Globalization has increased the power and influence of transnational corporations as few international standards exist to regulate their behaviour. Moreover, regulations that do exist are often not enforceable. This has produced an accountability gap that has become more prominent in discussions of global governance in recent decades. While governments – from both the developed and developing worlds – have often been unwilling or unable to use what policy tools they have to regulate industry, a burgeoning array of non-governmental organizations (NGO’s) ranging from unions and consumer groups to environmental and consumer organizations have stepped into the breach by taking corporations to task for their poor standards. What has emerged is the growing incidence of privatized- or self-regulation, whether at the firm level, sectorally, or through intergovernmental voluntary guidelines.
Vogel describes global civil regulations as mechanisms to link markets in networks of international norms and rules. They entail establishing standards of conduct and means of enforcing compliance, and have been particularly prevalent with environmental and social issues. (1) Conceptions of corporate social responsibility (CSR) have percolated up from the community level to the global governance debate. The growing significance of the issue is a product of the structural imbalance that globalized markets were creating between the power of TNC’s and government’s capacity to regulate them. As trade and FDI flow increased, so did the reach of TNC’s. Contrary to the conventional thinking, this has not signified the retreat of the state, nor has a regulatory race to the bottom been apparent. This corporate power has grown, however, without adequate accountability. (Vogel 11-2, 16)
The primary driver of corporate willingness to self-regulate has been the parallel growth in recent years of vibrant global civil society with a range of sophisticated NGO’s and global advocacy campaigns that have developed significant political influence. Where governments have failed to ensure corporate accountability, an array of unions and labour organizations, environmental and human rights activists, consumer groups or ethical investors have sprung up to place pressure on firms and industries to ensure acceptable standards of conduct. They employ a range of tools or tactics, such as media, protests, boycotts or lawsuits. Their objective is to raise the economic or political costs to companies by inflicting reputational damage.
Corporate strategies have evolved in the face of these calls for greater regulation of their activities, increasingly favouring self-regulation to tighter national or international standards. Accordingly, Haufler describes the trend towards self-regulation as a direct response to the twin threats of greater regulatory oversight by government and reputational attack by activist NGOs. (Haufler 227, 231) Vogel, however, sees more a more complex matrix of motives. The embracing of corporate social responsibility has been seen as simple risk management for many corporations, but the values of improved environmental or social outcomes have been shared by corporate executives in some cases. He points to companies like Ikea, Norway’s Statoit, and Hewlett-Packard as examples. (Vogel 22)
The nature of the self-regulatory mechanisms has often reflected the motivations: some firms have been willing to adopt codes of conduct that go beyond industry standards despite the competitive disadvantage they can entail; others have preferred industry wide standards to pool costs and limit shared reputational damage. The nature of civil regulations also varies. Some, as Haufler suggests, are created to avoid more onerous government regulations. But others address gaps in state or interstate regulation, or are actually intended to strengthen state control. (Vogel 5, 22-4) It is then unsurprising that civil regulations have been promoted by intergovernmental organizations like the EU, OECD or ILO, or that states often support corporate codes of conduct as an alternative to a ‘command and control’ approach.