Regulations for Corporations:

A historical account of TNC regulation

Désirée Abrahams

October 2005

*** Désirée Abrahams would like to thank Peter Utting of the United Nations Research Institute for Social Development (UNRISD) for his support in her initially drafting "Regulations for Corporations: A Historical Account", whilst working as a Research Assistant for UNRISD in Geneva, Switzerland.

Contents

Post World War Two: The ascendance of transnational corporations3

The influence of the boycott 4 The rise and fall of the United Nations Centre on Transnational

Corporations 5 The onset of a Neoliberal ideology 6 Self-regulation takes centre stage

7 The multifaceted self-regulatory approaches 8 The birth of non-governmental forms of regulation 9 Civil regulation: a mélange 10 The complexity of multistakeholder initiatives

11 Diverse approaches in the new millennium 12 Civil society and the World Summit on Sustainable Development 14 Vestiges of the United Nations Centre on Transnational Corporations

15 The Framework Convention on Tobacco Control: a sign of things to come?

17 National law with cross border implications: a new trend? 18 Politics interfering with justice?

20 The Business Leaders Initiative on Human Rights: A glimmer of hope? 21

Conclusion 22 Bibliography 26

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Regulations for Corporations

Post World War Two: The ascendance of transnational corporations

The political and economic global system has dramatically changed since the mid 1940s when the United Nations was established. At the time, there were only a handful of financially opulent transnational corporations (TNCs), unlike today where there are over 65,000 TNCs with 850,000 foreign affiliates (UNCTAD, 2003). In fact, TNCs have not only attained more economic power over the years but also, political clout through their ability to financially support and influence political systems (Korten, 1995).

It is no secret that some transnational companies financially benefited from the Holocaust. However, it was not only German companies that benefited from this atrocity. Other TNCs financially gained including some well known brands like Ford, General Motors and IBM1 (Wallace, 2003, Laurent, 2003). This dark history appears to have been an instrumental time in the economic progression of several contemporary transnational corporations. A handful of the top 100 non-financial TNCs found in the World Investment Report (2003) can be associated with this era (UNCTAD, 2003). But despite this association, in general this period was state centric and the influence of TNCs was relatively small compared to government. Their main role was one of manufacturer. Only later did some TNCs emerge and assume a financial lender role. Any political favours regarding trade and new markets they gained from business liaisons with government were hidden from the public domain. Yet over time, increasing evidence of such opaque business relationships emerged.

The first took place in the 1950s when the United Fruit Company helped orchestrate and overthrow the democratically elected Arbenz government of Guatemala. In 1954, President Jacobo Arbenz intended to implement a redistributive land reform bill and consequently, was perceived as a threat to the US transnational company (Schlesinger and Kinzer, 1999). During the invasion, Arbenz sought international redress from the United Nations Security Council. However, both Britain and France assisted the US by abstaining on Guatemala’s request for Security Council resolution S/PV. 675 para 194-195 to be put before the Committee2 (Curtis, 2003:102). The invasion continued and Guatemala returned to its historical right-wing rule and banana republic status3.

1 There is now a growing body of work documenting the transnational companies that profiteered from the Holocaust. 2 Security Council resolution S/PV. 675para 194-195 was put before the Security Council on 20 June 19543 A banana republic is a colloquial word “applied to a small state, especially in central America, whose economy is almost entirely dependent on its fruit-exporting trade”. (Oxford English Dictionary, 2001)

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Before long, this scandal was supplanted by another of the same token. The coup d’etat in Chile, first suggested by Pepsi Cola, later commanded by the International Telephone and Telegraph Company (ITT), carried out by the CIA and implemented at the grassroots by Augusto Pinochet took place in 1973 (Palast, 1998). At the time, both companies were big investors in Chile, especially ITT, who had a lot of money invested (Palast, 1998). Yet at the height of the Cold World era, where the domino theory4 obsessed the Nixon administration, it became critical that Chile should not fall under communist rule. Allende was the leader of the Popular Unity coalition, a socialist-communist party that had dreams of a nationalized economy and who were staunchly committed to nationalizing the copper industry. Notably, this scenario ran counter to the ITT and Nixon administration that had a financial stake in Chile5.

The influence of the boycott

Corporate interference in domestic politics was not the only corporate abuse being committed during this period. Human, societal and environmental violations by transnational companies also came to light; some of them spinning a consumer boycott and campaign that further catapulted the call for international regulation. What started off as a small boycott in the early 1970s by a few mother and baby groups in Europe, grew to be one of the longest sustained campaigns against a transnational company. Before long, mother and baby and health groups from around the world unanimously opposed Nestlé’s marketing of infant baby milk formula in developing countries (Richter, 2001). Critics proclaimed that Nestlé’s adverts were deceptive (Richter 2001; Baby Milk Action Update, 1996). The argument followed that by using illusory, visual imagery Nestlé promoted their infant formula, which simultaneously discouraged breastfeeding. By providing free samples and supplies to poor health facilities and giving financial incentives to health officials based on their promotion of the product, some believed that Nestlé was engaging in unethical marketing (ibid.). At the same time, countless studies showed that since the introduction of the formula into developing countries, rates of infant mortality had started to rise (Jelliffe, 1968). This concern reached the United Nations (UN) and in 1970, the UN Protein-Calorie Advisory Group raised doubts about the industry’s practices6 (IBFAN, 2004).

By the 1960s the apartheid regime was firmly rooted in South Africa. Amongst other strategies, global boycotts were levied at the South African apartheid government and any company engaging in business with them. A gamut of boycotts prevailed including consumer, academic, economic, cultural and sport7. It can be said that the financial

4 Domino theory is a political theory that believes if one nation comes under Communist control, neighbouring nations will fall under Communist rule (like a set of dominoes). 5 In 1998 The Observer came out with new information on the relationship between the Chilean government and US transnational companies, “A Marxist threat to cola sales? Pepsi demands a US coup. Goodbye Allende. Hello Pinochet” G. Palast, The Observer, London, November 8, 1998.6 The Sub-Committee on Nutrition was established in 1977 as a partial successor to the Protein-Calorie Advisory Group of the United Nations system. 7 Information on the various boycotts levied at the South African apartheid regime can be gathered from http://www.anc.org.za/ancdocs/history/boycotts/

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involvement of a few international TNCs indirectly helped to prop up the regime. Reaping financial rewards also made them directly implicated. With other past corporate misdemeanours near in view, together these incidents produced the final push towards the creation of a United Nations organization that would concentrate on examining the effects of transnational corporations on society.The rise and fall of the United Nations Centre for Transnational Corporations

The United Nations Centre for Transnational Corporations (UNCTC) was inaugurated in 1977. Its mandate was carefully drafted to include monitoring transnational companies’ positive and negative, social and environmental impact. However, the arrival of the Centre gave rise to mixed emotions. Transnational companies and some developed nations were openly hostile, while, developing countries felt elated after years of negotiation for its existence. Calls for the UNCTC came within petitions for a New International Economic Order (NIEO), which at that time occupied a unique political standing due to its drivers being drawn from the Non Aligned Movement8. One of the main posits of the NIEO was the assertion for economic self-determination. The Declaration on the Establishment of the New International Economic Order stated that, “every country has the right to adopt the economic and social system that it deems to be the most appropriate for its own development and not to be subjected to discrimination of any kind”9. But as years passed, it became obvious that neither the NIEO nor the UNCTC were destined for an easy path ahead. Northern governments felt threatened by the Southern governments’ solidarity, exhibited in their unanimous demands for international laws to safeguard their natural resources, trading rights, as well as secure access to capital and technology (Girvan, 1976; Gleckman, 1995).

