The Obligations of Transnational Corporations

THE OBLIGATIONS OF TRANSNATIONAL CORPORATIONS:RAWLSIAN JUSTICE AND THE DUTY OF ASSISTANCE

Nien-he Hsieh

Abstract: Building on |ohn Rawls's account of the Law of Peoples, this paperexamines the grounds and scope of the obligations of transnational corpo-rations (TNCs) that are owned by members of developed economies andoperate in developing economies. The paper advances two broad claims.First, the paper argues that there are conditions under which TNCs haveobligations to fulfill a limited duty of assistance toward those living indeveloping economies, even though the duty is normally understood tofall on the governments of developed economies. Second, by extendingRawls's account to include a right to protection against arbitrary inter-ference, the paper argues that TNCs can be said to have negative andpositive obligations in the areas of human rights, labor standards, andenvironmental protection, as outlined in the U.N. Global Compact. Moregenerally, the paper aims to further our understanding of the implicationsof Rawls's account of justice.

Transnational corporations (TNCs) continue to be called upon to assume greaterresponsibilities toward those living in the countries in which they operate. The

2000 United Nations Global Compact, for example, calls for corporations to abide bystandards in the areas of human rights, labor, and the environment. Stakeholder theoryrecently has been interpreted as calling on corporations to act as global citizens (Post,2002; Logsdon and Wood, 2002). In response, TNCs appear to be heeding these calls,as witnessed, for example, in the Chad-Cameroon Oil and Pipeline Project with itscollaboration among oil companies, the World Bank, local NGOs, and governmentrepresentatives.'

In this light, in this paper I explore the scope and moral grounds of the respon-sibilities that TNCs have toward those living in the countries in which they operate.In particular, I focus on TNCs owned mainly by citizens of democratic, developedeconomies and on the positive obligations that TNCs might be said to have towardthose in the developing economies in which they operate. The positive obligations thatI consider are those outlined in the U.N. Global Compact. The Compact states:

Principle 1: Businesses should support and respect the protection of interna-tionally proclaimed human rights within their sphere of influence;and

Principle 2: make sure that they are not complicit in human rights abuses.

© 2004. Business Ethics Quarterly, Volume 14, Issue 4. ISSN 1052-150X. pp. 643-661

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Principle 3: Businesses should uphold the freedom of association and the ef-fective recognition of the right to collective bargaining;

Principle 4: the elimination of all forms of forced and compulsory labour;Principle 5: the effective abolition of child labour; andPrinciple 6: eliminate discrimination in respect of employment and occupation.Principle 7: Businesses should support a precautionary approach to environ-

mental challenges;Principle 8: undertake initiatives to promote greater environmental responsibility;

andPrinciple 9: encourage the development and diffusion of environmentally

friendly technologies.

To be clear, in focusing on these obligations, I am not concerned with the Global Compactin its relation to international law.̂ Also, I do not take the Global Compact to present anexhaustive list of the obligations thatTNCs might be said to have. Instead, I take the GlobalCompact as providing an example of the kinds of responsibilities that TNCs might besaid to have given that the Compact lists not only negative, but also positive, obligationsin a range of areas, including human rights, labor standards, and the environment.

The motivation for focusing on the positive obligations of TNCs is that providinga plausible account of positive obligations of the sort outlined in the Global Compactappears to encounter a distinct difficulty over that of providing an account of nega-tive obligations. Whereas most authors recognize that TNCs have obligations not toengage in certain harmful activities, it is taken as less clear that TNCs have positiveobligations to provide benefits and services to those in developing countries, espe-cially when those benefits are similar to those that governments are held to be underan obligation to provide to their citizens.' At the same time, it is precisely these sortsof positive obligations that TNCs are increasingly said to have.

The context in which I examine the possibility that TNCs have such positiveobligations is John Rawls's account of the Law of Peoples. By the Law of Peoples,Rawls means a "particular political conception of right and justice that applies tothe principles and norms of international law and practice" (1999b: 1). Given theimportance of Rawls's account of justice in furthering our understanding of whatjustice requires of economic institutions, Rawls's extension of this account to theinternational realm presents a natural context in which to pursue our inquiry, and anumber of features of this extension allow us to consider the question at hand. Rawlspresents his account as "realistically Utopian," by which he means that it "extendswhat are ordinarily thought to be the limits of practicable political possibility and,in so doing, reconciles us to our political and social condition" (1999b: 11). In addi-tion, Rawls considers the topic of nonideal theory, dealing explicitly with questionsabout how such well-ordered societies ought to deal with the nonideal conditionsof the world, including the existence of poverty and inequality and the presence ofstates that do not respect human rights. Furthermore, Rawls's account has a role forinternational cooperative organizations, similar to the United Nations, World Bank,and GATT (1999b: 42). Overall, Rawls presents a plausible account of global justicethat accommodates political and social conditions in a way that allows us to examinethe question of the obligations of TNCs toward those in developing countries.

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The main difficulty that arises in working within Rawls's account is that becausehe does not consider the role of corporations, it might be objected that there is littlethat can be said about the obligations of TNCs from within his account. Addressingthis difficulty, in the end I advance two broad claims. First, I argue that there areconditions under which TNCs are obligated to fulfill what Rawls has called a dutyof assistance toward those living in developing economies, even though the duty isnormally understood to fall on the governments of developed economies. Second, byextending Rawls's account to include a human right to protection against arbitraryinterference, I argue that the content of the responsibilities that TNCs have encompassthe positive obligations outlined in the U.N. Global Compact along with an obhgationto help support mechanisms that allow those affected by TNC activities to contestcorporate decisions in areas that relate to the fulfilling of those obligations. In short,I argue that there is a plausible account whereby TNCs have the kinds of positiveobligations outlined in the Global Compact toward individuals living in the develop-ing countries in which they operate.

Central to this account are three principles that I hope will help to inform furtherinquiry on the question of what responsibilities corporations, more generally, mightbe said to have. The first principle, which I call the Principle of Assistance, outlinesthe conditions under which TNCs are obligated to provide assistance to those livingin the developing economies in which they operate. The second principle, which is thePrinciple of Limited Scope, specifies the nature of the limits on the assistance requiredof TNCs. The third principle is the Principle of Accountability according to whichTNCs have an obligation to support mechanisms that enable those affected by TNCactivities to contest corporate decisions in areas that relate to the fulfilling of thoseobligations."• In addition to outlining these principles regarding the responsibilitiesof TNCs, this paper is offered as a contribution to debates about the implications ofRawls's account of justice for questions about economic enterprises and corporategovernance.' Furthermore, because the paper focuses on a concrete proposal—namely,the Global Compact—it is hoped that this paper will contribute to policy debates onthe obligations of TNCs operating in developing economies.

