Guest editorial

Citation

Sethi, S.P. (2006), "Guest editorial", Corporate Governance, Vol. 6 No. 3. https://doi.org/10.1108/cg.2006.26806caa.001

Guest editorial

This group of four papers has been selected from amongst a large number of papers that were presented at the International Center for Corporate Accountability, ICCA’s 1st International Conference on “Voluntary codes of conduct for multinational corporations: promises and challenges” held at the Zicklin School of Business, Baruch College, on May 12-15, 2004.

The papers selected for this special section are intended to provide the readers with an eclectic and “outside the box” view of corporate governance. The traditional view of corporate governance is primarily focused on the role of a company’s board of directors and the extent to which they fulfill their fiduciary responsibility in providing oversight and supervision of the company’s top management with a view to protect the interests of the company’s shareholders. Under the best of circumstances, where board members consider broader societal issues, they are rationalized in terms of taking the “long-term perspective” and “management of risk and uncertainty.”

The process to date, however, has been generally haphazard, unsystematic and largely ineffective. This has been especially true in the case of large multinational corporations (MNCs). The current wave of globalization, with its increased trade and investments, and MNC operations spanning in hundreds of countries all over the world, has brought about a host of new issues that are not effectively addressed within national jurisdictions of the countries involved. These issues involved are truly international in scope, e.g. environmental protection, sustainable development, prevention of human rights abuses, bribery and corruption, and unfair labor practices, to name a few. For a variety of reasons, nation states have been forced to compete amongst themselves in order to attract direct foreign investments and access to overseas markets – both of which are largely controlled by the MNCs.

While MNCs have given some recognition to these issues, their general emphasis has been to treat them as “externalities,” which are best handled by the impacted communities, i.e. national governments. Where MNCs have taken concrete actions, they have been viewed by influential stakeholders as largely inadequate. The result has been increased pressure on the MNCs to take voluntary action to address these problems or risk greater hostility in the socio-political and legal arenas.

One such approach, broadly embraced by MNCs, has been the creation of voluntary codes of conduct at the industry and individual company level. Corporations project these codes as a means of assuring important segments of their stakeholder constituencies and public at large that MNCs conduct their business in a highly ethical and socially responsible manner that goes beyond prevailing legal standards.

ICCA believes that corporate codes of conduct can serve an important business and social purpose when they are implemented in a substantive and credible manner. From the MNC’s viewpoint, codes provide the corporation with a voluntary and more flexible approach to addressing some of society’s concerns. They create mechanisms through which a company can fashion solutions that are focused and economically efficient. They also engender public trust through the reputation effect. Voluntary codes also serve an important purpose from the public’s perspective in that progress in the resolution of these issues can be achieved without long-term adversary campaigns, which drain private and public resource that could be better spent in ameliorating the underlying problem which are of common concern.

Unfortunately, the record of MNCs and various industry groups involving companies with large international operations has been unsatisfactory. Rather than seizing on the opportunities provided through voluntary mechanisms, MNCs and industry groups have used voluntary codes as a means of avoiding these problems, minimizing their impact, and hoping to postpone their responsibility as long as possible.

The papers included in this section consider industry-based voluntary codes of conduct involving multinational corporations in a number of ways that are quite novel and hitherto relatively unexplored. Thus they provide an essential framework for other scholars and researchers, corporate executives, national and international regulatory bodies, and national political systems to considers the prospects and limitations of “voluntary codes” and the opportunities and challenges they present as substitutes or complimentary devices to address the global issues of “negative externalities” emanating from the operations and the conduct of multinational corporations.

The paper by Sethi and Emelianova “A failed strategy of using voluntary codes of conduct by the global mining industry” presents a detailed analysis of one of the major industry-based international voluntary code of conduct. This code was created by most of the major mining companies of the world with considerable fan fare and at enormous cost. The industry also undertook extensive consultations with environmental and other groups, i.e. NGOs as to the content, organization and management of the code, the responsibility of internal monitoring and independent compliance verification, and public disclosure of the member companies’ performance. A thorough analysis of all aspects of the industry’s effort leads the authors to conclude that the code was deliberately designed and implemented in a manner to minimize industry efforts beyond “window dressing” and public disclosure which was largely devoid of substantive disclosure of progress made and where increased efforts in the future are called for. Furthermore, the paper concluded that the built-in governance structure was controlled by the top leaders of the member companies and thus had little likelihood of monitoring the performance of the members companies.

