Codes in Context
TNC Regulation in an Era of Dialogues and Partnerships

 

Summary

As corporations have expanded beyond their national borders, it has become harder for individual countries to protect public interests through national regulation alone. But instead of laws at the international level, industry self regulation or co-regulation is often considered the best way to set global rules. This briefing paper challenges the effectiveness of voluntary approaches. By drawing on a case study of the infant food industry, it raises crucial questions about efforts to make TNCs publicly accountable at a time when dialogues and partnerships are often regarded as the best way to interact with them.

Contents

• "Commerciogenic Malnutrition"
• Box 1: International Regulation of TNCs: A Short History
  • Opposition to Regulation
  • Self-Regulation and Co-Regulation
• Box 2: Rules and Rule-Setters
  • Public Regulation
  • Co-Regulation
  • Self-Regulation
  • 'Voluntary' Confusion
• Interfering with Code Implementation
  • Disseminating industry versions of the Code
  • Lobbying for legislation which is weaker than the Code
  • Threatening trade retaliation
  • Lobbying for 'freedom of commercial speech'
  • Enlisting health professionals
  • Challenging legislation in the courts
  • Lobbying to draft legislation and monitor compliance
• Box 3: The Myth of the Self-Regulating Market
  • International Rules
• Strategic Public Relations
• Box 4: Dialogues ... or Strategic Public Relations?
  • Dialogue or Delay?
• Regulation in an Era of Dialogues & Partnerships
• Box 5: Voluntary Initiatives - Limitations and Risks
  • Codes of Conduct
• Privatisation of the UN?
• Box 6: Partnerships -- Some Critical Questions
• Ruling by Consent
• Regaining Clarity, Facing Controversies
• Box 7: WHO Roundtables and Infant Food Industry Activities
  • Divide-and-Rule
• Box 8: Codes in Context
  • Inconsistencies
• International Regulation of TNCs: A Necessary Task
• Vision and Action
• Box 9: Corporate Watchdogs and the State
  • A Vibrant Public Sphere
• Box 10: To 'Dialogue' or Not? That is the Question
• Notes and references

Introduction

"Historically, progress associated with corporate social and environ-mental responsibility has been driven, to a large extent, by state regulation, collective bargaining and civil society activism. Increasing reliance on voluntary initiatives may be undermining these drivers of corporate responsibility."

Peter Utting, Business Responsibility for Sustainable Development, United Nations Research Institute for Social Development, January 2000

As more and more corporations have expanded their operations beyond national borders over the past 30 years, the ability of an individual state to safeguard public interests through national regulation alone has substantially diminished. As yet, however, no effective and consistent web of laws and standards has emerged at the international level to hold transnational corporations (TNCs) accountable to citizens in all of the countries where they operate. Instead, 'voluntary' self regulation or 'co-regulation'¹ between industry, citizen groups and governments now tend to be considered the most appropriate way to set global rules.

The trend towards industry self-regulation or co-regulation has been supported by two beliefs. One is that corporations are becoming more and more responsible of their own accord, for which the growing number of industry codes of conduct is cited as evidence. According to this view, society no longer needs to insist on legally-binding international regulation. The other belief is that transnational corporations have gained so much power in recent decades that it is impossible to regulate them by externally-defined rules anyway. Building on voluntary agreements with corporations is thus regarded as more pragmatic than antagonising them by promulgating binding international regulations.²

Are these beliefs supported by any evidence? Is it now unnecessary or, indeed, impossible to regulate transnational corporations internationally?

This briefing paper attempts to shed some light on these questions by drawing on a case study of the infant food industry. For more than two decades, a range of public interest groups, governments and UN agencies have tried to rein in the marketing practices of infant food manufacturers worldwide by means of an international code, drawn up under the aegis of the World Health Organisation (WHO) and the United Nations Children's Fund (UNICEF). Their efforts represent one of the longest-standing attempts at international regulation of an industry sector.

Analysis of corporate responses to governments implementing this code in national legislation highlights the potential and limits of current efforts to keep in check corporate activities that conflict with human rights and other social concerns. It also raises crucial questions about endeavours to bring TNCs to account internationally at a time when dialogues and partnerships are regarded by many as the best way to interact with large corporations and their business associations.

Full text

"Commerciogenic Malnutrition"

German born Henri Nestlé started his infant food business in 1867 by mixing toasted flour and condensed milk, the result of new techniques for processing milk. Just five years later, his company was reporting sales of half a million boxes of milk food throughout the world. Other baby food producers followed his lead.

Concerns about the gradual replacement of breastmilk with commercial infant foods in industrialised and developing countries were first voiced in the late 1930s. By the 1960s, breastfeeding was in rapid decline in many parts of the world. By 1967, just one-quarter of babies born in US hospitals were breastfed when their mothers took them home.

The infant food industry used a wide range of promotional methods to increase demand for its products: it stressed that infant formula was equivalent or superior to breastmilk; it played on women's concerns that they did not have enough breastmilk; it depicted healthy-looking babies on its products and promotions; it dressed its salespersons as nurses; it sent large quantities of free supplies of formula to maternity wards; and it worked through the medical profession.

