Hardly a day goes by without trouble facing an American multinational corporation somewhere in its vast global operations. Occidental Chemical has been charged with abetting a peasant massacre deep in the rainforests of Ecuador. A United States court found Unocal guilty of complicity in human rights abuses in Burma. IBM settled a $40 million lawsuit alleging that exposure of workers to toxic fumes in the manufacture of semiconductors caused severe birth defects.
There are many other stories about the good things multinational corporations have done in response to social concerns, however. Shell set up a consultation process with the indigenous people in Peru. Hewlett Packard, Intel, and other high-tech companies increased their energy efficiency in response to California's energy crisis. Levi's, Nike, and the Gap have adopted management policies and practices to reduce the use of child and sweatshop labor.
The increasing pace of globalization in the past decade has catapulted U.S. multinational corporations into ethical quagmires around the globe. Often faced with weak, nonexistent, or non-enforced national environmental and social standards--and the absence of global standards-multinational corporations have increasingly become rule-makers rather than rule-takers. How they make and follow rules on environmental protection, labor standards, and human rights has become a controversial topic.
Globalization has brought with it an upsurge in social advocacy aimed at enhancing corporate social responsibility. Consumers, religious leaders, investors, labor, environmental and human rights advocates, and others have urged multinational corporations to embrace a triple bottom line-financial, environmental, and social-in both their domestic and overseas operations.
This interplay between activists and corporations has created a new, non-statutory paradigm of corporate governance based on a company's willingness to embrace environmental and social standards beyond simple compliance. In 2000, a survey by the Investor Responsibility Research Center found that about half of the S&P 500 companies had adopted a code of conduct or other form of environmental or social impacts management system.
But are voluntary initiatives enough? Can corporate social responsibility keep multinationals out of ethical quagmires? Can voluntary initiatives generate enough of a reward to business for doing "good" that they become the industry wide standard for good business management? Can voluntary initiatives adequately promote the long-term public interest, both national and global, in environmental sustainability and improvements in human rights?
Unfortunately, I believe the answers to these questions is no. Case studies, produced for the California Global Corporate Accountability Project, suggest that the change in corporate governance catalyzed by the corporate social responsibility approach has had only incremental impacts and it risks being short-lived.
A long-term approach to corporate accountability requires the engagement, not only of civil society and business, but also of government. Good public policy changes incentive structures and clarifies social expectations, protects business from capricious public demands, and levels the playing field for all market players. Moreover, the government provides additional tools and institutions that are useful to both activists and corporate managers, including common reporting frameworks, penalties for non-compliance, technical assistance, and credible convening.
Good public policy, however, should not undermine but rather should complement and strengthen the corporate social responsibility approach. Public policy should be performance-driven and provide incentives for all companies to embrace both current best practice and continuous improvement initiatives. Public policy should also focus on information, especially mandatory corporate disclosure of environmental and social data. …