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Transnational Corporations and Public Accountability

Published online by Cambridge University Press:  28 March 2014

Mathias Koenig-Archibugi
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Abstract

This article considers the issue of public accountability of transnational corporations (TNCs) in the light of the experiences of the past 30 years. It discusses the problem of accountability of corporations in general and examines the accountability gaps that are particularly severe as a result of the global reach and power of TNCs, notably those related to the collusion between government officials and TNCs, to regulatory competition, to state weakness and breakdown, and to political subversion. Then existing attempts to close those gaps are assessed, including intergovernmental cooperation, business ‘self-regulation’ and initiatives that involve nongovernmental organizations and supranational agencies in defining standards of conduct for companies and monitoring their compliance.

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Articles
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Government and Opposition , Volume 39 , Issue 2 , 2004 , pp. 234 - 259
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Copyright © Government and Opposition Ltd 2004

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References

2 UNCTAD, World Investment Report 2002: TNCs and Export Competitiveness, Geneva, United Nations, 2002.

3 Robert O. Keohane, ‘Global Governance and Democratic Accountability’, in David Held and Mathias Koenig-Archibugi (eds), Taming Globalization: Frontiers of Governance, Cambridge, Polity Press, 2003, pp. 130–57; 146.

4 Ibid., p. 139.

5 Barbara S. Romzek and Melvin J. Dubnick, ‘Accountability’, in Jay M. Shafritz (ed.), International Encyclopedia of Public Policy and Administration, Boulder, Westview Press, 1998, quoted in Robert D. Behn, Rethinking Democratic Accountability, Washington, DC, Brookings Institution, 2001, p. 4.

6 John Braithwaite and Peter Drahos, Global Business Regulation, Cambridge, Cambridge University Press, 2000, pp. 146–56.

7 David Held, Democracy and the Global Order, Cambridge, Polity Press, 1995.

8 Indeed, for many democratic theorists the main accountability deficit afflicting the large corporation is the insufficient accountability of managers towards the employees. See, for instance, Robert Dahl, A Preface to Economic Democracy, Berkeley and Los Angeles, University of California Press, 1985.

9 Susan Strange, The Retreat of the State: The Diffusion of Power in the World Economy, Cambridge, Cambridge University Press, 1996, p. 197.

10 James G. March and Johan P. Olsen, Democratic Governance, New York, Free Press, 1995, pp. 162–7.

11 Held, Democracy and the Global Order, op. cit., p. 224.

12 On accountability gaps see Keohane, ‘Global Governance and Democratic Accountability’, op. cit., p. 142.

13 Stephen D. Krasner, ‘Power Politics, Institutions, and Transnational Relations’, in Thomas Risse-Kappen (ed.), Bringing Transnational Relations Back In: Non-State Actors, Domestic Structures and International Institutions, Cambridge, Cambridge University Press, 1995, pp. 257–79.

14 Keohane and Ooms remarked that foreign investment has a right-wing bias and that under some circumstances it may ‘bolster the position of a government, strengthening its support among key elites and reducing the necessity to satisfy nonelite demands’, Keohane, Robert O. and Ooms, Van Doorn, ‘The Multinational Firm and International Regulation’, International Organization, 29: 1 (1975), pp. 169–209; 180.CrossRefGoogle Scholar

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19 John M. Kline, ‘Business Codes and Conduct in a Global Political Economy’, in Oliver F. Williams (ed.), Global Codes of Conduct: An Idea Whose Time Has Come, Notre Dame, University of Notre Dame Press, 2000, pp. 39–56.

20 Michael Hansen, ‘Environmental Regulation of Transnational Corporations: Needs and Prospects’, in Peter Utting (ed.), The Greening of Business in Developing Countries: Rhetoric, Reality and Prospects, London and New York, Zed Books, 2002.

21 Raymond Vernon, In the Hurricane's Eye: The Troubled Prospects of Multinational Enterprises, Cambridge, MA, Harvard University Press, 1998, p. 61. The range of policy responses to technological change is examined by Archibugi, Daniele and Iammarino, Simona, ‘The Policy Implications of the Globalisation of Innovation’, Research Policy, 28 (1999), pp. 317–36.CrossRefGoogle Scholar

22 Econometric studies suggest that FDI inflows contribute to long-term economic growth. Lipsey, Robert E., ‘Inward FDI and Economic Growth in Developing Countries’, Transnational Corporations, 9: 1 (2000), pp. 67–95;Google Scholar These studies also suggest that the impact of FDI on growth is marginal in countries with low levels of education, but becomes stronger as the level of schooling increases.

