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The Political Roots of Corporate Social Responsibility

Article in Journal of Business Ethics · November 2007

DOI: 10.1007/s10551-007-9594-y

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Journal of Business Ethics
Springer 2007
DOI 10.1007/s10551-007-9594-y

The Political Roots of Corporate Social

Responsibility David Antony Detomasi

ABSTRACT. This article argues that whether and how a with an eye to increasing societal and shareholder
firm chooses to adopt Corporate Social Responsibility value. The CSR story is regularly told from a micro
(CSR) initiatives is conditional in part upon the domestic perspective that details the internal costs and benefits
political institutional structures present in its home to a firm such measures may bring. However, the
market. It demonstrates that economic globalization sheer increase in the size and activity of multi-
has increased the pressure applied to companies to
national corporations (MNCs) over the past decade
develop CSR policies that might help overcome specific
governance gaps associated with the globalization phe-
guarantees that their CSR efforts – or lack thereof –
nomenon. Drawing upon an examination of domestic will significantly impact on the external, social, and
institutions and overall political structure, it argues that political environment in which they operate. Put
the political conditions and expectations present in a bluntly, a company’s decision whether and how to
company’s home market will condition whether a firm pursue CSR efforts matters greatly to the workers,
might pursue CSR activity. For home markets, it is communities, and nations, in which they invest.
posited that perceived electoral salience will be filtered This fact has not gone unnoticed, becoming
through government type and ideology, and state/societal especially pertinent to the large and growing number
structures will influence if and how firms will use CSR. of activist non-governmental organizations (NGOs)
Specific arguments are developed from these categoriza- devoted to tracking the international operations that
tions. The article concludes with a discussion of how MNCs undertake in developing markets. Companies
researchers might further explore links between CSR,
not investing significantly in CSR, often incur the
domestic political structures, and corporate political
activity.
wrath of activist groups who claim that they should:
such groups’ core competency is in marshaling public
KEY WORDS: Corporate Social Responsibility (CSR), opprobrium in an effort to motivate significant
activism, political strategy, institutions, governance, state/ change in a company’s operating practices. Public
societal complex disapproval hurts firms in at least two ways. First,
customers may choose a competitor’s products due to
the socially responsible manner in which they have
Introduction been produced. Second, citizens may also call for
more regulation to halt or change production prac-
Few management topics have received as much tices, of which they disapprove. In short, a firm’s
recent popular and academic attention as has Cor- CSR decisions can engender regulatory and political,
porate Social Responsibility (CSR). Fortunately, this as well as competitive effects that companies need to
surge in interest builds upon a well-established body understand and respond to.
of scholarly work devoted to both defining what This article extends the domain of CSR research
CSR is and explaining why companies might or into the realm of the politics, theorizing that the
might not do it (McGuire et al., 2003; Mitchell et nature of the domestic political institutions in a
al., 1997; Tuzzolino and Armandi, 1981; Wartick company’s home market might be a useful potential
and Cochrane, 1985). CSR can be conceived explanatory variable in determining whether and
broadly as the practice of incorporating stakeholder how that company might pursue CSR. Several
and shareholder interests in firm decision making, theoretical ideas are offered. First, at the tactical
 David Antony Detomasi

