Responsible AI: governing market failure

If society seeks or needs responsible development and use of AI technologies, how is this best achieved?

This month the Australian government published its analysis of public submissions on its April 2019 proposed 'Ethical AI Principles', and published a revised set of principles: here. 

In my April submission (in this repository) among other things I put three points, which I summarise here as I believe they remain 'live':

1. A national conversation

The first point was about processes, such as the public enquiry, of arriving at and promoting such lists of principles (whatever their content). This process or that of the Australian Human Rights Commission are no substitute for a genuine, scaled national conversation, indeed a global one. As I submitted, that conversation is not about 'what should our ethical AI principles look like' but (if AI is truly as transformative as we think) about the more fundamental question 'how should we live [and what role do we want and not want for technology in that attempt at flourishing]'.

2. The missing governance piece

The second point was to ask how the listed principles are intended to take or be given effect, which is a question not of ‘principles for ethical AI’ but of ‘the governance of principles for ethical AI’. Every major government and tech company has or is producing such lists. What are the mechanisms by which, in various contexts, we think they are best given effect? Since they are 'ethical' principles, I hesitate to say 'how are they complied with' and 'what are the consequences of non-compliance'. Which leads to my third point.

3. Ethics vs law / regulation

The third point was to suggest that the real question (in seeking submissions) ought not to be whether the 8 listed principles in the Australian framework are the ‘right’ or best or most complete ethical principles. Some ethical AI frameworks have more (e.g. Future of Life's 23), some have less (e.g. the OECD's 5, or Google's 7). The prior question ought to be whether responsible AI development and use is best approached as a question of ethics rather than as a question of law and regulation.

I reflected on this third issue in a previous post (here): there is a very live law and regulation aspect here (as useful as ethics-based approaches are, and complementary to law).

This month's revised approach notes:

• "The framework may need to be supplemented with regulations, depending on the risks for different AI applications. New regulations should only be implemented if there are clear regulatory gaps and a failure of the market to address those gaps."

This is, on one view, a remarkable proposition, if not an outright abdication of governmental responsibility for promoting responsible AI. 

It is a proposition, unless I am mistaken, that in relation to AI -- which the Australian framework process explicitly states is so fast-evolving, so profoundly transformative, so pervasive -- posits that:

(a) law and regulation is only a 'supplement' to ethics-based approaches; and

(b) the market [whatever that means!] should be left to address 'compliance' with ethical principles, and the people's elected law-making bodies should only have a role where gaps [whatever that means!] are 'clear' .

For one thing, by the time we diagnose that there has been a market failure to encourage or enforce responsible AI development and use, it will be rather too late to start asking law-makers to get out their legislative drafting pens and address 'gaps'.

Lawyers and law-makers can stand down: we are not needed here, or now. Australia, that sophisticated regulatory state, has decided that the market -- which of course has proven soooo socially responsible hitherto -- can regulate this issue just fine.

Jo 

Corporate culture: capital vs social capital

Australia is this week absorbing the final report of the Royal Commission into 'misconduct in the banking, superannuation and financial services industry'.

What is at the heart of the disregard shown by retail banks and finance houses for regulation aimed at protecting consumers from the excesses of the pursuit of profit motive?

As ANU's John Braithwaite has said, a core dilemma of regulation is "when to punish and when to persuade" (1992+).

Command and control-style punishment and sanctions are not the only way to regulate. There are many reasons for non-compliance, suggesting that regulators sometimes need to preference dialogue and engagement over knee-jerk automatic punishment. There is a strong case to be made for regulatory designs and institutional approaches that privilege engagement, persuasion, education, capacity-building. Braithwaite's 'responsive regulation' theory would suggest that regulators hold punitive powers in reserve while making overtures to regulatees and seeing how they respond to non-punitive approaches. The regulator then adjusts its own approach. This will be perceived, the theory goes, as more fair and so legitimate. Entities will internalise the regulatory goal, compliance will improve and the regulator can let compliant entities essentially self-regulate, and indeed exceed what is required in pursuit of the social goal underlying the regulation.

What is a lesson from the Royal Commission?

It is that this approach, as influential as it has been, needs to be revisited. Or at least the theory needs to be fully implemented if it is to work. Not surprising, that.

The lesson is that regulators -- even where they have these powers -- appear reluctant to use them, and so err on the side of 'engagement' where sometimes demonstrative penalty seems more appropriate. The issue is whether the regulated entities are responding to signals to change. If they are not, another more intrusive approach is warranted from the regulator.

Standing back, the key word is in the first sentence above: motive.

Incentives matter: we can talk all we want about 'values not just value' and 'engendering a shift in corporate culture'. But when all is said and done, market actors respond to incentives, and clear, credible and consistent signals and actions from regulators about the consequences of non-compliance.

And those consequences sometimes need to be severe.

As Commissioner Hayne wrote, "misconduct will be deterred only if entities believe that misconduct will be detected, denounced and justly punished..." It is not deterred -- for such profitable entities -- by requiring those found to have done wrong to "do no more than pay compensation." It is certainly not deterred by the issue of infringement notices in the hope that the market or consumers will respond to those incidents by withdrawing or conditioning their custom or financing.

Responsive regulation remains a highly appealing theory, if properly implemented. It is bound to fail -- as Braithwaite and his disciples have always said -- if only partially implemented. If all the cuddly dialogic bits are followed, but not the hard and punitive bits. Regulators can and should talk to their regulatees about how to improve compliance. But they are not mere consultants to business. They are regulators. Braithwaite would insist that the regulatee must know that the regulator can escalate things, where fair and appropriate and where there is no response to overtures to comply. They must know and see that the regulator can make life very difficult.

As Braithwaite once wrote, dialogue, engagement and capacity building must take place "in the shadow of the axe".

Australian regulators need to have the axe, even if they need to be smart and fair about when to keep it in the background and pursue a more engaged approach.

This is true from banking conduct in the retail sector, to emerging models on supply chain reporting in the context of modern slavery, on which see earlier posts on this blog.

Jo

Modern slavery in supply chains: definitions?

What are ideal viable regulatory models for public authorities to address the serious human rights risks that might exist in a business’s operations or supply chains, especially abroad?

This post simply pastes in the summary of a paper I've produced (here).

The paper isolates one regulatory design issue on prevailing models of statutory requirements for certain firms to report on human rights risks in their supply chain: how, if at all, should such legislation seek to define ‘supply chain’? This paper argues that this is not a narrow or merely technical question:

-          First, it affects the scope of commercial activity to which any ‘compliance’ notion will relate, and associated issues of regulatory clarity, certainty and coherence.

-          Second, the approach to defining (or not) ‘supply chain’ can be seen a metaphor for more general design philosophies or approaches. These how questions of design go to more profound questions about what ‘transparency models’ (or, more accurately, reporting models) seek to achieve. The wider public policy objective is eradicating modern slavery by engaging business and civil society in cooperative pursuit of this grand challenge. This goal ought to guide and inform all design decisions.

