Why Not Leave "Social Responsibility" to Governments?
If we had efficient, benevolent governments, would we need corporate social responsibility? Is it not the role of the government to manage, protect and appropriately distribute public goods? If a government is fulfilling this role, won't society and the environment be well taken care of? Why would the private sector need to go beyond this? Why is corporate social responsibility necessary at all?
| |
There are at least six major reasons why governments are not enough to manage the social and environmental challenges faced by businesses.
|
|
Photo by Jurisdiction
Social and environmental issues easily cross borders, but government jurisdiction does not. Governments generally lack the authority to police the actions of individuals and companies operating outside their borders. Even when punitive measures are possible, they can be extremely infeasible due to political side effects. Some attempts to create global governance structures have mitigated this problem in certain specific situations, but these structures are still largely incomplete.
Multinational companies, therefore, often take voluntary action to address global issues. Instead of government pressure, the pressure has come from other stakeholder groups, such as customers, communities and investors.
Incongruent Values
Does your government share all of your preferences and values? Does it share the preferences and values of your company's most important stakeholders? Does your government feel that the social causes you believe in are the most important social causes to support? Does it share your view of the environment?
More often than not, our governments are not fully representative of our social values. And if your stakeholders are unique in any way, this is more likely to be the case. In order to support these values, individuals and businesses must act without government sanctions. The government cannot be counted on to address these issues on its own.
Oftentimes this problem can also occur when government preferences are being strongly guided by influential lobby groups. This distorts public policy even more, hampering the government's ability to act upon the public's values.
Uniformity
In order to be fair, government regulation must be applied consistently. Laws can differentiate between broad categories of people and companies (like how our income tax has different deductions for different types of people) but they cannot begin to understand the unique business model and set of stakeholders of every single company.
As I often argue, every company is different and every company must take a different approach to the social and environmental problems it faces. Governments are not capable of exercising this level of detailed differentiation. It is as inefficient for them to do this as it would be for them to tell each company what to produce and who to hire.
Satisficing
Government regulation often creates a "good-enough" mindset: as long as you meet the government standard, your actions are satisfactory and sufficient. This does little to encourage the continuous improvement and long-term innovation that is necessary to solve complex local and global problems.
Businesses, on the contrary, when operating in competitive markets and driven by demanding stakeholders, have an incredible ability to innovate, especially when their survival depends on it. When social responsibility initiatives occur in the private sector, they can benefit dramatically from this innovative drive. Indeed, the majority of innovation in corporate social responsibility has come from the efforts of impassioned businesses, not from legislation and regulation.
Inefficiency
There are hundreds, if not thousands, of different aspects to corporate social responsibility. Some of these are significant, easy to understand, and observable, such as whether or not a company hires child labour or slave labour. It is relatively easy for a government to police these issues.
But most aspects of CSR are far more nuanced. Could a government police disrespectful bosses, poor customer service, and an apathetic attitude to the local community? In most cases, governments can't even handle these problems within their own agencies! It would be inefficient and ineffective for governments to address the multitude of small, complex, and intangible issues - occurring at companies big and small - that are some of the most important parts of CSR.
Companies also have an easier time implementing social responsibility programs because they can act unilaterally and they must appease fewer stakeholders than governments. Many consumers are recognizing this fact, and are addressing their social concerns no longer by voting for politicians, but instead by "voting" for companies through ethical consumerism.
Business Opportunities
Not only do businesspeople have moral motivations for engaging in social responsibility, they also have economic motivations. Corporate social responsibility improves hiring and retention, increases sales, improves a company's reputation, and generates stronger interest from stakeholders. To relegate the management of social issues to governments would be to ignore these benefits.
And moral motivations are important too. One of the most compelling arguments I hear for CSR is simply that businesspeople want to be involved in solving the world's problems. By and large, people are aware of the the major social and environmental issues we face, and they feel a personal responsibility to help solve these issues. They often get great personal satisfaction from this. Corporate social responsibility is a way for these individuals to take their personal responsibility to the next level and achieve greater impact.
What do you think? Are there other reasons why governments can or cannot handle the issues associated with corporate responsibility?
Don't forget to sign up for our complimentary webinar, The Basics of CSR: Starting Your Stakeholder Conversation Right, being held Thursday, April 29th at 3:00pm EST.
Comments
Big Business and Government and Individuals have the same issues
Short term populous thinking.
