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8/2/2019 The Multinational Corporation and Global Governance Modelling Public Policy Networks
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The Multinational Corporation
and Global Governance: ModellingGlobal Public Policy Networks David Antony Detomasi
ABSTRACT. Globalization has increased the economic
power of the multinational corporation (MNC), engen-
dering calls for greater corporate social responsibility (CSR)
from these companies. However, the current mechanisms
of global governance are inadequate to codify and enforce
recognized CSR standards. One method by which com-
panies can impact positively on global governance is
through the mechanism of Global Public Policy Networks
(GPPN). These networks build on the individual strength
of MNCs, domestic governments, and non-governmental
organizations to create expected standards of behaviour in
such areas as labour rights, environmental standards, and
working conditions. This article models GPPN in the issue
area of CSR. The potential benefits of GPPN include better
overall coordination among industry and government in
establishing what social expectations the modern MNC will
be expected to fill.
KEY WORDS: corporate social responsibility, global
public policy network (GPPN), governance, non-gov-
ernmental organizations, activism
ABBREVIATIONS: GPPN Global Public Policy Net-
works; FDI Foreign Direct Investment; IMF Interna-
tional Monetary Fund; NGO Non-governmental
organization; WTO World Trade Organization
Introduction
Who governs? This deceptively simple question posed
by Robert Dahl about the politics of municipal gov-
ernance proved complex and controversial enough to
require over 300 pages to answer (Dahl, 1961). He
would have needed more had he been writing about
the unwieldy workings of the modern international
economy, whose governance structure is at best fluid
and at worst non-existent. Normally, the term gover-nance is associated with the institutions of national
government, but that association does not hold for issues
or activities that transcend national borders. A diverse
group of actors today vie with national governments
for the right to exert power and authority within that
system (Rosenau, 1997). Of these, the modern mul-
tinational corporation (MNC) is perhaps the most
powerful. Such companies whose production net-
works may span dozens of countries and involve bil-
lions of dollars of assets have not surprisingly taken a
keen interest in not only deciphering, but also in
shaping, the rules of the global game (Dam, 2001).The rise of private authority mechanisms within the
global economy, already well documented by political
scientists (Cutler et al., 1999), is but one symptom of
the evolving conceptual contours of who can and
should govern the international economy.
The purpose of this article is to provide an analytic
framework for understanding how companies can
ethically and legitimately contribute to the gover-
nance of the global economy. The model employed
is that of Global Public Policy Networks (GPPN), in
which the strengths of state, market, and civil societyactors combine to create an effective international
governance system that overcomes the weaknesses
afflicting each individually. It proceeds as follows.
First, it traces the recent evolution of the MNC as a
political and social, as well as an economic, institu-
tion. Second, it demonstrates that as the economic
power of the MNC expands, so too has public
expectation that MNCs contribute to eradicating
the social and political upheaval their activity has
David Detomasi is an assistant professor of international business at
the School of Business, Queens University, Kingston,
Ontario, Canada. His research areas include corporate govern-
ance, corporate social responsibility, and business and society.
Journal of Business Ethics (2007) 71:321334 Springer 2006
DOI 10.1007/s10551-006-9141-2
8/2/2019 The Multinational Corporation and Global Governance Modelling Public Policy Networks
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contributed to. Third, we develop criteria that an
effective international governance systems needs to
possess, and demonstrate that no individual actor
possesses all such criteria. Fourth, we outline a model
by which GPPN can overcome these individualweaknesses. Finally, we demonstrate how GPPN are
actually working in practice, sketching the contours
of a global governance research agenda that other
scholars might wish to take up.
Globalization and the multinational
corporation
In the domestic environment, national governments
are tasked with providing transparent, robust, andeffective regulatory systems that underpin the market
mechanism, and they do this job more or less well,
depending on their ideology, internal capabilities,
accumulated experience, and domestic economic re-
sources. This tasking, however, is difficult to replicate
at the international level. The structural condition of
anarchy in which no international authority exists
that can perform the legislative, executive, and judicial
functions of equivalent state institutions prevents
such a clear allocation of regulatory responsibility. This
lack of clarity constrains what (if any) rules can be
written and how effective those rules will be in con-straining what actors do.
MNCs have of course understood this for a long
time. During the Cold War, most MNCs focused
their political strategies on influencing home and host
governments (Gilpin, 1975). MNCs often attempted
to influence the trade and industrial policies of their
home governments in order to enhance their com-
petitive position (Dam, 2001; Milner and Yoffie,
1989), and coped with import substitution policies,
heavy unionization, and the significant political risks
associated with operating in developing markets ornominally Communist regimes (Brewer, 1985; Sta-
penhurst, 1992). Not surprisingly, companies became
good at anticipating national political demands and
eventually began to view the capacity to influence
public policy within multiple jurisdictions as a
competitive business skill (Prahalad and Doz, 1987).
The end of the Cold War significantly altered
both how and how much international business
companies could do. New global markets increased
the demand for consumer goods. Formerly Com-
munist regimes adopted free-enterprise systems
almost overnight; rapidly dropping trade barriers and
clamouring for more investment in order to improve
their competitiveness. As the benefits of foreign
direct investment (FDI) began to accumulate, themarket for it became extremely competitive. Con-
sequently, many states scrambled to dismantle the
barriers they had put in place to regulate investment
activity. Liberalizing bilateral and multilateral
investment and trade agreements proliferated; and
many governments created investment promotion
programs designed to highlight their internal
advantages to potential MNC investors. Internally,
governments amended regulatory impediments to
investment, implemented tax breaks and holidays,
extended tax credits for research and developmentexpenditures, and often provided government sub-
sidies to investing firms. All these measures were
designed to make individual countries more attrac-
tive to increasingly discriminating foreign investors.
