Big Business and Inclusive Development : Changing Roles and Perceptions Peter Utting United Nations Research Inst

1. Big Business and Inclusive Development: ChangingRoles and Perceptions Peter Utting United Nations Research Institute for Social Development (UNRISD) ESRC Research Seminar Series, “Changing Cultures of Competitiveness” Institute for Advanced Studies, Lancaster University 17 April 2009

2. Purpose of presentation 1.To examine the changing roles of business in growth models and policy regimes conducive to inclusive development 2.To assess the potential and limits of CSR from the perspective of inclusive development 3.To highlight the importance of multi-disciplinarity for understanding the potential and limits of CSR

3. Keyquestions to be addressed - What worked historically? • Why did CSR emerge? • What interests, institutions and ideational factors are driving the agenda? • What has happened in practice? • What gets left off the agenda? And why? • What sort of development model does CSR really support? • What might be done differently?

4. What worked historically? Under what conditions did large corporations play a constructive role in growth models and policy regimes conducive to inclusive development ? What worked in the late industrializers (Nordics & East Asia) and Fordist/New Deal USA? -- certain sets of business preferences -- certain types of state-market and power relations -- certain forms of collaborative institutions Albeit significant variations under different Varieties of Capitalism and Welfare State or Policy Regimes

5. Business preferences - company support for education & training, healthy workforce, decent wages, related for example to the need for skilled labour, to reduce absenteeism/rise productivity, to expand consumer markets - ISI/protectionism mitigate low wage preferences - production centred in TNC affiliates (rather than out-sourcing) - managerial ‘long-termism” (concern with value creation over the long term)

6. Power relations - presence of countervailing forces; balance of social forces (e.g. strong state, strong labour); relative decline in corporate power (during depression and WWII) - developmental states (with vision, regulatory and administrative capacity) - contestation; social movement activism

7. Collaborative Institutions - social pacts: “CSR” (e.g. good working conditions, life-long employment, healthcare, fiscal responsibility, philanthropy) as part of a bargain/compromise in return for pro-business & pro market incentives (e.g. industrial policy, minimalist regulation) - embedded elites, which identified with the community & their workforce (through direct production); (Gramscian) hegemony (discursive power of business elites) - encompassing business associations, representing broad range of private sector interests, including SMEs - stakeholder consultation/dialogue; collective bargaining

8. Globalization and Liberalization Fundamental changes occur in business preferences, power relations and collaborative institutions Stylized facts & perceptions (albeit with variations by VoC and policy regime): - “rolling back” of certain state functions; rise of the “competition state” & ”New Constitutionalism” - deterritorialized capital versus territorially constrained states - global penetration of TNCs & growing structural, instrumental and discursive power of big business - unravelling of corporatist social pacts - weakening of countervailing forces (state and labour) - nature of social movements/civil society and activism changes with rise of NGOs & the information revolution - importance of “knowledge”, knowledge networks, “epistemic authority” i.e. decision-making based on expert technical opinion - business preferences change (e.g. focus on skills & higher education; increased international competition puts pressure on firms to cut costs/wages; race to the bottom) - “disembedding” of elites through some forms of FDI, global supply chains and sub-contracting & flexibilization of labour markets - short-termism: quarterly results, prioritization of shareholder interests and CEO remuneration.

9. Tensions in the contemporary model of “corporate capitalism” • Heightened reality or perception of externalities: environmental degradation, “race to the bottom”, tax avoidance/evasion & bribery; global corporations seen to be implicated in global injustice • Moral issues surface as corporate rights far outpace corporate responsibilities; as rich get richer; and global corporations penetrate poor countries & communities • Rise of activist protests and campaigns in 1980s/90s: • Oil spills (Exxon), pesticides (Union Carbide), human rights abuses (Shell), indigenous peoples (Rio Tinto), sweatshops (Nike), infant feeding (Nestle), deforestation (McDonalds), GMOs (Monsanto) • Increased risk, complexity and uncertainty for large firms • Vulnerability of large corporations that rely on brands and company or product image As a result: • TNCs need to better manage risks and reputation • TNCs need to control their supply chains • TNCs need to control the activists & regulatory pressures CSR becomes a crucial element in this strategy

