Corporate responsibility, governance and accountability: from self-regulation to co-regulation

Laura Albareda

Laura Albareda is based at the Institute for Social Innovation, ESADE Business School, Barcelona, Spain

Abstract Purpose The aim of this paper is to analyze the changing role of business in a globalized society, focusing on transnational corporations as private authorities which have gained power in global governance. The paper will aim to address the following issues: the development of CSR as a voluntary framework based on self-regulation instruments through which corporations can manage their social and environmental impacts; corporations exercise of power and authority in developing CSR standards globally through inter-rm cooperation; and CSR as a mechanism to transform business culture through the development of co-regulatory instruments between corporations and their stakeholders. Design/methodology/approach This paper describes the emergence of corporate social responsibility (CSR) as a new governance framework, essentially created by the pressure of global civil society on corporations. The research focuses on the analysis of new forms of business political activities: self-regulation and co-regulation. Findings The ndings describe how transnational corporations have become private authorities, competing or collaborating with global civil society or public authorities to develop a new framework of social and environmental regulations to manage their responsibilities and exercise their global power. Practical implications This paper highlights the need for regulatory tools to transform global governance. CSR requires the development of public accountability mechanisms for private authorities, an issue that can be resolved by developing global governance networks between public and private actors. Originality/value This paper explains why CSR has taken shape through the creation of self-regulation management standards and co-regulating norms and instruments where transnational corporations are a major driving force. Keywords Corporate social responsibility, Corporate governance, Society, Multinational companies, Environmental regulation, Regulation Paper type Conceptual paper

Introduction
Over the last 30 years, globalization has produced substantial changes in the structure of international society (Held and McGrew, 2002; European Commission, 2001). One of the most important consequences of globalization has been the emergence of new areas in which business activity takes place beyond the political, legal and economic control of nation-states (Ohmae, 1995; Drucker, 1997; Dunning, 1997). Today, transnational corporations have developed economic interconnectedness alongside transnational production networks and nancial ows (Held and McGrew, 2002; World Business Council for Sustainable Development, 2006). Economic and environmental globalization has implied a shift in the nature and form of political organization in world politics (Held and McGrew, 2002). One of the most signicant implications of globalization is the emergence of non-governmental actors in global governance (Rosenau, 1995; Cutler et al., 1999; Higgott et al., 2000; Hall and Biersteker, 2002), especially transnational corporations and global civil society. This means that a

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DOI 10.1108/14720700810899176

growing number of global corporations and non-governmental organizations appear to have taken on a political role in the global political economy (Cutler et al., 1999; Hall and Biersteker, 2002). New global economic activities require the emergence of new regulations and their enforcement. Transnational corporations are increasingly participating in rule-making and rule-implementation in a global context, in areas where, previously, only nation-states had any responsibility (Cutler et al., 1999; Braithwaite and Dahos, 2000). One of these areas is within the framework of corporate social and environmental responsibility. In just one decade, corporate social responsibility (CSR) has become an extremely important economic, social and political question in both developed and developing countries and at local, national, regional and international levels (Carroll, 1999; Matten and Crane, 2005). Many companies are under pressure from civil society organizations and corporate accountability networks monitoring business malpractice (Scherer and Palazzo, 2007). The adoption of responsible business policies has spread rapidly among transnational companies operating in global contexts as well as among SMEs (Zadek, 2001). CSR has emerged as a voluntary framework for corporations (Holme and Watts, 2000; Scholte, 2001). At the same time, companies are behaving in different ways: including a new relational logic behind inter-rm cooperation and collaborating with other rms and non-governmental organizations (Zadek, 2006; Crane et al., 2008). This paper examines the role of business in society within this new context of a global society. It explores the development of CSR as a sphere of governance. The hypothesis is that we cannot understand the CSR concept without understanding the new global governance structure that has emerged over the last few decades as a result of globalization. Our analysis of CSR reveals many aspects of global corporate power and the different mechanisms corporations have used to exercise their authority. The paper is divided into four sections. The rst analyses the emergence of a new global governance arena and the changing role of business in a globalized society. It also examines the emergence of CSR as an interface between transnational corporations and the corporate accountability movement. The second section focuses on the emergence of CSR as a business-driven movement and the creation of new rules, standards and management systems. The third analyses the development of inter-rm cooperation and the creation of CSR business associations. Finally, the fourth section analyses the emergence of CSR and the development of multi-stakeholder initiatives, the latter as public-private or civic-private co-regulation mechanisms.

