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The Certification of Corporate Conduct: Issues and Prospects

The Certification of Corporate Conduct: Issues and Prospects.

by Olivier Boiral

Market liberalization and the growing internationalization of economies have revived debates about the application of labour standards in parts of the world where cheap labour has encouraged the development of subcontracting activities, sometimes with little regard for workers' rights. There is nothing really new about concern for labour standards and social justice in international business. As a matter of fact, it was largely such concerns that led to the founding of the ILO in 1919. It was also such concerns that provided the rationale for the ILO's Tripartite Declaration of Principles on Multinational Enterprises and Social Policy of the International Labour Office. Since the end of the 1990s, however, controversy over the process of globalization has amplified the criticisms levelled at many multinational corporations, which stand accused of relocating their operations in order to evade labour regulations. Exacerbated by the anti-globalization movement, such criticisms have cast grave doubt over the very legitimacy of transnational corporations, whose production methods and management of local labour face a growing challenge.

In order to protect or restore their image in the eyes of an increasingly well-informed public, multinationals have taken a range of communication and management initiatives aimed at demonstrating their commitment to labour standards. These initiatives are typically based on codes of conduct and/or social labels whose message is easy to communicate--not only inside the corporations themselves but also to subcontractors, consumers and the public at large.

However, the actual application of these corporate ethics schemes remains somewhat uncertain. Firstly, manufacturing activities are more and more widely dispersed: they are carried out by subcontracting enterprises whose workers have no direct relationship to the principal, and which often work for several, competing corporations. In such cases, the effects of corporate codes of conduct covering manufacturing activities tend to be very diluted. Secondly, procedures for verifying the enforcement of codes of conduct remain ill-defined, and corporations have a hard time convincing an often sceptical public that they are serious about their commitment to workers' rights. For example, Starbucks, a chain of speciality coffee outlets in the United States, built up its image and competitiveness around "corporate social responsibility activities". But it has recently come under fierce attack from NGOs for failing both to prove it is genuinely commited to fair trade and to open up its social responsibility programmes to independent verification (Maitland, 2002). Lastly, the high-profile scandals that have recently hit corporate auditing and finance--which are subject to far more formal and strictly controlled rules than those governing corporate ethics--are hardly conducive to an atmosphere of trust between society and the corporate world.

The purpose of this article is to examine the relevance and limitations of codes of conduct designed to promote the effective application of labour standards in the manufacturing operations of multinational corporations. The first section looks at the role and significance of labour standards in the context of globalization and trade liberalization. The second section reviews the principal means available to multinationals for promoting those standards and restoring society's confidence in them. A final section discusses the implications of verifying the enforcement of codes of conduct, together with the need to develop recognized international standards in this field.

Labour standards and the test of globalization

Globalization is a multidimensional concept. Over the past few years, it has been the subject of seemingly endless controversy and analysis. Its generally recognized manifestations include increasingly open markets, the internationalization of corporations, the interdependence of economies, and ever greater mobility of both people and information (Adda, 1996; Dollfus, 1997; Olsem, 2000; de Senarclens, 2001). The trend towards international trade liberalization has indeed played a significant part in expanding not only international trade, but also international investment and technology transfers. It is in fact from this economic and trade perspective that globalization tends to be conceptualized. According to the IMF, for example, the concept of globalization refers to "the growing economic interdependence of countries worldwide through the increasing volume and variety of cross-border transactions in goods and services and of international capital flows, and also through the more rapid and widespread diffusion of technology" (IMF, 1997, p. 45).

The growth of international trade, however, also has social, environmental and political implications that extend far beyond the framework of economic and business transactions. The variety and strength of the "anti-globalization" movement reflect growing concerns that the liberalization of trade and investment flows are damaging to the environment, to employment, to national sovereignty and to local cultures (Martin and Schumann, 1996; Losson and Quinio, 2002; Sampson, 2000). Against a background of widening inequalities and endemic underdevelopment in many countries, these concerns tend to crystallize around the perceived need for more international social justice. Indeed, the intensification of trade and other forms of interaction between societies highlights growing disparities that cause tensions and imbalances. For example, the richest 20 per cent of the world's population have experienced a 70-80 per cent increase in their share of global income over the past three decades, while nearly half of the world's population live on less than US$2 per day and some 2.4 billion people are without basic sanitation (UNDP, 2001). Aside from the humanitarian concerns they raise, such disparities in levels of development can be exploited as a form of "social dumping" to attract international investment (Lee, 1997; Emmerij, 1994; Breitenfellner, 1997; Martin and Schumann, 1996). (1)

The resulting threat to international trade and human development is not new. Thus, the Preamble to the Constitution of the ILO, which dates back to 1919, stipulates that "the failure of any nation to adopt humane conditions of labour is an obstacle in the way of other nations which desire to improve the conditions in their own countries". Concern that such social dumping may lead to a "levelling down" of working conditions and unfair competition has been the subject of extensive debate, highlighting the importance of respect for international labour standards (Valticos, 1996a and 1996b; Breitenfellner, 1997; Moreau and Trudeau, 1998). Standard-setting and the promotion of workers' fundamental rights have been at the heart of the ILO's work for more than 80 years. The 180 or so international Conventions adopted under the auspices of the ILO have so far received over 6,000 ratifications by member States. Taken together, these Conventions amount to an "international labour code" covering a wide range of topics, most of which are intricately associated with respect for human rights (Lee, 1997; Trudeau, 2002; Valticos, 1996a and 1998). Under the 1998 Declaration adopted by the International Labour Conference, (2) those topics are organized around four fundamental principles and/or rights on which the ILO is refocusing its work (Kellerson, 1998):

--freedom of association and effective recognition of bargaining rights;

--elimination of all forms of forced or compulsory labour;

--effective abolition of child labour;

--elimination of discrimination in employment and occupation.

