HANDBOOK OF RESEARCH ON GLOBAL CORPORATE CITIZENSHIP
Handbook of Research on Global Corporate Citizenship
Edited by
Andreas Georg Scherer Chair, IOU – Institute of Organization and Administrative Science, University of Zurich, Switzerland and
Guido Palazzo Professor of Business Ethics, School of Business and Economics, University of Lausanne, Switzerland
Edward Elgar Cheltenham, UK • Northampton, MA, USA
© Andreas Georg Scherer and Guido Palazzo 2008 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA
A catalogue record for this book is available from the British Library Library of Congress Control Number: 2008927949
ISBN 978 1 84542 836 5 (cased) Printed and bound in Great Britain by MPG Books Ltd, Bodmin, Cornwall
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List of contributors Preface 1 Introduction: corporate citizenship in a globalized world Andreas Georg Scherer and Guido Palazzo PART I
1
HISTORY AND CONCEPTUAL GROUNDWORK
2 The emergence of corporate citizenship: historical development and alternative perspectives 25 Andrew Crane, Dirk Matten and Jeremy Moon 3 Corporate responsibility/corporate citizenship: the development of a construct 50 Sandra Waddock 4 Defining the concept of good corporate citizenship in the context of globalization: a paradigm shift from corporate social responsibility to corporate social accountability 74 S. Prakash Sethi 5 Corporate citizenship and community stakeholders 99 Robert A. Phillips and R. Edward Freeman 6 Business ethics, corporate virtues and corporate citizenship 116 Robert C. Solomon PART II
CONTEMPORARY ISSUES AND CHALLENGES
7 Responsibility and global justice: a social connection model Iris Marion Young 8 Corporate citizenship and the environment Paul Shrivastava 9 Corporations as citizens against corruption: an institutional entrepreneurship perspective Gary R. Weaver and Vilmos F. Misangyi 10 Corporate citizenship and global conflicts: the baboon moment Charles P. Koerber and Timothy L. Fort
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137 166
185 208
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PART III ACTORS, INSTITUTIONS AND GLOBAL GOVERNANCE 11 Emerging patterns of global governance: the new interplay between the state, business and civil society Klaus Dieter Wolf 12 Globalization, transnational corporations and the future of global governance Stephen J. Kobrin 13 Between confrontation and cooperation: corporate citizenship and NGOs Jonathan P. Doh 14 The politicization of economization? On the current relationship between politics and economics Michael Zürn
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PART IV DISCIPLINARY PERSPECTIVES ON CORPORATE CITIZENSHIP 15 The economic view of corporate citizenship Jessica C. Ludescher, Abagail McWilliams and Donald S. Siegel 16 Human rights, corporations and the global economy: an international law perspective David Kinley and Justine Nolan 17 Global business as an agent of world benefit: new international business perspectives leading positive change Nancy J. Adler
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PART V IMPLICATIONS FOR MANAGEMENT THEORY BUILDING 18 Structures, identities and politics: bringing corporate citizenship into the corporation Peter Edward and Hugh Willmott 19 Responsible leadership in a globalized world: a cosmopolitan perspective Thomas Maak and Nicola M. Pless 20 The political economy of corporate social responsibility Subhabrata Bobby Banerjee 21 The interrelationship between global and corporate governance: towards a democratization of the business firm? Grahame F. Thompson
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430 454
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CRITICAL PERSPECTIVES
22 Transparency, integrity and openness: the Nike example Frits Schipper and David M. Bojé 23 The corporation and its fragments: corporate citizenship and the legacies of imperialism Raza Mir, Richard Marens and Ali Mir 24 The corporation as a political actor? A systems theory perspective Helmut Willke and Gerhard Willke
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PART VII THE FUTURE OF GLOBAL CORPORATE CITIZENSHIP 25 The future of global corporate citizenship: toward a new theory of the firm as a political actor Guido Palazzo and Andreas Georg Scherer
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Index
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Contributors Nancy J. Adler holds the S. Bronfman Chair in Management at McGill University. She received her doctorate from UCLA. Dr Adler conducts research and consults on global leadership, cross-cultural management, and women as global leaders. She has authored over 100 articles, produced a film, and published four books. She is a Fellow of the Academy of Management, the Academy of International Business and the Royal Society of Canada. She was named a 3M Fellow, recognizing her as one of the top university-level teachers, among all disciplines, in Canada. Nancy is also an artist working primarily in watercolor and ink. Subhabrata Bobby Banerjee is Professor of Management and Associate Dean of Research at the College of Business, University of Western Sydney. His research interests include sustainability, corporate social responsibility, postcolonialism and indigenous ecology. His first book, Corporate Social Responsibility: The Good, The Bad and The Ugly, was published by Edward Elgar in November 2007. He has published widely in international scholarly journals and his work has appeared in the Journal of Marketing, the Journal of Management Studies, Organization, Human Relations, Organization Studies, Management Learning, the Journal of Business Research and Organization and Environment. David M. Bojé holds the Bank of America Endowed Professorship of Management (awarded September 2006), and is past Arthur Owens Professorship in Business Administration (June 2003–June 2006) in the Management Department at New Mexico State University. His focus is on the study of ethics, critical theory feminism, and power of language, discourse and stories in organizations. Recent books include Storytelling Organization (Sage, 2007), Critical Theory of Business and Public Administration (Information Age Press, 2007), and The Passion of Organizing (with J. Brewis, S. Lindstead and A. O’Shea, Liber & Copenhagen Business School Press, 2006). His book, Narrative Research Methods for Communication Studies (Sage, 2001) is a widely used text in teaching qualitative methods to PhD students. Andrew Crane is Professor of Policy and holds the George R. Gardiner Chair in Business Ethics at the Schulich School of Business, York University, Toronto. He is interested in various aspects of business ethics, viii
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including the role of morality in marketing and consumption; the contribution of evolutionary narratives to environmental management; the implementation of fair trade policies; and the contribution of Foucauldian thought to business ethics. Recent work appeared in the Academy of Management Review, the Journal of Business Research, Organization Studies, the Journal of Business Ethics and Business Ethics Quarterly. He holds a BSc from Warwick University and a PhD in Business Studies from Nottingham University. Previously, he was Professor of Business Ethics and Director of the MBA in CSR at Nottingham University Business School, UK. Jonathan P. Doh holds the Herbert G. Rammrath Chair in International Business, is founding Director of the Center for Global Leadership, and Associate Professor of Management at the Villanova School of Business, Pennsylvania, USA. Jonathan is the author or co-author of more than 35 refereed articles, 20 chapters and five books. His work has appeared in the Academy of Management Review, California Management Review, the Journal of International Business Studies, Organization Science, Sloan Management Review and the Strategic Management Journal. He is presently completing work on two books: Multinationals and Development (Yale University Press) and Corporations and NGOs: Conflict and Collaboration (Cambridge University Press). He is a member of five editorial boards and is an associate editor of Business and Society. He received his PhD in Strategic and International Management from George Washington University Peter Edward is currently a PhD student at the Judge Business School, University of Cambridge (UK). He has over 20 years’ experience as a chartered engineer and as a management consultant, the latter predominantly in programme management of business transformations and business startups and mergers. His research interests are in using poststructural and critical theory to investigate the role of business at the intersection of ‘Third World’ development, business ethics, sustainability and global growth. His work on global inequality, ethics of poverty and microfinance has appeared in World Development, Third World Quarterly and Perspectives on Global Development and Technology. He is also convener for the CSR study group of the UK and Ireland Development Studies Association. Timothy L. Fort is the Lindner-Gambal Professor of Business Ethics, Executive Director of the Institute for Corporate Responsibility and Coordinator of the Peace Through Commerce Initiative at George Washington University (Washington, DC). His research interests include
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how ethical business behavior can contribute to the reduction of violence in the world and optimal organizational structures to foster affective ethical sentiments in business. He is the author of four books including Business, Integrity, and Peace (Cambridge University Press, 2007) and Prophets, Profits and Peace (Yale University Press, forthcoming). He is a member of the editorial boards of the Academy of Management Review, Business Ethics Quarterly and the American Business Law Journal. R. Edward Freeman is the Elis and Signe Olsson Professor of Business Administration at the Darden School, University of Virginia, Charlottesville, USA, Academic Director of the Business Roundtable Institute for Corporate Ethics, and heads Darden’s Olsson Center for Applied Ethics. He is the author or editor of over 20 volumes in the areas of stakeholder management, business strategy and business ethics as well as more than 80 articles in a wide variety of publications. Freeman is perhaps best known for his 1984 book, Strategic Management: A Stakeholder Approach (Pitman). His latest book (with Jeffrey Harrison and Andrew Wicks) is entitled Managing for Stakeholders: Survival, Reputation and Success (Yale University Press, 2007). Freeman has a PhD in Philosophy from Washington University and a BA in Mathematics and Philosophy from Duke University. David Kinley holds the inaugural Chair in Human Rights Law at the University of Sydney, before which he was the founding Director of the Castan Centre for Human Rights Law at Monash University (2000–05). He has written or edited five books and more than 60 articles, book chapters, reports and papers. He was a Senior Fulbright Scholar in 2004, based in Washington, DC, researching on the World Bank and human rights. He also worked for 12 years as a consultant and adviser on human rights law in Australia and overseas (especially in South and South-East Asia) for a range of organizations including the UN, the World Bank, the Australian Human Rights and Equal Opportunity Commission and many large NGOs and transnational corporations. He has just completed editing Corporations and Human Rights, to be published in early 2008 by Ashgate in its International Library of Essays series, and is currently working on two new books: a monograph entitled Human Rights and the Global Economy, to be published by Cambridge University Press, and a jointly edited collection of essays entitled Human Rights and the WTO, to be published by Edward Elgar. Stephen J. Kobrin is the William Wurster Professor of Multinational Management at the Wharton School of the University of Pennsylvania. His research interests include globalization, international political economy and
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multinational strategy. His work has appeared in International Organization, the Journal of International Business Studies, the Review of International Studies and Foreign Policy, and in numerous edited volumes and other journals. He is a past President of the Academy of International Business and a fellow of the World Economic Forum. He has served on the editorial boards of International Organization, the Journal of International Business Studies, and the Academy of Management Journal. Charles P. Koerber is a Doctoral Fellow in the Department of Strategic Management and Public Policy at George Washington University (Washington, DC). His research interests include financial, ethical, environmental and social reporting; peace through commerce; voluntary environmental programs; and corporate responsibility. Jessica C. Ludescher is Assistant Professor of Business Ethics in the Albers School of Business and Economics at Seattle University. She holds a joint appointment in Management and Philosophy. Her research interests include corporate social responsibility, theories of the firm, social justice, ethics, sustainability and philosophy of economics. She has contributed to the CORE Project on, ‘The Potential of CSR to Contribute to the Implementation and Integration of EU Strategies’ and her work has appeared in FEEM’s Working Paper Series. Thomas Maak is Research Director at the Institute for Business Ethics and Assistant Professor of Corporate Responsibilty at the University of St Gallen in Switzerland. As visiting faculty he also co-directs a research stream within the PwC-INSEAD initiative on high-performing organizations at INSEAD, France. He has held visiting positions at the School for International and Public Affairs at Columbia University, New York and at Georgetown University’s McDonough School of Business in Washington, DC. His research and teaching focuses on business ethics, corporate citizenship, integrity management and responsible leadership. He is a member of the Executive Committee of the European Business Ethics Network, EBEN. As consultant and advisor he has worked with leading corporations such as Shell, PricewaterhouseCoopers, Volkswagen and DONG Energy. Among his many publications are Responsible Leadership (with Nicola Pless; London/New York: Routledge, 2006) and Integre Unternehmensführung (with Peter Ulrich; Stuttgart: Schäffer-Poeschel, 2007). He has also served as guest editor for the Journal of Business Ethics. Richard Marens is Associate Professor of Management at California State University, Sacramento. His research interests include the use of financial
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activism as a tactic by labor unions, the rise and fall of American middle management as an occupation, and the redefinition of business ethics and corporate social responsibility during the 1980s. He has published in a variety of journals, including Business Ethics Quarterly, Business and Society, the Journal of Business Ethics, the Journal of Academic Ethics, the Journal of Management Inquiry, Organization, the Journal of Management History and the Journal of Business and Management. He serves on the editorial board of Organization and Management History. Dirk Matten holds the Hewlett-Packard Chair in Corporate Social Responsibility and is a Professor of Policy at the Schulich School of Business, York University, Toronto. His doctoral degree and his Habilitation are from Heinrich-Heine-University Düsseldorf in Germany. He is interested in CSR, business ethics and international business. Dirk has taught and done research at academic institutions in Australia, Belgium, Britain, Canada, the Czech Republic, France, Germany, Italy and the US. He has published 10 books and some 80 articles and book chapters, including papers in journals such as the Academy of Management Review, the Journal of Management Studies, Organization Studies, the British Journal of Management, Human Relations and Business Ethics Quarterly. Recently, he co-edited the Oxford Handbook of CSR (with Jeremy Moon, Oxford University Press, 2008) and co-authored Corporations and Citizenship (with Jeremy Moon, Cambridge University Press, 2008). Previously, he held a Chair in Business Ethics and was Director of the Centre for Research into Sustainability at the University of London/UK (Royal Holloway). Abagail McWilliams is Executive Associate Dean and Professor of Management in the College of Business Administration of the University of Illinois at Chicago. Since 2002 she has also been a Visiting Professor in the International Centre for Corporate Social Responsibility at the University of Nottingham. Her research interests include strategic management, corporate social responsibility and research methodology. Her work has appeared in the Academy of Management Journal, the Academy of Management Review, the Strategic Management Journal, the Journal of Management Studies, the Journal of Management and Organizational Research Methods, as well as in several edited volumes and other journals. Ali Mir is an Associate Professor of Management at the College of Business, William Paterson University, New Jersey, USA. His research interests center around the changing nature of work in late capitalism. His recent work includes the examination of transnational labor migration, the
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transformation of labor processes and markets under economic globalization, and the issues surrounding business process outsourcing. Raza Mir is an Associate Professor of Management at the College of Business, William Paterson University, New Jersey, USA. His research mainly concerns the transfer of knowledge across national boundaries in multinational corporations, and issues relating to power and resistance in organizations. He has published in journals from a variety of disciplines, including the Academy of Management Learning and Education, Cultural Dynamics, the Journal of Business Communication, Organizational Research Methods and the Strategic Management Journal. He is a member of the editorial boards of Organization, Group and Organization Management and Critical Perspectives on International Business. Vilmos F. Misangyi is an Assistant Professor in the Department of Business Administration in the Alfred Lerner College of Business and Economics at the University of Delaware. His research interests include CEO charisma, institutional entrepreneurship, corruption and managerial discretion. His work has appeared in several journals including the Academy of Management Review, the Strategic Management Journal, the Journal of Applied Psychology, Organizational Research Methods and Leadership Quarterly. He serves as an ad hoc reviewer for the Academy of Management Review, the Academy of Management Journal, Organization Science, the Journal of Management and Business Ethics Quarterly. Jeremy Moon is Professor and founding Director of the International Centre for Corporate Social Responsibility at the University of Nottingham, UK. He won a ‘Beyond Grey Pinstripes’ European Faculty award for preparing MBAs for social and environmental stewardship in 2005. He is a Fellow of the Royal Society for the Arts. He is the author or editor of seven books and two special issues, and author of over 80 journal articles and book chapters. He is co-editor of The Oxford Handbook of CSR (with Dirk Matten, Oxford University Press, forthcoming) and coauthor of Corporations and Citizenship (with Dirk Matten, Cambridge University Press, forthcoming). Journal publications on CSR include the Academy of Management Review, the British Journal of Management, the Journal of Management Studies, the Journal of Business Ethics, Business Ethics Quarterly and Business and Society Review. Justine Nolan is the Deputy Director of the Australian Human Rights Centre and lectures in international human rights law at the University of NSW, Australia (UNSW). Her research interests are in human rights,
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corporate accountability and labour rights. She has worked closely with a broad range of representatives from NGOs, government, companies and the UN in consulting on business and human rights issues. Prior to her appointment at UNSW she was the Director of the Business and Human Rights Program at the Lawyers Committee for Human Rights (now Human Rights First) in the United States. She is an editor of the Human Rights Defender. Guido Palazzo is Professor of Business Ethics at the University of Lausanne (Switzerland). His research interests are in ethical decisionmaking, global governance and corporate social responsibility. His work has appeared in the Academy of Management Review, Business Ethics Quarterly, the Journal of Business Ethics and in numerous volumes and other journals. He is a member of the editorial board of Business Ethics Quarterly and Business & Society. He has worked with numerous companies and NGOs on projects in organizational ethics and CSR. Robert A. Phillips is on the faculty of the University of Richmond’s Robins School of Business, Richmond, Virginia, USA. His work has appeared in Business Ethics Quarterly, the Journal of Business Ethics and Business and Society Review among others. He is also author of Stakeholder Theory and Organizational Ethics (Berrett-Koehler, 2003). His research interests include organizational ethics and the effects of managerial discretion on stakeholder management, ethics in network organizations and the commercial use of private military contractors. He currently serves on the Board of Directors of the Society for Business Ethics. He holds a PhD from the Darden School at the University of Virginia and also MBA and BS degrees from the University of South Carolina and Appalachian State University, respectively. Nicola M. Pless is Research Director and Assistant Professor in Responsible Leadership at the University of St Gallen in Switzerland. She is also a Visiting Senior Research Fellow in INSEAD (France) where she co-directs the INSEAD-PwC research stream on Developing Responsible Leadership. She holds an MBA from the University of Bayreuth, a PhD in organizational theory from the University of St Gallen and a diploma in clinical organizational psychology from INSEAD. Prior to joining these faculties, she worked as a vice president in the financial services industry and served at the World Bank Group in Washington, DC. Her research, writing and teaching focuses on international management, responsible leadership and leadership development. She has delivered training and consulting services for the International Finance Corporation, Deutsche
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Telekom, Volkswagen, PricewaterhouseCoopers and DONG Energy. She has published three books and several articles in practitioner and academic journals. Her latest book on Responsible Leadership (with Thomas Maak) was published by Routledge in 2006. Andreas Georg Scherer is head of the Institute of Organization and Administrative Science (IOU) and holds the Chair of Theories of the Firm at the University of Zurich (Switzerland). His research interests are in business ethics, critical theory, international management, organization theory and the philosophy of science. He has published eight books. His work has appeared in the Academy of Management Review, Business Ethics Quarterly, the Journal of Business Ethics, Management International Review, Organization, Organization Studies and in numerous volumes and other journals. He is associate editor of Business Ethics Quarterly and serves as a member of the editorial boards of Business & Society, Organization and Organization Studies. Frits Schipper studied physics and philosophy. He coordinates a masters degree in the philosophy of management and organization, a joint venture of the Department of Philosophy, Vrije Universiteit Amsterdam, and the Department of Philosophy, Universiteit Utrecht. His research is in the philosophy of management and organization, in the context of which he has a theoretical as well as a practical interest, the latter being the possible contribution of philosophy to organizational practice. He has published three books, all in the Dutch language. His other publications have appeared in national as well as international journals and different volumes. He is a member of the editorial board of Philosophy of Management and chairman of the board of the Vanwoodman Society. S. Prakash Sethi is University Distinguished Professor at the Zicklin School of Business, Baruch College, the City University of New York. In addition to his academic responsibilities, he is the founder and President of the International Center for Corporate Accountability Inc. (ICCA). ICCA is an independent non-profit think-tank, which undertakes cutting-edge research and public policy advocacy in the area of enhanced corporate accountability through voluntary corporate codes of conduct. A fellow of the International Academy of Management, Sethi has published 24 books and over 135 articles in professional and scholarly journals and national and international news media. He serves on the boards of directors/ advisors on various corporate and civil society organizations, and numerous editorial boards of various academic and professional journals.
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Paul Shrivastava is the Howard I. Scott Chair and Professor of Management at Bucknell University, Pennsylvania, USA. He received his PhD from the University of Pittsburgh. He was a tenured professor at New York University’s Stern School of Business. He has published 15 books and over 100 articles in professional journals on sustainable strategic management and crisis management. He served on the boards of 10 leading management journals (including the Academy of Management Review, the Strategic Management Journal and Organization and Environment. He studied Japanese sustainability practices as a Fulbright Senior Scholar. He founded the non-profit organization, the Industrial Crisis Institute. He was co-founder and for five years was the CEO of eSocrates, Inc., an online training/education software company. Shrivastava is a consultant to major multinational companies and serves on the Board of Trustees of DeSales University. He is the organizer of the Steelman Triathlon and has a World Tango Music radio show on WVBU 90.5FM Lewisburg, PA. Donald S. Siegel gained his PhD from Columbia University. He is Professor and Associate Dean of the A. Gary Anderson Graduate School of Management at the University of California, Riverside. He is an editor of the Journal of Technology Transfer, an associate editor of the Journal of Business Venturing and the Journal of Productivity Analysis and serves on the editorial boards of the Journal of Management Studies, Academy of Management Perspectives, Academy of Management Learning and Education, Corporate Governance: An International Review and the Strategic Entrepreneurship Journal. His papers have appeared in the American Economic Review, the Economic Journal, the Review of Economics and Statistics, the Journal of Law and Economics, the Journal of Financial Economics, Brookings Papers on Economic Activity, Research Policy, the Academy of Management Review, the Academy of Management Journal, the Strategic Management Journal, IEEE Transactions on Engineering Management, the Journal of Business Venturing, the Journal of International Business Studies, the Journal of Management Studies, Industrial and Corporate Change, the Leadership Quarterly and the Journal of Management. He recently completed two books for Oxford University Press: Innovation, Entrepreneurship, and Technological Change and the Handbook of Corporate Social Responsibility. Robert C. Solomon was one of the most eminent scholars in business ethics. He spent the past 20 years thinking, writing and lecturing about the importance of ethics in business. He was the Quincy Lee Centennial Professor and a member of the Academy of Distinguished Teachers at the University of Texas at Austin. He also taught at Princeton, UCLA, Penn
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and Pittsburgh. He was the author or editor of more than 40 books in the domains of business ethics, history of philosophy, philosophical psychology (with a focus on emotions). His books on business ethics include Above the Bottom Line, Ethics and Excellence, It’s Good Business, A Better Way to Think about Business and Building Trust. Robert Solomon died on 2 January 2007. Grahame F. Thompson is Professor of Political Economy at the Open University. Long-term research interests are in the nature of network forms of governance and the international system. He is currently engaged in researching the fate of the categories of borders, territories and jurisdictions in debates about globalization, and the meaning of ‘global corporate citizenship’. Recent book publications have included: Between Hierarchies and Markets: The Logic and Limits of Network Forms of Organization (Oxford University Press, 2003) and Globalization in Question (3rd edition, Polity Press, 2008). Sandra Waddock is Professor of Management at the Boston College Carroll School of Management and Senior Research Fellow at BC’s Center for Corporate Citizenship, and for 2006–07 a visiting scholar in the CSR initiative at the Kennedy School of Government at Harvard University. She holds MBA and DBA degrees from Boston University and has published widely on issues related to corporate responsibility/citizenship, multisector collaboration and related topics. She received the Aspen Institute’s 2005 Faculty Pioneer Award for External Impact. Gary R. Weaver is Professor of Management at the University of Delaware and editor in chief of Business Ethics Quarterly. His research focuses on psychological, sociological and philosophical aspects of ethics in business and society. He is co-author of Managing Ethics in Business Organizations: Social Scientific Perspectives (Stanford University Press, 2003). He also serves on the editorial boards of the Academy of Management Review and the Journal of Management, and his research has appeared in the Academy of Management Journal, the Academy of Management Review, Organization Studies, Business Ethics Quarterly, Human Relations, the Journal of Management, Business and Society, California Management Review and other scholarly journals. Gerhard Willke is Professor of Economics at the University of Applied Sciences at Nuertingen, Germany. He has published six books and numerous articles. His research areas are economic theory, the theory of capitalism, political economy and employment policy.
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Helmut Willke is Professor for State Theory and Global Governance at the University of Bielefeld, Germany. His research activities are in the fields of systems theory, systems governance, state theory, global governance and governance of functional world systems. He has published 18 books and some 150 articles in all relevant German journals. He is a member of the editoral board of Jahrbuch für Managementforschung. Hugh Willmott is Research Professor in Organization Studies, Cardiff Business School. He has previously held professorial positions at the universities of Cambridge and Manchester and visiting appointments at the universities of Copenhagen, Lund and Cranfield. He has a strong interest in the application of social theory, especially poststructuralist thinking, to the field of management and business. He has published 20 books including Managing Knowledge (2000); Management Lives (1999), Studying Management Critically (2003) and Fragmenting Work (2004). He has also published widely in social science and management journals, including the Academy of Management Review, the Administrative Science Quarterly, Sociological Review and Sociology. Klaus Dieter Wolf is Professor of Political Science at Darmstadt University of Technology and Deputy Director at the Peace Research Institute, Frankfurt (PRIF). His current research areas are governance beyond the state and the role of private actors in international relations. Among his recent books are Macht und Ohnmacht internationaler Institutionen (2007, co-edited with Andreas Hasenclever and Michael Zürn) and Staat und Gesellschaft – fähig zur Reform? (2007). Iris Marion Young was Professor of Political Science at the University of Chicago. Her research covered contemporary political theory, feminist social theory and normative analysis of public policy. She was one of the most influential political philosophers of our time. Her writings have a huge impact in a broad field of domains, including theories of justice, democracy and difference, deliberative democracy, ethics and international affairs. Iris Marion Young died on 1 August 2006. Michael Zürn is Director of the Social Science Research Center Berlin (WZB) and founding Dean of the Hertie School of Governance. In 1993 he was appointed Professor of Political Science at the University of Bremen. Since 1995 he has been Co-Director of the Institute for Intercultural and International Studies (InIIS) concentrating on issues concerning globalization and global governance. From 1997 to 2000 he was Co-Director of the Centre for European Law and Politics at the University of Bremen,
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where he worked on an interdisciplinary basis on normative issues of European integration and international juridification. Before his move to the WZB in 2004 he was Director of the German Research Association (DFG) Special Research Project ‘State in Transformation’. Zürn is a member of the Berlin-Brandenburg Academy of Sciences and of the Senate of the DFG.
Preface The development of this book began in summer 2005 when we started to approach authors to contribute to the Handbook of Research on Global Corporate Citizenship. We were gratified that so many eminent scholars from various disciplines were interested in this topic. We should like to thank all the contributors for their hard work and timely cooperation. Also, we should like to thank Francine O’Sullivan and the Edward Elgar staff for their kind and reliable help. Christian Vögtlin prepared all the files for the publisher and helped enormously with the editing of the chapters and the preparation of the Handbook. During the preparation, two scholars passed away soon after they had sent us their papers. We were very sad to learn that Iris Marion Young died on 1 August 2006, and that Robert Solomon passed away on 2 January 2007. We remember both these scholars as insightful thinkers and eminent scholars in their disciplines. Andreas Georg Scherer Guido Palazzo Zurich and Lausanne December 2007
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Introduction: corporate citizenship in a globalized world Andreas Georg Scherer and Guido Palazzo
Corporate citizenship as a global challenge In market societies economic exchange requires the existence and enforcement of rules that the market cannot generate itself. Although the dimensions and limits of state intervention have always been a matter of debate, it is indisputable that certain rules need to be implemented for an economy to function properly and contribute to the common good. Consequently, many theories of society assume that these rules will be created and enforced by national states. In this scenario the state determines formal regulations and delineates the sphere of private freedom within which individual citizens and private businesses are entitled to conclude contracts and pursue their private interests. Formal rules as embodied in the law are complemented by the informal norms of common decency which define the regulatory framework of business behavior in modern societies. With the help of this framework, modern society makes efficient use of available resources and entrepreneurial capacity. If this regulatory framework is properly defined and enforced, these governance structures will establish incentives so that the egoistic motives of business people in their consequences contribute to private profit as well as to the common good. Current theorizing on corporate social responsibility (CSR) builds on the assumption of a more or less intact regulatory framework, in which national legislation and the values and expectations of social communities prescribe appropriate business behavior and define the responsibilities of business firms (Carroll 1991; Frederick 1998; Whetten et al. 2002; Schwartz and Carroll 2003). However, the pluralization and globalization of modern society results in a loss of cultural homogeneity and erodes the national context of governance (Beck 2000; Habermas 2001; Kobrin 2001). Today, multinational corporations (MNCs) operate in different environments with heterogeneous regulatory requirements and enforcement mechanisms. These business firms have to respond to contradictory expectations and often have to operate under conditions of state failure or situations where the rule of law is absent. Therefore, the synchronization of corporate behavior with societal demands through national regulatory regimes no 1
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Handbook of research on global corporate citizenship
longer operates as smoothly as it once did (Palazzo and Scherer 2006; Scherer and Palazzo 2008). During the last decade, the global regulatory deficit has been abused systematically by some business firms that got involved in ecological disasters, human rights violations such as child and slave labor, corruption, collaboration with repressive regimes, murder of union leaders and sweatshop conditions (see, for example, Mokhiber and Weissman 1999; Korten 2001). At the same time, big corporations are using their increasing power to influence decision-making processes in the political system by aggressive acts of lobbyism so that regulations get passed that are in favor of the interests of the firms (Schuler and Rehbein 1995; Siedel 2002; Shell 2004). On the other hand, some MNCs attempt to promote positive social change. As of 2007 about 4000 business firms and organizations have subscribed to the UN Global Compact and have voluntarily committed to the support of human rights, compliance with social and environmental standards and the fight against corruption in their sphere of influence (Williams 2004; www.unglobalcompact.org). Apparently this is not just an occasional phenomenon; rather it has become a general trend. Bies et al. (2007, p. 788) even hold: ‘[t]hat corporations do sometimes act as social change agents is not in dispute; it is an empirical reality around the world. Moreover it is becoming a political reality as well’. Obviously, multinationals navigate in increasingly complex and unstable global environments and have started to play a more active role in the transnational attempt to define and enforce governance policies, institutions and processes. Anecdotal evidence shows that some corporations have already assumed responsibilities that once were regarded as belonging to government (Matten and Crane 2005). They engage in public health projects, education and protection of human rights while operating in countries with repressive regimes. They address social ills such as AIDS, malnutrition, homelessness and illiteracy (Margolis and Walsh 2003; Rosen et al. 2003). They engage in self-regulation to fill gaps in legal regulations (Scherer and Smid 2000; Cragg 2005) and to promote societal peace and stability (Fort and Schipani 2004). Therefore, some corporations are not simply complying with societal standards in legal and moral terms; they are engaging in discourses that aim to redefine those standards in a changing, globalized world (Palazzo and Scherer 2006; Scherer and Palazzo 2007). In a globalized world, global governance, referring to rule making and enforcement on a global scale, is no longer the purview of governments alone (Braithwaite and Drahos 2000; Reinicke and Deng 2000). Today, MNCs as well as civil society groups participate in the formulation and implementation of regulations in policy areas that were once regarded as the sole responsibility of state agencies. These policy areas include protecting
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human rights, implementing social standards, preserving the environment, fighting corruption and producing public goods (Kaul et al. 2003; Williams 2004). This development indicates a shift in global business regulation from a state-centric mode toward new multilateral non-territorial modes with the inclusion of private and non-governmental institutions as key actors (Parker and Braithwaite 2003). Chandler and Mazlish (2005) even call multinationals the new ‘Leviathans’ of our time. The activities summarized above go beyond the widely accepted understanding of stakeholder management (Freeman and McVea 2001) and corporate social responsibility (Carroll 1991). The globalization of society is eroding established ideas about the division of labor between the political and economic spheres, and it calls for a fresh view concerning the role of business in society (Kobrin 2001; Dubbink 2004). These phenomena need to be embedded in a new concept of the business firm as an economic and political actor in society. As a consequence, we have recently discussed the politicization of the corporation and proposed a new theory of ‘political corporate social responsibility’ (Palazzo and Scherer 2006; Scherer et al. 2006; Scherer and Palazzo 2007). The Handbook builds on this concept. Given the discussions in political science, political philosophy, law and sociology that deal with the consequences of the postnational constellation, our impression is that outside the management literature the term ‘corporate citizenship’ (CC) is more common than CSR. Since this Handbook aims at a transdisciplinary view on the consequences of globalization for the role of business in society, we use the synonymous term of corporate citizenship instead of political CSR here. The idea of corporate citizenship promises to contribute to this transdisciplinary discourse (Andriof and McIntosh 2001; Wood and Logsdon 2001). The notion that business firms have rights and responsibilities toward society similar to those of citizens is borrowed from the political sciences and has gained wide attention both in academic research and in business practice (Habisch et al. 2001; Maignan and Ferrell 2001; Matten et al. 2003; Logsdon and Wood 2005; Matten and Crane 2005). In the political sciences the citizen of the modern state is conceived as a bearer of private rights such as the right to own property, to enter into private contracts and to engage in market activities. Accompanying these private rights are the right to education and healthcare (social rights) and the right to participate in determining public rules and issues of common concern (political rights) (Marshall 1965). At the same time, the citizen has obligations such as solidarity with his/her fellow citizens and a concern with the common good. However, the status of business firms with regard to these rights and obligations is not yet clear (Logsdon and Wood 2005; Matten and Crane 2005; Moon et al. 2005; von Oosterhout 2005; Norman and Néron 2008;
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Wood and Logsdon 2008). While some scholars suggest that corporations and business firms should be considered equivalent to citizens (Carroll 1998), others hold that the citizenship concept cannot easily be transferred to corporations (Norman and Néron 2008). Rather, business firms should be regarded as state-like agencies and not so much as citizens (Matten and Crane 2005). This suggestion is based on the observation that often business firms adopt a state-like role and protect citizens’ rights in cases where governments are neither able nor willing to perform this function. Corporate citizenship as an interdisciplinary topic The task of this volume is to discuss the consequences of the social and political power and engagement of business firms and to examine the implications for the theory of the firm and the role of business firms in society. Various disciplines such as political philosophy, political science, sociology, legal studies, management studies and economics recently have begun to reconsider the role of business in society in light of the ongoing process of globalization. In political philosophy, scholars have started to deconstruct the traditional nation-state-based concept of democracy (Habermas 1998, 2001), examining the challenges of the current erosion of political power over economic actors and processes. Others have proposed to reconceptualize the meaning of responsibility in a global context, drawing consequences for the power balance and interaction between governmental, business and civil society actors (for example, Dryzek 1999; Young 2004). In political science and international relations, globalization has provoked discussions on ‘policy networks’ (Kenis and Schneider 1991), ‘private–public partnerships’ (Grimsey and Lewis 2004), ‘global governance’ (Held 2004), the various forms of ‘governance without government’ (Zürn 2002) and the role and legitimacy of ‘private authority’ (Risse 2002; Fung 2003; Ruggie 2004; Frynas 2005; Wolf 2005). In sociology, students have studied the influence of globalization on topics such as nationhood, culture, identity, communication, industrial relations, and social and economic institutions (for an overview, see Cohen and Kennedy 2000). In particular, they have analyzed the changing role of politics, economics and civil society groups such as non-governmental organizations (NGOs) and social movements (Beck 2000; Davis et al. 2005). In legal studies, scholars have started to analyze the challenge of holding MNCs accountable for issues that take place beyond the territoriality of nation-states. They study, for example, the responsibilities of business firms for being involved in human rights violations abroad (Kinley and Tadaki 2004; Taylor 2004; Clapham 2006; Kinley and Chambers 2006). This is difficult within a framework of international law that is traditionally targeting nation-states only, but does not directly
Introduction
5
include the legal responsibilities of non-state actors (see Kingsbury 2003). Therefore, the conditions of a direct application of international law are explored (Kinley and Tadaki 2004; Vagts 2003; Weissbrodt and Kruger 2003). Other legal scholars have analyzed the various forms of ‘soft law’ (Shelton 2000; Mörth 2004) and alternative forms of regulation (Parker and Braithwaite 2003). In management studies, some scholars have started to reflect upon the consequences of globalization for the conceptualization of corporate responsibility and corporate citizenship (Rowley and Moldoveanu 2003; Teegen et al. 2004; Matten and Crane 2005; den Hond and de Bakker 2007; Scherer and Palazzo 2007; Levy 2008). And some management scholars dedicated to microeconomic theory have started to explore this phenomenon with the help of economic methods (see, for example, McWilliams and Siegel 2001; Husted and Salazar 2006; McWilliams et al. 2006; Mackey et al. 2007), even though the majority of students of economics are still reluctant to acknowledge a political responsibility of business firms and watch the trend toward CSR with suspicion (for example, Friedman 1962, 1970; Baumol and Blackman 1991; Henderson 2001, 2004; Jensen 2002). However, with a few exceptions, these various discussions on the government–business–civil society interaction under a postnational constellation (Habermas 2001), take place in disciplinary silos. Political philosophers discuss among themselves, hardly referring to the debate in political science, not to speak of sociology and law (for an exception see, for example, Habermas 1996, 2006). Political scientists focus on the role of private–public partnerships, society and NGOs, but they have mostly neglected the political function of private business firms until recently (as an exception, see Ruggie 2004; Wolf 2005).1 And many management scholars who work in the field of corporate responsibility still build upon the assumption of the intact nationstate (see, for example, Sundaram and Inkpen 2004), thereby neglecting the conceptual consequences of the analyzes of globalization advanced in other disciplines (see, critically, Scherer and Palazzo 2007). The concept of corporate citizenship is an important anchor which may help to connect these various disciplinary discourses. This volume therefore seeks to identify and foster emerging research on corporate citizenship in various disciplines and to provide a framework for academic debate on the role of business in a global society. Our goal for this volume is to advance the discussion of managerial, economic, political and legal perspectives on the new role of business in a global society. We have invited renowned authors from various disciplines to leave their silos and to participate in this transdisciplinary analysis of corporate citizenship in a globalizing world. Many of the authors have already established bridges across disciplinary perspectives and now share their recent views on this topic, thereby advancing
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theory and contributing to the most urgent questions that relate to corporate citizenship. Structure of the book This volume contains original contributions that help us to better understand global corporate citizenship and the role of business in world society.2 The chapters argue across relevant disciplines (for example, organization studies, business ethics and corporate social responsibility, legal studies, political theory and so on). The Handbook is structured in seven parts, dealing with the phenomenon of corporate citizenship along various topics or sub-dimensions and with the help of the involved disciplinary perspectives. After this introductory chapter, the book is structured as follows. Part I History and conceptual groundwork This part deals with the history and conceptual grounding of corporate citizenship. The chapters also distinguish corporate citizenship from related concepts such as corporate responsibility, corporate social performance or corporate reputation and consider the similarities and differences between corporate citizenship and established theories such as stakeholder theory or business ethics. Chapters in Part I address questions such as the following: what does corporate citizenship mean in a postnational world? How did the concept emerge and what alternative perspectives are discussed in the literature? What are the future trends in corporate responsibility, corporate social responsibility, corporate social performance and corporate reputation? How is corporate citizenship related to these concepts? Do companies have a political responsibility and if so how can it be defined? How can economic rationality and political responsibility be reconciled in a globalized world? How are these issues treated in stakeholder theory or business ethics? How do these schools of thought relate to corporate citizenship? Part II Contemporary issues and challenges This part deals with the contemporary challenges of global business regulation and the provision of global public goods. Each chapter addresses a particular issue and discusses how responsible corporate citizens might respond to the questions of regulation and production of public goods. Authors emphasize possible achievements and limitations of corporate citizenship. Topics include the following: what are the human rights controversies in global business today and how can corporate citizenship contribute to the resolution of these issues? What are the most important environmental challenges and how can corporate citizenship contribute to
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the preservation of the physical environment? What are the challenges to the integrity of business and how can companies help fight corruption? What is the role of business in promoting democracy, peace, and social stability? Part III Actors, institutions and global governance In this part, authors consider the roles of various actors and transnational institutions. Topics include the following: what actors are involved in global business regulation and how can the contributions of states, civil society and business be balanced? What part do NGOs play in global business regulation and what are the links to corporate citizenship? What are the consequences of the decline of national sovereignty and the increase in the political power of business? Part IV Disciplinary perspectives on corporate citizenship Here the phenomenon of corporate citizenship is discussed through the lens of various disciplinary perspectives. Topics include the following: how can corporate citizenship be conceived of from an economic point of view? What is the international law perspective on corporate citizenship? What is the international business research perspective on corporate citizenship and what is the contribution of positive organizational scholarship to our understanding of corporate citizenship? Part V Implications for management theory building The aim of this part is to discuss the role of various management structures and functions in the implementation of corporate citizenship. In addition, further aspects such as corporate governance and the democratization of the business firm, and the development of a new theory of the firm are discussed. Topics include the following: what are the relationships between organizational structures, politics, identity building and corporate citizenship? What structural consequences are produced by the responsibility toward external constituencies? What are the consequences for the political economy and the balance of power between business and politics? What is the role of leadership in a societal context that emphasizes corporate citizenship? What does the future of democratic governance look like and what is the corporate role therein? Can the activities of companies be controlled democratically? Part VI Critical perspectives This part provides critical perspectives on corporate citizenship from various schools of thought such as postmodernism, poststructuralism, postcolonialism and systems theory.
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Part VII The future of global corporate citizenship In the final chapter, the editors attempt a synopsis of the discussion and emphasize some future trends in corporate citizenship research. Overview of the book chapters The purpose of the chapter by Andrew Crane, Dirk Matten and Jeremy Moon (Chapter 2) is to map out the territory of management research on corporate citizenship, to analyze the various debates and to assess the potential of using citizenship as a metaphor for business–society relationships. After providing a brief historical overview about how corporate citizenship entered the agenda in business and academia, Crane et al. critically analyze the extant use of the terminology. Based on this literature survey, they discuss the potential for using the citizenship metaphor to provide a more expansive analysis of the political role of the corporation. The authors suggest that there are three fundamental approaches to applying citizenship to corporations. However, they hold that one has to be aware of the facts that citizenship in itself is a dynamic concept and, moreover, that corporations play quite a substantial role in transforming contemporary notions of citizenship. Crane et al. conclude with a discussion of these themes and an outlook on future perspectives. Sandra Waddock (Chapter 3) illustrates the evolution of the terminology that is used to describe corporate citizenship or corporate responsibility. She highlights some of the conceptual confusion and briefly assesses the current state of thinking as it relates to practice. The forces of globalization and growth of corporate power lead to shifting centers of power and influence in the world. In some cases, this shift has created a context in which MNCs have begun to participate actively in the production of public goods such as education, healthcare, poverty alleviation and standards setting. These business firms assume tasks that were formerly reserved for governments. Simultaneously, the activism and influence of NGOs and civil society organizations has changed dramatically. Today these organizations are able to safeguard corporate activities and to put pressure on corporations, thus compensating for the failure of state agencies and deficits in public regulation. As a reaction to these developments, scholarly thinking about corporate citizenship, corporate social responsibility, corporate responsibility, corporate social performance, business citizenship, business ethics, stakeholders and corporate reputation has virtually exploded in the past decade. Therefore, this chapter provides an overview of the available concepts and helps to create some order in this rapidly growing field. In has been suggested that corporations can do well by doing good and that good ethics is good business. However, Prakash Sethi (Chapter 4) argues that while socially responsible behavior is important and desirable,
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it plays rather a small role in motivating good corporate conduct. Instead, it is the economic competitive conditions that define the parameters and opportunities for good corporate conduct and influence the values and traditions of the corporations and their managers to exploit these opportunities. Sethi presents a framework that helps to analyze the competitive conditions under which business firms operate and allows us to predict the extent to which corporations may engage in ethical or unethical behavior. The author suggests that from a societal perspective it would be more desirable to move away from the concept of corporate social responsibility towards a notion of corporate social accountability. Under the widespread conditions of market imperfections and the growth of corporate power, information imbalance, bargaining power imbalance, and remedy and relief imbalance are obstacles in holding corporations accountable. These are the crucial factors that need to be changed so that society can enhance the likelihood of corporate ethical conduct. Robert Phillips and Edward Freeman (Chapter 5) discuss the relationship between corporate citizenship and stakeholder theory. In particular, they focus on the role of ‘community stakeholders’. They hold that in the literature on corporate citizenship and corporate responsibilities there is too much unreflective use of stakeholder terminology. The authors emphasize the limits of organizational obligations to communities and suggest a typology of potential relationships that organizations may have with communities. While Phillips and Freeman admit that their discussion of community stakeholders could be interpreted as a description of corporate citizenship obligations, at the same time they are very skeptical of this use of terminology. They hold that the concept of citizenship is too complex to convincingly make such a case. Instead, Phillips and Freeman suggest that firm–community relationships may be a potential lever in the complicated matter of reconciling and distinguishing corporate citizenship and stakeholder theories. In his critical analysis of the role of business in society, Robert Solomon (Chapter 6) criticizes the atomic conceptualization of CC, CSR and stakeholder management in the current discussion. Building upon Aristotelian philosophy, he emphasizes the relevance of a communitarian and virtuebased approach that perceives the individual as a part of the (corporate) community and the latter as being embedded in a broader societal context of values, traditions and responsibilities. Solomon criticizes the disembedding logic of an overstreched interpretation of the profit motive that separates the business role from the other societal obligations of individual actors and business operations from society as a whole. Iris Young (Chapter 7) attempts to clarify the status of political claims about global justice and injustice that are increasingly discussed. Such
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claims present a problem for political philosophy because until recently most philosophical approaches to justice assumed that obligations of justice hold only between those living under a common constitution within a single political community. Young argues that obligations of justice arise between persons by virtue of the social processes that connect them. Political institutions are only the response to these obligations rather than their basis. Today, for some issues, obligations of justice extend globally. They are grounded in the fact that some structural social processes connect people across the world without regard to political boundaries. The second contribution of this chapter is to theorize the responsibilities that moral agents may have in relation to such global social processes. How ought moral agents, whether individual or institutional, conceptualize their responsibilities in relation to global injustice? Young proposes a model of responsibility from social connection as an interpretation of obligations of justice arising from structural social processes. In order to illustrate their case she advances the example of justice in transnational production and supply chains in the clothing industry. Paul Shrivastava (Chapter 8) focuses on contemporary challenges of global business regulation and the provision of global environmental public goods. The author suggests that the concept of citizenship cannot be easily transferred to corporations that are considered as legal persons. Therefore, he offers a more comprehensive understanding with the help of an ‘embodied concept’ of corporate citizenship and corporate environmental responsibilities. His approach extends the idea of corporations as purely legal with economic purposes and centers the human body and the physicality of nature as central in corporate social analysis. Shrivastava articulates the new corporate responsibilities toward nature, the whole person, natural and fabricated spaces, and the community. He articulates some suggestions for practical implementation of these responsibilities, and identifies several issues that deserve further research. Gary Weaver and Vilmos Misangyi (Chapter 9) review the concepts of corruption and corporate citizenship. They summarize conventional approaches to corruption and emphasize their limits. As an alternative, they present a more expansive understanding of corruption and treat it as embedded in the cognitive and behavioral components of an overarching institutional logic. This institutional logic can be sustained or changed by social actors in possession of economic, social and symbolic resources. Based on this account of corruption, they discuss how corporations might engage in anti-corruption efforts even though these spread beyond their own boundaries. Weaver and Misangyi suggest that corporations can function as citizens in the sense of taking on social and political responsibilities and as entrepreneurs in changing an institutional framework that enables
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corrupt behavior. The authors highlight certain potential corruptiondisabling roles for corporations. However, they also consider various obstacles that may dampen optimism that many corporations would engage in wide-ranging citizen-like behavior against corruption. Charles Koerber and Timothy Fort (Chapter 10) discuss some of the possible contributions and potential limitations of corporate citizenship to peace through commerce. The notions of ‘peace through commerce’ and corporate citizenship are relatively new concepts which are distinct but related. They both try to address the changing world in which we live and highlight the various and complex shifts in global commerce and societal interaction, including the decrease in power of nation-states and the increase in power of MNCs. These concepts, as used in the business literature, are a reflection of the struggle that practitioners and academics are having with the changing relationships and interactions among businesses, communities, governments and NGOs. These are not the only attempts by academics and the business community to deal with our changing world but they are both promising conceptions that deserve further thought and research. Koerber and Fort, therefore, explore possible areas for future research into the relationship between these two concepts. Klaus Dieter Wolf (Chapter 11) deals with the emergence of the new political forms of public–private governance patterns beyond the state. In many ways the new interplay between the state, business and civil society in global governance resembles the process of political modernization changes which could be observed in the domestic sphere and is associated with terms such as ‘de-hierarchization’ or ‘de-governmentalization’ that are discussed in the political sciences. Wolf analyzes the implications of the new modes of governance on the actors involved. Compared to its predecessors such as treaty-based intergovernmentalism, global governance is a patchwork of different modes of governance, consisting of actors from different environments who are equipped with very different resources, and who are used to quite different compliance mechanisms. Wolf discusses some of these mechanisms which presume that actors follow the interestbased logic of consequences. He also points to alternative mechanisms that are based on the assumption that political actors follow the logic of appropriateness. In order to achieve a better understanding of these new modes of governance, the author explores the various conditions under which these different modes will emerge. Finally, Wolf covers some of the normative problems of the privatization of world politics and points to the regulatory potential as well as limits of the new governing relations. Stephen Kobrin (Chapter 12) suggests that we are in the midst of a transition from an international to a post-Westphalian political–economic system. He holds that we have not yet developed the modes of cooperation,
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institutions or even the language necessary to govern an integrated world economy effectively. This leads to a governance gap as politics lags behind markets which extend beyond the reach of nation-states. Kobrin focuses on the implications of this asymmetry and the problems of economic governance. He suggests a framework to analyze the various new modes of governance along two dimensions: the fragmentation of authority and changes in the nature of space (territoriality). The author considers the implications for multinational business firms and suggests that in a globalized world, private political authority becomes a widespread phenomenon. Conclusively, the separation between public and private spheres as it was assumed in classical liberal theories of political economy is called in question as business firms are both governed and governor. This, however, leads to problems of legitimacy and democracy that need to be addressed in future research. Jonathan Doh (Chapter 13) explores two primary mechanisms by which NGOs influence corporate citizenship. The first might be termed ‘NGO activism’ when NGOs target private business firms or public authorities and advocate for changes in corporate behavior and of laws regulating corporations by protesting, boycotting, targeting and otherwise communicating their concern. More recently, some NGOs have taken a different strategy. Rather than targeting companies through advocacy campaigns, these NGOs have developed cooperative relationships with companies through which they collaborate on the resolution of the negative consequences of corporate behavior and assist companies in developing corporate citizenship initiatives. Doh discusses the history and the emerging role of NGOs as important institutional actors in global business–society relationships and corporate citizenship. He provides some basic definitions and classifications to position NGOs among the other institutional actors in business citizenship. Doh focuses the relationship between business firms and NGOs and explores both the confrontational and collaborative modes of engagement. However, he suggests that cooperative interactions appear to have the potential to substantially influence corporate citizenship behaviors. The chapter concludes with some questions and future research directions. Michael Zürn (Chapter 14) explores the changing nature of the relationship between market and nation-state politics. He holds that under the condition of globalization and in the specific context of post-industrial society, the hierarchically organized nation-state loses some of its political steering power to successfully intervene in market processes. As a consequence, new regulatory instruments have gained in significance. These instruments include incentive systems created by the state, private–public partnerships, and corporate social responsibility. At the same time, a strong trend toward international regulations can be observed. In the course of these developments hierarchical governance is gradually replaced by market-compatible
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governance frequently implemented by non-state actors. The outcome of this process leads neither to a powerless state nor to de-politicization. The state remains an integral and necessary component of almost all new arrangements. In the course of this process, however, both international institutions and the actions of large corporations are becoming increasingly politicized. Therefore, Zürn argues that ‘governance with and without government’ is subject to the same normative claims as ‘governance by government’. Jessica Ludescher, Abagail McWilliams and Donald Siegel (Chapter 15) develop an economic view on corporate citizenship. They hold that there is growing interest in the economic consequences of CSR and CC, especially for executives at multinational, multidivisional companies. These corporate leaders are mindful of the fact that business norms and standards, regulatory frameworks and stakeholder demand for social contributions can vary substantially across nations, regions and lines of business. Globalization raises concerns for managers of MNCs because differing, and sometimes competing, ethical expectations result in unpredictable and non-uniform payoffs for social contributions. There is also growing awareness that some issues, such as water and air pollution, cannot effectively be addressed within national borders, and therefore, expectations for responsible activities are broader. Obviously, there are numerous antecedents and consequences of CSR and CC, which require managers to conceptualize and estimate the economic returns to engagement with stakeholders and civil society. The authors discuss the variety of economic theories and their contribution to the explanation of corporate citizenship and corporate social responsibility. These theories may help us to better understand the complex drivers of social engagement of business firms. The chapter concludes with an agenda for theoretical and empirical research on the economic implications of CC. David Kinley and Justine Nolan (Chapter 16) explore the interrelationship of human rights with business from an international law perspective. They discuss the central role played by corporations in the global economy and report on the growing concern of legal scholars and the fundamental changes in corporate accountability that are discussed in their discipline. The authors examine three points of intersection between human rights and business: transnational commerce, trade and investment, and development aid. In many countries in the past decades the influence of transnational business firms on their economic and political environment has grown significantly. At the same time, international law has barely responded to the growing imbalance of power. Neither nation-states nor international institutions have yet created efficient rules and mechanism of enforcement. This results in a regulatory gap in global governance with
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corporate related human rights abuses as an issue of particular concern. The authors describe the key theoretical, practical and institutional features of the intersection with international human rights standards and the global economy. Kinley and Nolan stress the growing importance of corporations in international law and the attendant international legal responsibilities and expectations that are now made of corporations in the quest to better protect and promote human rights. Nancy Adler (Chapter 17) comments on the relationship between global business and society from an international business studies perspective. She maintains that business’s search for mutually beneficial advances that address the world’s most pressing needs has become one of the defining issues of the 21st century. Adler reminds us about the various projects and initiatives throughout the world, where immense entrepreneurial energy is finding expression, energy whose converging force is in direct proportion to the turbulence, crises and the call of our times. ‘Doing well by doing good’ has become a viable option and calls into question the false dichotomy embedded in what she calls ‘the great trade-off illusion’ that is the belief that firms must sacrifice outstanding financial performance if they choose to strategically address societal challenges. The author builds upon recent research on positive organizational scholarship and the role of business firms as possible social change agents. Adler develops the vision of creating a sustainable society and planet with a global perspective and the right mix of innovative leadership and scholarship. This vision she maintains could become the international business opportunity of the 21st century. Peter Edward and Hugh Willmott (Chapter 18) focus on the identification of notions of corporate citizenship as they relate to two issues: the meanings attributed to corporate citizenship and the importance of processes of identification for the realization of corporate citizenship. The rationale for this approach is that any concern, or claim, to bring corporate citizenship into the corporation requires some explication of the meaning(s) of the term which ranges from forms of corporate philanthropy and paternalism to radically democratic forms of collective self-determination within organizations. The authors consider whether these meanings resonate with identities of individuals within organizations and hence whether they gain or lose ‘grip’. For corporate citizenship to become established in corporations, these meanings must gain broad acceptance by employees. Edward and Willmott suggest that corporate citizenship is not equivalent to the adoption of specific policies, formal procedures and/or reportable metrics but, rather, is present within or absent from routine, skillful processes of reproducing and transforming organizing practice. Much work on corporate citizenship is dedicated to organizational structures within and outside the corporation, while the role of individuals and
Introduction
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leaders is widely neglected. Therefore, Thomas Maak and Nicola Pless (Chapter 19) want to develop an understanding of the role of responsible leaders as cosmopolitan citizens in a globalized business environment. They argue that being responsible, that is, responding to the call of stakeholders (and the market), is a necessary but not a sufficient condition for responsible leadership. This endeavor ultimately requires responsible global leaders who think and act as cosmopolitan citizens, as leaders with responsible mindsets who are aware of the pressing problems in the world, care for the needs of others and in particular for the distant needy, aspire to make this world a better place and act in words and deeds as global and responsible citizens. The authors contend that responsible leadership in a globalized world requires business leaders who have a cosmopolitan mindset, live and enact cosmopolitan ethics and fulfill their cosmopolitan role. Maak and Pless explore the concept of cosmopolitan leadership and conclude with practical implications of a cosmopolitan approach to responsible leadership for both business practice and future research. Bobby Banerjee (Chapter 20) offers a critical analysis of the political economy of the multinational enterprise (MNE). Drawing from theoretical perspectives in economic sociology and political economics, he discusses how power relationships between governments and MNEs discursively produce particular forms of social arrangements of various actors, institutions and networks. Banerjee examines the inclusions and exclusions that result from these dynamics. He argues that power relations between the political, economic and social spheres produce a particular form of corporate rationality that determine the boundary conditions of CSR. Based on institutional political economic theories, the author develops a ‘political cultural approach’ to conceive of the corporation as a discursive formation that is embedded within an environment of institutional, economic and discursive power. The development of internationalized companies poses new problems for both their internal corporate governance and their external regulation. Grahame Thompson (Chapter 21) analyzes the relationship between internal governance and stakeholding. The argument is that companies are legal subjects in their own right, ones that, in fact, ‘own’ themselves. Once this is recognized, other than a simple shareholder interest in respect to the governance becomes apparent. The pressures put upon companies through the CSR movement lead to the expansion of stakeholder interests within company governance structures and call for a new view on corporate governance. However, there are many problems associated with stakeholding, particularly as companies have internationalized. Thompson then moves on to discuss the external governance context in which companies are placed as they have become multinational. MNCs are subject to various
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forms of scrutiny, monitoring and regulation at the international level, all designed in one way or another to encourage a sense of social responsibility by business firms. And many firms themselves have responded to these developments by claiming to be ‘global corporate citizens’. In this chapter the characteristics of the global governance regime for companies are explored and their impact assessed. Finally, Thompson deals with the difficult issue of the ‘democratization’ of the internationalized firm and explores how to extend the scope of corporate governance to encourage the objective of greater democratic transparency and accountability. In their critical analysis, Frits Schipper and David Bojé (Chapter 22) do not address corporate citizenship and corporate social responsibility per se; rather, they consider the notions of transparency, integrity and openness which they think are relevant to achieve some kind of ‘meta understanding’ about the role of business in society. They hold that the relationships between these terms are far from clear. For instance, transparency can function as an instrument of power, seriously damaging integrity. Demanding, for example, transparency of incomes of CEOs can have an increasing effect, thereby putting the integrity of these people and of the companies they work for in jeopardy. Schipper and Bojé want to develop a general understanding of these relationships and dynamics. The authors build upon concepts from the French philosopher Gilles Deleuze and the psychiatrist Pierre-Félix Guattari who worked together in Paris in the 1970s. Schipper and Bojé relate these concepts to entrepreneurship and images in the case of branding and company identity. Against the background of these terminological conceptualizations, the case of Nike, a major US company that labeled its own governance in terms of transparency (see its Transparency 101 program), is analyzed. Raza Mir, Richard Marens and Ali Mir (Chapter 23) explore the ways in which organizational theory has been deployed to naturalize the process of colonialism and imperialism. The authors focus on the concept of corporate citizenship, which they think is nebulous and ill-articulated, even though it has intrigued corporations as well as researchers over the past two decades as a possible tool to legitimize corporate presence in an increasingly de-territorialized economic space. They hold that any hegemonic definition of corporate citizenship is predicated upon an antecedent homogenization of the concept of the corporation itself. Such an interlocked set of definitions of firm and firm behavior leaves out a variety of actors in the shadows of theoretical debates on corporate behavior. Mir et al. term these actors the ‘fragments’ of the corporation and seek to provide a voice to those fragments whose concerns are left unaddressed. The authors analyze the theoretical debates around CSR in the United States and identify the ideological context around which the concept of
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corporate citizenship has emerged. Finally, they highlight ways in which the marginalized actors in this debate around corporate citizenship can make their presence felt in the political as well as in the theoretical realm. Helmut Willke and Gerhard Willke (Chapter 24) advance a rigorous critique of CC and CSR and emphasize the relations between economy and politics. They hold that the debate on corporate citizenship features a new type of ‘imbrication’ between the two spheres by trying to transplant ethical and political obligations (‘responsibilities’) into the mentalities of economic actors. The authors focus on the separation of nation-state politics and private economy as it has developed during the process of modernization. Willke and Willke suggest that in the discourse on corporate citizenship there is a fundamental misunderstanding of this process and the architecture of modern democratic societies. They argue that the CSR/CC approach is fundamentally mistaken about the role of enterprise in modern market societies. Their argument is based on the distinction between the goals of individual actors and the systemic outcomes of their actions. Finally, the authors offer some insights into a system-theoretical approach to global governance and what they claim is a more complex coupling of economy and politics. This leads to a model of governance that is related to the knowledge society. In the concluding chapter, Guido Palazzo and Andreas George Scherer point to future research directions on corporate citizenship. They outline topics that emerge from the discussions in the handbook and address the open questions that are still to be solved. For example, the meaning and the limits of responsibility for the corporation, the questions evolving around a new concept of corporate politics, or the self-regulation of the corporation as seen in the debate on ‘governance without government’. Further, the future debate on corporate citizenship needs to address the role of leadership in this context, as well as the question of the dark sides of responsibility. In this chapter, the authors summarize new challenges and point to interesting directions for future research. Notes 1. See also the volume edited by Goldstein et al. (2001) which enhances dialogue between political scientists and legal scholars but does not consider the political role of business firms. 2. The chapters of this volume are original contributions with two exceptions – the papers by Sandra Waddock and by Iris Young are modifications of texts that have been published elsewhere.
References Andriof, J. and M. McIntosh (eds) (2001), Perspectives on Corporate Citizenship, Sheffield: Greenleaf. Baumol, W.J. with S.A.B. Blackman (1991), Perfect Markets and Easy Virtue: Business Ethics and the Invisible Hand, Oxford, UK and Cambridge, MA: Blackwell.
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Beck, U. (2000), What is Globalization?, Cambridge: Polity. Bies, R.J., J.M. Bartunek, T.L. Fort and M.N. Zald (2007), ‘Corporations as social change agents: individual, interpersonal, institutional, and environmental dynamics’, Academy of Management Review, 32, 788–93. Braithwaite, J. and P. Drahos (2000), Global Business Regulation, Cambridge: Cambridge University Press. Carroll, A.B. (1991), ‘The pyramid of corporate social responsibility: toward the moral management of organizational stakeholders’, Business Horizons, 34 (4), 39–48. Carroll, A.B. (1998), ‘The four faces of corporate citizenship’, Business and Society Review, 100, 1–7. Chandler, A.D. and B. Mazlish (eds) (2005), Leviathans: Multinational Corporations and the New Global History, Cambridge: Cambridge University Press. Clapham, A. (2006), Human Rights Obligations of Non-state Actors, Oxford: Oxford University Press. Cohen, R. and P. Kennedy (2000), Global Sociology, London: Macmillan. Cragg, W. (ed.) (2005), Ethics Codes, Corporations and the Challenge of Globalization, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Davis, G.F., D. McAdam, W.R. Scott and M.N. Zald (eds) (2005), Social Movements and Organization Theory, Cambridge: Cambridge University Press. den Hond, F. and F.G.A. de Bakker (2007), ‘Ideologically motivated activism: how activist groups influence corporate social change activities’, Academy of Management Review, 32, 901–24. Dryzek, J.S. (1999), ‘Transnational democracy’, Journal of Political Philosophy, 7 (1), 30–51. Dubbink, W. (2004), ‘The fragile structure of free-market society’, Business Ethics Quarterly, 14, 23–46. Fort, T.L. and C.A. Schipani (2004), The Role of Business in Fostering Peaceful Societies, Cambridge: Cambridge University Press. Frederick, W.C. (1998), ‘Business and society’, in G.L. Cooper and C. Argyris (eds), The Concise Blackwell Encyclopaedia of Management, Oxford: Blackwell, pp. 54–6. Freeman, R.E. and J. McVea (2001), ‘A stakeholder approach to strategic management’, in M.A. Hitt, R.E. Freeman and J.S. Harrison (eds), The Blackwell Handbook of Strategic Management, Oxford: Blackwell, pp. 189–207. Friedman, M. (1962), Capitalism and Freedom, Chicago, IL: University of Chicago Press. Friedman, M. (1970), ‘The social responsibility of business is to increase its profit’, The New York Times Magazine, 13 September, reprinted in T. Donaldson and P.H. Werhane (eds) (1988), Ethical Issues in Business: A Philosophical Approach, Englewood Cliffs, NJ: PrenticeHall, pp. 217–23. Frynas, J.G. (2005), ‘The false developmental promise of corporate social responsibility: evidence from multinational oil companies’, International Affairs, 81, 581–98. Fung, A. (2003), ‘Deliberative democracy and international labor standards’, Governance, 16, 51–71. Goldstein, J., M. Kahler, R.O. Keohane and A.-M. Slaughter (eds) (2001), Legalization and World Politics, Cambridge, MA: MIT Press. Grimsey, D. and M.K. Lewis (2004), Public Private Partnerships: The Worldwide Revolution in Infrastructure Provision and Project Finance, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Habermas, J. (1996), Between Facts and Norms: Contributions to a Discourse Theory of Law and Democracy, Cambridge, MA: MIT Press. Habermas, J. (1998), ‘Three normative models of democracy’, in J. Habermas, The Inclusion of the Other: Studies in Political Theory, Cambridge, MA: MIT Press, pp. 239–52. Habermas, J. (2001), The Postnational Constellation, Cambridge, MA: MIT Press. Habermas, J. (2006), The Divided West, Cambridge, MA: MIT Press. Habisch, A., H.-P. Meister and R. Schmidpeter (eds) (2001), Corporate Citizenship as Investing in Social Capital, Berlin: Logos. Held, D. (2004), Global Governance and Public Accountability, Oxford: Blackwell.
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Henderson, P.D. (2001), Misguided Virtue: False Notions of Corporate Social Responsibility, London: Institute of Economic Affairs. Henderson, P.D. (2004), The Role of Business in the Modern World: Progress, Pressures and Prospects for the Market Economy, London: Institute of Economic Affairs. Husted, B.W. and J. de J. Salazar (2006), ‘Taking Friedman seriously: maximizing profits and social performance’, Journal of Management Studies, 43, 75–91. Jensen, M.C. (2002), ‘Value maximization, stakeholder theory, and the corporate objective function’, Business Ethics Quarterly, 12, 235–56. Kaul, I., P. Conceição, K. Le Goulven and R.U. Mendoza (eds) (2003), Providing Global Public Goods, Oxford: Oxford University Press. Kenis, P. and V. Schneider (1991), ‘Policy networks and policy analysis: scrutinizing a new analytical toolbox’, in B. Marin and R. Mayntz (eds), Policy Networks: Empirical Evidence and Theoretical Considerations, Frankfurt/M.: Campus, pp. 25–59. Kingsbury, B. (2003), ‘The international legal order’, in P. Cane and M. Tushnet (eds), The Oxford Handbook of Legal Studies, Oxford: Oxford University Press, pp. 271–97. Kinley, D. and R. Chambers (2006), ‘The UN human rights norms for corporations: the private implications of public international law’, Human Rights Law Review, 6, 447–97. Kinley, D. and J. Tadaki (2004), ‘From talk to walk: the emergence of human rights responsibilities for corporations at international law’, Virginia Journal of International Law, 44, 931–1022. Kobrin, S.J. (2001), ‘Sovereignty@Bay: globalization, multinational enterprise, and the international political system’, in A.M. Rugman and T.L. Brewer (eds), The Oxford Handbook of International Business, Oxford and New York: Oxford University Press, pp. 181–205. Korten, D.C. (2001), When Corporations Rule the World, San Francisco, CA: Berret-Koehler. Levy, D.L. (2008), ‘Political contestation in global production networks’, Academy of Management Review, 33, forthcoming. Logsdon, J.M. and D.J. Wood (2005), ‘Global business citizenship and voluntary codes of ethical conduct’, Journal of Business Ethics, 59, 55–67. Mackey, A., T.B. Mackey and J.B. Barney (2007), ‘Corporate social responsibility and firm performance: investor relations and corporate strategies’, Academy of Management Review, 32, 817–35. Maignan, I. and O.C. Ferrell (2001), ‘Corporate citizenship as a marketing instrument: concepts, evidence and research directions’, European Journal of Marketing, 35, 457–84. Margolis, J.D. and J.P. Walsh (2003), ‘Misery loves companies: rethinking social initiatives by business’, Administrative Science Quarterly, 48, 268–305. Marshall, T.H. (1965), Class, Citizenship and Social Development, New York: Anchor Books. Matten, D. and A. Crane (2005), ‘Corporate citizenship: towards an extended theoretical conceptualization’, Academy of Management Review, 30, 166–79. Matten, D., A. Crane and W. Chapple (2003), ‘Behind the mask: revealing the true face of corporate citizenship’, Journal of Business Ethics, 45, 109–20. McWilliams, A. and D. Siegel (2001), ‘Corporate social responsibility: a theory of the firm perspective’, Academy of Management Review, 26, 117–27. McWilliams, A., D. Siegel and P.M. Wright (2006), ‘Corporate social responsibility: strategic implications’, Journal of Management Studies, 43, 1–18. Mokhiber, R. and R. Weissman (1999), Corporate Predators: The Hunt for Mega-profits and the Attack on Democracy, Monroe: Common Courage Press. Moon, J., A. Crane and D. Matten (2005), ‘Can corporations be citizens? Corporate citizenship as a metaphor for business participation in society’, Business Ethics Quarterly, 15, 429–54. Mörth, U. (ed.) (2004), Soft Law in Governance and Regulation: An Interdisciplinary Analysis, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Norman, W. and P.-Y. Néron (2008), ‘ “Citizenship, Inc.”: do we really want businesses to be good corporate citizens?’, Business Ethics Quarterly, 18 (1), forthcoming. Palazzo, G. and A.G. Scherer (2006), ‘Corporate legitimacy as deliberation: a communicative framework’, Journal of Business Ethics, 66, 71–88. Parker, C. and J. Braithwaite (2003), ‘Regulation’, in P. Cane and M. Tushnet (eds), The Oxford Handbook of Legal Studies, Oxford: Oxford University Press, pp. 119–45.
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Reinicke, W.H. and F. Deng, with J.M. Witte, T. Benner, B. Whitaker and J. Gershman (2000), Critical Choices: The United Nations, Networks, and the Future of Global Governance, Ottawa: International Development Research Centre. Risse, T. (2002), ‘Transnational actors and world politics’, in W. von Carlsnaes, T. Risse and B. Simmons (eds), Handbook of International Relations, London: Sage, pp. 255–74. Rosen, S., J. Simon, J.R. Vincent, W. MacLeod, M. Fox and D.M. Thea (2003), ‘AIDS is your business’, Harvard Business Review, 81 (2), 80–87. Rowley, T. and M.C. Moldoveanu (2003), ‘When will stakeholders act? An interest and identity-based model of stakeholder mobilization’, Academy of Management Review, 28, 204–19. Ruggie, J.G. (2004), ‘Reconstructing the global public domain: issues, actors, and practices’, European Journal of International Relations, 10, 499–531. Scherer, A.G. and G. Palazzo (2007), ‘Toward a political conception of corporate responsibility: business and society seen from a Habermasian perspective, Academy of Management Review, 32, 1096–120. Scherer, A.G. and G. Palazzo (2008), ‘Globalization and corporate social responsibility’, in A. Crane, A. McWilliams, D. Matten, J. Moon and D. Siegel (eds), The Oxford Handbook of Corporate Social Responsibility, Oxford: Oxford University Press, pp. 413–31. Scherer, A.G., G. Palazzo and D. Baumann (2006), ‘Global rules and private actors: towards a new role of the TNC in global governance’, Business Ethics Quarterly, 16, 505–32. Scherer, A.G. and M. Smid (2000), ‘The downward spiral and the U.S. model principles: why MNEs should take responsibility for the improvement of world-wide social and environmental conditions’, Management International Review, 40, 351–71. Schuler, D.A. and K. Rehbein (1995), ‘Pursuing strategic advantage through political means: a multivariate approach’, Academy of Management Journal, 45, 659–72. Schwartz, M.S. and A.B. Carroll (2003), ‘Corporate social responsibility: a three-domain approach’, Business Ethics Quarterly, 13, 503–30. Shell, G.R. (2004), Make the Rules or Your Rivals Will, New York: Crown Business. Shelton, D. (ed.) (2000), Commitment and Compliance: The Role of Non-binding Norms in the International Legal System, Cambridge: Cambridge University Press. Siedel, G.J. (2002), Using the Law for Competitive Advantage, San Francisco, CA: Jossey-Bass. Sundaram, A.K. and A.C. Inkpen (2004), ‘The corporate objective revisited’, Organization Science, 15, 350–63. Taylor, K.M. (2004), ‘Thicker than blood: holding ExxonMobil liable for human rights violations committed abroad’, Syracuse Journal of International Law and Commerce, 31 (2), 274–97. Teegen, H., J.P. Doh and S. Vachani (2004), ‘The importance of nongovernmental organizations (NGOs) in global governance and value creation: an international business research’, Journal of International Business Studies, 35, 463–83. Vagts, D.F. (2003), ‘The UN norms for transnational corporations’, Leiden Journal of International Law, 16, 795–802. von Oosterhout, J. (2005), ‘Corporate citizenship: an idea whose time has not yet come’, Academy of Management Review, 30, 677–84. Weissbrodt, D. and M. Kruger (2003), ‘Norms on the responsibilities of transnational corporations and other business enterprises with regard to human rights’, American Journal of International Law, 97, 901–22. Whetten, D.A., G. Rands and P.O. Godfrey (2002), ‘What are the responsibilities of business to society?’, in A. Pettigrew, H. Thomas and R. Whittington (eds), Handbook of Strategy and Management, London: Sage, pp. 373–408. Williams, O.F. (2004), ‘The UN Global Compact: the challenge and the promise’, Business Ethics Quarterly, 14, 755–74. Wolf, K.D. (2005), ‘Private actors and the legitimacy of governance beyond the state: conceptional outlines and empirical explorations’, in A. Benz and I. Papadopoulos (eds), Governance and Democratic Legitimacy, London: Routledge, pp. 200–227. Wood, D.J. and J.M. Logsdon (2001), ‘Theorizing business citizenship’, in J. Andriof and M. McIntosh (eds), Perspectives on Corporate Citizenship, Sheffield: Greenleaf, pp. 83–103.
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Wood, D.J. and J.M. Logsdon (2008), ‘Business citizenship as metaphor and reality’, Business Ethics Quarterly, 18, forthcoming. Young, I.M. (2004), ‘Responsibility and global labor justice’, Journal of Political Philosophy, 12, 365–88. Zürn, M. (2002), ‘From interdependence to globalization’, in W. von Carlsnaes, T. Risse and B. Simmons (eds), Handbook of International Relations, London: Sage, pp. 235–54.
PART I HISTORY AND CONCEPTUAL GROUNDWORK
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The emergence of corporate citizenship: historical development and alternative perspectives1 Andrew Crane, Dirk Matten and Jeremy Moon
Introduction In this chapter we provide an overview of the advent, rise, current use and future perspectives of corporate citizenship in the management literature. The purpose of our chapter is to map out the territory of research on corporate citizenship and outline the major contestations, debates and the potential of using citizenship as a metaphor for business–society relationships. After providing a brief overview about how corporate citizenship entered the agenda in business and academia, we shall analyze and critically categorize the extant use of the terminology. Based on this literature survey we shall then proceed to focus on the potential for using the citizenship metaphor to provide a more expansive analysis of the political role of the corporation. This will pave the way to mapping out three fundamental approaches to apply citizenship to corporations. We argue, however, that such an application has to be cognizant of the facts that citizenship in itself is a dynamic concept and, moreover, that corporations play quite a substantial role in transforming contemporary notions of citizenship. We conclude our foray into corporate citizenship with a discussion of these themes and a review of future perspectives. Corporate citizenship – a new terminology in business–society relationships Corporate citizenship (CC) has emerged as a prominent term in the management literature dealing with the social role of business. While the terminology of CC has been around for many years and was occasionally used here and there prior to the 1980s (for example, Gossett 1957) we can witness a massive growth in usage of CC mainly during the last two decades. This occurred, first of all, in the realm of management practice; having gained momentum in US business circles in the 1980s (Altman and Vidaver-Cohen 2000), it has since begun to enter the language of the global business community. A landmark in this process has been the joint statement on ‘Global Corporate Citizenship – The Leadership Challenge for CEOs and Boards’, signed during the World Economic Forum in New York in January 2002 by CEOs from 34 of the world’s largest multinational corporations (MNCs), 25
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including the Coca-Cola Company, Deutsche Bank, Diageo, Merck & Co., McDonald’s Corporation, Philips and UBS (World Economic Forum 2002). Moreover, as a further indicator of the proliferation of citizenship language in business, we would highlight the fact that in 2006, major global companies such as Citigroup, Diageo, ExxonMobil, Hewlett-Packard, Microsoft, Panasonic, Pfizer or Xerox all labeled their annual non-financial reporting document as a ‘citizenship report’, a ‘gobal citizenship report’ or similar versions of the terminology. However, the proliferation of the term is not confined to the corporate sphere. There has been an escalating body of academic work specifically dedicated to CC issues (see Andriof and McIntosh 2001b for an overview); there is now a dedicated Journal of Corporate Citizenship; and a number of research centers framed explicitly around CC have emerged, including those at Boston College in the US, Warwick University in the UK, Deakin University in Australia and Eichstätt University in Germany. Likewise, many consultants and business publications have adopted the terminology of CC in reference to the firm’s social and environmental policies (Miller 1998; Wagner 2001; Roberts et al. 2002). This ‘cozy consensus’ around CC (Norman and Néron 2008) is also manifest in a growing number of government units, consultancies and think-tanks specifically dedicated to CC, such as the US Chamber of Commerce Center for Corporate Citizenship, the African Institute for Corporate Citizenship, the Copenhagen Center and the London-based Corporate Citizenship Company. In a similar vein, the influential US magazine Corporate Responsibility Officer2 – previously titled Business Ethics – conspicuously labels its annual ranking of the 100 most socially responsible companies as the list of the ‘100 Best Corporate Citizens’ – in many ways symbolizing a trend in current usage of terminology in the business– society field. Table 2.1 provides a flavor of the usage of CC terminology by corporations. First, it is interesting to note that ‘citizenship’ is often referred to by a number of attributes, of which ‘good corporate citizenship’ or ‘global citizenship’ are by far the most popular ones. Furthermore, the overwhelming gist of these statements focuses on the embedding of the corporation into its direct local community and evokes notions of being a good neighbor (BHP Billiton) with mutually beneficial relations between companies and their stakeholders (Microsoft). This includes compliance with local laws (Toyota) and contributions to the flourishing of local communities, most notably in developing countries (Manulife). Citizenship seems to be a desired metaphor in the corporate world to counter notions of impersonal, bureaucratic and inhumane power-players and replace those by the image of the ‘good guy’ next door who cares for you and looks after the interests
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Industry and country of origin
Mining, Australia
Insurance and Financial Services, Canada
Software, USA
Oil and Gas, France
Automobiles, Japan
BHP Billiton
Manulife
Microsoft
Total
Toyota
Toyota’s aim is to become a trusted corporate citizen in international society through open and fair business activities that honor the language and spirit of the law of every nation
As a responsible corporate citizen with specialized expertise and an obligation to explain the realities and constraints of our businesses, Total has a stake in certain public debates being conducted in France, Europe and worldwide
Microsoft’s ongoing work in the area of global citizenship is focused on mobilizing our resources across the company to create opportunities in communities around the world, to foster economic growth, and to serve the public good through innovative technologies and partnerships with government, industry, and community organizations
To Manulife, being a good corporate citizen is part of our corporate culture. We are proud to participate in various education initiatives and hope to help Vietnamese children have a better life and a brighter future
As stated in the BHP Billiton Charter, one of the indicators of success is that ‘the communities in which we operate value our citizenship’. Sustainable community development ensures communities benefit throughout all phases of the life of an operation – through development, operation and closure
CC statement
Examples of corporate usage of CC terminology (emphasis added)
Company
Table 2.1
Sustainability Report 2006
Corporate Social Responsibility Report 2005
Citizenship Report 2005
2006 Public Accountability Statement
Sustainability Report 2006
Source
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of those with whom, as it were, it rubs shoulders. CC can be said to highlight the fact that the corporation sees – or recaptures – its ‘rightful’ place in society, next to other ‘citizens’, with whom the corporation forms a community. Citizenship then focuses on rights and responsibilities of all members of the community, which are mutually interlinked and dependent upon each other (Waddell 2000). In some cases, however, as the example of Total shows, citizenship is also used to describe the corporate role in key debates in society and in influencing public decision making on contested political issues, such as in this case, global warming. These political references, however, are relatively scarce and the key orientation seems to be the local community. Toyota, for instance, prides itself on an 80-employee ‘Corporate Citizenship Division’ whose primary focus is to coordinate corporate contributions to local communities in the worldwide operations of the company (Toyota 2007, p. 66). It is evident, however, that in the management literature the usage of the term CC has been far from consistent, and, we might suggest, not at all clear. Indeed, we would suggest that there has yet to be a clear, specific and widely accepted definition of CC. In the following subsections, we shall therefore examine current usage of the term, and in so doing, delineate three different perspectives on CC evident in the extant management literature. Limited view of corporate citizenship3 Initially, CC was, and in many respects still is, used to identify the philanthropic role and responsibilities the firm voluntarily undertakes in the local community, such as charitable donations. Carroll (1991), for example, identifies ‘being a good corporate citizen’ with a specific element of corporate social responsibility (CSR), philanthropic responsibilities, his fourth level of CSR. Accordingly, Carroll (1991) places CC at the top level of his CSR pyramid, suggesting that it is a discretionary activity beyond that which is expected of business. CC in this respect is regarded as a choice to ‘put something back’ into the community, but since it is merely ‘desired’ by the community it is, according to Carroll (1991, p. 42), ‘less important than the other three categories’. This limited view tends to present the specifically new contribution of CC to the debate on corporate philanthropy as its strategic focus. As opposed to corporations engaging in charity simply for the sake of it, CC presents a case for ‘strategic philanthropy’. For the firm, CC is generally seen therefore as fueled by issues of self-interest – including the insight that a stable social, environmental and political environment ensures profitable business (Windsor 2001; Wood and Logsdon 2001). This understanding is reflected in most of the corporate examples given in Table 2.1, which is typical for the limited view of CC in so far as it focuses mainly on the direct
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physical environment of the company, resulting in a strong focus on local communities (Altman 1998). Following from this self-interested approach is a considerable amount of literature which discusses CC as manifest in specific investment decisions into the firm’s social environment (Warhurst 2001). Following the language of corporate finance, CC is rationalized in terms of ‘social investing’ (Waddock 2001) in order to build up ‘social capital’ (Habisch et al. 2001) or ‘reputational capital’ (Fombrun et al. 2000; Gardberg and Fombrun 2006), all of which ultimately help to improve the economic performance of the corporation. This approach ultimately sees the new contribution of CC to the debate on business–society relations in its economic character as an approach to long-term maximization of (enlightened) self-interest through corporate investment in the processes and rules of the corporation’s social environment (Seitz 2002). This usage of CC terminology, however, raises the question whether this limited view of CC really justifies the invention and usage of a new terminology. The element of self-interest in corporate philanthropy, the investment aspect of social engagement and the focus on local communities are elements that are not completely new, and have already been discussed in the literature on CSR, social performance or stakeholder theory (Stroup and Neubert 1987; Burke and Logsdon 1996). Moreover, there seems to be no common understanding about the precise definition of CC, and qualifications such as ‘good’ CC further underline the elusive nature of this view. Furthermore, there is only very poor reference to the fact that this new concept of business and society makes use of the term ‘citizenship’, beyond occasional reference to shared rights and duties with other members of society. However, the limited view of CC has yet to explicitly explain, let alone conceptualize the notion of citizenship in this respect. Although there might be good reasons from the business viewpoint to reframe social involvement as CC, the literature pertaining to this limited view does not provide convincing evidence for the necessity of a new terminology. The limited view preserves an economic orientation whereas citizenship is an explicitly political concept. Equivalent view of corporate citizenship The second common understanding of CC is more general in scope and is essentially a conflation of CC with existing conceptions of CSR (or sometimes stakeholder management), without attempting to define any new role for the corporation. The most striking example of this use of CC is probably Carroll himself who, in a paper entitled ‘The four faces of corporate citizenship’ (1998) defines CC exactly the same way as he initially defined CSR two decades ago. This approach has been taken up by several authors, although in some cases by using slightly different phrasing. So, for instance,
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Andriof and McIntosh (2001a) talk of CC as corporate ‘societal’ responsibility but use it synonymously with CSR. Similarly, in a number of papers, Maignan and colleagues (Maignan et al. 1999; Maignan and Ferrell 2000) define CC as ‘the extent to which businesses meet the economic, legal, ethical and discretionary responsibilities imposed on them by their stakeholders’ (Maignan and Ferrell 2000, p. 284). This is largely synonymous with the Carroll (1991) definition of CSR. Much of the CC literature currently uses the concept in this sense, stressing various aspects of CSR, such as sustainability (Marsden 2000), the stewardship role of business (Reilly and Kyj 1994) or drawing conceptual lines toward the stakeholder approach (Davenport 2000). One of the problems in conceptualizing CC in this way is that many authors present a certain view of the debate in business and society relations so far and then attribute certain ‘new’ issues and developments to the new label of CC. Thus, CC just functions as a new way of presenting existing concepts, but applied to a wider range, or perhaps a different set, of issues. Again, there tends to be little, if any, serious reflection on the notion of ‘citizenship’ and its potential for surfacing new meaning. So, for instance, Birch (2001) regards CC as an innovation to the CSR concept in that CC causes business to see itself as part of the public culture, whereas CSR is – according to his perception – more concerned with social responsibility as an external affair (Logan et al. 1997; McIntosh et al. 2003). CC, from the perspective of these authors, is an extension to a very selectively defined view of CSR, as exemplified in particular by Sundar (2000) from an Indian perspective. Here, the CC label is simply used to rebrand and relaunch existing ideas about business–society relations, probably to make them more accessible and attractive to business audiences. While this marketing of academic ideas is, in many respects, an important task, it is also in danger of raising skepticism about CC, CSR and so on, on account of them being perceived as no more than ephemeral management fads and fashions. Furthermore, although in our interpretation, the authors referring to CC in this way appear to be conflating CC with CSR, this body of literature is notably lacking a clear, direct and unambiguous definition of CC. Again, the terminology of CC is also taken up without referring explicitly to the political notion of ‘citizenship’ and explaining the reasons for its usage in this context. Extended view of corporate citizenship A third view has also begun to emerge in the academic literature in recent years, one that we initially referred to as an ‘extended view’ of CC (Matten et al. 2003) to indicate how it also extended to responsibilities beyond those of philanthropy and CSR. The extended view, we suggest, takes seriously
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the idea that citizenship can provide a political conceptualization of the corporation. Among the first contributors to have deliberately addressed the notion of ‘citizenship’ as a political concept within the CC literature are Donna Wood and Jeanne Logsdon (Wood and Logsdon 2001; Logsdon and Wood 2002). Wood and Logsdon have developed a framework for understanding in particular the implications of globalization on the social and political role of the firm and have used their conceptualization to delineate implications for business practice (Wood et al. 2006). In some of our own work, we have also utilized citizenship thinking to specify forms of corporate participation in societal governance (Moon et al. 2005), and corporate responsibilities for administering the citizenship rights of individuals (Matten and Crane 2005). On the whole, though, the efforts of understanding CC as based on a political notion of the firm are relatively sparse (Jeurissen 2004) while the debate on whether and how citizenship can be applied to corporations is still ongoing and highly contested (Norman and Néron 2008). In this chapter, we shall therefore take the extended view of CC as a platform for elaborating on a more expansive examination of how corporations and citizenship can come together. In our view, the term ‘corporate citizenship’ offers a unique way into exploring the corporation as a political actor, but at the same time it does not do justice to the rich potential there is in applying citizenship thinking to the corporation. For us, then, CC is just one among several ways in which corporations can be analyzed as political actors using the lens of citizenship. Before we go ahead and detail these different ways, however, it is helpful to explain why we believe that citizenship is indeed a powerful heuristic for analyzing certain aspects of the political role of the corporation – and, in fact, what is it is we mean by citizenship in the first place. Corporations and citizenship Traditionally, political debates about corporations have tended to focus on their role in the ‘inner circle’ of power elites (Useem 1984) and on their involvement in pressure group activity through business associations, lobbying and political donations (Grant 1987; Lord 2000). Surprisingly, perhaps, the corporation has more recently become much more central in social and political analysis. This is evident among social critics, who point to corporations’ responsibility for social and political ills concerning the pathologies of mass consumption, disparities in economic and social development, and environmental degradation. But it is also true of those who look to corporations as part of the solution to these same problems. For sections of the left, while in the 1960s and 1970s the culprits were capitalism
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and/or government, today they are more likely to be corporations. As such, corporations also now feature in the non-business sections of mainstream newspapers, and in popular books and films about social and environmental problems, such as Blood Diamond, The Constant Gardener, Fast Food Nation and Super Size Me. This rise in prominence within social and political debates is in part a function of the employment, production, investment and wealth that corporations account for, and in part a reflection of their sheer size and domination of certain markets. However, although there are some features of contemporary business that are certainly distinctive, the history of corporations has always been characterized by shifting balances between the desire to bestow them the freedom necessary to achieve large-scale economic tasks efficiently on the one hand and the fear of their power and the concomitant need for protection of the public interest on the other. Thus there has been talk about the proper roles and responsibilities of corporations for at least three hundred years. Why then would one choose to enframe an analysis of the changing political role of the corporation by means of the concept of citizenship? We believe that it is a useful conceptual lens for several particular reasons. First, the very fact that corporations, consultants, academics and others use the term ‘corporate citizenship’ as one of several synonyms for the social or community initiatives of business warrants taking seriously. We acknowledge that the prospect of corporations claiming, or being assigned, a political or legal status analogous to individual citizens is, quite rightly, a cause of concern for some (for example, Palacios 2004; van Oosterhout 2005; Thompson 2006; Jones and Haigh 2007). However, in this way, we can, at the very least, evaluate corporations in part on their own terms by examining them through the lens of citizenship. Second, citizenship is a concept which is expressly concerned with roles and responsibilities. More specifically, citizenship is an organizing principle for aligning roles and responsibilities among members of political communities (that is, on a horizontal dimension), and between them and other institutions wielding power and responsibility (that is, on a vertical dimension). This is important because current debates about the roles and responsibilities of corporations are specifically animated by concerns about who the corporation should be responsible to, why, and in which ways that responsibility should be discharged. Citizenship offers us a way of working through these relational issues using a set of ideas and frameworks that have been well established in theory and practice for many years. Third, and more broadly, the concept of citizenship is at the heart of wider debates about societal governance of which corporations form a key part. Thus, critiques of corporate power, for example, are often under-
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pinned by a view that citizenship autonomy and choice are being directly structured by corporations and their agendas. Alternatively, there is the view that human citizenship is being reshaped because the key institutional representatives of citizens, democratic governments, are being superseded by corporate power (Ikeda 2004). Yet more broadly, there is concern that the contemporary forces of globalization and the weakening of national governments are also inimical to effective citizenship (Schneiderman 2004; Isin and Turner 2007). Although this last point does not necessarily directly relate to corporations, by virtue of their role as agents of globalization they are implicated in broader political debates about citizenship. Fourth, the uniting of corporations with citizenship should not be seen only as a one-way street where citizenship is simply used to help us understand certain facets of the corporation. Rather, the corporation can also be used to examine the theory and practice of citizenship. At a time when our ideas of citizenship are in flux and where scholars of political science and sociology have become increasingly interested in the role of markets, multinationals and other economic factors in the transformation of citizenship (Kymlicka and Norman 1994; Isin and Turner 2002a; Isin and Turner 2007), the time is ripe for a focused examination of the nature and impacts of corporate actors on citizenship. Of course, to even begin this endeavor, we need to identify at least some starting-points for what we mean by citizenship in this context, as we now discuss. What is citizenship? Ideas of citizenship form the bedrock of our political identity, yet the very concept of citizenship is both fluid and open to question. Indeed, the meaning of citizenship within political debates has been transformed in the space of the 20th century alone. This has been due to, for example, women’s enfranchisement, growth in multiculturalism and changes in political boundaries and institutions. Thus, as Parry (1991, p. 168) notes, ‘[a] totally uncontested and uncontestable concept of citizenship appears to be particularly problematic’. Within the debate on citizenship there are, however, some underlying themes that provide some common ground on what the subject of citizenship is about – even if there is disagreement about the various manifestations of these themes. For the purposes of this chapter, we refer to these themes as ‘status’, ‘entitlements’ and ‘process’. These, we contend, are the main issues around which mainstream debates about citizenship have taken place. Status is the basic defining characteristic of what it means to be a citizen. Asking the question of who is or is not a citizen, or what it takes to become a citizen, are essentially questions about how the status of citizenship is
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acquired and by whom. In its traditional manifestation, citizenship is regarded as a formal legal status within a specified political community (historically the nation-state) that in turn provides the basis for various rights for individuals and presumes upon them appropriate civic duties. This brings us to the second main theme of citizenship, entitlements. The citizenship ‘paradigm’ that has been more or less dominant over the past half-century (Turner 2001) – the Marshallian concept of citizenship – is essentially a citizenship of entitlements. These entitlements consist of three types – civil, political and social rights – which include among them freedom of speech, the right to vote and welfare entitlements, respectively (Marshall 1964). The importance of entitlements to theories of citizenship is clear – they are the benefits we receive in lieu of our submission to a sovereign authority. However, entitlements are not just a matter for vertical arrangements between members of a political community and their governors: battles over the distribution of entitlements among members of the community – the haves and the have-nots – give rise to investigation of horizontal arrangements and allocations too. Indeed, even in contemporary theories of citizenship (which mainly emphasize horizontal relationships) entitlements remain to the fore, with Marshall’s three types of rights augmented with additional rights such as cultural, human and ecological rights (Turner 2001). The third theme through which we characterize citizenship is process – or more precisely, processes of political participation. This provides an active component to citizenship that is absent in the status and entitlement components. Acknowledging criticisms that the dominant rights-based paradigm of citizenship puts too much emphasis on entitlements at the expense of duties, we include here some of the thicker elements of citizenship, including obligations to participate in democratic governance. By bringing in the Aristotelian assumption about duties of citizenship, to each other and to the polity as a whole, we understand the citizen’s participation in politics not simply as a right to vote or hold office, but also as a contribution to personal development and to societal flourishing. Applications of citizenship to corporations As the changing roles of corporations in business–society relations are complex and multifaceted, we present three different ways in which the concept of citizenship can and has been used to illumine business–society relations. In each of these conceptions, we distinguish different roles and relations for corporations, for governments and for citizens, the last also including the third sector, or societal non-governmental organizations (NGOs).
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Corporations as citizens The first conception focuses on the idea outlined in the first part of the chapter – that corporations can be regarded as citizens. The idea that corporations are (not), or are (not) like, human citizens has been examined in a number of recent works (Wood and Logsdon 2001; Schrader 2003; Palacios 2004; Moon et al. 2005; Thompson 2006; Norman and Néron 2008). In this conception, corporations are examined on a similar horizontal relationship with other corporate citizens and human citizens (Figure 2.1). Like human citizens, corporate citizens are also examined on a vertical relationship of power with government in which the citizens ‘author’ the authority of government. Corporations can be considered as if they were citizens in as much as they work ‘with’ and participate ‘in’ society and in bringing their concerns to government and reacting to government legislation and executive action. The focus here, then, is particularly on how corporations share status and process elements of citizenship. Arguments about corporations being like citizens can have a number of sources, though these are not necessarily mutually consistent (Norman and Néron 2008). Since medieval times, European businesspeople have engaged in citizenship-like ways through their membership of and participation in their guilds, the forerunners of business associations, which provided systems of governance within individual trades and forms of mutual support. In early phases of representative politics, business ownership enabled people to meet a property franchise. Second, corporations could be considered as part of society in that their members, be they owners, managers or employees, are human members of societies. Relatedly, traditions of industrial paternalism or industrial philanthropy speak of the social face of business. Theories of business legitimacy are often premised on the need for corporations to win the approval of society for their individual and collective existence and success (Crane et al. 2008). See Figure 2.1. The idea that corporations could be considered as if they were citizens can also draw on the slightly different sort of argument, that corporations have a distinct functional and legal identity: they are praised or blamed, they make deals, enter into contracts and develop internal decision-making systems and structures independent of the people within the company. Businesses can enter into legal agreements, own property, employ workers, sue and be sued. As a result, a company can be treated in the eyes of the law as if it is an ‘artificial person’. More generally, the application of the citizen metaphor to corporations can draw on the argument that ‘every large corporation should be thought of as a social enterprise; that is, as an entity whose existence and decisions can be justified only in so far as they serve public or social purposes’ (Dahl 1985, p. 17, original emphasis). Although there are clearly limits to the application of the citizenship
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Governments
Citizens
Corporations
Political community as the arena of citizenship
Figure 2.1
Corporations as citizens
metaphor to corporations particularly regarding their status (for example, they do not vote or sit on juries), corporations can also enjoy some limited entitlements which are akin to those of citizens such as protection under the law and eligibility for subsidies under various public policy regimes (for example, for training programs). None the less their main claim to be like citizens is in the way that they participate in various processes of citizenship. Corporations come into the picture here in various ways. Next to traditional notions of lobbying or campaign financing, they also participate in governance through their everyday business: this ranges from providing goods and services to society, over deciding, for instance, about hazardous or ethically contested technologies, up to enabling certain citizenship identities by employing, supplying from or offering services to minorities, as is the case, for instance, in the ‘pink economy’ or the fair trade movement. We also witness a surge in partnerships with civil society organizations to address a host of governance issues, such as community development, education or healthcare (for example, Warner and Sullivan 2004; Seitanidi and Ryan 2007). Corporations also play a role in processes of political deliberation in society: for instance, we are currently witnessing a lively debate on global warming, and with governments often unwilling or unable to address the issue, corporations – for better or for worse – have become some of the key voices in the debate on how to address this global policy issue (Levy and Kaplan 2008). Corporations as governments Here we refer to the ways in which corporations are examined as if they were governments and are responsible for the delivery of public goods and
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Governments
37
Corporations
Citizens
Political community as the arena of citizenship
Figure 2.2
Corporations as governments
for the allocation, definition and administration of rights. While this owes much to popular chronicles of business power (for example, Korten 1995; Hertz 2001), academic treatments of these relationships have also been emerging (for example, Sellers 2003; Matten and Crane 2005). In such a conception, the corporation shares a horizontal dimension with government and is vertically aligned with human citizens within a political community (Figure 2.2). The focus here, then, is how corporations inform the status, processes and entitlements of people as citizens. First, corporations might become involved in governing citizenship where government ceases to do so. This situation mostly occurs as a result of institutional failure and new political ideology in liberal democracies, and in the shift from communist to capitalist systems in transitional economies. This may happen either when corporations have opportunities to step in where once only governments acted or where corporations are already active but their role becomes more pronounced if governments retreat. For example, corporations can become more responsible for providing (or not) citizen entitlements formerly the preserve of public organizations. Thus, we see corporations increasingly active in former public services, such as public transport, postal services, healthcare, water, power and education. Second, corporations become active in the citizenship arena where government has not as yet assumed the task of governing. Historically, this was the situation that gave rise to paternalistic employee welfare programs by wealthy industrialists in the 19th century. More recently, exposure to this situation for multinationals has arisen due to a lack of local governance in developing countries, which presents corporations with a choice as to
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whether to step in as ‘surrogate’ governments. Corporations such as Nike, Levi Strauss and others have ensured employees a living wage and financed the schooling of child laborers – thereby entering into relationships concerning the entitlements of citizens of developing countries. Similarly, there is evidence that corporations can encourage or discourage oppressive regimes to honor citizenship status and entitlements. Examples are the role of US corporations in the apartheid period of South Africa and more recently in Burma, Chad, Uganda and Sudan. Third, corporations can become involved where the governing of citizenship is beyond the reach of the nation-state. In transborder issues and activities, corporations have become involved in various initiatives focused on privatized or multisector governance of citizenship, for example, around climate change and human rights. There are, however, clear limitations and anxieties linked to conceiving of corporations as governments. Foremost, we have to point to the simple fact that corporations initially are not set up for these political tasks and in many ways lack the apparatus, governance mechanisms and indeed the skills for governing citizenship. In particular, their accountability procedures and the degree of transparency with which they are involved in the governance of citizens’ entitlements are generally rather underdeveloped. Ultimately, this shift in roles raises the question of a ‘decline of citizenship’ (Falk 2000) in conspicuous ways: if healthcare or education is administered at the discretion of private, self-interest-driven, unaccountable corporations, they are no longer based on an ‘inalienable’ right of a citizen. At a minimum, we would argue, the shift in corporate roles as examined in this section would require institutional and legal innovations for corporations if we are still to talk about a citizen’s status and entitlements in any meaningful way. Stakeholders as citizens Our third conception of citizenship introduces a rather different perspective, whereby citizenship is used as a metaphor for understanding stakeholder relations within the arena of the corporation. Here, we can model vertical relations between the governing body of the corporation and a variety of stakeholders. Thus we are concerned not with governing the political community (as in our first and second conceptions) but with governing the corporation (or, of corporate governance). The focus here, then, is on how corporations constitute an arena in which people can claim certain entitlements from managers based on their status and engage in governance processes (Figure 2.3). Clearly the ways in which stakeholders relate to corporations varies enormously among individual stakeholder types such as investors, employees,
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Governing body of the corporation
Customers
Employees
Civil society
Shareholders
Government
Suppliers
Corporation as the arena of citizenship
Figure 2.3
Stakeholders as citizens
customers and societal groups, and also among national business systems, and different models of the firm. However, the issue of rights has been central to normative variants of stakeholder theory (Donaldson and Preston 1995). In a similar vein, the debate on ‘stakeholder democracy’ has evoked the notion of understanding the firm and its stakeholder as an arena governed by principles akin to the political sphere (Matten and Crane 2005). More broadly, advocates of the ‘political model of the firm’ (Parkinson 2003) apply the norms of liberal democracy to stakeholder rights and participation, suggesting that the corporation should be seen not as a strictly private institution, but as a social and ultimately political one. The import of citizenship terminology and concepts into various stakeholder relations may or may not be a conscious decision on the part of those who are writing about them. Where it is conscious, the reasoning is typically of the kind: ‘if stakeholders are thought of as citizens of the corporation, then this would mean that they should have particular rights and responsibilities commensurate with the status of citizens’. Similarly, authors might think along the following lines: ‘a suitable model of workplace democracy can be found in models of political democracy’. Hence, the citizenship literature might be used as a source of inspiration for devising forms and norms of employee participation. This type of deliberate incorporation of citizenship concepts and models has started to feature in the burgeoning literature on CSR and stakeholder management, not least because of greater attention in recent years to the
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problem of making corporations more democratic through stakeholder engagement and participation. The conscious and deliberate appropriation of models of citizenship and democracy is also evident in numerous treatments of employees, though rarely so for other constituencies. For example, Collins (1997) compares the roles of sovereigns and subjects in political, economic and organization theories to argue for the ‘ethical superiority and inevitability’ of participatory employee relations over autocratic management. In so doing, he acknowledges that ‘the first key assumption is that organizational systems are analogous to political and economic systems’ (ibid., p. 491). More recently, Manville and Ober (2003) have attempted to develop a new model of employee involvement from the Athenian model of citizenship, and Boatright (2004, p. 4) has drawn on Robert Dahl’s conception of the corporation as a political system to argue that ‘employees have a right, similar to that of citizens, to participate in decisions that affect them’. What we see here then is an explicit attempt to articulate and appraise employee relations according to the touchstone of political models of citizenship. However, not all authors are as sanguine about the correspondence of political frameworks to organizational analysis. As Kerr (2004, p. 82) points out in his examination of organizational democracy, ‘the fact is, no matter how appealing it may be as a political and intellectual construct, organizations are not societies in the political sense, and managements are not governments’. Outside of the literature dealing with employee participation, the explicit and conscious use of citizenship concepts to discuss other stakeholder relations is rarer. This does not mean it is not in evidence, but it does show that the application of citizenship thinking may be more problematic than for employees. For instance, although notions of consumer sovereignty are at the heart of economic theories of market exchange, contemporary marketing theory rarely, if ever, makes any explicit comparison between citizen–sovereign and producer–consumer models. We have discussed in some detail elsewhere the ways in which specific stakeholder relations can be accommodated in this approach – and the limitations in doing so (Crane et al. 2004, 2008). The key point is that the basis for their status, entitlements and processes of participation will vary. Unlike citizens, all stakeholders are not expected to be equal, and so it is the vertical relations with management, rather than horizontal relations among stakeholders that have tended to predominate in this approach. Corporate citizenship and contemporary notions of citizenship So far in this chapter we have tried to map out main avenues of applying the notion of citizenship to corporations. This has been predicated on the
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tacit assumption that indeed there is a relatively consistent, well-established and robust understanding of citizenship in political science and political philosophy, which is ‘out there’ and can be taken – as it were – from the shelf and examined with regard to its applicability to corporations. This, however useful for a first step into this uncharted territory, turns out to be a somewhat simplistic assumption: The modern conception of citizenship as merely status held under the authority of the state has been contested and broadened to include various political and social struggles of recognition and redistribution as instances of claim-making, and hence, by extension of citizenship. As a result, various struggles based upon identity and difference (whether sexual, racial, ethnic, diasporic, ecological, technological and cosmopolitan) have found ways of articulating their claims to citizenship understood not simply as a legal status, but as political and social recognition and economic redistribution. (Isin and Turner 2002a, p. 2)
As a result we find a rather heterogeneous, multifaceted understanding of citizenship which, admittedly, slightly complicates its application to the corporation. While it is unrealistic to summarize this entire debate, in the following we shall discuss three of the main contemporary reconfigurations of citizenship that have significant implications for corporations. These are: cosmopolitan citizenship, ecological citizenship and identity-based (or ‘cultural’) citizenship. Cosmopolitan citizenship and the corporation 4 The most obvious transformation of citizenship has taken place in the aftermath of globalization as the latter phenomenon has impacted significantly on the governing capacity of the key reference point of traditional notions of citizenship, the nation-state. The emerging phenomenon of ‘cosmopolitan citizenship’ (Delanty 2000; Linklater 2002) – namely, a citizenship enacted through transnational association – reveals a rather colorful spectrum of transformed and extended forms of citizens’ entitlements, status and processes of participation. While concepts such as human rights dominate the aspects of status and entitlements, we see a new arena of participation in the multifaceted, some might even say messy, arena of global civil society with its plethora of actors who differ significantly from one another with regard to power, legitimacy and interests. The debate on cosmopolitan citizenship places emphasis on new ways of enacting citizenship, new modes of participation as well as broader and multiple reference points for what constitutes the relevant political community. If anything, one could argue that cosmopolitan citizenship not only provides new conceptual space for locating corporations in this global arena but moreover, empirically, we witness an active role of corporations in transforming
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nearly all of these global specifics and characteristics of citizenship. Arguably then, cosmopolitan citizenship provides a launch pad for considerably thicker notions of citizenship, in particular with regard to the corporate role in shaping citizenship. The implications of the notion of CC at the global level are therefore ambiguous. On the one hand, cosmopolitan citizenship provides ample space for locating corporations in a variety of aspects of citizenship and thus embeds them in the new landscape of global political governance. On the other, this perspective also highlights some of the limits of corporations in actively taking up this new political role. Besides the fairly modest aspirations that corporations reveal empirically when embarking on the language of global citizenship (see again Table 2.1), the arena of cosmopolitan citizenship currently still appears as a rather uneven playing field, assigning political roles to corporate actors who as yet insufficiently provide corresponding degrees of transparency, accountability, self-restraint and openness to civic deliberation and control. Ecological citizenship and the corporation 5 Over the last decades, as a response to growing concerns about the environmental future of the planet, conceptualizing relations of citizenship against the backdrop of the ecological environment has become an increasingly popular way of framing debates in environmental politics (Curtin 2002; Dobson 2003). At a basic level, ecological citizenship is concerned with the status, entitlements and processes of participation that citizens enjoy in relation to the natural environment. Again, the notions of ecological citizenship are multifaceted, varying from understanding citizenship as intimate connection with a certain territory or as just an extension of traditional citizenship entitlements, thus including the right to a safe and healthy natural environment. Similar to cosmopolitan citizenship, ecological perspectives can also significantly extend rights and obligations of citizens, creating new civic links to individuals in different territorial regions (who, for instance, are affected by emissions in another region) or even future generations (who might be affected by the ecological impact of the present generation). Again, the perspective of ecological citizenship has a number of implications for understanding corporations as political actors. First, we see that corporations have in fact been rather active in exporting and shaping notions of (liberal) citizenship which disassociate individuals from their ecological environment. In particular in conflict with indigenous communities, for instance in the mining industry, we have seen corporations at the forefront of transplanting Western notions of property rights onto indigenous cultures, which may clash with more ecologically informed mechanisms of belonging
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and territoriality among such groups. Corporations have also faced a growing demand for respecting the ecological claims of their stakeholders who increasingly understand that a safe environment is one of their fundamental civic entitlements. And finally, the current debate on adequate responses to global climate change has confronted corporations with the problem of identifying their relevant community of obligation. All things considered, then, notions of ecological citizenship can contribute to a relocation of corporate responsibility – toward both local and global communities, and toward future generations and non-humans. Identity-based citizenship and the corporation 6 Next to the rather distinct extensions of cosmopolitan and ecological citizenship we have witnessed an avid proliferation of alternative citizenship identities which are premised on social identities such as ethnicity, sexual orientation, disability and age, to name just a few. Citizenship identity, often referred to as ‘cultural citizenship’ (Stephenson 2001), captures the way groups understand and project themselves as internally integrated and distinct from others in the polity. These characteristics are then used as a basis for making claims either to share the wider citizenship status from which they have been excluded or to win special citizenship advantages or exemptions in terms of entitlements and/or process. One can possess formal status as a citizen yet be excluded (in law or in fact) from certain civil, political or social rights, or from forms of participation in the political process that are available to others (Calavita 2005). Typical examples would be ethnic minorities or lesbian and gay people who, despite being citizens of a country, have struggled in many instances to fully develop and live their specific interests, aspirations and lifestyles. We can locate corporations in the purview of identity-based citizenship in three basic ways. First, business can reflect citizens’ identity. The most prominent example would be what is often dubbed the ‘pink economy’, that is, businesses that are run by and/or cater specifically to gay and lesbian customers. We also see this manifest in food suppliers providing kosher or halal food or with businesses such as the Body Shop or Ben & Jerry’s which for a long time reflected the identities of an ‘alternative’ lifestyle of particular consumer groups. Second, corporations can play a pivotal role in enabling citizenship identities. This can happen at the very basic level of providing people with a job who otherwise would not have the right to stay in a certain country as is the case with a great many legal and even illegal immigrants in industrialized countries. Furthermore, in an age where many aspects of citizenship are accessed through markets (Crouch 2003) employment as such forms the basis of enacting basic features of citizenship. More specifically,
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corporations offer a plethora of goods and services which enable, for instance, ethnic minorities or disabled people to enact various forms of participation in their wider communities. Third, and as a flipside to the two aspects mentioned, companies have often been associated with inhibiting citizenship identities. This can happen by excluding certain ethnicities or sexual orientations from employment, by restricting the advancement of, for instance, female employees through ‘glass ceilings’, or by producing goods and services that actively contribute to suppress the enactment of citizenship identities. An example of the last is reflected in the ambiguous role of internet service providers in supplying the Chinese government with the necessary tools to censor and oppress religious or ethnic minorities and political dissenters. Conclusions and future perspectives So, from our initial examination of the rather unadventurous literature specifically devoted to ‘corporate citizenship’, we have substantially expanded the horizon by thinking about some of the other ways in which corporations and citizenship can come together. Our three relationships (as citizen, government and arena) and our three reconfigurations of citizenship (cosmopolitan, ecological, identity) demonstrate that there are multiple ways to explore the corporation as a political actor with recourse to the literature on citizenship. We shall not seek here to promote any particular approach or agenda; we merely wish to emphasize that different horizontal and vertical relations of authority can be examined, different levels of analysis considered and different models of citizenship applied. Each, we believe, can prove fruitful for further research – as indeed might other relationships and reconfigurations. Each lens demonstrates some of the richness and complexity of the corporate role in citizenship; and together they demonstrate the difficulty of subscribing to a definitive assessment of the corporation’s responsibilities. Since corporations do not fit easily within a single predefined political role, and since citizenship is such a dynamic concept, corporate responsibilities in the field of citizenship are inherently contestable. If we look at the corporation one way, we might suggest one set of responsibilities, whereas if we look at it another way, we may suggest another set entirely. Perhaps it is not so surprising then that there is significant resistance to the introduction of citizenship into the analysis of corporations, and vice versa. Conceptualizing corporations through a citizenship lens has been brandished as ‘an idea whose time has not yet come’ (van Oosterhout 2005, p. 677) or, even as ‘little more than neo-liberal propaganda’ (Jones and Haigh 2007, p. 66). Such reluctance to embrace corporations within the terminology of citizenship is based on an assumption that to do so is to
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legitimize the corporation’s political role. Taking the notion of citizenship seriously, however, helps to analyze political roles that corporations already play, whether we agree with those activities or not, or whether we find them problematic or otherwise. Although citizenship theory does not supply any instant ready-made solutions, it helps us to understand this new reality, and enables us to explore its implications for democracy and societal governance in the 21st century. A debate about the political nature of the corporation has only just begun (for example, Scherer and Palazzo 2007) and the unfolding of ideas about corporations and citizenship can provide an important contribution to these deliberations. The specific new contribution of citizenship thinking here is that it opens up a debate on the conditions, prerequisites, typical patterns and limitations of corporate participation in power sharing in society – either as (un)equal citizens with other citizens on a horizontal level, or as actors involved in the governance of citizenship on a vertical level. Further research is clearly still needed here on what this might mean in practice for managers and policy makers – and on what the normative implications might be of such developments. Our purpose in this chapter was to start to map out the potential field of inquiry, but multiple modes of investigation – theoretical, empirical, normative and practical – will be necessary to further our knowledge in this area. Finally, we have also shown, especially in the three reconfigurations of citizenship discussed in the final section of this chapter, that when we look at corporations in the context of citizenship we need to be mindful of the possibility that corporations may actually have material impacts on what we even mean by citizenship. Corporations are not passive players in a stable landscape of citizenship institutions. The dynamics of citizenship are at least partly shaped by the activities of corporations. In this context, we would argue that there needs to be a much broader debate also in the neighboring disciplines of politics, international relations, philosophy, sociology and law about the impact of corporations on the dynamics of modern citizenship thinking and practice. While the role of corporations has recently received some attention in these disciplines (for example, Koenig-Archibugi 2002; Ruggie 2004), the debate on citizenship so far shows only limited appreciation of the corporate role in actively shaping and transforming the notion of citizenship. Journals such as Citizenship Studies have published just a handful of articles dealing explicitly with corporations during the last 10 years and seminal contributions such as the Handbook of Citizenship Studies (Isin and Turner 2002b) mention corporations just twice and in passing. A serious debate about corporations and citizenship should ultimately be able to contribute to our understanding not only of corporations, but also of the very notion of citizenship itself. It is here that one of the
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most exciting and challenging paths of theoretical development still waits to be discovered. Notes 1. This chapter draws from several papers and chapters previously published by the authors, namely Matten et al. (2003); Crane et al. (2004, 2008), Matten and Crane (2005) and Moon et al. (2005). 2. See http://www.thecro.com/, accessed 5 October 2007. 3. While our terminology of ‘limited’, ‘equivalent’ and ‘extended’ views on CC, initially suggested in Matten et al. (2003), has been widely accepted, we acknowledge other approaches. Recently, for instance, Norman and Néron (2008) have suggested a ‘minimalist’ and ‘expansionist conception’ of CC, which substantially, though, amounts to a differentiation similar to the one suggested here. 4. For details, see Chapter 7 in Crane et al. (2008), and Chapters 4, 11–14, 17 and 22 of this Handbook. 5. For details, see Chapter 6 in Crane et al. (2008), and Chapter 8 of this Handbook. 6. For details, see Chapter 5 in Crane et al. (2008).