Improvements in information technology aug-
mented MNCs investment freedom. Enhanced
information management capacities allowed firms to
restructure operations to maximize efficiencies in
global production and distribution capacity, to
coordinate an extensive global supply chain across
dozens of countries, and to improve individual plant
productivity. MNCs also used information tech-nology to develop new governance structures that
relied less on pure markets or hierarchies and more
upon a disparate but technologically connected
network of strategic alliances, partnerships, and
cooperative arrangements. Production processes
became fluid, global, and increasingly divorced from
the regulatory control of any individual nation-state
(Kobrin, 1997). Technology and increased invest-
ment freedom gave MNCs significant bargaining
leverage in their relationships with host governments.
Consequently, over the past 15 years, the amountof foreign direct investment, foreign sales, foreign
affiliates, and foreigners employed by MNCs exploded
(United Nations, 2004). Today, large MNCs by some
measures rival all but the most developed countries in
terms of economic output.1 Yet the picture has not
been all rosy. Companies could no longer rely on
protected domestic markets for predictable returns as
foreign competitors began to compete for domestic
customers. They raced to build production and dis-
tribution capacities in new markets, fearing loss of
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market share to more aggressive competitors. The
capital market globalized as well: investors scoured the
world for the best investment opportunities, and
shareholders pressed public companies to show supe-
rior returns each and every quarter. Size and globalreach appeared to increasingly matter: merger and
acquisition activity rose dramatically. All this pressured
company executives to wring ever-greater perfor-
mance out of their streamlined global production
network. Those charged with managing that network
could have borrowed from Winston Churchill in
noting that the blessings of globalization were quite
effectively disguised.
If globalization increased the bargaining clout of
MNCs vis a vis national governments, increased
global competition compelled them to use thatclout. Companies bargained hard for improved
investment conditions, and searched the globe for
production facilities that could minimize costs. The
results were predictable. For production processes
that required quantities of unskilled or semi-skilled
labour, companies evaluated investment sites whose
overall operating costs measured in wages or reg-
ulatory demands were low. This phenomenon,
technically termed regulatory arbitrage, was dis-
paraged as an MNC-induced race to the bottom
in which developing nations competed in regulatory
laxity as their primary basis for drawing FDI. On theinternational front, companies whose economic re-
turn depended upon the protection of intellectual
capital pressed hard for national and international
recognition of stringent intellectual property pro-
tection. International success also required the
capacity to repatriate earned profits: consequently,
companies pressed countries to liberalize capital
controls, leaving them vulnerable to financial crises.
Significant market logic underpinned the demands
MNCs placed on domestic and international regu-
latory regimes.That market logic provoked critics who noted the
significant social costs such practices engendered and
increasingly demanded that measures be taken to
mitigate them. Initially, such groups targeted their
criticism at international economic organizations
such as the World Trade Organization (WTO), the
International Monetary Fund (IMF), and the World
Bank claiming that they had neither regulated the
pace at which globalization occurred nor moderated
the damage that it caused. In fact, they accused these
organizations of endorsing policies that augmented
rather than dispelled such damage, and protests at the
international meetings of these organizations be-
came, and are now, an expected rather than a sur-
prising occurrence.Activists, however, did not stop there. They also
began targeting individual companies as well, criti-
cizing them for tolerating, even promoting, unac-
ceptably low wage and environmental standards in
their global network. Activists created formidable
public protest campaigns that featured organized
consumer boycotts, media campaigns, and staged
protests, all designed to highlight egregious examples
of poor corporate behaviour, raise popular outrage,
and alter consumer spending patterns. This helped
forge a powerful public consensus that companiescould and should contribute more to the sustain-
ability of an economic system from which they drew
significant benefit.
Of course, none of this was particularly new:
MNCs had for decades confronted engaged activists
demanding better social responsibility. The basic
criticisms have remained consistent: critics argue
that the growth of the MNC and the dispersion of
stock ownership has in effect made the MNC
accountable to no one: that the transparency of
company operations particularly those occurring
in remote or developing areas remains poor andneeds improvement: that international regulatory
mechanisms over such areas as taxation, articles of
incorporation, and transfer pricing were underde-
veloped; and that stakeholder considerations require
greater prominence in corporate decision-making.
What has changed is the content of the remedies
proposed. Rather than relying on the instruments
of public regulation via overt government insti-
tutional oversight or even the appointment of
public representatives to company boards of direc-
tors greater expectation of public responsibilitytoday is placed upon companies themselves. In
previous eras, that antidote to corporate excess was
state regulatory activity; today, few argue for the
return of the regulatory assertive state, which
would inevitably raise public expenditure and could
potentially divert investment. Today, greater governance
responsibility is placed on companies themselves.
