The extent to which Governments should influence Corporate Social Responsibility

Corporate Social Responsibility (CSR) has been accepted by many companies, mainly in order to improve their brand image and so further generate profits, and so not for the purpose of the community or the environment. However other businesses refuse to undertake CSR as they believe it will increase the costs for the business. Therefore as the Governments are voted into office by the majority of the population then they are expected to be concerned about the impact of business decisions.

It is the Governments aim to try and defend the rights of the employees, consumers and the local community against the actions of the larger and more powerful businesses. The larger companies will generally only accept CSR methods if they are low cost and are more beneficial to the company, therefore they will ignore different types of stakeholders such as the employees, consumers and the local community as they don’t have the power over the firms. As Governments are voted into office every four years they will need to have responsibility for the current generation and for the future generation. Therefore they shouldn’t just make decisions that will benefit the country in the short-term but have a major impact in the log-term (short-ism). Also the competitiveness of the UK businesses shouldn’t be undermined, by encouraging people buy from abroad and not the UK due to the increased costs form CSR.

How can and do Governments Influence CSR?

One way in which the government can influence whether firms adopt CSR is by imposing legislation. Legislation that has been imposed for example is employment rights, health and safety, discrimination, consumer rights and for pollution. The main laws for pollution are The 1990 Environmental Protection Act and the 1995 Environment Act which encourages firms to have the responsibility to clean up their own land and make sure it isn’t contaminated. If the legislation is broken then firms will incur major fines. Since the Gulf of Mexico disaster, BP have and are continuing to spend millions to ensure they meet the introduction of stricter regulations the government are planning to put in place. Even though firms recieve fines these still may not have an effect on the social responsiblity of the business, as this will depend on whether the level of fines outweigh the consequences of not being socially responsible.

Regulations can also be imposed to force firms to implement CSR, for example the reporting requirements and product safety. An example of when products didn’t meet the product safety requirements would be when the cars made by Toyota were recalled due to faults in the accelerator pedals.As implementing CSR methods can be extremely expensive the Government should also provide businesses with subsidies, grants and tax concessions so that they can research and develop methods of using renewable energy, and so encouraging firms to adopt CSR methods. However the amount of power that the governement can impose will rely on the whether the population that voted them into power will keep supporting them in their decisions.

The case for Government action

The reason for some businesses not being socially responsible is usually because they have a Profit Motive. If there wasn’t any government intervention then a firm’s main aim would be profit maximisation, causing a loss to the rest of society. Therefore the Government action is required to force firms to accept CSR. However as it is now a requirement to have a minimum level of CSR corporated into the business plan, this could help to boost the firms brand image. Therefore this will be benefiting the firm and also the community, consumers and other stakeholders. When BP had an oil spill in the Gulf of Mexico in 2010 11 people were killed and 4.9 million barrels of oil was discharged, having a major impact on the environment as miles of coastline was damaged and threatened marine life. Due to the oil spill BP were fined $34 billion in order to try and prevent such damage happening again. As BP had such an effect on the environment this meant that their profit margins dropped significantly. Therefore as the shareholders main priority is profit and so as the margins were reduced people began to sell shares and some even withdrew investments as they didn't want toplay a part in such a harmful business. This meant that BPs price per share was dramatically reduced and so could have a negative impact on the firms brand image.

As CSR is forced upon companies by legislation etc. then it can be argued that even though they have to undertake CSR, their main motive is profit. It may be seen by some that for a firm to be socially responsible they need to go beyond the minimum requirement set by legislation as by following the legislation the firm isn't taking any voluntary action to be socially responsible.

There are also particularly strong arguement for governement action in relation to pollution. Pollution is becoming a rising issue due to the increased scale of production in order for businesses that are trying to meet the higher demands of the public. Pollution from these companies has a negative impact of the environment, including the local community and the other businesses in that community. Many profit seeking businesses may have methods of production that are high polluting but are cheap rather than having ones that have low levels of pollution but are more expensive. The shareholders of the profit seeking business would be more concerned about the profits of the firms rather than the impacts it has on that community. The pollution from these companies will not only inflict a cost on the present generation, it will also on future generations and so the governement need to be concerned about the future generations. Therefore for these reasons governement intervention is essential to try and prevent the amount of pollution that firms cause. The amount of pressure the governement puts on businesses will depend on the political party that is in power and their attitude to CSR and the impacts on the environment.

There has been laws and regulation introduced in order to try and reduce the amount of pollution providing minimum requirements that they need to take responsibility to meet. However the legislation are only forcing the companies to take their responsibility of meeting the minimum standards and so there will still be pollution occuring. If there is only action being taken by UK governements then this will not be suffiecient as we will be effected by pollution from Europe and visa versa. Therefore there isn't much help to the environment if only the UK are enforcing these regulations.

The case against government action

The main reason against governement action is that it damages the free market economy. A free market economy operates by voluntary exchange in a free market and is not planned or controlled by a central authority. In the free market economy the governement plays a neutral role. There are many advantages of a free market economy; the profit motive in a free market ensures that businesses supply the goods and services that people need. Another advantage is that the competition among business benefits customers who want to buy what they need at the lowest price and with the highest quality as possible. Another advantage is that a free market rsults in high levels of economic growth, which then therefore raises living standards. There are some market failures

Conclusion

In conclusion I believe that the governement should intervene as they should do right by the whole population and so should enforce requirements to tackle the issues that are caused by businesses such as pollution that harms the community and also future generations. Governments want firms to accept CSR and as firms aren't willing to do this then it needs to be achieved by legislation, incentives and threaths. However successful businesses create jobs , provide people with goods and services, provide the country with export earnings and genertae tax revenue. The taxes of businesses contribute to public services such as education and health care and without the taxes from businesses then they wouldn't be as good a service. There is a limit to the amount of control that can be inforced by the government as there is the possibility that UK businesses could be forced to migrate abroad. In my opinion there does need to be government intervention however there needs to be a balance between a free market and state control. There should be a minimum amount of CSR that businesses should meet and if they aren't then penalties should be enforced. However the amount of CSR that should be enforced will depend on the governement party that is in power at the time as all will have different views about how socially responsible a firm should be.