This brief is part of the Insights @ Center for Emerging Markets, a publication focused on cutting-edge ideas and advice for global leaders about emerging markets.
By Luis Alfonso Dau (Northeastern University), Elizabeth M. Moore (Northeastern University), Jonathan P. Doh (Villanova University) and Margaret A. Soto (Northeastern University)
Global agreements such as the UN Global Compact and the Paris Climate Agreement encourage state-owned enterprises to adopt corporate social responsibility practices, particularly in emerging market countries that may be affected by institutional voids. Doing so helps to enhance the company's legitimacy and the reputation of the company's home country. This is especially important for the legitimacy of state-owned enterprises from emerging markets, which are often perceived to be representatives of their home countries and, therefore, subject to greater scrutiny and expectations from various stakeholders at home and abroad. Adopting CSR standards can help state-owned enterprises demonstrate commitment to responsible and sustainable business practices, thereby building trust and credibility with domestic and foreign stakeholders.
Distinct CSR Responses of State-Owned Enterprises
Recent research by Dau and colleagues shows that, compared to privately owned enterprises, state-owned enterprises respond differently to societal expectations around CSR due to their distinct accountability structures and ownership characteristics. Although privately owned enterprises are accountable to national governments and institutions, they are more likely to follow domestic regulations and participate in international agreements to maintain their reputation and competitive advantage. State-owned enterprises, on the other hand, have a dual role in serving both economic and political objectives. They may be protected from domestic regulations due to their close ties with the state and, in some cases, shape regulations themselves. As such, state-owned enterprises are often seen as extensions of the state and, therefore, their actions reflect on the state's image internationally.
For instance, Brazilian state-owned petrochemical company Petrobras is an example of how a state-owned enterprise has engaged in CSR activities as a prominent participant in the United Nation's Global Compact Initiative. It has also joined several other global initiatives, including the Global Reporting Initiative, the Pro-Gender and Race Equality Program, and the Oil and Gas Climate Initiative. One of its more successful initiatives is Rede Solidária de Mulheres de Sergipe, which supports women entrepreneurs from marginalized communities, many of whom went on to start successful small businesses. At the same time, the company is advancing its commercial interests by helping to create a more favorable business environment in the regions where it operates. This dual focus on CSR and commercial success is characteristic of many internationalizing state-owned enterprises, which often face unique pressures to balance the demands of their multiple stakeholders at home and abroad.
Managerial and Policy Implications
Policymakers can benefit from understanding the different roles and motivations of private and state-owned enterprises, particularly in jurisdictions seeking to privatize the latter companies. Changing the ownership structure of large state companies will likely change the way these companies engage in global CSR agreements, and therefore, policymakers will need to closely monitor the transition to ensure that stakeholder expectations continue to be met. Furthermore, Dau and colleagues highlight the importance of tailored approaches when encouraging CSR adoption among state-owned enterprises. Since these companies have distinct accountability structures and ownership characteristics, traditional methods used for privately owned enterprises may not be effective. Instead, policymakers should consider leveraging the state-owned enterprises' desire to enhance their legitimacy, reputation, and close relationship with the state to promote CSR standards.
Original Work
Dau, L. A., Moore, E. M., Doh, J. P., & Soto, M. A. 2022. Does global integration stimulate corporate citizenship? The effect of international trade agreements and regulatory quality on state and private firm adoption of CSR standards. Journal of International Business Policy, 5: 328-352.
Contact
If you are interested in learning more about this work, contact Professor Luis Alfonso Dau at L.dau@northeastern.edu.
