姝 Academy of Management Review

2007, Vol. 32, No. 3, 946–967.

WHY WOULD CORPORATIONS BEHAVE IN

SOCIALLY RESPONSIBLE WAYS? AN
INSTITUTIONAL THEORY OF CORPORATE
SOCIAL RESPONSIBILITY
JOHN L. CAMPBELL
Dartmouth College and Copenhagen Business School

I offer an institutional theory of corporate social responsibility consisting of a series

of propositions specifying the conditions under which corporations are likely to
behave in socially responsible ways. I argue that the relationship between basic
economic conditions and corporate behavior is mediated by several institutional
conditions: public and private regulation, the presence of nongovernmental and other
independent organizations that monitor corporate behavior, institutionalized norms
regarding appropriate corporate behavior, associative behavior among corporations
themselves, and organized dialogues among corporations and their stakeholders.

Concerns about corporate social responsibil- pendent variable only 15 percent of the time
ity have grown significantly during the last two (twenty-two studies). Moreover, they criticized
decades. Not only has the issue become com- this literature for ignoring factors other than cor-
monplace in the business press and among porate financial performance that might affect
business and political leaders (Buhr & Graf- corporate social responsibility. As a result, they
ström, 2004) but a body of academic literature called for more serious theoretical inquiry into
has also emerged around it (Margolis & Walsh, this matter (2003: 274 –278). Others concur with
2003; Walsh, Weber, & Margolis, 2003). Neverthe- this assessment (Maignan & Ralston, 2002: 512)
less, little theoretical attention has been paid to and complain, in particular, that we need to pay
understanding why or why not corporations act much more attention to the institutional mecha-
in socially responsible ways (Rowley & Berman, nisms that may influence whether corporations
2000; Ullman, 1985). Indeed, much of the litera- act in socially responsible ways or not (Bühner,
ture on corporate social responsibility has been Rasheed, Rosenstein, & Yoshikawa, 1998: 148;
more descriptive or normative than positivist in Doh & Guay, 2006; Orlitzky, Schmidt, & Rynes,
tone (e.g., Harvard Business School Press, 2003). 2003; Walsh et al., 2003: 877). This paper helps to
Most of the theoretically oriented research on fill this theoretical void by exploring a broad set
this subject has focused on investigating the
of institutional conditions under which socially
connection between corporate social responsi-
responsible corporate behavior is likely to occur.
bility and corporate financial performance
To some people the idea of corporations act-
(Rowley & Berman, 2000; Walsh et al., 2003). And
ing in socially responsible ways would seem
most often the emphasis there has been on de-
silly. If the raison d’être for corporations is to
termining the extent to which socially responsi-
maximize profit and shareholder value as best
ble corporate behavior affects financial perfor-
they can, then it stands to reason that corpora-
mance—not the other way around. Margolis and
Walsh (2003: 273–278) reviewed this literature tions will do whatever it takes to achieve this
from 1972 to 2002 and found that socially respon- goal—perhaps even if that includes acting in
sible corporate behavior was treated as the de- socially irresponsible ways if they believe that
they can get away with it. Indeed, whole fields
of economic inquiry, such as the study of eco-
I thank Michael Allen, Robert Bies, Eva Boxenbaum, Søren nomic regulation (e.g., Demsetz, 1968; Stigler,
Christensen, Frank Dobbin, Heather Haveman, Neil Flig- 1968) and transaction cost analysis (e.g., North,
stein, Renate Meyer, Ove K. Pedersen, Jesper Strandgaard
Pedersen, Marc Schneiberg, Marc Ventresca, Ann Westen-
1990; Williamson, 1985), are based on these as-
holz, Christine Wohlforth, and four anonymous AMR review- sumptions. For instance, Williamson’s (1985:
ers for comments on an earlier draft. Chapter 2) classic transaction cost analysis of
946
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2007 Campbell 947

the firm rests on the assumption that individu- what conditions are corporations more likely to
als, and by extension the firms that they run, act in socially responsible ways than not?
will act opportunistically— by which he means In this paper I seek to answer this question. I
in self-interested ways and with guile—when- do so by drawing on insights from two bodies of
ever possible and, therefore, are not fully trust- literature not generally associated with the ac-
worthy. ademic discussion of corporate social responsi-
Moreover, an extensive body of literature on bility: the literature on institutional analysis in
comparative political economy argues that un- sociology and the literature on comparative po-
der competitive conditions the separation of cor- litical economy in political science. Generally
porate ownership and control from direct pro- speaking, what is important about these is that
ducers, consumers, and others creates all sorts they focus on how institutions constrain and en-
of structural incentives and opportunities for able behavior.1
firms to benefit themselves at the expense of More specifically, in recent studies scholors
others, to free ride on (rather than contribute to) have argued that the tendency toward socially
collective or public goods, and in some cases to responsible corporate behavior varies across
subvert social welfare, such as by skimping on countries and that much more research is re-
product quality and safety, engaging in toxic quired to understand why (Maignan & Ralston,
dumping, and so on, all in the pursuit of short- 2002). The comparative political economy litera-
term profits or share prices unless institutions ture is useful in this regard because it has a
are in place to mitigate such behavior (e.g., Al- long tradition of examining how political and
bert, 1993; Crouch & Streeck, 1997; Dore, 2000; economic institutions vary cross-nationally and
Roe, 2003). And while business associations, affect economic activity. The institutional anal-
state regulations, and other forms of economic ysis literature is useful because institutionalists
governance can help solve the problem, they understand that institutions beyond the market
also create opportunities for corporations to pur- are often necessary to ensure that corporations
sue new collective forms of opportunistic or are responsive to the interests of social actors
predatory behavior, including the capture and beside themselves, particularly in today’s in-
subversion of regulatory authorities (e.g., Bern- creasingly global economy (Scott, 2003: 346.). In
stein, 1955; Perrow, 2002; Schneiberg, 1999; other words, in both bodies of literature, re-
Schneiberg & Bartley, 2001). searchers recognize that the way corporations
There are plenty of examples of firms that, in treat their stakeholders depends on the institu-
the pursuit of profit, have exhibited all sorts of tions within which they operate (e.g., Fligstein &
socially irresponsible corporate behavior, such Freeland, 1995; Hall & Soskice, 2001). By stake-
as deceiving customers, swindling investors, ex- holder I mean individuals or groups with which
ploiting and even brutalizing employees, put- the corporation interacts who have a stake or a
ting consumers at risk, poisoning the environ- vested interest in it, such as employees, con-
ment, cheating the government, and more sumers, suppliers, and local communities
(Vogel, 1992). However, many corporations do not within which corporations operate (Carroll &
behave in socially irresponsible ways. In fact, Buckholtz, 2000: 21).2 Thus, insights from both
some corporations go to great lengths to do just bodies of literature can help move the analysis
the opposite, by giving to charities, supporting of corporate social responsibility in a more the-
community activities, treating their workers and oretically oriented direction.
customers decently, abiding by the law, and The paper proceeds as follows. First, I briefly
generally maintaining standards of honesty and review the literature on corporate social respon-
integrity. sibility to identify some important clues that
All of this raises an interesting question for will help focus discussion on the institutional
scholars. Given the incentives for maximizing conditions under which corporations are more or
profit and shareholder value, let alone acting
opportunistically, why would a corporation ever 1
For overviews of both bodies of literature, see Campbell
act in socially responsible ways, even at the (2004: Chapter 1).
most minimal level? Put in slightly different 2
Defining who the most important stakeholders are is a
terms, given the wide range of corporate behav- complex conceptual issue that has been addressed else-
iors— both good and bad—noted above, under where (e.g., Mitchell, Agle, & Wood, 1997).
948 Academy of Management Review July

