Regulations for Corporations:
A historical account of TNC regulation
Désirée Abrahams
October 2005
*** Désirée Abrahams would like to thank Peter Utting of the United Nations Research
Institute for Social Development (UNRISD) for his support in her initially drafting
"Regulations for Corporations: A Historical Account", whilst working as a Research
Assistant for UNRISD in Geneva, Switzerland.
Contents
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Post World War Two: The ascendance of transnational corporations
The influence of the boycott
The rise and fall of the United Nations Centre on Transnational
Corporations
The onset of a Neoliberal ideology
Self-regulation takes centre stage
The multifaceted self-regulatory approaches
The birth of non-governmental forms of regulation
Civil regulation: a mélange
The complexity of multistakeholder initiatives
Diverse approaches in the new millennium
Civil society and the World Summit on Sustainable Development
Vestiges of the United Nations Centre on Transnational Corporations
The Framework Convention on Tobacco Control: a sign of things to come?
National law with cross border implications: a new trend?
Politics interfering with justice?
The Business Leaders Initiative on Human Rights: A glimmer of hope?
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Conclusion
Bibliography
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2
Regulations for Corporations
Post World War Two: The ascendance of transnational corporations
The political and economic global system has dramatically changed since the mid 1940s
when the United Nations was established. At the time, there were only a handful of
financially opulent transnational corporations (TNCs), unlike today where there are over
65,000 TNCs with 850,000 foreign affiliates (UNCTAD, 2003). In fact, TNCs have not
only attained more economic power over the years but also, political clout through their
ability to financially support and influence political systems (Korten, 1995).
It is no secret that some transnational companies financially benefited from the
Holocaust. However, it was not only German companies that benefited from this
atrocity. Other TNCs financially gained including some well known brands like Ford,
General Motors and IBM1 (Wallace, 2003, Laurent, 2003). This dark history appears to
have been an instrumental time in the economic progression of several contemporary
transnational corporations. A handful of the top 100 non-financial TNCs found in the
World Investment Report (2003) can be associated with this era (UNCTAD, 2003). But
despite this association, in general this period was state centric and the influence of TNCs
was relatively small compared to government. Their main role was one of manufacturer.
Only later did some TNCs emerge and assume a financial lender role. Any political
favours regarding trade and new markets they gained from business liaisons with
government were hidden from the public domain. Yet over time, increasing evidence of
such opaque business relationships emerged.
The first took place in the 1950s when the United Fruit Company helped orchestrate and
overthrow the democratically elected Arbenz government of Guatemala. In 1954,
President Jacobo Arbenz intended to implement a redistributive land reform bill and
consequently, was perceived as a threat to the US transnational company (Schlesinger
and Kinzer, 1999). During the invasion, Arbenz sought international redress from the
United Nations Security Council. However, both Britain and France assisted the US by
abstaining on Guatemala’s request for Security Council resolution S/PV. 675 para 194195 to be put before the Committee2 (Curtis, 2003:102). The invasion continued and
Guatemala returned to its historical right-wing rule and banana republic status3.
Before long, this scandal was supplanted by another of the same token. The coup d’etat
in Chile, first suggested by Pepsi Cola, later commanded by the International Telephone
and Telegraph Company (ITT), carried out by the CIA and implemented at the grassroots
by Augusto Pinochet took place in 1973 (Palast, 1998). At the time, both companies
were big investors in Chile, especially ITT, who had a lot of money invested (Palast,
1
There is now a growing body of work documenting the transnational companies that profiteered from the
Holocaust.
2
Security Council resolution S/PV. 675para 194-195 was put before the Security Council on 20 June 1954
3 A banana republic is a colloquial word “applied to a small state, especially in central America, whose
economy is almost entirely dependent on its fruit-exporting trade”. (Oxford English Dictionary, 2001)
3
1998). Yet at the height of the Cold World era, where the domino theory4 obsessed the
Nixon administration, it became critical that Chile should not fall under communist rule.
Allende was the leader of the Popular Unity coalition, a socialist-communist party that
had dreams of a nationalized economy and who were staunchly committed to
nationalizing the copper industry. Notably, this scenario ran counter to the ITT and
Nixon administration that had a financial stake in Chile5.
The influence of the boycott
Corporate interference in domestic politics was not the only corporate abuse being
committed during this period. Human, societal and environmental violations by
transnational companies also came to light; some of them spinning a consumer boycott
and campaign that further catapulted the call for international regulation. What started
off as a small boycott in the early 1970s by a few mother and baby groups in Europe,
grew to be one of the longest sustained campaigns against a transnational company.
Before long, mother and baby and health groups from around the world unanimously
opposed Nestlé’s marketing of infant baby milk formula in developing countries (Richter,
2001). Critics proclaimed that Nestlé’s adverts were deceptive (Richter 2001; Baby Milk
Action Update, 1996). The argument followed that by using illusory, visual imagery
Nestlé promoted their infant formula, which simultaneously discouraged breastfeeding.
By providing free samples and supplies to poor health facilities and giving financial
incentives to health officials based on their promotion of the product, some believed that
Nestlé was engaging in unethical marketing (ibid.). At the same time, countless studies
showed that since the introduction of the formula into developing countries, rates of
infant mortality had started to rise (Jelliffe, 1968). This concern reached the United
Nations (UN) and in 1970, the UN Protein-Calorie Advisory Group raised doubts about
the industry’s practices6 (IBFAN, 2004).
By the 1960s the apartheid regime was firmly rooted in South Africa. Amongst other
strategies, global boycotts were levied at the South African apartheid government and
any company engaging in business with them. A gamut of boycotts prevailed including
consumer, academic, economic, cultural and sport7. It can be said that the financial
involvement of a few international TNCs indirectly helped to prop up the regime.
Reaping financial rewards also made them directly implicated. With other past corporate
misdemeanours near in view, together these incidents produced the final push towards the
creation of a United Nations organization that would concentrate on examining the
effects of transnational corporations on society.
4
Domino theory is a political theory that believes if one nation comes under Communist control,
neighbouring nations will fall under Communist rule (like a set of dominoes).
5
In 1998 The Observer came out with new information on the relationship between the Chilean
government and US transnational companies, “A Marxist threat to cola sales? Pepsi demands a US coup.
Goodbye Allende. Hello Pinochet” G. Palast, The Observer, London, November 8, 1998.
6
The Sub-Committee on Nutrition was established in 1977 as a partial successor to the Protein-Calorie
Advisory Group of the United Nations system.
7
Information on the various boycotts levied at the South African apartheid regime can be gathered from
http://www.anc.org.za/ancdocs/history/boycotts/
4
The rise and fall of the United Nations Centre for Transnational Corporations
The United Nations Centre for Transnational Corporations (UNCTC) was inaugurated in
1977. Its mandate was carefully drafted to include monitoring transnational companies’
positive and negative, social and environmental impact. However, the arrival of the
Centre gave rise to mixed emotions. Transnational companies and some developed
nations were openly hostile, while, developing countries felt elated after years of
negotiation for its existence. Calls for the UNCTC came within petitions for a New
International Economic Order (NIEO), which at that time occupied a unique political
standing due to its drivers being drawn from the Non Aligned Movement8. One of the
main posits of the NIEO was the assertion for economic self-determination. The
Declaration on the Establishment of the New International Economic Order stated that,
“every country has the right to adopt the economic and social system that it deems to be
the most appropriate for its own development and not to be subjected to discrimination of
any kind”9. But as years passed, it became obvious that neither the NIEO nor the
UNCTC were destined for an easy path ahead. Northern governments felt threatened by
the Southern governments’ solidarity, exhibited in their unanimous demands for
international laws to safeguard their natural resources, trading rights, as well as secure
access to capital and technology (Girvan, 1976; Gleckman, 1995).
