Sri V Ganapathy SubramanianB.Com / 1968-1971
Phone: 99639 17044
Over the past few decades, a new form of governance has emerged to replace adversarial and managerial modes of policy making and implementation. Collaborative governance, as it has come to be known, brings public and private stakeholders together in collective forums with public agencies to engage in consensus-oriented decision making
These variables include the prior history of conflict or cooperation, the incentives for stakeholders to participate, power and resources imbalances, leadership, and institutional design. We also identify a series of factors that are crucial within the collaborative process itself. These factors include face-to-face dialogue, trust building, and the development of commitment and shared understanding. We found that a virtuous cycle of collaboration tends to develop when collaborative forums focus on "small wins" that deepen trust, commitment, and shared understanding.
DEFINING COLLABORATIVE GOVERNANCE
We define collaborative governance as follows:
A governing arrangement where one or more public agencies directly engage non-state stakeholders in a collective decision-making process that is formal, consensus-oriented, and deliberative and that aims to make or implement public policy or manage public programs or assets.
This definition stresses six important criteria: (1) the forum is initiated by public agencies or institutions, (2) participants in the forum include nonstate actors, (3) participants engage directly in decision making and are not merely "consulted" by public agencies, (4) the forum is formally organized and meets collectively, (5) the forum aims to make decisions by consensus (even if consensus is not achieved in practice), and (6) the focus of collaboration is on public policy or public management.
One critical component of the term collaborative governance is "governance." Much research has been devoted to establishing a workable definition of governance that is bounded and falsifiable, yet comprehensive.
As a baseline definition it can be taken that governance refers to the rules and forms that guide collective decision-making. That the focus is on decision-making in the collective implies that governance is not about one individual making a decision but rather about groups of individuals or organisations or systems of organisations making decisions.
Collaborative governance is therefore a type of governance in which public and private actors work collectively in distinctive ways, using particular processes, to establish laws and rules for the provision of public goods.
Although there are many forms of collaboration involving strictly nonstate actors, our definition stipulates a specific role for public agencies. By using the term "public agency," our intention is to include public institutions such as bureaucracies, courts, legislatures, and other governmental bodies at the local, state, or federal level. But the typical public institution among our cases is, in fact, an executive branch agency, and therefore, the term "public agency" is apt. Such public agencies may initiate collaborative forums either to fulfill their own purposes or to comply with a mandate, including court orders, legislation, or rules governing the allocation of funds.
We use the term "stakeholder" to refer both to the participation of citizens as individuals and to the participation of organized groups. For convenience, we will also hereafter use the term "stakeholder" to refer to both public agencies and nonstate stakeholders, though we believe that public agencies have a distinctive leadership role in collaborative governance. Our definition of collaborative governance also sets standards for the type of participation of nonstate stakeholders. We believe that collaborative governance is never merely consultative. Collaboration implies two-way communication and influence between agencies and stakeholders and also opportunities for stakeholders to talk with each other. Agencies and stakeholders must meet together in a deliberative and multilateral process. In other words, the process must be collective.
Consultative techniques, such as stakeholder surveys or focus groups, although possibly very useful management tools, are not collaborative in the sense implied here because they do not permit two-way flows of communication or multilateral deliberation.
Collaboration also implies that nonstate stakeholders will have real responsibility for policy outcomes. Therefore, we impose the condition that stakeholders must be directly engaged in decision making.
We impose the criteria of formal collaboration to distinguish collaborative governance from more casual and conventional forms of agency-interest group interaction. For example, the term collaborative governance might be thought to describe the informal relationships that agencies and interest groups have always cultivated. Surely, interest groups and public agencies have always engaged in two-way flows of influence. The difference between our definition of collaborative governance and conventional interest group influence is that the former implies an explicit and public strategy of organizing this influence
Although public agencies may have the ultimate authority to make a decision. The goal of collaboration is typically to achieve some degree of consensus among stakeholders. We use the term consensus oriented because collaborative forums often do not succeed in reaching consensus. However, the premise of meeting together in a deliberative, multilateral, and formal forum is to strive toward consensus or, at least, to strive to discover areas of agreement.
Finally, collaborative governance focuses on public policies and issues. The focus on public issues distinguishes collaborative governance from other forms of consensus decision making, such as alternative dispute resolution or transformative mediation. Although agencies may pursue dispute resolution or mediation to reduce social or political conflict, these techniques are often used to deal with strictly private conflicts. Moreover, public dispute resolution or mediation may be designed merely to resolve private disputes. While acknowledging the ambiguity of the boundary between public and private, we restrict the use of the term "collaborative governance" to the governance of public affairs.
Although managerial agencies may take account of stakeholder perspectives in their decision making and may even go so far as to consult directly with stakeholders, collaborative governance requires that stakeholders be directly included in the decision-making process.
