Comment: MSIs as regulatory institutions for global business conduct: friend or foe?

This article was written by Dr. Kristin Huber who supported twentyfifty as a researcher from September to December 2017 as part of the Mercator Fellowship for International Affairs. Kristin’s areas of expertise are labour rights in global supply chains, multi-stakeholder governance for sustainable development, business ethics and strategic management. She previously worked as a research assistant at the chair of business ethics and management at the University of Hamburg (Germany) and can be contacted at kristin.huber@mercator-fellows.org 

Over the past two decades, multi-stakeholder initiatives (MSIs) have become a central governance mechanism in the global economy. MSIs can be defined as institutions that bring multinational corporations (MNCs) together with stakeholders from different spheres of society, such as civil society, academia and government to collectively address and regulate social and environmental issues along global supply chains. MSIs usually arise in settings in which national governments are either unable or unwilling to address the social and environmental externalities of global business activities (so called governance voids). Against this background MSIs represent one attempt to overcome collective action dilemmas by bringing civil society organizations and affected stakeholders into dialogue with businesses to self-regulate prevailing issues.

MSIs on the rise

Recent research by the Duke Human Rights Center suggests that MSIs, though not always very visible, have profound global reach. The Duke researchers found that “MSIs operate in over 170 countries on six continents, setting standards for over 9,000 companies with combined annual revenues of over $5.4 trillion”[1]. Examples of such self-regulatory initiatives include the Forest Stewardship Council (FSC), which issues a certification standard for sustainable forestry management, the Extractive Industries Transparency Initiative (EITI), which promotes sustainable resource management in the oil, gas and mineral sector or the Accord on Fire and Building Safety in Bangladesh, which aims to promote health and safety standards in the Bangladeshi garment industry.

Debate on legitimacy and effectiveness of MSIs

The rise of MSIs however raises important questions around the democratic legitimacy and effectiveness of this private form of transnational business governance. Within literature on corporate social responsibility (CSR) and transnational governance an intense debate has sparked around the question of what can and should be expected of MSIs. Here two polar views have emerged. One, optimistic camp suggests that MSIs serve to democratically embed corporations through interaction with civil society and affected stakeholders and facilitate a deeper engagement of corporations with their social responsibilities. According to critics, the participation of corporations in MSIs is neither benign nor democratic but rather driven by the strategic interests of corporations to undermine more progressive change.

Moving beyond the schism

The ongoing controversy on MSIs sparked my interest to understand better the conditions under which MSIs can be expected to contribute to social development at the local level as well as how corporations actually behave and understand their role when participating in MSIs. These questions formed part of my PhD research in the field of business ethics.

Investigating the case of the textile industry in Bangladesh, I find that whether MSIs can be expected to contribute to social development at the local level, critically depends on how inclusively they are set up (input dimension) as well as how the rules and standards issued by an MSI are applied and enforced (output dimension). Involving rights holders, such as garment workers, either themselves or through their representatives, in the steering of an initiative can serve both as a means, and as an end in itself for social development. It serves as an end in itself, since giving rights holders the chance to participate in political processes that govern and affect their lives can be perceived as an integral dimension of development. Beyond that, it serves as a means to the end of social development, since by including rights holders in the steering of an initiative and by providing them with effective grievance mechanisms they will be able to oversee that agreed standards are also enforced.

I also investigated how corporations actually behave within MSIs, using the Bangladesh Accord as a case study. Based on interviews with experts and participating companies in the Accord, my findings suggest that corporations participating in MSIs develop very different stances and understandings of their role as governance actors in the global economy. While some participating companies developed an increased commitment to reducing the negative human rights impacts, others developed a defensive posture, focusing on trying to avoid what they perceived as excessive demands. These findings highlight that for MSIs keeping all participants constructively engaged represents not only a big challenge but is also critical in determining what outcomes can realistically be expected of MSIs.

MSIs only as good as those participating in them

Overall, my research demonstrates that while MSIs today represent important institutions for business governance in global supply chains, they are no panaceas. Whether and to what extent MSIs can contribute to solving supply chain issues critically depends on both how they are set-up and managed internally, but also how much effort and resources participants are willing to bring to the table.

For companies, my research implies two things in particular:

  1. When faced with a decision of which initiative (of the many) to join, they are advised to take a close look and compare initiatives based on both input (e.g. inclusiveness, procedural fairness, transparency) and output (e.g. coverage, enforcement) criteria[2].
  2. As MSIs are only as good as the quality of the participation in them, I would like to end with a call to action for companies: taking human rights due diligence seriously requires pro-active engagement in MSIs. Only then can they realise their potential to collectively address issues that surpass the capacities of individual firms.

For further reading:

Dirk Ulrich Gilbert & Kristin Huber (2017). Labour Rights in Global Supply Chains. In Morsing, Mette, Rasche, Andreas and Moon, Jeremy (Eds.), Corporate Social Responsibility: Strategy, Communication, Governance (pp. 451-472). Cambridge, UK: Cambridge University Press.

Huber, Kristin & Gilbert, Dirk Ulrich (2015). Political CSR and social development: Lessons from the Bangladesh garment industry. In Jamali, Dima, Karam, Charlotte and Blowfield, Michael (Eds.), Development Oriented Corporate Social Responsibility, Volume 1, Multinational Corporations and the Global Context (pp. 228 -246). Sheffield, UK: Greanleaf.

  

[1] http://www.msi-integrity.org/the-new-regulators-new-report-on-the-global-landscape-of-standard-setting-msis/

[2] For further discussion of these criteria please refer to: Mena, S., & Palazzo, G. 2012. Input and Output Legitimacy of Multi-Stakeholder Initiatives. Business Ethics Quarterly, 22(3): 527–556.