Socio-Economic Review (2012) 10, 85–108 doi:10.

1093/ser/mwr025
Advance Access publication November 22, 2011

Institutional complementarity between

corporate governance and Corporate Social
Responsibility: a comparative institutional
analysis of three capitalisms

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Nahee Kang1,* and Jeremy Moon2
1
Institute for Development Policy and Management, School of Environment and Development, The University of
Manchester, Manchester, UK;
2
International Centre for Corporate Social Responsibility, Nottingham University Business School, The University of
Nottingham, Nottingham, UK

*
Correspondence: nahee.kang@manchester.ac.uk

The question of why and how firms’ approach to Corporate Social Responsibility
(CSR) differs across countries is one that can only be adequately addressed by
giving a strong theoretical underpinning to research on comparative CSR. To
this end, drawing on institutional theory and the institutionalist arguments of
the comparative capitalism literature, we identify the mechanism by which
national institutional arrangements influence CSR. We do this by (a) separating
CSR from corporate governance, and identifying corporate governance as the
missing link between the broader institutional arrangements that govern
finance and labour and CSR, and (b) using the concept of institutional comple-
mentarity (a process of mutual reinforcement that enhances the value of both
institutions) to specify the nature of the relationship between corporate govern-
ance and CSR. We refer to three models of capitalism—liberal market economies
(LMEs, e.g. the USA and the UK), coordinated market economies (CMEs, e.g.
Germany and Japan) and state-led market economies (SLMEs, e.g. France and
South Korea)—as empirical sites for exploration of these ideas. We argue that
CSR complements corporate governance systems by a logic of similarity (a link
based on similar properties) and that, as change in the broader institutional
arrangements and corporate governance occurs, CSR reflects and facilities this
change.
Keywords: corporate social responsibility, corporate governance, capitalism,
varieties of; institutional complementarity, institutional change
JEL classification: P51 comparative analysis of economic systems, M14
corporate culture, social responsibility, O16 corporate finance and governance

# The Author 2011. Published by Oxford University Press and the Society for the Advancement of Socio-Economics.
All rights reserved. For Permissions, please email: journals.permissions@oup.com
86 N. Kang and J. Moon

1. Introduction
Despite the vast literature on it, Corporate Social Responsibility (CSR) remains a
field in development. As a concept it is not well defined (De Bakker, 2005), and as
a body of literature it is under-theorized (Lockett et al., 2006). For comparative
CSR research, the lack of clarity in definition is compounded by the problem that
the meanings and practices of CSR differ across national contexts. This makes sys-
tematic comparisons of CSR extremely challenging, as comparing the very mean-
ings and practices of CSR in different countries constitutes part of the research
question (Matten and Moon, 2008). A further challenge for cross-nationally com-
parative studies of CSR is the lack of theoretical development. While many works

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provide rich descriptions of CSR policies and practices, giving rise to labels such
as CSR ‘leaders’ and CSR ‘laggards’ (Habisch et al., 2004), the field of comparative
CSR still lacks a clear theoretical conceptualization of how strategic efforts to
promote CSR are related to the way firms are embedded in the wider economic,
social and political institutions.
In this paper, we build on recent works that have sought to advance the dis-
cussions on this front (Aguilera et al., 2007; Matten and Moon, 2008) to
develop a theoretically nuanced understanding of why and how firms’ approach
to CSR differs across countries. We do this by drawing on institutional theory and
comparative capitalism literature (Deeg and Jackson, 2007). In particular, we
focus on specifying the mechanism by which national institutional arrangements
shape CSR in two steps. First, we distinguish between CSR and corporate govern-
ance and argue for the need to view corporate governance as the missing link
between the broader institutional arrangements governing finance and labour
on the one hand, and CSR on the other. Second, we use the concept of institution-
al complementarity—i.e. the process of mutual reinforcement that enhances the
value (in terms of legitimacy and performance) of both institutions—to specify
the nature of the relationship between corporate governance and CSR. As a
theory-building measure, we use three models of capitalism and six
countries—liberal market economies (LMEs, e.g. the USA and the UK) where
the market is the dominant logic for coordinating economic activities, coordi-
nated market economies (CMEs, e.g. Germany and Japan) where organized inter-
ests such as business associations and unions play a dominant role in this
coordination, and state-led market economies (SLMEs, e.g. France and South
Korea) where the state plays the dominant role—as empirical sites for exploring
the two issues.
We begin by critically reviewing the extant studies that take a comparative
institutional approach to CSR and explicate how corporate governance relates
to CSR through a mechanism of institutional complementarity. To develop this
idea further, we then use secondary case studies to examine how change in the
 Institutional complementarity between corporate governance and CSR 87

institutional arrangements shaping corporate governance impacts CSR. We argue

that CSR complements corporate governance systems by a logic of similarity
(a link based on similar properties) and that as change in the broader institutional
arrangements that govern corporate governance occurs, CSR reflects and facili-
tates this change. We conclude with a brief discussion of the implications of
our findings as a way of suggesting potential avenues for future research on com-
parative CSR.

