Barkemeyer, Legitimacy As A Key Driver and Determinant of CSR in Developing Countries
Barkemeyer, Legitimacy As A Key Driver and Determinant of CSR in Developing Countries
Barkemeyer, Legitimacy As A Key Driver and Determinant of CSR in Developing Countries
in Developing Countries
Paper for the 2007 Marie Curie Summer School on Earth System Governance,
28 May – 06 June 2007, Amsterdam
Ralf Barkemeyer
University of St Andrews &
Sustainable Development Research Centre (SDRC)
School of Management
The Gateway, North Haugh
St Andrews
Fife, KY16 9SS
Scotland, UK
Abstract
This paper aims to specify the conceptual limits of CSR in a developing country
context. Taking organisational legitimacy theory as a departure-point, it is argued
that two key shortcomings regarding the contribution of CSR towards
development can be identified: First, a multinational company operating in a
remote country mainly seeks to gain legitimacy from its primary stakeholders
which are typically based in its home market (e.g. customers, media), leading to
a bias towards short-term projects with a high visibility rather than longer-term
capacity-building initiatives. Second, differing perceptions of legitimacy in the
home and the host country can lead to a misjudgement of which kind of initiative
would be deemed appropriate in the host country and, subsequently, a
misallocation of resources occurs. Implications are presented regarding (a) the
strategic alignment of a corporation’s engagement in CSR as well as (b) the
conceptual limits of CSR in contributing towards (ecological) sustainability.
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Legitimacy as a Key Driver and Determinant of CSR in Developing Countries
1 Introduction
Business has positioned itself as a key player on the international development
agenda. Despite mixed assumptions about the actual developmental impact of
private inflows into developing countries, it can be ascertained that the private
sector today has an unprecedented potential to contribute towards some of the
most pressing developmental needs. Although in actual terms, the rise of foreign
direct investment (FDI) into developing countries seems rather modest compared
to the respective financial flows among the so-called triad of North America, the
European Union and Japan (see e.g. Matten, 2000; Rugman, 2000), its relative
importance has risen dramatically: the share of FDI of total capital flows into
developing countries has risen from 30% to 82% between 1980 and 2002
(UNCTAD, 2004; UNED Forum, 2001), at the same time dwarfing official
development assistance which has declined in absolute figures in this period.
Both in the advanced economies and developing countries, a shift can be
observed towards the privatisation of formerly public goods and services (see
e.g. Weizsäcker, Young, Finger, & Beisheim, 2005). This shift is further
documented by the global dissemination of a multitude of new approaches such
as the Global Reporting Initiative (GRI), the UN Global Compact, the global
increase in the application of ISO14000, SA8000, AA1000, and other
environmental and social management systems, as well as the plethora of
corporate codes of conduct (for an overview see e.g. Leipziger, 2003).
Along these lines, public perception towards the role of business in society has
changed rapidly and markedly. Rather than seeing business as part of the
problem, it is increasingly seen as part of the solution (for a detailed account see
e.g. Pattberg, 2006, 11pp.). Accordingly, the development agenda has shifted
from the question how business causes poverty, to portraying the private sector
as part of the solution (see e.g. Prieto-Carron, Lund-Thomsen, Chan, Muro, &
Bhushan, 2006). This can be illustrated by the UN Global Compact and its direct
link to the UN Millennium Development Goals:
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Legitimacy as a Key Driver and Determinant of CSR in Developing Countries
“The Compact’s relevance will lie in the decision participants make to either build
a sustainable society that offers opportunity to the world’s citizens or to condemn
millions of people to live riven with conflict, ravaged by disease and bereft by
hope. Right now, global players have a choice” (Kell, 2003: 47).
One key question regarding this statement by Georg Kell, the Executive Head of
the Global Compact office, will be whether businesses actually do have a free
choice – or whether their CSR activities are rather shaped by their institutional
settings as well as structural factors within these organisations. Recently, a
growing number of researchers have questioned the adequacy of current
mainstream CSR approaches to produce substantial outcomes in terms of
improved sustainability in a developing country context (see e.g. Blowfield &
Frynas, 2005; Fox, 2004; Newell, 2006; Prieto-Carron et al., 2006; Utting, 2003).
This paper aims to contribute towards a better understanding of the impact of the
current mainstream CSR agenda from a developing country perspective. The
analysis will be based on the diverse body of organisational legitimacy theory. In
the next section of the paper, a brief introduction to CSR and development is
provided. Subsequently, CSR in a developing country context is examined
through the lens of organisational legitimacy. The analysis is informed by the
strategic and the institutional arrays of organisational legitimacy theory. Based on
the analysis, hypotheses are formulated regarding the impact of organisational
legitimacy on CSR in a developing country context. The paper concludes with a
brief summary as well as some key implications derived from the analysis.
