Corporate social responsibility put to the testWhat are the responsibilities at local, national & global levels?Lessons learnt for international business ethics Prof. Dr. Andreas Georg Scherer University of Zurich presentation at the Lasalle Ethik Forum 2010 Ethics in Business and the Economy in the Face of the Crisis, March 25-26, 2010
Abstract • due to the globalization process the environment of business firms has changed dramatically • the traditional CSR paradigm is based on the assumption of a strong state (rule of law, democratic institutions) and clear legal and moral requirements • we argue that these assumptions become problematic in the current “post-national constellation” (Habermas) • we describe the new situation with regulatory gaps in global regulation, erosion of national governance, and loss in moral homogeneity in the corporate environment • we discuss the implications of these changes for the responsibilities of global busines firms
The Practical Dimension: Human Rights The ILO estimates that about 246 million children worldwide work under conditions that can be defined as the worst forms of child labor — prostitution, mining and slave labor in different industries. See ILO 2002, http://www.ilo.org/global/About_the_ILO/Media_and_public_information/Press_releases/lang--en/WCMS_007791/index.htm
The Practical Dimension: Social Standards Photo: mutilated workers in Asia According to an ILO report in 2004 2 million work related deaths occur annualy, most of them in Asia; the number of serious injuries is unknown see ILO 2004, http://www.ilo.org/global/About_the_ILO/Media_and_public_information/Feature_stories/lang--en/WCMS_075605/index.htm
The Practical Dimension: Environmental Standards toxic e-trash dumping in Guiyu, China See: Johnson, T.: E-waste Dump of the World Seattle Times, April 9 2006 http://seattletimes.nwsource.com/html/nationworld/2002920133_ewaste09.html
Who is Responsible? • The state? • The UNO? • The ILO? • NGOs? • Consumers? • You and me? • Business Firms?
The Old View: Economic Development First • “the way to help poor people abroad is to open our markets to them not to force them to adopt…human rights standards.” Krauss, M. 1997. How Nations Grow Rich. The Case for Free Trade. New York: Oxford University Press, p. 51. • “a lousy job is better than no job at all” Martinez-Mont, L. 1996. “Sweatshops are Better Than no Shops,” Wall Street Journal, June 25, 1996 • “Still, the best and most direct way to raise wages and labor standards is […] economic development. […] therefore efforts to limit international trade or to shut down the sweatshops are counterproductive.” Irwin, D. A. 2002. Free Trade under Fire. Princeton, Princeton University Press, p. 214
The Old View: Focus on Profits Only • “the social responsibility of business is to increase its profits.” Friedman, M. 1962. Capitalism and Freedom. Chicago: University of Chicago Press, p. 133. • “…social welfare is maximized when all firms in an economy maximize total firm value.” Jensen, M. C. 2002. “Value Maximization, Stakeholder Theory, and the Corporate Objective Function.“ Business Ethics Quarterly 12: 235-256, p. 239. • stakeholders other than shareholders “have protection (or can seek remedies) through contracts and the legal system.” Sundaram, A. K., & Inkpen, A. C. 2004. The corporate objective revisited. Organization Science, 15: 350-363, p. 353. it is the task of the state to resolve issues of public interest (e.g. human rights, social and environmental standards)
The Old View on Nation State Governance • traditionally: state agencies • provide citizenship rights (civil rights, political participation rights, social rights), • produce public goods, and • regulate the economy in such a way that the common good is served • separation of nation state governance (politics) and private economy: • state provides the rules of the game, private business firms focus on profit making within these rules • no additional political responsibilities for private business firms see Scherer & Palazzo: Globalization and CSR, in: Oxford Handbook of CSR, Oxford 2008
