Reducing the Risk of Corporate Irresponsibility: The Trend to Corporate Social Responsibility

What can be done to control and minimise the risk of corporate irresponsibility? This question has been raised anew in Australia with the collapse in May 2001 of the nation's second largest general insurer HIH leaving a A$4 billion (US$2 billion) shortfall. The official regulator, the Australian Prudential Regulation Authority (APRA), claimed a lack of resources contributed to its neglect. The auditors claimed that they had been given incorrect information. The government suggested tightening the law and enforcing more rigorously its criminal sanctions. The problem, however, lies with the misconception that such fiascos can be avoided by governments creating and enforcing appropriate rules. This is simply not the case. For while legislation and regulatory mechanisms that seek to enforce organisational rules and policies are necessary, they are simply not sufficient to establish and entrench corporate accountability and responsibility. In this paper, the authors demonstrate how corporate entities can and should develop a ‘culture’ of corporate social responsibility (CSR) in order to reduce the risks associated with irresponsible practices. CSR principles and initiatives can be delivered and enticed by a broad range of facilitators, including governments, industries and regulatory bodies. They can also be used for the purpose of enhancing the broader notion of corporate governance. The authors illustrate the manner in which CSR initiatives can and should become fundamental tools of risk assessment and risk management in modern corporate and organisational practice.