A number of synonyms for collaborative governance may cause confusion. For example, "corporatism" is certainly a form of collaborative governance as we define it. Classic definitions of corporatism emphasize tripartite bargaining between peak associations of labor and capital and the state. Typically, these peak associations have a representational monopoly in their sector (they are "encompassing"). If we start with this narrower definition of corporatism, collaborative governance is the broader term. Collaborative governance often implies the inclusion of a broader range of stakeholders than corporatism, and the stakeholders often lack a representational monopoly over their sector. The term "associational governance" is sometimes used to refer to the more generic mode of governing with associations, but collaborative governance may not even include formal associations. The Porte Alegre project, for example, is a form of collaborative governance that includes individual citizens in budgetary decision making
Sometimes the term "policy network" is used to describe more pluralistic forms of state-society cooperation. A policy network may include both public agencies and stakeholder groups. Moreover, policy networks typically imply cooperative modes of deliberation or decision making among actors within the network
Collaborative governance and public-private partnership can also sometimes refer to the same phenomenon. Public-private partnerships typically require collaboration to function, but their goal is often to achieve coordination rather than to achieve decision-making consensus per se. A public-private partnership may simply represent an agreement between public and private actors to deliver certain services or perform certain tasks. Collective decision making is therefore secondary to the definition of public-private partnership. By contrast, the institutionalization of a collective decision-making process is central to the definition of collaborative governance.
A Model of Collaborative Governance Participatory Inclusiveness, Forum Exclusiveness, Clear Ground Rules, Process Transparency Influences Collaborative Process Trust-Building Commitment to Process -Mutual recognition of interdependence -Shared Ownership of Process -Openness to Exploring Mutual Gains -Clear Mission Shared Understanding -Common Problem Definition -Identification of Common Values Intermediate Outcomes -"Small Wins" -Strategic Plans -Joint Fact-Finding -Good Faith Negotiation Face-to-Face Dialogue Outcomes Institutional Design Facilitative Leadership (including empowerment) Starting Conditions Power-Resource Knowledge Asymmetries Incentives for and Constraints on Participation Prehistory of Cooperation or Conflict
The term "collaborative governance" promises a sweet reward. It seems to promise that if we govern collaboratively, we may avoid the high costs of adversarial policy making, expand democratic participation, and even restore rationality to public management. A number of the studies reviewed here have pointed toward the value of collaborative strategies: bitter adversaries have sometimes learned to engage in productive discussions; public managers have developed more fruitful relationships with stakeholders; and sophisticated forms of collective learning and problem solving have been developed. Other studies, however, point to the problems that collaborative strategies encounter as they pursue these valued outcomes: powerful stakeholders manipulate the process; public agencies lack real commitment to collaboration; and distrust becomes a barrier to good faith negotiation. Draw positive and negative findings together into a common analytical framework that can begin to specify the conditions under which we can expect collaborative governance to work (at least in terms of "process outcomes")
In Indian Scenario, the examples are PPP (Public Private Partnership) in Power Projects, Highway projects, Airport projects, etc.
The initiative on ADR (Alternate Dispute Resolution) is gaining popularity.
Pre budget discussions with Chambers of Commerce and Industry representatives are widely acknowledged.
Seeking public debates like what the present delhi govenment is doing, is another example.
Divestment in Public sector undertakings is another initiative in India.
Sri V Ganapathy SubramanianB.Com / 1968-1971
Phone: 99639 17044
If you were a newcomer in the field of business and social issues and you started browsing academic literature, surely you would be bewildered by a number of different terms and definitions that imply similar or identical meanings: corporate social responsibility, public responsibility, corporate social responsibilities, corporate societal responsibility, corporate social responsiveness, corporate social performance, corporate citizenship, business citizenship, stakeholding company, business ethics, sustainable company, and triple bottom-line approach. Even the same author uses different terms throughout his or her papers1 or in the same paper.2 You will probably wonder whether historical and geographic reasons explain the preference for a particular name (e.g., until the 1990s, the term "corporate social responsibility" was more widely used; the use of corporate citizenship is preferred in Anglo-Saxon countries3) or whether academics, out of the need to present original contributions, make up new names, and merely add nuances to past concepts.
Corporate Governance The underlying concept of corporate governance is based on the view of separation of ownership and management in large corporations which was first identified by Berle and Means (1932). Berle and Means were the first to explore the "structural and strategic implications of the separation of ownership and control" .Therefore they are widely acknowledged as the "fathers of contemporary thinking about corporate governance" and their hypotheses are the "fundamental building blocks of corporate governance". Later on separation of ownership and control gave rise to the concept of principal-agent conflict.