The paper is organized as follows. In the first section, I describe in greater detailthe features of Rawls's account of the Law of Peoples as they pertain to the inquiryin this paper, and the limitations of this inquiry. I also introduce what I take to be anissue that any plausible account of TNC obligations needs to address, which is theissue of limiting the scope of those obligations. The second section outlines the dutyof assistance and advances the argument that TNCs can be held to help fulfill this duty.In this section, I outline the way in which this duty of assistance includes obligationsto protect and promote human rights, and I advance the case for the Principles of As-sistance and Limited Scope. In the third section, I argue that the duty of assistance canbe held to encompass the labor standards outlined in the Global Compact. The discus-sion in this section relies upon an account that I have advanced elsewhere to extendRawls's account of the basic rights to include certain labor and employment rights onthe basis of a concern with arbitrary interference (Hsieh, 2002; Hsieh, 2003). In thefourth section, I discuss the way in which the duty of assistance extends to include


environmental standards. The fifth section introduces the Principle of Accountabilityto address an objection to the account in this paper that follows from a concern aboutthe legitimacy of TNCs performing what are regarded as the functions of governmentsand international cooperative organizations. Section six concludes.

1. The Law of Peoples and the Scope of Obligations

To begin our inquiry, in this section I describe in greater detail the features ofRawls's account of the Law of Peoples that pertain to the inquiry into what obligations,if any, TNCs can be said to have to people living in developing countries. As part ofthis discussion, I outline the limitations of this inquiry. Also, to help explain further theapproach taken in this inquiry, I outline the way in which Rawls's account addresseswhat I take to be a central challenge that must be addressed by any account of theobligations of TNCs to those in developing countries. This challenge is to provide aplausible account of the grounds that limit the scope of those obligations.

Rawls grounds his account of the Law of Peoples in a liberal idea of justice that issimilar to the idea of justice as fairness (Rawls, 1999a; Rawls, 2000). In his accountof the Law of Peoples, the "Society of Peoples" refers to those peoples, or societies,that follow the ideals and principles of the Law of Peoples with regards to their mu-tual relations (Rawls, 1999b: 3). Among the Society of Peoples are both liberal andnonliberal peoples. Liberal peoples share "a reasonably just constitutional democraticgovernment that serves their fundamental interests; citizens united by what Mill called'common sympathies'; and finally, a moral nature" (1999b: 23). Those nonliberalpeoples that are included among the society of peoples are what Rawls calls decentpeoples. One type of decent peoples is what Rawls calls a decent hierarchical people.Such a society is nonaggressive and meets three additional criteria: first, it secureshuman rights for all members of the society; second, it has a system of law that isable to impose duties and obligations on all people within the territory of the society;and third, those who administer the legal system understand the law to be guided bya common good idea of justice (1999b: 64-67). Both liberal and decent peoples arein what Rawls takes to be the realm of ideal theory: their societies are well-orderedand respect the Law of Peoples in their mutual relations.

In his account, Rawls also considers two kinds of nonideal theory. The first kindconcerns regimes that do not comply with a reasonable Law of Peoples. Such regimesare known as outlaw states and understand the advancement of their own interests tobe a sufficient reason to engage in war with other states. The second kind of nonidealtheory concerns what Rawls calls burdened societies. Such societies are those whose"historical, social, and economic circumstances make their achieving a well-orderedregime, whether liberal or decent, difficult if not impossible." To these burdened societ-ies, well-ordered societies owe a duty of assistance to help them establish reasonablyjust or decent institutions (1999b: 90).

In this paper, I focus on the second kind of nonideal theory and frame this paper asan inquiry into the obligations of TNCs that are owned and managed by members ofliberal or decent peoples and that operate in burdened societies. This focus limits the


inquiry of this paper in two ways. First, the paper does not consider TNCs owned bymembers of societies other than liberal or decent peoples. Second, the paper does notconsider what obligations TNCs may have with regard to operating in outlaw states.Given the importance of TNCs owned by members of liberal or decent peoples in theglobal economy and the preponderance of burdened societies, however, I do not under-stand these limitations to rule out the relevance of the inquiry pursued in this paper.*

In any account of the obligations of TNCs to those in burdened societies, I takeit that a central challenge that must be addressed is to explain the grounds that limitthe scope of those obligations. By this, I do not mean that the account must specify,as a practical matter, the specific limits on those obligations. Instead, by this I meanthat for an account of the obligations of TNCs to be plausible, the grounds fromwhich those obligations are said to follow must also recognize what we take to bereasonable limits with regard to whom the obligations are owed and with regard tohow burdensome those obligations are. For example, it might seem that a plausibleaccount of the intuition that TNCs have obligations to those who are, and can be,affected by their activities in developing countries lies in a broadly consequentialistaccount grounded in the well-being of individuals. To the extent that it is in a TNCsability to improve the lives of those individuals in developing countries, on a broadlyconsequentialist account, the TNC has an obligation to aid those individuals, even ifsuch aid is at a cost to shareholders.

The difficulty with such an account, and one that is raised against consequentialistaccounts in general, is that such an account is fairly extensive in what it requires ofTNCs. For example, some have argued that although TNCs have obligations to refrainfrom certain harmful practices, they do not have additional affirmative obligations toaid those in developing countries (Donaldson, 1989). The Nike corporation, on thisview, for example, might be said to have an obligation not to purchase from supplierswho use child labor to manufacture clothes even though it has no obligation to fundthe children to attend school.' Furthermore, even if we were to recognize that TNCshave positive obligations to promote the well-being of those whom they are able tohelp, many would argue that those obligations are limited. On this view, even if theNike corporation has an obligation to send the children to school, Nike might nothave an obligation to provide them with housing. This is not to say that a broadlyconsequentialist account grounded in well-being is not able to address these concerns.*The point in discussing such an account is to help illustrate the way in which limitingthe duties appears to be central to any account of the obligations of TNCs.