Individuals can't do anything about it because they are caught up in the consumerism trap.
Big Business can't do anything about it because they are caught up in the quarterly profit reporting trap.
Government can't do anything about it because they are caught up in the election cycle trap.
There is an answer. It doesn't involve intervention by a higher power. It is pragmatic and harnesses the power of personal responsibility.
Role of Government
Often I think that the encouragement for governments to engage in CSR comes from a position of fear, namely that corporations should not engage in any social programs. Put another way, the simple notion is that government deals with social and environmental programs and the corporations pay taxes to support those programs. Obviously this is simplistic and outdated. At best the government can deal with the biggest blocks within our social fabric, but the nuance, or the "filler" between these blocks is often created and delivered best by the private sector. Governments are often immobilized by the challenge of getting the solution "right" and will often delay action for fear of backlash. The mobilization of resources and innovation at the disposal of the private sector can often outstrip any programs that are publicly funded. Having said all this, I believe there is also huge potential for governments and the private sector to actually interact around CSR. Should government create incentives via tax breaks for organizations that actively meet certain standards of CSR achievment? I read once that "It is not the role of government to provide all services, but to ensure that all services are provided"...is there a way for governments to grease the wheels of the CSR movement?
Good Points
The traps you describe used to be, and to an extent still are, vicious cycles. But I am optimistic that we are starting to see a shift. The fundamental actors in each of those traps (consumers, investors, and voters, respectively) are increasingly putting weight on social and environmental concerns. When that weight reaches a tipping point, these "traps" will instead begin to reinforce socially responsible behaviour by institutions. As you acutely point out, it will only be personal responsibility, personal decision making, that drives this forward.
@ Dave: You've hit on a really important point that I didn't properly address in my article: the role of interaction between governments and the private sector. I agree that there is great potential here, and the most successful companies (and governments, for that matter) will leverage that potential.
The challenge for governments right now is to determine what exactly is holding companies back. Why aren't they engaging in an "optimal" level of CSR? A quick possible answer is that they don't have economic justification; the costs outweigh the benefits to the firm. Thus, it's a pricing problem, and financial incentives (or punishments for negative behaviours) could help to solve this. I think this is part of it, but only a small piece of the puzzle.
In most cases there already exist strong economic and moral motivations for a company to enhance their level of CSR - they just don't know it. They are not aware of the opportunities available to them, and if they are, they are unsure of how to proceed. Formal, strategic CSR is scary, uncharted territory for companies still struggling to master "traditional" areas of business - sales, marketing, and employee relations. In this case, a quick tax break won't solve the problem. But this is probably the topic of another blog post!
Thank you both for your thought-provoking comments!
Role of Government
Nick, I think this is a huge issue that quite frankly is percolating below the radar (sorry for the mixed metaphor) of government programs, the corporate sector and dare I say - NGO's. You are right, the tax break is only a starting point for discussion and should be viewed within the larger question of how do we find a way to get all three sectors to actually talk to each other and to actively leverage assets (beyond the dollar) to get things done - so that each sector benefits as society benefits.
Regardless of the source of funding or sponsorship - social, health and environmental programs are often plagued by a lack of coordination leading to duplication of effort and ultimately missed opportunities. Perhaps it is the role of government to attempt to be that coordinator?
Some thoughts
Nick, I really liked the article and your comments. I thought I’d post a few thoughts of my own.
Further to your reply to Dave’s comment, I think there are good reasons to explain why CSR is, in a lot of cases, “scary, uncharted territory for companies.”
You rightly point out that Strategic CSR has huge potential to bring about social and environmental improvements.
However, many of the factors contributing to profits in this area (e.g. employee morale, reputation) are qualitative and hard to judge. I do not doubt that there is, as you say, an "optimal" level of CSR. However, this inability to effectively measure the benefits of CSR may result in firms overspending on their strategic CSR endeavours.
Another (slight!) criticism I have is that you over-estimate the potential of “ethical consumerism”…
Ethical consumerism is great, but it must be remembered that a billion people earn less than $1 per day, and the harmful effects of business disproportionately affect such people. It seems unfair to leave their welfare at the mercy of a consumer democracy in which they cannot partake!!
In addition, I’ve read a lot of papers talking about an “attitude-behaviour gap.” This refers to the fact that, although most consumers have ethical intentions, only a small minority of people act upon such intentions and actually discriminate for and against ethical and unethical companies.