The emergence of corporate social responsibility as an interface between transnational corporations and the corporate accountability movement
Over the last few decades, the political transformation of nation-state power and the emergence of non-governmental actors have revealed the need to reorganize the frameworks of transnational governance and regulations by taking into account the changes caused by globalization and incorporating new structural elements (Rosenau and Czempiel, 1992; Rosenau, 1995; Cox, 1996; Hewson and Sinclair, 1999; Scholte, 2001). In the 1990s, the thesis of governance without government appeared for the rst time within the international relations theory agenda (Rosenau and Czempiel, 1992). It was a new focus linked to the profound changes created by economic globalization and other changes in both the distribution of power and the governance structure of international society. The term governance refers to the self-organizing networks of action which complement the markets and hierarchies that make up the structures of government. Its authority stems from the allocation of resources and the exercise of control and co-ordination (Rhodes, 1996). This denition can be applied to the international context. The term global governance can thus be dened as the activity of governing relations that transcend national frontiers without having sovereign authority (Filkenstein, 1995, p. 368). Here, governance and government are two different concepts. The former is a process in progress whose nal consolidation is as yet unknown and which is based on the absence of a world government exercising its power in international society. In the international context, global

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governance performs the same function as governments within the nation-state (Rosenau and Czempiel, 1992). The analysis of global governance (Rosenau, 1992; Hewson and Sinclair, 1999) refers to regulatory mechanisms in global spheres, taking into account the emergence of different forms in which authority is re-structured through different levels and areas in world politics (Rosenau and Czempiel, 1992, pp. 3-6). It is also worth noting that there is no clear hierarchy of power between the actors who have an inuence on international society (Hewson and Sinclair, 1999). Global governance reinforces the involvement of non-governmental authorities in reorienting political skills. This has led to the idea that different forms of global governance must arise, thus forming a continuum between transnational and sub-national, macro and micro, informal and institutional state-centered and multi-centered action, and co-operation and conict (Rosenau, 1995). Global change implies the end of government primacy and the appearance of governance. This in turn implies an enormous variety of actors and shapes, emphasizing a dynamic proliferation of processes, with contradictory local and global trends and cohesion and conict. One of the most common denominators within global governance is the growing participation by rms in tasks that were once the domain of public authorities (Cutler et al., 1999; Scholte, 2001). As a result, the state authoritys control over society and the economy has eroded, and areas of authority once exclusive to the state are now shared with other sources of authority (Cox, 1996). In the 1980s, globalization implied a darker side of business activity that was becoming evident through various environmental and social crises which began to affect the corporate worlds reputation. These crises revealed the consequences of taking the principle of maximizing prots to the extreme without bearing in mind the risks it entails (European Commission, 2001). To this point, most transnational corporations had adopted the principle of providing the maximum value for shareholders solely by maximizing their prots (Friedman, 1970). In order to achieve their objectives, some companies did not take into account the negative consequences of their activity and moved around the planet searching for countries with the lowest labor costs and the weakest social and environmental regulations. Nevertheless, after the mid 1980s, various crises made corporations the center of public attention. First, a series of environmental catastrophes were linked to irresponsible actions by large rms. The Royal Dutch/Shell incident in the North Sea or the Exxon Valdes in Alaska are a couple of examples with the greatest impact on public opinion. Second, in the early 1990s, a series of reports emerged regarding poor working conditions in general and child labor in particular, such as occurred with Nike in Southeast Asia, GAP and sweatshops in Central America and Royal Dutch/Shell and the execution of Ogoni indigenous leaders in Nigeria (Bendell, 2004). As a consequence, the Corporate Accountability Movement emerged at the end of the last century as one of the most inuential phenomena of global civil society, questioning the blind and irrational dominion of free markets as advocated by large rms (Held and McGrew, 2002; Bendell, 2004). These critical campaigns were incorporated into what is known as the anti-globalisation movement (Held and McGrew, 2002). Civil society was now questioning the unlimited power of large rms that were believed to be provoking an increase in social inequality and exclusion and the destruction of natural resources. Civil society criticized companies for not enacting and respecting decent working conditions everywhere, with fair salaries and labor and social rights which were protected internationally by United Nations declarations and International Labour Organisation Conventions and Recommendations, despite lax existence and enforcement of national regulations in some producing countries[1]. In terms of the environment, civil society began to demand that companies respect the conventions and agreements signed within UN conferences on the environment and development and that they take into consideration the basic environmental regulations adopted by western governments or regional organizations such as the European Commission (Scholte, 2001; Bendell, 2004).