As a general matter, the account of the Law of Peoples addresses this challengeof limiting the scope of obligations. Although the account is grounded in a liberalidea of justice that is similar to the idea of justice as fairness, there is no general dutyto address social and economic inequalities to the degree required in the account ofjustice as fairness within a domestic context. That is to say, unlike the DifferencePrinciple, the duty of assistance does not aim to make the least fortunate as well-offas possible. Instead, the duty of assistance is owed only to burdened societies even ifthere are well-ordered societies that are rather poor relative to others. Furthermore,the duty of assistance that is owed to burdened societies aims to help them "to be


able to manage their own affairs reasonably and rationally and eventually to becomemembers of the Society of well-ordered Peoples" (Rawls, 1999b: 111). Rawls takesthis aim to set a limit to the amount of assistance that is owed under the duty of as-sistance. Part of the reason for this limit is to keep well-ordered societies from actingpatemalistically toward burdened societies (1999b: 111). The limit also means thatthere is no general duty on the part of well-ordered societies to try to reduce socialand economic inequalities among societies.'

Although it remains to be determined what are the precise limits on the scopeof assistance as a practical matter, what matters for our analysis is that obligationsowed to those in burdened societies under Rawls's account of the Law of Peoplesare naturally limited from within the account itself. As such, Rawls's account of theLaw of Peoples does not face a difficulty in meeting the challenge of limiting thescope of obligations. This, however, is not to say that Rawls's account is without anychallenges for purposes of our inquiry. The challenge that Rawls's account presents isthat it is not clear whether TNCs can be said to be under a duty of assistance, becausethe duty of assistance applies to well-ordered peoples acting through their govern-ments and international cooperative organizations. It is to addressing this challengethat I now turn.

2. The Duty of Assistance and TNCs

To understand what obligations, if any, TNCs might owe by way of the duty of as-sistance, it will help to understand more precisely what form fulfilling the duty mighttake. According to Rawls, human rights play a central role in the fulfillment of a dutyof assistance on the part of well-ordered societies to burdened societies. In this section,I examine this claim in more detail and the extent to which it grounds the obligationsthat TNCs might be said to have as outlined in the U.N. Global Compact.

Rawls outlines three guidelines to fulfilling the duty of assistance. For the moment,I leave analysis of the first and third guidelines to sections four and five of this paper,and examine the second guideline. The second guideline emphasizes the importanceof focusing on human rights as a way to help bring about changes in the regimes ofburdened societies. Rawls writes that "what must be realized is that merely dispensingfunds will not suffice to rectify basic political and social injustices (though moneyis often essential). But an emphasis on human rights may work to change ineffectiveregimes and the conduct of the rulers who have been callous about the well-being oftheir own people" (1999b: 108-109). Rawls defines human rights to include "the rightto life (to the means of subsistence and security); to liberty (to freedom from slavery,serfdom, and forced occupation, and to a sufficient measure of liberty of conscienceto ensure freedom of religion and thought); to property (personal property); and toformal equality as expressed by the rules of natural justice (that is, similar cases betreated similarly)" (1999b: 65). Rawls's account leaves open the form in which thefocus on human rights is to be realized in fulfilling the duty of assistance. Funding toregimes, for example, might be targeted to establishing and reforming local institutionsto protect human rights. Well-ordered societies also might provide advice to regimes


on ways to focus on the promotion and protection of human rights. Regardless of theform in which the assistance is provided, Rawls is clear that assistance involves amaterial commitment on the part of well-ordered societies and that assistance oughtto focus on the area of human rights.

One point that I take to be clear is that TNCs have an obhgation not to be involveddirectly in the violation of human rights in the course of their activities in burdenedsocieties. This obligation is independent of any obligation that might follow as a resultof the duty of assistance. That is to say, given that Rawls's account enumerates a listof human rights, it follows that individuals have a claim not to have their human rightsviolated regardless who the perpetrator of that violation might be, including TNCs.With regard to the principles of the Global Compact, such an understanding groundsPrinciple 2, which states that businesses should "make sure that they are not complicitin human rights abuses." Given that Rawls understands there to be a human right to"freedom from slavery, serfdom, and forced occupation" it also seems to follow thatTNCs, along the lines of Principle 4, have an obligation not to be involved in forcedand compulsory labor, and along the lines of Principle 5, have an obligation not tobe involved in child labor, at least in its most severe forms.'" In addition, Rawls'sunderstanding that there is a human right to formal equality can be taken to groundan obligation on the part of TNCs to refrain from discrimination in employment andoccupation along the lines of Principle 6. In this manner, there is reason to groundsome of the principles of the Global Compact, at least partially, in the conception ofhuman rights found in Rawls's account of the Law of Peoples.

At the same time, the wording of the U.N. Global Compact calls on TNCs notonly to avoid violation of human rights and labor standards, but also to support andpromote them. Recall that Principle 1 states that "businesses should support andrespect the protection of internationally proclaimed human rights within their sphereof influence." Similarly, Principles 4, 5, and 6 appear to call on TNCs not only torefrain from engaging in forced labor, child labor, and employment discrimination,but also to support the elimination of such practices more generally. To be clear, alack of violation of human rights by TNCs might help to promote a political culturein burdened societies that leads to a focus on respect for human rights. However, theprinciples of the Global Compact call for TNCs to be engaged in the active elimina-tion of such violations of human rights. For this reason, I take the Global Compactto attribute to TNCs an obligation similar to the duty of assistance on Rawls's ac-count of the Law of Peoples. The question then becomes whether there is a plausiblejustification for concluding that TNCs are under the duty of assistance with respectto the areas covered by Principles 1, 2, 4, 5, and 6.

If well-ordered societies abide by the Law of Peoples in doing their share to fulfillthe duty of assistance, it is difficult to argue that TNCs have obligations associatedwith the duty of assistance that are beyond the negative obhgations described above.This is not to say that there are no other grounds on which TNCs might have positiveobligations. The point is that if there are such obligations, they would not be groundedin the duty of assistance. Suppose, however, that the government of a well-orderedsociety is not doing its share to fulfill the duty of assistance, either directly to burdened


societies or through international cooperative institutions." In such a situation, is itplausible to hold that there are conditions under which TNCs have obligations as-sociated with the duty of assistance?

One response might be that TNCs that are largely owned by members of thewell-ordered society do have obligations to help fulfill the duty of assistance as anextension of the obligations that their shareholders have. Even though the governmentis not doing its share to fulfill the duty of assistance, members of the well-orderedsociety still owe a duty of assistance. As such, it might be said that in their capacity asmembers of the well-ordered society, shareholders owe a duty of assistance to thosemembers of the burdened societies in which the TNCs operate and that this duty isto be discharged by the TNCs in which they own shares.