In 1976 Jensen and Meckling introduced agency theory which suggests that self- interested individuals (agents) are 'opportunistic' hence less likely to protect the interests of principals (owners) and more likely to act in their own interests such as empire building, the consumption of corporate resources as perquisites, the avoidance of optimal risk investments, and manipulating financial figures to optimize compensation. In order to resolve such agency dilemmas corporate governance mechanisms have evolved where shareholders use a range of governance mechanisms to ensure that agents act in the best interests of principals. Over the years the definition of governance has become much broader and is now expected to be '... good corporate citizenship, being accountable not only to shareholders, but also to other stakeholders and to the wider community within which they exist" The definition of corporate governance therefore varies depending on one's view of the world. However, they mainly fall into two major categories. Some view corporate governance as a mechanism to protect the interest of owners/shareholders i.e. the narrow perspective; whereas others view it as a mechanism to protect the interests of a broader range of stakeholders i.e., the broader perspective. The narrow definition focuses on return on investment to those who supply finance (primarily owners/shareholders) to the corporations in which socio-environmental considerations are almost neglected The broader perspective focuses on wider stakeholders (including shareholders) who provide the firm with the necessary resources for its survival, competitiveness, and success Such stakeholders may be employees, suppliers, customers, and communities whose investments in the company are equally significant in other important respects
Whether the shareholder or stakeholder perspective of corporate governance is taken, researchers while examining the effect of governance on corporate performance (financial or non-financial) often concentrate on internal corporate governance, particularly boards of directors. The board of directors has been widely considered as a major player in corporate governance. In order to explain the board's role in corporate governance, various theories also have emerged.
However, agency theory was challenged by an alternative theory 'stewardship theory' in 1990. Stewardship theory proposes that managers are essentially trustworthy individuals or good stewards of the resources entrusted to them. From this point of view board monitoring of management or board independence is not relevant. Resource dependency theory on the other hand is based on the view that in order to survive, firms usually depend on external units through which they can exchange and acquire certain resources. In this sense, the board of directors is the linkage mechanism that provides critical resources to the firm including legitimacy, advice and counsel. Finally stakeholder theory, which well fits into broader definition of corporate governance, suggests that "companies and society are interdependent" and corporations in order to survive should consider the interests of broader stakeholders. "...the implication of stakeholder theory for corporate governance is that the board of directors should be able to judge whether the interests of all stakeholders are being justly balanced".
The various theories mentioned above suggest that boards of directors, being the key players in corporate governance, have the potential to enhance corporate performance in general. However, stakeholder theory which is consistent with a broader concept of corporate governance clearly highlights that a board's responsibility is not limited to shareholders / monitoring management, but rather requires them to ensure that corporations discharge their wider responsibility (CSR), as well as wider stakeholder accountability (CSRR). Such a relationship between corporate governance i.e. boards role in and CSR and CSRR is further discussed in the next section
CSR, as mentioned earlier, extends firm's accountability to wider stakeholders through reporting on their CSR activities, i.e. CSRR. Since accountability is an essential part of corporate governance, boards of directors become responsible for CSRR. The relationship between board composition and CSRR is explored in this section. The link between corporate governance and reporting emerges from Jensen and Meckling's (1976) agency theory framework under which it is assumed that management can exploit the information asymmetry to act in a manner that is contrary to the interests of shareholders. One way of mitigating such an agency problem is to reduce information asymmetry between management and shareholders and this is possible through one of the important qualities of governance, i.e. transparency/accountability. Transparency as an integral part of corporate governance minimises the asymmetric information and ultimately enhances overall corporate disclosure. This relationship between governance, transparency and disclosure is well argued by Htay et al. who suggest that disclosure of information / transparency is an integral part of corporate governance as higher disclosure could reduce information asymmetry which not only clarifies the conflicts of interests between shareholders and management but also makes corporate insiders accountable. Given that boards of directors are major players in corporate governance, board composition is likely to have some influence on CSRR.
Based on the view that corporate governance enhances transparency/accountability, researchers have linked board composition to various disclosures such as mandatory reporting (financial reporting) as well as non-mandatory voluntary disclosure including CSR disclosures. The evidence indicating the link between board composition and disclosure is mixed. For instance, Chen and Jaggi (2001) found a positive association between a firm's mandatory financial disclosures and the proportion of independent nonexecutive directors. Eng and Mak's (2003) result on the other hand indicated that non mandatory disclosure in Singapore is significantly and negatively associated with percentage of independent directors. Ho and Wong (2001), using a direct measure of voluntary disclosure based on analyst perception, were unable to confirm a significant relationship between the level of voluntary disclosure and board independence. With regard to board diversity (including gender), the research is rare linking with CSR disclosure, but results seem to confirm a positive relationship.
