Academic journal article IUP Journal of Corporate Governance

The Role of CSR in the Governance of the 'New Firm': An Empirical Study of the French Telecommunications Industry

Academic journal article IUP Journal of Corporate Governance

The Role of CSR in the Governance of the 'New Firm': An Empirical Study of the French Telecommunications Industry

Article excerpt

Introduction

The 'new firm'-vertically disintegrated and intensive in human capital-has dominated the industrial landscape since the beginning of the 1990s (Rajan and Zingales, 2000). The last 15 years have therefore been marked by the development of outsourcing, the increasing use of subcontracting and the concentration of firms on their core business (Langlois, 2003). Under these conditions, cooperative relations between firms have increased due to the reorganization of production processes and in search for productive complementarities (Richardson, 1972; and Loasby, 1996). These industrial reorganizations, the result of recent financial revolutions (Rajan and Zingales, 2001a) and technological revolutions (Hobijn and Jovanovic, 2001), stimulate a race to innovation and quality, a race essentially conducted by specialized employees. This is because technological advances and increased opportunities for finance and investment have shifted intangible assets, notably human capital, towards the heart of firms' productive activity, to the detriment of physical assets, which are now easily reproducible (Appelbaum and Berg, 2000; and Zingales, 2000). The critical resources of interfirm relations are increasingly of an intangible nature, crystallizing in the human, social and organizational capital that cannot be subjected to contractible and enforceable rights of control (Asher et al., 2005). Thus, the role of the firm has expanded and consists in guaranteeing the specialization and complementarity of its critical human assets throughout the value chain (Gereffiet al., 2005). The economic coordination of all the assets decisive to the productive activity of the firm calls for a new analysis of the boundaries of the firm and a rethinking of the dominant approach to corporate governance (Zingales, 2000). While the importance of human capital constantly grows, power is slipping away from the senior executives who possess the residual rights of control, and getting dispersed among all the key partners of the firm, because of the key resources they constitute in the firm's productive transactions. That is why the traditional definition of corporate governance is no longer adequate: it cannot be reduced to the system where the ownership and control of public listed companies (Berle and Means, 1932) is based on a rationale of strengthening the rights of the residual claimants. Corporate governance is destined to concentrate on the efficient forms of mobilization of firm-specific human capital to optimize the growth opportunities of the firm (Rajan and Zingales, 2000). Thus, in our view, the study of corporate governance must be extended to include the regulation of the exercise of power over firm-specific human capital based on a rationale of both the distribution and the creation of value.

In this context, we examine the contribution of Corporate Social Responsibility (CSR) in the domain of corporate governance. More precisely, the aim of this paper is to propose an original view of CSR as an instrument of governance of firms whose productive activity is based primarily on their specific human capital. Long confined to the role of an 'extra bit of soul' for company managers concerned about ethics and morality, CSR, first defined by Bowen (1953), gradually developed in listed companies after the Rio Summit of 1992. Obliged to recognize their obligations in terms of the environment-Principle 16 of the Rio Declaration established the 'polluter pays' rule-and anxious to avoid restrictive regulations, companies voluntarily and collectively subscribed to this concept of CSR. But over the last decade, which has been marked by both the apparent failures of shareholder governance and the spread of CSR to all economic sectors (including those with little environmental impact), the objectives attributed to it have changed: less focused on the environment (Capron and Petit, 2011), they now include questions of governance, whether in terms of regulating the network of subcontractors or the appropriation of intangible assets, especially human capital. …

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