MNEs: Rights Without Responsibilities

Written by YRK Reddy | Updated: Nov 22 2003, 05:30am hrs
Do global brands maintain global standards Should they The recent controversies in India relating to multinational food product companies including Coke, Pepsi and Cadbury has brought into focus the question whether we should accept global brands without putting in place internationally accepted laws, standards and implementation mechanisms. In the case of Cadburys, clearly the company obviously has not induced worms and fungus into its products. It has, as it claimed, over 650,000 retail outlets, which it monitors for quality on a random basis. The question is when does the responsibility of a company stop for its products. Is it after the product has left the gates or its own warehouses or should there be due care and diligence in managing the entire logistics chain with appropriate information, monitoring, and assurances till it is consumed How did the products land up in the hands of people who cannot maintain the companys stated standards

Companies such as Pan Pharmaceuticals in Australia have gone down-under after having to spend huge sums in product recalls and other litigation as the quality assurances were not sufficient enough. On the other hand, Johnson & Johnson had assumed the responsibility proactively in the Tylenol crisis in the USA for product recall and compensations even though it was possible for it to have said that the manufacturing process was not contaminated at all.

Corporate responsibilities gain importance especially in the case of illiterate, semi-literate, and un-informed public in countries which have weak institutions. Nestle was hauled up years ago exactly for the reason of not exercising sufficient care in its product promotion for baby food, the result of which was the death of millions of children especially in Africa. The criticism against the conduct of multi-national enterprises (MNEs) has been that they apply different standards for different countries and profit from the ignorance and poverty of the poor in the developing countries. There have been continuous reporting of such discriminatory standards on a range of social and environmental situations where there is apparent disregard for values. Liz Stuart recently reported in the Guardian, London of the plight of the villagers in Plachimada, Kerala. The Coca-Cola factory here has been distributing slurry, billed as fertiliser, to local farmers. This was later found to contain carcinogens. Locals also say the plant is sucking up precious ground water from the surrounding area, leaving the rural poor to walk five miles a day to reach a useable well. Farmers yields in the area have dropped so much that some have been forced to abandon their fields and seek labouring work faraway. Rainfall for the past two years has been scant, but the factory continues to pump water.

Coca-Colas Plachimada factory is perfect argument for why the world needs stricter not laxer rules governing multinational companies. Should companies reckon that their responsibilities are widespread and equal irrespective of the country they are operating The issue is not new at all. MNC-phobia arises from extractive, exploitative tendencies that profit the country in which it is incorporated. A true transnational corporation (TNC) that does not suffer from the gravity of its headquarters and does not apply different standards to different regions is yet to be seen. The OECD had recognised this issue early enough and brought out well-intentioned guidelines for MNEs in its member countries in 1976 and revised it in 2000 calling upon the MNEs to respect social, environmental, and human rights. The UN has also come out recently with Draft Norms on the Responsibilities of Transnational Corporations with regard to human rights. The UN Global Compact also reiterates the role of such businesses. These have made important ground and generated the much needed debate on standards and norms that businesses must follow, though admittedly much more needs to be sensitively negotiated forward. Unfortunately, these guidelines have not received much attention, citation or respect as very few have acknowledged them explicitly. Their irrelevance has been noted in academic circles when encyclopedic works on business regulations did not even mention these. The ineffectiveness of these guidelines has been highlighted by several policy thinkers who termed them as green wash hypocritical and style over substance. The following passage from the OECD Guidelines explaining their non- mandatory and voluntary nature is indicative of the provocation for such remarks.

In contrast, the OECD and the MNEs strive to promote shareholder rights, property laws, and enforcement of such laws when it comes to investments, trade and IPRs. Countries and companies that fall short of these global standards are discountenanced and rated poorly.

Industry lobbies support WTO investment agreements that bind Governments to legal commitments but fail to show such enthusiasm to extend such binding rules for the MNEs. As UNCTAD points out, The business communitys aversion to binding legal standards governing corporate operations contrasts with its strong advocacy of international legal commitments applied to the obligations of governments towards foreign investors.

Corporate Watch, a web-based newsletter, while reviewing the revised guidelines observes, According to the OECDs accounts, the loss of 13,000 is more serious than the death of 13,000 people.... It is ironical that in India cheque bouncing is a more actionable crime than feeding pesticides or worms or carcinogenic colouring agents to children through food. Discriminatory tactics have been historical from the days of colonisation - tendencies do not disappear easily. The power to enforce non-discriminatory behaviour should be an important factor in rating companies in terms of their governance practices. That countries provide equality among shareholders, shareholder rights and a system where contracts can be enforced is not sufficient. They should be tempered with equality of corporate responsibility.

In a world that relishes in brands which gobble up the small fish, the expectation is that global brands maintain globally acceptable standards and not profiteer from undelivered promise - even if such a promise were implicit. Misusing brand power implies misleading the consumers about the quality assurances.

Lest the onus is seen as squarely in the realm of the MNEs themselves, it must be emphasised that Governments in the host countries have a critical responsibility to legislate and implement laws that protect consumers and the environment. In fact the UN system and the OECD expect countries to adopt international standards in law and its implementation.

Hopefully, the JPC headed by Sri Sharad Pawar will lead to such a prospect at least in the food and beverages area. This may reduce the incentives for discriminatory behaviour among MNEs, especially if they are also prepared to refrain from adding to the supply-side of corruption.

The author is Founder Chairman, Academy of Corporate Governance and Chairman, Yaga Consulting Pvt Ltd