Big Business and Inclusive
Development: Changing Roles
and Perceptions
Peter Utting
United Nations Research Institute
for Social Development (UNRISD)
ESRC Research Seminar Series,
“Changing Cultures of Competitiveness”
Institute for Advanced Studies, Lancaster University
17 April 2009
Purpose of presentation
1.To examine the changing roles of business in
growth models and policy regimes conducive
to inclusive development
2.To assess the potential and limits of CSR from
the perspective of inclusive development
3.To highlight the importance of multidisciplinarity for understanding the potential
and limits of CSR
Key questions to be addressed
- What worked historically?
– Why did CSR emerge?
– What interests, institutions and ideational
factors are driving the agenda?
– What has happened in practice?
– What gets left off the agenda? And why?
– What sort of development model does CSR
really support?
– What might be done differently?
What worked historically?
Under what conditions did large corporations play a
constructive role in growth models and policy
regimes conducive to inclusive development ?
What worked in the late industrializers (Nordics & East
Asia) and Fordist/New Deal USA?
-- certain sets of business preferences
-- certain types of state-market and power relations
-- certain forms of collaborative institutions
Albeit significant variations under different Varieties of
Capitalism and Welfare State or Policy Regimes
Business preferences
- company support for education & training,
healthy workforce, decent wages, related for
example to the need for skilled labour, to reduce
absenteeism/rise productivity, to expand
consumer markets
- ISI/protectionism mitigate low wage preferences
- production centred in TNC affiliates (rather than
out-sourcing)
- managerial ‘long-termism” (concern with value
creation over the long term)
Power relations
- presence of countervailing forces; balance of
social forces (e.g. strong state, strong labour);
relative decline in corporate power (during
depression and WWII)
- developmental states (with vision, regulatory
and administrative capacity)
- contestation; social movement activism
Collaborative Institutions
- social pacts: “CSR” (e.g. good working conditions, life-
long employment, healthcare, fiscal responsibility,
philanthropy) as part of a bargain/compromise in return for
pro-business & pro market incentives (e.g. industrial policy,
minimalist regulation)
- embedded elites, which identified with the community
& their workforce (through direct production);
(Gramscian) hegemony (discursive power of business
elites)
- encompassing business associations, representing
broad range of private sector interests, including
SMEs
- stakeholder consultation/dialogue; collective bargaining
Globalization and Liberalization
Fundamental changes occur in business preferences, power relations and
collaborative institutions
Stylized facts & perceptions (albeit with variations by VoC and policy regime):
- “rolling back” of certain state functions; rise of the “competition state” &
”New Constitutionalism”
- deterritorialized capital versus territorially constrained states
- global penetration of TNCs & growing structural, instrumental and
discursive power of big business
- unravelling of corporatist social pacts
- weakening of countervailing forces (state and labour)
- nature of social movements/civil society and activism changes with rise
of NGOs & the information revolution
- importance of “knowledge”, knowledge networks, “epistemic
authority” i.e. decision-making based on expert technical opinion
- business preferences change (e.g. focus on skills & higher
education; increased international competition puts pressure
on firms to cut costs/wages; race to the bottom)
- “disembedding” of elites through some forms of FDI, global supply
chains and sub-contracting & flexibilization of labour markets
- short-termism: quarterly results, prioritization of shareholder
interests and CEO remuneration.
