transnational corporations 60% (needs bibliography) part1
Examine critically the legal effect of Codes of Conduct on activities of transnational corporations.
"We need business to give practical meaning
and reach to the values and principles that
connect cultures and people everywhere."
Ban Ki-moon, Secretary General of the United Nations
In recent years the globalization of world economy, community in general, the process of economic integration in Europe, dynamic development of east countries and to some extent the consequences of the global economic crisis encourage the expansion of transnational corporations and groups that are active across national borders.
A transnational corporation, according to the UN Draft Code of Conduct on Transnational Corporations, is “an enterprise, comprising entities in two or more countries, regardless of the legal form and fields of activity of these entities, which operates under a system of decision-making, permitting coherent policies and a common strategy through one ore more decision-making centres, in which the entities are so linked, by ownership or otherwise, that one or more of them may be able to exercise a significant influence over the activities of others, and, in particular, to share knowledge, resources and responsibilities with the other.” [1]
Although the interchangeability of terms “transnational corporations” (TNCs) and “multinational enterprises” (MNEs) and other relevant terms is widely discussed nowadays, for the purpose of this essay terms TNCs and MNEs will be used as equal.
The quantity and size of TNCs have been continuously increasing last decades. It is a considered, that TNCs “are driven by a quest to achieve economies of scale and to market products with the same ingredients, packaging, and logos to all of the world's 6.2 billion inhabitants” [2], and thus they are looking for cheaper resources for their businesses: labour and natural. However, the move of social responsibility is following the expansion of TNCs closely, thus their activities are always under the great attention of the international community. Diverse organizations, international and non-international, private and public, broadly-based and narrowly-focused, developed behavioural guidelines for TNCs “to apply to their international activities, commonly referred to as codes of conduct” [3].
“Codes of conduct or guidelines for multinational corporations do not have any fixed definition. However, it is important to make a distinction between corporate codes of conduct and codes of conduct for multinational corporations. Corporate codes of conduct are individual company policy statements that define a company’s own ethical standards, while codes of conduct for multinationals are externally generated and to some degree imposed on multinationals. These codes are not of the companies’ own making, nor are they agreements between companies and the entities which create the codes. In some cases, however, multinationals are involved in the drafting process. The fact that these codes are externally established standards while other corporate codes of conduct are of a voluntary and internal nature has important implications when considering their implementation in corporate practice.
In relation to multinationals, codes of conduct for multinationals are recommendations. Even if the codes have been agreed by a number of sovereign states, or such other entities as have been granted international personality by sovereign states, they do not have a status of international law, which would set a binding effect on multinationals operating in those states which have adopted or joined the code. Hence, codes of conduct for multinationals impose no legal, but only moral, obligations on companies, and they are not capable of enforcement by the application of external sanctions. For multinationals, the commitment to the codes is voluntary. But some organizations have placed the acceptance of their code as a condition to their membership or licensing agreements.” [4]
The legal effect of codes of conduct on activities of TNCs is widely debated. “It has been suggested that even unilateral declarations can create international law. Even codes explicitly declared to be "voluntary," such as the OECD Guidelines, may establish norms of conduct that would probably be observed - perhaps as much as if they were formally “mandatory.” On the other hand, codes explicitly worded to create non-binding obligations may be considered interpretive of other explicitly binding agreements.” [5]
Nowadays there is a wide range of codes of conduct for TNCs, adopted multilaterally as well as unilaterally, developed by diverse institutions: governments and intergovernmental organizations, trade union organizations, employers’ environmental, consumer, investor, religious, ethical and other organizations etc. Codes of conduct for TNC can take different forms, have different structures and focus on a broad spectrum of issues: relations between TNCs in global markets, labour standards, protection of the environment, health and safety issues of particular products etc. [6]
Frameworks, guidelines, codes and set of standards and principles, agreements concerning social and environmental issues are commonly referred to as corporate social responsibility (CSR) instruments and initiatives. Regarding to TNCs they are introduced to regulate their activities, to reinforce TNCs commitments to improve social and environmental conditions. [7]
For the examination in this essay all the mentioned above instruments and initiatives will be mainly referred to as codes of conduct and divided for convenience into two groups: Codes of Conduct as Initiatives of International Organizations (UN, OECD and ILO) and Codes of Conduct as Private Initiatives.
