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«Investigating Instrumental Corporate Social Responsibility through the Mafia Metaphor Jean-Pascal Gond, Guido Palazzo & Kunal Basu Research Paper ...»

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Mafia organizations are disembedded from their societal context even when they find acceptance within their local contexts of operation. The Mafia is focused on its own values, its own goals, its own methods, its own people, and its own language. All actors outside of that system are mere means and never ends in themselves. They are protected, promoted or simply left alone as long as they serve the self interest of the Mafia. If outsiders become a threat, the Mafia organization will act against them. The clear distinction between “us” and “them” serves as a source of legitimacy for the use of violence. In order to avoid violence, it is important for the Mafia to cultivate a certain image within its domain of operation. Thus, the enhancement of its own trademark (making it synonymous with the promise of ‘effective and reliable protection’) – undoubtedly the most vital asset of the organization – constitutes a key organizational challenge (Gambetta, 1993: 127-155). In a rotten societal context, such as a failed state, the Mafia is often perceived as the only reliable political actor, the main or even the only employer and the only investor in public life and public infrastructure through calculated infusions of philanthropy (see Dickie, 2004; La Licata, 1993; Falcone, 1991; Saviano, 2006; Stille, 1995).

Metamorphosis: From Organizational to Organized Crime

In pursuit of profit maximization, Mafia organizations engage in a broad range of illegal and immoral activities. A comparable mix of deviant behaviour is at times exhibited by legal business firms – those that are involved in violating the human rights of their employees, murdering union representatives, money laundering, manipulating financial statements, polluting the environment, corrupting local business partners, engaging in child and/or slave labour, or collaborating with repressive regimes. The Mafia, on its part, invests illegal money in legal businesses such as the construction industry in the USA, waste disposal in Italy or aluminium and banking in Russia, thus blurring the line between legal and illegal economic transactions (Williams & Godson, 2002).

Deviant activities of legal business firms are based on three preconditions that demonstrate a striking parallel with the Mafia. First, such businesses tend to reap advantage in contexts of weak governance. The absence or weakness of a third party enforcer (hard law) as well as the absence of shared norms (soft law) can be found in deregulated markets (Levine, 2005), unregulated markets in transformation economies (Rawlinson, 2002; Rossouw, 1998) and in global markets that are not embedded within stable political institutions (Seidman, 2003). In each of these cases, corporations navigate in a governance vacuum that offers considerable incentives for morally opportunistic and legally deviant behaviour. Second, organizational crime succeeds best when it is supported by a strong corporate culture with clear values that direct the behaviours of employees. Third, deviant business firms follow the same pathological interpretation of the profit motive as the Mafia. Despite being an advocate for profit maximization, even Milton Friedman (1970) had argued that such had to be framed and tamed by legal rules and moral custom. As our following discussion shows, the absence of both forms of regulation, hard and soft, create the environment in which deviant firms engage in unbridled profit maximization leading often to striking parallels with criminal organizations.

1. Deregulated Markets

While deregulation does not necessarily lead to deviant behaviour, the reduction of rules and enlargement of autonomy of the actors increase the risk of deviance significantly. The rising number of corporate scandals in the 90s, particularly the collapse of Enron, illustrates the deviance risk of unregulated or deregulated business operations. Enron positioned itself as a firm that would revolutionize the natural gas industry, turning it from a slow and traditional business into a fast moving and competitive sector. For Enron managers, who believed “in the virtues of deregulation” (Levine, 2005: 726), beating the (weak) regulatory system and exploiting its gaps was considered a paramount duty. As its CEO Jeff Skilling once argued: “We adhere to rules. If the government sets up rules, we adhere to them. It’s like the tax code. No one expects you to pay more taxes than you owe” (Tonge, Greer & Lawton, 2003: 12).

Levine has described the behaviour of Enron as the systematic attempt to disconnect itself from societal norms (Levine, 2005). Combined with a strong corporate culture that rewarded short term success and personal greed (Sims & Brinkmann, 2003), the Enron case highlights the three conditions (mentioned above) of metamorphosing a normal corporation into a Mafia-like organization.

2. Transition economies Rossouw (1998) has pointed out that white collar crime more than doubled in South Africa in the first year of transition from the Apartheid regime to the democratically formed government. Likewise in Russia, the post-communist era was dominated by an uncontrolled “gangster capitalism” (Rawlinson 2002, 301). Rossouw (1998: 1564) has further claimed that “Unethical business practices can transform these young political democracies and market economies of newly formed democracies into kleptocraties”.





In Russia as well as in South Africa, the new market economies overemphasized selfinterest as the main driving force of business transactions (Rawlinson, 2002; Rossouw,

1998) and both transition economies were dominated by a legally and morally unbridled form of the profit motive. The latter derived from the broad assumption that liberal market economies and Robber Baronism were in essence synonymous, that uncivilized business practices were an unavoidable precondition for creating free markets (Rossouw, 1998). Self-referentiality, the third element that links organized and organizational crime, was also manifested through the self-centred behaviour of the new corporations who chose to be unencumbered by broader societal responsibilities.

