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College of Business Administration
University of Rhode Island
2013/2014 No. 2
This working paper series is intended tofacilitate discussion and encourage the
exchange of ideas. Inclusion here does notpreclude publication elsewhere.
It is the original work of the author(s) andsubject to copyright regulations.
WORKING PAPER SERIESencouraging creative research
Office of the DeanCollege of Business AdministrationBallentine Hall7 Lippitt RoadKingston, RI 02881401-874-2337www.cba.uri.edu
William A. Orme
Silvia Dorado, Alex Nicholls, and Bogdan Prokopovych
Advancement of Social Welfare'Greed is Good'? Market Coordination and Corporate Engagement in the
‘Greed is Good’? Market Coordination and Corporate Engagement in the Advancement of
Social Welfare
Silvia Dorado Alex Nicholls
Bogdan Prokopovych
Under consideration for publication in
Academy of Management Review Journal Special Issue on “Management Theory and Social Welfare”
November 15, 2013
Please do not quote,
Please cite as: Dorado, S., A. Nicholls, and B. Prokopovych. 2013. ‘Greed is Good’? Market Coordination and Corporate Engagement in the Advancement of Social Wefare. Working Paper Series. College of Business of Administration. University of Rhode Island
1
‘Greed is Good’? Market Coordination and Corporate Engagement in the Advancement of Social Welfare
ABSTRACT
Conventional market logics suggest that corporations are not expected to advance social welfare
goals beyond what is required by the law. Corporations violating this prescription are expected to
be, at worst, unsustainable over time or, at best, engaged in window dressing. Conversely,
organizations that state their strategic objectives as social welfare-focused are not expected to
pursue profit-making or adopt a corporate ownership form. In this paper, we advance a new,
market-based, model to explain the engagement of corporations in the advancement of social
goals. The model suggests that it is possible for corporations to integrate profit and social
welfare goals. It identifies the institutional conditions that influence the likelihood of this
integration happening. The model departs from a crucial assumption about markets, namely
their disembeddedness from norms other than profit maximizing. To do this, it builds on a
model of market embeddedness developed by Beckert (2009) focused on norms that solve three
coordination problems: value, competition and cooperation. The paper builds on this model to
identify the institutional conditions that facilitate the integration of social goals (outside the
market) with economic goals (inside the market).
INTRODUCTION
Current management theories fail to explain adequately the engagement of corporations in the
advancement of social welfare goals (Campbell, 2007; Donaldson, 2012; Margolis & Walsh,
2003). The central assumption is an economic one based on ownership and governance.
Corporations and other organizations with private owners are assumed to advance profit goals,
whereas ‘public benefit’ organizations such as charities, community based organizations, Non-
2
Governmental Organizations (NGOs), not-for-profits and state-owned agencies are assumed to
advance social ones. The empirical evidence, however, suggests the existence of a range of
organizations that focus on both profit-making and social welfare goals with a growth in the
number of firms that follows this approach. The evidence, therefore, calls for new theoretical
developments that help us to explain the engagement of organizations in advancing both
economic and social welfare goals. In this paper, we take on that task of exploring, specifically,
why corporations engage in the advancement of social welfare goals. This question is
particularly relevant considering the growing evidence of such corporate activity (Williams &
Aguilera, 2008) in various forms (Spar & La Mure, 2003).
This evidence tests the key tenets of organizational economics in terms of governance theories
based on ownership structures (Coase, 1937; Friedman, 1970; Jensen & Meckling, 1976). As a
consequence, there has been a growing acknowledgement that organizational economic theories
‘neglect[s] morally normative concepts’ (Coase, 1960; Donaldson, 2012, p. 256). This work has
also yielded an alternative understanding that roots the governance of organizations in
considerations not of ownership but of ‘stakeholder’ structure (Donaldson & Preston, 1995).
From this perspective, differences in corporate engagement in social welfare are driven both by
the nature of an organization’s stakeholders and by their ability to frame decision-making
effectively considering issues of resource dependence (Frooman, 1999) and organizational
legitimacy (Mitchell, Agle, & Wood, 1997).
Elsewhere, scholars embracing institutional approaches (DiMaggio & Powell, 1983; Scott, 2008;
Thornton, 2004) have also pointed to weaknesses in this ownership based model. Building on
3
comparative institutional research, this scholarship powerfully argues that differences in
corporate engagement with social welfare are the consequence of social expectations with
historical, cultural, and regulatory roots (see Aguilera & Jackson, 2010 for a discussion). More
recently, these scholars have further refined explanations of differences in engagement building
on research on historical trends defining global changes in societal expectations of corporations
(Aguilera et al, 2007; Levy & Kaplan, 2008), as well as on the emergence and influence of social
movements in ‘encouraging’ such engagement (Aguilera et al., 2007; Campbell, 2007). This
research has advanced views that connect differences in engagement with the presence and
effectiveness of what Offe (1985) described as ‘new economic social movements’: that is, social
movements targeting the advancement of social goals within the market (Gendron, Bisaillon, &
Rance, 2009). This includes movements such as shareholder activism (Davis & Thompson,
1994), activist NGOs (Spar & La Mure, 2003), consumer boycotts (King & Soule, 2007), public
campaigning (Jackson, 2005), and positive ethical consumption (Gendron et al., 2009).
These various theoretical reflections on emerging empirical evidence - the acknowledgement of
the social disembeddedness of organizational economics, the introduction of the concept of
stakeholder governance, the highlighting of the influence of social expectations, and the
acknowledgement of the influence of new economic social movements - have brought about an
unexpected rapprochement in our explanations that dimensionalize corporate engagement in
social welfare beyond a model rooted in differences of ownership structure. Ironically (and in all
likelihood unintentionally: Margolis & Walsh, 2003), when considered jointly these perspectives
point to instrumental logics as the explanation for corporate engagement in social welfare: that is
they suggests that, apart from differences based upon social and historical factors, corporations
4
only engage in social welfare when there are financial benefits to be derived (Gao & Bansal,
2013) in accordance with the logics of private, for profit, ownership structures.
In short, recent theoretical developments aimed at explaining the differences in social
engagement among corporations, while adding nuance, have brought us full circle and support
the dominant bifurcation between private-owners and for public-benefit organizations. As a
consequence, these perspectives fail to explain the differences in social engagement - evident in
reality - between companies with similar ownership structures, stakeholder basis, and subjected
to similar social movements. Spar and La Mure (2003) provide a telling example:
In 1995, a group of Burmese and American graduate students at the University of
Wisconsin at Madison created the Free Burma Coalition (FBC), a non-governmental
organization (NGO) comprising a diverse mix of high school, university,
environmental, human rights, religious, labor, and grassroots organizations.
Reacting to the Burmese military government’s atrocious human rights record and
disdain for democracy, the Coalition sought to cut the flow of foreign currency
provided by multinational investors and strengthen the country’s prospects for
democratic leadership. In pursuit of these objectives, the FBC targeted firms that
sourced or produced goods in Burma with peaceful protests, consumer boycotts,
shareholder activism, and federal and state lawsuits. (…) By 2002, at least thirty
firms—including Adidas, Costco, Wal-Mart, and Levi Strauss—had bowed to FBC
pressure and shuttered their Burmese operations. However, a handful of
companies—such as Unocal, Suzuki, and France’s Total—vowed to remain. Despite
5
embarrassing public protests and an ongoing barrage of lawsuits and related forms
of activism, these firms elected to maintain, even to augment, their businesses in
Burma.
This example demonstrates that the extant theories explain why some of these companies
responded but not why others refused. To provide a full explanation of such behaviors,
significant theory development is required.
