Creating Corporate Accountability: Foundational
Principles to Make Corporate Citizenship Real
Sandra Waddock. Journal of Business Ethics. Dordrecht: Apr 2004. Vol. 50, Iss.
4; pg. 313 Abstract (Summary)
This paper explores the growing array of initiatives aimed at creating
corporate accountability with the goal of attempting to uncover the foundation
principles that underlie them and create a "floor" below which practices are
ethically questionable. Using the Global Compact's nine principles and the work
of Transparency International as guides, foundational principles seem to exist
in the areas of human rights, labor standards, environment, and anti-corruption
initiatives.
ABSTRACT. This paper explores the growing array of initiatives aimed at creating
corporate accountability with the goal of attempting to uncover the foundation
principles that underlie them and create a "floor" below which practices are
ethically questionable. Using the Global Compact's nine principles and the work
of Transparency International as guides, foundational principles seem to exist
in the areas of human rights, labor standards, environment, and anti-corruption
initiatives.
Introduction
Many countries, global bodies, and companies around the world are struggling
with how to turn foundational principles articulated in a growing array of
principles, codes of conduct, and standards from statements about what ought to
be done in corporate practices into what is in the marketplace. Increasingly
corporations' figurative feet are being held to the fire of social activism
aimed at creating greater accountability on the part of companies for the
impacts that they have, not just with respect to investors, but on others
stakeholders as well. If these pressures are to effect real change, they need to
be underpinned by generally agreed foundation principles that are implemented
not just rhetorically in corporate codes of conduct but in day-to-day operating
practice. Before that day actually comes, however, there needs to be general
agreement on the fundamental principles themselves. This paper will explore some
of the growing array of initiatives aimed at creating corporate accountability
with the goal of attempting to uncover foundation principles that are embedded
in global agreements and corporate practices.
Global brands are often targets of exposes and activist pressures (e.g., Klein,
2000; Schoenberger, ca. 2000; Schlosser, 2000) as public attention shifts from
topic to topic. As early as the 1960s and 1970s environmental concerns - and the
company-produced chemicals causing them - became high on the public agenda. The
publication of Rachael Carson's Silent Spring in 1962 and the attention paid to
ecological issues on Earth Day #1 in 1970 were significant events in the U.S.
raising public awareness of corporate impacts on the natural environment. Other
social issues came to the forefront of public opinion during this period as
growth of single-issue pressure groups such as Greenpeace and Amnesty
International gained momentum. Among other incidents, the consumer boycott of
the Nestle Corporation for its sales of infant formula in developing nations by
religious groups began in the late 1970s and culminated in Nestle's appointment
of an internal infant formula audit commission. Combined with a global boycott
of products from companies operating in South Africa, these and similar forms of
consumer activism vividly demonstrated the usefulness of consumer movements to
attempt to change corporate behavior and hold companies accountable through
publicity, boycotts, and related forms of activism.
Another source of increasing pressure for corporate accountability is the social
or ethical investing movement, which is now estimated by the Social Investment
Forum to include some two trillion dollars in the U.S. alone. Social investing
gained steady currency in the 1980s and 1990s, with socially conscious investors
initially demanding that companies withdraw from South Africa. Although social
investing is yet to become fully mainstream, there is sufficient investor
interest with about one of every eight dollars invested in equities1 under some
form of social activism that even major investment houses like Smith Barney and
large pension funds like TIAA-CREF have begun to get into the act and create
social funds. In the U.S., the Dow Jones Sustainability Group Index focuses on
five corporate sustainability principles: innovative technology, corporate
governance, shareholder relations, industrial leadership, and social well being,
with the latter category explicitly emphasizing positive corporate
responsibility with respect to society. In the United Kingdom, the FTSE4Good
index, launched in July 2001, focuses on three areas: environmental
sustainability, positive stakeholder relationships, and upholding and supporting
universal human rights. By the 1990s, corporate governance activists had also
become sophisticated in their use of shareholder resolutions targeted at
specific corporate practices (e.g., Rivoli, 2003; Proffit, 2000a, b; Graves et
al., 2001). Shareholder activists annually submit hundreds of such resolutions,
frequently aimed as negotiating tools to gain management attention even when
they were withdrawn before voting.
Inside companies, outsourcing, strategic and other alliances, and just-in-time
inventory management systems began to blur the boundaries between companies and
their suppliers and customers during the 1980s and 1990s. Outsourcing created
new global supply chains, often in developing nations, and human rights, labor,
and environmental activists became concerned corporate practices in the
increasingly long supply chains of consumer goods, clothing, and toy companies,
among others (Rivoli, 2003). Boundaries between multinational companies and
their suppliers, clear perhaps in the eyes of managers, were and are much less
clear to activists wanting to create corporate accountability.
