GSO Commentary — Responsibilities of transnational corporations and related business enterprises with regard to human rights

The Geneva Social Observatory notes that the High Commissioner for Human Rights is preparing a report on the “Responsibilities of transnational corporations and related business enterprises with regard to human rights” for submission to the Commission on Human Rights in March 2005.   We understand that the report will address “the scope and legal status of existing initiatives and standards relating to the responsibility of transnational corporations and related business enterprises with regard to human rights …and identifying outstanding issues.”   The GSO submits the following statement as a contribution to the report.

The Geneva Social Observatory is a new international non-governmental organization founded in Geneva, Switzerland in April 2004. The Geneva Social Observatory believes that the social challenges faced by the world community need to be addressed through innovative processes of dialogue that are impartial and all-inclusive.  Parties who have an interest in such issues need to share different points of view in a neutral setting in order to seek out solutions that are fair and just.  Recognizing the presence of actors searching for common solutions, the GSO has identified the interaction between corporate governance and corporate social responsibility in promoting more equitable globalization and development as an issue that needs to be addressed in an unbiased, participatory framework for information, debate and action.

Corporate Social Responsibility and Corporate Governance

CSR continues to be a term with many meanings.  In general, we understand CSR as encompassing those actions taken by companies that are intended to have a positive impact on the society and the environment in which they are operating.  It should also be viewed as the willingness by such companies to conduct and account for their business operations, in terms of their impact on society and the environment.   Issues that are open to debate are the extent to which voluntary actions should supplement or reflect existing legal obligations, the extent to which regulatory oversight should replace voluntary actions and the extent to which social responsibility is consistent with or detracts from a traditional focus on the financial bottom line.  For example, there is a growing body of literature on the “business case” for CSR.  If there were always a “business case” for CSR, then regulation would not be necessary.  However, many experts believe that often there is no business case and that regulation is needed.

Corporate governance, on the other hand, has a more established definition, that is, the system by which business corporations are directed and controlled.  Although public policy has been undergoing significant changes with regard to the scope of regulation of corporate governance, it is more widely accepted that corporate governance entails a set of rules as defined in law, typically at the national level.  CSR, however, in spite of its essentially voluntary character, is increasingly being tied to good corporate governance and the notion of responsibility to all stakeholders.

In today’s globalizing world, the interaction between corporate social responsibility and corporate governance is part of a broader picture of what the business world and the free market system can or should be doing to promote more equitable globalization and sustainable development.   The normative approach to corporate social responsibility might ultimately be linked, then, to the evolving debate on how both CSR and corporate governance should both be defined and how they are being affected by global social concerns about equitable globalization and sustainable development.  The evaluation of existing standards related to CSR might also include an evaluation of the existing and evolving standards on corporate governance.   And in any case, as will be shown in the following discussion, CSR has to be linked to good public governance as well.

Part of the changing landscape of the interaction between CSR and corporate governance has to do with a broadened appreciation of who is a stakeholder in business activities.  Consumers, suppliers, workers, communities – business activities necessarily take the interests of such groups into account and are legally required to do so in many respects.  But beyond these legal obligations, more and more attention is being directed at justifying such a broadened range of stakeholders from a “business case” perspective.  Shareholders or owners of the business remain key to the business case, of course, but even they are increasingly operating with expectations of performance that go beyond short-term profitability.   Sustainability of business operations in a global economy is increasingly requiring attention to the long-term outcomes of business operations and to the relationship between the business and the communities in which they operate.

The GSO Process of Dialogue on CSR

The GSO believes that there needs to be a neutral forum for a broad-ranging participatory dialogue on CSR and corporate governance.  The kind of dialogue that the GSO encourages is an open and constructive process of information exchange on the issue at hand.  Participants are invited to consider the ways and means to encompass their concerns, while they are also asked to listen to and take into account the concerns of the others involved in the process.  The objective of this kind of dialogue in a neutral forum is to stimulate a search for widely shared solutions, not just an airing of differences, which can then be taken by the participants to a policy-making body.   Such an effort is intended to complement the policy deliberations of international organizations like the Human Rights Commission.

