Business with a conscience: Why best practice is good practice

As global business continues to diversify and grow, social dialogue plays a crucial role in encouraging the adoption and implementation of corporate social responsibility policies.

GENEVA - The 1993 factory fire that took the lives of 188 workers and injured 469 at the Kader Industrial toy factory on the outskirts of Bangkok caused inordinate grief and terror - but it also fuelled international debate about what has since come to be known as corporate social responsibility (CSR). The majority of Kader shares were owned by foreign interests, and the factory products were intended primarily for export to the United States and other industrialized countries. The event of the fire was particularly gruesome because the workers, most of them young women from rural impoverished areas, had no means of escape. Hundreds of workers were packed into each of the three buildings that collapsed, and there were no fire extinguishers, alarms, sprinkler systems or emergency exits.

Trade unions have targeted multinational enterprises (MNEs) for contracting with suppliers that violate the rights of their workers, while public campaigns have been organized against some of the most well-known brands. Only recently, the ICFTU annual report cited serious workers' rights violations in a number of well-known MNEs. In the last 15 years many MNEs have not only adopted codes of conduct to ensure that certain minimum standards are met by suppliers; they are making the implementation of codes central to their operations (see diagram).

At the 2001 Davos World Economic Forum, business leaders said that "it would be difficult to overstate the consensus, almost the passion, among these CEOs of the leading global companies that the time is at hand for transparency". And in 2003 the International Organisation of Employers took up the debate, stating that "CSR is not just an issue for large multinational corporations... its voluntariness, diversity and flexibility are vital to allowing all businesses, regardless of size or location, to consider how best they can respond to the realities of their marketplace" (IOE 2003). From an IOE perspective, CSR is a voluntary, enterprise-driven initiative and refers to activities that look to go beyond legal compliance in a diverse range of social, economic and environmental areas. It's important to recognize that many corporate codes of conduct have evolved in response to a lack of national schemes to regulate global corporate behaviour.

According to a global survey of business executives published by McKinsey in January 2006, CEOs around the world overwhelmingly believe that their role in society goes beyond simply meeting obligations to shareholders and includes explicit contributions to the broader public good, such as providing decent jobs, making philanthropic donations and going beyond legal requirements to minimize pollution and other negative effects of business. Many initiatives have focused on the business case, or the "triple bottom line" approach that emphasizes financial, environmental and labour responsibility.

Shareholders and financial analysts have also awoken to the importance of evaluating the social activities of corporations. Major global indices such as the Dow Jones Sustainability Index and FTSE4Good track the financial performance of the leading sustainability-driven companies worldwide, reinforcing the commitment of many MNEs to comply with the principles of international labour standards in their supply chains.

However, workers' representatives are sounding a note of caution. Speaking at the 95th International Labour Conference in June 2006, the Chairman of the ILO Workers' Group Sir Leroy Trotman drew attention to the fact that although CSRs are generally well intentioned, they are sometimes "determined for the express purpose of avoiding the collective bargaining exercise and full recognition of the fundamental principles and rights at work, as detailed by the ILO". He suggested that the ILO ought to examine the text and import of CSRs and "guide where necessary regarding how they could be made compatible with our global standards".

The ILO and CSR

The ILO's unique tripartite structure lends a viable framework for CSR. For instance, the ILO Tripartite Declaration of Principles concerning Multinational Enterprises and Social Policy (MNE Declaration, adopted in 1977 and revised in 2000) precedes the era of codes of conduct, but in many ways remains a cutting-edge instrument for CSR guidance.

The principles therein were originally intended to guide governments, multinationals and employers' and workers' organizations. Today, the ILO's InFocus Initiative helps to ensure that the principles of its MNE Declaration are incorporated accurately and more frequently in voluntary private CSR initiatives. Its work focuses on improved information collection, analysis and dissemination, coherent action which brings together contributions from all parts of the ILO and promotional and technical advisory services.

A notable example is the ILO's Better Factories Cambodia programme, which has been working since 2001 with government, factory managers and trade unions. Starting with a factory monitoring system that now covers 250 factories employing over 280,000 workers, the programme began training management and workers last year and will continue until 2009. Says Dan Henkle, Gap's vice president for social responsibility, "You've got all the different players - unions, employers, government, buyers - sitting down at the table." And according to the ILO's Christine Evans-Klock, "Yet again Cambodia is leading the world in improving labour standards in its garment factories. Not with monitoring this time, but with workers' education."