The ILO's broad standard-setting framework has given considerable impetus to social development and had a significant impact on national legislation governing workers' rights (Valticos, 1996a). The application of this framework, however, remains fairly flexible, particularly in those developing countries whose political, social and legal institutions are weakened by endemic poverty or lack of an established democratic system (Moreau and Trudeau, 1998; Trudeau, 2002). Such is the case in Myanmar, where a Commission of Inquiry has uncovered numerous violations of human rights and the widespread practice of forced labour in breach of ILO Convention No. 29, adopted in 1930 (Bolle, 1998). Yet the options for imposing effective sanctions on member States that fail to comply with their obligations are relatively limited and far from commanding consensus (Valticos, 1996a; Moreau and Trudeau, 1998).

The obstacles and controversy raised by labour standards in the context of international negotiations have also been reflected in debates over the inclusion of a so-called social clause in international trade agreements (Thwaites, 2000; Lee, 1997; Shingiro, 2002; Breitenfellner, 1997). (3) The proponents of the social clause approach argue that the threat of trade sanctions for non-compliance with international labour Conventions would protect the fundamental rights of workers and prevent regulation-dodging relocations and other unfair trade practices (Horman, 1996; Sanyal, 2001). Its opponents, particularly those from developing countries, counter that the adoption of a social clause would translate into unwarranted interference on the part of the rich countries, in the form of disguised protectionism aimed at undermining the competitiveness of the poorest countries by imposing requirements ill-suited to local socio-economic conditions (Shingiro, 2002). The risk that a social clause might be used to protectionist ends has indeed been raised by many international organizations, including the ILO, whose 1998 Declaration stresses that "labour standards should not be used for protectionist trade purposes, and that nothing in this Declaration and its follow-up shall be invoked or otherwise used for such purposes".

Some countries' resistance both to the inclusion of a social clause in international trade agreements and to respect for workers' fundamental rights reflects the difficulty of establishing some sort of "global governance" in a context where trade liberalization leaves state institutions and traditional regulatory instruments with less and less control over international transactions (Greider, 1997; Breitenfellner, 1997). Respect for labour standards cannot be enforced through a single, centralized authority. It calls for cooperation between corporations, civil society, trade unions, NGOs and state institutions whose interaction, being more or less consensual, would lay down new rules of citizenship (Young, 1994). The growing popularity of the concept of governance--which "conveys the notion that governments do not have a monopoly over legitimate power and that there are other institutions which contribute to the maintenance of law and order by participating in economic and social regulation" (de Senarclens, 2001, p. 56)--highlights the erosion of the authority of states, whose sovereignty appears to be increasingly threatened by the integration of economies and the growing power of multinationals. Indeed, those corporations are no doubt the most influential and controversial of the non-governmental players in the emergence of the as yet ill-defined concept of "international governance".

On account of their power in the global economy and their key role in foreign direct investment flows, multinationals clearly have a crucial part to play in the promotion of conventions on the fundamental rights of workers. Hence the conventions, guidelines and codes of conduct that international organizations have adopted in order to encourage the voluntary commitment of multinationals to those rights and ethical principles. Examples include the OECD's Guidelines for Multinational Enterprises, adopted in 1976 and updated in 2002 (OECD, 2002), and the ILO's 1977 Tripartite Declaration of Principles on Multinational Enterprises and Social Policy, as amended in 2000 (ILO, 2003). (4) The same logic pervades the nine principles of the "Global Compact" proposed by Kofi Annan, the Secretary General of the United Nations, at the 1999 World Economic Forum, and since adopted by many multinationals. (5) Aside from such "institutional" initiatives, however, many multinationals have adopted codes of conduct or social labels of their own, often on the basis of "private standards". (6)

These means of promoting corporate ethics do not make a viable substitute for labour law or for the state institutions responsible for enforcing it. Yet they often seem to be the only safeguard against violations of human rights in subsidiaries or subcontracting workshops located in developing countries. They are also intended to encourage dialogue and build confidence in relations with the public, which is increasingly critical of multinationals' law-evading relocations.

Restoring confidence between society and the corporate world

There are now some 63,000 multinational enterprises (ten times more than at the end of the 1960s) with some 500,000 subsidiaries, accounting for 25 per cent of global production and three-quarters of international trade in goods (de Senarclens, 2001). Multinationals thus bear considerable responsibility for the application of international labour Conventions. Over the past few years, however, that responsibility has been the focus of mounting criticism and pressure (Verna and Bertrand, 1996; Sanyal, 2001; Clairmont, 1997; Boiral and Verna, 2000). Transnational corporations have indeed become one of the prime targets of anti-globalization demonstrations, especially because they stand accused of relocating their activities to countries where wages are low and working conditions poor (Losson and Quinio, 2002). In recent years, several major corporations such as Levi Strauss, Nike, Gap, Shell or Disney have come up against fierce international boycott campaigns organized by NGOs and other civil society groups to denounce the violation of international labour Conventions (Belot, 2001; Verna and Bertrand, 1996; Schwartzbrod, 1998). Multinationals are finding it increasingly difficult to ignore such societal pressures, which reflect their perceived lack of legitimacy and challenge the hermetic partition between international trade and labour standards.