The GSO promotes action and partnership-building through the networks that are created in the dialogues.  This is envisioned as a continuous process, not one that stops after one event.  Issue networks are encouraged to develop strategies for action, including ways to move forward in the presentation of solutions to more formal policy-making entities.  While it must be emphasized that the GSO is not a policy-making body itself, it facilitates the coming together of groups who can then bring forward their solutions in appropriate policy settings elsewhere.

The GSO, for example, organized such a dialogue at the WTO Symposium on “Multilateralism at the Crossroads” on the theme of CSR and the WTO: Towards a Fairer Globalization or Misguided Virtue?”   Our participants included representatives of international trade union federations, human rights organizations, multinational companies, employers’ organizations from both developed and developing countries, multistakeholder organization monitoring workers rights, and governments, as well as experts on CSR.   What follows are a few highlights from the dialogue that relate to the scope of the study by the Office of the High Commissioner.

The participants agreed that there is a need for a better understanding of how CSR should be defined and who the key stakeholders are.  As this category is broadened to encompass groups beyond the immediate shareholders of a company, however, the group discussed the significance of integrating the commitment to engage with the broadened array of stakeholders in the whole business, and not just managing them through a separate philanthropic or public relations arm of the business.  Thus, there appears to be a link between corporate social responsibility and good corporate governance.

Another concern was the issue of how and when companies should challenge the existing law.  Certainly there are expectations that companies should obey existing laws voluntarily, even when they aren’t being effectively enforced.  But when the law is restrictive of a human right, what can or should companies be doing to correct the situation?  If one stays out of the country, one does not help that country to develop.  In contrast, as one participant pointed out, the dilemma of corporate culture in developing countries implies an apparent dichotomy between economic and social priorities.

Finally, there was much discussion of the fact that CSR in developing countries poses an entirely different series of challenges for all stakeholders than it does in industrial countries, particularly where legal regimes are deficient and democracy doesn’t exist.  Because CSR is a business-led approach, these challenges can be particularly acute for public authorities.

Looking Ahead 

Where is the debate likely to go next?  Some have advocated promotion of existing global guidelines, declarations and codes as being the appropriate framework for corporate social responsibility.  Others think it is time to establish greater coherence and accountability.   The study and consultative process initiated by the Office of the High Commissioner for Human Rights are to be commended for gathering the needed information for this evolving dialogue.  There is certainly a need for better dialogue and cooperation among those organizations promoting better public and corporate governance and those promoting CSR, and the OHCHR can facilitate such enhanced cooperation.

The most important observation that the GSO brings to this dialogue is that one cannot expect good corporate governance or good corporate social responsibility in the face of poor public governance.  What is more, inadequate or flawed public governance cannot be remedied by good corporate governance or social responsibility, although they can help improve the governance “environment,” especially if there is a common understanding on internationally accepted principles.  These observations are consistent with and reinforced by the recent report of the Global Commission on the Social Dimension of Globalization, which emphasized the importance of good public governance at the community level, national level, the regional level – and even at the international level – in order to achieve a fairer globalization for all.

In conclusion, these are issues that relate directly to the efficacy of existing and emerging standards with regard to human rights for transnational enterprises and related business enterprises, which are the focus of the study being conducted by the OHCHR.  Although it should be understood that neither CSR nor corporate governance should be seen as the ultimate solution for the problems associated with poor public governance and poverty, their potential for contributing to a fairer globalization should be featured in any evaluation of existing and emerging standards.  Such a broadened appreciation of the issues should be encouraged as a means to stimulate a constructive dialogue and should facilitate the search for policy coherence.  Furthermore, the dialogue should include the participation of business, trade unions, NGOs, academics, government officials, parliamentarians and all other interested parties.  The GSO continues to support this kind of participatory dialogue as its central mission and welcomes the consultative process initiated by the Office of the High Commissioner for Human Rights as an opportunity to emphasize the importance of such a broad-based dialogue on this issue.