This document discusses challenges related to corporate social responsibility (CSR) from a legal and corporate governance perspective. It notes that while corporate governance research has focused on linking good governance to financial performance, there are increasing expectations for businesses to address social concerns. However, most investors do not yet systematically factor environmental, social and governance issues into investment decisions. It argues that as social issues become subject to international standards and domestic legislation, corporate governance needs to bridge the divide between financial and social objectives. Moving forward, greater collaboration is needed between businesses, governments and academics to help companies both create value for shareholders and stakeholders and prevent adverse impacts.

1. CSR
Challenges
–
a
legal/corporate
governance
perspec4ve
Chizu
Nakajima,
Co-­‐Director,
Centre
for
Research
on
Corporate
Governance,
Cass
Business
School,
City
University
&
Chair,
Bri4sh
Japanese
Law
Associa4on,
London
c.nakajima@bjla.org.uk

2. Corporate
governance
under
scru0ny
• Post
financial
crisis,
many
pointed
to
the
failure
of
corporate
governance
(CG)
in
banks,
but
could
CG
have
helped,
par4cularly
in
curbing
the
“excesses”
that
were
highlighted
as
one
of
the
main
causes
that
led
to
the
crisis?
• Indeed,
aWer
every
major
corporate
failure
and
scandal,
there
are
calls
for
beXer
corporate
governance
&
more
regula4on!
2

3. Dominant
research
&
policy
direc0on
in
Corporate
Governance
thus
far
Good
corporate
governance
↓
Thriving
financial
markets
↓
Economic
growth
• Advocated
by
leading
economics/finance
scholars
and
endorsed
by
interna4onal
organisa4ons.
• Therefore,
much
of
CG
research,
thus
far,
has
focused
on
the
link
between
good
CG
and
firms’
financial
performance,
i.e.
maximizing
shareholder
value.

4. Challenges
for
business
in
21st
Century:
Paradigm
Shi@
• Increasing
expecta4ons
on
business
–
expanding
focus
from
economic
concerns
to
include
social
concern
• Despite
this,
CG’s
main
focus
on
financial
performance
–
oWen
jus4fied
on
the
basis
of
ageing
popula4on
pu^ng
pressures
on
pension
funds’
relying
on
stock
performance.

5. But
do
investors
take
sufficient
no0ce?
• “Nearly
70%
of
fund
managers
s4ll
do
not
regards
it
as
standard
prac4ce
to
factor
environmental,
social
and
corporate
governance
ini4a4ves
into
their
investment
decisions.”
(‘Investors
s4ll
don’t
get
accountability’,
Business
Week,
26
February
2008)
• And
who
are
“ins4tu4onal
shareholders”
nowadays?
–
foreign
sovereign
wealth
funds,
hedge
funds
etc
–

6. So@
law
to
hard
law?
In
the
mean4me,
• Areas
of
social
concern
are
increasingly
subject
to
interna4onal
standards,
many
of
which
are
being
implemented
through
na4onal
legisla4on
–
e.g.
environment,
labour
condi4ons,
human
rights,
an4-­‐corrup4on
etc.

7. Global
Standard
SeFng
using
‘So@
Law’
and
Implementa0on
via
Mutual
Evalua0on:
Example
-­‐
AML
Global
Standard
se^ng
through:
–
Financial
Ac4on
Task
on
Money
Laundering
(FATF)’s
40
Recommenda4ons
on
money
laundering
and
9
Special
Recommenda4ons
on
Terrorist
Financing
Compliance
through:
– Mutual
Evalua4on
=
self-­‐assessment
+
peer
review
– ‘Blacklis4ng’
=
‘naming
and
shaming’
Implementa4on
through:
– Each
state
introducing
AML
legisla4on
– Resul4ng
in
global
standardisa4on
of
AML
regula4on

8. What’s
next?
• “Bridging
the
great
divide
between
CG
and
corporate
social
and
environmental
responsibility
is
the
next
great
challenge
for
business.”
• “…only
a
fundamental
redesign
of
corporate
forms,
objec4ves
and
value
measures
can
fully
meet
the
reali4es
of
responsibility.”
(T.
Clarke,
2007,
p.
267.)
• In
the
mean4me,
mul4-­‐na4onal
corpora4ons’
(MNCs)
“impacts
on
society”
are
growing
and
are
felt
in
increasingly
wider
spheres.
• States
have
aXempted
to
“control”
and
“regulate”
MNCs
–
but
MNCs
engage
in
cross-­‐border
ac4vi4es
so
who
can
have
jurisdic4on
over
them?

9. We
need
to
work
together!
To
find
ways
to
enable
corpora4ons
(to
quote
the
European
Commission)
• To
maximise
the
crea4on
of
shared
value
for
their
owners/shareholders
and
for
their
other
stakeholders
and
society
at
large;
• To
iden4fy,
prevent
and
mi4gate
their
possible
adverse
impacts.
We
need
to
facilitate
more
collabora4on
between
private
and
public
sectors
and
academia
Please
contact
us
with
ideas,
requests,
sugges4ons
for
research
and
collabora4on!
Chizu
Nakajima:
Co-­‐Director,
Centre
for
Research
on
Corporate
Governance,
Cass
Business
School,
City
University
London,
and
Chair,
Bri4sh
Japanese
Law
Associa4on,
London.
Email:
c.nakajima@bjla.org.uk