Following on from the establishment of the UNCTC there were other regulatory multilateral initiatives established for transnational corporations to consider. In 1976, the Organization for Economic Development (OECD) established the OECD Guidelines for Multinational Enterprises. Although it mainly concentrated on aspects of corporate governance, four of the nine areas addressed employment, industrial relations, the environment and consumer issues. In addition, the International Labour Office (ILO) established the Tripartite Declaration of Principles concerningMultinational Enterprises and Social Policy in 197710 that drew on a range of ILO labour rights conventions and recommendations. In 1980, the General Assembly adopted the Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices under the auspice of the United Nations Conference on Trade and Development (UNCTAD). And finally, after years of global protest concerning the unethical marketing practices of Nestlé in particular, the United Nations Children’s Fund (UNICEF) and the World Health Organization (WHO) jointly spearheaded the International Code of Marketing of Breast-milk Substitutes that was adopted in 1981. But despite the introduction of regulations that directly affected the working activities of

8 The Non-Aligned Movement is a movement of 115 members representing the interests and priorities of developing countries (http://www.nam.gov.za/background/history.htm).9 GA Res 3201 (S-VI) of 1974 in (1974) 13 ILM 71510 Its unique tripartite set-up has often been quoted as one of the successful ingredients of the ILO’s success. This consistent composition has forced agreements to be reached that are beneficial for all parties (Gallin, 2003).

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transnational corporations, each received limited endorsement from TNCs (Raghavan, 1984; Tapiola, 2001). All possessed a non-binding legal stature that implied voluntary status. Essentially, TNCs did not feel compelled to implement the recommendations, or use them as a guide for their ensuing self-regulatory efforts. Throughout this period, the Heritage Foundation, an influential US conservative think-tank acclaimed that the NIEO ideology would permeate the United Nations and this would have damaging repercussions for the global political economy (Bandow, 1985). Yet this was far from the truth. Developing countries found it hard to determine their economic path during the Cold War era, a time in which the Soviet Union and US battled for their allegiance. It became impossible to implement the handful of multilateral regulations that had been created in their interest, and the ensuing bad economic climate that would prevail only made their socio-economic situation worse.

The onset of a Neoliberal ideology

After the oil crises in 1978 and 1979 that contributed to high financial borrowing by developing countries, the 1980s hit government purse strings hard and the infamous debt crisis ensued.11 With the debt crisis economically crippling developing countries, their need for foreign direct investment (FDI) grew. At this time, FDI was slowly becoming the primary source of international monetary lending and before long; it became the main preoccupation of Southern governments. In addition, the Structural Adjustment Policies (SAPs) imposed upon many developing countries made their social and economic situation worse. Public goods and services became privatized under SAPs and in consequence, levels of human welfare deteriorated (Cornia, Jolly and Stewart, 1988). Soon after, the debt crisis hit a critical point of departure. The previous decade’s question concerning the quality of trade was supplanted by the quantity of aid, as Southern governments lined up to receive their aid packages, courtesy of the World Bank and the International Monetary Fund (IMF). Thrust against this climate, it became impossible for developing countries to rule in favour of a regulation that may offend transnational corporations, their potential development investors.

In addition to the debt crisis, a new economic orthodoxy emerged in the 1980s. Neoliberalism spoke of liberalization, privatization and commensurately, deregulation. The Northern business community unanimously perceived an international law looking like it would prevent the free market from maximizing its full potential as undesirable. Rather, trade laws that awarded incentives for increasing market penetration was sought and later materialized, owing to the hard lobbying of influential TNCs and industry confederations. At the same time, the World Bank and IMF worked hard to push the neoliberal agenda in Southern countries. Before long, many Southern governments had undergone a sea change in thinking and began to “believe” and promote the virtues of the neoliberal ideology. Evidently, it was not long before the UNCTC was perceived more as an emblematic threat than an independent body. Soon after, funding was removed and projects ceased. Gradually the work of the UNCTC diminished. In the end, the proposed Draft Code of Conduct for Transnational Corporations that seemed to be making

11 For good sources on the 1980s debt crisis see "Bringing it back home; the impact of the debt crisis on all of us" (Jubilee Plus, 1998).

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headway until then was abandoned just before the Rio Earth Summit in June 1992 (Khor, 2001). Sidestepping the UNCTC’s proposal at the Summit, the Business Council for Sustainable Development (BCSD) together with the International Chamber of Commerce (ICC) presented voluntary corporate self-regulation (Karliner et al., 1999; Richter, 2003b). This proposition received an official seal of approval and consequently, with its raison d’être destroyed, it was only a matter of time until the UNCTC was disbanded in 1993 (Khor, 2001; FOE, 1998).

Self-regulation takes center stage

Before the United Nations Conference on Environment and Development that was held in Rio de Janeiro in 1992, business was inching into the international development scene with greater zeal. At the time, it was posited that sustainable business practices would bring new advantages to the traditional business model. The three oft-quoted benefits were; competitive advantage, ability to capture new markets and catalyst for innovation (Zadek and Weiser, 2000). These proclaimed business assets received wide appeal among industry sectors and before the Conference; many leaders of industry joined the newly created sustainable development business associations. The World Industry Council for the Environment (WICE) that later merged with the Business Council for Sustainable Development (BCSD) to become the World Business Council for Sustainable Development in 1997 was a forum that allowed corporate leaders to publicly display their commitment to sustainable development.

At the time, WICE and BCSD both advised business to pursue self-regulation. It was openly touted that this would allow innovation and creativity to flourish (Haufler, 1998). Efficiency gains were alleged to emanate, in addition to increasing one’s reputation and leadership image (ibid.). It was also perceived that business could respond to the regulation void in a timely and effective manner. Strategically, business associations exaggerated the “red tape” view of government. This theory spread unchallenged due to the Conservative political dominance witnessed during the 1990s. The Reagan-Thatcher era curry-favoured business and it was during their tenure that close relations between industry and the government matured. Thus, in keeping with the disdain for government interference, self-regulation was sold as prevention against the onset of national and international regulation of TNCs. In conclusion, such acclaimed assets inspired businesses to espouse sustainable development and support the International Chamber of Commerce’s Business Charter on Sustainable Development that was launched at the Rio Earth Summit.

Yet attempts to establish the Charter came amid speculation that it was a counter attack to the mounting calls for a proposed Code of Conduct by the United Nations Centre on Transnational Corporations (Gleckman, 1995). The UNCTC’s Recommendations on Transnational Corporations and Sustainable Development did not receive a warm welcome from business and Northern countries at the Conference and instead, was shelved for the ICC’s Charter (Gleckman, 1995). Without acknowledgement or citation the ICC incorporated some of the UNCTC’s Recommendations, and by default, were awarded chief architects of Section 30 of Agenda 21 entitled “Strengthening the Role of

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Business and Industry” (Gleckman, 1995). Given this significant move for the ICC and the overall cordial embrace received by other business associations, the Rio Summit has been hailed as the first official sign of business’ inclusion into the international policy making world (Paine, 2000). However, as the years passed and a gamut of self-regulatory initiatives developed, genuine proof of their commitment to sustainable development became harder to find.