A 1910 study in Boston had already indicated that bottle-fed babies were six times more likely to die in infancy than breastfed ones. In the 1960s, health professionals working in developing countries pointed out these potentially fatal consequences of the inappropriate marketing of breastmilk substitutes -- "commerciogenic malnutrition" as the director of the Caribbean Food and Nutrition Institute in Jamaica called it.³

International pressure groups began to publicise the problem in the 1970s and brought the issue of harmful marketing practices onto the international policy agenda.⁴ Their work led to the first code aimed at regulating internationally the activities of an industry sector: the International Code of Marketing of Breast-milk Substitutes, adopted in 1981 by the World Health Assembly (the governing body of the World Health Organisation-WHO) and endorsed by UNICEF.

The Code does not forbid sales of breastmilk substitutes but rather governs the marketing of them. It prohibits promotion of breastmilk substitutes to the general public, and contact between marketing personnel and pregnant women or mothers of infants. It sets standards for pictures and information on labels, information about infant feeding, provision of samples and free and low-cost supplies, and interactions between companies and the health care system. The aim of the International Code is to:

"contribute to the provision of safe and adequate nutrition for infants, by the protection and promotion of breast-feeding and by ensuring the proper use of breast-milk substitutes, when these are necessary, on the basis of adequate information and through appropriate marketing and distribution."⁵

The World Health Assembly also required governments to implement the Code in national legislation. The Code specifies that manufacturers and distributors of breastmilk substitutes should, "independently of any other measures taken", ensure that their conduct conforms to the principles and aim of the Code "at every level".

Interfering with Code Implementation

Twenty years on, advertising of infant formula is less blatant in many developing countries. Most formula labels state the superiority of breastfeeding and no longer depict chubby, smiling infants. The practice of disguising sales personnel as 'mothercraft nurses' has almost disappeared.

Many infant food companies, meanwhile, maintain that they have now put their house in order and fully support Code implementation.⁶ Nestlé, for instance, stated in 1998 that, "in country after country", it has:

"actively encouraged national adoption of the WHO Code, with strict measures backed up by impartial and effective monitoring ... Nestlé strictly adheres to national codes and all relevant legislation".⁷

But international and national monitoring carried out by citizen groups reveals that some corporations continue to violate the provisions and spirit of the Code. Infant formula is still widely advertised through the media while free supplies to maternity wards are on the increase in some countries.⁸ An estimated one and a half million infants still die each year because they are artificially fed rather than being adequately breastfed.

It is up to national governments to implement, monitor and enforce the International Code (and related measures).⁹ Reports indicate that corporations employ a range of lobbying and legal strategies to block these efforts.

Disseminating industry versions of the Code

Several companies have disseminated their own interpretations of the Code which have encouraged prohibited practices. Nestlé, for example, portrayed the Code in a way which allowed the company to continue giving free supplies of infant formula to health workers and institutions. In 1982, Dr. A. Tarutia from Papua New Guinea told the World Health Assembly that Nestlé's instructions to its subsidiaries on how to interpret the Code constituted a "serious distortion" of it:

"Marketing practices prohibited by the Code are approved of and encouraged by the Nestlé document. My delegation is convinced no private sector has the right to amend the WHO/UNICEF Code".¹⁰

Some infant food manufacturers have also implied that the International Code is not universal in its coverage but applies to developing countries only.

Lobbying for legislation which is weaker than the Code

In Russia, Nestlé provided the authorities with a Russian-language draft law that was much weaker than the Code. It would have allowed infant food companies to advertise directly to mothers in maternity wards.

Infant food companies are also reported to have told governments in Central and Eastern Europe that adoption of legislation based on the Code in its entirety would prejudice their future membership of the European Union.

Threatening trade retaliation

When Zimbabwe was about to implement a law based on the Code, Nestlé threatened to withdraw from the country and relocate elsewhere, arguing that it would no longer be economically viable to operate in Zimbabwe. Nestlé UK added that the proposed legislation "would result in job losses for about 200 people and an extremely negative economic impact on local farmers who supply us with milk, wheat, maize and sugar". A consortium of infant food manufacturers reportedly lobbied the Zimbabwean parliament, arguing that the legislation did not support economic growth and development or trade liberalisation and foreign investment. Nonetheless, Zimbabwe passed its legislation in May 1998 -- and Nestlé's subsidiary is still operating in the country.

Lobbying for 'freedom of commercial speech'

Corporations have attempted to undermine the Code by claiming that it interferes with 'freedom of commercial speech'. In South Africa, for instance, the infant food industry formed an agency called the Freedom of Commercial Speech Trust which lobbied to prevent implementation of national legislation governing the marketing of infant foods. The Trust argued that such legislation would interfere with the role commercial advertising plays in informing HIV-positive mothers about how bottle-feeding can prevent transmission of the virus to an otherwise healthy infant.¹¹

The industry used a similar argument in Swaziland. Pauline Kisanga, a regional coordinator for the International Baby Food Action Network (IBFAN) in Africa, commented that "the argument is always about 'information' but advertising is not information. It is ... propaganda." Swaziland's Ministry of Health and Social Welfare listened to infant food manufacturers and IBFAN -- and requested the companies not to "educate" the public about HIV and breastfeeding as it was the government's responsibility to do so.

The industry's argument about "freedom of commercial speech" implicitly appeals to the principle of freedom of speech, a fundamental civil and political right enshrined in the UN's Universal Declaration of Human Rights. But there is no corporate 'right' to an unfettered flow of any and all commercial communications. Moreover, even citizens' freedom of speech can be limited when it infringes upon legislation designed to protect other human rights, such as laws aimed at preventing racial discrimination and hatred.

