Introduction to the Special Issue: Globalization as a Challenge for Business Responsibilities Andreas Georg Scherer, Guido Palazzo, and Dirk Matten ABSTRACT: This article assesses some of the implications of globalization for the scholarly debate on business ethics, CSR and related concepts. The argument is based, among other things, on the declining capacity of nation state institutions to regulate socially desirable corporate behavior as well as the growing corporate exposure to heterogeneous social, cultural and political values in societies globally. It is argued that these changes are shifting the corporate role towards a sphere of societal governance hitherto dominated by traditional political actors. This leads to a discussion of the ambivalent results of such a process for a responsible corporate role in a globalized world. While assessing the current reception these changes have received in the management literature, the contributions ofthe four articles in this Special Issue are framed and evaluated. The argument closes by highlighting avenues of future research on this new challenge. INTRODUCTION: GLOBALIZATION AS A CHALLENGE FOR BUSINESS RESPONSIBILITIES G LOBALIZATION CAN BE UNDERSTOOD as the intensification of social interrelations among distant locations (Beck 2000; Giddens 1990). This process is initiated by political decisions such as the reduction of tariffs and non-tariff barriers to the exchange of goods, technology, capital, services, and labor, and the opening of markets through liberalization and deregulation policies. It is further accelerated by political upheavals (e.g., the fall of the Iron Curtain) and by technological advancements in communication, media, and transport, and is accompanied by socio-cultural processes such as increasing cross-border migration, the erosion of traditions, growing individualization, and the emergence of pluralist societies with heterogeneous values, cultures and life-styles (Cohen and Kennedy 2000). As a result national borders and geographic distances are losing their economic and political significance (Schölte 2005). The regulatory power of nation state governance is fading, and received values and traditions are eroding (Habermas 2001). As a consequence global business firms operate in a complex and uncertain environment with gaps in regulation and ill-defined rules of appropriate business conduct (Scherer and Palazzo 2008a). The globalization of society erodes established ideas about the division of labor between the political and economic spheres, and calls for a fresh view concerning ©2009 Business Ethics Quarterly 19:3 (July 2009); ISSN 1052-150X pp. 327-347 328 BUSINESS ETHICS QUARTERLY the rolé of business in society. Some transnational corporations (TNCs) have started to change their role from one of simply following the rules to one of creating the rules of the economic game. They already assume social and political responsibilities that once were regarded as belonging to government (Matten and Crane 2005; SchereV, Palazzo, and Baumann 2006). They engage in the production of public goods '(e.g., public health, education, social security) (Kaul et al. 2003), and in self-regulation to fill global gaps in legal regulation (Cragg 2005; Scherer and Smid 2000) and to promote societal peace and stability (Fort and Schipani 2004). Some corporations do not simply comply with societal standards in legal and moral terms; they engage in political processes that aim at setting or redefining those standards in a changing, globalizing world (Scherer and Palazzo 2007). Those activities go beyonè the received understanding of stakeholder responsibility and corporate social responsibility (CSR) as it was conceptualized in the past decades (that is, as the corporations' adaptation to societal expectations; Carroll 1979; Strand 1983). TNCs ioperate in a complex environment with heterogeneous, often contradictory legal a^nd societal demands. As a consequence the simple adaptation to a particular set of social demands will not create social acceptance but will instead lead to a mismatch with other societal expectations and the rise of legitimacy questions (Palazzo and Scherer 2006). The! social activities of business firms, however, often go beyond the traditional conce¿)tion of politics âs power politics, as it is commonly understood in the management literature. There it is assumed that politics is a process of furthering one's interests by imposing one's will on others (e.g.. Baron 2003) and that business firms engage in public policy only for profit oriented reasons, that is, in order to influence the political system so that the interests of private businesses are served and their profit seeking ambitions are not restricted by strong regulations (Bonardi, Hillman, and Keim 2005; Hillman, Keim, and Schüler 2004). Seen from this viewpoint, politics is conceptualized as a power game within a complex system of checks and balanqes and the outcomes of the political process are explained with the help of power! differences among actors with irreconcilably opposed private interests (Elster 1986). However, it remains an empirical question whether all of the corporate socialiand political activities described above can be explained by rational profit seeking behavior, or whether other factors such as altruism, pro-social behavior, isomorphic adaptation to the changing institutional context, path-dependencies, or argurrientative entrapment (i.e., the need "to walk the talk") play a significant role in thelpolitical behavior of business firms. At the same time, it is obvious that the political engagements of business firms do not necessarily contribute to the common good and thus are not always socially acceptable (Banerjee 2007; Reich 2007). Therefore, questions remain as to when political strategies of business firms should be considered legitimate versus when they should be considered dangerous to society and democracy. It addition, it appears that the traditional concepts of corporate politics as power politics have emphasized outcomes and uneven power structures, but