The multifaceted self-regulatory approaches

After the Summit many companies brought out reports highlighting their environmental performance, achievements and aspirations for the future. The incentives were abundant. Consumers believed they purchased goods and services from an environmentally conscious company; investors felt reassured that the company could combine their profit-driven ambition with concern for a sustainable future; and workers sought security from the new environmentally and ergonomically friendly working practices that were endorsed12. Corporate reporting became so important that several organizations developed awards to reward companies for their written achievements13. But as the reports arrived, so did the criticisms. Many groups from civil society complained such efforts amounted to corporate public relations (Macalister, 2002). Rather than providing a comprehensive picture, it was levied that reporting concentrated on “best practices” and hid the bad environmental working practices that still prevailed (Utting, 2002). It was also postulated that such positive reports steered attention away from the constant lobbying of international environmental agreements, frequently undertaken by TNCs (INFACT, 2003).

Corporate and industry codes of conduct also multiplied after the Rio Earth Summit. The Summit awarded them instant credibility whilst, questions concerning independency and objectivity were quashed. Initially these codes dealt with a narrow range of issues. Piecemeal approaches to administer the “triple bottom line”14 became the brief, and in reality, evidence confirmed this approach. Resultantly, environmental management systems and occupational health and safety concerns became main targets. Overnight, environmental management spurned a sub-industry. Improvements in recycling were documented in most advanced economies, also stimulated by the scares of a looming landfill crisis in the US (CSM, 2002). Yet while these improvements were being made, other significant development problems were being ignored.

Utting (2000) notes that the 1990’s witnessed some of the worst environmental and social abuses committed by transnational companies. The environmental abuses of Royal Dutch/ Shell in Nigeria, illegal logging in South East Asia and the plight of sweatshop workers dominated the decade’s media headlines. This suggested that the imposed self-

12 Evidence of this concerning the Royal Dutch/ Shell company can be found on the Pensions Investment Research Consultants website http://www.pirc.co.uk/shell9.htm. 13 Interestingly, subversion of corporate social and environmental reporting has developed, highlighting the importance perceived in corporate reporting. Friends of the Earth’s “Failing the Challenge: The Other Shell Report” (FOE, 2002a) mimics “Meeting the Energy Challenge: The Shell Report 2002”. 14 The triple bottom line implies that companies should consider the value they add and destroy on the environment and society as well as economic value. John Elkington coined the term in 1997.

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regulation had not helped eradicate bad working practices. Problems that surfaced like, prohibition of union formation and polluted environments held more resonance with stakeholders15 than the issues companies were focusing their attention on. Evidently, it became clear that self-regulation’s focus was one of tactical diversion of the public and media, rather than a genuine attempt to help alleviate the concerns of stakeholders. Such signs of hypocrisy inspired civil society to invent the word “greenwash”, a spin-off from whitewash to depict what they saw as environmental PR (Karliner, 2001). Corporate social and environmental reporting became the ultimate forum for utilizing greenwash techniques (Doane, 2000). Unpredictably the word became a hit with the public, civil society and the media. Come the new millennium, business was receiving lots of negative media coverage of their greenwashing activities16. Practice of double standards led critics to believe that self-regulation was an attempt to keep out the traditional command and control regulation (Utting, 2000; Richter, 2001). Over the years, the reluctance to include external monitoring, verification and keep their practices transparent further magnified concerns. Notably, without such systems, it was hard to measure the efficacy of each regulation against others.

The birth of non-governmental forms of regulation

After decades of antagonistic exchanges between civil society and business, the 1990s witnessed a move towards conciliatory relationships and a multitude of partnerships develop between both actors. Entitled multistakeholder initiatives (MSIs), these partnerships varied in content and style. Some were based on a dual relationship and enlisted only one company and one civil society group17, while others opted to bring together a range of actors from civil society and at times, join forces with industry associations and/ or an international organization.

Theorists have documented this new trend. Hulme and Edwards (1997; 277) entitled the 1990s as the era of the “market plus civil society will yield development myth”. Unlike the 1970s “myth of the state” and the 1980s “myth of the market”, they believed the 1990’s myth would have longevity. So far, their prediction has borne true. During the 1990s the role of NGO’s changed considerably. Since 1997, when UN Secretary General Kofi Annan announced that he wished civil society to join the United Nations in becoming a shaper of policy, several northern NGO’s (NNGO’s) have accepted the challenge and since then, allocated money, human resources and time to this new pursuit. Additionally, few accepted invitations from business to join them in becoming partners for development. In short, several NNGO’s have somewhat altered their direction. Originally established as service providers, several NNGO’s went on to incorporate lobbying, advocacy and policy advice as part of their contemporary core activities. Some NNGOs have also started to branch into the regulatory field. In tandem, the subject matter of many NNGOs has enlarged. Over the years, analysis of issues concerning global institutional governance, the global economic system and the effects of 15 Zeldenrust (2003) defines a stakeholder as “any party that is affected by the activity or operation of an enterprise”.16 In 1992, based on the Oscars, CorpWatch created the Greenwash Award.17 Civil society could be a non-governmental organization (NGO), church group, environmental movement or a trade union.

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transnational corporations has been incorporated into many NNGOs working objective. A recent trend has witnessed some NNGOs combine a new strategy and subject matter and create a department that works solely on the chosen field.

For example, Amnesty International UK established a wing that focuses specifically on the human rights obligations of business. In 1997 the Amnesty International UK Business Group wrote their Human Rights Guidelines for Companies. This document draws heavily on the UN human rights conventions that are applicable to business operations. In 2000 they also completed Human Rights Guidelines for Pension Trustees. Oxfam is another NGO that has embraced a regulatory role and moved beyond its founding interest, famine relief. In 2000, Oxfam Community Aid Abroad created a Mining Ombudsman that would act as a complaints mechanism for the social and environmental violations committed by the Australian mining industry. In addition, such individual attempts have been supplemented by group efforts. The CORE Coalition, a corporate social responsibility coalition made up of key NGOs in the UK is an example of how civil society groups are joining together to influence national policy concerning TNCs. The CORE Coalition is calling on the UK government to require mandatory economic, environmental, social and financial reporting from business enterprises. Although young in age, the Coalition is growing in force and is increasingly winning both public and parliamentary support. In short, studies have characterized this new phenomenon as civil regulation (Murphy and Bendell, 1999).

Civil regulation: a mélange

Multistakeholder initiatives are multifarious and have been born out of a variety of situations. At times, MSIs have been developed as a knee-jerk response to a social and/or environmental problem. Emotive issues have usually garnered significant media coverage. The deforestation of the Amazon, labour violations in garment factories and child labour are issues that have motivated civil society to take action. The exploitation of sweatshop workers stimulated the creation of the Clean Clothes Campaign, Fair Labor Association, Worker Rights Consortium and the Ethical Trading Initiative (ETI). All four examples emerged in response to the violation of labour rights witnessed in the apparel and sportswear industries in the 1990s. While most MSIs have been born out of a problem, some have been driven by the inadequate handling of the situation by a company and in some instances, government. The Forest Stewardship Council (FSC) openly states that their existence derived from the “failure of an intergovernmental process to agree on a global forest compact, and the compelling question-what is sustainable forestry?”18. At other times, before some issues have escalated, some civil society groups and corporations have been pre-emptive. In 1996, negotiations between the World Wide Fund for Nature and Unilever over ways to counteract unsustainable fishing led to the creation of the Marine Stewardship Council.

As Utting (2002) notes, other reasons for devising multistakeholder initiatives have been a need for standardization. Throughout the 1980s when corporate self-regulation dominated the scene, there was a growing concern about the lack of measurability

18 Taken from the FSC’s website http://www.fscoax.org/principal.htm

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between corporate codes of conduct and other regulatory systems. The need for consonance was imminent. Consequently, initiatives such as Social Accountability International and the International Organization for Standardization were established. Both organizations award standards and have developed certification systems. Other MSIs have been created in order to facilitate TNCs by inventing a CSR tool for business to use. The Global Reporting Initiative (GRI) and AccountAbility both provide targets for companies to meet. The GRI has created guidelines for company social and environmental reporting while, AccountAbility created AA1000 Series which is a standard for social and ethical accounting, auditing and reporting. In short, this brief diverse set of initiatives echoes the various CSR demands within a company and industry sector. Yet although these initiatives appear to have numerous positive attributes, several reports have documented reoccurring problems.

