Stakeholder Champions

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Volume 14 Number 1

January 2005

Stakeholder champions: how to internationalize the corporate social responsibility agenda1 GrahameThompson and Ciaran Drivern Introduction The corporate social responsibility (CSR) agenda concerns the wider responsibilities that companies have beyond that to their shareholders, i.e. that they should work within the law as responsible corporate actors. As many responsibilities are difficult to frame in law, many would add that companies have a general duty of care (to foster the ‘welfare’ of the company). There may be disagreement as to whether this agenda stems from the position of power that companies occupy and a wish to countervail it; from the inevitable indirect effects of their actions on others so that it is more rational to consider the wider picture; or more instrumentally because of questions of efficiency and performance. The latter two considerations inform the support that a leading US business academic has given to the stakeholding concept:

question is posed as to how the CSR agenda is to be implemented. Is it to be a case of guidance or voluntary codes on the one hand, regulation and legal imperatives on the other or some hybrid model? In particular, how, and to what extent, are stakeholders to be given a role? We argue that the instrumental as opposed to the ethical case for stakeholding is as yet unproven but that nevertheless, opportunities exist to persuade leading corporations to sign up for a robust commitment to CSR that takes an institutional form.

Characteristics and forms of stakeholding

Respectively, Professor of Political Economy, The Open University, UK and Professor of Economics, Tanaka Business School, Imperial College, University of London, UK.

Potential corporate stakeholders vary considerably in their nature and characteristics. The range of possible stakeholders is shown in Figure 1. The traditional investor–shareholder interest is already well accommodated within firm decision making. A further traditional concern is with employees, although how to accommodate this interest is itself fraught with tensions and conflicts. These two are the main ‘internal’ stakeholders. Then there is a range of ‘external’ ones. Some of these are well constituted into a definable interest; others are not. Some have a contractual relationship with the company; others do not. There is a body of opinion that suggests only those with a contractual relationship with the company should legitimately be considered as stakeholders. Thus along with shareholder–investors and workers (including managers) would be included

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Ownership should be expanded to include directors, managers, employees and even customers and suppliers. Expanded ownership will foster commonality of interest and help make investors more aware of the value of investment spillovers (Porter 1997: 14).

Concern with the exact reasons for supporting a CSR agenda may seem overly academic, but clarity is of some importance, especially when the n

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Figure 1: Corporate stakeholders Investors / Creditors Governments

Political Groups The ‘Environment’

Suppliers FIRM

Customers

Trade Associations Employees

Communities

suppliers, debt-holders and probably customers.2 This leaves out of account, however, others who might be considered stakeholders from a broader perspective if these organizations were to accept their social responsibilities. The unemployed could be considered as stakeholders, where companies are large enough to affect the macroeconomy or the regional economy; indeed, some firms do engage in co-operation with public agencies to provide advice and training to the unemployed, although much of this is now contractual. Similarly, some firms address environmental concerns, beyond their legal obligations, and report on these in their annual reports. However, as Corry (1997) argues, it may be wrong to extend the stakeholder framework to parties outside the corporation as it is the government that has the prime responsibility for overseeing the balance of interest between groups in the wider society. In the national context, this seems entirely sensible given the need for informed political choice to resolve competing claims where spillovers are present. In an international context it is less clear what role governments can play in respect of these issues. Current influential views: shareholder activism In recent years, public concern with ‘stakeholding’ in Anglo-American economies has narrowed down to a concern with ensuring a voice for shareholder activism. In particular, there is a concern to encourage greater activity by institu-