The paper “Illusions of compliance and governance” by William S. Laufer evaluates voluntary codes from the perspective of legal mechanisms that might be available to monitor the performance of a company or the industry and ensure compliance. His analytical framework is focused on the US laws and regulatory practices that regulate corporate conduct both within the traditional arena of corporate governance via board of directors, and also through other laws and regulations that address issues of “negative externalities” in areas such as environment, consumer protection, and related issues. His prognosis is that current legal mechanisms prevailing in the US – which are generally similar to a greater or lesser degree in other industrially advanced countries – are unlikely to be effective in controlling corporate misconduct – either through voluntary codes of conduct or through direct legal action. Not only does he find significant deficiencies in current laws, including the most famous of them all, i.e. the Sarbanes-Oxley Act, but he is equally unhappy with the current enforcing mechanisms, which constantly seek to find ways in an endless cycle to forgive past corporate misconduct via promises of future “good behavior”.

Terry Collingsworth’s paper, “Beyond public relations: bringing the rule of law to corporate codes of conduct in the global economy,” introduces the reader to a relatively new development in the US that could have far reaching implications for MNCs in their global operations and especially as they pertain to human rights abuses. The legal statute in question is an obscure law passed by the first US Congress in 1789 and called the Alien Torts Statute, 28 USC sec. 1350 (ATS). This law permits US Federal Courts to hear claims involving violations of the “law of nations.” The paper analyzes the claims of MNCs that they are determined to respect and protect human rights in all aspects of their overseas operations and that their assertions are codified in the companies’ codes of conduct and subject the companies to binding norms through their voluntary codes of conduct. And yet, the organized corporate community have launched aggressive attacks against the application of ATS both in the US Supreme Court and the US Congress, albeit with little success. The paper asserts that the MNCs have promised the moon with their codes of conduct and membership in various organizations ostensibly dedicated to compliance with comprehensive human rights. And yet they have vigorously opposed ATS, which as currently interpreted, applies only to claims for genocide, war crimes, slavery, extrajudicial killings, torture, prolonged arbitrary detention, and cruel inhuman treatment or punishment. The application of ATS of MNCs with operations in the USA would create a sea change in the potential liability of MNCs for ATS-related crimes and thus would create a dynamic that would force other nations and international bodies to confront the underlying issues and developed means for enhanced corporate accountability.

Nien-hê Hsieh’s paper, “Justice, management and governance,” examines the debate in business ethics over extending insights from political philosophy, e.g. distributive justice of economic enterprises. The paper illustrates two ways in which justice matters for such questions. The first concerns the promotion of stakeholder interests by multinational corporations. The second concerns the claims of workers to participate in the governance of corporations. In the process, the paper makes an important contribution to the literature on normative theories of managerial responsibility and corporate governance.

ICCA is very grateful to Corporate Governance: International Journal of Business and Society for helping us in reaching out to a broader audience of academic researchers and scholars, corporate executives, and leaders of NGOs and civil society organizations. This journal is one of the five top tier global journals that have participated in this endeavor[1].

ICCA is planning to hold its second international conference on the topic of “Globalization and the good corporation” on June 24-28, 2007 in New York. All those interested in participating in the next conference are encouraged to contact ICCA at One Bernard Baruch Way, Box J1034, New York, NY 10010. Updates of the next conference would be posted on a regular basis on ICCA’s website (www.ICCA-CorporateAccountability.org) (e-mail: emelianova@ICCA-CorporaeAccountability.org).

Notes

1. The other journals that have agreed to publish special issues of their respective publications based on selected papers presented at the conference are: Business Ethics Quarterly, Journal of Business Ethics, Business and Society Review, and Transnational Corporations.

S. Prakash SethiGuest editor