level, the structure of domestic political institutions economies. Indeed, this MNC ‘‘embeddedness’’ is
might influence whether NGO efforts are likely to the primary characteristic distinguishing contempo-
engender formal government intervention. Second, rary globalization from its historical predecessors
domestic political institutions can also establish or (Bordo et al., 1999). Today, the internal production
discourage the requisite legitimacy managers need to networks of MNCs have increased global productive
pursue such strategies. This in turn might condition capacity, greatly improved income levels, and are
how strong managers’ commitment to CSR will be. capable of distributing products to eager customers
In sum, the article argues that the political conditions throughout the globe, and have embedded them-
and legacies that condition a company’s home selves deeply into the national economic fabric of
market will influence what its overall commitment local economies.
to CSR will be. These theoretical arguments can This process has, however, not gone entirely
suggest empirical directions other researchers might unopposed (Greider, 1997; Hertz, 2001; Klein,
choose to pursue. 2001). In an age, in which the economic size of the
The article proceeds as follows. The first section largest MNCs exceeds that of many countries1, there
describes how globalization and changes in global has emerged critical, theoretical, and empirical work
production practices have both increased the outlining what Eden and Lenway (2001) have
demand that firms engage in CSR and expanded the termed the ‘‘dark side’’ of globalization. This liter-
arenas in which they might choose to do so. The ature criticizes the economic imperative driving
second section places these developments within the globalization, arguing that it inflicts severe damage
established international business and CPA literatures on local cultures, the environment, and political
to understand how companies have historically autonomy. Risking simplification, its proponents
resolved such demands. The third section then claim the following. First, MNCs have become
illustrates how host government structure and ide- adept at exploiting the ‘‘governance gaps’’ that exist
ology impact how a company might approach CSR. between weakening state and fledgling international
The fourth and final section summarizes the argu- regulatory frameworks, allowing them to operate
ment offered here and makes some tentative sug- essentially free of regulatory oversight. Second, be-
gestions for future research. cause relentless market logic drives companies to
continuously lower costs, they consequently seek
production sites where operating costs are low and
Globalization and corporate social the regulatory burden light. Investment-hungry
responsibility states are thereby forced to lower their regulatory
costs if they wish to attract MNCs: creating a
Much of the existing – and extensive – literature mutually reinforcing ‘‘race to the bottom’’ in regu-
examining the globalization of business practice is latory standards. Third is the problem of sovereignty
positive. The falling trade, investment, and techno- infringement: national governments that desire
logical barriers that characterize globalization have economic development have few options other than
allowed MNCs to rationalize their operations, enter to allow MNCs to adopt whatever production
new markets, lower production costs, and dramati- strategies they prefer, despite the damage such
cally increase foreign investment, resulting in a sta- strategies might inflict on local industries, cultural
tistical explosion in both the amount of international norms, and religious values. To summarize, critics
business being done and the number of countries argue that the drive to globalize markets can over-
significantly involved in it (U.N., 2002–2005). whelm existing governance mechanisms to manage
Moreover, MNCs have also emphasized depth and it (Greider, 1997; Korten, 1996; Moran, 2002;
breadth in their production practices: local produc- Murphy, 2004; Ohmae, 1995; Wolf, 2004; Yergin
tion facilities now surpass trade as the preferred MNC and Stanislaw, 1998).
mechanism for accessing local markets, and these That conclusion has motivated civil society and
facilities in turn often rely on a dense network of local NGO groups to invest great effort in drawing
suppliers, distributors, and technical personnel that attention to the impact that MNC decisions
further embed the MNC into the working of local can have on the external environment (Keck and
 The Political Roots of Corporate Social Responsibility

Sikkink, 1998; O’Brien et al., 2000; Risse et al., resources. Therefore, the company response is also
1999). The motives of these groups are diverse. often highly localized and situation specific, designed
Some oppose the increasingly independent decision to remove the immediate cause of negative public
making capacity of MNCs and wish to erect further attention and defuse the issue at hand. Once an
regulatory constraints to corral that freedom. Others incident fades from the headlines, it is difficult to
want to make MNCs more accountable for the ensure that adequate follow up work is done that
negative economic externalities associated with their confirms that company practices have really been
production, especially those related to environ- significantly altered.
mental and human rights concerns. A third moti- This dynamic – protests leading to public aware-
vation is normative: some argue that MNCs, having ness, change in consumer behavior and attitude, and
benefited enormously from a globalized economy, finally change in corporate practice – occurs in the
should therefore shoulder more of the burden of realm of private politics. Private politics differs from
healing the damage their production processes have public politics by not relying upon law or the legis-
helped create. Their strategies, however, have been lative process to resolve disputes. Instead, private
broadly similar: draw public attention to unappealing politics entails attempts to change corporate behavior
MNC activity and hope that such negative publicity via the mechanisms of public protest and consumer
will be the catalyst that both stops such activity and choice, rather than through legislation (Baron, 2001,
prevents its recurrence. 2005). Private politics ‘‘involves strategic competi-
Empirical examples of effective activist activity tion over entitlements in the status quo, direct com-
include Greenpeace’s success at convincing Royal petition for support from the public, bargaining over
Dutch Shell to reverse its original plan to halt the the resolution of the conflict, and maintenance of the
deep-sea disposal of the Brent Spar oil platform in agreed-to private ordering (Baron, 2003, p. 33).’’
favor of towing it to land and disposing of it onshore. Mechanisms of private politics include arranging
A second example includes the vociferous criticism consumer boycotts, waging aggressive anti-corporate
of Nike over its subcontractor production arrange- media campaigns, and allying with like-minded
ments that resulted in ‘‘sweatshop’’ working envi- organizations in an attempt to bring cumulative
ronments for those assembling its popular footwear weight to bear on a single company or issue. Private
and apparel. More recent examples include the politics allows activists to focus their limited
ongoing activist demands that pharmaceutical com- resources, attract like-minded allies, and to bypass the
panies help developing countries combat the AIDS public policy process that is viewed as being both
epidemic by relaxing patent restrictions for anti- slow and prohibitively expensive to materially affect.
retroviral drugs, and efforts to hold resource extrac- While activists have achieved notable successes, a
tion of companies accountable for their implicit review of company CSR activity in response to
support of the dictatorial or abusive domestic regimes private politics raises unanswered questions about the
that govern the areas in which they drill or mine. company’s long-term commitment to those prac-
Several features unite these examples. First and tices. First, it is difficult to generalize a company’s
most obvious is that these campaigns are waged normative commitment to CSR by observing its
primarily in the court of public opinion. While reaction to localized pressures: a company’s motiva-
governmental or regulatory activity may emerge tion in acquiescing to activist demands may simply be
from them, they are secondary to the primary goal of to eliminate said pressure and little else. Second, the
creating immediate public awareness that influences combination of factors necessary to effectively exe-
consumption patterns. Second, the intended audi- cute private politics – a highly salient issue with high
ence of such activities is the consumers of products, media cache – is relatively rare, and leaves vast areas
who reside primarily in developed markets. It is of corporate activity unaffected. Finally, examination
believed that only changes in their consumptive of individualized responses to local issues offers little
behavior will compel changes in production prac- guidance to companies in understanding how their
tice. Third, such efforts are normally highly focused CSR strategy can be better integrated into their
on one company and/or issue, to get the best ‘‘bang overall corporate strategy. CSR in such circum-
for the buck’’ use of an NGO’s often limited stances is reactive and crises-driven rather than
 David Antony Detomasi

