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Promoting Responsible Business

15th January 2007

It was during the course of the Companies Bill through Parliament last year when I realised that there is an urgent need for Government, business, customers, NGO's and the wider voluntary sector to start to formulate ideas around the promotion of responsi

It was during the course of the Companies Bill through Parliament last year when I realised that there is an urgent need for Government, business, customers, NGO's and the wider voluntary sector to start to formulate ideas around the promotion of responsible business.

The Companies Bill originally included provisions for the now defunct Operating and Financial Review which instituted a mandatory non-financial reporting regime for listed companies.The Government proposed it, then they pulled it and then they half proposed it again and then finally amended it only two days before the Bill's final reading - with no consultation. This I could see was not way to move ahead on promoting corporate responsibility in any sense of the term - let alone on a consensual basis. I was therefore delighted when David Cameron suggested the formation of a Responsible Business Working Party to review this important area.

And one of the basic things that this report questions is whether legislation and regulation are necessarily the best ways to institute improvements in responsible business practice? Whilst the working party instinctively believed from experience, that the answer is normally no; it recognised that whilst on the one hand there are many politicians, particularly in the Labour party, who do instinctively believe in regulations, there are on the other hand, many in the business and political communities, who do believe in the desire of most businesses to promote responsible business, and that such people wished to have their views articulated.

So whilst Government should retain the role of co-ordinator and final arbiter - the report suggests that promoting responsible business and having business significantly buy-in to CSR best practice, will most productively come from business itself. For instance, if we take British companies participating in AIDS projects in Africa - is it the companies who employ people in Africa and understand the issues on the ground or some civil servant in Whitehall - who will best be able to evaluate the problems to be dealt with?

In 1995 the Pension Act ensured that pension schemes should annually disclose their statement of investment principles - However, I do not think that anyone would disagree that, for the most part, this has just become a boiler-plate disclosure exercise. As with so many other mandatory reporting requirements - there is a race down to the lowest common denominator of minimum disclosure and box ticking. If anything, this can be counter-productive.

This report is very much more fundamentally calling not just for a review of reporting but a review of how companies actually conduct the activity which is to be reported on.

The report also says that where legislation and regulation is required then that regulation should be more adaptable - possibly using the "comply or explain" principle that has worked so successfully in the field of corporate governance. We must keep our eye on the US experience with Sarbanes Oxley where unbending corporate governance law, applicable to all sizes of company, is driving business overseas. Moreover, the report suggests that regulation should aim to incentivise good behaviour rather than just punish bad behaviour. This could, the report suggests, include the use of peer pressure and government giving awards for the best examples of voluntary reporting. There is also the recognition that an educated body of customers will do more to drive best practice forward, through their exercise of choice, than government penalties ever could.

The application of this, in what the report calls the "responsibility deal" is, I believe, an exciting development to be consulted on and we will be interested to hear peoples views on this.

This report has been prepared by people who understand the working and expectations of business and who have many combined years of practical application in the corporate responsibility and corporate governance fields. I do think that it has the potential to provide an important foundation for the Conservative Party's views on the relationship between Government and business.

I think the report also has the potential to provide a mechanism for a re-assessment of the purpose behind regulation and its use by government.So I do sincerely hope that over the 3 month consultation period a wide variety of people and companies will read the report and comment on what, I agree with David Cameron, is a very important issue for our society.

Jonathan Djanogly MP

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