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Bond University

ePublications@bond
Corporate Governance eJournal

Faculty of Law

4-12-2007

Corporate Social Responsibility: Impact of


globalisation and international business
Kim Kercher
Bond University, Kim_Kercher@bond.edu.au

Follow this and additional works at: http://epublications.bond.edu.au/cgej


Part of the International Business Commons
Recommended Citation
Kim Kercher. (2007) "Corporate Social Responsibility: Impact of globalisation and international
business" ,, .
http://epublications.bond.edu.au/cgej/4
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Corporate Social Responsibility: Impact of globalisation and international


business
Abstract

[Extract] Corporate Social Responsibility (CSR) is associated with the conduct of corporations and in
particular whether corporations owe a duty to stakeholders other than shareholders. Whilst the phrase
Corporate Social Responsibility may be gaining momentum, the concept itself is not new. The question as to
whether corporations owe duties to broader stakeholders has been debated at various times throughout the
twentieth century.
Keywords

corporate social responsibility, corporations, globalisation, international business


Disciplines

International Business

This journal article is available at ePublications@bond: http://epublications.bond.edu.au/cgej/4

CorporateSocialResponsibility
Impactofglobalisationandinternationalbusiness

ByKimKercher
Dateofpublication:11December2006

Introduction
CorporateSocialResponsibility(CSR)isassociatedwiththeconductofcorporationsandinparticular
whethercorporationsoweadutytostakeholdersotherthanshareholders.WhilstthephraseCorporate
Social Responsibility may be gaining momentum, the concept itself is not new. The question as to
whethercorporationsowedutiestobroaderstakeholdershasbeendebatedatvarioustimesthroughout
thetwentiethcentury.
The CSR debate has largely revolved around the conduct of multinational corporations (MNEs) and
other large private companies which, due to their size, have the ability to significantly influence
domesticandinternationalpolicyandthecommunitiesinwhichtheyoperate.Centraltothedebateis
theperceiveddeficiencyofnationalandinternationallawremediesregardingcorporateaccountability,
in particular the ability of available regulation to successfully regulate a corporations conduct in
jurisdictions outside the corporations home state. Proponents of CSR argue that the efficient
functioningofglobalmarketsdependsonsociallyresponsiblebusinessconduct.
ThereareanumberoffactorsrelevanttothecurrentCSRdebate,including:

globalisation and the proliferation of crossborder trade by MNEs resulting in an increasing


awareness of CSR practices relating to areas such as human rights, environmental protection,
healthandsafetyandanticorruption;

organisations, such as the UN, the Organisation for Economic Cooperation and Development
(OECD)andtheInternationalLabourOrganisation(ILO),havedevelopedcompacts,declarations,
guidelines,principlesandotherinstrumentsthatoutlinenormsforacceptablecorporateconduct;

access to information and media enables the public to be more informed and to easily monitor
corporateactivities;

consumers and investors are demonstrating increased interest in supporting responsible business
practices and are demanding more information as to how companies address risks and
opportunitiesrelatingtosocialandenvironmentalissues;

recent high profile corporate collapses have contributed to public mistrust and the demand for
improvedcorporategovernance,accountabilityandtransparency;

commonality of expectations by citizens of various countries with regard to minimum standards


corporations should achieve in relation to social and environmental issues, regardless of the
jurisdictioninwhichthecorporationoperates;and

increasingawarenessoftheinadequacyofcurrentregulationsandlegislation withregardtoCSR
mattersandtheregulationofMNEs.1

StrategisCanada,AnoverviewofCorporateSocialResponsibility,Part1,
<http://strategis.ic.gc.ca/epic/internet/incsrrse.nsf/printen/re00120e.html>at14.06.06

CORPORATESOCIALRESPONSIBILITY:IMPACTOFGLOBALISATION

Interestingly, the fundamentals of CSR are considered to be universal reflecting the globalisation of
businessandeconomies.Thetraditionalethosofmaximisingshareholdervaluewithoutregardtoother
stakeholdersisanoutdatednotionintodaysglobalenvironment.CSRnotonlysitscomfortablywith
themantraofmaximisingshareholdervalue,sustainableCSRpracticesenhanceshareholdervalue.

Definition
AsinglegloballyaccepteddefinitionofCSRdoesnotexist,astheconceptisstillevolving.The
languageusedinrelationtoCSRisoftenusedinterchangeablywithotherrelatedtopics,suchas
corporatesustainability,corporatesocialinvestment,triplebottomline,sociallyresponsibleinvestment
andcorporategovernance.However,variousindividualsandorganisationshavedevelopedformal
definitionsofCSR,including2:

Thecommitmentofbusinesstocontributetosustainableeconomicdevelopment,workingwith
employees,theirfamilies,thelocalcommunityandsocietyatlargetoimprovetheirqualityoflife
(WorldBusinessCouncilonSustainableDevelopment).

Operatingabusinessinamannerthatmeetsorexceedstheethical,legal,commercialandpublic
expectationsthatsocietyhasofbusiness(BusinessforSocialResponsibility).

Asetofmanagementpracticesthatensurethecompanyminimisesthenegativeimpactsofits
operationsonsocietywhilemaximisingitspositiveimpacts(CanadianCentreforPhilanthropy).

Theintegrationofbusinessoperationsandvalueswherebytheinterestsofallstakeholders
includingcustomers,employees,investors,andtheenvironmentarereflectedinthecompanys
policiesandactions(TheCorporateSocialResponsibilityNewswireService).

ItisimportanttodifferentiateCSRfromcharitabledonationsandgoodworks,iecorporate
philanthropyandhumanrights.

