Globalization and the growth and reach of the international private sector raise tough questions for progressives about the regulation and governance of transnational corporations (TNCs). While considerable progress has been made over the last few decades in holding large companies to account for their environmental performance, progress on social issues such as human rights, corruption, corporate transparency and labour standards has been more limited.
So far, the main way in which progressives have sought to address these issues has been through support for corporate social responsibility (CSR). For most companies, this has consisted of a series of voluntary initiatives to enhance the social impact of their policies, with some of these initiatives actively promoted by government. In the UK, for example, leading CSR bodies like the International Business Leaders Forum have developed substantive human rights agendas and the new FTSE4Good indices benchmark companies on their CSR performance. The UK Government has also been a strong supporter of the Ethical Trading Initiative (ETI), which aims to promote adherence to ILO core labour standards along companies’ international supply chains.
Some corporate sectors have incorporated human rights provisions into their codes of conduct. A number of companies have also sought to work more closely with human rights NGOs in formulating corporate policy in difficult countries. BP, for instance, has adopted this approach: working with Amnesty International after serious concerns were raised about the human rights impact of the Baku-Tbilisi-Ceyhan (BTC) pipeline project.
But while CSR has brought benefits, it also has serious limitations. Many of the most difficult issues surrounding the international corporate sector occur in poor countries with weak and sometimes corrupt systems of government. Poorly regulated international investment in these environments can distort local development, fuel conflict and contribute to human rights abuses. This is particularly the case in poor countries that are heavily dependent on natural resources. World Bank research has shown that around 50 armed conflicts, active in 2001, had a strong link to natural resource exploitation, and that the international private sector is often involved in this resource extraction. As a result of weak management and regulation, abundant natural resources, which should be a blessing for a low-income country, in many cases make poor people poorer.
In response, progressives should support a strengthening of political and economic institutions in such countries, so that their governments are more accountable and effective and better able to regulate the private sector in the public interest. But progressives should also support a strengthening of cross border corporate accountability and more effective global regulation of TNCs.
The case for more effective regulation is further reinforced by the fairly limited impact of some existing international initiatives for promoting high corporate standards, for example, the UN Global Compact, the OECD Guidelines on Multinational Enterprises, and the Extractive Industries Transparency Initiative.
The UN Global Compact
The UN Global Compact was established at the instigation of the UN Secretary-General in 1999. The Compact brings together the private sector and NGOs with UN member states and UN agencies. It is based on nine core principles covering human rights, labour standards and the environment. Companies that sign up to the Compact are required to ensure that they support and respect human rights within their sphere of influence.
But while the Compact has played a role in drawing attention to the responsibilities of the private sector in relation to human rights, labour standards and the environment, it is not yet having any real impact in influencing and changing corporate policies on the ground. There are no conditions of membership or criteria that companies must meet before they are permitted to become a member of the Compact and no system for dealing with complaints made against specific companies.
Progressives should support clearer criteria for membership and a system of independent monitoring of company compliance with the principles of the UN Global Compact. There is also a case for introducing a proper complaints system, either through a small executive committee or through an appointed ombudsman.
The OECD Guidelines on Multinational Enterprises
The longest standing initiative for promoting high corporate standards is the Organisation for Economic Co-operation and Development (OECD) Guidelines on Multinational Enterprises. First adopted in 1976, the Guidelines have been endorsed by all 30 members of the OECD, and a further eight non-OECD countries. They set out a comprehensive list of guidelines for good corporate behaviour, including guidelines on human rights and labour standards.
The OECD Guidelines contain a mechanism – reporting through national contact points (NCPs) – with the intended purpose that signatory governments should respond to concerns raised about specific companies, including adverse impacts on human rights. But this mechanism is weak and ineffective. For example, in October 2002, the UN Expert Panel on the Illegal Exploitation of the Natural Resources of the Democratic Republic of Congo named over …