Government and a new form of governance

The association of corporate social responsibility (CSR) with government might seem counter-intuitive. Milton Friedman’s critique of CSR, that business managers are neither accountable nor trained for taking responsibility for public policy issues and thus should focus on responsibility to shareholders, suggests a dichotomous view of government and business. Moreover, it has been traditionally assumed in liberal democratic systems that CSR reflects corporate discretion over company investments and activities beyond those required by the law or by governmental regulation. The implication here is that CSR is a form of self-regulation which sits alongside a functioning system of government.

An alternative view, however, goes that CSR is embedded in wider systems of governance reflecting, complementing and linking with governmental and other non-governmental institutions. Certainly, over the last quarter of a century evidence of this embedded view appears to be on the increase, particularly in the UK, but also elsewhere. This can be seen in four types of relationships which go beyond that of CSR as self-regulation.

First, governments have increasingly endorsed CSR as an appropriate activity, be it by Michael Heseltine in the early 1980s context of mass unemployment and urban unrest or, more recently, by David Miliband in describing education as a ‘joint enterprise’ to which business can valuably contribute. Labour’s creation of the ministerial portfolio for CSR has been yet greater endorsement.   

Secondly, governments can facilitate CSR. A long-standing means is through tax expenditures for corporate charitable giving, which have recently been broadened. In the 1980s, the Conservative government provided subsidies to companies who took on the unemployed in training and work experience programmes.  Governments of both hues have subsidised CSR activities led by business organisations.  

Thirdly, governments have entered into CSR partnerships with companies and business organisations (and often civil society organisations too) in which they combine resources and objectives. These can range from the local level (e.g. local economic partnerships in the 1980s) to the international (e.g. the Ethical Trade Initiative).

Finally, governments can use their power of mandate to further CSR. I do not refer here to regulations which coerce and punish but rather to the ability of government to use its authority to encourage CSR. One example is through public procurement requirements for responsible business (e.g. concerning workforce composition, environmental sourcing).  The UK government has introduced provisions for reporting social, environmental and ethical impacts under the Pensions and the Companies Acts. No guidance is given as to what constitutes appropriate reporting, but the aim is to create new norms and to encourage best practice to evolve.

Two broad motivations appear to underpin these new government-business relationships. On the one hand, CSR offers a means of drawing business into the task of addressing wider governance issues from unemployment to environmental sustainability. On the other hand CSR offers a less coercive approach to the regulation of business.  

Both these motivations reflect broader changes in societal governance in which national governmental powers have been moderated (e.g. in national macro-economic policy, welfare) or are essentially limited (e.g. in globalisation). In this context governments have used incentives and partnerships in much more networked and consensual models of governing, be it with civil society or business organisations. At the same time, companies  have become much more politically and socially conspicuous as a result of their responsibility for erstwhile public utilities and their roles in the consumer and communication revolutions and global supply chains. Thus, individual companies have been called to account for their impacts and to take greater social and environmental responsibilities by civil society.
 
A number of fears have been raised about the greater role of business in governance and the less coercive use of government’s power to mandate business behaviour.  The first echoes Friedman’s concern that business is not politically accountable in the same way as democratic governments – a criticism shared on the political left. Certainly, companies are not subject to electoral and parliamentary accountability – and, sadly, most governments in the world are not either. However, there is evidence that companies are increasingly accountable to their own stakeholders, be they investors, consumers and employees, as well as to civil society institutions, often as part and parcel of their CSR (e.g. the increase in social responsibility investment criteria, social and environmental reporting, fair trade, employee surveys). In some ways these offer closer and more deliberative accountability opportunities than governments are susceptible to. It could reasonably be countered that this tends to only reflect companies in the public eye, and that short-comings here are not judiciable.  

A second criticism is that the growth of CSR in societal governance is merely one facet of a corporate takeover of politics. Certainly, the growth of business in public life would lead us to expect that companies would need to exercise considerable self-restraint in order to maintain their legitimacy. However, as noted above, companies are as much in the NGO firing line as are governments and the prevalence of multi∞sector partnerships in new governance could be expected to temper excessive business power.  

Fears of the corporate take-over are most acute in a further sort of government∞business relationship, when CSR becomes a form of government – or companies act as if they were governments. This was the case in company provision of education for workers’ families prior to the welfare state and appears to be the case in some education initiatives of the Labour government. It is worth noting though that the contemporary role of business in secondary education is subject to greater regulation than was nineteenth century industrial paternalism.

In other circumstances, however, critics often expect corporations to act more like governments, particularly in developing countries with low governmental capacity or in cross-border activities.  Thus corporations are enjoined to contribute to social welfare in sub-Saharan Africa and to enforce environmental and employment practices through their international supply chains which are above those of, for example, the respective Asian governments. Even the most active CSR companies would doubtless prefer that governments took their responsibilities in these cases more seriously.

Governmental role
It is telling in this context that the United Nations Human Rights Commissioner, John Ruggie, has recently concluded that it is not possible to set binding human rights norms for companies, but rather that the focus should be upon the role of governments. Ruggie nevertheless sees a role for companies and employs the language of CSR when he recommends that they improve their due diligence and add grievance procedures to such business-led initiatives as the Voluntary Principles on Security and Human Rights.

In summary, CSR is an increasing feature of national and global governance. Governmental institutions tend to encourage this and other company stakeholders tend to expect it. Many companies do not regard this as simply a defensive investment in their legitimacy. They also see it as bringing a host of company benefits (e.g. greater understanding of their business environment, consumer and employee satisfaction, risk minimisation, marketing, innovation) that translate into enhanced company value. Issues of accountability and appropriate use of business power remain. But recognising these should not be a reason to retreat to Friedman’s dichotomous view in which companies would turn a blind eye to the social and environmental challenges facing societies and governments.

About the author
Jeremy Moon is Professor and Director, International Centre for Corporate Social Responsibility, Nottingham University Business School.