The complexity of multistakeholder initiatives

Theoretically, multistakeholder initiatives have been heralded as an effective form of regulation for transnational corporations. One of its founding principles, stakeholder value19 has won universal positive public acclaim. The invitation of civil society groups to decision-making level was sold as an advantage, and many private companies have officially made statements exclaiming this asset. As Murphy and Bendell (1999) point out, there is a clear business case for engagement with NGOs. But despite this effort towards inclusiveness, commentators have remarked that attempts to win the hearts and minds of all civil society members have not been realized. Rather, participation has remained among a selective few. It is postulated that Northern civil society groups dominate MSIs and Southern groups are often sidelined at the decision-making level (Utting, 2002). Indeed, questions concerning NNGO’s legitimacy and accountability are raised here which stimulates further questions regarding who gives them permission to represent Southern citizen’s interests (Abrahams, 2001).

Difficulties have arisen at the implementation stage where its voluntary basis does not stimulate any incentives; hence motivation to fully support initiatives has often been sporadic (Ascoly and Zeldenrust, 2001). It has been documented that in comparison to the amount of existing TNCs, those that endorse MSIs are a minority, albeit some would argue, a growing minority (Martens et al., 2003). Resultantly, this comparative low user turnout has led to questions concerning its lack of inclusivity. Traditionally, MSIs have been endorsed by leading TNCs, notably, brand-oriented companies. Reports have suggested that partnering up on a multistakeholder initiative is beneficial for minimizing one’s reputational risk. The predominance of the business-driven desire has led some critiques to propose that the business rationale is the only reason why corporations engage.

19 The Stakeholder Value Perspective emphasizes responsibility over profitability and sees organizations primarily as coalitions to serve all parties involved. This contrasts with the Shareholder Value Perspective emphasizes profitability over responsibility and sees organizations primarily as instruments of it's owners ww.valuebasedmanagement.net/faq_shareholder_stakeholder_perspective.html).

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This tenet has also been compounded by MSI’s lack of integration vis à vis the normal business strategy and working operations. Codes of conduct have often appeared to be designed in an ad hoc manner (Utting, 2002). Studies have noted complications at the implementation and participation stage. Reports have highlighted that some codes are drafted by head office and are sent to suppliers for integration into the local environment, often without a case study analysis of the local area. The World Rainforest Movement (2002) report critiques the Forest Stewardship Council (FSC) certification of two eucalyptus plantations in Brazil. It is posited that little consideration of the local environment’s specificities were taken into account when devising the certification for the eucalyptus plantation. Although mandatory under Brazilian law, no environmental impact assessment was completed before the certification was issued (ibid.). Among other problems, it is levied that companies keep a black list of workers who wish to organize, which floats ILO conventions 87 and 98. As it stands, officially FSC possesses inaccurate criteria to certify eucalyptus plantations. Such a situation highlights that from the outset, attempts to fully implement the code of conduct have not been carefully thought out. Despite the image presented in abundant “best practice” MSI literature, multistakeholder initiatives remain an area of contested terrain. Consequently, a multitude of reports have been written about the potential and limitations of multistakeholder initiatives, some of them introspective pieces from the founding body20.

Diverse approaches in the new millennium

In 1999 at the World Economic Forum, UN Secretary-General Kofi Annan challenged business leaders to join them, in what would become, a new wave of UN-Business partnerships. The Global Compact was designed to promote good corporate citizenship and aimed to bring companies together with UN agencies, labour and civil society groups to support nine principles in the areas of human rights, labour and the environment. Each principle draws on established UN conventions, namely, the Universal Declaration of Human Rights (1948), the Rio Principles on the Environment and Development (1992) and the ILO’s Fundamental Principles on Rights at Work (1988). However despite its important beginning, controversy has mired the Global Compact’s existence. Since its birth, the Global Compact has consistently been criticized from a range of actors (Richter, 2003b; Zammit, 2003).

The Global Compact is heralded as the UN’s flagship initiative concerning transnational corporations. It is held that this prominent status signals to business how the UN believes transnationals should act (Alliance for a Corporate Free-UN, 2004). It is suggested that with endorsement from the Secretary General, the Global Compact indirectly supersedes other UN initiatives concerning the working activities of TNCs (Bruno and Karliner, 2000). The fact that little or sometimes non-adherence to other UN conventions by some Global Compact corporate partners has existed in the past, juxtaposed against their warm support for the initiative, exemplifies where the priorities of some corporations lie. From the outset, the Global Compact called out to the Chief Executive Officers of the big TNC 20 “Corporate Codes of Conduct: Self-Regulation in a Global Economy” (Jenkins, 2001), “Analysing Non-Governmental Systems of Labour Standards and Monitoring” (O’Rourke, 2003) and “Regulating Business via Multistakeholder Initiatives: A Preliminary Assessment” (Utting, 2002) provide a good overview on this subject.

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players, many of which were historically the worse social and environmental violators. For example, Royal Dutch/ Shell, now tarnished with a bad image owing to their alleged knowledge of human rights violations in the Ogoniland, Nigeria, and the assassination of Ken Saro Wiwa, are members of the Global Compact. Nestlé, another transnational corporation with a historically bad image is also a Global Compact associate. Critics lament that this is exceptional considering it is well documented that Nestlé has systematically tried to undermine the International Code of Marketing of Breast-milk Substitutes since its inception (Corporate Watch Newsletter Issue 10; Richter, 2003a)21.

Subsequently, the Alliance for a Corporate–Free United Nations has publicly criticized the Global Compact office and questioned its integrity over the inclusion of Nestlé and other TNCs with erroneous pasts. They and others have highlighted that endorsement of companies like Nestlé are at odds with other UN policies (Alliance for a Corporate Free UN, 2004). Under section three, “Choosing a Partner” of the Guidelines on Cooperation between the UN and Business put forth by the UN General Secretary in July 2000 it states that “Business entities that are complicit in human rights abuses, tolerate forced or compulsory labour or use child labour…or otherwise do not meet relevant obligations or responsibilities by the United Nations, are not eligible for partnership”.

In light of this position, it is questionable if many of the existing Global Compact partners would be able to join the Compact if this statement was used as the ultimate measuring criterion. Other concerns, such as the instant accolade apportioned to Global Compact business partners and the Compact’s ad hoc expectations that have seen companies show interest in one development issue while another issue is ignored, has triggered calls for a more comprehensive international regulatory approach. While there has been an abundance of “best practice" literature on various case studies, systemic development improvements often have not transpired. Compared to the level of profit and amount of financial outflow to the TNC’s domiciled country during the late 1990’s, marginal improvements were witnessed in areas that hosted the corporations. Evidently, the gap between CSR rhetoric and reality became visibly wider. Incidentally, more people began to collectively dissent about the neo-capitalist economic framework, claiming it advanced the rich at the expense of the poor (Anheier, Glasius and Kaldor, 2001). Large scale protests at Birmingham in 1998 and Seattle in 1999 witnessed an outpour of anti-capitalist and anti-corporate sentiment. Additionally, other groups apart from civil society started to question the impacts transnational corporations were having on society.

