The Role Of Corporate Social Responsibility In Cross Border Regulation

Research Question: Is Corporate Social Responsibility A Practicable Alternative Regulatory Framework For Transnational Corporations (Tncs) Operating In Developing Countries?

Question: How Should Transnational Corporations Be Regulated To Minimize Malpractice And Improve Their Social, Environmental And Human Rights Record In Developing Countries?

Introduction:

The corporate regulation discourse has been in a state of constant change throughout the recent decades. Although the neo-liberal discussions of the ‘80s gave priority to corporate rights and deregulation, the corporate social responsibility (CSR) movement in the ‘90s emphasized corporate self-regulation and voluntary scheme involving, such as, codes of conduct, advancements in occupational health and safety, environmental management systems, social and environmental reporting, support for community projects and philanthropy. As the limits of self-regulation became obvious, and as the regulatory competence or motivation of developing country governments, international organizations and trade unions continued to wane, different regulatory approaches have materialized. These approaches have revolved around co-regulation, in which a mixture of state, civil society, multiparty and commercial interests engage in public-private partnerships (PPPs) coupled with standards setting, reporting, monitoring, inspection and certification. In recent times there has been increasing calls for more legally binding corporate accountability and a renewed awareness in international regulation of Transnational Corporations (TNCs). From the viewpoint of social, environmental, human rights, malpractice, international development and good governance, how efficient are these innovative and diverse approaches?

Introduction:

The discourse round corporate social responsibility in developing countries is fueled by an aspiration that was envisaged in 2000 into the Millennium Development Goals—‘a world with less poverty, hunger and disease, greater survival prospects for mothers and their infants, better educated children, equal opportunities for women, and a healthier environment’ (UN, 2006: 3). Lamentably, these global ambitions remain far from being releasied in many developing countries today. The obvious question to pose therefore, is: What is the role of business in dealing with the critical issues of environmental sustainability and development in these countries?

Before the the discusion can start in ernest, it is worth clarifying the use of the two central themes of this research proposal; ‘Developing countries’ and ‘CSR’. No wishing to re-igniting that debate here, suffice to say that throught this research proposal, the term ‘Developing countries’ is the prefered term for collectively describing nations that have relatively lower per capita incomes and are relatively less industrialized.

The definition offered here and throughout this research proposal is follows the United Nations Developments Program’s (2006) classification in its statistics on human development and is best epitomized by the World Bank’s taxonomy of lower and middle income countries. However, it is worth adding a footnote here, that the UNDP’s classification of high, medium and low development countries produces a considerably different depiction than the World Bank’s list of which countries are developed and developing. CSR is an equally disputed idea (Moon, 2002b). Nevertheless, for the purposes of this proposal, the term CSR in developing countries is used to denote ‘the formal and informal ways in which business makes a contribution to improving the governance, social, ethical, labour and environmental conditions of the developing countries in which they operate, while remaining sensitive to prevailing religious, historical and cultural contexts’ (Visser et al., 2007). The rationale for choosing CSR in developing countries as distinct from CSR in the developed economies is:

1. Developing countries represent the most rapidly expanding economies, and thus the most profitable growth markets for business (IMF, 2006);
2. developing countries are where the environmental and social crises are usually most acutely felt in the world (WRI, 2005; UNDP, 2006);
3. developing countries are where globalization, economic growth, investment, and business activity are likely to have the most dramatic social and environmental impacts (both positive and negative) (World Bank, 2006); and
4. developing countries present a distinctive set of CSR agenda challenges which are collectively quite different to those faced in the developed world.

The final claim is explored further and in depth, to a larger extent, it will form the ‘back bone’ of this research. The research will start by proposing different ways to classify the literature on CSR in developing countries. The next phase will be to review the research that has already been carried out at an international and local level, prior to considering the main CSR Incentive in developing countries. in conclusion, an alternative regulatory model of CSR in developing countries will proposed, and recommendations for future research.

Literature Review

The literature on CSR is huge and the literature on regulation is equally colossal. In both instances a great deal of focus has been devoted to questions such as whether CSR codes of practices have a tendency to arise from either ‘economic’ or ‘ethical’ deliberations and whether they are ‘punitive’, in that there are usually penalties for non-compliance. The purpose of this section is not to appraise all of this but rather concentrate, primarily, on the limited literature relating to whether elementary formative factors influence the occurrence and form of CSR codes in MNCs and secondly forcus, on the evidence relating to the scope to which these codes are negotiated with member of staff and their representatives.

