The Growing Importance of Industry Self-regulation

Every business today faces tremendous ethical challenges, and increased transparency brings these challenges to the forefront. I believe that vigorous self-regulation will be one critical element to assure a future grounded in integrity. Here’s why.

The call for ethics in interpersonal and organizational relationships is ageless—and increasingly important in our interconnected, global world. Businesses are challenged to grow trust, not only for their shareholders, but with their employees, customers, supply chains, communities, and on behalf of the wider, natural world. Simultaneously, governments strive to develop, implement, and manage a functioning legal and regulatory system that rewards fairness and curbs abuses. Businesses, in turn, resist what they term “overregulation,” that—they argue—muddles markets and curtails competitiveness.

These trends are particularly important when we consider the increasing rate of economic, political, and technological changes affecting us all.

We now exist in a global society, economy, and ecosphere, where many companies and institutions operate across borders. Money, ideas, people, and jobs are increasingly fluid. In this context, national decisions have both limitations and tremendous worldwide implications including: Are we at war or peace? Do we promote free trade or protectionism? Should we enjoy growth or retrenchment? How do we value equity versus efficiency? We see the negative impacts of these some of these decisions in mass migrations, growing inequality and threats to the sustainability of our climate.

We live and work with complex systems that are well beyond the grasp of common understanding, yet the implications of these systems are increasingly visible to us. As transparency increases, businesses become exposed to wide knowledge and judgement of the outcomes of their operations on people, communities and the planet. Their “shields” that may have worked in the past—such as legal privilege, “protective” philanthropy, and in some markets, outright bribes—now just compound the problems when they are exposed by social and other media.

We now have products and services developed and delivered in ways beyond the capacity of governments to “keep up.” This challenge is evident in the developing world, where even functioning states cannot provide basic services and oversight, not to mention the increasing failures of some states and the emerging power and influence of non-state actors. The challenge is also impacting developed economies, where the rate of change exceeds the capacity of government to understand, let alone react.

I recently retired from the beer industry where I had the privilege to struggle with these issues with my colleagues in beverage companies around the world. I became increasingly aware that many decisions previously attributed to governments now are made in the private sector. Stakeholders are demanding that companies address issues of equity, fairness, sustainability, human rights, access to health care and education in ways that are new—and for man—unfamiliar. It is a business world far more complex than one based solely on increasing shareholder returns. The Carnegie Endowment and Virginia Haufler titled this trend “the public role of the private sector.”

As a result, leading companies engage with diverse interests and seek to create new products and services that build value for all stakeholders including but certainly not limited to shareholders. Governments, recognizing that they cannot keep up with the rate of change, may seek to simplify regulation to impact the most critical questions of equity and fairness.

Of course, this leaves a great gap that is beginning to be filled with effective and transparent systems of self-regulation. For example, food manufacturers are agreeing to reduce sugar and salt and artificial ingredients. Standards of environmental and quality being driven by ISO standards that exceed regulatory requirements. Global codes and commitments on human rights and sustainability are being led via business engagement with the UN Global Compact.

In my experience in the alcohol beverage field, companies began with standards of self-regulation in major markets, then extended those standards to emerging markets with limited governmental capacity. Alcohol beverage producers, through the International Alliance for Responsible Drinking, then agreed upon principles, standards and models for self-regulation, and producers committed to visible and measurable actions to reduce harmful drinking around the world.

Even in the emerging field of artificial intelligence, self-regulation will likely play a pivotal role. As tech companies become worried about regulators creating unworkable and outdated rules around their work, they are turning to self-regulation. In my next blog, I will look at the ethical and societal challenges coming with artificial intelligence, and in the third and final blog of this series, I will take a look at work begun by tech giants to craft a self-regulatory response.

Note: This post is adapted from remarks made at Integrity 2017, sponsored by the Center for Enterprise Ethics, Daniels School of Business, University of Denver.

—Barton Alexander, Principal, Alexander & Associates LLC


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