Beyond Good Deeds: For Multinational Corporations to Adopt Socially Responsible Business Practices, Voluntary Measures Are Not Enough

Article excerpt

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.

Global Reach, Global Dilemmas

The past decade has witnessed an explosion of global trade and investment. Between 1990 and 2000, global outflows of direct investment in foreign markets rose five-fold, from $235 billion to $1.1 trillion. Multinational corporations are the main drivers in international investment and trade, and American multinationals are some of the biggest players in the global economy.

Globally, the distribution of investment is highly skewed. In 1999, almost 75 percent of capital flows went from one rich country, like the United States, to another, like the United Kingdom. Indeed, the United States leads the world as both the top investor and top recipient of foreign direct investment, followed by the United Kingdom. Developing countries, which have the majority of the world's population, received only 25 percent of the world's direct foreign investments in 1999. Moreover, only a handful of countries, including China, Brazil, and Mexico, garner the bulk of the share going to developing countries. Africa, the poorest region of the world, receives less than 1 percent of the world's private investment.

While multinational corporations contribute a relatively small amount to the global economy, they have large local economic, social, and environmental impacts in developing countries. In the late 1990s, the direct investment of multinationals emerged as the primary source of capital for developing countries, far outstripping public sources such as the World Bank and foreign aid.

The social and environmental regulation of industry is vastly different in different parts of the world. Even in such similar industrialized countries as Canada, the United States, and Germany, there are different social norms and expectations for industry. The gaps are largest, however, between the 30 rich, developed member countries of the Organization for Economic Co-operation and Development (OECD) as a whole and the remaining 170 or so developing and transition economies of the world.

In general, OECD countries have primarily democratic forms of government, which strongly embrace civil and political rights and the rule of law. These countries have a large, generally affluent middle class. Many developing countries, on the other hand, are either fledgling democracies or are ruled by authoritarian elites. Civil society is often weak or repressed, and ordinary people are poor. In the United States, per capita income in 2000 was $25,379. In Mexico, it was $4,400, and in Vietnam, $370.

These broad socioeconomic differences are also mirrored by gaps in social and environmental regulation. Systems of environmental regulation, for example, were not established in most developing countries until the 1990s, 20 years after OECD countries began regulating environmental issues, albeit with mixed results. Moreover, most developing countries modeled regulation on the command-and-control systems of the United States or Europe. Since these countries, for the most part, lack top-down enforcement capacities and, often, political will, as well as avenues for civic involvement, environmental regulations are on the books but are frequently ignored.

The lack of effective national environmental regulation is an issue not just for the least developed countries of the global South, such as most of Africa and South Asia, but also for the most industrialized and affluent nations. East Asian countries, for example, have been heralded as economic success stories for the past 20 years. According to the Asian Development Bank, resource degradation and environmental pollution in both East and South Asia is so "pervasive, accelerating, and unabated" that it risks human health and livelihood. (2)

The protection of basic civil and political rights--guaranteed by the United Nations' 1948 Universal Declaration of Human Rights--is still not extended to citizens in many developing countries. In many of these countries, rights to political speech, freedom of assembly, union membership, and general political involvement are constrained or denied. In some countries, the penalty for pressing the limits of civil and political rights is imprisonment, torture, and even death.

The global reach of investment and production thus poses a dilemma for western multinational corporations and their stakeholders. The crux of the dilemma is that markets are global, while regulation and ethics are not. In the absence of either global or national norms, multinational corporations are often left to self-regulate--that is, to set their own standards or to simply follow local practice in the different countries in which they operate. Local practice, however, can often involve a lackadaisical attitude to industrial pollution, a free-for-all attitude to resource exploitation, and widespread corruption in the interface with foreign companies, as well as the violation of internationally accepted human rights. With its practice of forced labor, forcible relocation, and uncompensated expropriation, the government of Burma offers an egregious example. The widespread, devastating pollution in the Amazon at the hands of foreign oil exploration and drilling operations is another example.

In short, the global environmental and human rights dilemmas faced by multinational corporations stem fundamentally from regulatory failures. Markets, investment, and incentives span borders while the environmental and social regulation of industry remains national. Many host countries in the developing world, however, lack the technical capacities, physical and institutional infrastructures, and the political will to provide environmental and social oversight of business.