The opponents of unfair relocations also represent increasingly well-informed consumers whose behaviour--as consumers--cannot be disregarded. This makes it all the more important for businesses to regain the confidence of civil society. According to a recent survey of 25,000 individuals across 23 different countries, public perceptions of corporations are more sensitive to social responsibility than they are to product quality, brand-name reputation or corporate characteristics such as financial management, strategy or size (Environics International, 2000). On average, some 40 per cent of the respondents to the survey claimed either to have avoided the products of corporations regarded as socially irresponsible or to be considering doing so. The proportion rose to 67 per cent in North America. Lastly, two-thirds of all respondents considered that corporations should not confine themselves to the pursuit of conventional financial objectives and that they should play a more active part in engineering a more fair society.

These findings reflect a significant gap between society's expectations and public perceptions of corporate conduct. Enterprises are indeed increasingly exposed to scrutiny and to denunciation campaigns led by pressure groups that information technology has helped to become better organized and, often, elusive. The narrowing of that gap is central to theories of corporate legitimacy and social responsibility (Suchman, 1995; Sethi, 1979). From this perspective, the corporation is regarded as an integral part of--not to say a product of--society, with which it interacts closely and whose expectations it cannot afford to ignore (Gendron, 2000). Social concerns tend to shift all the time, translating into demands that are more or less compelling for corporations. The latter therefore need to remain attentive to new developments in their socio-political environment if they are to anticipate the emergence of external pressures likely to call their legitimacy and future into question (Ackerman, 1975; Ackerman and Bauer, 1976; Pasquero, 1979). (7) In order to cope with these societal pressures, corporations need to recognize and take account of the interests of a variety of stakeholders (Freeman, 1984; Henriques and Sadorsky, 1999; Clarkson, 1995). Corporations have thus been sucked into "an economy of stakeholders where not only workers are watchful players on the economic scene, but where the various components of civil society no longer allow corporations to ignore the effects that their activities have on them" (Capron, 2000, p. 276). Under this "tacit contract" with society, the corporation has become something of an institutional actor seeking to establish its legitimacy. Besides, corporate managers and shareholders are not necessarily impervious to the "moralist-ethical" philosophy that underlies the accommodation of social responsibility, especially where labour standards are concerned (see Gendron, 2000).

Yet, theories of social responsibility are rooted in a relatively consistent and standardized view of corporations which requires them to show greater sensitivity to society's expectations, to take account of the interests of various stakeholders, and to respond to, or anticipate, societal pressures. But this conventional, unified view is being challenged by the widespread practice of relocation and outsourcing that has affected most labour-intensive industries--i.e. those where violations of labour standards are the most frequent. Industrial operations are indeed more and more widely dispersed across a web of subsidiaries, subcontractors and suppliers that are both geographically and socially removed from the prime contractors themselves. This dispersion of transnational corporations, whose corporate contours are becoming blurred in the process, tends to substitute trade law for labour law, thereby making it increasingly awkward to enforce labour standards (Boiral and Verna, 2000). In the face of mounting social pressure targeting poor working conditions in their subcontracting factories, multinationals often have to demonstrate greater transparency and make commitments that are not easy to live up to, not least because of the very dispersion and growing independence of production units. Nike, for example, responded to attacks concerning the exploitation of Asian workers in its subcontracting factories by conducting a survey of 4,000 workers employed in nine of the 420 production locations used by the company. This survey, which was carried out by an independent organization called Global Alliance, confirmed that violations of human rights and workers' rights were widespread despite the code of conduct that the corporation had adopted (Belot, 2001). This example illustrates not only the difficulty of reconciling the promotion of labour standards with the dispersion of corporations, but also the doubtful effectiveness of corporate codes of conduct adopted to that end. Over the past few years, however, such codes have undergone substantial modifications aimed at bolstering their credibility. In particular, corporations have increasingly endorsed external codes subject to certification procedures that are presented as independent and meant to guarantee respect for minimum labour standards. These new instruments are part of a wider range of initiatives designed to promote corporate efforts in this field and to ensure that those efforts are recognized.

Certifying ethical corporate conduct

Although their effectiveness may be disputed, codes of conduct, social labels and socially responsible investment are the main instruments available to multinationals seeking to establish their social responsibility and respond to pressures in support of respect for labour standards. But with the outsourcing of production operations, these means of promoting corporate ethics generally need to target subcontractors and suppliers, rather than the personnel of the multinationals themselves. Their objective is therefore twofold: (a) to respond to the expectations of society, and (b) to provide guidelines on upholding minimum labour standards in respect of workers who often have no direct legal relationship with the multinational and who enjoy scant protection under local legislation. The quest for social legitimacy has thus given multinationals an added incentive to seek external approval and recognition of their commitments. One way of procuring the required credibility has been for them to rely on certification by an independent organization. Such certification can apply to individual goods and services or to the output and processes of an entire production unit. Depending on what it is they apply to and the nature of underlying verification procedures, multinationals' voluntary initiatives for promoting labour standards and social responsibility can be classified into four main types (see figure 1), namely:

* social labelling;

* "ethical" investment and sourcing;

* "in-house" codes of conduct;

* "certified" external codes.