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rate social performance and identifying measures for assessing it’, Business and Society, 39 (2), 210–19. Delanty, Gerard (2000), Citizenship in a Global Age: Society, Culture, Politics, Buckingham: Open University Press. Dobson, Andrew (2003), Citizenship and the Environment, Oxford: Oxford University Press. Donaldson, Thomas and Lee E. Preston (1995), ‘The stakeholder theory of the corporation: concepts, evidence, and implications’, Academy of Management Review, 20 (1), 65–91. Falk, Richard (2000), ‘The decline of citizenship in an era of globalization’, Citizenship Studies, 4 (1), 5–17. Fombrun, Charles J., Naomi A. Gardberg and Michael L. Barnett (2000), ‘Opportunity platforms and safety nets: corporate citizenship and reputational risk’, Business and Society Review, 105 (1), 85–106. Gardberg, Naomi A. and Charles J. Fombrun (2006), ‘Corporate citizenship: creating intangible assets across institutional environments’, Academy of Management Review, 31, 329–46. Gossett, William T. (1957), Corporate Citizenship, Lexington, VA: Washington and Lee University Press. Grant, Wyn (1987), Business and Politics in Britain, Basingstoke: Macmillan. Habisch, André, Hans P. Meister and René Schmidpeter (2001), Corporate Citizenship as Investing in Social Capital, Berlin: Logos, Hertz, Noreena (2001), The Silent Takeover, London: Heinemann. Ikeda, Satoshi (2004), ‘Imperial subjects, national citizenship, and corporate subjects: cycles of political participation/exclusion in the modern world-system’, Citizenship Studies, 8 (4), 333–47. Isin, Engin F. and Bryan S. Turner (2002a), ‘Citizenship studies: an introduction’, in Isin and Turner (eds), pp. 1–10. Isin, Engin F. and Bryan S. Turner (eds) (2002b), Handbook of Citizenship Studies, London: Sage. Isin, Engin F. and Bryan S. Turner (2007), ‘Investigating citizenship: an agenda for citizenship studies’, Citizenship Studies, 11 (1), 5–17. Jeurissen, Ronald (2004), ‘The institutional conditions of corporate citizenship’, Journal of Business Ethics, 53, 87–96. Jones, Marc T. and Matthew Haigh (2007), ‘The transnational corporation and new corporate citizenship theory: a critical analysis’, Journal of Corporate Citizenship, 27, 51–69. Kerr, Jeffrey L. (2004), ‘The limits of organizational democracy’, Academy of Management Executive, 18 (3), 81–95. Koenig-Archibugi, Mathias (2002), ‘Transnational corporations and public accountability’, Government and Opposition, 39 (2), 234–59. Korten, David (1995), When Corporations Rule the World, London: Earthscan. Kymlicka, Will and Wayne Norman (1994), ‘Return of the citizen: a survey of recent work on citizenship theory’, Ethics, 104, 352–81. Levy, David and Rami Kaplan (2008), ‘CSR and theories of global governance: strategic contestation in global issue arenas’, in Andrew Crane, Abagail McWilliams, Dirk Matten, Jeremy Moon and Donald Siegel (eds), The Oxford Handbook of Corporate Social Responsibility, Oxford: Oxford University Press, pp. 432–51. Linklater, Andrew (2002), ‘Cosmopolitan citizenship’, in Isin and Turner (eds), pp. 317–32. Logan, David, Delwin Roy and Laurie Regelbrugge (1997), Global Corporate Citizenship – Rationale and Strategies, Washington, DC: Hitachi Foundation. Logsdon, Jeanne M. and Donna J. Wood (2002), ‘Business citizenship: from domestic to global level of analysis’, Business Ethics Quarterly, 12 (2), 155–87. Lord, Michael D. (2000), ‘Corporate political strategy and legislative decision making’, Business and Society, 39 (1), 76–93. Maignan, Isabelle and O.C. Ferrell (2000), ‘Measuring corporate citizenship in two countries: the case of the United States and France’, Journal of Business Ethics, 23, 283–97. Maignan, Isabelle, O.C. Ferrell, G. Thomas and M. Hult (1999), ‘Corporate citizenship: cultural antecedents and business benefits’, Journal of the Academy of Marketing Science, 27 (4), 455–69.
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Manville, Brook and Josiah Ober (2003), ‘Beyond empowerment: building a company of citizens’, Harvard Business Review, January, 48–53. Marsden, Chris (2000), ‘The new corporate citizenship of big business: part of the solution to sustainability’, Business and Society Review, 105 (1), 9–25. Marshall, Thomas Humphrey (1964), Class, Citizenship and Social Development, London: Heinemann. Matten, Dirk and Andrew Crane (2005), ‘What is stakeholder democracy? Perspectives and issues’, Business Ethics: A European Review, 14 (1), 6–13. Matten, Dirk, Andrew Crane and Wendy Chapple (2003), ‘Behind the mask: revealing the true face of corporate citizenship’, Journal of Business Ethics, 44 (1–2), 109–20. McIntosh, Malcolm, Ruth Thomas, Deborah Leipziger and Gill Coleman (2003), Living Corporate Citizenship, Harlow: Financial Times/Prentice-Hall. Miller, W.H. (1998), ‘Citizenship that’s hard to ignore’, Industry Week, 2 September, 22–4. Moon, Jeremy, Andrew Crane and Dirk Matten (2005), ‘Can corporations be citizens? Corporate citizenship as a metaphor for business participation in society’, Business Ethics Quarterly, 15 (3), 429–53. Norman, Wayne and Pierre-Yves Néron (2008), ‘Citizenship Inc. – do we really want businesses to be good corporate citizens?’, Business Ethics Quarterly, 18 (1), 1–26. Palacios, Juan José (2004 ), ‘Corporate citizenship and social responsibility in a globalized world’, Citizenship Studies, 8 (4), 383–402. Parkinson, J.E. (2003), ‘Models of the company and the employment relationship’, British Journal of Industrial Relations, 41 (3), 481–509. Parry, Geraint (1991), ‘Conclusion: paths to citizenship’, in Ursula Vogel and Michael Moran (eds), The Frontiers of Citizenship, Basingstoke: Macmillan, pp. 166–201. Reilly, Bernard J. and Myron J. Kyj (1994), ‘Corporate citizenship’, Review of Business, 16 (1), 37–43. Roberts, Sarah, Justin Keeble and David Brown (2002), ‘The business case for corporate citizenship’, www.adlittle.com, accessed 15 March 2002. Ruggie, John Gerard (2004), ‘Reconstituting the public domain – issues, actors, and practices’, European Journal of International Relations, 10 (4), 499–531. Scherer, Andreas Georg and Guido Palazzo (2007), ‘Toward a political conception of corporate responsibility – business and society seen from a Habermasian perspective’, Academy of Management Review, 32 (4), 1096–120. Schneiderman, David (2004), ‘Habermas, market-friendly human rights, and the revisibility of economic globalization’, Citizenship Studies, 8 (4), 419–36. Schrader, Ulf (2003), Corporate Citizenship: Die Unternehmung als guter Bürger? (Corporate citizenship: the firm as a good citizen), Berlin: Logos. Seitanidi, Maria May and Annmarie Ryan (2007), ‘A critical review of forms of corporate community involvement: from philanthropy to partnerships’, International Journal of Nonprofit and Voluntary Sector Marketing, 12 (3), 247–66. Seitz, Bernhard (2002), Corporate Citizenship: Rechte und Pflichten der Unternehmung im Zeitalter der Globalität (Corporate citizenship: rights and obligations of the firm in the age of globalization), Wiesbaden: Deutscher Universitäts-Verlag. Sellers, Martin P. (2003), ‘Privatization morphs into ‘‘publicization’’: business looks a lot like government’, Public Administration, 81 (3), 607–20. Stephenson, Nick (2001), Culture and Citizenship, London: Sage. Stroup, M.A. and R.L. Neubert (1987), ‘The evolution of social responsibility’, Business Horizons, March–April, 22–4. Sundar, Pushpa (2000), Beyond Business – from Merchant Charity to Corporate Citizenship. Indian Business Philanthropy through the Ages, New Delhi: Tata McGraw-Hill. Thompson, Grahame (2006), ‘Tracking global corporate citizenship: some reflections on ‘‘lovesick’’ companies’, IIIS Discussion Paper No. 192, Dublin: Institute for International Integration Studies. Toyota (2007), Sustainability Report 2006, Tokyo: Toyota Motor Company. Turner, Bryan S. (2001), ‘The erosion of citizenship’, British Journal of Sociology, 52 (2), 189–209.
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Useem, Michael (1984), The Inner Circle: Large Corporations and the Rise of Business Political Activity in the US and UK, Ithaca, NY: Cornell University Press. van Oosterhout, Johannes (2005), ‘Corporate citizenship: an idea whose time has not yet come’, Academy of Management Review, 30 (4), 677–84. Waddell, Steve (2000), ‘New institutions for the practice of corporate citizenship: historical, intersectoral, and developmental perspectives’, Business and Society Review, 105 (1), 107–26. Waddock, Sandra (2001), ‘The multiple bottom lines of corporate citizenship: social investing, reputation, and responsibility audits’, Business and Society Review, 105 (3), 323–45. Wagner, C.G. (2001), ‘Evaluating good citizenship’, The Futurist, July–August, 16. Warhurst, Alyson (2001), ‘Corporate citizenship as corporate social investment’, Journal of Corporate Citizenship, 1, 57–73. Warner, Michael and Rory Sullivan (2004), Putting Partnerships to Work: Strategic Alliances for Development between Government, the Private Sector and Civil Society, Sheffield: Greenleaf. Windsor, Duane (2001), ‘Corporate citizenship: evolution and interpretation’, in Andriof and McIntosh (eds), pp. 39–52. Wood, Donna J. and Jeanne M. Logsdon (2001), ‘Theorising business citizenship’, in Andriof and McIntosh (eds), pp. 83–103. Wood, Donna J., Jeanne M. Logsdon, Patsy G. Lewellyn and Kim Davenport (2006), Global Business Citizenship, Armonk, NY and London: M.E. Sharpe. World Economic Forum (2002), Global Corporate Citizenship: The Leadership Challenge for CEOs and Boards, Geneva: World Economic Forum and Prince of Wales Business Leaders Forum.
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Corporate responsibility/corporate citizenship: the development of a construct1 Sandra Waddock
A context for evolving corporate responsibility The forces of globalization and the attendant growth of corporate power have created shifting centers of power and influence in the world, generally weakening the role of governments (Bendell 2004; Rodriguez et al. 2006). In some cases, this shift has created a context in which MNCs have begun to participate actively in some matters of the public good, including education, healthcare, poverty alleviation and standards setting. Simultaneously, the role and activism of NGOs and CSOs, fueled in part by the internet’s capabilities to connect people (Crossley 2002), has created a constantly shifting backdrop for businesses throughout the world. Because of the way they have been conceived and developed in industrialized societies (see, Bakan 2004), corporations’ values tend to be dominated by what Frederick (1995) labeled ‘economizing and power aggrandizing’ (while governments have coercive and power aggrandizing values), rather than the more civilizing, relationally oriented pressures that come from civil society (Waddock 2002 [2006]). It may seem that much has changed since the early days of the business in society field in the US when ‘lobbying the corporation’ (Vogel 1979) began to draw attention to potential and actual corporate abuses against society – and its stakeholders – and the natural environment. Or since the ethics scandals of the 1970s and 1980s in the defense-contracting industry that resulted in the creation of the Foreign Corrupt Practices Act and spawned the implementation of codes of conduct in associated industries, and, ultimately, the Ethics Officers Association. Or since the wave mergers and acquisitions in the 1980s and early 1990s that resulted in a whole new rationale for getting rid of people: downsizing, rightsizing and restructuring, with all of the related ‘social issues’. In the United Kingdom, Business in the Community (BITC) and later the International Business Leaders Forum (IBLF), founded by the Prince of Wales, were two of the early business-led coalitions focused on improving society. In the mid-1990s, Europe, and particularly Royal Dutch Shell, were rocked by activism associated with the execution of Ken Saro-Wiwa in Nigeria and Greenpeace’s attempts to prevent the dumping of the Brent 50
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Spar oil rig in the North Sea. The company subsequently made efforts to engage stakeholders and gain a reputation as a good corporate citizen by publishing a new type of report focused on People, Planet and Profits, which came to be known as a ‘triple-bottom-line’ report (Elkington 1998). By the late 1990s, a number of publications coming out of Europe had begun to call these new company behaviors, not just corporate social responsibility as the US terminology would have it, but corporate citizenship, implying a much broader set of responsibilities related not just to the deliberate (and largely voluntary) efforts by companies to improve societies, but also to the way business was actually practiced (for example, Logan et al. 1997; McIntosh et al. 1998; Murphy and Coleman 1999; also Andriof and McIntosh 2001). Although it would seem that corporate responsibility is simply good management practice (see Waddock and Graves 1997; Waddock 2002 [2006]), there seems to be enormous resistance to putting it into practice fully. Perhaps this resistance comes in part because particularly since the Reagan–Thatcher revolution of the early 1980s, shareholders’ interests have dominated much of the thinking about business. Concurrently the world has experienced a revolution similar to the one that Alfred Chandler (1962) described as the ‘managerial revolution’, which was fostered by improved transportation and communication technologies. Since the mid1990s in particular, the rapid evolution of the internet has permitted a new revolution toward highly networked transnational companies (TNCs) with global reach and clout. Globalization and outsourced manufacturing have created significant labor and human rights issues in developing countries, where labor, human rights and environmental standards are weak or nonexistent, simultaneously weakening the economies of local (home) communities and taking advantage of the disadvantaged systematically. Companies in the US now broadly participate in politics through contributions to political action committees that at least have the appearance of significant and somewhat problematic influence, while others are said to be in certain respects taking over governmental responsibilities (for example, Matten and Crane 2005; Scherer et al. 2006). On the other hand, companies throughout the world, more than 3700 of them, have become signatories to the UN Global Compact, with more than 300 being de-listed for inactivity in 2006. Some 180 of the world’s largest global companies have joined the World Council for Sustainable Development, and in 2006, some of the largest institutional investors in 16 nations of the world signed on to the Principles for Responsible Investment. Simultaneously, even CEOs have begun to acknowledge the need for shifting the focus of the financial community away from the shortterm orientation that has characterized it in recent times. And these signs
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are only the tip of an emerging iceberg around corporate responsibility – or responsible business practice (David Grayson, BITC, personal communication), which suggests that responsibility issues are potentially rapidly being incorporated into the mainstream of business practice. Defining corporate citizenship . . . and related terms Below are some general definitions to guide this analysis, because common definitions are needed to provide credibility and legitimacy to the field. The root concepts (see Figure 3.1), to my mind, are: 1.
2.
3.
4.
Corporate responsibility (CR). CR is manifested in the strategies and operating practices a company develops in operationalizing its relationships with and impacts on societies, stakeholders and the natural environment (Waddock 2002 [2006]). Some degree of responsibility (on a scale from poor to excellent) is present in all of these relationships and in the ways that companies treat stakeholders nature. Corporate citizenship is an increasingly popular term in business practices, albeit there is considerable controversy about whether a corporation can (or should) act as a citizen. Corporate citizenship (CC). CC carries many of the same meanings that CR does, with the added implication that corporations are imbued with legal rights and obligations that derive from a status akin to citizenship (Marsden 2000), and because they are powerful institutions in modern societies, in some cases, corporations are assuming roles and responsibilities that used to be considered governmental (Matten and Crane 2005; Scherer et al. 2006). Corporate social responsibility (CSR). CSR is the subset of corporate responsibilities that deals with a company’s voluntary/discretionary relationships with its societal and community stakeholders. CSR is typically undertaken with some intent to improve an important aspect of society or relationships with communities or NGOs (nonprofits). CSR is frequently operationalized as community relations, philanthropic, multisector collaboration, or volunteer activities. CSR as generally used falls into what Carroll (1979, 1998) termed the ‘discretionary and ethical responsibilities of business’. Sometimes the term CSR is used to mean what has been defined above as CR or CC. Corporate social performance (CSP) (assessment). CSP (Wood 1991) focuses on the principles of (social) responsibility at the institutional (legitimacy), organizational (responsibility) and individual (managerial discretion) levels, the processes of responsiveness (said to be environmental assessment, stakeholder management and issues management), and outcomes (social impacts, programs and policies).
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Figure 3.1
Descriptive (Narrative) Instrumental Normative
Reputation
Spirituality/Meaning
CSR 5 Corporate Stakeholder Responsibility
CR 4+ . . . Reputation, Relationships, Religion (Spirituality/Meaning)
Business Ethics
Macro Public Policy
Micro . . . Boundary Spanning Functions
CCR Corporate Community Relations
Corporate Social Performance
Corporate (Social) Rectitude (Ethics, Values)
CSR2 Corporate Social Responsiveness
A concept tree for corporate citizenship
Corporate (Social) Performance (Assessment)
Stakeholder Theory and Practice
Corporate Citizenship
Corporate Responsibility
Guiding Vision and Values
Root Concepts
CSR1 Corporate Social Responsibility
Corporate Stakeholder
Codes, Values, Principles
Corporate Citizen as Policy Maker
Stakeholder Engagement
Public Affairs, Employee Relations, Investor Relations, Public Relations, Customer Relations, Supplier Relations, Issues Management, etc.
Philanthropy, Volunteerism, Multisector or -stakeholder Collaboration
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5.
6.
Handbook of research on global corporate citizenship Basically, CSP provides a framework by which a company’s relationship to and activities in society and with respect to stakeholders and the natural environment can be assessed, illustrating that principles, processes and outcomes all need to be taken into account. The CSP framework was ‘reoriented’ by Swanson (1995) in an effort to integrate normative and descriptive approaches to business in society through concepts of value neglect and attunement, thereby avoiding what Freeman (1994) terms the ‘separation thesis’, which suggests that values can be separated from practice. Stakeholder theory. Popularized by R. Edward Freeman (1984; see also Freeman et al. 2007), stakeholder theory essentially argues that a company’s relationships with stakeholders (and treatment of the natural environment) is core to understanding how it operates and adds value as a business; indeed, Freeman (2003; Freeman et al. 2007) argues that stakeholder relationships are the very basis of value added and strategic initiative. Stakeholder language has been widely adopted in practice and is being integrated into concepts of corporate responsibility/citizenship by scholars who recognize that it is through a company’s decisions, actions and impacts on stakeholders and the natural environment that a company’s CR/CC is manifested. Corporate ‘stakeholder’ responsibility. Proposed as an alternative to the original conception of CSR as inherently social in nature, corporate stakeholder responsibility suggests that thinking about stakeholders is equivalent to thinking about business (Freeman et al. 2007). A new construct at the time of this writing, this CSR has yet to prove its mettle as a root construct; however, since it expresses a core logic about the nature of responsible business practice, that is, that it necessarily focuses on the way a broad array of stakeholders are treated, it is included in this listing.
Other definitions that will be useful for differentiating among key constructs follow: 1.
Corporate community relations (CCR) or involvement (CCI). CCR is a boundary-spanning corporate function that typically encompasses corporate practices that enable the company to form (hopefully positive) relationships with members of communities in which it operates or with which it has relationships, and with ‘society’ at various levels (local, state/provincial, regional, national and global). CCR typically includes specific functions such as a foundation or philanthropic program (corporate philanthropy), volunteer activities, in-kind giving, and multi- or intersector partnerships and collaborations for social
Corporate responsibility/corporate citizenship
2.
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benefit. CCI can be thought of as the processes associated with company interaction with community-based stakeholders, at whatever level of community is appropriate. Corporate reputation. Corporate reputation (Fombrun 1996) encompasses the perceptions that companies’ external and internal stakeholders have about their strategies, practices and products/services, CR/CC and corporate performance across a broad range of stakeholder and environmental measures, not just financial ones.
CSR1–4 and CSP Without going through a complete history of the field of business in society, we can see that there has been considerable development of scholarship over the past several decades. This assessment starts with the notion of corporate social responsibility, CSR, which developed primarily in the United States. We shall then move to more current conceptions of corporate stakeholder responsibility, and corporate responsibility and citizenship, where European, and particularly British, thought has played a major role. In what became an important framework that continues to shape the conceptualization of the field, William C. Frederick (1987, 2006) argued that there had been a progression of CSRs over a period of about 40 years. Figure 3.1 depicts these and related concepts graphically. On the left of the figure are foundational concepts now guiding the field, albeit not in the order in which they emerged. Company vision and values (at the top left) guide the development of CR/CC, that is, the ways that company practices impact on stakeholders and the natural environment. These broad and integral responsibilities of the firm (corporate responsibility or what the British business-led coalition Business in the Community now calls ‘responsible business practice’)2 are associated with the stakeholder, societal and natural environmental impacts of the business model employed by the firm. Stakeholder theory implies a similar integral managerial perspective on firm responsibilities as they relate to how a business practices. As the definitions above suggest, the term corporate ‘social’ responsibility is used here to reflect the in-practice definition of the manifestation of companies’ deliberate (and largely voluntary or discretionary) efforts to improve the societies within which they operate, including the natural environment. The emphasis of CSR, by this definition, is on the specifically social (‘do-good’, volunteer, philanthropic, multisector collaborative) efforts. The arrows suggest, in approximately the order in which they emerge, the specific terminology reflected in the Frederick (1998) framework and later developments to be discussed below. Complementing Frederick’s CSR1–3, to be discussed below, are multiple additional branches prominent since the 1980s: corporate responsibility,
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corporate reputation and corporate relationships give us three CRs related to the ways companies manifest their stakeholder/environmental relationships. It may be helpful to view them as branches from the trunk of corporate social responsibility, which rests on corporate responsibility, corporate citizenship, stakeholder relationships and assessment of that performance (corporate social performance), key root concepts in the field today. These concepts coexist, like an evolutionary tree with multiple branches that coexist rather than a single successful evolutionary set of advances with a lot of dead ends.3 In this evolutionary sense, responsibility is the trunk (with integrity perhaps at the root) and multiple branches emerging over time sometimes sequentially, sometimes simultaneously, not all of which fit directly under the CSR rubric, but all of which are related in terms of content and focus. CSR1: corporate social responsibility The first stage of business in society literature focused on corporate social responsibility, CSR1, according to Frederick (1987, 2006). CSR1 basically argued that the rights that companies demanded in society came with a series of responsibilities and that as important and powerful actors in societies, companies have an obligation to behave responsibly, meeting obligations voluntarily to avoid problems that would otherwise emerge. In practical usage, the term tends to mean the socially beneficial or ‘do good’ things that companies undertake, for example, multisector collaboration and partnerships aimed at bettering society in some way, community relations (CCR) activities, philanthropic or charitable programs and activities, and volunteer activities. Under a CSR1 framework, companies could and should be held responsible for their actions and decisions as they affected society and ought to live up to a higher set of standards than simple adherence to the law for the good of all, and they ought to contribute to the well-being of society. CSR2: corporate social responsiveness CSR1 was complemented in the mid-1970s by the advent of CSR2, corporate social responsiveness (Frederick 1987, 2006). The emergence of CSR2 reflected a more proactive stance on the part of companies that was recognized most notably in the work of Preston and Post (1975). Responsiveness means that companies take explicit and forward-looking actions to deal with external constituencies, whom we would now call ‘stakeholders’, and about social and public policy issues, typically by evolving what Preston and Post termed ‘boundary-spanning functions’. Where CSR1 tends to be reactive, CSR2 is more proactive in its orientation. Preston and Post (1975) argued that corporate–society interaction needed to be viewed not as separate and non-interacting streams but through the lens of an ‘interpenetrating systems
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model’. Companies, using boundary-spanning functions, attempt to cope more proactively than reactively with problems and issues raised by their activities in spheres other than the economic sphere, inherently recognizing their interdependence (interpenetration) with society. Issues management became another branch of both practice and scholarship during the 1980s, continuing today (a Google search on the term generates nearly a million hits, though the term has largely disappeared from scholarship). Wartick (1988) made a link between corporate financial performance and the capacity to manage issues well, a perspective taken globally by Nigh and Cochran (1994) and made strategic by Mahon and Waddock (1992) using the life-cycle perspective popularized by Preston and Post (1975). According to Frederick (1987, 2006), CSR2 was more pragmatic or practice oriented than CSR1 had been. Indeed, CSR2 seems to have been drawn from the experience of companies rather than from calls for more responsibility coming from scholars or activists such as Ralph Nader. Two substreams emerged from this thinking (Frederick 1987). One was a micro-organizational stream emphasizing structural changes within the company to enable it to be more responsive to external issues (for example, Post 1978; Post et al. 1982), a stream whose progenitors were Ackerman and Bauer (1976). The second stream within CSR2 was the macro dimension, which focused on public policy and was epitomized by the seminal work of Preston and Post (1975). Although Preston and Post famously spoke about the public responsibilities of managers, in practice, those public responsibilities became subsumed soon enough to the at least theoretical responsibilities that managers bore to the shareholder. CSR3: corporate social rectitude The third iteration of CSR was, according to Frederick (1987), in somewhat unfortunate terminology that was never widely adopted, ‘corporate social rectitude’ or CSR3. CSR3 reflected the dramatic growth of interest in business ethics within the general business in society field in the mid- and later 1980s. CSR3, according to Frederick, emphasized both social values derived from the sociopolitical environment and the emergence of a great deal of conceptual writing about business ethics. Basically, CSR3 is meant to acknowledge the inherent ethical dimensions of management strategies and practices (Freeman 1994; Waddock 2002 [2006]; Freeman et al. 2007). Led largely by converted philosophers, the business ethics component of the business in society field emphasized ethical decision-making processes, codes of conduct, and efforts to infuse companies with a broader set of values than narrow economic self-interest. As Frederick defined it, rectitude or ethics involved ‘a pervasive sense of rightness, respect, and humanity’
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(Frederick 1987, p. 157) that would put values and ethics ‘at the center of a company’s concerns, its policies, and its major decisions’ (ibid.). Unfortunately, in practice little of the sort happened, and as Liedtka (1998, 1999) pointed out, the field of business ethics has had little demonstrable effect on business practice, despite the common values across many management systems and approaches that she identified in that seminal – but undercited or acknowledged – paper. The broader focus on values, however, has had some impact on practice, as is made clear in the work not only of Liedtka (1998, 1999) and Wicks (2001), but also in the seminal management research of Collins and Porras (1996, 1997) and Senge (1990), as both theorists and progressive practitioners began to recognize the power in articulating and deploying inspirational vision and values within companies. CSP: corporate social performance Another stream emerged around 1991 when Wood (1991), building on the work of Wartick and Cochran (1985), drew up an integrated framework CSP that linked the major streams to date using principles, processes and outcomes as the guiding framework. The CSP framework focused dominantly on the social (versus broader stakeholder and environmental) impacts of corporate performance and rightly belongs in the CSR1 and CSR2 streams as identified by Frederick (1987). However, it largely ignores (except for a bow to stakeholder management) the integral responsibilities of companies associated with impacts on stakeholders that began to surface with the evolution of stakeholder theory and emergence of the language of corporate citizenship in the late 1990s. As Swanson (1995) pointed out, the CSP approach fails to integrate ethical/value processes and the moral foundation for managerial and corporate action with the economic rationale that is notable in the economic paradigm. In ‘reorienting’ the CSP model, Swanson argued for an interactive orientation focused at four levels of analysis: CSR macro principles, CSR micro principles, corporate culture and social impacts. Swanson argues for integration of both the normative and descriptive approaches to business in society through the concepts of value neglect (which highlights the problems of lack of integration) and value attunement to bring the responsibility and responsiveness streams together (Swanson 1999), thereby attempting to overcome what Freeman (1994) has called the ‘separation thesis’ (the separation of ethics and business practice). CSR4: cosmos, science, religion (spirituality) In a late 1990s keynote address to the Social Issues in Management (SIM) division of the Academy of Management, claiming that scholars had
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‘exhausted’ the primary analytic framework of CSR, Frederick (1998) added a fourth wave to his CSR framework. CSR4 invited the field away from a corporate centric focus toward a Cosmos (C) or naturalistic and science-based orientation as a proxy for all of the natural sciences. Frederick pushed for an understanding of the naturalistic basis on which human social institutions arise, through the ‘S’ in this wave, that is, Science (S), and toward a type of understanding of man’s search for meaning embodied in Religion (R) or spirituality. Frederick’s (1998) effort to move the business in society field toward a less corporate-centric perspective builds on his important book, Values, Nature and Culture in the American Corporation (1995), which used a natural science perspective to analyze the fundamental values that underscore the role of business in society: economizing, or prudent and efficient use of resources, commonly known as efficiency and power aggrandizing, or augmenting and preserving the power of managers and organizations. These values stand in some tension with a third important value cluster identified by Frederick, ‘ecologizing processes’, which like nature create cyclical and sustainable processes and patterns of use and reuse of raw materials (see also, Swanson 1995). In my own book, Leading Corporate Citizens (2002 [2006]), I attempt to move these values to the sectors or spheres that constitute human society (economic – economizing values; political – power aggrandizing values; and civil society – relationship or civilizing values), along with the natural environment as underpinning with its ecologizing values (see also Waddell 2002, for a further explication of the differences in values within each of the broad sectors of society). All of this theorizing (and much in management practice) is complemented by the emergence in the mid-1980s of stakeholder theory. Corporate stakeholder responsibility (CSR5) Stakeholder theory has evolved rapidly both in theory and in practice since Freeman’s (1984) seminal book first popularized the concept. As with corporate responsibility theory, the language surrounding stakeholder theory has also shifted over time. Freeman’s general idea (frequently misinterpreted) was that managing stakeholder relationships is essential to managing any enterprise effectively, and that stakeholders represent the very basis on which companies are founded and managed, and are thus critical to effective strategic and organizational management. Following this thinking, the title of the original book was Strategic Management: A Stakeholder Approach. Drawing on the work of Preston and Post (1975), Clarkson (1995) argued that both primary and secondary stakeholders depend on the impacts of the company on them (or vice versa).
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Notably, this managerial thinking lies at the core of Freeman’s current thinking as well (2003; Freeman et al. 2007). Companies cannot, in this view, exist without stakeholder relationships, and relationships by their nature are inherently normative because of the mutuality of interests they imply. This proposition avoids what Freeman has called the ‘separation hypothesis’ which either explicitly or implicitly implies that business and ethics can be discussed independently of each other (Freeman 1994, 2003) (or, implicitly, that corporate ‘social’ responsibility can be divorced from stakeholder or corporate responsibility). Companies, especially in today’s extended stakeholder enterprise, a form of network organization (Post et al. 2002a, 2002b), will be more successful when they have better stakeholder relationships (see also, Waddock 2002 [2006]). Thus, in more recent writings Freeman has argued for a new CSR, corporate stakeholder responsibility (Freeman 2007). Over time, Freeman (1994) has proposed that narratives or stories about company performance are central to building coherence in understanding stakeholder relationships and company practices and performance. Donaldson and Preston (1995) argued that three types of stakeholder theory exist: descriptive, instrumental (see also Jones 1995), and normative. Some theorists suggest that stakeholder theory should be considered core to the theory of the firm (for example, Brenner and Cochran 1991; Hill and Jones 1992; Donaldson and Preston 1995; Jones 1995; Jones and Wicks 1999). Taking a systemic and network-oriented perspective based on some of the literature on multisector collaboration, Austrom and Lad (1989) proposed that alliances might create a new context for organizations, new values and new ways of thinking, some of which can today be seen to be emerging in practice, for example, through the initiatives of the UN Global Compact or the evolution of the Global Reporting Initiative as a multistakeholder effort. This early work anticipated the emergence of stakeholder engagement going beyond proactive actions by management to interactive engagement (for example, Preston and Post 1975) that is common today in many companies. Further, Donaldson (1992) published an important book that linked international business, the forces of globalization and business ethics in an integral way. Corporate (stakeholder) relationships (CR3)/stakeholder engagement As stakeholder theory diffused into corporate and popular parlance, the term ‘stakeholder management’ gained a degree of dominance, taking a central place in important works like the Post et al. (2002a) book, Redefining the Corporation and their related paper, ‘Managing the extended enterprise: the new stakeholder view’, in California Management Review (Post et al.
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2002b). Others, however, focused on the relational aspects of the stakeholder, emphasizing stakeholder engagement as a long-term process of mutual interaction (for example, Freeman and Gilbert 1988; Harrison and St. John 1996; Svendsen 1998) and recognizing that stakeholder relationships are the foundation of the perceptions that make up corporations themselves (see also, Clarkson 1995). Stakeholder relationship management frequently morphs into stakeholder management, with the attendant (and largely mistaken) implication that all stakeholders can (should), in fact, be ‘managed’ by companies (see Andriof and Waddock 2002). The implicit power dynamic of this language, however, makes it problematic for external stakeholders who are attempting to influence corporate practice not to be under the dominance of the company, and fails to recognize the inherent mutuality of stakeholder relationships, in more of a network structure that does not necessarily place the interests of the firm at the center, but may sometimes place society’s (or other stakeholders’ or nature’s) interests first. The most widely cited framework of ‘stakeholder management’ is that of Mitchell et al. (1997), which makes explicit the one-way operationalization of stakeholder dynamics, as well as the power implications. The alternative language is ‘stakeholder relationships’ and ‘stakeholder responsibility’ (Waddock 2002 [2006]; Freeman et al. 2007), which is related to the practices that many companies have evolved to actually engage with stakeholders in a variety of ways. Stakeholder engagement processes partially grew out of attention to public–private partnerships, which have evolved into multistakeholder collaboration and dialogue (for example, Waddell and Brown 1997; Payne and Calton 2002; Calton and Payne 2003) to bring multiple interests together around important social, political and economic development issues. Engagement on a relatively equal footing means power sharing, interaction and partnership and is highlighted in emerging multistakeholder dialogues being sponsored, for example, by the UN’s Global Compact’s Learning Forum among numerous others. Corporate responsibility (CR) By the mid-to-late 1990s, new terminology and thinking about what we shall from here on call corporate responsibility (CR or, more accurately, CR1) began to emerge. Corporate responsibility (CR1) The term ‘corporate responsibility’ drops the word ‘social’ so popular in previous terminology, to reflect the emerging sense that responsibilities are integral to corporate actions, decisions, behaviors and impacts and cannot be separated even conceptually (Waddock 2001, 2002; see also Freeman
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1994; Freeman et al. 2007). Generically, these decisions, behaviors and impacts can be called ‘corporate practices’ – and those practices inherently affect stakeholders and the natural environment. In turn, actions of stakeholders (and the status of the natural environment) affect a company’s ability to carry out its work, thus corporate responsibility (née corporate citizenship) integrally links corporate practices, stakeholders and the integral responsibilities associated with relationship. During the 1990s and early 2000s, another two CRs became popular: corporate reputation and corporate relationships (including notions of stakeholder engagement). As ‘corporate social responsibility’ partially morphed into ‘corporate responsibility’ (CR1) in the world of practice, companies also began paying attention to their corporate reputation (CR2), in part as a result of renewed anti-corporate activism during the 1990s. Simultaneously, corporate (stakeholder) relationships (CR3) emerged as an important set of operating principles and processes within the boundary-spanning functions that companies had begun developing in the 1970s and 1980s. Corporate reputation (CR2) The work of Charles Fombrun (Fombrun and Shanley 1990, 1996, 1998, 2000) and colleagues brought considerable academic attention to the issue of corporate reputation during the 1990s. Emerging partially from the perspective of protecting a company’s brand image, and hence from the marketing field, the study of corporate reputation drew attention to the reality that underlying a company’s public image (or public relations activities) was a reputation that could either attract or turn away key stakeholders. Fombrun started the Reputation Management Institute at New York University, which both influenced and made a bridge to practice, and also began to conduct stakeholder-based surveys of companies’ reputation. Additionally, the journal Corporate Reputation Review provided an outlet for academic papers (focused somewhat on practice) that highlight issues of corporate reputation. Corporate citizenship (CC) The term ‘corporate responsibility’ is generally comparable in practical usage to the term ‘corporate citizenship’ (CC) in the broad definition given earlier in this chapter (see also Marsden and Andriof 1998; McIntosh; et al. 1998; Marsden 2000), which largely emerged from British thinkers. Marsden and Andriof (1998, pp. 329–30), for example, define corporate citizenship in the following way: ‘Good corporate citizenship, therefore, is about understanding and managing an organisation’s influences on and relationships with the rest of society in a way that minimises the negative and maximises the positive’.
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Similarly, the definition of corporate citizenship given in Leading Corporate Citizens (Waddock 2002 [2006]) pp. 4–5) is: Leading corporate citizens are companies that live up to clear constructive visions and core values consistent with those of the broader societies within which they operate, respect the natural environment, and treat well the entire range of stakeholders who risk capital in, have an interest in, or are linked to the firm through primary and secondary impacts. They operationalize their corporate citizenship in all of their strategies and business practices by developing respectful, mutually beneficial relationships with stakeholders and by working to maximize sustainability of the natural environment. They recognize that they are responsible for their impacts and are willing to be held accountable for them.
The Boston College Center for Corporate Citizenship defines the term as: ‘Corporate citizenship is the business strategy that shapes the values underpinning a company’s mission and the choices made each day by its executives, managers and employees as they engage with society’. This strategy is, in the Center’s view, underpinned by four principles: minimize harm, maximize benefit, be accountable and responsive to key stakeholders, and support strong financial results.4 The terms ‘corporate responsibility’ and ‘corporate citizenship’ integrate stakeholder relationships into their operationalization, uniting the two dominant streams in the business in society field, because in addition to focusing on the social implications of business activities, they also incorporate issues related to companies’ performance with respect to specific stakeholders and the natural environment. This integration makes stakeholder- and environment-related performance central to CR (for example, Marsden and Andriof 1998; McIntosh et al. 1998; Marsden 2000; Waddock 2002). Mutual, holistic relationship-based interactions are part of the core foundation of corporate citizenship. In addition, more recent thinking suggests that because of the lack of a global governance structure and the reality that some companies are more powerful than some governments, some MNCs are actually undertaking responsibilities previously associated solely with governmental actors and that in that respect, the term ‘corporate citizen’ may be reasonable (for example, Scherer et al. 2006; Scherer and Palazzo 2007). Important work in the business ethics arena also typifies the early emergence of corporate citizenship and responsibility terminology, particularly Donaldson and Dunfee’s integrative social contracts theory (Donaldson and Dunfee 1994; Donaldson 1996). Donaldson and Dunfee argue for the existence of foundational values that they call ‘hypernorms’ that are global in scope and that can be applied in any context. Picking up on this term in our study of responsibility management systems in corporate practice, Charles Bodwell and I have argued for what we term ‘foundational values’
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(Waddock and Bodwell 2002; Waddock et al. 2002; Waddock 2004), based on internationally agreed treaties, as the basis for developing comparable codes of conduct and stakeholder/ecological practices across companies in different contexts. Corporation as citizen Criticism has arisen around the term ‘corporate citizenship’ because although they are considered to be persons in law (at least in some countries), corporations are not persons in actuality, and therefore cannot participate actively in democratic processes. It is clear that corporations are not structured as democracies, nor do they vote as do individual citizens, even though in the law they are treated as persons with certain rights and obligations. They simultaneously command many more resources than do most individual citizens. Hence controversy and new thinking have arisen around the term (Matten and Crane 2005; Moon et al. 2005). Wood and Logsdon (2001; Logsdon and Wood 2002; Wood et al. 2006) have attempted to develop a definition of what they call ‘business citizenship’ in which they claim that a good business citizen is ‘a responsible play in its local environment [with an] [e]mphasis on volunteerism and charity, as well as on the organization’s rights and duties in and for the community’ (Logsdon and Wood 2002, p. 156), though their book (Wood et al. 2006) broadens the definition to be comparable to that of CC or CR as defined above. As noted by Moon et al. (2005), however, the original definition is very similar to CSR, and does not really address either the broader and more integral responsibilities associated with companies’ business models, strategies and practices that other definitions do, or the essentially political nature of the term ‘citizen’. The narrow definition of CC is typical of the early usage of CC; however, recent scholarship deals seriously with the concept of citizenship (Matten and Crane 2005), and also may reflect some of the stages that appear to occur in CC (see below). In their critique of CC, Moon et al. (2005, p. 434) note that incorporation by its nature creates a legal entity that has rights and responsibilities, typically associated with particular nations. As participants in societies, however, Moon et al. and Scherer and colleagues (Scherer and Palazzo 2005, 2007; Scherer et al. 2006) point out cogently that because of the relative weakening of governments and strengthening of multinationals, corporations today can and do participate in social governance structures outside of the firm that actually serve at least some of the same functions as governments traditionally have served. They do this collaboratively with institutions in other sectors, including governments, NGOs and CSOs. Matten and Crane (2005) and Moon et al. (2005) further make the claim that corporations sometimes administer rights within the firm as well.
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Generally Moon et al. conclude that corporations do not meet minimal criteria for citizenship under minimalist criteria, but under a more deliberative frame that uses ‘citizenship’ more metaphorically, and when they participate in collaborative processes with governments and NGOs, they are ‘sharing in the doing of government “like” citizens’ (Moon et al. 2005, p. 446, original emphasis). Following along with this argument, Matten and Crane (2005, p. 173) provide a tentative definition of CC: ‘CC describes the role of the corporation in administering citizenship rights for individuals’, even though it could readily be argued that few companies are actually doing this today. Another current conceptualization of CC is that weakened governments have resulted in a vacuum of power that some corporations have stepped in to fill, as argued by Scherer and colleagues (Scherer and Palazzo 2005, 2007; Scherer et al. 2006). But this participation in an emerging global governance structure is a shared governance responsibility, and it is shared with governments and NGOs (and CSOs), and not undertaken solely by corporations, whose predominant interests remain economic or as Frederick (1995) indicates, ‘economizing’. The result is a process that is explained using a perspective from Jürgen Habermas where the public interest is defined as an outcome of a communication process that helps individuals form their preferences (Scherer et al. 2006, p. 516) and works through multisector, multistakeholder collaborative processes that co-create the new governance structure, a structure that Waddell calls ‘global action networks’ (see also Waddell 2003). A note on stages of development Some of the conceptual development that has occurred around corporate responsibility is the result of scholarship reflecting shifts in the ways that companies themselves are responding to external and stakeholder pressures. A framework for stages of corporate citizenship has been proposed by Mirvis and Googins (2006), which encompasses five stages: elementary, engaged, innovative, integrated and transforming. Mirvis and Googins suggest that some laggard companies are at the elementary stage, in a compliance-driven modality that is actually probably pre-CSR1 in the Frederick framing, while correspondingly few companies have reached the transforming stage, which is about changing the game entirely. Most companies are engaged, which could be seen as a reactive (Preston and Post 1975) CSR1 (Frederick 2006) modality, or a more proactive CSR2 innovative stage, where they understand the business case for corporate responsibility and act on it. Some more progressive firms have entered an interactive (Preston and Post 1975) CSR3, integrated stage in which they focus on sustainability, integrate CR across functions and into practices throughout the
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company and involve themselves in numerous external partnerships to ensure that they stay on top of issues. Thus, although these frameworks use different terminologies, all imply a form of development as CR becomes more embedded within the actual strategies and operating practices of the firm. Scholarship and the emerging responsibility infrastructure The current wave of globalization has created a context in which traditional rules of the game set by governments seem to many observers to be insufficient to contain or counteract the power of MNCs or hold them accountable for their impacts. In effect, globalization has reshaped the social contract that exists between companies, countries and citizens, leaving many to wonder how companies, particularly large MNCs, can be made accountable, responsible and transparent. Despite the dominance in corporate and political thinking of neoliberalism and the neoclassical economics (for example, Jensen 2000), however, the level of interest in corporate responsibility both from practitioners and academics alike has fostered the early stages of a global governance and responsibility assurance infrastructure that complements but is partially encompassed by theoretical developments described earlier. Frequently engaging coalitions comprising major actors from each of the dominant societal sectors (business, government and civil society, see also, Waddell and Brown 1997; Waddock 2002 [2006]) in the development process, the emerging institutional responsibility infrastructure seems to be a more or less direct response to the shifting social contract and an attempt by concerned citizens and activists – and some companies themselves – to create a countervailing set of forces focused on accountability and responsibility, or what I have elsewhere termed a ‘responsibility infrastructure’. This new and largely voluntary global governance for responsibility assurance (see Waddock 2006b) is complemented by numerous other forces that have effectively created a whole new architecture of institutions associated with fostering corporate responsibility (Waddock 2006a). The responsibility assurance infrastructure as it has evolved to this point consists of two major elements: 1.
2.
Internal responsibility management systems: coherent, systemic and holistic internal responsibility management systems that acknowledge the mutuality of interests of companies and their stakeholders and the natural environment (with appropriate external support from consultants and industry or related organizations/associations). External responsibility assurance systems and processes, of which there currently are three major types of institutions:
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b.
c.
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Generally (globally) accepted foundational principles and standards promulgated by credible institutions, such as the UN Global Compact’s 10 principles, the Caux Roundtable Principles, and the OECD Guidelines for Multinational Corporations. Globally accepted and credible reporting standards and guidelines encompassing ecological, societal and governance (ESG) impacts by companies, which resemble generally accepted accounting principles (GAAP) for these ESG aspects of business, of which the leading institution is the Global Reporting Initiative (GRI). Credible external verification, monitoring and certification systems, which provide assurance that what is being reported by companies is valid and truthful, for which leading institutions are SAI International (SA 8000 labor standards, which are helpful for companies with long global supply chains), AA 1000 ESG standards and the ISO 26 000 standards on corporate responsibility, due in 2008. Also included in this group might be organizations such as Rugmark, Transfair, the Forest Stewardship Council, the Fair Trade Labeling Organization and similar entities that create ‘marks’ that attest to the validity of no sweat, no child labor, ecological sustainability or fair trade claims made by companies.
Other institutional architecture today supports this responsibility assurance infrastructure and adds different pressures onto businesses for greater responsibility. This institutional architecture has been rapidly evolving since the last decade of the 21st century and has created a new landscape around the issue of corporate responsibility that could barely have been conceived of by early scholars who hoped to generate greater corporate responsibility through their attention to CSR, CR and CC in their various iterations. This still-evolving responsibility assurance system has relatively limited reach into the business community to this point, and is quite new, which means that there are ample opportunities for scholarly pursuits in understanding both how these developments have emerged and their impact, in particular because that reach is growing quickly. For example, there are as of this writing some 5000 signatories to the UN Global Compact and about 1000 companies formally using the GRI framework (and many more adopting it informally). This rapid evolution is complemented and supported by another whole set of institutions that are dealing with different aspects of corporate accountability and responsibility and a host of new institutions and coalitions that create wholly new networks of organizations focused on these issues (for details, see Waddock 2006a). For example, numerous NGO–business coalitions, networks and dialogues have been
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established. Some, such as the World Economic Forum, the Ethical Trading Initiative and the World Social Forum are focused on specific issues. Others, such as Corporation 20/20 in the US and Tomorrow’s Company in the UK, are focused on asking what tomorrow’s corporation should look and be like. Companies have been pushed by the need to demonstrate their responsibility into new kinds of activities, assessments and communications. As a result, wholly new consulting enterprises have been established to help companies cope with the plethora of social, ecological and governance demands that they are now facing. Such consultancies include the Innovest Strategic Advisors, and SmithOBrien, to name only a couple. The socially responsible investment (SRI) movement alone constitutes not only another whole set of pressures around responsible practices facing modern corporations, but also another whole and rapidly evolving set of institutions. Not only are there now according to the Social Investment Forum some 173 ‘socially responsible mutual funds’ (in 2007), but there are numerous stock indices that specifically track the financial and social performance of companies included on their lists (the most notable of these are the Domini Index, FTSE4Good in the UK, and the Dow Jones Sustainability Index). So quickly has SRI grown that since 1990, when the US’s KLD Research and Analytics became the first independent social research entity, there are now at least 11 countries with research organizations that track the ESG performance of companies domestically, all of which share data with the SIRI Group (Sustainable Investment Research International) on a global basis. KLD and SIRI Group planned to merge as of early 2008. SRI has spawned numerous professional organizations as well, including the Social Investment Forum (both in the US and the UK) and the European Social Investment Forum, among others. Other organizations exist, too, which help shape opinions about responsible investment (for example, the Institute for Responsible Investment), and foster activism (for example, the Interfaith Center on Corporate Responsibility, which has been around for 35 years at this writing and was one of the earliest such enterprises) and responsible venture capital (Social Venture Network). Much corporate, as well as activist, attention has gone to attempting to determine whether there is in fact a fortune at the bottom of the pyramid as Stuart Hart (2005) and C.K. Prahalad (2005) have argued together and separately. This focus has been given reality in practice since the development of micro financing by Mohammed Yunas’s Grameen Bank (see Bornstein 1996) in the 1970s. Now not only has the United Nations endorsed micro finance as an appropriate approach to some of the issues associated with poverty but literally dozens of micro-finance organizations
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have sprung up around the world. The micro-finance model may prove useful as more large and particularly small and medium-sized enterprises attempt to tap into the potential of bottom-of-the-pyramid markets, or, more realistically perhaps, attempt to create micro entrepreneurs who will then have the capacity to both produce and consume, hopefully, as Hart (2005) points out, in an ecologically sustainable way. Other developments that highlight the rapid evolution of the business in society field include a proliferation of journals, handbooks, books and popular press magazines and articles. Where scholars once complained about locating places to publish their work, now mainstream academic publications are publishing special issues on CSR and related topics (for example, the Academy of Management Journal, the Journal of International Business, the Journal of Management Studies) and journals, including the Journal of Corporate Citizenship, Business and Society, Business Ethics Quarterly and the Journal of Business Ethics, are devoted to the topic. All of this activity had in 2005 created something of a backlash, with The Economist publishing an anti-CSR cover story (more or less retracted in 2008), but in the main, such backlash attests to the growing popularity of the emphasis on CR. Complement all of this development with a proliferation of ratings and rankings devoted to one aspect or other of CR, the establishment of numerous academic institutes, centers and programs (including specialized management education programs) on CR, and activities and actions by a wide variety of both general and specialized watchdog and activist groups. Add in the emergence of numerous multisector forums where business leaders can interact with actors from NGOs, CSOs and governmental bodies, and it will become clear that the landscape of CR has evolved dramatically since the mid-1970s, and particularly since the mid-1990s. Despite the explosion of scholarly work that has accompanied that shifting landscape, it is clear there is still a need to determine whether CR is in fact integrated into corporate practices or remains, as much of the early CSR activity was called, ‘window dressing’. It is likely these will remain open question for scholars for many years to come. Notes 1. This chapter is based on Sandra Waddock (2004), ‘Parallel universes: companies, academics, and the progress of corporate citizenship’, Business and Society Review, Autumn, 109 (1), 5–42. I would like to thank Robert Frederick, editor, for permission to use the framework of the earlier paper for this Handbook and for permission to reprint large sections of that paper in this chapter. 2. David Grayson, personal communication, 2006. 3. Ironically, using this biological reference brings us to Frederick’s (1995) more recent work on the linkages between biology/nature and business ethics/responsibility.
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4. Website for Boston College Center for Corporate Citizenship, http://www.bcccc.net/ index.cfm?fuseaction=Page.viewPage&pageID=567, accessed 15 November 2006.
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Moon, J., A. Crane and D. Matten (2005), ‘Can corporations be citizens?’, Business Ethics Quarterly, 15 (3), 427–51. Murphy, D.F. and G. Coleman (1999), ‘The global partnership for new corporate citizenship: business–civil society relations in a changing world’, ILO Enterprise Forum 99 – A New Spirit of Enterprise: Articles and Cases, Geneva, Switzerland: International Labour Organization, 1–10. Nigh, D. and P.L. Cochran (1994), ‘Issues management and the multinational enterprise’, Management International Review, 34 (Special Issue), 51–9. Payne, S.L. and J.M. Calton (2002), ‘Towards a managerial practice of stakeholder engagement: developing multi-stakeholder learning dialogues’, in J. Andriof, S. Waddock, B. Husted and S. Rahman (eds) (2002), Unfolding Stakeholder Thinking, Sheffield, UK: Greenleaf, pp. 121–36. Post, J.E. (1978), Corporate Behavior and Social Change, Reston, VA: Reston Publishing. Post, J.E., E.A. Murray, Jr, R.B. Dickie and J.F. Mahon (1982), ‘The public affairs function in American corporations: development and relations with corporate planning’, Long Range Planning, 15 (2), 12–21. Post, J.E., L.E. Preston and S. Sachs (2002a), Redefining the Corporation, Oxford and New York: Oxford University Press. Post, J.E., L.E. Preston and S. Sachs (2002b), ‘Managing the extended enterprise: the new stakeholder view’, California Management Review, 45 (1), 6–29. Prahalad, C.K. (2005), The Fortune at the Bottom of the Pyramid: Eradicating Poverty through Profits, New Delhi: Pearson Education/Wharton School Publishing. Preston, L.E. and J.E. Post (1975), Private Management and Public Policy: The Principle of Public Responsibility, Englewood Cliffs, NJ: Prentice-Hall. Rodriguez, P., D.S. Siegel, A. Hillman and L. Eden (2006), ‘Three lenses on multinational enterprise: politics, corruption, and corporate social responsibility’, International Journal of Business Studies, 37, 733–46. Scherer, A.G. and G. Palazzo (2005), ‘Towards a political conception of corporate responsibility – business and society seen from a Habermasian perspective’, University of Zurich working paper. Scherer, A.G. and G. Palazzo (2007), ‘Globalization and corporate social responsibility’, in A. Crane, A. McWilliams, D. Matten, J. Moon and D. Siegel (eds), The Oxford Handbook of Corporate Social Responsibility, Oxford, UK: Oxford University Press, forthcoming. Scherer, A.G., G. Palazzo and D. Baumann (2006), ‘Global rules and private actors – towards a new role of the TNC in the global governance’, Business Ethics Quarterly, 16 (4), 404–532. Senge, P. (1990), The Fifth Discipline, New York: Free Press. Svendsen, A. (1998), The Stakeholder Strategy: Profiting from Collaborative Business Relationships, San Francisco, CA: Berrett-Koehler. Swanson, D.L. (1995), ‘Addressing a theoretical problem by reorienting the corporate social performance model’, Academy of Management Review, 20 (1), 43–64. Swanson, D.L. (1999), ‘Toward an integrative theory of business and society: a research strategy for corporate social performance’, Academy of Management Review, 24 (3), 406–522. Vogel, D. (1979), Lobbying the Corporation: Citizen Challenges to Business Authority, New York: Basic Books. Waddell, S. (2002), ‘Six societal learning concepts in an era of engagement’, Reflections: The SoL Journal, 3 (4), 18–27. Waddell, S. (2003), ‘Global action networks: a global invention helping business make globalization work for all’, Journal of Corporate Citizenship, 12, 27–42. Waddell, S. and L.D. Brown (1997), ‘Fostering intersectoral partnering: a guide to promoting cooperation among government, business, and civil society actors’, IDR Reports, 13 (3). Waddock, S. (2001), ‘Integrity and mindfulness: foundations of corporate citizenship’, Journal of Corporate Citizenship, 1 (1), Spring, 25–37. Waddock, S. (2002 [2006]), Leading Corporate Citizens: Vision, Values, Value Added, New York: McGraw-Hill.
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Waddock, S. (2004), ‘Creating corporate accountability: foundational principles to make corporate citizenship real’, Journal of Business Ethics, 50, 313–27. Waddock, S. (2006a), ‘Building the institutional infrastructure for corporate responsibility’, Proceedings, Intercontinental Dialogue on Corporate Social Responsibility, University of Quebec at Montreal, October. Waddock, S. (2006b), ‘Unfolding corporate citizenship: new demands for a new era’, in J. Allouche (ed.), Corporate Social Responsibility, London: Palgrave Macmillan. Waddock, S. and C. Bodwell (2002), ‘From TQM to TRM: the emerging evolution of total responsibility management (TRM) systems’, Journal of Corporate Citizenship, 2 (7), 113–26. Waddock, S., C. Bodwell and S.B. Graves (2002), ‘Responsibility: the new business imperative’, Academy of Management Executive, 16 (2), 132–48. Waddock, S.A. and S.B. Graves (1997), ‘The corporate social performance–financial performance link’, Strategic Management Journal, 18 (4), 303–19. Wartick, S.L. (1988), ‘How issues management contributes to corporate performance’, Business Forum, 13 (2), 16–22. Wartick, S.L. and P.L. Cochran (1985), ‘The evolution of the corporate social performance model’, Academy of Management Review, 10, 758–69. Wicks, A.C. (2001), ‘The value dynamics of total quality management: ethics and the foundations of TQM’, Business Ethics Quarterly, 11 (3), 401–36. Wood, D.J. (1991), ‘Social issues in management: theory and research in corporate social performance’, Journal of Management, 17 (2), 383–406. Wood, D.J. and J.M. Logsdon (2001), ‘Theorizing business citizenship’, in M. McIntosh and J. Andriof (eds), Perspectives on Corporate Citizenship, Sheffield, UK: Greenleaf, pp. 83–103. Wood, D.J., J.M. Logsdon, P.G. Lewellyn and K. Davenport (2006), Global Business Citizenship: A Transformative Framework for Ethics and Sustainable Capitalism, Armonk, NY: M.E. Sharpe.
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Defining the concept of good corporate citizenship in the context of globalization: a paradigm shift from corporate social responsibility to corporate social accountability S. Prakash Sethi
Introduction Concerns about the proper role of business institutions in society have been an ever-present phenomenon across all ages and cultures. At a cerebral level, these concerns reveal themselves in the notions of possession of economic power and the rights of those who exercise such power. At a more visceral level, economic institutions are evaluated in terms of the fairness with which they acquire a society’s resources, that is, factors of production, the way they distribute the resultant output and the exchange values they seek from those who consume this output. Although both these concepts are interrelated, the former views the social role of the corporation in terms of one’s notion of a just society, that is, the role of corporate power, while the latter focuses on what might be called ‘distributive justice’, that is, how corporate power is exercised in exchange relationships with the corporation’s stakeholders (Sethi and Sama 1998). In the period following the Second World War and the rising global power and economic prosperity of the United States, the popular vision of a ‘good corporation’ that emerged was that of a financially successful and economically efficient company that would marry profit making with social responsibility; provide stable and well-paid jobs with generous benefits; support culture and the arts; encourage employees to become involved in their communities; and be a good corporate citizen. In a word, the good corporation or the socially responsible corporation was synonymous with large, highly successful and paternalistic corporations that may have done business globally, but had their roots in local communities. The archetypes of these corporations could be found in IBM and General Motors in the US, Sony in Japan, the Tata Group in India and Siemens in Germany, to name a few. They all shared a common rationale for doing well by the communities where they were domiciled and were considered pillars of their societies. 74
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Corporate social responsibility (CSR) in this context is defined as ‘actions voluntarily taken’ by a company beyond what is legally required and which meets societal expectations under dynamic sociopolitical conditions. Similarly, corporate citizenship would convey the totality of corporate actions, both in the sense of meeting legal and regulatory mandates, but also satisfying the expectations of a company’s significant stakeholders and the community’s needs. The more common term in this context is corporate social performance (CSP), which not only includes CSR activities but also their outcomes for the end users, that is, the society. In a word, a socially responsible corporation was seen as an institution that was paternalistic and benevolent. The reason why a good corporation was also a socially responsible corporation should be all too apparent. The status quo was ideally suited to the prevailing macroeconomic and market-competitive conditions. Most economies were essentially domestic in character and scope, where large corporations dominated their relative markets under oligopolistic conditions. Government regulation was benign and pro-business and intervened mainly to restrain egregious anti-competitive conduct. Corporations also exercised considerable pricing power and thus were able to maintain a financially acceptable level of profitability while meeting their ‘social’ obligations. Early attempts at defining CSR focused on common concerns of public good which can be easily associated with corporate conduct that a society can legitimately expect of a responsible corporation. The corporate leadership shares the ethical values and norms of social equity of the country–community where the corporation has its headquarters and core operations. In Western societies, it was suggested that CSR was a necessary prerequisite for a company to gain its social franchise. This expectation was further bolstered by the notion that good conduct was embedded in the ethical values of the managers and the corporate institution. The fact that national markets were largely protected from international competitive forces made it feasible and desirable to support the conventional notions of a socially responsible corporation. It also made economic sense because it helped provide a stable and loyal labor force, a supportive community and a benign regulatory environment. It should not be underestimated that this situation also elevated corporate executives to the status of visionary leaders with high ethical values and legitimate custodians of a society’s wealth. One should not assume, however, that the paternalistic good corporation of the recent past was almost always altruistic, or that the extent of paternalism was uniformly shared across all industries and market segments. Others have offered parallel though somewhat different visions of the idyllic corporate welfare state where managers combine market-competitive efficiency with enlightened stakeholder management to achieve the best of
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all possible worlds. This archetype of the good corporation holds whether we use Western societies as our frame of reference or seek refuge in the Asian values of the newly industrializing economies of the Pacific Rim countries. In Western societies, where competitive markets do not expect corporations to distribute their largesse to others not associated with the company in a business relationship, we seek refuge in the notion of enlightened selfinterest and even go so far as to assert that one can only do well by doing good. Or that good ethics is good business. In Asian societies, the justification comes from the notion of community as family, where group values predominate over individual self-interest. Ergo, the most successful individuals or corporations could not have achieved their success without support from their group (Sethi 1996). Altered expectations of good corporate citizenship It would, however, have been unrealistic to assume that our proverbial ‘good corporation’ would succeed under different economic and marketcompetitive conditions, or that our underlying ethical values and a sense of social equity would prevail under different economic, and marketcompetitive conditions. When confronted by a different set of competitive market conditions, the change in the conduct of our large corporations was not long in coming. Companies were quick to disavow their traditional persona of a socially responsible corporation. It would seem that our hitherto good corporate citizens were no longer able or willing to provide the wherewithal of a good life to their various constituencies while going through the wrenching experience of downsizing to meet the new realities of market competition and develop a new set of priorities for the allocation of corporate resources. Otherwise, how might one justify the conduct of large corporations over the recent past where they have cumulatively laid off thousands of workers, quite often unilaterally reduced their pensions and healthcare benefits, while at the same time managed to increase financial returns to the company’s shareholders and enormous increases in executive salaries and other forms of compensation. The situation was aptly described by Robert Samuelson in a 1993 Newsweek article, in which, using the trials and travails of IBM as an example, he poignantly describes the demise of the ‘good corporation’ and the terrible loss and hurt this demise inflicted on hundreds and thousands of people and scores of institutions (Samuelson 1993). One could just as easily ask the same question from a different perspective, that is, whether IBM is now more or less good but whether IBM has the luxury to be anything else. Those who put their naive faith in the idea that corporations can do well by doing good, that is, good ethics is
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always good business, are either assuming away the market advantages that these companies hold, or refusing to accept history as it exists and instead substituting their perception of reality as it ought to be. These altered circumstances provided the companies with an opportunity to redefine their social responsibility and good corporate citizenship primarily in the arena of philanthropy, which required a miniscule amount of monetary resources and did not call for any commitment toward achieving a certain level of outcome or remediation of the underlying societal problems. At the same time, the corporation removed itself from taking any responsibility toward the welfare of its traditional stakeholders, that is, customers, employees and the community, beyond what the market forces would necessitate and regulatory regimes would require. The changes in the corporate conduct and the resulting social and economic upheaval in large segments of the population also gave rise to a new form of social activism in the United States and other Western countries. The new social activism sought to find ways by which to justify nonmarket-related and non-government-mandated responses from the business community to redress society’s ills, both those that could be directly related to corporate conduct and those where a small part of corporate resources could be used to generate greater public good. These efforts, and the rationale for their justification, underpin the contemporary movement of CSR that has occupied scholarly attention and the public debate over the last two decades. Theoretical postulations for rationalizing post-paternalistic notions of CSR and corporate citizenship The uncoupling of corporate paternalism from CSR called for a redefinition of what constitutes CSR and good corporate citizenship. It also required a new theoretical rationale – be it philosophical or pragmatic – to justify changes in corporate conduct. The definition for what would or should constitute CSR was easily forthcoming from all types of constituencies who sought a share of corporate largesse and also a role in the decision-making process that would be responsible for distributing the corporate largesse. To cite one example, a few years ago the editors of Business and Society Review, a leading scholarly journal in the area of CSR, solicited the views of a selected group of scholars, activists and government leaders on what would be a future ‘good corporation’ (Chappell 1993a; Kanter 1993; Moskowitz 1993; Reich 1993). Their views ranged all over the map. Professor Rosabeth Moss Kanter of Harvard Business School conjures up a corporation committed to its workers, investing in human resources via a continuous process of training and development, and developing a pool of
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skilled workers to support future activities of the firm. Moving from employees to customers, Tom Chappell, president of Tom’s of Main and author of The Soul of a Business: Managing for Profit and the Common Good (1993b), suggests that respect for customers generates needed feedback on company’s products and services, and that competition should be balanced by ‘goodness’, which he defines as a demonstration of care and concern for people, nature and the community. Another contributor, former US Secretary of Labor, Robert B. Reich, emphasizes the long-term benefits of good corporate citizenship, particularly vis-à-vis employees, over the shorter-term payoffs of downsizing strategies. The boundaries of corporate citizenship appeared to be constrained only by the proclivities of various stakeholders who sought an even larger share of corporate resources because they were deserving of this largesse and the corporation could afford it. Unfortunately, developments of theoretical underpinnings to rationalize demands for new CSR have not been so easy, notwithstanding the tomes of scholarly literature in philosophy, economics, political science, ethics and management addressing this issue. These suggest an enormous range of approaches reflecting one’s orientation, academic training, and notions of desired outcomes (Bowen 1953; Goodpaster 1991; Carroll 1977; Freeman 1984, 1998; Bowie 1999; Matten and Crane 2005). It would be well-nigh impossible to summarize this vast body of literature in this short chapter. Instead, we would limit our discussion to the two major theoretical streams that provide primary rationalization for postpaternalistic notions of CSR. In developing a theoretical infrastructure for the contemporary CSR movement, academic scholars faced a unique challenge. A socially acceptable and widely recognized rationale of corporate conduct already existed in economic theories of competitive markets where the outcomes of individual actions by corporations and their various stakeholders were determined through exchange transactions. Thus neither the corporation nor its various constituencies were obliged or expected to provide greater or different exchange values beyond what were freely and voluntarily determined in the marketplace. Equally important, the logic of the market-based acquisition of resources and distribution of their output was politically legitimized and considered superior to non-market approaches. The advocates of new CSR generally did not choose to confront the notion of efficient markets both as they existed in theory and also as they operated in practice. The status quo was largely accepted as given, with failures attributed to the short-sightedness of individual corporate or industry leaders. Instead, the advocates of new CSR offered their rationale as a way to improve the workings of the corporation in the marketplace and would
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thus be beneficial both for the business institutions and society at large. When challenged as to why business institutions needed to be cajoled to do something which was in their own self-interest, enlightened or otherwise, escape was found in oblique references to short-term orientation of the business leaders or structural flaws in the system that would deter business leaders from taking a long-term perspective of business operations and their social consequences that would be inimical both to the corporations and vital societal interests (Sethi 2003b). Such a determination is hard to accept at face value when it is the same corporate leaders who would risk billions of dollars on projects that would come to fruition long into the future and with varying risks of technological, financial and political uncertainties attached to them. In their excellent paper, ‘Toward a political conception of corporate responsibility: business and society seen from a Habermasian perspective’, Andreas Georg Scherer and Guido Palazzo (2007) offer a good literature review summarizing various approaches and theoretical rationale to analyzing post-paternalistic CSR. Their review and analysis conclude that post-paternalistic CSR rationalizations have not sufficiently integrated various aspects of corporate conduct; individual and institutional motivations toward certain types of conduct; normal and value-oriented notions of right and wrong in the context of a just and fair society; economic and competitive forces that would exert different types of pressure on individual and institutional conduct; and the proclivities of those individuals and institutions that would differentiate their responses to given external pressures. In our analysis of this literature, we have combined them into two intellectual streams. The first one considers the rationalizations for postpaternalistic CSR from the perspective of normative values and beliefs held by individuals and institutions in a society. These values are embedded in a society’s psyche and commonly shared by all participants. We characterize this approach as ‘window out’ wherein a corporation shapes its conduct in response to societal concerns in a manner that is primarily based on its beliefs in ethical and social values. A more common nomenclature for this intellectual stream would be the ‘business ethics’ approach. The second intellectual stream considers the source and relevance of external pressures, that is, societal needs and the strength – however defined – of the individuals and groups seeking corporate responses to their preferred choices. This approach suggests a recognition on the part of the corporation that certain socioeconomic considerations have adversely impacted the economic and social well-being of these groups. Furthermore, a voluntary and proactive response on the part of the corporation would be preferable in order to minimize potentially more negative consequences
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for the corporation. We characterize this approach as ‘window in’ wherein a corporation responds to external pressures in a manner that seeks to create a ‘win–win’ solution. A more common nomenclature for this intellectual stream would be the ‘stakeholder’ approach. Normative and ethical norms for determining CSR and good corporate citizenship The institutional context of business ethics has become an increasing concern of enquiry among management scholars, other social scientists, corporate executives and political leaders. To wit, what are the conditions, that is, external sociopolitical and competitive structures, and intrainstitutional frameworks, that propel and instigate corporations and their executives to indulge in unethical and even illegal actions that they would otherwise condemn when undertaken by others. The point is not merely rhetorical. It raises important issues of public policy and social organization. At the micro level, it is the individual conduct acting in a business context that gets reflected in the adverse social impact of the business institution. Philosophers and ethicists have almost invariably referred to this aspect of business behavior, contending that moral values find their expression only through human beings acting either individually or collectively. The macro or the structural context of business ethics is even more important. As economic activity increases in complexity and technological orientation, it is unhinged from the mooring of individual actions. Large-scale economic activity ironically calls for collective action where each individual contributes but a tiny fraction to the whole. In such a situation, individual acts are rewarded and punished not so much for their ethical content but on the notion of one’s loyalty to the institution, and where individual morality and institutional welfare, however defined, are perceived to be in conflict. Under normative concepts of desired CSR conduct, it is assumed that in pluralistic societies, a common set of values bind a society’s members who choose – both as individuals and as groups – to act in a manner that is compatible with a society’s fundamental values (Bowie 1999; Treviño and Weaver 1999; Scherer and Palazzo 2007). Ethically derived frameworks, however, fail to provide consistent guidelines a priori as to how certain ethical principles would apply to particular ethical dilemmas and what if any moderating variables should be taken into consideration. Other authors suggest certain basic principles that are fundamental ‘universal norms’ or human values that can be presumed to apply to human societies (Wogaman 1986; Etzioni 1988; Walton 1988; Daly and Cobb 1989; Donaldson 1989; De George 1993; Donaldson and Dunfee 1999). Similarly, in the political arena, the International Labor Office of the United Nations as well as the European Community have advocated the
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creation of benchmark standards of workers’ rights and a Social Charter involving corporations and their workers (Bercusson 1990; Hepple 1990; Curwen 1992). A third approach to making CSR compatible with competitive markets is to assert that good ethics leads to good business. It is argued that enlightened self-interest would lead businesses to pursue ethical conduct because it is more congruent with society’s ethical and moral expectations and thus would resonate with a company’s stakeholders. Financial studies and consumer stakeholder surveys are cited where successful businesses were also the ones to uphold higher ethical standards. Thus reduced to its bare essentials, the situation becomes one of cost–benefit analysis. To wit, how ethical does a business have to be to maximize profits under a given competitive situation? Notwithstanding the fact that most of these are at best corelational and rarely, if ever, demonstrate causality, calculating the market price of being ethical is hardly an endorsement for ethical principles in business (Baumhart 1961; Cochran and Wood 1984; Aupperle et al. 1985; Wood 1991; Sethi and Sama 1998; Steinmann and Scherer 2000; Jensen 2002; Matten et al. 2003; Vogel 2005). Concern about business ethics or lack thereof, seems to be a historical phenomenon which appears with remarkable regularity through periods of economic prosperity and hard times. One can easily recall significant periods in American history, and for that matter in the history of most capitalistic nations, when major business scandals assaulted the nation’s moral psyche and its denizens’ pocketbooks (Fuller 1962; Herling 1962; Cook 1966). The 1980s will be remembered in the United States as much for ‘Reaganomics’ and ‘get the government off people’s backs’, as for the decade of greed personified by such luminaries as Ivan Boesky, Mike Milken and Charles Keating, to name a few (Lewis 1989; Lorsch and MacIver 1989; Burrough and Helyar 1990; Stewart 1991; Vise and Coll 1991; Binstein and Bowden 1993; Day 1993). Doing well by doing good Good ethics is good business, we are told. We would not be discussing this topic if this were indeed the case. Businesspeople, being rational, would not need much prompting from outsiders to strive for ever higher standards of ethical and socially responsible behavior. All empirical evidence and economic logic indicate otherwise, however. Under conditions of rising competitive intensity and an uncontrollable free-rider problem, companies cannot and will not do well. Competition keeps businesses honest. It should, therefore, follow that firms would act more ethically, even in the economic sense of maximizing social welfare, as markets approximate the ideal conditions of perfect competition (Sethi 1994; Sethi and Sama 1998).
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Unfortunately, this is not the case when applied to business morality. While efficient markets may prompt firms to act smart, they do not induce them to act ethically, and perfect markets are highly imperfect in their enforcement of business morality (Baumol 1991). Ethical lapses and illegal behavior are not the domain of some sleazy firms operating at the fringes of otherwise respectable and responsible companies. On the contrary, they are to be found in every segment of business activity, afflicting corporations large and small, and regardless of their financial and market circumstances. While a large majority of all businesses operate within the socially and legally acceptable standards of corporate behavior, the deviant corporations and executives do not necessarily display structural, institutional or even personal characteristics that are different from their more ethical counterparts. It was only a few years ago that today’s poster bad boys, for example, Enron, Tyco and Global Crossing, were considered the paragons of forward-looking, entrepreneurial and socially responsible corporations. The paramount question for us to examine involves the circumstances, individual and contextual, that make businesspeople and business institutions act in socially harmful ways. We must ask whether there are levels of unethical activity and immoral behavior that would persist under different types of economic conditions and individual proclivities regardless of a society’s efforts to curb such behavior and which, therefore, must be accepted as the necessary cost of doing business. Market systems with their self-correcting discipline and competitive forces, however, are presumed to keep such behavior at a minimum compared to alternative mechanisms for organizing economic activity, that is, state control of production and distribution systems. Therefore, among a constellation of imperfect worlds, a market economy with individuals exercising their free will to make choices, is said to offer the least repugnant of alternatives and the one with the greatest susceptibility toward responding to corrective mechanisms. It is this proposition that is the subject of our investigation and to which we now turn our attention. Even under the best of circumstances, the good corporation can be viewed as ‘not all good’ and ‘not good for everybody’. It is easy to say, as the old cliché goes, make love not war, unless one asks the inevitable question: to wit, make love to whom and war against whom? We must, therefore, conclude that: 1.
Highly competitive markets are inimical to the creation and sustenance of the ‘good corporation’. Although competition makes business efficient, it does not make it virtuous. One could even argue that highly competitive markets provide greater opportunities for illegal and
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unethical behavior (Baumol 1991; Sethi 1994). In other words, it is not possible to sustain the axiom that a company can always ‘do well by doing good’. Most markets become imperfect as they become large and complex, that is, consumers and other factors of production, for example, labor, lose their ability to bargain and compete with corporations on an equal footing. Large corporations can survive only under conditions of imperfect competition. Therefore, they would take all necessary action to maintain these market imperfections so as to sustain their above-normal profits. The most logical behavior to expect from the corporation, under these circumstances, would be to do good generally when it is doing well, that is, it would be first the economic imperative and only secondarily the societal concerns that would largely define both the nature and extent of ‘good’ corporate conduct.
Creating a climate for generalized socially responsible behavior In the absence of economic rationale, a corporation’s socially responsible behavior is in the nature of ‘public goods’ available to all members of society regardless of their individual contributions to such enhancement. This state of affairs, however, creates real problems for those firms that wish to act in a socially responsible manner for the benefit of the entire society. The economic concept is that of a ‘free rider’ where firms belonging to this group benefit from the social values and public goodwill created by the good firms. They also put inexorable pressure on the ‘good’ firms to create more and more good deeds and receive fewer and fewer social rewards – a situation that is simply not viable. Therefore, from society’s perspective, we should enhance those social–structural underpinnings and institutional frameworks that are necessary for improving the ethical norms of corporate behavior. As economic activity increases in complexity and technological orientation, it requires collective action where each individual and institution contributes but a tiny fraction to the whole. The corporation can be either good or bad depending on who is making the trade-offs, at whose expense these trade-offs are being made, and the extent of discretionary resources available to the corporation and its managers: (a) to ameliorate some of the second-order effects, that is, externalities, of their normal business activities; and (b) to voluntarily meet non-market societal needs (Sethi 1996). The stakeholder theory of CSR and corporate citizenship The second type of theoretical rationale underlying CSR and corporate citizenship is the ‘window-in’ approach wherein a corporation engages its various stakeholder groups in determining its strategy and modus operandi.
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The stakeholder concept once articulated by Edward Freeman in his book Strategic Management: A Stakeholder Approach (1984) has become ubiquitous in the business and society field and the lodestar of ‘good management’ (Freeman 1984, 1998; Carroll 1995; Donaldson and Preston 1995; Freeman and McVea 2001). The popularity of the ‘stakeholder theory’ can be attested from the massive volume of scholarly and practitioner-oriented publications devoted to the topic. One can hardly find a corporate CSR report that does not allude to the company’s responsibilities to its various stakeholders. Senior corporate managers invariably speak of corporate survival, growth and concern for ‘all’ of the company’s stakeholders in the same breath. In general, stakeholder discourse has depicted management as facing a wide range of interest groups, who make claims upon a company’s resources and may, also, have a determinative effect upon the company’s operations. Earlier postulations of an expanded role of stakeholders were seen in essentially voluntary terms, that is, a corporation has a ‘social responsibility’ to other segments of society while its primary responsibility as a private economic institution is to its owners, the shareholders. Subsequently, the notion of ‘corporate social obligation’ was developed. It took into account market imperfections that in turn yielded non-market power to corporations. It implied the mandatory nature of ‘social contract’ of the new relationship, which emanated from the fact that all corporate activities create second-order effects or ‘externalities’ that are further magnified through ‘market failures’. Thus corporations become ‘free riders’ at the expense of other segments of society (Karmel 1993; Mitchell et al. 1997; Orts 1997; Treviño and Weaver 1999; Jensen 2002). The notion that corporate managers should be accountable to a larger group of stakeholders is based on two assumptions. First, management accountability to shareholders is best maintained as a legal myth. In the real world, shareholders are neither interested in nor capable of exercising effective control. For all intents and purposes, corporate management is a self-perpetuating oligarchy, accountable to no one but itself. Evidence also shows that external market-based controls are inadequate as mechanisms for regulating top management behavior. Efforts at improving shareholder accountability are unlikely to yield desired results because of the changing character of stockholders; fiduciary obligations of institutional shareholders; investor preference for portfolio diversification as a strategy for risk minimization; and inability of individual shareholders to influence management behavior (Shleifer and Vishny 1986; Hill and Jones 1992; Sethi 1994; Orts 1997). Second, even if it were possible to create new legal and market mechanisms to make managers more accountable to stockholders, it would not necessarily remove all public policy concerns. Corporate performance – under
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conditions of imperfect markets – is impacted by a variety of constituent groups whose legitimate concerns must be taken into account if corporations expect to improve their performance and compete more effectively in the marketplace. Therefore, unless corporations take into account the legitimate interests of these groups, they risk the wrath of political system and invite greater regulatory oversight. Competitive markets and stakeholders Under conditions of competitive markets, all stakeholder relations are determined through exchange transactions in the marketplace. Neither the firm nor its various stakeholders, for example, customers, suppliers, employees, expect or receive any other form of consideration. CSR literature has posited various rationales for determining who should be considered a stakeholder. These include, among others, the notions of relative power, dependency, political (size of the stakeholders group) or moral agency to name a few. These criteria follow the logic articulated by Novak (1982) in The Spirit of Democratic Capitalism, which describes the institutional arrangements that undergird market economics. Within such a framework, stakeholder theory is based upon the theories of political economy, civil rights and economic rights (Schumpeter 1942; Lindblom 1977; Phillips 2003). Market imperfections raise two points relevant to stakeholders: 1.
2.
The competitive rights of stakeholders in terms of (a) fair access to information and (b) fair bargaining power. This competitive factor is an issue of both procedural fairness (justice) as well as efficiency. It clearly affects all those usually classified as ‘primary’ or ‘direct’ stakeholders – those dealing with a company on the basis of explicit or implied contract (owners, consumers, workers, suppliers). Asymmetries in information and bargaining power between parties inhibit legitimate stakeholder interests and provide a basis for just claims against offending parties and for remedial action, either by the parties themselves (stakeholder management) or through public policy. Externalities rights of stakeholders. As noted above, in market theory third parties to either property ownership or contracts have rights as to use the claims and an obligation to protect the commons. The second major grouping of stakeholders (often called ‘secondary’ or ‘indirect’ stakeholders) assert their claims based upon either positive or negative externalities.
The most often cited approach to managing stakeholders is the familiar ‘hub and spoke’ graphic which describes relations between stakeholders and management. However, it does little more than provide a checklist of
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where managers should look in making decisions (Freeman 1984). Rather than being a tight, univocal, unambiguous scientific definition, the term ‘stakeholder’ as currently applied is plastic and pluriform, and at the same time conceptual and symbolic. Stakeholders include those groups and individuals who have an interest in the action of an organization, who have a stake in the organization, who have the ability to influence it (Sharplin and Phelps 1989; Aggarwal and Chandra 1990; Savage et al.1991). Based on the observed phenomena of interaction between groups, any theory of the firm would normally incorporate the notion of stakeholders – defined in most general terms by Freeman as ‘any group or individual who can affect or is affected by the achievement of the firm’s objectives’ (Freeman 1984, p. 46; see also Barton et al. 1989; Brenner and Cochran 1991). Mapping a set of stakeholders is not a simple task because an individual or a group has many stakeholder identities – both in the sense of having a stake in different organizations as well as belonging to different organizations which themselves have various sets of stakes. Furthermore, the meaning of a stake, or its basis, may vary from political power to economic power, for example, shareholder vote. Specific stakes are both dynamic and interconnected and, in addition, may pose the possibility of conflict as well as congruence with a firm’s basic direction or mission. For stakeholder theory to be a cogent basis for determining its relevance to CSR, it must meet certain tests pertaining to theory building: 1.
2. 3.
4. 5. 6. 7.
There must be a priori criteria to determine who is a stakeholder. These should include, among others, direct and indirect stakeholders, and short versus long-term stakeholders. What is the nature of the stake and how does it affect the importance of the stakeholder? How does one resolve conflicting interests of various individuals–groups within a single stakeholder group, for example, large versus small customers, unionized versus non-union employees, and workers located in different countries? What is the extent of corporate responsibility where the stakeholder has the ‘resources’ to make informed judgments to protect its interest? How does the stakeholder theory protect stakeholders from the adverse impact of ‘negative externalities’? How does the system protect a good company from the costs associated with the free-rider problem? How does stakeholder theory apply to situations where there are no apparent stakeholders; where negative externalities fall outside the range of current stakeholders but have a significant long-term negative impact as society, for example, environment in the long term?
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None of these issues is currently addressed in the CSR models of stakeholder theory. Furthermore, as we shall discuss in the next section on globalization, the challenges of defining stakeholders, their stake and their relative ability to protect their legitimate interests become infinitely more complex and intractable (Krauss 1997; Banerjee 2003; Sethi 2003b). Impact of globalization on the changing notions of CSR The growing trend in globalization has shattered our idyllic world of the good corporation. It has forced us to examine our assumptions as to what would make these corporations more socially responsible and what would be the parameters that would define the notion of a socially responsible corporation. A strong argument can be made that globalization and the unrestricted flow of capital, goods and services lead to the creation of wealth and prosperity among all participating nations. Comparative advantage allows both the industrially advanced nations and developing countries to maximize their gains from trade. Globalization also leads to economic integration and convergence in economic policies around the world. Multinational corporations (MNCs) have become an engine of change through their injection of technology, organizational skills and a competitive environment in foreign markets. They not only bring with them new technologies and management systems, they also bring a different kind of corporate culture and assumptions about the national governments and the country’s economic and sociopolitical institutions (Dicken 1992; Orts 1995; Bellofiore 1999; Sercovich et al. 1999; Beck 2000; Hay and Marsh 2000; Batterson and Weidenbaum 2001; Sethi 2002b; Christmann 2004). But there are costs as well. Globalization has led to greater income disparities and unequal sharing of the gains of globalization between countries and among different groups within individual countries. It has caused a dislocation or dismantling of the ‘social safety net’. For the benefits of free trade to be distributed equitably, according to standard trade theory, it is important that both capital and labor have maximum mobility, so that each may maximize the rewards from its efforts. MNCs currently enjoy all of the advantages of moving capital between different sectors and nations in order to maximize their returns on investment. Workers, however, lack such mobility. They cannot migrate easily, if at all, to countries of labor shortages. The imbalance between the mobility of capital and goods, and the immobility of labor are more characteristic of neo-mercantilism than of truly free markets. MNCs use both the fact and threat of capital mobility to extract maximum productivity gains from cheap and abundant labor. The control of overseas markets provides the MNCs with monopoly-like power, which they use on local manufacturers to extract the lowest prices possible and thus put extreme downward pressure on local wage rates. An
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abundance of cheap labor leaves little incentive for MNCs to improve technology and thereby enhance labor productivity (Sachs and Warner 1995; Strange 1996; Braithwaite and Drahos 2000; Sethi 2003a; Stiglitz 2003; Stiglitz and Charlton 2005). The mobility of capital has ‘rendered an important segment of the local governments’ tax base footloose’, leaving governments with the unappetizing option of imposing disproportionately high taxes on income from labor, agricultural products from even poorer rural areas, household consumption, and taxes on local property (Rodrik 1997, p. 7). Short of resources, host country governments have been unwilling and unable to exercise regulatory oversight, or to enforce the already rudimentary local labor and environmental protection laws – a practice that multinationals find quite agreeable (Steinmann and Scherer 1998, 2000; Varley 1998; Chan 2001; Moran 2002; Sethi 2003a; Young 2004). MNCs’ responses to criticism – a sea of red herrings MNCs’ responses to public concern and criticism about their role in the current phase of globalization can be grouped into two categories (Bhagwati 1998; Rugman 2000): justifications for their conduct, and proposals for institutionalizing changes in their conduct. MNCs contend that they adhere to local laws and regulations in their own operations and insist that their suppliers also adhere to similar standards of compliance. They put the blame for poor working conditions largely on the shoulders of local manufacturers and local labor authorities. At the same time, they condone laxity in compliance as a necessary evil because developing countries cannot afford the luxury of enforcing labor and environmental standards similar to those that prevail in industrially advanced countries (Cohen 1998; Berry 2000; Rondinelli and Behrman 2000; Batterson and Weidenbaum 2001; Bearak 2001; Kastein 2001; Sethi 2003a). The second aspect of MNCs’ response to public criticism is more proactive. Recognizing that some allegations of poor and unfair working conditions may indeed be valid, individual companies and industry groups have promulgated voluntary codes of conduct to govern their overseas operations and those of their local manufacturers and suppliers. However, both the MNCs and their local partners refuse to publicly disclose the result of their compliance efforts. Instead, they argue that disclosure would discourage local partners to cooperate in the MNCs’ efforts. An evaluation of the substance and adequacy of their proactive responses toward improving the lot of workers in developing countries, however, shows that MNCs’ pledges toward reforms through code adoption are more rhetorical than substantive. Most independent research by non-governmental organizations have demonstrated that in most cases these efforts have largely been
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public relations exercises to the extent that MNC efforts in code creation and implementation are dismissed by informed observers as empty rhetoric and meaningless exercises (Orts 1995; Beck 2000; Rondinelli 2002; Sethi 2003a; Young 2004). Societal expectations of good corporate conduct in the era of increased globalization Emerging trends in globalization and their future direction make the following abundantly clear: 1.
2.
3.
MNCs would continue to exercise a large measure of discretion in moving capital flows and technology among different countries and thereby diminishing the influence of nation-states in regulating within their borders. An ancillary, and not entirely desirable, impact of this trend would be to force national governments to provide similar benefits to their home-grown companies and thereby further exacerbate the adverse impact of negative externalities within their borders. While MNCs may compete vigorously against each other in the marketplace, their strategic orientation calls for similar action in dealing with negative externalities, that is, issues pertaining to environmental protection; human rights, preservation of local cultures, adequate protections for employees in the workplace, and consumers and suppliers in the marketplace; and corporate governance dealing with shareholder rights and transparency in corporate management. They are also likely to maximize their free-rider gains at the expense of national and regional political jurisdictions. MNCs have continuously reduced their affiliation to a single country as their home base and often create multiple headquarters in different countries. This weakens their ties to local economies beyond what is minimally required.
From corporate social responsibility to corporate social accountability These altered global circumstances require a fundamental change in our understanding of the role of business organizations in general and MNCs in particular, and our expectations of corporations as good corporate citizens. They call for a new paradigm in defining business society relationships in the context of a social contract. The appropriate approach under this paradigm would be to move away from the notion of CSR and into the notion of corporate social accountability. It would also encourage companies to voluntarily engage in corporate philanthropy or other community-related activities for their own reasons. However, these activities would most likely require a relatively insignificant
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amount of a corporation’s monetary or human resources. Therefore, these activities would not be considered necessary or sufficient in evaluating a socially acceptable standard of good corporate conduct. CSR may supplement, but it would not supplant, corporate social accountability. The rationale for good corporate conduct would comprise three components, as follows. Emphasis on core business operation The impact of corporate conduct must relate to its core business operations, the negative externalities they create, and their adverse consequences on individuals and communities. These externalities may arise from the inherent characteristics of a company or industry. These may also result from the company/industry’s power to exploit public goods as free riders by reducing the impact of political-regulatory control on their operations. This approach would require that companies collaborate across industries and regions to develop standards for ‘best practices’. It would include all elements of the broadened concept of good corporate conduct, that is, environment, social issues and governance (ESG). Formulation of industry and regional standards would necessarily involve cooperation and consultation with various stakeholders, including international and regional financial and lending institutions, for example, the World Bank, civil society organizations and national governments. It is also important that the process of standard setting is transparent to ensure that the final product engenders public trust and credibility toward corporate actions. Corrective imbalance between oligopolistic market power and stakeholders interests Globalization and imperfect markets have greatly enhanced the power of large corporations in creating and exploiting these conditions. Therefore, the rationale for the good corporation would be to correct the asymmetry of relative power between the corporation and its constituent groups. These can be defined as: 1. 2. 3.
information imbalance: the amount and quality of information available to the two parties prior to entering into a transaction or exchange; bargaining and negotiating power imbalance: the relative bargaining leverage of the opposing groups during negotiations; and adjudication, remedy and relief imbalance: the ability of each group to seek proper adjudication of disputes and gain restitution for harm done when a transaction fails to yield desired and mutually satisfactory results.
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These three imbalances are the principal means through which corporations exploit their external environment to gain above-average profits. Therefore, we must find ways to curb the corporate proclivity in these areas if we are to make corporations more socially accountable for their conduct. Information imbalance Corporations profit from information imbalance because lack of accurate information induces customers to pay higher prices, accept products of lower quality or choose different products/brands altogether. The criteria for evaluating the ‘good’ corporation in this case would be: 1.
the extent to which a corporation provides its customers with information along the dimensions that he/she would need to make informed choices; and the degree to which the firm renders the customer able to evaluate postpurchase effects in terms of his/her expectations and the producer’s claims.
2.
In one sense, there does not seem to be any dearth of information on products and services available to the consumer. Companies annually spend billions of dollars to promote their goods and services. In the logic of competitive markets, individual firms would provide customers only with the information that would encourage them to buy those companies’ products. The customer is expected to learn about competitive products from other companies’ advertising. However, in the real world, things do not quite work out this way. In imperfect markets, firms put their major emphasis on differentiating their products and services on the basis of both facts and perceived illusory differences so as to make it extremely difficult, if not impossible, for the customer to make direct price–value comparisons among competing products and brands. The information imbalance can be corrected at two levels: ●
The industry level Efforts should be made to create uniform standards of product usage, labeling and performance claims that could be compared by the customer in making buying decisions. This should be done through a cooperative effort among industry members, government agencies and responsible consumer organizations. There are a number of problems that must be overcome if this approach is to work. These include: the right of free speech, the sheer enormity of the task in terms of products and brands, the cost of carrying out such a program and the difficulty in persuading all significant stakeholders to participate in the process. Nevertheless, a
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●
good start can be made by creating standards of accuracy and transparency, which the companies in the industry may be encouraged to follow. In this case, the degree of progress measured against the potential for progress would be one measure of the industry’s social responsiveness and accountability. The firm level Companies should regularly survey consumers to objectively assess their information needs and devise means to communicate such information to the consumer. The objective would be to provide the consumer with the information that he/she would want, in addition to the information that the firm would like the customer to have so as to make a pro-firm purchase decision. The measure of the good corporation would be the extent to which this information is provided voluntarily and the gap between the availability of such information and its importance to the customer.
Second, where relevant, companies should maintain and regularly publish data on the volume and type of customer complaints and the nature of the companies’ response to such complaints. This approach is similar to the one used by firms in providing investors with information concerning current and projected losses in a firm’s financial statements. If current and potential investors of publicly held companies can demand such information to assess a firm’s ‘quality of earnings’, why should it be unreasonable for the current and potential customers to demand information on the ‘quality of product value’ for the firm’s offerings? A similar argument can be made in the case of MNCs that source products from low-wage countries. MNCs have defended themselves from the alleged charges of sweatshop-like working conditions by pleading competitive constraints. However, they have also refused to provide any information about their costs. This lack of transparency seriously undermines their contention (Sethi 2002b, 2003a). Bargaining and negotiating power imbalance Under conditions of imperfect markets, a handful of companies control significant market share, avoid price competition, and have a great deal of influence on the nature of goods to be produced and the manner in which they are to be sold. This market dominance is further reinforced by mass advertising and the creation of customer brand loyalty based on real or illusory product attributes. Consumers, on the other hand, are largely unorganized, insufficiently informed and lack bargaining power to deal with companies on an equitable basis. The ‘good corporation’ will, therefore, seek ways to enable consumers to gain at least part of those benefits in terms of product quality, service and price that they would have achieved under conditions of a more level
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playing field in terms of information, resources and organization. An example of such an approach would be for the companies to offer assurances as to the ‘effective and useful life’ of a product backed by independent insurance or other means to ensure that customers are in effect getting what they believe they are paying for. Adjudication, remedy and relief imbalance The third area of restoring balance between producers and consumers has to do with adjudication of disputes and the receipt of prompt and fair settlement of their claims. Most consumers suffer from a number of serious disadvantages in achieving this objective. Their individual claims are often small, while their total impact on the company is quite large. Therefore, while the company has every incentive to fight such claims, the consumers have neither the time nor the resources to fight for equitable remedies. The two current approaches, that is, small claims court and class action suits, are flawed from a macro perspective. In the former case, each claimant has to fight his/her dispute individually with no knowledge of the widespread nature of the problem and its resolution. The class action suits are at best haphazard and end up paying more to the lawyers than to the plaintiffs. The ‘good corporation’ would institute procedures whereby affected customers can automatically receive adjudication of their disputes as well as fair settlement even when they did not have the knowledge of the harm done to them or had not initiated action against the offending company. The process suggested here could be termed ‘the internalization of class action suits’ wherein remedy and restitution would become an integral part of doing business and would be automatically triggered upon the occurrence of certain events. The following example will illustrate this point. Suppose a telephone company serves a particular area. Because of the nature of technology and usage patterns, a failure or malfunction rate of 2 per cent is considered normal and has been factored into both the price of service and customers’ quality expectations. Let us say that in a given period this rate has risen to 5 per cent. Under normal procedures, the phone company might be expected to make refunds, but only to those customers whose service was actually disrupted. However, we would assume that while there may not have been actual disruption of service in other cases, there was deterioration in the overall quality of service in the area. The telephone company should refund a portion of the service fee that it charged to all of its customers in the impacted area under the assumption of quality standards requiring no more than 2 per cent malfunction rate. Similar measures can be developed for application to a large variety of products and services where the notion of useful life is applicable.
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Accountability, compliance verification and transparency The third element in the new framework pertains to creating public trust in corporate actions and claims thereof. This element presupposes the voluntary character of the first two elements and is intended to enhance their effectiveness. It takes into account the three factors: 1.
The nature of negative externalities and transactional imbalances would be different for companies and industries based on marketcompetitive conditions. Therefore, companies and industries are best suited to assess relative costs and risks, and design systems that maximize societal benefits while preserving corporate actions. A voluntary approach provides the companies with the first-mover advantage and thus enhances corporate creditability and trust. A voluntary approach also forestalls mandatory regulation, which may be influenced by external, political considerations and may impose a costly and less rational solution.
2. 3.
The approach suggested here is that of voluntary codes of conduct that could either be individual company based or industry wide. Unfortunately, most companies and industry groups have hitherto been short-sighted in creating and implementing these codes. Rather than using their codes to create meaningful responses to societal changes, they have used them to create a public impression of activity but have lacked substance in implementation. A corporate code of conduct is in the nature of ‘private law’ or a ‘promise voluntarily made’ whereby an institution makes a public commitment as to certain standards of conduct. The nature of ‘voluntariness’ and, by implication, the flexibility afforded to a corporation, depends on the basic premise that MNCs and their critics share a common interest in improving the underlying conditions of the affected groups and regions, and it is in the interest of all parties involved to create mutually satisfactory resolution of the underlying issues (Sethi 2002a, 2003b). Therefore, it follows that for a code of conduct to have any reasonable chance of meeting the expectations of the parties involved, it must: ●
●
be economically viable for the corporation given the dynamics of competition, industry structure, and the economic and sociopolitical realities of the developing countries where its operations are located; address substantive issues that are of importance, first of all to the workers themselves, and then to the corporation’s various constituencies, including foreign governments and other affected groups;
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be specific as to performance standards that can be objectively measured; and be transparent as to performance, which is independently monitored and the findings made public.
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Shleifer, A. and R.W. Vishny (1986), ‘Large shareholders and corporate control’, Journal of Political Economy, 94 (3), 461–88. Steinmann, H. and A.G. Scherer (1998), ‘Corporate ethics and global business: philosophical considerations on intercultural management’, in B.N. Kumar and H. Steinmann (eds), Ethics in International Business, Berlin: de Gruyter, pp. 13–46. Steinmann, H. and A.G. Scherer (2000), ‘Corporate ethics and management theory’, in P. Koslowski (ed.), Contemporary Economic Ethics and Business Ethics, Berlin: Springer, pp. 148–92. Stewart, J.B., (1991), Den of Thieves, New York: Simon & Schuster. Stiglitz, J.E. (2003), Globalization and Its Discontents, New York: W.W. Norton. Stiglitz, J.E. and A. Charlton (2005), Fair Trade for All: How Trade Can Promote Development, Oxford and New York: Oxford University Press. Strange, S. (1996), The Retreat of the State, Cambridge: Cambridge University Press. Treviño, L.K. and G.R. Weaver (1999), ‘The stakeholder research tradition: converging theorists – Not converging theory’, Academy of Management Review, 24, 222–7. Varley, P. (1998), The Sweatshop Quandary: Corporate Responsibility on the Global Frontier, Washington, DC: Investor Responsibility Research Center. Vise, D.A. and S. Coll (1991), Eagle on the Street, New York: Scribners. Vogel, D.J. (2005), ‘Is there a market for virtue? The business case for corporate social responsibility’, California Management Review, 47, 19–45. Walton, C.C. (1988), The Moral Manager, Cambridge, MA: Ballinger. Wogaman, P. (1986), Economics and Ethics: A Christian Inquiry, Philadelphia, PA: Fortress Press. Wood, D.J. (1991), ‘Corporate social performance revisited’, Academy of Management Review, 16, 691–718. Young, I.M. (2004), ‘Responsibility and global labor justice’, Journal of Political Philosophy, 12, 365–88.
5
Corporate citizenship and community stakeholders Robert A. Phillips and R. Edward Freeman
Introduction It is fair to say that the concept of corporate citizenship has witnessed a meteoric rise in terms of scholarly attention since Logsdon and Wood presented their original paper (Wood and Logsdon 2001, 2002; Logsdon and Wood 2002). Some elaborations and extensions of corporate citizenship make reference to earlier scholarship, others do not. Stipulating that work on corporate citizenship is intended to add to the conversation around the role of business in society, it is reasonable to assume that scholars adopting (and adapting) the language of corporate citizenship find something there that allows for better description, analysis and synthesis of this role. Though what ‘better’ may mean here remains an open question, a sensible place to begin considering the question is to compare and contrast corporate citizenship with more established ways of conceiving business’s role in society such as, in the case of this chapter, stakeholder theory. Among the challenges of comparing corporate citizenship and stakeholder theory is the fact that neither theory can currently claim a defining consensus regarding the content and limits of their respective domains. To differing degrees, both are less monolithic concepts than ways of conceiving of and arranging the complex relationships between business organizations and other social actors. A further difficulty shared by both corporate citizenship and stakeholder theory is that summarizing the literature may, or may not, include writings that unreflectively use the terminology of citizenship or stakeholders without reference to any particularly deep thoughtful or coherent conceptual foundations. Much of the heavy lifting in numerous treatises on corporate citizenship is done by merely inserting the word ‘citizenship’ and assuming that author and reader have the same understanding of what this denotes and implies. The identity of the citizens, the basis of this status, and the rights, duties and obligations of such status are only a few of the matters on which such agreement is assumed, but often not made explicit. Logsdon and Wood (2002) – pioneers in the area of corporate citizenship – recognize this ambiguity in the use of ‘citizen’ and briefly address it; though Moon et al. (2005) have criticized the sufficiency of these efforts and offer their own elaboration. 99
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Similar to the unreflective use of citizenship terminology, discussions of corporate citizenship also employ the term ‘stakeholder’ with little or no reference to the now extensive literature on these relationships. To be fair, corporate citizenship is hardly alone in this failure to consider the deeper foundations and challenges of extant stakeholder scholarship, though perhaps we should expect more of a literature stream so closely related in subject matter to stakeholder theory. In many cases, studies of corporate citizenship employ the terminology of ‘stakeholders’ suggesting a conflation of the two theories. Our reading of the literature on corporate citizenship leads us to believe that the language of stakeholders is adopted nearly universally. This makes the failure to consider prior theorizing about stakeholder relationships still more troubling. When used in this somewhat superficial fashion, corporate citizenship may be fairly described as a recapitulation of well-rehearsed corporate social responsibility (CSR) concepts – with the added benefits and dangers of importing central and implied, but underexamined concepts of citizenship from political theory. Others, both within this volume and elsewhere (Waddock 2001; Windsor 2001; Wood and Logsdon 2001; Moon et al. 2005) have examined the relationship between corporate citizenship and historical notions of both CSR and citizenship itself. We shall not repeat these efforts. Nor shall we undertake here to remedy the dearth of conceptual depth concerning the ‘citizenship’ within the corporate citizenship literature – others in this volume take on this question with greater expertise and focus. Instead we shall focus on stakeholder theory. In particular, we shall focus on ‘community’ stakeholders. We discuss the source and limits of organizational obligations to communities and describe a typology of potential relationships that organizations may have with communities. While this discussion of community stakeholders may well be interpreted as a description of corporate citizenship obligations and how they can or should be discharged, we do not see this interpretation as necessary nor shall we attempt to fully render such an interpretation. The concept of citizenship is too complex to convincingly make such a case here. Our more humble goal is to discuss firm–community relationships as one potential lever in beginning this more complicated endeavor of reconciling and distinguishing corporate citizenship and stakeholder theories. And in the process, we hope to highlight challenges involved with the unreflective use of stakeholder terminology in discussions of corporate citizenship. Corporate citizenship and community stakeholders When considered in terms of stakeholder theory, corporate citizenship focuses particular attention on the community as a stakeholder. It focuses managerial and scholarly attention toward consideration of the role of the
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organization in its community, with a concomitant de-emphasizing of other core stakeholders. Although there are myriad ongoing debates about the scope and content of stakeholder theory – together with employees, financiers, suppliers and customers – local communities are universally counted among the archetypal five stakeholders (Phillips 2003). But this apparent agreement may itself mask ambiguities similar to those associated with the concepts of citizenship and stakeholder alluded to above. That is, stakeholder theorists may reasonably be accused of replacing ‘citizen’ with ‘community member’ and running foul of a similar imprecision as corporate citizenship scholars. As with corporate citizenship, there has been some effort to better specify the content of ‘community’ within stakeholder theory (Dunham et al. 2001, 2006). According to Dunham et al. (2006, p. 24), ‘community as a stakeholder has come to represent something of a default, a sort of error term containing all sorts of interests and externalities that fail to find home within customer, supplier, employee, or shareholder groups’. They suggest that communities can be subdivided into what they term ‘communities of place’, ‘communities of interest’, ‘communities of practice’ and ‘virtual advocacy groups’. Communities of place are the shared geographic locations which most people associate, most of the time, with ‘community’. Actors living in, more or less, close proximity to one another are, of necessity, mutually interdependent. At the very least these actors share the same natural environment (for example, water, air) and infrastructure (for example, roads, schools, police, retail establishments). And, typically, these actors share even deeper interdependencies such as local norms of behavior, dress, language and other necessary aspects of consistent, ongoing social interaction. These mutual interdependencies appear sufficient in the eyes of many stakeholder theorists to establish at least ‘local’ communities as organizational stakeholders. But, for any particular organizational issue, the intensity of the local community members’ interest will vary. This is not the case for what Dunham et al. (2006) call ‘communities of interest’. Although they may be geographically local, the more relevant – indeed defining – characteristic of these groups is their interest in a specific topic. The stakeholder relevance of these groups is contingent upon the organization’s actual or potential ability to affect – for better or worse – this interest. The coordination capacity of communities of interest has increased dramatically with the advent of new innovations in communication and information technology. These innovations have also improved the focal organization’s ability to communicate and coordinate with these communities. Communities of interest are able to significantly aid or harm the focal organization’s ability to achieve its goals. This ability to affect the achievement of the firm’s objectives puts communities of interest squarely
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within Freeman’s (1984) original definition of a stakeholder (that is, those who can affect or are affected by the achievement of the firm’s objectives). While communities of interest are often willing and able to help the firm advance its goals, ‘virtual advocacy groups’ – according to Dunham et al.’s definition – are consistently hostile. Relying even more extensively on information technology, the ties among the members of these groups may be entirely confined to cyberspace. But, of course, this does not lessen their ability to harm the achievement of the focal firm’s objectives. Dunham et al.’s identification of such virtual communities adds another layer of complexity to the already challenging elaboration of community stakeholders. Finally, Dunham et al. invite readers to consider communities of practice as a new variant of community that has risen to prominence among practitioners. They write that conceiving of a business organization as a community of practice is: to see it as held together by a shared concern for both the outcomes it achieves for stakeholders (be they customers or shareholders) and the personal development and learning of its members. In fact, it sees these two as inseparable, in that increased capabilities at the organizational level flow from development at the individual level. (Dunham et al. 2006, p. 35)
A mirror image of virtual advocacy groups, Dunham et al.’s elaboration of communities of practice presents additional positive opportunities for managers to reciprocally advance firm/community objectives. Of particular relevance to this chapter, Dunham et al. suggest the importance of the ‘degree of symbiosis’ between the various community types and the focal organization. The intensity and nature (that is, cooperative or hostile) of involvement between the organization and the community group in question are among the attributes a scholar or practitioner must consider in determining what manner and intensity of attention is due to a particular community stakeholder. That is, the manner and intensity of a community’s interactions with an organization will tend to define and delimit the extent of an organization’s stakeholder-based obligations toward, and responsibility for, that community. And here we may re-engage, more specifically, the question of the relationship between stakeholder theory and corporate citizenship. Stakeholder theory, as we conceive it, is more concerned with the ‘core’ functions of a firm than many elaborations of corporate citizenship with which we are familiar. That is, the threshold of relevance for inclusion in a stakeholdertheoretic analysis involves a greater degree of symbiosis and reciprocal impact between the community in question and the organization than appears necessary for consideration on many accounts of corporate citizenship. We take this up in greater detail in the next section.
