September 16th 2005ICCSR - Business Government and CSR1 A preface to the political theory of economic organization Positive and normative perspectives

September 16th 2005 ICCSR - Business Government and CSR 1

A preface to the political theory of A preface to the political theory of economic organizationeconomic organization

Positive and normative perspectives on corporate governancePositive and normative perspectives on corporate governance

J. (Hans) van OosterhoutRSM Erasmus University

[email protected]

mailto:[email protected]


Intro and agendaIntro and agenda


Intro and PreliminariesIntro and Preliminaries

• Associate professor, Department Business Society

Management, RSM Erasmus University

• Research interests:

– positive and normative theory of institutions and organizations

– comparative economic and political organization

– corporate governance

– corporate governance and corporate crime


AgendaAgenda

• Observations, diagnosis and proposal

• Basic framework for a political theory of

economic organization

• Applications

• Discussion


Observations, diagnosis and proposalObservations, diagnosis and proposal


Some observationsSome observations• Economic organization does not exist in societal vacuum

• Features of private enterprise organization at least partly

explained by (lack of) public and societal features

(institutions)

• Business has significant social side effects

• Corporations—and other business organizations—

‘naturally’ have ‘non-business’ functions, tasks and

features


My diagnosisMy diagnosis

• Dominant concepts and theories:

– Corporate Social Responsibility

– Stakeholder theory

– Corporate Citizenship

• Metaphorical rather than conceptual

• Lack of ‘theoretical’ and empirical content?

• Ideology?


My proposalMy proposal• Lets forget about these ‘concepts’ and ‘theories’

• Develop comprehensive conceptual framework to

answer the questions:

1. what explains the division of labor between

– markets and hierarchies

– public and private institutions in a globalizing economic order ?

2. what division of labor is desirable or justified?

3. what are the implications of 1 & 2 for corporate governance

more specifically?

• A political theory of economic organization


Why a Why a politicalpolitical theory? theory?• Concern with basic institutional order (facilitating human

coordination and cooperation)

– Polity: e.g. property rights, market vs. hierarchy

– Policy: what is the purpose of the firm?

• Both efficiency and legitimacy count in economic organization

• Methodological ecumenism

– positive and normative theory building

– conceptual and empirical research

– different levels of analysis

– behaviorism and phenomenology


The basic frameworkThe basic framework


Theoretical core propositionsTheoretical core propositions

1. Both states and firms are authority systems

(conceptual claim);

2. predicate on a similar general justificatory logic

(normative claim), yet;

3. they are different in terms of the specific conditions

and considerations that justify authority in each

(positive claim).


Two kinds of authority?Two kinds of authority?

PA

Ci Ci Ci

The State

Ow

Ma

Em

The public firm


A Hobessian view of corporate authorityA Hobessian view of corporate authority

PA

Ci Ci Ci

The State

Ow

Ma

Em

The public firm

?


PerspectivePerspective1. Corporate authority best seen as a continuation of

public authority by private means

• Adjudicative: ex post division of quasi rents

• Legislative: re-assignment of property rights

2. Embedded or federal structure of authority in society

3. What determines division of labor between levels?

• Competition: markets and jurisdictional competition

• Politics: the quest for legitimacy


ApplicationsApplications


4 applications, 1 example4 applications, 1 example

1. Political theory of enterprise organization

2. A theory of corporate purpose

3. Economic democracy?

• Workplace democracy?

• Shareholderdemocracy?

4. Corporate crime (and social cost)


Corporate crimeCorporate crime

• Certain crimes have a corporate dimension

• The problem of ‘many hands’

• Two gaps:

– retribution gap

– deterrence gap

• Corporate criminal liability (CCL)?


CCL in the USCCL in the US

• Extension of tort doctrine ‘respondeat superior’

• Corporations vicariously liable for the actions of their employees

when these:

– take place within normal scope of employment

– benefit the firm

• Economic rationale: firms more efficient monitors than public law

enforcement agencies (compare business judgment rule)

• Extra-territorial reach of CCL (e.g. SOx 2002, SEC rules)


Corporate policingCorporate policing

• FSG for Organizational Defendants

• Both ex ante prevention and ex post offence

cooperation pay! (reduction of fine)

– ex ante ethics programs, compliance officers

– ex post cooperation with prosecutors

• Strategic risk and blame shifting (scapegoating)

• Hence: corporate policing


Corporate policing and corporate governanceCorporate policing and corporate governance

• Corporate policing = private extension of public law enforcement

• Renegotiation of ‘the corporate contract’?

• Multilevel negotiations (beyond corporate constituencies)

– high or asymmetrical bargaining costs?

– Is competition on safeguards desirable?

– Jurisdictional issues (e.g. unlimited shareholder liability for corporate torts and

crimes?

• Both efficiency and other (e.g. retributivist, restorative justice)

considerations count in negotiating mutual safeguards


DiscussionDiscussion


Conceptual progress?Conceptual progress?• Conceptual and theoretical clarity (more established concepts and

theories)

• Explanatory surplus

• Comprehensive perspective on corporate governance

– multilevel analysis (regimes)

– public and private ordering

– normative and positive analysis

– not just efficiency

• Separation of positive and normative claims

Documents

September 16th 2005ICCSR - Business Government and CSR1 A preface to the political theory of economic organization Positive and normative perspectives