Corporate Codes of Conduct as Global Business Strategy

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  • 1.CHAPTER 6 CORPORATE SOCIAL RESPONSIBILITY AS BUSINESS STRATEGYby James K. Rowe Four hundred years earlier, social responsibility shifted from the church to the state, as government replaced religious institutions as societys predominant force. At the dawning of the twenty-first century, business appears the next likely candidate to carry this mantleJoel Makower and Business for Social Responsibility (1994:33)INTRODUCTIONSpeaking to the World Economic Forum meeting in Davos, Switzerland, on January 31 1999, UN Secretary-General Kofi Annan warned corporate executives and financiers gathered there that global capitalism was under fire. In order to slow the advance of globalizations critics, Annan suggested a global initiative that would institutionalize good corporate citizenship. As he put it then, Let us choose to unite the power of markets with the authority of universal ideals (Annan 1999).Eighteen months later, amidst great fanfare, a high level meeting was held in New York to review and finalize what was called the Global Compact. The meeting was attended by representatives from almost 50 companies, including Daimler Chrysler, Unilever, Deutsche Bank, BPAmoco, Novartis, Ericsson and Nike, as well as International Confederation of Free Trade Unions, Amnesty International, the World Wildlife Fund, the World Conservation Union IUCN and a consortium of developing country non-governmental organizations. In opening the meeting, Annan proclaimed that, open markets offer the only realistic hope of pulling billions of people in developing countries out of abject poverty, while sustaining prosperity in the industrialized world. The Compact was essential, therefore, to ensure that the global market is embedded in broadly shared values and practices that reflect global social needs, and that all the worlds people share the benefits of globalization (Annan 2000:1-2).But what is the Global Compact? According to publicity materials released in conjunction with the meeting (UN 2000), The Global Compact is a UN-sponsored platform for encouraging and promotinggood corporate practices and learning experiences in the areas of human rights,labour and the environment. It is an entry point for the business community towork in partnership with UN organizations in support of the principles andbroader goals of the United Nations, and provides a basis for structured dialoguebetween the UN, business, labour and civil society on improving corporatepractices in the social arena.Regulation for the Rest of Us? 121 Chapter 6, 9/7/04

2. The Global Compact, in other words, is a substitute for public regulation, an attempt to sidestep the diplomatic difficulties of dealing with the nasty bits of internationalized capitalism, what have been called externalities in earlier chapters of this book. The Compact also represents an attempt to globalize the growing corporate social responsibility (CSR1) movement.What is CSR? It is defined by Business for Social Responsibility, a global non-profit funded by corporations, as achieving commercial success in ways that honor ethical values and respect people, communities, and the natural environment (BSR 2003). According to Jeremy Moon (2002: 385-86), Professor of Corporate Social Responsibility at Nottingham University, Business social responsibilityrefers to the voluntary contribution of finance,goods or services to community or governmental causes. It excludes activitiesdirectly related to firms production and commerce. It also excludes activityrequired under legislation or government direction.Another definitions of CSR describes it as a concept whereby companies integrate social and environmental concerns in their business operations and in their interactions with their stakeholders on a voluntary basis (Commission of the European Communities 2001:6). The common thread that weaves through the various definitions of Corporate Social Responsibility is the voluntary nature of the good practices referenced. What makes CSR initiatives socially responsible is that they are not mandated by governmental or intergovernmental institutions they are voluntarily pursued. The most celebrated mechanism in the CSR toolkit, as evident from earlier chapters, is the corporate code of conduct. The Organization for Economic Co-operation and Development (OECD) defines corporate codes as commitments voluntarily made by companies, associations, or other entities, which put forth standards and principles for the conduct of business activities in the marketplace (1998: 5). But how effective can voluntary and largely unverified corporate efforts to minimize market externalities be?More and more studies measuring the (in)effectiveness of voluntary corporate codes are being published every day. The results are mixed. Some find promise (Schrage 2004; Kolk, van Tulder, and Welters 1999) wheareas others are much more critical (Christian Aid 2004; Zarsky 