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Responsible Corporate Governance:

Coordinating Efficiency and Justice

IVR World Congress Beijing

September 15-19, 2009Pitman B. Potter

Abstract

Corporate governance and corporate social responsibility involve internal and

external expressions of the operational imperatives of business firms. Whereas corporate

governance often entails principles of efficiency, CSR involves principles of fairness.

This paper will examine the challenge of coordinating norms of corporate social

responsibility with practices of corporate governance. While CSR involves primarily

issues or relations between business firms and the outside community, corporate

governance is largely an internal matter. And while CSR concerns challenges of justice

(social, economic, environmental, etc.) for those who are affected by business behavior in

the world, corporate governance generally addresses issues of efficiency in business

management within the firm. Including CSR norms in the processes for strengthening

corporate governance faces challenges similar to those facing the problem ofcoordinating compliance with international trade and human rights standards. These

difficulties stem in part from conceptual differences and assumed trade-offs between

regimes of efficiency and justice, as well as from general lack of communication and

collaboration between specialists involved in these different sectors less pronounced

perhaps than the divide between trade and human rights specialists but real nonetheless.

Drawing on the authors paradigms of Selective Adaptation and Institutional Capacity,

this paper will examine the normative and organizational challenges to coordinating CSR

norms with corporate governance practices in China. Drawing on these normative and

organizational perspectives and local examples, the paper will examine the possibilities

and obstacles to coordinating CSR and corporate governance standards. The paper will

serve as a case study on the broader topic of coordinated compliance.

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Coordinating norms of corporate social responsibility with practices of corporate

governance mirrors many of the challenges facing coordinating protection of trade and

human rights. Such coordination is an issue of critical importance for a world of

increased globalization and interdependence. International academic and policy

discourses have made significant contributions to understanding and defining the

parameters for international trade policy and human rights policy. Challenging academic

and policy discourses that treat trade and human rights as separate and potentially

conflicting regimes, coordination of trade and human rights compliance involves building

normative and institutional foundations that encourage enforcement of international

standards in both sectors.

International trade and human rights have multiple related contexts and mutual

influences. For example, trade liberalization rules restricting government assistance to

nascent industries have potential impacts on human rights issues over labor standards in

developing economies. As well, human rights imperatives on issues of health and

housing rights can affect multilateral efforts to entrench efficiency priorities in trade

relations. Coordination also affects the policy making context within which trade and

human rights matters are considered and decided. Linkages between trade and human

rights outcomes merit intensive research on conditions for coordinated compliance with

international trade and human rights standards. Research-driven policy proposals on

coordinated compliance with international trade and human rights standards can offer a

range of best practices for China and other economies to facilitate international

cooperation in a wide array of socio-economic and political relationships.

It is useful therefore to forecast conditions for coordinated compliance with international

trade and human rights standards. Predictable coordination can in turn facilitate strongercooperation in trade and human rights relations, such that expanded trade connections can

be demonstrated to contribute to improved human rights conditions and vice versa.

Addressing the needs of coordinated trade and human rights compliance through

domestic economic and social regulation will benefit multiple sectors of Chinas

development project. Coordinated compliance also has implications for performance of

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international treaty standards in areas such as security, climate change, and resource and

technology policy.

Challenges of labor relations, health care, and environmental protection are key policy

issues for the PRC government. However, the public sector measures alone will likely be

inadequate to address these problems effectively. Greater participation by the private

sector will be essential. Hence there is a great need to coordinate public sector efforts to

redress labor, health, and environmental issues with private sector initiatives. This

provides an important opportunity for strengthening corporate social responsibility and

managing a transition from voluntary efforts to genuine compliance.

The relationship between corporate governance and corporate social responsibility echoes

many of the tensions that hamper coordination between trade and human rights policy

and practice. Corporate governance models, such as that expressed through the Company

Law of the PRC, emphasize shareholder interest and accountability of directors and

managers, but these are couched in terms of business interest return on investment,

profitability and the like. Corporate social responsibility addresses a number of themes in

relations with society at large, of which labour management, health care, and

environmental protection are key examples. While the themes of efficiency that inform

corporate responsibility paradigms and the imperatives of fairness that characterize CSR

ideals tend to operate at cross-purposes, they need not do so. One possible approach to

ensuring that corporate governance dynamics support the goals of corporate social

responsibility would be through enforcing the public interest criteria for validity of

contracts under the Contract Law of the PRC.