The Virtuous Corporation

Shlomit Azgad-Tromer is a Research Associate at the Center on Global Legal Transformation at Columbia Law School. This post is based on her forthcoming article.

Above and beyond their traditional financial roles, contemporary corporations are increasingly assuming a normative role, promoting social agendas. According to 2015 Sustainability reports, the normative outreach of contemporary S&P 500 corporations is growing with exuberance, notwithstanding their ultimate commitment to shareholder value. Social values are embedded in every corporate decision: Corporations have always generated norms within their organizational boundaries, from employment policies to business development. Yet the social agendas assumed by contemporary corporations are open, dynamic and diverse, stretching far beyond the corporate organizational boundaries and aiming to influence society as a whole. Among other social causes, American corporations now tackle chronic malnutrition and hunger, fight disease pandemics, mitigate gender inequality and promote human rights. The myriad normative roles assumed by the corporation, from profit-centered corporate goodness, to environmental and human rights corporate agendas and to corporate philanthropy, comprise an emerging corporate social identity. This article asks what induces corporations to pursue social agendas and provides an initial taxonomy for corporate social motivation, showing that the incentives to normative corporate conduct are often rooted in the business purpose itself. Incentive analysis for corporate social agendas may shed light on the promise and the peril of corporate social identities, to be further explored in future works.

The article provides empirical evidence for corporate social motivation, suggesting an initial taxonomy of incentives underlying corporate social agendas. Corporations are induced to normative social conduct by the strategic demand of their stakeholder constituencies, such as responsible investors, engaged employees, virtuous managers and conscious consumers. Management’s ideology and social values literature induce corporations to social conduct in compliance with management’s values, as agency costs or as idiosyncratic visions. Impact and responsible investors demand social performance and create incentives for normative corporate conduct. Employees are better engaged, easier to recruit and have lower turnover and higher productivity when working for normative corporate employers. Normative corporate conduct may also increase revenue, as consumers are more loyal to virtuous brands. Finally, corporations may engage in corporate virtue as a political strategy, in order to avoid regulation by signaling compliance with social norms or as a manipulation aimed at achieving a desired regulatory result.

Central policy challenges to the emergence of corporate social identities are discussed. Contemporary corporations have become norm-generating agents, creating non-binding rules for social activity and normative impact. The corporation’s norm-generating role is a decentered process, where stakeholders participate in a dynamic and systemic integration of values into a voluntary, self-determined corporate social identity. The resulting reflexive network of corporate social identities is proliferated by soft global standardization, setting normative and reporting guidelines for corporate social conduct such as the Global Reporting Initiative (GRI), SASB, the UN Global Conduct Principles, the OECD Guidelines for Multinational Enterprises and ISO 26000. The rise of corporate social motivation suggests a shift from substantive corporate law towards a decentered and reflexive network of diverse corporate social identities, governed by soft global standardization.

The normative quest makes corporate performance vague and subject to manipulation. Law can be specific, whereas morality is ultimately vague, leaving room for self-interested interpretation. The rise of corporate social identities is thus the rise of Corporate Legal Particularism, a self-contained legal order that serves particular interests. Corporate social identities do not necessarily align with social normative preferences. As demonstrated by the CSR-Tax straddle, social norms and corporate social identities may serve as normative substitutes. The rise of corporate social identities may thus pose a challenge to the democratic ideal.

The full article is available here.

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