The Mandatory Versus Voluntary Debate

In many ways, the rise of international standards and certification bodies has suddenly transformed the entire debate as to the respective responsibilities of government and business. Over the past five years , companies lobbied strongly to resist mandatory reporting or independent auditing, citing fears of bureaucracy, cost, and lack of valid comparisons. And although several national governments and even supranational groups such as the EU Commission have moved toward requiring nonfinancial reporting (as we see in the next chapter), companies have so far been successful in arguing that so many standards exist that it is unworkable until a preferred set of performance and process standards become recognized by the international community. Those in favor of mandatory reporting requirements argue that with the level of privatization and deregulation occurring in most developed economies, the corporate community can t have it both ways ” they must accept some form of mandatory regulation, or create an acceptable system for protecting workers and the environment themselves .

Ultimately, the argument may have already been resolved simply by fiat, for two reasons. First, the combined effect of NGO, investor, and consumer pressure has forced companies to appreciate the value of more meaningful ” less easily criticized ” reports on the social and environmental supply chain performance. Companies have suddenly become aware that their efforts at selective reporting are not only not helping them, but effectively making things worse , laying them open to greater criticism for hypocrisy.

Second, and equally important, the standards movement has coalesced around several major performance and process standards and reporting processes much more quickly than anyone could have anticipated. Today, a handful of these (Chapter Ten) have emerged as leaders , and are quickly being adopted by the most progressive multinationals. And as a 2002 OECD survey revealed, for those companies that do have codes of labor and employment practice, the vast majority of these companies mention all of the core labour standards. They concluded that this convergence was surprising given the wide variety of codes being developed by companies just three years ago. ^{[28 ]} Growing acceptance of these standardized codes of supplier conduct is creating a de facto requirement for companies to adopt these standards as a matter of competition, thereby undermining the need for states to make such reporting mandatory.

In fact, this certification process brings many benefits to the governments of third-world economies as well. In countries with stringent, rigorouslyenforced labor and environmental laws, says Gary Gereffi, professor of sociology and director of the Markets and Management Studies Program at Duke University, certification provides a private layer of governance that moves beyond state borders to shape global supply chains. In countries with nascent or ineffective labor and environmental legislation, certification can draw attention to uneven standards and help mitigate these disparities. The challenge is for states to accept certification not as a threat but as an opportunity to reinforce labor and environmental goals within their sovereign territory and beyond.

Finally, this type of standards certification process can help to ensure that global trade remains unfettered. While certification will never replace the state, says Gereffi, it is quickly becoming a powerful tool for promoting worker rights and protecting the environment in an era of free trade. These new mechanisms of transnational private governance exist alongside and within national and international regimes like the North American Free Trade Agreement, complementing and, in some cases, bolstering their efforts. ^{[29 ]}

These emerging standards, codes, and reporting guidelines then promise-to revolutionize the relationship between companies and their suppliers, and are rapidly becoming an important strategic concern for companies worldwide. Importantly, as we will see, this standardization and reporting framework is taking on great momentum, particularly in Europe and Japan, with a level of enthusiasm that is largely unappreciated in the United States. How that dramatic shift occurred and why it is so important to U.S. corporations is what we explore next.

^{[28 ]} Surveys Find Many Consumers Hold Companies Responsible for Their Actions, September 30, 1999, from Press Room on the PricewaterhouseCoopers Web site at www.pwcglobal.com.

^{[29 ]} Managing Working Conditions in the Supply Chain, OECD Directorate for Financial, Fiscal and Enterprise Affairs Working Paper on International Investment, no. 2002/2, June 2002, p. 1.