Some scholars have begun this task. One strand of work uses multilevel theories that explain
engagement as the intersection of drivers at diverse levels (individual, organizational, field, and
industry; Aguilera et al., 2007). Another approach, which we embrace in this paper, is a
redefinition of corporate social welfare engagement that overcomes definitions that present it as
a distinct from, and in opposition to, the profit motive within rational market action (Gao &
Bansal, 2013; Margolis & Walsh, 2003; Porter & Kramer, 2006, 2011), preferring instead to
explore how and why social welfare and economic goals can be integrated. From this vantage
point the central question to explain corporate engagement in social welfare is not why would
corporations engage but can social and economic goals be integrated within the market? In this
paper we tackle this question by exploring the drivers of corporate social welfare activities as
part of a larger set of market co-ordination issues.
To date, scholars considering this issue have posed it as fundamentally a cognitive problem.
From this perspective, the integration of social welfare and economic goals hinges on the
management capacity for paradoxical thinking (Gao & Bansal, 2013; Jay, 2013; Lewis, 2000;
6
Smith & Tushman, 2005): that is, the management’s ability to recognize and embrace
contradictions across the financial, social and environmental dimensions of business and to seek
solutions for this system of interrelated elements (Gao & Bansal, 2013: 244). Without
contradicting this perspective, we argue here that a capacity for paradoxical thinking may not be
enough to explain observed reality and that, in many cases, it may not even be required.i As is
suggested in the entrepreneurship literature, the identification of opportunities for the integration
of social welfare and economic goals may depend as much on managers’ creativity as on the
existence of institutional conditions that facilitate execution (Dorado, 2005; Shane &
Venkataraman, 2000). In summary, this paper aims to identify institutional conditions
(DiMaggio & Powell, 1983; Rao, 1998; Scott, 2008; Suchman, 1995) required for the integration
of social welfare and economic goals within corporate market activity.
To do this, we build on research at the intersection of political economy (Hirschman, 1997;
Polanyi, 1957) and economic sociology (Beckert, 1996; Granovetter, 1985) focused on the
embeddedness of markets. This body of research suggests that whereas neoclassical economics
offers a view of markets as largely disembedded, this represents an over-simplified
understanding that disregards the fact that markets are moored, not only on to networks of social
relations (Granovetter, 1985), but also on cognitive, cultural, and political infrastructures (Dacin,
Ventresca, & Beal, 1999; Zukin & DiMaggio, 1990). Recent research on economic sociology
and management has advanced our understanding of how markets are moored on a network of
social relations (Poppo & Zenger, 2002; Uzzi, 1997), but our understanding of other ‘moorings’
remains somewhat underdeveloped. Working at the intersection of political economy and
economic sociology, Beckert (2009, 2011, 2013) suggested a framework that addresses this
7
problem. We find this framework centrally relevant to understand the integration of social goals
that are, by standard definition, outside of the market and economic ones that are within it.
Beckert’s (2009) framework dimensionalizes the idea of the embeddedness of markets
suggesting that it is useful to think about it in terms of how social, cognitive, cultural, and
political mechanisms alleviate three key coordination problems required for markets to form and
operate effectively, namely: value (customer preferences); competition (strategies for
competitive advantage); cooperation (mechanisms that reduce the social risks inherent in the
transactions of goods and services). Building on this analysis we develop a model here that
allows for the identification of social, cognitive, cultural, and political arrangements (i.e.
institutional conditions) that facilitate the engagement of corporations in the advancement of
social welfare goals: that is, the conditions that, not only address coordination problems, but that
also facilitate (and even drive) the integration of social welfare and economic goals.
The paper proceeds as follows. Next it discusses the emergence and value of an exploration of
corporations’ engagement in the advancement of social welfare considering it as integrated with
their economic pursuits. Then the paper introduces the political economy underpinnings of the
theoretical model and the model itself with a detailed exploration on how the three coordination
problems identified by Beckert helps to explore the likelihood of corporations’ engagement in
the advancement of social welfare. The paper makes two important contributions. First, it
creates a conceptual bridge to connect findings from political economy (Gereffi, 2005),
economic sociology (Beckert, 2009) and management (Levy & Kaplan, 2008; Porter & Kramer,
2006) to advance cross-disciplinary research on corporations engagement in the advancement of
8
welfare goals. Second, it sets the stage for a research agenda on the integration of social and
economic goals focused not only on individual capabilities for paradoxical thinking (Gao &
Bansal, 2013) and the organizational challenges involved in combining social and economic
goals (Pache & Santos, 2010), but also the institutional conditions that facilitate or hinder this
integration.
CORPORATE SOCIAL RESPONSIBILITY (CSR) 2.0
In recent decades, we have seen a significant shift in terms of society’s expectations regarding
the engagement of corporations in advancing social welfare goals (Aguilera et al., 2007;
Gendron et al., 2009; Levy & Kaplan, 2008). Today, in developed countries, corporations are
being increasingly judged by public opinion not only by their economic performance but also by
their contribution (or lack of it) to environmental sustainability and social welfare (within and
without the boundaries of the organization itself: Gao & Bansal, 2013; Hart & Milstein,
2003;Porter & Kramer, 2006). These judgments can have major implications for perceptions of
organizational legitimacy and, as a result, have a strong effect on resource acquisition and
maintenance (Suchman, 1995). As a consequence, attention to the wider – and changing – public
expectations of the responsibilities of corporations has become a central strategic issue (Spar &
La Mure, 2003). Thus, what was only a marginal concern during the late 1970s – a firm’s social
and environmental performance - has now become a relevant concern for managers. This shift is
reflected in the development of a global infrastructure of institutions that aim to publicize,
monitor, and report on corporations’ social and environmental performance (Waddock, 2006).
These include formal rankings that evaluate and monitor such performance, such as the 100 Best
Corporate Citizens list, global standards such as the UN’s Global Reporting Initiative (GRI), and
9
advanced accountability initiatives, such as the ISO 14000 family and FSC certification in the
forestry industry, Fair Trade certification for commodity supply chains, or the SA 8000 from
Social Accountability International (SAI) in the textile industry (Aguilera et al., 2007; Gendron
et al., 2009; Waddock, Bodwell, & Graves, 2002).
The social movements literature identifies this shift too (Gendron et al., 2009; King & Soule,
2007) noting a change in public opinion concerning corporations’ responsibility to communities
and the planet (Gladwin, Kennelly, & Krause, 1995). However, frequently calls for corporations
to assume their social responsibilities are broad and pay little attention to the specifics of the
products and services they offer: ‘goods and services that may have little to do with ameliorating
human misery’ (Margolis & Walsh, 2003: 269).ii
These calls then fit well with the traditional layered understanding of corporate social
responsibility, which has economic and legal responsibilities at the base and social
responsibilities at the top (see Table 1). This pyramidal model is consistent with a fundamental
neoliberal assumption that the engagement of corporations in the advancement of social goals is
‘neither permissible nor prudent’ (Friedman, 1970) and that corporations may only consider
addressing social welfare goals if and when they are profitable and financially healthy and, only
then, as philanthropic or CSR initiatives separate from core activities (Campbell, 2007).
____________________
Insert table 1 around here
____________________
10
This hierarchical model (Carroll, 1991), reminiscent of Maslow’s Hierarchy of human needs,
frames a corporation’s engagement in pursuing social welfare goals as, fundamentally, an
instrumental endeavor (Gao & Bansal, 2013): that is, it is only justifiable if it positively impacts
the bottom line (Jones, 1995).
Nevertheless, these perspectives have also been critiqued (Gao & Bansal, 2013; Margolis &
Walsh, 2003; Porter & Kramer, 2011). Scholars have offered new conceptualizations of CSR
that suggest a more integrated and less hierarchical relationship between economic and social
welfare goals: for example, the idea of corporate citizenship (Matten & Crane, 2005) or
Waddock’s reconceptualization of CSR and simply ‘corporate responsibility’ (Waddock et al.,
2002) (see Table 1). The crux of the criticism is that, by presenting corporate engagement in
social welfare as discrete and sequential, ‘as if such decisions are emerging distractions’, these
perspectives ‘artificially polarize business and society, as if the two are at odds’ (Gao & Bansal,
2013: 241). Moreover, it has been suggested that framing corporations as primarily consumers
of social/public and environmental goods rather than contributors to social and environmental
assets is historically inaccurate (Polanyi, 1957). In reality, this is also rather disingenuous when
we consider the impact (positive and negative) that corporations have - often via the externalities
of their operations - on fundamental welfare issues including income security, health, or climate
change (Levy & Kaplan, 2008).
