A test for global business

Conventional wisdom has it that not much will be achieved at the World Summit on Sustainable Development in Johannesburg, which started on Monday.

It will likely be loud and contentious, and critics are right to say that it probably won't end in any agreements or binding decisions. But it is worth following nevertheless, particularly in the wake of corporate scandals that have led to new laws in this country.

As Americans reel from dramatic drops in 401(k) accounts and growing fears that just maybe the unruly 1999 World Trade Organization protesters in Seattle were right to doubt international business practices, the key question is whether global corporations can continue to argue successfully for voluntary international standards for their environmental and human rights practices.

What should corporations be asked – or required – to do to conserve natural resources, reduce poverty, provide healthcare, fight hunger and overpopulation, and ensure worker rights in the countries where they operate?

Some people argue that responsibility for these concerns is not the sole or even partial responsibility of business.

Yet it's hard to look at what has happened in corporate America and not see changes in the offing for business both in the US and overseas. The summit is a good place to get a feel for the global community's views regarding corporate responsibility for the well-being of people and the planet.

Two trends are worth watching: First, the summit encapsulates the growing convergence of environmentalists, human and worker-rights activists, and development proponents into a broad movement with common criticisms of globalization. The term "sustainable development" has come to encompass all of their issues.

This movement is finding a more receptive audience among mainstream Americans, who are starting to ask basic questions about corporate governance, honest accounting, and legal recourse. Activists argue that economic growth lifts people out of poverty and conserves natural resources only if growth is managed by fair rules and enforceable standards – not just a set of voluntary codes.

This brings up the second trend – the growing push for mandatory rules designed to promote international corporate social responsibility. These rules would be enforced by individual countries, international organizations, and regulatory bodies.

With concerns about global poverty, AIDS, loss of biodiversity, and financial collapse, this sustainable-growth movement has increasing influence on the laws and policies of such bodies, which companies ignore at their peril. One sign of this influence is in France, one of the least transparent developed countries, where the government passed a law this summer requiring public companies to report on environmental and social impacts wherever the company operates.

And even though the European Commission came out in June against mandatory worker-rights regulations, its statement on voluntary actions highlighted the importance of corporate social responsibility. This raises the question of how long the Commission can hold out against the pressure to put more teeth into policies.

In America, the Enron-led avalanche of corporate scandals has undermined public faith that voluntary rules can ensure creditable business practices. For evidence look no further than recent congressional action – such as the establishment of an independent oversight on accounting – and a recent issue of the magazine Business Ethics, which pronounced voluntary codes a failure.

The message for businesses is that the train for mandatory standards is gaining momentum.

The summit will signal whether the decade-long effort to develop voluntary codes for business has gone as far as it can go.

At the summit, the Global Reporting Initiative, created in 1997 by a US nongovernmental organization (NG0) in partnership with international companies and the United Nations, will formally launch its voluntary sustainability reporting guidelines to make such reporting as routine and rigorous as financial reporting is supposed to be.

Also at the summit, the World Bank is calling on an alliance of businesses, countries, and NGOs to reach agreement on steps to reduce poverty through sustainable growth. How companies respond to the Global Reporting Initiative and the World Bank will be telling.

Some companies, such as British Petroleum and Shell, have staked their future on implementing rigorous voluntary standards. They make the case that adopting socially responsible operations is good for the bottom line. Some American companies, through force or foresight, are moving in the same direction: Ford, Nike, Reebok, Starbucks, Timberland, to name a few.

Still, more companies must act on the kinds of voluntary standards being discussed in Johannesburg – or face difficulty arguing against mandatory regulations in the future.

• David Wofford, a former Clinton administration official, consults with international companies and organizations on corporate social responsibility.