Regulation, Corporate Social Responsibility, and Legal Frameworks for Governance: Addressing Racial Bias and Inequality in Business

By Edward Jung (PO ’22)

Corporate social responsibility (CSR) has become an increasingly dominant player in the field of marketability within business. A self-regulating business model first explored by business professor Archie B. Carroll in his article “The Pyramid of Corporate Social Responsibility,” CSR aimed to assist executives in understanding their firms’ responsibilities to society, in addition to how to think about the relationship between the public and the private sectors. Significant social legislation leaps in the early 1970s in the form of the creation of the Environmental Protection Agency (EPA), the Equal Employment Opportunity Commission (EEOC), and the Occupational Safety and Health Administration (OSHA) urged an establishment of national public policy for a broader, societal recognition of the relationship between stakeholders and the environment. Executives were forced to wrestle with balancing their private commitments to corporate owners and public commitments to growing general public stakeholders conscious of social ethics.

In light of the public outcry at the killing of George Floyd, many companies have highlighted their commitment to combat anti-blackness. The support, through both statements and donations, has come from a wide range of industries including finance, food, and fashion. However, to what extent are companies partaking in brand activism, and are they really succeeding in efforts at CSR? While critics accuse famous brands of hypocrisy, questioning whether their involvement with causes of anti-racism is genuine or not, CSR could address these concerns by providing a beneficial model for understanding these initiatives while also charting potential for legal business regulation towards social-good in the future. 

Brand activism, an amalgam of business efforts to promote social, environmental, and political reform, is a rapidly growing trend driven by consumer behavior. Companies are understanding the need to appease the public, and have been adopting these campaigns to acquire a more positive consumer response. 

Although companies claim they care about social justice issues, what is it that they really want? Terry Nguyen wrote for Vox in June, writing: “the San Francisco 49ers want you to know that Black Lives Matter. How? By posting a single black square on Twitter with the hashtag #BlackOutTuesday.” Contrasting this expression of “solidarity” with Colin Kaepernick’s ostracism by the NFL after he took a knee during the national anthem, Nguyen argues that consumers don’t care about corporate solidarity — they care about donations. “The black square” is an especially prevalent virtue signal with the recent Black Lives Matter movement, yet often the companies putting this and similar messages out on social media or the internet are organizations with their own issues. Organizations like the NFL speak out in one way and have histories of acting in another. As Nguyen continues, thus, “these statements ring especially hollow.”

Yet, as people around the world unite in the protests of racial inequalities, brand activism makes a lot of sense on paper for company executives. Over the past few decades the world has seen tremendous leaps in corporate consciousness of impacts on economic, social, and environmental aspects of society. Executives have increasingly recognized that corporate citizenship is a significant driver of achieving improved shareholder returns. 

In light of global difficulties in adopting positive responses toward systemic issues, could law or policy be a good way forward for addressing issues like racial bias in the world of business? The answer is difficult but may find promising roots in CSR. To begin with, Catherine Lee and John D. Skrentny wrote in the Law & Society Review that: “businesses operate under their own institutional rules or logics, standards of legitimacy, and use of distinctive discourses. […] Businesses most basically want [..] a predictable legal environment to allow for planning. Regulation — especially if done badly or irrationally — leads to unpredictability. Not surprisingly, much early research on the regulation of business found that business resisted it. This research identified the tendency of businesses to “capture” or control the agencies that were supposed to regulate them.” 

Lee and Skrentny note two primary prongs that are necessary conditions for a proper legal regulation of business. First, regulation must allow for individuality. This is because businesses will more often than not elect to operate under their own standards. As such, regulation must not significantly infringe upon these key freedoms and logics that drive function, as long as they are not socially harmful. Second, regulation must provide legal predictability — planning is a key fundamental for business operation and unpredictable regulation will cause backlash and resistance. Third, I argue, is a different prong that brings in our discussion of CSR: regulation should be ideologically independent from distinct events or distinct companies. In order to avoid the possibility of business to capture or control regulatory agencies, if regulation can be ideologically broad so as to not fall under any overly specific “issue” or “area,” it can succeed in being an equitable third party that facilitates change for social good. 

Proposing a legal framework for business regulation in the area of approaching racial bias would ideally satisfy all three of these prongs: allowing for individuality, providing legal predictability, and being ideologically independent from distinct events or companies.

To start with allowing for individuality, CSR is a self-regulating business model that helps a company be socially accountable by encouraging companies to be conscious of its societal impact. Using CSR as a model to guide regulatory policy could offer a powerful glue to hold together tools of law and the building blocks of positive social change. Second, the relative definitions of CSR’s ideals would offer a certain degree of legal predictability if used in regulatory calculus. CSR offers a guiding ideal that leads to broader sustainability and social benefit. Taken in a legal context, these benefits carry over in that regulation guided by CSR would offer predictability under many of these ideals. Third, CSR as a guiding model for regulation would satisfy ideological independence near perfectly — CSR is independent from any specific event, issue, or market/industry while simultaneously bringing to the table comprehensive sustainability and social conscience that anyone could understand. Using such a model for social good would offer an effective platform for greater accessibility, accountability, and individuality. 

Finally, to specifically consider racial bias and inequality, rather than offering up often disingenuous black squares on Instagram or other social media services, regulating CSR initiatives for addressing and combating systemic racial inequality in business and the world through policy would satisfy all three of these prongs while also uniting various companies under goals that must be worked towards. While legal regulation can be a difficult pond through which to wade, using CSR to guide, rather than harshly manage, businesses could be a beneficial way forward for business and governance. 

Businesses today face a pressing challenge. How can they show compassionate solidarity for issues of racial inequality and other social justice areas in a time where such issues must be talked about? Further, how can companies avoid accusations of disingenuous outreach? Though regulation is used as a general term in this piece, using CSR will likely shape discussions leading to more “soft” forms of governance with guidance policy around maintaining genuine, socially equitable change that falls under CSR’s general ideals of self-policing, accountability, and visibility. CSR could be the next big thing in our generation’s discussion of discourse, legitimacy, and institutional structure across a backdrop of systemic reforms for race. 

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