Should The Government Mandate CSR Engagement?

Opinions on Debatable Issues #33

Corporate Social Responsibility is a type of private business self-regulation that requires the firms to not only maximize shareholders’ profits but also protect the interests of all stakeholders, such as employees, customers, suppliers, and the communities in which businesses operate. Going beyond the requirements of law and profiting, CSR usually manifests itself in terms of environment protection, social welfare contribution, and good corporate citizenship. In the past couple of decades, the research found numerous benefits of CSR on private businesses. Today, more than 90% of the 250 largest global companies all have CSR practices.

Payin30 - Addressing Corporate Sustainability in The Corporate Sector - — Relocation Africa

Despite those benefits, many medium and small companies do not engage in CSR. With Capitalistic principles, they voluntarily choose how to deal with their profits. But the benefits of CSR on both the society and the firms are incentivizing, so many are asking whether the government should impose a mandate to compel all companies to try CSR out.

Supporters argue that the government has the responsibility to improve public wellbeing. Since they have historically been taking on the role of regulating businesses and manage national issues since the progressive era, they should continue to make necessary policies that address national crises like homelessness, climate change. Also, the government can monitor structured CSR engagement and apply for the money efficiently. With a large workforce in the bureaucracy to implement the policies catered to each state and with the most sufficient information, the government can identify problems and design solutions better than a private company.

Opponents of a mandate argue that the government is overstepping because Constitution did not grant power to intervene profits of private businesses. In particular, the Commerce Clause does NOT apply because using the money for CSR does not affect interstate commerce. They also argue that the mandate undermines the economy according to Supply-side Economics, which says the economy prospers with lower taxes and fewer regulations. Since the mandate works oppositely, it is harmful.

I think that, although companies might resist governmental intervention, the federal government should make CSR compulsory through a mandate on net profit because it initiates a momentum of nationwide CSR engagement and allows the money to be used more wisely and effectively.

Firstly, Mandating CSR practices create a self-sustainable momentum that galvanizes greater future CSR engagement as businesses experience the benefits of it on the institution and the employees. It was found 55% of consumers are willing to pay more for products from socially responsible companies. (Weston) Also, people recruited for a job advertised as CSR-driven are more effective at work by working longer hours and more productively. And 51/59 companies interviewed that engaged in CSR activities saw improved employers’ morale, better ties with the community, and deepen customer loyalty (Devin). Those show that CSR practices were proven empirically to make products more attractive than similar products from a company that solely focuses on profitmaking. This works by appealing to consumers’ civic responsibility and improving the brand image of the company to be more likable. Though not every individual has the determination to solve a social problem, they would love to contribute to one of those social causes by purchasing products from the company that practices CSR because they want to be responsible and a good citizen that makes the community a better place. Meanwhile, some of the consumers might be or know recipients of the CSR practices and would perceive the company as credible, moral, and compassionate such that they prefer the company’s products over others. Thus, the sales of products associated with CSR naturally increase. Accompanied by strengthened employee and customer loyalty, the benefits of CSR are very incentivizing. As a result, companies would voluntarily engage in CSR once they got the taste of those effects, initiating a virtuous cycle. The governmental mandate is the crucial starting point of this cycle.

How small and medium businesses increase sales with crm — ConvergeHub

Secondly, a government CSR mandate can ensure enough money is raised to be collectively and efficiently used on ameliorating the most urgent needs. An example that demonstrate this is the India’s Companies Bill drafted in 2009 that requires 2% net profit to be paid for CSR from a list of companies could “yield slightly less than $2 billion a year”, which would be able to help alleviate poverty, lower homelessness rate, and improve infrastructures. There is no doubt that a govenment mandate gather large amount of money promptly. Meanwhile, Netherlands. Denmark, and Indonesia all have embraced a government mandate and seen a great payback (Bureau). It is fair to say that not all companies are willing to consistently engage in CSR practices. Larger companies might have the capability to contribute more, but they are also more likely to be constrained by shareholders and various interest groups. As a result, many of their CSR is influenced by vested interests. They might do certain philanthropic activities that benefit their partner company but not necessarily help the neediest. Since corporations put profits in the first place, they would hardly reject an opportunity that both perfect their brand image and gain a business alliance. The government, on the other hand, is less influenced by this because it does not prosper through befriending businesses (though a friendly corporation-government relationship is desirable). Thus, when the government has the say over how the money devoted to CSR is used, it will prioritize the humanitarian aspect over profits to help those that are most vulnerable.

Humanitarian Assistance | Humanitarian Assistance | BHA | U.S. Agency for International Development — USAID

Some may argue that a mandate of CSR contribution will likely undermine smaller companies that are struggling to break even or at least not profiting enough to care about creating a more desirable brand image. A federal law that constrains all companies would thus stifle the growth of startups and smaller businesses. I concede that a CSR practices do not suit all companies. While larger companies that have sufficient money to be spent on increasing customer loyalty and idealizing reputations happily engage in CSR, others can see CSR mandate as a burden that is more harmful than beneficial. This is demonstrated by the fact that about 90% of the Fortune 500 corporations exercise social responsibility and fewer medium and small companies do the same.

However, this problem can be solved with a progressive CSR mandate. Unlike the India statute that imposes a 2% revenue CSR contribution from a list of companies, the US government can set different percentages of CSR requirements for companies based on size, profit, and environmental impact just as the progressive taxation system on income. According to Investopedia, which is a leading source that provides investment dictionaries, advice, reviews, ratings based on scholarly works. “Progressive tax system reduces the tax burden on the people who can least afford to pay” (Kagan). Similarly, smaller companies that struggle with sustaining themselves will pay little to none for CSR to avoid creating big burdens for them. Meanwhile, larger companies will account for the bulk of CSR funds in accordance with their larger share of responsibility. Though resistance from companies is expected, a progressive mandate will be more acceptable for many because the current trend of large corporations practicing CSR shows their willingness to be part of this effort. Since smaller businesses will not be burdened as much, resistence from them are expected to be manageable.

All in all, the long-term benefit of CSR outweighs the little difficulty of implementing the mandate in the US. Thus, the US government should consider imposing a progressive CSR mandate on the net profit of all private businesses.