Following on from the establishment of the UNCTC there were other regulatory
multilateral initiatives established for transnational corporations to consider. In 1976, the
Organization for Economic Development (OECD) established the OECD Guidelines for
Multinational Enterprises. Although it mainly concentrated on aspects of corporate
governance, four of the nine areas addressed employment, industrial relations, the
environment and consumer issues. In addition, the International Labour Office (ILO)
established
the
Tripartite
Declaration
of
Principles
concerning
Multinational Enterprises and Social Policy in 197710 that drew on a range of ILO labour
rights conventions and recommendations. In 1980, the General Assembly adopted the
Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive
Business Practices under the auspice of the United Nations Conference on Trade and
Development (UNCTAD). And finally, after years of global protest concerning the
unethical marketing practices of Nestlé in particular, the United Nations Children’s Fund
(UNICEF) and the World Health Organization (WHO) jointly spearheaded the
International Code of Marketing of Breast-milk Substitutes that was adopted in 1981.
But despite the introduction of regulations that directly affected the working activities of
transnational corporations, each received limited endorsement from TNCs (Raghavan,
1984; Tapiola, 2001). All possessed a non-binding legal stature that implied voluntary
status. Essentially, TNCs did not feel compelled to implement the recommendations, or
use them as a guide for their ensuing self-regulatory efforts. Throughout this period, the
8
The Non-Aligned Movement is a movement of 115 members representing the interests and priorities of
developing countries (http://www.nam.gov.za/background/history.htm).
9
GA Res 3201 (S-VI) of 1974 in (1974) 13 ILM 715
10
Its unique tripartite set-up has often been quoted as one of the successful ingredients of the ILO’s
success. This consistent composition has forced agreements to be reached that are beneficial for all parties
(Gallin, 2003).
5
Heritage Foundation, an influential US conservative think-tank acclaimed that the NIEO
ideology would permeate the United Nations and this would have damaging
repercussions for the global political economy (Bandow, 1985). Yet this was far from the
truth. Developing countries found it hard to determine their economic path during the
Cold War era, a time in which the Soviet Union and US battled for their allegiance. It
became impossible to implement the handful of multilateral regulations that had been
created in their interest, and the ensuing bad economic climate that would prevail only
made their socio-economic situation worse.
The onset of a Neoliberal ideology
After the oil crises in 1978 and 1979 that contributed to high financial borrowing by
developing countries, the 1980s hit government purse strings hard and the infamous debt
crisis ensued.11 With the debt crisis economically crippling developing countries, their
need for foreign direct investment (FDI) grew. At this time, FDI was slowly becoming
the primary source of international monetary lending and before long; it became the main
preoccupation of Southern governments. In addition, the Structural Adjustment Policies
(SAPs) imposed upon many developing countries made their social and economic
situation worse. Public goods and services became privatized under SAPs and in
consequence, levels of human welfare deteriorated (Cornia, Jolly and Stewart, 1988).
Soon after, the debt crisis hit a critical point of departure. The previous decade’s
question concerning the quality of trade was supplanted by the quantity of aid, as
Southern governments lined up to receive their aid packages, courtesy of the World Bank
and the International Monetary Fund (IMF). Thrust against this climate, it became
impossible for developing countries to rule in favour of a regulation that may offend
transnational corporations, their potential development investors.
In addition to the debt crisis, a new economic orthodoxy emerged in the 1980s.
Neoliberalism spoke of liberalization, privatization and commensurately, deregulation.
The Northern business community unanimously perceived an international law looking
like it would prevent the free market from maximizing its full potential as undesirable.
Rather, trade laws that awarded incentives for increasing market penetration was sought
and later materialized, owing to the hard lobbying of influential TNCs and industry
confederations. At the same time, the World Bank and IMF worked hard to push the
neoliberal agenda in Southern countries. Before long, many Southern governments had
undergone a sea change in thinking and began to “believe” and promote the virtues of the
neoliberal ideology. Evidently, it was not long before the UNCTC was perceived more
as an emblematic threat than an independent body. Soon after, funding was removed and
projects ceased. Gradually the work of the UNCTC diminished. In the end, the proposed
Draft Code of Conduct for Transnational Corporations that seemed to be making
headway until then was abandoned just before the Rio Earth Summit in June 1992 (Khor,
2001). Sidestepping the UNCTC’s proposal at the Summit, the Business Council for
Sustainable Development (BCSD) together with the International Chamber of Commerce
(ICC) presented voluntary corporate self-regulation (Karliner et al., 1999; Richter,
11
For good sources on the 1980s debt crisis see "Bringing it back home; the impact of the debt crisis on all
of us" (Jubilee Plus, 1998).
6
2003b). This proposition received an official seal of approval and consequently, with its
raison d’être destroyed, it was only a matter of time until the UNCTC was disbanded in
1993 (Khor, 2001; FOE, 1998).
Self-regulation takes center stage
Before the United Nations Conference on Environment and Development that was held in
Rio de Janeiro in 1992, business was inching into the international development scene
with greater zeal. At the time, it was posited that sustainable business practices would
bring new advantages to the traditional business model. The three oft-quoted benefits
were; competitive advantage, ability to capture new markets and catalyst for innovation
(Zadek and Weiser, 2000). These proclaimed business assets received wide appeal among
industry sectors and before the Conference; many leaders of industry joined the newly
created sustainable development business associations. The World Industry Council for
the Environment (WICE) that later merged with the Business Council for Sustainable
Development (BCSD) to become the World Business Council for Sustainable
Development in 1997 was a forum that allowed corporate leaders to publicly display their
commitment to sustainable development.
At the time, WICE and BCSD both advised business to pursue self-regulation. It was
openly touted that this would allow innovation and creativity to flourish (Haufler, 1998).
Efficiency gains were alleged to emanate, in addition to increasing one’s reputation and
leadership image (ibid.). It was also perceived that business could respond to the
regulation void in a timely and effective manner. Strategically, business associations
exaggerated the “red tape” view of government. This theory spread unchallenged due to
the Conservative political dominance witnessed during the 1990s. The Reagan-Thatcher
era curry-favoured business and it was during their tenure that close relations between
industry and the government matured. Thus, in keeping with the disdain for government
interference, self-regulation was sold as prevention against the onset of national and
international regulation of TNCs. In conclusion, such acclaimed assets inspired
businesses to espouse sustainable development and support the International Chamber of
Commerce’s Business Charter on Sustainable Development that was launched at the Rio
Earth Summit.
Yet attempts to establish the Charter came amid speculation that it was a counter attack to
the mounting calls for a proposed Code of Conduct by the United Nations Centre on
Transnational Corporations (Gleckman, 1995). The UNCTC’s Recommendations on
Transnational Corporations and Sustainable Development did not receive a warm
welcome from business and Northern countries at the Conference and instead, was
shelved for the ICC’s Charter (Gleckman, 1995). Without acknowledgement or citation
the ICC incorporated some of the UNCTC’s Recommendations, and by default, were
awarded chief architects of Section 30 of Agenda 21 entitled “Strengthening the Role of
Business and Industry” (Gleckman, 1995). Given this significant move for the ICC and
the overall cordial embrace received by other business associations, the Rio Summit has
been hailed as the first official sign of business’ inclusion into the international policy
making world (Paine, 2000). However, as the years passed and a gamut of self-
7
regulatory initiatives developed, genuine proof of their commitment to sustainable
development became harder to find.
The multifaceted self-regulatory approaches
After the Summit many companies brought out reports highlighting their environmental
performance, achievements and aspirations for the future. The incentives were abundant.