Thedebate
The CSR debate broadly focuses on whether a corporations sole purpose is to maximise shareholder
wealth(shareholderprimacyprinciple),vs.theabilitytoconsiderabroaderrangeofstakeholdersinits
decisionmaking.Thedebatehasbeenthesubjectofcommentarythroughoutthetwentiethcenturyand
continues to be relevant due to the size and power of MNEs and the globalisation of business
operations.
Thedebateineacherahasbeentriggeredbydifferentcatalysts.Traditionallythedebatefocusedonthe
powerofcorporations,particularlylargenationalandmultinationalcorporations,howeverthedebate
has evolved over time to consider broader social impacts such as the environment, employee and
communityrights.Areasoffocusthroughoutthetwentiethcenturyincluded:

1930sgeneraldebateastotheroleandpurposeofcorporations,iesolelyashareholderfocused
vehicleoranentitywithwiderresponsibilities;3

1950sfocusedonthedisproportionalpoweroftheUScorporationcomparedtoothernations;

AustralianGovernment,CSRDefined<http://www.partnerships.gov.au/csr/corproate_csr_defined.shtml>at
16June2006.
3 AndrewClarke,TheModelsoftheCorporationandtheDevelopmentofCorporateGovernance(2005)1.
2

CORPORATESOCIALRESPONSIBILITY:IMPACTOFGLOBALISATION

1960sand 1970s the corporationsrole inrelationtoenvironmentaldegradation, minorityrights


andconsumerprotection;

1980s and 1990s targeted the social impact of the proliferation of corporate raiders and hostile
takeovers;4and

the current debate weaves all the elements of previous debates together from a global and
community perspective and is focused on whether regulation should be expanded to encompass
CSRmatters.

Thefollowingquotesillustratetheconsistencyofthoughtovertimewithregardtocorporationshaving
socialobligations:

In1932Americancommentator,EMerrickDoddarguedcompanies,likeindividuals,shouldstrive
tobegoodcorporatecitizensbycontributingtothecommunitytoagreaterextentthanisgenerally
requiredandthereforethecorporationasaneconomicinstitutionhasasocialserviceaswellasa
profitmakingfunction;5

In January 1973 The Confederation of British Industry published the Watkinson Report A new
LookattheResponsibilitiesoftheBritishPublicCompanywhichobservedthattheremustbeand
beseentobeanethicaldimensiontocorporateactivityandconcludedcompaniesmustrecognise
that they have functions, duties and moral obligations that go beyond the immediate pursuit of
profitandtherequirementsoflaw;

In 2001 Robert Hinkley observed corporations exist only because laws have been enacted to
providefortheircreationandgivethemlicencetooperate.Whentheselawswereenactedmost
corporationsweresmallandtheirimpactonsocietywasinsignificantTodaycorporationsareour
most powerful citizens and it is no longer tenable that they be entitled to all the benefits of
citizenship,buthavenoneoftheresponsibilities6.

The shareholder primacy proponent argues that a corporations sole reason for existence is to
maximise shareholder wealth whilst obeying the laws of the countries within which the corporation
operates.EconomistMiltonFriedmanfamouslyarguedthatbecauseshareholdersowncorporations,
the onlysocialresponsibility ofbusinessisto increase profits.Friedmansargument gainedtraction,
especially after the publication in 1976 of an influential paper, Theory of the Firm, which stated
shareholdersareprincipalswhohiredirectorsastheiragentstomanagecorporations,andthejobof
directorsistoincreaseshareholderwealththrougheverymeanspossible,shortofviolatingthelaw.7
ProponentsofCSRarguethat,foracorporationslongtermsuccessandprofitability,itsdirectorsmust
considertheinterestsofshareholdersandotherrelevantcorporatestakeholderssuchasemployees,
consumersandthecommunitiesinwhichthecorporationoperates.CurrentproponentsofCSR
maintainthereisdemonstratedevidencethatcorporationswhichimplementrelevantandsustainable
CSRpracticesperformbetterandattaingreatercompetitiveadvantage.
Despitethevariousarguments,muchofthecorporateindustrialisedworldhasattemptedtofinda
balancewithregardtothecorporationsimpactonawidergroupofstakeholders,whilstalsofocusing
onmaximisingshareholderwealth.Arecentglobalsurveyofcorporateexecutivesrevealedthat,

CorporationsandMarketAdvisoryCommittee,CorporateSocialResponsibilityDiscussionPaper(November2005)
7.
5 AndrewClarke,TheModelsoftheCorporationandTheDevelopmentofCorporateGovernance(2005)3.
6 KerrieBurnmeister,CorporateResponsibilityAMatterorEthicsorStrategy,BlakeWaldronDawson
<http://www.bdw.com.au/publications/issues/articles/Issues1Corp_Responsibility.pdf>at11June2006.
7 ProfLynnAStout,ShareholdersUnplugged,UCLASchoolofLaw<http://www.legalaffairs.org/issues/March
April2006/argument_Stout_marapr06.msp>at18June2006.
4

CORPORATESOCIALRESPONSIBILITY:IMPACTOFGLOBALISATION

overwhelmingly,executivesembracetheideathattheroleofcorporationsinsocietygoesbeyond
simplymeetingitsobligationstoshareholders.8Thisviewisalsosupportedbyarecentsurveyofglobal
investmentmanagerswhichrecognisedthatenvironmental,socialandgovernancemattersmaybe
criticaltoinvestmentperformance.9Additionally,threequartersoftheonehundredandfiftyseven
globalcorporatemanagerssurveyedpredictedthatsocialorenvironmentalcorporateperformance
indicatorswouldbecomemainstreaminvestmentconsiderationswithintenyears.10

