L a bor E c onom ic s , C orpora te G overna nc e, a nd C orpora te S oc ia l R es po ns ibility: I nterfa c es a nd B ounda ries

 

C liq u e p a r a e d ita r o e s tilo d o s u b tí tu lo m e s tr e

H élio Z ylbers ta jn – U nivers ity of S ã o P a ulo

Eighth International Conference in Commemoration of Marco Biagi Rethinking Corporate Governance: From Shareholder Value to Stakeholder Value Fondazione Marco Biagio Universitá Degli Studi di Modena e Reggio Emilia Modena – March 18-20, 2010

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Labor Economics, Corporate Governance, and Corporate Social Responsibility: Interfaces and Boundaries Hélio Zylberstajn – University of São Paulo

Bibliography – Main references Ricketts (2002), Friedman (1970), The Economist (2005), Lazear (1998), Jansen (2001), Zingales (1997). 1. Introduction 2. Corporate Social Responsibility and Neoclassical Microeconomics 3. Labor Economics, labor market failures, and Corporate Governance 4. Inside-oriented HR Corporate Governance: Pay systems, the firm and hierarchies 5. HR structures and policies (still inside-oriented governance) 6. Outside-oriented governance: labor market externalities 7. Conclusions

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1. I ntroduc tio n   C orpora te g o verna nc e: a u th o r ity , d ir e c tio n , a n d c o n tr o l. T h e m a r k e t is n o t e n o u g h fo r b u s in e s s e s . In c o m p le te c o n tr a c ts .   C orpora te S o c ia l R es po ns ibility: A w a r e n e s s a n d c o n s id e r a tio n o f s ta k e h o ld e r s ’ in te r e s ts . T h e m a r k e t is n o t e n o u g h fo r s o c ie ty ’s in te r e s ts .   W h a t a r e th e b o u n d a r ie s a n d in te r fa c e s ? F o c u s : H R c o r p o r a te g o v e r n a n c e a n d C S R .  

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1. I ntroduc tio n   Z in g a le s T h e fir m is a n e x u s o f s p e c ific in v e s tm e n ts th a t c r e a te “quasirents”. C o r p o r a te g o v e r n a n c e : e x -a n te in c e n tiv e s , e x -p o s t s h a r in g , r is k d is tr ib u tio n . O w n e r s h ip /r e s id u a l r ig h ts : s h a r e h o ld e r s D e le g a tio n to B o a r d o f d ir e c to r s to e n s u r e in d e p e n d e n c e fo r q u a s i-r e n ts d is t r ib u t io n C o r p o r a te g o v e r n a n c e : in s id e -o r ie n te d (b u s in e s s , q u a s i-r e n ts ) C o r p o r a te S o c ia l R e s p o n s ib ility : o u ts id e -o r ie n te d (s o c ie ty , r e n ts )

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2. C o rpo ra te S oc ia l R es po ns ibility a nd N eo c la s s ic a l M ic ro ec o no m ic s   F r ie d m a n /E c o n o m is t x J a n s e n x S ta k e h o ld e r th e o r y .   F r ie d m a n S o c ia lly r e s p o n s ib le e x e c u tiv e s w o u ld in te r fe r e in th e m a r k e t. H e lp in g o th e r s s h o u ld n o t b e a c o r p o r a te c o n c e r n . B u t, d o b u s in e s s w ith e th ic . C o n te x t (1 9 7 0 ): C o ld w a r , 2 -d ig it in fla tio n in U S , e m e r g in g e n v ir o n m e n t a l c o n s c io u s n e s s , u n io n p o w e r   1 6 /0 4 /1 0

