Why governments should stay out of CSR

Despite the fact that corporate social responsibility is inherently about better business practices, there still seems to be a view that government should force companies to do CSR and punish those that do not. CSR Asia chairman Richard Welford shares why that's a bad idea.

Over the last couple of months, I have had a number of discussions with people who are advocating that governments should regulate for CSR. I find myself reminding them that the “C” in CSR stands for “corporate” and that is should be up to businesses themselves to define what CSR means for them. Nevertheless, there still seems to be a view that government should force companies to do CSR and punish those that do not. This article outlines why that would be a very bad idea.

We now know that there is a very strong case for CSR and sustainability initiatives. Research published in over 300 reviewed academic publications shows that companies can create value from CSR and that long term profitability is enhanced through sustainability strategies.

If businesses are willing to ignore that sort of evidence, then they must be really dumb. And once businesses do recognise the business case for CSR, there is simply no need for government intervention. Which CEO would not want to increase value in business and contribute to profitability? Only a very stupid one. But if that simple business case does not convince you that governments should leave it to businesses then let me give you ten very good reasons why governments should stay away from CSR:

  1. In many cases government’s own understanding of CSR is poor. What we have seen when governments start regulating for CSR is some very bad policy indeed. Regulating CSR in India has not led to CSR at all, but to a wave of forced philanthropy where companies are often funding initiatives that have very dubious impacts.
  2. Governments do not understand business essentials and in many cases civil servants have never managed a business. It is only people running businesses who can determine how exactly CSR and sustainability can improve efficiency and competitiveness and this will be different for different companies depending on industry and location.
  3. Governments do not understand the links between CSR and corporate brands, reputation and trust. They cannot understand the business case for every single business because it will be different for each one.
  4. Government imposed CSR will stifle the flexibility that businesses need to design innovative CSR programmes that are aligned to the assets and expertise of the business. Such creativity is key to a successful CSR strategy and will not be helped by a “one size fits all” approach.
  5. Unfortunately, where dealing with governments where corruption is common, mandated CSR is likely to lead to the encouragement of businesses to donate to pet projects and “off the record” NGOs that will be a channel for irresponsible behaviour and not social responsibility.
  6. Government is national in its focus. Yet the remaining challenges that face us on the planet are global in nature. The failure of governments to deal with global challenges such as climate change, access to health and poverty alleviation demonstrate that we need large players in the private sector to use their global reach to engage with these challenges.
  7. Size matters: Governments are often too small to have significant influence at a global scale.  Large businesses spend many times more than governments. Indeed 40% of all the expenditures in the world are done by the biggest 500 companies. Only big business has the ability to scale up initiatives to meet global challenges.
  8. Connectivity: Governments do not have the connectivity to individuals in the same way that businesses do. Businesses connect to consumers, suppliers and other stakeholders, often on a daily basis. They can leverage this to influence the sustainability agenda.
  9. Governments too often want to push a particular political agenda, linked to a particular political perspective and that is not necessarily consistent with the interests of a wide range of stakeholders. Companies understand the importance of stakeholder engagement and the need to balance the interests of different stakeholders in a productive way.
  10. Businesses are simply quicker, more efficient, more innovative and more creative than governments. These are characteristics that are success factors for effective CSR.

So, is there anything that governments CAN do to help businesses with their CSR journeys? Yes, there is. There are five very useful things that governments can do to support businesses:

  1. Encourage business leaders to recognise that they have an important role to play in development and, in particular, in helping to achieve the Sustainable Development Goals.
  2. Use government power to convene and link businesses together so that they can better understand emerging CSR trends, learn from best practices and share experiences of successful (and unsuccessful) initiatives.
  3. Recognise that there is a clear link between CSR and company competitiveness and that improved company competitiveness will increase the competitiveness of host countries. In other words, encourage competitiveness by allowing companies to be innovative and create with their CSR initiatives and not doing it for them. This will be good for the country too.
  4. Where appropriate, co-create initiatives with the private sector and be a willing partner in CSR programmes. In most cases allow the private sector to create innovative solutions to global challenges, but provide necessary skills, expertise, support and influence as required.
  5. Allow companies to take the lead on CSR and be prepared to put trust in an emerging new generation of senior managers that are able to see the role that businesses can play in meeting social needs and a way that creates value for societies and for the business.

Richard Welford is chairman, CSR Asia. This article originally appeared on CSR Asia Weekly.

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