CRSandthelaw
Corporate history provides many examples of companys pursing profit without regard to relevant
CSRmatters,including:

Nike factories in Asia were criticised for extremely poor working conditions and for employing
youngchildren;11

Nestle received criticism in relation to its practices including unethical marketing and utilising a
supplychainthatuseschildbondedlabour;

JamesHardiehasbeencriticisedregardingitsfailuretoprovideadequatecompensationtopeople
affectedbyasbestosrelateddiseasesresultingfromthecompanysbuildingproducts;

Ford Pinto scandal whereby Ford, although aware of a fatal design flaw, decided it would be
cheapertopayoffpossiblelawsuitswithregardtoresultingdeathsinsteadofrecallingandfixing
theaffectedcars;12

ShellsjointventurewiththeNigeriangovernmentwhere,in1995,KenSaroWiwaandeightothers
were executed largely due to leading a nonviolent campaign against environmental damage
associated with the operations of multinational oil companies, including Shell and British
Petroleum.Shellwascriticisedfornotusingitspowertointercedewithregardtotheexecutions.13;
and;

EnronmanipulatedelectricityinordertomaximiseprofitsattheexpenseofCaliforniancitizens.

Historically, a narrow view of corporate responsibility has been enforced whereby a corporations
responsibility extends only to maximising profits. In Dodge v Ford Motor Co14 the Michigan Supreme
Court upheld the shareholders claim that a corporation is carried on primarily for the profit of the
shareholdersandthereforethepowersofthedirectorsaretobeexercisedonthisbasis.Thedecisionof
the directors not to declare a dividend to facilitate the expansion of the business and increase the
number of employees was considered to be inappropriate. However, subsequent cases have taken a
more flexible approach. Decisions made to benefit consumers, the community, employees and the

TheMcKinseyGlobalSurveyofBusinessExecutives:BusinessandSociety,TheMcKinseyQuarterly(December
2005),conductedthesurveyinDecember2005andreceivedresponsesfrom4,238executives,morethana
quarterofthemCEOsorotherClevelexecutivesin116countries.
9 MercerInvestmentConsulting,2006FearlessForecastWhatdoinvestmentmanagersthinkaboutresponsible
investment(March2006)at11.
10 Ibid11.
11 Globalexchange2005,NikeCampaign
<http://www.globalexchange.org/campaigns/sweatshops/nike/faq.html>at14June2006.
12 <http://en.wikipedia.org/wiki/Ford_Pinto#Safety_problems>at14June2006.
13 <http://en.wikipedia.org/wiki/Royal_Dutch_Shell#Nigeria>at14June2006.
14 170NW668(1919).
8

CORPORATESOCIALRESPONSIBILITY:IMPACTOFGLOBALISATION

environment have been considered as not breaching directors duties where shareholders interests
havenotbeencompletelydisregardedandemphasisplacedonthecorporationsfuture.15
InAustralia,thetraditionalviewisthatcaselawandcorporationslegislationdoesnotextenda
directorsobligationtoconsiderstakeholdersotherthanshareholders(otherthaninrespectofcreditors
whenacompanyisorislikelytobecomeinsolvent).10Actinginthebestinterestofthecompanyhas
generallybeeninterpretedbythecourtsasactinginthebestinterestofshareholders.However,laws
relatingtolabourconditions,consumerprotectionandcommunitymatterssuchasenvironmental
protectionapplytocorporationsandthereforeanydecisionbydirectorsinbreachofthese
requirementsmaypotentiallyleadtoabreachofdirectorsduties.16,17
RecentlytheParliamentaryJointCommittee(PJC)onCorporationsandFinancialServicesInquiryinto
CorporateResponsibilityandTripleBottomLineReporting(Committee)consideredwhetherthelegal
framework,viz.theCorporationsAct,shouldbeamendedtolegallyobligedirectorstoconsiderbroader
interests. On 22 June 2006, the PJC released their findings, preeminent amongst their findings is the
recommendationthattherebenoamendmenttotheCorporationsActtorequiredirectorstoconsider
the public interest, instead the PJC recommends a voluntary self regulatory approach. During the
review,thePJCnoted,interalia:

theCorporationsActpermitsdirectorstohaveregardtotheinterestsofbroaderstakeholders;18

manycompaniesarevoluntarilyintegratingtheconsiderationofbroadercommunityinterestsinto
theircorebusinessstrategies;

theimportanceofbalancingthelongtermviewofacompanysviabilityandprofitabilitywiththe
focusonshorttermreturns;

byinternationalstandards,AustralialagsinimplementingandreportingonCSR;

CSRinitiativesassist(i)maintainandbuildreputationand(ii)recruitandretainhighqualitystaff;

institutionalinvestorshaveastronginfluenceoncorporatebehaviourandaremorelikelytotakea
longerview;

supportfortheadoptionoftheUNPrinciplesforResponsibleInvestment;

overall reporting should remain voluntary as mandatory reporting would lead to a tick the box
mentality;

avoluntarystandardisedreportingframeworkshouldbedevelopedandadvocatedsupportofthe
GlobalReportingInitiative;and

