CORPORATE SOCIAL RESPONSIBILITY : An institutionalist approach

1. CORPORATE SOCIAL RESPONSIBILITY:An institutionalist approach Robert BOYER PSE (Paris School of Economics), EHESS, CEPREMAP International Conference on « Business Governance and Social Responsibility, EAEPE-CNAM May 22nd 2008 - Paris

2. INTRODUCTION • Since the 70s, managerial paradigms and macroeconomic policies have been in permanent flux.

3. During the last decades, analysts have been proposing various alternatives to Fordism, both as a firm organization and a macroeconomic growth regime: • Toyotism as overcoming the weakness of Fordist organization and new growth regime • A service led economy and a consumer driven firm • Information and communication technology led growth and start-up • Knowledge based economy and firms as a learning entity • Finance led regime and firms governed by shareholder value • Competitiveness led growth and new configuration for multinationals.

4. But these forecasts have proved to be largely erroneous, probably because they extrapolate only onecanonical principle… …And they were mimicking organizations and macroeconomic regime as simple as the Fordist configuration… …And they were supposed to be uniform all over the world.

5. Would Corporate Social Responsibility (CSR) be the right answer both at the level of firms governance and growth regimes in an integrated world? …Since it is a priori more complex because it proposes to articulate three principles… Profit – People - Planet

6. THE ORGANIZATION OF THE PRESENTATION 1 – What is Corporate Social Responsibility (CSR): A strict or an extended definition ? 2 – The various institutionalist theories facing CSR 3 – A regulationist approach of CSR

7. 4 – Does CRS define a new compromise of government and mode of governance of firms? 5 – Is CSR the embryo of an re-articulation of the national and international regulation modes? 6 – Conclusion

8. I. WHAT IS CSR? • A strict definition… • « The RSE aims at promoting the integration by firms of social, environmental and economic concerns in their activities and their interactions with the various stakeholders on a voluntary basis. » • Its origin is in the requests of NGO back to the Seventies, and this movement has been strengthening and and diversifying since then.

9. … Or an extended concept?… • Another form of good governance… • Beyond the shareholder value… • Stimulated by the Socially Responsible Investment (SRI)… • Including ecologicallysustainable development… • Supplemented by the rise of the equitable trade… • And the emergence of an ethical finance.

10. Figure 1 – The CSR as a logic permeating the various institutional forms Rating Agencies Civil Society Shareholders Consumers R4 R3 R7 FIRM R1 Wage earners Competitors Local Communities R5 R2 Subcontracting R’1 Wage earners R6 State Environment

11. Major features common to both approaches • A complex mix of criteria more than one single objective • Principles which go beyondthe borders of a single firm… • …because they cross the valuechain at the world level • Relatively fuzzy nature of the CSR indexes compared with the precision of financial evaluations

12. II. THE INSTITUTIONALIST THEORIES FACING RSE • The New Institutionalist Economies (NIE) • Douglass North (1990, 2005) stresses the role of the beliefs, social norms, informal rules besides the law and public interventions. • Avner Greif (2005) investigates the nature of individual behaviors allowing the emergence of the basic institutions that sustain the co-operation, necessary to the blooming of the market

13. Rational institutionalism Figure 2 – The CSR as the internalization of reputation effects Competitive premium 1 Reputation towards the consumers Ethical firm Reputation towards the investors Access to the financing 2

14. Consequently, they are the external actors who discipline the firm • The virtuous circle of the reputation effects may exist independently of any beneficial impact of the CSR on the financial performances. • If the firms are opportunist and not ethical, they can have interest to exploit this reputation effect and thento break with their good former behaviour. • It is not any example in history of emergence of institutional arrangements founded exclusively on reputation, without any control of a third party.

15. An institutionalism à la Polanyi Figure 3 – CSR as a countervailing mechanism against the commodification of labor, money and nature ECONOMY Commodification of SOC I ETY • Labor • Money • Nature • Basic social rights • Financial stability • Ecological Pact CSR

16. In a sense the CSR aims at thwarting excesses of globalization and the shareholder value • The RSE relates to the human and social rights on the one hand, the safeguarding of the environment on the other hand… • …but not on the requirement of financial and monetary stability at the world level…. • …While nowadays the management of financial crises has a major impact on the viability of any CSR.

