Bloom Blog

Insights from Michael Bloomfield, Founder and Executive Director of the Harmony Foundation

The Business of Exploitation: the dangers of self-regulation and CSR

Never underestimate the power of the purse and the malleability of our politicians. Every week it seems that headlines expose new allegations of misconduct involving politicians, lobbyists and their business benefactors.

Companies have always ranged from those who follow the rules and act responsibly to those willing to try getting away with murder. Among the first companies to establish more formal standards of conduct were those reeling from the US defence contract scandals of the 1980’s. In response, and perhaps to stave off public and government demands for corrective action, companies developed voluntary compliance mechanisms as a demonstration of efforts to clean up their messes before the courts did it for them.

The credibility of any code of practice ultimately depends on whether or not it is taken seriously by respected industry, labour, public and government agencies and that, in turn, hinges on the effectiveness of monitoring, transparency and accountability. While self-regulation may look appealing, and was at the time heralded as proof that the invisible hand of the market works, it is in fact incredibly problematic. It may be easy enough for a firm to enforce a certain code within its own brick and mortar, but what about its contractors, suppliers and foreign operations? Without proper oversight there is no way of knowing if corporations are in fact meeting their self-prescribed codes of conduct. Self-regulation, for all practical purposes, is non-regulation, and all too often a prescription for disaster.

Today, the responsibility for ethical conduct is greater than ever. According to Fortune Magazine and the World Bank, 63% of the world’s largest 100 economic entities are corporations. Remarkably, Wal-Mart, BP, Exxon Mobil, and Royal Dutch/Shell Group all rank in the 25 largest economic entities in the world, above countries that include Indonesia, Saudi Arabia, Norway, Denmark, Poland, South Africa, and Greece.

This is especially problematic because the nation state is the primary arbiter of human rights and environmental regulation when it comes to multinational corporations (MNCs). In international law, MNC’s do not exist as subjects in the same way that nation states and individuals do. They are acknowledged only as “objects” with nowhere near the same amount of responsibilities despite their enormous power. It is the obligation of each state to ensure that within their sovereign territory all international treaties and protocols on issues like the environment and human rights are fulfilled.

The rise of such enormous corporate power has often enabled private pursuit of profit to overcome public interests. Strong governments in the West may be able to reign in large corporations if they choose to do so. However, governments in the global South— desperate for economic development and plagued by corrupt officials— stand little chance against these enormous entities, let alone largely defenseless populations.

It seems we are witnessing a classic “race to the bottom” scenario, where developing nations must “compete” for corporate investment by ceding environmental regulation, compromising the health and safety of workers, and disregarding their human rights. Poisoned air, water, food, and people are far too often accepted as the price of progress.

To be fair, not all corporations should be maligned with the same brush of reckless irresponsibility. Multinational corporations have played an important part in healthier development. Foreign corporations have partnered with governments and civil societies to inject important investments, infrastructure, and expertise into developing economies, as well as to help guide better labour, health and environmental practices. Notable examples of such laudable corporations personally known to me include Royal Bank of Canada, The Co-operators Insurance Company, the Bank of Montreal, and General Electric.  My only regret is that more companies don’t exhibit the same leadership.

Please don’t misjudge me as naïve; every company has room for improvement in their social and environmental practices.  The question is how do we ensure fair labour practices and the protection of human health and the environment a core part of corporate culture?

Fortunately, Corporate Social Responsibility (CSR) has become mainstream, adopted at least in rhetoric and gesture by many of the world’s largest organizations.  In many ways this new trend in CSR is a result of globalization. Today’s communication is such that news, both good and bad, is shared widely and instantly. To counter bad publicity and to build a reputable brand image more and more corporations are turning towards well-publicized CSR initiatives.

Regardless of the motives, it is undoubtedly a good thing that CSR is becoming established in the business world. However, just because corporations have undertaken these seemingly principled initiatives should not mean that they be left unregulated and to their own devices. Corporations recognize the value of good public relations and good public image, but that value always will be measured in dollars and subject to cost-benefit analysis. If cutting corners on environment and public health saves more money than good PR, then that is what will be usually be done. It is an unfortunate truth that many businesses and individuals put economic interests and personal gains ahead of principles and integrity.

History has made clear that while some corporations have done genuinely good work and contributed to sustainable development, not all are so benevolent when left to set their own standards for ethical conduct. Famous incidents of corporate failure include Shell Oil in Nigeria, Union Carbide in Bhopal, India, Hooker Chemical in New York’s Love Canal, Japan’s Chisso Corporation in Minamata Bay, and Chevron Texaco in Ecuador, Angola, and Nigeria, and they may be the tip of iceberg.

The unfettered free market does not work for the people.  The fundamental rights and needs of human beings and the environments and cultures that support us should not be dependent on corporate goodwill. We need to place higher demands on all businesses to adopt ethical practices at home and abroad at the highest possible standards.

As Einstein once said, “If people are good only because they fear punishment, and hope for reward, then we are a sorry lot indeed.”  Unfortunately, Einstein may be right. However while we may be a “sorry lot,” we are neither hopeless  nor powerless to change our behavior or that of those around us. To this end, we should turn to another piece of Einstein’s  wisdom, “The problems we have today, cannot be solved by thinking the way we thought when we created them.”

In practical terms that means we must change the way we approaching the challenges of the day. Self-regulation created many of  the corporate problems we face today, and it is nothing but foolish to expect self-regulation to solve them. We must create and enforce international standards for business ethics, ensure that international impartial observers have the power to change behavior, to punish and reward accordingly.

Multinational corporations have social and environmental responsibilities to the peoples and environments from which their enterprises profit. It is our duty to ensure that these responsibilities are respected.


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This entry was posted on September 14, 2010 by in Ethics, Ecology, Sustainable Development Series.
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