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Stakeholders and global citizenship Elsewhere (Phillips et al. 2003), we have attempted to describe some of the limits to stakeholder theory that we believe render it more theoretically rigorous and managerially useful. Among the delimitations we claim that stakeholder theory does not apply to entire economies. We argue that, ‘ “Stakeholder” is not synonymous with “citizen” or “moral agent” as some wish to interpret it. Rather, a particular and much closer relationship between an organization and a constituency group is required for stakeholder status. The theory is delimited and non-stakeholder should remain a meaningful category’ (Phillips et al. 2003, p. 491). We believe that this delimitation of the stakeholder domain as organizational ethics rather than political philosophy is one point of distinction between stakeholder theory and much – though not all – elaboration of corporate citizenship. We would further assert that stakeholder theory is, or should be, importantly distinct from broader conceptions of CSR. While there are myriad justifications for ascribing social responsibilities to business firms, such responsibilities often extend beyond core firm/stakeholder relationships. While recognizing that many (perhaps most) writers on the subject of business, ethics and society employ the language of stakeholders and CSR interchangeably, we maintain that stakeholder theory’s focus on core business relationships entails significant differences between the two frameworks – theoretically and practically. The implications of this distinction are illustrated below using corporate philanthropy as an example. As with CSR, the use of stakeholder terminology by the majority of corporate citizenship scholars suggests an implied synonymy between stakeholder theory and corporate citizenship. For example, Waddock (2001, p. 27) writes, ‘Relationships with stakeholders constitute the essence of corporate citizenship’. Further, the similarities between CSR and corporate citizenship may lead one to believe that some see all three as merely a different language for discussing many of the same ideas. We believe that there are important and useful distinctions to be made. These distinctions return us to the topic of community stakeholders. Figure 5.1 suggests a possible source of confusion and ambiguity both in stakeholder theory itself as well as in corporate citizenship’s use of stakeholder concepts. As the figure indicates, it is difficult if not impossible to draw a bright line distinguishing stakeholders from non-stakeholders. More typically there are gradations. That is, there are groups who obviously contribute to or threaten the value-creation activities of the firm. These most intensive relationships are represented by the darkest areas of the ovals. There are also groups whose relevance and connection to the firm is tenuous or even nonexistent. The white space in Figure 5.1 is filled with
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Financiers
G L O B A L
Suppliers
Organization
Customers
Community
C I T I Z E N S H I P
Employees
Figure 5.1 Community stakeholders as transition between stakeholder theory and corporate citizenship such non-stakeholder groups. The challenge and difficulty arises in the darker and lighter gray areas within the ovals. Within each stakeholder group, there are ‘names and faces’ whose relevance, power and bases of moral obligation are vague, perhaps even indeterminate. ‘Potential’ stakeholders – potential employees, potential suppliers, potential financiers and so on – may reside in this gray area. While a source of some vexation in delimiting stakeholders of all sorts, the gradation of stakeholder obligation and responsibility presents particular difficulties in sorting out prospective community stakeholders. As indicated in Figure 5.1, many writers have a tendency to use ‘community’ far too expansively – a catch-all category for groups, individuals and causes that do not fit in one of the other categories, but which the author ardently desires to be a stakeholder. Such treatment is represented by the conical shape extending well outside the community oval. This way of engaging the language of stakeholder theory subjects it to precisely the sort of criticism from which we have tried elsewhere to rescue it. Specifically, this conception of community makes stakeholder theory once more susceptible to accusations that it is little more than warmed-over CSR and that such excessive breadth threatens theoretical rigor (‘if everyone’s a stakeholder, what value is added by use of the term?’). This difficulty is more pronounced still when stakeholder concepts are unreflectively employed in the context of corporate citizenship. It is our
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contention here that corporate citizenship begins to diverge from stakeholder theory as it begins to move into the conical extension of community. Indeed, much of the writing on corporate citizenship we would place well into the space labeled ‘global citizenship’. At this point, we argue that corporate citizenship bears little overlap with stakeholder theory and begins to more closely resemble its CSR predecessors. Employing the language of stakeholder theory to defend the idea of ‘global citizenship’ runs contrary to our understanding of stakeholder theory as limited to the core valueadding functions of the organization. Corporate citizenship, stakeholder theory and philanthropy As with the predecessor literature on CSR, corporate citizenship scholarship makes extensive reference to a firm’s charitable activities – often as a gauge of the quality of a firm’s citizenship behaviors. While in many cases a laudable endeavor, we believe that philanthropy not related to the firm’s core value-adding function lies outside the sphere of stakeholder theory’s concern. We should point out that philanthropy related to the firm’s core business is more amenable to stakeholder analysis. When a pharmaceutical company faces a decision regarding the provision of free or discounted medicines which such companies may be specifically or uniquely qualified to provide (Hsieh 2004; Dunfee 2006), or if a microprocessor company conducts research on how to make a $100 laptop computer, stakeholder theory may yield insight; or when a business working in a lesser developed area provides social services for employees and local citizens (Matten and Crane 2005, p. 166); or when philanthropy relates directly to core stakeholder interests (for example, donation matching programs, time off for employee charitable work, and so on), stakeholder theory may be of some assistance. However, in the normal course of events, corporate donations to groups lying outside of such core firm–stakeholder obligations are supererogatory – that is, potentially praiseworthy, but not obligatory. That said, such donations are not always particularly praiseworthy. Often such donations also have little impact on the nature and quality of relationships between the firm and its stakeholders. Philanthropy unrelated to the core business often has a limited, even negligible, impact on the culture and character of the firm making such donations (we discuss in more detail below the issue of who and what an organization would like to be). Here we are talking about what we shall call ‘checkbook citizenship’. Cash donations to some or other unrelated philanthropy have little effect on the firm or its core stakeholders – such donations generally have only a tangential impact. It is tantamount to organizational values as an afterthought – an appendage tacked on to what the firm really does.
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A second danger associated with philanthropy unrelated to the firm’s core value-adding functions is that, in all too many cases, it amounts to an attempt to whitewash (or greenwash in the case of the natural environment or bluewash in the case of efforts related to the United Nations) otherwise harmful or dangerous firm activities. Such a company, ‘thinks that singin’ on Sunday’s gonna’ save his soul, now that Saturday’s gone’ (Johnson 2003). These efforts appear to little influence the firm, its stakeholders or its core activities. When unrelated charity and philanthropy are central to discussions of corporate citizenship, such discussions diverge from our understanding of stakeholder theory. Checkbook citizenship is not stakeholder theory; such donations are outside the purview of core stakeholder responsibilities and obligations. Although a complete discussion of what these stakeholder responsibilities and obligations are is beyond the scope of this chapter (see, for example, Phillips 2003), we shall spend the remainder of our space elaborating on the obligations and responsibilities to community stakeholders. In so doing, we hope to show how a stakeholder-theoretic consideration of communities – delimited to discussion of core value-adding activities – can address a limited set of questions pertaining to corporate citizenship. We shall consider a firm relationship with community stakeholders from two overlapping perspectives. We shall first discuss Phillips’s obligations of stakeholder fairness as a means of ascertaining the (necessarily imprecise) limits of firm obligations to community stakeholders. We follow this discussion with an elaboration of possible postures a firm might take toward community stakeholders thus delimited. Obligations of stakeholder fairness We have argued here that the concept of corporate citizenship – as we understand it – bears a much larger footprint than stakeholder theory. Figure 5.1 suggests that corporate citizenship (and the notion of ‘global corporate citizenship’ in particular) extends well beyond a firm’s obligatory stakeholder concerns. Obligations extending indefinitely and universally are of limited use in managerial (or personal or political) decision making. This leads us to inquire as to the source of such stakeholder obligations and their limits. This is the question taken up by Phillips (2003) in his discussion of obligations of stakeholder fairness. Obligations of stakeholder fairness make stakeholder status largely a matter of reciprocity. Reciprocity is a widely – perhaps universally – recognized moral norm. Leaders since Odysseus1 (Donlan 1998) ignore the demands of reciprocity at their own peril. Reciprocity is not only normatively ubiquitous, it is also a deeply and powerfully embedded feature of human psychology (Cialdini 1984). One means, therefore, of establishing
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obligations to stakeholders is through application of a principle of stakeholder fairness. That is, whenever persons or groups of persons voluntarily accept the benefits of a mutually beneficial scheme of co-operation requiring sacrifice or contribution on the parts of the participants and there exists the possibility of free-riding, obligations of fairness are created among the participants in the co-operative scheme in proportion to the benefits accepted. (Phillips 1997, p. 57)
By voluntarily joining with groups of suppliers, customers, employees, shareholders, communities and others for mutual social and economic benefit, reciprocity-based obligations of fairness are created within such networks. Those particular groups and individuals to whom such obligations are owed are stakeholders. This understanding of reciprocal stakeholder obligations allows scholars and practitioners to place a limit on the extension of stakeholder-specific responsibility of firms to communities. As a matter of stakeholder theory, firms bear no additional responsibility for groups outside the cooperative endeavor – subject to the caveat below. One implication of this is that using stakeholder terminology to describe responsibilities of ‘global’ citizenship is spurious. Such usage renders stakeholder theory a morass of ‘everyone is a stakeholder of everyone else’. Such ambiguity is neither helpful nor useful to corporate citizenship, stakeholder theory or managerial practice. There are two important caveats that bear mention regarding the limits of stakeholder-based obligations. The first is that a group or individual may be a stakeholder even without being the subject of a direct reciprocal stakeholder obligation. In addition to this direct moral stakeholder legitimacy, a group may also bear an indirect legitimacy derived from a relationship with the focal organization or its stakeholders. For example, if a group has the power to aid or hinder the achievement of the firm’s core activities – even though not engaged in a reciprocal relationship with the firm – that group may be a ‘derivative’ stakeholder. Dunham et al.’s ‘virtual advocacy’ groups discussed above fit this description. The group’s power makes it a legitimate object of managerial attention, even if the firm owes it no particular obligation beyond mitigating (in the case of hostile power) or embracing (in the case of productive power) these potential effects. In cases relevant to corporate citizenship, for example, philanthropy related to the core value-adding activities of the firm may positively influence employee or community stakeholder relations. Or, such charity may allay the harmful criticism of a particularly powerful activist group. Donations are made, in these cases, due to the actual or potential effects on other stakeholders, not due to any stakeholder obligation owed to the charity itself or any obligation to the powerful, but hostile activist group.
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Reciprocity between the firm and charity recipients or between the firm and hostile activists is, at best, attenuated. The second caveat to the limits on stakeholder obligation that bears mention here is that stakeholder-based obligations are not the sole source of moral obligation a firm may have. That is, actors may have nonreciprocal obligations, duties and responsibilities of many sorts. These could be based on, for example, familial relations, human rights, and even direct duties of charity and citizenship. The language of stakeholders implies a particular sort of relationship characterized by an obligation arising from an intentional exchange between actors as opposed to duties arising from such unintentional characteristics as being human, a member of a clan or a citizen of a state. The absence of a reciprocal stakeholder relationship does not give a firm license, for example, to violate the human rights of a group or individual. It merely means that this particular form of actor-generated moral relation is absent. Thus, there may exist more general duties of philanthropy that a firm must meet as a powerful social actor. But this does not make the donations obligatory from a stakeholder perspective, nor does it make those in need stakeholders. As an analogy, let us say that I agreed to write a book chapter for you and thereby incurred an obligation to you. It may also be the case that I have a generalized duty of charity that may be (partially) fulfilled by helping rebuild post-hurricane Katrina New Orleans or going to Africa to help with HIV–AIDS missions. While all would be excellent uses of my time, only one of these counts as an obligation I have voluntarily undertaken. Similarly, we would reserve the term ‘stakeholder’ for those core actors to whom the organization has a certain sort of reciprocal obligation and those whose relevance can be derived from these specific stakeholder relationships. Relevant to corporate citizenship, this implies that there may be any number of other moral relations between a firm and its fellow social actors. For example, there may be a general duty of charity that may apply to firms as repositories of enormous resources. There may also be more specific duties of charity or assistance (Hsieh 2004; Dunfee 2006) between firms with particular – even unique – capacity to help. Corporate citizenship scholars may well appeal to these sources of duty, obligation and responsibility in advancing their claims. But these are distinct from reciprocitybased stakeholder obligations. While we hope that the distinctions and clarifications above add a measure of increased precision to discussions of community stakeholders and corporate citizenship, difficult cases remain. The case of second- and third-tier suppliers in a network of nested supplier relationships continue to defy easy placement within a stakeholder framework (Phillips and
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Caldwell 2005). One widely discussed variant of this challenge is a firm that contracts a portion – perhaps all – of its manufacturing to another, ostensibly independent firm. This subcontractor, in turn, may further outsource some or all of this work to still another firm, and so on (for example, Nike, Mattel, Wal-Mart, YUM! Brands, and so on ad infinitum). What sort of stakeholder obligations does the first firm have vis-à-vis the second-, thirdand fourth-tier firm? Or the fourth-order firm’s employees and local community? Although we shall not attempt to systematically resolve this ambiguity at the nexus between community stakeholder obligations and duties of corporate citizenship, its relevance as an increasingly prominent borderline case merits a few comments. One reasonable question to ask when assessing the stakeholder-based moral obligations of firms to second- and third-level suppliers is the actual level of independence between the organizations. Independence within such nested and networked value chains is a function of – among other criteria perhaps – the exclusivity of interaction. Briefly, claims of independence between firm and supplier are attenuated to the degree that the firm is the sole (or even super-majority) customer of that supplier. And so on down the value chain. If a firm buys all, or nearly all, of a supplier’s output and this supplier itself buys all, or nearly all, of the output of its own suppliers, this value chain begins to more closely resemble a hierarchy – or at a minimum, a network organization (Powell 1990). Arguments for stakeholder obligations to such value chain members are strengthened as the degree of transactional exclusivity rises. The frequency of firm/supplier transactions and the duration and history of the relationship may also contribute to a general notion of the ‘intensity’ of the value chain relationships and hence the power of fairness-based stakeholder obligations. Beyond claims to the normative stakeholder legitimacy of putatively independent members of a firm’s value chain, there are also increasingly prevalent and prominent attributions of value chain responsibility from powerful stakeholders. When arising from powerful or otherwise morally legitimate stakeholders, these attributions of value chain responsibility can give rise to derivative stakeholder legitimacy. Issues relating to outsourced manufacturing by Nike and Mattel are among the more prominent examples of companies that were compelled by stakeholder pressure to take greater responsibility for actions occurring deep within their value chains. But they are hardly alone. There is, we have claimed, a point at which relationships with other value chain members become so tenuous and distant from a business’s core valueadding activities that the framework of ‘global citizenship’ becomes more applicable than that of stakeholder theory. While exclusivity and duration of relationships as well as other sources of derivative stakeholder obligations
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are all suggestive of where the line between stakeholder obligation and global corporate citizenship may be drawn in networked value chains, the line is neither a bright nor a static one. The standards applied by local communities and other stakeholders create a line that moves around in the gray area, often dramatically. Work remains for scholars and managers in better defining these obligations and community expectations. With these points in mind, we turn now to a discussion of the possible ways an organization might engage with its relevant stakeholder communities. A typology of community engagement If the above is correct, there are many ways for companies to engage their communities. We propose five strategic postures that a company may take with respect to a community. A ‘strategic posture’ is like Porter’s (1980) notion of ‘generic strategy’. It is a predisposition to act in a particular way (Freeman and Gilbert 1987). Companies may deal with communities as: 1. 2. 3. 4. 5.
community creators; community builders; community good citizens; community apathetic citizens; and community exploiters or destroyers.
This typology is merely a beginning way to conceptualize firm–community relationships and should not be taken as definitive, mutually exclusive or collectively exhaustive of such relationships. Obviously, in large complex corporations, there may well be elements of several generic strategies, or different postures may exist at different times. Just as clearly, a company may intend to be a community builder, but in fact be a community exploiter. These strategic postures work as follows. Community creators There are many examples of how companies have been community creators. The most obvious and direct are so-called ‘company towns’. While there are fewer companies intending to create ‘company towns’ in today’s global marketplace, company towns, in fact, still exist. Disney’s planned community of Celebration, Florida adjacent to its theme park near Orlando is a more recent example of a company creating a community of place (Ross 2000). Disney attempted, with mixed success, to institute a number of particularly progressive ideals in education, community and urban planning. Communities of place can also be created by companies in conjunction with local governments; Levittown, PA is among the better-known historical examples of this.
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More often today companies create communities of interest and communities of practice (recall the earlier discussion of Dunham et al.’s (2006) taxonomy of communities). Silicon Valley companies have created a community of interest around computer technology. Particular companies contribute to that community in a way that all may benefit. Particular companies such as eBay in effect create communities of interest by the very nature of their services. A person can use eBay to find other like-minded actors to trade with. Of course, internet service providers, as well as companies such as YouTube, FaceBook and MySpace, create communities of interest. Wikipedia creates a community of practice where stakeholders are all engaged in a common task. Likewise, Linux and others create communities of practice where the lines between traditional stakeholder roles become radically ambiguous. Community builders Community builders are like community creators. Perhaps they did not have the original idea of creating the community, but their strategic posture is to try to maintain and improve the communities that they find. Community builders see healthy communities as places where their employees, customers and other stakeholders live. Vibrant communities are good for the company and its stakeholders. Community builders ask, ‘what can we do to make this community better for its citizens, and therefore ultimately, better for our company and its stakeholders as well?’. Community of practice builders try to find places where stakeholder interests are joint, where there is unrealized value to be created. They try to find places where the interests of employees, customers, suppliers and communities go in the same direction but this fact has gone unrecognized or underemphasized. A classic example here is the Ronald McDonald House. Here, McDonald’s supports the administrative costs of taking donations from customers and creating facilities to help families dealing with illness, especially children. The actual funding comes from McDonald’s customers. McDonald’s is helping their customers build better communities through this coordination function. McDonald’s facilitation role is an example aligning the interests of local communities and customers. This activity bears similarity to the better-known example of companies who match employee contributions to charity. With such a strategy they work with their employees to contribute to areas that the employees believe will build a better community. Community good citizens Being a good citizen means obeying the law and doing what one is asked to do if it is reasonable. However, community good citizens would take a
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reactive rather than proactive approach. If the community builder is always asking how to make the community better, the community good citizen is usually willing to abide by community rules, contribute its share, but rarely takes the lead in making the community better. Many companies take a good citizen corporate posture to communities. They often have a corporate philanthropy program to respond to community requests. They pay attention to obeying the letter and spirit of local laws and customs. Companies that apply this approach to communities of interest, pay special attention to obeying internet privacy laws, copyright procedures and the like. They realize that by getting these issues wrong, they can easily create and motivate the ire of virtual advocacy groups and see community relations as a way to avoid conflict and only secondarily as a means of building positive value. Community apathetic citizens Apathetic postures yield doing the very minimum necessary. An analogy can be drawn to the individual citizen who obeys the law, but does not vote, lobby, give to charity or contribute to the conversation about how to improve or maintain the community. The apathetic citizen is not intentionally destructive or exploitative of communities per se; nor is he/she actively concerned about community. There is apathy in the defenses occasionally offered by companies doing business in developing nations prone to conflict or systematic human rights violations. Such a defense would say something akin to, ‘the harm to the community is independent of our presence or activities here. If we weren’t the ones engaged here, someone else would be. We comply with the law, but cannot be expected to solve local community difficulties’. Companies doing business in such nations have been known to disavow responsibility for these effects so long as they are within the letter of the local laws. Nor is this limited to developing nations. In the context of advanced industrial societies, casinos, bars, landfills and effluent-generating firms of all kinds provide only a snapshot of industries, some members of which have shown apathy toward the negative externalities of their operations. Community exploiters or destroyers There is a sense in which apathy – in the sense described above – can serve to destroy communities. Beyond a minimalist, geographic sense, a community is an institution that requires active participation in order to flourish. An organization that occupies a central, prominent role in a community may have a destructive effect on that community through mere apathy. Beyond this apathy, however, companies occasionally exploit communities more actively as a resource. Often these companies pit one community
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against another for the best regulatory environment, tax breaks or the one willing to make the biggest investment in infrastructure. These companies are not content to live within the letter of the law, but actively lobby to change the laws in order to make their exploitation more effective. If the firm–community relationship always favors the company and exploits the community, it is likely that (in a relatively free society) the community will turn against the company. Indeed, independent of the presence of actual destruction or exploitation, in today’s world it is enough for there to be the perception of exploitation to negatively affect a company’s bottom line. Companies such as Wal-Mart have been charged (with wide disparities in the power and persuasiveness of the arguments presented) with exploiting communities and have incurred massive costs to reduce that perception. Environmental issues are another area where many companies are seen as community exploiters or destroyers. Although not unique to them, firms in extractive industries in lesser developed countries are especially susceptible to such perceptions (again, with better and worse underlying bases for such perceptions). Often, being a community exploiter or destroyer is a logical devolution from being a good citizen or apathetic citizen. Each of these postures views the community stakeholder as secondary to the process of value creation. And, when this happens, customers and employees, and those groups who see themselves as advocates, often non-governmental organizations, rise to ‘speak for the community’. Firms perceiving of the community in this ‘afterthought’ fashion are missing the reciprocal, value-adding possibilities of closer community relationships such as those found among community creator and community builder companies. Furthermore, we submit, the failure to delimit core stakeholder relationships from concepts like ‘global corporate citizenship’ catalyze this perception of the community as secondary by overextending managerial and organizational decision-making resources. Conclusion We have suggested that some aspects of corporate citizenship are part and parcel of a nuanced view of stakeholder theory, with particular emphasis on community stakeholders. Obviously our analysis does not do full justice to the idea. It focuses only on the managerial aspect of corporate citizenship, especially in the private sector. While the United Nations may well be able to delve into the meaning of ‘global citizenship’ and its implications, most managers simply want to understand how to deal with specific communities in the value-creation process. By thinking about creating, building, exploiting and so on, communities, they can begin to see communities
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as vital stakeholders, and be explicit about the specific understanding of community that they have, as well as their own posture. Such is not a recipe for success (a ‘rule for riches’), but it is a way to stop the process of selfdeception and get on with the important task of value creation. Note 1. ‘The rule of reciprocity, that one gives of one’s own accord, with the expectation that a suitable return will follow, was a powerful regulator of social behaviour at every stage of Greece’s history. The Homeric epics provide our earliest observation of its operation’ (Donlan 1998, p. 51).
References Cialdini, R.B. (1984), Influence, New York: Quill. Donlan, W. (1998), ‘Political reciprocity in Dark Age Greece: Odysseus and his hetairoi’, in C. Gill, N. Postlethwaite and R. Seaford (eds), Reciprocity in Ancient Greece, Oxford and New York: Oxford University Press, pp. 51–72. Dunfee, T.W. (2006), ‘Do firms with unique competencies for rescuing victims of human catastrophes have special obligations? Corporate responsibility and the AIDS catastrophe in sub-Saharan Africa’, Business Ethics Quarterly, 16 (2), 185–210. Dunham, L., R.E. Freeman and J. Liedtka (2001), ‘The soft underbelly of stakeholder theory: towards understanding community’, Presentation to Society of Business Ethics Annual Meeting, August, Washington, DC. Dunham, L., R.E. Freeman and J. Liedtka (2006), ‘Enhancing stakeholder practice: a particularized exploration of community’, Business Ethics Quarterly, 16 (1), 23–42. Freeman, R.E. (1984), Strategic Management: A Stakeholder Approach, Boston, MA: Pitman. Freeman, R.E. and D.R. Gilbert, Jr (1987), Corporate Strategy and the Search for Ethics, Englewood Cliffs, NJ: Prentice-Hall. Hsieh, N. (2004), ‘The obligations of transnational corporations: Rawlsian justice and the duty of assistance’, Business Ethics Quarterly, 14 (4), 643–61. Johnson, J. (2003), ‘Taylor’, On and On, Brushfire Records, Los Angeles, CA. Logsdon, J.M. and D.J. Wood (2002), ‘Business citizenship: from domestic to global level of analysis’, Business Ethics Quarterly, 12 (2), 155–87. Matten, D. and A. Crane (2005), ‘Corporate citizenship: toward an extended theoretical conceptualization’, Academy of Management Review, 30 (1), 166–79. Moon, J., A. Crane and D. Matten (2005), ‘Can corporations be citizens? Corporate citizenship as a metaphor for business participation in society’, Business Ethics Quarterly, 15 (3), 429–53. Phillips, R.A. (1997), ‘Stakeholder theory and a principle of fairness’, Business Ethics Quarterly, 7 (1), 51–66. Phillips, R.A. (2003), Stakeholder Theory and Organizational Ethics, San Francisco, CA: Berrett-Koehler. Phillips, R. and C. Caldwell (2005), ‘Value chain responsibility: a farewell to arm’s length’, Business and Society Review, 110 (4), 345–70. Phillips, R., R.E. Freeman and A.C. Wicks (2003), ‘What stakeholder theory is not’, Business Ethics Quarterly, 13 (4), 479–502. Porter, M.E. (1980), Competitive Strategy, New York: Free Press. Powell, W.W. (1990), ‘Neither market nor hierarchy: network forms of organization’, in B. Staw and L.L. Cummings (eds), Research in Organizational Behavior, Greenwich, CT: JAI Press, pp. 295–336. Ross, A. (2000), The Celebration Chronicles: Life, Liberty and the Pursuit of Property Value in Disney’s New Town, New York: Ballantine Books. Waddock, S.A. (2001), ‘Integrity and mindfulness: foundations of corporate citizenship’, Journal of Corporate Citizenship, 1, 25–38.
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Windsor, D. (2001), ‘Corporate citizenship: evolution and interpretation’, in J. Andriof and M. McIntosh (eds), Perspectives on Corporate Citizenship, Sheffield: Greenleaf, pp. 39–52. Wood, D. and J. Logsdon (2001), ‘Theorising business citizenship’, in J. Andriof and M. McIntosh (eds), Perspectives on Corporate Citizenship, Sheffield: Greenleaf, pp. 83–103. Wood, D. and J. Logsdon (2002), ‘Business citizenship: from individuals to organizations’, in R.E. Freeman and S. Venkatraman (eds), Ethics and Entrepreneurship, Ruffin series 3, Charlottesville, VA: Society for Business Ethics, pp. 59–94.
6
Business ethics, corporate virtues and corporate citizenship1 Robert C. Solomon
In our culture we know of no organized movement towards power which is not bureaucratic and managerial in mode and we know of no justifications for authority other than those couched in terms of instrumental effectiveness. (Alastair MacIntyre 1985) Corporations are places where both individual human beings and human communities engage in caring activities which are aimed at mutual support and unparalleled human achievement. (R. Edward Freeman and Jeanne Liedtka 1991)
What is a corporation? In the recent film, The Corporation, one of the most evident entities in contemporary society, the corporation, is treated as something of a Frankenstein monster, a benign creation of local governments that grew and grew, became not only self-conscious but megalomaniac, and now threatens to take over the world, destroying both nature and human beings in its pursuit of domination. Frankenstein’s monster, however, was recognizably human. Indeed, in Mary Shelley’s original version, he was quite a sympathetic creature, misunderstood and persecuted by the townspeople who were so terrified of him. Defenders of the corporation would no doubt leap to this extended comparison, insisting that the corporation, like the ‘monster’, has been greatly misunderstood and wrongly persecuted. Mark Achbar and Jennifer Abbott, who made this very successful documentary, chose to emphasize a very different sense in which the corporation became a person, not by displaying sympathetic human traits but rather by way of a legal sleight of hand. Taking advantage of an Amendment to the American Constitution intended to protect the rights of freed slaves in the South, clever corporate lawyers managed to have the corporation declared a ‘person’, making it eligible to sue for those same rights. But what kind of a person is the corporation, Achbar and Abbott ask in the film? Their answer is, a psychopath (that is, someone with Antisocial Personality Disorder or APD), as defined by the standard ‘DSM-IV’ (The Diagnostic and Statistical Manual of Mental Disorders). Thus the Frankenstein monster, who refuses to conform to social norms, who is deceitful, impulsive, aggressive, who shows reckless disregard for the safety of others, and is incapable of sustaining relationships. 116
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The film is unabashedly polemical. I have rarely shown or watched it with MBA students or corporate executives without someone exploding with rage about this ‘piece of leftist propaganda’. To which I respond that it is essential that they learn both to recognize propaganda and to see it critically, and that means appreciating what is right about it as well as what is overstated, unfair, or just plain wrong. The corporation has become a ‘person’ (albeit fictitious) in the eyes of the law and the courts. At the same time, corporations have taken on personalities (plural, for the film is purely polemical in so far as it implies that all corporations are the same, a point which the film itself quite emphatically makes). Corporations have personalities. Sometimes (and typically in their formative stages), the personality of the corporations reflects the personality of the founder. One thinks of IBM and Hewlett-Packard, for example, or the Ford Motor Company before Henry went off the deep end with politics and prejudice. But as corporations grow and develop and become more managerial in nature, they further their personalities as well. They do not, for the most part, just become more impersonal. Indeed, a few of them become more much humane. But the charge of the film is one to be taken seriously. To what extent do some (many?) corporations fit the model of the APD, the psychopath? And why do they do this? Unlike their flesh and blood human counterparts, it will do no good to look for the wayward gene or the abusive parent. Understanding their origins and history will certainly provide some valuable clues, but no adequate account of corporate pathology or malfeasance can avoid talking about the current structures of the company and the atmosphere and environment in which the company operates. So there is a good deal to be said about corporate structure, corporate governance and corporate culture. There is also a good deal to investigate and challenge with regard to short-term accounting procedures and what are called (by way of an all-purpose excuse) ‘market forces’ and, more recently, ‘globalization’. But that is not what I want to do here. I am more interested in what one might call the ‘atmosphere’ surrounding the corporation and the cultures that define corporate lives, the very air that people breathe. The atmosphere can be understood as the ideas that define the corporation, what keeps it going and defines its strategies and its culture. In particular, I am interested in how we think about corporations and, even more important, how corporations think of themselves. Ideology, Sigmund Freud might have said if he did business ethics, is destiny. Here the central concern of The Corporation becomes very much our center of focus as well. The film does not talk much about how corporations actually think of themselves (that is, how the people who lead and manage them think of both their corporations and of themselves), but the
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implication is quite clear. Corporations (and the people who run them) think of themselves – as the law dictates – as profit-making machines. From this seemingly obvious idea, all the rest of it – the pathology, the destruction of the environment, the amoral behavior – quickly follows. It is not unlike the dimmer students I teach in business classes when I ask them ‘to what do you aspire?’. They respond, ‘to make a lot of money’. In so far as a corporation thinks of itself as a profit-making machine, albeit in the guise of a fictional ‘person’, we can continue to expect social irresponsibility on a devastating scale. Adam Smith on profits (it’s not what you think) Adam Smith never used the phrase ‘the profit motive’. He probably would have considered it nonsensical. The phrase was invented in the 19th century (long after Smith’s death) by social critics of the new economics who wanted to caricature what they saw as the one-dimensional greed of the new capitalists (another word Smith did not use). In fact, what Smith did find to be basic in human nature was the very opposite of what his later defenders insisted was the sole human motive, self-interest or greed (according to Gordon Gekko in Oliver Stone’s Wall Street, alias Ivan Boesky in real life). Smith, au contraire, insisted that what was basic in human nature was the moral sentiment of sympathy, a sense of fellow feeling and community. That, in turn, was basic to the new economy. Smith (of course) did not deny the importance of self-interest and the desire to make a profit (accordingly his classic statement about the grocer). But commercial activity had as its precondition a civilized society, requiring a modicum of trust and mutual understanding. In fact, I have argued that one of the great historical virtues of the free market is the psychological fact that people are required to care about what other people want as potential customers. Sympathy is not just a ‘nice’ complement to self-interest in the market. It is as much of a precondition of commercial life as muchtouted self-interest. In so far as corporations are ‘persons’, what if we were to deny the implication that corporations are profit-making machines? I have all too often heard the complaint that immediately follows: ‘Are you against profits? Do you suppose that a corporation can even survive without making a profit?’ (well yes, they can and do: universities, charities, hospitals, governments and many non-governmental organizations survive and have even thrived for years without making a profit, but that is not the point to make with these hysterical critics). What I tell them is that one need not attack profits or deny the need to make a profit to understand that the purpose of business, and consequently the purpose of corporations, is something larger than the ‘bottom line’. It has to do with making society a better place,
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providing jobs, useful products and services. That does not mean that one needs to deny or demean the bottom line. What I say is this: every discipline or profession has its own self-glorifying vocabulary. It is how they justify themselves. It is how they sell themselves. It is how they think of themselves and what they do. Business and corporations are no exception: 1.
2.
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Politicians bask in the concept of ‘public service’ even while they pursue personal power and exploit the fears and prejudices of their constituents. But no one would question the virtue of devoting oneself to public service. Lawyers defend ‘justice’ and our ‘rights’ on a handsome contingency basis as they lead us through a thicket of regulations and liabilities created by – other lawyers. But no one would question the virtue of devoting oneself to justice and rights. Physicians (even those with bulging portfolios) ‘heal’ and ‘save lives’, an undeniably noble cause. No one would question the value of health and human life. University professors immodestly celebrate what they do in the noble language of ‘truth and knowledge’ even when they spend most of their time battling each other for status in exquisitely petty but vicious campus politics. But few people would question the value of dedication to the truth, enlightening young minds, and preserving the values of Civilization.
In the case of business, however, the language of self-description is neither noble nor self-glorifying. One of my businessman friends told me, ‘in business you always know how well you are doing. You just have to put your hand in your pocket’ (I did not pursue the vulgar ambiguity of the suggestion). The simple phrase, ‘the bottom line’, and the vulgar verb, ‘making money’, summarize a one-dimensional purely self-interested image of business that is not only unflattering but, in the public perception, extremely destructive. ‘Surely such selfish activity should be regulated!’ We can readily understand why we should applaud professionals who devote themselves to public service, or defend our rights, or cure illness and save lives, or search for truth and knowledge. It is not so easy to understand why we should cheer for people who (as they themselves seem to claim) work only for material gain for themselves. In so far as this is so, it leads to distressing self-realizations. ‘Plunderers!’ gasps Ray Anderson, the now famous CEO of Interface Corporation in The Corporation, ‘That’s what we are’. But this is in fact what relatively few people in business think of themselves, at least once they think beyond the usual clichés and New Yorker jokes. One can put as much faith as one wishes in Adam Smith’s imaginative ‘invisible
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hand’ and the theory that individual self-interest yields collective prosperity, but it does not follow that we should describe what we do in business merely as ‘making money’. Corporations and business in general make possible most of the comforts and advantages of modern civilized life, and it is an act of unspeakable cynicism to think that all of this is due to the unintended consequences of mere profit-making machines. ‘The social responsibility of business’, writes Milton Friedman in a famous polemical article, ‘is to increase profits’ (Friedman 1970). He does not include the word ‘only’, but it is clearly implied. Friedman argues that the managers of a company have a ‘fiduciary responsibility’ to the owners (in a publicly held company, the stockholders), which is certainly true. But note that Friedman’s argument, although it is headlined in terms of profits, is in fact concerned with the notion of responsibility, not a profit concept at all. Managers and executives may make profits, but not (as such) for themselves. The most dangerous metaphors are those that present themselves not as metaphors but as straight matter-of-fact description about the ways of the world. Foremost among these is the idea that business at its very essence is driven by a basic human urge called ‘the profit motive’. It is such talk of the profit motive, I want to suggest, that causes more damage than any amount of sleaziness or dishonest dealings on the part of the business community. It is the narrow-minded language of the profit motive that gives rise to public suspicion. Peter Drucker, in his magnum opus, Management, writes of managers that ‘it is their own rhetoric that is one of the main reasons for hostility . . . There is only the profit motive [but] why that desire should be indulged in by society any more than bigamy, for instance, is never explained’ (Drucker 1974). A better way to think about business In the spirit of Adam Smith, I have developed a theoretical framework which I call ‘an Aristotelian approach to business’. As Aristotle is famous largely as the enemy of business, some justification of this approach would seem to be in order. True, he was the first economist (twenty centuries before Smith), and he had much to say about the ethics of exchange. He might well be the first (known) business ethicist as well. But Aristotle distinguished two different senses of what we call economics, one of them ‘oecinomicus’ or household trading, which he approved of and thought essential to the working of any even modestly complex society, and ‘chrematisike’, which is trade for profit. Aristotle declared the latter activity wholly devoid of virtue. Aristotle despised the financial community and, more generally, all of what we would call ‘profit seeking’. He argued that goods should be exchanged for their ‘real value’, their costs, including a
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‘fair wage’ for those who produced them, but he then concluded, mistakenly, that any profit (that is, over and above costs) required some sort of theft (for where else would that ‘surplus value’ come from). Consequently, Aristotle called those who engaged in commerce ‘parasites’ and had special disdain for money-lenders and the illicit, unproductive practice of usury, which until only a few centuries ago was still a crime (‘usury’ did not originally mean excessive interest; it referred to any charge over and above cost). Only outsiders at the fringe of society, not respectable citizens, engaged in such practices (Shakespeare’s Shylock, in The Merchant of Venice, was such an outsider and a usurer, though his idea of a forfeit was a bit unusual). All trade, Aristotle believed, was a kind of exploitation. Such was his view of what we call ‘business’. Aristotle’s greatest medieval disciple, St Thomas Aquinas, shared ‘the Philosopher’s’ disdain for commerce, even while he struggled to permit limited usury (never by that term, of course) among his business patrons. (A charge for ‘lost use’ of loaned funds was not the same as charging interest, he argued.) Even Martin Luther, at the door to modern times, insisted that usury was a sin and a profitable business was (at best) suspicious. Aristotle’s influence on business, it could be argued, has been long-lasting – and nothing less than disastrous. In particular, it can be argued that Aristotle had too little sense of the importance of production and based his views wholly on the aristocratically proper urge for acquisition, thus introducing an unwarranted zerosum thinking into his economics. And, of course, it can be charged that Aristotle, like his teacher Plato, was too much the spokesman for the aristocratic class and quite unfair to the commerce and livelihoods of foreigners and commoners. It is Aristotle who initiates so much of the history of business ethics as the wholesale attack on business and its practices. Aristotelian prejudices underlie much of business criticism and the contempt for finance that preoccupies so much of Christian ethics even to this day, avaricious evangelicals notwithstanding. Even defenders of business often end up presupposing Aristotelian prejudices in such Pyrrhonian arguments as ‘business is akin to poker and apart from the ethics of everyday life’ (Carr 1968) and ‘the [only] social responsibility of business is to increase it profits’ (Friedman 1970). But if it is just this schism between business and the rest of life that so infuriated Aristotle, for whom life was supposed to fit together in a coherent whole, it is the same holistic idea – that businesspeople and corporations are first of all part of a larger community, that drives business ethics today. We can no longer accept the amoral idea that ‘business is business’ (not really a tautology but an excuse for being socially irresponsible and personally insensitive). According to Aristotle, one has to think of oneself as
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a member of the larger community – the polis for him, the corporation, the neighborhood, the city or the country (and the world) for us – and strive to excel, to bring out what was best in ourselves and our shared enterprise. What is best in us – our virtues – are in turn defined by that larger community, and there is therefore no ultimate split or antagonism between individual self-interest and the greater public good. Of course, there were no corporations in those days, but Aristotle would certainly know what I mean when I say that most people in business now identify themselves – if tenuously – in terms of their companies, and corporate policies, much less corporate codes of ethics, are not by themselves enough to constitute an ethics. But corporations are not isolated city-states, not even the biggest and most powerful of the multinationals (contrast the image of ‘the sovereign state of ITT’). They are part and parcel of a larger global community. The people who work for corporations are thus citizens of (at least) two communities at once, and one might think of business ethics as getting straight about that dual citizenship. What we need to cultivate is a certain way of thinking about ourselves in and out of the corporate context, and this is the aim of ethical theory in business, as I understand it. It is not, let me insist, anti-individualistic in any sense of ‘individualism’ that is worth defending. The Aristotelian approach to business ethics rather begins with the two-pronged idea that it is individual virtue and integrity that counts, but good corporate and social policy encourage and nourish individual virtue and integrity. It is this picture of community, with reference to business and the corporation, that I want to explore here. One might speak of ‘communitarianism’ here, but it is not at all evident that one must give up, at the same time, a robust sense of individuality (as opposed to self-interested individualism). Community and virtue will form the core of the thesis I want to defend here. To call the approach ‘Aristotelian’ is to emphasize the importance of community, the business community as such (I want to consider corporations as, first of all, communities) but also the larger community, even all of humanity and, perhaps, much of nature too. This emphasis on community, however, should not be taken to eclipse the importance of the individual and individual responsibility. In fact, the contrary is true, it is only within the context of community that individuality is developed and defined, and our all-important sense of individual integrity is dependent upon and not opposed to the community in which integrity gets both its meaning and its chance to prove itself. One of the most important aspects of the ‘Aristotelian’ approach is the emphasis on the purposiveness (or ‘teleology’) that defines every human enterprise, including business. But that purposiveness transcends the realm of business and defines its place in the larger society, though the popular
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term ‘social responsibility’ makes this sound too much like an extraneous concern rather than the purpose of business as such. On both an individual and the corporate levels, the importance of the concept of excellence is intricately tied to this overall teleology, for what counts as excellence is defined both by its superiority in the practice and its role in serving larger social purposes. ‘Aristotelian’ too is a strong emphasis on individual character and the virtues (where a ‘virtue’ is all-round personal excellence), embedded in and of service to the larger community. It is the role of the individual in the corporation (and of the corporation in society) that concerns me, not the individual alone, not the structure of the corporation abstracted from the individuals that are its members (and not the nature of ‘capitalism’, abstracted from the character of particular corporations and the communities they serve). That is why the idea of business as a practice is absolutely central to this approach: it views business as a human institution in service to humans and not as a profit-making machine or in terms of the mysterious ‘magic’ of the market. Finally, it may be theoretically least interesting but it is polemically, perhaps, most important, I prefer the name ‘Aristotelian’ just because it makes no pretensions of presenting something very new, the latest ‘cuttingedge’ theory or technique of management but rather reminds us of something very, very old, a perspective and a debate that go all the way back to ancient times. What Aristotle gives us, I want to suggest, is a set of doctrines that both conforms to and goes beyond historicism, namely, the incessant appeal of ethics (including business ethics) to the standards of a particular community but at the same time the standards of community as such, that is, the very possibility of human beings living and working together. What the Aristotelian approach promises is not something novel and scientific but an approach that is very staid and above all very human. The idea is not to infuse corporate life with one more excuse for brutal changes, a new wave of experts and seminars and yet another downsizing bloodbath. It is to emphasize the enduring importance of continuity and stability, clearness of vision and constancy of purpose, corporate loyalty and individual integrity for both financial success and (more important) a decent life. The corporation as community The Aristotelian approach begins with the idea that we are, first of all, members of organized groups, with shared histories and established practices governing everything from eating and working to worshipping. We are not, as our favorite folklore would have it, first of all individuals, that is, autonomous, self-sustaining, self-defining creatures who, ideally, think entirely for ourselves and determine what we are. The ‘self-made man’ (or
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woman) is a social creature, and he (or she) ‘makes it’ by being an essential part of society, however innovative or eccentric he or she may be. To say that we are communal creatures is to say that we have shared interests, that even in the most competitive community our self-interests are parasitic on and largely defined in terms of our mutual interests. To think of the corporation as a community is to insist that it cannot be, no matter how vicious its internal politics are, a mere collection of self-interested individuals. To see business as a social activity is to see it as a practice that both thrives on competition and presupposes a coherent community of mutually concerned as well as self-interested citizens. To be sure, communities in the contemporary ‘Western’ world are anything but homogeneous or harmonious, but the claim I am making here is more metaphysical than nostalgic, and the claim is that what we call ‘the individual’ is socially constituted and socially situated. ‘The individual’ today is the product of a particularly mobile and entrepreneurial society in which natural groups (notably the ‘extended’ family or tribe) have been replaced by artificial organizations such as schools and corporations. Movement between them is not only possible (as it is usually not between tribes and families) but encouraged, even required. Human beings are not, as such, individuals. They are separated by the boundaries of their epidermises, to be sure, and there is some (rather philosophically confusing) sense in which each one ‘has’ his or her own thoughts and emotions, even if these are prompted by, learned from and the same as the thoughts and emotions of other people. ‘The individual’ was an invention of the 11th and 12th centuries in Europe, when families were separated by war and the tightly arranged structures of feudalism were breaking apart. ‘The individual’ became increasingly important with the advent of capitalist and consumer society, but (as so often in the overly materialist history of economics) he or she became important first because of changing religious conceptions, with increased emphasis on personal faith and individual salvation. But ‘the individual’ was always a relative, context-dependent designation. An individual in one society would be a sociopath in another. (‘The nail that sticks out is the one that gets hammered’, goes a traditional Japanese proverb.) What we call ‘the individual’ is, from even the slightest outside perspective, very much a social, even a conformist conception. To show one’s individuality in the financial world, for example, it may be imperative to wear the same tie as everyone else, usually of a color (red, yellow, pink) or a pattern (paisley) that only a true eccentric would have chosen on his own. To further emphasize individuality (which connotes creativity, even genius), one might sport a moustache or a beard (though the range of styles is very strictly circumscribed). But getting beyond trivial appearances, even
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our thoughts and feelings are, it is obvious, for the most part defined and delineated by our society, in our conversations and confrontations with other people. Princeton anthropologist Clifford Geertz once wrote that a human being all alone in nature would not be a noble, autonomous being but a pathetic, quivering creature with no identity and few defenses or means of support. Our heroic conception of ‘the individual’ – often exemplified by the lone (usually male) hero – is a bit of bad but self-serving anthropology. There are exceptional individuals, to be sure, but they are social creations and become exceptional just because they serve the needs of their society, more often than not by exemplifying precisely those forms of excellence most essential to that society.2 We find our identities and our meanings only within communities, and for most of us that means – at work in a company or an institution. However we might prefer to think of ourselves, however important we (rightly) insist on the importance of family and friends, however much we might complain about our particular jobs or professional paths, we define ourselves largely in terms of them, even if, in desperation, in opposition to them. Whether a person likes or hates his or her job will almost always turn on relationships with the people one works for and works with, whether there is mutual respect or animosity and callousness or indifference. Even the lone entrepreneur – the sidewalk jeweler or the financial wizard – will succeed only if he or she has social skills, and enjoys (or seems to) his or her customers or clients. The philosophical myth that has grown almost cancerous in many business circles, the neo-Hobbesian view that business is ‘every man [sic] for himself’ and the Darwinian view that ‘it’s a jungle out there’ are direct denials of the Aristotelian view that we are first of all members of a community and our self-interest is for the most part identical to the larger interests of the group. Competition presumes, it does not replace, an underlying assumption of mutual interest and cooperation. Whether we do well, whether we like ourselves, whether we live happy productive lives, depends to a large extent on the companies we choose. As the Greeks used to say, ‘to live the good life one must live in a great city’. To my business students today, who are all too prone to choose a job on the basis of salary and startup bonus alone, I always say, ‘to live a decent life choose the right company’. In business ethics the corporation becomes one’s immediate community and, for better or worse, the institution that defines the values and the conflicts of values within which one lives much of one’s life. A corporation that encourages mutual cooperation and encourages individual excellence as an essential part of teamwork is a very different place to work and live from a corporation that incites ‘either/or’ competition, antagonism and continuous jostling for status and recognition. There is nothing more
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‘natural’ about the latter, which is at least as much the structuring of an organization (whether intended or not) as the cooperative ambience of the former. The first principle of business ethics, at least in the eyes of American law, is that the corporation is not only a fictional person but a citizen, a member of the larger community and inconceivable without it. This is the idea that has been argued over the past few decades as the principle of ‘social responsibility’, but the often attenuated and distorted arguments surrounding that concept has been more than enough to convince me that the same idea needed a different foundation. The notion of ‘responsibility’ is very much a part of the atomistic individualism that I am attacking as inadequate, and the classic arguments for ‘the social responsibilities of business’ all too readily fall into the trap of beginning with the assumption of the corporation as an autonomous, independent entity, which then needs to consider its obligations to the surrounding community. But corporations like ‘individuals’ are part and parcel of the communities that created them, and the responsibilities that they bear are not the products of argument or implicit contracts but intrinsic to their very existence as social entities. There are important and sometimes delicate questions, of course, about what the social responsibilities of business or of a particular corporation might be, but the question whether they have such responsibilities is a non-starter, a bit of covert nonsense. Friedman’s now-infamous idea that ‘the social responsibility of business is to increase its profits’ betrays a willful misunderstanding of the very nature of both social responsibility and business. (Not surprisingly, the author of that doctrine has elsewhere protested, alienating his friends along with his critics, that he is ‘not pro-business but pro-free enterprise’.) These claims are closely akin to the ideas captured in the pun-like notion of a ‘stakeholder’, that broadening conception of the corporate constituency which includes a variety of affected (and effective) groups and all sorts of different obligations and responsibilities.3 The term has become something of a coverall, and so what considerable advantages it has provided in terms of breadth are to some extent now compromised by the uncritical overuse of the word. For example, the notion of ‘stakeholder’ suggests discrete groups or entities whereas the primary source of dilemmas in business ethics is the fact that virtually all of us wear (at least) ‘two hats’, for example as employees and as members of the larger community, as consumers and as stockholders, as a manager and as a friend, and these roles can come into conflict with one another. As a program for ethical analysis in business, the standard list of stakeholders is notoriously incomplete where it concerns one’s competitors rather than one’s constituents. In an obvious sense, no one is more affected by one’s actions (and, sometimes,
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no one is more effective in determining one’s actions) than one’s competitors. ‘Good sportsmanship’ and fair play are essential obligations in business ethics. And yet it seems odd to say that the competition ‘has a stake’ in the company. The idea of community thus goes beyond the idea of particular responsibilities and obligations although it embraces the same impetus toward larger thinking and citizenship endorsed by stakeholder analysis. What is a corporate community? To begin with, it is a heterogeneous conglomerate riddled with personality clashes, competing aims and methodologies, cliques and rivalries and criss-crossed loyalties. The very fact that a corporation requires specialization and the division of labor makes inevitable such heterogenity. Two young men working in a garage, pooling their resources and their knowledge to produce a successful commodity may, in the throes and thrills of development and struggle, experience an uninterrupted sense of one-ness that would impress even a Buddhist. But once the product is launched and marketing people and managers are brought in to do the job, that primeval corporate unity is shattered and, as in the most famous recent case of this kind, one or both of the founders of the company may find themselves displaced or even fired by the assistants they brought in to help them. There is an intrinsic antagonism – to be explained in terms of social class rather than economics and in terms of our mythologies of work rather than the nature of the work itself – between the shop floor and the managerial office, just as there is an obvious opposition (not entirely financial) between those divisions of the corporation that always need to spend more money (advertising and research and development teams, for example) and those whose job it is to save it. Add to this the many different characters and personalities who populate even the most seemingly homogeneous company (although these differences too are already pre-established in the social types and classes who tend to one or the other position or profession) and one can appreciate the foolishness in our popular treatment of corporations as monolithic entities with a single mind and a single motive. And yet, there is an emergent phenomenon that does often speak with a single voice and deserves to be treated (and not just by the law) as a singular entity, ‘the corporation’. Groups have personalities just as individuals do, and heterogeneous, even fragmented groups can nevertheless have a singular character just as conflicted people do. What this means, in terms of collective responsibility, for example, is that it is a mistake to speak of corporations as only collections of individuals, both because the ‘individuals’ in question are themselves the creatures of the corporation and because the corporation is one of those sums that is nevertheless greater than its many constituent parts. Aristotelian ethics takes both the corporation and the
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individual seriously without pretending that either is an autonomous entity unto itself. Corporations are made up of people, and the people in corporations are defined by the corporation. Business ethics thus becomes a matter of corporate ethics, emphatically not in the sense that what counts is the ethics of the corporation, considered as an autonomous, autocratic agent, ruling over its employees (perhaps exemplified by its ‘corporate code’), or in the more innocent but naive sense that the ethics of the corporation is nothing but the product of the collective morality of its employees. The morals of executives, particularly the exemplary morals of those who are most visible in the corporation, are an important influence on corporate morality, to be sure. But it is the nature and power of institutions – particularly those in which a person spends half of his or her adult waking life – to shape and sanction the morals of the individual, including most top executives. There may well be (and often is) a gap or dichotomy between a person’s sense of ethics on the job and his or her sense of right and wrong with friends and family. There may well be real ethical differences within a company, particularly between its various departments and divisions. But even in diversity and conflict the ethics of a corporation becomes clearly and often soon visible to those most closely attached to, affiliated with or affected by it. Corporations can (and often do) get ‘a bad rap’, an institutional black eye caused by a tiny percentage of its employees. (Hertz Renta-Car was caught up in a monumental scandal a few years ago, which turned out to involve some 20 dealers out of 20 000. Nevertheless, it was the name ‘Hertz’ that took the brunt of the abuse, and numbers were simply not the issue.) Such apparent injustices throw a revealing light on a company and its ethical standards, however, and give the best corporations a chance to show their moral mettle. Communities are essential units of morality, and corporations are ultimately judged not by the numbers but by the coherence and cooperation both within their walls and with the larger communities in which they play such an essential social as well as economic role. An Aristotelian metaphor: corporate culture It is a sign of considerable progress that one of the dominant models of current corporate thinking is the idea of a ‘corporate culture’. As with any analogy or metaphor, there are, of course, disanalogies, and the concept of corporations as cultures too quickly attained the status of a ‘fad’ – thus marking it for easy ridicule and imminent obsolescence (Pastin 1986).4 But some fads nevertheless contain important insights. This one in particular. The concept of a corporate culture, first and foremost, is distinctively and irreducibly social. It presupposes the existence of an established
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community and it explicitly rejects atomistic individualism. Individuals are part of a culture only in so far as they play a part in that culture, participate in its development and fit into its structure. Cultures are by their very nature (more or less) harmonious, that is, they are not possible unless people cooperate and share some minimal outlook on life. There could not be a completely competitive culture, only a Hobbesian jungle of mutually disagreeable animals.5 Cultures have rules and rituals, particular modes of dress and address; and most important of all (for our purposes) every culture has an ethics, including those basic rules that hold the society together and protect it from itself. The various ‘taboos’ of every culture, including our own (and most corporate cultures), may indeed (for reasons now forgotten) protect the integrity of the community. Much of the corporate culture may be only ‘the way we do things around here’ and may be of significance only because they help define the membership of the culture. But corporate cultures presuppose shared knowledge, experience and values. A corporate culture is an essentially cooperative enterprise with public as well as private purposes. It cannot be reduced to a legal ‘fiction’ or an economic mechanism or the numbers in the annual report or anything else that is not first and foremost a group of people working together. It is important to appreciate the significance of the ‘culture’ metaphor against the backdrop of more vulgar, sometimes brutal, atomistic, Darwinian and mechanical metaphors. Just as business (in general) has been saddled (and saddled itself) with unflattering and destructive concepts and images, thus misunderstanding itself, corporations – both in general and as individual entities – have too often tended to present themselves (despite all of their public relations work and advertising to the contrary) as giant juggernauts, mechanical monsters as faceless as the glass and steel buildings that typically form their headquarters. Friendly and familiar corporate logos only go so far. Consumers realize that they are so many numbers. Employees now recognize that they are only so many replaceable parts. Even top executives come to learn that they are only part of the mechanism. It is no wonder that most Americans who do not work for corporations think of them as inhuman and as inhumane places to work, and those millions who do work in and for corporations find themselves at a serious conceptual disadvantage. What kind of a life is this, being a replaceable part in a giant machine, for which the only virtue is mere efficiency? Ironically the conception of a corporate culture, though relatively recent, has its origins in the more familiar model of the bureaucracy. This developed during the French revolution and the Napoleonic era as a correction to inherited privilege and incompetence, but it has its roots back in Rome, in the labyrinthine organization of the medieval Catholic Church and, even
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before that, in some of the ancient civilizations of the Middle East. The concept of the bureaucracy was extensively promoted and popularized (though with considerable misgivings) by the great German sociologist Max Weber at the turn of the last century. The imagery of the bureaucracy provided something of a compromise between the juggernaut and machine imagery of the 18th-century enlightenment on the one hand and the Renaissance and romantic demands for ‘humanization’ on the other. (Indeed the whole of the Western enlightenment was something of an odd mix of machine metaphors and humanism, but that is another story; for example, see Toulmin, 1989.) Since Weber, ‘bureaucracy’ has become something of a ‘dirty word’ for us, suggesting inefficiency instead of the model of efficiency it was once intended to be. It calls up images of Soviet ineffectiveness and Kafkaesque catacombs. Even Weber charged that the bureaucracy had only ‘instrumental rationality’ and was detrimental to human spirituality. And yet, modern corporations are in large part bureaucracies, and this is not necessarily to say something against them. But what is important and progressive about bureaucracies is not just their traditional and now largely discredited emphasis on efficiency or even their still essential emphasis on meritocracy. It is rather the humanization of the bureaucracy as ‘culture’ and the all-important shift of emphasis from machine-like efficiency to interpersonal cooperation and human productivity. Bureaucracies, like cultures and unlike machines, are made up of people, not parts. Bureaucracies have purposes. Bureaucracies involve people in making judgments, employing their skills, working together in an organized way to produce results. Those results may be the maintenance of the status quo, no easy trick in modern societies. For all of the obsessive talk about ‘innovation’ and ‘competition’, the essential function of most corporate bureaucracies – that is, the larger part of the corporation by far – is just this maintenance of the status quo. One can understand and sympathize with the fear and uncertainty about the future that is part of most markets without joining the myth-making chorus of ‘future shocks’ and ‘megatrends’. To be sure, change these days is both very real and very fast. Maintaining the status quo in a fast-changing society requires being adaptive and organically tuned to the times, but it also requires a durable structure and a stable organization. Overemphasis on change and the sacrifice of stability – as evidenced in so many corporate ‘shake-ups’ and ‘restructurings’ today – weakens the corporation and makes it a far less efficient competitor. The idea of a corporate culture is an improvement over the more staid image and impersonal nature of the bureaucracy in several respects, but in one respect in particular. A ‘culture’ is first of all a structured community
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of individuals and their interrelationships. Bureaucracies, on the other hand, remain subtly individualistic as well as mechanistic. People may work together in their various capacities but this ‘togetherness’ is a function of the organization and not a relationship between them. They may not be cogs in a machine but they are functionaries who are readily replaced by anyone else with the same skills and knowledge. Our image of the bureaucracy, accordingly, is lots of people isolated in little offices (or ‘bureaus’) doing their jobs and, if they are conscientious and efficient, not stopping to talk to one another or chit-chat over the coffee machine. Our image of a culture, by way of contrast, essentially involves people talking with one another (probably dancing, cooking and worshipping together as well). Thus the image of the bureaucracy carries over the machine image of facelessness and an attitude of indifference toward individuals. In a culture, by contrast, individuals are essential, not just as impersonal parts but as members with personalities as well as functional roles. In a corporate culture, people, not functions or mere functionaries, work together for their shared and not merely mutual benefit. People, unlike functions and mere functionaries, have personalities, personal ambitions and ‘outside’ interests. They make friends (and enemies). They need a moment to unwind, catch their breath, relieve themselves, express themselves, daily renew their personal contacts around the office (how quickly an office can be disrupted when a manager just fails to say ‘hello’ to everyone that morning). Anal-retentive types may see this (wrongly) as inefficient, and such interpersonal behavior as gossip and chit-chat as a distraction, but this betrays a fatal misunderstanding of both people and organizations. That is why I have insisted, with such seeming innocence and insistence, that corporations are first of all communities. They are social groups with a shared social purpose (or purposes). That is what business ethics is all about, not just attending to an abstract notion of social responsibility, much less pursuing profits within the constraints of law and compliance. It is about enlarging our sense of what we do and what business is and, The Corporation notwithstanding, understanding corporations not as socio-pathological ‘persons’ but as healthy communities and potentially good citizens. Two challenges: globalization and conglomeration This conscientiously humanistic Aristotelian model faces at least two major challenges as we proceed headlong into the 21st century, 24 centuries after Aristotle commented on the ethics of commerce in his own time. Aristotle enjoyed the benefits of a tightly knit, admirably democratic community of 25 000 or so, the Greek polis. That raises serious questions about the applicability of his model to populations that are measured by the billion (more
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than a quarter billion in the USA, more than a billion in both India and China). So, too, we need to ask whether the Aristotelian model, no matter how attractive it may be, will survive the disruption of corporations by virtue of globalization and conglomeration, in other words, mergers and acquisitions and frequent ‘downsizing’. The Aristotelian model presumes a stable corporate community, but as operations as well as capital are shifted overseas and the site of the corporation is split and scattered around the globe, there is a real question whether any humanistic model can stand up to the more abstract and impersonal legal conception of a corporation. But, then again, the global legal framework for business is by no means settled either, and so one wonders what will remain of the very idea of ‘the corporation’, over and above the brute fact of organized global power, power which (it is often noted) equals or betters the power of most of the governments in the world. Our answer, it seems to me, is that we must hold onto something like the Aristotelian model. The financial world may be rapidly changing but people’s basic needs do not change, whatever the new technology and our new and constantly shifting communities. We need other people. We need security, predictability, and some sense of familiarity. It is true that there is a breed of humans who manage to exist seemingly without such needs (and do very well in the new cultureless corporations as a result), but the question that presses itself forward is the central question of The Corporation, whether such a character is really a psychopath rather than a new model for ‘how to be human’. So the challenge is how or whether we can maintain our humanity in the face of globalization. This is much the same challenge, often on a domestic level, as that following the disruption of corporations due to mergers and acquisitions and frequent ‘downsizing’. Good companies such as IBM or VW, for instance, went through the equivalent of hell when they were forced to fire tens of thousands of loyal employees, many of them lifelong employees. The trauma was extreme. At IBM, for instance, there were suicides. But even for those who survived the cuts, community life was radically dislocated as fear and paranoia replaced camaraderie and the sense of joint person and shared identity. The very idea of employment, accordingly, has changed in the United States. The presumption of security and continuance has been replaced by the concept of ‘employment at will’, with no assurances, much less guarantees. This is made quite explicit as jobs are ‘outsourced’ (often to the same person who used to work in and for the corporation). But our response should be the same. Without denying the necessity of corporations improving their efficiency and effectiveness (which is not just to be equated with improving the return to the shareholders), we need community, security, predictability and familiarity. A good corporation (‘the best 100 companies to work for’) is not only a successful corporation but also a
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congenial and virtuous community, which in turn encourages congeniality and virtue in its executives, managers and employees. That is a model we must not let go of, for the alternative is a world, no matter how superficially ‘prosperous’ (measured by the wealth of its wealthiest citizens) that few working people would want to live in. Notes 1. Portions of this chapter have been adapted from my book, Ethics and Excellence, Oxford University Press, 1991. 2. There is always the Star Trek myth, of course, the benign ‘outsider’ who brings to a civilization some virtue that is sorely missing but wholly lacking (for example, Kirk’s courage, Spock’s rationality), and the more generic Joseph Campbell myth of the hero who leaves his society and wanders off on his own, later returning with new virtues to save the society. But the fact that these are myths should already tell us something about their sociological status. The virtues supposedly imported are already celebrated as such. 3. The term ‘stakeholder’ began floating around the Business Roundtable about two or three decades ago, but it gained currency in William Evan and R. Edward Freeman (1983), ‘A stakeholder theory of the modern corporation’. 4. For example, see Mark Pastin (1986), The Hard Problems of Management: ‘why corporations should have weak cultures and strong ethics’. But one is tempted to speculate whether Pastin, who learned ethics under the tutelage of Roderick (‘ideal observer theory’) Firth at Harvard, might not have too little respect for the shared mores that come of participation of cultural life and too little concern for the dispassionate negotiations of the social contract (ibid., p. 129), ‘The lesson is clear. Forget culture and think about fair agreements’ (p. 144), arguing that cultures are intrinsically ‘conservative’ and strong cultures ‘put basic beliefs, attitudes and ways of doing things beyond question’. Cultures are hard to change, but this, I want to argue, is precisely their strength. Sometimes, ignoring the culture works best. 5. The most famous modern counterexample, the infamous Ik tribe of the mountain ranges of Africa, has been often abused for this purpose. Colin Turnbull’s careful description of the comparative callousness and competitiveness of the Ik shows quite clearly that beneath their selfishness there is a cultural method, a sense of coherence even in the face of a hostile and alienating environment. Within the context of a culture, the Ik do indeed strike us as shockingly indifferent to one another’s well-being (even to the welfare of their own children), but nevertheless the culture itself displays the requisite structure of mutual attention, shared goals and minimally harmonious cohesion if not exactly cooperation.
References Carr, Alfred (1968), ‘Is business bluffing ethical?’, Harvard Business Review, 46 (1), 143–53. Drucker, Peter (1974), Management, New York: Harper & Row. Evan, William and R. Edward Freeman (1983), ‘A stakeholder theory of the modern corporation’, reprinted in T. Beauchamp and N. Bowie (eds), Ethical Theory and Business, Englewood Cliffs, NJ: Prentice-Hall, 4th edition, pp. 75–84. Freeman, R.E. and J. Liedtka (1991), ‘Corporate social responsibility: a critical approach’, Business Horizons, 34 (4), 92–8. Friedman, Milton (1970), ‘The social responsibility of business is to increase its profits’, New York Times Magazine, 13 September. MacIntyre, Alastair (1985), After Virtue, London: Duckworth, 2nd edition. Pastin, Mark (1986), The Hard Problems of Management, San Francisco, CA: Jossey-Bass. Solomon, Robert C. (1991), Ethics and Excellence, Oxford: Oxford University Press. Toulmin, Stephen (1989), Cosmopolis: The Agenda of Modernity, New York: Free Press. Turnbull, Colin M. (1972), The Mountain People, New York: Simon & Schuster.
PART II CONTEMPORARY ISSUES AND CHALLENGES
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Responsibility and global justice: a social connection model Iris Marion Young1
Introduction In this chapter I clarify the status of claims about global justice and injustice that are increasingly voiced and accepted in our world.2 Such claims present a problem for political philosophy because until recently most philosophical approaches to justice assumed that obligations of justice hold only between those living under a common constitution within a single political community. I shall argue that obligations of justice arise between persons by virtue of the social processes that connect them; political institutions are the response to these obligations rather than their basis. I develop an account of some such social processes as structural, and argue that some harms come to people as a result of structural social injustice. Claims that obligations of justice extend globally for some issues, then, are grounded in the fact that some structural social processes connect people across the world without regard to political boundaries. The second and more central project of this chapter is to theorize the responsibilities that moral agents may be said to have in relation to such global social processes. How ought moral agents, whether individual or institutional, conceptualize their responsibilities in relation to global injustice? I propose a model of responsibility from social connection as an interpretation of obligations of justice arising from structural social processes. I use the example of justice in transnational processes of the production, distribution and marketing of clothing to illustrate operations of structural social processes that extend widely across regions of the world.3 The social connection model of responsibility says that all agents who contribute by their actions to the structural processes that produce injustice have responsibilities to work to remedy these injustices. I distinguish this model from a more standard model of responsibility, which I call a ‘liability’ model. I specify five features of the social connection model of responsibility that distinguish it from the liability model: it does not isolate perpetrators; it judges background conditions of action; it is more forward than backward looking; its responsibility is essentially shared; and it can be discharged only through collective action. The final section of the chapter begins to articulate parameters of reasoning that 137
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agents can use for thinking about their own action in relation to structural injustice. Global connections and obligations of justice A widely accepted philosophical view continues to hold that the scope of obligations of justice is defined by membership in a common political community. On this account, people have obligations of justice only to other people with whom they live together under a common constitution, or whom they recognize as belonging to the same nation as themselves. In all of his writing on justice, for example, Rawls assumes that the scope of those who have obligations of justice to one another is a single relatively closed society (Rawls 1971 [1999], pp. 7–8). The members of each such society are mutually bound by obligations of justice that they do not have to outsiders. This is not to say that insiders have no moral obligations to outsiders. There are some moral obligations that human beings have to one another as humans; these are cosmopolitan obligations or obligations to respect human rights. In The Law of Peoples, Rawls (1999) reiterates that principles of justice as fairness mutually oblige members of distinct societies to one another, yet do not apply to the moral relationships among people between societies across the globe. The law of peoples is broader and thinner than justice as fairness (ibid., pp. 11–22). David Miller also conceives principles of justice as having in their scope only relations among those persons who dwell together within the same nation-state. Obligations to organize coercive institutions to ensure distributive fairness according to need, desert and equal respect obtain only between persons who belong together in the same nation-state and who live under a single political constitution (Miller 1995). Miller worries that a globalizing world is making state sovereignty more porous and liable to being affected by and affecting persons and circumstances outside these nation-state borders. He concludes from this undeniable fact not that principles of justice should follow these globalizing trends, but rather that social justice itself may be a historically specific idea and set of practices whose time is past (Miller 1999, ch. 1). As I understand the logic of this position, it holds that obligations of justice presuppose the existence of shared political institutions. It is incoherent to say that relationships between people are unjust or just, on this interpretation, in the absence of shared institutions for adjudicating such claims or regulating their relations. Some more general and less stringent obligations obtain between persons across political jurisdictions just because they are human. But these are not obligations of justice. A contrary position about moral obligation I shall call ‘cosmopolitan– utilitarian’. On this view, nation-state membership or any other sort of
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particularist relationship among persons is irrelevant to assessing the nature, depth or scope of obligations they have to one another. Moral agents have identical obligations to all human beings and perhaps include other creatures. There is a moral imperative to minimize suffering, wherever it occurs. Every agent is obliged to do what he or she can to minimize suffering everywhere, right up to the point where he or she begins to suffer. Political membership of either the agent or the sufferers is relevant only instrumentally as providing efficient means of discharging obligations and distributing particular tasks. Much about global relationships, however, can override this issue of convenience. Peter Singer (1993, chs 2 and 9) and Peter Unger (1996) are two prominent examples of theorists who hold this view. I think that each of these accounts is wanting. Critics of the cosmopolitan– utilitarian position argue that it is too demanding (see, for example, Scheffler 2001). It flies in the face of moral intuition, moreover, to suggest that all moral agents have exactly the same duties to all other agents and no special obligations to some subset of persons with whom an agent has a special relationship. While the basic moral respect owed to all persons grounds the cosmopolitan obligations that Immanuel Kant calls hospitality (Kant 1795 [1983]), obligations of justice require more and are based on more than common humanity. Critics of the position that limits the scope of obligations of justice to common political membership, on the other hand, are right to argue that it is arbitrary to consider nation-state membership as a source of obligations of justice. Political communities have evolved in contingent and arbitrary ways more connected to power than moral right. People often stand in dense relationships with others prior to, apart from, or outside political communities. These relationships may be such that their actions affect one another in ways that tend to produce conflict. Or they cooperate with numbers of others in ongoing practices and institutions that meet some shared objectives. In such social relations we expect fair terms of conflict resolution and cooperation. Thus, against the cosmopolitan–utilitarian position, I believe that some account needs to be offered of the nature of social relationships that grounds claims that people have obligations of justice to one another. It is not enough to say that the others are human. The nation-state position, however, makes prior what is posterior from a moral point of view. Ontologically and morally speaking, though not necessarily temporally, social connection is prior to political institutions. This is the great insight of social contract theory. The social connections of civil society may well exist without political institutions to govern them. A society consists in connected or mutually influencing institutions and practices through which people enact their projects and seek their happiness, and in doing so affect the conditions under which others act, often
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profoundly. A social contract theory like that of John Locke argues that the need and desire for political institutions arises because socially connected persons with multiple and sometimes conflicting institutional commitments recognize that their relationships are liable to conflict and inequalities of power that can lead to mistrust, violence, exploitation and domination. The moral status of political institutions arises from the obligations of justice generated by social connection, as some of the instruments through which these obligations can be discharged. In his landmark work, Political Theory and International Relations, Charles Beitz (1979) challenged Rawls’s assumption that the scope of obligations of justice extends only between members of a single political community by arguing that there exists an international society even in the absence of a comprehensive political constitution to regulate it. Ongoing economic processes of production, investment and trade connect people in diverse regions of the world, and these relationships are often unequal in power and material resources. People move across borders, and institutions of expression and communication are increasingly global in their reach. The activities of many religious, artistic, scientific, legal and service-providing institutions and networks extend to many parts of the world without too much regard for nation-state membership and boundaries. Beitz concludes that principles of justice like those Rawls argues for apply globally because there are dense global social and economic relationships (Beitz 1979). A need for political institutions sufficiently wide in scope and strong to regulate these relationships to ensure their fairness follows from the global scope of obligations of justice, rather than grounding the obligations. Onora O’Neill argues somewhat differently to a similar conclusion. The scope of an agent’s moral obligation extends to all those whom the agent assumes in conducting her or his activity. Each of us pursues our interests and goals within the frame of specific institutions and practices, and within which we know others do the same. Our actions are partly based on the actions of others, in so far as we depend on them to carry out certain tasks, and/or in so far as our general knowledge of what other people are doing enable us to formulate expectations and predictions about events and institutional outcomes that affects us or condition our actions. In today’s world of globalized markets, interdependent states, rapid and dense communication, the scope of the actors we implicitly assume in many of our actions is often global. The social relations that connect us to others are not restricted to nation-state borders. Our actions are conditioned by and contribute to institutions that affect distant others, and their actions contribute to the operation of institutions that affect us. Because our actions assume these others as condition for our own actions, O’Neill argues, we have made practical moral commitments to them by virtue of our actions. That is, even
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when we are not conscious of or actively deny a moral relationship to these other people, to the extent that our actions depend on the assumption that distant others are doing certain things, we have obligations of justice in relation to them. It is not possible to trace how each person’s actions produce specific effects on others because there are too many mediating actions and events. Nevertheless, we have obligations to those who condition and enable our own actions, as they do on us. There is an asymmetry in these obligations, however, O’Neill argues, in so far as some people are rendered more vulnerable to coercion, domination or deprivation by the institutional relations. While everyone in the system of structural and institutional relations stands in circumstances of justice that give them obligations with respect to all the others, those institutionally and materially situated to be able to do more to affect the conditions of vulnerability have greater obligations (O’Neill 1985; 1996, ch. 4).4 I interpret both Beitz and O’Neill, along with other theorists of global justice such as Thomas Pogge (2002), as describing transnational social structures and the injustices they may generate as structural injustice. Alan Buchanan similarly argues that there exists a global basic structure that generates obligations of justice between people across national boundaries (Buchanan 2000; 2004, especially pp. 83 and 84). Before I conceptualize structural injustice and introduce the concept of responsibility that corresponds to it, however, let me elaborate a particular example of claims about injustice as involving transnational social connection, namely the antisweatshop movement. Example of global injustice: sweatshops Although I believe that the social connection model of responsibility applies to every case of structural injustice, whether local or global, relationships in the global apparel industry offer a perspicuous example through which I shall explain the logic of the social connection model of responsibility. A vocal and multilayered anti-sweatshop movement, moreover, has in recent years pressed claims on a variety of agents to take responsibility for sweatshop conditions. Anti-sweatshop activists have made claims on institutions that purchase clothing in bulk, such as city governments,5 or which market clothing with their name on them, such as universities (Featherstone 2000; Gaus 2004), to take responsibility for the poor conditions under which these garments are produced, often in factories on the other side of the world. Social movement activists have also passed out leaflets in front of brand-name apparel stores such as Gap or Nike or Disney, or more generic clothing retailers such as Target and Wal-Mart, detailing that much of the clothing sold in
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those stores is made under sweatshop conditions, and calling upon consumers to take responsibility for those conditions. Not a few institutions and individuals find absurd the idea that consumers and retailers bear responsibility for working conditions in far away factories, often in other countries. Not unreasonably, they say that even if the workers producing items they buy suffer wrongful exploitation and injustice, we here have nothing to do with it. It is, rather, the owners and managers of the factories who are to blame. Despite the apparent reasonableness of this dissociation, the claims of the anti-sweatshop movement seem to have struck a chord with many individuals and institutions. I think that it is important to understand why we need a conception of responsibility different from a standard notion of blame or liability. What, then, are ‘sweatshops’? Much of the clothing, shoes and other small consumer items whose production is labor intensive, are produced in relatively small manufacturing centers in less developed countries, which operate at the bottom of a chain of specification, distribution and marketing that often involves hundreds of distinct companies. Research on the global apparel industry has brought to light that sweatshops abound in North America and Europe (Bonacich and Appelbaum 2002; Kwong 2002). The vast majority of sweatshops, however, operate in less developed countries. In 2000, 85 per cent of US consumption of footwear, and 50 per cent of apparel, was imported (see Elliott and Freeman 2004, p. 55). Conditions in such manufacturing facilities vary of course, but the following are typical. The vast majority of workers are female, and often as young as 13 or 14. They are often treated in dominative and abusive ways by bosses, and sexual harassment is common. Typically they work 10–16hour days in peak seasons; if the manufacturer is behind on order the workers may be forced to work through the night. They have few bathroom breaks or other opportunities for rest during their long working day. Sick leave or vacation time are generally unavailable; a worker too ill to work is often fired. Violations of the most basic health and safety standards are normal. Factories are often excessively hot with no ventilation, insufficient lighting, excessive noise, little fire equipment, blocked exists, poor sanitation, unhygienic canteens and bathrooms, and no access to clean drinking water. Typically workers in these facilities have no freedom to organize unions to bargain collectively with employers. Workers who complain and try to organize are typically threatened, fired, blacklisted, beaten, and even killed. Local governments often actively or passively support such antiunion activity.6 There should be little doubt that conditions such as these violate basic human rights. Many international agreements and conventions prohibit violence and intimidation in the workplace as elsewhere, and stipulate that
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workers not labor under conditions that threaten their basic health and physical safety. The meaning of such rights, moreover, ought to vary little with local culture or level of industrial development. Exhaustion and the need to pee are cross-cultural experiences. The right to assemble and organize ought to be recognized everywhere, and it is everywhere wrong to intimidate and beat people who try to exercise this right. To say these are rights is to say precisely that there is no valid moral argument for trading them off against profits, or policies designed to foster economic growth, or the earnings of the workers. If many workers endure these violations without complaint because they desperately need those earnings, this is a measure of the coercive pressures of their circumstances rather than of their consent. But what of their earnings? Economists argue that wage levels for the same kind of work appropriately vary with the local cost of living and labor market conditions, and they are right. Those who argue that the standard of living for workers in sweatshops is often higher than in the countryside from which many of them have moved may be correct. The wage levels of workers in the apparel industry is nevertheless often far below the legal minimum wage.7 Employers too often renege, moreover, in paying even these meager wages (Women Working World Wide 2007). The workers generally have no recourse when employers underpay them, because they often have no formal employment contracts, and the employers keep poor or no records of the hours employees have worked. It may be true that under normal market conditions a rise in wages for some workers will mean loss of jobs of others; where the wages of a massive number of workers are below subsistence level, as they often are, this is more an argument against accepting normal market conditions than against paying living wages. Thus far I have cited typical conditions for garment workers in factories. A significant portion of the people who put garments together, however, work from their home. Employers often prefer putting out to homeworkers because there they do not have to pay for facilities and overheads and they are not legally responsible for working conditions. Workers, especially women workers, often prefer home work to factory work even when it pays less, because they can avoid long and potentially harassing travel to work, stay with their children, and save face for their husbands who can pretend that their wives are not working (Khattak 2002). Homeworkers are often the poorest paid, however, and work the longest self-imposed hours. The children or old people with whom the worker wants to stay home, moreover, are often enlisted to help with the work (Ross 2004, especially ch. 2). The subject of this chapter is responsibility in relation to injustice. The structure of the global apparel industry diffuses responsibility for sweatshop conditions. Big-name retailers in North America or Europe rarely
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themselves own and operate factories in which clothes made to their order are manufactured. Instead, there is a complex chain of production and distribution involving dozens or thousands of contractually distinct entities that bring the clothes manufactured in one place to the store in which people buy them. In this system, each of the layers in the chain believes itself to be operating close to the margin in a highly competitive environment, and usually is under heavy pressure to meet orders at low cost by firms higher up the chain. The firms higher up the chain, however, often have no legal responsibility for the policies and operations of the other firms below with which they contract. Facilities where garments and other items are manufactured are typically small. Their activities are difficult to regulate or monitor because their operations frequently shut down in one place and open up in another. The export processing zone policies of many developing countries encourage investment in such firms and generally turn a blind eye to the extent to which they comply with local labor law. Elliott and Freeman present the structure of one US retailer, J.C. Penny, with its subcontracting relations in one developing country, the Philippines. J.C. Penny purchases finished goods through a US importer, Renzo. Renzo convey’s J.C. Penny’s specifications to Robillard Resources, a Philippino exporter, who contracts with a Philippino clothing contractor that organizes a production chain that includes numerous subcontracting factories. These subcontractors in turn not only organize and supervise factory production of apparel parts, but also organize a system of putting out to workers in their homes (Elliott and Freeman 2004, pp. 50–54). According to Elliott and Freeman, J.C. Penny alone contracts with over 2000 suppliers in more than 80 countries. Nordstrom has over 50 000 contractors and subcontractors, and Disney licenses products in over 30 000 factories around the world. Another aspect of the structure of this industry relevant for issues of assigning responsibility has to do with the way that the positions of employer and employee are often blurred in this system. In some factories, production line leaders act as subcontracting agents for home workers, with the permission and assistance of management. Line and home workers rarely receive written contracts; they are encouraged to think of themselves as ‘self-employed’ (Prugl and Tinker 1997; Women Working World Wide 2007). In this complex system of production and distribution, the workers who make garments are at the bottom of the chain. The wages they earn generally amount to a small portion of the retail price of an item, often under 6 per cent (see Miller 2003; Pollin et al. 2004). Each layer of subcontracting that runs between the manufacturer and the store in which the consumer
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buys items adds to the cost of items. Major logo retailers usually make handsome profits from this system; as one moves down the chain of production and distribution, firms operate in more-competitive environments. Small subcontractors in developing countries frequently operate at just the edge of solvency. Anti-sweatshop activists argue that the workers at the bottom of this system suffer injustice in the form of domination, coercion and need deprivation within a global system of vast inequalities. Because of the complexity of the system that brings items from production to sale, and the manner in which it constrains the options of many of the actors within it, this is an example of structural injustice. I shall now articulate that concept more generally. Structural injustice8 In A Theory of Justice, John Rawls (1971, p.7) says that the subject of justice is the basic structure of society, which concerns ‘the way in which the major social institutions distribute fundamental rights and duties and determine the division of advantages from social cooperation’. Major institutions include, he says, the legal system’s definition of basic rights and duties, market relations, the system of property in the mean of production, and family organization. To these I would add the basic kinds of positions in the social division of labor. Rawls says little more about what the concept of structure refers to, however. Social theorists use the term in many ways, and I shall not review them here.9 As I understand the concept, structures denote the confluence of institutional rules and interactive routines, mobilization of resources, as well as the built environment. These constitute the historical givens in relation to which individuals act, and which are relatively stable over time. Social structures serve as background conditions for individual actions by presenting actors with options; they provide ‘channels’ that both enable and constrain.10 I shall build up an account of structure and structural processes using elements derived from several theorists. Peter Blau offers the following definition: ‘A social structure can be defined as a multidimensional space of differentiated social positions among which a population is distributed. The social associations of people provide both the criterion for distinguishing social positions and the connections among them that make them elements of a single social structure’ (Blau 1977, p. 4). Blau exploits the spatial metaphor implied by the concept of structure. Individual people occupy varying positions in the social space, and their positions stand in determinate relation to other positions. Although Pierre Bourdieu uses very different language and concepts for theorizing social structures, he too
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begins from a spatial metaphor. He conceives structures as ‘fields’ on which individuals stand in varying positions in relation to one another, offering possibilities for interpretation and action (Bourdieu 1980). The structure consists in the connections among the positions and their relationships, and the way the attributes of positions internally constitute one another through those relationships. Young unskilled migrants from the countryside to the city or from one country to another stand in a certain structural class position in relation to the small entrepreneurs who employ them for apparel manufacture. The entrepreneurs in turn stand in structural positions in relation to investors in large exporting firms and executives in the multinationals whose logos the clothes sport. The workers and potential workers also occupy particular gendered positions in relations to their employers; their positions may also be structured by racial or ethnic differences that render them vulnerable to exclusion or discrimination. These differing structural positions offer differing and unequal opportunities and potential benefits to their occupants, and their relations are such that constrained opportunities and minimal benefits for some often correlate with wider opportunities and greater benefits for others. It is misleading, however, to reify the metaphor of structure, to think of social structures as entities independent of social actors, lying passively around them easing or inhibiting their movement. On the contrary, social structures exist only in the action and interaction of persons; they exist not as states, but as processes. Anthony Giddens calls this process ‘structuration’. He defines social structures in terms of ‘rules and resources, recursively implicated in the reproduction of social systems’ (Giddens 1984, p. 25). In the idea of the duality of structure, Giddens theorizes how people act on the basis of their knowledge of pre-existing structures and in so acting reproduce those structures. We do so because we act according to rules and expectations and because our relationally constituted positions make or do not make certain resources available to us. Much about the dynamics of the apparel industry, for example, presupposes practices of fashion. Consumers, especially affluent consumers in the North with disposable income, often want to be stylish, and look to friends and media stars to determine what stylish means and whether it is changing. They often ‘need’ new clothes even when those they own are in fine shape. Major retailers both follow the trends and try to manipulate them. Ideas of what is fashionable, as well as conventions of clothes marketed for four or five different ‘seasons’ during the year, drive much about the size of orders and speed with which they are expected to be delivered, which constrain manufacturers and lead them to overwork workers. Most of these people act as though fashion is some kind of natural force, when in fact its
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constraints are produced by the ideas that people have about it and the actions they take presuming those ideas. Defining structures in terms of the rules and resources brought to actions and interactions, however, makes the emergence of structures sound too much like the product of individual and intentional action. The concept of social structure must also include conditions under which actors act, a collective outcome of action which is often impressed onto the physical environment. Jean-Paul Sartre calls this aspect of social structuration the ‘practico-inert’ (Sartre 1976, ch. 3). Most of the conditions under which people act are socio-historical: they are the products of previous actions, usually products of many coordinated and uncoordinated but mutually influencing actions. Those collective actions have left determinate effects on the physical and cultural environment which condition future action in specific ways. The gradual consolidation of landholdings by large firms has left many peasants with poor or no land from which they can eke out subsistence, so many of them move in search of work, erecting shanty towns at the edge of cities. The export processing zones many governments have established where some of these migrants find work are consequences of a history of structural adjustment programs that many indebted governments have been pressured to implement by international financial institutions. The background conditions of the lives of these young workers today are structural consequences of decisions and aggregated economic processes beginning more than three decades ago. This leads us to a final aspect of the concept of social structure. The actions and interactions of differently positioned persons drawing on the rules and resources the structures offer take place not only on the basis of past actions whose collective effects mark the physical conditions of action. They also often have future effects beyond the immediate purposes and intentions of the actors. Structured social action and interaction often have collective results that no one intends and which may even be counter to the best intentions of the actors. Sartre (1976, pp. 277–92) calls such effects ‘counter-finalities’. When a large number of investors make a speculative run on currencies in anticipation of their devaluation, for example, they often unintentionally but predictably produce a financial crisis which throws some people out of work and ruins the fortunes of others (see Stiglitz 2002, ch. 4). ‘Structural injustice’ exists when social processes put large categories of persons under a systematic threat of domination or deprivation of the means to develop and exercise their capacities, at the same time as they enable others to dominate or have a wide range of opportunities for developing and exercising capacities. Structural injustice is a kind of moral wrong distinct from the wrongful action of an individual agent or the willfully repressive policies of a state. Structural injustice occurs as a consequence of
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many individuals and institutions acting in pursuit of their particular goals and interests, within given institutional rules and accepted norms. All the persons who participate by their actions in the ongoing schemes of cooperation that constitute these structures are responsible for them, in the sense that they are part of the process that causes them. They are not responsible, however, in the sense of having directed the process or intended its outcomes. Persons stand in systematically different and unequal social positions due to the way institutions operate together. Rather than being a static condition, these factors that constrain and enable individual possibilities are ongoing processes in which many actors participate. These constraints and enablements occur not only by means of institutional rules and norms enforced by sanctions, but by incentive structures that make some courses of action particularly attractive and carry little cost for some, or make other courses of action particularly costly for others. The injustice does not consist in the bare fact that structures constrain actors, for all social structures constrain as well as enable. Rather, the injustice consists in the way they constrain and enable, and how these constraints and enablements expand or contract individuals’ opportunities. The institutional rules, resources and practices through which people act do not constitute, in Rawls’s phrase, ‘fair terms of cooperation’. When consumers who take flyers in front of Disney stores react to information about sweatshop working conditions with shock or outrage, they are implicitly making a judgment of injustice. They make the judgment that the workers do not merely suffer misfortune, as though a hurricane had carried away their houses, but that the suffering is socially caused. Somebody, we are inclined to say, ought to do something about this. To make the judgment that poor working conditions are unjust implies that somebody bears responsibility for their current condition and for their improvement. If the injustice has social structural causes, however, then it would seem that all those who participate in producing and reproducing the structures are implicated in that responsibility. When we say an injustice such as working to exhaustion is structural, we are saying that the workers are not simply victims of mean bosses, though this may be true. Identification of the wrongs that individual actors perpetrate toward them needs to be supplemented with an account of how macro-social processes encourage such wrongs, why they are widespread and repeated. My question is: how shall we conceptualize responsibility for producing and rectifying structural injustice? This question presents a puzzle, I suggest, because standard models of responsibility in moral and legal theory do not supply a satisfactory answer. Standard conceptions of legal and moral responsibility appear to require
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that we trace a direct relationship between the action of an identifiable person or group and a harm. Although structural processes that produce injustice result from the actions of many persons and the policies of many organizations, in most cases it is not possible to trace which specific actions of which specific agents cause which specific parts of the structural processes or their outcomes. In what follows I offer some steps toward a solution to this puzzle by means of a concept of responsibility in relation to injustice that differs from standard models of moral and legal responsibility. A ‘social connection’ model of responsibility, as I call it, better conceptualizes moral and political issues of responsibility in relation to transnational structural injustice than does what I shall call a ‘liability’ model of responsibility. Two models of responsibility: liability and social connection Journalists, religious leaders, social movement activists and philosophers today sometimes make claims that people in relatively free and affluent countries such as the United States, Canada or Germany have responsibilities in relation to the harms and deprivations experienced by millions of people in the less developed world. The claims of the anti-sweatshop movement are one concrete example of such claims which have been relatively successful in getting a hearing and motivating action. To make sense of such claims, I suggest, we need a conception of responsibility different from the most common conception, the liability model. In this section I offer some elements of a conception of responsibility that I argue derives from connection to structural social processes that produce injustice. I explicate this social connection model of responsibility by contrasting it with the liability model. Liability model The most common model of assigning responsibility derives from legal reasoning to find guilt or fault for a harm. Under this liability model, one assigns responsibility to particular agents whose actions can be shown as causally connected to the circumstances for which responsibility is sought. This agent can be a collective entity, such as a corporation, but when it is the analysis treats that entity as a single agent for the purposes of assigning responsibility (French 1984). The actions found causally connected to the circumstances are shown to be voluntary and performed with adequate knowledge of the situation. If candidates for responsibility can successfully show that their action was not voluntary or that they were excusably ignorant, then their responsibility is usually mitigated if not dissolved. When these conditions do exist, however, it is appropriate to blame the agents for the harmful outcomes.11 A concept of strict liability departs from a fault or
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blame model in that it holds an agent liable for a harm even if the agent did not intend or was unable to control the outcome, such as when one person’s property accidentally causes damage to another person’s property (see, for example, Honore 1999). I include such non-blame conceptions of liability together with blame or fault-based conceptions in one category of responsibility, because they share the conceptual and functional features I detail below. A liability model of responsibility for human rights violations in apparel factories and subcontracting in the home is certainly appropriate to apply in many situations. When factory owners and managers violate local labor law, for example, as they often do, they ought to be punished.12 If states in which factories operate fail to find offenders and punish them, as they often do, they ought morally to be blamed for this failure and the international community should perhaps find ways to apply sanctions to them. Bosses who harass and intimidate workers, managers who put productivity above workers’ health, and so on, certainly should be held responsible in a liability sense for wrongful harms that these workers suffer. As I have discussed, however, particular workers in particular facilities in particular places stand within an extensive system of structural social processes that connect the making of garments to those who wear them. Within this system, it is often plausible for the first-line agents of harm to try to mitigate their responsibility by appeal to factors outside their control. They may claim that they have little choice about the wages they pay, and cannot afford to give workers time off or invest in better ventilation and equipment. They operate in a highly competitive environment, they say, where other operators constantly try to undercut them. They themselves are operating at the edge of solvency and are not exactly making huge profits. They can stay in business only by selling goods at or below the prices of worldwide competitors, and they can do that only by keeping labor and other production costs to a minimum.13 They are under heavy pressure from the exporters who place orders with them to deliver, and the exporters in turn are under heavy pressure from the big-name companies that have placed orders with them. The factory owners and managers in which the workers toil are small actors with relatively little power in this global system. A typical justification for state-enforced labor standards appeals to the need to maintain a level playing field among competitors. If there is a human rights floor below which wages and working conditions should not be allowed to fall, the state is the proper agent to guarantee such a floor through regulation. In this way those employers who wish to be decent to workers need not fear being undersold by less scrupulous employers.
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Certainly the states in which sweatshops operate must be blamed for allowing them to exist. Many of these state agencies are inept and corrupt, and often enough some of their officials directly profit from the system that exploits their poor compatriots. As the anti-sweatshop movement uncovers the existence of factories with sweatshop conditions in the United States and other states with supposedly high labor standards and good enforcement processes, it should certainly blame these agencies for not doing their jobs. There is no excuse for national and state governments in the United States not to enforce labor standards in the apparel industry, or any other industry, and the record here is rather poor.14 Some governments of less developed countries, however, can say with some justification that they are under severe constraints that prevent them from improving working conditions. Some governments of less developed countries have indirectly encouraged sweatshop practices by constituting special export processing zones whose factories are exempt from taxation and regulation that apply to other enterprises in the country. They have often been advised to establish such zones by international economic experts. These governments will say that they desperately need investment and jobs, and that to get them they must compete with other poor states to promote a ‘favorable’ investment climate, which includes low taxes and minimal regulation. To avoid or pay down balance of trade deficits they need companies that produce for export. They have never had a strong enough public sector properly to monitor and enforce compliance with labor regulations they develop, and it is difficult to create one with their low tax base. Public sector regulating capacity has been reduced further in some cases by policy responses to pressures from international financial institutions, such as the International Monetary Fund suggesting that the borrowing states should reduce public spending. A concept of responsibility as blame or liability is indispensable for a legal system and sense of moral right that respects agents as individuals and expects them to behave in respectful ways toward others. When applying this concept of responsibility, there must be clear rules of evidence, not only for demonstrating the causal connection between this agent and a harm, but also for evaluating the intentions, motives and consequences of the actions. By proposing a social connection model of responsibility, I do not aim to replace or reject the liability model of responsibility. The above considerations suggest, however, that where there is structural social injustice a liability model is not sufficient for assigning responsibility. The liability model relies on a fairly direct interaction between wrongdoer and wronged party. Where structural social processes constrain and enable many actors in complex relations, however, those with the greatest power in the system, or those who derive benefits from its operations, may well be removed from
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any interaction with those who are most harmed in it. While it is usually inappropriate to blame those agents who are connected to but removed from the harm, it is also inappropriate, I suggest, to allow them (us) to say that they (we) have nothing to do with it. Thus I suggest that we need a different conception of responsibility to refer to the obligations that agents who participate in structural social processes with unjust outcomes have. I call this a ‘social connection’ model. Social connection model In ordinary language we use the term ‘responsible’ in several ways. One I have already discussed as paradigmatic of the liability model: to be responsible is to be guilty or at fault for having caused a harm and without valid excuses. We also say, however, that people have certain responsibilities by virtue of their social roles or positions, as when we say a teacher has specific responsibilities, or we appeal to our responsibilities as citizens. In this meaning, finding responsible does not imply finding at fault or liable for a past wrong, but rather refers to agents carrying out activities in a morally appropriate way and aiming for certain outcomes (see Goodin 1996; Richardson 1999). What I propose as a social connection model of responsibility draws more on the latter usage of the term ‘responsibility’ than on the liability usage. It does share with the liability usage, however, a reference to causes of wrongs, here the form of structural processes that produce injustice. The social connection model of responsibility says that individuals bear responsibility for structural injustice because they contribute by their actions to the processes that produce unjust outcomes. Our responsibility derives from belonging together with others in a system of interdependent processes of cooperation and competition through which we seek benefits and aim to realize projects. Even though we cannot trace the outcome we may regret to our own particular actions in a direct causal chain, we bear responsibility because we are part of the process. Within this scheme of social cooperation, each of us expects justice toward ourselves, and others can legitimately make claims on us. Responsibility in relation to injustice thus derives not from living under a common constitution, but rather from participation in the diverse institutional processes that produce structural injustice. In today’s world, as I suggested above, many of these structural processes extend beyond nation-state boundaries to include globally dispersed persons. The structure and relationships of the global apparel industry illustrate starkly and concretely such transnational social connections. I shall detail five main features of the social connection model of responsibility by contrasting it with the liability model. The first feature is ‘not isolating’. The liability model of responsibility seeks to mark out and isolate those responsible, thereby distinguishing
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them from others, who by implication are not responsible. Such isolation of the one or ones liable from the others is an important aspect of legal responsibility, both in criminal and in tort law. Social practices of finding guilty or finding faulty, or holding strictly liable, focus on particular agents in order to sanction or demand compensation from them and them alone. A system of moral rules and legal accountability should make clear that agents who violate the rule may face accusation as individual agents. When harms result from the participation of thousands or millions of people in institutions and practices that produce unjust results, however, such an isolating concept of responsibility is inadequate. Where there is structural injustice, finding some people guilty of perpetrating specific wrongful actions does not absolve others whose actions contribute to the outcomes from bearing responsibility. Hired thugs who beat workers in horribly equipped factories are personally guilty of crimes, as are the factory managers who hire them and target particular workers. Finding them guilty, however, does not absolve the multinational corporations from responsibility for the widespread nature of poor working conditions in the factories producing goods they market. Nor does it absolve those of us who purchase the goods from some kind of responsibility to the workers who make them. The second feature is ‘judging background conditions’. In a liability concept of responsibility, what counts as a wrong for which we seek a perpetrator and for which he or she might be required to compensate, we generally conceive as a deviation from a baseline. Implicitly we assume a normal background situation that is morally acceptable, if not ideal. A crime or an actionable harm consists in a morally and often legally unacceptable deviation from this background structure.15 The liability model considers the process that brought about the harm as a discrete, bounded event that breaks away from the ongoing normal flow. Punishment, redress or compensation aims to restore normality or to ‘make whole’ in relation to the baseline circumstance. A model of responsibility deriving from understanding the mediated connection that agents have to structural injustices, on the other hand, evaluates not harm that deviates from the normal and acceptable, but rather often brings into question precisely the background conditions that ascriptions of blame or fault assume as normal. When we judge that structural injustice exists, we mean that at least some of the normal and accepted background conditions of action are not morally acceptable. Most of us contribute to a greater or lesser degree to the production and reproduction of structural injustice precisely because we follow the accepted and expected rules and conventions of the communities and institutions in which we act. Usually we enact these conventions and practices in a habitual way, without explicit
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reflection and deliberation on what we do, having in the foreground of our consciousness and intention immediate goals we want to achieve and the particular people we need to interact with to achieve them. We can think of many examples of accepted norms and institutional practices that constitute the background conditions for sweatshops. I have already referred to the fashion system and its seasons as one set of practices which most producers and consumers reinforce to some extent. Executives at major multinational retailers typically devote more attention and money to advertising campaigns to promote the image of the company than to ensuring that the pay and working conditions of the workers who make the clothes they sell are decent. It is normal in this consumer society for companies to devote a large portion of their investment to advertising rather than production. Levels of unemployment in many of the places where sweatshops exist are normally high, and the social processes depriving peasants of the means to make an independent livelihood speedily create more unemployed. One should expect under these circumstances that each superexploitive sweatshop job opening will have multiple applicants, and that the workers in these jobs will normally be compliant and urge their co-workers to be so as well. Today largely taken for granted, each of these aspects of the global apparel system can and should come under critical scrutiny, and questions can be asked about the responsibilities those who act on these assumptions have in relation to the injustice to which they serve as background. The third feature is ‘more forward than backward looking’. Assigning responsibility, whether under the liability model or the social connection model, always has both backward- and forward-looking aspects. The liability and social connection models of responsibility nevertheless differ in temporal emphasis. On most occasions, application of the liability model is backward looking primarily. The social connection model, on the other hand, emphasizes forward-looking issues. Under the liability model of responsibility, the harm or circumstance for which we seek to hold agents responsible is usually an isolatable action or event that has reached a terminus. The robbery has taken place, or the oil tanker has spewed its contents on the beach. Usually the purpose of assigning responsibility in terms of blame, fault or liability, then, is to seek retribution or compensation for this past action. To be sure, such backward-looking condemnation and sanction may have a forward-looking purpose as well; often it aims to deter others from similar action in the future, or to identify weak points in an institutional system that allows or encourages such blameworthy actions, in order to reform institutions. Once we take this latter step, however, we may be leaving the liability model and moving toward the social connection model. The reform project likely
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involves responsibility of many people to take actions directed at those reforms, even though they are not to blame for past problems. When conceptualizing responsibility in relation to structural injustice, on the other hand, we are concerned with an ongoing set of processes that we understand is likely to continue producing harms unless there are interventions in it. The temporality of assigning and taking responsibility, then, is more forward than backward looking. Because the particular causal relationship of the actions of particular individuals or organizations to structural outcomes is often not possible to trace, there is no point in seeking to exact compensation or redress from only and all those who have contributed to the outcome, and in proportion to their contribution. The injustices produced through structures have not reached a terminus, but rather are ongoing. The point is not to blame, punish, or seek redress from those who did it, but rather to enjoin those who participate by their actions in the process of collective action to change it (see Jonas 1984). The anti-sweatshop movement well illustrates this forward-looking approach. When activists focus on particular factories or on multinationals who contract to manufacture goods under poor factory conditions, they rarely call for shutting down the factory or otherwise simply punishing the operators (see Elliott and Freeman 2004, ch. 3). The system of incentives and organizational priorities make it likely that other factories will open in the place of the one closed. Even when particular perpetrators are punished, workers continue to suffer structural injustice. The fourth feature is ‘shared responsibility’. From the observation that the social connection model differs from the liability model in that it does not isolate those liable in ways that implicitly absolve others, it follows that all those who contribute by their actions to the structural processes producing injustice share responsibility for these harms. Larry May (1993) distinguishes shared responsibility from collective responsibility in that the former is a distributed responsibility whereas the latter is not. A collective of persons, such as a corporation, might be said to be responsible for a state of affairs without any of its constituent individuals being determinately responsible for it. Shared responsibility, on the other hand, is a personal responsibility for outcomes or the risks of harmful outcomes, produced by a group of persons. Each is personally responsible for outcomes in a partial way, since he or she alone does not produce the outcomes; the specific part that each plays in producing the outcome cannot be isolated and identified, however, and thus the responsibility is essentially shared.16 A final feature of the social connection model that distinguishes it from a liability model of responsibility is that the forward-looking responsibility can be ‘discharged only by joining with others in collective action’. This feature follows from the essentially shared nature of the responsibility.
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Thousands or even millions of agents contribute by our actions in particular institutional contexts to the processes that produce unjust outcomes. Our forward-looking responsibility consists in changing the institutions and processes so that their outcomes will be less unjust. Not one of us can do this on our own. Even if it were possible to do so, a single shopper would not change the working conditions of those toiling in sweatshops by refusing to buy all items she had reason to believe were produced under unjust conditions. The structural processes can be altered only if many actors in diverse social positions work together to intervene in them to produce different outcomes. Responsibility from social connection, then, is ultimately political responsibility. Taking responsibility in a forward-looking sense under this model involves joining with others to organize collective action to reform the structures. Most fundamentally what I mean by ‘politics’ here is public communicative engagement with others for the sake of organizing our relationships and coordinating our actions most justly. Discharging my responsibility in relation to sweatshop workers might involve, then, that I try to persuade others that these wrongs are unacceptable and that collectively we can alter social practices and institutional rules and priorities to prevent them. Our working through state institutions is often an effective means of such collective action to change structural processes, but states are not the only tools of effective collective action.17 In the next section I shall discuss and evaluate some of the activities of the anti-sweatshop movement. An important corollary of this feature of political responsibility is that many of those properly thought to be victims of harm or injustice may nevertheless share such political responsibility in relation to it. On the liability model of responsibility, blaming those who claim to be victims of injustice usually functions to absolve others of responsibility for their plight. In the social connection model, however, those who can properly be argued to be victims of structural injustice can be called to a responsibility they share with others in the structures in engage in actions directed at transforming the structures. This point certainly applies in anti-sweatshop activity. Workers themselves have the strongest interest in combating sweatshop conditions. They also have information and relationships with one another useful in order to mobilize productively to try to alter the structures that perpetuate their exploitation. According to some researchers, employer-sponsored monitoring systems that aim to reform sweatshop conditions but fail to involve workers in a meaningful way are often ineffective or actually harm workers (Esbenshade 2004). Even when they do not they tend toward parternalism rather than empowerment of the workers. The workers share responsibility for combating sweatshop conditions, and ought to be organized in order to
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do so. Especially where freedom to organize is not recognized or not enforced, however, they can discharge their responsibilities only with the support of others, often far away and relatively privileged others, who make public their grievances, put pressure on the agents that would block their unionization, and give them material aid. I have been arguing that a social connection model of responsibility better corresponds, than does a liability model, to the intuitions expressed in claims about the responsibilities agents have concerning global justice. The social connection model not only has these philosophical advantages, I suggest, but also has rhetorical advantages in public discussion that aims to motivate people to take responsibility for rectifying social injustice. Claims that some persons participate in producing injustice and ought to stop too often are heard under a liability model of responsibility. The actors addressed hear themselves being blamed for harms. More often than not, agents who believe themselves being blamed react defensively: they look for other agents to blame instead of them, or find excuses that mitigate their liability in cases where they admit that their actions do causally contribute to the harm. In situations of structural injustice, it is easy to engage in such blame shifting or excusing discourse, because in fact others are also responsible and there are structural constraints on most of the actors participating in the institutional processes that have unjust outcomes. In many contexts where the issue is how to mobilize collective action for the sake of social change and greater justice, such finger-pointing and blame-switching lead more to resentment and refusal to take responsibility than to a useful basis of action.18 When executives of multinational retailers or shoe buyers hear the claims of anti-sweatshop activists as laying blame on them for the conditions under which the shoes are produced, they rightly become indignant, or scoff at the absurd extremism of the movement. A social connection model of responsibility distinct from and complementary to a liability model allows us to call on one another to take responsibility together for sweatshop conditions, without blaming anyone in particular for the structures that encourage their proliferation. This does not necessarily mean that all who share responsibility have an equal responsibility. The power to influence the processes that produce unjust outcomes is an important factor distinguishing degrees of responsibility. Parameters of reasoning I have proposed a conception of responsibility from social connection to correspond to the intuition that those who participate by their actions in the structural processes producing injustice bear some responsibility for correcting this injustice. In today’s world of global interdependencies, many of
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these structural injustices involve people widely dispersed across the globe, and are by no means limited to processes within single nation-states. What I have done so far is only to offer a way of thinking about responsibility in general. One might well object that the conception of responsibility as social connection raises as many questions as it answers. For example, the model says that all who participate by their actions in processes that produce injustice share responsibility for remedy. Does this mean that all participants bear responsibility in the same way and to the same degree? If not, then what are the bases of differentiating kinds and degrees of responsibility? Most of us participate in many structural processes, moreover, that arguably have disadvantaging, harmful or unjust consequences for others. It is asking too much for most of us to work actively to restructure each and all of the structural injustices for which we arguably share responsibility. How, then, shall we reason about the best ways to use our limited time, resources and creative energy to respond to structural injustice? Adequately responding to questions like these would take at least another full essay. Thus I shall only sketch answers here, and illustrate the responses once again through the example of the anti-sweatshop movement. Some moral theorists argue that responsibility names a form of obligation distinct from duty. Joel Feinberg (1980), for example, distinguishes between an ethic that focuses on obligation or duty and an ethic that focuses on responsibility. A duty specifies a rule of action or delineates the substance of what actions count as performing the duty. A responsibility, on the other hand, while no less obligatory, is more open as to what counts as carrying it out (Feinberg 1980, pp. 135–40; May 1996, ch. 5). A person with responsibilities is obliged to attend to outcomes the responsibilities call for, and to orient her or his actions in ways demonstrably intended to contribute to bringing about those outcomes. Because a person may face many moral demands on his or her actions, and because changes in circumstances are often unpredictable, just how a person goes about discharging her or his responsibilities is a matter with considerable discretion (see Goodin 1996; Richardson 1999). Given that a combination of responsibilities may be overdemanding, and given that agents have discretion in how they choose to discharge them, it is reasonable to say that it is up to each agent to decide what he or she can and should do under the circumstances, and how she should order her moral priorities. Others have the right to question and criticize our decisions and actions, however, especially when we depend on one another to perform effective collective action. Part of what it means to be responsible on the social connection model is to be accountable to others with whom one shares responsibility for what one has
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decided to do regarding which structural injustices. When an agent is able to give an account of what she has done and why in terms of shared responsibilities for structural injustice, then others usually ought to accept her decision and the way she sets priorities for her actions. These considerations begin an answer to the question I stated above, namely, how should one reason about one’s own action with respect to which injustices? In a world with many and deep structural injustices, most of us in principle share more responsibility than we can reasonably be expected to discharge.19 Thus we must make choices about where our action can be most useful or which injustices we regard as most urgent. While a theory of responsibility from social connection will not give a list of maxims or imperatives, it should offer some parameters for reasoning to guide such decisions and action. These in turn address the first question. Different agents plausibly have different kinds of responsibilities in relation to particular issues of justice, and some arguably have a greater degree of responsibility than others. These differences of kind and degree correlate with an agent’s position within the structural processes. By virtue of this structural positioning, different agents have different opportunities and capacities, can draw on different kinds and amounts of resources, or face different levels of constraint with respect to processes that can contribute to structural change. I suggest that persons can reason about their action in relation to structural injustice along parameters of power, privilege, interest and collective ability. First, an agent’s position in structural processes usually carries different degrees of potential or actual power or influence over the processes that produce the outcomes. Where individuals and organizations do not have sufficient energy and resources to respond to all structural injustices to which they are connected, they should focus on those where they have more capacity to influence structural processes. Despite the fact that they are often legally separated from the manufacturing facilities with working conditions and practices that violate human rights, large multinational designers and retailers such as Calvin Klein or J.C. Penny have much greater power in global trade processes than do small manufacturers. The anti-sweatshop movement thus rightly concentrates its efforts on pressuring these powerful agents actively to work with manufacturers, host governments, unions and civic organizations to improve wages and factory conditions for the workers and at the same time protect the workers from being laid off. Because the agents with the greatest power in social structures often have a vested interest in maintaining them as they are, however, external pressure on the powerful is often necessary to move these agents to action, and to prevent them from taking superficial steps rather than making
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serious changes. Some of the larger exporters, importers and retailers in the apparel industry, for example, would appear to be able to change the proportion of the price of a pair of shoes that goes to pay workers and improve working conditions, as compared with the proportion that pays for distribution, marketing, advertising and decorating stores. Changing those proportions, however, may reduce their own profits to some extent. Public disclosure of a company’s connection with poor working conditions is not good for business, however, and public reporting of support for change seems to be good for a company’s stock price (see Rock 2003). Second, where there are structural injustices, these usually produce not only victims of injustice, but persons who acquire relative privilege by virtue of the structures. Most who occupy positions of power with respect to the structures also have privileges that coincide with this power. In most situations of structural injustice, however, there are relatively privileged persons who have relatively little power as individuals or in their institutional positions, at least with respect to the issue of injustice. Middle-class clothing consumers in the global North, for example, stand in a privileged position in the structures of the apparel industry. They benefit from the large selection and affordable prices that the industry offers them. Persons who benefit relatively from structural injustices have special moral responsibilities to contribute to organized efforts to correct them, not because they are to blame, but because they are able to adapt to changed circumstances without suffering serious deprivation. Lower-income clothing consumers, whether in the developing or developed world, may be less able than more affluent consumers to spend more for clothing in order to ensure that the workers who make it are treated fairly.20 The third parameter is interest. Different people and different organizations usually have divergent interests in the maintenance or transformation of structures that produce injustice. Often those with the greatest interest in reproducing the structures are also those with the greatest power to influence their transformation. Those who are victims of structural injustice often have a greater interest in structural transformation. Earlier I said that one of the distinctive things about the social connection model of responsibility is that victims of injustice share responsibility with others for cooperating in projects to undermine the injustice. Victims of injustice have the greatest interest in its elimination, and often have unique insights into its social sources and the probable effects of proposals for change. This point certainly applies in the case of labor conditions in the apparel industry. Actual and potential sweatshop workers are the primary victims of injustice. Analysts of some strategies in the movement to improve conditions for these workers find that they are sometimes ineffectual or
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paternalistic because the workers’ point of view and active participation has not been properly included. Some corporate-sponsored monitoring processes, for example, conduct inspections of factories without talking to workers or only talking to workers on the factory site. Critics argue that workers’ experience and complaints must definitely be a part of monitoring processes, but that workers must be interviewed away from the factory sites when owners and managers are not present. Cooperation with local civic organizations whom workers trust is usually necessary to facilitate such interviews (Luibicic 1998; Esbenshade 2004). Other analysts wonder whether the predominance of non-governmental organizations (NGOs) such as monitoring organizations, education and public accountability organizations, and so on, in the anti-sweatshop movement weakens the ability of workers to organize unions and allows local governments to continue their lax labor law promulgation and enforcement (Braun and Gearhart 2004; Lipschutz 2004). Most conclude that NGO activity should work in support of unionization and to pressure for greater government protection of workers’ rights to form or choose unions (O’Rourke 2003; Compa 2004). In this case, as in many other cases of structural injustice, victims of injustice have a responsibility to work together to improve their situation, but they are unlikely to succeed without the help and support of other less vulnerable people who make industry behavior public and pressure agents to change policies or restructure their relationships (Peason and Seyfang 2001; Fung 2003). The final parameter is collective ability. Sometimes a coincidence of interest, power and existing organization enable people to act collectively to influence processes more easily regarding one issue of justice than another. That is not always a reason to give priority to that issue, for it may also be that such ease of organization is a sign that the action makes little structural change. Nevertheless, given too many injustices that need remedy, the relative ease with which people can organize collective action to address them can be a useful decision principle. The decision by some student groups to focus their anti-sweatshop activism on their colleges and universities illustrates this parameter. The university’s function as a large consumer of apparel for their sports teams and also a purveyor through their book stores makes universities a target because their decisions about purchase and marketing have more impact than those of individual consumers. Campus campaigns politicizing such decisions successfully raise awareness of issues of global labor justice even among students and faculty who do not actively support the campaigns. Universities can relatively easily organize with one another to make an impact on the structural processes, as they have done by becoming members of the Fair Labor Association and the Workers Rights Consortium.
