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Radu Mares, Global Corporate Social Responsibility, Human Rights and Law: An
Interactive Regulatory Perspective on the Voluntary-Mandatory Dichotomy, 1 TRANSNAT'L
LEGAL THEORY 221, 286 (2010).

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Mares, R. (2010). Global corporate social responsibility, human rights and law: An
interactive regulatory perspective on the voluntary-mandatory dichotomy.
Transnational Legal Theory, 1(2), 221-286.

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Radu Mares, "Global Corporate Social Responsibility, Human Rights and Law: An
Interactive Regulatory Perspective on the Voluntary-Mandatory Dichotomy,"
Transnational Legal Theory 1, no. 2 (July 2010): 221-286

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Radu Mares, "Global Corporate Social Responsibility, Human Rights and Law: An
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Interactive Regulatory Perspective on the Voluntary-Mandatory Dichotomy."
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(2010) 1(2) Transnational Legal Theory 221-285

Global Corporate Social Responsibility,

Human Rights and Law: An Interactive
Regulatory Perspective on the
Voluntary-Mandatory Dichotomy

Radu Mares'


Corporate social responsibility (CSR) is often understood as an inherently voluntary corporate

endeavour that inhabits the area stretching 'beyond compliance' with law. However, a growing
number of writers and practitioners deem this understanding of CSR inaccurate and unproductive.
In this article, the notion of CSR as 'beyond compliance' is questioned on logical, descriptive and
normative grounds; once freed from its conceptual straitjacket, CSR research is encouraged to look
more deeply into the mutual interaction between corporate voluntarism and law. When it comes
to the regulation of CSR the key notion is that of discretion not voluntarism: regulating CSR is not
about replacing voluntarism with hard law, but about guiding discretion through law in such away
that it neither overrides discretion nor leaves it untouched. For such purposes lawmakers employ
various strategies to summon the regulatory potential of companies and their stakeholders. When
it comes to CSR's impacts on law, effects are discernible at various stages, from law-making to law-
specification to law- enforcement; responsible business practices contain benchmarks of due
diligence and may enhance local capacities in host countries. Following illustrations and analysis
of such interactions, CSR is characterised not merely as 'self-regulation' but as an emerging norm,
resulting from a bottom-up process, that interacts with legal systems in both home and host
countries. Furthermore this article identifies two legal baselines key to the business and human
rights area: the 'corporate baseline', regarding the responsibility of a parent company for its
affiliates' operations where human rights abuses take place, and the 'governance baseline', regarding
the legal protections in the host country available to rightholders. In the context discussed herein,
the fact that both of these baselines have barely been sketched renders the characterisation of CSR
as a matter of 'beyond compliance' with law problematic. Instead CSR should be analysed for its
role in the legal institutionalisation of the baseline. The specific context of respecting human rights
in developing countries throughout the operation of large corporate networks such as multinational
enterprises (MNEs) requires an attuned concept of CSR and an informed understanding of CSR's
relation to law.

Senior Researcher, Raoul Wallenberg Institute of Human Rights and Humanitarian Law, Lund, Sweden.
222 TransnationalLegal Theory


It has been noted, variously, that 'the distinction between "voluntary" and "mandatory"
is somewhat artificial',' that the 'dichotomy between mandatory and voluntary
approaches has been exaggerated'" that 'the mandatory-versus -voluntary debate is
considered largely irrelevant', 3 that 'one of the most important misconceptions about
corporate responsibility concerns its relationship with the law', 4 that 'the distinction
between voluntary and mandatory measures ... itself has grown stale and unhelpful',
that the corporate social responsibility (CSR) discussion should not be 'reduced to the
controversial issue of voluntary will versus regulation', 6 that 'the false choice of "voluntary
vs mandatory" initiatives' needs to be consciously rejected,7 that there is a 'false
dichotomy [and] a great deal of debate, much of it pointless, about global regulation
versus purely voluntary measures', and that 'it is high time to get beyond the tired dogma
of "voluntary versus mandatory"'.) Others have written that the 'debate about voluntary
initiatives versus regulatory approaches is highly polarized and ... oversimplifies or
ignores important issues'i0 and that 'the sharp distinction between voluntary codes and
binding law is inaccurate, undesirable, and unnecessary'." Furthermore, some consider

1 Business and Human Rights: SRSC (UN Special Representative of the Secretary General) Consultation,
Summary Report, Improving the Hunan Rights Petformance ofBusiness througli fulti-StakeholderInitiatives,
The Hague, Netherlands, 6-7 November 2007 (hereinafter SRSG Consultation 2007), All websites accessed 13 lay 2010,
unless otherwise indicated.
2 Bill Bane, 'Defining Corporate Complicity in Human Rights Abuses', SocialFunds, 22 February 2006,
3 Business & Human Rights Seminar Report, Exploring Responsibility and Complicity, 8 December 2005, 5.pdt.
4 Business in the Community, FTSE Group, Insight nvestment, Rewarding Virtue: Effective BoardAction on
CorporateResponsibility,2005, p 12.
5 John Ruggie, 'Standards and Practices: Guiding Principles for Business and Human Rights' Ethical
Corporation,6 September 2007.
6 German Council for Sustainable Development, Corporate Social Responsibility: Perspectives and Further
Developmnt. CorporateSocial Responsibility in a Globalized World, draft recommendation on dialogue,
Berlin, 2006, sw.nachhaltigkeitsrat.dc/fileadmin/user upload/dokumente/projekte/csr/DraftDialogue
7 Aron Cramer, Wecome to Leading Perspectives:A Trends and Solutions Publicationfrom Business for Social
Responsihiliy (Business for Social Responsibility, 2004).
8 Jim Baker, 'Social Responsibilities of Business' in Managing Globalisation: Challenges for Business and
Governients (Commonwealth Business Coincl, 2002),
445&Language= EN.
9 Halina \ ard, Legal Issues in Corporte Citizenship (Swedish Partnership for Global Responsibility, 2003) v.
1T Georg Kell, Dilemiias in CompetitIveness, Commniunity and Citizenship, Business and Humtan Rights
Seminar -'Toiard Universal Business Princip es' (London School of Economics and Political Science, 22
Mlay 2001),!NewsandEvents/speeches-and-statements/london school of
11 Sol Picciotto, 'Rights, Responsibilities and Regulation of International Business' (2003) 42 ColumbiaJournal
ofTransnationalLaw 131, 145.
Global CorporateSocial Responsibility,Human Rights and Law 223

that one of the 'most important strategic question[s] [is] the relationship of largely
voluntary MSIs [multi- stakeholder initiatives] to the sphere of regulation'.12 To put it
differently, 'the big question is how to scale up individual CSR initiatives to a more
systemic level'" 3 that includes accounting for the roles of governments therein.
Multinational enterprises (MNEs) are an important driver and beneficiary of
economic globalisation even as their operations are sometimes associated with abuses of
human rights. 14 What can be done to prevent and mitigate such human rights impacts
and ensure responsible business practices? So far, the largest companies already voluntarily
do something about their impacts and associate their voluntary conduct with CSR. In
this context, the debate has tended to be about leaving voluntarism to its own devices
(treated as CSR) versus bringing in hard laws (treated as external regulation and, as such,
non-CSR). One side would argue in favour of leaving voluntarism to flourish and even
strengthening local laws (in host countries) but would reject international treaties and/or
home country regulations laying down corporate obligations. The other side would point
out that voluntarism is inherently limited and, because the decision-making power of
and in relation to MNEs does not generally reside in host countries in the Global South,
some international and home country regulation is indispensable.15
So the debate regarding voluntarism versus legal regulation has both ripened and
stalled. To move away from this dichotomy, there are two burning questions. Is there a role
for hard law, and if so, what function either could or should law play in CSR? Conversely,
does voluntarism have an impact on law, and if so, in what ways does or can voluntarism
strengthen regulatory regimes? Answering these two questions is decisive for articulating
a regulatory understanding of CSR. The two-way interaction between voluntarism and
law needs to be better documented and analysed.
A lot of the CSR debate has centred on the responsibilities of large MNEs. From a
human rights perspective, MNEs, which coordinate, influence and even control affiliates
overseas, create threats to human rights but also fresh opportunities for those concerned
with human rights. The threats are well reflected in the concern of non-governmental
organisations (NGOs) that voluntarism is ineffective and displaces much-needed
legislation-being merely and fundamentally another facet of a deregulation agenda and
laissez-faire neoliberalism. The point of this article is not to question and qualify the real
and justified concerns voiced by the critics of CSR from civil society quarters.16 But the

12 SRSG Consultation 2007 (n 1).

13 Carnegie Council on Ethics & International Affairs, The Impact of Corporationson Global Governance 2004.
14 Corporations impact the full range of human rights. See Michael Wright, Corporationsand Human Rights:
A Survey of the Scope and Patterns ofAllcged Corporate-RelatedHuman Rights Abuse, Addendum to the
SRSG's Report to the Human Rights Council (A/HRC8/5), 2008,
15 Both of these positions are illustrated in section 2.4 below in the context of the EU.
16 There is no question that the voluntary commitments of some companies are nothing more than lip service,
attempts at free-riding and a stalling technique, as the de-listings made by the UN Global Compact
224 TransnationalLegal Theory

article equally acknowledges the potential for change represented by the practices and
reasoning of leading companies.
The term 'CSR' can be equated from a regulatory perspective with 'self-regulation'
and with voluntary, sound 'risk management' from a business perspective. For the
purposes of this article, CSR is understood not only as corporateself-regulationbut as the
accumulation of responsiblebusinesspracticeswith effects on the legal system. This will be
a treatment of CSR from a socio-legal regulatory perspective which is broader than the
perspective usually taken in discussions of self-regulation. In this paper 'corporate
voluntarism' covers various phenomena starting from individual self-regulation by a
company to collective self-regulatory initiatives by an industry (collective business self-
regulation) to corporate participation in multistakeholder initiatives.
The CSR practices of a limited number of large companies, mostly large
multinationals, are of significance to the analysis in this article. Despite the important
CSR developments of the last 15 years, they are still a minority, still islands of good
practice among numerous reported instances of abuses. Even companies' practices are
sometimes not entirely consistent with their own CSR statements. It is fair to say that the
practices of proactive MNEs have generated not only controversy but also partial
treatment ('partial' in the sense of incomplete and/or biased study and analysis). Perhaps
it is time to take stock and refocus the CSR lens. The decentralised interactions in the
CSR area have resulted in more detailed CSR standards, accumulating experience and
emerging norms, a multitude of multistakeholder networks, and supporting
organisational infrastructure. All of these have complex and varied implications for law
that need to be understood better.
There is a group of companies, often large multinationals, that started as pariahs but
which now have roughly a decade of experience with CSR. From their statements, it is
clear that these businesses are ready to discard simplistic, silver-bullet approaches to CSR
implementation. They seem prepared to adopt more complex ways to deal with CSR. It
is this aspect of voluntarism, as a crucible for experimentalism-with its potential
contribution to systemic change-and this group of companies-leading companies able
to act as potent agents of change-that warrants being better highlighted, analysed and
documented in CSR literature.
This article reflects on the interaction between CSR and law in such a way as to better
understand how and where corporate voluntarism can strengthen the operation of
regulatory regimes at the same time as law can reinforce CSR's goal of implementing
responsible business practices. As one begins to question the simplistic and unwarranted
separation of law and corporate voluntarism proposed by the notion of CSR as 'beyond

attest. By October 2009 more than 1,000 companies had been de-listed from the CC for lack of reporting.
Global Compact,'1,000 Companies Delisted by UN Global Compact Since 2008', 7 October 2009, unglobal 10 07.html.
Global CorporateSocial Responsibility,Human Riglits and Law 225

compliance', one is invited to ponder the empirical interaction of corporate practices and
legal frameworks in host countries, in home countries and at the international level.
The structure of this article is as follows. Section 2 presents the contexts in which the
voluntarism-law dichotomy has arisen, within the frame of both developing-country and
developed- country contexts. The two-way interaction between CSR and law will be
analysed in section 3. This section ponders the compatibility of having hard law and
corporate voluntarism operate simultaneously and how law can institutionalise corporate
voluntarism. Section 4 considers the reverse interaction, whereby business practices
strengthen legal regimes at various stages, from law-making and adoption of laws to
specification of vaguely worded regulations, to enforcement of law. Section 5 concludes
with conceptual observations about the necessity and methods of moving beyond 'beyond
compliance' as a proper treatment of CSR in the human rights context.


To state the obvious, companies and the voluntarism of leading MNEs operate not in a
vacuum but in a more or less effective regulatory framework designed to protect human
rights. This has immediate implications for CSR and its relationship with law. Many areas
where business could behave responsibly are already regulated. So, what is the relation of
CSR with law? Does CSR start where law ends? The often-encountered definition of CSR
as 'beyond compliance' hints in this direction. But is it really so simple? When one takes
a closer look at law, with its gaps, ambiguities and underenforcement, this understanding
of CSR seems to lose its edge.
Before commencing the discussion, an observation regarding terminology is apposite.
'CSR' can be about the incentives-whether legal, market or ethical incentives-that
compel a company to adapt its behaviour to new expectations. This is the great battle
between mandatory versus voluntarism, between legally binding regimes and voluntarily
assumed responsibilities, between corporate responsibility versus corporate
accountability. However, CSR is also about what a company should concretely do
to address its human rights impacts, about human rights standards and the measures
a company can adopt whether voluntarily or in fulfilment of a legal obligation.1 In
this quest for clarification of the responsibilities,the voluntary- mandatory dimension
is irrelevant. There is thus a distinction between the incentives for CSR ('why'
be responsible in the first place) and the content of CSR ('what' to do in order to be
deemed a 'responsible' company).

7 International soft law instruments identifying relevant human rights standards if not precise corporate
obligations attached to each ofthese areas. However, multistakeholder forums specify standards and identify
good practices applicable, thus better specifying various corporate responsibilities.
226 TransnationalLegal Theory

2.1 In Defence of CSR as 'Beyond Compliance'

What animates the statements presented at the beginning of this article? Why is the
Imainstream' perception of CSR as 'beyond compliance' criticised? After all, there is a
commonsense basis for saying that corporate voluntarism and CSR begin where law ends:
logically, responsibility cannot be legally mandated and accepted voluntarily at the same
time. Or, to put it differently, '[h]ow is it possible for the law to make companies
accountable for going beyond the law?"' The presence of a legal obligation would seem
to make the discussion properly about corporate liability, with CSR being reserved for
situations where legal obligations are absent.
Second, government policymakers most often define CSR expressly as 'beyond
compliance', as the definitions used by the UK' 9 and EC2 0 attest. There, legal compliance
is the 'baseline', the minimum expected from all businesses, while CSR represents
voluntary attempts on the part of enlightened businesses to go the extra mile towards
sustainable development and social inclusion, to innovate and improve performance
above that baseline. As Rory Sullivan notes, self-regulation encourages companies to move
beyond compliance while free-riders must still comply with the baseline. 2 1 it is no
accident that lawmakers and writers in a particular context, that of industrialised western
countries with strong legal systems, embrace the notion of CSR as 'beyond compliance'.
Third, 'beyond compliance' also reflects the roles that law and voluntarism should
have in a political democracy. Critics of CSR, from Milton Friedman to anti-globalisation
NGOs, argue against the expansion of corporate self regulation and maintain that it is the
legitimate responsibility of the state, through law, to devise a minimum baseline
containing basic protections, such as human rights. To Friedman, corporate responsibility
and the idea of self-regulation that goes beyond legal obligations is about business
executives abusing their powers to the detriment of shareholders and consumers, of the
free market system and ultimately of society.2 To NGOs, self-regulation is just a strategy
to pre-empt and displace necessary public regulation; rather than encourage ineffective
self-regulation, law should curtail corporate discretion. 2 3 The use of scarce resources in

18 Christine Parker, 'Meta-Regulation: Legal Accountability for Corporate Social Responsibility' in Doreen
McBarnet, Aurora Voiculescu and Ton Campbell (eds), The New Corporate Accountability: Corporate
Responsibility and the Law (Cambridge University Press, 2007) 207.
19 CSR consists of 'voluntary actions that business can take, over and above compliance with minimum legal
requirements', uk/policess/business- sectors/low- carbon- business- opportunities/sustainable-
20 See section 2.2 below.
21 Rory Sullivan, 'Enron: One Step Forward or Two Steps Back for Effective Self- Regulation?' (2002) 8Journal
of CorporateCit eoship 92-95.
22 Milton Friedman, 'A Friedman Doctrine: The Social Responsibility of Business is to Increase its Profits'
New York Times Magazine, 13 September 1970, reprinted in Jon Burchell (ed), The CorporateResponsibility
Reader (Routledge, 2008) 84-90.
23 Christian Aid, Behind the Mask: The Real Face of CorporateSocial Responsibility (Christian Aid, 2004) 5.
Global CorporateSocial Responsibility,Human Rights and Law 227

society should not be left to the whims of corporate executives, Friedman would say, while
NGOS would argue that taking responsibility for the societal impacts of companies
should not be left to the conscience of the same executives. Instead, political processes
led by democratically elected representatives should lay down the necessary regulatory
frameworks. The difference would of course be that Friedman as a libertarian committed
to market solutions would accept considerably less scope for public regulation than NGOs
aiming for a strong regulatory framework.2 4 Howvever, from both of these standpoints,
self- regulation and law, the private and public, should be kept separate to avoid triggering
dangerous dynamics.
In brief, the traditional view of CSR as 'beyond compliance' does make sense from
logical, descriptive and normativepoints of view. Yet, this is only partly so. First, as will be
shown throughout this article, CSR as 'beyond compliance' builds on an idealised view
of how law actually constrains behaviour, so that the logical simplicity of 'beyond
compliance' soon falls apart. Second, on the descriptive count, the legal baseline taken as
given in developed countries simply does not exist in developing countries given the gaps
and underenforcement of human rights regulations; to define CSR as operating above
and beyond a workable baseline misrepresents the operation of both law and CSR, at least
in many developing countries. The reality is that the legal baseline is still being worked
out and the impacts of businesses and CSR on that baseline are important. Finally, on
the normative side, although the separation of corporate voluntarism (and the authority
granted to corporations that politically sanctioned voluntarism entails) from political
and regulatory processes is a sound desideratum in the long term, the pressing realities
in developing countries require decision-makers to make an effort to think creatively
about CSR and how it could be useful in a move towards the rule of law and good
governance. 2 5
By contesting the 'beyond compliance' paradigm, this article aims to guard against the
dangers of reductionism of the multi-faceted phenomenon that is CSR. To be sure, it is
worth sending a clear message, including through the definition of CSR, that a baseline
is drawn as a non-negotiable minimum to be set by lawmakers and also to seek to enlist
corporate help in attaining various policy goals. This understanding preserves law's

24 Radu Mares, The Dynamics of CorporateSocial Responsibilities (Martinus Nijhoff/Kluwer, 2008) 76-80.
25 'Secretary- General Proposes Global Compact on Human Rights, Labour, Environment, in Address to World
Economic Forum in Davos', Press Release, SG/SM/688l, 1 February 1999,
1999/19990201.sgsm6881.html. A cynic would argue that the lack of separation already exists with or
without CSR. Still one should consider that CSR does not worsen the situation by giving businesses and
governments a pretext to abdicate their responsibilities and make the human rights situation worse. See
Ruggie's concept of responsibility to respect as distinct from governmental responsibility specifically
designed to prevent strategic gaming by companies and governments alike: Protect,Respect and Remedy:
A FrameworkforBusinessand Human Rights, Report of the Special Representative of the Secretary- General
on the issue of human rights and transnational corporations and other business enterprises, A/HRC/8/5,
2008 (hereinafter Protect,Respect and Remedy), para 55,!Ruggie-report-7-
228 TransnationalLegal Theory

domain and supplements the public policy toolbox. Companies would thus be
discouraged from strategically (mis)using the CSR idea and from using philanthropy to
offset breaches of the law. Nevertheless, one could ask again how accurate and productive
is the concept of CSR as 'beyond compliance' in the specific situation of developing
countries with weak regulatory systems. What if in this context CSR is actually about the
baseline itself? What if a great part of what counts in CSR is about the practices of leading
businesses actually defining and helping to shift the baseline applicable to other
companies? It is unproductive to hold an unrealistic assumption about law (at both the
formative and implementation stages), particularly in developing countries, and to
overlook dynamics that can strengthen the law and the functioning of legal regimes.

