Professional Documents
Culture Documents
Editorial
Corporate Social Responsibility and Corporate
Governance: Comparative Perspectives
Timothy M. Devinney, Joachim Schwalbach, and
Cynthia A. Williams
CORPORATE GOVERNANCE
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domain of the corporation (Brammer et al., 2012:20). By providing both structural and theoretical arguments, they have
suggested both why and how to combine corporate governance arrangements shaped by agency theory with a broader
conception of social interests that companies must consider,
particularly in todays context of increasing resource constraints, necessitating ever more careful stewardship of societys resources.
The other conceptual paper in this Special Issue, (Re-)
Interpreting Fiduciary Duty to Justify Socially Responsible
Investment for Pension Funds? by Joakim Sandberg looks
at a related concept, and controversy, over shareholders as
purported agents for societal interests, asking whether the
fiduciary duties of pension fund trustees can be reinterpreted to require socially responsible investment (SRI).
Evaluating the fiduciary duties of pension fund trustees
begins from a pragmatic perspective: according to a recent
OECD report, the pension funds of Western countries hold
assets equivalent to (on average) 76 percent of the GDP of
their respective countries (Sandberg 2013:436). Given the
size of global pension fund assets (estimated at $24 trillion
in 2009), the negative potential of pension funds to exacerbate market instabilities by their herding behavior has
been recognized (Financial Services Authority, 2009;
Johnson & de Graaf, 2011). Moreover, the positive potential
to advance environmental, social, and governance (ESG)
aspects of company practices by pension funds including
ESG factors in their investment approaches has led to vigorous debate within the pension fund and SRI communities
about the extent to which pension fund trustees fiduciary
duties can be (or need be) re-conceptualized to permit SRI,
including debate and initiatives at the United Nations (its
Principles for Responsible Investment). Approaching the
issue as a theoretical issue of how far the concept of fiduciary can be stretched to accommodate SRI, Sandberg
evaluates the arguments for expanded fiduciary duties
and finds them lacking as a matter of philosophical and
economic theory. To the extent that important political or
social interests would be advanced by pension funds taking
better account of ESG factors, he argues that there must
be independent statutory obligations put on the pension
funds independent of arguments over beneficiaries interests, which form the core of trustees fiduciary duties. Such
an independent obligation has been enacted in some countries, such as Sweden, France, New Zealand, and Norway
(Sandberg, 2013:436).
Sandbergs article responds to an energetic debate over
pension funds fiduciary duties, a debate occurring both in
practice and in theory. By carefully evaluating the arguments
for expanded fiduciary duties, and pointing out their shortcomings, he calls upon advocates for expanded fiduciary
duties to articulate with greater clarity and force the rationales for putting obligations on trustees to act as stewards
for societys welfare, and not just the welfare, construed in
purely economic terms, of a funds beneficiaries. In so doing,
Sandberg (implicitly) challenges Raelin and Bondys view
that shareholders can be understood to have obligations as
agents of general social welfare. Both articles address a fundamental question in shareholder-oriented corporate governance systems, though: If companies are managed to
maximize shareholder wealth, what responsibilities do the
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FTSE4Good strengthened their environmental management requirements in 2002, and engaged with members that
failed to meet the new standards, with the threat of exclusion
from the index if the new standards were not met by 2005.
Mackenzie et al. thus used this as a natural experiment to
evaluate the effect of index engagement, combined with the
threat of expulsion, and found that engagement by the
index, with the threat of expulsion, significantly increased
the likelihood that a firm would meet the new environmental standards, and found that these effects persisted through
to 2010 (Mackenzie et al., 2013:495). These effects were
strongest in coordinated versus liberal market economies,
while overall entrenched owners, including institutional
investors, hindered the CSR investment necessary for compliance (Mackenzie et al., 2013:495). In other words, the
threat of expulsion worked best with firms from coordinated
market economies, while entrenchment was a disincentive
everywhere.
In their findings, they also provide a response to the issue
of pension fund responsibilities that motivates the pressures
on fiduciary duties that Sandberg (2013) discusses. Rather
than targeting the fiduciary duties of pension fund trustees,
their research suggests that addressing the standards incorporated into CSR indices, and attending to the procedures of
inclusion and exclusion, may be a more effective way for
activist SRI investors (and regulators) to influence management decision making.
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NOTES
1. [2004] 3 S.C.R. 461, para. 42.
2. [2008] S.C.R. 560.
3. Companies Act 2006, C. 46, Part 10, Chapter 2, The general
duties, 172.
4. See Human Rights Council, Advance Edited Version, Report of
the Special Representative of the Secretary-General on the Issue
of Human Rights and Transnational Corporations and Other
Business Enterprises, John Ruggie, Guiding Principles on Business and Human Rights: Implementing the United Nations
Protect, Respect and Remedy Framework, available at http://
www.business-humanrights.org/media/documents/ruggie/
ruggie-guiding-principles-21-mar-2011.pdf.
5. Stone v. Ritter, 911 A.2d 362 (Del. 2006).
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