A shift in the cultural conception of the firm as productionsystem to that as investment-system entrenches the institutional logic of agency theory in governance reform. Reform initiatives emphasize the separation between management and the board, forensic reporting requirements, and the primacy of shareholders' entitlement to control and residual gains. Problems associated with this agency logic render reform unable to deliver a broad-based ethical operating environment. The introduction of a version of stakeholder theory, augmented by (...) Knightian uncertainty, places the development of an alternative conception of the firm into discourse. Implications for governance reform are considered. (shrink)

A number of companies allocate ownership rights to stakeholders different from shareholders, despite the fact that the law attributes these rights to the equity holders. This article contributes to an understanding of this evidence by developing a contingency model for the allocation of ownership rights. The model sheds light on why companies, despite pressures from the law, vary in their allocation of ownership rights. The model is based on the assumption that corporations increase their chance to survive (...) and prosper if the stakeholders supplying “critical contributions” receive the ownership rights. According to the model, “critical” contributions involve (1) contractual problems due to specific investments, long-term relationships, and low measurability; (2) the assumption of the uncertainty resting on the company; and (3) the supply of scarce and valuable resources. The model is dynamic because it also provides a basis for understanding why the allocation of ownership rights changes with time. Finally, the article presents the strategies companies can use to realize an efficient distribution of ownership rights among their stakeholders. (shrink)

In this article, we examine the empirical association between corporate governance (CG) and corporate social responsibility (CSR) engagement by investigating their causal effects. Employing a large and extensive US sample, we first find that while the lag of CSR does not affect CG variables, the lag of CG variables positively affects firms’ CSR engagement, after controlling for various firm characteristics. In addition, to examine the relative importance of stakeholder theory and agency theory regarding the associations (...) among CSR, CG, and corporate financial performance (CFP), we also examine the relation between CSR and CFP. After correcting for endogeneity bias, our results show that CSR engagement positively influences CFP, supporting the conflict-resolution hypothesis based on stakeholder theory, but not the CSR overinvestment argument based on agency theory. Furthermore, firms’ CSR engagement with the community, environment, diversity, and employees plays a significantly positive role in enhancing CFP. (shrink)

This paper raises a challenge for those who assume that corporate social responsibility and good corporate governance naturally go hand-in-hand. The recent spate of corporate scandals in the United States and elsewhere has dramatized, once again, the severity of the agency problems that may arise between managers and shareholders. These scandals remind us that even if we adopt an extremely narrow concept of managerial responsibility – such that we recognize no social responsibility beyond the (...) obligation to maximize shareholder value – there may still be very serious difficulties associated with the effective institutionalization of this obligation. It also suggests that if we broaden managerial responsibility, in order to include extensive responsibilities to various other stakeholder groups, we may seriously exacerbate these agency problems, making it even more difficult to impose effective discipline upon managers. Hence, our central question: is a strong commitment to corporate social responsibility institutionally feasible? In searching for an answer, we revisit the history of public management, and in particular, the experience of social-democratic governments during the 1960s and 1970s, and their attempts to impose social responsibility upon the managers of nationalized industries. The results of this inquiry are less than encouraging for proponents of corporate social responsibility. In fact, the history of public-sector management presents a number of stark warnings, which we would do well to heed if we wish to reconcile robust social responsibility with effective corporate governance. (shrink)

This study investigates the extent to which South African listed corporations voluntarily disclose information on black economic empowerment (BEE) in their annual and sustainability reports using a sample of 75 listed corporations from 2003 to 2009. BEE is a form of socio-economic affirmative action championed by the African National Congress (ANC)-led government to address historical imbalances in business participation and ownership in South Africa. We find that block ownership and institutional ownership are negatively associated with the extent (...) of BEE disclosures, whereas government ownership, board diversity (age, education, ethnicity, nationality and occupation), board size and non-executive directors are positively related to the extent of BEE disclosures. By contrast, dual board leadership structure and gender diversity are not significantly associated with BEE disclosures. Our results are robust when controlling for firm-level characteristics, fixed-effects and alternative disclosure proxies. Our results are largely consistent with the predictions of agency, legitimacy, resource dependence and stakeholder theories. (shrink)

We examine corporate governance diversity within a Coasian framework of stakeholder rights, where the central role of governance is to ensure that necessary firm-specific investments are made. This Coasian perspective on stakeholder theory offers a unifying framework towards a global theory of comparative corporate governance, bridging the gap between economic theories of the firm and stakeholder theory, also offering an economics-based alternative to agency theory that explicitly accounts for stakeholder rights. The Coasian perspective (...) encompasses a diversity of corporate governance systems, but does not imply a unique global corporate governance benchmark. We posit that governance is firm dependent and endogenous conditional on the constraints imposed by a national governance system; consequently, there should be no systematic relationship between governance and firm performance once the national constraints are controlled for. However, the same national corporate governance system constraints confer comparative advantages to firms whose efficient levels of firm-specific investments are favored. (shrink)

We examine the relationship between corporate governance and the extent of corporate social responsibility (CSR) disclosures in the annual reports of Bangladeshi companies. A legitimacy theory framework is adopted to understand the extent to which corporate governance characteristics, such as managerial ownership, public ownership, foreign ownership, board independence, CEO duality and presence of audit committee influence organisational response to various stakeholder groups. Our results suggest that although CSR disclosures generally have a negative (...) association with managerial ownership, such relationship becomes significant and positive for export-oriented industries. We also find public ownership, foreign ownership, board independence and presence of audit committee to have positive significant impacts on CSR disclosures. However, we fail to find any significant impact of CEO duality. Thus, our results suggest that pressures exerted by external stakeholder groups and corporate governance mechanisms involving independent outsiders may allay some concerns relating to family influence on CSR disclosure practices. Overall, our study implies that corporate governance attributes play a vital role in ensuring organisational legitimacy through CSR disclosures. The findings of our study should be of interest to regulators and policy makers in countries which share similar corporate ownership and regulatory structures. (shrink)

