Vol. X, Bulletin No. 12 December 3, 2005
CORPORATE RESPONSIBILITY LTD.
A Trend Feared by Milton Friedman Grows
Into a Movement -- on the Level of Ideas
“Few trends could so thoroughly undermine the very foundations of our free society as the acceptance by corporate officials of a social responsibility other than to make as much money for their stockholders as possible. This is a fundamentally subversive doctrine.” So wrote Milton Friedman, a Nobel laureate in economics, in his best-selling book, "Capitalism and Freedom," first published in 1962.
Despite Friedman's warning, more and more corporate officials have accepted the “subversive doctrine” that corporations have a social responsibility. “The movement for corporate social responsibility has won the battle of ideas,” the Economist declared early this year.
The Economist's Idea of the Good Corporation
In an editorial and an 18-page essay titled "The Good Company," the influential weekly joined the battle on Friedman’s side, calling on corporations to resist the lures of corporate social responsibility (CSR) in all its manifestations. It diagnosed the movement as perpetrating a "dangerously faulty analysis of the capitalist system," through two concepts that the magazine deemed particularly faulty:
The common thread running through various CSR goals is to integrate the public interest into corporation activities. But "the proper guardians of the public interest are governments," the Economist insisted. "The proper business of business is business. No apology required."
- that besides its shareholders, the corporation has other "stakeholders," such as employees, suppliers, and the community.
- that success in maximizing profits is not a reliable measure of a good company.
Still, the movement keeps moving. More and more corporations are hiring CSR consultants, establishing CSR departments, and making public reports on how they are serving the public good. CSR is all the rage as the subject of business and academic conferences in the United States and even more so in Europe. Early in November Business for Social Responsibility, a network of business firms, attracted over 1,100 people from 43 countries to its annual conference. The participants, three-fourths of them from business, grappled with subjects like "What is the purpose of the corporation?." "Does CSR improve a company's performance?," and "Can the private sector monitor its own business practices?"
French Multinational Favors UN Norms
Carrefour, the largest retailer in Europe and a retail marketing giant second in the world only to Wal-Mart, has come out strongly in favor of world-wide corporate responsibility standards. On November 14, the French multinational, with 430,000 employees and 11,000 stores in 30 countries, issued a press release making these significant points:
Ruggie will make his first report at the spring 2006 meeting of the UN Commission on Human Right and his final report a year later While serving in a previous role as special advisor to Annan, Ruggie was a major architect of the UN Global Compact, the voluntary corporate citizenship initiative Annan proposed in 1999, which currently has the participation of more than 2,200 businesses in 87 countries.
- committing Carrefour to seeking the adoption of a set of UN norms on the human rights responsibilities of multinational enterprises;
- supporting an "independent mechanism" for checking compliance with such norms and for dialogue and consultation on putting them in effect;
- praising a controversial document, the "Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights," as the "most thorough codification" of what international human rights law means for business activities;
- welcoming UN General Secretary Kofi Annan's appointment of John Ruggie, professor of international affairs at Harvard, as his special representative to pursue the objectives contained in the subcommittee document; and
- expressing the hope that Ruggie's efforts will lead to the "fast adoption" of such norms, notably to include UN International Labor Organization conventions.
Elephants in the Center of Rooms Do Attract Attention
In a talk at Britain's Wilton Park conference on business and human rights in October, Ruggie sketched the massive corporate role in globalization. The figures are these: Some 70,000 transnational firms operate in the world today, along with roughly 700,000 subsidiaries plus millions of suppliers. Intra-firm trade (trade between parts of a corporate family) accounts for about 40% of U.S. trade.
"It is hardly surprising," Ruggie said, "that the transnational corporate sector -- and by extension the entire universe of businesses -- has attracted increased attention. Elephants standing in the center of rooms, even when friendly, tend to have that effect....One of the oldest axioms of political life [is that] the successful accumulation of power by one type of social actor will induce efforts by others with different interests or aims to organize countervailing power."