Consumers believed they purchased goods and services from an environmentally
conscious company; investors felt reassured that the company could combine their profitdriven ambition with concern for a sustainable future; and workers sought security from
the new environmentally and ergonomically friendly working practices that were
endorsed12. Corporate reporting became so important that several organizations
developed awards to reward companies for their written achievements13. But as the
reports arrived, so did the criticisms. Many groups from civil society complained such
efforts amounted to corporate public relations (Macalister, 2002). Rather than providing
a comprehensive picture, it was levied that reporting concentrated on “best practices” and
hid the bad environmental working practices that still prevailed (Utting, 2002). It was
also postulated that such positive reports steered attention away from the constant
lobbying of international environmental agreements, frequently undertaken by TNCs
(INFACT, 2003).
Corporate and industry codes of conduct also multiplied after the Rio Earth Summit. The
Summit awarded them instant credibility whilst, questions concerning independency and
objectivity were quashed. Initially these codes dealt with a narrow range of issues.
Piecemeal approaches to administer the “triple bottom line”14 became the brief, and in
reality, evidence confirmed this approach. Resultantly, environmental management
systems and occupational health and safety concerns became main targets. Overnight,
environmental management spurned a sub-industry. Improvements in recycling were
documented in most advanced economies, also stimulated by the scares of a looming
landfill crisis in the US (CSM, 2002). Yet while these improvements were being made,
other significant development problems were being ignored.
Utting (2000) notes that the 1990’s witnessed some of the worst environmental and social
abuses committed by transnational companies. The environmental abuses of Royal
Dutch/ Shell in Nigeria, illegal logging in South East Asia and the plight of sweatshop
workers dominated the decade’s media headlines. This suggested that the imposed selfregulation had not helped eradicate bad working practices. Problems that surfaced like,
prohibition of union formation and polluted environments held more resonance with
12
Evidence of this concerning the Royal Dutch/ Shell company can be found on the Pensions Investment
Research Consultants website http://www.pirc.co.uk/shell9.htm.
13
Interestingly, subversion of corporate social and environmental reporting has developed, highlighting the
importance perceived in corporate reporting. Friends of the Earth’s “Failing the Challenge: The Other
Shell Report” (FOE, 2002a) mimics “Meeting the Energy Challenge: The Shell Report 2002”.
14
The triple bottom line implies that companies should consider the value they add and destroy on the
environment and society as well as economic value. John Elkington coined the term in 1997.
8
stakeholders15 than the issues companies were focusing their attention on. Evidently, it
became clear that self-regulation’s focus was one of tactical diversion of the public and
media, rather than a genuine attempt to help alleviate the concerns of stakeholders. Such
signs of hypocrisy inspired civil society to invent the word “greenwash”, a spin-off from
whitewash to depict what they saw as environmental PR (Karliner, 2001). Corporate
social and environmental reporting became the ultimate forum for utilizing greenwash
techniques (Doane, 2000). Unpredictably the word became a hit with the public, civil
society and the media. Come the new millennium, business was receiving lots of
negative media coverage of their greenwashing activities16. Practice of double standards
led critics to believe that self-regulation was an attempt to keep out the traditional
command and control regulation (Utting, 2000; Richter, 2001). Over the years, the
reluctance to include external monitoring, verification and keep their practices
transparent further magnified concerns. Notably, without such systems, it was hard to
measure the efficacy of each regulation against others.
The birth of non-governmental forms of regulation
After decades of antagonistic exchanges between civil society and business, the 1990s
witnessed a move towards conciliatory relationships and a multitude of partnerships
develop between both actors. Entitled multistakeholder initiatives (MSIs), these
partnerships varied in content and style. Some were based on a dual relationship and
enlisted only one company and one civil society group17, while others opted to bring
together a range of actors from civil society and at times, join forces with industry
associations and/ or an international organization.
Theorists have documented this new trend. Hulme and Edwards (1997; 277) entitled the
1990s as the era of the “market plus civil society will yield development myth”. Unlike
the 1970s “myth of the state” and the 1980s “myth of the market”, they believed the
1990’s myth would have longevity. So far, their prediction has borne true. During the
1990s the role of NGO’s changed considerably. Since 1997, when UN Secretary General
Kofi Annan announced that he wished civil society to join the United Nations in
becoming a shaper of policy, several northern NGO’s (NNGO’s) have accepted the
challenge and since then, allocated money, human resources and time to this new pursuit.
Additionally, few accepted invitations from business to join them in becoming partners
for development. In short, several NNGO’s have somewhat altered their direction.
Originally established as service providers, several NNGO’s went on to incorporate
lobbying, advocacy and policy advice as part of their contemporary core activities. Some
NNGOs have also started to branch into the regulatory field. In tandem, the subject
matter of many NNGOs has enlarged. Over the years, analysis of issues concerning
global institutional governance, the global economic system and the effects of
transnational corporations has been incorporated into many NNGOs working objective.
Zeldenrust (2003) defines a stakeholder as “any party that is affected by the activity or operation of an
enterprise”.
16
In 1992, based on the Oscars, CorpWatch created the Greenwash Award.
17
Civil society could be a non-governmental organization (NGO), church group, environmental movement
or a trade union.
15
9
A recent trend has witnessed some NNGOs combine a new strategy and subject matter
and create a department that works solely on the chosen field.
For example, Amnesty International UK established a wing that focuses specifically on
the human rights obligations of business. In 1997 the Amnesty International UK
Business Group wrote their Human Rights Guidelines for Companies. This document
draws heavily on the UN human rights conventions that are applicable to business
operations. In 2000 they also completed Human Rights Guidelines for Pension Trustees.
Oxfam is another NGO that has embraced a regulatory role and moved beyond its
founding interest, famine relief. In 2000, Oxfam Community Aid Abroad created a
Mining Ombudsman that would act as a complaints mechanism for the social and
environmental violations committed by the Australian mining industry. In addition, such
individual attempts have been supplemented by group efforts. The CORE Coalition, a
corporate social responsibility coalition made up of key NGOs in the UK is an example
of how civil society groups are joining together to influence national policy concerning
TNCs. The CORE Coalition is calling on the UK government to require mandatory
economic, environmental, social and financial reporting from business enterprises.
Although young in age, the Coalition is growing in force and is increasingly winning
both public and parliamentary support. In short, studies have characterized this new
phenomenon as civil regulation (Murphy and Bendell, 1999).
Civil regulation: a mélange
Multistakeholder initiatives are multifarious and have been born out of a variety of
situations. At times, MSIs have been developed as a knee-jerk response to a social and/or
environmental problem. Emotive issues have usually garnered significant media
coverage. The deforestation of the Amazon, labour violations in garment factories and
child labour are issues that have motivated civil society to take action. The exploitation of
sweatshop workers stimulated the creation of the Clean Clothes Campaign, Fair Labor
Association, Worker Rights Consortium and the Ethical Trading Initiative (ETI). All
four examples emerged in response to the violation of labour rights witnessed in the
apparel and sportswear industries in the 1990s. While most MSIs have been born out of a
problem, some have been driven by the inadequate handling of the situation by a
company and in some instances, government. The Forest Stewardship Council (FSC)
openly states that their existence derived from the “failure of an intergovernmental
process to agree on a global forest compact, and the compelling question-what is
sustainable forestry?”18. At other times, before some issues have escalated, some civil
society groups and corporations have been pre-emptive. In 1996, negotiations between
the World Wide Fund for Nature and Unilever over ways to counteract unsustainable
fishing led to the creation of the Marine Stewardship Council.
As Utting (2002) notes, other reasons for devising multistakeholder initiatives have been
a need for standardization. Throughout the 1980s when corporate self-regulation
dominated the scene, there was a growing concern about the lack of measurability
between corporate codes of conduct and other regulatory systems. The need for
18
Taken from the FSC’s website http://www.fscoax.org/principal.htm
10
consonance was imminent. Consequently, initiatives such as Social Accountability
International and the International Organization for Standardization were established.
