II. “Institutional framework” and social responsibility: some links

Identifying the determinants of economic performance is one of the most relevant topics for economic theory and represents one of the areas of most significant debate in the specialized literature (Méndez, 2017, p. 55). However, empirical evidence suggests that those countries possess the most solid, efficient, and effective institutional framework that achieves tremendous growth and development (Acemoglu & Johnson, 2005, p. 42; Acemoglu, Johnson, & Robinson, 2005, p. 21). However, what does institutional framework mean, and what is its relevance for law and social responsibility?

Although there is no univocal definition of the institutional framework, we can characterize it as the complex amalgam of rules of the game that, according to Hollingsworth (2000), is mainly composed of:

(i) Institutions such as norms, rules, conventions, values, lifestyles, among others.

(ii) Institutional sectors are understood as markets, states, corporate hierarchies, and organizations in their different characterizations (p. 35).

San Emeterio (2006) summarizes the following classification (consisting of four categories or axes):

(i) Economic institutions: focused on the allocation and distribution of resources and the functioning of markets.

(ii) Political institutions: which focus on the design of the election system, electoral rules, political institutions, composition of government and opposition parties, and political checks and balances.

(iii) Legal institutions: are those that must deal with the type of legal system and the definition and enforcement of property rights.

(iv) Social institutions: related to access rights, such as health benefits, education, and social security arrangements (p. 55).

Within this amalgam of rules of the game is social responsibility, expressed through private and public rules. Since their inclusion within the institutional framework contributes to shaping property rights that provide markets with an environment of low transaction costs where economic competition can exist and flourish. Based on the application of the Coase theorem, it can be stated that one of the main obstacles to efficient economic performance lies in the presence of “high” transaction costs, in other words, the cost of carrying out economic transactions or using the market (Fortes & De Souza, 2020). Institutions will then be constituted as mechanisms that allow the management of these costs.

Moreover, without the existence of social responsibility rules that positively impact the institutional framework of property rights, individuals will see new external costs (real negative externalities) generated from investing in human or physical capital, developing, or adopting new technologies, or implementing new ideas. Therefore, good rules such as those derived from effective, efficient, and effective social responsibility practices will also improve the allocation of resources by better determining who receives the benefits, revenues, and control rights (subjective rights for decision making); or the burdens of individual and collective actions derived from in a cooperative scenario (exchange of property rights). An example of the inefficient practice of corporate social responsibility is constituted by greenwashing or deceptive practice, through which consumers who want environmentally “responsible” goods and services are “satisfied”. In general, these practices transcend due to the institutional weakness in the countries and directly affect aspects such as legal enforcement. See the contribution by Miriam Cherry (2014, pp. 1-45) entitled “The Law and Economics of Corporate Social Responsibility and Greenwashing”.

On the contrary, the absence of social responsibility rules due to their “capture” or “blocking” by private agents (lobbies) or the State may (in the long run) affect the flourishing of markets. This represents a diseconomy that will negatively impact societies (Hollingsworth & Boyer, 1997, p. 31) to promote innovation through the market process. Their economic and social agents manage to prosper in an environment of voluntary cooperation, non-aggression, and self-regulation. Good rules promote economic growth, and those that do not work impede it by perversely inducing economic agents (individuals, families, and firms) to engage in behaviors that hinder growth and efficient redistribution of income.

In conclusion, efficient and effective social responsibility rules should be included within the institutional framework and are essential because they help solve a critical economic problem of the agents: the coordination of their “business” plans and the development of specific productive activities through an efficient economic calculation (Zakharkin et al., 2019, p. 2).

III. Evolution of social responsibility

The exercise and elements of social responsibility are in a permanent stage of change. The traditional exercise that involved creating and implementing responsible and social practices that include criteria of economic, legal, ethical, and philanthropic responsibility has evolved to another, where responsibilities include those required to meet the local expectations of society (Masoud, 2017).

That is to say; social responsibility is no longer only translated into the company’s business practices. However, it justifies its realization to consider those facts that happen around it and close to it, which implies a process of internationalization of “externalities”. This involves a scenario where the costs of establishing, transferring, or maintaining property rights must be faced, which appear when these (subjective rights) are affected and imply, per se, the effective loss of a certain degree of freedom in their disposition.