As the expression implies, social labelling is based on a system whereby a good or service carries a label that informs the final consumer on its compliance with social or environmental standards (Hilowitz, 1997; Diller, 1999; Latouche, 2000). For the sake of credibility, such labelling schemes are often managed by NGOs, consumer groups or associations of companies that specify their own endorsement or certification criteria. These schemes typically cover agri-food products and textiles (e.g. carpets, coffee, tea, etc.), whose production tends to be dispersed among numerous, remote, small-scale units that make it difficult for retailers at the end of the supply chain to enforce their own labour standards or verify their application. Examples of such labels include Max Havelaar (coffee), Rugmark (hand-knotted Asian carpets) and Double Income Project (textiles and clothing), all of which were set up by independent organizations whose inspectors periodically check up on producers' compliance with requirements of variable strictness (Hilowitz,1997).

But some goods and services purporting to be "ethical" are not subjected to independent selection and verification procedures. In such cases; the criteria applied obviously tend to be less objective (Diller, 1999). For example, a growing number of financial institutions are marketing financial products based on investments described as "ethical" (Lewis and Mackenzie, 2000; Hutton, MacDougall and Zadek, 2001). The selection of such investments owes more to a set of broad criteria such as economic sector, financial performance or company reports, than to any rigorous evaluation of actual working conditions in subsidiaries or subcontracting workshops. Suppliers, too, can be selected on the basis of such social, ethical or environmental considerations as corporations may determine for their own purposes. The "in-house" labels used by firms such as K-Mart or Dunkin' Donuts generally fall into this category. In the absence of independent and recognized verification procedures, however, the selection criteria governing such "ethical" sourcing or investments are bound to seem arbitrary.

Unlike social labels, codes of conduct do not apply to goods or services, but to management practices and standards that corporations undertake to observe or enforce among their employees or subcontractors, by means of a written document. Such commitments can cover a number of issues. In the case of multinationals with far-flung networks of locations, the emphasis typically tends to be on respect for social standards and basic working conditions in subcontracting factories (Diller, 1999; Gordon and Miyake, 2001). But as in the case of social labels, corporations do not undertake to uphold labour standards solely for ethical reasons. They often do so in response to external pressures. For example, Levi Strauss adopted its code of conduct in 1992 after the firm had come under attack for the ill-treatment inflicted upon Chinese migrant workers employed in garment factories in the Mariana Islands. Its code of conduct, which served as a model for many other corporate codes through the 1990s, stipulates that the firm will do business only with partners that do not use child labour or forced labour, that do not discriminate against particular groups, and that do not resort to corporal punishment or any other form of physical or mental coercion. This type of code, however, is based upon a declaration of principles rather than specific, verifiable commitments. As a result, such codes have proved insufficient to reassure public opinion. Accordingly, as from the mid-1990s, a number of multinationals such as Gap, Nike, Disney and Levi Strauss have been responding to mounting criticism over actual compliance with corporate commitments by setting up mechanisms for verification by external inspectors who are responsible for checking up on production sites. But occasional inspections commissioned by the corporations themselves also failed to secure full credibility for their codes of conduct (Forcese, 1997). Whatever their intrinsic merits, "company codes" drawn up by multinationals for their own purposes continue to be widely seen as an exercise in corporate public relations (Verna and Bertrand, 1996; Diller, 1999).

In theory at least, certified external codes can prevent such conflicts of interest from arising over the formulation of a code and its verification procedures. Like social labels, external codes are drawn up by organizations that are meant to remain independent and which have set up their own systems of verification. The growing interest in these new instruments for promoting corporate ethics highlights the need to establish recognized, standard criteria uninfluenced by any particular corporation. Some external codes apply to specific industries, such as textiles. Examples include the Clean Clothing Campaign--a foundation established by NGOs, trade unions and corporations--and the Apparel Industry Partnership, launched by the United States Department of Labor. Both of these initiatives offer textile-industry firms a code of conduct coupled with a procedure for certification by independent inspectors. Other such codes are less narrowly focused and offer prospects for wider applicability, e.g. those of Worldwide Responsible Apparel Production (WRAP certificate) or the Council on Economic Priorities Accreditation Agency (SA8000 certificate).

Generic external codes like those underlying the WRAP and SA8000 certificates are bound to spread rapidly among multinationals, not only because of their potential for global outreach and their growing notoriety, but also because they uphold the fundamental rights of workers. By May 2003, a score of professional associations worldwide had already endorsed the WRAP system, and over 600 enterprises in some 50 different countries had obtained certification. (8) By the same date, over 220 establishments had been certified under the SA8000 standard. (9) To firms, such certification offers not only the potential benefits of better working conditions and a better image, but also, in principle, the option of labelling their products or services. Indeed, an establishment certified under SAS000 can typically offer its clients a guarantee that its products are manufactured without child labour since the standard bans this practice, to which consumers are particularly sensitive. (10) The spread of external codes, upstream in the supply chain, is thus likely to encourage the use of social labels (downstream) to inform final consumers. Indeed, a social label on a product means that minimum labour standards were effectively applied and verified at the workplace where that product was manufactured, which is what certified external codes are intended to establish.

Despite the many advantages they offer, even the most widespread of today's generic standards (whether WRAP or SA8000) are unlikely to develop into worldwide industry standards in the way ISO 9001 and ISO 14001 have done for quality and the environment. The generalization of such standards would indeed require a commitment by some international institution with recognized standard-setting authority. The need for such a commitment is particularly obvious from the current proliferation of codes of conduct and certifying organizations, whose variable requirements are making the situation increasingly confusing for corporations and the general public alike.