Both organizations award standards and have developed certification systems. Other
MSIs have been created in order to facilitate TNCs by inventing a CSR tool for business
to use. The Global Reporting Initiative (GRI) and AccountAbility both provide targets
for companies to meet. The GRI has created guidelines for company social and
environmental reporting while, AccountAbility created AA1000 Series which is a
standard for social and ethical accounting, auditing and reporting. In short, this brief
diverse set of initiatives echoes the various CSR demands within a company and industry
sector. Yet although these initiatives appear to have numerous positive attributes, several
reports have documented reoccurring problems.
The complexity of multistakeholder initiatives
Theoretically, multistakeholder initiatives have been heralded as an effective form of
regulation for transnational corporations. One of its founding principles, stakeholder
value19 has won universal positive public acclaim. The invitation of civil society groups
to decision-making level was sold as an advantage, and many private companies have
officially made statements exclaiming this asset. As Murphy and Bendell (1999) point
out, there is a clear business case for engagement with NGOs. But despite this effort
towards inclusiveness, commentators have remarked that attempts to win the hearts and
minds of all civil society members have not been realized. Rather, participation has
remained among a selective few. It is postulated that Northern civil society groups
dominate MSIs and Southern groups are often sidelined at the decision-making level
(Utting, 2002). Indeed, questions concerning NNGO’s legitimacy and accountability are
raised here which stimulates further questions regarding who gives them permission to
represent Southern citizen’s interests (Abrahams, 2001).
Difficulties have arisen at the implementation stage where its voluntary basis does not
stimulate any incentives; hence motivation to fully support initiatives has often been
sporadic (Ascoly and Zeldenrust, 2001). It has been documented that in comparison to
the amount of existing TNCs, those that endorse MSIs are a minority, albeit some would
argue, a growing minority (Martens et al., 2003). Resultantly, this comparative low user
turnout has led to questions concerning its lack of inclusivity. Traditionally, MSIs have
been endorsed by leading TNCs, notably, brand-oriented companies. Reports have
suggested that partnering up on a multistakeholder initiative is beneficial for minimizing
one’s reputational risk. The predominance of the business-driven desire has led some
critiques to propose that the business rationale is the only reason why corporations
engage.
19
The Stakeholder Value Perspective emphasizes responsibility over profitability and sees organizations
primarily as coalitions to serve all parties involved. This contrasts with the Shareholder Value Perspective
emphasizes profitability over responsibility and sees organizations primarily as instruments of it's owners
ww.valuebasedmanagement.net/faq_shareholder_stakeholder_perspective.html).
11
This tenet has also been compounded by MSI’s lack of integration vis à vis the normal
business strategy and working operations. Codes of conduct have often appeared to be
designed in an ad hoc manner (Utting, 2002). Studies have noted complications at the
implementation and participation stage. Reports have highlighted that some codes are
drafted by head office and are sent to suppliers for integration into the local environment,
often without a case study analysis of the local area. The World Rainforest Movement
(2002) report critiques the Forest Stewardship Council (FSC) certification of two
eucalyptus plantations in Brazil. It is posited that little consideration of the local
environment’s specificities were taken into account when devising the certification for
the eucalyptus plantation. Although mandatory under Brazilian law, no environmental
impact assessment was completed before the certification was issued (ibid.). Among
other problems, it is levied that companies keep a black list of workers who wish to
organize, which floats ILO conventions 87 and 98. As it stands, officially FSC possesses
inaccurate criteria to certify eucalyptus plantations. Such a situation highlights that from
the outset, attempts to fully implement the code of conduct have not been carefully
thought out. Despite the image presented in abundant “best practice” MSI literature,
multistakeholder initiatives remain an area of contested terrain. Consequently, a
multitude of reports have been written about the potential and limitations of
multistakeholder initiatives, some of them introspective pieces from the founding body20.
Diverse approaches in the new millennium
In 1999 at the World Economic Forum, UN Secretary-General Kofi Annan challenged
business leaders to join them, in what would become, a new wave of UN-Business
partnerships. The Global Compact was designed to promote good corporate citizenship
and aimed to bring companies together with UN agencies, labour and civil society groups
to support nine principles in the areas of human rights, labour and the environment. Each
principle draws on established UN conventions, namely, the Universal Declaration of
Human Rights (1948), the Rio Principles on the Environment and Development (1992)
and the ILO’s Fundamental Principles on Rights at Work (1988). However despite its
important beginning, controversy has mired the Global Compact’s existence. Since its
birth, the Global Compact has consistently been criticized from a range of actors
(Richter, 2003b; Zammit, 2003).
The Global Compact is heralded as the UN’s flagship initiative concerning transnational
corporations. It is held that this prominent status signals to business how the UN believes
transnationals should act (Alliance for a Corporate Free-UN, 2004). It is suggested that
with endorsement from the Secretary General, the Global Compact indirectly supersedes
other UN initiatives concerning the working activities of TNCs (Bruno and Karliner,
2000). The fact that little or sometimes non-adherence to other UN conventions by some
Global Compact corporate partners has existed in the past, juxtaposed against their warm
support for the initiative, exemplifies where the priorities of some corporations lie. From
“Corporate Codes of Conduct: Self-Regulation in a Global Economy” (Jenkins, 2001), “Analysing NonGovernmental Systems of Labour Standards and Monitoring” (O’Rourke, 2003) and “Regulating Business
via Multistakeholder Initiatives: A Preliminary Assessment” (Utting, 2002) provide a good overview on
this subject.
20
12
the outset, the Global Compact called out to the Chief Executive Officers of the big TNC
players, many of which were historically the worse social and environmental violators.
For example, Royal Dutch/ Shell, now tarnished with a bad image owing to their alleged
knowledge of human rights violations in the Ogoniland, Nigeria, and the assassination of
Ken Saro Wiwa, are members of the Global Compact. Nestlé, another transnational
corporation with a historically bad image is also a Global Compact associate. Critics
lament that this is exceptional considering it is well documented that Nestlé has
systematically tried to undermine the International Code of Marketing of Breast-milk
Substitutes since its inception (Corporate Watch Newsletter Issue 10; Richter, 2003a)21.
Subsequently, the Alliance for a Corporate–Free United Nations has publicly criticized
the Global Compact office and questioned its integrity over the inclusion of Nestlé and
other TNCs with erroneous pasts. They and others have highlighted that endorsement of
companies like Nestlé are at odds with other UN policies (Alliance for a Corporate Free
UN, 2004). Under section three, “Choosing a Partner” of the Guidelines on Cooperation
between the UN and Business put forth by the UN General Secretary in July 2000 it
states that “Business entities that are complicit in human rights abuses, tolerate forced or
compulsory labour or use child labour…or otherwise do not meet relevant obligations or
responsibilities by the United Nations, are not eligible for partnership”.
In light of this position, it is questionable if many of the existing Global Compact
partners would be able to join the Compact if this statement was used as the ultimate
measuring criterion. Other concerns, such as the instant accolade apportioned to Global
Compact business partners and the Compact’s ad hoc expectations that have seen
companies show interest in one development issue while another issue is ignored, has
triggered calls for a more comprehensive international regulatory approach. While there
has been an abundance of “best practice" literature on various case studies, systemic
development improvements often have not transpired. Compared to the level of profit
and amount of financial outflow to the TNC’s domiciled country during the late 1990’s,
marginal improvements were witnessed in areas that hosted the corporations. Evidently,
the gap between CSR rhetoric and reality became visibly wider. Incidentally, more
people began to collectively dissent about the neo-capitalist economic framework,
claiming it advanced the rich at the expense of the poor (Anheier, Glasius and Kaldor,
2001). Large scale protests at Birmingham in 1998 and Seattle in 1999 witnessed an
outpour of anti-capitalist and anti-corporate sentiment. Additionally, other groups apart
from civil society started to question the impacts transnational corporations were having
on society.