Some firms argue that any reporting obligations should be limited to ‘first tier’ suppliers only (direct payment relationships); many activists argue that peak firms atop particular supply chains should be obliged to report more comprehensively, i.e., full traceability reporting, on suppliers’ suppliers too. This paper argues that a future Australian Modern Slavery Act should not seek to define ‘supply chain’ at all in legislative form, nor in ancillary regulations:

·       Consistent with Pillar II of the 2011 UN Guiding Principles on Human Rights, firms have a responsibility to respect human rights by (among other things) identifying and address priority human rights risks in their business operations and relationships: leaving ‘supply chain’ undefined helps avoid artificial categorisations that might obscure this ongoing exercise of self-analysis and prioritisation. The ‘how many tiers’ debate misses the point: from risk management, reputational and other perspectives too, the focus of enquiry should be the severity (scale, seriousness, etc.) of human rights risks across business relationships. Instead of responding to prescribed compliance indicators, as might happen with a defined approach, the internal corporate process of needing to self-define what one’s ‘supply chain’ will include for reporting purposes might hold value: it may help to trigger important corporate self-reflection on the extent of one’s influence or responsibility as a firm.

·       Prevailing reporting models are premised at least in part on external market, consumer and civic stakeholders ‘regulating’ corporate performance on human rights issues. In a model that does not define ‘supply chain’, these actors can always signal that a firm’s framing of its ‘supply chain’ is too narrow or otherwise misconceived. Legal, audit or assurance entities advising larger firms might be key agents in a conceivable ‘race to the top’ (at least within market leaders in some consumer-facing / reputation-exposed sectors) in terms of the quality of reporting, including the scope of a firm’s choice of what its ‘supply chain’ comprises.  

·       Reporting requirements may not actually be appropriate and adapted to the wider objective of preventing and addressing modern slavery. Nor do they necessarily produce transparency. Nevertheless, they are the model under consideration. This being so, the legislation should attempt to encourage fulsome business cooperation from a premise of trusting large Australian businesses to do the right thing in the first instance. An overall tone and message that the legislation is not unduly prescriptive on such issues as what constitutes ‘supply chain’ will probably help to generate proactive business engagement. Such cooperation is vital to the ‘bigger picture’ objective. Even the most capable regulatory state cannot ‘fix’ modern slavery in supply chains without the cooperation of the businesses that use these systems:

-          Supply chains, like business sectors, are hugely diverse, not static, and often very complex, but firms are also typically far better-placed than regulators to see or know issues within their supply chains. In a scheme premised on business uptake and cooperation, these facts suggests that legislation avoid being unduly prescriptive.

-          The point of this legislation is to help identify, prevent and resolve human rights problems in supply chains. It is not, as some activists would appear to frame it, an opportunity to target larger businesses with highly prescriptive statutory duties accompanied by punitive sanctions out of a belief (for example) that such firms, as a species, are insufficiently transparent or accountable in our society generally. The legislation is one element in a broader policy approach around finding ways to incentivise and support Australian firms to systematically identify and so prevent or address the underlying human rights risks. All design questions should turn on ‘what will best help solve the problem of modern slavery in globalised supply chains?’ and ‘how can we best involve business itself in solving these problems?’

-          Yet this cooperative dialogic approach is only justifiable if a clear signal is given that regulation will become more demanding in future if reporting compliance is perfunctory or not improving modern slavery patterns in (Australian) supply chains.

Non-binding formal policy products produced in parallel to this legislation should provide guidance to firms on the considerations involved in how they seek to define the scope of their due diligence (and so reporting) on these issues. This needs to go a lot further than the UK guidance that ‘supply chains’ under the 2015 Act has its ‘ordinary meaning’. Government should engage civil society and consultancy / assurance / audit firms in helping to produce and progressively refine such guidance.

[This is a summary from my May 2018 paper]

Jo

See a recent post on this blog on this topic here.

Responsible business in a Trump era (III)

Just how compelling is the 'business case' for firms and funds to adopt and implement human rights policies?

Here I mean planning, self-assessment and reporting policies and systems that are explicitly framed in human rights terms -- not the wider idea of a 'business case' for being socially responsible.

Among the outgoing Obama administration's last actions in December 2016 was to shepherd in a US 'National Action Plan' on 'Business and Human Rights' (BHR).

The evidence so far shows clearly that a Trump-led US federal government will not lead, in policy, messaging and regulatory terms, in the BHR area. Indeed it will evidently not do so on the responsible or even sustainable business agendas more broadly.

If that is so, it may nevertheless happen that in the US and beyond, big business and the financial and insurance worlds drive parts of this broad agenda itself, not waiting for a national government lead.*

With important caveats, I have recently blogged on this possibility.** These blog-posts were offered in the search for a 'silver lining', from a BHR perspective, to Trump's election. Of course European governments + the EU (and others) might lead in America's stead. But the US matters.

If it happens that business does not wait for such a lead, it may be because there is a perceived 'business case' for it (even if part of that case is just longer-term anticipation by business of a degree of reversion in regulatory trends in a post-Trump presidency).

The 'business case' concept in the BHR field derives from the wider corporate accountability / responsibility field. It is a familiar feature of the CSR field, in particular. 

'Business case' is of course shorthand for the idea that whatever the ethical, moral or legal reasons for mitigating a business's social, enviro and governance impact, it makes good commercial sense, especially in the longer term, to embrace this agenda.

We need to be cautious about a 'business case' at the broad level: business sectors and sub-sectors -- and individual firms within these -- may have very different incentive structures (etc.) in responding to or anticipating social impact issues. The 'business case' concept is a more sound one when describing how those incentives etc might be approached in particular contexts, making a case each time.

For years the CSR and then emerging BHR fields spent considerable energy on articulating a general 'business case'. Yet in recent years BHR advocacy has sometimes appeared to proceed on the basis not only that the business case for acting on human rights risks is self-evident, but that it is or will go further and become an important driver of uptake by business of the BHR implementation agenda.

The thrust of the current post is to suggest that the Trump era will now put to the test claims made in recent years about the strength and obviousness and appeal of the business case for self-starting action on human rights risk.

Put another way (and partly for provocation's sake), it is easy to assert the existence of an obvious business case for business to be pro-active about addressing human rights impacts, but we need to be careful about assuming that this has some sort of self-executing logic to it.

At very least, it seems unlikely that all aspects of BHR will advance at equal pace and degree. Parts of some sectors in business may go with some aspects of the BHR agenda (eg 'modern slavery' in supply chains), while not on others; we may see uptake on some measures (eg human rights due diligence in larger listed firms and financial houses), but little movement in areas such as access to remedy.

Of course many would argue that because human rights are universal non-negotiable normative imperatives, emphasising the commercial advantages of investing in a human rights-consistent business is a wrong starting-place to 'motivate and justify' corporate engagement in human rights implementation.*** This is partly the thrust of a recent Harvard Business Review article entitled 'We shouldn't always need a business case to do the right thing'.

I think there is unarguably a business case for some kinds and sizes of firms to take the BHR agenda seriously. Demonstrating empirically that such action protects or creates commercial value is more difficult.

