As the most powerful policy maker in Europe, the European
Commission has a unique chance to influence the future direction of
corporate social responsibility. But what should it do? As our Analysis
shows, the various parties in the debate have widely differing views
and it is clear that this dialogue is unlikely to end in consensus.
The EC definitely needs to do something. The voluntary approach is not
working. There are still far too many companies that make little or no
attempt to measure or improve their social and environmental
performance.
But the solution is not to force them to
behave in a more socially responsible manner by introducing regulations
directly requiring, for example, mandatory social and environmental
reporting. Much better to look to the power of the market, and to the
psychological motivation of companies, which are highly sensitive to
reputational challenges.
The EC should pursue a policy
based on the principle of embarrassment. The UK’s experience shows that
this approach works, and points the way to how it might be put into
practice. The UK pension disclosure regulation, widely regarded as the
single most effective regulation introduced in this area, has worked
precisely because it has embarrassed pension funds into taking action,
and they are now beginning to apply pressure on the companies in which
they invest.
A policy based on embarrassment sounds
weak. Yet 24 of the 30 companies publicly named and shamed by Michael
Meacher in early 2001 undertook to produce some sort of environmental
information by the end of last year. Another advantage is that it
targets the laggards rather than forward-thinking companies.
Heavy-handed compulsion will not work in this area. If companies prove
immune to embarrassment, the EC can always introduce suitably focused
legislation later, as the UK government has said it will do on
directors’ pay. As for pressure groups, they should remember that the
threat of regulation is often more effective than its implementation.
see also lead story
see also analysis
