Provocările regimului democratic

New Powers, Old Habits
A Critical Analysis of Corporate Social Responsibility
 

IRINA VELICU

Abstract:
In the light of any shift in power, particular decisions become obsolete or surprisingly needed. This is the case of Romania too, considering the recent popularity of the Gold Corporation project in Roşia Montana. The corporate project has been generally described as a blessing for the Romanian economy. In the grip of this modern dilemma the President of the Republic asks for an urgent evaluation of this project, given the scarce resources of the national budget facing the economic crisis. Using this particular case-study rather as a framework of analysis, this essay debates the topic of corporate social responsibility as mere voluntary commitments which do not lead to substantial improvements in corporate conduct towards the societies within which they operate.

Keywords: corporation, power, globalization

Introduction

…no soul to be damned, no body to be kicked.¹
Today among the 100 largest economies in the world 51 are corporations and only 49 are states.² The number of multinational companies (MNCs) has increased from 7,000 in the 1960s to 65,000 MNCs in 2002, with more than 850,000 subsidiaries.³ Very flexible, huge, and complicated networks of production, distribution, and capital transactions have come to dominate the global economy facilitated by developments in communication and transportation technology In the same time, raising awareness of the increasing dominance of corporations in society, and their negative impacts on the society such as exploitation of workers or environmental degradation has become the full-time job of many social society activists. Most notably, the actions to promote corporate responsibility and accountability fuel the debates on the impact of corporations upon democracy within and beyond nations.

This paper argues that the corporate social responsibility (CSR) consists merely of voluntary commitments which do not lead to substantial improvements in corporate conduct towards the societies and environment within which they operate. Since they are not legally binding and not enforceable, many TNCs use codes just to promote and improve their own image, a fact that is ‘certified’ by advocates of corporate globalization, as it complies with the internal logic of the corporate world. The first part of this essay will offer a brief outline of the history of corporate responsibility and its implications. The second chapter of the essay will make a clarification of the more recent concept of ‘corporate social responsibility”. The essay mentions the case study of sweatshops and argues that CSR is mainly a public relations tool used and abused by corporations to their own advantage, continuing the „pathological pursuit of power and profits”⁴ that underpins the corporate logic.

Corporations – Going back to history.

History gives us examples of how companies (corporations) have affected societies throughout the last three centuries. In the latter part of the 17th century, many colonists in America were protesting against their dependence on Britain, especially on monopolistic trading companies that were granted exclusive rights to certain markets or goods.⁵ These monopolies created opposition because they increased the prices of imported commodities, such as tea, and processed goods. The East India Company enjoyed the monopoly for tea export to the colonies and tax exemptions on the exported tea. The climax of protests against these practices was the Boston Tea Party in 1773 that started the War of Independence. The dumping of the tea into Boston harbour was a protest against a company as well as against the crown. The power of the East India Company had corrupted the government; this was the reason for the struggle.

Another example in this respect is the first international human rights movement of the twentieth century, initiated by Edmund Dene Morel in 1897. He discovered that the Belgian King Leopold used forced labour in the Congo to extract rubber that was exported to Belgium. Leopold was the main beneficiary, not the Belgian state. Morel launched a campaign against King Leopold, using publications and the media to inform the public. The effect of this campaign was that the Belgian government transferred the control of the Congo from the King to the state in 1908 and the abuses were stopped.

Also, in 1720, the English Parliament had outlawed the corporation through the Bubble Act (as a result of the collapse of South Sea Company). However it was cancelled in 1825 and followed by an increase in the number of corporations. Co-opting workers into the capitalist system was a useful strategy. Moreover, large corporations absorbed small and medium ones and the era of corporate capitalism begun.

The early 20th century witnessed a legitimacy crisis since many people had come to realise that corporations threaten to overwhelm social institutions and governments. As a result, corporations started to build a different image of themselves as being more benevolent and socially responsible. The „New Capitalism” softened the images by promising good corporate citizenship and practices of better wages and working conditions.  They admitted that capitalism could not survive unless equality and cooperation between workers and capitalists replaced division and conflict. The same social concerns for health, welfare and education of workers and their families have been furthered after the Great Depression (1930) especially considering the fact that some people blamed corporations for it.⁶