Due to globalisation and technology, the nature of organisations and their relationship with stakeholders has been evolving and now requires boards of directors to "... move forward from the traditional role of controlling the management, toward a much more proactive role". In other words, boards' roles and responsibilities have been extended from the traditional shareholder-centric one to encompass various stakeholders. Such an extended board's role has been clearly highlighted in the broader perspective of corporate governance which suggests that boards of directors, being major governance mechanisms, are both responsible and accountable to a wider group of stakeholders. Within this view, board composition seems to be a major factor which can be assumed to have some influence on both CSR and CSR reporting. The present paper reviews the literature on board composition from a board diversity perspective and examines its influence on both CSR and CSRR. It also highlights some avenues for future research which are discussed below. 18 In considering board composition, one of the emerging and rapidly growing areas of research is board diversity. Greater diversity among board member characteristics has been advocated as "a means of improving organisational performance by providing boards with new insights and perspectives". Even though a reasonable consensus exists in the literature suggesting that corporate governance, in particular, boards of directors, play an important role in ensuring companies meet CSR objectives, limited research actually examined whether diversity among board members has any influence on CSR or CSR reporting. The majority of empirical papers rather exclusively focus on examining the board diversity effect on corporate financial performance. In addition most of the prior studies are cross sectional and hence restricted from identifying causality between the diversity and organisational performance. Future studies therefore should undertake longitudinal studies to address this issue. Since CSR is widely perceived as a strategy, research should also explore how board processes, in particular decision making processes, with regard to CSR or CSRR is taking place in an organisation. This is an important gap in the literature, and would provide more insight into whether and how boards are involved in decision making processes with regard to CSR and whether CSR and CSRR are outcomes of these decisions. Moreover, the decision making process is the one where boards collectively decide upon various CSR initiatives (e.g. whether to invest or not to invest in CSR activities) as well as reporting such CSR issues (e.g. whether to report or not to report certain positive or negative CSR issues to wider stakeholders). Very little research however has directly examined decision making by directors facing social responsibility decisions. Most of the board research studies are quantitative, examining the direct association between board diversity and CSR/CSRR resulting in contradictory findings. Qualitative methods such as case studies, observation and interviews should be adopted to gain in-depth understanding of boards' decision making processes with regard to both CSR and CSRR. With regard to board diversity, as far as we know there has been no research done linking various board diversity characteristics to CSR or CSRR decisions by the board. Within the board diversity characteristics, gender is one of the most debated and significant issues faced by modern corporations. Even though there is growing amount of literature suggesting that female directors can influence various board decisions, the research examining gender and CSR decision making processes is rare. Given such importance placed on gender diversity by academics, policy makers and firms, it is crucial to examine whether gender diversity really matters in CSR or CSRR decisions through both qualitative and quantitative means
Now is the time to analyze the similarities and differences between two of the most recurrent terms used in the literature: corporate social responsibility (CSR) and corporate citizenship (CC). As some authors have highlighted, since the 1990s CC "started to compete and replace the other concept in the realms of management theory and practice." To explore this "competition" between terminology and concepts, the criterion "which one(s) is improving corporate accountability" will be used. The question of corporate accountability seems crucial today. Corporations have been acquiring increasing power, in certain cases, even more power than some states, without engaging in the advancement of the common good. The situation presented by several authors-the growth of truly global companies, the environmental damage, the "race to the bottom" in labor, environmental and welfare standards, the overcommercialization of culture, and moral values-has inflamed the debate on the control of corporations.
ANALYSIS OF CORPORATE SOCIAL RESPONSIBILITY AND CORPORATE CITIZENSHIP
The CSR originated in 1953 with the publication of Bowen's book Social Responsibilities of Businessmen. At this time, the emphasis is placed on business people's social conscience, rather than on the company itself. The managerial "revolution" and the growing hostility of the public-who, after experiencing increasing social problems, demanded changes in business-led to a shift in the focus. Most of the responsibilities mentioned in the literature (which coincided essentially with the public's demands) were incorporated into regulation, giving rise to a new approach: the public policy approach. The concept then became clear: companies have to abide by the law. However, the debate about CSR continued. Complying with the legal requirements did not seem enough, partly because not all the public's demands were protected by laws, and partly because CSR was favored as it was believed to overcome the inefficiencies derived from regulation. The CSR positioned itself as a challenge to the neoclassical business model that, at that time, began becoming a paradigm. Two other terms were used in the 1970s: corporate social responsiveness and corporate social performance. The first emphasized the proactive approach required from companies and was used to link CSR with strategic management; the second was an attempt to offer a managerial framework to deal with the CSR and simultaneously, an attempt to measure CSR.
In the 1980s, the concept of stakeholders was coined. Although older references to the same concept have been found, it was Freeman's landmark book that triggered the thinking around stakeholders. Originally defined in a Stanford Research Institute Internal Report (1963) as "those groups without whose support an organization would cease to exist," Freeman extended the scope by proposing the following definition: "any group or individual who can affect or is affected by the achievement of the organization's objectives." The term proved to be useful as more than 200 theoretical papers have been written about stakeholders.17 The CSR and the concept of stakeholders complement and reinforce each other.
n the late 1990s, practitioners coined a new term: corporate citizenship (CC). The term CC is used to "connect business activity to broader social accountability and service for mutual benefit," reinforcing the view that a corporation is an entity with status equivalent to a person. The CC also coexists with and draws on existing literature on stakeholders. These two concepts have been criticized for a number of reasons. A review of these criticisms may clarify similarities and differences between these concepts. Moreover, it will establish the basis for the subsequent discussion regarding their contribution in improving corporate accountability.
The CSR has been used as an umbrella concept to introduce a large number of ideas, concepts, and techniques. Nonetheless, the principle that companies must not only be concerned about profits and economic performance underlies all of them. The CC advocates have pointed out some flaws in the CSR concept. Before the notion of CC appeared, some of these criticisms had already been mentioned, namely the lack of a single and clear definition of CSR21 and the large number of different proposals of "responsibilities." Besides, CSR has been criticized because of (1) its narrow content (the concept has been articulated more as management of externalities than as "holistic criteria in comprehensively redefining an organization internally"); (2) its broad content; (3) its academic origin; (4) the difficulties to operationalize CSR; and (5) the potential to bias its content towards specific interests. In addition, CSR was further criticized by neoclassical proponents who regarded it as "subversive," as an attack to property rights, and, in general, as a threat to free society.