Standardizing corporate codes of conduct: Inescapably, the role of the ILO

The proliferation of "in-house" company codes, followed by the emergence of "independently" monitored standards with a more global outreach, present obvious parallels with the earlier development of systems of quality assurance and environmental management. For example, the launch of the ISO 9000 standards in 1987 was intended to meet the need for a standard of reference for independently verified quality, based on internationally recognized requirements (Kelada, Caillibot and Todorov, 1993; Mispelblom, 1995). The proliferation of local, national, sectoral or company-specific standards of quality had made it extremely complicated for firms to adapt to the demands of customers who used different standards. Moreover, the development of different standards, whose credibility was not always beyond doubt, could raise significant barriers to entry into some markets. Rapid growth in international trade, the trend towards relocation and the resulting diversification of suppliers made it necessary to establish a common international standard (Douglas, Kirk, Brennan and Ingram, 1999). The standards in the ISO 9000 series have been adopted by over 400,000 enterprises worldwide and have gradually superseded most of the pre-existing systems of certified quality assurance (ISO, 2001).

Some ten years after ISO 9000, a similar trend towards standardization was driven by the standards in the ISO 14000 series. A great many competing systems of environmental management were set up as from the end of the 1980s. These systems were developed by groups of enterprises, standard-setting organizations, professional associations and consultants. They were based on a variety of different practices, few of which were subject to rigorous certification procedures (Boiral, 2001). The ISO 14001 standard was launched in 1996 and has now become established as the standard of reference for environmental management, although a few other systems still survive, such as the European EMAS standard or the Responsive Care programme. By December 2002, some six years after the launch of the ISO standard, about 50,000 enterprises were certified worldwide (Peglau, 2002).

There is as yet no ISO-type international standard on labour issues and codes of conduct. (11) But the idea of launching a recognized and widely applicable standard incorporating the ILO's principal labour standards appears to be more timely than ever. The setting of such a standard would offer three main advantages, which are:

--to formulate guidelines for the integration of Conventions on workers' fundamental rights into corporate management;

--to enhance the credibility and reputation of codes of conduct upholding those fundamental rights;

--to contribute to the "self-regulation" of international subcontracting operations.

The main point of developing a new international standard on corporate social responsibility would be to spell out basic requirements pertaining to workers' fundamental rights and to establish guidelines on how to comply with them. At present, requirements vary substantially from one code of conduct to another and they seldom refer to ILO Conventions. A survey of 215 codes of conduct, mostly drawn up by multinationals, has shown that even those firms considered to be the most progressive generally make no reference to international labour Conventions (Diller, 1999). Codes that address issues such as forced labour or child labour typically lay down requirements which are more vague and lax than the applicable international labour standards. While certified external codes contain more systematic references to ILO Conventions, some of them remain just as evasive as "in-house" company codes on those issues. For example, the code of conduct of Worldwide Responsible Apparel Production (WRAP) is based on 12 principles that address highly complex issues in just a few elusively worded lines, without so much as mentioning the Conventions that deal with those issues in detail. Thus, the section of the code covering hours of work merely provides that working time must not exceed the statutory limits prescribed in the host country, whereas the ILO's very first Convention, adopted in 1919, restricts working time to eight hours per day and 48 hours per week, specifying the circumstances in which those limits may be exceeded. In the absence of clear or strict local regulations on this matter, the WRAP code thus turns out to be permissive, to say the least. The WRAP code is a little more specific when it comes to child labour: it provides that the enterprise shall not employ children under 14 years of age, whereas the ILO's Minimum Age Convention, 1973 (No. 138), stipulates that minimum age "shall not be less than the age of completion of compulsory schooling and, in any case, shall not be less than 15 years".

In contrast to the WRAP code, the SA8000 standard is much more specific on these issues and systematically brings into play a number of basic international Conventions on working conditions. Thus, the SA8000 standard expressly requires enterprises to uphold the following ILO Conventions:

--the Forced Labour Convention, 1930 (No. 29), and the Abolition of Forced Labour Convention, 1957 (No. 105);

--the Freedom of Association and Protection of the Right to Organise Convention, 1948 (No. 87);

--the Right to Organise and Collective Bargaining Convention, 1949 (No. 98);

--the Equal Remuneration Convention, 1951 (No. 100);

--the Discrimination (Employment and Occupation) Convention, 1958 (No. 111);

--the Workers' Representatives Convention, 1971 (No. 135);

--the Minimum Age Convention, 1973 (No. 138);

--the Occupational Safety and Health Convention, 1981 (No. 155), and the Health Protection and Medical Care (Seafarers) Convention, 1987 (No. 164);

--the Vocational Rehabilitation and Employment (Disabled Persons) Convention, 1983 (No. 159);

--the Home Work Convention, 1996 (No. 177).

An enterprise that endorses the SA8000 standard undertakes ipso facto to uphold the Universal Declaration of Human Rights and the United Nations Convention on the Rights of the Child. The rationale for taking account of international labour Conventions makes good sense: since its inception, the ILO has set a whole range of standards that are easily accessible, covering many issues, and which have been ratified by most of the home countries of the major multinationals. (12) All of the above Conventions, particularly those relating to the fundamental rights enshrined in the ILO's 1998 Declaration, provide a sound framework of reference. All too often, however, they are ignored in the development of new international standards on corporate ethics. Alternative starting points for developing such standards might be the Tripartite Declaration of Principles on Multinational Enterprises and Social Policy adopted by the ILO in 1977, the Universal Declaration of Human Rights, (13) or the nine principles enshrined in the "Global Compact" of the United Nations. Because their scope is universal and because they are widely recognized, these instruments would provide a sound framework for developing codes of conduct based on principles of undisputed legitimacy.

