Corporate governance is a complex idea that is often inappropriately simplified as a cookbook of recommended measures to improve financial performance. Many studies suggest that the supposed benign effects of these measures —independent directors or highly incentivised executives— are at best context specific. Corporate Governance in Contention explores and explains the meaning, purpose, and importance of corporate governance, with discussions centring on relationships within or specific to the firm, e.g. between labour, managers, and investors, and more general relationships that affect consumers or the environment. Many of the chapters examine alternatives to the shareholder value perspective and propose forms of stakeholding that can improve the work environment while encouraging investment, innovation and sustainable growth. Jette Steen Knudsen’s fourth and final blog in the series surrounding the book examines the relation between regulation, CSR and corporate governance.

The connections between corporate governance and CSR

Traditionally corporate governance has been defined quite narrowly.  For example, according to Shleifer and Vishny (1997: 737), ‘corporate governance deals with the ways in which suppliers of finance to corporations (shareholders) assure themselves of getting a return on their investment.’ In addition, scholars have argued that corporate governance rules determine the relations between boards of directors, managers and shareholders in order to manage agency conflicts (Berle and Means, 1932).  Furthermore, corporate governance codes of conduct are typically aimed at top-level management and board members.

Read also: Part I – Reversing Financialisation: Shareholder Value and the Legal Reform of Corporate Governance by Simon Deakin

CSR has often been defined rather broadly as encompassing a wide range of voluntary social and environmental initiatives undertaken by companies. Furthermore, in contrast to corporate governance codes, CSR codes of conduct are often the responsibility of specialists in support functions such as human resources, communications, operations management, or health safety and environment. CSR codes of conduct for example address issues such as labor rights and environmental conditions in global supply chains.

However, in recent years corporate governance and CSR have been converging as illustrated by the 2005 OECD definition of corporate governance which specifies the distribution of rights and responsibilities among different participants in a company, such as the board, managers, shareholders as well as other stakeholders. Stakeholders include for example civil society organizations, employees, unions or institutional investors interested in CSR issues such as labor or human rights protection.

Why is CSR entering the realm of governmental regulation?

The VW ‘Dieselgate’ is a CSR disaster. (Automobile Italia; CC BY 2.0)

There are several reasons for the growing relationship between corporate governance and CSR. Well-publicized incidents of corporate scandals such as Enron’s collapse or Volkswagen’s ‘Dieselgate’ have expanded the idea of corporate governance beyond merely dealing with agency conflicts. Second, scholars have demonstrated that stakeholder engagement can enhance the value of the firm. Third, a range of new societal issues has emerged that management—sometimes reluctantly—has had to acknowledge as important determinants of firm value. One example is tax shaming. Many global firms such as Starbucks, Google and Amazon have openly been striving to legally minimize their tax burden, but increasingly find themselves faced with growing societal demands for tax transparency and to pay ‘what is considered right’.

Read also: Part II – The Performance of Foundation-Owned Firms by Steen Thomsen

A fourth reason – and the focus of my chapter – is that governments have begun to regulate the CSR practices of large multinational corporations.  For example, governments promote CSR initiatives in order to prevent tax shaming, corruption and bribery, and the violation of labor standards in global supply chains. Across the EU large firms must now provide an annual non-financial report that highlights human rights, anticorruption initiatives or board diversity. Furthermore, transparent payment of taxes by (usually) Western companies in the extractive sector to their (typically development) host country government is a long-standing issue in international business responsibility.  Acknowledging that poorly managed extraction of oil, gas and mining resources can lead to corruption and conflict, large EU extractive firms are now required to make transparent their payments to host governments and to government-linked entities.

Soft or hard CSR regulation?

However, it matters for corporate governance whether public CSR regulation imposes soft or hard criteria. Most CSR regulation such as non-financial disclosure imposes soft criteria, and CSR programs are still typically managed in lower-level support functions that have limited top level management involvement. In contrast, public regulation with hard criteria such as tax transparency is typically the responsibility of high-level executive managers such as the chief financial officer (CFO), who is usually also a member of the executive board. CSR programs that are managed at the executive board level are more likely to lead to real change in corporate behavior.

Read also: Part III – Labour, Capital and Corporate Governance by Bob Hancké

But while top top-level management are more likely to take note of hard CSR criteria, perhaps soft CSR initiatives can play a role after all.  As McBarnet has elegantly argued, the law has limits and is not always so effective in regulating business as might be hoped. For example, the substance of law is often a compromise, and there may be problems in enforcement. Therefore, perhaps CSR (in the form of soft regulation) can have ‘a role to play in complementing law, by providing wider ethical standards and forces of social accountability, and by not only making demands on business beyond those of formal law but making formal law itself more effective’ (McBarnet, 2007: 2).



Berle, A. and Means, G. (1932) The Modern Corporation and Private Property. New York: Commerce Clearing House Inc.

McBarnet, D. (2007) ‘Introduction’, and ‘Corporate Social Responsibility Beyond Law, Through Law, For Law: The New Corporate Accountability’, in McBarnet, D., Voiculescu, A., and Campbell, T. (eds), The New Corporate Accountability. Corporate Social Responsibility and the Law. Cambridge: Cambridge University Press.

OECD (2005)

Shleifer, A. and Vishny, R. (1997) ‘A Survey of Corporate Governance’, Journal of Finance 52 (2), 737–83.


Jette Steen Knudsen is the Shelby Cullom Davis Chair in International Business at the Fletcher School of Law and Diplomacy, Tufts University.