Prof. Gregory Jackson Department of Management School of Business and

Corporate Social Responsibility in Different Varieties of : Exploring the Role of National Institutions

Gregory Jackson and Julia Bartosch September 16, 2016 Waseda University Outline

1. Objectives and conceptualization

2. Data & methods

3. Results I: Descriptive

4. Results II: Institutional effects

5. Outlook

Workshop: CSR in Different Varieties of Capitalism 15.September.2016 2 Key questions

1. How do corporate responsibility activities in OECD countries differ?

2. What institutional factors explain the differences in corporate responsibility activities across these advanced industrialized countries?

3. How effective is CSR in improving outcomes for employees in different countries?

Workshop: CSR in Different Varieties of Capitalism 15.September.2016 3 Defining CSR

• CSR refers to corporate actions related to social issues where responsibility is either claimed by the organization or demanded by company stakeholders.

• Descriptive and empirical concept, rather than a normative one.

• CSR is driven by a variety of motives — sometimes more pro- active and business-driven, and sometimes more defensive and response-driven related to scandals or exposure to controversies.

Workshop: CSR in Different Varieties of Capitalism 15.September.2016 4 Putting CSR in an institutional context

• Institutions shape CSR • Shape societal expectations of legitimate corporate behavior • Establish rules that define what companies can do, should do and must do • May enfranchise or disenfranchise different stakeholder groups

• We focus on institutions of the : , relations, /skill formation, market regulation, and state regulatory capacity

Waseda University, JSPS and INCAS Workshop: CSR in Different Varieties of Capitalism 15.September.2016 5 The Puzzle: key concepts

• CSR may develop as a substitute for more institutionalized forms of coordination or state regulation (Brammer et al. 2012; Jackson and Apostolakou 2010). • Suggests that CSR associated with more liberal „varieties of capitalism“

• CSR may mirror or complement institutionalized forms of stakeholder coordination or strong regulatory institutions (Locke 2013; Matten & Moon 2008). • Regulation may empower stakeholders to demand CSR (e.g. empowering involvement in multi-stakeholder CSR initiatives) • Suggests that CSR associated with more coordinated „varieties of capitalism“

Workshop: CSR in Different Varieties of Capitalism 15.September.2016 6 Outline

1. Objectives and conceptualization

2. Data & methods

3. Results I: Descriptive

4. Results II: Institutional effects

5. Outlook

Workshop: CSR in Different Varieties of Capitalism 15.September.2016 7 Dataset

• ASSET4 data from Thomson Reuters’ Datastream • CSR indicators at firm level • Financial variables from Thomson Reuters WorldScope data source

• Sample definition • 23 OECD countries with more than 10 companies per year: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Mexico, Netherlands, New Zealand, Norway, Portugal, South Korea, Spain, Sweden, Switzerland, Turkey, United Kingdom, United States • To correct sample differences between countries, we restricted our sample to the companies responsible for 90% market capitalization within countries with more 100 firms per year • Period of time is 2008 to 2014, whereas we use 2007 for some lagged control variables. Since 2014 has a significant smaller sample size, we could report robust results for single years only for 2013 Workshop: CSR in Different Varieties of Capitalism 15.September.2016 8 Sample

Waseda University, JSPS and INCAS Workshop: CSR in Different Varieties of Capitalism 15.September.2016 9 Measures: CSR I

• Company-level social indicators drawn from the ASSET4 database by Thomsen Reuters • No/Yes Indicators • Continuous measures

• Social score (88 data items) • Product responsibility (12 positive item, 7 negative) • Human rights (5 positive items, 3 negative) • Community (10 positive items, 5 negative) • Employment quality (16 positive items, 1 negative) • Health and safety (5 positive items, 4 negative) • Training and development (10 positive items) • Diversity and opportunity (8 positive items, 2 negative)

Workshop: CSR in Different Varieties of Capitalism 15.September.2016 10 Measures: CSR II

• Limits of ASSET4 • Z-score benchmarks companies against entire ASSET4 in a given year (including emerging economies not in our sample) • Weighting schemes not entirely transparent • Combines responsible with absence of irresponsible actions

• Creating our CSR indicators • Based on positive items only (separate analysis of CSiR) • Average score for each dimension • Overall social score is unweighted average of 7 dimensions

Workshop: CSR in Different Varieties of Capitalism 15.September.2016 11 Measures: Institutional Factors

• A number of national-level institutional indicators drawn from a variety of sources, including the • OECD, • World Bank, • and existing academic studies.