Control of the market microstructure theory of corporate governance perspective on the traditional theory of the firm as a deepening of the study, the use of information economics and game theory tools to the mainstream economic analysis framework for the development, the market for corporate control transactions, configuring and tuning the details of the process accurately describes the shares of companies in the separation of ownership and control of internal control case shareholders, tender offers, takeover bids and (...) other governance mechanisms different from the actual control and operation of, the existence of incomplete information and transaction costs under control conditions to analyze market transactions , from the perspective of market microstructure control to clarify the shareholders of the managers to implement effective control mechanisms, policies and conditions. Share control over the behavior of financial market issues, equity market and environmental factors control the interaction between the control and equity issues in the legal protection and market control policy design issues will be the future theoretical research in this field focus. Corporate governance theory based on corporate control market microstructure focuses on trading, allocating and adjusting process of the corporate control market, applying the information economic approach and game instrument to expand the mainstream economic analysis framework. It accurately describes the factual operation of different corporation control and governance mechanism such as corporation owner's internal control, tender offer, takeover bid and negotiating transfer, deepening the traditional firm theory. Moreover it analyzes the corporate control market transactions on the case of incomplete information and positive transaction cost, examines the effective mechanism, strategies and condition by which the owner control and monitor the management based on corporate control market microstructure perspective. Those are the future research topics in this field that behavior finance, interaction with environments and legislation protect and regulation policy designations. (shrink)

There is a distinct lack of research into the relationship between corporate governance and corporate social responsibility (CSR) in the banking sector. This paper fills the gap in the literature by examining the impact of corporate governance, with particular reference to the role of board of directors, on the quality of CSR disclosure in US listed banks’ annual reports after the US sub-prime mortgage crisis. Using a sample of large US commercial banks for the period 2009–2011 (...) and controlling for audit committee characteristics, board meeting frequency, and banks’ profitability, size and risk, we find evidence that board independence and board size, the two board characteristics usually associated with the protection of shareholder interests, are positively related to CSR disclosure. This indicates that, with regard to CSR disclosure, more independent boards of directors and larger boards are the internal corporate governance mechanisms which promote both shareholders’ and other stakeholders’ interests. Contrary to our expectations, CEO duality also impacts positively on CSR disclosure. From an agency-theoretical viewpoint, this suggests that powerful CEOs may promote transparency about banks’ CSR activities for their private benefits. While this could indicate that powerful CEOs are under particular pressure to appease stakeholders’ concerns that they might abuse their power by providing a high degree of CSR disclosure, it could also be a sign of managerial risk aversion or managers’ private reputational concerns. (shrink)

Given the increasing importance attached to both corporate social responsibility (CSR) and corporate governance, this study investigates the association between these two complimentary mechanisms used by companies to enhance relations with stakeholders. Consistent with both legitimacy and stakeholder theory and controlling for industry profile, firm size, stockholder power/dispersion, creditor power/leverage, and economic performance, our analysis of the annual reports for a sample of 222 listed companies suggests that firms providing more CSR information: have better corporate (...) governance ratings; are larger; belong to higher profile industries; and are more highly leveraged. Our findings support the limited prior research suggesting a link between corporate governance quality and CSR disclosure in company annual reports and suggest that, rather than mandating specific disclosures, regulators might be better served focussing on corporate governance quality as a way of increasing CSR disclosures. (shrink)

While much has been written on specificity (e.g., in texts on new institutional economics, agency theory, and team production theory), there are still some insights to be learnt by business ethicists. This article approaches the issue from the perspective of team production, and will propose a new form of corporate governance: enlightened corporate governance, which takes into consideration the specific investments of employees. The article argues that, in addition to shareholders, employees also bear a residual risk which (...) arises due to their specific investments. This residual risk presents a valid and legitimate basis for residual claims. In this way, employees can be seen as residual claimants due to the fact that their income depends upon a hazardous quasi rent. Therefore, this article will call on the fiduciary duty of board members to protect those employees who are exposed to such residual risks and may thus be vulnerable as a result. This leads to a fundamental change of perspective on the “theory of the firm” – a change which will adopt the theories of new institutional economics, agency theory, and team production theory in order to promote business ethics research. Against this background, enlightened corporate governance aims to follow the criterion of specific investments as a legitimate basis for residual claims. Furthermore, it seeks to understand the consequences for board members, and to promote the sharing of control and ownership. The article will close with some discussion of the implications and future prospects for business ethics. (shrink)

The concept of pluralism in corporate governance is stated as an emergent theory. Grounded in the concept of enhancing the input of various stakeholders and lessening the control of managers in corporate governance, the theory is the foundation of proposed legal changes in corporate governance and the board of directors. While more pluralistic control has been conceptually linked to improved social performance of the firm, this proposition is not supported in an empirical investigation.

