The American Prospect Home Page
August 2000

Compassionate Globalization: Holding Corporations to High Standards

Susan Ariel Aaronson

In 1965 a newly minted, Harvard-trained lawyer loaded a slingshot and lobbed it at America's largest corporation, General Motors. Ralph Nader criticized the design, production, and marketing of an unsafe car, the Corvair. With that volley, Nader inspired both the modern regulatory state in the United States and the corporate governance movement. Ever since, activists, executives, regulators, and investors have toiled to hold corporations accountable. They have used a wide range of strategies including public relations, the development of regulation, consumer boycotts, and shareholder activism to press companies to "do the right thing."

But these activists found that it is a lot harder to ensure that global companies do the right thing in all of the nations in which they operate. Ralph Nader -- now the Green Party nominee for president -- has made multinationals and their negative impact upon democracy a central issue of his campaign. But Nader's strategy of attacking global business is not a constructive strategy, because all nations, rich and poor, need the investment, technology, employment, and cost efficiencies these firms may bring to national economic growth. Activists and policy makers must find a strategy that holds corporations accountable, while not thwarting the many benefits that such companies bring to their stakeholders: consumers, employees, subcontractors, the communities in which they operate, and even their competitors.

Governments are reluctant to over regulate global corporations and in recent years have provided a host of incentives (tax holidays and rebates, employment subsidies, etcetera) to attract such companies. Thus, any effort to provide guidelines to govern global corporations must not only bridge many different government approaches but provide incentives to corporations and governments to adhere to such guidelines. Finally, while citizens and policy makers agree that there must be shared rules to govern globalization, they don't agree on how (voluntary or mandated codes) or at what level they should be implemented (nationally or internationally). Those who want international corporate codes also disagree on which international institution is best positioned to draft, monitor, and implement such codes (the World Trade Organization [WTO], the United Nations [UN], or the Organisation for Economic Co-operation and Development [OECD]).

In recent years, public anger at the effects of globalization has bubbled over. Protesters attacked "global corporate greed" in April at the annual meeting of the World Bank and International Monetary Fund (IMF), and hundreds were arrested protesting the meeting of the WTO in Seattle. Just last week, activists traveled to the Democratic National Convention in Los Angeles to protest -- among other things -- globalization. They also protested at the Republican National Convention in Philadelphia.

On May Day, there were demonstrations around the world. And in July, some 20,000 activists rallied at the trial of 10 members of the Peasant Confederation charged with wrecking a McDonald's that was under construction in Millau, France. Some activists called it the "trial of globalization," noting that the Golden Arches stand for everything that globalization threatens.

While relatively few citizens took to the streets, there is growing evidence that the public in the United States and Europe believes that corporations need regulation. A November 1999 poll found that over 85 percent of Americans believe that American companies that operate in other countries should be expected to abide by U.S. environmental, health, and safety standards in their overseas operations. European surveys have similar results.

While some protesters are condemning international organizations -- which they see as the problem -- one international body, the OECD, is trying to be part of the solution. In the bitter fight between globalizers and those who would halt globalization for human rights and environmental reasons, the OECD may have developed a "third way" to encourage investment while providing incentives that global business acts responsibly.

This June, OECD members adopted the Guidelines for Multinational Enterprises. These guidelines not only provide recommendations to govern global business, but they show how policy makers, working with leaders from activist organizations, business, and labor, can develop a consensus to govern the chaotic global economy. However, these guidelines can only be successful if citizens press for their effective implementation.

In 1976 the OECD declared its commitment to facilitate direct investment among member nations as well as offering a set of guidelines designed to ensure that multinational enterprises operate in harmony with the policies of the countries in which they do business.

The guidelines have been revised several times -- in 1979, 1982, 1984, and 1991. While labor and business advisers participated in these revisions, it was not until 1998 that the OECD invited nongovernmental organizations such as environmental groups to participate in these negotiations. A wide range of groups from around the world provided comments, and the OECD posted their comments -- as well as each negotiating draft -- on the Internet. Among the organizations involved were World Wildlife, Amnesty International, Oxfam, and Friends of the Earth.

