Globalization trends and the growth of transnational corporations in the past few decades raise important issues for global governance, given that regulations within domestic borders concerning environmental concerns, labor issues and human rights no longer suffice in a modern context of complex global supply chains. This post outlines the challenges apparent in existing corporate social responsibility (CSR) approaches and possible ways to address them.
Addressing Weaknesses of Corporate Social Responsibility
CSR itself has an ambiguous meaning. It is unclear what “responsibilities” fall under “corporate social responsibilities.” In addition to a focus on the environment, human rights and labor, advocates of CSR call for the responsibility of companies to play a role in key development issues such as poverty and inequality, and for the CSR agenda to not ignore taxation, health issues, perverse development impacts and subcontracting by firms to externalize CSR risks. In addition to, or as a result of, the broad agenda advocates are calling for, the existing global approach to CSR is fragmented. The profusion of international agencies and NGOs to monitor the potential negative effects of TNCs makes the exercise of corporate social responsibility all the more diluted, with various notions of what the aims of CSR-driven initiatives ought to be. The CSR agenda ought to be narrower in scope, not only to avoid burdening companies with additional responsibilities in areas that are not traditionally within the ambit of profit-making business models, as argued by John Dunning and Milton Friedman, but also to garner the support of corporations themselves in developing the CSR agenda. CSR is weakened when it includes economic policy issues such as taxation. Its role in this regard would be expanding beyond that which can be controlled in the private arena and that which has a gap within the existing global governance structure. Organizations such as the WTO or World Bank may be better able to address policy concerns regarding trade and unfair competition, tax regulation and inflation issues. CSR advocates need to align interests of organizations with interests of the CSR agenda. This might be done through constructive dialogue settings, such as the UN mechanisms, and by highlighting the positive correlation between good performance on labor standards and economic performance.
Other issues such as a lack of participation by CSOs, NGOs and business organizations domiciled in the global south exist. In order for CSR to be as inclusive as possible and address concerns that have significant impacts on developed and developing countries alike, there needs to participatory mechanisms for organizations that represent varied interests and geographies. Regulation proposed by CSR advocates may be inapplicable in differing contexts, an important example being where there is a large informal sector (as in most developing countries) and formal sector regulations may have negligible effects. Additional regulation might have perverse employment effects where an abundance of cheap labor exists. Such a labor market makes it almost impossible for upward pressure on wages to come from companies themselves rather than governments. Although it might be overstated that aims of CSOs in the global north conflict with the interests of poor countries, it is nonetheless important for both voices to be heard in the dialogue. CSR conferences and discussions ought to take place in a manner more accessible to NGOs from developing countries and be advertised across internet and social media outlets that will have a broad reach.
Perhaps the most central weakness of existing CSR approaches is its largely voluntary nature, appealing to the altruism of company management, when managers themselves are restrained by their stockholders’ interests. Relying on corporations to self-regulate is ineffective for this reason. Even where the CSR agenda does result in corporations abiding by the Guiding Principles set out by the UN or other standards set by multinational agencies, they are insufficient at best. Large companies with prominent brands are more vulnerable to public scrutiny and the rallying efforts of CSR activists, and thus are more likely to adapt company policies to increase attentiveness to environmental, labor and human rights abuses. They may also be the companies more able to afford to do so. However, the overwhelming majority of firms in all countries are small and medium-sized enterprises (SMEs) and SMEs are particularly important in developing countries. As much as large companies may tailor their business activities to accommodate CSR goals, many SMEs who are less able to afford to do so may fly under the radar and not be as influenced by global CSR agendas. Additionally, government and company interests may be aligned such that it makes it difficult to move forward and come to a consensus on an agenda that works for both CSOs and companies. Where interests are not aligned, strong pushback against regulation comes from companies, making it just as difficult to come to a global consensus.
These weaknesses might be overcome by a global enforcement mechanism. An organization targeted at monitoring international investment and creating a forum for international dialogue, in a similar manner to how the WTO monitors global trade, would help to streamline CSR initiatives while incorporating more varied perspectives into the mainstream CSR agenda. In addition, large companies vulnerable to public pressure can exert their influence over policy frameworks, globally or domestically, to push for legally binding standards that affect not only them but also smaller SMEs. Most importantly, the onus should be largely on states; state obligations, as set out in the Guiding Principles are more compelling than voluntary norms to initiate global TNC compliance with CSR standards.
A consultative approach between companies and CSOs to form an agenda closes the multinational global governance gap and brings economic and social goals together. Redefining the rules of the game through a global consensus, while keeping in mind where the biggest challenges come from, will force companies to re-determine their economic determinants, and work within an enforceable framework set by the international community.
Simisola Obatusin is a joint-degree candidate, earning a JD from Columbia Law School and an LLM from London School of Economics. She graduated from Cornell University, having studied Industrial and Labor Relations, and International Relations. She has previously worked with the Institute for Human Rights and Development in Africa (IHRDA) and the International Labour Organization. Prior to law school, she worked in Nigeria as teacher, while also promoting the right to education for girls through a non-profit she co-founded, Teach A Girl Nigeria.