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CSR Challenges – a legal/corporate governance
perspec4ve
Chizu Nakajima, Co-‐Director, Centre for Research on Corporate Governance,
Cass Business School, City University & Chair, Bri4sh Japanese Law Associa4on, London
2
Corporate governance under scru0ny
• Post financial crisis, many pointed to the failure of corporate governance (CG) in banks, but could CG have helped, par4cularly in curbing the “excesses” that were highlighted as one of the main causes that led to the crisis?
• Indeed, aWer every major corporate failure and scandal, there are calls for beXer corporate governance & more regula4on!
Dominant research & policy direc0on in Corporate Governance thus far
Good corporate governance ↓
Thriving financial markets ↓
Economic growth
• Advocated by leading economics/finance scholars and endorsed by interna4onal organisa4ons.
• Therefore, much of CG research, thus far, has focused on the link between good CG and firms’ financial performance, i.e. maximizing shareholder value.
Challenges for business in 21st Century: Paradigm Shi@
• Increasing expecta4ons on business – expanding focus from economic concerns to include social concern
• Despite this, CG’s main focus on financial performance – oWen jus4fied on the basis of ageing popula4on pu^ng pressures on pension funds’ relying on stock performance.
But do investors take sufficient no0ce?
• “Nearly 70% of fund managers s4ll do not regards it as standard prac4ce to factor environmental, social and corporate governance ini4a4ves into their investment decisions.”
(‘Investors s4ll don’t get accountability’, Business Week, 26 February 2008)
• And who are “ins4tu4onal shareholders” nowadays? – foreign sovereign wealth funds, hedge funds etc –
So@ law to hard law?
In the mean4me, • Areas of social concern are increasingly subject to interna4onal standards, many of which are being implemented through na4onal legisla4on – e.g. environment, labour condi4ons, human rights, an4-‐corrup4on etc.
Global Standard SeFng using ‘So@ Law’ and Implementa0on via Mutual Evalua0on:
Example -‐ AML
Global Standard se^ng through: – Financial Ac4on Task on Money Laundering (FATF)’s 40
Recommenda4ons on money laundering and 9 Special Recommenda4ons on Terrorist Financing
Compliance through: – Mutual Evalua4on = self-‐assessment + peer review – ‘Blacklis4ng’ = ‘naming and shaming’ Implementa4on through: – Each state introducing AML legisla4on – Resul4ng in global standardisa4on of AML regula4on
What’s next? • “Bridging the great divide between CG and corporate social
and environmental responsibility is the next great challenge for business.”
• “…only a fundamental redesign of corporate forms, objec4ves and value measures can fully meet the reali4es of responsibility.” (T. Clarke, 2007, p. 267.)
• In the mean4me, mul4-‐na4onal corpora4ons’ (MNCs) “impacts on society” are growing and are felt in increasingly wider spheres.
• States have aXempted to “control” and “regulate” MNCs – but MNCs engage in cross-‐border ac4vi4es so who can have jurisdic4on over them?
We need to work together! To find ways to enable corpora4ons (to quote the European Commission) • To maximise the crea4on of shared value for their owners/shareholders
and for their other stakeholders and society at large; • To iden4fy, prevent and mi4gate their possible adverse impacts.
We need to facilitate more collabora4on between private and public sectors and academia
Please contact us with ideas, requests, sugges4ons for research and
collabora4on! Chizu Nakajima: Co-‐Director, Centre for Research on Corporate Governance,
Cass Business School, City University London, and Chair, Bri4sh Japanese Law Associa4on, London.
Email: [email protected]