2. C o rpo ra te S oc ia l R es po ns ibility a nd N eo c la s s ic a l M ic ro ec o no m ic s   F r ie d m a n /E c o n o m is t x J a n s e n x S ta k e h o ld e r th e o r y .   F r ie d m a n r e v is ite d : T h e E c o n o m is t, 2 0 0 5 S a m e a r g u m e n ts . A c k n o w le d g e m e n t: C S R m ilita n ts h a v e w o n th e b a ttle . N e o c la s s ic a l a p p r o a c h : T h e s o c ia l o b je c tiv e o f th e fir m is ju s t p r o fit m a x im iz a t io n . B e d e c e n t a n d fa ir , b u t p u r s u it p r o fit. G o o d c o m p a n ie s , g o o d g o v e r n m e n t (d o n o t m ix th e m ).   C ontra s ting view (s ta k eho lders a pproa c h): O ded G ra jew (E tho s I ns titute fo r C o rpo ra te S o c ia l 1 6 /0 4 /1 0 R es po ns ibility - B ra zil): “T he firm is a n ins trum ent to

2. C o rpo ra te S oc ia l R es po ns ibility a nd N eo c la s s ic a l M ic ro ec o no m ic s   N e o c la s s ic a l r e v is io n : J e n s e n (2 0 0 1 ) C r itic is m o f C S R : a n th r o p o lo g ic a l, m o c k in g a r g u m e n ts . B u t: T h e fir m n e e d s s ta k e h o ld e r s ’ s u p p o r t to c r e a te v a lu e . T o m a x im iz e lo n g r u n v a lu e a n d to a d d r e s s s to c k h o ld e r s dem ands. S o c ia l v a lu e : c o n s u m e r s ’ v a lu e o f th e g o o d is h ig h e r th a n p r o d u c tio n c o s t (s a m e fo r o th e r p u b lic s ). E n lig h te n e d v a lu e m a x im iz a tio n : A lo n g r u n c o n c e p t.   C o n c lu s io n : E v e n N e o c la s s ic a l E c o n o m ic s s e e s s o m e r o o m a n d s o m e n e e d fo r C S R .

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3. L a bor E c o no m ic s , la bo r m a rk et fa ilures , a nd C orpora te G o verna nc e N e o c la s s ic a l L a b o r E c o n o m ic s : la b o r a s a p r o d u c tio n fa c to r a n d a n in p u t in to th e “p r o d u c tio n fu n c tio n ”. B la c k b o x . In s titu t io n a l E c o n o m ic s : T h e r e is a la b o r p r o b le m . R e c o m m e n d a tio n : t o p r e v e n t c o m p e titio n in th e la b o r m a r k e t. N e w In s titu t io n a l E c o n o m ic s : C o a s e , tr a n s a c tio n c o s ts . C o n tr a c ts a s o p p o s e d t o s p o t m a r k e ts . O p e n in g th e b la c k b o x . P e r s o n n e l E c o n o m ic s : C o n tr a c ts , in c e n tiv e s (a ls o o p e n in g th e b la c k b o x , in a n e o c la s s ic a l w a y )

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3. L a bor E c o no m ic s , la bo r m a rk et fa ilures , a nd C orpora te G o verna nc e L a bo r m a rk et im perfec tio ns : info rm a tiona l a s ym m etries a nd ex terna lities I nfo rm a tio na l a s ym m etries A s y m m e tr ie s o n b o th s id e s . T h e y in c r e a s e tr a n s a c tio n c o s ts . A d v e r s e s e le c tio n . S o lu tio n : s e le c tio n p r o c e s s e s . A g e n c y p r o b le m (m o r a l h a z a r d ). S o lu tio n : in c e n tiv e s , p e r fo r m a n c e a p p r a is a l, c o n tr a c ts . P r o b le m : s h o r t r u n in c e n tiv e1 6 x/0 4lo/1n0 g r u n o u tc o m e s .