In 1999, the U.N. Development Programme’s Human Development Report wrote, “'There are no mechanisms for making ethical standards and human rights binding for corporations and individuals, not just government…multinational corporations are too important and too dominant a part of the global economy for voluntary codes to be enough. They need to be brought within the framework of global governance not just the patchwork of national laws, rules and regulations”. A year later the Office of the High 21 In fact, as recent as January 2003, the British Medical Journal completed an in-depth study and found that Nestlé, Danone and eight other national and international manufacturers of baby-milk were found to have violated the code in Togo and Burkina Faso (Aguyao, 2003). Unsurprisingly, concerns and debate has ensued over the study’s assertions.

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Commission for Human Rights brought out “Business and Human Rights: A Progress Report” that explained why human rights is important for business. The same year the European Commission's Green Paper on Corporate Social Responsibility announced that voluntary CSR should, “not be seen as a substitute to regulation or legislation concerning social rights or environmental standards… In countries where such regulations do not exist, efforts should focus on putting the proper regulatory or legislative framework in place.”. And in 2001 the then UK Foreign Secretary, Jack Straw stated, “We must do what we can to encourage corporate responsibility. But we cannot leave companies to regulate themselves globally, any more than we do in our national economies”.

Civil society and the World Summit on Sustainable Development

By 2002, in the run up to the second Earth Summit in Johannesburg, South Africa calls for an international convention on the working activities of transnational corporations had reached fever pitch. Some NGOs called for a new organization to be established under the auspice of the United Nations. Christian Aid proposed a Global Regulatory Authority who would be mandated to draw up legally binding rules and standards for TNCs, and provide a monitoring function to ensure that the laws would be upheld. The resuscitation of the United Nations Centre for Transnational Corporations was also proposed. However, the need for a legally binding convention received widespread agreement and was consequently debated in the NGO forum22 at the Summit.

In the end, discussions concerning new binding regulations for the activities of transnational companies fell on deaf ears (FOE, 2002b). Despite the rigorous debate in the NGO forum, supplemented by the voluminous pleas outlining the case for a ruling on corporate accountability, NGOs, labour groups and other groups from civil society came away empty handed (Third World Resurgence, 2002). The official response regarding the much sought after regulation received little positive attention from the majority of government delegations, numerous transnational corporations and their business associations. Rather, the presumed innocuous tone of the Summit adopted a pro-business pitch (Bruno and Karliner, 2002). The final decisions all spoke of a greater role for business in the development of Southern economies. The inauguration of the second phase private-public-partnerships level II that mapped out a route for business towards assuming a social development provider role certified this new trend. Prior to the Summit critical pundits disapproved of this set-up and allegations were thrown at the United Nations’ relationship with business with reference to them being too close for comfort, and its possible demise if such liaisons continued (Monbiot, 2000; Utting 2001). It was posed that the UN was being used by some companies to help galvanize their negative image (Corporate Europe Observer, 1998 – Issue 2 Oct). Based on “greenwash”23, “bluewash” was invented in 2000 to mean “the corporate association with the UN itself as the ultimate symbol of human rights” (Bruno and Karliner, 2000). In addition, the new 22 Civil Society Forum ran from the 19 August - 4 September 2002 at the Expo Centre (NASREC) located south of Johannesburg.23 In 1999 “greenwash” entered the 10th Edition of the Concise Oxford English Dictionary. Green*wash: (n) Disinformation disseminated by an organization so as to present an environmentally responsible public image. Derivatives greenwashing (n).

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millennium witnessed the establishment of the Alliance for a Corporate Free United Nations. The establishment of a global network made up human rights, environment and development groups that are concerned about the increasing corporate influence in the United Nations, illustrates that the global fear of the UN’s close relationship with business is serious and borne by many people. However, in spite of repeated come-backs from the United Nations Global Compact office,24 media coverage of speculated “bluewash” has continued over the years. Presently, an increasing amount of books, magazines and articles have articulated the Alliance’s concern (Karliner et al., 1999).

In spite of this, the Norms on the Responsibility of Transnational Corporations and Other Business Enterprises (hereafter the Norms) continued to derive support. A year later, the UN Sub-Commission on the Promotion and Protection of Human Rights approved the Norms. Notably, there is a strong push from many civil society groups, some international organizations and few businesses for it to become a piece of binding regulation, however, at this time it is difficult to predict if this will materialize. So far, industry bodies such as the ICC and the US Council for International Business have tried to undermine the Norms. They and other lobby groups have attempted to influence the opinions of government delegates who have voted at UN Commission on Human Rights’ April sessions over the past two years. Evidently, this campaign is reminiscent of the ICC’s attack of the UNCTC’s proposed Code of Conduct for Transnational Corporations. But unlike the proposed Code of Conduct, the Norms are merely a restatement of existing international conventions that have already been endorsed by Member States. Under the laws of the United Nations, transnational corporations and other business enterprises are addressed as “organs of society”, a classification that TNCs have always had under international law. Evidently, the fears expressed by business lobby groups are unfounded.

Vestiges of the United Nations Centre for Transnational Corporations

Apart from the Norms and the Code of Conduct proposed by the UNCTC possessing a similar objective, attempts to resuscitate other work of the UNCTC have not been made. Some elements were transferred to the United Nations Conference on Trade and Development (UNCTAD) under the Division on Investment, Technology and Enterprise Development. However, most work based on transnational enterprises by UNCTAD focuses on foreign direct investment and facilitating technology to developing countries. In recent years UNCTAD placed more emphasis on examining the operations of transnational enterprises in social and environmental terms. In 2003, a meeting of the Intergovernmental Working Group of Experts on International Standards under the aegis of UNCTAD on the “Disclosure of the Impact of Corporations on Society: Current Trends and Issues” led to a report which looked at the issue of corporate social responsibility and the implications for accounting and reporting. Two years previous, UNCTAD reassessed the effects of TNCs through a social and environmental lens in two reports, carried out for the International Investment Agreements (UNCTAD, 2001a; 2001b). But while this may look hopeful, the desire to embrace the core working

24 Correspondence between CorpWatch (Secretariat of the Alliance for a Corporate Free UN) and the UN Global Compact office can be read at www.globalpolicy.org.

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activities of the UNCTC has not developed and does not seem to be on the cards. Previous efforts to provide an advisory service for national governments concerning investment with TNCs have not been resurrected. Neither has information and data collection, research or policy that looks at the possible negative impacts of MNC enterprise on society and the environment.

Despite this void, some UN agencies have embarked on projects concerned with the effects of TNCs. Although no agency has taken up the research remnants of the UNCTC, in a sporadic manner, several agencies have carried out research that has examined the activities of TNCs on society. Sometimes such work has been analytical and occasionally critical. Agencies like the United Nations Research Institute for Social Development have adopted both a general and regional approach25, while others have focused on the impact of TNCs with regards to their specialized area. For example, in 2002 the United Nations Industrial Development Organization (UNIDO) produced “Corporate Social Responsibility: Implications for Small and Medium Enterprises in Developing Countries”. In 2000, consultants for the World Health Organization condemned the unscrupulous tactics of the tobacco industry in their report, “Tobacco Company Strategies to Undermine Tobacco Control Activities at the World Health Organization”. UNICEF together with the Defense for Children International also completed a report on child labour in Côte d'Ivoire's gold and diamond mines in 1993. Finally, under the Multinational Enterprise Declaration programme, the International Labour Office undertakes research on transnational enterprises.

