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December 20, 2012
Multinational corporations in theory, bring in necessary technological inputs as well as employment, and most importantly foreign direct investment to developing countries. However, the anti-globalization movement of the past twenty years has questioned whether multinationals do more harm than good. Underscored by the discovery of sweatshop practices and human rights abuse in the 90’s, MNCs have been forced by an ever growing conscientious consumer base to change or at least give the perception of corporate responsibility. Corporations like Nike and Pfizer have been forced to change their sweatshop practices in order to adapt to a consumer economy that is more concerned about where their products come from and the condition under which the laborers work. While the anti-globalists call for increased regulation over MNC behavior abroad, forced compliance to a universal standard has been difficult to achieve.
A myriad of factors including power resources and MNC mobility make increased regulation abroad difficult. The size of multinational corporations in terms of value added or profit rivals that of the gross domestic product of many nation-states. In fact, “Among the 100 biggest economies in the world 51 are corporations and only 49 are countries.” The market value of Apple alone is worth more than 30% of India’s GDP. Multinational corporations like Apple base their success on their ability to innovate and adapt to the changing needs of their environment. However, the formula that has made Apple and so many other multinational corporations so profitable is one that maximizes profits through the outsourcing of labor and production. Corporate social reform creates new opportunities for third world development through the opening of dialogue and voluntary global framework agreements.
Responsibly Regulate Multinational Corporations
Intrinsic in the concept of Corporate Social Responsibility are the business practices of transparency, accountability, collaboration, and a commitment to sustainable economical, social, and environmental development. The CSR approach is one that views corporate growth through the prism of multiple player game. Differing from traditional business models which are rooted in a supply side model in which corporations are profit maximizing entities responsible to the growing demands of the consumer base and shareholders, CSR incorporates a collective effort amongst various stakeholders.
According to Infosys founder, Narayan Murthy, the goal of social responsibility is to “create maximum shareholders value working under the circumstances, where it is fair to all stakeholders, workers, consumers, the community, government and environment”. The purpose of CSR is to create a favorable environment which encourages corporate longevity through a commitment to fair business practices.
Essential to an understanding of corporate social responsibility is a notation of the difference between a shareholder and a stakeholder. “Shareholders are the individuals or organisations that own a company. They own shares in the company. As owners, they will receive a share of the profits. Shareholders are a type of stakeholder because they have an interest in the company.” according to the Times 100 Business Case Studies. Shareholders interest in maintaining a corporation’s sustained success is based on a parallel relationship in which the corporation’s profits reflect to varying degrees the wealth of the shareholder.
The continued relationship is incentivized at the root level by the increasing of one’s revenue. Stakeholders, on the other hand, include the much broader group of “all those who have an interest in what the company does, ” according to the Times 100 Business Case Models. Stakeholders involve a wide group of actors. Among those that would be categorized as a stakeholder are suppliers, employees, and shareholders.
These groups are internal to the business’s organization. However, shareholders also involve a set of variables external to the company. These groups include customers, governments, non-government organizations, and trade unions. These external actors have often pushed the corporate social responsibility agenda by increasing the level of public dialogue on corporate behavior and by enforcing a set of regulatory standards on businesses through such tactics as “naming and shaming.”
How Not to Regulate Multinational Corporations
Many critics of the corporate social responsibility movement argue that progress cannot be made in changing the behavior of businesses abroad unless and until a business case can be made in favor of CSR. In essence, corporations respond to growing profit margins and the “bottom line.” CSR, while ideologically and ethically sound, at face value runs counter to the business incentive of increasing profit margins and productivity.
Multinationals often outsource their companies in order to avoid the costly price associated with workers unions and labor rights, components essential to a fair business environment. These workers rights are often associated with the rising of employee wages. This ultimately adds to the price of business. “In 1984 the $5.2 billion dollar Nike Corp. closed its last U.S. factory and moved its entire production to the cheap labor in Asia. Some 65,000 Nike U.S. shoe workers lost their jobs because of the move over seas.
CSR based institutions like the United Nations Global Compact, a voluntary policy initiative for corporations aligned with ten universally accepted principles of human rights, labor, environment, and anti-corruption, answers this critique by creating an environment which normalizes fair practices, changing the rules of engagement under which MNCs operate. Through the moral authority of the United Nations the organization now has over 8,700 corporations from over 130 countries committed to its aims. Through the use of global partnerships and networks, companies share best practices through their own Communications on Progress which highlight their CSR activities abroad. As a non-compliance organization the Global Compact uses the UN name branding, and the use of expulsion after a year of failure to communicate progress.
Regulate Multinational Corporations to Conclusion
The cultural shift toward environmentally and socially responsible shopping marked by the Green Movement and the emergence of institutions like the Global Compact acts as a powerful counterbalance against the forces of corporate greed, embedding principles that will create a true pathway to development for all.