Corporate Codes of Conduct:
The Counter-Intuitive Effects of Self-Regulation
Alain Lapointe & Corinne Gendron, Université du Québec à Montréal, Canada
Observing the proliferation and wide acceptance of corporate codes of conduct, the paper questions the regulatory potential of corporate social responsibility. Taking stock of the serious limitations of self-regulation, the authors nevertheless doubt that a resurgence of national government regulation, or the emergence of supranational public regulation is likely. Rather, they foresee the development of an unprecedented hybrid model of regulation in which market, state and civil society will share regulatory responsibilities.
Almost unheard of merely two decades ago, corporate codes of conduct are now commonplace. Most major companies have adopted some kind of statement, policy or management system concerning what could loosely be called their corporate social responsibility (CSR). Bradley (1999) reports that more than 85% of big US corporations already adhere to such codes. A survey by KPMG (2000) among the biggest 1000 national firms showed a similar portrait on the Canadian scene. More recent figures would surely confirm that more than nine out of ten companies pretend that they self-regulate, implying, at least implicitly, that they should not be regulated by external agents.
But what does self-regulation mean? Apparently, it refers a lot of different things. A recent study of the OECD (2001) sampled some 246 different codes of corporate conduct, addressing a wide variety of issues, ranging from labour standards and human rights to environmental stewardship and consumer protection. Some codes cover many different issues, but some are very narrow, sometimes restrained to only one issue. The study also revealed a large diversity of approaches, from codes with explicit substantive content to mere management system codes. And finally, but probably the most important difference, codes reveal various degrees of commitment towards CSR: most codes are self-declared, self-imposed and very little constraining. But some codes are developed and monitored by external actors; some even involve various forms of cooperation with NGOs, especially when the process leads to some kind of certification of «good conduct».
A largely positive reception…
Notwithstanding the diversity and vagueness of these codes of conduct, the mere proliferation of these voluntary private initiatives towards some broader social objectives than sole profit is usually perceived quite positively. Many people consider such initiatives as a commitment by companies to serve, or at least to respect, the interests of a larger range of stakeholders than their own shareholders. Instead of being in opposition, profits and common good could be reconciled through a form of win-win strategy; financial, social and environmental performances are, or at least could be, convergent.
Not surprisingly, this possibility is very much welcomed, at least in Canada. A recent survey conducted on behalf of the Canadian Democracy and Corporate Accountability Commission (2002) reported that 72% of the Canadian population approved of this new vision of corporation's role and responsibilities. One might think that shareholders would not "share" this opinion. But the survey also revealed that even more shareholders agreed to this profound revision of the corporation's mission: 74% of Canadian shareholders agreed. If corporate social responsibility is so largely welcomed, then corporate codes of conduct, the most obvious implementation tool of CSR, might be used as a promising avenue to reconcile private and public interest. Many interested parties apparently think so, including business associations as well as NGOs. And these hopes accordingly give rise to considerable efforts to define codes and design implementation and monitoring tools that would make this reconciliation operational.
… but also some scepticism
Of course, there are also lots of sceptics, who believe that corporate codes of conduct are mere window-dressing. And the simple fact that the main widely acknowledged motivation of business leaders in adopting such codes is to escape or to delay government regulation is indeed reason enough to arouse suspicion. It is not surprising that managers would prefer the "soft law" of voluntary codes of conduct to the "hard law" of command and control government regulation. Detractors insist that codes of corporate conduct are designed to protect profits, not to curtail them. And recent empirical research brings support to this position by confirming that corporate codes of conduct are, or at least could be used as efficient marketing tools. For instance, Maignan and Ferrel (2001) argue that codes of conduct do improve both employee's loyalty and consumer's fidelity. One could argue that underlying motives might not be so important if codes and certification did generate better results. But scepticism bears as much on effectiveness as on motivation; commitments are nice to hear, but do they really translate into concrete action? And even if they do, does more responsible behaviour really generate better social and environmental performance?
Two main categories of practical difficulties severely limit the regulatory potential of corporate codes of conduct: the problem of definition and the problem of implementation. In the first place, effectiveness of codes of conduct is plagued by the generalised presence of vague, low and non-operational standards. Codes tend to be limited to what the corporation already does well and ignore the problematic issues. This is at least partly explained by the fact that most codes are issued by corporations themselves (48% according to the OECD survey, 2001), or by business associations (38%), leaving small room for codes issued by non-profit actors, governments or NGOs. Accordingly, private codes are often procedural (like the ISO certification) rather than substantive (like the Global Report Initiative referential), meaning that the corporate commitment is limited to the adoption of management procedures to deal with specified social or environmental issues, but does not have to set any specific targets of performance. Consequently, a bad performance could nevertheless respect the code of conduct. On the other hand, the weak impact of codes could rather be due to the absence of formal implementation mechanisms. The OECD survey (2001) reported that only 32% of the sampled codes discussed implementation issues. Other studies observed a very loose control of compliance; for instance, Kolk (1999) observed that no more than 44% of companies who adopted a formal code of conduct with labour rights provisions did control compliance at all.
One would think that codes and certifications monitored by external actors would not give rise to such credibility problems. But here again, empirical evidence (Hepple, 1999; O'Rourke, 2000) reveals numerous and serious flaws in the auditing process of even some of the more respected certifications, such as the SA8000 (LARIC, 1999): flexibility of standards, incompetence of auditors, lack of factual information, confidentiality of reports are but some of the most glaring deficiencies of the monitoring system. And the rapid expansion of a «certification industry», which implies that social auditing is largely becoming the business of private companies paid by their own clients to monitor their social and environmental performance, does not contribute to the credibility of the whole process.
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