less likely to act in socially responsible ways. Maggio & Powell, 1983; Fligstein & Freeland,
Second, I provide a definition of socially respon- 1995). I leave it to others to consider the deter-
sible corporate behavior that identifies a behav- minants of socially responsible corporate be-
ioral threshold below which corporations no havior that may be operating inside the corpo-
longer behave in socially responsible ways. ration, such as the corporation’s culture,
This is a slightly unconventional definition com- structure, leadership, and managerial compen-
pared to those typically found in the literature sation schemes. A systematic treatment of these
on corporate social responsibility, because it fo- firm-level factors is beyond the scope of this
cuses on the minimum behavioral standard be- paper (but see Aguilera & Jackson, 2003, and
low which corporate behavior becomes socially Mitchell et al., 1997). Hence, I am not making the
irresponsible. By taking this definition as my overly deterministic claim that institutions are
starting point, I help to fill an important blind solely responsible for corporate social responsi-
spot in the literature. Third, I explore some of the bility.
conditions under which corporations may be
more or less likely to engage in socially respon-
INSTITUTIONS AND THE LITERATURE ON
sible behavior as defined in this paper. To begin
CORPORATE SOCIAL RESPONSIBILITY
with, I argue that basic economic factors, includ-
ing the general financial condition of the firm, The literature on corporate social responsibil-
the health of the economy, and the level of com- ity is vast and has been reviewed in detail else-
petition corporations face, are all likely to affect where (e.g., Margolis & Walsh, 2003; Orlitzky et
the degree to which corporations act in socially al., 2003).3 The discussion that follows is in-
responsible ways. However, the relationships tended simply to indicate where research on
between economic conditions and socially re- this subject provides hints as to how an institu-
sponsible corporate behavior are mediated by tionally focused approach to the subject might
several institutional factors: public and private be developed. As noted above, most of the liter-
regulation, the presence of nongovernmental ature on corporate social responsibility does not
and other independent organizations that mon- explore whether institutional conditions affect
itor corporate behavior, institutionalized norms the tendency for firms to behave in socially re-
regarding appropriate corporate behavior, asso- sponsible ways. For example, Waddock and
ciative behavior among corporations them- Graves (1997) found through regression analysis
selves, and organized dialogues among corpo- that an increase in corporate financial perfor-
rations and their stakeholders. mance was associated positively with an in-
As a result, this paper makes two important crease in corporate social responsibility. Their
contributions to the literature on corporate so- analysis is among the best of its kind, particu-
cial responsibility. On the one hand, it focuses larly insofar as they constructed a sophisticated
on an important aspect of corporate behavior multidimensional measure of corporate social
that has received very little attention in this responsibility. However, the only independent
literature—that is, the threshold between so- variables included in their analysis, beside
cially responsible and irresponsible behavior. measures of corporate financial performance,
On the other hand, it helps to move this litera- were firm size, management’s risk tolerance,
ture in a more theoretically oriented direction by and type of industry. In this regard, their work is
offering an institutional theory of the determi- typical of much research in this field. Most stud-
nants of socially responsible corporate behav- ies of the determinants of corporate social re-
ior. sponsibility have examined the effects of vari-
I focus on the institutional determinants of ous aspects of corporate financial performance
corporate social responsibility because firms but not much else (e.g., Brown & Perry, 1994; Fry,
are embedded in a broad set of political and
economic institutions that affect their behavior
(e.g., Campbell, Hollingsworth, & Lindberg, 1991; 3
Fligstein, 1990, 2001b; Roe 1991, 1994). These in- Much of it concerns whether corporations ought to en-
gage in socially responsible behavior—a subject that is not
clude forces operating outside the corporation at directly related to this paper (e.g., Friedman, 1970; Jensen,
the macro- and interorganizational or field level 2002; Levitt, 1958; Porter & Kramer, 2003; Prahalad & Ham-
within which the corporation maneuvers (Di- mond, 2003).
2007 Campbell 949

Keim, & Meiners, 1982; McGuire, Sundgren, & cultural, and other institutions may have been
Schneeweis, 1988). responsible. For example, variation in these in-
However, there are a few exceptions. First, stitutions may mediate the degree to which
some of the research on corporate philanthropy stakeholders can influence managers. However,
investigates whether tax law—specifically, the the authors did not explore the institutional im-
ability to deduct charitable contributions— plications of their findings. There is a more gen-
affects philanthropic giving by firms. Whether it eral body of literature on corporate governance
does or not is in dispute (e.g., Clotfelter, 1985; that has done a better job in arguing that legal,
Navarro, 1988). But the important point is that tax financial, property rights, and other institutions
law is an important property rights institution vary cross-nationally and, therefore, affect the
that may affect corporate behavior (Campbell, degree to which stakeholders can influence cor-
2004: 131–132). Hence, this stream of research porate managers (e.g., Aguilera & Jackson, 2003;
suggests that property rights and, by implica- Dore, 2000; Roe, 2003). But this literature focuses
tion, other forms of state regulation may affect less on corporate social responsibility per se
the degree to which corporations behave in so- than on corporate governance broadly con-
cially responsible ways. strued, including, for example, factors that affect
Second, Galaskiewicz (1991) showed that cor- the proclivity of managers to take a short- or
porations tend to act in socially responsible long-term view of corporate decision making
ways if normative or cultural institutions are in and investment; to favor upgrading employee
place that create the proper set of incentives for skills or not; and to finance operations through
such behavior. For instance, when corporations bond and equity markets, bank loans, or re-
or their managers belonged to business or pro- tained earnings.
fessional associations dedicated to charitable Fourth, several scholars have developed what
giving, these corporations were more likely to has become known as stakeholder theory, which
engage in philanthropy. Why? Because mem- examines whether and why corporations attend
bership in such organizations instilled in mem- to the interests of stakeholders along with their
bers an ethic of enlightened self-interest as they own immediate corporate interests (e.g., Allen,
participated in seminars about the virtues and 1992; Freeman, 1984; Mitchell et al., 1997). Stake-
benefits of corporate giving, as they learned of holder theory is closely related to the issue of
such behavior from their counterparts in other corporate social responsibility to the extent that
cities, and as they were exposed to peer pres- stakeholder theorists define appropriate and in-
sure to behave in these socially responsible appropriate corporate behavior in terms of how
ways. corporations act vis-à-vis their stakeholders
Third, a few researchers have studied corpo- (Driver & Thompson, 2002: 117). However, most
rate social responsibility in a comparative stakeholder theory is not well-suited to our pur-
cross-national context that has important insti- poses because it neglects the question that mo-
tutional implications. A case in point is Maig- tivates this paper: What are the conditions un-
nan and Ralston’s (2002) study of firms in France, der which corporations are likely to act in
the Netherlands, the United Kingdom, and the socially responsible ways? Instead, most of the
United States. They examined public commit- stakeholder literature focuses on four other is-
ments to socially responsible behavior (posted sues (Donaldson & Preston, 1995). It describes
on corporate web sites) of 100 firms in each what the corporation is and who its stakehold-
country and found that firms reported three mo- ers are. It argues that stakeholders have legiti-
tivations for behaving in socially responsible mate interests in corporate activity. It recom-
ways: (1) managers valued such behavior in its mends attitudes, structures, and practices that
own right, (2) managers believed that this be- constitute stakeholder management. It identi-
havior enhanced the financial performance of fies the relationship between stakeholder man-
their firms, and (3) stakeholders—notably, com- agement and the achievement of various corpo-
munity groups, customers, and regulators— rate performance goals, such as profitability,
pressured firms to behave in socially responsi- stability, and growth. As such, scholars have
ble ways. The fact that they found systematic argued that stakeholder theory has failed to at-
differences in responses across the four coun- tend to the social and economic imperatives that
tries suggests that nationally specific political, often confront organizations in contradictory
950 Academy of Management Review July

