Private Regulation: Risk or Opportunity for Global Business?

As trust in government rapidly declines, expectations of global business to address and, in many cases, solve social problems are sharply escalating. Coupled with the rise in influence of nongovernmental organizations (NGOs), regulatory governance is moving swiftly away from the province of government and turning to a delicate dance between business and society. Edelman's 2014 Trust Barometer found that 84 percent of global respondents believe a company can -- and should -- take specific actions that both increase profits and improve economic and social conditions in the communities in which it serves.

Therefore, business stands at the precipice of a tectonic governance pivot. It either can embrace opportunistically, affirmatively and adaptively or stand still and react incrementally and expensively as NGOs -- as proxies for societal interests -- begin to leverage their bully pulpit for private regulation of industry.

The Rana Plaza building collapse last year in Bangladesh -- where more than 1,100 workers died -- and the fire at another garment factory there just months before illuminates this in sharp relief. NGOs activated coordinated campaigns immediately that employed all media channels to highlight the documented infirmities in fire and safety standards. They knew very well that the resulting global concern and moral outrage were automatic. With the eyes of the world keenly focused on Bangladesh, the NGOs then wisely called publicly for inspections of the facilities serving Western clothing retailers and strongly urged for signed commitments surrounding labor rights and workplace safety accords.

And so sounds the cadence of NGO campaigns to pressure business into committing to sustainable production and operational standards across their global supply chains and local operations. A recent comment shared with me by an activist leader from the NGO Greenpeace has become prescient, at least in my mind: "Companies can fight us as long as they want but, ultimately, they will comply -- so why not save the pain?"

Save the pain, indeed. In a commercial world that increasingly rewards shared values, it benefits business to take a page from the traditional political campaign playbook and define the enemy before the friend. Businesses must begin accepting and embracing the reality that not all NGOs are equal. Most "mainstream" NGOs, including the World Wildlife Fund, Greenpeace and Oxfam (as representative examples), are not the enemy of business and recognize well the utility of profit-making, cost-scaling, and producing quality products and services. In short, they grasp and, most often, support the "what" and the "why" of most businesses. Frequently, though, they disagree on the details of the "how."

By defining all NGOs and activists as the enemy, business unintentionally gives power and credence to the radical and fringe NGOs that will never embrace the value of particular industries and are not interested in collaboration and defining shared values. Instead, these fringe NGOs seek to terminate the very existence of certain categories of business and, in many instances, they behave like terrorists and are a pariah on the global business community.

By seeking out opportunities to collaborate with credible and trusted industry NGOs, business accomplishes two critical governance obligations:

  • It cooperatively charts its own course in private regulation -- ahead of societal and potentially government compliance mandates;
  • It marginalizes the common enemy, the radical activists, while building trust, transparency and integrity under the halo of "friendship" with the highly regarded NGOs.

Private regulation and governance presents a corporate mindset challenge to be sure but in a world of escalating risk and uncertainty business will be served well by refining this adaptive capacity.