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At the end of the 1990s and as a result of this conictive situation, a noteworthy group of pioneering companies began to consider and integrate the idea that responsible behavior towards society and the environment could lead to mid and long-term economic benets (Bendell, 2004; Ruggie, 2004). This approach conicted with the traditional vision within the private sector that corporate value is based on maximizing economic prot for shareholders (Friedman, 1970). Companies defending the more classic view were opposed to the development of CSR due to the economic costs allegedly implied in adopting these policies. There is still clear debate within the business sector regarding these two conicting approaches.

Corporate social responsibility as a voluntary framework

The emergence of CSR makes sense in the context of these new demands by civil society on the private sector (Ruggie, 2004). In response to the pressure from global civil society on corporations over the last fteen years, a series of responsible practices have voluntarily arisen within the global business framework (Bendell, 2004). CSR is essentially a business-driven movement, based on voluntary compliance and self-regulation (Zadek, 2001). Over the last few decades, different self-regulation instruments have appeared to help corporations adopt CSR practices. These include social and environmental performance standards and limits, social and environmental management systems, codes of conduct, best practices, instruments for certication and labeling, transparency guidelines, and sustainable reporting and monitoring (European Commission, 2001). These mechanisms aim to equip the private sector with tools to control and manage their operations so as to minimize the level of social and environmental risks implied by their activity. Many academic or practitioner denitions summarize the core CSR characteristics. These include (Crane et al., 2008):
B B

voluntary activities that go beyond those prescribed by the law; internalizing or managing externalities that are positive and negative side-effects of economic behavior; a multiple stakeholder focus, considering a range of interests and impacts among a variety of different stakeholders; alignment of social and economic responsibilities; a particular set of business practices that deal with social and environmental issues and with the set of values that underpins these practices; and beyond philanthropy and community projects, CSR is about how all company operations have an impact upon society.

B B

Businesses have adopted self-regulation practices to implement CSR among their core business functions. Hauer (1999) identied the CSR movement as the emergence of political activism among companies to change corporate norms in the social and environmental arena. Pioneering companies have established voluntary CSR norms and principles, and the impact of these is increasingly important among all the private sector. Companies promote a regulatory business framework covering social and environmental risks. At the same time, however, business leaders oppose governmental proposals to regulate and establish public international norms. As Hauer (1999) describes, these self-regulatory norms derived from widespread business principles as seen in business school curricula and management journals. CSR has been constructed by particular global industries that propagate their own sets of principles and norms through practices and policies developed by a responsible business epistemic community. The role of this business community has been to develop CSR as a standard for private behavior. If we are to explore what lies behind the voluntary acceptance by corporations of policies and instruments to manage social responsibility, we must bear in mind that CSR as an initiative lies at the heart of the debate on global corporate power today and the emergence of private governance. Different concepts have converged in the search for interpretations regarding the role of business in the new global society: responsibility, accountability,

