By Chris Marsden
(Chris Marsden is Chair of the Amnesty International (UK) Business Group and also Chair of Trustees of the Business and Human Rights Resource Centre, a separate NGO responsible for the leading Business and Human Rights website. He is also a teacher on corporate social responsibility issues on graduate and executive programmes. The opinions expressed in this paper are his own and should not be attributed to those of any of the organisations he works with.)
At a recent conference on sustainable
development, the CEO of a leading multinational company was reported in response
to the question ‘what next?’ to have said reluctantly ‘I suppose I will
have to tell my Board to prepare for governance’.
He was referring to the governance of global social and environmental
issues not those normally associated with corporate governance. Many who blame
multinational companies for many of the ills of the world would be horrified at
the prospect. And it is true that too many such companies recently have shown
themselves to be deficient in their own governance that it might seem absurd to
suggest that they should participate in governance of issues beyond their
traditional competence. Yet, this paper will argue, that is exactly what is
needed. It is already happening de facto, and it needs to be more widely
recognised and done much better.
Market capitalism or business pursuit of
profits in a competitive market place is the dominant economic mechanism for
providing most of the world’s material needs. It was given a huge sense of
legitimacy in the rapid growth of the post 1989 global economy and, in spite of
its many imperfections, it is unlikely to be substituted by any alternative
mechanism in the foreseeable future. However, markets cannot operate in a way
that promotes both private and common interests without effective regulation. It
is the purpose of this paper to argue that such effective systems of regulation
or governance often do not exist and that it is the social responsibility of
companies and NGOs to participate in helping to create them.
The common interest is what is
beneficial to the whole of a society, or in today’s global thinking, the
world, that is not served by pursuit of a multitude of individual interests. In
economics this was classically illustrated by the ‘problem of the commons’,
the free use of common grazing land, where it was in the interests of the
marginal extra farmer to add his animals to an already overcrowded area but to
the detriment of overall production. Modern examples of dealing with this
problem are the attempted governance of fishing in the
In economies, where there is or has
traditionally been adequate regulation and governance of the common interest by
democratically elected governments, electorates clearly support variants of the
market system as an acceptable way of determining the production and
distribution of private goods and services. Most of the political argument is
about the extent of government taxation, spending and regulation for the common
good. In these economies corporate social responsibility (CSR) is essentially a
matter of running an efficient and profitable enterprise, legal compliance, and
payment of taxes. Additional interventions in social issues are discretionary;
depending on a company’s view of its long term business interests and its own
values. The role of civil society interest groups or NGOs in such circumstances
is to promote their respective causes, act as a watchdog for their particular
interest and lobby for change through legitimate channels.
This rose-tinted view of a
democratically governed, efficient market economy has taken some hard knocks
recently, especially in the dominant role model, the
Meanwhile, all national economies are
becoming much harder to regulate, tax and govern in the common interest because
of the rapid development of global markets which have no respect for national
borders. The global economy is not effectively governed. Although some national
governments, their citizens and their home-based multinational companies,
particularly in parts of
It might be a life sciences company
experimenting with new bio-technology; a consumer goods or retail company
sourcing from countries with human rights abusing labour practices; a financial
services company determining its ethical investment strategy; a pharmaceutical
company being challenged to provide generic drugs at marginal cost to poor
countries; a construction company facing local resettlement issues over a dam
project; a utilities company concerned with accessing its services to the
poorest sections of society; a tourism company selling package tours to areas of
environmental sensitivity; or an oil or mining company arranging security for
its operations in an area of civil conflict. It might be a company policy
decision not to make or take bribes, to sign up for a code of practice which it
will use to put pressure on rogue host governments or to publish all its revenue
and tax payments made to host governments in order to promote transparency. It
might even be a decision buy a company operating in a country where known human
rights abuses are taking place to close its eyes, keep its head down and, in
effect, tacitly support the status quo. Any company making decisions like these,
or NGOs working to influence them are, de facto, involved in governance.
The Shorter Oxford English Dictionary
defines ‘governance’ slightly more broadly than ‘government’. Governance
includes concepts such as the manner of governing, the method of management,
system of regulations, mode of living, behaviour, demeanour and wise
self-command'. These aspects of governance do not necessarily have to come from
'the governing power in a state' by 'the body of persons charged with the duty
of governing', which is the main definition of government. This is not to down
play the important and legitimate role of national, democratically elected
governments nor, hopefully, ultimately strengthened institutions of
international governance. National governments still have great power,
particularly to influence if not always to control behaviour. Where this
influence is inadequate, however, companies and civil society organisations have
a duty or social responsibility to do all they reasonably can to promote the
common good. This gives ‘Corporate Social Responsibility’ (CSR) a much wider
and deeper meaning than often assumed. It gives legitimacy not only for
companies to engage in issues which previously might have been considered the
preserve of governments but also to NGOs both to pressurise companies to engage
in such issues and also to partner with those companies in seeking solutions.