The idea that corporations can address social welfare goals whilst pursuing economic objectives
does not imply a naïve disregard for the ‘underlying tensions between the social and economic
imperatives that confront organizations’ (Margolis & Walsh, 2003: 280). Rather, it follows from
11
an emerging realization that the two can be reconciled under certain circumstances. One recent
and influential argument suggests that managers are increasingly identifying opportunities to
create ‘shared value’ (Porter and Kramer, 2011): namely, business pursuits that integration social
welfare and economic goals. However, in reality, the optimism of the shared value analysis has
been tempered by research suggesting that identifying such opportunities is not an easy task. In
this sense, Gao and Bansal (2013; see also Jay, 2010) argued that the identification of such
opportunities is only possible by managers and entrepreneurs skilled at an integrative logic that
does not dismiss, but accommodates, paradoxical thinking to transcend the logic tensions and
identify creative solutions, as noted above. However, as suggested in the broader
entrepreneurship literature, opportunities for paradoxical thinking to integrate social and
economic goals are only possible when realized in the practice. In other words, the realization of
opportunities to integrate social and economic goals does not occur in a vacuum, but is either
facilitated or hindered by the institutional conditions these managers and entrepreneurs encounter
in practice (Dorado, 2005; Westley et al., 2013). This perspective is valuable not only because it
is consistent with the substantial body of research examining the difficulties encountered by
corporations trying to advance social welfare agendas (see e.g. O’Toole & Vogel, 2011), but also
because it allows for a more fine-grained understanding of engagement beyond sharp divisions
rooted in differences in the ownership (privately or not) and governance (for private benefit for
public benefit) of organizations.
As detailed in the next section, we argue here that a conceptualization of the institutional
conditions under which corporations can identify and pursue opportunities to integrate social and
economic goals requires a rethinking of the relationship between business and society (Margolis
12
& Walsh, 2003). In this paper, we argue that this is best conceptualized by building on current
political economy and economic sociology research concerning the embeddedness of markets in
society (Beckert, 2013; Gereffi, 2005; Lamont, 2012; Zuckerman, 2012).
THE ‘DISEMBEDDED’ MARKET?
Building on the work of political economists (Hirschman, 1997; Polanyi, 1957) and economic
sociologists (Beckert, 2009; Granovetter, 1985; Lamont, 2012; Zelizer, 1985; Zuckerman, 2012),
we argue here that the institutional conditions required for the pursuance of opportunities that
integrate social welfare and economic goals require the development of markets moored in
specific social expectations and structures that support the integration of these twin goals.
In a careful review of the intellectual traditions from the time of Hobbes’ Leviathan to Smith’s
The Wealth of Nations, Hirschman (1997) explained the triumph of the idea of self-interest,
presented as a valuable social good because of its ability to provide a predictable environment
for action. The argument Hirschman reached through his historical review of Western thought
on the social value of markets governed by a self-interest maximization norm (Smith, 1776), is
captured in the famous speech by Gordon Gekko in the 1980s movie Wall Street:
The point is, ladies and gentleman, that greed, for lack of a better word, is good.
Greed is right, greed works. Greed clarifies, cuts through, and captures the essence
of the evolutionary spirit.iii
13
This argument, that self-interest provides clarity and predictability, represents a particular
reading of the argument offered in The Wealth of Nations on the value self-interest as an invisible
hand that generates allocative efficiency (i.e. collective wealth) across society. In Hirschman’s
work the social contribution of self-interest derives not from its allowing for higher levels of
allocative efficiency (although he does not argue against this) but, rather, from its role fueling
support, particularly from social elites, to demand policies that support market order (i.e. enough
for market participants to act strategically in pursuance of their self-interest). This accords with
Smith’s earlier notion of formalized market exchange as a civilizing mechanism to reduce armed
conflict between individuals and nations.
The focus on self-interest as a driver of allocative efficiency, is at the core of the normative
division between organizations pursuing economic goals and those pursuing social welfare goals.
But this narrow focus fails to consider the role of self-interest as fuel for policies to support
market order absent in Adam Smith’s formulation. The practical consequences of this narrow
interpretation were most convincingly brought to the forefront by Polanyi (1957) in his The
Great Transformation which analyzed the 1929 crisis. He argued there that the roots of this crisis
lay in the development of the modern market which, largely unfettered by norms other that the
advancement of self-interest, experienced a self-generate collapsed of unexpected scope and
geographic coverage. He conceptualized this unfettered market as ‘disembedded’ and placed
blame on the policy shapers of the time. Schooled in this powerful idea of self-interest as
sufficient for market order, they casted economic exchanges already adrift from the social norms
(reciprocity, redistribution, householding, and autarchy) to which they had until then been
14
moored (Zukin & DiMaggio, 1990: 3) without introducing alternative norms and policies to keep
them anchored and temper the rock bottom bust cycle it would finally experience in 1929.
Subsequent research by economic sociologists has focused on the value of Polanyi’s work to
further our understanding of market embeddedness beyond explaining the problems deriving
from disembeddedness. Among them Beckert (2009) suggests that modern markets are possible
only in the presence of institutional conditions, embedding exchanges, that help to solve three
key coordination problems: namely, value, competition, and cooperation. This work follows
Geertz’s (1978) distinction between the modern market and the bazaar. According to Geertz (an
anthropologist studying exchanges in premarket societies) market exchanges may happen in the
absence of institutional conditions that solve the three coordination problems identified by
Beckert. These exchanges will not resemble those of the modern market, i.e. transactions among
individuals without a prior relationship--what Uzzi (1997) described as arms-length transactions,
but those that happen in a ‘bazaar’ (Geertz, 1978): the type of market that preceded the
development of the modern market. This is how Geertz (1978) described a bazaar:
… the bazaar is more than another demonstration of the truth that, under whatever
skies, men prefer to buy cheap and sell dear. It is a distinctive system of social
relationships centering around the production and consumption of goods and
services … Neither the rich concreteness or reliable knowledge that the ritualized
character of nonmarket economies makes possible, nor the elaborate mechanisms for
information generation and transfer upon which industrial ones depend, are found in
the bazaar: neither ceremonial distribution nor advertising; neither prescribed ex-
15
change partners nor product standardization. The level of ignorance about
everything from product quality and going prices to market possibilities and
production costs is very high, and much of the way in which the bazaar functions can
be interpreted as an attempt to reduce such ignorance for someone, increase it for
someone, or defend someone against it (Geertz, 1978: 29)
As this quote suggests exchanges in the bazaar are surrounded by uncertainty. The ‘value’ of the
products and services is often unclear in the absence of reliable quality indicators, ‘competition’
among buyers and vendors is fierce as they have few mechanisms with which to build
sustainable advantage, and ‘cooperation’ - that is a guarantee that one party will not abuse
another - is largely absent.
We argue here that a focus on the order offered by the three coordination problems for markets
to operate identified by Beckert provides a useful model with which to explore when and
whether corporations pursue opportunities that integrate social welfare and economic goals. The
pursuance of social welfare goals, when understood as a discrete and optional added-on to
corporations’ economic and legal responsibilities, does not require a formal market setting; a
bazaar is enough since the exchange may not be repeated and its failure is unlikely to reflect
poorly on the organization. But a perspective that suggests that the organization can integrate
social welfare and economic goals requires solving these coordination problems. The next
section further explores and develops this model.
16
GREED IS GOOD?