Thus, the current trend in social responsibility involves attending to stakeholder’s interests, whether they are close to those who manage the organizations, and which are assumed as a form of conduct or work.

Likewise, the importance of social responsibility today has generated the need to implement permanent mechanisms of social practices by companies (Ashrafi et al., 2018). However, this trend is coupled with the growing propensity of countries to intervene in its promotion through regulation (hard law) following their social policy programs.

In this sense, states tend to legislate social responsibility as part of the exercise of their political programs aimed at generating and providing welfare to the society of a country or nation (Acevedo et al., 2013, p. 12). In other words, a process of “juridification” of successful experiences of social responsibility created and implemented in the business sector is occurring more frequently. The practice of restricting and, subsequently, banning plastics in Spain is cited as a successful case (Schreuer, 2018, p. 41). In Spain, department store companies adopted this measure as part of their environmental care policies. Recently, this practice has been “normativized” by the government for mandatory compliance by all citizens.

Based on the changes in social responsibility trends, this can be defined as the set of business practices made in favour of society or the company itself to ensure their welfare. In other words, we are facing a concept that is no longer exclusive to companies, and, over time, its importance has led to its inclusion in the legislation of countries to require the rest of the members of society to practice it (Frederiksen, 2019, p. 65). Additionally, its use has been extended to the rest of the social groups, including the public administration.

Therefore, its interdisciplinary definition and the criteria that compose it require a legal protection mechanism and a guaranteeing legal scenario for its practice. Law plays an essential role in the promotion and exercise of social responsibility in favour of the members of society. This undoubtedly represents a new paradigm compared to any approach that may focus on the ethical component. This is so since the juridical-legal takes on a new protagonism in society since it represents an instrument that, due to its sizeable omnes character, can contribute to the massification of its practices and the protection of those carried out in the private sphere.

IV. Social responsibility and its forms of “legal practice”

The exercise of social responsibility is based on the generation of economic and social welfare for those who created an organization and hired the services of its collaborators (investors). Nevertheless, simultaneously, in the concern to include those stakeholders who have collaborated in generating their welfare directly or indirectly. In general, it has become a criterion that is gradually being extended to other members of society. Initially, it was incorporated by the business sector as an instrument that guarantees its permanence in the market and the sustainability of its commercial activity in the long term.

Currently, this term is present in the various interest groups (stakeholders) found in society. Therefore, it is not exceptional to find social responsibility in government, trade unions, suppliers, and other members of civil society, in addition to the recurrent use of terms such as responsible or supportive consumer or responsible consumption. It has also been extended to groups that, traditionally, were not considered in the economic activity of a company or, if they were, they played an indirect or secondary role. This includes subcontractors or suppliers of suppliers. Although they have no direct relationship with the company, these market players have come under the discipline of social responsibility because of their growing importance (Sanclemente-Téllez, 2017, p. 31).

V. Social responsibility: workers and unions

The practice of social responsibility has focused the company’s development on its collaborators and workers. The basis of this assumption lies in the fact that companies need their contribution to achieve their business activity. This is so because the social and responsible practices implemented in business organizations aim to value employee’s contribution and maintain their motivation to prevent their productivity from declining. In addition, a series of programs are usually carried out to promote the work environment, labour welfare, or retention of human talent. The latter to prevent high labour turnover.

However, the discussion on social responsibility actions that the collaborator and worker (employee) should perform for the company is a broad debate. In this regard, we believe that the employee’s social responsibility rests on the correct performance of their work following the provisions of their employment contract, which derives from the search to find balances in agency scenarios (Mackenzie et al., 2014). In addition, the responsible and social practice of the employee must rest on the promotion and consistent compliance with the principles and values that characterize their workplace and help them be immune to problems such as corruption or non-compliance in the exercise of their duties.

Trade unions are traditionally presented as the exclusive protector of employee’s interests. However, according to a conception of social responsibility, unions should be constituted as entities that collaborate in generating profits that benefit employees and the rest of the company’s stakeholders. Unions should be constituted as entities that look after both the interests of the company and those of the investors or principals who hold its shares. This is so since a harmonious duality between agents and principals makes it possible to establish essential synergies for the correct performance of the economic units (companies) and minimize risks such as free rider behavior, moral hazard, and natural negative externalities others (Morseletto, 2020, p. 9). The above coincide with the interests of the worker and his search for protection and external protection to establish a proper balance between his rights, legal rules, and the property rights of the owners or agents who act as principal delegates of the organizations.