Many companies have taken the hint. An
indication that MNCs increasingly accept broader
stakeholder obligation is the current emphasis
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many of them place on developing or renewing
their public commitment to the broad domain of
corporate social responsibility (CSR). Develop-
ing new or extending existing internal company
policies related to the companys social perfor-mance indicates a commitment that goes beyond
simply meeting extant legal requirements in indi-
vidual jurisdictions. While these efforts might be
dismissed as merely an exercise in public relations,
there is increasing evidence that stakeholder
management is an important component of com-
petitive advantage. Done properly, such commit-
ments can provide firms with greater insight into
local markets, lowers their media, social, and
political risk, enhances the quality of the work-
force, and attracts new recruits.To summarize, the growing economic power
of MNCs poses significant challenges to the
existing institutions nominally charged with gov-
erning their activity. Activists have highlighted
the social inadequacies of unregulated global
production processes, and have demanded greater
social performance from companies themselves. In
response, many companies have crafted CSR
policies designed to address the social impacts of
their production practices. Yet there remains
considerable discrepancy in the degree to which
various companies endorse CSR, and activistsremain suspicious that the avowed commitment
to CSR will result in any clear change in MNC
behaviour. In short, managing the social respon-
sibilities of MNCs remains a gap in the current
global governance system, one in which many
actors vie for influence. The following section
details the specific capacities, strengths, and
weaknesses of those actors in the issue area of
CSR, setting the stage for the discussion of
GPPN that follows.
Global governance and corporate social
responsibility
The act of governance involves setting the rules for
the exercise of power and for determining who can
legitimately wield that power. Effective governance
systems possess certain characteristics. The first is
legitimacy; that the agents exerting governance
authority possess the acknowledged right to do so by
those who are subject to that authority. Second is
accountability for decisions taken; that mechanisms
exist whereby those who exercise power are peri-
odically called to account for the consequences of
what they do. The third function is capacity thatthe institutions entrusted with the governance
function possesses the resources, administrative
capacity, and specialized technical knowledge nec-
essary to exercise governance effectively. Finally,
effective governance requires enforcement: that
those transgressing established rules face at least
normative, if not punitive, damages.
Domestically, the act of governance is exercised by
the legislative, judicial, and executive institutions of
a national government. In democracies, consent of the
governed via periodic elections establishes thelegitimacy for individual governments to wield
authority; such governments create laws and
domestic regulatory institutions that become the
instruments through which authority is exercised.
However, the domestic model is less than helpful in
the international realm, which lacks a centralized
supranational political authority that provides the
equivalent functions of a domestic government. But
that does not mean governance in the international
system is absent. On the contrary, a great deal of
governance is exercised internationally: for example,
existing technical standards manage internationaltransport and communication procedures, and states
have created and ratified international treaties that
cover issues ranging from trade to arms control to
human rights. Despite often weak enforcement or
punitive capacities, most rules are followed by most
states most of the time; indicating that they normally
accord them sufficient legitimacy to want to avoid
violating them.
An international governance system in the issue-
area of CSR would require building all of the
foundational elements of capacity, legitimacy,accountability, and enforcement. This section argues
that the structure of such a system would need to
reflect the interests and inputs of the various actors
noted in the previous section, because no one actor
is individually capable of providing these elements
by itself. Figure 1 details the various actors and
institutions that help shape the norms and practices
of corporate social responsibility in an international
context, and provides an outline of their individual
governance capacities.
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Starting from the top left, private sector actors,
such as MNCs, international industry associations,
and professional standardization and ratings agencies,
do exert international governance authority via
several mechanisms (Cutler et al., 1999). Private
actors possess several key governance strengths. The
first of these is competence and capacity. Firms are
experienced in creating governance systems that
lower transaction costs and which provide induce-
ments and penalties to structure how managers make
decisions. They have an economic interest inestablishing effective international governance
mechanisms that reduce transaction costs, lowering
operating risks, and ensure replicability, predictabil-
ity, and transparency in international business deal-
ings. Moreover, firms and industry associations may
possess specialized knowledge and expertize in
individual issue areas that state institutions may lack;
consequently their authority is either given legiti-
macy by governments or legitimacy is acquired
through the special expertize or historical role of the
private sector participants. (Ibid; 5).Examples of such private-sector governance
activity include trade and industry associations that
promote common standards in specific industries and
can act as an international advocate for regulatory
convergence in those industries (Brathwaite and
Drahos, 2000). Industry associations can work to
shape both a governments domestic policy and
bargaining positions in international trade disputes.
Other examples include resource-intensive indus-
tries, in which multinational firms may operate cartel
arrangements to profitably manage the flow of out-
put (Spar, 1994). Private regulatory agents such as
bond rating agencies (Sinclair, 2005) or accounting
regulators also can exert powerful governance
authority over the companies that operate in their
issue areas of expertize.
The production networks of individual multi-
national corporations themselves are an impressive
feat of international governance. Product firms often
feature not only vertically integrated production
structures that may employ tens of thousands ofpeople, but they have also integrated a dense net-
work of associated firms that are loosely coordinated
through varied ownership structures and assigned
production tasks. Professional service firms operating
in such fields as insurance, law, accounting, and
consultancy also exert mechanisms of governance
that shape the practice of their profession interna-
tionally. These firms coordinate their service activ-
ities across borders and their internal processes often
provide models for the appropriate internal gover-
nance of such systems. Individual companies them-selves can exert significant internal acts of
governance, and private agents can exert consider-
able authority due to their knowledge assets, global
reach, and collective political weight.