• Our institutional analysis is focused on four institutional dimension: • Employee Rights • Education • Market Regulation • Corporate Governance • State Capacity

Workshop: CSR in Different Varieties of Capitalism 15.September.2016 12 Methods

Cross-country patterns of CSR adaption a) Differences in the average (mean) performance by country b) Benchmark the significant/robust differences between our sample and Germany (while controlling for company size and sector as well as lagged financial performance (ROIC, debt- ratio) and R&D activity)

Analyzing the impact of country level institutional indicators in distinct “varieties of capitalism” via random effects models

Workshop: CSR in Different Varieties of Capitalism 15.September.2016 13 Outline

1. Objectives and conceptualization

2. Data & methods

3. Results I: Descriptive

4. Results II: Institutional Effects

5. Outlook

Workshop: CSR in Different Varieties of Capitalism 15.September.2016 14 CR Social Index, average scores, 2008 and 2013

70

60 1 0 0 6 6 6 7 7 5 5 5 5 5 4 3 5 3 5

50 5 5 0 5 9 4 7 6 4 6 4 4 4 4 4 3 4 4 4 2 2

40 4 4 1 4 4 7 3 5 30 3

20

10 1 2 5 3 2 7 2 4 2 7 5 1 5 9 9 9 1 3 3 4 3 4 0 2 5 5 5 5 5 4 4 4 4 3 4 4 3 3 3 3 4 3 3 3 3 3 3 3 0 l s s y k y e y y a e a a a d o n d n d d n a l i i i m m r c e c l d c a e e n d e a n n n n r i a g a t a o r u t e a k n n a a t p a a a a d i x w a p u l l l l r r s d o I e a a e a n r t t g t r e m l r e a n r S l m u u g J K r i s r a o e S r r n

w e F e M T G n

A o I F e z u C i e e N h S Z t B d P t h i

A K G D t e

u t w w e i d o e S e n N S t N i U n U

Average in 2008 Average in 2013

5 S p e b r 2 1 Wrso:CSR in Different Varieties15.September.2016Workshop: of Capitalism 15 CR Social Index, compared to Germany in 2013 Difference in the average score per country after controlling for firm size, R&D intensity, ROA, debt ratio, and sector

25

15 4 . 6 9 4 . . 1 7 . 7 7 3 . 6 7 7 . 2 . . 9 4 . 5 . 4 0 . 7 3 3 . 3 Germany . 2

5 2 2 1 5 . 3 .

-5 3 1 8 . - 2 . - 3 3 - - 6 . 3 . 0 4 7 . . 2 8 - 8 . 9 - . 9 - 0 - -15 0 1 1 - -

-25

-35

Workshop: CSR in Different Varieties of Capitalism 15.September.2016 16 Pathways to high or low CSR, by dimension t s y y y y y t t t t t t n i Significant differences i i i l h l e e s i n f g a r i b a u m i e u relative to Germany, 2013 r s

s

v p q m i

n n d o t l a D o m n n e a p o m e v

s C u e h e m t d r H l y

a t o d l c e n p u H a

d m g o E r n i P n i a r Index T Lower averages Mexico --- Turkey - --- Ireland - - United States - - --- Japan + - ---- New Zealand - - Higher averages France + + + + Sweden + - + UK + + + + Spain + + + + + +

5 S p e b r 21 Wrso:CSR in Different Varieties15.September.2016Workshop: of Capitalism 17 Corporate Social Irresponsibility Mean of the Social Irresponsible Score across all CSiR dimensions within selected countries

2013

0.10 9 0 . 0.09 0

0.08 7 0 7 . 0 0 .

