The Multinational Corporation and Global Governance Modelling Public Policy Networks

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


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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

322 David Antony Detomasi


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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

Multinational Corporation and Global Governance 323


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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


Technical Capacity Legitimacy

Economic Resources Experience/Knowledge

Internal Control Collective ActionMechanisms

Motivation

National Governments


Legitimacy

Enforcement capacity Corruption or

Domestic Institutional capture of officials

Capacity

Activist and Civil-Society Groups


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.



10/14

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



11/14

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



12/14

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



13/14

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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The Multinational Corporation and Global Governance Modelling Public Policy Networks