17. III. RÉGULATION APPROACHES AND THE CSR : • An evidence of the erosion in the institutionalization of the wage labor nexus

18. Figure 4 – The shift in the hierarchy of the institutional forms : from the 60s to the 90s Forms of competition Forms of competition Wage Labor Nexus Wage Labor Nexus Monetary regime Financial regime Versus State State

19. If the wage labor nexus( WLN) is thus dominated… • It is important to act on the other institutional forms that shape the WLN… • For example, in order to compensate for the loss of influence on the labor market, use the boycott of the products whose production does not respect the social or environmental rights… • This strategy is promoted by Anglo-Saxon activists.

20. Figure 5 – The 60s: the wage labor nexus is the leading institutional form

21. Figure 6 – The 90s:International insertion is the dominant institutional form

22. An analysis of the globalization: international insertion becomes the key factor. • Through the liberalization of the foreign trade • By the delocalization of production • By the financial globalization

23. …What explains the international character of the CSR • It relates primarily to the multinationals… • Whereas national regulations remain heterogeneous... • Thus CSR aims at an international homogenization , via privately generated standards.

24. CSR : an evidence for the erosion of State capacity ? • A double shift: decentralization of public action and new supranational governance • A tendency to the break-up of the State and autonomization of various of its functions • The monetary policy:independenceof Central Banks • Finance: agency for financial stability • Public services: independent administrative agencies • The budget: proposal of an independent rating agency

25. Table 2 – A epochal change for economic policy

27. …This shift affects even developing countries • A striking example: Chinese SME of Shanxi apply for international certification… • The multinationals of the Third World claim to implement CSR • The standards of the CSR shape the governance of emergent countries

28. Financialization: an avenue for restoring some power to employees? • For Michel Aglietta (1998) the financiarisation is irreversible… • So that the employees must accept saving and pension funds in order to compensate for the wage concessions… • ..Still more to control the direction of the investment , by requiring that it contribute to the improvement of employment and the living standards It would be a justification of the SRI

29. But this optimism is mitigated by other researches • Sabine Montagne (2006): Finance won against the need for security in the management of pension funds. • Robert Boyer (2000), Michel Aglietta and Antoine Rébérioux (2004) conclude to the instability of the current financial regime. • The mobility of the capital supports the attempt by OECD to consider that freedom of management for multinationals is a higher principle than the national laws (AMI). • The speed of the financial innovation outclasses the capacity of reaction of the employees

30. The macroeconomic factors which supported the emergence of the CSR • Internationalization erodes the capacity of negotiation of the employees… • A stiffer competition on product markets feeds back into employment and wages… • Therefore a possible relevance of boycott… • The financialisation may trigger the emergence of countervailing powers • The imbalances of the world economy threaten the supply of global public goods.

31. Figure 7 – CSR: trans nationalization and soft law Loss of autonomy of Nations-States Internationalization Capacity of boycott by the consumers Rise of NGOs Erosion of the bargaining popwer of the employees Erosion of the institutionalized compromises of the fordism Proposal for new standards and codes of good governance Financialisation CSR Socially responsible investment Threats on global public goods Protection of the environment

32. 6. Preliminary conclusions: TR and CSR C1 – It is important not to confuse an alternative of managerial principle with the logic of a mode of regulation. C2 – The diversity and pervasiveness of CSR across institutional forms makes difficult the diagnosis of the related growth regime. C3 – A quite problematic coherence • At the level of the firm • In terms of national and international regulations

33. IV. IS CSR DEFINING A NEW COMPROMISE OF GOVERNMENT FOR FIRMS? • The viability of a firm: the internal consistency of three logics • A response to competition on product markets • A form of organization and control over thewage labor nexus • Getting access financing • Typical configuration of the fordist firm

34. Figure 8 – The organization of the fordist firm Financial regime Form of competition Product / Financing Firms’ Gouvernment Subcontracting Production Wage Labor Nexus

35. Multiplicity and increasing diversity of the domains governed by the principle of transparency • Standards of quality and safety of the products • Environmental standards • Code good governance concerning subcontractors • Standards of decent work • Standards for the ethical investment.