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tional investors like pension funds in the composition of the board and in setting standards for such aspects as executive pay.3 Recent UK evidence suggests some cases where managerial compensation, the composition of the board of directors or the continuance in office of the chair of the board have been influenced by shareholders. However, this increased involvement has been accompanied by widening disparities between the pay of CEOs and senior managers and others within the corporation, along with (at least perceived) increased incidence of corporate fraud. It is thus hard to claim that the process has been effective and many regard the exercise as cosmetic. The suspicion is that shareholder activism is simply filling a vacuum before the next wave of hostile corporate takeovers asserts itself as the dominant form of Anglo-American corporate control. Moreover, the focus on shareholder power is likely to entrench short-termist thinking (Stockhammer 2004, Driver & Shepherd 2005). In the UK, shareholder power as measured by block shareholdings has always been more a feature of corporate control than in the US, but that in itself has not led to greater oversight. This presumably reflects the costs and benefits of such forms of exercising control and the fact that it is extremely difficult for shareholders to implement serious change unless they are involved in heavy monitoring from an insider position as with the continental European model of governance. There is only scant evidence in the managerial literature that block shareholdings do in fact affect the performance of firms (Shleifer & Vishny 1996). In large part this reflects the private nature of much of the information on firms’ performance that is exclusive to management and is too complex to be grasped by summary accounting data that the board has access to. As a consequence of all of this, an exclusive shareholder-orientated corporate overview and monitoring, even with bloc shareholdings, is likely to be weak.4 A broader stakeholding approach has some attractions over the shareholder activist model. In particular, this may involve oversight by alternative players with significant inside information on the firm’s performance, such as employees. There is also a long-established argument that

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stakeholders with hold-up power should be allowed to influence decision making, i.e., have control rights within the organization (Blair 1996). Stakeholding may also bring gains in terms of efficiency and in terms of equity. The efficiency arguments, while forceful, are not, however, completely compelling. There may be other ways to incentivize those with hold-up power, such as efficiency wages. Furthermore, the issue of information asymmetry may arise here also. In general, there may be a concern that too much monitoring and oversight may cripple managerial autonomy to the point where it weakens managerial creativity and the potential for growth (Kay & Silberston 1995). Thus, the gains from stakeholding may depend heavily on the form in which it is introduced. We may conclude from this that a convincing case for an appropriate form of stakeholding has yet to be made purely on efficiency grounds. While worker motivation may be increased and spillovers taken account of in a stakeholding environment, there is a cost to this in terms of negotiation and monitoring. So while the ethical case for stakeholding can certainly be argued, it is too early to say if the efficiency argument for it can be supported or how stakeholding would best be implemented. In an international context, the implications of this need to be considered further. On the one hand, governmental constraints on firms may be less effective in the international context (because of the ‘race to the bottom’ that pits state against state). This strengthens the ethical argument for other forms of institutional checks on the activities and forms of operation of both foreign and domestic firms in such countries. However, it must also be recognized that the costs of enforcing regulatory control may be higher in these countries because of a lack of skills and established institutions.

The international dimension Supra-national or regional regulatory bodies – the European Union (EU), Organization for Economic Cooperation and Development (OECD),

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and the Bank for International Settlements (BIS) for example – are becoming key players in the corporate standard setting process. Parallel to this, there is a complex system of voluntary regulation and governance emerging, particularly in relation to standard-setting (Thompson 2005). We first review below the strengths and weaknesses of the regulatory or voluntarist approaches. Supra-national regulation Democratic control is weak or non-existent when corporations are operating beyond their national territories, i.e., outside the country where they are legally registered. Firstly, such companies may disregard the wishes of their home-state or global citizens, e.g., by failing to comply with ethical standards in regard to corruption or simply by evading taxation. Secondly, these companies may operate abroad in ways that disadvantage weak stakeholders, particularly in less developed countries where such states are constrained by competing states’ offers of light-touch corporate regulation. The relative importance of these two concerns (globalization and the LDCs’ inability to establish effective compliance) is not always obvious a priori. For example, the environment should not simply be viewed as a problem of exporting dirty industries to poor countries but also as affecting advanced countries. Thus, while it is true that outward foreign direct investment (FDI) by the USA chemical industries and nonOECD based firms is sensitive to environmental regulation, it is also the case that inward FDI to the USA involves more pollution-intensive industries than outward FDI from the USA (Fitzgerald 2002). The first issue above is a main concern of the co-operative institutions that have emerged as supra-national regulators. Increasingly, a vast array of institutions and instruments are being fashioned to impose order on global players. The institutions include the UN, WTO, G8, G20, OECD, World Bank, IMF, ILO (International Labour Organization), BIS, NAFTA (North American Free Trade Area), EU and the various offshoots of these organizations (e.g., UNCTAD, UNCHR). Among the areas covered are agree-

