Right, Now

Right, Now

March / April 2009 BY JAMES KROHE JR. | ILLUSTRATION BY KEITH NEGLEY

What does it mean to be a good global citizen?

JAMES KROHE JR. is a Chicago-area writer and editor. His most recent article was “The Attention Deficit,” the Nov/Dec 2008 cover story.

Things used to be simpler. When in Rome, a company setting up shop in emerging nations could do pretty much as the Romans did. All one had to do was obey the local laws, if there were any, and keep one’s mouth shut about politics. Host governments were friendly, or could be made so, and doing as the locals did meant paying lower wages, offering scantier benefits, and not having to worry much that one’s smokestacks were emitting more than just smoke.

These days, a transnational firm can no longer behave like a conventioneer cavorting away from home, because what happens in the Philippines—or Malaysia or Honduras—no longer stays there. Scandal is only minutes away. (The nightmares of the colonial administrators were of tea-plantation workers brandishing clubs; these days it’s a sweatshop worker with a cell phone and laptop.) “More than ever,” wrote The Economist last year, “companies are being watched.”

Corporate social responsibility used to be about good citizenship in one’s hometown; today it entails being a good citizen of the world. But what does that mean? What are the standards for transnationals operating in different countries, each with its own guidelines and ideas about how a socially responsible corporation should behave? In a global community, should there be one standard of conduct regarding the environment, working conditions, human rights? Can there be? And who gets to decide?

West Is Best?
In its Tripartite Declaration of Principles Concerning Multinational Enterprises, the International Labor Organization asserts its own version of the when-in-Rome maxim: Multinational enterprises “should obey national laws, respect international standards, honor voluntary commitments, and harmonize their operations with the social aims and structure of countries in which they operate.” Fair enough. But does doing as the Romans do go as far as feeding the lions? “The fact that a country has more permissive labor laws or environmental standards or is not as concerned with gender equity does not mean that it is a smart decision to adopt the standards of the pervading value structure,” explains Steve Rochlin, head of the nonprofit organization AccountAbility North America.

Of course, a few standards are beyond serious dispute. For example, a firm can’t exploit child labor, directly or indirectly, let alone justify it on the grounds that it confers a competitive advantage. But there is a universe of options between sweatshops and the best workplaces, and settling on any one set of them as workable global operating standards is hampered by conflicting social and economic trends. Culture and politics at the moment honors diversity, which translates into respect for the local—rights, values, indigenous cultures, ethnic identities. However, while locals generally welcome Western ways when they pertain to technology and management systems, they feel different when practices touch on contrary traditions of politics, family, or religion (women’s rights, AIDS prevention, etc.). Much of the world sees the West’s holier-than-thou posturing as arrogance or naïveté or plain ignorance.

Economics, meanwhile, pushes firms toward one set of standards across what is becoming a single global labor and consumer market. Where international standards of conduct don’t exist or are disputed, however, standards in use by the biggest and busiest transnationals become the de facto universal standards. “Right now, for better or worse,” Rochlin explains, “many of the global standards regarding responsible corporate performance are emerging from the United Kingdom, the United States, and, increasingly, Europe”—if only because most trans­nationals are based in the West and already adhere to their home standards. For instance, after news broke that some of Nike’s suppliers’ overseas factories were crap, to prove its bona fides as a good citizen, the company pledged (among other things) to tighten air-quality controls to meet the U.S. Occupational Safety and Health Administration’s standards.

Then, too, the United States might not be the wisest nation on the globe, but it is—for the time being—the wealthiest. Winning access to its markets is a powerful incentive for non-U.S. firms to conform to its standards. And ironically, while Western governments and businesses believe that they are helping poor nations emerge into the light, they are simultaneously bestowing these countries with increasing clout that soon will empower them to make their own rules.