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Conclusion Obviously each of these parameters for reasoning about the ways in which individual persons or institutions might meet their responsibilities under a social connection model – power, privilege, interest and collective ability – needs further elaboration. This sketch should indicate how being positioned differently in the structures that produce injustices suggests different kinds of issues and directions for action by various agents. It also gives more concreteness to the notion that under a social connection model agents share responsibility with others differently situated, with whom they usually must cooperate in order to effect change. As the anti-sweatshop movement example illustrates, however, such need for cooperation does not mean that agents have no conflicts or interest and no need for struggling with one another. Sharing responsibility partly means that agents challenge one another and call one another to account for what they are doing or not doing. Global social and economic processes bring individuals and institutions into ongoing structural connection with one another across national jurisdictions. Adopting a conception of responsibility that recognizes this connection is an important element to theorizing global justice. Notes 1. 2. 3. 4. 5.
6. 7.
8. 9. 10. 11.
This chapter is a reprint of the article from Iris Marion Young (2006), ‘Responsibility and global justice: a social connection model’, Social Philosophy and Policy, 23 (1), 102–30. Permission was granted by Cambridge University Press. Thanks to David Alexander, Daniel Drezner, David Owen and Ellen Frankel Paul for comments on an earlier version of this chapter. Thanks to David Newstone for research assistance. I have begun analysis of global labor justice focusing on the anti-sweatshop movement in two previous papers: Young (2003, 2004). Compare also Robert Goodin (1985) and Thomas Pogge (2002), especially Chapters 1, 2 and 4. In April 2003, for example, the Milwaukee Common Council voted unanimously for an ordinance requiring the procurement of apparel for city staff from manufacturers that meet several labor rights conditions; see ‘Sweatfree Communities Gain Ground’, Campaign for Labor Rights,
[email protected], accessed 21 November 2007. For an account of working conditions, see Naomi Klein (1999, especially ch. 9); Ellen Israel Rosen (2002, ch. 2). Most of the countries in which factories like those I am describing operate do have minimum wage laws, as well as regulation of other labor conditions. In many cases these laws could be more comprehensive and stronger, of course. For a comprehensive country-by-country survey of labor regulation, see the Industrial Labor Organization, www.ilo.org (accessed 21 November 2007). The primary problem with labor regulation in much of the world, however, including arguably the United States, is lack of enforcement rather than lack of standards. In previous work I have begun developing an account of structural injustice. See Young (2000, especially ch. 3, 2001, 2002). For one catalog of uses by English language theorists through the mid-1970s, see Peter Blau (1975). Jeffrey Reiman, among others, uses this channel metaphor (see Reiman 1989, p. 213). See Fletcher (1999) for a clear statement of this model of responsibility.
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12. As I discussed in a previous note, in most cases there are labor laws, and sweatshop conditions are often violating them. Sometimes this is because the host countries make exceptions to their labor regulation standards in special manufacturing zones. In many other cases, the problem is that factory operators, distributors, retailers and others are able to ignore labor law with impunity. See Bonacich and Appelbaum (2002, chs 2 and 8). 13. For an account of the constraints on actors in the global apparel industry, see Rosen (2002, ch. 11); see also Bonacich and Appelbaum (2002, chs 2 and 5). 14. See Jill Esbenshade’s (2004, ch. 1) discussion of sweatshops in the United States and Department of Labor reports concerning these conditions. 15. See George Fletcher’s discussion of the way that the assignment of criminal liability must distinguish between foregrounded deviations from background conditions assumed as normal, and the background conditions themselves (Fletcher 1999, pp. 69–70). 16. Larry May (1993), Sharing Responsibility, ch. 2. As formulated in this book, May’s theory of shared responsibility remains backward looking; he is concerned to assign a responsibility for harms that have occurred and reached a terminus. Thus his theory is more continuous with a liability model of responsibility than the theory I am developing here. May also focuses more on subjective states such as attitudes for linking persons to responsibility for a wrong, and says little about more objective social structures that connect persons to moral wrong or injustice. See my paper, ‘Responsibility and global labor justice’ (Young 2004). 17. Melanie Beth Oliviero and Adele Simmons recommend uses of civil society organizations for addressing issues of labor standards; see Oliviero and Simmons (2002). John Braithwaite and Peter Drahos argue that as transnational social structures impinge on state sovereignty, civil society organization gains increased ability to influence labor and other business practices; see Braithwaite and Drahos (2000, chs 5, 6 and 26). 18. William Connolly makes a similar distinction between responsibility as blame and a more politically oriented responsibility. For him the resentment and counter-accusation dialectic that accompanies blame in a discourse of public affairs makes political identity overly rigid and paralyzes action. Thus he recommends a notion of political responsibility without blame and with a more fluid and ambiguous understanding of the sources of wrong than the implicitly Christian identification of the sinner (see Connolly 1993, especially ch. 4). Melissa Orlie also distinguishes between a sentiment of resentment exhibited in blaming and holding oneself and others politically responsible (see Orlie 1997, pp. 169–73). 19. Liam Murphy (2000) develops a useful theory of moral responsibility under conditions of injustice. 20. See Pollin et al. (2004). They find that the amount that retail prices would need to rise to bring workers a living wage raise is small, and consistent with increases that North American consumers say they would be willing to pay if they could be assured of ‘sweatfree’ conditions.
References Beitz, Charles (1979), Political Theory and International Relations, Princeton, NJ: Princeton University Press. Blau, Peter (1975), ‘Introduction: parellels and contrasts in structural inquiries’, in Peter Blau (ed.), Approaches to the Study of Social Structure, New York: Free Press, pp. 1–20. Blau, Peter (1977), Inequality and Heterogeneity, New York: Free Press. Bonacich, Edna and Richard P. Appelbaum (2002), Behind the Label: Inequality in the Los Angeles Apparel Industry, Berkeley, CA: University of California Press. Bourdieu, Pierre (1980), The Logic of Practice, Book I, Stanford, CA: Stanford University Press. Braithwaite, John and Peter Drahos (2000), Global Business Regulation, Cambridge: Cambridge University Press.
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Braun, Rainer and Judy Gearhart (2004), ‘Who should code your conduct? Trade union and NGO differences in the fight for workers’ rights’, Development in Practice, 14 (1 and 2), 183–96. Buchanan, Allen E. (2000), ‘Rawls’s Law of Peoples: rule for a vanished Westphalian world’, Ethics, 110 (4), 697–721. Buchanan, Allen E. (2004), Justice, Legitimacy, and Self-Determination: Moral Foundations for International Law, Oxford: Oxford University Press. Compa, Lance (2004), ‘Trade unions, NGOs, and corporate codes of conduct’, Development in Practice, 14 (1 and 2), 210–15. Connolly, William (1993), Identity/Difference, Ithaca, NY: Cornell University Press. Elliott, Kimberly Ann and Richard B. Freeman (2004), Can Labor Standards Improve Under Globalization?, Washington, DC: Institute for International Economics. Esbenshade, Jill (2004), Monitoring Sweatshops: Workers, Consumers, and the Global Apparel Industry, Philadelphia, PA: Temple University Press. Featherstone, Lisa (2000), Students Against Sweatshops, London: Verso. Feinberg, Joel (1980), ‘Duties, rights, and claims’, in Feinberg, Rights, Justice and the Bounds of Liberty, Princeton, NJ: Princeton University Press. Fletcher, George (1999), Basic Concepts of Criminal Law, Oxford: Oxford University Press. French, Peter (1984), Collective and Corporate Responsibility, New York: Columbia University Press. Fung, Archon (2003), ‘Deliberative democracy and international labor standards’, Governance: An International Journal of Policy, Administration, and Institutions, 16 (1), 51–71. Gaus, Micha (2004), ‘The maturing movement against sweatshops’, In These Times, 16 February, pp. 34 and 52. Giddens, Anthony (1984), The Constitution of Society, Berkeley, CA: University of California Press. Goodin, Robert (1985), Protecting the Vulnerable, Chicago, IL: University of Chicago Press. Goodin, Robert (1996), ‘Apportioning responsibilities’, in Goodin (ed.), Utilitarianism as a Public Philosophy, Cambridge: Cambridge University Press, pp. 100–118. Honore, Tony (1999), ‘Responsibility and luck: the moral basis of strict liability’, in Honore (ed.), Responsibility and Fault, Oxford: Oxford University Press, pp. 14–40. Jonas, Hans (1984), Imperative of Responsibility, Chicago, IL: University of Chicago Press, pp. 90–120. Kant, Immanuel (1795), ‘To perpetual peace: a philosophical sketch’, in Ted Humphrey (1983), trans., Perpetual Peace and Other Essays, Indianapolis, IN: Hackett Publishing, pp. 107–44. Khattak, Saba Gul (2002), ‘Subcontracted work and gender relations: the case of Pakistan’, in Radhika Balakrishnan (ed.), The Hidden Assembly Line: Gender Dynamics of Subcontracted Work in a Global Economy, Bloomfield, CT: Kumarian Press, pp. 35–62. Klein, Naomi (1999), No Logo, New York: Preodor. Kwong, Peter (2002), ‘Forbidden workers and the U.S. labor movement’, Critical Asian Studies, 31 (1), 69–88. Lipschutz, Ronnie D. (2004), ‘Sweating it out: NGO campaigns and trade union empowerment’, Development in Practice, 14 (1 and 2). Luibicic, Robert J. (1998), ‘Corporate codes of conduct and product labeling schemes: the limits and possibilities of promoting international labor rights through private initiatives’, Law and Public Policy in International Business, 30 (1), 111–58. May, Larry (1993), Sharing Responsibility, Chicago, IL: University of Chicago Press. May, Larry (1996), The Socially Responsible Self: Social Theory and Professional Ethics, Chicago, IL: University of Chicago Press. Miller, David (1995), On Nationality, Oxford: Oxford University Press. Miller, David (1999), Principles of Social Justice, Cambridge, MA: Harvard University Press, Chapter 1. Miller, John (2003), ‘Why economists are wrong about sweatshops and the antisweatshop movement’, Challenge, 46 (1), 93–122.
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Murphy, Liam (2000), Moral Demands in Nonideal Theory, Oxford: Oxford University Press. O’Neill, Onora (1985), Faces of Hunger, London: Allen & Unwin. O’Neill, Onora (1996), Toward Justice and Virtue, Cambridge: Cambridge University Press. O’Rourke, Dara (2003), ‘Outsourcing regulation: analyzing nongovernmental systems of labor standards and monitoring’, Policy Studies Journal, 31 (1), 1–29. Oliviero, Melanie Beth and Adele Simmons (2002), ‘Who’s minding the store? Global civil society and corporate responsibility’, in Marlies Glasius, Mary Kaldor and Melmut Anheier (eds), Global Civil Society 2002, Oxford: Oxford University Press, pp. 77–107. Orlie, Melissa (1997), Living Ethically, Acting Politically, Ithaca, NY: Cornell University Press. Peason, Ruth and Gill Seyfang (2001), ‘New hope or false dawn? Voluntary codes of conduct, labour regulation and social policy in a globalizing world’, Global Social Policy, 1 (1), 49–78. Pogge, Thomas (2002), World Poverty and Human Rights, Cambridge: Polity. Pollin, Robert, Justine Burns and James Heintz (2004), ‘Global apparel production and sweatshop labour: can raising retail prices finance living wages?’, Cambridge Journal of Economics, 28, 153–71. Prugl, Elisabeth and Irene Tinker (1997), ‘Microentrepreneurs and homeworkers: convergent categories’, World Development, 25 (9), 1471–82. Rawls, John (1971 [1999]), A Theory of Justice, Cambridge, MA: Harvard University Press. Rawls, John (1999), The Law of Peoples, Cambridge, MA: Harvard University Press. Reiman, Jeffrey (1989), Justice and Modern Moral Philosophy, New Haven, CT: Yale University Press. Richardson, Henry S. (1999), ‘Institutionally divided moral responsibility’, in Ellen Frankel Paul, Fred D. Miller, Jr and Jeffrey Paul, Responsibility, Cambridge: Cambridge University Press, pp. 218–49. Rock, Michael T. (2003), ‘Public disclosure of the sweatshop practices of American multinational garment/shoe makers/retailers: impacts on their stock prices’, Competition and Change, 7 (1), pp. 23–38. Rosen, Ellen Israel (2002), Making Sweatshops: The Globalization of the US Apparel Industry, Berkeley, CA: University of California Press. Ross, Andrew (2004), Low Pay, High Profile: The Global Push for Fair Labor, New York: New Press. Sartre, Jean Paul (1976), Critique of Dialectical Reason, Book I, trans. Alan Sheridan-Smith, London: New Left Books. Scheffler, Samuel (2001), Boundaries and Allegiences: Problems of Responsibility and Justice in Liberal Thought, Oxford: Oxford University Press. Singer, Peter (1993), Practical Ethics, Cambridge: Cambridge University Press. Stiglitz, Joseph E. (2002), Globalization and Its Discontents, New York: W.W. Norton. Unger, Peter (1996), Living High and Letting Die: Our Illusion of Innocence, Oxford and New York: Oxford University Press. Women Working World Wide (2007), ‘Garment industry subcontracting and workers’ rights’, www.cleanclothes.org, accessed 21 November 2007. Young, Iris Marion (2000), Inclusion and Democracy, Oxford: Oxford University Press. Young, Iris Marion (2001), ‘Equality of whom? Social groups and judgments of injustice’, Journal of Political Philosophy, 9 (1), 1–18. Young, Iris Marion (2002), ‘Lived body vs. gender: reflections on social structure and subjectivity’, Ratio: An International Journal of Analytic Philosophy, 15 (4), 411–28. Young, Iris Marion (2003), ‘From guilt to solidarity: sweatshops and political responsibility’, Dissent, Spring, 39–45. Young, Iris Marion (2004), ‘Responsibility and global labor justice’, Journal of Political Philosophy, 12 (4), 365–88.
8
Corporate citizenship and the environment Paul Shrivastava
Introduction The Earth’s continuing degradation due to human activities is now a global concern. For the past three decades, both governments and corporations around the world have struggled with contemporary challenges of business–environmental regulation and the provision of global environmental public goods. Over 150 treaties have been proposed, signed and implemented, the Montreal Protocol, the Kyoto Treaty, and numerous Earth summits among them. We are making good progress on some aspects of understanding and controlling environmental degradation. For example, today as compared to three or even two decades ago, we have much better scientific understanding of natural environmental assets, climate changes, and the impact of human activities on them. We have better national and international policies and standards guiding ecological sustainability (Dowell et al. 2000). There is better inspection surveillance and monitoring of environmental pollution and natural resources than in the past, and there is better environmental regulation of corporations in most countries. Corporations have acknowledged the importance of dealing with ecological sustainability within the logic of their traditional business models. And there are calls to adopt the ‘triple-bottom-line’ model that argues for judging corporate performance on financial, social and ecological performance measures (Savitz and Weber 2006). Corporate efforts focus on a wide range of issues, such as reducing the use of virgin materials, using production methods that are more ecologically efficient, preventing pollution, designing eco-friendly products and packaging, and managing waste in an ecologically sound way. Companies are adopting environmental management programs that are technologically easy, save costs and help improve revenues (harvesting the low-hanging fruit). Many companies are also making deeper systemic changes by adopting ISO 14000 environmental management systems (Green et al. 2001). The World Business Council on Sustainable Development (www.wbcsd.org) lists numerous ecological sustainability programs adopted by the world’s largest corporations (Sharma and Starik 2002). 166
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Corporate changes may be best characterized as incremental. Companies cautiously engage environmental solutions that have clear financial benefits. Some companies use ‘green’ as a public relations strategy. They undertake environmental projects for their publicity value and heavily publicize environmental accomplishments in the hope of gaining legitimacy and attracting new customers. Broadly, there is still reluctance in companies to make largescale risky investments in sustainability ventures that would fundamentally transform corporate strategies and operations (Roome 1998). Despite the gains in government environmental policies and corporate environmental performance, the big picture does not look very good. Environmental degradation outpaces all these improvements, and we are witnessing a net decline in ecosystem quality around the world. The problems of global warming, ozone depletion, declining biodiversity, environmental pollution and energy sustainability continue to worsen as world population increases and appetite for industrial growth expands (Worldwatch Institute 2000–05). Environmental risks to human health and living conditions continue to proliferate. Some have argued that in highly technologized modern societies, environmental risks are co-produced with economic wealth, and such risks are unavoidable. The more highly developed an economy the more environmental degradation and risks it is apt to experience (Beck 1992). As the engines of wealth creation, corporations are the primary producers and proliferators of environmental risks. The complex technological, economic and social systems which society has created to produce, consume, transport and live our lives, are imbued with ever-increasing environmental risks. Expansion of risks seems to be a basic condition of modernity. Technoenvironmental risks refer to the potential for harm to human health and the natural environment imposed by technological and industrial products and production systems. The social, political, administrative and corporate processes for controlling such harm constitute risk management (Shrivastava 1995). For many years, progressive corporations have taken ‘social responsibility’ for their actions. They have acknowledged that they have the responsibility for creating humane working conditions for employees, safe products for customers, and for supporting social change and cultural life in the communities that they operate in. Their view of social responsibility also, to some extent, extends to their actions toward the environment. Companies invest in environmental protection equipment, and often contribute a percentage of their profits to their philanthropy foundations, which support various social causes. However, this view of the responsibilities of a company to the community particularly emphasizes the ‘social’ aspect, focusing only secondarily on mitigating environmental risks. This is in part due to the tendency of large
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companies to treat the environment as simply another of the many stakeholders that they are acknowledging responsibility toward, the same way they are responsible to employees, customers, business associates, the government and community groups. Since the environment as a stakeholder is an impersonal public good, it receives a lower priority than the other stakeholders, which are personalized, human entities. Some researchers propose ‘corporate citizenship’ to extend the concept of corporate social responsibility (CSR) and combat the risk challenges facing corporations (Matten and Crane 2005). The argument is that modern corporations mediate many of the political and social rights of citizens, and may be considered citizens themselves. ‘Corporate citizens’ provide economic and social rights, enable civil rights and are channels for political rights. Implicit in this concept of corporate citizenship is the notion that corporations can voluntarily become enlightened stewards of the natural environment (Livesey 2002). As members of society, they can shoulder citizenship responsibilities, and at the same time continue to be economically productive to the extent required by competitive and investor pressures, while still preventing ecological harm or keeping it to long-term sustainable levels. These expectations need better specification. What exactly is meant by this type of corporate citizenship? In this chapter I open a new discussion of how responsible corporate citizens might conceive environmental risks and how they may approach the provision of environmental public goods. Historically, corporate citizenship expectations regarding the natural environment have focused on corporate operations and valuing nature as an economic asset. Consider the following examples of environmental citizenship from leading international companies (Box 8.1). Most statements of corporate citizenship acknowledge some responsibilities for maintaining balanced and sustainable use of the natural environment. The concept ‘sustainable development’ seeks to moderate economic growth globally to levels that avoid jeopardizing future generations’ ability to meet their needs. It is a big concept with great promise, and one that is hard to argue against. But translating sustainability into specific corporate responsibilities and then creating the economic, legal and political conditions to implement it at the corporate and industry levels has simply not happened yet. To become a driving concept, sustainable development will need to address inherent conflicts between the North and the South, between capital and labor, and between corporate responsibilities toward investors and other societal stakeholders. While rhetorically, companies embrace sustainability and pro-environmental values, operationally their environmental commitments remain limited, and subjugated to competitive pressures and investor demands for profitability (Beder 2000).
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EXAMPLES OF ENVIRONMENTAL CITIZENSHIP
Our commitment is not just good citizenship; it’s good business.The bottom line is that our business depends on the health and sustainability of our planet and the natural resources we all share . . . (Coca-Cola Company) Motorola creates products and technologies that benefit society by making things smarter and life better for people around the world. We are dedicated to operating ethically, protecting the environment and supporting the communities in which we do business. We are guided by our Code of Business Conduct, which is based on our value of doing the right thing. (Motorola Inc.) Humankind faces an enormous challenge: meeting the world’s growing demand for energy, driven mainly by the desire for higher living standards, while managing the environmental effects of the increase in energy consumption. At ExxonMobil, we work to balance these different needs. (ExxonMobil Inc.)
The corporate citizenship metaphor implies that corporations can take human roles and responsibilities. Corporations are viewed as if they were legal ‘persons’. Therefore, like people, corporations may be imbued with qualities of citizenship. Abstracting out the body or physicality from the concept of corporate person and reducing materiality to its economic asset value, fundamentally emiserates corporate citizenship from considering certain types of responsibilities. In the absence of a body focus, any discourse on corporate environmental remedies is disembodied. Disembodied discourse is communicatively distorted. In such a discourse, corporations are unseen or only partially seen participants. They think of the environment in abstractions – as assets. They pursue remedies that are ineffective for serious environmental improvements. The concept of corporate (environmental) citizenship needs to be rethought to encompass full citizenhood. The present volume extends Matten and Crane’s (2005) and Scherer and Palazzo’s (2007) political conceptions of corporate citizenship and provides new approaches to this task. The editors have opened up additional and wide-ranging discussions on managerial, economic, political and legal perspectives on the new roles and
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responsibilities of business in a global society. But most of these discussions treat corporations as disembodied abstract legal persons. When corporations are deemed to be abstractions, their responsibilities are conceptual. This offers a skewed picture of their materiality and their impacts on humans and the material environment. In the spirit of stretching our thinking deeper into material manifestations and bodily impacts of corporations, this chapter seeks to develop the concept of embodied corporate environmental citizenship. It focuses on the contemporary challenges of providing global environmental public goods. Most major environmental problems, such as ozone depletion, global warming, species extinction, environmental pollution and waste disposal, are transnational and global. Corporate rights and responsibilities for dealing with these problems using past approaches have proven to be inadequate. We need to begin rethinking corporate environmental citizenship from what this chapter loosely calls an ‘embodiment’ perspective. This perspective sees human body and the physicality/materiality of nature as central to corporate social analysis. It articulates new corporate responsibilities toward nature, the whole person, natural and fabricated spaces and the community. The chapter offers some suggestions for practical implementation of these responsibilities and identifies several issues that deserve further research. An embodiment perspective Embodiment philosophy is about the relationship between the world of substance and the world of spirit or culture (intentional objects). The core idea views the body not as a vessel but as the being itself. The mind and spirit are simply a method with which the body works. Thus body and mind are fused into a single being. A key distinction between matter and person is the way of observing the being. In this view a single process binds the mind to its body, family and language, dissolving the subjective/objective distinction. The mind extends beyond body and family, to its environment, society, species and the planet (Bateson 1980). Even if we accept only some limited biological aspects of embodiment as useful theory, it is easy to see a more general application of it as an analytical approach in psychology, sociology and the behavioral sciences. In the field of psychology, embodied analysis is a new approach seeking to understand the social as the embodiment of sensate experience. It also refers to the view that human mind/thoughts are a function of the brain and physiology. It seeks to understand the inherently embodied character of all psychological processes and social practices, including discursive practices. This orientation was largely ignored in the dominant discourse of psychology. Psychological research had spawned the understanding that universal
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psychological processes can be understood independent of their history, culture, context, community, habitus and locale. The social constructionism approach in psychology attempted to correct that error by including the role of history, culture and community, but it still ignored embodiment. Even the constructionism approach dealt only with the object-body (that is the body that a third person observer can know). The exclusion of embodiment had serious intellectual ramifications in psychology. It kept psychology limited to mental and ideational processes and missed opportunities for deeply examining mind–body and mind–material relations. An embodiment approach to psychology would be particularly well suited to understanding the psychology of groups and organizations (Sampson 1996; Neidenthal et al. 2005). Embodiment in sociology and social analysis is exemplified in the works of Pierre Bourdieu and in the US in the work of Lakoff and Johnson (1999). These writers straddle deep-seated antimonies of subjectivist and objectivist that separate the analysis of the symbolic from that of materiality. They reject dichotomies of structure and agency. Bourdieu’s work provides a unified political economy of practice. He shows how symbolic power welds phenomenological and structural approaches into universally applicable social inquiry (Bourdieu and Wacquant 1992). He highlights the importance of focusing on embodied experience and the habitus of the experience. Bourdieu pioneered methodological frameworks and terminologies such as cultural, social and symbolic capital, and the concepts of field, habitus and symbolic violence to explain social dynamics. The concept of ‘habitus’ is particularly relevant to the notion of embodiment. Instead of analyzing societies in terms of economic classes, he used the concept of field – a social arena (social positions and power relationships) in which people maneuver and struggle in pursuit of desirable resources. Habitus can be defined as a system of subjectivity of dispositions (lasting, acquired schemes of perception, thought and action). People develop these dispositions in response to the fields or objective conditions they encounter. They inculcate objective social structures into subjective mental experiences, and cognitive and somatic dispositions. The interactivity of the field and habitus create and regulate social practices and social dynamics. Social practices to some degree entail embodiment of objectives fields. Therefore, embodiment is a useful lens for understanding social dynamics. There is a growing concern in the behavioral sciences regarding the role played by conceptual frameworks, models and metaphors. These conceptual schemes mediate our experiences of the world. Wittgenstein explained language as the symbolic representation of sensory experience (Wittgenstein 1953). He clearly saw the dialectic relationship between language-games and forms of life (experiences). He linked language to experiential forms of life, to the ‘body-subject’ in Maurice Merleau-Ponty’s terminology. From this
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perspective meaning-giving (and taking) is an experiential affair, and not only a cognitive one. These tasks require an analysis of people’s culturally informed body, and their bodily structured sentiments. People use language confined to these bodily and affective structures, and these structures are framed by forms of life. Only such embodied analysis can explain what presses people to experience the world in particular ways. The paradigm of embodiment begins from the premise that the body is not an object to be studied in relation to culture, but instead it is the subject or existential ground of culture (Csordas 1990). The political ramifications of these ideas of embodiment for environmentalism can be far reaching. Embodiment implies both psychological and political notions of environmentalism. It implies that the environment is a continuity of the body. If so, then taking care of the environment is an extension of taking care of our own bodies. Environmental responsibility is personal responsibility, and personal responsibility is social responsibility. Raising this argument to the corporate level, we can say that the embodiment perspective on corporate citizenship and corporate–environment relations significantly raises the priority of the environment in relation to human stakeholders. It deepens the level of environmental responsibility to the same level as responsibility toward humans. And it also raises corporate responsibility toward humans to include the whole person. Embodied analysis fosters primary interest in managing human and organizational interactions with the natural world, in addition to reasoning about them. How do corporations relate to the human body–environment continuum, and how should they? What would it mean for corporations to engage and relate to embodied social needs beyond abstracting this issue to the traditional, but narrowly economistic concept of ‘fair wage’? In the traditional view, a good corporate citizen is one who pays a fair wage in an employment relationship. Then the employee is deemed responsible for maintaining his or her own health and environmental well-being. By bringing the human body centrally into the discourse, we can get some new openings on corporate responsibilities toward humans and the natural environment. We can begin examining in fresh ways a good corporate citizen’s responsibilities for bodies within it and around it, and touched by it through its products and services. Embodied corporate citizenship Developing a new understanding of corporate citizenship as an embodied human–corporate–nature relationship is justified in several ways. First, we acknowledge that the central premise of embodiment theory is that the human body and materiality have a key role in social analysis. Body-centric corporate and social analysis gives high weight to bodily,
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physical and material relations between corporation as persons and their environments. Corporations are not simply legal persons with economic purposes. They are also social, political and material persons with material, bodily and emotional influences on their employees, customers and other stakeholders. Personalization of abstract influences offers new inflection points in the debate on corporate social responsibilities. It raises specific awareness of many forms of generalized and abstract corporate environmental influences that often go unnoticed. Embodied analysis is thus more real. Corporations create and shape material and symbolic culture, legitimacy and power relations, and operate within a context of deliberative democracy. To remain viable they must be responsive to the demands of the pluralist, globalized, individualization processes in society. One aspect of individualization is the fragmentation of cultural values and life-world background. Another is the primacy granted to personal experiences (including sensate) personal choices and preferences. The body as the habitus of such individualization has a central place in corporate analysis (Beck-Gernsheim and Beck 2002; Palazzo and Scherer 2006). Second, the embodiment approach questions and rejects the subjective– objective dichotomy. It resists objectification in many forms and particularly objectification of labor which is a primary fruit of the body. Applying this insight to the corporate arena argues for decommodification of labor. Commodification and objectification of labor as ‘wage-earning time’, is one of the biggest conceptual barriers to getting corporations to accept broader responsibilities. By treating labor as a commodity, corporations limit their responsibilities to explicit and implicit labor contracts. In employing people, corporations do not just buy labor time. Today’s knowledge economy operates in complex technological and social contexts, which makes performing labor a much more intricate and involved human endeavor. Employees prepare for ‘performing labor’ through education, and training, by developing social and cultural skills, by engaging emotionally, by planning career and life strategies. They arrange and periodically rearrange their living circumstances, transportation modalities and communications. Reducing all these human activities and environmental interactions into a single category of labor time is reductionist in the extreme. The relationship between corporations and employees does not begin and end in an employment contract. They cannot be treated as hamsters, rushing on the ever-turning hamster wheel of competitive labor. Instead, corporations constitute and reproduce work and life processes. A complete exegesis of decommodification of labor is beyond the limited scope of this chapter. Minimally, decommodifying labor involves acknowledging the complex web of life–work–environmental interactions that
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result in the human performance in corporations, and consequently corporate performance. The embodiment perspective acknowledges the mind, body and emotional aspects of work. It accepts the fact that corporations employ the whole person and not some part of him/her. In the case of senior managerial positions such as CEOs and presidents, the employment may even impose expectations and requirements on the person’s spouse, family and lifestyle. A third justification of the embodiment perspective comes from the need to consider the whole person because modern corporate work deploys the whole person. In the early years of industrialization, corporations assumed that they were buying and using largely physical skills. Up until the middle of the 21st century, physical labor (in construction and factory settings) remained the primary basis of performance. With conversion of work from factory and industrial production, to services and the information economy, the primacy of physical effort was lost. Work did not necessarily lose the physical exertion, but it certainly gained added dimensions of cognitive performance (judgment, analysis, decision making) and emotional performance (customer care, social engagement, cultural nuances). Corporate work utilizes complete human beings with their physical performances, mental decision processes, and their emotional energies. A holistic conception of employees is therefore fundamental to constituting embodied corporate citizenship. Corporations are a collection of humans supplemented with material and financial resources. What makes corporations successful is their full engagement of people and their natural and social environments in performing work. For work to occur effectively, corporations must engage and manage all elements that impact on their long-term performance. For pragmatic reasons it is compelling to conceive of corporate social and environmental influences and responsibilities to include all relevant types of stakes and stakeholders. The more complete the set of stakeholders the higher is the probability of satisfying them and gaining long-term success. Conceptualizing corporate citizenship responsibilities in a comprehensive way is a pragmatic imperative. Responsibilities toward more stakeholders and for more types of stakes are also imbued with moral power under democratic norms. The customs of our democratic society give us the obligation to accept responsibilities toward these stakes and stakeholders. This is consistent with Bourdieu’s social analysis of collective action which elucidates the pragmatic force of catering to the majority (Bourdieu and Wacquant 1992). It should be acknowledged that currently such expanded responsibilities are not mandated by codes of law in any country. From an embodiment perspective, corporate citizenship responsibilities include the welfare of (whole) human employees and other human stakeholders,
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fabricated spaces for corporate activities and the broader natural environment. These responsibilities are elaborated upon in the next section. Corporate citizens’ human and environmental responsibilities The schematic diagram in Figure 8.1 identifies four sets of corporate responsibilities that flow from our conception of corporate citizenship. It depicts the interrelationships between them. These responsibilities include responsibilities toward whole persons (physical, cognitive, emotional), responsibilities toward communities, responsibilities toward fabricated spaces, and responsibilities toward the natural environment. This model implies a collective holistic responsibility at a new and higher level of comprehensiveness. The arrows linking the elements indicate that they are mutually reinforcing and best understood as a network rather than as independent and isolated responsibilities. Corporate whole-person responsibilities Corporations as citizens are persons and they use and deal with people including employees, customers and business associates. Articulating personcentered responsibilities begins by acknowledging the physical, cognitive and emotional sides of people, and providing for the well-being of each. Physical health and stamina both directly impact on work productivity and absenteeism. Providing for physical well-being in the form of ‘wellness’ and preventive health services and medical care is a primary corporate responsibility.
Nature
Fabricated spaces
Whole person
Community
Figure 8.1 Corporate citizenship, human and environmental responsibilities
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Cognitive work takes many forms in corporations including analysis, research, decision making, judgment, communications, reporting, computation and bargaining. Training, education and experience are enablers of corporate work. Cognitive work tools and procedures serve as means for accomplishing the work. Corporate responsibilities include providing opportunities for workers to upgrade and maintain their cognitive performance. This includes making employees into lifelong learners with continual knowledge and skills acquisition. Companies must also be committed to providing work tools and techniques which in modern corporations require large-scale implementation of databases, computer systems, application programs and analytical processes. Emotional work, emotional preparation for work and emotional recovery from work effects are core parts of corporate life. Providing employees and other stakeholders with emotional support infrastructure falls squarely within the purview of corporate citizenship. Corporate citizens can begin by acknowledging their role in the emotional lives of employees. They can make a huge contribution to the emotional well-being of employees by designing work and organizational tasks using emotional performance as important criteria (Fineman 2003; Frost 2003). Embodied corporate community responsibilities Corporate citizens are tightly integrated with the many communities in which they participate. These communities are local, regional and global depending on the extent and reach of corporate activities. Embodied corporate citizenship responsibilities toward community go beyond social aspects to the physical health of community members. Public health has historically been a responsibility of governments. The embodiment perspective does not imply that corporations should entirely take over this responsibility. But there is a legitimate role for corporations in this arena. Corporate citizens should be mindful of how their products and services, their production and distribution activities, impact on public health. Products of fast-food or tobacco and alcohol companies have implications for public health. Similarly the operations of oil and power and chemical companies have implications for public health. The public health issues are technologically complex, politically sensitive, and have differential impacts on different racial and economic groups. Corporations have a responsibility to deeply understand these implications and engage communities in resolving public health problems arising from them. More proactive corporations can develop public health enhancement opportunities in communities by supporting wellness, exercise, nutrition and sports programs. Being a corporate citizen implies reciprocal relationships between the corporation and respective communities. Cultivation of these relations
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through dialogue and engagement is the mutual responsibility of both. Corporations can lay out the groundwork for this engagement by providing venues for issues to be debated and resolved. Corporate fabricated spaces responsibilities Corporations own land, buildings and transportation facilities necessary for business. In fabricating their production, transportation, storage and waste facilities, they change the land and surrounding landscape in temporary and permanent ways. In the past, companies have accepted responsibility for land largely as an economic asset. They deploy land to maximize its economic use. An embodied concept of citizenship pushes these responsibilities further toward how people experience land and fabricated spaces. People experience land and spaces in many ways – physically, visually and emotionally. They live and work within physical spaces. They see the buildings and landscapes. Space and place are the habitus of emotion and memories. Corporate transformation of spaces has many unacknowledged and unintentional social impacts. For example, ruined and abandoned industrial sites are not just a used-up economic asset. They are a visual blight and source of emotional distress for the community and casual observers. Each site has a social history and personal connection for people who lived around it. Good citizens understand their responsibilities toward maintaining the look and feel of neighborhoods and landscapes. As an extension, embodied corporate citizenship includes a responsibility for sustainable use of land resources. Conceiving of land as a venue of human and social experience, it seeks to preserve the natural qualities of land that support those experiences. Corporate nature responsibilities Corporations’ footprint on the natural environment is a function of their vision, inputs, throughput systems and outputs (products and wastes). Comprehensive responsibilities toward nature must include thoughtful approaches to managing these elements. Corporate vision must acknowledge stewardship responsibilities toward the natural world. These include sustainable use of natural resources and programs to renew used resources to maintain natural ecosystems. Corporate input of raw materials, energy and human assets must be managed responsibly to ensure conservation and an efficient cradle to cradle regenerative cycle. Throughput or production systems should be designed for highest environmental performance (Shrivastava 1996; McDonough and Braungart 2002). A corporation’s outputs are their wastes as well as their products. With respect to products, corporate responsibility includes abandoning product
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designs that are deliberately wasteful and ecologically debilitating. For example, the product design principle of ‘planned obsolescence’ leads to products that have a short designed life instead of maximum possible life. So if an automobile is designed for a five-year life, it is deliberately made ‘obsolete’ by its key components (say the engine or transmission) failing after that period. This renders the whole automobile useless and wasted. It represents a waste of parts that could have been used for many more years. Similarly, the product design principle of ‘disposability’, leads to the creation of frequently disposed parts of entire products. The product design principle of ‘internal corporate standard’ (as opposed to industrywide standard) leads electrical goods firms to make plugs/connectors that are not interchangeable. Customers have to buy a specific manufacturer’s electrical connector to make their equipment work. If there are four cell phones or computers in a household all of different brands, the user is forced to acquire and maintain four different chargers, and connectors (Kalisvaart and van der Horst 1995). Ecologically responsible product design abandons these ‘market’-driven principles in favor of more ecologically efficient ones. Corporate waste management is another significant corporate citizenship responsibility. Production and office waste are already a serious ecological problem in many countries. Taking cradle to grave responsibility for their products, corporations can begin to see waste in a different light – as an underutilized asset. Minimizing waste and increasing reuse of materials can be a source of financial savings. A primary challenge to accepting these added responsibilities is the perception of their high cost, and a fear that they can burden the corporation right into financial bankruptcy. Perceptions of costs are often not founded on real-cost analysis. Not all programs are prohibitively costly. Some wellness and environmental programs actually save costs. For example, the 3M Pollution Prevention Pays Program over the 30 years of its existence has saved the companies over $1 billion, and eliminated over 2.5 billion pounds of pollutants (3M Website 2007). Moreover, acting responsibly in this broader sense is as much a question of values and attitude, as it is of financial investments. Taking an attitude of responsibility for certain public goods does not equate to paying for all costs associated with them. It simply means acknowledging their importance, being willing to engage in addressing the needs, and exploring compromises and trade-offs for feasible solutions. Steps toward fulfilling corporate citizenship Achieving this type of more environmentally engaged corporate citizenship will take time, education and resources. The first natural barrier is lack of
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motivation for business firms to voluntarily accept higher responsibilities. Firms will accept such responsibilities when they understand how they are linked to their current and future business models. Every year more companies are realizing the importance of sustainable management practices. Some are able to parlay ecological efficiencies and progressive human resource policies into reducing costs, improving sales and thus advancing corporate competitive advantage. Some industry leaders are starting to show that economic competitive advantages can be established through more comprehensive corporate response toward the environment and society. Procter & Gamble in the consumer products industry, Toyota in the auto industry, and Wal-Mart in the retailing industry, are recent examples of large main-line companies that have publicly announced new sustainable business models with wider and deeper engagement of environmental and social issues that also benefit their respective bottom lines. As these first successful models get established, they will create market pressure on the rest of the companies to follow. This voluntary move toward sustainability is also being prodded by public pressure through non-governmental organizations and government policy measures such as incentives and subsidies. More public awareness coupled with governments’ incapacity to tackle large human-scale problems such as, global warming, poverty and the AIDS crisis, are thrusting on corporations new expectations for solutions. Some corporations are rising to these challenges, while others are feeling besieged and frustrated. For example, Microsoft’s involvement with the AIDS crisis in Africa and Merck’s involvement with river blindness are leading examples of corporations pursuing broader citizenship responsibilities. In moving toward the broader concept of corporate citizenship espoused here, corporations will have to tackle other challenges including the market’s demand for high returns on investments, and shareholder value orientation of the investment marketplace. This barrier is ameliorated to some extent in the realization that there are win–win solutions in which ecological efficiencies can simultaneously improve financial and ecological performance. Wal-Mart is investing $1 billion in the next five years in its corporate sustainability programs and expects savings of $11 billion for its suppliers and itself. Many companies are in a position to enjoy such benefits of simultaneous ecological and economic savings. When these are used up, eventually companies will need to make financial sacrifices. Investors will need to moderate their own expectations of profit maximization. Even this task seems manageable. Already there are signs that investors (in socially responsible mutual funds) and customers (in environmental niche markets) are willing to take lower returns or pay high prices to support companies that they find consistent with their social and ecological values.
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A few first steps are delineated below to encourage managers and policy makers to think about their new responsibilities in practical terms. Managing personal and organizational ecological footprints Embodied corporate citizenship cannot be simply a collective concept. At some level it must be translated to personal responsibilities of individual employees, managers, owners, directors and other key stakeholders. Each person must understand his or her own ecological footprint. This footprint refers to the amount of land and water area a human population needs to support itself and to absorb its wastes using prevailing technology. One’s personal ecological footprint measures the ecological resources a person uses in ‘global hectares’ (gha) per capita. For example, the average footprint in the USA is 9.5 gha per capita, in Switzerland 4 gha per capita, and in China 1.5 gha per capita. Numerous web resources allow people to estimate their own or their organization’s ecological footprint (http://ecofoot.org). They provide suggestions for reducing or changing consumption patterns to design more ecologically sustainable personal lifestyles and organizations. Humanizing employment contracts Current employment contracts commoditize labor and make the relationship between companies and employees narrowly economistic. Employment is reduced to hours of labor. Financial compensation (wages, bonuses, profit sharing, stock options and so on) defines the limits of the employer’s responsibilities. These contracts need to be amended to recognize that ‘labor time’, does not capture the deep emotional and intellectual engagement necessary in today’s workplace. Contracts should be improved to incorporate work expectations from employees, and to take into account the whole-person skills and performances necessary for each job. This means employers accepting contractual responsibilities for the holistic (physical, mental and emotional) health of employees. To encourage holistic work environments, individual work spaces, employee benefits, contracts and work areas should be designed in an eco and health conscious manner. For example, this could include work-integrated childcare, fitness services, ergonomic and creativity inducing work spaces, paternity/maternity leave and employer support for family and community involvement of employees. Ecologizing corporate policies The broader view of corporate citizenship should be embedded in all corporate policies including corporate vision, strategies, products and operations. Every aspect of the company needs to be infused with a uniform sense of environmental and social responsibility. This is best done by
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systematically incorporating corporate environmental responsibilities into corporate policies and procedures (Savitz and Weber 2006). Companies should move their business portfolios, product lines, production and logistic systems, and their overall business logic toward environmentally sustainable and socially engaged positions (Shrivastava 1996; Sharma and Starik 2002). Regulatory infrastructure Moving toward an ecological sustainability-driven sense of corporate environmental responsibility cannot occur entirely voluntarily. It must be supported with fair standards and norms for all companies. A uniform global regulatory infrastructure that makes the competitive environment fair and even for all participants is essential. Such an infrastructure does not exist currently. There are some elements in place such as the environmental laws in different countries, international environmental treaties, and the ISO 14000 Environmental Management Standard. All companies should be required to meet the existing relevant standards of environmental and human health performance. Once this is accomplished, the next big challenge will be to extend the regulatory system in several directions and make broader corporate citizenship legally binding. Enabling regulations that clarify environmental and health standards and make them mandatory will create an even competitive playing field for all companies. It should be noted that this would have to be worldwide to be effective. This will help establish acceptance criteria and test methods for the introduction of new technologies. It will improve value for customers and reduce techno-environmental risks globally. Corporations can choose to passively wait for government agencies to create such regulations, or they can take the initiative and get involved in shaping such regulations. Organizations such as the World Business Council on Sustainable Development, the Business and Industry Office of the UN Environmental Program, and the World Trade Organization’s Global Environment and Trade Study may be parlayed to coordinate such initiatives. Several chapters in this book address the emergence of global institutional structures, and regulatory frameworks and standards. In lieu of a conclusion Environmental degradation caused by human and corporate activities is an increasing global concern. Despite our good intentions, citizenship roles and social responsibilities have not assuaged the environmental decline. A more comprehensive understanding of corporate citizenship for environmental sustainability may allow companies to engage more deeply with the problems of environmental degradation.
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This chapter began the process of re-conceptualizing corporate citizenship from an embodiment perspective. By centering the body and materiality of nature in our analysis, we gain a fresh perspective on corporate citizenship. This embodiment approach anchors the discourse on corporate responsibility and citizenship in a different place – the human body and ecological materiality, instead of in economic and political concepts of human labor and environmental resources. This allows us to access bodily and material consequences of corporate activities in a more direct way. By making direct links we avoid obfuscations made by some economic and political arguments that mediate our understandings of human–environmental relationships. The embodiment approach supplements the insights provided by economic and political concepts of CSR, and focuses centrally on the health of human beings and the ecosystem. This chapter represents a first and largely definitional step toward an embodied concept of CSR. More robust re-conceptualization and theory development are needed to flesh out the deeper sense of responsibility implicit in this approach. Research is needed into all key elements of CSR and citizenship. We need to understand how corporations and the work within them relate to, shape and influence whole persons and their personal, social and emotional lives. We need to uncover the deep links between corporations and the communities they serve. This does not mean giving more control to corporations over different aspects of our lives. Corporate control of the community, polity and public discourse, have been widely criticized in the literature, including some of the chapters in this volume. The embodiment approach can restore humanized control over emotional and physical work into the hands of employees if it is first acknowledged openly. Embodiment implies that material changes are central to social analysis. Corporations change the material world indelibly, continually and in many instances irreversibly. We need much more research on corporate fabricated spaces and corporate-nature impacts to understand the full material impact of corporate activities. In management literature the focus of study has been material changes within corporations in terms of production processes. There are entire functional areas and fields of study devoted to production and operations management. The preoccupation with internal material transformation has led to ignoring external material changes from corporate activities – changes in landscape, buildings, logistics infrastructures and building materials. There is a major opportunity for researching corporate landscaping of communities and society. Another area of fruitful research is methodology. For traditional organizational scholars there is a need to develop new measures and scales that allow us to quantify changes and carry out longitudinal studies of
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corporate-induced changes over time. However, the embodiment perspective denies the subjective–objective split that runs through current methodologies used in the fields of management and business studies. It seeks to synthesize concepts and experiences into an incarnate understanding. Therefore, the more useful methodological opportunity lies in expanding our research methods so that we can focus on studying embodied experiences, feeling and emotions in a corporate work context. While this chapter’s effort at re-conceptualizing CSR and corporate citizenship is a useful start, I do not believe that conceptual development alone will resolve the grave global environmental problems we face today. Making an impact on real problems requires action. The embodiment perspective is partial to action and practice. It is a theory of practice and change. It supports advocacy of eco-centric values. Eco-centrism fosters corporate engagement in environmental problems. While advocacy may be anathema to traditional notions of ‘scientific’ inquiry, it is a critical aspect of the embodiment perspective. References 3M Website (2007), http://solutions.3m.com/wps/portal/3M/en_US/global/sustainability/, accessed 10 January 2007. Bateson, G. (1980), Steps to an Ecology of Mind, New York: Bantam Books. Beck, U. (1992), Risk Society, Towards a New Modernity, trans. from the German by M. Ritter, London: Sage. Beck-Gernsheim, E. and U. Beck (2002), Individualization: Institutionalized Individualism and Its Social and Political Consequences, London: Sage. Beder, S. (2000), ‘Hijacking sustainable development: a critique of corporate environmentalism’, Chain Reaction, 81, 8–10. Bourdieu, P. and L.J.D. Wacquant (1992), An Invitation to Sociology, Chicago, IL: University of Chicago Press. Csordas, T.J. (1990), ‘Embodiment as a paradigm for anthropology’, Ethos, 18 (1), 5–47. Dowell, G., S.L. Hart and B. Yeung (2000), ‘Do corporate global environmental standards create or destroy market value?’, Management Science, 46 (8), 1059–74. Fineman, S. (2003), Understanding Emotion at Work, Thousand Oaks, CA: Sage. Frost, P.J. (2003), Toxic Emotions at Work: How Compassionate Managers Handle Pain and Conflict, Cambridge, MA: Harvard Business School Press. Green, K., P. Groenewegen and P. Hofman (2001), Ahead of the Curve: Cases of Innovation in Environmental Management (Eco-Efficiency in Industry and Science), Amsterdam: Kluwer. Kalisvaart, S. and T.J.J. van der Horst (1995), ‘Implementing ecological product design’, World Class Design to Manufacture, 2 (6), 21–30. Lakoff, G. and M. Johnson (1999), Philosophy in the Flesh: The Embodied Mind and Its Challenge to Western Thought, New York: Harper Collins. Livesey, S. (2002), ‘The discourse of the middle ground: citizen shell commits to sustainable development’, Management Communication Quarterly, 15 (2), 313–49. Matten, D. and A. Crane (2005), ‘Corporate citizenship: toward an extended theoretical conceptualization’, Academy of Management Review, 30 (1), 166–79. McDonough, W. and M. Braungart (2002), Cradle to Cradle: Remaking the Way We Make Things, New York: North Point Press. Neidenthal, P., F. France, L.W. Barsalou, P. Winkielman, S. Krauth-Gruver and F. Ric (2005), ‘Embodiment in attitudes, social perception, and emotion’, Personality and Social Psychology Review, 9 (3), 184–211.
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Palazzo, G. and A.G. Scherer (2006), ‘Corporate legitimacy as deliberation: a communicative framework’, Journal of Business Ethics, 66 (1), 71–88. Roome, N. (1998), Sustainability Strategies for Industry: The Future of Corporate Practice, Washington, DC: Island Press. Sampson, E.E. (1996), ‘Establishing embodiment in psychology’, Theory and Psychology, 6 (4), 601–24. Savitz, A. and K. Weber (2006), The Triple Bottomline, New York: John Wiley. Scherer, A.G. and G. Palazzo (2007), ‘Towards a political conception of corporate social responsibility – businesss and society seen from a Habermasian perspective’, Academy of Management Review, 32 (4), 1096–120. Sharma, S. and M. Starik (eds) (2002), Research in Corporate Sustainability: The Evolving Theory and Practice of Organisations in the Natural Environment, Cheltenham, UK and Northampton, MA, USA: Edward Elgar. Shrivastava, P. (1995), ‘Ecocentric management in industrial ecosystems: management paradigm for a risk society’, Academy of Management Review, 20 (1), 118–37. Shrivastava, P. (1996), Greening Business: Profiting the Corporation and the Environment, Cincinnati, OH: Thomson Executive Press. Wittgenstein, L. (1953), Philosophical Investigations, New York: Prentice-Hall. Worldwatch Institute (2000, 2001, 2002, 2003, 2004, 2005), State of the World Report, Washington, DC: Worldwatch Institute.
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Corporations as citizens against corruption: an institutional entrepreneurship perspective Gary R. Weaver and Vilmos F. Misangyi1
Introduction The wide-ranging and negative impacts of corruption (Mauro 1996; Kaufmann 1997; Doh et al. 2003) have led many observers and policy makers to regard it as ‘one of the world’s greatest challenges’ (Errath et al. 2005). In addressing corruption, multiple anti-corruption agencies (for example, the Organization for Economic Cooperation and Development (OECD), the UN, Transparency International (TI), the World Bank) increasingly have directed their attention beyond a conventional focus on governmental anti-corruption programs to consider as well the role of corporations in the mitigation of corruption. For example, in a speech to French business leaders, OECD Secretary-General Angel Gurria recently asserted that the cessation of bribery ‘will only happen if companies put in place their own rules and controls against bribery. You are on the front line. You have to decide whether to give in to solicitation or whether to try to match or beat the bribe that your competitor may be willing to pay’ (Gurria 2006). Meanwhile, the World Bank’s ‘Business, Competitiveness and Development’ program involves the corporate sector actively in fighting corruption; the UN now includes fighting corruption as the 10th principle within its ‘Global Compact’ (UN Global Compact 2007); and nongovernmental organizations (NGOs) such as TI focus on the potential role of the corporate sector in alleviating problems of corruption, advocating, for example, ‘effective controls and greater transparency’ in corporate actions (TI 2007). Most parties to international discussions of corruption also grant that the potential role of the corporate sector in fighting corruption is greater in societies with weak, ineffective or seriously corrupted political systems. In such circumstances, corporations might be the only entities with the capacity to address both individual and systemic corruption. If corporations are to exercise a citizenship role, then, it seems reasonable to consider anti-corruption work as a potential element of that role. In a narrow sense, the call for corporations to be good citizens regarding corruption might simply mean that corporations should more carefully control their own actions vis-à-vis corruption, taking action to prevent 185
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employees from committing corrupt acts or violating the law and fostering an ethical, corruption-preventing organizational culture. But could corporate citizenship regarding corruption mean more than this, such that corporations become active agents of corruption-disabling change in society? If so, just what might a broader notion of corporate anti-corruption work involve? Can corporations act as citizens against systemic corruption? Much research has examined how corporations can foster non-corrupt behavior internally, on the part of their employees and managers (for example, Treviño and Weaver 2003). But little has considered an outward focus by which corporations function as sociopolitical actors working against entrenched societal corruption. We address this topic in this chapter. After briefly reviewing the concepts of corruption and corporate citizenship, we summarize conventional approaches to corruption and their limits. In the light of these limits, we present a more expansive understanding of corruption, treating it as embedded in the cognitive and behavioral components of an overarching institutional logic, which in turn can be sustained or changed by social actors in possession of economic, cultural, social and symbolic resources. Based on this alternative account of corruption (developed in greater detail in Misangyi et al. 2008), we offer proposals as to how corporations might engage in anti-corruption efforts that spread beyond their own (admittedly porous) boundaries. In this, corporations function as citizens in the sense of taking on social and political responsibilities and as entrepreneurs intent on changing an institutional framework that enables corrupt behavior. But although we highlight certain potential corruption-disabling roles for corporations, we also consider the potentially quixotic nature of any expectation that corporations can or would engage in wide-ranging citizen-like behavior against corruption. Corporate citizenship and corruption: basic concepts Definitions of both corporate citizenship and corruption involve some controversy, and so it is useful to first establish what we mean by each of these concepts. For our purposes, we embrace what is at the root of most perspectives on corruption: (i) a social actor is entrusted within a social system with the allocation of resources or benefits (and costs) and (ii) the social actor has some level of discretion over this allocation and uses it to increase the social actor’s (or its patron’s) welfare at the expense of overall system welfare or the actor’s legally, contractually, socially or morally defined role expectations.2 Several contentious perspectives on corporate citizenship exist within practitioner and academic literatures (Logsdon and Wood 2002; Moon et al. 2005; Crane and Matten 2008; DeGeorge 2008; Norman and Néron
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2008a, 2008b; Wood and Logsdon 2008). Some scholars reject the plausibility of the concept in any form (for example, van Oosterhout 2008). Minimalist views of corporate citizenship confine it to philanthropic activity and/or behavior in conformity to law and morality (Saiia 2001; Matten and Crane 2005; Norman and Néron 2008a). More generally, in this private actor approach the corporation is a citizen in the sense of dutifully fulfilling formal and informal societal expectations, but not in any sense stronger than that. In other words, corporations are not acting as sociopolitical actors in their citizenship role; only others (for example, governments, NGOs, influential individuals) act in that capacity. Corporations merely are entities that follow societal rules and otherwise dispose of their property and contract with others as they please (within the constraints of market forces). More expansive views treat corporations as sociopolitical actors responsible (with others) for maintaining or developing the overall framework of society (Scherer et al. 2006; see also Matten and Crane 2005). Here, corporations take on an active, republican (that is, civic virtue-oriented) identity (in contrast to a more private and reactive bourgeois liberal notion of citizenship; Scherer et al. 2006). Scholars working within this political actor perspective of corporate citizenship ‘put the corporation in the public sphere and assume a state-like role of the corporation with regard to its corporate citizenship behavior’ (Scherer et al. 2006, pp. 514–15, original emphasis). For example, corporations might step into a breach vacated by other institutions, as in situations of ‘failed states’. Corporations also raise questions about their active sociopolitical role in so far as globalized, transnational business activity creates new venues of collective action and power that exceed the reach of traditional nation-states. But because corporations are not elected to administer political rights and obligations in lieu of conventional forms of political governance, questions arise as to the democratic legitimacy of corporate citizenship understood in this expansive way (Palazzo and Scherer 2006). Thus, Scherer et al. (2006) suggest that corporate citizenship behavior must be informed by a republican (rather than private, classically bourgeois liberal) political model of citizenship (see Steinmann and Scherer 2000; Ulrich 2002; Moon et al. 2005), wherein the corporation, as both a private citizen as well as a citizen of the community (Habermas 1998), takes on politically administrative functions while guided by an inherent responsibility and capacity to benefit the commonwealth. Applied to corporate action regarding corruption, a minimalist, corporation-as-law-abiding-and-moral-citizen (hereafter, ‘private-actor’) perspective on corporate citizenship suggests attention to intra-organizational corporate practices aimed against corruption – such as efforts to prevent
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employees from paying or receiving bribes, to create an ethical corporate culture, to monitor employee behavior, and so on. Thus anti-corruption agencies sometimes recommend ‘codes of conduct’ for corporations (for example, the UN Global Compact, TI, the OECD, the World Bank). Intraorganizationally focused efforts to control corruption, of the sort appropriate to a private-actor view of corporate citizenship, have been addressed extensively by much organizational behavior research (for example, Ashforth and Anand 2003; Treviño and Weaver 2003). Our interest here, by contrast, is in an expansive (‘political-actor’) notion of citizenship, according to which corporations attend not only to their own affairs within general legal and moral constraints (that is, the classically liberal sense of citizenship), but rather become sociopolitical actors with respect to the mitigation of societal corruption. The key question implied by this expansive view is this: are corporations well-positioned to act (perhaps with others) as citizens taking on a corruption-disabling sociopolitical responsibility? Answering this requires considering (i) the means by which corporations might engage, as sociopolitical actors, in restructuring society so as to mitigate corruption, much as governments and NGOs do; while also examining (ii) the potential for corporate sociopolitical engagement vis-à-vis corruption to fail tests of legitimacy or otherwise create problems. To address these questions we need to consider a broader perspective that encompasses the insights of conventional accounts of corruption and its mitigation, while placing corruption in a more complex institutional analysis. Mitigating corruption: alternative approaches Corruption typically has been viewed from an economic perspective focused on rationally self-interested actors who respond to anti-corruption incentives (that is, penalties and rewards) and controls (for example, audits), and from an intra-organizational, behavioral perspective focused on managing the internal culture and structure of an organization in ways that foster good behavior and buffer the organization from external inducements to corruption. We briefly examine these perspectives before considering a wider-ranging institutional analysis of corruption (a fuller account appears in Misangyi et al. 2008). Economic approaches to corruption mitigation Economically oriented approaches generally consider corruption to be ‘the abuse of public power for private benefit’ (World Bank definition, see Tanzi 1998, p. 564), which arises when there exists control over economic costs or benefits and the discretionary power to appropriate gain from that control (Shleifer and Vishny 1993; Mauro 1996). This account of corruption rests upon a premise of self-interested behavior, and thus assumes that corruption
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(for example, bribery) will occur whenever it is rational for individuals to engage in it: the opportunity exists (that is, discretion over allocations of resources/economic rents; Mauro 1996), it is a preferable option (for example, due to poverty, lack of trust and so on; Rose-Ackerman 2001), and there is little chance of any punitive effects (Klitgaard 1988). The obvious remedies for corruption, in this view, stem from these same premises: curbing discretionary power or providing incentives to dissuade corrupt activities. Thus an economically oriented approach suggests that corruption can be mitigated by promoting: (i) market liberalization, in the belief that efficient product and capital markets constrain corrupt managerial behavior, and/or (ii) regulatory structures, supported by penalties or incentives, requiring accountability and transparency (Shleifer and Vishny 1993; Kaufmann 1997; Tanzi 1998). Evidence regarding these remedies, however, is not encouraging. For example, market liberalization policies implemented in some ex-Soviet countries (such as mass privatization in the Czech Republic; Spicer et al. 2000) failed to curb corruption, resulting instead in new forms of corruption (Kaufmann 1997; Open Society Institute 2002). Similarly, relatively little evidence suggests that the imposition of comprehensive government-sponsored programs (for example, laws requiring transparency, investigation and enforcement agencies, and public awareness campaigns) effectively reduces entrenched corruption in some settings (Tisné and Smilov 2004). The organizational behavior perspective on corruption Organizational behavior research in this area similarly recognizes selfinterest as a factor contributing to corrupt behaviors, but it also attends to the normative and cognitive aspects of such behavior in organizations (for example, Ashforth and Anand 2003; Treviño and Weaver 2003). Scholars in this perspective have, for example, examined how corrupt actions can become institutionalized in situationally defined role identities promulgated within organizations, with the result that normally honest people end up engaging in corrupt practices in fulfillment of their organizational roles (Brief et al. 2001; Aquino and Reed 2002; Weaver and Agle 2002; Ashforth and Anand 2003; Weaver 2006). Organizational behavior research is interested in corruption that results from the interaction of individual and situational factors within organizations, and thus focuses upon normative and regulative controls within organizations as remedies (Treviño and Weaver 2003). Thus some scholars promote cultural change within organizations as a means to mitigate intra-organizationally generated corruption, emphasizing that both formal elements (for example, incentive structures) and informal elements (for example, exemplary leadership) must be addressed in order to encourage organization members’ identification with (and
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thus commitment to) ethical modes of behavior (Weaver and Treviño 1999; Weaver et al. 1999a; Treviño and Weaver 2003). Although these approaches may succeed in changing individual behavior within organizations, they do not address enabling conditions for corruption that reside in extra-organizational contexts. An institutional approach to corruption and its mitigation Economic perspectives on corruption lack attention to the complex role of normative and cognitive processes; it is assumed that people act (deliberatively) based upon fixed preferences (Fligstein and Mara-Drita 1996) and thus questions of identity, roles, depersonalization and related phenomena have no place in such accounts (Friedland and Alford 1991). Although organizational behavioral accounts address normative and cognitive processes, these approaches are limited by a primary focus on organizations as the context for action, and consequent inattention to the institutional environments within which both individuals and organizations are embedded (Granovetter 1985). This is important, because large-scale cultural and institutional factors influence behavior, cognition and affect in ways relevant to ethics in organizations (Weaver 2006). Thus a more effective approach to mitigating widespread corruption must move beyond conventional economic and organizational approaches to consider the process by which institutional frameworks or, as we shall describe them, ‘institutional logics’ – constituted by the identities, cognitive frameworks and practices of people – are formed and sustained, how those logics enable corruption, and how they might be changed by social actors (such as corporations) using the resources available to them (Misangyi et al. 2008). This broader foundation for understanding societal corruption in turn can inform thinking about how corporations might exercise citizenship roles by using their often vast resources to bring about institutional change regarding corruption. Institutional logics An institutional logic (Friedland and Alford 1991) is a ‘socially constructed, historical pattern of material practices, assumptions, values, beliefs, and rules by which individuals produce and reproduce their material substance, organize time and space, and provide meaning to their social reality’ (Thornton and Ocasio 1999, p. 804). Institutional logics provide a sense of meaning, coherence and order, as they incorporate social identities and cognitive schemas and role expectations which in turn delineate and guide behavior (Berger and Luckman 1966; Scott 1995). Identities, understood as cognitive self-schemas, motivate and guide behavior through specific role expectations within social settings (see Ashforth 2001) and through social categorization processes (for example, prototypical behavior,
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see Hogg and Terry 2000). Schemas, in turn, provide mental frameworks of how relations occur within any particular situation (DiMaggio 1997) and related cognitive scripts provide a ready stock of appropriate behavioral routines for a situation (Barley and Tolbert 1997), thereby promoting efficiency and facilitating interaction. Taken together, these elements of an institutional logic frame the way people understand their place in the world, including their relationship to others, and provide them with a repertoire of ways to act, think and feel. The recursive relationships among identities, schemas/roles and practices within institutional logics opens up the possibility of purposive institutional change: just as the symbolic realm (that is, identities and their attendant schemas and roles) influences the substantive (that is, practices and actions), so the latter realm also influences the former (that is, practices help to define and shape identities, schemas and roles) (Giddens, 1976; Friedland and Alford 1991; Barley and Tolbert 1997). Thus the actions of individuals and organizations can affect the continued existence and influence of an institutional logic. Persistence of an institutional logic is not inevitable (Giddens 1984; Sewell 1992), and change is more likely in situations that trigger the kind of self-conscious, deliberative thinking by people that can make them aware of the logic and its influence on thought and action (Clemens and Cook 1999; Stinchcombe 1978). Such thinking might be encouraged by a serious challenge to the normal workings and outcomes of an institutional logic, such as a severe economic crisis (Fligstein and Mara-Drita 1996). But it might also be prompted by social actors within an institutional field who articulate and propagate an alternative institutional logic (or an alternative interpretation of the reigning logic), such that the established institutional logic no longer functions as a brute fact, but rather as something to be evaluated or even replaced (Friedland and Alford 1991; Sewell 1992; Barley and Tolbert 1997; Emirbayer and Mische 1998; Seo and Creed 2002). Social actors and their resources Institutional logics – such as those that enable or disable corruption – cannot exist apart from the social actors that embody, practice and change them (Zilber 2002). Social actors who attempt to change institutional logics are, in effect, ‘institutional entrepreneurs’ (DiMaggio 1988; Seo and Creed 2002; Maguire et al. 2004). Their success depends in part upon whether they have adequate resources for the change effort (DiMaggio 1988; further discussed below) and on whether they can ‘infuse new beliefs, norms, and values into social structures’ (Rao et al. 2000, p. 240; see also Fligstein 1997). But institutional logics also have their defenders, persons who, for whatever reason, use their resources, positions and influence to maintain an existing institutional order, in part by
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highlighting the lack of harmony between the prevailing institutional logic and an emerging one (Henisz and Zelner 2005). Any particular institutional logic is rooted in a foundation of resources that provides social actors with the capacity for carrying out the practices entailed by the logic, and for enacting the identities of the logic (Bourdieu 1985; Sewell 1992). For example, an institutional logic that normalizes mobility in the pursuit of enhanced socioeconomic status presumes access to certain transport and communication resources; another logic that embodies a high degree of individualism might presume and foster a certain degree of social isolation, whether in actual geographic terms or in the density of social networks. Resources can be economic (for example, material wealth), social (for example, social networks or status hierarchies), symbolic (for example, legitimacy, and more importantly the capacity it confers to further define what is legitimate), or cultural (for example, ethnicities, religions) (Bourdieu 1990; Oakes et al. 1998). The importance of any or all of these different types of resources is intricately tied not only to how they support the prevailing institutional logic, but also to how they are defined by it. Therefore, resource availability constrains the survivability of an institutional logic, and at the same time, the very value of any particular resource is dependent upon its definition granted by the logic (Friedland and Alford, 1991; Sewell 1992). Likewise, the spread of a new logic also depends upon either existent or new forms of resources; social change will be difficult for any institutional entrepreneur who lacks a sufficient base of resources in an existing institutional logic, at least in the absence of any kind of crisis or other unintentional trigger for widespread deliberative cognition which would enable the possibility for the redefinition of resources toward those possessed by the would-be change agent. Corporate citizenship and the mitigation of corruption The foregoing analysis of corruption indicates two primary ways in which corporations – in citizen roles – can act to mitigate corruption. Economic, behavioral and institutional approaches to corruption all grant that corporations might work against corruption because they are compelled or encouraged to do so – for example, by law, by incentives or by legitimation pressures such as reputational concerns. This view is common; governments and international bodies (for example, the UN, the World Bank), NGOs (for example, TI) and influential actors (for example, George Soros), individually or in concert initiate formal or informal structures of influence that promote non-corrupt corporate behavior or enlist corporations in efforts to thwart corruption by others. A corporation’s anti-corruption role, in this private-actor view, is primarily reactive, as a dutiful citizen who obeys informal and formal societal expectations.
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But from a political-actor account of corporate citizenship, corporations have a role as anti-corruption institutional entrepreneurs that can address the institutional logic within which corruption is embedded. This in turn involves addressing patterns of identity, cognition and behavior, and the social, economic, cultural and symbolic resources that sustain those patterns. In Matten and Crane’s (2005) terminology, corporations might function as ‘enablers’, ‘providers’, or ‘channels’ of civil-society-enhancing, and corruption-disabling, practices in ways that go beyond putting their own internal organizational houses in order or simply following the schemas, rules and scripts of an anti-corrupt logic that is propagated by some other social actors (for example, government). But can corporations do this without raising questions of their overall fitness and legitimacy for the task? Corporate influence on institutional logics How can corporations influence an institutional logic so as to create or maintain the identities, schemas and roles that might either encourage or undermine practices of corruption? In considering this question, we should not simply be concerned with specifically corrupt or anti-corrupt elements of an institutional logic, but with any identities, schemas, roles and practices that might contribute to corruption in some way even if they themselves are not specifically framed in terms of corrupt identities and practices. Corporate actors, individually and collectively, have clear impacts – whether intended or unintended – on the institutional structure of any society or any other institutional field (see, for example, Fligstein 2001; Maguire et al. 2004). Corporations engage in political action by waging public campaigns on issues, having direct engagement with political decision makers, contributing to elected officials’ campaigns, lobbying for or against (and even writing) legislation, spinning the so-called ‘revolving door’ between corporate and government work and performing surrogate government roles. Their influence through economic action creates, destroys or transfers wealth within and among societies, provides goods and services to some or all, and has either productive (for example, suburban housing) or destructive (for example, suburban ‘sprawl’) consequences for some or all. Corporations also function as creators or arbiters of individual citizens’ identities. Their organizational structures embed persons in scripted repertoires of meaningful behavior and encourage persons to identify with particular social roles or statuses. But corporate influence on meaning and identity is not restricted to intra-organizational settings; in the effort to create market niches for consumption of corporations’ goods, services and social status markers (Rindova and Fombrun 1999), corporate discourse
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(through engagement with or ownership of a wide array of media) influences individuals’ tastes and preferences and encourages persons to identify with particular brands or other symbols, with particular social roles and statuses (for example, ‘elite class’ credit cards, or, more generally, the fashion industry and ‘lifestyle brands’), and even with the corporations themselves. For example, contemporary internalized expectations regarding the form and meaning of romance and love are integrally linked in both genesis and form to the way such ideas have been symbolized in 20thcentury advertising and other media (Illouz 1997), and to the commodities represented in those symbolic venues. Thus one cannot claim that corporations should not engage in actions to change institutional logics in corruption-disabling ways on the grounds that corporations do not have the capacity to do so; clearly they already exercise much capacity to influence institutional logics. It is beyond our scope to discover and discuss every means by which corporate activity might affect the cognitive order of institutional logics in ways that support or undermine corruption. But if corruption constitutes a kind of taken-for-granted, or at least accepted, way of life arising from the identities, schemas and roles of an institutional logic, we can at least offer general insights as to how corporate decision makers, policy makers and NGO leaders might think about the relationship between corporations and the cognitive, affective and behavioral order of an institutional logic. In keeping with our theoretical summary, above, we first examine the factors pointed to by our understanding of the cognitive and related orders embedded in institutional logics – identities, schemas, roles and rules – and then examine corporations as social actors with resources. Identities As noted earlier, identities underlie much behavior, and influence the nature of behavior as corrupt/non-corrupt and corruption enabling/disabling. In some cases this is because identity can be specifically moral in content (Aquino and Reed 2002; Weaver 2006). But even identities rooted in larger institutional logics – such as nationality, ethnicity, religion, family and the workplace (Friedland and Alford 1991) – which, in themselves, might be orthogonal to moral identity, nevertheless can contribute to circumstances that make corruption more or less likely. For example, ethnicity can contribute to a corruption-enabling logic because ethnic identities, and the social barriers they create, generate structural impediments to anti-corruption efforts (Misangyi et al. 2008). Thus advocates of corporate citizenship regarding corruption need to consider how corporations might influence a wide range of corruption-relevant identities. Along with the corporate influences on identity described earlier (for example, identification with a brand), we also can ask how corporations
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influence the compartmentalization of identities (Weaver and Agle 2002; Ashforth and Anand 2003; Weaver 2006), such that moral identity or other forms of identity conducive to good behavior are rendered less salient to individuals and thus less effective in guiding action. This occurs within organizations, as individuals ‘leave their ethics at the door’. But corporateinfluenced identity compartmentalization can occur outside the workplace, if a compartmentalizing, narrowly market-oriented message about how life is or should be constituted is proclaimed through a wide range of resources. For example, contextual influences present in the contemporary shopping mall or hypermart might effectively divorce materialistic ‘consumer’ identities from any other sense of self, so that shopping or consumption becomes an end in itself and moral identities are made less salient with respect to consumption activities. Identity work by corporations can have further impacts in so far as business or market axioms diffuse into other arenas of social life, becoming the standard by which (for example) political, educational, social or religious life are understood and conducted (as when career counselors advise potential job seekers to define their own personal ‘brand’). How, then, can corporations foster a more integrative approach to identity, helping (for example) moral identity and other corruption-disabling identities to compete in salience with social identities that might enable corruption? The content and salience of corruption-relevant identities can be influenced by (for example) corporate actions that change social networks so as to subject people to different social–cognitive influences, or by structuring a corporation’s engagement in everyday commercial life so as to present clear opportunities to exercise moral identity (for example, more elaborate labeling with respect to positive or negative externalities arising from the production of a purchased item). In addition, in so far as compartmentalized identities result from the social fragmentation and isolation often attributed to modernity (Taylor 1989; Giddens 1991; Twenge 2000), corporations also can foster anti-corruption institutionalized identities by attending to the impact of their own actions on social fragmentation. Also, if the development of features of a moral identity depends on involvement in a teleologically meaningful collective – as philosophers from Aristotle (Nicomachean Ethics) to MacIntyre (1981) have argued, along with some social scientists (for example, Hunter 2000) – corporations concerned about institutionalizing a moral identity can attend to the impact of their actions on the possibility of teleologically meaningful social collectives. In short, once we think about corruption in terms of institutional logics and their embedded identities, we open ourselves to a wide range of imaginative means by which corporations might use their proven ability to influence social behavior (Ewen 1988) to foster identities in a manner that will help to disestablish corrupt practices.
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Schemas and language Institutional logics incorporate cognitive schemas (including schemas of self-identity). But schematic cognition does not occur in a vacuum, as the content of schemas is learned – consciously or unconsciously – from an individual’s surrounding social context (DiMaggio 1997). Thus attention to the content of schematic frameworks is essential for understanding how corruption can be entrenched, in so far as schemas move phenomena (such as corruption) to the periphery or center of awareness. For example, social actors can minimize the significance of their own corrupt behavior through mechanisms of moral disengagement (Bandura 1999), which involve the mental reconstruction or reinterpretation of outcomes in ways that either minimize the actor’s role in the outcome or the (corrupt) nature of the outcome, or denigrate or ignore the status of any victims. Schematic cognition influences an individual’s ethical sensitivity, accounting for why some persons are, or are not, aware of the ethical challenges around them (Sparks and Hunt 1998). Particular collective schemas can enable or disable corruption. For example, a view of corruption as the natural, inevitable order of society can be entrenched in a collective schema, such that people believe they are helpless in the face of corruption. Alternatively, a shared cognitive framework can direct judgments regarding who or what is responsible for desirable or undesirable outcomes (Jost et al. 2004). In addition, shared cognitive frameworks can make it difficult to imagine alternatives to existing and corrupt social orders, which is why changes in institutional logics are more likely in conditions that foster deliberate rather than schematic cognition (Emirbayer and Mische 1998; Seo and Creed 2002). And closely related to schematic cognition is the matter of the language used to label social phenomena. Thus, in one schema, a particular kind of overt behavior (for example, hiring an underqualified sibling) might be identified as corrupt (that is, nepotism), while in another schema essentially the same overt behavior might be identified as ethically proper (that is, loyalty). Corporate actions can influence both the content and availability of identities and their attendant schemas, and the language used to articulate them. Even the identity of ‘corporate citizen’ and its associated schema is a case in point. If this identity (corporate citizen) gets articulated and schematically entrenched in a way that legitimates corporate anticorruption activity, it can contribute to a reduction in corruption as decision makers in corporations (and in the institutions that deal with them) begin to think in terms of a ‘political-actor’ corporate citizenship schema. This is not inevitable, however, as any such schema faces stiff competition from other reigning schemas of social and economic life (for example, a private-actor schema). Indeed, the growing prevalence of the corporate citizen identity in part stems from visible corporate use of the idea, which
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often constructs the identity as merely philanthropic activity (Matten and Crane 2005; Norman and Néron 2008a). To the extent that the schema underlying a minimalist definition of a corporate citizen identity narrowly involves rationally self-interested behavior, compartmentalization, and a ‘business is business’ mentality, a private-actor corporate citizenship schema runs the risk of becoming just another ‘window-dressing’ contributor to the problem of corruption. Such a schema most certainly conflicts with the corruption-disabling political-actor schema, preferred by many academics, policy makers and NGOs, because a political-actor schema suggests that effective corporate citizenship – understood as a sociopolitical identity driving corporate efforts to remedy corruption – should attend to the impact of corporate practices on the promulgation of cognitive schemas and the languages by which they are articulated. Multiple corporate practices are implicated in such an effort. In so far as language is essential to schematization and awareness with respect to corruption, it is essential for corporate actors to talk openly about corruption, thereby both legitimating such discussion in public and helping to make corruption awareness a part of the shared schemas in a society. So corporate activities with respect to communication media (for example, advertising) are relevant. But so is funded research (via universities, ‘think tanks’ and so on), which often follows, rather than leads, practitioner concerns (Barley et al. 1988). Corporations have substantial power to create or frame public perceptions and categories of understanding, and they can use this power to frame anti-corruption as a legitimate endeavor (for example, by aligning themselves with other, more-informed but perhaps less powerful anticorruption institutional entrepreneurs). Indeed, the institutionalization of any new logic depends upon framing processes that not only identify problems and offer solutions, but also delineate identities (of antagonists and protagonists) and define and motivate schemas, roles and behavior that constitute the new logic (Hunt et al. 1994; Misangyi et al. 2008). For example, AES, the American energy company, after purchasing the privatized electricity distribution system in Tblisi, Georgia, in effect took on the role of anti-corruption entrepreneur fighting entrenched corrupt interests in the Georgian energy ministry and key industry sectors, complete with AES executives engaging the Georgian public in awareness-building efforts by means of mass media and personal interaction (Henisz and Zelner 2006). In the process of doing this, AES spokespersons both framed the elimination of corruption as a legitimate goal and also helped to identify antagonists and protagonists in the struggle over entrenched corruption. Scripts, roles and rules Closely related to the issues of schematic cognition and identity is the role of corporations in fostering the behavioral scripts
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and role expectations embedded in institutional logics. Identities – understood cognitively – incorporate sets of role expectations and scripted behaviors. However, conflict can arise among different sets of role expectations, and persons sometimes choose among multiple available behavioral scripts in their responses to situations (Ashforth and Johnson 2001; Weaver and Agle 2002). Through their impact on organizational and societal cultures, corporations generate behavioral scripts and role expectations. This is particularly true in the light of the increasing extent to which individuals’ interactions are with large, relatively abstract and impersonal corporate systems (for example, a call-center on a different continent) rather than with entities of a more local scale (for example, a local service provider). In such situations, high visibility actors (including large corporations and their executives) take on increasing significance as models and arbiters of behavior by their capacity to define, propagate and embody behavioral scripts. Thus (for example) celebrity chief executives foster scripts for management behavior (for example, ‘lean and mean’); the design of products and commerce helps to structure people’s lives; corporate involvement in land-use planning processes ultimately influences social interaction, with implications for the kinds of role expectations that get developed out of such interaction (because land-use decisions can influence social network development). Regarding corruption specifically, the structure of work and careers is highly subject to influence by corporations, and thus corporations have the potential to build corruption-relevant elements into the scripts, role expectations and schemas that constitute popular senses of career and work (for example, so that reporting on corruption is seen as an in-role rather than extra-role behavior). In addition, corporations can carve out certain areas of social and economic life as guided by corruption-free scripts. Thus some Indian corporations – Infosys and the Tata group, for example – by an incessant refusal to cooperate in traditional forms of corruption, have in effect generated new company-specific scripts in the minds of public servants, such that officials ‘typically don’t even bother asking Tata executives for bribes’ (Wehrfritz and Moreau 2005, p. 36). Such actions create a zone of economic activity free of corruption-fostering scripts, and also legitimate corruption reduction as a viable option within an overall institutional logic. Corporations and their resources Resources are crucial for institutional change, and so successful anti-corruption entrepreneurs must possess or create the kinds of resources needed to bring about a change in institutional logic (Misangyi et al. 2008). With regard to conventional anti-corruption efforts, many of these resources are obvious: legal authority and enforcement power; the ability to compel business partners to sign legally enforceable
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contracts; influence in the media that can increase public awareness of corruption; human resources sufficient to disseminate knowledge of corruption and its impact; tangible or intangible support from other key social actors; and so on. But also important is the status and resource base of those who would maintain an existing, corruption-enabling logic. They, too, might be able to deploy multiple resources, and, in so far as the corruptionenabling logic is integrally linked to elements of identity that appear, on the surface, corruption neutral (for example, ethnicity, religion), they might have high levels of legitimacy in the eyes of most participants in the institutional logic. Recognition of the symbolic and substantive resources needed for institutional change regarding corruption points toward anti-corruption institutional entrepreneurship as an element of corporate citizenship. In some social settings, corporate actors might have more resources and legitimacy than any other potential anti-corruption institutional entrepreneurs. Indeed, corporations, whether individually or collectively, clearly have access to a great variety of economic, cultural, social and symbolic resources, so the possibility that they can act as institutional entrepreneurs is beyond question. Although their economic resources – especially in the case of transnational corporations (TNCs) – often are vast, enabling them to persist in long-term efforts at social change as long as their shareholders (in the case of public companies) would tolerate such, perhaps of more interest are their cultural, social and symbolic resources. Corporations have cultural resources, both internally and externally. As mentioned above, their own internal cultures might function well as laboratories for social innovation (for example, new scripts, roles and rules). The global reach of transnationals also gives them access to multiple cultures and those cultures’ varying approaches to problems and issues, which then can be adapted into corporate efforts to mitigate corruption. That is, TNCs can function as conduits for the diffusion of anti-corruption strategies; AES in Georgia and elsewhere, for example, modeled a relatively transparent and decentralized form of executive decision making (Paine and Leamon 2000; Devlin 2003). In addition, in highly corrupt and politically unstable environments, non-corrupt corporations might function as outposts of stability and order, providing a kind of sanctuary in which an alternative schematic framework of identity and practice can be developed, with the potential for gradual diffusion into the surrounding environment. Corporations also can have significant social resources, in so far as they are integrated into important and supportive local and global social networks. In some contexts, corporations also enjoy considerable symbolic resources, either because of brand identification on the part of the public or because of public identification with the corporation as a source of
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something valued (for example, products, employment or simply as a national symbol). Similarly, a respected position in an industry network can enable a corporation to encourage other corporations to reduce their respective involvement in corrupt practices. Corporate citizens and corruption: private action or institutional entrepreneurship? Corporations face multiple opportunities to use their often extensive resources to engage in institutional entrepreneurship against corruption. Because of this, the potential exists to move beyond a conventional privateactor corporate citizenship approach to corruption mitigation to a politicalactor one in which corporations work actively to undo the institutional logic of corruption. Conventional approaches, which rely on non-corporate institutional entrepreneurs to stimulate change (that is, national and international governmental bodies, NGOs, individuals) have their merits and limits. Government enforcement of non-corrupt practices, for example, sometimes works, but is limited in reach by national boundaries. In today’s global economy, the visible hand of conventional government policy might not be strong or large enough to be effective against endemic corruption, yet the invisible hand of market liberalization has an at best mixed track record with regard to corruption mitigation (and, more generally, the historic record of commerce’s influence on institutional logics is open to serious debate; see Hirschman’s (1982) discussion of the contest between ‘douxcommerce’ and the ‘self-destruction’ theses about capitalism). Yet anti-corruption initiatives by non-corporate institutional entrepreneurs such as NGOs and international agencies often get stuck in the diagnostic (that is, ‘corruption is bad’) or prognostic (that is, ‘here is what to do about it . . .’) framing of the issue, failing to generate genuine change because they fail to offer a motivational framework for other important actors (including corporations). For example, the UN Global Compact, in its 10th principle (which discusses ‘the fight against corruption’) takes a step toward framing the appropriate conditions for a non-corrupt institutional logic (thereby defining as non-corrupt the identity of legitimate corporations). But this is where it ends, leaving open questions as to how this anti-corrupt identity is to be enacted (that is, schemas, roles, practices), and leaving itself susceptible to merely symbolic (that is, window dressing), rather than substantive, corporate compliance with the principle. Moreover, the success potential for conventional efforts clearly depends on the resources available to governmental and NGO institutional entrepreneurs: the development of transnational corporations raises serious questions about the relative power of non-corporate actors with respect to enlisting corporations in successful anti-corruption efforts.
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So perhaps we need to set aside questions of democratic legitimacy and encourage corporations to adopt an expansive notion of corporate citizenship after all, one in which – as republican, civic-virtue-oriented social actors – corporations actively seek to influence institutional logics in ways that reduce corruption. But why would corporations do this? What would be their motivation? After all, corporate action regarding corruption presently is limited by the institutional logics governing the corporate world. And the logic of global capitalism and global markets might not always mesh well with whatever is required for corruption mitigation in a particular setting. In other words, if we take the identity/institutional logic perspective on corruption seriously, there are things that corporations could, in theory, do to help create anti-corruption institutional logics, but whether they ever would do such under the varied constraints and expectations of the present institutional logic of global business is an open question. (For example, financial pressures ultimately were sufficient to motivate the investors in AES to reign in a management team given to talking first about intra- and extra-organizational social goals and change, and only secondarily about profit making.) And in the light of such constraints, whether corporations should engage in institutional entrepreneurship regarding corruption is an open and important question. Thus, for example, it is fair to ask whether an institutional entrepreneur that itself might be rooted in the logic of individualist consumer materialism (for example, a global brand company) is necessarily the appropriate entity for enacting changes in an institutional logic in order to reduce corruption, in so far as corruption also arises from a self-interested framework. After all, typical conceptualizations of corruption define it in terms of private gains. Thus, would a social actor rooted in the market logic of private gain (that is, a corporation) be able to challenge clearly the identities and underlying schemas of such an institutional logic, were they in need of challenge with respect to corruption? Or would institutional entrepreneurship in such a situation end up involving not the mitigation of corruption as currently understood, but instead attempts to change the present identities and schemas so that participants slowly learn to ignore or forget corruption, or view it as a positive good, through processes of schema change and redefinition? Are there ways, in effect, in which corporate anticorruption efforts can end up not merely as decoupled window dressing (Weaver et al. 1999b), but rather as something more akin to a ‘through the looking glass’ or quasi-Orwellian institutional logic that leaves the beneficiaries of corruption in place while yet providing the appearance of corruption mitigation? This, then, is a paradox of a political-actor view of corporate citizenship with respect to corruption: much as we might want corporations to act to alter an institutional logic of corruption, their
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embeddedness in an existing logic likely will influence any institutional entrepreneurship they exercise. So how, then, does real change become possible? Of course, corporations might engage in institutional entrepreneurship against corruption if they were spurred into action by other social actors. But the obvious candidates for that influential role – government, NGOs and the occasional George Soros – have unclear power and influence regarding TNCs (which, as noted earlier, is why the conventional privateactor approach to corruption is not enough), and it is that lack of clarity that, in part, gives credence to the case for an expansive notion of corporate citizenship vis-à-vis corruption. The alternative is to attend to the role of key corporate decision makers in guiding their organizations into a newly conceived, sociopolitical notion of corporate citizenship. There is precedent for this. Research on efforts and programs to foster ethics intraorganizationally in the corporate world highlight the key role played by top management’s commitment to that specific task as valuable in itself (and not merely for any instrumental benefits; Weaver and Treviño 1999; Weaver et al. 1999a, 1999b), and to ethical leadership generally (Brown and Treviño 2006). Also, both theory (Barley and Tolbert 1997; Emirbayer and Mische 1998; Seo and Creed 2002) and the experience of some corporations suggests that corporate crises or incoherence surrounding ethics and corruption can give rise to deliberative cognition, leading to radically changed top management attitudes regarding a corporation’s role as institutional entrepreneur about corruption, ethics or other issues (just as societal crises can give rise to societal-wide reconsideration of an institutional logic and encourage institutional entrepreneurs to take advantage of opportunities to reshape conventional logics). For example, Royal Dutch Shell embarked on a number of significant initiatives with respect to sustainability and stakeholder performance in part because of top management commitment to those issues, which in turn was stimulated by several high-profile failures to deal well with sustainability and stakeholder issues (Macalister 2003). Hopefully most major TNCs will not go through crises of corruption of the sort that stimulate institutional entrepreneurship regarding corruption; there must be more benign ways to stimulate new forms of management cognition. So for policy makers and NGOs there is a lesson in this: corporate institutional entrepreneurship regarding corruption might best be achieved by leveraging forms of influence over individual executives who in turn can work to redirect their companies (and their companies’ constituents) toward significant and meaningful anti-corruption institutional entrepreneurship. As cognition and identity have strongly social elements and strongly drive any kind of concern for ethical matters such as corruption (Weaver 2006), it is important to attend to the social network positions
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of key corporate decision makers, and to give policy makers and others concerned with corruption some degree of entry into those networks. Moreover, the adoption of an anti-corruption institutional entrepreneurship role by some corporations serves to put a competing institutional logic in play in society, making it at least slightly more likely that other actors will recognize and adopt that new logic (Friedland and Alford 1991). Innovations spread when influential or institutionally skilled organizations adopt them; thus if policy makers and NGOs want to spur corporate anticorruption institutional entrepreneurship, they might target key decision makers within potentially influential corporations. Conclusion Our purpose in this chapter has been to examine the potential of corporations to exercise a citizenship role as institutional entrepreneurs in the mitigation of corruption. Corporations are increasingly being called to take on such tasks, and whether we like it or not, in some cases they may be the only social actors in the position to do so. For the most part, ‘corporate citizens’ are well equipped to take part in institutional entrepreneurial activities aimed at mitigating corruption: they have the resources and ‘social skills’ (Fligstein 1997, p. 398) required for fostering the identities and institutional logics that might encourage good behavior and undermine institutional logics that support corruption. We have attempted to shed light upon some of the ways that they can bring this capacity into action. But we have not done so with blinders on, as it always is fair to question the legitimacy of a ‘corporate citizen’ in taking on a role such as this. This is not just an abstract matter of cognitive or moral legitimacy (Suchman 1995), but a very practical question as well (Scherer et al. 2006): can individual citizens expect corporate citizens to exercise their skills, power and discretion as institutional entrepreneurs in a manner that will benefit the civic order? And should individual citizens entrust such a task to corporations, and submit to it? However, unless the power and influence of conventional political institutions parallels that of TNCs (that is, both strong or both weak), so as to compel appropriate and relevant corporate action against corruption, reliance on corporations as sociopolitical actors regarding corruption might be not only possible but inevitable – provided that corporations and their decision makers are willing to take on the task. Notes 1. Both authors contributed equally to this chapter. 2. In general, we use the term ‘social actor’ to cover individuals, individuals acting as agents of other social actors or collective actors such as corporations. However, our primary focus here is on corporations as social actors in their larger economic and social contexts, and therefore, although we typically refer just to corporations, we do so without denying
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decision-making behavioral roles for the persons who individually or collectively act on behalf of a corporation.
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10 Corporate citizenship and global conflicts: the baboon moment Charles P. Koerber and Timothy L. Fort
Introduction In a 2006 Foreign Affairs article, anthropologist Robert Sapolsky related the story of the Forest Troop. The Forest Troop was a community of baboons living on the edge of a tourist camp. The Troop feasted on the leftover food of campers. In particular, the alpha males splurged, gorging themselves on food and competing fiercely for it. The Forest Troop was violent and competitive; it was not noted for sharing. Then tuberculosis swept through the camp, killing the alpha males. The Forest Troop survivors were the females and the less aggressive males. With the alpha males gone, the ‘culture’ of the baboons changed. Rather than being competitive and violent, the group became less violent and far more sharing. This would not be too surprising, but what followed was. Baboon males circulate. They go from troop to troop, one might say, so that there is a regular, new influx of new males into the group. Those new males were also aggressive alpha males and so one would expect that when they arrived on the scene, the Forest Troop would return to its violent ways. It didn’t. Instead, the alpha males changed their behavior so that they too joined in the sharing and nurturing of the troop. In short, through successive generations, the entire culture of the Forest Troop changed. Sapolsky compares this event to modern nation-states. He argues that countries have changed too. Countries once violent have made conscious decisions to eschew violence and develop new cultures. Germany and Japan are very different compared to 70 years ago. Switzerland and Sweden are different compared to a few centuries ago. What were once violent countries have become far more peaceful. Just how baboons and how countries make this change may well be the topic of several volumes. We introduce our chapter with Sapolsky’s story not because we want to make a definitive argument as to how such change occurs, but to suggest, impressionistically, that there is a provocative comparison. One can pose the learning of these examples to corporations too. Corporations may be thought of as competitive and having little regard to social conditions. That includes peace. Thinking of the contributions that 208
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businesses can make to peace has not been part of their corporate culture. Yet, if baboons can change, why can’t corporations? The rise of peace through commerce and corporate citizenship In recent decades multinational corporations (MNCs) have emerged as significant actors in world affairs with the power to influence and impact on global economic, social and environmental systems (Korten 1995; Bakan 2004; Chua 2004). Some MNCs are larger than the small countries in which they operate. For example, ExxonMobil’s 2006 revenue of over $377 billion is estimated to be larger than the gross domestic product of all but 25 nations (Mufson 2007). In discussing businesses’ relatively recent focus on corporate social responsibility, Andriof and McIntosh (2001, p. 17) argue that consumers and employees now ‘acknowledge the corporation as the most powerful social construct in the present era’. Along with a shift in power from governments to corporations over time, many of the services, protections and institutions once provided by governments or social service groups (for example, training workers, maintaining environmental standards, providing healthcare to workers) have been transitioned to MNCs (Matten and Crane 2005; Waddock 2005; Palazzo and Scherer 2006). A recent New York Times article highlights the recent dramatic increase in the US government’s use of contract workers (many of whom are employed by large corporations) and the increased scope of contracted activities which now include activities traditionally done by governments such as tax collection, intelligence analysis and disaster relief (Shane and Nixon 2007). Total US government contracting expenditures were approximately $400 billion in 2006 compared to approximately $207 billion in 2000 (ibid.). Globalization is a significant factor in the changing relationship between business, individuals and social groups and in the rise of MNCs. Barriers to trade and communication are diminishing at an astonishing rate and individuals, societies, cultures, corporations and non-governmental organizations (NGOs) are interconnected now more than ever. Labor, technology, products and ideas flow with relative ease from country to country (Friedman 2005). However, not everyone has embraced globalization and the associated intended and unintended consequences. The protests accompanying the World Trade Organization meetings in Seattle in 1999 highlighted the concerns many diverse groups have with the apparent effects of globalization and trends in international commerce. For example, an oftencited concern is that developed nations are benefiting disproportionately from the globalization of commerce and that rules promulgated by the World Trade Organization lead to the economic and environmental exploitation of developing countries. As the power of corporations grows,
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there are concerns that current nation-based institutions and structures are incapable of providing needed oversight. As Scherer et al. (2006) note, we are moving to a postnational world where MNCs are operating in some respects outside the scope of state-based regulatory systems. Selfregulation and self-restraint by MNCs is needed now more than ever. Because of the lack of international governance mechanisms for MNCs, many are creating their own global codes of conduct or are subscribing to international governance programs developed by various NGOs. Through this and other roles, NGOs and formal intergovernmental institutions (for example, the United Nations) now play an important part in global corporate governance. The notions of peace through commerce and corporate citizenship are relatively new concepts which are distinct but related. They both try to address the changing world in which we live – the various and complex shifts in global commerce and societal interaction including the decrease in power of nation-states and the increase in power of MNCs. These concepts, as used in the business literature, are a reflection of the struggles that practitioners and academics are having with the changing relationships and interactions between businesses, communities, governments and NGOs. These are not the only attempts by academics and the business community to deal with our changing world but they are both promising conceptions that deserve further thought and research. After a brief introduction to corporate citizenship and to peace through commerce, we shall consider some of the possible contributions (and potential limitations) of corporate citizenship to peace through commerce and will explore possible areas for future research into the relationship between these two concepts. Corporate citizenship ‘Corporate citizenship’ is a relatively new term with roots in work done primarily by European scholars and by business practitioners (Waddock 2004b). A large number of MNCs and other businesses around the world (for example, Ford, Nike and ExxonMobil) have embraced the language of corporate citizenship in their communications with stockholders, the media and other stakeholders (Glazebrook 2001; Matten and Crane 2005). In the academic business literature there are very different meanings and uses of the term. Some scholars use it as a synonym for ‘corporate social responsibility’ while others try to embrace its political lineage (Waddock 2004a; Matten and Crane 2005; Windsor 2006). Although invoked by many scholars, the analogy of corporate citizenship to individual citizenship is complex and imperfect (Windsor 2001). In tracing the development of the term, Waddock (2004b) sees corporate citizenship as emerging from previous work in corporate social responsibility and corporate social
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performance and ultimately as integrating these research streams with stakeholder theory research. Andriof and McIntosh (2001, p. 14) believe that the concept of corporate citizenship is closely related to the idea of sustainability, and suggest that the term is synonymous with what they call ‘corporate societal responsibility’. Windsor (2001) suggests that the essence of corporate citizenship is that corporations should (and often do) act in the way that virtuous citizens and good neighbors act. Other scholars have tried to modify and adapt corporate citizenship to adjust for perceived weaknesses in existing conceptualizations. For example, Wood and Logsdon (2001, p. 83) extract key aspects of individual citizenship and apply them to corporations as part of the development of what they call ‘business citizenship’ (later developed into ‘global business citizenship’) (Wood and Logsdon 2002). A number of researchers, primarily in Europe, are drawing corporate citizenship away from notions of corporate social responsibility popular in the US and toward the concept’s roots in political theory (Matten and Crane 2005; Moon et al. 2005; Scherer et al. 2006). Moon et al. are critical of previous definitions of corporate citizenship that largely equate the term with corporate social responsibility and instead propose a shift in focus to the political notion of citizenship. Matten and Crane (2005, p. 173) suggest that corporate citizenship ‘describes the role of the corporation in administering citizenship rights for individuals’. This definition rejects the view of the corporation being or acting like a citizen and instead focuses (in a descriptive manner) on the way in which corporations have taken over the functions of government in protecting various social, civil and political rights (Matten and Crane 2005). This conception of corporate citizenship becomes much more interesting and important when combined with the idea that we are currently living in a postnational world where MNCs are growing in size and power and where international governance mechanisms are lacking (Scherer et al. 2006). Although the various meanings and conceptualizations of corporate citizenship are different, they share a general sense that corporations play a significant role in society and that there are certain responsibilities associated with that role. As discussed in more detail in the next sections, the notion of peace through commerce suggests that the way corporations see their role in society and the way they act toward and collaborate with their various stakeholders might contribute to the reduction of violence in the world (Fort 2007). Peace through commerce In 2001 a conference titled Corporate Governance and Sustainable Peace was held at the University of Michigan’s William Davidson Institute. At the
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time it might have seemed like a strange topic for an interdisciplinary conference. At that point the events of September 11th had yet to change the way many of us think about terrorism, violence and globalization. Over the last six years, a number of scholars in diverse disciplines such as law, finance and business have been advancing the notion that business can play a meaningful role in fostering peace. The term ‘peace’ has various meanings and uses. Perhaps most fundamentally, peace can be defined as the absence of violence. ‘Sustainable peace’ refers to an absence of violence coupled with an ongoing sense of stability (Dunfee and Fort 2003). More expansive notions of the term, especially ‘sustainable’ peace, are associated with the protection of basic and civic rights, participatory government, equality and justice (for example, Peck 1998). In order to narrow our arguments we primarily refer to the notion of peace in its most basic form – the absence of violence. Our focus on this fundamental meaning does not suggest in any way that businesses do not have the potential to play a positive role in the creation of just, equitable and participatory societies. Since that first peace through commerce conference at the University of Michigan there have been a number of other conferences (for example, follow-up conferences at the William Davidson Institute at the University of Michigan, a 2006 conference at George Washington University’s Institute for Corporate Responsibility Program on Peace Through Commerce and a 2006 conference at the University of Notre Dame held in conjunction with the United Nations), journal special issues (for example, of the Vanderbilt Journal of Transnational Law, the America Business Law Journal and the Journal of Corporate Citizenship) and books (Fort and Schipani 2004; Fort 2007). Recently the Association to Advance Collegiate Schools of Business created a Peace Through Commerce Task Force and issued a report titled A World of Good: Business, Business Schools, and Peace illustrating how schools of business could contribute to furthering the idea of peace through commerce (AACSB International 2006). It may seem strange that so much activity would surround business and peace. Throughout history business has often been associated with violence – not peace. The history of commerce is often tied with colonialism and mercantilism where businesses were used as tools of government and engaged in violent conflict to advance their interests and the interests of their nation-states. For example, the British South Africa Company used less than peaceful means to advance its commercial interests and the interests of its chartering country (Great Britain) in Africa. Cecil Rhodes, who founded the British South Africa Company, used the firm’s paramilitary forces to take over diamond mines in Africa as it extended its territorial and economic reach over much of the southern portion of the continent
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(Thomas 1996). Businesses have also engaged in militaristic and violent behavior apart from their role in advancing state interests. For example, Cornelius Vanderbilt amassed a tremendous empire in the United States in the mid-19th century in part by organizing a company militia to handle competitors. More recently, in the mid-1990s a number of large oil companies (for example, Texaco, Amoco) and consumer products companies (for example, Pepsi) were criticized for their involvement in Burma – now know as Myanmar. Critics allege that firms making investments and doing business in Burma during this time were supporting the brutal and illegitimate military government that took control of the country and engaged in severe human rights abuses (Billenness 1993). Today, perhaps even more so than in past conflicts, the corporate defense establishment profits from the outsourcing of ‘military’ responsibilities and the almost seamless integration of commercial and military operations and interests. However, throughout history, philosophers and economists (for example, Immanuel Kant, Charles Montesquieu and Friedrich Hayek) have suggested that within limits, a benefit to increased trade would be reduced violence (Nichols 1999; Fort and Schipani 2004). Despite a long association with violence, there are examples of business contributing to peace. As Mohammad Yunus noted in his speech accepting the Nobel Peace Prize for his work with the Grameen Bank, the reduction of poverty through economic development and commerce are key to sustainable peace (Yunus 2006). In 2006, General Motors (GM) received the US Department of State’s Award for Corporate Excellence for its work in Columbia. The award was established by the US State Department to recognize US businesses serving as good corporate citizens around the world. The company’s Columbian subsidiary GM Colmotores, in conjunction with the nonprofit organization Juan Bosco Obrero, works to train, employ and reintegrate former members of paramilitary groups. In presenting the award, Secretary of State Condoleezza Rice noted that GM’s efforts ‘will have a lasting positive effect on the ongoing peace process within Colombia’ (Rice 2006). Beyond multinationals there are examples of businesses working at the local level to further the goal of sustainable peace. In Sri Lanka in 2001, prominent members of the Colombo (the commercial capital of the country) business community created Sri Lanka First, an alliance to create public, business and government support for peace (International Alert 2006). One of the goals of Sri Lanka First is to promote inclusiveness in the peace process. In the wake of a bombing at Colombo’s international airport, the group organized a public demonstration and launched a media campaign calling for peace and for businesses to do what they can to foster peace. The group stresses the economic and social benefits of peace to
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Sri Lanka – a country stuck in an ongoing struggle between government forces and the Tamil separatist movement. In the Democratic Republic of Congo, local entrepreneurs in the area once known as Kivu helped foster the peace process following years of violent conflict after the fall of the Mobutu Sese Seko regime in 1997 (ibid.). Local business leaders used their influence (at times in support of a UN mission in the country) to improve political, economic and social stability. These entrepreneurs invested a portion of their profits in local projects designed to stabilize the community and made a conscious effort to hire former combatants to work in their businesses. The essence of peace through commerce is the notion that ethical business behavior may ultimately reduce violence (Fort and Schipani 2004). By engaging with stakeholders (for example, local communities, NGOs and governments), avoiding corruption and operating in a transparent manner, business can contribute to and foster the development of the institutions through which societies maintain peace. There may in fact be an unexpected payoff for business acting ethically. Business may have a role in creating peace and may benefit from the stability associated with sustainable peace (Fort 2007, p. 23). The societal institutions and norms often associated with peace (for example, a functional judicial system and respect for the rule of law, respect for rights and so on) are often consistent with those that businesses often depend on (for example, property rights). Fort and Schipani (2004) have identified a number of specific ways in which business can potentially contribute to sustainable peace. First, business can foster economic development. A strong link has been shown between underdevelopment and violence (Post-Conflict Unit of the World Bank 1999). One reason for this is because the competition for scarce resources among those without any can become desperate, leading to violence. A second reason is because poverty is, almost by definition, associated with unemployment or underemployment, making those without productive work susceptible to the overtures of those wanting to use their energies for violence. In addition, the World Bank has shown correlations between civil war and commodity export. When the main export product of a country is a commodity, the country is prone to civil war. Although businesses might contribute to peace by providing resources and employment opportunities, it is important to note that not all economic activity is equally helpful in creating sustainable peace. It is not difficult to imagine the negative impacts that corrupt and unethical business activities could have in socially and politically unstable environments. We argue that ethical business practices that respect stakeholders, engage local communities and support economic development can further the conditions necessary for sustainable peace.