2002; OECD 2003). The consensus underlying these divergent findings is that, even if voluntary codes have potential, they are not currently addressing globalizations externalities in a sustained way. But if voluntary codes have not proven effective, or if there is at least no consensus on their effectiveness, why then are corporations, intergovernmental organizations like the UN, and even civil society so interested in them? That is the central question guiding this chapter.We begin with the less obvious: unpacking civil societys investment in voluntary codes of conduct. For labor and social activists, corporate codes of conduct, even if voluntary, can strengthen efforts to hold corporations accountable. Simply put, condemning an organization for unethical behavior is easier when said organization has already andRegulation for the Rest of Us? 122 Chapter 6, 9/7/04 3. openly agreed that ethical behavior is virtuous. Bama Athreya of the International Labor Rights Fund concretizes this point in relation to her organizations campaign against Nike: Lets face it, hypocrites are far more interesting than mere wrongdoers, and its been much easier to sensitize press and public to Nikes failure to implement its own code of conduct than to its failure to comply with Indonesian labor laws (quoted in Klein 2000: 432).Most labor and social activists supportive of corporate codes of conduct are also mindful of their limits. For one thing, activists lack the resources to monitor the plethora of transnational corporate activity spanning the globe. Thus, a strategic hope for activists is that voluntary corporate codes of conduct developed by individual companies, and international organizations like the UN and OECD, will nurture more regulation friendly environments both nationally and internationally (Smith 2003). There are thus long-term (gateway to binding social regulation) and short-term (immediate improvements in corporate conduct) rationales for supporting voluntary codes of conduct.Our aim in this chapter, however, is to question whether the short-term gains provided by CSR and corporate codes are worth the costs. Our argument is that the primary cost of supporting voluntary codes is precisely what global civil society hopes to gain through them: the binding regulation of transnational corporations. We argue that primary reason for businesss trenchant interest in corporate codes is that they are an effective means of quelling popular discontent with corporate power and the political change that discontent might impel. Our research has convinced us to approach corporate codes of conduct less as exemplars of business ethics and more as effective business strategy. By business strategy, we mean organized responses, through organizations like the International Chamber of Commerce (ICC) and World Business Council for Sustainable Development (WBCSD), to the threat that public regulation (both domestic and international) poses to businesss collective self-interest. Thus in simple terms, by unpacking why business is so invested in corporate codes of conduct, we intend to show why corporate self-regulation is a dubious proposition. We support this aim with an historical analysis.Attention to CSRs historical development reveals that it has flourished as discourse and practice at times when corporations and the institutional structures that supported them, became subject to intense public scrutiny. In this chapter, we focus on two recent periods of crisis for the business world, times when the threat of public regulation loomed large: 1960-1976: When developing countries along with Western unions and social activists were calling for a New International Economic Order that would more tightly regulate the activity of Transnational Corporations; and 1998 and after: When mass anti-globalization demonstrations and high profile corporate scandals (Enron and World Com) have been increasing demand for social regulation.By accounting for the role of codes of conduct in business bid to avoid regulation at a time when global opposition to corporate power was even stronger than today (1960-Regulation for the Rest of Us? 123 Chapter 6, 9/7/04 4. 1976), we argue that the recent flourishing of CSR should be approached with caution. In other words, the strategic hope that voluntary mechanisms can create regulation friendly environments is problematic when, historically, corporate codes have been self- consciously invoked by business to avoid social regulation.Before recounting the past 40 years of struggle over the regulation of transnational corporate capital, we offer a brief account of the modern corporations emergence in the US at the end of the nineteenth century. This account serves as reminder that corporations have had legitimacy problems from their very beginnings. They have always had to think strategically about appeasing a concerned populace. While using CSR efforts as a strategic resource only became de rigueur in the 1960s and 1970s, and almost universal since the 1990s, it is