BA –Project Student:
Kitty Hagsten, KH69078
Instructor:
Annemarie Backmann
Corporate social responsibility
Legitimacy issues of corporations as political actors
British politics and society
Aarhus School of Business
University of Aarhus
May 5th 2009
Corporate Social Responsibility
Legitimacy Issues of Companies as Political Actors
By Kitty Hagsten
Summary
Traditional participatory democracy rests on the division of society into two spheres, the private sphere and the public sphere. The government represents the public sphere. They are the rule makers and are responsible for social responsibility as elected by the general populace on the basic strengths of their policies. With the advent of faster, more efficient travel and improved communications it has been possible for big business to effectively colonise specific sites in a multitude of countries simultaneously. With their arrival, they offer increased work opportunities and the potential of increased economic growth within an area. However they may also bring negatives such as increased pollution and waste products, higher dependence on natural resources and increased pressure on local housing and commodities. This is representative of globalisation.
It would normally be expected that the national government would legislate for these issues in order to protect the status of the economy and the affected areas. However, in many cases the government’s political agenda is swayed by local business interests, and they are forced to concede on many issues to ensure the continued presence of the company as it generates revenue and boosts the economy of the country. With this in mind and the populace becoming all too well aware of the power these companies wield, through the pressure of popular opinion the companies are forced to take on roles of responsibility to the areas with which they are involved, and in doing so unwittingly enter the public sphere to fill the legislation vacuum left by the government regarding social responsibility. In this way business takes up a part political role blurring the boundaries between the private and public spheres. This is representative of Corporate Social Responsibility (CSR).
In a modern globalized world, the view that a company’s role is purely economic is no longer strictly true as they engage in implementation of human rights and set environmental standards. This process although undeniably altruistic in practice can be interpreted as an extra dimension to the company’s own branding, allowing the company to appear that it cares, giving it a more humanitarian edge over it’s competition. This raises the question as to whether these acts of social responsibility are based on the company’s profound interest in society and environment or simply clever business strategy. CSR is first and foremost voluntary although there are driving factors encouraging a company to subscribe. As described above there are basic social benefits that reflect well upon the company but also they are able to anticipate any unwanted interference by government with regard to legislation that may curtail their business activities or lessen their revenues. If companies self-legislate they are able to maintain relative business freedom to pursue capitalist goals but they also legitimise themselves by acting responsibly in the absence of government legislation thereby fulfilling a need in the private sphere historically provided by the state.
The UK is seen as a global trailblazer for CSR and subsequent governments from the 80’s onwards have all used soft policy to drive businesses in this direction. As a result Europe and the rest of the world has begun to follow the example set by the UK. Tesco (UK’s largest supermarket) provides an example of this by labelling all food packaging with the total ‘carbon cost’ of producing and transporting their products. This is seen as fulfilling a legislative gap and setting a standard although there exist no current regulation on the subject. Tesco sees itself as fulfilling a private need by responding to the voice of its customer base whilst setting future standards that would satisfy any legislation that may have been forthcoming.
After discussing legitimacy from the various perspectives mentioned above it was concluded that CSR has done little to damage the workings and profit margins of big business. It has in fact gone a long way to allowing businesses to be more globally competitive and increased their returns. It has also allowed business to operate more effectively within a loose framework of acceptable responsibility, freeing government of the task of costly and inhibitive law making, thus legitimising business to a large extent in the eyes of the public sphere.
Key terms: CSR, Corporate social responsibility, legitimacy, globalisation, sub-politics, TNCs, NGOs, corporate governance, citizenship.
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Index
Introduction……………… ………………………………………………………………………….2
Part I – Theoretical framework……………………………………………………………………....6
Chapter 1 – Theory…………………………….…………………………………………………...6
1.1Ulrich Beck………………………………..…………………………………………………..6
1.1.2 Changes in society……………………………………………………………………….…6
1.1.3 The Risk society…………………………………..………………………………………..7
1.1.4 Sub-politics………………………………………………………………………………....7
1.1.5 Globalisation…………………………………………………………………………….…8
1.2 Corporate social responsibility…………………………………………………………….....9
1.3 Microeconomic theory…………………………………………...…………………………10
1.3.1 Limitations of classic liberal model……………………………………………...…….…11
1.4 Corporate Citizenship…………………………………………...…………………………..11
1.5 Summarising remarks……………………………………………………………………….12
Part II – Analysis/Discussion……………………………...………………………………………..13
Chapter 2 – Analysis…………………………………..……………………………………….…13
2. Structure of analysis……………………………………………….…………………………13
2.1 CSR in the UK………………………………………………………...…………………….13
2.2 Development in UK………………………………………………………………………....13
2.3 The UK government as a driver of CSR………………………………………...………….16
Chapter 3 – Legitimacy issue……………………………………………………………………..18
3. Provisional summary……………………………………………………..…………………..18
3.1 Legitimacy………………………………………………...…………………………...……18
3.2 The power of business………………………………………………………………………19
3.3 Legitimacy of business……………………………………………...…………………...….20
3.4 CSR as business strategy…………………...... 23
3.5 Ambiguous role of corporations…………………………………………….………………25
Part III – Conclusion…………………………………….………………………………………….26
Chapter 4 – Conclusion……………………………………………………………………….…..26
References…………………………………………………………………………………….…….30
Appendix……………….....……………………………………..………………………………… 33
Introduction
Traditional participatory democracy rests on the division of society into a public and a private sphere. The private sphere encompasses labour and private companies, and the public sphere encompasses state authority and politics. Traditionally, apart from following the rules set out by government, the private sphere does not directly intervene in politics. Civil, political and social rights are guaranteed by the national state. In protecting these rights the state provides legitimacy, stability and welfare to citizens and society, and more so lays the foundation for the modern welfare state (Scherer, Palazzo, Baumann 2006).
