CSR and Regulatory Issue

The problem with an approach that lets business define corporate responsibility is that it is not grounded in a set of principles about what it means to be a responsible business. Corporate social responsibility is whatever companies want it to be, and often, what is most convenient.

Despite being more recognizable, there is no consensus about what CSR is. A common element in most explanations is the design of new business practices that respond to civil society expectations of good corporate citizenship. Rather than fixing the law, CSR proponents seek to reform the corporation from within and thereby raise the standards of corporate conduct beyond what is legally required.

Corporate social responsibility is an old idea, with American roots in the writings of the steel magnate Andrew Carnegie. Carnegie believed that the goal of businessmen should be ‘to do well in order to do good’.  He maintained that it was up to the more fortunate members of society to aid the less fortunate – that the wealthy ought to be stewards of their property, holding their money ‘in trust’ for the rest of society. As trustees they are entitled to do with it only what society deemed legitimate. 

Today, CSR proponents emphasize that virtuous companies will be rewarded in the marketplace and thus can ‘do well by doing good’ – an argument widely referred to as ‘the business case’. Despite the human rights risks of not ‘doing good’ today when more business is being done directly or through surrogates (suppliers and subsidiaries) in politically and socially fragile settings throughout the world, CSR remains stubbornly rooted in Carnegie’s vision of the benevolent businessman . 

For all its success at prodding companies operating in today’s high risk environment to pay attention to their social and environmental roles, the CSR movement suffers from two fundamental problems.  One relates to a lack of standards defining what counts as corporate responsibility, leaving it up to business managers to decide. The second relates to the over-reliance on citizen oversight – sometimes referred to as ‘civil regulation’ – to make CSR work. These two problems are closely linked: because there are no clear standards for corporate responsibility, civil regulation cannot function well.

CSR gets defined by business managers who cherry-pick the areas of social benefit the company will address. Typically CSR managers, where they exist, struggle mightily to score the financial backing and human resources they need to address the problem. Often the first CSR initiatives adopted by companies are environmental programmes – for example, the reduction of greenhouse gas emissions or packaging. Through these programmes, companies can create efficiencies, help their bottom line and improve brand image all at the same time.  These are welcome initiatives. But the problem with an approach that lets business define corporate responsibility is that it is not grounded in a set of principles about what it means to be a responsible business.  Ultimately, CSR is whatever companies want it to be – and often, what is most convenient.

This definitional ambiguity presents problems not only for stakeholders seeking to hold companies accountable, but also for businesses themselves. John Ruggie, the author of the UN Guiding Principles for Business and Human Rights, noted that those companies that do not adopt a rights-based corporate responsibility programme “typically approach the recognition of rights as they would other social expectations, risks, and opportunities, determining which are most relevant to their business operations and devising their policies accordingly. ” A discretionary approach leaves companies open to considerable risk, as evident in the numerous corporate lawsuits, protests, and strong international criticism directed at companies that do not pay adequate attention to all human rights.

All too often, companies use CSR programs to deflect attention from socially irresponsible practices in their core operations. In a 2008 article, Conrad MacKerron, of the shareholder advocacy group As You Sow, identified the problems of discretionary CSR in the practices of the American retail giant Walmart. He argued that Walmart’s environmental initiatives to reduce waste and improve energy efficiency among its vast network of Chinese suppliers not only ignored, but also came at a cost to workplace health and safety in those factories.

These initiatives are expensive: to pressure suppliers to ‘go solar’ or clean up wastewater discharge, all while making low-priced goods for US consumers, is not possible without cutting corners on worker pay and safety. MacKerron also noted an overlooked aspect of Walmart’s green agenda: Chinese makers of those very solar panels were reportedly dumping silicon tetrachloride, a highly toxic byproduct of polysilicon manufacturing, directly onto fields in Henan Province.

