Stakeholder Champions

Stakeholder champions: how tointernationalize the corporatesocial responsibility agenda1

GrahameThompsonandCiaran 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:

Ownership should be expanded to include direc-

tors, managers, employees and even customers and

suppliers. Expanded ownership will foster com-

monality 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

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 never-

theless, 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

Potential corporate stakeholders vary consider-

ably 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 con-

flicts. These two are the main ‘internal’ stake-

holders. 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 stake-

holders. Thus along with shareholder–investors and

workers (including managers) would be included

nRespectively, Professor of Political Economy, The Open University,

UK and Professor of Economics, Tanaka Business School, Imperial

College, University of London, UK.

r Blackwell Publishing Ltd. 2005. 9600 Garsington Road, Oxford OX4 2DQ, UKand 350 Main St, Malden, MA 02148, USA.56

Volume 14 Number 1 January 2005

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 macro-

economy 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 envir-

onmental concerns, beyond their legal obliga-

tions, 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-

tional investors like pension funds in the compo-

sition 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 share-

holders. However, this increased involvement has

been accompanied by widening disparities be-

tween 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 cos-

metic. 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 litera-

ture 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 share-

holdings, 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 alter-

native players with significant inside information

on the firm’s performance, such as employees.

There is also a long-established argument that

FIRM

Governments

Investors /Creditors Political

Groups

The‘Environment’

Customers

Suppliers

TradeAssociations

EmployeesCommunities

Figure 1: Corporate stakeholders

Business Ethics: A European Review

r Blackwell Publishing Ltd. 2005 57

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 in-

formation 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 manage-

rial creativity and the potential for growth (Kay &

Silberston 1995). Thus, the gains from stakehold-

ing 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 estab-

lished institutions.

The international dimension

Supra-national or regional regulatory bodies – the

European Union (EU), Organization for Eco-

nomic Cooperation and Development (OECD),

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 weak-

nesses 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 coun-

tries 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 non-

OECD based firms is sensitive to environmental

regulation, it is also the case that inward FDI to

the USA involves more pollution-intensive indus-

tries 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-


58 r Blackwell Publishing Ltd. 2005

ments on trade, services, intellectual property,

investment, taxation, fraud, electronic business

and the environment. The key underlying ratio-

nale 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 representa-

tive 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 interna-

tional 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 dis-

cussed by the G20 that includes powerful devel-

oping countries. But special interests will surely

also come to the fore in this wider body. The

accountability issue has proved highly controver-

sial 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 activ-

ities 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 involve-

ment 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

responsibility’. The most notable of these was the

recent US Sarbanes–Oxley Act (2002) that estab-

lished new financial reporting disclosures and

boardroom structure and committee require-

ments, 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 share-

holders 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 corpora-

tions (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 recogni-

tion 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 respon-

sibility 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



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 conjunc-

tion 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 environ-

mental concerns in relation, say, to underwriting

risk. Compliance with international standards

may also be necessary to do business in some

markets. For example, certification by the Inter-

national Standards Organisation (ISO) is neces-

sary 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 Interna-

tional Union for the Conservation of Nature –

have co-operated in fostering a new initiative (Kell

2003). The compact stresses nine areas of corpo-

rate 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 estab-

lished 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 statu-

tory framework at the international level. Chris-

tian 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 prose-

cute transgressions in domestic courts. Both the



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 organiza-

tions discussed in the previous paragraphs. These

developments can be seen as an example of so-

called ‘third-generation’ standard setting. First-

generation standard setting involved direct reg-

ulation, usually by official public bodies operating

in an essentially hierarchical manner. Second-

generation standard setting was based upon

market instruments, while third-generation relies

upon ‘voluntary’ information disclosure, consu-

mer 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

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

Figure 2: The UN Global Compact’s nine principles



governance and their corporate citizenship. (World

Economic Forum 2002: 2)

The World Economic Forum (WEF) encourages

companies to commit voluntarily to ‘good corpo-

rate 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 interna-

tional 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 citizen-

ship initiative are not the most obvious con-

tenders 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 organiza-

tions like the WEF to be much more selective and

judgmental in their acceptance of client corpora-

tions.

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

Towards a new institutional form

Many of the voluntary initiatives discussed so far

are designed to enhance the role of the share-

holder; to stimulate shareholder activism, trim the

power of CEOs, and raise the profile of non-

executive directors and so on, as discussed above.

In this, they may have been at least partially

successful. On the other hand, the INGO com-

munity 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 ‘corpo-

rate 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 corpor-

ate reform than corporate democracy, hence, to

some extent at least, its enthusiastic embrace by the

corporate world.

Company reform to increase internal demo-

cratic decision making is a complex issue, made

even more so by the progressive internationaliza-

tion 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 govern-

ment but in the international context there is a

void in this regard. How could these be con-

stituted 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



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 steward-

ship. 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 ‘decision-

makers’ 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 accoun-

table. 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 sugges-

tion here would be much more radical and would

strengthen the role of the non-executive director-

ship 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 pro-

cesses.

But from where would such champions be

found and how would they be appointed? Here

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 con-

cerns 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 repre-

sentative bodies. In that way, legitimacy would be

established even at the international level for

activist involvement.13



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 suprana-

tional 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? Per-

haps 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 man-

agement. 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 con-

sidered 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.

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 separa-

tion of ownership and control are probably over-

whelming. 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 undesir-

able. Managerial autonomy has traditionally un-

derwritten high growth whereas shareholders have

often been instrumental in encouraging a short-

termist 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 interna-

tional 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-repre-

sented 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.



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 re-

emerged 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 man-

dates 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

lucrative tax services. Thus, this Act could be

considered as rather minimalist in character

despite many of its radical features.

7. 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.

8. 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.

9. 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.

10. ‘UK’s ‘‘responsible industry’’ credibility blown

asunder’, Nick Mathiason, (Guardian 30 March

2004).

11. This is an attempt to operationalize a form of

‘associationalism’ in the spirit of that suggested by

Hirst (1994).

12. 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).

13. But what about the concept of global corporate

citizenship itself? Clearly, understood in its usual



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 under-

standing of citizenship relates to a definite

polity, where members of that polity are recog-

nized 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 compa-

nies 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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