In this second task we draw on the evidence for the related but distinct phenomenon of International Framework Agreements (IFAs). On the first of these issues, there is some limited evidence suggesting that CSR codes are more common in some nationalities of MNCs than others and that the country of origin also affects the character of the codes. For example, Bondy et al. (2004) investigated CSR in British, German and Canadian MNCs. They demonstrated that the codes in British MNCs partly reflect corporate governance requirements associated with listings on the London Stock Exchange. More speculatively, they argued that another aspect of a distinctively British approach to CSR was for the codes to be less prominent on the companies’ websites than was the case for the other nationalities, attributing this to the priority given to ‘shareholder value’ over ‘social responsibility’ in the UK. regarding German MNCs they argued that a home country effect showed up in the distinctive emphasis on ‘sustainability’ in their CSR codes and that there was little evidence of German firms becoming more ‘Anglo-Saxon’ in this area. However, the results for Canadian firms did not produce a clear home country effect, or at least not the ‘Anglo-Saxon’ effect the authors anticipated. In short, their findings hinted at home country effects, but the analysis was heavily constrained by the method (information available on the firms’ web-sites) and the small sample size (25 per country). Country of origin effects are also apparent in van Tulder and Kolk’s (2001) study of sportswear manufacturers, a sub-sector where the external aspect of CSR codes is prominent. They investigated the substance of codes in six MNCs: two American firms, Nike and Reebok, both of which had a code; two German firms, Adidas and Puma, with only the latter having a code; and two Japanese firms, Mizuno and Asics, of which only the former had a code. The authors argued that “the American companies were much quicker in adopting corporate codes of conduct”’, with the form of these codes being influenced by the support of the US governmentfor the ‘Apparel Industry Partnership’.” The American firms were also distinguished by the considerable information concerning CSR that was publicly available. In contrast, firms of the other nationalities ‘followed different routes’ (2001: 268). For example, the preference among German firms for working in concert with other firms showed through in Adidas rejecting a corporate code in favour of striving for an industry-wide code. One doubt about this, as the authors note, is that differences between the firms may be more about their size and prominence than about nationality. For instance, the leading market position of Nike and Reebok may be the main reason why they were at the forefront of devising CSR codes; if, for example, Asics had been a market leader then maybe it too would have been a CSR pioneer. Overall, then, the evidence of a home country effect here is limited. What does the literature tell us about the labour content of CSR codes? Bondy et al (2004) present some data on the employment dimension of the codes they looked at. “Workplace issues”, defined as those provisions that seek to “influence employee behaviour”, were most common in Canadian MNCs, being mentioned in the web-based version of the codes in 37 percent of firms in this category. In contrast, they feature in only 16 percent of British and 11 percent of German MNCs. Another issue was “labour issues/worker rights”, but this was mentioned by only 3 percent of the British, 2 percent of the German and none of the Canadian MNCs. The results here are ambiguous: some variation by nationality was evident on the first of these issues, but the results do not constitute convincing evidence of a country of origin effect. In particular, the lower prominence of workplace and labour issues in the codes of German MNCs is not what analysis of the home country business systems might lead one to expect. As noted above, the major reservation here is that this analysis was based only on what is mentioned on the firms’ websites; failure to mention labour issues or workers’ rights in this format does not mean that they definitely do not feature in the codes.CORPORATE SOCIAL RESPONSIBILITY IN MULTINATIONAL COMPANIES 3 Frenkel’s (2001) study of CSR codes in two American sportswear manufacturers in China found that the codes had some impact on employment relations, albeit limited. The employment relations practices and climate in the four factories of the two firms went with the grain of the prevailing pattern in the Guangdong province where the sites were located, but with differences being apparent in the greater likelihood that labour standards would be upheld and in a ‘more human resource oriented approach to employees’ (2001: 558). He argued that the impact was conditional on the media attention and associated public concern that had been in evidence prior to his fieldwork. As he put it: ”For the codes to be effective in times when the weight of adverse public opinion is less influential, institutional supports in the form of labour law enforcement, some kind of legitimate, independent workers’ institution, and procedures for skill enhancement, will be necessary” (2001: 558). This raises the issue of what form the “legitimate, independent workers’ institution” might take. Frenkel probably had in mind national and local structures of independent employee representation, including trade unions. Another possibility, which is addressed in this paper, is to anticipate that labour policies associated with CSR might be enforced where they have been negotiated with an international structure representing workers’ interests, either an international trade union federation (IUF) or European (or worldwide) Works Council (EWC or WWC) under an agreement which provides for joint monitoring of implementation. It is this second possibility that is addressed in the empirical analysis of the paper. While pre-existing evidence on the negotiation of CSR codes with employee representatives is sketchy, we can supplement this by drawing on evidence on the related development of so-called ‘International Framework Agreements’ (IFAs), addressing basic labou rights and core labour standards, reached between management in MNCs on the one hand andeither IUFs or EWCs on the other. Estimates suggest that by mid-2005 IUFs – either global or regional – had concluded IFAs with around 50 MNCs (Hammer, 2005). Furthermore, of the 53 joint contexts and framework agreements concluded by EWCs with multinationals by the end of 2005, 19 cover basic labour rights and core labour standards – issues which are central to the CSR agenda (EWCB, 2005a). In sixteen of these cases, EWCs are co-signatories with IUFs. In a further three cases, the EWC is the sole signatory (Ford, Lyonnaise des Eaux, Vivendi). In some cases where IUF’s are sole signatories, as in Arcelor’s 2005 global agreement, the EWC has a specified role in the implementation and monitoring of the agreement’s provisions. In addition, a handful of agreements addressing CSR issues have been concluded by world works councils (with IUFs as co-signatories), including DaimlerChrysler and VW (Müller et al., 2005). MNCs based in France, Germany and the Nordic countries are prominent amongst those signing agreements with IUFs and/or EWCs/WWCs. The sectoral spread is wide and the size of the MNCs involved varies from under 5,000 employees worldwide to over 250,000 (EWCB, 2005a; Hammer, 2005). Evidence on the motives of management is scarce in what remains a minority of MNCs to which have sought a jointly-agreed approach to labour issues. However, findings from the limited number of interview studies undertaken suggest two main sources of motivation (Marginson, 2006). The first relates to legitimation: management may see advantages in reaching an agreed code in terms of the additional legitimacy for a policy that employee representatives’ consent or approval can bring. Further, legitimacy comes from the linking of IFAs to multilateral instruments such as ILO Conventions, the principles of the UN’s Global Compact and the OECD’s Guidelines on MNCs (Hammer, 2005). The second is the capacity of trade unions, and non-governmental organisations, to bring international pressure to bear on management over a company’s practices and those of its suppliers. Concerning the nature of joint texts and framework agreements, Hammer (2005) distinguishes between IFAs which address basic collective rights, such as rights of trade unions to access and organise amongst local workforces (‘rights agreements’) from those which address substantive standards (‘bargaining agreements’). Agreements falling under the second category – which include almost all those concluded with EWCs/WWCs – also tend to address rights and also contain extensive procedural provisions. In terms of the voluntary regulation which they introduce, IFAs vary in their degree of ‘softness’ or ‘hardness’ or, put another way, the extent to which they are intended to be binding on the signatory parties and on management and employee representatives within the different international operations of the company. The provisions of some CSR agreements are mandatory, whilst others are advisory. The application of some, but not all, extends up the supply chain, with such application also varying between mandatory and advisory (Hammer, 2005). A key feature differentiating those agreements that are mandatory from those that are advisory is the nature and extent of any monitoring of implementation that the agreement provides for (including up the supply chain). In sum, there are evidently significant gaps in the literature concerning the questions at the heart of this paper. On the first of the two questions, the evidence concerning the prevalence of CSR suggests that such codes are widespread, but is this really the case? Moreover, the influence of structural factors on the incidence of CSR, such as the nationality of the parent firm, is patchy and ambiguous. Similarly, the role of sector is also poorly understood, with much of the evidence relating to those sectors in which we might expect CSR to be most common, such as sportswear. Even where the evidence stems from MNCs across sectors this has not tended to form a major basis of comparison. In relation to the second issue concerning the influence of CSR on employment relations, there is clearly some evidence that there are a growing number of ‘corporate social policies’ of various sorts (CSR codes or IFAs) that are negotiated in MNCs, but are these just a few isolated cases or is it now a significant phenomenon? If the latter, can we point to structural factors that explain the incidence of negotiated codes? We are able to shed some light on these questions and in the next section we chart the way in which we have sought to do this.