When large corporations became major players in industrialized countries in the 19th century, he pointed out, "countervailing efforts came from labor and faith-based communities, among others, and ultimately the state." Now that's happening on the global level.
(For more on the UN debate, see "'Special' Treatment for UN Global Norms."}
Vatican Conference on the Good Company
Next year, under a Vatican agency's honorary sponsorship, the Pontifical University of St. Thomas in Rome will hold a conference on "The Good Company: Catholic Social Thought and Corporate Responsibility in Dialogue." From October 5 to 7, participants will examine issues under three themes: "ethical foundations of the good company," "practices and policies of the good company," and "pedagogical approaches for use in the formation of managers in business schools."
Detailed information on the Rome conference, including a call for papers, can be found on the University of St. Thomas' Website at http//www.stthomas.edu/thegoodcompany.
Issues missing from such conferences, or at least from those whose programs I've seen, are: What difference does CSR (or Catholic Social Thought) make at the workplace and community level in (say) China or Indonesia? And what does a bad company look like?
It would be enlightening for the Rome conference to have Charles Kernaghan, director of the National Labor Committee, present a case study or two of the bad companies based on his field research in Central America or East Asia. And to have Jeff Ballinger, longtime advocate for worker rights, describe his long campaign to turn Nike into a good company. (See "He Pioneered in Making Waves about Nike" below.)
During five weeks spanning October and November, Charles Kernaghan, director of the New York City-based National Labor Committee, flew to seven cities in the United States and one in Europe (Copenhagen) to expose how some corporations are exploiting working men and women in the global economy. The latest talk in his whirlwind tour was at Cornell University in Ithaca, N.Y., on November 17.
The Cornell Daily Sun reported on his talk in an article headed "Kernaghan Relates Sweatshop Horrors." Here, reprinted with permission, are excerpts from that article, written by Scott Rosenthal, a Sun staff writer:
One of the world’s foremost advocates for ending human rights violations in sweatshops, Charles Kernaghan, spoke to an overflow audience last night about his experiences exposing abuses while head of the National Labor Committee.
Holding a major league baseball in his hand, Kernaghan began by explaining to the crowd that the baseball used in the World Series was made in Costa Rica, where workers “get 15 minutes to sew the balls, work 10 hours a day in 97-degree temperature and end up earning 1 cent above the poverty-level wage.”
“And by the way,” he added, “they have not received a raise in 13 years.”
Describing how workers are “trapped in their misery,” much of the lecture focused on similar stories of abuses at sweatshops in contract with the largest companies in the world. Holding up an NFL jersey, which he bought in New York for $75, Kernaghan explained how workers “end up getting three tenths of one percent of the selling price in their wages” in the sweatshop that produces them in Honduras.
The room fell silent as Kernaghan explained the situation in Bangladesh, which he described as even more dire. In the free-trade zone there, 130,000 sweatshop workers in most cases are forced to produce clothing “from 7:30 in the morning until 9:00 at night, seven days a week, with an average of two days off in the last four months.”
Two nights a week, he said, “supervisors keep [workers] up 19 and a half hours, in order for the [ships] to leave on time with the clothing.”
He told the story of a girl he found whose job it was to chalk clothing where the label is to be placed for Wal-Mart’s Sport-Rack line. She told him that her supervisors required her to mark 200 garments an hour.
“When she fell behind,” he said “the supervisor would slap her face, and tell her she’s a prostitute and a whore.”
As he was leaving the factory, she told him, “I feel like I’m dying, I’m so sick and exhausted.” She was 13 years old, had been working in factories since she was 5.
He went on to describe how the young girls working in sweatshops making Wal-Mart clothing cannot afford to buy a toothbrush. “You can work for the largest company in the world, but you brush your teeth with your fingers,” he said.
Cornell Organization for Labor Action [COLA] and Cornell Students Against Sweatshops sponsored his speech.