In 1999, the U.N. Development Programme’s Human Development Report wrote,
“'There are no mechanisms for making ethical standards and human rights binding for
corporations and individuals, not just government…multinational corporations are too
important and too dominant a part of the global economy for voluntary codes to be
21
In fact, as recent as January 2003, the British Medical Journal completed an in-depth study and found
that Nestlé, Danone and eight other national and international manufacturers of baby-milk were found to
have violated the code in Togo and Burkina Faso (Aguyao, 2003). Unsurprisingly, concerns and debate has
ensued over the study’s assertions.
13
enough. They need to be brought within the framework of global governance not just the
patchwork of national laws, rules and regulations”. A year later the Office of the High
Commission for Human Rights brought out “Business and Human Rights: A Progress
Report” that explained why human rights is important for business. The same year the
European Commission's Green Paper on Corporate Social Responsibility announced that
voluntary CSR should, “not be seen as a substitute to regulation or legislation
concerning social rights or environmental standards… In countries where such
regulations do not exist, efforts should focus on putting the proper regulatory or
legislative framework in place.”. And in 2001 the then UK Foreign Secretary, Jack Straw
stated, “We must do what we can to encourage corporate responsibility. But we cannot
leave companies to regulate themselves globally, any more than we do in our national
economies”.
Civil society and the World Summit on Sustainable Development
By 2002, in the run up to the second Earth Summit in Johannesburg, South Africa calls
for an international convention on the working activities of transnational corporations had
reached fever pitch. Some NGOs called for a new organization to be established under
the auspice of the United Nations. Christian Aid proposed a Global Regulatory Authority
who would be mandated to draw up legally binding rules and standards for TNCs, and
provide a monitoring function to ensure that the laws would be upheld. The resuscitation
of the United Nations Centre for Transnational Corporations was also proposed.
However, the need for a legally binding convention received widespread agreement and
was consequently debated in the NGO forum22 at the Summit.
In the end, discussions concerning new binding regulations for the activities of
transnational companies fell on deaf ears (FOE, 2002b). Despite the rigorous debate in
the NGO forum, supplemented by the voluminous pleas outlining the case for a ruling on
corporate accountability, NGOs, labour groups and other groups from civil society came
away empty handed (Third World Resurgence, 2002). The official response regarding
the much sought after regulation received little positive attention from the majority of
government delegations, numerous transnational corporations and their business
associations. Rather, the presumed innocuous tone of the Summit adopted a pro-business
pitch (Bruno and Karliner, 2002). The final decisions all spoke of a greater role for
business in the development of Southern economies. The inauguration of the second
phase private-public-partnerships level II that mapped out a route for business towards
assuming a social development provider role certified this new trend. Prior to the Summit
critical pundits disapproved of this set-up and allegations were thrown at the United
Nations’ relationship with business with reference to them being too close for comfort,
and its possible demise if such liaisons continued (Monbiot, 2000; Utting 2001). It was
posed that the UN was being used by some companies to help galvanize their negative
22
Civil Society Forum ran from the 19 August - 4 September 2002 at the Expo Centre (NASREC) located
south of Johannesburg.
14
image (Corporate Europe Observer, 1998 – Issue 2 Oct). Based on “greenwash”23,
“bluewash” was invented in 2000 to mean “the corporate association with the UN itself
as the ultimate symbol of human rights” (Bruno and Karliner, 2000). In addition, the new
millennium witnessed the establishment of the Alliance for a Corporate Free United
Nations. The establishment of a global network made up human rights, environment and
development groups that are concerned about the increasing corporate influence in the
United Nations, illustrates that the global fear of the UN’s close relationship with
business is serious and borne by many people. However, in spite of repeated come-backs
from the United Nations Global Compact office,24 media coverage of speculated
“bluewash” has continued over the years. Presently, an increasing amount of books,
magazines and articles have articulated the Alliance’s concern (Karliner et al., 1999).
In spite of this, the Norms on the Responsibility of Transnational Corporations and Other
Business Enterprises (hereafter the Norms) continued to derive support. A year later, the
UN Sub-Commission on the Promotion and Protection of Human Rights approved the
Norms. Notably, there is a strong push from many civil society groups, some
international organizations and few businesses for it to become a piece of binding
regulation, however, at this time it is difficult to predict if this will materialize. So far,
industry bodies such as the ICC and the US Council for International Business have tried
to undermine the Norms. They and other lobby groups have attempted to influence the
opinions of government delegates who have voted at UN Commission on Human Rights’
April sessions over the past two years. Evidently, this campaign is reminiscent of the
ICC’s attack of the UNCTC’s proposed Code of Conduct for Transnational Corporations.
But unlike the proposed Code of Conduct, the Norms are merely a restatement of existing
international conventions that have already been endorsed by Member States. Under the
laws of the United Nations, transnational corporations and other business enterprises are
addressed as “organs of society”, a classification that TNCs have always had under
international law. Evidently, the fears expressed by business lobby groups are
unfounded.
Vestiges of the United Nations Centre for Transnational Corporations
Apart from the Norms and the Code of Conduct proposed by the UNCTC possessing a
similar objective, attempts to resuscitate other work of the UNCTC have not been made.
Some elements were transferred to the United Nations Conference on Trade and
Development (UNCTAD) under the Division on Investment, Technology and Enterprise
Development. However, most work based on transnational enterprises by UNCTAD
focuses on foreign direct investment and facilitating technology to developing countries.
In recent years UNCTAD placed more emphasis on examining the operations of
transnational enterprises in social and environmental terms. In 2003, a meeting of the
Intergovernmental Working Group of Experts on International Standards under the aegis
In 1999 “greenwash” entered the 10th Edition of the Concise Oxford English Dictionary. Green*wash:
(n) Disinformation disseminated by an organization so as to present an environmentally responsible public
image. Derivatives greenwashing (n).
24
Correspondence between CorpWatch (Secretariat of the Alliance for a Corporate Free UN) and the UN
Global Compact office can be read at www.globalpolicy.org.
23
15
of UNCTAD on the “Disclosure of the Impact of Corporations on Society: Current
Trends and Issues” led to a report which looked at the issue of corporate social
responsibility and the implications for accounting and reporting. Two years previous,
UNCTAD reassessed the effects of TNCs through a social and environmental lens in two
reports, carried out for the International Investment Agreements (UNCTAD, 2001a;
2001b). But while this may look hopeful, the desire to embrace the core working
activities of the UNCTC has not developed and does not seem to be on the cards.
Previous efforts to provide an advisory service for national governments concerning
investment with TNCs have not been resurrected. Neither has information and data
collection, research or policy that looks at the possible negative impacts of MNC
enterprise on society and the environment.
Despite this void, some UN agencies have embarked on projects concerned with the
effects of TNCs. Although no agency has taken up the research remnants of the UNCTC,
in a sporadic manner, several agencies have carried out research that has examined the
activities of TNCs on society. Sometimes such work has been analytical and
occasionally critical. Agencies like the United Nations Research Institute for Social
Development have adopted both a general and regional approach25, while others have
focused on the impact of TNCs with regards to their specialized area. For example, in
2002 the United Nations Industrial Development Organization (UNIDO) produced
“Corporate Social Responsibility: Implications for Small and Medium Enterprises in
Developing Countries”. In 2000, consultants for the World Health Organization
condemned the unscrupulous tactics of the tobacco industry in their report, “Tobacco
Company Strategies to Undermine Tobacco Control Activities at the World Health
Organization”. UNICEF together with the Defense for Children International also
completed a report on child labour in Côte d'Ivoire's gold and diamond mines in 1993.
Finally, under the Multinational Enterprise Declaration programme, the International
Labour Office undertakes research on transnational enterprises.
