Should CSR be mandatory?

Indonesia has passed a law that makes CSR a legal obligation for almost all companies outside the financial industry. This news follows on from an earlier news item that appeared on the CSR Asia website, reporting the opposition of Indonesian businessmen, including the Chambers of Commerce, on the Government move. These two items represent the classic dilemmas confronting CSR: is it or is it not, the business of government to deal in CSR? Can CSR be enforced or is it?

Indeed, one of the criticisms that the Global Compact has faced relates to its voluntary nature. The argument goes that such voluntary platforms lack teeth and hence are not sustainable. The counter argument is that businesses cannot be forced into doing things that it does not want to. Merit on both sides of the argument, but on balance, the voluntary Global Compact initiative has not done too badly in its brief existence.

While I believe that legislation is not the solution, because enforcement capacity especially in the developing countries is weak and also because the usually adversarial business-government relationship results in even well-intentioned government-led initiatives being condemned to death ab-initio, I do believe governments can play a role in ensuring that CSR is ingrained in business activity. This is best achieved by offering the right incentives--fiscal included--and designing policies that encourage businesses to mainstream CSR policies and practices into their core work; tying-in CSR-related capacity building support to businesses can expedite the process. Passing another set of legislation will likely add to the mountain of legal and quasi-legal commitments and conventions that already exist and which remain unimplemented. Rather than go for the typical, paternalistic option of slipping on the legal glove, governments can get in touch with their feminine side and approach the issue from a gentler, kinder perspective: in tandem with civil society organisations, advocate for more responsible business practices. Easier said than done, but the preferred solution. As I mentioned in an earlier post, the Pakistan Ministry of Commerce has started a project to support export-focused businesses in obtaining SA 8000 certification. This follows from one of my recommendations for promotion of CSR in Pakistan (see GC Strategic Framework) and provides an example of how a Government can aid the business community in moving forward on CSR.

Bottomline: CSR should be mandatory not because the government says so, but because businesses realise the value in pursuing it.