Some counterarguments may be offered to these criticisms. Against the lack of clarity of the concept and its contents, it may be argued that this is inherent in the concept of CSR. The CSR makes reference to a relative concept; social demands vary in time and space and even within the same group of stakeholders (e.g., employees). Therefore, there will always be some ambiguity in the concept. This counterargument also helps to explain the difficulties in operationalizing the concept: CSR has to be specified in each company, taking into account its changing environment. It is not easy to provide managers with rules of thumb as evidence shows that social demands change in every society. Nonetheless, a number of operational models surged from the concept of CSR: standards (e.g., Sullivan Principles) and theoretical models (e.g., European Union's Green Paper).
The criticism regarding the academic origin of CSR is not entirely valid. The CSR has been developed by academics, trying to systematize actual social demands. Simultaneously, their conceptual models were used by social movements to support their claims (e.g., Ralph Nader's Corporate Social Responsibility Project). Hence, CSR has had both a bottom-up origin and a top-down development.
Although CSR has been criticized for its focus on externalities, this approach is consistent with the neoclassical paradigm of the firm. It has been widely used to persuade managers to take into account the social side effects of their policies. Profits lose their capacity to measure performance when in their computation and externalities have not been taken into account. To some extent, developments in the measurement of intangible assets (e.g., corporate reputation) and the inclusion of social and environmental performance in risk management try to capture these positive and negative externalities. Besides, it is not clear why companies are demanded to go beyond the management of externalities. When some firms do not even comply with the existing regulation, one may well wonder if they are ready to make the next step. Finally, several counterarguments have been advanced against those who reject CSR altogether.
The main criticism of CSR applies to CC as well: the ambiguity of the concept. Different from CSR, CC is a term coined by practitioners who regard it as more positive than CSR. The CC advocates also believe that this term overcomes the difficulties of operationalization and implementation found in CSR by integrating previous concepts: "It may arguably serve to integrate corporate social responsibility and stakeholder management within a corporate social performance framework." Nonetheless, they do not offer any evidence to support this arguable advantage. Other authors do not seem to think that CC integrates CSR per se and propose other models to merge both concepts.
The definition of CC is not clear in the literature. In a recent paper, Matten and colleagues explain that three visions underlie the label "corporate citizenship": "a limited view" that equates CC with philanthropy or community involvement; "the equivalent view" that equates CC with CSR; and "the extended view," according to which CC implies "a reconceptualization of business-society relations." It is the meaning conveyed in citizenship that makes this term more desirable. It clarifies its content, because it is easy for companies to derive what society demands, from the shared portrayal of the "individual good citizen." However, evidence shows that managers are still confused about what "corporate citizenship" means.
In addition, "corporate citizenship" emphasizes the idea that corporations have rights and duties. However, because these rights are not equal to those of a "real" citizen, some authors argue that CC is a "fictional concept." Yet, the aim of CC is to highlight that firms are "public powerful actors, which have a responsibility to respect those real citizens' rights in society"; this will eventually lead companies to take over those "unserved governmental functions that were the result of a cutback in social rights two decades ago, but also protecting civil and political rights." Again, it is difficult to find in the literature any evidence backing the posited effects on corporate behavior that would derive from this new theoretical concept. Moreover, some authors argue that the use of the term "corporate citizenship" adds to the confusion between NGOs or civil society organizations (CSOs) and BINGOs (transnational corporation and business NGOs); on the grounds that they are also citizens, companies present themselves in a number of instances as NGOs and attempt to take part in regulation (or deregulation according to this researcher). Richter denounces the risks of this approach, while stating that corporations are not citizens but "legal entities entitled to carry out profit-making activities as long as they fulfil certain social obligations. Corporate rights are a contractual arrangement with society that can be taken away if corporations do not behave responsibly."
Finally, some scholars argue that CC should be defined as "understanding and managing company's wider influences on the society for the benefit of the company and the society as a whole." The argument that CC has made virtue a necessity and turned this necessity into strategic advantage had already been advanced under the CSR debate and the theory of the stakeholders. Hence, it is not original with the CC concept. It is worth noting that, in contrast to CSR, neoclassical proponents have not rejected the notion of CC. This could be explained by two reasons: first, the concept of CC has "watered down" the requirements encapsulated in the concept of CSR; therefore, it is no longer perceived as a threat to the "neoclassical orthodoxy"; second, by the 1990s managers were already convinced that a certain degree of "social embeddedness" was desirable and necessary.
DEFINITION OF ACCOUNTABILITY
The previous analysis shows that CSR and CC have more in common than proponents of CC seem to acknowledge. As explained in the introduction, this work will analyze which of them has proved to be effective in improving accountability. Few definitions of corporate accountability have been found in the literature on CSR/CC, even in those papers addressing specifically the issue of corporate accountability. Drawing on the literature on political accountability, corporate accountability could be understood as corporate control; that is, the establishment of clear means for sanctioning failure.
