1.

0
Aim of the study
Corporate governance have become a buzzwords in the post millennium corporate culture of
many organizations today. The concept of corporate governance has become important today
and no longer is an option but is a must do program by the organization. The purpose of this
assignment is to understand the linkage pattern of corporate governance and its precursors
such as emotional intelligence, trust and corporate social responsibility among the chemical
companies which is listed in Trade directory of Vietnam.
2.0
Introduction
Due to complexity of the situation, many organization in the world, finds that the success of
an organization is hugely dependent on the harmony of wellbeing between stakeholders.
Therefore, the stakeholders should ensure this harmony does not oscillates so that they could
lead the objectives and strategies of the organization successfully. The presents of any
organization is to maximize the profit but nevertheless the interest of multiple stakeholders is
as important as maximizing profits. In order for the organization to materialize the micro and
macro objectives, they need a mechanism that can bring them to the next level.
Corporate governance is a mechanism that could able to move the organization to the next
level. Business corporations are directed and controlled through the system called Corporate
Governance. (OECD, 1999). Shleifer and Vishny (1997) defines that the return on their
investment is assured through the corporate governance as one of the ways. The traditional
belief of corporate governance as profit oriented model has evolved to the Social
responsibility model over the years. According to Gill (2008), researchers had identified an
evolving relationship between corporate social responsibility and corporate governance. The
purpose of the organization to respect individuals rights and sponsor human welfare in its
operations defined through the corporate social responsibility (Manakkalathil and Rudolf,
1995; Oppewal et al., 2006). According to Holmes (1976), in his study of executives
attitudes to social responsibility identified that any business is not only to make profit but

should assist to decipher social problems. Today many companies has turn their focus
towards corporate social responsibility as a main strategy to win back the trust of their
multiple stakeholders.
Trust, in general terms defined as the element of honesty, sincerity and / or benevolent
between two or more parties, in this case, firm and its exchange partner.
(Geyskens et al. 1998). Reliability, integrity and confidence forms the core elements of trust
(De Wulf et al. 2001; Morgan &Hunt 1994). According to Ferguson and Popescu (2006),
better corporate citizenship can be realized through trust.
Heffernan et al. (2008) discerned significant interplay between emotional intelligence and
trust. Prati et al.s (2003) study reveals that emotional intelligence leads to higher levels of
team trust. A leaders emotional intelligence is also reported to have an impact on employee
trust in their leader (Sitter, 2004). According to Goleman et al., (2002, 2007), members with
high level of emotional intelligence tend to build a high level of trust via the relationships
with other members in the organization.
The main objective of the researcher is to develop a framework to examine the correlation
between corporate governance and develop a research framework that examines the
relationship between corporate governance and its forerunners such as trust, emotional
intelligence, and corporate social responsibilities among the chemical companies listed in
Vietnam.
3.0
Literature Review
3.1
Emotional Intelligence
Emotion is actually originates from a Greek word emovere which means getting out.
Salovey and Mayer (1989) stated that emotional is an ability of individual to control the
sensations and emotions of ones own self and others. Goleman (1998) say that the selfawareness, self-confidence, self- control, commitment and integrity, and a person's ability to
communicate, influence, initiate change and accept change as the quality of persons
emotional intelligence. Goleman (1998) further his comment by saying that most of the

