Rational choice institutionalism

Rational choice institutionalism seeks to understand how institutions mediate or structure the choices made by rational actors (Hall and Taylor Reference Hall and Taylor1996). Rational choice institutionalism assumes that firms are instrumental actors which are motivated by the self-interested desire to maximize profits and shareholder value, as dictated by the institution of the competitive market place. With its antecedents in microeconomics (Cohen Reference Cohen2007), the rational choice literature expects that, to the extent firms adopt CSR policies, they do so for strategic reasons in order to achieve organizational value-maximizing goals. According to this logic, the adoption of CSR policies can be largely understood as a strategic, calculated response to the need to improve the bad reputation of mining companies and ensure the continued viability of the mining industry. Since rationalist approaches take interests as given, interests are assumed to be exogenously defined, leading analysis to focus on the external constraints (including institutional context beyond the market) that firms are encountering to explain CSR policies.

Research does confirm rational choice expectations that mining companies were responding strategically to external constraints (Yakovleva Reference Yakovleva2005). A key external factor influencing mining companies is the institutional context of the countries in which they are headquartered. Mining companies headquartered in the advanced industrialized economies faced broadly similar institutional pressures in their home countries, so it is not surprising that the mining companies leading the push to improve the industry’s environmental and social performance are/were headquartered in the advanced industrialized economies. In the 1990s, governments in countries such as Canada, the United States, Australia, the UK, and Japan tightened up existing environmental regulations affecting various aspects of mining, pertaining to safeguarding the quality of land, air, and water affected by mining and mineral processing (Dias and Begg Reference Dias and Begg1994).

Although specific details may vary, at a broad level, mining companies also face similar institutional constraints in host countries, often developing countries. Since much capital expenditure is required even before the mine opens, and because companies have to locate where the ore is, mining companies lack the mobility of other sectors (such as textiles/clothing) when things turn sour. Mining companies are therefore vulnerable to local community opposition, which (often with the help of NGOs), can disrupt their operations. Mining companies operating in developing countries face strong pressures from local communities to promote normative values, such as the provision of public goods that ordinarily would be the prerogative of states (Bird Reference Bird, Bird and Herman2004; Dashwood and Puplampu Reference Dashwood and Puplampu2010; Idemudia Reference Idemudia2007; Szablowski Reference Szablowski2007). In areas of “limited statehood,” contributing to governance becomes a matter of self-interest, as it pays off if a firm can set the industry standard with regard to environmental or human rights standards (Borzel and Risse Reference Borzel and Risse2010).

Mining companies employ risk management to address operational challenges. From the early 1990s, a major new risk for the mining industry was the assault on its reputation. Reputational capital takes years to build, but can be quickly destroyed (as the BP offshore disaster shows). Reputational concerns about socially accepted behavior induce firms to take norms more seriously, such that concerns about norms affect the utility calculations of an entire industry (Borzel and Risse Reference Borzel and Risse2010). The need for community acceptance of mining operations where companies cannot readily relocate, the need to meet growing environmental expectations of governments, lending institutions, and insurers, and the need to ensure markets for certain metals, point to strategic considerations as paramount in explaining the adoption of CSR policies. The publication of stand-alone CSR reports, and the framing of CSR as sustainable development would, according to this logic, be explained as an attempt to manage companies’ public image.

There are limitations, however, to treating interests as given, and appropriate responses to external constraints as self-evident. Rational choice approaches do not leave much (if any) room for firm interests beyond the realization of profit, understood through a cost-benefit calculus. Since a company’s raison d’être is to make a profit, it is often assumed that corporate responsibility is incompatible with profit maximization. Narrow, economistic views of firm behavior predict that unless firms calculate that they will profit from or enjoy cost-savings from CSR measures, they will not undertake such policies unless forced to do so through legal coercion (Gunningham et al. Reference Gunningham, Kagan and Thornton2003: 20–1). In response to this understanding of firm behavior, much ink has been spilled putting forth a “business case” for CSR (for a good review, see Vogel Reference Vogel2005).

To be sure, companies that are able to realize cost savings through, for example, reducing the amount of energy consumed, enjoy a “win–win” situation that benefits both the company and the environment (The Economist 2008; Porter Reference Porter1991). In the related field of OHS (Occupational Health and Safety), there is a clear business case in the mining industry for taking worker health and safety seriously, as injuries can cause significant disruption to production processes, increase worker compensation costs, and increase staff absences (Gunningham Reference Gunningham2008). Vogel concludes that only under very limited conditions would firms choose to invest in CSR (2005). Yet, research demonstrates that firms will undertake expenditures even where the returns are not easily quantified (Gunningham et al. Reference Gunningham, Kagan and Thornton2003: 21–23; Palan Reference Palan2000; Prakash Reference Prakash2000). In the case of OHS in major mining companies from the advanced industrialized economies, for example, there is a very strong culture of commitment at the executive level to achieving high standards of OHS, a priority that goes beyond business case considerations (Gunningham Reference Gunningham2008).