Both CSR and CC propose that firms should be controlled by society and not only by shareholders. When authors mention the "principle of neighbor of choice" or the "license to operate," they acknowledge that society should be conferred clear means for sanctioning corporate failure. These concepts reject the neoclassical vision of corporate accountability (i.e., companies should be accountable only to shareholders, as they are the legitimate owners of the firm). By claiming that companies are accountable for the creation of organizational wealth for its multiple constituents, these concepts oppose the neoclassical notion of shareholders as the only legitimate agent to sanction corporate results. Therefore, accountability should be understood as social corporate control.
This work does not attempt to discuss whether this social control of companies is morally sound or technically correct. This aims to clarify whether these concepts have provided society with the means for choosing their companies and sanctioning corporate failure (i.e., the conditions for this social control of companies).
THE FIRST CONDITION FOR ACCOUNTABILITY: CHANGES IN THE SYSTEM
Under the current neoclassical paradigm, where corporate control by society can only occur through the market, it may be evident that none of these concepts helps to improve corporate accountability, unless they are accompanied by real direct pressure on companies. Under the neoclassical paradigm, the only means for sanctioning failure is the market. As Sternberg puts it, "if individuals have views as to how business should be conducted, they should ensure that their individual choices accurately reflect those views. When each potential stakeholder-otherwise known as every member of society-acts conscientiously in his personal capacity, and strategically bestows or withholds its economic support on the basis of its moral values, then the operation of market forces will automatically lead business to reflect those values."
Therefore, it would be the stakeholders themselves that bring about changes in corporate practices by incorporating their ethical values in their economic decisions, not any socioeconomic theory such as CSR or CC. The first condition for accountability is that individuals incorporate their moral values into their economic decisions. Only when values change at the bottom of society and are incorporated into economic decisions will companies change their behavior to reflect these social values. This condition has also been suggested by other scholars. For instance, Marsden and Andrioff use the term social competition, which is analogous to market competition, to explain the same idea. According to them, social competition is necessary because "any powerful organization needs effective countervailing power to keep them performing effectively for their own benefit as well as that of wider society."
This condition is achieved in certain cultural contexts. Research in certain Western countries evidences that individuals are showing their interest in social performance in every one of the three markets where firms compete: product, capital, and labor markets. The incorporation of social values in the capital market, through the socially responsible investments (SRI), is particularly significant because under the neoclassical paradigm, it is precisely the stockholders who are the most legitimate actor to sanction failure and demand transparency. The impact of the SRI on financial markets, combined with shareholder activism, has led to changes in business practices and to the creation of ethical indexes (e.g., Dow Jones' sustainability index, FTSE4Good, and KLD social index). In Spain, a recent work showed that the urge to be listed in ethical indexes has led some of the largest listed companies to disclose social and environmental information and to include social issues as part of their strategic goals and plans. Therefore, these indexes have achieved more regarding transparency and changes in corporate behavior in two years than has the 30 years of the CSR/CC debate.
As previously mentioned, these concepts have successfully brought changes in the system, by raising awareness among consumers, investors, and employees. The body of literature around these issues has helped understand and reinforce the "market forces" that some scholars deemed crucial for the development of a corporate social conscience.
To the extent that CSR/CC have simultaneously reflected social claims and reinforced the social movements' demands, by developing theoretical models they have helped improve social control of companies.
Hence, stakeholders are putting pressure on companies. Yet, despite the continuous societal demands for corporate change, "[Companies] are likely to fulfill their responsibility in a minimalist and fragmented fashion." Why is that so? First, it is important to highlight that citizens are reflecting their moral values in their economic decisions only to a limited extent. The SRI volume is relatively small compared to the total value of market transactions. Empirical evidence about the influence of social issues on consumers' decisions shows that consumers seem to be "selectively ethical" and do not regularly use social criteria in their purchase decisions. Yet, research also shows that investors do not know the existing offer of ethical investment products, that they do not have enough information about the ethical and social behavior of companies, or that consumers are willing to acquire ethical products (i.e., fair trade) but they simply cannot afford them.
Therefore, Sterberg's statement that social demands should be embodied in economic decisions assumes that certain circumstances concur. These circumstances have hardly ever proved to be true in practice (e.g., perfect information, stakeholders as utterly free and rational, perfect independence between stakeholders and companies, no imbalance of power between a firm and its constituents, and enough availability of options to choose from). Likewise, Smith points out that these two conditions for consumer pressure are rarely found: highly competitive markets and information about the social and ethical performance of companies. Regarding NGOs, it has been highlighted that they need to "have access to a free and broadly sympathetic press." Some authors have argued that the current ownership structures of mass media prevents this free access; or worse, it may even result in a true censorship of news reports denouncing corporations.
The second reason for the limited ability of CSR/CC to improve corporate accountability is that the discourse on CSR/CC has been incorporated in the neoclassical model of the firm without changing the aims and features of the latter. Thus, the contribution of CSR/CC is just the reminder that certain social constraints should be managed in order to increase corporate profits. Social and environmental performances are not seen as an end in themselves but as a source of competitive advantage or a condition to be competitive. Hence, it seems that the neoclassical model of corporate control remains untouched: companies should create value mostly for shareholders because they are the only or most legitimate agent for sanctioning failure.
