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Business regulation should not stifle enterprise, BASD chief says

London 26 February 2002 - In a major speech on the issue of corporate accountability, BASD's Lord Holme has insisted that business regulation should be used to encourage best practice, not to punish and penalize. He said regulation of markets was a fact of life which companies accepted as "inevitable and often useful", but added that rules should not be so restrictive as to stifle enterprise and innovation. Business would go on resisting what Lord Holme described as "excessive, cramping legislation."

In a speech in London to the Business in the Environment conference, Lord Holme, the Vice Chair of the Business Action for Sustainable Development (BASD) said companies had a duty to be accountable. "More and more businesses are declaring their values, publicizing their policies and setting out their standards," he said. "And that is as it should be. The modern world rightly requires power to be accountable and we live, after all, in a 'show me' not a 'tell me' world.

"Large companies are powerful bodies - perhaps not always as powerful as their critics imagine but sometimes more powerful than their directors like to acknowledge, and the outside world has the right to know where companies are coming from and to know how well they comply with regulation and, more importantly, how well they live up to their own standards. "But let us be quite clear what the main utility of accountability and reporting is. It is to improve performance. It is not to provide a conveyor belt of juicy issues for campaigning NGOs. It is not to feed the blame culture of the media."

Lord Holme said companies needed to be given the space to learn from their mistakes."If we genuinely want companies to do better in these important areas of sustainable development, we must save culpability for those serious instances where it is genuinely appropriate.

He debunked the perception that business resists all regulation "in the sacred name of free markets"."Yes, business has resisted, and will continue to resist, excessive cramping legislation," he said. "But no successful market has ever existed without rules and regulations."

He said regulation of markets was a fact of life which companies accepted as "inevitable and often useful", but added they should not be so restrictive as to stifle enterprise and innovation. "It should be preferably, 'de minimis', or at least not so excessive as to stifle initiative and enterprise, the very 'animal spirits' which John Maynard Keynes identified as the well spring of economic success," he said. "And above all regulations should be subject to regular review so that they do not become dead letters by outliving their usefulness."

He added that while regulation had its place, it was nowhere near as effective a tool as voluntary action ."Good companies also learn from each other," he said. "Competitive emulation is a great stimulus to raising your own game. So there is a strong case for common benchmarks, particularly within sectors and regions where the main factors are the same."

In closing, Lord Holme rejected calls from NGOs for the main outcome of the upcoming World Summit on Sustainable Development in Johannesburg to be the global regulation of large companies.

"It needs to be understood that this call is in itself a compromise between a fundamentalist minority and a much larger majority group who see that job and wealth creation are essential but who want to ensure it is done more responsibly and equitably," he said. "So whilst the fundamentalist minority of would- be regulators want to bind Gulliver hand and foot so he can't move an inch, the majority, more reasonably, want to ensure that he treads carefully and that his giant footprint doesn't leave people squashed."

Download the complete speech! ( 71 kb)