Beckert (2003, 2009, 2012) argued that markets are ‘highly demanding areas of social
interaction’ which require participants to coordinate (i.e. order activists). In other words,
markets require participants mutually to align their actions under conditions defined both by
uncertainty and a high likelihood of conflict among their interests. Accordingly, because
exchanges are ‘laden with social risks and uncertainty’, (Beckert, 2009; see also Geertz, 1978),
they can only exist in the presence of institutional conditions that allow actors to resolve three
coordination problems: namely value, competition, and coordination (see Table 2). Following a
similar logic, we expect corporations to realize opportunities to integrate social welfare and
economic goals in the presence of institutional conditions that allow for the alleviation of the
risks and uncertainty surrounding exchanges around this integrated opportunity. Each
coordination challenge is now considered in turn.
____________________
Insert Table 2 around here
____________________
Value
The value coordination problem focuses on the constitution of consumer preferences. It suggests
that market exchanges are unlikely where there is uncertainty regarding the value of what is
exchanged. The problem is individual and subjective, but it is also collective and cultural.
Individuals’ preferences are, by and large, seen as socially disembedded and can thereby be
assumed away either as given and, thus, stable or highly contingent and random (De gustibus
17
non est disputandum: see Stigler and Becker, 1977; Beckert 2009: p. 254). There is, however, a
body of research suggesting that preferences can be assumed away only in some circumstances
while, in others, they are clearly embedded in socio-cultural structures that cannot be disregarded
in market exchange settings (Lamont, 2012). Two examples of markets that, in the absence of
institutional conditions, would function much like Geertz’s bazaars are the wine market and the
market for contemporary art (Beckert & Rössel, 2013; Beckert, 2011; Velthuis, 2005). In
modern markets for these goods value and price are crucially defined by institutional conditions
that include mechanisms such as expert judgment, reputation, place of origin, taste makers and
the like.
In the context of the integration of social welfare and economic goals, consumer preferences
range from preferences based on the intrinsic value of the goods and services to those fully
determined by social concerns and contexts (e.g. girl scout cookies). We argue here that, for the
purposes of explaining the engagement of corporations in social welfare, it makes sense to
consider the institutional conditions defining consumer preferences that favor the integration of
social welfare and economic goals. In this context, researchers have pointed to preferences
anchored by new social movements (Offe, 1985) that search to ‘embed’ exchanges in moral and
environmental concerns (e.g. packaging and waste, organics, and distance between producers
and markets) as well as other concerns around animal testing and social justice (Nicholls, 2002).
This translates into customers being ‘willing to pay a higher price because their production and
distribution conforms to ethical standards of fair trade, environmental sustainability or higher
labor standards’ (Beckert, 2011, p. 776).
18
Nevertheless, this anchoring is not without challenges. There is a substantial body of research on
ethical consumerism (see e.g. Nicholls & Lee, 2006; Taylor, 2005) and consumer activism (King
& Soule, 2007; Micheletti & Stolle, 2005; Micheletti, 2003) that has addressed the question of
how consumer preferences support or undermine the engagement of corporations in social
welfare (see e.g. Micheletti & Follesdal, 2007). This research finds that preferences rooted in
these social trends favor the development of markets that support the integration of social and
economic goals. For example, an ‘analysis of European Social Survey data shows that, on an
average, 16 percent of adults in twenty European countries have boycotted certain products for
political reasons and that 24 percent have deliberatively purchased products for the same reasons’
(Micheletti & Stolle, 2005: 146). In turn, Smith and Barrientos (2005: 194) mentioned that in
the UK all major supermarkets ‘now stock at least one fair trade product and they have seen
impressive year-on-year growth in fair trade sales – a 112 per cent increase from 2002 to 2003
for the Co-Op, 70 per cent for Tesco and 24 per cent for Waitrose’. Stoke (2010) reported that,
in the US, Transfair ‘now works with over 800 companies that serve an estimated 40 million
consumers through over 50,000 retail outlets’. Some of these outlets include the best-known US
retailers including Whole Foods Markets, Target, Costco, and Wal-Mart.
Interestingly, social psychological research on this area suggests that the relevant trend here may
not be the usual altruistic desire to ‘do good’ identified with ethical consumption. Rather
researchers have pointed to social status and reputation as the dominant social factors framing
ethical consumption. Status ‘implies a hierarchy of rewards, whereby higher status individuals
have greater access to desirable things’ and it can be equated with prestige (Griskevicius, Tybur,
& Van den Bergh, 2010: 393). This is supported by research that has shown that self-sacrifice
19
for the benefit of a group of strangers increases the self-sacrificer’s status in that group, including
the likelihood that the person will be selected as a leader (Griskevicius et al., 2010). Similarly,
when discussing the role of reputation associated with ‘ethical’ behavior, scholars have also
suggested that a reputation as a cooperative and helpful group member can be extremely valuable.
Individuals with these reputations are not only seen as more trustworthy, but they also appear to
be perceived as ‘more desirable as friends, allies, and romantic partners’ (Griskevicius et al.,
2010).
In short, research has shown that the rise of ethical consumption and consumer activism has
helped created an increasingly normative value proposition that supports exchanges in markets
defined by the integration of social welfare and economic goals. It has also shown that these
preferences may not be altruistic in nature. Nevertheless, what is relevant here is that, altruistic
or not, these preferences provide actionable expectations for corporations, showing that there is a
(growing) market for products and services that integrate social welfare and economic goals.
Connected with these preferences rooted in ethical consumption models, we have also seen in
recent decades the emergence of certification and labeling initiatives that have helped define the
ethical consumption market (Table 3 provides a list of some of the main initiatives). Particularly
interesting because of their level of development and spread are fair trade labels. Fair trade
labeling efforts began in Europe during the 1990s. Currently there are fair trade certification
schemes covering a range of products, mostly commodities and food (e.g. cocoa, coffee, tea,
fresh fruits and vegetables). Nevertheless, even when the institutional conditions (social trends
such as ethical consumption) are in place to solve the value coordination problem in markets that
20
integrate social welfare and economic goals, other coordination issues still need to be taken into
account: these include the institutional conditions that solve the competition and cooperation
coordination problems in these markets.
____________________
Insert Table 3 around here
____________________
Competition
The issue of consumer valuation precedes and defines the overall market exchange but when
discussing the other two coordination problems, competition and coordination, ‘the exchange
itself takes center stage’ (Beckert, 2009: 257). As shown in Table 2, the focus is on institutional
conditions that provide enough predictability in bargaining exchanges for key market
participants (labor, competitors, suppliers).
A neoclassical disembedded market, voided from institutional anchoring (outside the conditions
associated with perfect competition), will trend towards equilibrium generating the paradoxical
result of limited profits: in market equilibrium the marginal costs equal the marginal returns and,
thus, no profit beyond ‘the opportunity cost of the equity capital provided by the owner[s] of the
firm’ (Douma & Schreuder, 2008: 30) can be made (Beckert, 2009, p. 257). The sources of
profit for business, then, depend on their ability to build market asymmetries to take advantage
and contribute to the development of specific anchors (regulations, social trends, and
collaborative arrangements) that allow them to build competitive advantage and avoid perfect
21
competition. Such strategies define the ability of any one company to gain competitive
advantage (Barney, 1991; Porter, 2008).
Competitive strategies to assure profitability are a ‘contingent political and historical
phenomenon’. Regarding workers, they will be framed by factors such as regulation (e.g.
minimum wages, intellectual property or protection schemes), social trends, and collaborative
arrangements that define the relations of corporations with their workers. Regarding competitors,
strategies hinge on the ability to create consumer loyalty (e.g. branding) and move towards
singularization so as to create protected competitive spaces. Regarding suppliers, competitive
strategies rely on institutional forms like standard setting or voluntary agreements that operate as
soft law; they can also be based on networks such as cartels; and they can be based on
institutional logics (Thornton, Ocasio, & Lounsbury, 2012) -the taken-for-granted routine
knowledge on how to compete in a given market field (Fligstein, 2002).