Tensions in the contemporary model of
“corporate capitalism”
– Heightened reality or perception of externalities: environmental
degradation, “race to the bottom”, tax avoidance/evasion & bribery; global
corporations seen to be implicated in global injustice
– Moral issues surface as corporate rights far outpace corporate
responsibilities; as rich get richer; and global corporations penetrate poor
countries & communities
– Rise of activist protests and campaigns in 1980s/90s:
• Oil spills (Exxon), pesticides (Union Carbide), human rights abuses
(Shell), indigenous peoples (Rio Tinto), sweatshops (Nike), infant
feeding (Nestle), deforestation (McDonalds), GMOs (Monsanto)
– Increased risk, complexity and uncertainty for large firms
– Vulnerability of large corporations that rely on brands and company or
product image
As a result:
– TNCs need to better manage risks and reputation
– TNCs need to control their supply chains
– TNCs need to control the activists & regulatory pressures
CSR becomes a crucial element in this strategy
The Rise & Institutionalization of CSR
- CSR takes off internationally in early 1990s (Earth
Summit) & is backed by powerful actors, institutions
and ideas:
- Emergence of a CSR “movement”, involving global
corporations, business associations, NGOs, academia
(management studies, IR, development studies),
international organizations, and (belatedly) trade
unions and government.
- CSR becomes institutionalized via CSR consultancy
industry, MBA curricula, multi-stakeholder initiatives
(e.g. UN Global Compact, ISO, ETI, SA8000, Global
Reporting Initiative, etc., and international soft law
Ideational foundations and drivers of CSR
– Neoliberalism
• Limits of government & “command and control” regulation (inefficiency,
rent seeking
• Key role of private actors & self-regulating markets (corporate selfregulation)
– Institutional / governance theory
• New institutionalist economics (institutions matter for economic
performance) (Douglass North, Oliver Williamson)
• Embeddedness & embedded liberalism (Karl Polanyi, John Ruggie)
• Global governance: importance of multilayered and multi-playered
governance (Robert Keohane); limits of inter-state relations;
importance of non-state actors (business and NGOs) in knowledge
networks, “epistemic communities” and private regulation
– Management theory
• Stakeholder theory (Freeman 1984)
• Win-win (Michael Porter)
– Organizational theory
• New institutionalism (culture, norms and values within organizations
matter (DiMaggio and Powell 1991)
• Organizational learning to deal with complexity (Peter Senge 1990)
CSR: What is it?
Multiple definitions
• Responsiveness to societal and stakeholder concerns;
• Internalization of social and environmental objectives in a
“triple-bottom line” (Elkington)
• Voluntary initiatives that go beyond philanthropy and law
• “Continuous improvement”
Multiple roles
•
•
•
•
•
Risk and reputation management
To enhance legitimacy
To control supply chains
To “do no harm”
To fill weaknesses & gaps in global governance and
regulatory systems
• To gain influence in public opinion & public policy,
& in regulatory arenas (private regulation)
An Expanding CSR Agenda
–
–
–
–
–
–
–
–
–
–
–
Eco-efficiency & environmental protection
Occupational health and safety
Child labour
Community assistance (“corporate social
investment” – health and education; differential
pricing (e.g. HIV/AIDS drugs)
CSR in the supply chain
Ethical investment
Labour rights
Human rights
Conflict zones
Ethical & Fair trade
Poverty reduction
CSR &
the International Poverty Reduction agenda
• In context of the post Washington Consensus,
poverty reduction re-emerges as a strategic
priority in international development circles
– reflects slight shift in correlation of forces from IFIs
to UN
– But also “convergence” in international development
thinking and policy, favouring institutional finetuning (as opposed to transformative change),
voluntary approaches, public private partnerships,
private regulation
– “Late CSR” takes on board poverty reduction
The new developmental logic of CSR:
Big business is seen as a proactive
development agent:
• Providing basic goods and services (e.g. water,
cheap/free medicines)
• Private standard-setting
• Public-private partnerships
• Directly engaging with the Millennium
Development Goals (MDGs)
• Ethical and fair trade
• “Bottom of the Pyramid” (Prahalad)
Potential and Limits of CSR
CSR Balance Sheet
• After 2 decades of CSR: research is now shedding light on its impact
from a development perspective (Hamman et al.; Blowfield and Frynas;
Eade and Sayer; Fig; Barrientos and Smith; Utting & Zammit)
– Good awareness-raising tool to get corporations to think more
systematically about social, environmental, human rights issues;
– New financing for development; mobilizes new resources for social
and sustainable development through PPPs;
– Some areas of progress, e.g. child labour, occupational health and
safety (OHS), environmental management systems (EMS) in TNC
affiliates and top tier suppliers; compliance with minimum wage
legislation (Barrientos & Smith – ETI evaluation)
– CSR fills some normative & institutional gaps, (new standards,
disclosure, social audits)
– Evolves through time (more issues; ratcheting-up of standards,
better reporting; « learning by doing »)
Potential and Limits of CSR
– Problem of scalability or limited uptake
– Operational weaknesses related to
implementation
– Structural conditions that constrain CSR
– The politics of CSR
Scale
• CSR discourse tends to suggest that
many/most corporations are engaged
• Reality check:
– Universe of TNCs: 79,000 (UNCTAD 2008)
– TNC affiliates: 790,000
– TNC suppliers: millions
Table 1
Participation in Selected Multi-Stakeholder Initiatives.