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Second, business can exercise track two diplomacy. Businesses frequently serve as unofficial ambassadors for a country and have the potential to serve as efficient information conduits for sensitive negotiations between countries. To the extent that these roles serve to de-escalate tensions and speed the flow of information, they are potentially helpful in avoiding violent conflict. Through involvement in multistakeholder dialogues, businesses have the potential to supplement and foster official negotiations and peace processes and can help provide the flexibility and creativity needed to avoid or end conflict (Oetzel et al. 2007, p. 334). In a direct sense businesses can serve as conduits for information and even become involved to some degree in the dialogue between countries (Fort and Schipani 2004). An often-cited example is Thomas Friedman’s description of the role of business executives in helping relieve nuclear tensions between India and Pakistan (Friedman 2002). Indeed, the Global Compact of the United Nations has focused considerable time on developing standards of practice for corporations operating in zones of conflict. Those standards feature multistakeholder dialogues as well as emphasizing the importance of transparency in operations. Although a business, if not careful, could make a conflict worse if it wanders into a conflict whose intricacies they know little about. Third, businesses can adopt external evaluation principles and support the rule of law. For example, US Steel received the Secretary of State’s 2003 Award for Corporate Excellence in part for implementing a widely publicized and transparent organizational and personal ethics program in one of its Eastern European operations. US Steel implemented the program for employees and suppliers in 2000 when they purchased a state-owned steel plant in Slovakia (Weiser 2003). By obeying the law and operating in a transparent manner, businesses buttress the economic and social institutions needed for the maintenance of peace. Corruption, for instance, is associated with violence. From the opposite perspective, rule of law, transparency and protection of property and contract rights are associated with stability and peace. To the extent that companies can encourage the development of social and political institutions that regularize these practices and to the extent that companies can practice them on their own, they can help to create a societal tradition that leads away from attributes of violence. Fourth, businesses can nourish a sense of community inside their organizations as well as in the areas where they operate. This has both external and internal dimensions. Externally, corporations can be, as we suggest in this chapter, good corporate citizens, respectful of local communities, their traditions and their ecology. In addition, businesses can create themselves as communities which authentically respect the voice and the rights of their employees. Corporations and the communities they create can serve as
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mediating institutions which promote peaceful means of conflict resolution and can supply a sense of security and identity for community members (Fort and Schipani 2004, p. 127). In an attempt to respond to increasing violence in the communities in which it operates, Interconexion Electrica S.A. (ISA), a large electricity transmission company in Colombia, invested heavily in creating what they term ‘Peace and Development Programmes’ (International Alert 2006). These programs, focused on the underlying drivers of violence, were specifically designed to engage the local community, strengthen local institutions, provide educational opportunities and meet other local needs. ISA also formed relationships and alliance with business stakeholders and local influential religious organizations to help ensure the success of their programs in reducing violence in Columbia. In essence, economic development, the protection of human rights, transparency and development of true communities are crucial for sustaining peace. The focus of the activities listed above is the creation of the conditions, background institutions, stakeholder relationships and practices (for example, through spillover effects) that can prevent violence in the long term. There is probably very little that MNCs can do to stop open hostilities (besides perhaps helping with humanitarian relief) once the violence has commenced, although they may be able to mitigate its impact in the immediate aftermath of a spasm of violence. As MNCs struggle with globalization and changing expectations with respect to their activities (especially in developing countries), perhaps the notion of sustainable peace could help unite executives, managers and employees as a superordinate goal. Fort (2007) suggests that perhaps sustainable peace could become an overriding goal or telos for individual businesses and the business community as a whole. Corporate citizenship and peace At first glance, corporate citizenship and the notion of peace through commerce might seem to be only tangentially related. In some respects both are attempts to deal with the decline in the power of governments in a globalized postnational world, the rise in the power of MNCs and increasing demands by the citizens of the world for the protection of basic and nonbasic individual rights and adequate background institutions. However, corporate citizenship, with roots in political philosophy, seems to be focused on the issues facing the larger institutions of liberal democracies (for example, what is the meaning of participation when considering citizenship in a corporate context) whereas work in peace through commerce to date has focused on how corporate behavior might translate directly into fostering a reduction in violence. In addition, some of the most recent work on corporate citizenship (for example, Matten and Crane 2005) has been
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largely descriptive in nature, whereas much of the work in peace through commerce has been descriptive (for example, exploring the relationship between business behavior and peace) and normative – how corporations should act to create sustainable peace. Much of the normative grounding for the idea of peace through commerce has been aspirational in nature. For example, Dunfee and Fort (2003) have suggested that if the empirical relationship between ethical business behavior and peace can be sufficiently established, peace through commerce would serve as a worthy goal for businesses to pursue. This aspirational focus, as compared to a managerial duty or moral obligation to pursue peace through their activities, could serve as an appropriate and motivational goal for managers and employees to pursue ethical business behavior (ibid.; Fort and Schipani 2007). When examined in more detail, there is the possibility for corporate citizenship and peace through commerce to be reinforcing concepts. The types of activities suggested by advocates of corporate citizenship (and many descriptive observations of corporate citizenship behavior such as the protection of citizenship rights) seem consistent with those advanced by proponents of peace through commerce. Some conceptions of corporate citizenship might encourage managers to examine the role of their corporations in society and consider making more ethical choices. A transnational corporation operating in a developing nation lacking in needed background institutions might, through its corporate citizen role, protect the rights of local citizens (for example, the right to healthcare) by operating a local health clinic. Such activity is likely to nourish a sense of community and ultimately might lead to less violence in the society. The business entrepreneurs in the Democratic Republic of Congo helped create stability and economic development through targeted investments in community projects. GM Colmotores, noted as a good corporate citizen by the US State Department, helped promote peace and foster a local sense of community by training and employing former members of paramilitary groups in Columbia. At this juncture, there is no definitive model for how this will occur. The most comprehensive model has been offered by Fort and Schipani (2004), but they specifically caution that their argument is a ‘prima facie’ case. That is, the contributions they identify are plausible, but they do not claim that they are definitive. Instead, Fort and Schipani specifically invite empirical scholars to test their proposals in order to refine and improve them. At this point in time, those studies are just beginning and so the most that can be said is that the Fort/Schipani model stands as the most complete extant framework, yet the proponents themselves collaboratively invite improvement.
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Peace and stability are crucial to the effective and efficient operation of human societies and markets for goods and services. Businesses need stability in order to prosper (ibid., p. 20). The group of Sri Lankan business leaders that created Sri Lanka First recognized this and used their collective resources to bring citizens and businesses together, to foster a sense of community and to promote the notion of a peace dividend. In sum, as Bennett (2002, p. 714) notes, ‘the case for business to join local and international NGOs and governments in conflict prevention is simple and compelling. Most of these business sectors have a vested interest in stability and peace’. Will the connection between business and stability be enough to motivate a manager to make the suggested contributions to sustainable peace? The answer is likely to be mixed and be so because of a myriad of psychological and societal variables. Some managers may find the connection so compelling as to transform their company. The reasons for that attitude may range from the arguments connecting with religious belief to a personal experience to something entirely different. On the other hand, other managers may simply eschew any responsibility for engagement. Given the embryonic nature of peace through commerce research, what we can say is that the connection may give rise to some consideration by managers as to what they might do to contribute to sustainable peace. However, it would take a major social–psychological study to pinpoint the determinative variables that would move individuals positively or negatively. This is a scholarly project we heartily recommend for future work, but is far beyond the scope of this particular chapter. To the extent that corporate citizenship leads to more ethical behavior by businesses, it has the potential to have a positive impact on the creation of sustainable peace. However, there are certainly limits to the impact that corporate citizenship could have on reducing violence. The origins of violent conflict are often deep-seated and difficult for those outside the conflict to understand. It would be unrealistic to think that by incorporating certain behaviors (for example, treating employees well, operating in a transparent manner) businesses would be able to single-handedly bring about world peace. There is also the potential risk that the language of corporate citizenship and peace through commerce (which are currently far from being dominant global management paradigms) could be co-opted by business interests satisfied with the status quo and indifferent to the changing roles, responsibilities and opportunities for business. Wood and Logsdon (2002) worry that more robust notions of business responsibility (for example, corporate social responsibility which considers issues at the societal level) might be replaced by a more narrowly focused and voluntary version of corporate citizenship. Despite the limitations there is likely a role
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for business in creating the conditions of sustainable peace. MNCs have an important opportunity as powerful actors in the global economy (and in a majority of the world’s societies) to contribute to creating the necessary conditions for peace. The future of corporate citizenship and peace through commerce As noted above, corporate citizenship and peace through commerce are relatively new concepts. As such, much more research is needed to advance both ideas individually and collectively. Normative work is needed to advance and clarify exactly what corporations should be doing with respect to corporate citizenship and peace through commerce. Should corporations be engaged in providing various rights? Should corporations actively pursue the goal of creating lasting peace through their processes, procedures and decisions? Empirical research is needed to determine how corporations conceive of corporation citizenship and peace through commerce, as well as if and how corporations are engaging in corporate citizenship and peace through commerce behaviors. Work to date has laid the groundwork for empirical research through anecdotal evidence and preliminary correlational studies. For example, although not directly related to corporate citizenship or peace through commerce per se, a recent study on the relationship between political corruption and aspects of foreign direct investment (FDI) indicates the potential for research in these areas. Using data for over 100 countries over 30 years, Kwok and Tadesse (2006, p. 781) explored how MNCs ‘may shape the institutional environment of corruption over time’. After examining corruption levels and FDIs over time they conclude that ‘there is a causal effect flowing from FDI to corruption’ and suggest that over time FDI could lead to a reduction in corruption within a given country. This study when combined with research showing a correlation between corruption and violence (Fort and Schipani 2004) offers a potential example of how corporate behaviors (that is, FDI and the activities associated with it) might lead to a reduction in violence. So far no causal link has been established between business behavior and the avoidance of violence. Based on anecdotal evidence there is perhaps enough evidence to support a prima facie case that business can have a role in fostering peace. However, the existing evidence and historical record are far from conclusive for the idea that businesses significantly improve the chances for sustainable peace. Research is needed to established a causal link and explore correlations between business activities and peace. Are corporate behaviors actually contributing to a reduction in violence in the world? If so, how are they contributing? Avenues for future research include the specific practices described above through which business can
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contribute to sustainable peace. For example, more research is needed to determine how effective the adoption of external evaluation principles by corporations is in creating the conditions for peace. There is also little existing research on the role of business in two-track diplomacy. More detailed case studies are needed to expand our limited collection of anecdotal examples of business playing a role in brokering peace (for example, the oftencited involvement of high-tech businesses in defusing tensions between India and Pakistan) (Friedman 2002). In addition, there is a large body of work on corporate culture and community but very little research linking specific aspects of organization community to the larger goal of peace. Corporate citizenship and peace through commerce are promising areas of scholarship that could have profound and beneficial impacts for everyone living on the planet – especially those in areas prone to violent conflict. Individually and collectively they offer hope that MNCs can help address the economic, social and environmental challenges we all face. References AACSB International (2006), A World of Good: Business, Business Schools, and Peace, Tampa, FL: AACSB International. Andriof, J. and M. McIntosh (2001), ‘Introduction’, in J. Andriof and M. McIntosh (eds), Perspectives on Corporate Citizenship, Sheffield: Greenleaf, pp. 13–24. Bakan, J. (2004), The Corporation, New York: Free Press. Bennett, J. (2002), ‘Public private partnerships: the role of the private sector in preventing funding conflict’, Vanderbilt Journal of Transnational Law, 35, 711–17. Billenness, S. (1993), ‘Beyond South Africa: new frontiers in corporate responsibility’, Business and Society Review, 86, 28–30. Chua, A. (2004), World on Fire, New York: Anchor Books. Dunfee, T.W. and T.L. Fort (2003), ‘Corporate hypergoals, sustainable peace, and the adapted firm’, Vanderbilt Journal of Transnational Law, 36, 563–617. Fort, T.L. (2007), Business, Integrity, and Peace: Beyond Geopolitical and Disciplinary Boundaries, Cambridge: Cambridge University Press. Fort, T.L. and C.A. Schipani (2004), The Role of Business in Fostering Peaceful Societies, Cambridge: Cambridge University Press. Fort, T.L. and C.A. Schipani (2007), ‘An action plan for the role of business in fostering peace’, American Business Law Journal, 44 (2), 359–77. Friedman, T.L. (2002), ‘India, Pakistan and G.E.’, The New York Times, 11 April, 4.13. Friedman, T.L. (2005), The World is Flat, New York: Farrar, Straus & Giroux. Glazebrook, M. (2001), ‘How Australia’s Top 500 companies are becoming corporate citizens’, in J. Andriof and M. McIntosh (eds), Perspectives of Corporate Citizenship, Sheffield: Greenleaf, pp. 152–65. International Alert (2006), ‘Local business, local peace: the peacebuilding potential of the domestic private sector’, www.internationalalert.org/our_work/themes/LBLP.php# download, accessed 18 February 2007. Korten, D.C. (1995), When Corporations Rule the World, West Hartford, CT: Kumarian Press. Kwok, C. and S. Tadesse (2006), ‘The MNC as an agent of change for host-country institutions: FDI and corruption’, Journal of International Business Studies, 37, 767–85. Matten, D. and A. Crane (2005), ‘Corporate citizenship: toward an extended theoretical conceptualization’, Academy of Management Review, 30 (1), 166–79. Moon, J., A. Crane and D. Matten (2005), ‘Can corporations be citizens?’, Business Ethics Quarterly, 15 (3), 429–53.
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Mufson, S. (2007), ‘Higher oil prices help Exxon again set record profit’, Washington Post, 2 February, D01. Nichols, P.M. (1999), ‘Regulating transnational bribery in times of globalization and fragmentation’, Yale Journal of International Law, 24 (1), 257–303. Oetzel, J., K.A. Getz and S. Ladek (2007), ‘The Role of multinational enterprises in responding to violent conflict: a conceptual model and framework for research’, American Business Law Journal, 44 (2), 331–58. Palazzo, G. and A.G. Scherer (2006), ‘Corporate legitimacy as deliberation: a communicative framework’, Journal of Business Ethics, 66, 71–88. Peck, C. (1998), Sustainable Peace: The Role of the UN and Regional Organizations in Preventing Conflict, New York: Rowman & Littlefield. Post-Conflict Unit of the World Bank (1999), Security, Poverty Reduction and Sustainable Development: Challenges for the New Millennium, Washington, DC, September. Rice, C. (2006), ‘Remarks at the 2006 Award for Corporate Excellence Ceremony’, www.state.gov/secretary/rm/2006/75589.htm, accessed 16 February 2007. Sapolsky, R.M. (2006), ‘A natural history of peace’, Foreign Affairs, 85 (1), 104–20. Scherer, A.G., G. Palazzo and D. Baumann (2006), ‘Global rules and private actors: toward a new role of the transnational corporation in global governance’, Business Ethics Quarterly, 16 (4), 505–32. Shane, S. and R. Nixon (2007), ‘In Washington, contractors take on biggest role ever’, The New York Times, 4 February, Section 1, p. 1. Thomas, A. (1996), Rhodes: Race for Africa, New York: St. Martin’s Press. Waddock, S. (2004a), ‘Creating corporate accountability: foundational principles to make corporate citizenship real’, Journal of Business Ethics, 50 (4), 313–27. Waddock, S. (2004b), ‘Parallel universes: companies, academics, and the progress of corporate citizenship’, Business and Society Review, 109 (1), 5–42. Waddock, S. (2005), ‘Corporate citizens: stepping into the breach of society’s broken contracts’, Journal of Corporate Citizenship, 19, 20–24. Weiser, R. (2003), ‘U.S. Department of State: remarks at Award for Corporate Excellence’, www.state.gov/e/eeb/rls/rm/2003/25236.htm, accessed 5 September 2007. Windsor, D. (2001), ‘Corporate citizenship: evolution and interpretation’, in J. Andriof and M. McIntosh (eds), Perspectives on Corporate Citizenship, Sheffield: Greenleaf, pp. 39–52. Windsor, D. (2006), ‘Corporate social responsibility: three key approaches’, Journal of Management Studies, 43 (1), 93–114. Wood, D.J. and J.M. Logsdon (2001), ‘Theorizing business citizenship’, in J. Andriof and M. McIntosh (eds), Perspectives on Corporate Citizenship, Sheffield: Greenleaf, pp. 83–103. Wood, D.J. and J.M. Logsdon (2002), ‘Business citizenship: from individuals to organizations’, in R.E. Freeman and S. Venkataraman (eds), Ethics and Entrepreneurship, Ruffin Series No. 3, Charlottesville, VA: Society of Business Ethics, pp. 59–94. Yunus, M. (2006), ‘Nobel Lecture’, www.nobelprize.org, accessed 11 January 2007.
PART III ACTORS, INSTITUTIONS AND GLOBAL GOVERNANCE
11 Emerging patterns of global governance: the new interplay between the state, business and civil society Klaus Dieter Wolf
Introduction According to the traditional distinction between domestic and international politics, governing within the state was conceived as a hierarchical ‘command and control’ process. Only governments were authorized to take collectively binding decisions. In contrast, the political space beyond the state lacked the central political authority of a world government and was consequently described either as an anarchical system (Waltz 1977) governed by self-help and power politics, or as a society of states (Bull 1977) governed by horizontal arrangements, such as treaty-based relationships which regulated the peaceful coexistence between nation-states. In both spheres, the national and the international, governing functions were reserved to public actors, that is to national governments or the intergovernmental institutions created by them. The main difference existed in the prevalence of a one-way or an interactive model of governing. This traditional domestic–international distinction has been completely overthrown by the growing governance demands. In the interdependent world of today, collective action problems cover an ever-increasing number of issue areas other than national security, such as environmental matters, social and economic human rights. These problems straddle the existing territorial boundaries of political units and call for the extension of public policy beyond the state. Economic globalization creates challenges for political steering which exceed the capabilities of any single state. It has produced a growing need (and claim) to make use of the problem-solving potential of non-state actors in order to master these challenges more effectively. As a consequence, these new demands have also blurred the dividing lines between the national and the international sphere, and, increasingly so, those between the public and the private sectors. They call for ‘social–political governance’ in the sense of ‘arrangements in which public as well as private actors aim at solving societal problems or create opportunities, and aim at the care for the societal institutions within which these governing activities take place’ (Kooiman 2000, p. 139). 225
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The challenges emerging from this process of de-nationalization brought together public and private ‘governors’ in multistakeholder, multilevel and multimode sectoral governing arrangements which add up to the complex interaction patterns of ‘global governance’. This new political agenda also made it obsolete to keep the analytical tool-kits of the different subdisciplines of political science separate from each other any longer: on the one hand, public policy research and normative political theory were both unfamiliar with the context beyond the state to which their core research issues, such as effective problem solving or democratic legitimacy, respectively, were emigrating; on the other hand, the study of international relations was likewise unprepared to deal with these new questions.1 Today, the need to integrate the different analytical perspectives is no longer seriously questioned because of the obvious drain of economic, social and political processes into the sphere beyond the state. In the next section I shall deal with the emergence of the new social–political forms of public–private governance patterns beyond the state. In many ways the new interplay between the state, business and civil society in global governance resembles the process of political modernization changes which could be observed in the domestic sphere and is associated with terms such as ‘de-hierarchization’ (Scharpf 1991) or ‘degovernmentalization’ (Zürn 1998; Wolf 1999).2 The following section analyses the implications of the new modes of governance on the actors involved. With their involvement in new governance arrangements, the roles of governments, international organizations, civil society and the private sector are shifting. All of these actors are still in the process of redefining their traditional roles, identities and functions in the light of the regulatory demands to which they are exposed. The subsequent section deals with the new interplay between the state, business and civil society. Compared to its predecessor, that is treaty-based intergovernmentalism, global governance is a patchwork of different modes of governance, consisting of actors from different environments who are equipped with very different resources, and who are used to quite different compliance mechanisms. Some of these mechanisms presume that actors follow the interestbased logic of consequences, whereas others are based on the assumption that political actors follow the logic of appropriateness.3 To achieve a better understanding of these new modes of governance I shall suggest some categories for the way they correspond with certain actors’ constellations and the way they function. The final section takes up normative considerations about the desirability of a the privatization of world politics and evaluate the regulatory potential as well as limits of the new governing relations.
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Political modernization: re-organizing political regulation in the domestic context and beyond the state The emergence of new governing relations in the sphere beyond the state is best conceived of as the international follow-up of the domestic political modernization process which took place within most of the OECD countries before. Domestically and at the international level, it resulted from market failure and the failure of the traditional media of political steering – that is, regulative law and financial incentives – to correct them. The ‘limitations of traditional public command-and-control as a governing mechanism’ (Kooiman 2000, p. 139) became obvious with the regulatory overstretch of the modern welfare state. When the promises of national governments to provide public goods or to prevent public bads in such fields as macroeconomic planning or social safety entered the turbulent waters of globalization, they were confronted with a new collective action problem: they met challenges the causes of which – and the resources needed to meet them – were beyond the command of any single government, or even beyond the world of states as a whole. Among the numerous strategies employed by national governments to increase their problem-solving capability, the more direct involvement of the former societal addressees of public regulation into the governance process was one. This step towards societal participation was not primarily motivated by democratic concerns, but rather followed the rationale to increase problem-solving effectiveness by utilizing the knowledge and other resources that only private actors could provide, and to increase the support and acceptance of political decisions by co-opting the former addressees as partners in decision making. In the traditional pluralist model of domestic policy making and interest intermediation, societal lobbying groups were competing for access to and influence on public policy decisions. At the domestic level, this model was first challenged when big corporate actors were integrated and allowed to participate in consensual corporatist policy formulation and implementation. In their new roles, however, they were still dependent on the recognition of the state (Schmitter and Lehmbruch 1979). But the next step of political modernization even left these corporatist patterns of interest intermediation behind and promoted a further de-hierarchization of the relations between public and private actors. Increasingly bypassing the traditional political institutions, horizontal decision-making structures emerged which operated according to the modes of bargaining and arguing. On the one hand, the state had to respond to ‘societal actors claiming participation in the political process, while, on the other hand, cooperation with these actors offers the state the opportunity to obtain informational resources and can improve the acceptance of certain political decisions’ (Mayntz 1993, p. 41,
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Table 11.1 Changing forms of political regulation within the state: from government to governance Organizational form
Pluralist
Corporatist
Partnership
Relationship of the state with business and civil society
Different societal lobbies compete to influence public policy decisions taken by the state
Institutionalized (‘incorporated’) participation by major associations in consensual formulation and implementation of public policy decisions
Various forms of horizontal deliberative cooperation in governance networks
Source:
Bressel and Wolf (2005, p. 188).
own translation). In the domestic context the traditional notion of hierarchical state–society relations gave way to the idea of the negotiating, enabling or cooperative state. Even this stage of political modernization in the domestic context still counts – and depends – on the state, but it does so in terms of a new functional division of labour and authority between public and non-state actors from which additional problem-solving resources are expected (Ronit and Schneider 2000). Table 11.1 summarizes the emergence of the new governing relations within the state. The limitations of hierarchical governing mechanisms become particularly obvious when we employ Jan Kooiman’s (2000, pp. 154–61) distinction between first-, second- and third-order or ‘meta’ governing.4 The demand for such a new division of labour is strongest at the levels of meta and first-order governing. With regard to the creation of normative standards (meta governing), the command-and-control approach is unlikely to meet the high demand of normative consensus which can only be achieved in the public exchange of good reasons; with regard to finding solutions for concrete day-to-day problems (first-order governing), it cannot provide resources, such as factual knowledge, which depend on the involvement of professional expertise. International governance In the political space beyond the state, horizontal governance – however as a purely intergovernmental enterprise – had always been the rule because of the lack of the central authority of a world state. The world of states took its first step out of its original stage of anarchy when national governments entered into voluntary self-commitments as sovereign subjects of
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international law. By institutionalizing international relations with the creation of international organizations and regimes, they transferred sectoral governance functions from the domestic to the intergovernmental public sphere. In terms of political modernization, the treaty-based institutionalization of the society of states is a remarkable achievement because it established the rule of law against the original right of self-help, which included the arbitrary use of violence. While this process of legalization was more or less effective in civilizing the interaction among states, its problemsolving capacity came under severe criticism in the face of challenges that did not originate from the world of states. On the one hand, the legitimacy of internationalizing political decision-making processes was questioned because it strengthened the role of the national executives vis-à-vis parliamentary control (Wolf 1999); on the other hand, the economic, social and environmental challenges of globalization resulted in regulatory and implementation gaps which individual governments, as well as the intergovernmental institutions created by them, were unwilling or unable to close effectively. In the face of growing world market competition, for example, neither the International Labour Organization nor the World Trade Organization had succeeded in generating, proliferating and enforcing minimum legal standards effectively with regard to business activities involving abuses of human rights, compulsory labour or child labour. In a similar fashion, the change of the global climate raised the challenge of reprogramming economic systems in accordance with excessive demands of sustainable economic development which the heads of the leading industrial nations who coordinate their policies in the G-8 are reluctant or unable to meet. As a consequence, ‘private actors increasingly engaged in authoritative decision-making that was previously the prerogative of sovereign states’ (Cutler et al. 1999b, p. 16), thus reflecting the transition of the society of states into a ‘world society’. Beyond international governance Domestic de-regulation and the delegation of authority to non-state actors is ‘increasingly . . . creeping into the international sphere’ (ibid., p. 15). Today there seems to be a general belief that – very similar to what had previously been experienced in the national realm – intergovernmental regimes and organizations are inadequate political instruments for solving the collective action problems emanating from ‘de-nationalized’ economic, social and environmental processes. To regard ‘states as the sole providers of public goods has become an increasingly inappropriate over-simplification’ because technological and commercial forces, notably the market-driven diffusion of information technology, ‘alter the relative capabilities of different types of actors to solve . . . collective action problems, in particular increasing the
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capacity of non-state actors relative to states’ (Florini 2000, pp. 15, 21). The former Secretary-General of the United Nations, Kofi Annan, accurately described the need to overcome the limits of international governance in order to cope with the fundamental problems in world society when he stated that ‘peace and prosperity cannot be achieved without partnerships involving Governments, international organisations, the business community and civil society. In today’s world, we depend on each other’ (Annan 1998). Following this course, the political modernization of international governance has given rise to various new kinds of transnational governance arrangements in which public and private actors pool resources, share responsibilities – and re-define themselves. Shifting roles: new identities of states, business and civil society as political agents Statehood in transition The traditional role of the state is most severely affected by its interplay with private actors in governing processes. However, ‘it is generally more appropriate to speak of shifting roles of government rather than of shrinking roles of government as part of such changing relationships’ (Kooiman 2000, p. 139, original emphasis). Governmental retreat from the classical command-and-control governing mechanism in the course of the de-hierarchization of state–society relations may of course not only be described as ‘political modernization’, as I did in the previous section. This description follows what may be called a ‘policy-for-problem-solving’ paradigm of political steering and governance. From the perspective of political realism, for instance, the role shift of governments would rather be conceptualized as a ‘power shift’, as a ‘relative decline of states and the rise of nonstate actors’ (Mathews 1997, p. 51; see also Strange 1996; Reinalda and Verbeek 2001). However, ‘sharing powers’ does not necessarily make the state ‘weaker’ as a provider of public goods than its interventionist elder brother. The shadow of hierarchy is still present; the whip is still in the window. But the negotiating, enabling or cooperative state is less keen on running things ‘from above’ than on regulating and monitoring self-regulation. The new regulatory state is interested in reducing its governance contributions to functions which can exclusively, or most effectively, be provided by the public sector: establishing operational meta rules, setting the legal framework for private governance contributions and regulating externalities. Political modernization thus still counts – and depends – on the state, but it does so in terms of a new functional division of labour and authority between public and non-state actors. With regard to domestic governance, Christoph Knill and Dirk Lehmkuhl (2002) have distinguished certain circumstances under which
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governments change their role from providers to enablers of public goods. According to them, the assumed distribution of problem-solving resources among the public and private sectors determines which role the state will take up vis-à-vis private actors. If public problem-solving capabilities are high and private capabilities are low, we are likely to observe the traditional ‘hierarchical’ state; high capabilities on both sides favour the role model of the ‘cooperative’ state; the ‘complementary’ state will be the result of low public and high private capabilities; if the capabilities of public and private actors are low, the state is likely to act as an ‘intervening’ state. Although these role models have been developed for describing the changing role of the state in the course of domestic political modernization, these categories may also be helpful to describe public–private interaction patterns in governance beyond the state. However, one crucial difference has to be taken into account: national governments lose their unique qualities as holders of public authority as soon as they want to exercise power over actors not belonging to the domestic realm. At the global level, national governments are no longer automatically ‘in authority’ due to their quality as public actors (Wolf 2006, p. 212). Rather, they have to arrange themselves with private actors making equally legitimate claims to ‘market’ or ‘moral’ authority based on ‘normative, uncoerced consent or recognition’ (Hall and Biersteker 2002, p. 5). The new roles of civil society Paul Wapner’s definition of civil society as a ‘domain of associational life situated above the individual and below the state’ (Wapner 1997, p. 65) is still valid. In domestic societies, as well as in world society, this domain is populated by civic groups who are private in form, because – unlike governments – they are not and do not want to become part of the state apparatus, but public in purpose, because – unlike companies – they understand their activities not as commercial but as value oriented and as direct contributions to the provision of public goods (Reinalda 2001). This has contributed to shaping their image as ‘the better half of world society’ (Take 2000). The broad range of increasingly important roles (Mathews 1997) which actors from civil society have played is reflected in a number of labels (see among others Princen and Finger 1994; Keck and Sikkink 1998; Scholte 2000): ‘activists’, ‘transnational social movement organizations’, ‘grassroots organizations’ or ‘advocacy groups, coalitions or networks’. Jan Aart Scholte (2000, p. 177) summed up these different appearances as follows: ‘In sum, civil society exists whenever people mobilize through voluntary associations in initiatives to shape social order’. The general importance of civil society participation in global governance has been under dispute time and again in the academic debate.5
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However, civic groups do matter. They can provide access to otherwise restricted information and thereby contribute to the equal regard of outsiders’ interests otherwise not represented; or they can provide a channel of accountability (Buchanan and Keohane 2006, p. 436). Furthermore, they can ‘help states and multilateral institutions to formulate, implement, monitor and enforce policies’ (Scholte 2000, p. 174). As agenda setters, civic groups originally acted as external agents, most memorably in the streets of Seattle in 1999. Many of them still prefer confrontational tactics in order to mobilize public support for policy alternatives, keen on not losing their independence by being co-opted or by cooperating too closely with public authorities or market actors. Others try to affect decision-making processes by making their way into the institutions which have so far been dominated by governments: as lobbyists, as consultants to national delegations, or as observers to international organizations and conferences. With regard to implementation, actors from civil society can either play a more cooperative role, for example when they fulfil operative functions (such as carrying out projects or being instrumental as monitoring agencies) delegated to them by public actors, or act as independent watchdogs by criticizing public or business actors who do not implement or comply with certain legal or voluntary commitments. In this watchdog function, civil society actors may enter into unofficial coalitions with like-minded national governments or international agencies against norm-violating states, as is typically the case in the field of human rights, and thereby contribute significantly to strengthening the status of international norms. Civil society actors possess political influence to the extent that they can muster widespread support and consent to their authority, which stems from their role as credible providers of expert advice or from the moral authority accorded to them. They act as epistemic actors whose basic political resource is information. Civil society actors can initiate deliberative processes in order to promote certain standards of appropriateness, to reframe certain issues and/or to change the preferences of other actors. They may also use normative reasoning strategically in order to impose social costs on other actors by shaming them in the eyes of the general public. They may even switch between deliberative and strategic modes of interaction according to the institutional environment.6 With their interaction with intergovernmental institutions increasing, actors from civil society have also changed their roles, behaviour and sometimes identities. One may dispute whether this identity shift has been caused primarily by external or internal dynamics (Martens 2005); however, there is little doubt that external pressures and expectations are increasingly raised vis-à-vis civil society actors, for example by invitations to collaborate
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in UN-sponsored initiatives like the Global Compact. If one takes a closer look both at the different functions in which different non-governmental organizations perceive themselves, and at the mode of interaction which prevails in the global governance institutions to which they relate, it would be inaccurate to generalize their role shift in terms of ‘from outside spectators to official participants’. In fact, civic groups have shown very different responses to such invitations, often as part of a strategic division of labour among them. The most significant role change occurred with regard to the more direct involvement of transnational civic actors in the core of regulatory functions: originally their role had focused either on the input phases of the political process, that is agenda setting, norm generation, programme development or, further down the output side of the political process, on norm implementation or the evaluation of policies. Now their involvement is shifting from these peripheries to the actual centre of decision making within public–private or multi-stakeholder self-regulation. The new role of business: once problem causers, now problem solvers? Since the 1990s the scholarly debate on the role of transnational actors in world politics7 seems to have primarily dealt with transnational civil society. However, transnational corporations have a much longer history of academic interest, and had appeared in the role of political actors in world politics already as early as in the mid-16th century, particularly in colonial areas to which today’s governance would refer as ‘areas with limited statehood’ (Risse and Lehmkuhl 2006). Historians rightly point to the important role that chartered private merchandising companies played right until the end of the 19th century when they ran commercial and trading empires which covered vast territories (Griffiths 1974; Keay 1993). The Hudson’s Bay Company, for example, originally operated on the basis of a Royal Charter by King Charles II in 1670, which granted the company ‘absolute power to establish and enforce laws . . . as well as have its own soldiers, maintain a navy and make peace – or war’ (Andra-Warner 2003, p. 37). In the meantime, business went through a number of stages as a highly disputed object of political and scholarly debates. In most cases, transnational corporations were subject to scrutiny as originators of regulatory problems rather than as problem solvers, as addressees of public legal regulation rather than as private regulators or partners in public–private governance arrangements (see, among others, Baade 1980; Fikentscher 1980). The major innovation of the present political and academic debate about the role of corporations in world politics lies in their rediscovery as political actors through the lens of global governance. Instead of continuing to look at them solely as economic actors in globalizing markets who have
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outgrown the regulatory capabilities of each individual state, their regulatory potential and the limits to it are investigated once again (Cutler et al. 1999a; Graz and Nölke 2007). Corporate responsibility, corporate social responsibility, or corporate citizenship (see, among others, Ruggie 2002; Matten and Crane 2005; Scherer and Palazzo 2007) are used as concepts to re-define the role of business vis-à-vis the state and civil society and to readjust the distribution of rights and obligations among the three sectors in the face of state failure as well as market failure. Notions associated with these concepts may vary widely, but they all go beyond the traditional understanding of corporations as actors who are private in form and private, that is commercial, in purpose. Understandings are quite different, however, with regard to the voluntary nature of corporate contributions to the provision of public goods. The philantropic ‘charity’ view of ‘doing good’ after work differs substantially from the self-commitments expected by the UN Global Compact from ‘corporate citizens’ (Global Compact Office 2004) as part of their core business activities. Even more far-reaching is the understanding of corporate responsibility as norm entrepreneurship in the sense of commitments not only to support and enact certain core values when doing their business, which would ‘only’ blur the traditional boundaries between business and civil society, but also to actively engage in selfregulatory activities of norm generation and implementation, which of course also blurs the boundaries between the private sector and the state. All of these notions seem to contradict conventional wisdom, which starts out from the actor-centred assumption that the prime motivation for business actors is, and has to be, profit maximization. Survival in the marketplace rules out norm-oriented behaviour, and whenever companies enter into individual or collective self-commitments, no such codes of conduct would ultimately be capable of setting constraining limits to this logic of action. However, this assumption and the consequences derived from it are an inappropriate oversimplification. They neglect the fact that the marketplace is not the only environment which makes demands on business. Rational business actors have to take into account the challenges posed by globalized markets, but also those emanating from the world of states and transnational civil society. The interaction of the three worlds of market, state and civil society makes up a normatively enriched environment, so that ‘market rationalism’ may acquire a different meaning under these altering context conditions. In the face of public pressure or the threat of state regulation, ‘doing good’ may even be the most rational strategy to evade the risks associated with adverse campaigning or public regulation (Conzelmann and Wolf 2007). Such rationalist conceptualizations still rely on fear of coercion and selfinterest as the only drivers for business contributions to global governance.
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In contrast to them, constructivists employ the assumptions of the logic of appropriateness and point to the emergence of a global epistemic community made up of like-minded corporate leaders, scientists and public regulators that have defined certain standards of appropriate behaviour for firms (Haufler 1999, p. 215). On the basis of these considerations, and in trying to define its new role vis-à-vis the public sector and transnational civil society, business actors have to make their choice among three ideal-type role models: they can follow a ‘narrow’ market rationalism, a ‘complex’ market rationalism, or an intrinsically norm-oriented behaviour. While ‘narrow’ market rationalism would consider societal and political forces as influential only in so far as they can be translated into short-term risks and opportunities in the marketplace, ‘complex’ market rationality would anticipate reputational and political costs in the cost–benefit calculations of business actors. Finally, the existence of a normatively textured environment may also give rise to an increased reflection on corporate responsibility and to the recognition of certain values as guiding principles for business conduct. The result may be an ‘intrinsic’ motivation of business to observe and implement ethical principles even where there is no clear economic or political incentive to do so. In the light of the choices described here, and without giving up the notion that corporations still are and will remain ‘private in form and private in purpose’, the potential of business actors to contribute to the provision of public goods in the context of global governance should not be underestimated. New modes of governance between the state, business and civil society The underlying key question of this chapter regards the conditions under which non-state actors can be expected to make meaningful contributions to global governance, for example by acceding to and complying with codes of conduct. To answer this question at the actor level, the motivations of these non-state actors have to be discussed; on a structural level, however, the environmental conditions under which they act have also to be taken into account.8 The transition from international to global governance has increased the degree of complexity of governance beyond the state substantially. Hierarchical governing modes dominated by the public sector (or taking place in the strong shadow of hierarchy cast by it), public–private cogoverning, private self-governing, and all kinds of hybrid mixtures of these ideal types add up to an irritating patchwork of sectoral regulatory mechanisms. The multidimensionality of this complex global governance patchwork – perfectly described as ‘komplexes Weltregieren’ by Zürn (1998) – results from the amalgamation of the different political resources brought
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in by different actors from different playing fields: originally coming from the domestic political–institutional setting, the national governments have the monopoly of the legal authority to set collectively binding rules and to implement these rules with coercive power. Business corporations are equipped with the economic and technological know-how and the financial resources necessary to be successful competitors on the market. Actors from civil society, finally, often have moral authority and factual knowledge at their disposal as politically relevant resources. In addition, in their original environments all of these actors have been socialized into specific modes of interaction: hierarchical legal or administrative regulation is the traditional way of governing by the state. Horizontal bargaining and arguing characterize interactions in the market or in public discourse, respectively. Making the interplay between them even more complex, each of these modes of interaction relies on a specific causal mechanism for achieving compliance. The compliance mechanism characteristic of interactions dominated by the state is fear of sanctions. Compliance in market relations, on the other hand, primarily rests on material or non-material cost–benefit expectations and follows the interestbased logic of consequences. Making things even more complicated, the compliance mechanism characteristic of the sphere of public discourse presupposes actors whose behaviour is guided by a logic of appropriateness rather than by rationalist cost–benefit calculations. In this realm, actors are expected to comply only if they are convinced of the normative appropriateness of rules which they first internalize and then obey. Table 11.2 illustrates the different dimensions of context-specific traditions which have to be reconciled when the state, business and civil society enter into in to collective governing activities. Given this variety of resources, context-specific logics and rationalities which govern the behaviour of the different actors in their respective spheres, their interaction inevitably must produce hybrid forms of governance which Table 11.2
Contextual backgrounds of the state, business and civil society State
Business
Civil society
Resources
Legal authority Coercive power
Money Moral and Technical expertise factual authority
Sphere
Political institutions Market
Public discourse
Mode of interaction Hierarchical
Bargaining
Information, arguing
Compliance mechanism
Self-interest
Belief in appropriateness
Fear of coercion
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are characterized by the mixture of different resources, interaction modes and compliance mechanisms, often combining elements which may not be compatible or which may neutralize each other’s impact. Conditions which facilitate governance in the mode of bargaining may be detrimental to those under which arguing can be effective. For example, the relevance of trust or mistrust, transparency or secrecy, alters dramatically according to the respective modes of interaction. New actors’ constellations At a first and very elementary descriptive level, the new modes of governance resulting from the interplay between the state, business and civil society can be distinguished according to different actors’ constellations: governance arrangements beyond the state which involve private actors can: 1.
2.
3.
still be initiated, sponsored, or even dominated by the public sector. In this category the shadow of (public) hierarchy is still present, but the darkness of the shade may vary. In this kind of publicly embedded selfregulation the degree of de-governmentalization would still be low; consist of multistakeholder initiatives, where more horizontal patterns of interaction prevail and the state, civic groups and corporations meet on an equal footing; and be pure instances of private self-regulation with no direct public sector involvement, neither by the state nor by intergovernmental organizations, neither in a hierarchical manner nor in any other way as ‘equals’. Here of course the highest degree of de-governmentalization can be observed.
In Table 11.3, some empirical examples are given of global governance initiatives representing the three different types of actors’ constellations. They also show that all types can be found in the main issue areas of global governance. New modes of interaction The fact that accession to and compliance with these self-regulatory initiatives are voluntary gives rise to the suspicion that they are only symbolic and serve to ‘greenwash’ business and take off the pressure from governments to put in place an effective and forceful regulation (Conzelmann and Wolf 2007). This widespread criticism starts out from a certain notion of how compliance mechanisms should operate in order to be effective. At least implicitly, it still favours public intervention by administrative law, backed by the coercive power of the state, over soft and horizontal modes
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Table 11.3 Public, multistakeholder and private self-regulation in different policy areas Environment
Security and human rights
Corruption and organized crime
With public sector participation
Global Compact
Kimberley Process
United Nations Convention Against Corruption
Multistakeholder governance initiatives
Forest Stewardship Council
Voluntary Principles on Security and Human Rights
Business Principles for Countering Bribery
Private self-regulation
Responsible Care
Antwerp Resolution of the World Diamond Council
Wolfsberg Principles
of governance. However, this traditional hierarchical mode of public governance by government, has lost part of its significance in the course of the domestic political modernization processes discussed above. For governance beyond the state, it was never appropriate as a model. Global governance institutions – very much like the above-mentioned intergovernmental institutions characteristic of the period of international governance – are typically based on compromise or consent rather than on fear of coercion, simply because there is no Leviathan available in an international system consisting of sovereign territorial states. Given these conditions, in the international sphere even national governments perform their regulatory functions best, not if they can impose norms, but because of consent, that is, if the norms and rules they generate and try to implement are regarded as legitimate and/or as serving the self-interest of those who are subject to those rules (see also Buchanan and Keohane 2006, pp. 409–10). In that sense, it becomes important to go beyond the fear of coercion as compliance mechanism and to discuss alternative conduits by which non-state actors may contribute to the provision of public goods. Fear of public regulation In the context of transnational private self-regulation, even the potential threat of governments imposing binding legal regulation in the case of voluntary self-commitments failing to show the expected effects may improve the robustness, reliability and sustainability of self-regulation among private actors. This expectation rests on the assumption that private self-regulation,
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which typically falls into the category of ‘soft’ and voluntary modes of norm generation and implementation, is driven by business’ intention to avoid state intervention in the market. In order to achieve this goal, they are doomed to success. But this embeddedness in pending public regulation could have yet another impact on private efforts trying to anticipate them: even if, at a later stage, public regulation would follow, its substance would already be pre-shaped by the norms and rules of private self-regulation. These expectations as to the potential impact of a pending fear of coercion on private self-regulation go along with the suspicion that in the absence of this ‘whip in the window’ the reliability of voluntary self-commitments would suffer. Private self-regulation, in order to meet certain demands on political regulation, would therefore always depend on the capability and the willingness of public actors to intervene. Material market incentives How far can private self-regulation contribute to the provision of public goods, if market forces are the only mechanism to secure compliance? In this case, in a narrow cost–benefit calculation, ‘doing good’ is only rational if and as long as it helps companies to ‘do well’, for example, by improving the image of a certain brand in relation to competitors. This causal mechanism rests on a rationalist background according to which rules are obeyed when they are in line with the self-interest of rule followers to maximize individual benefits and to minimize individual costs. However, as Buchanan and Keohane (2006, p. 410) rightly point out, support for an institution ‘based on reasons other than self-interest or the fear of coercion . . . may be more stable’. Social costs by public shaming The threat of intervention by legally binding public regulation is not the only environmental factor which can potentially raise the quality of the contributions that private self-regulation can make to the provision of public goods. Another factor originates from the embeddedness of selfregulation in a societal environment in which civic groups are vigilant and strong enough to raise public attention concerning the conduct of businesses. In this case, the underlying assumption is that the reputational costs associated with public shaming will increase the likelihood that voluntary unilateral or multilateral self-commitments of companies come into existence and that their rules are actually implemented. Even if companies proclaim normative self-commitments only for strategic reasons, without actually being convinced of their appropriateness, the importance of the societal environment lies in securing rule-consistent behaviour by helping the logic of ‘rhetorical self-entrapment’ to unfold.9 This consideration leads
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us to a fourth causal mechanism with which we leave the theoretical background of rationalism behind and employ basic assumptions of social constructivism. Legitimacy assumptions and moral obligations Apart from fear of coercion and self-interest (in its narrow and its more complex meaning), rule following may also be caused by the legitimacy assumptions which the subjects of regulation attribute to global governance institutions and by the sense of appropriateness attached to their rules. Such legitimacy assumptions can grow on the basis of moral reasons, but also on factual knowledge about how an institution works and about the degree to which it contributes to the provision of public goods without committing serious injustices, such as violating human rights (Buchanan and Keohane 2006, p. 420). As the author of this chapter has pointed out elsewhere (Conzelmann and Wolf 2007), any public order, domestic or beyond the state that rested exclusively on sanctions and deterrence of potential transgressors would demand enormous resources. Therefore, the weight on these ‘hard’ compliance mechanisms is usually sought to be lightened by creating moral obligations to follow norms, for example, by appealing to collective identities or by highlighting the legitimacy of these norms. As a consequence, the binding force of regulations may actually originate from several sources: the sense of obligation created by the norms and rules on which they are based; actors’ rational calculation of the gains they can expect from rule compliance; and the subordination by the threat or use of force. With regard to global governance arrangements which are characterized by the interplay among states, business and civic groups, the political challenge is not necessarily to increase the regulatory and sanctioning capacity of public bodies at the international level, but rather to increase the legitimacy of global governance institutions so that compliance with their rules can also count as appropriate conduct. All institutional designs and compliance mechanisms discussed in this section have their specific strengths and weaknesses as far as their effectiveness, the likelihood of operating in the general interest and the validity of assumptions made about the motives of actors are concerned. As most of the governance arrangements which are already based on role shifts of the participating actors are still new, we do not have enough empirical evidence to substantiate generalizing judgements. In so far, and unlike regulatory initiatives that rely exclusively on the logic of sanctions and deterrence or material market incentives, they have the privilege of not yet having had the opportunity to reveal their weaknesses. However, some general remarks can be made that are based on the compatibility of certain compliance mechanisms with the different regulatory challenges that have
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to be met at the levels of meta, second- and first-order governing: It is very likely that shared legitimacy assumption will result in a stronger commitment to the normative standards established at the meta level of governing. This means that the shadow of state hierarchy is a negligible factor in this context and that ‘voice’ is more important than ‘vote’ here. The availability of the unique coercive instruments of the state may, however, become of crucial importance for issues of second-order governing, in particular when it comes to safeguarding by legally binding rules the institutional conditions under which first-order problem solving can take place with full and equal stakeholder participation. At the level of first-order governing, finally, the availability of a broad range of problem-solving resources and a public which can set into motion shaming mechanisms speaks in favour of multistakeholder arrangements and compliance mechanisms which rely on factual expertise on the input side of the political process, on transparency on the throughput phase, and on public monitoring of implementation measures. Institutional demands for the legitimacy of transnational global governance In this chapter we first described the emergence of new modes of governance beyond the state; then dealt with the role shifts of actors that went along with this process; subsequently, taking into account different assumptions about actors’ motivations, I analysed the conditions under which private actors might be expected to provide meaningful contributions to global governance in the interplay among the state, business and civil society. The following final section takes up again the issue of strengths and weaknesses, but places it in the broader context of the general desirability and limitations of the privatization of governance beyond the state. This normative discussion will result in some considerations about institutional demands for the legitimacy of transnational global governance. Theoretical perspectives on the legitimacy of global governance institutions may be distinguished according to their state-centredness and the degree to which they adhere to, or transcend, the normative demands derived from the ideal type of the parliamentary democracy of the territorially based nation-state. A very basic first distinction stems from different constitutional assumptions about the international system: is it desirable to establish democratic statehood at the supranational level, as envisaged by cosmopolitan approaches (Held 2005), or do we conceive of the political space beyond the state as a non-state polity characterized by functional self-regulation, that is by horizontal modes and sectoral scopes of policy making? Leaving state-centrism behind, a second cluster of distinctions refers to the way in which certain governance functions should be assigned to certain levels within a multilevel governance setting in order to achieve
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maximum legitimacy. In his search for a political constitution for a pluralist world society, Habermas, for example, allocates juridical functions to the supranational level and political functions to the level of horizontal selfcoordination (Habermas 2005). Lastly, the public–private axis of distinction picks out as a central theme of the implications of the new interplay among the state, international institutions and private actors for the legitimacy of governance. Obviously these are of particular interest here. In what follows I shall therefore concentrate on the public–private dimension of the legitimacy issue by linking it with Kooiman’s (2000) functional distinction between first-order, second-order and meta governing which has already been introduced. Despite the general lack of a commonly agreed-upon set of positive normative criteria for the legitimacy of global governance institutions, there is at least some agreement on ‘the unrealistic view that legitimacy for these institutions requires the same democratic standards that are now applied to states’ (Buchanan and Keohane 2006, p. 405). Rather, institutional designs should take the specific contexts of governance beyond the state more seriously and venture into ‘context-adequate’ standards of legitimacy (Wolf 2002, 2006). With regard to the inclusion of private actors, in particular, there seems to be no fundamental contradiction between the privatization of governance beyond the state and the provision of public goods, because none of the three types of actors dealt with above pursues a genuine public interest in this sphere. In fact, the boundaries between what is public and what is private, and hence which actors act in the public interest, are much less clear in the political space beyond the state. In this context even (national) governments follow ‘private’, that is particularistic, purposes of their own (namely, their ‘national interest’). Public and private actors turn out to be much more similar units in the international sphere than this general distinction would suggest. In fact, some (private) actors from civil society may be the most likely candidates as protagonists of what is generally perceived to be the common good. How far does the new interplay between the state, business and civil society affect legitimacy, and what kind of legitimacy standards should be applied to transnational global governance? A first answer to these questions could be the objection against applying any legitimacy standards to this sphere which go beyond certain demands of output effectiveness with regard to the provision of public goods in the general interest. This argument could be based on the voluntary nature of self-regulation which does not produce any necessity for maintaining self-determination, nor for checks and balances to control power and maintain the rule of law. Where no one exerts power, there is no need to control it. Following Max Weber’s (1921 [1976]) concept of legitimacy as the legitimate authority to use power
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in order to enforce collectively binding decisions, one could conclude: where we have no collective subordination by coercion, there is no need for legitimacy either; where no one rules, there is no need to legitimize anyone’s right to rule. The functional bias of the more output-oriented governance debate tends to support this view (Mayntz 2006, p. 12). Under the governance paradigm, the notion of the nature of politics has shifted from ‘exerting power’ to ‘solving collective problems’. Rather than treating these two notions as separate, the following considerations are based on the assumption of a functional linkage between effectiveness and legitimacy, according to which an institution’s right to rule is accepted and its rules are obeyed as being binding because they are regarded as legitimate. This view provides us with a better understanding of the reflexivity and interconnectedness of effectiveness demands and the normative demands of legitimacy derived from democratic theory. From both perspectives, participation plays a crucial role. However, criteria for inclusion differ: effectiveness (or output legitimacy) demands procedural mechanisms which respond to factual knowledge problems and guarantee a meaningful participation by those affected by rules. At the level of first-order governing, these demands of output legitimacy can be met, for example, by the inclusion of experts or specialists because they can contribute knowledge-based problem-solving resources, the lack of which would otherwise hinder effectiveness. Those affected by rules also have to be included because their cooptation is likely to facilitate the success of rule implementation. In both cases, inclusion means ‘voice’ rather than ‘vote’ because matters of neither self-determination nor power control are primarily at stake here. Thus, the day-to-day routines of formulating and implementing concrete sectoral problem-solving policies leave abundant space for private involvement, with the effect of mobilizing additional sources of output legitimacy, as long as practical solutions are in accordance with the standards of appropriateness established at the level of meta governing. At that level, similar legitimacy gains can be achieved by including private actors in the discourse about the normative standards by which the appropriateness of certain approaches to problem solving is to be judged, as long as these actors find recognition as being ‘ “an authority” in the sense of holding the expertise of a scholar or an expert or specialist’ (Cutler et al. 1999c, p. 367) and accept the rule of impartial reasoning. In sum, the inclusion of the argumentative and knowledge-based authority of private actors from business and civil society can improve the output legitimacy of governance processes at both levels by their substantial contributions, based on factual expertise (at the level of first-order governing) or on moral credibility (at the level of meta governing). However, the recognition
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as being ‘an authority’ provides a sufficient source for the legitimacy of private actors’ claims to inclusion in policy processes of voluntary and horizontal self-regulation, but not in the context of coercive subordination and command models of political obligation which still depend on legal (public) authority.10 In contrast, democratic (input and throughput) legitimacy demands procedural mechanisms for participation which are not directly geared at increasing the concrete problem-solving capability of global governance institutions or the quality of the exchange of moral reasons, but which primarily aim at controlling the use of power. In order to achieve this goal, the institutional architecture of transnational governance arrangements must guarantee a certain transparency of the political process; furthermore, it needs participation mechanisms that are ‘vote’ rather than ‘voice’ oriented and guarantee formal equality. It is only under these conditions that the subjects of regulation and those affected by it can be provided with the necessary information and leverage to hold institutional agents accountable and to attach costs if they fail to provide certain public goods; in other words, and reiterating the interconnectedness of input and output concerns: those affected by regulation must have the means to evaluate the performance of a global governance institution and, if necessary, to initiate institutional reforms. If and by how far such means are at hand, depends on decisions at the level of second-order governing, which deals exactly with the shaping of institutional settings within which governing at the two other levels can take place. There is still little evidence as to what extent and at what costs private actors can be expected to provide, maintain and protect the constitutional framework within which they operate, whether they are capable of allocating institutional capabilities effectively, securing formal equality and protecting the weak against the power of the strong. All these secondorder governing functions may require enforcement and subordination. Although some of the private and multistakeholder governance initiatives listed in Table 11.3 operate as most interesting ‘governance laboratories’ in that respect as well, notably the Forest Stewardship Council (Pattberg 2005, 2006), non-state standard setting and implementation still seems to depend on its complementary relationship with state or interstate public regulation. Even the most prominent functional equivalents to the checks and balances institutionalized within the political systems of democratic states, such as functioning market mechanisms and effective access to open public discourses as prerequisites for securing the accountability of privately dominated global governance networks, cannot be provided by private actors alone. Therefore, the overall legitimacy of global governance arrangements has to rely on some kind of public sector participation – at least on its
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visibility as the ‘whip in the window’, capable of intervening with legally binding regulation at the national or intergovernmental level in case voluntary private self-regulation fails to operate and provide public goods in accordance with the meta rules established at the level of meta governing. Notes 1.
2.
3. 4.
5. 6.
7. 8. 9.
10.
The research on international regimes is a good example to illustrate this: originally, private regimes (Haufler 1993) or regime consequences (Breitmeier and Wolf 1993) were still only an appendix to the mainstream of regime analysis (see Rittberger and Mayer 1993). The North American mandarins only recently took up the normative turn seriously by seeking support in political theory (see Buchanan and Keohane 2006). Governance beyond the state does of course still take place with the participation of governments, but it is de-governmentalized in more than one sense now: it inherited the predominantly horizontal modes of interaction from the former intergovernmentalism which also lacked the shadow of hierarchy that the existence of a (world) state could provide; but furthermore, it is also de-nationalized in that political processes have dispersed over several levels of policy-making, of which the national level is only one, and the national governments share responsibilities with international organizations and private actors from business and civil society (see also Reinicke 1998). According to the ‘logic of appropriateness’ (see March and Olsen 1984, 1989) the normative environment may lead to processes of reorientation and learning, and is potentially able to change identities and interests of business actors. According to Kooiman’s (2000, p. 154) typology, ‘[f]irst-order governing aims to solve problems directly. . . . Second-order governing attempts to influence the conditions under which first-order problem-solving or opportunity creation takes place’. Thirdorder, or meta governing, deals with the creation of the normative standards by which the appropriateness and legitimacy of concrete policy programmes and the demands on an enabling institutional setting can be evaluated. Virginia Haufler does not even regard civil society actors as strong enough to have a serious impact as independent agents: ‘Either they will be used as instruments of state policy, or they will “use” states to implement their own goals’ (Haufler 1993, p. 106). The establishment of the International Criminal Court shows how civil society can even combine both strategies by acting as norm-entrepreneurs who strategically prepare the conditions under which new norms can be generated in deliberative processes (see Deitelhoff 2006). For an excellent and well-balanced overview, see Risse (2002). With the exception of some alterations, this passage follows Conzelmann and Wolf (2007). For the role of shaming, see Finnemore and Sikkink (1998) or Keck and Sikkink (1998); Risse et. al (1999). For rhetorical self-entrapment, see Schimmelfennig (2001). The basic argument claims a causal mechanism by which – under the conditions of a functioning public sphere and an already existing reputation sensitivity – initial opportunistic and strategically motivated commitments to certain norms offer a starting-point for shaming, and in the long run can change actors’ behaviour and even become internalized. This conceptualization of the legitimacy of private authority in contrast to the legal authority carried by the state is reminiscent of Weber’s distinction between the legitimacy sources of legal and charismatic authority (Weber 1921 [1976], pp. 124–30, 140–44).
References Andra-Warner, Elle (2003), Hudson’s Bay Company Adventures, Canmore, Canada: Altitude. Annan, Kofi (1998), ‘The Secretary-General’s Address to the World Economic Forum: Markets for a Better World’, UN Press Release SG/SM/98/16, 31 January.
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Baade, Hans W. (1980), ‘The legal effects of codes of conduct for MNEs’, in Norbert Horn (ed.), Legal Problems of Codes of Conduct for Multinational Enterprises, Deventer: Kluwer, pp. 3–38. Breitmeier, Helmut and Klaus Dieter Wolf (1993), ‘Analysing regime consequences: conceptual outlines and environmental explorations’, in Rittberger and Mayer (eds), pp. 339–60. Bressel, Nina and Klaus Dieter Wolf (2005), ‘Forest certification as a political regulation concept in the context of global governance’, in Dietrich Burger, Barbara Lang and Jürgen Hess (eds), Forest Certification: An Innovative Instrument in the Service of Sustainable Development?, Eschborn: Deutsche Gesellschaft für Technische Zusammenarbeit, pp. 187–94. Buchanan, Allen and Robert O. Keohane (2006), ‘The legitimacy of global governance institutions’, Ethics and International Affairs, 20 (4), 405–37. Bull, Hedley (1977), The Anarchical Society: A Study of Order in World Politics, Basingstoke: Macmillan. Conzelmann, Thomas and Klaus Dieter Wolf (2007), ‘The potential and limits of governance by private codes of conduct’, in Graz and Nölke (eds), pp. 98–114. Cutler, A. Claire, Virginia Haufler and Tony Porter (eds) (1999a), Private Authority and International Affairs, New York: State University of New York Press. Cutler, A. Claire, Virginia Haufler and Tony Porter (1999b), ‘Private authority and international affairs’, in Cutler et al. (eds) (1999a), pp. 3–28. Cutler, A. Claire, Virginia Haufler and Tony Porter (1999c), ‘The contours and signifiance of private authority in international affairs’, in Cutler et al. (eds) (1999a), pp. 333–76. Deitelhoff, Nicole (2006), Überzeugung in der Politik: Grundzüge einer Diskurstheorie internationalen Regierens (Persuasion in politics: outline of a discourse theory of international governance), Frankfurt a. M.: Suhrkamp. Fikentscher, Wolfgang (1980), The Draft International Code of Conduct on the Transfer of Technology, Munich: Max Planck Institute for Foreign and International Patent, Copyright, and Competition Law. Finnemore, Martha and Kathryn Sikkink (1998), ‘International norm dynamics and political change’, International Organization, 52 (4), 887–917. Florini, Ann M. (2000), ‘Who does what? Collective action and the changing nature of authority’, in Richard A. Higgott, Geoffrey R.D. Underhill and Andreas Bieler (eds), NonState Actors and Authority in the Global System, London: Routledge, pp. 15–31. Global Compact Office (2004), The Global Compact: Corporate Citizenship in the World Economy, New York: United Nations. Graz, Jean-Christophe and Andreas Nölke (eds) (2007), Transnational Private Governance and its Limits, London: Routledge. Griffiths, Percival Joseph (1974), A Licence to Trade: The History of English Chartered Companies, London: E. Benn. Habermas, Jürgen (2005), ‘Eine politische Verfassung für die pluralistische Weltgesellschaft’, in Jürgen Habermas, Zwischen Naturalismus und Religion, Frankfurt a. M.: Suhrkamp, pp. 324–65 (forthcoming in 2008 as ‘A political constitution for the pluralist world society’, in Between Naturalism and Religion, Cambridge: Polity). Hall, Rodney B. and Thomas Biersteker (2002), ‘The emergence of private authority in the international system’, in Rodney B. Hall and Thomas J. Biersteker (eds), The Emergence of Private Authority in Global Governance, Cambridge: Cambridge University Press, pp. 3–22. Haufler, Virginia (1993), ‘Crossing the boundary between public and private: international regimes and non-state actors’, in Rittberger and Mayer (eds), pp. 94–111. Haufler, Virginia (1999), ‘Self-regulation and business norms: political risk, political activism’, in Cutler et al. (eds) (1999a) pp. 199–222. Held, David (2005), ‘Principles of cosmopolitan order’, in Gillian Brock and Harry Brighouse (eds), The Political Philosophy of Cosmopolitanism, Cambridge: Cambridge University Press, pp. 10–27. Keay, John (1993), The Honourable Company: A History of the English East India Company, London: HarperCollins. Keck, Margaret E. and Kathryn Sikkink (1998), Activists Beyond Borders, Ithaca, NY: Cornell University Press.
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Knill, Christoph and Dirk Lehmkuhl (2002), ‘Private actors and the state: internationalization and changing patterns of governance’, Governance, 5 (1), 41–64. Kooiman, Jan (2000), ‘Societal governance: levels, modes, and orders of social–political interaction’, in Jon Pierre (ed.), Debating Governance, Oxford: Oxford University Press, pp. 138–64. March, James G. and Johan P. Olsen (1984), ‘The new institutionalism: organizational factors in political life’, American Political Science Review, 78, 734–49. March, James G. and Johan P. Olsen (1989), Rediscovering Institutions: The Organizational Basis of Politics, New York: Free Press. Martens, Kerstin (2005), NGOs and the United Nations: Institutionalization, Professionalization and Adaption, Basingstoke: Palgrave. Mathews, Jessica T. (1997), ‘Power Shift’, Foreign Affairs, 76 (1), 50–66. Matten, Dirk and Andy Crane (2005), ‘Corporate citizenship: towards an extended theoretical conceptualization, Academy of Management Review, 30 (1), 166–79. Mayntz, Renate (1993), ‘Policy-Netzwerke und die Logik von Verhandlungssystemen’ (Policynetworks and the logic of bargaining systems), in Adrienne Héritier (ed.), Policy-Analyse: Kritik und Neuorientierung, Special Issue of Politische Jahresschrift 24, Opladen: Westdeutscher Verlag, pp. 39–57. Mayntz, Renate (2006), ‘Governance Theory als fortentwickelte Steuerungstheorie?’ (Governance theory as an advanced theory of political steering?), in Gunnar Folke Schuppert (ed.), Governance-Forschung, Baden-Baden: Nomos, pp. 11–20. Pattberg, Philipp (2005), ‘The Forest Stewardship Council: risk and potential of private forest governance’, Journal of Environment Development, 14 (3), 356–74. Pattberg, Philipp (2006), ‘Private governance and the South: lessons from global forest politics’, Third World Quarterly, 27 (4), 579–93. Princen, Thomas and Matthias Finger (eds) (1994), Environmental NGOs in World Politics, London: Routledge. Reinalda, Bob (2001), ‘Private in form, public in purpose. NGOs in international relations theory’, in Bas Arts, Math Noortman and Bob Reinalda (eds), Non-State Actors in International Relations, Cheltentham, UK and Northampton, MA, USA: Edward Elgar, pp. 11–40. Reinalda, Bob and Bertjan Verbeek (2001), ‘Theorising power relations between NGOs, intergovernmental organisations and states’, in Bas Arts Math Noortmann and Bob Reinalda (eds), Non-State Actors in International Relations, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 145–58. Reinicke, Wolfgang H. (1998), Global Public Policy: Governing without Government?, Washington, DC: Brookings Institution. Risse, Thomas (2002), ‘Transnational actors and world politics’, in Walter Carlsnaes, Thomas Risse and Beth A. Simmons (eds), Handbook of International Relations, London: Sage, pp. 255–74. Risse, Thomas and Ursula Lehmkuhl (2006), ‘Governance in areas of limited statehood – new modes of governance? Research program of the Research Center (SFB) 700’, www.sfb-governance.de/en/publikationen/sfbgov_wp/ index.html, accessed 4 September 2007. Risse, Thomas, Stephen C. Ropp and Kathryn Sikkink (eds) (1999), The Power of Human Rights. International Norms and Domestic Change, Cambridge: Cambridge University Press. Rittberger, Volker and Peter Mayer (eds) (1993), Regime Theory and International Relations, Oxford: Oxford University Press. Ronit, Karsten and Volker Schneider (2000), ‘Private organizations and their contribution to problem-solving in the global arena’, in Ronit and Schneider (eds), Private Organizations in Global Politics, London: Routledge, pp. 1–33. Ruggie, John Gerard (2002), ‘Corporate social responsibility and the Global Compact’, Journal of Corporate Citizenship, 5, 27–36. Scharpf, Fritz W. (1991), ‘Die Handlungsfähigkeit des Staates am Ende des zwanzigsten Jahrhunderts’ (The State’s capability to act at the end of the twentieth century), Politische Vierteljahresschrift, 32 (4), 621–34.
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Scherer, Andreas Georg and Guido Palazzo (2007), ‘Towards a political conception of corporate responsibility: business and society seen from a Habermasian perspective’, Academy of Management Review, 32 (4), 1096–120. Schimmelfennig, Frank (2001), ‘The Community trap: liberal norms, rhetorical action, and the Eastern enlargement of the European Union’, International Organization, 55 (1), 47–80. Schmitter, Philippe and Gerhard Lehmbruch (eds) (1979), Trends Toward Corporatist Intermediation, Beverly Hills, CA: Sage. Scholte, Jan Aart (2000), ‘Global civil society’, in Ngaire Woods (ed.), The Political Economy of Globalization, Basingstoke: Macmillan, pp. 173–201. Strange, Susan (1996), The Retreat of the State: The Diffusion of Power in the World Economy, Cambridge: Cambridge University Press. Take, Ingo (2000), ‘The better half of world society’, in Mathias Albert, Lothar Brock and Klaus Dieter Wolf (eds), Civilizing World Politics: Society and Community Beyond the State, Lanham, MD: Rowman & Littlefield, pp. 199–214. Waltz, Kenneth (1977), Theory of International Politics, Reading, MA: Addison-Wesley. Wapner, Paul (1997), ‘Governance in global civil society’, in Oran R. Young (ed.), Global Governance: Drawing Insights from the Environmental Experience, Cambridge, MA: MIT Press, pp. 65–84. Weber, Max (1921), Wirtschaft und Gesellschaft (Economy and society), edited by J. Winkelmann (1976), Tübingen: Mohr. Wolf, Klaus Dieter (1999), ‘The new raison d’état as a problem for democracy in world society’, European Journal of International Relations, 5 (3), 333–63. Wolf, Klaus Dieter (2002), ‘Contextualizing normative standards for legitimate governance beyond the state’, in Jürgen R. Grote and Bernard Gbikpi (eds), Participatory Governance, Opladen: Leske & Budrich, pp. 35–50. Wolf, Klaus Dieter (2006), ‘Private actors and the legitimacy of governance beyond the state’, in Arthur Benz and Yannis Papadopoulos (eds), Governance and Democracy, London: Routledge, pp. 200–227. Zürn, Michael (1998), Regieren jenseits des Nationalstaates (Governance beyond the nation state), Frankfurt a. M.: Suhrkamp.
12 Globalization, transnational corporations and the future of global governance Stephen J. Kobrin
Introduction Globalization is still very partial and incomplete. While the world economy may be global, law, regulation, politics and society are still largely national, only slowly emerging from bounds imposed by the modern international or Westphalian states system. There is a governance gap as politics lags behind markets which extend beyond the reach of nation-states (Habermas 2001); global markets have grown rapidly ‘without the parallel development of economic and social institutions necessary for their smooth and equitable functioning’ (World Commission on the Social Dimension of Globalization 2004, p. xi). We are in the midst of a transition from an international to a transnational or post-Westphalian political–economic system and have not yet developed the modes of cooperation, institutions or even the language necessary to govern an integrated world economy effectively. My concerns in this chapter are the implications of this asymmetry and of the emergence of a transnational world order, for problems of economic governance. I shall focus on problems rather than solutions, on the changing parameters of a new governance regime rather than its precise definition. My objective is to frame the problems that systemic evolution poses for societal control of the economy and economic actors. The post-Westphalian transition The modern Westphalian international order was a coherent system with a well-defined structure. First, it was state-centric: states were the only actors in international politics and the only subjects of public international law. There was a clear distinction between the public sphere of politics and government and the private sphere of markets and economic transactions. Second, it was inherently geographic, based on borders, mutually exclusive territorial jurisdiction and sovereignty. Last, it was anarchic, lacking any central authority. The sovereign, territorial state, which was the primary ‘container’ of politics, provided a territorially bounded space in which ‘the struggles for democracy, the nurturing of social solidarities, and constitutional forms of 249
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government could develop within the framework of the rule of law’ (McGrew 1997, p. 5). International politics entailed interactions among states as governments and the international economy comprised discrete cross-border transactions. The only public international interests were state interests: ‘the public domain, the interstate sphere and the realm of governance were largely coterminous’ (Ruggie 2004, p. 505). We are in the midst of deep-seated change in the organization of the world economy and world politics, a transition to a transnational or postWestphalian order that is in some ways comparable to the transition from the medieval to the modern era in the 16th and 17th centuries (Kobrin 1998). Three aspects of that transition are directly relevant to problems of economic governance: the fragmentation of political authority; the diffusion of the boundary between the public and private spheres; and changes in the nature and meaning of geographic space. In a prescient article over thirty years ago, Nye and Keohane (1971, p. xxi) foresaw the emergence of a transnational order defining world politics as ‘all political interactions between significant actors in a world system in which a significant actor is any somewhat autonomous individual or organization that controls substantial resources and participates in political relationships with other actors across state lines’. While states certainly remain important (perhaps the most important) actors, the system is no longer state-centric: non-governmental organizations (NGOs), multinational corporations and international organizations such as the World Trade Organization (WTO) have emerged as significant transnational actors in world politics. The once clear distinction between the public and private spheres, between politics, law and regulation on the one hand and the market and economic activities on the other has broken down. Public authorities engage directly in economic activities through state-owned or -controlled companies, and private firms take on public functions such as setting standards or providing healthcare. The rise of the ‘competition state’ and the dramatic expansion of the social responsibilities of business firms have blurred the once clear line between public and private sectors. Last, globalization and the revolution in information technology have changed the economic and political meaning of space. Borders are ‘transcended’ rather than crossed, relations become increasingly ‘supraterritorial’ as distance, borders and geographic space itself lose economic and political significance (Scholte 1997). Markets no longer need to be defined in terms of geographic proximity and, in some circumstances, the location of transactions and organizations has become indeterminate. Ruggie characterizes this evolving order as a newly emerging global public domain that is no longer conterminous with the system of states. ‘It
Globalization, TNCs and the future of global governance 251 “exists” in transnational non-territorial spatial formations, and is anchored in norms and expectations as well as institutional networks and circuits within, across and beyond states’ (Ruggie 2004, p. 519). Importantly, it is a system in transition, a world of partial globalization. States are not replaced but rather ‘embedded’ in a broader and deeper ‘transnational arena’. In Rosenau’s (1990) terms, ‘sovereignty free’ and ‘sovereignty bound’ actors coexist with one another. Supraterritoriality coexists with territorial spaces where locality, distance and borders still matter. It is a system in the throes of evolution where uncertainty about structures and relationships abounds. Economic governance Our thesis is that the idea of a self-adjusting market implied a stark utopia. Such an institution could not exist for any length of time without annihilating the human and natural substance of society; it would have physically destroyed man and transformed his surroundings into a wilderness. Inevitably, society took measures to protect itself, but whatever measures it took impaired the selfregulation of the market, disorganized industrial life, and thus endangered society in yet another way. (Polanyi 1944 [1977], p. 3)
Polyani thus described the ‘double movement’ governing the dynamics of a market society: the continuous expansion of the self-regulating market was met forcibly by a countermovement seeking to re-embed the market in the fabric of society. He argued that there was ‘nothing natural about laissez-faire’, that the development of the market required an ‘enormous increase in the administrative functions of the state’ (ibid., p. 139); his thesis that a self-regulating market cannot exist in isolation, that it must be embedded in a social and political order to function, is widely accepted. At a minimum, markets require the establishment of property rights (including intellectual property), contractual conditions, procedures for civil redress and a supply of public goods to function: ‘Economic activities require the existence of rules and their enforcement as preconditions that the market cannot generate itself’ (Scherer et al. 2006, p. 505). Under the modern international states system, economic governance was synonymous with government, it was provided by territorially sovereign states; the structure of the system assumed a geographic congruity between politics, economics and social relations, that the space encompassed by borders had meaning as a political–economic construct. While there was considerable variety in specific political and economic institutions (Hall and Soskice 2001), each state established the rules and provided the enforcement mechanisms necessary for a market to function.
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To a large extent, this was true internationally as well, the international world economy was embedded in the system of sovereign states, both individually and collectively. An international economy is perfectly consistent with the structural characteristics of the Westphalian system: it comprises territorially defined national markets as its constituent units; transactions take the form of discrete cross-border flows of goods and capital; and markets and the location of transactions are fixed in terms of twodimensional space. The problems posed by cross-border flows of trade and investment did not violate the norms or assumptions of the Westphalian international system: they tended to involve the collective determination (by states) of rules governing international transactions and jurisdictional issues of extraterritoriality and overlap in areas such as the enforcement of sanctions or boycotts and taxation. Jurisdictional conflicts, which were the exception rather than the rule, were dealt with by sovereign territorial governments, either individually or collectively. To the extent that the realist distinction between internal and external affairs was preserved and disputes were resolved through traditional interstate mechanisms, the outcomes reflected the norms and values of a political community comprising the sovereign states collectively. Bull (1977, p. 13) defined ‘international society’ as common interests, rules and institutions of states: an international society exists ‘when a group of states, conscious of certain common interests and common values, form a society in the sense that they conceive of themselves to be bound by a common set of rules in their relations with one another, and share in the working of common institutions’. He argued that an element of international society has always been present in the modern international system. The international economy, comprising national markets and discrete cross-border transactions, was embedded in this international society, a political community and social order that consisted of the Westphalian states system. As will be seen, given the fragmentation of political authority and the impact of the digital revolution on the meaning of economic space, borders and territorial jurisdiction, the problems of economic governance are different in kind in a transnational world order. Globalization at this point is partial and incomplete: while the international, territorially rooted system may have been compromised, it has not been replaced by anything approaching a coherent transnational order. There is no transnational social system or political community in which to embed an integrated global economy. I shall next turn to a discussion of the emergence of multinational firms as significant political actors with private political authority. I shall then
Globalization, TNCs and the future of global governance 253 consider the impact of spatial reorganization on governance, particularly the transition from territorial national markets to disaggregated value chains as the constituent units of the world economy. The more general issue of economic governance in a transnational system will then be discussed in the context of a need for a hybrid public–private structure which reflects the idea of a ‘new global public domain’. Finally, I consider the potential impact of this transition to a transnational world order on the firm. Multinational firms as political actors Individuals become part of mass movements for change and action . . . Business gets involved in politics, not as partisans of a political party, but as important actors in global debate. (Blair 2007)
In this speech, Tony Blair recognized the fundamental change that has taken place in the political role of the corporation. Traditional multinational firms are products of the Westphalian international system, corporations ‘which have their home in one country but which operate and live under the laws and customs of other countries as well’ (Lilienthal 1960, p. 119). Each unit of a multinational corporation (MNC) ‘lives’ within a state, it owes its very existence as a legal entity to the government of the national territory in which it is incorporated. ‘[F]or private business enterprises operating transnationally, legal personality is conferred under national and municipal laws, and corporate rights, duties, and remedies remain a function of national law’ (Cutler 2001, p. 141). The multinational firm exercised economic rather than political power. It reflected the relatively clear separation of the private and public spheres, of markets and economic activity on the one hand and politics, law and regulation on the other. That has changed, in practice if not in theory, with the emergence of a postmodern system, the fragmentation of political authority, the rise of significant non-state actors and the blurring of the line between the private and public spheres. A growing number of non-state actors have political authority in the international system: ‘[w]hile these new actors are not states, are not state-based, and do not rely exclusively on the actions or explicit support of states in the international arena, they often convey and/or appear to have been accorded some form of legitimate authority’ (Hall and Biersteker 2002, p. 4). Cutler et al. (1999) argue that private authority involves an organization not associated with government institutions exerting decision-making power which is regarded as legitimate in a particular issue area. Private institutions can become authoritative, and thus be perceived as legitimate, because of perceived expertise, historical practice or an explicit or implicit grant of power by states.
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Ruggie discusses ‘private authority’ and ‘private governance’ in terms of the ‘apparent assumption by TNCs [transnational corporations] and global business associations of roles traditionally associated with public authorities, sometimes in conjunction with CSOs [civil society organizations], but more widely on their own’ (Ruggie 2004, p. 502). In 2002 the United Nations announced that it had ‘abandoned’ its policy of relying on governments to deal with HIV/AIDS in developing countries and that it would now help fund corporate efforts to provide anti-retroviral drugs. The change in policy was seen as ‘an acknowledgement that companies have the resources to find health solutions where governments and NGOs are overstretched or failing’ (Lamont 2002). The battle against AIDS is but one example of multinational firms being asked to take on duties that were historically the responsibilities of governments. The activities of rating agencies provide a second example of the provision of public goods by a private firm. While there are advantages as well as disadvantages to having an independent, private firm judging the creditworthiness of sovereign states, there is no question that the major credit rating agencies are private sector firms who exercise considerable influence ‘over the capacity of sovereign nations to access international capital’ (Abdelal and Brunder 2005, p. 1). Firms such as Standard & Poors and Dun & Bradstreet perform a public function that might well be the province of an international organization, supplying an international public good that can affect the economic and political power of states significantly. They function as actors in the international political system, exercising private political authority. The inclusion of Trade-Related Aspects of Intellectual Property (TRIPS) in the 1994 agreement establishing the WTO provides an excellent example of MNCs functioning as autonomous actors in world politics. As Susan Sell (2003, p. 1) notes, the ‘central player in this drama was . . . the ad hoc US-based twelve member Intellectual Property Committee (IPC)’. In 1986 the IPC mobilized a group of American, European and Japanese firms who drove TRIPS through the GATT/WTO negotiations. While the American government was not opposed to TRIPS, it largely followed the lead of the IPC. There is little question that the IPC functioned as an independent actor in international politics: ‘What is new in this case is that industry identified a trade problem, devised a solution, and reduced it to a concrete proposal that it then advanced to governments . . . In effect, twelve corporations made public law for the world’ (ibid., p. 96). There is an admittedly fine line between business firms as interest groups lobbying their respective governments or international organizations and MNCs as actors in international politics exerting private political authority. In this case, it is clear that the IPC played a direct role in the Uruguay Round
Globalization, TNCs and the future of global governance 255 negotiations: it put the item on the agenda; developed the standards to be negotiated; determined that the best course of action would be to set minimum standards rather than try to harmonize intellectual property rules; and was instrumental in reaching the eventual TRIPS agreement (Santoro 1995; Sell 2003). Private political authority is no longer an oxymoron. The multinational firm’s role in international politics is no longer restricted to indirect participation through lobbying governments and attempting to influence policy positions: they can set standards, supply public goods and participate in international negotiations. They are transnational actors who possess private political authority and are ‘increasingly engaged in authoritative decision making that was previously the prerogative of sovereign states’ (Cutler et al. 1999, p. 16). They participate ‘in the formulation and implementation of rules in policy areas that were once the sole responsibility of the state or international governmental organizations’ (Scherer et al. 2006, p. 506). Ruggie (2004, p. 519) describes this blurring of the private–public boundary in terms of a new global public domain: I define the new global public domain as an institutionalized arena of discourse, contestation, and action organized around the production of public goods. It is constituted by interactions among non-state actors as well as states. It permits the direct expression and pursuit of a variety of human interests, not merely those mediated (filtered, interpreted, promoted) by states. (Ibid., p. 519)
The fragmentation of political authority and the rise of significant nonstate actors complicate the problem of economic governance in a transnational world order in a number of ways. First, governance is no longer synonymous with government, in terms of either individual governments or relations among them in the interstate system. Multiple actors provide public goods and exert significant, legitimate authority in international politics. Any system of governance must reflect this fragmentation of authority: it must involve multiple actors in rule making and rule enforcing. Second, we are in the midst of a transition to a transnational world system, and the political order or society in which the market is to be embedded is far from clear. While I argued above that the Westphalian states system collectively constituted a political order or community in which to embed markets – at least in a metaphorical sense – that no longer will suffice. In fact, given the blurring of the line between public and private, between politics and markets, the concept itself may require reformulation. Markets require a supporting structure that they cannot generate. The institution or institutions that will provide this supporting structure in a transnational world order is a critical and unresolved question.
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The meaning of space The medieval to modern transformation was associated with a transformation in how space and time were experienced, conceptualised and represented. With contemporary globalization we may now be experiencing a similarly radical modern-to-postmodern transformation, with similarly radical consequences for existing territoriality. (Anderson 1996, p. 142)
The medieval to modern transformation (conventionally associated with the Treaty of Westphalia in 1648) entailed the territorialization of politics, the replacement of overlapping and interlaced feudal hierarchies by a system of territorially sovereign states. The cardinal organizing principle of the modern state system is the division of the earth’s surface into mutually exclusive territorial jurisdictions enclosed by discrete and meaningful borders (Ruggie 1993): the state is inherently geographic, with political authority both based upon and defined as a territorial construct (Spruyt 1994). As noted above, a geographically organized international system assumes that the state is the ‘primary container of politics’ and that there is a geographic congruity between politics, economics and social relations; that geographic space has meaning as a political–economic construct. Conceptually, that implies the state’s authority over all economic actors and economic transactions within its borders and over economic activity conducted by its nationals abroad. While that principle led to conflicts over extraterritoriality – attempts to exercise authority over non-nationals abroad – they were limited, the exception rather than the rule (Kobrin 2001). As Anderson suggests, the postmodern transition may well have radical consequences for a political–economic system rooted in mutually exclusive territoriality. I shall discuss four aspects of this transition which impinge on the meaning of space as a political–economic construct and the problems of economic governance: the viability of discrete borders; the increasing indeterminacy of location; the increasing irrelevance of geographic proximity; and the reorganization of international production as a result of the disaggregation of production. All four are, in large part, a function of the digital revolution. If a border is to have significance as an economic construct the relevant government must be able to exert control over flows across it. While no authority has been able to exert complete control over a border – smuggling and illegal migration have always been with us – at this point, the exceptions are becoming the rule. A digital version of a song, movie or book can be transmitted electronically over the internet with the push of a key, rendering borders immaterial in a very real sense. While governments have attempted to exert control over websites in other jurisdictions, successful
Globalization, TNCs and the future of global governance 257 efforts are few and far between. It is far from clear that governmental authorities can exert significant control over ‘cross-border’ flows of digital transactions or that they are even aware of the vast majority of them. Even if the sender’s and recipient’s computers are located in different jurisdictions, the idea of ‘crossing a border’ applies only metaphorically. It is more reasonable to conceive of the book or song ‘rematerializing’ on the recipient’s computer. Similarly, an Indian technology firm can maintain a New York bank’s computer over the internet without any discrete or observable cross-border exchanges taking place. In fact, it is far from clear whether the Indian firm’s effort can be classified as an export in the traditional sense. Borders have become increasingly irrelevant to civil society groups. While NGOs such as Amnesty International have organized global human rights campaigns for some time, they now use the internet to provide ‘peernetworked human rights activism’ (Reynolds 2006, p. 103). A coordinated effort by elements of an NGO located in different states to protest the violation of worker rights by an MNC, for example, is clearly ‘global’ political activity even if none of the participants leaves his/her home country: given access to interconnected global electronic networks, borders become less significant and less of a barrier. Economic governance has traditionally required that transactions and institutions can be located precisely in two-dimensional geographic space. Taxation, consumer protection, corporate regulation and the very legal personality of the corporation itself all depend on being able to establish territorial jurisdiction precisely: we ask where the transaction took place, where the investment originated, where equity capital was raised and where the corporation is located (Kobrin 2002). The question of where a digital transaction takes place, where it is located in two-dimensional geographic space, may no longer be conceptually relevant. If I use my computer in Philadelphia to view a painting on the Louvre’s website, is the digital image in Paris or in Pennsylvania? While the question is debatable, I would argue that in this case, it is not really material. The question, however, has proven to be non-trivial. Two examples will suffice. In 2000, a French court ordered Yahoo to remove auctions of Nazi memorabilia from its US website. Trading in Nazi artifacts is illegal in France, but perfectly legal in the United States. While the case is complex, the French court argued that the fact that the website could be viewed in France gave it jurisdiction, ‘that access by French internet users to the auction website . . . constituted a contravention of French law’ (Akdeniz 2001, p. 110). While territorial sovereignty certainly gives the French government the right to prevent its citizens from purchasing Nazi goods and to ban imports at the border, does it have the right to claim
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jurisdiction over a US website simply because it can be viewed in France? Would that give every jurisdiction control over every website, regardless of location? Is it even possible for the French authorities to be aware of every website around the world offering, for example, electronic copies of Mein Kampf? The problem of internet gambling, which is a major online business, provides a second example of the indeterminacy of location in cyberspace: eight million Americans bet $6 billion annually on the internet (Richtel and Timmons 2006). Internet gambling is legal in a number of locations such as Antigua but illegal in the United States. However, the US government has gone after off-shore gambling operations rather than individual Americans who play electronic poker or bet on horse races on the net. In response, Antigua brought a dispute to the WTO, accusing the US of protectionism against international gambling companies. As of early 2007, the WTO tribunal agreed with Antigua, arguing that the US discriminated between domestic and foreign companies (Pimlott 2007). As with the Yahoo case, the question of the relevance of geographic location arises again. It is far from clear where the transaction actually takes place and it may be difficult to determine where the gambler and website are physically located. Both cases raise serious questions about the viability of a system of economic governance based on territorial jurisdiction when the underlying assumption of locational determinacy is violated. Marshall (1890, p. 384) (citing W.S. Jevons) notes that while the term ‘market’ originally connoted a specific place, ‘this distinction of locality is not necessary. The traders may be spread over a whole town, or region of country, and yet make a market, if they are, by means of fairs, meetings, published price lists, the post-office or otherwise, in close communication with each other’. Two points are important here: markets are defined in terms of geographic jurisdiction (Marshall does allow for world markets as an exception) and actual proximity is not necessary if ‘close communication’ is possible. In practice, while markets could be defined broadly, actual transactions required proximity. The digital revolution has eliminated the need for proximity in many transactions and made geographic or jurisdictional definitions of markets problematic. Marshall’s exception of world markets is becoming the rule, especially in services. Again, two brief examples will suffice. The Indian technology sector has exploded in the last decade and it is now common for software firms in Bangalore to develop both code for American firms and service computers located in New York or London via the internet (Kobrin 2000). It is also increasing common for CAT scans or MRIs (magnetic resonance imaging) obtained after the normal working day to be read by groups of radiologists located in India or Australia: the term ‘Nighthawks’
Globalization, TNCs and the future of global governance 259 has been applied to these groups. With the advent of digital imaging devices and the internet, a service, which in the recent past required a patient and doctor in immediate physical proximity (reading an X-ray) now can be performed anywhere in the wired world (Brody 2004). The problems this poses for governance based on territorial jurisdiction are obvious. The indeterminacy of location and the increasing irrelevance of geographic proximity are components of a significant change in the organization of the world economy which has important implications for governance. Baldwin (2006, p. 7) conceives of successive waves of globalization as two ‘great unbundlings’. The first reflected the decreasing importance of geographic proximity, the need to locate the production of goods close to their consumption. The second, a function of rapidly falling communication and coordination costs, allows the different stages in the value chain itself to be geographically dispersed. Grossman and Rossi-Hansberg (2006, p. 4) describe this phenomenon as a ‘trade in tasks’, arguing that the transport and communications revolution has weakened the link between specialization and geographic concentration, allowing for the separation of ‘tasks’ in the value chain in space and time. ‘International competition plays out not just at the level of the industry, or even the firm, but right down at the level of individual tasks – assembly, packaging, data entry – that cut across whole sectors of the economy’ (Economics Focus 2007, p. 86). The net result is the geographic fragmentation of production processes, or more generally, the disaggregation of supply chains. ‘Firms are less likely to simply make products and export them; they increasingly participate in highly complex cross-border arrangements that involve a wide array of partners, customers and suppliers’ (Gereffi 2005, p. 2). The disaggregation of supply chains and the resulting trade in tasks are manifestations of a seismic reorganization of the global economy: from the organization of production in terms of national markets and discrete cross-border flows to transnational production and supply networks (Gereffi 2005). The basic constituent unit of the global economy is in the process of evolving from territorially defined national markets to disaggregated supply chains comprising in large part trade in individual tasks. The emerging globally integrated enterprise is ‘a company that fashions its strategy, its management, and its operations in pursuit of a new goal: the integration of production and value delivery world wide. State borders define less and less the boundaries of corporate thinking or practice’ (Palmisano 2006, p. 129). Increasingly, the tasks themselves are non-material: they entail the manipulation of ideas and information that can be transmitted anywhere in an instant. While most tasks can be located in two-dimensional geographic
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space (multilocational digital efforts might be an exception), in aggregate the complex supply chain renders location, geographic proximity and territoriality increasingly irrelevant. The implications for economic governance are significant and it is to that topic that I now turn. Economic governance in a transnational world order We have fading borders and this means the instruments of the national states are being constantly eroded. It is no longer possible for the individual states to dictate the rules of the economic game . . . (Benoit 2007, p. 8)
In this interview with the Financial Times, Franz Müntefering, Germany’s Vice-Chancellor, asked whether governments can continue to shape the laws that ‘rule the world’ and do so in a manner that avoids destruction of the social dimension. Bull (1977) asked the same question thirty years ago, trying to imagine alternatives to the international states system. He defined the essential attributes of the system as sovereign states, interaction among them to form a system, and, as noted above, ‘a degree of acceptance of common rules and institutions in respect of which they form a society’ (ibid., p. 225). He then asked what the world order would look like if one or more of these attributes disappeared: a world made up of states and interaction among them without a society would imply the demise of the international order due to the disappearance of common values, rules and institutions; sovereign states without a system would result in isolated states where interaction was minimal. Bull foresaw a world order comprising a system and society without sovereign states, the third alternative, taking the form of either a world government or a new medievalism made up of overlapping authorities and cross-cutting loyalties (ibid., p. 246).1 However, Bull wrote before the rise of autonomous transnational actors, private political authority and the digital transformation of space, before the outlines of the emerging postWestphalian transition became obvious. While neither a world government nor the complete abandonment of state sovereignty is likely, the systemic changes taking place in the international political–economic order can be reconceptualized in terms of two underlying dimensions: the fragmentation of authority as multiple actors emerge from a state-centric system where states were the only legitimate sources of authority and the only subjects of public international law; and changes in the nature of space as borders become more permeable, location less determinate, proximity less important and the root principle of mutually exclusive territoriality increasingly compromised. In Figure 12.1, possible changes in the political–economic system are visualized in terms of four quadrants comprising these two dimensions.
Fragmented: multiple authorities
Parallel universes
Transnational transformation
State-centric
AUTHORITY
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International states system
Transgovernmental relations
Mutually exclusive territorial jurisdiction
Space as relational: territoriality compromised
TERRITORIALITY
Figure 12.1
Possible political–economic systems
The lower left quadrant captures the traditional international system, a state-centric world order based upon mutually exclusive territoriality where all three of Bull’s attributes remain intact. The lower right envisages a world where states remain as the only actors in the system, but territoriality is compromised. A possibility here is Slaughter’s (2004) idea of disaggregated states with transnational governance exercised through networks of government officials preserving the system and society. It is somewhat more difficult to conceive of a system that is based upon mutually exclusive territoriality where political authority has fragmented (upper left). While it may stretch the concept, Rosenau’s (1990) multicentric world of parallel universes of sovereign and non-sovereign actors may apply here The upper right quadrant describes a world where both state-centric political authority and territorial sovereignty are compromised, a transnational transformation where all three of Bull’s (1977) attributes of the international states system are in flux: territorial sovereignty; modes of ‘international’ interaction; and the nature of an international society. Bull’s underlying question remains relevant: how can we reconstruct a system of governance that takes multiple actors, private political authority and the decreased viability of territorial jurisdiction into account and provide a society – rules and institutions perceived as both authoritative
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and legitimate – in which to embed the global market? In essence, we need to provide both a system of interaction and some form of transnational society that encompasses both the fragmentation of authority and the dramatic changes into the nature of space. In this chapter I can provide only the barest outline of an answer to that question and suggest some of the implications for governance of the firm. Governance without government Lamy (2006) notes that the concept of governance disappeared in the 16th century with the emergence of nation-states and the state-centric international system. Government ‘belongs to Westphalian nation states and their particular modes of government, legitimacy and representativeness’; a society such as medieval Europe or the current international order without any organized central power needs governance (ibid., p. 1). In defining the idea of governance without government, Rosenau (1992, p. 1) asked a critical question: ‘if governance connotes a system of rule, and if it is not sustained by an organized government, who makes and implements the rules?’. He goes on to note that ‘to presume the presence of governance without governments is to conceive of functions that have to be performed in any viable human system irrespective of whether the system has evolved organizations and institutions explicitly charged with performing them’ (ibid., p. 3). Any effective post-Westphalian system of economic governance will have to be consistent with the parameters of the evolving transnational order, including the fragmentation of authority, the rise of multiple actors in international politics and the decreased viability of territoriality. Gereffi (2005, p. 37) defines market governance as ‘those institutions, governmental and non-governmental, that both enable and constrain the behavior of markets and market actors’. He argues that three developments may allow the international system to adapt to the task of governing a global market: the thickening of international institutions; the emergence of private forms of governance; and capacity building in developing countries. The first two are directly relevant here. Resolving the asymmetry of partial globalization requires a mechanism to allow politics to catch up with global markets. In the absence of a world government, that will have to include both empowered and authoritative international institutions that bring multiple actors (states, MNCs and NGOs) into the policy formation and decision-making process and hybrid or public–private forms of governance that are perceived as legitimate and authoritative. I shall focus on the latter here. There is increasing interest in ‘the emergence of private locations of authority in the international system, and their implications for the future
Globalization, TNCs and the future of global governance 263 of international order and global governance’ (Hall and Biersteker 2002, p. 7). The concept has been discussed in terms of industry self-regulation (Haufler 2001), private international regimes (Cutler 2002), non-state market-driven governance systems (Cashore 2002) and civil business regulation (Vogel 2006). While the idea of private governance of markets and economic actors is often discussed in terms of business self-regulation, the concept can certainly include cooperative efforts among multiple actors such as business firms and civil society groups, as well as public authorities. Cutler (2005) notes that international legal theory, which is premised on the authority of the territorial state, is at odds with the reality of increasingly authoritative non-state actors and ‘non-state law’. She describes the involvement of states in this process as a deterritorialization and reterritorialization of law, law made by private actors enforced through the apparatus of the state. Regimes have been defined as ‘sets of implicit or explicit principles, norms, rules, and decision making procedures around which actors’ expectations converge’ (Krasner 1982, p. 186). While regime theory was originally conceived in terms of informal arrangements in traditional international politics, more recently the idea has been applied to non-state actors with a private regime defined in terms of ‘an integrated complex of formal and informal institutions that is a source of governance for an economic issue area as a whole’ (Cutler et al. 1999, p. 13). Similarly, Vogel (2006, p. 2) defines civil regulation in terms of private or non-state regulatory frameworks to govern multinational firms and global supply networks. Its defining feature is ‘that its legitimacy, governance and implementation is not rooted in public authority’. It is based on ‘soft law’ or private law. The concept of soft law is important here. Its primary characteristic is that it is non-binding: soft law instruments range from treaties with non-binding obligations, resolutions and codes formulated and accepted by international or regional organizations to statements by private actors which purport to formulate international principles (RohtArriaza 1995). Kenneth Abbott and Duncan Snidal (2000) distinguish between hard and soft law in terms of three characteristics: the degree to which rules are obligatory or legally binding; the precision of the rules; and the delegation of functions such as monitoring and implementation to third parties. Hard law then refers to legally binding, precise obligations that delegate authority for interpreting and implementing the law. Soft law results from relaxing each of these criteria, particularly the first. A number of points are important. First, the hard–soft law distinction is continuous rather than binary. Second, the lack of legally binding obligations does not mean that adherence to soft law is completely voluntary:
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agreements may be enforced through a variety of control mechanisms such as political pressure or public opinion. Third, there are numerous instances of soft law commitments evolving over time into hard international law as much of the soft law of today becomes part of the hard law of tomorrow (Dupuy 1990; Hillgenberg 1999). There are a number of examples of private or hybrid public/private governance regimes that have provided effective governance through soft law in a variety of issue areas. The International Organization for Standardization (ISO), founded in 1946, is a network of the national standards institutes of 156 countries with a central secretariat in Geneva. Each national committee determines its own composition: ISO occupies a special position between the public and private sectors. This is because, on the one hand, many of its member institutes are part of the governmental structure of their countries, or are mandated by their government. On the other hand, other members have their roots uniquely in the private sector, having been set up by national partnerships of industry associations. (ISO 2007)
The ISO’s standards are ‘voluntary’. However, as Roht-Arriaza observes, the process is neither fully private nor fully voluntary: The standards may affect the public regulatory process in a number of ways: global and regional trade agreements may explicitly recognize them; government regulations may refer to them for definition of terms; and government procurement rules may adopt them. Further, market pressure from consumers, financiers, insurers, and competitors may convert them to prerequisites for companies wanting to do business in large markets. (Roht-Arriaza 1995, p. 487)
The ISO engages in what has been termed a form of private lawmaking. It broadened its reach considerably with its 9000 quality control standards in 1987 and is blurring the line between the private and public spheres with its 14000 environmental standards now under consideration. Increasingly, the ISO sets industry standards in conjunction with or in addition to those set by domestic regulators (Spiro 1996, p. 967). Cashore (2002) describes the Forest Stewardship Council which involves both industry and civil society groups and uses eco-labeling to identify forest companies and landowners who practice sustainable forestry. He describes the program as a non-state market-driven entity, as an example of ‘transnational private governance systems that derive their policy making authority not from the state, but from the manipulation of global markets and attention to consumer preferences’ (ibid., p. 504). The idea of governance does not imply that government is irrelevant: while state power has certainly eroded as markets have become global, it has not disappeared. There are still a large number of economic transactions
Globalization, TNCs and the future of global governance 265 that can be governed by states on the basis of territorial sovereignty. However, while states remain ‘essential players, to a considerable and growing extent, rule making, as well as rule elaboration and application . . . are taking place in global settings that, even if established by states . . . conduct their activities . . . with some de facto decision making independence from their creators’ (Cohen and Sabel 2006, p. 165). An effective system of governance of global markets must transcend both mutually exclusive territoriality and sovereign authority. It must exert non-territorial control and involve multiple actors to reflect the fragmentation of political authority. What appears to be evolving is some combination of inclusive and authoritative international organizations and private, soft law-based, governance regimes. Bull’s second concern was a society in which to embed markets and economic actors; some system of norms, rules and institutions. I argued above that under the Westphalian system, international markets comprising discrete cross-border transactions were, to a large extent, embedded in the international state system as a political community with international institutions seen ‘essentially as instruments that states use to achieve common purposes’ (Keohane and Nye 2003, p. 387). If government by states and the states system is replaced (at least in part) by a system of transnational governance, what will constitute the political community or society to confer authority and legitimacy on governance institutions? A critical assumption of the Westphalian system is that of the state as a container, of a congruity between the politics, economics and social relations. Territorial borders delimit political space and provide the basis ‘on which individuals are included and excluded from participation in decisions affecting their lives’ (Held 2006, p. 292). That is no longer the case in an interconnected world where it is increasingly likely that individuals will be affected by decisions made by other states in the system, by private political authorities and by autonomous international organizations. There is ‘less and less congruence between the groups of participants in a collective political decision and the total of all of those affected by the decision’ (Habermas 2001, p. 70). It is difficult to stretch the traditional idea of a political community, either within the bounds of a state or as a society of states, to encompass this complex transnational world order. I have noted elsewhere that ‘our modes of thought are trapped in the modern state system . . . we can only express our concepts of political and economic authority in terms of borders and territorial jurisdiction’ (Kobrin 2004, p. 129). The very concept of territorial jurisdiction is entwined with conceptions of space, distance and identity (Berman 2002). It is difficult to conceive of a society that is not both territorially delimited and based on sovereign authority.
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Reconceptualizing the concept of a ‘society’ in transnational terms requires relational rather than geographic concepts, spaces of flows rather than spaces of spaces (Castells 2000). The transnational space is filled with multiple and overlapping networks of supply chains, multinational firms, transgovernmental relations, international organizations, civil society organizations and private regimes and governance systems. It is reasonable to argue that each of these constitutes a political community or society in Bull’s terms – common norms, rules and institutions. Given the interwoven and networked nature of the transnational political space, it is possible that over time a larger political community will emerge that is congruent with the global economy, a ‘society’ comprising generally accepted norms and rules: The evolution of intersubjective consensuses based on shared fates and common histories, the possession of information and knowledge, the pressure of active or mobilizing publics, and/or the use of careful planning, good timing, clever manipulation, and hard bargaining, can – either separately or in combination – foster control mechanisms that sustain governance without government. (Rosenau 1997, p. 147)
We are immersed in the post-Westphalian transition and can only dimly perceive the emerging outlines of a transnational world order. It is clear, however, that the emergence of effective global economic governance will be a difficult and drawn-out process. We are likely to be left with partial globalization, and all of the problems that entails for governance of the economy and economic actors for some time to come. Implications for the firm Rosenau (1990, pp. 249, 252) posits the coexistence of state- and multicentric worlds where ‘both sovereignty-bound and sovereignty-free actors have come to define themselves as the subject of world politics, while viewing the other as objects’. That contradiction is critical: in a transnational system, multinational firms are both governed and governor, both objects and subjects of international politics. Cutler (2001, p. 137) terms this ‘the problem of the subject’. She notes that the ‘implications of treating corporations, like individuals, as objects and not as subjects are deeply troubling empirically and normatively. When one reviews the activities of business corporations it becomes clear that while they may be objects at law (de jure), they are, in fact, operating as subjects (de facto)’ (ibid., p. 3). Multinational firms are now part of the governance process, entities with duties as well as rights: private political authority is a reality. The idea of private political authority calls into question the liberal distinction between the public and private spheres. Under the Westphalian
Globalization, TNCs and the future of global governance 267 system the state was seen as the locus of political and legal authority and the self-regulating market as an apolitical arena for private economic relations (Cutler 2001). That is no longer a reasonable picture of reality as multinational firms – as well as NGOs and international organizations – are becoming part of a hybrid transnational system of governance. While the very extensive literature on corporate social responsibility acknowledges that corporations have responsibilities to stakeholders over and above their owners (shareholders), few suggest that the corporation has a responsibility to undertake activities that have no relation to profitability (Vogel 2005). At this point, however, an MNC’s public responsibilities could well include the provision of healthcare (for example, dealing with AIDS in Africa), promoting rather than merely observing human rights, maintaining order in failed states and more generally, acting as a provider of public goods. These duties tend to be imposed on the firm as a result of its capabilities and its role as a political actor, and there is no obvious reason why they should bear a relationship to profitability. That raises very basic questions about the social definition of a corporation, and the responsibilities of its managers, which are as yet unresolved. More tangibly, the transnational transformation and its impact on the role and very definition of the MNC raise profound strategic issues for the firm. While non-market or political strategies have been part of the international business literature for some time (Boddewyn and Brewer 1994), transnational politics – the implications of the firm as subject – will have to be incorporated directly into the core strategy of the multinational firm. Since the early pioneering work of Fayerweather (1982), the fundamental strategic problem of the MNCs has been expressed in terms of the tension between exploiting the considerable advantages of the firm’s global footprint and the need to respond to unique political, social and cultural differences in individual markets. Fayerweather expressed this as a tension between pressures for unification and fragmentation of strategy. Bartlett and Ghoshal (1989) greatly developed and expanded the concept. They argued that to fully exploit its strategic potential the firm must simultaneously respond to pressures for adaptation through national responsiveness and efficiency through global integration. Firms which can gain meaningful efficiency benefits through integration (for example, scale, scope or learning) and who face minimal pressures to respond to market differences are classified as ‘globally integrated’. Those to whom returns to efficiency are limited and the pressures to respond to market differences are strong are ‘nationally responsive’. Firms in industries such as pharmaceuticals who simultaneously face strong pressures both to integrate across borders (due to enormous R&D costs) and to respond to national differences (in drug regulation and purchasing) are ‘transnational’.
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Formulating the core strategic problem of the multinational firm in terms of simultaneous pressures to obtain efficiencies through integration and to adapt through responsiveness is consistent with the Westphalian international order. It reflects a world of borders and territoriality where the defining aspect of the MNC involved ‘expansion of the operating horizon of the enterprise beyond the borders of the home nation’ (Tallman and Yip 2003, p. 320). In essence, the framework forces managers to think about when cross-border differences can, and should be, ignored, and when they must be dealt with directly. In a transnational strategic context, borders and territoriality are of diminished import, the line between the public and private spheres has blurred and private political authority is a reality. Increasingly, multinational firms are both objects and subjects, governed and governors, they have duties as well as rights and are increasingly likely to be part of a hybrid, transnational governance regime. This newly emerging non-territorial context requires that pressures for global governance be added to the responsiveness–integration framework. Many multinational firms must now respond strategically to both territorial and non-territorial imperatives. This new third dimension reflects the degree to which firms are likely to have ‘public’ responsibilities imposed on them (for example, the provision of public goods), exercise private political authority or be incorporated in transnational governance regimes. Some firms (or industries) are likely to be unaffected by governance pressures: they remain private market-based economic actors who are objects rather than subjects. Others exercise political power, have explicit duties as well as rights and are part of the governance structure. They are hybrid entities with a presence in both the private and public spheres. I can do no more than speculate on the strategic implications of this added private–hybrid dimension here. One obvious problem is that it does not fit cleanly into the earlier geographically-rooted formulation of an MNC’s strategic calculus. It is a third dimension that is hard to insert into a two-dimensional territorial space. There is no question, however, that it must be dealt with. The extent to which a multinational firm is subject to pressures to respond nationally or integrate globally is a function of industry characteristics. Pressures to function as a hybrid (as opposed to a purely private firm) should also reflect industry characteristics such as political salience (oil or minerals), the degree of oligopoly, whether or not the product is essential (for example, pharmaceuticals), visibility (upstream versus downstream operations) and the impact on the environment or human rights. However, other factors may well come into play here such as region of origin. For example, firms based in democratic societies may be more
Globalization, TNCs and the future of global governance 269 subject to public pressure, and thus more susceptible to accepting public responsibilities, than those based in autocratic regimes. There is no reason to suspect that transnational governance is correlated with either national responsiveness or global integration. Clothing or food firms, where responding to national differences is critical, may well find themselves part of a hybrid regime with NGOs and international organizations which attempts to agree on a schedule of worker rights and perhaps even monitor and sanction violations. Pharmaceutical companies, which are the epitome of a transnational firm, are clearly actors exercising private political authority and an industry which has been successfully pressured to supply public goods. The addition of a governance dimension will significantly complicate the strategic problems faced by multinational firms. First, and most obviously, it requires that the firm deal with three dimensions rather than two simultaneously. More importantly, the new governance dimension is different in kind from the other two. As noted above, there is no reason to assume that governance activities will bear a direct, and perhaps even an indirect, relationship to returns and profitability: they result from the dramatically changed role of the multinational firm in a transnational order. While managers will have to develop strategies that deal simultaneously with integration, responsiveness and governance, to a very real extent, that will entail juggling apples and oranges. The governance dimension may be difficult to evaluate using the metrics common to the other two. Furthermore, if firms are functioning as subjects rather than objects, if they are political actors involved in the determination of political outcomes, then questions of authority, legitimacy and democracy need to be dealt with. Managers of MNEs are certainly not elected nor are they subject to democratic control (Scherer et al. 2006). That raises extremely complex questions of accountability which are not normally relevant in the process of determining strategy (see Keohane and Nye 2003; KoenigArchibugi 2004; Held 2006; Scherer et al. 2006 for a more complete discussion of these issues). Note 1. See Kobrin (1998) for a discussion of neomedievalism.
References Abbott, Kenneth W. and Duncan Snidal (2000), ‘Hard and soft law in international governance’, International Organization, 54 (3), 421–56. Abdelal, Rawi and Christopher M. Brunder (2005), Private Capital and Public Policy: Standard & Poor’s Sovereign Credit Ratings, Boston, MA: Harvard Business School Case. Akdeniz, Yaman (2001), ‘Case analysis of League Against Racism and Antisemitism (LICRA), French Union of Jewish Students, v Yahoo Inc. (USA), Yahoo France, Tribunal
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de Grande Instance de Paris (Country Court of Paris), Interim Court Order, 20, November 2000’, in Electronic Business Law Reports, 1 (3), 110–20. Anderson, James (1996), ‘The shifting stage of politics: new medieval and postmodern territorialities’, Environment and Planning D: Society and Space, 14, 133–53. Baldwin, Richard (2006), Globalization: The Great Unbundling, Helsinki: Economic Council of Finland. Bartlett, Christopher A. and Sumantra Ghoshal (1989), Managing Across Borders: The Transnational Solution, Boston, MA: Harvard Business School Press. Benoit, Bertrand (2007), ‘SPD chief stands by call to tackle “locusts” ’, Financial Times, London, 14 February, p. 8. Berman, Paul Schiff (2002), The Globalization of Jurisdiction: Cyberspace, Nation States, and Community Definition, 166, Hartford, CT: University of Connecticut School of Law. Blair, Tony (2007), ‘Speech to the World Economic Forum Annual Meeting’, 27 January, Davos, Switzerland. Boddewyn, Jean and Thomas Brewer (1994), ‘International business and political behavior: new theoretical directions’, Academy of Management Review, 20 (2), 397–413. Brody, William R. (2004), ‘Nighthawks: global outsourcing comes to radiology’, in Crossroads, http://www.hopkinsmedicine.org/about/Crossroads/09_09_04.html, accessed 3 November 2007. Bull, Hedley (1977), The Anarchical Society: A Study of Order in World Politics, New York: Columbia University Press. Cashore, Benjamin (2002), ‘Legitimacy and the privatization of environmental governance: how non-state market-driven (NMSD) governance systems gain rule-making authority’, Governance, 15 (4), 503–29. Castells, Manuel (2000), The Rise of the Network Society, Oxford, UK and Malden, MA: Blackwell. Cohen, Joshua and Charles Sabel (2006), ‘Extra Rempublicam Nulla Justitia?’, Philosophy and Public Affairs, 34 (2), 148–75. Cutler, A. Claire (2001), ‘Critical reflections on the Westphalian assumptions of international law and organization: a crisis of legitimacy’, Review of International Studies, 27, 133–50. Cutler, A. Claire (2002), ‘Private international regimes and interfirm cooperation’, in Rodney Bruce Hall and Thomas J. Biersteker (eds), The Emergence of Private Authority in Global Governance, Cambridge: Cambridge University Press, pp. 23–40. Cutler, A. Claire (2005), ‘Critical globalization studies and international law under conditions of post modernity and late capitalism’, in P. Appelbaum and William I. Robinson (eds), Critical Globalization Studies, New York and London: Routledge, pp. 197–205. Cutler, A. Claire, Virginia Haufler and Tony Porter (1999), ‘Private authority and international affairs’, in Cutler, Haufler and Porter, Private Authority and International Affairs, Albany, NY: State University of New York Press, pp. 3–28. Dupuy, Pierre-Marie (1990), ‘Soft law and the international law of the environment’, Michigan Journal of International Law, 12, 420–35. Economics Focus (2007), ‘The great unbundling’, The Economist, 18 January, p. 86. Fayerweather, John (1982), International Business Strategy and Administration, Cambridge, MA: Ballinger. Gereffi, Gary (2005), ‘The new offshoring of jobs and global development’, paper presented at ILO 7th Nobel Peace Prize, Social Policy Lectures, Kingston, Jamaica, 5–7 December. Grossman, Gene and Esteban Rossi-Hansberg (2006), The Rise of Offshoring: It’s Not Wine for Cloth Anymore, Princeton, NJ: Princeton University Press. Habermas, Jürgen (2001), The Postnational Coalition: Political Essays, Cambridge: MIT Press. Hall, Peter and David Soskice (2001), Varieties of Capitalism, Oxford: Oxford University Press. Hall, Rodney Bruce and Thomas J. Biersteker (2002), ‘The emergence of private authority in the international system’, in Hall and Biersteker (eds), The Emergence of Private Authority in Global Governance, Cambridge: Cambridge University Press, pp. 3–22. Haufler, Virginia (2001), A Public Role for the Private Sector: Industry Self-Regulation in a Global Economy, Washington, DC: Carnegie Endowment for International Peace.
