Redefining Corporate Social Responsibility in an Era of Globalization and Regulatory Hardening

• Published date: 01 March 2018
• Date: 01 March 2018
• Author: Inara Scott,Gerlinde Berger‐Walliser
• DOI: http://doi.org/10.1111/ablj.12119

Redefining Corporate Social

Responsibility in an Era of

Globalization and Regulatory

Hardening

Gerlinde Berger-Walliser* and Inara Scott**

Globalization and the growth of multinational enterprises (MNEs) have been

accompanied by an increasing call for corporations to take responsibility for

their environmental and social impacts, and for greater corporate disclosure

and transparency with regard to nonfinancial risks (collectively known as

corporate social responsibility or CSR). At the same time, governments have

increasingly turned to mandatory obligations for formerly voluntary CSR

engagement, a trend we call the legalization of CSR. This article analyzes the

“hardening” and legalization of CSR, and considers what this process tells us

about norms and assumptions regarding the social responsibility of firms in the

United States and around the world. Through our analysis of corporate trends,

regulations, and case law from the United States, European Union, China,

and India, we argue that the process of legalization and redefinition of CSR

through a shareholder primacy lens may, troublingly, undermine the very notion

of CSR. In the face of these trends, this article concludes with a redefinition of

CSR that includes an express commitment to corporations’ social and ethical

responsibility to society.

INTRODUCTION

As commerce becomes global and the reach and power of multinational

enterprises (MNEs) grow, there is an increasing call for corporations to

*Assistant Professor, School of Business, University of Connecticut.

**Assistant Professor, College of Business, Oregon State University.

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American Business Law Journal V

C2018 Academy of Legal Studies in Business

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take responsibility for their impacts on stakeholders,

1

and for greater trans-

parency with regard to corporate nonfinancial risks and environmental and

social impacts.

2

The notion that corporations should engage in socially

responsible business practices, also known as corporate social responsibility

(CSR), has become embedded in the landscape of law

3

and business.

4

CSR

1

This trend is exemplified by public outrage and pressure on Western firms following the

Rana Plaza factory collapse in Bangladesh and other social or environmental scandals. See,

e.g., Julfikar Ali Manik et al., Western Firms Feel Pressure as Toll Rises in Bangladesh, N.Y.

TIMES (Apr. 25, 2013), http://www.nytimes.com/2013/04/26/world/asia/bangladeshi-collapse-

kills-many-garment-workers.html; see also NIELSON,DOING WELL BY DOING GOOD 2, 5–6

(2014), http://www.nielsen.com/content/dam/nielsenglobal/apac/docs/reports/2014/Nielsen-

Global-Corporate-Social-Responsibility-Report-June-2014.pdf (worldwide survey showing

strong and growing demand by employees and consumers for corporations to engage in

responsible behavior as well as willingness to pay extra for responsibly produced goods);

Alan Pomering & Sara Dolnicar, Assessing the Prerequisite of Successful CSR Implementation:

Are Consumers Aware of CSR Initiatives?,85J.B

US.ETHICS 285, 285–86 (2009) (pointing to

studies showing high consumer expectations for firms to engage in CSR, including

seventy-four percent of UK respondents indicating that information about social and ethi-

cal behavior of companies would influence their purchasing decisions). See generally Lucien

J. Dhooge, The Shirts on Our Backs: Teleological Perspectives on Factory Safety in Bangladesh,33

J. LEGAL STUD.EDUC. 379 (2016).

2

See Giovanna Michelon & Michelle Rodrigue, Demand for CSR: Insights from Shareholder

Proposals,35S

OC.ENVTL.ACCOUNTABILITY J. 157, 161, 163 (2015) (analyzing data from

1996 to 2009 showing steady increase in all annual proposals related to CSR from 1996 to

2007, before flattening out after that; proposals related to transparency continued to

sharply increase from 2007 to2009).

3

A brief search conducted by the authors on January 15, 2017, in the LexisNexus database

reveals that from 1986 to 1996, only 140 law review articles mentioned the term, while

from 1996 to 2006, that number skyrocketed to 717 and more than doubled again from

2006 to 2016 to 2138. In 2013 the American Bar Association’s Business Law Section cre-

ated a subcommittee on Corporate Social Responsibility Law “to advance, support, and

facilitate the development of the knowledge, skills, and expertise required to provide

informed, insightful, and effective counsel with respect to corporate social responsibility-

related legal requirements and business issues.” See Maggie Hajduk, New Section Task Force:

Corporate Social Responsibility Law, ABA BUS.L.SEC.NEWS (Dec. 31, 2013, 11:41 AM), http://

www.americanbar.org/groups/business_law/news/2013/12/new_section_taskfor.html.

