View Comments

Civil Society Activism

The Demand for Change and Corporate Social Responsibility

By Richard Calland | AccountAbility, Global Reporting Initiative | June 12, 2007

As The Economist noted in 2001, "In the next society, the biggest challenge for the large company—especially the multilateral—may be its social legitimacy, its values, its missions, its vision." In recent years, there has been increasing civil society activism campaigning for transparency in the corporate sector, often directed to ensure that transparency occupies a pivotal place in the development of the understanding and practice of CSR. Multilateral institutions, and some corporations, have responded positively.

The UN Global Compact is an often-cited example of the new, multilateral, macro approach to corporate social responsibility. Principle One of the UN Global Compact states that, "Businesses should support and respect the protection of internationally proclaimed human rights." A tenth principle on anticorruption practice, which reads, "Businesses should work against corruption in all its forms, including extortion and bribery," was adopted in June 2004.

On August 13, 2003, after a four-year consultative and drafting process involving the private sector, academic institutions, human rights nongovernmental organizations, and intergovernmental bodies and states, the UN Sub-Commission on the Promotion of Human Rights adopted resolution 2003/16 (the Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights). The Norms, together with their commentary, form the major product of the Sub-Commission's Working Group on the Working Methods and Activities of Transnational Corporations. The Norms help to clarify the assertion that business enterprises have human rights obligations. Yet curiously, the draft "Principles Relating to the Human Rights Conduct of Companies" fails to mention either transparency or any right to access information. This shows that although thinking on the multilateral response to the power of the for-profit sector is growing, transparency is not yet a core part of the agenda.

Being good corporate citizens gives companies a license to be successful.
Civil society, however, is further along the conceptual road toward transparency. Pressure from stakeholders for accountability on social and environmental issues is a major driver of companies' self-interested efforts to be good corporate citizens. Government, customers, community groups, or nongovernmental organizations (NGOs) can significantly impede a business plan if a company is not responsive. That is why citizenship reports are littered with terms like "license to operate," "license to grow," and "license to innovate."

Being good corporate citizens gives companies a license to be successful. The report that accompanies the draft "Principles Relating to the Human Rights Conduct of Companies" refers to the voluntary approach adopted by some companies, often spurred by NGO pressure. The footnote to the section (note 25) refers to around fifty such codes, the majority of which are NGO-inspired. An excellent example of NGO activism on transparency is the work that has been done in recent years by the Publish-What-You-Pay coalition of more than 190 northern and southern NGOs. The coalition is calling for laws to require extractive companies to disclose their payments to all governments. As Global Witness, a key member, argues on its Web site, "This crucial first step would help citizens in resource-rich-but poor countries to hold their governments to account over the management of revenues. In addition, by a level playing field through regulation, companies' reputational risks will be mitigated and they will be protected from the threat of having contracts cancelled by corrupt governments."

The Global Witness report "Time for Transparency—Coming Clean on Oil, Mining and Gas Revenues" starkly illustrates how secrecy provides a perfect cloak to the unscrupulous, on both the host government and the corporations' side. Examining the cases of Kazakhstan, Congo Brazzaville, Angola, Equatorial Guinea, and Nauru, the report asserts that, "In these countries, governments do not provide even basic information about their revenues from natural resources. Nor do oil, mining and gas companies publish any information about payments made to governments."

A theater of the absurd plays out under cover of the opacity: Kazakhstan President Nazarbayev receives US$78 million in kickbacks from Chevron and Mobil (as they then were). In Congo Brazzaville, Elf Aquitaine (now Total) treated the Congo as its colony, buying off the ruling elite, yet according to the IMF did not pay a single penny into the government's coffers. In Angola, as much as US$1 billion per year of the country's oil revenues—about a quarter of the yearly income—has gone unaccounted for since 1996. In the case of Equatorial Guinea, recent investigations show that major U.S. oil companies simply paid revenues directly into the personal account of the president at Riggs Bank in downtown Washington, DC in return for mining concessions.

Finally, "the opaque and unaccountable management of phosphate reserves has transformed Nauru from the richest nation in the world (per capita) to a bankrupt wasteland." Beyond the anticorruption initiatives, the international community has begun to see disclosure as a useful tool for dealing with what social scientists call externalities—the often negative but unintended social and environmental impacts of corporate behavior. There has been a substantial increase in corporate reporting on nonfinancial performance.

Two best practice guidelines have emerged. One, the Global Reporting Initiative (GRI), established in 1997, provides guidance on the substantive issues to be included within a sustainability report, while the second, AccountAbility 1000 (AA1000), launched in 1999, provides a framework to guide the establishment of an inclusive engagement process. More than 270 companies and institutions are now using the GRI guidelines. More recently, the UK government initiated a new forum called the Extractive Industries Transparency Initiative (EITI) to promote action by governments and companies. The principal weakness of the EITI, according to its critics, is that it relies entirely on voluntary reporting. The Publish-What-You-Pay coalition of NGOs continues to call for mandatory reporting based on common norms and standards across home and host countries, and among the companies themselves.

In 2004, the London-based NGO Save the Children: UK, a leading member of the Publish-What-You-Pay coalition, developed a set of indicators that attempt to measure transparency across all three actors. By investigating information from each, a triangulation exercise can be performed to help verify information relating to revenue streams in particular. The intention is to assess levels of opacity, identify leaders and laggards, diagnose solutions, and set new standards of good practice. Phase I having conceptualized and piloted the Measuring Transparency Index, phase II of the project tested the transparency of companies in the oil and gas industries and the transparency standards and requirements set by home countries—that is to say, (generally First World or wealthier) countries where oil and gas companies are based.

The project coincides with the biggest reform of accounting standards in more than twenty-five years, following the Enron and Anderson scandals, prompting significant reviews and reforms in other financial regulations, such as securities. Category A of the index measures transparency in relation to revenue payments, category B measures general corporate reporting ("supportive disclosure"), and category C measures policy, management, and performance of Access to Information laws. The index is two-dimensional, permitting a more diagnostic reading of the data based on an analysis of policy, management systems, and disclosure performance. Twenty-five companies with operations in six countries were assessed, with the Canadian companies Talisman and TransAtlantic Petroleum topping the table, and PetroChina and Petronas, the national petroleum corporations of China and Malaysia respectively, propping it up.

From the index and the data collected, the report makes clear recommendations for reform and lays out an extensive agenda for civil society advocacy. It concludes that, overall, transparency in the oil and gas sector is poor—23 of the 25 companies score less than 30 percent—showing the need for stronger measures, and that home government regulation of company reporting is vital as the "key driver" for disclosure performance. The three Canadian companies included in the study rank first (Talisman), second (TransAtlantic Petroleum), and fifth (Nexen, Inc.). As the report notes, "The strong results for Canadian companies indicate the role that home government regulations can play in increasing transparency in host countries. They demonstrate that at a global level, home government regulation is an efficient way to improve transparency."

In this context, it is noteworthy that in the sister report on home government transparency regulation of companies, Canada ranked first of the ten countries covered and was the only one to score more than 50 percent (58.1), thus inviting the conclusion that there is a compelling causal link between corporate transparency and mandatory regulation by government.

This article was excerpted from "Prizing Open the Profit-Making World," a chapter in The Right to Know: Transparency for an Open World, Ann Florini, ed. (New York: Columbia University Press, 2007).

Read More: Business, Energy, Governance, Human Rights, Angola, Canada, Equatorial Guinea, Kazakhstan, Nauru, Republic of the Congo, Global

blog comments powered by Disqus

Site Search

Global Research Engine

This search includes our Core Network partners.

Join Our Mailing Lists

The Journal