2.2 Legal Baselines of CSR in the Human Rights Context

The baseline in the business and human rights area can be understood in two senses. The
first baseline refers to responsibilities within the corporate group. The reigning legal
principle here is that of separation of entities that makes it impossible for the parent
company to be held liable for the misconduct of its affiliates except in very limited
circumstances. 2 6 Attempts to shake the legal principle of limited liability by arguing for
enterprise liability have had dim chances of success. 2 7 However, the CSR movement has
devised a multitude of tools that enable business groups to perform due diligence and
thus to better address their impacts on society. The practices of leading businesses
facilitate the acceptance and institutionalisation of an emerging duty of care assumed by
the parent companies for abuses occurring in their affiliates' operations. The CSR
movement, voluntary as it has been, actually attempts to establish a baseline where none
exists: the 'corporate baseline', that is, the protection of human rights through reallocation
of responsibilities within the business group. Even if legal compulsion is currently
unattainable, CSR creates opportunity by defining benchmarks that empower
stakeholders to assess and demand due diligence from the parent company. Corporate
voluntarism contributes to raising this baseline from non-existence (reflected in the
principle of limited liability that leaves the parent off the hook) towards an elevated
position (reflected in an emerging duty of care of the parent).
The second baseline refers to the legal and other protections available to rightholders
in host countries. Leaving aside for a moment corporate self-regulation, protective
mechanisms include properly written and enforced laws, international treaties and other

26 Exceptionally, courts impute the subsidiary's conduct to the parent when the principle of legal separation
is abused, for example to perpetrate fraud or to avoid legal obligations. See CorporateComGlicity & Legal
Accountability, Report of the International Commission of Jurists Expert Le gal Panel on Corporate
Complicity in International Crimes, Civil Remedies vol 3, 2008, http://icj.orgI MG/Volume_3pdf.
27 'Symposium: The Changing Face of Parent and Subsidiary Co rton Et s t Liability'
(2005) 37 ConnecticutLaw Review 637.
Global CorporateSocial Responsibility,Human Rights and Law 229

instruments, and civil society activism. Corporate self-regulation, if effective, can be an

important addition to the mix and protect affected people where other safeguards have
failed. But there may be more to CSR than self-regulation filling the gap left wide open
by public regulation. The question then is simply this: given the underdevelopment and
ineffectiveness of regulatory frameworks in poor countries, how does or could CSR
influence positively other (state) mechanisms able to deliver protection? How does CSR
influence the 'governance baseline', that is, protective mechanisms that already exist to
safeguard rightholders? There could be mutual reinforcement among CSR and various
policy channels such as host state regulations, capacities of state institutions, capacities of
workers and communities, and even the terms of international trade and the
implementation of official development assistance. Should commercial exchanges and
CSR facilitate this governance baseline, it will represent a step towards a fairer, ethical
How the practices of proactive companies relate to these two baselines-the corporate
baseline and the governance baseline-is critically important in the context of human
rights and large MNEs. When the latter operate in developing countries, CSR, so often
conceived as 'beyond compliance', becomes mainly about achieving compliance, that is,
obedience of national laws and observance of international human rights standards. As
will be illustrated, this seeming paradox is due to an uncritical, wholesale move of CSR
thinking from one context to another. In order to understand how this move occurs, when
discussing the relationship of CSR with law, it is instructive to look back to the context
in which CSR thinking emerged, in developed countries.?'

2.3 CSR in Developing and Developed Countries

Since the 1960s, calls have been made, particularly in the US, for corporations to assume
responsibilities regarding the pressing issues of the day, such as environmental protection,
discrimination in employment, inflation, and urban decay.29 Without idealising the
regulatory regimes of developed countries and the manner in which they have responded
to such very pressing and serious issues, 3 0 it can still be said that the regulatory gaps are
of a different order of magnitude when compared with the governance gaps in less

28 Josep M Lozano, LauraAlbareda, Tamyko Ysa, Heike Roscher and Manila Marcuccio, Government, and
Corporate Social ResponsibilitY: Public Policies Beyond Regulation and Voluntary Compliance (Palgrave
Macmillan, 200 8 ); Andre Habisch, Jan Jonker, Martina Wegner and Rene Schmidpeter (eds), Corporate
Social Responsibility across Europe (Springer, 2005).
29 Friedman (n 22).
30 For a flavour of social responsibility debates, see the litigation involving the Securities and Exchange
Commission in the 1970s when it was asked to require broader corporate disclosure in the area of
environmental protection and equal opportunities practices. NaturalResources Defense Council, Inc v SEC,
389 F Supp 689 (DDC 1974); NaturalResources Defense Council Inc v SEC, 606 F 2d 1031 (DC Cir 1979).
For discussion, see Mares (n 24) 180-3.
230 TransnationalLegal Theory

developed countries. The regulatory framework in developed countries is strong and

offers an enforceable baseline with few cracks, and even those can hopefully be filled using
democratic, regulatory processes. This is a matter regarding the 'governance baseline'.
Second, in developed countries, the necessity of going up the corporate hierarchy
after the parent company is less pressing because both affiliate and parent company are
equally subject to the enforceable laws of that country. But in less developed countries the
situation is different: going after the subsidiary, a company incorporated in the host state
and subject to an often ineffective local legal system, is an exercise in futility that has
forced a growing number of plaintiffs to seek justice in the home country where the
parent company is incorporated.31 Thus the case must then be made against the core
company based abroad, which remains well protected by the limited liability principle
against its affiliates' wrongdoings. As a difference, in developed countries CSR refers less
to the responsibility of core companies that are expected to influence their entire business
group, and more to the responsibility of each and every affiliate taken individually-
extending even to the level of individual plants (eg an industrial plant expected not to
pollute) as well as to small and medium enterprises (SMEs). Each of these entities should
run their own activities in compliance with the law. Beyond that lies CSR, commendable
voluntary contributions to society. In sum, to a much larger extent than in the national
CSR context, international CSR has to cover the entire corporate hierarchy and seek to
establish the responsibility of the parent company. This is a matter for the 'corporate
baseline'. Given that neither international laws nor home state regulations create legal
obligations on the parent company for its affiliates' activities, the nature of its conduct
when influencing affiliates is 'beyond compliance' (with applicable home country laws),
but still the purpose of its conduct is obedience (of affiliates) with law (local laws) and
observance of international human rights standards. CSR understood as beyond
compliance hardly helps in clarifying these issues.
Third, the idea of self-regulation or private regulation as an alternative or
complement to public law has received much conceptual attention in the specific context
of environmental protection. There, detailed regulations began to be adopted in
developed countries from the 1970s. These environmental regulations have delivered
important benefits, but latterly there have been serious concerns that such 'command
and control' legal approacheS32 have reached their limits and have entered the phase of
'diminishing returns'.33 The environmental sphere has therefore been a prime laboratory

31 See eg the litigation under the US Alien Tort Statute; dozens of cases are described at the Legal Accountability
Portal of the Business & Human Rights Resource Centre, !egalPortal.
32 This strategy is so named because the government 'commands' the target levels tor pollution reduction
while also 'controlling' the means for reaching said targets. Public authorities set standards while monitoring
and enforcing compliance. Keith Pezzoli, 'Environmental Management Systems (EMSs) and Regulatory
Innovation' (2000) 36 California Western Law Review 335.
33 EricW Orts, 'Reflexive Environmental Law' (1995) 89 Northwestern UniversitY Law Review' 1227.
Global CorporateSocial Responsibility,Human Rights and Law 231

for testing new regulatory approaches such as disclosure laws, voluntary agreements,
industry self-regulation and so on. The benefits of self-regulation such as cost-
effectiveness and rapidity34 and the drawbacks of law (law of a command and control
type) have been identified. 5 Given that CSR is commonly understood as having three
subject-matter 'legs'-cenvironmental, social and economic-and that the environmental
leg of corporate responsibilities is the oldest and usually seen as the most developed, the
self-regulatory rhetoric and thinking of the environmental realm permeates the social
side of CSR.36 This is not always warranted or productive.
Self-regulation has different connotations as a policy and regulatory option in the
environmental field from its application in the human rights field. In the human rights
area, not only has the governance baseline not reached its limit, it hardly even exists given
the weakness of regulatory protection in the South. Laws in host countries are needed
more than ever. Furthermore, also notable is the difference regarding the solution to
environmental versus human rights problems. On one hand, in environmental protection
the solution is mainly technological, and it is mainly the business sector that is able to find
new ways to supply cleaner products and processes and to deliver some badly needed
technological solutions. 3 Self-regulation might sometimes be superior to some laws that
unintentionally inhibit innovation in better production processes by solidifying a
compliance-oriented mindset around dated technological processes and standards. On
the other hand, human rights abuses in affiliate operations have deep roots in poverty in
its various forms, in local elites and their entrenched interests, in weak institutions and

34 Voluntary compliance measures are widely believed to offer savings by reducing resource costs for the
regulatory authority, redirecting resources from lawyers and other defence costs into measures that protect
the environment, and reducing demands on the judicial system (including courts and administrative
tribunals). Commission for Environmental Cooperation, 'Canada' in Voluntary Measures to Ensure
Environmental Compliance: A Revii and Analsis of North American Initiatives, 1998, p 8. According to
Sullivan (n 21), 'self- regulatory initiatives such as corporate codes of conduct can facilitate partnerships
between companies, public authorities and other stakeholders while also offering business benefits such as
reduced regulatory requirements, increased flexibility,better-designed and -implemented regulation and the
potential for environmental goals to be met more cost-effectively and quickly than possible tinder traditional
command and control approaches. However the implications of voluntary approaches can include reduced
governmental control over the environmental dimensions of business, reduced accountability of business,
the weakening of legal frameworks and the risk of reductions in environmental quality.'
35 Sullivan (n 21) notes that the drawbacks of 'command and control' regulations arise because they are 'costly
and inefficient, [they] stifle innovation, [are] inflexible, create expensive monitoring and record-keeping
requirements, focus on single environmental media rather than taking an integrated view of the
environment and focus on end-of-pipe solutions rather than cleaner production'. However, such a system
'offers advantages such as providing a consistent assessment framework, transparency, minimising
"arbitrary" decisions and having high predictability and high dependability, if adequately enforced'.
36 See below, text accompanying nn 62 and 63.
37 Lawmakers can only facilitate this by setting the level of acceptable impacts on the environment, by
stimulating innovation through incentives, by establishing a level playing field, and by moving society
towards sustainable consumption.
232 TransnationalLegal Theory

rule of law, and in lack of economic opportunities as well as market pressures and
structural obstacles lying beyond host countries' borders. Innovation is needed, like in the
environmental area, but the solution is not a technological one38 and there are significant
differences in terms of which regulatory options are best suited to the job.
The idea of CSR as corporate voluntarism going 'beyond compliance' with law has
clearly been influenced by the aforementioned range of factors: the context of developed
countries with their advanced legal systems and the challenges of environmental
protection. However, the responsibilities of MNEs and their impacts on human rights in
developing countries present a fundamentally different context. Understanding the
interaction of CSR with the legal system is significantly more pressing. This article
proposes a focus on the corporate baseline and the governance baseline as the key to
redefining the concept of CSR and adapting it to the human rights context. The existing
human rights (legal) protections built in the last half century define rights and also state
responsibilities, but not corporate responsibilities. This protection, struggling but
nevertheless evolving even as it is currently illusory in many poor countries, can be further
eroded by commercial exchanges and market pressures or, on the contrary, be strengthened
through well-thought-out CSR strategies and insightful research. Moving towards the
positive scenario requires confronting and discarding the idea of CSR as 'beyond
compliance' as an unwarranted reductionist approach to a complex phenomenon.

2.4 Illustration of CSR in Developed Countries: The European Union

There is probably no better illustration of the reasoning of policymakers regarding CSR

in a developed country context than the discussions within the European Union (EU)
that have been ongoing since 2001. The European Commission's (EC's) position has been
decidedly in favour of CSR as purely voluntary: 'a concept whereby companies integrate
social and environmental concerns in their business operations and in their interaction
with their stakeholders on a voluntary basis.'3 9

(a) Aims of CSR Policy within the EU

The purpose of the EC's CSR strategy is to summon the voluntary contribution of the
business sector in order to promote the integration of marginalised people into the labour
market, to minimise environmental impacts, and to make European companies and

38 John Ruggie, 'Introductory Remarks' in CorporateResponsibility for Human Rights: Concepts, Examples,
Approaches, Berlin Conference Report, 21 January 2010, p 11,
39 Commission of the European Communities, Cornnunication from the Coninsion concerning Corporate
Social Responsibility: A Business Contribution to Sustinble'Devlop ment, COM (2002) 347 final, p 3
(hereinafter EC White Paper 2002).
Global CorporateSocial Responsibility,Human Rights and Law 233

economies more competitive in the global'knowledge economy'. Thus, at a general level,

the EC 'believes that CSR has the potential to contribute to various common goals, such
as social cohesion, economic competitiveness and a more rational use of natural
resources'. 40
For EC policymakers CSR appears as a new avenue able to contribute to various
priority areas. The European Parliament clearly explained CSR as a contribution from
business to combating social exclusion 4 1 and environmental degradation, and that one of
its purposes is to act as an additional instrument for managing industrial change and
restructuring (lifelong learning, the organisation of work, equal opportunities).42 Indeed,
CSR as a means to fight social exclusion was conceived in this way in other developed
countries, including Germany,43 Denmark 4 4 and the UK, 4 5 before the EU's CSR debates
In the social segment of CSR, where human rights are generally discussed, the EC
focus has primarily been on the labour market: increasing access to it and improving its
functioning. The EC stated: 'CSR relates to quality employment, lifelong learning,
information, consultation and participation of workers, equal opportunities, integration
of people with disabilities, anticipation of industrial change and restructuring. Social
dialogue is seen as a powerful instrument to address employment-related issues.' 4 6
Verheugen, then Vice-President of the European Commission, clearly positioned CSR as
an important element in the Strategy for Growth and Jobs: 'the way in which businesses

40 (accessed 1 November 2008).

41 Indeed the first major CSR document in the EU was entitled The Maifesto at Enterprises against Social
Exclusion. It was launched in 1995 by a group of European companies in the presence of European
Commission President Jacques Delors. This was the coiporate response to the appeal to mobilisation made
by the EC through the White Paper Growth, Competitveness and Employment. See Lozano et al (n 28) ch 3.
42 European Parliament, lotion for a European PaliamentResolution on Corporate Social Responsibility:
A NewPartnership(2006/2133(INI)),
+ REPORT+A6-2006-0471+0+DOC+PDFm+V0//EN.
43 Lozano et al (n 28); Habisch et al (n 28).
44 Denmark has focused on CSR in the context of the 'socially inclusive labour market'. Through wage
subsidies and mentor schemes the Danish state and companies pursue 'the task of attaching and retaining
disabled, non-ethnic citizens and citizens with reduced capacity for work in the labour market'. It was only
in 2008, through its new CSR strategy, that Denmark broadened its focus on CSR from the national to the
international level, including an unequivocal emphasis on the protection of labour rights in suppliers'
operations. Danish Government, Action Plan for CorporateSocial Responsibility, May 2008,
45 Moon explains: 'In the case of the Conservative government this was in the highly dramatic circumstances
of mass unemployment, urban decay and social unrest ... The early years of the Thatcher government saw
a more conspicuous effort to encourage CSR to address training and work experience opportunities needs
of the unemployed ... The government recognised that without the help of business it was not able to
provide training opportunities in this scheme on which 350,000 unemployed young people participated in
its first year alone.' Jeremy Moon, Government as a Driver ofCorporateSocial Responsibility,ICCSR Research
Paper No 20, 2004, p 14.
46 EC White Paper 2002 (n 39) 7.
234 TransnationalLegal Theory

operate is an important factor in the kind of growth and jobs that are created ... Through
their employment diversity policies, for example, enterprises can recruit more people
from traditionally marginalised groups and so help to create more integrated labour
markets.' 4
CSR can also contribute to other goals such as integrating new EU countries:
'Accelerating CSR practices in the new EU Member States and Candidate Countries as a
vehicle for harmonization, competitiveness, and social cohesion in the EU.' 4 8
Furthermore, responsible business practices are also seen as a way to strengthen the
economic competitiveness of the EU bloc in the world: 'In the Directorate-General for
Enterprise and Industry we have a particular interest in knowing more about the links
between CSR and competitiveness. These links might exist at a micro-level (individual
enterprises), and also at a systemic level (sectors and regional/national economies).' 4 9

(b) Policy Options to Promote CSR: Commission vs Parliament

To achieve these goals the EC has committed itself to a decidedly voluntary approach to
CSR. Policy measures include education, research, consumer information, support of
multistakeholder initiatives, awareness-raising and exchange of best practices.?0 As
Verheugen explained, 'In encouraging the uptake of CSR as part of the Growth and Jobs
Strategy, the Commission is determined not to saddle enterprises with new obligations
and administrative burdens. We have raised the profile of CSR and we are raising our
expectations of what the business community can deliver in this field, but we are firmly
committed to respecting the voluntary nature of CSR.'' The EC thus considers that 'an
approach involving additional obligations and administrative requirements for business
risks being counter-productive and would be contrary to the principles of better

47 Gtinter Verheugen, Foreword in Opportunity and Responsibility: How to Help More Small Businese to
Integrate Social and En vironmntal Issu s into what they Do, European Expert Group on Corporate Social
Res ponibility and Small and Medium-sized Enterprises, Directorate- General for Enterprise and Industry,
48 UNDP and EC, Regional Conference for Business and Stakeholdcrs, 'CSR in the New Europe: Challenges
and Solutions', Brussels, 26 June 2007, xAwww o2OUNDPo
49 EC White Paper 2002 (n 39).
50 European Commission, Implementing the Partnershipfor Growth and jobs: MakingEuropea Pole ofExcellence
on CorporateSocial Responsibilit, COM (2006) 136 final, 2006_0136.pdf
(hereinafter EC White Paper 2006).
51 Verheugen (n 47).
52 EC White Paper 2006 (n 50) 1.
Global CorporateSocial Responsibility,Human Rights and Law 235

Another peculiarity is that, in order to achieve the abovementioned policy goals, the
EC casts its CSR net wide and expects responsible business practices from companies of
all sizes. In the fight against social exclusion the EU appeals to large businesses and SMEs
alike.13 Procedural regulations (eg obligations to issue CSR reports) are understood to
be more burdensome and therefore more counterproductive for SMEs than for large
businesses. So, due to the policy goals relevant in the EU area, the EC's emphasis on
smaller companies is much stronger and thus differs from the CSR movement's main
focus of the last 15 years on large companies, often MNEs. As a result, regulation is
deemed a less fruitful policy option. One cannot fail to notice that the EC uses this
concern for SMEs more generally to militate against regulating CSR, in respect of large
and small businesses alike.
The purpose of this section has so far been to flesh out CSR in its original context in
developed countries, with the debate in the EU as an illustration. The policy goals and
preferred policy means are now clearer. It should be noted that 'Global CSR', that is, the
international dimension of CSR, has nevertheless occupied a rather marginal role in the
EC discourse. Attention to Global CSR has come belatedly in EC documents14 despite a
quite early realisation and wide acknowledgement that the potential of CSR is greater in
weakly governed countries and the need for responsible business practices is greater
there.-' For companies, the EC envisages a range of measures, none of them in the shape
of legally-binding obligations, that should create an 'enabling environment' for CSR that
Iencourages companies to create innovative CSR measures by providing for flexibility,
competition and bottom-up market-led developments'.56 The EC does envisage legally-
binding measures, but at the inter-state level: introducing social clauses in development
assistance (Cotonou Agreement) and bilateral trade (EU 'Generalised System of
Preferences Plus') 5 so that host states implement international human rights
conventions. 8 A similar possibility could target not only states but businesses directly
through public procurement, which could make access to public contracts conditional on
reaching certain standards of responsible practice. However, public procurement is not

53 The EC notes that 99% of all European businesses are, in fact, SMEs: 'Facts and Figures about the EU's
Small and Medium Enterprise (SME)',!
index en.htm; see also EC White Paper 2002 (n 39) 11-12.
54 Early references in the 2001 Green Paper remained underdeveloped: 'Companies should pursue social
responsibility internationally as wvell as in Europe, including through their whole supply chain.' European
Commission Green Paper, Promoting a European Framework for Corporate Social Responsibility, 2001
(hereinafter EC Green Paper 2001).
55 European Parliament (n 42) para 60.
56 EU Multi Stakeholder Forum on CSR, Final Results & Recomrnfdations, 2004, p 18, http://circa.europa.
eu/irc/empl/csr eu multi stakeholderuforum/info/ dataen/CSR% 20Forum%20final20report.pdf.
57 Council Regulation (EC) No 980/2005 of 27 June 2005 applying a scheme o generalised tariff preferences.
58 EC White Paper 2006 (n 50) 8.
236 TransnationalLegal Theory

mentioned at all in the 2006 White Paper, a step back from the 2002 Paper.59 This is
attributable to business opposition to all forms of regulatory intervention.60
The Commission and like-minded businesses consider any regulation of CSR as
inappropriate. The arguments put forward are numerous. Regulating CSR would add
Ired tape' and administrative burdens, especially for SMEs, in conflict with the 'better
regulation' agenda of the Commission. Mandating the use of certain procedures could be
ineffective and result merely in 'paper compliance', and also undesirable, as itwould stunt
much needed innovation generated by leading businesses. It would, on this view, also be
counterproductive, due to a premature convergence of existing voluntary standards, and
possibly have anticompetitive effects if incentives through selective public procurement
were created.61 More generally, it would be incompatible with the voluntary nature of
CSR. 62
So the Commission, joined by businesses,6 3 has promoted a decidedly voluntary
definition of CSR, while the less influential European Parliament, as well as many civil
society groups, have called for regulatory measures able to stimulate responsible conduct.
These positions on the role of regulators in CSR have become entrenched, as the European
Multistakeholder Forum (2004-6) revealed. 64 Thus a European Parliament (EP) report
noted with concern 'the fundamental polarisation between those amongst business and
other stakeholders who want to see CSR subject to transparency requirements laid down
through external verification and/or legislation with an explicit role for stakeholders, and
those who want to see CSR as a business-only led exercise which should evolve without
public policy input beyond speeches, press conferences and awards ceremonies'. 65

