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Regulation of Corporate Social Responsibility Through the Lens of Board Accountability and the Case of China

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Globalisation of Corporate Social Responsibility and its Impact on Corporate Governance

Abstract

Corporate social responsibility (CSR), as a major contemporary focus for companies, governments, NGOs and communities, has been discussed from a multi-disciplinary perspective, including the disciplines of philosophy, business management, law, politics, sociology and economics, as well as pragmatically by businessmen and politically by public representatives. The term, introduced and defined to achieve a combination of economic, social, environmental and philanthropic goals, has increasingly become a mainstream business activity and has been taken seriously by government, corporations and boards of directors. It is a term that organises and accommodates corporations’ focus beyond profit maximisation towards participation in activities that improve various stakeholders’ welfare, and is typically regarded as a voluntary mechanism or self-regulatory system to achieve sustainable corporate goals. It has been suggested that CSR goes beyond government regulation, which sets minimum standards, and philanthropy, which lacks mechanisms for long-term sustainability. Laws and policies have been increasingly reinforced by market indices that recognise and measure company performance according to social and environmental criteria.

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Notes

  1. 1.

    Elbing (1970), Jamali and Mirshak (2007), Vallentin (2012), O’Rourke (2003), Besley and Ghatak (2007), McBarnet et al. (2007), Padfield (2015), and Avi-Yonah (2014).

  2. 2.

    Kizmueller and Shimshack (2012).

  3. 3.

    Clapp and Utting (2008), p. 1.

  4. 4.

    Clarke (2016a), p. 532.

  5. 5.

    See Greer and Bruno (1996) and Utting (2002).

  6. 6.

    Zhao (2017), Hansmann (1990), Turnbull (1994), and Edmans et al. (2014).

  7. 7.

    Servaes and Tamayo (2013).

  8. 8.

    Zhao and Wen (2014), Zhao and Tribe (2010), and Anderson (2007).

  9. 9.

    Dowell et al. (2000) and Husted et al. (2016).

  10. 10.

    Mueller et al. (2009) and Carter and Easton (2011).

  11. 11.

    Based on the current literature, the notion of CSA has been closely associated with information disclosure; for example, Owoeye (2015), Watts (2015), Gilbert and Rasche (2007), and Gray et al. (1996).

  12. 12.

    Keay and Zhao (2006).

  13. 13.

    For a useful and comparative analysis of CSR in developing countries see Jamali and Karam (2016).

  14. 14.

    Zadek et al. (2012), p. 4.

  15. 15.

    Zhao (2017).

  16. 16.

    Tan (2013).

  17. 17.

    Gariga and Mele (2004), p. 51.

  18. 18.

    Mitchell (2007), p. 280.

  19. 19.

    Genasci and Pray (2008), p. 41.

  20. 20.

    See Levitt (1958).

  21. 21.

    Friedman (1970).

  22. 22.

    However, from the opposite perspective, scholars argue that CSR has been concerned with suggesting that those companies who promote the interests of society will tend to be financially successful, especially in the long term; see Orlitzky (2008), p. 113; see also Urip (2010), chapter 1. The mantra of business has evolved from ‘profit alone’ to ‘profit, people, and planet’, to include social and cultural issues, and environmental issues.

  23. 23.

    Genasci and Pray (2008), p. 41.

  24. 24.

    Drumwright (2014), pp. 91–92.

  25. 25.

    Moon (1995) and Porter and Kramer (2006).

  26. 26.

    Zerk (2006), p. 33. The European Commission initially proposed the voluntary character of CSR in its 2001 Green Paper, stating that corporations will be keen to develop their strategic management policy and collectively to raise the bar for industry in general, instead of being regulated. See European Commission (2001).

  27. 27.

    See Vogel (2005) and Carroll and Shabana (2010).

  28. 28.

    Hopkins (2003).

  29. 29.

    Kerr et al. (2009), p. 535.

  30. 30.

    Such as Chinese Company Law 2005, Art. 5 which states that ‘a company must, when engaging in business activities, abide by the laws and administrative regulations, observe social morals and business ethics, be in integrity and good faith, accept regulation of the government and the public, and undertake social responsibilities’.; Sect. 135 Indian Companies Act 2013; Sect. 50 L (1) Mauritian Income Tax Act 1995; and in similar but more detailed terms such as ‘Social and Environmental Responsibility’ in Art. 74, the Law of Republic of Indonesia No. 40 2007 concerning Limited Liability Company.