As a result of recent corporate scandals, several rules have focused on the role played by Boards of Directors on the planning and monitoring of corporate codes of ethics. In theory, outside directors are in a better position than insiders to protect and further the interests of all stakeholders because of their experience and their sense of moral and legal obligations. Female directors also tend to be more sensitive to ethics according to several past studies which explain this (...) affirmation by early gender socialization, the fact that women are thought to place a greater emphasis on harmonious relations and the fact that men and women use different ethical frameworks in their judgments. The goal of this paper is to determine the influence of these characteristics of the Board in terms of promoting and hindering the creation of a code of ethics. Our findings show that a greater number of female directors does not necessarily lead to more ethical companies. Moreover, within Europe as a continent, board ownership leads to an entrenchment of upper-level management, generating a divergence between the ethical interests of owners and managers. In light of this situation, the presence of independent directors is necessary to reduce such conflicts. (shrink)

According to information asymmetry theory and stakeholder theory, this article explores the impact and mechanism of environmental, social, and governance information disclosure on the company’s future stock price crash risk based on the A-share listed companies from 2010 to 2019. We find that ESG information disclosure significantly reduces the company’s future stock price crash risk. This conclusion remains robust after a series of robustness tests, such as PSM-DID. The heterogeneity analysis shows that the negative relationship between ESG disclosure (...) and stock price crash risk is more significant in state-owned enterprises, companies with higher agency costs, and when companies in the bull market. The mechanism is that companies choose to disclose ESG information to alleviate information asymmetry problems and enhance corporate reputation capital, thus reducing the future stock price crash risk. This article shows that strengthening ESG construction will help improve the efficiency of China’s resource allocation and promote the capital market development. (shrink)

This article draws on key models of monitoring and blockholding articulated in the incomplete contracts theory of the firm. Under incomplete contracts theory, different governance systems have incentive structures that entail different tradeoffs—tradeoffs between ownership concentration and liquidity, between monitoring and management initiative, and between private rent-seeking and activity benefiting shareholders as a group. The tradeoffs delimit opportunities for productive cross-reference. More specifically, blockholder systems, such as those in Europe, subsidize monitoring by permitting blockholders to reap private benefits of (...) control through self-dealing and insider trading. Market systems, such as those in the United States and Britain, regulate such private rent-seeking toward the end of maintaining an institutional framework that supports diffuse share ownership and liquid trading markets. It follows that a legal framework conducive to blockholding may be ill-equipped to foster dispersed equity ownership and thick trading markets and that a legal framework conducive to liquid trading markets may have properties that discourage blockholding. This gives rise to questions for law reform agendas on both sides of the Atlantic. In the United States, proponents ask for deregulation of controls on institutional investors, looking to encourage blockholding and more effective monitoring. In Europe, proponents ask for stronger securities regulation, looking to encourage deeper trading markets. This article suggests that each reform program may lead to disappointing results because neither assures conforming adjustments to the pertinent actors’ incentives. Alternatively, strict reforms that materially change prevailing incentive patterns could perversely destabilize workable arrangements without assuring the appearance of more effective alternatives. (shrink)

Recent perspectives on community investments suggest that they are opportunities for firms to create value for shareholders and other stakeholders. However, many corporate managers are still influenced by a widely held belief that such investments erode profits and are therefore unjustifiable from an agency perspective. In this paper, we refine and test theory regarding countervailing forces that influence community-based firm performance. We hypothesize that high levels of available slack will be associated with higher community-based performance, but that this (...) relationship will be moderated by three important governance variables: board independence, investment fund ownership, and CEO ownership. We find support for our hypotheses in longitudinal study of a large sample of U.S. corporations. (shrink)

Recent scandals allegedly linked to CEO compensation have brought executive compensation and perquisites to the forefront of debate about constraining executive compensation and reforming the associated corporate governance structure. We briefly describe the structure of executive compensation, and the agency theory framework that has commonly been used to conceptualize executives acting on behalf of shareholders. We detail some criticisms of executive compensation and associated ethical issues, and then discuss what previous research suggests are likely intended and unintended consequences (...) of some widely proposed executive compensation reforms. We explicitly discuss the following recommendations for reform: require greater independence of compensation committees, require executives to hold equity in the corporation, require greater disclosure of executive compensation, increase institutional investor involvement in corporate governance (including executive compensation), and require firms to expense stock options on their income statements. We provide a brief summary discussion of ethical issues related to executive compensation, and describe possible future research. (shrink)

Trends in corporate governance to minimize employee participation and to promote shareholder rights, in both the EU and US contexts, evidence the practical efficacy of the separation thesis and the dominance of models of corporate governance founded upon decision theory. Giving expression to a vision of human agency in terms of instrumental rationality, such models of corporate governance, presuppose clearly defined objectives. Drawing on the work of Talbot Brewer, Alasdair MacIntyre, and Robert Brandom, this paper offers (...) an alternative practice-based model of corporate governance that emphasizes the role of socially and historically embodied forms of reasoning in promoting a better understanding of the aims or objectives of the corporation, particularly with respect to the social, environmental, and economic context of the firm. After reviewing recent empirical literature concerning employee participation, criteria are offered concerning effective employee participation programs, as a means of implementing a practice-based model of corporate governance. (shrink)

Abstract:After a decade of intensive debate, stakeholder ideas have come to exert a significant influence on academic management thinking, but normative stakeholder theory itself appears to be in considerable disarray. This paper attempts to untangle the confusion and to prepare the ground for a more productive approach to the normative stakeholder problem. The paper identifies three distinct kinds of normative stakeholder theory and three different levels of claim that can be made by such theories, and uses (...) this classification to argue that stakeholder theorists have consistently pitched their sights either too high or too low to engage effectively with the rival shareholder theory. To the extent that they have their sights too high they have also undermined their own position by sacrificing credibility and introducing major problems of derivation. (shrink)

