Goodly profits

How do the Nikes, Westpacs, McDonald’s and Fords of the global economy engage with the wider community, and is this good for business? That has been the focus of the corporate citizenship debate over the last few years. Corporate citizenship is about companies understanding and taking account of their influence on society and integrating social, ethical, environmental and economic values in their core decision-making. More recently, the focus has shifted to the relationship between public policy and corporate citizenship. In other words, is there a role for government?

There is a role for government to play, although—as much as it may disappoint some—that role is not necessarily a regulatory one. Corporate citizenship has traditionally been regarded as something that companies engage in voluntarily. However, the growth of the ‘corporate citizenship movement’ has led to increasing pressure on governments in several countries to regulate corporate social behaviour.

A leading proponent of a greater role for government in corporate citizenship in Australia is the Shadow Treasurer, Mark Latham. In his book From the Suburbs (Pluto, 2003) he argues that government should impose higher levels of corporate social responsibility as part of the ‘Third Way’ approach to embracing pro-market and social democratic values. Although short on details, Latham’s contribution is welcome because at least it recognises that corporate citizenship is an important area for public policy.

It’s not easy to find an appropriate role for government in corporate citizenship. This is partly because definitions of corporate citizenship are fuzzy, varied and constantly evolving. Nevertheless, just as companies need to understand the advantages to business before they embark on various citizenship activities, governments should understand the public policy case for corporate citizenship.

The first public policy argument for corporate citizenship relates to a key concern of governments—national competitiveness. There are many reasons why some nations are more economically successful than others. Recent evidence suggests that the widespread adoption of corporate citizenship practices can contribute to the competitive advantage of a nation. At the micro-level, studies show that corporate citizenship practices improve a firm’s financial performance through their influence on reputation, staff morale, motivation, recruitment, turnover, consumer confidence and risk management. The message is that companies can do well by doing good.

At the macro-level, there are Corporate Social Responsibility (CSR) clusters. Research is now focusing on the positive effects these can have on regional and national economies. Clusters are concentrations of interconnected organisations in one place that share a variety of resources and relationships. CSR clusters allow firms to address collectively the issues that relate to corporate citizenship, such as managing stakeholders, environmental impact and social investment in ways that increase expertise and decrease costs. A good example in Australia is Insurance Australia Group’s approach to sustainability. As a major national insurer, IAG influences the social and environmental practices of its extensive supply chain, such as car repairers and white goods retailers, which in turn influence the behaviour of its policyholders.

The second public policy argument for corporate citizenship has to do with the new trend in civil governance. The shifting balance of power between the state, market and civil society has led to different ways of providing societal direction. Traditional relationships based on hierarchies are being replaced by more complex and fluid patterns of interactions, alliances and partnerships. Partnerships are central to the reasons companies embark on corporate citizenship, the community issues they focus on, how they engage in community activities and how they measure their social performance. So corporate citizenship is central to models of governance where government is part of a ‘network’ rather than controlling through centralisation and hierarchy. Policy-makers who want to encourage this ‘governing without government’ should therefore be interested in corporate citizenship.

The third public policy argument for corporate citizenship is that it is popular with the electorate. While governments should not support only the policies that have widespread political appeal, good public policy needs broad appeal to be successful. Public opposition to socially irresponsible business practices has increased. It is a key factor in companies following the corporate citizenship route. Voters may also be employees, be consumers of products and services, have savings in managed funds, and donate time and money to community and environmental causes. Corporate citizenship practices touch each of these dimensions.

Employees are increasingly demanding that their workplaces be ethical, be safe, provide family-friendly hours and support their local communities. Consumer boycotts of products that are made by child labour or genetically modified are commonplace. Similarly, people are choosing to invest their money in socially responsible investment funds. Policies that promote corporate citizenship are popular with the electorate precisely because they touch multiple spheres of people’s lives. This is not about governments increasing their popularity by ‘business bashing’, but about recognising that people’s level of trust in big business is at an all-time low. Policies that encourage good corporate citizenship will help restore public confidence in key institutions of society.

The final public policy case for corporate citizenship is that the scale of the social and environmental challenges facing society is too vast to be effectively dealt with by governments alone.

Corporate citizenship is a way for governments to increase economic competitiveness while also ensuring good social and environmental results. By embedding things like corporate philanthropy, social venture capital, social entrepreneurship (such as the work of Richard Pratt and Ian Kiernan around the environment), community investment and employee volunteering within a social policy framework, corporate citizenship can be more effective in addressing poverty, inequality and environmental degradation.

So what are the options for public policies in corporate citizenship? One is the traditional approach of legislation and regulation. This path is already being followed by several governments around the world and is the preferred approach of NGOs. Much of the proposed and existing legislation in this area relates to mandatory social and environmental reporting for publicly listed companies. In France and South Africa, for instance, listed companies are now required to report extensively on their environmental and social impact and other countries are following suit.

In Australia, a recent example is the unsuccessful attempt by the Australian Democrats to introduce a Corporate Code of Conduct Bill that aimed to regulate the activities of Australian companies operating offshore with respect to human rights, environment and labour standards. Although the Bill was defeated in 2001, a revised version will be introduced in the Senate this year. Another recent Australian example is The Financial Services Reform Act 2001. The Act imposes obligations on superannuation, life insurance and fund management companies to disclose the extent to which they take account of environmental, social, labour and ethical standards in their investment decisions. Such regulations are in addition to the myriad of voluntary codes and standards of corporate citizenship behaviour. According to some, the codes are ineffective precisely because they are voluntary. The idea of enshrining aspects of these codes in legislation has received support even from sections of business—they see it as a way to create a level ‘corporate citizenship playing field’ for all. It would also simplify the confusing array of voluntary codes.

The alternative to legislation is non-regulatory activism. This approach takes the view that while corporate citizenship should remain a primarily voluntary activity, government has an important role in providing for its support and development. The best example is that of the British government, which has a range of policies and systems in place to encourage responsible business practice. There is a Minister for Corporate Social Responsibility, whose role is to promote corporate citizenship as well as co-ordinate policy across the whole of government. The government also helps to develop the skills and knowledge needed by CSR professionals. It funds research and creates incentives for the development of CSR clusters, as well as formulating ‘soft’ or ‘enabling’ legislation.

The British Government’s strong non-regulatory support for corporate citizenship has meant that proposals for ‘harder’ regulation have been unnecessary. Legislation can lead to a culture of compliance where business may avoid genuinely engaging with its community. In Australia government support for corporate citizenship has been ad hoc and minimal, primarily limited to the operations of the Prime Minister’s Community Business Partnership.

A third option is for governments to act as models of best practice in corporate citizenship. This might include government agencies adopting Triple Bottom Line reporting, using government procurement and tender policies so that companies that wish to do business with government will need to have a demonstrable corporate citizenship strategy.

The Australian government needs to understand the public policy case for corporate citizenship better and to avoid the ‘legislation versus voluntarism’ rut. Lack of policy activity will only increase pressure for legislation from the electorate, inadvertently hindering the long-term development of genuine corporate citizenship. While there is a role for enabling legislation, governments can do much more through supportive and co-ordinated policies and leading by example.       

Dr Gianni Zappalà is the Director of Orfeus Research, a consultancy providing research, evaluation and training services to socially responsible organisations, www.orfeusresearch.com.au.

 

 

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