2. CSR as a complementary institution to corporate governance

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The literature on CSR is voluminous and has been reviewed in detail elsewhere
(e.g. Crane et al., 2008). Below, we limit our scope to works that take an institu-
tional approach to CSR (Aguilera et al., 2007; Matten and Moon, 2008), with the
intent of examining how research on comparative CSR might be further devel-
oped and extended. Recent attempts to lend theoretical rigor to CSR address
the same basic, and yet pertinent, question of why firms adopt CSR. In building
a multi-level theoretical framework, Aguilera et al. (2007) identify three
motivations—namely, instrumental, relational and moral—why firms adopt
CSR that are prevalent at different levels, including the national. Instrumental
motivation is driven purely by self-interest and at the national level is associated
with enhancing leading firms’ international competitiveness (hence, ‘competitive
CSR’), whether through product and service innovation or through brand
management. Relational motivation is driven by the need to maintain coopera-
tive relationships amongst the stakeholders and is associated with minimizing
social exclusion and building social cohesiveness (hence, ‘socially cohesive
CSR’). Finally, moral motivation is driven by a sense of long-standing and deep-
seated national values and of collective responsibility for social progress, which
we consider to include economic development (hence, ‘developmental CSR’).
Naturally, the three motivations are not mutually exclusive, but co-exist to
varying degrees in different contexts. Importantly for an institutional approach
to CSR, these dimensions help identify the institutional antecedents of CSR
motivations that go beyond the rhetoric. For a comparative approach to CSR,
the framework brings to light motivations of firms that are nationally distinct
(Aguilera et al., 2007, pp. 848– 852). Campbell (2007) takes the idea of institu-
tional antecedents to CSR at the national level further, underscoring the import-
ance of national arrangements such as public and private regulation, the presence
of non-governmental organizations (NGOs) that monitor firm behaviour, insti-
tutionalized norms regarding appropriate firm behaviour, associative behaviour
among firms themselves and organized dialogues among corporations and
their stakeholders.
88 N. Kang and J. Moon

Together, the works above made a marked contribution to conceptualizing

CSR beyond the firm-level and within wider institutional settings, situating
CSR discussions in the broader political economy (Fligstein, 2001; Deakin and
Whittaker, 2007). They also marked the start of ‘comparative institutional’
research on CSR1 and created links to broader literatures on comparative capit-
alism (Matten and Moon, 2008; Kinderman, 2009; Gjølberg, 2010; Jackson and
Apostolakou, 2010). For instance, Matten and Moon (2008) pose the question
of why CSR has been explicitly articulated in the US but implied in Europe. They
attribute this variation to nationally distinct business systems (Whitley, 1999).
CSR in Europe is shaped through business systems characterized by concentrated
financial systems, regulated education and labour systems and cultural systems

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that are skeptical about business and confident about government. CSR is embed-
ded in the pre-existing social contract (or ‘implied’), covering many of the
areas—from environmental protection to health insurance, training, higher edu-
cation, the arts and community services—that have been areas for corporate dis-
cretion in the USA, to be addressed explicitly if inclined (Matten and Moon,
2008). Similarly, Gjølberg (2010) attributes Europe’s commitment to (implicit)
CSR to the so-called ‘institutions for social embedding’, which include an exten-
sive welfare state, strong neo-corporatist arrangements and a culture of political
participation.
The relationship between national institutional arrangements and CSR, as
detailed above, has been described in largely descriptive terms. What is less
clear is the mechanism by which the national institutional arrangements shape
CSR. Without pinpointing the actual mechanism, the assumed causality
between national institutions and firms’ CSR policies cannot be confidently
established. For instance, Gjølberg (2010) argues that the presence of an extensive
welfare state should lead to a stronger commitment to (and a comparative insti-
tutional advantage for) CSR, but existing theories also suggest the opposite—
namely, that CSR has historically substituted for the absence and the weakness
of the welfare state (e.g. corporate philanthropy and paternalism in pre-welfare
state societies) (Gond et al., 2012). The same applies to the argument that the
presence of neo-corporatist institutions should lead to a stronger commitment
to CSR, as strong unionism can stimulate CSR as suggested or hinder the devel-
opment of CSR by limiting business responsibility to a narrow set of labour-
related issues (Gond et al., 2012).
In order to specify the mechanism by which national institutional arrange-
ments shape CSR, we go a step further in two distinctive ways. First, we explicate
how corporate governance serves as the missing link to understanding how insti-
tutions shape CSR. CSR is inevitably influenced by the corporate governance

1
For a review of comparative institutional analysis, see Morgan et al. (2010).
 Institutional complementarity between corporate governance and CSR 89

structure, and while the terms are at times used indiscriminately in the CSR lit-
erature (Jamali et al., 2008), the conceptual distinction is useful for analytic
clarity and required for systematic comparison. An important distinction is the
one pointed out by Gospel and Pendleton (2005, pp. 3 – 4), namely that corporate
governance represents relationships among the three sets of stakeholders who
make direct investments in the firm—either financial or human (i.e. by acquiring
firm-specific skills)—bearing in mind that the relative roles and power of the
three stakeholders vary across countries (Vitols, 2001; Jackson, 2003). For in-
stance, while labour plays an integral and powerful role in corporate governance
in the CMEs, it remains marginalized in LMEs and SLMEs. CSR, on the other
hand, considers a wider group of stakeholders who do not make investments