In the context of markets facilitating the integration of social welfare and economic goals,
we agree with many researchers who have suggested that the retreat of the state and globalization,
has generated a higher degree of disembeddedment from norms supporting the integration of
social welfare and economic goals (Aguilera & Jackson, 2010; Gereffi, 2005; Levy & Kaplan,
2008). But this period has also witnessed the development of what Waddock (2008) describes a
‘corporate responsibility infrastructure’ alternative to that provided through the regulatory and
sanctioning powers of the state. This infrastructure includes organizations, associations, and
forums that have created norms and standards, pressures and processes, or other institutional
arrangements (Scott, 2008) for the regulation of the behavior of corporations around their
22
engagement in the provision of social welfare. As summarized in Table 2, the institutional
scaffolding provided by this infrastructure and its influence on corporations bargaining
positioning with respect to labor, other competitors, and suppliers supports the emergence of a
market facilitating the integration of social welfare and economic goals.
In terms of labor, this corporate social infrastructure includes organizations, such as the Fair
Labor Association (FLA) that aim to increase the global bargaining positioning of workers with
respect to multinational corporations. MacDonald (2011, p. 243) described the FLA as a ‘US-
based voluntary governance arrangement in which a number of high-profile apparel and
sportswear companies work together with universities and nongovernmental organizations
(NGOs) to promote compliance with core international labor standards within their supply
chains’. Its roots can be traced back to the ‘anti-sweatshop’ campaigns that emerged in the US in
the 1990s. Over the years, the FLA has gained prominence and its work made front-page news
when it exposed labor issues with Foxconn – one of Apple’s key suppliers in China - with the
result that Apple had to change its relationship with its Foxconn subcontractors.
Regarding competitors, the emergence of consumer preferences around ethical consumption and
their stabilization through the emergence of certification and labeling systems have allowed for
competitive differentiation and market niche building around social issues. The Body Shop,
Patagonia, Columbia, or Whole Foods Market all represent successful corporations whose
sustained integration of social welfare and economic goals is best understood in terms of their
ability to carve distinctive – and highly profitable - market niches. An alternative example is the
case of the ‘greening’ of the automobile industry in terms of stricter fuel efficiency standards
23
following what is frequently referred to as the ‘California Effect’ (Vogel, 1995). This effect
describes the competitive incentives for companies to embrace social welfare and environmental
goals following the introduction of regulations that affected the key market of California.
Finally, regarding the supply chain, there is a substantial body of research that explores
corporations’ engagement in the provision of social welfare across the competitive structure of
the supply chain (Gereffi, Humphrey, & Sturgeon, 2005; Gereffi, 1994; Ponte, 2002). This
research has identified key differences between ‘producer-driven’ supply chains dominant in the
automobile industry and ‘buyer-driven’ supply chains dominated by retailers, brand-name
merchandisers and other trading companies with ‘decentralized production networks in exporting
countries, typically in the global South’ (Gereffi, 1994). In essence, this research suggested that
buyer-driven supply chains are more likely to provide a suitable infrastructure for the integration
of social welfare and economic goals because these chains can be more easily subjected to
pressure from consumer activism.
In addition, this research also indicated that the bargaining power of parties along a supply chain
varies along two other relevant dimensions, namely the degree of standardization of products and
processes (Gereffi et al., 2005) and the level of supplier competence (Humphrey & Schmitz,
2002). Interestingly, both these variables (standardization and supplier competence) appear to be
reversely connected with differentiation. First, a higher level of commodification increases the
attractiveness of consumer preferences supportive of social welfare goals as a source of
differentiation. In turn, a lower level of supplier confidence has the same effect because these
24
suppliers require a higher level of engagement and direction and thereby, in buyer-driven chains,
can be more readily influenced when corporations see an interest in differentiating in terms of
social welfare objectives. For example, as reported by Gereffi and colleagues (2001: 56):
In April 2000, Starbucks Corporation announced it would buy coffee beans from
importers who pay above market prices to small farmers (so-called fair trade beans)
and sell them in more than 2,000 of its shops across the United States. In August of
the same year, the McDonald’s Corporation sent a letter to the producers of nearly 2
billion eggs it buys annually ordering them to comply with strict guidelines for the
humane treatment of hens or risk losing the company’s business.
In short, this approach to exploring the bargaining position of corporations in regards to
labor, competitors, and suppliers suggests that differences in engagement in the provision of
social welfare among corporations will be determined by the market infrastructure in which they
operate. Above all, the fundamental source of differences appears to be based on their
susceptibility to consumer preferences for products and services that advance social welfare
goals. Regarding labor, customer preferences anchored in ethical consumption increase the
bargaining power of workers and, thereby, the willingness of corporations to explore
opportunities for integration. In the absence of these preferences, we would expect the
integration of social welfare goals following only government regulations or some other
institutionally based compliance mechanism. Regarding competitors, the integration of social
welfare and economic goals is relevant in so far as it allows for competitive differentiation
25
through effective branding, enhanced reputation, or certification and similar mechanisms that
allow for the formation of sustainable market niches (see Table 2).
Finally, regarding suppliers, integration appears more likely in the context of buyer-driven value
chains. In fact, this argument has been used to explain the development and growth of a market
for both fair trade goods (Blowfield & Dolan, 2010; Taylor, 2005) and timber from sustainably
managed forests in the US and Canada (Bernstein & Cashore, 2004; Taylor, 2005). But it is not
clear whether it would have an impact on supplier driven chains, regardless of whether consumer
preferences are anchored on ethical consumption or not. In this context, it appears that
integration may only follow from regulatory pressure either directly, or indirectly because of
competitive dynamics following regulatory changes in key markets (i.e. the California Effect).
Cooperation
Beckert (2009, pp. 259–60) discussed the problem of cooperation by considering how the
structure of exchanges facilitates or hinders the ability of actors to reduce the social risks
inherent in the transactions of goods and services in order to ensure successful market exchange
(i.e. incomplete knowledge about the intentions of exchange parties and the quality of the
product exchange). In theory, exchanges only occur ‘when buyers are confident of not being
exploited by their contract partners’ (Beckert, 2009: 260). A review of the literature yields three
distinct sources of confidence: interpersonal trust, power, and normative trust (see Table 2).
In the stylized neoclassical understanding of the market, the need for trust is redundant
since we assume perfect information. However, this is an over-simplified view of the contexts
26
where market participants face minimal uncertainty. Indeed, as elegantly shown by Uzzi (1997),
under conditions of uncertainty, the arms-length transactions of this stylized version of the
market, disembedded from society, have little value and market participants benefit, for their
arms-length transactions, from sources of confidence anchored outside of the market. One of
these sources broadly discussed in the management literature is interpersonal trust generated by
past exchanges or based on interpersonal relations (Poppo & Zenger, 2002; Zucker, 1986). But
researchers have also discussed the influence and defining role of power differentials among the
parties involved, which is connected to factors such as those described in our discussion of
supplier relations (e.g. branding or supplier capacity: see Gereffi, 2005). Government
regulations can also play a role by creating rules, enforcing contracts, and legitimizing shared
understandings of market arrangements (Fligstein, 2002). Alternatively, as powerfully suggested
by Putnam (2001) some market participants can rely on institutional safeguards, social norms,
and trust enhancing networks” that provide a powerful source for confidence in exchange
relations and which is available in some specific regions (e.g. Emilia Romagna, Italy) with a
specific social make up and history (Beckert, 2009, p. 261; Granovetter, 1985; Putnam, Leonardi,
& Nanetti, 1994).
In the context of pursuing the integration of social welfare and economic goals, the prior
discussion on competition with respect to labor, competitors, and suppliers can be framed not
only as occasions for bargaining, but also for the development of long-term relations that support
the advancement of integrated goals. This is in contrast to the ‘one-off’ transaction-based
relations expected in the absence of sources of confidence in an exchange other than the self-
interest of the parties. This discussion is, however, incomplete without reference to two other
27
scenarios of cooperation outlined in Table 2. One of them is based on types of unlikely
collaborative arrangements, namely ‘commensalism’ (Ingram & Yue, 2008), that is cooperation
among competitors for the advancement of social goals, the other one is based on multi-
stakeholder collaborative arrangements (Austin, 2010; Westley & Vredenburg, 1997).
