CSR and Risk Society By Dagfinn D. Dybvig HHB/UiN

CSR and Risk Society By Dagfinn D. Dybvig HHB/UiN

Beck-style risk society (1986) Risk has to do with potential damage – it is therefore ”invisible” Risk an ”invisible” product of the technological and socio-economic system itself (systemic risk) Risk hard to assess because of complexity Potential damage may be catastrophic Potential damage may be irreversible Hard to separate risk from progress – boomerang effect!

My Question: How to deal with systemic risk in a social contract – involving CSR?

The Social Contract tradition Thomas Hobbes (1588-1679) The father of modern Social Contract theory

Hobbesian Social Contract (I) State of nature: No government, no laws, thus no private property Life is a war of every man against every other man; “nasty, brutish and short” Essentially the law of the jungle

Hobbesian Social Contract (II) The Social Contract: Every individual surrenders its “natural liberty” to a common centralized power, a Sovereign embodying the State The Sovereign has a monopoly on the use of force, and more generally, on political power The Sovereign defines and enforces what is legal and illegal. Private property is thus constituted, but subject to limitations imposed by the sovereign, including confiscation

This contract generates a top-down (not very liberal) social structure! The Hobbesian Sovereign personifying the State, made up of individuals The sword and the staff symbolize secular and religious power which is absolute

Bottom-up ( liberal) Social Contract theory Locke and Rousseau

Social Contracts and Economic Systems Mercantilism Classical Liberalism (Small government protecting Private Property) Social Liberalism (Strong government expressing the General Will)

Contemporary Examples Social Contract Example Type of Capitalism Founding Idea Hobbes China Neo-Mercantilistic State Capitalism Locke USA Classical-Liberal Laissez-faire Capitalism Rousseau Europe Sovereign Power Social-Liberal Welfare Capitalism Private Property General Will (Posing the question: If an American or European company is operating in China, which social contract should their behavior be judged by?)

Question: Where does RISK and CSR fit into this picture?

Assumption CSR is essentially about the social responsibility of business beyond what is stipulated by law, i.e. a voluntary responsibility. (Cf. Carroll 1991/1999, Schwartz & Carroll 2003, Windsor 2006)

Basic observation The notion of CSR does not fit with the Hobbesian, Mercantilistic model beacuse in this model the Sovereign arrogates all social power and thus all social responsibility. I.e. in the Hobbesian socio-economic model there is no room for a voluntarily assumed social responsibility on behalf of private citizens and private firms. Why? Because voluntary responsibility presupposes individual freedom, and in the Hobbesian model there is essentially only one free individual (in a strong sense of freedom), the sovereign. In this sense CSR appears to be an intrinsically liberal, post-Hobbesian notion. In other words, CSR seems to be intrinsically linked to the political and economical thought of the Enlightenment, emphasizing the freedom of the individual, including the individual firm (corporate citizen.)

The Fundamental Principle of CSR With freedom comes responsibility I.e. CSR is essentially a liberal (”bottom up”) project

This raises the question: What kind of freedom does companies in liberal societies have to incur risk (financial, environmental, etc)? What kind of social responsibility does this imply according to (liberal) social contract theory?

Some general observations Risk and the Social Contract in a Classically Liberal Perspective (Locke-style) The individual agent (firm) is allowed a wide scope of action as regards its private property – freedom consists in being subject to limited regulation If action results in damage to another agent’s private property, the agent who is responsible for the damage is morally and/or legally obliged to offer compensation (Cf. Nozick’s in Anarchy State and Utopia) In other words, under this paradigm emphasis is upon assessment of and compensation for actual damage (“visible”), not risk (“invisible”) Prima facie, this makes for an uncomfortable fit with a Beck-style risk society: Private agents (firms) may be poorly positioned to assess and control systemic risk, and to prioritize the public interest This is particularly crucial when the potential damage is catastrophic and irreversible – implying that compensation after the fact may be too little too late

Some general observations Risk and the Social Contract in a Social-Liberal Perspective (Rousseau-style) Scope of individual action significantly restricted in advance: regulation by centralized government bodies expressing the general will – freedom consists in being part of the political process that determines the regulation Under this regulatory paradigm emphasis is on potential damage (risk) – damage that may occur and should be forestalled Incurrment of risk must be compensated by gain to society as a whole, including its weakest members (cf. Rawls in A Theory of Justice) – call it the “just risk” paradigm Compare: Environmental regulation, financial regulation Prima facie this paradigm makes for a good fit with a Beck-style risk society: democratically elected central authorities are arguably better placed than private agents to assess and control systemic risk, as well as to act in the public interest This makes sense especially when potential damage may be catastrophic and irreversible

What does this imply for CSR? Claim I: In face of a Beck-style Risk Society a purely ”private” Classically Liberal legal or ethical approach to Corporate Risk based on compensation for actual damage makes little sense – compensation for catastrophic and irreversible damage is inherently too little too late

Claim II: Therefore CSR-related work on risk should take the form of a public-private partnership focusing on reducing systemic risk per se (systemic risk must be reduced in a systematic fashion)

I.e. in a Social-Liberal Risk Society central government should assess and control systemtic risk (as part of the social contract), but the socially responsible attitude of private firms (within this social contract) is to help government do so, also on a voluntary basis as a quid-pro-quo for their freedom to do ”risky” business

In particular firms should volunteer their knowledge of risk within their sectors, and thus assist the regulatory process Indeed, this would be a case of exercising freedom ”bottom up” within a Rousseau-style Social Contract, and ought to be in the Corporation’s own long-term interest

Thank you for your attention!