Comments to Prakash Sethi
“Self-regulation as a way to
implement CSR at a global level”
Alessandro Vercelli
Department of Economic Policy, Finance and Development
University of Siena
keeping in mind:
Prakash Sethi, 2003, Setting Global Standards, Wiley, Hoboken, N.J.
Basic questions:
-Which is the best way to enforce CSR standards?
-Should we rely on CSR self-regulation or institutional regulation?
regulation by law
-Which is the optimal relationship between {
?
self-regulation by corporations
Attitude towards CSR self-regulation
No regulation
Regulation
when justified
Max
shareholder
value
No
CSR
self-regulation
No
CSR
self-regulation
Max
stakeholder
value
Yes
CSR
self-regulation
CSR self-regulation has shaky economic foundations
A)
Perfect competition model:
regulation necessary
{
distribution of income
structurally unstable → oligopolist practices
max utility ≠ max happiness
B) Real markets ≠ perfect competition market:
incompleteness
externalities
further sources of market failures {
and so on
transaction costs
bounded rationality
The role of regulation by law and CSR
•
Regulation by law to enforce CSR standards of economic agents
subject to many limitations:
-minimal standards only
-enforcement slow and inefficient
-increasing time lag with the evolution of the economy and society
The role of firms and CSR self-regulation
In a perfect competition market firms, by definition, do not have discretionary power
→ CSR self-regulation meaningless
This explains why in a neoliberal perspective that assumes perfect competition
CSR self-regulation is excluded
In real markets firms have a discretionary power and act strategically to preserve and
increase such a power → here emerges the problem of the objective function of the firm:
to bridge information gaps between management and stakeholders
→ CSR self regulation {
to find an equilibrium between conflicting interests
Global markets
Further problems:
↑ asymmetry of information
Different local regulations {
between different stakeholders
↑ asymmetry of power
harmonization of local regulation
We need {
transnational authorities to enforce
in the meantime this enlarges the scope of CSR self-regulation
CSR INITIATIVES AND STAKEHOLDERS FEEDBACK
ETHICAL CODE
BOARD
SMS
CERTIFICATION
MANAGEMENT
Green arrow: implementation & information flow
Red arrow: behavioral and dialectic influence
Black arrow: influence through shareholders meetings
Blue arrow: strategic and managerial influence
REPORTING
STAKEHOLDERS
CSR initiatives: conditions of effectiveness
•
These initiatives may have an effective and durable influence on CSR iff
stakeholders react actively to the additional information flow
•
The closure of the feed-back by the stakeholders should be not only active
but pro-active soliciting new information and CSR initiatives
→ the firm is pressed to direct its strategic and managerial choices:
-increasing stakeholders satisfaction
towards {
-corroborating sustainability
→ virtuous circle
Ethics and CSR initiatives
•
Since CSR depends also on the behavior of the stakeholders the latter (and their
representatives) share with managers and directors (and control authorities) the
ethical responsibility for insufficient CSR
•
Business ethics rapidly evolving: all the subjects involved should evaluate the
consequences of their actions which may change with the rapid evolution of the
system
•
The CSR initiatives can only aim to reduce the gap between individual behaviors
and acceptable ethical standards by stimulating a constructive dialogue between
firms and their stakeholders to solicit:
– Awareness of the ethical consequences of alternative decisions
– Convergence towards common values and respect for different values
– A process of learning by all the subjects involved towards a sort of
fair “social contract” between the firm representatives and its stakeholders
Synergy non substitution between regulation and self regulation
- CSR self-regulation is not devoid of an enforcement mechanisms
provided that there is an active participation of the stakeholders
- the legal system guarantees at best only a minimal standard
→ synergy between legal regulation and CSR self-regulation:
virtuous circle between {
-progressive awareness of stakeholders
-effectiveness of legal norms
-upgrading of ethical standards
Regulation by law of CSR self-regulation?
Yes: of course not in the contents but in the procedures:
code of conduct
The adoption of {
could become compulsory
periodical ethical report
statute
Analogy with
{
balance sheets and budgets
code of conduct
Requirement of consistency between {
actual behaviours
ethical report
Consistency should be enforced (analogy with misleading publicity) even if the CSR
initiatives are not-compulsory
Concluding remarks
•
CSR self-regulation and legal regulation must be both strengthened at the
same time in a synergic way in order to defend and possibly improve
ethical standards
•
In this perspective CSR self-regulation may play an important role in
checking the deterioration of ethical standards in business, triggering a
virtuous circle between expanding CSR initiatives and increasing ethical
awareness and activism of the stakeholders
•
This is true in particular for global markets and MNC.
A requirement of consistency between CSR claims and actual behavior in
all the countries where the MNC operates may help avoiding sweatshops
and other abuses in developing countries