0.07 0 5

0.06 5 0 0 . . 4 4 0 4 4 0 0 0 0 0 . . . 0.05 . 0 0 0 0 4 4 4 0 0 0 3 3 . . . 3 3 0 0 0 0 0.04 0 0 . . . 0 3 . 0 0 0 2 2 0 0 2 2 . 2 0 0 0 0 . . 0 0.03 0 . . . 0 2 0 0 0 0 0 .

0.02 0 1 0 . 0.01 0

0.00

Workshop: CSR in Different Varieties of Capitalism 15.September.2016 18 CSR and CSiR, 2013

Waseda University, JSPS and INCAS Workshop: CSR in Different Varieties of Capitalism 15.September.2016 19 Outline

1. Objectives and conceptualization

2. Data & methods

3. Results I: Descriptive

4. Results II: Institutional effects

5. Outlook

Workshop: CSR in Different Varieties of Capitalism 15.September.2016 20 Two-Step Estimation Strategy

Step 1: Estimation of annual country averages Separately for each year 2008 – 2014, we estimate the coefficients for each country based on the average of the CR Social Index. The estimations were carried out using STATA 12.1 through a regression analysis with robust standard errors.

CR Social Index = β1(logemp)i,t + β2(roa)i,t - 1 + β3(r&d_assets)i,t - 1 + β4(debt_assets)i,t – 1 + β5(sector)i,t + β6(country)i,t + α,t

Step 2: Estimation of institutional influences on CR Social Index country averages Using a panel regression in STATA 12.1 (xtreg) and clustered standard errors by country, we carried out the following estimations:

CR Index Country Average = β1(INSTITUTION)i,t + β2(INSTITUTION_within)i,t + α,t

Waseda University, JSPS and INCAS Workshop: CSR in Different Varieties of Capitalism 15.September.2016 21 CR Social Index

Corporate governance Employment relations Codetermination on Union density 1.5* boards (1) 3.6* Employment protection 2.1** Disclosure requirements Works councils rights (2) 6.9*** (2) 6.4*** Collective bargaining 3.8*** Minority shareholder coverage protection Stock market development CR Social Civil society Interfirm relations Index NGOs per capita Regulation of competition -2.1** Civil society strength Intensity of competition Public trust in politicians Anti-monopoly policies

Education State activity Tertiary attainment Corporate taxation rate Quality of education Social spending 3.2*** State spending on Size of procurement education

15.September.2016 22 CiR Social Index

Corporate governance Employment relations Codetermination on boards Union density Disclosure requirements - Employment protection (2) 1.0*** Minority shareholder - Works councils rights (2) protection CiR 2.3*** Stock market development 0.8*** Social Collective bargaining coverage Interfirm relations Index Regulation of competition -1.2*** Civil society Intensity of competition NGOs per capita Anti-monopoly policies 1.0*** Civil society strength 1.6*** Public trust in politicians 0.8**

State activity Education Corporate taxation rate -0.8*** Tertiaryattainment 1.3*** Social spending -1.0*** Quality of education 1.2*** Size of procurement State spending on education

15.September.2016 23 Extensions

A further question remains as to how the institutional environment matters and what role particular institutions play?

Waseda University, JSPS and INCAS Workshop: CSR in Different Varieties of Capitalism 15.September.2016 24 CSR policies and outcomes

• ASSET4 ESG database, WorldScope, separate Indices for positive (CSR) and negative (CSiR) activities as well as for policies and outcomes • OECD countries with more than 10 companies each year between 2008- 2014 • Random effects panel model, controlling for company size, sector, financial performance, R&D activity, year, country (robust to different specifications) Codetermination at country level: • Board representation (ETUI) • Works council rights (ICTWSS)

CSR policies: Employment outcomes: 8 items 7 items e.g. salaries, employment, (ASSET4) unionization (ASSET4)

What Does Co-Determination do? What Can We Learn from Research? 15.September.2016 25 Effects on firm-level outcomes

Outcomes CSR Policy Works council Codetermination Salaries Average salaries and benefits No effect Positive Positive Total salaries and benefits No effect Positive Positive divided by net sales or revenue. CEO's total salary divided by average No effect Positive Positive wage Employment Employment growth over the last year. Negative No effect No effect Percentage of employee turnover. No effect Positive if co-decision rights Positive Announced lay-offs Positive Negative Negative divided by the total number of employees. Unionization Union Negative Positive Positive