Jo

* This comment relates to the federal government: the same reactionary approach to promoting sustainable and responsible business conduct is not necessarily true of state-level governments in the US, some of them major economies in their own right, such as California.
** My previous posts on 'responsible business in a Trump era' are here (February 2017) and here (November 2016).

*** See Posner and Baumann-Pauly, 'Making the Business Case for Human Rights', in Baumann-Pauly and Nolan 2016, section 1.2.

Business and Human Rights: trends towards 2025

It is a decade since the UN mandate to develop what became the 2011 Guiding Principles on Business and Human Rights.

At the inter-governmental (Geneva) level, the consensus that existed in adopting the GPs in 2011 has not held. There is some sense of a return to the polarised, partly ideological debates of the pre-2000s on how best to regulate the impact that businesses may have on human rights.

Yet what happens in Geneva is only one part of what should be a range of regulatory, educative, advocacy, capacity-building, and other measures within countries, industry sectors and supply chains. Many of these will be driven by business leaders themselves and not necessarily premised on the idea that the only 'regulation' that counts is top-down legislative action.

These issues are summarised in a March report referenced in previous blogs on this issue.

This short post (from the Australian National University, where I work now) is simply to foreshadow a coming report in September, written as part of the Chatham House programme in international law. 

This report (see launch event spiel here) will look at the next decade of the broad 'business and human rights' field, based on analysis of current trends and their likely trajectory.

Jo

Business and human rights: reporting and measuring

Better corporate measurement and reporting on social impact will probably promote better performance -- but not necessarily.

Many in business are overwhelmed by the proliferating plethora (had to try that...) of guidelines and reporting frameworks, standards and metrics for sustainable and responsible business.

In a previous post (here) I've noted the compliance fatigue and other problems that result from this phenomena.

In theory, firms that measure and report on their human rights or other social, environmental and governance impacts thereby also become more attuned to these in strategic and operational terms, 'mainstreaming' them into their business practices and decisions. 

(In parallel, many of these issues around social and environmental impact -- triple bottom line, non-financial due diligence, or whatever one wishes to call it -- are coming in from the periphery to the core of commercial considerations.)

However, it is not necessarily the case that more reporting, more measuring, etc., equips corporate decision-makers to be better at seeking out more socially beneficial or enviro-friendly ways of operating. Nor do they necessarily improve transparency and accountability (even if they force firms, or parts of firms, to engage with the ways in which they affect people and the planet, and give watchdogs something to audit). 

The effect of widespread uptake and implementation of reporting frameworks might be profound in shifting business cultures. But the effect is not automatic. It depends. In particular, not all firms have good feedback loops: externally-facing reporting will not necessarily change management mindsets.

Creating these frameworks, indices, matrices should not be an end in itself, therefore.

There is scope for more research on links between corporate responsibility reporting and business practices, and related frameworks for the finance sector -- whose practices hold so much influence over corporate practices in turn.

The prompt for this post is my briefing paper, published last week for Chatham House, on trends in the field of 'business and human rights'. See here.

Also published last week was the very promising first detailed guidance for corporates on reporting on efforts to implement the 2011 UN Guiding Principles on Business and Human Rights. See here.

Finally, last week but one saw the publication of this brief guidance to corporates on due diligence in relation to human rights issues. See here.

All this is good, provided the business and human rights 'community' does not deceive itself that more publications, more guidelines, more frameworks will necessarily, of themselves, make the difference.

Jo

Compliance fatigue and sustaining sustainability

Is the proliferation of disclosure and reporting schemes capable of undermining efforts for more sustainable, responsible business?

Now, it is very hard to refute the merits of the 'disclosure revolution' on environmental, social, and governance (ESG) issues that has come in recent times at least to major Western listed firms.

The merits are fairly obvious. The more we and the market know, the better we can ascribe meaning to a firm's value proposition. The more a firm knows about its own ESG impact (through committing itself to data collection, analysis and disclosure), the better it can address potential disruptions and problems in its operations or supply-chain. Do well while doing good, etc.

The same goes for the proliferation of voluntary, hybrid or other multi-stakeholder, quasi-regulatory schemes for addressing issues ranging from a firm's impact on local insecurity to transparency around revenues paid to host governments.

In this light, the recent announcement by Unilever of a new human rights reporting and assurance framework is good news, and consistent with the due diligence elements of the UN 2011 Guiding Principles on Business and Human Rights.

One would hardly want to curb the energy and enthusiasm evident around institutionalising the responsible business agenda within corporate systems and cultures. Yet it was that announcement that prompts this week's post. Because there seem to be so many schemes and initiatives and regulations and conferences that I imagine the landscape now is becoming somewhat bewildering even to a well-meaning executive within a major publicly-listed firm.

(A related issue is the proliferation of single-issue charity, aid and advocacy groups: that industry now talks about engaging with business but might require some rather hard-headed business strategies to reduce the over-heads and donor fatigue associated with organisational proliferation, and focus instead on delivering social value 'at scale'. But hush -- the same could be said of proliferating blogs...!).

I cannot put a finger on it, but do think there's an issue with this flowering of schemes and initiatives, in terms of strategic considerations relevant to the business sustainability / responsibility agenda, such as the resources and attention-span and goodwill of corporate decision-makers.

Instead of carrying on further, I refer to a post from pre-Christmas 2012 (here), on proliferation and fatigue related to the many initiatives on responsible and sustainable business.

See too this recent piece in The Gaurdian on how over 2,500 different metrics are in use for measuring and reporting supply chain sustainability.

It is true that reporting on 'non-financial' issues can serve a commercial and risk-management purpose and is increasingly being incorporated into core business strategies; it is true that leading firms think beyond compliance to how the sustainability agenda can be an opportunity to create both social and commercial value; it is true that there is a counter-trend to this proliferation, where broader concepts such as 'materiality' are being deployed rather than  endless multi-indicator checklists and indices. It is true that the field is evolving and emerging, and this flowering of schemes and requirements may settle into something more sustainable and manageable without becoming complacent or quieted.

Yet this proliferation phenomenon is relevant (or is perceived as relevant) to compliance burden and cost, and so to the competitiveness of responsible business and finance (see here, a past post on regulation and values amid perceived strategic competition for access to markets and resources).

Now I believe there is no necessary trade-off between being responsible and being competitive when investing in developing regions. Indeed in time one might only be competitive through being responsible (and being seen that way).

Nevertheless the perception remains in those places inside firms and funds where it matters.

Those interested in promoting sustainable and socially responsible business practices ought to reflect more, I think, on whether the proliferation of schemes and reporting processes is confusing 'the means' with 'the ends' in ways that do not advance the end goals. 

Jo

See too this past post reflecting on who the audience is for corporate sustainability communications.

Regulating business for peace

Failure by business to implement socially responsible practices also represents a failure of public policy.

Where business falls short, blame is swift but such failures are ultimately regulatory failures, the failure of public policy to reach in to business and open it to the influence of public values, as Parker argued in her excellent Open Corporation (2002).