The New Post-national Constellation (Habermas) • regulation capacity of nation state agencies is in decline • increasing heterogenity/pluralism of norms, values and life-styles • emergence of new modes of regulation in global governance: • NGOs, transnational organizations, and business firms contribute to the global governance; e.g. in peace keeping, protecting human rights, implementing social and environmental standards. • shift in global business regulation from state centric towards new multi-lateral non-territorial modes of regulation with private business firms as core actors Handbook of Research on Global Corporate Citizenship (Scherer & Palazzo (eds.) 2008)
The New Post-national Constellation (Habermas) • regulation capacity of nation state agencies is in decline • global public goods and externality problems • outsourcing of value chain activities to weak or failed states (no democratic control or rule of law) • incongruence between the territorially limited enforcement mechanisms of the nation state and the unlimited spread economic exchange processes • weak regulation on the supranational level • lack of enforcement power of transnational institutions • strategic bargaining in multilateral negotiations see Habermas, J. The Post-national Constellation, Boston (Mass.) 2001
The CSR Approach of the 20th Century: Carroll’s Pyramid of Corporate Responsibility desired Philanthropy expected Moral compliance required Legal compliance required Profit
CSR in the 20th Century was Compliance-oriented • Corporations have to follow the "basic rules in society“, i.e. legal rules and moral customs (Friedman, 1970: 3) • Corporate activities should be in line with "broader community values" (Swanson 1999: 517) • Responsibility is emerging from societal expectations "at a given point in time" (Carroll, 1979: 500). • Corporations have to act consistently “with the moral foundations of that society” (Epstein & Votaw 1978: 3)
The CSR Approach of the 21th Century: Problems with Carroll’s Pyramid of Corporate Responsibility desired Philanthropy expected Moral compliance required Legal compliance required profit & legitimacy! Profit
Profit and Legitimacy • today, business firms have to focus on both profits and legitimacy • legitimacy is based on societal acceptance • it is a necessary condition for the continuous existence of a private company Example: in 2006/2007 Siemens was financially highly successful under the leadership of v. Pierer and Kleinfeld but was losing societal acceptance due to the corruption cases throughout the company
Profit and LegitimacySiemens Annual Report 2008 Our values guide us in everything we do. For us, responsibility means managing the Company on the basis of the highest ethical standards and practices. We do not tolerate behavior that violates laws or regulations. A keen sense of responsibility pervades all levels of our corporate culture: • The members of our Managing Board have clearly defined responsibilities. • Our employees contribute to the development and welfare of the societies in which they work and live. • Continuous and open dialogue with our investors fosters transparency in our entrepreneurial decisions. • The ideas and solutions of our innovators play a vital role in our success. By upholding our responsibilities, we’re creating lasting value for our shareholders and customers while providing answers to the toughest questions of our time.
The CSR Approach of the 21th Century: Problems with Carroll’s Pyramid of Corporate Responsibility desired Philanthropy expected Moral compliance required legal pluralism! Legal compliance required profit & legitimacy! Profit
Legal Pluralism Multinational companies are operating in an environment with very divers legal requirements in terms of • social and environmental standards • corruption • taxes • etc. under these conditions the meaning of legal compliance becomes very ambiguos.
The CSR Approach of the 21th Century: Problems with Carroll’s Pyramid of Corporate Responsibility desired Philanthropy expected moral pluralism! Moral compliance required legal pluralism! Legal compliance required profit & legitimacy! Profit
Moral Pluralism Multinational companies are operating in an environment with very divers moral expectations in terms of, e.g., • human rights (e.g. discrimination, gender, seniority etc.) • social and environmental standards (role of the individual vis-à-vis the social and natural environment) • corruption (what are socially accepted practices in various cultures) • taxes (willingness to pay or avoid taxes, tax fraud vs. tax evation) • etc. under these conditions the meaning of moral compliance becomes very ambiguos.