4
1). CSR is not an entirely new concept in most parts of the world. Albeit often
termed differently, there have been similar approaches towards business
responsibility in many different countries (Blowfield et al., 2005; Prieto-Carron et
al., 2006); (for an illustration of the evolution of CSR in the Indian context see e.g.
Mohan, 2001). However, the current dissemination of CSR instruments is
somewhat different in that it stems from the Anglo-American tradition, highlighting
the voluntary nature of CSR as well as focusing especially on Northern
multinational companies (MNCs) (see e.g. Fox, 2004). In doing so, it follows the
trend of a diffusion process of policy instruments from North to South and
therefore of a global convergence of policy structures (on the diffusion of
environmental policy innovations see e.g. Jänicke, Kern, & Jörgens, 2000; Tews,
Busch, & Jörgens, 2003; Weidner & Jänicke, 2002).
As pointed out above, the dramatic rise in importance of CSR from a developing
country perspective is based on both the multitude of new large-scale CSR
approaches, as well as the new role that has been assigned to the private sector
vis-à-vis official development assistance. “Doing well by doing good” has gained
a large and growing number of advocates. A plethora of best practice examples
of CSR in developing country contexts has evolved, to a large extent highlighting
the “business case of CSR”. Several studies highlight the economic potential for
MNCs tapping into developing country markets (see e.g. Kirchgeorg & Winn,
2006; Prahalad, 2005; Thorpe & Prakash-Mani, 2003; World Business Council on
Sustainable Development, 2004). Regardless of the question whether these new
CSR initiatives are effectively producing viable outcomes in terms of
(sustainable) development, CSR has proven to be an attractive option vis-à-vis
regulative approaches: (a) business can increase its regulatory autonomy; (b)
host governments can devolve responsibility to business and therefore save
scarce resources; and (c) non-governmental organisations can raise their profile
and funding opportunities (see e.g. Michael, 2003).
One tangible result that has certainly been achieved by the current CSR
“movement” is that it “has got people talking about worker rights, global
governance, sustainable enterprise and all manner of topics that have relevance
Legitimacy as a Key Driver and Determinant of CSR in Developing Countries
to the well-being of the poor and marginalized” (Blowfield, 2005b: 515). However,
one central theme regarding Corporate Social Responsibility in a developing
country context is that current practice is outpacing research on the broader
implications of this increased reliance on business self-regulation. As a
consequence, the CSR and development agenda is shaped and consolidated
while failing to address a number of substantial shortcomings of the concept itself
(see e.g. Blowfield, 2005b; Blowfield et al., 2005; Prieto-Carron et al., 2006). In
his analysis of the relationship between companies and poorer local
communities, Newell concludes that “mainstream CSR approaches assume a set
of conditions that do not exist in most of the world. CSR can work, for some
people, in some places, on some issues, some of the time” (2005: 556).
Critical issues that have been raised regarding the current mainstream practice of
CSR and development are e.g. (a) the predominance of the “CSR business
case”, leading to an overemphasis on corporate reputation and a detraction from
the actual problems that should be addressed by CSR (e.g. Frynas, 2005; Klein
& Harford, 2005; Utting, 2005); (b) the pivotal role of the stakeholder concept,
leading to a bias towards a company’s primary stakeholders (see Note 2) (e.g.
Blowfield, 2005a; Pedersen, 2006; Prieto-Carron et al., 2006); (c) the inadequacy
of the CSR agenda, reflecting a “Northern” understanding of CSR while at the
same time neglecting developmental issues (e.g. Fox, 2004; Fox, Ward, &
Howard, 2002; Utting, 2001; Ward, 2004; Ward & Fox, 2002); and (d) the
governance dimension of CSR, pointing to an enabling environment which would
be essential for effective self-regulation, and the crowding out of alternative
(regulatory) policy instruments (e.g. Fox, 2004; Ite, 2004; Newell, 2006; Utting,
2002).
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Legitimacy as a Key Driver and Determinant of CSR in Developing Countries
7
Legitimacy as a Key Driver and Determinant of CSR in Developing Countries
8
Legitimacy as a Key Driver and Determinant of CSR in Developing Countries
As pointed out above, key features of the current CSR approaches are their
voluntary nature as well as the focus on Northern multinational companies (see
e.g. Fox, 2004). Consequently, a Northern MNC conducting a CSR initiative
abroad – either through a subsidiary or in the form of a supply chain relationship
– can be confronted with a discrepancy in the judgement over the nature of
legitimacy in its home country and the local host environments it operates in.