What happens when the United States is no longer the globe’s most massive market, or U.S. firms no longer dominate among the world’s most massive companies? Brazil, Russia, India, China, and others may force American firms to adopt their traditions and priorities. China-watchers speculate that within five years, that nation will begin exporting its own standards—which will surely be as preferential to Chinese priorities as today’s standards are to Western firms’.

A new standard of standards? Or just new confusion? Probably the latter. “In terms of international agreements, the going is very rough,” says U.C. Berkeley business ethicist David Vogel. “Countries are free to set their own standards, but it’s very hard to get lots of them to agree to any one standard.”

Promote, Secure, Fulfill
The civil community—human-rights campaigners, the more sensitive press, and sympathetic lawmakers concerned about people and places that drown in the wake of large firms—see the imposition of universal standards of conduct as the only certain way to prevent exploitation. They envision a global workshop in which organizations pay all their workers the local equivalent of prevailing U.S. or European wages and benefits. To achieve this miracle, the most insistent critics press for adoption of mandatory, detailed, and enforceable standards that govern a company’s obligations in not only social and economic matters but their political, civil, and cultural relations with their host countries.

The United Nations, lacking the universal sovereignty it needs to enforce such standards, has had to content itself with offering universal advice. Big business in many emerging nations rivals the state as an engine of change, and the United Nations and kindred agencies want to hook up that engine to their larger social-justice agenda, applying their values to corporations whose worldwide operations have slipped beyond the legal grasp of any one nation.

In 2003, for example, the United Nations proclaimed the “Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights.” The Norms state that “transnational corporations and other business enterprises have the obligation to promote, secure the fulfillment of, respect, ensure respect of and protect human rights recognized in international as well as national law including the rights and interests of indigenous peoples and other vulnerable groups.”

The U.N. Universal Declaration of Human Rights, which serves as a basis for the Norms, is similarly ambitious in the claims it makes on corporate conscience. Those rights that apply to employers make clear why CEOs rarely hang framed versions of the document on their office walls. Articles 23 and 24, for example, state that every worker has the right to “equal pay for equal work,” to “just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity,” to “rest and leisure, including reasonable limitation of working hours and periodic holidays with pay” and “to form and to join trade unions for the protection of his interests.”

The Declaration contains many more such rights. Indeed, John Ruggie, the U.N. point man on issues of human rights and transnational corporations, asserted in a report last year that “there are few if any internationally recognized rights business cannot impact.”
Such manifestos are more mission statements than operating manuals, filled with guidelines that most executives will likely find impracticable or objectionable or based on values that are anything but universal. (See “The Myth of Universal Values," below.) The ends, not surprisingly, are as difficult to achieve in practice as they are dubious in principle.

Social Accountability International drew upon the international workplace norms established by the United Nations and the International Labor Organization in drafting its SA8000 initiative. The product of a panel of trade unions, human-rights organizations, academics, retailers, manufacturers, contractors, and others, SA8000 is an auditable certification standard meant to ensure the protection of employees’ rights. Some of the certification requirements are quite specific: a maximum of sixty working hours per week and, with few exceptions, no workers under the age of 15. Others are nebulous in the ways that all consensus agreements tend to be. To summarize rather baldly: SA8000 aims to protect children from work, shield adult workers from discrimination and exploitation, provide a safe and healthy work environment, and protect the right to bargain collectively and form unions.

The SA8000 initiative, already adopted by big names such as Toys ‘R’ Us, General Mills, and Dole, urges transnationals in developing countries to guarantee that wages “meet the legal and industry standards and be sufficient to meet the basic need of workers and their families.” All well and good, but which industry standard? Those of the host country or elsewhere? As for legal standards, a government-specified minimum wage in most developing countries is no more likely to provide for “the basic need of workers and their families” than it does in the United States.

Is Virtue Its Own Reward?
While the civil community prescribes medicine that many firms find unpalatable, transnational companies themselves are prescribing medicine that many nations may find unpalatable. By virtue of their size, several U.S. firms—Starbucks in coffee production, McDonald’s in livestock handling, Home Depot in wood products—have the clout to dictate how their foreign suppliers do business.

