Does it really take the state?

Abstract

This paper explores the role of the state for an effective engagement of multinational corporations (MNCs) in corporate social responsibility (CSR). In the OECD context, the “shadow of hierarchy” cast by the state is considered an important incentive for MNCs to engage in CSR activities that contribute to governance. However, in areas of limited statehood, where state actors are too weak to effectively set and enforce collectively binding rules, profit-driven MNCs confront various dilemmas with respect to costly CSR standards. The lack of a credible regulatory threat by state agencies is therefore often associated with the exploitation of resources and people by MNCs, rather than with business’ social conduct. However, in this paper we argue that there are alternatives to the “shadow of hierarchy” that induce MNCs to adopt and implement CSR policies that contribute to governance in areas of limited statehood. We then discuss that in certain areas such functional equivalents still depend on some state intervention to be effective, in particular when firms are immune to reputational concerns and in complex-task areas that require the involvement of several actors in the provision of collective goods. Finally, we discuss the “dark side” of the state and show that the state can also have negative effects on the CSR engagement of MNCs. We illustrate the different ways in which statehood and the absence thereof affect CSR activities of MNCs in South Africa and conclude with some considerations on the conditions under which statehood exerts these effects.