Accountability is based on duties
[ By Peter Fuchs and Leonhard Plank ]
Jacob Fugger (1459 - 1525) was one of the richest men of his age. A practicing Catholic, he built up a previously unimaginable empire in the sectors of banking, mining and trade. As a banker to the powerful, he financed wars, the sale of indulgences and international expeditions. His wealth gave him the power to determine the rise and fall of rulers. Admittedly, the common people in Germany lived in misery and were horribly exploited. Farmers and craftsmen rebelled. But Fugger reacted as an intelligent wielder of power, setting up decent living quarters for the needy in his hometown of Augsburg. Those who lived there benefited from very low rents. However, they were obliged to pray for the redemption of “Jacob the Rich”.
Today, transnational corporations are looking for ways to increase their public acceptance in this age of globalisation. But the companies cannot themselves determine what is accepted as legitimate – and much less responsible – corporate management. That is up to society as a whole, which is why so much attention is being paid to the discourse on the social and societal responsibilities corporations should live up to.
Corporate Social Responsibility (CSR) is a vague term. People associate all kind of things with it; and some of them are mutually exclusive. As is normal in fights over political terms, parties with vested interests strive for definitions that exclude unpleasant connotations right from the outset. In 2001, for example, the EU Commission called CSR a concept that provides companies with a “European Alliance for Corporate Social Responsibility”, dropping stakeholders from the equation and only addressing (large) corporations and their associations. That omission did not serve credibility or public confidence. Without binding legal duties, responsibility remains a very vague term.
Accountability versus responsibility
Critical members of civil society prefer to speak of “corporate accountability” rather than of CSR. The difference is that they want companies to fulfil duties defined by law and enforced by the state. To be considered accountable, of course, corporations must
– practice effective climate protection,
– uphold fundamental labour standards and provide a democratic work environment,
– not market any products that are inherently harmful,
– not manipulate the general public by advertising to encourage superfluous consumption,
– internalise social and ecological costs,
– pay their taxes completely, and
– not lobby against the interests of society (Corporate Watch 2006).
Internationally networked NGOs have long since pointed out problems in global supply chains. They include unfairly restricted access to goods and services, environmental damages as well as violations of human rights and international labour standards. Indeed, there is no denying these problems anymore. Nowadays, at least the co-responsibility of transnational corporations is widely accepted. Nonetheless, powerful development agencies from rich countries (such as the GTZ or the DFID) still chime in with the United Nations and the World Bank to preach a win-win ideology, in which CSR is said to benefit corporations from industrial countries as well as the people of developing countries, as if profit interests suddenly went hand-in-hand with economic growth, human rights and environmental protection.
In reality, even the results of prominent international CSR campaigns often fly in the face of those programmes’ declared goals. Experience with the implementation of codes of conduct shows that the current approach does not suffice. Admittedly, the creation of codes of conduct has led to some isolated, temporary improvements, especially when independent audits are conducted and breaches of conduct sanctioned. Nonetheless, no systemic improvements based on a sound root-cause analysis are possible in this context. For that to happen, the people affected locally and their organisations would have to be involved – and business practices of powerful companies changed for good.
This is the conclusion of the most comprehensive study to date on the effects codes of conduct have on employees in developing countries (Ethical Trade Initiative, 2006), confirming what others had found before. On behalf of the British multi-stakeholder initiative, the Institute of Development Studies carried out the study. The researchers found that the pressures on suppliers to lower prices and speed up delivery were the key factors to prevent labour conditions from improving. The authors not only demanded that companies practice what they preach, but also placed special emphasis on the responsibility of governments to enforce labour laws stringently. Unless they do so, the very codes of conduct meant to facilitate responsibility will tend to allow powerful entreprises to delegate such responsibility to weaker partners upstream.
The poor results of even the most progressive CSR campaigns are leading to a change in international discussion, and rightly so. The focus is shifting from a merely technocratic, management-based approach to a more politicised view. Increasing attention is being paid to structural factors and to the institutional setting for business conduct. The question is no longer: “How can a code of conduct be effectively enforced?” Instead, people now want to know:
– strategy for voluntarily mainstreaming social and environmental concerns in their activities and their interaction with stakeholders. Obviously, the emphasis was on “voluntarily”. In 2006, Industry Commissioner Günther Verheugen took it one step further in his – – “How can we involve the people concerned in improving their working environment and living conditions?”
– “Why does that hardly happen, even in the case of CSR campaigns that look good?”
– “How can pressure be put on powerful players in global suply chains, how can we force them to change?”
In other words, we are finally discussing the detrimental effects that shareholder-value driven managenment thinking has had, and we are looking at the dismal results of the triple orthodoxy of liberalisation, privatisation and deregulation. Such insights should make it impossible to spell out investors’ rights in international treaties without mentioning their duties. But that is something the German government is still striving for in trade talks. Furthermore, international debate is increasling considering the devastating effects that low tax rates and the proliferation of loopholes in tax systems have had on public budgets. No doubt, there needs to be opposition to powerful corporate lobbies.
CorA in Germany
Inspired by this discussion and by partners in other European countries, over the past few months the “CorA - Corporate Accountability Network” has been growing in Germany. The organisation includes human rights groups, labour unions, churches, development charities, consumer-rights groups, environmental organisations and other groups from civil society. The main goal is to make governments apply stringent instruments when dealing with corporations.
There must be an end to the days of fruitless multi-stakeholder rounds. Among other things, CorA’s founding declaration calls for:
– stricter obligations for companies to report, including to publish other than merely financial data,
– societal requirements for all public procurement,
– corporate duties to be anchored in international economic treaties and in business promotion,
– fair taxation of corporations to the benefit of society,
– effective sanctions and liabilities on companies, and
– greater product liability and the promotion of sustainable patterns of consumption and production.
This year, CorA has made public procurement its first focal point. In light of recent calls to reform tender procedures in Germany, an open letter was sent to all of the parties represented in the German parliament. Other action is under preparation. CorA demands clear political specifications as guidelines for public procurement, because they could trigger desirable change in international supply chains, lessening social and environmental stress. Each year, authorities in the European Union spend a total of around 1.5 trillion euros on goods, services, and construction, equivalent to 15 percent of the EU’s total gross domestic product.
If the public sector were to switch completely to products and services that comply with development and environmental standards at the federal, state and local levels, the economic pressure on companies would be great. They would have to review their procurement and production practices, make social and environmental investments, and redesign their employment policies. The Dutch parliament has already stipulated that such aspects shall be among the most important criteria in all procurement of the national government by 2010. Government agencies at lower levels and local authorities in the Netherlands have a target of 50 percent.
Of course, efforts to make public procurement more responsible will only take us so far. After all, public procurement is neither the only, nor the most important lever for boosting development and making production more environmentally friendly. More fundamentally, politicians and society at large must impose clear and binding duties on companies. If we are not willing to fight for what is right and shy from boycotting companies whose business practices and products harm society, then we cannot expect to move beyond the current state of affairs: our designed lack of accountability.
Even Germany’s mainstream weekly newspaper
Die Zeit recently called for a radical change in the next 20 years in the way we live and run our economy– and the paper did so on its front page. In individual cases, conventional CSR campaigns may help. But more often than not, they will only turn our attention away from more important issues, thereby doing more harm than good. At the end of the day, voluntary CSR is more or less a moot point. What we need is a new, more vigorous approach to environmental as well as development policy, making CSR unnecessary to begin with. It is high time to do away with the illusion that markets will take care of everything best if simply left alone. If we do not change course, the future will be bleak – and not only in climate terms.