Corporate Governance, Compliance and Social Responsibility 

There is a wide enough consensus now that social responsibility (SR) must somehow begin with the board of directors. That is not exactly the most ingrained practice at the moment, but if we want SR to trickle down to the entire organizational architecture, it will need to start at the top The board must assume the role of controller, promoter and judge of the company’s SR framework, making it a mandate for the board chairman/CEO and senior executives, so they will ensure the same happens at the lower levels.

This does not preclude the board from having a social responsibility committee, because it could be good for some board members to become more involved in these areas and monitor them more closely, but others should not go overboard in delegating duties to that committee, to the point of shedding their own responsibilities.

RSC and Compliance
Part of the Law Code of Gortyn, Crete, fragment of the 11th column. Limestone, 5th century BC.

In the steering committee, there will be a similar scenario: There may be an SR committee and SR management, to help the CEO monitor these areas, but these should remain devoted to the person ultimately responsible, the one at the top of the management hierarchy (which Antonio Valero, IESE’s first dean, called the person at the apex).

And the SR team, with its director at the forefront (if there is one), will have to lead the synergies with the other executives, so that SR is ubiquitous, but never without the support of the CEO or board chairman, who shall exercise their authority to ensure that SR plans get included in the agenda of all departments and divisions.

The same type of thing happens when it comes to complianceThis is not to be confused with SR, as I see it: It’s one thing to ensure that everyone in the company complies with all the rules, legal, regulatory, sectoral or corporate, whether compulsory or voluntary, but it’s something else to have the company act as a socially responsible entity. I think these two functions continuously crisscross. However, mixing them runs the risk that compliance is imposed on the SR efforts, because the pressure to avoid any illegal acts will always be stronger than the motivation to act freely with responsibility .

In any case, the board should also get involved with issues of compliance , and not preclude the same committee that monitors SR-related issues from also handling regulatory compliance. And so on down the line in the other levels of management: The CEO will be responsible for both SR and compliance, and both departments, if they exist, will have to interface with the former and with the steering committee, give periodic updates to inform the board, and maintain a dialogue with the other executives and employees.

All of this seems to have an extra dimension, as I see it. Legislation is increasingly tougher on decision makers, if they do not adequately comply with laws and regulations; and as this affects board members and senior managers alike, it is logical that the board would monitor compliance-related issues, as it is in their best interest. But it is increasingly becoming the “soft law” that must be obeyed, i.e., non-legally binding regulations. If the company has a code of ethics, executives and management will be judged by their compliance with this code, which goes beyond traditional compliance. And if the company is a provider for another that has a code of ethics and the latter includes in its contracts the obligation to comply with the standards of this code in matters of human rights, labor rights, etc., then those who govern the company will find themselves having to meet a private legislation which, in the courts, will become as obligatory as the provisions in the legally binding laws of the land.

About Antonio Argandoña

Antonio Argandoña is Emeritus Professor of Economics and holder of the "la Caixa" Chair of Corporate Social Responsibility and Corporate Governance at IESE. He teaches mainly in the areas of macroeconomics, monetary economics and international economics, and publishes research on business ethics, corporate social responsibility and organizational governance.