Enlisting health professionals

In Pakistan, Nestlé wrote a letter to the ministry of health describing draft legislation as "impractical and not workable and therefore bereft of any support from the paediatric association and the industry" (original emphasis). Building on long-standing financial ties, the company enlisted the support of certain sections of the Pakistan Paediatric Association. Nonetheless, Association leaders voted in support of the law.

In Georgia, Nestlé approached the Ministry of Health in 1997 as the process of drafting legislation to implement the Code was nearing completion. The company offered to sponsor and collaborate in an infant growth monitoring survey, sponsored a tour of medical doctors to Russia, and gave 'best doctor' financial awards to two physicians. Nestlé and French infant food manufacturer Danone sponsored a Georgian medical congress while a German infant food manufacturer, Hipp, wrote newspaper articles opposing the legislation on the grounds that it would "interfere with free trade".

Public awareness raising of these activities, and the good relationship between the Ministry of Health and Georgian NGOs, many of whose members are respected health professionals, ensured that the law implementing the Code was passed in 1999.

Challenging legislation in the courts

In India, consumer groups brought to the attention of the courts breaches of India's 1992 legislation governing breastmilk substitutes. Two of the companies named by the groups apologised for the breaches, but Nestlé challenged the legislation itself, arguing that it was unconstitutional and inconsistent with the country's food laws.

Lobbying to draft legislation and monitor compliance

Although a key principle in establishing the 'rule of law' is to ensure that the fox is not invited to guard the chicken coop -- that the corporations to be regulated do not exercise undue influence over the regulatory process -- the infant food industry has lobbied hard to be part of national monitoring committees in Pakistan, Sri Lanka, Swaziland and Zimbabwe. In 1998, Nestlé complained to the Ministry of Health in Gabon that it had not been invited to participate in the drafting of the national law and reprimanded the drafting body for its "apparent lack of desire for a dialogue". Recognising potential conflicts of interest, delegates at the 1996 World Health Assembly urged member states to ensure that monitoring of the application of the Code was transparent, independent and "free from commercial influence".¹²

These reports thus reveal a significant gap between corporate statements about marketing practices and support of marketing regulation, and corporate conduct. Nonetheless, assistance to national governments from UNICEF, national and international public interest groups, and WHO has often helped countries to resist corporate pressure and enact measures that do protect infant health.

Strategic Public Relations

Besides subverting or circumventing the Code over the past 20 years, the infant food industry has also assiduously developed and used public relations (PR) to defuse criticism, marginalize its critics and interfere with efforts to regulate transnational corporations internationally.

PR is a concealed instrument of corporate power. It influences legislation and political processes and shapes public debates. The PR repertoire includes smuggling PR messages into newspapers and magazines disguised as news, features or opinion articles; encouraging scientists and other non-corporate middlepersons to act in the corporate interest; and building up grassroots groups to act as front organisations. Its aims include:

• gathering intelligence and assessing the socio-political environment in which a company operates, including gaining information about pressure and public interest organisations;
• keeping issues out of the public debate;
• manipulating public debates in favour of the company by delaying legislation, depoliticising discussions, by diverting attention elsewhere, and by fudging the issues;
• constructing a good public image and reputation through strategic sponsorship and by appropriating the image of trusted and well-reputed organisations, institutions, groups or individuals to the corporation (image transfer);
• excluding diverging or antagonistic voices from public debate.¹³

'Dialogues' and 'partnerships' are among the most sophisticated and up-to-date PR methods. The strategy today is to emphasise consensus-oriented dialogue with selected critics, and to urge the public and non-governmental sectors to work with corporations rather than stirring up controversy over industry marketing practices. Those that do not want to enter dialogue or partnerships are often disparaged. The International Association of Infant Food Manufacturers, for example, states that "ongoing confrontation stands in the way of ... vitally needed partnerships" for infant and young child health.¹⁴

Regulation in an Era of Dialogues & Partnerships

The promotion of closer interactions based on 'trust' and 'mutual benefits' between the public and NGO sector, on the one hand, and corporations and their business associations, on the other, extends beyond the infant food controversy and corporate PR strategies more generally. The governments of the US, UK and, more recently, Germany, have championed various kinds of partnerships with the for-profit (private) sector since the mid-1990s. Much of the current discourse among international agencies on governance portrays 'dialogues' and 'partnerships' between large corporations and civil society organisations, national governments or UN agencies and other international organisations as an endeavour which would benefit everyone.¹⁵

Several public interest groups are now collaborating with business. Many are assisting companies with their internal operations by drawing up codes of conduct, developing systems of environmental reporting or carrying out social audits.

At the same time, some of the world's leading corporations are actively reaching out to NGOs and UN organisations. As a review of green business noted in 1998, for forward-thinking businesses, "partnership ... quickly established itself as the strategy of choice".¹⁶ As a result, the number of 'partnerships' linking business and UN organisations such as UNCTAD, UNEP, UNIDO and WHO has increased sharply in recent years.¹⁷

At the 1999 World Economic Forum,¹⁸ for example, UN Secretary-General Kofi Annan proposed a Global Compact of "shared values and principles ... in the areas of human rights, labour standards and environmental practices." In exchange for UN support of free trade, Annan asked member companies of the International Chamber of Commerce (ICC) -- a business association of more than 7,000 transnational corporations from 130 countries -- to "make sure that in your own corporate practices you uphold and respect human rights; and that you are not yourselves complicit in human rights abuses."¹⁹

Some UN-connected initiatives have been funded by prominent corporate figures or foundations associated with them, or rely on corporation donations. The Global Alliance for Vaccines and Immunization (GAVI), for instance, was set up by the Bill and Melinda Gates Foundation and includes on its board the World Bank, UNICEF, WHO, the Rockefeller Foundation, and the pharmaceutical and vaccine industries.²⁰

Privatisation of the UN?

