Revisiting Governance Theories for Understanding ESG and Sustainability Nexus

Introduction

All over the world, companies are trying to instill the sense of governance into their corporate structure. With the surge of capitalism, corporation became stronger while governments all over the world had to succumb to its manipulations and dominance. Hence, history reveals that there is a never-ending evolution of theories or models of corporate governance (Baporikar, 2023a). Organizations are the main concern and dominant institution. They have gone through every part of the world in various sizes, abilities and inspirations. The organizational contribution in good governance has influenced economies and various aspects of social background. Shareholders are seen to be losing confidence and market value has been extremely affected. However with the advent of globalization, there is greater de-territorialization and less of governmental control, which results is a greater need for accountability (Crane and Matten, 2007). Hence, corporate governance has become a vital issue in managing organizations in the current global and complex environment. In order to understand corporate governance, it is imperative to highpoint its definition. Corporate governance refers to the private and public institutions, including laws, regulations and accepted business practices, which together govern the relationship, in a market economy, between corporate managers and entrepreneurs (corporate insiders) on one hand, and those who invest resources in corporations, on the other (OECD, 2001, p. 13). Rezaee (2009) defined corporate governance as “a process through which shareholders induce management to act in their interest, providing a degree of confidence that is necessary for capital markets to function effectively”.

La Porta et al., (2000) view corporate governance as a set of mechanisms through which outside investors protect themselves against expropriation by insiders, i.e. the managers and controlling shareholders. The insiders may simply steal the profits; sell the output, the assets or securities in the forum they control to another firm they own at below market prices; divert corporate opportunities for firms; put unqualified family members in managerial positions; or overpay managers. Mohd Sulaiman and Bidin (2002) defined corporate governance as an expression used to describe the way companies are directed and managed. This focuses not only on the board room but extends the scope to include 'owners and others interested in the affairs of the company, including creditors, debt financiers, analysts, auditors and corporate regulators'. Such wider concerns reflect the audience for company financial reports. It has been contended that corporate governance practices is not a standard mode (not a “one size fits all”) and thus cannot operate in any standard form but rather vary across nations and firms (OECD, 2000). This variety reflects distinct societal values, different ownership structures, business circumstances, and competitive conditions strength and enforceability of contracts. The political standing of the shareholders and debt holders, and the development as well as the enforcement capacity of the legal system is all crucial to effective corporate governance (Gregory & Simms, 1999). Based on the above definitions and arguments, it is clearly that corporate governance is concerned with the social political and legal environment in which the corporation operates systems practices and procedures-the formal and informal rules that governed the corporation. In nut shell corporate governance is very vital in every organization, because good corporate governance contribute to better firm performance; it is expected for every other organization to enforce corporate governance policy, in order to achieve a stated goal (Baporikar, 2023b).