This is a big challenge to traditional
thinking about the right and proper roles of governments, companies and NGOs and
to their competencies in performing them. It
means accepting that the world and the power relationships between these key
actors has changed. It means understanding that companies and NGOs, whether they
or anyone else like it or not and whether they do so actively or passively, are
participating in governance. New visions for and consensus on future global
governance may eventually emerge from such gatherings as the World Summit on
Sustainable Development, The World Economic Forum or The World Social Forum. In
the meanwhile, however, the world economy continues to function with inadequate
governance and it is up to all responsible actors to do what they can to make it
work as well as possible.
National governments can, of course, still do a great deal. There are still opportunities for regulation without destroying the international competitiveness of domestic companies, for instance in requiring companies to account for and report on their social performance. Governments still have huge powers of patronage, for instance through honours systems and providing or denying access to the leadership establishment. They are large customers of the private sector with major opportunities to insert environmental and social performance criteria into contracts. They can also exercise global leadership through their participation in the governance of the United Nations, the World Bank and the World Trade Organisation. Governments could do a great deal to promote more effective governance by openly recognising the potential contribution of companies and NGOs as described below and to facilitate the growth and effectiveness of that contribution.
A company’s social responsibility
covers four spheres of control or influence: its own core operations, its
relationships with partners, suppliers and contractors, its relationships with
the communities where it operates and, fourthly, its ability to have positive
affect, where it can, on the major common interest issues. These issues include
global warming, eco-system losses, health, education, poverty and political and
civil human rights.
The way a company conducts is own core
operations not only benefits the people working with and depending on the
organisation but also sets an example more widely, especially in countries with
no tradition of well governed, responsible business. This governance, as always,
starts at the top with a company’s Board having a clear statement of company
goals, vision and values and a management structure and accountability system,
which carries it out. Core operations cover everything from honest trading
practices, quality of product, customer guarantees and product life cycle
management, through emissions, energy and waste control to labour issues of
health and safety, working conditions and freedom of association.
Larger companies, particularly
transnationals operating in or sourcing from developing, less well governed
economies, have major potential influence over the environmental and social
performance of their partners, suppliers and contractors. It is those
companies’ social responsibility to exercise that influence through
communication of their own policies and ensuring that contracts reflect
compliance with them. Managing this in practice may be very difficult,
especially where a company has many suppliers or where issues like child labour
require long term strategies not instant fixes, but it is the responsibility of
the dominant companies involved to demonstrate that they are doing all that can
reasonably be expected.
Similarly it is the responsibility of
any company to be aware of and manage as positively as possible its impacts on
the communities where it operates. Ideally, although rarely in practice, this
implies carrying out a full social and environmental risk analysis with full
stakeholder engagement before investment decisions are made – and being
prepared not to invest if the social and environmental risks are seen as too
great. More commonly it implies understanding community issues arising from
existing operations and investment decisions already made or inevitable in terms
of realpolitik and managing these in a way that fully engages community
stakeholders and is as transparent as possible.
Issues will include impact on indigenous people, provision of local
infrastructure and services, especially where these are poor and a company is
creating its own, local employment and sourcing, education and training and
often sensitive plans for site closure or the ending, say, of a construction
phase. In some cases it will also imply managing the security of a site in a way
that minimises adverse effects on local communities, particularly in conflict
zones – a hugely difficult but increasingly common problem for some companies
particularly in the extractive industries.
Finally it is also part of a large,
influential company’s social responsibility not only to anticipate and manage
the social and environmental issues on which it has an impact but also actively
to engage in trying to bring about the resolution of those issues in the wider
community. This is the most demanding, and to many still controversial, call on
companies to participate in governance. It
implies engaging with other leading companies, international agencies and NGOs
to agree voluntary, but in terms of emerging international law, increasingly
binding operating principles and codes of conduct. It means asserting these
principles to ministers and officials in countries where good governance is
lacking and according to circumstances applying influence and pressure on those
governments and their administrations to apply more environmentally and socially
responsible practices. These are issues of critical importance to sustainable
development and human rights such as environmental footprint, poverty
alleviation, freedom from abuse, corruption, money laundering, and use of tax
revenues. Whether a company in a
position to make an effective contribution chooses actively to engage in these
issues or to ignore them, it is a governance decision. It is to be hoped that
multinational companies will increasingly be held to account for their
performance in these matters, not only by watchdog NGOs but also by the
governments of their home-based countries.
