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Should Corporations Have a Soul?

5/19/2008 --

Researchers from the University of Michigan argue that regulation of corporate social responsibility will become as globalized as corporations themselves.

ANN ARBOR, Mich.—Ross School of Business researchers pondered the question of whether or not corporations should be "soulful."

Should corporations be responsible to shareholders, employers, customers, and employees worldwide? If so, to what degree? Who should be charged with regulation? The researchers conclude that corporations must indeed incorporate social responsibility into their mission statements, but that regulation will come from a variety of sources.

University of Michigan's Gerald Davis, Wilbur K. Pierpoint Collegiate Professor of Management, Marina Whitman, professor of business administration and public policy, and Mayer Zald, professor emeritus of business administration, sociology, and social work, examined the history of corporate social responsibility and came to the conclusion that globalized regulation is on the horizon. They predict that the European Union will set standards for environmental regulations, the United States will shape governance guidelines, and international NGOs will drive human rights and labor laws.

"We propose an updated notion of corporate social responsibility global corporate social responsibility that reflects the fact that people hold firms responsible for actions far beyond their boundaries, including the actions of suppliers, distributors, alliance partners, and even sovereign nations," say the authors.

The European Union has always been a trailblazer in terms of enforcing product safety and environmental standards, the authors note. Thus, corporations of other countries will be forced to look to the European Union to set the standards if they want to remain competitive in the increasingly global marketplace.

"When it comes to product safety and environmental standards, corporations should look to the European Union for the shape of things to come," say Davis, Whitman, and Zald. "With the recent addition of 10 new members, the European Union's 25 nations together constitute the world's largest market surpassing the United States."

While critics point out that the European Union at times employs strict product standards without regard to scientific basis or cost, the reality is that the E.U. is leading the way in terms of product and environmental regulation, and the world will be compelled to follow.

The United States, in turn, has been a frontrunner of corporate governance, promoting transparency, consistent profitability, and shareholder protection. "American standards have become international standards for capital markets," the authors remark.

Emphasis on shareholder value can put corporations at odds with other global standards, but Davis, Whitman, and Zald argue, all public companies must pay attention to their shareholders in the same way that American companies have.

Finally, non-governmental organizations have historically paved the way for human rights protection in the form of shareholder resolutions, negative publicity, and various forms of protest. Thus, the authors argue, corporations should be responsive to NGOs and look to them for guidance on matters of human rights and labor laws.

As corporations change, so must the standards for corporate social responsibility. However, the future of those standards will look as globalized as the corporations themselves, originating from the United States, the European Union, and international non-governmental organizations. The authors maintain that without effective regulation or social pressure, corporations may be paralyzed by the "paradox of responsibility" rather than moved to action.

"Our research shows that regulation is the surer path to soulful corporate behavior. In the absence of regulation and other forms of organized social pressure, multinational corporations are unlikely to adopt best practices," the authors conclude.

This article appeared in the Winter 2008 Stanford Social Innovation Review, available online here.

Written by Leah Sipher-Mann

For more information, contact:
Bernie DeGroat, (734) 936-1015 or 647-1847, bernied@umich.edu