On June 27, 29 member countries of the OECD as well as nonmembers Argentina, Brazil, Chile, and Slovakia, approved the revised guidelines. They now include recommendations related to the elimination of child and forced labor, human rights, improved environmental performance, corruption, and consumer protection -- some of the very things the protesters demanded in Seattle, Washington, and at the national conventions.

The OECD guidelines are still a work in progress. The OECD did not provide clear guidance as to how nations should implement the guidelines, which can bring complaints about violations, and whether firms are responsible for the actions of their contractors and subcontractors. (This last issue is extremely important since many companies have thousands of subcontractors.) Thus, the guidelines rely on the discretion of governments. However, the 33 adhering nations are unlikely to effectively implement these regulations without pressure from their citizens.

Business and advocacy group leaders don't quite see eye to eye on how the guidelines should be used. Leaders of nongovernmental organizations wrote this May that for the guidelines to be effective, "they must deliver improvements in accountability and behavior" of multinational corporations. However, business groups insist that the guidelines are voluntary and do not require changes to corporate behavior.

It is also unclear how the OECD can encourage nonmembers -- the bulk of the world's nations -- to use the guidelines. The guidelines say that multinationals should adopt the guidelines wherever they operate. Countries might use their embassies around the world to identify problems, but how is not clear.

The United States provides a good example of the problems of implementation. The U.S. State Department negotiated the guidelines and implements them. It decides whether an individual or group has standing to make an allegation about a violation of the guidelines, informs the company of the allegation, and recommends that it be addressed. It may also attempt to mediate a resolution between the party making the allegation and the company accused of the violation. If the complainant and defendant cannot find common ground, the complainant can go public, thus using peaceful confrontation and the force of negative publicity to enact change in business behavior. One can see the early Ralph Nader's influence in this tactic.

According to State Department officials, however, in the 24 years since the guidelines' inception, there have been only four allegations and in only one instance has the party making the allegation been determined to have standing. But other nations, such as the Netherlands and Sweden, have used these guidelines more frequently and more effectively to monitor business. In contrast with the United States, these nations have developed an implementation strategy that relies on business and labor advisers as well as government officials.

Lack of funding also hinders implementation. The national contact point will certainly need staff with the expertise to investigate and mediate such complaints, but the State Department does not plan to ask for more money. Nongovernmental organizations such as Friends of the Earth plan to bring several cases in the near future. It seems unlikely that the State Department can handle these cases without more resources, as well as the help of experts from environmental, human rights, business, and labor groups.

The guidelines are an important first step in global governance. While they are the first internationally agreed codes to govern multinationals, business, government and nongovernmental organizations disagree as to how to use them. While they represent a model for multinational negotiations by involving nongovernmental organizations, the guidelines did not delineate how they might be involved in the implementation process.

Many corporate executives in the U.S. and abroad welcome this approach. They don't want a patchwork of regulation at the national level. In addition, they understand that by adhering to these guidelines, their consumers can be reassured that such firms care about the conditions in which workers produce goods and services. To that extent, the guidelines are an incentive-based approach, a global seal of approval for that corporation's global activities.

The guidelines are an example of Ralph Nader's influence on the global corporate accountability movement. Ironically, while Nader today campaigns for president on a platform condemning globalization and global business, the OECD has co-opted some of the tactics he used to attempt to hold business accountable, such as the sway of public opinion. The guidelines provide both incentives and disincentives to corporations to do the right thing. If they are effectively implemented, these rules of the road may ensure that global business stays on the right track.

Susan Ariel Aaronson is Senior Fellow, International, National Policy Association and the author of Trade and the American Dream and the forthcoming Taking it to the Streets: Trade, Civil Society, and the Social Compact from the Boston Tea Party to the Seattle Ministerial (April, 2001: Michigan).