Apart from the Global Compact there have been no attempts to bring UN agencies together on the single issue of the regulation of transnational corporations. Rather, UN agencies have either devised initiatives or drafted conventions that relate to elements of corporate social responsibility based on their expertise and specialization. A myriad of regulatory initiatives for business of varying strengths has resulted, evidently, some more successful than others in reaching their desired goals. As aforementioned, the 1970s witnessed an accumulation of attempts by various UN agencies to formulate regulatory systems for transnational corporations. However, despite the concerted efforts, neither agency was able to attain binding status for their regulation. Since then, the Framework Convention on Tobacco Control that was passed in May 2003 offers a glimmer of hope.

The Framework Convention on Tobacco Control: a sign of things to come?

After years of negotiation for a treaty on tobacco, the World Health Organization passed a binding international law (INFACT, 2003). In May 2003, the World Health Assembly adopted the Framework Convention on Tobacco Control (FCTC) after 192 countries unanimously voted yes. This treaty has been heralded as groundbreaking based on two points. Firstly, with regards to content, the FCTC places clear boundaries on tobacco

25 For a comprehensive overview of UNRISD’s work on corporate social responsibility issues see www.unrisd.org.

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companies (Yach, 2003). Secondly, it is the first convention in international legal history that has withstood the fight from transnational corporations and made it to treaty status (ibid.). Previous conventions have lost the battle against the mighty lobbying tactics from business and retained their non-binding stature (Greenpeace, 2001). But although this is a marked improvement for public health and corporate accountability, time needs to elapse before the benefits and effectiveness of this treaty can be accurately measured. Presently, tobacco kills five million people a year, approximately half of its regular users (WHO, 2004). Evidently, the “need to” argument to institute tough regulation was clear. Yet even though it is possible that these frightening statistics may not change dramatically given time26, the symbolic nature of the regulation can be considered as incalculable.

Pre treaty the big tobacco companies had started to refashion themselves as “cleaner” tobacco companies. Market dominator Phillip Morris went so far as to rename their company, opting for Altria (Smith et al., 2002)27. However, the biggest change witnessed by them and other big tobacco companies has been the transformation of their health caution information. From 2000, many countries started to introduce new legislation that stipulated companies must state clearly that smoking kills28. It would seem that in response to a combination of new legislation and years of lawsuits levied at several tobacco companies over the past 20 years,29 companies have responded by graphically going over the top by enlarging the caution information to half of a packet’s front face. The effectiveness of this strategy is hard to measure however; so far, some cancer charities have reported that it is proving to be effective and is discouraging smoking (Canadian Cancer Society, 2002; BBC, 2003).

What is valuable about this treaty is the precedent it sets for other societal issues that concern transnational corporations. Not only does it set the tempo and raise the stakes for other UN conventions, but also, provides decisive guidelines on the implementation procedures (WHO, 2004). This is especially important for economically vulnerable developing countries that in the past have fallen prey to the trade lawyers defending Northern countries and TNCs. After a string of lawsuits that made internal industry documents publicly available, reports now show that for decades tobacco companies silenced critics, manipulated research and tried to undermine the World Health Organization in various ways (WHO, 2000).

Critics have drawn a parallel between the tobacco and food issues, suggesting that both industries have attempted to infiltrate UN organizations and have succeeded in thwarting efforts to pass strong regulation. Historically, it has been documented that business has 26 Tobacco companies’ main targets now are developing countries. Therefore it is possible that despite the decreasing rates of smoking seen in some advanced economies, with rising levels in developing countries, rates may still increase.27 “Altria Means Tobacco: Philip Morris’s Identity Crisis” in the American Journal of Public Health (April, 2003) explains why Philip Morris sought to change its identity.28 In 2000, New Zealand introduced legislation concerning cigarette labelling. In 2001 the European Commission introduced directive 2001/37/EC.29 Lawsuits against tobacco companies have existed since the 1950s, however, for 30 years the tobacco industry had a strong legal defence and won all trials. The first suit to win in favour of the plaintiff was in 1992, Cipollone v. Liggett Group (90-1038), 505 U.S. 504. Group (BBC News, 28/09/99).

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greatly influenced the outcomes of many past proceedings relating to the regulation of food and beverages through sponsorships, partnerships and direct lobbying (Castleman and Lemen, 1998; WHO report). However, as the tobacco treaty and the recent assent of national laws being used to try transnational companies indicate, the existing status quo is being challenged.

National law with cross border implications: a new trend?

From the 1990s a new trend has emerged. Transnational corporations have been subjected to legal attacks from their Southern stakeholders. Stakeholders have joined forces with Northern based civil society groups and law firms to initiate legal proceedings against transnational corporations for their alleged past abuses. National laws with cross border implications have been unearthed in several home countries of some of the top Northern transnational corporations, namely Australia, Canada, the UK and the US.

Legal proceedings against Thor Plc, Rio Tinto and Cape Plc, all British mining companies began in the late 1990s. Compensation was sought by South African and Namibian stakeholders on claims that companies were negligent and failed to respect fundamental labour rights, particularly occupational health and safety (Meeran, 2003). Lawsuits have also been levied at Canadian and Australian companies. In 1998, Recherches Internationales Quebec launched a class action lawsuit on behalf of 23,000 Amerindians in Guyana against Cambior Inc., for environmental damages in the Omai region. Subsequently, in 2000 BHP Billiton, an Australian mining company was charged with human rights abuses, environmental degradation, as well as inciting conflict and instability in Papua New Guinea.

In 1999, citizens from Indonesia and Nigeria joined forces with American legal firms and civil society groups to launch legal proceedings against Freeport-McMoran and Chevron, respectively. They used the Alien Torts Claims Act, an old American law that allows “federal district courts jurisdiction to hear claims by aliens for torts30 in violation of the law of nations or treaties of the United States” (USA Engage, 2004). Symbolically these cases proved instrumental. Since their introduction, over twenty cases have been levied at other transnational corporations for various incidences of alleged corporate wrongdoing. Most cases concern allegations of environmental damage and violations of labour and human rights laws. Other cases have involved allegations of torture, cruel, inhuman and degrading treatment, kidnapping, murder and crimes against humanity (Earthrights International, 2004; USA Engage, 2004). More recently, legal charges against American and Swiss banks for their alleged complicity with the South African apartheid system has seen charges of forced removals, banishment and theft of assets, in addition to aiding and abetting, unfair and discriminatory labour practices and imprisonment.

30 tort  n. A wrongful act or omission for which damages can be obtained in a civil court by the person wronged, other than a wrong that is only a breach of contract. The law of tort is mainly concerned with providing compensation for personal injury and property damage caused by negligence (OED, 2002).

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As Ward (2001) delineates, the UK, Canadian and Australian cases, all based on the English legal system address issues of corporate behaviour. In short, legal cases are based on the belief that corporate actions in the host country should match those exercised in the home country. Contrastingly, the US cases concentrate on corporate compliance of customary international law norms. However despite the long duration of these cases in the court system, to date, there has been no concrete legal success. Some cases have ended prematurely. After years of legal wrangling, Thor Plc settled out of court in 2000 and Cape Plc reached a settlement in 2001 (Ward, 2002). At other times legal ambiguities have resulted in cases being moved around the court, resulting in court cases being in a continual pending status.

Here, legal ambiguities provide two main problems. In cross border disputes a jurisdiction of the court needs to be primarily ascertained. The legal doctrine of forum non conveniens is one way of trying to overcome this jurisdictional problem. Forum non conveniens can be used by a court to decide which jurisdiction is deemed the most appropriate. In general, transnational corporations prefer for cases to be tried in developing countries and have been known to use tactics that undermine the legal processes. Meeran notes that efforts to “undermine the claimants’ funding and even attempting to discredit the claims and the claimant’s legal advisers” are some of the practices used by TNCs (1999: 163-164). The recent actions of Cape Plc prove this postulation. Evidence shows that Cape Plc approached the Director of the Centre for Applied Legal Studies at the University of the Witwaterstrand in South Africa and proposed that the Centre coordinate litigation procedures on behalf of South African claimants. In addition, funds to facilitate proceedings were offered (Ward, 2003).