Proponents of such partnerships argue that "only private sector firms can provide the research, technology and development capacity to address global health, environmental, and information challenges of the coming decade".²¹ A number of governments and public interest groups, however, point out that such "partnerships are leading down a slippery slope toward the partial privatisation and commercialization of the UN system itself"²² and risk subordinating the mission and values of the United Nations to commercial trade, investment and finance rules.²³ The UN-ICC Global Compact and GAVI confirm more general concerns about 'public-private partnerships'.

Any hopes, for instance, that the Global Compact might constitute co-regulation of industry under the UN aegis were soon dashed. From its inception, leading corporate figures repeatedly emphasised that they did not want external monitoring or Compact enforcement.²⁴ Corporate compliance with its nine principles is wholly voluntary. The UN Secretary-General's office has stressed that the arrangement "is not a regulatory instrument or code of conduct but a value-based platform designed to promote institutional learning" which relies on "the power of transparency and dialogue to identify and disseminate good practices based on universal principles."²⁵ ICC Vice-President Adnan Kassar says that the Global Compact assembles "a broad picture of company actions that demonstrate corporate citizenship in action in every part of the world."²⁶

But the Global Compact has no mechanisms, independent of industry, to verify whether the conduct of its partner corporations comply with the Compact's nine core principles or not. The Compact office no longer lists its partner corporations, making it harder for citizen groups to do so. Compact partners can, however, promote initiatives which they believe demonstrate their corporate responsibility on the Global Compact website. They can use the UN initiative to enhance their reputation and political influence even if they haven't significantly changed their practices.²⁷ Many of the Compact's corporate partners are renowned for lobbying against international environmental and other regulatory treaties. Some citizen groups have therefore called on the UN Secretary-General to "break with the ICC before the UN's credibility suffers permanent damage."²⁸

Health groups, meanwhile, have criticized the Global Alliance for Vaccines and Immunization (GAVI) for distorting and fragmenting vaccine policy-making and programmes at both national and international levels. GAVI emphasises subsidies for the research and distribution of new vaccines rather than for the purchase and distribution of existing basic vaccines. The prices of some of the vaccines which the Alliance has bought were higher than those which governments and UN agencies might have obtained through open tender on the international market. Health groups have raised concerns about conflicts of interest arising from the involvement of the pharmaceutical and vaccine industry on GAVI's board.²⁹

When faced with criticisms of their partnerships, the various UN agencies point to recent or evolving guidelines on interactions with the private sector. Critical questions about industry influence over public policy-making and implementation, standard setting and regulation, and public advocacy on behalf of the poor and marginalised are not well received. Neither are questions about the increasing trend among governments and public agencies to prevent their staff and outside experts from querying the appropriate role of transnational corporations in democratic decision-making.³⁰

Ruling by Consent

In line with the prevalent neoliberal 'governance' and 'partnership' discourse, TNCs are now asking for privileged status in international decision-making.³¹ In 1996, Nestlé's then Executive Vice-President Peter Brabeck-Letmathe argued at the UNCTAD Global Investment Forum that "business and its organisations should not be lumped together with the many single-issue NGOs, but accepted as interlocutors of different stature, as the engineers of wealth."³²

In 1997, when then Nestlé CEO Helmut Maucher took over the helm of the International Chamber of Commerce, he urged governments to work with business to establish a framework for the global economy. In an opinion piece titled "Ruling by Consent", he wrote:

"Governments have to understand that business is not just another pressure group but a resource that will help them set the right rules. The International Chamber of Commerce ... is the obvious partner from the business side for this intensified dialogue with governments."³³

Maucher announced that the ICC was convening a formal Business Dialogue which would bring together the heads of international companies and the leaders of international organisations such as UNCTAD and WHO so that "the business experience is channelled into the decision-making process for the global economy."³⁴ Just one year later, Maucher asserted that the ICC was "the preferred dialogue partner for business with the United Nations and other international institutions."³⁵

Now, in addition to lobbying at UN meetings, industry invites high-ranking UN and government officials to their meetings, such as the annual World Economic Forum in the Swiss mountain town of Davos.³⁶

Regaining Clarity, Facing Controversies

"It is dangerous to assume that the goals of the private sector are somehow synonymous with those of the United Nations, because most emphatically they are not. Business and industry are driven by the profit motive ... The work of the United Nations, on the other hand, is driven by a set of ethical principles that sustain its mission -- principles of the Charter of the United Nations, in the Universal Declaration of Human Rights, in the Convention on the Rights of the Child ... In coming together with the private sector, the UN must carefully, and constantly, appraise the relationship."