Private agents, however, also lack other required
characteristics of an effective international gover-
nance system. The most obvious is broadly accepted
legitimacy to exert governance in social, as well as
economic, realms. Legitimacy has several different
interpretations for firms. To be sure, managers have
Public International Institutions
Strengths Weaknesses
Institutional Strength Domestic Legitimacy
Possibility of Sanctions Limited Issue Focus
Articulated mandate
Private Governance ActorsMultinational Corporations/Industry Associations
Strengths Weaknesses
Technical Capacity Legitimacy
Economic Resources Experience/Knowledge
Internal Control Collective ActionMechanisms
Motivation
National Governments
Strengths Weaknesses
Legitimacy
Enforcement capacity Corruption or
Domestic Institutional capture of officials
Capacity
Activist and Civil-Society Groups
Strengths Weaknesses
Awareness Building Legitimacy
Issue Specific and Limited Issue Focus
Local Knowledge
Need to cultivate FDI
Figure 1. Global governance and corporate social responsibility participating actors.
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long acknowledged that a company is a social as well
as an economic institution: its continued existence
depends upon a social willingness to grant incorpo-
ration rights; and responsible exercise of that privi-
lege is a pre-requisite for maintaining social supportof the corporate form. However, the weight given
to this economic imperative conditions the activities
of private actors and raises suspicions of their ulti-
mate commitment to CSR activity. Critics point out
that organizations created primarily if not solely to
service economic ends cannot also be neutral con-
tributors or purveyors of public goods (Wartick and
Cochrane, 1985; Wood, 1991). Private actors
inevitably face conflicts of interest: profit and
shareholder motives raise the temptation for com-
panies to influence international and domestic gov-ernance mechanisms with an eye to creating
competitive advantage. This, critics point out,
companies already do well: their specialized
knowledge influences what policies their govern-
ments promote in contentious areas of international
commerce such as intellectual property protection or
anti-competitive trade practices. Put bluntly, any
form of regulation that companies must meet will
inevitably raise costs, and companies cannot be ex-
pected to both minimize production costs and also
endorse governance mechanisms that might raise
those costs.Critics also point out other factors that limit the
governance capacities of private actors, also outlined
in the Figure 1. First, effective mechanisms for re-
view and potential censure of how companies pursue
CSR are rudimentary. While shareholders can and
occasionally do demand improved social perfor-
mance: they are primarily interested in economic
gain, and can often exercise disapproval by exit ra-
ther than voice. Second, private actors may not
possess the requisite knowledge or skills to perform
the specifically public functions of governance.Third, companies suffer from collective action
problems in managing CSR efforts: they are often
unwilling to incur the extra costs such measures
entail unless they are assured that competitors will
bear the same burdens. Lack of legitimacy,
accountability, specific public sector knowledge, and
collective action problems limit the ability of private
actors to develop a global CSR governance system.
While certainly such actors would need to partici-
pate in the global governance of CSR, their partic-
ipation alone would be insufficient.
Public international institutions can also exert
governance in specific issues areas related to CSR.
The defining characteristics of public internationalinstitutions is that they are charged with policy
development and implementation in clearly defined
areas and that they draw their legitimacy and support
from their members, which are exclusively nation-
states. The most prominent examples of such insti-
tutions include the World Trade Organization, the
International Monetary Fund, and the World Bank.
Advantage they possess over private institutions is
their legitimacy and institutional capacity. Legiti-
macy they derive from their members, which are
national governments, who in theory can be ex-pected to endorse negotiated agreements, implement
created policies, and administer approved sanctions.
These institutions also posses the additional
advantage of institutional capacity. Sustained effort by
the leaders of powerful states led to their creation:
these leaders believed that such institutions would
serve both their individual and the worlds collective
interests by fostering peaceful political and economic
relations between states and progressive economic
development within them. They have largely suc-
ceeded in their original mandates: the 50-year pursuit
of market liberalization in the area of trade andfinancial liberalization-pursued via the tumultuous
negotiating rounds of the General Agreement on
Tariffs and Trade and via the IMFs liberalization and
stabilization policies is a case in point. Such insti-
tutions have provided such key functions as providing
forums for negotiation and mechanisms to administer
agreements: the vast increase in international economic
activity noted earlier testifies to their success.
Today, while admittedly having achieved some
degree of independence, such institutions continue
to draw legitimacy, funding, and mandate fromdelegates of nation-states. This means that they suffer
two specific limitations on what they can and cannot
do. First, such organizations concern themselves
primarily with addressing those problems that state
governments feel are important. Consequently, they
often do not possess mechanisms by which non-state
actors can participate in their deliberations. Conse-
quently, non-state actors who often wield signif-
icant power and influence find that their interests
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or goals are not always adequately served by existing
international institutions, resulting in their increasing
alienation from the global governance process. To
be sure, while both the IMF and WTO have made
efforts to become more inclusive of non-state actorswithin their deliberation process, their dependency
on state endorsement ultimately constrains that
accommodation.
Second, their success at fostering economic
liberalization has also led to calls for them to ex-
pand their mandate to ameliorate the social ills
created economic liberalization. Pressures placed
upon the WTO to use trade policy to induce
domestic governments to create strong regulatory
measures to protect intellectual property and en-
hance labour and environmental standardsthe so-called trade and ... agendaare cases in point.
