Category Archives: Social Responsibility

A Dynamic Process Model of Private Politics: Activist Targeting and Corporate Receptivity to Social Challenges

Source: Mary-Hunter McDonnell, Brayden G King, Sarah A. Soule, American Sociological Review, Vol. 80 no. 3, June 2015
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From the abstract:
This project explores whether and how corporations become more receptive to social activist challenges over time. Drawing from social movement theory, we suggest a dynamic process through which contentious interactions lead to increased receptivity. We argue that when firms are chronically targeted by social activists, they respond defensively by adopting strategic management devices that help them better manage social issues and demonstrate their normative appropriateness. These defensive devices have the incidental effect of empowering independent monitors and increasing corporate accountability, which in turn increase a firm’s receptivity to future activist challenges. We test our theory using a unique longitudinal dataset that tracks contentious attacks and the adoption of social management devices among a population of 300 large firms from 1993 to 2009.
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Trends in the Social [Ir]Responsibility of American Multinational Corporations: Increased Power, Diminished Accountability?

Source: Cynthia A. Williams, John M. Conley, Fordham Environmental Law Review, Vol. 25 no. 1, 2014

From the abstract:
The purpose of this invited essay is to assess the future of the CSR performance of American multinationals in light of several ongoing trends. These trends include companies’ voluntary CSR programs and the global self-regulatory standards for responsible company activities that are developing in almost every industry. Moreover, the decade-long project at the United Nations to identify multinational companies’ responsibilities with respect to international human rights, ultimately spearheaded by Special Representative John Ruggie, has for the first time established global expectations of responsible corporate activity.

At the same time, however, legal developments in the United States may be trending in the opposite direction, toward increased power and diminished accountability for corporations. Two legal developments that highlight this counter-trend will frame this discussion. The first, the Supreme Court’s decision in Citizens United v. Federal Election Commission, 558 U.S. 310 (2010) recognizes a constitutional right for corporations to give financial support to a wide range of electioneering activities, including by using corporate funds to pay for and broadcast advertisements for specific candidates for office. The effect is to allow American companies to further consolidate their already substantial political power.

The second, the opinion by the U.S. Court of Appeals for the Second Circuit in Kiobel v. Royal Dutch Petroleum, 621 F.3d 111 (2d Cir. 2010), reh’g en banc denied, 642 F.3d 379 (2011), aff’d, 569 U.S. __ , 133 S. Ct.1659(Apr. 17, 2013), denied the possibility of corporate liability under the Alien Tort Statute for Royal Dutch Shell’s employees’ alleged violations of Nigerian community members’ international human rights. A 2-1 majority held instead that violations of international law could only be asserted against natural persons or nations. The Supreme Court granted certiorari and in a decision handed down on April 17, 2013, the Court unanimously affirmed the judgment of the Second Circuit. The five-Justice opinion of the Court held that the ATS cannot be used to redress violations of the law of nations that occur outside the territory of the United States, except in exceptional circumstances not found in Kiobel. Neither the majority opinion nor the concurrence addressed the corporate liability issue, which means that the Second Circuit’s ruling on that issue remains the law of the Second Circuit — an important outcome, given the significance of the Second Circuit as a venue for ATS cases. Taken together, the overall effect of the Second Circuit’s rejection of corporate liability for human rights violations and the Supreme Court’s rejection of exterritorial application of the ATS to any defendant, corporate or otherwise, is the substantial evisceration of companies’ legal accountability for international human rights violations under the ATS.

On a theoretical level, these decisions send mixed messages about corporate personhood and identity. But on a practical level, the two decisions work in unfortunate concert to increase the already considerable political power of U.S. corporations at home, even as they reduce the risk of legal accountability for their actions abroad. By doing so, they shrink the shadow of the law — the threat of “hard” legal regulation — that has been an important incentive to the adoption of voluntary, “soft-law” CSR standards. Thus, these legal developments, though ostensibly unrelated to the voluntary pursuit of CSR activity, may in fact act as a disincentive to that activity.

Law and the History of Corporate Responsibility: Corporate Governance

Source: Lyman Johnson, University of St. Thomas (Minnesota) Legal Studies Research Paper No. 14-21, 2014

From the abstract:
This article is one part of a multi-article project on the role of law in the history of corporate responsibility in the United States. Key background material for the project is set forth in the introduction to an earlier article addressing corporate personhood. This paper deals with corporate governance while other articles address corporate purpose and corporate regulation.

