population, research philosophy, and properinformation regarding the validity and reliability of the data.Research survey on various topic will be addressed using the previousempirical study and other governmental documents. The method used incollecting data will be based on measuring and evaluating the impactsof corporate governance on corporate social responsibility.

Chapter 4:

Resultsand Data analysis: In this chapter, the researcher will definehow data was collected and discuss the information collected fromdifferent sources in the study. Similarly, various survey will beused to interpret the data.

Chapter 5:

Discussion,Conclusion, Recommendations: This section will articulate thediscussion of findings and provide possible recommendations of thestudy. The writing and presentation of the whole dissertation will beenhancing through presenting the significance of the data collectedfrom different sources. In this chapter, the dissertation will alsoembody the significance of the entire research and provide conclusionof the study. Overall, this section will provide a summary of thefindings, justification of the research problem, and provide possiblerecommendation and areas that require further research.

Literature ReviewIntroduction

Beyondthe 20th century determinations, originations, and accomplishments,humanity’s unanswered social problems have stood out withparticular ambiguity, one problem the role played by the corporategovernance to shape the corporate social responsibility that seeks toenhance sustainable social and environmental development. Manystudies have been conducted about CSR in small and medium enterprisespublic multinational corporations however, no study has examined howCG and the board enhance CSR, especially in Europe. By the concept ofCorporate Social Responsibility, many small and large corporationshave implemented these strategies to achieve not only maximum levelof production and profit growth but also to ensure that theorganization does not socially and environmentally affect otherparties such as local communities, governments, and externalstakeholders (Li, 2014).

Toachieve and contrivance CSR, small and large business engage incorporate governance to shape and improve the code of conduct of thecompany. Li (2014), argues that there is a shortage of indication onthe association between corporate governance and corporate socialresponsibility of small companies in Europe, which is a differentcase to great corporations. This is because only in recent years haveresearchers in the field stated investigate the governance issuesfacing small companies in Europe and North America. The presentempirical researchers have primarily focused on isolated managementmechanism, while the treatment of corporate governance mechanism as abundle has been neglected.

Asnoted earlier, the emergence of CSR compels many corporations toimprove their image towards neutrals. The spreading of Corporatesocial responsibility policies and codes of ethical conducts havebeen used within the objective. Vieira, Jorge, and Canadas (2010)posit that there is increased the number of corporate scandals thathave compelled many corporations to pay close attention to thesignificant impact of stakeholder on corporate development andcorporate financial success. This is practically associated with thefact that the image transmitted by any corporates reflects its valuesand business conduct. And to achieve a good picture, businesscorporations whether small or big incorporates corporate governanceto meet ethical standard and meets the sustainable business successand development. This paper, therefore, is to determine theappropriate corporate governance towards corporate socialresponsibility, and other factors such as financial structure,corporate dimension, and geographical location that might determinethe public exposure of both codes of conduct and politics ofcorporate social responsibility in Europe.

Servaesand Tamayo (2012), on the other hand, argues that because CSR hasbecome an integral part of business practice over the past years.This is because numerous of the researchers have supported the ideathat CSR activities are positively associated to the productivity ofvalue of the corporation. Advanced republics are economical,diplomatically unrelated from developing countries. CSR in Europetakes a different dimension regarding sustainable strategy. CSRtogether with Corporate governance embraces monetary and legalfeatures. And these can be changed through socio-economic processesin which competition within the product market is the most dominantforce. As thorough perspectives, they assist regional andmultinational corporations in operating in an ethical manner. In thiscase, different studies have been directed highlighting on theconnection between CSR and Corporate Governance. Some of them aredescribed below.

Firstly,CSR is a fluid phenomenon that many organization is implementing toachieve their day-to-day activities. Together with Corporategovernance as the power and control that are exerted in managing andrunning these organizations within the framework of regulations,roles, relationships, and processes. The significant advantage ofemploying these is that these organizations are capable of achievingsustainable growth and maintain the social responsibility to the inthe society and environmental development. Secondly, some researchershave the tendency of adding other items on the traditional to achievethe current scale.

Apartfrom that several studies have conducted pertaining the role of CSRtoward financial performance in Europe. These determinants have shownthat local and multinational corporations through European Commissionhave distributed Green paper in 2001 that was called PromotingEuropean for Corporate Social Responsibility. The paper`s primarygoal is to focus on the companies and organizations mainresponsibilities in the social and environmental fields (The EuropeanUnion, 2008). The EU main concern with the topic of CSR has beenrooted in the expressed conviction that Corporate governance is thecan a be a positive contribution to the CSR towards strategicobjectives that was set in Lisbon, 2001, and are capable ofsustaining growth with more and better jobs and greater socialCohesion (Dorrsemont, 2004). Mullerat (2013) on the other hand,asserts that European Corporations have tended to hold stronger andbroader methods to stakeholder relations and that connection is beingcreated to assist many businesses and companies share and diffuserelevant information about the importance of Corporate SocialResponsibility.

Otherpragmatic studies have considered the conceivable arbitrating role oforganizational obligation in the relationship between corporategovernance and corporate social responsibility in Europe.