Globalisation has altered the traditional division of these two spheres.
Where, prior to globalisation, companies were bound to their home country and its laws, their activities have now expanded beyond national borders, making them trans-national in operations and reach.
Due to trans-national expansion, the nation-state has lost much of its political steering capacity regarding civil, political, and social rights because the state’s enforcement power is bound to its territory (Scherer et. al. 2006).
Problem statement
Globalisation has caused a government vacuum with the result that the nation state can no longer offer solutions to society’s demands in areas such as social rights. For example unemployment benefits. As a result business faces the demand of accepting and taking more social responsibility i.e. engagement in CSR. Business companies become political actors with social responsibilities beyond their economic role and mere compliance with the law (Beck 2000).
In a modern globalized world the view that a company’s role is purely economic is somewhat outmoded and no longer true. Companies engage in human rights and set environmental standards and in some cases offer public goods, which the state government cannot or will not provide (Scherer et. al. 2006). Business increasingly participates in the formulation and implementation of rules in policy areas traditionally governed by the state; in other words, business has developed a new political role. However, as companies are neither democratically elected nor controlled to exert political power, it raises an issue of legitimacy.
The focus of this paper will be on the hypothesis:
“Can CSR be said to provide legitimacy for companies to adopt roles and functions formerly exercised exclusively by nationally elected state government?”
This new political role of business and the shortcomings of national governments can be observed all over the western democratic world. The UK, however, presents an interesting case in terms of development and politics within the area of corporate social responsibility, in that encouragement of CSR has been the strategy of choice for the UK government in a wide re-orientation of governance roles in society (Moon 2005). In this paper focus will be on the UK.
Delimitations
The main political focus of this paper will be on the Thatcher government of the 1980s, following through to Tony Blair and New Labour in the 1990s, culminating in the current Brown administration. The Brown government will not be touched upon in this thesis as Brown only acceded to the role of Prime Minister in 2007, and his term until the financial crisis has been a broad continuation of the Blair policies concerning corporate social responsibility.
The terms of Thatcher and Blair, although from ostensibly opposing political backgrounds, marked a radical change in UK politics and both played an important role in the development of CSR in the UK. For the purposes of this paper we will only look at the period until the advent of the current financial crises. The crisis has had a great negative impact on the legitimacy issue of business, but this will not be considered as it is too early to assess its overall impact.
A multitude of different factors have impacted on the development of the CSR phenomenon; companies, politics, consumers, NGOs, governments, supranational institutions as well as others too numerous to mention. Because of the limited space of this thesis, the main focus will be on the relationship between corporation and national government, as this is the most relevant for the issue of legitimacy, which is the primary question of this thesis. Any other pertinent factors will be mentioned where relevant.
Structure of thesis
The thesis will consist of three main parts - (I) Theoretical framework, (II) Analysis/discussion, (III) Conclusion.
The theoretical framework (I), entailing chapter 1 will cover the theories in use. These will work as tools for the analysis. The analysis (II) will be covered in chapter 2 detailing CSR in the UK where I will explain the development of CSR in the UK and how the UK government has been a driver of CSR through their different governmental decades of Margaret Thatcher and Tony Blair from the 1980s and onwards to the end of his leadership in 2007. Chapter 3 concerns the issue of legitimacy and discusses the power of business in comparison to the nation state. Additionally, there will be discussion on whether or not CSR can provide legitimacy for corporations. The conclusion (III) will summarise the essential parts of the thesis and give an overview of CSR as a legitimising factor.
Theoretical framework
The chosen theoretical framework consists of several different theoretical fields. The Three main theories for analysing the political role of business are sociology, microeconomics, and political science. The reason for choosing this variety of concepts is in order to best analyse the underlying reasons for the new political role of business and the concept of CSR.
Sociology will be applied in this thesis through the work of Ulrich Beck and his thesis of the risk society, which analyses contemporary society and the changes brought on by globalisation. This will serve as a means to establish the new political role of business.
The issue of whether or not companies are obliged to take on this political role and engage in Corporate Social Responsibility will be analysed through microeconomics and political science.
A critical perspective will be provided by classical liberalism as outlined in the works of Milton Friedman. Friedman was a strong believer in the advantages of the market and considered the roles of companies to be purely economic. Business is not to interfere with the political sphere, as its only social responsibility is to increase its profits (Friedman 1970).