Regarding commensalism, business historians have identified many examples of commensalistic
arrangements (see Ingram & Yue, 2008 for a review), as noted above. In many instances, these
arrangements result in collusive behaviors. Particularly interesting examples of these behaviors
were provided by Kolko (1965) in his exploration of the early days of the railroad industry in the
US (see also Dobbin, 1994). Other researchers have focused on collective interests, such as
knowledge sharing initiatives that provide social benefits to all participants. Ingram and Yue
(2008) provided an example of ‘early hotel chains in the USA cooperating to establish the
Cornell hotel school to alleviate the scarcity of qualified job applicants’. Similarly, Ingram and
Lifschitz (2006) described how collaboration in R&D among shipbuilders on the Clyde River
helped that area obtain the unofficial status of ‘shipbuilding capital of the world’ in the late
nineteenth century.
In the specific context of the pursuance of opportunities to integrate social welfare and economic
goals, we also find relevant examples of commensalism promoting the advancement of markets
that support such integration. The Canada’s Oil Sands Innovation Alliance (COSIA) provides
one such example. In the light of public awareness of environmental degradation and
dependence on oil, competitors joined the COSIA alliance to facilitate technological innovations
that assist them in curbing their impact. This is how the alliance describes itself:
28
Through COSIA, participating companies capture, develop and share the most
innovative approaches and best thinking to improve environmental performance in
the oil sands, focusing on four Environmental Priority Areas (EPAs) – tailings,
water, land and greenhouse gases.
To date, COSIA member companies have shared 560 distinct technologies and
innovations that cost over $900 Million to develop. These numbers are increasing as
the alliance matures and expands. Through this sharing of innovation and
application of new technologies, members can accelerate the pace of environmental
performance improvements
COSIA takes innovation and environmental performance in the oil sands to the next
level through a continued focus on collaboration and transparent exchange.
(http://www.cosia.ca/)
The management literature also gives instances of the role of multi-stakeholder
collaborative arrangements that aim to bring about the engagement of corporations in the
advancement of social welfare goals (Trist, 1983; Westley, Patton, & Zimmerman, 2007). A
particularly interesting example is provided by the Global Reporting Initiative, ‘the best-known
framework for voluntary reporting of environmental and social performance by business
worldwide’, which has been fairly successful in reforming corporate attitudes to their social
welfare responsibilities ‘if measured by rate of uptake, comprehensiveness, visibility, and
prestige’ (Brown, de Jong, & Levy, 2009: 571). Johnston’s (2008) description of Whole Foods
Markets (WFM) helps to illustrate the influence that exchanges among diverse stakeholders can
29
have. She described changes in WFMs’ practices rooted both in its identification with an
enlightened market niche that they define with their slogan ‘Whole Foods, Whole People, Whole
Planet’ and with the emergence of norms valued by activists defining what this slogan actually
means. The author described how:
WFM developed policies on the humane treatment of animals after John Mackey
[WFM CEO] was confronted with animal rights protestors at the corporation's
annual meeting in 2003 … John Mackey was subsequently confronted with a
damning appraisal of WFM by New York Times journalist and University of
California Berkeley professor Michael Pollan, in the recent book “The Omnivore's
Dilemma” and in a public debate hosted by UC Berkeley. Pollan critiqued WFM for
contributing to the rapid corporatization of an increasingly unsustainable organics
industry, while Mackey defended WFM business practices and argued that WFM is
helping increase sustainability by expanding the accessibility of organic foods. In the
public debate with Pollan, Mackey pledged to change certain WFM practices,
including maintaining a stronger commitment to providing locally-produced foods.iv
In exploring the intersection of cooperation and consumer preferences, it becomes clear that
cooperative arrangements, whether among competitors or with other stakeholders, can foster the
integration of social welfare and economic goals. As illustrated by the case of COSIA, it can
drive investment in technological solutions that may facilitate integration in the future or, as
illustrated by Johnston’s description of WFMs, it can further a deepening of the social concerns
being integrated within the commercial logic of a particular corporation. Finally, it is interesting
30
to mention that these cooperative arrangements may facilitate the introduction of voluntary
certification processes, that both influence a change in consumer preferences and drive up
compliance costs: a competitive strategy that can help create differentiation and influence.
In short, using Beckert’s analysis of the institutional conditions that alleviate the coordination
problems that turn markets into bazaars, we have identified a number of institutional conditions
that influence the likelihood of corporations integrating social welfare and economic goals.
Nevertheless, markets are rarely in equilibrium and a specific institutional arrangement that may
have allowed for an anchor to drive integration at one point in time can erode and disappear later.
Value preferences change, bargaining advantages become threatened or lost, and cooperative
arrangements deteriorate (Beckert, 2003). Accordingly, the alignment of social welfare and
economic goals is rarely a permanent alignment. For example, the success of any specific
alignment may fuel the interest of competitors, which can eventually undermine the market
attractiveness of the original alignment. So, for example, the competitive advantage gained by
Starbucks when it embraced fair trade may be undermined as its competitors (e.g. McDonalds or
Dunkin’ Donuts) follow suit. However, as illustrated by the California Effect example, this
process can also run in reverse, as competition over the adoption of fuel efficiency standards can
yield higher and higher levels of efficiency overall, as companies compete to produce the most
efficient and green car.
In summary, we argue here that the framework provided by the three coordination problems that
underpin the development of markets also offers a model with which to analyze the integration
of social welfare and economic goals in corporations. This model also offers a more nuanced
31
explanation of the differences in corporate behavior in terms of social welfare objectives that
goes beyond the historical distinctions between for private-owned and public-benefit
organizations provided by a focus on ownership structures and governance alone. As
summarized in Table 2, we argue, first, that the fundamental driver for the integration of social
welfare and economic goals is consumer value preferences (Cashore, 2002, p. 504). We contend,
however, that these preferences do not necessarily need to be altruistic in nature. Even when
socially oriented consumer preferences respond to reputation and social status concerns alone,
they can still have the effect of increasing corporate engagement. The fundamental issue is not
the nature of the preferences per se, but rather whether they allow for the expectation of a level
of demand sizable enough for a corporation to engage in products and services that can claim to
serve a relevant social welfare goal.
Second, corporate engagement will be crucially framed by bargaining position. In the case of
labor, the fundamental factor to consider is whether there are regulations, social norms, or any
other arrangements that enhance their bargaining situation. In the case of competitors, the
relevant factors are around competition dynamics and differentiation. Finally, regarding
suppliers, a crucial factor framing integration hinges on whether the corporation participates in a
buyer-driven commodity or a supplier-driven supply chain; we argue that all else equal,
organizations engaged in buyer-driven commodity chains would be more likely to pursue the
integration of social welfare and economic goals. Finally, corporate engagement will be
facilitated by cooperative arrangements particularly commensalistic and multi-stakeholder
arrangements supportive of the advancement of social goals.
32
DISCUSSION
This paper contributes to a growing body of work that reconceptualizes our understanding of
corporations’ responsibilities in terms of social welfare goals as integral to their market activities
rather than being a discretionary add-on (Gladwin et al., 1995; Kanter, 2010; Porter & Kramer,
2006). Past research has been largely focused on exploring the legitimacy and desirability of this
shift, as well as exploring its feasibility in terms of the need for (Gao & Bansal, 2013; Jay, 2010)
and difficulties of identifying and advancing opportunities for integration (Battilana & Dorado,
2010). This paper pursues an alternative, but complementary, approach.
