J. (Hans) van Oosterhout RSM Erasmus University joosterhout@rsm.nl

1. A preface to the political theory of economic organizationPositive and normative perspectives on corporate governance J. (Hans) van Oosterhout RSM Erasmus University joosterhout@rsm.nl ICCSR - Business Government and CSR

2. Intro and agenda ICCSR - Business Government and CSR

3. Intro and Preliminaries • Associate professor, Department Business Society Management, RSM Erasmus University • Research interests: • positive and normative theory of institutions and organizations • comparative economic and political organization • corporate governance • corporate governance and corporate crime ICCSR - Business Government and CSR

4. Agenda • Observations, diagnosis and proposal • Basic framework for a political theory of economic organization • Applications • Discussion ICCSR - Business Government and CSR

5. Observations, diagnosis and proposal ICCSR - Business Government and CSR

6. Some observations • Economic organization does not exist in societal vacuum • Features of private enterprise organization at least partly explained by (lack of) public and societal features (institutions) • Business has significant social side effects • Corporations—and other business organizations— ‘naturally’ have ‘non-business’ functions, tasks and features ICCSR - Business Government and CSR

7. My diagnosis • Dominant concepts and theories: • Corporate Social Responsibility • Stakeholder theory • Corporate Citizenship • Metaphorical rather than conceptual • Lack of ‘theoretical’ and empirical content? • Ideology? ICCSR - Business Government and CSR

8. My proposal • Lets forget about these ‘concepts’ and ‘theories’ • Develop comprehensive conceptual framework to answer the questions: • what explains the division of labor between • markets and hierarchies • public and private institutions in a globalizing economic order ? • what division of labor is desirable or justified? • what are the implications of 1 & 2 for corporate governance more specifically? • A political theory of economic organization ICCSR - Business Government and CSR

9. Why a political theory? • Concern with basic institutional order (facilitating human coordination and cooperation) • Polity: e.g. property rights, market vs. hierarchy • Policy: what is the purpose of the firm? • Both efficiency and legitimacy count in economic organization • Methodological ecumenism • positive and normative theory building • conceptual and empirical research • different levels of analysis • behaviorism and phenomenology ICCSR - Business Government and CSR

10. The basic framework ICCSR - Business Government and CSR

11. Theoretical core propositions • Both states and firms are authority systems (conceptual claim); • predicate on a similar general justificatory logic (normative claim), yet; • they are different in terms of the specific conditions and considerations that justify authority in each (positive claim). ICCSR - Business Government and CSR

12. The State PA Ci Ci Ci Two kinds of authority? The public firm Ow Ma Em ICCSR - Business Government and CSR

13. A Hobessian view of corporate authority The State The public firm PA Ma Em ? Ow Ci Ci Ci ICCSR - Business Government and CSR

14. Perspective • Corporate authority best seen as a continuation of public authority by private means • Adjudicative: ex post division of quasi rents • Legislative: re-assignment of property rights • Embedded or federal structure of authority in society • What determines division of labor between levels? • Competition: markets and jurisdictional competition • Politics: the quest for legitimacy ICCSR - Business Government and CSR

15. Applications ICCSR - Business Government and CSR

16. 4 applications, 1 example • Political theory of enterprise organization • A theory of corporate purpose • Economic democracy? • Workplace democracy? • Shareholderdemocracy? • Corporate crime (and social cost) ICCSR - Business Government and CSR

17. Corporate crime • Certain crimes have a corporate dimension • The problem of ‘many hands’ • Two gaps: • retribution gap • deterrence gap • Corporate criminal liability (CCL)? ICCSR - Business Government and CSR

18. CCL in the US • Extension of tort doctrine ‘respondeat superior’ • Corporations vicariously liable for the actions of their employees when these: • take place within normal scope of employment • benefit the firm • Economic rationale: firms more efficient monitors than public law enforcement agencies (compare business judgment rule) • Extra-territorial reach of CCL (e.g. SOx 2002, SEC rules) ICCSR - Business Government and CSR

19. Corporate policing • FSG for Organizational Defendants • Both ex ante prevention and ex post offence cooperation pay! (reduction of fine) • ex ante ethics programs, compliance officers • ex post cooperation with prosecutors • Strategic risk and blame shifting (scapegoating) • Hence: corporate policing ICCSR - Business Government and CSR

20. Corporate policing and corporate governance • Corporate policing = private extension of public law enforcement • Renegotiation of ‘the corporate contract’? • Multilevel negotiations (beyond corporate constituencies) • high or asymmetrical bargaining costs? • Is competition on safeguards desirable? • Jurisdictional issues (e.g. unlimited shareholder liability for corporate torts and crimes? • Both efficiency and other (e.g. retributivist, restorative justice) considerations count in negotiating mutual safeguards ICCSR - Business Government and CSR

21. Discussion ICCSR - Business Government and CSR

22. Conceptual progress? • Conceptual and theoretical clarity (more established concepts and theories) • Explanatory surplus • Comprehensive perspective on corporate governance • multilevel analysis (regimes) • public and private ordering • normative and positive analysis • not just efficiency • Separation of positive and normative claims ICCSR - Business Government and CSR