3. L a bor E c o no m ic s , la bo r m a rk et fa ilures , a nd C orpora te G o verna nc e L a bo r m a rk et im perfec tio ns : info rm a tiona l a s ym m etries a nd ex terna lities   E x terna lities T h e fir m s a n d t h e la b o r m a r k e t fa ils to ta k e in to a c c o u n t s o c ia l c o s ts . N e g a tiv e la b o r e x t e r n a litie s a r e s im ila r to n e g a tiv e e n v ir o n m e n ta l e x te r n a lit ie s . D e v e lo p in g /e m e r g in g e c o n o m ie s : la b o r fo r c e e x p lo ita tio n , c h ild la b o r , e tc . 6 /0 4 /1 0 D e v e lo p e d e c o n o m ie s : fa m 1ily -w o r k im b a la n c e , s tr e s s ,

3. L a bor E c o no m ic s , la bo r m a rk et fa ilures , a nd C orpora te G o verna nc e L a bo r m a rk et im perfec tio ns : info rm a tiona l a s ym m etries a nd ex terna lities   M es s a g es (a ) T h e fir m is a m e c h a n is m to r e d u c e tr a n s a c tio n c o s ts . It d o e s n o t s o lv e a ll th e p r o b le m s , b u t it is th e b e s t a r r a n g e m e n t w e c a n g e t. (b ) T h e r e a r e t w o s e ts o f p o te n tia l la b o r p r o b le m s : in s id e th e fir m (q u a s i r e n t s s h a r in g ) a n d o u ts id e th e fir m (r e n t p r e v e n tio n ) (c ) C o r p o r a te (H R ) g o v e r n a n c e s h o u ld a d d r e s s b o th . T h e r e is a r o le fo r H u m a n R e s o u r c e s C1 6o/0r4p/1o0r a te G o v e r n a n c e to p e r fo r m . 

4. I ns ide-o riented H R C o rpo ra te G o verna nc e: P a y s ys tem s , the firm a nd hiera rc hies (interna l, info rm a tio na l pro blem s )   T w o b a s ic p a y s y s te m s : s tra ig ht a n d va ria ble V a ria ble pa y w o r k s b e tte r w h e n o u tp u t is o b s e r v a b le . B u t: w h a t s h o u ld b e th e r a t e /p a t te r n ? Im p o r ta n t c o n t r ib u tio n : L a z e a r , a n d th e r e n tin g o f jo b s . U n o b s e r v a b le o u t p u t: v a r ia b le p a y to p r e v e n t m o r a l h a z a r d (a g e n c y p r o b le m ). In b o th c a s e s : r is k a v e r s io n o f w o r k e r s is a lim ita tio n . S tra ig ht pa y: M o r e fr e q u e n t. It g o e s a lo n g w ith lo n g r u n 1 6 /0 4 /1 0 in c e n tiv e m e c h a n is m s  

4. I ns ide-o riented H R C o rpo ra te G o verna nc e: P a y s ys tem s , the firm a nd hiera rc hies (interna l, info rm a tio na l pro blem s )   A d v e r s e s e le c tio n : t h e fir m d o e s n o t k n o w th e w o r k e r b e fo r e th e h ir in g d e c is io n . A n d e v e n a fte r it. (A s y m m e tr y is r e c ip r o c a l). S ig n a ls to g u id e h ir in g d e c is io n s (U s u a lly e d u c a tio n : It is le s s c o s tly to b e tte r q u a lif ie d in d iv id u a ls ). T h e p a y s y s te m a n d th e s e le c tio n p r o c e s s e s m a y n o t b e e n o u g h to c o n tr o l t h e e f fe c ts o f in fo r m a tio n a l a s y m m e tr ie s .

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4. I ns ide-o riented H R C o rpo ra te G o verna nc e: P a y s ys tem s , the firm a nd hiera rc hies (interna l, info rm a tio na l pro blem s )   S o lu tio n to m o r a l h a z a r d a n d a d v e r s e s e le c tio n : th e s u p e r v is o r (m o n ito r in g ). H ie r a r c h ic a l s t r u c tu r e s to r e d u c e tr a n s a c tio n c o s ts . H ie r a r c h y is n e c e s s a r y fo r H R g o v e r n a n c e . It c r e a te s in c e n tiv e s a n d im p o s e s d is c ip lin e a n d c o o r d in a tio n w ith in th e la b o r fo r c e . 

