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1、Corporate social responsibility, business strategy, and the environment Forest L. Reinhardt* and Robert N. Stavins* AbstractWe examine the concept of firms sacrificing profits in the social interest within the environmental realm, with particular focus on the case of the United States by addressing
2、four key questions. May they do so within the scope of their fiduciary responsibilities to their shareholders? Can they do so on a sustainable basis, or willtheforcesof acompetitivemarketplace render sucheffortsandtheir impactstransient atbest? Dofirms, in fact, frequently or at least sometimes beha
3、ve this way, reducing their earnings by voluntarily engaging in environmental stewardship? Should firmscarryout suchprofit-sacrificingactivities (i.e. isthis an efficientuse of social resources)? We address these questions through the lens of economics, including insights from legal and business sch
4、olarship. Key words: corporate social responsibility, voluntary environmental performance JEL classification: M140, L510, Q5 I.Introduction Business leaders, government officials, and academics continue to focus considerable attention on the concept of corporate social responsibility (CSR), particul
5、arly in the realm of environmental protection. Beyond complete compliance with environmental regulations, do firms have additional moral or social responsibilities to commit resources to environ- mental protection? How should we think about the notion of firms sacrificing profits in the social inter
6、est? May they do so within the scope of their fiduciary responsibilities to their shareholders? Can they do so on a sustainable basis, or will the forces of a competitive marketplace render such efforts and their impacts transient at best? Do firms, in fact, *Harvard Business School, e-mail: freinha
7、rdthbs.edu *John F. Kennedy School of Government, Harvard University, Resources for the Future, and National Bureau of Economic Research, e-mail: robert_stavinsharvard.edu This paper draws in part on Reinhardt et al. (2008), and has benefited from reviews by Michael Barnett, Robert Ritz, and the edi
8、tors. Any remaining errors are our own. doi: 10.1093/oxrep/grq008 The Authors 2010. Published by Oxford University Press. For permissions please e-mail: journals.permissionsoxfordjournals.org. Oxford Review of Economic Policy, Volume 26, Number 2, 2010, pp.164181 at Zhejiang University on February 2
9、2, 2011oxrep.oxfordjournals.orgDownloaded from frequently or at least sometimes behave this way, reducing their earnings by voluntarily engaging in environmental stewardship? And finally, should firms carry out such profit- sacrificing activities (i.e. is this an efficient use of social resources)?
10、We address these questions1through the lens of economics, including insights from legal and business scholarship, and focusing our empirical analysis on the case of the United States. One of the challenges of examining the concept of CSR is simply identifying a consistent and sensible definition fro
11、m among the wide range of definitions that have been proposed.2 We adopt a simple definition originally offered by Elhauge (2005)sacrificing profits in the social interest. This definition is consistent with useful prior perspectives (Graff Zivin and Small, 2005; Portney, 2005; Reinhardt, 2005), and
12、 enables us to focus the discussion on some key normative and positive questions.3 Questions regarding sacrificing profits in the social interest apply beyond the environ- mental sphere, and the academic debate over the legality of sacrificing profits in the public interest appears to have begun in
13、1932 with opposing articles (Dodd, 1932; Berle, 1932) in a Harvard Law Review symposium on For Whom Are Corporate Managers Trustees?. The debate in economics began more recently, with Milton Friedmans 1970 article, The Social Responsibility of Business Is to Increase Its Profits, in the New York Tim
14、es Magazine. Since then, the debate has continued, and CSR continues to receive much attention from both scholars and the public, especially in the environmental protec- tion area. We begin by examining whether firms may sacrifice profits to benefit individuals other than their shareholders, and the
15、n look at the legality of CSR in the United States and other countries. Next, we identify circumstances under which firms can sacrifice profits without being punished by market forces. We then turn to positive questions about whether firms actually do engage in CSR, asking whether some firms truly e
16、xceed full compliance with the law and, if so, whether their socially responsible actions actually sacrifice profits. To address our fourth question, should firmsfrom a societal perspectivebe carrying out such activities, we examine CSR in a normative light. The final section summarizes our findings