In USA, Roosevelt’s New Deal tried to deal with these public issues and moderate the invisible hand of the markets with a visible hand of government. The similarity between fascism and the conduct of those who wanted to remove the New Deal and Roosevelt is essential and one should also have in mind that corporations have been used to facilitate Hitler’s actions. In 1973 the oil crisis and OPEC formation produced high unemployment, inflation recession. America witnessed a crisis of the New Deal policies followed by the fact that Western governments started to embrace neo-liberalism, which, like its laissez-faire predecessor, celebrated economic freedom for individuals and corporations and prescribed a limited role for governments. Over the next two decades governments pursued neo-liberalism’s core policies of deregulation, privatisation, spending cuts, and inflation reduction. By early 1990s, neo-liberalism had become an economic orthodoxy. With the creation of GATT (and in 1994 the WTO) the deregulatory logic of economic globalisation was deepened. As we shall see in the next chapter, the historical framework detailed so far is essential for a critical analysis of corporate actions.

Two of the main problems associated with corporations and facilitated by neo-liberalism through policies of deregulation and privatization are due to the fact that they are very difficult to monitor by states, international organizations or social groups because by definition a big part of their organization operates outside the territory of any one state and that their organizational structure usually impedes finding those responsible for abuses.

First of all, the logic of globalization makes countries compete with each other with low salaries and taxes in order to attract as much investment as possible, yet this process leads to a race to the bottom⁷ and hollows out the societal conditions on which the economic system is based.⁸ The efficiency of governmental regulation on corporate action is hence limited. Reasons are that governments cannot execute legislation beyond borders and that legislation is very inflexible, running behind state of the art technological and social developments; it is also unable to enact precise guidelines for ethically doubtful situations.

Another reason for limited state power is that many policy guidelines and decisions are issued at a supranational level. Regional institutions such as the EU have been increasing their power in the last decade while the WTO, IMF, and the World Bank have become responsible for many domestic decisions, pursuing programs that have deep consequences for the national economies of developing countries.⁹ The Commission of the European Union has issued the Green Paper „Promoting a European Framework for Corporate Social Responsibility”in July 2001.¹⁰ According to this, the promotion of CSR is based on voluntarism and compatibility of EU CSR initiatives with the OECD and ILO guidelines. However, the Commission also argues that public action is needed to promote CSR because it is insufficiently governed at global and national levels and because different CSR tools (e.g., labelling and certification procedures, reporting standards etc.) are confusing for consumers, companies, other stakeholders and the public and could thus lead to market distortions.

The ILO’s Declaration on Fundamental Principles and Rights at Work¹¹ is endorsed by all ILO members, even though many countries have not ratified the related conventions, which means that they are not legally binding in every state. Similarly to the OECD Guidelines, the ILO codes are of a voluntary nature and governments are left to promote them. Besides the OECD and ILO guidelines there several other sets of guidelines exist, such as the UN Global Compact, the Global Sullivan Principles, the Caux Principles, or the Global Reporting Initiative. The US government is also supporting voluntary initiatives to promote CSR, such as the OECD Guidelines.¹² The belief is that voluntary guidelines and public-private partnerships are the best ways to encourage corporate responsibility. There is no „one size fits all approach” to the issues corporations must address. Voluntary codes and partnerships provide the flexibility necessary to implement different approaches, involve relevant stakeholders, and achieve sustainable results.¹³ It is important to see how the position of the US government is almost identical to the position of business associations and corporations.

Second, by definition, the corporation is a legal institution with a unique structure and set of imperatives that facilitates corruption and negligence.¹⁴ Both neo-liberals and leftists show that corporations have a legally defined mandate to pursue their own self- interest, which is to increase profits, regardless of other considerations. They have the capacity to combine the capital (the economic power) of many people. Ownership is separated from management. Decisions are usually taken collectively and it is not clear who exactly did what. Consequently, no one can actually be held responsible for harmful effects. Usually only a corporate ‘person’ can be prosecuted.

The corporation’s unique structure is largely to blame for the fact that illegalities are endemic in the corporate world. By design, the corporate form generally protects the human beings who own and run corporations from legal liability, (…). Shareholders cannot be held liable for the crimes committed by corporations because of limited liability, (…). Directors are traditionally protected by the fact that they have no direct involvement with decisions that may lead to a corporation’s committing a crime. Executives are protected by the laws unwillingness to find them liable for their companies’ illegal actions unless they can be proven to have been „directing minds” behind those actions. Such proof is difficult if not impossible to produce in most cases, because corporate decisions normally result from numerous and diffuse individuals’ inputs, and because courts tend to attribute conduct to the corporate person” rather than to the actual people who run the corporations.¹⁵ As history showed, the origins of the corporations lie in the state’s goal to serve national interests and advance the public good. Corporations are creations of states. They can and must be compelled by them to follow regulations.¹⁶ If one also thinks of the institutions like the WTO and their domination by powerful states and especially the USA one can argue that ‘laissez faire’ and globalization are actually regulated by states, and especially some states.¹⁷