  31. 31.

    Selznick (2002), p. 102.

  32. 32.

    Bendell (2004), p. 30.

  33. 33.

    Kerr et al. (2009), pp. 503–510.

  34. 34.

    See Bakker and Richardson (2013), p. 51.

  35. 35.

    Gunningham (2007), p. 476; Babiak and Trendafilova (2011); Morgera (2012); Sjåfjell and Anker-Sørensen (2013), p. 5.

  36. 36.

    Buhmann (2016), pp. 701–702.

  37. 37.

    Sect. 135 (5) Indian Companies Act 2013 states that ‘the Board shall, in its report …, specify the reasons for not spending the amount’ that the company is expected to spend towards CSR activities as prescribed under this legislative provision.

  38. 38.

    Zhao (2017), pp. 130–131; see also Bhaduri and Selarka (2016). The effectiveness of the ‘comply or explain’ principle itself has been questioned in terms of its application to corporate governance codes; see European Commission (2011); Keay (2014); Soltani and Maupetit (2015), p. 259.

  39. 39.

    Chivers (2007), pp. 6–7.

  40. 40.

    Sect. 50 L (1) Income Tax Act 1995: a ‘CSR programme’, according to Section 2 means ‘a programme having as its objects the alleviation of poverty, the relief of sickness or disability, the advancement of education of vulnerable persons or the promotion of any other public object beneficial to the Mauritian community’.

  41. 41.

    Sect. 135 Indian Companies Act 2013; the government shifted responsibility to corporate sectors, and it is estimated that the law will cover about 3000 companies in India and about $2 billion per annum of expenditure on CSR activities related to social welfare initiatives. See Ernst and Young (2013a, b).

  42. 42.

    See Afsharipour, Chap. 5 in this volume.

  43. 43.

    Gray et al. (2014), pp. 48–49.

  44. 44.

    Blowfield and Frynas (2005), p. 503.

  45. 45.

    Utting (2008), p. 95; for example, the Oil Pollution Act 1999, the Sarbanes-Oxley Act 2002, the Dodd-Frank Wall Street Reform and the Consumer Protection Act 2010.

  46. 46.

    For more discussion of collaborative governance, see Zadek (2006).

  47. 47.

    See de Bruin (2015), Ducassy (2013), Lins et al. (2017), Pirson and Turnbull (2015), and Soltani and Maupetit (2015).

  48. 48.

    See Keay and Loughrey (2015).

  49. 49.

    Canadian Democracy and Corporate Accountability Commission (2001), p. iii.

  50. 50.

    Gray et al. (2014), p. 51.

  51. 51.

    Keay and Loughrey (2015).

  52. 52.

    This is consistent with the ‘answerability’ element of accountability, with the board being answerable for what they have decided and done; see AccountAbility (1999), p. 8.

  53. 53.

    Negative consequences could involve sanctions, perhaps the removal of one or more directors, or the decision not to re-elect a director when his or her term comes to an end. Of course, it could also constitute positive consequences, such as rewarding the directors by giving them bonuses.

  54. 54.

    Clapp and Utting (2008), p. 3.

  55. 55.

    Follesdal (1998), pp. 34–98.

  56. 56.

    Gray et al. (2014), p. 53; see also Tinker et al. (1991).

  57. 57.

    See Harvard College v Amory (1830) 26 Mass (9 Pick) 446; Parks of Hamilton Holdings Ltd v Campbell (2014) CSIH 36, (2014) SC 726; Miller v Stonier (2015) EWHC 2796 (Ch); see also Smith (2014), p. 608; Shattuck (1951), p. 491; Schanzenbach and Sitkoff (2016).

  58. 58.

    Clapp and Utting (2008), p. 3.

  59. 59.

    See Keay and Zhao (2016), pp. 689–695.

  60. 60.

    Editing section of Modern Chinese-English Dictionary (2011).

  61. 61.

    Keay and Zhao (2016), pp. 689–695.

  62. 62.

    Ibid.

  63. 63.

    Chen (2004); see also Chen and Chen (2004).

  64. 64.