TeckCorpvMillar(1973)33DLR(3d)28.AllensArthurRobinsonCorporateGovernanceSite,Directorsduties
andcorporatephilanthropy<http://www.aar.com.au/corpgov/iss/corp/corpdir.htm?print=true>at4June2006.
16 AllensArthurRobinson,CorporateGovernanceSite,Directorsdutiesandcorporatephilanthropy,
<http://www.aar.com.au/corpgov/iss/corp/cpmr[dor.htm>at4June2006.
17 Examplesinclude:variousstatebasedenvironmentallegislation,s299(1)(ff)oftheCorporationsActwhich
requirescompaniestoreportonenvironmentalperformance,legislationregardingoccupationalhealthand
safetyasstateandfederallevel,TradePracticesActwhichpromotescompetitionandfairtradingtoprotect
consumers.
18 Theinterestsofthecompanyincludethecontinuingwellbeingofthecompany.Directorsmustnotactformotives
foreigntothecompanysinterests,butthelawpermitsthemtoconsidermanyinterestsandpurposes,aslongasthereis
alsoapurposeofbenefitingthecompany.(SeeJDHeydon,DirectorsDutiesandtheCompanysInterestsinPFinn
(ed),EquityandCommercialRelationships(LawBookCompany,1987)135.)
SubmissionbytheNewSouthWalesYoungLawyersProBonoandCommunityServicesTaskforcetotheCorporations
andMarketsAdvisoryCommittee,
<http://www.lawsociety.com.au/uploads/files/1142226553639_0.5476435755609974.doc>at7July2006.
15

CORPORATESOCIALRESPONSIBILITY:IMPACTOFGLOBALISATION

ASX Governance Recommendations should be expanded to incorporate CSR sustainability


reportingguidelines.

Although the committee does not believe it is necessary to mandate either (i) consideration of
stakeholdersinterestsor(ii)sustainabilityreporting,thecommitteeisoftheviewthatthereisaneedto
ensure corporations consider these matters.19 The PJC commented that any hesitation on the part of
corporate Australia in incorporating CSR matters into their business practices does not arise from
legislativeconstraintsoftheCorporationsAct.ThePJCconsidersthattheinterpretationofthecurrent
legislation is the best way forward for Australian corporations on the basis that an effective director
will realise that the wellbeing of the corporations comes from strategic interaction with outside
stakeholders.20
TheASXCorporateGovernancecouncilreleasedanexplanatoryandconsultativepaperoutliningthe
councils review of Good Corporate Governance and Practice Guidelines in November 2006. The paper
considers, amongst other matters, recommendations of the PJC regarding CSR and outlines the
Councilsproposalsregardingsame.ThemajorproposedchangesrelatetoPrinciple7whichdealswith
riskmanagement.Newcommentaryseekstoprovideguidanceonriskmanagementandadvisesthat
riskmanagementencompasseslegalobligationsandtheexpectationofstakeholders,andnotesthatan
effectiveriskmanagementinvolvesconsideringfactorsthatbearuponthecompanyscontinuedgood
standingwithitsstakeholdersandcommunity.21Furtherthecommentarynotesthatstakeholdersmay
include shareholders, employees, business partners, creditors, consumers, the environment and the
broadercommunityinwhichthecompanyoperates.22Thecommentaryadvisesthatmaterialrisksmay
include operational, environmental, sustainability, compliance, strategic or external, ethical conduct,
reputationorbrand,technological,productorservicequalityandhumancapital,which,ifnotproperly
managed,willimpactonthecompany.23TheCouncilseeksfeedbackastotherolethecouncilshould
undertakeinassistingcompaniesreportingonrisksrelatingtoCSRmatters.
USreform(likeAustralia)hasfocusedpredominantlyontheintegrityoffinancialinformationandas
yethasnotmandatedCSR.Asaresult,amajorityofUSstateshaveadopted,andstillretain,corporate
constituency statutes, which permit directors to broaden the stakeholders they consider in corporate
decisionmaking24,25.Typicallythestatutesallowtheboard,indischargingtheirduties,toconsiderthe
impact on employees, suppliers, customers and communities. Many argue that the introduction of
prescriptiveregulationwithregardtoCSRmattersisunnecessaryandwouldinfactresultindirectors
beinglessaccountable.Interestingly,althoughmanyarguethatexistingregulationallowscorporations
to conduct their operations in a socially responsible manner, there is less commentary as to how
corporations are held accountable in the absence of prescriptive legislation where a corporations
domesticorinternationalpolicyisnotconsistentwithactinginasociallyresponsiblemanner.
AvarietyofEuropeanlegislativeandregulatorydevelopment(UK,FranceandAustria)has
increasinglyrequiredthereportingofCSR,suchastheNouvellesRegulationsEconomiquesintroduced

ParliamentaryJointCommitteeonCorporationsandFinancialServices,CorporateResponsibility:Managing
Riskandcreatingvalue(22June2006).
20 ParliamentaryJointCommitteeonCorporationsandFinancialServicesCorporateResponsibility:Managing
Riskandcreatingvalue(22June2006)37.
21 ASXCorporateGovernanceCouncil,ReviewofthePrinciplesofGoodCorporateGovernanceandBest
PracticeRecommendationsExplanatoryandConsultationPaper(November2006)18.
22 ASXCorporateGovernanceCouncil,PrinciplesofGoodCorporateGovernanceandGoodPractice
RecommendationsExposureDraftofChanges(November2006)30,31.
23 Ibid30,31.
24CorporationsandMarketAdvisoryCommittee,CorporateSocialResponsibilityDiscussionPaper(November
2005)7.
25 ThePennsylvaniaAct(23December1983)wasthefirstcorporateconstituentstatute.
19

CORPORATESOCIALRESPONSIBILITY:IMPACTOFGLOBALISATION

byFrancein2001andtheUKsOperatingandFinancialRevieweffectedinApril2005.Reforminthe
UKappearstobethemostambitioustodateasitwillrequiredirectorstoconsidertheimpactsoftheir
businessoperationson,amongstothermatters,employees,thecommunityandtheenvironment.26The
UKGovernmenthasalsocommittedtopublishingadviceonhowdirectorsshouldinterprettheir
dutiesregardingtheconsiderationofsocialandenvironmentalmatters.27Othercountrieshavenot
followedtheUKsapproachwithregardtoexpandingdirectorsdutiestoincorporatetheconsideration
ofabroadergroupofstakeholders.