Despite nominal responsibility for formulating
international labour standards is ascribed to the
International Labour Organization (ILO), pressure
is often placed on the WTO to adopt social
standards because they possess the potential puni-
tive measure of trade policy sanctions. This pres-
sure has often been resisted by the WTO, whose
official profess wariness of expanding their orga-
nizational prerogative beyond circumscribed
bounds and scepticism that trade or financial lib-
eralization policies can by themselves inducegovernments to enact the regulatory policies that
emulate those possessed by more developed na-
tions. Instead, they advocate that the responsibility
to provide public goods related to environmental,
health, or labour standards resides primarily with
national governments. Yet pressures to widen their
mandate continue to be voiced.
International public institutions often score better
on the legitimacy and accountability variables than
do their private counterparts. Their mandate, de-
rived from nation states, provides those advantages,but it also creates clear weaknesses. Their focus often
remains the interests of nation-states, to the detri-
ment of non-state actors. They do not possess direct
institutional strengths in addressing the key issues
that concern the topic of CSR; they only possess
peripheral strengths at addressing these concerns via
the mechanisms of trade and investment policy. In
short, while possessing a defensible claim to be able
to act in the public interest, there are strict limits to
how much they can realistically do.
A third group of actors that demand input into the
CSR debate are civil-society and activist groups dis-
cussed earlier. Politically, such groups derive power
from the ability to harness and distribute provocative
information that results in public outcry. Presumablysuch public outrage has a real impact on what indi-
viduals buy and perhaps even how they vote. Activists
unite individuals residing in different countries
around a common theme that they believe demands
more attention than elected officials or corporate
executives currently pay it. Their power to influence
formal governance channels both public and private
is considerable, and they have achieved notable re-
cent successes in highlighting the negative effects of
globalization and forcing corporate executives to re-
spond to it. The public outcry of Nikes use ofcontracted footwear companies whose working
conditions were abysmal, or Greenpeaces success at
inducing public outrage over Royal Dutch Shells
proposal to dispose of an oil rig in the North Sea, are
well-known popular examples. Activists, govern-
ments and companies have learned, should not be
underestimated.
For activists, the emphasis on specific issue(s) that
provides the necessary focus to recruit new members
and influence public policy is a source of strength.
Focus creates vision, which can motivate new
members to join and existing members to exertconsiderable effort in the name of the organizations
goals. Such efforts also provide the necessary social
momentum that translates into political influence.
However, this focus also generates weakness. First
and foremost, activist groups engender concerns
about accountability: their mandate is drawn from a
self-selected constituency that makes no claim to be
representative of a broader national constituency.
Moreover, the focus on progress across a limited
number of select issues means that their demands on
companies and governments are often unrealisticallyhigh. The reliance on aggressive media strategies as a
tool to influence public opinion may preclude the
patience required to advance interests within more
institutionalized forums. These factors limit the
capacity of activist groups to play an independent
role in setting CSR expectations.
A final actor that requires participation in the
CSR global governance process includes individual
nation-states. The social performance expected of
MNCs goes to the regulatory heart of the modern
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nation-state. Not surprisingly, each country would
want to retain ultimate prerogative over what
labour, environmental, and wage standards it choo-
ses to endorse. States, particularly democratic ones,
possess the strongest claims to legitimacy among theinterested actors, and typically also possess the
strongest institutional capacities for the domestic
enforcement of expected standards. However, as
previously noted the economic pressures of global-
ization may tempt states to lower regulatory stan-
dards or to run the risk of high regulations deterring
foreign direct investment. While states would want
to help shape international expected standards in the
area of CSR, any successful process would need to
ameliorate this competitive pressure and provide
states with increased bargaining leverage in terms ofwhat they could realistically expect from investing
firms.
To summarize, the governance challenges posed
in the era of globalization are significant in the issue
area of CSR. Various actors currently contribute to
the ongoing effort to establish clear expectations of
the social obligations of multinational corporations.
Each possesses strengths and weaknesses; none can by
itself claim the mantra of governance provider in the
area of CSR. Filling this gap requires a different
governance structure and approach. The following
section outlines a model of one potential governancesolution, in which Global Public Policy Networks
(GPPN) act as a potential source of effective inter-
national governance in the area of CSR.
Governance through global public policy
networks
In order to address this governance gap, alternate
models of global governance have been developed
that are designed to overcome the need for effective
regulation in an age of diminished state capacity andeconomic globalization. One such option lies in
governance through Global Public Policy Networks
(GPPN). GPPN feature collaborate efforts by vari-
ous actors designed to address common problems.
Their particular strengths lie in their ability to
integrate public, private, and non-governmental ef-
forts in managing the governance challenges posed
by particular policy areas (Reinicke, 1998). Their
particular strength is inclusiveness: they operate by
bridging the technical and administrative expertize
possessed by industry actors, and the legitimacy
garnered by state regulatory endorsement. They
occupy the indeterminate zone between formal
institutions of domestic and interstate law and the
realm of anarchy. They are symptomatic of anassociated concept of governance through net-
works in which interested parties, both state and
non-state, combine their specific strengths to estab-
lish procedural and expected norms that condition
their mutual activity (Slaughter, 2004).
