**Abstract**

Corporate governance and, more broadly, the performance of corporate boards have traditionally been measured using financial metrics. These financial metrics such as Return on Investment (ROI), Return on Assets (ROA), Return on Equity (ROE), Earnings and Profitability Ratio (E and P) are *ex post* measure of organizations performance arising from corporate board activities. These financial metrics are largely one-dimensional measure of corporate performance and do not fully account for the other dimensions of organization responsibilities. The COVID-19 and the changing organizational dynamics have made the case for corporate board's performance to be assessed beyond the usual financial metrics. In this study, we provide a framework that accounts for the various dimensions of organization activities: finance, social and environmental, the Triple-Bottom (TBL) approach. A TBL-compliance metric was constructed, which tracked the performance of selected manufacturing firms in Nigeria using a content analytical technique. The result showed that the majority of the firms performed remarkably well in areas of profitability and economic value creation but less satisfactorily in areas of social and environmental sustainability. On aggregate, the sampled firms committed less than 1% of their profit after tax on corporate social responsibility, while less than 5% of the sampled firms scored above average on the TBL-adoption matrix.

**Keywords:** COVID-19, corporate governance, financial metrics, corporate social responsibility, JEL Classification: M14, M38, Q56

#### **1. Introduction**

Early this year, news broke out that a novel coronavirus has hit the city of Wuhan, China. It was reported that the SARS-COv2 virus is responsible for the COVID-19 pandemic. The virus later spreads to other parts of the world from early February 2020 and currently, 213 countries are battling with the scorch of the virus [1]. As expected, the coronavirus pandemic is impacting the world in a way that has not been seen since World War II [2]. In particular, the pandemic has impacted the way businesses are now being conducted and the expectations of the various stakeholders on organizations going forward. For instance, there is now greater

awareness on issues of human rights protection, environmental protection, health, and safety issues. More than ever before, the issue of corporate social responsibility (CSR) and the duty of care to broader stakeholders by business entities have become more compelling. The pandemic has also increased the interest of the public in supporting responsible business practices and it is expected that consumers will henceforth be demanding more information as to how companies address risks and opportunities relating to health and environmental issues.

Moreover, there is likely to be greater convergence of expectations by citizens of various countries with regard to minimum standards corporations should achieve in relation to social, health, and environmental issues regardless of the jurisdiction in which the corporations operate and there will also be increased demand on organizations to go beyond current regulations and legislations regarding corporate social responsibilities to something much more encompassing.

Even before the coronavirus pandemic, many organizations around the world were already voluntarily integrating the considerations of broader community interest into their core business strategies. The coronavirus pandemic has made these considerations even more forceful and compelling.

In this paper, we make a case for broadening the scope of corporate governance measurement to take account of other considerations outside the financial metrics and we outline the conceptual and empirical approach for doing so. The paper, therefore, has two broad objectives:

First, we provide a conceptual and methodological overview on the uses and empirical implementation of triple-bottom measurement using firm-level data. Second, we demonstrate, using data from selected manufacturing firms in Nigeria, how the general methodological approach can be usefully applied and tailored to various sectors and contexts to yield policy-relevant insights about how corporate governance performance should be assessed beyond the financial metrics.

Following this introduction, the rest of the paper is organized as follows. The next section provides a conceptual review of the triple-bottom approach to corporate governance measurement. We provide the rationale for assessing corporate governance performance beyond the usual financial metrics. In the third section, we provide simple taxonomy for thinking about triple bottom in corporate governance assessment and use this taxonomy to suggest how different organizations can use the triple-bottom approach to assess the performance of their corporate boards. The section also contains an operational definition of corporate governance and a triple-bottom approach that can, in principle, be taken to the data beyond the financial metrics.

In section four, we outline a general and flexible methodology for empirical implementation of triple-bottom measurement to corporate governance using firmlevel data. After summarizing the basic approach, we demonstrate the various steps involved and the measurement issues that could arise in each step.

In section five, we provide the policy implication of using the triple-bottom approach in assessing corporate boards and suggest ways organizations and governments could integrate triple-bottom reporting post-COVID-19.

#### **2. Review of literature**

In this section, we review the extant literature on corporate governance and sustainability with the analytical spotlight on the corporate governance framework during the COVID-19 pandemic.