Carol Bellamy, Executive Director UNICEF, 1999³⁷

Any analysis of industry's role and conduct in policy-making and the regulation of corporate practices has to take into account and expose corporate PR and corporate lobbying. The first step in preventing corporations from exercising undue influence over public policy-making and public debates is to avoid using the words 'dialogue' and 'partnership' for interactions between the public and the commercial sector. These interactions should be described by more accurate, specific terms.

Instead of 'dialogue', for instance, words such as meeting, talks, discussion, debate or negotiation would be more exact. Using other terms would limit the impression that communications between industry and other actors aim at a free and open exchange of views between equal partners.

Instead of 'partnership', the following terms could be used:

• corporate sponsorship or funding (for donations in cash and kind);
• tenders (for instance, for negotiations to achieve lower prices for industrially-manufactured products such as medicines);
• outsourcing or contracting out (of public services such as water supply and health care to for-profit entities);
• collaboration (such as on research into new pharmaceuticals and vaccines, which is often publicly subsidised);
• consultation (for example, on scientific standards which affect industry products or practices);
• co-regulation (for mutually-agreed arrangements governing corporate conduct);
• personnel secondment (for corporations placing and paying for their employees to work in international agencies such as those of the UN and the World Bank).

Using more precise descriptions would make clear that the terms 'dialogue' and 'partnership' in fact encompass a wide range of interactions between industry, governments and NGOs. Such usage would increase awareness that no single guideline can capture all the potential conflicts of interest of these different interactions. It would illustrate the need for broad-based public discussions to clarify which interactions may be relatively unproblematic, which may cause problems which could be limited by rules and arrangements to minimise conflicts of interest or their appearance -- and which interactions may undermine completely the mandates and functions of governments and UN agencies to act in the public interest. Careful terminology may also stimulate discussions about the potential adverse implications of 'dialogue' and 'partnership' on democratic decision-making.

Finally, avoiding using the words 'dialogue' and 'partnership' would limit the ability of corporations to enhance their power and influence by appropriating what is generally perceived as the good image of civil society and religious organisations and UN agencies.³⁸

Of the corporate tendency to use 'stakeholder dialogues' and other joint initiatives as a way of enhancing their reputation, UNRISD's researcher on corporate social responsibility, Peter Utting, says:

"The UN has a choice. Either can it be a party to corporate strategies of reputation management or it can be an ally of the global corporate accountability movement and insist, in stronger terms than it has to date, that business improve its social and environmental record."³⁹

It is important to stress that it is not interactions between the public and the commercial sector per se which are at issue. The infant food industry, for instance, doeshave a role to play in infant nutrition -- one of delivering good quality, reasonably priced products for the minority of infants who need them.

But many UN agencies, governments and NGOs are in danger of accepting, and even promoting, a dichotomy between 'constructive dialogue' or 'partnership', on the one hand, and 'non-constructive' or 'counterproductive controversy' and confrontation, on the other. This sharp division ignores the fact that controversy is an inherent, often constructive and innovative part of democracy. Rule-setting, particularly the regulation of transnational corporations, is a highly political process in which challenges and healthy distrust are no less valuable, and often more appropriate, than uncritical cooperation and trust. The long-standing efforts to end the harmful marketing practices of infant food manufacturers illustrate that conflict must sometimes be prolonged until there is real change.⁴⁰ Comments Anthony Giddens, Director of the London School of Economics, whose work on the 'Third Way' (neither market nor state) has significantly influenced the UK and other governments to collaborate more closely with corporations:

"Governments mustn't shirk confronting corporate interests, where it is necessary to do so -- and it often is necessary to do so."⁴¹

International Regulation of TNCs: A Necessary Task

"Voluntary approaches can do a great deal to promote better practice, but the worst offences will only ever be prevented through national and international laws and binding rules. Such systems can operate in parallel: binding rules to ensure minimum standards and voluntary initiatives to promote higher standards."

European Parliament, 1999⁴²

The 1999 annual Human Development Report from the United Nations Development Programme (UNDP) described how "profit-driven" economic globalisation had resulted in the neglect of human rights and social justice for the vast majority of the world's people.⁴³ The Report proposed that corporations should be made more accountable to society:

"Multinational corporations are already a dominant part of the global economy -- yet many of their actions go unrecorded and unaccounted ... They need to be brought within a frame of global governance, not just a patchwork of national laws, rules and regulations."⁴⁴

Such a "coherent and democratic architecture for global governance" would include a binding code of conduct for multinational corporations because TNCs "are too important for their conduct to be left to voluntary and self-generated standards."⁴⁵

Policy-making has to become more democratic -- that is, people-centred and participatory -- if there is to be more democratic control over transnational corporations. Political debate should shift its focus away from corporate responsibility towards corporate public accountability. It should move away from relying on corporate statements of intent towards creating legal and political institutions to monitor and sanction socially- and environmentally-harmful corporate practices.

Key questions which should be raised about appropriate regulatory regimes go well beyond simply asking whether international standards for corporations should be mandatory or not. Such questions should include:

• In which areas are binding laws needed? In which areas are other arrangements sufficient?
• Who sets the rules and on what basis?
• Who implements the rules and how?
• How can society ensure that any regulatory arrangement effectively prevents -- or at least minimises -- potential harm to people and the environment from industry activities?

Vision and Action

The challenge to regulate transnational corporations is severe, given that the political climate and economic balance of power has favoured regulators less and less over the past 30 years. Excuses for government inaction, however, such as 'the power of TNCs' or 'globalisation' often omit the accompanying worldwide trend governments have taken towards neoliberal policy-making. Balances of power can be shifted if there is enough clear analysis and political will to keep in check the socially- and environmentally-damaging practices of TNCs.

