Organizational governance is the mechanisms, processes and relations by which organizations are controlled and directed. In this case, we often use the term “Corporate governance” instead of organizational governance as our attention is mainly focus on business and our objective of study – FrieslandCampina – a corporation.Effective corporate governance makes decision making process a greater structure.
An organization is running for multiple purposes which are the interests of its stakeholders, such as employees, shareholders, creditors, customers, board of directors, suppliers, community, etc. The conflict of interest happens in situations where serving one the interests could involve working against one of the other interests. Effective corporate governance should concern with mitigation of consequences of those conflicts and balance all interests of stakeholders. Corporate governance also provides framework for attaining a company’s objectives, it encompasses practically every sphere of management. It’s simple as who makes decision and which type of decision. For example, it can even rule that which are possible or which are not possible roles and responsibilities of a specific management position, and by that way, dictates corporate behavior.
According to ISO 26000, organizational governance can comprise both formal governance mechanisms based on defined structures and processes and informal mechanisms that emerge in connection with the organization’s culture and values, often influenced by the persons who are leading the organization. In this circumstance, due to the limitation of documents and information, the author focuses on the formal organizational governance.Organizational governance in the context of social responsibility has the special characteristic of being both a core subject on which organizations should act and a means of increasing the organization’s ability to behave in a socially responsible manner with regard to the other core subjects.
First of all, it’s a subject for CSR because Corporate Governance is identified as social expectation for good practice of corporation, which is the transparency of corporate actions, policies, practices and decisions in corporate affairs, the balance of all stakeholders’ interests. Effective governance is the first and important element to assure expectations of society are met.Second of all, it’s a mean of increasing organization ability to behave in CSR because good corporate governance creates a transparent set of rules and controls in which stakeholders have aligned incentives and balanced interests, which is very important because it avoid single benefit of anyone or decision making based on profitability only. By setting up the decisions making mechanism, decisions would be made based on interests of stakeholder groups who can influence that process. Hence, good corporate governance affects decision making process by the involvement of multiple inputs and influences of stakeholders, facilitating the consideration of other subjects of CSR. Corporate governance would decide how much company board of director should care about environment or their employee health care instead of focusing on profit.
An organization aiming to be socially responsible should have an organizational governance system enabling the organization to provide oversight and to put into practice the principles of CSR.According to ISO 26000 (2010), effective governance should be based on incorporating the principles of social responsibility into decision making and implementation. These principles are accountability, transparency, ethical behavior, and respect for stakeholder interests, with respect for the rule of law, respect for international norms of behavior and respect for human rights.