The pace of business engagement on social and infrastructural development bottlenecks in Africa is welcome. Given business impatience with public sector planning and delivery, and firms' long-term risk exposures and opportunity costs if development imperatives are not met, this enhanced engagement is also somewhat inevitable. Often business is ahead of policymaking in assessing and seeking development gains that align with business interests.

Yet the state still matters in Africa, perhaps more than ever, and excitement about the role of business in development can obscure this.

It is short-sighted to believe that business sustainability efforts can be sustained without relying, ultimately, on the powers of the regulatory state.

A previous post made this case, pointing to recent research by Rory Sullivan and others (here). A related post noted that implicit in the (much-hyped) concept of public-private partnership is a capable state, one not only fit for partnering but able ultimately to steer the development agenda from a basis of duty.

We talk of business 'responsibility' for human rights and other issues, but for governments these are questions of 'duty', a concept of a somewhat higher order.

In this sense, PPPs are not truly equal partnerships. The state must lead, and must bear the ultimate responsibility. Business should not want it any other way, however impatient it might be.

The fact that many of these practices are not subject to mandatory regulation can obscure this fact. Despite all the rhetoric on partnerships and public-private convergence on development issues, governments and business have both legitimacy-features and obligations of a fundamentally different level and kind. Again, despite welcoming the new pragmatism and engagement on public-private cooperation for development, business leaders would not, in the long term, want it any other way, and nor would a democratic society.

I write this because this week I speak on a panel on the social and governmental factors of long-term investment in Africa. The audience wishes to focus on what business can or should do more or less of to find local or national development synergies. All good and well, and the topic of next week's high-level meeting on global partnerships for effective development cooperation (see recent posts). Yet such conversations sometimes tend to gloss over the state, which is inconsistent with the idea of 'long term' thinking. A previous post made this point.

So business-led initiatives on a range of issues from peace to sustainable development are to be welcomed. Many of their issues lie beyond what is likely, possible or desirable for public regulation, or are necessary because regulatory impact is weak. But the state's role cannot be side-stepped.

Consider the various 'business for peace' initiatives. The UN Global Compact launched its one recently, and this week (for example) an international conference takes place in Belgium on 'Business for Peace'. Business-led schemes are, as said, both welcome and somewhat inevitable (if not always satisfying or universally subscribed too). Yet the proliferation of guidelines now available to business on conflict-sensitive practices should not be seen as a substitute for a regulatory or pre-regulatory strategy on the part of policymaking. Public policy can (and often should) promote self-regulation by business on such issues, but this is conditional or supervised, the regulation of self-regulation.

Recently, Anette Hoffmann made the point that whether business is able to adopt and implement conflict-sensitive business practices will depend on much more than the business alone. There is low risk that business 'captures' this regulatory space, retarding more effective public regulation; there is perhaps a greater risk that policymakers see these issues as running themselves, without the need to 'reach in' and stimulate, support, or require these behaviours of private sector actors.

For this reason, my forthcoming book is called 'Regulating Business for Peace' (CUP). The private sector shares with policymaking many of the latter's interests in peace and prosperity. But the process must be influenced, steered, shaped (ie, 'regulated'), even if sometimes only lightly, by the public sector. Africa's development is too hard, too important, and too strongly underpinned by profound duty to be considered a true partnership.

All who are partners are not equal: some partners hold a higher duty than others, and the private sector will be the first to agree that the public sector must lead.

Jo

For a previous post distinguishing 'duty' and 'responsibility' see here.

'Good business' in Africa: governance of corporate responsibility

What is more significant in determining the social, environmental or governance impact of larger businesses operating in Africa -- their host government or their home government?

 

During our mid-September conference (see here and previous post), in the Africa political economy discussion group, one delegate asked whether firms from any particular countries were notable for generally doing 'good' (socially responsible) business.

 

We often field questions seeking to define and unlock the formula, strategy, approach, style of firms from Brazil, Turkey, China and so on increasingly doing business in Africa -- questions which assume that such firms display distinct, recognisable attributes on the basis of their national origin, or even that it is possible to attribute a single nationality to many larger firms. Implicit in such questions is often a sense that firms 'from' some jurisdictions are likely to be better corporate citizens abroad than others. A previous post noted that such claims are intuitively appealing but often lack empirical backing -- see here.

 

In reacting to the conference question my first sense was to say that the origin or home of a firm may not be as important as the will and ability of the host government to encourage or ensure responsible investment activities.

 

My particular interest lies in fragile and conflict-affected states. Here, even if interested in promoting responsible business conduct or able to spare the capacity to do so, such governments may fear that placing demands on firms would make the proposition of investing too onerous: it is hard enough attracting responsible firms to risky places (even if many activities to mitigate social impact would also reduce political risks).

 

In weakly governed settings the significance of self-regulation and non-state (or external) sources of regulation increases. That is -- to address the conference question -- the weaker the host government's regulatory capacity, the more the home origin of a firm may matter in terms of whether it feels pressure or inclination to act responsibly.

 

In theory, self-regulation can obviate the need for a capable state across both mandatory (but not enforced) and voluntary activities. For voluntary commitments this is especially, but perhaps really only, where there is sufficient alignment with core business objectives. Transitioning these undertakings to something more formal and systematic generally takes more than goodwill on the part of a single firm or pressure from certain groupings.

 

As a very good, short, recent paper points out, the governance of corporate responsibility -- call it the regulation of self-regulation -- may ultimately depend on the powers of a regulatory state. These powers and the incentives for using them vary across investment-sending and investment-receiving states: the prospects for doing 'good' business in African settings will very often depend on very localised factors and is more complex than labelling certain countries better at being good.

 

Jo

The G8 and Africa: trade, tax and transparency

Since the last post earlier this month, the most significant development at the nexus of business and society in sub-Saharan Africa has probably been last week's G8 summit, where the UK government promoted its 'Three-Ts' agenda (trade, tax and transparency).

This weekend a far smaller meeting took place here in Oxford, organised by the University's China-Africa Network (OUCAN) on 'Emerging Powers in Africa'.

The two very different events are related in at least one sense ... efforts in Western countries to regulate for more transparency in the way that companies interact with developing country governments still have some way to go in making a stronger case for such regulations among industry members that must compete with firms from settings, such as China, which do not impose such requirements.

One dimension of the UK government's agenda has been promoting greater transparency by UK-based extractive industry firms on what these firms pay to host governments. Africa accounts for many of the settings where shortcomings in government revenue transparency are a major issue for donors and lenders, local and transnational advocates, and increasingly for firms themselves (often at the behest of their financiers and insurers).

The G8 meeting followed shortly after the European Parliament voted on June 12 on laws (that will take effect in 2015) requiring European oil, gas, mining and logging firms to disclose payments above 100,000 euros made to host governments in relation to accessing or extracting natural resources -- even if the host government's laws prohibit such disclosure. The European regulatory initiative follows the US Dodd-Frank Act (which applies only to US listed entities' disclosure of payments) and reflects many years of 'publish-what-you-pay' advocacy and extractive industry transparency initiatives, the most notable of which was first supported by the British and other governments.

