Responsible Corporate Governance:

Coordinating Efficiency and Justice

IVR World Congress Beijing
September 15-19, 2009
Pitman B. Potter

Abstract
Corporate governance and corporate social responsibility involve internal and
external expressions of the operational imperatives of business firms. Whereas corporate
governance often entails principles of efficiency, CSR involves principles of fairness.
This paper will examine the challenge of coordinating norms of corporate social
responsibility with practices of corporate governance. While CSR involves primarily
issues or relations between business firms and the outside community, corporate
governance is largely an internal matter. And while CSR concerns challenges of justice
(social, economic, environmental, etc.) for those who are affected by business behavior in
the world, corporate governance generally addresses issues of efficiency in business
management within the firm. Including CSR norms in the processes for strengthening
corporate governance faces challenges similar to those facing the problem of
coordinating compliance with international trade and human rights standards. These
difficulties stem in part from conceptual differences and assumed trade-offs between
regimes of efficiency and justice, as well as from general lack of communication and
collaboration between specialists involved in these different sectors less pronounced
perhaps than the divide between trade and human rights specialists but real nonetheless.
Drawing on the authors paradigms of Selective Adaptation and Institutional Capacity,
this paper will examine the normative and organizational challenges to coordinating CSR
norms with corporate governance practices in China. Drawing on these normative and
organizational perspectives and local examples, the paper will examine the possibilities
and obstacles to coordinating CSR and corporate governance standards. The paper will
serve as a case study on the broader topic of coordinated compliance.

Coordinating norms of corporate social responsibility with practices of corporate

governance mirrors many of the challenges facing coordinating protection of trade and
human rights.

Such coordination is an issue of critical importance for a world of

increased globalization and interdependence. International academic and policy

discourses have made significant contributions to understanding and defining the
parameters for international trade policy and human rights policy. Challenging academic
and policy discourses that treat trade and human rights as separate and potentially
conflicting regimes, coordination of trade and human rights compliance involves building
normative and institutional foundations that encourage enforcement of international
standards in both sectors.

International trade and human rights have multiple related contexts and mutual
influences. For example, trade liberalization rules restricting government assistance to
nascent industries have potential impacts on human rights issues over labor standards in
developing economies.

As well, human rights imperatives on issues of health and

housing rights can affect multilateral efforts to entrench efficiency priorities in trade
relations. Coordination also affects the policy making context within which trade and
human rights matters are considered and decided. Linkages between trade and human
rights outcomes merit intensive research on conditions for coordinated compliance with
international trade and human rights standards. Research-driven policy proposals on
coordinated compliance with international trade and human rights standards can offer a
range of best practices for China and other economies to facilitate international
cooperation in a wide array of socio-economic and political relationships.

It is useful therefore to forecast conditions for coordinated compliance with international

trade and human rights standards. Predictable coordination can in turn facilitate stronger
cooperation in trade and human rights relations, such that expanded trade connections can
be demonstrated to contribute to improved human rights conditions and vice versa.
Addressing the needs of coordinated trade and human rights compliance through
domestic economic and social regulation will benefit multiple sectors of Chinas
development project. Coordinated compliance also has implications for performance of

international treaty standards in areas such as security, climate change, and resource and
technology policy.

Challenges of labor relations, health care, and environmental protection are key policy
issues for the PRC government. However, the public sector measures alone will likely be
inadequate to address these problems effectively. Greater participation by the private
sector will be essential. Hence there is a great need to coordinate public sector efforts to
redress labor, health, and environmental issues with private sector initiatives.

This

provides an important opportunity for strengthening corporate social responsibility and

managing a transition from voluntary efforts to genuine compliance.

The relationship between corporate governance and corporate social responsibility echoes
many of the tensions that hamper coordination between trade and human rights policy
and practice. Corporate governance models, such as that expressed through the Company
Law of the PRC, emphasize shareholder interest and accountability of directors and
managers, but these are couched in terms of business interest return on investment,
profitability and the like. Corporate social responsibility addresses a number of themes in
relations with society at large, of which labour management, health care, and
environmental protection are key examples. While the themes of efficiency that inform
corporate responsibility paradigms and the imperatives of fairness that characterize CSR
ideals tend to operate at cross-purposes, they need not do so. One possible approach to
ensuring that corporate governance dynamics support the goals of corporate social
responsibility would be through enforcing the public interest criteria for validity of
contracts under the Contract Law of the PRC.