Governance is not Government.

I picked up a copy of Robert Reich’s new book, Supercapitalism, last week in the US. In it he argues for the banishment of CSR in favour of better regulation. He claims that the push for better corporate governance makes corporations less likely to be socially responsible. This morning I read Dennis Howlett’s post: ‘Does Governance mean a thing?

Are we at a point where the unfettered excesses of some corporate executives has created enough public disgust that will turn into punitive legislation? I doubt it.

I think both Reich’s book and Dennis’ post share a whiff of mischief.  

Reich has always argued in the past that CSR is about the externalities. Specifically he has argued CSR is about proactively identifying the externalities that pose the greatest risk to intrude into the enterprise and become much more serious internalities if left to hang. Similarly, George Soros, arguably the world’s highest value philanthropist, in his book Open Society argues that businesses should adopt CSR to the extent that doing so reduces risk and therefore improves shareholder value. But in objecting to the enterprise culture of Asda, Sainsburys, Morrisons, Tesco and Safeways Dennis seems to be confusing the role of corporate governance and the role of government.

In Supercapitalism Reich says that improved corporate governance makes businesses less socially responsible as it underlines the supremacy of shareholders over other societal stakeholders. Implicit here is that what is good for society is bad for shareholders and that CSR only constitutes philanthropy – both of which is tosh.

Our society and the dynamics of CSR can be explained within a triangulate between business, civil society and government and the battleground is over the coverage of externalities. If you don’t like the enterprise culture of Tesco then it really is an issue for the government to decide whether choice, quality, convenience and low prices are to offset the social and environmental issues associated with long supply chains and the overshadowing of local businesses. But the ambivalence about this is clear …. no one seems to be holding up their hand to vote to banish these businesses. And even if the government is actually unwilling to act, civil society is drawing strength to fill the vacuum – some are willing to operationalise solutions with business such as WWF, others hold firm on ideology. It’s a dynamic social situation and I don’t think anyone is quite clear how long or if the centre will hold. It is a topsy turvy world and strange bedfellows are emerging: in today’s FT you can read how Wal Mart is now mandating that all their suppliers report their carbon footprint. As I wrote, last week on Wal Mart, love them or hate them they are becoming a potent force for setting de facto social and environmental standards in concert with civil society even whilst government regulators snooze. What’s more they are clearly doing this in the interests of shareholder value.

I still argue that CSR & GRC is in the definite interests of shareholder value if applied intelligently towards external issues that pose risk to the sustainability of the enterprise but it does not replace the role of government. Corporate governance is not corporate government.


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