59 'Making access to subsidies for international trade promotion, investment and export credit insurance, as
well as access to public procurement, conditional on adherence to and compliance with the OECD guidelines
for multinational enterprises, while respecting EC international commitments, could be considered by EU
Member States and by other States adherent to the OECD Declaration on International Investment.' EC
White Paper 2002 (n 39) 23.
60 'Employee organisations disagree with the establishment of these kinds of linkages [because] this meant
moving away from the recognition of CSR as voluntary practice and misusing policies and instruments for
aims they were not conceived for.' EU Multi Stakeholder Forum on CSR (n 56) 8.
61 Note though that the EC wrote: 'The EU public procurement rules [have] to be seen in the light of the
sustainability requirement of Article 2 of the EC Treaty. The interpretative communications of the
Commission ... have clarified how Community law offers numerous possibilities to public purchasers who
wish to integrate social and environmental considerations into public procurement procedures, whilst at the
same time ensuring respect for the principle of value for money for taxpayers and equal access for all EU
suppliers.' EC White Paper 2002 (n 39) 21-22.
62 EU Multi Stakeholder Forum on CSR (n 56) 8.
63 'UNICE invites the European Commission to take account of the final Forum report, stressing that public
policies must respect the voluntary nature of CSR, support dynamism and the development of a competitive
edge and should not be mixed up with policies pursuing different objectives.' 'Voluntary vs Mandatory to
Remain Point of Contention in CSR' EurActiv News, 23 August 2004, vww.euractivxcom/en/socialeurope/
voluntary-vs-mandatory-remain-point-contention-csr/article- 128568.
64 EU Multi Stakeholder Forum on CSR (n 56) 14.
65 European Parliament (n 42).
Global CorporateSocial Responsibility,Human Rights and Law 237

In order to leave this counterproductive polarisation behind and move towards the
middle ground, the EP articulated a twofold strategy. First, the Parliament would like to
see progress on standard- setting and therefore have policymakers facilitate convergence,
that is, set legal expectations by drawing on existing market standards: 'By backing an
essentially voluntaristic approach, "picking winners" amongst CSR initiatives (although
not individual companies), and rejecting "one size fits all", we can adopt an approach
more relevant to today's debate, but which still carries large support within the business
community itself.' 66 Secondly, the Parliament wants stronger incentives for companies
to meet the standards of responsible behaviour. The EP writes:

To 'depolarize' our own debate on mandatory versus voluntary approaches, the European
Parliament should confine itself to repeating our positions of 2002 and 2003 for a single piece
of new legislation for integrated social, environmental and financial reporting by companies-
at least for larger companies. No more, no less. It is the ultimate 'appropriate regulation' simply
requiring transparency, so that voluntary, market-based responses are enabled amongst
potential company recruits, investors and consumers. 6

This twofold regulatory strategy is thus composed of a standard-settingprocess that draws

on CSR standards that have been developed voluntarily by businesses in conjunction with
their stakeholders, and incentives that combine regulatory force with non-legal pressures
generated by already active players in CSR such as investors, consumers, intermediary
market institutions, civil society groups and so on. This regulatory strategy proposed by
the EP is compellingly clear and concise. It essentially reflects the interaction of CSR with
the regulatory sphere. There is a role for hard law here, although transparency laws would
be effective only in conjunction with social and market forces, not independently. The
manner in which policymakers may draw on voluntarily adopted standards to harmonise
them and in which law will coexist with social forces and corporate discretion renders the
law-voluntarism dichotomy perpetuated by a 'beyond compliance' concept of CSR
unhelpful and counterproductive to the project of understanding regulatory dynamics.
For the EC, MNEs, with their international reach, have opened a new transnational
channel through which the values of human rights can be promoted and disseminated.61
This channel is an important implementation tool for EU policy goals, but it is neither
the only one nor necessarily the preferable one; indeed, inter-state links in the form of
development assistance and international trade are clearly mentioned by the EC in the
Global CSR discussion. The EC's preference for not introducing new regulations and
leaving CSR in the realm of corporate voluntarism backed by social and market

66 Ibid.
67 Ibid.
68 See below, n 72.
238 TransnationalLegal Theory

pressures, 69 against a backdrop of already high regulatory activity within the EU zone,
clearly frames CSR as a 'beyond compliance' notion. No less true is that the EU has looked
at CSR as a policy tool able to facilitate good governance and human rights protection
abroad-that is, in developing countries. This important change in terms of the
beneficiary of CSR could have had other policy consequences if the Commission had not
been artificially consistent in its insistence on CSR as strictly voluntary. As far as the EC
is concerned, CSR is defined and will be kept in clinical isolation from law.
On the ground, however, CSR has become as much about self-regulation as it is about
its potential implications for the emergence of the two aforementioned legal baselines: one
for due diligence within the MNE group and another for the host country institutions
protective of rightholders affected by business activities. In CSR circles there is now a
growing awareness of the interaction of CSR and law around these baselines. To grasp
this interaction CSR should be conceived not merely as autonomous self-regulation (and
CSR as 'beyond compliance' with legal obligations) but as a transformative force 0 for
organisations (impacting the 'corporate baseline') and societies (impacting the
'governance baseline'). The next two sections review facets of the mutual interaction
between CSR and law.


3.1 Coexistence of Law and Voluntarism

We must tackle two preliminary questions before looking more closely at the regulation
of CSR. First, why would law intervene in CSR regimes? The reasons are well known and
relate to typical weaknesses of self-regulation, mainly non -participants ('free-riders') and
credibility ('whitewashing'). Non -participants gain the benefits of a better image of an
industry that self-regulates but do not incur the costs of actually improving performance;
this limits the reach of self-regulation and also places committed companies at a
competitive disadvantage that weakens their incentives to improve. The credibility of self-
regulation is in question particularly when looking back at the early phases of CSR: codes

69 Despite the calls to regulate disclosure of information (CSR reporting) and thus enable assessments from
market actors and other stakeholders, the Commission decided that it 'will examine, in consultation with
all relevant stakeholders, the need for turther voluntary actions to achieve the obiectives of transparency
and information for consumers including on issues of public health'. EC White Paper 2006 (n 50) 7.
70 Sullivan (n 21) writes: 'if self-regulatory regimes are considered purely in terms of their ability to achieve
high standards of performance, there is limited evidence to suggest that they will enable such a goal to be
achieved. However, if self-regulation is seen as facilitating or initiating change, the terms of the debate
Global CorporateSocial Responsibility,Human Rights and Law 239

of conduct were simply public relations attempts with no, or very limited, genuine
intention or effort to change behaviour. Nowadays, self-regulatory initiatives that are
neither participatory nor transparent lack public credibility. In sum, law could solve or
alleviate the problems raised by 'free-riders' and the spectre of 'whitewashing'.
Second, is it still possible to speak of corporate voluntarism if hard law gets involved?
Numerous writings have dispelled the misconception that CSR is an exclusively business-
driven phenomenon with governments having no role whatsoever to play therein;7I
indeed governments have encouraged CSR through a variety of policies. 7 2 Clearly
policymakers have a stake in CSR and a unique capacity to create an enabling
environment for CSR.73 However, would hard law not displace corporate voluntarism
altogether? The tendency in CSR circles of pitting voluntarism-'self-regulation' by its
proponents or 'de-regulation' by NGO critics-against law answers the question in the
affirmative and creates the impression that law and voluntarism cannot coexist in a CSR
regime. However, these terms of debate envisage law of a 'command and control' type
based exclusively on deterrence emanating from the state. In the environmental arena,
where the term is most used, this type of law see a public authority setting standards
('command') while public regulatory agencies and courts of law monitor and enforce
compliance ('control' by threat of negative sanctions).74 Such law would indeed displace

71 As explained by the EC: 'In principle, adopting CSR is clearly a matter for enterprises themselves, which is
dynamically shaped in interaction between them and their stakeholders. Nevertheless, as there is evidence
suggesting that CSR creates value for society by contributing to a more sustainable development, there is a
role for public authorities in promoting socially and environmentally responsible practices by enterprises.'
EC White Paper 2002 (n 39) 7.
72 Tom Fox, Halina Ward and Bruce Howard, Public Sector Roles in StrengtheningCorporateSocial Responsibility:
A Baseline Study, International Institute for Environment and Development, World Bank, 2002; The CSR
Navigator:PublicPoliciesin Africa, theAnericas,Asia and Europe, CTZ & Bertelsmann Stiftung, 2007, www. events!9.1 news archives/2007 10 24/CSR Navigator short final.pdf;
Paul Hohnen (Special Adviser, Global Compact), Govern mecntal 'Soft Power' Options: How governments can
use the 'soft power' art of enco iragement and persuasion to advance corporate engagement on social and
environmental issues: A DiscussionPaper,2007, july 6 hohnen soft power
discussion-paper.pdf; S Wood, 'Environmental Management Systems and Public Authority in Canada:
Rethinking Environmental Governance' (2002-3) 10 Buffalo Environmental LawJournal 129.
73 An OECD study noted that government involvement in 'voluntary' initiatives for corporate responsibility
has been extensive-including legal and regulatory incentives, tax expenditure in the NCO sector,
contributions to compliance expertise and moral suasion. OECD, PublicPolicy and Voluntary Initiatives:
What Roles have Governments Played?, Working Papers on International Investment 2001/4 (OECD
Directorate for Financial, Fiscal and Enterprise Affairs, 2001), p 6,
74 Darren Sinclair, 'Self-Regulation Versus Command and Control: Beyond False Dichotomies' (1997) 19 Law
& Policy 529; Pezzoli (n 32).
240 TransnationalLegal Theory

3.2 'Regulated Self-Regulation'

This, however, simply does not account for the diversity of laws regularly employed to
shape behaviour. The result can only be a partial account and a distorted view of the
interaction of corporate voluntarism with law. If states take a regulatory role in
institutionalising CSR, they can conceivably regulate internal processes and structures
within corporate groups; the law would aim for sound management systems. Lawmakers
can mandate social disclosure, so that companies report publicly on their social and
environmental impacts. Regulation can further support actors external to the company
in order to obtain an enabling environment for CSR. These are the main practical
methods of regulating-internal processes, reporting, and enabling environment-that
would conceptually amount to a move from self-regulation to regulated self-regulation,
which often implies the use of procedural regulation. Such procedural regulation does
not displace/overridediscretion, but guides it.
The keyword in understanding the regulation of CSR is not 'voluntarism' but
'discretion'. 'Voluntarism' is a concept opposite to regulation and unable to capture the
variety of incentives to behaviour. However, 'discretion' comes in degrees and can coexist
with regulation; it helps one to grasp the variety of incentives, their interaction and the
new regulatory dynamics that follow. So CSR is essentially not about voluntarism but
about negotiating sensible degrees of discretion that enable companies and their
stakeholders to move towards responsible business practices and that prevent counter-
productive regulatory interventions. Such counter-productive regulation is well known
from other areas of law and deserves particular attention given that regulating CSR tends
to use similar, procedural-type regulation.7-
Regulatory theory clarifies the perfectly compatible coexistence that law and CSR
could have. Thus 'regulated self- regulation' is defined as 'a pattern in which outer
boundaries of acceptable behaviour as well as stipulations of acceptable procedures for
defining codes and standards are determined by public authorities, thus creating a space
of variation in which state and non-state actors bargain and cooperate to set more detailed
rules and standards'.76 Or 'enforced self-regulation' refers to situations where self-
regulation is subject to governmental structuring or oversight.77 As Sullivan has noted,
self- regulation occurs against a backdrop of regulation and policies, and self-regulation
does not necessarily provide industry with total freedom to determine its actions. One
needs to understand the particular regulatory space.7" With these observations in mind,

75 Mares (n 24) 177-230.

76 Morten Ougaard, 'The CSR Movement and Global Governance' in Sunita Singh-Sengupta (ed), Business-
Social Partnership:An InternationalPerspective (Aalekh, 2004) 142.
77 Robert Baldwin and Martin Cave, Understanding Regulation: Theory, Strategy and Practice (Oxford
University Press, 1999) 39.
78 Sullivan (n 21).
Global CorporateSocial Responsibility,Human Rights and Law 241

it seems more fruitful to understand CSR as part of a broader rule-making process

through which legal baselines are established and defined, and where both voluntarism
and law have a simultaneous role to play.

3.3 Scaling CSR Up, and the 'Tipping Point'

These considerations increasingly and more explicitly surface in CSR circles. The
relationship of CSR with law is being redefined. CSR thinking has moved to a new level,
and this is out of necessity. The notion of reaching the tipping point, whereby corporate
practices change on a large scale, through voluntarism alone is illusory in most industries
in the globalised economy. Having a significant impact-that is, an impact commensurate
with the size of the problems in human rights protection-through corporate efforts
alone, in isolation from the policies of states and other stakeholders, is similarly illusory.
Along these lines, Professor John Ruggie, one of the architects of the UN Global Compact
and its trademark voluntary 'learning approach', notes: 'At the risk of sounding like a
heretic, I would contend that private governance arrangements, no matter how successful,
can take us only so far. They will remain relatively small islands of progress unless their
achievements are rooted in, and generalized through, the sphere of public authority.'79 On
another occasion Ruggie has considered that '[t]he big question is how to scale up
individual CSR initiatives to a more systemic level'. For him the 'central challenge'
revolves around '[h]ow ... current CSR initiatives [can] be scaled up and connected, in
order to establish an interlocking network of regulatory instruments and governance
structures'. In a sobering view of the limits of CSR, he states that, '[a]t the end of the day,
none of these efforts of aggregation and leveraging can be successful without
governments, because governments are the global embodiment of representative
On a similar note, George Kell, Executive Head of the UN Global Compact Office,
notes the potential of leading companies to help drive system-level change and refers to
CSR achieving 'critical mass', but goes beyond that: 'Corporate responsibility has the
potential to bring about positive change on a much larger scale ... But to get there, the
CR [corporate responsibility] movement will need to focus on two things simultaneously:
achieving critical mass across all industry sectors, and connecting private actions with
public policy efforts so that root causes of problems are tackled. CR cannot operate in

79 John Ruggie, The Global Compactand the Challenges of GlobalGovernance,Annual Meeting, Global Compact
Learning Forum, 11-13 December 2002, p 3, wwAy events/9.6/iruggie
,0 Ruggie continues: 'Yet, at the same time, when devising strategies for change, it is not always wise to begin
with governments. Now that I am no longer at the UN, I can confess to that heretical thought.' Carnegie
Council (n 13).
242 TransnationalLegal Theory

isolation any longer.'81 It is noteworthy that proponents of CSR acknowledge the potential
of CSR as well as its limits. 8 Indeed, the necessity of understanding the law-CSR
interaction derives directly from the limits of CSR. Kell also writes:

Most of the dilemmas we face at the intersection of business and human rights arise from
governments' inability or unwillingness to meet their human rights obligations ... Voluntary
initiatives are not a panacea to this problem. They are primarily an effort to fill the gap and
therefore must be formed and fashioned in such a way as to simulate improvement in public
policy so that the root causes of the problem are tackled.83

Importantly, in studying the aforementioned interaction, attention must be paid not only
to the limits of what corporate voluntarism alone can achieve but also to unintended
effects that private regulation can have on public regulation and government. For
example, an IFC study concluded:

There is a need to engage in deeper analysis of the relationship between national laws and the
norms of the burgeoning body of CSR-related codes of conduct. There is little understanding
as yet of practical ways to take advantage of the additional pressure for compliance that can
come from CSR tools while ensuring that public sector regulatory capacity is not undermined
and avoiding the creation of inappropriate tensions between national and transnational

Thus, supporters of CSR have been aware of the possibility that CSR may remain an
isolated island of good practice without having an impact commensurable with the scale
of the problems. Prominent writers in CSR have hinted that it is both appropriate and
overdue to reinsert CSR in its governance context.s A GC report, for example,
acknowledged that 'to achieve the necessary scale, corporate citizenship efforts must be
linked with public policy efforts. Otherwise, corporate citizenship would likely remain a
micro" response to global issues'.'
The better ways of doing that, so as to achieve a fruitful complemetarity of law and
private regulation, remain difficult questions. Referring to a conference hosted by the
World Bank on Public Policy for Corporate Responsibility' in 2003, Zadek writes: 'There

81 SustainAbility, 'Corporate Responsibility Initiatives Hit Limits', Press Release, 29 June 2004.
82 Kell's sobering assessment is that voluntary initiatives 'are a stop-gap measure, a pragmatic and sensible
way o filling voids. By themselves, they cannot bring about systemic change but they can be instrumental
in reinforcing positive trends.' Georg Kell,'Gearing Up: Why should Businesses Invest in Improving Public
Sector Governance?', Corporate Responsibility 2005: Tackling Global Challenges (Chatham House, 2005),!news events!9.6/sp-kell chatham05.pdf.
83 Georg Kell, 'Foreword' in United Nations Global Compact Office and the Office of the United Nations High
Commissioner for Human Rights, Embedding Hu man Rights in Biness Practice,2004, p 9.
84 Halina Ward, Public Sector Roles in Strengthening Corporate Social Resp onsibility: Taking Stock (World Bank
and International Finance Corporation, 2004) 26.
85 For more references and discussion, see MIares (n 24) 159-64.
86 Global Compact Leaders Summit, Final Report, 24 June 2004, p 8.
Global CorporateSocial Responsibility,Human Riglits and Law 243

was an extraordinary level of consensus that sustainable, impactful corporate

responsibility depends on business initiative and innovation working hand in hand with
public policy, including new regulations where necessary.'" Further, '[t]he risks of
encouraging greater public sector involvement are considerable: the dangers are of
increasing bureaucracy, driving forward unproductive compliance approaches, reducing
market flexibility and increasing business costs unnecessarily and damagingly. But the
alternative ... is even more problematic.'8 8
Talk about the complementarity of law and CSR-that is, of their interaction-
represents an evolution in CSR thinking. CSR understood as a voluntary managerial
practice and as self-regulation has been the dominant CSR paradigm, indeed one that
has lived with the spectre of CSR remaining limited islands of virtuous practice as free-
riders get on with business as usual. Wrestling with this danger is what is known as
tipping point' reasoning, which waits for the voluntary pick-up of new practices to reach
critical mass' whereupon responsible practices become de facto the new rules of the
game.8 9 This view seems prevalent in management-oriented CSR literature and with CSR
practitioners who rarely integrate broader regulatory and governance issues into their
discourse. 90 Of course, law could step in to legalise the defacto situation once the tipping
point has been reached. However, CSR reaching the tipping point without government
support, including facilitation through law, might only happen in exceptional cases.
Therefore, although this tipping point reasoning conceives a necessary role for regulation,
it opens the door just narrowly: law can consolidate the gains,but, as this article contends,
much more important is to understand how law can facilitate CSR to reach the tipping
point in the first place. The interaction of CSR and law can happen much earlier than the
late stage where the new defacto reality already exists.
It is time for simplistic arguments about the nature of CSR to be discarded. CSR is
often depicted as being, as the EC has said, 'fundamentally about voluntary business
behaviour'.9' There is no logical necessity in this position of the EC, which merely reflects
a policy choice.9 Or, as a representative of Danish Industries has said, CSR is 'by definition

87 Simon Zadek, 'Voluntarism versus Regulation for Corporate Responsibility' Ethical Corporation, 27
November 2003.
88 Ibid.
89 Ruggie (n 79) 3. Examples of 'tipping point' cases that Ruggie provided elsewhere are the diamond industry
and the Montreal Protocol on Substances that Deplete the Ozone Layer. See Carnegie Council (n 13).
90 Ward noted:'The voluntary only definition of CSR tends to be associated with a focus on encouraging 'best
practice' and innovation among businesses. It does little to contribute to the much-needcd discussion on
how the worst and most exploitative forms of business behaviour could be eradicated from the global
economy.' Halina Ward, 'The Interface between Clobalisation, Corporate Responsibility, and the Legal
Profession' (2004) 1 University ofSt Thomas Law Journal 813.
91 EC White Paper 2006 (n 50) 2 (emphasis added).
92 For a philosophical treatment of the EC's position arguing that 'CSR as fundamentally voluntary means to
withdraw corporate conduct from the realm of justification', see Florian Wcttstein, 'Beyond Voluntariness,
Beyond CSR: Making a Case for Human Rights and Justice' (2009) 114 Business and Society Review 125.
244 TransnationalLegal Theory

voluntary' because '[ylou can force companies to adhere to the law, but you cannot force
anybody to uphold standards that are beyond the law'; CSR refers to 'the socially beneficial
actions that companies take in addition to complying with the rules and regulations in
the markets where they operate'. 93 In the very same paragraph of the Danish statement
one can see that things are not necessarily so clear-cut: 'Whatyou can do is to put systems
in place-such as Global Compact-that motivate companies to go that extra mile and
also make it economically viable, even in an increasingly competitive business
environment, to uphold standards superior to your competitors.' 4 Companies can indeed
be 'motivated' not only exclusively by law or exclusively by voluntarism, but also by a
combination of legal and non-legal forces in a regulatory regime. Such a regime preserves
a certain amount of corporate discretion that is not displaced entirely by regulation, but
which is guided just as the European Parliament proposes.

