This article considers attempts by multinational corporations to provide services in areas of limited statehood. Under which conditions are such attempts effective? We make two arguments: First, they must be legitimate to be effective. Second, the institutional design of the firms’ service provision programs is an important factor for their effectiveness. We assess these arguments by analyzing multinationals in the South African car industry fighting HIV/AIDS, and international mining firms in South Africa and the Democratic Republic of Congo trying to improve public security. The analysis demonstrates that under conditions of legitimacy and high degrees of institutionalization firm programs effectively contribute to service provision in areas of limited statehood.

With increasing fragmentation of worldwide production chains and the corresponding contracting relations between companies, the “firm as an inspector” has become a frequent phenomenon. Buyer firms deploy supervising activities over their suppliers' products and production processes in order to ensure their compliance with regulatory standards, thereby taking on tasks commonly performed by public authorities. Why would a firm engage in such activities? In this article we will analyze the conditions under which firms play the role of an inspector vis-à-vis their sub-contractor firms to guarantee compliance with quality and environmental regulations. We develop a theoretical argument based on transaction cost economics and institutionalism to offer hypothetical answers to this question and provide an empirical assessment of our hypotheses.

This paper explores the role of the state for an effective engagement of multinational corporations (MNCs) in corporate social responsibility (CSR). 1 In the OECD context, the "shadow of hierarchy" cast by the state is considered an important incentive for MNCs to engage in CSR activities that contribute to governance. However, in areas of limited statehood, where state actors are too weak to effectively set and enforce collectively binding rules, profit-driven MNCs confront various dilemmas with respect to costly CSR standards. The lack of a credible regulatory threat by state agencies is therefore often associated with the exploitation of resources and people by MNCs, rather than with business' social conduct. However, in this paper we argue that there are alternatives to the "shadow of hierarchy" that induce MNCs to adopt and implement CSR policies that contribute to governance in areas of limited statehood. We then discuss that in certain areas such functional equivalents still depend on some state intervention to be effective, in particular when firms are immune to reputational concerns and in complex-task areas that require the involvement of several actors in the provision of collective goods. Finally, we discuss the "dark side" of the state and show that the state can also have negative effects on the CSR engagement of MNCs. We illustrate the different ways in which statehood and the absence thereof affect CSR activities of MNCs in South Africa and conclude with some considerations on the conditions under which statehood exerts these effects.

This article makes the case for the importance of paying attention to the internal dynamics of business in order to understand why and under which conditions firms engage in corporate social responsibility (CSR). The argument is that CSR assists decision-makers in firms to resolve managerial dilemmas. By a managerial dilemma this article understands a situation whereby the execution of management’s decisions requires asset specific allocation of resources.  Asset specific allocation of resources transforms the intra-organizational mode of social coordination from a hierarchy to one in which managers become dependent on, and vulnerable to, the behavior of subordinates. It is in these situations that corporate decision-makers introduce CSR standards in their attempt to avoid the foreseeable loss of control and organizational efficiency.

Why and under which conditions do companies voluntarily adopt high social and environmental standards? Christian Thauer looks inside the firm to illustrate the internal drivers of the social conduct of business. He argues that corporate social responsibility (CSR) assists decision-makers to resolve managerial dilemmas. Drawing on transaction cost economics, he asks why and which dilemmas bring CSR to the fore. In this context he describes a managerial dilemma as a situation where the execution of management's decisions transforms the mode of cooperation within the organization from a hierarchy to one in which managers become dependent on, and vulnerable to, the behavior of subordinates. Thauer provides empirical illustration of his theory by examining automotive and textile factories in South Africa and China. Thauer demonstrates that CSR is often driven by internal management problems rather than by the external pressures that corporations confront.