Helping the Laggards Join the Race
A much-debated point in the field of corporate responsibility is what should be done to encourage companies that have made little progress so far. Christine Bader offers a way forward.
"Laggards" is an often-used term, frequently said in exasperation, anger or resignation, usually in contrast to "leaders." In the worlds of corporate responsibility and business and human rights, the two words delineate a spectrum.
At one end are companies that stay abreast of, contribute to and apply international best practice. These firms are active in forums in their industry and beyond, and are in constant conversation with non-governmental organizations and civil society. At the other end are companies that do not seem to be making any effort to even learn about good practice—and for the most part get away with it.
But this dichotomy is neither true nor helpful. Laggards are not all pure evil, out to exploit their workers and host communities to make a dishonest buck. Some companies may fit that unfortunate profile, but for the vast majority of enterprises, there are other, more benign forces at play. Many employees "handle" social issues as part of a broad portfolio that might include human resources, communications or the environment. We all know that the demands of the immediate trump those of the long term.
Unfortunately the issue of human rights rarely receives the attention it deserves unless there is a major incident or revelation. For example a hotel might find that indigenous people were forcefully evicted from its site but there may not be sufficient internal or external pressure to address the issue.
A Stumbling Block
Many companies have little incentive to participate in the absence of a serious incident. Many wonder if a lack of human rights leadership is really bad for business. Does a small company in Asia care about the opinions of NGOs in the United States? More critically, a host government may not care about its companies' impacts on communities at home or overseas.
Meeting the environmental and social standards of the Equator Principles, a voluntary set of procedures for banks on social and environmental impacts, means access to funding from signatory banks for project finance. A terrific start, but project finance comprises only a small percentage of global capital flows. The rest remains largely untouched by any similar set of standards.
Only a small segment of the world's consumers base their purchasing decisions on anything other than cost, quality and convenience. Government export credit agencies rarely exercise any leverage over the companies to which they have provided loans or guarantees, even where forced resettlement or environmental degradation might be taking place in association with those investments.
That said, encouraging a "laggard" to take note of social and environmental issues is not all an uphill battle. At a UN Global Compact conference last year for Latin American and Caribbean companies, attendees were delighted to learn that there were tools (albeit in English) to deal with the human rights challenges they were facing, and that successful multinationals were ready to share lessons learned from working through human rights challenges that the newcomers could take back to their peers.
So Who Are These Laggards Anyway?
Just who are these laggard companies, then? Let's define some categories.
The benignly ignorant: These are companies that have not been forced to consider human rights, whether because of their minimal impacts on stakeholders or absence of consumer or NGO scrutiny.
The evil-doers: This group comprises companies that shirk responsibility for the negative impacts of their operations. Or worse, they deliberately engage in behavior that anyone with a conscience would find unacceptable, such as employing forced labor. One hopes that such companies would be called to account by observers, consumers, host communities, shareholders or regulators.
The diplomatically immune: Do the Asian state energy companies investing in Africa respect human rights in their host communities? Does anyone know, since the companies and their host (and home) governments reject scrutiny from journalists and NGOs? Many of those companies actually have a history of building towns and providing social services for their workers and neighbors. This harks back to their days as government agencies responsible for domestic well-being as much as (or more than) commercial success.
But the assumption today by many is that such companies are at best ignoring abuses by their host governments and at worst facilitating them—and are not subject to the same scrutiny as Western multinationals. Many are believed to enjoy some level of protection and support from their home governments.
What incentives, other than moral, do they have to participate in best practice discussions? Do they see excellent social performance as important to global success? While unfortunately no-one has yet proved to any satisfactory degree of rigor the financial benefits of corporate social excellence, it is easy to point to its importance in reputation and other elements that do seem to resonate with non-Western enterprises.
The determined followers: We are all familiar with the head-above-the-parapet problem. A leader takes some proactive steps and is shot down by critics, even though the commitment expressed is well ahead of that of other companies. (For example, BP's $8 billion investment in alternative energy labeled "greenwash," or companies joining initiatives such as the Voluntary Principles on Security and Human Rights or the Extractive Industries Transparency Initiative accused of merely seeking good public relations.)
In light of such a phenomenon, it certainly seems reasonable to wait and let others experiment, then adopt what seems to work. Are these companies really laggards, or are they actually more sensible than the leaders?
The helpless well-intentioned: The companies at the recent Global Compact conference said they wanted to have a positive social impact but did not know about the path forged by others, lined with tools and lessons learned. They had not to date felt the urgency to go down that path unprompted. Multinationals operating in repressive regimes claim it is too risky to discuss human rights with those host governments. But they could do so if they actively explored possibilities such as collective action with other companies and their home governments.
Those under the (Western) radar: Small to medium-sized enterprises, factories, oil and gas services firms and other companies without known brands are unlikely to face public pressure, even though they can have much greater influence over peoples' lives than their multinational counterparts. What are those companies' incentives, motivations and sources of financing? Do they harbor global aspirations, and therefore perhaps an openness to world-class standards, or would they prefer to remain as they are? Do they vie for business with big brands that hold their suppliers to high standards? Clearly not much has been done to find out. Recent revelations of tainted Chinese products are shining new light on these companies.