3.4 Complementarity of Law and Corporate Voluntarism

For Kell and the Global Compact, 'the relationship between regulatory and voluntary
approaches remains critical. While today there is much better understanding that the two
must complement each other, there is still much confusion. The conditions under which
complementarity best works are poorly understood.'95 It should be noted that CSR has
both a temporary role to play at the law-making stage as well as a permanent role in
regulatory mixes fusing voluntarism and hard law. In both situations there is
complementarity between law and corporate voluntarism
On the one hand, in the rule-making outlook, the voluntarism of leading businesses
contributes to the unfolding law-makingprocess that will culminate in either command
and control laws or regulatory mixes. The law-making process may depend on support
from leading businesses able to show what is possible and desirable for other companies
to replicate. On the other hand, in regulatory mixes, voluntarism helps to specify and
enforce (already existing) law that may be formulated in a broad, imprecise manner or
dependent on private enforcement. Leading businesses redefine through their practices
what can be reasonably expected from companies in similar situations; in turn, private
actors weigh on companies to adapt their behaviour to the newer, higher standard of the
reasonableness or risk being deemed culpable and negligent. CSR research could draw
here on the vast experience and precedents regarding regulatory mixes in other fields of
law that can highlight the complementary of public and private action, of industry

93 Peter Thagesen (Danish Industries), 'The Voluntary Nature of Corporate Social Responsibility' in
International Commission of Jurists, Report from the 'Business and Human Rights' Conference (Danish
Section of the ICJ and Danish Peace Foundation, 2005) (emphasis added).
94 Ibid (emphasis added).
95 Georg Kell, 'The Future of Corporate Responsibility' Global Compact Quarterly,2008, www.enewsbuilder.
net/globalcompact/e articleOO107683 1.cfm?x=b 11,0,w.
Global CorporateSocial Responsibility,Human Rights and Law 245

practice and law. From this more nuanced, realistic view of law and law-making, a concept
of CSR more attuned to reality will result.
For policymakers ready to employ hard law strategies, it becomes clear that they can
summon the regulatory potential of corporate groups (intra- corporate channels) or
mobilise the regulatorypotential of stakeholders surrounding a business (extra-corporate
channels). In the former case, policymakers would stimulate or even mandate procedures
that would prompt core companies to implement due diligence systems covering their
affiliates in order to prevent and remedy negative impacts resulting from their business
operations; the expectation would simply be that core companies exhibit reasonable care
in accounting for their own impacts and exercising leverage over their partners.96 In the
latter case, concerning extra-corporate channels, lawmakers aim to leverage market and
social forces to effect changes in corporate behaviour. Transparency regulation is the most
relevant regulatory method and is widely employed in other areas of law.
In both of these cases, a degree of corporate discretion remains in spite of employing
hard laws. In order to activate intra-corporatechannels to deliver heightened levels of
managerial care, laws would guide managerial practices directly by, for example,
mandating the setting up of consultation committees, work councils or other structures,
or by mandating the use of procedures for assessing impacts or social reporting. However,
some discretion to choose the precise internal systems able to exhibit due diligence and
some discretion to comply with the spirit rather than the precise letter of procedures
remains with businesses. This is due to the fact that the specific benchmarks of what
behaviour constitutes due diligence in each context cannot be laid down in advance, and
neither could laying down the specific procedures for interacting with stakeholders
guarantee the quality of the interaction. In a similar fashion, law could activate extra-
corporate channels by enabling external stakeholders with information, tax breaks,
financial support or other capacity-building measures. Putting pressure on reluctant
businesses in this indirect way is, however, dependent on the existence of stakeholders
who are willing or able to exercise sufficient leverage.
Both of these examples portray indirect ways to achieve law's purpose of heightened
levels of managerial care. The resulting regulatory regimes involve a multitude of variables
and are therefore more complex than the simplified treatments of law often encountered
in CSR writings. There is a temptation when confronted with corporate abuses to think
of law in its strongest form, such as criminal laws or at least the aforementioned
Icommand and control' environmental regulation. It lays down clearly defined prohibited
behaviours. Similarly when the legal target (end result) pursued by regulation is very clear
and quantifiable, law can force innovation and leave companies to adopt implementation

96 The strict liability of the parent company, independent of its fault, for the misconduct of its affiliates is an
exceptional measure in law generally and an unrealistic option in global CSR in particular.
246 TransnationalLegal Theory

measures that best fit the context. For example, adopting legal targets for fuel efficiency
in cars (120g CO2/km by 2012)9 triggers a flurry of technical innovations in car
technology that would hardly happen otherwise-or, at least, not happen with the same
alacrity as public policy goals necessitate.

3.5 Regulation and Attribution of Responsibilities within Corporate Groups

Could the same specificity regarding prohibited behaviours be achieved when it comes to
human rights? Human rights have been sufficiently agreed and well defined in
international law, and its institutionalised interpretive processes serve after 60 years as
useful conduits not only for states-the originally (or primarily) intended addressees-
but also for companies. Indeed, corporate codes of conduct do refer to international
standards. Furthermore, as proposed by the UN Special Representative of the Secretary
General (SRSG) on business and human rights, corporate responsibility boils down
simply to respecting these human rights standards; that is, in the SRSG's conception,
having business activities do no harm.9
Leaving aside the issue of political will to legislate, there are conceptual uncertainties
that defy the apparent simplicity of the 'do no harm' norm. Amongst the unanswered
questions generated by these complexities are those relating to allocating responsibility,
or liability, for damage. Of course, one is responsible for one's own harmful conduct and
the employer will be responsible for the harmful conduct of its employee; but when will
companies higher up in the corporate hierarchy be responsible for abuses occurring in the
operations of affiliates-subsidiaries, contractors, sub-suppliers and other more or less
remote affiliates?99 In other words, when is a core company liable for the acts of third
parties? Should such a core company be liable by virtue of being associated with its
affiliates even when it had no knowsledge of misconduct or when it did not act itself to
cause the remote harm?
These are unavoidable questions in CSR when so many goods and services are
produced by large-scale, complex business groups. Layer upon layer of affiliates stretch
overseas into many countries. The principles governing the attribution of responsibility
or liability within such corporate groups and networks are nowhere stated in those
international treaties laying down human rights standards. Of course, developed legal
systems have numerous rules of attribution and CSR might benefit from accessing these

97 Proposal for a Regulation of the European Parliament and of the Council setting emission performance
standards for new passenger cars as part of the Community's integrated approach to reduce CO- emissions
from light-duty vehicles, COM/2007/0856.
98 Protect,Respect and Remedy (n 25) para 24.
99 See for a discussion of these uncertainties in the supply chain context Radu Mares, 'The Limits of Supply
Chain Responsibility: A Critical Analysis of CSR Instruments' (2010) 79 NordicjournalofltternationalLaw
Global CorporateSocial Responsibility,Human Rights and Law 247

bodies of jurisprudence more systematically.100 But it is clear enough that under those
liability rules, responsibility for third party misconduct is exceptional in law and will lead
to very narrow findings of liability in international CSR situations; difficulties and
thresholds become only magnified as the scale and complexity of relationships increase.
When it comes to the responsibility of core companies, only relatively few prohibited
behaviours can be defined clearly. Such prohibitions could state for example that
companies must not enter countries with extremely authoritarian regimes,10 1 not aid
perpetrators of human rights abuses," not make decisions that inevitably will result in
business partners violating human rights, 03 not transfer dangerous technologies with
full knowledge of the risks involved and of the lack of safety precautions,1 0 4 or even not
buy goods that should not be traded on the international market.10 These are all cases
where a foreign-based company itself violates a range of human rights in the South,
independent of the conduct of its business partners. In all of these cases the legal
command (where it exists or were it to exist) is very clear and a negative one-do not
enter/assist/impose/transfer/trade-and can be ascertained and sanctioned relatively
easily. In all other cases, which make up a significant proportion of CSR debates, such a
clear command cannot be given. Here the discussion is not about a negative obligation,
but a positive obligation of the core company to inform itself about, and to influence, its
business affiliates Whose misconduct infringes human rights.
The apparent simplicity of the 'do no harm' norm boils down to two options: either
going directly after the affiliate, for which one needs a well- functioning legal system in the
host country; or going after the core company-in the home country's effective courts-
for which one needs well defined principles of attribution able to assess whether or not
the core company acted reasonably. Only the latter option is discussed in this article.
How companies should account for the remote impacts of their decisions and how
they should monitor and influence their numerous affiliates are difficult questions with
no obvious answers. Defining this reasonableness of conduct cannot be achieved simply

100 Radu Mares, 'Defining the Limits of Corporate Responsibilities against the Concept of Legal Positive
Obligations' (2009) 40 George Washington InternationalLaw Review 1157.
101 For example, the US prohibits American businesses from operating in Burma through the Burma Freedom
and Democracy Act.
102 Cases in extractive industries where allegations of aiding and abetting, or complicity, are often made in US
courts under ATS. See above, n 32.
103 Buyers that place late orders or change them during the production stage create ripples of negative
consequences through the supply chain, all the way down to suppliers and workers, which are exposed to
overtime and other abuses. Pentland Group, 'How WE Can Cause Excessive Overtime in Factories!' (2005)
12 Business Standards New's; see also Insight Investment, BuYing Your Way into Trouble? The Challenge of
Responsible Supply Chain Management (2004).
104 Chemical company transferred a hazardous technology from the UK to South Africa resulting in mercury
poisoning of workers in South Africa. Connelly v RTZ [1996] 3 WLR 373; Sithole v Thor ChemicalsHoldings
Ltd (1999) The Times, 15 February 1999.
10 Conflict diamonds, for example, which the Kimberley Process seeks to block from the markets.
248 TransnationalLegal Theory

through negative prescriptions, in the form of prohibitions; it takes positive and process-
oriented prescriptions in the form of duties of 6 It is well known that process
prescriptions tend to be qualitative in nature and more difficult to measure quantitatively
than outcome and technology standards.' The implications, then, are twofold: first, laws
will not be negative and/or will not have quantifiable outcomes as in criminal or
environmental law, but will be positive duties of care focused on procedures and
structures; second, CSR, more precisely the practices of leading companies, have a crucial
role in defining what is effective, viable and reasonable depending on industries, issues,
countries and so on.
This brings the discussion back to the interaction of law and CSR. Expectations that
law can comprehensively and easily regulate corporate groups, especially the responsibility
of core companies, are unwarranted. When the legally binding instruments are in place,
they will not remove discretion from corporate decision-making, except for the very worst
abuses where negative obligations based on clearly prohibited harm-producing conduct
could be imposed. Law will exhibit gaps by design, resulting in pockets of managerial
discretion which have to be assessed by reference to CSR standards, guidelines, and good
practices of leading companies. Far from making CSR irrelevant, such laws will build in
the interaction between the legal and CSR spheres in an attempt to define reasonableness
of conduct. The legal profession can therefore ill afford to disregard CSR at either the
formative stages of the law or in its application. What compliance means in specific
situations will be defined by reference to CSR.
A lot of confusion arises from speeches about CSR that aim to make seemingly
obvious, logically solid points that voluntarism begins where the law ends, that CSR is
fundamentally and inherently about 'beyond compliance'. But there's nothing logical or
self-evident about such propositions. It is now clearer that this makes sense only if one
thinks of law in its strongestform (say, criminal law) and of the subject of law in its simplest
form (an individual human being). But these assumptions certainly do not hold in a global
CSR context where the conduct of complex corporate groups rather than individuals
causes harm and where law cannot operate simply or exclusively by laying down
prohibitions but must necessarily also operate by requiring positive due diligence
To sum up, the complementarity of corporate discretion and legal obligation is so
obvious and so widely used in other fields of law that it is hardly worth insisting on
making the central point: hard law and corporate voluntarism can very well coexist in a

106 In company law, for example, a director's duty of care boils down to some level of attentiveness, some
process for acquisition of relevant information, some reasoned deliberation in performing services, and
exercise of some conscious judgement about enhancing stockholder well-being. Victor Brudney, 'Contract
and Fiduciary Duty in Corporate Law' (1997) 38 Boston College Law Revien 599.
107 Neil Gunningham and Darren Sinclair, 'Regulatory Pluralism: Designing Policy Mixes for Environmental
Protection' (1999) 21 Law & Policy 57.
Global CorporateSocial Responsibility,Human Rights and Law 249

regulatory regime that guides rather than replaces corporate discretion.108 For further
illustration, the discussion now moves to UK company law, which employs transparency
regulations to summon the private enforcement of shareholders and market institutions
in order to ensure that directors will fulfil the duty of care owed by them to their business
and stockholders. This duty of care is notoriously difficult to enforce in courts applying
corporate law, and therefore it was decided that a more complex legal regime for corporate
governance should be put in place in the UK.

3.6 Guiding Managerial Discretion: UK Company Law

The recent revision of company law in the UK has resulted in new legally binding
obligations to report more extensively than before. The Government stated that its
objective 'has always been to encourage meaningful strategic, forward-looking
information to assist shareholder engagement while avoiding disproportionate burdens
on business, in line with our better regulation agenda'.10 9 As a result, the new law states
that the report, called a 'business review', must, 'to the extent necessary', inform members
of the company and help them to assess the following: how the directors have performed
their duty to promote the success of the company, the main trends and factors that affect
the future of the company, environmental matters, the situation of employees as well as
social and community issues, and the use of contractors essential to the company.
Furthermore, the report is to give details of policies related to those matters and their
effectiveness." 0
The legal provisions of the business review are interesting because while these rules
take a bold step forward by being legally binding, they are still fully concordant with the
basic architecture of company law. Essential to the latter is the reliance on managerial
judgement, that is, a legally sanctioned discretion to pursue the interests of the company
and shareholders in whatever manner the directors deem fit, so long as this is done with
due care and loyalty to the company and in compliance with the law. The emphasis here
is on 'discretion'. A recurrent issue in company laws, particularly in the US and UK, has
been how to preserve enough discretion for managers to exercise their judgement and
competence while still preventing and remedying abuses of that same discretion. In other
words, the challenge for this body of law has been how to guide managerial discretion

108 See for writings in the environmental area Jan Lepoutre, Nikolay A Dentchev and Aime Heene, 'Dealing with
Uncertainties when Governing CSR Policies' (2007) 73 Journal of Business Ethics 391; Cunningham and
Sinclair (n 107).
109 Department of Trade and Industry, CompaniesAct 2006: Regulatory Impact Assessment, January 2007, p 16,\uk/files/filc29937.pdf.
I10 Companies Act 2006 (UK), s 417(5).
111 See Mares (n 24) 27-72.
250 TransnationalLegal Theory

In the following discussion, the interest is not with why the discretion is preserved;
reasons for this discretion differ in the context of company law from that of CSR. Rather,
the focus stays with how this discretion, whatever the reasons for its existence, can be
guided and the pitfalls of such a regulatory endeavour. So, taking this UK statutory
disclosure regulation as an example, we will focus on the regulatory techniques for guiding
managerial discretion through a combination of regulation, standardisation and
The Government explained its choice in favour of a legally binding obligation for
directors to release business reviews:

The risk is that experience over 10 years of the voluntary standard has shown best practice
remains restricted to the very largest companies, even within the category of quoted companies,
and fails to deliver improving standards across a wider cross-section of companies. There is also
a danger that directors have too much discretion and can thus pick and choose the matters to
report, producing reports that are uneven in content and designed to present the best possible
gloss, rather than a balanced and comprehensive view that will allow for a full understanding
of the directors' view of the business. Comparison between companies would be restricted to
partial rather than complete information. An expanded directors' report, reviewed by auditors,
will provide for a fair review of a company's performance, including an assessment of the
principal risks and uncertainties. However, experience to date suggests that, without a statutory
OFR [Operational and Financial Review1 12], the more substantive information we are seeking
from quoted companies will not be forthcoming."1

The lawmakers opted for a mandatory but flexible approach: a new legal obligation to
report is warranted, but reporting 'must be done in a way which gives companies wide
scope to report in the way which enables them best to describe their business-in terms
of both the format and the content of the report. And it must allow for development over
time, rather than seeking to "freeze" existing best practice.' 1 14 It appears that legislators
articulated their broad policy goal clearly-making businesses more attuned to the
economic and social challenges raised by globalisation-and began a transformative
process that hard law has kick-started and that a policy mix will sustain. The desired
change envisages a business review that 'will include a company's (or group's) objectives,
strategies and the key drivers of the business, focusing on more qualitative and forward-
looking information than has traditionally been included in annual reports in the past'.' 1
So, in this case policymakers deliberately underspecified the legal content of the new

112 This was the title of the Business Review in previous drafts of the law.
113 Department of Trade and Industry, Company Law: DraftRegulations on the Operating and Financial Revie'w
and Directors' Report, A Consultative Document (2004), p 70.
114 Company Law Review Steering Group, Modern Company Law for a Competitive Economy: Final Report
(2001), paras 3.36-3.37, www.dti.govuk/bbfco-ac t-2006/clr-review/page22794.html.
115 Department of frade and Industry, Guidance on the OPR and Changes to the Directors' Report (2005), p 6,
para 3(b).
Global CorporateSocial Responsibility,Human Rights and Law

obligations by choosing to provide a strong legal incentive to report alongside employing

various policy instruments such as guidance to inform the exercise of managerial
discretion, standardisation to assist auditors in performing their verification of reports
function,"' and the flexible concept of 'materiality'. Indeed, report content is affected by
what the intended beneficiary is likely to deem material information.'
There is an important reason behind the decision to deliberately under-specify the
legal content. For example, the Company Law Review Steering Group wrote that
standardisation would perhaps lead to 'boilerplate' reporting." 8 It is undesirable to turn
the preparation of business reviews into 'a mechanical exercise resulting in bland
statements or public relations driven disclosure'."' 9 Thus, '[t]here is a tension between
prescription and flexibility in terms of disclosure: the more prescription the greater the
danger of formulaic responses; the more flexibility the greater the danger of evasion'. 1 2 0
The policy mix underpinning the Business Review is a response to the pitfalls of over-
specifying the process of reporting, and procedural regulations in general.
CSR writers have echoed these concerns by noting that procedural regulation 'falls
into the trap of giving company lawyers a set of process rules perfectly designed to be
12 1
manipulated into a meaninglessness in the context of a risk management culture'.
Furthermore, this spectre of compliance on paper rather than in substance hovers above
those organisations that have spent a decade striving to change the business mindset on
CSR:'Regulation has the advantage of going beyond public-facing companies to reach the
vast majority of companies that are unbranded. However, it forces companies into a
compliance mindset that creates a this-is-not-my-responsibility approach.'"1
Fiona Haines explains:

Legal mechanisms have long been recognised as problematic as the source of change in
organizational behaviour To understand how regulation works, or can be derailed, we need
to explore how the organizations themselves react to the imposition of law and the methods
of formal accountability it imposes. Formal accountability is primarily about written record,
statements which show the 'outside' how a particular event was dealt with ... the demand for
formal accountability in regulation may then result in record keeping for the purpose of being

116 Regarding the benchmark auditors would use in their reviews of reports, the solution was to standardise not
the process used by directors, but the measuring process performed by auditors themselves: to standardise
not what auditors measure, but how they measure. Company Law Review Steering Group (n 114) para 8.50.
117 In keeping with the traditional tenets of company law the main beneficiaries of the new law, though clearly
not the exclusive ones, are the shareholders. Department of Trade and Industry (n 115) para 3(b).
Accounting Standards Board, Reporting Standard 1: Operating and Financial Reviiew, 2005, p 7,wvw.frc. 20STANDARD.pdf.
118 UK Company Law Review SLeering Group (n 114) para 8.51.
119 Department of Trade and Industry (n 113) para 3.6.
120 www ukicld/industrial.pdf.
121 Parker (n 18) 226-7.
122 ISEAL Alliance, Framing the CSR Landscape, High Level Meeting, 23 October 2006.
252 TransnationalLegal Theory

seen to comply in order to prevent the organization from being prosecuted or sued. The
relationship these formal records have with the reality of organizational life is entirely a separate
issue. The use of law and law enforcement by regulators to exact compliance may force changes
in formal accountability which can improve procedures, but are equally likely to produce little
or counterproductive real effects on behaviour.123

To sum up this section, hard law in itself can contribute to creating an enabling
environment for CSR. The law only guides corporate discretion and does not override it,
with the result that corporate voluntarism coexists with law in a complex regulatory mix.
As Tom Campbell has put it, 'the idea here is to deploy legal sanctions not directly at the
human rights violations themselves but at the implementation of procedures and
mechanisms designed to encourage compliance through such mechanisms as external
monitoring'. 12 4 The question is whether governments will see the legal institutionalisation
of CSR as contributing to this enabling environment or not. The next section reverses
the equation: rather than analysing how law can strengthen CSR, it documents how the
voluntarism of leading companies can impact on law at various stages and narrow
governance gaps.


There is a possibility that the practices of leading businesses make more palatable the
adoption of stronger laws (law-making), shape the content of law by offering benchmarks
of due diligence as the regulatory regime evolves (law-specification), and facilitate higher
levels of compliance with laws (law-enforcement). The following discussion illustrates
such positive interactions between CSR and law at these three stages and provides the
background of relevant CSR literature.

4.1. CSR and Adoption of Law

As noted already, human rights NGOs have been very sceptical about corporate codes of
conduct, seeing CSR as basically a public relations exercise and ineffective self- regulation.
For present purposes, the most relevant and interesting of these critiques is the criticism
of government-backed multistakeholder CSR schemes that are dedicated to assisting and
encouraging businesses to voluntarily improve their conduct. In preceding sections, the
EU's voluntary approach to CSR has been critically presented, together with civil society
proposals for the EC to strengthen regulatory frameworks. Now our attention turns to the

123 Fiona Haines, Corporate Regulation:Beyond jPunish or Persuade' (Clarendon, 1997) 6-7.
124Tom Campbell, 'A Human Ri hts Approach to Developing Voluntary Codes of Conduct for Multinational
Corporations' (2006) 16 Business Ethics Quarterly255.
Global CorporateSocial Responsibility,Human Rights and Law 253

controversy surrounding the UN Global Compact (GC), 5 particularly its relationship
with law.'