    Chen (2004).

  65. 65.

    Mao (2005), p. 48.

  66. 66.

    Li (2008).

  67. 67.

    Li (2008), p. 5; the Chinese version of the article used the words ‘geren wenze 个人问责’ to express the idea of individualised accountability.

  68. 68.

    Wang and Li (2010), pp. 110–111.

  69. 69.

    Guidelines for the Internal Control of Recommendation Business (保荐业务内部控制指引) www.csrc.gov.cn/.../P020110621654377810539.doc (accessed on 4th November 2014).

  70. 70.

    Section 5 (3) Guidelines for the Internal Control of Recommendation Business (保荐业务内部控制指引).

  71. 71.

    Kerr et al. (2009), p. 590.

  72. 72.

    New York Times (2009).

  73. 73.

    Kerr et al. (2009), p. 591; see also Theofilou et al. (2016); Dias et al. (2016); Fehre and Weber (2016).

  74. 74.

    Clapp and Utting (2008), p. 17.

  75. 75.

    McLaren (2004), p. 192.

  76. 76.

    Shearer (2002) and Messner (2009).

  77. 77.

    Campbell (2007); see also Carroll (2008), p. 19; Kinderman (2012).

  78. 78.

    Collier (2008), p. 951.

  79. 79.

    This is especially the case in developing countries, to enhance corporate reputation, culture and image.

  80. 80.

    Australian Parliamentary Joint Committee (2008).

  81. 81.

    Keay (2015), p. 109.

  82. 82.

    Dubnick (2013).

  83. 83.

    Utting (2010), p. 181.

  84. 84.

    Boyer and Hollingsworth (1997).

  85. 85.

    Zhao (2017).

  86. 86.

    Utting (2006), p. 53.

  87. 87.

    Rahim (2005).

  88. 88.

    Utting (2008), p. 120.

  89. 89.

    Schweiker (1993), Sinclair (1995), and Messner (2009).

  90. 90.

    Cooper and Owen (2007).

  91. 91.

    Owoeye (2015).

  92. 92.

    Filios (1985).

  93. 93.

    Gupta (1995).

  94. 94.

    See Bovens (2007, 1998).

  95. 95.

    Pava (2011), pp. 48–49.

  96. 96.

    Utting (2013), p. 171.

  97. 97.

    Demirag et al. (2005).

  98. 98.

    For example, 87% of global consumers believe firms should place equal weight on business and society, and should deal with elementary concerns in a balanced manner. See Edelman Goodpurpose (2012).

  99. 99.

    Mason and Simmons (2014), p. 84.

  100. 100.

    Bendell (2005), p. 372.

  101. 101.

    Zhao (2017), p. 107.

  102. 102.

    Oakes and Young (2008), p. 765; see also Afsharipour, Chap. 5 in this volume.

  103. 103.

    Parkinson (2002), p. 50.

  104. 104.

    See Arsht (1979), Bainbridge (2004), and Smith (2015).

  105. 105.

    Parkinson (1998).

  106. 106.

    Accordingly, as Lord Wilberforce has explained in Howard Smith Ltd v Ampol Petroleum Ltd, ‘there is no appeal on merits from management decisions to courts of law: nor will the courts of law assume to act as a kind of supervisory board over decisions within the powers of management honestly arrived at’; see Howard Smith Ltd v Ampol Petroleum Ltd (1974) AC 821 at 832, [1974] All ER 1126 at 1131.

  107. 107.

    Evan and Freeman (2001), pp. 108–109.

  108. 108.

    Sternberg (1997), p. 5.

  109. 109.

    See Hansmann and Kraakman (2001), p. 439; Winkler (2004), p. 109.

  110. 110.

    Veldman and Willmott (2016) and Veldman et al. (2016).

  111. 111.

    See Article 14 and Article 17 of Chinese Company Law 2006.

  112. 112.

    Keay and Zhao (2016).

  113. 113.

    See Chun (2009), Yang et al. (2011), Rajagopalan and Zhang (2008), Cheung et al. (2008), Sami et al. (2011), Miles and Zhang (2006), Li (2013), and Xu et al. (2013).

  114. 114.

    See Li et al. (2012).

  115. 115.

    See Li et al. (2010) and Uzma (2016).

