Can Corporate Social Responsibility Raise Labor Standards Accounting Essay

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Over the past few years, corporate social responsibility (CSR) has become proliferated among many companies to voluntarily govern their business practices, extending its capacity into the range of the preceding direct intervention by states (Bartley, 2005; Broomhill, 2007). With the lack of international governance (Cohen & Sabel, 2006) and the decreased influence from public authorities, various codes of conduct as the primary means of voluntary CSR initiatives have been introduced in great number so as to encourage active commitment of both TNCs and sizeable domestic firms (Mamie, 2004). However, in spite of the remarkable progress in the compliance of the external value, the effectiveness of CSR norms to enhance the internal corporate value in certain labor standards and rights have been undermined by several challenges under the global supply chain (Pedersen & Andersen, 2006; Locke et al., 2007). The objective of this essay, therefore, is to critically trace the question regarding to what extent CSR is reliable in raising labor standards. Foremost, there will be a brief review about what CSR is. Next, it will propose the multiple CSR codes of conduct related to labor practices as the essential background. Third, the effectiveness of voluntary CSR initiatives towards labor standards will be critically discussed. Finally, the notion to conclude this argument will be suggested.

Even though CSR is currently considered a commonly used term, it may be somewhat difficult to define clearly as a universal concept (Crowther & Bacchus, 2004), because the definition has frequently changed under various circumstances (Broomhill, 2007; Moon, 2004). With respect to this, a recent study by Xiaoyong (2006) demonstrates that each business sector cannot help but necessarily pursue different approaches in CSR, having different goals while practicing business activities in the event that the interpretation of CSR principles can vary according to the expectation or pressure from its community involved (WBCSD, 2000). However, there has been a general consensus that CSR refers to business behaviors in order to either voluntarily fulfill or exceed the current regulatory requirements and minimal social engagement, interacting with stakeholders in the market (Haufler, 2001; Xiaoyong, 2006; Neal, 2008). Further, CSR may embrace several implications into the observance of legal codes despite the limited capacity of statutory frameworks, compliance with global standards, and implementation of the codes of conduct that is a set of stated corporate standards or principles (Burkett & Gilbert, 2005), and the codes of conduct as most representative instruments for voluntary CSR often include detailed instructions of practices in different contexts and the changing environment (Braithwaite & Drahos, 2000; Jenkins, 2001).

Entering the 1990s, as the CSR initiative related to labor practices of suppliers in developing countries started to receive greater attention along with the rapid growth of TNCs and foreign direct investment (FDI) in global supply chains in contrast to the less willingness of authorities to control markets, many voluntary codes of conduct were introduced through the attempt to improve labor standards and working conditions (Xiaoyong, 2006). The development of those multiple self-regulatory codes has been stimulated by the rising influence generated by firms in their own industrial associations; states or intergovernmental organizations; consumer groups; relevant stakeholders including trade unions, employees, or investors; and other social pressure parties such as NGOs (Jenkins, 2001; Xiaoyong, 2006; Varley, 1998). Meanwhile, despite the detailed instruction to regulate labor standards in diversity, the foundation of the majority of codes is likely to be incorporated with ILO Core Labor Conventions and Fundamental Standards (Van Tulder & Kolk, 2001).

In general, those codes may be categorized in five groups, including company codes (e.g., Nike, Levi’s & Co.), trade association codes (e.g., the British Toy and Hobby Association, the Kenya Flower Council Code), multi-stakeholder codes (e.g., ETI, FLA, WRAP, CCC), model codes (e.g., ICFTU: Basic Code of Labor Practice, ICC: Guidebook for Responsible Business Conduct), and intergovernmental codes (e.g., UN: Global Compact, OECD: Guidelines for Multinational Enterprises, ILO: Tripartite Declaration of Principles concerning MNEs), according to Mamie (2004: 43-35). In addition, for effective implementation, the system to supervise voluntary codes normally consists of several activities within the version of internal, external, independent, and sometime hybrid monitoring.

Over the past years, the issue about whether CSR initiatives have the potential to enforce labor standards in global supply chains continues to provoke both puzzlement and heated argument regarding effectiveness and limitation. On the one hand, some critics argue that voluntary CSR initiatives are not essentially planned to preserve labor standards but to provide opportunism in a shrewd way (Esbenshade, 2004). On the other hand, the supporters strongly insist that labor rights and conditions can be strengthened through the CSR initiatives as a flexible approach, replacing the role of the less capable authorities in developing states along with economic incentives mostly connected with reputation (O'Rourke, 2003; Bartley, 2005; Nadvi & Waltring, 2004). In the case of Nike, which suffered serious reputational damage, their arguments propose that companies cannot but answer for the pressure parties (e.g., Clients, Partners, NGOs, investors, etc.), and firms are voluntarily motivated to perform decent labor practices within economic rationality so as for sustaining constructive reputations (Son & Lim, 2005). However, these assumptions involve several serious challenges.

Firstly, while applying CSR norms to four types of positions in the regulatory classification model suggested by Baldwin & Cave (1999), the logic based on the economic benefit is self-contradictory from the fact that it seeks solutions on the principles of market whilst CSR initiatives aim to improve market failure (Prosser, 1997 cited in Mclnerney, 2007: 184).

