From Private Regulation to Public Policy: The Case of ... · Case study research → map regulatory terrain through interviews with companies, government ministries, civil society

The Research ProblemAnalysis

Future Research

From Private Regulation to Public Policy: The

Case of Corporate Non-Financial Reporting

Matthew Maguire

Department of Political ScienceBoston University

[email protected]

May 18, 2012

Matthew Maguire From Private Regulation to Public Policy

[email protected]


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The Research ProblemCrisis of regulationWhat is private regulation?From private regulation to public policy

AnalysisHypothesesDataResults

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Future Research

Crisis of regulationWhat is private regulation?From private regulation to public policy

A crisis of regulation?

� Governments around the world have struggled to set, monitor,and enforce effective standards for corporate social andenvironmental performance.

� The problem is that while the web of private enterprisecontinues to expand across the globe through the spread ofmultinational corporations, the jurisdiction of governmentremains, to a large extent, trapped within national borders.



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What is private regulation?

“Private regulation may be defined narrowly as rule-making bynon-governmental actors. Private regulation in a broad senseentails private actors playing a major role – at one or more stagesbeyond implementation or compliance – in what might be calledthe ‘regulatory process’ or the ‘governance sequence’:agenda-setting, rule-making, implementation, monitoring,adjudication, and enforcement.” (Buthe 2010)



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What is private regulation?

� Self-regulation → involves a single company voluntarilyimposing additional regulation upon itself.

� Civil regulation → consists of “voluntary, private, nonstateindustry and cross-industry codes that specify theresponsibilities of global firms . . . ” (Vogel 2010)



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CivilRegulation

Self-Regulation

GovernmentRegulation

Figure 1: From private regulation to public policy.

References

UNEP, GRI, KPMG and USB. 2010. Carrots and Sticks - Promoting Transparency and Sustainabil-ity - An Update on Trends in Voluntary and Mandatory Approaches to Sustainability Reporting.Amsterdam: Global Reporting Initiative.

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01000

2000

3000

4000

5000

6000

Year

Tota

l Non

-Fin

anci

al R

epor

ts P

ublis

hed

1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

All ReportsGlobal Compact (GC) ReportsCarbon Disclosure Project (CDP) ReportsGlobal Reporting Initiative (GRI) Reports

Figure 2: Total number of corporate non-financial reports published per year worldwide.

Country Year Description

Denmark 2008 Danish Financial Statements Act, 2008. Requires the largest 1,100 com-panies, listed companies, state-owned companies, and institutional in-vestors to report on non-financial performance.

France 2002 New Economic Regulation Act, Article 116. Mandates publicly listedcompanies to disclose data on 40 labor and social criteria in their annualreports to shareholders. The law does not require third party verificationor impose penalties for non-compliance.

Sweden 2007 Guidelines for external reporting by state-owned companies. Requiresstate-owned companies to produce an annual sustainability report inaccordance with GRI guidelines.

Europe 2003 EU Modernisation directive, 2003/51. Requires companies to includenon-financial information in their annual and consolidated reports if itis necessary for an understanding of the company’s development, per-formance or position.

Table 1: A sample of country-level laws and regulations that mandate some type of environmental,social, and/or governance disclosure. Source: UNEP et al. (2010).

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Country Year Description

Denmark 2008 Danish Financial Statements Act, 2008. Requires the largest 1,100 com-panies, listed companies, state-owned companies, and institutional in-vestors to report on non-financial performance.

France 2002 New Economic Regulation Act, Article 116. Mandates publicly listedcompanies to disclose data on 40 labor and social criteria in their annualreports to shareholders. The law does not require third party verificationor impose penalties for non-compliance.

Sweden 2007 Guidelines for external reporting by state-owned companies. Requiresstate-owned companies to produce an annual sustainability report inaccordance with GRI guidelines.

Europe 2003 EU Modernisation directive, 2003/51. Requires companies to includenon-financial information in their annual and consolidated reports if itis necessary for an understanding of the company’s development, per-formance or position.

Table 1: A sample of country-level laws and regulations that mandate some type of environmental,social, and/or governance disclosure. Source: UNEP et al. (2010).

CivilRegulation

Self-Regulation

GovernmentRegulation

Figure 2: From private regulation to public policy.

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From private regulation to public policy

� While the self-regulation, civil regulation, and governmentregulation of corporate non-financial reporting have all beentrending upward over the past decade, it is unclear how thesetrends relate to one another.

� Question → What factors are driving public policy in the caseof corporate non-financial reporting?



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HypothesesDataResults

Hypotheses

� H1: Private regulation. Governments may be inclined toregulate corporate non-financial reporting only after a criticalmass of companies have done so on a voluntary basis. Thus, Ihypothesize that private regulation is more likely to result innew government regulation in countries where a large numberof companies are already reporting.

� H2: ‘Implicit CSR’. Matten and Moon (2008) argue thatcompanies are more likely to engage in CSR in the coordinatedmarket economies (Hall and Soskice 2001) where nationalinstitutions encourage collectivism, solidarity, and partnershipgovernance. I hypothesize that private regulation is morelikely to result in new government regulation in economiescharacterized by high levels of non-market coordination.



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Data

� H1: Private regulation → GRI, GC, and ISO 14001participation aggregated to country-level.

� H2: ’Implicit CSR’ → government expenditure/GDP(World Bank) and wage coordination (ICTWSS).

� Controls: Log total GDP (World Bank) and Trade/GDP(World Bank).



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(1) (2) (3) (4) (5)

GRI participation 0.245** 0.359** 0.428*** 0.410*** 0.753***(0.107) (0.156) (0.150) (0.148) (0.211)

GC membership 0.0567 0.0917 0.0462 0.0719 0.160(0.0781) (0.156) (0.138) (0.140) (0.184)

ISO 14001 certification 0.00166*** 0.00175** 0.00203*** 0.00215*** 0.00160(0.000353) (0.000704) (0.000686) (0.000828) (0.00136)

Government expenditure/GDP 0.440** 0.435** 0.418** 0.574***(0.183) (0.221) (0.182) (0.216)

Wage coordination 0.998 1.080 1.810(1.491) (1.141) (1.918)

Log total GDP -2.227 -5.387**(1.925) (2.665)

Trade/GDP -0.0681(0.0437)

Constant -12.33*** -28.54*** -32.41*** 26.55 108.7(1.098) (7.230) (8.818) (48.12) (69.30)

Observations 270 199 199 199 197Countries 27 24 24 24 24

Standard errors in parentheses

* p < 0.10, ** p < 0.05, *** p < 0.01

Table 2: Results of logistic regression models of mandatory corporate non-financial reporting leg-islation, from 2001 to 2009, for the sample of advanced industrial countries.

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Results

� H1: Private regulation → results indicate that participation inGRI and ISO 14001 raise the likelihood of governmentregulation; the effect of GC membership is uncertain.

� H2: ’Implicit CSR’ → government regulation is more likely tooccur in countries with high levels of government expenditure,like France or Sweden; the effect of wage coordination isuncertain.



Future Research

Future Research

� Case study research → map regulatory terrain throughinterviews with companies, government ministries, civil societyorganizations, and professional organizations in France,Sweden, the United Kingdom, and the United States.

� Quantitative analysis → regression discontinuity analysis offirm-level data to measure the effect of government regulationon participation in GRI, GC, and CDP.


Documents

From Private Regulation to Public Policy: The Case of ... · Case study research → map regulatory terrain through interviews with companies, government ministries, civil society