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sustainability and citizenship. All these concepts refer to the need for corporations to assume new responsibilities in relation to social and environmental challenges. Clearly, however, no single concept is self-sufcient, as each focuses the debate on just one of the fundamental challenges to international society at the dawn of the twenty-rst century: how to dene the role of the corporation and its contribution to society. CSR can be seen as a new governance arena (Hauer, 1999; Scholte, 2001). It is a set of guidelines to manage the social and environmental consequences of economic activities, determining business strategy in concrete areas, affecting the organizations production system and making its structure change from hierarchical to horizontal, from national to transnational. It also affects the systems used and the type of raw materials employed, reduces resource and energy consumption, and it inuences social-labor conditions. In addition, the established norms affect the companys relations with social forces, with local, national and international regulation of social and environmental issues and with the political system. In effect, the development of CSR norms by the company also implies integrating private authorities not only in the economic structure but also in the political and social structures. CSR as a voluntary governance framework is the result of the formulation of interests and preferences by some transnational corporations, inuenced by pressure from global civil society and, to a lesser extent, from other social agents such as NGOs. Corporations have adopted specic self-regulatory measures to make up for some of the decits generated by globalization in the welfare state system and to progress forward towards new forms of public regulation. Ruggie (2004) shows how the interface between transnational corporations and private governance, together with the emergence of world civic politics or global civil society, have led to the emergence of a new global public domain. This new domain consists of participation by civil society organizations in world civic politics and private governance among transnational corporations. It is an increasingly institutionalized transnational arena of discourse, response, and action concerning the production of global public goods and involving private as well as public actors. The interplay between transnational corporations and civil society organizations has helped to create and institutionalize new expectations concerning the global social and environmental responsibility of rms. By analyzing the emergence of CSR, we can introduce the development of new global governance mechanisms and regulations adopted by the business community as private authorities (Cutler et al., 1999) (Table I). Business leaders have used different mechanisms to spread new responsible business principles:
B B

voluntary instruments adopted individually in the market: self-regulation; voluntary instruments adopted collectively through inter-rm cooperation: business organizations; and voluntary instruments adopted collectively through cooperation with other actors: public-private and hybrid partnerships (NGOs, international organizations, trade unions, governments).

We will rst focus on the empirical analysis of inter-rm cooperation and the creation of CSR business associations and, second, on the analysis of CSR mechanisms created through co-regulation between businesses and their stakeholders.

Corporate social responsibility and inter-rm cooperation

Companies are essential actors in the global political economy: this power has also endowed them with political authority, enabling them to regulate economic activities. Cutler et al. (1999) have analyzed this new means of exercising private authority by companies and they present different ways companies can exert their authority in the context of contemporary economic policy. To exercise this political power in international society, companies as private authorities have adopted different mechanisms. The most important of these have been inter-rm cooperative instruments, fundamentally through the creation of CSR business associations.

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Table I CSR Mechanisms adopted by corporations

Mechanisms Self-regulation Initiatives Codes of conduct Reporting activities Environmental, social and sustainable management systems CSR values Certication schemes Labeling schemes Transparency and disclosure guidelines Stakeholder engagement and dialogue Rating agencies Sustainability index WBCSD IBLF Caux Round Table CSR Europe Business for Social Responsibility Forum Empresa Business in the Community Public-private partnership Business and Intergovernmental Organizations UN Global Compact Global Business coalition on HIV/Aids European Alliance for CSR Public-private partnership Business and Non-Governmental Organizations Transfair Rugmark Forest Stewardship Council (FSC) Social Accountability International (SAI): SA8000 Standards (Auditing) Global public policy networks Global Reporting Initiative