In the 1990s the rise of the Internet fueled new levels of activism and
strengthened the capacity of civil society's non-governmental organizations
(NGOs) to organize efforts fighting against sweatshop labor conditions, human
rights abuses, child labor, anti-democratic regimes, political infractions, and
ecological damages. Anti-globalization activists continue to demonstrate these
concerns when international bodies fostering free trade, like the World Bank or
World Trade Organization, attempt to meet. Legal developments, consumer
requirements, technological innovation, and NGO activism are increasingly geared
towards sustainability guidelines and the triple-bottom line of economic,
social, and ecological assessment, measurement, and reporting criteria (Elkington,
1998; European Commission, 2001), rather than traditional, more unidimensional
financial reporting standards.
Finally, the work of Transparency International (TI), founded in 1995, has again
and again pointed out the need to weed out corruption in government and in
business, receiving global attention for its now annual country-based
"corruption index" (see http://www. transparency.org/). In May 2002, TI issued
the 2002 Bribe Payers Index, as a means of determining whether any progress is
being made on the anti-bribery front since the ratification by many nations of
the OECD's Anti-Bribery Convention two years earlier. The conclusions reached
were hardly encouraging: awareness of the anti-bribery convention is generally
low, while perceived bribery-paying (corruption) among companies in the 15
countries surveyed was relatively high. According to a TI spokesperson the
findings "signal the rejection by multinational firms of the spirit of
international anti-bribery conventions, while their actions lead to a huge
misallocation of very scarce resources in developing countries."2
The gap between ideal and the real . . .
Demands for greater corporate transparency and accountability, as well as
anti-corruption measures are fostering significant new accountability,
reporting, and transparency initiatives among coalitions of business, labor,
human rights, investor, and governmental bodies. Indeed, a database created by
the International Labor Organization and available over the Internet lists
nearly 450 websites of industry and business associations, corporate, NGO and
activist groups, and consulting organizations that have developed and are
promulgating a wide range of relevant policy initiatives. These initiatives
include a mix of transparency and reporting initiatives, codes of conduct,
principles, and fair trade agreements.3 Responses to these demands are varied.
Many companies, particularly those under NGO and social activist pressures to
reform labor and human rights abuses in their supply chains, have formulated
their own codes of conduct. Notable among these companies are Levi Strauss,
Nike, and Reebok, all significant targets of activism.
The proliferation of standards, principles, reporting initiatives, and codes
threatens confusion and continued lack of implementation unless there is a
common set of principles shared among them. Below we explore whether in the
emerging proliferation of initiatives, there might be a common set of foundation
principles or standards that could, if actually implemented, suggest standards
of management practice. The array of emerging standards suggests that there is a
gap between growing public expectations from a variety of stakeholders and
actual company performance else this array of initiatives would not occur.
Pressures from a wide range of stakeholders appear to be pushing companies
toward a common set of guidelines of what ought to be and away from the stark
and not always pleasant realities of global competition (Frenkel, 2001;
O'Rourke, 1997, 2000; Greider, 1998). But this change is happening neither
quickly nor systemically as of yet, nor is it entirely clear that voluntary
standards alone will satisfy corporate critics or develop what Goodpaster (2003)
calls corporate conscience. As a starting point, however, one thing is clear:
for standards to be effective over the long term, agreement on fundamental
principles or foundational values must be found, and, as Sethi (2003) has
argued, companies must be held accountable for their implementation.
The argument for foundation principles
Foundation principles, if they exist, would provide a baseline below which it
does not make ethical sense to go. As noted, however, such principles or values
make sense only if there is sufficient global agreement about the standards that
they create a level playing field for companies adhering to them. For example,
corporate critics ask whether a company that employed 180 forced laborers
yesterday and only 160 today could really be considered to be more responsible
through this reduction. Yes, there is an improvement in practice, but most
people would likely agree that slavery is reprehensible under any circumstances.
Fundamental or foundation principles would suggest where the "floor" but not the
"ceiling" of responsible practice lies. Such baseline level behaviors,
practices, and values are foundation values. Foundation values are generally
agreed standards that provide a floor of acceptable practice going below which
is ethically and managerially problematic. Donaldson and Dunfee (1999) term such
general principles or values 'hypernorms' and suggest that relatively universal
consensus must exist for them to exist at all. They define hypernorms to 'entail
principles so fundamental to human existence that they serve as a guide in
evaluating lower level moral norms' (1994, p. 265).