2008
Multi-stakeholder Initiative
Entities
ISO 14001 Certification
154,572
Global Reporting Initiative
1,500
United Nations Global Compact
4,961
Forest Stewardship Council
7,500
Marine Stewardship Council
38
Partnerships for Sustainable
Development
344
SA 8000
Fair Labor Association
- Participating companies
- Accredited companies
27
11
Ethical Trading Initiative
53
Principles for Responsible Investment
-Asset owners
-Investment managers
Extractive Industries Transparency
Initiative
Source: Official Websites
1,779
119
216
39
Variations in response
Study of top 100 Fortune corporations, reveals major differences in approach
and commitment to CSR & poverty reduction.
•
Inactive approach: No explicit statements on poverty. We create jobs and employment (as by-product of profit
maximization). Payment of taxes. Affordable products. No code of conduct and/or low compliance likelihood.
No support for labels. No separate business model for poor.
•
Reactive approach: Contribution to economic growth. Narrow BOP: mention of market changes in poor
regions. Creation of local employment used defensively. Micro-credits as (small) part of philanthrophy. Transfer
of technology and knowledge mentioned, but not specified. Vague code and low specificity as regards poverty.
Support for Global Compact and modest support for GRI. Dialogue vaguely mentioned
•
Active approach: Explicit statement on moral unacceptability of poverty.Definition of decent wage. Broad
BOP: explicit view on how this strategy addresses poverty alleviation (net effect). Creation of local employment
opportunities at suppliers. Micro-credits as part of business strategy. Transfer of technology and knowledge is
specified. Explicit support for MDG1. Wholehearted support for GRI. Philanthropy is aimed at poverty in
general. Specific code and/or labelling on poverty and/or fair trade.
•
Pro-active approach: Strategic statement on poverty. Explicit support for all MDGs (including #8 on
partnerships). Active partnerships with NGOs and international organisations on poverty. Very explicit code
and support of highest possible transparency (GRI). Transfer of technology and knowledge is specified and
discussed for its impact on poverty alleviation. Codes and labelling activities part of a contract with third parties
(high specificity and high compliance likelihood). Dialogues as an explicit tool to raise strategic effectiveness.
Search for a separate (strategic) business model for the poor.
