Responsible business conduct in a global economy

Companies are now subject to intense public scrutiny. How should they respond? 

Companies today are facing multiple challenges that go beyond the traditional objectives of running a profitable business, serving shareholder interests, meeting the needs of consumers and providing a fair wage and good working conditions for employees.

Demands on business have become more insistent because the very process of globalisation has heightened expectations of what companies can or should contribute to environmental and social progress. Increasingly, companies are responding to these challenges by means of explicit business principles that set out their commitment to act as responsible members of society in the way they conduct their business.

When establishing these principles – whether formally expressed or an unwritten part of the corporate culture – companies need above all to maintain a balance between economic responsibilities to customers, employees and shareholders and their responsibilities as global citizens and members of the local communities in which they operate.

At issue is the place that business should occupy in society, an issue that raises a host of questions about how companies can or should – in their own sphere of influence – contribute to progress in areas such as the environment, labour conditions, and human rights. Many of these questions relate to the role of business in a global economy, and to the respective role of business and governments in the management of globalisation.

Companies can do much by setting an example through good corporate practice, as well as by working at the philanthropic level. They cannot be expected to assume responsibilities that are properly the preserve of governments. Therefore, business has a clear interest in stable and effective government that respects the rule of law and sees that it is applied.

One reason why companies are increasingly being pressed to solve problems outside their economic remit is that they are rightly seen as contributors to the positive aspects of globalisation. Research by various international organisations on the activities of multinational corporations has found that they have contributed to raising standards in the countries in which they operate.

Much is being demanded of companies because they are prime movers in making globalisation happen. Indeed, it is difficult to imagine the emergence of a global economy without the stimulus of business enterprise.

The only effective response is for businesses to demonstrate that they are both responsible and accountable. This means that business must engage in dialogue and debate, unafraid to justify itself and explain its constructive and indispensable role in society.

Above all, business must demonstrate that:

- global economic development is the best way to increase prosperity within and among countries, and to create opportunities for millions of people, especially in the developing world, to secure a decent life for themselves and their children;

- companies most effectively establish their credentials of good corporate citizenship by applying their own principles of corporate conduct. These may take the form of formal codes or unwritten values and internal monitoring, appraisal and reporting procedures that guide corporate operations.

To be effective, business principles should be developed and implemented by the companies themselves. Whether formal or informal, they can play an important role in bridging cultural diversity within companies and in enhancing awareness of societal values and concerns.

Internal guidelines and procedures on specific issues such as environmental management, safety and occupational health, or ethics and integrity, often supplement business principles.

Company principles must be appropriate to conditions in the different countries in which they operate. That is one reason why a “one-size-fits-all” approach will not work. Apart from the contrasting external conditions companies must face, they themselves differ greatly. History and corporate culture, the nature of the business and its goals, geographical location and size, are all factors to be considered. In the final analysis, it is corporate behaviour that counts – not the existence of a formal set of business principles.

Government-mandated or other external codes may be valuable as external benchmarks, but they are unlikely to be a viable alternative to voluntary principles developed by the companies themselves. And demands by unaccountable external groups seeking to impose codes and to assert the right to audit companies’ compliance are invariably counterproductive.

Rather than reacting to outside pressures, a company’s decision to adopt its own business principles should be motivated by the desire to express its values for the benefit of its own employees. Whether it disseminates them externally is a decision that must rest with the company. Clearly, the way to ensure a greater business contribution to environmental and social progress is not through prescriptive codes and regulations imposed from outside, but by persuasion and peer pressure. Business is opposed to the use of codes or guidelines as “soft law” by outside parties to judge the behaviour of individual companies.

The futility of attempting to impose a universal code of conduct on multinationals was amply demonstrated by the failure of negotiations that lasted 13 years in the UN Commission on Transnational Corporations. The effort finally foundered on an attempt to introduce an implementation procedure that would have judged individual corporate behaviour in light of the code’s provisions.

Far from being a disadvantage, the diversity of voluntary business initiatives and principles is a source of innovation in defining responsible business conduct. This is the spirit in which ICC, on behalf of world business, is supporting the Global Compact between business and the United Nations proposed by Secretary General Kofi Annan to promote human rights, improve labour conditions and protect the environment.

Kofi Annan cited universally agreed values expressed in the Universal Declaration of Human Rights, the International Labour Organisation’s Declaration of Fundamental Principles and Rights at Work, and the Rio “Earth Summit” Declaration on Sustainable Development. All three declarations, primarily directed at governments, are also relevant to business and provide an over-arching framework of values that companies can use in establishing their own individual business principles.

Many companies also support general business codes produced by business and other organisations, and often they incorporate passages from them in their own internal rules of conduct.

Some, among them the OECD Guidelines for Multinational Enterprises, provide broad recommendations, while others give more specific or sectoral guidance, like ICC’s Rules of Conduct on Extortion and Bribery in International Business Transactions, the ICC Business Charter for Sustainable Development, and the various ICC marketing and advertising codes. Just because company codes of practice are voluntary in the sense that they are not imposed from outside, it should not be thought that they are without teeth. In fact, company discipline can ensure that they are implemented.

Companies today need to be seen to be maintaining high standards of corporate citizenship. They must pay careful attention to external reactions to their activities. Transparency and effective communications are vital factors.

Perhaps more than in the past, business needs to take part in dialogue and debate, and to demonstrate to opinion leaders and a wider public that it is regulating itself effectively and is a positive force in the world.

After all, companies make a powerful contribution to the defeat of poverty and improving the quality of life. They do this by creating wealth and jobs, promoting scientific and technological progress, and constantly improving products and services under the stimulus of competition.

As the world business organisation, the International Chamber of Commerce is uniquely well placed to deliver this message. Among ways that it is doing so is through a dedicated section of its website (www.iccwbo.org) on the business contribution to the Global Compact, which I commend to readers of this book.

©OECD Observer No 221/222, Summer 2000




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