General agreement (by businesses) on a common set of foundational principles - a
baseline or "moral minimum" (Donaldson and Dunfee, 1999) for operating practice
- would be an important development in providing a level playing field for
companies. Schwartz (2002), for example, argues for a set of universal moral
standards, including trustworthiness, respect, responsibility, fairness, caring,
and citizenship, which could underpin the development of codes and principles
themselves. Agreement on foundation principles could help companies avoid the
information overload and code mania that some are currently experiencing as the
number and types of initiatives grow, as well as disparities between developed
and developing nations (e.g., Behrman, 2001).
Donaldson and Dunfee (1999) provide a framework for core values, built upon the
need for system integrity that builds trust and the mutual respect that emerges
from Kant's categorical imperative. Donaldson (1996) argues that these basic
principles of respect are useful aids for searching out commonly agreed
foundation values:
* Respect for core human values, which determine the absolute moral threshold
for all business activities.
* Respect for local traditions.
* Respect for the belief that context matters when deciding what is right and
wrong.
(Donaldson, 1996, p. 6).
From these guiding principles, Donaldson (see also Donaldson and Dunfee, 1999)
articulates three core values derived from the work of philosophers and
theologians. All involve the critical element of respect. Core or foundational
principles, then need to emphasize what McGregor Burns (1978) terms end values,
which ultimately, as Donaldson and Dunfee (1999) point out, respect:
* human dignity;
* basic rights; and
* good citizenship (which involves working together to support and improve the
institutions on which the community depends).
(Donaldson, 1996, pp. 7-8).
These guiding principles negotiate the tension that exists in treating people as
ends, not means, and treating each individual as unique and deserving of respect
and dignity, while simultaneously holding valuable the context of community or
common good that makes societies work.
Spheres and related values
For purposes of discussion, let us conceive of human society as consisting of
three dominant and intersecting spheres of activity: economic/business,
government/political, and civil society (Waddock, 2002; Waddell and Brown, 1997;
Waddell, 2000), all of which are underpinned by the natural environmental sphere
from which all living beings draw life-giving resources (Waddock, 2002) (see
Table I). Core purposes within each of these spheres differ, hence there are
likely to be foundational values or hypernorms associated with each sphere,
though these will clearly merge into other spheres as well. Businesses,
operating in the economic sphere, emphasize efficiency or "economizing"
(Frederick, 1995) and wealth generation. Governments, operating in the political
sphere, emphasize the rule of law and establishing the "common good" through the
use of coercive power through values of power aggrandizing (Etzioni, 1961;
Frederick, 1995; Waddell, 2000; Waddock, 2002). NGOs and other civil society
organizations are primarily associated with relationships (generation of social
capital) and community-building via "civilizing" activities (Putnam, 1993a, b;
Waddock, 2002).
The long-term wellbeing of human society or civilization is necessarily and
irrevocably linked to the state of the natural environment. The natural
environment needs to be able to support human life if human society is to
survive (though the environment will, in some form, survive in any case) (Maturana
and Varela, 1998). The dominant "goal" of the environment, if the environment
can be said to have a goal, is ecologizing (Frederick, 1995) since what "waste"
is produced naturally is consumed as food in another part of the system. Thus,
we identify three spheres of human civilization underpinned by the ecological
environment or four spheres in which we need to seek foundation principles:
economic, governmental, civil society, and environmental.
To the extent that foundation principles exist, chances are they exist within
broad-based consensus documents, generated not from theory but from agreements
by the nations of the world, such as those promulgated by the United Nations,
perhaps the longest-existing multilateral global enterprise. Although a few
nations may not agree with principles articulated in these broad-based consensus
documents (e.g., China on human rights), they nonetheless represent the world's
best efforts to find agreed values to date. Indeed, the recent development of
the UN's Global Compact, launched in 1999 by Secretary General Kofi Annan,
provides significant insight into the relatively few values that may have
achieved the status of global agreement that may serve as candidate for actual
hypernorms. Four principles deal with labor rights and can be said to fall
within the economic sphere. Two principles deal with human rights, which fall
within the civil society sphere, and two are ecological principles within the
environmental sphere that underpins human civilization. The "missing 10th
principle" is a transparency or anti-corruption principle, which falls most
dominantly within the governmental sphere, albeit its influence affects all
three spheres of human civilization (Post, 2002; Vogl, personal communication).