23 From the perspective of countries, capital has strong characteristics of a common pool resource, i.e. it is rival in consumption and non-excludable. This should make ‘competitive extraction’ the dominant mode of appropriation. See Alkuin Kölliker, ‘Competing for International Economic Commons: Towards a Collective Goods Theory of Regulatory Competition’, paper presented at the ECPR Joint Sessions, Edinburgh, 28 March–2 April 2003.

24 Strange, The Retreat of the State, op. cit., p. 197.

25 Indeed, expropriation and nationalization were a common risk associated with foreign investment, especially in Latin America and in oil-exporting countries. See Vernon, In the Hurricane's Eye, op. cit.

26 Garrett, Geoffrey, ‘The Causes of Globalization’, Comparative Political Studies, 33: 6/7 (2000), pp. 941–91.CrossRefGoogle Scholar But the importance of this factor for the bargaining power of states depends to a large extent on what is produced (e.g., mining, garments, banking): ‘If production can take place in any one of a number of countries, the ability to grant entry to any one country will not be worth much’. Krasner, ‘Power Politics, Institutions and Transnational Relations’, op. cit., p. 275.

27 Geoffrey Garrett, Partisan Politics in the Global Economy, Cambridge, Cambridge University Press, 1998.

28 In particular, international capital mobility does not seem to have pushed down capital taxation or forced governments to move to less progressive forms of taxation. Garrett, Geoffrey and Mitchell, Deborah, ‘Globalization, Government Spending and Taxation in the OECD’, European Journal of Political Research, 39 (2001), pp. 145–77;CrossRefGoogle Scholar Duane Swank, Global Capital, Political Institutions, and Policy Change in Developed Welfare States, Cambridge, Cambridge University Press, 2002.

29 Braithwaite and Drahos, Global Business Regulation, op. cit., pp. 267–70.

30 Vernon, In the Hurricane's Eye, op. cit., p. 58.

31 Hansen, ‘Environmental Regulation of Transnational Corporations’, op. cit., p. 171. In 1984 an accident at a subsidiary of the US company Union Carbide killed several thousand people in Bhopal, India.

32 Vernon, In the Hurricane's Eye, op. cit., pp. 30–7.

33 Ibid., p. 39. Moreover, through transfer pricing, companies are able to move their global profits to less demanding jurisdictions. Similarly, they can protect shareholders from liability in different countries by creating separate legal entities.

34 David Held, Anthony McGrew, David Goldblatt and Jonathan Perraton, Global Transformations, Cambridge, Polity Press, 1999, p. 269.

35 S. Prakash Sethi, Multinational Corporations and the Impact of Public Advocacy on Corporate Strategy: Nestle and the Infant Formula Controversy, Boston, Dordrecht and London, Kluwer Academic Publishers, 1994; Judith Richter, Holding Corporations Accountable: Corporate Conduct, International Codes, and Citizen Action, London and New York, Zed Books, 2001.

36 Panel of Experts on the Illegal Exploitation of Natural Resources and Other Forms of Wealth in the Democratic Republic of the Congo, Report, Transmitted by the UN Secretary-General to the UN Security Council on 12 April 2001, available at: (accessed 2 October 2003) http://www.un.org/News/dh/latest/drcongo.htm (accessed 2 October 2003).

37 In addition, TNCs of mercenaries participate in combat operations. See Christopher Cooker, ‘Outsourcing War’, in Daphné Josselin and William Wallace (eds), Non-State Actors in World Politics, Basingstoke, Palgrave, 2001, pp. 189–202.

38 Some of these episodes are narrated by Daniel Litvin, Empires of Profit: Commerce, Conquest and Corporate Responsibility, New York and London, Texere, 2003.

39 Daphné Josselin, ‘Back to the Front Line? Trade Unions in a Global Age’, in Josselin and Wallace, Non-State Actors in World Politics, op. cit., pp. 169–86.

40 On the concepts of precision, obligation and adjudication, see Judith L. Goldstein, Miles Kahler, Robert O. Keohane and Anne-Marie Slaughter (eds), Legalization and World Politics, Cambridge, MA, and London, MIT Press, 2001.

41 Held et al., Global Transformations, op. cit., p. 257. See also Keohane and Ooms, ‘The Multinational Firm’, op. cit.

42 Paz Estrella Tolentino, ‘Transnational Rules for Transnational Corporations: What Next?’, in Jonathan Michie and John Grieve Smith (eds), Global Instability: The Political Economy of World Economic Governance, London, Routledge, 1999, pp. 171–97.

43 Edward M. Graham, ‘Should there be Multilateral Rules on Foreign Direct Investment?’, in John H. Dunning (ed.), Governments, Globalization, and International Business, Oxford, Oxford University Press, 1997, pp. 481–505; 484.