15.September.2016 26 Works Councils Moderate the effects of CSR on Employment Quality Outcomes and CSR

Employment Quality Outcomes Labor Rights Irresponsibility 2 1 0 . 6 . 1 0 . n n o o i i 8 t t c 5 c i i . d d 8 e e 0 r r 0 P P .

r r a a e e n n i i 6 6 L L 5 0 . 0 . 4 0 4 0 . 5 . .3 .5 .7 .3 .5 .7 change in CSR policy adoption from -1sd to +1sd change in CSR policy adoption from -1sd to +1sd

works_councils_rights=0 works_councils_rights=1 works_councils_rights=0 works_councils_rights=2

15.September.2016 27 Interaction of CSR and works councils

No layoffs

Interaction term significant at p<0.001 Interaction term significant at p<0.01

15.September.2016 28 Codetermination and works council moderate impact of CSR on Irresponsible actions

Labor Rights Irresponsibility Labor Rights Irresponsibility 5 2 1 0 0 . . 5 1 0 . n n 1 o o 0 i i . t t c c i i d d e e 1 r r 0 P P .

r r a a e e 5 n n i i 0 L 0 L . 5 0 0 . 0 0

0 .3 .6 0 .3 .6 change in CSR policy adoption from -1sd to +1sd change in CSR policy adoption from -1sd to +1sd

Codetermination=0 Codetermination=1 works_councils_rights=0 works_councils_rights=2

Interaction term significant at p<0.05 Interaction term significant at p<0.001

• Similar to existing studies we find a positive correlation between CSR and irresponsible behavior • Irresponsible behavior is measured here as using media data on human and labor rights controversies • Again codetermination moderates the relationship 15.September.2016 29 Outlook and Agenda

• Major differences in CSR behavior around the world

• CSR mirrors some kinds of coordinated institutions, but also substitutes for institutions in other cases of liberal market-oriented rules

• This paradox may also help explain paradoxical relationship of CSR policies and outcomes • CSR is often associated with worse outcomes and more irresponsible behavior • But in countries with works councils, these relations are weaker or possibly positive

• How to put Japan onto this map?

Waseda University, JSPS and INCAS Workshop: CSR in Different Varieties of Capitalism 15.September.2016 30 Thank you!

31 Developing Theory

Limits of existing concepts….

Going beyond LMEs and CMEs. Which institutions? - 6 domains of VoC theory? - State regulatory capacity? - Welfare states?

Mechanisms driving substitution and mirroring - Response to „coordination“ by economic actors? - Response to rights for stakeholders? - Different ‚polarity‘ of shareholders and employees toward CSR?

Dimensions of CSR and CSiR

Workshop: CSR in Different Varieties of Capitalism 15.September.2016 32 (1) (2) (3) (4) Outcomes Outcomes Outcomes Outcomes

Codetermination 0.0714*** 0.0609*** (0.0115) (0.0199)

Works council rights=1 0.00264 -0.0990*** (0.0118) (0.0216)

Works council rights=2 0.103*** 0.0346 (0.0210) (0.0308)

Works council rights=3 0.0711*** 0.0119 (0.0115) (0.0268)

CSR policies (lagged) -0.0484*** -0.0522*** -0.0483*** -0.141*** (0.0146) (0.0165) (0.0148) (0.0263)

Codetermination*CSR 0.0188 policies (0.0290)

WCR1*CSR policies 0.178*** (0.0315)

WCR2*CSR policies 0.126*** (0.0374)

WCR3*CSR policies 0.108** (0.0434)

Employees(ln) -0.0134*** -0.0134*** -0.0138*** -0.0139*** (0.00186) (0.00186) (0.00188) (0.00187)

ROA(lagged) 0.163*** 0.163*** 0.155*** 0.161*** (0.0296) (0.0297) (0.0298) (0.0299)

R&D/Assets (lagged) -0.105 -0.105 -0.104 -0.113 (0.0912) (0.0912) (0.0905) (0.0898)

