Partnerships for the Goals

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| Editors: Walter Leal Filho, Anabela Marisa Azul, Luciana Brandli, Pinar Gökcin Özuyar, Tony Wall

Corporate Responsibility: Law Interactions

  • Duane WindsorEmail author
Living reference work entry
DOI: https://doi.org/10.1007/978-3-319-71067-9_3-1

Definition

Corporate responsibility – law interactions are the set of relationships between conceptions of corporate responsibility and relatively formal institutions of hard law and soft law affecting the role of business in achievement of the UN Sustainable Development Goals (SDGs) and other broader expectations for environmental, social, and stakeholder responsibilities.

Introduction

The SDGs of September 2015 – the “2030 Agenda” target date – apply to developed and developing countries. The 2030 Agenda addresses 17 key issues in economic, environmental, and social development. The ultimate target is increased human welfare – especially in developing countries. Some issues bear directly on corporate responsibility (listed in an alphabetical order): climate change, innovation and infrastructure, partnerships, responsible consumption and production, and work and economic growth. All businesses have an explicit role in each of these issues. Other goals are less directly linked to businesses (clean water and sanitation, education, gender equality, health, hunger, inequality, poverty, social justice – including human rights and peace, terrestrial ecosystems, and urbanization) or involve specific industries (energy and marine resources) rather than all businesses. The SDG formulation is silent on the basic consideration of whether the content of corporate responsibility should be voluntary for businesses or mandated by national laws.

The 2000 UN Global Compact (UNGC) is a voluntary association of interested parties, including businesses, which commit to ten principles concerning protection and promotion of human rights, labor rights, environment, and anti-corruption. The UN Global Compact (2018) online interprets its relationship to the Agenda 2030 as follows. First, all businesses – regardless of size or industry – have a role to play in contributing to SDGs. Second, the UNGC position is that businesses should operate responsibly (defined by the ten principles) and then apply “innovation and collaboration” to solution of “societal challenges” as opportunities are available. Third, there are many opportunities for such “innovation and collaboration.” Fourth, business “integrity and values” are important. Fifth, the UNGC statement takes a specific stance on relationships between “good practices or innovation” and “harm”: positive contribution in one dimension “cannot make up” for negative impact (“harm”) in another dimension. To amplify, positives and negatives cannot be added together to a net positive contribution: positives and negatives are independent. The implication is that businesses should strive to minimize “harms” and increase “good practices or innovation” in order to generate a net positive contribution.

This entry examines interactions between “corporate responsibility” and “law.” The entry gets at a set of likely possibilities through a combined conceptual discussion (examining the logic of interaction possibilities) and descriptive discussion (illustrations of specific interaction approaches in different countries selected as exemplars). Neither conceptual nor descriptive discussions are exhaustive, because both “corporate responsibility” and relevant domestic and international “law” continue to evolve over time with key variations across countries.

A fundamental consideration in examining responsibility – law interactions – is the relationship between voluntary and mandatory dimensions of responsibility. Fully voluntary responsibility and fully mandatory responsibility are polar opposites, with a possible continuum of varying combinations lying in between. The term “corporate responsibility” historically suggests strictly voluntary choice of businesses, while the term “law” historically suggests strictly mandatory compliance. McBarnet (2009, p. 1) comments that corporate social responsibility (CSR) policies never have been absolutely voluntary: typically policies have been in “response to market pressures and reputational risk.” The main shift over time has been increasing mandatory requirements in several forms: government regulation, government pressure, and private litigation. McBarnet suggests a two-way relationship of CSR and law: market pressures increase business responsibility for compliance with increasing legal requirements, increasing compliance with spirit as well as letter of law. Thus responsibility and law may increase together over time. This conception of the relationship between voluntary and mandatory dimensions concerns “responsibility” – as distinct from and superadded to any “corporate governance” requirements. Responsibility is additional to governmental licensing and governance standards.

The rest of this entry is organized as follows. The second section explains conceptions of corporate responsibility (CR), corporate social responsibility (CSR), and corporate social irresponsibility (CSiR). It addresses the relationship of these conceptions to the idea of corporate citizenship. Different specific conceptions are characterized as perspectives on responsibility. The third section is descriptive and examines illustrations of specific interaction approaches in several countries. Different specific interactions of responsibility and law are characterized as approaches (for distinction from conceptual perspectives). The fourth and final section discusses some implications for governments, businesses, stakeholders, and the SDGs and cross-sector SDG partnerships.