4

See Susan McPherson, 6 CSR Trends to Watch in 2017,FORBES (Jan. 19, 2017, 11:38 AM),

http://www.forbes.com/sites/susanmcpherson/2017/01/19/6-csr-trends-to-watch-in-2017/

#147a6af4ece1 (describing growth in CSR practices over the past decade as a “stunning

transition”); see also Deborah Doane, The Myth of CSR,S

TAN.SOC.INNOVATION REV. (Fall

2005), https://ssir.org/articles/entry/the_myth_of_csr (noting growth in CSR and calling it a

“highly visible priority for traditional corporate leaders”); Ashley C. Walter & Scott J.

Shackelford, Our Mini-Theme: Corporate Social Responsibility is Now Legal,B

US.L.TODAY (Jan.

2015), http://www.americanbar.org/publications/blt/2015/01/intro.html (introducing the

168 Vol. 55 / American Business Law Journal

has “evolved from a nice-to-have silo to a f undamental strategic priority for

businesses large and small.”

5

Even as corporations create new and expanded

CSR programs, improve CSR reporting,

6

and commit to codes of conduct

and other forms of CSR self-regulation,

7

many governments have taken

matters into their own hands with regulations that mandate socially respon-

sible behavior and policies intended to strengthen further CSR.

8

This trend

to impose formerly voluntary CSR engagement on companies leads to what

we call legalization of CSR.

9

This article examines how legalization and self-regulation have resulted

in the hardening of the formerly self-driven, “soft” CSR concept, and the

effect this tendency has on the meaning and practice of CSR.

10

We as k,

does this growth in CSR regulation, at both the voluntary and hard law

ABA’s Mini-Theme on Corporate Social Responsibility with: “[h]eadlines are rife with firms

that are ‘going green’ and otherwise incorporating corporate social responsibility (CSR)

into their business practices.”).

5

McPherson, supra note 4.

6

PRICEWATERHOUSECOOPERS, CSR TRENDS 2010 2 (2010), http://www.pwc.com/ca/en/sustain-

ability/publications/csr-trends-2010-09.pdf (stating “the quantity and quality of corporate

social responsibility (CSR) reporting in 2010 makes it obvious that this is not just a passing

fad .... In fact, CSR reports are becoming an integral part of a company’s relationship

with employees, suppliers, customers, investors, and communities.”). The number of G250

corporations (world’s 250 largest companies by revenue) producing some form of CSR

report is now over ninety percent. KPMG, CURRENTS OF CHANGE 5 (2015), https://assets.

kpmg.com/content/dam/kpmg/pdf/2015/11/kpmg-international-survey-of-corporate-respon-

sibility-reporting-2015.pdf (presenting annual survey of CSR reporting showing over

ninety percent of G250 produce report; also noting three in five companies report corpo-

rate responsibility data in financial reports).

7

See infra Part II.A.

8

See infra Part II.B.

9

By legalization of CSR we do not mean legalizing what previously was illegal, but instead

imposing CSR on corporations through statutes or regulations. See, e.g., Kenneth W.

Abbott et al., The Concept of Legalization,54I

NT’LORG. 17, 17–18 (2000) (defining legaliza-

tion as a “multidimensional continuum” evolving around obligation, precision, and

delegation).

10

The term “hardening” was first used in the international governance literature with

respect to the hardening of soft law. See generally Gregory C. Shaffer & Mark A. Pollack,

Hard vs. Soft Law: Alternatives, Complements, and Antagonists in International Governance,94

MINN.L.REV. 706 (2010). Soft law consists of rules, standards, principles, and norms of a

quasi-legal, nonbinding nature that lack formalized sanctions but nonetheless are of legal

relevance. See David Zaring, Best Practices, 81 N.Y.U. L. REV. 294, 302 n.29 (2006). Here

we use the term “hardening” to describe the gradual process of legalizing CSR.

2018 / Re-creating Corporate Social Responsibility 169