Is Organization Governance Complementary to Business Ethics, Environment and Community Related Actions?

There are few accepted standards for corporate’s socially responsible actions and practices so far. However, there is a concern that the actions an organization takes have no unintended consequences outside the enhancement of business, whether driven by concern, philanthropy, or a desire for an authentic brand and public relations. Thus, behaving in an irresponsible manner can lead to reputational and related financial costs. In this line of thinking, some argue that corporate interaction in social responsibility is merely window-dressing, or an attempt to pre-empt the role of governments as a watchdog.

Environmental policy is aimed to crate incentive for corporations to internalize social costs created by their business activity. Its enforcement is both costly and often subject to non-cooperating behavior. If a regulator can rely on self-governance, it may help to reduce enforcement costs. Furthermore, if socially responsibility taken in one dimension a can provide insight into a corporation willingness to take responsibility towards the internalization of its environmental costs, it can be helpful in the reduction of the cost related to screaming corporate’s activities.

This work explores the existence of such connections between the conduct of corporates towards enhancing in reputation with socially related actions and its environmental governance. The nature and strength of these relationships are explored using the data provided by the “Maala” index that provide scores regarding business ethics, business’s code for social management, investment in the community and environmental governance for participating corporates in Israel.

Some believe that one of the roles of indices such as “Maala” is to serve as a form of corporate self-regulation integrated into a business model. In this view, it can function as a built-in, self-regulating mechanism whereby a business can monitor and ensure its active compliance within the spirit of the law, ethical standards, and international norms. From the perspective of environmental law enforcement agencies this offers both threats and opportunities. On one hand, companies may want to mislead by engaging in "green-washing". On the other hand, environmental enforcement requires considerable expenditure, both on compliance monitoring and where necessary, on enforcement actions.

The analysis here modeled direct and indirect relationships among the variables using structural equations modeling, and tested them using maximum likelihood estimations of the parameters. The results show that investment in the community and the code for social management in the business, have direct positive effects on the environmental governance rating. However, the bossiness ethics interacts with it only indirectly, via its direct effects on both the business social code and its investment in the community.

In conclusion, for the corporates rated in the “Maala” index, a strong performance in the human rights and working place dimension and in the community investment dimension, predicts strong performance in the environmental dimension.