The Corporate Ethics Crusade

THE BEST INTENTIONS

Are multinational enterprises getting religion? So it seems. Around the world, corporate codes of conduct on human rights, labor standards, and environmental performance are proliferating. These codes reflect the growing pressure being placed on firms by nongovernmental organizations (NGOs), activist shareholders, and the portfolio managers of "socially responsible" investment funds. A veritable corporate ethics crusade has been launched, and it has been surprisingly successful in forcing executives to take its concerns into account.

But ample reason exists for raising some red flags about this movement. The major parties involved -- multinational firms and NGOs in industrialized nations -- are beginning to forge a symbiotic relationship that could actually harm the least powerful actors in the world economy, including developing countries, small and medium-sized enterprises, and the poor everywhere.

Consider the linkage of labor and environmental standards to multilateral trade agreements. Improving working conditions and air and water quality are laudable goals, and firms should do so whenever it is economically and technically feasible. NGOs can usefully contribute to that process by providing governments and firms with information, advice, and policy alternatives. But forcing the standards of industrialized nations on developing countries and the firms that operate in them could backfire by reducing investment and job creation. More workers would be chased into the informal economy, which has even lower standards, if any at all.

Activists who wish to establish ethical codes need to reconcile their aspirations with the fact that most nations do not generally share common laws or regulations on labor rights and the environment. Differing levels of wealth explain much of this divergence, but the peculiarities of political systems and social organizations have also left their normative footprint. The ethics crusade represents, in effect, an attempt by one group to impose its values on other groups. Far from making economic relations more harmonious, that effort could lead to greater conflict.