Abstract

This report analyses the statement: ‘In the light of current global issues, should mandatory or voluntary international regulations/guidelines be applied to enhance international corporate responsibility?’ The study made use of secondary sources obtained from peer reviewed journal articles and textbooks. Differences between international mandatory and voluntary CSR regulations are discussed, which is followed by a discussion of the strengths and limitation of each method of CSR regulation. This is followed by a critical evaluation and a justification of the need of international mandatory regulation in regulating the corporate culture of multinational corporations. The conclusion is that in light of current global issues mandatory international regulations/guidelines can be applied to enhance international corporate responsibility.

It is recommended that the mandatory international regulations should be adopted to strengthen domestic CSR regulatory frameworks rather than replacing or weakening them.

 

 

 

 

 

 

 

 

 

Introduction

The onset of globalization increased the significance of corporate social responsibility (CSR) at the international level (Banerjee 2002). This is because the global community is currently faced with numerous social environmental choices on an unmatched scope, resulting in the need to formulate effective global governance. Business is a significant factor that affects both the creation and solution of environmental and social challenges at the global level. As a result, business is increasingly becoming criticised as playing a vital role in inflicting social and environment damages due to reckless strategies to increase profitability while impeding the attempts aimed at the establishment of legal frameworks for governing the global economy (Dunning 2009). On the contrary, the increasing popularity of international CSR points out a shift in the norms, whereby business enterprises are accepting responsibility for their actions by changing their business practises voluntarily. According to Hart (2007), the opposing viewpoints pose the need to evaluate whether international CSR regulations should be mandatory or voluntary. This paper argues that mandatory international regulations should be applied to enhance corporate social responsibility at the global level. In order to infer the conclusion, the paper provides a comprehensive discussion of voluntary and mandatory regulation of CSR, and the benefits and limitations of both voluntary and mandatory regulation of CSR.

Differences between Mandatory and Voluntary Regulation of International CSR

There are numerous driving factors for CSR including public pressure, compliance with government regulation, self-interest of the firm and pressure from non-governmental organizations (Lantos 2007). It is evident that corporations can decide on their own to self-regulate their corporate practises to address some of the CSR drivers such as public pressure and non-binding regulations. Such an approach to CSR is referred to as voluntary CSR, whereby the choice of corporate practises is at the discretion of the corporations (Meehan, Meehan & Richards 2006). On the contrary, compliance with international regulations and legislations is termed mandatory CRS, which forces corporations to participate in the specified CSR practises (McInerney 2007).

Masaka (2008) asserts that besides the distinction between voluntary nature of non-binding regulations and binding nature of international legislations and regulations, other forces are likely to create mandatory CSR practises without the need for legal intervention by the government. For instance, CSR practises are likely to become mandatory as prerequisites for conducting business. In addition, corporations may also engage in specified CSR practises via contractual agreements with their respective suppliers and other firms. Such contractual arrangements are presented in the firm’s corporate code of ethics, requiring their partners to adhere to the established CSR standards before engaging in business (Logsdon & Wood 2005). Whereas such CSR approaches are accepted by the corporation when engaging in contractual negotiations, after the execution of the contractual agreement, such terms are binding to the parties to the contractual agreement. Additionally, some scenarios compel corporations to bind themselves to agree with the CSR practises established by their business partners (Hart 2007). The following section discusses the benefits and limitations of voluntary and mandatory regulations as paradigms to enhance corporate social responsibility at international level.

Strengths and Limitations of Mandatory CSR

Strengths

Whereas numerous international organizations like the European Commission have adopted voluntary regulations of CSR, other countries like Denmark have established mandatory legislations that define the minimum requirements of CSR practises. Canada is also implementing mandatory legislative measures of CSR that are supposed to regulate corporate behaviour of Canadian mining corporations that are carrying out their business operations in developing nations. Such mandatory regulations, irrespective of their sources, impose significant benefits in enhancing corporate social responsibility at the international level.

The precise distinction between international mandatory CSR regulations and voluntary regulations lies on the enforceability of mandatory CSR regulations (Wettstein & Waddock 2005). Mandatory CSR regulations and guidelines are derived from international and domestic legislations, implying that the mode of enforceability is binding and outlined in the legislative document. Waddock (2004) points out that failure to observe international mandatory CSR regulations impose negative consequences to the corporations, implying that corporations have the legal obligation of complying with the legislations of CSR. The aspect of enforceability associated with mandatory CSR regulations is a significant advantage that can be deployed to enhance compliance with corporate social responsibility practises at the international level (McInerney 2007).