Below we will explore emerging foundation principles within each of the four
spheres.
Economic sphere foundation principles
Businesses operate within the economic sphere with the dominant goal of
economizing (Frederick, 1995). Since it is employees who produce the work of
organizations, labor standards are certainly one important arena in which
foundation principles are needed. Economizing means using resources, including
human resources, in the most efficient way possible (and, in our current system
at least, externalizing whatever costs can be externalized [Frederick, 2002]).
In the human resource arena, economizing strategies can stand in some (at least
apparent) degree of tension with respect for human dignity (Donaldson, 1996)
(see Table I). Despite a growing body of evidence to the contrary (c.f.,
Margolis and Walsh, 2001; Wood and Jones, 1995; Pava and Krauscz, 1995; Waddock
and Graves, 1997), many managers still believe that there is a trade-off between
productivity and corporate responsibility. Further, in terms of management
style, many managers also believe in what Pfeffer and Veiga (1999) term "failed
assumptions," i.e., that treating people with toughness and disrespect will
achieve higher productivity than will treating them respectfully and well (see
also Dessler, 1999).
In the economic sphere, principles derived from ILO standards and the UN
Declaration on Human Rights are particularly relevant, according to Hartman et
al. (2001; Hartman et al., 2003), who have extensively analyzed global
documents. The International Labor Standards (ILS) of the ILO were developed
with government policy in mind, targeting the development of national labor
laws. Companies, of course, are subject to labor laws in countries where they
have a presence, but the ILSs do not generally specifically target companies.
Such standards involve the fundamental principles of respect for humans as ends,
not means, and, fundamentally, for human dignity at work (e.g., Donalson and
Dunfee, 1999).
The International Labor Standards cover a broad a range of areas and lack
universal acceptance in their entirety; thus they lack key traits necessary to
serve as a foundation for economic sphere principles. A narrower group of
principles, targeted directly at companies, has more recently been articulated
in the ILO's Tripartite Declaration of Principles Concerning Multinational
Enterprises and Social Policy (referencing the ILO's Fundamental Principles),
the OECD Guidelines for Multinational Enterprises, and the UN Secretary
General's Global Compact. Each of these target a more limited number of
organizational behaviors - specifically behaviors concerning issues like child
and forced labor, freedom of association, and discrimination - that have been
accepted as universally applicable by much of the global community.
Others have also thought about what fundamental principles might exist in each
of the spheres discussed above, particularly with respect to primary
stakeholders, or those stakeholders without which a business cannot exist
(Clarkson, 1995; Freeman, 1984). Employees quite literally make up the business,
hence deserve special consideration, particularly because employees are more
directly affected by corporate operating practices than are other stakeholders.
In the labor domain, some theorists suggest the need for a system of "ratcheting
labor standards" (Sabel et al., 2000, p. 1) based on "a compact list of
incontestable human rights of the workplace."
Specifically with respect to labor standards, Hartman et al. (2001) demonstrate
through an analysis of existing global labor standards, that there are certain
basic labor rights that are relatively universally acknowledged, which build on
the concept of human dignity and rights identified as fundamental by Donaldson
and Dunfee (1999). These minimal labor rights are derived from the UN
Declaration on Human Rights, UN International Convention on Economic, Social and
Cultural Rights, Caux Round Table Principles, International Labor Organization
labor standards. They are operationalized by the SA 8000 labor standards, as
well as being found in many corporate and business association codes of conduct.
Based on Hartman et al., for labor rights, the following foundation principles
may represent the minimal set of conditions and standards to which all
companies' labor standards should (which is not to say companies always do)
adhere:
* Just and favorable working conditions, including a limit to the number of
hours a human should have to work each day and a healthy working environment;
* Minimum age and working conditions for child labor;
* Nondiscrimination requirements regarding the relative amount that a worker
should be paid and the right to equal pay for equal work;
* Freedom from forced labor; and
* Free association, including the right to organize and to bargain collectively
in contract negotiations
(Hartman et al., 2001).
Despite that even these minimal standards are not always achieved in practice
because of economizing efforts by companies, from an economic sphere
perspective, all of these foundation principles rest on the bedrock of human
dignity and respect for the human capital invested by workers, treating people
as ends rather than as means to an end (e.g., of profitability). The emergence
of no-sweat, no child-labor, Rugmark, and related labels that signify that
baseline labor standards have been met attests to a growing international
consensus on such standards as the floor (moral minimum) of acceptable
practices.
