Academic Roundup

Manifest-I presents a summary of recently released academic papers on international corporate governance and corporate social responsibility issues.

Reputational Sanctions in China’s Securities Market
Benjamin Liebman and Curtis Milhaupt, Columbia Law School

Public criticism of listed companies by the Shanghai and Shenzen exchanges is having a significant effect on corporations and their executives, according to the findings of this paper. The authors examine China’s attempts to pursue stock market development based on both legal protections for investors and self-regulation of listed companies by stock exchanges, and although progress to date is found to be mixed, the evidence suggests reputational sanctions are punishing bad conduct.
 

Domestic media coverage of firms and individuals affected by sanctions, the authors find, serves as an important mechanism of discipline in China. The authors connect this with the unique political and institutional infrastructure of China: political obstacles and weaknesses in state law constrain the legal approach, while the two exchanges are not independent of the state and lack significant autonomous regulatory authority. The authors suggest their research is broadly consistent with an emerging view that identifies devolution of authority, regulatory polycentrism and experimentation as important features of China building of legal institutions.

The Board as a Path Toward Corporate Social Responsibility
Lawrence Mitchell, George Washington University Law School. The New Corporate Accountability: Corporate Social Responsibility and the Law, Cambridge University Press, 2007

This paper argues that the typical corporate social responsibility focus on the likes of enhanced disclosure, codes of conduct and statements of principle is misplaced, and attempts to achieve CSR directly are bound to fail. CSR, it is argued, should be relocated away from politics and towards business itself: it is so important that it needs to be treated as something central to the company’s business, and not as something carried out in addition to this business.

The paper states that to the extent companies behave in a manner that could achieve a consensus description of “responsible”, they do so for their own reasons and in the process of conducting their own quotidian business. The most likely way for CSR advocates to achieve their goals is therefore, the paper suggests, to recast their concerns as issue of corporate governance, which means discussing corporate responsibility in terms of corporate performance.

The central barriers to CSR, it is argued, are the norms of shareholder-valuism and its manifestation as short-term share price maximisation. It is suggested that the most successful way to redress these problems is to employ the tools of corporate governance to achieve the goals of CSR by creating incentives for long-term management. The paper makes a number of suggestions about how this might be addressed, including a proposal that each director be required to include with the annual report a 1,000 word, free-form statement identifying the director's ideas about important corporate issues and his business philosophies, as a means of introducing individual director accountability.

Compliance in the supply chain: the present and future implications of Sarbanes-Oxley for UK businesses
Jean Anne Stewart and Giampiero Favato. Henley Discussion Paper Series No. 18.

Over 5,000 UK companies currently need to be compliant with the US Sarbanes-Oxley (SOX) legislation, and this could grow to 60,000 over the next ten years. This, the paper says, is because of the effects of SOX on the supply chain and because of the increased relevance of compliance as a cost of doing business. Indeed, the authors suggest, SOX could in the future be seen as a pre-requisite of financial reporting quality – similar to ISO-9000 – for management and reporting transparency.

Some sections of the business community have been vocal in the criticism of the costs associated with SOX, but this paper takes the position that although companies adopting SOX may pay a price now, they will in future be able to exploit an enviable competitive position, being the preferred partners of large corporations that must comply with the legislation.

August 2007