proactive and strategically designed for competitive competitive advantage (Hillman and Keim, 2001;
advantage. Scherer and Smid, 2000).
Tracing the process by which CSR strategies can Another category of literature explains CSR by
move from reactive to proactive, and from private to moral and/or normative arguments about the role of
public politics, requires not only an understanding of the firm in society, employing stakeholder respon-
CSR, but also a detailed understanding of how a sibility as a core construct in a research agenda
company manages its external relations with stake- positing that ‘‘corporate efforts to reduce social ills
holders on an ongoing, rather than a periodic and are a means of accommodating a new construal of
crises-driven, basis. Some of these stakeholders are companies as social institutions, while raising fun-
political; consequently, we argue that the political damental questions about the firm’s purpose’’
environment in which a firm operates has specific (Margolis and Walsh, 2003, p. 288). Duane Windsor
implications for a firm’s choice of whether and how (2001) notes that stakeholder expectations now
to pursue CSR. The next section makes this link in establish that ‘‘a corporate citizen be subject to the
detail. same, but not any greater, duties relative to the
individual citizen,’’ prescribing limited but manda-
tory CSR activity as necessary to maintaining a
Corporate social responsibility, politics, company’s social charter to operate (American Law
and legitimacy Institute, 1994). Strategic, competitive, and norma-
tive concerns continue to condition the CSR efforts
Established definitions and typologies of CSR often of large MNCs who employ CSR efforts to create
start with Wood (1991, p. 693) whose widely and maintain the organizational legitimacy and
accepted definition of CSR reads as follows: ‘‘[CSR societal acceptance in both home and host markets
is] the configuration of the principles of social (Dowling and Pfeffer, 1975; Kostova and Zaheer,
responsibility, processes of social responsiveness, 1999; Selznick, 1957).
policies, programs, and observable outcomes as they How MNCs manage their relationship with the
relate to the firm’s societal relationships.’’ As external environment is, therefore, a key component
developed by Maignan and Ralston (2002, p. 498), in creating and maintaining overall legitimacy.
principles represent the motivational inputs driving a Legitimacy, in Kostova’s (1996) typology, has three
firm’s commitment to CSR, while policies and levels: regulatory, cognitive, and normative. Regu-
processes engender measurable CSR outcomes that latory legitimacy is fulfilled by meeting local legal
bring that commitment to life. Motivation, process, standards, but that alone does not establish within a
and outcome matter. local population either a rational understanding of the
Motivation is particularly important. In some MNCs presence or a moral endorsement of its
cases, companies practice CSR because they fear activity. More is needed. CSR activities – particularly
negative repercussions if they do not: in such cases those related to social development measures such as
CSR activity is a purely reactive strategy. In other labor standards, wage rates, and contributions to
cases, firms practice CSR because they believe it infrastructure – help develop positive social reputa-
gives them a tactical advantage in the marketplace, tion gains that enhance the legitimacy of the firm
such as building reputation capital that eases among its local stakeholders (Handelman and Arnold,
employee recruitment and retention, while also 1999; Sen and Bhattacharya, 2001). Moreover, in
building customer loyalty. In these cases, CSR is part many host markets, the central government lacks
of the day-to-day wealth-creation efforts of the firm funds or administrative capacity to deliver basic social
(Burke and Logsdon, 1996; Jensen, 2000; Keim, services: CSR efforts can help bridge the governance
1978; Swanson, 1995; Windsor, 2001; Wood, gap between what local regulations require, what
1991). This literature also notes that the strategic use local governments can deliver, and what cognitive
of CSR – such as deliberate efforts to incorporate and normative legitimacy demands. Moreover, the
external non-market practices in firm decision- social demands that firms do this, are likely only to
making – is a potential source of long-term increase (Hart, 2005; Sethi, 2003).
 The Political Roots of Corporate Social Responsibility