Globalization, TNCs and the future of global governance 271 Held, David (2006), Models of Democracy, Stanford, CA: Stanford University Press. Hillgenberg, Hartmut (1999), ‘A fresh look at soft law’, European Journal of International Law, 10 (3), 499–515. ISO (2007), http://www.iso.org/iso/en/aboutiso/introduction/index.html, accessed 21 September 2007. Keohane, Robert O. and Joseph S. Nye (2003), ‘Redefining accountability for global governance’, in Miles Kahler and David Lake (eds), Governance in a Global Economy: Political Authority in Transition, Princeton, NJ: Princeton University Press, pp. 386–412. Kobrin, Stephen J. (1998), ‘Back to the future: neomedievalism and the postmodern digital world economy’, Journal of International Affairs, 51 (2), 361–86. Kobrin, Stephen J. (2000), ‘Development after industrialization: poor countries in an electronically integrated global economy’, in Neil Hood and Stephen Young (eds), The Globalization of Multinational Enterprise Activity and Economic Development, New York: St. Martin’s Press, pp. 133–54. Kobrin, Stephen J. (2001), ‘Sovereignty@Bay: globalization, multinational enterprise and the international political system’, in Thomas Brewer and Allan Rugman (eds), Oxford Handbook of International Business, Oxford: Oxford University Press, pp. 181–205. Kobrin, Stephen J. (2002), ‘Economic governance in an electronically neworked global economy’, in Rodney Bruce Hall and Thomas J. Biersteker (eds), The Emergence of Private Authority in Global Governance, Cambridge: Cambridge University Press, pp. 43–75. Kobrin, Stephen J. (2004), ‘Safe harbors are hard to find: the trans-Atlantic data privacy dispute, territorial jurisdiction and global governance’, Review of International Studies, 30, 111–31. Koenig-Archibugi, Mathias (2004), ‘Transnational corporations and public accountability’, Government and Opposition, 39 (2), 234–59. Krasner, Stephen (1982), ‘Structural causes and regime consequences: regimes as intervening variables’, International Organization, 36 (2), 185–205. Lamont, James (2002), ‘UN seeks help from companies in war on HIV/AIDS’, Financial Times, 1, 30 August, London, p. 1. Lamy, Pascal (2006), ‘Globalization and global governance’, in The Globalist, http://www. theglobalist.com/DBWeb/getArticle.aspx?StoryId=5740, accessed 3 November 2007. Lilienthal, David (1960), ‘The multinational corporation’, in Ashen Melvin and G.L. Bach (eds), Management and Corporations, 1985, New York: McGraw-Hill, pp. 119–59. Marshall, Alfred (1890), Principles of Economics, New York: Macmillan. McGrew, Anthony (1997), ‘Globalization and territorial democracy: an introduction’, in McGrew (ed.), The Transformation of Democracy, London: Polity, pp. 1–24. Nye, Joseph S., Jr and Robert O. Keohane (1971), ‘Transnational relations and world politics: an introduction’, in Keohane and Nye (eds), Transnational Relations and World Politics, Cambridge, MA: Harvard University Press, pp. ix–xxix. Palmisano, Samuel (2006), ‘The globally integrated enterprise’, Foreign Affairs, 85 (3), 127–36. Pimlott, Daniel (2007), ‘WTO rules against US in internet gambling case’, Financial Times, London, 27 January, p. 7. Polanyi, Karl (1944 [1977]), The Great Transformation, Boston, MA: Beacon Press. Reynolds, Glenn Harlan (2006), ‘Does power grow out of the barrel of a modem: some thoughts on Jack Goldsmith and Tim Wu’s Who Controls the Internet?’, Stanford Law and Policy Review, 20, 101–7. Richtel, Matt and Heather Timmons (2006), ‘The gambling is virtual; the money is real’, New York Times, New York, 25 July, p. 1, section C. Roht-Arriaza, Naomi (1995), ‘Shifting the point of regulation: the international organization for standardization and global lawmaking on trade and the environment’, Ecology Law Quarterly, 22, 479–539. Rosenau, James N. (1990), Turbulence in World Politics, Princeton, NJ: Princeton University Press.
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Rosenau, James N. (1992), ‘Governance, order and change in world politics’, in Rosenau and Ernst-Otto Czempiel (eds), Governance without Government: Order and Change in World Politics, Cambridge: Cambridge University Press, pp. 1–29. Rosenau, James N. (1997), Along the Domestic–Foreign Frontier: Exploring Governance in a Turbulent World, Cambridge and New York: Cambridge University Press. Ruggie, John Gerard (1993), ‘Territoriality and beyond: problematizing modernity in international relations’, International Organization, 47 (1), 139–74. Ruggie, John Gerard (2004), ‘Reconstituting the global public domain: issues, actors and practices’, European Journal of International Relations, 10 (4), 499–531. Santoro, Michael A. (1995), Pfizer: Global Protection of Intellectual Property, Boston, MA: Harvard Business School Case. Scherer, Andreas Georg, Guido Palazzo and Dorothee Baumann (2006), ‘Global rules and new private actors: toward a new role of the transnational corporation in global governance’, Business Ethics Quarterly, 16 (4), 505–32. Scholte, Jan Aart (1997), ‘Global capitalism and the state’, International Affairs, 73 (3), 427–52. Sell, Susan K. (2003), Private Power, Public Law: The Globalization of Intellectual Property Rights, Cambridge: Cambridge University Press. Slaughter, Anne-Marie (2004), A New World Order, Princeton, NJ: Princeton University Press. Spiro, Peter J. (1996), ‘New global potentates: nongovernmental organizations and the “unregulated” market place’, Cardzo Law Review, 18, 957–69. Spruyt, Hendrik (1994), The Sovereign State and Its Competitors, Princeton, NJ: Princeton University Press. Tallman, Stephen B. and George S. Yip (2003), ‘Strategy and the multinational enterprise’, in Alan M. Rugman and Thomas Brewer (eds), The Oxford Handbook of International Business, Oxford: Oxford University Press, pp. 317–48. Vogel, David (2005), The Market for Virtue, Washington, DC: Brookings Insitute Press. Vogel, David (2006), The Private Regulation of Global Corporate Conduct, Berkeley, CA: Department of Political Science, University of California. World Commission on the Social Dimension of Globalization (2004), A Fair Globalization: Creating Opportunities for All, Geneva: International Labour Office.
13 Between confrontation and cooperation: corporate citizenship and NGOs Jonathan P. Doh
Introduction This book is concerned with the process and impact of corporate citizenship. It seeks to identify and analyze antecedents, actions and outcomes of corporate citizenship behaviors. One important set of institutional actors that have had a substantial influence on corporate citizenship are civil society and non-governmental organizations (CSOs or NGOs).1 According to Matten and Crane (2005, p. 171), ‘probably the most important transition raising the prospect of corporate involvement in citizenship rights is the failure of nation-states to be the sole guarantor of these (citizenship) rights any longer’. This same reality has resulted in increasing involvement of NGOs in helping to redefine the citizenship obligations of companies, and the mechanisms through which firms respond to those obligations. In this chapter, two primary mechanisms by which NGOs influence corporate citizenship are explored. The first might be termed NGO ‘activism’ or ‘advocacy’. NGOs have been among the most vocal and influential critics of the influence of corporations on society. These criticisms have ranged from broad indictments of the negative influence of globalization and multinational corporations (MNEs) on the social and environmental fabric of societies, to specific assertions regarding workplace practices of companies doing business in the developing world. NGOs have thus advocated for changes in corporate behavior and of laws regulating corporations by protesting, boycotting, targeting and otherwise communicating their displeasure. These actions have had real and tangible effects. More recently, some NGOs have taken a different tack. Rather than target companies through various types of advocacy campaigns, these NGOs have developed cooperative relationships with companies through which they collaborate on solutions to some of the negative consequences of corporate behavior and more broadly, assist companies in developing corporate citizenship initiatives. In this chapter, I discuss the emerging role of NGOs as important institutional actors in global business–society relationships and corporate citizenship. I begin with some basic definitions and classifications to position NGOs among the other institutional actors in business citizenship. I then 273
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turn to the historical background and growing influences of NGOs on global governance before exploring corporate–NGO relationships. Here, I focus on both the confrontational and collaborative relationships but emphasize the latter because it is these more cooperative interactions that appear to have the potential to substantially influence corporate citizenship behaviors. I conclude with some questions and future research directions. Non-governmental organizations: definitions and classifications NGOs constitute an important and influential set of actors within the broad context of business and society and corporate citizenship. NGOs have emerged as critical players in shaping governmental policy and practice, influencing legal and governance structures globally, and, ideally, directly shaping corporate and business activities. Although NGOs or their equivalents have been part of human societies for centuries, in recent decades they have grown in number, power and influence. They have been influential in a range of major public policy debates and NGO activism has been responsible for major changes in public policy, law and regulation, and in reform of corporate behavior and governance (Doh and Teegen 2003; van Tuijl 1999). Estimates of the number of NGOs vary widely, although almost all analysts agree that the number is increasing dramatically. In 1993, the United Nations Development Program identified 50 000 NGOs worldwide (Kellow 1999). In 2002, the total size of the ‘independent sector’ (non-firm, nongovernment) in the United States was estimated at 1.4 million organizations, with revenues of nearly $680 billion and an estimated 11.7 million employees (Independent Sector 2004). Despite differences in estimates, most observers agree that NGOs are important organizations within society. Hart and Milstein (2003, p. 58) note, ‘as the power of national governments has eroded in the wake of global trade regimes, non-governmental organizations (NGOs) and other civil society groups have stepped into the breach’. Civil society, also referred to as the ‘third sector’ or the ‘nonprofit sector’, is used to broadly describe all aspects of society that extend beyond the realm of the public sector and the traditional private sector. Although the term ‘NGO’ is relatively recent, associations among like-minded individuals have been part of ancient and modern history. When Alexis de Tocqueville (1805–59) first visited the United States, he was impressed that Americans were ‘forever forming associations’ (de Tocqueville 1835, p. 513). When individuals or groups within civil society work together to advance a broad common set of interests and these interests become a significant force in shaping the direction of society, social movements emerge as the outcomes of this process. Social movements are broad societal initiatives
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organized around a particular issue, trend or priority. Modern examples include the environmental movement and the feminist movement. When civil society groups band together to form organized relationships, the emergent entities are often referred to as NGOs. NGO is a broad term that somewhat loosely refers to all organizations that are not official parts of government (at any level), nor private, for-profit enterprises. Within the NGO category, however, are many different types, characteristics and purposes. We can first separate ‘club’ and ‘social purpose’ NGOs (Teegen et al. 2004). Those that arise from social movements are social purpose NGOs. These are accountable primarily to the clients they serve, such as environmental, human rights, poverty relief and health NGOs. Club NGOs are membership associations designed primarily to provide a benefit to their members, generally because of pooling interests. Examples of club NGOs are unions, business associations, sports clubs and other voluntary associations. In most of the contemporary literature on NGOs, the focus is on those who operate within the social purpose realm. The United Nations describes an NGO as: Any non-profit, voluntary citizens’ group which is organized on a local, national, or international level. Task-oriented and driven by people with a common interest, NGOs perform a variety of services and humanitarian functions, bring citizens’ concerns to governments, monitor policies and encourage political participation at the community level. They provide analysis and expertise, serve as early warning mechanisms, and help monitor and implement international agreements. (UN 2003, Paragraph 1)
A more succinct definition is offered by Teegen et al. (2004, p. 466). They describe social purpose NGOs as ‘private, not-for-profit organizations that aim to serve particular societal interests by focusing advocacy and/or operational efforts on social, political and economic goals, including equity, education, health, environmental protection and human rights’. Broadly speaking, NGOs contribute to codes of conduct, provide training, offer resource access and knowledge concerning the delivery of goods and services, share best practices and create and support institutional settings that promote social welfare. Teegen et al. further differentiate among various functions of NGOs. ‘Advocacy’ NGOs work on behalf of others who lack the voice or access to promote their interests. They engage in lobbying, serve as representatives and advisory experts to decision makers, conduct research, hold conferences, stage citizen tribunals, monitor and expose actions (and inactions) of others, disseminate information to key constituencies, set and define agendas, develop and promote codes of conduct, and organize boycotts or
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investor actions. In these ways, NGOs give voice and provide access to institutions to promote social gain or mitigate negative spillovers from other economic activity. ‘Operational’ (or programmatic or service-oriented) NGOs provide goods and services to clients with unmet needs. NGOs have long stepped in to serve as critical safety nets, where politically challenged, indebted or corrupt states are unable or unwilling to provide for unmet needs, and where global problems defy neat nation-state responsibilities. Examples of such operational activities include relief efforts provided by the Red Cross or Red Crescent, environmental monitoring and programming by the World Wide Fund for Nature (WWF), and the distribution of medicinal drugs by Doctors without Borders. Although some NGOs focus primarily on advocacy or operational service delivery, many pursue both sets of activities simultaneously, or evolve from one to the other. For example, Oxfam, the global development and poverty relief organization, advocates for changes in public policy that would provide greater support to its efforts while also contributing directly to health, education and food security in the developing countries in which it operates. Similarly, Doctors without Borders and WWF are active on the ground, delivering services in their respective domains, but also simultaneously lobby in the political and regulatory arenas. A brief example illustrates the relationship among civil society, social movements and the emergence (and convergence) of different types of NGOs. Environmental conservation has long been of concern to civil society in North America. A strong and ongoing conservation movement gave rise to two service-oriented environmental organizations, the Nature Conservancy, founded in 1951, and the World Wildlife Fund, founded in 1961. This longstanding movement, in conjunction with a growing social movement and related activism over civil rights and the Vietnam War in the early and mid-1960s, gave rise to the environmental movement of the 1960s. This movement gained momentum after the publication of Rachel Carson’s Silent Spring (1962) which exposed the hazards of the pesticide DDT, eloquently questioned humanity’s faith in technological progress and helped set the stage for the environmental movement. This movement, in turn, paved the way for the creation of a number of environmental advocacy organizations, such as the Environmental Defense Fund (founded in 1967) and the National Resource Defense Council (founded in 1970). Over time, many environmental advocacy organizations developed more of a service focus, and many service NGOs began to take positions on environmental policy issues, creating some convergence in these organizations and their missions. Figure 13.1 presents a stylized depiction of this evolution.
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Civil Society
Social Movement (1960s Civil Rights/ Advocacy)
Social Movement (Environmental Movement)
Advocacy NGOs (Environmental Defense Fund, National Resources Defense Council)
Social Movement (Conservation Movement)
Operation NGOs (World Wildlife Fund, The Nature Conservancy)
Figure 13.1 Relationship among civil society, social movements and NGOs: the example of the environmental movement The growing influence of NGOs on global governance There is increasing interest in – and awareness of – the role of NGOs in global governance. According to Lindenberg (1999), fiscal crises, ideological shifts and privatization have all led to a decline in the scope and capacity of the state. In response, a growing global not-for-profit sector has emerged that, in part, has begun to fill the humanitarian vacuum left by the corporate sector and the nation-state. The number of NGOs in the world has swelled in recent decades (Spar and La Mure 2003). As noted above, a number of global events have led to this increase. One impetus in the recent resurgence in civil society is the political failures of centrally planned economies such as the former Soviet Union and Central and Eastern Europe. NGOs have also emerged as a result of political and social pressures, as represented in the Reagan and Thatcher governments, which have resulted in the decline of the state in certain domains (Lindenberg 1999). Globalization is another important force in NGO history. Some NGOs have focused on the negative externalities of globalization and targeted MNCs in their campaigns. According to Argenti (2004, p. 93), NGO analyst Simon Heap argues that ‘as the balance of power shifted from
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governments to multinational corporations, NGOs had no choice but to change their approach to social problems’. Paradoxically, globalization has also provided NGOs with tools and means to advance their agenda, such as the creation of virtual networks and electronic fora to recruit members, mobilize actions and publicize information. The modern era of NGO activism can be traced to the 1960s and 1970s when a number of civil rights, environmental and women’s groups emerged to advocate for changes in public policy and corporate practices in a range of areas. In the late 1970s, a number of NGOs initiated a boycott of Nestlé over its marketing and distribution of an infant formula (see Sethi 1994; Newton 1999). In particular, Nestlé S.A. was accused by a number of activist investors, such as the Interfaith Center for Corporate Responsibility (ICCR) and NGOs such as the Infant Formula Action Coalition (INFACT) of adopting deceptive hard-sell promotional practices to scare mothers in the developing world into using formula over breast milk (Newton 1999). Another important milestone in the modern era of NGO activism can be traced to 1984, when a range of NGOs, including church and community groups, human rights organizations and other anti-apartheid activists, built strong networks and pressed US cities and states to divest their public pension funds of companies doing business in South Africa. The Act banned new US investment in South Africa, export sales to the police and military, and new bank loans, except to support trade. The combination of domestic unrest, international governmental pressures and capital flight posed a direct, sustained and ultimately successful challenge to the white minority rule, resulting in the collapse of apartheid (Doh and Guay 2004). According to O’Brien et al. (2000), the contest to shape global governance is increasingly being conducted on a number of levels and among a diverse set of actors. One facet of this broadening is the increasing engagement between international institutions and sectors of civil society that are producing new forms of international organization. O’Brien et al. examine the relationship between the multilateral economic institutions (MEIs) and global social movements (GSMs), arguing that the interactions between MEIs and GSMs constitute a new form of ‘complex multilateralism’. They examine the International Monetary Fund (IMF), the World Bank and the World Trade Organization, and their interactions with the environmental, labor and women’s movements. They show how civil society organizations (NGOs) are becoming increasingly intertwined in the governance mechanisms and policy initiatives of these organizations. More specifically, NGOs have pushed to have greater access to trade policy and international governmental agreements and processes, systems that have historically been limited to governments acting as agents of their domestic constituencies. NGOs have expressed a great deal of interest in
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the trade policy dispute settlement mechanism under the General Agreement on Tariffs and Trade (GATT) and its successor agreement, the World Trade Organization (WTO) and regional agreements such as the European Union (EU) and the North American Free Trade Agreement (NAFTA). Indeed, substantial reforms to the WTO, the World Bank and the IMF in the areas of transparency and access are due, in part, to NGO pressure. Among the key events that led to this change are the political debate in the United States over NAFTA which included active NGO participation, protests (sometimes violent) in key capitals around the world at meetings of the WTO, IMF/World Bank, G-7/8, World Economic Forum and others, as well as the changing nature of issues under consideration at these institutions that naturally involve actors that were traditional constituencies of these organizations. One case was especially critical in helping to catalyze NGO involvement in trade matters, the so-called ‘tuna–dolphin’ case. This case was somewhat of a landmark in launching NGO activism in the trade–environmental arena and also became a cause célèbre in the NAFTA negotiations. Under the Marine Mammal Protection Act (MMPA), the United States banned the importation of tuna from certain countries that were caught in a manner that also caused harm to dolphins. The United States faced a GATT challenge from Mexico and Venezuela, two of the countries from which tuna had been banned over these restrictions. The Panel ruled against the United States in both cases, in 1991 and 1992, and the reaction from environmental NGOs constituted a rallying cry to efforts by activists to gain access to multilateral trade dispute settlement processes and to incorporate environmental commitments in government-negotiated trade agreements. While the panel decision was never adopted by the GATT members (before the reform of the Dispute Resolution system in the Uruguay Round of multilateral negotiations, adoption of the findings of a panel could be blocked by a single member, including the country found to be in violation), eventually, the matter was resolved through bilateral negotiations that led to the creation of an international dolphin conservation program. More broadly, NGOs were emboldened by this experience and have become a permanent fixture in global and regional trade discussions (see Doh and Kotschwar 2004). NGOs have also been very active in collective efforts to develop, implement and enforce industry-wide standards, codes of conduct and agreements. Examples of intergovernmental agreements that were shaped and influenced by NGOs include the environmental and labor agreements negotiated as part of the NAFTA, the UN Global Compact on business responsibility, the International Labour Organization Declaration of Principles concerning Multinational Enterprises and Social Policy and the
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Organization for Economic Cooperation Guidelines for MNEs. Examples of international codes sponsored directly by not-for-profit NGOs include the Social Accountability International SA8000 standard, Rugmark, a standard that certifies rugs and carpets as meeting basic standards for labour and human rights and the Forest Stewardship Council (FSC) standard that certifies lumber as consistent with sustainable practices. There are many, many other global codes, agreements and standards that have been developed, in part or whole, by NGOs acting alone or in conjunction with governments and companies. An interesting example is the Extractive Industries Transparency Initiative (EITI). During the late 1980s and 1990s, NGOs such as Catholic Relief Services, Oxfam International, Global Witness and others became increasingly concened about the human rights, labor and workforce conditions, and environmental consequences of extractive industries such as oil and gas, mining and forestry. As a result of aggressive actions by these NGOs and many developed country governments, the EITI was announced by UK Prime Minister Tony Blair at the World Summit on Sustainable Development in Johannesburg in September 2002. Its goal is to increase transparency over payments by companies to governments and to government-linked entities, as well as transparency over revenues by those host country governments. The objective is to increase accountability and transparency in these revenues and to increase the likelihood that greater shares of these revenues will be used for positive economic and social development in these countries. EITI has issued a set of reporting guidelines, a Statement of Principles, available on its official website and six criteria which represent the global minimum standard for EITI implementation. EITI received official endorsement from the World Bank Group, and in May 2005 an International Advisory Group (IAG) was established under the Chairmanship of Peter Eigen, which includes governments, MNEs and NGOs. NGOs are also major actors in foreign aid. Over 15 per cent of total overseas development aid is channeled through NGOs. Indeed, a report published by the United Nations and the NGO SustainAbility notes that the global nonprofit sector, with its more than $1 trillion turnover, could rank as the world’s eighth largest economy. Teegen et al. (2004) argue that the emergence of civil society in general, and the activism of civic NGOs in particular, have broad implications for the role, scope and definition of corporations in the global economy. Doh and Teegen (2003) point out that the emergence of NGOs, in some cases, has supplanted the role of host governments in the historic business–government bargaining relationship such that NGOs yield significant power over the MNEs’ right to operate in developing countries.
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Another vehicle used by NGOs to advance their agenda is shareholder activism. Increasingly, these activities are global in scope. NGOs may buy shares of corporations and use ownership to promote proxies and other resolutions to effect change. They often use their status to urge institutional shareholders, such as large public employee pension and retirement funds, to pressure changes in corporate governance and conduct. They also work with and through socially responsible investment funds, serving as advisors and experts on ethical and social responsibility screens used to determine the composition of such funds and by drawing attention to shortcomings in the mechanisms used by such funds to choose and retain specific stocks (Guay et al. 2004). NGOs and business: confrontation and cooperation NGOs and corporations are experiencing increasing interactions of both a cooperative and confrontational nature. Concerns about the consequences of globalization, economic integration and expansion of capitalist business systems and practices provoke close scrutiny of the activities of corporations. These concerns have also stimulated the growth of an active NGO sector dedicated to improving the social welfare of communities and societies, especially in areas such as human rights, poverty relief, health and safety, and environmental protection. Some NGOs have explicitly targeted corporations through various campaigns, seeking to pressure companies and managers to assume greater responsibility for the perceived negative spillovers of their action. Corporate citizenship and corporate responsibility have increased contacts between NGOs and corporations. The mechanisms by which firms achieve their citizenship goals are broad. However, increasingly these strategies involve some kind of relationship with NGOs. Den Hond and De Bakker (2007, p. 901) argue that ‘as the responsibility for addressing a variety of social issues is being transferred from the state to the private sector, activist groups increasingly challenge firms to take up such issues, seeking to influence the nature and level of corporate social change activities’. They propose that ideological differences among activist groups motivate them to choose different influence tactics to support their claims within contextual environments that vary in terms of their institutional state. In this section, the focus is primarily on the more cooperative and collaborative relationships. Collaborations among corporations and NGOs are a growing subject of management research (Hess et al. 2002; Doh and Teegen 2003; Rondinelli and London 2003). Sometimes termed ‘social partnerships’, collaborative social initiatives and social alliances, relationships between NGOs and companies comprise an exchange of complementary resources not unlike those that occur in other types of alliances among private sector firms
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(Waddock 1988; Pearce and Doh 2005). For NGOs, partnerships with corporation may yield financial, human resources and reputation benefits. For corporate partners, relationships with NGOs provide access to skills, competencies and capabilities that support their corporate social responsibility efforts and are otherwise unavailable within their organization or from alliances with for-profit firms. These ‘combinative’ capabilities have the potential to provide both partners with discernible benefits (Kogut and Zander 1992). One challenge in reviewing literature and contributions on corporate–NGO engagement, especially that involving collaborative or cooperative relations, is that ‘studies of CSSPs [cross-sectoral social partnerships, corporate–NGO relationships] emerge from various disciplines such as organization studies, public policy and administration, economics, nonprofit management, healthcare, education, and the natural environment’ (Selsky and Parker 2005, p. 850). Within the business and society/social issues in management literature, this type of collaboration has been defined as ‘a temporary social arrangement in which two or more social actors work together toward a single common end requiring the transmutation of materials, ideas, and/or social relations to achieve that end’ (Roberts and Bradley 1991, p. 212, as quoted in Parker and Selsky 2004, p. 460). Hess et al. (2002, p. 110) report that ‘many of these new corporate social initiatives are taking on aspects more commonly associated with corporate strategy than community relations; they are grounded in the core competencies of the firm and related to the firm’s long-term strategy’. As Selsky and Parker note in their review of literature on CSSPs, the terminology for these relationships vary, and include social partnerships (Waddock 1988, 1991), intersectoral partnerships (Waddell 2000), social alliances (Berger et al. 2004), issues management alliances (Austrom and Lad 1989), and strategic partnerships (Ashman 2001). Business–NGO cooperation may also be viewed within the realm of network theory, an extension of the resource-dependency perspective. From this vantage, relationships among corporations and NGOs may comprise an exchange of complementary resources not unlike those that occur in other types of alliances among private sector firms (Eisenhardt and Schoonhoven 1996). Alliances involve resource complementarities among firms (Harrison et al. 2001), some of which include social effects, including legitimacy (Eisenhardt and Schoonhoven 1996; Das and Teng 1998) which appears to be a principal goal of corporations in their cooperative behavior toward NGOs. Argenti (2004), for example, details Starbucks’ ongoing relationship with Conservation International and other NGOs. More broadly, perceived mutual dependencies have been shown to motivate potential partners to come together. Resource dependence theorists
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have suggested that the development of interorganizational ties such as strategic alliances result from underlying resource dependencies (Pfeffer and Nowak 1976). Several studies in the 1960s and 1970s showed that an important reason for ties between human service agencies was their perceived strategic interdependence with each other (for a review, see Oliver 1990). This research suggested that organizations enter partnerships when they perceive critical strategic interdependence with other organizations in their environment (Schermerhorn 1975; Whetten 1977). More recently, Gulati (1995) tested how the social context emerging from prior alliances and considerations of strategic interdependence influence partnership decisions between firms. He found that this social network facilitates new alliances by providing valuable information to firms about the specific capabilities and reliability of potential partners. He also found that connected firms would enter alliances more frequently if the firms were interdependent to begin with and that there would thus be interactions between interdependence and common ties and between interdependence and distance. Trust is a fundamental principle in social network theory and perspectives on social capital (Burt 2000). Research has shown the reciprocal effects of trust in alliance relationships, demonstrating that trust leads partners to integrate the alliance into their own strategic framework (Johnson et al. 1996). Another study of strategic alliances suggests that trust plays a stronger role in improving alliance performance than do sales or profitability (Luo 1998). Business–NGO relationships are dynamic and evolutionary. Austin (2000) describes three stages in the ‘Collaborative Continuum’ in the US: philanthropic, transactional and integrative. The philanthropic stage is the most traditional and common relationship, where business generally makes a monetary donation to the nonprofit sector. The transactional stage includes specific activities and a two-way value exchange. The integrative stage is still small (but growing), and sees the collaboration combining values, missions and strategies. According to Austin, there is a significant shift among businesses in the US to the transactional stage, with some evidence that corporations and NGOs are increasingly pursuing integrative relationships. Building on Austin’s typology, Lindenberg (2001) argues that nonprofit–business partnerships can be conceptualized along a continuum that includes suspicion, interaction, philanthropy, transactional and integrative behavior (see Figure 13.2). Parker and Selsky (2004, p. 458) examined the behavioral dynamics of cause-based partnerships (CBPs). They argue that the dynamics of these relationships can be best understood in terms of an emergent culture. They present three scenarios – integration, reculturation and separation – to illustrate how participants in CBPs ‘continually negotiate a workable set of
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Suspicion
Interaction
Philanthropy
Transactional
Integrative
Sources: Adapted from Austin (2000) and Lindenberg (2001).
Figure 13.2
Continuum of corporate–NGO engagement
cultural practices among themselves’. In their review of literature on corporate, not-for-profit and public sector relationships, Selsky and Parker (2005) suggest that project-based CSSPs occur in four ‘arenas’: business–nonprofit, business–government, government–nonprofit and trisector. They argue that ‘demands for corporate social responsibility encourage businesses to partner, nonprofits are motivated by demands for improved efficiency and accountability, and governments are encouraged to provide more benefits and services while being both less intrusive and more transparent’ (ibid., pp. 850–51). There is some evidence that direct and ongoing engagement with NGOs is more likely in the more advanced stages in development of corporate citizenship policies and that companies in earlier stages are less equipped to take on the challenges associated with close collaborations (Mirvis and Googins 2006). Although there have been limited attempts to provide generic classifications of corporate approaches to these relationships (for example, ‘proactive’ versus ‘reactive’, see Rondinelli and London 2003), there have been few systematic efforts to locate these relationships within the broader relationships among stakeholders in business and society, with some exceptions (Doh and Teegen 2003; Spar and La Mure 2003; Yaziji 2004). It is important to note that engagement in a cross-sector alliance presents challenges for both corporate and NGO participants. Corporations and NGOs have fundamentally different structures and values (Rondinelli and London 2003). Relations between corporations and NGOs have often been characterized by hostility and mistrust. Cross-sector alliances face an additional challenge because organizational learning generally requires some level of common experience, a condition that is often weak or missing in alliances between profit-making and nonprofit organizations (ibid.). This lack of common experience, trust and communication can sometimes result in conflict, even when partnerships have been established that appear to signal shared values and commitments. Indeed, partnerships with NGOs may sometimes open a path to escalating (and potentially unrealistic) demands for firms to upgrade their commitment to social development, placing greater, not lesser, regulatory pressure on the firm.
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In their review of the evolution of development of NGOs, Brown and Kalegaonkar (2002) observe that material resource scarcity is one of the chief challenges facing NGOs and that the collaboration with the business community is one solution to the problem in an era of declining resources for the state. Although many NGOs have challenged business practices that exploit marginalized groups, NGOs have increasingly mobilized resources from business to implement programs valued by both NGO and business. Brown and Kalegaonkar give the example of commercial bank support for NGO educational innovations in Brazil. They also observe that strategic alliances that advance core goals of both parties, such as the initiatives of Philippine Business for Social Progress, contributed to political stability for the business community and sustainable development for grassroots groups. Lindenberg and Dobel (1999, p. 8) echo Brown and Kalegaonkar’s interpretation of the response of the NGO sector to the challenges of globalization. In particular, they report that NGOs have emerged to fill voids in the declining role and impact of national government commitment to development support and of outmoded international institutions. And yet, ‘ironically, without a state to actually provide services or security NGOs face the task of how to rebuild communities and provide service often without the effective public power needed to sustain them’ (ibid., p. 11). They argue that ‘new technology, declining public resources, and unmet needs of refugees and poverty populations have resulted in the growth of NGOs around the world’ and that this ‘creates major dilemmas in how to cooperate with state and corporate sectors in gaining resources’ (p. 8). Lindenberg and Dobel (p. 12) note that much of the new corporate wealth is ‘resolutely antistatist and more inclined to work with the NGO sector. New partnerships between corporations and NGOs are being developed in various communities around the world’. Despite the obvious funding benefits, NGOs may also experience reputation and legitimacy gains. Some NGOs are perceived as fringe, peripheral, inflexible and ineffective, and affiliation with a corporation in good public standing may mitigate some of these perceptions. Perhaps more likely, NGOs may suffer reputation costs and accusations that NGOs have modified or softened their positions in exchange for corporate donations. This ‘greenwashing’ has emerged as a genuine concern for many NGOs seeking to maintain independence and autonomy while engaging corporations for both resources and expertise. Lindenberg’s (2001, p. 605) research has suggested that ‘NGOs and private sector organizations have had difficulty developing strong and sustainable partnerships’. Building on Austin’s (2000) continuum, Lindenberg (2001) asserts that because of distrust between potential partners, few NGO–business relationships have progressed to the integrated stage.
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However, it is likely that by the end of the next decade, more extensive transactional and integrative partnerships will be in evidence. NGOs also have reason to be concerned about the net benefits that may be accrue to them from relations with corporations. Indeed, according to one study, costs appear to outweigh the benefits. Ashman (2001) examined ten cases of collaboration between CSOs (NGOs) engaged in development and businesses in Brazil, India and South Africa. Her findings suggest ‘a sobering view of the benefits that civil society organizations and their constituencies can expect from collaboration’ (ibid., p. 1097). Somewhat paralleling Pearce and Doh’s (2005) observations on the corporate side, Ashman finds that development impacts are more likely in sectors related to business interests, such as education and employment generation. She also finds that capacity-building objectives are more likely to be realized than are those of citizen empowerment. Finally, NGOs tend to absorb the bulk of the costs of collaboration while businesses often dominate decision making. Illustrations of corporate–NGO interactions Starbucks’ relationships with NGOs have been the subject of a number of cases and research efforts. Lindenberg (2001), for example, documents Starbucks’ long-standing relationship with CARE, one of the leading humanitarian organizations fighting global poverty, working alone and through partners in 66 countries. Beginning in 1991, one of CARE’s managers in the northwest region approached a Starbucks staff member regarding CARE programs and development seminars. Starbucks had already carved out a strong social responsibility position, and given that Starbucks sourced coffee from regions where CARE was active, some kind of relationship seemed logical and appropriate (ibid.). Thus, the relationship began as a philanthropic one in which CARE received $2 from the sale of coffee samplers. Subsequently, reports Lindenberg, the relationship became more transactional with Starbucks donating resources directly to CARE projects. By the late 1990s, ‘the relationship moved from the transactional to more integrative stage in which CARE staff members were offered opportunities for training and sabbaticals in Starbucks corporate units, such as human resources and marketing’ (ibid., p. 605). Ultimately, Starbucks began to consult CARE on issues related to codes of conduct and standards regarding its overseas business practices, including Starbucks’ decision to move into sale of ‘Fair Trade’ coffee. By 2001, Starbucks had contributed more than $1.8 million to CARE (Argenti 2004). Since 1998, Starbucks has also had a close alliance with Conservation International (CI), one of the ‘big 3’ global conservation organizations. Through this alliance, Starbucks and CI have worked on a range of
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practices to promote sustainable coffee production. The initial project in Chiapas, Mexico, resulted in the incorporation of shade-grown coffee into the Starbucks product line (Austin 2002). According to Argenti (2004), shade acreage increased by 220 per cent while farmers received a price premium of 65 per cent above the market price and increased exports by 50 per cent. During this period, Starbucks had also been targeted by a more activist NGO, Global Exchange. Global Exchange engaged in a range of interventions, including protests at Starbucks outlets, aggressive questioning at Starbucks shareholder meetings, and other efforts to encourage Starbucks to carry Fair Trade coffee in all of its US outlets (ibid.). Starbucks ultimately pursued a middle ground by agreeing to sell Fair Trade coffee in its domestic company-owned stores, with the understanding that they would re-evaluate the decision in a year and decide whether to continue serving the coffee. Starbucks also developed a project-based relationship with Oxfam America, the Oaxacan State Coffee Producers Network (CEPCO), and the Ford Foundation. Oxfam America, a member of Oxfam International, is an NGO dedicated to increase the supply of high-quality Certified Fair Trade coffee for the United States specialty coffee market from small-farmer cooperatives; improve the skills of small-scale coffee farmers by providing resources and training to implement and standardize post-harvest quality improvement; provide information and support to enable farmers to earn premium prices for their coffee by producing a high-quality product; and enable the farmers to disseminate their learnings to other coffee cooperatives (ibid.). Oxfam has been the subject of a number of analyses of its relationship with corporations. Oxfam’s approach to these relationships could generally be characterized as ‘engagement’ as opposed to close partnership. Lindenberg (2001) reports that Oxfam Great Britain has pursued an evolving, comprehensive strategy that involves real complexity and multiple corporate relationships: Oxfam’s corporate engagement strategy includes three dimensions: funding and cooperation, policy dialogue with joint standard setting and monitoring, and pressure tactics. Oxfam GB’s president defines funding and cooperative relationships as ones in which Oxfam and its corporate partners have similar longterm values and goals about the development process, not unlike the decade-long relationship between CARE and Starbucks. Oxfam has such relationships with Northern Foods and the Cooperative Bank, two U.K. corporations. When Oxfam engages in policy dialogue, the second dimension of its strategy, neither Oxfam nor the corporations involved are under any illusions that their values or basic objectives are highly compatible. Rather, their commitment is to engage in civil discussion about issues of common concern. (Lindenberg 2001, p. 605)
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None the less, Oxfam has recently worked more closely with corporations in areas that include its ‘Making Trade Fair’ campaign and related initiatives regarding Fair Trade certified coffee. According to an article published in 1999 and co-authored by Oxfam America’s President, ‘the most innovative international NGOs of the future will have moved from the hands-on operational style of the 1960s to a highly complex and diverse set of institutional partnerships, joint ventures, and networking relationships’ (Offenheiser et al. 1999, p. 137). In the case of Starbucks and CARE, the relationship appears to have begun as philanthropic and progressed to a more ‘transactional’ one. In the case of Starbucks’ interactions with Conservation International and Oxfam, the interactions began as transactional, and progressed to more integrative, at least with CI. Oxfam’s engagement with corporations tends to be transactional by design, because Oxfam is especially sensitive to the appearance of influence by its corporate partners. The future of NGOs in corporate citizenship The role of NGOs in business–society relationships and in corporate citizenship behavior is neither firmly established nor widely understood. The theoretical and case illustrations presented here highlight a number of critical issues in the examination of NGO–firm relationships to the field of corporate citizenship. Hence, much more research on these relationships is both necessary and desirable. Below I briefly review a few of these, each of which has interesting implications for future research. First, the role of NGOs within the broader business–society context is complex and evolving. Figure 13.3 illustrates some of the challenges facing NGOs as a result of the changing private, public and NGO roles in society (Lindenberg and Dobel 1999). It locates corporate–NGO interactions within the broader context of business–society relationships and captures the dynamic interactions among the three sectors, public, private and nonprofit. It also points up both the challenges and opportunities presented as a result of the decline of the state sector and the emergence of business, NGO and firm–NGO partnerships as a way to meet these challenges. The emergent role of NGOs is underscored by the questions posed at the bottom of the figure which are further elaborated on here. Second, NGO collaborations with firms may signal to governments that they can continue extracting themselves from pressing social problems, yet many NGOs continue to believe that governments should have a role – often the primary role – in meeting these social needs. How, then, can NGOs demonstrate their competence and utility in responding to these problems while preventing a further erosion of the state?
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Shrinking Public Sector
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Expanding NGO Sector
Eroding trust in government
Growth of markets
Cutbacks in public resources
Growth and change in NGO sector
Privatization
Economic globalization
Declining state capacity
Some Consequences New forms of wealth and poverty in many parts of the world (new rich in Soviet Union, homelessness in US and Europe)
Growing sense of helplessness and public indignation
New Strategic Dilemmas for NGO Sector Do we partner or put pressure on private sector or both? Do we lead in the search for private sector codes of conduct?
Source:
Do we fill vacuum in public sector by expanding direct delivery of services? Do we pressure governments to protect political, economic, environmental, human rights?
Adapted from Lindenberg and Dobel (1999).
Figure 13.3 Changing private, public, NGO roles and dilemmas for expanding NGO sector Third, as NGOs take on greater responsibilities – alone or in consort with other organizations – they also invite greater scrutiny, as was recently evidenced by a Russian law that would appear to limit their ability to mobilize. In front of an audience made up of Russian civil society leaders, President Vladimir Putin said that Russia would not tolerate foreign money being used to finance the political activities of NGOs. Putin said, ‘we are against overseas funding for the political activities [of NGOs] in Russia. I categorically object’ (Medetsky 2005, p. 1). This example also points out how variations in national context can challenge NGOs (Hsia and White 2002; Wiktorowicz 2002) and create global asymmetries in terms of where and how NGOs are able to operate. Fourth, NGOs are facing criticism and pressures over the perception that they are often less accountable for their actions than their government and business counterparts. Specifically, the corporate governance scandals in
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the United States and around the world have resulted in increasing attention to the role of boards, interlocking board directorates and the overlapping board membership among corporations and nonprofit NGOs. The American Enterprise Institute, in cooperation with the Federalist Society for Law and Public Policy Studies, has launched a program initiative called ‘NGO Watch’ whose mission is to highlight ‘issues of transparency and accountability in the operations of non-governmental organizations (NGOs) and international organization (IOs)’ (AEI, 2006). This is an area that will certainly see more research and practical investigation. Finally, NGOs are becoming more multinational and multidimensional, a reality pointed out by Teegen et al. (2004). Further exploration of the range of organizational, managerial and individual challenges associated with the evolution of NGO organizations themselves should provide rich terrain for management scholars for years to come. Note 1. I shall use the term ‘non-governmental organizations’ (or NGOs) throughout this chapter as it is the more widely accepted term.
References American Enterprise Institute (AEI) (2006), ‘NGO watch’, http://www.ngowatch.org/, accessed 20 July 2006. Argenti, P. (2004), ‘Collaborating with activists: how Starbucks works with NGOs’, California Management Review, 47, 91–116. Ashman, D. (2001), ‘Civil society collaboration with business: bringing empowerment back in’, World Development, 29 (7), 1097–114. Austin, J. (2000), The Collaboration Challenge: How Nonprofits and Businesses Succeed through Strategic Alliance, San Francisco, CA: Jossey-Bass. Austin, J. (2002), Starbucks and Conservation International, Harvard Business School Case 9–303–055. Austrom, D. and L. Lad (1989), ‘Issues management alliances: new responses, new values, and new logics’, Research in Corporate Social Performance and Policy, 11, 233–55. Berger, I.E., P.H. Cunningham and M.E. Drumwright (2004), ‘Social alliances: company/nonprofit collaboration’, California Management Review, 47 (1), 58–90. Brown, L.D. and A. Kalegaonkar (2002), ’Support organizations and the evolution of the NGO sector’, Nonprofit and Voluntary Sector Quarterly, 31 (2), 231–58. Burt, R.S. (2000), ‘The network structure of social capital’, Research in Organizational Behavior, 22, 345–423. Carson, R. (1962), Silent Spring, Boston, MA: Houghton Mifflin. Das, T.K. and B.-S. Teng (1998), ‘Between trust and control: developing confidence in partner cooperation in alliances’, Academy of Management Review, 23 (3), 491–512. de Tocqueville, A. (1835), Democracy in America, trans. Harvey C. Mansfield and Delba Winthrop, Chicago, IL: University of Chicago Press. Den Hond, F. and F.G.A. De Bakker (2007), ‘Ideologically motivated activism: how activist groups influence corporate social change activities’, Academy of Management Review, 32 (3), 901–24. Doh, J.P. and T.R. Guay (2004), ‘Globalization and corporate social responsibility: how nongovernmental organizations influence labor and environmental codes of conduct’, Management International Review, 44, 7–30.
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Doh, J.P. and B. Kotschwar (2004), ‘Participation by civil society and non-governmental organizations in Western hemisphere economic integration’, in A. Rugman (ed.), North American Regional Economic and Financial Integration, Research in Global Strategic Management, vol. 10, London: Elsevier, pp. 317–38. Doh, J.P. and H. Teegen (eds) (2003), Globalization and NGOs: Transforming Business, Government, and Society, Westport, CT: Praeger. Eisenhardt, K.M. and C.B. Schoonhoven (1996), ‘Resource-based view of strategic alliance formation: strategic and social effects in entrepreneurial firms’, Organizational Science, 7 (2), 136–50. Guay, T.R., J.P. Doh and G. Sinclair (2004), ‘Nongovernmental organizations, shareholder activism, and socially responsible investments: ethical, strategic, and governance implications’, Journal of Business Ethics, 52, 125–39. Gulati, R. (1995), ‘Social structure and alliance formation patterns: a longitudinal analysis’, Administrative Science Quarterly, 40 (4), 619–52. Harrison, J.S., M.A. Hitt, R.E. Hoskisson and R.D. Ireland (2001), ‘Resource complementarity in business combinations: extending the logic to organizational alliances’, Journal of Management, 27 (6), 679–90. Hart, S.L. and M.B. Milstein (2003), ‘Creating sustainable value’, Academy of Management Executive, 17, 56–67. Hess, D., N. Rogovsky and T.W. Dunfee (2002), ‘The next wave of corporate community involvement’, California Management Review, 44 (2), 110–25. Hsia, R.Y.-J. and L.T. White III (2002), ‘Working amid corporatism and confusion: foreign NGOs in China’, Nonprofit and Voluntary Sector Quarterly, 31, 329–51. Independent Sector (2004), The New Nonprofit Almanac, Washington, DC: Independent Sector. Johnson, J.L., J.B. Cullen, T. Sakano and H. Takenouchi (1996), ‘Setting the stage for trust and strategic integration in Japanese–U.S. cooperative alliances’, Journal of International Business Studies, 27 (5), 981–1005. Kellow, A. (1999), ‘Norms, interests, and environment NGOs: the limits of cosmopolitanism’, Environmental Politics, 9, 1–22. Kogut B. and U. Zander (1992), ‘Knowledge of the firm, combinative capabilities, and the replication of technology’, Organization Science, 3 (3), 383–97. Lindenberg, M. (1999), ‘Declining state capacity, voluntarism, and the globalization of the not-for-profit sector’, Nonprofit and Voluntary Sector Quarterly, 28, 147–67. Lindenberg, M. (2001), ‘Reaching beyond the family: new nongovernmental organization alliances for global poverty alleviation and emergency response’, Nonprofit and Voluntary Sector Quarterly, 30, 603–15. Lindenberg, M. and J.P. Dobel (1999), ‘The challenges of globalization for northern international relief and development NGOs’, Nonprofit and Voluntary Sector Quarterly, 28, 4–24. Luo, Y. (1998), ‘Joint venture success in China: how should we select a good partner?’, Journal of World Business, 33 (2), 145–67. Matten, D. and A. Crane (2005), ‘Corporate citizenship: towards an extended theoretical conceptualization’, Academy of Management Review, 30 (1), 166–79. Medetsky, A. (2005), ‘Putin warns politically active NGOs’, Moscow Times, 21 July, p. 1. Mirvis, P. and B. Googins (2006), ‘Stages of corporate citizenship’, California Management Review, 48 (2), 104–26. Newton, L.H. (1999), ‘Truth is the daughter of time: the real story of the Nestlé case’, Business and Society Review, 104, 367–95. O’Brien, R., J.A. Scholte, A.-M. Goetz and M. Williams (2000), Contesting Global Governance: Multilateral Economic Institutions and Global Social Movements, Cambridge: Cambridge University Press. Offenheiser, R., S. Holcombe and N. Hopkins (1999), ‘Grappling with globalization, partnership, and learning: a look inside Oxfam America’, Nonprofit and Voluntary Sector Quarterly, 28, 121–39. Oliver, C. (1990), ‘Determinants of interorganizational relationships: integration and future directions’, Academy of Management Review, 15, 241–65.
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Parker, B. and J.W. Selsky (2004), ‘Interface dynamics in cause-based partnerships: an exploration of emergent culture’, Nonprofit and Voluntary Sector Quarterly, 33, 458–88. Pearce, J.A., II and J.P. Doh (2005), ‘The high impact of collaborative social initiatives’, Sloan Management Review, 46 (2), 30–39. Pfeffer, J. and P. Nowak (1976), ‘Joint ventures and inter-organizational interdependence’, Administrative Science Quarterly, 21, 398–418. Roberts, N. and R. Bradley (1991), ‘Stakeholder collaboration and innovation: a study of public policy initiation at the state level’, Journal of Applied Behavioral Science, 27 (2), 209–27. Rondinelli, D. and T. London (2003), ‘How corporations and environmental groups collaborate: assessing cross-sector collaborations and alliances’, Academy of Management Executive, 17 (1), 61–76. Schermerhorn, J.R. Jr (1975), ‘Determinants of interorganizational cooperation’, Academy of Management Journal, 18, 846–56. Selsky, J.W. and B. Parker (2005), Cross-sector partnerships to address social issues: challenges to theory and practice,’ Journal of Management, 31, 849–73. Sethi, P. (1994), Multinational Corporations and the Impact of Public Advocacy on Corporate Strategy: Nestlé and the Infant Formula Controversy, New York: Kluwer. Smith, C. (2003), ‘Corporate social responsibility: whether or how?’, California Management Review, 45 (4), 52–76. Spar, D.L. and L.T. La Mure (2003), ‘The power of activism: assessing the impact of NGOs on global business’, California Management Review, 45, 78–101. Teegen, H., J.P. Doh and S. Vachani (2004), ‘The importance of nongovernmental organizations (NGOs) in global governance and value creation: an international business research agenda’, Journal of International Business Studies, 35 (6), 463–83. United Nations (UN) (2003), NGO Committee concludes 2002 resumed session, with final recommendations on economic and social council consultative status, UN Press Release NGO/494, http://www.un.org/News/Press/docs/2003/ngo494.doc.htm, accessed 10 June 2006. United States Agency for International Development (USAID) (2006), The Global Development Alliance: Public–Private Alliances for Transformational Development, Washington, DC: USAID Office of Global Development Alliances. van Tuijl, P. (1999), ‘NGOs and human rights: sources of justice and democracy’, Journal of International Affairs, 52, 493–512. Waddell, S. (2000), ‘New institutions for the practice of corporate citizenship: historical, intersectoral, and developmental perspectives’, Business and Society Review, 105 (1), 107–26. Waddock, S. (1988), ‘Building successful social partnerships’, Sloan Management Review, 29 (4), 17–23. Waddock, S. (1991), ‘A typology of social partnership organizations’, Administration and Society, 22 (4), 480–516. Whetten, D.A. (1977), ‘Toward a contingency model for designing interorganizational service delivery systems’, Organization and Administrative Sciences, 4, 77–96. Wiktorowicz, Q. (2002), ‘The political limits to nongovernmental organizations in Jordan’, World Development, 30, 77–93. Yaziji, M. (2004), ‘Turning gadflies into allies’, Harvard Business Review, 82 (2), 110–15.
14 The politicization of economization? On the current relationship between politics and economics Michael Zürn
Introduction In the course of economic denationalization and in the specific context of post-industrial society, some of the standard instruments for political intervention in market processes by the hierarchically organized nation-state emerge as precarious. As a first consequence of this, new regulatory instruments which are more compatible with the logic of markets have gained in significance. These instruments include incentive systems created by the state, private-public partnerships and corporate social responsibility (CSR). Second, a strong trend can be observed that aspires to international regulations which, likewise, must largely renounce hierarchical implementation mechanisms, irrespective of whether such mechanisms are based on intergovernmental or transnational sponsorship. Thus hierarchically conceived control by the democratic nation-state is becoming less important, relatively speaking; conversely, market-compatible governance, frequently implemented by non-state actors, is becoming more prominent. This is not the end of the story, however. The outcome of this process leads neither to a powerless state nor to depoliticization. The state remains an integral and necessary component of almost all new arrangements. It no longer acts unilaterally, but nevertheless it remains central in its significance. And – according to the central thesis of this chapter – this gradual replacement of hierarchical governance by market-compatible non-state governance does not lead to depoliticization, even in cases where the new regulatory instruments have largely replaced traditional and nation-state policies. On the contrary, both international institutions and the actions of large corporations are becoming increasingly politicized. Thus, ‘governance with and without government’ is subject to the same normative claims as ‘governance by government’. Or, to put it more directly: as the market gains ground on politics, the market becomes politicized. The democratic interventionist state Politics and economics emerge as different social spheres in the course of the differentiation of modern societies. The object of economics is the 293
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generation of prosperity. The market is the most efficient means of achieving this because, under the right conditions, it transforms the self-serving endeavors of all actors into a general gain in welfare. The aim of politics, on the other hand, is to maintain peace, provide security and uphold justice. The best means to achieve these ends has traditionally been seen as the democratic form of the nation-state with a division of powers, which successfully channels the real power ambitions of individual political actors and can, therefore, promote the common good. What is decisive in our context is that, in this model, a formal hierarchy (at least an imagined one) is established between politics and the market. Politics produces binding regulation with which market actors must comply (see Lindblom 1977). Politics therefore sets the rules for the market. This imagined hierarchy does not in any way exclude the possibility of market actors playing an influential role in, or even dominating, the political process. Formally, however, the primacy of politics applies. Even the most powerful economic actor must resort to politics to organize rule setting in line with his/her interests. On this point of view, the market does not differ from the other spheres of society such as culture and science: all societal spheres are subject to political regulation. In the democratic interventionist state of the 21st century, politics is assigned three substantial tasks in relation to the market.1 First, it should create the preconditions necessary for the smoothest possible running of transactions within the market. In a typology of policies, such measures can be described as market making (Windhoff-Heritier 1987). The best example of such a measure is the removal of trade barriers, be they tariff related or not. Second, the negative externalities of the market, which can be classified as self-threatening, should be curbed. Thus, for example, environmental policy measures must ensure that the natural resources on which the economy is based are not overgrazed, and banking-related measures should ensure that the financing of companies remains secure, even in times of crisis. What are involved here are market-stabilizing or marketbraking policies. Finally, politics should correct socially undesired market outcomes. In other words, it should take measures that correct the market. An example of such a market-correcting measure would be the imposition of a wealth tax for the purpose of increasing social security benefits. The fully developed democratic constitutional interventionist state fulfilled these three tasks relatively well (Leibfried and Zürn 2005, ch. 1). In the case of the highly developed countries at the center of the OECD world today, it is possible to identify three different phases during which a particular type of policy predominated: (i) creation of the market, (ii) market stabilization, and (iii) market correction:2
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2.
3.
After the establishment of the domestic monopoly on the use of force and its increasing civilization in terms of the rule of law, a transformation took place with respect to economic philosophy, which was accompanied by the complete differentiation of the political and economic subspheres. The principle of increasing state power through mercantilism then began to be challenged by the notion of an economic order which would enable efficient economic exchange and the emergence of a national market. The establishment of property rights, freedom of contract, the reduction or abolition of domestic barriers to the exchange of goods, capital and labor, and the provision of a national infrastructure for transport and communication created the regulatory policy framework that made the industrial revolution of the 19th century possible. Thus, the welfare objective was able to free itself from the aim of external security. The creation of the market was the focus of attention at this time. The vulnerability of such a political economy to crises became apparent at the latest during the major global economic crisis of the 1870s. In the aftermath of this crisis, the insight gradually prevailed that a free market economy requires external intervention to ensure that the force of destabilizing processes does not bring the system to the point of collapse. The corresponding measures initially included controls on banks and regulations governing currency and exchange for the purpose of economic management. However, even this was not enough to prevent Black Friday in 1929. The concept of global macroeconomic control did not become established until after the Second World War. Following the success of the New Deal in the USA, a policy was established in Western Europe in particular, which aimed to alleviate the effects of economic crises and promote the active structural organization of the national economy. The intention was to balance out economic highs and lows through the state control of demand. At the same time, the state actively intervened in the control of certain economic sectors to promote industrial structural change and to alleviate its costs. All of these measures taken together can be interpreted as ‘market stabilization’. The development of a national market economy and the industrial revolution created a hitherto unknown level of prosperity. At the same time, they resulted in the relative impoverishment of broad social classes, because they destroyed the social safeguards originally provided by village communities organized on a feudal basis. As a result, strong social and political conflict (that is, the ‘social question’) led to the development of state policy designed to alleviate social misery. Thus, from the late 19th century onward, state-sponsored social policy
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The democratic constitutional and interventionist state banked on two dominant instruments for the purpose of market making and, subsequently, the control of market processes and correction of market performance: hierarchically conceived and state-implemented regulations and, later, plant-level co-determination. Together with fiscal levies and the allocation of financial resources, regulatory legislation and administration by the state are the traditional tools of a policy which simultaneously creates a market and targets the management of externalities with the dual aim of stabilizing the market and partially correcting its performance. Plant-level co-determination was only added to this mix at a later stage (Streeck and Kluge 1999). What was basically involved here was not the external control of the behavior of companies through prohibitions and orders, but the internalization of additional perspectives into the decisionmaking processes through which the exclusive focus of companies on profit making would be relativized. Forms of sociopolitical order such as the ‘social market economy’, ‘economic democracy’, ‘Rhine capitalism’ and the ‘stakeholder society’ adopted the older coalition theory of the commercial enterprise. According to this theory, participants in the coalition are not just company owners and managers, but also employees, trade unions, and possibly even consumers, suppliers, neighbors, banks and so on – that is,
The politicization of economization? 297 economic and civil society actors with interests, the protection of which is deemed to be ‘justified’. Whereas the ‘economic stakeholders’ like consumers and suppliers (excluding lenders on the supervisory boards) were not allocated any formal rights of co-determination, the participation of ‘organizational stakeholders’ (on this distinction, see Werther and Chandler 2006, p. 4) via plant-level co-determination was safeguarded by legal rights of status and co-determination. New challenges for the democratic interventionist state The democratic constitutional and interventionist state approached the political taming of the market through prohibitions and orders, and plantlevel co-determination. These two instruments proved increasingly precarious, however, in the course of economic denationalization (Zürn 1992) and in the context of the specific problems of post-industrial society (Bell 1973). In the post-industrial society, theoretical knowledge became central and the services sector gained the upper hand over the manufacturing economy. According to Bell, the axial institution in the industrial society was private property; contrary to this, in post-industrial society, the central focus has shifted to theoretical knowledge. As a result of this development, the institutions built on the axial principle of property distribution have diminished in their influence. This development has heightened in the course of societal denationalization. Societal denationalization can be quantified as the share of crossborder transactions out of all societal transactions (Beisheim et al. 1999; Kearney 2003). Whereas a relative increase in the proportion of crossborder action contexts is indicative of a growing interdependence between different units, the concept of societal denationalization relates to a level on which state borders relinquish their significance or even disappear. In the words of Karl W. Deutsch: ‘National borders dissolve when there is no more critical reduction in the frequency of social transactions’ (Deutsch 1969, p. 99). Corresponding empirical studies show that the increase in cross-border exchange processes – inter alia in the areas of trade and direct foreign investment, and also in the areas of migration, the exchange of information and knowledge, and the import and export of cultural goods – increased so evidently in the 1970s and 1980s that the high level of integration achieved in 1914 was surpassed once again. A further push took place in the 1990s. In addition, the cross-border production (as opposed to exchange) of goods and ‘bads’ (a phenomenon which emerged in and has increased steadily since the early 1990s), constitutes a completely new development. The internet, organized crime, global climate change, and financial markets represent a qualitatively new dimension. Terms like
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‘deterritorialization’ (Albrow 1996), ‘debordering’ (Entgrenzung) (Brock and Albert 1995) and ‘globalization’ (Scholte 2000) seem most appropriate with respect to these instances of production of common goods. As a result of these developments, the boundaries of societal transactions in many areas today lie beyond the political borders of the nationstate. In other words, all national societies are subject to considerable external influences. Thus, nation-state governance is systematically faced with two problems (see Zürn 1998, ch. 2). The first of these constitutes a problem of policy scope. In view of the expansion of societal and economic spaces, market-stabilizing intervention at the national level is ineffective if it only covers a part of the affected activities, because its impact is counteracted by externalities produced elsewhere. In the Federal Republic of Germany, for example, there are stricter prohibitions on radical right-wing propaganda than in other countries, and with good reason. If, however, the provider of such material resides in the USA and supplies it to the internet from there, then the German prohibitions are of no consequence. Even if the material is identified by investigators and could be blocked from all mainframe computers and all online service providers in Germany, the supplier cannot be prosecuted. It is important to distinguish this problem from the second one, that of policy competition. Nation-state regulations can remain capable of achieving a desired objective even in the face of denationalization. For example, the effects of increased social benefits on the side of the recipients remain undisputed, even in the age of societal denationalization. However, these benefits can undermine the attractiveness of a country as an economic location, and hence countries could fall into the race-to-the-bottom trap (Cerny 1995). Exaggerated bureaucratic regulations can also increase production costs, with the result that goods can be produced abroad more economically. The same argument can also be applied to product-related environmental regulations. To the extent that exactly the same thinking prevails in other countries, there is an acute danger of a deregulation spiral – a ‘competition of the obsessed’ as Krugman (1996) labeled it. Market-stabilizing and above all market-correcting measures are affected by this; against this background, the traditional instruments for the domestication of the market via nation-state policies prove precarious. As a result, state regulations come under pressure, and this limits the options for stabilizing and correcting the market. In the meantime, much research has been carried out on the real impacts of globalization and economic denationalization on the effectiveness of nation-state regulation of the markets. What has emerged from this research is that no overt race to the bottom has been observed up to now (see Pontusson 2005) and that, conversely, some product standards can even improve and become
The politicization of economization? 299 internationalized thanks to globalization. This phenomenon is very aptly referred to as ‘trading up’ by David Vogel (1997). Nevertheless in all countries the pressure has increased to redesign the welfare systems and eliminate excessively restrictive regulations (see, for example, Seeleib-Kaiser 2001). Moreover, economic denationalization weakens the basis for codetermination. In the course of location competition, state co-determination regulations are also increasingly perceived as a competitive disadvantage; and, in cases where they still exist, economic denationalization has undermined employee representation. In recent years the emphasis has clearly been shifted in the direction of a shareholder model of corporate governance. The fate of Germany’s Commission on Co-determination (Mitbestimmungskommission) illustrates this development. The employers declared that without the abolition of equal co-determination, any further reform debate would be superfluous. As a result, the Expert Commission for the Further Development of the Co-determination of Employees in Companies came to grief after just one year’s work; however, its academic members did produce an important report.3 Governance in the age of denationalization In view of these challenges to the effectiveness of the democratic interventionist state, three types of reaction are conceivable in principle. First, the democratic interventionist state can develop new instruments and approaches to overcome the problems of effectiveness. Second, the global economic firms may develop self-regulations that can serve as substitutes for state regulation. Third, the policy can follow the markets and societal transactions, and extend the area of applicability of political regulations through the creation of governance institutions beyond the nation-state. In the following, each of these three possibilities are discussed in terms of their effectiveness. New instruments I: market-compatible mechanisms If the old instruments are no longer effective due to the emergence of new challenges, an attempt will be made either to use more of the old instruments or to try out new instruments. Whereas the Anglo-Saxon variant of the relationship between regulation and market in capitalism was quick to seek new instruments, the continental European variant in particular initially favored the first option – using more of the same – to respond to the corresponding challenges. This approach eventually proved to be misconceived, so new instruments also began to be applied. The new instruments involved here are, for the most part, marketcompatible mechanisms. Whoever causes ‘extra-contractual’ damage – that
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is, harm to third parties – should be made to pay through ‘organized’ market mechanisms. An example of such a mechanism would be ‘emissions trading’ (see Endres and Ohl 2005) or ‘cap and trade’, which is intended to act as a costly deterrent to companies who pollute the air, in order to prevent them from causing injury to third parties. Another mechanism is that of consumer education:4 the more aware consumers are about the harmfulness of specific goods, the more confident they will become about punishing the providers of such goods economically by refusing to purchase them. Such instruments have increased significantly in number in recent years. Never before have so many emissions rights been traded, and the proliferation of ranking and ratings (on this point, see Kerwer 2006) is now generating its own information problems. These new instruments are often associated with far-reaching hopes which must eventually be deflated. Such regulations function only under certain conditions. First, the initiation of market-compatible regulatory mechanisms often requires state legislative activity. Thus, for example, the definition of maximum limit values is a logical prerequisite for emissions trading. To be fully effective, ranking and rating requires, moreover, investors and consumers who seek information and quality. For instance, the labeling of foodstuffs is often based on both state regulations and the existence of a quality-aware group of buyers. As intimated above, market-compatible regulatory instruments may not be as successful as the initial wave of euphoria over them would lead one to hope. A plethora of preconditions, for instance, can cause these instruments to fail. In addition to such preconditions, the failure of market-compatible instruments can also be attributed to the frequent instances in which it is impossible to ascribe damage to a specific party; such damage can remain undiscovered due to information asymmetry, or it may not be taken seriously as such (as in the case of food and beverages harmful to health, which – in the case of addiction – gratify the demand of addicted or weak-willed consumers specifically because of these negative properties) (see Offe 2006). To this is added the problem that market-compatible regulatory instruments can only serve the purpose of market stabilization, but scarcely that of market correction. In sum, these instruments are associated with many preconditions; thus, generalization results in the failure of this solution. New instruments II: ethicization of corporate behavior The relevant keywords and concepts here include corporate social responsibility, corporate citizenship, the proclamation of corporate codes by large companies or trade associations, one-sided and voluntary corporate selfcommitment, the services provided by private foundations, and the scientific and political discourses on the subject of ‘business ethics’. Of central
The politicization of economization? 301 importance are the debates surrounding the concept of CSR, which refers to the activities of companies that extend beyond their direct production and sales interests. As opposed to general philanthropic activities, which are often pursued by corporate foundations, the focus here is on the prevention or processing of the side-effects of competitive behavior through so-called ‘codes of conduct’. This can include, for example, both the support of individual companies for sustainability projects through plantation operators (for example, Chiquita or Dole) and the joint definition of health and safety regulations by several companies in the textiles or sports shoe sectors. The establishment of such codes of conduct has increased rapidly since the mid-1980s, mainly in the form of public undertakings by individual companies (just over 50 per cent of all cases) but also in the form of agreements between the companies within a sector as so-called ‘stakeholder partnerships’ or, in individual cases, those adopted from nongovernmental organizations (see Kolk and van Tulder 2005). Although the absolute numbers remain within bounds – an OECD study from 1999 identified 182 such codes (see Hassel 2006) – the growth curves are very impressive (Kolk and van Tulder 2005, p. 6). Various causes may be assumed for this development (see Clapham 2006, ch. 1, and Werther and Chandler 2006, ch. 1). For example, changes emanating from consumers may be cited as an explanation for why rational companies are prompted to develop and observe codes of conduct.5 Because of temporal simultaneity, it is immediately obvious that the debordering of information and communication processes should be identified as a cause. As consumers in the developed industrial countries are informed about global production methods and processes, they establish the benchmark of a quasi-extraterritorial interpretation of the law: what is not legal on the market where products are sold, likewise cannot be legal in the plant where they are produced. Based on this interpretation, child labor, forced labor, workplace human rights violations or wanton destruction of the environment, for example, are understood as violations of regulations, which must be sanctioned through a considerable loss of reputation by the perpetrator. In addition to the increase in the availability of information through the transparency of global communication processes, the significance of such information has also grown – and this represents a further conceivable cause for the increase in the number of codes of conduct. The affluent consumers in the Western world have the material latitude to take information into account in their purchasing decisions, which relates to the production process rather than to the product itself. Based on this explanation, ‘thrifty’ is not ‘nifty’; it is the politically motivated consumer who is ‘cool’. To this is added the enormous significance which labels or brand names have
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attained for many products. In our ‘brand-name society’, as the retail price of products becomes dissociated from the material and labor values involved in their production, aspects of brands, which have nothing to do with the actual product, are gaining in significance – child labor and largescale environmental destruction, for instance, are a ‘turn-off’ for most potential purchasers. On the other hand, the explanation for this apparent surge in codes of conduct may relate to the emergence of an altered self-image on the part of multinational companies which, owing to their size, can withdraw at least partly from direct competitive pressures. This altered self-image hypothesis is supported above all by the fact that some companies are no longer content with the formula of ‘corporate social responsibility’ and now (re)define themselves as ‘corporate citizens’. ExxonMobil writes on its website: ‘ExxonMobil applies a rigorous approach to corporate citizenship in all aspects of our business, everywhere we operate’ (ExxonMobil 2006). Almost identical statements have also been issued, for example, by Ford, Toyota, Nike and Nokia (Matten and Crane 2005, p. 167). This has prompted a debate on the use of the term ‘corporate citizen’ (Moon et al. 2005) and the political legitimation of private actors in such processes (Palazzo and Scherer 2006). An altered self-image alone would indicate pure ethicization of companies. CSR activities can certainly to some extent be explained as a reaction to altered information situations and demand structures and, therefore, can be interpreted as an expression of well-understood self-interest. Irrespective, however, of the appropriate explanation for the rise of CSR, it points to a mechanism which, it is hoped, will compensate for the deficits of traditional, state-based political regulation. This would involve the adoption of state functions (see Matten and Crane 2005, p. 174) and the filling of regulatory gaps left by the international institutions (Kolk and van Tulder 2005, p. 2). Doubts remain, however, as to whether the declared governance objectives can actually be achieved through ethicization of corporate behavior. In terms of strategies for corporate self-commitment, the collective action problematique always arises, whereby no actor can be sure that all competitors take on and, above all, comply with the same obligations. It is precisely this problem that points to a changed self-image of companies as corporate citizens with deliberative obligations which attempt to supersede the inherent voluntarism of the codes of conduct (Scherer et al. 2006). The problem persists nevertheless. For good reasons, the effective control of a bourgeois society always falls back on compulsory mechanisms which should ensure that the understanding of the roles of the citoyen and the bourgeois cannot be arbitrarily exchanged. Dissolution of the problem of voluntarism could be sought in corporate associations acting as ‘private
The politicization of economization? 303 governments’ (Streeck and Schmitter 1985) which make compliance with their commitments mandatory for their members. However, this would only lead to conclusive success if membership in the associations were mandatory (as in the case of the chambers) and if external competitors could be kept ‘at arm’s length’ through restriction of access to the international market. Given that the fulfillment of both of these conditions seems unrealistic today, it may be assumed that ‘business ethical’ commitment will remain voluntary in nature. The market and consumers can only partly serve as a mechanism for the sanctioning of commercial enterprises’ disregard of codes of conduct. The market is subject to precisely the same limitations as those referred to in the discussion of market-compatible instruments. As a result of information problems, it is mainly consumer-oriented products with a strong brand image that come into view. Thus, there is a real danger that the ethicization of commercial enterprises will be limited to strategies for the maintenance of individual commercial reputations and preventive public relations. This ultimately tallies with Milton Friedman’s (1962) early warnings to the effect that the social responsibility of companies consists precisely and uniquely in profit making. If profit orientation demands that individual companies also work with the concept of CSR, they simply must do this. In summary, it may be noted that CSR and the codes of conduct usually associated with it have clearly gained in significance, but remain bound to certain preconditions. It can hardly be expected that they can be implemented across the board with the necessary binding force. This finding coincides with the finding above for market-compatible instruments. Supranationalization and transnationalization Against the background of problems surrounding the effectiveness of the new governance instruments, it can come as no surprise that the alternative and complementary option of re-establishing the traditional regulatory instruments on a level beyond the nation-state is being adopted. The corresponding dynamic is familiar (see Zürn et al. 2006). The number of international agreements in existence increased linearly from fewer than 15 000 in 1960 to over 55 000 in 1997. A good third of the laws that are passed in the national parliaments of European countries actually originate at the European or international level. In addition to the growing number of international agreements, it is also possible to observe a new quality of international regulations as a second measure of this institutional dynamic. It is possible to demonstrate an increase in regulations that tackle behindthe-border issues (Kahler 1995), which have societal actors as their ultimate target group and, as a result, create new institutional requirements. For example, in hindsight, the traditional international commitment that import
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duties on goods shall not be increased appears very simple in many ways. In contrast, the obligation to achieve substantial reductions in the emissions of certain pollutants is proving far more challenging. Because the ultimate target group of this regulation is not the state but societal actors (that is, industrial operations and car drivers), the reduction, for instance, of CO2 emissions does not merely represent an executive matter of will. Unlike the situation that exists with regard to most other international regulations, failure is also possible in this case if the governments that sign the agreement fully intend to reduce CO2 emissions. Significant financial, administrative and technological resources are required to fulfill such an obligation. Similarly serious is the fact that, in the case of behind-the-border issues like global warming, regulatory compliance is significantly more difficult to monitor than it is in the case of border or interface problems. Moreover, the problem itself is so complicated that the discussions regarding a suitable form of regulation are repeatedly overshadowed by questions concerning the real causes and actual extent of global warming. Thus, supranationalization (Moravcsik 1999) and transnationalization (Risse 2002) can be understood as a form of institutional reaction to the new regulatory problems. Supranationalization refers to a process whereby institutional components and procedures that facilitate the decisions of autonomous international institutions increase – even against the will of an affected government. It is characterized by the fact that the Westphalian principle of consensus in intergovernmental politics has been superseded in many areas by majority decision-making or quasi-legal processes, for example, those of dispute settlement bodies. Supranationalization is in no way limited to the European Union – even if it is particularly prominent in this case – but also finds application in other institutions. In addition to the International Monetary Fund (IMF) and the World Bank, other examples of decision-making procedures of this kind can be found in the special UN organizations, the International Criminal Court, the World Trade Organization’s (WTO) ‘Dispute Settlement Body’ and Mercosur’s ‘Tribunal Permanente de Revisión’. Along with the establishment of supranational institutions, the emergence of transnational governance, whereby at least one regulatory body is a non-state actor, may increasingly be observed as a reaction to the declining efficacy of state action. With these new forms of governance, political denationalization combines with the use of new market-compatible and soft instruments. This can also take the form of purely private regulation at the transnational level. Most codes of conduct which are valid throughout a sector are actually transnational in nature. In this case, transnational corporations cooperate in private sector regimes, or private sector actors join forces with civil society actors in networks. Examples of such private forms
The politicization of economization? 305 of transnational governance include the International Chamber of Commerce, the International Accounting Standards Board (IASB) and the numerous codes of conduct and certification systems (for example, the Forest Stewardship Council, Rugmark, and so on). The literature on international relations refers here to ‘private authority’ and little mention is made of ‘corporate social responsibility’ (see, for example, Cutler et al. 1999; Hall and Biersteker 2002; Wolf 2006). The term ‘private authority’ is assigned to point to the exclusive character of those regulations which often do not involve important stakeholders. Although private authority frequently refers to regulations similar to those embraced as part of CSR, the former deliberately distinguishes itself from the latter, more euphemistic term customarily used in management studies. A second way in which the declining effectiveness of national policy is compensated consists in the joint performance of governance services by states and economic and/or societal actors within so-called ‘public-private partnerships’ (Villancourt Rosenau 2000). Examples for such public-private models include the internet Corporation for Assigned Names and Numbers (ICANN), the Global Compact, the Consultative Group on International Agricultural Research and the Kimberley Process. In all of these cases, societal actors provide regulatory services or produce public goods at a transnational level, which are not provided by states or by states alone. The emergence of effective governance at supranational and transnational levels is likewise extremely complex and demanding. The boundaries of transnational governance correspond to those already mentioned in the discussion of new instruments (above). Thus, it is hardly to be expected that it will be possible to create measures which can be applied across all issue areas. Just 5 per cent of multinational companies are involved in the Global Compact (Benner and Witte 2006). Wolf (2006, p. 222) notes, therefore, that ‘[p]rivate contributions to governance beyond the nation-state can add to, but will not replace, public governance’. It will not be possible to dispense entirely with the role of the state. The effectiveness of transnational regulations depends here, again, on intergovernmental agreements which themselves can only succeed under certain conditions and which are, moreover, very cumbersome (for an overview, see Hasenclever et al. 1997). And even in the case of successful supranationalization and transnationalization, two systematic problems remain: the lack of democratic legitimacy of such regulations6 and the lack of market-correcting institutions beyond the nation-state (Zürn 1998, pp. 409–14). Politicization without the state The above-described double shift in the choice of instruments and political level can certainly be read as a reaction to the reduced effectiveness of the
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democratic interventionist state. Despite their limited effectiveness, the new instruments and political denationalization can partly compensate for the shortcomings of traditional state regulation. We should not, however, allow ourselves to be misled: the outcome is neither a political world without states nor depoliticization. On the one hand, the state is an integral and necessary component of almost all of the new arrangements. It no longer acts alone, but is central in its significance. Within the OECD world, the monopoly on the power to levy taxes and the monopoly on the use of force remain firmly in the hands of the state. As a result, the state secures a central source of influence for itself and retains the monopoly on governance in the area of market-correcting policy. While it is possible to transfer regulations that stimulate and safeguard the market to private and international actors, in most cases the nation-state retains the ultimate right of intervention. Without the shadow of hierarchy, the new control mechanisms have proven mostly to have little effect. The traditional state remains, therefore, central in its significance, even for a new constellation of statehood. Nevertheless, even in cases in which a significant replacement of nationstate policies arises, this does not necessarily result in depoliticization. In fact, both international institutions and the action of large corporations are becoming politicized. First, the above-described process of supranationalization and transnationalization is closely associated with another process: the increasing sensitivity of societies to questions concerning the power and legitimacy of global governance institutions. This politicization of global governance should be understood as a process which results in the increasing targeting of normative demands at governance beyond the nation-state by societal actors – be they organized at the national or the transnational level.7 As a result, this leads to a pluralization of actors and positions in international and transnational institutions. This process would appear to be comparable with the politicization of national governance in many European countries in the course of the 19th century. The institutions with their new possibilities for exerting influence are subjectively assigned a greater relevance by a growing number of societal actors. This leads to demands for the transparency of these institutions and the integration of societal expertise, as a result. However, this only strengthens the claims for democratic legitimation of international institutions. The opposition to these international institutions, whose manifestations can range from a lack of compliance and the critical public thematicization of issues to violent protests, then increases. Ultimately, and in line with ongoing expectations, the path of renewed institutional adaptation to the articulated claims, in particular the further opening of processes to societal
The politicization of economization? 307 actors (democratization), or a return to an intergovernmentalism which is compatible with the consensus principle of international politics, may be the only options that remain. Thus, the logic of international institutions is shifting from a rationale of effective problem resolution to a logic of legitimate governance. International politics is then no longer evaluated solely on the basis of political astuteness and effectiveness: it is instead subject to the criteria of good political order, that is, fairness and legitimacy. Hence, territorial boundaries relinquish their normative dignity, and universalistic conceptions of politics develop. This is followed by the emergence of a conflict between the world of states and world of societies in the sense of transnational social spheres of action. This politicization by civil-society actors and arenas simultaneously incorporates a potential for opposition to political and, ultimately, societal denationalization as well. Second, companies are also becoming politicized. The process of increasing shareholder orientation and the undermining of plant-level codetermination are being counteracted by activities in the context of socalled corporate social responsibility. Companies are creating foundations, establishing corporate universities and participating in social and cultural sponsorship (Mosdorf 2005, p. 73). Robert Bosch’s (a German industrialist) motto ‘better to lose money than trust’, which once expressed the strategy of an individual company, can now be generalized. This is perhaps best demonstrated by the fact that the question as to whether the exercise of political influence could not be better implemented through the market than through democratic processes has already been debated. Noreena Hertz (2001, p. 190), for example, poses the question, ‘[is it] better to shop than to vote?’ and goes on to answer her own question in the affirmative: It is because of the fact that instead of showing up at the voting booth to register their demands and wants, people are turning to corporations. The most effective way to be political today is not cast your vote at the ballot box but to do so at the supermarket or at a shareholders’ meeting. Why? Because corporations respond. (Ibid.)
This action logic leads, however, to legitimation problems of a specific nature (see Palazzo and Scherer 2006). Friedman (1962, 1970) warned of the danger of the politicization of companies in his plea for the restriction of companies to the purpose of profit maximization. While he welcomes the philanthropic activities of the owners of companies, he criticizes managers who allow the stock companies to be poached in the public arena, because this occurs without the mandate of shareholders and at their expense. Friedman concludes that if companies become political actors, then the affected population should also be able to select the managers. Robert Reich (1998, p. 17), who is otherwise no friend of Friedman’s
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theories, confirms this insight some 20 years later, indicating that the excessive adoption of state functions by companies would lead to a problematic ‘politicization of the corporation’. An analysis from the field of management studies goes a step further: ‘Legitimacy has become one of the most critical business issues, especially for those companies who operate globally’ (Kostova and Zaheer 1999, p. 74). Thus, the corporate citizen is now subject to an inherent legitimation pressure; together with investors they must take the interests of customers and the political public into account. Whether the primacy of politics over the market can be regained through such politicization remains clearly questionable. Nevertheless, the demonstrated changes are not in any way indicative of a process of depoliticization. On the contrary, both international institutions and the actions of corporations are becoming increasingly politicized. Governance with and without government is subject, therefore, to the same normative claims as governance by government. Or, to put it more directly: as the market gains ground on politics, the market becomes politicized. This diagnosis does indeed raise some questions that will need to be answered by further research. Through which mechanisms can transnational actors be connected to public procedures of decision making? Are transnational and international institutions capable of developing redistributive mechanisms or will they remain in the regulative realm? What role does education and information play in global politics? How is it possible to distinguish good from bad companies? How do political actors respond to the politicization of international and transnational institutions? Does this lead to a revival of the nation-state or to a golden age of constitutionalization? Which role will the most powerful nation-state, the United States, play with respect to these questions in the future? Notes 1. For more on the emergence and functioning of the democratic constitutional interventionist state and its perspectives for development in the light of current challenges, see Leibfried and Zürn (2005). 2. See Zürn (1998, pp. 41–54) as an overview. For important contributions, see Polanyi (1957), Marshall (1975) and North (1981). 3. See http://www.bundesregierung.de/Content/DE/Artikel/2006/12/Anlagen/2006-12-20 mitbestimmungskommission,property=publicationFile.pdf, accessed 21 November 2007. 4. See, for example, Miller and Stafford (2005) and Lowe et al. (2006). 5. The change of consumer behavior serves here as an explanation for the change in practice of companies. This is a related, but different notion than consumer education as an instrument of state policies. 6. There are two sides to the concept of legitimacy. From a normative perspective it refers to the validity of political decisions and political order, and their claim to legitimacy. From a descriptive perspective, in contrast, the focus is on the societal acceptance of political decisions and political orders as well as the belief of the subjects of rule in legitimacy. The next section focuses on this descriptive aspect of legitimacy. The normative legitimacy of transnational and international institutions is double-edged. On the one hand, institu-
The politicization of economization? 309 tions beyond the nation-state only provide the basis for bringing in all those affected by a political decision with cross-bordering or global externalities. On the other hand, the decision-making process as such does not fulfill the institutional criteria of a democratic process (see Zürn 2000). 7. This coincides with Iris Young’s (2004, p. 377) general definition of politicization, whereby ‘activities in which people organize collectively to regulate or transform some aspects of their shared social condition, along with the communicative activities in which they try to persuade one another to join such collective actions or decide what directions they wish to take’ should be classified as political.
References Albrow, Martin (1996), The Global Age: State and Society Beyond Modernity, Cambridge: Polity. Beisheim, Marianne, Sabine Dreher, Georg Walter, Bernhard Zangl and Michael Zürn (1999), Im Zeitalter der Globalisierung? Thesen und Daten zur gesellschaftlichen und politischen Denationalisierung (The age of globalization? Theses and data on societal and political denationalization), Baden-Baden: Nomos. Bell, Daniel (1973), The Coming of Post-Industrial Societies, New York: Basic Books. Benner, T. and J.M. Witte (2006), ‘Keine Macht den Multis? Die Rolle transnationaler Konzerne in Entwicklungsländern’ (No power to the multinationals? The role of transnational concerns in developing countries), Internationale Politik, 61 (9), 39–45. Brock, Lothar and Matthias Albert (1995), ‘Entgrenzung der Staatenwelt’ (Ridding the world of borders), Zeitschrift für Internationale Beziehungen, 2 (1), 259–85. Cerny, Philip G. (1995), ‘Globalization and the changing logic of collective action’, International Organisation, 49 (4), 595–625. Clapham, Andrew (2006), Human Rights Obligations of Non-State-Actors, Oxford: Oxford University Press. Cutler, A. Claire, Virgina Haufler and Tony Porter (eds) (1999), Private Authority and International Affairs, Albany, NY: SUNY Press. Deutsch, Karl W. (1969), Nationalism and its Alternatives, New York: Free Press. Endres, Alfred and Cornelia Ohl (2005), ‘Kyoto, Europe? An economic evaluation of the European Emission Trading Directive’, European Journal of Law and Economics, 19, 17–39. Eurostat (2004), ‘Total expenditure on social protection’, http://epp.eurostat.ec.europa.eu/ portal/page?_pageid=1996,39140985&_dad=portal&_schema=PORTAL&screen=detailref&language=en&product=Yearlies_new_population&root=Yearlies_new_population/C/ C5/C54/dae10000, accessed 19 October 2007. ExxonMobil (2006), ‘2006 corporate citizenship report. CEO statement’, http://www. exxonmobil.com/Corporate/ccr 06/community_ceo_statement.aspx, accessed 6 November 2007. Friedman, Milton (1962), Capitalism and Freedom, Chicago, IL: University of Chicago Press. Friedman, Milton (1970), ‘The Counter-Revolution in Monetary Theory: First Wincott Memorial Lecture’, Delivered at Senate House, University of London, 16 September, London: Institute of Economic Affairs. Hall, Rodney B. and Thomas J. Biersteker (eds) (2002), The Emergence of Private Authority in Global Governance, Cambridge: Cambridge University Press. Hasenclever, Andreas, Peter Mayer and Volker Rittberger (1997), Theories of International Regimes, Cambridge: Cambridge University Press. Hassel, Anke (2006), ‘The transformation of global public policy – the case of labour standards’, unpublished manuscript, Berlin: Hertie School of Governance. Hertz, Noreena (2001), ‘Better to shop than to vote?’, Business Ethics: A European Review, 10 (3), 190–93. Kahler, Miles (1995), International Institutions and the Political Economy of Integration, Washington, DC: Brookings Institution. Kearney, A.T. (2003), ‘Foreign Policy Magazine Globalization Index 2003: measuring globalization: who’s up, who’s down?’, Foreign Policy, 134, 60–72.
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Kerwer, Dieter (2006), ‘Governing financial markets by international standards’, in Mathias Koenig-Archibugi and Michael Zürn (eds), New Modes of Governance in the Global System. Exploring Publicness, Delegation and Inclusiveness, Basingstoke: Palgrave, pp. 77–100. Kolk, Ans and Rob van Tulder (2005), ‘Setting new global rules? TNCs and codes of conduct’, Transnational Corporations, 14 (3), 1–27. Kostova, Tatiana and Srilata Zaheer (1999), ‘Organizational legitimacy under conditions of complexity: the case of the multinational enterprise’, Academy of Management Review, 24 (1), 64–81. Krugman, Paul (1996), Pop Internationalism, Cambridge, MA: MIT Press. Leibfried, Stephan and Michael Zürn (eds) (2005), Transformations of the State?, Cambridge: Cambridge University Press. Lindblom, Charles E. (1977), Politics and Markets. The World’s Political–Economic Systems, New York: Basic Books. Lowe, Ross E., Charles A. Malouf and Annette L. Jacobsen (2006), Consumer Education and Economics, New York: Glencoe/McGraw-Hill, 6th edition. Marshall, Thomas H. (1975), Social Policy in the Twentieth Century, London: Hutchinson. Matten, Dirk and Andrew Crane (2005), ‘Corporate citizenship: toward an extended theoretical conceptualization’, Academy of Management Review, 30 (1), 166–79. Miller, Roger LeRoy and Alan D. Stafford (2005), Economic Education for Consumers, Boston, MA: South-Western Educational Publications, 3rd edition. Moon, Jeremy, Andrew Crane and Dirk Matten (2005), ‘Can corporations be citizens? Corporate citizenship as a metaphor for business participation in society’, Business Ethics Quarterly, 15 (3), 429–53. Moravcsik, Andrew (1999), ‘The new statecraft? Supranational entrepreneurs and international cooperation’, International Organization, 53 (2), 267–306. Mosdorf, Siegmar (2005), ‘Regiert uns die “fünfte Gewalt”? Über die Einfluss-Architektur von Staat und Wirtschaft in der Gesellschaft des 21. Jahrhunderts’ (Are we being ruled by a ‘fifth power’? On the structure of business and state influence), Internationale Politik, 60 (10), 69–73. North, Douglass C. (1981), Structure and Change in Economic History, New York and London: W.W. Norton. Offe, Claus (2006), ‘Unternehmen, Staat und Globalisierung aus sozialwissenschaftlicher Perspektive’ (Enterprises, the state and globalization from a social science perspective), unpublished manuscript, Berlin: Hertie School of Governance. Palazzo, Guido and Andreas G. Scherer (2006), ‘Corporate legitimacy as deliberation: a communicative framework’, Journal of Business Ethics, 66, 71–88. Polanyi, Karl (1957), The Great Transformation: The Political and Economic Origins of Our Time, Boston, MA: Beacon Press. Pontusson, Jonas (2005), Inequality and Prosperity: Social Europe Vs. Liberal America, New York: Cornell University Press. Reich, Robert B. (1998), ‘The new meaning of corporate social responsibility’, California Management Review, 40 (1), 8–17. Risse, Thomas (2002), ‘Transnational actors and world politics’, in Risse, Walter Carlsnaes and Beth Simmons (eds), Handbook of International Relations, London: Sage, pp. 255–74. Scherer, Andreas G., Guido Palazzo and Dorothée Baumann (2006), ‘Global rules and private actors: toward a new role of the transnational corporation in global governance’, Business Ethics Quarterly, 16 (4), 505–32. Scholte, Jan A. (2000), ‘Globalization? The definitional issue – again’, Working Paper Series, 03/1, Toronto: Institute on Globalization and the Human Condition. Seeleib-Kaiser, Martin (2001), Globalisierung und Sozialpolitik: Ein Vergleich der Diskurse und Wohlfahrtssysteme in Deutschland, Japan und den USA (Globalization and social policy: a comparison of the discourses and welfare-state systems in Germany, Japan and the USA), Frankfurt am Main: Campus. Streeck, Wolfgang and Norbert Kluge (eds) (1999), Mitbestimmung in Deutschland. Tradition und Effizienz (Co-determination in Germany: tradition and efficiency), Frankfurt and New York: Campus Verlag.
The politicization of economization? 311 Streeck, Wolfgang and Phillipe C. Schmitter (1985), Private Interest Government. Beyond Market and State, Beverly Hills, CA: Sage. Villancourt Rosenau, Pauline (2000), Public-Private Policy Partnerships, Cambridge, MA: MIT Press. Vogel, David (1997), ‘Trading up and governing across: transnational governance and environmental protection’, Journal of European Public Policy, 4 (4), 556–71. Werther, William B. and David Chandler (2006), Strategic Corporate Social Responsibility. Stakeholders in a Global Environment, Thousand Oaks, CA, USA and London, UK: Sage. Windhoff-Heritier, Adrienne (1987), Policy-Analyse: Eine Einführung (Policy analysis: an introduction), Frankfurt am Main and New York: Campus. Wolf, Klaus D. (2006), ‘Private actors and the legitimacy of governance beyond the state. Conceptional outlines and empirical explorations’, in Arthur Benz and Yannis Papadopoulos (eds), Governance and Democracy: Comparing National, European and International Experiences, Abingdon: Routledge, pp. 200–227. Young, Iris M. (2004), ‘Responsibility and global labor justice’, Journal of Political Philosophy, 12 (4), 365–88. Zürn, Michael (1992), ‘Jenseits der Staatlichkeit’ (Beyond statehood), Leviathan, 20 (4), 490–513. Zürn, Michael (1998 [2005]), Regieren jenseits des Nationalstaates. Denationalisierung und Globalisierung als Chance (Governance beyond the nation-state: denationalization and globalization as an opportunity), Frankfurt am Main: Suhrkamp, 2nd edition. Zürn, Michael (2000), ‘Democratic governance beyond the nation-state: the EU and other international institutions’, European Journal of International Relations, 6 (2), 183–221. Zürn, Michael, Martin Binder, Matthias Ecker-Ehrhardt and Katrin Radtke (2006), ‘Politische Ordnungsbildung wider Willen – Ein Forschungsprogramm zu transnationalen Konflikten und Institutionen’ (The building of a political order contrary to will – a research programme on transnational conflicts and institutions), WZB Discussion Paper No. SP IV 2006-301, Wissenschaftszentrum Berlin für Sozialforschung, http://skylla.wzb.eu/pdf/2006/ iv06-301.pdf, accessed 19 October 2007.