Even though shareholders are plausibly under an obligation to fulfill the duty ofassistance by virtue of their position as members of a well-ordered society, it mightbe objected that the above response proceeds too quickly. On one objection, if thegovernment of the well-ordered society is explicit in its unwillingness to fulfill itsshare of the duty of assistance, members of the well-ordered society might develop alegitimate expectation that they will not be asked to help fulfill the duty of assistance,which then would count against the permissibility of TNCs incurring the costs as-sociated with fulfilling the duty of assistance. A more general objection might be thatthere is something illegitimate about permitting TNCs to pass on to shareholders thecosts associated with a duty that it is the government's role to discharge. On theseobjections, a straightforward extension of the duty of assistance to TNCs does notground positive obligations of the sort under consideration in this analysis.

I present an argument to help address these objections. To begin, I take it thatTNCs operate in burdened societies for a reason, which is that they benefit from do-ing so. This is not to deny that TNCs incur costs associated with operating in suchburdened societies. For example, to the extent that corruption among governmentofficials is a feature of some burdened societies, TNCs bear a cost from operating inburdened societies that they would not otherwise incur.'^ However, if TNCs did notbenefit, they would not be operating in burdened societies. In some of these situations,it is plausible to assume that TNCs and their shareholders benefit directly from theburdensome conditions that characterize the society in which they operate. In suchsituations, it seems unfair that TNCs and shareholders benefit from the conditionsfor which they still are under a duty of assistance to help alleviate. Thus, I argue fora principle which holds that in those situations in which TNCs benefit directly fromthe burdensome conditions under which they operate and shareholders of the TNCsstill owe a duty of assistance because the government is not doing its share to fulfillthe duty of assistance, TNCs have obligations associated with fulfilling the duty ofassistance. Let us call this principle of TNC obligation, the Principle of Assistance.

The Principle of Assistance does not specify the form that the assistance musttake. Some TNCs might best meet their obligations through activities that relate totheir core competencies.'^ Other TNCs might best meet their obligations by helpinglocal agencies provide assistance. What matters, I take it, is that TNCs provide as-sistance in ways that are effective and efficient. For purposes of this paper, apart from


emphasizing that this assistance is to be consistent with helping burdened societiesachieve the conditions of being well-ordered, I leave aside further discussion of thisissue, and turn to analyze the overall amount that TNCs are obligated to contributeon this account.

Given that the obligations of TNCs are grounded in the duty of assistance, wehave good reason to hold that an individual shareholder is obligated to contribute toany one burdened society no more than the amount that she would be obligated tocontribute in her capacity as a citizen of a well-ordered society if her governmentwere in fact fulfilling the duty of assistance to that burdened society.'"* If we appor-tion this obligation among the TNCs that operate in burdened societies in proportionto the allocation of her ownership among TNCs, we arrive at the maximum burdenthat any one TNC is obligated to incur in order to help fulfill the duty of assistanceon her behalf in the burdened societies in which they operate. In turn, by aggregatingthe obligations of all shareholders, we arrive at the maximum amount that TNCs areobligated to contribute toward fulfilling the duty of assistance. Because the obligationsof TNCs are grounded in the benefits incurred by TNCs, I introduce an additionalconstraint, which is that this amount TNCs are obligated to provide should not exceedthe amount by which TNCs benefit directly from the burdensome conditions. Let uscall the principle that specifies the nature of these limits on TNC obligations, thePrinciple of Limited Scope.

For purposes of this paper, I assume that TNCs are able to help alleviate the con-ditions of a burdened society at a cost that is at least as great as that of governmentsof well-ordered societies and international cooperative organizations. As such, theamount that a shareholder contributes toward fulfilling the duty of assistance is nomore than she would be required to contribute if her government were doing its shareto fulfill the duty of assistance. In some situations, however, TNCs might be able toalleviate the conditions associated with burdened societies at a cost that is lower thanthat faced by governments and international cooperative organizations. In such situa-tions, a question arises as to whether the amount that TNCs are required to contributeought to be less than what governments are required to provide. Another question thatarises in such situations is whether TNCs are permitted, or perhaps even obligated,to fulfill the duty of assistance in lieu of governments, even when they do not benefitdirectly from the burdensome conditions in a society. These are important questionsto consider. For purposes of this paper, however, I leave them aside."

If the account that I have advanced is correct, TNCs can be said to have obligationsto those in developing countries of the sort contained in Principles 1,2,4, and 5 of theGlobal Compact. Although the duties of nondiscrimination in employment outlinedin Principle 6 are consistent with the account thus far, there might be a question as towhether a concern with formal equality is adequate to ground such duties. Further-more, in the area of labor standards, the rights to association and collective bargainingoutlined in Principle 3 might not be said to follow from the account advanced thusfar. In the light of these points, I turn to consider explicitly the obligations of TNCswith respect to labor standards in these two areas.

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3. Labor Standards

In this section, I argue that TNCs can be held to obhgations in the area of laborstandards, as outlined in Principles 3 and 6 in the Global Compact, by way of extend-ing the account advanced thus far. I extend the account by drawing on an account thatI have advanced elsewhere concerning the relationship between Rawlsian justice andthe claims of workers to participate in corporate governance. This is an account of aneconomic regime that I call workplace republicanism.'^

In the account of workplace republicanism, I argue that workers have a claimto an institutionally guaranteed claim to contest managerial directives. This right isgrounded in the claim that individuals have a basic right, on Rawls's account of justiceas fairness, to protection against arbitrary interference and this right extends to theworkplace. Following the line of scholarship that takes protection against arbitraryinterference to be central to a republican conception of freedom and government, Icall an economic regime that protects workers against arbitrary interference a regimeof workplace republicanism." Depending on the circumstances, the right to contestmanagerial directives is realized in different forms, which include the right to union-ize and the right to strike. Protection and promotion of such rights is embodied inPrinciple 3 of the Global Compact. Additionally, on the account of workplace repub-licanism, a basic right to protection against arbitrary interference grounds a claim toprotection against unjustified forms of discrimination in the workplace. Protectionand promotion of such a right is embodied in Principle 6. As such, if the basic rightto protection against arbitrary interference can be accommodated within the accountadvanced in section one, then the account grounds the obligations associated withlabor standards, as outlined in the Global Compact.