Increased legitimacy provides additional benefits. actions they take. Second, a home country’s political
For example, legitimacy lessens the likelihood that structure influences whether a specific incident may
political authority will intervene in company opera- generate political outcomes in the public, and pri-
tions. Governments are the primary institutions vate, sphere. When this is likely, we propose that
through which the external environment is filtered: firms may use CSR to prevent unwanted domestic
as expressions of a local populace’s will, democratic policy change. In judging whether that policy
governments establish the behavior standards MNCs change is likely, managers turn an eye to the struc-
must meet. Meeting those expectations is a particu- ture and ideological composition of government for
larly onerous challenge for MNCs who may operate clues as to whether it will likely pass legislation
within and across dozens of countries, each exacting detrimental to their interests. We address these
individual political demands that evolve continuously contentions in the next section.
as investment conditions change and bargaining
power shifts (Bergsten et al., 1978; Kobrin, 1987).
Such demands may include ever greater concessions State/societal relations and CSR
in terms of royalty revenue, increased employment of
indigenous personnel, or recurring demands for the Corporate Social Responsibility becomes politically
transfer of technology. MNCs require differentiated important, or salient, when elected officials begin
political strategies to manage these political risks and paying attention to it (Bonardi, 2005). In democra-
to develop contingencies on the basis of an evaluation cies, importance is measured by electoral impact.
of those risks (Brewer, 1983, 1985; Kobrin, 1979, Drawing heavily on theories of public choice; we
1982; Robock, 1971). While adopting consistent posit that an issue becomes salient when enough voters
corporate policies relating to political engagement not only become aware of it, but also use it as criterion
may be strategically appealing (Blumentritt and Nigh, in their voting decisions (Downs, 1957; Olson, 1965).
2002; Mahini, 1988), the sheer number and variety of Political pressure engendered via the ballot box drives
political demands confronting the modern MNC public policy; and elected officials design and/or
makes such consistency tactically impractical, neces- support particular policies because they believe those
sitating that companies adopt a national responsive policies will maximize positive electoral gains and
strategy designed to achieve local legitimacy in a ensure continued tenure, or access to, elected office.
variety of markets (Bartlett and Ghoshal, 1989; To be sure, the casual mechanism linking voter
Behrman and Grosse, 1990; Dunning, 1993; Doz, preference and policy outcome is considerably more
1986; Lecraw, 1984; Prahalad and Doz, 1987; Ver- complicated than this simple model suggests.
non, 1971). Politically speaking, CSR efforts aid Engaging voter attention at all is no small feat: to
MNCs in building local legitimacy and strong local become salient, an issue must overcome both ra-
relationships with host governments. tional ignorance and voter apathy (Downs, 1957).
Clearly, what an MNC does or does not do in Second, the currents of voter pressure are filtered
terms of CSR activity has competitive and political through domestic political institutions that condition
implications. Understanding what MNCs are likely the type of public policy that pressure engenders. In
to do is of interest to firms and researchers alike. unlocking the puzzle of how voter pressure shapes
Where to start? We argue that the institutional policy outcome, one key intervening variable is the
characteristics of the home political environment institutional structure of the home market. Follow-
holds potential in determining whether and how ing Gourevitch and Shinn (2005, p. 72), we argue
MNCs might pursue CSR. They matter in two that the content of government decisions, and who
specific ways. First, managers consider whether ultimately makes them, is contingent on both the
home political institutions accord them the legiti- domestic institutional structure and the political
macy, even expectation, to pursue CSR behavior. values such structures are meant to protect. Rather
We argue that societal norms, legal characterizations than adopting the unitary rational actor model of
of the firm, and ideological predispositions present in government – which assumes that voter pressure
the home market condition how managers think constitutes the input into the ‘‘black box’’ of gov-
about CSR, which will in turn influence what CSR ernment, with wanted regulation the output, with
 David Antony Detomasi