Source: Rob van Tulder 2008
Varied responses (global corporations)
• Fortune 100 corporations, 2006
%; overlap possible
•
•
•
•
•
Inactive Re-active Active Pro-active
Total (N=100)
63
55
33
4
Europe (N=52)
48
67
52
8
USA (N=30)
77
47
13
0
East Asia (N=15)
93
27
7
0
Developing (N=3)
33
66
33
0
Source. van Tulder 2008
Operational & Structural limits of CSR
Weaknesses & Blind Spots
- sub-contracting
- migrant, casual workers often excluded;
- issues of concern to women workers often excluded;
- working conditions versus labour rights (freedom of association and
collective bargaining)
- minimum wages versus “living wage”
- “policing” approach to CSR in the supply chain; negative impacts on
suppliers and workers in developing countries)
- superficial audits
- focus on micro (firm level) as opposed to macro (public
policy) issues, e.g. lobbying, tax evasion & tax avoidance;
- focus on primary and secondary sectors; limited attention to financial
sector
- weak disclosure & free riding (e.g. company sustainability reporting & UN
Global Compact
- double standards: suppliers operate in a straight-jacket; talk the talk of
CSR and lobby for socially regressive policies or engage in « the race to the
bottom »
Oil Industry
Good Practice (left column) vs. Bad Practice (right column)
BP
UNGC, WBSCD, ETI, GGFR,
GRI, DJSI, FTSE4Gd, KLD100
Multinational Monitor (2000 ; 2005) ; Public Eye on Davos ( 2005)
ATCA (1999)
Chevron
Corporation
WBSCD, GGFR
Multinational Monitor ( Chevron: 1992, 1998 ; Texaco1993; Unocal:
1994 1996) ; Public Eye on Davos (Unocal 2005; Chevron 2006)
ATCA (1999)
ExxonMobil
EITI, GGFR
Multinational Monitor (Exxon: 1989, 2001; Exxon Mobil: 1997,
2001; Mobil: 1998 ) ; Public Eye on Davos ( 2006) ATCA (1996)
Occidental
Petroleum
EITI
ATCA (1999)
Royal
Dutch/Shell
UNGC, WBSCD, ETI, GGFR,
GRI, DJSI, FTSE4Gd, KLD100
Multinational Monitor (1998, 1995, 2002) ; Public Eye on Davos (
2005) ATCA (1997)
Statoil
UNGC, WBSCD, ETI, GGFR,
GRI DJSI, FTSE4Gd
Total
UNGC, ETI, GGFR, DJSI,
FTSE4Gd
Multinational Monitor (Elf: 1997) ; Public Eye on Davos ( 2005)
Upshot:
It is difficult to generalize about CSR & the behaviour of
firms; there exist multiple drivers, conditions and
contexts:
• Business preferences vary by firm & industry & VoC
• Normative environment and competitive pressures
inside firms vary, as do societal expectations about the
role of business
• Institutional & regulatory contexts vary
• Contestation (social pressures) varies
Multiple perspectives on the pros and cons of CSR
Very different interpretations therefore exist regarding the
contribution, substance & potential of CSR:
• CSR as a distraction that undermines sound business practices,
shareholder primacy (Henderson, The (early) Economist)
• CSR as a distraction from regulations, democracy & citizenship
citizenship (Robert Reich, Noreena Hertz);
• Learning by doing; win-win potential; CSR instruments and
institutions evolve, mature & are gradually ratcheted-up; (Porter,
Ruggie, Zadek, Hopkins)
• The substance of CSR reflects the balance of social forces &
contestation, hegemonic & counter-hegemonic struggle (Antonio
Gramsci, David Levy, Utting)
• Greenwash: CSR = window-dressing, misinformation and PR to
legitimize business-as-usual (Kenny Bruno, Judith Richter)
• Means to stabilize conditions of late capitalism; «new ethicalism »
(Ngai-Ling Sum, Claire Cutler)
New Directions in Governance & Regulation - Theory
Moving Foward ?
Fundamentally depends on reconfiguring governance systems and
the balance of forces:
- state: law & public policy (national and international)
- economic: market pressures; corporate hierarchy
- associational: networks, associations, communities & civil society
(Hollingsworth & Boyer; Crouch)
Economic globalization and liberalization generated a deep
governance imbalance: economic (and finance) modes became
too powerful, and trumped state & associational modes
Current crisis creates spaces for a) reconfiguring power relations, b)
reforming/transforming institutions, and c) addressing the blind
spots on the CSR agenda
Recent proposals
Recent shifts in thinking and practice:
- less “policing” of supply chains by TNCs; limits of social auditing; more
training & capacity building in SMEs
- greater attention to the actual developmental impacts of CSR & PPPs
(not just process)
- more equitable power relations and participation within MSIs and PPPs
- the need to strengthen: a) systems of industrial relations, e.g. via
International Framework Agreements, and b) state labor inspection
capacity.
