The Role of the Public Sector in Corporate Social Responsibility
Corporate social responsibility is more than just philanthropic activities; rather, it changes the way a business operates in such a way as to maximize the company’s ability to both benefit society and allow the company to remain focused on sustaining and growing the business and its value. In the public sector however, CSR appears in two forms: both the public sector entity engaging in socially responsible behavior itself and setting policies and enforcement mechanisms to assist private sector businesses to do the same.
When presented with the term corporate social responsibility (CSR), most people presume that the term refers to the activities of a private sector company that relate to its social and environmental impact Jarret (2015). That could be the result of the fact that there is very little governmental regulation in the United States on the subject of CSR Cedillo, Torres (2012). Instead, it is based largely on a principles-based approach to ethics, along with corporate codes of conduct that set forth the requisite values and principles, which both the members of the company and the company itself aspire to follow. The business sector has become more focused on CSR because, in today’s economy, most consumers and social advocates support the concept that businesses should not only be profitable but that they should also be mindful of the social implications of their activities Langlois (1990).
Basically, CSR can be summarized as falling into three categories: people, planet, and profits. That means that a business, from a CSR perspective, can be judged on how it treats its employees, how it impacts the environment, and how successful it is for its investors. In the past several decades, there has been an increase in the expectation that companies will implement CSR practices that encourage business activities that minimize the negative environmental and/or social impact while simultaneously maximizing economic gains. As a result, corporate America has implemented CSR policies that affect virtually every facet of their operation, such as governance and ethics, employment practices, professional development of employees, ethical and responsible activities in the chain of production, and the organization’s overall environmental and social impact Jarret (2015).
At its heart, corporate social responsibility is about accountability. How the relevant parties are held accountable, however, can differ when the entity at issue is not a private business but rather it is part of the public sector. That is because in “the private sector the board of directors represents the instrument through which managements of companies are accountable to the stakeholders of those companies” (Barac 2016). Conversely, in the public administration scenario, where public officials employed by various levels of government both implement and execute the CSR policies, accountability rests at various governmental levels. Since public money and the public trust are at stake, both state and federal legislatures typically establish more stringent accountability mechanisms.
Public Sector Entities and CSR
Openness: This principal will help ensure that the public has confidence in the decision-making processes and in the management of both the individuals and the activities they engage in.
Integrity: Supporting honesty and objectivity, particularly with respect to the management of public funds and other resources. In addition, ensuring the effectiveness of the CSR controls and the professionalism and standards of conduct for all individuals within the organization.
Accountability: By making sure that both individuals and the entity itself are responsible for their actions and are willing to submit themselves to an external review, particularly with regard to the stewardship of public funds and resources.
The public sector also has a leadership role to play, and one of its functions is to ensure that its own way of operating is in line with good CSR practices in its role as employer and service provider and in its engagement with communities (CSR Hub 2016). The public sector also has various regulatory roles that are relevant to CSR. Once legislative and regulatory frameworks are in place, the government has the continuing role of monitoring their implementation, ensuring that breaches are dealt with properly, and offering opportunities for redress for those who are impacted when the statutory requirements are not complied with (CSR Hub 2016).
Public Sector’s Role in Improving Private Sector CSR
The public sector’s creation of a regulatory framework and their subsequent enforcement capacity is critically important to providing the motivation for private sector CSR (Ward 2004). The public sector is in the unique position to set the overall policy and regulations within which most businesses operate. Thus, in order for “businesses to continue to improve their social and environmental performance, the public sector needs to provide two key contributions: (1) clarity in its regulations; that is, the baseline standards it requires of all firms, and (2) predictability of governmental intervention” (Ward 2004). Recent scholarly reviews of public sector activities have revealed that there are essentially four key public sector roles for CSR. These are mandating, facilitating, partnering, and endorsing Fox (2002). Even though there may be some overlap of coverage across these four areas, they have the distinct advantage of simplicity as well as neutrality with respect to their application to a particular CSR agenda.
Mandating: In their mandating role, the various levels of government must establish a legal framework that defines the minimum standards for business performance. This framework would provide both enforcement and punitive capabilities. These standards would cover subjects such as emissions into the air, land, and waterways and requirements that leadership considers specific factors into account when making business decisions. There are other areas as well, but equally important, in this role, the government can also drive innovation and the migration toward best practices and how these practices will change as technology and environmental standards evolve.
Facilitating: Governmental bodies enable or provide incentives to companies to implement and support a CSR agenda. Here, incentives such as tax deductions or penalties, passing CSR-specific legislation, and access to funding for research and innovation are all tools that the government can use to facilitate a company’s implementation and compliance with a CSR policy. They can also support and fund activities such as training, information collection and analysis, and awards or recognition for CSR achievement.
Partnering: An advantage to creating partnerships is that larger societal or environmental issues can be addressed as a result of the opportunity to leverage the skills and strengths as part of a joint effort between the public sector, private companies, and society as a whole. Sometimes financial or regulatory roadblocks prevent CSR practices and activities that can otherwise be accomplished through strategic partnerships between the preceding parties.