#### **2.1 Concept of corporate governance**

There are various definitions of corporate governance in extant literature. However, the best definition seems to come from the Canadian Office of the Superintendent of Financial Institutions [3]. The office defines corporate governance "as the oversight mechanisms which include the processes, structures and information for directing and overseeing the management of a company" (p. 3). This definition is pervasive as it encompasses the means by which members of the board of directors and senior managers are held accountable for their actions and the establishment and implementation of oversight functions and processes. According to Cadbury Committee ([4], p. 15), "corporate governance is holding the balance between economic and social goals and between individuals and communal goals" The Organization of Economic Cooperation and Development [5] defines corporate governance as the "distribution of rights and responsibilities among different participants such as the shareholders and other stakeholders" (p. 32).

Corporate governance studies gain traction in the early 2000s due to conspiracy of events and the scandals that rocked the corporate world from the unexpected failures of large corporations around the world, especially Enron, WorldCom, Tyco International (United States of America), HIH Insurance (Australia), Parmalat (Italy), etc. The scandalous collapse of these corporate giants jolted the corporate world and led to massive calls for greater attention on the activities of boards in corporations. These calls were not, however, unfounded as several (postmortem) studies show that the collapse of many of these corporations was attributable to ineffective and weak corporate governance practices especially in areas of excessive risk-taking by management with weak oversight by boards; excessive remuneration taking by management with fraudulent acquiescence by the board; flagrant neglect and override of internal control measures, abuse of office, absence or nonadherence to authority limits and general laxity on the part of boards to effectively discharge their oversight functions (see [6–10] for Enron case); see [11–15] for WorldCom case; see [16–18] for HIH Insurance case; see Shleifer and Vishny [19] and Olena [20] for Tyco International case; also see [21–28] for Parmalat case).

The shock that followed these corporate scandals prompted a chain of regulatory and supervisory interventions around the globe [29]. The United States fired the first shot with the enactment of the Public Accounting Reform and Investors Protection Act of 2002 known as "the Sarbanes-Oxley Act" [30]. Many other countries followed suit with similar enactments including the stock exchange codes in the United Kingdom and the code of corporate governance for quoted companies in Nigeria [31].

The overarching objective of these regulations has been to improve the effectiveness of boards and other corporate governance practices in corporations. It is widely accepted based on a fairly large body of scholarly works that board effectiveness could play a vital role in determining corporate financial performance (see, for instance, [32–45]. This belief may have accounted for the preponderance in the usage of financial indicators in measuring the performance of boards. In other words, it has been the practice in extant literature to measure the effectiveness of boards in terms of financial performance of the organization using for instance indicators like profitability, return on investment (ROI), return on assets (ROA), return on equity (ROE), firm's value (Tobin's Q), earnings per share (EPS), etc.

These financial indicators are usually highlighted in financial statements (e.g., income statement, balance sheet, and notes to the financial statement). It is also common to find in annual reports of organization scanty mention of issues related to corporate social responsibilities (CSR) and some humanitarian activities undertaken by the organization [46].

This approach to measuring corporate performance based largely on financial metrics is being challenged by recent re-alignments and a paradigm shift in expectations by the stakeholders. It is increasingly clear that measuring corporate performance based entirely or largely on financial metrics does not fully account for the social, health, and environmental benefits derivable from corporate activities. There is a growing consensus that organizations must fully account for how much (or less) they are contributing in addressing the social, health, and environmental issues that confront mankind [47, 48]. It is in this respect that the concept of sustainability reporting and the triple-bottom-line (TBL) framework enunciated by Elkington [49] comes in. This framework is a paradigm shift from the traditional "for profit" to a more comprehensive assessment along the dimensions of profit, people, and the planet.

#### **2.2 Sustainability and triple-bottom-line (TBL) framework**

Sustainability is simply defined by the United Nations Brundtland Commission [50] as "meeting the needs of the present without compromising the ability of future generations to meet their own needs." To achieve this, the United Nations in 2015 [51] articulated the 17-sustainable development goals (SDGs). The sustainable development goals form the framework for improving the lives of populations around the world and mitigating the hazardous man-made effects of climate change. For instance, SDG 13: Climate Action, calls for integrating measures to prevent climate change within development frameworks. SDG 14: Life below water, and SDG 15: Life on land, also call for more sustainable practices in using the earth's natural resources. Today, there are almost 140 developing countries in the world seeking ways of meeting their development needs, but with the increasing threat of climate change, concrete efforts must be made to ensure development today does not negatively affect future generations.