little modification in between – we adopt a model of ‘‘nexus’’ of these contracts that can overcome the
government in which policy is a product of conflict inefficiencies associated with pure spot market
and bargaining between governing institutions. transactions (Coase, 1937; Williamson, 1985, 1996).
Domestic political institutions can condition a Legal doctrine further reflects the contractual theory
firm’s CSR efforts in the following two ways: the of the corporation, in which diffused shareholders
state/societal complex that promotes key values in delegate control of their investments to professional
business government relations, and the formal managers, whose mandate is to provide shareholder
structure of government that conditions how those return. Instead of exerting oversight directly, share-
values get expressed. Domestic political institutions holders rely on market incentives and strong regu-
can provide incentives or disincentives for firm latory oversight to ensure management decisions
managers to pursue CSR by conditioning whether conform to shareholders’ interests. These include
CSR activity is viewed as within or outside man- tying management remuneration to (preferably
agement’s legitimate prerogative. Put more simply, long-term) stock performance, maintenance of a
domestic institutions influence whether a firm’s deep and liquid capital market that can contest the
owners will tolerate, or even encourage, managers to corporate control of underperforming firms, and an
undertake CSR activities, while also providing them attentive board of directors, who scrutinize man-
the managerial discretion to do so. agement decision-making with an eye to protecting
An established method of grouping and differen- shareholder interest (Butler, 1988).
tiating state institutional structures is the state/soci- Under the contractual theory of the firm, gov-
etal complex. Drawing on historical institutional ernment’s role is to facilitate the market by providing
analysis, it contends that each country’s sense of rigorous contract enforcement, exerting regulatory
internal cohesiveness conditions the degree of cen- oversight to prevent abuse, and providing the nec-
tralized power its citizens are willing to grant their essary public goods that market activity alone cannot
national government. Advanced democracies often and will not provide. Government is also expected
develop one of two institutional models, termed to act as a guardian against the concentration of
‘‘societal’’ or ‘‘statist’’ (Katzenstein, 1978, 1984; economic power. Regulatory mechanisms include
Spencer et al., 2005). In societal countries, consent strong anti-trust regulation for preventing monop-
of the governed is guarded and only grudgingly olies, strong securities regulation that provides high
granted. Its citizens are suspicious of concentrated level of minority shareholder protection (MSP) via
power or authority, granting just enough of each to mandated disclosure of corporate information for
centralized political institutions to complete defined potential investors, and strong civil, tort, and even
and limited tasks. Moreover, such countries con- criminal capacities for shareholders and regulators to
strain and diffuse that power by dividing it among seek redress. Government’s role here is to review
various branches of government whose jurisdictions and regulate, but not participate in, the market.
may overlap. While granting central governments Such systems provide benefits to investors of a
power to overcome national emergencies, these stable investing environment, in which government
systems limit the circumstances and time frames of policy credibility is high. Capital markets tend to be
that extension, clawing back those powers when the broad, deep, and active; providing venture capital for
emergency has receded. Skepticism, division of start-ups and disciplining poorly performing firms.
responsibility, and powerful checks and balances Companies exist to produce returns and increase
typify this system. value to shareholders. A large percentage of the
Such systems – of which the United States is the economy remains in private hands, property rights
prime example – also have specific conceptions of are strongly protected, and the market, not the state,
the role of the firm that directly reflect the concern directs the productive effort of the economy (Murtha
with dividing power and limiting organizational and Lenway, 1994). For their part, companies work
scope. Market activity is interpreted primarily in to maximize their strategic freedom within the
terms of economic contraction disciplined by the bounds set by government: they can be expected to
rigorous drafting and enforcement of arms-length resist government intrusion on that freedom via a
contracts. The purpose of the firm is to provide a variety of political and competitive activities. The
 The Political Roots of Corporate Social Responsibility

