College of Business Administration

University of Rhode Island

2013/2014 No. 2

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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Please do not quote,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-

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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

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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

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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

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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;

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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

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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

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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

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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

____________________

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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

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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

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& 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

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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

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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.

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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).

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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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