Corporate Social Responsibility. An effective way of raising labour or environmental standards?

ID440: Corporate Social Responsibility

Is Corporate Social Responsibility an effective way of raising labour or environmental standards?

1. Introduction

Economic globalization – “the international integration of markets for goods, services and capital” (Genschel 2004:616) – has substantially strengthened the political and economic resources of multi-national corporations (MNCs) (cf. Cerny 1995:609-610; Rubery/Grimshaw 2003:198-199). Product and capital market deregulation enabled MNCs to exit national collective agreements and employment protection laws (EPL) in developed countries and to increasingly take advantage of ‘institutional arbitrage’ (cf. Lane 2008:233-235,252-254; Scharpf 2000) via outsourcing, offshoring and subcontracting strategies (cf. Cerny 1995:613-616; Lane 2008:240-246) resulting in increasing profit margins due to substantially lower labor costs in the global South (see Merk 2011:82 for the case of Nike).

However, in the 1990s, media campaigns of consumer groups and NGOs against MNCs’ grave violations of basic working and environmental standards fuelled demands for and political contestation over “corporate social responsibility” (CSR) subject to private certification (cf. Bartley 2007:299,310,321-324 Merk 2011:88-90). Hence, they managed to threaten firms’ reputation as a “fundamental intangible resource” (Branco/Rodrigues: 2006:127) imposing risks on those firms under scrutiny and competitors alike (cf. Bartley 2007). Company-based explanations, by contrast, attribute the emergence of CSR policies as a particular form of private regulation to rising demands for an instrument that simultaneously allows firms to attain positive reputation by means of legitimacy gains (cf. Doh et al. 2010:1465) and to punish free-riders among competitors (cf. Bartley 2007:306-312).

Since ‘traditional’ forms of (inter-)governmental ‘hard’ regulation – that is directly binding, clearly defined, compulsory and enforced by state sanctions (cf. Kuruvilla/Verma 2006: 51) – have been blocked by developing countries’ concerns about hidden protectionism (Baccaro/Mele 2010:19,27,37) and the dominant neoliberal paradigm (Bartley 2007:305), the field of international labor standards is now governed by various forms of ‘soft’ regulation (cf. Kuruvilla/Verma 2006:51-52). CSR regulations are typically centered on the 1998 core labor standards of the International Labour Organization (ILO) who are binding for states only (cf. Kocher 2008:198), and minimum ‘cash standards’ regarding safety, wages and working hours (ibid.). Among the huge variety of private regulations (e.g. certification approaches), the most important CSR instruments (cf. Kocher 2008:198) are unilateral voluntary Codes of Corporate Conduct and International Framework Agreements, i.e. agreements of MNCs with unions or Global Union Federations (GUFs) (cf. Mund/Priegnitz 2007: 674).

For the non-binding character of private CSR regulation and MNCs’ substantial resources to shape employment (for the better or the worse) in their subsidiaries (cf. Fichter et al. 2011:617; Kocher 2008:200; Rubery/Grimshaw 2003:198-199), I argue that a necessary precondition for CSR policies to be effective, that is to raise working standards substantially and sustainably, consists in firms’ serious commitment to its enforcement and that firms’ level of commitment will be determined mostly by economic imperatives (cf. Devinney 2009: 45,50; Chen et al. 2008; Elliott/Freeman 2003:30-31). However, CSR policies will only be sufficient to improve working conditions in combination with their ‘embeddedness’ in a particular political and institutional context (Campbell 2007) that is conducive to solve technical problems (e.g. regarding monitoring, governance of supply chains) and that enables labor to manipulate potential conflicts of interest between financial and social priorities (cf. Devinney 2009:45-46; Merk 2011:94) in favor of of the latter.

For space constraints, I will limit the following analysis of main determinants of CSR effectiveness to labor issues. The main findings I will present in the conclusion.

2. Main determinants of CSR effectiveness

In particular for companies whose production processes and overall performance are determined significantly by characteristics of specific ‘global value chains’ (Gereffi 1996; Gereffi et al. 2005) or ‘production networks’ (Coe et al. 2008), the adoption of CSR strategies implies potential economic self-interests in terms of quality of products, process management and control over supply chains (cf. Nayebpour/Koehn 2003; Porter/Kramer 2006:90).

However, since CSR policies usually are developed to serve MNCs’ rather than workers’ interests (cf. Seidman 2008:1000), economic incentives do not directly induce raising working standards. Moreover, research on the direction and strength of potential causality between CSR and firm value are “fraught with empirical question marks” (Devinney 2009:51; cf. ibid.54). By contrast, it appears that companies mainly adopt CSR instruments as marketing and sales strategies, particularly in consumer product industries (Hunt 2008; Fisman et al. 2007; Wang et al. 2008). Moreover, due to obviously limited effects of negative CSR records on overall consumers’ purchasing behavior (see Bartley 2007:322-323; Bhattacharya/Sen 2004; Elliott/Freeman 2003:30-31; Vogel 2005:48), ‘market sanctions’ in form of consumers’ changing demand curves are likely to remain ineffective in raising labor standards. However, for CSR to have a positive impact on social issues, it must go beyond ‘window-dressing’, that is “tactics […] approaching fraud” (Friedman 1970:5).

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