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ments on trade, services, intellectual property, investment, taxation, fraud, electronic business and the environment. The key underlying rationale for global regulation is the ‘tragedy of the commons’, i.e., the inability to secure a ‘win–win’ outcome to global games without co-operative frameworks. A clear problem with this drive for global order is the lack of accountability and true representative nature of the main organizations charged with designing and implementing the new rules (Held 2004). A fundamental question that is often skirted in discussions of global governance is the nature of the power relation when the international agencies themselves have been captured by the interests of global capital (Stiglitz 2002). Certainly, US multinationals were behind the drive to increase intellectual property protection that led to the Uruguay Round agreement on this (TRIPs). American Express was heavily involved in lobbying for financial market liberalization in developing countries and US fruit distributors were the main force behind the USA–Europe dispute that concerned banana production in Latin America and the Caribbean. The role of the G8 is increasingly being challenged on democratic grounds and it seems likely that key issues may increasingly be discussed by the G20 that includes powerful developing countries. But special interests will surely also come to the fore in this wider body. The accountability issue has proved highly controversial in the case of the WTO and in particular the debate on the new agreements in respect of services and intellectual property. WTO member governments are bound under legal sanction to comply with a range of codes involving standard setting, procurement and foreign access in activities that include utilities and social and private services. The framework is vast and appears to prescribe many activities that would normally be thought to be under the aegis of national governments, such as the limit of market involvement in specified activities or the expression of preferences for exposure to risks (Sinclair 2003).5 In addition to these supra-national examples, there have been further ‘unilateral’ national governmental initiatives in respect of ‘corporate

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responsibility’. The most notable of these was the recent US Sarbanes–Oxley Act (2002) that established new financial reporting disclosures and boardroom structure and committee requirements, not only for US companies operating in the US but for US companies operating abroad. It extended this to foreign companies operating in the USA, or just listed in the USA, and even to companies not listed there but which do business there.6 This legislation significantly extends the reach of US extra-territoriality, and it adds to the power of non-executive directors and shareholders at the expense of CEOs, in boardroom affairs. The question is, however, whether other countries could act like the USA even if they wished to, and whether such unilateral action is for the long-term benefit of the international trading system and regulatory regime as a whole. The second issue for supra-national regulation concerns the activities of multinational corporations (MNCs) and how these may be regulated so as to defend weak stakeholders, especially those operating in weak states. Again, there has been an institutional response. The Global Corporate Governance Forum is a joint initiative sponsored by the OECD and the World Bank that arose from the OECD principles on international corporate governance promulgated in 1999. This body monitors corporate governance initiatives in different countries and presses for best practice based upon the OECD principles. Nearly 50 countries are actively involved with this initiative. The OECD principles press for the legal recognition of stakeholder interests, something not often found in declarations of this kind, and its approach goes well beyond the voluntary codes suggested by other bodies. Other initiatives include activities by the ILO, which is in regular and close discussion with the Chinese and other emergent market governments about constructing specific legally backed domestic corporate responsibility regimes in connection to worker rights in those countries. In respect of non-OECD countries, a particular problem arises with the application of unitary rules in respect, say, of labor or environmental standards or even corporate governance when applied to heterogeneous conditions: different