Roughly speaking, Enron has done for reflection on corporate governance what AIDS did for research on the immune system. So far, however, virtually all of this reflection on and subsequent reform of governance has come from those with a stake in the success of modern capitalism. This paper identifies a number of governance challenges for critics of capitalism, and in particular for those who urge corporations to voluntarily adopt missions of broader social responsibility and equal treatment for (...) all stakeholder groups. I argue that by generally neglecting the governance relation between shareholders and senior managers, stakeholder theorists have underestimated the way in which shareholder-focused governance can be in the interests of all stakeholder groups. The enemy, if you will, is not capitalists, but greedy, corrupt or incompetent managers. A second set of governance challenges for stakeholder theorists concerns their largely untested proposals for governance reforms that would require managers to act in the interests of all stakeholders and not just shareholders; in other words to treat shareholders as just another stakeholder group. I suggest that in such a governance regime it may be almost impossible to hold managers accountable to anyone – just as it was when state-owned enterprises were given “multi-stakeholder” mandates in the 1960s and 1970s. (shrink)

Corporations have increasingly turned to voluntary, multi-stakeholder governance programs to monitor workers’ rights and standards in global supply chains. This article argues that the emphasis of these programs varies significantly depending on stakeholder involvement and issue areas under examination. Corporate-influenced programs are more likely to emphasize detection of violations of minimal standards in the areas of wages, hours, and occupational safety and health because focusing on these issues provides corporations with legitimacy and reduces the risks of uncertainty (...) created by activist campaigns. In contrast, these programs are less likely to emphasize workers’ rights to form democratic and independent unions, bargain, and strike because these rights are perceived as lessening managerial control without providing firms with significant reputational value. This argument is explored by coding 805 factory audits of the Fair Labor Association between 2002 and 2010, followed by case studies of Russell Athletic in Honduras, Apple in China, and worker rights monitoring in Vietnam. (shrink)

This study provides evidence on the governance of CSR policies and activities by Indian central government-owned companies [i.e. Central Public Sector Enterprises ] within a unique mandatory regulatory setting. We utilise the multi-level ‘Logic of governance’ conceptual framework and draw upon interview data collected from 25 senior managers in 21 CPSEs to assess the dynamics of CSR implementation within CPSEs. Our findings indicate most managers believe that a mandatory policy has enhanced the accountability and commitment of governing boards and senior (...) management to CSR. However, CSR policy implementation within Indian CPSEs is still nascent, fraught with bureaucratic hurdles, insufficient human and knowledge resources, limited stakeholder analysis and over-emphasis on CSR budget utilisation as an outcome. Several key areas for improvements include the need for better translation of national CSR policy goals to firm-level strategies, more formal assessment of stakeholder needs, clearer communication lines with external service providers, such as NGOs and local government agencies, and the better evaluation of CSR outcomes. The findings of this study have implications for both theory and policy development. (shrink)

This research aims to explore the relationship between corporate governance and CSR: What are the major factors that play a direct role in the establishment of this relationship? How does context and institutional background impact upon the relationship between CSR and Governance? Using in-depth semi-structured interviews from two types of governance systems in three countries over three years, this study has demonstrated that in practice, within different settings, CSR is being used both as a strategy as well as a (...) reaction to different drivers. We call this adaptive governance where governance can be defined as a flexible system of action incorporating strategic and monitoring activities that determines the way a company enacts its responsibilities to its shareholders and stakeholders and which is determined at any given time by the interrelationship of institutional drivers and behavioural norms. Governance systems and their interrelationships with CSR are demonstrated as fluid according to the national and institutional context, economic situation and industry impact. In the eyes of practitioners corporate governance includes both structural and behavioural factors as well as responsibilities and actions towards shareholders and stakeholders. Contextual factors that this research highlights to be important to the incorporation of CSR into governance include the economic environment, national governance system, regulation and soft law, shareholders, national culture, behavioural norms and industry impacts. Hypotheses on the impact of institutional contexts, industry impacts and economic situations on different types of CSR actions are proposed for further research. (shrink)

This study investigates the effects of internal and external corporate governance and monitoring mechanisms on the choice of corporate social responsibility (CSR) engagement and the value of firms engaging in CSR activities. The study finds the CSR choice is positively associated with the internal and external corporate governance and monitoring mechanisms, including board leadership, board independence, institutional ownership, analyst following, and anti- takeover provisions, after controlling for various firm characteristics. After correcting for endogeneity and simultaneity (...) issues, the results show that CSR engagement positively influences firm value measured by industry-adjusted Tobin’s q. We find that the impact of analyst following for firms that engage in CSR on firm value is strongly positive, while the board leadership, board independence, blockholders’ ownership, and institutional ownership play a relatively weaker role in enhancing firm value. Furthermore, we find that CSR activities that address internal social enhancement within the firm, such as employees diversity, firm relationship with its employees, and product quality, enhance the value of firm more than other CSR subcategories for broader external social enhancement such as community relation and environmental concerns. (shrink)

This reflection focuses on what insights Catholic Social Teaching can provide for corporate governance. I argue that the ‘standard’ agency theory is overly reductionist and insufficiently incorporates important economic limitations as well as human frailty. As a result, such agency theory insufficiently distinguishes firms from markets, which can easily relativize how we treat others and facilitate rationalization of unethical behavior. I then explore how three pillars of CST—human dignity, solidarity, and subsidiarity—can help overcome these limitations. CST (...) proposes a vision of the business corporation as a community of persons, working together in cooperative business relationships toward the shared purpose of contributing to human flourishing. (shrink)

