For years, my question to advocates of corporate social responsibility was "why should corporations be treated differently from other citizens." In the international context, the question was "why should foreign corporations be treated differently from local corporations?" "Why impose supra-standard regulation on firms, just because they are firms?"
These questions came from an unreconstructed rationalist perspective that the role of corporations, like the rest of us, is to maximize preferences under constraints. The constraints are largely legal, but also include social norms enforced through public opinion. Just like the constraints under which individuals labor. Governments impose the general level of regulation that they deem sensible, applicable to corporations and individuals alike, and all is for the best in the best of all possible worlds.
But as I was recently reviewing the public choice perspective on government, I understood that the public choice perspective suggests that organizations are not simply mechanisms of individual satisfaction of preferences. We understand governments to be beset by agency costs, which suggests that a penalty imposed on the government that would induce rational behavior by a perfectly representative government, may not induce rational behavior by governments as they are. See my paper on remedies at the WTO.
If this is true of governments, it is also true of firms. Remedies that assume rational individual preference-maximizing behavior by firms may not induce the desired behavior. Corporate social responsibility is necessitated by imperfect corporate governance, in the following way. There are two corporate governance problems. First, the commonly understood one: corporations do not necessarily maximize shareholder wealth. But the second is more difficult and is exacerbated by efforts to remedy the first. Corporations are structured to ignore values beyond shareholder wealth maximization. We may assume that states have the regulation they want--labor, environmental, health and safety, etc--with the penalties they want. CSR is not necessarily a basis for increasing the goals of regulation. But we cannot assume that these rules, assuming that they were designed to regulate individuals, will have the desired behavioral effect on corporations. We cannot assume that they will achieve their goals.
One way of saying this is that if a corporation were an individual, it would be at great risk for psychosis. Its brain--its organizational decision-making--is structured in a rather narrow, short-sighted and single-minded way. This point will take further analysis and development. But the point is that given differences in the structure of the corporate brain, a different and in some cases more stringent set of rules may be required.
So that suggests a rationalist explanation of CSR arguments for greater responsibilities applicable to firms. What about greater responsibilities applicable to foreign firms compared to local firms? Here, there is not as obvious an explanation. But one response is to analyze the reason why the firm is categorized as "foreign." If the management has a foreign culture and location, it may be less attuned to the social signals of the host country environment than a local firm. There also may be a kind of externalization here. If management is based in another culture and location, they may simply not care about social norms that make up part of the set of constraints in the host country. Those incentives may simply be inapplicable. Another kind of psychosis. So, a special legal regime may be appropriate to compensate for the failure of the informal regime to constrain MNCs.