The joint ILO/USDOL "SHARE" programme (Strategic HIV/AIDS Responses by Enterprises) is another example of a CSR initiative emphasizing social dialogue. SHARE has signed memoranda of cooperation with some 300 enterprises and now reaches 300,000 workers in 23 countries.

Global Compact for the greater good

The global community has also developed a multifaceted approach to enhancing CSR. In 1999, the United Nations launched the Global Compact, an initiative that brings companies together with UN agencies, labour organizations and civil society to support universal environmental and social principles. Today, more than 2,500 enterprises from 70 countries have engaged in the Global Compact, working to advance 10 universal principles in the areas of human rights, labour, the environment and anti-corruption - principles which derive in part from the ILO Declaration on Fundamental Principles and Rights at Work.

Rising interest in CSR from a range of institutions and actors has increased firms' awareness of the potential positive role of labour standards in enterprise development. Increased attention has also stimulated small and medium-sized enterprises (SMEs) around the world to think about their social responsibility; the majority of signatories to the Global Compact are SMEs. The ILO's "Sustainable Development through the Global Compact" project funded by the Italian Government focuses mainly on SMEs in Italy, Albania, Morocco and Tunisia.

Implementing codes of conduct

Many companies have adopted ethical standards and guidelines, governing dimensions of their social, environmental and human rights practices. Corporate codes of conduct can apply both to activities that the company owns and directly controls, and to the company's offshore suppliers and subcontractors, usually in developing countries. But implementing codes at a distance further down the chain can be difficult. "If we stopped pushing the code tomorrow some of our factories would continue doing it, following labour practices that meet the code. And some would stop the same day," said one country manager of a garment multinational.

What happens when suppliers don't see the company code as being in their best interest? Some multinationals link the granting of orders to the supplier with the commitment to adhere to the code: "Bottom line for us is if you don't comply, we don't do business with you," said one manager of a footwear multinational. But if smaller suppliers don't have the financial and human resources to implement the code or don't understand the value of the code, leading to a closure of the factory, workers may find themselves in even worse employment or unemployment.

There is therefore a new focus on education and training through all components of the supply chain, from senior management through the supplier managers and factory owners to the workers themselves. "The first thing you have to do is educate the shareholder or general manager at the factory of the benefits of the programme," said one regional manager.

Another problem is the multiplicity of codes - there are reported to be 10,000 in existence in the garment industry alone. To address this, some multinationals are engaging with their competitors to develop industry-wide codes. For instance, HP, Dell and IBM released the Electronic Industry Code of Conduct (EICC) in 2004 to ensure safe working conditions in the electronics industry supply chain, respectful treatment of workers and environmentally responsible manufacturing processes. Another initiative is the International Council of Toy Industries (ICTI), which promotes international toy safety standards and a responsible attitude to advertising and marketing to children.

In addition to industry codes of conduct, multi-stakeholder initiatives (MSIs) have been launched, whose principles are based on internationally recognized minimum standards such as minimum wages, hours of work, health and safety and forced and child labour. Such major initiatives are Social Accountability International (SAI), the Fair Labour Association (FLA), the Fair Wear Foundation (FWF) and the Ethical Trading Initiative (ETI). And by 2008 there will be a new international standard: ISO 26000 (see sidebar).

Another interesting initiative is the proliferation of international framework agreements (IFAs). These are agreements between a multinational and an organization such as a global union federation (GUF). The ILO's international labour standards, including those concerning safety and health in the workplace, are cited more frequently within IFAs than in any other initiatives on corporate social responsibility. IFAs include trade unions in their implementation procedures which include follow-up for verification, dialogue and, if necessary, complaints. Some 40 IFAs have been signed between 1999 and 2006.

Despite these recent improvements there is a lot more to be done. Enterprise and independent monitoring, regular factory inspections and reporting requirements need to be strengthened. Training and education are beginning to show sustainable results. Companies need to take responsibility for their actions and involve CSR strategies and international labour standards in their management objectives. And above all, the role of good government is crucial in regulating the employment relationship and protecting all interests in society.

ISO 26000: Coming soon

The International Organization for Standardization (ISO) is in the process of developing an international standard for social responsibility (ISO 26000), to be completed in 2008. The standard will apply not only to enterprises but also government, not-for-profit and other organizations and will provide basic information on human rights, the environment, labour rights, sustainable development, CSR and other issues.

The ILO has recently signed a memorandum of understanding with ISO, in which it pledges to provide technical assistance on international labour standard principles and how best to apply them in an organization. In return, ISO will involve the ILO in all phases of developing ISO 26000.