1. September 16th 2005ICCSR - Business Government and CSR1 A preface to the political theory of economic organization Positive and normative perspectives on corporate governance J. (Hans) van Oosterhout RSM Erasmus University joosterhout@rsm.nl

2. September 16th 2005ICCSR - Business Government and CSR2 Intro and agenda

3. September 16th 2005ICCSR - Business Government and CSR3 Intro and Preliminaries Associate professor, Department Business Society Management, RSM Erasmus University Research interests: –positive and normative theory of institutions and organizations –comparative economic and political organization –corporate governance –corporate governance and corporate crime

4. September 16th 2005ICCSR - Business Government and CSR4 Agenda Observations, diagnosis and proposal Basic framework for a political theory of economic organization Applications Discussion

5. September 16th 2005ICCSR - Business Government and CSR5 Observations, diagnosis and proposal

6. September 16th 2005ICCSR - Business Government and CSR6 Some observations Economic organization does not exist in societal vacuum Features of private enterprise organization at least partly explained by (lack of) public and societal features (institutions) Business has significant social side effects Corporations—and other business organizations— ‘naturally’ have ‘non-business’ functions, tasks and features

7. September 16th 2005ICCSR - Business Government and CSR7 My diagnosis Dominant concepts and theories: –Corporate Social Responsibility –Stakeholder theory –Corporate Citizenship Metaphorical rather than conceptual Lack of ‘theoretical’ and empirical content? Ideology?

8. September 16th 2005ICCSR - Business Government and CSR8 My proposal Lets forget about these ‘concepts’ and ‘theories’ Develop comprehensive conceptual framework to answer the questions: 1.what explains the division of labor between –markets and hierarchies –public and private institutions in a globalizing economic order ? 2.what division of labor is desirable or justified? 3.what are the implications of 1 & 2 for corporate governance more specifically? A political theory of economic organization

9. September 16th 2005ICCSR - Business Government and CSR9 Why a political theory? Concern with basic institutional order (facilitating human coordination and cooperation) –Polity: e.g. property rights, market vs. hierarchy –Policy: what is the purpose of the firm? Both efficiency and legitimacy count in economic organization Methodological ecumenism –positive and normative theory building –conceptual and empirical research –different levels of analysis –behaviorism and phenomenology

10. September 16th 2005ICCSR - Business Government and CSR10 The basic framework

11. September 16th 2005ICCSR - Business Government and CSR11 Theoretical core propositions 1.Both states and firms are authority systems (conceptual claim); 2.predicate on a similar general justificatory logic (normative claim), yet; 3.they are different in terms of the specific conditions and considerations that justify authority in each (positive claim).

12. September 16th 2005ICCSR - Business Government and CSR12 Two kinds of authority? PA Ci The State Ow Ma Em The public firm

13. September 16th 2005ICCSR - Business Government and CSR13 A Hobessian view of corporate authority PA Ci The State Ow Ma Em The public firm ?

14. September 16th 2005ICCSR - Business Government and CSR14 Perspective 1.Corporate authority best seen as a continuation of public authority by private means Adjudicative: ex post division of quasi rents Legislative: re-assignment of property rights 2.Embedded or federal structure of authority in society 3.What determines division of labor between levels? Competition: markets and jurisdictional competition Politics: the quest for legitimacy

15. September 16th 2005ICCSR - Business Government and CSR15 Applications

16. September 16th 2005ICCSR - Business Government and CSR16 4 applications, 1 example 1.Political theory of enterprise organization 2.A theory of corporate purpose 3.Economic democracy? Workplace democracy? Shareholderdemocracy? 4.Corporate crime (and social cost)

17. September 16th 2005ICCSR - Business Government and CSR17 Corporate crime Certain crimes have a corporate dimension The problem of ‘many hands’ Two gaps: –retribution gap –deterrence gap Corporate criminal liability (CCL)?

18. September 16th 2005ICCSR - Business Government and CSR18 CCL in the US Extension of tort doctrine ‘respondeat superior’ Corporations vicariously liable for the actions of their employees when these: –take place within normal scope of employment –benefit the firm Economic rationale: firms more efficient monitors than public law enforcement agencies (compare business judgment rule) Extra-territorial reach of CCL (e.g. SOx 2002, SEC rules)

19. September 16th 2005ICCSR - Business Government and CSR19 Corporate policing FSG for Organizational Defendants Both ex ante prevention and ex post offence cooperation pay! (reduction of fine) –ex ante ethics programs, compliance officers –ex post cooperation with prosecutors Strategic risk and blame shifting (scapegoating) Hence: corporate policing

20. September 16th 2005ICCSR - Business Government and CSR20 Corporate policing and corporate governance Corporate policing = private extension of public law enforcement Renegotiation of ‘the corporate contract’? Multilevel negotiations (beyond corporate constituencies) –high or asymmetrical bargaining costs? –Is competition on safeguards desirable? –Jurisdictional issues (e.g. unlimited shareholder liability for corporate torts and crimes? Both efficiency and other (e.g. retributivist, restorative justice) considerations count in negotiating mutual safeguards

21. September 16th 2005ICCSR - Business Government and CSR21 Discussion

22. September 16th 2005ICCSR - Business Government and CSR22 Conceptual progress? Conceptual and theoretical clarity (more established concepts and theories) Explanatory surplus Comprehensive perspective on corporate governance –multilevel analysis (regimes) –public and private ordering –normative and positive analysis –not just efficiency Separation of positive and normative claims