36. Figure 9 – Segmentation andexternalization of the principles of management under the requirement of transparency Quality standards Reputation Effects Rating Agencies, including social rating, Socially Responsible Investment World pacts Product Finance Environment Codes of good governance Respect of the humans rights ISO Standards Production Subcontracting Labor Standards of decent work Environmental Externalities

37. A coherence that is more problematic than ever • From a strict technical point of view, how to assess the compatibility of these diverse standards? • A contrario, the criteria are so numerous that each firm will select those which are most favorable its interests. • In political terms: profit, individuals and environment, have quite different impacts! • The dissolution of the concept of firm’s government , replaced by that of governance.

38. V. IS THE CSR AN EMBRYO OF A NEW BALANCE BETWEEN NATIONAL AND INTERNATIONAL REGULATION MODES? • From micro to macro: what are the processes of extension and generalization of the CSR?

39. Figure 10 – Actors and processes that could generalize the CSR • NGOs and experts proposals • Standardization and implementation • Ex: Social Accountability Standard 8000 • ISO 14001 - AFAQ 1000NR - GRI • Global compact • Local and marginal innovations • Standardization, routines, norms • Ethial Codes • Soft Law • Hard law • Voluntary adhesion of the firms • Diffusion by : • Mimetism • Favorable impact on the performance • Adoption by public authorities • Law on New Economic Regulation 2001 (France) • Possibly European directives on corporate law Possible impact upon firms’ governance / Régulation modes

40. The CSR: a trial and error process in search for a multi-polar and internationalized mode of regulation • The wage labor nexus is not any more the central institutional form. • The transformations of the international regime, finance and competition shape the redesign of the wage labor nexus • The era of the CSR is an attempt at rebalancing of the institutional forms

41. Figure 11 –The Golden Age: The Fordist wage labor nexus logic shapes all the other institutional forms Form of competition Oligopolistic Shapes Wage Labor Nexus Financial regime Fix exchange rate International insertion

42. Figure 12 –The 80s and 90s: the erosion of wage labor nexus under the pressure of other institutional forms changes Form of competition Flexibility strategy Wage labor nexus Financialization Financial regime Segmentation International insertion

43. Figure 13 –The epoch of CSR: domination of internationalization and a new balance between institutional forms Form of competition Boycott SRI Wage labor nexus Financial regime CSR Decent work International insertion

44. An emerging configuration more than one stabilized regime • Obvious limits of a voluntary adhesion • Composite and sometime obscure character of standards proposed by third parties (i.e rating agencies) • A low capacity for implementing CSR to the alliance of top-managers and financiers • A premium given to the multinationals against Nation-States. • A problematic compatibility with democratic principles.

45. Table 3 – From the Fordist regime to the CSR configuration

46. CONCLUSION  C1 : The diffusion of CSR is an invitation to analyze the relations between the management of the large firms and macroeconomic evolutions Macro Crisis  erosion of the institutional forms sectoral and local innovations addition of their macroeconomic impacts

47. C2 : An institutional emergence triggered from the crisis of the Fordism: • Loss of employees bargaining power, • Internationalization of the production, • Financial globalization, • Segmentation and externalization of the functions of the State, • Political difficulties in redesigning institutionalized compromise.

48. C3 : The firm is the source of major externalities in the various fields: • Social, • Environmental, • Economic, • Financial. C4 : In a sense the CSR aims at promoting the internalization by the firm of these externalities

49. C5 : CSR appears to be a new form of good governance of the firms, and an antidote to the domination of the shareholder value… …But the voluntary nature and the variable geometry of the CSR make problematic its effectiveness.

50. C6 : A major uncertainty concerning the diffusion of the CSR as a form of government of the firms • Afashion that will fade… • A reassuring rhetoric hiding almost unchanged practices…. • An evidence for the raising concerns for a form of business ethic in reaction to recent financial scandals and crisis… • Supported by world standards and/or European directives… • With a possible incorporation in the legal system in the very long run.