  116. 116.

    Zu (2009), pp. 44–50.

  117. 117.

    Zhao (2016); see also Clarke (2016a, b), Boubaker et al. (2012) and Firth and Rui (2012).

  118. 118.

    See Weng (2012).

  119. 119.

    Cao et al. (2005).

  120. 120.

    Cao et al. (2005), pp. 13–30.

  121. 121.

    Cao et al. (2005), pp. 13–30.

  122. 122.

    Cao et al. (2005), pp. 68–78.

  123. 123.

    Art. 17, 18, 52, 117, 118, 126 Chinese Company Law 2006.

  124. 124.

    Art. 1 Chinese Company Law 2006.

  125. 125.

    Young et al. (2007), p. 204.

  126. 126.

    Young et al. (2007), p. 204.

  127. 127.

    Tian and Slocum (2016), pp. 1–4.

  128. 128.

    Goelz (2009), p. 168.

  129. 129.

    Head (2007), pp. 58–59.

  130. 130.

    la Porta et al. (2008).

  131. 131.

    Allen et al. (2005).

  132. 132.

    Da shi hua xiao, xiao shi hua wu (大事化小, 小事化无).

  133. 133.

    Such as Sect. 135 (1) Indian Companies Act 2013; in terms of exploring the possible of transplanting the idea in China, the criterion of ‘enterprise above designated size’ may be used to enforce CSA.

  134. 134.

    Such as Sect. 2 (1) and Sect. (2) Companies (CSR) General Order 2009.

  135. 135.

    Such as Art. 225 ‘Grenelle II’ France 2013.

  136. 136.

    Such as Guidelines for external reporting by state-owned companies 2008.

  137. 137.

    Such as Chapter V Art. 74 Indonesian Limited Companies Act 2007.

  138. 138.

    Leutert (2015).

  139. 139.

    Schaefer and Murphy (2016).

  140. 140.

    Ministry of Finance of China 2017.

  141. 141.

    Hassard et al. (2007), p. 19.

  142. 142.

    Capobianco and Christiansen (2011), p. 4.

  143. 143.

    Capobianco and Christiansen (2011), p. 5.

  144. 144.

    Capobianco and Christiansen (2011), p. 7.

  145. 145.

    Leutert (2015).

  146. 146.

    Georgetti K (2002) p.5.

  147. 147.

    Hi and Müller (2013).

  148. 148.

    Keay and Loughrey (2015), pp. 267–269.

  149. 149.

    Such as those stated in the constitutional documents in the case of B Corps; whereas B Lab is a non-profit organisation that serves a global movement of people using business as a force for good; see https://www.bcorporation.net/what-are-b-corps/about-b-lab.

  150. 150.

    Bendell (2005), p. 362.

  151. 151.

    Kaler (2002), p. 327.

  152. 152.

    For an international perspective, see the UN guiding principles on business and human rights (2011), and the OECD guidelines for multinational enterprises (2011).

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Acknowledgements

I am greatly indebted to Prof Andrew Keay, Dr Jeroen Veldman, Dr Umakanth Varottil, and Dr Suren Gomtsyan for providing me with valuable comments on the draft of this chapter. I would also like to thank Prof Jean Du Plessis for his encouragement and support. The chapter was presented 2016 at the ICGL Forum held on 14–15 December 2016 in Beijing and the author thanks Prof Junhai Liu, Prof Cindy A. Schipani, Prof Gill North, Dr Alexander Scheuch and Prof Patrick Leyens for their comments.

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  1. University of Leeds, School of Law, Leeds, UK

    Jingchen Zhao

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  1. Geelong Waurn Ponds Campus, Deakin University, Waurn Ponds, Victoria, Australia

    Jean J. du Plessis

  2. Faculty of Law, National University of Singapore, Singapore, Singapore

    Umakanth Varottil

  3. Cass Business School, City, University London, London, United Kingdom

    Jeroen Veldman

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Zhao, J. (2018). Regulation of Corporate Social Responsibility Through the Lens of Board Accountability and the Case of China. In: du Plessis, J., Varottil, U., Veldman, J. (eds) Globalisation of Corporate Social Responsibility and its Impact on Corporate Governance. Springer, Cham. https://doi.org/10.1007/978-3-319-69128-2_6

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