Stakeholders and Going Beyond Profit Maximization

mba603rtframework3.pdf

Home >Law homework help >Stakeholders and Going Beyond Profit Maximization

2. THE RIGHT FRAMEWORK 75

Latin America as a direct result of its integrity policy (see BSR 2001). Honeywell Inc. has also benefited commercially from its anti-corruption strategy. In one instance, the company was asked for a bribe in connection with a major Asian airport contract. In keeping with its anti-corruption policy, Honeywell opted not to bid. Shortly after- wards, a corruption scandal broke over the project. When it was revealed that 11 other bidding companies had paid bribes, they were disqualified; Honeywell was awarded the contract.

Business can therefore play a valuable role in tackling the supply side of corruption. Where companies' involvement in corruption is concerned, many argue that verifiable voluntary codes of conduct could go a long way in stamping out corruption'and bribery. Shell, for example, has a 'no-bribes' policy in its general business principles and has procedures to detect violations and, like others such as DuPont and Aracruz Celulose, it has pledged to report on its performance. DuPont has a strong policy and audit process, and a number of people have been fired over non-compliance with the ethics policy. But, says Shell's Robin Aram, vice president of external relations ana1 policy development, 'the world is full of bribery and corruption, so we don't pretend this is easy to deal with' (in jafferji 2001).

In Figure 6 we illustrate the extent of adoption of codes of conduct in the compa- nies surveyed.

Others therefore claim that binding regulation is the^only sure way to tackle this deep-seated problem. Alan Larson, undersecretary for business affairs at the US State Department, agrees that bribery should be banned, but he would sweeten the regulatory pill to companies by adding incentives for good behavior, such as granting export credit guarantees (in Dale 2001). Other effective moves might include determined action by financial institutions to make strict auditing and reporting a condition for access to grants and loans, mobilizing transparency to help root out the problem at source (USD 1998a). Eskom Chairman Reuel Khoza is a firm supporter of this strategy. Action on corruption could be linked to debt relief for the South, he argues, and access to funds should involve conditions. He states that 'the north needs to make common cause with the south on this issue. But for every penny of debt relief granted, financial institutions must say "we'll be watching the spending of every dollar".'

International moves are already afoot to make corruption and bribery a punishable offense. The OECD Convention on Combating Corruption and Bribery went into effect in January 1999. By September 2000 it had been signed by all 29 OECD members and by five non-members (Argentina, Brazil, Bulgaria, Chile, and the Slovak Republic; see OECD 2000a). The convention opens the way for enforcement and prosecution of those who engage in corruption by requiring signatory countries to 'establish the criminal offense of bribing a foreign public official, and to have in place adequate sanctions and reliable means for detecting and enforcing the offense' (OECD 2000a).

Recognizing that criminalizing acts of corruption is insufficient to tackle the prob- lem as a whole, the OECD also attacked the 'supply' aspect of bribery through a new chapter in its 2000 revision of its 1976 Guidelines for Multinational Enterprises (OECD 2000b). The OECD 1998 Council Recommendation on Improving Ethical Conduct in Public Service, the OECD Public Management Committee (PUMA) and the Financial Action Task Force on Money Laundering, meanwhile, will be mobilized to deal with

76 WALKING THE TALK

Half of the companies surveyed have a code of conduct valid for all employees

% of 996 companies surveyed

20 40 60 ' 80 T O O

All industries

Basic materials

Consumer, cyclical

Consumer, non-cyclical

.Energy

Financial

Healthcare

Industrial

Technology and telecommunications

Utilities

T A.

T A

A T

T \

f A

•T

T Social code of conduct valid for all employees

A Corruption and bribery covered

Source: Sam<

• 548 companies have a code of conduct valid for all employees, among which 410 cover corruption and bribery

figure 6 ADOPTION OF CODES OF CONDUCT

IP*

ill

the demand side, together with various technical cooperation efforts to help build governance capacity in developing economies.

Partnerships between public and private sectors and between regions will be essen- tial to ensure smooth coordination of anti-corruption strategies. The OECD is already working with non-OECD countries in the fight against corruption. Initiatives are under way to help tackle the problem in Central and Eastern Europe and the former Soviet Union, and the OECD's Development Assistance Committee (DAC) is addressing the issue in developing countries.

Ultimately, though, the solution to corruption lies in greater corporate and govern- mental accountability. According to the World Bank (2002: 109), 'lack of information breeds corruption'. Tellingly/ the World Bank reports a clear association between indicators of press freedom and the absence of corruption. Meanwhile, Transparency International, a Berlin-based NGO, is calling for governments to report their perfor- mance on corruption; for both the supply and demand sides of the corruption equation, greater transparency is at the heart of the solution.

2. THE RIGHT FRAMEWORK 77

A fundamental precondition for well-functioning markets is the free and open flow of information; and a fundamental condition for a well-functioning society is consulta- tion and inclusion. Although recent years have seen a groundswell of initiatives aimed at increasing governmental and corporate accountability, there is still much to do both in these sectors and in ensuring that the organizations claiming to represent civil society/ many of them just as 'multinational' as large corporations/ are also trans- parent and accountable.

Progress is also needed in ensuring that the institutions underpinning the emerg- ing architecture of global governance are seen to be transparent and inclusive. Indeed, among the chief reproaches of the anti-globalization movement to the WTO has been its lack of transparency, citizen consultation and participation and the fact that many key decisions are taken in closed arenas beyond the public purview.