The view advocating a social responsibility for business will be discussed with reference to the theory of ‘Corporate Citizenship’ developed by Dirk Matten and Andrew Crane. This theory is from 2005 and is based on observations of the functions already fulfilled by business in a globalised world i.e. protecting, enabling, and implementing citizenship rights. It places corporations in the public sphere as it assumes a state-like role of the company, obliged to administer citizenship rights and thus take on social responsibility (Matten, Crane 2005).
These two approaches are considered relevant for this paper because they illustrate important aspects of the development of the changing role of business.
Milton Friedman’s ideas of laissez-faire informed the policy of the Thatcher government in Britain in the 1980s. For this reason Governmental development in the UK in the 1980s will provide the starting point of this examination.
Part I - Theoretical framework
Chapter 1 - Theory
1.1 Ulrich Beck
In order to find whether or not this hypothesis holds I will first establish whether there, in fact, can be said to be a new political role for business.
Towards this end I will employ sociologist Ulrich Beck’s theory of the risk society and the new modernity. This theory was developed in 1986 and offers a picture of contemporary society and the shift to a new modernity exemplified through the changing role of business and government. It will serve the purpose of outlining the changes in society from the 1960s and onwards; changes that have led to the new political role and responsibilities of business examined in this paper.
1.1.2 Changes in society
The globalisation process was to some extent a result of deliberate political decisions - the liberalisation policy of many nation states after World War II intensified cross-border transfer of resources such as capital and knowledge. This was also supported by technological, social, and economical developments (Scherer, Palazzo 2008).
Globalisation in this thesis will also be explained through the work of Ulrich Beck who, in his publications ’World Risk Society’ (2001)[1] and ’What is globalisation?’ (2000)[2], attempts to explain how society has changed and how globalisation has influenced the thinking of society.
According to Ulrich Beck society has moved from traditional (pre-modern) societies, through early-simple modern societies, to late modernity. Societies undergo processes of development and Beck, at the time of writing his thesis states that we do not yet live in a risk society, but we also no longer live only within the distribution conflicts of industrial societies. Currently, we are experiencing a transition from industrial society to risk society.
1.1.3 The Risk Society
Humans have always been subjected to a level of risk i.e. the threat of natural disasters; force majeure. Such risks are produced without human involvement and are termed external risks. In modern society on the other hand, humans are exposed to a particular types of risk that are seen to be a product of human activity, capitalism and therein the modernisation process itself. Modern risks are of human origin and are termed manufactured risks. The social production of wealth in the industrial epoch of society is accompanied by the social production of risk.
A ‘Risk Society’ is a society that is organized in response to risk. Risk in such a society is defined as a systematic way of dealing with hazards and insecurities induced and manufactured by modernization itself. Risks in the industrial society were perceived as individual and calculable and the welfare state could assess and supply solutions to these risks i.e. health care. In risk society risks are global in scale, transcending borders, and therefore incalculable in terms of governmental solutions e.g. global warming, terrorism.
Social relations change with the introduction of manufactured risks and reflexive modernisation[3] as the knowledge of risks becomes the driving factor for political change. The values and social practices of the industrial era change and human caused disasters such as Chernobyl have introduced an increased critique of the modern industrial society and a declining public faith in industry and government. A government vacuum appears - The nation state is severely constrained in its ability to protect and monitor the rights of its citizens and to provide sufficient public goods. When globalisation enters the arena Beck speaks of the world risk society.
1.1.4 Sub-politics
Many former non-political issues become political in the risk society and public debate emerges over the social, economic and political consequences of risk production.
Where traditionally the place to look for political influence was in parliamentary elections and debates (the political sphere)[4], politics in the risk society emerges in private life decisions, social movements and business (the private sphere)[5]. These new places and forms of politics Beck has termed ‘sub-politics’. Generally defined, they are forms of politics taking place ‘outside and beyond the representative institutions of the political system of nation-states’ (Holzer, Sørensen 2003 p. 83) also referring to transnational politics taking place beyond and across the nation state.
There is a shift in power and the economic sphere which was formerly non-political, becomes political as individuals look for new ways to influence society. Among the new Sub-politicians are transnational corporations (TNCs), international organisations, non-governmental organizations (NGOs), and civil society groups. Beck defines politics in terms of the structuring and changing of living conditions, which the private sphere now does, and it can therefore be said to be political (Holzer, Sørensen 2003).
1.1.5 Globalisation
What is globalisation? Beck ‘s answer to the question is “the processes through which sovereign national states are criss-crossed and undermined by transnational actors with varying prospects of power, orientations, identities and networks.”(Beck 2000 p. 11).
During the process of globalization, liberalisation of trade has caused the nation-state to lose much of its political steering capacity. The state’s enforcement power is bound to its territory, while companies have expanded their activities beyond national borders. Companies are able to outsource to where the production of goods and services are most efficient (Scherer, Palazzo 2008). Companies become powerful economic and social actors because of the huge revenues they produce (TNCs), the resources they control and the capacity to choose a favoured combination of location and consequent legal system.