Incorporating CSR in Corporate Governance of Banking Institutions in a Challenging Institutional Context: A Case Study of Nigeria

Abstract

One of the points of debate on the role of corporate governance in financial institutions is corporate accountability. Corporate accountability is arguably attainable if corporate governance in financial institutions is appropriately regulated. While there is the question of the adequacy of regulatory standards and enforcement in challenging institutional context of the developing and emerging markets (DEMs), corporate social responsibility (CSR) can play a complementary role to regulation by public agencies. The concept of CSR may be distinguishable from corporate governance, the former can play a strategic role in the promotion of good corporate governance, particularly in the banking sector. Drawing on the institutional theory, this paper examines the connection between CSR and corporate governance. It identifies the difficulties of implementing global CSR models in the disconnection between the models and the institutional environment. The chapter argues that CSR models of developed economies cannot be adopted effectively in the DEMs due to institutional challenges. Using Nigeria as a case study, it suggests ways of incorporating CSR as a corporate governance mechanism for banking institutions in the DEMs. This limited regulated form of CSR will, in particular, include the adoption by regulators banking-specific CSR principles that are appropriate for the institutional contexts as part of banking regulation and supervision and multiple stakeholder implementation and enforcement of CSR standards. A limited regulated form of CSR can help to fill the corporate accountability gap in the banking institutions of some countries in the DEMs. In light of the above, CSR could be integrated into the corporate governance framework of banks in the DEMs by compelling banks to consider the interest of all its stakeholders. Banks are generally expected to conduct their businesses with transparency and integrity. Therefore, this chapter suggests that CSR policies implementation within the banking sectors should be the responsibility of the board of directors. There should be a mandatory requirement within the corporate governance framework for the board of directors to report on their economic, social and environmental activities and also of those of their supply chains. The chapter further proposes the idea of integrating CSR into the corporate governance of banks by linking executive pay to their performance on economic, social and environmental issues. It also suggests that one of the qualifications for the office of executive and non-executive directors’ banks would be to have some form of CSR training or and work-related CRS experience for at least for a period of 3 years.