Dwight W. Justice

Jan 2000

Introduction

Codes of conduct have become a central issue in debates over globalisation and over business responsibility. The number and variety of company codes of conduct have proliferated. NGOs campaign for companies to adopt codes and codes attract both support and opposition from business and trade unions. Codes are also attracting the attention of governments and of international organisations some of which have begun to promote them. Codes of conduct have spawned numerous academic studies as well as an entire new industry of consultants and enterprises offering "social accountability" services to companies.

Codes of conduct for business are not new - businesses have been using them for years to address various public concerns such as consumer rights, product safety or environmental protection. Often businesses apply ethical behaviour codes to their employees. Codes of conduct for international business activity are not new either. In the 1970's concern over the growing power of multinational companies led two international organisations to adopt codes for international business: the ILO Tripartite Declaration of Principles Concerning Multinational Enterprises and Social Policy and the OECD Guidelines for Multinational Enterprises. Both international instruments were endorsed by business. Among their objectives these instruments sought to protect the sovereignty of countries by defining the responsibilities of international business. The ILO Declaration reflects ILO standards and both codes contain commitments to good industrial relations and to trade union rights.

Because codes mean different things for different people, the current interest and controversy over codes of conduct has obscured some crucial points. One of the most important points not always appreciated is that the codes that have the greatest implications for the concept of corporate responsibility and that are at the centre of the controversies over implementation and verification are new developments and they focus on one area of concern - labour practices.

Something is new

Beginning in the 1990's companies involved in the marketing or manufacture of brand-name goods produced internationally through outsourcing began to formulate and adopt codes of conduct covering labour practices that were meant to apply to their subcontractors and suppliers. These unilaterally-adopted company codes of international labour practice are the new codes of conduct.

They are new in four important ways:

• Although the ILO and OECD codes were voluntary, they are part of an international framework of principles agreed to by governments, employers and trade unions and recommended to companies. The new codes are being formulated and adopted by individual companies. Indeed, when formulating the earliest new codes, most companies ignored established standards in favour of creating their own.
• The purpose of the new codes does not include protection of the sovereignty of governments but is to address situations created by the failure of national governments and of the international community to adopt or enforce acceptable labour standards.
• Unlike most company policy with respect to labour practices, which is usually based on national law and practice, the new codes are meant to be applied internationally regardless of where the work is being performed.
• Many of the new codes are intended to protect workers whether or not they are employees of the company adopting the code and, in particular, to apply to the labour practices of the company's suppliers and subcontractors.

The first companies to adopt the new codes were responding to negative publicity generated by reports of dangerous working conditions, inhumane working hours, starvation wages, brutality and the widespread use of child labour involved in the production of clothing, footwear, toys and other labour-intensive manufacturing as well as in the production of many agricultural products.

The new codes were a consequence of globalisation. International in scope they are a response by multinational companies to a convergence of developments:

• Elaborate international chains of production based on outsourcing;
• The failure of national governments to prevent gross exploitation and abuse and in many cases to enforce even the most basic, minimum standards to protect workers related, in part, to the international competition to attract investment;
• Increasing public access to information about working conditions in developing countries;
• Evidence that significant numbers of consumers do not want to buy products made by exploited and abused labour;
• The widely held belief by business that a company's reputation and image of its brand-name products are significant assets to be protected;
• An expanding concept of corporate responsibility and especially the international responsibilities of international business.

Codes of labour practice - content

In the early period, the new codes of conduct covering labour practices rarely went beyond pledging not to use child labour and to respect national law. Generally these codes were not well received and many companies have revised codes with such provisions. Pledging to observe national law, or to require suppliers to observe the law, is unnecessary because this is already and always the minimum obligation of any legitimate enterprise. Only codes having provisions that are internationally rooted and applicable constitute recognition of international responsibility.

Some companies maintain that it would be inappropriate to impose international standards because countries are in different stages of development and have different cultural values. Governments justify the exploitation of workers and the repression of workers' rights and trade unions by claiming "special situations" and "unique circumstances" and many companies have found it convenient to accept this argument and not "interfere" by "imposing" their own "cultural values". However, all of the fundamental international labour standards are universal. One clear example of an unacceptable "cultural" exception to international standards is discrimination against women.

Companies with internationally applicable provisions were not always able to avoid criticism especially where their code's provisions afforded workers less protection than internationally recognised labour standards. The controversy over code content is largely resolved in favour of using all of the fundamental ILO standards. Businesses seeking to define their social responsibilities almost always stress respecting the values of the community. For international business this should mean respecting the standards of the international community. The ILO is the organisation established by the international community for the purpose of setting international labour standards.

