Effective self-regulation (with a little help from your enemies)

Louise Sylvan, Australian Consumers’ Association

Christine Parker The Open Corporation: Effective Self-regulation and Democracy, Cambridge University Press, 2002 (362 pp). ISBN 0-52181-890-7 (hard cover) RRP $69.95.

Giving a consumer advocate the task of reviewing a book on corporate self-regulation might seem, at first glance, like asking a neo-liberal economist for their view on increasing the size of the public service. But consumer organisations can be strong supporters of self-regulation—providing it is used in appropriate circumstances, is well done rather than just public relations ‘spin’, is open and transparent to outsiders, and is properly and independently evaluated and monitored.

Christine Parker’s book accomplishes part of the task given to the Federal Government’s Self-Regulation Taskforce, which reported in 2000. For a variety of reasons, that Taskforce didn’t do its job of assessing self-regulation in consumer markets adequately (Sylvan 2002). By assessing when self-regulation is effective—and why—even though her focus is not primarily on consumer markets, Parker moves us all along the important path of evidence-based approaches to regulatory activity (as opposed to the ideological and often ‘thought-less’ approaches taken by Australian governments of both political complexions). For example, Parker does not waste time debating whether companies need to be held accountable for the standards of their self-regulatory performance by government regulators, but rather asks how best to hold them accountable; only thus will the society be able to judge whether a company is performing adequately or not.

Parker’s work is set in the context of the ‘new regulatory state’ which she defines as ‘…a pan-continental convergence in public management and regulatory style in which the state is attempting to withdraw as direct agent of command and control and public management, in favour of being an indirect regulator of internal control systems in both public (or formerly public) and private agencies…’ (p. 15). Her approach to self-regulation is broader than usual studies, and asks the difficult question of how self-regulation can contribute to creating companies that act as corporate citizens—in other words, companies that really are legally and socially responsible.

The very notion of achieving ‘open corporations’—companies that democratically self-regulate—may seem rather quixotic in these times of corporate misbehaviour. Survey after survey around the world records the demise of trust in both corporations and the governments charged with controlling them. A recent global survey, commissioned by the World Economic Forum (WEF) in advance of its annual meeting in Davos in 2003, shows the reputation of large global and national corporations is at an all-time low, matched only by the lack of trust in democratic institutions—which in itself is disturbing. (Interestingly, this contrasts with levels of trust in the non-government organisations (NGOs) that enjoyed the second highest trust ratings in the survey (Voice of the People 2002).) That governments have failed in one of their fundamental duties to their citizens, a duty which Polanyi (1944) would have characterised as keeping markets within their societies and subject to society’s norms, is one factor in the rise of cynicism about our politicians and democracies.

Corporations cannot continue to claim that their sole duty is to shareholders.

Irrespective of how governments accomplish the task, there is an emerging consensus that companies need to change their social and environmental behaviour. This consensus extends even to the bastions of free market rhetoric, as the corporate responsibility documents of the WEF and the Global Reporting Initiative attest. (Although one must rightly ask questions about the fundamental seriousness with which many companies approach the tasks.) While not granting any reduction in the overall responsibility of governments for achieving the outcome of better corporate behaviour, NGOs agree that companies themselves are just as responsible and need to participate in evolving their new norms of behaviour: by developing appropriate corporate citizenship criteria and implementing the associated behaviours for example; and by becoming more transparent, more permeable, and more responsive to the societies in which they operate. This is a task society needs to address, despite the widespread pessimism about the likelihood of any imminent success.

That pessimism is warranted. The industry with one of the longest histories of self-regulation in the world is financial services. This long history has served to deliver, at the close of the 20th century: shocking revelations of analysts’ contemptuous behaviour towards those who trusted their advice; assistance to companies like Enron in ‘cooking’ the financial results; a litany of failures to act properly by professionals at and advising HIH; and in general, outright deceit, gross incompetence, and voracious greed. The list hardly gives citizens confidence in the self-regulatory commitment of business.

Even in the face of this, developments like the Global Reporting Initiative, and the willingness of NGOs like Oxfam, Consumers International, and Greenpeace to sit around a table with Shell, Nike, and others to try to achieve more responsible social and environmental reporting, is testament to the urgency of finding ways to enlarge people’s control over corporate entities. One of the nice aspects of Parker’s book is her clear understanding that corporations cannot continue to be permitted the claim that their sole duty is to their shareholders. The book also describes well the complex reality in which community action, regulator action, and corporate behaviour intertwine to produce better corporate citizenship.

Parker’s book offers a method for approaching the complex job of achieving better democratic control of corporate power. Scepticism aside, it’s a method that could work. Why? Because the most surprising fact about this book is that despite the title, it’s not about self-regulation. Self-regulation, as the term is generally understood and usually practised, is fairly narrowly defined: self-regulation is a somewhat closed system of businesses policing themselves with little attention or interference from a governmental regulator and little transparency to the society in which it exists. There are of course exceptions. But when excellent systems of regulation are evolved—for example, some of the alternative dispute resolution schemes for consumers, which are independently run by boards of business, consumer, and occasionally government representatives—the term self-regulation is not an accurate descriptor.