Another major advantage of having an authoritative institution launch an international standard on codes of conduct and labour would be to facilitate recognition of corporate initiatives in this field. Indeed, aside from the sheer difficulty of choosing a standard from among the current plethora of corporate codes of conduct, existing codes lack credibility because their content is sometimes vague, because they tend to be recent, or because the number of certified corporations is still relatively small. Moreover, certification is given by newly established organizations which lack the authority of more widely recognized, long-established international institutions. For example, Worldwide Responsible Apparel Production was only set up in 1996, and Social Accountability International, in 1997. Lastly, the impartiality and rigour of these organizations' certification procedures have raised a great many doubts, particularly among the trade unions (Reinhard, 1999). Thus, the SA8000 standard has been the target of fairly harsh criticism on the part of a working group of representatives of Asian trade unions and professional associations (LARIC, 1999). In particular, this working group's report denounces the composition of the Advisory Board of Social Accountability International, the very body that promotes the SA8000 standard. According to the report, the Board fails to give adequate representation to workers and NGOs. Also challenged is the content of the training programmes for SA8000 inspectors, as is the certification process itself, which is alleged to follow a predominantly "commercial" logic. Lastly, local workers are said to be insufficiently informed, involved and even consulted on procedures for introducing and verifying the standard, although it is supposed to be primarily concerned with their interests. Summing up its position, the working group expressed the feeling that the SA8000 standard was helping to "privatize labour law" through inspectors acting as "arbiters of social justice" in the interest of private enterprise. Whether or not such scathing criticisms are warranted, (14) they show that the credibility of today's certified codes of conduct cannot be taken for granted, including among the workers who are supposed to benefit from them.

Finally, a recognized standard on codes of conduct incorporating the main ILO Conventions could also contribute to "disciplining the global market" (Perna, 2000), without resorting to measures that would be considered protectionist or coercive. Indeed, market liberalization and deregulation have gradually undermined the power of states and reinforced that of transnational corporations, which now have little difficulty in evading inconvenient labour regulations by relocating to "areas of lawlessness" (see Lee, 1997; Breitenfellner, 1997). The fact that most of the codes of conduct adopted by multinationals make no explicit reference to ILO Conventions on the fundamental rights of workers suggests that such codes, as they now stand, do not constitute reliable instruments of self-regulation that can make up for the shortcomings of labour law in host countries. The mounting pressures from civil society to establish new international regulatory mechanisms and to include a "social clause" in trade negotiations have so far been ignored by the WTO and national governments, generally on the argument that this course might encourage protectionist practices and thereby constrain the growth of world trade (Sampson, 2000; Shingiro, 2002). Against this background, the development of "voluntary standards" seems to offer a means of securing acceptance of basic labour standards without prejudice to the current rules of international trade. Indeed, once voluntary standards are recognized and accepted by a large number of enterprises, they tend to become de facto preconditions for market access. Here, the pressure would come not from governments, protectionist policies or international institutions seen to be interfering in corporate management, but from the need to satisfy consumer demands, to keep up with the competition, or yet to fulfil the expectations of the general public. This is precisely what happened with the standards in the ISO 9000 series and, to a lesser extent, the ISO 1401 standard (Douglas, Kirk, Brennan and Ingram, 1999; Mispelblom, 1995; Boiral, 2001). The same rationale could underpin a future standard on codes of conduct and workers' fundamental rights that corporations could endorse on a voluntary basis. However, it would be somewhat unreasonable--not to say extremely imprudent--to believe that such a standard could ever be safely substituted for the action of governments and trade unions in this field. Nonetheless, there is a need to develop an appropriate international regulatory framework on this issue in order to supplement the efforts made by other social actors. Such a regulatory framework would have to make reference to the ILO and thereby ensure wider dissemination and recognition of international labour Conventions among corporations, governments and the public at large, for the sake of "explicating" the codes of conduct of multinationals. Lastly, it would also prevent the proliferation of "in-house" codes and certified external codes, whose provisions are not always compatible and sometimes frustrate subcontractors' efforts to comply with them.

Concluding remarks

Multinationals have been developing codes of conduct to meet the need for new rules and regulatory instruments to make up for the shortcomings of local regulations and the more extreme consequences of trade liberalization, which has gradually put major corporations beyond the control of national governments. The purpose of such codes is to establish or restore the "citizenship" of corporations--increasingly stateless global players with disputed credentials. This new means of legitimizing economic activity was originally little more than a public relations exercise, but codes of conduct are now set to become fully fledged instruments of management in the furtherance of corporate internationalization strategies. International relocations and subcontracting operations now need to be ethical, although their primary objective is often to reap the benefits of cheap labour in a permissive regulatory environment.

Paradoxically, the codes of conduct of multinationals largely ignore the international labour Conventions which have been ratified by most of the rich countries. These Conventions were drawn up under the auspices of the ILO on the basis of consultations between representatives of governments, employers and workers. They could thus have provided a sound framework for setting rules of corporate conduct concerning minimum age, discrimination, forced labour or any of the other issues that the codes of conduct of multinationals often refer to in evasive terms. These shortcomings, together with the very dubious application of some corporate commitments, recently led to the emergence of certified external codes purporting to command greater credibility and independence from corporate control.