The following conclusions can be drawn from the infant food example and from general reflection on public regulation and corporate social responsibility debates:

• Officials and activists concerned with public welfare should reassess the trend towards co- or self-regulation.
• They should not automatically accept industry statements of corporate responsibility, but should assess whether such statements correspond to industry actions. Moreover, they should be aware that any improvement in a criticised practice may be a reaction to outside pressure and a host of other external and internal factors, not necessarily a result of increased corporate responsibility and change of heart.
• Effective industry self-regulation is not possible when it interferes with industry's maximisation of profit. Besides, business associations which promulgate self-regulation often do not comprise all companies within an industry sector. Less socially-responsible corporations, both within and outside such associations, tend to drag the standards of others down. Only effective external regulation can create a 'level playing field' whereby all corporations are held accountable.
• Corporations cannot determine acceptable standards of risks for society. Standard setting for corporate conduct, practices and products requires not only scientific and ethical analysis but also social and political consideration. Deciding whether an emission level of a pollutant is acceptable, whether a chemical substance or a pharmaceutical drug should be banned, or whether a marketing practice, such as promoting tobacco or alcohol to teenagers, should be prohibited is a matter not only for scientists, doctors and ethics committees but also for public policy-making.
• The paramount duties of corporations are to refrain from interfering with processes of public rule-setting and enforcement; to establish effective auditing mechanisms in line with publicly-formulated codes and national legislation; and to cooperate in public investigations of potential violations. Corporations wishing to demonstrate their social responsibility can draw up and implement industry codes which are additional to publicly-formulated codes and national legislation. But they should abstain from using their codes to pre-empt legally-binding regulation required in the public interest.
• A clear distinction must be made between the party to be regulated and the parties drawing up the regulation and making it effective. The party to be regulated must not be allowed to influence unduly the regulation of its practices. The relevant corporations or business associations should not be invited to participate as 'partners' in the process, nor regarded as simply one among several 'interested parties' or 'stakeholders'. Public regulation, monitoring and sanctions should be wholly independent of industry.
• Preventing regulatory capture by corporations, however, is ultimately a question of the awareness and civic-mindedness of public institutions and civil society groups, and of the civic behaviour of corporate decision-makers themselves.

It is time to rekindle efforts to regulate transnational corporations internationally. Governments and intergovernmental agencies should support those civil servants involved in regulatory activities at the national and international level. They should reach out to and co-operate with citizen groups and networks working for corporate accountability. They should avoid entering into arrangements which conflict with the regulatory and policy mandate of their agencies. These include inviting corporate leaders to set their own rules and standards under the aegis of the UN, forging secretive agreements with business leaders at private meetings, and accepting corporate offers to provide and fund corporate staff to work in public agencies.

What is needed at all levels of society -- from citizen groups to leading political figures -- is not just pragmatism but also far-sighted vision, clear analysis and courageous action to bring about meaningful corporate accountability.

Notes and references

1 More recently, the terms 'corporate responsibility', 'good corporate citizenship' and 'good corporate governance' have tended to replace 'self-regulation'.

2 A third view advocates accepting industry offers to behave in a more socially-responsible manner only if it is possible to fall back on externally-defined binding regulation should such co-regulatory arrangements fail.

3 Jelliffe, D., "Commerciogenic malnutrition?", Food Technology, 55, 1971, p.55, quoted in Chetley, A., The Politics of Baby Foods: Successful Challenges to an International Marketing Strategy, Frances Pinter, London, 1986, p.40.

4 Key citizen actions which facilitated this were: the publication in 1974 of The Baby Killer, a report on infant food promotion and its consequences in Africa, by the British group War on Want; the launch in 1977 of an international consumer boycott of Nestlé; and the lobbying for a US Senate public hearing, held in May 1978. Public attention was also drawn to the issue when Nestlé sued a Swiss group for libel in 1974 after it had published The Baby Killer under a new title, Nestlé kills babies. See Chetley, A., op. cit. 3, pp.38-60.

5 WHO, International Code of Marketing of Breastmilk Substitutes, World Health Organisation, Geneva, 1981, p.13.

6 In 1994, some 30 companies produced and sold infant formula on the world market. Just four companies, however, controlled more than two-thirds of the total market: Nestlé, Ross Laboratories (of Abbott Laboratories), Wyeth-Ayerst (of American Home Products) and Mead Johnson (of Bristol-Myers Squibb). In many countries, three or four TNCs controlled 90 per cent or more of the market. Nestlé controlled about 40 per cent of the worldwide infant formula market, but infant formula constitutes just 2-3 per cent of its overall annual turnover. The infant food market is estimated to be worth about US$17 billion of which US$11 billion is infant formula.

7 Nestlé, Nestlé: Complying with the WHO Code, Nestlé, Vevey, Switzerland, 1998, p.6.

8 A core marketing strategy is to provide breastmilk substitutes free or at low cost to maternity wards in hospitals. A woman's production of breastmilk may be affected if her baby is fed with infant formula while a baby's ability to suckle at the breast may be affected if it is fed by means of teats and bottles. The costs to the companies of the supplies appear to be offset by the medical seal of approval for their products and the creation of brand loyalty. An internal training manual for infant food manufacturer Abbott/Ross stated that "When one considers that for every one hundred infants discharged from hospital on a particular brand, approximately 93 infants remain on that brand, the importance of hospital selling remains obvious."