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5. HR structures and policies (still inside-oriented governance) Each firm is a specific set of investments. The market cannot replicate (Zingales). Our task: To understand how each set of structures and policies work. Examples (a) Efficiency wage: long run incentive, with firing threat. (b) Deferred compensation/increasing pay scale: same logic, threat. Potential problem: they may create unemployment. Long run incentives: reputation, credibility, good quality of monitoring  

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5. HR s tructures and policies (s till ins ide-oriented g overnance) Promotions Im p o r ta n t e le m e n t in H R c o r p o r a te g o v e r n a n c e R e la tiv e a p p r a is a l a n d to u r n a m e n ts (c o n tr ib u tio n o f L a z e a r ). E x e c u tiv e s p a r tic ip a te in to u r n a m e n ts a ll th e tim e .   D iffic u lt is s u e : E x e c u tiv e p a y . T o u r n a m e n t a n d b o n u s e s c o m b in e d . L a c k o f t r a n s p a r e n c y . R o o m f o r o u ts id e -o r ie n te d H R c o r p o r a te g o v e r n a n c e .  

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5. HR s tructures and policies (s till ins ide-oriented g overnance) Problems with promotion tournaments : (a ) C o m p e titio n (H a w k s a n d d o v e s – L a z e a r ). (b ) T o o m u c h e x tr in s ic m o tiv a tio n Problems with hierarchies T a s k s p e c ific it y ; e x c h a n g e s p e c ific ity (W illia m s o n ): s o m e r o o m fo r o p p o r tu n is m a n d r e n t s e e k in g S o lu tio n : In t e r n a l L a b o r M a r k e t (D o e r in g e r e P io r e ). It p r o m o te s c o o p e r a tio n (k n o w le d g e m a n a g e m e n t). P a y in c r e a s e a t e a c h p r o m o tio n . T e n u r e -b a s e d p r o m o tio n s . J o b c o n n e c te d p a y . (V a n is h in g m o d e l?) 1 6 /0 4 /1 0

5. HR s tructures and policies (s till ins ide-oriented g overnance) M o d e ls o f h ie r a r c h ie s : J a p a n e s e (h o r iz o n ta l c o o r d in a tio n , c o o p e r a tio n , jo b r o ta t io n ) x W e s te r n (v e r tic a l c o o r d in a tio n , le s s c o o p e r a tio n )   Hierarchies and HR g overnance T h e m o r e s p e c ia liz e d th e ta s k s a n d th e tr a n s a c tio n s w ith in th e fir m , th e m o r e s o m e k in d o f h ie r a r c h y is n e e d e d . W ith s ta n d a r d ta s k s , t h e r e is n o n e e d o f h ie r a r c h ie s . A t th e lim it, th e r e is n o n e e d o f fir m s .

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6. Outs ide-oriented g overnance: labor market externalities   E m e r g in g p a tt e r n o f o u ts id e -o r ie n te d g o v e r n a n c e (H R a n d e n v ir o n m e n t a l): p r o d u c tio n -c h a in r o u n d ta b le s (d o m e s tic a n d /o r in te r n a tio n a l)   M a r k e ts a r e s u s c e p tib le to s o c ia l p r e s s u r e s a n d m a y e v o lv e a s r e s u lt o f n e g o tia tio n s w ith s ta k e h o ld e r s . (F r ie d m a n w o u ld n o t a g r e e !)   V o lu n ta r y p a r t ic ip a tio n a n d m u ltila te r a l n e g o tia tio n s : u n io n s , N G O ´s , c o r p o r a tio n s (p r o d u c tio n c h a in ), g o v e r n m e n t a g e n c ie s . N a tio n a l a n d /o r in te r n a tio n a l.