(a) Voluntarisrn Displacing Law? The UN Global Compact

When in 1999 Kofi Annan launched the idea of the UN joining forces with the business
community to address imbalances of economic globalisation such as poverty, human
rights, labour standards and environmental protection, many NGOs were appalled. And
many within the UN bureaucracy were also shocked.' Given the clearly stated voluntary
nature of the GC, these concerns revolved around the UN being captured by business
interests and renouncing its long-lasting efforts to design a UN code of conduct for
MNEs, hopefully in a legally binding treaty form. This was widely viewed as corporate
voluntarism displacing the law, as CSR pre-empting necessary new legal frameworks-
and criticism continues to this day. 12 8 For example, it was said that:

The Global Compact has always stated that it is not meant to be a substitute for other
'regulatory' approaches at the international level that rely on monitoring and enforcement. In
practice, however, it is just about the only game in town that extends to a significant number
of corporations. A basic concern with UN-TNC partnerships in general is that they reflect a
shift in approach whereby lukewarm voluntary initiatives have crowded out important
mechanisms and institutional arrangements involving new forms of international law ...

In response the Global Compact staff issued numerous statements clarifying its position
regarding regulation. Georg Kell acknowledged the 'central issue of whether the Compact,
as a voluntary initiative, can make a significant contribution and how it relates to
regulatory approaches'. 30 In this respect he noted that '[t]he conplernentarity of
regulatory and voluntary approaches is an important assumption underlying the
Compact>13' and that, '[s]ince the Global Compact is complementary to, and not a

125 For more on the Global Compact, see Radu Mares, 'Voluntary Reporting: The Global Compact' in
Gudmundur Alfredsson, Jonas Crimheden, Bertrand C Ramcharan and Alfred Zayas (eds), International
Human Rights MonitoringMechanisms: Essais in Honour of jakob Th Moll1er (MartinusNijhofflKluwer,2009)
126 See section 3.3 above for remarks made by GC leaders on the relation of the CC to public governance.
127 Michael Hougard Pedersen, 'The UN Global Compact: A Triple-win Partnership' in Malcolm McIntosh,
Sandra Waddock and Georg Kell (eds), Learning to Talk: CorporateCitizenship and the Development of the
Global Compact (Greenleaf, 2004) 183-94.
128 'Debate: UN Global Compact: Is the Compact Raising Corporate Responsibility Standards?' Ethical
Corporation,10 May 2008.
129 Peter Utting, The Global Compact and Civil Society: Averting a Collision Course (UNRISD, 2002) 3,
130 Georg Kell, 'The Global Compact: Selected Experiences and Reflections' (2005) 5 Journalof Business Ethics
131 Ibid, 74.
254 TransnationalLegal Theory

substitute for, other approaches [eg an international, legally binding instrument on

corporate accountability], it must not be used to undermine them. We stand ready to
speak out against attempts to use the Global Compact in this way." 3 2 On another
occasion, Kell also attempted to refute the aforementioned criticism:

The debate about voluntary initiatives versus regulatory approaches is highly polarized and it
is often assumed that the two are mutually exclusive. Indeed, this debate oversimplifies or
ignores important issues. First, there is no reason to assume that the two approaches exclude
each other. Second, we know far too little about self-regulation and how or under what
conditions it contributes to public policy goals. Third, the prevailing idealization of
international regulation is not supported by facts. Past efforts to achieve public policy goals
through international regulation have often failed to mobilize enough political support or
taken years to form. Quite often, ratification and implementation were less than satisfactory) 3 3

Finally, Kell said that the Compact 'cannot resolve government deficiencies, and it was
never conceived as a substitute for the rule of law. As a voluntary initiative, it can broaden
understanding and acceptance of universal values and thereby reinforce good
As shown in the previous sections, voluntarism can coexist with law in regulatory
mixes. Issues of compatibility of CSR and law aside, does voluntarism necessarily displace
or postpone law-making efforts?
Recently the UN SRSG on human rights and business, John Ruggie, had to defend his
decision not to call for a new treaty on business and human rights. He dubs the voluntary
versus mandatory discussion a 'red herring'. '3 5 One of his reasons for not calling for a new
treaty dealing with CSR is that 'a treaty-making process now risks undermining effective
shorter-term measures to raise business standards on human rights'. 136 He considers that
'the challenges of business and human rights remain highly complex and the current
consensus among states-w hich would have to negotiate, sign, and ratify any treaty-
does not go far beyond "we need to do something about this problem"').7 In his view,
treaty-making would use up the limited capacity of governments, NGOs and companies
that arguably can be put to better use to deliver 'practical and urgently needed innovations
in the interim', would drive the standards now being voluntary built to the lowest
common denominator, would take pressure away from companies to comply with

132 Georg Kell quoted in Thomas A Hemphill, 'The United Nations Global Compact: The Business
Implementation and Accountability Challenge' (2005) 1InternationalJournal of Business Governance and
Ethics 309.
133 Kell (n 10).
134 Debate (n 128).
135 John Ruggie, Response to Msisereor/GlobalPolicryForun,2 June 2008,
136 John Ruggie, 'Business and Human Rights: Treaty Road Not Travelled' Ethical Corporation,6 May 2008.
137 Ibid.
Global CorporateSocial Responsibility,Human Rights and Law

voluntary standards until the new treaty sets them up, and, finally, would also take
pressure away from governments to adopt new legal obligations for their companies until
the new treaty exists.1 3 8 NGOs have long feared this scenario whereby a treaty drops out
of the picture. They tend to dismiss the 'learning approach', particularly in a forum like
the UN, and tend only to see voluntarism under the guise of learning, first in the GC and
then in the SRSG mandate, displace treaty-making. 3 9
Louise Arbour, then UN High Commissioner for Human Rights, acknowledged that
Ruggie has been instrumental in moving the debate from the logjam of the two rigid
positions advocating the development of definite clear legal norms binding on
corporations versus advocating simply more voluntary compliance. She deemed it
necessary to have work done on all fronts to advance human rights protection given that
'[i]t would be frankly very ambitious to promote only binding norms considering how
long this would take and how much damage could be done in the meantime'. Therefore
'it's probably the right approach to be very multifaceted as long as this does not become
a distraction from the continued reflection on the need possibly for something a little
more substantial'.14 0 Hopefully such reflection can be stimulated by the kind of regulatory
perspective on CSR advocated in this article, one which highlights the interaction of
regulation and voluntarism.

(b) Sequencing of the Law-Making Process

For NGOs, CSR has always been about self-regulation that essentially prevents public
regulation.141 For example, Christian Aid defines CSR as 'a catch-all term increasingly
used by businesses, which encompasses the voluntary codes, principles, and initiatives
companies adopt in their general desire to confine corporate responsibility to self-
regulation'. 142 But the interest of GC has always been in learning how to identify and
improve corporate impacts, and how to scale up CSR. The same goes for the EC, which
shares an appreciation for the ongoing learning in the CSR community similar to the GC,
but with a twist.
On the one hand, the GC and Ruggie envisage the sequencing of the law-makingprocess
with clarification of the content of due diligence preceding legal incentives and sanctions.

138 Ibid.
139 For a critical response to Ruggie's arguments, see eg Jens MIartens, ProblematicPragmatism:The Ruggie
Report 2008. Background,Analysis and Perspectives (Global Policy Forum and Misereor, 2008).
140 Frances Williams, interview transcript: Louise Arbour, FinancialTimes, 8 January 2008.
141 Decades ago in the UK,in 198 1, the Confederation of British Industry was explicit about voluntarism being
able to offset threats of further regulation: 'companies fear that if they make no attempt to find solutions
to community problems, the government may increasingly take on the responsibility itself. This might prove
costly to employers both in terms of new obligations and greater intervention in the labour market. Many
companies prefer to be one step ahead of government legislation or intervention, to anticipate social
pressures themselves and hence be able to develop their own policies in response to them.' Moon (n 45).
142 Christian Aid (n 23) 5.
256 TransnationalLegal Theory

Ruggie is most explicit about the impetus and ongoing standard-setting provided by CSR
on which law could later build to impose a responsibility on companies.1 43 The GC does
affirm its compatibility and complementarity with regulation, although it focuses on
learning itself rather than how lawmakers will pick up the baton to subsequently
transpose due diligence standards into hard law. On the other hand, the EC focuses only
on the purely voluntary contributions that MNEs can make, excluding regulatory
intervention in CSR and thus excluding a transition from voluntarily developed due
diligence standards to mandatory ones; it clearly rejects any hardening of voluntary
standards into law.
In the NGO community there is at best ambivalence about such sequencing of the
law-making process, overshadowed by fears of actual displacement of public regulation
through a bogged-down sequencing that will never take place in practice. Thus when it
comes to sequencing, one camp argues for clarification of the content of due diligence
irrespective of or preceding legal incentives, while the other camp insists on legal
incentives first that will naturally result in subsequent clarification. A better
understanding of this sequencing of rule-making would go some way to bridging the
current antagonism and depolarising the debate.
Only relatively recently and sporadically has the CSR literature dealt with sequencing
issues and the manner in which CSR can facilitate law-making. As Anne Roemer-Mahler
has noted, the interaction between CSR and law has received attention mostly from one
side of the equation: 'Successful public governance has often been defined as a
government's ability to create an enabling environment for private economic activity.
The opposite idea, that the private sector should assist the state to strengthen its
capabilities, remains anomalous for many academics and practitioners.'144 And still,
awareness is growing that voluntary efforts, especially when undertaken jointly with other
companies and stakeholders, need to grasp better their relation with the regulatory sphere.
At a recent CSR gathering,

Participants predicted that MSIs [Multi-Stakeholder Initiatives] would need to focus more
explicitly on their relationships to regulation in the future, for avariety of reasons. First, many
leadership companies actually prefer regulatory solutions in some areas, where 'level playing
fields' are business-critical. Second, MSIs are proving to be interesting platforms for joint policy
advocacy. And third, to the extent that MSIs begin to shift entire markets, they are more likely
to come under scrutiny from regulators at the national and international levels on competition
and trade policy grounds ... While participants agreed that different MSIs would necessarily
have different 'end games', they also felt that MSIs share an opportunity to use their experience
to feed into smart regulation in the areas in which they work.145

143 See discussion of the 'tipping point' in section 3.3 above.

144Anne Roemer-Mahler (ed), 'Drivers of Corporate Investment in Public Sector Capabilities' in Adding Public
Value: The Limits of Corporate Responsibility, OPI-NCBS-ESRC workshop series, 2006,
145 SRSG Consultation 2007 (n 1).
Global CorporateSocial Responsibility,Human Rights and Law

CSR could contribute to the accumulation of expertise and consensus, ingredients needed
in any regulatory regime, as Kathryn Gordon has argued: '[V]oluntary efforts currently
being undertaken by firms, in collaboration with NGOs and governments, may serve as
precursors to more formal systems of rules ... [T] he effectiveness of both voluntary and
binding systems depends on the same intangible resources-consensus and expertise.'1 4 6
CSR provides a mechanism by which the necessary intangible resources can be
accumulated. 1 4 7 The following statement from Danish Industries could be read in the
same light: 'We support the view that CSR is a stepping- stone. A temporary phenomenon
that is useful and necessary until all governments are willing and able to implement and
enforce international standards." 48
Overall, in the CSR literature dealing with human rights Tom Fox and colleagues are
amongst the few who have highlighted 'the dynamic linkages between voluntary
approaches and regulation and the potential for voluntary initiatives of various kinds to
crystallize, over time, into mandatory minimum standards'.' 49 Examples of apparently
successful sequencing where voluntary initiatives have facilitated law-making have been
documented in other areas such as environmental protection.
One of the strongest examples of private standard-setting comes from forestry, an
industry with highly developed environmental certification schemes such as the Forest
Stewardship Council's label. Such schemes interact with law through a process of informal
incorporation into various bodies of law, 'thereby expanding the effects of the FSC
program beyond what is apparent in its own terms'.' That would see corporate
voluntarism having an important impact on the law-making process directly impacting
other companies. Errol Meidinger writes:

The environmental effects of the FSC as a free standing voluntary system are likely to be positive
but modest. [Other] dynamics, however, have the capacity to amplify the effects of the FSC
program. The first is incorporation into traditional legal systems. Although this could occur
through the formal adoption of FSC standards or requirements by either legislatures or
administrative agencies, not many legal systems seem likely to take this route in the near term.
However, incorporation can also occur through the informal, often almost invisible adoption
of FSC requirements into existing legal regimes. These include the definition of best
15 1
management practices in administrative regulation, tort law, financial reporting, and so on.

146Kathryn Gordon,Rules for the GlobalEconomy: Synergie's betwcen Voluntary and Binding Approaches, OECD
Working Papers on International Investment No 1999/3 (2000),
147 Ibid.
148Thagesen (n 93).
149Fox et al (n 72).
1,50Errol Meidinger, "'Private" Environmental Regulation, Human Rights, and Community' (2000) 6 Buffalo
Envi ronmntal Law journal 125.
1,51MIeidinger thinks that a second means of amplification is through the operation of other non-governmental
forestry programs: although initially they may have been conceived as alternatives to overly stringent
standards, they are still caught in a dynamic that pressures them to make their systems credible. This
dynamic has led to more serious standards and verification systems over time. Ibid.
258 TransnationalLegal Theory

In other words, the existence of practice-validated norms of responsible business

behaviour presents new opportunities for lawmakers.'s2 Another example comes from
the regime for control of marine oil pollution. Naomi Roht-Arriaza describes the
regulatory process:

As it became clear in the wake of the 1967 Torrey Canyon oil spill that a regulatory regime was
in the offing, oil tanker owners negotiated a 'Tanker Owners Voluntary Agreement Concerning
Liability for Oil Pollution' (TOVALOP), in part hoping to avoid stricter mandatory controls.
However, the voluntary agreement did not prevent completion of the 1969 Civil Liability
Convention. On the contrary, the voluntary agreement showed states that the general approach
was feasible and economically viable. The speed and ease with which the voluntary agreement
began operating also facilitated the eventual transition to the state-based convention, which
only came into force almost six years after its adoption.15 3

An OECD study describes the function that a type of corporate voluntarism-'voluntary

agreements' struck between industries and authorities-has fulfilled in the law-making
process. Such agreements have been used since the early 1990s to explore new policy areas
such as climate change and waste recycling problems:

Negotiated agreements or voluntary programmes often constitute a first step in exploring a

new policy area, environmental policy issues which are not covered by existing regulations.
Available evidence points to a considerable number of voluntary approaches applied to this end
... In this regard, voluntary approaches can be seen as a policy instrument with a transitional
function, ie to operate until the time is ripe for other regulations to come into force. They are
particularly suitable for this role, since they are likely to generate soft effects and provide
learning experience which can help improve the future design of more traditional

From a business strategy perspective, Thomas Lyon has examined various ways in which
good environmental practices can be made profitable, including reduced costs through
more efficient, less wasteful processes and marketing the company's image to green
consumers willing to pay higher prices for a clean product. But he insists that it is the
opportunity to influence regulation that makes corporate environmentalism profitable.

152 There are rarer examples where lawmakers took advantage of voluntarily developed templates and hardened
them into law. According to a Swedish law passed in 2007, all 55 state-owned companies in Sweden have to
file an annual sustainability report based on the Global Reporting Initiative Guidelines. 'Sweden Pioneers
a Global First in Sustainability Reporting' GRI News, 3 December 2007; for other such examples see
Kernaghan Webb and Andrew MIorrison,'The Law and Voluntary Codes: Examining the "Tangled Web" in
Kernaghan W\ebb (ed), Voluntary Codes: Private Governance, the Public Interest and Innovation (Carleton
Research Unit for Innovation, Science and Environment, 2004).
153 Naomi Roht-Arriaza, 'Shifting the Point of Regulation: The International Organization for Standardization
and Global Lawmaking on Trade and the Environment' (1995) 22 Ecology Law Quarterly479.
154 Peter Borkey, Matthieu Glachant and Frangois Leveque, VoluntaryApproaches for Environmental Policy:An
Assesment (OECD, 1999).
Global CorporateSocial Responsibility,Human Rights and Law

Thus, '[c] orporate environmentalism is a new form of non-market strategy that is more
subtle than traditional tools like making campaign contributions, hiring high-powered
lobbyists, or creating artificial grassroots groups. It involves making real changes in
environmental performance in order to shift the point from which traditional
competition departs.' 155 It is precisely this scenario that worries some critics of CSR.
Interestingly enough, when one recalls that CSR has its critics on the right and on the
left, it was a Nobel Prize winner in economics, Milton Friedman, who feared that CSR
would lead to more governmental intervention. He thought that the responsibilities
voluntarily assumed by short-sighted business executives would harden into law by
zealous, left-leaning regulators. Friedman was concerned that CSR, and the managerial
discretion it entails, is the first step on a slippery slope. He elaborated as follows: CSR
represents a private form of tax-raising and the political machinery will and should check
such taxation because this is the exclusive preserve of representative, democratic state
institutions and not of unelected, unaccountable business executives. CSR invites
regulation. 5 6 FA Hayek refers approvingly to Friedman and similarly argues that the
idealistic aims of CSR present the danger of corporations acquiring real and
uncontrollable power. Such power cannot be left to the whims of corporate managers
and is bound to become subject to increasing public control: 'The argument against
specific interference of government in the conduct of business corporations rests on the
5 7
assumption that they are constrained to use their resources for a specific purpose."
Basing his criticism of CSR on economic efficiency considerations, David Henderson
agrees with Friedman but expands and explains his concerns in line with regulatory
capture theory:

In so far as 'socially responsible' businesses find that their new role is bringing with it higher
costs and lower profits, they have a strong interest in having their non-conforming rivals
compelled to follow suit, whether through public pressure or government regulation. In
particular, large firms have an interest in ensuring that smaller rivals do not escape the net,
while firms in rich countries have a similar incentive to see to it that their competitors in
developing countries are made subject to the same pressures and regulations that bear on them.
The effect of such enforced uniformity is to limit competition, narrow economic opportunities
and worsen economic performance.

1ss Thomas P Lyon, 'Green" Firms Bearing Gifts' (2003) 26 Regulation 36.
156 In addition and ultimately, it strikes at the core of a capitalist economy by embracing the socialist view that
political mechanisms, not market ones, are the appropriate way to allocate scarce resources in a society. See
Friedman (n 22).
1,57Friedrich A Hayek, 'The Corporation in a Democratic Society: In whose Interest Ought it and Will it be
Run?' in H Igor Ansoff (ed), Business Strategy: Selected Readings (Penguin, 1969) 231.
158 David Henderson,'The Role of Business in the World of Today' (2005) 17Journal of Corporte Citizenship 32.
260 TransnationalLegal Theory

(c) CorporateLobby in Favour of Regulation

It comes as a surprise that the interaction between CSR and law has been better articulated
by sceptics of CSR from the right. Of course they raised this spectre to extinguish CSR
altogether, rather than supporting it as a mechanism to strengthen a 'smart regulation'
regime. It was economists who from the 1970s developed 'public choice' and 'regulatory
capture' theories to explain how businesses, in pursuing their own self-interest, lobby
regulators and capture the regulatory processes to erect barriers to entry in markets and
disadvantage rivals: 'businesses will very often lobby for laws and regulations that appear
to have consumer or other stakeholder interests in mind, but that is actually targeted to
the specific competitive interests of industries or companies."" 9 Critics of CSR from the
other side of the spectrum hardly contemplated such a strategy from the business sector,
seeing CSR as a stalling technique, as self-regulation pre-empting public regulation. Thus
a closer look at this interaction became all but impossible.
Pro-CSR arguments aim to persuade companies to take up CSR but are painfully
aware that competitors pursuing lowest-cost strategies may undercut virtuous companies
in the markets. They identified long ago the need for a level playing field and the role of
governmental intervention therein. 160 There is thus an important incentive for leading
businesses to support stronger laws. As aWorld Bank report candidly noted,'[r]egulators
will find natural allies among CEOs of firms whose market position depends on good
environmental performance. Having already paid for cleaner production, these leaders
will support measures that require similar efforts from their competitors.>" 6' But CSR
writers have very seldom ventured beyond highlighting the business necessity for
regulatory intervention and have not examined the regulatory dynamics able to deliver a
level playing field.162 The 'tipping point' reasoning discussed above illustrates this point
because it has little to say about the manner in which law emerges and levels the playing

159 Donna J Wood and Jeanne M Logsdon, 'Business Citizenship as Metaphor and Reality' (2008) 18 Business
Ethics Quarterly 51.
160 The speakers at an interdisciplinary discussion held at Harvard Law School in December 1997 frequently
referred to this issue. R Blackwell, one of the speakers, asserted that enlightened companies need support
from public authorities at some level in order to protect themselves from free riders: 'The success and
direction of this ultimately depends on public authority, because the free rider problem has to be foreclosed.
If we succeed in moving private business with the help of other social groups, it allows the government to
play a more powerful role.' Business and Hurnan Rights: An InterdisciplinaryDiscussionHeld atHarvardLaw
School in December 1997 (Harvard Human Rights Program, 1999).
161 World Bank, 'Greening Industry: New Roles for Communities, Markets and Governments', 2000,
wxwy.worldbank. org/research/greening/fableofContentsnew.html.
162For example, Ruggie stated: 'There is scholarly evidence of transnationals leading, if not a race, then at least
movement, to higher standards, eventually leading to some form of codification that provides a level playing
field.' John Ruggie, 'Human Rights: The Next Climate Change?' 60 Seconds Q&u with John Ruggie, 2008,
Global CorporateSocial Responsibility,Human Rights and Law 261

It is, however, easy to overstate the incentives in favour of a level playing field. From
a business perspective regulation can always cut both ways:

Most business leaders ... constantly assess the likelihood of government regulation as one of
the major political risks they face. They view government regulation as aburden and a cost to
be avoided if at all possible. There are, of course, situations in which an industry or set of firms
prefers government intervention to restrain competition or promote consumer confidence.
But this typically happens at the national level, where industry representatives may feel they
have more control over the political process. They face more uncertainty about the
transnational aspects of their corporate operations. The company may face the possibility of
at least three sources of regulation: regulation in one or more host countries where the
company operates; regulation by the home country of activities both at home and abroad; and
international regulation ... One would expect most transnational companies to favor global
rules, so that they would not have to deal with such a welter of conflicting national regulatory
systems. But the process of negotiating intergovernmental agreements can be slowx, clumsy,
often wrong-headed, and highly political, which means the design of rules-even rules that the
private sector desires-can be fraught with risk. Some corporate decision makers may prefer
instead to calculate how to use the differences in national regulation to gain a competitive
advantage.' 6 3

Corporate lobbying includes both direct lobbying in relation to a specific piece of

legislation and more general 'atmosphere setting' around an issue or public debate.1
There are more examples than one might think where businesses have lobbied not only
against new regulations, as often has often been the case, 165 but also in their favour. One
well-known example saw corporate lobbying play an important role in finalising an
international convention on anti-bribery. In 1997, when OECD governments were
negotiating the Anti-Bribery Convention, the key to securing support for the Convention
was, according to Peter Eigen, founder and then Chairman of Transparency International
(TI), 'the support of large companies': 'No fewer than 20 European companies signed a
letter drafted by TI, encouraging government ministers in their respective countries to
sign the convention, which outlaws the bribing of foreign public officials.'1 66 The 'level
playing field' was an important consideration, particularly for US companies, which have
been at a competitive disadvantage for 20 years since US lawmakers adopted the Foreign
Corrupt Practices Act in 1977.