Apart from the Global Compact there have been no attempts to bring UN agencies
together on the single issue of the regulation of transnational corporations. Rather, UN
agencies have either devised initiatives or drafted conventions that relate to elements of
corporate social responsibility based on their expertise and specialization. A myriad of
regulatory initiatives for business of varying strengths has resulted, evidently, some more
successful than others in reaching their desired goals. As aforementioned, the 1970s
witnessed an accumulation of attempts by various UN agencies to formulate regulatory
systems for transnational corporations. However, despite the concerted efforts, neither
agency was able to attain binding status for their regulation. Since then, the Framework
Convention on Tobacco Control that was passed in May 2003 offers a glimmer of hope.
For a comprehensive overview of UNRISD’s work on corporate social responsibility issues see
www.unrisd.org.
25
16
The Framework Convention on Tobacco Control: a sign of things to come?
After years of negotiation for a treaty on tobacco, the World Health Organization passed
a binding international law (INFACT, 2003). In May 2003, the World Health Assembly
adopted the Framework Convention on Tobacco Control (FCTC) after 192 countries
unanimously voted yes. This treaty has been heralded as groundbreaking based on two
points. Firstly, with regards to content, the FCTC places clear boundaries on tobacco
companies (Yach, 2003). Secondly, it is the first convention in international legal history
that has withstood the fight from transnational corporations and made it to treaty status
(ibid.). Previous conventions have lost the battle against the mighty lobbying tactics
from business and retained their non-binding stature (Greenpeace, 2001). But although
this is a marked improvement for public health and corporate accountability, time needs
to elapse before the benefits and effectiveness of this treaty can be accurately measured.
Presently, tobacco kills five million people a year, approximately half of its regular users
(WHO, 2004). Evidently, the “need to” argument to institute tough regulation was clear.
Yet even though it is possible that these frightening statistics may not change
dramatically given time26, the symbolic nature of the regulation can be considered as
incalculable.
Pre treaty the big tobacco companies had started to refashion themselves as “cleaner”
tobacco companies. Market dominator Phillip Morris went so far as to rename their
company, opting for Altria (Smith et al., 2002)27. However, the biggest change witnessed
by them and other big tobacco companies has been the transformation of their health
caution information. From 2000, many countries started to introduce new legislation that
stipulated companies must state clearly that smoking kills28. It would seem that in
response to a combination of new legislation and years of lawsuits levied at several
tobacco companies over the past 20 years,29 companies have responded by graphically
going over the top by enlarging the caution information to half of a packet’s front face.
The effectiveness of this strategy is hard to measure however; so far, some cancer
charities have reported that it is proving to be effective and is discouraging smoking
(Canadian Cancer Society, 2002; BBC, 2003).
What is valuable about this treaty is the precedent it sets for other societal issues that
concern transnational corporations. Not only does it set the tempo and raise the stakes for
other UN conventions, but also, provides decisive guidelines on the implementation
procedures (WHO, 2004). This is especially important for economically vulnerable
developing countries that in the past have fallen prey to the trade lawyers defending
Tobacco companies’ main targets now are developing countries. Therefore it is possible that despite the
decreasing rates of smoking seen in some advanced economies, with rising levels in developing countries,
rates may still increase.
27
“Altria Means Tobacco: Philip Morris’s Identity Crisis” in the American Journal of Public Health (April,
2003) explains why Philip Morris sought to change its identity.
28
In 2000, New Zealand introduced legislation concerning cigarette labelling. In 2001 the European
Commission introduced directive 2001/37/EC.
29
Lawsuits against tobacco companies have existed since the 1950s, however, for 30 years the tobacco
industry had a strong legal defence and won all trials. The first suit to win in favour of the plaintiff was in
1992, Cipollone v. Liggett Group (90-1038), 505 U.S. 504. Group (BBC News, 28/09/99).
26
17
Northern countries and TNCs. After a string of lawsuits that made internal industry
documents publicly available, reports now show that for decades tobacco companies
silenced critics, manipulated research and tried to undermine the World Health
Organization in various ways (WHO, 2000).
Critics have drawn a parallel between the tobacco and food issues, suggesting that both
industries have attempted to infiltrate UN organizations and have succeeded in thwarting
efforts to pass strong regulation. Historically, it has been documented that business has
greatly influenced the outcomes of many past proceedings relating to the regulation of
food and beverages through sponsorships, partnerships and direct lobbying (Castleman
and Lemen, 1998; WHO report). However, as the tobacco treaty and the recent assent
of national laws being used to try transnational companies indicate, the existing status
quo is being challenged.
National law with cross border implications: a new trend?
From the 1990s a new trend has emerged. Transnational corporations have been
subjected to legal attacks from their Southern stakeholders. Stakeholders have joined
forces with Northern based civil society groups and law firms to initiate legal
proceedings against transnational corporations for their alleged past abuses. National
laws with cross border implications have been unearthed in several home countries of
some of the top Northern transnational corporations, namely Australia, Canada, the UK
and the US.
Legal proceedings against Thor Plc, Rio Tinto and Cape Plc, all British mining
companies began in the late 1990s. Compensation was sought by South African and
Namibian stakeholders on claims that companies were negligent and failed to respect
fundamental labour rights, particularly occupational health and safety (Meeran, 2003).
Lawsuits have also been levied at Canadian and Australian companies. In 1998,
Recherches Internationales Quebec launched a class action lawsuit on behalf of 23,000
Amerindians in Guyana against Cambior Inc., for environmental damages in the Omai
region. Subsequently, in 2000 BHP Billiton, an Australian mining company was charged
with human rights abuses, environmental degradation, as well as inciting conflict and
instability in Papua New Guinea.
In 1999, citizens from Indonesia and Nigeria joined forces with American legal firms and
civil society groups to launch legal proceedings against Freeport-McMoran and Chevron,
respectively. They used the Alien Torts Claims Act, an old American law that allows
“federal district courts jurisdiction to hear claims by aliens for torts30 in violation of the
law of nations or treaties of the United States” (USA Engage, 2004). Symbolically these
cases proved instrumental. Since their introduction, over twenty cases have been levied
at other transnational corporations for various incidences of alleged corporate
wrongdoing. Most cases concern allegations of environmental damage and violations of
30
tort n. A wrongful act or omission for which damages can be obtained in a civil court by the person
wronged, other than a wrong that is only a breach of contract. The law of tort is mainly concerned with
providing compensation for personal injury and property damage caused by negligence (OED, 2002).
18
labour and human rights laws. Other cases have involved allegations of torture, cruel,
inhuman and degrading treatment, kidnapping, murder and crimes against humanity
(Earthrights International, 2004; USA Engage, 2004). More recently, legal charges
against American and Swiss banks for their alleged complicity with the South African
apartheid system has seen charges of forced removals, banishment and theft of assets, in
addition to aiding and abetting, unfair and discriminatory labour practices and
imprisonment.
As Ward (2001) delineates, the UK, Canadian and Australian cases, all based on the
English legal system address issues of corporate behaviour. In short, legal cases are
based on the belief that corporate actions in the host country should match those
exercised in the home country. Contrastingly, the US cases concentrate on corporate
compliance of customary international law norms. However despite the long duration of
these cases in the court system, to date, there has been no concrete legal success. Some
cases have ended prematurely. After years of legal wrangling, Thor Plc settled out of
court in 2000 and Cape Plc reached a settlement in 2001 (Ward, 2002). At other times
legal ambiguities have resulted in cases being moved around the court, resulting in court
cases being in a continual pending status.
Here, legal ambiguities provide two main problems. In cross border disputes a
jurisdiction of the court needs to be primarily ascertained. The legal doctrine of forum
non conveniens is one way of trying to overcome this jurisdictional problem. Forum non
conveniens can be used by a court to decide which jurisdiction is deemed the most
appropriate. In general, transnational corporations prefer for cases to be tried in
developing countries and have been known to use tactics that undermine the legal
processes. Meeran notes that efforts to “undermine the claimants’ funding and even
attempting to discredit the claims and the claimant’s legal advisers” are some of the
practices used by TNCs (1999: 163-164). The recent actions of Cape Plc prove this
postulation. Evidence shows that Cape Plc approached the Director of the Centre for
Applied Legal Studies at the University of the Witwaterstrand in South Africa and
proposed that the Centre coordinate litigation procedures on behalf of South African
claimants. In addition, funds to facilitate proceedings were offered (Ward, 2003).