Effective global governance of MNC activities
demands the combinations of strengths evinced by
these various actors. GPPN are one potential model
that such a system might employ. Figure 2 demon-
strates how GPPN might be understood in terms of
the emerging global governance area of CSR.The top level of the Figure 2 indicates policy
inputs from various actors, each of whom has clear
interest in participating in such networks. For
MNCs, GPPN provide a mechanism for dialog and
for input into the CSR expectations that they will be
expected to fulfill. Such companies have an interest
in clarifying such standards and in ensuring that they
apply to as many competitors as possible. This will
help each individual MNC overcome collective
action concerns, will adding predictability and con-
sistency into the international operating environ-
ment, and will provide a base reference forunderstanding what they can and cannot be rea-
sonably expected to fulfill in the area of CSR.
States are a second element of knowledge input
into GPPN. GPPN allow states to choose a third
course between abandoning regulatory control in
order to encourage investment and aggressively
asserting such control to the point of deterring
investment and hurting overall economic develop-
ment. Participating in a GPPN networks also helps
states overcome collective action problems associ-
ated with the race-to-the-bottom literature; com-mon standards across countries and industries can
enhance clarity and transparency for both states and
firms. In addition, GPPN are also attractive for na-
tional regulatory agencies. They help provide spe-
cific exchanges of ideas, information, and expertize
in CSR related areas while posing little threat to the
broad domestic mandates that many regulatory
agencies have worked hard to construct. GPPN can
serve the broader mandates of governance that pre-
serve the core elements of sovereignty while also
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allocating requisite authority to those best placed to
wield it.
Activists and NGO groups also see benefits from
participating in GPPN. First, participation in such
networks solidifies their impact on corporate plan-
ning over the long term. Aggressive media strategies
entail risk: they may or may not attract the necessary
broad public interest necessary to motivate change,
and they are expensive and difficult to maintain over
time. Great long-term effect may be generated by
working with companies to create higher labour and
environmental standards. Some NGOs already par-
ticipate in the investment planning process, and
some MNCs are actively cultivating their participa-
tion. Undoubtedly some of this is simply media risk
management; however, to companies activist and
NGO groups are often a vital source of local
knowledge of host states that companies need toaccess (Prahalad, 2005). Activists participate in
GPPN because over time such networks offer the
strongest capacity to play an ongoing role in the
decisions that companies make.
The second level of the model involves the
activities of GPPN themselves. Their function
remains primarily institutional. First, they provide
an institutionalized forum for dialogue and debate.
GPPN provide mechanisms for inclusive discus-
sions in which the various actors can participate
directly. Second, they act as a repository of
information. First, GPPN can codify decisions and
agreements taken, allowing each participating
group to review the agreements before choosing
to endorse them. This adds legitimacy to the
decisions reached because they have been endorsed
by the very actors expected to implement them.
Finally, GPPN act as a reference and dispute res-
olution body. First, new members wishing to join
a given GPPN would likely need considerable
guidance in terms of norms and expectations of
procedures. Second, as disputes about implemen-
tation and interpretation are bound to arise,
GPPN can provide mechanisms to resolve disputes
in an ordered and predictable fashion.
The third level of the model represents the policy
outputs that GPPN create. The first and mostobvious role is standard setting, in codifying the
expectations around general issue areas. In the case
of CSR, this includes clear expectations in the
primary areas of labour, environmental, and wage
standards. A second policy output includes enforce
ment mechanisms. These range from possible groups
sanctioning of transgressors to outright expulsion
form the GPPN, an action which would inflict
significant normative costs on the specific actor.
Multinational
Corporations
National
Governments
Activist/ Civil
Society
Groups
GLOBAL
PUBLIC
POLICY
NETWORKS
Codified
Standards of
ExpectedPerformance
Enforcement
Mechanisms
Macro GPPN
The Global
Compact
Micro GPPN
CGIAR
CAVI
WCD
Ongoing
Evaluation
and Review
Figure 2. GPPN in terms of the emerging global governance area of CSR.
Multinational Corporation and Global Governance 329
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A third output of effective GPPN would be an
ongoing evaluation of its effectiveness as a gover-
nance organization, so that it can anticipate and react
to new governance challenges and identity areas in
which its current performance is inadequate.GPPN in the area of CSR are beginning to
emerge. One foundation for GPPN has been the
surging number of codes of conduct, issued by
various bodies, designed to clarify expectations of
MNC activity is CSR areas. Prime examples of this
include the Organization for Economic Cooperation
and Development (OECD)s Guideline on Multi-
national Corporate Behaviour, originally published in
1976 and revised five times since, with the most
recent review culminating in June 2000. The text of
the most recent version, entitled Guidelines for Mul-tinational Enterprises, reinforces the economic, social,
and environmental components of the sustainable
development agenda. It is complement by other
well-known codes as the Global Reporting Initia-
tives reporting requirements and the Sullivan prin-
ciples, originally created to help condition MNC
activity in an apartheid South Africa. These are but
several of the more well-known efforts: they are
complemented by many other codes of corporate
conduct issued by various organizations.
Efforts are on for the creation of codes of ex-
pected corporate conduct, which has united severalthemes. All acknowledge that they do not carry the
full weight of domestic law, that MNCs choose to
endorse them or not, and that sovereign govern-
ments ultimately decide whether and how to enforce
them. However, that does not render them pow-
erless. First, their effectiveness lies is their capacity to
establishing norms of expected behaviour that
influence the patterns of domestic law enacted by
national governments. Second, there wording is
specific enough to be clear but also flexible enough
to allow states and firms to choose particular routesand methods of implementation. Third, especially so
in the case of the OECD, their endorsement by
reputable international organizations to which states
belong make them difficult to ignore.