One of the truths of globalization refers to the fact that developing countries have had to open up their markets while being unable to develop their own domestic industries having to grant access to larger Western corporations. The privileging status of Western corporations in the WTO which translates in a different ‘protectionism’ of Western interests captured by few big companies at the expense of poorer developing countries and their domestic industry and companies.¹⁸ Moreover, the WTO is practically led by corporate lawyers many of whom work for those companies that hope to benefit from the WTO’s decisions.¹⁹ Still, neo-liberal market capitalism is increasingly accepted as the best model for maximising global welfare and is perpetuated and enforced by major global actors around the world.²⁰

What exactly is CSR?

The European Commission defines Corporate Social Responsibility (CSR) as „a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis as they are increasingly aware that responsible behaviour leads to sustainable business success.”²¹ The World Business Council for Sustainable Development defines it as „the contributing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the local community and society at large.”²²

CSR functions at three levels:²³ Firstly, companies have to comply with legal responsibilities (e.g. tax, health and safety legislation, workers rights, consumer rights, environmental laws) and industry standards. Second, firms have to minimize or to eliminate their negative effects on society and deal with risks (e.g. human rights violations and environmental degradation). Third, corporations should increase their positive effects and create value through innovation, investing and forming partnerships for reaching social and environmental goods (e.g., creating new jobs, social and economic improvements, solving conflicts).

Three generations of CSR can be distinguished.²⁴ The first generation of CSR involves companies acting responsibly in a way that does not harm or even improves financial results. This is the most usual form of CSR and is also called corporate philanthropy; it is often conducted to improve a firm’s reputation. It often involves companies donating computers to schools or funding ‘good projects’, as for example Bill Gates does with donating money in order to develop an AIDS vaccine.

Second generation CSR involves companies considering CSR as an integrated factor in the long-term business strategy. The leading companies in CSR are positioned in this generation; however, most companies are still far away from this stage since it requires a complete change in mindset. The third generation of CSR includes fighting poverty, exclusion, and environmental pollution. At this point, the third generation is not approached by any company, because it requires the leadership of companies in influencing the market they are dealing with and its regulation towards sustainability, and no company has (yet) the determination to do so. Examples might be changing the corporate tax system, requiring social and environmental reporting, or supporting consumer education.

Most corporations emphasize the voluntary nature of CSR, its contribution to sustainable development and that it has to be implemented on a global level.²⁵ They refuse ‘one-size-fits-all’ solutions and oppose legal regulation because this would limit creativity and innovation in the process of implementation. It is also argued that customers, employees, shareholders, and other financial partners can much better formulate their specific demands in relation to CSR than governments can.²⁶ Furthermore, regulation needs a long time to be implemented and is difficult to be tailored to individual companies or sectors.

Critiques of CSR

Voluntary codes of conduct that should serve as guidelines to improve labor conditions have become the hook in the campaigns for labor rights.²⁷ In response to protests from labor rights activists, many producers have established voluntary codes to improve their labor conditions and those of their subcontractors in developing countries. NGOs such as the Clean Clothes Campaign (CCC), Global Exchange, Union of Needletraders, Industrial and Textile Employees (UNITE), United Students Against Sweatshops (USAS), and the Worker Rights Consortium (WRC) attack MNCs, being very skeptical about the efficiency of self-monitoring systems and considering that they are unreliable and deliver superficial improvements. They also criticize that voluntary codes of conduct undermine approaches of trade unions and governments that are more reliable and effective than voluntary codes.²⁸