Corporate Governance

Corporate Governance is said to an established and good topic in thefield of Economics, Finance, Accounting, and Management. According tothe Agency theory, the corporate governance deals with threeconflicts between shareholders and manager, regulating shareholdersand minority shareholder, and shareholders and non-shareholdingstakeholders (Li, 2014). According to Pyo (2014), corporategovernance is described as a system of laws and regulations,policies, and processes that controls and directs an organization. Towider view, it deals with the mechanism through which the investorsprotects their interests from expropriation by management. Fordecades, it has been found that high legal protection of investors isa crucial aspect of effective governance, without which approaches ofexternal financing would break down.

Pyo (2014), suggest that minimal protection of lack of protectionismallow easy opportunities for outright theft by management, however,reliable protection avoids such behaviors, hence, making itimportantly more costly and challenging. In this case, looking at theinvestor protection is a more functional way to view corporategovernance as counterbalanced to the market-centered methods.Corporate Governance is standing in the sense that it influences theboard physiognomies on the company (Williams, 2016). The panel ofmanagements complete their mission of nursing and directing the topmanagement. They are beholden with on behalf of shareholder interestto the decision-makers among the stockholders. Sicconi (2012),compound that CG only concerns a set of regulations and rules thatprovide protection of shareholder against managerial abuse of thediscretion that the separation between ownership and control grant tomanagers allocation of the property and residual control rightsremuneration and incentive schemes mergers and acquisition thatalign the management preferences with those of the shareholders andfiduciary duties of due care.

Corporate Social Responsibility

Corporate social responsibility is the connotation of a corporationwith the society as a whole (Majeed et al. 2015). CSR has become acontroversial concept with real actions that a company incorporatesto do good to the society beyond the impulsion of the law and theprimary objective of the corporation which is to perform for theinterest of its shareholders. Over the last decades or so, it hasbeen found that most individual suffers from several environmentalissues, and this has led to related environmental regulations overthe years. Majeed et al. (2015), further notes that CSR is termed ascorporate citizenship and social responsibility. This is because itoffers the corporation a competitive edge within the instant market.Similarly, CSR enhances the reputation of the firm and thus increasesshareholder’s wealth (Chintrakarn et al. 2016). Servaes and Tamayo(2012), define corporate social responsibility as a commitment to acompany or organization to add to sustainable economic development,working with employees and employing codes of conduct, theirfamilies, the local environment and the society at large to improvetheir social and environmental life. This definition encompasses ofthe fundamentals of the community, the society, human rights, andtreatment of employees.

This aspect has increasingly captured the attention of the entireEuropean community and organization both regional and multinationals.This is because, CSR should be employed in any company to answer fortheir actions affecting the society, the community, and the entireenvironment. For this grounds, firms and corporations are consideredas the mechanism of a larger economic system in which their businessmight distress the whole environment. In this case, the EuropeanUnion together with nationalities that make up Europe is currentlyputting pressure on the companies for their unaccountable toward thesociety and environment that ultimately become a cost to the society.As a result of this, CSR and corporate governance are beingimplemented in many companies and firms to attain a competitiveadvantage over rivals but also increases the social and environmentalrelations (Majeed et al. 2015).

Relationship between Corporategovernance and Social responsibility

Nevertheless, there has not been a universal agreed upon rationalebehind the association between CG and CSR in Europe. The debate hasexisted on the relationship between corporate governance andcorporate social responsibility. This has been captured the byscholars and practitioners on what constitutes the best corporategovernance practices and why many companies and organization arecurrently engaging in corporate social responsibility (Jo, andHarjoto, 2011). Many pieces of literature have noted that CSRengagement is a principle agent relation between managers andshareholders. Jo and Harjoto assert that connected insiders have aninterest in overinvesting on CSR if doing so would provide privatebenefits of reputation building as a good social citizen, possible ata cost to the shareholder. Separately, if managers are overconfidentand tend to invest in building their reputations as good citizens,mostly we expect an inverse relationship between CG and CSR choicebecause the higher the internal and external monitoring through CGelements will reduce the insiders’ incentive and opportunities forCSR overinvestment (Fontaine, 2013).

According to the stakeholder theory, corporates operate CSR not onlyto generate profit and achieve success, but also they are required tobe ethically and socially responsible and supportive to the wholesociety. Managers are required, therefore, to manage conflicting andcompeting roles between stakeholders. On the opposing to theassociation between CG and CSR, Jo and Harjoto (2011), find apositive effect of CG on CSR. They maintain that CSR upsurges thefirm’s name, repute, and strengthens the association withstakeholders. Therefore, they suggest that managers are capable ofonly using effective CG mechanisms together with CSR engagement toresolve the conflict between managers and stakeholders, then CSRinvolvement is passively associated with active CG regulations andrules. Also, if various standards and regulations consider firm’sCSR engagement as an effort to resolve the conflict among numerousstakeholders, then the relationship between CG and CSR will beregarded as positive (Jo, and Harjoto, 2012).

Sacconi (2012), asserts that CSR is a model of CG extending fiduciaryduties from the fulfillment of responsibilities towards the firm’sowners to achieve the fiduciary duties towards stakeholders. Agencytheory only views of CG and is aimed at providing an equal balanceamong the different corporate interested parties and play thefunction in mediating hierarchy.

