Rana Plaza: business, human rights and regulation

Where are energies best placed in closing the 'governance gap' on preventing and remedying human rights violations related to business activity?

This week came news from Bangladesh of murder charges brought against the owner of Rana Plaza (and some government officials) relating to the 2013 garment factory disaster, which claimed over 1,100 workers' lives.

Since such smaller, local businesses often supply global brands, the disaster gave some momentum to debates on the responsibilities of big brands for ensuring compliance with basic human rights, health and safety standards in their supply chains.

Such debates often ask 'who has responsibility' as if there must be one single actor accountable -- factory owners, local regulators in the production state, regulators in the retail state, brands and buyers (and their financiers), or consumers in more developed countries.

The boring answer is that a just and comprehensive and effective global system on business and human rights must inevitably involve a patchwork of differentiated but related roles and responsibilities.

(The standards against which these responsibilities can be gauged are fairly clear now, certainly in the global garment industry.)

The reasons for poor compliance vary; so must the strategies for promoting systemic practices of continuous improvement.

Unsatisfying as it sounds, a 'smart mix' of regulatory mechanisms and techniques will be required.

These must be grounded in public law, but also engage business actors in positive ways that go with the grain of commercial realities and seek to leverage a range of incentives beyond simple top-down legal commands.

In this context, events such as the Rana charges this week reveal, to my mind, at least three points:

1. Human rights need strong national laws: relying on industry self-regulation of labour standards in global supply-chains is not enough.

2. Global legal schemes for 'business and human rights' will only be as strong as the capacity and will of local authorities to uphold standards.

3. Consumers can be 'regulators' of business human rights compliance, and meeting minimum standards does not necessarily inflate costs.

The third point is a reminder that there is no necessary trade-off between being a responsible business and being a competitive one.

In an ideal world, and perhaps in the world to come (in some sectors, in some places), being a responsible business will be integral to being a competitive one.

If that is to transpire, for all the regulatory power in the world and for all the importance of having mandatory standards, there is no power quite like the power of the market to change business behaviour in society.

This puts the 'regulatory' onus on consumers, ultimately, in relation to human rights issues in retail supply chains.

That is not the same as saying 'let the market decide' without regulatory interventions. It is to recognise that the most powerful incentive for smaller business owners such as Mr Rana and family is a commercial one: comply or fail.

Jo

For previous posts on Business and Human Rights, see here.

Milton Friedman's ghost in Mombasa, 2015

The fashion at corporate responsibility summits is to mock Milton Friedman, the Chicago school economist.

I often wonder how many who do so have in fact read his late 1960s - early 70s doctrine before dismissing his famous line that '... the only social responsibility of business is to make profits...'

(Here it is in a nutshell, and by the way in its full explicit Cold War, capitalism-as-freedom context; a fair full quote would add what he did: '... so long as it stays within the rules of the game ...' engaging in free and fair competition without deceit, and compliance with the laws of the land.) 

Friedman's ghost has appeared a few times to me, in broad daylight too, here.

'Here' is downtown Mombasa, the heaving multi-ethnic port city that has long been the gateway to Kenya, and indeed to the entire east Africa region.

(Through its congested port comes everything from east Africa's oil supply to many of the small consumer goods sold by the region's ubiquitous street traders; too little that is Kenyan besides tea is exported in return -- and too much of its 'exports' consist of ivory poached for Asian markets, but that is perhaps another story ...)

In apparent contrast to Friedman's austere doctrine, we now tend to accept that 'the development challenge is no longer the preserve of government'. So reads an editorial by Kenya's deputy president in a local daily, following remarks he made at a conference in Nairobi earlier this week.

The remarks are an opportunity to reflect on what business the business community has in designing and delivering the development agenda -- globally, nationally and locally. 

There is no doubt, in my mind, that business (however we might define it) both has a significant role to play (within some important limits), and has clear interests in the development agenda succeeding.