Rejecting the narrow view of the profit-maximizing firm does not, however, mean that firms can ignore the cost and market implications of costly CSR expenditures. Using the language of public/private goods, firms cannot provide costly public goods if it is unprofitable to do so. Companies, for example, that incur heavy costs in order to make their operations more environmentally responsible could compromise their competitive position. Companies will, however, incur socially beneficial costs if there are market incentives that allow firms to transform public goods into private (excludable) goods (Prakash Reference Prakash2000: 20–3). Companies, for example, may develop technologies that foster better environmental results, that they can market to other companies (Porter Reference Porter1991). Or, companies might fund local schools or health clinics to promote community acceptance of their operations.

The structural imperatives of the competitive global marketplace serve to further constrain the extent to which expenditure on CSR can be rationalized. Within this structural imperative, however, there is significant variation between companies in terms of how, and the extent to which, they incorporate CSR into their policies and practices (Dashwood Reference Dashwood2007a; Jenkins and Yakovleva Reference Jenkins and Yakovleva2006; Prakash Reference Prakash2000). Firms operate in a larger social and political environment beyond the market, and are pressured to respond to societal demands for a commitment to social and environmental responsibility. In the developing country context, socially embedded markets can provide a functional equivalent to the “shadow of hierarchy,” where the state threatens to impose binding rules on private actors (Borzel and Risse Reference Borzel and Risse2010).

Potential early mover advantages are an important consideration in explaining unilateral CSR adoption, and global collaborative standard setting. In the economic meaning of the term, early mover advantages refers to the various benefits accruing to companies that are the first to move into a market, thereby pre-empting the gains to late movers (Lieberman and Montgomery Reference Lieberman and Montgomery1988). In the case of mining, early mover advantages can be relevant in this sense, through spatial pre-emption in terms of gaining access to prime deposits in specific geographic locations (Frynas et al. Reference Frynas, Beck and Mellahi2000). Early mover advantages were a relevant consideration for mining companies as they expanded into developing countries in the 1990s.

There are other early mover advantages that are not as directly fungible in terms of cost-benefit calculations. For example, by showing leadership through voluntary adoption of EHS measures, firms may earn cooperative relations with government regulators and obtain greater flexibility in the enforcement of existing environmental regulations (Potoski and Prakash Reference Potoski and Prakash2005). By extension, firms may enjoy advantages in negotiations over regulatory standards, directing regulation to fit their own CSR strengths, and potentially raising rivals’ entry costs (Maxwell et al. Reference Maxwell, Lyon and Hackett2000; Porter and van der Linde Reference Porter and van der Linde1995; Potoski and Prakash Reference Potoski and Prakash2005; Salop and Scheffman Reference Salop and Scheffman1983). At the global level, firms who take on leadership roles in industry self-regulation can shape the standards that other firms will then feel pressured to adopt. Early mover considerations may overcome collective action problems when major companies take on the “privileged group” characteristics that lead them to assume the private costs of collective action (Olson Reference Olson1965).¹

If “value-maximizing goals” (a malleable concept) are understood to be consistent with cost-benefit calculations, then the rational choice approach provides an adequate framework for explaining companies’ CSR policies. However, it misses a valuable and essential part of the explanation, which is how firms respond to changing societal norms, the cognitive process by which firms respond to changing norms, and the influences that lead firms to adopt CSR policies in response to evolving norms. To fully understand what was driving these companies, rational choice calculations need to be blended in with approaches that can better account for the role of values and norms in the decision-making process. As such, this work is situated at the intersection of a material ontology and instrumental, agent-driven approaches on one hand, and norms-based, institutional or social structure-driven approaches on the other.

“New” institutionalism

The “new” institutionalism in organization theory, which emphasizes cognitive processes and the normative environment, highlights the ways in which firms interpret their external environment (Hoffman Reference Hoffman1997; Powell and DiMaggio Reference Powell and DiMaggio1991). Drawing on March and Olsen, an “institution” is defined as a “relatively stable collection of practices and rules defining appropriate behavior for specific groups of actors in specific situations” (March and Olsen Reference March, Olsen, Katzenstein, Keohane and Krasner1999: 306), a definition that is similar in meaning to the understanding of norms employed within the constructivist literature in international relations theory (Finnemore Reference Finnemore1996; Keck and Sikkink Reference Keck and Sikkink1998). As with institutionalism in organization theory, constructivist approaches emphasize cognitive processes, such as learning and cultural mindsets, to explain state/firm behavior. Values, norms, and identities are understood to shape interests/preferences, which are not fixed, but change over time. Furthermore, these approaches look at norms-socialization processes, which can be applied to firms to assess to what extent they have “internalized” global CSR norms, by, for example, determining to what extent they have incorporated CSR norms into corporate policies and management practices.

Borrowing the language of the institutional approach to organizational behavior, this study is broadly situated in an understanding of firm behavior that allows for a “logic of appropriateness” as the basis for action (March and Olsen Reference March, Olsen, Katzenstein, Keohane and Krasner1999: 309). Such an approach acknowledges that firms will act according to a “logic of consequences,” based on preferences or interests, while recognizing that firm behavior is informed by complex motives that include cognitive and ethical dimensions (ibid.: 311). Institutionalism, moreover, holds that firms are embedded in a larger social environment beyond the marketplace, which induces them to conform to societal norms.