- need for greater policy coherence: e.g. when private sector expansion
occurs, state regulatory capacity needs to be strengthened not
diminished)
- greater compatibility between CSR initiatives in LDCs and national &
international development strategies & priorities
- need to ensure “corporate accountability” by strengthening disclosure
of information, grievance procedures for stakeholders, and possibilities
for redress; as well as penalties for non- compliance;
- important role for international “soft” and “hard” law, e.g. OECD
Guidelines on MNEs; UN Human Rights law
Towards “Corporate Accountability” ?
• Recent rise of a “corporate accountability
movement”
- Moving beyond corporate self-regulation and
voluntary approaches
- Moving beyond the narrow emphasis on shared
values, stakeholder dialogues, best practice
learning
• Need to reconnect:
– CSR and public policy & law; voluntary & legalistic approaches
– Reconnecting CSR and southern stakeholders, development
strategies and priorities
– Reconnecting CSR and trade unions & industrial relations (not
only NGOs & business)
CSR & Crisis:
Possible effects of the current crises
Downside:
• Belt-tightening: decline in CSR spending and corporate giving
• More reliance on sub-contracting & labour flexibilization
• Consumers less interested in “ethical consumerism”, prefer to buy in Mal-Mart
Upside:
• New CSR issues or priorities emerge: e.g. executive pay; balance between real
wages and profits and dividends; CSR and the financial sector; greater
transparency in reporting (e.g. lending); employment generation; conditions of
retrenchment and retraining; & climate change & eco-efficiency.
• More attention to “corporate responsibility” and corporate ethics
• “Regulation” is back on the agenda
• The state will reassert its role in regulation and social protection
Open questions:
• Will some issues move off the agenda? e.g. poverty reduction
• Will vulnerable companies want to defend against reputation damage and
therefore take CSR seriously?
• Will trade unions reassert themselves?
• Will US push for higher labour standards abroad?
Responses will vary by firm, industry, society and VoC
Another crisis -- the Intellectual Crisis of CSR
4 analytical and empirical limitations of
mainstream thinking on CSR. It is
1.
2.
3.
4.
Ahistorical: doesn’t draw on the lessons of history about how
and why big business engaged with inclusive development
Empirically weak: focuses on “best practices” and doesn’t
examine comprehensively CSR performance and outcomes
Theoretically thin: ignores key theoretical approaches that
facilitate our understanding of the potential and limits of CSR
Politically naive: fails to acknowledge the political underpinnings
and dynamics of institutional change
This suggests the crucial importance of breaking out of the confines
of management studies and IR, and drawing more on sub-disciplines
and schools of thought associated with political science, sociology,
law, human geography and development studies.
CSR & Development Models
How do CSR (and Corporate Accountability (CA), PPPs &
fair trade (FT) look from a development perspective?
How do they relate to different development models?
Grosso modo – three models:
• Neoliberalism (freeing-up of markets; corporate control;
trickle down social development)
• Embedded liberalism (free markets; FDI and
institutions to control for perverse effects)
• Alternative globalization (counter-hegemonic struggle;
corporate down-sizing, local development,
associative/social economy
Situating CSR in a development framework
Neoliberalism
CSR
PPPs
Embedded
Liberalism
CA
FT
Alternative
Globalization
CSR & PPPs (depending on their content and context) tend to
reinforce the neo-liberal or embedded liberalism models;
CA & FT tend to reinforce the embedded liberalism or
alter-globalization models
End
• THANK YOU
For further information on UNRISD research on
CSR, see www.unrisd.org
Markets, Business and Regulation programme
Contact: Peter Utting (utting@unrisd.org)