Conceptions of Corporate Responsibility

Responsibility has a normative implication: someone is responsible for something. The term “corporate responsibility” is arguably “contestable” and “contested” with respect to meaning and content (Okoye 2009). The entry uses “responsibility” as a rubric under which various perspectives and approaches can be formulated.

Distinction between corporate responsibility (CR) and corporate social responsibility (CSR) turns on omission of the word “social” from CR. The difference may depend on the intention of the individual adopting the specific term. For some, CR may be synonymous with CSR but possibly less controversial in public discussion through tactical omission of “social”: the two terms are then content equivalent. For some others, CR may be intended to be a substitute for and competitor to CSR. CR can mean shareowner wealth maximization: corporate managers are responsible primarily to shareowners and not to society or other corporate stakeholders. CR then effectively abandons CSR. These two interpretations are not compatible.

There is an important distinction between CSR and corporate social irresponsibility (CSiR). Narrowly, CSR might mean no more than voluntary altruism or social good initiatives by businesses. Broadly, CSR may mean in addition willing compliance with laws and ethical norms and also avoidance of irresponsible actions such as generation of negative externalities. A negative externality or social cost is an economic cost imposed on an external party by a business and not internalized into the business’s cost structure. CSiR emphasizes that getting businesses to avoid or compensate for irresponsible actions – through compliance and internalization of social costs – is considerably more valuable to society than encouraging voluntary altruism (Walker et al. 2018). Referring back to the UNGC discussion of SDGs for business, CSR positive outcomes and CSiR negative outcomes cannot be added together to yield a net positive contribution (the “corporate social performance” or “corporate social impact”) for a specific business. Rather, CSiR is to be minimized, and CSR is to be increased.

The conceptual or theoretical foundation for CSR remains disputed. There are six relevant perspectives on CSR: economic, ethical, legal, political, stakeholder, and strategic. In this entry, economic (or market) and legal perspectives are positioned as opposed approaches. Ethical, political, stakeholder, and strategic conceptions are perspectives positioned between economic and legal perspectives. These intermediate perspectives may be partly overlapping.

Figure 1 depicts a proposed positioning of perspectives. The dashed horizontal line is a continuum with the economic and legal perspectives as polar opposites. The distinction is between a relatively free market economy and a hard law regulatory state. The vertical solid arrows suggest the opposition of economic and legal perspectives: as legal obligations increase, market freedom of action decreases (and vice versa). The ethical perspective calls for economic actors to view responsibility normatively, as a duty. The strategic perspective calls for economic actors to view responsibility instrumentally, as an opportunity to advance self-interest. The political perspective is an explanation of how the legal framework changes through political processes. The stakeholder perspective is a description of who participates in those political processes.
Fig 1

Positioning of six perspectives on CSR

Figure 1 groups the four intermediate perspectives in two different ways: vertically and horizontally. Vertically, ethical and strategic perspectives are closer to the economic perspective, in emphasizing internal self-regulation. Political and stakeholder perspectives are closer to the legal perspective, in emphasizing external influences. Horizontally, ethical and political perspectives are noneconomic in orientation. Strategic and stakeholder perspectives can be interpreted from an economic perspective, the self-interest of the business. Risk for a business is that failure of stakeholder engagement will lead to stakeholders turning to political processes for redress of grievances. Reward for a business is that effective stakeholder engagement will lead to stakeholder support.