Inter-rm cooperation

Co-regulation

During the last decade, responsible businesses have created different CSR business associations to develop proposals for common action. Among these we nd the most active CSR business associations in the international sphere: World Business Council for Sustainable Development (WBCSD), International Business Leaders Forum, Caux Round Table, CSR Europe, Business for Social Responsability, Forum Empresa, Business in the Community. Within these associations, business leaders have been able to debate and reach a consensus on a CSR model based on acceptance by these rms, without any legal or normative impositions. CSR business associations have become the reference point for companies wishing to adopt socially responsible policies and they have also become private sector spokesmen to defend the corporate worlds position in this area before governments and international organizations. Their primary function has been to establish and consolidate CSR private rules, standards and management instruments. These associations have managed business representation and driven the majority of self-regulating proposals put forward by the private sector. Inter-rm cooperation has allowed for consensus on models of action and, at the same time, has encouraged companies to collectively pressure international organizations such as the European Union or the United Nations and national governments for these to assume their proposals. The WBCSD has defended a voluntary approach before the United Nations; CSR Europe has done the same before the European Commission and individual European governments, and BSR has done the same with the US government. At the national level, there are many examples of associations that have had a signicant impact. Among these, Business in the Community in the UK stands out. Due to its innovations, it has also had an impact at the international level.

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All of these inter-rm cooperation associations have a similar prole and several common characteristics:
B

They are associations consisting primarily of companies and based on inter-rm cooperation. Their objective is to exercise power and authority in the international setting with respect to public authorities. They stem from business initiatives, though in some cases, such as WBCSD and CSR Europe, various international organizations including the United Nations and the European Union have played an important role in their promotion, nancing and consolidation. One of their primary objectives is to defend the business communitys power and opinions regarding the impact of implementing CSR policy. As such, they advocate a private, self-regulatory approach among the business community including lobbying governments and international organizations to prevent them from developing legislation in this respect. They have become spokesmen to defend the business communitys approach to CSR in the important international forums in which topics such as globalization, human rights, the environment and sustainable development are discussed. In other words, they have become interface organizations between private and public authorities. They have created spaces for debate to reach consensual agreements between members of the business community, exchange their concerns and share good practices. One of their primary objectives with respect to companies is to help them adopt CSR policies and strategies based on consensual management instruments. They are nanced by company contributions, though in many cases they also receive nancial support from international organizations such as the European Union or specic governments, such as the US.

Corporate social responsibility and co-regulation

In addition to these self-regulation instruments, over the last decade corporations have also adopted various CSR instruments and standards based on diverse collaborative regulatory structures. These stem, in turn, from hybrid mechanisms created by civil society organizations and business organizations and, at times, also include participation by other actors such as intergovernmental organizations, trade unions, and governmental agencies. These multistakeholder instruments can be seen as public-private or civic-private co-regulation mechanisms (Cutler et al., 1999; Braithwaite and Dahos, 2000). The creation of partnership projects between businesses, NGOs and other stakeholders has been one of the most noteworthy developments. In this sense, some CSR instruments have moved towards co-regulation spaces that can even imply a multi-stakeholder control over socially responsible business policies and practices. The emergence of these business-NGO collaborative initiatives has consolidated and been institutionalized over the last few years (Utting, 2005). Additionally, a new set of regulatory institutions now exists which involves multi-stakeholder initiatives such as the Ethical Trading Initiative (ETI), the Forest Stewardship Council, the Marine Stewardship Council, Global Reporting Initiative, and the UN Global Compact. The emergence of these initiatives has led to the development of corporate participation in global public policy networks or GPPN (Detomasi, 2007). Globalization has also transformed the way public policies are developed. Global public policy networks are alliances between governmental agencies, international organizations, corporations, civil society organizations and NGOs, professional associations and religious groups working together to achieve what none can accomplish on their own (Reinicke, 1998, 1999). For example, Global Reporting Initiative is a global public policy network connecting corporations, NGOs, governments, professional associations, the UNDP, and media to develop uniform reporting standards to assess the environmental and social impact organizations have.