It is still too early to draw any definitive conclusions on the performance of these new instruments. But the trend towards the institutionalization of corporate ethics looks set to continue, the likelihood being that a new generation of instruments, both more rigorous and more widely recognized, will eventually become established. This is indeed what it would take to prevent the dispersion and dilution of efforts to promote corporate ethics through codes of conduct that are often vague and which differ widely both in content and in their enforcement. The adoption of one or more recognized international standards on this subject would provide an opportunity to specify the minimum labour standards to be upheld on the basis of the international Conventions already adopted on relevant issues. It would also afford an opportunity to clarify the criteria for socially responsible investment, which is experiencing rapid growth in spite of the persistent haze surrounding existing systems of evaluation (ILO, 2003). Because their endorsement would remain voluntary, the adoption of such standards need not be seen as a form of interference on the part of the organizations and institutions that will have contributed to their development.

The proposed process of standardization and institutionalization of corporate codes of conduct thus appears to offer many advantages, not least in terms of promoting the Conventions of the ILO and recognition for enterprises that apply them. In practice, however, it poses some daunting challenges.

The first of those challenges centres on mechanisms for verification and the dissemination of information. A few organizations, such as Global Reporting Initiative or the Institute of Social and Ethical Accountability, have recently tried to develop guidelines and checklists on the presentation of reports and indicators concerning corporate social responsibility. (15) In particular, such instruments enhance the transparency, comparability and verifiability of the relevant information (ILO, 2003). However, whatever the method used to disseminate information on social responsibility issues, the application of corporate codes of conduct and related verification procedures are bound to remain fairly flexible. For example, while the ISO 9000 and ISO 14001 standards spell out broad guidelines and principles for managing quality and the environment, the procedures for applying them often differ significantly from one corporation to another. Besides, the restricted timeframe of most certification audits (generally two or three days) hardly lends itself to in-depth analysis. And lastly, although verification authorities need to be approved before they can issue certification, they are selected and paid by the corporations themselves--a situation which may well compromise their impartiality (Mispelblom, 1995). In other words, assurance that a particular enterprise actually applies a set of management rules for which it has been certified is a very relative notion. Indeed, the recent scandals surrounding the auditing of major American corporations--particularly Enron, Worldcom and Xerox--suggest that the utmost caution needs to be exercised in this respect.

A second challenge centres on the risks--to trade growth--of a highly uneven diffusion and uptake of standards on corporate social responsibility. While standardization should theoretically restrict the use of local standards for protectionist purposes, experience suggests that the uptake of global standards of reference is far from being evenly distributed internationally (Boiral, 2001). To take the ISO 14001 standard as an example, 50 per cent of the total number of enterprises certified under that standard worldwide as at December 2002 were concentrated in only five countries (Japan, Germany, Spain, Sweden, the United Kingdom). Whereas more than 10,000 Japanese firms had received certification, most African countries had fewer than ten certified enterprises (Peglau, 2002). To the extent that this type of standard becomes a criterion in the selection of suppliers, such geographical disparities have the effect of giving some regions an advantage, while putting others at a disadvantage. Paradoxically, therefore, the establishment and generalization of a standard of reference for codes of conduct could well end up increasing the marginalization of certain regions, particularly among the developing countries where the need to apply such a standard is the greatest. Conversely, the proposed standard may prove to be of very limited usefulness in workplaces located in rich countries where national legislation already gives effect to many of the ILO's basic Conventions on workers' rights. In order to pre-empt this imbalance, it may be appropriate to develop a standard that specifically targets the relocated operations and/or subcontractors of multinationals in developing countries. This is the idea behind the European Parliament's 1998 "Resolution on EU standards for European enterprises operating in developing countries: Towards a European code of conduct", for example. Significantly, this resolution echoes the ILO's main labour standards and its Declaration on Multinational Enterprises and Social Policy (ILO, 2003).

A final challenge relates to the actual effectiveness of adopting such a standard. Indeed, the reputation of an international standard can have perverse effects both on enterprises' motives for endorsing it and on the social benefits it is supposed to produce. For example, the fast-growing number of enterprises certified under ISO 9000 and ISO 14001 is primarily the result of external pressures on those enterprises. Generally speaking, firms that endorse this kind of standard initially do so in response to customer demands or other external pressures rather than out of concern for quality or the environment (Douglas, Kirk, Brennan and Ingram, 1999; Mispelblom, 1995; Boiral, 2001). In the circumstances, the certification process may amount to little more than "ceremonial adoption" of the standard, aimed more at securing the firm's social legitimacy than at any genuine improvement in its operational practices. Institutional theory suggests that an organization's quest for legitimacy is often driven by a chameleonic process that owes more to concern for appearances than to the intrinsic effectiveness of newly introduced management tools (Meyer and Rowan, 1977; Powell and DiMaggio, 1991; Scott, 1987). By adopting identical practices in response to the same institutional pressures, organizations also tend to become "isomorphic" (Kostova and Roth, 2002). In the case of external codes of conduct subject to certification, the risk of "institutional isomorphism" seems to be especially high because societal pressures can be particularly strong and call for visible measures to protect the corporate image. Such pressures, however, also tend to turn social responsibility into a new criterion of corporate performance--means by which the firm can differentiate itself from competitors. Besides, given the active involvement of so many international institutions in the drafting or dissemination of standards on the conduct of multinationals (e.g. ILO, United Nations, OECD, ISO, European Parliament, etc.), there is now little doubt that such standards are set to take on substantial importance in the near future. Lastly, unlike the ISO 9000 and ISO 14001 standards, which focus on management processes rather than outcomes, an international standard on corporate conduct would uphold specific labour standards, particularly the Conventions of the ILO. (16) The resulting commitment to achieve concrete and verifiable results on issues like forced labour, minimum age or occupational health and safety should, to some extent at least, limit the risk that firms may adopt the standard only in some superficial, ceremonial way.