Then there’s Wal-Mart. This child of good ol’ boy Sam Walton is a massive international economic presence, and it is flexing its muscles to bully firms—and thus nations—with which it does business into doing things the Wal-Mart way. Last October, company executives traveled to China to preach the sustainability gospel to its one thousand or so Chinese suppliers. The retail giant mandated that by 2012, its top two hundred suppliers must improve energy efficiency by 20 percent. Furthermore, three years from now, Wal-Mart not only will require suppliers to comply with local environmental laws—it will also source 95 percent of its production from factories that receive the highest ratings in surprise and third-party audits of environmental and social practices. Like any good revivalist, Wal-Mart will forgive the sinner that makes a sincere effort to repent, but “if after a period of time, the supplier does not improve, we will move our business,” warned CEO Lee Scott.

The Wal-Mart edicts are breathtaking in their ambition and, many have said, their arrogance. Wal-Mart—which would be China’s sixth- or seventh-largest trading partner if the company were a country—in effect is assuming government’s role of enforcing environmental regulations, if not setting new standards.

Making one’s own rules is understandably popular. Doing so forestalls the imposition of stricter—or, just as likely, unworkable—standards from host nations. Many transnationals have implemented voluntary codes that prohibit certain conduct that the company deems impolitic, if not immoral. Voluntary codes vary in operation, enforcement, and strictness. As such, they are insufficient measures, insist many skeptical students of corporate behavior. They are akin in ambition and effectiveness to a Boy Scout oath or a New Year’s resolution.

A further problem with voluntary codes, unfortunately, is that while virtue may be its own reward, it is often the only reward for businesses that are engaged in a capitalist street fight. As a result, a prudent company will think about reforming its industry as well as itself. Reebok did that in 1996. Before the company implemented its policy of not selling soccer balls made with child labor, it sought and got the backing for a broader ban on such practices from the World Federation of the Sporting Goods Industry and the U.S.-based Sporting Goods Manufacturers Association. Both groups included all of Reebok’s major competitors, neutralizing the possibility that any one of them might take commercial advantage.

To rid the taint of self-interest from their efforts at self-improvement, and to make plausible their claims of being really, really committed to social responsibility, more big firms are taking part in multi-stakeholder public-private initiatives. As cumbersome in structure as in nomenclature, these undertakings involve partnerships between companies, NGOs, and governments to promulgate and implement voluntary industry codes. They exploit a new symbiotic relationship among groups that had been bitter enemies until a few years ago. The multi-stakeholder approach supplies the company’s need for credibility and flexibility, the NGO’s requirement for resources and access, and the government’s natural desire to have someone else fix expensive social problems. These agreements are in effect treaties. As in the versions solemnly sworn to by sovereign states, our corporate superpowers agree to give up a little to gain more by regularizing their relations with potential antagonists in ways that benefit all parties.

One such example is RugMark, an independent inspection-and-monitoring program that confirms rugs are manufactured in India and Nepal without the use of child labor, with the larger aim of getting kids out of shops and into schools. Another example is the Extractive Industries Transparency Initiative, set up to ensure that revenues from extractive industries (oil, gas, minerals) fund useful development rather than vanishing into the pockets of local leaders.

To the extent that their standards are not binding on companies, these multi-stakeholder agreements remain statements of good intentions rather than handbooks to good behavior. Critics argue that such cartels of earnest goals rarely focus on the hardest problems, are adopted by relatively few companies, and often lack independent oversight. It is also hard to gauge their effects even if companies release data about compliance, which most don’t.

Take the U.N. Global Compact, a partnership between the United Nations and private business to put into practice principles of human-rights, labor, environmental, and anti-corruption standards. It requires companies to swear on their mothers’ 401(k)s that they will be green and clean. Among its prominent signatories are Chinese firms infamous for being neither—and why not? There are no penalties for failing to be virtuous.
Amnesty International has stated that while corporate and multi-stakeholder intiatives have a role to play in improving business performance in the human-rights area, “we are concerned that many such initiatives lack credibility because they fail to ensure that the principles which they advocate are upheld in practice.”