Moreover, intense competition for multinational corporation investment makes policymakers reluctant to significantly raise environmental and social standards. Competition for investment is intense, not only among developing, but also developed countries, and it extends to municipal and regional, as well as national, governments. In the absence of common standards for all multinational corporations, global competition for multinational corporation investment creates a kind of low-pressure zone in the world economy, keeping standards "stuck in the mud." (3)

Multinational Strategies

Lacking both global rules and effective national regulation, multinationals operating in developing countries are often left to decide for themselves what their environmental, labor, and human rights standards and practices will be. Moreover, within the United States, political pressures for deregulation, and a search for more flexible approaches to regulation beyond command-and-control, have tilted the locus of rule-making to corporations themselves.

Self-regulation is a mixed blessing for multinationals. On the one hand, the lack of external regulation enhances corporate flexibility. On the other hand, the lack of common environmental, labor, and human rights standards exposes companies to a new kind of political risk--the explosion of local opposition or a nongovernmental organization advocacy campaign at home, both of which can damage company reputation, brand name, and market share.

Faced with a central ethical dilemma of globalization, western multinational corporations have adopted one of three broad strategies to deal with environmental and social practices in developing countries.

The "duck and cover" strategy follows local standards and practice. This approach allows companies to capture the competitive opportunities offered by lower local standards and wages, while ducking ethical criticism under the cover of compliance with national law or custom.

Companies that adopt "duck and cover" strategies are often bottom feeders in the industry, taking market positions and opportunities left by larger, leading edge companies. Unocal, for example, eagerly consolidated its partnership with the government of Burma in building a natural gas pipeline after other multinational corporations withdrew from the country because of gross human rights violations.

The "no regrets" strategy allows multinational corporations to adopt universal, companywide standards, including the management of environment, health, and safety, in all overseas subsidiaries. The logic for companywide standards is two-fold. First, it is more efficient for a company to manage one set of standards than a patchwork of dozens of different national standards. Second, it reduces various corporate risks, including the risk associated with product defects. With integrated production and supply chains, companies need assurance of quality control and of on-time production--accidents and strikes and the like delay production schedules. Other risks reduced by global standards include environmental and on-the-job accident and injury risks, with concomitant down time, and legal liability for accidents, either in host-or home-country courts.

Company-wide standards policies became widespread among multinational chemical companies after the 1984 disaster at a Union Carbide pesticide plant in Bhopal, India. More than 3,000 people were killed and tens of thousands permanently injured when a tank leaked five tons of poisonous methyl isocyanate gas in the air. Thousands more have died since, primarily as a result of the lingering effects of the poison. This disaster was caused, in great part, by the use of local standards at the local Union Carbide subsidiary that never would have passed muster at the corporate home in Connecticut. Although Union Carbide got off easy--the court case was held in India, rather than New York, and the Indian government accepted a compensation settlement of only $470 million--the case sent a shockwave through the chemical industry and beyond. (4)

Global companywide standards are an improvement over national standards. In some cases, however, a company may commit to following best practices-that is, identifying and applying the highest relevant standard or benchmark The silicon chip giant Intel, for example, applies the higher of Arizona or California water quality and waste management standards to its Costa Rica operations. (5)

The "no regrets" strategy has limitations, however. Standards might be the same in different countries, but different political, cultural, and socioeconomic contexts will determine just how effective they are. Companywide environmental, health, and safety standards, for example, do not take into account the limited administrative capacities of many developing countries for disaster planning or for providing waste management infrastructures. Indeed, in the Bhopal case, the lack of local disaster planning greatly increased the number of deaths and injuries from the deadly chemical gas.

In a more repressive political climate, workers cannot organize, and are likely to feel constrained in bringing health and safety issues to the attention of managers. Or, as in the case of workers in the high tech industry in Taiwan, jobs are so valuable and prestigious, relative to other options, that complaints of illness as a result of chemical exposure are stifled. (6) In short, the adoption of global companywide standards goes only part of the way to ensure that workers, communities, and the environment receive the same protective measures, regardless of where the company operates.

The Limits of Self-Regulation

The third--and cutting edge--strategy to deal with global ethical dilemmas is "corporate social responsibility." In broad terms, corporate social responsibility requires a company to redefine its mission to include social purposes, and to develop appropriate management and reporting systems to put the new mission into operation.

Central to a corporate social responsibility mission is the recognition that not only shareholders, but a wide circle of stakeholders, including workers, investors, consumers, and local communities, are affected by company decisions and operations. The company, therefore, needs to develop effective policies, procedures, and systems to raise environmental and social performance, and to enhance company accountability to stakeholders and the general public. There are three broad entry points to corporate social responsibility: codes of conduct, internal management systems, and external disclosure and third-party verification.