Globalisation
Twenty years ago, environmental and social issues were for activists. Ten years from now, they are
likely to be amongst the most critical factors shaping government policy and corporate strategy.
Twentyyearsago,wewereaseriesoflocalstatesandcountries,nationalandregionalbusinessesthat
werepartiallyconnected.Tenyearsfromnow,wewillbegloballyinterdependentasindividualsand
organisations.28 International investment by MNEs is central to corporate globalisation, which
inevitablywillleadtoadesiretoharmoniselawsandreportingpractices.MNEstendtobeafocalpoint
with regard to CSR due to their size and complexity and the fact that they operate in more than one
jurisdictioneitherdirectlyorviasubsidiaryentitiesorinallianceswithotherentities.
ThemostdifficultissuesarisingwithregardtoCSRoccursinpoorcountrieswithweakandsometimes
corrupt governments. Many MNEs are larger and more economically significant than the developing
nations in which they operate. Whilst MNEs may facilitate the stimulation of a developing nations
economy,theyalsohavethecapabilityofabusingtheirpowerinhostcountrieswhichareofteneither
unable or unwilling to hold MNEs accountable for inappropriate conduct. Poorly regulated
international investment in these environments distorts local development, fuels conflict and may
contributetoabusesoccurring.29Accordingly,strengtheningcrossbordercorporateaccountabilityand
moreeffectiveinternationalregulationofMNEsisnecessary.Inaddition,developingcountriesshould
beencouragedtostrengthentheirpoliticalandeconomicsystemstoenabletheirgovernmentstomore
effectivelyregulatetheprivatesector.
Historically international law remedies in relation to MNEs are considered weak. This weakness is
exacerbatedwhendomesticlawsareincapableofholdingMNEsaccountableforinappropriateconduct
inotherjurisdictions.Thisissueisfurthercomplicatedwhenthenationallawinthecountrywherethe
inappropriate conduct occurred is either inadequate or the judicial system or government is not
motivatedtocommenceactionagainsttheoffendingcorporation.Theseissueshaveledtoacommon
criticism the MNEs operate outside the law and therefore no forum capable of holding MNEs
accountableforinappropriateconductexists.
Newnationalandinternationalprecedentsarechallengingthehistoricalview.IntheUS,theAlienTort
Claims Act (ATCA) of 178930 is being used in a number of cases to sue MNEs for violations of

<http://www.governance.co.uk/current/2006/200611ne1.htm>at3December2006.
<http://www.governance.co.uk/current/2006/200611ne1.htm>at3December2006.
28 PriceWaterhouseCoopers,CorporateResponsibility:Strategy,ManagementandValue,
<http://www.pwc.com/extweb/pwcpublications.nsf/docid/B4677BCF42BFBE5985257124002432FC>at22June
2006.
29 DavidMepham,BeyondCorporateResponsibilityRethinkingtheInternationalBusinessAgenda
<http://www.policynetwork.net/php/article.php?sid=4&aid=282>at30June2006.
30 TheAlienTortClaimsActistheonlyUnitedStateslawpermittingMNEswithsignificantassetsintheUStobe
heldaccountablefortheirunethicalbehaviorelsewhereintheworld.Passedin1789bytheFirstCongressof
theUnitedStates,itenablesvictimsoftorture,slavery,ethniccleansing,andothercrimesagainsthumanityto
putthecorporationsthatareresponsibleontrialinAmericancourts.Inrecenthistory,plaintiffshaveuseditto
26
27

CORPORATESOCIALRESPONSIBILITY:IMPACTOFGLOBALISATION

internationallawincountriesoutsidetheUS.FollowinganumberofcasesintheUK,MNEsmaynow
belegallyliableforhumanrightsviolationsabroadwhereaccesstolocaljusticeisrestricted.31Although
lastinginternationalprecedenthasnotbeenestablishedwithregardtomattersconsideredundereither
the ATCA or UK cases, the actions are a positive step towards corporate liability with regard to
inappropriateconductbycorporationsabroad.
Duringthelastthreedecadestherehasbeenagrowthinbilateralarrangementswhichhavetakenthe
formofinvestmentprotectionandpromotiontreaties.Thesetreatiesreflectthedesireofhomecountry
governmentstoprotecttheinvestmentofcompaniesaboardandthedesireofhostcountriestoattract
foreigndirectinvestment.Earlytreatiesconcludedwithdevelopingcountriesemphasisedinternational
trade and protection of citizens aboard rather than foreign direct investment. However, from 1960
onwards treaties have focused on foreign direct investment. A criticism of these treaties is that the
treatieshavemarginalimpactonthedecisionmakingoftheMNEandhostcountry.
Most attempts to regulate CSR have resulted from public international bodies and non government
organisations (NGOs). Codes of conduct relating to CSR matters such as bribery, environment and
human rights are voluntary and not legally binding, however, may represent subtle diplomacy by
NGOs towards a consensus amongst governments which in turn may be embodied in national
legislation or universally accepted standards. The trend in developed nations is to support the
reporting of CSR without introducing legislation to mandate CSR practices, instead, governments
appear to be content relying on initiatives introduced and championed by NGOs such as the OECD,
UNandGRI.