I. CODES OF CONDUCT AS INITIATIVES OF INTERNATIONAL ORGANIZATIONS (UN, OECD and ILO)
1. The UN Draft Code of Conduct on Transnational Corporations (The UN Draft Code)
“The UN Draft Code of Conduct by no means represents the first international effort to consider the probable means of regulating the activities of transnational corporations”. [8] Despite the fact that nowadays the UN Draft Code is obsolete and shelved, it should be observed. First of all the UN Draft Code has the historical value, because it was the first in some ways, as mentioned above. Secondly, this code became a stumbling block and revealed the chasm in agreement of interests of developed and developing countries, which led to blocking of adoption of mutually acceptable international rules of conduct for TNCs.
The UN Commission on Transnational Corporations was set up in 1974 following the recommendations of the Group of Eminent Persons, which was established on the demand of the Economic and Social Council of the UN and included representatives from both developed and developing countries. This movement started mainly as a response to the Group of 77 - the coalition of member states at UN who recently had gained independence and were developing at that time. The Group of 77 requested a New International Economic Order - a set of proposals to promote their interests, among which their right to control TNCs’ businesses on their territories. [9]
The main objective of the UN Commission on TNC was defined to formulate a Code of Conduct for TNCs which was supposed to be based on the suggestions or views of member states. There were a lot of principal, legal, political and other disagreements between rich and poor countries during the process of drafting and negotiations and thus the text of the draft of the Code was submitted only in 1990. But in 1992 the work on the implementation of the Code was postponed indefinitely. It is significant how the approach to treatment of TNCs changed during the drafting of the UN Draft Code - from the norms required the strong control of TNCs to those in favour of developed countries. The changes in economical and political situation led to the lost of ground by developing countries. By the beginning of the 1990s there was a lack of foreign investment in poor countries in comparison with the early 1970s, thus the potential negative effect of TNCs was pushed to the background while the issue of the fruitful integration of developing countries into the worldwide growing economy became the urgent, and TNCs were considered as primary means of the successful realization of such integration. Thus any international rules regulating TNCs had to take into account this goal. [10]
However the efforts of the UN failed and the UN draft Code became “a dead letter”. [11]
2. The United Nations Global Compact
After the contradictory experience of the UN in the creating of the international binding code for TNCs, the UN in 2000 launched the UN Global Compact, which is a voluntary initiative this time. The Global Compact is “a both a policy platform and a practical framework for companies that are committed to sustainability and responsible business practice” and consists of ten principles concerning human rights, labour, environment and anti-corruption: to support and respect the protection of human rights; not to be complicit in human rights abuses; to support the freedom of association and to recognize the right to collective bargaining; to eliminate any form of forced or compulsory labour and especially abolish child labour; to eliminate the discrimination concerning employment and occupation; to support a precautionary treatment of environmental issues, initiatively promote greater environmental responsibility and develop and diffuse environmentally friendly technologies; to work against all forms of corruption, including extortion and bribery. [12] These principles are rooted in the norms of Universal Declaration of Human Rights, the ILO Declaration on Fundamental Principles and Rights at Work; the Rio Declaration on Environment and Development, and the UN Convention Against Corruption. [13]
The participation in the UN Global Compact can be realized easily in two stages through sending a letter of support of the Global Compact and its principles to the Secretary General of UN and completing the special registration form on-line, but also participating companies are asked to make annual respective financial contributions to support the UN Global Compact. It is also required that participating companies would implement the UN Global Compact and its principles into day-to-day operations, integrate them into business strategy and companies’ culture, incorporate them into the process of making the companies’ decisions etc. In addition, companies should report periodically about how they implement the principles and advocate the UN Global Compact to peers, partners, clients, consumers and the public in general. The mechanisms of the UN Global Compact are also networks for learning and co-operation, and communication and transparency about corporate social responsibility activities. There are also some announced practical benefits which companies can obtain from the participation in the UN Global Compact. [14]
However, the UN Global Compact can not be used as an obligatory document. Its existence and performance rely only on its legitimacy as the UN document and public transparency and accountability, which complement each other. There are no mechanisms for the supervision whether the TNCs comply with declared principles, no enforcement instruments, and no sanctions for violation of the rules of the UN Global Compact. The UN can only persuade TNCs to implement its principles, use the internet or mass media to inform public about the TNCs activities or de-list participants, for example for failure to disclose information properly. [15]
Nowadays the UN Global Compact includes over 7700 corporate participants and stakeholders from over 130 countries and is named by the UN as “the largest corporate citizenship and sustainability initiative in the world”. [16]
However, the UN Global Compact has been often criticized. There is a view that when a lot of companies are engaged in many initiatives concerning corporate social responsibility due to the diversity of activities of modern global TNCs, then the Global Compact is only one among others initiatives and “its role is at most modest”. The important reason is that the Global Compact principles are generally understood only as minimum requirements. This is not very stimulating for companies to perform better. [17]
Nonetheless, the UN Global Compact is important first of all because of its cooperative nature - it involves different kinds of international actors, including the wide use within business community. Also important that the Compact is like a platform, a voluntary global framework, and is easily compatible with other instruments of corporate social responsibility. [18]