A code of conduct is a set of substantive and procedural principles that outline a company's broad commitments to environmental protection and social good. In the main, companies develop their own individual codes, though some embrace prepackaged or industry-specific codes developed by trade, public interest, or international organizations. At the most generic level, the UN Global Compact's Nine Principles, covering human rights, labor, and the environment, provide an ethical code for all companies operating in the global economy.

The substance of the codes varies by industry, as well as by company, reflecting differences in issues of public concern, advocacy group agendas, or company preferences. High-tech companies, for example, generally have strong environmental codes, while apparel companies focus on labor, and oil companies focus on human rights.

The most important differences in the codes, however, lie in implementation and accountability mechanisms. Many codes specify no compliance mechanisms at all and appear to be public relations tools rather than guides for internal management. Some provide for internal auditing but do not provide a way for outsiders to gauge the rigor or results of such an audit. Many companies implement their commitment to corporate social responsibility through the adoption of a management system, either in place of, or in addition to, a code of conduct. When management systems are effective, they establish internal operations to monitor environmental, labor, and social impacts, and to provide feedback mechanisms to line or functional managers. The aim of such systems is to promote continuous improvement by maintaining a close watch and identifying "win-win" opportunities to promote better performance, while, at the same time, cutting costs or enhancing revenue.

One of the most widely adopted environmental management systems is ISO 14001. The logic of ISO 14001 is to outline processes for four key steps: "plan, do, check, act." The aim of ISO 14001 is to stimulate internal company processes that can promote continuous improvement rather than compliance with a given set of regulations.

Some management systems combine process with substantive standards. The Social Accountability 8000 (SA 8000) standard, for example, sets both minimum performance requirements and monitoring and feedback processes for workplace conditions. SA 8000 is a workplace standard developed by Social Accountability International, a charitable human rights organization dedicated to improving workplaces and communities. The standard covers nine core areas: child labor, forced labor, health and safety, compensation, working hours, discrimination, discipline, free association and management systems.

Another accountability standard developed by the Institute for Social and Ethical Accountability, is the AA 1000 management standard, which focuses broadly on ethical decision. making through stakeholder engagement.

External certification is a key component of some management systems, including SA 8000 and the European Commission's Eco-Management and Audit Scheme, which promotes ongoing environmental performance improvements by corporate self-evaluation, as well as providing relevant information to the public. A certification body reviews the systems in place and grants a "seal of approval" to companies meeting the criteria of the standards. In both cases, the certifiers must be certified themselves. In the case of ISO 14001, a company may "self-certify," but such certification does not imply that companies are meeting particular standards of environmental care or worker protection. Rather, it certifies that companies have monitoring and feedback systems in place.

Even when companies decide against formal third-party certification, they may develop their own management systems throughout the company. Some companies have even begun to develop systems to manage the environmental, health, and safety aspects of their global subcontractors and suppliers.

One of the most important and difficult aspects of implementing corporate social responsibility is external accountability--that is, oversight by external stakeholders and the general public. The key to such accountability is the gathering and sharing of quality information about company performance. In the absence of credible information, company claims of good deeds and rising performance are often rightly met with skepticism in the marketplace and beyond.

A company, of course, can enhance its credibility by publicly reporting on its environmental, labor, and human rights performance, especially by including quantitative data. Public disclosure can take a variety of forms. Many companies having codes of conduct publish environmental and social performance information in annual reports or on their websites. Claims about better performance, however, are often vague, with little or no real data. Moreover, the information is reported in such a variety of different formats that making comparisons among companies is difficult.

Public disclosure is a difficult sell for many companies. Legal departments fear the potential for liability, executive managers worry about trade secrets, and protective company cultures encourage all employees to be tight-lipped. To help overcome this resistance, a coalition of companies and nongovernmental organizations have joined to produce the Global Reporting Initiative, a comprehensive, standardized reporting framework for voluntary disclosure. Initially conceived as a framework for environmental reporting, the Global Reporting Initiative has expanded to include both social and environmental issues. Information is reported by a firm level, however, rather than a plant level, thus limiting its usefulness to community monitoring efforts.

