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âž½ What Is The Role Of Corporate Governance In Environmental Management In Your Company?
Corporate governance (CG) over environmental management is to ensure that companies carry on their activities in full compliance with environmental requirements (policies and regulations) while also achieving competitive returns on investment.
A possible downside of environment management may be mitigated by governance mechanisms. In environmental management, firms attempt environmental sensing in deciding on good corporate governance or environmental policies or even adapting to the actions of other actors within the environment.
Such isomorphic tendencies shaped the behaviour of firms and firms with good environmental management gain legitimacy and reputation from the external environment.
Identities within organizations are strong and natural drivers of behaviour and they enhance the effect of incentives. Incentives may be used to align the different identities. And incentives such as stock options may specifically be geared toward making managers think and behave like 'part-owners'.
In fostering good environmental management, it is important that the organization identifies and demonstrates ‘good citizenship’ behavioural imperatives with the communities that the firm operates.
If prevention is linked to financial performance, the board and managers will promote more preventive investments with the logic that reducing environmental liability creates more value for customers.
However where environmental management initiatives are not expected to generate enough returns (financial / reputation) or the impacts of the initiatives are not visible to the markets for a change in share price, the board may tend not to support the investments.
Due to the lack of high-level visibility of environmental management activities, many shareholders tend not to be aware of the liabilities that firms face on environmental issues through the market discounts these potential liabilities in the stock price.
Managers can be made to focus on the ‘invisible liability’ if their incentives include stock options. Activities central to the firm´s business are more visible, quantifiable and easy to value.
Other initiatives, such as environmental management, are not as intuitive and may be seen as diminishing cashflow through those initiatives are more related to diminishing a liability which turns into visible value in the share price.
However, it appears counterintuitive to sacrifice cash (visible) in order to diminish a liability (invisible). External stakeholders can become an important influence in determining what a firm will do, simply by making the environmental issues - and the implications for shareholders - more visible.
These external influences are here treated as governance instruments. Though environment management is having high consideration, other areas of concern, such as safety, may be pushed into the visibility of managers and shareholders.
And invested with a logic that aligns them with shareholders' interests, either through higher profits or avoidance of dire financial consequences.
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Dr Leesi Gborogbosi
(Finance + Strategy + Corporate Governance + Training)
â–£ Doctorate in Strategy.
â–£ Doctorate in Business Studies.
Gabriel Domale (Management Consulting)
Nigeria +2347034604152
www.www.gabrieldomale.com
The author, Dr Leesi Gborogbosi, CEO of Gabriel Domale Management Consulting), has over two decades of finance leadership experience from Shell Nigeria (Upstream E&P Oil & Gas). His expertise cuts across finance and strategy with an emphasis on finance transformation, project finance, strategy implementation, performance management, corporate governance, and collaboration. He has is also doctoral degrees in Strategy and also Business Studies from IE Business School, Madrid.
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References
Hart S.L, and Ahuja G. 1996. “Does it pay to be green? An empirical examination of the relationship between emissions reduction and firm performance.” Business Strategy and the Environment, 5: 30-37.
Kock, C. J., Santalo, J., Diestre, L. 2009. Corporate Governance and the Environment: Does good Governance create greener Companies? Working paper Instituto de Empresa.
Konar S., and Cohen M.A. 2001. “Does the market value environmental performance?” Review of Economics and Statistics, 83: 281-289.
Lanoie P., Laplante B., and Roy M. 1998. “Can capital markets create incentives for pollution control?” Ecological Economics, 26: 31-41.
Russo M.V., and Fouts P.A.1997. “A resource-based perspective on corporate environmental performance and profitability.” Academy of Management Journal, 40: 534-559.
King, A. A., Lenox, M. J. 2002. Exploring the locus of profitable pollution reduction. Management Science, 48: 289-299.
Hillman, A.J; Gavin, N; and Shropshire; C. 2008. Director´s Multiple Identities, Identification, and Board Monitoring and Resource Provision. Organization Science, 19 (3): 441-456.
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Published origninally on 31st Jan 2020 08:57:33
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