Economic Perspective

The economic perspective narrows CR to shareowner wealth maximization: there is no social dimension beyond economic wealth generation on a principle of fiduciary duty. This perspective defines CSR as altruism: voluntary action to contribute to some social good beyond legal obligation. Adopting that definition, McWilliams and Siegel (2001) argue a business should not engage in such voluntary action unless profitable (in which case the action is a business decision and not a CSR decision) or alternatively some stakeholder is prepared to pay for the action such that business profit is constant. The economic perspective is compatible with compliance with minimalist (and pro-market) laws and basic ethical norms: Friedman (1970) characterizes this compliance descriptively in terms of “rules of the game.” He does posit basic ethical norms such as honesty and absence of deception or fraud. However, he argues that businesses can lobby governments for changes in laws. It may be to business self-interest to reduce laws toward zero or to shape laws in such a way as to harm competitors. Voluntary self-regulation substitutes for government regulation. CSR may be a discretionary choice made by managers for strategic reasons (Liang and Renneboog 2018) – including reputation, sustainability, and shareowner value creation (Choller and Sandwidi 2018); there is no necessary conflict between CSR and financial performance (Bliss 2015). CSR then may transmit through international trade (Newman et al. 2018). Market forces may result in global convergence concerning corporate governance and sustainability (Salvioni et al. 2018). The United States and United Kingdom may serve as important influences in this regard (Knudsen 2018). The home country of multinational enterprises (MNEs) may influence, for instance, global labor standards through requirements for transparency and then due diligence (Rühmkorf 2018).

Legal Perspective

Social contract theory, created on an analogy to voluntary legal contract, rests on a rational comparison of the benefits and costs to individuals of social cooperation (Ibanga 2018). There are four different approaches to “law.” Domestic law, within a national jurisdiction, may be criminal law, civil law, or public policy (Wilson 1989). Criminal law prohibits and punishes misconduct (typically through threat of imprisonment and fine). Civil law determines whether certain acts (such as tort or contract violation) should be penalized financially. Public policy signals desired conduct (Wilson 1989). International law means treaties and similar cross-national accords or established norms for behavior when operating across national jurisdictions (Bantekas 2004). There is a distinction between “hard law” (as in a national criminal statute) and “soft law” (as in an international or industry code of conduct). Businesses will prefer self-regulation to soft law to hard law. A vital question is when CSR expectations should move from self-regulation to some form of law (Chhabra 2014). Globalization may tend to drive CSR and corporate governance toward increased government regulation (Berger-Walliser and Scott 2018).

From a legal perspective, CSR may function as what has been termed “informal” law (Buhmann 2006). The relationship is that underlying normative principles of law are part of the same general set of social values that inform CSR conceptions (Buhmann 2006). Increasing demands on businesses for CSR activities might be viewed as “pre-formal” law (Buhmann 2006). CSR can occur in both “implicit” and “explicit” modes within each country (Matten and Moon 2008). “Explicit” has the meaning of formal institutions, including hard law and soft law. “Implicit” has the meaning of more informal understandings and expectations shaping business behavior.

Ethical and Political Perspectives

Figure 1 groups ethical and political perspectives horizontally on the following argument. CSR in origin was a normative argument that businesses had moral duties to obey laws and basic ethical norms, avoid generating or internalize negative externalities, and contribute to social good more broadly than simply generating goods and services, jobs, employee compensation, and profits. Political CSR extended this ethical argument to include duties to provide public goods in conditions of governmental incapacity (especially in developing countries) and to promote democracy both in society and within each business (Scherer 2018).

Corporate citizenship is a conception of responsibility that can be interpreted in two basically opposed ways. One interpretation is legalistic: a business should comply with law but not exceed legal obligations. And constitutionally, businesses are free to lobby for reductions in those legal obligations. The other interpretation is closer to the political CSR perspective. Adam Smith (1759, 6th edn, VI.ii. 2) distinguished between “citizenship” and “good citizenship” as follows: a citizen obeys the laws and public policies; a good citizen is concerned with the welfare of fellow citizens in a broader way.

Strategic and Stakeholder Perspectives

Figure 1 groups strategic and stakeholder perspectives horizontally on the following argument. The strategic perspective constrains CSR, not to the strictly profitable requirement of McWilliams and Siegel (2001) but to the longer-term strategic self-interest of the business. Reputation protection, risk reduction, and political connections may be strategic rationales for CSR initiatives. The stakeholder perspective broadens managerial responsibility from fiduciary duty to enhancing multiple-stakeholder support for the business and possibly through greater redistribution of profits away from shareowners (Coff 1999).