Mandatory international CSR regulations are characterised by penalization of the corporations that breach the minimum CSR requirements. This serves to enhance higher levels of compliance with the mandatory CSR needs. For instance, penalization may take the form of huge monetary penalties that may be costly to the corporation. As a result, it is within the interest of international corporations to adhere proactively to the established mandatory CSR standards by avoiding economic and legal liabilities. The capacity to penalize corporations that do not comply is especially important in cases where there is the need to compel corporate CSR requirement that is less likely to be initiated voluntarily. Such scenarios may be witnessed whereby the CSR requirements will need drastic changes in the business practices to address social and environmental concerns (Schwarz & Carroll 2003). In addition, the enforceability of mandatory CSR regulations applies uniformly to all corporations that are subject to a CSR standard, this helps in eliminating cases associated with refusal of adopting voluntary CSR initiatives.

Limitations

There are numerous limitations associated with the use of mandatory CSR regulations that are formulated from international and domestic legislative processes. Masaka (2008) argues that mandatory CSR standards usually take a long time to implement compared to voluntary CSR initiatives. The mandatory standards are less speedy in implementation because legislative processes are typically time consuming. This implies that mandatory CSR regulations are not effective and less responsive in addressing quickly evolving CSR issues (Rowe 2006). Furthermore, it is also apparent that international legislative regulations tend to be less customized to meet the industry requirements in terms of size of corporations and sectors. Ironically, the potential for penalisation and enforceability have been highlighted as strengths of mandatory international regulations in enhancing CSR, the same attributes result in drawbacks. For example, in relation to regulation, the costs associated with enforceability are incurred by the government or the international regulating authority, implying that scarce enforcement resources are likely to result in increase CSR evasion by corporations. In addition, it has been established that monetary penalties are not sufficient to guarantee compliance in all cases. This is because corporations are likely to perceive such costs like any other business expenses. In such situations, it is apparent that mandatory CSR regulations may not be sufficient to standardize corporate behaviour (Rowe 2006).

The Strengths and Limitation of Voluntary Regulation in Enhancing International CSR

Strengths

            In the recent years, voluntary regulatory frameworks for enhancing compliance with CSR standards have increased. Since they are formulated without legislative process, Masaka (2008) asserts that they are likely to be implemented and adopted more quickly when compared to mandatory CSR legislations. As a result, voluntary CSR initiatives provide a means for addressing sudden emerging CSR issues at the global level. In addition, the voluntary CSR guidelines are usually adopted and implemented privately; this implies that there is no need for administrative and financial support from the government and regulatory bodies to be implemented (Dunning 2009).

The absence of legislative processes increases the capacity of voluntary CSR standards to be customized to address the CSR needs of the target industries (Banerjee 2002). This is because voluntary CSR guidelines are drafted, adopted and implemented by the industries and corporations that intend to use them. The adaptability of voluntary CSR standards to meet corporate needs have the capability of encouraging greater compliance and speedy adoption and implementation. The process of drafting, implementation and adoption of voluntary CSR standards is likely to motivate cultural changes within corporations, which in turn encourages proactive actions by the corporation’s management for implementing the standard (Meehan, Meehan & Richards 2006).

Limitations

Whereas voluntary CSR standards have numerous strengths, they have been subject to criticism because of their non-binding feature, which has resulted in the questioning of their effectiveness in enhancing corporate social responsibility practice (Wettstein & Waddock 2005). A study conducted by Organization for Economic Cooperation and Development reported that few voluntary CSR standards to address environmental issues have performed in accordance to their expected outcomes (Rowe 2006). There are numerous explanations for the absence of effectiveness of voluntary CSR. First, because of their voluntary implementation and adoption, there is the likelihood that voluntary CSR regulation will not capture all the corporations in the global industry. This problem is extreme in cases where those corporations that resist the implementation of voluntary CSR practises are the worst performers in that particular CSR requirement (Baum 1996). In addition, lack of enforceability and penalization implies that even corporations that have implemented voluntary CSR standards are likely to disregard it when business interests supersede the CSR motivations.

Problems with voluntary CSR regulation are likely to arise when the guidelines are drafted by the industry members and do not meet the social and environment requirements that they are supposed to address (Dunning 2009). Nevertheless, the inefficiency in voluntary standards can still be deployed to gather public support. Masaka (2008) points out that the most damaging impact of voluntary CSR is that their existence can be used by corporations as a framework for refusing to adopt mandatory regulations and legislations. In such circumstances, ineffective voluntary actions can be used to prevent meaningful actions in CSR practice.