How firms behave is a function of how accepted conceptions of corporate behavior are defined by the firm’s social environment, understood as the “organizational field” (Hoffman Reference Hoffman1997: 7). The organizational field consists of relevant actors, such as governments, environmental NGOs, industry associations, and chambers of commerce, that define acceptable corporate behavior. The firm’s external environment includes societal norms, which are generated nationally and globally. The language of norms used in the international relations constructivist literature is similar to the meaning of institution employed by institutional approaches in organization theory (Finnemore Reference Finnemore1996; Keck and Sikkink Reference Keck and Sikkink1998). This study joins these literatures, by looking at institutional dynamics and global norms to understand why mining companies are promoting CSR. While firms are not completely devoid of choice in this context, the range of choice is constrained/shaped by the external environment.

The variation in firm responses to societal pressures for greater environmental and social responsibility suggests that firms exercise agency or choice in how they respond to those pressures. Given the dynamic and shifting nature of societal norms, firms must ask not only how they will benefit from adopting CSR policies, but also what is the appropriate response, given conflicting rules and norms (March and Olsen Reference March, Olsen, Katzenstein, Keohane and Krasner1999). CSR involves choosing between different obligations, rights, and responsibilities, such that understanding how firms respond to external pressures requires an appreciation not just of utility maximization, but of the social norms and rules that structure their decisions (Finnemore and Sikkink Reference Finnemore, Sikkink, Katzenstein, Keohane and Krasner1999: 274). Such normative considerations are especially relevant for mining companies from the advanced industrialized economies operating in developing countries, where different values and cultural understandings present challenges in terms of what the “right” approaches are to CSR in the developing country context. Corporate culture plays an important role in mediating understandings of appropriate action (where culture is understood in cognitive terms, in relation to normative understandings of how one can behave) that influence firm behavior (Fligstein Reference Fligstein1990; Hall Reference Hall, Mark and Alan1997; Howard-Grenville Reference Howard-Grenville2006).

In the past fifteen years, there has been a dramatic shift in thinking (or learning) amongst mining executives, reflecting the broader shift in understanding as to whether a company has obligations beyond its immediate shareholders. Prior to the 1960s, it was assumed that the assimilative capacity of the environment would suffice to absorb effluents and emissions. Any environmental damage could thereby be treated as an externality, and companies did not have to bear the cost. It was further felt that a company’s contribution came through producing its product and generating employment.

In the 1960s and 1970s, that thinking began to give way to the realities of greater public environmental awareness and the introduction of regulations in industrialized countries. This shift gained momentum in the 1980s and 1990s, as countries signed on to global environmental treaties, and transnational NGOs kept the environment on the global agenda and drew attention to corporate malpractice. Still, many mining companies were slow to come around, and as late as the mid-1990s, some mining executives remained very behind in their thinking on corporate responsibility (Dashwood Reference Dashwood2007a). New institutionalism provides a means to explain how internal resistance to change was overcome, resulting in a dramatic transformation in managerial understandings about the nature of their social and environmental responsibilities.

Given the profit maximizing organizational logic of firms, change agents or norms entrepreneurs make sense of normative shifts within the larger society by identifying instrumental reasons for adopting CSR policies and changing practices. To ensure their CSR policies resonate and are recognized by society, firms frame their CSR policies so that they are aligned with societal norms (sustainable development in the case of mining companies). Strategic responses to normative shifts reflect a normative affirmation of the validity and appropriateness of the societal norm (sustainable development). The “new” institutionalism in organization theory, which emphasizes cognitive processes and the normative environment, is useful in enhancing understanding of how managers interpret their external environment, identify problems, and address challenges. Considerable room is allowed for agency, because the role of senior management is critical in supporting internal CSR initiatives. Research that looks solely at external pressures is not going to be able to account for the variation in firms’ responses (Halme Reference Halme2002).

Historical institutionalism

This study accepts that rationalist approaches provide an important part of the explanation for why firms would adopt CSR policies, and also that institutional context can mediate the instrumental, agent-driven choices of individual firms. Historical institutionalism improves upon methodological individualism, because it looks to how institutional structure conditions responses to external constraints (Hall and Taylor Reference Hall and Taylor1996). The research for this study confirms the importance of institutional context, specifically the countries where mining companies are headquartered, as well as where their operations are located, in influencing mining companies’ CSR policies. It also provides an explanation for the timing of when mining companies started to report on their CSR obligations. Historical institutional approaches are useful here, because they emphasize the temporal ordering and timing of key developments (Thelen Reference Thelen1999: 388), and trace the unfolding of processes over time (Thelen Reference Thelen1999: 400).

The concept of “critical junctures” found in historical institutional approaches helps to explain the coming together of various external pressures that pushed the mining industry into accepting its social and environmental responsibilities. Critical junctures, “interaction effects between distinct causal sequences that become joined at particular points in time” (Pierson and Skocpol Reference Pierson, Skocpol, Katznelson and Milner2002), is a relevant concept to understanding how external constraints that had been increasing over time reached a threshold, triggering significant change within the mining industry (Thelen Reference Thelen1999).