Governmental sphere foundation principles
Sustaining the integrity of the business and economic system demands trust in
the system, particularly at the intersection between government (with its power
to regulate and create the rules by which businesses operate) and business.
Trust is the key to sustainable nations and a sustainable economic system.
Governments have the capacity to use coercive power (power aggrandizing
tendencies, Frederick, 1995) to create the system under which other types of
entities exist. System integrity is fundamentally undermined by corruption and
bribery, which has the tendency to make both the economic and political systems
untrustworthy. Accountability in corrupt systems is nonexistent and companies
that participate in corruption, which the Transparency International report
cited above suggests is quite rampant, work against system integrity and the
necessary foundation of trust. Transparency International (TI) and the World
Bank, two global organizations working at the country level on the issue of
corruption, have highlighted the need for foundational principles built on the
concept of system integrity. An anti-corruption principle would thus be what
Post (2002) characterized as the missing tenth principle in the Global Compact.
As stated on the TI website, there are several reasons for fostering system
integrity, integrity that structures business-government relationships and
ultimately fosters democracy. The reasons are:
* Humanitarian, as corruption undermines and distorts development and leads to
increasing levels of human rights abuse;
* Democratic, as corruption undermines democracies and in particular the
achievements of many developing countries and countries in transition;
* Ethical, as corruption undermines a society's integrity; and
* Practical, as corruption distorts the operations of arkets and deprives
ordinary people of the benefits which should flow from them. (Source:
http://www. transparency.org/welcome.html)
Foundation principles for government (and business) as developed by TI are based
on the Organization for Economic Cooperation and Development's (OECD) 1997
Convention on Combating Bribery of Foreign Officials in International Business
Transactions, an interna-tionally-agreed convention that makes bribery illegal
in many nations of the world. This convention was ratified by 34 signatory
countries, including the OECD countries, which account for some three-quarters
of global trade by June 2001.4 The convention makes bribery a criminal act and
eliminates the deduction for bribes that was formerly allowable in some
signatory nations. Using this convention as baseline guidance for ethics in
practice, Transparency International fosters "integrity systems" in government,
that is, a complex set of institutions, laws, and regulations aimed at fighting
corruption in all of its manifestations (for more details see "The Integrity
Pact" at http://www.transparency.org/activities/ip-attachm-a.html).
TI's core principles form the foundation of possible baseline principles with
respect to the interactions of business and government, as well as providing
some guidance for business transactions and reporting. Interestingly, TI's core
principles are similar to the ethical principles of the numerous business
initiatives aimed at improving management practice analyzed by Liedtka (1998),
suggesting their broad applicability. TI's mission statement articulates its
foundation principles as:
* Participation;
* Decentralization;
* Diversity;
* Accountability; and
* Transparency.
(Source: http://www.transparency.org/activities/ip-attachm-a.html)
These principles are important because of the coercive power commanded by
governments (Etzioni, 1961) to accomplish their fundamental goals of creating
the rule of law to which citizens, individual and corporate, must adhere. While
more authoritarian regimes might not agree with the foundational democratic
values expressed by concepts of participation and decentralization, these same
underlying values are, in fact, to be found in the corporate initiatives aimed
at fostering effectiveness (Liedtka, 1998). Principles fostering democracy,
encompass different people, nations, cultures, and personal expression. Further,
many scientists recognize that biological diversity results in a healthy ecology
(Maturana and Varela, 1998; Capra, 1995; Frederick, 1995). Extending this
consideration to society is the basis of suggesting the value of diversity,
because the diversity of local cultures differences among individuals (Donaldson
and Dunfee, 1999) is also important in fostering both differentiation and
integration across nations and corporations.
Civil society sphere foundation principles
Basic human rights are possible candidates for fundamental principles associated
with the civil society sphere, which is the realm of "social" organizations,
family, church, schools, and nongovernmental organizations. Foundation
principles related to human rights are most well known from their promulgation
in the UN Declaration on Human Rights, first written in 1948 and more recently
updated to include basic environmental concerns as well as human rights. Based
on this declaration and other sources, Donaldson and Dunfee (1999) suggest that
there is significant cross cultural agreement on the following principles, all
of which respect the dignity and humanity of individuals:
* The right to freedom of physical movement.
* The right to ownership of property.
* The right to freedom from torture.
* The right to a fair trial.
* The right to nondiscriminatory treatment.
* The right to physical security.
* The right to freedom of speech and association.
* The right to minimal education.
* The right to political participation.
* The right to subsistence.