role of the firm is separate from that of government, role in maintaining social cohesion and encouraging
and the relationship between the two is often con- economic growth.
tentious and adversarial. These elements are meant to Patterns of corporate financing and corporate
foster rigorous domestic competition, enhance na- governance in statist countries differ significantly
tional competitiveness, raise national income, and from those in societal countries. Statist countries do
maximize return on capital. not, as a rule, have as high a public participation in
Statist countries, by contrast, differ from societal capital markets, and typically rely more upon debt
countries across all these dimensions. Citizens in rather than equity financing. Large debt positions
statist countries – of which France, Japan, and may be consolidated in central financial institutions
Germany are prominent examples – are comfortable that consequently play a central role in company
with and endorse the exertion of centralized state governance. Rather than being a narrow instrument
power to guide economic development. Such states of shareholder representation and protection, cor-
evince localized versions of ‘‘democratic corporat- porate governance systems in statist countries reflect
ism,’’ defined by Katzenstein as follows: a broader consideration of interests. The impetus for
MSP is not as strong in statist countries: the ‘‘cor-
… ‘‘democratic corporatism’’ has three defining poratist compromise’’ reached by business, govern-
characteristics: an ideology of social partnership ment, and labor lessens the emphasis placed on
expressed at the national level; a relatively centralized shareholder return as the metric of management
and concentrated system of interest groups; and a
performance (Branson, 2001; Coffee, 1999; Fort and
voluntary and informal coordination of conflicting
Schipani, 2000; O’Sullivan, 2000).
objectives through continuous political bargaining
among interest groups, state bureaucracies, and polit- These differences in national systems of corporate
ical parties (Katzenstein, 1984: 27). governance in turn have had a clear impact on the
objectives managers seek (La Porta et al., 1997; Roe,
In statist countries, the institutional separation 1994, 2003; Shleifer and Vishny, 1997). Statist
between business and government is not as stark; countries allocate to managers, freedom to take
indeed it may hardly exist at all. Firms, governments, stakeholder representation into account in making
and wider societal elements collectively shape mar- management decisions. Indeed, such managers may
ket regulation and conduct through consultation and be legally obligated to do so. As opposed to the
accommodation, resulting in incremental and contractual model of the firm outlined earlier – in
ongoing, rather than episodic and radical, policy which economic efficiency through market contracts
change. Contracting in such systems is often ‘‘rela- provides the foundation for the firm’s existence –
tional’’ rather than ‘‘arms length’’; economic con- statist countries may adopt the real entity or con-
tracts are expressions of underlying social cession model in which the firm is endowed with
relationships among the actors’ involved; such rela- legal rights and responsibilities over and above those
tionships often subordinate immediate economic allocated to individual persons. In this interpretation,
interest in favor of protecting and enhancing core the corporation occupies an intermediate position
societal values such as wealth distribution, equity, between the State and the individual, and comprises a
and stability. Statist countries emphasis collective system of private government in which those affected
rights and duties, and public policy mechanisms are by a company’s decisions have a right and expecta-
designed to enhance planning, order, and rationality tion to be involved in the company’s decision mak-
(Spencer et al., 2005). ing process (Mahoney, 1999). The concession model
Statist countries typically feature a high level of of the firm allocates to it a broader set of political
government involvement in the economy, often via rights and responsibilities.
the mechanisms of mixed ownership of firms or Clearly statist and societal countries differ. We
indeed complete national ownership of companies argue that these differences may affect how compa-
operating in industries deemed strategies. Property nies emanating from these political systems may
rights are recognized and protected, but do not choose to practice CSR. Companies emanating
necessarily enjoy primacy over a broader array of from societal countries, for example, may view CSR
societal interests. Here the firm plays an important as falling outside the legal scope and managerial
 David Antony Detomasi