One weakness of the critical-juncture argument is that there is the danger of tautology in identifying ex ante when a juncture might be critical: because significant changes took place within the mining industry, the juncture must have been critical.² A possible rival explanation can be found in the work of Baumgartner and Jones on punctuated equilibrium in social theory (Baumgartner and Jones Reference Baumgartner and Jones1993). Drawing from theories of biological evolution, the process of evolution is characterized by long periods of stability (equilibrium) “punctuated by compact periods of qualitative, metamorphic (revolutionary) change” (Gersick Reference Gersick1991). Policy change in organizations happens only incrementally, until the occasional sharp burst of policy change, resulting in fundamentally new policies (Baumgartner and Jones Reference Baumgartner and Jones1993). Organizational or policy change is brought about by significant change in the conditions that produce enduring or stable structures, where policy entrepreneurs play a key role. (Baumgartner and Jones Reference Baumgartner and Jones1993; Cioffi-Revilla Reference Cioffi-Revilla and Diehl1998).

It is argued here that punctuated equilibrium also has an ex ante dimension to it: there were/were not dramatic changes in policy because the underlying conditions (or deep structure) did or did not change (see, for example, Givel (Reference Givel2006) on the American tobacco industry’s policy monopoly). The key advantage of the critical-junctures approach for the purpose of this study is that it explains how a series of external pressures bore down on the mining industry in the late 1990s. These pressures did not produce a rapid change in policy on the part of mining companies, but rather, set the process in motion for serious efforts at the unilateral and collaborative levels to improve their CSR policies and practices. To the extent that there were changes in the underlying conditions governing the mining industry, their effects have been cumulative, and did not produce dramatic change in a short period of time. To paraphrase Gersick, the rules of the game have changed, but the game itself has not been up-ended (Gersick Reference Gersick1991: 19). The process of transformation in industry thinking has been neither smooth nor linear (Avant et al. Reference Avant, Finnemore and Sell2010), so the concept of equilibrium does not fit developments still unfolding in the mining sector.

Many mining companies in the mid-1990s were caught with a significant gap between societal expectations and their institutionalized practices (Crossan et al. Reference Crossan, Lane and White1999). For the industry as a whole, the gap had widened so much that companies experienced a legitimacy crisis, and it was recognized that measures needed to be taken to repair legitimacy (Suchman Reference Suchman1995). Mining companies in the 1990s were affected by a range of global developments that negatively affected their access to finance, markets, and land. The critical juncture experienced by mining companies in the mid-to-late 1990s provided the necessary push that led leading companies to advocate for improved environmental and social practices in the mining industry.

One weakness of historical institutional interpretations is that they can be overly deterministic in emphasizing path dependency or structural accounts that seem to push actors in certain directions with little room left for agency (Hall and Taylor Reference Hall and Taylor1996). The role of agency is an important part of the explanation for the actions of mining companies. Not only did a number of external pressures come to bear on the mining industry in the late 1990s, but CEOs in major mining companies themselves perceived that the industry had reached a crisis, prompting them to promote a fundamental transformation through industry collaboration at the global level and to improve their unilateral CSR policies and practices.

The importance of agency to this analysis speaks to larger debates within both institutional approaches within organization theory and constructivist approaches in international relations theory, about the relative importance of structure and agency. At one extreme, a firm can be seen as acting completely autonomously, free from external constraints (agency). At the other extreme, the firm is seen to be constitutive of its social environment (structure). Institutional approaches within sociology lean heavily towards the structure side of the debate, by questioning whether individuals can choose freely, and pointing to the cultural and historical frameworks within which individual choices are embedded (Powell and DiMaggio Reference Powell and DiMaggio1991: 9–11). These debates are mirrored in the constructivist approach within international relations theory, with structurally oriented explanations broadly represented by the scholarship of Wendt (Reference Wendt1999). To propose that both social structures and agency need to be considered is to argue that the two are mutually constitutive. Social structures are constructed by agents, which in turn influence and condition the behavior of agents (Finnemore Reference Finnemore1996: 24). Structural and agency dynamics are both relevant to the explanation of the role and importance of global CSR norms on mining companies.

Internal factors

Internal variables include the role of leadership and managerial attitudes towards CSR. The preferences and strategies of key managers are central to an explanation of why companies would adopt CSR policies (Gunningham et al. Reference Gunningham, Kagan and Thornton2003; Hemingway and Maclagan Reference Hemingway and Maclagan2004; Hoffman Reference Hoffman1997; McGuire and Hutchings Reference McGuire and Hutchings2006). The role of managerial leadership in bringing about change is important to understanding how companies come to adopt CSR policies (Chemers and Ayman Reference Chemers and Ayman1993; Northhouse Reference Northhouse1997). Research has demonstrated the crucial role of managerial leadership in determining the extent of a firm’s commitment to CSR (Galaskiewicz Reference Galaskiewicz, Powell and DiMaggio1991; Gunningham et al. Reference Gunningham, Kagan and Thornton2003; Hoffman Reference Hoffman1997; Prakash Reference Prakash2000). Furthermore, an individual’s professional training and orientation can have a decisive influence on approaches to problem-solving and perceptions of the operating environment (Chwieroth Reference Chwieroth2007; Downs Reference Downs1957; Haas Reference Haas1990, Reference Haas1992). This is certainly the case in mining, where engineers who work their way up the company can end up in leadership roles.

