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Over the past 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). Namely, with the lack of international governance (Cohen & Sabel, 2006) and the decreased influence from public authorities, various codes of conducts as the primary means of voluntary CSR initiatives has been numerously introduced so as to encourage active commitment of both TNCs and sizeable domestic firms (Mamie, 2004). However, although the remarkable progress in the compliance of the external value-related, the effectiveness of CSR norms to enhance the internal corporate value in particular 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 about to what extent CSR is reliable to raise labor standards. Foremost, there will be a brief review about what CSR is. Next, it will be proposed the multiple CSR codes of conduct related labor practices as the essential background. Then the third part will be critically discussed on the effectiveness of voluntary CSR initiatives towards labor standards. Finally, the notion to conclude this argument will be suggested.
Even though CSR is currently considered to be a commonly used term, it may be somewhat difficult to clearly define as a universal concept (Crowther & Bacchus, 2004) because the definition is has frequently changed in various circumstances (Broomhill, 2007; Moon, 2004). With respect to this, a recent study by Xiaoyong (2006) demonstrates the reason based on the idea that each business sector cannot but necessarily pursue different approaches in CSR, having different goals while practicing business activities in the event that the interpretation over the CSR principles can vary according to the expectation or pressure from its community involved (WBCSD, 2000).
However, there has been a general consensus on the key characteristic 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; IOE, 2003). 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 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 have 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 of voluntary codes of conduct have been introduced by the attempt of improving labor standards and working conditions (Xiaoyong, 2006). The development of those multiple self-regulatory Codes has been stimulated in diverse types of rising influence being generated by firms in their own tune, 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 may be 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 the effective implementation in decent ways, 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 between 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 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). That is, as shown in the case of Nike was being in 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 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 of critical works support this view, highlighting that though certain companies might be sensitive in the pressure, devaluation of share prices, and dishonor caused by the activities being irresponsible, those incentives may not to contribute to lead a 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 CSR mechanism is sufficient to be 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 external pressures and economic stimuli. Yet, it is very skeptical that firms listed in both C and D not only will fully propel the voluntary CSR compliance but also will readily enforce their labor standards because, in general, the effectiveness of voluntary regulation system by a corporate conscience has been in the problem of free-riders while looking at the empirical evidence (Maitland, 1985: 132). In this sense, Mclnerney (2007: 186) stressed out an extensive range of compliance research reveals that self-regulation standards are not always self-enhancing though it has convincing incentives. This opinion can be supported by some preliminary works. Cameron (2007: 153) maintained that although the voluntary corporate commitment are not merely be 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 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 which possesses few connections with consumers (e.g., B2B, Raw material sector, etc.) will not be motivated to go beyond the minimal level of compliance; with the same line of reasoning, it is also unlikely that investors are fully driven to give 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 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 may be 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, independent auditing process has been increasingly adopted to raise credibility; still, it can be seen as not completely being in 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 clearly verify whether or not a certain type of practice by companies or subcontractors is in compliance of labor standards, and how to implement standards can be varied in 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 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 are also in dilemma because of the fact that some particular industries should cover even tens of thousands of uncontrollable small farmers by the reason that they are suppliers for their raw materials. Moreover, it is very convincing that companies in developing countries will not have active commitment to the voluntary CSR codes due to the high cost and investment for sustaining and monitoring labor standards. In fact, not only hiring professional independent audits to verify CSR compliance but also meeting the conditions Northern buyers request is very expensive to those firms which are in limited amount of output capacity (Xiaoyong, 2006: 53). Consequently, companies in developing nations seem to try to pursue profits at the unimproved same 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).
Codes of Conduct can be seen as a contract between the company and society. The company
promises to fulfil its societal obligations as a corporate citizen by being profitable, lawabiding and ethical (cf. Carroll and Buchholtz, 2003, p. 40). In a global supply chain perspective, however, where part of the productionprocess is outsourced to companies in different geographic, cultural and institutional settings, such a promise cannot be made without the active commitment of all actors involved. However, Codes of Conduct are often vague and poorly monitored, which leaves some room for interpretation-and opportunism in the form of non-compliance. Realizing that this non-compliance constitutes a threat to the companies, which promote themselves as socially responsible by developing Codes of Conduct, it is becoming increasingly important to develop new means to manage and control inter-organizational relationships. In the previous sections, this article has discussed some of the problems, which are associated with ensuring code compliance throughout the chain, and has tried to give an overview of some of the basic protective mechanisms, which can safeguard the buyer from non-compliance with Codes of Conduct in global supply chains. The discussion of safeguards can be summarized into a number of general recommendations to companies implementing Codes of Conduct in global supply chains:
The extent of global economic interdependence is making the purely voluntarist approach to corporate standards look increasingly outdated. To maximise the benefits of international private investment and to secure public policy goals, global business needs to operate within a clearer framework of governance, which is underpinned, at the national and the global level, by law and regulation. Having secured reputations for prudent economic management, progressive governments should be much more self-confident about making the case for a changed relationship with the international business sector, one in which corporate rights are matched by a stronger set of global corporate responsibilities. This is not an argument for heavy-handed 'command and control' regulation, but rather for intelligent government intervention to secure the progressive goals of sustainable development, human rights and social justice.