On the account of workplace republicanism, I argue that the considerations that helpto ground a basic right to personal property help to ground a basic right to protectionagainst arbitrary interference with respect to important interests. '* According to Rawls,the right to own personal property is among the basic rights given that it is one of thesocial bases of self-respect.'̂ By the social bases of self-respect, Rawls means "thoseaspects of basic institutions normally essential if citizens are to have a lively senseof their worth as persons and to be able to advance their ends with self-confidence"(Rawls, 2000: 59). One role that the ownership of property plays toward this end, Iargue, is to help protect an individual against arbitrary interference.

In defining arbitrary interference, I draw upon Philip Pettit's articulation of aconception of freedom according to which an individual is free insofar as she is notsubject to mastery by another individual.^" An individual is subject to the mastery ofanother agent if this agent has the capacity to interfere arbitrarily in the choices thatthe individual is in a position to make. By interference, Pettit means the worseningof the individual's choice set. Such interference is understood to be arbitrary if it isconducted in a manner that is "subject just to the arbitrium, the decision or judgment,of the agent" (Pettit, 1997: 55). That is to say, such interference is arbitrary if thedecision by the agent "is not forced to track what the interests of those others requireaccording to their own judgements" (Pettit, 1997: 55).


The control of personal property helps to protect against such arbitrary interfer-ence in two ways. First, with respect to the domain within which control of propertyis exercised, the owner of property is protected against arbitrary interference by oth-ers—as in, for example, the case of owning a house. '̂ Second, because having accessto such a protected domain allows an owner to escape from arbitrary interference inareas outside of that domain, ownership of property helps to protect an individualfrom arbitrary interference in areas outside of that domain. Accordingly, protectingagainst arbitrary interference is part of the reason to include ownership of personalproperty among the social bases of self-respect.

In turn, I argue that protection against arbitrary interference, at least with regard toimportant interests, ought to be included among the social bases of self-respect andhence designated a basic right. Arbitrary interference involves making decisions thataffect another individual's interests without any consideration for that individual'sinterests or her judgments about those interests. In its most extreme forms, we mightsay that arbitrary interference is to treat another individual as though her interestsand judgments did not matter. As such, arbitrary interference is the absence of treat-ing an individual with respect, which I take to imply that protection against arbitraryinterference ought to be included among the basic rights.

As I argue, however, a basic right to ownership of personal property does not pro-vide adequate protection against arbitrary interference. In the context of large-scaleeconomic enterprises, for example, managerial discretion in the face of costly exitgives managers the capacity to exercise arbitrary interference with respect to importantinterests of workers. To the extent that such managerial discretion is required for theeffective functioning of economic enterprises, it is not possible, or even desirable,to eliminate such discretion. In such a situation, assuming that exit remains costly,workers require the ability to contest managerial decisions in order to exercise theirbasic right to protection against arbitrary interference. As noted at the outset of thissection, such a claim might take the form of a right to collective bargaining alongwith the right to protection against arbitrary discrimination.̂ ^

Given that the list of human rights in Rawls's account of the Law of Peoples includesthe right to personal property, if the account of workplace republicanism is correct,this suggests that a right to adequate protection against arbitrary interference oughtto be included among the list of human rights. In the context of the workplace, sucha right grounds the claims embodied in Principles 3 and 6 of the Global Compact.In turn, if the account in section two is correct about the way in which nonideal cir-cumstances can give rise to obligations for TNCs not only to respect such rights, butalso to help promote them by helping to fulfill the duty of assistance, then Rawls'saccount of the Law of Peoples grounds obligations, on the part of TNCs, to protectand promote both human rights and labor standards.

4. Environmental Standards

In this section, I consider the extent to which the account advanced thus far canencompass the remaining set of principles outlined in the U.N. Global Compact,


which are those that call on TNCs to uphold and promote environmental standards.These are Principles 7, 8, and 9 of the Global Compact. To be clear, for purposes ofthis discussion, I put aside debate over what practices and policies best protect andenhance the environment, and assume that it is possible to define some such set ofpolicies and practices in line with the obligations that TNCs are said to have.

Liberal political philosophy has been criticized on the grounds that it does not payadequate attention to the treatment of environmental issues and that when it does, itdoes so in a manner that understands the environment to be purely instrumental invalue (Serres, 1995). Without denying this point, the obligations on the part of TNCsto uphold and promote environmental standards nevertheless have the potential tobe rather demanding even if the environment is understood in purely instrumentalterms. On the account thus far, TNCs have obligations not only to avoid infringingon human rights, but also to fulfill the duty of assistance to a limited degree. To theextent that environmental considerations enter at the level of human rights and in thecontext of the duty of assistance, then TNCs have obligations to uphold and promoteenvironment standards. In what follows, I outline two ways in which considerationsabout the environment might enter Rawls's account of the Law of Peoples.

The first way in which considerations about the environment might enter thisaccount follows from the fact that subsistence is included among the list of humanrights. Although there is often a tension between protection of the environment andthe ability of people to subsist, in other situations, upholding environmental standardsis required for maintaining the ability of people to subsist. As an example, considerthe situation described in Aguinda v. Texaco, Inc., a class action lawsuit on behalf of30,000 Indians and farmers of the Oriente region of the Ecuadorian Amazon Basinand 25,000 downstream residents of Peru. Between 1964 and 1990, the Texaco Petro-leum Company, a subsidiary of Texaco, in partnership with PetroEcuador, the state oilcompany of Ecuador, extracted oil from the Oriente region (ChevronTexaco, 2002).According to one description of the charges made against Texaco, these operationsare said to have resulted in the following practices:

The claimants allege that Texaco released untreated, oil-laced water that had beenpumped out of the ground as part of the company's oil drilling operations, andthat broken pipelines released nearly seventeen million gallons of crude oil intothe Amazon forests during Texaco's operations in Ecuador, almost fifty percentmore than was released by the Exxon Valdez. In addition, they claim that morethan four million gallons of highly toxic "produced water" were dumped dailyinto open pits rather than re-injected into the ground. This dumping apparentlyviolated Texaco's own policy stated as early as 1971 that this was not consideredto be an acceptable practice. (Cohan, 2001: 147-148)

The contamination is described as having "dramatically increased cancer risks,unleashed widespread sanitation and nutritional problems and led to hundreds ofcases of avoidable sickness and death" (Cohan, 2001: 147-148). With this examplewe see that the activities of TNCs have the potential to violate certain human rights,perhaps most notably that of subsistence, when TNCs do not uphold environmentalstandards. To the extent that TNCs have obligations not to violate such rights under


the nonideal conditions of burdened societies, we have reason to hold that TNCshave an obligation to uphold some set of environmental standards in the context ofdeveloping countries.