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When corporations accept to participate in these GPPN, they accept to engage in and discuss standards of expected corporate performance with other stakeholders. The institutionalization of GPPN implies different levels of development for these instruments: rst, the establishment of standards; second, the development of regulatory frameworks; and, third, the creation of enforcement and evaluation mechanisms. In this last respect, external enforcement and evaluation mechanisms are particularly needed. The logic of this collaborative governance has been analyzed by Zadek (2006) as a new opportunity to deliver public goods through collaboration (Ruggie, 2004). The emergence of a growing number of multi-stakeholder partnerships is one of the key elements behind the development of innovative CSR practices. For example, the Ethical Trading Initiative aims to encourage compliance with labor standards in business supply chains. In addition, initiatives such as the UN Global Compact and Global Reporting Initiative are multi-stakeholder partnerships with support from the UN to promote responsible business practices. Their aim is to implement monitoring elements for companies to become more accountable. In this case, corporate responsibility can transform into corporate accountability (Utting, 2005), changing the CSR business agenda from a voluntary approach to an accountable one, capable of integrating a new articulation of voluntary initiatives and enforcement mechanisms. Corporate accountability is based on stakeholder control and enforcement over business practices (Utting, 2005). The challenge represented by CSR in the global accountable governance context is that CSR requires a parallel development of public accountability mechanisms for private authorities. However, this can be resolved by developing global governance networks among public and private actors: civil society, international organizations and public administrations. At the same time, the future of corporate responsibility currently depends on the integration of corporate legitimacy practices and instruments with respect to society (Zadek, 2006; Palazzo and Scherer, 2006; Utting, 2005). In this sense, corporate legitimacy management focuses on the changing role of business in society, the most important challenge for the private sector. Multi-stakeholder initiatives help to deal with this communicative framework between corporations and society. As Palazzo and Scherer (2006) propose, corporate legitimacy in a global context needs a communicative approach focusing on the role of civic engagement and civic interaction for processes of legitimacy. Co-regulation and multi-stakeholder partnerships reinforce the vision of CSR as a political and governance approach based on democratic mechanisms within business organizations. The legitimacy of companies as political players derives from their ability to maintain dialogue with and be accountable to their stakeholders. In addition, stakeholders need to participate in enforcement mechanisms regarding the companies social and environmental practices. At the same time, co-regulation mechanisms are linked to the companies ability to administer citizenship rights in global society today (Matten and Crane, 2005). From this point of view, participation in co-regulation and enforcement multi-stakeholder initiatives is linked to the new concept of corporate citizenship and the mechanisms through which citizens can participate and even control corporations to ensure that human rights are adequately protected (Matten and Crane, 2005).

Conclusions
It has been shown that CSR has developed as a result of the transformations caused by economic globalization, the power of transnational corporations acting as private authorities and the emergence of global civil society. This initiative to implement ethical, responsible and sustainable conduct in the business sector and to meet the social and environmental challenges created in the globalized economy has evolved into a form of global governance. CSR represents a transformation in corporate culture and politics and the merging of corporate citizenship and global governance, incorporating a commitment among companies to contribute to sustainable development and to respect and support human rights, all in a dialogue with and a commitment to their stakeholders.

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The development of CSR goes to the core of the debate on the changing role of companies in society and in global politics. Corporations themselves, pressured by the corporate accountability movement, are managing and controlling how self-regulation develops to solve the social and environmental impacts of their activity. This process has permitted the emergence of a new, public-private domain for networked corporate responsibility. A series of self-regulating standards and instruments and multi-stakeholder initiatives and co-regulation are currently being developed to control CSR. The implementation of these co-regulation instruments, in turn, opens the door to consolidate spaces of corporate citizenship based on accountability mechanisms that include stakeholder monitoring and control.

Note
1. NGOs and pro-human rights groups in western countries coordinated and worked with organizations in developing countries. Civil rights groups in various countries such as the US NGO Human Rights Watch or London-based Amnesty International began to work with child advocacy groups such as Save the Children while others worked to defend women workers such as the British NGO Women Working Worldwide, along with churches and religious organizations and platforms such as the Maquila Solidarity Network, Pacic Workers Solidarity Links or the European campaign, Clean Clothes. All of these have had an impressive role in raising awareness among international public opinion and as pressure groups on transnational companies.

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Corresponding author
Laura Albareda can be contacted at: laura.albareda@esade.edu

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