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the failure of the voluntary approach?

and why we need rules

Captains of industry are suddenly popping up everywhere, protecting the environment, upholding human rights principles and generally making the world a safer place. What explains their sudden enthusiasm?

Cheerleaders for "Corporate Social Responsibility" (or CSR, to use the currently fashionable acronym) are delighted about the revolution that is sweeping through boardrooms and stock markets as businesses and investors realize the profits in building a sustainable future.

Critics of the CSR project, however, view this revolution as no more than the evolution of "greenwash" into a more virulent strain of slimy Public Relations spin.

Most corporations still hold fast to economist Milton Friedman's famous maxim that the "one and only social responsibility of business is to increase profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud." Yet a small but growing movement within industry - including companies ranging from the Body Shop to BP - is trying to define its responsibilities more widely. By issuing social and environmental reports and including "recognition" of the Universal Declaration of Human Rights in their statements of business practice, these companies hope to establish that the good business they do - especially in developing countries - is also business that is good.

This trend towards more voluntary disclosure and monitoring is benefiting a global mini-industry of social auditors (including financial services companies like KPMG and PriceWaterhouseCoopers), and an increasing number of socially responsible investment funds that need this information to justify their investments to their customers. Governments, NGOs, and international bodies are also getting in on the act. The OECD and the UN have both developed codes of conduct for corporations. UK law now requires pension funds -amongst the biggest investors in TNCs - to disclose the criteria they use to screen investments. Both the Commonwealth and the EU are looking at ways to encourage business to voluntarily adhere to basic environmental and social standards. And numerous NGOs are talking to business about voluntary codes of conduct.

thumbs up for voluntary codes?
It's hard to judge whether these voluntary codes of conduct are working, as their success or failure is difficult to measure. A quick glance at www.codesofconduct.org reveals a bewildering number of frequently overlapping and contradictory efforts by well-intentioned organizations to systematize voluntary reporting on corporate impacts across a range of basic rights. Although supporters of the CSR project in business and government frequently present voluntary systems as fully up and running, a common feature of these initiatives is that they are works in progress.

Even very sophisticated and ambitious projects are finding it hard to boil down all the international human rights conventions, treaties and findings of focus groups into a single code or audit standard. As a result, they are often trying to implement confusing muddles of various core standards.

There is also a problem with access to appeals processes and verification of the information gathered in the reporting process. For example, it is reckoned that the body reviewing appeals to the OECD for breaches of its corporate code of conduct is currently looking at twelve cases world-wide. But the review process is closed, and the public has no access to this information.

And while it might be possible for a charity, trade union or pressure group with an office in an OECD country to bring such an appeal, how would a poor factory worker in China or an indigenous person in the Amazon basin launch a case against a company registered within the OECD?

Finally, just suppose that there really were corporations that wanted to transform themselves into responsible global citizens. The current lack of legal incentives to behave responsibly gives an unfair advantage to companies that are prepared to undercut them. In this sense, Friedman's maxim is still both valid and true: the "rules of the game" - whether these are the rules of world trade, national laws or the way stock markets are run - need to define baselines for environmental management, labour and other human rights impacts of commercial operations.

moving forward
It appears that a voluntary approach alone will not deliver any real benefits to the communities and societies affected by the growing power of corporations. Imagine a voluntary code on climate change rather than the Kyoto Protocol, and you begin to get the idea. As the 1999 UN Human Development report says: "Multinational corporations are too important a part of the global economy for voluntary codes to be enough."

In a future that includes effective rules for global fair trade, however, voluntary codes may still have their occasional uses. True corporate social responsibility will have arrived when businesses begin to see voluntary approaches as ways to anticipate what their customers, employees and wider society expect of them, rather than just as Public Relations tools.

Tim Concannon, consultant to FoE England, Wales and Northern Ireland