In spite of all this, I really do believe that most businesses have high ethical standards. As you say “most businesspeople want to be involved in solving the world's problems”. My main objection however is when I see CSR being used as a shield against regulation. It would be much better if ethical companies supported efforts to make their high standards legally binding. A great example of this occurred in 1997, when 35 countries got together and signed the “OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions”
Just like this piece of international law has made it possible to prosecute multinational businesses that attempt to bribe public officials, I’d like to think there’s a role for international legal standards in combating the bigger problems such as the human rights abuses carried out by some corporations, deprived working conditions, unacceptably poor levels of remuneration, along with unsustainable deforestation and greenhouse gas emissions.
Re: Why Not Leave "Social Responsibility" to Governments?
Marc: Thanks for your comments! International development is a major social interest area for myself and Tom, Provictus's other half, so your thoughts about the billion living on less than $1/day resonate with us very much. I'm looking forward to the launch of http://www.esthersecho.org, an NPO started by two friends that will be using a Kiva-like model to direct funds to community-based social organizations in the developing world.
But I digress. If I act optimistic about the promise of ethical consumerism, it is precisely because we need it in order to help bring much of the world out of poverty. Ethical consumer movements (such as fair trade, which improves producers' terms of trade) are doing precisely this. As you suggest, consumers need to act upon their ethical intentions. This is what I hope to encourage by spreading awareness about ethical consumerism strategies.
It sucks (a scientific term) that the welfare of a billion people is left "at the mercy of a consumer democracy in which they cannot partake." You're right that it is incredibly unfair. But it is a reality that many of these economies depend on us to consume the goods they produce. (Oftentimes goods with severe environmental consequences, raising ethical dilemmas of development vs. environmental sustainability). We can help these individuals by consuming in a manner that rewards companies who treat them fairly. So when you say, "Ethical consumerism is great, but [my emphasis] it must be remembered that a billion people earn less than $1 per day," I am not sure what you are suggesting. Should we not engage in ethical consumerism? Should we not consume?
Do we have other options? Efforts at global governance have been lackluster, and incredibly slow. Take the piece of international law you mention, for example. The OECD does not have the authority to enforce the convention. It took until 1999 to recognize something so basic and non-controversial as bribing foreign nationals was criminal? And non-OECD members, like India, China, and Russia, are not even permitted to accede.
I agree with Dave that solutions to these problems will involve coordinated (or, at least, simultaneous) responses from government, business, and the public at large. But of all those groups, I think that the "consumer trap" that Greg described is the easiest to escape. Many consumers have already done so. Only this will drive businesses and governments to follow suit.
Some thoughts
I better understand your point of view now. I see what you mean when you argue that businesses and ethical consumers tend to be ahead of government in their understanding of the issues associated with corporate responsibility.
At the same time, I still maintain that governmental efforts to improve governance would be much less slow and lacklustre if they were met with more support from the business community. At the minute, even minor attempts at reform are met with tremendous hostility (for an example from my part of the world see http://bit.ly/bQ0gcK). From what you say, ethical consumerism appears to be the way forward. But surely efforts to advance ethical consumerism are being undermined by the fact that companies are not legally obliged to report objectively on their social and environmental policies and shortcomings?
Again, thank you for the thoughtful reply, and for letting me know about Esther’s Echo; I wish your fiends all the best in their efforts to support and raise awareness of CBOs.
Re: Some thoughts
Ah! How can we have ethical consumerism when consumers don't have the information they need to make ethical decisions? Great point. And a role for governments can be to facilitate the provision of that information (not unlike their regulation of the distribution of financial information). To that end, the UK is probably leading the way by beginning to mandate this type of reporting. The U.S. Securities and Exchange Commission recently issued a guidance that is a first step toward mandatory reporting of greenhouse gases. I hope that - and will do everything in my limited power to influence - the major accountancy boards hop on board too (are you listening, IASB?). There will be a major sub-governmental role in assurance once we figure out how to do it validly and reliably.
Now there are many companies that are beginning to demonstrate the courage to embrace reform and resist the status quo interest groups - they deserve recognition. I was impressed, for example, when many members of the U.S. Chamber of Commerce publicly criticized the organization's stance on climate change last fall. There is a lot more work to be done, but the progress we are making lends me hope.
Post new comment