companies today had realized that organizations management success depends on the
emotional skills which is an important component.
The above definitions of emotional intelligence clearly proves that for an employer and
employee to move the organization to the next level, emotional intelligence abilities and
skills are required. Generally in my personal opinion, most of the organizations today are
suffering lack of employee involvement, participation, motivation, trust and commitments
and this might be due to the fact many talented and productive leaders and employees had
been thwarted by the gaps in emotional intelligence. Further to my above opinion, I believe
each and every personal in the organizations including the board members should be
equipped with emotional intelligence skill so that the organization can face the challenges
today.
Based on the research done by Cooper (1997), he had proved that if we are able to manage
our own self and others emotions carefully it can create trust, loyalty and commitments
among the employer and employees. When we are able to create such a trust, loyalty and
commitments it will help the organization to move up easily to the next level and stay
competitive in this challenging market. Cooper (1997) also quotes emotional intelligence can
play an important factor to have competitive advantage, which is important to take care of the
soft stuff so that the hard stuff takes care of itself as stated by the former leader of Ford motor
companys executive team member.
A study done by Rezaeiyan and Koshtegar (2009) in Iran reported that the emotional
intelligence had significant relationship with organizational commitment and trust among
employers and employees. George (2000) also suggests that whenever emotional intelligence
is present, there will be an increase in motivation, teamwork, trust, productivity, and profits
within the organization. Goleman (1998) strongly believes that many of the greatest
productivity gains, innovations, and accomplishments of individuals, teams and organizations

are the result off properly managed emotions which can drive trust, loyalty and commitment
among the employees.

Daniel Goleman (1998), has described that personal competence and social competence are
the two components of emotional intelligence. Goleman (1998) says that individuals
perception and reaction to organizational events can be greatly impacted by these two
components of emotional intelligence.. Personal competence describes on how we manage
ourselves and it consist of the following characteristics:
i. Self-awareness- knowing ones internal states, preferences, resources and intuition.
ii. Self-management- managing ones internal states, impulses, and resources.
iii. Motivation- guiding ourselves or facilitating reaching goals.

Social Competence, on the other hand determines how we handle relationships. It consists of
the following characteristics:
i.
ii.

Empathy- awareness of others feelings, needs, and concerns.

Social skills- adeptness at including desirable responses in others.

Further to that, Fehd (2001) and Goleman (2004) stated that highly effective emotional
intelligence leaders are more likely to have good attitude toward their employees which can
eventually lead to trustworthiness in the workplace.

3.2

Trust

Trust is a foundation of development both in relations among humans and institution and
gaining the trust of others is valuable but a difficult endeavor. The important elements of trust
4

is consistency, honesty and self-reliance. Trust is a psychological method that involving a

positive expectancy which the other party will do specific activities that are fruitful to a
person together through their readiness to receive vulnerability which could rise from the
activities of another person.

Trust which is often needed in some uncertainties situation believed as one of central factors
for the well-being of one organization (Ladebo, 2006; Ammeter, et al 2004). According to
Ladebo (2006), trust is also believed to be associated to the higher degree of employee
loyalty. Some research also commented that the higher the trust, the higher the commitment
of an employee towards the organization (Hopkins et al, 2006; NGoala, 2007; Indartono,
2009). The researcher of this paper has focused on the organizational trust that has been
regarded as the belief that the leaders in the organization will be honest and achieve through
the commitments. OToole J, Bennis W (2009) stated that trust will improve integrity,
sincerity and openness in admitting wrong doings so that they can create an organizations that
continue to stay feasible.

Mishra and Morrrissey (1990) stated that organizational trust shows the awareness of a
worker in regards to the support given by the organization. According to McCauley and
Kuhnert (1992) the most significant aspects for the development of organizational trust are
the common ethics within the group, honesty, and independence. The high level of
organization trust will increase the employee motivation and eventually leads to high
performance.

Trust is an important component in todays organizational strategies to create commitment

towards a common goal, however achieving that trust can be very difficult. Many researchers
today realize the important of trust and it is strongly believed that organizational trust
nurtures emotional relationship among the employer and employees. Cooper RK (1997) in
his studies founds that emotional intelligence nurtures trust and the trust is further improved
by the emotional intelligence. Rehfeld RE (2002), Jain AK and Sinha AK (2005), Barry W
(2008), Sitter VL (2004) and Crump L (2008) in their research findings identified that
emotional intelligence and trust are associated between them.

The researcher of this paper has divided trust into three:

i.