It must be remarked that sustainable development has been the promoted goal of responsible corporate entities around the world. Most of the corporate governance codes around the world have continued to harp on the issue of sustainability with businesses and corporations around the world increasingly re-appraising their business models to be sustainability-compliant [52, 53].

However, in spite of the focus on issues of sustainability, measuring the degree to which an organization is being sustainable or pursuing sustainable growth has not been easy or clear-cut [54]. In the mid-1990s, Elkington [49, 55] developed a template for measuring sustainability in what has become known as the triplebottom-line (TBL) approach. This framework measures corporate performance beyond the usual financial metrics of profitability and firm value (or shareholder value) to include the environmental and social dimensions of a firm's activities. By focusing on the comprehensive assessment of a firm's activities along with the three-dimensional trajectory of profits, people, and the planet—the TBL has become an important assessment framework for measuring sustainability and sustainability goals.

As a concept, the TBL is a construct that broadens a business focus on the financial bottom line to include social and environmental considerations. By applying the framework, it is plausible to measure a company's degree of social responsibility, its economic value creation, and the environmental impacts of its operations. The framework was introduced in 1994 by John Elkington and later demonstrated in his 1997 book "*Cannibals with Forks: The Triple Bottom Line of 21st Century Business"* [49]. As recognized by Elkington himself, a key challenge before the

#### *COVID-19 and Corporate Governance Performance: Beyond the Financial Metrics DOI: http://dx.doi.org/10.5772/intechopen.101281*

introduction of the TBL framework was how to explicitly measure the social and environmental bottom lines, unlike the financial bottom line which is easily measured by financial metrics. This difficulty has led to the three bottom lines being evaluated separately on their own merits.

However, the TBL is an accounting framework that incorporates these three dimensions of performance—financial, social, and environmental. By incorporating these dimensions of performance, the TBL differs from traditional accounting reporting frameworks by the inclusion of ecology (or environment) and social measures which are difficult to assign numerical values to. The triple-bottom framework is also commonly referred to as the 3Ps (people, planet and profit) in corporate governance literature [56]. The TBL captures the essence of sustainability by its focus on measuring the impact of an organization's activities not only on its profitability and shareholders' value but on the social, human, and environmental dimensions [54].

The TBL accounting approach has gained increased traction since the launch of the sustainable development goals by the United Nations in 2015 and many organizations and businesses have adopted the TBL sustainability framework to evaluate their performance and check how sustainable-compliant their activities have been [53, 57–59].

The TBL approach has also gained currency with governments at all levels in many developed countries [60]. In consequence, there have been shifts from profitmaking and shareholders' value maximization orientation toward the social and environmental benefits derivable from corporate activities. Increasingly, other stakeholders (besides the shareholders) are expressing interest to know how many corporate organizations are contributing in addressing societal and environmentalrelated issues within the environment where they operate. This call will only get louder post-COVID-19 pandemic.

#### **2.3 Measuring the triple bottom lines**

#### *2.3.1 Measuring instrument*

There is no universal approach yet to measuring the TBL [61]. Aside from the absence of a common denominator for measurement, there is also the issue of differences in the country's institutional dynamics and country-specific approaches to issues of sustainability. For instance, profits globally are measured in monetary units, for instance, in US the dollar. But how does one measure social capital or environmental or ecological well-being (or lack thereof)? Therefore, finding a common unit of measurement for the TBL has remained a challenge [62, 63].

Some scholars have advocated monetizing all the three dimensions of the TBL. However, the practical challenge is how to put a monetary value on many intrinsic social or environmental issues [54]. For instance, how can one monetize the issue of endangered species or the loss of wetland or fauna? Other scholars have suggested the calculation of TBL in terms of an index, perhaps a principal component index (PCI). By this method, we eliminate the incompatible-unit problems and as long as there is a universally accepted accounting method that allows for comparison between entities, for instance, comparing performance between companies, cities, development projects, or some other benchmark, there will be no problem. The Indiana Business Research Center's Innovation Index is one such index that has been used to compare a variety of components between one country and other countries [63].

