Corporate Social Responsibility- The Liberal Democrat Approach

Written by Malcolm Bruce MP on Thu 3rd Feb 2005

The economist Milton Friedman declared that the 'one and only social responsibility of business is to make profits'. Does this assertion still stand today?

This month 1,300 listed companies will be required to file, alongside their annual reports, an Operating and Financial Review setting out environmental and social factors which impact performance.

The Liberal Democrats welcome the OFR as a long overdue reform of company law, (despite the Government caving once more to industry lobbying and watering down its original proposals).

It is right that companies should report their impact on the community and the environment. The companies which will be required to file accurate reports include those operating in very controversial areas; oil and gas; mining; tobacco; and those which manufacture goods in developing countries, like clothes retailers. How do we ensure that corporate reporting does not degenerate into a mere exercise in PR however?

I don't believe the answer lies in prescriptive regulation. A long list of precise legal limits and boxes to tick could give rise to companies merely working to such requirements rather than engineering a cultural shift within the organisation. That is, compliance with the letter of the law rather than the spirit of it.

Business are therefore unlikely to respond satisfactorily to the compliance-led, 'stick' approach. They will however respond to the carrot of consumer approval and brand loyalty.

It's clear that the consumer demand is there. The emerging phenomenon of 'ethical consumerism' rose to £25bn in the UK alone in 2003 according to the Co-operative Bank's ethical purchasing index. Consumers are realising that they can reward or punish companies where it matters most - at the till.

The most valuable weapon in the campaign to make corporations behave responsibly therefore is information. If the Government is serious about promoting ethics in business they should do it through promoting transparency, encouraging a cultural shift towards responsible behaviour within corporations and ensuring the public can easily access information about how our top companies act.

The majority of our leading companies, used to NGO scrutiny, already produce detailed corporate reports. The OFR should in fact then be considered an opportunity for large businesses - it will provide the platform to publicise their philanthropy. If a competitive element comes into this reporting, so much the better for the community.

Some of our highest profile corporations have stooped to exploitation, corruption and environmental degradation in the pursuit of profit, generally in the developing world.

Yet in the new global economy there are few effective bodies which have the power to regulate transnational corporate activity. As a first step towards rectifying this, the Liberal Democrats want the OECD Guidelines for Multinational Enterprises strengthened and made internationally binding for all companies.

The UK has the power to take the lead in establishing best practice corporate responsibility worldwide. The Liberal Democrats believe British companies should have a duty of care in their social and environmental impacts wherever they fall. This is why we are pressing for legislation which makes it clear that parent companies can be sued in British courts for the behaviour of their overseas operations and subsidiaries.

I disagree with Sir Digby Jones of the CBI when he argues business has become the 'whipping boy' in the development debate. I am not proposing responsibility for development is transferred from elected bodies to corporations, but I do not feel that merely 'doing no harm' is an adequate goal for business.

Business can make a contribution beyond job creation. In the wake of such scandals as Enron and Parmalat, there is a great deal that needs to be done to restore the public's confidence in the integrity of some of our most powerful and profitable companies.

An emerging trend is for companies to work together and alongside governments on development aims which are too big for one group to achieve alone. Having campaigned for tighter controls on international bribery I particularly welcome the Partnering Against Corruption Initiative agreed in Davos in January. So far, 63 corporations have signed up to the zero toleration pact to tackle corruption. I look forward to further such initiatives.

Genuine, independently audited company reporting will go some way towards restoring public trust in our largest companies. Involvement in raising international labour standards, in projects designed to alleviate poverty and fair trading practices will restore that trust in the long term.

A true cultural shift towards improved corporate behaviour is a win-win game. Alongside the benefits of long-term consumer loyalty and invigorated profits, genuine corporate responsibility could improve the quality of millions around the globe.