Many critical works support this view, highlighting the fact that although certain companies might be sensitive to the pressure, devaluation of share prices, and dishonor caused by irresponsible activities, those incentives may not to contribute to the lead in the high level of labor standards and practices due to the mechanism excessively depending on market forces along with serious rational limitations. Regarding the proponents’ rationality that the CSR mechanism is sufficient to stand alone based on the market forces, the most persuasive case would be both position A and B in that CSR will play the advisory role to voluntarily improve labor standards, responding to external pressures and economic stimuli. Yet, many are very skeptical that firms listed in both C and D will not only fully propel the voluntary CSR compliance but will also readily enforce their labor standards, because, in general, the effectiveness of the voluntary regulation system by a corporate conscience has lain in the problem of free-riders while looking at the empirical evidence (Maitland, 1985: 132). In this sense, Mclnerney (2007: 186) stressed an extensive range of compliance research that reveals that self-regulation standards are not always self-enhancing, although it has convincing incentives. This opinion can be supported by some preliminary works. Cameron (2007: 153) maintained that, although the voluntary corporate commitment is not merely caused by the risk of penalty, a certain degree of sanction is inevitable for companies to conform. In other words, companies in fierce competition would try to avoid decent CSR implementation by shrewd opportunism in the absence of sanctions (Eigen, 2002: 6; Ayers & Braithwaite, 1992: 19; Esbenshade, 2004).

Secondly, indeed consenting that the attention towards raising labor standards and working conditions have been increasing among pressure groups, these influences would not be functional since there are numerous business fields and companies in the lack of awareness of pressure parties. Experience tells us that the pressure parties have solely concentrated on the limited range of corporations such as well-exposed FMCG, and even the majority of firms operating over the world are unknown to us. To be more precise, a firm that possesses few connections with consumers (e.g., B2B, Raw material sector, etc.) will not be motivated to go beyond the minimal level of compliance; along the same line of reasoning, it is also unlikely that investors are fully driven to provide strong influence if invested firms are properly generating profits and keeping away from serious disgrace of reputation (Mclnernery, 2007; Baek & Kwon, 2005).

Next, another challenge is discerning to what extent the monitoring process and information collected to verify decent CSR compliance are reliable. Supporters propose the notion that brand owners are expected to have the self-regulatory capacity in response to the external pressure and the concern about reputations while they can request restructuring or repeal contracts to less cooperative suppliers who do not fulfill required labor standards. Nevertheless, it is certainly true that there are a great number of inconsistencies between interested actors along with agency problems (Esbenshade, 2004; Pruett, 2005). Hereupon, in case subcontractors intend to conceal their non-compliance rather than presenting them even though brand companies have strong willingness to access reliable information, it is nothing worth regarding as reliable voluntary monitoring (Locke et al., 2007, Xiaoyong, 2006). Of course, due to these concerns about the risk of transparency, the independent auditing process has been increasingly adopted to raise credibility; still, it can be seen as not completely being independent in that only ten percent of CSR codes among the OECD registries have the provisions of independent inspections, and less than one percent of company codes provide such stipulations (Locke et al., 2007; Jenkins, 2002: 25). Besides, as in the growth of various CSR initiatives and monitoring standards, there have been ongoing arguments about the uneven criteria and implementation (Pruett, 2005). That is, it is very difficult to verify clearly whether or not a certain type of practice by companies or subcontractors is in compliance to labor standards and how implementing standards can be varied in a cultural background. This instability may throw the disorder among the actors involved in the process of CSR codes in limited reliability.

Finally, it would be also questionable that companies can voluntarily monitor their CSR compliance in the whole supply channels on the grounds that they have to deal with all of the complicated subcontracting networks, including manufactures, suppliers, and outsourced service providers spread across the world (Van Tulder & Kolk, 2001: 268). Further, the responsible boundaries they should cover also face a dilemma due to the fact that some particular industries should cover even tens of thousands of uncontrollable small farmers because they are suppliers for their raw materials. Moreover, it is very convincing that companies in developing countries will not devote active commitment to the voluntary CSR codes due to the high cost and investment of sustaining and monitoring labor standards. In fact, not only hiring professional independent audits to verify CSR compliance but also meeting the conditions of northern buyers’ requests is very expensive for those firms, which are limited in their output capacity (Xiaoyong, 2006: 53). Consequently, companies in developing nations seem to try to pursue profits under the same unimproved labor conditions due to the dual financial burden. Similarly, while considering another issue, subcontractors may have no determinant to positively set CSR instruments to promote labor standards in that they rather fear decent compliance of CSR standards. That is, the enforced labor standards means losing their productive competitiveness that will lead TNCs to transfer their capital and contracts to another location in which they can seek more profits (Xiaoyong, 2006: 52).

As in the rapid growth of transnational business, CSR is becoming more prevalent among many companies to voluntarily govern their labor standards, extending its capacity into the range of the preceding direct intervention by states. However, those voluntary CSR codes in international supply chains in which many of business practices are outsourced to firms in different locations across the world, have serious weaknesses. That is, the logic of CSR based self-motivation by economic incentives is involved in flawed in that voluntary CSR approaches are not intrinsically planned to raise labor standards but to provide opportunism and non-compliance in shrewd way. Thus, for maximizing the effectiveness of the compliance of CSR codes, some of recommendations can be suggested. Foremost, it may be required national and intergovernmental laws available to regulate violations or non-compliance for the balanced system between self-regulation and state-led regulation. Next, appropriate sanctions are essential to effectively control less cooperative firms or subcontractors in that CSR initiatives are not well balanced but standing alone. In addition, it is also needed to develop more specified and explicit codes being broadly applicable due to the fact that the reliability of implementing CSR norms has been undermined by the uneven criteria and standards in disorder. Finally, external pressures and attentions must entail a wide range of firms because pressure groups have only focused on well exposed companies closed with consumers. In other words, far broader range of firms and sectors should be monitored. Last but not least, CSR initiatives of labor standards should be designed to cover a variety of interests in our community on the grounds that without faithful commitment of all of actors in the process, such social engagement will not be properly functional.