The fundamental labour standards include the two key conventions on freedom of association (Convention No. 87 on Freedom of Association and Convention No. 98 on the Right to Organise and Collective Bargaining). They also include Convention No. 29 on Forced Labour, Convention No. 105 on the Abolition of Forced Labour, Convention No. 138 on the Minimum Age for Employment, Convention No. 100 on Equal Remuneration and Convention No. 111 on Discrimination in Employment and Occupation. The adoption in June 1998 by the ILO Conference of the ILO Declaration on Fundamental Principles and Rights at Work demonstrates the world consensus with respect to freedom of association and the right to collective bargaining as well as all of the fundamental ILO labour standards.

Of course ILO conventions are meant to be adopted and implemented by governments. It is not however difficult to transpose the fundamental ILO Conventions into standards that can and should be respected by business. Among the many advantages of referencing ILO standards in codes of labour practice is that ILO Conventions are accompanied by a body of jurisprudence. The meaning of a code, and hence its credibility, is clear. Codes that are composed of vague "feel good" language are not really transparent nor credible because their meaning is not clear.

Codes that reflect the fundamental ILO Conventions address the issue of the right of workers to join trade unions and to collectively bargain. Very few of the early new codes of conduct included respect for trade union rights. Yet, almost all of the companies adopting the new codes are operating in sectors where most workers do not belong to trade unions and in countries where trade union rights are not respected. The exploitation and abuse of workers that led to the need for a code in the first place occurs because the rights of workers to join or form independent trade unions and to bargain collectively are not respected.

Where workers can form independent trade unions and bargain there may be little need for a code of conduct. Codes of conduct are not as efficient as what workers can do for themselves where they are permitted to join free trade unions and to bargain collectively with their employer in the knowledge that their rights are secure and protected.

The right of workers to join or form trade unions and to bargain collectively are human rights which are only fully respected in democracies. Nevertheless, the experience is that, even under dictatorships, workers have been able to create or enlarge space for trade union organising and collective bargaining with some employers. This was the experience in Chile, South Korea, Poland, South Africa and Turkey when these countries were dictatorships. Companies respecting human rights should therefore be alert to the possibilities of creating and enlarging the space for workers' self-organisation. Companies doing business in countries where trade unions are prohibited should consider requiring their suppliers to facilitate parallel means of workers' organisation. The supplier would not be required to establish any organisation but would be expected to provide the workforce with the opportunity to do so in the form of elected consultative committees on health and safety, productivity and many other relevant issues.

In any event, companies should always avoid being party to state repression. Companies doing business in countries with repressive regimes have a greater obligation to be transparent in their operations and should work with other organisations, including international trade union organisations, so as to increase the positive, and decrease the negative, effects of their involvement in these countries.

Most of the best codes of labour practice go beyond the fundamental ILO standards to cover wages, hours and working conditions such as health and safety. However, these codes also clearly establish that the provisions are minimum standards and as such should not be used by suppliers as maximum standards or to discourage collective bargaining in any way.

There is considerable convergence on what an international code of labour practice should contain. The ICFTU/ITS Basic Code of Labour Practice, CEP SA 8000, the Base code adopted by the Ethical Trading Initiative and the model Code of Labour Practices for the Apparel Industry adopted by the Clean Clothes Campaign are very similar and are used by NGOs and trade unions as the benchmark codes of labour practice. Companies considering adopting a code of labour practice would do well to adopt any of these codes, all of which reflect and reference ILO standards.

Giving codes effect

In addition to code content, the other broad area of controversy concerning codes of conduct is the effect given to the code by the company that has adopted it. A frequent criticism of the new codes is that most are public relations exercises and that the companies adopting them appear to have little intention of doing anything to make good on what essentially are their promises to the public.

In some cases companies adopting codes also established a "complaints procedure" and invited NGOs and trade unions to take evidence of exploitation and abuse to the company before "going public." Lacking independence or authority, such complaints procedures are meaningless except to serve as an indicator that the company is taking a public relations approach to its responsibilities.

In several cases trade and industry associations have adopted a "model code" which they have recommended to their member companies. However trade and industry associations may be unable to require adherence to the code a condition of membership and in the known cases where associations have formulated codes, few member companies have taken them on board. Although association codes have largely been public relations exercises, this does not have to be the case. Even in their current form, they constitute formal acknowledgement that, in some sectors, multinational companies have responsibilities for the labour practices of their suppliers and sub-contractors.