generally have neglected the communicative conditions of the political process in which people try to interpret issues of corhmon concern, attempt to regulate some aspects of their social and economic GLOBALIZATION AS A CHALLENGE FOR BUSINESS RESPONSIBILITIES 329 interactions, or try to define a common direction for their course of action (Young 2004). Business firms are both subject and object of this communicative political process of regulating the economy, but this political role for businesses has not yet been sufficiently explored. The aim of this special issue therefore is to discuss the consequences of the social and political mandate of the corporation, and to examine the implications for theory and practice of businesses operating in a globalized world. In our call for papers we asked for contributions from the social sciences, humanities, and professional fields that go beyond established ideas on the role of business in a global society. We invited both theoretical and empirical contributions from different schools of thought, and particularly welcomed papers that argue across various levels of analysis (e.g., global level, national level, firm level, individual level) or that connect the potentially relevant disciplines (management studies, sociology, international law, political theory and philosophy, etc.). By the end of the deadline we received thirtyone paper submissions. Sixteen papers were eligible for review process and finally five papers have been accepted after two or three revisions. In the present special issue of Business Ethics Quarterly four papers are published; one paper that was originally submitted for the special issue has already been published in a previous issue of Business Ethics Quarterly (Nien-hê Hsieh, "Does Global Business Have a Responsibility to Promote Just Institutions?" Business Ethics Quarterly 19:2 [April 20091:251-73). This introduction is structured as follows. In the following section we will briefiy describe the limitations of traditional views of the political role of global business. In order to demonstrate the practical significance and theoretical challenge of this issue, we refer to both the desirable and the problematic consequences of corporate political engagement on the global playing field. We briefly summarize the four articles in this special issue. In the concluding section we explain why we need a new conception of the political role of business, and point to some of the challenges that need to be explored in future research. CORPORATIONS AS POLITICAL ACTORS? THE LIMITATIONS OF CURRENT THEORIES ON THE POLITICAL RESPONSIBILITY OE BUSINESS So what exactly do we mean if we speak of corporations as political actors? The main feature of the political nature of the corporations is that they increasingly actively participate in societal governance, and that they take part in the authoritative allocation of values and resources (see also Crane, Matten, and Moon 2008: 1). This, however, is a contested idea which causes resistance from various schools of thought. Many economists argue that corporations are institutions which are designed to make profits (Sundaram and Inkpen 2004). They reject any social or environmental engagement of businessfirmsthat goes beyond legal requirements and does not contribute to profit making (Friedman 1970; Henderson 2001). However, the economist's argument aims not only to protect the property rights of owners of firms and serve the interests of the shareholders. Rather, economists maintain 330 BUSINESS ETHICS QUARTERLY that private profit seeking contributes to the wellbeing of society via the allocation function of the market system (Jensen 2002). In addition, economists emphasize that managers of business firms are neither elected nor controlled democratically. Therefore, any socio-political engagement by managers not only violates the legitima.te claims of shareholders, but is a danger for democratic society (Friedman 1962, Í1970; Baumöl and Blackman 1991). Many globalization critics, such as civil society movements, human rights advocates, and environmental protection groups, argue that social or environmental projects of business firms are nothing more than "window dressing" or "green washing" (Klein 2000; Laufer 2003), as corporations attempt to create positive public imagek without necessarily modifying their problematic business activities: "In this fo'rm, corporate social responsibility is cheap and easy" (Roberts 2003: 250). Theseicritics conclude that business firms engage in these CSR projects either to enhance their reputation or for financial reasons (by managing their risks or taking a charice to earn extra money by investing in such projects). Business firms, they assumje, have no intrinsic motivation to contribute to the common good; rather they are only concerned with making profit. Therefore, many globalization critics argue that tue political activities of corporations are a potential danger for society, as they are not intended to serve the public good but the egoistic motives of managers or firrn owners, often at the cost of their social or ecological environment (Körten 2001).! These negative externalities may occur in particular where transnational firms operate in failed states with weak or even absent regulation and enforcement mechanism. Therefore transnational corporations have been accused—especially since the 1970s—of being an expression of an imperialist capitalist system and of exploiting developing countries at the expense of the wellbeing of their citizens (Brewer 1980; Mandel 1999; Warren 1980). Today, TNCs have become even more powerful in influencing and determining the political, social, and economic conditions i.n their host countries; they have become the true "leviathans" of our time (Chan'dler and Mazlish 2005). At the same time, the social political engagement of corporations has become a widespread phenomenon: "That corporations do sometimes act as social change agents is not in dispute; indeed it is an empirical reality around the world. Moreover it is becoming a