The Financial Times ran a June 20, 2013 editorial about the potential abuses of the compensation process associated with the $8 billion set aside by BP to fund the victims of the Deepwater Horizon rig disaster. The FT urges, "Gulf settlement should be fair, not an exercise in extortion." Methinks that, the FT doth protest too much. While the distortions of the US tort system are far from ideal, there are worse problems to be had when dealing with the consequences of corporate supply chains going rogue. Moreover, with companies chasing low cost locations, willing governments eager to welcome foreign investments and potential for untapped natural resources, the global supply chains are growing in the developing world; these are also the regions least equipped to deal with the associated challenges. While the developing economies have grown quickly, the institutions (such as rule of law, labor, environmental, workplace, health and safety, human rights standards, anti-corruption measures, etc.) have not kept pace.
It is hard not to remember the rising daily death count from Rana Plaza, the Bangladesh garment factory building, that collapsed on April 24 and led to the loss of over a 1,100 lives. Prior to that, were the stories of Foxconn and its insanity-inducing working conditions producing -- what Steve Jobs loved to call the "insanely great" -- products from Apple. Will there be a honeypot anywhere close to the $8 billion set aside for Deepwater Horizon to compensate the destitute and exploited workers from these other supply chains? More broadly, will there be any real and enforceable action on systematically preventing irresponsible behaviors and outright abuses from happening?
It is worthwhile asking, who is ultimately responsible for implementing responsible business conduct and making the commitments real: business, government, multi-lateral bodies, consumers, watchdog and advocacy groups, or all of us? It is easy enough to point the finger at Gap, Walmart, BP or Apple or their suppliers or government officials in distant lands eager for foreign investment, while we enjoy fast fashion, cheap oil or the newest iPhone. The fingers point towards all of us. And this is at the heart of the dilemma. Because of the systemic nature of the problem, it is easy to always consider it to be someone else's responsibility. Of course, the more engaged among us are outraged when we read the news stories or the outraged editorials; but, on the whole, no stakeholder really has the incentive to expend the effort and the costs to unilaterally take responsibility for sustaining responsible conduct.
That said, there is, indeed, a lot of decision-making leverage if we can get the marquee large companies and governments and several influential international agencies to come together and make some commitments that are binding because they have made commitments to each other in a highly visible, public forum. This is why I am particularly excited about the opportunity to dig into several of these issues at the OECD's first Global Forum for Responsible Business Conduct to be held in Paris on June 26-27. I will be chairing a plenary discussion that aspires to set a tone for the conference. We will collectively have the chance to engage with leaders from government, industry and international multilateral agencies, such as the UN and the International Trade Union Confederation, and help advance the global dialogue on the topic. More importantly, I am hopeful that we not only advance the dialogue, but given the platform of the OECD and the seniority of decision-makers present, we might be able to accelerate the move towards practicality and action.
I am looking forward to the possibility that in a global forum of this kind (and that too so soon after the disaster in Bangladesh, the wrangling over the BP settlement, and the ongoing poultry fires and antibiotic scares in China and civil strife in parts of the world such as the Democratic Republic of Congo) we have a chance of making some noise and making a real difference. The OECD's platform is an important asset, because the OECD guidelines for responsible business conduct are unique; they are the most comprehensive government-backed instrument in existence today. According to its brochure: "The Guidelines are the only existing multilaterally agreed corporate responsibility instrument that adhering governments have committed to promoting in a global context. They express the shared views and values of countries, including major emerging economies, that are the sources and the recipients of a large majority of world's investment flows and are also home to a majority of MNEs.The Guidelines cover all major areas of business ethics."