VI. Social responsibility: consumers

As in the case of employees, the notion of social responsibility on consumers is a developing field (Tabra, 2017; Arredondo et al., 2011, p. 9). There remains the belief that social responsibility is the exclusive patrimony of companies and their stakeholders. This point requires better precision since consumers have acquired power and influence in the choice of products offered by the market. In this sense, social networks are the means of communication par excellence of and among consumers, as explained by Martínez et al. (2019, p. 36).

So-called “consumer power” therefore has a significant influence on the market. However, it should not be exercised in an uncontrolled or absolute manner. Let us remember that the game described above involves maintaining the balance between agents and principals, which reduces real negative externalities and, therefore, maximizes the interest of stockholders and stakeholders.

In a practical sense, achieving balance involves consumers giving their opinions on product quality in a timely, relevant, and proactive manner, favouring them and limiting scenarios where opinions on goods and services are unfair and unfounded. For this reason, we believe that the social responsibility of consumers should be reflected in the self-limitation of their power and the consequent influence they exert on the market. Thus, their opinions, criticisms, or complaints about market offers (companies) must meet a standard of justification and reasonableness that prevents the commission of any abuse of their consumer rights.

Similarly, the dual prevention of external effects (understood as legal injustices, infringement of rights, and others) should lead consumer associations to implement a criterion of attention and defence of the rights of their members restricted to prevent any abuse or harm to the interests of companies (Friedland, 2021, p. 6). However, the associations should promote compliance with consumer obligations. These measures can help balance the protection of the rights that all consumers have but simultaneously make sure that they comply with their obligations, protect their rights, and protect the interests of other interest’s groups.

VII. Social responsibility: suppliers

The notion of supplier social responsibility proposes a degree of the obligation of the supplier towards the company. It implies that the supplier does not limit its commitment only to comply with the contract’s provisions. The supplier can also exercise social responsibility on several fronts, which can be summarized as follows:

(i) The promotion of the importance of responsible and social practices to those organizations and individuals who are not involved with the leading company. In this case, the supplier can extend its practice to subcontractors. It should be considered that the criteria of corporate reputation and sustainability are at risk and, therefore, it is essential that suppliers do not commit any act that affects it.

(ii) The extension of values linked to the company’s organizational culture. Companies, mainly transnationals, incorporate corporate values and principles that distinguish them from other organizations. Moreover, they seek to expand as part of their process of installation and operation in the market. Many of these principles are linked to protecting society’s interests (environment, human rights, and governance). Because of the above, suppliers are an essential element in the transmission of these ethical elements.

(iii) Self-regulation rather than administrative impositions by the public administration. This implies the prevalence of social and responsible practices on the part of supplier companies.

VIII. Social responsibility: public administration

The ideal way for public administration to practice social responsibility is limited to compliance with regulations. Unlike private companies, state institutions limit their activities to comply with the rules of their sector. In this sense, social responsibility in the government sector should be developed inadequate compliance with its operating rules. Likewise, it is also necessary to effectively supervise its official’s conduct to prevent any case of fraud.

Finally, another issue that deserves to be included is the correct creation, modification, and suppression of legal norms in regulating market agents or society. In this sense, the State must have efficient political institutions that allow it to create laws that meet the expectations of individuals and companies. Therefore, efficient state social responsibility means creating law efficiently and following society’s expectations (Lindman et al., 2020, p. 14). This scenario coincides with the principal-agent model mentioned above, in which the citizenry assumes the role of principal, i.e., holder of rights, in this case, inalienable rights.

IX. Law and practice of corporate social responsibility

The law has granted an almost residual function to social responsibility. It has been confined to configuring a “permitted” space for the exercise of responsible practices. On the contrary, contributions from ethics and economics have taken a leading role in elaborating policies or practices. Thus, it has often been observed that forms of responsible and social practice have been elaborated based on economic measurements or as part of a business organization’s corporate culture of integrity.

In this context, we think that the law must also play an essential role in promoting social responsibility. This becomes even more relevant if we overcome a first error that consists in believing that law is circumscribed solely and necessarily to the “coercive” element of the State. That is, the idea that the State must back a rule to ensure compliance. Nevertheless, we cannot take this view as unquestionable. The transcendence of material legitimacy and a broad understanding of the sources of law in a context of institutional coordination should leave ample room for social initiative (Méndez, 2017, p. 79).