To sum up, the challenges posed by the prospective generalization of standardized codes of conduct primarily raise questions about the basic purpose of such instruments and their practical implications. Whatever the code an enterprise adopts, the main point is indeed that its adoption should not become an end in itself but a genuine aid in upholding social responsibility and workers' fundamental rights. This basic requirement, however, must not be understood as a substitute for the role of governments and workers' organizations, which may well look upon the development of such codes either as a threat to their legitimate authority or, on the contrary, as an opportunity to strengthen their action inside corporations.

(1) For example, Mexico's "maquiladoras" have proliferated since the signing of the North American Free Trade Agreement in 1994 on account of cheap labour and proximity to the United States market. Today, however, many of these manufacturing activities are being relocated to Asian countries. Particularly strong since 2001, this trend can chiefly be attributed to the low cost of Asian labour coupled with the absence of strict labour standards (Jordan, 2002). A number of Asian countries are now worried that the same fate may befall them. The Government and trade unions of Thailand, for instance, recently expressed fears that growing competition from China in labour-intensive industries may lead to a significant deterioration of working conditions and wages. The effects of such competition are reportedly perceptible already in the manufacturing sector, especially where women's employment is concerned (Macan-Markar, 2002).

(2) ILO Declaration on Fundamental Principles and Rights at Work and its Follow-up (hereinafter "the 1998 Declaration").

(3) The North American Free Trade Agreement (NAFTA) contains a provision of this kind. Thus, the North American Agreement on Labor Cooperation is based on a social clause that applies to the States parties to NAFTA (i.e. Canada, Mexico and the United States).

(4) Based on the Conventions of the ILO, this Declaration is intended for multinationals, governments and employers' and workers' organizations. Its primary objectives are to promote their commitment to respect for labour standards and to contribute to the improvement of industrial relations (Trudeau, 2002).

(5) For an overview of those principles and of the enterprises that have adopted them, see: http://www.unglobalcompaet.org/Portal/[visited on 2 June 2003].

(6) The texts of these codes are recapitulated on CD-ROM in ILO: Codes of Conduct and Multinational Enterprises, Geneva, 2002.

(7) Under the North American Agreement on Labor Cooperation, judicial remedies are handled by a National Administrative Office (NAO) set up in each of the States parties to the NAFTA. Dozens of complaints, involving multinationals such as General Electric or Sony, have already been filed with the NAOs (Trudeau, 2002). In the United States, legal proceedings have also been instituted against corporations that allegedly fail to respect the fundamental rights of workers in countries that are not parties to any such social clause. For example, Unocal, an American oil company, was recently taken to court in California on grounds of human rights violations in connection with a joint venture it has set up with the Government of Myanmar. The charge is that villagers were made to perform forced labour and were subjected to severe mistreatment during the construction of a gas pipeline. Other corporations, such as Coca Cola and Exxon Mobile have also been sued in the United States following the alleged commission of human rights violations by their foreign subsidiaries (Hiebert, 2002). Such legal action, brought by human rights organizations like International Right Foundation, shows that corporations can no longer safely ignore workers' fundamental rights in their international operations, regardless of the provisions of local legislation. It also points to the emergence of a kind of "global governance" in which NGOs have come to play a crucial part, particularly in promoting respect for labour standards.

(8) See the website of Worldwide Responsible Apparel Production: http://www.wrapapparel.org [visited on 5 May 2003].

(9) See the website of Social Accountability International (SAI): http://www.cepaa.org [visited on 5 May 2003].

(10) Some labels such as the Child-Friendly-Enterprise. launched by the Abrinq Foundation in 1995, are specifically concerned with child labour.

(11) Such a standard, though, is currently under consideration. At its general assembly in September 2002, in Stockholm, the International Organization for Standardization decided to study the possibility of launching an international standard on corporate social responsibility. The study is being conducted under the auspices of the ISO Committee on Consumer Policy, a body established two decades ago in order to strengthen the links between standard-setting and consumers.

(12) The Conventions of the ILO are freely accessible online at http://www.ilo.org/public/english/index.htm.

(13) The Universal Declaration of Human Rights was adopted by the United Nations in 1948. It recognizes a number of fundamental labour rights, such as the right to freedom of assembly and association, the right to equal pay for equal work, or the right to fair and satisfactory working conditions. The International Covenant on Economic, Social and Cultural Rights, adopted by the United Nations in 1966, also spells out a number of legally binding, fundamental labour rights (Trudeau, 2002).

(14) It should be pointed out that Social Accountability International has responded to the working group's criticisms point by point (Social Accountability International, 1999).

(15) See http://www.globalreporting.org/index.asp and http://www.accountability.org.uk/default.asp [visited on 6 May 2003].

(16) The usefulness, credibility and reputation of any such standard would otherwise be highly questionable.

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