PracticeAccounting FirmsGood cop or bad cop?

Good cop or bad cop?

Is regulation really the best way to encourage more responsible business practice?

During the course of the Companies Bill’s passage through parliament last
year, I realised there was an urgent need for government, business, customers,
NGOs and the wider voluntary sector to start to formulate ideas around the
promotion of responsible business.

The bill originally included provisions for the now defunct operating and
financial review (OFR), which instituted a mandatory non-financial reporting
regime for listed companies. But after proposing the OFR, the government pulled
it and replaced it with the business review ­ and then changed that too, making
final amendments only two days before the bill’s final reading, with no
consultation.

This was no way to move ahead on promoting corporate responsibility ­ let
alone on a consensual basis. So I was delighted when David Cameron formed the
responsible business working group to advise the Conservative party on this
area.

The working group, which is not a party political body, has published its
mid-term report and is taking it out to consultation until 16 March. One of the
basic things the report questions is whether legislation and regulation are
necessarily the best ways to institute improvements in responsible business
practice.

One risk of relying on regulation is that compliance becomes a boilerplate
disclosure exercise and there is a race down to the lowest common denominator of
minimum disclosure and box-ticking. Rather than enforce one-size-fits-all
regulations, we are looking at ways to encourage companies to develop their own
responses to mutually agreed social and environmental challenges.

But without regulation, other ways must be found to incentivise corporate
responsibility. Companies are recognising that responsible business practices
can confer strategic advantages in a world of shifting customer loyalties and a
competitive marketplace where the best staff demand more than a good salary.

Alternative levers for promoting responsible business also need to be
considered. Ideas such as rewarding best practice with a lighter regulatory
burden or harnessing consumer pressure have potential. A dialogue on these
issues will move us forward in a creative, business-friendly way.

Jonathan Djanogly MP is shadow minister for corporate
governance

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