In 2013, the Rana Plaza garment factory collapsed in Bangladesh, demanding the life of over 1100 individuals and leaving hundreds injured. In 2019, the Brumadinho mineral waste dam in Brazil fell apart, leading to the death of hundreds of people. In India, around 40 workers were killed in a fire sweeping through a bag factory in the same year. These examples depict cases where corporations were responsible for the caused damage and deaths of hundreds; nonetheless, national legislations had little basis for holding these companies accountable. However, since the 1990s, there has been an emerging trend for non-state actors; specifically, corporations, to develop their own private governance systems to effectively address social and environmental challenges, such as human rights violations or climate change. These developments have been underpinned by the reports published on the poor working conditions prevailing in the supplying sweatshops of Nike. Companies’ self-regulation to mitigate their negative impact on society is commonly referred to as Corporate Social Responsibility (CSR), alternatively as Responsible Business Conduct (RBC). Even though CSR can be beneficial as it can function as a so-called “corporate constitution” for companies, CSR also has several barriers to becoming something more than mere window dressing.
HUMAN RIGHTS STANDARDS
The CSR codes of conduct not only allow corporations to integrate labour standards and sustainability into their internal operations, but they also open the arena for the inclusion and codification of human rights in these codes. This is why CSRs are sometimes referred to as corporate constitutions. However, corporations often fail to deliver adequate human rights protection due to several reasons. Firstly, regulations around CSR are usually voluntary and hence ineffective. Secondly, the practice of outsourcing production lines leads to diminished oversight throughout the supply chains and, thirdly, the lack of incentive from states to issue strict CSR compliance requirements due to the corporations’ lobbying.
CORPORATE CONSTITUTIONS
The United Nations Guiding Principles on Business and Human Rights (UNGP) offers the backbone for such corporate constitutions. The UNGPs are a list of non-binding guidelines dealing with human rights issues in corporate activities. They are based on a three-pillar framework of “protect, respect and remedy.” Besides the duty of states to “protect” human rights, corporations have an individual responsibility to “respect” human rights together with providing access to judicial and non-judicial “remedy” for those suffering corporate abuses. While the UNGP principles aim to ensure both state and corporate responsibility, they also bring about complexities. The UNGPs are merely guidelines and hence unable to impose a legal obligation on corporations for human rights protection. Consequently, there is no legal basis for corporations to be held responsible for human rights violations under the UNGP. However, the prospect of a binding treaty to regulate the conduct of corporations remains in the pipeline for now. Insofar CSR is based on self-regulation without a legally enforceable duty for corporations to respect human rights; companies can hardly be expected to adhere to strong human rights standards. This flows from the well-known fact that corporations are primarily profit-oriented. Therefore, without external enforcement, CSR is often used as a favourable business model attracting customers. This is also supported by the scholarly observations that corporations are only willing to self-regulate upon public pressure when fearing that their reputation would suffer. The problem is that even if CSR standards are in place, they fall short of ensuring adequate measures – they fail to extend to the companies’ supply chains, or their systems of monitoring compliance are insufficient. This shows that most companies are only willing to live up to the desired human rights and compliance standards when required by law.
Nonetheless, due to the absence of frequent regulatory practices by corporations, many countries started to require mandatory disclosure from corporations on their CSR practices in recent years. In the UK, the 2015 Modern Slavery Act urges companies to report on their efforts to eliminate child labour, human trafficking and modern slavery in their supply chains involving those outsourced to developing countries. While this mode of regulation certainly requires some responsibility on the part of corporations, France’s vigilance laws are the most exhaustive in this regard. According to these laws, companies are not only needed to identify but also to prevent human rights violations and environmental impacts within their supply chains. This regulation stands out because lawsuits can be initiated under this legislation proving better accountability of corporations.
“NOT OUR PROBLEM”
Another problem for corporate self-regulation lies with outsourcing production lines to developing countries, which leads to little CSR in the global supply chains. Governments, not to mention local communities and workers have little to almost no ability to pressure multinational corporations. Therefore, they end up having to accept poor working conditions and low wages. Nonetheless, a possible way to achieve human rights protection throughout the supply chain is by employing mandatory social compliance systems. This means that corporations from the West set guidelines that their suppliers have to comply with; otherwise, the agreement will be terminated. Even though there have been examples of companies like Adidas ending its deals with non-compliant suppliers, companies are only eager to enforce CSR regulations throughout their global supply chains if required by legislation, as highlighted earlier.
A VICIOUS CIRCLE
This brings us to the third point, which is the lack of stringent regulations for CSR enforcement by states resulting from the corporations’ lobby power. While most CSR regulations revolve around public disclosure of CSR efforts, almost none take an active stand in prescribing what requirements companies should fulfil to qualify as “socially responsible.” Companies are powerful, and since they are primarily driven by profit maximisation, they also lobby governments to achieve these goals. This forms a vicious circle – corporations are reluctant to adapt profound CSR practices without strict regulation from the state. In contrast, states are hesitant to issue such rules due to the corporations’ powerful lobby positions. Nevertheless, even when stringent laws are in place, businesses are more likely to conduct a cost-benefit analysis to weigh the sum of penalties resulting from non-compliance against the actual profit losses they would incur from compliance with the law. And oftentimes, they find that non-compliance is the more beneficial route leading to the violation of safety standards, minimal wages, pensions whenever this is the cheapest option for companies.
While in recent years, a new trend has emerged for companies to move towards socially responsible business conduct, corporations’ primary purpose remains the maximisation of their revenues and profits. This idea often undermines the very idea of social responsibility – or as Milton Friedman put in his New York Times article dating from 1970 – “The Social Responsibility of Business is to Increase its Profits.” As shown throughout the article, several factors hinder CSR from becoming more than an attractive business model. A possible solution might lie in reforming the whole framework of CSR. This could be achieved by making companies legally and operationally accountable to their workers and stakeholders. Such a move could lie in the democratisation of workplaces, whereas boards and governing bodies could include elected members representing the workers’ voice. Another way might lie in external control bodies overseeing each operational aspect of the company and reporting it. Insofar CSR fails to address the root causes of the problems, corporations will use it as a tool for achieving self-interested purposes.