Abstract
Despite the growing popularity of sustainable finance and the emergence of an industry dedicated to solving urgent global problems while making profits, high-profile corporate governance failures do not appear to slow down. In 2018, Abraaj, a well-known figure in impact investing, collapsed after its CEO was arrested for fraud and misappropriation of funds. Similarly, in 2020, Boohoo, a previously reputable online fashion retailer, faced intense scrutiny over work slavery that ended up being the subject of a UK parliament inquiry and lost support from responsible investors. This chapter proposes to go back to these two recent high-profile cases to discuss the extent to which the lack of accountability, ethics, and corporate governance might be conducive to economic crimes and detrimental to investors willing to embrace the principles of sustainable finance. Then, the concept of sustainable corporate governance is introduced, and a discussion of its implications for the fields of corporate governance and criminology is provided. Finally, two incentive alignment mechanisms promoting sustainable corporate governance, CSR committees and CSR contracting, are presented to help align executives’ interests with those of all legitimate stakeholders. This chapter contributes to the literature on corporate governance and criminology by examining the role of a more sustainable governance in preventing and deterring economic crimes.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
For Malecki (2018, 218), even though the term ‘socially responsible’ corporate governance could be used in this context, the term ‘sustainable corporate governance’ is preferred as it is more accurate and neutral.
References
Adams RB, Ferreira D (2009) Women in the boardroom and their impact on governance and performance. J Financ Econ 94(2):291–309
Afanasieva D (2021) Review: The dark side of stakeholder capitalism. Reuters, July 9, 2021
Alcadipani R, de Oliveira Medeiros CR (2020) When corporations cause harm: A critical view of corporate social irresponsibility and corporate crimes. J Bus Ethics 167(2):285–297
Al-Shaer H, Zaman M (2019) CEO compensation and sustainability reporting assurance: Evidence from the UK. J Bus Ethics 158(1):233–252
Apple (2021) DEF 14A proxy statement
Ayuso S, Argandoña A (2007) Responsible corporate governance: Towards a stakeholder board of directors? IESE Business School Working Paper
Bansal P (2005) Evolving sustainably: A longitudinal study of corporate sustainable development. Strateg Manag J 26(3):197–218
BBC (2021) Boohoo ‘not aware’ of investigation after reports of US import ban. BBC, March 2, 2021
Bebchuk LA, Tallarita R (2020) The illusionary promise of stakeholder governance. Cornell Law Rev 106:91–178
Berle AA, Means GC (1933) The modern corporation and private property. Macmillan, New York
Berrone P, Gomez-Mejia LR (2009) Environmental performance and executive compensation: An integrated agency-institutional perspective. Acad Manag J 52(1):103–126
Bland A, Makortoff K (2020) Boohoo knew of Leicester factory failings, says report. The Guardian, September 25, 2020
Boohoo (2019) Boohoo Group plc—Annual report and accounts 2019
Boohoo (2021) Sustainability report 2021
Brundtland G (1987) Our common future—Call for action. Environ Conserv 14(4):291–294
Butler S (2020) Boohoo shares drop 18% as new Leicester factory reports threaten sales. The Guardian, July 13, 2020
Cadbury A (1992) The report of the committee on the financial aspects of corporate governance. Gee Publishing, London
Carvalho S, Arnold T, Al Sayegh H (2018) UAE authorities issue arrest warrant against Abraaj founder. Reuters, June 26, 2018
Chen JC, Roberts RW (2010) Toward a more coherent understanding of the organization-society relationship: A theoretical consideration for social and environmental accounting research. J Bus Ethics 97(4):651–665
Clark S, Louch W (2021) The key man. Penguin Business, London, UK
Clark S, Parasie N, Louch W (2018a) Abraaj files for provisional liquidation. The Wall Street Journal, June 15, 2018
Clark S, Louch W, Parasie N (2018b) KPMG has close ties to troubled private equity firm. The Wall Street Journal, July 3, 2018
Coombs JE, Gilley KM (2005) Stakeholder management as a predictor of CEO compensation: Main effects and interactions with financial performance. Strateg Manag J 26(9):827–840
Cressey D (1953) Other people’s money: A study of the social psychology of embezzlement. Free Press, Glencoe, IL
Crifo P, Escrig-Olmedo E, Mottis N (2019) Corporate governance as a key driver of corporate sustainability in France: The role of board members and investor relations. J Bus Ethics 159(4):1127–1146
Croall H (2007) Victims of white-collar and corporate crime. In: Davies P, Francis P, Greer C (eds) Victims, crime, and society. Sage, London, pp 78–108
