GLOBAL BUSINESS

Compare the traditional view of the rule of the firm, in relation to its shareholders and society, is the new view envisaged by the broader emphasis on Corporate Social Responsibility (CSR)



Abstract

The paper considers corporate social responsibility (CSR) as an institutional alternative to government regulation, which implements Coase-type bargains between corporations and their stakeholders. Comparative analysis of costs and benefits of these two institutions presented in the paper provides basis for explanation and assessment of various CSR models. Russian CSR is used as an illustration; our analysis reveals strong institutional complementarity between CSR, on the one hand, and protection of property rights and availability of social capital, on the other.

Compare the traditional view of the rule of the firm, in relation to its shareholders and society, is the new view envisaged by the broader emphasis on Corporate Social Responsibility (CSR)

Introduction

Societies often have a choice between different institutions serving similar purposes, and exercise it depending on costs and benefits of various alternatives. Such costs and benefits evolve over time and vary from one country to another, which could explain institutional change and diversity across the globe.

One example of such selection from an “institutional menu” is corporate social responsibility (CSR) - a contemporary pattern of corporate behavior which requires companies to be guided not only by narrow financial objectives, but by broader societal interests in sustainable development, clean environment, ethical conduct, protection of social and economic rights etc. Corporate social responsibility has become a standard practice in the modern world, and yet its purpose, rationales, mechanisms and outcomes are still intensely debated. The concept of CSR is wrapped in controversy - it does not fall squarely in the conventional textbook vision of the market economy, where commercial firms maximize profits, governments supply public goods and regulate private sector, and philanthropy, if any, is undertaken by private individuals.

The institutional theory offers a convenient framework for CSR analysis which produces a clearer vision of CSR role in institutional setups of modern societies. CSR is considered as Coasean bargains between companies and their outside stakeholders, reached over externalities that companies produce. CSR is thus treated as a private institutional alternative to government regulation, and the choice between these two options depends on their relative costs and benefits. We identify and analyze several factors that affect comparative advantages of CSR vs. regulation, and offer a simple model to illustrate their interplay.

The proposed approach can be used to explain, assess and map various CSR models, and we consider the Russian case as an illustration. CSR in Russia has a number of distinct features, prominent among them its abnormally large scale. While it is difficult to provide accurate estimates due to a lack of common definition, unclear methodology, incomplete statistical data and low transparency of the Russian corporate sector in general, the available evidences points to what a Russian expert calls “hyper” socially responsible behavior. Social investments of Russian firms, measured as percentage of profit and in comparison with philanthropic donations made by individuals, ...