10. The Rise & Institutionalization of CSR - CSR takes off internationally in early 1990s (Earth Summit) & is backed by powerful actors, institutions and ideas: - Emergence of a CSR “movement”, involving global corporations, business associations, NGOs, academia (management studies, IR, development studies), international organizations, and (belatedly) trade unions and government. - CSR becomes institutionalized via CSR consultancy industry, MBA curricula, multi-stakeholder initiatives (e.g. UN Global Compact, ISO, ETI, SA8000, Global Reporting Initiative, etc., and international soft law

11. Ideational foundations and drivers of CSR • Neoliberalism • Limits of government & “command and control” regulation (inefficiency, rent seeking • Key role of private actors & self-regulating markets (corporate self-regulation) • Institutional / governance theory • New institutionalist economics (institutions matter for economic performance) (Douglass North, Oliver Williamson) • Embeddedness & embedded liberalism (Karl Polanyi, John Ruggie) • Global governance: importance of multilayered and multi-playered governance (Robert Keohane); limits of inter-state relations; importance of non-state actors (business and NGOs) in knowledge networks, “epistemic communities” and private regulation • Management theory • Stakeholder theory (Freeman 1984) • Win-win (Michael Porter) • Organizational theory • New institutionalism (culture, norms and values within organizations matter (DiMaggio and Powell 1991) • Organizational learning to deal with complexity (Peter Senge 1990)

12. CSR: What is it? Multiple definitions • Responsiveness to societal and stakeholder concerns; • Internalization of social and environmental objectives in a “triple-bottom line” (Elkington) • Voluntary initiatives that go beyond philanthropy and law • “Continuous improvement” Multiple roles • Risk and reputation management • To enhance legitimacy • To control supply chains • To “do no harm” • To fill weaknesses & gaps in global governance and regulatory systems • To gain influence in public opinion & public policy, & in regulatory arenas (private regulation)

13. An Expanding CSR Agenda • Eco-efficiency & environmental protection • Occupational health and safety • Child labour • Community assistance (“corporate social investment” – health and education; differential pricing (e.g. HIV/AIDS drugs) • CSR in the supply chain • Ethical investment • Labour rights • Human rights • Conflict zones • Ethical & Fair trade • Poverty reduction

14. CSR & the International Poverty Reduction agenda • In context of the post Washington Consensus, poverty reduction re-emerges as a strategic priority in international development circles • reflects slight shift in correlation of forces from IFIs to UN • But also “convergence” in international development thinking and policy, favouring institutional fine-tuning (as opposed to transformative change), voluntary approaches, public private partnerships, private regulation • “Late CSR” takes on board poverty reduction

15. The new developmental logic of CSR: Big business is seen as a proactive development agent: • Providing basic goods and services (e.g. water, cheap/free medicines) • Private standard-setting • Public-private partnerships • Directly engaging with the Millennium Development Goals (MDGs) • Ethical and fair trade • “Bottom of the Pyramid” (Prahalad)

16. Potential and Limits of CSR CSR Balance Sheet • After 2 decades of CSR: research is now shedding light on its impact from a development perspective (Hamman et al.; Blowfield and Frynas; Eade and Sayer; Fig; Barrientos and Smith; Utting & Zammit) • Good awareness-raising tool to get corporations to think more systematically about social, environmental, human rights issues; • New financing for development; mobilizes new resources for social and sustainable development through PPPs; • Some areas of progress, e.g. child labour, occupational health and safety (OHS), environmental management systems (EMS) in TNC affiliates and top tier suppliers; compliance with minimum wage legislation (Barrientos & Smith – ETI evaluation) • CSR fills some normative & institutional gaps, (new standards, disclosure, social audits) • Evolves through time (more issues; ratcheting-up of standards, better reporting; « learning by doing »)

17. Potential and Limits of CSR • Problem of scalability or limited uptake • Operational weaknesses related to implementation • Structural conditions that constrain CSR • The politics of CSR

18. Scale • CSR discourse tends to suggest that many/most corporations are engaged • Reality check: • Universe of TNCs: 79,000 (UNCTAD 2008) • TNC affiliates: 790,000 • TNC suppliers: millions