Another approach to enhancing accountability is to engage a third party to verify the validity of a company's performance claims. A few companies have requested that nongovernmental organizations or highly reputable individuals act as third-party verifiers. In the main, however, large financial auditors such as Price Waterhouse Cooper have captured the external verification market niche. Apparel companies, with extensive global supply chains, for example, have relied on Price Waterhouse Cooper to verify that subcontractors are not using child or sweatshop labor. Auditing multinational corporations for socially responsible business practices was expected to grow to a $75 million business by the end of 2001. (7)

The Promise and Lure

There is no single model of corporate social responsibility. Rather, companies construct their own approach by selecting from a variety of entry points and management tools. The most robust are those that weave together substantive standards and benchmarks, effective internal management processes, and credible disclosure and verification.

A robust corporate social responsibility approach to business management offers substantial promise as a method of raising the environmental and social performance of industry, both at home and overseas. The conventional approach to protecting the public interest--government command-and-control regulation--cannot go all the way towards improving performance; such an approach is rigid and expensive to monitor and can generate perverse results. Superfund, for example, which establishes a nationally funded program designed to investigate and clean up toxic waste sites, is an example par excellence: Companies have spent more money litigating over Superfund than in cleaning up toxic wastes.

With its emphasis on performance, corporate social responsibility is congruent with a more flexible, second-generation approach to regulation. Greater flexibility allows companies to deploy human and financial resources to achieve maximum impact, rather than to meet rigid specifications. It can allow companies to move beyond simple compliance. The essence of corporate social responsibility is the interaction of companies and advocacy groups via market forces. The promise--and the lure--of corporate social responsibility is that markets will reward good performers and punish bad ones. Market incentives will propel companies to continually seek and implement improvements and will act as self-enforcing mechanisms.

The business case for corporate social responsibility is built on the proposition that good environmental and social management improves the bottom line. On the one hand, consumers, investors, and workers may prefer socially responsible companies, rewarding them with a larger market share, higher prices, cheaper access to capital, and greater employee satisfaction.

On the other hand, corporate social responsibility can be good for business by increasing resource and energy efficiency, labor productivity, and product quality. It may also help to position a company as an industry leader in terms of cutting-edge technology and management systems. In the chemical industry, for example, early movers in phasing out ozonedepleting substances established a market edge.

Studies seeking to prove or dispute the business case have yielded mixed results. Especially controversial are studies that attempt to evaluate whether ethical investment funds yield higher than average returns. Many studies have found a strong positive correlation between good environmental management and company share price. Cause and effect, however, is unclear. Do investors prefer companies because of good environmental performance, or do well-managed corporations, preferred by investors, perform better environmentally? If the latter is true, then good environmental performance might be a proxy for companies with good corporate governance overall.

Beyond the business case, multinationals have embraced corporate social responsibility as a way to protect themselves from critical media campaigns led by environmental, labor, consumer, and other advocacy groups. Corporations may also embrace self-regulation as a way to preempt government regulation. Industrywide codes of conduct in the pesticide and chemical industries, for example, gained acceptance only because the imminent alternative was a binding set of international rules.

Is It Working?

The corporate social responsibility model offers the promise of an adjunct to government regulation as a way to hitch environmental and social protections to market forces, both at home and abroad. If done in response to the pressure of nongovernmental organizations or shareholders, a company's embrace of corporate social responsibility may be less than wholly voluntary, a process dubbed civil regulation. Nonetheless, unlike regulation, it is far from mandatory. Most important, when companies do voluntarily embrace corporate social responsibility, they have greater flexibility in how they define and implement it.

But can corporate social responsibility-as it is currently practiced- adequately promote the public interest? Can it replace, supplement, or complement mandatory rules and regulations? How widespread is its acceptance and implementation among U.S. multinationals and what impacts has it had on the environmental and social performance of individual companies and on the impacts of industry as a whole?

Hard evidence about the implementation, and especially the performance impacts, of corporate social responsibility is nearly impossibly to obtain. A 1999 study by KPMG, a Dutch consulting firm, showed that, of a total sample of 1,100 multinationals, less than a quarter produced a public environmental report or an environment, health, and safety report. In the United States, the rate of reporting from 1996 to 1999 dropped from 44 percent to 30 percent; independently verified reports rose from 15 percent of the companies in 1996 to 18 percent in 1999. (8)

Of course, many more companies may have internal ethical or environmental guidelines but do not make public their record of compliance. The lion's share of the largest American multinationals, however, have adopted some type of a code of conduct. Aside from these blue-chip companies that are sensitive to consumer pressure and green companies that have built reputations on their eco- or ethical behavior, it is unclear to what extent other companies even bother.