competence of its managers, and/or as an unneces- notes how speculative excess led to corporate disaster
sary business expense that detracts from profit in 1929, which resulted in the Depression and con-
maximization. They will likely defer to and expect sequent banking and securities acts of 1934. More
national governments to independently provide recent examples of accounting scandals and financial
public goods. Companies emanating from statist fraud revealed at Enron, WorldCom, Tyco, and
countries, by contrast, are likely to have already others in the early twenty-first century engendered
incorporated stakeholder views as part of their cor- the rapidly written and implemented Sarbanes-Oxley
porate strategy process. That domestic governance bill of 2002. The cycle of crises and regulatory re-
tradition may have inculcated in its managers the sponse is well known to students of American busi-
capacity to respond to societal interests as a normal ness history.
process of business decision-making. In this view, A second example Roe employs is the post-war
we posit that managers in statist countries will have German system of codetermination, which reflected
greater expectation that they participate in CSR, and a social bargain between German management and
greater freedom to do so, than will managers in labor. In this model, labor enjoys significant pro-
societal countries. tection in term of wages and job security, and plays a
Moving beyond the general overview of the prominent role in firm governance via legislated
political institutional structure endemic in a given presence on company supervisory boards. In return,
society, we now turn attention to the second funda- labor offers German capital providers the promise of
mental proposal outlined earlier: whether individual a loyal and highly competent workforce (Gourevitch
political systems are more or less likely to enact policy and Shinn 2005; Roe, 1994). The purposes of this
change in response to powerful outside stimuli. bargain are to provide for economic growth and
Building on the state-society argument, we next prosperity within the broader context of corporate
examine the stability of individual political systems – decision making that emphasizes cohesion, relative
of whether such systems pursue a consistent course, or income equality, and social stability. In contrast to
whether they are subject to rapid policy alteration in the U.S., the German system handles stresses to its
the case of crises. Mark Roe (1994, 2003) offers a domestic system via an ongoing and constantly
political theory of corporate governance that is negotiated basis, which adjusts continuously, and
helpful here. He argues that a nation’s corporate avoids crises.
governance structures, ownership patterns, regula- Both systems have absorbed the tremendous
tory constraints, and general expectations of man- shocks inflicted by the processes of economic glob-
agement are outcomes of a political process, in which alization described earlier. Individual domestic
host governments normally prize social stability political institutions have responded differently to
above pure economic efficiency and return. The globalization’s stresses. This, in turn might affect how
flexibility of a nation’s economic institutions and companies from contrasting systems might use CSR
regulatory patterns reflects the amount of social tur- either to encourage favorable – or prevent unfavor-
moil the country will tolerate in the pursuit of greater able – globalization by-products that might impact
economic efficiency and gain. on the political conditions that they face. In evalu-
Not surprisingly, this tolerance is best revealed ating their CSR activity from a political perspective,
when domestic economic systems are subject to firms keep an eye toward the policy preferences of
significant external shock. The American example, their host governments to see whether, and in what
Roe notes, is reluctant to constrain via strident reg- direction, policy decisions might be taken.
ulation managers’ freedom in pursuing shareholder One important variable firms use in making this
return. Regulation is especially hard to implement judgment is the ideological predisposition of its
when those managers are successful, and the econ- governing party. Ideology – ‘‘the collection of ideas
omy appears to be running smoothly. Historically, that a community uses to make values explicit in
however, such freedom has led to managerial exu- some relevant context (Lodge and Vogel 1987, pp.
berance and excess, which in turn has generated 2–3)’’ – is evinced in the political sphere through the
corporate crises that provide the requisite political mechanism of political parties. The ideological
will to enact significant reform. As examples, Roe spectrum ranges broadly across the economic,
 The Political Roots of Corporate Social Responsibility

security, and social concerns of a given state. In the freedom. They are likely to find significant domestic
economic arena, ideology can range from essentially government allies in right-leaning officials who
laissez-faire policies that believe free markets best advocate for limited government, a free trade
encourage domestic growth and investment, to agenda, and flexible production mechanisms. Not
ideologies emphasizing state control of economic surprisingly, these companies fear the political
activity to help redistribute wealth and reduce in- erection of barriers to trade and investment, partic-
come equality. The influence each ideology will ularly unilateral ones imposed by their government
have on the governing agenda depends on the whose costs will fall disproportionately on them.
electoral strength of the party endorsing it. They will likely enact political strategies to prevent
Ideology is often broadly grouped into two cate- that from happening.
gories: conservative parties tend to value individual- By contrast, left-leaning governments might find
ism, free market mechanisms, and a limited role for the processes of globalization to significantly threaten
government, and are usually labeled right-of-center. the established state/societal relationship. While rec-
These parties are likely to value private property ognizing the potential aggregate benefits created by
highly, proclaim a limited role for the state, and place a free trade and investment, they might be concerned
premium on protecting individual liberty in the that the scope of domestic adjustment required to
pursuit of economic gain. Left-leaning parties, by completely embrace globalization might be too dis-
contrast, tend to be more suspicious of and want to ruptive to established domestic political norms. Left-
exert more control over the market, are more con- leaning governments might be more concerned with
cerned about group equity and social justice, and place preserving stated principles of equity over efficiency
less of a premium on individual liberty than they do on and an activist role for the state in the functioning of
these other values (Lodge and Vogel, 1987; Murtha the domestic economy. Such governments, therefore,
and Lenway, 1994; Roe, 2003). Countries whose may advocate and implement policies of formal and
political parties demonstrate the latter characteristics informal protectionism designed to maintain social
are often categorized as social democracies, where stability.
communal values of collective good are evinced by Left-leaning governments might also enact such
generous social programs funded by high tax rates. measures to draw continued political support from
Globalization has brought the differences of these their typical base of voters, often drawn from labor
ideological outlooks into stark relief. National pat- and environmental groups that might support greater
terns of ideology matter in promoting, or disman- regulation of MNCs. For example, in many social
tling, the policies foundational to the maintenance of democracies, labor plays a significant role in politics
globalization: the continual lowering of national via direct representation by a political party. In
barriers to trade, the endorsement of the process of countries, in which labor wields significant direct
outsourcing, and the toleration of relatively free political power via official party status, companies
movements of international capital. These measures may elect to use different CSR policies than in those
have allowed globalization to proceed, yet the countries, in which labor is only one of many
re-invigoration of political impediments to them – domestic interests group only. Similar comments
clearly possible if globalization’s ‘‘dark side’’ is not could be made about other stakeholders, particularly
contained – remain a potential threat, one which concerned with CSR, such as environmental groups,
companies need to monitor. human rights advocates, and others. Governments
MNCs have clearly benefitted from the process of that are ideologically left-of-center whose support
globalization. Globalization has allowed companies draws heavily from these groups may be more likely
to access a foreign country’s competitive cost to pass restrictive legislation; hence companies
advantages; such as production capacity in semi- working in these environments may pay greater
skilled labor, lower input costs, and specialized attention to CSR activity.
intellectual capital. Companies accessing these In short, it is possible to consider political con-
strengths by re-configured production structures ditions as a potential factor in interpreting an MNCs
have an interest in keeping the global economy open decision to engage in CSR. A company based in
and in continuing to maximize investment and trade a societal country will be less fearful of overt
 David Antony Detomasi