OECDGuidelinesforMultinationalEnterprises
TheOECDGuidelinesforMultinationalEnterprises(theGuidelines),firstadoptedin1976,arethe
longeststandinginitiativeforthepromotionofhighcorporatestandards.TheGuidelinescontain
voluntaryprinciplesandstandardsforresponsiblebusinessconductinareassuchashumanrights,
supplychainmanagement,disclosureofinformation,anticorruption,taxation,labourrelations,
environment,competition,andconsumerwelfare.TheGuidelinesaimtopromotethepositive
contributionsofMNEstoeconomic,environmentalandsocialprogress.

suegovernmentofficialsinvolvedinhumanrightsviolations,suchasformerPhilippinedictatorFerdinand
MarcosandformerSerbianwarleaderRadovanKaradzic.Mostrecently,theAlienTortClaimsActhasbeen
usedtofilesuitsagainstmultinationalcorporationscomplicitinegregioushumanrightsabuses.Forexample:
BurmesevillagershavesuedUnocal,whosecorporateheadquartersisjustoutsideLongBeach,California,
onchargesthatitspartnertheBurmesemilitarymurderedandrapedvillagersandforcedthemto
workwhileassistingwithUnocalspipelineproject.
NigerianvillagerssuedChevronTexacoforitscomplicityinmurdersatpeacefulprotestsataChevronoil
platformandtherelateddestructionoftwovillages.
ElevenIndonesianvillagersaresuingExxonMobilforhumanrightsabusescommittedbyitssecurity
forces.
SubcontractorsinIraqinvolvedinthetortureandmistreatmentofprisonersarebeingheldaccountable
underthelegalauthorityoftheAlienTortClaimsAct.
<http://www.uua.org/actions/immediate/04tort.html>at7July2006.
31 HouseofLordsjudgmentsincasesinvolvingRioTintoinNamibiaandThorChemicalsandCapeplcinSouth
Africa.Inaddition,aclauseintheUKAntiTerrorism,CrimeandSecurityAct2001hasopenedupthepossibility
thatUKcompaniesandnationals,includingcompanydirectors,couldbeprosecutedintheUKforcorruption
offencesabroad,regardlessofwhethertheyinvolvepublicofficialsortheprivatesector.
DavidMepham,BeyondCorporateResponsibilityRethinkingtheInternationalBusinessAgenda
<http://www.policynetwork.net/php/article.php?sid=4&aid=282>at30June2006.

CORPORATESOCIALRESPONSIBILITY:IMPACTOFGLOBALISATION

TheGuidelinesexpressthesharedvaluesof39countriesconsistingofthe3032OECDmembersand933
nonmembercountries.Theadheringcountriesarethesourceofalmost90percentoftheworlds
foreigndirectinvestmentandarehometomostmajorMNEs.
WhileobservanceoftheGuidelinesisvoluntaryforcompanies,adheringgovernmentsmakeaformal
commitmenttopromotetheirobservanceamongMNEs.Themostconcreteexpressionofthis
commitmentistheNationalContactPoint(NCP),oftenagovernmentoffice,whichisresponsiblefor
encouragingobservanceoftheGuidelinesandforensuringthattheGuidelinesarewellknownand
understoodbythenationalbusinesscommunityandbyotherinterestedparties.Criticsconsiderthe
NCPmechanismweakandineffective.Accordingly,ithasbeensuggestedthattheGuidelinesandin
particulartheNCPsbestrengthened.TheGuidelinesarepartofabroaderpackageofinstruments,
mostofwhichaddressgovernmentresponsibilityandpromoteopenandtransparentpolicy
frameworksforinternationalinvestment.34

GlobalSullivanPrinciples
TheGlobalSullivanPrinciples(GSP)releasedin1999consistsofeightprinciples.Itisavoluntarycode
ofconductseekingtoenhancehumanrights,socialjustice,protectionoftheenvironmentandeconomic
opportunityforallworkersinallnations.TheGSPoriginatedwithsuggestionsmadebyReverendDr.
LeonSullivanthataglobalcodebederivedfromtheoriginalSullivanPrinciples(whichwere
instrumentalinthefighttodismantleapartheidinSouthAfrica).TheGSPweredevelopedin
consultationwithleadersofbusiness,governmentandhumanrightsorganisationsinvariousnations.35

ILOTripartiteDeclaration
TheILO,foundedin1919,isaspecialisedagencyoftheUnitedNationsfocusingonlabourissuesand
has178memberstatestodate.TheILOTripartiteDeclaration(Declaration)alsoseekstoencouragethe
positivecontributionofMNEstoeconomicandsocialprogressandstates,interalia,that:

MNEsshouldobeynationallaws,respectinternationalstandards,honorvoluntarycommitments
andharmonisetheiroperationswiththesocialaimsofcountriesinwhichtheyoperate36;

governmentsshouldimplementsuitablemeasurestodealwiththeemploymentimpactofMNEs;
and

indevelopingcountries,MNEsshouldprovidethebestpossiblewages,conditionsofwork
(includinghealthandsafety)andbenefitstoadequatelysatisfybasicneedswithintheframework
ofgovernmentpolicies.

WhilsttheprinciplesexpressedintheDeclarationareaddressedtogovernments,employersand
workersorganisationsinbothhomeandhostcountries,theprinciplesarevoluntary37.

