A view from the South

The expanding role of corporations in general and multinational corporations in particular has helped rekindle a discussion on the social role of business. Although reminiscent of the social advocacy of the 1970s, the current debate is fundamentally different in many respects. Today the focus is more on issues of corporate responsibility, with multinational corporations increasingly seen not as mere agents of profit and technological change, but as the driving force behind globalisation itself.

Globalisation is a two-sided question. On the one hand, it holds out the prospect of a sustained cycle of economic growth and development, with great benefits for developed and developing countries alike. But on the other hand, globalisation also highlights the basic asymmetries between developed and developing countries. In fact, it is often of immediate benefit to the former more than to the latter.

Developing countries, in particular the major emerging market economies, have undertaken far-ranging reforms in recent years, mostly so as to be able to take advantage of globalisation. Hitherto inaccessible markets have opened up to foreign direct investment and protected industries have embraced competition as essential to a healthy, growing economy. But their efforts have often gone unrewarded, as their reforms have failed to elicit an adequate response from the developed countries in general and multinational corporations in particular.

There is a lingering mistrust of multinational corporations in several quarters, for which multinationals themselves are at least partly to blame. It would be a mistake to accept uncritically the claim that most multinational corporations tend to follow the law as written, not as enforced, and that they generally apply the same standards in host countries as they are expected to apply at home.

Many multinationals have acquired a less than sterling reputation in dealing with consumer issues or with issues of public health and safety, especially in the developing world. The catastrophe at the Union Carbide chemical plant at Bhopal, India, in 1984, is a much cited example of negligence by a powerful western company operating in a poor country. Thankfully, the tragedy is safely in the past and there has not been a recurrence of this sort of thing since, at least not on a comparable scale. Nevertheless, MNEs have all too often disregarded the need to direct their operations towards the effective promotion of sustainable social and economic development. Fortunately, this has begun to change.

Virtually all major multinationals have already adopted mission statements, codes of conduct and other management systems that seek to address issues like environmental and social standards. The aim has often been to advance the goal of corporate social responsibility in the broad sense.

No longer is it fully accepted that corporate responsibility is confined to the single goal of maximising shareholder value. Instead the maximisation of value for all stakeholders and for society as a whole has gone beyond cliché to take on proper currency in the debate.

Multinationals can contribute much to our societies by improving the quality of life in host communities and empowering the local population, promoting sustainable development, raising skill levels, unlocking local scientific and technological innovation and fostering a pro-competitive, more robust, international business environment. But it would be a mistake to think that the good corporate citizens of tomorrow will emerge purely through self-regulation.

And while the OECD Guidelines for Multinational Enterprises may be voluntary and non-binding, voluntary does not necessarily mean optional.

The Guidelines are certain to contribute to strengthening the standards of corporate responsibility. Multinationals will come under increasing pressure to observe those standards. Hopefully, they will also be held accountable for any deviation from them. This should help to restore trust in multinational enterprises.

It is important that the Guidelines enjoin the active support of all relevant players, not least the developing countries as hosts to multinational corporations. But that support will not be forthcoming if the Guidelines are considered as an adjunct to investment-distorting policies, under the guise of concern for such issues as core labour standards and environmental protection.

The Guidelines acknowledge that primary responsibility for dealing with labour standards, the environment and sustainable development lies with national governments and specifically mandated international organisations. They further acknowledge that these issues fall within the competence of the OECD only to the extent that, as custodian of the Guidelines, it may oversee the implementation of their provisions.

It is fair to say that the Guidelines do not seek to prescribe a single governance framework for all countries at all levels of development. They avoid the temptation to be over-prescriptive, as standards that are valid at present may no longer be so in future. They allow considerable latitude for developed and developing countries to devise equivalent and suitable standards and practices consistent with their needs and capabilities. Governance must be progressive if it is to be effective. Which is not to say that the Guidelines have failed to be aspirational.

One could mention the recommendation that multinational enterprises neither solicit nor offer bribes to foreign public officials. The OECD bribery convention does not provide for any legal sanction in the event of a company acquiescing in a demand for a bribe, even if the company originally had no intention of offering such a bribe. But the Guidelines call on enterprises neither to "offer, nor give in to demands" to pay public officials. The Guidelines have thus gone beyond what is required by the OECD bribery convention itself, in an attempt to tackle the demand as well as the supply-side of bribery.

On an ecological note, one could also mention the recommendation that multinational enterprises apply the precautionary principle, hitherto the sole responsibility of governments, to their operations, with a view to avoiding potential risks to the environment.

Consumer interests is another vital issue that the Guidelines have sought to address. There is need for a prompt, efficient and transparent response by foreign multinationals in the event of serious threats to public health and safety arising out of the consumption or use of their products. There is also need for full co-operation with host country authorities in dealing in a speedy and efficient manner with such threats. Two obvious industries where the Guidelines may prove useful in this respect are food and pharmaceuticals, which have a less than sterling reputation in many home and host countries, with tales particularly in developing countries of tainted baby formula or drug mix-ups simply too common for comfort.

Research and development is another key issue that is often considered part of a corporation’s core business and a key element of its competitive strategy. The involvement of foreign affiliates in R & D, however, is seldom a part of global corporate strategy and is therefore limited at best. Yet R & D figures prominently at the high value-added ends of most businesses, particularly in today’s knowledge economies.

The science and technology chapter of the Guidelines, while modest in scope, has the merit of highlighting the importance of research and development as a catalyst for change in host countries and as a major stimulus to sustainable development. And it draws attention to the pivotal role of multinational enterprises in promoting the transfer of technology from home to host countries.

One should bear in mind that, as its name suggests, the OECD is an organisation devoted not only to devising best practices and codes of conduct, but also to promoting policies conducive to sustainable economic and social development. From the perspective of Brazil as one of the world’s very largest emerging market economies the concept of corporate responsibility is indivisible from the long-term goal of sustainable development. Multinational corporations should bear that in mind as they move forward in this increasingly competitive global economy.

©OECD Observer No 225, March 2001 

Economic data

GDP growth: +0.6% Q1 2019 year-on-year
Consumer price inflation: 2.3% May 2019 annual
Trade: +0.4% exp, -1.2% imp, Q1 2019
Unemployment: 5.2% July 2019
Last update: 8 July 2019

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