2.1 Introduction

In recent years three parallel conceptual developments in the field of business ethics and integrity have become apparent: CSR; corporate governance and fighting financial malpractice. CSR refers to businesses incorporating certain matters of ethical and social welfare, such as care for the environment and the observance of human rights, into their business objectives. 'Corporate governance' is about power and influence: in what manner is the power in a business distributed, who plays a role in conveying this power, and how is this power used? ' Fighting financial malpractice' pertains to the use of financial channels for illegal or inequitable purposes e.g. money laundering, funding terrorist organisations, market manipulation, insider dealing, inadequate Chinese wall security within financial institutions and securities and investment institutions (financial economic crime).1 These three developments have attracted worldwide attention from both public and private sectors. They have lead to new legislation and self-regulatory rules.

The globalisation of the private sector and its resulting excesses have given rise to a public call for business integrity and the incorporation of ethical standards into business practices. Businesses can no longer limit themselves to presenting (strong) financial results. Nowadays, the success of a business is also determined by the manner in which these results have been achieved.

As a result of developments in the field of business ethics and integrity it is no longer tenable nor advisable to invest or finance 'blindly'. A professional investor or financier should first investigate the activities and modus operandi of a business before deciding to purchase, finance or invest in it. Failure to carry out such investigation brings with it the risk of a blemished reputation when in hindsight it turns out that the business acted unfairly or unethically. Indeed, parent companies, professional investors and financiers will be easily linked with the business in question. Since loss of reputation cannot be insured nor easily remedied, it could ultimately ruin a business. For these reasons it is worth taking a closer look at the aforementioned developments.

CSR and corporate governance apply mainly to the conduct of companies, their executives and financiers. Statutory provisions on corporate conduct leave considerable margins of discretion commonly filled in by case law through reasonableness tests.

CSR and corporate governance contribute towards filling in these margins by introducing new standards for the conduct of businesses and their executives. These new standards have largely developed from initiatives taken by the business sector itself. They could be regarded as standards of behaviour or 'codes of conduct'.2 Financial malpractice primarily pertains to criminal behaviour. In general, statutes and regulations deal with combating this behaviour and usually do not leave any margins of discretion to businesses.3 Since combating financial malpractice is dealt with in a separate way, very different from the approach taken towards CSR and corporate governance, this subject will not be discussed in this chapter but in chapter 5 hereafter.

In this chapter an analysis will be given of the developments in the field of CSR and corporate governance. These concepts will be compared on key issues such as their ratios and objectives, initiators and interested parties, initiatives taken, voluntary versus compulsory standards, differences and parallels. The basis of this chapter's analysis is Dutch law.