Corporate governance, corporate social responsibility, and financial performance of South African organisations

Abstract

ABSTRACT The purpose of this research is to determine the relationship that corporate governance (CG) and corporate social responsibility (CSR) practices have with each other, as well as their relationship with financial performance, for companies listed on the Johannesburg Stock Exchange (JSE). The study looks at two data points for each organisation included in the study. It applies a statistical regression analysis on the relevant organisational characteristics for the companies’ financial years ended 2010 and their financial years ended 2013. CG scores are collected through the analysis of annual and integrated reports. For CSR, data have been collected from the Global Reporting Initiative (GRI) scoring system applied as part of the Integrated Reporting and Assurance Services (IRAS) review. For financial performance, both accounting-based and market value-based data have been collected from annual reports and JSE bulletins, respectively. The results of the analyses suggest that CG and CSR in South Africa are not yet aligned to each other in terms of their level of application within individual organisations. Academic research suggests that powerful synergies could exist between these two ideas which are possibly not being capitalised upon by South African organisations. There is a strong relationship between accounting measures of financial performance and CG practices and it appears that the direction of the causality within the relationship is not specific. This result infers that companies should endeavour to create robust CG frameworks to give them solid foundations for strong financial performance. For CSR, whilst there is not a strong link between absolute financial performance and absolute CSR scores, it appears that changes in financial performance have strong relationships with changes in CSR scores. This finding provides emphatic financial justification for management to improve the application of CSR within their organisations. In the past, CG and CSR have generally been considered in isolation when compared to financial performance. This research contributes to the existing body of research by considering CG, CSR and financial performance in a single research paper. In addition, this research provides additional depth to the existing literature by addressing the subject in a South African context, thereby contributing an emerging market perspective.