163 Virginia Haufler, Public Role for the Private Sector: Industry Self-Regulation in a Global Economy (Carnegie
Endowment for International Peace, 2001) 22.
164 UN Global Compact, AccountAbility, 'Towards Responsible Lobbying: Leadership and Public Policy%2005, /rlfinal.pdf.
165 For example, in the case of the recently adopted UN Declaration on the Rights of Indigenous Peoples, the
chair of the United Nations Permanent Forum on Indigenous Issues said that the biggest stumbling block
to the adoption the Declaration is the lobby started by multinational companies from Canada, New Zealand,
Australia and the United States engaged in mining and logging. Desiree Caluza, 'MNCs Biggest Foes of
Indigenous Peoples' Rights' Inquirer, 14 August 2007.
166 UN Global Compact (n 164).
262 TransnationalLegal Theory

In recent years evidence emerged that cotton originating from Uzbekistan and sold
on international markets was harvested in appalling conditions. The government was
using forced and child labour; in other words, it was forcing school-age children to pick
cotton. In the beginning, in 2005, buyers claimed, through their trade association, that
nothing could be done to trace cotton as it was sold on bulk markets.167 After Tesco and
Marks & Spencer succeeded in tracing the cotton to the producers and thus debunked the
argument,1 68 other buyers followed. Such due diligence measures, once proven viable,
enabled major buyers such as C&A, Gap Inc, Levi Strauss & Go, Marks & Spencer, Target,
Tesco, and Victoria's Secret to take measures to boycott and exclude Uzbek cotton from
their product lines.' 69 In addition, more recently, representatives of four major textile,
apparel and retail trade associations decided to lobby Uzbek authorities by meeting with
the Uzbek Ambassador to the United States to express their concerns. The As You Sow
Foundation commended the four trade associations for using their influence and publicly
condemning forced child labour.170 In the same period, institutional shareholders with
combined assets of over $250 billion joined human rights advocates appealing directly to
the Uzbek President.' 7 '
There are mining companies which acknowledge that mining, in order to be beneficial
to society and companies alike, requires a comprehensive strategy consisting of effective
public regulation, responsible business practices and monitoring by civil society groups. 172
For example, AngloGold Ashanti in Ghana, with regard to the situation of artisanal
miners, called for 'consultations between government, mining companies and artisanal
miners in devising mutually satisfactory forms of co-existence between small- and large-
scale miners, and a regulatory regime which facilitates this'. 73

167 Steve Trent, 'Spinning a Line: Why the Trail of Cotton from Uzbekistan Needs to be Clearer' Ethical
Corporation,5 February 2008.
168 'This ground-breaking move by Tesco-unprecedented from a major UK retailer-has the potential to
change a multi-billion dollar industry.... Tesco has proven that the sourcing of cotton fibre and the tracking
of supply chains are entirely possible-now it is simply a matter of whether companies want to act, or not.
So, who's next?' Ibid.
169 As You Sow Foundation, 'Social Investors and Human Rights Activists Pressure Government of Uzbekistan
to Stop Using Forced Child Labor', 15 August 2008,
170 Ibid.
171 Ibid.
172 In Ghana, AngloGold Ashanti 'would acknowledge that, given mining's potential impact on surrounding
communities and economic development generally, the achievement of that potential is dependent on many
factors including: (1) effective regulation of the mining sector by government to ensure that the potential
is met and that potential negative features are minimised or prevented; (2) a willingness and commitment
on the part of mining companies to operate responsibly and with due regard to the interests of the society,
surrounding communities and the physical environment; and (3) vigilant civil society organisations ...
which have a legitimate right to monitor our performance in this regard and draw attention to any areas of
concern.' AngloGold Ashanti, Response to the FIAN/WACAM Commentary on Miningin Ghana, 2 June 2008.
173 Ibid.
Global CorporateSocial Responsibility,Human Rights and Law 263

Leading companies may find it necessary to separate themselves from the often
conservative position of their trade associations. That could translate into support for
new laws and add business weight to government-driven initiatives coming under attack
from sections of the business community. This happened in China with the new contract
law, 174 which was iercely opposed by American and European trade associations.1 7 Nike,
for example, dissociated itself from the trade associations' position. By its own admission,
Nike was an early supporter of China's labour contract law and went further to state in
a recent report that '[w]e encourage all governments to recognise and respect the
principles embodied in ILO Conventions 87 and 98 regarding freedom of association and
collective bargaining'.'76
Another example involves a developed country's own human rights situation. In the
UK, the Ethical Trading Initiative (ETI) lobbied for the enactment of the Gangmaster
(Licensing) Act (2004), which introduced additional legal protection for up to 600,000
workers in the UK food industry. 17 Another interesting area of lobbying in the UK
involves corporations suggesting to governments that CSR considerations be incorporated
into governmental functions such as public procurement. Fourteen leading companies in
the UK, including Shell, Tesco and HSBC, lobbied the government in 2005 to set clear
standards for sustainable public procurement. Now the UK Government has well-defined
targets in this area.1 78
Also in the UK, some retailers now sell alcohol below cost as an incentive to get
customers into their shops. For years the authorities have been concerned about the
negative social effects of excessive consumption of alcohol, effects that such marketing
strategies seem to worsen further. Because Tesco considers acting alone to be 'commercial
suicide' and a joint voluntary action with other retailers to be price fixing, which is illegal

174 For a good summary of the legal provisions in a comparative perspective, see Chris Gill, 'Come the
Revolution' The Guardian,24 June 2006,,,1804659,00.html.
175 The American Chamber of Commerce in Shanghai, the US-China Business Council and the European
Union Chamber of Commerce in China. See International Textile, Garment and Leather Workers'
Federation, 'Multinationals Accused of Hypocrisy over China Labour Law Reform', 2006, ww inosw:at. 12.
176 Tom Mitchell, 'Nike sees "Gaps" in China Labour Laws' FinancialTimes, 9 March 2008.
177 Sally Smith, The ETI Code of Labour Practice: Do Workers Really Bencfit Findings and Recommendations
from a Case Study in the UK, Report on the ETI Impact Assessment, Summary (Institute of Development
Studies, University of Sussex, 2006) p 9. ETI, 'Protecting Vulnerable Workers' in The EmIploy ment of Chinese
Aigrant Workers in the UK: Issues and Solutions, Workshop Report, University of Nottingham-International
Labour Organization, 2009, p 116.
178 In Germany, businesses have lobbied against similar regulatory frameworks, considering that sustainable
procurement is unworkable because of the problems of monitoring ethical contract criteria, and were
themselves partly responsible for the stalemate. Torsten Sewing, 'German Public Procurement: Dazed and
Confused in Berlin' Ethical Corporation,6 November 2007.
264 TransnationalLegal Theory

under competition law, it called for government intervention to regulate the sale of
alcohol.'7 9
Direct lobbying in favour of new regulations occurs in the environmental protection
field too. The BBC reported before the G8 summit of 2008 that a coalition of 99 large
companies, including British Airways, Deutsche Bank, EDF, Petrobas and Shell, had asked
governments to set targets on greenhouse gas emissions and to establish a global carbon
market. The CEOs of the companies, which span virtually every major industrial sector,
called for a responsible risk management approach that required political and business
leaders to take immediate action. They considered that 'business can't operate in a policy
vacuum-we need strong leadership from governments'; there are 'enormous
opportunities', particularly for the financial industry, given that, '[i]f leadership is there
to create a Kyoto successor that is based on cap and trade, then it creates a global carbon
market-and then we are in business'.1 8 0 In 2009, dozens of US-based companies wrote
an open letter to president Obama urging his leadership on climate change issues."s'
Before leaving the issue of corporate lobbying, it is worth mentioning that lobbying
has recently attracted increased attention in CSR circles under the label of 'responsible
lobbying'.182 This sprang out of concern that regular lobbying could undo the
contributions made through CSR efforts. KofiAnnan noted that [b]usiness must restrain
itself from taking away, by its lobbying activities, what it offers through corporate
responsibility and philanthropy'.
This section has discussed the varied influences that CSR has on rule-making. Two
aspects were discussed: first, the sequencing of law-making where the responsible practices
of leading CSR-oriented companies set in motion regulatory dynamics, and second,
corporate lobbying in favour of regulation. The CSRliterature has yet to respond with a
commensurate effort to understand the complex interaction currently unfolding. As
David Vogel has written, '[i]n fact, the most critical dimension of corporate responsibility
may well be a company's impact on public policy'. 84 There are both strong reasons for
and concrete examples of businesses supporting regulation. As global CSR slowly matures,
these dynamics will become increasingly relevant in shaping rule-making.

179 Patrick Wintour, 'Tesco wants Ministers to Ban Cheap Alcohol' The Guardian, 21 February 2008,
www' 'Tesco Backs Cheap Alcohol Limits' BBC
News, 21 February 2008,
180 Richard Black,'Business Chiefs Urge Carbon Curbs' BBC News, 20 June 2008,
181Peyton Fleming, 'Leading US Businesses call on President Obama to achieve a Global Climate Deal',
15 December 2009, 1162.
182 UN Global Compact (n 164); Mallen Baker, 'Corporate Lobbying: Rising up the CSR Agenda' Ethical
Corporation,7 July 2005.
183 Quoted in UN Global Compact (n 164) 24.
184 David Vogel, The Marketfor Virtue: The Potential and Limits of CorporateSocial Responsibility (Brookings
Institution Press, 2005) 171.
Global CorporateSocial Responsibility,Human Rights and Law 265

4.2 CSR and Specification of Law

Supposing there were political will to regulate, the responsibility to respect human rights,
as Ruggie presents it, would be the prime candidate as it captures a sensible expectation
widely held in society. Businesses should maintain their traditional role in society rather
than assume human rights responsibilities belonging properly to states, but their
operations should at least not harm human rights. Not harming sometimes entails simply
abstaining from certain conduct but also an obligation of due diligence in preventing and
repairing harm that business operations cause."' Due diligence can be burdensome or
not, 8 6 depending on its scope/reach and level of expected effort/diligence. However, as
explained above,18 7 the difficulty for the responsibility to respect, if legislated, comes from
having to specify the due diligence steps that the core company should take regarding its
affiliates. The scale of due diligence expected from the parent company changes
dramatically to the extent that impacts are geographically remote, layers of legal entities
within the business group are interposed between the parent and perpetrator of abuse,
some human rights issues have complex root causes and solutions, and effective
managerial standards and guidance have begun to emerge only recently. Precision in this
area of addressing human rights impacts is not easy to achieve.18M
If lawmakers decided to act and regulate MNEs' responsibility to respect human
rights, the law could at this moment only set out general expectations rather than lay
down the precise steps that must be taken in order for due diligence to be demonstrated.
CSR as discussed and developed in multistakeholder forums is an important medium for
businesses to think creatively and achieve specification of what due diligence actually
entails in practice when the scale and challenges reach a new level of magnitude. The
discussion below reveals awareness in CSR writings regarding such dynamics and presents
some precedents where the law and the regulated have interacted to specify what
compliance actually entails.

(a) CSR Writings

Morten Ougaard considers that three factors-the limits of private initiatives and moves
towards standardisation and authoritativeness-pull CSR towards a closer connection

185 Protect,Respect and Remedy (n 25) para 56.

186 See Martin Lipton and Kevin S Schwartz, A United Nations Proposal Defining Corporate Social ResponsibilitV
for Human Rights (Wachtell, Lipton, Rosen & Katz, 2008). See also the response arguing for the opposite by
Ira M Millstein et al, Corporate Social Responsibility for Human Rights: Comments on the UN Special
Representative's Report Entitled 'Protect,Respect and Remedy: A Franeworkfor Business and Human Rights'
(Weil, Gotshal & Manges LLP, 2008). Both available at!
187 See section 3.5 above.
188Note that the ISO has worked in the last five years on its ISO 26000 series, which is dedicated to CSR, but
positions the norms as guidelines to be followed rather than precise standards that allow certification.
266 TransnationalLegal Theory

with political authorities. The result, however, is unlikely to be deterrence types of law but
regulated self-regulation', that is, 4a pattern in which outer boundaries of acceptable
behaviour as well as stipulations of acceptable procedures for defining codes and
standards are determined by public authorities, thus creating a space of variation in which
state and non-state actors bargain and cooperate to set more detailed rules and
Major actors in the financial industry have outlined their views on how a sound rule-
making process for CSR would unfold. They concentrate, like much of the CSR
community, on the role of transparency. Importantly they see a clear role for lawmakers:
'Regulators are invited to shape legal frameworks in a predictable and transparent way as
this will support integration in financial analysis.'1 90 The detailed standards, however, are
left to evolve in a bottom-up fashion, a process where CSR and the experience of leading
businesses certainly feed in. As to the resulting regulatory regime:

We believe that regulatory frameworks should require a minimum degree of disclosure and
accountability on ESG [environmental, social and governance issues] issues, but rely on
market-driven voluntary initiatives to formulate detailed standards ... The formulation of
specific standards should ... rely on market-driven voluntary initiatives. We encourage financial
analysts to participate more actively in ongoing voluntary initiatives, such as the Global
Reporting Initiative, and help shape a reporting framework that responds to their needs., 9 '

On the same note, ISEAL, a group of CSR organisations and businesses, writes: 'In
creating a vision for the CSR landscape desired by civil society, the relationship between
voluntary instruments and regulatory measures is a critical one [and] there maybe a role
for umbrella legislation that gets companies to address CSR issues that are material to
their business."2
Errol Meidinger considers that legal systems will have to decide how to deal with
voluntary schemes such as environmental certification programs that establish
independent standard-setting and enforcement processes: 'Regardless of how legal
systems react, substantive legal standards are likely to be affected by certification systems
over time, as private standards suffuse public ones through environmental regulation,
tort law, financial regulation, and other avenues.'193 Others have explained in detail how
industry practices inform the legal standard of reasonable care that courts use in
negligence cases. 194 This interesting interaction between CSR and law is quite straight-

189Ougaard (n 76).
190 Global Compact, Who Cares Wins: Connecting Financial Markets to a Changing World, 2004, iv,
www" events/8.1/WhoCaresWins.pdf.
191Ibid, 33.
192 ISEAL Alliance (n 122).
193 Meidinger (n 150).
194 Webb and Morrison (n 152).
Global CorporateSocial Responsibility,Human Rights and Law 267

forward and ends up expanding the applicability of CSR practices to free-riders through
courts of law.195 Voluntary codes become indirectly more enforceable while the law
becomes more precisely defined.' 96
This scenario seems nevertheless remote in global CSR cases involving human rights.
Authors' observations seem generally to be derived from the environmental protection
area, where technical, quantitative standards are developed; other examples are from
health and safety, construction and the like.19 7 These cases are also illustrations of the
implications of CSR at the national rather than the transnational level and often involve
the responsibility of a single business rather than complex attribution of responsibility
within business groups. As a result, liability obtains more directly, straightforwardly, from
wrongdoing. Courts may accept that a legal obligation to exercise reasonable care under
the law of negligence exists given the proximity between parties or simply apply a specific
regulation mandating due care, if available. In a transnational case, however, such
regulations are absent and courts of law will often have difficulty accepting the existence
of a legal duty of care given the remoteness of harm occurring overseas and the complex
causality when layers of affiliates are involved. In these circumstances, courts of law may
simply not be a forum open to transferring CSR from the realm of voluntary practice to
legal standards.
So, despite precedents from other legal fields,'9 8 the ease or likelihood of judicial
enforcement of privately developed benchmarks can easily be overstated. But the
interaction itself is worth emphasising and, in situations not yet suitable for courts, could
be used in other fora with rule-making authority (parliaments and self-regulating
industry bodies, for example) where reasonableness of business conduct is discussed.

195 Certain conditions need to be met in order to have courts apply the new, higher standard of reasonableness
to the rest of the business community. See Kernaghan Webb and Andrew Morrison, 'Voluntary Approaches,
the Environment and the Law: A Canadian Perspective' in Carlo Carraro and Frangois Lcveque (eds),
Voluntary Approaches in Environmental Policy (Kiuwer, 1999) 247: '[I]t is clear that voluntary codes are
useful to the court both as examples of safe practices and as typical industry practices. While they are
important facts in any negligence action, they are not determinative of the outcome.' See also Glinski, who
regards it as a prerequisite that the private rule or practice must be followed by a representative variety of
corporations and that the peer group must be correctly determined. Carola Glinski, 'Corporate Codes of
Conduct: Moral or Legal Obligation?' in McBarnet et al (n 18) 137.
196 Neil Gunningham and Peter Graboysky, Smart Regulation: Designing Environmental Policy (Clarendon,
1998) 258-9.
197 Webb and Morrison (n 152) 127-8. Regarding technical standards, it was noted in a European context that
industry organisations and trade unions, beyond this consultative and lobbying role, may play a more direct
role in defining the rules covering their areas of interest. This role is one of co-regulation, 'where the
European legislator focuses on setting out the basic requirements, leaving it to these organisations or to the
standardisation committees in which they participate to define the technical data and specifications' The
Current State ofCo-Regulation and Self-Regulation in the Single Market, European Economic and Social
Committee, Single Market Observatory, EESC pamphlet series, 2005, p 8,
198 Webb and Morrison (n 152).
268 TransnationalLegal Theory

Furthermore, the legal significance of voluntary practices should not be discounted

because the legal system can establish an expectation of reasonable care not only though
prescriptive regulation or case law; it can also institutionalise these benchmarks through
contracts (public procurement, export credits and so on), transparency laws of a 'comply
or explain' type, and incentives to adopt sound procedures based on available CSR
It should be noted that the CSR initiatives referred to herein differ substantially from
the corporate codes of conduct that initially brought CSR into disrepute. The newer
frameworks are typically the result of multistakeholder processes. They outline the due
diligence steps a company could take in specific stages of implementing CSR (policy-
setting, impact assessment, reporting, verification and assurance and so on) or in response
to a particular challenge (conflict diamonds, revenue transparency, security in conflict
zones, labour issues in supply chains and so on). Such genuine CSR schemes are more
authoritative by virtue of their multistakeholder nature and therefore can influence more
easily the perceptions of courts and others as to where the due diligence bar lies.

