Integrating Soft Law as a ‘Middle Way” for Business and Nonprofit Success

Innovation is an important process for advancing our society and driving our economy, but it can be hampered if stakeholders do not trust how major institutions manage new technologies.

Unfortunately, a lack of trust in innovation is a key finding in the latest Edelman Trust Barometer, which reveals that survey participants, by a nearly 2-to-1 margin, believe that innovation is being managed poorly—more specifically, that government has too much say in innovation. As an Edelman executive put it in a recent Zoom call, “Stamping innovation on a box is not a prescription for success.” 

The good news, as shown in the Trust Barometer report, is business is still the most trusted institution. However, innovation – in which both business and government play a role – is now viewed as poorly managed in 24 of 28 countries. The USA leads the “poorly managed” pack, followed by Australia, Germany, and the United Kingdom.

Perhaps that is why so many business and nonprofit leaders are asking: what is the optimal path forward for continued innovation? In our political system, we certainly have seen what does not work – going to the extreme left or right to try to solve intractable problems. The Carnegie Endowment saw this topic as important to address two years ago, and today the problem is even more complicated.

Now is not the time for businesses and nonprofits to go to extremes either. A middle way – a pathway that is built on a strong corporate governance foundation with a keen cognizance of the law – is, in my view, the best route for us to proceed. This middle way is built on soft law principles. Soft law occupies the broad space adjacent to corporate compliance programs in which organizations follow their own rules and guidelines informed by law. Soft law is largely synonymous with industry self-regulation, which is the core of what we do at BBB National Programs, the home of independent industry self-regulation in the United States. “Hard law,” in contrast, is what is usually referred to as “statutes and regulations,” which are based on the actions of federal and state law-making bodies, administered by government agencies and subject to judicial review.

Typically, business advocacy organizations, including, for example, the U.S. Chamber of Commerce, spend advocacy and litigation capital  – and their time – on stopping what they see as government overreach in regulating business. Their focus is on hard law, and they want less of it. Consumer organizations, on the other hand, often push for more hard laws, either in the form of additional statutes or more regulation.

There will always be debates between more and less, between what is right and wrong (and between the political right and the political left) when it comes to hard law. Soft law approaches will not eliminate those debates, but they can ameliorate them, smooth the sharp edges of arguments, lower the temperature on political rhetoric, sharpen the focus on workable solutions, and enhance consumer trust in business.

Workable solutions are what the business and nonprofit community – arguably the entire nation – needs. The distrust of innovation and the process around it is especially dispiriting right now because we are arguably living through the greatest time of innovation in history, with the stakes related to AI higher than ever. 

Last year, in an interview on CBS News’ 60 Minutes, Google CEO Sundar Pichai shared his view that AI is an earth-shattering technology that could be humanity’s greatest achievement. He said in part that AI is “. . .the most profound technology humanity is working on. More profound than fire, electricity, or anything that we have done in the past.”

CEOs need to think through the implications of AI and other innovations to encourage reinvention to grow their businesses and extend the mission of the nonprofits they lead. According to a recent PwC survey, “Thriving in an Age of Continuous Reinvention,” CEOs “appear to believe in both the fast pace of generative AI adoption and its outsized potential for disruption. For example, over the next year, about half of CEOs expect generative AI to enhance their ability to build trust with stakeholders, and about 60% expect it to improve product or service quality.” 

But in framing its survey results, PwC also provided this insight: “For business leaders, there are plenty of reasons to be excited about generative AI, starting with its power and ease of use. But, as with any emerging technology, there are also potential new risks. Some of these risks may come from your company’s use, others from malicious actors.” As it so happens, “soft law” is particularly well-suited to risk management, whatever the source of the risk may be.

Certainly, generative AI is not the only innovation for businesses or nonprofits to worry about or for CEOs to consider in the context of advancing their organizations, but another important point in the PwC survey is this: “CEOs will need to consider what stakeholders really want and need—not just customers, but also suppliers, business partners, investors, regulators and society at large.” 

What stakeholders really want and need today is unlikely to be solved solely through the proposed rules in the Federal Register. It is more likely to be found through the considered and thoughtful decisions made in the C-suites of business and nonprofit organizations of all shapes, sizes, and missions. And it is more likely to be nurtured and grown by the principles of “soft law,” which encourage creative and inventive solutions to some of the most vexing business problems. 

Originally published on Forbes.