These categories are not mutually exclusive. Companies can choose which category or categories they fall into (although the diplomatically immune club is probably hard to join) and can change their strategy as they see fit and as their stakeholders demand or allow.
Nor are companies monolithic. Multinational companies may behave in surprisingly different ways in similar operations around the world, depending on who is in charge locally and what conditions on the ground require.
For any kind of company, what brings about changes in behavior? Let's identify some levers.
Carrot: market opportunities, enhanced reputation, access to financing, staff recruitment and retention—whichever components of "the business case" resonate.
Stick: legislative or regulatory sanctions, consumer boycotts, cost of compensatory community investment or additional security.
Awareness: understanding of the impacts that business can have on human rights and how societal issues can impact business.
Capacity: time, money and expertise.
Tools: training materials, guides to integrating human rights into company activity, learning forums within and across industries.
From a strict market perspective, the first two factors are most important. Even if a company is fully aware of the issues and can access the tools and dedicate resources to apply them, it must respond to the positive and negative incentives that drive the capitalist system. It would behoove those who wish to see better corporate social performance to strengthen the carrot and the stick. Ultimately governments, civil society, shareholders and customers must reward good companies and penalize bad ones.
On the other hand, some might say that awareness is key. Companies will create capacity and tools when they see a need or an opportunity, for example new consumer demand or competitive pressure. The success of former U.S. presidential hopeful Al Gore's campaign to raise awareness about climate change provides an interesting case study. Yes, there is money to be made in fighting global warming. But Gore's campaign is grounded in the supremacy of the moral imperative, and has inspired business leaders to innovate and collaborate beyond what they might have done were they simply responding to consumer demand.
In that arena, the carrot has become a greater cause than just commercial success, and the stick has become the catastrophic societal consequences of not tackling the issue. Evil-doers aside, most business leaders would prefer to align the interests of their company with those of society, and awareness creates opportunities to do so.
Understanding, then, that there are different kinds of laggards, and different levers that can improve performance, can we identify who needs what in order to most productively channel our efforts?
The benignly ignorant do not need a thick new guide on cutting edge assessment tools. They need to understand the human rights implications of their business and the risks and opportunities that those impacts present.
The evil-doers will not respond to reports about the poor living conditions of their neighboring communities. Sanctions need to be tangible, and they need to be enforced.
The diplomatically immune need to have incentives for better behavior that come from the authority of their home governments and the lure of international markets. Similarly, the determined followers need to be encouraged to act—and will do so if they see the leaders being rewarded for their efforts. The helpless well-intentioned need peer groups and peer pressure, access to expertise, and opportunities to collaborate with other entities, both in and outside their sectors.
By definition, under-the-radar companies are harder to diagnose. Interested stakeholders should turn their attention towards these companies and away from the name brands that may be easy targets but are one (or ten) steps removed from the people we should all be trying to protect, whether from abusive labor conditions or repression by overenthusiastic law enforcement.
Identifying different categories of laggards and honing in on what each needs would make for much more effective solutions. So what are the implications for those who either can or want to influence these companies?
Governments are generally charged with carrying the stick, namely designing and enforcing legislation and regulation, but they have an important role as catalyst as well. Again drawing parallels with the environmental movement, government incentives can be very effective in stimulating innovation and investment for societal benefit. Diplomatic relationships can be useful tools for companies operating in difficult situations overseas. Governments have played an important role in initiating and supporting multi-stakeholder initiatives that aspire to raise performance for all companies, such as the Voluntary Principles on Human Rights and Security, the Carbon Trust and the Extractive Industry Transparency Initiative.
Institutions that develop tools must keep these different audiences in mind. Most publications read as though written for an enlightened Western manager with the mandate and resources to do more, who cares about NGO and consumer opinions and wants to be able to claim the high moral ground.
NGOs must continue to push companies and raise public awareness with representative evidence of how business works, so consumers and shareholders can ask the right questions and make informed decisions. Those NGOs with the mandate and capacity to work directly with companies are vital to improving corporate performance. Those NGOs who focus on campaigning must target the laggards.
New information needs to flow in all directions: from leaders to laggards on lessons learned; from human rights experts to companies on what their human rights obligations are; from experts to the public on how business works (for example, how much leverage a brand has over its supply chain or a lender over its client) and what defines good and bad performance. Better reporting on non-financial issues will be vital here.
Finally, the leaders themselves have a critical role to play in continuing to innovate, to engage, and to raise standards and expectations for business. The impact of Lord Browne having been the first head of a major energy company to acknowledge the reality of climate change has been well documented. And the leading companies from various sectors who have come together over the years in multi-stakeholder initiatives have played an important role by codifying best practice that we all must push the laggards to emulate.
The performance of laggard companies can and must be improved. Efforts to do so will matter only if we recognize the distinctions between companies and seek to pull the right levers with the right parties.
Christine Bader is adviser to the UN special representative of the secretary-general for business and human rights, on secondment from BP, and is a term member of the Council on Foreign Relations. She writes in her personal capacity.
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