In fact, as described by Rossouw (1998: 1567), in the case of Russia “there seemed to be a lack of commitment to curb unethical behaviour that might harm the new society”.

3. Globalized markets

In the ongoing process of globalization, the power of (national) political authorities to regulate the behaviour of corporations is eroding (Habermas, 2001). Beyond the nation-state, there are few governance institutions or frameworks that could regulate global business either through enforceable laws or through a set of shared values (Donaldson, 1996; Zyglidopoulos, 2002). As a result, multinationals tend to operate in largely unregulated contexts (Beck, 2000; Scherer, Palazzo & Baumann, 2006), and such a regulatory vacuum is at times exploited by some of them who display Mafia-like behaviours. Corporations such as De Beers have, for instance, been accused of profiting from the legal vacuum created in the wake of the West African civil wars (Roberts, 2003). The mining giant Rio Tinto has been accused of collaborating with the corrupt military regime in Indonesia and elsewhere (ICEM, 1998). Multinationals in general have been accused of forcing nation states to compete with each other to set the lowest social and environmental standards as well as the lowest tax rates and labour regulations (Scherer et al. 2006). Sethi has argued that multinationals sometimes tend to operate with a clear differentiation between the inside and the outside. They behave responsibly in societies of which they feel a part of, but engage in deviant behaviours in those which they simply regard as their external field of operation (Sethi, 1975), thereby increasing the risk of becoming metamorphosed into Mafia types of organizations.

Instrumental Corporate Social Responsility: Pathologies of a Panacea CSR Instrumentation In his historical review, Vogel (2005) argues that the main difference between the last wave of CSR (in the 1960’s and the 1970’s) and the most recent (since the late 1990’s) is the new economic focus. The new ‘CSR entrepreneurs’ are primarily interested in the construction of markets – the ‘markets of virtue’ (Vogel, 2005) – and their discourses are strongly shaped by the economic rationale: establishing the “business case” for CSR by demonstrating that financial benefits could result from socially responsible behaviours. Such an approach isn’t, of course, new in concept – even Milton Friedman (1962 & 1970) saw no fault with a profit maximizing variety of CSR – and a very large number of empirical investigations have striven to establish a (positive) correlation between social and financial performance (more than 130 studies, according to Margolis & Walsh, 2003; also see Margolis & Walsh, 2003; Walsh, Weber & Margolis, 2003;

Rowley & Berman, 2000). What is in fact new is the widespread adoption of the “CSR for profit” theme by practitioners.

A CSR-led thrust to enhance corporate reputation with salutary impact on economic performance has permeated the academic literature as well. Maignan and Ferrell (2003), for instance, or Bhattacharya and Sen (2004) suggest relying on CSR as a marketing tool for generating market-related benefits to corporations, whereas several authors (McWilliams, Siegel and Wright, 2006; Husted and Allen, 2001; Kotler and Lee, 2005; McWilliams and Siegel, 2001; Porter and Kramer, 2006) provide rationale for ensuring competitive advantage and strategic gains arising out of successful CSR.

The new instrumental CSR is thus portrayed as a panacea to solve negative perceptions regarding corporate malpractices, and therefore as being naturally good.

Consequently, the fundamental relationship between a firm and the society in which it operates is left largely unexplored. This, however, is the key to understanding the real basis of a firm’s CSR commitment as well as the vital lever that holds the potential for transformation (Banerjee, 2003; Kuhn & Deetz, 2007; Jones, 1996).

Pathologies of Instrumental CSR

If the instrumental perspective on CSR was the only yardstick employed to assess corporate performance in the domain social responsibility, the Sicilian Mafia could well qualify as a socially responsible organization, indeed as a real CSR champion, in many respects. A number of practices employed by the Mafia can be paralleled with the very best of instrumental CSR practices worldwide. Table 1 provides illustrations by comparing certain Mafia practices with those that are benchmarked as superior in the CSR literature. The following three examples draw direct parallels between instrumental CSR and time honoured Mafia practices.

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------------------------------------------------------Constructing the license to operate Achieving the “license to operate” in under-developed countries through stakeholder management is seen as a key objective of instrumental CSR, with concomitant techniques to enhance control over stakeholders’ behaviours (Kuhn & Deetz, 2007) – an exercise the Sicilian Mafia has excelled in for more than a century. The latter has managed to develop strong relationships with key influencers such as the Catholic Church and received endorsements of their reprehensible actions from local communities (Gambetta, 1993). However, such a constructed social acceptance does not for a moment imply that the goal of the Sicilian Mafia is one of legitimate social development. Likewise, Banerjee (2003, 2004) has questioned the corporate quest for license to operate in underdeveloped countries, maintaining that the actions of MNCs (such as a professed emphasis on sustainable development) is often little more than attempts to seek legitimacy for exploitation of resources for the benefit of their shareholders in developed countries. As recent studies show, the results of the CSR engagement in underdeveloped countries are quite questionable, bringing sometimes more harm than benefit to the local stakeholders (Blowfield & Frynas, 2005; Frynas, 2005; Livesey, 2001).

2. Adopting Strategic Philanthropy



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