The best CSR practices are better than nothing when it comes to improving corporate behavior throughout the world. But they may also be worse than nothing. By undertaking to do what local laws do not, companies spare host governments from setting or bolstering their own standards, which forestalls legal regulations at home or abroad that might work better. “Voluntary standards can supplement responsible and effective governments,” David Vogel has written, “but they cannot substitute for them.”

“Conscience”
It’s a word that is conspicuously absent from the debate about corporate conduct abroad. As former U.S. Labor Secretary Robert Reich reminds us in his book Supercapitalism, a corporation is not a person, only a bundle of contracts. However, a corporation is run by persons, who bring to bear on their decisions their own sense of what is appropriate conduct.

For the transnational executive, personal conscience is probably an unreliable guide to conduct. Specific notions of good behavior vary not only from culture to culture but among individuals. However, the more education and experience inform personal conscience, the better an executive will serve as a moral and political compass for the firm.
“I absolutely think that it is a must for leaders to have a global and truly cosmopolitan view,” Steve Rochlin says. “That includes having a wide breadth and depth of knowledge. That leader must be smart and humble enough to admit what she doesn’t know and be sensitive enough to design operating systems, strategies, and policies in ways that compensate for that lack of knowledge,” such as hiring staffers with a range of national backgrounds.

However, asserting private conscience when it comes to business decisions is itself arguably inappropriate. The conscience-ridden CEO might find solace in remembering that the company isn’t his—it belongs to the shareholders, and in spite of the fine speeches some of them make at the annual meeting, most shareholders have only one question about global citizenship: “Does it pay?”

Consider Yahoo!’s decision in 2005 to surrender to Chinese authorities the names of dissidents who had used Yahoo! e-mail, leading to their arrest. Yahoo! executives explained that the company’s presence in China would ultimately move the country toward democracy. But it is hard to see how the firm is doing that by abetting the arrest of pro-democracy activists. The fact is that Yahoo! had no choice but to comply with Chinese law if it wanted to profit from China’s mushrooming market for Internet services.

Google, too, has gone along to get along in China—to widespread dismay, the company voluntarily censored its search engine so it would not display sites fetched by requests for terms such as “human rights.” One could hardly find a better illustration of the ways that honoring local norms elicits quite different kinds of conduct: The China kerfuffle came just after the firm had resisted attempts by the U.S. government to collect information about its users’ searches, winning plaudits in the process as a protector of privacy rights.

What looks to be Google’s lack of principle or, at least, hypoc­risy is not. Rather, it is allegiance to a different principle that is neither Chinese nor American. Google brass had to cooperate with Chinese authorities to do business there; it did not have to cooperate with U.S. authorities to do business here. Google didn’t put profit above principle; rather, the guiding principle is profit.

The willing adoption of higher standards is, of course, admirable; it is meant to be. Such commitments are canny business—so long as the higher costs and complications of meeting the standards do not leave a firm at a competitive disadvantage. The weakness of voluntary conduct codes is that they are unlikely to get the commitment they need to work if the costs appear greater than the benefits.

Do Good, Do Well
“From an ethical point of view, a lot of corporate social responsibility is really just good management,” Economist deputy editor Clive Crook has said repeatedly. “There shouldn’t be any applause or special credit for this.” But getting applause is precisely what many companies want. Good conduct, or at least the appearance of it, has a public-relations payoff.

But is enhanced image the only clearly compelling rationale for getting right with the angels on environmental and social issues? Is it possible that corporate self-interest, rightly understood, offers a way to be on everyone’s side at the same time?