This essay seeks to give a contractarian foundation to the concept of Corporate Social Responsibility, meant as an extended model of corporate governance of the firm. It focuses on justification according to the contractarian point of view. It begins by providing a definition of CSR as an extended model of corporate governance, based on the fiduciary duties owed to all the firm's stakeholders. Then, by establishing the basic context of incompleteness of contracts and abuse of authority, (...) it analyses how the extended view of corporate governance arises directly from criticism of the contemporary neo-institutional economic theory of the firm. Thereafter, an application of the theory of bargaining games is used to deduce the structure of a multi-stakeholder firm, on the basis of the idea of a constitutional contract, which satisfies basic requirements of impartial justification and accordance with intuitions of social justice. This is a sequential model of constitutional bargaining, whereby a constitution is first chosen, and then a post-constitutional coalition game is played. On the basis of the unique solution given to each step in the bargaining model, the quest for a prescriptive theory of governance and strategic management is accomplished, so that I am able to define an objective-function for the firm consistent with the idea of CSR. Finally, a contractarian potential explanation for the emergence of the multi-fiduciary firm is provided. (shrink)

By introducing the theory of social co-governance into the field of e-commerce intellectual property protection, this paper builds an evolutionary game model among the government, e-commerce platforms, and rights holders, and studies the conditions under the stakeholders form a stable equilibrium state under different constraints. Combined with numerical simulation, the influence of individual factors and factor combinations on the system stability is analyzed. Results shows that: Strictly controlling the action costs and response costs of all parties can enhance their (...) willingness to actively deal with infringement issues; reasonable adjustment of the reward and punishment measures of government supervisory agencies can produce sufficient reverse shock and positive guidance to platform and operators; penalties should be imposed on government supervisory agencies that are not sufficiently supervised; strengthen the construction of the social environment for intellectual property protection, improve the social benefits of actively responding to infringement issues, and increase the sense of acquisition by the government, platforms and rights holders. And it provides certain positive references and suggestions for the government to formulate relevant policies. (shrink)

This essay seeks to give a contractarian foundation to the concept of Corporate Social Responsibility, meant as an extended model of corporate governance of the firm. Whereas, justificatory issues have been discussed in a related paper, in this essay I focus on the implementation of and compliance with this normative model. The theory of reputation games, with reference to the basic game of trust, is introduced in order to make sense of self-regulation as a way to implement (...) the social contract on the multi-fiduciary model of corporate governance. This affords understanding of why self-regulation, meant as mere recourse to a long-run strategy in a repeated trust game, fails. Two basic problems for the functioning of the reputation mechanism are examined: the cognitive fragility problem, and the motivational problem. As regards the cognitive fragilities of reputation, the paper develops the logic and the structure that self-regulatory norms must satisfy if they are to serve as gap-filling tools with which to remedy cognitive limitations in the reputation mechanism. The motivation problem then arises from the possibility of sophisticated abuse by the firm. Developed in this case is an entirely new application of the theory of conformism-and-reciprocity-based preferences, the result of which is that the stakeholders refuse to acquiesce to sophisticated abuse on the part of the firm. (shrink)

Since scholarly interest in corporate social responsibility (CSR) has primarily focused on the synergies between social and economic performance, our understanding of how (and the conditions under which) companies use CSR to produce policy outcomes that work against public welfare has remained comparatively underdeveloped. In particular, little is known about how corporate decision-makers privately reconcile the conflicts between public and private interests, even though this is likely to be relevant to understanding the limitations of CSR as (...) a means of aligning business activity with the broader public interest . This study addresses this issue using internal tobacco industry documents to explore British-American Tobacco’s (BAT) thinking on CSR and its effects on the company’s CSR Programme. The article presents a three-stage model of CSR development, based on Sykes and Matza’s theory of techniques of neutralization, which links together: how BAT managers made sense of the company’s declining political authority in the mid-1990s; how they subsequently justified the use of CSR as a tool of stakeholder management aimed at diffusing the political impact of public health advocates by breaking up political constituencies working towards evidence-based tobacco regulation; and how CSR works ideologically to shape stakeholders’ perceptions of the relative merits of competing approaches to tobacco control. Our analysis has three implications for research and practice. First, it underlines the importance of approaching corporate managers’ public comments on CSR critically and situating them in their economic, political and historical contexts. Second, it illustrates the importance of focusing on the political aims and effects of CSR. Third, by showing how CSR practices are used to stymie evidence-based government regulation, the article underlines the importance of highlighting and developing matrices to assess the negative social impacts of CSR. (shrink)

Lorenzo Sacconi’s recent re-statement of his social contract account of business ethics is a major contribution to our understanding of the normative nature of CSR as the expression of a fair multi-party agreement supported by the economic rationality of each participant. However, at one crucial point in his theory, Sacconi introduces the concept of stakeholders’ conformist preferences – their disposition to punish the firm if it defects from the agreement, refusing to abide by its own explicit CSR policies and (...) norms. We take issue with him over this concept: we show that the assumption of conformist preferences is a moral premise, and it arguably weakens the normativity of the theory as a whole. As an alternative, we propose an evolutionary game theoretic approach. We draw upon recent applications of evolutionary game theory to moral philosophy (Skyrms, Danielson), and we use a computer simulation of the trust game. According to this approach, the failure of the logic of reputation, which is the problem conformist preferences were introduced to solve, is overcome through the dynamics of interaction. (shrink)

Lorenzo Sacconi's recent re-statement of his social contract account of business ethics is a major contribution to our understanding of the normative nature of CSR as the expression of a fair multi-party agreement supported by the economic rationality of each participant. However, at one crucial point in his theory, Sacconi introduces the concept of stakeholders' conformist preferences - their disposition to punish the firm if it defects from the agreement, refusing to abide by its own explicit CSR policies and (...) norms. We take issue with him over this concept: we show that the assumption of conformist preferences is a moral premise, and it arguably weakens the normativity of the theory as a whole. As an alternative, we propose an evolutionary game theoretic approach. We draw upon recent applications of evolutionary game theory to moral philosophy , and we use a computer simulation of the trust game. According to this approach, the failure of the logic of reputation, which is the problem conformist preferences were introduced to solve, is overcome through the dynamics of interaction. (shrink)