Corporate responsibility concerns associated with corporate personhood, corporate purpose, and corporate regulation all ultimately relate to a far more basic issue: corporate governance. As the commercial demands of nineteenth century industrialization led to substantial displacement of the partnership form of business enterprise by large corporations with dispersed shareholders, control of these corporations – i.e., their governance – centered in the hands of senior managers, not investors themselves. This phenomenon of “separation of ownership from control” is quite different than in the typical partnership and was seminally described by Adolf Berle and Gardiner Means in their 1932 book, The Modern Corporation and Private Property. It has continued to occupy center stage in corporate law for the past eighty years.

From a legal history vantage point on corporate responsibility, the stupendous rise in commercial significance of the corporation in the nineteenth century corresponded to the precipitous decline of a regulatory approach to corporations under state corporate law, and instead, the twentieth century “outsourcing” of such regulation to an array of other legal regimes ostensibly designed to protect both investor and noninvestor groups. This meant that corporate law itself developed in such a way as to loosen, not tighten, most constraints on those who govern public corporations. The thesis of this article, developed in Parts I and II, is that corporate governance, both as a body of law and as a field of academic study, has historically had little to say on the important subject of corporate responsibility. Instead, the quest for greater responsibility in the United States largely has come from “external” legal regulation and from ongoing shifts in business and social norms. Recently, corporate law’s long and unsustainable neglect of corporate responsibility concerns has led to the emergence of a new type of business corporation, the “benefit corporation.” Benefit corporations expressly permit the directors to advance both investor and noninvestor interests, in aid of pursuing a larger public benefit. The implications of this development for governance of the regular business corporations are unknown. One potential adverse outcome is the “ghettoization” of corporate responsibility within benefit corporations, leading to even less serious attention to such concerns in the traditional business corporation.

Socially Responsible Firms

Source: Allen Ferrell, Hao Liang, Luc Renneboog, Tilburg University – Department of Finance; European Corporate Governance Institute (ECGI); Tilburg Law and Economics Center (TILEC), TILEC Discussion Paper No. 2014-029, July 29, 2014

From the abstract:
In the corporate finance tradition starting with Berle & Means (1923), corporations should generally be run so as to maximize shareholder value. The agency view of corporate social responsibility (CSR) generally considers CSR as a managerial agency problem and a waste of corporate resources, since corporate insiders do good with other people’s money. We evaluate this agency view using large-scale datasets with global coverage (59 countries) on firm-level corporate engagement and compliance with respect to environmental, social, and governance issues. Using an instrumental variable approach, we document that CSR ratings are higher for companies with fewer agency problems (using standard proxies such as having lower levels of free cash flow and higher dividend payout and leverage ratios). Moreover, certain aspects of CSR (e.g., environmental, labor and social protection) are associated with increased executive pay-for-performance sensitivity and the maximization of shareholder value.

Employee Satisfaction, Labor Market Flexibility, and Stock Returns Around the World

Source: Alex Edmans, Lucius Li, Chendi Zhang, National Bureau of Economic Research (NBER), NBER Working Paper No. w20300, July 2014
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From the abstract:
We study the relationship between employee satisfaction and abnormal stock returns around the world, using lists of the “Best Companies to Work For” in 14 countries. We show that employee satisfaction is associated with positive abnormal returns in countries with high labor market flexibility, such as the U.S. and U.K., but not in countries with low labor market flexibility, such as Germany. These results are consistent with high employee satisfaction being a valuable tool for recruitment, retention, and motivation in flexible labor markets, where firms face fewer constraints on hiring and firing. In contrast, in regulated labor markets, legislation already provides minimum standards for worker welfare and so additional expenditure may exhibit diminishing returns. The results have implications for the differential profitability of socially responsible investing (“SRI”) strategies around the world. In particular, they emphasize the importance of taking institutional features into account when forming such strategies.

The Price of Wall Street’s Power

Source: Gautam Mukunda, Harvard Business Review, Vol. 92 no. 6, June 2014
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…Executives often explain their deference to Wall Street by saying they have a “fiduciary duty” to maximize shareholder returns. That’s been an article of faith since 1970, when Milton Friedman wrote in the New York Times that executives’ only responsibility was maximizing profits. The problem, however, is that it’s not true. Whatever your beliefs about the moral responsibilities of executives, a fiduciary duty is a specific legal obligation, and law professor Lynn Stout has shown that as a matter of law American executives simply do not face any such requirement. So why do managers make choices they know are wrong? Why do so many believe (or act as if they believe) something that simply isn’t right? I’m a political scientist. That means that, just as an economist thinks about money or a soldier about armies, I think about power. There are lots of situations in which people—and countries—act against their own interests. One of the most important—and most dangerous—is when a single sector or group is so powerful that it dominates how an entire society thinks about itself. Once you view research from a variety of fields through that lens, it becomes clear that we must do something to curb the enormous and disproportionate power of Wall Street….

