Corporate Social Responsibility or Civil Society Regulation?
| Gary Johns
Australian Financial Review 19th August, 2002
Business corporations traditionally face two groups which regulate their behaviour, the marketplace and government. Now there is a new regulator, civil society, or more particularly Non-Government Organisations (NGOs) such as Greenpeace, Amnesty International, Community Aid Abroad, the Councils of Social Service and the like. The tools that NGOs use to regulate business are very different to the market and government. They are, in the first instance, neither price nor law. Often they are just ideas expressed in a strange new language. The language of Corporate Social Responsibility (CSR) or its many aliases like Corporate Citizenship, the Triple Bottom Line, the Stakeholder Corporation and so on. This language, these ideas are seductive, they appear benign. But make no mistake, Corporate Social Responsibility is really Civil Society Regulation in disguise.
Civil Society Regulation occurs where NGOs set the standards for business behaviour. Corporations choose to adopt or not to adopt these standards at their risk. While governments have the power of legislation, the ability of civil society organisations to regulate business behaviour through naming and shaming is becoming more powerful. The techniques are many and range from misapplied ethical investment, shoddy reputation indexes, stakeholder dialogue with interlopers, to outright scare mongering aimed to cause maximum damage to corporate brand names.
If CSR is no more than the everyday involvement of corporations with their owners, employees, creditors and neighbours there is no problem. CSR becomes a threat to these interests when managers bow to pressure from interests that have no contract with the corporation, whether by way of employment, or supply of goods or services, or through ownership. Inevitably just using the language of CSR opens doors for NGO regulators that are best left shut.
CSR also threatens the interests of the electorate when it undermines the formal democratic consensus as to what constitutes reasonable business behaviour. That consensus has been developed carefully through public debate, including in the Parliament and bodies such as the Productivity Commission and the like. Governments can undermine that consensus when they grant NGOs the status that enables them to set themselves up as judges of corporate behaviour. CSR proponents want to change society in ways that they have hitherto been unable to do through the Parliament and the courts. Corporations that indulge CSR, without the express sanction of their shareholders, are quite literally, misguided.
No corporation wants to be singled out for attack by NGOs for not being socially responsible, but corporations are more than a process for grievance-settlement in society at large. A primary assumption of CSR is that governments---through the sale of government businesses and some industrial and financial deregulation---have withdrawn from their duty to protect citizens from the impact of the market economy. This misrepresents the fact that corporate regulation has increased substantially in the period of so-called deregulation. A second assumption is that international corporations are now more powerful than nation-states. Coca-Cola may be the biggest brand name in the world, and it no doubt will fight to protect that name and its market, but in the final analysis it just makes soft drink! Coca-Cola's power to change society is less than a government with tax revenues a fraction of Coke's sales.
The issue for corporations, is how best to respond to civil society regulation. The wrong responses will weaken the commercial purpose and strength of individual corporations, the market sector as a whole and the democratic regulatory environment in which they operate. The right response will maintain the commercial purpose of corporations and the democratic nature of the regulatory environment.
The best course for corporations is to minimise civil society regulation by working with shareholders and government. Corporate social responsibility is no more and no less than an instrument used by non-corporates to gain leverage over corporations for political purposes. Any political control over corporations should be exercised by the Parliament and the courts and based on the broad consensus on which those processes rely.
Corporations should inform the shareholders of the cost of civil society regulation as a cost of doing business, not as a down payment on 'corporate citizenship' or 'social responsibility'. Corporations should not argue a false case. If they need to justify their behaviour they should argue that they obtained the least-cost solution to a compliance problem.
CSR comes in many guises, when corporations embrace it, they displace shareholder rights with 'stakeholder' wishes. When governments support it, they hand power to unelected groups at the expense of voters. Resisting civil society regulation does not undervalue collective decision-making or public goods, or the need for government intervention to correct market failure. In fact, it is designed to incorporate the wishes of the owners of corporations and the electorate, not those intermediaries who seek to regulate corporate behaviour to their own ends.