The broad trend is toward greater openness and inclusion. In 1998, 35 countries signed the UN Economic Commission for Europe (UNECE) Convention on Access to Information/ Public Participation in Decision-making and Access to Justice in Environ- mental Matters—known as the Aarhus Convention (Box 5). This Convention sets rules for public disclosure by government and corporations of environmental and other

The Aarhus Convention on Access to Information/- P.ublic Participation in Decision-making and Access to justice in Environmental Matters was adopted in 1998 and came into force on 30 October 2001. As of January 2002, its status of participation comprises 17 ratifica- tions, approvals, acceptances, or accessions and 31 signatories among the European mem- ber countries of the UNECE—the United Nations Economic Commission for Europe (Europe and North America).

It rests on three main pillars: the right of individuals and corporations to demand infor- mation; the;early inclusion of the public in decisions that will have an environmental impact; and the right of the public to appeal in case of denied environmental information.

The Convention has two task forces:

0 Task Force on Access to justice

and three working groups:

& Working Group on Compliance and Rules of Procedure

o Working Group on Pollutant Release and Transfer Registers

The GMO working group focuses, for example, on trying to fill in gaps that exist in the international or regional frameworks regulating GMO-related product information (such as the Cartagena Protocol on Biosafety, the Codex Alimentarius Commission, Directive 2001/18/ECandso on).

Box 5 THE AARHUS CONVENTION

Source: UNECE 2001

78 WALKING THE TALK

information and establishes a framework for civil participation in environmental decision-making. It also establishes a framework for judicial remedy for non-compli- ance with the convention (Petkova and Veit 2000).

Economist Joseph Stieglitz in his Nobel-winning work showed that market failures are often caused by imperfect information—one-sided, too costly, or simply impos- sible to obtain (Sweeting 1998). This inequality of information can lead the market to function inefficiently: for example, by allowing a low-quality product to displace a higher-quality equivalent Most importantly, Stieglitz claims, it can undermine confi- dence in the market. Governments therefore have a central role to play in setting the framework for greater market transparency, a move that would help ensure both that markets operate to their maximum efficiency and that they allocate resources more fairly (Shorrock 2001).'

Companies, too, need to improve their levels of transparency, on financial matters as well as social and environmental issues. A salutary tale on the importance of openness is provided by US energy giant Enron, a sector leader whose lack of trans- parency was largely responsible for its loss of market credibility and its eventual bankruptcy. It has taken over a century to establish relatively clear rules for financial accountability in the corporate world; even so, experiences such as that of Enron highlight the need for ongoing evolution toward greater transparency in this area.

Less than one-third of all companies surveyed monitor environmental performance for most of their operations

% of 996 companies surveyed

40 60 - 80 100

All industries

Basic materials

Consumer, cyclical

Consumer, non-cyclical

Energy

Financial

Healthcare

Industrial

Technology and telecommunications

Utilities

Source:

282 companies monitor environmental performance for all units generating more than 90% of their total revenues

Figure 7 MONITORING OF ENVIRONMENTAL PERFORMANCE

2. THE RIGHT FRAMEWORK 79

Accountability for environmental and social issues is far less developed. For exam- ple, a 1998 study by the US Environmental Protection Agency (EPA) found that 74% of publicly traded companies had failed to disclose adequately environmental legal proceedings in their Securities and Exchange Commission-mandated 10-K registra- tion requirements (Sutherland 2001). Guidelines—such as the EU's recent issuing of a voluntary recommendation to clarify existing ED accounting rules and improve the transparency, quality, and comparability of corporate environmental data—go some way toward filling that gap, but full corporate environmental disclosure is still a minority sport (Figures 1 and 7).

Although many leading corporations now produce voluntary corporate environ- mental reports (CERs) and accounts of their corporate social responsibility, this prac- tice is still reserved to a small minority of the business community. Moreover, there is still some degree of apparent dissonance between what companies state in their CERs and what they lobby for behind closed doors. Such discrepancies undermine public trust in business and can be damaging to both brand and image. Shell's Robin Aram maintains that, proprietary competitive matters apart, the appearance of secrecy in business dealings is a risky strategy for companies: 'If you have what appears to be a secret club, people will assume secret things are happening. That's not in our interest' (in Cowe 2000). Transparency and consistency, argues Aram, are the overriding requirements: 'What you say should actually be true . . . then you should assume that what you say in private will appear on the front page of the newspapers. If that would create embarrassment, it's probably not such a good idea/

Voluntary codes of conduct on disclosure can help plug the transparency gap. The WBCSD's sustainable development reporting project, for example, has identified 27 separate elements which it includes in a so-called 'inventory' of good reporting prac- tices. These range from'top management commitment and corporate profile issues to the impacts of the core business and the reporting process itself. At the root of it, however, transparency and accountability—whether corporate or governmental—are merely the reverse side of the governance coin: if institutions are well governed, accountability, and the transparency that this embodies, will follow.

f ,

tag ip of

'Shell' id of of the I.He

tor {seal

rector

ECTS;

Rent

ague From

rs k'atts rai a In

WALKING THE TALK

The Business Case for Sustainable Development

Charles 0. Holliday, Jr • Stephan Schmidheiny • Philip Watts

of >er

P O B L I S H I N G

BK BERRETT-KOEHLEK PUBLISHEKS, Iisrc

San Francisco

2 0 0 2