(b) Regulatory Precedents and Reasoning

There are interesting cases where lawmakers deliberately set vaguely worded goals and
obligations and waited for the responses of the regulated community, which in the end
combined to specify the content of law incrementally. This argument was persuasively
made by sociologists of law in the area of equal opportunity law at the time that
affirmative action was being defined.
Following an analysis of employment law, Lauren B Edelman explains: 'Laws that
contain vague and controversiallanguage, laws that regulate organizationalproceduresmore
than the substantive results of those procedures, and laws that provide weak enforcement
mechanisms leave more room for organizational mediation than laws that are more
specific, substantive, and backed by strong enforcement."99 The similarity with regulating
CSR is striking. Not only are positive obligations discussed in both cases-an employer's
affirmative action and the corporate obligations to take due diligence steps-but the
regulation of CSR in due diligence aspects is likely to be at least as vaguely worded,
process-focused and weakly enforced as the employment law discussed herein.
Organisational and social processes combine to define legal compliance and lead to
the progressive articulation of the content of law. Such laws 'set in motion a process of
mediation during which organizations test and collectively construct the form and
boundaries of compliance in a way that meets legal demands yet preserves managerial
interests'.2 00 Frank Dobbin et al find the operation of law-more specifically US federal

199 Lauren B Edelman, 'Legal Ambiguity and Symbolic Structures: Organizational Mediation of Civil Rights
Law' (1992) 97AmericanJournalofSociology 1531.
200 Ibid.
Global CorporateSocial Responsibility,Human Rights and Law 269

law regulating private organisations-particularly interesting because compliance

mechanisms are often worked out between the organisations and the state: '[W]hile the
creation of compliance is iterative and haphazard in the United States, the mechanisms
that emerge from this process become powerful institutional models, not unlike the
solutions directly mandated by "strong" states.'2 01 The regulation of CSR is likely to
exhibit similar dynamics:

The construction of law is invariably contested: many voices contribute to the process of legal
enactment and vie for favorable interpretations of law once it is enacted. The more ambiguous
and politically contested the law, the more open it is to social construction. Law regulating
organizations is especially open to social construction because the corporate lobby is usually
successful in softening regulation that infringes on corporate interests, thus producing broad,
vague mandates ... That organizations are both responding to and constructing the law that
regulates them renders law 'endogenous'; the content and meaning of law is determined within
the social field that it is designed to regulate. 202

In terms of the shaping of corporate responsibilities, the experimentation conducted

nowadays voluntarily by leading businesses serves a similar function to the responses of
the regulated community in defining compliance following the passage of those
employment laws in the US. Returning to the most discussed type of regulation in CSR,
reporting regulations, it has been noted that law's content evolves through a dynamic
process within which the behaviour of users of information feeds in:

We do not need to wait until the social reporting process is more mature before mandating the
use of standardized indicators for social reports. It is important to remember that the adoption
of any transparency policy program is a dynamic process. The initial round of legislation will
fall well short of the ideals of social reporting advocates. However, based on past United States
experience with transparency programs, if the selection of indicators allows high benefits-to-
costs ratios for a sufficient number of users and disclosers, then it can develop into a robust
program ... Of primary importance is ensuring that those indicators meet the needs of third-
party intermediaries, which can help improve the benefits-to -costs ratios of both users and
disclosures of social and environmental information. 203

For CSR practitioners and companies, the concern has long been that' [m] andating social
reporting before the process is more fully understood through experience may result in
companies focusing on the form of the report over the substance')204 and thus the logical

201 Frank Dobbin, John R Sutton, John W Meyer and W Richard Scott, 'Equal Opportunity Law and the
Construction of Internal Labor Markets' (1994) 99 Amterican journal of Sociology 396.
202 Lauren B Edelman, Christopher Uggen and Howard S Erlanger, 'The Endogeneity of Legal Regulation:
Grievance Procedures as Rational Myth' (1999) 105 American journal of Sociology 406.
203 David Hess, 'Reporting and New Governance R gulation The Prospects of Achieving Corporate
Accountability through Transparency' (2007) 17 Business Ethics Quarterly453.
204 David Hess, 'Social Reporting: A Reflexive Law Appioach to Corporate Social Responsiveness' (1999) 25
Journalof CoiporationLaw 41.
270 TransnationalLegal Theory

conclusion is that social reporting legislation should be implemented in stages. Thus, it

has been argued that 'pre-emptive standardisation can be just as damaging as an
"anything goes" approach to reporting and assurance ... Regulation must be smart,
applied where it adds real value to the quality and usefulness of reporting to the company
or to its stakeholders.' 2 05 To hurry this standard-setting process by introducing overly
detailed legal standards for reporting would stifle innovation: businesses should 'be
allowed to develop guidelines, work out how to interpret sustainability information and
elevate it to the same level as financial reporting ... Sustainability reporting is young and
evolving and will therefore require time to mature.206
As shown in the field of corporate governance, legal obligations to 'comply or explain'
can be introduced to stimulate reasoning and discussion around voluntary standards.
For example, since 1993 a company listed on the London Stock Exchange and
incorporated in the UK is required to include in its annual report a narrative statement
as to whether or not it has complied with the non-legally binding Combined Code, along
with any reasons for non-compliance, should that be the case.207 The comply or explain'
provision pioneered here has spread in numerous other corporate governance regimes.
Most EU states have followed this approach of linking a non-legally binding instrument
(a code based on good business practice) to disclosure regulations of a 'comply or explain'
type. 208
The Company Law Review Steering Group commented on the philosophy behind
the 'comply or explain' approach: 'We regard the present structure of the Combined Code,
relying on disclosure of a "comply or explain" type, as powerful and entirely consonant
with our overall philosophy of relying, so far as possible, on effective transparency and
market responses.' 209 Furthermore, the European High Level Group of Company Law
Experts noted that'monitoring and reliance on market response and general governance
powers on the basis of a "comply or explain" rule can often replace formal legal

205 'Does Reporting Work? The Effects of Regulation' (2003) AccountAbility, Quarterly,September, AQ 21, p 9.
206 Furthermore, public regulators are often not acquainted with company or industry issues or might avoid
difficult issues for political reasons. Other arguments cited by authors relate to lack of demand by investors
for standalone, standardised reports, the 'excessive cost' of social reports, and potential legal liability for
matters disclosed. Mark S Schwartz and Archie B Carroll, 'Corporate Social Responsibility: A Three-Domain
Approach' (2003) 13 Business Ethics Quarterly503.
207 'A company that has not complied with the Code provisions, or complied with only some of the Code
provisions or (in the case of provisions whose requirements are of a continuing nature) complied for only
part of an accounting period, must specify the Code provisions with which it has not complied, and (where
relevant) for what part of the period such noncompliance continued, and give reasons for any non-
compliance.' London Stock Exchange Listing Rules, para 12.43A (emphasis added).
208 Wed, Gotshal & Manges LLP, Comparative Study of CorporateGovernance Codes Relevant to the European
Union and its Member States, Annex IV'Discussion of Individual Corporate Governance Codes Relevant to
the European Union and its Member States', 2002, p 224.
209 UK Company Law Review Steering Group (n 116) para 3.63.
Global CorporateSocial Responsibility,Human Rights and Law 271

enforcement in company or securities law'.2 1 0 Finally, scholars have noted that corporate
governance systems have developed to a point where some interactions, similar to those
highlighted in the CSR context in this article, cannot be ignored anymore. Thus,

corporate law increasingly depends on codes; the law leaves it to codes to fill in the gaps that
the law cannot or will not deal with. Where corporate law prescribes general standards, such
as 'best interests', 'good faith' or 'care and diligence', codes can supply the further detail ...
Rather than viewing corporate law as a discrete, self-referential category of law, we should be
concerned with the way in which corporate law interacts with other categories of law, and with
other mechanisms for influencing behaviour (such as codes), or non-legislative instruments,
to achieve specific outcomes."

This regulatory approach aims to stimulate innovation and debate among stakeholders
with the resulting benchmarks and social pressures being essential for achieving
compliance. Thus, according to Conley and Williams, many NGOs 'point out that
mandating particular behaviors is not always necessary; requiring disclosure and then
exerting public pressure in favor of the adoption of best practices codes can be as or more
effective'. 21 2
The interaction between CSR and law in shaping legal content makes sense from a
business perspective. Some companies may find a strategy of proactively trying to shape
legal content rather than opposing any regulatory involvement altogether in order to be
more productive. As one mining industry document noted: 'Companies that follow best
practice are much better placed than their competitors to influence how standards are
set and the direction of regulatory change [and] will have a competitive advantage when
this is taken forward and incorporated in legislation addressing sustainable development
issues.' 21 3 Another business writer has exposed a similar rationale: 'Unlike the airlines,
cement is not directly visible to the consumer, so cement companies don't have the same
profile. I call it enlightened self-interest. We know there is an issue. If we draw attention
to ourselves then we could attract criticism, but we could also have a voice in the
2 14
regulatory solutions. Otherwise we could have something thrust upon us.'

210 High LevelGroup of Company Law Experts, Report of the High Level Group of Company Law Experts on a
Modern Regulatoi Franieoikfor Cop any LaW in Europe (Brussels, 2002) 4, littp://
211 Stephen Bottomley and Anthony Forsyth,'The New Corporate Law: Employees' Interests' in IcBarnet et
al (n 18) 334.
212 John M1Conley and Cynthia A Williams, 'Engage, Embed, and Embellish: Theory versus Practice in the
Corporate Social Responsibility Movement' (2005) 31 Journal of Corporation Lau 1.
213 IIED, 'Breaking New Ground: Mining, Minerals and Sustainable Development', 2002,!
sustainable-markets/key-issues/business- and-sustainable-development/mining-minerals- and- sustainable-
214 David Adam, 'The Unheralded Polluter: Cement Industry Comes Clean on its Impact' The Guardian,
12 October 2007, 12/climatechange.
272 TransnationalLegal Theory

To sum up, the notion of due diligence is the contact point through which two distinct
systems-the legal system and the business sphere-manage to communicate and
interact. 15While voluntary codes and corporate practices are by their nature not legally
binding, they nevertheless set benchmarks. The courts in negligence cases decide whether
or not conduct was reasonable by weighing a multitude of considerations, including
business practice and possibly the relevant benchmarks voluntarily developed through
CSR. Employment law imposed affirmative action obligations and slowly specified the
requirements of law with an eye to the responses of the regulated community. Corporate
governance regulators employ 'comply or explain' strategies to tread a middle path
between legal prescription and non-intervention and stimulated debate around a set of
generally worded principles of good governance laid down in non-legally-binding codes.
As a result of this communication between the legal and business spheres, an interaction
between pure voluntarism and hard law unfolds where legal content becomes clearer.

4.3 CSR and Enforcement of Law

Whenever self- regulation is effective, this is directly relevant to enforcement aspects. Such
self-regulation fills a regulatory gap when laws do not exist or go unenforced. However,
CSR as an alternative to public regulation, as a temporary or permanent substitute for law,
is not the focus of this article, which instead concentrates on the interaction of CSR with
public regulation.
As Tom Fox et al have written, 'the rigid "voluntary versus regulatory" divide that is
promoted by a narrow starting point of CSR as "beyond compliance" does not make
sense in the context of developing country economies where tools to encourage
compliance with minimum legislation can be understood as a significant element of the
CSR agenda'. 2 1 6 The way companies skirt around their legal obligations through 'creative
compliance' has recently attracted attention in CSR writings under notions such as
Iresponsible compliance'. This was particularly so in the area of taxation, maybe the most
straightforward instance of creative compliance. Doreen McBarnet asks:

For companies holding themselves out as going beyond mere compliance, is compliance with
a strict literal interpretation of the law enough? Is meeting the letter of the law while deliberately
frustrating its spirit responsible compliance? Are the consequences of creative compliance
socially responsible? Is it socially responsible to use legal creativity to escape intended controls,
obviate employment rights or circumvent health and safety protections? Is aggressive tax
avoidance socially responsible? Is there not a certain irony in companies taking credit in their

215 See Gunther Teubner,'Substantive and Reflexive Elements in Modern Law' (1983) 17 Law and Society Reviewun
239; Gunther Teubner, 'Autopoiesis in Law and Society: A Rejoinder to Blankenburg' (1984) 18 Law and
Society Review 291.
216 Fox et al (n 72).
Global CorporateSocial Responsibility,Human Rights and Law 273

CSR reports for contributing to community education or health at the same time as using
every arguable form of legal creativity to avoid paying the tax that might have funded them
from the public purse?217

Thus, what counts as adequate compliance with law becomes an important part of CSR
itself. This modification in CSR thinking is essential, particularly in a developing country
context where legal loopholes are wide and enforcement of law is weak. Furthermore, as
section 3.6 above showed, formalistic responses to law, especially procedural regulations,
can render it ineffective in practice. Therefore, CSR writings on responsible compliance
are important in areas such as taxation, social reporting, impact assessment, setting up
internal corporate processes, and procedures for interacting with external stakeholders.
Alluding to the problem of formal compliance, the voluntary-binding dichotomy has
been questioned in the following terms: '[A]s long as the CSR discussion is primarily
reduced to the controversial issue of voluntary will versus regulation, it will impede itself
and any further progress and will run the risk of overlooking the fact that voluntary will
without rules will soon run aground, as will rules without voluntary will.'2 1 8
Unable to obtain effective and sustainable improvements through their isolated
efforts, companies in the extractive industries and those using labour-intensive supply
chains increasingly look to the root causes of their problems and seek the cooperation of
local actors, including local authorities. Companies discharging their CSR commitments
in a participatory fashion involve host governments and other actors in dynamics leading
to better governance.2 1 9 The possibility exists, then, that CSR has systemic effects that
make public regulation more effective by virtue of the self-regulating companies
extending CSR commitments to affiliates and entities other than the self-regulating
companies themselves.
The next three sections provide illustrations from the extractive sector and consumer
goods industries. Examples will be given of leading companies that encourage
governmental authorities to enforce their own regulations and implement their own
developmental policies.2 2 0

(a) Labour Rights in Supply Chains

CSR in many labour-intensive industries is driven by a number of large, brand-sensitive

companies, usually market leaders particularly vulnerable to bad publicity, while the large

217 Doreen McBarnet, 'The New Corporate Accountability: Corporate Social Responsibility Beyond Law,
Through Law, For Law' in McBarnct et al (n 18).
2i8 German Council for Sustainable Development (n 6).
219 This assumes that laws exist but are not enforced properly. If laws do not exist, then the same discussion
under section 4.1 above can be carried forward to CSR affecting law-making as well as law- enforcement.
220 For more examples see Radu Mares, 'Some Elements in Knowledge Gaps on Business and Human Rights
with regard to a Future Research Agenda' (2008) 25 NordicournalofHuman Rigits 378.
274 TransnationalLegal Theory

majority of corporate buyers of the goods produced in such industries run under the
radar and quietly take advantage of poor enforcement of labour laws. The most interesting
developments came from leading companies that initially adopted internal monitoring
methods and a strong policing role against suppliers not complying with the buyer's code
of conduct. Learning that this was an ineffective and expensive way to drive improvements
down the supply chain, 2 2 1 more cooperative approaches have been tried in recent years.
Some companies now deliver a CSR package consisting of both monitoring backed by
sanctions and training for managers on a variety of topics ranging from scheduling,
production planning, costing and human resources management to compliance with
local labour law or international labour standards.
Training in more efficient managerial practices is expected to create space for more
responsible business practices that obey national labour legislation and observe
international labour standards. This change is significant in that it may help to ensure
the sustainability of improvements over time.m Some buyer companies explain that their
codes and code-based monitoring of suppliers are 99 per cent about enforcing local laws
anyway, so implementing codes of conduct is far from imposing alien standards. For that
purpose, some purchasing companies take care to learn local laws, build databases of
applicable law and install systems to keep track of legislative changes. 2 2 4 Some companies
involve the host government in their effort to find solutions; thus the British retailer Asda
reports that it conducted 13,000 factory audits worldwide but also stated that' [w] ewant
to work closely with the Bangladesh government to ensure that they take our standards
as seriously as we do'.m
Some buyers have begun experimenting with enhancing the role that worker
representatives, trade unions and local NGOs could play in monitoring factories.
Companies such as Reebok, Gap, Levi Strauss & Co, Nike and Adidas have been occupied
with developing 'autonomous monitoring systems'. One case that attracted particular
attention was Reebok's facilitation of democratic labour-union elections in two factories
in China in 2001-2.26 Reebok facilitated the two elections and the training of the new

221 Nildas Egels-Zanden, 'Suppliers' Compliance with MNCs' Codes of Conduct: Behind the Scenes at Chinese
Toy Suppliers' (2007) 75 JournalofBusiness Ethics 45.
222 Business for Social Responsibility, Pilot Summary Report: Building Capabilities to Impiement CSR
ManageientSystens atICTSupliersin China, 2008, wwwlbr org/reportsBSR ICT_CapabilityBuilding
in Chinapdf.
223 Stephanie Barrientos and Sally Smith, The ETI Code ofLabourPractice:Do Workers Really Benefit?, Report
on the ETI Impact Assessment, Summary (Institute of Development Studies, University of Sussex, 2006).
224 MIcBarnet (n 217) 67.
225 'UK Firms "Exploiting Bangladesh"' BBC News, 8 December 2006, http:/new shcco ukc/2/hi/basiness
226 Alison Maitland, 'Reebok in China: Worker Elections in Two Supplier Factories, Sewing a Seam of Worker
Democracy in China' FinancialTimes, 12 December 2002; see also the Letter to the Editor written by Jill
Tucker (Director of Reebok's Human Rights Programs in Asia 1997-2005) in (2007) 3 CSR Asia Week 40;
for a critical look at this corporate initiative, see Marc Blecher, Trade Unions and Corporate Social
Responsibility in China, paper submitted at 'CSR in China' conference, Copenhagen, January 2006.
Global CorporateSocial Responsibility,Human Rights and Law 275

representatives in areas such as freedom of association, record-keeping, and running

meetings based on the idea that, '[w] hile monitoring has done much good, we cannot be
in all factories at all times. The most sustainable method of ensuring decent workplace
conditions is to facilitate the participation of workers in protecting their own rights.'
Other buyers act on similar reasoning. 228
With the experience accumulated since the mid-1990s, it is now better accepted,
including by leaders in the business community, that, besides increasing suppliers'
awareness of local laws and building their managerial capacity, the elements of a long-
term and sustainable solution would include the following: supporting improvements in
the capacity of governmental agencies such as labour inspectorates; empowering workers
through education, awareness-raising, and facilitation of workers' committees; and,
importantly, reviewing the very practices of buyers, such as late confirmation of orders,
that shortcut suppliers' efforts to observe labour standards.2 2 9
Reporting the results of a wide consultation process, a World Bank study concluded
that perhaps the point of greatest agreement among those consulted was that real,
systemic progress will not happen unless host country governments become more
involved, in part because buyers acknowledge that the costs of monitoring are becoming
increasingly high and in the long run are not sustainable without developing host-country
monitoring infrastructures. This is particularly true in light of the fact that some buyers
have started to look beyond the first tier of suppliers, opening up the possibility of
monitoring many more suppliers.230
It is not only the host governments that some companies have approached but also
international trade negotiators. For example, Levi Strauss & Co welcomed the free-trade
agreements (FTAs) concluded by the US with Colombia, Panama, Peru and South Korea
which commit parties to adhere to the core labour standards laid down in the 1998 ILO
Declaration on the Fundamental Principles and Rights at Work. According to Levi Strauss,

This requirement will help codify the importance of strong labor protections in trade
agreements and further advance LS&CO's longstanding commitment to responsible supply-
chain practices. In light of our history and deep commitment to labor rights, LS&CO supports
incorporating fundamental worker rights provisions with effective enforcement mechanisms
in all trade agreements whether multilateral, regional or bilateral. Such efforts are critical to
protecting worker rights in an environment of increasing globalization. LS&CO has been
advocating this trade-labor linkage with US and foreign governments since 2000.231

227 Reebok, 'Evolution of our Standards and Priorities', w re bok~com (accessed 14 February 2007).
228 Mares (n 220).
229 SRSC Consultation 2007 (n 1).
230 Helle Bank Jorgensen and Peder Michael Pruzan- Jorgensen, Strengthening Implementation of Corporate
Social Responsibility in Global Supply Chains(World Bank Group, October 2003).
231 cLevi Strauss & Co Applauds Bipartisan Agreement on Trade-Labor Policy' CorporateSocial Responsibility
News, 5 November 2007.
276 TransnationalLegal Theory

More technical labour standards, such as those relating to health and safety,have been less
stubborn regarding improvements than trade union rights.2 There are examples where
companies have cooperated with authorities to elevate standards to international levels
and spread them more widely in the industry through governmental intervention. The
Vietnam Business Links Initiative (VBLI) is a multistakeholder partnership in the
footwear industry dealing with occupational health and safety issues. Sportswear MNEs
Nike, Adidas and Pentland joined numerous governmental and non-governmental actors
with a view to 'strengthening the capacity to monitor, inspect and regulate working
conditions, to enhance the implementation of Vietnam's labour laws and to reflect the
continuous development in international standards'.233 The partnership monitors
factories with the expectation that, in the long term, the government will take
responsibility for monitoring and inspecting factories. Furthermore, the VBLI has
identified various practical and low-cost solutions that could be implemented more
widely, and aims to build the capacity of local institutions to maintain a sustainable
programme and to replicate this approach in other sectors.234 The VBLI has developed a
common health and safety code incorporating standards from the best practices of all
the participating sportswear firms and produced a 'Guidebook on OHS management in
footwear industry' that has been approved by the government to be applied in the
footwear industry in Vietnam. 2 35 It is not the first time that lawmakers have hardened
into law health and safety standards developed and applied by industries, as shown by
the regulatory incorporation of privately set standards in the United States. 36

(b) Security Provision in the Extractive Industry

The Voluntary Principles on Security and Human Rights (VP) 2 37 are an interesting
example where companies aim to exert influence on host governments to respect human
rights. While the VP cover the activities of both private firms and state security forces, it
has proved much more difficult to influence the latter type of security providers. With
their diverse participation-both host and home governments and large extractive
industry companies-the VP have been seen as a potential model of a multistakeholder
forum dealing with human rights. They are also a good illustration of the impact of CSR
on law and policymakers.

