Corporate Social Responsibility and Social Capital

The recent corporate scandals remind us that, even if we adopt a narrow concept of managerial responsibility, there may still be serious difficulties associated with the effective institutionalization of this obligation. The actors of a firm have a common interest in ensuring its success. However, this common interest does not necessarily generate an harmony of individual interest. Collective action dilemmas arise among co-worker, supervisor and employee, managers and shareholders. Circumstances in which agents pursue their own interests at expense of principals is a clear manifestations of opportunism. Situations of opportunism, lack of trust and cooperation are real problems in firm/stakeholder relations. Broadening managerial responsibility may exacerbate the agency problems that arise between managers and shareholders. Opportunism, lack of trust and cooperation are all obstacles to efficiency. When there are external effects, the interests of corporations and of society are not aligned: maximizing profits does not lead to the social good. Non-alignment can be often costly and damaging to the corporation. It is possible to reduce social conflicts and improve efficiency in two ways: increasing the quality of information and fostering trust, via formal institutions or via interpersonal relationships. Formal institutions are more expensive than interpersonal relationships and quite often they need to be integrated by informal institutions to be effective. Economists and moral philosophers since Adam Smith have observed that market economies operate far better where shared values of honesty and integrity prevail than where they do not. As North (1981, p.47) claimed: “strong moral and ethical codes of a society are the cement of social stability which makes an economic system viable”. It can be helpful therefore to analyse the literature on social capital that focuses principally on interpersonal relationships.In the past the challenge for corporations was to support process and design improvements and to increase their profits, the challenge of the future is to improve relationships in order to reduce and manage the most important risks. The paper tries to analyse what role social capital could play in the process of the diffusion of corporate social responsibility.