The second way in which TNCs might be said to have obligations that relate toenvironmental standards is by way of the duty of assistance. As noted in sectiontwo, Rawls presents three guidelines to fulfilling the duty of assistance, the secondof which emphasizes the importance of human rights. In the first guideline, Rawlsexplains the role of a principle of just savings in meeting the duty of assistance. Thepurpose of a principle of just savings is to establish the basic institutions of a well-ordered society and to enable a situation that enables all citizens to live a worthwhilelife. Rawls writes:

Savings may stop once just (or decent) basic institutions have been established.At this point real saving (that is, net additions to real capital of all kinds) mayfall to zero; and existing stock only needs to be maintained, or replaced, andnonrenewable resources carefully husbanded for future use as appropriate. Thus,the savings rate as a constraint on current consumption is to be expressed interms of aggregate capital accumulated, resource use forgone, and technologydeveloped to conserve and regenerate the capacity of the natural world to sustainits human population. (Rawls, 1999b: 107)

From this we see that the natural environment occupies a central role in realizing ajust rate of savings on Rawls's account. The importance of the environment gives risenot only to activities to conserve it, but also to activities to develop new technologiesto help along these lines. Recall that under certain nonideal conditions, TNCs are saidto be under an obligation to help fulfill the duty of assistance, which aims to helpburdened societies to attain the conditions that allow them to become well-orderedsocieties. Given that the real savings required to realize the conditions of a well-ordered society involve protection and promotion of the natural environment, to theextent that TNCs are required to help fulfill the duty of assistance, their obligationsappear to extend beyond meeting certain environmental standards to the developmentof new technologies to protect and preserve the environment.

In the light of these two points, let us consider again the principles regardingenvironmental standards as put forward in the U.N. Global Compact. The principlesare as follows:

Principle 7: Businesses should support a precautionary approach to environ-mental challenges;

Principle 8: undertake initiatives to promote greater environmental responsibility;and

Principle 9: encourage the development and diffusion of environmentallyfriendly technologies.

On the basis of the above discussion, it seems to follow that TNCs have obligationsof the sort outlined in all three principles. To the extent that a precautionary approachto the environment is required to avoid causing damage of the kind in Aguinda v.Texaco, TNCs are obligated to follow Principle 7. In addition, TNCs might be said tobe obligated to follow Principles 8 and 9 to the extent that TNCs have an obligation


to help fulfill the duty of assistance under nonideal conditions by way of the principleof just savings. In short, if the account thus far is correct, TNCs can be held to theobligations outlined in all of the principles of the U.N. Global Compact on the groundsfound in Rawls's account of the Law of Peoples.

5. The Governance Gap

In response to the account thus far, it might be objected that it is inappropriate forTNCs, which are private entities, to carry out what are regarded as the responsibilitiesof governments. In this section, I address this objection by introducing the Principleof Accountability.

On this objection, the challenge to the account lies not in the different roles ofTNCs and the governments of well-ordered societies as discussed in section two, butrather in the differences between TNCs and the governments of the burdened societiesin which the TNCs operate. The assistance from well-ordered societies is normallyintended for the governments of burdened societies. It might be said, however, thatthere is a crucial difference between the governments of burdened societies and TNCs,which is that TNCs are not accountable to the members of burdened societies in away that their governments are. In turn, it might be objected that this fact poses achallenge to the claim that the duty of assistance can apply to TNCs, because TNCslack the accountability to those in burdened societies that makes it possible for theduty of assistance to be discharged.

In response, the first point to note is that not all governments of burdened societiesare accountable to the members of their societies. The fact that the duty of assistanceis intended to focus on human rights suggests it is the case that many governmentsof burdened societies are not accountable to the members of their societies. Accord-ingly, the relative lack of accountability on the part of TNCs to those in burdenedsocieties should not count against TNCs being under an obligation to fulfill the dutyof assistance.

At this juncture, it might be said that the objection raised at the outset remainseven if there were no difference in the degree to which TNCs and governments areaccountable to the members of a burdened society. On this view, the very lack of ac-countability of TNCs to the population of burdened societies in which they operatemakes them unsuitable organizations through which to deliver services associated withfulfilling the duty of assistance. Part of the reason underlying this view might be thatthe lack of accountability is a consideration on the grounds that we understand peoplein burdened societies to have a claim to protection against arbitrary interference. Giventhe ability of TNCs to make decisions that affect important interests of those whowork and live in their vicinity, the lack of accountability means that TNCs have thecapacity to interfere arbitrarily with regard to important interests of those who mightbe affected by their actions. The situation described in Aguinda v. Texaco is a case inpoint. Because the farmers and indigenous people in the Oriente region and Amazonbasin faced high costs of exit and were not able to hold Texaco and PetroEcuador ac-countable, they were subject to the capacity for arbitrary interference by Texaco and


PetroEcuador. More generally, being subject to the exercise of discretion by anotherparty with regard to matters that affect one's interests puts one in a situation of beingsubject to arbitrary interference by that other party, if one faces costly exit and lacksthe means to hold the other party accountable. This is independent of whether or notthe other party intends to cause one harm. In this manner, the lack of accountability ofTNCs in itself violates the claim of people in burdened societies to protection againstarbitrary interference. Hence, the objection is that to the extent that TNCs are notaccountable to members of burdened societies, it is inappropriate to require them toprovide services, even if in the context of fulfilling the duty of assistance.

The plausibility of this objection counts against the unfettered operation of TNCsin burdened societies on the account advanced in this paper. However, rather than con-clude that TNCs have no obligation to fulfill the duty of assistance, we might concludeinstead that TNCs ought to provide mechanisms to protect those who live in burdenedsocieties against arbitrary interference as a result of the activities of TNCs, as partof fulfilling the duty of assistance. To be clear, these mechanisms would not requirefull participation in corporate governance on the part of those in burdened societies.Instead, as discussed above in section three, what is required for protection againstarbitrary interference is that affected parties have the ability to contest decisions takenby managers of TNCs. Mechanisms to allow affected parties to do so might include,for example, a substantial consultative process, recognition of unions, or participationin aspects of governance. By emphasizing only the ability to contest decisions, themechanisms under consideration are consistent with the institutions of governancein a decent hierarchical society, in which consultation of members, rather than fullparticipation by members, is the basis for governance (Rawls, 1999b; 71-72).