There are many dimensions to this topic, and what follows is only one thought-line.

One does not need to be an apologist for the extractive industries to acknowledge the force of their various arguments questioning such regulations.

One is the risk that Western firms subject to such requirements might be unable to compete for access to resources with less scrutinised, less scrupulous, and perhaps more socially indifferent firms from China and other 'emerging' powers. One can call this the 'Talisman factor', after the Canadian operator that withdrew, partly under pressure at home, from Sudan's conflict-affected oil sector; its concessions were taken up by firms with far less incentives to implement progressive environmental, social and governance norms.

One sees insufficient efforts by regulators (and their political principals at forums like the G8) to develop persuasive lines of argument about the strategic merits of such transparency regimes, in addition to their moral rectitude.

Late last year I blogged on the place of values and principles such as transparency in strategic competition for natural resources (here). It was a post calling for greater suasion on why such transparency regimes matter and why firms should embrace them.

Aside from indisputable matters of principle about the importance of revenue transparency, it is possible to make an argument that regulating for payment disclosures is not materially different from regulating for disclosure of other latent liabilities or political risk triggers. The market appreciates such information and, over time, appreciates those firms that are candid about disclosing material risks.

This sort of persuasion is important since regulatory compliance -- as experience shows and theory argues -- is far easier to secure where an industry accepts that the overall regulatory objective is of long-term value to it as a matter of business strategy (in addition to being warranted on the basis of being a responsible member of society).

That is, in order to get support from CEOs and boards we tend to speak of the need to make the 'business case' for voluntary corporate responsibility outreach. But making a 'business case' also matters for issues of compulsory regulation, because making it improves the prospects of fuller compliance.

The extractive industries are formidable forces when it comes to shaping the content of regulation, which should not be deferential to industry as a matter of course. Yet it seems hard to deny that politicians -- and the academics who advise them -- have not spent enough time acknowledging the commercial-strategic reality of collective action problems and the lack of a level regulatory field when it comes to strategic competition for natural resources. This means that they insufficiently frame moves to regulate revenue transparency in ways that persuade Western firms that these will improve those firms' long-term strategic positions.

Jo

ps -- see also my previous recent posts on taxation and corporate responsibility in Africa (here) and corporates, contracts and clarity (here).

ps -- my colleague Hannah Waddilove blogged last week on the G8 summit in relation to African governments' revenue-raising dilemmas: see here.

Corporate responsibility -- government duty

In terms of corporate responsibility and regulatory debates there is no recent African analogy to last month's shocking Dhaka building collapse that killed over 600 mainly garment workers and injured thousands.

Like much reform generally, momentum on governance reform (by both the private and public sectors) on social impact issues often requires (sadly) a landmark, shock-inducing event.

(Empirically, such events do not necessarily lead to change, although they may add a pulse, perhaps no more nor less, to the general thrust of pressure for change; see this BBC online debate post-Dhaka: here).

There are few African analogies. The 1995 execution of activist Ken Saro-Wiwa (by a Nigerian military dictatorship) is one such event which prompted reassessment of business-government relations and the parameters of corporate influence on host country policy. By contrast, today many of Africa's better-known corporate impact issues are slow-burning ones without particular spike events -- from gas-flaring to toxic waste-dumping to conflict minerals.

That selective list itself illustrates how random or arbitrary it will often be whether a particular sector or issue or firm comes into the corporate responsibility spotlight -- a point made in a recent post on reputational risk, here. (This is not to say firms cannot plan for foreseeable contingencies). Other issues of profound significance, such as climate change, are in some ways too diffuse and unwieldy to fit easily into targeted campaigns by either firms or governments or activists. An expert's briefing published by our firm this last week noted how academic debate takes some issues as squarely within the field of 'corporate responsibility' while others which involve significant social impact by business, and which conceivably could become framed in that way, do not.

One question prevalent in the media and industry since the Dhaka event has been whether this is indeed a 'corporate responsibility in global supply chains' issue, or rather a question of weak government supervision of local statutory standards; enforcing local laws is not a corporate responsibility.

The answer may lie somewhere in between, since through their purchasing conduct foreign corporations and financiers have some capacity to 'regulate' local regulators (especially in weaker governance zones) to ensure these officials enforce their own rules; they also have some potential influence over the local commercial actors who mediate activity in their global supply chains. There are wider forces and considerations at issue relating to local control, global competitiveness and the allocation of responsibility and conscience-calling.

The Dhaka misery and debates on global supply chain integrity are too big for one post, in an Africa-focused blog. (Since I cover South Africa a lot, it is natural to think of the decimation of jobs in that country's garment sector as the ANC tries to promote its 'decent work' agenda in the context of Chinese and other manufacturing competition -- an unenviable task, at which they are at best drifting.)

I have been thinking this week of analogies with the 'aid to Africa' debate, where it is right for aid effectiveness / transformation activists to spare a lot of their energies typically directed at donors, to the behaviour of recipient governments. In the same way, while global brands can wield some regulatory influence over government complying with their own local standards, the responsibility in so many respects lies at home with governments. There is another analogy with aid, one familiar to corporate social investment debates: the more one asks of firms, the more some governments become removed from responsibility and unresponsive to local constituencies.

The challenge as ever -- across regions -- is to move from blame-game to game-changing steps in regulating, within what is realistic in a globalised market, the conditions under which people work.  That includes moving from an either/or approach to responsibility to appropriate apportionment and cooperative approaches to creating shared value and distributing shared risk.

Dhaka's victims fell at the intersection of small, particular regulatory norms (capable of altering local circumstances) with the more universal, amorphous norm which the ANC's emphasis on 'decency' captures. Big firms in Africa can do their brands and workforce a favour by thinking (individually or in sector coalitions) of how, beyond tax-paying, to improve the regulatory competence and integrity of government agencies -- even if the latter should always bear by far the primary responsibility for creating conditions for a more decent life.

Jo

Private innovation, public goods: leapfrogs, short-cuts and pragmatic principles

If they both reflect a kind of innovation, how do we distinguish 'corruption' from 'entrepreneurship' -- and encourage only the latter?

In my day job covering contemporary Africa's political economy, two distinct narratives have consistently high prominence -- and I wonder about the link between them.

One is the hugely debilitating effect of various forms of corruption -- manipulating public goods and processes for private ends. The other is the much-praised capacity of individuals and groups to make ends meet (or even multiply) despite poor or problematic public services and systems; one constantly encounters anecdotes about how this is a continent filled with highly innovative and enterprising people whose irrepressible spirit of commerce and exchange holds great promise whatever the state does or fails to do.(*)

How can we see these as part of the same issue, not as unrelated parallel stories?

Is it possible to find -- in admiring the ingenuity involved in some corrupt or illicit practices -- some silver lining about the scope for more efficient, effective or legitimate relations between those in public office and private firms or individuals? (**) Can the same spirit-of-enterprise that sometimes manifests as corruption be harnessed to increase not constrict public choice? Can the particularised trust that enables corrupt relationships be seen as the same raw material from which one can envisage a richer reservoir of generalised trust in which greater and wider prosperity is possible for more people?