19. Source: Official Websites

20. Variations in response Study of top 100 Fortune corporations, reveals major differences in approach and commitment to CSR & poverty reduction. • Inactive approach: No explicit statements on poverty. We create jobs and employment (as by-product of profit maximization). Payment of taxes. Affordable products. No code of conduct and/or low compliance likelihood. No support for labels. No separate business model for poor. • Reactive approach: Contribution to economic growth. Narrow BOP: mention of market changes in poor regions. Creation of local employment used defensively. Micro-credits as (small) part of philanthrophy. Transfer of technology and knowledge mentioned, but not specified. Vague code and low specificity as regards poverty. Support for Global Compact and modest support for GRI. Dialogue vaguely mentioned • Active approach: Explicit statement on moral unacceptability of poverty.Definition of decent wage. Broad BOP: explicit view on how this strategy addresses poverty alleviation (net effect). Creation of local employment opportunities at suppliers. Micro-credits as part of business strategy. Transfer of technology and knowledge is specified. Explicit support for MDG1. Wholehearted support for GRI. Philanthropy is aimed at poverty in general. Specific code and/or labelling on poverty and/or fair trade. • Pro-active approach: Strategic statement on poverty. Explicit support for all MDGs (including #8 on partnerships). Active partnerships with NGOs and international organisations on poverty. Very explicit code and support of highest possible transparency (GRI). Transfer of technology and knowledge is specified and discussed for its impact on poverty alleviation. Codes and labelling activities part of a contract with third parties (high specificity and high compliance likelihood). Dialogues as an explicit tool to raise strategic effectiveness. Search for a separate (strategic) business model for the poor. Source: Rob van Tulder 2008

21. Varied responses (global corporations) • Fortune 100 corporations, 2006 %; overlap possible Inactive Re-active Active Pro-active • Total (N=100) 63 55 33 4 • Europe (N=52) 48 67 52 8 • USA (N=30) 77 47 13 0 • East Asia (N=15) 93 27 7 0 • Developing (N=3) 33 66 33 0 Source. van Tulder 2008

22. Operational & Structural limits of CSR Weaknesses & Blind Spots - sub-contracting - migrant, casual workers often excluded; - issues of concern to women workers often excluded; - working conditions versus labour rights (freedom of association and collective bargaining) - minimum wages versus “living wage” - “policing” approach to CSR in the supply chain; negative impacts on suppliers and workers in developing countries) - superficial audits - focus on micro (firm level) as opposed to macro (public policy) issues, e.g. lobbying, tax evasion & tax avoidance; - focus on primary and secondary sectors; limited attention to financial sector - weak disclosure & free riding (e.g. company sustainability reporting & UN Global Compact - double standards: suppliers operate in a straight-jacket; talk the talk of CSR and lobby for socially regressive policies or engage in « the race to the bottom »

23. Oil Industry Good Practice (left column) vs. Bad Practice (right column)

24. Upshot: It is difficult to generalize about CSR & the behaviour of firms; there exist multiple drivers, conditions and contexts: • Business preferences vary by firm & industry & VoC • Normative environment and competitive pressures inside firms vary, as do societal expectations about the role of business • Institutional & regulatory contexts vary • Contestation (social pressures) varies

25. Multiple perspectives on the pros and cons of CSR Very different interpretations therefore exist regarding the contribution, substance & potential of CSR: • CSR as a distraction that undermines sound business practices, shareholder primacy (Henderson, The (early) Economist) • CSR as a distraction from regulations, democracy & citizenship citizenship (Robert Reich, Noreena Hertz); • Learning by doing; win-win potential; CSR instruments and institutions evolve, mature & are gradually ratcheted-up; (Porter, Ruggie, Zadek, Hopkins) • The substance of CSR reflects the balance of social forces & contestation, hegemonic & counter-hegemonic struggle (Antonio Gramsci, David Levy, Utting) • Greenwash: CSR = window-dressing, misinformation and PR to legitimize business-as-usual (Kenny Bruno, Judith Richter) • Means to stabilize conditions of late capitalism; «new ethicalism » (Ngai-Ling Sum, Claire Cutler)

