International CSR in practice

MNEs’ main ethical dilemmas

Human rights

One serious dilemma for MNEs is whether they should refuse to do business with countries that violate the principles of liberty and humanity put forth by the United Nations in its 1948 Declaration of

Human Kights. The challenge here is determining the net effect of MNEs operating in countries where abuses are rampant. On one hand, MNEs refusing to work with such regimes might be starving the local economy of much needed capital, jobs and technology. At the same time, their presence in the country may only benefit a small segment of the population while worsening everyone else’s situation.

Labour relations and supplier controls

Considerations here include the “hiring and firing” of staff wage policies, overtime, health and safety, gender equality, child labour, union relations and fair trade. The enormous global variability of labour market conditions makes it difficult to assume a standardisation of MNE ethics in this domain.

Corruption

Corruption skews market transactions to the benefit of the few and detriment of the many. The problem is the extreme global variation in levels of perceived corruption (a quantum best tracked in an index designed by a Vienna-based NGO called Transparency International). Depending on a country’s cultural heritage, practices considered corrupt in some environments (political lobbying, gifts) may be acceptable and even seen as normal in others.

Environment

Issues here include ascertaining MNEs’ responsibilities and willingness to clean up existing pollution, prevent further pollution and conserve natural resources. Where ecological problems are limited to one country, its government can try to police the company involved by applying a “polluter pays” principle. The problem is that ecological damage often knows no borders, making it harder to attribute responsibility and police the problem especially in the absence of an all-powerful international authority with cross-border jurisdiction.

International codes of conduct

There have been many attempts over the years to codify ethical behaviour on an international scale. The two main categories are efforts made by the United Nations (UN) and voluntary codes drafted by companies.

UN conventions

The UN is the closest thing the world has to a global government. It falls far short of fulfilling this role, however, due to a lack of policing powers and because its decisions require consensus agreement from members whose interests often differ. Having said that, there is still value in reviewing some of the UN’s main recent agreement.

1 1992 UN Rio de Janeiro Conference on Environment and Development

Building on seminal work that the Norwegian politician Gro Brundt-land undertook in the field of “sustainable development,”, this was the first “Earth Summit” where world leaders assembled to “rethink economic development and find ways to halt the destruction of irreplaceable natural resources and pollution of the planet”.

2 1997 UN Kyoto Framework Convention on Climate Change

The convention set “an overall framework for intergovernmental efforts to tackle the challenge posed by climate change”. Its effectiveness was undermined when several major polluter countries refused to ratify it. Subsequent climate change conferences (including the 2019 Madrid COP25) have run into similar difficulties.

3 2000 UN Global Compact (see Figure 4.2)

Figure 4.2 Principles of the UN Global Compact.

Members sign up to indicate their support for the Compact’s principles. With more than 12,000 members in over 160 countries as ofjune 2020, this is probably the world’s biggest voluntary CSR network.

4 2005 United Nations Convention Against Corruption (UNCAC)

The problem is that the only authorities with real power to punish corrupt companies are national governments applying domestic legislation. In the absence of sanctions, international codes can lack eftectivenesss.

5 2019 Centenary International Labour Conference

Adoption of ILO Convention 190 Concerning the Elimination of Violence and Harassment in the World of Work. The perceived need to officialise these basic aspirations raises the question of whether voluntary and/or self-enforced codes of MNE ethics actually suffice.

Voluntary codes

Companies like to publicise the fact that they have drafted a code of ethical conduct, or signed up to an existing one, since this improves their reputation and defuses possible criticism.

Two of the world’s biggest ethical reporting groups, after the UN Global Compact, are the Global Reporting Initiative (GRI) and the SA8000. The GRI is a large, “multi-stakeholder network” of experts promoting triple bottom line disclosure within a “Sustainability Reporting Framework”. The SA 8000 is a “Social Accountability Standard” and verification system aimed at “assuring humane workplaces”.