Variation in managerial perceptions and interpretations (Bansal and Penner Reference Bansal, Penner, Hoffman and Ventresca2002; Egri and Herman Reference Egri and Herman2000; Sharma Reference Sharma2000) can influence a company’s approach to CSR. As such, the values and beliefs of senior management and the role of managerial leadership is critical in explaining how companies move forward on CSR (Dodge Reference Dodge and Welford1997 ). For example, managers who view environmental challenges as threats or risks to be avoided are likely to be reactive and take a conformist approach to environmental strategy that would entail complying with regulations and other external pressures (Russo and Fouts Reference Russo and Fouts1997; Sharma Reference Sharma2000). At the other end of the spectrum, managers who view environmental challenges as opportunities, because they see environmental protection as an integral part of their company’s identity, are more likely to take a proactive, or values-based approach to environmental strategy, involving consistent actions to reduce the environmental impact of the company’s operations (Sharma Reference Sharma2000).

The contrast between Barrick on one hand, and Placer Dome and Noranda on the other, serves to nicely illustrate the difference between a compliance-driven approach to CSR, as opposed to a values-driven approach. Barrick released its first CSR report in 2002, and did not take on a leadership role in industry-wide global standard setting. In fact, Barrick pulled out of the ICMM in 2002, over concerns that ICMM members were moving too far, too quickly, on initiatives to improve the performance of the mining sector (Executive 1, May 6, 2003). Barrick’s initial approach to CSR appeared to focus on minimizing risks and liabilities, and management tended to be defensive, rather than responsive to societal concerns. Barrick in the early 2000s did not yet have the size and profile it has today as the world’s largest gold-mining company, which partly explains its late mover status, relative to Noranda and Placer Dome. Leadership in the early 2000s tended to be reactive and defensive, rather than proactive in the face of societal pressures. A cultural shift in terms of external engagement and responsiveness to stakeholder concerns has only started to take hold in the past few years, under a new CEO.

Gunningham et al. identified criteria for evaluating managers’ commitment to CSR, including their attitudes towards environmental problems, their environmentally relevant actions and implementation efforts, and their explanations for those actions (Gunningham et al. Reference Gunningham, Kagan and Thornton2003: 97). Management’s attitudes influence whether they see environmental innovation as a cost to be avoided, or an opportunity where environmental investments will bring economic returns, or improve a firm’s reputation, where the economic returns may be less immediate. This in turn influences the extent to which management “scans” for information that will improve their company’s environmental performance. Management’s commitment to CSR can further be gauged by its responsiveness to societal pressures to become more environmentally responsible, such as from neighbors, regulators, customers, and environmental activists, as well as the extent of collaborative interactions with stakeholders. Another dimension of managerial commitment is the nature of implementation efforts, including self-auditing, employee training, and integration of environmental and production-oriented training and decision-making (ibid.: 98).

To get a sense of why management chooses to move companies in a more environmentally responsible direction, Kingdon’s model can be employed (Kingdon Reference Kingdon1995). His insight suggests that for organizational change to occur, a number of variables must come together. Kingdon identifies three separate streams: problem identification or recognition, policy alternatives generation, and politics. When companies encounter problems, it presents “policy entrepreneurs” with the opportunity (policy windows) to introduce new ideas, get them on the corporate agenda, and propose policy options to resolve the problem. Problems need not take the form of a crisis, but they have to be serious enough to grab the attention of senior executives. While Kingdon’s model was intended for government bureaucracies, it is applicable to companies as well. Within Placer Dome and Noranda, policy entrepreneurs at the senior level responded to the serious damage to the mining industry’s reputation as an opportunity to promote change, both within their organizations, and globally. Policy entrepreneurs can operate both inside and outside the corporation (for example, in the form of environmental NGOs), but the presence of policy entrepreneurs within the corporation is critical to whether action is taken or not.

Research on organizational culture reveals that transformative leadership may not be sufficient to change a firm’s CSR practices if there is a dominant culture that resists taking action on CSR issues (Howard-Grenville Reference Howard-Grenville2006). Galaskiewicz’s work on how firm contributions to charity in Minneapolis-St. Paul became institutionalized highlights the importance of the preferences and strategic actions of individual actors (Galaskiewicz Reference Galaskiewicz, Powell and DiMaggio1991: 293–310). Galaskiewicz points to the critical role of “change agents” in addressing situations where firms are confronted with societal pressures that run contrary to the dominant ideology or culture of the firm. Stressing the role of agency, Galaskiewicz demonstrates that meanings, values, and norms within a company can change through the conscious efforts of change agents (as opposed to external structural pressures).

The critical juncture the mining industry experienced in the mid-to-late 1990s provided the “policy window” or opportunity that enabled policy entrepreneurs within individual mining companies to push for change. Using the language of norms, norms entrepreneurs within the industry worked to alter mindsets, and a steep learning curve ensued as attempts were made to render sustainable development meaningful to mining. Although external pressures were clearly important at this stage, essential to bringing about change was the need for norms entrepreneurs within mining companies to set in motion a transformation of beliefs and shared meanings; a cultural shift (Halme Reference Halme2002).