He Pioneered in Making Waves about Nike
Jeff Ballinger's work as an anti-sweatshop activist, with a very special focus on Nike, was having a ripple effect across the Pacific, reaching even Australia, and so when an Australia-based scholar, Anita Chan, was visiting Washington about 10 years ago, I took her to see Ballinger, director of a one-man organization, Press for Change. I vividly remember her reaction as she stepped into his small office, which had reports, news clips, articles, and other documents, originals and photocopies, stacked all over the floor and on the top of file cabinets.
"Wow," she said. "This is the place that makes such waves?"
During a four-year stint with the AFL-CIO in Indonesia in the late 80s and early 90s, Ballinger learned about Nike's labor policies directly from Nike workers. He exposed their plight in a 1992 Harper magazine article, "The New Free-Trade Heel," illustrated by the annotated paystub of a young Indonesian woman, Sadisah, who assembled 14 pairs of ($80 retail) sneakers a day for a wage a little over $1 a day. In those days he devoted much of his time speaking to student groups about the opportunities they had, as mass consumers of sweatshop goods, to get universities to insist on reforms by Nike and other firms profiting from putting school logos on their products.
Answering Skeptics Who Ask Why Pick on Nike?
Ballinger's continued spotlight on Nike met skepticism even from people sympathetic to his cause. "Why pick just on Nike?'" some asked: after all, Nike was far from the only business profiting from sweatshop labor. Even a prominent labor leader offered him some private advice: forget Nike -- it was just too big to think you could make a dent on it.
Nike is not only very big, but it is also No. 1 and very proud of being No. 1. For Ballinger, that made it the ideal target for generating change. After leaving the AFL-CIO in 1992, he flew back to Indonesia for CBS to tell the story of how young women struggle to get Nike contractors to pay Indonesia's miserable minimum wage, which, as the CBS program emphasized, was deliberately set below the official poverty line to attract foreign investors.
Since then, while moving about in different roles and in different countries, Ballinger has kept his focus on Nike, even as Nike has gradually made some reforms, which he dismisses as inadequate for the No. 1 in its field. Now, in his second year of a PhD program at McMaster University in Hamilton, Ontario, he still gathers and distributes information about Nike through the internet.
Is it even possible for an apparel firm to operate sweatshop-free in today's highly competitive international labor market? Ballinger decided to find out, and a few years ago he helped found an unusual business, No Sweat Apparel. As one of its officers, he searches globally for unionized plants to produce the company's sneakers and clothes. Check No Sweat Apparel's Website, http://www.nosweatapparel.com, for its latest sales. You could help make a success of this experiment in corporate social responsibility.
Reliability of an Economist's Predictions
"The Hong Kong dollar won't survive the colony's return to Chinese control, predicts Nobel Prize-winning economist Milton Friedman... [China's] only choice is for the Hong Kong dollar to be absorbed by the yuan....Friedman predicts [the Hong Kong dollar] won't exist for more than two years beyond 1997." -- the Far Eastern Economic Review of February 23, 1995.
Fast forward ten years to today: Hong Kong's dollar still exists as a currency separate from that of mainland China.
Corporate Redesigning for This Century
Milton Friedman may be partly correct in his warning about the subversiveness of corporate social responsibility. It might well lead to undermining the foundations, not of a free society, but of the modern corporation.
You can find some evidence of that potential, oddly enough, among the topics discussed at the recent annual conference of Business for Social Responsibility. Take this paper: "Fade, Integrate, or Transform? The future of CSR" by Allen L. White, a senior BSR advisor and a senior fellow at Tellus Institute. In it White imagines a BSR conference held in 2015 and wonders what CSR will look like then. He sees three possible scenarios, briefly sketched here:
White's nine-page paper builds a weighty case for transformation. He traces the historical evolution of the corporate form of business organization, the new challenges it faces under rapid globalization, and the need to evolve further, for the good of the corporation and of society.
- Fad-and-fade scenario: "Once viewed as irreversibly destined to become integral to corporate strategy, management, and governance," CSR has become a victim of external shocks, including a global economic downturn, security crises, and a wave of multinational company downsizing but also a victim of "CSR's own failing to address social, environmental, and governance challenges of business."