PART IV DISCIPLINARY PERSPECTIVES ON CORPORATE CITIZENSHIP
15 The economic view of corporate citizenship Jessica C. Ludescher, Abagail McWilliams and Donald S. Siegel
Introduction Corporate citizenship (CC) is broader than existing concepts in the business and society literature, such as corporate social responsibility (CSR) and corporate social performance (CSP). CC considers the role of corporations as social institutions and their ability to respond to non-market pressures, especially in a global context. Consistent with its roots in political and critical theory, CC extends the concept of corporate accountability beyond the economic dimension to include the environmental and social realms. The term ‘citizenship’ itself invites a different type of ethical justification compared to that evoked by the term ‘social responsibility’. Citizens are members of society who have rights, benefits and responsibilities. They are expected to abide by society’s laws and norms, and may incur penalties for violating those laws and norms. At an individual level, good citizenship denotes the assumption of non-mandated responsibilities to advance the welfare of society. These distinctions can be mapped onto the concept of corporate citizenship. Firms are legal entities, which can be regarded as ‘citizens’, to the extent that society grants them rights and privileges. In exchange for the benefits of citizenship, corporations must abide by society’s laws and norms. However, good CC requires that firms also exercise additional responsibilities to society. CSR, on the other hand, typically does not denote such a broad or inclusive commitment. Corporations can be ‘socially responsible’ merely by satisfying certain stakeholder demands. Locating CC in corporate involvement with civil society, rather than merely with individual (firm) stakeholder groups, constitutes its chief source of differentiation from CSR, and ultimately, makes CC a broader concept. In this chapter, we present a neoclassical economic perspective on CC, which extends the research of McWilliams and Siegel (2001; McWilliams et al. 2006) on the economic and strategic implications of CSR to incorporate these additional dimensions. Our aim is to present the economic case for CC, and to show that various ethical objections raised by 315
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economists to corporate social obligations do not hold for either CSR or CC, and especially not for CC. Following McWilliams and Siegel’s definition of CSR, we define CC, CSR and CSP collectively as activities where the firm goes beyond legal compliance and engages in ‘actions that appear to further some social good, beyond the interests of the firm and that which is required by law’ (McWilliams and Siegel 2001, p. 117). CSR activities have been posited to include incorporating social characteristics or features into products and manufacturing processes (for example, aerosol products with no fluorocarbons or environmentally friendly technologies), adopting progressive human resource management practices (for example, promoting employee empowerment or quality of the work environment), achieving higher levels of environmental performance through recycling (for example, recycling paper rather than cutting down additional trees), advancing the goals of community organizations (for example, working closely with groups such as United Way), providing humanitarian aid in the event of catastrophes (for example, relief aid to victims of natural disasters) and philanthropic assistance to needy communities (for example, technology donations to inner-city public schools). CC activities incorporate all these CSR activities but also include such things as investing in a healthier environment, supporting human rights and requiring safe working conditions from all suppliers. Because economic globalization extends business operations beyond that of a given society, CC demands that business enhances the welfare of all the societies in which it operates, not just that of the home base. It is our view that, ultimately, CC requires global citizenship. There is growing interest in the economic consequences of CSR and CC, especially for executives at multinational, multidivisional companies. These corporate leaders are mindful of the fact that business norms and standards, regulatory frameworks and stakeholder demand for social contributions can vary substantially across nations, regions and lines of business. Such top-level executives are also aware that their divisional managers are under constant pressure from employees, suppliers, community groups, non-government organizations (NGOs) and government to increase their involvement in CSR and CC. Globalization raises concerns for managers of multinational corporations because differing, and sometimes competing, ethical expectations result in unpredictable and non-uniform payoffs for social contributions. There is also growing awareness that some issues, such as water and air pollution, cannot effectively be addressed within national borders, and therefore, expectations for responsible activities are broader. In sum, there are numerous antecedents and consequences of CSR and CC, which require managers to conceptualize and estimate the
The economic view of corporate citizenship 317 economic returns to engagement with stakeholders and civil society. However, the complex nature of these drivers often leaves managers without a clear direction. Researchers have been moving beyond just identifying CSR and CC activities and examining the economic impact of these activities (for the firm and for society) toward evaluating the ethical basis of their utilization from an economic perspective. The question of corporate legitimacy has become pressing for business managers, stakeholders and civil society. Palazzo and Scherer (2006) argue that tensions between these groups over the role of the corporation in society have given rise to a new politicization of the corporation. Following Suchman’s (1995) discussion of legitimacy, they argue that under the conditions of globalization the corporation’s organizational legitimacy needs to be established along moral, as opposed to pragmatic or cognitive lines. In other words, a corporation is morally legitimate if its conduct and institutional structure are ethically justified in conscious moral judgments and discourses with various stakeholder groups. Legitimacy is subjectively perceived and constructed in processes of social interaction. Suchman distinguishes between three types of legitimacy: pragmatic, cognitive and moral. Corporations frequently attempt to secure pragmatic legitimacy through strategic activities that create real or apparent benefits to groups other than shareholders, but which ultimately are designed to advance the interests of the shareholders alone. Cognitive legitimacy emerges when corporations and their output are taken for granted. Corporations possess cognitive legitimacy in so far as the benefits to society of their wealth-creating function are tacitly supported and remain unchallenged by stakeholders and civil society. Pragmatic legitimacy is based on the conscious perceptions of beneficial outcomes of corporate activities by self-interested actors, whereas cognitive legitimacy derives its source from the unreflective and unconscious acceptance of the status quo. Moral legitimacy, by contrast, is the result of conscious moral judgments and is socially constructed in discursive processes. We locate our discussion of CSR and CC in an economic interpretation of Palazzo and Scherer’s revitalization of the legitimacy question. We extend their interpretation of McWilliams and Siegel’s (2001) view of strategic CSR as a corporate attempt to achieve legitimacy by pragmatic means (underpinned by the supposed cognitive legitimacy of the profit function in neoclassical economics) to a broader discussion of the ethical legitimacy of CSR and CC in economic theory. We begin by asserting that, in so far as CSR and CC are unreflectively assumed to be ethically justified, the demand for such activity by stakeholders and civil society merely stems from an attempt to secure cognitive legitimacy for the corporation by
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means of a less articulated theory of the firm than that of neoclassical economics. From the narrower perspective of managers, the critical question about CSR and CC is: what level of engagement in socially responsible activities will maximize (short- or long-term) profitability for the benefit of the firm and its shareholders? From a social or political perspective on CSR and CC, the critical question is: how can managers be encouraged to engage in socially responsible activities so as to benefit society? From an economic perspective on CSR and CC, the critical questions are: are socially responsible activities consistent with the property rights of shareholders and do socially responsible activities enhance or diminish the public welfare? We apply the research of McWilliams and Siegel (2001) with respect to the managerial question to an evaluation of the economic question and thus demonstrate that both CSR and CC are ethically legitimate from a neoclassical economic view. We argue that CSR and CC can be distinguished by the fact that managers tend to seek pragmatic legitimacy for their corporation when engaging in CSR, whereas they tend to seek ethical legitimacy for all corporations when engaging in CC. The remainder of this chapter is organized as follows. In the following section, we discuss a variety of economic theories that shed light on CSR. Then, we apply our discussion of CSR to CC, while focusing on key differences between the two concepts. We advance a view of CC that reframes the ethical problems with CSR raised by many economists. We also briefly outline an agenda for theoretical and empirical research on the economic implications of CC. Theoretical perspectives on CSR Numerous theories have been brought to bear on the subject of CSR. The question of whether CSR is ethically legitimate has been hotly debated as well as analyzed from a variety of disciplinary perspectives (Buchholz and Rosenthal 1999; The Economist 2005). Here we only consider the economic arguments concerning the legitimacy and use of CSR. Our model of strategic CSR aligns the interests of firms and society and obviates the need for ethical as opposed to economic considerations. With this in mind, we analyze the effectiveness of CSR for firms in light of several economic concepts and raise a number of problems that have yet to be resolved. The ethical legitimacy of CSR Theodore Levitt can be credited with establishing an agenda for the debate about the social responsibility of business in his seminal Harvard Business Review article entitled ‘The dangers of social responsibility’, in which he cautions that ‘government’s job is not business, and business’s job is not
The economic view of corporate citizenship 319 government’ (Levitt 1958, p. 47). Milton Friedman (1970) expressed a similar objection to CSR and added that it signals an agency problem within the firm, in that the agents/managers fail to serve the interests of the principals/stockholders when they engage in ‘socially responsible’ behavior. This agency theory perspective implies that CSR is a misuse of corporate resources that would better be spent on valued-added internal projects or returned to shareholders. Friedman’s argument also implies that CSR is an executive perk, in the sense that managers use CSR to advance their careers or other personal agendas. Friedman has even gone so far as to decry CSR as immoral (Bakan 2004). Friedman’s main reason for rejecting CSR appears to be that it usually entails the violation of property rights, as he holds that ‘the corporation is an instrument of the stockholders who own it’ (Friedman 1962, p. 135). Jensen and Meckling (1976) extended agency theory to an analysis of the firm, modeling the corporation as a market that is not owned by anyone, not even the stockholders. Calling the firm a ‘nexus-of-contracts’, they argue that social responsibility is a nonsensical concept because firms are not the sorts of entities to which the term ‘responsibility’ can meaningfully be applied. In other words, individuals as moral actors can be responsible, but firms cannot. The nexus-of-contracts theory implies that managers should concentrate on abiding by the firm’s contractual commitments to constituencies and the fiduciary duty owed to shareholders. CSR is bound to violate some group’s contractual rights. In the case of shareholders, it violates the rights to residual revenue (profit). In this way, Jensen and Meckling’s view is aligned with Friedman’s. In a similar vein to Friedman, Elaine Sternberg (2002) has argued that CSR is a form of theft and that managers exploit CSR so as to avoid accountability for their management of the firm. In a January 2005 survey of CSR, The Economist (2005) argued that most CSR is immoral, not only because it is a form of theft, but also because it inhibits the process by which the free market secures optimal resource allocation. The Economist’s second concern revives Levitt’s and Friedman’s initial skepticism about CSR. Like Friedman, The Economist points to the role of the market in advancing the public welfare of society, indicating that CSR attempts to do what the market mechanism already does, only not as efficiently as the market. All of these perspectives reveal problems with the ethical legitimacy of CSR at both the micro and macro levels. At the micro level, the ethical problem with CSR is that it violates property (and other contractual) rights. At the macro level, the ethical problem with CSR is that it is a poor substitute for the market mechanism. R. Edward Freeman (1984), building on Chester Barnard’s (1938) ‘inducement–contribution’ framework, presented a more positive view of
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managers’ support of CSR. Freeman’s stakeholder theory asserts that managers must satisfy a variety of constituents (for example, workers, customers, suppliers, local communities) who can influence firm outcomes. According to this view, it is not sufficient for managers to focus exclusively on the needs of stockholders or the owners of the corporation, even if their goal is to maximize wealth for owners. Stakeholder theory implies that it can be beneficial for the firm’s wealth objectives to engage in certain CSR activities that non-financial stakeholders perceive to be important, because, without CSR, these groups might withdraw their support for the firm. Stakeholder theory was expanded by Donaldson and Preston (1995), who stressed the ethical justifications for CSR, as well as the business case for engaging in such activity. Goodpaster (1991) has argued that there is an essential tension in the stakeholder literature between those who advocate the advancement of stakeholder interests as a means to shareholders’ ends of wealth maximization and those who argue for the extension of ethical obligations to all stakeholders in the form of a fiduciary duty. He refers to the former as a strategic and the latter as the multifiduciary approach to stakeholder management and argues that both approaches to stakeholder engagement present ethical problems. Put in Suchman’s (1995) terms, managers can approach stakeholder engagement for the purposes of securing either pragmatic or ethical legitimacy. In Goodpaster’s view, the strategic approach fails to recognize the entitlement of stakeholders to ethical consideration, while the multifiduciary approach fails to recognize the primacy of shareholder entitlements in a firm and the significance of shareholder entitlements to the capitalist system. In other words, the former places economic considerations above ethical ones and the latter does the reverse. There is an apparent trade-off between economics and ethics in Goodpaster’s socalled ‘stakeholder paradox’. Another economic perspective applied to CSR is the theory of the firm. Unlike the earlier agency theory models provided by Friedman and Jensen and Meckling, a theory of the firm approach can be applied to illuminate the alignment between CSR activities and profit. Although Goodpaster might regard this sort of CSR as strategic stakeholder management, we advance a view that transcends his ethical characterization. When understood in its economic complexity, CSR can be seen to advance the interests of shareholders, other stakeholders, and society at large. Ergo, there is no necessary tension between economic and ethical considerations. Jones (1995) introduced a theory of the firm to study the benefits of CSR and concluded that companies involved in repeated transactions with stakeholders on the basis of trust and cooperation are motivated to be honest, trustworthy and ethical because the returns on such behavior are
The economic view of corporate citizenship 321 high. A more formal model of ‘profit-maximizing’ CSR was developed in McWilliams and Siegel (2001). These authors outlined a simple model in which two companies produce identical products, except that one firm adds an additional ‘social’ attribute or feature to the product, which is valued by some consumers or, potentially, by other stakeholders such as investors. In this model, managers conduct a cost–benefit analysis to determine the level of resources to devote to CSR activities/attributes. That is, they assess the demand for CSR and also evaluate the cost of satisfying this demand. This analysis allows managers to select an optimal amount of CSR. From here, McWilliams and Siegel conclude that firms should consider CSR as a strategic investment. Another way of putting this point is that managers should seek pragmatic legitimacy through their CSR. To the extent that firms engage in CSR strategically, this behavior can be examined through the lens of the resource-based view of the firm (RBV). RBV, as introduced by Wernerfelt (1984) and refined by Barney (1991), borrows heavily from Penrose’s theory of the firm (1959). RBV postulates that firms are bundles of heterogeneous resources and capabilities that are imperfectly mobile across firms. Barney (1991) maintains that if these resources and capabilities are valuable, rare, inimitable and nonsubstitutable, they can constitute a source of sustained competitive advantage. The first theoretical paper to apply the RBV framework to CSR was Hart (1995), who focused exclusively on environmental social responsibility. Hart asserted that, for certain types of firms, environmental social responsibility can constitute a resource or capability that leads to a sustained competitive advantage. Russo and Fouts (1997) tested this theory empirically using firm-level data on environmental and accounting profitability, and found that firms with higher levels of environmental performance had superior financial performance, which they interpreted to be consistent with the RBV theory. These theory-of-the-firm perspectives on CSR yield several meaningful managerial implications. The first is that CSR can be an integral element of a firm’s business and corporate-level strategies and should be considered as a form of strategic investment that yields value for shareholders. A second implication is that it is possible to generate a set of predictions regarding patterns of investment in CSR across firms and industries. A third implication is that further examination of economic concepts such as product differentiation, asymmetric information, market structure and competition, externalities and public goods will shed more light on the consequences of CSR. The ultimate implication of the theory-of-the-firm perspective is that enhancement of public welfare can ensue from corporate self-interest. Collectively, these implications shed considerable light on the critical economic questions about CSR, outlined in our introduction. We
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now turn our discussion to several specific economic concepts, which we apply to CSR. Analysis of CSR in terms of economic concepts In the following analysis of CSR, we explain how CSR can rationally be utilized by corporate managers as a business strategy to maximize profits for shareholders, thus respecting property rights and maintaining consistency with the viewpoints of Levitt, Friedman, Jensen and Sternberg. Our analysis also makes use of the insights of stakeholder theory that reveal the importance of satisfying the ethical preferences of stakeholders, particularly of customers, as a way of creating value for shareholders. This theory-of-thefirm approach, while ethically legitimate from an economic standpoint, is essentially driven by managers’ motives to do what it takes to continue generating wealth. Another motive, or sometimes unanticipated consequence, is heightened legitimacy for the firm, pragmatically construed. CSR as product differentiation A primary implication of the McWilliams and Siegel (2001) study of CSR is that CSR attributes and activities constitute a range of differentiation opportunities for firms. We note that in the context of using CSR to differentiate products, it is important to distinguish between two types of product differentiation. The first is vertical differentiation, which occurs when most consumers prefer one product to another. For example, other things being equal, most consumers prefer a more fuel-efficient vehicle. In the context of CSR, such a situation could occur when it is clear in the mind of consumers that the product with a CSR characteristic is better than the product without such a characteristic. For example, a ‘hybrid’ version of a Honda Accord generates less pollution than a standard Honda Accord. Thus, it is clear to most consumers that the hybrid car is better than the standard model. Some consumers are willing to pay a price premium for the hybrid car, given that the social characteristic of less pollution is ‘valuable’ to them. Frank (2004) has argued that this type of CSR enables the firm to stay competitive despite incurring the higher costs associated with producing socially responsible products, because the firm is able to pass the higher costs of social responsibility on to the consumer. This strategy works if consumers have preferences for socially responsible products. When firms engage in this type of differentiation they can also gain, because offering such products may strengthen or maintain the firm’s reputation (Fombrun and Shanley 1990). Vertical product differentiation also adds value by allowing the firm to meet a particular market demand. In contrast, horizontal differentiation occurs when only some consumers prefer a particular product, but the preference is based on taste, rather than
The economic view of corporate citizenship 323 quality. For example, some consumers choose a particular vehicle because of the color. This type of differentiation does not contribute to the reputation of the firm and does not allow the firm to charge a premium price. Horizontal differentiation also operates for different brands. For example, some consumers prefer Coke to Pepsi, while others have the opposite preference. However, horizontal differentiation can be applied to controversial moral issues such as open immigration and gay marriage. Consumers may decide to purchase from retailers that they believe adhere to moral standards similar to their own. The importance of advertising Most consumers become aware of product differentiation through advertising. That is, the firm makes the consumer aware of the differentiation. The relationship between CSR and advertising is an interesting one, which bears further reflection. Based on the model from McWilliams and Siegel (2001), we would expect levels of investment in CSR to be higher for established firms in more mature industries, since the extent of product differentiation will be greater in such sectors and consumers will, in general, have more sophisticated tastes and knowledge regarding products and firms. It is clear that such companies are likely to derive greater benefits from the use of CSR for reputation enhancement/protection. When considering advertising of CSR, it is important to distinguish between persuasive and informational advertising. Persuasive CSR advertising attempts to positively influence consumer tastes for products with CSR attributes (for example, organic produce or Fair Trade). It follows that this type of advertising needs not be firm specific since the cultivation of CSR tastes would result in decisions to purchase products of a variety of firms and possibly even from competitors. For instance, a consumer might be introduced to the concept of Fair Trade coffee at a health food store, and then later seek out other Fair Trade products and coffees at Trader Joe’s. Informational CSR advertising merely provides information about the CSR characteristics or CSR managerial practices of the firm and may take the form of CSR reporting (for example, in annual reports). This type of advertising is firm specific and meant to increase sales for the firm that does informational advertising. Following Milgrom and Roberts (1986), one could view a high level of CSR advertising (either persuasive or informational CSR advertising) as a signal of product or firm quality. This is because established firms are more likely to invest in advertising. The implication of our analysis is that high levels of CSR advertising should enhance reputation building and maintenance. Ideally, a combination of persuasive and informational advertising of CSR activities would increase the value to the firm of engaging in those activities, since persuasive advertising is needed to convince the customer of the importance of CSR and informational
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advertising is needed to connect the activities explicitly to the firm rather than its competitors. Persuasive advertising alone will not maximize the benefits to the firm of CSR conduct because competitors can free ride on the advertising. The problem of information asymmetry In contrast to the ease of valuing CSR product attributes, consumers often find it difficult to determine whether a firm’s internal operations meet their standards for social responsibility. The level of asymmetric information regarding internal operations can be mediated by the firm itself or by activists. For instance, companies such as McDonald’s, Motorola and Nike publish annual reports on social responsibility. One can view this activity as a form of informational advertising, especially for more general types of CSR. While such reports may be useful, some consumers perceive this information as biased, since it is filtered through senior management. Feddersen and Gilligan (2001) assert that activists can play an important role in addressing this concern, by supplying consumers with information they can rely on to choose socially responsible firms. However, since many activists have an anti-corporate agenda, their reporting can be biased as well. For example, they might choose to downplay positive attributes in favor of negative ones. Although reporting by firms and activists conveys information about social responsibility, there is still considerable information asymmetry between those groups and external stakeholders. The irrelevance of market structure Another critical issue concerns the nature of the market structure of the firm’s industry. A key conclusion of the McWilliams and Siegel (2001) paper was that, in equilibrium, firms that engage in CSR will earn the same rate of profit as firms that do not engage in CSR. We refer to this finding as the ‘neutrality result’. This finding was misinterpreted by Piga (2002) as implying that strategic CSR can only occur in monopolistically competitive industries, since some oligopoly models of vertically differentiated markets predict that (in equilibrium) firms selling the higher-quality product (in our case, the firm that sells a good with a CSR characteristic) reap ‘abnormal’ profits. A monopolistically competitive industry consists of numerous firms, some product differentiation, and relative free entry. Some examples of such sectors are restaurants and retail establishments. On the other hand, oligopolies are characterized by a consolidated industry structure, considerable entry barriers and substantial product differentiation (for example, autos, computers). We believe that the neutrality result holds under both oligopoly and monopolistic competition (McWilliams and Siegel 2002). This result is implied for monopolistic competition because sectors with such a structure
The economic view of corporate citizenship 325 are characterized by both horizontal and vertical differentiation, a fragmented industry structure and very low entry barriers. Under this scenario, it is impossible for firms to use CSR to outperform rivals because rival firms can rely on horizontal differentiation or different (non-ethical) types of vertical differentiation to make a profit. Examples of firms in monopolistically competitive industries that engage in CSR include restaurants, hotels, companies selling organic produce and different types of retail establishments. For example, McDonald’s advertises its socially responsible behavior to increase consumer demand. Another fast-food chain might use a different horizontal differentiation strategy, such as offering ethnic foods (tacos and burritos). These different differentiation strategies would lead to similar profitability, because they attract consumers for different reasons (or they attract different customers). The neutrality result likely holds for oligopolistic markets as well. That is because, while some oligopoly models predict that firms producing a higher quality product earn ‘abnormal’ returns, these findings hinge on the assumption that costs are constant and independent of quality. These assumptions were not invoked in the McWilliams and Siegel (2001) model. Furthermore, recent economic models of CSR (Baron 2001; Feddersen and Gilligan 2001; Siegel and Vitaliano 2007) identify an important countervailing force on the ability of companies to engage in strategic CSR in oligopolistic industries: activists who target leading firms (for example, the attacks on Gap’s and Nike’s Asian production). This countervailing force makes it difficult for oligopolistic firms to achieve a competitive advantage through the strategic use of CSR because their rivals are continually forced by activists to employ a comparable level of CSR. What may not have been understood about the neutrality effect is that firms within the same industry will have the same rate of profit. But profits vary across industries, so that in oligopolies all firms may make higher profits than all firms in some more competitive industries. The potential for competitive advantage Another approach to the neutrality result is to ask whether CSR can create a sustainable competitive advantage. A paper by Reinhardt (1998) finds that a firm engaging in a CSR-based strategy can only generate an abnormal return if it can prevent competitors from imitating its strategy. In competitive markets this is unlikely, since CSR is highly transparent, with little causal ambiguity. In fact, the strategic necessity of communicating information about CSR to consumers via reporting and advertising enhances transparency, thus eroding competitive advantage. Other theoretical studies (Dutta et al. 1995; Hoppe and Lehmann-Grube 2001) show that any early-mover advantages that might be gained by
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offering higher-quality products (recall that CSR is modeled as a ‘quality improvement’ in McWilliams and Siegel 2001) are eroded when competitive strategies are observable. However, various strategies can be deployed to counteract this loss of first-mover advantage brought on by transparency. Porter and Kramer (2002) suggest that corporate philanthropy can result in loyalty to the company and that careful selection of location target can enable companies to reap benefits that are uniquely valuable to the company. Kanter (1999) has also argued that corporate contributions to the social sector can be designed as test projects for product or system innovations that can be exported to other units operated for profit. She regards such strategies as corporate social innovation (CSI), and concludes that they reap long-term gains for both the firm and society. Profit and the public welfare CSR may also be used in the context of political strategies that create regulatory barriers to imitation. One such strategy would be for firms to use government regulation to impose CSR on rivals who do not employ an appropriate technology, thus raising the costs for those rivals relative to the initiating firm. Marvel (1977) provided an example of this political strategy in the British textile industry in the early 1800s. The first child labor law was passed in Great Britain after the mill owners who employed modern technology banded together and lobbied for restrictions on child labor, which had been used more by the older, smaller mills. This new law placed the smaller mills at a competitive disadvantage because it forced them to purchase the newer machinery that the other mills already possessed. McWilliams et al. (2002) applied the RBV framework to demonstrate how US firms can use political strategies based on CSR to raise regulatory barriers that prevent foreign competitors from using substitute (for example, low labor cost) technology. In its 2005 survey of CSR, The Economist denounced such political strategies as a form of ‘hobbling the competition’, and labeled such behavior ‘pernicious CSR’. This ignores the potential benefits of political strategies that would restrict the use child labor and sweatshops in less developed countries or impose more stringent environmental standards globally (McWilliams et al. 2002). There is some debate in neoclassical economics about whether firms’ political strategies enhance or diminish the public welfare. In general, advocates of the free market oppose CSR for the same reasons they oppose government regulation (Friedman 1962, 1970), whereas advocates of a regulated market favor CSR, although many would prefer the government to regulate the market to the end of public welfare rather than rely on corporate volunteerism. In the view of those who are optimistic about the potential of the free market, such political strategies harm society over the
The economic view of corporate citizenship 327 long run by de-liberalizing the market and thus inhibiting competition and efficient production. However, firms often make use of political strategies in order to reduce rather than increase government regulation. Instead of lobbying to demand higher standards for workers, they might lobby to reduce labor laws, for instance. A free market proponent is inclined to regard such decreased regulation as beneficial to society over the long run because the lowered costs will increase efficiency, and competition between producers will eventually drive up wages. There is much debate about whether this ‘invisible hand’ theory works as well in practice as it does in theory. More problematic than the issue of work conditions is the issue of environmental integrity. Corporate lobbying to reduce environmental regulations might result in a permanent degradation of the commons, such as irreversible global warming. It is because corporations utilize political strategies more often to reduce rather than enhance regulations that pessimists about the free market tend to be suspicious of CSR. The fact that corporations only pursue political strategies that will add value to their bottom line, whether through heightened or reduced regulation, leads advocates of regulation to regard such political strategies skeptically. The important issue to recognize is that corporations primarily act according to a mandate of self-interest and are not inclined to advance the public welfare, or consider the interests of society for its own sake. However, a more complex picture of self-interest, as it is currently being developed in behavioral economics, can lead to a more favorable reading of corporate political strategies that aim to increase regulation. In this chapter we take an optimistic view of both the free market and CSR since we assume that people have preferences for socially responsible conduct that leads them to reward corporations for engaging in CSR, thus aligning profit and the public welfare. Our approach may be located in a middle ground between free and regulated markets. Private and public responsibility The literature also contains numerous studies of the relation between doing good and doing well – the business case for CSR. Orlitzky et al. (2003) conducted a meta analysis of the analyses of corporate social and financial performance. They found only a modest positive effect on performance from ‘doing good’. Prima facie, such findings might lead one to be pessimistic about the potential of CSR to enhance the public welfare since the financial incentives for engaging in CSR would not be tremendous. Greater attention to the motivations for engaging in CSR is necessary in order to evaluate the likelihood of a lineup between the private and the public interest. Asymmetric information makes it difficult to study the antecedents and consequences of CSR. Managers may perceive that many external
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stakeholders view CSR activity more favorably if it is divorced from any discussion of the bottom line. With this in mind, managers may not reveal the more practical motivations (such as product promotion, labor cost control and reputation building) behind their CSR activities, especially in corporate publications such as annual reports. This lack of candid information has made it difficult to distinguish and discuss the different motivations for CSR, which may be private or social or both. The use of CSR to capture value is referred to as strategic CSR by Baron (2001, p. 17) who points out that ‘it is the motivation for the action that identifies socially, as opposed to privately, responsible action’. That is, if the motivation is to serve society, at the cost of profits, the action is socially responsible, but if the motivation is to serve the bottom line, then the action is privately responsible. Recall that in the agency theory of the firm, a manager’s primary obligation is to serve the interests of shareholders, in other words, to be responsible to a private party rather than a public, or social, one. For privately responsible actions, there may well be social benefits that exceed the cost of the action to the firm. However, this does not change the motivation, unless these social benefits are of value to managers. For example, providing daycare may reduce the number of juvenile crimes in a community, but the firm might provide the daycare only because it increases the availability of workers and lowers the cost of absenteeism. In situations where benefits accrue to multiple private and public parties, as well as to managers, it is difficult to discern the true motivation of managers’ actions. Externalities and public goods These situations are reminiscent of the consideration of positive externalities associated with innovative activity. An externality is defined as the impact of an economic agent’s actions on the well-being of a bystander, where positive externalities generate benefits and negative externalities generate costs. Pollution is a classic example of a negative externality, while innovation (whose benefits cannot be entirely appropriated by its creator) is a classic example of a positive externality. Much of the business ethics literature has focused on firms’ tendencies to externalize costs (negative externalities) and has neglected to emphasize the degree to which corporations externalize benefits (positive externalities). Many environmentalists call for more cost internalization of business activity, so that CSR would amount to an elimination of negative externalities, or business harm to society. Corporate critics have expressed skepticism that firms have any motivation at all to internalize costs and have every reason to externalize them. Joel Bakan (2004), for instance, refers to corporations as ‘externalizing machines’ because the pressures of intense competition in the market necessitate continuous cost cutting to survive
The economic view of corporate citizenship 329 and thrive. CSR as a type of positive externality has been somewhat neglected by the literature, possibly because the motivations for generating such benefits appear to be selfish rather than altruistic. However, while the private returns to innovation (or those that accrue to the company) may be high, the social returns to innovation (through the creation of new or improved products and processes) may be even higher. As such, privately motivated activities can be extraordinarily beneficial for society. If strategic CSR is privately motivated, the benefits to society can be more than marginal. Researchers need to use more direct methods, such as interviews and surveys, to ‘tease out’ less self-serving information about the motivations for CSR activity and improve the precision of measurement of the private and social returns to CSR. In addition to understanding the motivation for the provision of social benefits, we need to understand how the provision of these goods, through strategic CSR, affects society. Following Baron (2001), we examine how strategic CSR can be regarded as the ‘private provision of a public good’. A public good is defined as a good the enjoyment of which is non-rival and non-exclusive, as opposed to a private good the enjoyment of which is competitive and exclusive. A clean, disease-free environment would be a public good, while a car or carton of ice cream would be a private good. The problem with public goods is that private cost–benefit analyses do not necessarily lead to their provision because the benefits to individuals of enjoying a public good are typically lower than the costs they would need to assume in order to help secure it. It is in each individual’s self-interest to ‘free ride’ on the costs assumed by others in an attempt to secure the public good. However, Baron articulates a view of CSR that eliminates this problem. Baron asserts that companies compete for socially responsible customers by explicitly linking their social contributions to product sales. A good example of such strategic CSR was Ben and Jerry’s commitment to donate 7.5 per cent of its pre-tax profit to social causes. Eco-labeling is another good example of strategic CSR where firms advertise the contribution that the sale of their private goods makes to the provision of a public good. In this model, both the firms and the customers contribute to the provision of a public good because if the customers are willing to pay more for their contribution to, say a clean environment, then their individual cost–benefit analyses would seem to imply that they would be willing to pay. The explanation for this apparently non-economical reasoning would be that the customers have an ethical preference that they think they can satisfy through their product purchases. Bagnoli and Watts (2003) model this behavior and find that the propensity of firms to engage in strategic CSR depends on two factors: the
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intensity of competition in the market and the extent to which consumers are willing to pay a premium for social responsibility. The authors conclude that there is an inverse relation between intensity of competition and provision of CSR. That is, in more competitive markets, less of the public good will be provided through strategic CSR. Conversely, the less competitive the market, the more of the public good will be provided. Prima facie, this view seems correct since more competition results in lower margins and, therefore, less ability to provide additional (social) attributes or activity. Conversely, less competition leads to the potential for higher margins and more ability to provide additional attributes or activity. However, Bagnoli and Watts’s analysis fails to take into account the fact that highly competitive markets contain more firms, a greater number of which could potentially contribute to providing public goods through their separate, individual CSR activities. Although CSR is typically employed strategically when individual firms attempt to set themselves apart from ‘irresponsible’ competitors, situations where the ethical demand for a certain kind of CSR in society is exceptionally high can impose a competitive necessity on all companies in a given industry to increase their individual CSR. We conjecture that this process is presently occurring in the energy industry, where oil companies competitively advertise their investments in research on solutions to the climate change crisis and the need for renewable energy. BP arguably sparked this industry trend by heavily advertising their ‘beyond petroleum’ initiatives. These initiatives have placed other firms at a competitive disadvantage relative to BP, because there is a high global ethical demand for renewable energy technology given the collective concern about the status of the global environment. Following BP, other companies such as Chevron and ExxonMobil have begun to advertise their environmental investments. In this way, competitive pressure works to secure public goods through the collective, ethically driven demand for them. If firms in a given industry will be disadvantaged by a failure to engage in CSR activities, then the intensity of competition will have the reverse effect to that predicted by Bagnoli and Watts. The large number of firms in a highly competitive industry may add to the variety as well as the amount of public goods provided. An analysis of the provision of public goods by private firms is a welcome addition to the management literature on CSR, which has been primarily concerned with answering the following question: do firms ‘do well by doing good?’. Showing that a firm does well by doing good is often referred to as making the business case for CSR. While understanding the relation between firm performance and CSR is of primary importance in the management literature, a more thorough understanding of the CSR
The economic view of corporate citizenship 331 phenomenon requires that we take account of effects that go beyond the firm and its stakeholders. As we shall demonstrate, the concept of CC enables us to apply the analysis of public goods and positive externalities to socially responsible conduct by firms. Application of economic theories to CC Strategic CSR, as we have defined it, amounts to a form of product differentiation, where management will select such differentiation to the extent that doing so is profit maximizing. In our model, advertising of CSR investments is essential for firms to locate customers who are willing to pay a premium for socially responsible products, or products made under socially responsible conditions. An analysis of CSR in terms of public goods reveals this product differentiation to be privately rewarding to firms because customers have an ethical preference for social responsibility and are willing to contribute to the provision of public goods through the assumption of costs that exceed the individual benefits. Another benefit of such strategic CSR is greater legitimacy for the firm in the mind of certain stakeholders. While managerial motivation for such firm legitimacy might be pragmatic in nature, the underlying economic justification for CSR is creating value for shareholders, which is in itself an ethically legitimate pursuit. We have suggested that our view of ethical legitimacy can be extended beyond the pragmatic managerial approach and now turn to a discussion of CC in light of this issue. We have also suggested that our model of CSR be applied to other stakeholders besides consumers and we believe that CC constitutes just such a broader form of CSR. In Table 15.1 we compare CSR and CC to highlight the differences. Historical development of CC CC is a relatively new term in the business and society literature. Early usage defined it in terms of corporate philanthropy (Carroll 1991) or direct support of local communities (Altman 1998). Over time, it came to be used primarily as a synonym for CSR. Currently, there is no consensus regarding the distinction between CC and CSR. Numerous companies ascribe to either or both of these social commitments, sometimes describing their activities as ‘responsible corporate citizenship’ or ‘corporate citizenship and sustainability’. Organizations such as the Conference Board and the Boston College Center for Corporate Citizenship indicate that the difference between CC and CSR is purely semantic. We hypothesize that a theoretical difference between CC and CSR can be identified. CIVICUS, the World Alliance for Citizen Participation, defines CC as voluntary corporate engagement with civil society (CIVICUS 1999). They begin to articulate CC as a broader form of CSR in that social performance
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Table 15.1
Comparison of CSR and CC CSR
CC
Motivation
Profits for shareholders (doing well by doing good) Pragmatic legitimacy
Profit and the good of society (good corporate citizenship) Ethical legitimacy
Outcomes for firms
Can charge a premium price to cover the costs of added attributes and activities Possible short-run competitive advantage due to increased reputation
Continue to reap the benefits of ‘citizenship’ – long-term survival, possible long-run competitive advantage due to expanded legitimacy
Affected groups
Firm stakeholders (shareholders, investors, consumers, employees, suppliers, communities, managers)
Civil society, particularly the citizens of those countries where production or consumption occurs
Outcomes for affected groups
Wealth maximization, product differentiation, enhanced work environment, healthier communities, greater managerial discretion
Cleaner environment, safer work conditions, expanded human rights, unification of standards across societies
Theories applied (selected authors)
Political economy (Levitt 1958), agency (Friedman, 1970), stakeholder Freeman 1984; (Donaldson and Preston 1995; Jones 1995), theory of the firm (McWilliams and Siegel 2001), resource-based view (Hart 1995; McWilliams et al. 2002)
Philanthropy (Carroll 1991), strategic philanthropy (Altman 1998; Windsor 2001), theory of the firm (Fombrun and Shanley 1990), social investing (Waddock 2001), civil regulation (Zadek 2001), liberal citizenship (Matten and Crane 2005)
Theoretical justifications
Efficiency, economic rights, ethical preferences, short-term viability and competitive advantage
Social welfare, human rights, social expectations, long-term viability and competitive advantage
is deemed relevant to civil society organizations (CSOs) and not just to customers and other firm stakeholders, as we have defined CSR. The focus of CIVICUS’s agenda is furthering a mutually supporting relationship between corporations and society generally. In their view, government, corporations and civil society constitute the primary institutional actors on the global stage. Given the dwindling role of the nation-state in the global era
The economic view of corporate citizenship 333 (Tavis 1997), it makes sense to begin to analyze the dynamic played out between corporations and non-governmental institutional players. Simon Zadek provides an account of CC that emphasizes the corporate response to what he calls ‘civil regulation’ (Zadek 2001). In other words, civil society acts as a non-market, non-governmental force for regulating the activities of business. The notion that various segments of society can regulate business is an idea that appears in the CSR literature as well. For example, Boatright (1999) has used this concept to explain how financial markets reward small firms that engage in socially responsible activities. Although Zadek indicates that managers respond to pressures of civil society such as boycotts and other reputation assaults, he presents empirical evidence that is consistent with the neutrality result of McWilliams and Siegel (2000, 2001). That is, the author finds that firms do not reap abnormal positive returns (on average) for being socially responsible. Zadek asserts that managers of companies that engage in CC do so because they are taking heed of the long-term financial effects of social engagement, rather than considering the short-term effects typically heeded by financial markets. His findings may also be due to the difficulty of isolating the effect of one strategic activity on the stock price of firms that engage in many significant activities at the same time (McWilliams and Siegel 1997). Ethical analysis of the citizenship concept The term ‘citizenship’ itself requires a different sort of ethical justification from that invoked by the term ‘social responsibility’. As noted earlier, citizens have rights, benefits and responsibilities and are expected to abide by society’s laws and norms. More importantly, good corporate citizenship implies additional responsibilities to society. Matten and Crane (2005) present a more political conceptualization of corporate citizenship that takes into account the global nature of 21stcentury business and citizenship in this global context. In their conceptualization, firms assume some of the responsibilities of government in administering social, civil and political rights, when governments fail to do so (or cannot do so because an issue spans national borders). This view defines the corporation as an institution that has the power to ‘administer citizenship rights’ and regards the term CC as only approximately descriptive of the new corporate role in a global society. Since Matten and Crane compare corporations to state actors on the global stage, we propose that a more apt title for this new conceptualization would be ‘corporate state’, since they explicitly compare corporate roles to those of the nation-state. Because they indicate that the scope of CC potentially includes all citizens worldwide, their conceptualization differentiates CC and CSR along
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similar lines to the way we have. CC is a broader concept than CSR and has a more global reach. Possible issues to be addressed under Matten and Crane’s rubric include sweatshops and child labor, corruption, legal compliance, pollution and climate change. As to the motivation for such CC, Matten and Crane (2005, p. 173) ‘suggest that a range of motivations might be evident, from altruism to enlightened self-interest or plain self-interest’. For instance, corporations may choose to pay much higher wages at a plant in Indonesia because they take it as their mission to provide all workers with a living wage, because they want to generate goodwill at home and abroad for the sake of gaining repeat business over the long run or because they want to attract the best workers away from a local competitor. Societies in the developing world may potentially derive considerable gains from CC as Matten and Crane construe it. However, the benefits to society of such an expanded corporate role are dubious. As we indicated in our discussion of the ethical legitimacy of CC, both Levitt and Friedman rejected CSR for the reason that corporations should not be regarded as governments. Corporations are designed to advance the wealth objectives of investors via efficient production of goods and services, not advance the interests of society, although the private responsibility of pursuing profit might resemble a public responsibility in the sense that it enhances welfare through efficient production, product differentiation, and the creation of positive externalities and public goods. Nevertheless, the generation of such socially beneficial outcomes depends, in part, on the ethical preferences of shareholders, stakeholders and civil society, along with the ability of those groups to punish and reward the corporation for its ethically relevant actions. If preferences are more selfinterested than ethical and/or if capacity to punish and reward companies financially for unethical or ethical conduct is limited, then corporations will not necessarily enhance public welfare. Another problem with the proposed governmental role of global corporations lies in the inadequacy of current corporate governance structures to serve a democratic role in society. Matten and Crane refer to this problem as that of ‘inadequate corporate accountability’ and ‘lack of participatory mechanisms’. Ideally, governments are established to represent the views of their citizens via democratic processes that respect a set of basic rights that are codified in a constitution. Corporate motivation to act as governments would have to be interpreted in light of firm financial objectives, unless the prevailing theory of the firm were supplanted by an alternative that tied firm objectives more explicitly to groups other than investors and that secured democratic representation for such groups. Although CC begins to resemble such a theory of the firm, it has yet to demand democratic
The economic view of corporate citizenship 335 processes and constitutional protection of rights that characterize modern national governments. Without the inclusion of democracy and protection of rights in corporate governance, any voluntary assumption of governmental functions by corporations ought to be viewed skeptically. We do not at this point recommend an alternative theory of the firm, but instead recommend caution about advancing a governmental role for corporations. We advocate global citizenship, not global ‘statehood’, for corporations. The new centrality of civil society Locating CC in corporate involvement with civil society rather than merely with individual stakeholder groups constitutes its chief differentiation from CSR and makes CC a broader concept. The comparison to government posed by Matten and Crane could not meaningfully be made in the CSR literature. However, as we have indicated in our discussion of Matten and Crane (2005), the broader scope of CC in no way implies that CC is irrelevant to consumers. In fact, from the theory-of-the-firm perspective, CC must be made relevant to consumers in order to achieve the profitmaximizing objectives of the owners. From the perspective of economics, the importance of shareholder rights cannot be denied, nor can the benefits to society of efficiently run firms. Just as our view of CSR insists that added social dimensions to products must satisfy consumer demand in order to maximize firm value, so do we posit that CC must manifest engagement with civil society to the extent that consumers will reward corporations for such engagement. Corporations would only assume governmental roles if there were sufficient consumers who exercised a preference for CC in the governmental guise proposed by Matten and Crane. Shareholders can also gain directly from corporate engagement with civil society. CC, more than CSR, demonstrates recognition on the part of management that firm performance is deeply connected to social performance. This is because society grants corporations certain rights and privileges in exchange for the economic benefits that firms add to society. If society does not regard the economic benefits provided by the provision of employment, sale of products and tax proceeds to be sufficient benefits, then it may demand additional contributions. Such contributions could include financial advisory services to local CSOs, public schools or governments. They could also include more traditional philanthropic contributions of company products and cash to those organizations. The rewards to the firm of these social contributions take the form of continued support from all sectors of society. Tangible benefits include access to the best quality labor, repeat business with customers and suppliers, and the absence of bureaucratic obstacles from government. Intangible benefits include enhanced reputation, loyalty and trust. The ultimate benefit is ethical legitimacy as a
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social institution, which is required for long-term survival of the firm. Corporations have to be regarded as legitimate institutions if their right to citizenship will be endorsed rather than challenged by individuals and nonprofit civil institutions. Advertising for corporate legitimacy In order for the benefits of CC to be realized in full, corporations are required to advertise their contributions to civil society. For the same reasons that firms must advertise their CSR activities, civil society and customers must be made aware of the contributions made by firms to civil society. Persuasive advertising will have the effect of promoting CC generally, which may benefit other firms that do not advertise their CC activities heavily. Informational advertising, including social reporting, will net greater benefits to the firm since it provides firm-specific information about CC, rather than cultivating a preference for CC by firms in general. Although it might be concluded from our previous discussion of advertising that firms should only engage in informational advertising, we hypothesize instead that the aim of securing legitimacy that distinguishes CC from CSR creates an added incentive to engage in persuasive advertising. In other words, firms need to persuade civil society that corporations behaving with good citizenship merit greater title to social legitimacy than do bad corporate citizens. The benefits of persuasive advertising to the company are particularly high in cases where the role of corporations in society is widely contested. Given the debates about globalization and climate change, the nature of corporate foreign direct investment and environmental practices have come under intense scrutiny. Corporations need to convince civil society of the value of their economic contributions, as well as their social and environmental contributions, if they are to be regarded as legitimate institutions. Persuasive advertising would then be an important prerequisite to informational advertising. The need for advertising blurs the distinction between motives for different kinds of legitimacy. In so far as firms seek to persuade civil society of the importance of their economic function to the greater good, their actions might be regarded as pragmatically motivated. As Palazzo and Scherer (2006) have argued, openness to input from civil society, to being persuaded rather than just persuading, is an important prerequisite to the attainment of ethical legitimacy. They would regard persuasive advertising as a form of output-oriented activity that falls under the category of pragmatic legitimacy. The reason is that ethical legitimacy is constituted by deliberative engagement between diverse institutions and members of civil society, whereas pragmatic legitimacy is constituted by the self-interested attempt to dominate discourse and bring dissenting parties under the sway
The economic view of corporate citizenship 337 of the powerful institution’s preferred framework. However, they also indicate that some NGOs and other corporate critics approach discourse with corporations in the same one-sided manner as do corporations. We, too, acknowledge the limits of current discourses, but still believe that persuasive advertising might be a justifiable component of an attempt to create ethical legitimacy for the corporation. The value of corporations to society From the perspective of neoclassical economics, what is ultimately at stake for corporations is their right to operate for the purpose of maximizing profits for shareholders. If the climate of public opinion turns too strongly against the corporate form of doing business then corporations will lose business to independently owned enterprises or less profit-oriented organizations. Under the influence of civil society condemnation, stakeholders will withdraw from involvement with firms and corporations will lose ground to competitors, eventually going out of business or being forced to reform completely. The present task of corporations is to convince society and firm stakeholders that the corporation is providing them with valuable benefits as it pursues profitability for shareholders. Fundamentally, there are two methods of raising confidence available to corporations: demonstrate direct contributions to civil society in the form of philanthropy, promotion of rights, or environmental protection, or persuade civil society that social and environmental benefits will ensue from corporate economic pursuits, so that the firm is making indirect contributions to society by pursuing profit. The first method reflects the overall trend of the CSR literature, especially that arising from stakeholder theory, in that it emphasizes the need for ethical conduct in society. The second method reflects the viewpoint of The Economist (2005), which insists that society needs to understand the social benefits of market mechanisms in order to recognize the detrimental nature of CSR. We have proposed an approach that bridges these two seemingly disparate methods in that we show that direct corporate contributions to society enable corporations to pursue long-term profitability, which would then feed back into more indirect contributions to society. This bridge constitutes the main logic of strategic CC. Ironically, a further implication of our view is that corporations can gain legitimacy by highlighting the value of their economic function to society, as The Economist proposes. The value of corporations to society constitutes the central issue of corporate citizenship. Although the CSR literature deals with the same question of whether CSR is good or bad for shareholders and society, the term CSR conjures up a less precise image of the corporate function. CC tells us that corporations are social actors just by calling them citizens. The term
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itself demands that we ask the question of what sort of citizen corporations should be. The answer, in part, has to include the economic contributions made by corporations to society and the environment through the production of goods and services, creation of jobs, efficient use of resources and innovations. Whether truly good corporate citizenship involves the assumption of non-legally mandated obligations in the form of philanthropy, expanded protection of rights and environmentally conscious activity, is a further question. In other words, whether or not corporations are being good corporate citizens just by serving their economic function well is an open question. Our analysis targets the skeptic of corporate capitalism by favoring a method that advertises corporate engagement with civil society for the strategic purpose of advancing long-term corporate profit objectives. In so doing, this analysis bypasses the concerns raised by CSR skeptics such as Levitt, Friedman, Sternberg, Jensen and The Economist. However, the real value to society of corporate pursuit of profit deserves a more just hearing. CC provides corporations with the opportunity to establish the ethical legitimacy of the wealth-creating function in securing the public welfare, thus legitimating the corporate form. The issue of how corporations benefit society is reminiscent of the topic of public goods and externalities, broached in our CSR discussion. Where CSR can constitute the provision of public goods through the sale of private goods and the elimination of negative externalities such as pollution, CC goes further in clarifying the firm’s role as a public good and its generation of positive externalities. Amartya Sen (1993) suggests that firms themselves be regarded as public goods in so far as they depend on cooperative effort that yields benefits not easily attainable by the private cost–benefit analyses of firm participants. We suggest that this model of the corporation as a public good be extended to include the benefits to society of its profit function. In other words, society not only benefits from the efficient production of goods and services that may or may not satisfy the ethical preferences of consumers, but also from the creation of jobs, wealth for investors and innovation that the corporate pursuit of profits yields. If the corporate form constitutes a superior model of business, then it follows that its continued existence and flourishing in society is of value to society. This view implies that corporations deserve legitimacy as citizens just by virtue of their economic function. Put another way, our analysis posits that corporations are a public good because of the positive externalities that the private pursuit of profit generates. This account in no way contradicts our earlier findings about the importance of satisfying ethical demand for the provision of public goods such as a clean environment. Rather it illustrates the seamless connection between economically self-interested activity and the good of society, which is the ultimate ethical stance of neoclassical economics.
The economic view of corporate citizenship 339 Conclusion We have articulated a form of ‘strategic CC’ that is compatible with the agency theory of the firm, and reveals the ethical legitimacy of CC, CSR and the profit function. We posit that managers can perform a cost–benefit analysis to determine the optimal amount of CC in which to engage. The wealth objectives of shareholders can be brought into alignment with the demands of society for both private and public goods, so long as a longrange perspective is adopted. We have shown that an important implication of our view is that CC incorporates a much longer time horizon than does CSR and therefore supports the long-term viability of the firm in a superior way. Nevertheless, advertising of firm CC is necessary in order for the firm to realize the full benefits of CC. Further analysis should examine the different benefits and costs to firms and society of CC versus CSR. Does CC have the potential to provide public goods in a more satisfactory way than CSR because of its broader scope? In other words, does the engagement with civil society, over and above the satisfaction of consumer preferences, guarantee a more reliable supply of public goods? The main problem for CC in a global society is the non-uniform nature of the social expectations worldwide. Multinational, multidivisional firms have operations in many different societies around the globe, which have diverse and sometimes competing ideas regarding the role of business in society and the value of corporate contributions to stakeholders and society at large. National governments have different laws protecting labor and consumer rights, as well as different laws protecting intellectual property and promoting open and fair competition. Environmental laws worldwide are far from uniform. Ethically, the question for corporations is: to what standards should they adhere – those of the host country, the home country or some ideals that are higher than that mandated by law in any country? CC in a global context could refer to the practice of adhering to the laws of the home country when doing business abroad, especially if those laws are stricter (as they typically are) in developed countries. It could also refer to the practice of adhering to standards higher than the laws of even the home country when doing business abroad. These questions are further complicated by some of the economic arguments we have advanced in this chapter, which suggest that pursuit of profit alone is beneficial to society. The Economist (2005), for instance, argues that advocates of multinational corporate divestment from the developing world and of globally mandatory higher labor and environmental standards (as could be written into future WTO treaties) are actually harmful to residents of both the developed and developing worlds. We do not take a stand on these controversial issues, but rather note the
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complexity for decision making that such issues pose for managers of companies operating in a global economy. In conclusion, we briefly tease out some of the unresolved issues for managerial decision making that are raised by our economic analysis of CC. There are numerous unresolved theoretical and empirical issues relating to the economic implications of CC. These include identifying institutional differences in CC across countries, determining the motivations for CC, describing CC strategies, modeling the effects of CC on the firm and stakeholder groups, empirically assessing the effect of CC on the firm and stakeholder groups, measuring the demand for CC, measuring the costs of CC and assessing the current knowledge base. Because CC is a broader concept than CSR and applies more definitely to the global society, a more integrated understanding of these theoretical and empirical issues will be necessary. Other unanswered questions include the following: are all corporations global citizens? What standards define good global citizenship? Should the same standards apply equally to all corporations? What sorts of analytic devices and empirical studies will ensure corporate accountability? How should corporations reconcile differing value systems? Should corporations be regarded as state actors rather than citizens? What theory of the firm would justify statehood for corporations? How should dialogue between civil society and corporations proceed so as to determine the proper role of corporations in society and ensure their ethical legitimacy? As the literature on CC evolves, we expect that many of these questions will be addressed by scholars in a wide variety of business and social science disciplines. References Altman, B. (1998), ‘Corporate community relations in the 1990s: a study in transformation’, Business and Society, 37, 221–7. Bagnoli, M. and S. Watts (2003), ‘Selling to socially responsible consumers: competition and the private provision of public goods’, Journal of Economics and Management Strategy, 12, 419–45. Bakan, J. (2004), The Corporation: The Pathological Pursuit of Profit and Power, New York: Free Press. Barnard, C. (1938), The Functions of the Executive, Cambridge, MA: Harvard University Press. Barney, J. (1991), ‘Firm resources and sustained competitive advantage’, Journal of Management, 17, 99–120. Baron, D. (2001), ‘Private politics, corporate social responsibility and integrated strategy’, Journal of Economics and Management Strategy, 10, 7–45. Boatright, J. (1999), Ethics in Finance, Malden, MA: Blackwell. Buchholz, R. and S. Rosenthal (1999), ‘Social responsibility and business ethics’, in R. Frederick (ed.), A Companion to Business Ethics, Oxford: Blackwell, pp. 303–21. Carroll, A. (1991), ‘The pyramid of corporate social responsibility: toward the moral management of organizational stakeholders’, Business Horizons, 34 (4), 39–48.
The economic view of corporate citizenship 341 CIVICUS Organization (1999), Promoting Corporate Citizenship: Opportunities for Business and Civil Society Engagement, L. Regelbrugge (ed.), Washington, DC: CIVICUS, World Alliance for Citizenship Participation. Donaldson, T. and L. Preston (1995), ‘The stakeholder theory of the corporation: concepts, evidence, and implications’, Academy of Management Review, 20, 65–91. Dutta, P.K., S. Lach and A. Rustichini (1995), ‘Better late than early: vertical differentiation in the adoption of a new technology’, Journal of Economics and Management Strategy, 4, 563–89. Economist, The (2005), ‘The good company: a survey of corporate social responsibility’, 374 (8410), 3–22. Feddersen, T. and T. Gilligan (2001), ‘Saints and markets: activists and the supply of credence goods’, Journal of Economics and Management Strategy, 10, 149–71. Fombrun, C. and M. Shanley (1990), ‘What’s in a name? Reputation building and corporate strategy’, Academy of Management Journal, 33, 233–58. Frank, R. (2004), What Price the Moral High Ground: Ethical Dilemmas in Competitive Environments, Princeton, NJ: Princeton University Press. Freeman, R.E. (1984), Strategic Management: A Stakeholder Perspective, Englewood Cliffs, NJ: Prentice-Hall. Friedman, M. (1962), Capitalism and Freedom, Chicago, IL: University of Chicago Press. Friedman, M. (1970), ‘The social responsibility of business is to increase its profits’, New York Times Magazine, 13 September, pp. 122–6. Goodpaster, K. (1991), ‘Business ethics and stakeholder analysis’, Business Ethics Quarterly, 1 (1), 53–74. Hart, S. (1995), ‘A natural resource-based view of the firm’, Academy of Management Review, 20, 986–1014. Hoppe, H. and U. Lehmann-Grube (2001), ‘Second-mover advantages in dynamic quality competition’, Journal of Economics and Management Strategy, 10, 419–33. Jensen, M. and W. Meckling (1976), ‘Theory of the firm: managerial behavior, agency costs, and ownership structure’, Journal of Financial Economics, 3, 305–60, reprinted in M. Jensen (2000), A Theory of the Firm: Governance, Residual Claims, and Organizational Forms, Cambridge, MA: Harvard University Press, pp. 83–135. Jones, T. (1995), ‘Instrumental stakeholder theory: a synthesis of ethics and economics’, Academy of Management Review, 20, 404–37. Kanter, R. (1999), ‘From spare change to real change: The social sector as beta site for business innovation’, Harvard Business Review, 77 (3), May–June, 122–33, reprinted in (2003) Harvard Business Review on Corporate Responsibility, Boston, MA: Harvard Business School Press, pp. 189–213. Levitt, T. (1958), ‘The dangers of social responsibility’, Harvard Business Review, September–October, 41–50. Marvel, H. (1977), ‘Factory regulation: a reinterpretation of early English experience’, Journal of Law and Economics, 20, 379–402. Matten, D. and A. Crane (2005), ‘Corporate citizenship: toward an extended theoretical conceptualization’, Academy of Management Review, 30 (1), 166–79. McWilliams, A. and D. Siegel (1997), ‘Event studies in management research: theoretical and empirical issues’, Academy of Management Journal, 40, 626–57. McWilliams, A. and D. Siegel (2000), ‘Corporate social responsibility and financial performance: correlation or misspecification?’, Strategic Management Journal, 21, 603–9. McWilliams, A. and D. Siegel (2001), ‘Corporate social responsibility: a theory of the firm perspective’, Academy of Management Review, 26, 117–27. McWilliams, A. and D. Siegel (2002), ‘Additional reflections on the strategic implications of corporate social responsibility’, Academy of Management Review, 27, 15–16. McWilliams, A., D. Siegel and P. Wright (2006), ‘Corporate social responsibility: strategic implications’, Journal of Management Studies, 43, 1–18. McWilliams, A., D.D. Van Fleet and K. Cory (2002), ‘Raising rivals’ costs through political strategy: an extension of the resource-based theory’, Journal of Management Studies, 39, 707–23. Milgrom, P. and J. Roberts (1986), ‘Advertising as signal of product quality’, Journal of Political Economy, 94, 796–821.
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Orlitzky, M., F. Schmidt and S. Rynes (2003), ‘Corporate social and financial performance: a meta-analysis’, Organization Studies, 24, 403–41. Palazzo, G. and A.G. Scherer (2006), ‘Corporate legitimacy as deliberation: a communicative framework’, Journal of Business Ethics, 66, 71–88. Penrose, E. (1959), The Theory of the Growth of the Firm, New York: Wiley. Piga, C. (2002), ‘Corporate social responsibility: a theory of the firm perspective, a few comments and some suggestions’, Academy of Management Review, 27, 13–15. Porter, M. and M. Kramer (2002), ‘The competitive advantage of corporate philanthropy’, Harvard Business Review, December, reprinted in (2003) Harvard Business Review on Corporate Responsibility, Boston, MA: Harvard Business School Press, pp. 27–64. Reinhardt, F. (1998), ‘Environmental product differentiation’, California Management Review, 40, 43–73. Russo, M. and P. Fouts (1997), ‘A resource-based perspective on corporate environmental performance and profitability’, Academy of Management Journal, 40, 534–59. Sen, A. (1993), ‘Does business ethics make economic sense?’, Business Ethics Quarterly, 3 (1), 45–54. Siegel, D.S. and D. Vitaliano (2007), ‘An empirical analysis of the strategic use of corporate social responsibility’, Journal of Economics and Management Strategy, 17 (3), 773–92. Sternberg, E. (2002), Just Business: Business Ethics in Action, Oxford: Oxford University Press. Suchman, M. (1995), ‘Managing legitimacy: strategic and institutional approaches’, Academy of Management Review, 20, 571–610. Tavis, L. (1997), Power and Responsibility: Multinational Managers and Developing Country Concerns, Notre Dame, IN: University of Notre Dame Press. Waddock, S. (2001), ‘The multiple bottom lines of corporate citizenship: social investing, reputation, and responsibility audits’, Business and Society Review, 105, 323–45. Wernerfelt, B. (1984), ‘A resource based view of the firm’, Strategic Management Journal, 5, 171–80. Windsor, D. (2001), ‘Corporate citizenship: evolution and interpretation’, in J. Andriof and M. McIntosh (eds), Perspectives on Corporate Citizenship, Sheffield: Greenleaf, pp. 83–103. Zadek, S. (2001), The Civil Corporation: The New Economy of Corporate Citizenship, London: Earthscan.
16 Human rights, corporations and the global economy: an international law perspective1 David Kinley and Justine Nolan
Introduction The many and various features of the global economy and the centrality of corporations within it, have a direct and enduring impact on the quest to better protect and promote human rights. That impact, of course, cuts both ways. Consider, for instance, such recent events as the United Nation’s appointment of a Special Representative to the Secretary-General on human rights and corporations;2 the World Bank’s proclamation that ‘human rights are the very essence of the Bank’s work’;3 and the entreaties made of the world’s principal trading nations at the last World Trade Organization (WTO) ministerial meeting in Hong Kong of the sclerotic Doha Round (which, at the time of writing, limps on still),4 to leverage global trade for the benefit of securing basic human rights of the poor,5 all of which bear testimony to the two dimensions of this debate – an appreciation of the global economy’s great potential not only to help but also to hamper the objects of human rights. What is striking about this potential is the extent to which it relies upon – indeed, to a significant degree, is driven by – private non-state actors, namely corporations. Transnational corporations (TNCs) in particular, are the engines of the global economy; they have become the ‘Behemoths’ as Noreena Hertz calls them, whose power has been ‘propelled by government policies of privatisation, deregulation and trade liberalisation, and the advances of communications technologies of the past twenty years’ (Hertz 2001, p. 8). Aid agencies, furthermore, no longer shun private enterprise as either merely incidental, or possibly even antithetical, to the goals of poverty reduction, but rather embrace it as a sister in arms in the struggle to help the poor. Thus, the United Nations Development Programme (UNDP) established the Commission on Private Sector Development in whose report in 2004 it declared its mission to be ‘about acknowledging that the private sector is already central to the lives of the poor, and has the power to make those lives better [and] about using the managerial organization and technological innovation that resides in the private sector to improve the lives of the poor’ (UNDP Commission on Private Sector 343
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Development 2004, p. 5). Corporations have the potential to provide the basis for many human rights but also the ability to hamper the attainment of rights. This chapter traces the interrelationship of human rights with business and considers the central role played by corporations in the global economy. In particular it examines three points of intersection between human rights and business: transnational commerce, trade and investment and development aid. As the influence of corporations on the economic and political scene in many countries has increased in recent decades, international law has barely responded to this growing imbalance of power, exposing an accountability gap within the broad global economy for corporate related human rights abuses. The purpose of this chapter is therefore twofold: (i) to provide an overview of the relationship between human rights and the global economy by highlighting their points of intersection, opposition and support, both in terms of the position today and how it might develop in the future; and (ii) in particular, focus on the increasing centrality of the role played by corporations in driving global commerce, trade and development. For with such centrality comes increasing levels of corporate power – political and social, as well as economic – that causes a reappraisal of the capacity, let alone suitability, of international law to regulate the use of that power. Two globalizations . . . and the rise of corporate authority Although international economic relations have a long history stretching back to the earliest times when people began to trade and travel between communities or states, the full force of economic globalization has only really been brought to bear over the last half-century or so. Over the same period, human rights have also been undergoing a process of globalization or ‘universalization’. In many respects their paths have been running parallel to each other, but there have been, and there are today, important cross-overs. In this section we shall explore these cross-overs, explain their parameters, examine the significance of these two different aspects of globalization and discuss whether economic globalization assists or impedes the globalization or spread of human rights. The growth of both global economic intercourse and universal human rights standards has been aided by certain important phenomena of the late 20th century and early 21st century. These are: first, de-colonization, especially during the immediate post-war years up until the mid-1970s. The subsequent attainment of independent statehood by many former colonies provided their people with the opportunity not only to realize the key human right of self-determination, but also to engage in international relations in their own right – be that in terms of trade, politics and diplomacy
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or by taking part in the negotiation of international treaties including, of course, those covering human rights. The second important phenomenon has been the rapid growth of international organizations and international regimes covering a vast array of subject areas – from agriculture and food standards to refugees and labour standards, from aid and trade to travel and shipping, and from financial intercourse and telecommunications to human rights, military alliances, nuclear disarmament and war crimes. These legal regimes and the international institutions they gave birth to have certainly hastened the spread of global interrelations in all these fields. Conspicuous and variously powerful intergovernmental organizations (IGOs), such as the United Nations, the International Labour Organization (ILO), the Organization for Economic Cooperation and Development (OECD), the International Monetary Fund (IMF), the World Bank and regional development banks, as well as the WTO and regional trading blocs have a pervasive impact – both ways – on the protection and promotion of human rights within the global economy. Third, the enormous advances in speed and capacity in technology, especially as regards travel, telecommunications and technology transfer over the last twenty years or so, have facilitated ever-expanding means by which we interconnect with each other across countries, continents and cultures. Certainly, we know (or at least have the opportunity to know) more about each other and thereby, arguably, also have a greater capacity to understand one another (Lamy 2006). Finally, and most especially, alongside these developments, and sometimes constitutive of them, has been the escalation of the presence and power of TNCs.6 Today, the economic capacities of some TNCs is greater than that of the countries in which they operate, and their corollarative political muscle can be greater than the ability of some states to regulate them effectively (UNRISD 2004). The expansion of the global economy has been accompanied by and at times led by, these ‘super corporations’.7 The corporate world has demonstrable global reach and capacity and can often make and act on decisions far faster than governments. With this increased power to impact rights comes responsibility. But the nature, scope and source of such responsibility remains a matter of debate (Nolan 2005). The burgeoning corporate responsibility movement aims to put this efficiency to greater use by employing the corporate machinery in the protection of human rights. In terms of human rights, the great expansion of the global economy has brought advantages and disadvantages. On the one hand it is true that greater economic wealth has the potential to provide the basis for many human rights – such as the economic and social rights to work and wages, shelter, food and water, healthcare, education and raised standards of living
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generally. Such greater wealth may also assist in the attainment of other rights – such as the civil and political rights to freedom of expression, political and religious beliefs, movement and association, participation in government and privacy. But the key question is whether that potential is borne out in practice. For even if the world’s wealth, or a country’s wealth, is markedly increased that does not necessarily mean that all will benefit equally, or that disadvantaged groups will even benefit at all. Indeed, it is notoriously difficult to say with certainty what is the impact of increased prosperity on human rights enjoyment, beyond mere platitudes (such as for some people they are clearly better respected). Thus, for example, in respect of the circumstantial links between increased foreign direct investment (FDI) and human rights protections, one can only make fairly tentative, general conclusions in this regard – such as, that there is some apparent benefit (Letnes 2004, pp. 269–70). The principal conduits of this ‘new wealth’ are corporations, in particular TNCs, largely through FDI. Questions regarding the ambit of corporate responsibility and whether there are mechanisms in law (or policy) for enforcing such responsibility has a direct impact on how increased wealth, and the benefits that go with it, are distributed, whether by public (state) or private (corporate) actors. And it is this question of distribution and the gap between theory and practice that really matters for the realization of human rights; whether that be in respect of the distribution between rich and poor countries, or between rich and poor communities within countries (both in developed and developing states). The issue of ‘elite capture’ – that is, the notion that the elite few, internationally and domestically, take a hugely disproportionate slice of the economic pie, leaving the many with little (Darrow and Tomas 2005, pp. 474–7) – is a concern in all states, though certainly it is a greater concern in some than in others. From the human rights perspective this is particularly significant because often the reasons for the inequality are based on illegitimately discriminating factors such as gender, social class, race, religion, physical and mental disabilities, existing wealth, political beliefs or even geographical location – all of which are human rights infringements (UNDP 2005, p. 5). Furthermore, inequitable distribution of wealth often exacerbates existing inequality, places additional power in private hands and deprives the community of their ability to make positive human rights advances. Human rights perspectives of the global economy There are three dimensions of the global economy generally, and the role of corporations in particular, that have attracted the attention of those concerned with human rights – namely, commercial enterprise, trade and investment, and aid-based development.
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Commercial enterprise The phenomenon of transnational corporations is not new, but the continually increasing levels of power and influence of TNCs within the global economy of today is unprecedented. It has been calculated, for example, that of the top 100 economies in the world today, 51 are corporations and only 49 states (Anderson and Cavanagh 2000). With such massive economic power at their disposal, TNCs therefore have capability to do great harm as well as good for human rights, at both the global and domestic levels. It has been on this basis that calls for corporations to be made responsible for the human rights consequences of their actions have increasingly been made, especially over the past 10 to 15 years. The role that corporations play in domestic and international economies is fundamental. Their impact on human rights is equally important. Through commercial activity driven by corporations, jobs and wages are made available, goods and services are provided and taxes are paid enabling governments to provide further goods and services. Thereby, directly or indirectly, a vast array of human rights may be supported – from rights to work, welfare, food and shelter, health and education, and freedoms to speech, association and movement. In short, not only are corporations central to the provision of many of the things that make human life more tolerable, enjoyable and fulfilling, the work and wages that corporate enterprise brings to all communities are key elements to the establishment and maintenance of individual human dignity to which end human rights strive to meet. The value of employment cannot be underestimated: it was the number one response to the question ‘what do you need to improve your life?’, as posed to more than 60 000 poor people from countries all over the world (Narayan et al. 2000). However, the influence of corporations on human rights is not all benign. Corporations, both local and multinational, have been and continue to be minor and major abusers of human rights. Some corporations are guilty of treating workers badly – in terms of pay, conditions and working environments; some do pollute the environment in ways that have dramatic and serious effects far beyond their immediate surroundings; some do discriminate against indigenous peoples, or certain ethnic or religious groups, or against women, or people with disabilities, or on grounds of sexuality; and some do work alongside (or inside) governments that perpetrate gross human rights abuses, such as in Nazi Germany, apartheid South Africa, and in the many authoritarian and repressive states in the world today (Stephens 2002). At the domestic level, both sides of this relationship are relatively well recognized, even if the consequences are not necessarily adequately dealt with. In all Western states and increasingly so in developing nations there are laws
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that impose obligations on corporations, explicitly or implicitly protecting human rights standards. These include laws covering occupational health and safety at work, employment conditions and wage levels, environmental protection, non-discrimination, employees’ rights to privacy, movement and association, and rights to free speech and fair trial (Kinley 2002). However, at the international level it is another story, for there are presently very few legal obligations that bind corporations operating transnationally in terms of human rights. What is more, those few that do exist are very limited in scope and are in fact merely domestic laws that happen to have extraterritorial (that is, international) application (Ratner 2001; Kinley and Tadaki 2004, pp. 934–5). One such example is the US Alien Torts Claims Act (ATCA) (1789) which has now been used against a number of US-based corporations for alleged breaches of certain international human rights standards and is discussed further below (OHCHR 2005b, paras 23–55). Given the importance of international trade and commerce, the lack of international regulation is perhaps somewhat surprising. At the international level, the corporate form is barely recognized, still less directly bound, whether in respect of human rights or any other field. TNCs have been able to operate largely in a legal vacuum because international law including international human rights law imposes no direct legal obligations on corporations. The traditional application of international human rights law is to bind states because states have long been regarded as the most prominent potential violators of human rights. The drafters of the Universal Declaration of Human Rights (UDHR) could not have foreseen in 1948 that select states’ powers might one day be dwarfed by corporate power.8 As such the emphasis in the UDHR, and in international human rights law generally, is on states as the primary bearers of human rights responsibility. However, while international law does not (or at least rarely)9 directly address corporations, the state’s duty to protect against non-state human rights abuses within their jurisdiction (which includes abuses by corporations) is firmly enshrined in international law (Ruggie 2007, pp. 5–7). While the earlier UN human rights treaties, such as the International Covenant on Civil and Political Rights (ICCPR) and the International Covenant on Economic, Social and Cultural Rights (ICESCR), do not explicitly address a state’s obligation regarding business, later treaties and occasionally now treaty bodies have begun to refer more specifically to the role of corporations in human rights protection. For example, the recently adopted Convention on the Rights of Persons with Disabilities states clearly that states’ parties have an obligation ‘to take all appropriate measures to eliminate discrimination on the basis of disability by any person, organization or private enterprise’ (emphasis added).10 In 2004, the UN Human Rights Committee when commenting on the nature
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of a state’s legal obligation with respect to the ICCPR affirmed that the obligation ‘will only be fully discharged if individuals are protected by the state, not just against violations of Covenant rights by its agents, but also against acts committed by private persons or entities’ (UN Human Rights Committee 2004, para. 8), thus acknowledging a growing need to include corporations within the rubric of the human rights protection framework. However, the vision of human rights protection is not always commensurate with the practice and it is evident that some states while welcoming the investment offered by TNCs have been unwilling or unable to react to corporate human rights abuses. Compounding the problem is the crucially unresolved legal issue of whether a state’s obligations that may flow from international human rights law generally to protect against corporate related human rights abuses extend beyond its jurisdiction (that is, extraterritorially or internationally). In a report by the Special Representative of the Secretary-General (SRSG) submitted to the UN Human Rights Council in 2007, he suggests that international human rights law is more ambiguous in this regard. The Report suggests that while human rights treaties do not require states to exercise extraterritorial jurisdiction over corporate human rights abuses, neither do they prohibit a state from doing so (Ruggie 2007, para. 15; Ruggie and OHCHR 2007a, 2007b). That is, a state may choose to require corporations (domiciled in their jurisdiction) to abide by certain standards regardless of the country in which they are operating. For example, the antibribery provisions of the US Foreign Corrupt Practices Act of 1977 make it unlawful for a US person, and certain foreign issuers of securities, to make a payment to a foreign official for the purpose of obtaining or retaining business for or with, or directing business to, any person whether such action occurs within or outside of the United States. However, the basis for exercising such jurisdiction over human rights standards generally and the nature of the subject matter which might justify such action (for example, is protection justified for all corporate human rights abuses?) is still a matter of debate. It is this ambiguity which is central to the creation of the permissive international ‘human rights free’ environment in which some corporations seem to now operate (de Schutter 2006). The inability of the international legal framework to keep pace with the rise of the corporation as a significant non-state actor has resulted in the emergence of a multiplicity of approaches which aim, in significantly varying degrees, to impose some such level of responsibility on corporations (OHCHR 2005b). There now exist a great number of voluntary codes of conduct devised or adopted by individual corporations, industry groups or international organizations, such as the UN’s Global Compact, and the OECD’s Guidelines for Multinational Enterprises (Leipziger 2003). Many of these initiatives have a very broad coverage with only brief references to
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human rights. Generally, while such ‘codes’ encourage companies to promote and protect internationally recognized human rights; there are no effective, independent enforcement mechanisms to ensure that they do so. Decisions cannot be enforced directly against a company and their power to compel behavioural changes remains subject to the political will and ability of national governments (Nolan 2005, p. 587). On a more intimate level, some corporations are now explicit in their claims as regards human rights. For example, a 2006 survey of Global Fortune 500 firms conducted by the UN’s Special Representative on business and human rights, found that a high percentage of respondents report having an explicit set of human rights principles or management practices in place, although the particular human rights highlighted varied between respondents (Ruggie 2006b). Another, much smaller and distinct, category of initiatives is those that purport to place legal (that is non-voluntary) obligations on corporate behaviour overseas. TNCs are subject not only to the laws existing in the states in which they operate (‘host’ states), but also in their ‘home’ states (that is, where their headquarters are). An example of the latter, so-called ‘extra-territorial’ laws, is the US ATCA, which was passed by the US Congress in 1789 and provides US District Courts with jurisdiction over violations of the ‘law of nations’. In the modern era, courts have allowed foreign victims to use ATCA to address egregious human rights violations. More recently, ATCA has been used against corporations that have allegedly been knowingly complicit in human rights violations – a distinction being drawn against direct involvement in corporate human rights violations as opposed to assistance or indirect involvement. The most explicit judicial definition of complicity has emerged from the action against the Californian energy company, Unocal, by group of Burmese plaintiffs. The plaintiffs alleged that Unocal was working with the Burmese military to conscript forced labour, kill, abuse and rape citizens while working on the Yadana gas pipeline project (Doe v Unocal Corp.). The US Court of the Appeals for the 9th Circuit in the Unocal case, stipulated three criteria for determining complicity: giving practical assistance to the actual perpetrator of a crime; the requirement that this assistance had a substantial effect on the commission of the criminal act; and the fact that the company knew or should have known that its acts would result in a possible crime even if it did not intend for that crime to take place. The case against Unocal settled in 2005 for an undisclosed sum paid to the Burmese plaintiffs. While ATCA has now been used against a number of US-based corporations for alleged breaches of certain international human rights standards, it is worth noting that of the 36 ATCA cases to date involving companies, 20 have been dismissed, three settled, and none decided in favour of the plaintiffs; the rest are ongoing (Ruggie 2006a, para. 62).
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In terms of legally binding obligations on TNCs, what is apparent from the preceding discussion is the glaring lack of provisions in international law – that is, despite the fact that by definition such corporations are operating internationally. The UN’s Human Rights Norms for Corporations (Norms 2003) were in part intended to fill this gap, and the arrival of the Norms on the international scene in 2003 provided some ground for believing that this status quo might be challenged. However, the Norms – which comprise a set of human rights obligations directed at companies, but which would be imposed upon them by way of the usual means of international law, namely, the domestic laws of individual states – met considerable resistance from the corporate community (Kinley et al. 2007). As SRSG, Professor Ruggie has tried to move past the ‘divisive debate over the Norms’ and to reconcile the pro- and anti-Norms lobbyists by illuminating what unites rather than what divides the two camps. In his Interim Report of 2006, the SRSG argued that the manner in which the Norms are framed must be abandoned, but that their substance may be resurrected in a new and less controversial format (Ruggie 2006a). The future of the Norms remains clouded but they have been a beneficial and fruitful initiative, reinvigorating debate on the issue of business and human rights, raising new and important concepts regarding regulation of TNCs and enforcement of human rights obligations, and articulating a core set of standards for going forward (Kinley et al. 2007, p. 31). Voluntary efforts by companies to improve their adherence to human rights are welcomed but alone insufficient to prevent human rights abuses. The goals of corporate enterprise and those of human rights are not the same – that much cannot be denied. Human rights protection is not a key factor in the calculations that TNCs typically make. Such protection for human rights that corporations do provide is incidental to their principal goals of growth and profit maximization, and such violations of human rights made by corporations often flow directly from too slavish a devotion to these twin objectives. Economist Milton Friedman’s classic statement that ‘there is one and only social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game’ is generally taken as supportive of this view (Friedman 1970, p. 32). However, the more than 30 years which have followed Friedman’s statement have seen a growing acknowledgement that the ‘rules of the game’ are changing and now adherence to human rights standards for corporations is becoming more mainstream and less optional (Ruggie 2006a, pp. 5–6). The task before us continues to be to attempt to devise ways to maximize the beneficial effects of commercial activity on human rights protection and to minimize the detrimental effects.
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To that end, it would be unrealistic, and indeed undesirable, to insist that corporations should drop their profit motive and substitute it with the object of protecting and promoting human rights, for that would of course be to make corporations something which they are not and never could be. But we are surely in a situation today where the prevalence and power of corporations is such that it must attract suitable levels of regulation and accountability in terms of the impact that they have on human rights, not only at the domestic level, but also in international relations. International trade and investment International trade is fundamentally a concern of corporate commercial enterprise. States may indeed make the rules – by way of multilateral or bilateral treaties or the establishment of trading blocs (for example, the European Union: EU, or NAFTA: North American Free Trade Agreement) or trading governing bodies (for example, the WTO) – but it is corporations, and mainly private corporations, that actually do the trading and thus have a powerful effect on the protection, or not, of human rights (Oxfam 2002, p. 175). In fact, Braithwaite and Drahos contend that the reality behind even the first leg of the above sentence is questionable, as in their monumental study of global business regulation, they found that business leaders are more likely to dictate the terms argued by their state’s trade representatives, rather than the other way around (Braithwaite and Drahos 2000, pp. 200–201; Shaffer 2006, p. 187). It is argued that increased economic development and wealth will flow from the expansion of global trade, and global trade will expand by way of the dismantling or domestic trade barriers. Certainly, greater global wealth is demonstrably apparent (IMF 2007) and indeed so it is with most countries on an individual level – with a number of sub-Saharan African states constituting the startling exceptions that prove this rule (World Bank 2007). Certainly too, many are convinced that this growth is the direct result of massively increased international trade over the past 15–20 years borne on the back of aggressive (if not altogether consistent) policies of trade liberalization. Not unsurprisingly, perhaps, trade experts and advocates or leaders of trade organizations tend to be among those true believers. Thus, the Director-General of the WTO steadfastly pronounced: The role that trade can play as an engine for growth and development has long been recognized. A large body of empirical studies suggest that trade helps global allocation of resources, enhances output and productivity and increases overall welfare gains. Trade allows countries to concentrate on what they can do best and translate the individual advantage that countries enjoy into maximising productivity, which in turn can lead to development. (Lamy 2005, p. 1)
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However, the key questions for many human rights advocates are first whether the reliance on the operation of the notion of comparative advantage in the open market to yield such advances in economic development always (or even often) delivers on its promise; and second, even when it does, does that necessarily translate into the equitable and widespread improvement of social circumstances generally, and human rights in particular? At the national level, the standard answers to these twin questions are that the market, given time, will deliver on the first, and that the market as appropriately tempered (usually meaning lightly so)11 by state regulation and intervention, will yield the second, or at least as best as is possible.12 The variety of ways in which states formulate and pursue their market interventions is as great as are their relative successes. What we are concerned with here is both the international and corporate dimensions of the balance – that is, to what extent do the institutions and mechanisms of international trade promote or retard human rights, and whatever the extent and direction, what role is played by corporations? The broad historical context in which the brave new world of global trade exists today is as important to answering these questions as are the specifics of certain initiatives, approaches and proposals that might bring human rights and trade rules together. For what can be said with certainty about the mixing of trade and human rights is that the single most important bone of contention between the ‘old’ free trading countries of the West and the ‘new’ free trading countries in the developing world, is that the former were able to build their economies on the back of very strong protectionist policies, which policies are now being largely denied to developing countries, just at the time when they are seeking to expand their economies (Pogge 2002, pp. 17–20). And what is more, some of those old barriers still exist in the West, especially in the areas of agriculture. The combination of these two factors is seen as providing a grossly unfair advantage to often monumentally powerful agribusinesses in developed nations as they compete on a supposedly ‘level playing field’ with the smallscale farmers (collectives, cooperatives or corporations) in much of the developing world.13 And further, as a direct consequence, it is claimed, nations of the developing world – especially those whose economies are agrarian based – are less able to deliver the promised economic and welfare benefits to their peoples and are therefore hampered in their efforts to guarantee their human rights (UNCTAD 2004, pp. 179–217). However politically intractable this problem is for the Western governments – and one can deny neither its depth nor the extent of the power wielded by the agribusiness lobbies in the US and Europe in particular14 – the resultant inequity of circumstance is felt keenly by developing state governments. Boil-overs such as the manner in which a number of the larger developing states
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foreclosed the Cancún ministerial conference in 2003 bear testimony to the depth of this feeling (EPHA 2003). Specifically, there are, within the WTO regime, few clear avenues by which corporations, let alone the human rights concerns, gain entry, let alone take centre stage. To a very substantial degree this is due, in respect of corporations, to the fact that it is a state-membership organization, and in respect of human rights, to the mandate of the WTO and the main trade instruments over which it presides. For although reference to concerns for the broader socioeconomic and environmental consequences of trade liberalization, especially in relation to developing economies, are expressly alluded to in the Marrakesh Agreement that established the WTO, they are none the less viewed in practice to be desirable outcomes – rather than binding legal obligations15 – of the main business of state parties ‘contributing to these objectives by entering into reciprocal and mutually advantageous arrangements directed to the substantial reduction of tariffs and other barriers to trade and to the elimination of discriminatory treatment in international trade relations’ (Marrakesh Agreement 1995, preamble, third paragraph). The emphasis on developing states has none the less created the foundation upon which certain specific initiatives have been built that have – directly or indirectly – promoted human rights ends. All that said, to the extent that there are features of the WTO regime that address human rights concerns (or might be read to do so) they operate at the state to state level, with or without the intermediary of the WTO. Thus, the WTO’s so-called ‘enabling clause’16 that permits contracting parties to ‘accord differential and more favourable treatment to developing countries’, has been the cornerstone of a Generalized System of Preferences (GSP) that the USA and the EU in particular have couched in terms that expressly tie adherence to (or at least recognition of, in the form of treaty ratifications) international human rights standards (Bartels 2005; HafnerBurton 2005). And there are various other key trade laws that also allow exceptions to the obligation to remove or not to erect trade barriers when there are demonstrable human health and environmental concerns,17 where goods are the product of prison labour18 and where national security,19 public order20 or public morals21 would otherwise be compromised – all of which can be presented as the raising of barriers on grounds related to, if not directly expressive of, international human rights standards (OHCHR 2005a, p. 6). Additionally, it has also been argued that such attempts at the textual incorporation of human rights might be more effectively pursued if the jurisprudential tools more familiar to trade law, and especially to trade lawyers, were employed by human rights advocates. For example, the longestablished notion of ‘legitimate expectations’ (that anticipated trade benefits accrue in practice) and well-recognized defence of ‘necessity’ (that
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is, for example, protection of public health) within Dispute Settlement Mechanism Panel decisions might both be amenable to the inclusion of human rights reasons why a state might wish to restrict trade of a particular product or with a particular country (Bastin 2007). In all of these respects the medium is, formally, the state of course, not corporations. However, in practice their interests are often closely aligned within the broad regulatory framework devised by Braithwaite and Drahos above. For example, corporations are as self-interestedly concerned with promoting the stablizing features of the rule of law and good governance in countries that they invest in or trade with, and these features are contingent on securing many of the civil and political rights and labour standards espoused by the EU and US GSP schemes. The allowable general exceptions clauses such as Article XX of the General Agreement on Tariffs and Trade (GATT) might be – indeed are – invoked or rejected by states at the clear behest of domestic corporate interests. Thus, for example, the US fishing industry’s interest in having the US pursue the Tuna/Dolphin and Shrimp/Turtle cases,22 the competing pressures placed on the EU and the US administrations by their respective agribusinesses to fight out the beef hormones and genetically modified organism (GMO) cases,23 the pressures placed on the US government by the tobacco lobby to mount the Thai cigarettes case24 and the barely disguised Kodak/Fuji dispute that was formally pursued through the surrogacy of the US and Japanese governments, respectively.25 This is not to say that this is necessarily illegitimate, it just exposes the reality of the economic and political leverage that the corporate lobby exercises in all nearly all states – whether developed or developing – in respect of a whole array of government policies; international trade is no exception. The situation is somewhat similar even in respect of the more ambitious proposals to more closely align trade and human rights concerns, including and especially regarding calls for the incorporation of a so-called ‘social clause’ into the WTO framework agreements. The establishment of a more comprehensive set of permissible human rights barriers to free trade incorporated into such a device would institute a much wider range of social issues (including human rights concerns, especially relating to minimum labour standards) that might be used as reasons for one country to erect trading barriers in respect of the importation of certain goods from another country (Leary 1997). The explicit mixing of human rights and trade goals in this way is strongly resisted in many quarters, and supported in some others. Notably, opponents to a social clause (which also include groups and governments from developing nations26) are concerned over the insertion of human rights in trade agreements, seeing them as little more than protectionist trade barriers in disguise which are designed to
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protect the commercial and/or labour interests in the developed northern hemisphere states from competition from developing, southern states (Srinivasan 1996, pp. 31–6). In turn, this line of reasoning is rejected by others who consider such an approach as merely a convenient excuse to allow the governments of developing nations and their own corporate interests and influences to avoid international human rights responsibilities.27 However, while the debate will no doubt continue, such a perceived fundamental alteration of the nature and function of the WTO regime is not likely to be acted on quickly, if at all. In fact, the area in which the most direct results have been achieved in respect of trade mechanisms that protect human rights has been where the strategies have been targeted directly at corporations (selective public procurement – SPP) or as a direct consequence of inter-governmental agreement (Doha Declaration on the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) and Public Health in 2001).28 As with the various text-based exceptions discussed above, both types of measures here represent permissible limitations to otherwise core obligations placed on states to free up trade relations between each other. The essential difference to the mix is the added ingredient of corporations. Under SPP measures, states make threshold demands with regard to human rights protections of corporations that wish to bid for public sector contracts. They are intended directly, ‘to create incentives for companies and their host states to improve human rights conditions’ (Zeisel 2006, p. 361). Government procurement is not an insignificant portion of the economies of almost all states, varying, it is estimated, between 10 and 30 per cent of the GNP of states (ibid., p. 362). They are malleable instruments in that they can be designed to address the abusive activities of either foreign or domestic corporations, or both, and they can be just as effective whether the government is national or subnational, as demonstrated by (the now disbanded) Massachusetts’ SPP directed towards excluding corporations that did business in Burma from bidding for state government contracts.29 Both the US and the EU have established permissive stances towards member states’ use of the device, despite the concerns held by some that such state intervention on non-trade grounds will interfere with the commercial objects of trade and further, that it might be abused such as to disguise essentially protectionist measures. And while in respect to the later concern, the WTO is very much alive, it has since 1994 specifically exempted SPP from the scope of the GATT. Evidence upon which to make meaningful judgements about the efficacy of SPP measures in respect of promoting human rights observance is simply not available at present, but the increasing interest in corporate accountability mechanisms in the other
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parts of the global economy covered in this chapter points to a likely increase in their use by governments. The Doha Declaration on TRIPS and Public Health in 2001 is an intergovernmental agreement that institutes a regime under which developing countries such as India, Brazil, Malaysia and Thailand are able to manufacture cheap, generic copies of otherwise patent-protected drugs which are the property of pharmaceutical corporations. What is unusual about this international arrangement is that, in practice, it is not an international process at all, but rather negotiations between states and corporations. The Declaration provides the framework in which individually or collectively, states and corporations can hammer out what are in effect concessionary commercial agreements – namely ‘voluntary licensing’,30 or, where such agreement is not forthcoming (which so far has been the norm), it reendorses the right of developing countries to issue compulsory licences for the manufacture of certain health-related products in situations of ‘national emergency or other circumstances of extreme urgency’ (Declaration on the TRIPS Agreement and Public Health, adopted on 14 November 2001, WT/MIN(01)/DEC/2 (‘Doha Declaration’), Article 5(c)).31 On the face of it therefore, the right to health is given priority over the right to the exploitation of a corporation’s right to intellectual property (IP), although it should always be borne in mind that the whole TRIPS regime is itself an enormous exception to the free market ideology of the WTO that expressly serves the interests of corporate holders of IP rights. This fact often seems lost on pharmaceutical companies who thus far have shown an extreme reluctance to negotiate with poorer countries over patent rights, preferring to litigate or threaten litigation instead (Saini 2007). Fundamentally, corporations and trade are symbiotically linked and, as we have seen in this section, human rights concerns can, albeit minimally, be inserted into trade relations by way of obligations or inducements directed towards the corporate vehicles of trade. And if such a corporate route is not the only way in which to civilize trade, it is none the less a viable and proper one. The corporate lobby at level of national government is, or can be, extremely influential, and as the WTO – as trade lawyers are so keen to remind us – is little more than a construct of its member states, corporations thereby have great influence over the objects, means and methods of global trade. This sequence of power and influence is inexorable, even to such reactionary commentators as Kent Jones who in the process of apparently seeking to debunk the arguments of corporate critics, endorses their very concerns as to the wielding of corporate power: ‘trying to attack MNCs [multinational corporations] by attacking the WTO misses the target. For one thing, MNCs [sic] influence on the WTO has often been
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exaggerated. The largest of MNCs certainly wield a great deal of political influence, but mainly through domestic channels’ (Jones 2004, p. 174). Whatever, the precise role of corporations in the slow and stilted convergence of human rights and trade goals, it is one that will grow rather than diminish. They will be crucial players in the process of advancing trade specialists’ understanding of and the concerns of human rights advocates and vice versa, and especially as regards the obligations imposed on states by international human rights law and international trade law, respectively (van Hees 2004, pp. 24–32). The question of how to balance economic efficiency through trade and social justice through human rights protection remains the key task at hand, and in that the choices made by corporations as to where and in what they invest are vital (Gonzalez 2006, pp. 967–92). FDI is, as Janet Dine puts it: ‘a mechanism with great potential benefits, including the provision of stable capital, the importation of skills and technology and access to the largest markets of them all: “[e]xchanges within TNCs which now account for around two-thirds of world trade flows, reflecting the growth of intra-product trade” ’ (Dine 2005, p. 22, original emphasis). The fact, however, that so little of it goes to the very poorest countries – sub-Saharan Africa receives about 1 per cent of FDI, whereas the vast bulk goes into those booming developing economies such as China, India, Brazil, Mexico, Malaysia, Indonesia, Thailand and Vietnam (ibid., p. 22) – demonstrates how merciless the market can be for the poorest of the poor. It may be said that it is at this point that international aid steps in, but that, as we shall see in the following subsection, is itself an ever more-challenging task, as aid budgets pale not only against the demands that are made of them, but also against the enormous increase in the amounts of FDI.32 Aid-based development33 Of the three pillars that constitute the global economy, the relationship between international aid and human rights has, on the face of it, the least room for corporate enterprise. After all, the post-Second World War origins of development aid were steeped in the philosophy of the command economy with a focus on public sector economic management rather than encouragement of private sector enterprise (Cox 2006, pp. 285–7). However, much has changed over the past 15 years, such that now aid agencies actively court private sector involvement in development projects, not least in an deliberate effort to co-opt the enormous (and growing) economic potential, noted above, that lies in the private sector’s command of FDI (UNDP Commission on Private Sector Development 2004, pp. 29–37). An example of the changing face of development is the Global Fund which was established in 2002. It is a public–private partnership (PPP) tasked with administering and allocating funds provided by both governments and
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private sector donors to countries to combat HIV/AIDS, malaria and tuberculosis. The Global Fund brings private sector disciplines to the disbursement and evaluation of programmes, and operates with much lower overheads than traditional agencies. With the increasing involvement of corporations in aid-based development comes a correspondingly urgent need to regulate TNCs’ adherence to international human rights norms so as to reduce the scope for negative human rights impact. The provision of development aid, whether by multilateral organizations such as the World Bank,34 the Regional Development Bank or the EU, or bilaterally through individual state aid agencies,35 is essentially concerned with the alleviation of poverty and improvement of peoples’ living standards through the process of economic development. Thus the 2000 Millennium Development Goals – to which 189 states have formally lent their support – have as their first ‘goal’ to ‘eradicate extreme poverty and hunger’, by halving both the number of people living on less than US$1 a day and those suffering from hunger by 2015. Aid-based development is, by design or effect, essentially concerned with the fulfilment of many key human rights. We must, therefore, as Thomas Pogge urges us to, ‘focus on the human rights of the global poor because the great human rights deficits persisting today are heavily concentrated among them’ (Pogge 2005, p. 718). In fact, the UN, in its Vienna Declaration and Program of Action 1993, states that: ‘the existence of widespread extreme poverty inhibits the full and effective enjoyment of human rights; its immediate alleviation and eventual elimination must remain a high priority for the international community’ (Vienna Declaration and Program of Action, adopted 25 June 1993, A/CONF.157/23, para. 14). And more recently, the former UN Secretary-General made clear his understanding of the central role that the relationship between the development and human rights plays within the triptych (the third being ‘security’) of the most pressing interrelated concerns that face the world today (Annan 2005a, para. 17). This in the same era, when Kofi Annan acknowledged that to meet these concerns, a multiplicity of actors must be employed and that such an approach is indicative of a ‘fundamental shift’ that has occurred. He stated: The United Nations once dealt only with governments. By now we know that peace and prosperity cannot be achieved without active partnerships involving governments, international organisations, the business community and civil society. In today’s world we depend on each other. The business of the United Nations involves the businesses of the world. (Zammit 2003)
This explicit recognition by the former Secretary-General of the powerful role played by corporations within the broad mission of the United
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Nations is indicative of the pervasive influence of business, including more recently, an increasing presence in the development sector. As noted by Utting and Zammit, in the field of international development, different decades seem to usher in new champions of change: the developmental state in the 1960s and 1970s and free market forces and non-governmental organizations (NGOs) in the 1980s and 1990s (Utting and Zammit 2006, p. 1). Now in the new millennium, the centrality of corporations in the delivery (both direct and indirect) of development aid is being emphasized. Corporations are now billed by some as the solution to some of deficiencies in current development dilemmas (Bossone 2007) but their place within the development paradigm is complex and largely unregulated. Obviously the main concern of corporations is not development, but the deliverance of development ‘aid’ can take many forms. There are many aspects of business operations that can have a direct link, intentionally or not, to some development goals – the most obvious being poverty reduction. At its most simplistic, business may be involved in ‘development philanthropy’, simply giving money to a charitable cause to promote some particular aspect of development that is most commonly targeted at communities in which the company operates.36 At a more complex level, a corporation may attempt to integrate profit maximization with a deliberate strategy to market goods in a developing economy. Prahalad, for example, urges businesses to stop thinking of the poor as victims and instead start seeing them as consumers. He proposes that there are tremendous benefits to TNCs that choose to serve these markets in ways responsive to their needs – and provides examples of rural electrification in Nicaragua and salt iodization in India to demonstrate how companies can make money from selling to people with low income, while simultaneously, aiming to improve the quality of life of their consumers (Prahalad 2004). Somewhere in the middle of these two paths is the increasing focus on developing a ‘growing sustainable business’ strategy by organizations such as the UNDP. Involvement of business at this level aims to fulfil Kofi Annan’s prophecy that ‘it is the absence of broad-based business activity, not its presence, that condemns much of humanity to suffering’ (Annan 2005b). Regulation specifically focused on the role of business in the development sphere is relatively new, and while the preceding examples of business incursions into the development sphere are ‘regulated’ largely on the domestic front – such as via domestic environmental or corporate law – the human rights accountability gap arises when such states are unable or unwilling to regulate corporate activity in a manner that is consistent with providing human rights protections. Largely in response to civil society agitation, international guidance that forces the merger of human rights and business has begun to emerge in selected sectors on the international front,
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particularly with respect to the finance industry. The outcry for change is partly a result of the policies of the 1980s when international finance institutions such as the World Bank and the IMF actively encouraged developing countries to pursue export-led growth, liberalize their trade and investment regimes and privatize state enterprises. During, and following on from this period, the role and impact of TNCs in developing countries expanded, some argue for the better (providing investment, employment, taxation and so on) and some for the worse (because the TNCs were implicated in promoting a particular style of development that prioritized economic development over the people and the environment). 37 In accordance with the pursuit of such policies, international financial institutions are often perceived to be acting outside any global governance regime for the protection of rights or those affected by their policies. However now, in some cases, there is evidence of reformed attitudes that acknowledge, at least in theory, the growing influence (positive and negative) of corporations in the development sphere and the need for guidance (if not regulation) in the protection of human rights. In 2002, with the backing of the World Bank Group’s International Finance Corporation (IFC), a number of banks working in the project finance sector met to develop a common set of environmental and social policies and guidelines that could be applied globally and across all industry sectors. This led to the drafting of the first set of Equator Principles launched in 2003.38 This notion of extending both culpability and responsibility in order to promote, respect and protect human rights to the traditional ‘silent investment partners’, illustrates the ever-increasing relevance and acceptance of human rights responsibilities to business. The adoption of the Equator Principles reflects the increasing scrutiny that project sponsors and lenders face in dealing with environmental and social issues which surround projects in emerging markets, and can be seen as a direct response, by the adopting banks (and the international financial institutions which encouraged such adoption), to criticism from NGOs and others relating to their past lending practices. Corporations and their financial backers are urged to consider the full impact of their practices on development and adopt a preventive approach to investment. The IFC has also instituted performance standards that companies are required to meet in return for IFC investment funds which include several human rights elements such as labour rights, the rights of indigenous people and the surrounding community and the protection of cultural heritage (IFC 2006). Despite being criticized by some as not going far enough, the standards are yet another step in the right direction of solidifying the connection between human rights and corporations and the intrinsic role each plays in the development sphere (Ruggie 2007, para. 51). The World Bank’s Corporate Social Responsibility Practice, set up to advise
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developing country governments on public policy roles and instruments they can use to encourage corporate social responsibility, is another reminder that when dealing with human rights and development, business should not be left out of the equation. The work of the practice group acknowledges that some of the most significant and systematic contact that most people in low-income countries have with the rule of law is in the workplace and the bank, along with states and corporations all have significant roles to play in ensuring that an effective compliance regime is in place to protect individual rights (Smith and Feldman 2003, p. 2). Similarly, concern about the impact of corporations on human rights has led to an increased focus on the transparency (or lack thereof) of a country’s export credit agencies (ECAs). ECAs use public funds or a combination of public and private funds to provide loans, guarantees and insurance in support of overseas investment and exports by domestic corporations, and may sometimes fund controversial projects. For example, ESCR Net, a nongovernment advocacy organization, argues that Export Development Canada provides considerable support to Canada’s mining companies with significant negative impact on human rights and the environment, and the UK Export Credit Guarantee Department is heavily invested in arms exports detrimentally affecting rights (ESCR Net 2007). The capital that industrial countries’ ECAs provide to exporters and investors eclipses the contribution of overseas development agencies, other bilateral agencies and multilateral organizations (Gianturco 2001, p. 69). Significantly, the 2006 Interim Report of the SRSG singled out ‘home countries providing investment guarantees and export credits’ for frequently not taking ‘adequate regard for the human rights practices of the companies receiving the benefits’ (Ruggie 2006a, para. 79). NGO activism on this issue has helped focus attention on the need to institute safeguards into ECA programmes to promote greater transparency and curb corporate-led abuse of human rights and the environment. The obligation on national governments to protect human rights includes within it a duty to regulate private actor conduct. As discussed above, this creates a duty for home states to regulate private financial institutions, including those providing export credits and investment guarantees as well as TNC conduct generally. However the same limitations and ambiguities with respect to extraterritorial protection continue to apply. As has become evident throughout this chapter, the startling reality is that the theory of state protection of human rights is not always applied in practice and corporations, wittingly or unwittingly, are often able to operate in a largely ‘human rights free zone’. In practice, the delivery of development aid whether by corporation or other agencies has many dimensions. Some of those can be viewed as directly contributing to human rights goals, like the provision of food,
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clean water, shelter, healthcare, education and the protection and welfare of children; others more indirectly so, through the provision of power and telecommunication services, and the building of transport infrastructure. Furthermore, in this latter respect, aid is increasingly concerned with the promotion of institutional capacity and individual skills in such areas as the judiciary, government officials, police forces and civil society organizations. Here, aid seeks to support such rights as the right to a fair trial, freedom of expression and association, non-discrimination (on grounds of gender, race, disability, sexuality and so on), and political participation. In analysing the extent to which corporations can and will play a role in modern development thinking and practice and the ensuing intrinsic connection business has with human rights, it is important to recognize that there are certain controversial features of the relationship between human rights and aid. In fact, when discussion is focused specifically on what role human rights do and ought to play within aid, much discontent is apparent. The concern comes largely from two sources. The first is represented by many of the multilateral and Western aid agencies themselves, who resist calls for them to adopt a so-called ‘human rights approach’ to aid and development (Darrow and Tomas 2005), as, they argue, this would deflect them from their primary economic concerns and thrust them into political issues. This is despite the fact – as demonstrated above – that the development programmes of such agencies are already deeply involved with human rights matters. The Human Rights Council of Australia, for example, claims that ‘development should in fact be properly seen as a subset of human rights’ (HRCA 1995, p. 26). The second source of discontent gives rise to the neo-colonial concerns held by the developing countries who are the recipients of Western and multilateral aid.39 The argument here is that the nature of many of the past and present aid programmes is such that they are exporting particular political agendas. Specifically, by making aid conditional (whether explicitly or implicitly) on the recipient states’ adherence to certain human rights standards, the donor states are forcing their (typically) liberal, capitalist democratic philosophies onto developing countries. An especially unambiguous example of this approach is the Bush administration’s establishment in 2004 of the Millennium Challenge Account – administered by the Millennium Challenge Corporation. Initially, up to $5 billion per year was earmarked for distribution to developing countries over the initial three years of the programme (though far less has been appropriated by Congress each year and still less actually divested)40 to developing countries under the programme ‘based on the principle that aid is most effective when it reinforces good governance, economic freedom and investments in people’.41 Applicant states are measured according to 16 specific criteria that cover
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governance, rule of law and civil liberties, as well as such commercially related concerns as the levels of impediment to setting up business in the applicant states (costs in time and money); openness of trading relations; land ownership and access rights; and fiscal and monetary policies. Fundamentally, debates over questions of conditionality in terms of human rights – whether heavy- or light-handed – centre on the notion of the universality of human rights. For if rights are accepted as universal, and therefore not representative of any one particular political, philosophical or cultural ideology, they then should apply to all states equally. Thus, neither the excuses made by Western states not to promote human rights compliance in others, nor those made by developing states not to abide by human rights standards, are legitimate. Whatever the political and philosophical disputes, at the practical level, the two notions of human development and human rights have to be seen as interrelated and interdependent, even if it is accepted that they are not coterminous. They are, as the UNDP puts it, ‘close enough in motivation and concern to be compatible and congruous, and they are different enough in strategy and design to supplement each other fruitfully’ (UNDP 2000, p. 19). An approach that acknowledges, accepts and when necessary is willing to regulate the role played by corporations in the development arena ‘can thus bring significant rewards, and facilitate in practical ways the shared attempts to advance the dignity, well-being and freedom of individuals in general’ (ibid., p. 19). Conclusion Evidently, the impact of the global economy on human rights is extremely significant, even if, as yet, the same cannot be said in respect of the human rights impact on the global economy. The rise and rise of the TNC as a powerful non-state actor has largely left behind human rights and international law in its wake without proposing any real sustainable mechanisms for holding business accountable for human rights abuses. And yet we agree that it can be said of TNCs that they ‘play a significant role in generating the gains from trade for both their home and their host countries, since they reallocate resources internationally to maximise efficiency and profits’ (Jones 2004, p. 171). But with the important proviso that, for example, the author of these words crucially omits – namely, that this is a role that corporations can play. It is their destiny neither always to do so, nor indeed always to do so without also inflicting injustice and harm, including, sometimes, great human rights harm. An important message of our present piece is that the costs (in all respects) of such a footprint cannot and must not be ignored or externalized by the corporate generals and foot soldiers of the global economy. To be sure, they can do good and do so, and that
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much we must be very careful to harness, but the bad must be acknowledged and attended to as well. And that challenge is one that falls to human rights advocates as well as the corporate sector to meet. The part then that human rights plays in the corporate world must be strengthened if we are to ensure the wider distribution, and the deeper penetration of increasing wealth and protection of the disadvantaged from the worst excesses of economic globalization; a quest to ‘humanise globalization’, as Pascal Lamy rather grandly puts it (Lamy 2006). The voluntary adoption of sector-specific human rights standards by corporations whether relevant to commercial enterprise, trade and investment or development is but a temporary brace that supports but will not alone sustain long-term human rights protections. With power comes responsibility and not only corporations, but also many states and intergovernmental institutions now recognize the need to more formally protect human rights within the juggernaut of the global economy. The task is not only one that cries out for strengthening the ties of international cooperation, but is also a task that has important implications for the ways in which countries treat their own citizens. This is as true for the developed economies of the Western countries as it is for countries whose economies and structure of governance are still developing. The former cannot afford to be complacent by relying on the fact that capitalism and democracy have brought relative economic comfort to many of its peoples. For there still exist too many who are disadvantaged and deprived, and whose powerlessness and minority status are too often allowed to blind the majority to their fate (Beetham 1999, pp. 106–7). But equally, where the latter (developing countries) relegate respect for human rights to second place behind the pursuit of the economic growth through autocratic governance and as pushed by both domestic and foreign corporate interests, they do so at the peril of their people’s welfare and their government’s legitimacy. Rights and liberties are, as Amartya Sen argues, instrumental and integral to the attainment of development, not merely add-ons to be pursued at some later date (Sen 1999, pp. 36–40). Notes 1.
The origins of this chapter lie in research undertaken while the first-named author was a Senior Fulbright Scholar in late 2004 at Washington College of Law, American University. The research was also enabled by two Australian Research Council grants (on corporations and human rights, and human rights and international trade, respectively). The themes herein have been aired in graduate classes in the global economy and human rights taught over the last four years in both Australia and the United States, and in a series of papers at workshops conducted by the author at the Institute of Human Rights of the Ho Chi Minh National Political Academy in Hanoi, Vietnam, in November 2005. Finally, we would like to thank Gillian Moon for her insightful comments on an earlier draft and both Jessie Connell and Odette Murray for their editorial assistance.
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Which followed consideration in 2005 (for the second time) by the then Commission on Human Rights of the Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights, UN Doc. E/CN.4/ Sub.2/2003/12/Rev.2 (2003), available at http://www1.umn.edu/humanrts/links/normsAug 2003.html, accessed 26 August 2007 (hereinafter ‘Norms 2003’) (Kinley and Chambers 2006). 3. Roberto Dañino, (the then) Senior Vice President and General Counsel, the World Bank Group, in a speech delivered at the World Bank Legal Forum: Law, Equity and Development, 1 December 2005 (Dañino 2005a); and see further Dañino (2005b). Dañino’s successor, Ana Palacio, has also endorsed this interpretation (Palacio 2006). It must be said, however, that such high-level rhetoric is neither repeated, nor borne out at the level of the Bank’s practice (Darrow 2006). 4. Pascal Lamy, in his report on the Doha Round to the WTO General Council on 27 July 2007, noted that ‘some good progress has been made across the board over the last few months’, but there are ‘some significant differences which remain to be resolved’ (Lamy 2007, p. 1). 5. Thus, for example, the Preamble to the Marrakesh Agreement establishing the World Trade Organisation 1994 declares the parties’ concern with no less than the following: raising standards of living, ensuring full employment, advancing real income levels, expanding production and trade in goods and services, respecting the precepts of sustainable development and the protection and preservation of the environment, all in a manner consistent with the respect for the different levels of economic development between states (Marrakesh Agreement, preamble, first paragraph). Further, see UNCTAD’s statement that: ‘international trade can play a major role in reducing poverty in the LDCs [least developed countries]’ (UNCTAD 2004, p. 123); and see the ‘Statement of the Human Rights Caucus on the Occasion of the Sixth Ministerial Conference of the WTO’ on 10 December 2005, at p. 1, which proclaims that ‘international trade can undoubtedly serve as one means for the realization of human rights . . . but it does not automatically or necessarily do so’. 6. The term ‘transnational corporation’ refers to an economic entity operating in more than one country or a cluster of economic entities operating in two or more countries – whatever their legal form, whether in their home country or country of activity, and whether taken individually or collectively (Norms 2003, Article I). 7. As noted by Andrew Clapham, much of the focus is on large TNCs but there is no reason to exclude national companies from the realm of human rights obligations (Clapham 2006, p. 201). 8. For example, the American retailer, Wal-Mart, is one of the world’s largest companies with revenues over US$287 billion in 2005 (see www.money.cnn.com/magazines/fortune/ global500/2005/index.html, accessed 26 August 2007). By contrast, the IMF estimates Cambodia’s GDP in 2005 to be approximately US$4.5 billion (IMF 2005). 9. While the notion of direct responsibility being placed on corporations appears radical, it is not the first time duties have been placed on them in international law. It has been noted that TNCs also have direct duties under some multilateral conventions. For example, both the International Convention on Civil Liability for Oil Pollution Damage 1969 and the Convention on Civil Liability for Damage resulting from Activities Dangerous to the Environment 1993 directly impose liability on legal persons including corporations (Ratner 2001, p. 480 ff.; Kinley and Tadaki 2004, pp. 946–7). 10. Convention on the Rights of Persons with Disabilities opened for signature 30 March 2007, UN Doc. A/RES/61/106 (not yet in force), Art 4(e). 11. Because, it is argued, the main ‘civilising’ influence on the otherwise crude capitalist quest for profit is the market itself, which turns capitalism into ‘an engine of social progress’ (Cox 2006, p. 6). 12. See Floris van Hees’s excellent canvassing of both sides of the debate in ‘Protection v protectionism: the use of human rights arguments in the debate for and against the liberalisation of trade’ (van Hees 2004).
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The price-fixing practices and generally anti-competitive business structures of large agricultural corporations magnify their market power in respect of international trade in food, given the highly concentrated and vertically/horizontally integrated nature of the market. This gives farmers in developing countries little chance to compete with them or negotiate fair prices when the TNCs buy their produce. On the market practices of transnational agribusiness, see IFAP (2002). 14. Thus, for example, the Common Agricultural Policy (CAP) has maintained a phenomenal grip on the EU budget since its inception in 1958, from highs of almost 70 per cent of the EU budget in the 1970s, to 34 per cent of the budget during the 2007–13 period (EU 2007). In 2001, the subsidies provided by rich countries to their farmers represented six times the amount of their development aid – that is, US$311 billion in farm subsidies, compared to US$55 billion in development aid (Stiglitz and Charlton 2005, p. 62). 15. See Jagdish Bhagwati’s dismissive comment in this regard: ‘Many of us nonlegal intellectuals and experts think that the preamble is like the overture at the opera: the audience is free to rustle through the libretto and even whisper to friends until the real opera begins!’ (Bhagwati 2002, p. 133). 16. A product of the Tokyo Round of Trade Negotiations, which though not constituting a part of the GATT, none the less has legal force by virtue of it having been agreed to by all GATT signatories; see GATT, Basic Instruments and Selected Documents, 26th Supplement (1980), pp. 203–5; also reproduced at: http://www.wto.org/english/docs_e/ legal_e/enabling 1979_e.htm, accessed 26 August 2007. 17. See GATT Art. XX(b); on the relevant jurisprudence of which article, see Marceau (2002); and OHCHR (2005a). 18. See GATT Art. XX(e). 19. See GATT Art. XXI. 20. See GATS Art. XIV(a). 21. See GATT Art. XX(a). 22. United States – Restrictions on Imports of Tuna, Report of the Panel (GATT DS21/R), 3 September 1991 (‘Tuna/Dolphin I’) and United States – Restrictions on Imports of Tuna, Report of the Panel (GATT DS29/R), 16 June 1994 (‘Tuna/Dolphin II’). United States – Import Prohibition of Certain Shrimp and Shrimp Products, Report of the Appellate Body (WT/DS58/AB/R), 12 October 1998. On the role of private industry in lobbying the US Trade Representative (USTR) to initiate GATT/WTO cases, see generally: Shaffer (2003, pp. 23–7, 46–50). 23. EC – Measures Concerning Meat and Meat Products (Hormones), Report of the Appellate Body (WT/DS26/AB/R; WT/DS48/AB/R), 16 January 1998; and EC – Measures Affecting the Approval and Marketing of Biotech Products (WT/DS291/R; WT/DS292/R; WT/DS293/R), 29 September 2006. The US beef industry’s trade organizations put pressure on the USTR to take their case to the WTO in the EC–Meat Hormones case (Shaffer 2003, p. 39). On the role of lobby groups in the EC–Biotech/GMO case, see: Friends of the Earth International and Corporate Europe Observatory (2003, pp. 8–9). 24. Thailand – Restrictions on Importation of and Internal Taxes on Cigarettes, Report of the Panel (GATT BISD 37S/200), 7 November 1990. On the ability of the tobacco industry to enlist the support of the US government in overcoming trade barriers in developing states, including in the case of Thailand, see Taylor (1996, pp. 262–4). 25. Japan – Measures Affecting Consumer Photographic Film and Paper, Report of the Panel, (WT/DS44/R), 31 March 1998. Though not an Art. XX case, we include it here on account of the unambiguously corporate-led actions. The case was openly referred to as having been brought by the US against Japan, ‘at the behest of Kodak’ (South–North Development Monitor 1996). 26. Robert Joss and Anita Chan outline the diverse views of developing country trade unions on the desirability of the ‘social clause’, see Joss and Chan (2002, p. 9). 27. For a review of both sides of this debate, see Chapter 8: ‘The WTO and the interests of developing countries’ in Jones (2004); and also Hilary (2004).
368 28.
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30. 31. 32. 33. 34.
35.
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37. 38. 39. 40. 41.
Handbook of research on global corporate citizenship WTO Ministerial Conference, ‘Declaration on the TRIPS Agreement and Public Health, adopted on 14 November 2001’, WT/MIN(01)/DEC/2 (the ‘Doha Declaration’) at: http://www.wto.org/English/thewto_e/minist_e/min01_e/mindecl_trips_e.htm, accessed 26 August 2007. For a discussion of the political and legal context of the Massachusetts Burma law, see Fitzgerald (2001, especially at pp. 4–10, 36–44). In June and July 1997, respectively, the EC and Japan each issued a complaint against the US in the WTO, alleging that the Burma law violated the Agreement on Government Procurement. On 21 October 1998, the WTO’s Dispute Settlement Body established a Panel, but the Panel agreed to suspend the proceedings, at the request of the parties, on 10 February 1999, due to ongoing constitutional challenges to the Burma law in the US courts. The US Supreme Court ultimately held that the Massachusetts Burma law was unconstitutional (see Crosby v National Foreign Trade Council, 530 US 363 (2000)). The WTO proceedings lapsed on 11 February 2000. See Davina Ovett’s account of such voluntary licensing negotiations between Brazil and a group of US pharmaceutical manufactures of antiretroviral medicines, in Ovett (2007, p. 177). For example, the recent compulsory licensing actions of both Thailand and Brazil in respect of the anti-HIV/AIDS drug Efavirenz over which the US pharmaceutical company Merck, Sharp & Dohme holds the patent (Cortes 2007). In 2004, FDI inflows into the group of 50 least developed countries (LDCs) reached $11 billion, the highest level ever. In the 1995–2000 period, average annual FDI flows exceeded bilateral overseas development aid for 12 LDCs (UNCTAD 2005, pp. 1–2). For an excellent overview of the issues that lie at the heart of the debate over the links between human rights and development, see UNDP (2000, chs 1 and 6). See, for example, the Articles of Agreement of the International Bank for Reconstruction and Development (IBRD) (part of the World Bank Group), which state that among its purposes are ‘the development of productive facilities and resources in less developed countries’, and ‘raising . . . standard[s] of living and conditions of labour’ (arts 1(i) and (iii), respectively), http://go.worldbank.org/7H3J47PV51, accessed 26 August 2007. See, for example, AusAID’s proclamation that the ‘overseas aid program aims to assist developing countries reduce poverty and achieve sustainable development, in line with Australia’s national interest’, http://www.ausaid.gov.au/makediff/default.cfm (accessed 26 August 2007); and the United Kingdom Department for International Development’s somewhat less cryptic declaration in its Mission Statement, that it is ‘leading the British government’s fight against world poverty’, available at http://www.dfid.gov.uk/ aboutdfid/missionstatement.asp, accessed 26 August 2007. For example, as part of its broader social responsibility initiative, Gap Inc., the US clothing company, through the Gap Foundation makes grants to various organizations and community programmes around the world, focusing on communities where its factories operate (Gap Inc. 2007). Corporate Ethics International (2007). A revised set of principles were released in July 2006, available at http://www.equatorprinciples.com/principles.shtml, accessed 26 August 2007. See Gregory Shaffer and Yvonne Apea (2005, pp. 491–5). The appropriation figures are: $1 billion for 2004; $1.5 billion for 2005 and $1.75 billion for 2006 (Johnston and Zajonc 2006, p. 7). See Millennium Challenge Corporation, About MCC, at http://www.mcc.gov/about/ index.php, accessed 21 November 2007.
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Ruggie, John (2006a), ‘Interim Report of the Secretary-General’s Special Representative on the Issue of Human Rights and Transnational Corporations and Other Business Enterprises’, UN Doc. E/CN.4/2006/97, 22 February 2006, http://documents-ddsny.un.org/doc/UNDOC/GEN/G06/110/27/pdf/G0611027.pdf ?OpenElement, accessed 26 August 2007. Ruggie, John (2006b), ‘Human rights policies and management practices of Fortune Global 500 firms: results of a survey’, Corporate Social Responsibility Initiative, Working Paper no. 28, Cambridge, MA: John F. Kennedy School of Government, Harvard University. Ruggie, John (2007), ‘Report of the Special Representative of the Secretary-General on the Issue of Human Rights and Transnational Corporations and Other Business Enterprises: “Business and Human Rights: Mapping International Standards of Responsibility and Accountability for Corporate Acts” ’, UN Doc. A/HRC/4/035, 9 February 2007, http://www.business-humanrights.org/Documents/SRSG-report-Human-Rights-Council19-Feb-2007.pdf, accessed 26 August 2007. Ruggie, John and OHCHR (2007a), ‘State responsibilities to regulate and adjudicate corporate activities under the United Nations’ core human rights treaties’, Individual report on the International Covenant on Economic, Social and Cultural Rights, Report No. 2, http://www.reports-and-materials.org/Ruggie-report-ICESCR-May-2007.pdf, accessed 26 August 2007. Ruggie, John and OHCHR (2007b), ‘State responsibilities to regulate and adjudicate corporate activities under the United Nations’ core human rights treaties’, Individual report on the International Covenant on Civil and Political Rights, Report No. 3, www.reports-andmaterials.org/Ruggie-ICCPR-Jun-2007.pdf, accessed 26 August 2007. Saini, Angela (2007), ‘Making poor nations pay for drugs’, http://www.newscientist.com/ channel/health/mg 19325972.800-making-poor-nations-pay-for-drugs.html, accessed 26 August 2007. Sen, Amartya (1999), Development as Freedom, Oxford and New York: Oxford University Press. Shaffer, Gregory (2003), Defending Interests: Public–Private Partnerships in WTO Litigation, Washington, DC: Brookings Institution Press and Bristol: University Presses Marketing. Shaffer, Gregory (2006), ‘The challenges of WTO law: strategies for developing country adaption’, World Trade Review, 5 (2), 177–98. Shaffer, Gregory and Yvonne Apea (2005), ‘GSP programmes and their historical– political–institutional context’, in Thomas Cottier, Joost Pauwelyn and Elisabeth Bürgi (eds), Human Rights and International Trade, Oxford: Oxford University Press, pp. 488–503. Smith, Gare and Dan Feldman (2003), Company Codes of Conduct and International Standards: An Analytical Comparison, Corporate Social Responsibility Practice Group, World Bank, Washington, DC: World Bank/IFC. South–North Development Monitor (1996), ‘Kodak–Fuji War before WTO’, http://www.sun sonline.org/trade/process/followup/1996/10040096.htm, accessed 26 August 2007. Srinivasan, T.N. (1996), ‘Trade and human rights’, Centre for Economic Growth, Yale University, http://www.econ.yale.edu/growth_pdf/cdp 765.pdf, accessed 26 August 2007. ‘Statement of the Human Rights Caucus on the Occasion of the Sixth Ministerial Conference of the WTO’, 10 December 2005, http://www.fidh.org/IMG/pdf/wto122005a.pdf, accessed 26 August 2007. Stephens, Beth (2002), ‘The amorality of profit: transnational corporations and human rights’, Berkeley Journal of International Law, 20, 45–90. Stiglitz, Joseph and Andrew Charlton (2005), Fair Trade for All: How Trade Can Promote Development?, Oxford and New York: Oxford University Press. Taylor, Allyn (1996), ‘An international regulatory strategy for global tobacco control’, Yale Journal of International Law, 21, 257–304. UN Human Rights Committee (2004), ‘General Comment 31: Nature of the General Legal Obligation on States Parties to the Covenant’, UN Doc. CCPR/C/21/Rev.1.Add.13, http://www.unhchr.ch/tbs/doc.nsf/(Symbol)/CCPR.C.21.Rev.1.Add.13.En?Opendocument, accessed 26 August 2007. UN Millennium Development Goals (2000), www.un.org/millenniumgoals/, accessed 26 August 2007.
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UN Research Institute for Social Development (UNRISD) (2004), ‘Corporate Social Responsibility and Business Regulation’, Research and Policy Brief 1, Geneva: UNRISD. UNCTAD (2004), Least Developed Countries Report 2004: Linking International Trade with Poverty Reduction, Geneva: UNCTAD. UNCTAD (2005), ‘FDI in Least Developed Countries at a Glance: 2005/2006’, UN Doc. UNCTAD/ITE/IIA/2005/7, http://www.unctad.org/en/docs/iteiia20057_en.pdf, accessed 26 August 2007. UNDP (2000), Human Development Report 2000: Human Rights and Human Development, Oxford and New York: Oxford University Press. UNDP (2005), Human Development Report 2005: International Cooperation at a Crossroads: Aid, Trade and Security in an Unequal World, New York: UNDP. UNDP Commission on Private Sector Development (2004), Unleashing Entrepreneurship: Making Business Work for the Poor, New York: UNDP. Utting, Peter and Ann Zammit (2006), Beyond Pragmatism: Appraising UN–Business Partnerships, UNRISD Programme Paper, Geneva: UNRISD. van Hees, Floris (2004), ‘Protection v protectionism: the use of human rights arguments in the debate for and against the liberalisation of trade’, http://www.abo.fi/instut/imr/norfa/ floris.pdf, accessed 26 August 2007. Vienna Declaration and Programme of Action, adopted 25 June 1993, UN Doc. A/CONF.157/23, http://www.ohchr.org/english/law/vienna.htm, accessed 26 August 2007. World Bank (2007), Global Monitoring Report 2007: Confronting the Challenges of Gender Equality and Fragile States, Washington, DC: World Bank. WTO Ministerial Conference (2001), ‘Declaration on the TRIPS Agreement and Public Health, adopted on 14 November 2001’, WT/MIN(01)/DEC/2 (the ‘Doha Declaration’), http://www.wto.org/English/thewto_e/minist_e/min01_e/mindecl_trips_e.htm, accessed 26 August 2007. Zammit, Ann (2003), Development at Risk: Rethinking UN–Business Partnerships, Geneva: UNRISD/South Centre. Zeisel, Katherine (2006), ‘The promotion of human rights by selective public procurement under international trade law’, in Olivier de Schutter (ed.), Transnational Corporations and Human Rights, Oxford, UK and Portland, OR, USA: Hart, pp. 361–91.
17 Global business as an agent of world benefit: new international business perspectives leading positive change Nancy J. Adler
Let us choose to unite the power of markets with the strength of universal ideals. (United Nations Secretary-General Kofi Annan, 1997–20071)
Introduction The relationship between global business and society – including business’s search for mutually beneficial advances that address the world’s most pressing needs – has become one of the defining issues of the 21st century. Throughout the world, immense entrepreneurial energy is finding expression, energy whose converging force is in direct proportion to the turbulence, crises and the call of our times. One-by-one positive disruptions are erasing the false dichotomy embedded in ‘the great trade-off illusion’ – the belief that firms must sacrifice outstanding financial performance if they choose to strategically address societal challenges. Could it be that – with a global perspective and the right mix of innovative leadership and scholarship – the creation of a sustainable society and planet could become the international business opportunity of the 21st century?2 The 21st-century challenge The success of global society is increasingly influenced, if not defined, by the behavior of multinational corporations (MNCs). More than half of the world’s hundred largest economic entities today are corporations; only 47 are countries (UNCTAD 2005). ExxonMobil, for example, with 2005 revenues of over $341 billion and profits of $36 billion, is larger than twothirds (125) of the 184 countries whose economies are ranked by the World Bank (ibid.). Similarly, Wal-Mart is the nineteenth largest economy in the world, with sales exceeding $250 billion (Mau et al. 2004, p. 128); its singleday revenue is larger than the annual GDP of 36 independent countries.3 If it were a country, Wal-Mart would be China’s eighth largest trading partner (Friedman 2005, 2006). With over 1.8 million employees worldwide, WalMart has more people in uniform than the entire United States Army (www.walmartfacts.com; Mau et al. 2004, p. 128). What global companies such as ExxonMobil and Wal-Mart do, individually and collectively, 374
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matters, not only to their own customers, employees and suppliers, but also to the larger global economy and society. The crucial question for the 21st century is not a traditional academic question – ‘How can we best describe what most global companies do and why they do it?’. Similarly, it is not an equally traditional, yet more narrowly focused, economic question – ‘How do global companies achieve the best financial performance through the most efficient and effective use of resources’ (Molz 2006, p.1)? Rather, both from society’s and companies’ perspectives, the crucial questions are: ‘How can companies and society simultaneously benefit from the ways in which multinational firms operate?’ and ‘How might companies operate in the future so as to increasingly contribute to society’s well-being while simultaneously enhancing their own financial performance?’. Questioning the potential for private sector-created positive outcomes is particularly important, given that the behavior of companies such as ExxonMobil and Wal-Mart toward their own employees, other stakeholder groups and the broader social and physical environment has frequently (and often accurately) been severely criticized in the courts, the popular press and academic publications (see, for example, Cascio 2006; Fishman 2006; Freeman 2006; Ghemawat 2006). Scherer and Palazzo (2008) point out that prior discussions of the relationship of firms to the social and physical environment presupposed that responsible firms operated within a system of primarily government-defined rules and regulations. With globalization, however, this assumption is no longer valid: ‘The global framework of rules is fragile and incomplete. Therefore business firms [today] have an additional political responsibility to contribute to the development and proper working of global governance’ (ibid., p. 3) – to the proper working of the world (also see Palazzo and Scherer 2006; Scherer et al. 2006). Whereas we have learned a substantial amount about the social, economic and political influences of MNCs, what we know is disproportionately negative and narrowly focused on economic outcomes. From the perspective of anticipatory scholarship (Botkin et al. 1979), perhaps the most important question facing business scholars today is: ‘What can we learn about the positive, and potentially positive, impacts of multinational business? What can we learn about global corporations’ ability to simultaneously do good and do well?’.4 Business repositioning itself clearly and convincingly as a part of society Speaking in Davos, Switzerland at the opening of the 21st century, Klaus Schwab (2003, p. 10), President of the World Economic Forum, challenged the world’s most senior business leaders to examine and take responsibility for their companies’ impacts:
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In today’s trust-starved climate, our market-driven system is under attack . . . large parts of the population feel that business has become detached from society, that business interests are no longer aligned with societal interests . . . The only way to respond to this new wave of anti-business sentiment is for business to take the lead and to reposition itself clearly and convincingly as part of society.