ways (Margolis & Walsh, 2003: 280). These are might include, for instance, measures of how the
precisely the sorts of imperatives on which I corporation treats its employees with respect to
dwell here—imperatives that encourage firms to wages, benefits, and levels of workplace safety;
act in socially responsible ways or not. how it treats its customers with respect to prod-
In sum, all of this literature points toward, but uct quality, truth in advertising, and pricing;
in most cases does not systematically develop, how it treats its suppliers with respect to its
an institutional analysis of corporate social re- willingness to uphold contracts and honor more
sponsibility. I draw on this work where appro- informal commitments; how it treats the govern-
priate, as well as the literature on institutional ment with respect to operating within the law
analysis and comparative political economy, to and not trying to subvert it; and how it treats the
develop a set of testable propositions about how community with respect to making charitable
regulatory, normative, associative, stakeholder, contributions, ensuring not to foul the environ-
and other institutions affect corporate social re- ment, and so forth.
sponsibility. But first we need to be clear about Furthermore, what passes as socially respon-
the meaning of socially responsible corporate sible corporate behavior shifts historically. Dur-
behavior. ing the Industrial Revolution, reducing the stan-
dard factory working day from fourteen to ten
hours may have been considered socially re-
sponsible. But today anything more than eight
WHAT IS SOCIALLY RESPONSIBLE
hours would probably seem unacceptable in ad-
CORPORATE BEHAVIOR?
vanced capitalist countries, at least unless hefty
Defining socially responsible corporate be- overtime wages were paid.
havior is not a straightforward exercise (e.g., Finally, we need to distinguish between the
Maignan & Ralston, 2002: 498; Roberts, 2003; rhetoric of socially responsible corporate be-
Rowley & Berman, 2000). This is because several havior and substantive action. That is, corpo-
issues are at stake. To begin with, what consti- rations may pay lip service in corporate re-
tutes socially responsible behavior may vary ports, advertising, web sites, and elsewhere to
according to our point of view. On the one hand, the idea that they act in socially responsible
we might adopt a more or less objective criteria ways. But their rhetoric may diverge from their
of acceptable behavior against which firms can substantive behavior insofar as they take the
be judged as being socially responsible or not. issue seriously and dedicate significant re-
For instance, we might define socially responsi- sources to it (Roberts, 2003; Weaver, Treviño, &
ble behavior as that which provides the corpo- Cochran, 1999). This should not be surprising.
ration’s employees with a decent living wage After all, organizations often engage in sym-
relative to local costs of living as determined by bolic and rhetorical framing in order to man-
some independent organization, such as the age their public image (Hirsch, 1986; Meyer &
United Nations. Or we might define socially re- Rowan, 1977). My concern in subsequent sec-
sponsible behavior as that which does not ruin tions of this paper is with the substantive
the local environment and jeopardize the com- rather than the symbolic or rhetorical aspects
munity’s health as measured against interna- of corporate social responsibility.
tionally accepted standards of environmental The point is that socially responsible corpo-
quality or health. On the other hand, we might rate behavior may mean different things in dif-
use more subjective criteria and adopt the per- ferent places to different people and at different
spective of the stakeholders who interact with a times, so we must be careful in how we use the
corporation. In this case we can argue that cor- concept and how we define it. And care is re-
porate behavior is socially responsible as long quired in measuring the degree to which corpo-
as it meets these actors’ expectations regarding rations are actually behaving in socially re-
appropriate and acceptable corporate behavior, sponsible ways or simply making hollow claims
however they choose to define it. to that effect. Finally, caution is warranted be-
There are also several dimensions that we cause the concept itself is a fairly new one in the
might use to identify important aspects of so- world and because its different local meanings,
cially responsible corporate behavior (Rowley & which are only now beginning to diffuse inter-
Berman, 2000; Waddock & Graves, 1997). These nationally, have not yet congealed in a single
2007 Campbell 951

commonly accepted definition (Boxenbaum, insofar as it assumes that, in the absence of

2004).4 institutional constraints in the environment that
I view corporations as acting in socially re- mitigate such behavior, firms will have interests
sponsible ways if they do two things. First, they and incentives that may cause them to behave
must not knowingly do anything that could in socially irresponsible ways as I have defined
harm their stakeholders—notably, their inves- them. In other words, in the absence of these
tors, employees, customers, suppliers, or the lo- institutions, firms will be more likely to behave
cal community within which they operate. Sec- irresponsibly than they would if such institu-
ond, if corporations do cause harm to their tions were present.
stakeholders, they must then rectify it whenever By focusing on the threshold between irre-
the harm is discovered and brought to their at- sponsible and minimally responsible corporate
tention. Rectification could be done voluntarily behavior, my definition differs from the conven-
or in response to some sort of encouragement, tional definition that other researchers use.
such as moral suasion, normative pressure, le- Many of them define corporate social responsi-
gal threats, regulatory rulings, court orders, and bility as actions taken by a firm that are in-
the like. This is a definition that sets a minimum tended to further social welfare beyond the di-
behavioral standard with respect to the corpora- rect economic, technical, and legal interests of
tion’s relationship to its stakeholders, below the firm (e.g., Davis, 1973; McWilliams & Siegel,
which corporate behavior becomes socially irre- 2001). I do not deny that this conventional defi-
sponsible. Unless noted otherwise, this is the nition is useful in that it draws our attention to
definition that I will use throughout the rest of important issues that are worth studying (e.g.,
this paper.5 Harvard Business School Press, 2003), but my
This definition fits squarely with the insights concern in this paper is only with the conditions
of comparative political economists, institution- under which corporations meet the minimum
alists, and others noted earlier who have em- level of socially responsible behavior as I have
phasized the problems of opportunism, moral defined it. Why?
hazard, and the erosion of public or collective The issue of doing harm (intentionally or not)
goods (e.g., North, 1990; Ostrom, 1990; Streeck, largely has been ignored in the literature on
1997). My definition draws from this literature corporate social responsibility (but see Bartley,
2003; Grant, 1997; Grant & Downey, 1996). In fact,
no mention is made of the issue in three recent
4
Differences in definitions are not just a matter of aca- comprehensive reviews of the literature (Margo-
demic concern. The clash over different local definitions of lis & Walsh, 2003; Orlitzky et al., 2003; Walsh et
corporate social responsibility can have serious practical
al., 2003). To put this in slightly different terms,
consequences in the real world. As is well known, the Nike
Corporation was embroiled in a major scandal by paying we can array examples of socially responsible
workers in its Southeast Asian athletic footwear plants corporate behavior along a continuum ranging
wages that were quite low but still in accordance with the from minimally responsible behavior, as I have
local customs there. Elsewhere, Nike paid substantially defined it, to increasingly more responsible be-
higher wages—but again, wages that were in accordance
haviors, as others have defined them. Granted,
with local customs in these other places. The scandal
erupted amidst charges that Nike was operating according it might be difficult for everyone to agree on
to a double standard (Martin, 2003: 96). which specific instances of corporate social re-
5
Some people might argue that, for some corporations, sponsibility fit where along this continuum. But
the very nature of the business they are in may be deemed the point is that virtually all of the literature on
socially irresponsible. That is, some people might distin- corporate social responsibility has neglected
guish between firms whose business may be inherently
the minimum end of the continuum, focusing
irresponsible—perhaps weapons manufacturing—and firms
whose business may be responsible but whose practices instead on behaviors located toward the other
may not. An extreme example of the latter would be the end. This is both surprising and important,
German firm I.G. Farben, whose basic business, chemical given the fact that some firms may score quite
manufacturing, was all right but whose particular business high on corporate social responsibility by con-
practices at one time were not—that is, the deliberate man-
ventional definitions but very low by my defini-
ufacturing and sale during the Second World War of Zyclon
B, a poison gas, to the Nazis for purposes of genocide. This tion. For instance, a firm may do lots of public
paper is not concerned with whether the basic nature of a service work and contribute heavily to charities
business itself is socially responsible. but systematically foul the environment, steal
952 Academy of Management Review July