9 The 1981 World Health Assembly Resolution which passed the International Code also mandated a review of Code implementation every two years. As a result of such reviews, the Assembly has adopted additional Resolutions to clarify the Code's meaning, close its loopholes, take into account new marketing techniques, and to keep up to date with new knowledge about infant and young child feeding. Compliance with the Code thus means compliance with the Code and subsequent Resolutions. For ease of reading, this briefing refers to the Code to mean the Code and relevant Resolutions.

10 See Chetley, A., op. cit. 3., p.118.

11 Some HIV-positive mothers may transmit the virus to their babies through breastfeeding. The most recent studies suggest that about one in seven infants breastfed by HIV-positive mothers who are not taking anti-retroviral drugs may become infected. Corporations appear to have used the resulting dilemma over whether or not to breastfeed to return to more aggressive marketing of infant formula.

12 All these examples are drawn from reports received by UNICEF country offices, NGOs and citizen alliances such as IBFAN (International Baby Food Action Network). All letters quoted were seen in the original by the author. For the latest information on baby food marketing trends and corporate interference with Code implementation, see the website of the International Baby Food Action Network, www.ibfan.org/english/codewatch/ and of the Campaign for Ethical Marketing/Baby Milk Action, www.babymilkaction.org.

13 For more details, see Richter, J., Engineering of Consent: Uncovering Corporate PR, Corner House Briefing No. 6, March 1998.

14 International Infant Food Manufacturers (IFM) briefing document, Public-private partnerships between health providers and companies including infant food companies, are important to improved infant health around the world. Confrontation is counter to the interests of child health, www.ifm.net/briefdoc2.htm, accessed 12 July 1999.

15 For a critique of World Bank 'dialogues', see www.developmentgap.org and www.irn.org. An October 2001 Financial Times guide to "responsible business" suggests that the majority of initiatives to encourage corporate responsibility should not be a matter of legislation, but should instead "be developed and overseen by new social partnerships and corporate codes of conduct, with companies seeking to 'reduce risk by linking their codes to partnerships that involved human rights and development NGOs'." See Pike, A., "Introduction", Responsible Business in the Global Economy: A Financial Times Guide, October 2001, p.5.

16 Frankel, C., "One foot in the future", Tomorrow, Vol IX, No. 1, Jan/Feb. 1999, p.11, cited in Utting, P., Business Responsibility for Sustainable Development, UNRISD, Geneva, 2000.

17 Several UN agencies have turned to commercial sources of funding partly because their funding from governments has declined.

18 The World Economic Forum describes itself as "the leading interface for global business/government interaction." It aims to create "partnerships between and among business, political, intellectual and other leaders of society to define, discuss and advance key issues on the global agenda". See www.weforum.org, accessed 14 December 2001.

19 UN, Secretary-General proposes Global Compact on human rights, labour, environment, Press release SG/SM/6881/Rev1, 1999, www.un/org/partners/business/davos.htm, accessed 17 January 2001.

20 See www.vaccinealliance.org.

21 Tesner, S., The United Nations and Business: A Partnership Recovered, St. Martin's Press, New York, 2000, p.150, quoted in Utting, P., "UN-Business Partnerships: Whose Agenda Counts?", paper presented at "Partnerships for Development or Privatization of the Multilateral System?", seminar organised by the North-South Coalition, Oslo, Norway, 8 December 2000, (abridged version published in UNRISD News, No. 23, Autumn/Winter 2000, pp.1-4.)

22 Bruno, K. and Karliner, J., Tangled Up In Blue: Corporate Partnership at the United Nations, Transnational Resource & Action Center (TRAC), San Francisco, 2000, www.corpwatch.org.

23 The South Centre fears that if global public policies are founded on the basis that "what is good for big business is good for the world at large", hopes for an equitable world economic system and social justice are slender. See The South Centre, "The UN, Big Business and Global Public Policy", South Letter, Vol. 3, No. 34, 1999, p.1. See also "Zimbabwe Health Minister Accuses WHO of Capitulating to Pharma Companies", Press Release, Reuters Health Information, 18 June 2001.

24 At its launch in July 2000, the Global Compact included 44 corporations, 6 business and industry associations, and 14 NGOs and trade unions. It aimed to enlist 100 transnational corporations and 1,000 companies over the next following years (of an estimated 63,000 transnational corporations in the world with 690,000 affiliates.)

25 The Global Compact: What it Is -- and Isn't, Mimeo, annex to Letter of John O. Ruggie, Assistant Secretary-General of the UN to Alison Linnecar, IBFAN/Geneva Infant Feeding Association, 22 January 2000.

26 Kassar, A. "Taking up the Challenge: Business and the Global Compact," text distributed during the UN's Millenium Summit, 6-8 September 2000, quoted in Corporate Europe Observatory (CEO), ICC: Global Compact Violators, CEO Issue briefing July 2001, p.2. www.xs4all.nl/~ceo

27 In October 2001, Compact partners submitted to a Global Compact Learning Forum meeting held in the UK some 30 case studies intended to demonstrate the actions they had taken according to Compact principles. An independent team of academic analysts which reviewed the submissions found that none conformed to the Compact case study guidelines while a significant number made no reference to any of the nine Global Compact principles.