(Source: Donaldson, 1989, cited in Donaldson and Dunfee, 1999, p. 68)
Some of these foundation principles are highly congruent with the labor rights
identified above in the economic sphere. As with the governmental foundation
principles, the foundational human rights identified by Donaldson and Dunfee
(1999) also foster democratic values (i.e., the right to political participation
and the freedoms of speech and association) rather than more authoritarian
values. Simultaneously, these rights allow for individual, national, and
cultural differences (i.e., nondiscriminatory treatment and the freedom of
speech and association), in what Donaldson and Dunfee (1999) term the "moral
free space" where individual differences of opinions about right and wrong
exist.
It is important to note that these human rights are agreed principles about what
ought to be and come from consensus documents from the international community.
Nonetheless, these principles are not necessarily representative of the way
people are actually treated in different parts of the world today, particularly
under the pressures of global competitiveness that seek for ever-lower costs (or
greater economizing efforts). Even though there is widespread agreement on these
principles, as found in UN documents, there are still many countries (and
companies) that are run as dictatorships, where democracy and participation are
not universally valued.
Despite that participation (democracy) has been shown in multiple studies to be
effective in bottom-line terms (Pfeffer and Viega, 1999), it is still not
universal. Discrimination along ethnic, religious, gender, and other lines is
still commonplace. Universal franchise, freedom of association, and living wage
are highly contentious issues in many parts of the world. Using outdated
assumptions, some managers believe that there is a trade-off between achieving
some of these principles in practice and generating the most efficient
operations. As a counterpoint, however, Motorola achieved considerable success
with its slogan that "quality is free" (Post et al., 2002). We might as easily
argue that a similar understanding could be generated about human dignity and
responsible treatment of people, both at work and in civil society:
"Responsibility is free." There need not necessarily be a conflict between
profitable enterprise and respect for basic human values, as multiple studies on
the relationship between corporate responsibility and profitability indicate
(Margolis and Walsh, 2001, 2003).
More fundamentally, perhaps other values simply sometimes outweigh purely
economic ones. In his important book, Fast Food Nation, Eric Schlosser puts the
core issue starkly:
The market is a tool, and a useful one. But the worship of this tool is a hollow
faith. Far more important than any tool is what you make with it. . . . If all
that mattered were the unfettered right to buy and sell, tainted food could not
be kept off supermarket shelves, toxic waste could be dumped next door to
elementary schools, and every American family could import an indentured servant
(or two), paying them with meals instead of money. . . . The great challenge now
facing countries throughout the world is how to find a proper balance between
the efficiency and the amorality of the market. . . . An economic
systempromising freedom has too often become a means of denying, as the narrow
dictates of the market gain precedence over more important democratic values.
(Schlosser, 2001, pp. 260-261).
Ecological sphere foundation principles
If nature can be said to have a goal, it is likely to be what Frederick (1995)
calls ecologizing. The economizing that is inherent in industrialization
(Frederick, 1995) when combined with the basic ecologizing processes of nature
(Frederick, 1995) points in the direction of a possible foundation value for the
nature environment of:
* Sustainability or ecologizing (Frederick, 1995).
Nature, that is, wastes nothing as Frederick's (1995) extensive review of the
biology literature attests. What is waste for one process becomes food for
others, creating a cycle that sustains itself in creating the conditions for
life on earth as we know it, or what some have called the Gaia hypothesis, the
hypothesis that the earth itself is a living system (Lovelock, 2000).
The ecological or environmental sphere provides the basic elements necessary for
human civilization to survive and prosper, according to biologists Maturana and
Varela (1999). Though processes of industrial development sometimes disconnect
us from this reality, human civilization can survive only within a narrow range
of ecological conditions, though the "environment" will go on whether humans are
a part of it or not. The health of the natural environment with respect to human
civilization is currently threatened, largely from the impact of human beings
and processes of industrialization (e.g., Diamond, 1992; Hawken, 1999; Hawken et
al., 1999; Capra, 1983; Freeman et al., 2000). The need for sustainable
development has never been more real (e.g., Gladwin et al., 1995; Hawken, 1999),
despite the continuing emphasis in the economic system on growth, consumption,
and continued use of natural resources.
The Global Compact, building on the consensus fostered through the UN's Agenda
21 and the Declaration on Human Rights and Environment, reinforces the need for
sustainability by emphasizing the following core environmental principles as its
foundation principles:
* Taking a precautionary (preventative) approach to environmental challenges;
* Responsible and ethical management products and processes from the point of
view of health, safety and environmental aspects; and
* Development and diffusion of environmentally sound technologies.
