Guidelines for multinational enterprises

Corporate responsibility: Frequently asked questions


What is corporate responsibility?

Corporate responsibility involves the search for an effective "fit" between businesses and the societies in which they operate. The notion of "fit" recognises the mutual dependence of business and society -- a business sector cannot prosper if the society in which it operates is failing and a failing business sector inevitably detracts from general well-being. "Corporate responsibility" refers to the actions taken by businesses to nurture and enhance this symbiotic relationship. Of course, societies can also act to nurture this relationship by providing such services as law enforcement, investment in the many public goods used by business and appropriate regulation and by financing these activities via a well designed, disciplined system of public finance. If the actions of both business sectors and societies are successful, then the "fit" between the two helps to foster an atmosphere of mutual trust and predictability that facilitates the conduct of business and enhances economic, social and environmental welfare.

The core element of corporate responsibility concerns business activity itself -- the function of business in society is to yield adequate returns to owners of capital by identifying and developing promising investment opportunities and, in the process, to provide jobs and to produce goods and services that consumers want to buy. Economic history attests to the power of business sectors operating in effective environments of private and public governance to raise general welfare and living standards.

However, corporate responsibility goes beyond the core function of conducting business. Businesses are expected to obey the various laws which are applicable to them and, as a practical matter, often have to respond to societal expectations that are not written down as formal law. Since many enterprises now straddle numerous legal, regulatory, cultural and business environments, the challenge of legal and ethical compliance has become more complex.

What steps have businesses taken to ensure that they are acting as responsible members of society?

In an important management trend, businesses have engaged in voluntary initiatives to improve their compliance with law and with "softer" social constraints on their behaviour. Some twenty years ago, firms began issuing policy statements -- or codes of conduct -- setting forth their commitments in various areas of business ethics and legal compliance. A second step was the development of management systems designed to help them comply with these commitments and the standardisation of these systems (e.g. ISO 9000 and 14001). A new management discipline has emerged involving professionals that specialise in regulatory, legal and ethical compliance. More recently, steps have been taken to formulate standards 91iding guidance for business reporting on non-financial performance.

Enterprises have not acted alone in developing these initiatives. They have co-operated with labour unions, non-governmental organisations and governments. Working with these groups, the business community has developed principles and management methods for addressing a range of issues about which it would have been incapable of organising any systematic response even as recently as two decades ago.

These corporate responsibility initiatives are, for the most part, voluntary. How can they be meaningful if they are not based on binding laws and formal enforcement?

Critics of these private initiatives view them as little more than public relations ploys and would favour replacing them with binding rules involving sanctions and government-directed enforcement mechanisms. Only these arrangements, they feel, will give norms for business conduct enough "teeth" to influence corporate behaviour in a meaningful way. This position is overly harsh and fails to account for the subtlety of the processes that underpin corporate conduct and misconduct.

Recent thinking in this area emphasises the importance of intangible assets that support compliance with regulation or any of the "softer" forms of social control of business. It says that any kind of conduct or misconduct -- by individuals or by businesses -- is determined by factors that go beyond law statutes, that cannot be written down in contracts or international agreements or discerned by looking at particular enforcement apparatus. Indeed, one of the central questions in regulatory enforcement is why compliance is so high when the amount spent on enforcement is often so low. No rule is enforced with a police man on every corner or an inspector in every factory. Generally, high compliance with a rule or norm reflects the broad consent of individuals and organisations. In effect, they are willing to comply with a given norm because of they believe that it appropriate and necessary (personal conviction) or because they are under pressure from family, friends and associates to comply (peer pressure). Without this agreement and implied consent (called "voluntary compliance" in enforcement circles), many rules or norms would be prohibitively costly to enforce using methods that are acceptable to democratic societies. The problem for business -- especially international business -- is that, while broad consensus on appropriate business conduct may exist on a national scale, there is little global consensus about such norms. The corporate responsibility movement -- especially the transparency and public debate associated with publication of codes of conduct -- provides an institutional channel through which such consensus can gradually be accumulated on a global scale.

In addition to consensus, observance by enterprises of appropriate norms of business conduct often requires considerable managerial expertise. Multinational enterprises often have tens of thousands of employees and hundreds of business partners operating across the globe and in many sectors. Providing a management framework that gets the incentives right for so people in so many countries is no small challenge. Voluntary initiatives for corporate responsibility have promoted the accumulation of the management expertise needed to translate legal and ethical norms into the day-to-day operations of companies. As a result of the business sector's initiatives (assisted by NGOs, unions and governments) the institutional supports for this expertise -- standards for commitment, management and non-financial reporting standards, professional societies, specialised consulting and auditing services -- are gradually emerging.

The OECD Guidelines for Multinational Enterprises are a comprehensive code of business conduct. How do these Guidelines fit into private initiatives for corporate responsibility?

The governments adhering to the Guidelines consider them to a valuable tool to help businesses build on these intangible resources -- voluntary agreement and expertise -- in support of appropriate standards of business conduct. The Guidelines complement and support private initiatives for corporate responsibility. In particular, adhering governments will use the Guidelines' review and promotion processes as a forum to stimulate public debate on global business conduct in order to build public consensus in this area. The National Contact Points will use them to improve understanding of the meaning of corporate responsibility within national business communities and to encourage the development of the management expertise that permits norms for responsible conduct to be translated into firms' daily operations. The National Contact Points also offer a forum in which concerns about particular business behaviour and practices can be discussed among interested parties, including adhering governments. Here, the emphasis is not on judging companies but on promoting a real process of improvement in business conduct. For more information, see the Guidelines web page .

What other initiatives relevant to corporate responsibility are underway at the OECD?

A number of other OECD initiatives are relevant for corporate social responsibility.

The Bribery Convention and other anti-corruption initiatives
Corruption is no longer business as usual. The OECD Convention to combat bribery went into effect on 15 February 1999. The Convention makes it a crime to offer, promise or give a bribe to a foreign public official in order to obtain or retain international business deals. A related text effectively puts an end to the practice according tax deductibility for bribe payments made to foreign officials. The Convention is going to have a major impact on the global fight against corruption.

Corporate Governance Principles
The OECD Principles of Corporate Governance represent the first initiative by an inter-governmental organisation to develop the core elements of a good corporate governance regime. Following their endorsement in May 1999, the OECD has undertaken a number of initiatives to promote good practice in this area.

Guidelines for Electronic Commerce
The Guidelines for Consumer Protection in the Context of Electronic Commerce, approved on 9 December 1999 by the OECD's Council, are designed to help ensure that consumers are no less protected when shopping online than they are when they buy from their local store or order from a catalogue. By setting out the core characteristics of effective consumer protection for online business-to-consumer transactions, the Guidelines for Electronic Commerce are intended to help eliminate some of the uncertainties that both consumers and businesses encounter when buying and selling online.