Article posted to Journal of the British Academy, volume 6, supplementary issue 1 (Reforming Business for the 21st Century).
Can corporations contribute directly to society or only through regulated behaviour?
Buckley P. J.
Can corporations contribute directly to society of their own volition or do they need to be constrained by regulation into contributing beyond their own corporate goals, such as profit, growth or market share? What might be the best mechanism for ‘autonomous’ or non-regulated contribution?
The author suggests two potential mechanisms: the creation of incentives for key executives to contribute to societal values, represented by, for example, the United Nations Sustainable Development Goals (SDGs), and the creation of a company culture where societal values are built into corporate decision making.
The research process revealed that corporations – defined as the legal entity -- are not only constrained by regulations and their own business models, but also by a changing web of signals and rules that emanate not just from government but from many aspects of civil society. The mechanisms by which corporations can and do contribute to society are rich and varied, but a small-scale survey for the research supported the case for social goals to be included more generally in corporations’ objectives.
The paper examines the way corporations contribute to society through three juxtapositions: Regulation versus autonomous social action, Compliance versus Initiative, and Regulatory authority versus good governance. It considers Lundan’s (2018) three varieties or pro-social behaviour from the ‘minimalist’ – the idea that ‘the business of business is business’, and ‘doing good by being good’, to the acceptance of ‘burdensome responsibility’, where the corporation commits to positive social change, even at a cost to its corporate profits.
The evolving concept of corporate social responsibility (CSR), lies in between, implemented either as an add-on, or as a shared value which the corporation may promote through its social goals. CSR may not impose costs on the business, but it may also fail to address major challenges effectively. The outliers to this spectrum are social enterprises and principled organisations.
The author sets out and compares three policy models by which corporations do or may contribute to society. The Received Policy is based on a top-down system of Compliance. An international body sets the moral basis for policy which is then implemented by national governments through treaties and agreements. Corporations then adjust their decisions to adhere.
In contrast, a direct policy model, implemented through proactive strategies, would start from the same international guidelines but the objectives would be embedded in the strategic decisions of corporations, either through executives incentives or corporate culture. The model for social enterprises is different, starting with their Mission, which underpins strategic and sustainable economic or social goals. The outcome is a trade-off between sustaining business and achieving the goals.
Modern corporate governance means balancing authority and responsibility, through the ownership, organisational and capital structure of the corporation, and then through Boards and directors. Debt or equity financing, the influence of large shareholders, Standards, Codes of Conduct, other internal and external stakeholders and the overall reputation of the firm all shape if and how a corporation contributes directly to society. But these factors may still not be enough.
The paper argues that government regulation for pro-social activity among corporations solves the governance problem, in that firms need no further justification for diverting resources, and also the problem of competitive dynamics, since each firm knows all others will have to bear the costs of compliance. Pro-active and forward-looking firms might enjoy a lower cost than lagging firms, but regulation helps level the playing field. To be administered effectively, regulation needs accurate, timely information, and the paper argues that firms can and should contribute to the common good by contributing that information.
Examining the case for and against corporations seeking social goals highlights market failures, distortions and inequalities. The lack of government regulation and legal standards means that purchasing powers, the outcome of income inequalities, may determine what constitutes Corporate Social Responsibility, and how it is supported. The author suggests that Regulation is an essential element to ensure the welfare of those who are disenfranchised.
For further information please contact the Project Manager on FOTC@thebritishacademy.ac.uk.
Sign up to the Future of the Corporation mailing list.
The first phase of research in the Future of the Corporation programme is considering thirteen themes which will shape the future of business. This phase is gathering existing evidence, developing fresh thinking and identifying gaps in research.
Our work spans issues across public policy, skills, education and research. From reports to small meetings, the British Academy provides a forum for examining issues at the heart of society and the economy.