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Capitalism Must Put Its House in Order

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By Will Hutton

Observer
November 24, 2002


If it had happened in the English Channel, the air would have been even thicker with denunciation than it has been. Even the committed deregulator Tony Blair might have borrowed President Chirac's description of the Prestige as a garbage ship and called for a less laissez-faire approach to globalization. As it is, even if a large part of its cargo of 70,000 tonnes of oil remains at the bottom of the sea, what has already spilled ranks as one of the world's worst environmental disasters.

The Prestige was not just a garbage ship. It has exposed the international framework of maritime regulation and attitudes of many shipping companies as garbage as well. This was a vessel chartered by the Swiss-based subsidiary of a Russian conglomerate registered in the Bahamas, owned by a Greek through Liberia and given a certificate of seaworthiness by the Americans. When it refueled, it stood off the port of Gibraltar to avoid the chance of inspection. Every aspect of its operations was calculated to avoid tax, ownership obligations and regulatory scrutiny.

This is the more visible aspect of the business dysfunctionality that globalization. helps foster - and why those who argue the anti-globalization movement is waning could hardly be more wrong. As Pierre Calame, director of the Swiss-based Foundation Charles Leopold Mayer for the Progress of Mankind, argued at the EU conference on corporate social responsibility (CSR) in Copenhagen on Friday, the conclusion is almost the opposite. While it may be true that governments have never been more in thrall to business and its priorities, out there in civil society the very idea of the company is becoming less legitimate.

It is this mood that has given the corporate social responsibility movement its impetus over the past five years. There has been a remarkable growth in leading companies making some attempt to account for their social, environmental and wider economic policies; an explosion in savings products that promise to invest in ethical companies; new kitemarking schemes that allow consumers to buy ethical products in the shops; and a new industry evaluating and auditing all the varying initiatives. Companies are more mindful that their reputation is a precious asset which today's media can destroy in hours. Hence their interest in responding to the demand for CSR.

Even Crown, the Russian trading company whose London office chartered the Prestige, must be both alarmed at the size of the compensation suits coming its way as well as the irredeemable damage done to its reputation. It will become a business leper. Exxon has never fully recovered after the Alaskan oil-spill, and Shell's experience with Brent Spar and in Nigeria convinced it to take relations with its stakeholders more seriously, becoming an exemplar of best practice in its environmental and social reporting.

There is no doubting the mood. The EU Commission has issued a Green Paper and, after 18 months of 'multi-stakeholder forums' like the one in Copenhagen, building an EU-wide consensus on the issue, will then set out its proposals. France now requires every French company by law to set out its social and environmental policies. Belgium has a national kitemarking scheme so that consumers can identify companies that follow CSR principles.

Yet the issue that vexed the plenary session I chaired was whether regulation or voluntary acceptance was the best way to embed CSR. The Prestige is a telling example. Probably nobody, not even the deregulators in Number 10, believes that the voluntary way would ensure that hazardous cargoes are carried safely. Indeed, as a rough rule of thumb, there is an indisputable case for regulation on all occasions where companies are tempted to make money by taking short cuts and dumping costs on others for which they should be responsible themselves. Hence the case for regulating oil tankers, polluters, sellers of crooked savings plans and all the rest.

Where the apostles of the voluntary route have a point is when it comes to companies' internal cultures; Enron, for example, proudly presented its CSR credentials as a giant PR exercise while internally betraying them. Unless companies really own CSR it is only window-dressing, argue the voluntarists - and legislation cannot help stop criminals or deceivers. The best instrument is to show business that behaving well is good business, so that it adopts CSR willingly and internalizes it. Critics draw the opposite conclusion; CSR's insecure grip is proof positive that capitalism is all the same, the voluntary way is a charade and that we must have detailed global regulation.

I go some of the way with the critics, but not all. The regime of tax havens, flags and ports of convenience should be regulated out of existence. Moreover, there is a powerful case for following the French and Belgian governments, by extending the framework of company law, reporting and ownership duties. But I would keep a light touch, focusing on reporting and stewardship obligations and not get too prescriptive. It is voluntary action, for example, that has changed BP and Shell substantially; they do not need the regulation that the shady characters around the Prestige palpably do.

Yet although the best British companies are world leaders in this area, the Government is in a funk. When it took office, it launched a review of company law in which introducing CSR was a key component; it has taken a record five years to complete its work, under the most intense personal pressure from the Prime Minister to water down proposal after proposal.

The resulting Companies Act, which senior sources in the DTI promised in the summer would be in this year's Queens Speech, was not. My understanding is that deferral is to allow a further softening; CSR will become wholly voluntary, something directors might 'consider' rather than a material 'duty'.

The Prime Minister, who addressed the private CBI Presidents' Club of business leaders in January, declaims privately that this proves his pro-business credentials and readiness to outface regulators and the Left alike. It is a major misjudgment. The right-of-center Danish, French and Italian governments better understand that the friends of business in today's climate are those who help it to secure more legitimacy, not those who indulge the temptation to surrender to baser and anti-social choices.


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FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Policy Forum distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. We believe this constitutes a fair use of any such copyrighted material as provided for in 17 U.S.C § 107. If you wish to use copyrighted material from this site for purposes of your own that go beyond fair use, you must obtain permission from the copyright owner.