OECDcountriesareAustralia,Austria,Belgium,Canada,CzechRepublic,Denmark,Finland,France,
Germany,Greece,Hungary,Iceland,Ireland,Italy,Japan,Korea,Luxembourg,Mexico,Netherlands,New
Zealand,Norway,Poland,Portugal,SlovakRepublic,Spain,Sweden,Switzerland,Turkey,UK,US.
33 ThenonOECDcountriesareArgentina,Brazil,Chile,Estonia,Israel,Latvia,Lithuania,RomaniaandSlovenia.
34 OECDGuidelinesforMultinationalEnterprises<http://www.answers.com/topic/oecdguidelinesfor
multinationalenterprises>at25June2006.
35 FAQsabouttheGSP<http://www.unpri.org/files/pri.pdf>at29June2006.
36 CauxRoundTable,InternationalLabourOrganisation,
<http://www.cauxroundtable.org/ILOTripartiteDeclarationofPrinciplesconcerningMultinationalEnterprisesand
SocialPolicy.html>,at26June2006.
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CORPORATESOCIALRESPONSIBILITY:IMPACTOFGLOBALISATION

UNinitiatives
(i)UNGlobalCompact
Introducedin1999,theUNGlobalCompact(Compact)isavoluntaryinitiativebasedon10core
principlesrelatingtohumanrights,labourstandards,theenvironmentandanticorruption.The
Compacts10principlesenjoyconsensusacrossmanyjurisdictionsandarederivedfrom:

TheUniversalDeclarationonHumanRights;

TheInternationalLabourOrganisationsDeclarationonFundamentalPrinciplesandRightsat
Work;

TheRioDeclarationonEnvironmentandDevelopment;and

TheUnitedNationsConventionAgainstCorruption.

CriticsarguethatasadherencetotheCompactcannotbeenforcedtheCompactmaybeabused.The
CompactitselfstatesthatacompanysparticipationdoesnotmeanthattheCompactrecognisesor
certifiesthatthesecompanieshavefulfilledtheCompactsprinciples.
TheCompactisconsideredtobetheworldslargestcorporateresponsibilityinitiative,with3000
corporateparticipantsandotherstakeholdersinvolved.38

(ii)UNNorms
The UN Norms on the Responsibilities of Transnational Corporations and other Business Enterprises
withregardtoHumanRights(UNNorms)attemptstoestablishacomprehensivelegalframeworkfor
the human rights responsibilities of companies. The Norms which endeavour to standardise existing
standardsarebasedsolelyonexistinginternationallawregardinghumanrightsandlabourstandards
anddealwithissuessuchasworkersrights,corruption,securityandenvironmentalsustainability.The
UNNormsstatethatMNEshaveanobligationtopromote,securethefulfilmentof,respectandprotect
humanrightsrecognisedininternationalandnationallaw.TheUNNormsisnotaformaltreatyunder
internationallawandthereforeisnotlegallybinding.

(iii)PrinciplesforResponsibleInvestment
The Principles for Responsible Investment (PRI), issued in April 2006, is a voluntary initiative which
strivestoidentifyandactonthecommongroundbetweenthegoalsofinstitutionalinvestorsandthe
sustainable development objectives of the UN. The audience targeted is the global community,
however the focus is on the eleven largest capital markets, with a goal of protecting the long term
interestsoffundbeneficiaries39.ThePRIwerebornefromtheperceiveddisconnectbetweencorporate
responsibility, and the behaviour of financial markets, which are often influenced by shortterm
considerationsattheexpenseoflongertermobjectives40.
The PRI, developed by leading institutional investors and overseen by the UN Environment
Programme Finance Initiative and the UN Global Compact, includes environmental, social and
TripartiteDeclarationofPrinciplesconcerningMultinationalEnterprisesandSocialPolicy,
<http://www.ilo.org/public/english/standards/norm/sources/mne.htm>at26June2006.
38 TheUNSecretaryGeneralRemarksatthelaunchofthePrinciplesforResponsibleInvestment,NewYorkStock
Exchange,26April2006<http://www.un.org/apps/sg/sgstats.asp?nid=2006>at1July2006.
39 UNEPFinanceInitiative<http://www.unepfi.org/work_programme/investment/principles/index.html>at1
July2006.
40 PrinciplesforResponsibleInvestment<http://www.unpri.org/files/pri.pdf>at1July2006.
37

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CORPORATESOCIALRESPONSIBILITY:IMPACTOFGLOBALISATION

governancecriteria,andprovidesaframeworkforachievinghigherlongterminvestmentreturnsand
moresustainablemarkets.TheUNSecretaryGeneralhasstateditismyhopethatthePrincipleswill
helptoaligninvestmentpracticeswiththegoalsoftheUN,therebycontributingtoamorestableand
inclusiveglobaleconomy.41

GlobalReportingInitiative
TheGlobalReportingInitiative(GRI),convenedin1997,wasestablishedtoimprovesustainability
reportingpractices,whileachievingcomparability,credibility,timeliness,andverifiabilityofreported
information.42TheGuidelines,firstreleasedinJune2000,revisedin2002witharevisiondueduring
2006,seektodevelopgloballyacceptedsustainabilityreportingguidelines.Theseguidelinesarealso
voluntaryandareusedbyorganisationsinreportingontheeconomic,environmental,andsocial
dimensionsoftheiractivities.TheGuidelinesareincreasinglybecomingauniversallyacceptedmethod
ofharmonisingCSRreportinginvariousjurisdictions.Approximately1000organisationsworldwide
incorporatetheGRIsGuidelinesintotheirreporting.