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circumstances might require different rules. Put bluntly, the imposition of common standards may retard growth in non-OECD economies. These economies may find the trade-off implied in global rules inappropriate to their stage of development. In relation to labour standards, for example, the effectiveness of measures to raise labour standards and defend growth and employment depends on where and how they are applied. It may still be possible to devise and comprehensively implement rules that are sensitive to local conditions, but the pattern today seems to have developed more in the direction of a patchwork of voluntary corporate codes of social responsibility (Singh & Zammit 2003). Voluntary regulation Institutions of global governance generally act cautiously to consolidate best practice and extend it to countries or regions where it is not yet approved or applied. This judicious approach is necessary for the same reason that we earlier argued for a balanced view of stakeholder involvement generally: there are gains and losses involved in any application of rules, and different circumstances provide more or less scope for progressive application of the rules. However, in many cases individual firms may be persuaded or may simply decide to press ahead with guidelines and practices that are in advance of what is currently regarded as the standard.7 If such initiatives can be coordinated and orchestrated by civil society organisations (CSOs) in conjunction perhaps with regulatory bodies, the whole may be more than the sum of the parts. The attraction for companies in signing up to such initiatives is not only in terms of their CSR image but also relates to the assurance that that they can co-operate with other companies that have so committed themselves. Compliance may also confer an option to be able to prepare for regulatory changes that might require compliance, say to be listed on some stock exchange in the future or to do business with insurance and banking groups that may have their own environmental concerns in relation, say, to underwriting risk. Compliance with international standards

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may also be necessary to do business in some markets. For example, certification by the International Standards Organisation (ISO) is necessary to trade in the EU and several thousand firms have certification ISO 14001, which relates to CSR. Trade associations may also wish for members to agree to codes of good practice, since the reputation of an entire industry can be affected by the activities of a rogue individual company. In the case of the UN’s Global Compact, for instance, the ILO – plus several INGOs like Amnesty International, Oxfam and the International Union for the Conservation of Nature – have co-operated in fostering a new initiative (Kell 2003). The compact stresses nine areas of corporate responsibility as outlined in Figure 2 (soon to be supplemented by a tenth on corruption). At the last count (February 2004), there were some 1690 participants who had voluntarily signed up to this compact, and in as much as they take their involvement seriously, this locks them into an ambitious programme of social responsibilities.8 Other initiatives of a voluntary nature include industry-specific ones such as the Chemical Manufacturers Association and the ‘Equator Principles’ for international banks. However, there are approximately 62,000 MNCs in the world, so those involved in voluntary certification are probably a small percentage of that total, although important in terms of size and public standing. Two of the most significant campaigning bodies are the International Council on Human Rights Policy (ICHRP) (2002) and Christian Aid (CA) (2004), both of which call for supplementing the current voluntary approach with a newly established international legal regime to govern CSR issues. A useful service provided by these bodies is that they show how there have been successes in converting voluntary code building into a statutory framework at the international level. Christian Aid (2004), for instance, documents how since 1997 35 rich countries of the OECD have signed up to a convention that outlaws bribery of foreign public officials by business people. But this still relies on the national governments to enact domestic anti-bribery legislation and prosecute transgressions in domestic courts. Both the

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Figure 2: The UN Global Compact’s nine principles The Global Compact's nine principles in the areas of human rights, labour and the environment enjoy universal consensus being derived from: • • •

The Universal Declaration of Human Rights The International Labour Organization's Declaration on Fundamental Principles and Rights at Work The Rio Declaration on Environment and Development

The nine principles are: Human Rights • •

Principle 1: Businesses should support and respect the protection of internationally proclaimed human rights within their sphere of influence; and Principle 2: make sure that they are not complicit in human rights abuses.

Labour Standards • • • •

Principle 3: Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; Principle 4: the elimination of all forms of forced and compulsory labour; Principle 5: the effective abolition of child labour; and Principle 6: eliminate discrimination in respect of employment and occupation.