Unfortunately, for many local communities and nongovernmental organizations, the weaknesses in disclosure or verification mechanisms have made them skeptical of the whole enterprise. On its own, the implementation of corporate social responsibility, as a voluntary measure, may simply sputter out.

There is still some evidence that companies are changing and embracing new ideas that bring private gain and public good closer together. In the high tech industry, for example, leading companies have adopted sophisticated environmental management systems. Some leading oil multinationals have signed onto voluntary guidelines that protect human rights in the design and implementation of company on-the-ground security operations.

But there is also evidence that the voluntary embrace of best practice is piecemeal, incremental, and far from global. Moreover, current best practice may be far from good enough in protecting the health, safety, environment, and human rights of workers and communities, either at home or overseas. In the high tech sector, for example, toxic wastes from production and assembly processes are still inadequately managed, especially in developing countries. Toxic materials continue to be embedded in electronic consumer products, ending up in landfills where they leach into groundwater or aquifers.

The central shortcoming of the current state-of-the-art in terms of corporate social responsibility stems from the weakness of the force that drives and animates it--market-relevant, credible, comparable information. Without good-quality information, consumers and investors cannot consistently and accurately voice preferences through markets, and managers cannot make efficient and strategic decisions about change in production processes and product design.

This environmental and social information gap has five primary sources:

* Minimal statutory requirements for company disclosure mean that little information about company performance is in the public domain. Many ethical investment funds, for example, rate corporate environmental performance on the basis of a few mandatory reporting indicators. Compliance is only loosely related to actual performance, as many of the most intractable environmental and social problems are unregulated. Moreover, statutory disclosure requirements cover domestic operations only.

* Company fear and refusal to voluntarily disclose internal information, including fear of liability or other reprisal, divulgence of trade secrets, and fear of being disadvantaged relative to a competitor means that many companies are often reluctant to be forthcoming with critical information.

* "Greenwashing"--the hiding of environmentally harmful activities behind a facade of environmentalism and conservation--results in a lack of credibility and usefulness when company information is eventually disclosed. The typical vehicle for disclosure is an annual company report, also usually published on the company website. Greenwashing takes many forms: sweeping claims of improvements without quantitative data; selective data that highlight improvements in one area, such as reduced water use, while ignoring other crucial areas, such as energy efficiency or working conditions; and shallow or misleading third-party verification of data.

* The proliferation of voluntary standards, codes, information management systems, and social expectations has generated confusion within companies about what information systems to invest in. It has also hindered comparison between companies. Moreover, companies fear that social expectations are a moving target, with new issues constantly emerging from small groups who can mobilize a large voice.

* The lack of overarching sustainability and human rights policy goals means that benchmarks and improvements by individual companies, or even groups of companies, are difficult to evaluate. For example, a high tech company operating in a water-scarce region may set water-efficiency and reduction targets--and may even meet them. Without a larger ecosystem and social planning context, however, it is impossible to know if the benchmarks and gains are enough to ensure sustainability and equity in the use of the region's water resources. The lack of larger policy context renders company information partial and ambiguous.

The Third Leg--Government

The dynamic interaction of multinational corporations and advocacy groups has catalyzed change in business thinking and, to some extent, action. Social responsibility has emerged as a new strategic direction for the governance of corporations--a route around the inflexibility, perverse incentives, and high enforcement costs of the traditional command-and-control style of regulation. With corporate social responsibility, a company strives not only to comply with externally imposed regulation but to make continuous improvements in environmental and social performance in ways that make business sense.

The promise of corporate social responsibility is not a chimera. But it needs the reinforcement of government to fulfill it. The business case for corporate social responsibility works only so far before industry leaders come up against the competitive pressures of markets, especially among global competitors. Advocacy groups can work effectively as watchdogs and catalysts for only so long before they reach the limits of their human, technical, and financial resources.

What can and should government do? As a starting point, government can be an effective convener, bringing together companies, nongovernmental organizations, and the wider public in strategic dialogue to define the social expectations of corporate ethics. Government can enrich the interaction among companies, community groups, and nongovernmental organizations by providing them with technical assistance. Government can also be involved in the role of an investor and major purchaser and can promote similar initiatives with its counterparts in other regions, blunting criticism that U.S.-based corporations are being unfairly singled out.

Fundamentally, the role of government in society is to create public good. In the case of global corporate social responsibility for environment and human rights, the most needed tools are credible, high-quality information and substantive global standards. Information reinforces market forces working from the bottom up, while a global framework for all market players defines normative expectations from the top down.