political reality as well" (Bies et al. 2007: 788). Despite the critical comm'ents from various perspectives, a growing number of business leaders seem to assume responsibilities that go beyond profit seeking and compliance to the legal minimum. Without doubt, some of these corporate initiatives may be part of ^public relations strategies and serve the purpose of creating a positive corporate image while leaving the essential value chain and business processes untouched (Banerjee 2007; Roberts 2003). Moreover, in many instances corporations assume this political role wfithout even being aware of it, let alone intending to do so. Good examples are companies that have taken over public services from government in healthcare, education or public transport (Crane and Matten 2005). In some cases it can even be assumed that the intemalization of social and environmental responsibilities not only changes a business's operations themselves, but can even lead to a transformation of the business's perception of its role in society (Zadek 2004). GLOBALIZATION AS A CHALLENGE FOR BUSINESS RESPONSIBILITIES 331 We suggest that current theorizing on the political responsibilities of business firms does not sufficiently take account of these changes, as it is mainly based on (1) an economic view of the role of the business firm and (2) a strict separation of public and economic domains: "[C]ompanies work to maximize their strategic freedom within the bounds set by government. . . . The role of the firm is separate from that of government" (Detomasi 2008; 812-13). Seen from this perspective, business firms are only considered to be private actors, focusing on their economic interest in earning profits while complying with the legal rules provided by governmental regulation and the moral rules of their social environment. This perception of corporate responsibility is based on the premise that markets and market actors are sufficiently controlled and controllable by governments (Sundaram and Inkpen 2004). In fact, in economics, finance and other business-related disciplines the assumption is widely shared that governments are powerful and even regulate too much and should rather decrease the level of control (Norberg 2003). It is commonly thought that taking care of issues of public concern is the exclusive responsibility of the state, and any policy of a business firm is considered an expression of its profit-seeking strategic attitude. Ironically, both of these assumptions are shared by many defenders of free trade and TNCs and by globalization critics. In management studies the political activities of business firms have been widely discussed (see, e.g., Boddewyn and Brewer 1994; Hillman, Keim, and Schüler 2004; Schuler and Rehbein 1995; Shaffer 1995). The established view on the political behavior of business firms is based on a quite distinct version of power politics that is underlying conceptions such as "political strategy" (Hillman, Keim, and Schüler 2004), "political lobbying" (Shell 2004), or "private politics" (Baron 2003). This instrumental view on politics is also common in much of political science, whereby the so-called "real politics" or Realpolitik approach is one of the dominant paradigms (see, critically, Wayman and Diehl 1994). The political strategy approach has focused on the strategic behavior of corporations "to shape government policy in ways favorable to the firm" (Hillman, Keim, and Schüler 2004: 838). It is based on the premise that "managers choose to engage in political activity to enhance the value of the firm" (Hillman, Keim, and Schüler 2004: 839, emphasis in the original here omitted). Empirical research is dedicated to the question of what factors influence the success or failure of political strategies, i.e., of corporate lobbying. Some authors have even written manuals for corporate managers on how to influence the political system (e.g.. Shell 2004). Likewise, many students of corporate social responsibility favor an instrumental approach and search for a "business case of CSR" in order to show if and under what conditions CSR projects may contribute positively to financial performance (see, e.g., Aupperle, Carroll, and Hartfield 1985; Berman et al. 1999; for a critical review see Margolis and Walsh 2003). These studies are based on the premise that profit-making is the final goal of business and that any corporate policy and any corporate social or political engagement must be understood as an instrument to rationally achieve this goal. These schools of thought work within the assumption that the business of business is business (Friedman 1962, 1970), while it is the task of the state to serve 332 BUSINESS ETHICS QUARTERLY public interest (Frederick 1998; Detomasi 2008; Sundaram and Inkpen 2004). The state defines the rules of the game in processes of public deliberation that regulate private!businesses in otherwise free markets (see, e.g.. Colley et al. 2003: 7). Private businesses are forced to comply with these regulations by means of legal and admini.strative sanctions, so that the consequences of market exchanges contribute to the {jublic good and externalities are avoided, or at least compensated. Other than that, private businesses have no additional social or political responsibilities; rather their only responsibility is to earn profits (Friedman 1970). In their comprehensive reviewiof the management literature, Walsh, Weber, and Margolis (2003: 865) have characterized this dominant view and its assumption that the state is the only significant aqtor in public policy: "Property rights, the invisible hand of the market, and the go\jemment are entrusted to solve society's problems. Corporate managements are to play no direct role in ensuring the social welfare of society." Howiever, as argued above, these proposals work on the premise that the statesystemj is able and sufficient, via regulation and enforcement, to direct the results of the (strategies and actions of self-interested economic actors toward societal good. As a consequence, the economic theory of the firm has focused