from its employees’ pension fund, or discrimi- interests in corporate social responsibility as it
nate against women in the workplace. As a re- is conventionally defined (Friedman, 1970;
sult, there is a blind spot in this literature that Jensen, 2002; Levitt, 1958). Many students of eco-
requires attention, which this paper helps to fill. nomic regulation, transaction cost analysis, and
comparative political economy also accept this
behavioral assumption but take an even stron-
UNDER WHAT CONDITIONS DO FIRMS ACT
ger position regarding its implications. They
IN SOCIALLY RESPONSIBLY WAYS?
maintain that the imperative of profit and share-
Now let us get to the heart of the matter. Why holder value maximization may cause corpora-
do some corporations act in socially responsible tions to act in ways that do not even meet the
ways while others do not? Is socially responsi- minimum threshold of socially responsible be-
ble corporate behavior purely voluntary and de- havior as I have defined it.
pendent on having honorable people in charge, Two arguments flow from this. First, much of
or is there something more to it? Put in slightly the extant literature on corporate social respon-
different terms, under what conditions are firms sibility suggests that firms whose financial per-
more likely to act in socially responsible ways? formance is weak are less likely to engage in
This is a question that pushes us quickly into socially responsible corporate behavior, con-
the fields of institutional analysis and compar- ventionally defined, than firms whose financial
ative political economy, because one way to an- performance is strong (e.g., Margolis & Walsh
swer the question is to compare variation in 2001; Orlitzky et al., 2003). Why? Because firms
corporate behavior across different institutional that are less profitable have fewer resources to
environments and countries. spare for socially responsible activities than
To facilitate such a research agenda, I offer firms that are more profitable—an argument
several propositions about the factors that may that is often referred to as slack resource theory
affect the degree to which corporations act in (Waddock & Graves 1997). It follows, then, that
socially responsible ways. I begin with a brief firms whose financial performance is so weak
discussion of some basic economic conditions that they risk suffering serious losses and jeop-
that may affect corporate behavior. I do so be- ardizing shareholder value may be less inclined
cause it is important to recognize that institu- to meet even the minimum threshold of socially
tions, the focus of this paper, are not the only responsible behavior as I define it than firms
factors that may affect corporate behavior. Eco- whose financial situation is stronger. This as-
nomics certainly matter too. However, my over- sumes, of course, that managers think that act-
riding argument is that variation in socially re- ing in socially irresponsible ways will improve
sponsible corporate behavior is probably their firm’s financial situation and that they can
associated with variation in institutions and the get away with it. That is, managers act opportu-
sticks and carrots they provide to constrain and nistically (i.e., with self-interest and guile). Sim-
enable behavior. In a nutshell, my argument is ilarly, if firms are operating in an economic cli-
that economic conditions affect the degree to mate where, for instance, inflation is high,
which corporations act in socially responsible productivity growth is low, consumer confidence
ways but that this relationship is mediated by a is weak, and, in short, it appears that it will be
variety of institutional factors. relatively difficult for firms to turn a healthy
profit in the near term, they will be less likely to
behave in socially responsible ways than would
Economic Conditions
otherwise be the case.
To review briefly, I assume that the impera-
tive of maximizing profit and shareholder value Proposition 1: Corporations will be
is the root cause that may prevent corporations less likely to act in socially responsi-
from acting in socially responsible ways. This ble ways when they are experiencing
assumption is widely held. Proponents of the relatively weak financial perfor-
so-called contractarian view of the firm argue mance and when they are operating
that interests in maximizing profit and value lie in a relatively unhealthy economic
at the heart of the modern corporation and that environment where the possibility for
these interests ought to take precedence over near-term profitability is limited.
2007 Campbell 953

Second, if this proposition is true, then it fol- Friedman, 1962: 128). Although not all econo-
lows that the odds that firms will act in socially mists agree that state regulation is the best way
responsible ways will also be associated with to handle the problems associated with monop-
the level of competition they face. To begin with, oly conditions, virtually all agree that monop-
in situations where competition is so extremely oly, if left unchecked, will likely result in irre-
intense that profit margins are narrow enough sponsible corporate behavior because of the fact
to put shareholder value and firm survival at that firms will operate opportunistically if they
risk, the incentive to cut corners and save money believe they can get away with it (e.g., William-
wherever possible will cause corporations to act son, 1985: Chapter 13).
in socially irresponsible ways insofar as they
Proposition 2: Corporations will be
believe that this will help them turn a profit and
less likely to act in socially responsi-
survive. Indeed, business history is brimming
ble ways if there is either too much or
with examples of how periods of very intense
too little competition. That is, the rela-
competition caused firms to do all sorts of so-
tionship between competition and so-
cially irresponsible things in order to survive,
cially responsible corporate behavior
including compromising product safety and
will be curvilinear.
quality, sweating labor, and cheating customers
(Kolko, 1963; McCraw, 1984; Schneiberg, 1999; One caveat is in order. Competition is a com-
Weinstein, 1968). plex phenomenon. Corporations can deal with it
However, under normal competitive condi- in a variety of ways in order to obtain competi-
tions, where at least a modest profit is assured tive advantage over their rivals. One way is to
and firm survival per se is not at stake, firms are act in socially irresponsible ways, as I have just
less likely to engage in socially irresponsible indicated. But firms can also seek to deprive
practices. Why? The imperative to behave irre- their rivals of competitive advantage in other
sponsibly has lessened, and, as a result, man- ways. For instance, in the area of international
agers become more concerned with preserving trade, corporations that face competition from
the reputation of their firms for the sake of con- lower-cost imports may try to have regulatory
tinued business success. After all, if the reputa- and other institutional obstacles created that
tion of a firm is compromised, it often becomes improve their competitive position relative to
more difficult for the firm to continue doing busi- foreign producers, such as tariffs, import sur-
ness with its customers and suppliers. When charges, and product safety or environmental
customers and suppliers no longer trust a firm, requirements. Of course, low-cost foreign pro-
they take their business elsewhere, and the ducers often resist. Indeed, international trade
firm’s profitability may be compromised (Mac- disputes and the political struggles that sur-
Caulay, 1963). round the creation of transnational market
Finally, at the other extreme, in situations zones, such as NAFTA, the European Union, and
where competition is virtually nil (e.g., monop- Mercosur, have often involved disputes of this
oly or monopsony), firms may have little interest kind (Duina, 2006). The point is that corporations
in acting in socially responsible ways because do not necessarily have to resort to socially ir-
things like corporate reputation or customer loy- responsible behavior in order to cope with com-
alty will not likely affect sales, profitability, or petitive pressures, at least where international
survival very much. This is because, under such commerce is concerned.
conditions, customers and suppliers have few if However, conflicts of this sort may still be
any alternatives. For instance, monopoly condi- related to issues of corporate social responsibil-
tions can lead to severe price gouging—a so- ity. Struggles for international competitive ad-
cially irresponsible corporate behavior in terms vantage, which by most accounts have in-
of its effects on customers. This is one reason creased as economic activity became more
many economists have argued that, barring out- globalized during the late twentieth century,
right government ownership, the state should have led corporations and others to press na-
regulate corporations under monopoly condi- tional governments to adopt a range of neolib-
tions in order to mitigate some of the market eral policies: reductions in taxes, welfare expen-
failures and negative externalities that concern ditures, and business regulations (e.g.,
students of corporate social responsibility (e.g., Campbell & Pedersen, 2001). Many people have
954 Academy of Management Review July

complained that these policies have contributed move investments and production from one reg-
to increased economic inequality, environmen- ulatory regime to another has increased. Many
tal degradation, and other socioeconomic ills people believe that because national govern-
(e.g., Gilpin, 2000; Wade & Veneroso, 1998a,b). ments do not want to lose local investment, pro-
These are the sorts of problems that people often duction, jobs, and tax revenues, they are forced
attribute to the irresponsible behavior of corpo- to ease business regulations (e.g., McKenzie &
rations and that cause people to beseech corpo- Lee, 1991; Ohmae, 1990, 1995)—regulations that
rations to act in more socially responsible ways. help militate against socially irresponsible cor-
porate behavior.6 Indeed, the threat of capital
disinvestment has long been an important con-
Institutional Conditions
cern for regulators at subnational levels of gov-
Remember that researchers have called for ernment, at least in the United States, that has
greater attention to the factors that moderate the mitigated the imposition and enforcement of
relationship between economic conditions, such more stringent corporate regulations (e.g., Cren-
as corporate financial performance, and socially son, 1971).
responsible corporate behavior. Toward that Of course, it is not just the presence of regu-
end, let us now turn to a discussion of institu- lations per se that matters but also the capacity
tional factors. of the state to monitor corporate behavior and
To begin with, consider the most obvious in- enforce these regulations when necessary. We
stitutional explanation of socially responsible should not assume that states will always do
corporate behavior— one that focuses on the this effectively. Many researchers have argued
state’s regulatory sanctions. The importance of that corporations may not only resist the impo-
regulations is clear if we take an historical view. sition of regulations in the first place but may
Meat packers in the United States, for instance, also seek to control or otherwise capture regu-
operated during the early twentieth century lators in ways that bend them toward the will of
with much less concern for food safety and qual- the corporations they are supposed to oversee
ity than they did after the Department of Agri- (Bernstein, 1955; Kolko, 1963; Vogel, 1989; Wein-
culture moved to regulate the industry. Indeed, stein, 1968). As such, much hinges on the insti-
their earlier behavior was so irresponsible that tutional design and configuration of regulation
it provided a notorious source of inspiration for and the balance of political forces surrounding
muckraking journalists of the day. And work- it.
place safety in the packing plants has improved Institutionalists and comparative political
considerably since the Occupational Safety and economists have long recognized this (e.g.,
Health Administration began supervising shop Campbell, 1988: Chapters 5 & 8; Kelman, 1981;
floor practices (Portz, 1991). Similarly, it has been Vogel, 1986). For example, air pollution regula-
widely reported that government deregulation tions were devised and deployed in Sweden and
during the 1980s and 1990s created an environ- the United States during the late 1960s and early
ment where U.S. corporations began to take 1970s, but in very different ways and with very
more liberties and act in more socially irrespon- different outcomes. In Sweden the process in-
sible ways than they would have otherwise. For volved extensive and inclusive consultation and
example, observers have argued that the sav- negotiation with business, environmentalists,
ings and loan crisis, the Enron debacle, the U.S. scientists, government agencies, and political
accounting frauds, and other corporate scandals parties. The result was a set of practical regula-
of the 1990s can all be attributed in large part to tions that did not exceed the available technol-
financial deregulation (Stiglitz, 2003). And Italy’s ogies and that took seriously economic as well
feeble stock market regulation has been blamed as environmental consequences. Business and
in part for the Parmalat scandal (Economist, the other parties to negotiation were satisfied,
2004).
Whether the scandals of the 1990s are indica- 6
tive of a more systemic turn away from corpo- The general argument about the drive toward deregula-
tion, lost tax revenue, and the like that is alleged to stem
rate social responsibility is a matter of consid- from increased globalization is hotly debated. For dissent-
erable speculation. Particularly in an era of ing views, see, for example, Hirst and Thompson (1996),
increased globalization, the capacity for firms to Gilpin (2000), and Campbell (2003, 2004: Chapter 5).
2007 Campbell 955