 Research Methods:

Contemporary models or paradigms for socio-legal research have added to our appreciation and recognition of the homogeneity between society and law (Abel, Galanter). These models however leave us short, of the kind of wide-ranging paradigm, illustrated by Thomas Kuhn in his landmark and academically acclaimed book ‘The Structure of Scientific Revolutions’, that may possibly invigorate universal scientific socio-legal research.

Existing socio-legal research utilizes a mixture of research methods to arrive at complete and correct data. Equally quantitative and qualitative research both draws on empirical methods to interpret the workings of social, cultural, and legal processes. They diverge, however, in how they carry out this deciphering. This research proposal will take the modern approach of using a combination of qualitative and quantitative methods of research. The rational for selecting the qualitative approach is because this method is best suited for textual analysis. Since the bulk of this research will involve studying an analysis of legal documents, much of the research will be of a qualitative inkling.

Qualitative research habitually endeavors to answer a question rather than to prove a proposition or an assumption. Instead of formulating “test conditions,” qualitative researchers observe the ongoing social processes, scrutinize records or artifacts that characterize or formed by these social processes, and have a discussion with people who are involved in or influenced by the processes being studied. Some of the issues what were taken into account when evaluating the qualitative research design included the following considerations:

• Is the case uniquely appropriate for the study in question?
• Will the main research question be answered with the type of data that is to be collected?
• Is there a wider thesis that is being studied through this particular research?
• Will the study progress the theory on the subject in question in particular ways?
• Is the research question reasonably open; that is, is there a possibility that this research will have multiple possible answers?
• Is it obvious that the researcher requires the data in order to tackle the research question?
• Will the data collection be comprehensive and systematic?
• Will the research process give the researcher the expertise that will make it possible to answer the research question?

The consideration/issues listed above focus less on the quality of the data per se, but more on the suitability of the case and the quality of data gathering. It is important to stress that a high quality and well though out research will reveal a rich and complex understanding of particular phenomenon.

The core source of primary data is likely to be case laws and legislative text. Secondary data will be derived from a wide-ranging analysis of academic literature on the subject gathered from library and online electronic research. Company reports and PR material of various TSN operating in developing countries, United Nations and Non Governmental Organization’s policy papers on international development will also play a part in the textual analysis.

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