Voluntary guidelines may be mandatory

Voluntary guidelines may be mandatory

Companies face a cascade of information about corporate social responsibility and business ethics. Though this deluge is no Hurricane Isabel, it still takes a lot of energy to sort out what to do and decide on a strategy.

Being socially responsible isn't easy. For many firms it requires changes to business operations, but the alternatives can be worse. And far more costly. Companies that overlook or minimize the issue play Russian roulette with their brand's value, work force morale, productivity and bottom line.

In the global economy, much sourcing and production is from countries with weak records on labor and environmental protections. Meanwhile, global communications and the Internet quickly circulate information that leaves companies vulnerable to public exposure of poor conditions.

What chief executive wants to wake up to a news story about workers collapsing due to a toxic exposure in a factory that manufactures his or her company's brand product? Or about young children seen toiling in a factory under dreadful circumstances?

Many companies have adopted codes of conduct and ethical-sourcing requirements that reference labor and environmental standards and include other commitments that fall under the increasingly broad definition of corporate social responsibility.

If the governments lack the resources or will to create a culture of compliance, it often is left to leading U.S. and European companies to take the initiative. In that sense at least, labor and environmental law enforcement has been privatized in the global economy.

Companies like codes and internal compliance programs because they are presumed to be voluntary and can be implemented any way management decides they are most effective. The value and integrity of what each company does and how they do it is largely left to the judgment of consumers, customers and other private stakeholders - and, increasingly, shareholders.

The prevailing theory in the private sector has been that voluntary approaches are preferable to governmental imposition of enforceable labor and environmental standards for the global economy. Opposition to any World Trade Organization action on these issues has been premised on the concern this would result in binding rules and potential trade sanctions.

But increasingly, the line between voluntary and obligatory is being eroded. This is where governments and courts come in, with codes of conduct and other initiatives, which must be considered as a growing body of "soft law" that is turning private-sector voluntary commitments into norms with financial and even legal consequences.

A U.S. lawsuit seeking to hold Nike liable for its statements and actions related to its code of conduct was recently settled for $1.5 million after Nike lost a constitutional argument in the U.S. Supreme Court. In the Netherlands, there have been moves to tie governmental export assistance to firms' compliance with the Organization for Economic Cooperation and Development's Guidelines for Multinational Enterprises adopted in 2000.

The United Nations and its affiliated specialized agencies have competing initiatives that seek to fill the vacuum posed by the backlash to economic globalization. The centerpiece of the U.N.'s response is the global compact initiated by Secretary General Kofi Annan in 1999. The U.N. explains the compact's nine principles to guide business activity in the global economy as a "voluntary corporate citizenship initiative." Other U.N. agencies also have framed initiatives to capture the wave of globalization. The most dramatic and most recent is the Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights, released in August by the U.N. Human Rights Commission.

Besides being a mouthful, this new code of conduct moves away from the notion of a voluntary initiative contained in the U.N.'s global compact. If formally approved by the commission early next year, these norms could hold companies accountable for implementing a code of conduct that matches the human-rights principles defined in the pending proposal. They also could subject companies to U.N. monitoring and to liability for any violation of the code.

The movement toward a non-voluntary obligation suggests that companies must pay ever-closer attention to international developments and internal corporate-compliance programs.

Might it also be time to consider a uniform set of rules for companies in the global economy rather than the unpredictable non-voluntary voluntary approach we now have?

Andrew James Samet is an attorney with Sandler, Travis & Rosenberg. He can be contacted at (800) 333-3349, or via e-mail at asamet@strtrade.com.