Environment • • •

Principle 7: Businesses should support a precautionary approach to environmental challenges; Principle 8: undertake initiatives to promote greater environmental responsibility; and Principle 9: encourage the development and diffusion of environmentally friendly technologies

ICHRP and CA want to extend such regimes to encompass the responsibility for ‘duty of care’ to company directors for communities and the environment, making them legally accountable for the actions of their companies overseas. This advocates a move beyond CSR to corporate social accountability. These firm-centred approaches are backed by their own set of organizations and bodies that register company commitments, disseminate best practice, monitor developments on a voluntary basis, etc. – like the Global Reporting Initiative (GRI), the International Business Leaders Forum, Corporate Sustainability Reporting, Institute for Social and Ethical Accounting and many others, some of which overlap with the types of organizations discussed in the previous paragraphs. These developments can be seen as an example of socalled ‘third-generation’ standard setting. Firstgeneration standard setting involved direct reg-

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ulation, usually by official public bodies operating in an essentially hierarchical manner. Secondgeneration standard setting was based upon market instruments, while third-generation relies upon ‘voluntary’ information disclosure, consumer and community pressure, etc., to achieve acceptable standards, driven in this case by firms themselves. In many ways, the World Economic Forum’s Global Corporate Citizenship (GCC) initiative, inaugurated in 2002, falls under this umbrella. Its particular concerns are signalled in the following passage: Rarely have businesses found such a complex and challenging set of economic pressures, political uncertainties and societal expectations. Regardless of their industry sector, country of origin, or corporate ownership structure, they are under growing pressure to demonstrate outstanding performance not only in terms of competitiveness and market growth, but also in their corporate

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governance and their corporate citizenship. (World Economic Forum 2002: 2)

The World Economic Forum (WEF) encourages companies to commit voluntarily to ‘good corporate governance’ protocols and to pay close attention to their social responsibilities, all in the name of their becoming proper global corporate citizens. This has to do with what has come to be termed ‘reputation capital’, which firms are assumed to want to foster and preserve.9 But this is where the voluntary CSR movement runs into difficulties. The purely voluntary nature of these initiatives means they have problems discriminating in terms of whom they allow to ‘sign up’ to their protocols. The UN Global Compact suffers from this problem: for example, Royal Dutch Shell was a founder signatory of the Global Compact but has recently been heavily criticized for its environmental record. The problem here is that the UN cannot be very selective about membership – something that undermines its wider legitimacy as an international governance mechanism operating in many fields. The WEF could be selective, although it looks as though it is not. Many of the companies involved with the WEF’s global corporate citizenship initiative are not the most obvious contenders for the responsibility laurels. While some companies with poor reputations may choose genuinely to address their problems through such initiatives, it seems important to discriminate between real and cosmetic application of CSR principles. One way forward may be for organizations like the WEF to be much more selective and judgmental in their acceptance of client corporations. Certainly, recent experiences have suggested that the application of voluntary CSR approaches is failing on a number of dimensions. The UK government’s initiative to tackle corruption in project finance by implementing the OECD protocol discussed above appears to have stalled. The Extractive Industries Transparency Initiative aimed at greater transparency in mining contracts has largely been ignored and UK business organizations are resisting the application of UN guidelines.10

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Towards a new institutional form Many of the voluntary initiatives discussed so far are designed to enhance the role of the shareholder; to stimulate shareholder activism, trim the power of CEOs, and raise the profile of nonexecutive directors and so on, as discussed above. In this, they may have been at least partially successful. On the other hand, the INGO community and those arguing for wider CSR reforms leave the implementation of these rather vague – somehow national law or regulation will come to the rescue. An explicit role for other stakeholders directly in corporate decision making remains the missing link here. This used to be called ‘corporate democracy’ (or ‘economic democracy’) but this term has fallen somewhat out of favour. Even the most progressive of companies that have embraced the full CRS agenda enthusiastically do not talk much about corporate democracy. In large part, then, voluntary CRS may be a substitute process and a less threatening one for corporate reform than corporate democracy, hence, to some extent at least, its enthusiastic embrace by the corporate world. Company reform to increase internal democratic decision making is a complex issue, made even more so by the progressive internationalization of business activity as mentioned above. But suppose there was a dramatic change in the sentiment associated with CSR and GCC among companies and governments alike so that they were eager to embrace radical reform. How could this be practically organized and implemented? Elsewhere we have addressed this issue in more detail (Driver & Thompson 2002). The main problem, as we see it, is exemplified by the case of treating something like the environment or the unemployed as a stakeholder. In the national context, there may well be a case for identifying these concerns as the business of central government but in the international context there is a void in this regard. How could these be constituted into viable and convincing ‘entities’ able to be involved in any direct decision-making activity? And these examples, while extreme ones perhaps, are illustrative of the wider difficulty of constituting all stakeholders as decision-making