Perspective of CorporateSocial Responsibility

There exists a substantial theoretical literature that suggests thatCorporate Social Responsibility usually yields the profit thatincreases the value of the firm. In this segment, it is evident thatthrough advertisement, a company reduces the information gap betweenitself and the customers, which, in turn, makes more likely thatcustomer will find out about the firm’s CSR involvement and rewardthe business for its CSR efforts (Servaes and Tamayo, 2012). Throughfirm’s consideration of advertisement, there exist marketingstrategy and business ethics that the company establishes. This willmake customers consider companies’ CSR activities when making thepurchase of using the product. For the situation of the BritishAirlines, their customers are willing to pay more for the facilitiespresented because the services are more informally responsible. Thenotion that advertisement provides information about the firmreflects back to at least increasing customer awareness on CSR thatin return enhances the demand for socially responsible behavior(Servaes and Tamayo, 2012).

D’Amato, Henderson, and Florence (2009) argue that corporate socialresponsibility is a prominent feature of the business of thecompanies and the society literature, that addresses the topicsrelated to business ethics, regional and global corporatecitizenship, corporate social performance, and stakeholdermanagement. Lately, companies have industrialized a diversity ofstrategies discourses these connections of social wants the naturalenvironment, and the corresponding business requirements. Therefore,an organization can only be seen on a development scale concerninghow deeply and how well they are integrating any responsibility tothe society and the environment. Companies tend to implement CSR invarious ways. For instance, the European Union companies rely moreheavily on language or the theories of citizenship, corporateaccountability, or moral commitment. Recent literature also suggeststhat European enterprises do not value sustainability to theexclusion of financial elements however, they project sustainabilitycommitment in addition to financial commitments (D’Amato,Henderson, and Florence, 2009). Looking at the United Statescompanies, they tend to focus heavily on the economic justifications,while European companies implement both financial and sustainabilityelements in implementing their CSR (D’Amato, Henderson, andFlorence, 2009).

Rao and Tilt (2013), points out that CSR and CG are the major concernin the board diversity and should be considered in any company. Theyfurther argue that diversity, in general, is the heterogeneity amongthe members of the board and has the infinite number of dimensionsthat cuts across age, to nationality, from religious background tofunctional background and even political and sexual preferences. Theincidence of multiplicity among the board has a possible increase inboard effectiveness and thereby success and development (Rao andTilt, 2013).

Corporate SocialResponsibility in Europe especially in United Kingdom

United Kingdom is said to be the leading country in CSR in Europe(Mullerat, 2013). Since the United Kingdom is a home of CSR foremostphilosophers, practitioners, and campaigners in the field. It alsothe hub and headquarters of various big firms and environmental NGOscommunity pioneering engagement with business. Mullerat (2013),argues that the government of UK has put pressure on companiesregarding improving disclosure, for example, Tony Blair changingalmost 350 leading companies to produce the social and environmentalreport. Correspondingly, UK has some instructions and guidelines thatare premeditated to counterpart voluntary initiative to encourage.

In the UK, the businesses act 2006 obliged company managers toaccordingly work towards the interest of the firm’s shareholdersbut taking into contemplations the wider interest of thestakeholders. The regulation also required the companies to give dataof the annual report on their methods, presentation, and risk(Mullerat, 2013).

Role of the European Union andEuropean Commission in Corporate Social Responsibility Concept

Mellerat (2013), notes that European Union was the first continent toput CSR into movement. This was due to several reasons thattraditionally mark Europe implement CSR consistent values, norms, andperceptions than in any other areas of the world. The corporation inEurope such as the European Union and European Commission have tohold stronger and broader approaches to stakeholder relations and thenetwork is being created to assist many companies and organizationsshare and diffuse relevant data about CSR. On the other hand,Mullerat (2013), outlines the milestone of CSR in Europe that issummarized in Figure 1.

Year

Description

1995

European Business Manifesto Against Social Exclusion was launched by European Commission (EC) that lead to the creation of European Business Network

1998

The first CSR board was created

1999

The European Parliament called for passing of the binding code of conduct to regulate EC company’s labor, environment, and human rights

2000

2000

Lisbon Unit was called to make Europe the most vibrant economy in the world

Lisbon agenda of Cs was supported

2001

The EC green paper promoting CSR. It covered a broad range of themes, including responsible actions during corporate restructuring, developing, and corporates code of conduct and social rights

2002

2002

2002

EC communicated on CR as business contribution to sustainable development

New legislation was introducing that requested companies to publicly report annually on their social and environmental performance.

The launch of EU multi-stakeholder forum to promote CSR at national level.

2003

Member States called for the dialogue that promotes the transparency of the CSR

2004

EC embarked on the consultation procedure on the standard principles of CSR. The process was boycotted by trade unions and NGOs.

2005

Conferenced was organized on SMEs

2006

Implementation of partnership for growth and job that integrated CSR into European policy

2007

2007

Commissioners of European alliance to discuss the progress

European Union conference that presented challenge and solution

2008

European Commission provided sustainably and production industrial policy action plan proposal to contribute to improving the environmental development and demand for more sustainable goods

2009

EC called a meeting of the European Multi-Stakeholder Forum on CSR

2011

New policy was published on CSR

2012

Studies were conducted on EC, which reported the state art of CSR and another reported on responsible supply chain management.