Most literature focusses on how corruption stifles innovation because, for instance, it undermines trust in how a partial state might treat the fruits of any enterprise (see for example Mauro 1995; Mbaku 2007; Anokhin and Schulze 2009; cf. Mironov 2005). But what if at least some of the same creative thinking that goes into corrupt practices is from the same pool or resource of spirit-of-enterprise that might be capable of finding useful good short-cuts or leapfrogs that make government more efficient and responsive and better able to serve the wider public interest? (***)

Thus how do we foster 'good' creativity and innovation by private entities and individuals not just in commerce or social services but also in designing or influencing the provision of public goods such as security, public financial integrity or the rule of law?

You will see that I have no idea! This post involves fumbling about in the hope of stumbling upon the beginnings of a theory that manifests principled pragmatism and looks for ways to see how transactions and relationships that appear illicit and damaging may have lessons in terms of regulating the interface of private interests and public authorisation, which is where corruption occurs. If I find it I will also find a neater name than 'Governance-by-outcome-not-process'. It is in procedures that opportunities for corruption lie; those who seek to short-cut such procedures (for nefarious or even just frustrated reasons) may be telling us something about designing institutions and regulations to minimise opportunities for rent-seeking by officials.

There are familiar balances involved in idealising forms of regulation and governance: for example, one wants public servants to be responsive and pragmatic (accessible and clean), but not too responsive and malleable (accessible but corrupt). Moreover, of course, not all the regulation that matters or works comes from the state. We talk about fostering 'bottom-up' initiatives, but are also typically sceptical about those that come from non-state sources.

But I don't mean this -- rather I mean being prepared to accept (a) that some corruption fosters growth or distribution, or indicates that formal licit approval is too hard for some sectors of the public (ie, corruption could represent a reaction to bad policy, a sign that governance is not working or is requiring anti-social short-cut actions which could instead be investigated and the innovative approaches directed towards pro-social outcomes); (b) some corruption nodes indicate bureaucratic bottlenecks that simply should be relaxed or removed (rather than 'strengthened' by anti-corruption measures) and (c) corruption sometimes indicates that individual actors have found a more efficient route than policymakers prescribe, which may have virtuous implications (see for example Leff 1964; Bailey 1966).

This is all rather undercooked, but represents an attempt to think about how to design systems of governance and development-promotion that instead of requiring innovation in terms of ways to get around regulations, designs regulations that stimulate 'good' short-cuts and leapfrogs that help point officials towards making government both responsive and responsible. I stand ready to be accused of rank naivety...

Jo

* = Often, of course, it is less romantic things at work, and what is cast as 'enterprising' is instead just about survival or subsistence; that is, adversity and necessity -- not just curiosity or the promise of commercial gain -- are a major source of inventiveness.

** = The other point to note is that much of the most damaging corruption (in Africa and around the world) is not particularly innovative: often it is just a blunt and blatant act of taking (or withholding, for example of tax obligations) that does not require strong entrepreneurial skills to find ways around barriers, it only requires weak systems of oversight and accountability. Moreover, from the perspective of those marginalised from their proceeds or benefits, formalised systems of governance may be seen simply as private enrichment systems dressed up as public order. It depends on one's view of the legitimacy of the state and its processes in any one setting.

*** = A somewhat related question is the opportunity cost of anti-corruption and accountability systems -- some (eg Anechiarico and Jacobs 1996) argue, in effect, that effort should rather be directed to supporting 'good' creativity in governance rather than trying to stamp out 'bad' creativity...

End 2012: regulatory proliferation and fatigue

A look back over this blog in 2012 would reveal a number of recurring themes, for example:

• What is the role of the private sector in helping provide public goods in Africa -- what implications does an expanded role for (or set of expectations on) business have for policymaking? What strategic risks arise where firms take on a greater burden for example in social investment?
• How can we improve business-government relations and communications, including to define better the distinct responsibilities of each in relation to building more peaceful, prosperous, participatory societies? What risks arise where business takes more of a lead on socio-political issues?

Inequality gap as a private sector issue, too

Yet if I could choose one macro-theme touched on in many posts, it is the challenge the private sector faces -- at least in the continent I cover -- from growing social inequality and diverging social indicators (in other regions, I would add here what I think is a trend of greater nationalist and protectionist sentiment, including among supposedly more open-minded younger people). Poverty-reduction and social policy are clearly the responsibility of governments; yet firms and financiers have an interest in building more inclusive, educated, employed, empowered societies -- if not to maximise market size and depth then at least to mitigate the risk of social disharmony creating serious future disruptions to commerce.

Regulatory proliferation

Instead of these issues (more in 2013), I'll return to the theme of regulatory proliferation -- what does it mean for influencing responsible business conduct -- while trying not to see as growing regulatory and compliance fatigue what is only my own end-of-year need for rest!

It is December -- a year since I started blogging on this site.

For many, blogging means daily inputs responding to issues and events. Instead I've conceived of this site as a weekly or fortnightly missive on trends at the intersection of business and society.

One reason I've had for eschewing daily posts is a consciousness of just how saturated most people I know are with information and analysis. This internet-accelerated quantity does not necessarily lead to better quality insights or decisions. Concentration and constant stimulation do not go well together.

Might this proliferation problem not also be the case when regulating business conduct?

At a recent conference (see previous post) one obstacle raised to better governance of natural resources was the proliferation of voluntary and other initiatives to regulate contract and revenue transparency, conflict-free minerals, and so on. Corporate actors can become focussed on narrow compliance or reporting issues rather than thinking clearly and strategically about how to 'do well while doing good'. The US Dodd-Frank financial regulations are frequently cited as far too complex and lengthy, and likely mainly to keep lawyers well billed.

This is not the place for reciting the academic literature from regulatory theorists; and if I do not here give enough caveats about 'of course business wants less regulation' it is only to avoid saturating prose. Also, as an ex-lawyer myself I hardly disown the need for 'hard law' rules. Simple directives alone cannot govern all complex market transactions; and one cannot rely on self-regulation alone. So of course there is a place for codes of rules -- for example, to control to whom a gunshop business may sell military-style weaponry. Also, it is strongly arguable that regulation of business and investor responsibility is only just getting going, so why retreat from norm-building now? Moreover, I'm sure to blog in 2013 about how public policy should be comfortable with or indeed encourage multiple sources of regulatory influence in an incorrigibly plural world -- all the better to promote business practices more aligned to the sort of society we want for our children.

Yet despite all this, it is not obvious to me that 'more' is 'better' when it comes to changing behaviours.

A former China correspondent recently told me how in his view the phenomenal and rapid process of modernisation in that country came not from reams of codes and stipulations and directives. In his view it came in large part from a gesture -- the expression of a simple but powerful idea, a permissive or steering indication -- by the remarkable Deng Xiaoping. This described a destination, leaving it to others to map the particular steps.