Calculation-based trust According to Rousseau et al. (1998), this type of trust is

based on rational choice. Calculation-based trust is very much dependent on
punishment and for the punishment to be an effective warning for an individual,
the possible damage of the affiliation must over right the advantage generated by
deserting from it. The control mechanism of another individuals reaction is the
main to calculation based trust. The parties involve must create the observation
and reporting technique. The individual that was affected should capable of

ii.

accepting the fear of punishment.

Knowledge-based trust This type of trust normally based on when an individual has
plenty of facts and understanding of another individuals behaviour and able to

judge his behaviour.

iii. Identification-based trust The identification-based trust as a type of trust that
happens when both the individual acknowledge and understand each other and can
represent them by any one of them in interpersonal; connections. This type of trust

can also be constructed through acknowledging and forecasting another

individuals requirements.

3.3

Corporate Social Responsibility

The challenging corporate world today, corporate social responsibility is a buzzwords and
major discussion between companies and their multiple stakeholders in the post millennium
corporate culture. Today a companys performance is not only judged based on their balance
sheet but judged based on how a company contributes to the society. It has become
increasingly difficult for any companies to function effectively without considering the
elements of social responsibilities in the day to day running of their businesses.
According to Hopkins (2007) CSR by way of presence regarding the way the investors of the
company morally liable for. Sethi (1975) has recognized three different structure of corporate
social needs which is known as social commitment whereby on how the company responds to
lawful and industry requirements, social responsibilities whereby on how they correspond to
the society requirements and social responsiveness whereby on how the company adapts,
accepts and precautions. The Commission of European Communities (2002) states that CSR
must be a voluntarily decided by the firm in contributing for the advantage of the publics and
a safer environments.

Most of the companies today has start to focus effectively on corporate social responsibilities
as this initiative could lead to an enhanced image and increase the ability to retain talents and
attract best workforce. In return corporate social responsibility initiatives will translate into
better customer satisfaction, loyalty, performance and profitability. For example, one of the
7

corporate social responsibility initiated by Dominos is by introducing The Dominos

Supports Schools Programme in 2002. Their corporate social responsibility was well
received by the people in Malaysia as education is an important element in creating a
knowledgeable workforce.

Carroll (1979) identifies four main type of corporate social responsibility model which also
incorporates profitability as below dimensions:
i.

Economic responsibility is the responsibility a firm holds towards its shareholders

ii.

which is to generate profit.

Legal responsibility is the responsibility a firm holds towards society which is
complying with all relevant laws in a country they are operating and also international

iii.

laws.
Ethical responsibility is the responsibility that are not codified in law such as
respecting the moral rights of individuals, avoiding harm and injuries, threating and

iv.

individual fairly and etc.

Discretionary responsibility is the voluntary roles and practices which is not
required by the law such as providing day care centers for working mothers, training
for employed individuals and etc.

The researcher of this paper has used the Carroll (1979) model of corporate social
responsibility whereby he had merged the ethical and unrestricted proportions in his study.
The three different proportions in his studies is known as ethical CSR, legal CSR and
economic CSR which shows a widespread of scale connecting together the inside and outside
shareholders.

3.4

Corporate Governance

According to Shleifer and Vishny (1997) the corporate governance been defined as how the
firm convince themselves of attaining the profit from their investment. Gillan and Starks
(1998) states that corporate governance is a set of regulations, directions, and features that
monitor the actions in an organization.

According to Du Plessis, Bagaric et al. (2010) corporate governance is the structure of

adaptable and administrating business manner and of harmonizing the benefits of all inside
and outside shareholders that can be affected by the firms behaviors. La Porta et al. (2000)
states that CG is a set of instrument that can protect the shareholders from being miss-used by
the management. Meanwhile Sir Adrian Cadbury states that corporate governance is a
mechanism that used by the firms in directing them to the right destination. The UK corporate
governance code define corporate governance as on how and what the board members in the
firm does and the way they set the standards of the companies value (Financial Reporting
Council, 2010).

