Corporate Social Responsibility in the Context of Regulation

1
Corporate Social Responsibilityin the Context of
Regulation

• Institute of Medicine of the National Academies
• Roundtable on Environmental Health Sciences,
  Research, and Medicine
• Global Environmental Health in the 21st Century
• From Governmental Regulation to Corporate Social
  Responsibility
• October 14, 2004
• Eric W. Orts
• Guardsmark Professor
• Professor of Legal Studies and Management
• Director, Environmental Management Program

2
The Idea of Corporate Social Responsibility
European Origins

• Walther Rathenau German industrialist in the
  Weimar republic on the rise of the business
  corporation as a social institution
• The business corporation is no longer purely a
  system of private interests. Although the
  business corporation has continued to bear the
  marks of an undertaking run purely for profit,
  it for some time and to an increasing degree has
  been serving the public interest.
• Harry Kessler, Walther Rathenau His Life and
  Work 200-01 (1930) (quoting 5 Walther Rathenau,
  Collected Works 154 (1917)).

3
An Early American Version

• John Dewey and James H. Tufts Columbia
  University philosophers
• When . . . great corporations, each controlling
  scores or even hundreds of millions of capital,
  are linked together in common control, we have a
  tremendous force which may be wielded as a unit.
  . . . . The moral dangers attaching to such
  corporations formed solely for economic purposes
  are obvious, and have found frequent illustration
  in their actual workings. Knowing few or none of
  the restraints which control an individual, the
  corporation has treated competitors, employees,
  and the public in a purely economic fashion.
  This insures certain limited species of honesty,
  but does not include motives of private sympathy
  or public duty.
• John Dewey James H. Tufts, Ethics 498-99 (1908).

4
Corporate Social Responsibility and Its
Relationship to Regulation

• Moral imperative
• Beyond legal requirements
• Beyond compliance
• Neoclassical economic critique
• Legal reform and alternatives
• Reflexive law
• Informational regulation
• Corporate social and environmental reporting
• Environmental contracts

5
The Ethical Argument forCorporate Social
Responsibility

• An initial clarification David Barons
  distinction between
• corporate social responsibility
• corporate social performance
• True CSR involves an allocation of a firms
  wealth toward some view of the public good
  motivated by normative, that is, ethical
  principles.
• Strategic CSR (or mere corporate social
  performance) involves actions that appear to be
  motivated by higher social purposes and are in
  fact motivated by profits. Extreme cases amount
  to simple deception or greenwashing.

David P. Baron, Private Politics, Corporate
Social Responsibility, and Integrated Strategy,
J. Econ. Mgmt. Strategy 10 7-45 (2001))
6
Sustainability in Business asan Ethical
Imperative
Quite simply, our business practices are
destroying life on earth. Given current
corporate practices, not one wildlife preserve,
wilderness, or indigenous culture will survive
the global market economy. . . . There is no
polite way to say the business is destroying the
world. (p. 3) Many companies today no longer
accept the maxim that the business of business is
business. Their new premise is simple
Corporations, because they are the dominant
institutions on the planet, must squarely address
the social and environmental issues that afflict
humankind. (p. xiii)
7
Additional Pragmatic Argument for Corporate
Social Responsibility

• Inability of government to address some current
  social problems effectively.
• Increasing global nature of environmental
  problems
• Global climate change
• Ozone layer depletion
• Biodiversity loss
• Depletion of fisheries and forests
• Hazardous waste transportation and disposal
• Migrating microbes
• Local air and water pollution, especially in poor
  countries

8
Global Context and the Idea of Corporate
Citizenship

• Continuing debates about the meaning and practice
  of corporate social responsibility
• Competing views of the social role and purposes
  of corporations
• Globalization and its implications the idea of
  global corporate citizenship in globally
  constituted civil society
• Updating corporate responsibility to include
  environmental issues

Eric W. Orts, From Corporate Social
Responsibility to Global Citizenship, ch. 14,
Cambridge University Press (2004).
9
Neoclassical Economic Critique of Corporate
Social Responsibility
In general, corporate executives have the
responsibility to make as much money as possible
while conforming to the basic rules of the
society, both those embodied in law and those
embodied in ethical custom. Milton Friedman,
The Social Responsibility of Business Is to
Increase Its Profits, N.Y. Times magazine (1970).
10
Current Trend in ManagementGreen Strategy and
Competition
Limitations of some of these views and
assumptions?
11
A General Conceptual Tension in the Corporate
Social Responsibility Debate

• Ethical arguments about the necessary role for
  business in dealing with a broad array of
  stakeholders and acting as a corporate
  citizen in a larger society to deal with social
  problems effectively.
• Economic arguments about the need for businesses,
  especially public corporations, to focus on
  enhancing shareholder value and the economic
  interests of the firm.

12
A Standard View The American Law Institute,
Principles of Corporate Governance Analysis and
Recommendations, Section 2.01 (1994)

• (a) . . . A corporation should have as its
  objective the conduct of business activities with
  a view to enhancing corporate profits and
  shareholder gain.
• (b) Even if corporate profit and shareholder
  gain are not thereby enhanced, the corporation,
  in the conduct of its business
• Is obliged, to the same extent as a natural
  person, to act within the boundaries of the law.
• May take into account ethical obligations that
  are reasonably regarded as appropriate to the
  responsible conduct of business and
• May devote a reasonable amount of resources to
  public welfare, humanitarian, educational, and
  philanthropic purposes.

13
Some Legal Reform Strategies to Enhance Corporate
Social Responsibility

• Reflexive law Social complexity as leading to
  a need for creative legal strategies beyond
  command-and-control.
• Possible examples in environmental context
• Environmental annual reports (perhaps verified or
  audited by third-parties)
• Eco-labels and other certifications
• Informational regulation in the form of
  mandatory disclosure of information (e.g. Toxic
  Release Inventory)

Other sources Gunther Teubner, Substantive and
Reflexive Elements in Modern Law, 17 Law
Society Rev. 239 (1983) Eric W. Orts, Reflexive
Environmental Law, 89 Northwestern University
Law Rev. 1227 (1995) Paul Kleindorfer and Eric
W. Orts, Informational Regulation of
Environmental Risks, 18 Risk Analysis 155
(1998).
14
Legal Reform Strategies to Enhance Corporate
Social Responsibility (continued)

• Environmental Contracts Partnerships among
  business, government, and nonprofit organizations
  to govern some social and environmental problems.
• Possible examples
• Quasi-autonomous nongovernmental organizations
  (Quangos) used for governance of international
  river projects and perhaps other issues?
• Regulatory bargaining (with stakeholders involved
  in legislative process)
• Administrative leniency in exchange for special
  showing of good environmental management
  practices.

Source Geoffrey C. Hazard and Eric W. Orts,
Environmental Contracts in the United States,
in Environmental Contracts (Eric. W. Orts and
Kurt Deketelaere eds., Kluwer Law International
2002).
15
Corporate Social Responsibility and Its Limits
Zone of Relevant Legal and Ethical Constraints
and Considerations
Society
Firm
Natural Environment