So I end my last 2012 post wondering whether the most powerful ordering force for reconciling business and social values and needs might not be highly specific codes and regulations -- although no doubt enforceable rules and some detailed guidance will always be needed. Instead, the most influential driver of responsible business conduct might be what Marti Koskeniemmi called the 'regulatory idea' of (in his case) international law.

Customers, citizens, insurers, investigators -- all these will, if trends continue, recognise and reward (or regulate) where a business is trying to mitigate social harms and multiply social goods. It will take rules to tidy-up and trigger-on parts of this trend, but the transformative potential and power of greater business-society alignment lies in the idea, not the individual sub-clause; in the destination, not the detailed sub-section.

Proliferation of rules and schemes is valuable if it assists in stimulating socially-responsible business and delineating public and private sector responsibilities -- not if it obscures the relatively simple notion: do no harm.

Jo

Reluctant regulatees -- or reluctant regulators?

As many who follow Africa continue to take in the near- and longer-term 'meaning' of the events at Marikana mine last month (see the last post), I'm thinking about the tendency to cast the private sector as a set of reluctant regulatees, eluding well-meaning policymakers at each possible turn.

In many cases, what we have are reluctant regulators (not to mention incapable, captured or other ones -- another time).

A lay person could read the stories on South Africa's mining sector, especially labour relations, health and safety, and social investment issues, and develop the impression that the government has dragged firms, kicking and screaming, to deliver on wider development imperatives and aspirations.

This is not necessarily the story. In many cases, major firms (perhaps from self-interest, but at least 'enlightened' self-interest) have seen the longer-term risks for example from HIV levels in the workforce, and not waited for government directives. On some issues, business leads government in South Africa -- tho of course it is an elected government's prerogative and duty to ensure private actors meet public goals.

Consider the excellent doctoral work by researchers in this town like Gus Selby and later Charles Laurie into the vexed question of land reform to address historic injustices in Zimbabwe: I'm loathe to over-simplify, but one neglected dimension to that story -- often portrayed as ZANU-PF dragging recalcitrant white farmers to negotiate land redistribution -- is how the Commercial Farmers' Union saw the long-term risks of inaction on this issue and tried to get a reluctant / distracted / whatever government to move on the issue gradually and sustainably.

Rather than an apologia for the private sector, its worth noting that the story is less often as one-sided as it seems.

I think, incidentally, of my colleague Andrea B's comments on the regional tourism outlook in east Africa. While it is probably in all East Africa Community (EAC) countries' net interests to work quickly on helping enable more seamless travel for foreign tourists (eg by devising a common tourist visa), on this and many other issues, it is private operators who are forging ahead.

As Richard Dowden noted at our conference last year, in Africa so much of the stories of innovation and progress happen despite the state, not because of it (this is not an argument for weak states, much less a contribution to the US presidential 'what-role-for-the-government' debate!).

Moreover, as an early post ('Who regulates who?) noted, much of the safety and other regulation that we value and that is likely to run with the grain of commercial realities started life off not as public prescription but private initiative between members of an industry. The risk of spaces that might nurture self-serving cartels must be balanced with acknowledgement that not all the regulation that matters comes down from above or takes legislative form.

Anyway, the basic point is that in hard cases -- land reform in southern Africa is such one -- it cannot be assumed that the narrative is one of enlightened regulator and reluctant regulatee. The challenge, as the mentor-esque John Braithwaite has shown, is in catalysing virtuous circles of regulatory dialogue that involve suasion and persuasion as much as stipulation and resistance; or regulatory neglect.

Jo

Bribery and corruption: OECD work in Africa

Bribery and corruption are very significant issues at the nexus of the private sector’s role and the achievement of public policy goals in sub-Saharan Africa.

In this slightly longer post, Melissa Khemani, an anti-corruption analyst and legal expert at the OECD in Paris, kindly agreed to respond to questions about some current institutional measures on the issue:

JF - Partnership between members of the OECD and the African Development Bank (AfDB) last year led to a new initiative, the Anti-Bribery and Business Integrity Course of Action for Africa. What are some challenges you think it has or will encounter in terms of uptake and implementation by governments in Africa?

MK – In 2011, the members of the Joint AfDB/OECD Initiative agreed to the Course of Action, which sets out a number of measures countries can undertake to help curb the bribery of public officials in business transactions from both the demand and supply side. This was a major accomplishment and reaffirmed the momentum that is building in this region to tackle this form of corruption.

Of course, the biggest challenge now is to turn the rhetoric into reality, and to implement and enforce these policies effectively. Bribery in business transactions is a complex crime, which is difficult to prevent, detect, investigate and prosecute. It requires a coordinated approach from a cross-section of government agencies and non-governmental stakeholders to fight effectively. It also requires a great deal of technical legal and investigative expertise. Cultivating the political will -- which in turn translates into the resources and priority dedicated to fighting this form of corruption -- is the biggest challenge in any country. The objective behind the Joint Initiative is not only to share the 15 years of the OECD’s expertise and experience in fighting bribery in business transactions through the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Anti-Bribery Convention) but to also raise awareness of the economic and social costs of this form of corruption in order to help garner the political will to fight it.

JF – What about on the part of business -- is it partly an issue of awareness-raising, or is there much more to it than that?

MK – Awareness-raising is crucial, not only of the sanctions companies and individuals may face for engaging in bribery, but also for making the ‘business case’ against corruption, especially at this important juncture which is seeing Africa increasingly attract significant foreign investment, and African companies increasingly investing abroad. It is easy to see the short term gain of paying a bribe to obtain a contract. But in the long term, this increases the costs of doing business, and these costs can only be recouped through the delivery of sub-standard products or through higher prices. This is unsustainable for companies in increasingly competitive, globalized markets.

Engaging in bribery also creates business uncertainty, as such behaviour does not necessarily guarantee business to a company; there can always be another company willing to offer a higher bribe to tilt the business in its favour. As a result, bribery may swiftly lead to, in economic terms, a ‘race to the bottom’, where the least desirable and inefficient company may obtain business not on the basis of merit but on the basis of ‘deep pockets’ -- a situation that cannot be sustained over the medium and long term.

Robust awareness-raising also helps set and reinforce the tone of a company’s anti-corruption ethos. All of the companies I have met with which place a very high priority on anti-corruption ethics and compliance have said that one of the most important ways to prevent bribery is to set the ‘tone from the top’ that bribery and corruption is not their way of doing business, it is not in the interests of the company, and employees will be reprimanded for engaging in such conduct. Of course, such awareness-raising must be backed-up by a meaningful anti-bribery compliance infrastructure including, among other things, regular trainings, clear rules on gifts and hospitality, due diligence rules on agents and joint venture partners, and internal whistleblower reporting mechanisms. It is much more than just simply sending out a yearly memo.

JF – There is a lot of talk about the need for a ‘level playing field’ on business integrity regulation. How do you see the role of the OECD in promoting harmonization of standards across OECD members on anti-bribery and corruption in the context of all one hears about the need to compete?

