UN agency says TNCs need legally binding rules

by Danielle Knight

Geneva, 29Jun 2000 (IPS) -- Flying in the face of UN Secretary General Kofi Annan’s preference for non-binding social standards for corporations, a new report released here Thursday by a UN agency is calling for stronger legally binding social and environmental regulations for business.

“While multinational corporations would prefer to comply through voluntary initiatives, the public interest can only be fully served through stronger regulation and monitoring,” said Peter Utting, research co-ordinator at the UN Research Institute for Social Development (UNRISD).

Many companies have mastered socially responsible rhetoric, he said, but few have taken action. According to ‘Visible Hands’, the name of the report, only a small proportion of companies have introduced corporate codes of conduct. Even when they do, these tend to be narrow in scope and are often not independently verified, he said.

“Ultimately, most corporations will only respond to stronger regulation and to close monitoring by NGOs (non-governmental organizations), trade unions and consumer groups,” he added.

Labour, environmental, and consumer groups worldwide have long advocated for legally binding regulations for industry, in light of the growing power and mobility of multinational corporations.

Citing examples like Union Carbide’s gas leak in Bhopal, India that killed about 15,000 people and Shell Oil’s link with human rights abuses and pollution in Nigeria, NGOs say international binding rules for corporations are long overdue .

According to the UNRISD report, some 60,000 corporations now account for more than one-third of world exports. Their annual turnovers dwarf the Gross Domestic Product (GDP) of many countries. In 1998, the top five corporations had annual revenues that were more than double the total GDP of the 100 poorest countries, the report said.

The report echoes some recommendations made in the 1999 Human Development Report that called for a multilateral code of conduct, arguing that multinational corporations are “too important for their conduct to be left to voluntary and self-generated standards.”

Soon after the 1999 report was released, Annan dismissed the recommendations as unnecessary and instead promoted his ‘Global Compact’ which challenges business leaders to enact nine voluntary principles derived from UN agreements on labour standards, human rights and environmental protection.  “What we have to do is find a way of embedding the global market in a network of shared values,” he said to an audience of finance ministers and CEOs, at the World Economic Forum held in 1999 in Davos, Switzerland.

Many of the world’s largest business associations, including the International Chamber of Commerce have endorsed the Secretary-General’s Global Compact. But according to the UNRISD report, “there is a danger that corporate self-regulation, as well as various partnership arrangements, are weakening the role of national governments, trade unions and stronger forms of civil society activism.”

Left to their own devices, multinational corporations are likely to fulfil their responsibilities in a minimalist and fragmented fashion, said the report. “They still need strong and effective regulation and a coherent response from civil society,” it said. Corporate social responsibility should not just be about standard setting and compliance, it added. “It should also be about companies paying rather than avoiding taxes to welfare-minded states.”

Along the Mexican-United States border, for example, where US companies have set up factories in tax-free industrial zones, many of the municipalities lack adequate funds for proper infrastructure and schools. The government therefore cannot provide necessary public services to the influx of people seeking work in the area's maqualidoras. “Much of the rapidly escalating wealth of corporations is not being tapped by the state for social purposes,” said UNRISD .

Marcello Palazzi, president of the Progressio Foundation, said that even if companies adopt codes of conduct they still work in a framework that is unsustainable . Palazzi, whose Foundation works with companies that want to develop codes of conduct, said that the Wall Street-dominated stock market system under which corporations operate works against sustainable and socially-just development .

“The framework is everything,” said Palazzi, speaking at the gathering of NGO representatives - the Geneva 2000 Forum. Government taxation systems also discourage corporations from socially and environmentally sustainable operations, he said. “We are still penalizing labour and under-taxing national resource use,” said Palazzi . He talked of the need for international legislation to regulate the growing concentration of corporate wealth and power.

“If we have transatlantic mergers, we need to have global competition and anti-trust legislation,” he said .

NGOs must find a way of refocusing the debate toward developing international binding standards for multinational companies and away from voluntary corporate initiatives, added Judith Richter, an author who came to the Forum from Germany.

“The debate on corporate responsibility has replaced the concept of accountability,” said Richter, who writes on corporate public relations campaigns.

The word ‘partnerships’ should not be used, said Richter. “We need to get rid of that term,” she said, arguing that the word ‘sponsorships’ more accurately reflects the meaning of the relationship.