government intervention, than it would if based in a special taxes and environmental regulations on goods
statist country. Moreover, if that societal country is produced under what are interpreted as poor
governed by a right-leaning political party, it is even working conditions, are two additional possibilities.
less likely that significant regulation will be erected What instruments a government chooses to employ
that materially impedes a firm’s freedom to act. will vary according to ideology and government
Therefore, a company that observes these political capacity, bureaucratic tradition and capacity, politi-
conditions in its home state will consequently give cal motivation, and other variables that are worth
little weight to political motivations in its CSR further exploration. Investigations into these topics
strategy. However, if an MNC is domiciled in a might shed light on what areas of CSR are partic-
country which is highly statist, regulation to curb ularly important for companies operating in specific
globalization’s excesses might be more expected, industries.
particularly so if that country is governed by a left Another potential avenue for further research is to
leaning political party. examine the locus of political activity that governs
To summarize, this section has offered ideas that CSR activity. There are several reasons why firms may
interpret CSR activity as part of a company’s broader elect to have industry or umbrella organizations take
political strategy. It has argued that the ideological on the responsibility of formulating CSR guidelines
proclivities of governments and the overall state/ for the entire industry, rather than making the effort to
societal complex will influence whether and for what formulate and enforce an individual company stance.
purpose firms pursue CSR in their international This strategy might hold substantial benefits for the
operations. Clearly, more empirical work can follow company. First, it might allow the company to legit-
this line of inquiry. More pursuit by interested readers imately deflect activist criticism by deferring to
might lead researchers to develop additional streams of industry guidelines to explain their CSR conduct.
inquiry, outlined in the next section. Second, there may be little competitive advantage in
formulating an independent CSR strategy in an
industry in which differentiating that strategy from
Discussion and conclusion those of competitors is difficult. Third, highly coor-
dinated industries may use industry groups to coor-
The goals of a firm’s political strategy are to preserve dinate their CSR efforts, and prevent the divide and
societal legitimacy, to maintain flexibility in dealing conquer strategies favored by activists. In all these
with the demands of host governments, and to cases, investigating how companies decide between
prevent the erection of protectionist barriers that will industry and company CSR efforts remains a ripe field
harm a company’s capacity to compete. We have for inquiry.
argued that firms will be more or less likely use CSR Researchers may also wish to expand the research
as a political tool to achieve these objectives agenda to political systems other than those described
depending on the political conditions they confront. here. This article has focused on advanced democ-
The state/societal institutional environment has racies with developed economies. Other countries
been heavily emphasized because it reflects funda- that are rapidly industrializing will almost certainly
mental conceptions of the role of the firm endemic have different takes on the concept, purposes, and
in the society in question. Moreover, ideological efficacy of CSR. The potential relationships between
dispositions of the governing party also matter. Such a country’s economic development and institutional
political calculations, we have argued, impact what if structure to the proclivities of its firms to practice
any CSR measures a firm undertakes. CSR need empirical exploration. Such links deserve
Interested researchers may extend or challenge greater attention.
these arguments in different ways. For example, To conclude, the growth in MNC activity and
researchers may investigate how specific governing corresponding influence in the global political
structures enact policy responses to similar outside economy makes them increasingly important actors
stimuli. Trade policy is one such avenue for inves- in the global economy. Their operations promote
tigation, but there are others. Whether countries the interdependence of the global economy, and
mandate content and labeling requirements, or enact can pose challenges to existing domestic and
 The Political Roots of Corporate Social Responsibility

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