For a variety of reasons plaintiffs prefer legal proceedings to be heard in the home countries of the transnational corporation. Among other reasons, three are particularly important. Firstly, home countries usually have comprehensive legal systems that contain substantive liability provisions. Secondly, Northern countries often possess an array of independent media sources that inform the populace on the alleged wrongdoings of politicians and business persons. Furthermore, these countries frequently have independent watchdog organizations that watch, monitor and name and shame TNCs. This has proved to be helpful strategy in trying to galvanize public support around the issue.

The second major obstacle in a cross border dispute concerns the issue of corporate separateness. Under Company law, a corporation possesses limited liability status otherwise known as a “corporate veil” (Meeran, 1999). According to the law, a corporation’s main responsibility is to its shareholders and not to its internal or external stakeholders. As Meeran articulates, this has allowed TNCs to “distance and separate the parent company from the local operating subsidiaries, thereby protecting the TNC from legal liability” (Meeran, 1999: 162). However, UK lawyers in the Cape Plc case have tried to get around this obstacle by arguing that the UK parent company, through ownership and control of its subsidiary owes a “duty of care” to their foreign workers (Ward, 2002). “Piercing the corporate veil” has proven to be a high hurdle to jump over. Despite the California Superior Court Judge claiming that the Unocal Corporation was

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aware that operations in Burma were likely to result in violations of the rights of Burmese villagers, Judge Chaney also ruled that Unocal’s subsidiaries in Burma were not the “alter-ego” of the parent company (EarthRights International, 2003). These impediments have been hard to counter however; political tensions concerning these cases that have arisen appear to be a potentially bigger obstacle. Political intervention from governments has the potential to dilute or destroy such legal instruments. Thus far, both Northern and Southern governments have voiced concerns about the use of these national laws, albeit from different standpoints.

Politics interfering with justice?

The present US Bush administration has been the most vociferal concerning the Alien Torts Claims Act and has garnered support across the nation. Op-ed pieces, articles and reports have been written denouncing the ATCA and surmising that it will have a detrimental effect on American national security and foreign policy and could hinder the US led War on Terrorism (Hufbauer and Mitrokostas, 2003). More recently, the UK, Australian and Swiss governments have made formal moves to curtail the ATCA as several British, Australian and Swiss companies are being tried for violations under the Act. An amicus curiae (legal brief) filed by the British government in February 2004 states that the Alien Tort statute “interferes with the sovereignty of the governments and other sovereign nations by subjecting their nationals and enterprises to risk of conflicting legal commands and proceedings” (Verkaik, 2004)

Developing countries have also been vocal about the use of foreign cross border national laws. Although South African plaintiffs are trying British, Swiss and American companies for a range of violations and abuses committed during the apartheid era, South African President Thabo Mbeki believes that the ATCA questions their national sovereignty and fears that pursuance of such proceedings will deter transnational corporations from doing business with South Africa in the future (Zwangendaba, 2003). Previously he had rejected a proposal from Archbishop Desmond Tutu, chair of the Truth and Reconciliation Commission for a wealth tax that would be given as reparation payment to victims of South Africa’s apartheid regime. This was aimed at the TNCs that benefited from the apartheid system (Sebelebele, 2003). Yet other countries have gone a step further and enacted legislation that will prevent future lawsuits against transnational corporations from being waged. In 2002, the government of Papua New Guinea passed a law that “prevents any government agency from taking or supporting “in any way” proceedings against the mining multinational BHP-Billiton “in respect of an environment claim” (Burton, 2002:1).

Evidently, the case for using national law that has cross border implications is deeply complex. There is no doubt the fear expressed by some developing country heads of State are legitimate. In a competitive globalized world where footloose industries have the ability to pick and choose among numerous countries, any situation that may thwart possible investment opportunities will inevitably be viewed as undesirable. This is

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unfortunate given that history and polls confirm31 companies prioritize profits over the health and safety of workers, despite in some cases, the possible onset of stronger legislation for corporate killing (Brevitt, 2003). The stark juxtaposition of future investment against justice for past abuses in an either-or scenario pushes developing countries in a corner. In this era of corporate economic and political dominance, developing countries are continually forced to toe the line or face staying out in the cold. Being one of the main investment providers, TNCs are able to dictate the terms of trade, bypass local laws and in certain situations “purchase” laws, otherwise known as state capture (Hellman, Jones and Kaufmann, 2000). In addition, the introduction of policies such as “national treatment32” which gives transnational corporations equal and some speculate, better rights compared to a local company suggests that the World Trade Organization is working in the interests of TNCs (Khor, 1999; CEO and FOEI, 2003). Set against this backdrop, developing countries have consistently found it hard to get TNCs to comply and respect their national social and environmental laws, aspects often calculated as an externality by business. Evidently, only one successful legal case is needed for a precedent to be made

The Business Leaders Initiative on Human Rights: A glimmer of hope?

In 2003 the Business Leaders Initiative on Human Rights (BLIHR) was established. Chaired by Mary Robinson and patronized by some leaders of industry this three year initiative aims to promote and integrate human rights objectives into business policy and practice (BLIHR, 2003). However, although it is another voluntary initiative, there are clear signs that this group is willing to accept stronger forms of regulation. In the opening Business Leaders’ Statement, all seven heads signed their names against the statement “an important contribution during 2003 has been the work of the UN Human Rights Sub-Commission in adopting Human Rights Norms for transnational and other businesses. We will give serious consideration to the role these Norms might play in our own work” (ibid.). In the same year, market dominator Altria commented that they would agree to international regulation provided it would apply to all companies in the industry. It is speculated that endorsing a regulation that may eventually arrive will award them competitive advantage and enable them to maintain their premier position. Evidently, this reason differs from other officially known ethically aware companies like The Body Shop International and Ben and Jerry’s, who have historically been genuinely concerned about the impact of business on society. Hopefully over time, more corporations will publicly endorse the Norms and commit themselves to upholding stronger regulation, regardless of their motivations, as importantly, the outcome remains the same.

31 On 25th February 2002 The British Safety Council published the findings of the MORI poll and concluded “Company chiefs ignore safety issues in a quest for profits”. This was based on a survey of the FTSE 500 companies. 32 The World Trade Organization defines national treatment as the principle of giving others the same treatment as one’s own nationals (found on WTO website http://www.wto.org/english/thewto_e/whatis_e/tif_e/fact2_e.htm).

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Conclusion

This paper has aimed to give a contemporary history of the regulation of transnational corporations. Since the 1950s, political, economic and social events have shaped and dictated the type of regulation that affects TNCs. Roughly speaking, new regulatory trends emerged each decade. The 1960s to 1970s witnessed developing countries club together and rally for binding international regulation that would curb the alleged violations committed by TNCs. This did not materialize. A structural and institutional legacy from colonization left developing countries in a state of politico-economic dependence. At the height of the Cold War, developing countries found it hard to assert their sovereignty against Northern countries and their transnational corporations. Moreover, the proceeding conservative decade observed in the US and other European countries altered the course of action. The presiding neoliberal ideology prescribed privatization, deregulation and liberalization. Simultaneously international regulation that could potentially administer control over the free market was quashed. Self-regulation prevailed unabated until the 1990s. However, it soon became evident that crucial worker and environmental objectives were not being met, which catapulted the acclaimed “race to the bottom” scenario (Bretcher and Costello, 1994).