The paper departs from the neoclassical explanation behind the triumph of market institutions (as
advanced, for example, in the works of Friedman, Hirschman, and Geertz) namely that, in the
words of Gordon Gekko: ‘Greed is Good.’ Most frequently this assumption has been based upon
the central idea of the role of individual self-interest, the invisible hand, as the mechanism best
equipped to deliver the highest possible level of allocative efficiency for society as a whole. But,
we argue, that the market’s most crucial contribution is to provide enough predictability for
strategic decision making in economic action to function effectively (Beckert, 1999; Dorado,
2005). Then, departing from the neoliberal assessment that markets operate best when
disembedded from social norms (Friedman, 1970), we provide a framework that dimensionalizes
the sources of market order along specific institutional conditions which support the integration
of social welfare and economic goals. We define these dimensions in terms of the three central
coordination problems suggested by Beckert as central to the predictable and stable functioning
of markets (Beckert, 2009): value (consumer preferences), competition (bargaining positioning
33
that allow for profits), and cooperation (confidence that market participants will act as expected).
The resulting theoretical model allows us to identify institutional conditions that favor and hinder
the integration of social welfare and economic goals within market settings.
The model connects to mainstream explanations of corporate engagement in social welfare goals
in terms of ownership structures and governance by pointing to the relevance of key stakeholders
(Donaldson & Preston, 1995), social expectations (Campbell, 2007), and the role of social
movements (Gendron et al., 2009; King & Soule, 2007). But the dimensionalization of these
factors in terms of Beckert’s coordination problems allows for a more fine-grained analysis of
engagement. It also helps to capture the tensions involved in the integration process (Margolis &
Walsh, 2003).
This paper provides several new contributions. First, it contributes to a system perspective on
corporations engagement in the advancement of social welfare that moves the conversation from
whether managers have the capacity and motivation to identify areas of ‘shared value’ to a
consideration of what the institutional conditions might be for managers to recognize and capture
such opportunities in the market. This perspective complements the discussion on the potential
for the hybridization of social and economic logics advanced in the literature on social business
and social enterprise; that is organizations that integrate social and economic goals as their main
strategic objective (Battilana & Dorado, 2010; Besharov & Smith, 2013; Pache & Santos, 2012).
The link established with the social business hybrids literature opens new venues for research to
advance our understanding of research on the governance of this type of organization. By
34
focusing on the institutional conditions, instead of the ownership and governance factors, this
research suggests a new agenda of empirical work on the sustainability of such integrations over
time. Arenas of particular research interest may be in corporate engagement with microfinance
or ethical consumption.
The governance of microfinance organizations has been a central topic of interest to scholars in
this field (Campion, 1998; Dorado & Molz, 2005; Hartaska, 2005; Labie, 2001; Mersland &
Strøm, 2009; Mersland & Strøm, 2010; Mersland, 2009; Otero & Chu, 2002; Rock, Otero, &
Saltzman, 1998). This research has explored the influence of economic and governance
variables such as ownership structure, compensation for top organizational leaders, the size and
composition of the board of directors, auditing, information disclosure, the market for corporate
control, and competition (Hartaska & Mersland, 2012). To date, the results have been rather
disappointing (Hartaska & Mersland, 2012) but, interestingly enough, the most promising ones
are connected with two governance mechanisms, namely the quality of the board of directors
(Hartaska, 2005) and competition (Mersland & Strøm, 2009) that are consistent with the
institutional conditions model advanced here. Differences in the quality of the board can yield a
different likelihood for these organizations to define new ways to combine the paradoxical
tensions between social welfare and economic goals (Jay, 2010) while competition is explicitly
considered in the model.
Second, the model showcases the potential to further our knowledge in this area by incorporating
insights from research in political economy and economic sociology on the order of markets.
Recent political economy research exploring the nature and changes in global supply chains
35
(Cashore & Vertinsky, 2000; Gereffi, Humphrey, & Sturgeon, 2005; Ponte, 2002; Taylor, 2005)
provide an alternative and valuable venue to explore corporate engagement in, for example, the
advancement of workers rights globally and limiting their adverse environmental impact. In turn,
economic sociology research on the micro foundations of order in markets (Beckert, 1999;
Boltanski & Thévenot, 2006; Granovetter, 1985; Lamont, 2012; Owen-Smith & Powell, 2008;
Uzzi, 1997; Zuckerman, 2012) facilitates analyses that, as shown in this paper, provide a more
fine-grained understanding of corporate responsibility and engagement in the advancement of
social welfare goals.
This paper suggests a mode of exploring the dynamics of interventions advanced by new social
movements (Offe, 1985) and institutional entrepreneurs (Waddock, 2008) to pressure
corporations to advance social welfare goals. For example, one innovation that has driven
corporate engagement in ethical consumption has been the introduction of fair trade labels: yet,
the very success of this intervention, which has engaged some of the largest multinational
corporations (Nestle, Wal-Mart), has resulted in new competitive dynamics that may ultimately
undermine the integrity and legitimacy of the label and, as a consequence, diminish the consumer
value of fair trade (and ethical consumption) overall (Gendron et al., 2009).
In conclusion, it is relevant to note that the model advanced in the paper does not aim to
contradict prior research in this area. The perspective that pursuing social goals must remain
separate from a corporation’s economic responsibilities may still be valid. A conceptualization of
social welfare goals as integrated with economic goals does not imply that corporations may not
pursue discrete investment in social welfare or philanthropy. It simply suggests that the
36
pursuance of an integrated perspective may require markets anchored on specific institutional
and coordination conditions. Similarly, this paper does not aim to suggest that corporations offer
the best solution to the complex ‘wicked problems’ facing society today (Dorado & Ventresca,
2012) without any real impact on their root cause (Kanter, 2010; Khan, Munir, & Willmott,
2007). Rather this research proposes that the range of value that corporations can legitimately
generate in the market goes beyond the purely economic. The additional social welfare
generated via this integrated approach can complement but, we think, is unlikely to replace the
need for conventional sources of public and social value expected from public-benefit
organizations (we include here state agencies).
37
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TABLE 1: DISCRETIONARY VERSUS INTEGRATED DEFINITIONS OF CSR
Engagement in advancing social welfare goals
Definitions Sources
Discretionary “CSR are situations where the firm goes beyond compliance and engages in ‘actions that appear to further some social good, beyond the interests of the firm and that which is required by law” (McWilliams, Siegel, & Wright, 2006: 1)
Aguilera, Rupp, Williams, Ganapathi (2007)
Campbell (2007)
Davis (1973)
McWilliams & Siegel (2000, 2001, with Wright, 2006)
Integrated Investment in areas of shared value; that is where there is a strategic overlap between pursuance of social improvements and/or internalization of externalities and pursuance of competitive advantage (Porter and Kramer, 2011).
Gao & Bansal (2013)
Kanter (2010)
Margolis & Walsh (2003)
Porter & Kramer (2002, 2006, 2011)
Waddock (2006; 2008)
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TABLE 2: BECKERT’S MODEL APPLIED TO
THE INTEGRATION OF SOCIAL WELFARE AND ECONOMIC GOALS
Coordination Problems
Institutional Conditions
Favoring predictability in markets Favoring predictability in markets defined by the integration of economic and social goals
Value (consumer preferences)
Patterned along social trends Patterned along specific social trends i.e. ethical consumption/ consumer activism
Competition (i.e. bargaining and cajoling among parties with conflicting interests)
With labor: regulations, social norms, and collective agreements that frame labor negotiations With competitors: regulations, social trends, and collaborative arrangements that support differentiation strategies/creation of barriers to entry Along the supply chain: regulations, social norms, and conditions that allow for power differentials
With labor: regulations, social norms, collective agreements that increase the bargaining position of labor With competitors: regulations, social trends, and collaborative arrangements that support differentiation/barriers to entry aligned with social welfare goals Along the supply chain: regulations, social norms, or other conditions that increase the bargaining position of vulnerable participants (such as small or disenfranchised participants)
Cooperation (mechanisms that support confidence that market participants will act as expected)
Trust built on past exchanges or on interpersonal relations supports exchanges under conditions of uncertainty at a transactional level Differentials in power allow for coordination through compliance or subordination General social norms favor predictability in transactions.