One relevant example of how corporations merely use PR tool to deal with problems that have become public scandals is the sweatshops issue. Sweatshops refer to „any factory that violates more than one of the country’s fundamental labour laws, which include paying a minimum wage and keeping a time card, paying overtime, and paying on time”²⁹ or „any shop that does not respect workers’ right to organize an independent union”.³⁰ Labour rights and corporate accountability groups even say that a factory has to pay its employees a living wage, a wage that can fulfil the basic needs of a small family.³¹ Historically, the term ‘sweatshop’ was established in the 19th century.³² It describes a subcontracting business system in which the profit of the middlemen is determined by the difference between the amount they received for an order and the amount they paid to the workers. This difference was said to be ‘sweated’ from the workers, since they were paid very low wages for excessive hours worked under harmful working conditions.³³ European and US retailers, such as Nike, Adidas, GAP, Tommy Hilfiger, C&A etc., gain huge profits and set wages with little relation to productivity. Workers are usually paid a ‘piece rate’, a certain amount of money for each completed item. Thus, workers have to ‘sweat’, to work hard and long, if they want to earn a decent income.³⁴ Garment workers have to work more than 40 hours a week and verbal, physical, and sexual abuse are no exception. Workplace injuries happen very often as well, and apparel workers are exposed to toxic chemicals. These workers are intimidated or dismissed or, when a factory is indeed unionized, the factory is closed down.³⁵

The anti-sweatshop movements made the corporations admit that they are responsible for the workers in their subcontracting factories³⁶ and hence they allow some monitoring evaluations.³⁷ However, the Global Exchange report shows that Nike, for instance, has not changed much; workers still live in poverty, forced overtime is not abandoned, organizing unions is still answered by repression and intimidation.³⁸ Nike handles sweatshop abuses with public relations instruments and iff a corporation spends enough money to recover its brand image, it has the opportunity to create whatever image it wants, and erase any negative association that has existed.³⁹ If one generalizes from the outcomes in this case, since Nike is one of the most investigated companies regarding CSR, one can conclude that the companies are not meeting their announcements and instead use public relation tools.

Furthermore, developing countries display the need for foreign investment and MNCs operating in these counties have a great economic and political influence since they often have a higher annual turnover than the GDP of the host countries. This leads to potential corporate abuses that the respective governments are unable or unwilling to prevent. Moreover, the influence of MNCs can aggravate the access to justice. It can become even more difficult, if host governments and companies are both involved in abuses or in corruption. Trying to sue MNCs in their home countries is also very complicated and the limited opportunities to do so, such as through the US Alien Tort Claims Act,₄₀ have been increasingly closed off. Peter Utting from the United Nations Research Institute for Social Development (UNRISD)⁴¹ criticizes voluntary initiatives, because they are established without considering the principles of transparency, independent monitoring, consultation of workers and communities, and international core labour and human rights standards. These kinds of „closed” agreements often result in „non-compliance, double standards, inadequate targets or standards, or green-washing.”⁴²

In addition, voluntary CSR initiatives in Southern countries have mainly been created by Northern actors. Partnerships between corporations and NGOs concerned with modifying corporate practices in the South involve mostly Northern NGOs. Some of these NGOs claim to negotiate on behalf of Southern interests, but do not involve Southern NGOs in their negotiation processes.

The UNRISD report also criticizes NGO-business partnerships. The problem is that these partnerships can involve a process of co-optation diluting the critical opinions of activists. The status of an „activist” changes to that of a „consultant” who sells advice and other services. Moreover, trade unions complain that they have not been consulted in the establishment of codes of conduct, even though the issues that are dealt with are identical with the issues raised in collective bargaining.⁴³ They fear to become a redundant factor because NGOs are trying to enforce the codes and become negotiation partners in their own right. In this sense, codes of conduct serve as a (potentially bad) substitute for trade union activities and an instrument to prevent further legal and collective agreements.

Almost all critiques raise the issue that the monitoring practices of codes of conduct are not reliable, because the efforts are often made by profit-driven auditing companies, such as KPMG or PricewaterhouseCoopers and it is difficult for them to deny certification if they do not want to lose a client.⁴⁴ Critics therefore ask for independent monitoring of the codes along clearly stated standards, benchmarks, and rules.

In addition to these pragmatic examples, it is interesting to see how the concept of CSR is ideologically criticized by both liberal-capitalists as well as more leftist groups. However, the target of their critique is different. Going back this time to the history of political philosophy one can notice that even Friedrich Hayek rejected the concept of CSR. He believed that ”the prevailing belief in ‘social justice’ is at present probably the gravest threat to most other values of a free civilization.”⁴⁵ For him,

in […] a system in which each is allowed to use his knowledge for his own purposes the concept of ‘social justice’ is necessarily empty and meaningless, because in it nobody’s will can determine the relative incomes of the different people, or prevent that they be partly dependent on accident. ‘Social justice’ can be given a meaning only in a directed or ‘command’ economy (such as an army) in which the individuals are ordered what to do.⁴⁶