and implementation turned out to be quite effec- by industrial associations whose job, in part, is
tive. In the United States, however, the process to ensure that their members act in socially re-
was much less inclusive with respect to busi- sponsible ways. For instance, the dairy industry
ness, more contentious, and the regulations that in many European countries adopted this sort of
were passed were rather impractical because self-regulation approach, based largely on net-
they set standards that were nearly impossible works of dairy cooperatives, to maintain certain
to achieve given the available technologies. levels of quality in milk, butter, cheese, and
Hence, corporations fought implementation at other products (O’Rourke, 2006; Streeck &
every turn, in part because they did not feel they Schmitter, 1985b). Recently, this sort of activity
had been given an adequate voice in the pro- has taken on a global dimension. New organi-
cess. In the end, regulation was much less effec- zations, such as Transparency International,
tive than it was in Sweden (Lundqvist, 1980). which is supported by sixty-four corporations
The fact that the creation and enforcement of from the United States and other countries, have
effective state regulations turn in part on the been created to help reduce corrupt business
capacity of external actors, such as environmen- practices around the world (Porter & Kramer,
talists, unions, consumers, and other stakehold- 2003: 40).
ers, to participate in and monitor these regula- Comparative political economists and institu-
tory processes is something that has received tionalists have shown that self-regulation by in-
some attention from institutionalists in organi- dustry association is often linked to the state.
zation studies (e.g., Troast, Hoffman, Riley, & Sometimes this sort of activity is encouraged
Bazerman, 2002). For instance, research suggests and authorized by the state so that the state can
that government statutes are most effective in displace on to these private associations what
facilitating socially responsible corporate envi- would otherwise be its own regulatory respon-
ronmental behavior if they afford citizens access sibilities (Streeck & Schmitter, 1985a). This polit-
to information about toxic emissions, legal ical move has become more prevalent insofar as
standing in court to sue suspected polluters, and states respond to globalization pressures by
sufficient resources to support both of these ac- pursuing neoliberal reforms and passing wel-
tivities (Grant, 1997; Grant & Downey, 1996). I fare and regulatory functions on to the private
will return to the issue of monitoring by stake- sector (Bartley, 2003: 434; Maignan & Ralston
holders later. But keeping all of this in mind, 2002: 510). Sometimes industry moves toward
another proposition follows. self-regulation out of a concern that to do other-
wise would eventually result in state regulatory
Proposition 3: Corporations will be
intervention. That is, astute members of industry
more likely to act in socially responsi-
realize that it is better to control the regulatory
ble ways if there are strong and well-
process themselves than to be forced by the
enforced state regulations in place to
state to succumb to a process and a set of stan-
ensure such behavior, particularly if
dards over which they would have little control
the process by which these regula-
(Kolko, 1963; Schneiberg, 1999; Streeck & Schmit-
tions and enforcement capacities
ter 1985a; Weinstein, 1968). Finally, sometimes
were developed was based on negoti-
self-regulation emerges because corporations
ation and consensus building among
fear that state regulation is insufficient to pro-
corporations, government, and the
tect the industry from itself. This happened after
other relevant stakeholders.
the accident at the Three Mile Island nuclear
It is important to understand that regulation is reactor in 1979. Electric utility companies that
not always the responsibility of the state. Often, owned and operated nuclear facilities through-
industries establish their own regulatory mech- out the United States recognized that the acci-
anisms to ensure fair practices, product quality, dent might have been prevented had the federal
workplace safety, and the like by setting stan- government taken a tougher regulatory position
dards to which their members are expected to in the first place. Fearing that another accident
adhere. In fact, sometimes the most effective might ruin the commercial nuclear power indus-
means of facilitating increased corporate social try forever, they took matters into their own
responsibility is through corporate peer pres- hands and organized a system of self-regulation
sure (Martin, 2003: 98). This is often undertaken designed to set standards, monitor performance,
956 Academy of Management Review July

and punish utilities whose behavior failed to litically how effective self-regulation is in en-
meet the new industry standards (Campbell, suring that corporations behave in socially
1989). responsible ways. For example, Schneiberg and
As is true for state regulation, effective indus- Bartley (2001) studied the fire insurance industry
trial self-regulation can also be undermined by in early twentieth century America from an in-
the very corporations it is designed to oversee. stitutionalist perspective. During this period, the
For instance, there are plenty of examples of industry was regulated by industrial associa-
corporations violating cartel agreements (Chan- tions. Insurers pooled data on losses, coordi-
dler, 1977: Chapter 10) or refusing to abide by nated rates, and set industry standards. How-
industrial benchmarks and standards for qual- ever, in addition to problems of internal
ity or performance that have been set by indus- enforcement and defection from their collective
trial associations (Schneiberg, 1999). Recent agreements, these associations also faced
scandals in the U.S. accounting industry—an mounting political opposition from consumers
industry that has long set its own standards of over rate discrimination, price fixing, and in-
acceptable business practice—is another exam- competent or unfair claims adjustments. Some-
ple of industrial self-regulation gone awry. times this helped improve industry self-regula-
Moreover, some instances of industrial self- tion. But, in the long run, it led to the
regulation have been devised not only to evade development of various kinds of state interven-
state regulation and other forms of external con- tion and, ultimately, insurance regulation by
trol but also to facilitate predatory and opportu- state governments.
nistic rather than socially responsible corporate I will return to monitoring shortly. For now, the
behavior. Price-fixing cartels are a case in point. important lesson, which parallels the discussion
This is another reason, according to political about state regulation, is that much depends on
economists, the relationship between industrial how self-regulation is organized, the balance of
self-regulation and the state is important. With- political forces involved, and how self-regula-
out enough support from the state, self-regula- tion intersects with the state and its legal insti-
tion often fails (Karkkainen, Fung, & Sabel, 2000: tutions.
697). Notably, in the United States the self-
Proposition 4: Corporations will be
regulatory association agreements into which
more likely to act in socially responsi-
firms have entered have not always been up-
ble ways if there is a system of well-
held by the courts when associations sued mem-
organized and effective industrial
bers who had violated the terms of these agree-
self-regulation in place to ensure such
ments (Chandler, 1977; Lindberg & Campbell,
behavior, particularly if it is based on
1991). In countries that are more amenable to
the perceived threat of state interven-
associative governance and that have property
tion or broader industrial crisis and if
rights in place that are more supportive of col-
the state provides support for this form
lective business activity, such as the United
of industrial governance.
Kingdom and Germany (Djelic, 1998; Dobbin,
1994), I suspect that the courts are more likely to I have mentioned that the effectiveness of
back up industrial self-regulation. And to the state regulation and industrial self-regulation
extent that self-regulation in the nuclear power may be affected by stakeholder monitoring. In-
industry improved plant operation and safety, it deed, scholars of stakeholder theory, corporate
was due in part to the fact that the utility asso- governance, and corporate social responsibility
ciation interfaced with the federal government’s have intimated that the monitoring of corporate
Nuclear Regulatory Commission (NRC). The performance by stakeholders is an important
NRC now often adopts as law the industry’s factor that increases the likelihood corporations
beefed-up standards of conduct, or at least offi- will behave in socially responsible ways (Agui-
cially acknowledges industrial best practices as lera & Jackson, 2003; Allen, 1992; Driver &
the association defines them (Karkkainen et al., Thompson, 2002; Mitchell et al., 1997).
2000). For example, institutionalists have shown
As is true with respect to state regulation, the that as economic activity has become increas-
capacity of various stakeholders to monitor in- ingly global, and especially as corporations en-
dustrial self-regulation also helps determine po- gage in truly multinational operations, a variety
2007 Campbell 957