CSR advocates agree that a ‘business decides’ approach to corporate responsibility is problematic. But, they counter, companies that practice CSR do operate under constraints, since they must do what the public expects of them. The concept of CSR rests on the idea that businesses operate with a social contract granted by society. Fulfilling that contract requires businesses to respond not only to their shareholders, but also more generally to civil society. Companies that do not behave responsibly in relation to civil society demands risk losing their ‘social licence to operate’.

Civil regulation, however, often takes place haphazardly in ways that favour consumers with purchasing power at the expense of politically and economically marginalized members of society.  As Katherine Trebeck notes, even in a reasonably well-functioning participatory democracy with a strong civil rights tradition and the capacity to protest safely, citizen regulation is hard to achieve.  Apathy or indifference can lead to vocal minorities dominating the decision-making process, while others may find that they do not have the time or means to participate. 

Too often, the inequities within society are replicated so that, as Trebeck observes, the “results of civil regulation will skew away from the interests of those affected.” And not unlike the case of Walmart in China, when it comes to CSR and the environment, too often companies are pushed to respond to a particular form of environmentalism reflecting middle class interests.  If CSR for many companies is about building brand value, then absent government regulation and legal standards, consumers with purchasing power are the ones who often end up defining corporate responsibility.

In his 2008 book, Supercapitalism, former U.S. Labor Secretary Robert Reich similarly expressed concern about the ability of citizens to regulate business behaviour. Consumers derive benefits from inexpensive products made with cheap labour or cost-cutting initiatives that can result in harm to the environment and communities besides one’s own, Reich argues; hence, citizen-consumer interests are too conflicted to be counted upon to act as neutral arbiters of what constitutes responsible business. Instead, Reich calls for more government regulation as the only means to ensure that corporations behave responsibly.

In other words, absent adequate domestic legal protections, CSR is dependent upon oversight of business by society.  Yet society alone is not capable of articulating the full range of protections its members need; hence, business is free to decide whether or not to devote resources to prevent harm and, to take it a step further, exercise its influence and capabilities to protect the rights of workers and communities. There is little incentive to do so if business finds it too difficult or if there is little payoff in the marketplace.  For these reasons, human rights advocates have found that CSR is not up to the task of preventing harm to people. 

Out of this dissatisfaction, the business and human rights (BHR) movement emerged. It has worked to shift the focus from the ‘needs  to the ‘rights‘  of the affected community, and from acts of charity by businesses, towards full accountability in international law. The BHR movement distinctively claims that international human rights law provides a hard legal benchmark against which companies can be judged and in accordance with which they must act, regardless of whether it is convenient, profitable, or will improve the company’s reputation.   

There are differences within the BHR movement about how to get there.  Some see the path involving multi-stakeholder initiatives (MSI), a form of private self-regulation in which the rules and monitoring of corporate adherence to them regarding a specific business and human rights problem, such as child labour, are negotiated among representatives of civil society, business and sometimes government. Having been put to the test within an MSI, these rules and procedures can then become the basis for new laws and regulations.  

Others are skeptical of this approach, questioning the motives of corporate participants, who join MSIs in the first place to deter regulation, not advance it.  Some concentrate their efforts on getting intergovernmental organizations and governments to create binding rules that hold companies accountable, while others push for innovations in international human rights law in the form of a business and human rights treaty that would explicitly make corporations subject to it.  And yet all within the BHR movement can agree that the standard of conduct must be based on international human rights, and that some form of coercion is necessary to deal with corporate laggards that violate those rights with impunity.

In short, corporate compliance with human rights standards must be an end in itself rather than a path to making more profit. The late Milton Friedman’s famous 1970 New York Times editorial, “The Social Responsibility of Business is to Increase its Profits”, is best known for the articulation of the libertarian economist’s doctrine that  “the business of business is business”. There is a lot to disagree with in the article. But one line still rings true: “…in practice the doctrine of social responsibility is frequently a cloak for actions that are justified on other grounds rather than a reason for those actions.” There is nothing wrong with making money, but there is when it harms people in the process and, worse, is camouflaged by the ‘cloak’ of CSR.

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