Otherwise, many business sectors have devised their own international codes of conduct. Examples include the International Council of Toy Industries and the International Code of Conduct on the Distribution and Use of Pesticides. As for branch-level codes, these tend focus as much on labour practices and product safety as on environmental standards.

Also noteworthy at this level is the rise of environmental and/or social ratings agencies (like MSCI in the United States or BMJ in France) that promote ethical practice — much in the same way as financial ratings agencies like Moody’s or Standard and Poor’s improve corporate governance (another component of business ethics) by maximising financial disclosure.

Lastly, a fast-growing area of ethical codification is fair trade, where certification is largely overseen by an entity called FLO International.

This sector began with attempts to create products (like Fair Trade Coffee and Rugmark carpets) whose entire branding is based on the application of ethical business practices, mainly revolving around raw material producers being paid above-market prices to ensure they receive a “living wage”. Fair trade certification then becomes a badge that some consumers will specifically seek in the stores where they go shopping making this sector one of the purest examples of CSR turned into a profit strategy.

Enforcing CSR worldwide

It is one thing to specify which ethical standards MNEs should adopt. It is another to enforce actual implementation. Ethical behaviour is easier to identify within a national framework where everyone answers to a single authority (the national government). This is not the case in many MNE dealings.

National traditions of CSR enforcement

CSR materialises across the world in different forms. In the US, for instance, firms may feel greater pressure to offer concrete evidence that they are operating ethically. This can be partly explained by the fact that before the Sarbanes—Oxley corporate governance bill became law in 2002, limited liability meant that US executives could often avoid personal responsibility for their actions at work. In an environment where accountability is less formalised, overt CSR actions reassure the public and can be marketed as a new competitive tool.

Europe, on the other hand, is marked by a tradition of strong legal prescriptions, exemplified by Germany’s concept of Eigentum verpflichtet (loosely translated as “Ownership creates duties”). Note as well the increasingly widespread adoption of triple bottom line legislation, exemplified by France’s 2001 Nouvelles Regulations Economiques, which require most firms to publish environmental and social accounts alongside their financial statements.

Japan’s CSR profile translates the country’s largely collective culture in which the search for social harmony — an Asian cultural value enshrined in the writings of the philosopher Confucius — takes precedence over self-interest. Interestingly, many poor countries in Asia share similar values to Japan without CSR being as prevalent as it is there. This offers further proof that a society’s attitudes towards business ethics is conditioned by multiple factors, including stage of socioeconomic development.

The clear priority in many emerging economies has been to create jobs and spark growth by attracting inward investment. As Chapter 12 will detail, one common feature in much of the Global South is the absence of sufficiently strong civil institutions to exert moral pressure on companies. Corruption is rife, often because living standards are so low that potential recipients of bribes cannot afford to turn their backs on potential sources of income. The net effect is that in some parts of the world, CSR seems a luxury. At the same time, it is patently unfair that the world’s poorest nations should suffer worse corporate behaviour than their wealthier counterparts.

Market policing: non-governmental organisations (NGOs) and consumers

One rapidly expanding feature of the international business ethics landscape is NGOs’ use of high-profile communications campaigns to influence how consumers view MNEs. Much of the time, this involves denouncing MNEs that engage in unethical behaviour or refuse responsibility for their actions’ damaging consequences. NGOs’ public exposure of MNE behaviour is intended to attract the attention of politicians and legislators (in the hope they will intervene) as well as consumers (in the hope they will threaten commercial boycotts). It explains why NGOs might well be categorised as a new power base helping to define international business ethics today.

The effectiveness of NGO protests as a vehicle for enforcing ethical behaviour remains to be seen, however. MNEs are not going to agree to any and all protestor demands — if only because the benefits of unethical behaviour may be higher than the costs of compliance with legal and/or CSR standards. This is especially true when the misconduct is happening far away from the MNE’s main consumer markets. The debate then becomes to what extent a company whose representatives behave ethically in certain locations should be blamed for colleagues’ past or present misconduct elsewhere. This is a complicated subject. Few MNEs — like few human beings — are 100% ethical or unethical.

Bibliography

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“What’s great is that everyone gets along