The establishment of mechanisms that allow people in burdened societies to en-gage with the governance of TNCs is also consistent with the general spirit in whichRawls advances the case for duty of assistance. Recall that the duty of assistance islimited in its scope by the achievement of conditions within burdened societies thatallow them to be well-ordered societies. The duty of assistance does not call for ad-ditional aid. One of the reasons for this, according to Rawls, lies in the importanceof avoiding paternalism on the part of well-ordered societies in dealing with peoplesof burdened societies. "The third guideline for carrying out the duty of assistance,"Rawls explains, "is that its aim is to help burdened societies to be able to managetheir own affairs reasonably and rationally and eventually to become members of theSociety of well-ordered Peoples" (1999b; 111). Accordingly, once this goal is met,no further amount of assistance is required. Rawls continues, "thus the well-orderedsocieties giving assistance must not act patemalistically, but in measured ways thatdo not conflict with the final aim of assistance; freedom and equality for the formerlyburdened societies" (1999b; 111). To the extent that a concern with paternalism arisesin the context of the provision of assistance by TNCs, introduction of mechanisms ofthe sort noted above goes some way to help to address such a concern. The Principleof Accountability summarizes this intuition by holding that TNCs have an obligationto help support mechanisms that enable those affected by TNC activities to contestcorporate decisions in areas that relate to the fulfilling of those obligations.


6. Conclusion

As stated at the outset, I take it that any plausible account of the obligations ofTNCs to those living in the countries in which they operate must provide some dis-cussion of the grounds that limit the scope of those obligations. To the extent that anaccount is able to demonstrate that TNCs have obligations in fulfilling the duty ofassistance on Rawls's account of the Law of Peoples, then such an account wouldaddress this concern with the scope of obligations, because the duty of assistance islimited in its scope.

In this paper, I aim to provide such an account. To begin, I advance the claim thatthere are nonideal conditions under which shareholders of TNCs have an obligation tofulfill the duty of assistance up to the amount that they would have to pay as citizensof well-ordered societies who owe a duty of assistance to those in burdened societ-ies. Central to this claim are the Principle of Assistance and the Principle of LimitedScope. Furthermore, I advance the claim that the duty of assistance encompasses theobligations outlined in the principles of the U.N. Global Compact in the areas of humanrights, labor standards, and environmental protection. This claim involves interpretingRawls's three guidelines for fulfilling the duty of assistance in relation to the activitiesof TNCs. This claim also involves accepting that a claim to protection against arbitraryinterference is among the list of human rights. If this last point is correct, however,TNCs have an additional obligation, which is to help provide mechanisms throughwhich those affected by their activities are able to contest corporate decisions. ThePrinciple of Accountability captures this intuition.

In addition to examining the obligations of TNCs, the account in this paper isintended to contribute to our understanding in related areas of research. First, byadvancing the claim that the obligations of TNCs can be understood as extensions ofthe obligations of shareholders, the paper provides one way to interpret global cor-porate social responsibility. Second, by grounding the obligations of TNCs in termsof aiming to help burdened societies achieve reasonably just or decent institutions,the account in this paper provides a framework in which to examine the longstandingquestion of whether TNCs should pursue constructive engagement with governmentsof countries that violate human rights or leave such countries." Third, the accountprovides one way in which to understand the study of economic enterprises and cor-porate governance within Rawls's account of justice as fairness.

If the account advanced in this paper is correct, a number of unaddressed issueslend themselves to further inquiry. One issue is to develop a more detailed account ofthe specific obligations examined in this paper and the ways in which to fulfill them.Another issue is to understand the precise degree of assistance required of TNCs. Afurther issue to consider is whether there are additional obhgations that attach to TNCsoperating in burdened societies. In addition, there remains the broader task of extend-ing the analysis to TNCs operating in outlaw states and to TNCs that are not ownedby members of liberal or decent peoples. There is no reason to think that addressingthese and the many related issues will be straightforward. I hope that the account in thispaper provides the motivation and a plausible basis on which to continue this task.


Notes

For helpful comments and questions, I thank John Boatright, Thomas Donaldson, Thomas Dunfee,Robert Phillips, Joshua Margolis, Sara Toomey, Alec Walen, three anonymous reviewers, and par-ticipants in the session, "Governance as a Global Issue," at the Business Ethics in a Global Societyconference held at the Santa Clara University Markkula Center for Applied Ethics. I am gratefulto the Markkula Center for helping to enable participation at the conference by way of a YoungScholar Award. All remaining errors are my own.

' For a discussion of the ethical issues that arise in this case see Hsieh, Laufer, & Schwartz,2003.

^ On this point, see Mayer, 2003.' Thomas Donaldson (1989), for example, accepts that it is plausible to ground obligations on

the part of TNCs to help protect individuals in developing economies against deprivation of certainhuman rights. Although these obligations are more demanding than constraints on TNCs againstdepriving individuals of those rights, they are not as demanding as obligations to help provide forthose rights. The positive obligations discussed in this paper appear to be akin to these latter obliga-tions, and as such, as a general matter do not seem to be included in Donaldson's account. RichardT. DeGeorge (1993) attributes to TNCs the sort of positive obligations that I discuss. I thank RobertPhillips for emphasizing the focus on positive obligations.

'' I thank Joshua Margolis for encouragement to highlight these principles and for help inclarifying them.

' Robert Phillips and Joshua Margolis discuss the difficulties in applying Rawls's account ofjustice to questions about economic enterprises (1999).

'' I thank two anonymous reviewers for raising this point.

' John Hall (2000) provides a general discussion of the issues that arise in the garment indus-try.

* Liam Murphy (2000) provides such an account. In contrast, Barbara Herman (2001) providesa Kantian account of one way in which to address these issues with regard to a duty of beneficence.Of course, some argue that we should not recognize such limits (Singer, 1972).

' Charles Beitz (1979) and Thomas Pogge (1994; 2002) each advance a cosmopolitan accountof global justice according to which such social and economic inequalities ought to be minimizedto a greater extent than Rawls advocates.

'" On the issue of child labor, for purposes of this paper, I focus on its most extreme forms. Itremains an open question as to what follows from the account advanced in this paper for the per-missibility of child labor in its less extreme forms.