For regulatory tasks where significant social matters are at stake, such as most consumer market, a narrow self-regulatory format either doesn’t work or doesn’t work satisfactorily. That’s why self-regulation has such a deservedly bad reputation. I came to the conclusion early on in the book that Parker was not actually talking about self-regulation—at least in the terms that people usually understand. She makes that point in her concluding chapter:

I have proposed an ideal type of ‘permeable’ self-regulation as an explanation for how self-regulation can work, and as a normative ideal for companies, regulators and stake-holders. But mine is an ideal of self-regulation that is not purely self-regulation at all. Rather, it is a marriage between law, corporate self-management, and external stakeholders (p. 292).

Whatever the word for this is, the term ‘self-regulation’ does not provide an adequate account.

Establishing overall controls and settings is a governmental responsibility.

I liked this book and hadn’t expected to. It’s readable, actively engaged with the reality of ‘self-regulation’ as experienced in the field, and well informed on the theory, as well as being a good how-to for practitioners in companies and in regulatory agencies. What it seeks to do, the book does well. What it cannot do is rescue the reputation of self-regulation. Parker’s ‘ideal, permeable self-regulation’ needs a new name.

Is this a naïve academic book? Not at all. While it could have been, Chapters 6, The pathologies of self-regulation, and Chapter 9, Meta-regulation: The regulation of self-regulation, save the book from any such charge, and the book’s empirical base throughout grounds it firmly in the real world. Nor is Parker blinkered about how self-regulation is being used: ‘The greatest danger is that the new regulatory state often descends into a neo-liberalism that subordinates democracy and public policy objectives to market forces, or to supposed free markets that are really a masquerade for big business domination’ (p 144).

Is the author idealistic? Yes. But that’s precisely as it should be. Major changes in societies are rarely accomplished by those interested in small incremental change. New visions are needed, new ways of re-thinking old problems, and a lot of risk-taking.

Ensuring that social values and legal principles are not overwhelmed by bottom line management priorities is no easy undertaking and will not be accomplished by the faint-hearted inside or outside businesses. In fact, re-embedding corporations into the society is, in my view, the key 21st century task; certainly, corporations cannot continue to operate as if they are unaccountable to our societies. Christine Parker’s book is a good solid contribution to the task. Parker attempts to address squarely the ways companies that are serious about their social and environmental responsibilities can construct an internal function that not only assists their permeability to their societies (including engagement with sometimes highly vocal and critical stakeholders), but that enables them far more effectively to deal with the complexity of their new situation. For some companies, it will probably be, as Michael Porter would predict, a significant competitive advantage.

But many other companies will approach the task without genuine interest or as public relations spin. These are the companies that are not serious about social and environmental responsibilities; those that still believe the excuse ‘the bottom line made me do it’ can continue to be used; those that think corporate bad behaviour can be ‘bought off’ by engaging in offsetting philanthropic or other good works; those whose orientation is primarily to ‘manage the damage’. These are also, worst of all, the companies that engage knowingly in anti-social behaviour even to the point of having the ‘vice-president responsible for going to jail’ (Braithwaite 1984, p. 308). There’s no rescue for many these companies—some will need to be ‘shot’ and others are perhaps redeemable, depending on the force with which the society can act on them.

But whether companies are serious about corporate citizenship or not, there should be no question about their accountability to their societies. That’s where democratic governments come in. Even within the framework of the new regulatory state, establishing the overall controls and settings is a clear governmental responsibility. While the state may not want to ‘row the boat’ itself, it certainly cannot continue also to absent itself from ‘steering’ it; lack of corporate social, and even legal, responsibility has not been just a failure of corporate management, but a serious failure by governments as well. While community action by individuals and NGOs can contribute to the overall societal atmosphere within which corporations must act, only governments have the motivating force to make society’s expectations of corporate citizenship a reality. I’d like to be optimistic about Parker’s vision for ‘self-regulation’, but experience suggests that governments, at least at the moment, are unlikely to demonstrate the necessary leadership that might require a serious attempt at corporate citizenship to be made.


Braithwaite, J. 1984, Corporate Crime in the Pharmaceutical Industry, Routledge & Kegan Paul, London.

Global Corporate Citizenship: The Leadership Challenge for CEOs and Boards 2002, [Online], Available: http://www.weforum.org/pdf/GCCI/GCC_CEOstatement.pdf.

Global Reporting Initiative, 2002 Sustainability Reporting Guidelines [Online], Available: http://www.globalreporting.org/GRIGuidelines/index.htm.

Polanyi, K. 1944, The Great Transformation: The Political and Economic Origins of Our Time, Beacon Press edition 1957, Boston.

Sylvan, L. 2002, Self-Regulation—Who’s in Charge Here? Australian Institute of Criminology Conference on Current Issues in Regulation: Enforcement and Compliance. [Online], Available: http://www.choice.com.au/articles/a103378p1.htm.

Taskforce on Industry Self-regulation 2000, Industry Self-Regulation in Consumer Markets, [Online], Available: http://www.treasury.gov.au/self-regtaskforce.

World Economic Forum, 2002, Voice of the People, [Online], Available: http://www.weforum.org/site/homepublic.nsf.

Louise Sylvan is Chief Executive of the Australian Consumers' Association. She has been an active member and worker in the consumer movement nationally and internationally for over 15 years.