Neoliberal economists consider CSR as a distortion of efficient markets and a danger to wealth creation.⁴⁷ They share Milton Friedman’s view, which reduces the social responsibility of business to increasing profits. A corporate executive has the „responsibility […] to conduct the business in accordance with their [employers’] desires, which generally will be to make as much money as possible while conforming to the basic rules of the society, both those embodied in law and those embodied in ethical custom.”^{48 49}

Henderson warns that a general acceptance of CSR will have serious negative consequences for the people, and it might lead to more profits for individual companies. The adoption of CSR among corporations contributes to higher costs because managers have to consult outside stakeholders; new measures for accounting, monitoring, and auditing are needed; and environmental and social standards have to be implemented. These costs are then likely to be passed on to consumers and the benefits are dubious.⁵⁰

Alter-capitalist protestors see CSR as a tool of corporate defence, led by the public relations departments against more regulation. They do not believe that CSR can work against the dynamics of the race to the bottom triggered by globalizing capital. „Corporations aren’t allowed to be nice. Company directors are legally obliged to act in the best interests of their shareholders’ investments – i.e. to make them as much money as possible. Genuine efforts to sacrifice profits in favour of human rights and environmental protection are off-limits. Even if a company’s directors took the long view that environmental sustainability is ultimately essential for economic sustainability, their share price would drop and they would probably be swallowed up by competitors. This is why corporate social and environmental initiatives can’t really get beyond the marketing and green-washing stage”.⁵¹

Leftist views the corporate world as being characterized by greed, moral indifference or amorality, venal actions, a fanatic religion of maximizing profits and pursuing self-interest in this direction regardless any other considerations and a science of exploitation. Profit is more important even than public safety and health. Scepticism about social responsibility of corporations is warranted and even strengthened by opinions of advocates of corporate globalization, like Friedman, who says that the only reason a corporation would engage in this is again profit. Despite its shift towards more social responsibility, the corporation in itself has not changed. Its power has actually increased this way, since business men have increasingly started to think that they have a responsibility to change their environment, to pursue values and to make the world a better place shaped in terms of corporate values and meanings. Social responsibility, sponsorship activities, donations etc. are only good investments in order to expand influence and gain more control.⁵² 

The implications of corporate action are important: democracy is endangered since all corporations do is trying to gain more freedom from democratic control and public scrutiny. The practice of repeal of regulation was used by corporations to achieve their objectives and remove government control by influencing politicians and policies. The increasing acceptance of a partnership between business and government changes our understanding of democracy as hierarchical. Partners are equal but the government is invested by the people with authority to make decisions and have sovereignty over corporations too and not to be equal with them.⁵³

Institutions that have traditionally been seen as public have become or are being considered for full or partial privatisation (as Friedman advocates, only the basic functions- judicial, armed forces, extreme poverty eradication - should be left to government).⁵⁴ The public space has been privatised as well if you consider the streets, town squares and other public spaces that were essential for democratic practices and have now been transformed through the construction of private tunnels and sidewalks, suburban town centres with shopping malls and municipalities with gated communities. As Bakan mentions, „Deregulation is really a form of dedemocratisation, as it denies „the people”, acting through their democratic representatives in government, the only official political vehicle they currently have to control corporate behaviour”⁵⁵. Consequently, in neo-liberal thought, the minimal role of states with regards to capital control coupled with it being seen as the only legitimate form of political community minimises the possibility for people to lay claims for the public goods it provides.

Conclusion

As we have shown, the major flaw of corporate social responsibility is that it only translated itself in PR tools like codes of conduct which are not even legally enforceable. Allied to this, there is a lack of independent and transparent monitoring. Corporations that rely heavily on their brand name and have been involved in public relations disasters could be using codes to promote their image without actually changing things notably on the ground.

Corporate globalization undermines the ability of democratically elected governments worldwide to determine the destinies of their people and empowers other actors (such as international governmental and non-governmental organizations or transnational corporations) with few or no democratic credentials. The global economy characterized by massive transnational flows of capital, goods and services and, to a lesser extent, labour forces and dominated by transnational corporations looms large in this process. Corporations are not in any way mandated by the people it affects and hence should not decide or influence political decisions to such a large extent in issues that affect the public. If major political decisions that affect lives worldwide are taken by private corporations that people do not control, where and how are people politically represented?  With corporations as the dominant forces in cultural production, whether this will simply lead to cooptation rather than control is an open question.

IRINA VELICU - PhD Candidate, University of Hawaii.

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