Country Illustrations of Responsibility: Law Interactions

Figure 2 provides a logical structure for understanding varieties of responsibility – law interactions illustrated here by country. The horizontal (top) stub is a continuum that moves from voluntary CSR in a relatively nonregulated market economy through soft law approaches to hard law approaches. The vertical (left-side) stub differentiates between shareowner value orientation and stakeholder orientation (Ronnegard and Smith 2018). The figure generates a three-by-two matrix of possibilities. Yan (2018) suggests looking at shareowner wealth versus CSR through lens of hard law and soft law.
Fig. 2

Country illustrations of CR – law interactions

Key examples of different approaches to CR – law interactions are: the United States (US), China (PRC), India, and the Nordic countries. The United States and China are polar opposites. The United States is associated with the market perspective; the People’s Republic of China (PRC) is associated with hard law enacted by an authoritarian communist regime. India and the Nordics are different approaches to encouraging CSR through public policy, these approaches lying between the US market perspective and the PRC hard law perspective. There is also a spreading legal requirement for CSR reporting, for which France is a good example. One can position various soft law approaches in between the United States and China. A code of conduct can be an internal business standard or an industry or international statement of guidance for businesses (Gribnau et al. 2018). Activists can mobilize pressure on businesses to influence their decisions (Graafland 2018). Activists engage in what can be labeled “private politics” aimed at businesses and “public politics” aimed at governments (Baron 2001).

European countries, when members of the European Union (EU), should be placed within the context of the EU’s approach to encouraging CSR, stakeholder engagement, and sustainability (Kudlak et al. 2018; Mullerat 2013). The EU approach is one of encouraging CSR through public policy guidance (Steurer 2010), which can be viewed as a species of soft law.

The US Market-Oriented Approach

The US approach emphasizes corporate governance laws enacted by the various states, especially Delaware. Corporate governance is about protection of shareowner rights. Stock exchanges issue listing requirements emphasizing corporate governance standards. There are two CSR-oriented variations: corporate constituency statutes in something more than half of the states and benefit corporation statutes in somewhat more of the states. A constituency statute permits a board of directors to consider the interests of non-shareowner stakeholders. A benefit (or B) corporation is a for-profit entity permitted to do social good (positive social impact).

Market pressures and reputational risk may serve to drive businesses toward at least an appearance of embracing CSR and certainly avoiding CSiR. Dyck et al. (2019) report that, across businesses in 41 countries, institutional ownership positively associates with environmental and social performance. The study reports tests that this association is causal, working from institutional ownership to performance; and that the relationship works from countries with strong preferences for environmental and social performance. The study concludes that institutional invests from such countries spread their preferences globally.

In Japan, there was a prolonged period of economic stagnation featuring low profitability and de-emphasis on shareowner interests. In 2014, an index JAX400 began to report annually Japan’s 400 most profitable large businesses (Chattopadhyay et al. 2018). The cited study reports that inclusion in this index resulted in businesses increasing return on equity (ROE) significantly, but without corresponding capital market or product market benefits. Inclusion appeared to assist growth in aggregate earnings over a sample period.

The PRC Hard Law Approach

Assigning China (PRC) to shareowner value orientation reflects that the communist party is the ultimate controller of businesses in that country. Party policy determines the distribution of outcomes among stakeholders in any particular business.

The People’s Republic of China (PRC) is a communist regime: the government is fully controlled by the monopoly Communist Party of China (CPC). The PRC is an authoritarian, not a constitutional, polity. In principle, the PRC legislative process – subject to approval of the CPC which effectively selects the legislature – can simply change any “law” or “regulation” at will. There is no constitutional or judicial check to this absolute legislative power. PRC policy – on CSR, corporate governance, stakeholder engagement, and sustainability – can evolve rapidly (Pan et al. 2018; Tang et al. 2018).

There is “hard law” defined and enforced at the discretion of the CPC. However, the regime can also elect to signal its wishes – including to businesses. Marquis and Qian (2014) provide a political dependence model that integrates institutional theory and corporate political strategy research. Businesses dependent on the PRC government in various ways will issue CSR reports. Whether these reports are substantive, or purely symbolic, depends on the risk of governmental monitoring. Government dependence can reflect state ownership, whether business executives are members of political councils, whether the business has a political legacy, and the nature of the business’s financial resources. Symbolism means that CSR reports are decoupled from substantive CSR activities. The study’s authors test this political dependence model on CSR reports issued by some 1, 600 publicly listed Chinese businesses during the period 2006–2009. They conclude that government signaling is an important political influence mechanism, that varying kinds of governmental dependency involve different kinds of pressures on businesses, and that higher risk of governmental monitoring increases likelihood of substantive CSR actions. The PRC can influence businesses in desired directions without enacting hard law directly.

