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.
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.
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.
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.
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.
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.
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.