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in the firm, but nonetheless have an interest in its activities (i.e. partnering
firms, consumers, local communities and the environment, if we are to give it
agency). From this, we can infer that if corporate governance is concerned with
the structure of ownership and control among the key three stakeholders (that
is, the power of decision-making within the firm), CSR is a set of firm-level pol-
icies that go beyond the narrow interests of the immediate stakeholders to con-
sider a broader range of issues that concern the firm’s wider group of
stakeholders (that is, how the decisions of the firm addresses a wide range of
responsibilities).
Second, we draw on the concept of institutional complementarity—i.e. the
positive feedback mechanism of mutual reinforcement that ultimately enhances
the value of both institutions—to define the link between corporate governance
and CSR. Institutional complementarity is a central concept used to explain
institutional logic, resilience and change in the comparative capitalism literature.
Despite its wider use, institutional complementarity has been conceptualized in
different ways (Höpner, 2005). Crouch (2005) notes that institutional comple-
mentarity embodies two distinct logics: the logic of similarity and the logic of
contrast. The logic of similarity refers to an institutional link through which insti-
tutions of similar properties are organized around similar principles. The logic of
contrast, on the other hand, refers to the opposite kind of institutional link,
through which institutions with contrasting properties find a balance, as one
makes up for the deficiencies of the other (for instance by supplying the
‘missing ingredient’).
These different logics of institutional complementarity are only now being dis-
cussed in the comparative CSR literature. Jackson and Apostolakou (2010), based
on a data set of firms in Western Europe, find that firms from the LMEs score
higher on most explicit dimensions of CSR than firms in the CMEs. They
argue that voluntary CSR practices in liberal economies act as functional ‘substi-
tutes’ (as opposed to ‘mirrors’) for institutionalized forms of stakeholder partici-
pation, giving support to the notion of complementarity based on the logic of
90 N. Kang and J. Moon

contrast. Kinderman (2009) also gives support to this view by tracing the institu-
tionalization of CSR (using national CSR associations as proxies) over time and
across the OECD countries to find that CSR becomes institutionalized signifi-
cantly later in the CMEs than in the LMEs, perhaps reflecting developments in
the welfare state. Despite their contributions in specifying the logic behind com-
plementarity, they are limited in two ways. First, both studies focus too exclusive-
ly on explicit forms of CSR, based on voluntary engagement, which is only
appropriate in the ‘liberal’ setting (Matten and Moon, 2008). This relates to
the definitional problem highlighted earlier. We broaden the definition of CSR
to recognize that CSR assumes different forms (both voluntary and non-
voluntary) (Gond et al., 2012) and fulfills different functions (competitive, social-

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ly cohesive and developmental) in different contexts and at different times.
Second, the mechanism is still unclear because these works see institutional
complementarity as an outcome. We need to focus on complementarity as a
process and trace this process over time. According to Crouch (2005), comple-
mentarity based on the logic of similarity develops as actors in neighbouring
spheres adopt similar institutional solutions, while complementarity based on
the logic of contrast develops as actors in neighbouring spheres adopt different,
and even contrasting, solutions. To establish the mechanism, we examine this
development at work, focusing on whether actors in corporate governance and
CSR adopt similar approaches to the firm (a case of CSR reflecting the corporate
governance system, i.e. logic of similarity) or whether actors in corporate govern-
ance and CSR adopt different approaches to the firm (a case of CSR supplement-
ing the weaknesses in the corporate governance system, i.e. logic of contrast) to
enhance the value of their institutions. We cannot rule out the possibility that
both logics are at work, but we seek to identify the dominant institutional link
between corporate governance and CSR.

3. A comparative analysis of three models of capitalism

Comparative capitalism uses ‘models’ (in the Weberian sense of ‘ideal-types’) as
heuristic devices. Many approaches to comparative capitalism exist and the most
widely discussed is the ‘varieties of capitalism’ approach represented by Hall and
Soskice (2001). The basic tenet of this approach is that the behaviour and per-
formance of large firms is dependent on the national institutional arrangements
that govern finance and labour, and that if they are coordinated in a complemen-
tary manner, the arrangements accord a distinctive ‘competitive institutional
advantage’ to firms (Hall and Soskice, 2001; Amable, 2003; Yamamura and
Streeck, 2003). Hall and Soskice (2001) make the distinction between LMEs
(the USA and the UK) and CMEs (Germany and Japan), but we add a third
variant: SLMEs (France and South Korea). We include this type to recognize
 Institutional complementarity between corporate governance and CSR 91

the possibility of greater variety in capitalisms (Allen, 2004; Crouch, 2005) and,
therefore, CSR motivations other than what the LME – CME spectrum allows.
Moreover, studying the SLMEs can provide broader and more applicable insights
than the LMEs and the CMEs because many of the non-Western and less
advanced countries more closely approximate the SLME model, due both to
the under-development of market institutions (the LMEs) and the weakness of
neo-corporatist institutions (the CMEs) (Kang, 2010). The two SLME cases of
France and South Korea also provide particularly fitting sites for the exploration
of complementarity, as their national institutional arrangements have undergone
far more change than many LMEs or typical CMEs.2 Analysing change enables us
to better observe complementarity at work—that is, how an alignment of CSR to

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changing corporate governance occurs. The six countries were chosen as the
archetypes of their respective systems. While region-bound comparisons are
common, we also compare cases within each capitalism that come from different
regions to generate greater insight and potential for ‘mid-range’ institutional
claims to be made, i.e. claims that lie somewhere between uncovering universal
laws of human behaviour that hold across all times and places on the one
hand, and settling for atheoretical descriptive narratives on the other (Campbell,
2004, p. 63). We examine below the interrelationship between national systems of
corporate governance and CSR within each type, using secondary evidence.