The Nordic CSR Public Policy Approach

Public policy is a way of encouraging desirable behavior such as CSR, as distinct from criminal and civil law enforcement (Almatrooshi et al. 2018). The essence of the Nordic approach is an equating of CSR with sustainable business practices in various dimensions of strategy and operations. The Nordic countries in effect use public policies to encourage sustainability. In doing so, the Nordic countries may be moving from a more “implicit” toward a more “explicit” institutionalization of CSR (Strand et al. 2015).

The term Nordic typically signifies a set of historically interacting countries: Denmark (which includes Greenland and the Faroe Islands), Finland (which includes the Åland Islands), Iceland, Norway, and Sweden. The Nordic countries are strongly democratic and rank very low on measures of governmental corruption; they are typically regarded as “advanced welfare states” (Midttun et al. 2015). These countries (and associated autonomous territories) participate in the inter-parliamentary cooperation Nordic Council (founded 1952) and the Nordic Council of Ministers (founded 1971). Scandinavia has a narrower meaning: politically Denmark, Norway, and Sweden (which are constitutional monarchies, while Finland and Iceland are republics) and sometimes geologically Norway, Sweden, and northern Finland. Swedish is spoken in some parts of Finland, including the Åland Islands. In addition to Scandinavians (Danes, Norwegians, and Swedes) and Finns, the Nordics include small populations of Inuit (Greenland) and Sami (across the north of geological Scandinavia).

A point of variation across the Nordics is whether to leave and if so how much of important public welfare issues to private business discretion. This point of variation is something of a retreat from the historical approach in which negotiated agreements and strong regulations were used for control of business behavior (Midttun et al. 2015). A survey of Nordic companies with strongest CSR performance suggests that there remains considerable skepticism concerning reliance on voluntary CSR in preference to the traditionally strong government role (Gjølberg 2011). Gjølberg finds that business self-interest and increased international regulation can occur together.

The Indian Companies Act 2013 Approach

A developed country is one with a relatively high-income economy and supporting institutions – whether on a liberal market economy or coordinated market economy model. Most, but not all, countries with membership in the Organisation for Economic Co-operation and Development (OECD) fall into this developed country category. All other countries – including China and Russia – are still developing, meaning a relatively lower-income economy and defects in various forms in supporting institutions. Developing countries are dependent on agriculture or natural resources (such as oil and gas or mining of minerals) or are still industrializing relative to the developed countries. Africa, Central and South America, and much of Asia are in the developing country category. A central attribute of developing countries is the desirability of attracting foreign direct investment (FDI) capital and bargaining with MNEs over conditions for FDI, in-country operation, and repatriation of earnings to MNE home countries. Within the developing country category, there is a set of countries often characterized as emerging: such countries have relatively higher rates of economic development and growth and are economically closer to the developed countries than to the low- and middle-income countries of the developing areas. China and India are typically classified as emerging. A vital problem in much of the developing world and also in the transitional countries of Eastern Europe (defined as previously under communist rule and domination of the USSR) is governmental and commercial corruption. While there is corruption in developed countries (being more prominent in some than in others), corruption in developing and transitional countries is considerably more pervasive and economically and politically destructive. The UNGC tenth principle encourages anti-corruption efforts by businesses.

In 2017, Tanzania initiated new tax, royalty, and fee policies for foreign mining companies to boost governmental revenues and greater national control of mining resources. In July 2017, Acacia – listed in London – reported receiving a Tanzania claim for $190 billion ($40 billion in back taxes and $150 billion in penalties and interest) based on government assertion that Acacia had underpaid taxes on two gold mines over 17 years. Acacia stated it had paid its full taxes and rejected the government claim (Kottasová 2017). Acacia’s majority shareowner Barrick Gold conducted negotiations on its behalf with Tanzania to resolve the tax issue; those negotiations were still underway in June 2018. The Tanzania case illustrates government use of hard law including tax code in a developing country.

