Nice Work? Only Governments Can Force Firms to Be Socially Responsible, but Do We Need More Regulation? Charles Tilley Argues That Virtue Brings Financial Rewards

By Tilley, Charles | Financial Management (UK), October 2010 | Go to article overview
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Nice Work? Only Governments Can Force Firms to Be Socially Responsible, but Do We Need More Regulation? Charles Tilley Argues That Virtue Brings Financial Rewards


Tilley, Charles, Financial Management (UK)


The great management guru Peter Drucker used to declare that the purpose of a company is to serve society. It does not exist for its own sake, but is a means to an end. Not everyone agrees. Take, for instance, an article that appeared in the Wall Street Journal on August 23 by Aneel Karnani, an associate professor of strategy at a leading US business school. He argues that the notion of corporate social responsibility (CSR) is a potentially dangerous illusion and that exhorting companies to embrace it is unlikely to have much effect. The way forward is government regulation, which is binding and does not rely on voluntary good intentions.

To some extent I can see the force of this argument. Only governments have the power to change the fundamental rules of the game within which businesses have to operate. So it is no surprise that a key priority of the Prince of Wales' Accounting for Sustainability (A4S) project is to consider how to galvanise the G20 governments into taking swift action to address the challenges of sustainability facing businesses across the world. As a member of A4S, the institute will be playing an active role in this.

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Equally, however, we need to ask whether we really want to remove one pressure on business--to behave ethically--only to replace it with another in the form of hefty state regulation. If the recent financial crisis has taught us one important lesson, it is that laws and regulations have limitations and that corporate failures in behaviour and ethics have destroyed swathes of shareholder value.

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