Debt/Assets(lagged) -0.0622*** -0.0619*** -0.0641*** -0.0637*** (0.0148) (0.0149) (0.0151) (0.0151)

Constant 0.741*** 0.743*** 0.747*** 0.798*** (0.0212) (0.0215) (0.0216) (0.0245) Industry dummies YES YES YES YES Year dummies YES YES YES YES Country dummies YES YES YES YES 33 N 11206 11206 10903 10903 (5) (6) (7) (8) CSiR CSiR CSiR CSiR

Codetermination 0.00164 0.00388 (0.00408) (0.00560)

Works council rights=1 0.00970* 0.0201**

(0.00528) (0.00809)

Works council rights=2 -0.00574 0.00545

(0.00393) (0.00664)

Works council rights=3 0.00163 0.00972

(0.00406) (0.00775)

CSR policies (lagged) 0.00521 0.00601 0.00583 0.0169**

(0.00476) (0.00556) (0.00495) (0.00831)

Codetermination*CSR -0.00397 policies (0.00831)

WCR1*CSR policies -0.0183*

(0.0110)

WCR2*CSR policies -0.0210**

(0.00979)

WCR3*CSR policies -0.0147

(0.0135)

Employees (ln) 0.00569*** 0.00570*** 0.00581*** 0.00582*** (0.000776) (0.000776) (0.000792) (0.000791)

ROA (lagged) 0.0254*** 0.0253*** 0.0237*** 0.0232*** (0.00806) (0.00805) (0.00818) (0.00812)

R&D/Assets (lagged) 0.0154* 0.0155* 0.0157* 0.0168*

(0.00904) (0.00902) (0.00893) (0.00888)

Debt/Assets (lagged) 0.0115*** 0.0114*** 0.0118*** 0.0117***

(0.00368) (0.00368) (0.00375) (0.00376)

Constant -0.0517*** -0.0522*** -0.0532*** -0.0593*** (0.00785) (0.00798) (0.00804) (0.00890) Industry dummies YES YES YES YES Yeardummies YES YES YES YES Country dummies YES YES YES YES N 11206 11206 10903 10903 34 Waseda University, JSPS and INCAS Workshop: CSR in Different Varieties of Capitalism 15.September.2016 35 Human Rights Index

Corporate governance Employment relations Union density 5.7*** Codetermination on boards 11.6*** Employment protection 5.6*** Disclosure requirements Works councils rights (2) 20,0*** (2) 13.6** Collective bargaining 8.2*** Minority shareholder coverage protection -3.8** Stock market development Human Interfirm relations Rights Civil society Regulation of competition Index Intensity of competition NGOs per capita Anti-monopoly policies Civil society strength Public trust in politicians

State activity Education Corporate taxation rate Tertiary attainment Social spending 6.1*** Quality of education Size of procurement 4.3* State spending on education

15.September.2016 36 Diversity Index

Corporate governance Employment relations Codetermination on boards Union density (1) 6.5** Employment protection Disclosure requirements Works councils rights (2) (2) 7.9** Collective bargaining 3.8** Minority shareholder coverage protection Stock market development Interfirm relations Diversity Regulation of competition -5.0*** Index Civil society Intensity of competition 4.6*** NGOs per capita Anti-monopoly policies 3.8** Civil society strength 4.6** Public trust in politicians

State activity Education Corporate taxation rate 2.6** Tertiary attainment Social spending 4.0** Quality of education Size of procurement State spending on - education 3.0***

15.September.2016 37 Community Index

Corporate governance Employment relations Codetermination on Union density -1.6** boards (1) -5.1** Employment protection Disclosure requirements Works councils rights (2) (2) Collective bargaining Minority shareholder coverage protection 2.0** Stock market development Com- Interfirm relations munity Regulation of competition Civil society Intensity of competition Index NGOs per capita -3.1*** Anti-monopoly policies Civil society strength Public trust in politicians

State activity Education Corporate taxation rate Tertiaryattainment 3.0** Social spending Quality of education Size of procurement State spending on 1.3** education

15.September.2016 38