Organizational factors, culture, and the learning process

Margolis and Walsh suggest a broad framework that points to organizational dynamics to explain the variation in firms’ responses to pressures to promote CSR (Margolis and Walsh Reference Margolis and Walsh2003: 286–90). For example, firms make judgments about whether to respond to pressures (or stimuli), and which ones to respond to. Problems may be framed as a cost or investment, a burden or responsibility, a threat or opportunity, or a combination of these traits. Firms will evaluate options either according to the logic of consequences (weighing costs and benefits) or a logic of appropriateness (weighing the fit of potential options with conceptions of the company’s role identity). Management challenges arise from the fact that CSR initiatives may be both legitimacy-seeking and legitimacy-threatening, depending on the interests of various stakeholders and the degree to which they come into conflict.

CSR initiatives can also be “identity-bridging” and “identity-begging” because of the lack of consensus on the proper role of firms in society. Furthermore, a mix of motives is likely to complicate managerial responses, as a desire to aid society is likely to be combined with a desire to secure a company’s legitimacy, reputation, and ability to function. Finally, the consequences of CSR initiatives must be weighed, both in terms of their impact on a firm’s financial performance, and the extent to which society benefits from such initiatives.

Stakeholder theory

The view that firms operate within a social and ecological framework, such that they rightly have responsibilities that extend beyond their shareholders, is reflected in stakeholder theory (Freeman Reference Freeman1984). Stakeholder theory extends the realm of actors to whom firms are responsible, to include local communities affected by a firm’s operations, the natural environment, employees, NGOs, governments (all levels), contractors, the media, and industry associations (Donaldson and Preston Reference Donaldson and Preston1995; Jacobs and Getz Reference Jacobs and Getz1995).

Firms have a broad constituency, and stakeholder theorists advance both instrumental and normative arguments to explain why firms seek good relations with external stakeholders (Donaldson and Preston Reference Donaldson and Preston1995). Instrumental arguments focus on how stakeholders may affect a firm’s objectives, while normative approaches focus on how stakeholders may be affected by a firm’s activities. Consistent with the rational choice approach, the instrumental variant of stakeholder theory argues that firms will factor in the interests of stakeholders in efforts to maximize profit, as failure to do so could negatively affect the bottom line. The building of strong stakeholder relations is believed to improve profitability, through heightened brand reputation, positive media coverage, and less extreme opposition (Wheeler et al. Reference Wheeler, Colbert and Freeman2003). In this respect, CSR is understood as a stakeholder risk-management strategy.

According to Donaldson and Preston, all stakeholder theory, even that with an instrumental basis, has an implicit or explicit normative dimension (Reference Donaldson and Preston1995). Stakeholder theory requires a fundamental shift in managerial objectives away from an exclusive focus on shareholder value, towards a consideration of the rights and interests of all stakeholders (although not all stakeholders are given equal priority) (ibid.: 80). When firms are concerned with reputation or value-adding activities, the benefits of good stakeholder relations are difficult to measure in straightforward cost-benefit terms.

Legitimacy theory lends insights into the strategies firms employ to foster good relations with external stakeholders. Legitimacy theory recognizes the importance of societal norms, and the need for firms to respect both widely acknowledged norms, such as sustainable development and respect for human rights, as well as norms specific to local communities where they operate (Taylor et al. Reference Taylor, Sulalaman and Sheahan2001; Waddock and Boyle Reference Waddock and Boyle1995). For example, firms adopt voluntary standards in order to earn legitimacy and goodwill from stakeholders (Potoski and Prakash Reference Potoski and Prakash2005; Taylor et al. Reference Taylor, Sulalaman and Sheahan2001). Firms will also employ communications strategies, such as stand-alone sustainability reports, to address threats to their legitimacy arising from conflicts in the communities where they operate (Jenkins Reference Jenkins2004).

Wheeler et al. (Reference Wheeler, Colbert and Freeman2003) suggest that societal norms can be used strategically by firms to promote value-maximizing goals. They argue that the norm of sustainable development serves as a bridge between the firm-centric approach of stakeholder theory and the societal level in which the firm is embedded (ibid.: 16). Sustainable development serves as a “safe linguistic haven” for previously antagonistic actors (business, government, NGOs) to promote a common vision for the future. Critical to the success of this strategy is the recognition that value creation must be understood to reside beyond the confines of the firm. According to Jenkins, the widespread adoption of sustainable development to frame their community relations policies is a strategic response to social challenges designed to earn, maintain, or regain legitimacy (Reference Jenkins2004: 32).

Sustainable development was certainly employed by mining companies for strategic reasons, but the logic of sustainable development requires a normative understanding about the value of promoting economic, social, and environmental sustainability. Firms may well have to employ frames that resonate with their institutionalized practices to justify strategies that address stakeholder concerns, such as risk management in the case of mining (Cragg and Greenbaum Reference Cragg and Greenbaum2002). Instrumental logics can be used to appeal to internal constituencies while also recognizing the intrinsic value of external stakeholder rights. As such, sustainable development fits well with an approach to stakeholder theory that understands the normative embeddedness of instrumental claims.

Norms socialization and sustainable development

Keck and Sikkink shed light on the process of norms socialization in their seminal work on transnational advocacy networks (Keck and Sikkink Reference Keck and Sikkink1998). Transnational advocacy networks consist of advocates (often NGOs) that are “organized to promote causes, principled ideas and norms, and they often involve individuals advocating policy changes that cannot be easily linked to a rationalist understanding of their ‘interests’” (ibid.: 8–9). Although they limited their discussion to transnational advocacy networks and their impact on state behavior, the dynamics they describe can be related to firms as well.

