Courtesy Reuters

Ethical Enterprise

By Allen L. White

To the Editor:

What Ethan B. Kapstein labels "The Corporate Ethics Crusade" (September/October 2001) is, in fact, something much broader and deeper than a campaign driven by self-appointed Northern ethicists. It is a gradual redefinition of the corporate "license to operate" in the twenty-first century.

To begin, we must shed the idea that the corporate ethics agenda is driven solely by altruists from nongovernmental organizations (NGOS). Although Greenpeace, Amnesty International, and the U.S. National Labor Committee have amply demonstrated their influence, governments and mainstream financial institutions are now central to the rising tide of expectations that is reshaping corporate behavior. Furthermore, corporate ethics advocates are found not only in industrial nations but also in key emerging nations such as Brazil and India.

Responsible behavior is not only a goal of the altruists, it is integral to fiduciary responsibility, to compliance with evolving governmental securities regulations, and to protecting shareholder value. When international labor standards are violated, for example, it is not just workers who are placed at risk. Investors might see corporate reputations damaged, brands tainted, products boycotted, and workers striking. That is why the United Kingdom, France, Denmark, the Netherlands, and Japan have launched initiatives to mandate or create strong incentives for the disclosure of information on corporate social and environmental performance. In France, a May 2001 law required such disclosures alongside conventional financial statements for all companies listed on the Paris stock exchange.

Pressures for enhanced disclosure are intensifying in developing nations as well. In Brazil, two NGOS -- Instituto Ethos and IBASE -- are advancing corporate disclosure using the homegrown model known as "social balance" accounting. Some 270 firms already prepare reports along these lines. Moreover, the Brazilian government securities commission

has issued an advisory that recognizes the utility of social and environmental information as a valuable supplement to conventional financial reporting. In India, high-profile NGOS such as the Centre for Science and Environment, Development Alternatives, and the TATA Energy Research Institute are active advocates of new forms of corporate measurement and disclosure.

As Kapstein points out, the unintended effects of rigidly imposing Northern performance standards on developing countries may deepen global inequities. But this outcome is not inevitable. A disclosure standard is not the same as a performance standard. The right mix of global disclosure standards, capacity-building and financial assistance to support preparing such reports, and local flexibility in setting and assessing performance standards can help ensure that the fruits of globalization are shared by a broad spectrum of company stakeholders -- including, but not limited to, those who invest in the enterprise.

Allen L. White

Director, Global Reporting Initiative

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