of nongovernmental organizations (NGOs) have corporate behavior (Doh & Guay, 2006; Teegen,
emerged in an effort to establish codes of con- Doh, & Vachani, 2004).
duct and monitor the behavior of corporations. Similarly, social movement organizations
When necessary, NGOs pressure corporations to have emerged around issues of corporate social
behave in more socially responsible ways. Some responsibility and have used tactics resembling
international NGOs have been around for a long those of NGOs (Smith, 2005). For instance, Scan-
time, such as the International Labor Organiza- dinavian consumer groups long pressed for
tion, the World Wildlife Federation, and the more environmentally friendly paper products
World Health Organization, but their numbers like disposable diapers and toilet tissue. This
are growing (Boli & Thomas, 1999). For instance, pressure helped spur local producers to improve
the International Corporate Governance Net- their practices, such as by using unbleached
work was formed by major institutional inves- rather than bleached pulp in these products
tors, including TIAA–CREF and the California (Martin, 2003). Social movement campaigns
Public Employees Retirement System, to pro- have also targeted specific companies in order
mote improved standards of corporate gover- to pressure them to act in more socially respon-
nance and disclosure, especially in developing sible ways, as was the case, for example, when
countries (Porter & Kramer, 2003: 41). activists mobilized against key members of both
NGO tactics vary, from appealing directly to the apparel industry for unfair labor practices
the corporations themselves, organizing demon- and the timber industry for deforestation (Bart-
strations against them, pressuring local govern- ley, 2003). Of course, corporate shareholders
ments to force corporations to improve their be- have recently mobilized to press corporate
havior, and mobilizing media campaigns to boards to act in more socially responsible ways.
bring public attention to certain alarming corpo- Institutional investors and financial intermedi-
rate practices (Keck & Sikkink, 1998). Whether or aries, like pension funds and mutual funds,
not they are successful in these efforts depends have become important economic actors control-
in part on the political institutions through ling billions of dollars in investments. They
which they operate—institutions that vary con- have also come to play an increasingly impor-
siderably across countries. In the United States tant role in monitoring corporate behavior and,
NGOs confront a federalist political structure, in some cases, pressing corporations to act in
weak political parties, and a separation of pow- environmentally and socially responsible ways
ers among the three branches of government, so (Armour, Deakin, & Konzelmann, 2003). Such
the opportunities for influencing public policy shareholder activism has been described as a
are quite diffuse. In Europe, both at the national new kind of social movement that may affect the
and European Union level, NGOs face more cen- degree to which corporations act in socially re-
tralized political structures that often grant for- sponsible ways (Davis & McAdam, 2000; Davis &
mal standing to interest groups, so NGOs more Thompson, 1994; Maignan & Ralston, 2002: 498).
often enjoy direct access to the policy-making Particularly as economic activity becomes more
process.7 But regardless of the institutional set- globalized and, thus, more difficult for national
ting, the success of NGOs also hinges on governments to regulate, the capacity of social
whether they are captured by certain constitu- movements, activists, institutional investors,
ents at the expense of others. In any case, NGOs and others to monitor and challenge corporate
have developed an increasing presence in the behavior becomes more important in ensuring
institutional field within which corporations op- that corporations act in socially responsible
erate and have worked for socially responsible ways (e.g., Fung, O’Rourke, & Sabel, 2001).
Finally, the press also plays an important role
in that it monitors and reports on corporate be-
7
Insofar as this sort of NGO activity is similar to that of havior in ways that discipline corporations by
conventional social movements, research on the determi- subjecting them to the constant threat of public
nants of corporate social responsibility would benefit from exposure. Indeed, the press has long been a
incorporating insights from the social movements literature,
watchdog of sorts, keeping both the public and
as well as comparative political economy, regarding how
political opportunity structures affect the degree to which government officials informed about corporate
movement organizations are able to achieve their goals (e.g., activity. But in some countries this role has in-
Kitschelt, 1986; McAdam, McCarthy, & Zald, 1996). creased in recent years, to the point where cor-
958 Academy of Management Review July

porations have dedicated more resources to views on which business models were accept-
managing media relations and monitoring the able or not was related in part to the models that
media to appraise the performance of their own received the most attention in the academic and
subsidiaries. As such, the media has increas- business press.
ingly played an important role in corporate gov- The underlying idea is that managers seek to
ernance (Kjær & Langer, 2004). act in ways that are deemed appropriate by
All of this is consistent with research that other managers and significant actors in their
shows that ensuring responsible corporate be- environment. Institutionalists like these are
havior requires that outsiders—not just state keen on the importance of normative institutions
agencies—are sufficiently strong and well- (see also Scott, 2001: Chapter 3). It follows that
organized to provide a counterbalance to corpo- these sorts of institutionalized norms may affect
rate power (Schneiberg & Bartley, 2001: 133–141; the degree to which firms operate in socially
see also Schneiberg, 1999, and Schneiberg & responsible ways. Indeed, recognizing this is
Soule, 2005). probably one reason why publications like the
Harvard Business Review have recently run ar-
Proposition 5: Corporations will be
ticles advocating socially responsible corporate
more likely to act in socially responsi-
behavior (Harvard Business School Press, 2003)
ble ways if there are private, indepen-
and why business schools in Europe and the
dent organizations, including NGOs,
United States have incorporated courses on
social movement organizations, insti-
business ethics into their curriculum (Vogel,
tutional investors, and the press, in
1992).
their environment who monitor their
At least one study of corporate social respon-
behavior and, when necessary, mobi-
sibility has made precisely this point. As noted
lize to change it.
earlier, Galaskiewicz’s (1991) research on corpo-
So far, my argument has been that institutions rate philanthropy in Minneapolis-St. Paul
and organizations influence corporations by showed that business leaders developed and
constraining their behavior—that is, by discour- institutionalized norms that encouraged chari-
aging them through rules and negative sanc- table giving. The impetus came initially from a
tions or punishments from acting in socially ir- conference of local business leaders in 1976,
responsible ways. We know, however, that where a professor from the Harvard Business
institutions can enable as well as constrain ac- School lectured on communitarian ideology and
tion (Campbell, 2004: Chapter 3). Institutions can warned that the business community needed to
entice actors to behave in certain ways through come to grips with it. This led to additional con-
the use of more positive incentives, rewards, ferences and seminars and, eventually, to the
and other mechanisms. creation of the Minnesota Project on Corporate
The literature on institutional analysis, com- Responsibility (MPCR), whose goal was largely
parative political economy, and corporate gov- educational. MPCR offered a core curriculum for
ernance has stressed that the cognitive frames, executives that focused on the fundamentals of
mindsets, conceptions of control, or world views corporate responsibility, public-private partner-
of corporate managers are important determi- ships, international business responsibilities,
nants of how managers run their firms (e.g., and the like. Galaskiewicz found that managers
Aguilera & Jackson, 2003; Dore, 1983; Hall & Sos- from local firms that had participated in MPCR
kice, 2001; Whitley, 2004). Scholars emphasize tended to embrace an ethic of enlightened self-
that managers often learn these mental con- interest and social responsibility. Although he fo-
structs by absorbing the messages that are cused on a form of corporate social responsibility
transmitted to them at business schools and that fits the conventional definition better than it
through the professional publications they pay does mine, his basic argument that normative in-
close attention to (e.g., the business press, trade stitutions matter holds, regardless of how we de-
journals). Fligstein (1990), for example, found fine socially responsible corporate behavior.8
that corporate executives’ approaches to man-
aging their firms depended in part on the sorts
of training they received in business schools. 8
Of course, once key firms begin to behave in socially
And Guillén (1994) showed that managerial responsible ways, others may follow suit, not so much be-
2007 Campbell 959

