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Monday, February 18, 2013

Strategic CSR - Dodd-Frank

When whole industries overstep the bounds of socially-determined acceptable behavior, the government steps into legislate. This intervention produced Sarbanes-Oxley in 2002, in response to the corporate scandals that occurred in the early years of this century (in particular, the collapse of Enron); as a result of the more recent Financial Crisis, it generated the Dodd-Frank Act in 2010:

“Wall Street has found a common enemy: the Dodd-Frank Act. After the industry’s aggressive risk-taking nearly toppled the financial system and the broader economy, Congress ushered in Dodd-Frank, the most significant regulatory overhaul since the Great Depression.”

This process is the basis of the Rational Argument for CSR (Chapter 1, p16). From this perspective, firms have an incentive to adopt a CSR perspective proactively because the alternative (i.e., government intervention) is usually not an efficient solution to whatever problem is being tackled:

“CSR is a rational argument for businesses seeking to maximize their performance by minimizing restrictions on operations. In today’s globalizing world, where individuals and activist organizations feel empowered to enact change, CSR represents a means of anticipating and reflecting societal concerns to minimize operational and financial constraints on business.”

Although they have no-one to blame but themselves, rather than self-reflection and altered behavior, the general response from many firms within the finance industry is resistance:

“Since the law was passed in 2010, banks and other financial institutions have sought to tone down the most onerous aspects of the law, fearful of the threat to their businesses and their bottom line.”

The potential for amendments is presented by the extensive nature of the law—it is large and, at the time of passing, undefined:

“The law takes up some 2,300 pages and touches nearly every corner of the banking industry. … As regulators have devised the myriad rules, Wall Street has embarked on an all-out lobbying blitz. The industry has doled out hundreds of millions of dollars, held regular meetings with regulators and bombarded federal agencies with public letters.”

As a result, and due to the excessive influence of money in modern politics, the industry’s efforts are beginning to bear fruit:

“The industry’s efforts have proved effective. Despite facing tight deadlines, regulators have completed only a third of the regulations mandated under Dodd-Frank. Another third of the rules are in the proposal phase, and the rest are in limbo.”

There are some good graphics that accompany the article and make aspects of the law a little more accessible:

Take care

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Deconstructing Dodd-Frank
By Ben Protess
December 12, 2012
The New York Times
Late Edition – Final