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6. Outs ide-oriented g overnance: labor market externalities   Pioneer cas e: FS C (Fores t S tewards hip C ouncil), created in 1993 M u lti s ta k e h o ld e r s n e g o tia tio n le a d in g to c e r tific a tio n o f fo r e s t p r o d u c ts It c o v e r s 1 2 % o f th e w o r ld ´s w o r k in g fo r e s ts a n d m o r e th a n 4 0 ,0 0 0 la b e le d p r o d u c ts   O u tc o m e : C e r tific a tio n p r o c e d u r e s fo r e n v ir o n m e n ta l c a r e a n d la b o r -r e la t e d is s u e s   In B r a z il: r e c e n t r o u n d ta b le s o n s o y b e a n , b io -fu e ls , liv e s to c k , w o o d , p a p e r , a n d c e llu lo s e  

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6. Outs ide-oriented g overnance: labor market externalities   S oybean: two initiatives B razilian Moratorium on S oy Purchas es (2006): B r a z ilia n fir m s w o u ld n o t p u r c h a s e s o y o r ig in a te d fr o m r e c e n tly d e fo r e s te d a r e a s in th e A m a z o n (s u c c e s s fu l). R ound Table on R es pons ible S oy – R TR S (2009): In te r n a tio n a l c o v e r a g e , a im in g a t e s ta b lis h in g s ta n d a r d s o f r e s p o n s ib ility (p r o d u c tio n o f s o y , la b o r r e la tio n s , c a r e w ith e c o s y s te m s ). O u tc o m e : c e r tific a tio n b a s e d o n v o lu n ta r y , n e g o tia te d s ta n d a r d s  

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6. Outs ide-oriented g overnance: labor market externalities   B iofuel (s ug arcane ethanol) B etter S ug arcane Initiatives : S im ila r to R T R S . O u tc o m e : n e g o t ia te d , v o lu n ta r y c e r tific a tio n ). It in c lu d e s p r e v e n tio n o f la n d c o n flic t, p r o h ib itio n o f c h ild la b o r , fr e e d o m to o r g a n iz e , e n v ir o n m e n t p r e s e r v a tio n . R ound Table on S us tainable B iofuel: in te r n a tio n a l, c o o r d in a te d b y th e S w is s F e d e r a l In s titu te o f T e c h n o lo g y . S o p h is tic a te d c o n tr o ls o n in d ir e c t im p a c ts o f s u g a r c a n e h a r v e s tin g (c a ttle d is p la c e m e n t to w a r d s A m a z o n , fo r in s ta n c e )  

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6. Outs ide-oriented g overnance: labor market externalities   B eef and leather Working G roup on S us tainable C attle R anching (2009): a im is to in c r e a s e p r o d u c tiv it y to r e d u c e th e n e e d o f e x te n s iv e la n d (in B r a z il, 2 0 0 m illio n h e c ta r e s to r a is e 1 8 0 m illio n h e a d s o f c a ttle .   New roundtables C o tto n , b a n a n a s , p in e a p p le , s h r im p , s a lm o n . S o c ia l c h a n g e a n d p r o g r e s s in s o m e o f th e m o r e b a c k w a r d a n d tr a d itio n a l s e g m e n ts (la n d c o n c e n tr a tio n , s iz e o f fa r m s , q u a s ife u d a l s t r u c tu r e s , v e r y b a d w o r k in g c o n d itio n s , p r im itiv e la b o r r e la tio n s ).

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6. O uts ide-o riented g o verna nc e: la bor m a rk et ex terna lities   M es s a g e In itia tiv e s in s p ir e d m a in ly b y p u b lic o p in io n c o n c e r n o v e r e n v ir o n m e n t p r o b le m s . T h e y a ls o a d d r e s s t h e “la b o r p r o b le m ” – r a c e to th e b o tto m , c o m p e tit io n in t h e la b o r m a r k e t. O p p o r tu n ity f o r u n io n s .   Q ues tion: W ill there be purely la bo r-m o tiva ted ro und ta bles ? L a b o r e x te r n a litie s : t h e c a s e o f m o to r c y c le d e liv e r y s e r v ic e s in B r a z il (motoboys) E v e r y b o d y u s e th e ir s e r v ic e1 s6 ,/0e4 /1v e0 n fir m s w ith g o o d in te r n a l g o v e r n a n c e . 