This essay seeks to give a contractarian foundation to the concept of Corporate Social Responsibility (CSR), meant as an extended model of corporate governance of the firm. It focuses on justification according to the contractarian point of view (leaving compliance and implementation problems to a related article, [Sacconi 2004b, forthcoming in the Journal of Business Ethics]). It begins by providing a definition of CSR as an extended model of corporate governance, based on the fiduciary duties owed (...) to all the firm’s stakeholders. Then, by establishing the basic context of incompleteness of contracts and abuse of authority, it analyses how the extended view of corporate governance arises directly from criticism of the contemporary neo-institutional economic theory of the firm. Thereafter, an application of the theory of bargaining games is used to deduce the structure of a multi-stakeholder firm, on the basis of the idea of a constitutional contract, which satisfies basic requirements of impartial justification and accordance with intuitions of social justice. This is a sequential model of constitutional bargaining, whereby a constitution is first chosen, and then a post-constitutional coalition game is played. On the basis of the unique solution given to each step in the bargaining model, the quest for a prescriptive theory of governance and strategic management is accomplished, so that I am able to define an objective-function for the firm consistent with the idea of CSR. Finally, a contractarian potential explanation for the emergence of the multi-fiduciary firm is provided. (shrink)

The two questions I seek to address in these pages are what is public property and why does it matter. Public property, like property more generally, is a powerful legal arrangement of allocating control and use rights with respect to resources. Unlike private property, public property does not establish normative powers with which private individuals can shape their practical affairs in and around social spheres such as housing, work, commerce, and worship. Rather, its distinctive value lies in extending autonomous (...) agency to the construction of public spaces and resources. Public property places individuals in a position of collective self-government, manifested in the following two particular ways: first, expressing the ideas and commitments that the political community as a whole affirms; and second, exerting control over the construction and direction of the resources that make up the environment they occupy. (shrink)

The Social Issues in Management Division has had a long history of research into various aspects of governmental influences on business. Recent years, however, have seen stakeholder theory sort of sweep the field, and under a stakeholder theory of capitalism, governments will matter less then they have in the past as stakeholder principles are implemented throughout the corporate world. This article will examine the nature of this claim by discussing problems with the implementation of (...) class='Hi'>stakeholder theory and examining the role of public policy in our society. (shrink)

Integrating stakeholder agency theory with the instrumental corporate social responsibility (CSR) literature, this study explores how award-winning CEOs consider personal interests and balance competing stakeholder demands when they decide between external and internal CSR, or CSR focus. Using a difference-in-differences research design, we find that after winning a prestigious media award, CEOs engage in more external CSR, which is more visible to the public, and less internal CSR, which is less likely to attract public attention. (...) We find that such an influence on CSR focus is more salient for award-winning CEOs with lower stock ownership (i.e. a stronger self-serving motivation) than for CEOs with higher stock ownership. Furthermore, we explore the role of stakeholder salience in modifying award-winning CEOs’ decisions about CSR focus. When external stakeholder salience is higher (e.g. higher media coverage), award-winning CEOs' manipulation of CSR focus by increasing external CSR and decreasing internal CSR is more salient. However, such effects can be dampened when internal stakeholder salience is higher (e.g. higher human capital intensity). Our study contributes to the instrumental CSR literature by demonstrating the underlying processes and boundary conditions of how awards affect CEOs' balance of stakeholder salience. (shrink)

As corporate social responsibility involves a voluntary business endeavour to address social and environmental issues beyond legal compliance, governments cannot fall back on hierarchical command-and-control policies to support it. As such, it is complementary with the increasing popularity of public policies known as New Governance policies, where the government is engaged in a horizontal inter-organizational network of societal actors and where public policy is both formed and executed by the interacting and voluntary efforts from a multitude of (...) stakeholders. However, such policies are known to generate substantive uncertainty about the content of CSR and its related issues, strategic uncertainty regarding the behavior of the actors involved and institutional uncertainty related to the interaction process involved in the institutional change. We explore New Governance policy instruments to address these uncertainties in the context CSR and discuss the experiences with these methods in the European Union. (shrink)

This essay seeks to give a contractarian foundation to the concept of Corporate Social Responsibility (CSR), meant as an extended model of corporate governance of the firm. Whereas, justificatory issues have been discussed in a related paper (Sacconi, L.: 2006b, this journal), in this essay I focus on the implementation of and compliance with this normative model. The theory of reputation games, with reference to the basic game of trust, is introduced in order to make sense of (...) self-regulation as a way to implement the social contract on the multi-fiduciary model of corporate governance. This affords understanding of why self-regulation, meant as mere recourse to a long-run strategy in a repeated trust game, fails. Two basic problems for the functioning of the reputation mechanism are examined: the cognitive fragility problem, and the motivational problem. As regards the cognitive fragilities of reputation (which result from the impact of unforeseen contingencies and from bounded rationality), the paper develops the logic and the structure that self-regulatory norms must satisfy if they are to serve as gap-filling tools with which to remedy cognitive limitations in the reputation mechanism. The motivation problem then arises from the possibility of sophisticated abuse by the firm. Developed in this case is an entirely new application of the theory of conformism-and-reciprocity-based preferences, the result of which is that the stakeholders refuse to acquiesce to sophisticated abuse on the part of the firm. (shrink)