44 Vernon, In the Hurricane's Eye, op. cit., p. 31.

45 See the annual overviews in the World Investment Reports issued by UNCTAD.

46 Sol Picciotto and Ruth Mayne (eds), Regulating International Business: Beyond Liberalization, Basingstoke, Macmillan, 1999. US business groups favoured negotiations within the OECD instead of the WTO as a way to sidestep opposition by developing countries, who would be presented with a fait accompli and invited to accept the rules. See Andrew Walter, ‘Unraveling the Faustian Bargain: Non-State Actors and the Multilateral Agreement of Investment’, in Josselin and Wallace, Non-State Actors in World Politics, op. cit., pp. 150; 159.

47 Tolentino, ‘Transnational Rules’, op. cit., lists 27 intergovernmental instruments concerning TNCs adopted between 1948 and 1998. The UN estimates that at least 35 international regulatory instruments, such as the Basle Convention on hazardous waste to the Montreal Protocol on ozone-depleting substances, constrain the activities of TNCs; but the effectiveness of international environmental law vis-à-vis TNCs is limited by its fragmented character and by the failure of many host countries to ratify the relevant agreements. Hansen, ‘Environmental Regulation of Transnational Corporations’, op. cit., pp. 172 and 183, n. 12. With regard to labour and other human rights, the (limited) role of the UN agencies in holding corporations accountable is reviewed by David P. Forsythe, The Political Economy of Human Rights: Transnational Corporations, Human Rights Working Papers, 2001, available at http://www.du.edu/humanrights/workingpapers/index.html.

48 Hansen, ‘Environmental Regulation of Transnational Corporations’, op. cit., pp. 164–6. Ian H. Rowlands discusses under which conditions TNCs are particularly influential in his ‘Transnational Corporations and Global Environmental Politics’, in Josselin and Wallace (eds), Non-State Actors in World Politics, op. cit., pp. 133–49.

49 Simon Heap, NGOs Engaging with Business: A World of Difference and a Difference to the World, Oxford, INTRAC, 2000; Peter Newell, ‘Campaigning for Corporate Change: Global Citizen Action on the Environment’, in Michael Edwards and John Gaventa (eds), Global Citizen Action, London, Earthscan, 2001, pp. 189–201.

50 Keohane and Ooms, ‘The Multinational Firm’, op. cit., p. 184.

51 Mathias Koenig-Archibugi, ‘Mapping Global Governance’, in David Held and Anthony McGrew (eds), Governing Globalization: Power, Authority and Global Governance, Cambridge, Polity Press, 2002, pp. 46–69; 62.

52 Gary Gereffi, Ronie Garcia-Johnson and Erika Sasser, ‘The NGO-Industrial Complex’, Foreign Policy, 125 (2001).

53 See Malcolm McIntosh, Ruth Thomas, Deborah Leipziger and Gill Coleman, Living Corporate Citizenship, Harlow, FT Prentice Hall, 2003. These authors add foundation standards to this list.

54 Ronie Garcia-Johnson, ‘Multinational Corporations and Certification Institutions: Moving First to Shape a Green Global Production Context’, paper for presentation at the International Studies Association Convention, 20–4 February 2001, p. 12.

55 OECD, Codes of Corporate Conduct – An Expanded Review of Their Contents, Paris, OECD, 2000; Kolk, Ans, Van Tulder, Rob and Welters, Carlijn, ‘International Codes of Conduct and Corporate Social Responsibility: Can Transnational Corporations Regulate Themselves?’, Transnational Corporations, 8: 1 (1999), pp. 143–80;Google Scholar Rhys Jenkins, Ruth Pearson and Jill Seyfang (eds), Corporate Responsibility and Labour Rights: Codes of Conduct in the Global Economy, London, Earthscan, 2002; Rhys Jenkins, ‘Corporate Codes of Conduct: Self-Regulation in a Global Economy’, in UNRISD (ed.), Voluntary Approaches to Corporate Responsibility, Geneva, UN Non-Governmental Liaison Service, 2002, pp. 1–59.

56 Jenkins, ‘Corporate Codes of Conduct’, op. cit., p. 38; Peter Utting, ‘Regulating Business via Multistakeholder Initiatives: a Preliminary Assessment’, in UNRISD, Voluntary Approaches to Corporate Responsibility, op. cit., pp. 61–130; 70.

57 Ibid., p. 71.

58 Very few company codes include provisions for independent monitoring. See OECD, Codes of Corporate Conduct, op. cit., p. 35, and Kolk et al., ‘International Codes of Conduct’, op. cit., p. 168.