Referring to all the above definition, the foremost target of a corporate governance is to get
the most out of the impact of corporations to the economy. Today corporate governance is a
companys strategy and operations because corporate governance addresses issues related to
the companys performance and its survival in the challenging business environment.
Corporate governance has become a way for companies not only in board selection, strategic
decision making, and legal compliance but also in creating a framework for good business
practices, sustainable growth and risk management. In summary corporate governance is
exist to ensure that companies operate is a fair manner that able to benefit all stakeholders.

Many research that been carried out on corporate governance shows a positive relation
between corporate governance and corporations performance. Riyanto and Toolsema (2007)
states that good governance protects shareholder interests and reduce principal-agent
problems. Brown and Caylor (2009) argued and stated that the best practises of corporate
governance generates a structure that can control managements activities which in return can
minimize the principal-agent issues and increase the trust level among them.

From the stakeholders perspective, Hill and Jones (1992) focuses on the importance of
stakeholder relationships and recognizes stakeholders impact on firm sustainability and
success. Researches had categorize corporate governance into the shareholder model and
stakeholder model. Agency theory is the other model of corporate governance and according
to Davies (2000) agency theory debates that corporate governance mostly handles with three
different type of conflicts between the stakeholders and management, monitoring the
stakeholders and minority stakeholders and other stakeholders.

Meanwhile Eisenhardt (1989) states that agency theory tries to solve two complications that
may arise when one group delegates the task to the other person. Firstly is the argument
regarding the goals between the investors and managers and the expenses linked with the
reducing of any disagreement and the secondly is the difficulty of distributing the risk equally
when the risk priorities between the investors and managers is not the same. The researcher
had done a brief study on the corporate governance structure in Vietnam. However in my
opinion further coverage is needed on the corporate governance practices in Vietnam before
developing the conceptual framework.

2.5

Hypothesis development
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According to Goleman et al., (2002, 2007) leaders with greater level of emotional intelligence
will able to create greater level of trust through their associations with their colleagues in the
company. The findings from Rehfeld RE (2002), Jain AK and Sinha AK (2005) concluded
that emotional intelligence and trust are associated between them and has been proven in
many organization.

The researcher also states that knowledge-based trust and identity-based trust are the grounds
for the progress of trust between the greatly emotional intelligence practitioners. Therefore a
greater sets of emotional intelligence skills will increase the trust and assurance level over the
calculation-based trust. Based on this conclusion, the researcher has developed the hypothesis
between emotional intelligence and trust.

The researcher has stated that identity-based trust is the uppermost set of trust and this
indicates the level of understanding between the team members, communication and the
significance of vision statement and strategies that been executed. This type of trust happens
when both individuals recognize and endorse each other, and able to represent each other in
interpersonal dealings. There are certain activities that enhance identity-based trust such as
entities and person able to accept a mutual understanding. In summary identity-based trust
contains ethical values which both the individual and organizational identity merge.

Meanwhile knowledge-based trust happens in the event a person has greater knowledge and
understanding of that person and able to foresee that individuals when an individual has more
evidence and understanding about the other person to predict that persons conduct. The
knowledge-based trust is merely in understanding the other individuals which was developed
via recurring interfaces. Normally the trustor cultivates his sureness that a targets conduct can

11

be judged and acknowledge that a persons action is the same and can be judged. Since
ethical corporate social responsibilities is the main target of a firm, it should include
corporate sustainability in their strategies. In this research paper, the researcher had
constructed ethical corporate social responsibilities through knowledge-based trust.

The researcher had classified calculation-based trust as the lowest level. This type of trust is
created through the calculation and matching the costs and advantage of building and
satisfying an affiliation against the costs and advantage of doing it.