3.1 LMEs: shareholder value and competitive CSR (1960s – late 1990s)
In LMEs, the stock market-based financial system and contract-based labour
relations together create a national system of corporate governance characterized
by ‘shareholder value’ (Vitols, 2001). Here, top managers are especially sensitive
to the demands of the shareholders (return on investment), given the strong re-
liance on the stock market for corporate financing. As a result, emphasis is given
to shareholder rights, including the transparency and disclosure of information
to shareholders, but there is also a strong preference for voluntarism where
CSR is concerned. Shareholder value-oriented corporate governance induces a
stronger instrumental (competitive) motivation for CSR than a relational (social-
ly cohesive) motivation. Maignan and Ralston’s (2002) comparative analysis of
the self-reporting of CSR concludes that firms in the USA are most likely to de-
scribe their CSR as a ‘part of core (strategic) values’, and those in the UK are more
likely to describe their CSR as ‘performance driven’, which is indicative of a
2
This is not to argue that LMEs and CMEs have been untouched by change, but rather, that while the
change has been broadly on-path for these two types, it has been path-shifting for France and Korea,
due to reforms of a neo-liberal tenor that have directly challenged active state engagement in the
economy, which was the core logic of their capitalisms (Dore, 2000; Kang, 2010).
92 N. Kang and J. Moon

competitive motivation for CSR. Consequently, a great deal of research on CSR in

leading USA and UK journals strongly focuses on assessing whether and how firm
performance can be enhanced through CSR (Margolis and Walsh, 2003; Orlitzky
et al., 2003; Margolis et al., 2007).
The question of interest is whether competitive CSR and shareholder value
complement one another, and if so, by which logic? As discussed earlier, the
key here is to examine whether the actors in the organizational fields of CSR
and corporate governance rely on similar institutional solutions (logic of similar-
ity) or on different solutions (logic of contrast) to find some kind of balance. In
LMEs, actors in both CSR (i.e. NGOs and individual consumers) and corporate
governance (i.e. institutional investors, top managers and labour, albeit margin-

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alized) rely on market-based solutions to pursue their agendas. NGOs and
‘ethical’ consumers rely increasingly on market-based social movements and
have been particularly successful in LMEs (e.g. the Fairtrade Foundation in the
UK and shareholder activism/socially responsible investment in the USA)
(Moore, 2004; Kurtz, 2008; Davies, 2009). Labour unions, which are marginalized
in corporate governance in LMEs (and this is more so in the USA than in the UK
due to state tradition and industrial relations) (Crouch, 1994), have adopted a
similar market-based approach as a credible way of protecting their interests
within the firm (Schwab and Thomas, 1998; Beeferman, 2009; Coiquaud and
Morissette, 2010). For instance, the American Federation of Labor and Congress
of Industrial Relations (AFL-CIO), through the Center for Working Capital, pro-
motes, as a strategy, progressive management of union money by educating
pension trustees and union leaders to become activist investors (O’Connor,
1999). The move by the AFL-CIO to embrace shareholder activism as a key strat-
egy—whether it is through employee ownership schemes or pension funds (e.g.
CALPERS in the USA and HERMES in the UK)—is a good indication of labour’s
reliance on market-based solutions. This is not to argue that CSR actors in LMEs
have abandoned more conventional forms of social movement such as protests,
lobbying and campaigns, but rather that they have actively engaged with market-
based solutions in similar ways as the actors of corporate governance, supporting
the notion of complementarity by the logic of similarity.

3.2 CMEs: stakeholder value and socially cohesive CSR (1960s – late 1990s)
The stylized account of corporate governance within CME countries is one in
which the bank-based financial system and neo-corporatism in labour relations
support corporate governance characterized by ‘stakeholder value’ (Vitols,
2001). The extensive development of the internal labour market within the
firm blurs the manager – worker distinction, enabling the managers to balance
the interests of the stakeholders through discretion. Stakeholder participation
 Institutional complementarity between corporate governance and CSR 93

may be practiced in a ‘solidaristic’ manner in some countries, supported by a

formal structure of co-determination where union representatives sit on the
board (e.g. Germany), or in a more ‘segmentalist’ manner, supported by a
more informal and shared understanding of ‘consensual managerialism’ (e.g.
Japan) (Jackson, 2001). In a stakeholder value system, top managers are sensitive
not only to the demands of shareholders, but also to those of workers, which
induces a socially cohesive motivation for CSR. This is attested by the bulk of
research on CSR in Germany, and in the EU more generally, which strongly
focuses on the society-centred perspective of the firm (e.g. the corporate citizen-
ship literature; see Crane et al., 2008). Socially cohesive motivation for CSR is pre-
cisely what has made the distinction between corporate governance and CSR not

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as clear in CMEs as in LMEs. As explained by Matten and Moon (2008), corpor-
ate governance has ‘implicitly’ covered many of the CSR areas which in the USA
would have been ‘explicitly’ in the realm of CSR.
In sum, key stakeholders within corporate governance rely on similar non-
market (negotiated) institutional solutions in CME countries. Outside actors
rely on more conventional methods such as protests, lobbying and campaigns
to pursue their CSR agendas, but those actors with a strong role in corporate gov-
ernance, including labour, pursue similar issues within the domain of neo-
corporatist institutions. Meanwhile, at least through the mid-1990s, it is difficult
to find evidence of CSR actors relying on market-based solutions in the same way
as their counterparts in LMEs.3 For example, Solomon et al. (2004) trace the
growth of socially responsible investments (a quintessentially market-based
instrument) in the UK (an LME) and in Japan (a CME), concluding that while
these investments have grown from operating in the margins to being mainstream
in the UK, the most that can be said of Japan is that they have grown from being
non-existent to (only now) being recognized as a marginal form of investment
practice. Given that of all the countries associated with CMEs, Japan has the
most thriving stock market, the lack of reliance on market instruments by CSR
actors is noteworthy. Although more evidence needs to emerge, the above
seems to again support the notion of complementarity by the logic of similarity.