The deputy president's remarks raise some consistent issues in topical debates on how the private sector can support development, and how supporting a vibrant private sector can have developmental dividends ... 

Some points he makes are hard to argue against. The private sector stands to benefit from developmental gains; its role goes beyond financing or co-financing projects that have development impact -- it is not just a source of resources; and so on.

And only purists will object to him using the term 'corporate social investment' (which can have a limited CSR-project meaning), where he really means a range of broader impacts that larger firms and funds can have beyond simply Friedman's approach of maximising profits while obeying the rules of the game, especially paying taxes and employee's salaries and complying with environmental and other laws.

Here in Mombasa there are initiatives, for instance, that reveal business groupings taking a more deliberate, engaged, do-not-wait-for-government approach to issues such as finding work for what Friedman called 'the hard-core unemployed'.

Yet call me a heretic, and accuse me of seeing ghosts: Friedman was not totally, as they say, 'on crack'.

In all my meetings with businesspeople here, including (in fact, especially) those with sincere longer-term developmental passion and vision, a message emerges that on its face is uncomfortable for all of us espousing a far greater explicit role for business in development.

This is the inconvenient truth that the greatest developmental impact business could have in places like this is for government to focus on allowing them to succeed as businesses. Not specifically as socially responsible or development-oriented businesses (although there's no trade-off necessary), but to succeed as law-abiding firms creating value, jobs, tax revenues, demand for better governance, and so on.

The developmental impact that a flourishing, open business sector could have in such places (within the natural resource and environmental envelope) perhaps compels one to turn from exploring alignments and partnerships (the current trend) to old-fashioned 'let tax-paying business succeed'.

The public policy issue then is far more about fostering enabling environments for core business activities, than persuading business to seek alignment with particular aspects of the development agenda. 

If so, it follows that contrary to the deputy president's (otherwise welcome) message, the role of government is not to help business identify where it can have maximum developmental impact.

Instead the role of government is to identify where it (government) can create maximum developmental impact by identifying where to help business do what business does best, while upholding the (evolving, more demanding) rules of the game ... cue Milton Friedman's famous quote.

Jo

PS -- this approach may of course assume that government has the regulatory, planning and other capacity in particular to tax business appropriately and to make use of those revenues.

Business, peace and regulatory approaches

This post comes from Oslo, ahead of tomorrow's 'Business for Peace' award and summit.

The award was initiated by the B4P Foundation to recognise firms and business leaders that have made a special contribution to promoting the prospects for peace, either locally or (I suppose) on a net global basis.

The summit itself seems largely devoted to much broader 'sustainable business' themes. Adopting a nerdy hat, i'd have to say that more research is needed to support the (intuitive) proposition that sustainability approaches are also peace-enhancing ones.

The idea of recognition and other positive incentives reflects a sound regulatory approach that does not simply conceive of business as a source of possible conflict risk.

Much of the literature on business + peace / conflict is on the negative impacts that investment or business activity can have on peacebuilding, for example directed to conflict links in global supply chains, for example in the mining sector.

This is only part of the story. Awards like the Oslo one do not necessarily have significant impact, but the idea of recognition goes to the heart of a regulatory approach that seeks to harness the incentives, resources, etc of business in support of public policy objectives.

This approach informs my book Regulating Business for Peace (see link below) -- captured in this quote at the front of the book (Bardach and Kagan, 1982):

"[T]he social responsibility of regulators, in the end, must be not simply to impose controls, but to activate and draw upon the conscience and the talents of those they seek to regulate..."

The idea of measuring a business's net contribution to peace even in local settings, by the way, is a very complex one. This June sees the publication of our report from Chatham House exploring (in some factual scenarios) the merit of propositions that natural resource development in fragile states can have a 'peace-positive' effect.

This involves some tricky concepts, and for the most part business does not see a role in overt or explicit contributions to consolidating peace. It sees the scope of its proper role as efforts to 'do no harm', in terms of adopting conflict-sensitive approaches.