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7. C o nc lus ions   C ha lleng es for H R g o verna nc e (ins ide-oriented) E x c e s s o f in c e n t iv e s , to o m u c h r is k -s h a r in g to w o r k e r s (v a r ia b le p a y ; u n c e r t a in ty , r is k a v e r s io n ) D is c r im in a to r y s e le c tio n p r o c e s s e s to p r e v e n t a d v e r s e s e le c tio n (“w r o n g ” s ig n a ls ) Q u a lity o f s u p e r v is io n , d a n g e r o f a u th o r ita r ia n /d is c r im in a to r y m o n ito r in g , h a r a s s m e n t, in v a s io n o f w o r k e r s ´ p r iv a c y . P r o v is io n o f m e a n in g fu l jo b s . F a ir n e s s , r e p u ta tio n , lo n g -te r m r e la tio n s h ip s . T h e is s u e o f e x e c u tiv e -p a y :۱۶to/۰۴o /۱۰ m u c h , s h o rt ru n .

7. C o nc lus ions   I nc rea s ing im porta nc e of o uts ide-oriented H R g o verna nc e C o n tin g e n t /s h o r t-r u n la b o r : “la b o r -p r o b le m ”/r ic e -to -th e b o tto m is s u e s m a y e m e r g e a s a fo c u s fo r H R g o v e r n a n c e . H R c o r p o r a te g o v e r n a n c e to p r o m o te d e c e n t w o r k , to c o m b a t d is c r im in a t io n , to p r e v e n t c h ild la b o r , to a c c e p t r e p r e s e n ta tio n o f w o r k e r s , to e n g a g e in s ta k e h o ld e r s d ia lo g u e . A n ex a m ple fro m M odena : D uc a ti Q u a s i-r e n ts : in s id e -o r ie n te d g o v e r n a n c e R e n ts : S u p p ly c h a in , c o m m u n ity . ۱۶ /۰۴ /۱۰

7. C o nc lus ions   G o in g b a c k to F r ie d m a n x S ta k e h o ld e r s d e b a te : T h e fir m h a s a r o le in th e s o c ia l c h a n g e p r o c e s s . It d e p e n d s o n th e v a lu e s a n d s h a p e o f its g o v e r n a n c e . H R C o r p o r a te g o v e r n a n c e : to p r e v e n t th e c r e a tio n o f r e n ts (o u ts id e a n d in s id e ), a n d to a s s u r e fa ir d is tr ib u tio n o f q u a s i-r e n ts . W e m a y n o w th in k a b o u t th r e e s o u r c e s o f w o r k e r s ’ r ig h ts : L a b o r a n d e m p lo y m e n t la w , c o lle c tiv e b a r g a in in g , a n d s ta k e h o ld e r s b a r g a in in g . A fin a l s u g g e s tio n …   ۱۶ /۰۴ /۱۰

In v ita tio n J o in u s a n d c o m e to S ã o P a u lo . S a v e th e d a te s . 7th. I I R A R eg iona l C ong res s of the A m eric a s A ug us t 21-25, 2011

P r e -C o n g r e s s v is its : S u g a r c a n e -e th a n o l p la n t, P o r t o f S a n to s , A u to m o b ile C o m p le x (a ll n e a r b y S ã o P a u lo ) P o s t-C o n g r e s s v is its : In d u s tr ia l D is tr ic t o f S a lv a d o r (B a h ia ); P e tr o b r a s C o m p le x -R io d e J a n e ir o ; In d u s tr ia l D is tr ic t o f M a n a u s (A m a z o n ) IB R E T – B r a z ilia n In s titu te ۱۶O/۰۴ f E/۱۰m p lo y m e n t a n d L a b o r R e la tio n s -