3.3 SLMEs: public value and developmental CSR (1960s – late 1980s)
The stylized account of SLMEs is one in which large firms rely on state-controlled
banks for corporate financing through a system of ‘administered credit’ (Zysman,
1983; Woo, 1991) and on the centralized and collective bargaining arrangements
3
This is why Germany has been perceived to be a ‘laggard’ in CSR by earlier works on comparative CSR
(e.g. Habisch et al., 2004)—a point that was readdressed by Matten and Moon (2008) and Hiß
(2009),which highlights the ‘implicit’ nature of CSR in Germany.
94 N. Kang and J. Moon

to coordinate with their labour force. However, unlike CMEs, the weakness of
organized interests (i.e. business associations and labour unions) empowers the
state to exercise a strong influence over labour relations, both indirectly
through the manipulation of the minimum wage to define the scope of bargain-
ing coverage (e.g. France) (Howell, 1992) and directly through the state control of
the national level union confederations (e.g. Korea) (Deyo, 1989). In SLMEs, the
state uses its control over the financial system and labour relations to curb the
potential short-term demands exerted by the investors (return on investment)
and by labour (wage demands)—demands which are negotiated in CMEs and
determined by the market in LMEs (Kang, 2010).
The key characteristic of the corporate governance system in SLMEs is that the

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state is the most powerful stakeholder and works closely with the top manage-
ment, at times with a direct stake, in the case of state-owned enterprises (e.g.
national champions in France), but also indirectly (e.g. privately owned large
business groups in Korea). This creates a distinctive corporate governance
system—a ‘public value’ system—in which the national development agendas
are given primacy, cultivating the view of the firm as a pseudo-public institution,
regardless of the actual ownership (Kang, 2010). At the height of the state-led era,
the (owner-)managers of leading firms in France and Korea often made public
proclamations of their duty to uphold national economic interests (Barsoux
and Lawrence, 1990, p. 43; Chang and Park, 2004, pp. 50 –51). At the firm
level, the insulation of the top management from various short-term interests,
as described above, allows the top managers a greater degree of freedom—or
‘managerial unilateralism’—than their counterparts in LMEs and CMEs, who
are constrained by shareholders’ and stakeholders’ interests, respectively (Goyer
and Hancké, 2005). However in SLMEs, this degree of freedom exists within
the broad confines of the state directives regarding large-scale investment deci-
sions and production targets for national development (Maclean, 2002; Kang,
2010). In a public value system, top managers are sensitive to the demands of
the state, which induces a developmental motivation for CSR. This tight state –
business relationship has led some to define the elite public – private networks
as another distinguishing feature of the SLME model (Yoo and Lee, 2009).
Hence for SLMEs, the key issue of corporate governance is ensuring that the
firms have sufficient autonomy to ensure public value without abusing this
autonomy for private (elite) gains, as such abuse can lead to ‘crony capitalism’.
As in CME countries, corporate governance and CSR are not as easily separ-
able as they are in LMEs. However, if CSR is ‘implied’ in CMEs, it is more expli-
citly laid out by the state in SLMEs to prioritize issues essential for economic
development and is, therefore, often labour related. In France, the legislation
for the social report (bilan social), mandatory for large firms, was introduced
as early as 1977 and covered 134 items and indicators relating to labour relations
 Institutional complementarity between corporate governance and CSR 95

(e.g. employment salaries, health and safety, training, working conditions etc.)
(Antal and Sobczak, 2007). In Korea, while the state took a hostile approach to
organized forms of labour, it introduced progressive measures to protect individ-
ual workers; these included national industrial accident insurance, compulsory
training for large firms (the so-called ‘train or pay scheme’), promotion of
company welfare schemes (e.g. provision of academic grants to children of
employees, secondary education on company premises, dormitories and
medical facilities) and even the legal prioritization of wage claims over creditors
in case of bankruptcy (You and Chang, 1993). To some extent, developmental
CSR explains the late emergence of the welfare state in both France and Korea
compared to their neighbours in their respective regions (Im, 1999; Levy, 1999).

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If actors in corporate governance and CSR fields rely on market-based
solutions in LMEs and on non-market (negotiated) solutions in CMEs,
state-based solutions are most common in SLMEs, and there actors focus orga-
nized action directly towards the state, which renders it highly ‘political’
(Howell, 1992; Hancké, 2002). Because the state has the dominant control over
firms, actors in both fields are weak in SLMEs. A strong-state tradition has under-
mined the growth of civil society and social movements, and this is particularly
true in the case of Korea, where democratization occurred only in the late 1980s.
With regard to France, Levy (1999) has described the underdevelopment of civil
society, despite the long history of democratic governance, as ‘Tocqueville’s
revenge’. Where labour unions are concerned, although French and Korean
unions have both been associated with union militancy, giving the impression
of strong unionism, militancy can also be read as weakness of the labour move-
ment, as strong unions with real bargaining power are more inclined to resort to
negotiations and less inclined to take to the streets. The reliance on the state by
actors in both corporate governance and CSR suggests yet again complementarity
by logic of similarity.

4. Institutional change and complementarity in CSR

In the last section, we discussed the complementary relationship between cor-
porate governance and CSR as being sustained by the logic of similarity within
their respective capitalist systems. As a way of further verifying the nature of
the relationship, we trace how changes in corporate governance institutions
relate to changes in CSR. The comparative capitalism literature informs us that
complementarity has implications for change. A logic of similarity can diffuse
and facilitate institutional change, since change in one institution (e.g. corporate
governance) could lead to change in the neighbouring complementary institu-
tions (e.g. CSR), even possibly resulting in ‘snowballing’ change (Hall and
Soskice, 2001, pp. 54 – 65). However, if complementarity is driven by a logic of
96 N. Kang and J. Moon

contrast, it can cause strong resilience. This is because logic of contrast involves
interdependence between the institutions, enabling a greater degree of stability
and potentially creating a lock-in effect (Deeg, 2007). If the arguments of the
comparative capitalism literature are true, we should see evidence of CSR aligning
to reflect and facilitate the change in corporate governance, as we have found the
logic of similarity to be the defining complementary logic between corporate
governance and CSR.

