The Responsibility Paradox!

By Davis, Gerald F.; Whitman, Marina V. N. et al. | Stanford Social Innovation Review, Winter 2008 | Go to article overview

The Responsibility Paradox!


Davis, Gerald F., Whitman, Marina V. N., Zald, Mayer N., Stanford Social Innovation Review


WITH OPERATIONS SCATTERED AROUND THE GLOBE, THE MODERN CORPORATION IS A DIFFERENT ANIMAL FROM ITS PREDECESSORS. YET THE NOTION OF CORPORATE SOCIAL RESPONSIBILITY (CSR) HAS NOT CHANGED MUCH OVER THE YEARS. AS A RESULT, JUST AS STAKEHOLDERS ARE HOLDING CORPORATIONS MORE RESPONSIBLE FOR THEIR ACTIONS, CORPORATIONS UNDERSTAND THEIR RESPONSIBILITIES TO STAKEHOLDERS EVEN LESS. TO RESOLVE THIS PARADOX, FIRMS MUST UPDATE THEIR CSR PRACTICES. THE AUTHORS PREDICT THAT THE EUROPEAN UNION WILL SET THE TOME FOP PRODUCT AND ENVIRONMENTAL REGULATIONS, THE LIMITED STATES WILL LEAD ON GOVERNANCE GUIDELINES, AND INTERNATIONAL NGOS WILL DRIVE HUMAM RIGHTS AND LABOR LAWS.

IN EARLY 2007, THOUSANDS OF CATS AND DOGS IN North America fell ill with kidney ailments. Many of the pets had dined chez Menu Foods Inc., a company in Ontario, Canada, that manufactures pet foods for more than 100 brands, including Procter & Gamble, lams, Colgate-Palmolive's Science Diet, and Wal-Mart's Ol' Roy. By mid-April, investigators had traced the animals' illnesses to melamine, an industrial chemical that tainted a few of Menu Foods' raw ingredients. They then followed the thread to two suppliers in China, which had spiked the ingredients to cut costs and boost profits.

So where should the public point its finger? Procter 8C Gamble, Colgate-Palmolive, Wal-Mart, and the many other corporations that own the pet food brands? Menu Foods, which mixed the kibble? The Chinese manufacturers, which adulterated the ingredients? The U.S. Food and Drug Administration, which failed to detect anything amiss? The stores that didn't remove the foods from the shelves, even after Menu Foods recalled them?

Traditional notions of corporate social responsibility say that companies are beholden to the communities in which they are located. But globalization has made it difficult to discern exacdy which communities to include. With far-flung value chains, decentralized governance, and churning employees, multinational corporations have become what British journalist Martin Wolf calls "roodess cosmopolitans."

Before it went private in 2006, for example, Tommy Hilfiger had its corporate headquarters in Hong Kong, its legal incorporation in the British Virgin Islands, its shares on the New York Stock Exchange, its annual meeting in Bermuda, and most of its manufacturing in Mexico and Asia.1 Likewise, Royal Caribbean International has its headquarters in Miami; registers its ships in the Bahamas, Malta, and Ecuador; and is legally incorporated in Liberia, where it is subject to neither Liberian nor U.S. income taxes. The Liberian corporate registry, in turn, is a business housed in a nondescript office park near Washington Dulles International Airport in suburban Virginia.

What does Tommy Hilfiger owe to Hong Kong, Bermuda, New York and Mexico - not to mention to the coundess malls where its goods are sold? What are Royal Caribbean's responsibilities to Liberia, which few of its executives could locate on a map?

Although firms have changed drastically with globalization, their understandings of corporate social responsibility have not kept pace. This presents corporations with a paradox: At a time when more stakeholders than ever are calling them to account, firms have but a foggy notion of what, exacdy their obligations are.

We propose an updated notion of corporate social responsibility -global corporate social responsibility - that reflects the fact that people hold firms responsible for actions far beyond their boundaries, including the actions of suppliers, distributors, alliance partners, and even sovereign nations. Our research suggests that the standards for global CSR will be just as international as corporations themselves: the European Union will set the tone for product and environmental standards, the United States will largely shape governance guidelines, and international nongovernmental organizations (NGOs) will drive human rights and labor rules.

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