Endorsing: Political support and public sector endorsement of CSR and its related activities and programs is the fourth key role for the public sector. This can be in the form of publishing policy documents, setting forth public sector management practices, and directly recognizing CSR achievements through awards and mentions in speeches, especially in situations where an entity goes further than the minimum environmental and social standards.
As previously noted, there is rarely a definitive line separating these four key roles; rather, there may be situations where the government acts as a partner with a private sector organization with the proviso that the success, or lack thereof, of the partnership could result in specific legislation or regulation.
Public Policy Role of Business: Examples include legislation that limits the political involvement of business entities (Campaign Finance Reform) and regulations that relate to private employment practices and ownership (Affirmative Action).
Corporate Governance: Financial disclosure requirements (Sarbanes-Oxley).
Responsible Investment: Prohibiting entities from investing in risky enterprises or in accounts that may have origins in unfriendly nations (i.e., pension funds).
Philanthropy and Community Development: Providing tax incentives for voluntary corporate donations or social investment.
Pro-CSR Production and Consumption: promotion of green products and processes and/or sustainably produced goods and services (i.e., polluter pays policies and consumption penalties).
Pro-CSR Reporting and Transparency, “Beyond Compliance” Standards, and Management Systems: encouraging entities to report on nonfinancial environmental and social activities to demonstrate superior CSR practices Fox (2002).
Federal Sentencing Guidelines
In April of 2010, the United States Sentencing Commission modified the Federal Sentencing Guidelines, including the provisions that set forth the attributes of effective compliance and ethics programs. These guidelines are used by federal prosecutors and regulators when evaluating whether an organization or public sector entity should be charged with a crime as well as the severity of the penalty (Complaince360). These guidelines are not applied solely to the private sector because, under the Federal Sentencing Guidelines, governments and political subdivisions are also subject to its provisions (section 8A1.1, section 1, Applicability of chapter 8). It makes sense for the public sector to consider these attributes when developing a CSR policy since satisfying section 8 of the Federal Sentencing Guidelines can result in the reduction of fines, a reduced sentence, and even a deferred prosecution.
In order for an entity, public or private, to avail itself of the above sentencing advantages, that entity is going to have to demonstrate that its CSR policy and practices are part of a written code of conduct that enables auditing and other procedures such that together they are reasonably capable of both preventing and detecting wrongdoing as well as reducing the likelihood of misconduct (Complaince360). In addition, an entity should be able to show that its compliance and ethics programs involve multiple layers of management so as to ensure the effective oversight of the programs. The Federal Sentencing Guidelines also set forth expectations with respect to the duties that will be imposed on the specific levels of management and individuals that are assumed to have primary responsibility for the compliance and ethics programs. Furthermore, since many organizations today are increasingly reliant on outside parties to manage an array of functions, those same organizations should ensure that proper safeguards are in place to avoid delegating important functions to individuals or companies with a history of engaging in illegal or unethical behavior or any other conduct that does not comport with the standards and expectations of the entity’s compliance and ethics programs. Not only must entities be aware of the practices of the parties to whom they outsource tasks, but they must also take reasonable steps to communicate the compliance and ethics expectations and standards to the members of their own organization. At every level, including senior management and the board of directors, members must be periodically educated and reminded of the standards. Because laws and regulations are constantly changing, entities should also ensure that their standards and expectations are also periodically reviewed and their effectiveness audited. Last, it is understood that having compliance and ethics programs is all well and good, but unless an entity can demonstrate that it not only promotes the value and importance of those programs but that it also disciplines those who fail to adhere to these policies, then having the policies themselves is largely ineffective.
There are lots of opportunities for the public sector to help shape the CSR agenda. Public sector agencies can address concerns about climate issues, eradication of corruption, respect for the fundamental civil rights of all citizens, security in investments, sustainability, as well as other areas of national or local interest or concern. These same entities can also identify priorities and offer incentives that are meaningful and that will bring awareness to contemporary CSR issues. Finally, public sector entities can partner with the private sector or other organizations to achieve public policy goals.
- Barac K (2016) Corporate governance in the public sector. Auditing SA, pp 30–31. Available at: http://studylib.net/doc/7727543/corporate-governance-in-the-public-sector. Last accessed 28 June 2017
- Compliance360, White paper: the seven elements of an effective compliance and ethics program. Available at: http://compliance360.com/downloads/case/Seven_Elements_of_Effective_Compliance_Programs.pdf 2023
- CSR Hub (2016) Available at: http://www.csrhub.ie/. Last accessed 28 June 2017
- Fox T, Ward H, Howard B (2002) Public sector roles in strengthening corporate social responsibility: a baseline study. The World Bank. Available at: http://pubs.iied.org/pdfs/16017IIED.pdf
- Jarret J (2015) Corporate social responsibility: it’s not just for the private sector anymore! Am Soc Publ Adm http://patimes.org/corporate-social-responsibility-its-private-sector-anymore/. Last accessed on Aug. 1, 2017
- Ward H (2004) Public sector roles in strengthening corporate social responsibility: taking stock. The World Bank. Available at: http://pubs.iied.org/pdfs/16014IIED.pdf