Oh, Behave! - voluntary corporate codes of conduct

International Economy, The, March, 2001 by Susan Ariel Aaronson

Voluntary Codes Can Make Corporations Model Citizens

In 1851, Great Britain organized the first world's fair, which attracted some six million visitors to London. By comparing foreign and British products, the "Great Exhibition" celebrated British industrial prowess. It implicitly highlighted British democratic capitalism as a model for other nations to follow.

One hundred fifty years later, the British are again advancing a new vision of how democratic capitalism should evolve, this time by promoting global corporate citizenship. They seemed to understand early on that policymakers would need new tools and strategies to govern globalization. In 1990, Prince Charles formed the Prince of Wales Business Leaders Forum to promote responsible business practices in Britain and around the world. On March 7, 2000, Dr. Kim Howells became Britain's Minister for Corporate Social Responsibility. Dr. Howells is the first government minister in the world to have such a portfolio. He is working to convince business that corporate social responsibility "can create win-win situations for both business and communities."

However, policymakers, activists, and executives are finding it is not easy to create win-win situations for all the stakeholders in the global economy. Citizens have become more vocal in demanding that global business be held accountable for conduct that could undermine economic, social, or environmental progress. Yet there is no road map for how firms should operate around the world. Nor is there one set of norms for governing the global corporation.

Globalization puts governments in a bind. On the one hand, policymakers want to encourage further economic integration. All nations--rich and poor alike --need the investment, technology, employment, and cost efficiencies global firms bring to national economic growth. At the same time, most policymakers want to ensure that such corporations don't despoil the environment, produce defective products, or abuse workers. Yet while they must act to cushion citizens from the side effects of capitalism, such as environmental degradation, policymakers are less able to regulate at the national level because such regulation may make their nations less attractive to global investors. Thus, those activists and policymakers who want to promote global business citizenship must find a strategy that holds corporations accountable without thwarting the many benefits that such companies bring to their stakeholders. As a result, a growing number 6f policymakers have focused on promoting global corporate citizenship.

To many analysts, voluntary codes of conduct are an attractive alternative to direct regulation. They are formal statements of the values and business practices of a corporation. While they are non-binding, many companies expect their employees to be guided by such codes everywhere they operate. Some companies have had codes of conduct since the Nineteenth Century. But after the ITT scandal in Chile and the Nestle boycott (where activists boycotted the marketing of infant formula) in the 1970's, activists, executives, and policymakers began to develop codes as a tool to govern global economic interdependence.

The International Chamber of Commerce noted that as of May 2000 there were more than forty codes, existing or in preparation, designed to govern the activities of global corporations. As Chart 1 illustrates, some of these codes are sector specific; other codes were designed to apply to all companies operating across borders. The codes also differ as to authorship; some were developed by civil society activists; others by executives acting on their own initiative; and still others were devised by executives working in tandem with activists. With the prominent exception of the Global Reporting Initiative (which is a system of disclosure on environmental, social and economic aspects of corporate performance) and the SA 8000, which sets verifiable standards for certifying corporate performance in human and labor rights, most of these codes lack mechanisms for monitoring and accountability. Thus, many social and environmental activists will continue to insist on enforceable international agreements to govern the global commons and work conditions.