Information Agenda

Information is the lifeblood of corporate social responsibility. Government must spearhead efforts and standards to systematize the gathering, management, and disclosure of information about a company's environmental and social performance. The information framework could build on voluntary efforts already underway, such as the Global Reporting Initiative, and should set a floor, not a ceiling, for information disclosure, thus allowing communities, company managers, and nongovernmental organizations to press for disclosure beyond what is eventually required. Additionally, such an information framework should span both the domestic and global operations of multinational corporations.

Standards for information gathering and mandatory disclosure would greatly reinforce the potency of corporate social responsibility as a supplement to more traditional forms of regulation. To be implemented, such standards would need to be supported, not only by the general public but, crucially, by corporations themselves. But why would companies want to support them?

First, information and disclosure standards would create a level playing field for all market players. They would clarify minimum social expectations and apply them to all. Many companies in highly competitive global markets worry about being undercut by less scrupulous competitors. Leaders in triple-bottom-line thinking--that is, financial, environmental, and social accountability--would especially welcome a common standard for all players.

Second, a common and consistent framework for managing and reporting information would reduce the costs to business of responding to multiple, amorphous and, sometimes, contradictory demands from advocacy groups. In essence, a government role in managing information needs would allow companies to re-externalize some of the costs of doing business back onto stronger public-sector institutions.

Disclosure requirements do not set substantive standards. Rather, they upgrade the quality and quantity of information in the hands of community and advocacy groups, as well as investors, shareholders, regulators, and the general public. Working through market forces, these groups can work to raise performance and drive continuous improvement. Mandatory disclosure laws, enacted by national and state governments, can work to strengthen corporate accountability from the bottom up. National initiatives by individual countries, especially large market players like the United States, would work to diffuse global norms.

There is also a need, however, to define and enact common substantive and process standards for all market players. There are a number of entry points for such rules, including international, regional, and bilateral trade and investment agreements. To date, negotiations over global and regional investment rules have focused solely on protecting the rights of foreign investors. A more balanced approach would also specify investor responsibilities, as well as the oversight responsibilities of host and home governments. (9)

Beyond international investment agreements, specific global standards for corporate performance could be incorporated within institutions whose scope embraces environmental protection, labor rights, or human rights. For example, multilateral environment agreements--such as the Clean Development Mechanism, authorized by the Kyoto Protocol on Climate Change in 1997--are developing market interfaces. The Kyoto Protocol could point signatory governments toward statutory changes in corporate governance that promote cleaner and more efficient use of energy.

Policy initiatives to strengthen and expand corporate disclosure would complement these efforts to reform international law, and vice versa. Policies that expand the public's right-to-know are likely the most politically feasible way to strengthen corporate social responsibility, at least in the United States.


(1.) See "Dodging Dilemmas? Environmental and Social Accountability in the Global Operations of California-Based High Tech Companies," . The California Global Corporate Accountability Project is a collaboration of the Natural Heritage Institute, the Nautilus Institute for Security and Sustainable Development, and Human Rights Advocates. Project information and reports are available at .

(2.) Asian Environment Outlook (Manila, PHL: Asian Development Bank, 2001), p. 2.

(3.) Lyuba Zarsky, "Stuck in the Mud? Nation-States, Globalization and the Environment," in Globalization and the Environment (Paris, FRA:OECD, 1997).

(4.) See the Sambhavna Clinic's website regarding the Bhopal disaster, at .

(5.) Naomi Roht-Arriaza, Costa Rica Field Investigation. California Global Corporate Accountability Project, July 2000.

(6.) S. Chang et al., A Study of the Social and Environmental Aspects of Taiwanese and U.S. Companies in the Hsinchu Science-Based Industrial Park, produced for the California Global Corporate Accountability Project, 2001. Available at .

(7.) Deborah Doane, "Corporate Spin: The Troubled Teen Years of Social Reporting," a report for the New Economics Foundation,2000. Available online at .

(8.) D. Wheeler and J. Elkington, "The Recent History of Environmental and Social Reporting: The End of the Corporate Environmental Report," in Business Strategy and the Environment 10 (1),2001, pp. 1-14. Available through the Solstice Institute at .

(9.) See the "International Sustainable and Ethical Investment Rules Project," on the Nautilus Institute for Security and Sustainable Development's website at .

Lyuba Zarsky is Director of the Globalization and Governance Program at the Nautilus Institute for Security and Sustainable Development, in Berkeley, California.


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