This stance has led to the situation described as "managerial capture": the "potential for management to take control of the whole process (including the degree of stakeholders' inclusion) by strategically collecting and disseminating only the information it deems appropriate to advance corporate image." Empirical evidence supports the existence of "managerial capture." For instance, the aforementioned study of Spanish multinational companies showed that companies were only undertaking the projects poorly rated by ethical index managers in order to succeed in being listed in them, without engaging in any process of dialogue with their actual stakeholders to find out their demands. In a detailed case analysis of the baby infant formula issue, Richter shows how companies have tried to resist stakeholders' pressure by denying, ignoring, or minimizing their claims; at the root of their reaction lies their reluctance to make any trade-off between profits and the common good. A recent report of Christian Aid also shows that CSR/CC is used as a means to campaign against environmental and human rights regulations and in some cases, corporate social statements are mere PR exercises. Likewise, other authors have strongly criticized the existing business-led associations for the promotion of sustainable development, arguing that, at most, they attempt to reconcile the traditional business model with limited social performance. In the worst cases, they also try to resist regulation, shape the policy agenda, and prevent the development of sustainability.
This tendency to "managerial capture" may have been aggravated by the propensity of justifying CSR/CC on instrumental grounds. CSR/CC has been justified on the grounds that it will help advance corporate goals, by showing that "doing good leads to do well," or by trying to prove that doing good does not prevent from doing well. This reductio ad economics-albeit well intentioned, driven by the need for pragmatism-has not helped to promote the social control of companies. Encouraging managers to take into account the social dimension of their decisions solely because it increases profits leaves "promoters" without arguments when a decision does not increase profits, despite being perceived as the right thing to do. Alternatively, the right thing to do may be distorted so that it does not clash with the objective of profits growth, as happened in the case of the baby formula reported by Richter. As some authors have pointed out, evidence shows that it is problematic to argue the view that a socially responsible company "is necessarily a more profitable business model."
Therefore, these concepts have negatively contributed to the goal of social control when they present an enlightened version of the neoclassical model. This enlightened version reinforces the ownership model of the firm; therefore, it does not provide society with means for sanctioning corporate failure.
he extent that proponents of these concepts present an instrumental orientation, arguing that social demands are a constraint to achieving the objective of profits maximization, they have "fouled their own nest," favoring managerial capture and helping little in improving social control of companies.
THE SECOND CONDITION FOR ACCOUNTABILITY: A SYSTEM CHANGE
Together with pressure from the changes in the system (citizens incorporating social concerns in their economic decisions), there is a second necessary condition for the social control of companies. Several authors85 have argued that there is a need for a system or a paradigm change in order to solve the problem of accountability. Although each of them justifies their proposal on different grounds (e.g., a revision of the theory of property, the agency theory, or the social contract), they all suggest that companies must convince themselves that the rival theory to CSR/CC, the neoclassical orthodoxy, "is morally untenable." Profits are not an end per se; they must be compatible with other social needs. As Donaldson and Preston stated, companies must acknowledge that the interests of stakeholders are of intrinsic value and should behave accordingly. Companies must advance the common good or their license to operate must be removed.
This change of system should permeate every sphere of activity in human society: civil society, economic/business, and especially the government/political. As Peter Utting, coordinator of the United Nations Research Institute for Social Development (UNRISD) Project on Business Responsibility for Sustainable Development, explains, "progress associated with corporate social and environmental responsibilities has been driven . . . by state regulation, collective bargaining, and civil society activism." Regulation should provide citizens with the necessary rules to correct companies' failure, a requirement for the advancement of the common good. Leaving corporate control in the hands of the market is a political decision that could be reversed, and should be reversed when evidence shows that markets are not successfully changing corporate practices.
Regulators should provide citizens with political mechanisms to control firms, because these political means would complement and overcome the flaws of the economic mechanisms consumers can resort to. In some countries, these political means have been awarded to control relationships based on contracts (e.g., employees-firm, consumers-firm, and suppliers-firm). However, other relationships stemming from an unclear, ill-defined contract (e.g., society-firm, environment-firm, and population in other countries-firm) have not been introduced into the corporate law. It is in these cases where citizens are unprotected, having no political means to pass their demands to companies. Therefore, to improve corporate accountability, it is necessary to provide stakeholders with mechanisms for seeking redress.
Actually, this call for a change in regulation does not imply a radical novelty: different examples of this embeddedness existed in the past and contemporary examples can be found in non-Anglo-Saxon countries (e.g., Germany and the dual corporate board is a political option to ensure that citizens' views are taken into account by managers). In some countries such as Spain, it is clearly stated in the Charter that the common good will be favored over particular interests, especially property rights (art. 128.1). However, this principle has not been included in the corporate law.