Trust built on past exchanges or on interpersonal relations supports exchanges under conditions of uncertainty with the aim of long-term social capital building Regulations, social norms, and collaborative arrangements redefined power differentials in support of market participants advancing social goals Social norms and collaborative arrangements foster norms that support welfare integration
Source: Authors building on Beckert (2009)
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TABLE 3: Sampling of labeling, certification, standards, reporting systems and membership organizations
that facilitating corporations engagement in advancing social welfare Name Description FLO and FLO-CERT of Fairtrade International
Building on the first Dutch fair trade label ‘Max Havelaar’ in the 1990s, Bonn-based Fairtrade International launched a Fairtrade Certification scheme. In 2004 it was divided into two independent organizations – the standard-setting FLO and FLO-CERT that inspects and certifies compliance with the Fairtrade standards. http://www.fairtrade.net/
Fair Labor Association “As a collaborative effort of socially responsible companies, colleges and universities, and civil society organizations, FLA creates lasting solutions to abusive labor practices by offering tools and resources to companies, delivering training to factory workers and management, conducting due diligence through independent assessments, and advocating for greater accountability and transparency from companies, manufacturers, factories and others involved in global supply chains.” http://www.fairlabor.org/
Fair Trade USA Formerly known as TransFair USA, Fair Trade USA is an NGO - third-party certifier that audits US companies and certifies that their products comply with international Fair Trade standards. http://www.fairtradeusa.org/
Forest Stewardship Council
Emerged in the 1990s, following intensive consultations in ten countries to build support for the idea of a worldwide certification system. Since then the number of forest management and chain of custody certificates have increased exponentially, passing a total of 20,000 certificates in 2011. Decision-making within FSC takes place by members around the world. International Members are divided into chambers (Environmental, Social, and Economic), with an additional, Aboriginal Peoples chamber in Canada, each with equal voting power. The purpose of the chamber structure is to maintain the balance of voting power between different interests. https://us.fsc.org/
Sustainable Forestry Initiative (SFI, Inc.)
SFI Inc. is an independent, nonprofit organization that is solely responsible for maintaining, overseeing and improving the internationally recognized Sustainable Forestry Initiative (SFI) program. SFI chain-of-custody (COC) certification tracks the percentage of fiber from certified forests, certified sourcing and post-consumer recycled content. SFI on-product labels identify both certified sourcing and COC claims to help consumers make responsible purchasing decisions. SFI Inc. is governed by a three-chamber board of directors representing environmental, social and economic sectors equally. http://www.sfiprogram.org/about-us/basics-of-sfi/
Program for the Endorsement of Forest Certification (PEFC)
Founded through the initiative of forest owners and forestry industry associations in 1999, PEFC endorses national forestry certification schemes, which are tailored to local conditions and are developed with participation of multiple stakeholders. http://www.pefc.org/
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Name Description Rainforest Alliance Formed in 1986 as a response to destroying rainforests, RA provides
certification of forestry and agriculture. Being FSC-accredited and one of FSC founders, it certifies based on the FSC standards and also uses its own “Rainforest Alliance Certified” and “Rainforest Alliance Verified” labels. http://www.rainforest-alliance.org/certification-verification
Marine Stewardship Council (MSC)
MSC was founded by WWF and Unilever in 1997. It runs a third-party certification program for wild-capture fisheries, i.e. independent certifiers validate that a fishery is compliant with the MSC standards. http://www.msc.org/
The Aquaculture Stewardship Council (ASC)
This independent NGO was established by WWF and IDH Netherlands in 2010 to provide a responsible aquaculture standard for fish farmers. http://www.asc-aqua.org/
ISO 14000 family of International Standards
Based in Geneva and building on the voluntary quality management standard ISO 9000, the International Organization for Standardization established a 14000 series of environmental standards in 1996, with 14001 being the most prominent. http://www.iso.org/iso/home/standards/management-standards/iso14000.htm
Global Reporting Initiative (GRI)
With its roots in the Coalition for Environmentally Responsible Economies (CERES), Global Reporting Initiative was founded in Boston in 1997. An international network-based NGO, provides companies with a reporting system that allows for metrics and methods to measure and report sustainability-related impacts and performance. https://www.globalreporting.org/Pages/default.aspx
Canada’s Oil Sands Innovation Alliance (COSIA)
It is an alliance of oil sands producers focused on accelerating the pace of improvement in environmental performance in Canada's oil sands through collaborative action and innovation. http://www.cosia.ca/
Equitable Origin Equitable Origin, LLC., incorporated in Delaware, provides social and has created a third-party certification system based EO100™ Standard for oil and gas industry in Latin America. http://www.equitableorigin.com
GoodWeave Formerly known as RugMark, GoodWeave sets child-free labor standards for the carpet industry and monitors compliance. It was established in 1994 on the initiative of a coalition of NGOs, government agencies, businesses and multilaterals. http://www.goodweave.org/home.php
Social Accountability International (SAI)
This NGO focuses on protecting the human rights of workers. In 1997, SAI founded its SA8000 standard for social certification that ensures that companies respect workers' human rights. http://www.sa-intl.org/
AccountAbility Principles Standards
AccountAbility's AA1000 series are principles-based standards to help organizations become more accountable, responsible and sustainable. They address issues affecting governance, business models and organizational strategy, as well as providing operational guidance on sustainability assurance and stakeholder engagement. The AA1000 standards are designed for the integrated thinking required by the low carbon and green economy, and support integrated reporting and assurance.” http://www.accountability.org.uk/
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Name Description Bonsucro Established in 2008, London-based Bonsucro certifies sugarcane mills based
on its Bonsucro Standard that indicates their compliance with its principles directed at protection of human rights, labor standards, sustainability, etc. http://bonsucro.com/
Roundtable on Sustainable Palm Oil (RSPO)
Founded by a group of non-profits and private sector companies that included WWF and Unilever in 2004 in Zurich, RSPO provides a third-party certification mechanism for palm oil plantations and millers. RSPO certification ensures that the palm oil is sustainably produced. http://www.rspo.org/
The Union for Ethical BioTrade
The Union for Ethical BioTrade is a non-profit association that promotes the “Sourcing with Respect” of ingredients that come from biodiversity. Members commit to gradually ensuring that their sourcing practices promote the conservation of biodiversity, respect traditional knowledge and assure the equitable sharing of benefits all along the supply chain. http://ethicalbiotrade.org/
The 4C Association This online platform brings together participants of the coffee market. It provides assurance that participants who adopted 4C standard comply with its main principles of not using the child labor. http://www.4c-coffeeassociation.org/
The Global Sustainable Tourism Council (GSTC)
Endorsed by the United Nations (UN), this is an international organization that provides brings together and approves existing ecolables, certification mechanisms and stadards. http://www.gstcouncil.org/
The Greenhouse Gas Protocol (GHG Protocol)
To address the need for corporate accounting standard the World Resources Institute and the World Business Council for Sustainable Development established a partnership in 1997 – the GHG Protocol. This NGO provides a set of standards and accounting tools to government agencies and businesses to calculate their GHG emissions. http://www.ghgprotocol.org/
UTZ Certified UTZ Certified stands for sustainable farming and better opportunities for farmers, their families and our planet. The UTZ program enables farmers to learn better farming methods, improve working conditions and take better care of their children and the environment. Through the UTZ-program farmers grow better crops, generate more income and create better opportunities while safeguarding the environment and securing the earth’s natural resources. https://www.utzcertified.org/
i It may be required by pioneers but not by the organizations that follow them. ii Of course, an exception to this has been the development of so-called Bottom of the
Pyramid markets (Prahalad, 2004). The rhetoric of this market is that corporations can make profits whilst simultaneously serving previously excluded – poor – consumers with life enhancing products and services. This assumption has been widely criticized,
49
however. iii http://www.monologuedb.com/dramatic-male-monologues/wall-street-gordon-gekko/
visited on November 7, 2013. iv Pollan’s open letter to Mackey can be found in
http://www.michaelpollan.com/article.php?id=80), and Mackey's open letter to Pollan in http:// www.wholefoods.com/blogs/jm/archives/2006/05/an_open. Visited on Nov. 9, 2013.
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