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entities for MNCs as the international bases of their activities spread. So far we have avoided using much of the traditional language of ‘political representation’. The normal language used in these situations would be to consider this precisely as a problem of the representation of an interest. But the difficulty is clear in the case of the environment. How could this be constituted as an interest? One way round this is to abandon the language – and indeed, the conception – of both representation and interest. Instead, it is a former language of politics that is invoked here: that of championing and stewardship. Any reformed decision-making arena within the firm needs to be thought of as an ‘arena of stewardship or championing’ rather than of representation. However champions were elected or appointed, they would simply act as ‘decisionmakers’ not as representatives of an interest. They would operate in an organization to champion a cause, nurture it and act as a steward of that cause through the decision-making and implementation processes. Clearly, this approach raises all sorts of difficulties of its own, not least as to the mechanism of how such champions would be appointed or how they would be made accountable. One way forward would be to strengthen the non-executive directorship role via this route. As it stands, most existing non-executive directors are appointed very much through the ‘old-boy’ network. They are already known to the firm, or are in its immediate network of contacts. But they lack a clear alternative brief as a result, which is why there has been such an interest in re-vamping their role in the rather restrictive corporate responsibility reform so far enacted. The suggestion here would be much more radical and would strengthen the role of the non-executive directorship by making it the job of such directors to champion the cause of the unemployed, the environment, the community, the employees, the customer, etc., and even the shareholder. And this would put these various considerations at the very heart of the organizational decision-making processes. But from where would such champions be found and how would they be appointed? Here

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we might think of the formation of a pool of such persons from which could be drawn suitable individuals to serve on different company boards or senates, or who were ‘elected’ to do so. But by whom? Here we would suggest that already existing global governance organizations, national bodies and governments, NGOs, trade and professional association, trades unions, pressure groups and even other companies in completely different sectors, etc., that already address these separate issues could constitute themselves into ‘quasi-constituencies’ around their existing concerns and provide ‘expert lists’ of such acceptable personnel as potential candidates. They could then either elect or appoint as suits their purpose, but operating in an open and transparent manner. The champions so produced by such a process would then have to ‘report back’ to such accredited bodies on their stewardship: their accountability would be addressed to these new ‘civil-associations’ as we would term them.11 In a sense, then, what is being promoted here is a form of ‘indirect democracy’, where the legitimacy of the process relies upon the legitimacy of the organizations that support it and feed personnel into it.12 One issue of some importance in the foregoing scheme is the legitimacy of the bodies from which the pool of monitoring talent is drawn. A number of questions arise that are hard to answer. How exactly could such bodies be regarded even indirectly as ‘democratic’? How do champions or stewards weigh up the inevitable costs and benefits – many of which are hard to calculate because of their diffuse nature – or assign weights to different stakeholders when there is no market calculus to act as a guide? This is of course the stuff of politics, but politics requires a process of legitimacy. It is our suggestion that to gain such legitimacy the new civic associations outlined above might have to be accredited by existing international representative organizations and perhaps lists of the candidates proposed by them as appointed champions would be allocated in proportion to rules established by those representative bodies. In that way, legitimacy would be established even at the international level for activist involvement.13