17、 and offers some conclusions. II.May they? Despite the view held by many economists and business scholars that corporations have a simple and strict fiduciary duty to maximize profits for shareholders, the legal basis of this view is surprisingly weak. Although the judicial record supports a duty to
18、 maximize profits for shareholders, it leaves room for the possibility that firms may sacrifice profits in the public interest. This is principally because courts give considerable deference to the judge- ment of business people under the so-called, business judgement rule. 1 These four questions we
19、re originally identified by Hay et al. (2005). 2 More broadly, see reviews by Wood and Jones (1996) and Mohr et al. (2001). Lyon and Maxwell (2008) and Portney (2008) discuss CSR from theoretical and empirical perspectives, respectively. 3 Although we adopt our CSR definition of sacrificing profits
20、in the social interest for the reasons indicated above, we also acknowledge that a wide range of alternative definitions have been used by others. See, for example, Barnett (2007). Corporate social responsibility, business strategy, and the environment165 at Zhejiang University on February 22, 2011o
21、xrep.oxfordjournals.orgDownloaded from (i)The corporation The most widely accepted position on the legal purpose of the corporationknown as shareholder primacy (Springer, 1999; Ehrlich, 2005; Fisch, 2006)was articulated by Mil- ton Friedman in 1970: In a free-enterprise, private-property system, a c
22、orporate executive is an employee of the owners of the business. He has direct responsibility to his employers. That respon- sibility is to conduct the business in accordance with their desires, which generally will be to make as much money as possible while conforming to the basic rules of the soci
23、ety, both those embodied in law and those embodied in ethical custom. (Friedman, 1970) A more subtle version of the shareholder primacy argumentthe nexus of contracts approach (Jensen and Meckling, 1976; Easterbrook and Fischel, 1991)views the cor- poration as a nexus of legal contracts between the
24、suppliers of various factors of production, who agree to cooperate in order to generate monetary returns. These agree- ments specify that, in exchange for their contributions, the owners of most factors of productionlabour, land, intellectual property rights, etc.will receive set payments with littl
25、e risk. Shareholdersthe suppliers of capitalaccept the residual financial risk of doing business, and in return receive the residual profits. Since shareholders have no contractual guarantee of a fixed payment from the firms activities, any profits that are diverted towards other activities, such as
26、 pursuit of the social good, come directly out of their pockets (Butler and McChesney, 1999). Thus, from this perspective, CSR is close to theft. A second view of the role of the corporation is found in the team-production model (Holmstrm, 1982; Tirole, 1988; Blair and Stout, 1999), which views the
27、corporation as the solution to the moral-hazard problem that arises when the owners of factors of production must make firm-specific investments, but fear they will not be rewarded ex post. To solve this problem, the board of directors of the corporation functions as a neutral mediating hierarch tha
28、t allocates residual profits to all of the factors of production (team members) according to their relative contributions. Under this model, sacrificing profits in the social interest is legal, as long as the profits are allocated to a deserving factor of production. A third view of the purpose of t
29、he corporation is the operational discretion model, which holds that the law grants corporate managers discretion to comply with social and moral norms, even if doing so reduces shareholder profits (Elhauge, 2005). The judiciarys unwill- ingness to second-guess matters of business judgement has the
30、practical effect of shielding managers who choose to sacrifice profits in the public interest. A fourth and final position is the progressive view that the corporation is organized for the benefit of society at large or, at the very least, corporate directors have fidu- ciary responsibilities that e
31、xtend to a wide variety of stakeholders (Sheehy, 2005; Gabaldon, 2006). Under this view, sacrificing profits in the public interest is entirely legal. The progressive view, however, is not well rooted in either statutes or case law (Clark, 1986). 166Forest L. Reinhardt and Robert N. Stavins at Zheji
32、ang University on February 22, 2011oxrep.oxfordjournals.orgDownloaded from (ii)The legality of CSR In the United States, a variety of legal requirements define the responsibilities of the cor- poration (and its board of directors) to shareholders and other stakeholders. However, as discussed below,
33、these requirements are limited in practice. Although corporations in the United States are granted the legal fiction of separate cor- porate personality, a corporations decisions are made by its board of directors, or by executives who have been delegated decision-making authority (Clark, 1986). To