More recently, global and supraregional institutions (e.g., UN or OECD) have launched guidelines fostering social and environmental concern among companies. Nevertheless, nation-states have not incorporated these guidelines in their regulatory frameworks, impeding their enforcement. Certain governments (e.g., Belgium, Germany, and the United Kingdom) have approved laws improving transparency in social issues, but disclosure of social and environmental performances are required by law in few countries (e.g., France and South Africa). The enforcement of social and environmental disclosure is, however, coherent with the neoclassical paradigm, as perfect information is one of the requirements for the adequate functioning of markets. Besides, regulators do not provide specific, strong, and effective measures to impose sanctions on companies failing to show good levels of social, environmental, and economic performance either in the territory where the company has its headquarters or in other countries.
Without a minimum regulatory framework enforcing disclosure of such performance, stakeholders can only show their preference for social and environmental performances to a limited extent. Yet, regulators should go beyond that: they should impose certain levels of social embeddedness on companies, giving citizens the means to claim the enforcement of this regulation. Besides, this change of system should be accepted by managers. They have to believe that social embeddedness is morally sound and the legitimate alternative to the neoclassical orthodoxy. In fact, it is not that all managers have adopted a neoclassical mindset. As Zadek remarks, there are many managers committed to "improving the social and environmental footprint of the companies where they work."
The system change cannot take place unless the first condition is met. Companies reflect the values of the societies where they operate (although they also try to shape these values). It is pointless to argue for the need of a new paradigm when financial markets (in the end, individual investors) keep demanding profitability and growth rates that may only be achieved by trading off social and environmental performances. Therefore, this system change should be adopted by civil society.
These concepts will therefore help advance corporate accountability when they are grounded in a normative orientation. Yet, this normative orientation is absent from the discourse on CC. Therefore, the concept of CSR presents greater advantages to advancing the social control of corporations.
To the extent that these concepts are defined and articulated with a normative aim, positioning them as a challenge to the neoclassical orthodoxy will help advance the necessary system change.
Because the concept of CC has not embraced this normative orientation, the concept of CSR is superior to that of CC. Exploring and spreading the normative basis for CSR will help achieve the social control of corporations.
We have analyzed similarities and differences between two of the most recurrent terms used in the literature, corporate social responsibility (CSR) and corporate citizenship (CC), using the question of which one is advancing the social control of companies as the key criterion. From a theoretical point of view, the two concepts analyzed here have few differences. Both concepts have been criticized for the same reasons. Proponents of "corporate citizenship," who usually argue that this concept would overcome the limitations of the CSR concept, have not been able to provide a clear definition of the concept or to demonstrate the posited advantages of using the term "corporate citizenship."
There are two conditions for the advancement of the social control of companies. First is the stakeholders' pressure through their economic decisions. Companies will only incorporate social and environmental objectives in their agenda when economic agents show that they also seek these values by incorporating them into their economic decisions. Both concepts have fostered this pressure to the extent that these theoretical developments have reflected and reinforced social movements, demanding a higher degree of social embeddedness from companies.c
However, stakeholders have incorporated ethical values in their economic decisions only partially and selectively. In addition, even in those cases, when stakeholders have made it clear that companies must achieve social and environmental performances, managers have shown their reluctance to sacrifice profits in favor of the common good. This reluctance, labeled as "managerial capture," has turned the discourse of CSR/CC into PR exercises rather than endeavouring to rethink and reshape corporate internal management, which is usually a more difficult task to accept and tackle. The risk of managerial capture may have been aggravated by the tendency of justifying CSR/CC on economic grounds. This instrumental vision of these concepts has helped little in improving the social control of companies.
The risk of managerial capture and the fact that consumer views are not always incorporated into their market decisions, due to external constraints, and the risk of managerial capture demand a second condition to ensure corporate accountability: a system change. To put it in a nutshell, this change implies accepting that the common good is more important than the right to receive a dividend, and that social and environmental performance must be balanced with economic performance. This paradigm of the firm should be adopted by economic agents (especially shareholders), by managers, and by regulators. Regulation should provide citizens with political means to sanction corporate social and environmental failure.
When these concepts are presented with a normative aim, they support this change of paradigm. However, CC has rarely been oriented by this normative aim. Hence, CSR presents more advantages to advancing the social control of companies and should be considered a superior theory vis-a-vis achieving social control of companies. By exploring and spreading the normative basis for CSR, a system change will be achieved.
A. B. Carroll , "The Four Faces of Corporate Citizenship," Business and Society Review, 100/101 (1998): 1-9, G. W. Seidman,"Monitoring Multinationals: Lessons from the Anti-Apartheid Area," Politics and Society, 31, 3 (2003): 381-406. S. Waddock, "Integrity and Mindfulness: Foundations of Corporate Citizenship," in J. Andrioff and M. McIntosh (eds.): Perspectives on Corporate Citizenship (Sheffield: Greenleaf Publishing, 2001): 26-38.
The European Union (EU), for instance, favors the use of "corporate social responsibility" instead of "corporate citizenship" (e.g., COM (2002) 347), as does the World Business Council for Sustainable Development. See http://www.wbcsd.org
D. Matten , A. Crane , and W. Chapple , "Behind the Mask: Revealing the True Face of Corporate Citizenship," Journal of Business Ethics, 45, 1/2 (2003): 109-120.
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