Source: Mullerat. 2013: Milestone of CSR IN Europe

CSR in Europe was redefined by European Commission. The renewal ofthe strategies was to support entrepreneurship and responsiblebusiness. The 2011-2014 restoration action plan included supportingbest practices and encouraging open debate and dissemination ofresponsible business conduct through the supply chain that willcampaign for the success of the Europe’s 2020 Growth Strategy.

Corporate SocialResponsibility in Global Dimension

With the advent of the technological advancement, great feats andleaps have been achieved in the 21st century. Corporations andorganizations have shifted their procedure from regional market tointernational market. It has been noted that the ongoingglobalization will not cease but it is seen to go further and pushthe national borders to the background as free movement of capital,information, and liberalization of trade. According to Thomas (2001),CSR globalization has been driven by global problems, and chaos andthese issues include global climatic change, lack of water,contamination and pollution of the environment, the decrease inbiodiversity, and hunger and extreme poverty across the world.Solving these problems would be better at the local and regionalgovernment of Europe, however, global approach and engagement ofprofit and non-profit sectors and government across the globe incalled for. On the same note, wide-ranging approach to CSR isdirected at the global level, which is supplementary well-organizedwhen compared to the CSR carried out at the local level.

Because of these issues and various implications, CSR at worldperspective should not be overlooked. Seeing Europe view of CSR beingdifferent from that of the global view, does not suggest that thereshould be two sets of rules, that of the world and that for Europe.Indeed, a company’s behaviors at the regional or local level shouldbe a reflection of itself at local and global scale. For instance, ifa company conducts its business well and good corporate citizen ispresent in it but guilty of their social behavior in other regions,then there exists corporate hypocrisy that would, in turn, haunt thecompany.

CSR involvement in the global perspective is as a result of theincreased awareness that reflects and operates within the context ofevolving global standards of human rights and the increasedcollaboration of corporate, NGOs, and governmental organizations inthe development, monitoring, and implementation of human rights andenvironmental protections standards. Thomas (2001), suggest thatpossible link between human rights and CSR are more potent. This isbecause, both human rights and corporate social responsibility aretroubled with liberty such as movement, speech, and the right to earna living wage for a day’s work. In other words, CSR attempt toprotect the rights of humans and provide sustainable strategies thatwould enhance social and environmental responsibilities (Rondinelli,2006) The emerging generation of CSR with the acknowledgment that aglobal framework is vital in firms both small and large companies. Inthis case, CSR at world level is responsible for variety of culture,value assets that cease the shortcoming perceived by corporategovernance.

Theory of DevelopmentAgency theory

Accordingto Li (2014), agency theory is fairly applicable to the understandingcorporate governance. Rooted in the field of economics, thephilosophy compliments the risk sharing literature by letting in theagency problem that happens when goals of cooperating parties differ.Using contracts as a figure, this theory tries to resolve the problemthat might occur when one party delegates work to another. Theproblem that this method is trying to solve the struggle between theprinciple and the agent and the cost related to the decrease of suchinconsistency. The second issue it addresses is the sharing of riskwhen the risk preference of the principle and agent offers (Li,2014). Consequently, the fundamental idea behind agency theory itthat, a solution to the principal to agent problem, contracts betweenprinciples and agent should ponder efficient organization ofinformation and risk bearing the cost.

However,this theory relies on many assumptions that include human assumptionson self-interest, bounded rationality and risk inversionorganizational assumptions such as goal conflict among participants,efficiency as the effectiveness criterion and data asymmetry betweenprincipal and agent information assumptions that comprises of thedata available as a valuable commodity. Li (2014), notes that thetheory can be applied to any contractual relationship where theprincipal and agent have partly differing objectives and riskpreferences. Also, agency theory dishes out as the underlyingrationale for corporate laws as well as regulations and rules ofcorporate governance. Separately, according to agency theory, afamily regulated firm should have fewer agency conflicts betweenshareholders and managers than non-family controlled firms (Wang,2015). In this case, family businesses should have greater reputationconcerns than non-family firms because status affects not only thefirm’s performance but also the company’s name.

The Stakeholder theory

Thistheory was developed by Freeman, in which he attempts to come up witha pragmatic approach to strategy that advocates organizations toacknowledge the position of the stakeholder to achieve superiorperformance (Li, 2014). The theory tries to solve complications likethe value of conception and trade, ethics of capitalism, andmanagerial mindset. Freeman et al. (2010 cited in Li, 2014), assertsthat: (1) the primary goal of a given organization is to create valuefor stakeholder (2) business is a set of relationships between groupthat have a stake in the business activity (3) that business isabout how customers, employees, suppliers, and financiers. Societiesand directors relate and create value. This theory, therefore,emphasizes the dependency of many different groups on the firm’smanagement. Also, the theory suggests that corporations are managedby loosely defined groups of people, each looking for somethingdistinct from the organization. The Stakeholder Theory, thus,identifies who benefits from the firm as well as who regulates itscorporate policy (Esken, 2011).