During the 21st century, many business leaders believed that their companies should be detached from society. Reflecting their sentiment, leading economist Milton Friedman (1970, p. 122) expressed his strongly held opinion that the only ‘social responsibility of business is to increase its profits’. Today, going beyond 20th-century logic, prominent CEOs from all continents are expressing their belief that the relationship between business and society – including business’s search for mutually beneficial advances that address the world’s most pressing global needs – has become a defining issue for the 21st century. What does it mean for global business to take the lead in repositioning itself as a part of society? What might such a repositioning imply for scholars of international business? Kofi Annan, while he Secretary-General of the United Nations, addressed the World Economic Forum in Davos, Switzerland, inviting the business community to rise to the challenge: Let us choose to unite the power of markets with the strength of universal ideals. Let us choose to reconcile the creative forces of private entrepreneurship with the needs of the disadvantaged and the requirements of future generations.5
In response to the Secretary-General’s seminal invitation, the world’s largest global corporate citizenship network, the United Nations Global Compact, was formed in 2000, and now includes more than 3000 member corporations headquartered in 87 countries. With CEO-level commitment from such major multinationals as Alcan, BP, Daimler Chrysler, Escom SA, Novartis, Pfizer, Punjab National Bank, Telecom Italia and Unilever, the members of the UN Global Compact have committed themselves to two objectives: (i) mainstreaming principles for global citizenship into the activities of businesses around the world, and (ii) acting as a catalyst for business actions in support of the UN Millennium Development Goals. The Millennium Development Goals include: eradicating extreme poverty and hunger; achieving universal primary education; promoting gender equality and empowering women; reducing child mortality; improving maternal health; combating HIV/AIDS, malaria and other diseases; ensuring environmental sustainability; and developing a global partnership for development – all by the year 2015 (United Nations 2006). American economist Jeffrey Sachs, arguably the most influential, and perhaps the most controversial, voice in international development today, unequivocally
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asserts that ‘to the extent that there are any international goals, they are the Millennium Development Goals’ (Eviatar 2004; also see Sachs 2005). At the Global Compact’s Leaders’ Summit held at the United Nations in 2004 just four years after the Compact’s founding, one overarching theme emerged from the corporate leaders’ deliberations (Cooperrider 2004). It was a call for more and better knowledge, learning and management tools for advancing innovation at the intersection of business and society. As members of the global business community rise to Klaus Schwab’s and Kofi Annan’s challenge, how will scholars of international business address the same challenge? What are the implications for international business scholarship in a century in which: 1. 2. 3.
4. 5.
6.
global integration has become definitional rather than a choice; change is as often discontinuous as it previously was reliably predictable; transparency is more likely to be defined by a single photo – shown first on You Tube or another blogsphere (Gena 6, Burma, and other similar sites), and then on the evening news – exposing previously hidden corporate malfeasance than by any country’s legal structure or by the World Trade Organization’s (WTO’s) entire set of regulations. Most probably, the unexpected and unwelcome photo will have been taken on a cell phone by the sole member of a tiny non-governmental organization that the company’s senior executives had never previously heard of, let alone planned for; resource scarcity exacerbates previously tranquil economic relationships; global environmental crises, human rights abuses, societal violence and income inequality are more likely to be blamed on the private sector than on government; and public opinion is more likely to condemn corporate corruption than praise companies’ societal contributions (Adler 2006a).
Within this context, how must international business scholarship change for it to respond to business’s call for more and better knowledge, guidance and management approaches for advancing positive innovations at the intersection of business and society? What would it mean for international business scholarship to expand: 1. 2.
from scholarship that is descriptive of the mean to scholarship that is skilled at identifying the exception (and therefore, the exceptional), from scholarship that is focused on deficit-based problem solving to scholarship seeking to explain strength-based corporate contributions,
378 3. 4.
Handbook of research on global corporate citizenship from scholarship based on assumptions of contextual determinacy to scholarship that explicitly assumes free will, and from prediction based on historical trends to anticipatory scholarship?
This chapter explores some of the most important transformations taking place in other disciplines and their implications for allowing international business to more directly address the key economic and societal challenges of our time. The chapter raises questions and suggests possibilities aimed at expanding the domain and relevance of international business scholarship, both for academics and for business managers and leaders. Box 17.1 offers a brief overview of international business scholarship to date and its relationship to the most compelling issues of our time.
BOX 17.1
INTERNATIONAL BUSINESS SCHOLARSHIP
Addressing compelling questions As a scholarly discipline, international business has focused mainly on the emergence, conditions for success, and growth of multinational enterprise (MNEs).6 At the opening of the 21st century, Buckley (2002, p. 371) challenged international business (IB) scholars by stating that the field was running out of steam because it had failed to identify a question for the 21st century that was as big and compelling as the central questions the field had addressed in the 20th century; questions such as: ‘Can we explain the sequence of entry of nations as major players in the world economy . . .?’, ‘Why are different forms of company organization characteristic of [specific] individual and cultural backgrounds? Or is this an artifact?’, and ‘[Using] what empirical measures can we identify trends toward (and away from) globalization?’. By 2004, Buckley and Ghauri recommended that the guiding question for the field in the 21st century should be ‘understanding globalization’. Other scholars have similarly challenged IB scholars to identify a ‘big question’ worthy of the field (Butler 2006). Peng (2004), for example, suggested that the question that would best leverage IB’s strengths in the 21st century would be: ‘What determines the international success and failure of firms?’ – a question that many argue has always been the central question in IB. Furthering the dialogue, Buckley and Lessard (2005) recommended that internalization continue to be central, while Shenkar (2004) suggested
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focusing on finding integrative and synergetic ways to combine local and global knowledge. Whereas each of these questions is important, none, I would suggest, is big enough. I would therefore recommend that one of the guiding questions for IB research in this century should be: ‘What allows firms to succeed internationally, including performing at an exceptional level (with success defined as the ability to strategically and sustainably enhance societal well-being and the firm’s own bottom line)?’. International business theory: using the tools of the field Like any sophisticated scholarly discipline, IB has developed a set of theoretical approaches that compete with each other in attempting to best explain the behavior of organizations that transcend national borders. In IB, the dominant theoretical approaches have included agency theory, institutional theory, internalization theory, resource-based theories and transaction cost analysis, among others. Whereas each theoretical approach has contributed to the overall understanding of the behavior of business worldwide, to date, none has focused primarily on the question of why and how MNEs succeed in simultaneously doing good and doing well. Similarly, few IB scholars have attempted to use the field’s dominant theories to explain exceptional behavior, especially when exceptional is defined more broadly than simply maximizing the firm’s financial bottom line. This chapter therefore offers an invitation to scholars to use the interdisciplinary perspectives and powerful theoretical tools that have defined IB scholarship to address the broadest and most encompassing questions about the ability of multinational and transnational enterprises to strategically and sustainably do good and do well. Examples of some of the most prominent theoretical perspectives follow. Internalization and transaction cost analysis Buckley and Casson’s (1976) landmark study provided a rigorous economic explanation for the existence and functioning of MNEs, and thus provided a basis for transaction cost-based theories of MNEs.7 As summarized by Rugman and Verbeke (2003, p.126), Buckley and Casson (1976) emphasized: ‘very general forms of imperfect competition stemming from the costs of organizing markets’ ([Buckley and Casson 1976] p. 33), with a special focus on imperfections in intermediate product
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Handbook of research on global corporate citizenship markets, including various types of knowledge and expertise, embodied in patents, human capital, etc. Internalization of such imperfect external markets, when this occurs across national boundaries, leads to the creation of MNEs. In explaining the rapid, post World War II growth of MNE activity, Buckley and Casson (1976) focused especially on the existence of market imperfections, which generates benefits of internalization.8 . . . As internalization theories and transaction cost analysis developed, four sets of parameters relevant to the internalization decision were recognized, namely: (1) industry specific factors (related to the nature of the product and the structure of the external market), (2) region-specific factors, (3) nation-specific factors, including government policies and (4) firm-specific factors, with a focus on the ‘ability of the management to organize an internal market’ (Buckley & Casson, 1976: 34).
Given the theoretical structure of transaction cost perspectives, there is huge potential for scholars to explore potentially positive relationships between firms and the environment (see King 2007). Country-specific advantages Unlike most mainstream strategy theories, IB theory viewed the world neither as one perfectly integrated market nor as completely independent and isolated domestic markets. Ghemawat (2003) labeled the lack of perfectly integrated markets as ‘semiglobalization’ and, using a transaction-cost analysis framework, explained that country-specific advantages are still highly relevant. Building on Ghemawat’s work, the field of IB could leverage its theoretical strengths and address ‘bigger questions’ by helping scholars across disciplines to understand the ways in which both society and the economy are semi-globalized, and thus how conditions in one part of the world influence those in all parts of the world while remaining unique to their particular location. Such understanding could underpin investigations of global companies that are attempting to strategically and sustainably excel at doing good while doing well. Resource-based perspectives In addition to transaction cost analysis and country-specific advantages, Peng (2001) summarized the importance and influence of resource-based views, another key theoretical perspective to strategy and IB. As Peng (2001, pp. 809–10) described:
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A key insight of IB research is that MNCs face a ‘substantial liability of foreignness,’ which leads to nontrivial costs. To overcome such a liability [transaction cost] (Buckley & Casson, 1976; Caves, 1996) and ‘eclectic’ (Dunning, 1993) perspectives stress that MNCs need to equip their overseas subsidiaries with certain firm-specific advantages. The . . . [resource-based view] extends these perspectives by specifying the nature of these resources and capabilities, such as administrative heritage (Bartlett & Ghoshal 1989; Collis, 1991), organizational practices (Tallman, 1991, 1992; Zaheer, 1995; Zaheer & Mosakowski, 1997), and bargaining power (Moon & Lado, 2000). Resource-based theories have been used, for example, to investigate the resources underlying different types of diversification. To address big questions, resource-based theorists might study the types of resources and capabilities, including, but not limited to administrative heritage, organizational practices and bargaining power, that most consistently lead to exceptional performance by multinational firms in simultaneously doing good and doing well. John Dunning, a leading IB scholar, has most recently contributed to this discussion with his edited volume, Making Globalization Good (Dunning 2003). Institutional theory According to IB scholar and sociologist Eleanor Westney (2005a, p. 47): Institutional Theory begins with the premise that organizations are social as well as technical phenomena, and that their structures and processes are not shaped purely by technical rationality. But whereas earlier critics of technically deterministic approaches to organization tried to explain departures from technical rationality by looking inside the organization (to factors such as informal social structures or power relationships within the organization), institutional theory looks first to the social context and focuses on ‘isomorphism within the institutional environment’ (Zucker 1987: 443), whereby organizations adopt patterns that are externally defined as appropriate to their environments, and that are reinforced in their interactions with organizations. . . . One basic premise of institutional theory is that the environment is itself socially organized: that is, it is populated by organizations that have ‘relationships’, not simply transactions, and it is the
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Handbook of research on global corporate citizenship source of pressures and constraints on their considerations of alternative ways of organizing, thereby influencing organizations toward ‘isomorphism’: the adoption of structures and processes prevailing in other organizations within the relevant environment (Zucker 1987). . . . DiMaggio and Powell (1983:150–54) have proposed three categories of institutional isomorphism: coercive isomorphism, where organizational patterns are imposed on organizations by a more powerful authority . . . normative isomorphism, where ‘appropriate’ organizational patterns are championed by professional groups and organizations; and mimetic isomorphism, where organizations respond to uncertainty by adopting the patterns of other organizations defined as ‘successful’ in that kind of environment.
From even this brief description, it is clear that institutional theory has huge potential to help both business and scholars to understand better the relationship between firms and their environment (see Westney 2005a, 2005b; Campbell 2007; Marquis et al. 2007). More importantly, institutional theorists could explore ways to extend their theories to help explain not just the various forms of fitting in (isomorphism), but also the range of ways of standing out (exceptionalism); in particular, the relationship between firms that stand out in terms of their economic performance and societal contribution and their relationship to the broader environment. It is not that institutional theory cannot be helpful; it is rather that the right questions have not been systematically asked and therefore neither scholarship nor practice have been able to benefit from the full robustness of the theory. Agency theory Another prevalent theoretical approach to IB research is agency theory. Agency theories assume that different players in a system have different goals, act in a self-interested manner, and are willing to assume various degrees of risk (Johnson and Droege 2004). As described by Nilakant and Rao (1994, p. 650), agency theory: suggests that problems of organization arise because principals entrust tasks to agents since they neither have the time nor the ability to do the tasks themselves. As a result, agents have opportunities to misrepresent information and divert resources to their personal use. Therefore, principals have a need to monitor agents or, alternatively, induce them to cooperate by
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designing incentive schemes. Agents also may be motivated to bond themselves to the principals if they want to avert monitoring. The task of organization design is to efficiently structure the agency relationship so that monitoring, bonding and related costs are minimized (Jensen & Meckling 1976). There are two main branches of agency theory. One, called positivist agency theory, focuses on the broad problem of separation of ownership from control and emphasizes how managers are disciplined by incentive schemes, external labour markets and capital markets (Fama 1980; Fama & Jensen 1983; Jensen 1983). The second branch, called principal–agent research, takes the ownership and allocation of firms as a given and concentrates on the design of ex-ante employment contracts and information systems (Baiman 1982, 1990). Although currently outside the scope of most agency-theorybased studies, the theory could also be used to explore both naturally occurring and organizationally designed incentive schemes that encourage MNEs to act in ways that mutually benefit the firm itself while simultaneously contributing to the broader physical and social environment.
Academic transformation: shifting to positive scholarship How do fields of scholarship change? What precedents from other disciplines can IB draw on to maintain its relevance both within academia as well as for business and the broader society? Perhaps one of the most important transformations taking place in scholarship in recent years is the shift to positive scholarship initiated by the field of psychology and now increasingly embraced by organizational studies. Over the past 15 years, Martin Seligman and his positive psychology colleagues (see, among others, Seligman 1994, 1998, 2002, 2003; Seligman et al. 1996; Gillham 2000; Seligman and Csikszentmihalyi 2000; Snyder and Lopez 2002; Fredrickson 2003; Keyes and Haidt 2003; Peterson and Seligman 2004) have radically altered the field of psychology. How? Initially by recognizing that 98 per cent of all research published in reputable psychology journals has focused on deficits (Myers 2003). Psychologists, led by Seligman, recognized that their field had learned how to recognize and describe dysfunction (what is not working), but, from both a conceptual and a methodological perspective, the field appeared incapable of understanding that which was working. Historically, psychological research has offered
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relatively few insights into normal behavior, let alone outstanding behavior. In the Forward to the Handbook of Positive Psychology (Snyder and Lopez 2002, p. vii), Sir John Templeton questioned the value in that history and highlighted the omissions, by asking: ‘Why is it we know so little about the human spirit?’. Why is it that until the recent work of the positive psychologists, we have known next to nothing about what supports joy, happiness, wisdom, courage, hope, generosity or love? In the last five years, positive organizational scholarship has begun to initiate a similar transformation in management research; a shift away from problem-focused deficit paradigms and toward strength-based approaches (among others, see Luthans 2002, 2007; Bernstein 2003; Cameron et al. 2003; Peterson and Seligman 2003; Wright 2003; Cameron and Caza 2004; Luthans and Youssef 2004; Dutton and Ragins 2007; and Luthans et al. 2007). Positive organizational scholars have begun to understand organizational phenomena that dramatically and surprisingly outperform the norm. Using strength-based perspectives, scholars are beginning to investigate why certain systems succeed in contributing to the public good while others do not.9 In particular, business and corporate social responsibility scholars are beginning to investigate why certain companies outperform their cohort in simultaneously benefiting the world and increasing their own financial performance.10 Similar to other disciplines, the IB field is also being challenged to reposition itself vis-à-vis this century’s unique challenges (see Box 17.1). The central question that previously defined IB – which theories best explain the behavior of MNCs? – is no longer sufficient to address the challenges articulated by societal leaders such as Klaus Schwab and Kofi Annan. The challenges of the 21st century demand that international business, like its sister disciplines of psychology and organizational studies, create and increasingly embrace strength-based, positive scholarship. The challenges that business and society face demand that international business scholars investigate how best to understand the most effective and admirable behavior – literally, the outstanding behavior – of specific, frequently unique companies. Drawing on the work of colleagues in positive psychology and positive organizational studies, perhaps more international business scholars can investigate the possibilities inherent in global businesses acting as agents of world benefit. Positive deviance: exceptional, beneficial and rare Traditional scholarship has venerated the mean. Methodologists have developed endless analytical techniques for discovering what is central and/or most frequent in a given population. We have therefore become experts at identifying that which is common – that which is average and/or that which
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is central. At times, however, we confuse our labels and present the mean (‘the average’) as normal, instead of just as central or common. In the book, What Does It Mean To Be Human?, Chittister (1998, p. 193) cautions against misunderstanding, and therefore mislabeling, that which is common: The problem with trying to define what it means to be human is that we now take so much of the inhuman for granted. We confuse the meaning of the words ‘natural’ and ‘human,’ and make synonyms of them. We act as if one is the other. We allow one to be the other. We rip to shreds the ideas each of them masks, forgetting one and surrendering to the other. We call the ‘natural’ human and in one flash of the pen presume we have made it so. We wander in a philosophical maze and never even realize that we are lost. War is ‘natural,’ they tell us. Violence is ‘natural,’ they argue. Selfaggrandizement is ‘natural,’ they maintain. What they do not say is that just because something is ‘natural’ does not make it human.
As our methodological ability to identify central tendencies and replicating patterns (‘the natural’) has increased, our ability to recognize outliers – and especially positive outliers – appears to have either remained nascent or atrophied. As a field we are at risk of becoming blind to that which is unique, that which is deviant, that which is unusual, and therefore, that which is exceptional. Positive deviance: the theory The positive organizational scholars, however, have studied deviance, and become especially interested in positive deviance. Traditionally, scholars have defined deviance as intentional behavior that not only significantly violates organizational norms but in doing so threatens the well-being of an organization and/or its members; thus implying that deviance is bad (Robinson and Bennett 1995, p. 556). Historically, most academic discussions of deviance have focused on negative or deficit behavior (Warren 2003). Positive deviance has always existed, yet only recently have scholars begun to recognize it. Today, positive deviance, as defined by the positive organizational studies scholars, is understood to be ‘intentional behaviors that depart from the norms of a referent group in honorable ways’ (Spreitzer and Sonenshein 2003, p. 209). Given the newness of the field, however, it must be recognized that the terms ‘positive’ and ‘honorable’ are not yet rigidly defined and are frequently used interchangeably. Positive, or honorable, behavior of organizations most commonly refers to organizational behavior that benefits a broader constituency than simply the firm’s bottom line (traditional stockholders), encompassing a wider range of stakeholders by focusing on the sustainability and well-being of the physical and social environments of employees, customers and community members, as well as the planet.
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In contrast to more commonly employed research methodologies, positive-deviance approaches explicitly search for examples of systems, often operating on the margins, which far exceed both the expectations and the behavior of most other systems (Spreitzer and Sonenshein 2003). Using traditional research methodologies and scholarly perspectives, such systems often remain invisible, or, when visible, are attributed to random error. Institutional perspectives, for example, have difficulty explaining exceptional behavior because, by definition, such positive exceptions are neither contextually determined nor do they fit in with current or prior patterns – they literally exist only as outliers. By using positive deviance both as a perspective and as a methodological approach, the superior performance of exceptional systems not only becomes visible, it becomes a candidate both for research and for amplification into broader systemsenhancing strategies. Positive deviance: the example of Vietnam A classic example of positive deviance in international development attracted the attention of researchers interested in global change. It comes from Jerry and Monique Sternin who were working with Save the Children on malnutrition programs in Vietnam (Dorsey 2000). Instead of bemoaning the fact that most international poverty programs in developing countries ultimately have no effect, or worse, leave recipients poorer than they were prior to the program (and therefore either give up in ‘grounded hopelessness’ or continue to replicate previously used unsuccessful strategies), the Sternins chose to identify naturally occurring success and attempt to amplify it. They identified the healthiest children in four of Vietnam’s poorest communities: poor children who had somehow grown taller and weighed more than similarly poor neighbor children. They then interviewed the mothers of the healthiest children to find out what they were doing that was different from their neighbors who were raising less healthy children. The Sternins then amplified the positive deviance by inviting the mothers of the healthiest children to teach the other mothers in the village their approach to feeding. Unlike most other nutrition programs, the Sternins’ approach worked, both immediately and over the longer term. Their radically different and successful approach to child nutrition, after first being implemented with starving children in Vietnam, later served as a model for rehabilitating tens of thousands of undernourished children in over twenty countries worldwide (ibid.). As is clear in the Sternin’s approach, positive deviance starts with the assumption that that which is desired is possible; it starts with ‘agency’. It rejects the notion that that which is either common or contextual is definitive or deterministic. The question we must raise as scholars is: why have most such cases of positive
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deviance remained invisible when we have conducted our most rigorous research? Positive deviance: South Africa On the other side of the world from Vietnam, South Africa’s CIDA University also uses a strategy that is similarly based on identifying and amplifying positive deviance. Lauded by South Africa’s President Mbeki as one of the country’s pioneers of change, actuary and consultant Taddy Blecher launched CIDA University as a business school in Johannesburg in 2002.11 Blecher’s vision was to develop ‘motivated students from the country’s poorest and most marginalized communities into a new generation of business leaders and high-powered entrepreneurs who will spread knowledge and prosperity across the continent’. While operating at a fraction of the cost of other universities, CIDA, which is now accredited, received over 19 000 applications for its 1600 places.12 Living its motto, ‘it takes a child to raise a village’, students partner with their home communities to pass on their learning. In just one month, for example, CIDA’s business ‘students taught 300 000 young people about AIDS and money management in communities throughout South Africa’ (‘ “Ubuntu” University Lifts off’ 2002).13 CIDA University developed its innovative education model, and continues to recruit students today, based on identifying and amplifying positive deviance. CIDA looks for ‘learners who, despite severe disadvantages, have [excelled] academically and who [also] found time to . . . contribute to their communities’ (Davie 2001). In other words, they look for positive deviants, students who have succeeded in environments in which most other young people could not. Before opening the university, Blecher and his colleagues studied these surprisingly successful students to understand what allowed them to deviate in such positive ways from the more common patterns of failure experienced by most of their contemporaries. They then built CIDA’s selection criteria and curriculum based on the distinguishing characteristics that supported these outstanding young people in achieving so much more than their similarly disadvantaged peers. In the space of just a few years, CIDA’s graduates have begun winning top performance awards and attracting Africa’s most forward-looking employers.14 The corporate partnerships, however, are not motivated simply by altruism. As one Africaans mining executive explained, ‘CIDA University is the next Silicon Valley. Any African company that doesn’t recognize that will not succeed in the 21st century’.15 An executive with the First National Bank of South Africa agrees, explaining: ‘We see it as sort of an incubator for the talented leaders of the future’ (Lindow 2004). CIDA identifies and brilliantly educates the best of the best. No company can
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succeed in the 21st century by hiring the second or third tier. No society can succeed without broadly educating its population, including the best of the best. Blecher, the founder and CEO of CIDA University, fits in neither with expectations nor with current ‘institutional fields’; his aspirational set and skills defy current reality. Would our traditional research methodologies recognize CIDA’s organizational strategy, or would its unique position far outside the norm relegate it to invisibility? In an era of severe global challenges, does regression toward the mean reduce scholarship to irrelevance? Transcending 20th-century research assumptions As we consider the challenges facing the world today – including war and peace, environmental sustainability, equitable income distribution, human rights and similarly complex issues – it is easy to strip ourselves of scholarly and practical relevance by relying unquestioningly on the conventional, often implicit, assumptions underlying our research; that is, by assuming that: 1. 2.
3.
4.
that which is common is true (welcome to our statistical veneration of the ‘mean’); the environment determines the set of possible behaviors of actors (welcome to one of the implicit assumptions underlying institutional theory); progress comes from fixing problems rather than from amplifying strengths (welcome to our analytical, problem-solving orientation); and that which has been, will be (welcome to our history-based predictive and deterministic relationship to the future).
None of these pervasive assumptions supports international business in recognizing, let alone understanding, outstanding admirable and effective behavior. Unquestioned, the assumptions certainly do not help the field to understand why certain MNCs simultaneously succeed financially and successfully act as agents of world benefit, whereas the majority remain oblivious to world betterment or continue, in the name of externalities, to inflict deleterious effects on the world. To address MNCs’ relationship to the array of global societal issues, we need to go beyond the research methodologies that have guided our scholarship in the past. We need to consider more appreciative and anticipatory approaches. Positive scholarship First, we need to borrow from what already exists: we need positive deviance and other strength-based approaches. We need very good skills at
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(i) detecting the most positive systems and situations, (ii) ascertaining what allowed those particular systems to outperform other systems and situations, and (iii) investigating how such outstanding success could be replicated on a broader scale. One methodology for such investigations is David Cooperrider’s appreciative inquiry (Cooperrider et al. 2003). From the perspective of implementation, appreciative inquiry forces an important shift: from taking an analytical problem-solving approach focused on documenting what is (primarily by identifying problems in average and belowaverage systems and then attempting to solve the problems), to taking a design approach (Boland and Collopy 2004) that focuses on identifying the strengths in the best-performing systems (the outliers) in order to magnify them. At present, all such approaches (appreciative inquiry included) are confounded by the fact that there is, as yet, no widely agreed-upon method or criteria for determining performance to be outstanding, and therefore no way to state definitively that a particular system or organization has outperformed its cohort.16 Anticipatory scholarship Given the gap today between our aspirations for the world and its current state, we need approaches that do more than simply amplify positive deviance. We need to legitimize and to develop skills at creating and supporting systems that are better than anything that currently exists. How do we study that which could be? How do we create ‘that which we wish to be’? How do we create peace? How do we replace poverty with prosperity? How do we restore our environment to vibrant, sustainable health? How do we research that which cannot be predicted but is desired? Anticipatory scholarship, by definition, violates one of the mainstays of traditional research; it violates the assumption of objectivity – it is biased toward finding exceptionally positive outcomes. Rather than objectivity, anticipatory scholarship relies primarily on the wisdom, courage and hope that scholars bring to their investigations. Wisdom is ‘knowledge of what is true and right coupled with just judgment as to action’ (Stein 1969, p. 1639). Courage transforms wisdom – knowledge of what is true and right – into meaningful action. Hope inspires people to aspire toward dreams (even when others judge those very dreams to be unattainable) – dreams that others are no longer capable of dreaming. Founder and CEO emeritus of VISA International, Dee Hock, regularly reminds businesspeople and scholars alike that, ‘it is no failure to fall short of realizing all that we might dream – the failure is to fall short of dreaming all that we might realize’ (Hock 1997). While still evidence based, anticipatory scholars question what traditional science considers as evidence and what it rejects as ‘not evidence’.
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Rather than relying primarily on analytical skills, anticipatory scholarship depends on researchers’ ability to envisage (exceptionally positive) future outcomes that have heretofore never occurred. Such public envisioning takes wisdom, courage and hope; human qualities about which surprisingly little is known, but which the positive psychologists are currently studying. BHP Billiton: an exceptional case Let me offer an example of the type of situation that needs to be recognized and studied if international business is to live up to Kofi Annan’s challenge. It is an example of an MNC whose corporate decision making led to financial and societal success. So far, to the best of my knowledge, the story has been reported in the popular press but has yet to be studied from a scholarly perspective. The story takes place in Africa. Malaria in Africa is estimated to reduce the continent’s economic growth by 1.3 per cent annually, at a cost of almost $12 billion a year. Every 30 seconds an African child dies of malaria. Whereas malaria has been almost eradicated in most of the world, in Africa it is still out of control, claiming more lives every year. In the 1990s, BHP Billiton, an Australia-based international mining company and one of the world’s largest aluminum producers, came to Mozambique, thus becoming one of the first multinational companies to make a substantial investment, US$1.3 billion, in the country following Mozambique’s 20-year civil war (LaFraniere 2006).17 Known as ‘Mozal’, which is short for Mozambique Aluminum, BHP Billiton’s entire Mozambique operation was at risk if it failed to eradicate malaria. In just the first two years of operation, one-third of Mozal’s 6600 employees fell ill from malaria and 13 died. At any given time, 20 per cent of Mozal’s employees were absent due to malaria. From a strictly financial perspective, BHP Billiton could not afford the cost of malaria. For years, international and national public health campaigns to eradicate malaria have been conducted, and have been failing, in Africa. BHP Billiton quickly realized that it could not protect its Mozambique investment by relying on others or by focusing only on its own employees. So in 1999, the same year that Kofi Annan challenged those in the private sector to become co-creators of society’s success, BHP Billiton chose to partner with the governments of Mozambique, Swaziland and South Africa to create a regional anti-malaria campaign covering 4 million residents. For the first time, a company led a large-scale malaria eradication effort in Africa, and for the first time, a large-scale effort was successful. In just six years, the partnership between Mozal and the three national governments succeeded at a previously unimaginable level. In the entire region, new cases of malaria plummeted from 66 to fewer than five cases per 1000
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inhabitants. The percentage of infected children fell from more than 90 per cent to less than 20 per cent in the region of BHP Billiton’s smelter. Absenteeism at Mozal went down from more than 20 per cent to less than 1 per cent. At the same time, BHP Billiton’s Mozambique operations became a financial success. In just three years, BHP Billiton expanded and more than doubled its production in Mozambique. BHP Billiton not only rose to Kofi Annan’s challenge; they far exceeded anything the company or the community had ever previously thought possible. Foreign investment is up, profits are up, employment is up, the number of children able to attend school is up, and the number of people in hospitals and dying is down. Rising to the challenge The question for scholars of international business is: Do we believe that rising to Kofi Annan’s challenge is possible? Not just for BHP Billiton in Mozambique vis-à-vis malaria eradication, but for business in general? Moreover, do we believe, as scholars and as educators, that we have a critical role to play in shaping society’s future? In shaping the 21st century’s success or demise? As we face the array of world crises, do we believe that what we do matters? I do; I believe we matter. Think, for a moment, about our role as management educators. Management is chosen as a college major by more students than any other area of study (‘We’re number 1!’). The more than one million management students we teach each year will be making the billions of decisions that will, in fact, shape the future. Yet do we believe we make a difference? Stanford management professor Jeffrey Pfeffer revealed that students entering management and economics faculties are the only students who do not become more compassionate toward others, including people from the rest of the world, during their time at university.18 In fact, on average they become narrower and more self-centered. Yes, we make a difference, but up until now we have either denied our impact or made the wrong kind of difference. As we accept our impact and the huge responsibility that comes with it, we must ask ourselves several questions. First, do we believe that what we do matters? Second, do we believe that the quality of the world’s leadership depends on the quality of the learning environments we create? In Croatia, an executive I spoke with echoed what everyone else seemed to know, but no one was saying out loud: ‘We won’t survive another generation of leaders like those we have had in the past’. What would each of us research and teach if we knew that the future of our country and the world depended on it? Third, do we have the courage to see reality as it is? Can we see the world with our own eyes, or will we allow ourselves to continue to repeat what the
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mainstream, including the mainstream of our field, is telling us to see? For example, as we watched the Enron story unfold, did we ask ourselves why everyone went along with what was occurring within the company (see, among others, McLean and Elkind 2003)? We know from research on the Second World War that the majority of people in Europe simply did not ‘see’ their neighbors disappearing; they did not see the trains leaving filled with people, the smokestacks, and the trains returning empty. Do we have the courage to see changes in the environment? And international business’s relationship to those changes? Do we have the courage to see the increasing gap between rich and poor, and international business’s relationship to it? Do we have the courage to see the senseless death in the world, and international business’s relationship to it? Do we have the courage to see reality as it is? Do we have the skills to help our million management students not collude with popular and pervasive illusions? Fourth, do we have the courage to see possibility? Do we have at least the rudimentary skills to conduct anticipatory research? Years ago, Thomas Kuhn (1962) demonstrated that most people, including scholars, are incapable of seeing new possibilities until the evidence is overwhelmingly in its favor and there is a new paradigm that makes the evidence understandable. Do we believe that the story of BHP Billiton’s experience in Mozambique is true? Do we believe it is an anomaly? Do we believe it is an example of positive deviance – for the company, the country and the world? Do we have a paradigm that allows us to see BHP Billiton’s impact on Africa, and other situations like it, as part of a pattern of what is and must be? Our inability to see positive outliers was brought home to me this past year in my own teaching. I showed the managers attending my Global Leadership seminar, who came from around the world, including the Middle East, a short documentary on Tefen, the first of Stef Wertheimer’s ten planned Middle Eastern industrial communities. Israeli Industrialist Wertheimer is the founder, former CEO, and Chairman of the Board of Iscar Ltd, a $1 billion-a-year metal-tool-cutting business. Wertheimer’s name was familiar to the managers attending the seminar because Warren Buffet had recently bought Iscar, the first non-American company that Buffet had ever purchased, and had described it as ‘an amazing company run by amazing people’ (Sandler 2006). Wertheimer, along with many others, believes that diplomatic efforts to foster peace in the Middle East have failed. As shown in the documentary, Wertheimer offers an alternative, what he calls the Tefen Model, a unique business-based, cross-culturally integrated industrial-park approach that: [s]tresses creativity through an unusual combination of aims: providing high quality products to a global market, advancing entrepreneurial education and
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industrial training, fostering new indigenous industries, and showcasing art and culture. To these ends, the [industrial] parks in Israel, Jordan, and Turkey all have incubator spaces, educational and training facilities, museums, and sculpture gardens. (Wertheimer 2002)19
Using the Tefen Model within Israel, Wertheimer has already built a series of industrial parks that bring together Arab, Druze and Jewish Israelis and are financially successful (‘Fast 50 – 2003 Winners: Meet the Winners’ 2003). By 2002 the four Israeli industrial parks had already launched 150 new firms and had created 5000 new jobs (Wertheimer 2002). By 2004 the same four industrial parks accounted for more than $2 billion in annual revenue, representing 10 per cent of Israel’s total industrial exports (‘Fast 50 – 2003 Winners: Meet the Winners’ 2003). Will Wertheimer’s network of industrial parks ultimately become a major factor in bringing peace to the Middle East? It is too early to tell, but there are already ten industrial parks either built or planned throughout the eastern Mediterranean, including sites in Israel, Jordan, Lebanon, Turkey and Gaza. Many people are optimistic about their current and future success. Wertheimer believes that ‘industry is the engine of economic stability’; and that without economic stability, there can be no peace (Wertheimer 2002). In the documentary, Wertheimer compellingly explains to the United States Congress, ‘The Middle East has a way of besmirching the entire world with its conflicts. It is of global interest to quiet this area’ (ibid.). An industrial development plan for this region, based on the Tefen Model, would produce a variety of benefits, perhaps the most important of which would be: a reduction of terrorism worldwide. The majority of the world’s terrorists hail from [the Middle East]. . . . Terrorism thrives in areas of poverty. Narrowing the gap between the financial status of neighboring countries and enhancing a population’s standard of living automatically changes attitudes. Job opportunities and a higher standard of living for people in this area will reduce the power that terrorist groups offer to the deprived masses. (Ibid.)
After viewing the Tefen documentary, the first reaction from a seminar participant was: ‘But it could never happen! It would never work!’. Luckily, I was so surprised by his response, I remained silent. After a minute or so, a second participant spoke up, ‘But Tefen already exists and it is already working’. The first five times I showed the Tefen documentary, the participants’ first reaction was the same: ‘It’s nice, but not possible’. Even with the data in front of them, the managers could not see a positive reality, especially between Arabs and Israelis in the Middle East, even when given the facts of the situation.
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Our academic tradition has tried to make seeing possibility illegitimate. We are excellent at identifying the mean and therefore at recognizing what most companies are doing. We are equally good at predicting the future based on the past and/or the present. When we identify spectacular outliers, however, or focus on creating (rather than predicting) the future, we are labeled as unprofessional and rendered unpublishable. BHP Billiton and Tefen are pejoratively labeled as stories, not as data, if they are recognized at all. Fifth, do we have the courage to create the future, rather than continuing to merely analyze the past? There is a not-so-subtle shift going on at leading management schools; they are shifting from an analytical decisionmaking approach to a design approach: from giving the managers attending management programs increasingly better techniques for analyzing and choosing between yesterday’s options, to designing options worthy of choosing (Boland and Collopy 2004; Adler 2006b). The shift delineates the difference between this decade heralding our profession’s increasing irrelevance and our profession becoming crucial to the very survival of the planet. IB scholars are particularly important actors in this shift, having for years brought ‘foreign’ outliers (in the form of ideas and data) to the attention of the more narrowly defined, ‘domestic’ field of management. Redefining success: a landscape of ideas There is no question that scholars of international business can become a primary source for understanding business’s role in contributing not only to global companies’ financial well-being, but also to the success of the broader society. All that is required is that the field demonstrates the same professionalism that characterized it during the 20th century, including continuing to requestion the fundamental perspectives and assumptions inherent in our conceptualizations and methodologies. Rather than accepting the future as predetermined by historic patterns, the community of international business scholars can, and I predict they will, offer grounded evidence for informed hope. We do not inherit the earth from our ancestors; we borrow it from our children. (Kenyan proverb)
Notes 1. 2.
Speech given by UN Secretary-General Kofi Annan on 1 February 1999 at the World Economic Forum in Davos, Switzerland. An earlier version of this chapter was presented at the Academy of International Business (AIB) Meetings in June 2007. A summary is published as ‘International business scholarship: contributing to a broader definition of success’ (Adler 2008) in the AIB Fellows’ book produced to celebrate AIB’s 50th anniversary (Boddewyn 2008). The construct of ‘business as an agent of world benefit’ is based on the exemplary work of
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5. 6. 7. 8.
9.
10.
11.
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Professor David Cooperrider, and is the name of his center at Case Western Reserve University. The ideas for the chapter were developed originally as a part of the Global Forum on Business as An Agent of World Benefit: Management Knowledge Leading Positive Change, co-sponsored by the Academy of Management and the United Nations Global Compact, and co-chaired by Nancy J. Adler, David Cooperrider and Manuel Escabar. Wal-Mart’s 2002 revenue on the day after US Thanksgiving was almost $1.5 billion (Mau et al. 2004, p. 128). Scherer and Palazzo (2007) cogently review alternative dominant discourses on corporate social responsibility including a positivist perspective (which is reliant on scientifically observable cause-and-effect relationships, but they contend is overly instrumental and normatively vacuous), post-positivist perspective (which is based on philosophy but, they contend, is overly relative, normative and utopian), and Habermasian (which focuses on the political role of companies in globalizing society, and the authors recommend). For an understanding of the rich scholarly conversation taking place about business’s impact and potential impact on the broader society, see, among others, Hawken et al. (1999); Lovins et al. (2000); Laszlo (2003); Paine (2003); Young (2003); Fort and Schipani (2004); Hart (2005); Prahalad (2005); Savitz and Weber (2006); Aguilera et al. (2007); Barnett (2007); Bies et al. (2007); Brickson (2007); Den Hond and De Bakker (2007); King (2007); Mackey and Barney (2007); Marquis et al. (2007); Perrini (2007); and Terlaak (2007). Perhaps one of the most important, but, to date, least discussed aspects of MNC relationships to the broader society is their potentially positive impact on peace-making. For an discussion of the topic, see, among others, Adler (2006a) and the special issue of the Journal of Corporate Citizenship (Issue 26, 2007) edited by Malcolm MacIntosh, Sandra Waddock and Georg Kell, including the article by Fort (2007). Speech given by UN Secretary-General Kofi Annan on 1 February 1999 at the World Economic Forum in Davos, Switzerland. For other, broad definitions, see Buckley (2005), Ghoshal and Westney (2005) and Westney (2005b), among others. For additional classic studies, see Teece (1977), Rugman (1981, 1996), Williamson (1975, 1981) and Hennart (1982, 2001). Buckley and Casson (1976), as cited by Rugman and Verbeke (2003) recognized the contribution of several scholarly studies, both conceptual and empirical, to the development of their particular view on the MNE, including, Coase (1937), Penrose (1959), Vernon (1966, 1971), Hirsch (1967), Johnson (1970), Wells (1971), Dunning (1973) and Dunning and Pearce (1975), among others. According to the University of Michigan’s Center for Positive Organization Scholarship (http://www.bus.umich.edu/Positive/PDF/POS%20Essence.pdf, accessed 14 November 2007), positive organizational scholarship ‘focuses on the dynamics in organizations that lead to developing human strengths, producing resilience and restoration, fostering vitality, and cultivating extraordinary individuals. Positive Organization Scholarship is based on the premise that understanding how to enable human excellence in organizations will unlock potential, reveal possibilities, and facilitate a more positive course of human and organizational welfare. POS . . . draws from a full spectrum of organizational theories to understand, explain, and predict the occurrence, cases, and consequences of positivism. . . . At its core, POS investigates “positive deviance”, or the ways in which individuals and organizations flourish and prosper in extra ordinary ways’. See the work of David Cooperrider at his center at Case Western Reserve University on Business as an Agent of World Benefit, along with the work of scholars attempting to measure the impacts of doing good and doing well on various stakeholders (for example, Barnett 2007, Mackey and Barney 2007 and Terlaak 2007). Also see the work of corporate social responsibility researchers, including Matten and Crane (2005) and Scherer and Palazzo, (2007), among others. CIDA stands for Community and Individual Development Association. For further information, see CIDA University City Campus website at: http://www.cida.co.za/,
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12. 13. 14. 15. 16.
17. 18.
19.
Handbook of research on global corporate citizenship accessed 14 November 2007. For background on Blecher, see Aarup and Raufflet (2003), among others. See CIDA University City Campus website: http://www.cida.co.za/, accessed 14 November 2007. The month referred to is October 2001. Private conversation with Taddy Blecher in Gaborone, Botswana on October 7, 2004. Private conversation with South African executive in New York City, October 21, 2004. For a discussion of various issues relative to the assessment of corporations’ socially responsible behavior as well as the relationship of that behavior to financial performance, see Friedman (1970), Margolis and Walsh (2003), Paine (2003), Walsh (2005), Barnett (2007), Mackey and Barney (2007), and Terlaak (2007). Facts about BHP Billiton’s Mozambique operations are based on LaFraniere (2006). Based on a presentation by Stanford Professor Jeffrey Pfeffer on 5 August 2003 at the Annual Meeting of the Academy of Management in Seattle (also see Ferraro et al. 2005). Pfeffer’s presentation was based on the research of Marwell and Ames (1981), among others. Wertheimer presented on 13 July 2004 at the Academy of International Business Meetings in Stockholm, Sweden. For a further discussion of Wertheimer’s Tefen Model and its implications for peace, see ‘Trialogue of Cultures in the Age of Globalization’ at the Sinclair House Debates, Herbert-Quandt Stiftung Foundation at http://www.hquandt-stiftung.de/root/index.php?lang=en&page_id=333 (accessed 14 November 2007), and Ari Goldberg’s ‘Israeli tycoon urges help for Palestinians’, BBC News on-line at http://news.bbc.co.uk/1/hi/business/1944846.stm, accessed 14 November 2007.
References Aarup, K. and E. Raufflet (2003), ‘Social entrepreneurship and leadership: Taddy Blecher and CIDA City Centre University, South Africa’, Montreal: HEC Centre for Case Studies, unpublished. Adler, N.J. (2006a), ‘Corporate global citizenship: successfully partnering with the world’, in Gabriele Suder (ed.), Corporate Strategies Under International Terrorism and Adversity, Cheltenham, UK and Northampton, MA, USA: Edward Elgar, pp. 177–95. Adler, N.J. (2006b), ‘The art of leadership: now that we can do anything, what will we do?’, Academy of Management Learning and Education Journal, 5 (4), 466–99. Adler, N.J. (2008), ‘International business scholarship: contributing to a broader definition of success’, in J. Boddewyn (ed.), The Evolution of International Business Scholarship: AIB Fellows on the First 50 Years: Volume 14 of Research in Global Strategic Marketing, Greenwich, CT: JAI Press/Elsevier. Aguilera, R.V., D.E. Rupp, C.A. Williams and J. Ganapathi (2007), ‘Putting the S back in corporate social responsibility: a multilevel theory of social change in organizations’, Academy of Management Review, 32 (3), 836–63. Baiman, S. (1982), ‘Agency research in managerial accounting: a survey’, Journal of Accounting Literature, 1 (Spring), 154–213. Baiman, S. (1990), ‘Agency research in managerial accounting: a second look’, Accounting, Organizations, and Society, 15 (4), 341–71. Barnett, M.L. (2007), ‘Stakeholder influence capacity and the variability of financial returns to corporate social responsibility’, Academy of Management Review, 32 (3), 794–816. Bartlett, C. and S. Ghoshal (1989), Managing Across Borders, Boston, MA: Harvard Business School Press. Bernstein, S.D. (2003), ‘Positive organizational scholarship: meet the movement – an interview with Kim Cameron, Jane Dutton, and Robert Quinn’, Journal of Management Inquiry, 12 (3), 266–71. Bies, R.J., J.M. Bartunek, T.L. Fort and M.N. Zald (2007), ‘Corporations as social change agents: individual, interpersonal, institutional, and environmental dynamics’, Academy of Management Review, 32 (3), 788–93. Boddewyn, J. (ed.) (2008), The Evolution of International Business Scholarship: AIB Fellows on
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the First 50 Years: Volume 14 of Research in Global Strategic Management, Greenwich, CT: JAI Press/Elsevier. Boland, R. and F. Collopy (eds) (2004), Managing as Designing, Palo Alto, CA: Stanford University Press. Botkin, J.W., M. Elmandjra and M. Malitza (1979), No Limits to Learning: Bridging the Human Gap: A Report to the Club of Rome, Oxford: Pergamon. Brickson, S.L. (2007), ‘Organizational identity orientation: the genesis of the role of the firm and distinct forms of social value’, Academy of Management Review, 32 (3), 864–88. Buckley, P. (2002), ‘Is the international business agenda running out of steam?’, Journal of International Business Studies, 33, 365–73. Buckley, P.J. (ed.) (2005), What is International Business?, New York: Palgrave Macmillan. Buckley, P.J. and M.C. Casson (1976), The Future of the Multinational Enterprise, London: Macmillan. Buckley, P. and P. Ghauri (2004), ‘Globalization, economic geography, and the strategy of multinational enterprises’, Journal of International Business Studies, 35, 81–9. Buckley, P.J. and D.R. Lessard (2005), ‘Regaining the edge for interntional business research’, Journal of International Business Studies, 36 (6), 595–9. Butler, K.C. (2006), ‘Finance and the search for the, “big question in international business” ’, Academy of International Business Insights, 6 (3), 3–9. Cameron, K.S. and A. Caza (2004), ‘Special issue on contributions to positive organizational scholarship’, American Behavioral Scientist, 47 (2). Cameron, K.S., J.E. Dutton and R.E. Quinn (eds) (2003), Positive Organizational Scholarship, San Francisco, CA: Berrett-Koehler. Campbell, J.L. (2007), ‘Why would corporations behave in socially responsible ways? An institutional theory of corporate social responsibility’, Academy of Management Review, 32 (3), 946–67. Cascio, W.F. (2006), ‘Decency means more than “always low prices”: a comparison of Costco to Wal-Mart’s Sam’s Club’, Academy of Management Perspective, 20 (3), 26–37. Caves, R. (1996), Multinational Enterprise and Economic Analysis, Cambridge and New York: Cambridge University Press, 2nd edition. Chittister, J. (1998), as cited in F. Franck, J. Roze and R. Connolly (eds), What Does It Mean to Be Human?, Nyack, NY: Circumstantial Productions, p. 193. Coase, R.H. (1937), ‘The nature of the firm’, Economica, 4, November, 386–405. Collis, D. (1991), ‘A resource-based analysis of global competition: the case of the bearings industry’, Strategic Management Journal, 12, 49–68. Cooperrider, D. (2004), The Global Compact Leaders Summit: Final Report, New York: United Nations Global Compact Office, October, pp. 1–42, www.unglobalcompact.org, accessed 14 November 2007. Cooperrider, D.L., D. Whitney and J.M. Stavros (2003), Appreciative Inquiry Handbook, Bedford Heights, OH: Lakeshore. Davie, L. (2001), ‘South Africa’s first Ubuntu university’, 5 December, as found on the City of Johannesburg official website: http://www.joburg.org.za/december/university.stm, accessed 14 November 2007. Den Hond, F. and F.G.A. De Bakker (2007), ‘Ideologically motivated activism: how activist groups influence corporate social change activities’, Academy of Management Review, 32 (3), 901–24. DiMaggio, P. and W. Powell (1983), ‘The iron cage revisited: institutional isomorphism and collective rationality in organizational fields’, American Sociological Review, 48, 147–60. Dorsey, D. (2000), ‘Positive deviant’, Fast Company, Issue 41, December, p. 284. Dunning, J.H. (1973), ‘The determinants of international production’, Oxford Economic Papers, 25 (3), 289–336. Dunning, J.H. (1993), Multinational Enterprises and the Global Economy, Wokingham, UK: Addison-Wesley. Dunning, J.H. (ed.) (2003), Making Globalization Good: The Moral Challenges of Global Capitalism, Oxford: Oxford University Press.
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Jensen, M. and W. Meckling (1976), ‘Theory of the firm: managerial behavior, agency costs, and ownership structure’, Journal of Financial Economics, 3, 305–60. Johnson, Harry G. (1970), ‘The efficiency and welfare implications of the multinational corporation’, in Charles P. Kindleberger (ed.), The International Corporation: A Symposium, Cambridge, MA: MIT Press, pp. 33–56. Johnson, Nancy Brown and Scott Droege (2004), ‘Reflections on the generalization of agency theory: cross-cultural considerations’, Human Resource Management Review, 14 (3), 325–35. Keyes, C.L.M. and J. Haidt (eds) (2003), Flourishing: Positive Psychology and the Life WellLived, Washington, DC: American Psychological Association. King, Andrew (2007), ‘Cooperation between corporations and environmental groups: a transaction cost perspective’, Academy of Management Review, 32 (3), 889–900. Kuhn, Thomas (1962), The Structure of Scientific Revolutions, Chicago, IL: University of Chicago Press. LaFraniere, Sharon (2006), ‘Business joins African effort to cut malaria’, New York Times, 29 June, www.nytimes.com. Laszlo, Chris (2003), The Sustainable Company: How to Create Lasting Value Through Social and Environmental Performance, Washington, DC: Island Press. Lindow, Megan (2004), ‘Stepping into Africa’s future’, Christian Science Monitor, 6 January, as reported on the Christian Science Monitor website: http://www.csmonitor.com/ 2004/0106/p 14s 01-legn.htm, accessed 14 November 2007. Lovins, A.B., H. Lovins, P.R.F. Hawken, R. Shapiro and J. Magretta (2000), Harvard Business Review on Business and the Environment, Boston, MA: Harvard Business School Publishing. Luthans, F. (2002), ‘The need for and meaning of positive organizational behavior’, Journal of Organizational Behavior, 26, 695–706. Luthans, F. (2007), ‘Hope, optimism, and other business assets: why “psychological capital” is so valuable to your company’, The Gallup Management Journal, 11 January, 1–6. Luthans, F., B.J. Avolio, J.B. Avey and S.M. Norman (2007), ‘Positive psychological capital: measurement and relationship with performance and satisfaction’, Personnel Psychology, 60, 541–72. Luthans, F. and C. Youssef (2004), ‘Human, social, and now positive psychological capital management: investing in people for competitive advantage’, Organizational Dynamics, 33 (2), 143–60. MacIntosh, M., S. Waddock and G. Kell (2007), ‘Editorial’, Journal of Corporate Citizenship, 26 (June), 3–5. Mackey, A. and J.B. Barney (2007), ‘Corporate social responsibility and firm performance: investor preferences and corporate strategies’, Academy of Management Review, 32 (3), 817–35. Manville, B. and J. Ober (2003), ‘Beyond empowerment: building a company of citizens’, Harvard Business Review, 81 (1), 48–53. Margolis, J.D. and J.P. Walsh (2003), ‘Misery loves companies: rethinking social initiatives by business’, Administrative Science Quarterly, 48, 265–305. Marquis, C., M.A. Glynn, G. Davis and F. Davis (2007), ‘Community isomorphism and corporate social action’, Academy of Management Review, 32 (3), 925–45. Marwell, G. and R.E. Ames (1981), ‘Economists free ride, does anyone else?’, Journal of Public Economics, 15, 295–310. Matten, D. and A. Crane (2005), ‘Corporate citizenship: toward an extended theoretical conceptualization’, Academy of Management Review, 30 (1), 166–79. Mau, B. and the Institute without Boundaries (2004), Massive Change, London: Phaidon Press. McLean, B. and P. Elkind (2003), The Smartest Guys in the Room: The Amazing Rise and Scandalous Fall of Enron, New York: Portfolio (Penguin Group). Molz, Rick (2006), ‘Academy of Management professional development workshop’, paper presented at the Academy of Management Meetings, Atlanta, 13 August. Moon, C. and A. Lado (2000), ‘MNC–host government bargaining power relationship: a critique and extension within the resource-based view’, Journal of Management, 26 (1), 85–117.
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Myers, D. (2003), ‘The positive psychology of youth and adolescence’, Journal of Youth and Adolescence, 32 (1), 1–3. Nilakant, V. and H. Rao (1994), ‘Agency theory and uncertainty in organizations: an evaluation’, Organization Studies, 15 (5), 649–72. Paine, L. Sharpe (2003), Value Shift: Why Companies Must Merge Social and Financial Imperatives to Achieve Superior Performance, New York: McGraw-Hill. Palazzo, G. and A.G. Scherer (2006), ‘Corporate legitimacy as deliberation: a communicative framework’, Journal of Business Ethics, 66, 71–88. Peng, M.W. (2001), ‘The resource-based view and international business’, Journal of Management, 27, 803–29. Peng, M.W. (2004), ‘Identifying the big question in international business research’, Journal of International Business Studies, 35, 99–108. Penrose, E. (1959), The Theory of the Growth of the Firm, Oxford: Basil Blackwell. Perrini, F. (2007), ‘The market for virtue: the potential limits of corporate social responsibility’, Academy of Management Perspective, 21 (3), 107–9. Peterson, C. and M.E.P. Seligman (2003), ‘Positive organizational studies: thirteen lessons from positive psychology’, in Cameron et al. (eds), pp.14–28. Peterson, C. and M.E.P. Seligman (2004), Character Strengths and Virtues: A Handbook and Classification, New York and Oxford: APA Press and Oxford University Press. Prahalad, C.K. (2005), The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits, Upper Saddle River, NJ: Wharton School Publishing. Robinson, S.L. and R.J. Bennett (1995), ‘A typology of workplace behaviors: a multidimensional scaling study’, Academy of Management Journal, 38, 555–72. Rugman, A.M. (1981), Inside the Multinationals: The Economics of Internal Markets, New York: Columbia University Press. Rugman, A.M. (1996), The Theory of Multinational Enterprises, Aldershot, UK and Brookfield, US: Edward Elgar. Rugman, A.M. and A. Verbeke (2003), ‘Extending the theory of the multinational enterprise: internalization and strategic management perspective’, Journal of International Business Studies, 34 (2), 125–38. Sachs, J.D. (2005), The End of Poverty: Economic Possibilities of Our Time, New York: Penguin. Sandler, N. (2006), ‘Companies: Buffet takes a cut of Iscar’, Business Week, 8 May, http://www.businessweek.com/globalbiz/content/may2006/gb20060508_953503.htm. Savitz, A.W. and K. Weber (2006), The Triple Bottom Line, San Francisco, CA: Jossey-Bass. Scherer, A.G. and G. Palazzo (2007), ‘Toward a political conception of corporate responsibility: business and society seen from a Habermasian perspective’, Academy of Management Review, 32 (4), 1096–120. Scherer, A.G. and G. Palazzo (2008), ‘Globalization and corporate social responsibility’, in A. Crane, A. McWilliams, D. Matten, J. Moon and D.S. Siegel (eds), The Oxford Handbook of Corporate Social Responsibility, Oxford: Oxford University Press, forthcoming. Scherer, A.G., G. Palazzo and D. Baumann (2006), ‘Global rules and private actors: toward a new role of the transnational corporation in global governance’, Business Ethics Quarterly, 16 (4), 505–32. Schwab, Klaus (2003), Remarks as reported in Newsweek, 24 February, p. 10. Seligman, M.E.P. (1994), What You Can Change and What You Can’t, New York: Knopf. Seligman, M.E.P. (1998), Learned Optimism, New York: Pocket Books (Simon & Schuster), 2nd edition. Seligman, M.E.P. (2002), Authentic Happiness: Using the New Positive Psychology to Realize Your Potential for Lasting Fulfillment, New York: Free Press/Simon & Schuster. Seligman, M.E.P. (2003), ‘Positive psychology: fundamental assumptions’, Psychologist, 16 (3), pp. 126–7. Seligman, M.E.P. and M. Csikszentmihalyi (2000), ‘Positive psychology: an introduction’, American Psychologist, 55, 5–14. Seligman, M.E.P., K. Reivich, L. Jaycox and J. Gillham (1996), The Optimistic Child, New York: Harper Collins.
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Shenkar, O. (2004), ‘One more time: international business in a global economy’, Journal of International Business Studies, 35 (2), 161–71. Snyder, C.R. and S.J. Lopez (eds) (2002), Handbook of Positive Psychology, Oxford and New York: Oxford University Press. Spreitzer, G. and S. Sonenshein (2003), ‘Positive deviance and extraordinary organizing’, in Cameron et al. (eds), pp. 207–24. Stein, J. (ed.) (1969), The Random House Dictionary of the English Language: The Unabridged Edition, New York: Random House. Tallman, S. (1991), ‘Strategic management models and resource-based strategies among MNEs in a host market’, Strategic Management Journal, 12 (Special Summer Issue), 69–82. Tallman, S. (1992), ‘A strategic management perspective on host country structure of multinational enterprises’, Journal of Management, 18 (3), 455–71. Teece, D.J. (1977), ‘Technology transfer by multinational firms: the resource cost of transferring technological know how’, Economic Journal, 87 (June), 242–61. Terlaak, A. (2007), ‘Order without law? The role of certified management standards in shaping socially desired firm behaviors’, Academy of Management Review, 32 (3), 968–85. ‘ “Ubuntu” University Lifts Off ’ (2000), as reported on the website of the SouthAfrica.info Reporter, 18 November 2002, http://www.southafrica.info/ess_info/sa_glance/education/ ubuntu.htm, accessed 21 November 2007. UNCTAD (United Nations Conference on Trade and Development) (2005), www.unctad.org/sections/dite_dir/docs/wir 2005top 100_en.pdf, accessed 14 November 2007. United Nations (2006), ‘United Nations’ Millennium Development Goals’, www.un.org/ millenniumgoals/, accessed 14 November 2007. Vernon, R. (1966), ‘International investment and international trade in the product cycle’, Quarterly Journal of Economics, 80, 190–207. Vernon, R. (1971), Sovereignty at Bay: The Multinational Spread of US Enterprises, New York: Basic Books. Walsh, James P. (2005), ‘Book Review Essay: Promises and Perils at the Bottom of the Pyramid’, Administrative Science Quarterly, 50 (3), 473–82. Warren, D. (2003), ‘Constructive and destructive deviance in organizations’, Academy of Management Review, 28, 622–32. Wells, L.T., Jr (1971), ‘The multinational enterprise: what kind of international organisation?’, International Organization, 25 (3), 447–64. Wertheimer, S. (2002), ‘Statement by Stef Wertheimer’, Washington, DC, 24 June 2002 Hearing of the United States House Committee on International Relations, as cited at http://www.israelnewsagency.com/stefwertheimer.html, accessed 14 November 2007. Westney, E.D. (2005a), ‘Institutional theory and the multinational corporation’, in G. Sumantra and E.D. Westney (eds), Organization Theory and the Multinational Corporation, London and New York: Palgrave Macmillan, 2nd edition, pp. 47–67. Westney, E.D. (2005b), ‘What is international business? A sociologist’s view’, in Buckley (ed.), pp. 153–67. Williamson, O.E. (1975), Markets and Hierarchies: Analysis and Antitrust Implications, New York: Free Press. Williamson O.E. (1981), ‘The modern corporation: origins, evolution, attributes’, Journal of Economic Literature, 19 (4), 1537–69. Wright, T.A. (2003), ‘Positive organizational behavior: an idea whose time has truly come’, Journal of Organizational Behavior, 24, 437–42. Young, S. (2003), Moral Capitalism: Reconciling Private Interest with the Public Good, San Francisco, CA: Berrett-Koehler. Zaheer, S. (1995), ‘Overcoming the liability of foreignness’, Academy of Management Journal, 38 (2), 341–63. Zaheer, S. and E. Mosakowski (1997), ‘The dynamics of the liabilities of foreignness: a global study of survival in financial services’, Strategic Management Journal, 18 (6), 439–63. Zucker, L.G. (1987), ‘Institutional theories of organizations’, Annual Review of Sociology, 13, 443–64.
PART V IMPLICATIONS FOR MANAGEMENT THEORY BUILDING
18 Structures, identities and politics: bringing corporate citizenship into the corporation Peter Edward and Hugh Willmott
Being a good corporate citizen starts with hiring lots of good citizens. What’s a good corporate citizen? It’s not just about awards or mission statements or press releases. It’s about people. People who care about what they do and how they do it. And at Toyota, we know these people pretty well, because we hire them every chance we get. You see it in every vehicle we build here [in the USA]. Our over 32 000 team members take pride in everything they do. Quality, teamwork and dependability, that’s what they’re all about. Our team members care about doing what’s right; at work as well as in their local communities. They really are good citizens. Which in turn makes Toyota a better corporate citizen. Isn’t it nice when things work out? (Toyota advertisement, The Week magazine, 15 September 2006, rear cover.)
Introduction What does it mean to be a good corporate citizen? It is a question that permeates contemporary discussions of ‘business in society’ and it is a central theme of this Handbook. Is it, as the Toyota advert above suggests, about recruiting particular, ‘deserving’ employees who care ‘about what they do and how they do it’? If corporations like Toyota develop the ‘structures’ – the procedures for recruiting, selecting and training employees with the characteristics of ‘good citizens’ – have they begun to earn the badge of ‘corporate citizenship’? And is the employee who faithfully complies with corporate demands for ‘quality, teamwork and dependability’ a model of the good corporate citizen? Consider another example. Ms Sayaka Kobayashi, a Toyota employee, recently blew the whistle on the company’s North American CEO, claiming that she had been repeatedly sexually propositioned by him and that when she raised the issue with the senior vice-president in charge of human resources nothing was done to investigate her complaint (Business Week 2006). Ms Kobayashi was advised by the vice-president to resolve the matter privately with Mr Otaka. When she refused – because, reportedly, she regarded it as a corporate issue, not a personal one – Ms Kobayashi was told that she could either leave the firm or cease being an assistant to Mr Otaka (The Guardian 2006). 405
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If whistleblowing exposes ‘malpractice’, rather than simply presenting predatory or disgruntled employees with an opportunity to exploit or hit back at their employer, are whistleblowers disloyal or are they making a valuable contribution to good corporate citizenship? Should whistleblowing be actively encouraged or even expected as an indicator or integral part of good corporate citizenship; or can it only ever signify a failure of corporate citizenship? In so far as corporations institutionalize contingent inequalities (for example, pay, privilege, and so on) to what extent can any institutionalized concept of corporate citizenship incorporate whistleblowing that draws attention to the manifestations of these inequalities, in the form of harassment, bullying, discrimination and so on? Can corporate citizenship resolve who – the corporation, the individual, society perhaps – has the right to decide what constitutes ‘legitimate’ whistleblowing or indeed what counts as ‘good citizenship’ without itself becoming an exercise in the wielding of power? Whistleblowing generally occurs when someone asserts their own identity contra their identification with the corporation they work for (Vinten 1994), so such questions not only prompt reflection upon the meaning of corporate citizenship but also draw attention to how corporate citizenship is inextricably linked to identity formation.1 By this we do not simply mean the formation of the corporation’s identity as a ‘citizen’ – for example, with regard to its corporate image as ‘socially responsible’ – but also, and primarily, the identities of people as employees, managers, community members and so on, whose quality of life at work (and beyond) depends upon processes within the corporate polity that attend to concerns that are not reducible to corporate priorities or custom and practice. Significantly, Ms Kobayashi did not just blow the whistle on a particular, allegedly errant individual but upon how norms of respect had not become embedded in Toyota as the company lacked procedures and/or the commitment from its senior managers to address such complaints. Our focus in this chapter is on these issues of identification with notions of corporate citizenship as they relate to two issues: (i) the meanings attributed to corporate citizenship; and (ii) the importance of processes of identification for the realization of corporate citizenship. The rationale for this approach is that any concern, or claim, for ‘bringing corporate citizenship into the corporation’ (the subtitle of this chapter) requires some explication of the meaning(s) of the term which, as we shall see, ranges from forms of philanthropy and paternalism to radically democratic forms of struggle for collective self-determination. Attention is paid to whether these meanings resonate with identities of individuals within organizations and hence whether they gain or lose ‘grip’.2 For in order for ‘corporate citizenship’ in any of its multiple guises to become established in corporations,
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these meanings must gain broad acceptance or ‘buy-in’ by employees. Key to establishing any kind of ‘citizenship’ in, and of, ‘corporations’, is their identification with whatever meaning(s) are attributed to the combination of these terms. Understood in this way, it can be suggested that some version of ‘corporate citizenship’, however incoherent or sketchy, is ‘structured in’ to the everyday practices of corporate life. Our view is that ‘corporate citizenship’ is not equivalent to the adoption of specific policies, formal procedures and/or reportable metrics but, rather, is present within or absent from routine, skilful processes of reproducing and transforming organizing practices (Whittington 2002). Our attentiveness to identification is consistent with a conception of ‘structure’ as an articulation of practice, as contrasted with a notion of structure as a template or a ‘design’ that exists externally to human agency. This focus is relevant for addressing our interest in (corporate) citizenship, as distinguished from other ways of characterizing a similar terrain of concern such as ‘corporate (social) responsibility’. For us, the distinctive value of corporate citizenship resides in the association of citizenship with (democratic) participation in a polity, a resonance that is diluted or expelled by other terms, such as ‘corporate (social) responsibility’, which thereby are more readily permissive of continuing control of corporate agendas by established elites. In this regard, the use of the language of citizenship to construct a procedural framework for facilitating democratization of corporations based upon deliberation can, in principle, be of considerable value. If, however, it is accepted that a necessary condition for the establishment of postliberal democracy is identification with an ethos that gives voice to the underdog and recurrently encourages an interrogation of claims to ostensible completeness or inclusivity that are made in democracy’s name, then deliberative democracy may not be sufficient to meet this challenge and, indeed, may unintentionally obstruct it. This concern is addressed here by engaging ideas of hegemony and radical democracy drawn from the work of Ernesto Laclau and Chantal Mouffe. On this terrain between deliberative democracy and radical democracy, we observe that Habermasian deliberative democracy, as an idea, is developed through an argument that imagines an ideal-type situation of actors that exist within a system but who can construct their identities and interrelationships autonomously from the system. Principles from this ‘ideal’, essentially a thought experiment, are then transposed back into the ‘real’ world but are assumed to retain much of the value that they had in the ‘ideal’ situation despite the fact that this transposition invalidates some of the foundational presumptions that ground the thought experiment. From the standpoint of radical democracy, deliberative democracy is seen to exhibit an unwarrantable faith in a prospective, almost transcendent,
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consensus. Such a view is absent from radical democracy where any consensus is understood to be partial and always constructed in systems of power. Deliberative democracy’s urge to facilitate stable consensus is symptomatic of an inclination to value more highly the prospect of homogenization than dislocatory heterogeneity – a prospect that we associate with a risk of excluding the comparatively powerless and the underdog. Radical democracy does not rely upon this troublesome movement as it is derived from a focus on conflict (antagonism) that strives to achieve an always unattainable consensus. From the standpoint of radical democracy, deliberative democracy is seen to think backwards from the unrealistic fantasy of a realized consensus. If deliberative democracy is allowed to stand without the radical corrective that highlights its limitations, it is vulnerable to becoming trapped in a closed loop in which reliance upon deliberative consensus building about the nature of a system, among actors whose identities are constructed within that system, risks closing out more radical options. In short, we detect a (small ‘c’) conservative drift in Habermas’s deliberative democracy for which Laclau’s social theory of hegemony, including its conception of radical democracy, can provide a corrective. The next section expands upon the idea of structure as an articulation of processes of identification and outlines our interest in aligning the meaning of corporate citizenship to a more radical understanding of participation in the polity. We then go on to consider attempts to extend the meaning of corporate citizenship by incorporating notions from citizenship theory, notably Habermas’s deliberative democracy, and to consider whether such notions are likely to achieve grip, and hence be part of a resurgent notion of corporate citizenship. Our focus on identification and structure leads us to propose that for this movement to occur, the notion of democracy reinscribed into corporate citizenship needs to have a more radical element than is currently envisaged by proponents of deliberative democracy. Accordingly, we then review an example where lack of attention to this dimension can occlude the potentially undemocratic nature of deliberative democracy. Finally, we conclude by considering what it would mean to introduce a more radical understanding of democracy into corporate citizenship. Structures, identities and politics In this section, we begin by elaborating our practice-centred conception of structure and the importance that we attach to processes of identification. We then expand upon the idea of corporate citizenship as involving the development of a polity in which full participation is actively encouraged, as contrasted with the ‘mere’ establishment of procedures that provide for the deliberative production of consensus.
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Structure and identification Our focus on identification has implications for how we conceive of ‘structures’. One widespread meaning of structure associates it with control or regulation through elements of organizational design considered to deliver predictability and stability – such as organization charts, rules, reporting arrangements, procedures and so on (Silverman 1975, especially pp. 272–3). Employees are conceived as (potentially recalcitrant) factors of production who are located within, and regulated by, structural mechanisms. For this structure to have any effectiveness, however, such elements must be rendered meaningful, albeit instrumentally, ‘as indicators of the states of affairs they are taken to depict’ (Zimmerman and Pollner 1971; cited in Silverman 1975, p. 276) by employees who identify, more or less passionately and/or instrumentally with their ostensibly factual properties. Only in this way can a structure achieve what we refer to as ‘grip’: in modern organizations, reference to their structure implicitly invokes what Bittner (1973) terms a ‘gambit of compliance’ which employees more or less dutifully accept. That is to say, the dominant, hegemonic conception of structures, as a set of offices and rules, and so on, communicates an expectation of compliance. As Bittner puts it, ‘even though one finds only “is” [for example there is a rule or a procedure] in the substantive determination there attaches a sense of “ought” to the entire scheme [so that] organization [structure] is defined as having determining power over action that takes place under the scope of its jurisdiction’ (Bittner 1973, p. 272). This idea of structure anticipates, and implicitly urges, identification, even if it is at a dependent, cynical distance, with a seemingly impersonal set of offices, systems (for example of rewards) and processes; and, to the extent that identification with the structures occurs, a desired degree of conformity and predictability is produced. The previous paragraph illustrates how the dominant concept of structure may be recast and applied for analysis in which the focus is upon identification rather than design. In the structure-as-design notion, no attention is paid to the intersubjective and inherently political process of practically (re)producing the activity that is represented as impersonal structure. Compliance is taken for granted rather than appreciated as a (precarious) process of institutionalization. The invitation to conceive of the ‘structure’ of organizations in this particular way is, arguably, symptomatic of a broader, hegemonic discourse in which corporations are presented as ‘neutral actors within an economic and ostensibly rational system (see Deetz 1992)’ (Livesey 2002, p. 335).3 As Livesey (ibid.) continues, it is ‘a stance [which] helps protect against unwanted public scrutiny [and accountability], which would threaten proprietary control over information, resource allocation and other decision making . . . (Cheney and
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Vibbert 1987)’. Since we are concerned to problematize this hegemonic discourse, we readily acknowledge the dominance of, but do not want to restrict our discussion to, an impersonal, design-centric concept of structure. Instead, we are drawn to a (poststructuralist) conception of structure that incorporates an understanding of how establishing, reproducing and transforming elements conventionally attributed to structure – such as policies and procedures – is accomplished through processes of identification. Accordingly, with regard to ‘corporate citizenship’, the term ‘structure’ in the title of this chapter does not refer to a set of rules, codes or obligations such as those that might be introduced into a company to ‘manage its economic, social and environmental relationships, as well as those with different stakeholders’ (World Economic Forum 2003; cited in Gardberg and Fombrun 2006, p. 329; for an example see Accenture 2005). Instead we mean by structure the discursive formation(s) in and through which (varied) notions of corporate citizenship are intersubjectively articulated and invoked through processes of identification. For example, testimonies at the Hearing on the Employment Non-Discrimination Act (1996) repeatedly invoked the argument that ‘“responsible corporate citizens” are willing to “go beyond what the law itself demands” because of the “fundamental belief that all people have the right to be treated with dignity and respect” ’ (Creed et al. 2002, p. 484, emphasis added). Civil rights discourse was invoked by gay, lesbian, bisexual and transgender (GLBT) employees and other advocates of nondiscriminatory workplace legislation as they successfully asserted their identity as citizens entitled to, but currently denied, equal protection under the law. This example demonstrates how the meaning of citizenship is not a pre-given concept. Rather, in the moment of discursive articulation – illustrated in very different ways by the Toyota advert and Ms Kobayashi’s whistleblowing – a particular notion of citizenship can act to bring itself into being as part of the intersubjective structuring of the moment. Participation in a polity In common with other concepts, including ‘structure’, corporate citizenship admits of diverse meanings (Bovens 1998). In comparison with ‘corporate social responsibility’ (CSR) or ‘sustainability’ for example, its meaning is distinctively complexified by a dominant meaning of ‘citizenship’ as suggestive of participation in a polity as well as loyalty to, and protection by, the polity. When ‘citizenship’ is associated with ‘corporation’, interdiscursivity occurs where inter alia discourses of democracy and social justice, in addition to those of environmentalism and neoclassical economics, intersect (Parsons 2005). This interdiscursivity may be contained within a (currently hegemonic) discourse that downplays the ‘citizenship’
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in ‘corporations’ and thereby depoliticizes ‘corporate citizenship’ as equivalent to ‘corporate investments of time and money in pro bono work, philanthropy, support for community education and health, and protection of the environment’ (Gardberg and Fombrun 2006, p. 329). Such containment is problematized, however, by conceptualizations that draw more directly, deeply and insistently on notions of citizenship. When informed by a liberal concept of citizenship,4 the ‘extended’ meaning of corporate citizenship is attentive to how corporations are increasingly involved in the administration of aspects of citizenship formerly placed principally upon governments (Matten and Crane 2005, especially pp. 171 ff.), such as the provision of education and healthcare. When extended to a more radical concept of democracy, the focus shifts to an emphasis upon collective self-determination. Radical democrats are critical of liberal contentment with limited forms of communication, participation and dissent that effectively bestow legitimacy on a social order where plural forms of domination (for example, of class, gender, ethnicity and so on) are institutionalized such that reform occurs predominantly within a framework of equality of opportunity to work within and reproduce the established system. A sticking point for radical democrats, then, is the acceptance of, or vulnerability to, established practices by other – deliberative as well as liberal – forms of democracy. Noting that proponents of radical democracy are critical of ‘the instrumental character of liberalism’, Norval (2004, p. 151) summarizes the core ideas of radical democracy. First, central importance is given to the political – which means that ‘consensus’, for example, is regarded as a political (hegemonic) accomplishment, rather than the outcome of a rational process in which agreement, rather than an uneasy accommodation, is reached. Second, and relatedly, there is ‘an emphasis on the construction and articulation, rather than mere aggregation, of interests and identities’ (ibid.) through processes of discursive struggle. Social interaction and communication, including democratic modes of social formation, do not simply reveal pre-given interests and identities. Rather, such interaction creates and transforms interests and identities. Third, and relatedly, there is ‘the attention given to the process of subject formation in general, and the constitution of democratic identities in particular’ (ibid.), as contrasted with a focus upon procedures that are deemed or intended to demonstrate or guarantee the democratic development of society. While it may be arguable that none of these elements is per se incongruent with Habermasian deliberative democracy, radical democracy avoids deliberative democracy’s reliance upon idealized counterfactuals and pays much greater attention to the constitution of democratic identities.
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When approached from a radical democratic perspective, the intersection of ‘structure’ as identification and ‘citizenship’ as active participation in the democratization of the polity is understood to be integral to the realization of meaningful citizenship. As Warren (1995, p. 167; cited in Callero 2002, p. 11) puts it, the understanding shared by radical democrats is not only that ‘more participation will produce more individuals with more democratic dispositions – individuals who are more tolerant of difference, more sensitive to reciprocity, better able to engage in moral discourse and judgement, and more prone to examine their own preferences’ but crucially that these notions of ‘tolerance’, ‘sensitivity’ and ‘moral discourse’ can be expected to pose a direct challenge to institutionalized inequalities and associated forms of domination that are undisturbed by liberal notions of citizenship. The radical democratic notion of citizenship, then, is exemplified in social practices which challenge and change institutions that impede the production of ‘democratic dispositions’. Radical democracy recognizes that such challenges cannot always be arrived at through processes of deliberation. Vested interests and power differentials mean that deliberations rarely take place in situations of true reciprocity, and hence the extension of democracy cannot be achieved without moments of antagonistic struggle that expose the inequities of vested interests.5 Examples of this in the civil sphere are the challenges posed by the suffragette movement, the civil rights movement and the anti-apartheid movement. In corporations, an equivalent to members of civil disobedience movements are those who ‘confront and make visible taken-for-granted systems of domination’ (Callero 2002, p. 24), such as campaigners against discrimination experienced by GLBT employees in corporations. As Creed and Scully (2000, p. 410) observe, For GLBT workplace advocates, politicizing the personal challenges the ‘penumbra of social expectations’ . . . Listeners are won over to challenging and changing the status quo through the increased capacity to ‘imaginatively identify with the states of others’ (Fligstein 1997). Indeed, such enhanced empathy may be the basis for a new, collective identity. The collective aspect of diversity advocacy tends to emphasize connections between historically oppressed groups such as women, people of color, and GLBT employees as they come to understand one another’s struggles as similar and shared.
An understanding of citizenship that incorporates participation to radically change the polity is conspicuously absent from the catalogue of features attributed to corporate citizenship in liberal as well as managerialist literatures. Without this radical dimension, however, proclamations of corporate citizenship may amount to little more than a slogan that restores some legitimacy to the status quo of corporate practice or provides a smokescreen for dubious corporate practices.
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Towards radical participation As Laclau (2004, p. 297) has argued, there are two aspects to the constitution of democratic space. The first, upon which liberals and democratic deliberationists (for example, Habermas) place most emphasis, concerns the mechanisms that provide for formal equality of representation and/or participation by members of a polity within a practice that presupposes ‘a readiness to cooperate’ (Habermas 1998, p. 245). As Laclau points out, this understanding of participation minimizes the significance and courts the exclusion, or at least the reduction, of difference. In principle it is inclusive but, in effect, it can be homogenizing as it excludes those who are poorly placed to challenge compromises reached; and it tends to be at a loss when understanding those who are disinclined to ‘deliberate’. Consequently, attentiveness to the disadvantaged or marginalized underdog is the second aspect of the constitution of democratic space stressed by advocates of radical democracy. It is concerned with bringing the full heterogeneity of dissenting and excluded demands into participation.6 We suggest therefore that a key indicator for corporate citizenship must be a supportive normative environment that values engagement with, and attentiveness to, forms of dissent – as opposed to merely, or more highly, valuing compromise and consensus (Calland and Dehn 2004). For example, in combination with other corporate scandals (for example, Tyco), the blowing of whistles by Sherron Watkins on Enron and by Cynthia Cooper on WorldCom7 contributed to the introduction of the Sarbanes–Oxley Act (Watnick 2006) which legislates for ‘whistleblower-like obligations on a number of highly placed corporate actors who work for public companies’ (Tippett 2006).8 However, legislative change is comparatively blunt and weak compared to the extra-legal, normative means of regulation that might be envisaged when corporate citizenship is understood to mean radical democratization, in which the degree of encouragement (not just protection) for dissent and for whistleblowers becomes a relevant indicator of how far corporations have incorporated core values of citizenship into their activity. Such ‘encouragement’ recognizes whistleblowing as a legitimate political act which not infrequently initiates or mobilizes activist movements (Mansbach 2007). A more extended view of corporate citizenship? Extension as injection of a new particularity Our advocacy of a radically democratic conception of corporate citizenship as ‘participation in the polity’ is broadly consistent with a developmental conception of democracy (Stokes 2002) in which citizenship is conceived as a conduit of personal and social improvement (as contrasted,
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for example, to economic growth). 9 As such, our advocacy contributes to a number of initiatives that aim to extend the meaning of the corporate citizenship concept. On this theme, Matten and Crane distinguish three broad understandings of corporate citizenship. The first two – termed ‘limited’ and ‘equivalent’ – are characterized as ‘conventional’. They conceive of corporate citizenship, respectively, as (‘limited’) philanthropy or as very similar (hence ‘equivalent’) to established notions of CSR. A third, ‘extended’ view is presented as moving beyond such received ideas about corporate citizenship by emphasizing the importance of citizenship (Matten et al. 2003).10 Extended views of corporate citizenship are distinguished by their efforts to mobilize citizenship theory as a means of moving beyond a view that assumes the legitimacy of the established boundaries of corporate responsibilities. The specific nature of this move, or demand, varies with the academic theorization. In Logsdon and Wood’s (2005; Wood et al. 2006) ‘global business citizenship’, for example, the demand is for corporations to implement a small set of universal human values, tailored to local conditions. In Matten and Crane’s (2005) extended view, the demand is for corporations to recognize the responsibilities associated with their creeping movement into roles that formerly were the exclusive responsibility of government; and, more normatively, for corporations to be held accountable for their actions, or inactions, with respect to these quasi-governmental roles. For Moon et al., ‘deliberative participation’ is the favoured mechanism in which ‘the main criteria for those taking part in participative discourses are impartiality, non-persuasiveness, non-coercion, and expertise’ (2005, p. 443), but it is Scherer and Palazzo (2007) who draw more extensively on Habermas’s theory of deliberative democracy to promote a demand for greater corporate engagement with, and transparency to, civil society organizations. It is not our purpose here to discuss the relative merits of these various efforts to reframe the notion of corporate citizenship; and we readily acknowledge that our sketch of these writers’ positions does insufficient justice to the sophistication and complexities of their proposals. Our intent, however, is not to provide nuanced accounts of their contributions but, rather, to appreciate how, albeit through appeals to different notions of citizenship, they attempt to infuse some new particularity into corporate citizenship which, understood within the social theory of hegemony, is a comparatively empty or capacious signifier that, at best, is ambiguous and therefore open to and accommodating of multiple interpretations (as evidenced by the coexistence of the limited and equivalent views, for example). ‘Extended’ views of corporate citizenship aspire to exploit and redress this emptiness by filling, or reinscribing, the concept with a meaning that, for
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example, carries expectations of how corporations ought to behave if they are to earn the accolade of ‘good corporate citizenship’. In Laclau’s theory of hegemony, it is an important condition of possibility for achieving widespread ‘grip’ that a concept becomes relatively empty of specific content, having just enough residual content to resonate with popular concerns without being so specific that it ignites differences and rifts (Laclau 1996). It is through this process of emptying meaning that a particular concept comes to acquire a more universal, and hence influential, presence. But in the emptying process, the concept also loses much of its particularity. For example, concepts such as ‘freedom’ and ‘democracy’ have a strong grip so long as their meaning remains relatively unexplored. Once these universalizing concepts become infused with more specific particular contents or qualifiers – such as ‘liberal’, ‘deliberative’ or ‘radical’ democracy – their ability to achieve grip may be enhanced with particular constituencies but their ability to secure identification with, and hence to unify, broader constituencies is weakened. From this perspective, we can see appeals for an extended view of corporate citizenship as attempts to inscribe a more democratic notion of citizenship into the concept. We are not opposed to such attempts but our Laclauian perspective cautions us that if the favoured meaning of citizenship has a content that is highly particular, then it risks failing to offer and appeal to (that is to achieve grip with) precisely those more radical identities (including the whistleblower, the underdog and the marginalized) that will need to be brought in if corporate citizenship is to ‘live up to’ the legitimating democratic discourse that seems to drive moves towards extended meanings for corporate citizenship. In the next subsection we develop this theme by considering the appeal of deliberative democracy in reinscribing the meaning of corporate citizenship in a way that anticipates its relevance for addressing a future crisis of legitimacy and identity for corporations. We then argue that if a new understanding of corporate citizenship is to achieve grip with the dissenting elements that are likely to come to the fore in such a crisis, it is necessary to articulate radical democracy into our understanding of corporate citizenship. Deliberative democracy and reinscription Habermas’s notion of deliberative democracy is predicated on two key dualities. The first of these is lifeworld–system: lifeworld as symbolic reproduction in socially integrated action; system as material reproduction in system integrated action (Habermas 1987, pp. 319–20). The second duality is morals–ethics: morals are considered universally valid norms while (discourse) ethics are productive of contingent values (Habermas 1990).11
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However, Habermas conceives of these dualities not as comprising absolute, separable entities but as differences in degree (Fraser 1989; Habermas 1990, p. 211). In his more recent work on deliberative democracy, the ‘melding’ of the theorized dualities is taken even further – particularly in the elision of the public sphere of the lifeworld into civil society. A fundamental issue, then, is whether this de-differentiation of the grounding dualities in Habermas’s work can legitimately be made while maintaining the essential insights that derive from theorizing these social phenomena as dualities. In other words, can we assume that principles derived from an idealized decoupling of lifeworld and system can still be invoked when that decoupling is denied in the name of pragmatism? At issue here is a possible weakening of Habermas’s resolve to preserve the centrality of ‘lifeworld’ priorities in the face of its colonization by system logics and demands. With regard to corporations, Palazzo and Scherer (2006) point to the weakening ability of national law to control transnational corporate activities, combined with increasingly heterogeneous and changing societal expectations, which are seen to undermine the cognitive and pragmatic foundations that, in the past, have provided corporate legitimacy. These developments are understood to foster a politicization of the corporation as ‘an unavoidable result of the changing interplay of economy, government and civil society in a globalising world’ (ibid., p. 76). In this respect, Scherer and Palazzo echo and considerably broaden and deepen the ‘extended’ view of corporate citizenship advanced by Matten and Crane as they commend Habermas’s notion of deliberative democracy as a relevant response to the politicization of the corporation (Palazzo and Scherer 2006; Scherer and Palazzo 2007). Contrasting Habermas’s earlier, more philosophical work on communicative competence from which ideas of deliberate democracy draw their inspiration and legitimation, Scherer and Palazzo present his theorization of deliberative democracy as ‘a less idealistic and more pragmatic approach that narrows the gap between the actual practice of political decision making and the theoretical purity of ethical discourses’ and argue that it ‘delivers a solid theoretical basis for conceptualizing a new approach to CSR, especially against the background of globalization’ (Scherer and Palazzo 2007, p. 1107, original emphasis). From the standpoint of Laclau and Mouffe’s theory of hegemony (Laclau and Mouffe 1985), this move exemplifies the attempt to inject a particular content – that is, open communication – into the meaning of corporate citizenship. We regard this as significant and valuable in so far as it serves to revive and reactivate, to use Laclau and Mouffe’s terminology, the term ‘corporate citizenship’ in relation to emergent and fast-moving debates – on work–life balance or on
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climate change, for example. We anticipate that such debates make it more likely that questions about the position of business in society will be raised with increasing frequency and intensity in ways that can lend grip to a reinscription of the corporate citizenship signifier. The combination of ideas of process, morality, inclusion, participation and openness within deliberative democracy provides numerous ‘hooks’ into which specific concerns and demands can be linked. Deliberative democracy may therefore become an appealing and fruitful way to open up corporate actions to greater scrutiny and public debate as it provides a universalizable content, one around which a large number of particular issues and claims may be articulated. Our reading of Laclau and Mouffe is that they would be in broad agreement with Scherer and Palazzo’s assessment of a looming crisis of legitimacy and identity for corporations; and they would particularly emphasize how contemporary events and developments are leading to a reactivation of what had become rather widely sedimented in advanced capitalist societies – that is, the taken-for-granted legitimacy enjoyed by corporations over the past several decades. The difference resides in how Habermas and Laclau, respectively, interpret ‘politicization’ and, relatedly, how their respective forms of theorization suggest that it be addressed. Following Habermas’s lead, Palazzo and Scherer (2006, pp. 78–9) contend that ‘moral legitimacy has become the core source of societal acceptance’; and that in a context where ‘normative conflicts can no longer be solved by referring to a shared background of values and traditions, communication becomes the sole source of peaceful interaction and mutual recognition’ (ibid., pp. 78–9, our emphasis). Laclau and Mouffe do not take issue with the importance of ‘communication’ but question whether becoming ‘the sole source of peaceful interaction and mutual recognition’ is consistent with advancing and preserving the ethos of (radical) democracy. Achieving grip If deliberative democracy is to play a universalizing role – that is, if Habermasian deliberative democracy is to be identified (articulated) as the hegemonic content of a resurgent notion of corporate citizenship – then it will have to achieve grip so as to become a de facto practice of the polity. That, after all, is a condition of becoming hegemonic. A key issue then is whether deliberative democracy can achieve the required grip when at the core of this approach is a reliance upon the purification or tighter specification of processes of deliberation through an attentiveness to procedures – notably, through the use of law. Where deliberative democracy falls back on communication procedures and institutionalization of consensus building, radical democracy repeatedly worries away at the suturing of any emergent consensus in order to keep alive the subversive flame, or
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energy, of openness. However, while deliberative democracy undertheorizes how ‘open communication’ can accommodate antagonistic differences in identification, radical democracy struggles to theorize how antagonistic relations between mutually negating enemies can be transformed into ‘agonistic’ relations between respectful adversaries. As Norval (2006, p. 230) notes, there is a ‘failure of both deliberative and poststructuralist (radical) models of democracy to address the question of how democratic norms and values come to grip subject-citizens’. This failure is most acute in deliberative democracy where a focus upon proceduralism marginalizes consideration of ‘the question of the identityforming ethos of democracy’ (ibid., p. 239, added emphasis). In the case of poststructuralist radical democracy, attention is paid to the formation of the subject (for example, through a Lacanian understanding of identification) but, as Norval acknowledges, ‘the construction of democratic subject positions is often relegated to the domain of mere contextual political articulation’ (ibid., p. 230). Arguably, the democratizing process of transforming antagonisms into agonistic relations requires relevant channels, yet very little guidance for the formation and institutionalization of agonistic democracy can be found in Laclau and/or Mouffe’s writings. In principle, then, there may be considerable merit in exploring how the respective strengths of deliberative and radical formulations of democracy may complement each other without demanding that they can be fused. In so far as deliberative democracy is able to secure and develop an institutional framework capable of defending and deepening liberal democracy by encouraging a greater democratization of private and public administration, it may serve to compensate for a deficit in radical democracy. Specifically, it may make a valuable contribution to the process of regulating democratic politics by developing ‘institutions and practices through which the potential antagonism can be played out in an agonistic way’ (Mouffe 2005, p. 21). Without such an input, there is a difficult-to-justify risk that the lack of procedures will weaken the prospects for democratic politics, though Habermas’s framework offers no guarantees. As Habermas (1996, p. 7 note 8; cited in Kapoor 2002, p. 474) makes the argument, deliberative democracy depends ‘not on a collectively acting citizenry but on the institutionalization of the corresponding procedures and conditions of communication’. This strength of Habermas’s position is, however, also a weakness to the extent that its focus is not upon the demands articulated by a plurality of (passionate) citizens but, rather, upon procedures that are intended to produce a deliberated consensus. It is here that the agonistic critique of deliberative democracy comes into play, defending the openness of political life and thereby recognizing ‘what is excluded and occluded in the representation of legitimate politics as dialogue’ (Schaap 2007, p. 72).
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Of course, this is a virtue only if the understanding is maintained that radical democracy emphasizes the importance of remaining open to contestation rather than privileging the demands of an institutional framework that is claimed to support this process. Deliberative democracy in practice From the perspective of the social theory of hegemony, ‘communicative power’ works in the theory of deliberative democracy as a signifier that operates inadvertently to occlude and silence its own constitutive dislocation. Noonan (2005) identifies the same dislocation, though in different language, when he says that ‘because Habermas argues that the economy must be left to function according to endogenous market dynamics, he accepts as a condition of democracy . . . a social structure that is in fact antidemocratic’ (p. 101). Our view is that if deliberative democracy is to become a preferred articulation (to achieve grip) for corporate citizenship then it must be complemented by a radical democratic element. This move can be seen as an attempt to ensure that the dislocation remains visible, unable to become fully sedimented into accepted ‘commonsense’. To support this view, we now illustrate what can happen when this occlusion of ambiguity occurs in corporate citizenship. The Forest Stewardship Council Following Habermas’s thinking on deliberative democracy, Scherer and Palazzo (2007, p. 1105; Habermas 1996) state that, ‘it [now] seems naïve to assume that all coordination problems in the context of economic activities can be solved in processes of argumentation that are oriented toward mutual understanding and agreement’. According to them, this ‘less idealistic and more pragmatic approach’ (Scherer and Palazzo 2007, p. 1107) singles out collective actors such as non-governmental organizations (NGOs), citizen movements and networks as ‘actors in the process of willformation’ who can ‘map, filter, amplify, bundle, and transmit private problems, needs, and values’ (ibid., p. 1107). In other words, ‘civil society’ here predominantly signifies instrumental processes that exist, for Habermas, at the system level; and the ‘collective actors’ form part of ‘the procedural design of political institutions’ (Scherer and Palazzo 2007, p. 1107, referencing Habermas 1996). In this process, it seems to us that the original significance and value of the lifeworld, as the locus where processes and objects of identification take shape, and as the site of the emancipatory force in all human beings, risks dilution and marginalization. In the name of non-naive pragmatism, we are invited to occlude, or to circumvent, the inescapable presence of dislocation in the social realm. To the extent to which this occurs, the critical edge of Habermas’s thinking becomes
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softened by a ‘realistic’ readiness to accommodate the demands of the system. As we shall now argue, this translates, in Scherer and Palazzo’s thinking, to a combination of issuing appeals to corporations to be public spirited combined with lending encouragement to NGOs (which lack any democratic mandate) and other collective actors to pressure and collaborate with corporations in order to get them to ‘participate in the public process of exchanging arguments’ (ibid., p. 1109) and facilitating forms of self-regulation that mitigate social and ecological destructiveness. The example used by Scherer and Palazzo (2007) to support and illustrate their argument is the case of the Forest Stewardship Council (FSC) which was established in 1993 as a collaborative venture between NGOs and major corporations such as IKEA, Home Depot and B&Q (see also Scherer et al. 2006). We shall argue that this example highlights the dangers of focusing upon procedures rather than effective political action and/or the vulnerability of Habermas’s ideas to a reading that identifies the operation of the FSC with even their partial actualization. Ten years after the establishment of the FSC, the Rainforest Foundation (RF) (2002) conducted a detailed (160 page) report on the FSC’s activities. Scherer and Palazzo (2007, p. 1110) refer to the RF report, but despite its pertinence for their thesis, mention only the report’s criticism of the Council’s fast growth strategy that is linked to the certification of noncomplying companies. The full RF report makes uncomfortable reading for advocates of deliberative democracy as it illustrates the vulnerability of its principles to capture and subversion. The report is highly critical of the transparency of the FSC and the lack of democratic accountability. A flavour of the problems is given in the executive summary where it is noted: Key stakeholders are effectively excluded from many FSC processes . . . Whilst legitimate forest stakeholders, such as local communities and indigenous people, remain marginalized in FSC’s decision-making processes, the influence of other stakeholders – such as certification bodies and their commercial clients – has grown . . . The FSC’s complaints procedures concerning certifiers and their certifications are essentially non-functioning. They are cumbersome and onerous, discriminatory against weaker stakeholders, and biased in favour of the certifiers and their commercial clients. There is therefore no effective means of redress for many stakeholders in the event of dispute . . . There has been a serious lack of transparency or ‘democracy of knowledge’. Key FSC processes have been undertaken without proper information being available to the membership and the wider public. This has undermined accountability of the organization . . . (Rainforest Foundation 2002, p. 7)
In short, according to the RF, the operation of the FSC privileged certification bodies and commercial clients as it marginalized the voice of local communities and indigenous people who were unable to obtain
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redress from the FSC as a consequence of a cumbersome complaints procedure (notably similar to Ms Kobayashi’s experience at Toyota described earlier). Silence on the RF findings allows Scherer and Palazzo to offer the unqualified view that ‘the FSC can be considered one of the most advanced concepts in the sense of our proposed political CSR’ (Scherer and Palazzo 2007, p. 1110). Of course, no organization is going to be without significant imperfections. But to identify the FSC as a model of ‘political CSR’ and to claim that the FSC ‘demonstrates the corporate embeddedness in processes of democratic will-formation and problem solving in a transnational context of political governance’ (ibid.) does fuel some concern about the value and/or application of Habermas’s deliberative democracy. What the RF report communicates to us is a triumph of system over lifeworld legitimized by a discourse of deliberative democracy where it is claimed, for example, ‘The FSC is designed around deliberative criteria such as broad participation, the attempt to exclude corporate power as a decision criterion . . .’ (ibid.).12 If the findings of the RF report are accepted as a reliable indicator of the operation of ‘corporate citizenship’ at the FSC, then it illustrates our earlier points about the importance of ‘buy-in’ to the principles of citizenship and, more specifically, the likely consequences if mere lip-service is paid to commitments to develop skilful processes that transform and democratize corporate practices. More specifically, there is a risk that formal principles and structures are established that approximate to ideals of deliberative democracy but that the everyday practices of organizing fail to embody and nurture such lofty ideals. While a superficial tick-box audit might show that the relevant procedures are ‘in place’, it is only when attention is given to the outcomes of specific practices that significant doubt is cast, for example, upon the claim that the FSC ‘demonstrates the corporate embeddedness in processes of democratic will-formation and problem solving in a transnational context of political governance’ (ibid.). Conclusion Radical corporate citizenship? Scherer and Palazzo’s use of the FSC case gives us pause for thought about how ideas of deliberative democracy are vulnerable to appropriation, especially in a situation where the ‘lifeworld’ has become penetrated and heavily contaminated by the ‘system’. When dissociated from concepts of identification and emancipation, civil society risks becoming incorporated into the system as a third subsystem alongside the economic and administrative systems. It is then a short step – just mere commonsense we might
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say – to taking a sectoral perspective where corporate citizenship is theorized exclusively in relation to the subsystems of business (money), government (power) and civil society (see, for example, Waddell 2000).13 In this ‘commonsense’ or ‘pragmatic’ recasting of ‘lifeworld’, processes of emancipation which, arguably, are central to the project of critical theory can become diluted, marginalized and/or reconstructed to the point of invisibility. The signifier ‘civil society’ comes to embody the mere trace of these emancipatory processes. That is to say, it comes to serve as the means of controlling them by defusing their antagonism within the systemic discourse of sectors. How else can we explain that when, in the context of corporate citizenship, citizenship is taken to mean democracy, the move can be made without immediately raising an impassioned cry that it is not enough to think only of ‘corporations in a democracy’ without also thinking about ‘democracy in corporations’? Consideration of the FSC case reinforced our scepticism about the capacity of a Habermasian approach to corporate citizenship to open up substantively new modes of participation for the polity. Specifically, we are uneasy about the prospect of the problematic underpinnings of Habermas’s theory becoming normalized and silenced behind a ‘commonsense’ that assumes that ‘open deliberation’ will generate a role for business in society that is better grounded in morality and ethics. Is this morality likely to be a new start, a way to ground new social identities for a changing world order? Or is it more likely to produce a re-legitimation of the existing system – old wine in new bottles? To put it into Laclauian wording, does the introduction of deliberative democracy sufficiently disrupt established – ‘equivalent’, ‘limited’ and even ‘extended’ – views of corporate citizenship so as to yield the best chance of transforming them into a radically new logic? A specific concern and practical implication of our analysis is that a critical dimension of citizenship – that is, participation in a polity – is vulnerable to being formalized and blunted in Habermas’s ‘pragmatic’ conception of deliberative democracy, even to the point that it seems self-evident and uncontentious to assert that ‘it is difficult, if not impossible to implement concepts of radical democracy (i.e., all citizens participate in all public decisions) in modern societies’ (Scherer and Palazzo 2007, p. 1107; see also Habermas 1998). By viewing radical democracy through an instrumental lens, it becomes reduced to a particular demand – for the participation of all in all decisions – that is plainly impractical when understood within an instrumental discourse. The rejection of a more radical conception of democracy in the name of pragmatism (that being the ‘commonsense’ of instrumentalist discourse) occurs precisely at the point where the limits of instrumentalist discourse – the impossibility of its closure – are encountered.
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Radical democracy cannot be subsumed within instrumental discourse – that is, the discourse of the system, of the economy and hence of the corporation today. This is not because it is utopian but because, by recognizing the hegemonic discursive processes at work, it exposes the occluded, powerladen nature of the ‘neutral’ discourse of efficiency that not only underpins the economy but also contaminates Habermas’s conception of deliberative democracy. If Habermas’s theory of deliberative democracy, and application of it, retained more of the sense of the lifeworld, we would find greater continuity with the position advanced here. There will, however, always be a divergence with Laclau’s understanding of radical democracy. This difference, of course, relates directly to the central theme of this chapter – namely the structuring of the identities we are invited to assume. In contrast to deliberative democracy that anticipates the fully communicative subject of the ideal speech situation, radical democracy conceives of the subject as constitutively split and, relatedly, understands the structuring of identities to be irremediably dislocated. The point has been made by Fraser when she contends that the significance of what she terms the ‘split subject’ (Fraser 1989, p. 134) is unappreciated in Habermas’s work. If it were, she argues, he would better recognize that: the question is not whether lifeworld norms will be decisive but, rather, which lifeworld norms will [be] . . . These struggles are not waged [only] over the meanings and norms embedded and enacted in government and corporate policy [but also] in a phenomenon not thematized by Habermas, in the struggles between opposing social movements with conflicting interpretations of social needs. Both kinds of struggles involve confrontations between normatively secured and communicatively achieved action. Both involve contestation for hegemony over what I call the ‘sociocultural means of interpretation and communication’. (Ibid., p. 135, original emphasis)
Back in the late 1980s, just as corporate citizenship was (re)emerging as a concept in search of hegemony, Fraser was arguing for an understanding of the ‘sociocultural means of interpretation and communication’ that places the ‘split subject’ and hegemony at its centre. Today, as we attempt to reinscribe corporate citizenship with notions of deliberative democracy, her call continues to resonate. Towards democratic corporate citizenship If we want corporate activities to be democratized, or at least to become less hostile to processes of democratization – and, as we have stressed, the notion of corporate citizenship would seem to be a relevant vehicle for advancing the democratic development of corporate activity – then the challenge is to rearticulate corporate citizenship in ways that get grip in
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society, as well as in corporations. For corporate citizenship to be embraced and radicalized in this way requires that those engaged in diverse struggles of self-determination in organizations connect their campaigns through a common concern to counter and subvert institutionalized forms of oppression, and to learn from one another about processes of politicization and democratization. Examples of such struggles noted earlier in this chapter include the actions of whistleblowers, especially those who go on to form campaigning organizations, the activities of those campaigning for GLBT employees, and the actions of organizations such as the Rainforest Foundation that draw attention to the ‘serious lack of transparency or “democracy of knowledge” ’ (Rainforest Foundation 2002, p. 7) in the operation of NGOs, such as the FSC, as well as corporations such as Toyota. Like the whistleblower, the advocate for GLBT employees gives voice to ‘underdogs’ whose voice is routinely marginalized if not silenced in processes of decision making about the development of the corporate polity, and thus from opportunities to engage in ‘democratic deliberation’ about the formation of that polity with respect to their rights and treatment. Radical democracy, as Laclau (2004, p. 295) puts it, means ‘the incorporation into democratic deliberation of actors who had been, so far, excluded from the process of decision-making. Democracy is only radical if it involves an effort to give a political voice to the underdog’. This stance resonates with that developed by advocates of ‘direct democracy’ (for example, Pateman 1970) who inter alia place importance upon extending processes of democratization ‘to include non-state structures such as the workplace, and in the need to foster substantial democracy in order to reduce social and economic inequalities’ (Vitale 2006, p. 753). Whistleblowing and campaigning for the rights of employees are illustrative of such direct forms of participative intervention in the corporate polity. Common to such struggles is a demand for greater participation in the formation of the ‘sociocultural means of interpretation and communication’ (Fraser 1989, p. 135) through which the polity of corporations is democratized. This demand may to a degree be incorporated within the framework of deliberative democracy but it also contains more radical elements that draw attention to the limits and vulnerabilities of such deliberation. We have therefore suggested that a successful reinscription of corporate citizenship is more likely to resonate with, and hence gain grip in, society when it incorporates a vision of (radical) democracy such as that offered by Laclau’s social theory of hegemony. In exploring the connections between structures, identities and politics, our purpose has been to interrogate and to discern the limits, but not to reject the important contribution, of deliberative democracy or its
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relevance for corporate citizenship. Its dismissal would, in our view, run counter to the spirit of openness that radical democracy prizes most highly. An approach which neglects the role of law and/or the importance of communitarian deliberation in supporting processes of radical democracy risks jeopardizing the gains of liberal democracy (Laclau 2004, especially p. 298). That said, there is also a risk that translations of Habermas’s ideas about deliberative democracy into the domain of corporate citizenship become excessively preoccupied with the ‘institutionalization of representation’ as a means of ordering the world. Deliberative democracy is too readily appropriated in the service of corporatist liberal democracy in which the forced nature of agreements is glossed over, as illustrated in the example of the RF report on the operation of the FSC. Radical democracy invites us to think more in terms of ways of being in the world; and to foster and preserve an awareness of the unavoidable tensions that arise from the necessity, yet impossibility, of suturing openness, as manifested in opposition and dissent. We anticipate that some readers may associate the stance of radical democracy with being overly ‘romantic’ or insufficiently pragmatic. Our response has been to show how the advocacy and pursuit of deliberative democracy per se can be excessively pragmatic and conservative. From a radical democratic standpoint, traversing the tensions – learning to live with them and to appreciate them as constitutive necessities of the social world – is considered to be endemic to the puzzles and possibilities of citizenship. So, while we support the intent of deliberative democracy, our support is qualified by a concern to highlight and correct what we assess to be the vulnerability of deliberative democracy to co-option and formalization. Notes 1.
2. 3. 4. 5.
To clarify the terminology that runs through this chapter, ‘identity’ is identification with a subject position or multiple positions in a discursive structure. ‘Discourse’ includes all activities in the social realm, including therefore not only linguistic practices but also all other symbolic and material practices. Since identity is discursively constructed it is changeable, contingent, fragmented and never fully complete or fixed. For an introduction to these terms, see Jørgensen and Phillips (2002). The term is used by Glynos (2001) to mean the way that a concept attracts an emotional investment in, and hence an identification with, the concept. As Butler (1997, p. 13; cited in Swanson 2005, pp. 104–5) puts it, ‘for some social formation to appear as structured is for it to have covered over in some way the contingency of its own installation’ (original emphasis). By a liberal concept of citizenship we mean citizenship in a system of representative democracy where rights and freedoms of individuals are protected by law while state power is exercised by elected representatives who are themselves subject to the law. Here we signal a key difference between radical democracy and (Habermasian) deliberative democracy. Both approaches envisage that more participation will produce more democratic dispositions. However, while deliberative democracy seeks to promote procedures and practices of participation and consensus forming, radical democracy is
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Handbook of research on global corporate citizenship critical of the ways that such procedures and practices inevitably tend to reinforce and privilege established positions thereby reducing and constraining the conceivable space for legitimate dissent. In this respect, deliberative democracy resonates more closely with a liberal concept of citizenship. We have in mind here that one defining feature of democracy is that it should be based on freedom of participation. Liberal democracy interprets this as freedom to participate in the selection of one’s government, and Habermasian deliberative democracy conceives of it as freedom to engage in practices and processes of deliberation that strive for consensus formation. Radical democracy emphasizes a more Nietzschean view that freedom includes freedom to resist constraints on freedom, such as inequalities of power or social practices and procedures that serve to delegitimize antagonistic resistance. For further details, see: http://www.pcaw.co.uk/about/whistleblowers.html, accessed 24 October 2007. Sarbanes–Oxley places a legal obligation upon employees to act in ways that, as Rothschild and Miethe (1994, p. 270) argue, are already widely established within ‘organizations with a long history of open communication between staff and management, worker solidarity and a commitment to treating employees with dignity and self-respect’. Such organizations, they observe, ‘seem more likely to encourage internal disclosure of wrongdoing. Similarly, more participatory or democratic organizations tend to be more open and self-correcting, thereby responding more constructively to internal criticism’ (ibid.). One distinction between developmental democracy and deliberative democracy identified by Stokes is that developmental democrats advocate participation, deliberation and critical self-reflection as a route to personal and social transformation whereas ‘(radical) deliberative democrats’ see personal transformation as a necessary step before proper deliberative participation can be achieved (Stokes 2002, p. 45). Stokes’s use of the term ‘radical’ here should not be confused with the ‘radical democracy’ of Laclau and Mouffe. This latter is primarily concerned with appreciating and challenging the ways that discourses (conceived as both concepts and practices) operate to create hegemonic orders that silence and destabilize alternative political positions in society today. Laclau and Mouffe’s radical democracy does not argue that personal transformation must precede deliberative participation, but only that deliberative participation should not occur in processes that are ignorant of, or in denial of, the workings of hegemonic logics in society. Banerjee (2007) finds that ‘attempts to distinguish between corporate citizenship and CSR do not make a particularly convincing case and appear to be more of an academic exercise in staking out territories’ (Banerjee 2007, p. 44). Extended views are therefore interpreted as attempts to articulate distinctive positions within the established normative positions of CSR discourses. This leads Banerjee to draw attention to the ways that these discourses ‘are framed by power differentials that are not adequately addressed in concepts of CSR and corporate citizenship’ (ibid., p. 48) and to ask ‘how marginalized and impoverished communities . . . can ensure their rights are protected in a democracy, deliberate or otherwise’ (p. 155). Habermas’s uses of the terms ‘moral’ and ‘ethics’ can be confusing but the following quotes clarify his usage. ‘What moral theory can do and should be trusted to do is to clarify the universal core of our moral intuitions and thereby to refute value skepticism. What it cannot do is make any kind of substantive contribution’ (Habermas 1990, p. 211, original emphasis). The substantive contribution arises then from the procedures of discourse ethics (ibid., p. 199) and hence morals and ethics cannot be entirely separated. Habermas identifies the limitations to the applicability of his approach when he points out that discourse ethics is a procedure of practical discourse for ‘the discursive redemption of normative claims to validity . . . Practical discourse is not a procedure for generating justified norms but a procedure for testing the validity of norms that are being proposed and hypothetically considered for adoption . . . It would be utterly pointless to engage in a practical discourse without a horizon provided by the lifeworld of a specific social group and without real conflicts in a concrete situation’ (p. 103). In other
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words, for Habermas the transcendental procedure of discourse ethics is used to validate universal moral hypotheses by testing them in lifeworld situations from which are derived practical ethics as contingent values. Our concerns are not allayed when visiting the FSC website where we came across an endorsement quote from the Business Manager of B&Q, a market-leading hardware store. In this quote which, it should be recalled, is selected and showcased by the FSC, comment is passed only on the benefit of FSC membership as being able to secure a competitive advantage by demonstrating to B&Q customers that its wood products are traceable from the store right back to the forest. There is no mention of this being an integral part of any broader commitment to educating either its employees or its customers about sustainable forestry, and thereby to reducing detrimental impacts on the environment (see http://www.fsc.org/en/whats_new/news/news/30, accessed 24 October 2007). Habermas’s lifeworld–system division was originally predicated on the system as the locus of the economic and administrative (sub)systems which are considered to be separate systems that together comprise ‘the System’. The lifeworld comprises the public and private spheres and is not conceived as a system. Interactions between the lifeworld and the system are through the media of power and money (Habermas 1987, p. 320). This separation is a necessary construct for the idealized thought experiment underpinning the theory of communicative action. In more recent, and allegedly more pragmatic, work on models of democracy, Habermas sees civil society as merely distinct from (rather than of a different type to) the economic and administrative systems (Habermas 1998, p. 249). What we are asserting is that putting civil society on this level of commensurability with the economic and administrative systems risks reducing the lifeworld to another subsystem of the system. By introducing the medium of solidarity he reinforces the idea that there is a tripartite system of economy (with its medium – money), administration (power) and civil society (solidarity). The fact that ‘solidarity’ tends to take us in the direction of ordering and consensus, rather than emancipation and identification, only seems to reinforce this move towards civil society as part of the system. We recognize that this may not be the intent of Habermas here, but we believe it is the effect.
References Accenture (2005