3. The OECD Guidelines on Multinational Enterprises (the OECD MNEs Guidelines)
Almost in parallel with drafting the UN Code of Conduct for TNCs the Committee on International Investment and Multinational Enterprises of the Organization for Economic Cooperation and Development were carrying negotiations on the OECD MNEs Guidelines and after 18 months, in 1976 they were approved as one of four elements of the OECD Declaration on International Investment and Multinational Enterprises. [19] All elements of the Declaration are reviewed periodically, and there was a revision of the Guidelines in 2000. Nowadays there are 42 participating countries (all 30 OECD member countries and 12 non-member countries). [20]
According to the OECD MNEs Guidelines, governments are required to promote them among all MNEs whether they are their host or home countries. The main goals of the Guidelines are: to improve the climate of foreign investment and intensify the development through the contribution of MNEs; to provide the strong basis for confidence between MNEs and host countries; to ensure that the operations of the MNEs are in harmony with host governments’ policies. [21]
The Guidelines are again voluntary recommendations in different business areas. It consists of principles and standards, based on agreed international norms, such as: to contribute to progress for sustainable development, to respect the human rights, to encourage the local capacity building and the formation of human capital, to abstain from any unlawful practices and improper political involvement, to contribute in good corporate governance, self-regulatory practices and employee training, to refrain from discriminatory treatment of employees, to encourages others to apply with the Guidelines. The Guidelines also encourage expanding of the disclosure in business, struggling with bribery, upholding the labour and environmental standards, protection of the consumer interests and transfer of science and technology. Eventually, they Guidelines emphasize the recommendation to comply with the local competition and tax laws. [22]
Summing up, the OECD MNEs Guidelines are nowadays broadly used within the business community, because despite being the set of voluntary principles, this document has the mechanism for review of its performance and involves regular monitoring. But once again, the Guidelines are just a framework, deriving from international norms. [23]
4. Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy
The Tripartite Declaration on Multinational Enterprises and Social Policy (the Tripartite Declaration) was adopted by the International Labour Organization (ILO) in 1977. The ILO is the United Nations agency, uniting governments’ representatives, employers and employees to work out labour issues jointly. The Tripartite Declaration was revised in 2000 and 2006. The last update was mainly devoted to recommendations to MNEs as well as national enterprises to urgently assume the measures against the worst forms of child labour. “The Declaration was one of earliest international instruments covering the social dimension of business. Negotiated between governments, workers’ and employers’ organizations in 1977, it represents the first international tripartite consensus on desirable behaviour of enterprises with regard to labour and social policy areas.” [24]
The Tripartite Declaration is also a set of voluntary principles which are guidelines to MNEs, governments, employers’ and workers’ organizations in different areas such as employment policy, training, conditions of work and life, and industrial relations. According to the Declaration, the MNEs are required to respect national laws as well as international standards; guarantee employment promotion, equality of opportunity and treatment, security of employment, provide training, skills formation, appropriate wages, benefits and conditions of work; obey requirements concerning minimum age, safety and health; guarantee the freedom of association and right to organize, collective bargaining, consultation, grievances, settlement of disputes. [25]
In order to monitor the Declaration, its compliance and relevant issues the ILO organized a subcommittee of the Committee on Legal Issues and International Labour Standards of the ILO Governing Body. The ILO collects information and conducts surveys on the performance of the Declaration. In order to examine disputes concerning its application the Tripartite Declaration has corresponding procedures. The ILO committee on Freedom of Association deals with claims about the freedom of association and collective bargaining. Moreover the ILO is establishing a helpdesk for companies (management and workers), industry initiatives and governments to encourage full and accurate inclusion of the principles of the MNE Declaration. [26]
“The MNE Declaration is unique in providing clear guidance of how companies and governments can work together, to help advance national and local economic and social development goals - advocating public-private partnerships long before the term existed. The MNE Declaration also encourages dialogue between home and host countries for foreign direct investment, linking CSR initiatives to a broader dialogue concerning trade and investment. By situating CSR in the broader context of government policies which critically impact enterprise decisions, the MNE Declaration emphasizes that CSR is an important complement to government regulation, but never a substitute.” [27]
Thereby, the Tripartite Declaration is a multilateral code of conduct which is again per se a voluntary international framework, developed from ILO conventions and recommendations. [28]
However, the UN Compact, as well as both the OECD Guidelines and the Tripartite Declaration do not have penal or enforcement measures for their violation, thus their real influence has to be examined. [29]
Nevertheless, they “received prominent recognition by the Group of Eight and the OECD as well as in various UN contexts. They also happen to be among the instruments or initiatives most referenced or used in business-developed guidance materials. More importantly, the direct links with governments as well as their high level of business and worker organisation engagement clearly sets them apart from all other instruments or initiatives.” [30]
[1] The text of the UN Draft Code of Conduct, reproduced in 23 International Legal Materials (1984) at 626;
Sheikh, S. and Chatterjee, S.K. (1995) “Codes of Conduct and Their Impact on Corporate Governance” in Shekh. S. and Rees, W. (eds) Corporate Governance & Corporate Control, Cavendish Publishing Limited, London.