In 2013, India promulgated a CSR law – the Indian Companies Act – that requires businesses above certain financial thresholds (for profitability, net worth, and size) to spend at least 2% of net income on CSR actions from 2015 forward (Manchiraju and Rajgopal 2017; Marques and Srinivasan 2018). This law is a movement beyond purely voluntary CSR (Gatti et al. 2018). An event study found the law resulted in a 4.1% drop in stock price of affected firms, except that businesses spending more on advertising were not so affected. Authors of the study (Manchiraju and Rajgopal 2017) argued voluntary CSR choices permit a business to maximize shareowner value, while mandatory CSR spending will be financially negative in comparison. Another study of Bombay Stock Exchange firms (BSE500) found that firms within business groups are more likely to spend only the required 2%, while firms with higher ownership by an Indian founder or greater involvement with CSR activities or with higher spending on research and development are more likely to spend more than the required 2% (Marques and Srinivasan 2018). Technically, companies that do not spend in accord with the legal requirement are obligated to report why not; there is no effective sanction within the law presently (Gautam 2018; Varottil 2018). There are arguably companies in India that have and would act concerning CSR without the law in effect (Garg and Ambrosius 2018).

Corporate Social Reporting Requirements and Guidelines

The CSR report may be a means of facilitating stakeholder engagement (Noked 2013). The European Commission adopted in December 2014 a directive requiring large public multinational businesses to disclose nonfinancial information. Size is more than 500 employees. Nonfinancial information includes (listed alphabetically) anti-corruption, bribery, employee, environmental, human rights, and social dimensions. This information set partly overlaps with the UNGC principles. Firms must also provide information on business model, outcomes and risks of prescribed nonfinancial dimensions, and diversity policy for management and supervision. In some European Union countries, such as Germany, there is a dual-board corporate governance system: a management board and a supervisory board.

There are a number of guidance recommendations for such reports. There are two UN international guides to voluntary CSR. The 2000 UNGC, as noted earlier, asks participating businesses (and others) to act on ten principles concerning human rights, labor rights, environmental responsibility, and anti-corruption (this principle was added subsequently to the previous nine). The International Organization for Standards, popularly the International Standards Organization (ISO), a UN agency at Geneva, Switzerland, has promulgated ISO 26000 (2010) Guidance on Social Responsibility. This guidance does not provide requirements and thus does not result in formal certification. ISO 37001 (2016) does provide requirements and certification for anti-bribery management systems. There are also OECD Guidelines for Multinational Enterprises, the International Labour Organization (ILO) Tripartite Declaration, and UN Guiding Principles on Business and Human Rights.

The Global Reporting Initiative (GRI), now headquartered in Amsterdam, the Netherlands, was founded in 1997 as an independent standards organization. The GRI sustainability reporting framework began functioning in 2000. GRI standards are in a fourth iteration (October 2016).

A study examined 176 energy businesses issuing sustainability reports (Miras-Rodríguez and Di Pietra 2018) to determine what kinds of corporate governance mechanisms influence the decision to obtain either some form of assurance or GRI application level. The study concludes that credibility of the sustainability report of a business listed in a relation-based country is increased by an assurance and that businesses with concentrated ownership and fewer board of directors insiders are more likely to have an assurance.

France is an example of mandatory social and environmental reporting within the European Union (Morris and Baddache 2012). In 2001, France promulgated a nouvelles régulations économiques (“new economic regulations”), or NRE. This NRE modernized takeover transparency, corporate governance, and antitrust policy for French firms. The NRE included provisions requiring disclosure of triple bottom line (TBL) performance information. TBL encompasses financial, social, and environmental dimensions of business performance. The NRE requires French firms to issue sustainability reports, including (a) social reporting on various aspects of human resources, community (including both local impacts and stakeholder engagement), and labor standards (anchored on ILO conventions) and (b) environmental reporting (including emissions and resource consumption). Criticisms can include absence of specific required indicators; clear delineation of required scope for an integrated (consolidated) report, whether international or domestic operations must be included; silence on life-cycle environmental impacts; and absence of sanctions and auditing requirements.