Sceptics will argue that it is unrealistic to expect companies, in pursuit of their private interest and that of their shareholders, to do anything that cannot be supported by a business case. Also, they will argue, many companies cannot even govern themselves responsibly let alone participate effectively in wider governance issues. Much emphasis has been given to the ‘business case’ for CSR recently as a result and it is clearly often a necessary tactic to gain the attention of bottom line focused managers. However, there are often serious limitations to the CSR business case for many companies when compared to apparent commercial advantage and shareholder value. Pursuit of least cost outcomes to a company and concern for social impact are rarely win-win, at least in the short term. That is when decisions on the basis of what is right and wrong, particularly what is consistent with previously agreed company principles regarding its purpose and behaviour standards becomes so important – the moral case. It is up to those who want to influence companies to be more socially responsible, governments and NGOs, to work not only on the business case, for instance by raising the cost of reputation damage, but also on the moral case. They need to persuade companies that their purpose is to create value for society not just for their shareholders and that this requires them to concern themselves with outcomes for all their stakeholders and not just themselves. A good start, of course, would be to get wider stakeholder representation onto company boards or, at least, create an expectation of full stakeholder engagement and transparent social reporting as a normal part of mainstream business activity. It is conceivable that as the arguments for doing the right thing, for instance in not taking bribes, publishing what companies pay to governments, insisting on basic human rights standards, become more commonplace and are seen both inside and outside companies as the right way to make such decisions, doing business this way will become more the norm. Paradoxically, this might ultimately create a more robust ‘business case’ for doing business ethically and a business disadvantage for not doing so.
In less free or less well-governed
societies, NGOs often have to operate more covertly and rely on their links to
NGOs in other countries to take up their causes. One of the main features of
recent globalisation developments has been the ability of NGOs to network
internationally and bring local concerns to international attention,
increasingly through campaigns against transnational companies. Focused on
sources of power, most of the attention of NGOs has traditionally been directed
at governments, but in recent years, particularly among international NGOs this
attention has extended, often dramatically, to transnational companies. This, in
itself, is a strong indicator of perceived power changes in global realpolitik
and the vulnerability of companies to reputation damaging campaigns.
The recent expansion of Amnesty
International’s focus from national governments to include large companies is
an example of this trend. Amnesty has recognised the importance of transnational
companies in promoting and delivering human rights through their operations and
external influences. The Amnesty (UK) Business Group was formed to create a
forum on business and human rights and to press leading
There is much debate in Amnesty and
among other leading international NGOs about the right approach to influencing
companies. Some argue that the only approach likely to succeed is an
oppositional one, where NGOs campaign against companies on specific issues
working through the media, on community groups, customers and through
shareholder meetings to undermine a company’s reputation and, hopefully,
profitability. They also argue that initiatives like the Global Compact are far
too slow to deliver real progress and act as smokescreens behind which poorly
performing companies can hide. Others
argue that engagement at strategic (e.g. Global Compact) level and directly with
companies is essential if companies are not just to be pilloried for being part
of the problem but persuaded to become part of the solution.
Increasingly the most successful NGOs will find ways of being both
effective watchdogs, whistleblowers and campaigners while also managing to
engage with companies in cross sectoral partnerships to devise and deliver
solutions to these huge global problems. The work of the Forestry and Marine
Stewardship Councils, the Kimberley Process on conflict diamonds and some
encouraging recent work on cocoa sourcing are all examples of positive
cross-sector working. In collaborating like this this, however, NGOs must be
constantly wary of the potential of cosy partnerships to corrupt and must never
diminish their essential role as a countervailing power to companies. This is
participation in governance. It is the right and proper role of a NGO
representing a constituency of concern about any social issue, in Amnesty’s
case human rights.
Ideally as much governance as possible
should be concentrated in the hands of democratically chosen authorities and
companies and NGOs should work to promote formal structures of government
wherever they are lacking. This includes supporting necessary legislation
designed to raise the standards of the many, for instance introducing mandatory
social reporting. However, this is likely to take a long time and meanwhile the
reality will be one of inadequate governance in many countries and particularly
of the global system as a whole. Until such time as this governance deficit is
adequately addressed, it is important that both leading international companies
and NGOs understand that they are an integral part of a de facto global
governance process and that they take this responsibility seriously. This paper
has argued that it is their legitimate social responsibility to get involved in
the politics of decision making; working, through counterveiling power or
partnership as may be appropriate to different situations, to identify the
common interest and helping to resolve the conflicts between private and common
interests. This is not ideal. It is unlikely that companies, with managers
brought up on the gospel of maximisation of shareholder value, or NGOs, with
their members’ inevitably partial view of the world, can ever be very good at
it, but in the current state of governance deficit there is no alternative.
Pragmatically, second best solutions will constantly have to be sought,
negotiated and worked through until such time as a better system is created.
January 2003