Such codes have been augmented by increasing
efforts by intergovernmental organizations to create
additional written expectations of MNC conduct
that go beyond individual domestic legislation. The
language of the United Nations Draft Norms on
the Responsibilities of Transnational Corporations
and Other Business Enterprises with Regard to
Human Rights is explicit in this regard. In the case
of the rights of workers, for example, this document
states that transnational corporations shall ensure
the freedom of association and effective recognitionof the right to collective bargaining by protecting the
right to establish and ... to join organizations of their
own choosing. Rather than noting how such an
explicit statement may appear to infringe on legiti-
mate state prerogative, the document also argues that
companies should perform such functions within
their respective spheres of activity and influence.
(United Nations, 2003). Under this document, the
burden of governance responsibility is passed to
those best able to perform it, which may be the
company itself.International institutions have also been active in
promoting improved CSR in partnership with
companies, activists, and state governments. For
example, the Global Reporting Initiative (GRI),
which grew out of a joint initiative between the
U.S. Coalition for Environmentally Responsible Econo-
mies(CERES) and the United Nations Environment
Programme. The GRI was and is designed to
complement existing financial reporting frameworks
with an environmental reporting framework that
provides guidance for companies in reporting on the
environmental sustainability of its current opera-tions. Both of these adopted codes involved con-
sultation with industry and government groups in
their formulation. They are and were issue-specific,
designed to improve reporting requirements in the
areas of environmental impact assessment and
reporting.
These individual efforts have laid the foundation
for larger GPPN to form in the area of CSR. Today,
several prominent examples of these networks exist.
The most visible GPPN in this area is the United
Nations Global Compact initiative, a program intro-duced by U.N. Secretary General Kofi Annan at the
annual meeting of the World Economic Forum in
1999. The Global Compact is designed to engage
multinational corporations in addressing the broader
issues of systemic underdevelopment, and calls
on business leaders to work with governmental
and non-governmental agencies to further the cause
of sustainable globalization. Initially designed to fos-
ter greater cooperation between the UNs devel-
opment efforts and the activities of multinational
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corporations in the developing world, the Global
Compact has achieved a high degree of corporate
participation and endorsement from a wide variety
of actors. The Global Compact has issued nine
principles that were derived in consultation ofestablished UN documents and other established
international organizations. They are designed to
represent commitments to achieving basic principles
in the areas of human rights, labour, and environ-
mental legislation.
More specific examples of GPPN working in
action include the following. The Consultative
Group on International Agricultural Research
(CGIAR) supports agricultural research centres lo-
cated primarily in the developing world. This
informal association involves public and privatesector members dedicated to enhancing food secu-
rity and contributing to poverty eradication. A sec-
ond example is the Global Alliance for Vaccines and
Immunization (GAVI). Launched in early 2000 at
the World Economic Forum, this organization
harnesses public and private resources to increase
support for immunizations activities, focusing pri-
marily on providing equal access to vaccines. Finally,
the World Commission on Dams (WCD), convened
in 1997, produced recommendations and demon-
strable action by public, private, and civil society
organizations in order to enhance the sustainabilityof dam projects in the developing world. All of these
initiatives combined the individual strengths of the
private, public, and civic sector in order to enhance
the provision of global public goods (Nelson, 2002).
These examples indicate that GPPN are indeed
forming in the realm of CSR. They often possess
technical, administrative, and economic resources
that exceed those available to host states, and draw
on the various capacities of interested actors in order
to develop their governance capacities. These net-
works utilize the individual strengths of the variousactors involved to overcome their individual weak-
nesses. One of them is organizational form: such
networks involve extensive use public/private part-
nerships, and other forms of cooperative arrange-
ments between the public and private spheres to help
implement agreed plans. Rather than replacing or
by-passing the established state governance appara-
tus, these networks are designed to complement that
apparatus with the particular strengths of the NGO
and private sector. The common element to the
GPPN models is the tacit admission that states no
longer monopolize the act of governance but instead
rely upon the specific skills, knowledge base, and
technical capacity of other agents to help them
govern.The appearance of GPPN in the area of CSR, and
the model proposed to describe their functioning,
raises important questions for future researchers.
One involves whether GPPN are best constructed
on an issue-by-issue basis such as the particularized
examples noted above, or whether the broader ap-
proach typified by the Global Compact initiative
will achieve more effective governance results. The
advantages of issue-specificity include the narrowing
of expertize and contested policy questions into
manageable proportions: the specific problemsassociated with individual issue-areas may be more
manageable than those afflicting the macro approach
exemplified by the Global Compact. However, if
successful, a multilateral macro approach has the
advantages of wide endorsement. An analogy with
trade negotiations is perhaps helpful here: bilateral,
issue-specific trade deals are easier to conclude be-
tween two or three individual states, but a broader
multilateral trading system, exemplified by the
GATT and the WTO, provides broader systemic
appeal and can prevent the emergence of regional
isolationism. As in trade policy, a key challenge forthe study of GPPN in the issue area of CSR is
whether broader multilateral efforts involving a wide
number of interested actors ultimately works to
reinforce or oppose the work of more limited GPPN
in individual issue-areas.