Transnational advocacy networks most commonly employ persuasion and socialization to influence state behavior, employing such strategies as reasoning with opponents to bring about change. Just as often, networks will take a confrontational stance, by bringing pressure to bear, arm-twisting, encouraging sanctions, and shaming (Keck and Sikkink Reference Keck and Sikkink1998: 16). Keck and Sikkink identify four tactics employed by networks, including: 1. information politics: the dissemination of information about an issue or cause; 2. symbolic politics: the use of symbols, actions, or stories to give an issue resonance for a larger public; 3. leverage politics: calling upon powerful actors to exert pressure or influence on the target; and 4. accountability politics: holding powerful actors to their previously stated policies or principles (ibid.: 16).

Local, national, and transnational NGOs have used these tactics effectively in targeting mining companies. With the tendency for mines to be located in remote, rural areas, mining operations used to be out of sight (and out of mind) of all but the local communities directly affected by them. Since the late 1980s, NGOs have been able to take advantage of information technologies to widely disseminate information about the environmental impact of mining activities. Mining companies’ reputations can be damaged if NGOs are able to draw attention to gaps between publicly stated policies on CSR and actual practice.

The actual influence of NGOs, whether directly or indirectly, is a question of degree. As disseminators of global norms, NGOs can influence the discursive positions of mining companies, whereby they acknowledge that environmental degradation is bad and must be avoided. NGO efforts can also result in companies changing their policies, and ultimately, their behavior (Keck and Sikkink Reference Keck and Sikkink1998: 25). The degree of influence of NGOs depends on how vulnerable companies are to normative pressure (ibid.: 29). Material incentives clearly figure into why companies would change their policies and behavior. Individual mining companies are vulnerable to direct targeting by NGOs in communities in which they operate, because they lack mobility and must locate where the ore is. But companies may be vulnerable if they are sensitive to moral leverage, if they are concerned about reputation, or if they wish to be seen as good corporate citizens. Such sensitivity may not be the result of purely material concerns, but rather, of cognitive preferences on the part of managers. At this level, the role of management becomes an important determinant of how a company might respond to normative pressure.

Firms that adapt in response to normative pressure are likely to do so either as instrumental, strategic adaptation, or because they see CSR norms as consistent with their interests and/or identities. Rather than being fixed, material interests may come to be interpreted in light of collective understandings of appropriate behavior in a given realm (such as the environment). Stakeholder theory implicitly acknowledges this process when it identifies a wider range of stakeholders to whom firms are accountable. It is also the case that norms initially adopted for instrumental or strategic reasons may gradually be maintained out of conviction that they are the appropriate basis for action, ultimately influencing understandings of interests.

Building on Keck and Sikkink’s work on transnational advocacy networks, Risse et al. developed a framework of norms socialization, whereby states (in our case, firms) change their behavior in accordance with societal expectations (Risse et al. Reference Risse, Ropp and Sikkink1999: 11–17). When faced with normative pressures, firms may engage in instrumental, or strategic, interest-based adaptation to counteract them. The common response of the majority of mining companies up to the mid-1990s was to deny the fact of serious environmental degradation, often by questioning the validity of the science behind the claims. Some firms chose to start “talking the talk” about the need to protect the environment, adjusting their behavior without necessarily believing in the validity of the norms. Such a response usually takes the form of a policy statement on CSR, which is often discounted as a mere public relations exercise.

Some firms may also begin to engage in discussions with societal actors, such as states, NGOs, and international organizations, seeking to persuade them to change their behavior. Persuasion can take different forms, including dialogue and argumentation, but also shaming and the exertion of pressure. Firms that saw it in their interest to make tactical concessions may find themselves becoming “entrapped” by their own words. Over time, as firms engage in dialogue with NGOs, states, and international organizations, they may become persuaded to see their interests in new ways, which are consistent with CSR norms. At this point, for example, firms might recognize that investing in environmentally sound processes can both save on consumption costs and serve a broader public good. As firms engage in internal discussions around issues of CSR they may develop a consensus that corporate responsibility is appropriate. Policies that were initially adopted for instrumental, strategic reasons, may subsequently be sustained through conviction of their normative validity. Firms’ identities may be transformed where they wish to be seen as good corporate citizens, as opposed to corporate pariahs.

Argumentation and persuasion involves a learning process amongst individuals, and change in behavior is dependent on their having reached a consensus about the validity of CSR norms. Senior managers may be convinced of the appropriateness of CSR norms, but for changes in firm behavior to be durable, a gradual process of institutionalization must occur. Risse et al. (Reference Risse, Ropp and Sikkink1999) draw on institutional approaches to show that the final stage of norms socialization is when norms acquire a “taken for granted” status, independent of individual beliefs (ibid.: 17). For institutionalization to occur, it is necessary that institutional practices, or “standard operating procedures” be in place.

