Corporate Accountability

Is Self Regulation The Answer? By Kavaljit Singh, 24 April, 2007, countercurrents.org:

Excerpt: … The Limits of Voluntary Approaches

Voluntary approaches have several inherent weaknesses and operational difficulties, some of which are summarized here:

  • First, as discussed above, corporate codes are purely voluntary, non-binding instruments. No corporation can be held legally accountable for violating them. The responsibility to implement the code rests entirely on the corporation. At best, corporations can be forced to implement codes only through moral persuasion and public pressure.
  • Second, despite being in existence for many years, the number of companies adopting such codes is still relatively small. Moreover, corporate codes are limited to a few sectors, particularly those in which brand names are important in corporate sales, such as garments, footwear, consumer goods, and retailing businesses. A large number of other sectors remain outside the purview of corporate codes.
  • Third, many codes are still not universally binding on all the operations of a company, including its contractors, subsidiaries, suppliers, agents, and franchisees. Codes rarely encompass the workers in the informal sector, who could well be an important part of a company’s supply chain. Further, a company may implement only one type of code, for instance, an environmental one, while neglecting other important codes related to labor protection, and health and safety.
  • Fourth, corporate codes are limited in scope and often set standards that are lower than existing national regulations. For instance, labor codes recognize the right to freedom of association but do not provide the right to strike. In many countries, such as India, the right to strike is a legally recognized instrument.
  • Fifth, the mushrooming of voluntary codes in an era of deregulated business raises serious doubts about their efficacy. There is an increasing concern that corporate codes are being misused to deflect public criticism of corporate activities and to reduce the demand for state regulation of corporations. In some cases, codes have actually worsened working conditions and the bargaining power of labor unions. Moreover, increasing numbers of NGO-business partnerships established through corporate codes and CSR measures have created and widened divisions within the NGO community and sharpened differences between NGOs and labor unions. Voluntary codes of conduct can never substitute for state regulations. Nor can they substitute for labor and community rights. At best, voluntary codes can complement state regulations and provide an opportunity to raise environmental, health, labor, and other public interest issues …

(full long text).

Kavaljit Singh is Director, Public Interest Research Centre, New Delhi. He can be reached on his mail. The above article is based on his latest report, Why Investment Matters: The Political Economy of International Investments (FERN, The Corner House, CRBM and Madhyam Books, 2007).

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