[2] Branson, D.M. (2002-2003) “The Social Responsibility of Large Multinational Corporations”, 16 Transnational Law, 121-140.
[3] Westfield, E. (2001-2002) “Globalization, Governance, and Multinational Enterprise Responsibility: Globalization, Governance, and Multinational Enterprise Responsibility: Corporate Codes of Conduct in the 21st Century”, 42 Virginia Journal of International Law, 1075-1108.
[4] International Labour Organization, Bureau for Workers’ Activities “Codes of Conduct for Multinationals”, available at http://actrav.itcilo.org/actrav-english/telearn/global/ilo/guide/main.htm, visited 08 January 2010.
[5] Rubin, S.J. (1994-1995) “Transnational Corporations and International Codes of Conduct: A Study of the Relationship between International Legal Cooperation and Economic Development”, 10 American University Journal of International Law and Policy 1275-1289; Baade, H.W. (1979) “The Legal Effects of Codes of Conduct for Multinational Enterprises”, 22 GER. Y.B. INT'L L. 11.
[6] Note 4 supra.
[7] Organisation for Economic Cooperation and Development (2009) Overview of Selected Initiatives and Instruments Relevant to Corporate Social Responsibility, OECD-ILO Conference on Corporate Social Responsibility, Employment and Industrial Relations: Promoting Responsible Business Conduct in a Globalising Economy, Paris, 2008, available at http://www.oecd.org/dataoecd/18/56/40889288.pdf, visited 08 January 2010.
[8] Sheikh, S. and Chatterjee, S.K. (1995) “Codes of Conduct and Their Impact on Corporate Governance” in Shekh. S. and Rees, W. (eds) Corporate Governance & Corporate Control, Cavendish Publishing Limited, London.
[9] Muchlinski, P.T. (2007) Multinational Enterprises & The Law, Oxford University Press Inc., New York.
[10] Note 8 supra.
[11] Note 2 supra.
[12] United Nations (2008) The brochure “Corporate Citizenship in The World Economy. United Nations Global Compact”, United Nations Global Compact Office, available at http://www.unglobalcompact.org/, visited 08 January 2010.
[13] Note 6 supra.
[14] Note 11 supra.
[15] United Nations (2008) Global Compact Governance, United Nations Global Compact Office, available at http://www.unglobalcompact.org/docs/about_the_gc/governance_update2008.pdf, visited 08 January 2010.
[16] United Nations (2008) Overview of the UN Global Compact, United Nations Global Compact Office, available at http://www.unglobalcompact.org/AboutTheGC/index.html, visited 08 January 2010.
[17] Runhaar, H. and Lafferty, H. (2009) “Governing Corporate Social Responsibility: an Assessment of the Contribution of the UN Global Compact to CSR Strategies in the Telecommunications Industry”, 84 (4) Journal of business ethics, 479-495.
[18] Note 6 supra.
[19] Note 8 supra.
[20] Organization for Economic Cooperation and Development (2009) OECD Declaration and Decisions on International Investment and Multinational Enterprises, available at www.oecd.org/daf/investment/declaration, visited 08 January 2010.
[21] The OECD Guidelines For Multinational Enterprises: Text, Commentary And Clarifications, available at www.oecd.org/daf/investment/guidelines, visited 08 January 2010.
[22] Note 20 supra.
[23] Note 6 supra.
[24] Note 6 supra.
[25] The text of the Tripartite Declaration, available at http://www.ilo.org/public/english/employment/multi/download/english.pdf, visited 08 January 2010.
[26] Note 6 supra.
[27] Note 6 supra.
[28] Note 6 supra.
[29] Note 3 supra.
[30] Note 6 supra.