Corporate Accountability: Is Self Regulation the Answer?

International Codes: Three Case-Studies

Given their wider coverage, scope, and applicability, key features of three important international codes are discussed below:

1. OECD Guidelines on Multinational Enterprises
In 1976, the OECD adopted a declaration on International Investment and Multinational Enterprises under which these Guidelines were included. Although legally non-binding, the Guidelines have been adopted by the 30 member-countries of the OECD and 8 non member-countries (Argentina, Brazil, Chile, Estonia, Israel, Latvia, Lithuania, and Slovenia). Thus, the coverage of the Guidelines is vast, and most big TNCs fall under their remit. Addressed to businesses, the Guidelines provide voluntary principles and standards to encourage companies to follow responsible business practices. The stated objectives of the Guidelines are to ensure that TNCs operate in harmony with the policies of host countries and make positive contributions to them. Compared with company codes, the issues covered under the Guidelines are wide-ranging; they include employment and labor relations, environment, information disclosure, combating bribery, consumer interest, science and technology, competition, and taxation.

The Guidelines have been reviewed and revised five times in 1979, 1982, 1984, 1991 and 2000. After the 1991 review, a new chapter on Environmental Protection was added, while implementation procedures and supply-chain responsibilities on TNCs were included after the most recent review in 2000.

Even though the OECD does not provide any independent monitoring and verification processes for the Guidelines, it does mandate signatory countries to set up a National Contact Point (NCP) to deal with the promotion, management, interpretation, and dispute settlement of the Guidelines. Since 2000, more than 70 complaints regarding violations of the OECD Guidelines have been filed by several labor unions and NGOs at various NCPs. But very few complaints have succeeded to date, indicating the inherent weakness of this institutional mechanism. A number of reports by NGOs and labor unions have highlighted the technical and administrative ineffectiveness and inability of NCPs to handle complaints against TNCs. The Guidelines’ confidentiality clauses and lack of transparency further restrict their use in creating public awareness on complaint cases.

Some NGOs consider the Guidelines a potentially powerful tool to put pressure on TNCs that they believe are violating social and environmental norms. There is no denying that, compared to individual company or business association codes, OECD Guidelines have better value because of governmental involvement, but they are still voluntary and non-binding in nature. The Guidelines do not confer any rights on citizens in the signatory countries to take legal action against TNCs for not implementing them. In the long run, a strategy exclusively based on filing complaint cases will not be sufficient to hold TNCs accountable to the general public for their actions.

2. The ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy
The policy measures implementing the ILO’s labor principles for TNCs are mainly contained in the Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy. Adopted in 1977, the Declaration is voluntary in nature, despite efforts made by labor unions to make it legally-binding. Concerned with employment policy, job security, and health and safety issues, the Declaration calls upon governments, employers, labor unions, and TNCs to work towards the realization of economic and social development. It calls for formulating appropriate national laws and policies and recommends the principles to be implemented by all concerned parties. It seeks to promote consistent standards for both domestic and international corporations. In addition, the Declaration makes specific reference to the United Nations Universal Declaration of Human Rights, International Covenants adopted by the UN, and the Constitution of the ILO.

The ILO has established a bureaucratic system to implement the Declaration. Investigations are carried out by the ILO secretariat, which sends a questionnaire to governments to complete in cooperation with employers and employees. The secretariat then compiles various national reports that it presents to the Board of Directors of the Committee on Multinational Enterprises. The national reports are usually vague with no reference to any specific TNC. Attempts made by labor unions for strict implementation procedures of the Declaration have not yielded any results so far.

In addition to the Tripartite Declaration, several other conventions and labor standards adopted by ILO have a direct bearing on the operations of TNCs. For instance, the Declaration on Fundamental Principles and Rights at Work adopted in 2000 seeks the contributions of TNCs to achieve basic labor rights, including freedom of association and the right to collective bargaining.

3. UN Global Compact
Launched in 2000, the Global Compact is a recent initiative by the UN aimed at engaging TNCs to support and implement ten principles covering human rights, labor, environmental protection, and anti-corruption. These principles are derived from the UN Universal Declaration on Human Rights, the ILO’s Declaration on Fundamental Principles of Rights at Work, the Rio Declaration on Environment and Development, and the United Nations Convention Against Corruption. The stated goal of the Global Compact is to create “corporate citizenship” so that business can become part of the solution to the challenges of globalization.

To date, nearly 1,200 companies (both domestic and transnational) have indicated their support for the Global Compact in addition to some international business associations, labor union bodies, and NGOs. The Global Compact runs a small secretariat, liaising with other UN agencies. Companies join this initiative by sending a letter of commitment to the UN Secretary-General. Each year, the company is expected to publish in its annual report a description of the methods through which it is supporting the principles of the Global Compact.

While some NGOs have welcomed the Global Compact as a forum to engage with the corporate world, critics have expressed their apprehensions that it would be largely used as a public relations tool by TNCs. Some of their concerns cannot be overlooked. Firstly, no one can deny that the Global Compact is a purely voluntary initiative. Secondly, there are hardly any effective mechanisms in place to ensure that companies comply with its ten principles. In other words, there are no monitoring and accountability mechanisms. It is for the company to decide which principles they wish to abide by in which of their activities. Thirdly, there is no procedure to screen companies – several TNCs that have long been charged with environmental and human rights abuses in host countries have joined the Global Compact (such as Nike, Royal Dutch Shell, and Rio Tinto).

Critics also fear that initiatives like the Global Compact would further increase corporate influence within the UN system in terms of policy advice. Little wonder that many critics see the initiative as more of an image-building exercise (“blue-washing” after the blue of the UN logo) than an attempt to improve social and environmental standards on the ground.

The Limits of Voluntary Approaches

Voluntary approaches have several inherent weaknesses and operational difficulties, some of which are summarized here. First, as discussed above, corporate codes are purely voluntary, non-binding instruments. No corporation can be held legally accountable for violating them. The responsibility to implement the code rests entirely on the corporation. At best, corporations can be forced to implement codes only through moral persuasion and public pressure.

Second, despite being in existence for many years, the number of companies adopting such codes is still relatively small. Moreover, corporate codes are limited to a few sectors, particularly those in which brand names are important in corporate sales, such as garments, footwear, consumer goods, and retailing businesses. A large number of other sectors remain outside the purview of corporate codes.

Third, many codes are still not universally binding on all the operations of a company, including its contractors, subsidiaries, suppliers, agents, and franchisees. Codes rarely encompass the workers in the informal sector, who could well be an important part of a company’s supply chain. Further, a company may implement only one type of code, for instance, an environmental one, while neglecting other important codes related to labor protection, and health and safety.

Fourth, corporate codes are limited in scope and often set standards that are lower than existing national regulations. For instance, labor codes recognize the right to freedom of association but do not provide the right to strike. In many countries, such as India, the right to strike is a legally recognized instrument.

Fifth, the mushrooming of voluntary codes in an era of deregulated business raises serious doubts about their efficacy. There is an increasing concern that corporate codes are being misused to deflect public criticism of corporate activities and to reduce the demand for state regulation of corporations. In some cases, codes have actually worsened working conditions and the bargaining power of labor unions. Moreover, increasing numbers of NGO-business partnerships established through corporate codes and CSR measures have created and widened divisions within the NGO community and sharpened differences between NGOs and labor unions. Voluntary codes of conduct can never substitute for state regulations. Nor can they substitute for labor and community rights. At best, voluntary codes can complement state regulations and provide an opportunity to raise environmental, health, labor, and other public interest issues.

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