Resource Dependent theory

Thistheory assumes that an organization’s power over its externalenvironment is climacteric to earning a competitive advantage for anorganization. The outside environment encompasses of customers,suppliers, and board of directors, who are the eventualities of thegroup’s power. Li (2014), implies that by applying multiplestrategies, a company can combat the contingencies and reduce theuncertainty and interdependence on the environment. Consequently,this theory has three propositions that include: (1) the externalenvironment which the business operates (2) organizations shouldcome up with policies to enhance their autonomy of acquiring andallocating resources with the focus on improving the team’sperformance (3) market power is vital for understanding internal andexternal actions of the organization.

Theresource dependency theory takes into account both external andinternal resources as the primary contingencies for organizationalperformance (Li, 2014). Under the assumptions that organizationresources originate from external and internal environment, theinternal resources include technology, labor, capital, production andmaking capabilities, the board of directors, employees’ morale andsatisfaction, family network and managers’ systems. On the otherhand, the external resources come from investors, customers,suppliers, regulators, competitors, community, and the environment.These resources serve as the basis for the market power that makesthe organization to be dependent on each other despite the fact thatthey are legally independent (Li, 2014).

Methodology IntroductionObjective of the Research

Thisresearch is based on the impact of corporate governance on corporatesocial responsibility in Europe. The study was conducted in small,medium and big business in the United Kingdom so that the mainframework of this dissertation paper to should contribute to theknowledge of the actual state affairs in the business sector in bothin the United Kingdom and the entire Europe concerning the roleplayed by CSR. Also to foster the understanding of the developmentthat is taking place in this particular problem of the study. Themain objectives include:

  1. To investigate the level of corporate governance and practices of board of directors of European Union

  2. To examine the impact of corporate governance on corporate social responsibility, specifically in Europe.

  3. To investigate the relationship between corporate governance and corporate social responsibility.

  4. What are the main barriers when small and medium sized enterprises encounter when conduct CSR?

Research Design

Kumar(2011), notes that research design is both plan and strategy used ininvestigating and obtaining answers to research questions as well ascontrol of variance. Additionally, it is the plan of action that theresearcher adopts for answering the question of the research. Variousstudies have explored the both corporate governance and corporatesocial responsibility. The primary focus of this study is toinvestigate the impact of CG on CSR. Therefore, this study adoptsdescriptive research design. Descriptive research design concentrateson explaining the characteristics of information gathered andestimating unit percentage on a specific population that exhibits acertain type of behavior.

Sincethe study id focusing on the firms and companies from the UnitedKingdom and the entire Europe, the dependent and independent variablecould be manipulated. Similarly, various questions and request weresent to various businesses that do not have annual report on CSRperformance.

Research Approach

Thekind of methodology for assumed research trusts upon the unexpectedcircumstances like aims, an objective of the dissertation togetherwith the findings from the literature review. Conversely, theresearch method selected ought to link the study queries and to thegoals and aims of the research. This study conceivably will uselogical method. According to Hair et al. (2010), deductive approachentails approving the theory based on based on the observation madeand the generalization of methods of the chosen context. Secondarydata was obtained from local and international documented sources ofCSR, CG, and Financial reports. Most of the sources include ofperiodicals, internet sources, newspaper cuttings, and districtdevelopment plans in the country. Such data was obtained from theadministration. Some preliminary data in line with the researchobjectives had been acquired and documented in the literature review.

Sample size and Data Collection

Thestudy constructs its sample by joining some different databases. TheCSR data was received from ASSET of the Thomson Reuters (2015), whichis a Swiss-based company that specializes in CSR consulting andanalysis. Thomson Reuters scours most of the data sources andprovides secure investor access to these data through theirASSET4latform that provides environmental, social, and governance(ESG) ratings at large, public traded companies for over 45 countriesin the world (Dyk et al., 2015). Stock market data was also composedfrom DataStream and bookkeeping data from World Scope. On the otherhand, the population under analysis made up of all small and mediumcompanies from the United Kingdom and other European nations likeSpain and Portugal that allowed for the comparison between the resultobtained. Conversely, to ensure quality representative of thepopulation, the study has preferred corporations classified at thegeneral indices of each country. The institutional information comesfrom multiple sources that included World Bank, the World Federationsof Exchanges, and the CIA Fact Book.

Thedata involve the examination of the annual overall report from theyear 2011-2015 for the listed companies. These documents weredownloaded from the website of the companies. However, for the firmsthat provide incomplete annual reports, emails were sent to theirheadquarters addressed to the company secretary requesting theircomplete annual report. On the other hand, CSR disclosure can be metthrough data stream information available on the internet,newspapers, media reports, and other scholarly documents. Also, theresearch has only considered corporations with the presentations ofthe annual account. Therefore, the final sample makes up 39 companiesthat were listed on the Stock Exchange of Lisbon and over 100 firmslisted on the Stock Exchange of London, adding up to 139 companies.

