Corporate Codes of Conduct: Self Regulation in a Global Economy

The 1990s saw a proliferation of corporate codes of conduct and an increased emphasis on corporate responsibility. These emerged in the aftermath of a period that saw a major shift in the economic role of the state, and in policies toward transnational corporations (TNCs) and foreign direct investment. Whereas in the 1970s many national governments had sought to regulate the activities of TNCs, the 1980s was a decade of deregulation and increased efforts to attract foreign investment. A similar trend occurred at the international level, where efforts at regulation had been unsuccessful.

It is in this context that the recent wave of voluntary codes of conduct must be situated. US companies began introducing such codes in the early 1990s, and the practice spread to Europe in the mid-1990s. Voluntary codes of conduct range from vague declarations of business principles applicable to international operations, to more substantive efforts at self-regulation. They tend to focus on the impact of TNCs in two main areas: social conditions and the environment. A variety of stakeholders, including international trade union organizations, development and environmental NGOs and the corporate sector itself have played a role in the elaboration of codes of conduct for international business.

Several changes in the global economy have contributed to the growing interest in corporate social responsibility and codes of conduct. The growth of “global value chains”, through which Northern buyers control a web of suppliers in the South, has led to calls for the latter to take responsibility not only for aspects such as quality and delivery dates, but also for working conditions and environmental impacts. At the same time, the increased significance of brands and corporate reputation makes leading companies particularly vulnerable to bad publicity. Changing public attitudes are also an important part of the context in which corporate codes of conduct have been adopted. Companies in the North can no longer ignore the impact of their activities on the environment with impunity. Developments in global communications, which have enabled corporations to control production activities on an ever-widening scale, have also facilitated the international transmission of information about working conditions in their overseas suppliers, increasing public awareness and facilitating campaigning activities.

A range of stakeholders are involved in drawing up voluntary codes of conduct, or can be affected by their adoption. These include large and small firms, Northern and Southern NGOs, trade unions, shareholders and investors, consumers, consultancy firms and verifiers, Southern exporters, workers in the South, Southern governments, and local communities. All have specific interests that predispose them more or less favourably toward corporate codes, and influence the kinds of codes that they would like to see implemented.

One of the striking characteristics of the recent growth of codes of conduct is their tendency to be concentrated in certain sectors, particularly trade, textiles, chemicals and extractive industries. Codes addressing labour issues tend to be concentrated in sectors such as garments, footwear, sports goods, toys and retailing, whereas environmental codes are more likely to be found in chemicals, forestry, oil and mining.

Codes of conduct can be divided into five main types: company codes, trade association codes, multi-stakeholder codes, model codes and inter-governmental codes. Codes vary considerably in scope. Many do not even cover all of the International Labour Organization’s core labour standards. Company codes and trade association codes often have a more limited scope than those developed in conjunction with other stakeholders. There are also differences in the coverage of codes. Although many do cover the firm’s suppliers, they often do not extend all the way along the supply chain, and very rarely cover home-based workers. Provisions for the implementation of a particular code, and for effective monitoring, are crucial if it is to have any real impact. Here, too, one finds weaknesses, with only a small proportion of codes making provision for independent monitoring.

In evaluating corporate codes of conduct, several limitations need to be pointed out. Some of these are practical, arising from the way codes have (or have not) been implemented up to now. Others are inherent to corporate codes as an instrument, and therefore go beyond constraints related to the way codes have been applied in the past. Despite the recent proliferation of codes, their implementation remains relatively limited. Other shortcomings relate to the limited number of issues they address, and who such codes apply to. More deep-seated structural limitations of codes of conduct relate to the “drivers” that gave rise to their proliferation during the 1990s. Not only are they limited to particular sectors, where brand names and corporate image are important, but they are also mainly applied to firms engaged in exporting. Finally, there is a tendency for codes to focus on particular issues—those regarded as potentially highly damaging for companies to be associated with. In other words, issues that have a high profile in developed countries are likely to figure prominently in most codes.

Notwithstanding the limitations of codes, they can and have generated positive benefits for stakeholders. Examples where working conditions have improved show that codes can provide leverage on corporate behaviour. Furthermore, because of codes of conduct, firms increasingly accept responsibility for the activities of their suppliers as well as their own subsidiaries.

There is a danger, however, of codes being seen as something more than they really are, and used to deflect criticism and reduce the demand for external regulation. In some cases, codes have led to a worsening of the situation of those whom they purport to benefit. Concern has also been expressed that they may tend to undermine the position of trade unions in the workplace.

The limitations and dangers of codes of conduct identified in this paper are undoubtedly real. It is thus important to develop strategies to ensure that codes are complementary to government legislation and provide space for workers to organize. They are most likely to do so when they are multi-stakeholder codes, rather than when they are unilaterally developed by companies or trade associations. Codes of conduct should be seen as an area of political contestation, not as a solution to the problems created by the globalization of economic activity.