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Increasing corporate engagement with social responsibility has stimulated a debate over the appropriate role of government in regulating this traditionally-private sphere. CSR began as a voluntary form of private regulation, however governments are gradually becoming more involved. Particularly in Europe, with the UK as the frontrunner, the collaboration between national governments and private industries has increased – with the aim of protecting and promoting social objectives. After gaining wider prominence in the UK in the 1980’s during a time of high unemployment and social unrest, CSR has recently become a priority issue on the public agenda.
The aversion to government involvement in CSR regulation in business is understandable, however the benefits of engagement from the public sphere should also be considered. Many success stories have arisen from such collaboration, in particular the development of legislation and regulation to control employee-firm relationships, maintain health and safety standards in workplaces, prevent discrimination and promote equal pay.
The ability of government to provide a framework for regulation and the means by which to monitor compliance is likely to improve CSR standards and encourage large and small companies alike to improve their performance.
Government Actions and their Impact on CSR
Governments employ various methods through which to foster better CSR practices within the private sphere, many of which reflect non-intrusive, soft-law approaches. Most crucially, the government is in a position to raise awareness and build capacities for CSR among companies and stakeholders – an important role due to the largely voluntary nature of CSR. The more people are aware of the social challenges facing businesses, the more likely that attention will be focused on developing solutions to tackle these issues.
Government provides vital information to the private sectors through initiatives that include websites that inform companies of CSR and its role in business and society. Reports on CSR, as well as government-sponsored guidelines, aid businesses in addressing individual concerns that may be prevalent within their industry and practices. Companies can refer to online resources in order to gain insight into prevalent issues and how to solve them. Established codes of conduct are readily available, such as the ‘Standard Voluntary Code of Conduct for Executive Search Firms’, created in response to the 2011 Davies Review. The review advocated a Code of Conduct, primarily in order to address gender diversity on corporate boards. Since its launch, the Code has been improved with the help of participating firms themselves, and was recently subject to an independent review which analysed its effectiveness. The provision of state-issued information and guidelines thus helps firms to become aware of CSR issues prevalent across industries, and provides them with strategies to tackle these problems.
The government is also involved in standard-setting through the provision of policy frameworks, which encourage companies to improve their performance beyond minimum legal standards. The policy-making role of government is crucial for promoting CSR between different industries at the national level, encouraging a tightening of standards across the board. Economic incentives are often used to facilitate socially-responsible practices – an example of which is the relaunch of the ‘Payroll Giving’ scheme. Accompanied by a PR campaign, this scheme raised awareness of ways in which businesses could encourage their employees to donate to charities and good causes of their choice. Most recently, the government implemented a ‘Corporate Governance Reform,’ the aim of which is to respond to recognised problems inherent in some businesses and provide a set of legislative and business-led measures to improve standards of corporate governance. A key goal of this Reform was to “drive change in how large companies engage at board level with employees, suppliers and wider stakeholders to improve boardroom decision-making and deliver more sustainable business performance.” This report also encourages companies to disclose the corporate governance arrangements that are in place in order to provide higher levels of transparency – an example of another important role that government performs.
The ability of government to improve disclosure and transparency of often-hidden social responsibility practices within the private sphere is key to building wider confidence in the way business is run. Through the regulation of monitoring and reporting, companies that undertake CSR initiatives are often subject to accountability measures. These quality-assuring procedures encourage businesses to uphold their commitments through the publication of company practices. This, in turn, improves industry CSR standards as companies will likely aspire to rival their competitors and gain recognition for their performance in this sphere. The UK Corporate Governance Code, for instance, sets standards of good practice regarding board composition and development, remuneration, shareholder relations, and most importantly – accountability and audit. A provision of the Code requires the generation of annual public reports that hold participating companies accountable and demonstrate their compliance with the conditions of the voluntary Code. The benefit of such schemes is their entirely voluntary nature; however, once companies join, they are often held to stringent standards to encourage high standards of corporate governance.
Why Collaboration Can Be Positive
A collaboration between government and the private sector is arguably one of the most effective ways to improve national CSR standards within businesses. By laying down the groundwork for minimum CSR standards and encouraging companies to reach above and beyond this threshold, government involvement can ensure that social objectives are followed through and that voluntary CSR initiatives are carried out to an appropriate standard.
Studies have shown that CSR creates social value and improves social welfare, which constitutes the main goals of government policy. It seems natural, therefore, to encourage greater collaboration between the public and private spheres as their objectives are often complementary. The main rationale behind CSR, often referred to as the ‘Triple Bottom Line’ principle, implies that businesses should not only serve as economic, but also social and environmental ends. This idea is reflective if the main policy goals of government, and therefore cooperation between the two spheres can better promote these objectives and bring about improvements in CSR practices within business.