34、ensure that directors and managers do not act negligently or subvert corporate resources for their own benefit, the legal system imposes fiduciary duties of care and loyalty. The duty of loyalty requires directors to act in good faith and in the best interests of the corporation (Scalise, 2005), and
35、 places limitations on the motives, purposes, and goals that can legitimately influence directors decisions (Cox and Hazen, 2003). The duty of care complements the duty of loyalty by requiring managers to exercise that degree of skill, dili- gence, and care that a reasonably prudent person would exe
36、rcise in similar circumstances (Clark, 1986, p. 123). Violation of fiduciary duties can result in personal liability for direc- tors (Scalise, 2005). The prevailing opinion is that fiduciary duties are owed to shareholders (Blomquist, 2006), but a minority supports the view that corporations can be
37、managed in part for the benefit of other stakeholders (Lee, 2005). State corporate statutes grant corporations legal powers similar to those of people, and allow corporations to participate in lawful activities (Clark, 1986). As a result, corpora- tions presumably have the power (but not necessarily
38、 the right) to undertake CSR activities (Donohue, 2005). Corporations can write their own corporate charters explicitly to authorize themselves to participate in CSR. These statutory requirements and judicial precedents place limits on the actions of cor- porations and their boards. But an important
39、 judicial constructthe business judgement rulecreates substantial deference to firms managerial decisions. The business judgement rule acts as a presumption in favor of corporate managers ac- tions (Branson, 2002). It requires courts to defer to the judgement of corporate managers, as long as their
40、decisions satisfy certain basic requirements related to negligence and conflict of interest. The basic premise is that since corporate managers are far more skilled at making business judgements than courts, allowing courts to second-guess managers decisions would create potentially large transactio
41、ns costs (Elhauge, 2005). The business judgement rule makes fiduciary duties difficult to enforce, and it effectively grants managers discretion to temper business decision making with their perceptions of social values (Clark, 1986; Blair and Stout, 1999; Scalise, 2005; Fisch, 2006).4As a prac- tic
42、al matter, as long as managers can plausibly claim that their actions are in the long-run interests of the firm, it is almost impossible for shareholders to challenge the actions of managers who act in the public interest. Corporate managersdecisions can be regarded as irrationaland thus not protect
43、ed by the business judgement ruleonly if they go so far beyond the bounds of reasonable busi- ness judgment that their only explanation is bad faith (Blomquist, 2006, p. 699). In an extreme example, a Delaware court ruled that the business judgement rule protected the 4 For example, Clark cites the
44、1968 case of Shlensky v. Wrigley, in which the Illinois Court of Appeals allowed William Wrigley, Jr, the president and majority shareholder of the Chicago Cubs Major League Baseball team, to refuse to install lights at Wrigley Field because of his belief that night games would be bad for the surrou
45、nding neighbourhood (1986). Corporate social responsibility, business strategy, and the environment167 at Zhejiang University on February 22, 2011oxrep.oxfordjournals.orgDownloaded from 1989 decision by Occidental Petroleum to spend $120m, slightly less than half of the com- panys yearly net profit,
46、 on an art museum named after its 91-year-old CEO, Armand Hammer (Donohue, 2005). So, are firms in the United States prohibited from sacrificing profits in the public interest? And, if so, is the prohibition enforceable? The answers to these two questions appear to be maybe and no, respectively. Whi
47、le case law falls short of unequivocally mandating shareholder wealth maximization, it also falls short of unambiguously authorizing the pur- suit of non-shareholder interests other than instrumentally for the benefit of the shareholders (Lee, 2006, p. 557). And as long as managers claim some plausi
48、ble connection to future profitability, the business judgement rule grants them substantial leeway to commit corporate resources to projects that benefit the public. Assuming that the law allows some scope for managerial activity that may sacrifice profits, the question remains whether firms can do
49、so in view of competitive pressures in the markets for their outputs and inputs. It is to this question that we now turn. III.Can they? Just because the legal system may allow firms to sacrifice profits in the public interest does not mean that firms can do so on a sustainable basis in the face of competitive pressures. In a world of perfect competition, with no scale economies and no opportunities to differentiate products, firms could not voluntarily engage in CSR on a sustainable basis, even if the legal system perm