Separately,looking at the environmental performance of the companies, ASSET4provided at least 70 line items that were divided into three broadlevels: (i.e. emission reduction, product innovation, and resourcereduction). While for the social performance of the firms, ASSET4provided 78 items divided into seven levels (i.e. community,employment quality, diversity of opportunity, health and safety,product responsibility, human rights, and training and development).

Dependent and IndependentDependent variables

Partly,the foremost intention of the study is to disclose CSR in Europeparticularly in the United Kingdom. As the chief dependent variableof this research, the performance of the content analysis is used toexamined the CSR reporting of the designated companies from theirannual reports. The study has utilized unique dataset withenvironmental, social, and governance scores obtained from ASSET4. ASSET4 was initiated in the year 2003 and presently is possessed byThomson Reuters. Other typical sources comprise of the stock changefillings (from different companies), CRS and annual reports, NGOsOrganizations websites based in the United Kingdom. Thomson Reuter(2012), it is the world leading source if intelligent information forbusiness and professionals that combine industry expertise withinnovative technology to deliver critical information on that lead todecision making in CRS, financial and governance of manyorganizations across the globe. Another ASSET4 used to collect datawas Sustainnalyics that provided global ESG research and analysis.

Onthe financial performance, I will measure gross margin as the grossprofit of the total sales ratio. The measurement of CSR willincorporate measures that account for complex of CRS initiativesthrough the use of ESG index and G-Index to measure the corporategovernance and the strength of shareholders right using corporatetakeover defense, by law provisions and firm rules.

Throughannual reports and accounts selected from the 100 companies, Icompared their turnover with their investment on the socialresponsibility as stated below:

TUV= β0 + β1 CSR

Iwill use the correlation, regression, and analysis of the varianceANOVA to analyze the relationship between the two variables. Theabove model will be used to and modify for this study. Therefore, theformula model is described below:

Y= f (X1)

Y= b0 + b1X1

PAT= b0 + b1 CSR + u

Innwhich:

PAT= profit after tax to proxy firm’s profitability and dependentvariable relying on CG report

CSR= Corporate social responsibility of the selected company

b0-b1= parameter of the estimate

u= error term

Thevalidity of this analysis will be based on the following order.

Theerrors test will sow the estimate are accurate if they are less halfthey are less than half the coefficient. The t-test will test thenull hypothesis H0 = β1 = 0 against thealternative hypothesis H0 = β1≠. In thiscase, result can be derived in two alternatives of t value, t (n-k)the extent of freedom at fifty percent level of the significancefigure is less or greater than critical t value from variable. If thevalue t is greater than critical t, I will ignore the H0 anduse alternative hypothesis that beta estimate if vastly differentfrom zero.

R2coefficient of Determination: this part willidentify the percentage in the dependent variable that is explainedby the independent variable. The F test on the other hand willdetermine the overall regression equation for further prediction. Thetest will adopt, at (n-1) (n-k) and N will denote observation and atfive percent level of significant will indicate whether or not theassumed variable has by luck or not. The rule of decision will be, ifthe computed F is greater critical F assume the question assignificant and valid for prediction for instance, H0 = 1 = 0, whileif F is less than critical F, go for equation as significance andunreliable for prediction i.e. H0 = ≠ 0.

DurbinWatson: will help me to test the presence of the autocorrelationin the circulated terms. Regression co-efficient will determine thevalue and sign attached to parameters

Independentvariables

TheUnited Kingdom being the country where the research was conducted,the study relied enormously on the obtainable literature from thefield of finances and political science. For instance, legalinstitutions include laws that encourage competition within thecountry and legislation that limit self-actions of corporateinsiders. In this case, we have factors such as corporate governancethat comprise of a board of directors, women participation, andoutside directors. In this section, we have factors like the sizethat will be measured through firm revenues, assets, and the totalnumber of employees. Overall, the all the values of the independentvariable were collected from company annual reports and accounts ontheir websites.

Independentvariable also included some rims and industry category variables aspotential determinants of CSR. Looking at the substantial asset, Iassumed that the CSR would increase in firm performance. Besides, itwas hypothesized that CSR would increase for companies that competethrough providing through innovative and differentiated services andproducts. On the same not, the study suggested that firms that areclosely held by investors will tend to have lower governance scoreand that those companies that raise capital will have small socialand environmental responsibility but one with better governance(Ioannou, and Serafaim, 2010).

Results, Data analysis, andDiscussions

Table1 shows the value of dependent variable (PAT) Method.

Table1: Dependent analysis

Dependent Variable: PAT METHOD: Least squares

Included observation: 10

Variable

Co-efficient

Std. Error

t-Statistic

Probability

CSR

-0.1774

0.7925

-0.2238

0.8285

TheR-squared = 0.6220 that gives sixty-two percent adjusted r-squared =0.5913 Durbin Watson statistics = 0.6429 F-stat = 24.103.

Thegeneral structure of Thomson Reuters on Corporate SocialResponsibility is presented in the data framework of Figure 1.