MK – One of the main objectives that underpinned the drafting and signing of the OECD Anti-Bribery Convention in 1997 was to try to ensure a level playing field in international business through international treaty commitments. The idea is that companies should obtain business on the basis of merit and fair competition rather than on having paid bribes. With the OECD Anti-Bribery Convention, 39 of the world’s largest exporting and foreign direct investing countries have enacted and enforce foreign bribery laws.

The rigorous peer review monitoring mechanism attached to the Convention, undertaken by the OECD Working Group on Bribery, plays an important role in ensuring such standards are being equally enforced across member countries. Furthermore, in 2009, the Working Group on Bribery adopted the Good Practice Guidance on Internal Controls, Ethics and Compliance to assist companies prevent and detect foreign bribery. This is the first ever guidance provided to the private sector at the inter-governmental level, and has thus played a very important role in harmonizing minimum standards on anti-bribery business integrity.

JF – The suggestion of those seeing a ‘Beijing consensus’ phenomenon is that increasingly it is / may be state-owned firms we see investing in Africa and its resources. How does this raise problems or possibilities for regulating bribery and corruption?

MK – The OECD Anti-Bribery Convention requires member countries to include state-owned companies within the jurisdictional reach of their foreign bribery laws. As such, these companies should be just as aware of bribery risks and implications as private companies, especially when operating in high risk geographic zones or sectors. I am aware that there are concerns that countries will not enforce such laws against state-owned companies as rigorously. However, the Convention addresses this in part through Article 5, which prohibits considerations of national economic interest to influence enforcement actions, and there have been examples of enforcement actions taken against state-owned companies in member countries of the Convention.

JF – I see talk of a ‘monitoring mechanism’ for the Course of Action. What will happen with that? Indeed, more broadly where do you see the emphasis likely going in terms of the future work of the initiative?

MK – The Initiative has just taken off, and the next step is for the member countries to decide how they wish to implement the Anti-Bribery and Business Integrity Course of Action for Africa. This could take the form of a monitoring system loosely based on the OECD’s peer review mechanism where countries review one another’s efforts to implement the Course of Action and make recommendations. It could also take the form of having certain thematic issues addressed in the Course of Action investigated in more depth, and identify best practices. This is really for the member countries to decide, and it is envisioned to be discussed at their next meeting.

In terms of future work -- again, this is for the member countries to set -- but I would surmise that emphasis will likely be placed on horizontal challenges the countries are confronting; this could include issues concerning anti-bribery enforcement, promotion of anti-bribery corporate ethics and codes of conduct, anti-corruption in national resources extraction, transparency in public procurement, or preventing corruption in development aid-funded contracts, to highlight a few…

[I record my thanks to Melissa, whose responses are reproduced unedited but which do not necessarily represent those of the OECD secretariat, the Working Group, or the joint OECD-AfDB initiative].

This blog will continue to feature occasional interviews. I hope you are enjoying the weekly or fortnightly posts (we’re all saturated in information these days) and feel free to forward the blog to those you think may be interested in it; also, feel free to use the ‘comments’ facility.

Jo

Hard laws or voluntary guidelines?

Do voluntary guidelines for firms and governments represent regulatory failure or a defensible form of principled pragmatism?


This Thursday -- ahead of the G8 meeting -- President Obama meets four African heads of state on food security issues. Major UN agency the FAO has just adopted voluntary guidelines on the responsible governance of tenure / access rights for resources key to national food security (land, forests and fisheries). Debates on the upsurge in foreign investor interest in African agricultural land range widely between accounts championing a new era of farming productivity (new capital, unlocked potential) and critiques of unscrupulous land grabs (companies displacing communities, biofuels displacing basic foods, etc).


This post dodges these difficult debates to focus on another one: by being voluntary, do such guidelines represent an unjustifiable 'turn to ethics' in efforts to ensure responsible business conduct? Do they represent a retreat from harder, binding legal norms, a defeatism that erects broad voluntary frameworks when what is needed is a treaty with corresponding national-level legislation? The new FAO guidelines, like others of this sort, have followed some years of multi-stakeholder negotiations that have included private sector representatives (see for example here). Do such processes and their outcomes -- as their critics would maintain -- represent a triumph for commercial interests at the expense of the public interest?


The argument against

Critics of corporate voluntarism and self-regulation tend to argue that this approach obscures formal legal accountability and obstructs or displaces the development of binding legal norms; diverts what should be legal issues into merely ethical ones; and makes us feel like we are doing something about the governance gap. The argument is that such guidelines provide illusory accountability while reducing the demand and momentum for change, so that even no regulation is better than the pretence of regulation provided by voluntary guidelines. The FAO guidelines are mainly directed at governments (to provide the basis of national policies and laws) not corporates; however, there is an argument that voluntarism risks undermining efforts to promote accountability by business, and by shifting the onus to corporates such initiatives may deflect responsibility from public authorities while shifting regulatory power to private sector actors.


The argument for

These arguments deserve to be taken seriously. However, those disappointed that a three-year long process yields voluntary guidelines rather than treaty obligations overlook some key arguments:

* Promoting voluntary adoption of norms does not mean business remains immune from substantive values and strategic pressures;
* Not all the orderings that count or work are those legislated from above; legislating is not necessarily more important or effective an activity than persuading businesses in ways that engage their own interests; what matters is not whether a scheme is voluntary or mandatory, but its capacity to engender behavoural change;
* Voluntary frameworks do not necessarily retard the evolution of binding norms and can prepare the way for formal rules. Historically, many legal rules resulted from the state codifying what was preceding industry practice adopted by consensus and which had the advantage of bringing the industry along with it;
* The process of arriving at such guidelines in consultation with business and others can help build cultural resources and expectations -- assets that any later binding rules will rely on for more ready compliance;
* Voluntary codes are incomplete and fallible -- but so is formal state regulation. Moreover, the UN / Ruggie process on business and human rights showed fairly convincingly that focussing only on efforts to secure a binding treaty can generate far more resistance, delaying things for decades and undermining / distracting from interim reform efforts that involve synergies between binding and non-binding measures; Ruggie suggested that such guidelines can provide a platform for generating cumulative and sustainable progress without closing off the possibility of further development of laws. Christine Parker (2002) has noted how law can often be desparately short of techniques to stimulate business capacity for virtue. Even if one had a fully-developed treaty obliging states to regulate (in this case) access to land and other resources so as to foster local food security, the mere existence of such a treaty would not have that effect.

The FAO guidelines arguably represent part of a process: high global oil prices, among other things, continue to drive bio-fuels demand, while the 2011 Arab Spring uprisings were a reminder of the political effect of high urban food prices. Along with rapid urbanisation in Asia and elsewhere, these forces will continue to mean strong commercial and sovereign interest in African food production resources. Last week's guidelines may be disappointing to critics of perceived land grabs in Africa. But by attempting to condition the terms on which governments transact on such resources, they arguably represent significant progress in steadily raising the standard of what counts as reasonable conduct when local food security, livelihoods and cultural relations to land are at stake.

Jo