The aim of this paper is to analyze whether a number of firm and industry characteristics, as well as media exposure, are potential determinants of corporate social responsibility (CSR) disclosure practices by Spanish listed firms. Empirical studies have shown that CSR disclosure activism varies across companies, industries, and time (Gray et al., Accounting, Auditing & Accountability Journal 8(2), 47–77, 1995; Journal of Business Finance & Accounting 28(3/4), 327–356, 2001; Hackston and Milne, Accounting, Auditing & Accountability Journal 9(1), 77–108, (...) 1996; Cormier and Magnan, Journal of International Financial Management and Accounting 1(2), 171–195, 2003; Cormier et al., European Accounting Review 14(1), 3–39, 2005), which is usually justified by reference to several theoretical constructs, such as the legitimacy, stakeholder, and agency theories. Our findings evidence that firms with higher CSR ratings present a statistically significant larger size and a higher media exposure, and belong to more environmentally sensitive industries, as compared to firms with lower CSR ratings. However, neither profitability nor leverage seem to explain differences in CSR disclosure practices between Spanish listed firms. The most influential variable for explaining firms’ variation in CSR ratings is media exposure, followed by size and industry. Therefore, it seems that the legitimacy theory, as captured by those variables related to public or social visibility, is the most relevant theory for explaining CSR disclosure practices of Spanish listed firms. (shrink)

This paper examines the success of corporate communication in voluntary sustainability reporting. Existing studies have focused on the perspective of the communicators but lack an understanding of the perspective of information recipients to clearly evaluate this interactive communication process. This paper looks at the issue of a credibility gap perceived by external stakeholders when they doubt the authenticity of communicated information due to the reporting company’s governance structure. The paper uses family businesses to exemplify the emergence of such a (...) gap when outsiders become concerned about the potential agency problem of the integrated ownership and management controlled by a few members of the same family. Following source credibility theory, these concerns raise a credibility gap associated with a family firm’s trustworthiness and goodwill, even if the family has the expertise to carry out sustainability reporting. The findings of two experimental studies indicate that family businesses suffer a greater credibility gap than non-family businesses. An external and independent assurance service can mitigate such gaps, especially when the service is comprehensive and targets family businesses. The paper provides a complete view evaluating corporate communication by looking at the interaction between the communicating company and the information recipients. (shrink)

By considering what we identify as a problem inherent in the ‘nature of the firm’—the risk of abuse of authority—we propound the conception of a social contract theory of the firm which is truly Rawlsian in its inspiration. Hence, we link the social contract theory of the firm with the general theory of justice. Through this path, we enter the debate about whether firms can be part of Rawlsian theory of justice showing that corporate governance principles enter (...) the “basic structure.” Finally, we concur with Sen’s aim to broaden the realm of social justice beyond what he calls the ‘transcendental institutional perfectionism’ of Rawls’ theory. We maintain the contractarian approach to justice but introduce Sen’s capability concept as an element of the constitutional and post-constitutional contract model of institutions with special reference to corporate governance. Accordingly, rights over primary goods and capabilities are granted by the basic institutions of society, but many capabilities have to be turned into the functionings of many stakeholders through the operation of firms understood as post-constitutional institutional domains. The constitutional contract on the distribution of primary goods and capabilities should then shape the principles of corporate governance so that at post-constitutional level anyone may achieve her/his functionings in the corporate domain by exercising such capabilities. In the absence of such a condition, post-constitutional contracts would distort the process that descends from constitutional rights and capabilities toward social outcomes. (shrink)

Backdating of stock options is an example of an agency problem. It has emerged despite all the measures (i.e., new regulations and additional corporate governance mechanisms) aimed at addressing such problems? Beyond such negative controlling measures, a more positive empowering approach based on ethics may also be necessary. What ethical measures need to be taken to address the agency problem? What values and norms should guide the board of directors in protecting the shareholders' interests? To examine these (...) issues, we first discuss the role values and norms can play with respect to underlying corporate governance and the proper role of directors, such as transparency, accountability, integrity (which is reflected in proper mechanisms of checks and balances), and public responsibility. Second, we discuss various stakeholder approaches (e.g., government, directors, managers, and shareholders) by which conflicts of interest (i.e., the agency problem) can be addressed. Third, we assess the practice of backdating stock options, as an illustration of the agency problem, in terms of whether the practice is legally acceptable or ethically justifiable. Fourth, we proceed to an analysis of good corporate governance practice involving backdating options based on a series of ethical standards including: (1) trustworthiness; (2) utilitarianism; (3) justice; and (4) Kantianism. We conclude that while executive compensation schemes (e. g., stock options) were originally intended to help remedy the agency problem by tying together the interests of the executives and shareholders, these schemes may have actually become "part of the problem," and that the solution ultimately depends upon whether directors and executives accept that all of their actions must be based on a set of core ethical values. (shrink)

. American businesses and corporate executives are faced with a serious problem the loss of public confidence. Public criticism, increased government controls, and growing expectations for improved financial performance and accountability have accompanied this decline in trust. Traditional approaches to corporate governance, typified by agency theory and stakeholder theory, have been expensive to direct and have focused on short-term profits and organizational systems that fail to achieve desired results. We explain why the organizational governance theories are (...) fundamentally, inadequate to build trust. We advance a conceptual framework based on stewardship theory characterized by “covenantal relationships” and argue that design of governance mechanisms using a covenantal approach is more effective in building trust in organizations. A covenantal relationship is a specialized form of a relational contract between an employee and his or her organization. We argue that regardless of incentives and control mechanisms carefully designed through contractual mechanisms, in the absence of covenantal relationships it is extremely difficult to build trust within organizations. We propose that organizations are more likely to build trust – both at the organizational level and at the interpersonal level – when they create reinforcing and integrated systems that honor implied duties of “covenantal relationships.”. (shrink)