"By this I mean that the government is unwilling, rather than unable, to do its part. If the gov-ernment or society were unable to assist burdened societies, then they would not be under a duty.I thank Alec Walen for helpful discussion on this point.

'̂ For discussions on corruption and bribery, see, for example, Dunfee & Hess, 2000; Nichols,2000.

" Thomas Dunfee and David Hess (2002) discuss the ways in which TNCs are able to provideassistance by way of their core competencies.

'•* This assumes that the tax system of a well-ordered society distributes the tax burdens in afair manner.

" For an analysis of these issues that focuses on the comparative advantage of private corporationsin providing assistance, see Dunfee & Hess, 2002.1 thank Thomas Dunfee for helpful discussionto clarify a number of the above points.

"Workplace republicanism is understood to be distinct from workplace democracy. The formeris understood to be concerned with protecting workers against arbitrary interference, whereas I


take the latter to require workers to control the use of productive assets. The distinction might beseen in the case of employee ownership when ownership does not provide workers with control.Although the lack of control means that employee ownership in this case might not meet the criteriaof workplace democracy, it might nevertheless meet the criteria of workplace republicanism to theextent that the ownership claims of workers give workers enforceable claims against management.Such claims might help protect workers against arbitrary managerial decisions. The material in thissection relies on arguments presented in more detail elsewhere (Hsieh, 2002; Hsieh, 2003).

" Philip Pettit argues that central to republicanism is the idea of freedom as non-domination, orfreedom from being subject to arbitrary interference by another individual. There are other elementsof the republican tradition that other scholars regard as integral (Pettit, 1997).

'* The basic rights and liberties are those rights and liberties that are required to provide the"political and social conditions essential for the adequate development and full exercise of thetwo moral powers of free and equal persons," which are the capacity for a sense of justice and thecapacity for a conception of the good (Rawls, 2000: 45).

" Rawls writes, "one ground of this right is to allow a sufficient material basis for personalindependence and a sense of self-respect, both of which are essential for the adequate developmentand exercise of the moral powers. Having this right and being able effectively to exercise it is oneof the social bases of self-respect" (Rawls, 2000: 114).

"̂ Pettit contrasts this conception of freedom with two standard conceptions of freedom: free-dom as self-mastery, or positive liberty, and freedom as the absence of interference by others, ornegative liberty (1997: 22).

'̂ Although there is a legal distinction between real property and personal property, for Rawls,ownership of certain forms of real property is included within the scope of personal property.

" Although the right to contest managerial directives might require employee representation onthe board of directors, on the account of workplace republicanism, the right to contest does not requirestronger forms of employee participation as in worker control of firms, as prescribed by the ideal ofworkplace democracy. Discussion of this issue is taken up in another account (Hsieh, 2003).

•̂' I thank Joshua Margolis for raising this point.

References

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ChevronTexaco. ChevronTexaco issues statement on U.S. circuit court decision affirmingdismissal of Ecuador litigation (August 19, 2002).

Cohan, J. A. 2001. "Environmental Rights of Indigenous Peoples." UCLA Journal ofEnvironmental Law and Policy 20: 133-85.

DeGeorge, R. T. 1993. Competing with Integrity in International Business (Oxford:Oxford University Press).

Donaldson, T. 1989. "Moral Minimums for Multinationals." Ethics and InternationalAffairs 3: 163-82.

Dunfee, T, and D. Hess. 2000. "Fighting Corruption: A Principled Approach: The C2 Prin-ciples (Combating Corruption)." Cornell International Law Journal 33: 593-626.

2002. "The Legitimacy of Direct Corporate Humanitarian Investment." Busi-ness Ethics Quarterly 10: 95-109.


Hall, J. 2000. "Human Rights and the Garment Industry in Contemporary Cambodia."Stanford Journal of International Law 36: 119-74.

Herman, B. 2001. "The Scope of Moral Requirement." Philosophy and Public Affairs30(3): 227-56.

Hsieh, N. 2002. "Employee Ownership and Workplace Democracy." Paper presented atThe State of Democratic Practice, The Democracy Collaborative Affiliates Conference,University of Maryland, College Park.

2003. "Rawlsian Justice and Workplace Republicanism." Paper presented atthe Research Seminar in Political Theory, Oxford University.

Hsieh, N., W. S. Laufer, and M. S. Schwartz. 2002. "Business Students Debate EthicalPrinciples and Social Impact." Development Outreach 4: 24-27.

Logsdon, J. M., and D. J. Wood. 2002. "Business Citizenship: From Domestic to GlobalLevel of Analysis." Business Ethics Quarterly 12: 155-89.

Mayer, A. 2003. "The Human Rights Principles in the 2000 UN Global Compact: SixPrinciples in Search of a Theoretical Framework." Working paper. Legal Studies De-partment, The Wharton School, University of Pennsylvania.

Murphy, L. 2000. Moral Demands of Nonideal Theory (Oxford: Oxford UniversityPress).

Nichols, P. 2000. "The Myth of Anti-Bribery Laws as Transnational Intrusion." CornellInternational Law Journal 33: 627-55.

Pettit, P. 1997. Republicanism: A Theory of Freedom and Government (Oxford: OxfordUniversity Press).

PhiUips, R., and J. Margolis. 1999. "Toward an Ethics of Organizations." Business EthicsQuarterly 9: 619-3B.

Pogge, T. 1994. "An Egalitarian Law of Peoples." Philosophy and Public Affairs 23:195-224.

2002. "Moral Universalism and Global Economic Justice." Politics, Philosophyand Economics 1: 29-58.

Post, J. E. 2002. "Global Corporate Citizenship: Principles to Live and Work By." Busi-ness Ethics Quarterly 12: 143-54.

Rawls, J. 1993. Political Liberalism (New York: Columbia University Press).1999a. A Theory of Justice (revised ed.) (Cambridge, Mass.: Harvard University

Press).1999b. The Law of Peoples (Cambridge, Mass.: Harvard University Press).2000. Justice as Fairness, ed. E. Kelly (Cambridge, Mass.: Harvard University

Press).Singer, P. 1972. "Famine, Affluence, and Morality." Philosophy and Public Affairs 1:

229-43.Serres, M. 1995. The Natural Contract, trans. E. MacArthur (Ann Arbor: University of

Michigan Press).

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The Obligations of Transnational Corporations

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