Institutionalists and some comparative politi- ing and health care reform during the 1990s than
cal economists have long recognized that nor- firms that were more isolated. This was because
mative institutions vary significantly across firms that were more connected developed a
countries in ways that affect corporate behavior more sophisticated understanding of how gov-
(e.g., Dobbin, 1994; Dore, 1983). Indeed, the rela- ernment intervention for these sorts of policies
tionship between normative institutions and could improve the overall well-being of their
corporate social responsibility is perhaps most workers, their workers’ human capital, and,
noticeable in comparative studies. Japan, for ex- thus, corporate performance in the long run. In
ample, long has been known for the fact that its particular, business associations played an im-
corporations typically hire employees for life portant role in educating their members on
and, if economic circumstances dictate, will these issues (Martin, 2000). Similarly, Danish
shed labor by reassigning employees to jobs in business associations played a key role during
other closely held firms (Dore, 1983, 2000; West- the 1990s in educating their members about the
ney, 2001). The implicit commitment to employee importance of working with labor unions and
security has been under strain recently owing to state officials to fashion labor market and social
the Japanese recession, but many firms are still policies that helped retrain workers, improve
reluctant to engage in mass layoffs for fear of their skills, support workers during periods of
public criticism. In other words, the normative unemployment, and help them find new jobs
status of employees as stakeholders in Japanese (Martin, 2005, 2006). Business associations like
society is well-recognized and deeply embed- the Chamber of Commerce, as well as local as-
ded in business culture. This is not the case in sociations, have been influential in encouraging
other countries with different normative stan-
social responsibility in business of various sorts
dards, such as the United States, where mass
(Galaskiewicz, 1991: 305). In all of these cases,
layoffs are not uncommon (Bühner et al., 1998).
business associations were responsible for in-
Proposition 6: Corporations will be stitutionalizing a normative climate that facili-
more likely to act in socially responsi- tated socially responsible corporate behavior
ble ways if they operate in an environ- among their members.
ment where normative calls for such Of course, nationally organized business as-
behavior are institutionalized in, for sociations also played an important role during
example, important business publica- the early twentieth century in helping to edu-
tions, business school curricula, and cate their members about the long-term benefits
other educational venues in which of better industrial relations systems, better
corporate managers participate. worker compensation programs, fairer trade
Researchers have argued that when firms be- practices, and the like. This was not entirely
long to trade or employer associations and in- altruistic insofar as some of this was designed
teract on a more systematic and frequent basis to dampen public concerns about business con-
with their peers, they are more likely to develop duct, which farsighted business leaders feared
a relatively long-term view of their interests that might create political problems later. But re-
may supercede their short-term views. In the gardless of their motives, this sort of activity did
United States, for instance, firms that belonged cultivate a certain normative environment that
to trade associations and relatively dense inter- was conducive to corporate social responsibil-
corporate networks that facilitated communica- ity. It is important to note, however, that this was
tion among firms were more likely to support not uniformly true for all such organizations
proposals for federal interventions like job train- (Schneiberg, 1999). While some of them, such as
the National Civic Federation, were very much
at the forefront in proposing relatively progres-
cause they necessarily subscribe to the normative principles sive ideas among their members as well as in
that condone such behavior but because firms often mimic the halls of Congress, others—notably, the Na-
what other firms in their environments do in order to curry tional Association of Manufacturers—were more
legitimacy from them (DiMaggio & Powell, 1983). There are at
least a few hints of this sort of mimetic behavior with regard
reluctant and in some cases vehemently op-
to corporate social responsibility (e.g., Margolis & Walsh, posed the efforts of their more progressive coun-
2003: 286; Orlitzky et al., 2003: 426). terparts (Kolko, 1963; Weinstein, 1968).
960 Academy of Management Review July

Proposition 7: Corporations will be governance are particularly helpful in this re-

more likely to act in socially responsi- gard because they have paid much attention to
ble ways if they belong to trade or these institutions and how they vary cross-
employer associations, but only if nationally (e.g., Aguilera & Jackson, 2003; Roe,
these associations are organized in 2003).
ways that promote socially responsi- Consider first institutions that provide em-
ble behavior. ployees with a voice in corporate decision mak-
ing. In some countries workers are guaranteed
Communication and education also affect cor- by law a voice in corporate decision making. For
porate behavior in other ways. Comparative po- instance, in Germany federal statutes guaran-
litical economists have written a lot about the tee unions seats on corporate boards of directors
economic benefits associated with interfirm col- and rights to participate in a wide range of
laboration and cooperation (Best, 1990; Piore & corporate decision-making activities (Streeck,
Sabel, 1984). But when communication extends 1997). Legislatively mandated works councils
beyond corporations themselves to encompass are another example that many Western Euro-
workers, local community leaders, government, pean countries have adopted by law. Works
and others, it appears that corporations begin to councils are representative bodies elected by
better appreciate the concerns of these other employees (regardless of union membership) in
actors and, in turn, take their concerns into ac- a workplace that enjoy institutionalized rights of
count when it comes to making corporate policy. access to important corporate information, as
Corporations act in more socially responsible well as rights of codetermination. Codetermina-
ways as a result. This is because patterns of tion is shared decision making about matters
interaction affect how actors perceive and de- unrelated to wages and benefits, such as the
fine their situations (e.g., Fligstein, 2001a; Os- organization of production on the shop floor, the
trom, 1990: Chapter 5; Piore, 1995). development of job classifications, the introduc-
For instance, in the United States the state of tion of new technologies, hiring and firing, plant
Pennsylvania suffered a severe economic de- closings, and more (Rogers & Streeck, 1994). Sim-
cline during the 1970s and early 1980s as its ilarly, in Japan labor law reinforces the notion of
steel manufacturers experienced significant fi- the firm as a consensual community where em-
nancial losses because of an increase in foreign ployees’ interests must be well-represented,
competition. Initially, manufacturers and unions such as in decisions to employ workers on short-
locked horns in what each side perceived to be a term contracts rather than the typical life-time
zero-sum game involving issues like wages, employment basis that has governed many Jap-
benefits, and especially factory closings. As anese firms for decades (Dore, 2000: 102–104).
long as this confrontational mentality persisted, Of course, representation rights can also be
things continued to stagnate. But then state of- established through legally binding collective
ficials encouraged the steel corporations, bargaining agreements between unions and
unions, and representatives from the local com- corporations. Needless to say, much of this de-
munities to brainstorm collectively for solutions pends on the organizational strength of unions,
to the problem of local industrial decline. This which also varies widely across countries and
effort eventually resulted in more inclusive in- depends on the legal and regulatory supports
teractions, greater appreciation for the concerns that the state provides for unions, the degree to
of each other, less hostility, the formation of a which collective bargaining is centralized na-
new collective identity, and a variety of innova- tionally, and other features of national labor law
tive programs for resurrecting the local econ- (Western, 1997). However, the European Union
omy. Part of this caused the steel producers to has passed directives that oblige employers in
act in more socially responsible ways toward all member countries—regardless of the
their workers and toward the communities strength of unions—to enter into processes of
within which they operated (Sabel, 1993). information and consultation with employee
Legal institutions are particularly important representatives at critical moments, such as
in facilitating this sort of dialogue between cor- when firms become insolvent or managers try to
porations and stakeholders. The literature on sell the firm to another corporation (Armour et
stakeholders and the literature on corporate al., 2003).
2007 Campbell 961