Shaming the Corporation: The Social Production of Targets and the Anti-Sweatshop Movement

Source: Tim Bartley, Curtis Child, American Sociological Review, Published online before print June 27, 2014
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From the abstract:
As social movements co-evolve with changes in states and markets, it is crucial to examine how they make particular kinds of actors into focal points for the expression of grievances and the demand for rights. But researchers often bracket the question of why some kinds of organizations are more likely than others to become targets of social movement pressure. We theorize the “social production of targets” by social movements, rejecting a simple “reflection” model to focus on configurations of power and vulnerability that shape repertoires of contention. Empirically, we extend structural accounts of global commodity chains and cultural accounts of markets to analyze the production of targets in the case of the anti-sweatshop movement of the 1990s. Using a longitudinal, firm-level dataset and unique data on anti-sweatshop activism, we identify factors that attracted social movement pressure to particular companies. Firms’ power and positions strongly shaped their likelihood of becoming targets of anti-sweatshop activism. But the likelihood of being a target also depended on the cultural organization of markets, which made some firms more “shamable” than others. Contrary to suggestions of an anti-globalization backlash, globalization on its own, and related predictions about protectionism, cannot explain the pattern of activism.

Just Say No: Corporate Taxation and Corporate Social Responsibility

Source: Reuven S. Avi-Yonah, University of Michigan Law & Econ Research Paper No. 14-010, April 13, 2014

From the abstract:
This article will address the question whether publicly traded US corporations owe a duty to their shareholders to minimize their corporate tax burden in any way that they may be able to get away with from a purely legal perspective. First, however, to render the subsequent discussion a bit more concrete, I will describe a recently unveiled case study of corporate tax aggressiveness.

What Are the Obligations of Those Who Invest in Corporations?

Source: Bonita Meyersfeld, Handbook of the Philosophical Foundations of Business Ethics, Chapter 54, 2013
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From the abstract:
Institutional investors have a significant role to play in enforcing international human rights standards. Simply by choosing whether or not to invest in corporations and by imposing investment conditions, institutional investors have the ability to influence multinational corporations to comply with international human rights and environmental standards. Institutional investors are thus a potential regulator themselves in the absence of effective state control. Many institutional investors already take factors relating to a corporation’s social responsibility into account when making investment decisions. But what happens when they do not? Where institutional investors overlook these factors and invest in corporations that commit human rights violations, the following questions must be asked: Are such investors complicit in the harmful actions of the multinational corporations that they fund? Do institutional investors have a legal obligation under international human rights law to take steps to help prevent the violation of human rights by the corporations in which they invest? Is it lawful for institutional investors to make a profit from the operations of multinational corporations that are complicit in, or commit, human rights violations? Given the significant power of institutional investors globally, especially in developing world investment, it is interesting to note that relatively little attention has been paid to this actor in the international law debates regarding human rights and business.

Responsibility Outsourced: Social Audits, Workplace Certification and Twenty Years of Failure to Protect Worker Rights

Source: Brian Finnegan, American Federation of Labor-Congress of Industrial Organizations (AFL-CIO), 2013

From the summary:
Since at least the 1980s, global supply chains of major brands have spread to countries where governments have demonstrated little will or capacity to regulate the many workplaces that enter into business relationships with these brands. In such places, labor laws often are weak or poorly enforced, workers’ rights are not recognized and workers effectively are blocked from organizing unions and engaging in collective bargaining with employers to bring wages above poverty level. Basic safety and health standards and human rights at many of these workplaces routinely are violated. Locating production in these most precarious parts of the global supply chain has become a standard means for international brands to maximize revenues and press for an edge on their competitors by driving production costs ever lower.

This report digs underneath the façade of social auditing and certification schemes to reveal a deeply disturbing abdication of responsibilities on the part of both governments to protect human rights at the workplace and of companies to respect these rights by exercising due diligence regarding the impact of their business activities and their business relationships.
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