Public policy should be comfortable with that, while regulatory approaches should look to catalyse continuous improvement in business conduct -- social contributions well beyond mere compliance with minimum standards.

For some previous posts on this topic, and book link, see here. 

Jo

Cross-sector partnerships: fashion, fuzz and focus

This post marks six months to the summit to agree the next global development agenda, to replace the 2000-2015 MDGs (Millennium Development Goals).

Discussion of the Sustainable Development Goals is filled with the significance of cross-sector partnering as the key to unlocking development potential.

By 'cross-sector' is often (if not exclusively) meant 'public-private' and so the partnering agenda is, in large part, about more proactively engaging the worlds of business and finance in the world's development.

If 2015 is the 'year of partnerships', what is at stake?

Any good contribution on this topic needs to address, at a minimum (a) what sorts of activities might be meant by the broad term 'partnership' or 'partnering'; and (b) the many assumptions that attend the rhetoric on this issue: assumptions about trust (between business and government), and about aligned incentives and adequate capacities for long-term sustained partnering.

This is vital since (as often when UN summits loom) there is a tendency towards self-reinforcing rhetoric, persistent refrains that reinforce fashions while often losing sight of opportunity costs and risks.

The fashion for cross-sector partnering risks erecting this very difficult, emerging set of practices as the development panacea without adequately theorising, testing, illustrating. 

It also risks distancing states from their development obligations by suggesting that the main vector for development requires the cooperation of business and others. Yes, collaborative development holds great promise, but development failures cannot simply be put (in future) to the failure of partnerships. These fail all the time, in many areas of life.

A blogger on this -- or any -- issue should offer variety along with some attempt at insight, opinion, information.

This is true even for an occasional (roughly fortnightly) blog like this one.

Yet when a topic is complex, surrounded by mediocre inputs, and very important, I think a blogger adds value simply by passing on something worth reading.

Of all the pieces I've read in 2015, this World Vision report perhaps best sets out the issues and meets its title's promise of 'advancing debate' -- if only by promising to help clarify what the debate is, and so separate fashion and fuzz from topics that need focus. (It follows some earlier excellent briefings from that organisation on this topic).

For the most recent thoughts on this issue on this blog, see here.

Jo

Business and human rights: framing issues

If the 'business and human rights' agenda becomes about everything, it will end up standing for (and achieving) nothing.

I noted this in a recent Chatham House paper referred to in the previous post.

This week, The Economist released a report showing how unsure business people are about what is required of them in relation to a responsibility to respect human rights.

I suppose my perspective is shaped by a legal background, such that to describe something in human rights terms is to suggest that one is dealing with activity that impairs recognised rights, activity with legal consequences, invoking all the regulatory power of profound universal norms.

This is not how the current 'business and human rights' (BHR) debate proceeds, as my paper noted. 

Instead, as a roundtable in London yesterday reinforced, many proponents see the BHR debate as very broad, relating to issues from 'tax justice' to 'casualisation of labour'. In none of these areas can it credibly be said that a business violates someone's human rights in ways that international (or even national) law, as it exists today, would recognise.

The BHR agenda is, I think, at something of a cross-roads.

The breadth of the BHR agenda and the resonance of framing things as 'human rights' is part of its power, power that might contribute to shifting the very nature of capitalism and the corporation's role in society.

Framed positively, the conversation can be one about how to solve social problems and create shared value, not about narrow issues of compliance, liability, remedy.

Yet the very power that the BHR project has is derived from the fact that 'human rights' are norms recognised, over time and by the consensus of states, as deserving special protection as a function of their universality. Seen this way, it may be tempting to recruit 'human rights' for every campaign about changing how business operates, but this risks diluting the force of the principles and claims that give BHR resonance in the first place.

Jo

These issues are the subject of a forthcoming research paper at Chatham House.