Conclusion
Globalisation and the significant growth and influence of the private sector have highlighted issues
such as CSR and the regulation of MNEs. Whilst considerable progress has been made in holding
companiesaccountablefortheirenvironmentalperformance,progressonsocialissuessuchashuman
rights,corruption,corporatetransparencyandlabourstandardshasbeenmorelimited.Althoughthere
havebeenattemptstowidenthescopeofstakeholdersdirectorsmayconsider,formostcompaniesCSR
consistsofvoluntaryinitiativesdesignedtoenhancethesocialimpactoftheirpractices,withsomeof
these initiatives actively promoted by government. Many corporations have incorporated CSR into
their codes of conduct, sought to work closely with NGOs in formulating corporate policy in
undeveloped countries, subscribed to the UN Global Compact and other UN initiatives, and have
incorporatedGRIguidelinesintotheirfinancialreporting.Howeverdespitetheseinitiatives,therestill
remains a gap pertaining to legal accountability relating to CSR practices, particularly in relation to
MNEoperationsinjurisdictionsoutsidetheirhomestate.
There are many factors as to why one solution addressing the issue of corporate accountability
pertaining to CSR, particularly with regard to directors duties, may not be feasible, such as (i) the
sovereignty of the many nations that make up the global community, (ii) diversity of legislation,
regulation,cultureandbusinesspracticesofthevariousjurisdictionsinwhichcorporationsoperateand
(iii)thesignificantuncertaintyastohowtoregulatetheconductofcorporationsinforeignjurisdictions.
Thereisnoeasysolution,howeverthisdoesnotmeanaworkablesolutionconcerningthesemattersis
notpossibleorfeasible.
Itisincreasinglyapparentthatinmodernindustrialisedeconomies,profitmaximisationisfacilitatedby
ademonstratedapproach to corporate responsibility.Paradoxically, focusingsolely on the traditional
viewofshareholdervaluemayhaveanegativeimpactonacompanysabilitytomaximiseshareholder
value by placing too much emphasis on short term performance, whilst neglecting longer tem
opportunities and issues.43 To maximise the benefits of international investment corporations must

PrinciplesforResponsibleInvestment<http://www.unpri.org/files/pri.pdf>at1July2006.
GlobalReportingInitiative,Guidelines,<http://www.globalreporting.org/guidelines/2002/dannex1.asp>at26
June2006.
43 CharteredSecretariesAustralia,SubmissiontoCAMACinrelationtothediscussionpaperCorporateSocial
Responsibility(24February2006)at3.
41
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CORPORATESOCIALRESPONSIBILITY:IMPACTOFGLOBALISATION

operate within a clear framework of governance, underpinned at national and international level by
law and regulation enforceable either by the companys home state or by a court of international
standing,eg,theInternationalCourtofJustice.Itadditionnationallawsshouldbewidenedtoenable
corporations to be held accountable for inappropriate conduct, undertaken either by themselves or
entities controlled by them directly or indirectly, in jurisdictions outside their home state. It may be
naivetobelievethatameaningfulsystemofglobalnormscouldexistwithoutformaldeterrence.
Although most jurisdictions appear determined to keep CSR on a voluntary footing, regulatory
changes are focusing on encouraging higher standards on CSR at home and abroad.44 In Australia,
there is significant resistance from the corporate community and other interest groups regarding the
introduction of prescriptive regulation regarding CSR practices and reporting. However, despite the
argumentsforandagainstprescriptiveregulationregardingCSRmatters,thethreatofcriminalorcivil
sanctions acts as a powerful deterrent. Robert Hinkley suggests that rather than adopt a prescriptive
approach, corporate legislation can still be amended by imposing openended duties on corporate
directors to ensure companies do not (i) damage the environment, (ii) abuse human rights, (iii)
undertake actions that are detrimental to public health and safety, (iv) engage in conduct that is
detrimentaltothewelfareofcommunitiesor(v)isdetrimentaltoemployeesrights.45TheUKreforms
attemptstocodifythisrequirementintodirectorsduties.
Although to date much regulation and law enforcement has been anchored in national economic
systems,futureinternationalregulationmayemergefromagradualconvergenceofnationalpractices46
and the strength of initiatives undertaken by NGOs. Globalisation by its very nature should enable
international dialogue and cooperation by various jurisdictions to facilitate the development of
regulatoryframeworkscapableoftranscendingnationalboundaries.47Theissueofaccountabilityina
global context is complex and manifold. However, it may not be a huge conceptual leap to extend
statelawstorequireparententitiesandhomestatestobearsomeresponsibilityfortheforeignactivities
ofentitiescontrolledbythoseparententities.48Considerableincentivesexistforcompaniestoconduct
their operations in a socially responsible manner. The challenge is to implement a workable mix of
public and private initiatives which are consistently enforced and capable of ensuring companies are
encouragedtoactinasociallyresponsiblemannerwhilstbeingaccountableinalegislativecontextfor
inappropriateconduct.

JenniferAZerk,MultinationalsandCorporateSocialResponsibilityLimitationsandOpportunitiesinInternationalLaw
(2006,CambridgeUniversityPress)309.
45 RobertHinkley,TwentyEightWordstoRedefineCorporateDuties:TheProposalforaCodeofCorporate
Citizenship,MultinationalMonitorVol2,Nos7&8(July/August2002).
46 OECDSecretaryGeneralDonaldJohnstonPromotingCorporateResponsibility:TheOECDGuidelinesfor
MultinationalEnterprisesInternationalInvestmentPerspectives(2004).
47 JenniferAZerk,MultinationalsandCorporateSocialResponsibilityLimitationsandOpportunitiesinInternationalLaw,
(2006,CambridgeUniversityPress)309.
48 Ibid.
44

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