Since the 1990s, civil society has enthusiastically embraced government and businesses’ invitation to be its partner. Nominated an architect’s role, NGOs devised MSIs and sought collaborations with governments, corporations and the international community. To date, feedback has been mixed. Initially MSIs were seen to be more efficient than government regulation, and more comprehensive in meeting society’s needs than corporate self- regulation. But as time elapsed, flaws in the MSI model appeared.

Since then, calls for binding international regulation have resurfaced suggesting the birth of a second wave. However after the 1970s one significant difference is apparent. Currently, significant numbers of both Northern and Southern populations demand binding international regulation to monitor TNC activities. It is possible that with this new existing Northern support there is a greater chance of its actualization. Increasingly, Northern societies have started to feel the effects of negative corporate actions. In 2002 the Enron scandal sent reverberations vertically and horizontally across the world. Thousands of American citizens lost their jobs, pensions and insurance policies. Dubbed “Europe’s Enron” the financial falls of Dutch retailer Ahold and Parmalat, an Italian food company proved also that Europe was not immune to such corporate disasters. Yet although it was failure in corporate financial governance that initiated all three débâcles, interest in the general operations and governance of TNCs subsequently increased. Now, more people than ever before are questioning corporate power.

But as the increasing calls for a binding international law suggests, is it simply an argument for a new type of regulation? Should we not concentrate on using our existing set? As this paper has shown, regulation that relates to transnational companies has existed for decades, but this has not prevented social and environmental disasters from taking place. It becomes important to ask, have we accurately assessed why the existing regulatory tools have not halted bad corporate behaviour? Surely it is crucial to

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understand why previous regulations have been unsuccessful in order to strive for effective future regulation?

Firstly, previous decades were not recipients of a large, well-organized civil society. Presently, NGOs are in the strongest position they have ever been. There now exists a litter of international NGOs focusing on the global economic system and the influence of big business on society. Their ability to inform and motivate the public to participate in campaigning, lobbying and boycotts has been an amazing feat. Since the 1990s this growing global public body has rooted itself at the anti-globalization protests. Evidently, their constant vigilance and consistent attack has proven fruitful. Since the 1980s environmentalism era, NGOs have garnered strength in numbers and strategy. Reports have indicated that the persistent civil society offensive helped galvanized public support and sustain the momentum for the realization of the Framework Convention on Tobacco Control.

Another significant difference witnessed now is the enthusiasm exhibited by some political parties and national governments for the regulation of TNCs. The proposed Corporate Responsibility Bill in the UK has received cross-party support from over 300 Members of Parliament. The European Commission’s draft European Code of Conduct for European Enterprises Operating in Developing Countries is another example. This report has noted that pressure to attain foreign direct investment over the decades has meant fewer developing country governments now openly question the actions of TNCs. Support has dwindled since the heyday of the 1970s when the New International Economic Order dominated government concerns; however, as Vidal (2002) noted at the World Summit on Sustainable Development, a handful of governments are willing to speak out against what they see as unfair trade rules and corporate globalization.

A third contrast from the 1970s first wave of international regulation for TNCs is the present attitudes of some corporations, few of which have been affirmative concerning the possible onset of mandatory regulation. Novartis, Altria and The Body Shop have all made positive statements in favour of more regulation for TNCs, albeit from different standpoints. But despite this being a drop in the ocean it is possible that such companies may influence others. Indeed, it only takes one industry leader to change the course of action for the rest. These three differences and current shared drive from diverse actors to push for tougher regulation is a marked improvement from previous decades, which were based on selective requests from isolated social groups and politically and economically weak developing countries.

However gaining support from numerous actors does not change the logistical problem associated with international regulation for transnational corporations. One of the biggest obstructions in the past has been the lack of enforcement by States on TNCs to endorse the applicable United Nations laws. Under international law a company is considered a legal person. States have the responsibility to ensure that their domestic companies are abiding by international laws in home and host countries. But this is a difficult process to maintain. History has shown how hard it is for governments to impose regulations on transnational companies. Thanks to the British government’s dismal application during

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the 18th and 19th centuries, the East India Company was able to ride roughshod over colonies, amassing large amounts of raw materials that turned into big profit for Britain. Evidently, this was beneficial for the British Empire at the time, which begs the question, is it really in a government’s financial interest to curb the activities of their domestic companies, should they be transnational?

Historical evidence would suggest that it is not in a government’s interest to be tough law enforcers. The opposition from Northern and Southern governments to the present foreign direct liability cases going through the American and British legal systems testifies that this is also a present day phenomenon. But should we be surprised? Surely without a deterrent there is no incentive to abide by the rules, especially if the rules prevent you from maximizing the projected profit? Yet, are we not forgetting that obeying the laws of the land is an integral part of business operations? Rules that protect the environment and human rights in a host country should be respected, as they would be in a corporation’s home country.

So far the issue of fines for non-state actors has not evolved in international law. Unlike national laws that have penalties in the form of imprisonment, fines, community service or in some cases, the death penalty, the non-adherence of international law does not accord with any penalization. Evidently this omission contributes to the relative weak status of international law and most probably, is one of the main reasons why enforcement levels on TNCs have been continually low. The United Nations Security Council has the right to impose sanctions on a country that is violating international laws relating to social, economic, political and environmental issues, but this is rarely implemented and when used, is rarely enforced. Sanctions have become a political tool manipulated by stronger governments; hence its legitimacy as a fair legal penalty has become tainted and open to frequent criticism. Unless this void is filled it would seem that international law will continue to be a hollow instrument. The desire for a new binding international law that concentrates on the activities of TNCs may be focused and well intentioned, but without concerted efforts to enforce the law, it will probably follow the path of its familial predecessors.

Over the past decade, corporate social responsibility has become en vogue among TNCs. Numerous companies have established CSR departments and produced social and environmental reports. There has been a surge in transnational companies constructing their own codes of conduct, some critics say, in order to forestall the onset of official binding regulation or to detract from a company’s bad behaviour. Whatever the reason for its development, codes of conduct are still a form of regulation, albeit of a “soft” nature. Its voluntary status and frequent lack of independency is not desirable and does not instill the element of objectivity regulation must seek (International Council on Human Rights Policy, 2002). These factors make it vulnerable to criticism of which there have been copious amounts. However, it is important not to throw the baby out with the bath water. Globalization has created a variety of corporations each possessing their own ideals, objectives and occupying varying degrees of the market share. The regulation of TNCs should facilitate this diversity by seeking to accommodate differing sector distinctiveness and company uniqueness. Provided multistakeholder initiatives

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do not crowd out “hard” regulation their existence could benefit binding regulation through their concentration on micro level improvements. Evidently, all regulatory systems have strengths and weaknesses. Thus, in order to ensure all needs are met, a range of regulatory mechanisms needs to exist and attempts to reach synergy between them should be derived.

Over the years corporate social responsibility has inaccurately been seen as a voluntary exercise, however, despite this common held assumption, there is no significant reason as to why a voluntary endeavour should monopolize the definition. Plainly, corporate social responsibility should be viewed as the responsibility of corporations to society. By this, CSR would imply, respecting the relevant customs, rules and national laws and international laws where applicable. CSR defined this way is a normal requirement of business. Evidently it is important to remember this fact. Corporations should not be praised and commended for performing a necessary duty rather; the relevant regulatory instruments and frameworks should be in place to ensure, they have no problems in completing their task.

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