4.1 Complementarity and change in LMEs: continuity and reinforcement

(late 1990s – present)

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In the case of LMEs, although the recent global financial crisis has perhaps chal-
lenged the USA and the UK as the exemplary archetypes of the model,
shareholder-value-driven corporate governance has not been sufficiently discre-
dited to warrant a path-shifting change. Some public debates suggest a stronger
role for a regulatory state (e.g. Weiss, 2010), but the focus of the regulatory
reforms in the USA and the UK, on the whole, remains on ensuring the
smooth functioning of the market through regulation, as opposed to using regu-
lation as an instrument to command and control the market in the same way as in
SLMEs. Nor has there been any attempt to build neo-corporatist institutions
(CMEs). In this sense, despite the strong sense of change and upheaval, a
perhaps surprising degree of underlying institutional continuity exists in LMEs
(Davies, 2009; Dobbin and Jung, 2010). At the same time, the role of a CSR
front has become even more relevant during the same period (Kinderman,
2009). Neo-liberal ideologies have sought to substitute collective rights with
more individual forms of social policy (Amable, 2011), and competitive forms
of CSR have aimed more at external brand management, sometimes in tandem
with aggressive tactics towards stakeholders within the company (Jones and
Nisbet, 2011). In this context, CSR is now considered not only desirable, but
an integral part of a firm’s competitive strategy to the point where it has drawn
the attention of the Harvard Business Review (Porter and Kramer, 2006).4 This
trend holds particularly for certain sectors which have little choice but to take
CSR seriously for their own long-term survival and competitiveness—for
example, in the cases of the automobile industry and the environment (R&D
in cleaner engines), the retail industry and human and labour rights (‘decent
work’ in supply chains) and the extractive industries and sustainable develop-
ment (preservation and efficient use of natural resources) (Vogel, 2005).
Hence, the competitive motivations for CSR have become stronger. There are
4
Interestingly, the Harvard Business Review published Levitt’s (1958) article entitled ‘The Dangers of
Social Responsibility’ half a century ago.
 Institutional complementarity between corporate governance and CSR 97

now ‘market-based NGOs’, sponsored by the corporate sector, defining the scope
and meaning of CSR and training corporate executives in CSR policies (Shamir,
2008). The proliferation of market-based CSR activities, in turn, has led to the
development of criteria for social auditing and reporting (e.g. the Global Report-
ing Initiative) and investing (e.g. the Dow Jones Sustainability Index, the Domini
Social Index and FTSE4Good), reflecting and facilitating shareholder value.

4.2 Complementarity and change in CMEs: hybridization and layering

(late 1990s – present)

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Where CME countries are concerned, changes in the financial system and labour
relations have led to a debate over possible convergence towards the LME model.
A widely accepted view is that, while some elements of the change have been
judged transformational, old institutional arrangements also remain. In total,
CMEs are either seen as being resilient to change or having developed hybrid
forms of corporate governance institutions [see Aoki et al. (2007) and Streeck
(2009) on Japan and Germany, respectively].5 The financial sphere is where trans-
formative change has been most clearly observable. The liberalization of the
financial markets over the last two decades, the use of bond finance, the rise of
takeover markets and the growth of Anglo-American investors or private
equity as a result have all increased large firms’ vulnerability to variations in
stock price (O’Sullivan, 2003; Goyer, 2006). Labour relations have been partially
threatened by employers’ preference for liberalization and deregulation (Kinder-
man, 2005), but these changes have fallen far short of a full-fledged transform-
ation to the LME model (see Paster, 2011). At the firm level, corporate
governance practices oriented to shareholder value has been ‘layered’ onto the
existing stakeholder value system through incremental amendments and revi-
sions, rather than ‘displacing’ the latter (Streeck and Thelen, 2005). The
German and Japanese corporate governance systems continue to be more
stakeholder-friendly than those in LMEs, although the rights of shareholders
have been noticeably enhanced. Institutional complementarity between corporate
governance and CSR means that we can expect a similar process of change in
CSR—that is, a layering of competitive CSR onto socially cohesive CSR—
where the actors of CSR adopt a mixture of institutional solutions. There is
some indication of greater awareness of CSR by NGOs and consumers (Hiss,
2009), especially in the area of the environment [see Foljanty-Jost (2005) on
both Germany and Japan]. Some signs of relying on market-based instruments
exist, such as the growth of socially responsible investment in Japan into
5
See also Campbell and Pedersen (2007) on Denmark, another example of a CME that has become
a LME-CME hybrid.
98 N. Kang and J. Moon

a legitimate, albeit marginal, form of investment (Solomon et al., 2004). However,

NGOs and labour unions remain less likely to make use of shareholder activism
in Japan and Germany, whereas its use in SLME countries is visible (as will be dis-
cussed below). To the extent that more explicit and competitive forms of CSR
have emerged, these have not displaced the more formal institutions of stakehold-
er representation associated with the stakeholder model of corporate governance.
This pattern of change fits with the hybrid and layered changes described above.
However, the process of negotiating and reconciling these various forms of gov-
ernance and modes of CSR remains open-ended. Macro systemic change of this
kind unfolds slowly, and time lags exist between the neoliberal financial reforms
of the 1990s, shifts in corporate governance in the 2000s and their consequences

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for CSR. In this sense, SLMEs provide a stronger ‘test case’ to examine comple-
mentarity at work, as this is the only model that has experienced a path-shifting
change, and since it happened a decade earlier, it allows a clearer view of the logic
of similarity at work amidst institutional change. Hence, we devote a lengthier
discussion to SLMEs below.

