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Analysis: The slow march to corporate accountability

Sir Geoffrey Chandler

3 May 2004 - In less than a decade there has been a fundamental revolution in the debate on corporate responsibility. The full breadth of companies’ impact on the social and physical environment of their operations, particularly in developing countries, is now at the forefront of debate.

The spread of the supply chains of supermarkets and consumer goods industries into Asia, Africa and South America, and of investment into regions previously denied it by ideological or political barriers, have made clear that the economic benefits brought can, in the absence of appropriate policies and practices, be offset by the collateral damage done to the environment and to human rights.

The 1970s and ’80s had already brought recognition, prompted by external pressure and a succession of environmental disasters, of the responsibility of companies for their environmental impact. But it was not until the latter part of the 1990s that there was an acceptance of responsibility for human rights. Human rights had been seen as a matter for governments. Most of the human rights mo

vement concentrated on civil and political rights rather than the full spectrum of the Universal Declaration of Human Rights and was slow to see the significance of the corporate sector as a potential positive force.

Companies rejected any role in the defence of human rights, turning their backs on violations that surrounded them in many parts of the world and viewing involvement on their part as a slippery slope into politics on to which they could only venture at their peril. But it was the rejection of such involvement and the resulting disaster for corporate reputations that proved the catalyst for change.

An observer could be heartened by what he or she sees today. There is increasing recognition that companies have direct responsibility for the human rights of employees and of all those affected by their operations.

A growing number of companies acknowledge their responsibility for human rights within the legitimate sphere and influence of business and base their policies on the UDHR. More significantly, there is understanding that the very presence of a company in a country ruled by an oppressive regime represents complicity if it is silent in the midst of human rights violations.

There are few debates on corporate social responsibility that do not explicitly include human rights. Initiatives by the Organisation for Economic Co-operation and Development and the United Nations (e.g. the UN Global Compact) call for companies to observe human rights. The US and UK governments have developed Voluntary Principles on Security and Human Rights for extractive industries.

A movement towards transparency of payments to host governments is being pushed forward by the Publish What You Pay campaign and the Extractive Industry Transparency Initiative. The Global Reporting Initiative and AA1000 provide frameworks for reporting the whole of a company’s impact. The deeply ingrained mutual ignorance and hostility of companies and non-governmental organisations have been diminished by a growing recognition that each is dependent on the other if it is to achieve its objectives in a more critical world. Joint initiatives such as the Ethical Trading Initiative in the UK and partnerships elsewhere in Europe translate recognition into practice.

All of this is gain. But it is not unalloyed gain. Only a minority of companies, even if among them are some of the biggest in the world, shape their policies in reflection of the UDHR. More than 1,200 companies have joined the UN Global Compact, but this is still only a small proportion of the whole. The phrase corporate social responsibility has too often come to mean a voluntary add-on to a company’s activity, rather than the application of principle to the totality of its operations.

There remains a confusion, derided by right-wing economists, and fuelled by the woolly statements of corporate leaders and the muddle over corporate responsibility definitions, between companies on the one hand generically “doing good” and, on the other, applying accepted moral standards to their behaviour. The first cannot be subject to standards and measurement; the second can. Efforts are currently being made to make the Global Compact and OECD guidelines more effective, though remaining voluntary. This is welcome, but it is also having the perverse effect of bolstering the corporate myth that voluntarism is the way ahead. Even the most cursory glance at history reveals that protection of employees and of the environment, and now of human rights, has come not from voluntary corporate initiative but from external pressure followed by legislation.

We have today reached a plateau where there is sufficient recognition in principle of the full breadth of corporate responsibilities to make it immune from economic recession or a fight-back from out-dated Friedmanism. Yet inertia and outright opposition still dominate. There is a danger that the avalanche of words – in company brochures, conferences, consultancies and academia – may obscure the absence of applied practice.

The plateau is a point of take-off, not a destination. Forward movement is stultified by the debate between voluntarism and regulation, a debate made sterile by the unreality of the extremes at both ends of the argument – the proponents of voluntarism ignoring history and the manifest inadequacy of much current practice; the advocates of international regulation (however desirable in principle) ignoring the political obstacles to this and the need for national legislation and enforcement first, embedding international standards into a national context. The overwhelming lesson of history, from the abolition of the slave trade onwards, is that legislation has been required to secure corporate adherence to the values of society. It is this that has enabled the market economy to survive, not as a “free” market, but as one that retains its dynamism within a moral framework. And it is this framework that now needs extending and strengthening.

