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The Role of Federal Regulation in Business Social Responsibility by Anadila Muhbub

Posted by: | April 22, 2011 Comments Off on The Role of Federal Regulation in Business Social Responsibility by Anadila Muhbub |

As new social benefit concepts emerge and gain popularity in the private sector, they result in new programs and entities.  Often these programs and entities cause confusion, and as more of them are unveiled, the confusion only increases.  Much of the confusion comes from lack of knowledge about what these things are, why society needs them, etc.  Some of the confusion comes from distrust and skepticism as to the motivations of the private sector to provide social benefits.  In order to dispel some of the confusion, at some point, someone will have to define, or at least clarify what these programs and entities are. In order to provide some basis for trust, at some point accountability will have to be provided for.

Business Social Responsibility

            Business, or corporate, responsibility is the umbrella under which many of the social benefit concepts and programs in the private sector fall.  Business social responsibility is the general idea that businesses can and should behave ethically and contribute to economic development while working to improve the quality of life of the workforce, their families, the local community, and society at large.[i] 

An idea so broad that it includes ethical behavior, economic development, and quality of life, and seeks to affect individuals as well as society at large can fit just about any program under it, and easily lead to a great deal of confusion.  Community-based development, philanthropy, and sustainable sourcing are just some of the typical programs included in business social responsibility.  In some businesses these programs are part of the marketing, communication, sourcing, or internal operations department, while in others they constitute a department of their own.  This lack of uniformity in structure and characteristics leads to even greater confusion.  Clearly, business social responsibility as it currently stands is vague, confusing, and misleading, and needs to be defined further by a party other than the business community itself.[ii]

Current Solutions

            Currently there are at least three types of answers to this need for further definition and uniformity in business social responsibility.  The first is certification of businesses and/or their programs as socially responsible.  The second is the setting of standards for social responsibility programs and businesses.  The third is a legislative approach that creates the potential for the development and enforcement of social responsibility standards by the judiciary.

The certification of businesses and/or their programs as socially responsible is provided by independent, not-for-profit entities.  One such entity is B Lab, which certifies businesses as “Benefit Corporations,” or “B Corps.”  B Lab itself sets the criteria used for certification.  The main problem with this solution for further definition and uniformity in business social responsibility is that no one is overseeing the entities that provide the certifications.  Although B Lab is quite transparent and the criteria and questions used for certification are easily accessible, there is no authority overseeing their actions or enforcing minimum criteria for certification.  Additionally, other than the threat of losing a certification that most consumers are unfamiliar with, certifiers such as B Lab have no authority to enforce the criteria.  Furthermore, and perhaps most importantly, even without such certification, a business or program can still hold itself out to the public as socially responsible.

The second solution identified above is standards set by not-for-profit organizations for socially responsible programs and businesses.  These standards are not certifications.  Like the ISO 26000, provided by the International Organization for Standardization (“IOS”), these standards are mere recommendations for conducting a socially responsible program or business.  The problem with this solution is that the IOS has no authority to enforce these standards.  In fact, no one has the authority to enforce these standards because they are not laws or even rules.  They are only suggestions.  Just as businesses and programs can still hold themselves out to the public as socially responsible even without a certification, they can do so without meeting the minimum of these standards.

The third current solution for further definition and uniformity in business social responsibility is the introduction of benefit corporation statutes in Maryland and Vermont.  These statutes embed social responsibility into the articles of incorporation for businesses that choose to incorporate under these statutes.  Thus far this is the only solution that provides for some form of enforcement authority.  However, this solution applies only to businesses that choose to incorporate.  It does not apply to programs in C or S corporations, or to businesses that operate as sole proprietorships, partnerships, or one of the other available forms a business can take.

Clearly, although we do currently have some solutions to the need to further develop business social responsibility as a clear, dependable concept, all of them are highly inadequate in that they either do not provide for enforcement of any kind, or only provide for enforcement in a very narrow context.  Additionally, none of these solutions provide for complete uniformity in the minimum standards that constitute business social responsibility.

A Possible Solution

            One possible approach to dealing with the need for enforcement and uniformity could be to get the government involved – state or federal.  As businesses are traditionally regulated for the most part by state governments, it is likely to be the proper governmental body to provide this solution.  The state government, through an act of its legislative body, can create a scheme to regulate businesses and programs that want to represent themselves as socially responsible.  Much like the federal government does with the National Organic Program and the “certified organic” label,[iii] state governments can provide the minimum rules and standards for entities such as B Lab to certify businesses and programs as socially responsible.

            This suggested approach to a solution would accomplish what the concept of business social responsibility needs the most at this time – clarification and dependability.  It would provide minimum standards and rules for businesses and programs to follow as they represent themselves to the public as socially responsible.  The public will have one set of standards and rules to help them understand the concept of business social responsibility.  Additionally, the public is much more likely to trust rules set by the government than it is to trust rules set by the very businesses that stand to gain financially from social responsibility programs.  Furthermore, an approach that includes legislation can provide for the type of enforcement authority that the public needs and that all of the current solutions are lacking.  The public is much more likely to trust a new concept if they know they have the potential to punish wrongdoers.


            Our world has a lot of problems, and so far not-for-profit organizations and governmental entities have been unable to provide much of the needed solutions.  Businesses are powerful entities – sometimes more powerful than governments – with immense resources at their disposal.  These resources could be highly effective in providing solutions for a lot of society’s problems.  For this reason, it is extremely important to promote and encourage business social responsibility.  However, people in general are still very skeptical about the concept.  Having the government take an active role in its growth would legitimize business social responsibility as a real concept.  As a side effect, it would promote the concept by causing businesses to learn about existing social responsibility programs and inspiring them to model their businesses and programs accordingly.

[i] Richard Holme and Phil Watts, Corporate Social Responsibility: Making Good Business Sense 8 (2000) available at http://www.wbcsd.org/web/publications/csr2000.pdf (last visited April 20, 2011).

[ii] The explanation of business social responsibility mentioned above appears in a publication of the World Business Council for Sustainable Development, which is an association of approximately 200 companies that exists to provide a platform for businesses to explore sustainable development and to advocate on behalf of businesses in governmental, non-governmental, and intergovernmental forums.  World Business Council for Sustainable Development, About the WBCSD available at http://www.wbcsd.org/templates/TemplateWBCSD5/layout.asp?type=p&MenuId=NjA&doOpen=1&ClickMenu=LeftMenu (last visited April 20, 2011).

[iii] Although the National Organics Program of the United States Department of Agriculture is the ultimate provider of the “certified organic” label, the effect of the present regulatory scheme is that the federal government directly regulates a smaller group of public and private entities by providing minimum rules and standards for them to certify products as organic – the certifiers – instead of attempting to directly regulate the producers and the products, which is a much larger group.  United States Department of Agriculture, Agricultural Marketing Service, National Organic Program, available at http://www.ams.usda.gov/AMSv1.0/nop (last visited February 11, 2011).

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