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No one can pretend that the appointment of non-executives to champion particular interests of global concern will solve the problem of the void created by the inability to rely fully on supranational institutions of governance because of their lack of accountability. Both systems have their merits and drawbacks. The inherent flaw in the notion of champions is that such individuals cannot weigh up the relative competing claims of different stakeholders in any meaningful way. What is to be done, for example, when the interests of the environment clash with the interests of development and employment? Perhaps companies will use differences between competing champions as a way of justifying what they would have done anyway. But at least the system has the merit of transparency in that champions will be free to make their case publicly. Thus the principle of stewardship can go some way towards nudging companies in the direction of a more progressive stance that takes into account the interests of broad stakeholders. In addition, here we would like to tentatively propose another suggestion in the same mould, i.e., it relies on companies caring about their reputational advantages and does not involve excessive interference with growth-oriented management. Our proposal is for an independent commission of experts – perhaps partly drawn from business school staff teaching CSR and partly from the pool of CSR champions – to examine ex-post the performance of CEOs after they have retired. The posting of such a considered report in the public domain could act as a serious incentive to managers who seem to care much about their reputation and image. Such a practice was common in Medieval Venice where an audit of the Doge’s rule was drawn up on completion of his office (Barzun 2000).14

Conclusions We have surveyed approaches to CSR and to stakeholding as the acknowledged vehicle for its implementation. Our conclusions can only be tentative given the emergent nature of the debate.

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First, insofar as the stakeholder/shareholder dichotomy is concerned, our view is that a focus on increased shareholder power is misplaced. The logical and practical arguments against the separation of ownership and control are probably overwhelming. It is probably too cynical a view to see the campaign for shareholder activism as an attempt to stave off more centralized control or to deflect attention from the case for stakeholding. Nevertheless, it does not seem to us that it is sensible to devote resources to argue for policies that are probably both unworkable and undesirable. Managerial autonomy has traditionally underwritten high growth whereas shareholders have often been instrumental in encouraging a shorttermist culture and ignoring positive spillovers. In many ways, the same could be said for some forms of stakeholding. However, the virtue of the stakeholding argument is that it involves players who are likely to share the insider information that managers possess. In addition, there should be performance gains from broadening the control of the organization to all those who contribute towards its residual income, and there may be motivational gains as well. We have noted earlier in the article that stakeholding has both costs and benefits and that it is not yet clear what institutional form would be appropriate at the national level. More broadly, we have considered the international dimension and the role of stakeholders that are in some sense indirectly related to the corporation, such as those affected by the environmental or other incidental activities of the corporation. Two constituencies affected are the global citizen and the stakeholder in weak states dependent on a regulatory framework or code of compliance by MNCs. We have examined some practical ways in which we regard it as possible to begin to take account of such interests. In particular, we have tentatively proposed working in parallel with regulatory bodies by involving the appointment of stakeholder champions or stewards to articulate under-represented interests. We have also called for ex-post audit-type statements to be made on the tenure of CEOs with the aim of making reputational capital more transparent both for firms and individuals.