The German case is worth closer scrutiny be- localities; and, in consultation with local actors,
cause it reveals an interesting dynamic uses these data to reformulate and refine per-
whereby legal institutions helped transform cor- formance standards, desirable targets, and the
porate managers’ perceptions of their interests preferred means of achieving them. In turn, the
in ways that benefited employees and others. communities work with the new standards, re-
The West German state passed codetermination port back to central government for further revi-
legislation shortly after the Second World War. sion, and so on in an iterative process. So,
This meant that workers were systematically through an ongoing dialogue between corpora-
involved in corporate decision making. Initially, tions and stakeholders at the community level,
managers were concerned that this would jeop- and between the communities and central au-
ardize short-term profitability, as well as their thorities, standards, targets, and measures be-
managerial prerogatives. However, they came come benchmarks against which the local firms
to realize that these new forms of institutional- can then evaluate and regulate their own per-
ized dialogue with workers provided benefits formance in cooperation with other actors.
that enhanced the long-term competitiveness of Through this sort of institutionalized practical
their firms. Among other things, this dialogue deliberation, the interests of ordinarily antago-
facilitated collaborative problem solving and nistic parties (i.e., corporations and stakehold-
flexible labor-management relations on the ers) are often redefined, much as occurred in the
shop floor, which helped firms effectively adjust Pennsylvania and German cases noted earlier,
to shifting market demands and new production and actors—including corporate managers—
technologies. In some cases this enabled firms begin to expand what they believe to be feasible
to reorient production through flexible special- environmentally responsible practices. Re-
ization in ways that avoided firing workers or search shows that under these new perfor-
closing plants. Thus, as a result of a change in mance-based, discursive, rolling-rule regimes,
their institutionalized interactions with labor, firms are more likely to behave in socially re-
the mindset of managers shifted, and workers sponsible ways (Karkkainen et al., 2000: 691–
and local communities as well as firms bene- 692). This sort of legally sanctioned, dialogue-
fited (Streeck, 1997). In other words, firms were based regulation is often viewed as a way to
more inclined to act in socially responsible overcome the inadequacies of conventional in-
ways. Managers still defend this institutional- dustrial regulation, particularly as globalization
ized dialogue, even under the increased pres- undermines the traditional means that govern-
sures of global competition (Thelen, 2000). ments have to regulate how corporations treat
Legal institutions have also facilitated delib- the environment and their workers (Fagotto &
eration, discourse, and dialogue between corpo- Fung, 2003; Fung, 2003).
rations and community stakeholders in ways Of course, legal institutions also determine
that improve corporate social responsibility. the degree to which corporate managers engage
This is particularly evident in the area of indus- in dialogue with investors. In Germany and Ja-
trial regulation. For example, in the area of en- pan, for example, corporate managers share au-
vironmental regulation, Sabel and his col- thority with large financial intermediaries, par-
leagues (Dorf & Sabel, 1998; Karkkainen et al., ticularly banks, which hold concentrated blocks
2000; Sabel, Fung, & Karkkainen, 2000) have ex- of stock, thereby making managers highly ac-
amined cases in the United States where firms, countable to shareholders. Much dialogue and
local governments, local representatives of fed- interaction with representatives of these inter-
eral agencies, community members, and others mediaries result. Notably, in Japan managers
have been granted legal authority by central often meet monthly with intermediary represen-
government statutes to establish local environ- tatives. But in the United States stock ownership
mental performance targets. These local actors is much more diffuse, it is unusual for share-
enjoy political autonomy to collectively estab- holders to own large concentrated blocks of
lish, monitor, and assess initial performance stock, and financial intermediaries do not con-
standards and to adjust practice when neces- sult regularly with corporate managers. As a
sary in their communities. Later, a central gov- result, U.S. managers typically have much more
ernment agency collects information on all of decision-making autonomy and much less ac-
this from each locality; disseminates it across countability to investors.
962 Academy of Management Review July

Why do these countries differ like this? For act in socially responsible ways the more they
much of the twentieth century, legislation in the encounter strong state regulation, collective in-
United States kept banks relatively small by dustrial self-regulation, NGOs and other inde-
banning them from operating nationally, enter- pendent organizations that monitor them, and a
ing commerce, affiliating with investment banks normative institutional environment that en-
or equity mutual funds, and coordinating stock- courages socially responsible behavior. More-
holdings with other intermediaries. The law was over, socially responsible corporate behavior is
much different in Germany and Japan. As a re- more likely to occur to the extent that firms be-
sult of these legal differences, managers are long to industrial or employee associations and
much less obliged to engage in dialogue with engage in institutionalized dialogue with stake-
their investors in the United States than in these holders.
other countries (Bühner et al., 1998; Roe 1991, Several issues remain. First, it is important to
1993, 2003). This does not mean that investors or recognize that the institutional terrain within
other stakeholders are completely powerless in which corporations operate is not static. Instead,
the United States. Given the United States’ com- there are dynamic pressures that ebb and flow,
mon law tradition, U.S. stockholders enjoy much causing this terrain to shift over time. This is
stronger voting rights than they do in many Eu- certainly true, for example, with respect to insti-
ropean countries with civil law traditions. And tutions that facilitate the sort of dialogue that
creditors in the United States also enjoy greater may result in more socially responsible corpo-
legal protections against managers than in rate behavior. Bartley (2003) showed that, in re-
many European countries (LaPorta, Lopez-de- sponse to increased globalization and a desire
Silanes, Shleifer, & Vishny, 1998). But voting to move toward neoliberalism, some govern-
rights and legal protections do not necessarily ments off-loaded some of their regulatory re-
provide for the sort of dialogue and communica- sponsibilities to the private sector. Concerned
tion that tends to facilitate the consensus-based about the implications of such a move, social
corporate decision making that occurs in other movements, unions, NGOs, and other stakehold-
countries. ers countered by pressing corporations to act in
more responsible ways when it came to caring
Proposition 8: Corporations will be for the environment and treating their workers
more likely to act in socially responsi- decently. According to Bartley, the result was
ble ways if they are engaged in insti- the emergence of institutionalized dialogues
tutionalized dialogue with unions, among state actors, corporations, activists,
employees, community groups, inves- NGOs, unions, institutional investors, and other
tors, and other stakeholders. stakeholders over how best to ensure against
socially irresponsible corporate behavior. In
several important cases this discourse resulted
CONCLUSION
in standards of corporate conduct, certification
To summarize briefly, I have argued that eco- procedures, monitoring mechanisms, and infor-
nomic conditions—specifically, the relative mal public shaming techniques to ensure that
health of corporations and the economy and the corporations behaved responsibly. Often this
level of competition to which corporations are activity was supported with resources from
exposed—affect the probability that corpora- states and NGOs.
tions will act in socially responsible ways. This dialogue was truly transnational and
Weak corporate financial performance and an emergent. However, institutions promoting such
unhealthy economy reduce this probability, dialogue over corporate social responsibility
while the level of competition has a more com- are also in flux at the subnational level, such as
plex, curvilinear effect, where moderate levels in the United States, where, during the late
of competition tend to elicit more socially re- 1980s, several state governments adopted legis-
sponsible behavior but either high or low levels lation authorizing boards of directors to con-
of competition tend to elicit less socially respon- sider the interests of all corporate stakehold-
sible behavior. However, a variety of institu- ers—not just shareholders (Allen, 1992: 276 –277).
tional conditions mediate these basic economic The point is that the pressures of globalization,
relationships. Corporations are more likely to stakeholder activism, political decision making,
2007 Campbell 963

and other forces discussed in this paper will Finally, some suggest that the best way to get
continue to conspire in ways that may change firms to behave in socially responsible ways is
institutions and, therefore, the tendency for cor- to convince their managers that it is either the
porations to act in socially responsible ways or right thing to do ethically or is in their self-
not. interest (Handy, 2003; Kaku, 2003; Prahalad &
Second, how does my argument about the ne- Hammond, 2003). Appeals such a these may
cessity for institutions square with the realities help, but institutions are critical, especially if
that corporations face in an age of increasing we are concerned with ensuring that corpora-
economic globalization? Put in slightly different tions actually behave in socially responsible
terms, in order to cope with the pressures of ways, rather than just pay rhetorical lip service
globalization, we hear frequently that govern- to the issue. Indeed, if substantively responsible
ments must adopt neoliberal policies, notably corporate behavior improves corporate and, in
deregulation, which are premised on the belief turn, national economic performance and com-
that institutional constraints on corporations petitiveness, as seems to have occurred in Scan-
tend to undermine competition, market effi- dinavia, then policy makers and others—
ciency, and, ultimately, economic performance. including firms themselves—would be wise to
Is my argument about the need for institutions to facilitate the creation and continued nurturing
facilitate socially responsible corporate behav- of the sorts of institutions discussed here.
ior incompatible with the rise of a more globally
oriented economic environment and more in-
tense international competition? No. In fact, con-
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John L. Campbell ([email protected]) is the Class of 1925 Professor,

Department of Sociology, Dartmouth College, and professor of political economy,
Copenhagen Business School. He received his Ph.D. from the University of Wisconsin–
Madison. He is currently studying the relationship among the size, cultural composi-
tion, and socioeconomic performance of advanced capitalist economies.