Source: Thomson Reuters, 2016

Tothis far, it is evident in the table that there is the presence ofsignificant variation that exists among European countries. Firms inUnited Kingdom, France, Spain, and Hungary received a high score insocial performance, whereas in Poland, Ireland, and Belgium registerlow scores. Looking at the environmental scores, Hungary, Franceproduces high scores, while Poland and Ireland record low scores. TheUnited Kingdom received high scores on governance. However, whilePoland and Greece have moderate governance. On the other hand,looking at the general performance, United Kingdom produces theaverage performance on both on social, environmental, and governance.Table 2 below provides the average social, environmental, andgovernance scores and the number of observation made by the Europeancountries.

Table2: Average Social, Environmental, and Corporate Governance acrossyeas in European

Country

N

Social

Environmental

Governance

Belgium

142

0.46

0.50

0.39

France

487

0.73

0.72

0.48

Germany

391

0.63

0.63

0.30

Greece

131

0.48

0.46

0.17

Hungary

1

0.91

0.89

0.49

Ireland

86

0.39

0.40

0.55

Italy

262

0.60

0.47

0.35

Norway

136

0.55

0.52

0.44

Portugal

62

0.68

0.60

0.35

Spain

277

0.69

0.64

0.48

Sweden

305

0.60

0.59

0.46

Netherlands

197

0.74

0.64

0.60

Poland

4

0.42

0.34

0.15

United Kingdom

1,703

0.62

0.57

0.69

Source:Thomson Reuters, 2012. Datastream ASSET4 ESG Content.

Figure2 demonstrates ASSET4 Environmental, Social, and Social CorporateData. The data stream presents the scores of Air France- KLM inEurope.

Source: Thomson Reuter, 2012.

Accordingto the above data in Figure 2, Air France-KLM total waste per tomesindicates the reduction from the year 2008 to 2010. This shows thatthe company strives to promote the sustainable environment. EuropeanESG index capitalization demonstrated in sector weights and countryweights are represented in the table below.

Source: MSCI research based Index, 2016.

Accordingto Table 3, it evident that United Kingdom takes the lead with 24.88percent in the country weights in the ESG performance. The statedistribution according to Thomson Reuters on CSR in Europe is shownin the Figure bellow.

Source:Thomson Reuters, 2016. Europe ESG Index

Favottoet al. (2016), compares the both ESG (Environmental, Social,Governance performance regarding different categories). According toTable 4, the level of environmental reporting between European firmsand the United States companies. However, European companies showsome remarkable better quality information in the environmentalsection in their annual reports by the index create based on thebreadth of data and CRS disclosure.

Source:Favotto et al. 2016.

Regardingfirms report, the employee issues and broader human rights areinfluenced by home country, unlike the environmental reporting.Comparing European and the USA firms, European companies turn outwith greater percentage in child labor, diversity, health and safety,and freedom of association among employees as demonstrated in theChart 2 below.

Conclusion, Recommendations

Inthis research, the aim was to look into the impact of corporategovernance on corporate social responsibility in Europe. It can besuggested that many organization is facing external pressure on theirsocial and environmental performance. It also clear that some teamhas embraced CSR as a business opportunity that provides them with acompetitive advantage that has seen them become market leaders intheir sustainable business operations in the United Kingdom and theentire Europe. While CSR remains to be the term used to describebehavior that brings benefits to stakeholders that do not necessarilyhold shares in the organization. This because the investors andshareholders are emphasizing on Corporate governance to protect theirconfidence in the business performance. Further research suggeststhat possible conflicts can exist that current CG in Europe may notinclude non-financial incentives as an area of concern for politicalconflicts.

Thedata in Table 1 explains the link between CSR and CG on the firm’sperformance. From the 100 company data, Table 1 reveals how CSRreporting and performance vary from one company to another. The dataalso indicated that most of the firms invest less than ten on theirannual profit on CSR because they implement effective corporategovernance.

Table one of the data analysis depicts the negative relationshipbetween CG on CSR. This means that the slope of estimates is in linewith priority expectations, that indicate the inverse relationshipbetween the two variables. To justify this, the more firms thatregister high preface in CSR reporting and score has less recordingthe profit. However, those firms that register the high-profit scorein the United Kingdom has substantial invest on CG while they investtiny in CSR. The coefficient determination of the result provides 62percent that shows that the supplementary data from the companiesreporting are affected by CSR reporting in the United Kingdom. Thetest autocorrelation denotes that no serial autocorrelations for theregressed model under that study because it provided 0.6228 that isbelow the range of autocorrelation.

Consistentwith the findings from the studies based on the context of theemerging economies in Europe, recent studies examining corporatesocial responsibility disclosure in the United Kingdom has found suchdisclosure level to be significantly high. Findings of these revealthat United Kingdom provides the largest number of companies thatproduces CSR disclosures as compared to other businesses in Europe.

Accordingto hypothesis 1, Corporate governance is the vital factor when itcomes to organization performance. It has been established true thatmost of the firms in the United Kingdom that function below clearcorporate instrument excel both financially. The reason for theemerging economies to consider external corporate governance is theneed build an investor trust to attract foreign, and local investmentto expand the trade. Most of the international investors such as IMFand World Bank, circuitously impact developing countries to advancetheir corporate governance mechanism and governing set-up. This, inturn, affects the performance of CRS in many companies. Looking atthe theoretical argument presented in the study towards therelationship between CG and CSR, I would suggest that privateownership may do well in the philanthropic dimension of CSR that isgeared by the social incentive legitimization and garnering goodcorporate image.