In exchange of their contribution which can be in the form improved sales and profit results,
calculation-based trust indirectly improves the economic corporate social responsibilities. It
also can improve the operation or performance of the organization based on the rules and
laws from both side of the organization. Based on this discussion, the researcher had
developed the hypothesis between trust and corporate social responsibilities.
Hos (2010) identified in his research that if a firm is highly committed to CSR, it will
correspond positively with the experiences and position of a director, and the firms board
that shows greater stewardship and strategic roles of leadership, the corporations market
situation, and all this multiple qualities if been joint together will create a greater level of
corporate governance. CSR is mainly deals with handling the inside and outside shareholders
in the corporation ethically. The phrase ethically means handling the inside and outside
stakeholders in a way that accepted by the world.

As per the studies by Reidenbach and Robin (1991) ethical CSR continuously looks for a
higher set of scales between the return on investment and morality. Nwabueze & Mileski
(2008) confronts that the perception of corporate governance, is mainly confined in the view

12

of ethics. Today in most of the organization, business is not only viewed as making profit and
complying to the regulation requirement in order to achieve their financial standards but also
to achieve ethical behaviour within the organization. The legal corporate social
responsibilities does not only help to improve corporate governance efficiency because legal
CSR have tendency to provide guidance and directions to the members in the organization
within the legal structure. The law and regulations is a collated ethics of a society whereby it
signifies a part of the social requirements between a corporation and the world. The
regulation and laws are important in todays economic situation but they are not sufficient
because it cannot solve all the external situation that a firm are facing, sometimes the
regulation are far behind against the desired behaviour and regulations may only consider the
personal and political interest only. In my opinion corporate governance is not only fulfilling
the regulation requirement but also on how ethically we conduct the business.

According to Carroll (1979), the ultimate responsibilities of a corporation is to yield quality

products and quality services to the society and create revenue for their own self. The result
obtain by Handley-Schachler et al.s (2007) in their studies concludes that benefits of
shareholders should not be only from the economic point of view because the people within
the organization might only favours their interest rather than looking the organization as
whole and this might not able to create a good corporate governance for the benefits of both
inside and outside shareholders. Based on this discussion the researcher had developed his
hypothesis between CSR and Corporate Governance.

3.0

Research Methodology

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3.1

Sample

The researcher had selected chemical companies that was listed in Vietnam Directory in his
sample size. Based on Miller (1998) proposal, the researcher had only selected 128
companies which meets the following criteria:

i.
ii.

Turnover at least USD1.19 million.

Minimum 100 employees is working in the organization.

The datas on components such as corporate governance, corporate social responsibility and
emotional intelligence was collected by the researcher via self-administered questionnaires. A
total of 640 sets of self-administered questionnaires was distributed among the 128
companys middle level managers. Out of the 640 self-administered questionnaires
distributed, the researcher received a respond rate 59.69% which is in my opinion reasonable
to carry out the analysis.

4.0

Findings and discussion

The data analysis result shows a positive relationship between emotional intelligence and
identity-based trust and knowledge-based trust. However calculation-based trust relates
negatively with emotional intelligence. There were no detail justification given by the
researcher on the reasons of the negative correlation between greater heights of emotional
intelligence as well calculation-based trust. This researcher also stated that today the
organization members do not work based on the calculation-based trust but on the more
ethical way. However in my opinion further justification is required on the above statement
because normally a relationship begins with the development of calculation-based trust and

14

once the relationship matures it will move to knowledge-based trust and finally on identitybased trust. All the three kinds of trust are not the same, but however it is interconnected with
each other, and formed with each other.

There were many researcher had proved that emotional intelligence is a tool that can cultivate
and produce and a fair environment of trust. The researcher such as Luthans et al (2002),
Reinke (2004) in their paper concluded that emotional intelligence is proven set of skills that
can create organizational trust among the workers. Today many corporation had taken
emotional intelligence is an important set of skill because if a leader is able to recognize and
realize the emotions of their employees, they could able to inspire them to achieve greater
revenue as well cultivate trust in them. If the leaders are very concern about their workers
self-interest than the workers will place a high level of trust in their leader and this will help
the organization to move to the next level. In summary we can conclude that a leaders with a
greater level of emotional intelligence will cultivate trust among their employees and their
subordinates will view them as a great leader.