However, there still remains the problem of subjectivity in using such an index. For instance, how are the index components weighted? Would each "P" in the TBL get equal weighting? Even if we relax this condition, what about the subcomponents within each "P" as is usually the case? Do they all get equal weighting? For instance, is the people category more important or equal to the planet category? Who decides which component weighs heavier in the ranking? [61].

There is the other option to do away completely with measuring sustainability using a financial metric or an index. In this case, each sustainability measure will stand alone. For instance, acres of wetland could be a measure of its own, and progress could be measured or gauged based on certain parameters like wetland creation, destruction, or status quo over time [64]. However, the problem with this approach is the high probability of proliferation of metrics that will be ultimately required to measure sustainability in a wide range of issues to the point that the TBL user may become metric-fatigued.

#### *2.3.2 What should go into the index?*

In the absence of a universally accepted method for calculating the TBL or an agreed standard for weighting each of the components of the TBL, it becomes a discretionary issue on what goes into the sustainability index and what is left out. In other words, the user is at liberty to adopt a general framework or adapt the measurement to the specifics of its own needs. For instance, a business entity and local government agency may measure environmental sustainability in the same terms; perhaps, reducing the amount of solid waste that goes into the landfills, but a local mass transit may measure success in terms of passenger miles, whereas a profit-making bus company may measure success in terms of earnings per share. The TBL framework is flexible enough to accommodate various divergent perspectives to sustainability measurement [62].

According to Hackling and Guthrie [62], the TBL can also be adapted to be case or project-specific or allow a broad scope-measuring approach across large geographic boundaries or a narrow geographic scope like a small town. A single case or project-specific TBL approach would measure the effects of a particular project in a specific location, such as a community building a park or town hall. The TBL can also apply to infrastructure projects at the state level or energy projects at the national level.

From the foregoing, it appears that the level of entity, type of project, and geographic scope will in most cases determine the decisions about what measures to include. However, it is the stakeholders and subject matter experts that will ultimately determine the set of measures to include in sustainability assessment and the availability of data.

Slapper and Hull [54] have, however, categorized the traditional sustainability measures which have been gleaned and pieced together from academic discourses and empirical works. They include:

#### *2.3.2.1 Economic measures*

Economic measures of sustainability focus on the flow of money, income and expenditures, taxes, business factors, employment, and business diversity factors. Other variables that could come under economic measures include personal income, cost of underemployment, job growth, revenues, and all the other factors that relate to the flow of money or some economic resources.

#### *2.3.2.2 Environmental measures*

Under environmental measures are issues related to natural resources including other free gifts of nature like air, water quality, energy consumption, solid and toxic

#### *COVID-19 and Corporate Governance Performance: Beyond the Financial Metrics DOI: http://dx.doi.org/10.5772/intechopen.101281*

waste, and land use. Other environmental issues that an organization may wish to consider in sustainability measurement include issues related to sulfur dioxide concentration, nitrogen oxides concentration, selected priority pollutants, fossil fuel usage, solid waste management, hazardous waste disposal and management, and change in land use, deforestation, endangered species, etc.

#### *2.3.2.3 Social measures*

Social measures will focus on issues related to the social dimension of communities or regions and include issues, such as education, equity and access to social resources, community health, and well-being. Other social issues are the use of social capital, unemployment rate, female labor force participation rate, household income, level of poverty, access to education, crime rates, life expectancy, etc.

Hackling and Guthrie [63] observed that data for these measures may not be easily available at the community, state, or national levels; and even where data is available, it is still a subjective issue of what to incorporate or discard in the measurement. By and large, TBL can be difficult to measure. Indeed, of the three legs of the triad, social and environmental dimensions are the most difficult to measure. For instance, the first P = profit can be easily put in black and white, the other 2Ps—people and planet (or social and environmental) are highly subjective. How can one put a monetary value on an oil spill? How does one measure the monetary cost of child labor or the cost of deforestation and loss of wetland? These are not easy tasks even for the most enthusiastic sustainability advocate.