4.3 Complementarity and change in SLMEs: transformation and displacement

(late 1980s – present)
The notion of a convergence towards the LME model does not go uncontested
where SLMEs are concerned. However, national institutional arrangements gov-
erning capital and labour in France (since the early 1980s) and Korea (since the
late 1980s) have undergone a more radical change than those in Germany and
Japan (Dore, 2000; Pirie, 2005; Schmidt, 2003). While France and Korea have
not transformed into full-fledged LMEs, they have undergone a path-shifting
change to the extent that they can no longer be considered as the archetypes of
SLMEs (in fact, this label now belongs to the so-called rising powers such as
China, Brazil and India), and they approximate LMEs more closely than at any
point in history (Kang, 2010). This path-shifting change is explained principally
by neoliberalism (Amable, 2011; Campbell and Pedersen, 2007) and the delegiti-
matization of state intervention that is fundamental to SLMEs [see Pirie (2005)
on Korea]. In both France and Korea, the financial system was gradually liberal-
ized following state disengagement [see both Tiberghien (2007) and Ahmadjian
and Song (2004), who show more significant reforms in France and Korea in
comparison to Japan]. The stock market became a means for waves of privatiza-
tion in France (Morin, 2000; O’Sullivan, 2007) and for corporate restructuring in
Korea, particularly since the 1997 Asian financial crisis (Woo-Cumings, 1997;
Shin and Chang, 2003; Hahm, 2004). Labour relations also became increasingly
more market-reliant in the two countries. The Auroux reforms (1982 – 1983) in
France gradually shifted labour activity from national level confederations to
 Institutional complementarity between corporate governance and CSR 99

much weaker local unions and plant-level sections, ultimately undermining the
labour movement (Howell, 1992; Goyer and Hancké, 2005). The Asian financial
crisis, and the IMF structural adjustment reforms that ensued, weakened what
appeared to be the budding signs of a burgeoning labour movement following
democratization in the late 1980s, as labour market flexibility was introduced
in Korea (Choi and Kim, 2004). By international standards, union density in
both France and Korea is relatively low (comparable with that in the USA) and
specific to certain sectors.
At the firm level, shareholder value has replaced public value, as the latter came
to be associated with crony capitalism. State disengagement in the financial
system and labour relations has meant that the state is no longer able to insulate

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managers from short-term interests, especially as the recent corporate governance
reforms in both countries have accorded more rights to shareholders. According
to the shareholder protection index compiled by Gourevitch and Shinn (2007,
p. 48), from 1992 to 2004, France and Korea averaged 64 and 65 points out of
100, respectively. This is lower than the USA (97 points) and the UK (81
points) but higher than Germany (44 points). Moreover, recent reforms have
opened up the market for corporate control (i.e. mergers and acquisitions),
which has provided a powerful motivation for management to maintain share
prices and return on equity rather than to uphold public value. As the sharehold-
er value system takes root, there are signs of the growing emergence of both the
corporate governance and CSR actors that were conspicuously missing in the
state-led era, showing some early signs of embracing market-based solutions. Pre-
viously, French labour unions had been reluctant to promote employee share
ownership schemes, for reasons of ideology as well as a fear of opening direct
channels between employees and employers that would bypass the unions
(Vaughan-Whitehead, 1995; Jefferys, 2003). By the mid-2000s, this was of less
concern for the largest national labour union, the Confédération Française
Démocratique du Travail (CFDT). Not only has the CFDT led the movement
for shareholder ownership, but it was also a key player in the creation of a
rating agency for socially responsible investment, subsequently led by a former
CFDT head, Nicole Notat (Jefferys, 2003).
Korean labour unions have not embraced employee share ownership schemes,
as suspicion of market-based instruments remains. For unions, these schemes are
more of a risk-sharing device created by the management than a profit-sharing
one (Kang, 2010). NGOs, such as the People’s Solidarity for Participatory Dem-
ocracy (PSPD), have deployed shareholder activism to influence firm behaviour
through the minority shareholder movement. The PSPD alleviated the collective
action problem facing minority shareholders by providing them with informa-
tion and legal advice to take action as a group (Kim and Kim, 2001; Choi and
Cho, 2003; Rho, 2004). The PSPD won its first class action suit, and by the
100 N. Kang and J. Moon

mid-2000s it was regarded as the most powerful ‘watchdog’ of large businesses. A

small segment of the PSPD went on to create the Korea Corporate Governance
Fund, a socially responsible fund designed to encourage profit-making firms
with records of poor governance, and therefore low stock evaluation, to instigate
governance reform and to improve shareholder rights and increase the value of
their worth in the market (Kim et al., 2012).
While the state still remains important, it no longer promotes developmental
CSR, but rather focuses on broadening the CSR agenda (Gond et al., 2012). In
France, the requirement scope of the previously mentioned 1977 social report,
which is mandatory for large firms, has been expanded from labour issues to
include social and environmental criteria. For instance, the new economic regu-

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lations of 2001 stipulate that companies listed on the French stock market must
publish social and environmental information in their annual company reports.
This information includes relations with subcontractors, the impact of firm activ-
ities on local development and the human rights records in subsidiaries abroad
(Beaujolin and Capron, 2005). Although one may be inclined to interpret this
as evidence of public value and developmental CSR, it can also be interpreted
as a response to shareholder activism, since social reporting is a practice closely
aligned with shareholder value and associated with the competitive motivation
for CSR. The latter provides a more convincing interpretation if we consider
that, in contrast to the 1977 social reporting requirement which required consult-
ation with the works councils (weak as they were at the time), it makes no pro-
vision for such stakeholder dialogue, suggesting that these reports are largely for
the investors’ benefit (Antal and Sobczak, 2007). In short, the forms of CSR have
partially shifted to reflect a shift towards shareholder value, and we anticipate
based on the experience of LMEs that with the growth of CSR they will further
reinforce shareholder value.