- Embed-and-integrate scenario: By 2015 thousands more corporate leaders worldwide are deeply involved "in melding business values with a strong sense of moral and ethical commitment from the margins to the core of company business units and functional areas, [including] R&D, product and service design, manufacturing, finance, and accounting." Built on "a dynamic platform of generally accepted standards of good governance, labor practices, reporting, and environmental stewardship," CSR under this scenario has "resilience amidst adverse conditions" such as those described in the first scenario.
- Transition-and-transformation scenario: This scenario for 2015 foresees "the ascendance of a wholly different approach to corporate responsibility." It is marked by "a fundamental rethinking of the purpose of the corporation," with the notion of shareholder supremacy replaced by "the idea that all company stakeholders are 'investors' in the company and deserve to participate in its governance and benefit from its surplus." The debate over the primacy of the shareholder and other received wisdom intensifies, and leads to "efforts to legally alter the nature and purpose of corporations to reflect a broader social function."
Harnessing the Resources and Ingenuity of Corporations To Reach New Heights
"It's time," he writes, "to question how the vast resources and unparalleled ingenuity of corporations can be harnessed to build maximum long-term wealth for all stakeholders."
White lists six "design principles" for the 21st century corporations, as drafted by a group of individuals in law, business, labor, civil society, government, and journalism who a year ago launched a project to advance corporate redesign. Two principles on that list:
For information beyond what is in White's BSR paper, see http://www.corporate2020.org, the Website of Corporation2020, a Boston-based multi-stakeholder initiative probing for answers to the question: "What would a corporation look like that was designed to seamlessly integrate both social and financial purpose?"
- "The purpose of the corporation is to harness private interests in service to the public interest."
- "Corporations shall operate sustainably, meeting the needs of the present generation without compromising the ability of future generations to meet their needs."
'Protect the Poor': Cardinal to Bush
In a White House meeting on December 1 Cardinal Theodore McCarrick of Washington pressed President Bush to ensure "a just outcome in the current round of trade negotiations," especially by protecting "the interests of the poor around the world who have too little access to the negotiating table."
"Global trade rules, when framed from the perspective of the 'least among us,' can lead to more equitable prosperity and stability in a world where growing inequality and instability are very often dangerous realities," the Cardinal said in remarks to the media after a half-hour meeting in the Oval Office.
McCarrick's plea was timed to the mid-December ministerial conference in Hong Kong of the World Trade Organization, in which the United States is most influential voice among the 148 governments represented. He called attention to a late November message of Pope Benedict XVI to participants in the Hong Kong conference, expressing his hope that "a sense of responsibility and solidarity with the most disadvantaged will prevail, so that narrow interests and the logic of power will be set aside."
In its message to the December 13-18 conference, the Holy See, which has observer status in the WTO, emphasized that "trade liberalization is not to be enthroned as an end in itself but as a means for achieving ultimate objectives such as the integral development of each and every person along with the reduction of poverty."
Trading System Must Have Both Economic and Ethical Values
The message summarized a "vision of the WTO" in these words:
"Special interests need to be overcome by a global solidarity, where the rich and more powerful States recognize and assume responsibility toward the destiny of those who are poor and weak. Marginalized countries must be included in the international trading system, which in turn must be seen as having not only economic but also ethical values."
Today's WTO is far removed from that vision, which is rooted in teachings elaborated in the recently published "Compendium of the Social Doctrine of the Church." Reforming of the WTO, however, will take more than statements of principles and values. It will take a dialogue among reform-minded representatives of all the stakeholders in the international trading system, including trade ministers and trade technocrats, dedicated to formulating a plan translating the principles and values into action. .Meanwhile, the outcomes of WTO meetings like the one in Hong Kong this month are bound to be disappointing.
Human Rights for Workers: Bulletin No. X-12 December 3, 2005
Robert A. Senser, editor
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