Dass N, Kini O, Nanda V, Onal B, Wang J (2014) Board expertise: Do directors from related industries help bridge the information gap? Rev Financ Stud 27(5):1533–1592
DFSA (2019) DFSA fines two Abraaj group companies a total of USD 315 million for deceiving investors and the regulator. DFSA, July 30, 2019
Dion M (2016) Agency theory and financial crime: The paradox of the opportunistic executive. J Financ Crime 23(3):574–587
Dixon-Fowler HR, Ellstrand AE, Johnson JL (2017) The role of board environmental committees in corporate environmental performance. J Bus Ethics 140(3):423–438
Donaldson T, Preston L (1995) The stakeholder theory of the corporation: Concepts, evidence, and implications. Acad Manag Rev 20(1):65–91
Duke S (2020) Boohoo backers failed to see ‘clear red flag’ on problems. The Times, July 28, 2020
Eccles RG, Youmans T (2016) Materiality in corporate governance: The statement of significant audiences and materiality. J Appl Corp Finance 28(2):39–46
Edmans A (2011) Does the stock market fully value intangibles? Employee satisfaction and equity prices. J Financ Econ 101(3):621–640
Edmans A, Gabaix X, Jenter D (2017) Executive compensation: A survey of theory and evidence. In: Hermalin B, Weisbach M (eds) The handbook of the economics of corporate governance. Elsevier, North Holland, pp 383–539
Elkington J (2006) Governance for sustainability. Corp Govern Int Rev 14(6):522–529
Elmaghrabi ME (2021) CSR committee attributes and CSR performance: UK evidence. Corp Govern Int J Bus Soc 21(5):892–919
EY (2020) Study on directors’ duties and sustainable corporate governance
Flammer C, Bansal P (2017) Does long-term orientation create value? Evidence from a regression discontinuity. Strateg Manag J 38(9):1827–1847
Flammer C, Hong B, Minor D (2019) Corporate governance and the rise of integrating corporate social responsibility criteria in executive compensation: Effectiveness and implications for firm outcomes. Strateg Manag J 40(7):1097–1122
Freeman RE (1984) Strategic management: a stakeholder approach. Pitman, Boston
Freeman RE, Dmytriyev S, Strand R (2017) Managing stakeholders in the digital age. In: Rasche A, Morsing M, Moon J (eds) Corporate social responsibility: strategy, communication, governance. Cambridge University Press, pp 110–135
Friedman M (1970) A Friedman doctrine—The social responsibility of business is to increase its profits. The New York Times, September 13, 1970
Goergen M (2022) Governance through ownership and sustainable corporate governance. In: Oxford research encyclopedia of business and management. Oxford University Press, Oxford
Hansen LL (2009) Corporate financial crime: Social diagnosis and treatment. J Financ Crime 16(1):28–40
Hehenberger L, Mair J, Metz A (2019) The assembly of a field ideology: An idea-centric perspective on systemic power in impact investing. Acad Manag J 62(6):1672–1704
Hill CWL, Jones TM (1992) Stakeholder-agency theory. J Manag Stud 29(2):131–154
Holtfreter K (2014) White-collar and corporate crime. In: Gartner R, McCarthy B (eds) The Oxford handbook of gender, sex, and crime. Oxford University Press, New York, pp 490–507
Hong B, Li Z, Minor D (2016) Corporate governance and executive compensation for corporate social responsibility. J Bus Ethics 136(1):199–213
Jensen MC (2001) Value maximisation, stakeholder theory and the corporate objective function. Eur Financ Manag 7(3):297–317
Jensen MC, Meckling WH (1976) Theory of the firm: Managerial behavior, agency costs and ownership structure. J Financ Econ 3(4):305–360
Jones TM (1995) Instrumental stakeholder theory: A synthesis of ethics and economics. Acad Manag Rev 20(2):404–437
Kerr S (2018) Abraaj files for provisional liquidation in Caymans. The Financial Times, June 14, 2018
Kerr S (2019) Abraaj founder Arif Naqvi released from UK prison on bail. Financial Times, May 29, 2019
Kerr S, Sender H (2018) Private equity: Inside the fall of Abraaj. Financial Times, September 9, 2018
Korsell L (2002) Economic crime. In: Crime trends in Sweden 1998–2000. National Council for Crime Prevention, Stockholm, pp 201–224
Labour Behind the Label (2020) Boohoo & Covid-19: The people behind the profits
Larcker D, Tayan B (2011) Corporate governance matters: A closer look at organizational choices and their consequences, 1st edn. FT Press, Upper Saddle River, NJ
Lewis A (2019) Abraaj executives facing criminal charges in US. Pitchbook, April 12, 2019
Louch W, Ballard E, Clark S (2018) Abraaj investors hire auditor to trace money. The Financial Times, February 2, 2018
Maas K (2018) Do corporate social performance targets in executive compensation contribute to corporate social performance? J Bus Ethics 148(3):573–585