For a variety of reasons plaintiffs prefer legal proceedings to be heard in the home
countries of the transnational corporation. Among other reasons, three are particularly
important. Firstly, home countries usually have comprehensive legal systems that
contain substantive liability provisions. Secondly, Northern countries often possess an
array of independent media sources that inform the populace on the alleged wrongdoings
of politicians and business persons. Furthermore, these countries frequently have
independent watchdog organizations that watch, monitor and name and shame TNCs.
This has proved to be helpful strategy in trying to galvanize public support around the
issue.
The second major obstacle in a cross border dispute concerns the issue of corporate
separateness. Under Company law, a corporation possesses limited liability status
otherwise known as a “corporate veil” (Meeran, 1999). According to the law, a
19
corporation’s main responsibility is to its shareholders and not to its internal or external
stakeholders. As Meeran articulates, this has allowed TNCs to “distance and separate the
parent company from the local operating subsidiaries, thereby protecting the TNC from
legal liability” (Meeran, 1999: 162). However, UK lawyers in the Cape Plc case have
tried to get around this obstacle by arguing that the UK parent company, through
ownership and control of its subsidiary owes a “duty of care” to their foreign workers
(Ward, 2002). “Piercing the corporate veil” has proven to be a high hurdle to jump over.
Despite the California Superior Court Judge claiming that the Unocal Corporation was
aware that operations in Burma were likely to result in violations of the rights of Burmese
villagers, Judge Chaney also ruled that Unocal’s subsidiaries in Burma were not the
“alter-ego” of the parent company (EarthRights International, 2003). These impediments
have been hard to counter however; political tensions concerning these cases that have
arisen appear to be a potentially bigger obstacle. Political intervention from governments
has the potential to dilute or destroy such legal instruments. Thus far, both Northern
and Southern governments have voiced concerns about the use of these national laws,
albeit from different standpoints.
Politics interfering with justice?
The present US Bush administration has been the most vociferal concerning the Alien
Torts Claims Act and has garnered support across the nation. Op-ed pieces, articles and
reports have been written denouncing the ATCA and surmising that it will have a
detrimental effect on American national security and foreign policy and could hinder the
US led War on Terrorism (Hufbauer and Mitrokostas, 2003). More recently, the UK,
Australian and Swiss governments have made formal moves to curtail the ATCA as
several British, Australian and Swiss companies are being tried for violations under the
Act. An amicus curiae (legal brief) filed by the British government in February 2004
states that the Alien Tort statute “interferes with the sovereignty of the governments and
other sovereign nations by subjecting their nationals and enterprises to risk of conflicting
legal commands and proceedings” (Verkaik, 2004)
Developing countries have also been vocal about the use of foreign cross border national
laws. Although South African plaintiffs are trying British, Swiss and American
companies for a range of violations and abuses committed during the apartheid era, South
African President Thabo Mbeki believes that the ATCA questions their national
sovereignty and fears that pursuance of such proceedings will deter transnational
corporations from doing business with South Africa in the future (Zwangendaba, 2003).
Previously he had rejected a proposal from Archbishop Desmond Tutu, chair of the Truth
and Reconciliation Commission for a wealth tax that would be given as reparation
payment to victims of South Africa’s apartheid regime. This was aimed at the TNCs that
benefited from the apartheid system (Sebelebele, 2003). Yet other countries have gone a
step further and enacted legislation that will prevent future lawsuits against transnational
corporations from being waged. In 2002, the government of Papua New Guinea passed a
law that “prevents any government agency from taking or supporting “in any way”
20
proceedings against the mining multinational BHP-Billiton “in respect of an environment
claim” (Burton, 2002:1).
Evidently, the case for using national law that has cross border implications is deeply
complex. There is no doubt the fear expressed by some developing country heads of
State are legitimate. In a competitive globalized world where footloose industries have
the ability to pick and choose among numerous countries, any situation that may thwart
possible investment opportunities will inevitably be viewed as undesirable. This is
unfortunate given that history and polls confirm31 companies prioritize profits over the
health and safety of workers, despite in some cases, the possible onset of stronger
legislation for corporate killing (Brevitt, 2003).
The stark juxtaposition of future
investment against justice for past abuses in an either-or scenario pushes developing
countries in a corner. In this era of corporate economic and political dominance,
developing countries are continually forced to toe the line or face staying out in the cold.
Being one of the main investment providers, TNCs are able to dictate the terms of trade,
bypass local laws and in certain situations “purchase” laws, otherwise known as state
capture (Hellman, Jones and Kaufmann, 2000). In addition, the introduction of policies
such as “national treatment32” which gives transnational corporations equal and some
speculate, better rights compared to a local company suggests that the World Trade
Organization is working in the interests of TNCs (Khor, 1999; CEO and FOEI, 2003).
Set against this backdrop, developing countries have consistently found it hard to get
TNCs to comply and respect their national social and environmental laws, aspects often
calculated as an externality by business. Evidently, only one successful legal case is
needed for a precedent to be made
The Business Leaders Initiative on Human Rights: A glimmer of hope?
In 2003 the Business Leaders Initiative on Human Rights (BLIHR) was established.
Chaired by Mary Robinson and patronized by some leaders of industry this three year
initiative aims to promote and integrate human rights objectives into business policy and
practice (BLIHR, 2003). However, although it is another voluntary initiative, there are
clear signs that this group is willing to accept stronger forms of regulation. In the
opening Business Leaders’ Statement, all seven heads signed their names against the
statement “an important contribution during 2003 has been the work of the UN Human
Rights Sub-Commission in adopting Human Rights Norms for transnational and other
businesses. We will give serious consideration to the role these Norms might play in our
own work” (ibid.). In the same year, market dominator Altria commented that they
would agree to international regulation provided it would apply to all companies in the
industry. It is speculated that endorsing a regulation that may eventually arrive will
award them competitive advantage and enable them to maintain their premier position.
31
On 25th February 2002 The British Safety Council published the findings of the MORI poll and
concluded “Company chiefs ignore safety issues in a quest for profits”. This was based on a survey of the
FTSE 500 companies.
32
The World Trade Organization defines national treatment as the principle of giving others the same
treatment as one’s own nationals (found on WTO website
http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm).
21
Evidently, this reason differs from other officially known ethically aware companies like
The Body Shop International and Ben and Jerry’s, who have historically been genuinely
concerned about the impact of business on society. Hopefully over time, more
corporations will publicly endorse the Norms and commit themselves to upholding
stronger regulation, regardless of their motivations, as importantly, the outcome remains
the same.
Conclusion
This paper has aimed to give a contemporary history of the regulation of transnational
corporations. Since the 1950s, political, economic and social events have shaped and
dictated the type of regulation that affects TNCs. Roughly speaking, new regulatory
trends emerged each decade. The 1960s to 1970s witnessed developing countries club
together and rally for binding international regulation that would curb the alleged
violations committed by TNCs. This did not materialize. A structural and institutional
legacy from colonization left developing countries in a state of politico-economic
dependence. At the height of the Cold War, developing countries found it hard to assert
their sovereignty against Northern countries and their transnational corporations.
Moreover, the proceeding conservative decade observed in the US and other European
countries altered the course of action. The presiding neoliberal ideology prescribed
privatization, deregulation and liberalization. Simultaneously international regulation
that could potentially administer control over the free market was quashed. Selfregulation prevailed unabated until the 1990s. However, it soon became evident that
crucial worker and environmental objectives were not being met, which catapulted the
acclaimed “race to the bottom” scenario (Bretcher and Costello, 1994).