Implications

The nature and specific contents of corporate responsibility (CR) remain contested and contestable. A body of literature studies “varieties of capitalism.” Capitalism (a market economy) is distinguished from socialism (a state-owned or state-dominated economy). Within capitalism, this literature differentiates liberal and coordinated types of market economies. A “liberal market economy” orientation – illustrated by the United States – emphasizes reducing responsibility to shareowner value creation within as minimal a set of hard laws and soft laws as possible. This orientation, combined with the economic perspective, tends to denigrate corporate social responsibility (CSR) as unjustifiable corporate altruism. The orientation does not itself justify or encourage corporate social irresponsibility (CSiR). However, one might expect that unfettered market forces are likely to drive choices more in the direction of CSiR activities and outcomes. A liberal market economy relies more on informal institutions beyond corporate governance laws: these institutions combine voluntary self-regulation and soft law. A “coordinated market economy” orientation – illustrated by Germany and Japan – emphasizes increasing responsibility to greater stakeholder engagement and sustainability within an expanded set of hard laws and soft laws. A coordinated market economy relies on formal institutions to regulate business: these institutions may combine hard law and soft law.

China (PRC) is a communist and authoritarian regime presently featuring a combination of privately owned and state-owned enterprises in a partly market economy. Hard law is the instrument of the PRC for addressing corporate governance, CSR, and sustainability issues. Some interpretations characterize the PRC approach as “authoritarian capitalism,” but this characterization tends to underplay what is in reality authoritarianism and not capitalism. In 2018, the communist party made its head president for life of the PRC.

India has elected to encourage CSR through mandatory business spending – but one must appreciate the proviso that when a firm does not spend what is required, it can explain the decision. France has elected to encourage CSR reporting – but one must appreciate that there are no direct sanctions involved. The Nordic countries, acting within the general spirit of the European Union approach, have adopted public policies to encourage CSR.

Governments face a choice among voluntary CSR, soft laws, and hard laws. The foundational hard law in many countries concerns corporate governance. The voluntary approach works with a liberal market economy. Change will be toward soft laws, developed with active participation of businesses. The formal institutional approach works with a coordinated market economy. Change will be toward hard laws. An extreme instance of the hard law approach is an authoritarian regime like China (PRC).

Businesses face a choice between voluntary CSR and CSiR misbehavior. Voluntary CSR, compatible with increasing soft laws, may help postpone hard laws. CSiR misbehavior will tend to provoke increases in hard laws.

Stakeholders, like governments, face a choice among voluntary CSR, soft law, and hard law strategies. Activists – for environmental, labor, or social causes – are likely to prefer hard law regulations for strong certainty; soft law guidance is a step along the road to hard law. Shareowners, and other financial investors, are likely to prefer strong corporate governance law, but voluntary CSR focused strictly on strategic considerations. Consumers and labor are likely to prefer hard law regulations for strong certainty considering issues of import to them: consumer protections, employment security, and similar considerations.

The SDG formulation is effectively silent on the basic consideration of whether the role of business should be voluntary or mandatory. Bozhikin and Dentchev (2018) argue for the merits of a “plethora” of regulatory approaches for encouraging CSR. Some of the SDGs are suitable for voluntary CSR initiatives and soft law guidance: especially climate change, innovation and infrastructure, responsible consumption and production, and work and economic growth. These SDGs seem most directly linked to business operations in market conditions. An approach, stated as an SDG, is the use of partnerships across governments, businesses, and nongovernmental organizations (NGOs). Rather than engaging in conflict, these various actors can attempt to cooperate and coordinate within voluntary CSR and soft law conditions. Partnering may be a substitute for or complement to hard laws, which are developed and enforced by national governments. CSR public policies might encourage such partnering approaches. The other SDGs being much less directly linked to businesses may require greater hard law regulation by those national governments.

Cross-References

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Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  1. 1.Jones Graduate School of BusinessRice UniversityHoustonUSA

Section editors and affiliations

  • Monica Thiel
    • 1
  1. 1.School of Public Administration and School of Business AdministrationUniversity of International Business and Economics & China University of PetroleumBeijingChina