To be clear, I am going into the conference both as an optimist and as a realist. A couple of weeks ago, a journalist asked me about my thoughts on Corporate Social Responsibility (CSR) and its prospects for getting priority within corporations. I said that I am concerned about the fact that CSR is fundamentally not compatible with managerial and organizational incentives. For many companies, issues such as these are driven by branding and strategic goals - an agenda that is pushed by the corporate center, by staff in functional positions - and in some cases by the CEO. However, the actual costs of implementing CSR on the ground may have to be borne by line managers with Profit and Loss responsibilities in their business units. Each of these units or their managers have certain near term P&L targets they need to meet. This is where CSR falls apart: at the business unit and line manager level people need to "make their numbers" and must use every negotiating tactic they can to meet them. An example of the negotiating tactic could be to squeeze as much as you can out of a supply contract or to seek the lowest cost location or to offload monitoring and audits to third party contractors so as to not violate your own standards, guidelines, CSR commitments - and to claim plausible deniability. The incentive to pursue the advice of Michael Porter's Five Forces model (i.e. find industry and markets spaces where you optimize on negotiating power) is often incompatible with Michael Porter's more recent notion of "Creating Shared Value." I call it the Porter Paradox. That's the inherent challenge.
At the OECD Global Forum in Paris, I am hoping that I can have a conversation organized along several questions:
Convergence and Coherence in International Standards and Principles
- The responsibility part of "responsible business conduct" is ultimately the responsibility to respect basic human rights. Is there a broadly shared view as to what constitutes human rights (in the developed world, in the developing world, across the public, private sectors and civil society)? Do the Guiding Principles on Business and Human Rights give us a common standard? Is it practical to use standards from one part of the world in another? Given their leverage, resources (and, frequently, added inventiveness) should we expect large multinational enterprises to do more?
- What levers do governments in developed countries have to ensure the convergence of international growth objectives of businesses (to secure inputs and markets) and broader policy objectives? How do geopolitical interests get integrated into the concept of responsible business? Can business act as a lever for advancing national strategic and geopolitical objectives?
- We are obsessed with GDP growth around the world and are especially focused on the pace of growth in the Asia Pacific. Is there a trade-off between fast GDP growth and inclusive growth and the reduction of inequalities? There are a parallel set of questions as they relate to sustainable growth: is there a trade-off?
Alternative approaches to Responsible Business Conduct in different emerging markets
- What are the situations in a developing country where the operations of businesses have the potential for adverse effects in the supply chain, in the human condition (especially as it relates to gross inequities, poverty, health and labor conditions, particularly in the extraction industries), on the environment and sustainable use of natural resources? Some academics have argued that addressing societal concerns (like energy and water usage, protection of the environment, employee safety, among others) could increase the levels of company productivity, with the subsequent positive effects in profitability and share value. Have there been sustained examples of this in different developing regions?
- Let's consider the example of India. It might become the first country to have mandatory CSR: a Bill in the Parliament requires companies above a certain size to ensure that they spend at least 2 percent of annual profits on CSR activities. Is this a good idea? An interesting feature of the landmark legislation was the inclusion of 'social business ventures' as potential recipients of CSR spending. Now India is seeing many social enterprises emerge, to tackle some of the issues traditionally left to the non-profit sector. This could be an opportunity for the private sector to provide the seed-stage grant capital that these enterprises need at their very early stages. Could this happen? Could this be a game-changer and scale up businesses that had RBC integrated into its original mission? How do you balance India's need for reviving its economy and RBC? Is there a trade-off? What are the remedies to the seemingly insurmountable problems of corruption, sustainability and labor laws in a country as vast and diverse as India?
Challenges in implementation
- How do the principles of "creating shared value" (i.e. re-conceiving products and markets, reconfiguring value chains, enabling local cluster development) play out in the context of a wide range of multi national businesses and extend beyond individual case studies?
- What are the biggest implementation challenges? Are incentives of those who have to execute aligned with creating shared value or responsible conduct?
- What are the levers that trade unions can use to promote sustainable economic growth while protecting the rights of workers? What is the role of the union vis-a-vis the government, third party organizations, or the investor community in protecting workers' rights and sustainable development?
- Do sustainability investments pay off? How long does it take?
- How do you use the levers you have as a large player to advance RBC?
- How can NGOs, third parties, the media and other partners help?
I can go on, but must pause here. I welcome any of your suggestions for how we can ask the right questions. I will report back after the Global Forum concludes.