Role of the U.S. Government in Promoting Global Corporate Responsibility

The subject is a challenging one. Globalization is creating a surge in the movement of goods and services, of people and capital, of ideas and technology. Those corporations that are active internationally -- and nearly all corporations are now active internationally

-- are creating a global marketplace. This global marketplace is a powerful force for creating wealth and raising living standards around the world. At the same time, it is raising challenging issues for executives and policy officials.

Long before globalization was in vogue, smart corporate executives realized that it was important to project to customers, shareholders, employees, regulators, and the general public a strong sense of the values and principles that animated their organization. Twenty years ago an American corporation recalled 31 million bottles of pain reliever after discovering that a single bottle of tablets had been tampered with. By demonstrating its absolute commitment to the safety of its customers, the corporation built a reputation for integrity that over time has paid off on the bottom line.

A successful corporation wants its name and its brands to convey a promise of value. In today’s global marketplace, the promises that corporations make, implicitly and explicitly, extend to customers, shareholders, employees, regulators, and citizens all around the world.

Corporate responsibility issues have come to the fore in part because of the concerns about globalization. A generation ago these concerns were expressed most prominently in developing countries. The OECD Guidelines on Multinational Enterprises arose in the 1970s in large part because of developing country concerns about foreign investment. While these concerns are still being expressed, more and more developing countries today actively court foreign investment.

Today, the concerns about foreign investment more frequently come from developed countries. Some fear that investment abroad exports jobs from locations with high standards of environmental protection, labor practices ,and human rights to locations with lower standards in these areas.

In addressing these issues, business executives confront challenges that will, I suspect, only become more acute as globalization proceeds. While the marketplace may be global, many of the rules that corporations operate under are local jurisdiction. These local rules must be respected, but respect for local law cannot be the beginning and the end of corporate responsibility.

,

Moreover, economic, social and political conditions vary widely around the world. Indeed, the benefits of international trade arise largely as a result of differences: global corporations create wealth by organizing production, distribution, and consumption in a manner that takes into account differences in resource endowments and in relative prices of labor and capital. But which differences can legitimately be taken into account? And what are the respective responsibilities of business and government in delineating appropriate corporate conduct?

I personally am inclined to the view that the first responsibility of corporate executives is to maximize shareholder value. And in any event, so long as there is an efficient market in corporate control, a CEO that does not maximize shareholder value will very quickly become an ex-CEO.

This does not mean that corporate executives should be interested only in profits, and not at all in the well-being of people or the health of the planet. Rather, it means that in a global marketplace where reputation matters deeply, shareholder value depends more than ever on corporate values. CEO leadership involves recognizing and projecting this reality.

Many argue sustainable development, not GNP, is the appropriate yardstick for societies. Sustainable development is still a loosely defined concept but it attempts to capture two important notions: first, that any plausible definition of well-being includes social, environmental, and economic elements and second, that a responsible approach to promoting well-being requires an appropriate concern for the future.

"Sustainable profits" is not yet a concept to which accountants could give operational meaning. Nevertheless, good executives know that capital markets already make judgments about how well a company and its employees are positioned for the future. And while no company by itself can change the economic, social, or political environment it confronts, corporations have an interest in doing what they can to improve the environment in which they operate. They also can increase shareholder value by communicating to shareholders, employees, customers, regulators, and the general public how it is practicing environmental stewardship and social consciousness in its operations.

The State Department has been trying to highlight good corporate leadership through the granting of an annual award for Corporate Excellence.

One winner invested in community empowerment projects in Brazil, supported indigenous culture and built schools, a hospital and even an Olympic village.

Another winner invested heavily in environmental improvement and pursued a range of social activities including a program for homeless and abused children in Uruguay.

An American bank in El Salvador developed a training program for local officials to create new techniques in fighting corruption.

By highlighting these and other examples, the State Department is trying to make a very simple point. American corporations abroad are among our Nation’s best Ambassadors. They export not only American products but also American values.

In addition to cheerleading -- and I am an enthusiastic cheerleader -- governments may have a role in helping to sort out appropriate standards for corporate behavior -- in cooperation with businesses and groups like trade union and nongovernmental organizations. Some of the issues business executives confront today have no easy answer. Guidelines worked out with other stakeholders can shed light on such issues, increase credibility, and help executives work their way through difficult situations.

The OECD Guidelines on Multinational Enterprises recently were updated through just such a process. They address a comprehensive range of issues including the environment, labor, human rights, bribery, consumer interests, competitio, and disclosure. At a time when codes of conduct are proliferating, the OECD Guidelines enjoy the distinction of having the support of all OECD member countries.

It is important that corporate codes, including the OECD Guidelines, retain their voluntary character. The OECD Guidelines represent a benchmark --and one, by the way, that most American companies easily exceed -- but they should not slide into a form of regulation or become a litmus test governing access to government programs.

Where standards are necessary, governments should act directly. I believe, for example, that all export credit agencies should impose strict environment guidelines like those of the World Bank and the International Finance Corporation (IFC) for taxpayer assisted projects. The right way to accomplish this is to complete the current government-to-government negotiations in the OECD, not to require firms to endorse a certain corporate responsibility in order to benefit from the assistance of national export credit agencies (ECAs).

Similarly, as a matter of government policy the U.S. Overseas Private Investment Corporation will only support projects in counties that are taking steps toward meeting internationally recognized core labor standards. Similar organizations in other countries should adopt this policy.

Certain activities should be illegal. The OECD Anti-Bribery Convention requires countries which are party to the convention to criminalize bribery of public officials in international business transactions. Corporate compliance measures are an important element but government action is needed to make anti-bribery rules effective.

There are other areas where governments should act to discourage certain behavior through a combination of legal restrictions and the withholding of benefits. In 1998, for example, the U.S. and EU reached an Understanding that would inhibit and deter, and in the future ban, investments in properties that have been expropriated in a fashion inconsistent with international law. I believe this arrangement should be implemented promptly.

Some environments may be so difficult that governments should tell companies they may not invest. The U.S., for example, bans investment in Sudan. We do not think there is any way, in the environment now prevailing there, for corporations to behave responsibly except by getting out.