9
Legitimacy as a Key Driver and Determinant of CSR in Developing Countries
70%
60%
50%
40%
30%
20%
10%
0%
Bangladesh China (2001) Spain (2000) Great Britain
(2002) (1999)
Figure 1: Perceptions of Human Rights Situation in selected Countries (based on WVS, 2006)
10
Legitimacy as a Key Driver and Determinant of CSR in Developing Countries
A similar example refers to the trade-off between different values, which might be
judged differently in different societies. Blowfield & Frynas refer to a survey
carried out by the World Business Council for Sustainable Development
(WBCSD), asking respondents from different countries what CSR meant to them:
it turned out that there were considerable differences between e.g. Thai and
Ghanaian respondents, stressing environmental issues or community
empowerment respectively (Blowfield et al., 2005; World Business Council on
Sustainable Development, 2000). The above mentioned discrepancy between a
“Northern” industrialised country agenda and its “Southern” developing country
counterparts in terms of the priorities within sustainable development also points
towards an inherent discrepancy in the respective norms and values.
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Legitimacy as a Key Driver and Determinant of CSR in Developing Countries
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Legitimacy as a Key Driver and Determinant of CSR in Developing Countries
13
Legitimacy as a Key Driver and Determinant of CSR in Developing Countries
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Legitimacy as a Key Driver and Determinant of CSR in Developing Countries
4 Conclusions
The purpose of this article is not to reject the current mainstream CSR and
development agenda as a whole – there are clearly both a multitude of highly
excellent initiatives as well as CSR activities that are failing miserably. The
purpose is rather to tackle the question of what the current CSR agenda can
realistically achieve. There is clearly a need to gain a better understanding of
CSR in a developing country context in order to create a better fit with other
instruments.
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Legitimacy as a Key Driver and Determinant of CSR in Developing Countries
A number of implications both on the company and policy level can be derived
from the above analysis. From a company perspective, CSR initiatives that do
not match the local understanding of legitimacy can lead to failure and therefore
result in a misallocation of resources. If an action is not perceived as relevant
locally, it will be likely that the aimed-for goals will go beyond a company’s
capacity. As a result, even those “self-enlightened” companies who are pursuing
a proactive approach to CSR can face situations in which a misallocation of
(CSR) resources occurs through a different preconscious institutionalisation in
home and host country. As a consequence, regarding CSR programmes or
initiatives planned by Northern corporations but carried out in a remote country,
we can subsequently follow organisational legitimacy theory in that we have to
“recognize how local subsidiaries of MNEs come to reflect values, norms, and
locally accepted practices” of the societies in which they operate (Rosenzweig et
al., 1991: 345; Westney, 1989: 12). Feedback loops and more decentralised CSR
structures can be vital for a CSR initiative, in order to gain a better understanding
of the actual impact and local perceptions of the initiative.
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Legitimacy as a Key Driver and Determinant of CSR in Developing Countries
large businesses in development to correct for local lack of capacity may well
further weaken local authorities – and subsequently lead to a further erosion of
framework conditions that would in turn enable the functioning of voluntary CSR
approaches. In this regard, it also has to be questioned whether the current CSR
agenda leads to a crowding out of potentially more effective regulatory
approaches.
Note 1. An overview of CSR definitions is provided by e.g. Carroll (1999) or Moir (2001). For the
purpose of this article, the current mainstream initiatives, such as the UN Global
Compact, SA8000, the Fair Labour Association (FLA), the Global Reporting Guidelines
(GRI), ISO14001, or the multitude of codes of conduct, serve as a proxy for CSR. Instead
of defining a target state of corporate responsibility, the focus is on understanding the
contemporary mainstream CSR regime that is already in place today.
Note 2. Clarkson’s distinction between primary and secondary stakeholders is followed in that
primary stakeholders are “those without whose continuing participation the corporation
cannot survive”, whereas secondary stakeholders are “those who influence or affect, or
are influenced or affected by, the corporation (…) but are not essential for its survival)”
(Clarkson, 1995: 106-107).
Note 3. Legitimacy theory has played a considerable role in work on corporate social and
environmental disclosure (see e.g. Deegan et al., 2002; Gray et al., 1995; Patten, 1992;
Woodward et al., 1996). However, all of these approaches mainly follow the strategic
tradition, focusing on how an organisation manages its legitimacy vis-à-vis its
stakeholders.
Note 4. The World Values Survey is a large-scale survey of human values covering respondents
from more than 80 societies. It focuses on sociocultural and political change (see
http://www.worldvaluessurvey.org).
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Legitimacy as a Key Driver and Determinant of CSR in Developing Countries
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