We are delighted to welcome this guest post from Dr. Ciara Hackett who is a lecturer at the School of Law at NUI Galway. Ciara completed a PhD at Queen’s University Belfast in 2009 entitled: “Dependent States, Global Capital and the Capacity to Regulate: Why can’t small open economies like Ireland have robust CSR”.
Corporate Social Responsibility (CSR) as a concept, has been subject to much academic, and indeed judicial, debate since the beginning of the 20th Century. Closely linked with the stakeholder theory of governance, CSR at its most basic is concerned with corporations taking responsibility for their actions and the consequences of said actions, both within the industry as well as its impact on society (and the environment). If corporations fail to act responsibly, governments, along with other agenices, and stakeholders are supposed to hold said corporations accountable.
Initially, corporations simply owed a duty to their shareholders and indeed it was held in the 1919 Henry Ford case that business should not extend its duty to employees and consumers etc. This jurisdiction had already come to a similar conclusion with the Hutton Railway case (see here) and in particular Lord Bowen’s LJ judgment where he postulated that “charity does not sit at the boardroom table” and “[t]he law does not say that there are to be no cakes and ale, but there are to be no cakes and ale except such as are required for the benefit of the company.” Although shareholder primacy enjoys some popularity amongst academics such as Friedman (see here), the transition is slowly being made toward a more stakeholder orientated model of governance.
In advancing the stakeholder debate, defining groups of stakeholders has become traditional practice amongst business and academia. Whereas previously stakeholders were defined as; employees, consumers and shareholders, as the literature and understanding of the area has evolved, so too has the interpretation of what constitutes a stakeholder. With recent legislation in the UK in particular suggesting that directors need to consider the impact of corporate actions on the wider community (seehere) the case for engaging with those outside the corporation is becoming stronger. Whereas it does not quite go so far as to legislate on the area of CSR; by encouraging director’s to consider impact on society the indication would be that there is a culture of acceptance toward a deeper engagement between government, business and society.
In considering the needs of society, it is important that boards of directors are not only aware, but are actively seeking to gauge a deeper understanding of the various groups that comprise “society”. This can be done most effectively by advancing board diversity initiatives. A major issue in corporate governance in recent times, and indeed the focus of many not for profits engaged with shareholder activism, the issue still needs to be broadened substantially. Currently grounded in issues of sex and race, increasing diversity on boards of individuals experiencing a disability, needs to be more actively advanced and reported on. Although companies appear to be engaging more with the community as stakeholders, this is still too broad a group, given the intracies of society today. Within the stakeholder group known as “society” or “community”, there are a number of sub-groups; women, different races, persons with disabilities etc. It is not enough for companies simply to view society as one of the groups of stakeholders whose needs they must take into consideration. Rather, they must seek to incorporate all aspects of society into responsibility provisions if an enhanced commitment between business, government and society it to be reached.
CSR via stakeholder initiatives has expanded and formalised since the cakes and ale of the 19th century. Now established as a viable aspect of business practice, it is up to corporations, policy makers and activists to ensure that the definitional constructs of the paradigm are sufficiently broadened to recognise the diverse and evolving community on local, regional, national and international levels. Until this is achieved and diversity on boards is broadened, sections of society, such as persons with disabilities, are to a large extent disenfranchised from the corporate structure. With great power comes great responsibility. Unfortunately, true responsibility cannot be achieved until corporations recognise the vast array of stakeholders for which they are responsible and to which they are accountable.