CSR and Risk Society

1. CSR and Risk Society By Dagfinn D. Dybvig HHB/UiN

2. Beck-style risk society (1986) • Risk has to do withpotentialdamage – it is therefore ”invisible” • Risk an ”invisible” productofthetechnological and socio-economic system itself (systemic risk) • Risk hard to assessbecauseofcomplexity • Potentialdamage may be catastrophic • Potentialdamage may be irreversible • Hard to separate risk from progress – boomerangeffect!

3. My Question: How to dealwithsystemic risk in a socialcontract – involving CSR?

4. The Social Contracttradition Thomas Hobbes (1588-1679) The fatherofmodern Social Contracttheory

5. Hobbesian Social Contract (I) State of nature: • No government, no laws, thus no private property • Life is a war of every man against every other man; “nasty, brutish and short” • Essentially the law of the jungle

6. Hobbesian Social Contract (II) The Social Contract: • Every individual surrenders its “natural liberty” to a common centralized power, a Sovereign embodying the State • The Sovereign has a monopoly on the use of force, and more generally, on political power • The Sovereign defines and enforces what is legal and illegal. Private property is thus constituted, but subject to limitations imposed by the sovereign, including confiscation

7. This contractgenerates a top-down(not very liberal) socialstructure! • The Hobbesian Sovereign personifying the State, made up of individuals • The sword and the staff symbolize secular and religious power which is absolute

8. Bottom-up (=liberal) Social Contracttheory Locke and Rousseau

9. Social Contracts and Economic Systems Mercantilism Classical Liberalism Social Liberalism • (Small government protecting Private Property) (Strong government expressing the General Will)

10. Contemporary Examples Social Contract Example Type of Capitalism Founding Idea Hobbes China Neo-MercantilisticState Capitalism Sovereign Power Locke USA Classical-Liberal Laissez-faire Capitalism Private Property Rousseau Europe Social-Liberal Welfare Capitalism General Will (Posing the question: If an American or European company is operating in China, which social contract should their behavior be judged by?)

11. Question: Where does RISK and CSR fit into this picture?

12. Assumption CSR is essentially about the social responsibility of business beyond what is stipulated by law, i.e. a voluntary responsibility. (Cf. Carroll 1991/1999, Schwartz & Carroll 2003, Windsor 2006)

13. Basic observation The notionof CSR doesnotfitwiththeHobbesian, Mercantilisticmodelbeacuse in thismodeltheSovereignarrogatesallsocialpower and thusallsocialresponsibility. I.e. in theHobbesiansocio-economicmodelthere is noroom for a voluntarilyassumedsocialresponsibilityonbehalfof private citizens and private firms. Why? Becausevoluntaryresponsibilitypresupposesindividualfreedom, and in theHobbesianmodelthere is essentiallyonlyonefreeindividual (in a strongsenseoffreedom), thesovereign. In thissense CSR appears to be an intrinsically liberal, post-Hobbesiannotion. In otherwords, CSR seems to be intrinsicallylinked to thepolitical and economicalthoughtoftheEnlightenment, emphasizingthefreedomoftheindividual, includingtheindividualfirm(corporatecitizen.)

14. The Fundamental Principleof CSR With freedomcomesresponsibility I.e. CSR is essentially a liberal (”bottom up”) project

15. This raisesthequestion: • Whatkindoffreedomdoescompanies in liberal societies have to incur risk (financial, environmental, etc)? • Whatkindofsocialresponsibilitydoesthisimplyaccording to (liberal) socialcontracttheory?

16. Some general observationsRisk and the Social Contract in a Classically Liberal Perspective(Locke-style) The individual agent (firm) is allowed a wide scope of action as regards its private property – freedom consists in being subject to limited regulation If action results in damage to another agent’s private property, the agent who is responsible for the damage is morally and/or legally obliged to offer compensation (Cf. Nozick’s in Anarchy State and Utopia) In other words, under this paradigm emphasis is upon assessment of and compensation for actualdamage (“visible”), not risk (“invisible”) Prima facie, this makes for an uncomfortable fit with a Beck-style risk society: Private agents (firms) may be poorly positioned to assess and control systemic risk, and to prioritize the public interest This is particularly crucial when the potential damage is catastrophic and irreversible – implying that compensation after the fact may be too little too late

17. Some general observationsRisk and the Social Contract in a Social-Liberal Perspective (Rousseau-style) • Scope of individual action significantly restricted in advance: regulation by centralized government bodies expressing the general will – freedom consists in being part of the political process that determines the regulation • Under this regulatory paradigm emphasis is on potential damage (risk) – damage that may occur and should be forestalled • Incurrment of risk must be compensated by gain to society as a whole, including its weakest members (cf. Rawls in A Theory of Justice) – call it the “just risk” paradigm • Compare: Environmental regulation, financial regulation • Prima facie this paradigm makes for a good fit with a Beck-style risk society: democratically elected central authorities are arguably better placed than private agents to assess and control systemic risk, as well as to act in the public interest • This makes sense especially when potential damage may be catastrophic and irreversible

18. Whatdoesthisimply for CSR? • Claim I: In faceof a Beck-style Risk Society a purely ”private” Classically Liberal legal or ethicalapproach to Corporate Risk basedoncompensation for actualdamage makes littlesense – compensation for catastrophic and irreversible damage is inherentlytoolittletoo late

19. Claim II: ThereforeCSR-relatedworkon risk shouldtakethe form of a public-privatepartnershipfocusingonreducingsystemic risk per se (systemic risk must be reduced in a systematic fashion)

20. I.e. in a Social-Liberal Risk Society centralgovernmentshouldassess and controlsystemtic risk (as part ofthesocialcontract), butthesociallyresponsibleattitudeof private firms(withinthissocialcontract) is to helpgovernment do so, alsoon a voluntary basis as a quid-pro-quo for theirfreedom to do ”risky” business

21. In particularfirmsshouldvolunteertheirknowledgeof risk withintheirsectors, and thusassisttheregulatoryprocess • Indeed, thiswould be a case ofexercisingfreedom ”bottom up” within a Rousseau-style Social Contract, and ought to be in theCorporation’sownlong-terminterest

22. Thankyou for yourattention!