Maas K, Rosendaal S (2016) Sustainability targets in executive remuneration: Targets, time frame, country and sector specification. Bus Strateg Environ 25(6):390–401
Malecki C (2018) Corporate social responsibility: perspectives for sustainable corporate governance. Edward Elgar, Cheltenham, UK
Mallin C (2019) Corporate governance, 6th edn. Oxford University Press, Oxford
Mallin CA, Michelon G (2011) Board reputation attributes and corporate social performance: An empirical investigation of the US best corporate citizens. Account Bus Res 41(2):119–144
Metcalf S (2020) Report alleges Boohoo supplier factories could be behind surge in Covid-19 cases. The Business Desk, July 1, 2020
Mooney A (2020) Big shareholder dumps Boohoo over working condition allegations. The Financial Times, July 10, 2020
Nair A, Narayanan A (2022) Abraaj’s Naqvi fined $136 million over firm’s collapse. Bloomberg, January 27, 2022
Nestor S (2004) The impact of changing corporate governance norms on economic crime. J Financ Crime 11(4):347–352
Nilsson P (2020a) Boohoo accused of fuelling virus spread in Leicester production push. The Financial Times, July 1, 2020
Nilsson P (2020b) Next, Asos, and Zalando drop Boohoo from websites. The Financial Times, July 7, 2020
O’Connor S (2018) Dark factories: Labour exploitation in Britain’s garment industry. The Financial Times, May 17, 2018
Onita L (2020) Boohoo hires top lawyer to investigate supply chain. The Telegraph, July 8, 2020
Orazalin N (2020) Do board sustainability committees contribute to corporate environmental and social performance? The mediating role of corporate social responsibility strategy. Bus Strateg Environ 29(1):140–153
Parasie N (2018) Kuwait Pension Fund Tries to Force Abraaj Into Bankruptcy; Fund says Dubai private-equity firm can’t repay a $100 million loan. The Wall Street Journal, May 30, 2018
Parasie N, Louch W (2018) Two senior executives resign from Abraaj. The Wall Street Journal, May 29, 2018
PRI and UNEP Finance Initiatives (2016) Fiduciary duty in the 21st century
PWC (2022) PWC’s global economic crime and fraud survey 2022
Pyrkalo S (2014) EBRD and Abraaj acquire majority stake in Turkish dairy producer, Yörsan. EBRD June 21, 2014
Reuters (2020) UK government will look at Leicester lockdown on Thursday, says health minister. Reuters, July 14, 2020
Rosenbaum E (2021) Apple’s new executive bonus formula is designed for the fast-changing world we live in. CNBC, January 16, 2021
Said R, Crowther D, Amran A (2014) Introduction: Corporate crime and its constraint. In: Said R, Crowther D, Amran A (eds) Ethics, governance, and corporate crime: challenges and consequences. Emerald, Bingley, pp 1–18
Shleifer A, Vishny RW (1997) A survey of corporate governance. J Financ 52(2):737–783
Snider L (2000) The sociology of corporate crime: An obituary. Theor Criminol 4(2):169–206
Stout L (2012) The shareholder value myth: how putting shareholders first harms investors, corporations, and the public. Berrett-Koehler, San Francisco, CA
Supiot A (2017) Governing by numbers: the making of a legal model of allegiance. Hart, Oxford, UK
Sutherland EH (1949) White-collar crime. Holt Rinehart & Winston, New York
Tomasic R (2011) The financial crisis and the haphazard pursuit of financial crime. J Financ Crime 18(1):7–31
Tombs S, Whyte D (2020) The shifting imaginaries of corporate crime. J White Collar Corp Crime 1(1):16–23
UK Parliament (2021) UK Parliament modern slavery and human trafficking policy
Velte P (2016) Women on management board and ESG performance. J Global Responsibility 7(1):98–109
Vittee T, Giamporcaro S, Barnado C (2021) The Abraaj fallen towers: corporate governance failure at the darling of impact private equity. University of Cape Town, Cape Town, published by the Case Centre
Wheeler C, Bassey A, Matety V (2020) Boohoo: Fashion giant faces ‘slavery’ investigation. The Sunday Times, July 5, 2020
Wiseman RM, Gomez-Mejia LR (1998) A behavioral agency model of managerial risk taking. Acad Manag Rev 23(1):133–153
Yeoh P (2016) Corporate governance failures and the road to crime. J Financ Crime 23(1):216–230
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2023 The Author(s), under exclusive license to Springer Nature Switzerland AG
About this chapter
Cite this chapter
Develay, E., Giamporcaro, S. (2023). Sustainable Finance and the Role of Corporate Governance in Preventing Economic Crimes. In: Dion, M. (eds) Sustainable Finance and Financial Crime. Sustainable Finance. Springer, Cham. https://doi.org/10.1007/978-3-031-28752-7_14
Download citation
DOI: https://doi.org/10.1007/978-3-031-28752-7_14
Published:
Publisher Name: Springer, Cham
Print ISBN: 978-3-031-28751-0
Online ISBN: 978-3-031-28752-7
eBook Packages: Business and ManagementBusiness and Management (R0)