Public trust in companies has never been lower. In general they are seen as secretive and unaccountable in an increasingly globalised economy. Profit is believed to be put before principle – a belief bolstered by the need for a “business case” to justify doing right. This distrust has not been diminished by the proliferation of codes of conduct, by adherence to purely voluntary initiatives, or by the real advances and commitments made by a few leading companies. What is required is visible adherence to principles reflecting society’s values and monitoring and full disclosure of the manner in which these principles are observed in practice.

For the first, the United Nations Norms on the Responsibilities of Transnational Corporations and other Business Enterprises with Regard to Human Rights point a way ahead. They are not legally binding, but reflecting as they do the values agreed by international society, they are more than voluntary: they represent what companies ought to do. The spectrum they cover is no broader than the principles adopted by leading companies. They provide a template against which companies can test their own policies, and criteria by which stakeholders and the market can judge the performance of a company. Adherence to the Norms would go a long way to persuading a sceptical public that profit can be based on principle.

But the collective voice of international business, represented by the International Chamber of Commerce and its allied organisations, stridently opposes the Norms, using misinterpretation and misrepresentation to bolster its case. Even companies at the forefront in the development of human rights principles rally behind these bodies, which represent little better than a lowest common denominator of corporate practice. However, corporate opposition to the Norms is not unanimous. A group of seven major companies (ABB, Barclays, Body Shop International, MTV Networks Europe, National Grid Transco, Novartis and Novo Nordisk) has formed the Business Leaders Initiative on Human Rights to help “further integrate human rights in business policies and practices”. They regard the Norms as an important contribution and are preparing to “road-test” them in their operations.

Nonetheless, the bleakest aspect of the scene is the absence of collective corporate leadership. While even the World Business Council for Sustainable Development now talks of the desirability of a regulatory framework, its members decline to walk the talk, although such a framework would benefit the better performers by moving towards a level playing field. There is indeed principled leadership within companies, but it stops at the company gate. There is little willingness to break out of the defensive box that unthinkingly fights regulation, or to initiate change to the parameters within which the market operates.

Actions that bring business into disrepute are not condemned by business. Redress for the impact of Bhopal in India or of asbestosis in South Africa finds no champions in the business community. Nor is there adequate legal redress for such abuses. In its absence, there has been growing recourse in the US to the 18th century Alien Tort Claims Act, a crude weapon resisted in principle by companies and some European governments, but all that is available so long as there is inadequate accountability for the impact of subsidiaries of transnational corporations.

Mandatory reporting of a company’s impacts on the environment and the community is an essential starting point for any regulatory framework. It could, by prompting recognition of a need for improvement, diminish the need for further regulation. Without it, shareholders and other stakeholders are unable to judge the performance or longer-term viability of a company; and the market, deprived of information that is its necessary sustenance, cannot influence performance for the better. It must be a matter for astonishment that those who believe in the market should resist this. Yet a UK parliamentary Bill, calling for such reporting, and for directors’ duties to include a duty of care for these impacts, is currently being allowed to die by a UK government that has little sympathy for anything other than a voluntary approach.

Without such information and without new parameters for the market or the leadership to assist their observance, economic inequities and indeed political injustice will be seen to be increased, not diminished, by corporate activity and the world will become an more dangerous place for all. The threat to the market economy and capitalism will come not from without, but from within, from business leaders who have forgotten that business is there to serve society, not merely to provide money to shareholders. In the post-Cold War world companies have unprecedented spread and influence, touching the daily lives of people in a manner that gives them greater potential for good and evil than any other constituency, including government.

Business is part of the fabric and foundation of society. The challenge to it is to ensure that its economic contribution is matched by its adherence to the values of society. It is a challenge that has yet to be met, but its survival depends on meeting it.

Sir Geoffrey Chandler is founder-chair, Amnesty International UK Business Group 1991-2001 and a former director of Shell International.

Source: Amnesty International

related links :

• Australia: Amnesty International report 2004

Further information: human rights issues page - includes news index and external links