A
wave of human rights lawsuits against multinationals demonstrates the
need for board oversight of CSR risks, says Elliot Schrage
American courts are redefining global corporate social responsibility,
with business practices once considered standard operating procedures
increasingly under attack before US judges. ExxonMobil and Unocal are
accused of complicity with the repressive practices of security forces
in Indonesia and Myanmar (formerly Burma). Plaintiffs charge Gap, Levi
Strauss and other retailers of conspiring with factory owners to place
migrant workers into ‘sweatshop’ conditions on the island of Saipan.
Court scrutiny has not been limited to American multinationals. A US
appeals court, for example, agreed that Royal Dutch Shell (not its US
subsidiary) was subject to US court scrutiny for its role in the
execution of Ogoni activist Ken Saro-Wiwa by the Nigerian government.
Historically, acceptable global business practices were grounded in the
principle of ‘when in Rome, do as the Romans do’. Responsible
multinationals respected local customs and practices. Managers no
longer have it so easy. These lawsuits chip away at the historic
principle by pushing US courts to scrutinize transnational business
relationships. The cases demonstrate the profound risks facing
corporations that operate without a clear set of corporate values – and
effective procedures to apply them worldwide.
Who best
to set these standards, define those values, and review their
implementation? Governments seem unlikely to agree on any regime of
global social regulation anytime soon. Corporations face a strategic
challenge: should this work be managed as an operational matter or as a
corporate governance issue?
Promoting global CSR should
become a corporate governance challenge for directors, not simply an
operational challenge facing management committees. The magnitude of
the potential risks is simply too great. Too few corporate boards
include ‘public policy’ or ‘corporate responsibility’ committees
charged with addressing the risks of doing business in diverse markets.
Perhaps it is no accident that Nike – one of the main targets of the
lawyers and anti-globalists – recently established such a committee.
Yet it is remarkable that corporations have done so little to give
boards meaningful oversight. How many CSR executives regularly report
to corporate directors on these risks and opportunities?
The Enron debacle has brought new attention to the responsibilities of
audit committees and the need for independent oversight of management’s
accounting practices. The coming wave of human rights cases promises to
do the same for global social responsibility.
Elliot Schrage, adjunct senior fellow in business and foreign policy at
the Council on Foreign Relations, teaches at Columbia University’s
Graduate School of Business. He was previously senior vice president at
Gap