Where a company has promulgated a code of conduct, it is morally bound to give it effect. A company that takes its code of conduct seriously will not leave it to its public relations department or agency but will place the overall responsibility for the implementation of the code at the highest levels and incorporate code compliance into all relevant management systems. This means assigning responsibilities throughout the company. One responsibility should be assigned to the legal department - observance of the company code should be made an enforceable, and an enforced, part of the agreements the company enters into when outsourcing. Other responsibilities belong with the personnel department - the code should apply to the company that adopts it as well as to its suppliers and subcontractors. Company personnel should receive training in implementing the code. Buyers must be permitted to take the cost of code compliance into account when negotiating contracts with suppliers. Labour practices must be monitored with the same commitment that is given to monitoring for quality. The company must be prepared to pay the full cost of implementing its code including monitoring and verification.

In every case the workers covered by a code should be provided with a full and understandable explanation of the code both verbally and in written form. Workers covered by a code should also be provided a confidential and accessible means to report code violations.

In the end the real test of implementation is whether a company does anything to correct unacceptable labour practices where they are discovered.

Monitoring, verification and impact assessment

The failure of companies adopting codes to do anything to give them effect led to calls for the "independent monitoring" of codes. Monitoring means checking to make sure that the provisions are being observed. It is basic to implementing a code. Monitoring should be regarded as a regular and ongoing process that is one of the obligations assumed by any company that has adopted a code. Yet evidence suggests that most companies adopting the new codes did so without any real plan to monitor compiance with them.

The idea behind "independent monitoring" is that a code will be more credible if compliance were monitored by persons or organisations independent of the company that has adopted the code. At present there are no good examples of independent monitoring and the subject is surrounded by controversy.

Some companies have engaged commercial enterprises such as accounting firms and management consultantcies to perform their "independent monitoring" or "second party" or "third party" monitoring. Other companies have, in arrangements with their suppliers and subcontractors, designated local NGOs to be their "independent monitors." In all of these cases the companies, through their agreements with enterprises or NGOs, control the monitoring process.

The emerging consensus is that the term "independent monitoring" (and similar terms such as "third-party monitoring') are more confusing than appropriate. These terms obscure the obligation of any company adopting a code of labour practice to monitor compliance with its code on a regular or ongoing basis. Moreover, the object of "independent monitoring," which is to provide credibility, is also obscured.

In order for so-called "independent monitoring" to be credible, it would have to be performed by qualified persons working to agreed processes. Both the qualifications of the persons and processes involved would have to be established independent of the company whose code was being monitored. In the absence of professional standards, there is no reason to accept the independence of any enterprises or NGOs engaged by a company to perform this work. Engaging a commercial enterprise or designating an NGO to monitor code compliance is little different from having the work done by company personnel.

One of the more dangerous aspects of the "independent monitoring" way of thinking is that, because monitoring needs to be an ongoing process, "independent monitoring" arrangements will introduce outside organisations into the workplace on a permanent basis which may have the effect of discouraging or preventing workers from joining or forming their own organisations. This is especially serious where the 'independent monitor" is an NGO presenting itself as an alternative to trade unions.

"Verification", in contrast to "independent monitoring" is a more comprehensive process involving checking on both code compliance and implementation systems including the ongoing monitoring performed by the company concerned. The thinking on verification is developing constantly. Many have concluded that verification should be carried out by professionals working to defined standards and trained in skills including factory inspection, accountability, health and safety and detection techniques. Whether verification is performed by commercial enterprises or non-profit agencies, the work would have to be performed following carefully defined standards and rules that would apply to the organisations and individuals undertaking what is sometimes called "social auditing."

Because the new codes have rarely been implemented it may be too early to measure their actual effect on the lives of workers. Impact assessment can be expected to become an emerging issue in the debate over codes. For now it is useful to treat all codes of labour practice as experiments.

A role for the ILO

Some have sought ILO involvement with the new codes of conduct by suggesting that this organisation should develop its own "model" code or that it could serve as certifying agency for a "social label". There are a sufficient number of good benchmark codes and it is unlikely that the ILO could improve these or on the Tripartite Declaration, its own comprehensive statement on the social responsibilities of international business. However more credible follow-up procedures to the Tripartite Declaration are long overdue.

The "social label" is at least premature and potentially dangerous. The certification of labour practices by putting "social labels" on products will not be credible before accredited systems of independent verification are established and proven effective and reliable. Such product labels imply a guarantee that the item was produced free of exploitation and abuse. But, unlike product content or safety labels, the claim cannot be verified by testing the product itself. A label covering labour practices could only be credible if there was constant policing of the workplace - a condition that exists only where secure and independent trade unions are permitted to perform their proper functions and even then, only where they are supported by enforceable and enforced labour regulation in an open and democratic society. Moreover, systems of certification would have to include credible sanctions. Labour practices are too complex and central to the relationship of economic means and ends to permit "self-policing" product labels.