A second research question involves the validity
of the models precepts. Most GPPN are relatively
new. The offered model argues that effective GPPN
will have built into them mechanisms for ongoing
evaluation of their own capacities and function. In
this regard, the inclusivenss of GPPN may actuallybe a weakness. Borrowing from the domestic state
analogy, most governance systems have external
observers and critics the media, opposing parties,
concerned citizens who collectively judge the
effectiveness of an individual government activity.
However, inclusive governance models may remove
the element of external criticism necessary to
invigorate a governance process. While this concern
may be more conjectured than real none of the
GPPN cited here have obtained the full membership
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or endorsement of all interested actors the rigour
with which past decisions are examined will be a
necessary component of effective GPPN activity.
A third potential question other researchers
might undertake is the relative balance of powerbetween the various contesting actors in individual
GPPN. The model as presented indicates that
governance input into GPPN is shared equally
among the actors participating in the network.
That clearly will not always be the case. For some
issues, states will likely emphasize their legislative
prerogatives more stringently than others. In other,
the specific capacities of individual NGOs may be
more important for example, distribution of
needed pharmaceuticals to combat the AIDS epi-
demic afflicting many developing nations often fallsto NGOs, who have built the necessary local trust
that is a prerequisite to such distribution. It is clear
that, within each GPPN, a balance of governing
power will emerge over protracted bargaining;
whether that balance is an effective one for gov-
erning the specific issues will be a topic for further
individualized research.
This list of potential research questions is by no
means exhaustive indeed, it is at best pre-
liminary. Continued examination of this new
governance form by interested researchers will test
the models validity and will undoubtedly lead toits further amendment and refinement. GPPN hold
various strengths, including capacity, legitimacy
built through inclusiveness, and flexibility. They
also face stiff opposition from entrenched gover-
nance patterns. Investigating this particular
strengths and weaknesses will likely yield benefits
to both scholars and practitioners in the evolving
field of global governance.
Conclusion
In an increasingly globalized world, MNCs have
gained considerable power. They are used to the
existing state-based system of commercial regulation,
and there are several reasons why they might wish to
maintain it. The advantage of using this system is that
the MNCs know the system well, and the system uses
effective tools for managing and currently provides
them with significant leverage. They have proved
adept at using that leverage: globalization has forced
firms to raise efficiency and adopt cost-minimization
strategies that both raise sustainability questions and
arouse the ire of the NGO community. A growing
number of MNCs acknowledge the need for sus-tainable production practices, but face considerable
practical problems in implementing them.
One of those problems is the structure of global
business regulation. Built in an era of relative state
dominance, current global governance structures do
not necessarily give adequate voice to interested
non-state actors, and often provide economic dis-
incentives for firms to endorse CSR mechanisms.
Both firms and NGOs have contributions to make in
the global governance process, current structures do
not take full advantage of the individual strengtheach possesses.
GPPN offer one potential framework for over-
coming the weaknesses in the current system of
global governance. By combining the individual
strengths of firms, states, international institutions,
and activists, they may succeed collectively what
each cannot individually do. This paper has chron-
icled their emergence in areas related to CSR and
has provided a proposed model for analyzing how
they work. Certainly more work can be done in
both areas, which will undoubtedly aid our under-
standing of CSR and global governance.Certainly the success of GPPN is not guaran-
teed. The involved agents may resist further col-
laborative efforts because they intrude on what
they believe their core competency really is.
Companies themselves may resist more formal
involvement in governance, preferring to maintain
an individualized market production strategy cou-
pled with a non-market strategy for choosing how
they will respond to the demands placed upon
them by NGOs and activist groups. States may
think that GPPN weaken rather than augmenttheir sovereign powers and therefore ignore or
undermine them. Activists may fear that involve-
ment in GPPN may erase their perceived inde-
pendence, weakening their power to induce
change. All of these are clear issues that effective
GPPN would have to overcome.
However, there is reason for optimism about why
GPPN will receive support from these diverse
groups. MNCs participation allows them to legiti-
mately shape the international regulatory environment
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in which they operate. States can reclaim more
governance capacity in economic areas, and activists
are accorded an accepted role in the formulation of
investment conditions and social performance
mechanisms. GPPN provide modes by which states,companies, and civil society groups can collabora-
tively fashion the governance of international eco-
nomic activity. All of these provide sustainable
incentives for GPPN to proliferate.
The international system is anarchic that is, it
lacks a centralized governing institution that has a
recognized executive, legislative, and judicial body
(Arend, 1999). However, that does not mean that it
is bereft of governance the orderly establishment of
rules and regulatory mechanisms that function
effectively even though they are not endowed withformal authority. GPPN are one emerging mecha-
nisms by which governance is exercised in the
international system. They hold the potential to
move the CSR debate away from the standardized
arguments of the past and towards a more productive
creation of an effective governance system for the
social performance of MNCs. They will likely play a
key role in the years ahead, one that holds consid-
erable promise for further investigation by interested
scholars.
Note
1 Some measures compare the economic assets con-
trolled by the largest corporation with the Gross
Domestic Product of countries. According to this mea-
sure, the largest MNCs have more economic clout than
all but the most developed national economies. How-
ever, when measured by the amount of value-added
activity that an MNCs actually performs a measure
much more similar to that used for calculating GDP-
their economic clout, while remaining significant, drops
off considerable. For a discussion of this measurementissue, see Wolf (2004: 221223).
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David Antony Detomasi
School of Business,
Queens University,
Kingston, ON,
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334 David Antony Detomasi
Recommended