A Critical Evaluation

A critical evaluation of voluntary CSR reveals that using a voluntary approach to enhance compliance is bound to produce minimal results if CSR issues such as human rights and environmental protection are significantly valued. In addition, the functioning of voluntary CSR is not compatible with the internationalization of CSR. Under the voluntary regulation of CSR, it is evident that corporations will adopt CSR practises that are in line with their economic interests (Rowe 2006). Voluntary CSR can enhance compliance, but serves to undermine the value concept associated with CSR. In addition, voluntary CSR regulations depend on spontaneous drivers, which is contrary to the binding international regulations.

The ineffectiveness of voluntary CSR regulation is that impeded by the business globalization that has increased global commerce and law making. International regulation aims at establishing a mandatory global regulatory framework that is applicable directly to corporations (Lantos 2007). This can be argued to be an effective solution to the financial constraints associated with state regulation of CSR, especially during times which state-based monitoring and regulation is increasingly becoming obscured. The mandatory international CSR regulation creates CSR norms that are standardised and applicable across numerous jurisdictions. This approach can be used to enhance CSR compliance and improve the effectiveness of international CSR practises. Justification for use of voluntary international CSR bases on the assumption that many countries lack the capacity and capability of fulfilling their obligations to ensure enforceability of international legislations; as a result, the solution lies in the establishment of an alternative system to eliminate inappropriate corporate practises from taking place. However, the solution to this problem lies in the strengthening of international institutions. Therefore, voluntary regulation can be viewed as a side step to mandatory international regulations. The ideology that states embark on international voluntary CSR as a method of regulating corporate culture in aspects such as the environment, human rights and labour is based on an erroneous assumption. It is apparent that globalization of trade and production is inevitable and less likely to stop in the near future; this poses the need to have a universal mandatory CSR regulation mechanism that is applicable in various jurisdictions without jeopardizing compliance and promoting evasive behaviour (Lantos 2007).

The Need for Mandatory International Regulation of Multinational Corporations

CSR practices established by international regulations are useful if they have provisions that can be used for monitoring the adoption of CSR and penalization that cannot be applied effectively by the individual countries. Irrespective of the constraints associated with international regulation, empirical research has revealed that multinational corporations are in favour of international regulations and legislations (Dunning 2009). In addition, multinationals are of the opinion that using mandatory international regulation to ensure compliance with social and environmental obligations are acceptable. For example, it is apparent that numerous companies have embraced the notion of compliance with the four fundamental social rights established by the 1998 Declaration by the International Labour Organization (Waddock 2004). Multinationals have shown a significant interest in mandatory international regulation and legislation for monitoring the application of established CSR standards by numerous international bodies such as the ILO.

Without a doubt, it is essential not to undermine the risk that corporations and employee organizations will lose their power in implementing and monitoring CSR practises in the context of complex ramifications associated with multinational corporate networks (Hart 2007). It is increasingly becoming evident that corporations are becoming unable to monitor and implement CSR standards on their own for reasons associated with efficiency and resources. Corporations are increasingly recognizing the need for reinforcing government-monitoring methods that are functional above the controls of the company. An example is the establishment of international inspection organizations for particular sectors. In addition, the successes attained in companies are less likely to be applied except in cases whereby a public body takes action. Both corporations and employee organizations hold the view that social rights can only be generalized using a public norm. This implies that CSR standards are less likely to be sustainable without the involvement of mandatory international regulation.

Mandatory international regulations imply that corporations are faced with legal and economic risk of non-compliance with the commitments on CSR practises. This result in increased attention towards the issues that resulted in the creation of CSR practises, which involves implementation and monitoring of international standards with the main objective of ensuring that social rights and environmental responsibilities outlined in international legislations are in fact applied in reality. Nevertheless, this does not resolve the issue associated with legal liability of multinational corporations, which can be addressed using two primary ways including extraterritorial application of national liability laws and indirect or international legislation with direct effect, and the establishment of direct or direct liability (Meehan, Meehan & Richards 2006).

Conclusion and Recommendations

This paper has conducted a critical evaluation of the strengths and drawbacks of both voluntary and mandatory international regulations in enhancing corporate social responsibility. It has been established that international mandatory CSR regulations can be applied international corporate responsibility. The strength of mandatory regulation in enhancing CSR compliance based on the aspects of enforceability and penalization for corporations that do not comply with the minimum CSR requirements. In the wake of trade globalisation, it is vital not to underestimate the role of state regulation for CSR practises. It is recommended that the mandatory international regulations should be adopted to strengthen domestic CSR regulatory frameworks rather than replacing or weakening them. A fact is that international voluntary CSR regulation serve to undermine the state CSR regulation mechanisms. Therefore, in light of current global issues mandatory international regulations/guidelines can be applied to enhance international corporate responsibility.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

References List

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