See www.unglobalcompact.org/un/gc/unweb.nsf/content/policynote.htm, accessed 22 January 2002.

28 Corporate Europe Observatory. op. cit. 26. For details of how Aventis, Nike, Rio Tinto and the International Chamber of Commerce (ICC) have violated the principles of the Global Compact, even though they have endorsed it, see www.corpwatch.org/un/updates/2001/gcseries.html.

29 Hardon, A. "Immunisation for All? A Critical Look at the First Gavi Partners Meeting", HAI-Lights, March 2001, www.haiweb.org/pubs/hailights/mar2001/index.html; "Do Pharmaceutical Companies Play Too Large a Role in Vaccine Fund?" Wall Street Journal, 3 December 2001; Save the Children Fund, New Products into Old Systems: The Initial Impact of the Global Alliance for Vaccines and Immunizations (GAVI) from a Country Perspective, SCF, London, 2002.

Given that software giant Microsoft, of which Bill Gates is founder and chair, was being accused of overcharging its customers and of breaking anti-trust or monopoly laws in the US in 1999 when GAVI was formed, some commentators regard Gates involvement in philanthropy as an attempt to deflect attention away from efforts to regulate Microsoft's activities. See Utting, P., op. cit. 21.

30 See, for example, Ferriman, A., "WHO accused of stifling debate about infant feeding", British Medical Journal 7246 (320), 20 May 2000, p.1362, and ensuing debate on the BMJ's website, www.bmj.com/bmj/

31 This supplements the previous TNC strategy of attempting to influence international politics by creating business organisations and gaining official representation for them at UN agencies as NGOs. Since the early 1990s, public advocacy groups have been calling on the UN to make an official distinction between "associations of citizens" and "organisations of capital". See Krut, R., Globalization and Civil Society: NGO Influence in International Decision-Making, United Nations Research Institute for Social Development (UNRISD), Geneva, 1997, p.8.

32 Brabeck-Letmathe, P., "Intervention in panel 2: Towards a multilateral framework of investment?", in UNCTAD High Level Meeting - Global Investment Forum, Geneva, 1996, p.3.

33 Maucher, H., "Ruling by consent", Financial Times (guest editorial), 11 December 1997, p.1.

34 Ibid.

35 quoted in Williams, F., "The voice of business heard around the world", Financial Times, 29 December 1998. Maucher also questioned the legitimacy of "pressure groups" being involved in international decision-making.

36 This meeting "is now considered the global summit which defines the political, economic and business agenda for the year" (emphasis added). See www.weforum.org, accessed 14 December 2001.

For more information on business-lobby groups, see Corporate Europe Observatory, "The Geneva business dialogue: Business, WTO and UN -- joining hands to regulate the global economy?", CEO (2), October 1998, pp.3-6, www.xs4all.nl/~ceo; Balanyá, B., Doherty, A., Hoedeman, O, Ma'anit, A. and Wesselius, E., Europe Inc: Regional and global Restructuring and the Rise of Corporate Power, Pluto Press, London and CEO, Amsterdam, 2000.

37 Bellamy, C., "Sharing Responsibilities: Public, Private and Civil Society", paper delivered at Harvard International Development Conference, 16 April 1999.

38 Image transfer is the transfer of the good reputation of a group highly respected by the public to a criticized organisation or industry sector.

39 Utting, P., op. cit. 21.

40 Denise Lach, who analysed the role of conflict in the US environmental debate, pointed out: "Contrary to the common view that conflict is always a negative force that must be managed to resolution, conflict can be a driving force for social change ... Fundamentally, conflict forces us all to clarify and adapt our perspectives in response to changing human interests and environmental conditions." See Lach, D., "Introduction: Environmental Conflict", Sociological Perspectives 39 (2), 1996, pp.211-217.

41 Giddens, A., The Third Way and its Critics, Polity Press, Cambridge, 2000, p.142, original emphasis.

For further literature about global public-private partnerships cf. e.g. TRAC, A Perilous Partnership: The United Nations Development Programme's Flirtation with Corporate Collaboration, The Transnational Resource & Action Center, San Francisco, 1999, www.corpwatch.org; SID/WHO/ISS, "Report on the International Seminar on 'Global Public-Private Partnerships for Health and Equity', SID/WHO/ISS, Rome, 2000; HAI, "Public-private partnerships: Meeting real health needs?", seminar report. Health Action International (HAI-Europe), Amsterdam, 2001, www.haiweb.org/campaign/PPI/seminar200011.

42 Report of the European Parliament on EU Standards for European Enterprises Operating in Developing Countries: Towards a European Code of Conduct, European Parliament, Committee on Development and Cooperation, Brussels 1999.

43 UNDP, Human Development Report: Globalization with a Human Face, Oxford University Press, Oxford/New York, 1999, p.30.

44 Ibid., p.100.

45 Ibid., pp.12, 100.

End Note

A French translation of this document is also available: Réglementation des multinationales: contexte problématique

This briefing is written by Judith Richter and is based on her book, Holding Corporations Accountable: Corporate Conduct, International Codes and Citizen Action, published by Zed Books, (7 Cynthia Street, London N1 9JF), 2001, www.zedbooks.demon.co.uk. Distributed in the US by Palgrave, St. Martin's Press, LLC, 175 Fifth Avenue, New York, NY 10010.