Risse et al. (Reference Risse, Ropp and Sikkink1999) identify two phases in the institutionalization process that are useful in explaining the degree of commitment of firms to CSR norms. The first, “prescriptive status,” is applicable when firms regularly refer to CSR norms to describe and comment on their behavior. “Prescriptive status” is achieved when the validity claims of CSR norms are no longer controversial, even if actual behavior is inconsistent with CSR norms (ibid.: 29). Firms that have reached prescriptive status would need to demonstrate a sustained effort to improve their CSR practices and performance. Firms are often accused of not matching words with deeds. Many mining companies have reached a stage of CSR norms socialization where the validity of norms is no longer controversial, but where actual behavior is still inconsistent with CSR norms (prescriptive status). Evidence that Noranda and Placer Dome had reached this stage by the late 1990s can be discerned from their sustained effort to improve their CSR policies and practices, a willingness to engage with external critics, and the leadership role they played in promoting sustainable development in the context of mining at the global level. For a variety of reasons, Barrick did not achieve prescriptive status around global CSR norms until the late 2000s.

The final phase of norms socialization or institutionalization is “rule-consistent behavior,” where practices are consistent with CSR norms. Few, if any, mining companies have reached this stage, because of the inherently damaging nature of their operations to the environment, the challenging social context in which mining operations are located, and continuing debate as to the appropriate social role for mining companies, especially in developing countries and when dealing with indigenous communities.

Table 2.1 applies a selection of key phases in the norms-socialization process to the corresponding organizational responses of a typical mining company. Although it is not being suggested here that there is an automatic linear progression, the table points to the sorts of organizational arrangements that would have to be in place to gauge the degree of a company’s commitment to sustainable development.

Table 2.1 Phases of sustainable development (SD) norms socialization

The norms life cycle

The process by which norms have been disseminated in the mining sector is broadly consistent with the literature on the “life cycle” of norms, as applied to states (Finnemore and Sikkink Reference Finnemore, Sikkink, Katzenstein, Keohane and Krasner1999; Keck and Sikkink Reference Keck and Sikkink1998; Risse et al. Reference Risse, Ropp and Sikkink1999). According to the life cycle theory of norms development, domestic support/pressure is crucial in the early stages of norms development (Finnemore and Sikkink Reference Finnemore, Sikkink, Katzenstein, Keohane and Krasner1999). The literature on the dissemination of human rights norms shows that the initial pressure came from transnational advocacy networks of NGOs with a global reach, but based in the “West.”

In the case of firms, domestic pressure would refer to the countries in which mining companies are headquartered. The fact that leaders emerged from the advanced industrialized economies points to the salience of the domestic context in which normative propositions originate. By this logic, considerable explanatory weight must be assigned to the domestic (or state-based) sources of norms that eventually become accepted at the global (or international level) (Katzenstein Reference Katzenstein1996; Meckling Reference Meckling2011). Also crucial in the early stages of the life cycle of norms is the leadership role taken by early movers headquartered in the advanced industrialized economies.

Once a critical mass of firms come to accept the normative validity of sustainable development, a critical threshold or tipping point is reached, after which a norms cascade occurs (Finnemore and Sikkink Reference Finnemore, Sikkink, Katzenstein, Keohane and Krasner1999: 255). This second stage of the norms life cycle occurred in the mid-2000s, when a critical mass of mining companies came to accept sustainable development as a normative framework for their CSR policies. Evidence of the acceptance of sustainable development norms comes both from discourse and patterns of behavior that are consistent with their prescriptions (Finnemore Reference Finnemore1996: 23).

Figure 2.1 reproduces the aggregate data from Table 1.1, to show that for mining companies, sustainable development began to emerge as an accepted norm in the mining industry in the late 1990s to early 2000s. In the mid-2000s, the data clearly suggests that a norms cascade had occurred, what Finnemore and Sikkink refer to as Stage 2 of the norms life cycle (Finnemore and Sikkink Reference Finnemore, Sikkink, Katzenstein, Keohane and Krasner1999). Stage 3 of the norms life cycle entails internalization of the sustainable development norm, but this cannot be discerned from the data alone and is therefore not presented in the figure.

Figure 2.1 Number of major mining companies with sustainable development/sustainability in the title of their reports, by first year of use of term.

The role of norms entrepreneurs, or change agents working within individual mining companies, was important in bringing sustainable development norms to a critical threshold from whence a norms cascade could occur. The efforts of leaders working through industry associations to persuade other mining companies also played a critical role. Consistent with research on other voluntary associations, such as Responsible Care^® in the chemical industry, a range of sociological pressures (informal coercive, or peer pressure; normative; mimetic; dissemination of best practices) served to encourage the framing of CSR policies in terms of sustainable development (King and Lenox Reference King and Lenox2000; Prakash and Potoski Reference Prakash and Potoski2007b). Not all mining companies chose to frame their policies in terms of sustainable development because they believed in the normative validity of the concept. For some, the motive was one of rhetorical framing or “symbolic adoption” in order to manage their public image (Campbell Reference Campbell2007: 950; King and Lenox Reference King and Lenox2000; Meyer and Rowan Reference Meyer and Rowan1997). Where reputation is at stake, companies are more likely to mimic successful peers (isomorphism) (Howard et al. Reference Howard, Nash and Ehrenfeld1999: 285). Some mining companies were also mimicking what other firms were doing in order to gain legitimacy among them (Campbell Reference Campbell2007: 959; Margolis and Walsh Reference Margolis and Walsh2003: 286; Orlitzky et al. Reference Orlitzky, Schmidt and Rynes2003: 426). These dynamics are consistent with the overall argument that a combination of instrumental and normative motives were at play.