Up to a point. Greenness, for example, is little more than an old notion—thrift—dug up out of the storeroom and dusted off. Reducing a company’s output of greenhouse gases usually means reducing energy costs by, for instance, recycling process heat. Firms that have been slow to realize this are in the embarrassing position of having it pointed out to them by environmental NGOs. If CEOs deserve criticism for failing to act sooner, it is not because they were bad corporate citizens but because they were bad corporate managers.

It’s also common knowledge that a company that offers better working conditions and healthcare benefits often has an easier time finding skilled employees. London-based mining giant Anglo American has said the $10 million a year it spends on HIV testing and treatment in Africa is starting to pay for itself through reduced absenteeism and longer lives for its workers.

Wal-Mart, by joining forces with a nonprofit development group called Mercy Corps and the U.S. Agency for International Development, is teaching about six hundred poor Guatemalan farmers how to grow, handle, and package new cash crops desired by Wal-Mart and other retailers—thus (it is hoped) lifting these scratch-and-poke farmers out of poverty. Of course, Wal-Mart punctured the balloons of idealists everywhere by offering the business rationale: The project enables the company to save money by cutting out various middlemen and building relationships with trusted growers who meet the store’s quality standards over time.

Business for Social Responsibility, a San Francisco-based nonprofit, working with Levi Strauss & Co. and the Levi Strauss Foundation, has set up programs in six factories in four Egyptian cities to educate women garment workers, many of whom are foreign contract workers from South Asian countries who often lack access to Egyptian public-health services. These women then teach their peers about reproductive and maternal health, nutrition, disease prevention, and how to navigate local healthcare systems—issues that factory managers in that part of the world generally ignore. The BSR/Strauss effort aims to convince managers that such programs deliver a return on investment in improvements in worker-management relations, increased productivity, reduced turnover, and health-related absenteeism.

Doing good, however, usually costs money—whether yours or your suppliers’—and as long as not every firm does good in this wicked world, it also means losing business to a competitor, especially when inadequate local legal limits to corporate doings give less scrupulous competitors an advantage.

Big businesses don’t thrive in the Wild West environment of emerging-nations governance. They crave predictability and stability as well as low costs. It’s no coincidence that firms looking to improve their CSR initiatives often pair the efforts with lobbying for new local laws or better enforcement of old ones. Says Jeff Erikson, VP of client services for global consultancy SustainAbility: “What we found over the last fifteen years is that companies in the United States have been able to use their influence to get the host governments on board to drive positive change, whether it is about revenue transparency, labor conditions, or enforcement of environmental regulations.”

One could go on. The difference may not be between companies that are good citizens and those that not but, rather, between those with the wit to recognize and act on their own long-term advantage and those that cannot. What is usually called enlightened capitalism could just as easily be named long-term capitalism. “Sustainability,” in strictly business terms, means realizing profits over decades rather than quarters. As Erikson puts it: “You need to stand on the principle of what’s right for the company in the long term.”

Happily, companies—the best ones anyway—have consciences too. “Some of the more successful and enduring organizations have at their core a strong sense of values that pervade the organization top to bottom and side to side, through all operations everywhere,” Steve Rochlin explains. “These are values that employees and senior managers and suppliers will not compromise on.”

For example, in 2007, CSR advocates cried “Shame!” after reports from media and human-rights groups claimed that Uzbek children were being pulled from classrooms and forced to pick cotton for low wages and under inhumane conditions. (Uzbekistan’s constitution bans child labor, but the government has long argued that children “volunteer” to help with the annual harvest as patriotic citizens.) A campaign to shun Uzbek cotton began.

A few big apparel retailers and manufacturers, including Levi Strauss, Target, Limited Brands, and Gap, agreed to boycott Uzbek cotton. Wal-Mart went even further: It helped organize retail trade associations to pressure Uzbek authorities and issued a strong public statement not only pledging to stop buying Uzbek cotton but requiring its suppliers to trace the origins of their cotton so no Uzbek materials got through. “We just thought, this is about as atrocious as it’s going to get,” a senior Wal-Mart executive told Fortune. “We just couldn’t idly sit by.”