Business and Global Governance: The Growing Role of Corporate Codes of Conduct

By Florini, Ann | Brookings Review, Spring 2003 | Go to article overview

Business and Global Governance: The Growing Role of Corporate Codes of Conduct


Florini, Ann, Brookings Review


These are, in many ways, halcyon days for global business. In a vast ideological shift in the late 20th century, markets rather than governments came to be seen as the road to prosperity. Governments that once nationalized foreign firms now seek out the investment, technology, and managerial expertise such companies can bring. The halls of the United Nations used to ring with calls for international regulation of those dreaded evil-doers, the multinational corporations. Now the UN instead implores business to join with it in a voluntary Global Compact to ensure respect for internationally agreed environmental, labor, and human rights standards.

And business has truly gone global. Surging transportation and communications technologies in the past few decades have encouraged firms the world over to cross borders, and revitalized industries in Europe and Japan have offered new competition to U.S. firms. At the beginning of the 1990s, some 35,000 parent multinational corporations had roughly 170,000 foreign affiliates. By the end of the decade, 60,000 parent companies had more than 500,000 foreign affiliates, accounting for a quarter of global output in the late 1990s. As transnationals reorganize the production of goods and services, production itself is becoming global in structure.

But there are clouds on the global business horizon that go beyond the current dour economic climate. The lack of effective international (and often national) regulation to protect workers, communities, and the environment has spurred the development of a powerful movement aimed at promoting corporate social responsibility, whose partisans have on occasion forced significant changes in business practices through campaigns aimed at consumers and investors. And because unregulated business activities can cause societies to question the legitimacy of corporations, corporate leaders themselves are struggling with fundamental questions about how far their social responsibilities extend: to shareholders, employees, local communities where they operate, humanity as a whole, future generations?

National Regulation?

Repeated efforts, starting with the proposed International Trade Organization in the 1940s, to create internationally agreed rules to regulate cross-border business have all failed. Regulation of these firms thus falls to national governments. But governments are often finding it difficult to cope. Mega-companies' huge resources dwarf those of national prosecutors, making legal control a challenge. Changes in the ways global corporations produce goods also complicate national regulation. Companies both big and small contract out with suppliers in far-flung parts of the world--Disney reputedly has some 300,000 separate suppliers. A company with a brand name such as Levi Strauss or WalMart effectively controls a long chain of frequently shifting suppliers based primarily in low-wage countries, thus controlling much of what suppliers do: what product quality standards and schedules must be met, what products will be produced. But for the most part, control over such matters as working conditions in and environmental spillovers from those suppliers' facilities remains in the hands of the national governments where suppliers are located. Because enforcement of labor and environmental standards in those low-wage countries is often, to put it mildly, less than fully effective, this pattern of production enables rich-country firms to reap the benefits of low production costs without having to pay attention to the associated social costs. Even in countries with well-established regulatory systems and effective courts, a determined company can flout the law. Some get caught, but only after doing extensive damage. Louisiana-Pacific Corporation was recently assessed the largest criminal fine in the 28-year history of the U.S. Clean Air Act. The company, which employs some 13,000 people in the United States, Canada, and Ireland and grossed $2. …

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Business and Global Governance: The Growing Role of Corporate Codes of Conduct
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