Since the 1990s, civil society has enthusiastically embraced government and businesses’
invitation to be its partner. Nominated an architect’s role, NGOs devised MSIs and
sought collaborations with governments, corporations and the international community.
To date, feedback has been mixed. Initially MSIs were seen to be more efficient than
government regulation, and more comprehensive in meeting society’s needs than
corporate self- regulation. But as time elapsed, flaws in the MSI model appeared.
Since then, calls for binding international regulation have resurfaced suggesting the birth
of a second wave. However after the 1970s one significant difference is apparent.
Currently, significant numbers of both Northern and Southern populations demand
binding international regulation to monitor TNC activities. It is possible that with this
new existing Northern support there is a greater chance of its actualization. Increasingly,
Northern societies have started to feel the effects of negative corporate actions. In 2002
the Enron scandal sent reverberations vertically and horizontally across the world.
Thousands of American citizens lost their jobs, pensions and insurance policies. Dubbed
“Europe’s Enron” the financial falls of Dutch retailer Ahold and Parmalat, an Italian food
company proved also that Europe was not immune to such corporate disasters. Yet
although it was failure in corporate financial governance that initiated all three débâcles,
interest in the general operations and governance of TNCs subsequently increased. Now,
more people than ever before are questioning corporate power.
22
But as the increasing calls for a binding international law suggests, is it simply an
argument for a new type of regulation? Should we not concentrate on using our existing
set? As this paper has shown, regulation that relates to transnational companies has
existed for decades, but this has not prevented social and environmental disasters from
taking place. It becomes important to ask, have we accurately assessed why the existing
regulatory tools have not halted bad corporate behaviour? Surely it is crucial to
understand why previous regulations have been unsuccessful in order to strive for
effective future regulation?
Firstly, previous decades were not recipients of a large, well-organized civil society.
Presently, NGOs are in the strongest position they have ever been. There now exists a
litter of international NGOs focusing on the global economic system and the influence of
big business on society. Their ability to inform and motivate the public to participate in
campaigning, lobbying and boycotts has been an amazing feat. Since the 1990s this
growing global public body has rooted itself at the anti-globalization protests. Evidently,
their constant vigilance and consistent attack has proven fruitful. Since the 1980s
environmentalism era, NGOs have garnered strength in numbers and strategy. Reports
have indicated that the persistent civil society offensive helped galvanized public support
and sustain the momentum for the realization of the Framework Convention on Tobacco
Control.
Another significant difference witnessed now is the enthusiasm exhibited by some
political parties and national governments for the regulation of TNCs. The proposed
Corporate Responsibility Bill in the UK has received cross-party support from over 300
Members of Parliament. The European Commission’s draft European Code of Conduct
for European Enterprises Operating in Developing Countries is another example. This
report has noted that pressure to attain foreign direct investment over the decades has
meant fewer developing country governments now openly question the actions of TNCs.
Support has dwindled since the heyday of the 1970s when the New International
Economic Order dominated government concerns; however, as Vidal (2002) noted at the
World Summit on Sustainable Development, a handful of governments are willing to
speak out against what they see as unfair trade rules and corporate globalization.
A third contrast from the 1970s first wave of international regulation for TNCs is the
present attitudes of some corporations, few of which have been affirmative concerning
the possible onset of mandatory regulation. Novartis, Altria and The Body Shop have all
made positive statements in favour of more regulation for TNCs, albeit from different
standpoints. But despite this being a drop in the ocean it is possible that such companies
may influence others. Indeed, it only takes one industry leader to change the course of
action for the rest. These three differences and current shared drive from diverse actors
to push for tougher regulation is a marked improvement from previous decades, which
were based on selective requests from isolated social groups and politically and
economically weak developing countries.
23
However gaining support from numerous actors does not change the logistical problem
associated with international regulation for transnational corporations. One of the biggest
obstructions in the past has been the lack of enforcement by States on TNCs to endorse
the applicable United Nations laws. Under international law a company is considered a
legal person. States have the responsibility to ensure that their domestic companies are
abiding by international laws in home and host countries. But this is a difficult process to
maintain. History has shown how hard it is for governments to impose regulations on
transnational companies. Thanks to the British government’s dismal application during
the 18th and 19th centuries, the East India Company was able to ride roughshod over
colonies, amassing large amounts of raw materials that turned into big profit for Britain.
Evidently, this was beneficial for the British Empire at the time, which begs the question,
is it really in a government’s financial interest to curb the activities of their domestic
companies, should they be transnational?
Historical evidence would suggest that it is not in a government’s interest to be tough law
enforcers. The opposition from Northern and Southern governments to the present
foreign direct liability cases going through the American and British legal systems
testifies that this is also a present day phenomenon. But should we be surprised? Surely
without a deterrent there is no incentive to abide by the rules, especially if the rules
prevent you from maximizing the projected profit? Yet, are we not forgetting that
obeying the laws of the land is an integral part of business operations? Rules that protect
the environment and human rights in a host country should be respected, as they would
be in a corporation’s home country.
So far the issue of fines for non-state actors has not evolved in international law. Unlike
national laws that have penalties in the form of imprisonment, fines, community service
or in some cases, the death penalty, the non-adherence of international law does not
accord with any penalization. Evidently this omission contributes to the relative weak
status of international law and most probably, is one of the main reasons why
enforcement levels on TNCs have been continually low. The United Nations Security
Council has the right to impose sanctions on a country that is violating international laws
relating to social, economic, political and environmental issues, but this is rarely
implemented and when used, is rarely enforced. Sanctions have become a political tool
manipulated by stronger governments; hence its legitimacy as a fair legal penalty has
become tainted and open to frequent criticism. Unless this void is filled it would seem
that international law will continue to be a hollow instrument. The desire for a new
binding international law that concentrates on the activities of TNCs may be focused and
well intentioned, but without concerted efforts to enforce the law, it will probably follow
the path of its familial predecessors.
Over the past decade, corporate social responsibility has become en vogue among TNCs.
Numerous companies have established CSR departments and produced social and
environmental reports. There has been a surge in transnational companies constructing
their own codes of conduct, some critics say, in order to forestall the onset of official
binding regulation or to detract from a company’s bad behaviour. Whatever the reason
for its development, codes of conduct are still a form of regulation, albeit of a “soft”
24
nature. Its voluntary status and frequent lack of independency is not desirable and does
not instill the element of objectivity regulation must seek (International Council on
Human Rights Policy, 2002). These factors make it vulnerable to criticism of which
there have been copious amounts. However, it is important not to throw the baby out
with the bath water. Globalization has created a variety of corporations each possessing
their own ideals, objectives and occupying varying degrees of the market share. The
regulation of TNCs should facilitate this diversity by seeking to accommodate differing
sector distinctiveness and company uniqueness. Provided multistakeholder initiatives
do not crowd out “hard” regulation their existence could benefit binding regulation
through their concentration on micro level improvements. Evidently, all regulatory
systems have strengths and weaknesses. Thus, in order to ensure all needs are met, a
range of regulatory mechanisms needs to exist and attempts to reach synergy between
them should be derived.
Over the years corporate social responsibility has inaccurately been seen as a voluntary
exercise, however, despite this common held assumption, there is no significant reason as
to why a voluntary endeavour should monopolize the definition. Plainly, corporate social
responsibility should be viewed as the responsibility of corporations to society. By this,
CSR would imply, respecting the relevant customs, rules and national laws and
international laws where applicable. CSR defined this way is a normal requirement of
business. Evidently it is important to remember this fact. Corporations should not be
praised and commended for performing a necessary duty rather; the relevant regulatory
instruments and frameworks should be in place to ensure, they have no problems in
completing their task.
25
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