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Notes 1. We would like to thank three anonymous referees and also participants at the EAEPE annual conference, Crete, 2004. 2. But given their contractual relationship with the company, it is further often claimed that there is no need for a formal role of these parties as ‘stakeholders’. Their relationship with the firm can be quite easily handled – indeed, is already well handled – within the context of the conventional practices of commercial law. 3. In the UK, initial ‘New Labour’ support for a broader stakeholding agenda faded on taking office. In the US, where the subject was more seriously discussed in policy circles as an answer to reduced US competitiveness, it was knocked off the agenda by the dot-com bubble and improved productivity growth later in the 1990s and reemerged as shareholder activism in the wake of the widely publicized accounting scandals. 4. There are also difficulties in pursuing this agenda that are caused by the asymmetrical position of block shareholders and dispersed shareholders, with the latter likely to be disadvantaged and possibly inhibited from investing, and the former likely to have conflicts of interest. 5. Despite the concern over the accountability of supra-national bodies the public debate on issues of corporate responsibility has undoubtedly resulted in some far-reaching reform. One example of this is the recent review on extractive industries by the World Bank, which shows that such industries do not help reduce poverty in countries that are not already successful politically and economically. As a result, the World Bank is considering either a total withdrawal of support for these industries or greater oversight and conditionality. 6. More extensive reforms such as compulsory rotation of audit firms or breakup of investment banks did figure in the US debate but they were not enacted in the Sarbanes–Oxley Act. This turned out to be an umbrella act including reforms of corporate governance and associated changes in accounting and law partnerships. The Act mandates the change of lead audit partner every five years (although not the rotation of audit firms) and decided that accounting firms should not provide consultancy services (which most of them were in any case jettisoning) while allowing the same accounting firms to continue to provide

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7.

8.

9.

10.

11.

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lucrative tax services. Thus, this Act could be considered as rather minimalist in character despite many of its radical features. These codes do not just involve the meeting of ISO9000 or ISO14000 standards, though these are often treated as minimum targets. In addition, there is an attempt to establish a new ISO type standard for workers’ rights, sponsored by ‘social accountability international’ (SAI) – the SA8000. This is a system which defines a set of auditable standards and an independent auditing process for the protection of workers’ rights. It is based on conventions of the ILO and related international human rights instruments. As discussed elsewhere (Thompson 2005), ISO standards – to be acceptable and effective in so many different national environments – have to remain fairly open and flexible in respect to their rules, so they do not confer a very ‘tight’ standard of compliance. The UN’s Global Compact is closely supported by the IFC/World Bank Group’s ‘Equator Principles’ for international banking launched in 2003 (which was mentioned above) and the United National Environmental Programme (UNEP’s) ‘Finance Initiative’ for asset management companies (launched in July 2004), which promotes social and environmental considerations in respect of the issues of corporate governance, capital market and investment decisions. Both of these are also voluntary initiatives. According to a report by McKinsey and Co (2003: 1), ‘reputation’ tops the list of CEOs’ concerns over ‘intangible assets’, and the proportion of a company’s value derived from intangible assets rose from 17% in 1981 to 71% in 1998. ‘UK’s ‘‘responsible industry’’ credibility blown asunder’, Nick Mathiason, (Guardian 30 March 2004). This is an attempt to operationalize a form of ‘associationalism’ in the spirit of that suggested by Hirst (1994). It may be noted that there are already 2400 NGOs affiliated to the UN and these are already important in allocating the budgets of some UN agencies. The role of civil society groups in the UN has been considered recently by a high level panel chaired by UN Secretary General Kofi Annan and its deliberations are reported in UN (2004). But what about the concept of global corporate citizenship itself? Clearly, understood in its usual

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sense, this is something of a misnomer. At best it is an elaborate claim only, and political claims of this kind should be treated cautiously. If an understanding of citizenship relates to a definite polity, where members of that polity are recognized as such and have certain legal rights and responsibilities as a result, this does not describe the current characteristics of the international corporate system. A civil society of citizenship is one constituted by a nation state – one recognized by other states and by international law – where the state proclaims the civil society over which it governs but does not subsume, and citizens are legally members of that polity. It is not a voluntary association of like-minded participants. What exactly is the constituted polity of which companies are citizens? Where there is no such polity, there should be no pretence that there is. In addition, those who proclaim the existence of a global corporate citizenship have so far at least failed to press for the proper introduction of a taxation regime on corporations to support that polity. They have shown no great commitment to pay for the privileges claimed of their citizenship. 14. Ex-post evaluation has also been a feature of the draft Swedish code on corporate governance where it is proposed that the nominating committee for the board of directors be involved in its evaluation and that of the auditors.

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r Blackwell Publishing Ltd. 2005