26. New Directions in Governance & Regulation - Theory Moving Foward ? Fundamentally depends on reconfiguring governance systems and the balance of forces: • state: law & public policy (national and international) • economic: market pressures; corporate hierarchy • associational: networks, associations, communities & civil society (Hollingsworth & Boyer; Crouch) Economic globalization and liberalization generated a deep governance imbalance: economic (and finance) modes became too powerful, and trumped state & associational modes Current crisis creates spaces for a) reconfiguring power relations, b) reforming/transforming institutions, and c) addressing the blind spots on the CSR agenda

27. Recent proposals Recent shifts in thinking and practice: - less “policing” of supply chains by TNCs; limits of social auditing; more training & capacity building in SMEs - greater attention to the actual developmental impacts of CSR & PPPs (not just process) - more equitable power relations and participation within MSIs and PPPs - the need to strengthen: a) systems of industrial relations, e.g. via International Framework Agreements, and b) state labor inspection capacity. - need for greater policy coherence: e.g. when private sector expansion occurs, state regulatory capacity needs to be strengthened not diminished) - greater compatibility between CSR initiatives in LDCs and national & international development strategies & priorities - need to ensure “corporate accountability” by strengthening disclosure of information, grievance procedures for stakeholders, and possibilities for redress; as well as penalties for non- compliance; - important role for international “soft” and “hard” law, e.g. OECD Guidelines on MNEs; UN Human Rights law

28. Towards “Corporate Accountability” ? • Recent rise of a “corporate accountability movement” - Moving beyond corporate self-regulation and voluntary approaches - Moving beyond the narrow emphasis on shared values, stakeholder dialogues, best practice learning • Need to reconnect: • CSR and public policy & law; voluntary & legalistic approaches • Reconnecting CSR and southern stakeholders, development strategies and priorities • Reconnecting CSR and trade unions & industrial relations (not only NGOs & business)

29. CSR & Crisis: Possible effects of the current crises Downside: • Belt-tightening: decline in CSR spending and corporate giving • More reliance on sub-contracting & labour flexibilization • Consumers less interested in “ethical consumerism”, prefer to buy in Mal-Mart Upside: • New CSR issues or priorities emerge: e.g. executive pay; balance between real wages and profits and dividends; CSR and the financial sector; greater transparency in reporting (e.g. lending); employment generation; conditions of retrenchment and retraining; & climate change & eco-efficiency. • More attention to “corporate responsibility” and corporate ethics • “Regulation” is back on the agenda • The state will reassert its role in regulation and social protection Open questions: • Will some issues move off the agenda? e.g. poverty reduction • Will vulnerable companies want to defend against reputation damage and therefore take CSR seriously? • Will trade unions reassert themselves? • Will US push for higher labour standards abroad? Responses will vary by firm, industry, society and VoC

30. Another crisis -- the Intellectual Crisis of CSR 4 analytical and empirical limitations of mainstream thinking on CSR. It is • Ahistorical: doesn’t draw on the lessons of history about how and why big business engaged with inclusive development • Empirically weak: focuses on “best practices” and doesn’t examine comprehensively CSR performance and outcomes • Theoretically thin: ignores key theoretical approaches that facilitate our understanding of the potential and limits of CSR • Politically naive: fails to acknowledge the political underpinnings and dynamics of institutional change This suggests the crucial importance of breaking out of the confines of management studies and IR, and drawing more on sub-disciplines and schools of thought associated with political science, sociology, law, human geography and development studies.

31. CSR & Development Models How do CSR (and Corporate Accountability (CA), PPPs & fair trade (FT) look from a development perspective? How do they relate to different development models? Grosso modo – three models: • Neoliberalism (freeing-up of markets; corporate control; trickle down social development) • Embedded liberalism (free markets; FDI and institutions to control for perverse effects) • Alternative globalization (counter-hegemonic struggle; corporate down-sizing, local development, associative/social economy

32. Situating CSR in a development framework Embedded Liberalism Alternative Globalization Neoliberalism CSR PPPs CA FT CSR & PPPs (depending on their content and context) tend to reinforce the neo-liberal or embedded liberalism models; CA & FT tend to reinforce the embedded liberalism or alter-globalization models

33. End • THANK YOU For further information on UNRISD research on CSR, see www.unrisd.org Markets, Business and Regulation programme Contact: Peter Utting (utting@unrisd.org)