59 Jenkins, ‘Corporate Codes of Conduct’, op. cit., p. 20.

60 Garcia-Johnson, ‘Multinational Corporations’, op. cit., p. 8.

61 Virginia Haufler, A Public Role for the Public Sector: Industry Self-Regulation in a Global Economy, Washington, DC, Carnegie Endowment for International Peace, 2001; Ronit, Karsten and Schneider, Volker, ‘Global Governance through Private Organizations’, Governance, 12 (1999), pp. 243–66.CrossRefGoogle Scholar

62 Hansen, ‘Environmental Regulations of Transnational Corporations’, op. cit., p. 177.

63 Haufler, A Public Role for the Public Sector, op. cit., p. 33.

64 King, Andrew and Lenox, Michael, ‘Industry Self-Regulation without Sanctions: The Chemical Industry's Responsible Care Program’, Academy of Management Journal, 43: 4 (2000), pp. 698–716.Google Scholar

65 Tim Bartley, ‘Certifying Forests and Factories: States, Social Movements, and the Rise of Private Regulation in the Apparel and Forest Products Fields’, Politics and Society, forthcoming.

66 See also the articles by Thorsten Benner, Wolfgang Reinicke and Jan Martin Witte and by Thomas Risse in this issue.

67 Utting, ‘Regulating Business’, op. cit., p. 66.

68 Kimberly Ann Elliott and Richard B. Freeman, Can Labor Standards Improve Under Globalization?, Washington, DC, Institute for International Economics, 2003.

69 John Gerard Ruggie, ‘Taking Embedded Liberalism Global: The Corporate Connection’, in David Held and Mathias Koenig-Archibugi (eds), Taming Globalization: Frontiers of Governance, Cambridge, Polity Press, 2003; McIntosh et al., Living Corporate Citizenship, op. cit., pp. 125–217. The Global Compact is strongly criticized by Kenny Bruno and Joshua Karliner, Earthsummit.biz: The Corporate Takeover of Sustainable Development, Oakland, CA, Food First Books, 2002.

70 Ruggie, ‘Taking Embedded Liberalism Global’, op. cit., p. 113. On the possibility of persuasion and learning in international affairs see the article by Thomas Risse in this issue.

71 The then Secretary-General of the International Chamber of Commerce, Maria Livianos Cattaui, stated that ‘Business would look askance at any suggestion involving external assessment of corporate performance, whether by special interest groups or by U.N. agencies’, ‘Yes to Annan's “Global Compact” If It Isn’t a License to Meddle’, International Herald Tribune, 26 July 2000, quoted by Bruno and Karliner, Earthsummit.biz, op. cit., p. 53.

72 Dara O’Rourke, ‘Monitoring the Monitors: A Critique of Corporate Third-Party Labour Monitoring’, in Jenkins, Pearson and Seyfang, Corporate Responsibility and Labour Rights, op. cit.

73 Utting, ‘Regulating Business’, op. cit., p. 82.

74 Ruth Mayne, ‘Regulating TNCs: The Role of Voluntary and Governmental Approaches’, in Picciotto and Mayne, Regulating International Business, op. cit., p. 247; Ronnie D. Lipschutz and Cathleen Fogel, ‘ “Regulation of the Rest of Us?” Global Civil Society and the Privatization of Transnational Regulation’, in Rodney Bruce Hall and Thomas J. Biersteker (eds), The Emergence of Private Authority in Global Governance, Cambridge, Cambridge University Press, 2002; Utting, ‘Regulating Business’, op. cit., p. 80.

75 Hansen, ‘Environmental Regulation of Transnational Corporations’, op. cit., p. 177; interview, Anti-Slavery International.

76 Kline, ‘Business Codes and Conduct’, op. cit., p. 42.

77 It should be noted, however, that US courts are examining cases in which companies are accused by consumers of misrepresenting working conditions in their supply chains in promotional material.

78 Especially since the internet has intensified what Debora Spar calls the ‘spotlight’ phenomenon. Spar, ‘Foreign Investment and Human Rights’, op. cit.

79 Held, Democracy and the Global Order, op. cit.

80 Braithwaite and Drahos, Global Business Regulation, op. cit., p. 615. On the role of persuasion and learning in transnational relations see the article by Thomas Risse in this issue.

81 Ibid., p. 10.

82 Gereffi et al., ‘The NGO-Industrial Complex’, op. cit.

83 Norms on the Responsibilities of Transnational Corporations and Other Business Enterprises with Regard to Human Rights, UN Doc. E/CN.4/Sub.2/2003/12/Rev.2 (2003), approved by the UN Sub-Commission on the Promotion and Protection of Human Rights on 13 August 2003, available at http://www1.umn.edu/humanrts/links/norms-Aug2003.html (accessed 2 October 2 2003).

84 See the articles by Michael Zürn and David Held in this issue.