Corporate governance and corporate social responsibility interface: a case study of private equity

• Pages: 703-717
• DOI: https://doi.org/10.1108/CG-11-2019-0348
• Date: 05 May 2020
• Published date: 05 May 2020
• Author: Virgo Süsi,Krista Jaakson
• Subject Matter: Corporate governance,Strategy

Corporate governance and corporate

social responsibility interface: a case study

of private equity

Virgo Süsi and Krista Jaakson

Abstract

Purpose –This paperaims to explore why private equity (PE) caresabout corporate social responsibility

(CSR) of its investees given their relatively short investment time-horizon and how it designs corporate

governance(CG) bundle to achieve both financialand CSR goals of the private firms it invests in.

Design/methodology/approach –Case study design is applied to get deeperinsights on the why and

how questions posed.Analysis is based on triangulation of secondary data and in-depthinterviews with

both PE and theirinvestee firms.

Findings –The authors find that long-term sustainability supported by CSR increases firm value. They

also outline specific CG bundle that the PE uses to achieve both its financial and CSR goals. CG

mechanismsappeared to reflect agency theory,but even more resource dependence theory.

Practical implications –The outlinedCG bundle could be used as a template for all types of private firm

ownersto improve both financial and CSR performanceof the firm.

Originality/value –The paper adds to fragmented area of CG and CSR interface. The authors

specifically focuson several under-researched contexts ofthis interface: private small and medium size

firms (SMEs),emerging markets and PE investors.

Keywords SMEs, Corporate governance, Private f‌irms, Corporate social responsibility, Private equity,

Emerging markets

Paper type Research paper

1. Introduction

Corporate governance (CG) debate in 21st century has started to move away from the

shareholder supremacy and financial performance maximization objectivetoward including

non-financial stakeholdersand socially responsible agenda into CG equation. Such move is

driven and supported by international organizations such as OECD, United Nations and

European Commission via various guidelines, standards and recommendations, and is well

illustrated by the Business Roundtable’s recent redefinition of corporatepurpose away from

solely serving the interests of shareholders to committing to serve all stakeholders

(Business Roundtable, 2019).

Yet, the research field exploring the interface between CG mechanisms and corporate

social responsibility (CSR) is still fragmented and new studies are called for (Jain

and Jamali, 2016). We answer to this call by exploring how a private equity (PE) fund –

BaltCap –enacts its CSR goals by designing CG mechanisms on its investee firms in

transforming Baltic countries: Estonia, Latvia and Lithuania.The study enriches the literature

from several aspects. First, PEs are institutional investors with relatively short investment

horizon that invest in private firms, i.e. it could be expected that their focus would be purely

on quickly improving financial performance of their investments and neglecting CSR

Virgo Su

¨si and

Krista Jaakson are both

based at the Faculty of

Social Sciences, School of

Economics and Business

Administration, University

of Tartu, Tartu, Estonia.

Received 13 November 2019

Revised 2 March 2020

26 March 2020

Accepted 14 April 2020

The authors are grateful for the

participants in PhD Summer

School in Economics,

Management, Political Science,

Law and Public Administration

in Estonia and Academy of

Management conference on

Responsible Leadership in

Rising Economies in Slovenia.

Also, we thank Tanel Aluma

¨e

and Ottokar A. Tilk for

transcription system for

Estonian speech.

DOI 10.1108/CG-11-2019-0348 VOL. 20 NO. 4 2020, pp. 703-717, ©Emerald Publishing Limited, ISSN 1472-0701 jCORPORATE GOVERNANCE jPAGE 703