(Source: http://www.unglobalcompact.org/gc/unweb.nsf/content/thenine.htm)
Although corporate and indeed human practices are currently far from sustainable
(e.g., Hawken, 1999; Diamond, 1992), the growing concerns about environmental
issues suggest the need for the types of foundation principles found in the
Global Compact and elsewhere.
Challenge ahead: moving from principles to practice
This paper has identified a set of foundational principles for the issues of
labor, human rights, system integrity, and environmental practices, based on
what is contained in globally-agreed (mostly UN-based) documents. These
documents by virtue of the international consensus on which they are based
promulgate basic standards that arguably ought to be followed by the brands,
retailers and their suppliers around the globe. Of course, as evidenced by a
continuing stream of exposes put forward by the BBC, New York Times, Sixty
Minutes and a host of other outlets, frequently such standards are not met.
After years of hard won progress in the major industrialized countries on the
range of issues covered by these foundational principles, the globalization of
production and the disaggregation of supply chains appears to have brought us
back full circle to some of the more egregious business practices of the past,
including sweatshops, abusive working standards, and growing ecological
deterioration.
Given this unsatisfactory state, it is not surprising to find a wide variety of
initiatives emerging to better regulate, ensure compliance with standards, and
establish some system of accountability and comparability. To avoid external
regulation, many companies are engaged in voluntary initiatives to monitor their
own practices through codes of conduct or by joining initiatives that attest to
their adherence to foundational values. Voluntary initiatives include The Fair
Labor Association (FLA), Ethical Trading Initiative, Clean Clothes Campaign, to
name just a few. Some companies agree to monitor their suppliers' labor
practices and submit to external verification through organizations like Social
Accountability International's SA 8000 standard. Others are attempting to become
more transparent through active engagement with stakeholders and living up to
AccountAbility's AA 1000 series of labor/work-place standards guidelines. Some
entire industries' professional associations, including the Direct Selling
Association and the Chemical Industry have started self-regulatory process, such
as chemicals' Responsible Care initiative and the DSA's code of conduct to
attempt to guide their members toward more responsible practices that live up to
global standards and expectations.
OECD guidelines on multinationals, the Caux Roundtable's Principles, and the
Global Sullivan Principles, among others, are all attempts to boost standards by
promulgating global codes of conduct and what we have termed foundational
principles that are widely agreed. One major initiative is the Global Reporting
Initiative (GRI), which is attempting to provide reporting mechanisms for social
and environmental reporting similar to those already in place for financial
reporting. By 2003 about 1,000 of the estimated 70,000 transnational
corporations in the world had joined this initiative. Just as new expectations
and norms, standards, and regulations evolved in the U.S. and elsewhere during
the early 1900s to respond to the most egregious abuses of industrialization, so
today are new global mechanisms beginning to evolve that have some potential to
hold companies more accountable for their practices and to meeting foundational
principles.
Combined with internal responsibility management systems, these initiatives
constitute the beginnings of what I have elsewhere termed a responsibility
assurance system (Waddock, in press). We can see the outlines of a voluntary
global system that establishes standards and enforces standards beginning to
emerge, in part the result of civil society and non-governmental organization
anti-corporate activism, but at this point the system is still voluntary and
many critics of globalization and of the power of the modern transnational firm
believe that voluntary standards will need to be complimented by mandate. For
example, the Global Compact (GC), Global Reporting Initiative (GRI), SA 8000,
and AA 1000 contain three core elements of responsibility assurance: standards
of conduct or the foundational principles discussed above (e.g., the Global
Compact), monitoring, verification, and certification processes to ensure that
what companies say they are doing is what they are actually doing (e.g., AA 1000
and SA 8000), and reporting guidelines for reasonably standardized external
communication of what is being done that is relatively comparable across
companies and nations (e.g., GRI).
Each of the core elements of responsibility assurance addresses a different
element of an important continuum that reinforces the foundational values
discussed above. For example, the GC articulates nine foundation principles, as
discussed above, which are supplemented by principles of respect, dignity, and
care for the community as identified by Donaldson and Dunfee (1999). The GRI
provides a common reporting tool that provides for comparability across
companies and other institutions using it, as well as a degree of transparency
not currently available. SA 8000 and AA 1000, and related International
Standards Organizations (ISO) standards on environment, provide specific means
for assessing company performance in the important arenas of the multiple bottom
lines associated with ensuring that companies are held to higher standards than
some are meeting today in the global arena. Whether these are the specific
initiatives that will, in the end, create a "new business imperative" of
corporate responsibility (Waddock et al., 2002) at the global level, these types
of initiatives, along with continued activism and public pressure, are among the
types that will be needed to bring about more accountable corporations that meet
these basic standards of practice.
