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Email this citationCIAO DATE: 04/03
Options for Promoting Corporate Responsibility in Conflict Zones: Perspectives from the Private Sector
Jake Sherman
April 2002
Executive Summary
The objective of this meeting was to examine private sector actors' perceptions of and experiences with select existing and prospective measures, both voluntary and regulatory, to promote responsible business behavior in conflict zones. The discussions explored the costs and benefits that several emerging initiatives might entail for the private sector, the likely tradeoffs of binding regulation, and the sorts of institutional, financial, and political resources which would be needed to expand the coverage of both existing codes of conduct and binding regulations.
The following are the key conclusions emerging from the meeting:
Private Sector and Armed Conflict: There is an emerging understanding among policy makers as well as business actors that certain types of private sector behavior may affect the incidence, intensity, and duration of violent conflict. Although there is a need for further, systematic analysis of the relationship between private sector activity and armed conflict, many transnational corporations are increasingly concerned with improving the way they interact with their operating environments abroad, and with maintaining the integrity of their reputation and market share at home. Many of the measures they have undertaken so far are voluntary, including codes of conduct. Others involve entry into legally binding obligations, ranging from statutory and contractual arrangements to explicit government regulation.
Spectrum of Approaches: Most participants expressed a strong preference for non-regulatory approaches, rather than binding regulation. Regulation may be acceptable to firms if it obligates their competitors to standards of conduct to which they themselves are already voluntarily committed. Participants also expressed general reservations about any regulatory apparatus that placed the burden of responsible conduct on private businesses, rather than on the governments and armed groups involved in malfeasance and conflict. As businesses are unlikely to persist with corporate social responsibility (CSR) initiatives if these threaten a loss of concessions, competitive advantage, or the withdrawal of security, more consideration needs to be given to creating the right combination of incentives and regulation to promote good corporate governance.
Ensuring Security: Companies operating in conflict zones have a legitimate need to establish adequate security. But these arrangements, whether supplied by host states or private security companies, risk implicating firms in wider military operations and potential human rights violations. The US-UK Voluntary Principles on Security and Human Rights (2000) provide minimum guidelines for firms to use when contracting security services. Still, for many corporate decision-makers, compliance with the Voluntary Principles involves certain costs, at least in the short term. Consequently, adherence, to date, has been an incremental and uneven process, not one of rapid change and immediate results. To transform the Voluntary Principles into global standard practice, participation must be expanded to the widest possible range of private sector actors, including developing country corporations, their home governments, and host governments at risk of or involved in armed conflict. But currently, there is a dilemma among those actors responsible for drafting the Voluntary Principles whether to deepen implementation among existing participants prior to inviting new companies to join the dialogue.
Revenue-Sharing for Social Development: Many private sector actors have developed, in consultation with a range of stakeholders, "social revenue-sharing agreements" to allocate and distribute the benefits of private sector activity among national and regional governments and local communities more equitably. These arrangements may thereby minimize potential grievances and reduce the risk of violent conflict. The revenue-sharing plan of the Chad/Cameroon oil pipeline project has attracted interest as a model for other primary commodity export-dependent states where governance and financial management are weak. However, it is not yet clear what the utility of the plan will be in Chad, let alone if it will prove replicable in countries where production has already commenced and where oil companies may be willing to forego corporate social responsibility agreements in order to stay competitive.
Transparency: The lack of transparent political and fiscal processes is often identified as a primary reason for the weakening and collapse of states as well as the outbreak of armed conflict. The rapid and sizable influx of revenue associated with oil production, in particular, places resourcerich countries at risk of high levels of corruption and rent-seeking. In response, a recent Global Witness campaign has called for the major financial regulators of international stock e xchanges to legally require publicly traded companies to publish a summary of "all payments to all national governments in consolidated and subsidiary accounts." While not opposed to the principle of financial transparency per se, most private sector actors expressed a strong preference for non-regulatory approaches and for policies that directly target government malfeasance (such as conditionalities on multilateral aid). Promoting collective action remains a fundamental challenge to the adoption of transparency regulations. Yet, the counter-proposals offered by participants suggest that the reluctance of companies is neither uniform, nor insurmountable. Many highlighted the importance for action to be taken at the sector level, rather than that of the individual corporation.
Certification of Conflict Commodities: Access to global financial and commodity markets has enabled state and non-state combatants to translate territorial control over natural resources into lucrative revenue, whether for financing armed conflict or for personal profit. As participants stressed, many corporations may be unaware of the links between their goods and services and armed conflict, especially where they rely upon long supply chains. But even where the link is clear, firms may have little immediate financial incentive to alter their practices, to change suppliers, or to pressure suppliers to change their own practices. Certification procedures, such as the Kimberley Process, aim to differentiate "licit" business transactions from those that are conflict-promoting, thus decreasing the risk of punishing legitimate trade along with the illegitimate. Effective implementation and compliance with certification faces numerous challenges, including inadequate operational capacity and political commitment by states. Private sector receptiveness to certification efforts may depend on whether the extra cost associated with ensuring compliance can be passed on to consumers or otherwise compensated.
Sanctions: Traditionally used against states, sanctions are increasingly being applied in a targeted form against non-state armed groups. In t h e o r y, the UN Security Council could extend targeted sanctions to private firms found complicit in armed conflict or human rights violations to pressure corporate decision-make r s to modify or restrict their behavior. In addition, the Security Council could impose embargoes on commodities in which they deal. Private sector opposition to comprehensive trade sanctions is well-known. Less known is whether their opposition extends to targeted sanctions, as private sector views have been excluded from the process of UN sanctions reform. According to participants, private sector actors would welcome greater consultation in UN sanctions policy making.
Regulatory Frameworks: Generally, private sector participants favored voluntary measures, rather than legally binding obligations. Conversely, many outsiders argue that voluntary measures alone are ultimately insufficient to ensure that private sector activities do not directly or indirectly contribute to armed conflict, as they lack rigorous enforcement and broad coverage. There is an emerging interest — predominantly among NGOs, but also within some governments and industry groups — for a more overarching and robust approach to complement self-regulation, for example, a global minimum standard of conduct on the responsible use of natural resources and on norms of fiscal transparency. The most likely trend in the near future is the fine-tuning and standardization of existing voluntary international measures, combined with improved national legal and regulatory enforcement.
