Codes of Conduct: Old Solutions to New Problems
A Policy Paper by the United States Council for International Business
July 1997
THE ISSUE FOR BUSINESS
There are mounting pressures to impose a new code or codes of conduct on multinational corporations, while subjecting their compliance to "independent" audit. Codes of conduct for multinational enterprises (MNEs) have been an issue for governments, international organizations, non-governmental organizations (NGOs), as well as the business community, for three decades. The original impetus for multilateral codes in such bodies as the U.N., OECD, and ILO was in response to the burgeoning development of the multinational corporation. With globalization, attention has turned once again to multinational firms, which are now seen as the main actors on the global economic stage.
Labor and environmental activists are concerned that MNEs, by their global reach, are eluding national controls and influence. Consequently, these groups now seek binding rules, either by changing the voluntary nature of existing codes or by imposing binding conditions related to labor and the environment in new international instruments such as the proposed Multilateral Agreement on Investment (MAI). They also seek a compliance procedure in which these groups could sit in judgment on individual corporate behavior.
The International Confederation of Free Trade Unions (ICFTU), sparked by the AFL-CIO, has repeatedly and insistently made clear that monitoring of corporate behavior in foreign countries is the concomitant of the "social clause," the use of trade sanctions to enforce worker rights.
The Clinton Administration in particular has sought to use the multinational corporation as an agent for change. In the case of extending MFN to China in 1995, the Administration suggested the development of a code for multinationals' operations in China. In the face of business opposition, this concept was broadened to a general global code and, ultimately, to Model Business Principles--described as reference points for individual corporate codes.
The Department of Labor, under Secretary of Labor Reich, but also subsequent to his departure, has sponsored sectoral codes such as the White House Textile and Apparel Partnership on Sweatshops and Child Labor involving companies, NGOs, and trade unions. The Workplace Code of Conduct has provisions on wages and hours--an unprecedented inclusion in voluntary code-making--and will have provisions for independent monitoring. The Department of Labor is reported to be contemplating other sectoral codes. It is also interested in using labeling schemes to enforce compliance through consumer boycotts.
Members of Congress have proposed making MNEs subject to additional codes of conduct as conditions to their participating in government programs. The most recent example of this approach is the proposed China Human Rights and Democracy Act of 1997, which would establish principles governing the conduct of U.S. businesses operating in China and make it mandatory for companies to indicate their willingness to comply with such principles by registering with the Secretary of State.
The business community needs a coherent response to these increasing demands for intervention into the management of corporate affairs.
USCIB POSITION
Multinational companies have long acknowledged their responsibility for good business practices in such fields as environmental management, health and safety, employee relations, child labor and general ethical standards. Many companies have their own codes or policies. Implementation of these internal standards of behavior are frequently verified and assisted by audit or other compliance procedures with the results communicated to shareholders and the broader community. In other cases, business has adopted both national and international subject-specific business codes. The chemical industry's Responsible Care is an example of a national code. Internationally, the International Chamber of Commerce (ICC), the World
Business Organization, has promulgated a number of voluntary business codes or guidelines, notably:
· the ICC's Business Charter for Sustainable Development of 1991;
· the ICC's Rules of Conduct to Combat Extortion and Bribery in International Business Transactions of 1977, revised 1996, as well as
· a range of codes on all aspects of marketing and advertising, including guidelines on marketing in cyberspace, general advertising practice, sales promotion, direct marketing, environmental advertising, sponsorship and marketing research.
And the International Organisation of Employers is developing a manual of best practices in the area of elimination of child labor.
The Role of Business
· Business should continue to develop its own rapid response to the demands of the public as well as those of an equitable market by incorporating best practices in the fields listed and using the techniques outlined above.
· Business should also maintain a dialogue with appropriate NGOs on relevant issues in their efforts to promote best practices.
The Continued Relevance of Existing Multilateral Codes
The existing international voluntary codes promulgated by international organizations--the OECD Guidelines for Multinational Enterprises and the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy--address a broad array of business practices, social, and environmental issues. These two multilateral codes have been adopted by our main trading partners, and their companies are equally obliged to observe their provisions. Thus, American companies are not put at a competitive disadvantage in observing those codes.
The Role of Government
Governments should refrain from (and business should strongly resist):
· Efforts to make these or any other code binding or use them to condition access to government programs, including officially-sponsored labeling schemes, which would change their voluntary nature;
· The imposition of any form of review by an outside party of individual company compliance with a voluntary code (this does not apply to cases where a firm or organization is voluntarily retained by a company or group of companies for the purpose of helping attain the goals or benchmarks of the code);
· Third-party labeling programs aimed at influencing consumer decisions based on company compliance with social or environmental issue codes or other norms.
In addition, governments should not make frequent or drastic changes to existing officially-sponsored multilateral codes, although amendments are possible in exceptional cases as developments warrant, e.g., addition of a chapter on the environment in the OECD Guidelines. The procedure for the clarification and interpretation of the OECD and ILO instruments and their periodic review provides adequate flexibility to deal with new issues.
CONCLUSION
The cumulative experience of the USCIB would indicate that despite the remarkable achievements of business and corporate efforts at enhanced communications, the pressures described herein will probably intensify, as they frequently are as much about control and power as about addressing the stated objective of one or another code or labeling scheme. Underlying the position outlined above is the conviction that to the extent business regulates itself, develops and implements best practices, and cooperates with the business community in other countries, the pressure for new rules may be tempered. Positive efforts on the part of business to confront legitimate concerns about social and environmental issues will also help blunt the efforts of trade unions and NGOs who seek to control corporate behavior in the pursuit of their objectives. The only coherent position for business is to stand firmly in opposition to the demands of outside forces that could undermine good corporate governance, while persevering on its own voluntary and positive track, which offers the best promise of contributing to advancing global social and environmental goals.