Such voluntary initiatives may never satisfy corporate critics, particularly in
light of the reality that, for example, of the nearly 70,000 transnational
corporations, only about 1,000 had signed the Global Compact by early 2003, and
the reach of the GC hardly touches the millions of small and medium-sized
enterprises in the world today. Peer pressure from companies within the same
industry does have the capacity to shift corporate attention to the reporting of
social and ecological as well as economic/financial performance - and what gets
measured is what managers tend to pay attention to, thus, the existence and
promulgation of reports does have some potential, in and of itself, to shift
attention toward foundational principles such as those discussed above. Such
reports and monitoring of supply chain activities is particularly important for
companies with brand reputation to protect, who have been targets of
anti-corporate or anti-globalization activism, as the membership of the Fair
Labor Association attests.
Further, although some companies are now voluntarily producing triple bottom
line reports (Elkington, 1997) that focus on economic, social, and ecological
performance, and engaging in verification of standards in their supply chain
factories, some managers are questioning their usefulness - as well as whether
they are even being read. New regulatory mechanisms, such as the Sarbanes-Oxley
Act in the U.S., and recent legislation in France and the U.K. that mandates
that pension fund managers report how they deal with ecological and social
issues within their funds have far-reaching potential to shift priorities of
they continue to spread to other nations, and become the norm. Although specific
behaviors are not required in these European laws, the mere fact of having to
report how these issues are considered draws new attention to underlying
standards.
Additionally, we can make an analogy to the quality movement. Quality became a
business imperative during the 1980s in part because of customer demands for
better quality, in part because the Japanese had already set a high standard of
quality that forced others to focus on quality, and in part because European
Union companies began requiring that suppliers meet ISO quality standards (Evans
and Lindsay, 1999). Perhaps it will take a similar sequence of events around
corporate responsibility, underlying corporate responsibility for all companies,
branded or not, to begin taking foundational principles seriously. For instance,
what might be the impact of current EU companies requiring their suppliers to
meet SA 8000 labor standards, to join the Global Compact and uphold the
principles, reporting out using GRI standards?
Alternatively, what if several major transnational corporations that have long
or extensive supply chains (e.g., Wal*Mart) or employ people on a global basis
(e.g., McDonalds) determined that they - and all of their suppliers had to be
certified as meeting foundational standards? The chain reaction of such moves
would create a cascade effect, much along the lines of the quality movement,
that would, in fact, make the implementation and meeting of foundational
principles a way of doing business. Resultant attention from the general public,
the press, and competitors could conceivably create an entirely new context in
which foundational principles as related to the very stakeholders who constitute
the company and without which it cannot do business are met as part of the
company's basic license to operate - its fundamental social contract.
The world today is far from either voluntary or mandated assurance that
foundational principles - basic human and labor rights, ecological principles,
or the transparency that provides trust in the integrity of the system - are in
fact being implemented. Yet, as can be seen from the sketch given above, there
are forces in place that are pushing in the direction of establishing and
implementing core principles to make corporate citizenship real, not just
rhetoric. Only time, competitive conditions, political will, and the social
movements that underlie the development of that political will, will determine
whether the ultimate outcome is in the best interests of humanity - meeting the
basic needs of people for respect and dignity, of human civilization for a
sustainable global ecology, of democracy for systemic integrity.
Acknowledgements
I would like to acknowledge the contributions of Charles Bodwell of the
International Labor Office Corporate Citizenship Programme to the original
conception and ideas presented in this paper.
[Footnote]
Notes
1 TI Advisory Council Chairman Kamal Hossain, quoted in a TI press release, May
14, 2002, 'Russian, Chinese, Taiwanese and S. Korean companies widely seen using
bribes in developing countries,' posted at: http://www.transparency.org/pressreleases-archive/20
02/2002.05.14.bpi.en.html.
2 See http://www.investorhome.com/sri.htm. This screen is notably broad,
including shareholder resolutions, as well as direct investments in screened
companies and mutual funds.
3 See ILO's Business and Social Initiatives: http://oracle02.ilo.org:6060/vpi/VpiSearch.First?p-la
ng=en.
4 As reported at http://uspolicy.usembassy.be/Issues/WTO/factsheet.062901.htm.
[Reference]
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