The Changing Nature of Corporate Social Responsibility

CSR and Development – The Case of Mauritius

Renginee Pillay

• Publisher: Routledge
• Year: 2015
• eBook ISBN: 9781135047023
• Edition: 1
• Topic: Law
• Subtopic: Business Ethics
• Index: Law

Corporate Social Responsibility (CSR) has increasingly been promoted as an important mechanism for furthering economic and social development goals in developing countries. In such an optimistic climate, questions arise as to whether CSR can bear the weight of the increasing expectations being heaped on its shoulders. This book examines the changing nature of corporate social responsibility as it has been conceived over the past eighty years. It considers the historical and socio-legal developments of the idea of CSR and the various conceptions of the corporation which underlie different realisations of CSR.

The book explores the model of CSR deployed in the developing world as well as the links between CSR and development. Renginee Pillay uses Mauritius as a case-study, demonstrating how CSR and corporate governance issues have come to the fore of political, financial and legal landscapes. Drawing on empirical research, the book examines how the first legislation of its kind has been implemented in Mauritius, and analyses its impact on development.

In its work to evaluate the contribution CSR can make to development, this book will be of great use and interest to students and researchers of business and company law, business ethics, and development studies.

Part I

CSR and models of the corporation

1 CSR and the shareholder-oriented corporation

1.1 Introduction

The introduction to this book provided a brief overview of the ways in which the meanings attached to the idea of CSR have changed over time. As such, it mapped out a general historical landscape of the concept of CSR, taking into account developments in history, law and politics. As part of this process, it briefly examined the different models of the corporation associated with different conceptions of CSR. This first part of the book seeks to explore these models in more detail. It is argued here that different models of the corporation tend to entail different ideas about corporate social responsibilities or, to put it slightly differently, that different conceptions of CSR tend to embody different conceptions of the nature of the corporation. The next two chapters will, therefore, examine in general terms the two main models of the corporation which have been vying for attention in recent years – the shareholder-oriented model and the stakeholder model – and seek to specify the place of CSR within each of them.

This chapter examines the shareholder-oriented, profit-maximising Anglo-American model of the corporation. It is divided into three main sections. Following this introductory section, the next section (section 1.2) explores the two different bases and justifications for the exclusively shareholder-oriented model. It looks first at traditional ownership- or rights-based justifications, which assert that corporations should be run in the interests of shareholders because the latter ‘own’ them. From this perspective, shareholder primacy is a matter of ownership right, from which it follows that there is no need for further justification for the priority given to their interests and no need to consider the consequences of shareholder primacy. It then moves on to look at the efficiency-based instrumental and consequentialist justifications that have risen to prominence in recent years.

These justifications rely far less on claims about shareholder corporate ownership – which, as we shall see, are problematic – arguing instead that corporations operated exclusively in the shareholder interest are defensible by reference to the outcomes they generate: shareholder-oriented corporations, it is argued, operate for the benefit of society as a whole because they enhance ‘efficiency’.

The next section (section 1.3) explores the ways in which the strong efficiency claims made for shareholder primacy led, from the 1980s onwards, to the rise of the idea of shareholder value and the emergence of a so-called ‘shareholder value’ conception of the corporation. Such is the perceived economic superiority of this model of the corporation that at the beginning of the 21st century, some commentators declared that the ‘end of corporate history’¹ had been reached. Indeed, an Anglo-American, shareholder-oriented model of the corporation is now being actively promoted around the world by the World Bank and the Organisation for Economic Cooperation and Development (OECD). The effect of the recent financial crisis on this model of the corporation is then examined, with the conclusion being that it still remains the dominant paradigm.

The final section of this chapter (section 1.4) prior to the concluding remarks (section 1.5) contends that the shareholder-oriented model of the corporation is fundamentally anti-CSR; that CSR has little (if any) place in it. On the contrary, within the shareholder-oriented model, managerial decision-making should not be clouded by ideas of social responsibility; managers should not deviate from the profit maximisation goal of the corporation. It is noted that proponents of this model of the corporation do not rule out the state seeking to constrain corporate behaviour in various ways but here, social responsibility is externally imposed, coming from without rather than coming from within the corporation itself as in the stakeholder models of the corporation, which are examined in the next chapter.

1.2 Justifications for shareholder primacy

1.2.1 Ownership: rights-based justifications for shareholder primacy

The profit-maximising, exclusively shareholder-oriented corporation is often said to be the traditional Anglo-American model of the corporation. This model finds expression in the principle of shareholder primacy.

It is commonly argued that corporations should be run in the exclusive interests of their shareholders because the shareholders ‘own’ them; corporations are their private property, so to speak. From this perspective, shareholders are seen as having a property right which entitles them to have the corporation run exclusively in their interests: this property right is defensible without reference to its social function or social effects. The ‘ownership’ justification for shareholder rights is thus rights-based. Akin to property rights in general, the alleged corporate property right of the shareholder conveys a sense of absolutism: ‘To own property is to have exclusive control of something – to be able to use it as one wishes, to sell it, give it away, leave it idle, or destroy it’.²

Shareholders are not only entitled to determine how the corporation is managed but they are also entitled to have it managed in their interests and their interests alone because they are the ‘owners of the corporation’ (through their ownership of its shares). It follows from this that profit maximisation – what is now referred to as the maximisation of shareholder value³ – should be the only goal of the corporation and its managers. Shareholders invest in a corporation to get a profitable return; it is ‘theirs’. Although, as we shall see below, it has long been argued that shareholder primacy is also defensible because it ensures productive efficiency and thus maximises total social wealth, from this rights perspective, the consequences of shareholder corporate ownership are irrelevant. Subject to the general provisions of the law, corporate shareholders are entitled to do whatever they like with ‘their’ property – no matter what the consequences.

Although the idea that shareholders ‘own’ the corporations in which they hold shares is for many people ‘common sense’, the idea of shareholder corporate ‘ownership’ is in fact highly problematic.⁴ A brief sketch of the development of the joint stock company (JSC) – what we now call a public company – in the UK, where JSCs first emerged in their modern form, will help us to understand the source of the problems surrounding the claim that shareholders are corporate ‘owners’.

JSCs can be traced back as far back as the 16th century but they only began to grow significantly in number in the 18th century. It was in the UK, the first country to experience the transition to industrial capitalism, that JSCs first proliferated. Initially, the law regulating them was drawn heavily from the law of partnership. In partnerships, partners were, inter alia, conceptualised as the joint owners of the partnership assets, an idea which was applied to JSCs during the 18th and early 19th centuries. In a similar vein, at this time, JSCs were conceptualised, like partnerships, as aggregates of people. This was true even of incorporated companies. Although incorporation created a separate legal entity, the ‘body corporate’ was conceptualised as ‘several individuals, united in such a manner that they and their successors constitute[d] but one person in law, a person distinct from that of any of the members, though made up of them all … (emphasis added)’.⁵

In effect, the shareholders were ‘the company’ and the JSC was not seen as an object autonomous and fully separate from its shareholders; on the contrary, even incorporated companies were seen merely as ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Acknowledgements
• List of acronyms and abbreviations
• Introduction
• Part I CSR and models of the corporation
• Part II Contemporary CSR
• Part III CSR and development
• Conclusion
• Appendices
• Interview Questionnaire Guides
• Index