The data analysis by the researcher shows a positive correlation between trust and corporate
social responsibilities. Today many companies are moving towards CSR as a strategy to win
back the trust of their internal and external customers. Trust is an important element because
members in an organization with high level of trust will able to evaluate products or services
which benefits both the stakeholders. There were growing perceptions in todays industries
that trust is a set of primary tools through CSR initiatives which can highly influence the way
the workers think, behave and react. The employers CSR activities will give a significant
message about the organizations moral and principles and this will create trust among the
employees within the organization as well as outsider view on the company. Trust is the first

15

action of a companys CSR activities and without the trust from both insiders and outsider of
the company the CSR activity will not be success. In summary trust is an important factor
that shapes the CSR activities and this CSR perception will nurture an employees attitude
and the way they think and behave.
According to the data analysed by the researcher, corporate governance stayed positively
against ethical CSR but stayed negatively with legal CSR and economic CSR. According to
the researcher ethical CSR will create significant value to both the inside and outside
shareholders. The researcher also concludes that ethical CSR provides a strong platform for
efficient corporate governance. There were no justification given by the researcher for the
negative correlation. CSR is an important tool that spreads a firms responsibility to expand
the shareholders interest through reporting on the companies CSR activities. In any
organization the board members plays and important role in corporate governance, the board
members can influence a companys CSR activities. Both the corporate governance and
corporate social responsibilities plea on the firm to undertake financial and moral
responsibilities toward their stakeholders. The firms action of responsibilities is very critical
in gaining and maintaining trust of their both inside and outside stakeholders.

The economic responsibility of the firm is the utmost important one because all the other
business accountabilities are centred upon the economic accountability of the firm as without
the economic accountability the firm will not succeed. Today the businesses are anticipated to
carry out its economic accountability within the legal framework of CSR. Businesses are
viewed as a corporate resident whereby they fulfils the legal requirements and regulation
guidelines by the government. This legal requirements and regulations are the basis of a
business operating. In summary the firm should maximize their profit by complying with the

16

legal requirement and regulation guidelines. In my opinion further analysis is required

confirm the reason of this negative correlation result concluded by the researcher.

5.0

Conclusion

This research paper concludes that a positive link were noticed among greater set of
emotional intelligence skill and trust which positively correlates with ethical corporate social
responsibility and this ethical corporate social responsibility positively correlates with
corporate governance. This study confirms that emotional Intelligence is an important
variable for every organization which proves that the employees trust will affect their
commitment to the organization. By Building Trust among firms stakeholders through
emotional intelligence, the relationship can be strengthened. Corporate governance and CSR
is complementary in shaping their objectives and the constraints faced by the organization
today. However a further test is required on all the negative correlation that been identified by
the researcher especially the relationship between legal corporate social responsibilities and
economic corporate social responsibilities with corporate governance.

There are few limitations in this research such as the focus was only on chemical company
listed in Vietnam Trade Directory, the use of only quantitative method and cross-sectional
nature. In my opinion a further analysis considering various industries listed in Vietnam
Trade Directory and increase of sample size would able to give a clearer picture on testing of
this hypothesis.

17

The further research path that can be considered is to study is as follows:

i.

Emotional intelligence and coaching as an antecedent in improving corporate

ii.

governance among SME in Malaysia.

Examining the relationship between training and coaching as an antecedent for

iii.

corporate governance in private sector.

Does emotional quotient matters more than intelligence quotient in improving

iv.

corporate governance among SME in Malaysia.

The effect of Emotional Intelligence and Cultural Intelligence towards Corporate
Governance in Malaysia.

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