(1) External pressures are essential for generating internal corporate support and commitment to establishing and enforcing codes of conduct. (2) Codes of conduct will lead to an improvement in general standards but, standing alone, they may not be stable. Some might decline over time while others may improve, depending on the presence of other complementary factors at the plant, corporate, and national levels. (3) To be sustained and to continue to improve or maintain a high rate of compliance, firm speciiic codes of conduct and monitoring systems need to be: (a) Integrated into management structures and processes governing production, quality improvement, human resources management, and other operational and strategic aspects of supply chain management: (b) Complemented by effective enforcement of national laws that conform to internationally accepted labour standards and enforcement regimes that uphold high standards and support efforts by leading firms to upgrade production and hutiian resources systems that contribute to compliance and organizational performance. (c) Complemented by workplace unions or other institutions that provide employees with a voice in production and employment matters
Voluntary of labour codes and associated management and reporting systems are private initiatives designed to help firms achieve a variety goals--protecting corporate reputation, improving employee morale, enhancing consumer loyalty, avoiding costly sanction, etc.
Over the years, CSR initiatives have emerged as one of the most significant factors in international business. Voluntary codes can be considered to be an engagement between corporations and community; in other words, it means that firms promise to decently carry out social responsibilities as a corporate citizen, making profits (Caroll & Buchholtz, 2004: 40).
Codes of Conduct can be seen as a contract between the company and society. The company
promises to fulfil its societal obligations as a corporate citizen by being profitable, lawabiding and ethical (cf. Carroll and Buchholtz, 2003, p. 40). In a global supply chain perspective, however, where part of the production process is outsourced to companies in different geographic, cultural and institutional settings, such a promise cannot be made without the active commitment of all actors involved. However, Codes of Conduct are often vague and poorly monitored, which leaves some room for interpretation-and opportunism in the form of non-compliance. Realizing that this non-compliance constitutes a threat to the companies, which promote themselves as socially responsible by developing Codes of Conduct, it is becoming increasingly important to develop new means to manage and control inter-organizational relationships. In the previous sections, this article has discussed some of the problems, which are associated with ensuring code compliance throughout the chain, and has tried to give an overview of some of the basic protective mechanisms, which can safeguard the buyer from non-compliance with Codes of Conduct in global supply chains. The discussion of safeguards can be summarized into a number of general recommendations to companies implementing Codes of Conduct in global supply chains:
CSR has been increasing as a result of the recognition of the essential contribution of businesses to social, environmental and Human Rights progress, as well as pressures from consumers, investors, employees, governments, international organizations, NGOs, media and other civil society organizations. A growing number of businesses have already taken CSR as a priority in their agendas. Voluntary of labour codes and associated management and reporting systems are private initiatives designed to help firms achieve a variety goals--protecting corporate reputation, improving employee morale, enhancing consumer loyalty, avoiding costly sanction, etc.
While it is hard to determine how much improvement MNEs-led codes of conduct and monitoring programs could achieve. The key of the difficult problems in the compliance of voluntary codes of conduct is corporate trade-off with more commercial interests. The effects of global civil society campaigns are both controversial and uncertain. Some critics argue that social regulatory standards are a "cultural" feature of specific societies and should not be subject to global harmonization (Ronnie D. Lipschutz, 2003). Indeed, domestic legislation in the home country is the most important influence on these initiatives (OECD, 2001). Some economists point out that labour regulation would reduce the economic attractiveness of host countries, undermine their comparative advantage in low-labour, and increase unemployment. Developing countries are also suspicious about the effectiveness of the voluntary codes of conduct. They worried about the developed countries act the linkage of trading to labour standards as new Non-tariff technical barriers to trade.
Nevertheless, the voluntary codes of labour conduct campaigns are in general a positive development. After all, they provided a new market-oriented regulatory mechanism in improving labour rights and working conditions, and acted as a complementary mechanism for the governmental mandatory regulation. Compared with mandatory regulation, the voluntary self-regulation mechanisms have some important advantages in facing with the complex labour issues in global society. But the main impact seems to be still depending on the endeavor of local governments in a longer term.