on economic responsibilities only, and delegates the resolution of societal issues to institutions and aciors outside the market system (Sundaram and Inkpen 2004). We hold that during the process of globalization both of these assumptions— about the sustained capability and efficiency of the nation state system on the one hand, and the separation of public policy and private business on the other—need to be reconsidered (see. Beck 2000; Cragg 2005; Kobrin 2001 ; Scherer and Palazzo 2008b). Today, businesses do not necessarily operate within the borders of a clearly defined legal system and a more or less homogeneous set of social expectations. Instead many operations are shifted offshore and beyond the reach of the rule of law orjthe enforcement of taxes or regulations (Palan 2003). In addition, nation state iristitutions face social and environmental challenges that have transnational originsjand cannot be regulated or compensated unilaterally by national governance. This regulatory gap is only partly compensated by new global governance mechanisms t;o which civil society and private actors, along with governments, contribute knowl4dge and resources. Unlike nation state governance, these new governance mechanisms consist of non-hierarchical networks of private and public actors, rely on voluntary action, and have only weak enforcement measures (Braithwaite and Drahos 2000). These developments have at least two consequences: First, the nation state is losing par't of its regulatory power, although it remains a significant actor in emerging global 'governance. Second, the private-public distinction gets blurred. Business firms-ffor better or worse—engage in public policy (Scherer, Palazzo, and Baumann 2006). Some corporations act as "corporate citizens" and get actively involved in the govemiance of human rights, public corruption, social and environmental standards, and thus directly shape the public good (again, for better or for worse) where the state is'unable or unwilling to do so (Matten and Crane 2005). Other business firms, however, take advantage ofthe lack of regulation and enforcement and aggressively GLOBALIZATION AS A CHALLENGE FOR BUSINESS RESPONSIBILITIES 333 foster their economic interests, often at the expense of the surrounding communities and the natural environment (Banerjee 2007). DARK SIDES AND BRIGHT SIDES OE GLOBAL BUSINESS: CORPORATE BEHAVIOR ON THE GLOBAL PLAYING FIELD The idea of viewing the corporation not only as an economic but also as a political actor thus builds on two seemingly contradictory observations (Palazzo and Scherer 2008). On one hand, the global regulatory gap seems to trigger deviant corporate behavior (Gond, Palazzo, and Basu 2009). Some multinationals are accused of abusing that gap and (directly or indirectly) violating human rights in their globally expanded operations, especially in those areas where state institutions, legal restrictions, and enforcement are weak or almost non-existent (e.g., Mokhiber and Weissman 1999; Körten 2001). On the other hand, corporations get involved in self-regulatory activities (Scherer and Smid 2000) and engage in the production of public goods beyond their immediate business context (Kaul et al. 2003; Valente and Crane 2009). We label these two observations the dark and the bright side of global business. The Dark Side It has been argued that weak global governance mechanisms have led to a return of the robber baron phenomenon (Rawlinson 2002). The term "robber baron" symbolizes the dark side of unchecked capitalism. It has been used to characterize the industry leaders of nineteenth-century frontier America, the Vanderbilts, Rockefellers, Morgans, and Carnegies. These captains of industry made a clear distinction between how to make and how to use a profit. Still under the influence of a Puritan work ethics, they interpreted worldly success as a sign of divine grace and felt a duty of "giving back to society." They gave huge amounts of money to charities or even used their fortune to establish foundations. As Rockefeller once stated, "I believe it is my duty to make money and still more money and to use the money I make for the good of my fellow man according to the dictates of my conscience" (see Norton et al. 1986: 490). Thus, the fact that CSR is often considered merely to be a philanthropic issue (see, e.g.. Porter and Kramer 2002) might partly result from the ideological roots of nineteenth-century capitalism. At the same time, however, these capitalists became notorious for their aggressive drive to increase their wealth at almost any cost, thus demonstrating that ethical duties might be linked to using their profit but certainly not to the process of making it. Vanderbilt's notorious words "What do I care about the law? Haven't I got the power?" (see Josephson 1934: 72) illustrate the libertarian ideology of the robber barons whose workers died in mines, oil fields, factories, or railroad projects. Child labor was a common phenomenon at that time and grew at a high pace. It tripled between 1870 and 1900, and in 1900 almost 13 percent of all textile workers were younger than sixteen (Norton et al. 1986) working under miserable conditions in so-called sweatshops. Even social Darwinist, survival of the fittest thinking found fertile soil in laissez faire, gilded age society (Destler 1946). Robber baronism there- 334 BUSINESS ETHICS QUARTERLY fore found its optimal conditions in the transition from rural economy to industrial econoiny of the nineteenth-century United States (Perrow 2002). We suggest that the ongoing process of globalization creates a comparable context of transition from domestic economies to a global economy with weak governance mechanisms. Some multinational corporations are criticized for abusing the regulatory vacuum, thereby displaying a behavior that is comparable to that of the notorious robber barons (Mokhiber and Weissman 1999; Körten 2001 ). Corporations have been accused of profiting from the legal vacuum in African civil wars (Dunfee and F
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