The CSR Approach of the 21th Century: Problems with Carroll’s Pyramid of Corporate Responsibility desired growing demands! Philanthropy expected moral pluralism! Moral compliance required legal pluralism! Legal compliance required profit & legitimacy! Profit
Growing Demands There are growing demands on companies to engage in public policy and provide public goods • public health • education • infrastructure • social rights (codetermination, labor rights etc) • etc. they appear to be responsible not only for any social miseries or environmental damages where is the limit of corporate responsibilities?
Growing Demands What is the primary Societal Responsibility of a Corporation? 20th century: DO GOOD! 21st century: DO NO HARM (primum non nocere)!
Sphere of influence Supply Chain Customer Services Corporations are Held Responsible Along a Supply Chain Logic Corporation
Supply Chain Supply Chain Responsibility • 1991 Levi Strauss first company • introducing a Code of • Conduct for direct suppliers • 1993 First CoC of Wal Mart, • companies like Nike, Disney, Gap, Reebock follow • 1995 First independant third party • control (GAP) • 1997 First multistakeholder code Corporation • Current tendencies: • Empowerment instead of control (e.g. Fair Labour Association) • Promotion of unions and workers councils (e.g. Timberland) • Inclusion of second tier supplier (e.g. HP) • Monitoring of complete chain (e.g. H & M) • Suppliers with their own GRI reports become strategic partners (e.g. Puma) • Inclusion of more industries in the discussion (electronics, cars, drugs…)
Examing Harmdoing Along Supply Chains – The Case of the Diamond Industry *Source: http://www.duke.edu/web/soc142/team7/index.html
From Managing the Supply Chain to Changing the Geopolitical Context • « Nike... Should commit itself to working with the international human rights community to pressure local governments to release jailed labor leaders and change labor laws and practices to reflect internationally recognized labor rights. Nike should also work at the factory level to create the space for representative worker councils and for educating workers about international labor rights » www.globalexchange.org
Sphere of influence Supply Chain Customer Services From Managing the Supply Chain to Changing the Geopolitical Context Corporation
Ruggie: « Silent presence coupled with authority » Being able in principle to know is enough Yahoo in China The Rising Risk of Corporate Complicity: Being Responsible for What Others do Corporate complicity means « knowlingly providing practical assistance, encouragement or moral support that has a substantial effect on the commision of a crime » (John Ruggie, 2008) Some scholars in international law argue that complicity is already given when a company benefits from human rights abuses of somebody else (Clapham, 2006).
Challenges for CSR and International Business Ethics in the 21st Century • governance model • who is the main political actor and where is the locus of governance? • role of law • what is the mode of regulation and what are the dominant rules? • concept of responsibility • what is the appropriate concept of (corporate) responsibility? • mode of legitimacy • how is the legitimacy of political and economic actors maintained? • democratic politics • what is the appropriate model of democracy and concept of politics?
Literature Scherer A. G. & Smid, M. (2000). The Downwards Spiral and the U.S. Model Business Principles. Why MNEs Should Take Responsibility for the Improvement of World-Wide Social and Environmental Conditions? Management International Review 40: 351-371. Scherer, A. G., Palazzo, G., & Baumann, D. (2006), Global Rules and Private Actors – Toward a New Role of the Transnational Corporation in Global Governance. Business Ethics Quarterly 16: 505-532. Palazzo, G. & Scherer, A. G. (2006). Corporate Legitimacy as Deliberation: A Communicative Framework. Journal of Business Ethics 66: 71-88. Scherer, A. G. & Palazzo, G. (2007). Toward a Political Conception of Corporate Responsibility. Business and Society Seen From a Habermasian Perspective. Academy of Management Review 32: 1096-1120. Palazzo, G. & Scherer, A. G. (2008). Corporate Social Responsibility, Democracy, and the Politicization of the Corporation. Academy of Management Review 33: 773-775. Scherer, A. G. & Palazzo, G. (2008). Globalization and Corporate Social Responsibility. In: Oxford Handbook of Corporate Social Responsibility. Crane, A., McWilliams, A., Matten, D., Moon, J., Siegel, D. (Eds.), Oxford: Oxford Univ. Press: 413-431. Scherer, A. G. & Palazzo, G. (Eds.) (2008). Handbook of Research on Global Corporate Citizenship, Cheltenham: Edward Elgar.
