The voluntary approach has its limits. Mandatory corporate disclosure would help markets, not hinder them, argues Sir Geoffrey Chandler
‘You can’t legislate for virtue’ is the hoary old chestnut trotted out by businessmen and politicians who are happy to have wool pulled over their eyes. Of course you can’t. But you can legislate for behaviour. Without legislation underpinning the health and safety of employees and protection of the environment, we could well see a race to the behavioural bottom. Yet given the complexity of business, its infinite variety and the multiplicity of its impacts, those who assert that market forces – the most potent influence of all – will best sort things out do have a point. Or rather, they would have a point if the market had appropriate signals and information to respond to. Which it doesn’t.
Although reputation today constitutes a growing element in judging the performance of large companies, the market primarily responds to short-term financial signals. If it had information on a company’s human resources and measures to enhance them; if it had information on a company’s social and environmental impact, then the innumerable decision-makers who constitute the market would be in a position better to judge a company’s longer-term competitiveness and viability. And exposure of practice to the eyes of an increasingly critical world would probably make that practice better. As it is, in the absence of such information, the pressures of the market make for a short-termism damaging both to corporate prospects and to society’s needs.
Mandatory disclosure of a company’s impacts is about making the market work. It is dynamic, not restrictive, in its influence. Companies stringent in their requirements for the quality of their products are often ignorant of the conditions under which they are made in their supply chains. If slave labour is at the beginning of the process that puts chocolate in our shops, we had better know it, and then something may be done about it. When exploitative child labour was shown to be part of the supply of footballs to a wealthy football industry, something was done about it.
I happen to believe that a regulatory framework is necessary for international business in a globalized economy. But it needs to be a framework in which market forces remain the prime influence for the improvement of corporate responses to society’s needs. If regulation is to be appropriate and the market is to work, then we need better information. The truth is that those who oppose regulation in principle don’t in practice believe in the market either. The UK government certainly doesn’t, effectively killing off a bill enforcing disclosure of all company impacts with a promise to encourage voluntary disclosure. It may seem a paradox, but those who believe in the market need to vote for legislation.
Sir Geoffrey Chandler was founder-chair of
Amnesty International UK Business Group