Making corporate social responsibility effective

Corporate social responsibility (CSR) has become a badge of respectability for major companies. But voluntary initiatives to promote socially responsible business practices can never replace protective legislation. Nevertheless, financial incentives would increase their effectiveness and improved inspectorates could encourage small and medium sized firms to improve their labour practices.

The trend towards corporate voluntarism in the global economy has generated a lot of criticism. Critics describe CSR as being purely for public relations purposes. They believe corporations are using it as a means of deterring governments from implementing effective regulations. Research from the University of Bath, in the UK, reviews various self-regulating initiatives, as well as the campaigns that oppose them, to assess their effect on labour practices and employment. The article casts doubt on the claims made by proponents of CSR and related corporate initiatives.

There have been many different types of voluntary initiative. Some involve single companies acting alone, while others have been public-private partnerships between corporations, governments and international agencies. Sometimes a group of companies will work together within a particular sector. The United Nations has pursued various plans to promote decent work practices along voluntary lines, the most significant initiative being the Global Contract. The European Commission and the World Bank have also become more active in promoting CSR.

The evidence suggests that, while voluntarism can never be a substitute for protective legislation, there are some areas where it is more effective than others. A voluntary approach:

• can set high aspirations, unlike laws and institutions, which try to ensure compliance with minimum standards
• makes it easier to obtain consensus on acceptable principles and practices
• is better at dissuading firms and public agencies from doing certain things than encouraging innovatively good practices
• encourages deceit because everything depends on moral persuasion and the appeal of belonging to a club of praiseworthy people
• allows ‘free rider’ firms to lower their costs by not adhering to a code of conduct and thereby outcompeting those that do
• does not currently give workers the opportunity for collective bargaining to put pressure on bad employers.

CSR is so entrenched as a slogan that its immediate future is assured. However, the power to do good should not be extended to the point where firms become the primary instrument of many aspects of social policy. In order to make CSR more effective, the following issues should be taken into account:

• Companies should not be expected to take over governments’ responsibility for social policy - the state should set the rules and regulate in the interests of all groups equitably and efficiently.
• Preventing and penalizing “free riders” will continue to be major challenges.
• Governments could encourage social responsibility by means of financial incentives.
• National award schemes could reward firms that demonstrate exemplary work practices and environmental practices, and could enhance a company’s prospects of winning government tenders.
• Labour inspectorates should be restructured and renamed. They could be financed by multinational corporations and could have responsibility not just for deterring wrongdoing but also for encouraging ‘best practices’.

Source(s):
‘Decent Workplaces, Self-Regulation and CSR: From Puff to Stuff?’, DESA Working Paper 62, DESA: New York, by Guy Standing, 2007 (PDF) Full document.

id21 Research Highlight: 08 June 2008

Further Information:
Guy Standing
Professor of Economic Security
University of Bath
Claverton Down
Bath, BA2 7AY
United Kingdom

Tel: +44 1225 383846
Fax: +44 1225 386381
Contact the contributor: G.Standing@bath.ac.uk

University of Bath, UK

Other related links:
'Corporate social responsibility is helping business, not society'

'Understanding cross-sector partnerships for development'

'Regulatory gaps undermine corporate governance in Brazil’s privatised steel industry'