Corporate Accountability and Sustainable Development | edited by Peter Utting and Jennifer Clapp

by Sep 12, 2011All Articles

Corporate_accountabilityDoes Capital Have a Conscience?
Capital defines its existence in conservative economic theory by its objective to maximise profits. Such narrow conceptualisation of the firm of course stands in contrast to the view that profits are one component of the social surplus and it is for society to decide how to appropriate and allocate these surpluses. The demand for corporate engagement with civil society mainly arises when there is a perception that the firm’s activity is imposing an unfair cost on society or there is unfair distribution of the social surplus. With the rise of multinational corporations and their ability to manoeuvre the legal frameworks in different parts of the world, the possibility of global social control over business has declined. In a world faced with growing inequality on the one hand, and rapidly deteriorating environment on the other, the challenge of sustainable development lies as much with governments as it does with corporates who have large ecological footprints all over the world.

Sustainable development has been the objective of human enterprise for numerous reasons but mainly to ensure that human life on earth is not curtailed by irresponsible anthropogenic intervention. This book addresses the classic contest between economic development (narrowly defined) and environmental conservation (broadly defined). The wealth of nations consists of different forms of capital – natural, human, physical and social. Actions that enhance accumulation would be akin to development but activities that erode the aggregate wealth will lead to non-sustainable development. Do corporations add to the society’s wealth or reduce it?

Environmental Conservation
The three things that Utting and Clapp’s edited volume brings to the fore are: What role should corporates play in environmental conservation? What has been their past record in this regard? What governing mechanism would ensure a socially responsible behaviour on their part? The underlying theme of this volume is to examine whether voluntarism works better than enforcement among corporations in maintaining socially responsible behaviour. The nine contributions succeed in bringing to the reader a comprehensive account of corporate engagement with social and environmental issues. This collection of essays is part of the Oxford University Press’ series on “Ecological Economics and Human Well-Being”. It has a foreword by the series editors Juan Martinez-Alier and Pushpam Kumar.

The volume begins with an overview paper by Clapp and Utting on the interface between the legal framework, corporate accountability and responsibility. They define corporate social responsibility (CSR) as a set of actions by not only the large multinational corporations but also the smaller firms that form part of the globalised production system. Corporations made a set of commitments at the World Summit in 1992 to voluntarily undertake action that was “green” and “ethical”. However, there were widespread suspicions about the viability of voluntary “ acceptable”
behaviour on the part of the corporations. Consequently, three things have happened to control corporate behaviour: active government intervention, market driven certification and community

In the chapter that follows, Stefano Pugtz highlights the dichotomy between the needs of macro sustainability (of human development) and micro sustainability of firms. He examines the concept of sustainability in management studies, and the disjuncture between sustainable development, corporate sustainability and corporate social responsibility (CSR).

Aril Vatn provides a wide-ranging discussion on sustainable development that encompasses not only the environmental issues but also the social dimensions. The author offers two choices for corporates to engage with “social rationality”: embed capital within the socio-political paradigm or take away its independence as an economic entity and institute social rationality within the firm itself. The author argues that while the latter would be difficult (but not inconceivable) to achieve, the former is realisable with a re-arrangement of existing systems.

Human Rights
Peter Utting in his paper widens the scope of corporate responsibility to include human rights. Companies operating at the global level often try to circumvent high cost of production and strict legal frameworks in developed countries by locating in developing countries with lower wages and lax scrutiny.

One such example is the agro-food industry. Clapp records numerous cases of illegal or unapproved release of genetically modified seeds into the production and consumption markets by seed manufacturing companies. The role played by the manufacturers in  legitimising sales but minimising legal liability underlines the non-viability of voluntarism and the need for regulation especially when risks are large.

The same holds true for the global oil industry and its response to oil-spills which have an impact on marine life. The most recent British Petroleum pipeline leak in the Gulf of Mexico in April 2010 was also the largest accidental marine spill in history. Loureiro records how different countries have dealt with it in the voluntary framework of international conventions under the UN agency International Marine Organisation. The study reveals the pitfalls in global conservation efforts due to differing stringency in national legal systems dealing with the environment.

Those interested in the Indian economy will find two chapters of relevance. Panth and Shastri’s chapters undertake an inter-state comparison of industrial pollution compliance with a special focus on polluting industries. Interestingly they find that states which report higher compliance also attract greater investment of polluting industries implying that there is a mismatch between reported and actual compliance.

Sarkar’s study on four companies in the paper and steel industries in India finds that poor implementation on the part of regulators can be overcome by social interventions as long as a strong reference regulation exists.

The other country study in this volume is from South Africa by Eccles, Hamann and Jongh. They compare corporate behaviour in three sectors – mining, finance and retail. Interestingly they find that in the mining sector, there is better accountability from firms because of strong regulatory frameworks whereas the retail industry has the lowest accountability probably because it has the least developed regulatory system.

This volume creditably brings together a set of studies that give the reader an overview of the evolution of moral persuasion and voluntary compliance by corporations to formal and informal regulations that govern them. It also gives us the relative effectiveness of voluntarism and regulation in different regions of the world. The message that the book leaves the reader with is that sustainable development is a social goal and capital as a social agent has an important role to play. The question is, will it do so voluntarily or does it have to be externally regulated? The findings are not unequivocal and this leaves a window for future research in this area.

Corporate Accountability and Sustainable Development edited by Peter Utting and Jennifer Clapp
(Oxford University Press)
Review by Pranab Mukhopadhyay EPW

Pranab Mukhopadhyay () teaches economics at Goa University.

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