5. Conclusion
In summary, this paper has examined the mechanism by which national institu-
tional arrangements shape CSR motivations. We have provided a definition of
CSR that goes beyond the ‘voluntary’ to recognize that CSR assumes different
forms and serves different functions in different contexts and at different
times. This distinction has enabled us to consider the corporate governance
system as the link between national institutions and firms’ motivations for
CSR and to specify the nature of this link as complementarity by a logic of
similarity.
We used three models of capitalism—LMEs (the USA and the UK), CMEs
(Germany and Japan) and SLMEs (France and Korea)—as empirical sites for ex-
ploration and illustration, supported by the secondary literature on the six
 Institutional complementarity between corporate governance and CSR 101

countries. We have demonstrated that in the case of LMEs, the firms’ motivation
for CSR is largely competitive and that this type of CSR complements shareholder
value. Complementarity by a logic of similarity can be established by the fact that
actors in the organizational fields of corporate governance and CSR adopt similar
market-based solutions to engage with firms, ultimately reinforcing shareholder
value. With the continued commitment to neoliberalism, the financial system
and labour relations have firmly established the shareholder value system of cor-
porate governance. Reflecting and facilitating this change, CSR is now considered
not only desirable, but an integral part of firm’s competitive strategy, further
strengthening the competitive motivation for CSR and reinforcing shareholder
value.

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In CMEs, firms’ motivation for CSR is predominantly socially cohesive, and
this type of CSR complements the stakeholder value system of corporate govern-
ance. Again, complementarity by a logic of similarity is established by the fact that
actors in the two spheres adopt similar non-market-based, neo-corporatist solu-
tions to engage with firms. In CMEs, CSR complements corporate governance by
reflecting the social contract upon which the corporate governance system is
dependent, reinforcing stakeholder value. With gradual marketization of institu-
tional arrangements since the 1990s, shareholder value has been layered on top of
stakeholder value. However, the incremental and hybrid nature of systemic
change of this kind makes it difficult to comment definitively on how the logic
of similarity is shaping change at this point in time, although there are small
signs of competitive motivations for CSR.
Change is more clearly observable in SLMEs. We have shown that firms’ mo-
tivation for CSR was largely developmental, and this type of CSR complemented
the public value type of corporate governance. Complementarity by a logic of
similarity can be established by the fact that actors in the organizational fields
of corporate governance and CSR adopt similar state-reliant solutions to
engage with firms, ultimately reinforcing public value. With the marketization
of institutional arrangements, public value has been replaced by shareholder
value, and this is reflected in the shift towards a competitive motivation for
CSR. Although in its early stages, there is clear evidence of both actors of corpor-
ate governance and CSR relying on market-based solutions.
To conclude, without denying that a logic of contrast may be at work between
capitalism and CSR broadly, we have argued that CSR complements corporate
governance systems predominantly by a logic of similarity. Furthermore, we
have argued that as change in the broader institutional arrangements occurs,
CSR reflects and facilities this change. The scope of this study is broad and at a
macro-level, derived from illustrations across a few countries. The arguments
derived by this study will need to be further tested and refined through detailed
comparative case studies on CSR at various levels of the economy and across a
102 N. Kang and J. Moon

wider range of countries. This would also provide an avenue in which CSR re-
search can contribute to a wider set of literatures on corporate governance and
comparative capitalism (Aguilera and Jackson, 2010). Where policy and practice
are concerned, the implications of the findings suggest that for CSR to advance, it
will need to be more fundamentally supported by the broader institutional
arrangements in which the firm is embedded. For instance, the promotion of
competitive CSR is unlikely to become a mainstream initiative, and CSR will
remain as window dressing, without complementary changes in the institutional
arrangements that reorient corporate governance towards shareholder value.
Conversely, without the institutional basis for stakeholder value, motivation
for socially cohesive CSR is not likely to emerge as a genuine initiative. At the

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same time, the experience of SLMEs has shown that change in CSR motivations
takes time, but it is not impossible. The marketization of institutional arrange-
ments and the greater prominence of shareholder value have led to a rise in
the competitive motivations for CSR. This finding in particular resonates with
today’s emerging economies, where firms’ motivation for CSR is developmental
to complement public value in corporate governance (e.g. state-owned enter-
prises in China, the Tata Group in India), but neoliberal reforms in the national
institutional arrangements can quickly lead to shareholder value in corporate
governance (Arun and Turner, 2009) and foster competitive motivations for
CSR. This shifts the CSR discussion from the usual terrain of CSR policies in
multinational enterprises, where developing countries are concerned, to factor
in the way local firms are embedded in their national contexts and how they
shape their motivations and commitments to CSR.

Acknowledgements
The final version of this article has benefited from the comments provided by the
three anonymous referees and by the Special Issue editor, Gregory Jackson. The
authors would also like to thank the Economic and Social Research Council
(ESRC) in the UK for the postdoctoral fellowship it awarded, which enabled
this collaborative work to take place.

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