Literature Scherer, A. G., Palazzo, G., & Matten, D. (2009). The Changing Role of Business in Global Society. Business Ethics Quarterly 19: 327-347. Baumann, D. & Scherer, A. G. (2010). MNEs and the UN Global Compact: An Empirical Analysis of the Implementation of Corporate Citizenship. mimeo Zurich. Scherer, A. G. & Baumann, D. (2010). Corporate Citizenship and Corporate Governance – Compensating the Democratic Deficit of Corporate Political Activity. Fourth International Colloquium on Corporate Political Activity. Long Island University, May 20-22, 2010. Scherer, A. G., Palazzo, G. & Seidl, D. (2010). Legitimacy Strategies in a Globalized World: Organizing for Complex & Heterogeneous Environments. mimeo Zurich. Haack, P. & Scherer, A. G. (2010). Vertical Legitimacy Spillovers in Transnational Governance: The UN Global Compact and its Members. paper submitted for the 2010 Annual Meeting of the Academy of Management, OMT Division, Montreal, Aug. 8-10, 2010. Scherer, A. G. & Palazzo, G. (forthcoming). The New Political Role of Business in a Globalized World – A Review of a New Approach in CSR and its Implications for the Firm, Governance, and Democracy. Journal of Management Studies. Voegtlin, C., Patzer, M., Scherer, A. G. (2010). Responsible Leadership in Global Business: A Research Agenda. mimeo Zurich.
The Changing Ontology of Governance on the Global Playing Field • Global governance describes regulatory activities and regimes on a global level without the supreme authority of a government(Held & McGrew 2002, Scholte 2005) • Global governance involves originally non-political and non-state actors such as NGOs, intergovernmental organizations or transnational corporations(Castells 2005) • Global governance is increasingly following a “soft law” logic(Abbott & Snidal 2003, Ruggie 2008) • Soft law is bluring the « lines between the strictly voluntary and mandatory spheres for participants »(Ruggie 2007)
The New Post-national Constellation Politics Political Pressure Law Civil Society Economy
The New Post-national Constellation Politics Political Pressure Law Civil Society Economy
The New Post-national Constellation Politics Political Pressure Law Civil Society Economy The power of politics shrinks. Powerlessness creates distrust and people start to look after their interests on their own. = “globalization from below” (Giddens), “subpolitics” (Beck), “paragovernmental activities” (Dryzek)
The New Post-national Constellation Politics Political Pressure Law Political Pressure by Non-Governmental- Organizations (NGOs) Civil Society Economy The power of politics shrinks. Powerlessness creates distrust and people start to look after their interests on their own. = “globalization from below” (Giddens), “subpolitics” (Beck), “paragovernmental activities” (Dryzek)
Traditional Paradigm of CSR • isomorphistic adaption of business policies to „broader community values“ (Swanson, AMR 1999), societal expectations „at a given point in time“ (Carroll, AMR 1979), or the „basic rules of that society“ (Friedman 1970) • BUT: growing pluralism of norms, values, and life-styles in the global society; adaptation may lead to a mismatch with societal expectations • instrumental view on CSR (Jones, AMR 1995): CSR as an investment (McWilliams & Siegel, AMR 2001), search for the „business case“ of CSR • BUT: capacity of the state system to regulate the economy is in decline; the sole focus on profits will lead to legitimacy gaps when corporations act beyond the reach of the institutions of the rule of law state
Traditional Paradigm of CSR • instrumental view on corporate politics as a means to influence the political system in favour of the firm („political strategies“, Hillman, Keim & Schuler, JOM 2003) • BUT: corporate lobbying strategies may widen the legitimacy gap • is based on a strict devision of labour between • the public sphere (rule generation and enforcement by state governance) and • the private sphere (profit seeking within these rules). • BUT: business firms enter the public sphere as political actors: • provide global public goods (human rights, social and environmental issues, corruption, peace keeping etc.) • intrude the political system to lobby for their economic interests (political strategies)
Toward a new paradigm of CSR for the global economy(Scherer & Palazzo 2010) • governance model • who is the main political actor and where is the locus of governance? • role of law • what is the mode of regulation and what are the dominant rules? • concept of responsibility • what is the appropriate concept of (corporate) responsibility? • mode of legitimacy • how is the legitimacy of political and economic actors maintained? • democratic politics • what is the appropriate model of democracy and concept of politics?
