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The “Market for Virtue” and the Struggle for Corporate Accountability

17 Jun 2011



Weak compliance and regulatory gaps during two decades of corporate social responsibility (CSR) and voluntary regulation have resulted in renewed calls for a corporate accountability agenda with teeth, Peter Utting, UNRISD Deputy Director, told audiences in Geneva and Montreal in May and June.

In a climate in which the “market for virtue” has become as competitive and important as the product market itself, corporate social responsibility and voluntary multi-stakeholder self-regulatory initiatives (MSIs) have come to be regarded by corporations as a form of brand insurance. MSIs, under the broad umbrella of CSR, have enabled corporations to manage their reputations and coordinate with, rather than defend themselves from, civil actors. The principle of self-regulation has been warmly welcomed, with MSIs proliferating across a range of sectors since their growth in the 1990s. Among the better known examples are the Fairtrade mark, the Forest Stewardship Council (FSC) stamp and the Ethical Trading Initiative.

Despite the popularity of MSIs, there are structural limitations to the long-term benefits of such approaches in changing corporate behaviour. In the last decade there has been a growing awareness that civil society has a responsibility to hold corporations accountable for their actions, rather than simply relying on self-regulation. This shift demands the development of a more mature industrial relations with strengthened public governance of corporate activities to raise standards and ensure compliance.

UNRISD continues its research in an era where CSR will compete to maintain relevance in the face of a rising corporate accountability agenda. These issues are explored in a forthcoming book Business Regulation, Non-State Actors and Development edited by Peter Utting, Darryl Reed and Ananya Mukherjee Reed. The book assesses the implications of MSIs for development and the longer-term sustainability and well-being of subaltern groups. With MSIs reflecting a largely northern-driven agenda and with a history of corporations successfully transferring the costs and risks associated with compliance down the chain to suppliers and producers, there are looming questions to answer about the benefits of MSIs to development.

The variable quality of regulatory functions, partial reporting and low compliance levels coupled with limited penalties for non-compliance have significantly curbed the impact of self-regulatory initiatives and opened corporations up to the charge of “greenwashing”. Indeed, many multinationals have subscribed to these MSIs in order to capitalize on the associated kudos without adopting the values underpinning them. Nestle, for example, has had some of its products Fairtrade certified but limit their compliance to the bare minimum required for approval. Yet there is little doubt that the Fairtrade regime has brought improvements to the material conditions of some people involved in the supply chains for certified products.

CSR and MSIs have been valuable awareness-raising tools, pushing corporations to confront exploitative practices and improve working conditions. There is evidence of progress, particularly in relation to child labour, health and safety, and environmental management systems. More broadly though, labour standards, labour rights and producer empowerment have been neglected and there exist few avenues for airing grievances, complaints or seeking redress in these areas. Such regulatory gaps raise questions about the future viability of the CSR paradigm and its contribution to development. Whatever form corporate regulation takes in the future, the difficulties of overcoming the primacy of shareholder-driven short-termism to effect substantive change will persist.

Business Regulation, Non-State Actors and Development builds on previous UNRISD research.

Relevant UNRISD publications:

Papers and Other Publications

Beyond Pragmatism: Appraising UN-Business Partnerships, Peter Utting and Ann Zammit, PP MBR 1, 2006

Rethinking Business Regulation: From Self-Regulation to Social Control, Peter Utting, PP TBS 15, 2005

Regulating Corporations: A Resource Guide, Desiree Abrahams, October 2004

Corporate Social Responsibility and Development: Towards a New Agenda? (Geneva 17-18 November 2003), UNRISD Conference News 23, July 2004

Barricades and Boardrooms: A Contemporary History of the Corporate Accountability Movement, Jem Bendell, PP TBS 13, 2004

Corporate Social Responsibility and Business Regulation, UNRISD Research and Policy Brief 1, March 2004

Corporate Codes of Conduct: Self-Regulation in a Global Economy, Rhys Jenkins, Programme Paper TBS 2, 2001

Chapter 9 of the Poverty Report

Books

Introduction in Corporate Social Responsibily and Regulatory Governance: Towards Inclusive Governance (2010) Utting, Peter & Jose Carlos Marques (eds) Palgrave-Macmillan

Voluntary Approaches to Corporate Responsibility: Readings and a Resource Guide (2002) NGLS and UNRISD (eds) Rhys Jenkins, Peter Utting and renato Alva Pino (contributors) www.un-ngls.org