This study adopts a stakeholder theory framework to examine determinants of social reporting quality and empirically test the ability of the theory to explain disclosure quality in an emerging economy. Using a sample of 246 listed companies and a hand-collected dataset that included 2 years of data based on survey questions reflecting international disclosure trends, we apply an aggregate measure of quality with five facets to a variety of corporate social responsibility areas. The results support the (...) application and demonstrate that measures of stakeholder power, strategic posture, economic resources, firm size, and media visibility are related to social disclosure quality. This paper adds to the scarce evidence on social reporting in Taiwan and provides a useful method for evaluating disclosure quality. It also illustrates the impact of two dominant foreign stakeholder groups on social disclosures in Taiwan: organizational buyers in the global supply chain and listing and social rating agencies in international capital markets. (shrink)

This essay attempts to develop a new theoretical model for business ethics distinct from the two canonical business‐ethics theories, the stakeholder theory and the shareholder value theory. Milton Friedman argued that because managers are agents of the company's owners, their sole moral responsibility is to maximize owner returns. Thomas Pogge has recently suggested that such a view involves a kind of moral incoherence and that we should reject the efficacy of social arrangements like the principal‐agent relationship in altering (...) moral obligations. Both views fail to give proper account of the dispersal of moral responsibilities in business contexts. We must distinguish “minimal moral obligations” (stemming from justice and rights) from “maximal moral obligations” (stemming from all other moral considerations, including duties of aid, beneficence, and the virtues). Minimal obligations apply to all persons, but maximal obligations can be effected by social arrangements like the owner‐manager relationship. There may be moral obligations incumbent on owners that do not apply to managers. Understanding this distribution of responsibilities enables us to develop a new and attractive model of business ethics––“the ownership model”––which places greater emphasis on the rights and responsibilities of the owners of business than has been traditional in business ethics. (shrink)

Some argue that managers over-invest in corporate social responsibility (CSR) activities to build their personal reputations as good global citizens. Others claim that CEOs strategically choose CSR activities to reduce the probability of CEO turnover in a future period through indirect support from activists. Still others assert that firms use CSR activities to signal their product quality. We find that firms use governance mechanisms, along with CSR engagement, to reduce conflicts of interest between managers and non-investing stakeholders. Employing (...) a large and extensive sample of firms within Russell 2000, S& 500 and Domini 400 indices during the 1993-2004 period, we find that consistent with the conflict-resolution hypothesis, the CSR choice is positively associated with governance characteristics, including board independence, institutional ownership, and analyst following. In addition, after correcting for endogeneity of CSR engagement, our results show that CSR engagement positively influences operating performance and firm value, supporting the conflict-resolution hypothesis as opposed to the over-investment and strategic-choice arguments. We find only a weak support of the product-signaling hypothesis as a major motive of CSR engagement. (shrink)

In this article, we document the growing influence of non-governmental organizations (NGOs) in the realm of socially responsible investing (SRI). Drawing from ethical and economic perspectives on stakeholder management and agency theory, we develop a framework to understand how and when NGOs will be most influential in shaping the ethical and social responsibility orientations of business using the emergence of SRI as the primary influencing vehicle. We find that NGOs have opportunities to influence corporate conduct via (...) direct, indirect, and interactive influences on the investment community, and that the overall influence of NGOs as major actors in socially responsible investment is growing, with attendant consequences for corporate strategy, governance, and social performance. (shrink)

This article makes first use of a set of databases that are authoritative, independent, and consistent to examine an old research question: do firms hurt their financial performance by damaging stakeholder interests? The databases are US government on-line listings of fines for environmental breaches, unsafe workplaces, fraudulent accounting standards, and product recalls. These measures are assumed to proxy for signals to stakeholders of the environmental, social, and governance (ESG) risks in transacting with the firm and appear to have (...) fewer biases than conventional measures of stakeholder standards. Using a sample of all non-financial S& P 500 firms during the most recent 1998-2003 full cycle in the market, after controlling for firm-specific differences, sales margins of firms fell by 0.8% if they announced a product recall and by 0.4% if cited by OSHA for an unsafe workplace; and shareholder return was significantly reduced by an EPA or SEC prosecution. This study links the risk of transaction uncertainty, information signaling theory, and the resource-based view of the firm to company financial performance. Results support the normative assumption that a firm's sales margin will be damaged by unethical treatment of stakeholders as evidenced by ESG breaches, presumably because risk-averse customers and suppliers are alert to signals of counterparty risk. (shrink)

This book presents an academic introduction, presentation and argument of stakeholder theory as as a model for strategic management of business firms and corporations and public organizations and institutions. The concept of stakeholder is generally used for the parties that affect or are affected by the activities of private or public organizations. Stakeholders are those interested parties who, other than shareholders, have a connection with the activities of a corporation, a firm or an organization. The reference to the (...) stakeholders refers to a conception of a business firm as founded on negotiated governance, where the maximization of the value for the shareholder is not the ultimate criterion. In this model the stakes and the interests that are not those of shareholders or investors, and which go beyond capital and include civil society, are important. This book presents this theory and makes it known as an ethical model for strategic management that is both concrete and useful for developing democracy in the firm, and making it possible to present elements of a social contract in the context of global capitalism. (shrink)

The normative foundations of the investor centered model of corporate governance, represented in mainstream economics by the nexus-of-contracts view of the firm, have come under attack, mainly by proponents of normative stakeholder theory. We argue that the nexusof- contracts view is static and limited due to its assumption of price-output certainty. We attempt a synthesis of the nexus-of-contracts and the Knightian views, which provides novel insights into the normative adequacy of the investor-centered firm. Implications for scholarship and (...) management practice follow from our discussion. (shrink)