If law, above all, is understood as the creation of norms or rules of conduct that society requires to live in harmony and justice, why not extend this idea to the field of self-regulation used in the creation of social responsibility practices? While state regulation needs the support of the state to enforce its rules, self-regulation creates its own rules that have the support and authority of the one who created them (the entrepreneur).

In this sense, if we assume that a large part of the practice of social responsibility rests on self-regulation, we must understand that compliance depends on who develops them and enforces them. The creation of a company’s own rules is due to the organizational culture of the entrepreneur. As the organization owner, the entrepreneur uses self-regulation to create his own rules to ensure the proper behavior of the members of the organization and efficient commercial performance in the market. This is the reason for compliance with self-regulation rules: the need to ensure the company’s proper functioning and, thus, to ensure the entrepreneur’s well-being.

Corporate social responsibility bases its practice on creating and complying with its own rules to guarantee the sustainability of its activity and its long-term permanence in the market (Noti et al., 2020, p. 7). We believe that this is where the effectiveness of these standards lies, whereas, in the case of state standards, the existence of the state’s coercive apparatus is needed to force or verify compliance with its rules. However, we assume the criterion that regulatory and self-regulatory norms should not be differentiated only by their coercive nature but by the effectiveness of their compliance. Furthermore, at this point, self-regulatory norms acquire greater effectiveness: they guarantee the company’s purposes and those expressed in the regulatory norms.

Soft law standards are worth mentioning. These are recommendations issued by national or international organizations, such as the OECD, in social responsibility to include them in their social responsibility practices. In South America, these standards have been aimed mainly at publicly traded companies to improve their corporate reputation in the market. At present, reputation has become a priority for corporations because it is a determining factor in the sustainability of the business activity. Especially if we observe that reputation has gone from being evaluated in the internal sphere of the company to the public sphere (society).

Society has become the protagonist of corporate business sustainability. Thus, the use of social networks has generated a trend towards consumer “activism”. This activism translates into a permanent citizen “scrutiny” of the products offered by the company and the quality of service it provides to the market. It also evaluates how the organization treats its employees and other stakeholders. Nevertheless, this must be added as the extension of the risk for those companies or entities that carry out some activity in connection with it. This is the case of supplier companies, identified as part of the leading company, and can damage its image.

Thus, for example, we can highlight the case of activities carried out by contractors of a mining company that do not respect the labour rights of their employees. Citizens do not distinguish the differences in legal status or the links and management differences between them; they tend to identify them as part of the leading company and the consequent institutional discredit. For this reason, social responsibility has become an instrument for safeguarding the corporate reputation of the company and those linked to it.

In these cases, self-regulation is of the utmost interest to safeguard the company’s image. We believe that its exercise corresponds to its administrator, who must implement social responsibility policies as part of his fiduciary obligations (care and loyalty) with the company and ensure that the guarantor mechanisms are implemented to ensure compliance.

The rules of meta regulation constitute another form of exercise of the law. These are norms that promote conduct or the performance of legally relevant acts but do not require state coercion. Unlike regulatory norms, which oblige or prohibit the commission of an act, in the case of meta regulation, there is no sanction for non-compliance. Likewise, metal regulatory norms are rules based on promoting the performance of behaviors or prohibiting them in exchange for some type of economic benefit (Akkalathama, 2021). They are created by the states, which use them to encourage certain types of conduct.

On the other hand, it has come to be perceived that, through their meta-regulatory norms, companies can enforce these fundamental rights in those partner companies with which they maintain commercial relations. Thus, for example, there are anti-corruption clauses that strongly discourage a company’s suppliers from committing acts of fraud: fraud, bribery, money laundering, or other acts classified as corruption are contractually penalized to the economic detriment of the guilty party. Labour protection clauses have also been developed, which allow a company to terminate its contract with its suppliers without any consideration if they violate the rights of its workers.

Likewise, the promotion of and compliance with ethical or integrity codes containing the behaviors that their members must follow and indicating the sanctions in case of non-compliance are also sought. An example of this is the regulations of the stock market authorities, which encourage the use of codes of good governance by companies wishing to be listed on the stock exchange.