Toward a New Paradigm of CSR for the Global Economy(Scherer & Palazzo 2010) • from national governance to global governance • from „hard law“ to „soft law“ • from liability to social connectedness • from cognitive and pragmatic legitimacy to moral (argumentative) legitimacy • from liberal democracy to deliberative democracy
A new concept of politics • the old view (lobbyism & power politics): main focus has been on « political strategies » “to shape government policy in ways favorable to the firm” Hillman, Keim, & Schuler, Journal of Management 2004: 838 This stream of research is based on the view that “managers choose to engage in political activity to enhance the value of the firm” (Hillman et al., 2004: 839). • the new view: By political we mean a process “in which people organize collectively to regulate or transform some aspects of their shared social conditions, along with the communicative activities in which they try to persuade one another to join such collective actions or decide what direction they wish to take” (Young, Journal of Political Philosophy 2004, p. 377).
From Cognitive and Pragmatic Legitimacy to Moral (Argumentative) Legitimacy (Palazzo & Scherer, JoBE 2006) • legitimacy is the perception that an action, policy or institution is socially acceptable • legitimacy can be based on three sources (Suchman AMR 1995): • pragmatic legitimacy (outcome is benefical) • cognitive legitimacy (action or institution is taken for granted) • moral legitimacy (action or institution is a result of explicit discourse) • traditional CSR emphasizes pragmatic legitimacy (defense of the capitalist system or business case of CSR) or cognitive legitimacy (adaptation to social customs) • in the post-national constellation moral legitimacy, i.e. the explicit discoursive consideration of policies and institutions, becomes the primary source of corporate legitimacy
routine cognitive legitimacy time to action failure of routine strategic manipulation pragmatic legitimacy isomorphic adaptation cognitive legitimacy moral reasoning moral legitimacy t1 organi-zational practice societalexpec- tations organi-zational practice societalexpec- tations organi-zational practice societalexpec- tations continuous failure success of action success of action continuous failure strategic manipulation pragmatic legitimacy routine cognitive legitimacy moral reasoning moral legitimacy t2 Scherer, A. G., Palazzo, G., & Seidl, D. (2008). Legitimacy Strategies as Complexity Reduction in a Post-national World: A Systems-Theory Perspective. Paper presented at the 4th Organization Studies summer workshop 2008, Embracing Complexity: Advancing Ecological Understanding in Organizational Studies, Pissouri (Cyprus), June 5-7, 2008
Legitimization strategies Consistency of societal expectations Strategic manipulation high Costs of organizational change Moral reasoning Isomorphic adaptation low high low Scherer, A. G., Palazzo, F., & Seidl, D. (2008). Legitimacy Strategies as Complexity Reduction in a Post-national World: A Systems-Theory Perspective. Paper presented at the 4th Organization Studies summer workshop 2008, Embracing Complexity: Advancing Ecological Understanding in Organizational Studies, Pissouri (Cyprus), June 5-7, 2008
Organizational implications of legitimization strategies(Scherer, Palazzo, & Seidl 2008)
Possible Contributions • This project contributes to theory development in the following areas • business ethics/CSR of MNCs • theory of global governance • theory of the firm/corporate governance • theory on organizational legitimacy processes