Do stringent corporate governance practices ensure diligent corporate social responsibility among organisations: investigating the link therein

Abstract

We establish the relationship between corporate governance and corporate social responsibility in India. We design a corporate governance scorecard to capture the financial and accounting aspects of firms which help us in classifying them into high risk (poor governance) and low risk (good governance) bins. We then categorise the firms according to their level of risk to examine the level of corporate social responsibility activities carried out by them to assess their social conscientiousness. Probing whether the firms ranked in corporate governance scorecard carry out corporate social responsibility voluntarily or under compulsion in the light of Section 135 of the company's Act 2013 brings out whether the firms in question are carrying out corporate social responsibility willingly or are being forced to do so. The data reveals that high-risk firms are the ones carrying out high levels of corporate social responsibility after it has been made a compulsory practice by the company's Act 2013. It indicates the possibility that corporate social responsibility may complement corporate governance to help create a socially cognisant corporate sector sometime soon.