There is one area where the ILO can make a major contribution. The ILO, because of it tripartite structure and the fact that it is a repository of expertise in all matters of labour practices including labour inspection, may be the most appropriate organisation to establish benchmarks for the training of monitors, for standards of verification and for the credible development of any profession of "social auditing." For this reason, and because the ILO can provide technical assistance to both social partners, it is in the interest of both the social partners to encourage ILO involvement. A tripartite approach to these technical questions will provide more credibility and assistance for companies that want to apply codes than the self-appointed enterprises now attempting to fill this need.

Codes of conduct and framework agreements

One element that has not received much attention is the relation of trade unions to the new codes. The ICFTU believes that codes should not be a substitute for collective bargaining and, that to be meaningful, codes of labour practice must have the effect of creating space for worker self-organisation and collective bargaining. For this reason, it is useful to distinguish between company codes of conduct that are unilaterally-adopted by companies and those that constitute an agreement between a company and an appropriate trade union organisation. Because the new codes are international the most appropriate trade union organisations would be the international trade union organisations that group workers by industry or occupation. These organisations, known collectively as International Trade Secretariats (ITS) are the most appropriate partners for companies to engage over international labour practices. In order to distinguish these agreements from unilaterally-adopted codes, the ICFTU refers to them as "framework agreements"

A framework agreement is an agreement negotiated between a multinational company and an International Trade Secretariat (ITS) concerning the international activities of that company. Although an international code of conduct can be part of a framework agreement, the main purpose of a framework agreement is to establish an ongoing relationship between the multinational company and the ITS which can solve problems and work in the interest of both parties.

An early example of a framework agreement is the 1988 agreement between the International Union of Food, Agricultural, Hotel, Restaurant, Catering, Tobacco and Allied Workers' Associations (IUF) and the France-based MNE Danone. This agreement set forth union company co-operation in four areas and pledged the company and the IUF to implement trade union rights as defined by ILO Conventions Nos. 87, 98 and 135. Five subsequent implementation agreements based on the 1988 agreement have been signed. Of particular note is the 1994 agreement consisting of a joint charter guaranteeing full exercise of trade union rights throughout the entire operations of this global company. In June 1995, the IUF signed a similar agreement with the ACCOR hotel and catering chain on trade union rights that also applies throughout the global operations of this company.

The International Federation of Building and Wood Workers (IFBWW) reached an agreement with IKEA which covers suppliers. The agreement incorporates ILO core standards and provides for an annual review by a joint committee. The sanction for violations is cancellation of the supply agreement. An agreement negotiated between the International Chemical Energy and Mining (ICEM) and the Norwegian oil company Statoil commits the company to respect the principles contained in ILO core conventions. The agreement explicitly provides that the company shall not oppose the organisation of its employees.

In countries with a sound industrial relations system, it is possible to distinguish between "public" and "private" forms of labour regulation. The public includes labour law and its attendant enforcement machinery including the labour inspectorate. The private is collective bargaining and various forms of co-operation between the social partners. Put another way, workers are protected by labour law (provided it is enforced) and by their trade unions (where they are permitted to function). Private initiatives in the area of labour practices would require the involvement of both social partners to be considered credible alternatives or supplements to regulation.

International social partners

The opportunities and advantages of globalisation for business are well known. There is a downside, however, for the global economy is also a very visible arena. The least offence, real or imagined, can be transmitted instantly around the globe. Already, the public relations, quick fix for the social and environmental fall-out of globalisation is showing its limitations. As strange as it may seem, doing the right thing may end up being the best public relations. The right thing requires commitment and it requires interlocutors.

The responsibilities of globalisation, if they are to be addressed, require the active involvement of both labour and business, working together and with governments. Global rules are, inevitably, emerging to provide frameworks for the global market in a process which is similar to what has taken place at the national level.

Sooner or later, this global framework will include not only binding provisions on trade but, for example, on investment, finance, governance, reporting, competition, and, yes, on labour standards. The type of legal framework on labour standards which emerges will be determined by whether functioning social partners have also emerged. Unfortunately, the insistence by many companies that everything about what they do is global except anything even touching on industrial relations may lead to exclusively State and regulatory initiatives and drive out private initiative and dialogue. The long-term alternative to government imposed social regulation is not a negotiating table with the company sitting on both sides of the table talking to itself or with appointed partners, no matter how expert the consultant or facilitator engaged. It is genuine social dialogue with legitimate, representative trade union organisations. Every multinational company has a social partner in one or more of the ITS.

There are forces about in the world other than market forces. Among them should be global social partners. They must have the courage and will to lead, to take bold steps to anticipate and shape a future in which flexible and fair solutions can be found for the problems associated with globalisation.