232 Barrientos and Smith (n 223) 2.

233 http://en.vbli.v n/bizcenter/index.html.
234 Peter Raynard and Maya Forstater, Corporate Social Responsibility: Implicationsfo Small and Medium
Enterprises in Developing Countries, United Nations Industrial Development Organization (Vienna, 2002)
235 Department of Industrial Safety Technology's Decision No 258/CV/KT AT-BCN, 23 July 2003.
236 Robert W Hamilton, 'The Role of Nongovernmental Standards in the Development of Iandatory Federal
Standards Affecting Safety or Health' (1978) 56 Texas Law, Revie~w 1329.
Global CorporateSocial Responsibility,Human Rights and Law

This forum is a special arena where leading companies can lobby host governments
to properly adopt and enforce regulations. The International Council on Mining and
Metals (ICMM) said that 'in terms of the potential role of companies in exerting pressure
on other parties, such as governments or joint venture partners, there is a lack of tried and
tested (or at least well-known) management tactics for exerting this pressure in non-
political or non-confrontational ways'.238 Indeed, participants and observers see the VP,
following experiences in Indonesia and Colombia, as an effective model for talking about
sensitive issues with governments'. 3
Companies also refer to the role of home states, which can and should reinforce the
corporate message that human rights should be respected. Home governments can and
should use diplomacy to engage host governments with the hope that a 'coordinated
approach among companies, home governments, and even NGOs to engage host
governments can reduce the exposure of any one company, and increase the likelihood of
progress'.240 This situation highlights the role of home states in the implementation of
CSR. Companies have argued in favour of a collaborative strategy to approach host
governments concurrently and in concert with home governments and NGOs. 241
Thus, through their lobbying and practice, companies in the VP can affect the
enforcement of existing human rights laws and even the adoption of new laws that draw
on the VP standards. One such example comes from Turkey, where a company appears
to have been instrumental in the passing of new legislation regulating private security.
The resulting regime prescribes obligatory training (including a human rights
component) for security personnel and requires a certificate of attestation for
employment. 242
More often than influencing the laws, the VP have been incorporated into contractual
arrangements. One such example comes from Indonesia, where five energy companies
together with the Indonesian Government's oil and gas coordinating body (BP Migas)
and the Area Police Command (Polda) signed memoranda of understanding that include
adherence to the VP. Another illustration can be found in Columbia, where the Ministry
of Defense and the state-owned oil company (Ecopetrol) decided to sign agreements
24 3
referring to the VP whenever the army provides protection for its oil operations.

238 ICMI, Clarity and Consensus on Legitimnae Human Rights Responsibilitis .for Companies Could Accelerate
Progress, Submission to UN Secretary- General's Special Representative on Human Rights and Business,
2006, p 6.
239 Information Working Group of the Voluntary Principles, 'Five-Year Overview of the Voluntary Principles
on Security and Human Rights', 2006, (hereinafter Overview of the Voluntary
Principles). See also 'Debate: Voluntary Principles on Security and Human Rights-Do the Voluntary
Principles Safeguard Human Rights?' EC Newsdesk, 2 June 2008,
240 Overview of the Voluntary Principles (n 239).
241 Ibid.
242 Ibid.
243 Ibid.
278 TransnationalLegal Theory

The VP present a case of neither individual corporate lobbying nor collective industry
lobbying, but it is the whole multistakeholder initiative, which is still voluntary, that can
influence governments and strengthen laws. Still, it is important to note the crucial
participation of individual companies in this process-their participation is a way of
discharging CSR that contributes to capacity-building and systemic solutions. The same
seems to be the case with the Extractive Industry Transparency Initiative (EITI), which
aims to increase disclosures of payments made by oil, gas and mining companies to
governments and thus enhance transparency regarding revenues that host country
governments receive from extractive projects. 2 4 4

(c) Planningfor Development in the Extractive Industry

The extractive sector has probably attracted most criticism for its environmental and
social impacts. It has been associated with severe environmental degradation of water,
soil and air, with macroeconomic imbalances ('Dutch disease'), with deaths and injuries
inflicted by security forces, with dispossession of land and disrupting the livelihoods of
local communities, with all sorts of infrastructure problems generated by large influxes
of workers, and so on.24 1 To pacify local communities, companies have traditionally
resorted to paternalist approaches which aim to satisfy the numerous needs of
impoverished communities.
But philanthropy fails to solve the problems, creates dependency, and increases
expectations to unmanageable levels. In some cases, poorly managed charitable projects
have themselves created conflicts within communities over the promised resources and
benefits. For example, while looking for quick fixes in their attempt to obtain the 'social
license to operate', some companies rushed into their negotiations with communities:
'whether wilfully or through naivety, companies have often divided communities and
played off one group against another, in some cases interfering with the election or
selection of community leaders and thereby contributing to conflict and violence.'246
Even well-intentioned development initiatives such as school construction or promoting
local economic activities can unintentionally feed into conflict.247
Things are nevertheless changing, and some companies are looking into ways to
improve their social impacts and therefore adopt participatory strategies that promise to
offer more effective, sustainable and holistic solutions. This shift in approach from
paternalistic to participatory ways of implementing CSR requires partners with sufficient
capacity to play their specific roles in the partnerships. This capacity certainly cannot be

245 Roger Moody, Rock & Hard Places: The Globalization of Mining (Zed, 2007).
246 Amnesty International, 'Nigeria Ten Years On: Injustice and Violence Haunt the Oil Delta', 2005,
247 Collaborative for Development Action, Social Investment Projects, Issue Paper, Corporate Engagement
Project, 2003, www~
Global CorporateSocial Responsibility,Human Rights and Law 279

taken for granted. Indeed, some companies acknowledge two bottlenecks, in terms of
insufficient capacity both of local government and of local community organisations.
Barrick, a gold mining company, explains its shift from philanthropy to a
participatory approach in Tanzania. The company is 'looking beyond philanthropy and
determining new and innovative ways to proactively engage local community members,
governments, and other stakeholders in community development initiatives. This
participatory development increases a community's sense of ownership in the initiatives
and leads to community capacity building.'24 This approach of participatory
development planning 'ensures that the community develops initiatives that are not
reliant on extensive, ongoing funding from Barrick and that build lasting capabilities
where they are much needed ... This type of participatory development is vital in making
certain that development initiatives are owned by the communities and local
government. '249
Following its own evaluation, mining company WMC (now part of BHP Billiton),
reterring to the Tampakan prospect in Mindanao, Philippines, explained that 'despite
being able to assist the host communities in their various needs, and giving concrete and
visible contributions to community development, their programs were generally
palliative, short-term and are reactive in nature. What is lacking is a genuine, purposive
capacity building process where members of the community are given the opportunity
to fully participate in the development processes.'210 Furthermore, the company has
worked with indigenous communities to obtain official recognition of their indigenous
status from their government, as a basis for royalty payments and legal protection of their
ancestral domains.
In order to pre-empt all kinds of conflicts generated by the establishment of a big
mine, companies can bring together affected communities, local authorities, the
government and international agencies in long-term strategic planning processes, as well
as ensure through regional development plans that benefits from mining investment will
reach local people. For example, Rio Tinto's approach in Madagascar included working
alongside the World Bank and the Malagasy government to support a regional
development plan for the surrounding area.2i

248 Barrick Responsibility Report, 2007, p 15,

%'20Reporto202007%20- %20English.pdf.
249 Ibid.
250 Community organising is governed by the following principles: consultative, participatory, enabling,
educative, and empowering. It has three strategic components: social preparation, whlich involves the
provision of capacity-building and enhancement training to development partners; accos to and control of
services; and social marketing or building strategic linkages and netwrork with other development entities.
MV Cabalda et al, Sustainable Development in the Philippin, Mineals Industry: A Baseline Study (MGB,
251 Rob Foulkes, 'Risky Resource Projects: BHP's Indonesian Achilles Heel' EC Newsdcesk, 31 July 2008,
280 TransnationalLegal Theory

Glenn Banks notices in his analysis of mining in Papua New Guinea an important
shift in emphasis in corporate strategies: from directly providing local-level infrastructure
to 'facilitating and nurturing the capacity of local-level government and institutions so
they are able to deliver, on a sustainable basis, community level development'.x The
author takes as an example the distribution of revenues from mining. Thus Tax Credit
Schemes operate on the assumption that local-level governance institutions are weak and
therefore companies provide directly the resources and capacity needed to construct
infrastructure in return for paying reduced taxes to the national government. However,
new corporate initiatives seek to avoid assuming the role and responsibilities of
government and rather focus on increasing the capacity of local authorities to deliver
services in a sustainable manner. These initiatives 'appear to offer a model [for] the
creation of sustainable local administrations, [but] they are still all at early stages of
development and implementation and their success will only become apparent in the
medium-term'. 5
Side-stepping local government can be justifiable from some angles, but there are
side-effects. Amnesty International notes that 'Representatives of several oil companies
have acknowledged ... that their projects may not only undermine the legitimacy and
capacity of the government, but also foster a "dependency mentality" and raise false
expectations in communities. This has led the inhabitants of often isolated Niger Delta
communities to turn to the most visibly powerful entity in their area, the oil company.>
A company can conform to the general opinion that the government is ineffective and
thus ignore and become a substitute for it, or, alternatively, the company can choose to
reinforce the government and improve the functioning of governmental bodies. 255 Instead
of bypassing local governments and finding themselves in the unsustainable position of
provider, some companies cooperate with the government as facilitators in development
policies and enhance the legitimacy of the government in the process. For example, Global
Alumina (GA) in Guinea has had to cope with high social expectations without falling
into the trap of replacing the local government for provision of services. Due to a lack of
governmental resources and weakness in governance, the grievances of the local
population mounted and were directed toward GA, which chose not to provide free
services directly; instead it became involved in the provision of services through the local
municipality with organisational assistance from GA. The company also cooperates with
several Guinean institutions with aview to strengthening local governmental capacities.26

252 Glenn Banks, Papu Ne Guinea: BaselineStudy, International lnstitute for Environment and Development,
253 Ibid.
254 Amnesty International (n 246).
255 Collaborative for Development Action, Working with LocalAuthorities,issue Paper, Corporate Engagement
Project, 2003, authorities-Pdf.pdf.
256 Global Compact Conference, Background Material: Ghana,2006, p 31.
Global CorporateSocial Responsibility,Human Rights and Law 281

In the same train of thought, Perla has argued:

The presence of large extractive corporations changes the structure of economic and political
incentives of local actors, and unleashes deep transformations in the political capabilities of the
public and private sectors. In developing countries where state and societal capacities are often
in short supply, extractive MNCs wanting to contribute to the development of the area could
become an expansive force that unintentionally belittles the public bureaucracy and
undermines the political capacities of other local actors, ... [A] better understanding of the
potential corrosive effects of CSR on the political capacities of local actors will help design
corporate interventions in the public realm that contribute to the growth and prosperity of
local communities.257

A commitment to CSR can result paradoxically in a deliberate refusal to have recourse to

remedies available to companies within the host state's legal system. The approach that
mining company Newmont has taken in Ghana in relation to compensation for land
indicates a shift to a participatory approach that rejects the quick fixes available through

[T]he company says it wants to seek a durable solution based on a transparent and constructive
negotiation process with all the farmers rather than to take a potentially divisive approach,
which may backfire in the long-term. For the same reason, Newmont tries to avoid a 'solution'
through government arbitration. Although this would likely be a cheaper option for the
company in the short term, company staff say that government arbitration would likely lead
to lower levels of compensation, and would reflect a process and outcome which are against the
spirit of earning and maintaining a social license to operate.


Some of the observations made in this article will doubtless appear redundant to those
leaders in business, civil society and governments who have for years met regularly to
forge collaborative strategies and applicable solutions to the specificities of various
industries and human rights contexts. Nevertheless, these experiences have seldom been
examined in depth for their governance implications from a regulatory perspective; rather,
when studied or commented on, they have tended to remain simply as examples of
commendable managerial practice and stakeholder collaboration. Furthermore, the
impression is that these experiences and valuable lessons have hardly been conceptualised

257 Cecilia Perla, Public Investments of Extractive Multinationalsin Developing Countries:A CautionaryTalc,
Oxford Policy Institute, 2007,
258 Luc Zandvliet and Emma Nikki Owiredu, Field Visit Report: Ghana Corporate Engagement Project,
Collaborative for Development Action, 2005, field
visit reportPdf.pdf.
282 TransnationalLegal Theory

in order to be diffused within and assimilated by the larger CSR discourse. A continued
neglect of a regulatory perspective on CSR impoverishes the CSR discourse and, worse,
it does not contribute to an enabling environment with respect to which and within which
the battles for social change and human rights protection are fought.
This article has pondered the significance of corporate voluntarism in the area of
human rights, and especially the significance of CSR for law. The widespread
understanding of CSR as 'beyond compliance' with law was challenged by highlighting
the manifold interactions between CSR and law in an attempt to move the discussion
beyond 'beyond compliance'. There is a need to reconsider the relationship of corporate
voluntarism with law to suit a particular CSR context: achieving respect for human rights
in developing countries through the practices of large corporategroups (MNEs). The aim
was to conceptually account for and illustrate the dynamism of CSR, whose significance
needs to be evaluated from a dynamic governance perspective eluding narrow self-
regulation assessments or misleading 'beyond compliance' characterisations of CSR. 2
CSR needs to be analysed and understood not simply as 'beyond compliance' with an
assumed legal baseline but in relation to the weaknesses of this baseline. In order to
improve the protection of human rights in developing countries, two corresponding
baselines need to be legally institutionalised. One is the 'governance baseline', that is,
governmental protections in the host country that already are or should be available to
rightholders. CSR is a response to the gaps in this governance baseline, which remains the
main protective mechanism for human rights. The other is the 'corporate baseline', that
is, the responsibility of a core company for its affiliates' operations where human rights
abuses take place. This baseline deals with the proper level of care or due diligence
exhibited at the top of the business group in order to prevent and redress human rights
abuses. The reality is that, in the context discussed here, both of these baselines have been
only faintly drawn.
The significance of CSR becomes clearer in relation to the process of
institutionalisation of the two baselines. On the one hand, the corporate baseline requires
innovation from both companies and lawmakers. From companies it does not require
the same amount of technological innovation as in environmental protection, but
primarily organisational innovation regarding proper due diligence steps to address
corporate impacts on human rights. From lawmakers in home states the baseline requires
regulatory innovations to find a middle ground between the corporate law principle of
legal separation of entities-companies are economically affiliated but legally separated
from the other entities in the business groups to which they belong-and an automatic,
strict liability of the parent company for affiliates' conduct. Regulators need innovative
policies to mobilise the regulatory potential of businesses and other private actors. On the

259 Wood and Logsdon (n 159) consider that business-government relations have not been properly dealt with
in discussions of corporate or business citizenship.
Global CorporateSocial Responsibility,Human Rights and Law 283

other hand, the governance baseline also requires regulatory and policy innovations from
host states; as discussed, authorities and civil society groups can capitalise on the impetus
provided by leading companies and their participatory CSR strategies to strengthen the
protection of human rights.
The interaction between CSR and hard law goes in both directions. As for law
influencing voluntarism, there are two main strategies. One sees lawmakers opening the
corporate 'black box' to mandate sound managerial procedures and systems rather than
set specific outcomes, while the other strategy is to regulate the environment in which
the company operates. In this way lawmakers aim to summon the regulatory potential of
corporate groups (intra -corporate channels) and of stakeholders surrounding a business
(extra-corporate channels). In other words, the law can either guide managerial practices
directly or can enable external stakeholders to do that and thus indirectly achieve law's
purpose of heightening levels of managerial care.
In both of these strategies, a degree of corporate discretion remains in spite of the
deployment of hard laws: companies can set themselves the precise targets and outcomes
towards which sound internal procedures are directed, and companies 'negotiate'
reasonable measures with the stakeholders supported by law. This amounts to a move
from self-regulation to regulated self-regulation, which often implies the use of procedural
regulations. Such procedural regulations do not displace discretion entirely, but guide it
and open new avenues for private stakeholders to weigh in their influence.
The interaction between CSR and hard law cuts in the other direction too:
voluntarism can also influence law by impacting positively on both the corporate and
governance baselines. Regarding the first baseline, CSR offers the experience of leading
businesses generating benchmarks of due diligence which makes it more palatable for
home state regulators to regulate other business groups and thus institutionalise the
corporate baseline. Policymakers can draw on this bottom-up norm-setting process to
create new legal expectations regarding due care (that is, a new responsibility for core
companies for their affiliates to respect human rights) and also better specify the scope
and content of the responsibility. CSR also influences the governance baseline as some
companies increasingly employ participatory methods to implement CSR and tackle the
root causes of human rights abuses. This can result in greater local capacities in civil
society and governments and support for human rights values that facilitate the adoption
of new laws and policies. Overall, the voluntary practices of leading businesses can have
an impact on law at various stages, from law-making to law- specification to law-
Due to scarce resources and in keeping with their 'watchdog' function, NGOs will
prefer hard law to self-regulation and soft law, and hard law measures that eliminate or
minimise managerial discretion rather than just guide such discretion. This naturally
skews perceptions away from an interactive perspective on law and CSR. Even when such
interactions are accounted for, NGOs are bound to draw attention to negative interactions
284 TransnationalLegal Theory

in the shape of conservative corporate lobbying and deregulation advanced under the
guise of voluntarism rather than positive interactions that facilitate the evolution of law.
This NGO perspective is not only valid but also necessary in the broader scheme of
things, as it puts the spotlight and pressure on political and corporate decision-makers.
This perspective is, however, a partial one and should not be allowed to remain the only
regulatory perspective on CSR. The more strident of the NGO discourses mischaracterise
CSR by not being able to account for the bottom-up rulemaking process that leading
companies and their stakeholders have set in motion and the good governance dynamics
that participatory ways of discharging CSR encourage.
The premium nowadays in CSR research seems to be on approaches that are not
simply deductive (from ethical, political or managerial principles/axioms), but 'light on
your feet' approaches that realise both the limits and the potential of CSR and are
informed by reference points compatible with, and sensitive to, the realities of a globalised
economy (with its imbalances), of governance contexts (with their regulatory gaps), and,
crucially, the experience of leading businesses. The practical imperative of strengthening
human rights in developing countries makes it important that the CSR phenomenon is
better understood from a governance and regulatory vantage point. Kell thought that we
,must encourage innovation and exploration. Illustrative examples of good performance
are still important, but increasingly we need to find ways to better connect them with
effective public policy making ... [F] resh efforts need to be made to identify best solutions
and scale them up.'2 60 Furthermore, returning to the earlier quoted IFC report's
identification of a'need to engage in deeper analysis of the relationship between national
laws and the norms of the burgeoning body of CSR-related codes of conduct', it is
important to note the report's subsequent observation that '[p]ublic sector agencies, as
sole sources of domestic legislative authority, have a unique role to play in catalyzing work
on these issues'.26


The keyword in understanding the regulation of CSR is not corporate 'voluntarism' but
'discretion'. There is no mutual exclusivity between hard law and corporate voluntarism
once one replaces the black and white notion of voluntarism with the 'layered' idea of
discretion with which hard law can interact in a variety of ways, from leaving discretion
untouched, to guiding it, to completely replacing it. The legal institution alisation of CSR
is not about a law that entirely displaces discretion, but a law that guides discretion and
opens new avenues for private stakeholders to weigh in with their influence. It is clear
that CSR can coexist with law while their complementarity still raises many questions.

260 Kell (n 95).

261 Ward (n 84) 26.
Global CorporateSocial Responsibility,Human Rights and Law 285

Corporate voluntarism and law coexist and interact to shape regulatory regimes. A
great part of what counts in CSR is about the practices of leading businesses actually
defining and helping to shift the legal baselines applicable to other companies. In the last
10 to 15 years, leading companies and their stakeholders have engaged in a bottom-up
process of rule-making around the corporate and the governance baselines.'CSR' is not
merely about persuading each and every company to 'self-regulate'. It is about proactive
companies that, through successful self-regulatory efforts and lessons learned from
unsuccessful ones, legitimise and specify slowly emerging norms that interact with law
and facilitate good governance dynamics. The law-in host states, in home states and at
the international level-has a crucial role to play in the institutionalisation of these two
It is unproductive to hold an unrealistic assumption about law at both its formative
and implementation stages, particularly in developing countries, and to overlook
dynamics that can strengthen the functioning of legal regimes. CSR as 'beyond
compliance' misrepresents the nature of CSR (emphasising voluntarism instead of
discretion), deceives on the range of policy instruments compatible with CSR that are
available to policyrmakers (acknowledging public policies as part of CSR but not hard
law), and forecloses the analysis of law-CSR interactions.
CSR as 'beyond compliance' is not untrue because it captures well the scenario of
companies acting exclusively, with no or minimal discretion, because of the deterrent
power of law. But it is partial because it remains oblivious to the dynamics and effects of
CSR and law-making and it is wrong in discouraging a fuller examination of CSR from
a regulatory perspective. Because CSR is a broad concept applicable to both developed and
developing countries and covering areas as diverse as social, environmental and economic
impacts with their particular challenges and solutions, sensitivity to context is paramount.
Most notably, the specific context of respecting human rights in developing countries
throughout the operations of large corporate networks such as MNEs requires an attuned
concept of CSR and an informed understanding of CSR's relation to law. A view of CSR
as 'beyond compliance' obscures the interaction between CSR and law-making and thus
fails to grasp the role of leading businesses in institutionalising the effective protection of
Once the polarised voluntary-mandatory view of dealing with MNEs and the limiting
concept of CSR as 'beyond compliance' are overcome, a start can be made-as this article
has sought to do-on the systematic examination of the mutual interaction between CSR
and law through which responsible business practices strengthen the operation of
regulatory regimes and law reinforces the CSR goal of respect for human rights.