Towardthe environmental concerns and employee relations, managers andshareholders of the firm may have small on incentive to obligateresources to environmentally solid investments provided the costimplication. Darweesh (2015), maintains that CG plays significantlyin financial market and economic development. Sound corporategovernance, according to the European Union, tends to increase theimage and reputation of the country, attracts its foreign capitals,and prevent capital flights. It also enhances the competitiveness ofthe capital market and economy, end crisis in a reduced damage, helpdistribute resources more efficiently and maintains high welfare(Darweesh, 2015).

Hypothesis2: it has been confirmed true that most firms in the UK thatimplement Corporate Social Responsibility are positively related tothe financial performance as well as socially responsible in theimages of the citizens and produce a positive effect on the society.According to the study on corporate social responsibility in Europe,it appears that United Kingdom corporations are betrothed in onecorporate social responsibility or the other. According to findings,the study reveals that there is more prominence that EuropeanCommission and the European Union put on the involvement of thecommunity in many firms. According to CSR shareholders, they believethat CSR is positively related to financial performance (Fontaine,2013). The underlying assumption is that a company which is sociallyresponsible could present a positive image to customers, and bettercustomer satisfactions produces more financial benefits.

Accordingto the findings, it is clear that many firms and corporations areincreasing prompted to become more socially creditworthy becausetheir most important stakeholders expect them to understand andaddress the social, community, and environmental issues that arerelevant to the firm’s operations. Therefore, corporate socialresponsibility is a significant fragment of business plan in sectorswhere inconsistencies arise amongst corporate profits and socialgoals, or discord can arise over fairness issues.

Onthe other hand, CSR is seen as an important social norm in shapingcorporate governance. Social norms satisfy the definition ofgame-theoretical equilibria, and thus the appearance of CSR as asocial norm of CG can be looked as mostly and equilibrium selectionprocess. It is quite clear that the agency theory model of corporategovernance provides an absolute priority to shareholders. Separately,it is vibrant that decision-making ownership is destructively relatedto the extent of CSR disclosure. This indicates that high ownershipconcentration of managers in different companies to get less involvein social and environmental activities because of their dominancethan other investors, thus reporting less on CSR disclosures.However, regardless of the managerial ownership, other companies inEurope, particularly in the United Kingdom make significantly moreCSR disclosures.

Hypothesis3: According to this hypothesis, it has been confirmed true that mostfirms in the United Kingdom with more efficient governance makesignificantly less investment in the CSR. This is because most of thelisted company managers tend to invest over in the CSR and at thesame time are forced to reduce the CSR investment when corporategovernance is more effective. Most of the literature used in thisstudy suggest that the relationship between CG and CSR is mix in thatCG is found at some point to be either positively or negativelycorrelated to CSR depending on the governance structure, careerobjectives of the managers of state-owned firms, and the governmentbureaucrats or professional managers employed by the state. In thisscenario, the role of the managers and CG is to maximize the privateshareholder, hence, affect the CSR performance.

Similarly,it was fond that various firms in the United Kingdom have differentobjectives as outlined by the shareholders and the owner of theenterprise. These various purposes of the business owners and managercan give rise to the location of unpredictable targets, which withthe lack of satisfactory presentation nursing and governancestructure, upsurges the tendency of the managers to contribute in theopportunistic behavior. Overregulation by the government isoccasionally a threat to many forms. In this sense, overregulationmay not lead to the desired results regarding economic and corporatesustainability, and efficient performance and high market value ofthe firm. The CG in this scenario is costlier than the targetedcompany`s benefits and also hinder or limits the CSR performance.

Recommendations

Theoverall finding of this study, show empirical evidence that suggestthat corporate governance attributes, even though perceived to beless effective, are vital elements of extent of CSR disclosures bothin UK and the entire Europe. Corporate governance, specifically theinternal governance structure of a firm plays vital character thattend to reduce the legitimacy gap between environmental and socialdisclosures. The finding of this thesis can assist policy makers toadopt an excellent balance of legislation, regulatory reform andtheir enforcement to make improvements in the corporate governancepractices. Even though my results are probably dependent on UnitedKingdom institutional environment, understanding the extent to whichthe result do generalize will help in the understanding the impact ofcorporate governance on corporate social responsibility in the entireEurope.

Area of Further Study

Becausethis research was subject to numerous limitations. Our study onlyfocuses on the impact of the corporate governance on corporate socialresponsibility in Europe through annual reports and data ASSET4. Thisresearch has brought up many questions that call for furtherinvestigations. Additional research needs to be conducted surroundingthis research question at the global level. Conversely, this paperproposes further research that links gender composition with CSR,precisely the CSR decision-making process, that is required to gain athorough understanding of gender influence on CSR.

Separately,further study should take in considerations the impact of CSR onlong-term financial performance across nations. Research on theimpact of CG on CSR differs across countries this is because howfirms engage on CSR depend on the CG available. Therefore, as notedearlier, future research should investigate the contextualdeterminants of ethical decision making and reasoning of CSR acrosscultures.

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